-----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, NTPxx74gQd4Mtm3ILo2LYsPZnpVP55D6fuB7aPwhfv7gyrElHjGg7Mk3m3BWYOjj P0VgbHbTqdEKVJ0USGrJOw== 0000828916-04-000089.txt : 20040806 0000828916-04-000089.hdr.sgml : 20040806 20040806164340 ACCESSION NUMBER: 0000828916-04-000089 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040806 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: 04958565 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 wri2q2004_10q.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 June 30, 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 July 30, 2004, there were 85,607,610 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 Six Months Ended June 30, June 30, ---------------------- ---------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Revenues: Rentals . . . . . . . . . . . . . . . . . . . . . . . $ 122,224 $ 99,826 $ 237,411 $ 195,411 Interest income . . . . . . . . . . . . . . . . . . . 383 551 659 797 Other . . . . . . . . . . . . . . . . . . . . . . . . 1,145 1,617 2,713 2,632 ---------- ---------- ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . 123,752 101,994 240,783 198,840 ---------- ---------- ---------- ---------- Expenses: Depreciation and amortization . . . . . . . . . . . . 29,215 22,312 55,707 43,195 Interest. . . . . . . . . . . . . . . . . . . . . . . 28,140 21,036 55,873 40,475 Operating . . . . . . . . . . . . . . . . . . . . . . 18,886 16,073 35,994 30,033 Ad valorem taxes. . . . . . . . . . . . . . . . . . . 14,697 11,312 29,112 22,614 General and administrative. . . . . . . . . . . . . . 3,936 3,414 7,962 6,471 Loss on early redemption of preferred shares. . . . . 3,566 3,566 ---------- ---------- ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . 98,440 74,147 188,214 142,788 ---------- ---------- ---------- ---------- Operating Income. . . . . . . . . . . . . . . . . . . . 25,312 27,847 52,569 56,052 Equity in Earnings of Joint Ventures. . . . . . . . . . 1,651 998 2,937 2,036 Income Allocated to Minority Interests. . . . . . . . . (975) (837) (1,854) (1,732) Impairment Loss on Land Held for Development. . . . . . (2,700) (2,700) Gain (Loss) on Sale of Properties . . . . . . . . . . . 102 (17) 419 (8) ---------- ---------- ---------- ---------- Income Before Discontinued Operations . . . . . . . . . 23,390 27,991 51,371 56,348 ---------- ---------- ---------- ---------- Operating Income from Discontinued Operations . . . . . 362 585 790 1,248 Gain (Loss) on Sale of Properties . . . . . . . . . . . 13,430 (108) 13,430 763 ---------- ---------- ---------- ---------- Income From Discontinued Operations. . . . . . . 13,792 477 14,220 2,011 ---------- ---------- ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . . . 37,182 28,468 65,591 58,359 Dividends on Preferred Shares . . . . . . . . . . . . . 1,265 4,920 2,531 9,842 Original Issuance Cost Associated with Series A Preferred Shares. . . . . . . . . . . . . . . . . . . 2,488 2,488 ---------- ---------- ---------- ---------- Net Income Available to Common Shareholders . . . . . . $ 35,917 $ 21,060 $ 63,060 $ 46,029 ========== ========== ========== ========== Net Income Per Common Share - Basic: Income Before Discontinued Operations . . . . . . . . $ .26 $ .26 $ .58 $ .56 Income From Discontinued Operations . . . . . . . . . .16 .01 .17 .03 ---------- ---------- ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . . $ .42 $ .27 $ .75 $ .59 ========== ========== ========== ========== Net Income Per Common Share - Diluted: Income Before Discontinued Operations . . . . . . . . $ .26 $ .26 $ .58 $ .56 Income From Discontinued Operations . . . . . . . . . .16 .01 .16 .03 ---------- ---------- ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . . $ .42 $ .27 $ .74 $ .59 ========== ========== ========== ========== Net Income. . . . . . . . . . . . . . . . . . . . . . . $ 37,182 $ 28,468 $ 65,591 $ 58,359 ---------- ---------- ---------- ---------- Other Comprehensive Income (Loss): Unrealized derivative gain on interest rate swaps . . 2,389 590 939 1,119 Amortization of forward-starting interest rate swaps. 87 (40) 65 (80) Unrealized derivative loss on forward-starting interest rate swaps . . . . . . . . . . . . . . . . (720) (4,977) ---------- ---------- ---------- ---------- Other Comprehensive Income (Loss) . . . . . . . . . . . 1,756 550 (3,973) 1,039 ---------- ---------- ---------- ---------- Comprehensive Income. . . . . . . . . . . . . . . . . . $ 38,938 $ 29,018 $ 61,618 $ 59,398 ========== ========== ========== ==========
See Notes to Consolidated Financial Statements. 2
WEINGARTEN REALTY INVESTORS CONSOLIDATED BALANCE SHEETS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) June 30, December 31, 2004 2003 ------------ ------------ ASSETS Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,608,809 $ 3,200,091 Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . (573,048) (527,375) ------------ ------------ Property - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,035,761 2,672,716 Investment in Real Estate Joint Ventures. . . . . . . . . . . . . . . . . 48,939 35,085 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,084,700 2,707,801 Notes Receivable from Real Estate Joint Ventures and Partnerships . . . . 44,892 36,825 Unamortized Debt and Lease Costs. . . . . . . . . . . . . . . . . . . . . 82,935 70,895 Accrued Rent and Accounts Receivable (net of allowance for doubtful accounts of $4,228 in 2004 and $4,066 in 2003). . . . . . . . . . . . . 38,571 40,325 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . 42,700 20,255 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,228 46,993 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . $ 3,348,026 $ 2,923,094 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,202,048 $ 1,810,706 Preferred Shares Subject to Mandatory Redemption, net . . . . . . . . . . 109,364 Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . . . 82,278 78,986 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,058 52,671 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,363,384 2,051,727 ------------ ------------ Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,479 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: 85,608 in 2004 and 81,889 in 2003 . . . . . . . . . . . . . . . . . 2,563 2,488 Capital Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,111,113 993,570 Accumulated Dividends in Excess of Net Income . . . . . . . . . . . . . (182,279) (174,234) Accumulated Other Comprehensive Loss. . . . . . . . . . . . . . . . . . (4,324) (351) ------------ ------------ Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . 927,163 821,563 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . $ 3,348,026 $ 2,923,094 ============ ============
See Notes to Consolidated Financial Statements. 3
WEINGARTEN REALTY INVESTORS STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (AMOUNTS IN THOUSANDS) Six Months Ended June 30, -------------------------- 2004 2003 ----------- ----------- Cash Flows from Operating Activities: Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 65,591 $ 58,359 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . 56,045 43,859 Loss on early redemption of preferred shares. . . . . 3,566 Equity in earnings of joint ventures. . . . . . . . . (2,937) (2,036) Income allocated to minority interests. . . . . . . . 1,854 1,732 Impairment loss on land held for development. . . . . 2,700 Gain on sale of properties. . . . . . . . . . . . . . (13,849) (755) Changes in accrued rent and accounts receivable . . . 1,478 4,401 Changes in other assets . . . . . . . . . . . . . . . (23,014) (14,871) Changes in accounts payable and accrued expenses. . . 754 (9,970) Other, net. . . . . . . . . . . . . . . . . . . . . . 569 352 ----------- ----------- Net cash provided by operating activities . . . 92,757 81,071 ----------- ----------- Cash Flows from Investing Activities: Investment in properties. . . . . . . . . . . . . . . . . . (292,987) (146,718) Notes receivable: Advances. . . . . . . . . . . . . . . . . . . . . . . (10,365) (9,930) Collections . . . . . . . . . . . . . . . . . . . . . 2,238 255 Proceeds from sales and disposition of property . . . . . . 26,937 5,499 Real estate joint ventures and partnerships: Investments . . . . . . . . . . . . . . . . . . . . . (22,741) (386) Distributions . . . . . . . . . . . . . . . . . . . . 2,170 2,242 ----------- ----------- Net cash used in investing activities . . . . . (294,748) (149,038) ----------- ----------- Cash Flows from Financing Activities: Proceeds from issuance of: Debt. . . . . . . . . . . . . . . . . . . . . . . . . 403,070 199,485 Common shares of beneficial interest. . . . . . . . . 119,351 1,849 Preferred shares of beneficial interest . . . . . . . 72,691 Redemption of preferred shares of beneficial interest (112,940) (75,000) Principal payments of debt. . . . . . . . . . . . . . . . . (111,476) (63,387) Common and preferred dividends paid . . . . . . . . . . . . (73,636) (70,825) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . 67 (89) ----------- ----------- Net cash provided by financing activities . . . 224,436 64,724 ----------- ----------- Net increase (decrease) in cash and cash equivalents. . . . . . 22,445 (3,243) Cash and cash equivalents at January 1. . . . . . . . . . . . . 20,255 27,420 ----------- ----------- Cash and cash equivalents at June 30. . . . . . . . . . . . . . $ 42,700 $ 24,177 =========== ===========
See Notes to Consolidated Financial Statements. 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. 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 Six Months Ended June 30, June 30, --------------------- --------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Net income available to common shareholders. . . . . . . . $ 35,917 $ 21,060 $ 63,060 $ 46,029 Stock-based employee compensation included in net income available to common shareholders. . . . . . . 46 5 93 5 Stock-based employee compensation determined under the fair value-based method for all awards . . . . (140) (106) (280) (207) --------- --------- --------- --------- Pro forma net income available to common shareholders. . . . . . . . . . . . . . . . . . . $ 35,823 $ 20,959 $ 62,873 $ 45,827 ========= ========= ========= ========= Net income per common share: Basic - as reported. . . . . . . . . . . . . . . . . $ .42 $ .27 $ .75 $ .59 ========= ========= ========= ========= Basic - pro forma. . . . . . . . . . . . . . . . . . $ .42 $ .27 $ .75 $ .59 ========= ========= ========= ========= Net income per common share: Diluted - as reported. . . . . . . . . . . . . . . . $ .42 $ .27 $ .74 $ .59 ========= ========= ========= ========= Diluted - pro forma. . . . . . . . . . . . . . . . . $ .41 $ .27 $ .74 $ .59 ========= ========= ========= =========
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 declared in February 2004 and 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 Six Months Ended June 30, June 30, --------------------- --------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Numerator: Net income available to common shareholders - basic. . . . $ 35,917 $ 21,060 $ 63,060 $ 46,029 Income attributable to operating partnership units . . . . 866 760 1,691 1,592 --------- --------- --------- --------- Net income available to common shareholders - diluted. . . $ 36,783 $ 21,820 $ 64,751 $ 47,621 ========= ========= ========= ========= Denominator: Weighted average shares outstanding - basic. . . . . . . . 85,598 78,193 84,371 78,165 Effect of dilutive securities: Share options and awards . . . . . . . . . . . . . . 787 771 869 680 Operating partnership units. . . . . . . . . . . . . 2,242 2,093 2,211 2,193 --------- --------- --------- --------- Weighted average shares outstanding - diluted. . . . . . . 88,627 81,057 87,451 81,038 ========= ========= ========= =========
Options to purchase 491,120 and 750 common shares for the second quarter ended June 30, 2004 and 2003, respectively, 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 six months ended June 30, 2004 calculation of net 6 income per common share - diluted, while 1,350 common shares were excluded from the six months ended June 30, 2003 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 2004, two retail projects located in Webster and Kingwood, Texas were sold. In 2003, we sold five retail projects located in San Antonio (1), McKinney (1), Nacogdoches (1) and Houston (2), Texas. Also in 2003, 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." Included in the Consolidated Balance Sheet at December 31, 2003 is $19.5 million of Property and $7.0 million of Accumulated Depreciation associated with the two retail projects located in Texas, which were sold in 2004. The discontinued operations reported in 2004 and 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. 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 June 30, 2004, we have ten interest rate swap contracts with an aggregate notional amount of $132.5 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 June 2004, two interest rate swaps designated as cash flow hedges and two interest rate swaps designated as fair value hedges expired. The derivative instruments designated as fair value hedges on June 30, 2004 were reported at their fair values as Other Assets, net of accrued interest, of $2.9 million and as Other Liabilities, net of accrued interest, of $3.8 million. 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 that were ultimately sold in February 2004. Concurrent with the sale of these 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 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 7 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. In the second quarter of 2004, the remaining two forward-starting interest rate swaps with an aggregate notional amount of $97 million were settled concurrent with the issuance of an additional $100 million of notes 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. As of June 30, 2004, the balance in accumulated other comprehensive loss relating to the derivatives was $3.7 million. Within the next twelve months, we expect to reclassify to earnings as interest expense approximately $0.3 million of that balance. 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):
June 30, December 31, 2004 2003 ------------ ------------- Fixed-rate debt payable to 2030 at 4.5% to 8.9%. . . . . . . . . $ 1,969,957 $ 1,510,294 Unsecured notes payable under revolving credit agreements . . . 190,820 259,050 Obligations under capital leases . . . . . . . . . . . . . . . . 33,458 33,458 Industrial revenue bonds payable to 2015 at 1.1% to 3.2% . . . . 7,813 7,904 ------------ ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,202,048 $ 1,810,706 ============ =============
As of June 30, 2004, we had a $400 million unsecured revolving credit facility that matures in November 2006, of which $175.0 million was outstanding. At June 30, 2004, the variable interest rate of the $400 million revolving credit facility was 1.5%. At June 30, 2004, we had $15.8 million outstanding under a $20 million revolving credit agreement at a variable interest rate of 1.6%. For the three months ended June 30, 2004, we issued an additional $175 million of unsecured fixed-rate medium term notes with a weighted average life of 8.6 years at a weighted average interest rate of 5.3%, 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. 8 Our debt can be summarized as follows (in thousands):
June 30, December 31, 2004 2003 ------------ ----------- As to interest rate (including the effects of interest rate swaps): Fixed-rate debt . . . . . . . . . . . $ 1,853,878 $ 1,458,792 Variable-rate debt. . . . . . . . . . 348,170 351,914 ------------ ------------ Total . . . . . . . . . . . . . . $ 2,202,048 $ 1,810,706 ============ ============ As to collateralization: Unsecured debt. . . . . . . . . . . . $ 1,507,611 $ 1,216,998 Secured debt. . . . . . . . . . . . . 694,437 593,708 ------------ ------------ Total . . . . . . . . . . . . . . $ 2,202,048 $ 1,810,706 ============ ============
Various debt agreements contain restrictive covenants, the most restrictive of which requires us to maintain a pool of qualifying assets, as defined, of not less than 160% of unsecured debt. Other restrictions include a minimum interest coverage ratio of 2.25, a minimum fixed charge coverage ratio of 1.75, a minimum net worth requirement, and both secured and total debt to total asset value ratio limited to 30% and 55%, respectively. Management believes that we are in compliance with all restrictive covenants. 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 fell within the scope of SFAS No. 150, since they were mandatorily redeemable and redemption was through transfer of cash or a variable number of our common shares. These shares were redeemed on April 1, 2004. Preferred Shares Subject to Mandatory Redemption reported at December 31, 2003 of $109.4 million represents the redemption value, net of unamortized issuance costs totaling $3.6 million, of the 7.0% Series C Cumulative Redeemable Preferred Shares. These shares were redeemed on April 1, 2004 resulting in the recognition of $3.6 million of unamortized issuance costs as a loss on early redemption of preferred shares in arriving at Operating Income. 9 9. PROPERTY Our property consists of the following (in thousands):
June 30, December 31, 2004 2003 ------------ -------------- Land. . . . . . . . . . . . . . . . $ 677,193 $ 603,972 Land held for development . . . . . 19,563 21,112 Land under development. . . . . . . 24,989 22,459 Buildings and improvements. . . . . 2,806,130 2,483,414 Construction in-progress. . . . . . 80,933 69,134 ------------ -------------- Total . . . . . . . . . $ 3,608,808 $ 3,200,091 ============ ==============
Interest and ad valorem taxes capitalized to land under development or buildings under construction was $1.6 million and $1.8 million for the quarters ended June 30, 2004 and 2003, respectively, and $3.2 million and $3.9 million for the six months ended June 30, 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 June 30, 2004, deferred charges of $7.6 million for above-market leases are included in Other Assets, deferred credits of $7.2 million for below-market leases and $29.6 million for out-of-market assumed mortgages are included in Other Liabilities and deferred charges of $22.6 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. During the first six months of 2004, we invested a total of $365.5 million in the acquisition of consolidated operating properties. Of this, $363.4 million was invested in ten shopping centers as well as the purchase of our partners' interest in four of our existing centers, and $2.1 million was invested in one industrial project. An additional $24.5 million was invested in four shopping centers, each through a new 50%-owned unconsolidated joint venture as discussed in Note 10. With respect to new development, we have ten shopping centers in various stages of development in Arizona, 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. Two projects in Texas and one in Colorado were completed as of June 30, 2004. In the second quarter of 2004, an impairment loss of $2.7 million was recognized on a parcel of land held for development located in Houston, Texas. During the second quarter of 2004, we determined that it was probable that we would sell a portion of this land to a third party. Accordingly, we revised the estimated holding period for this asset as well as the estimates of future cash flows to be generated from the property, resulting in the impairment loss. 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 unaudited financial information of these ventures (at 100%) is summarized as follows (in thousands):
June 30, December 31, 2004 2003 ---------- ------------ Combined Balance Sheets Property. . . . . . . . . . . . $ 223,362 $ 229,285 Accumulated depreciation. . . . (22,288) (26,845) ---------- ------------ Property - net. . . . . . . 201,074 202,440 Other assets. . . . . . . . . . 14,359 15,088 ---------- ------------ Total . . . . . . . $ 215,433 $ 217,528 =========== ============ Debt. . . . . . . . . . . . . . $ 66,258 $ 92,839 Amounts payable to WRI. . . . . 40,388 35,062 Other liabilities . . . . . . . 5,266 4,729 Accumulated equity. . . . . . . 103,521 84,898 ---------- ------------ Total . . . . . . . $ 215,433 $ 217,528 =========== ============
Combined Statements of Income Three Months Ended Six Months Ended June 30, June 30, ------------------- --------------------- 2004 2003 2004 2003 -------- -------- -------- --------- Revenues. . . . . . . . . . . . . . $ 8,039 $ 5,815 $ 15,705 $ 11,957 -------- -------- -------- --------- Expenses: Depreciation and amortization . . 1,592 1,152 3,151 2,210 Operating . . . . . . . . . . . . 1,029 861 2,146 1,639 Interest. . . . . . . . . . . . . 1,456 1,486 3,455 3,004 Ad valorem taxes. . . . . . . . . 942 799 1,934 1,581 General and administrative. . . . 43 18 107 56 -------- -------- -------- --------- Total . . . . . . . . . 5,062 4,316 10,793 8,490 -------- -------- -------- --------- Net Income. . . . . . . . . . . . . $ 2,977 $ 1,499 $ 4,912 $ 3,467 ======== ======== ========= =========
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 $5.0 million and $4.8 million at June 30, 2004 and December 31, 2003, respectively, is depreciated over the useful lives of the related assets. 11 Fees earned by us for the management of these joint ventures totaled $.1 million for the quarters ended June 30, 2004 and 2003, respectively, and $.3 million for the six months ended June 30, 2004 and 2003, respectively. In April 2004, we acquired our joint venture partners' interest in four of our existing shopping centers, of which three are located in Texas and one in New Mexico. Also, in April 2004, three 50%-owned unconsolidated joint ventures acquired an interest in three retail properties located in McAllen, Texas. Las Tiendas Plaza, a 499,900 square foot center, is anchored by Target and Mervyn's (both corporately-owned), as well as Ross Dress for Less, Marshall's and Office Depot. Northcross is a 76,500 square foot center and is anchored by Barnes & Noble and Blockbuster. The third property is HEB South 10th Street, which is anchored by an HEB supermarket. In June 2004, a 50%-owned unconsolidated joint venture acquired an interest in a retail property located in Fenton, Missouri. Western Plaza is a 56,000 square foot center, which is anchored by Big Lots. 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. 12 Information concerning our reportable segments is as follows (in thousands):
SHOPPING CENTER INDUSTRIAL OTHER TOTAL ------------ ---------- --------- ------------ Three Months Ended June 30, 2004: Revenues . . . . . . . . . . . . . . . . . . . $ 111,772 $ 11,675 $ 305 $ 123,752 Net operating income . . . . . . . . . . . . . 81,978 8,185 6 90,169 Equity in earnings of joint ventures . . . . . 1,764 69 (182) 1,651 Investment in real estate joint ventures . . . 47,901 581 457 48,939 Total assets . . . . . . . . . . . . . . . . . 2,772,805 296,030 279,191 3,348,026 Three Months Ended June 30, 2003: Revenues . . . . . . . . . . . . . . . . . . . $ 91,601 $ 9,909 $ 484 $ 101,994 Net operating income . . . . . . . . . . . . . 67,163 7,271 175 74,609 Equity in earnings of joint ventures . . . . . 1,003 13 (18) 998 Investment in real estate joint ventures . . . 28,260 200 28,460 Total assets . . . . . . . . . . . . . . . . . 2,163,861 235,838 176,100 2,575,799 Six Months Ended June 30, 2004: Revenues . . . . . . . . . . . . . . . . . . . $ 216,518 $ 23,266 $ 999 $ 240,783 Net operating income . . . . . . . . . . . . . 158,830 16,433 414 175,677 Equity in earnings of joint ventures . . . . . 3,006 104 (173) 2,937 Six Months Ended June 30, 2003: Revenues . . . . . . . . . . . . . . . . . . . $ 178,245 $ 19,619 $ 976 $ 198,840 Net operating income . . . . . . . . . . . . . 131,712 14,158 323 146,193 Equity in earnings of joint ventures . . . . . 1,980 105 (49) 2,036
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 Six Months Ended June 30, June 30, --------------------- ------------------------ 2004 2003 2004 2003 --------- --------- ---------- ----------- Total segment net operating income. . . . . . . . . . . $ 90,169 $ 74,609 $ 175,677 $ 146,193 Less: Depreciation and amortization. . . . . . . . . . . 29,215 22,312 55,707 43,195 Interest . . . . . . . . . . . . . . . . . . . . . 28,140 21,036 55,873 40,475 General and administrative . . . . . . . . . . . . 3,936 3,414 7,962 6,471 Loss on early redemption of preferred shares . . . 3,566 3,566 Income allocated to minority interests . . . . . . 975 837 1,854 1,732 Impairment loss on land held for development . . . 2,700 2,700 Equity in earnings of joint ventures . . . . . . . (1,651) (998) (2,937) (2,036) Gain (loss) on sale of properties. . . . . . . . . (102) 17 (419) 8 --------- --------- ---------- ----------- Income Before Discontinued Operations . . . . . . . . . $ 23,390 $ 27,991 $ 51,371 $ 56,348 ========= ========= ========== ===========
13 12. COMMON SHARES OF BENEFICIAL INTEREST In February 2004, a three-for-two share split, 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. 13. PREFERRED SHARES In May 2003, we redeemed $75 million of 7.44% Series A Cumulative Redeemable Preferred Shares. The redemption 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. On July 8, 2004, we issued $72.5 million of depositary shares. Each depositary share represents one-hundredth of a Series E Cumulative Redeemable Preferred Share. The depositary shares are redeemable, in whole or in part, for cash at our election on or after July 8, 2009, 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 E preferred shares pay a 6.95% annual dividend and have a liquidation value of $2,500 per share. Net proceeds of $70.2 million were utilized to pay down amounts outstanding under our $400 million revolving credit facility. 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 Six Months Ended June 30, June 30, ------------------ ------------------ 2004 2003 2004 2003 -------- ------- ------- -------- Service cost . . . . . . . . . . . . $ 151 $ 114 $ 302 $ 162 Interest cost. . . . . . . . . . . . 259 195 518 277 Expected return on plan assets . . . (240) (181) (480) (257) Prior service cost . . . . . . . . . (38) (29) (76) (41) Recognized loss. . . . . . . . . . . 67 50 134 71 -------- ------- ------- -------- Total . . . . . . . . . . . . . $ 199 $ 149 $ 398 $ 212 ======== ======= ======= ========
We contributed $850,000 to the plan in the second quarter of 2004. We will make no additional payments in 2004. 14 15. BANKRUPTCY REMOTE PROPERTIES We had 48 properties, having a net book value of approximately $866.7 million at June 30, 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 other 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. 16. SUBSEQUENT EVENT At June 30, 2004, we had mortgage bonds and notes receivable from WRI Holdings, Inc. of $2.8 million, net of deferred gain of $3.0 million. Unimproved land collateralized these receivables. We shared certain directors and were under common management with WRI Holdings. On July 20, 2004, the shareholders of WRI Holdings adopted a Plan of Dissolution and transferred 9.7 acres of land in Conroe, Texas, WRI Holdings' only remaining asset, to us in satisfaction of its obligations under the bonds and notes. The land will be recorded at the net carrying value of the mortgage bonds and notes. The estimated fair market value of the land is in excess of this carrying value. ***** 15 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 June 30, 2004, we owned or operated under long-term leases, either directly or through our interests in joint ventures, 338 developed income-producing properties and two 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 278 shopping centers and 62 industrial properties. We have approximately 6,800 leases and 5,000 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. As of June 30, 2004, no single tenant accounted for more than 2.8% of total rental revenues. In assessing the performance of our properties, management carefully tracks the occupancy of our portfolio. Occupancy for the total portfolio was 94.2% at June 30, 2004 compared to 92.2% at June 30, 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 618 new leases or renewals in the first six months of 2004 totaling 2.6 million square feet, increasing rental rates an average of 6.2% on a same-space basis. Net of capital costs, the average increase in rental rates was 3.4%. With respect to external growth through acquisitions and new developments, management closely monitors movements in returns relative to our blended weighted average cost of capital, the amount of product in our acquisition and new development pipelines and the geographic areas where opportunities are present. We purchased ten shopping centers and one industrial project during the first half of 2004. Also, we acquired four shopping centers, each through a 50% unconsolidated joint venture, and acquired our joint venture partners' interest in four existing centers. These transactions added 2.6 million square feet to our portfolio and represent a total investment of $390.0 million. These purchases included two each in North Carolina, Florida and California, four in Texas, three in Georgia and one each in Missouri and Kentucky. Kentucky represents the 20th state in which we operate, and was a logical expansion given our geographic footprint in the southern half of the United States. Our new development activity includes two projects in Texas and one project in Colorado that were completed as of June 30, 2004 adding 92,000 square feet to our portfolio with an investment of $10.5 million. These properties are 89.6% leased. Our new development activity also includes ten shopping centers in various stages of development in Arizona, Louisiana, Nevada, Texas and Utah. We anticipate that the majority of these projects will come on-line during the remainder of 2004 and into 2005. 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 16 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. 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. In the second quarter of 2004, an additional $175 million of unsecured fixed-rate medium term notes were issued with a weighted average life of 8.6 years at a weighted average interest rate of 5.3%, net of the effect of related interest rate swaps. On July 8, 2004, we issued $72.5 million of depositary shares. Each depositary share represents one-hundredth of a Series E Cumulative Redeemable Preferred Share. The depositary shares are redeemable, in whole or in part, for cash at our election on or after July 8, 2009, 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 E preferred shares pay a 6.95% annual dividend and have a liquidation value of $2,500 per share. Net proceeds of $70.2 million were utilized to pay down amounts outstanding under our $400 million revolving credit facility. 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. 17 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. In the second quarter of 2004, we recognized a $2.7 impairment charge on a parcel of land held for development located in Houston, Texas. RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2004 TO THE THREE MONTHS ENDED JUNE 30, 2003 Revenues Total revenues increased by $21.8 million or 21.4% in 2004 ($123.8 million in 2004 versus $102.0 million in 2003). This increase resulted primarily from the increase in rental revenues of $22.4 million. Property acquisitions and new development activity contributed $20.4 million of the rental income increase with the remainder of $2.0 million due to the activity at our existing properties, based on factors described below. Occupancy (leased space) of the total portfolio increased as compared to the prior year as follows:
JUNE 30, ---------------- 2004 2003 ------ ------ Shopping Centers . . . 94.7% 92.6% Industrial . . . . . . 92.7% 91.0% Total. . . . . . . . . 94.2% 92.2%
In the second quarter of 2004, we completed 354 renewals and new leases comprising 1.6 million square feet at an average rental rate increase of 4.7%. Net of the amortized portion of capital costs for tenant improvements, the increase averaged 1.4%. Expenses Total expenses increased by $24.3 million or 32.8% in 2004 ($98.4 million in 2004 versus $74.1 million in 2003). The increases in 2004 for depreciation and amortization expense ($6.9 million), operating expenses ($2.8 million) and ad valorem taxes ($3.4 million) are primarily a result of growth in the portfolio due to properties acquired and developed. Overall, direct operating costs and expenses (operating and ad valorem tax expense) of operating our properties as a percentage of rental revenues were 27% in both 2004 and 2003. Interest expense as reported represents primarily the gross interest expense on our indebtedness less interest that is capitalized for properties under development and over-market interest adjustments on mortgages assumed through acquisitions. Interest expense as reported in 2004 increased by $7.1 million, which is due primarily to an increase in gross interest expense offset by a higher benefit from over-market interest adjustments. Gross interest expense increased by $8.2 million in 2004 due to an increase in the average debt outstanding from $1.4 billion in 2003 to $2.1 billion in 2004. This was offset by a decrease in the weighted-average interest rate between the two periods from 6.3% in 2003 to 5.9% in 2004. The interest benefit from our over-market mortgage adjustment increased from zero in 2003 to $1.2 million in 2004. 18 General and administrative expenses increased by $.5 million or 14.7% in 2004 ($3.9 million in 2004 versus $3.4 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 both 2004 and 2003. Loss on early redemption of preferred shares of $3.6 million represents the unamortized original issuance costs related to the Series C Cumulative Redeemable Preferred Shares redeemed in April 2004. Other Equity in earnings of joint ventures increased by $.7 million or 70.0% ($1.7 million in 2004 versus $1.0 million in 2003). This increase is due primarily to the acquisition of four retail properties, each through a 50%-owned unconsolidated joint venture. Impairment loss on land held for development represents the $2.7 million charge related to a parcel of land held for development in Houston, Texas. During the second quarter of 2004, we determined that it was probable that we would sell a portion of this land to a third party. Accordingly, we revised the estimated holding period for this asset as well as the estimates of future cash flows to be generated from the property, resulting in the impairment loss. Income from discontinued operations increased $13.3 million in 2004 ($13.8 million in 2004 versus $.5 million in 2003). Included in this caption for 2004 are the operating results and gain from disposition of two retail properties totaling 271,000 square feet of gross leasable area. Included in this caption for 2003 are the operating results of properties disposed in 2004 and 2003 as well as any gain or loss on dispositions during the three months ended June 30, 2003. RESULTS OF OPERATIONS COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2004 TO THE SIX MONTHS ENDED JUNE 30, 2003 Revenues Total revenues increased by $42.0 million or 21.1% in 2004 ($240.8 million in 2004 versus $198.8 million in 2003). This increase resulted primarily from the increase in rental revenues of $42.0 million. Property acquisitions and new development activity contributed $38.1 million of the rental income increase with the remainder of $3.9 million due to the activity at our existing properties, based on factors described below. Occupancy (leased space) of the total portfolio increased as compared to the prior year as follows:
JUNE 30, ---------------- 2004 2003 ------ ------ Shopping Centers . . . 94.7% 92.6% Industrial . . . . . . 92.7% 91.0% Total. . . . . . . . . 94.2% 92.2%
In 2004, we completed 618 renewals and new leases comprising 2.6 million square feet at an average rental rate increase of 6.2%. Net of the amortized portion of capital costs for tenant improvements, the increase averaged 3.4%. Expenses Total expenses increased by $45.4 million or 31.8% in 2004 ($188.2 million in 2004 versus $142.8 million in 2003). The increases in 2004 for depreciation and amortization expense ($12.5 million), operating expenses ($6.0 million) and ad valorem taxes ($6.5 million) are primarily a result of growth in the portfolio due to properties acquired and developed. Overall, direct operating costs and expenses (operating and ad valorem tax expense) of operating our properties as a percentage of rental revenues were 27% in both 2004 and 2003. 19 Interest expense as reported represents primarily the gross interest expense on our indebtedness and the interest associated with our preferred shares less interest that is capitalized for properties under development and over-market interest adjustments on mortgages assumed through acquisitions. Interest expense as reported in 2004 increased by $15.4 million due primarily to an increase in gross interest expense on our indebtedness and the interest associated with our mandatorily redeemable preferred shares, offset by a higher benefit from over-market interest adjustments. Gross interest expense increased by $15.1 million in 2004 due to an increase in the average debt outstanding from $1.4 billion in 2003 to $2.0 billion in 2004. This was offset by a decrease in the weighted-average interest rate between the two periods from 6.3% in 2003 to 6.0% in 2004. As a result of the adoption of SFAS No. 150, dividends paid or accrued on our Series C Preferred Shares are reported as interest expense, causing interest expense to increase by $2.0 million. The interest benefit from our over-market mortgage adjustment increased from zero in 2003 to $2.3 million in 2004. General and administrative expenses increased by $1.5 million or 23.1% in 2004 ($8.0 million in 2004 versus $6.5 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 both 2004 and 2003. Loss on early redemption of preferred shares of $3.6 million represents the unamortized original issuance costs related to the Series C Cumulative Redeemable Preferred Shares redeemed in April 2004. Other Equity in earnings of joint ventures increased by $.9 million or 45.0% ($2.9 million in 2004 versus $2.0 million in 2003). This increase is due primarily to the acquisition of four retail properties, each through a 50%-owned unconsolidated joint venture. Impairment loss on land held for development represents the $2.7 million charge related to a parcel of land held for development in Houston, Texas. During the second quarter of 2004, we determined that it was probable that we would sell a portion of this land to a third party. Accordingly, we revised the estimated holding period for this asset as well as the estimates of future cash flows to be generated from the property, resulting in the impairment loss. Income from discontinued operations increased $12.2 million in 2004 ($14.2 million in 2004 from $2.0 million in 2003). Included in this caption for 2004 are the operating results and gain from disposition of two retail properties totaling 271,000 square feet of gross leasable area. Included in this caption for 2003 are the operating results of properties disposed in 2004 and 2003 as well as any gain or loss on dispositions during the first six months of 2003. 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 together with our dividend payments, are our primary liquidity needs. 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. We generally have the right to sell or otherwise dispose of our assets except in certain cases where we are required to obtain a third party consent, such as for assets held in entities in which we have less than 100% ownership. Investing Activities - Acquisitions During the first six months of 2004, we invested $365.5 million in the acquisition of operating properties of which $363.4 million was invested in ten shopping centers as well as the purchase of our partners' interest in four of our existing centers, and $2.1 million was invested in one industrial project. We invested an additional $24.5 million in four retail properties, each through a 50%-owned unconsolidated joint venture. These combined acquisitions added 2.6 million square feet to our portfolio. In January 2004, we acquired three supermarket-anchored shopping centers. Greenhouse Marketplace located in San Leandro, California; Leesville Town Centre located in Raleigh, North Carolina and Harrison Pointe Center located in Cary, 20 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 located in Sugar Land, Texas, a suburb of Houston; T.J. Maxx Plaza located in Kendall, Florida, a suburb of Miami; Largo Mall located near St. Petersburg, Florida and Tates Creek located in Lexington, Kentucky. In April 2004, three 50%-owned unconsolidated joint ventures acquired an interest in three retail properties located in McAllen, Texas. Las Tiendas Plaza, a 499,900 square foot center, is anchored by Target and Mervyn's (both corporately-owned), as well as Ross Dress for Less, Marshall's and Office Depot. Northcross is a 76,500 square foot center and is anchored by Barnes & Noble and Blockbuster. The third property is HEB South 10th Street, which is anchored by an HEB supermarket. In April 2004, we also acquired our joint venture partners' interests in four of our existing shopping centers, of which three are located in Texas and one in New Mexico. In May 2004, we acquired an industrial project and two retail centers. Southside Industrial Parkway is a 72,000 square foot industrial center located in Atlanta, Georgia. El Camino Promenade is an 111,000 square foot shopping center that is anchored by TJ Maxx, AMC Theater and Beverages & More, and is located in Encinitas, California. Village Shoppes of Sugarloaf is a 148,000 square foot shopping center, which is located in Lawrenceville, Georgia, a suburb of Atlanta. Publix anchors this retail center. In June 2004, we acquired Roswell Corners, a 137,000 square foot shopping center, which is located in Roswell, Georgia and is anchored by Staples, TJ Maxx and Super Target (corporately-owned). In June 2004, we also acquired an interest in a retail property through a 50%-owned unconsolidated joint venture. Western Plaza is a 56,000 square foot center, which is anchored by Big Lots and located in Fenton, Missouri. Investing Activities - New Development and Capital Expenditures Our new development activity includes two projects in Texas and one project in Colorado that were completed as of June 30, 2004 adding 92,000 square feet to our portfolio with an investment of $10.5 million. These properties are 89.6% leased. We also have ten shopping centers in various stages of development in Arizona, Louisiana, Nevada, Texas and Utah. These projects, upon completion, will represent an investment of approximately $116 million and will add .8 million square feet to the portfolio. We invested $13.5 million in the first half of 2004 in these properties and expect to invest approximately $9.0 million during the remainder of 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 $2.2 billion at June 30, 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 $2.2 billion at June 30, 2004 is variable-rate debt of $348.2 million, after recognizing the net effect of $132.5 million of interest rate swaps. 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 that were ultimately sold in February 2004. Concurrent with the sale of these 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 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. In the second quarter of 2004, the remaining two forward-starting 21 interest rate swaps with an aggregate notional amount of $97 million were settled concurrent with the issuance of an additional $100 million of notes 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. 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. For the three months ended June 30, 2004, we issued an additional $175 million of unsecured fixed-rate medium term notes with a weighted average life of 8.6 years at a weighted average interest rate of 5.3%, 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 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 June 30, 2004, we have ten interest rate swap contracts with an aggregate notional amount of $132.5 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 June 2004, two interest rate swaps designated as cash flow hedges and two interest rate swaps designated as fair value hedges expired. In April 2003, the SEC declared effective our $1 billion shelf registration statement, of which $330.9 million was available as of June 30, 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 second quarter of 2004. Our dividend payout ratio on common equity for the second quarter of 2004 and 2003 was 71% and 72%, respectively, based on funds from operations for the applicable period. In February 2004, a three-for-two share split, 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. The unamortized original issuance costs of $3.6 million for these shares were reported as a loss in arriving at Operating Income. On July 8, 2004, we issued $72.5 million of depositary shares. Each depositary share represents one-hundredth of a Series E Cumulative Redeemable Preferred Share. The depositary shares are redeemable, in whole or in part, for cash at our election on or after July 8, 2009, 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 E preferred shares pay a 6.95% annual dividend and have a liquidation value of $2,500 per share. Net proceeds of $70.2 million were utilized to pay down amounts outstanding under our $400 million revolving credit facility. 22 CONTRACTUAL OBLIGATIONS The following table summarizes our principal contractual obligations as of June 30, 2004 (in thousands):
Remainder of 2004 2005 2006 2007 2008 Thereafter Total --------- -------- --------- --------- --------- ----------- ---------- Unsecured Debt: (1) Medium Term Notes. . . . . . . . . $ 7,100 $ 52,500 $ 37,000 $ 79,000 $ 36,000 $ 908,400 $1,120,000 7% 2011 Bonds. . . . . . . . . . . 200,000 200,000 Revolving Credit Facilities. . . . 15,820 175,000 190,820 Secured Debt . . . . . . . . . . . . . . 37,461 31,589 21,907 20,245 164,540 418,695 694,437 Ground Lease Payments. . . . . . . . . . 811 1,464 1,230 1,059 1,029 25,426 31,019 Obligations to Acquire/ Develop Properties . . . . . . . . . . 15,264 15,264 --------- -------- --------- --------- --------- ----------- ---------- Total Contractual Obligations. . . . . . $ 76,456 $ 85,553 $ 235,137 $ 100,304 $ 201,569 $ 1,552,521 $2,251,540 ========= ======== ========= ========= ========= =========== ========== - -------------------------------------------------------------------------------------------------------------- (1) Total unsecured debt obligations as shown above are $3.2 million more 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 June 30, 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. 23 Funds from operations is calculated as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2004 2003 2004 2003 ---------- --------- ---------- --------- Net income available to common shareholders. . . . $ 35,917 $ 21,060 $ 63,060 $ 46,029 Depreciation and amortization. . . . . . . . . . . 27,027 20,786 51,781 40,178 Depreciation and amortization of unconsolidated joint ventures. . . . . . . . . . 701 463 1,358 897 (Gain) loss on sale of properties. . . . . . . . . (13,508) 115 (13,825) (765) ---------- --------- ---------- --------- Funds from operations. . . . . . . . 50,137 42,424 102,374 86,339 Funds from operations attributable to operating partnership units. . . . . . . . . . . 1,508 1,091 2,838 2,355 ---------- --------- ---------- --------- Funds from operations assuming conversion of OP units . . . . . . $ 51,645 $ 43,515 $ 105,212 $ 88,694 ========== ========= ========== ========= Weighted average shares outstanding - basic. . . . 85,598 78,193 84,371 78,165 Effect of dilutive securities: Share options and awards . . . . . . . . . . 787 771 869 680 Operating partnership units. . . . . . . . . 2,242 2,093 2,211 2,193 ---------- --------- ---------- --------- Weighted average shares outstanding - diluted. . . . . . . . . . . . . . . . . . . . . 88,627 81,057 87,451 81,038 ========== ========= ========== =========
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 June 30, 2004, we had fixed-rate debt of $1.9 billion and variable-rate debt of $348.2 million, after adjusting for the net effect of $132.5 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 June 30, 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 June 30, 2004. 24 There has been no change to our internal control over financial reporting during the quarter ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 25 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 April 27, 2004, was filed in response to Item 7. Exhibits and Item 12. Results of Operation and Financial Condition. 26 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: August 6, 2004 27 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). 28 EX-12.1 2 wri2q200410qex12-1.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 Six Months Ended June 30, June 30, ------------------------ ------------------------- 2004 2003 2004 2003 ---------- --------- ---------- ---------- Net income available to common shareholders. . . . . . . . $ 35,917 $ 21,060 $ 63,060 $ 46,029 Add: Portion of rents representative of the interest factor . . 196 227 437 463 Interest on indebtedness . . . . . . . . . . . . . . . . . 28,140 21,036 55,873 40,475 Preferred dividends. . . . . . . . . . . . . . . . . . . . 1,265 4,920 2,531 9,842 Amortization of debt cost. . . . . . . . . . . . . . . . . 451 334 800 662 ---------- --------- ---------- ---------- Net income as adjusted . . . . . . . . . . . . . . . . $ 65,969 $ 47,577 $ 122,701 $ 97,471 ========== ========= ========== ========== Fixed charges: Interest on indebtedness . . . . . . . . . . . . . . . . . $ 28,140 $ 21,036 $ 55,873 $ 40,475 Capitalized interest . . . . . . . . . . . . . . . . . . . 1,364 1,488 2,706 3,304 Preferred dividends. . . . . . . . . . . . . . . . . . . . 1,265 4,920 2,531 9,842 Amortization of debt cost. . . . . . . . . . . . . . . . . 451 334 800 662 Portion of rents representative of the interest factor . . 196 227 437 463 ---------- --------- ---------- ---------- Fixed charges. . . . . . . . . . . . . . . . . . . . . $ 31,416 $ 28,005 $ 62,347 $ 54,746 ========== ========= ========== ========== RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS. . . . . . . . . . . . . . 2.10 1.70 1.97 1.78 ========== ========= ========== ========== Net income available to common shareholders. . . . . . . . $ 35,917 $ 21,060 $ 63,060 $ 46,029 Depreciation and amortization. . . . . . . . . . . . . . . 27,728 21,249 53,139 41,075 (Gain) loss on sale of property. . . . . . . . . . . . . . (13,508) 115 (13,825) (765) ---------- --------- ---------- ---------- Funds from operations. . . . . . . . . . . . . . . . . 50,137 42,424 102,374 86,339 Add: Portion of rents representative of the interest factor . . 196 227 437 463 Preferred dividends. . . . . . . . . . . . . . . . . . . . 1,265 4,920 2,531 9,842 Interest on indebtedness . . . . . . . . . . . . . . . . . 28,140 21,036 55,873 40,475 Amortization of debt cost. . . . . . . . . . . . . . . . . 451 334 800 662 ---------- --------- ---------- ---------- Funds from operations as adjusted. . . . . . . . . . . $ 80,189 $ 68,941 $ 162,015 $ 137,781 ========== ========= ========== ========== RATIO OF FUNDS FROM OPERATIONS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS. . . . . . . . . . . 2.55 2.46 2.60 2.52 ========== ========= ========== ==========
EX-31.1 3 wri2q200410qex31-1.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 August 6, 2004 EX-31.2 4 wri2q200410qex31-2.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 August 6, 2004 EX-32.1 5 wri2q200410qex32-1.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 June 30, 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 August 6, 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 wri2q200410qex32-2.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 June 30, 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 August 6, 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-----