UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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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
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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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 866-6000
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____________________________________________
(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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes. No.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of May 11, 2001, there were
32,348,057 common shares of beneficial interest of Weingarten Realty Investors,
$.03 par value, outstanding.
PART 1
FINANCIAL INFORMATION
This amendment on Form 10-Q/A is being filed to give effect to the restatement
of the Company's financial statements, as discussed in Note 10 thereto.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WEINGARTEN REALTY INVESTORS
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
March 31,
2001 2000
--------- ---------
(As restated, Note 10)
Revenues:
Rentals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,479 $ 57,888
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . 870 1,378
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869 433
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,218 59,699
--------- ---------
Expenses:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 15,751 12,935
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,873 10,046
Operating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,961 8,491
Ad valorem taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 8,511 7,387
General and administrative . . . . . . . . . . . . . . . . . . . . . 2,375 1,874
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,471 40,733
--------- ---------
Income Before Equity in Earnings of Joint Ventures, Minority Interest
in Income of Partnerships and Gain on Sales of Property . . . . . . 20,747 18,966
Equity in Earnings of Joint Ventures . . . . . . . . . . . . . . . . . 1,005 1,040
Minority Interest in Income of Partnerships. . . . . . . . . . . . . . (660) (555)
Gain on Sales of Property. . . . . . . . . . . . . . . . . . . . . . . 4,310
--------- ---------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,402 19,451
Dividends on Preferred Shares. . . . . . . . . . . . . . . . . . . . . 5,010 5,010
--------- ---------
Net Income Available to Common Shareholders. . . . . . . . . . . . . . $ 20,392 $ 14,441
========= =========
Net Income Per Common Share - Basic. . . . . . . . . . . . . . . . . . $ .68 $ .54
========= =========
Net Income Per Common Share - Diluted. . . . . . . . . . . . . . . . . $ .68 $ .54
========= =========
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,402 $ 19,451
--------- ---------
Other Comprehensive Loss:
Cumulative effect of change in accounting principle (SFAS 133)
on other comprehensive loss. . . . . . . . . . . . . . . . . . . . (1,877)
Unrealized derivative losses on interest rate swaps. . . . . . . . . (1,269)
--------- ---------
Other Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . (3,146)
--------- ---------
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,256 $ 19,451
========= =========
See Notes to Consolidated Financial Statements.
Page 2
WEINGARTEN REALTY INVESTORS
CONSOLIDATED BALANCE SHEETS (unaudited)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
March 31, December 31,
2001 2000
------------ ------------
(As restated, Note 10)
ASSETS
Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,797,200 $ 1,730,617
Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . (373,716) (365,344)
------------ ------------
Property - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,423,484 1,365,273
Investment in Real Estate Joint Ventures. . . . . . . . . . . . . . . . . . . . 27,852 27,871
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,451,336 1,393,144
Notes Receivable from Real Estate Joint Ventures and Partnerships . . . . . . . 40,568 38,636
Unamortized Debt and Lease Costs. . . . . . . . . . . . . . . . . . . . . . . . 36,717 36,970
Accrued Rent and Accounts Receivable (net of allowance for doubtful
accounts of $1,905 in 2001 and $1,884 in 2000). . . . . . . . . . . . . . . . 19,496 24,485
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,193 7,321
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,320 17,025
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,576,630 $ 1,517,581
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 691,339 $ 792,353
Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . . . . . . 37,198 63,884
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,244 3,891
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735,781 860,128
------------ ------------
Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,796 27,586
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 10,000
7.44% Series A cumulative redeemable preferred shares of
beneficial interest; 3,000 shares issued and outstanding;
liquidation preference $25 per share. . . . . . . . . . . . . . . . . 90 90
7.125% Series B cumulative redeemable preferred shares of
beneficial interest; 3,600 shares issued and 3,543 and 3,552 shares
outstanding in 2001 and 2000; liquidation preference $25 per share. . 106 107
7.0% Series C cumulative redeemable preferred shares of
beneficial interest; 2,300 shares issued and 2,260 and 2,266 shares
outstanding in 2001 and 2000; liquidation preference $50 per share . . 68 68
Common Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 150,000; shares issued and outstanding:
31,658 in 2001 and 26,921 in 2000 . . . . . . . . . . . . . . . . . . . . 949 807
Capital Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 947,161 758,363
Accumulated Dividends in Excess of Net Income . . . . . . . . . . . . . . . . (134,175) (129,568)
Accumulated Other Comprehensive Loss. . . . . . . . . . . . . . . . . . . . . (3,146)
------------ ------------
Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 811,053 629,867
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,576,630 $ 1,517,581
============ ============
See Notes to Consolidated Financial Statements.
Page 3
WEINGARTEN REALTY INVESTORS
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Three Months Ended
March 31,
2001 2000
---------- ----------
(As restated, Note 10)
Cash Flows from Operating Activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,402 $ 19,451
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 15,751 12,935
Minority interest in income of partnerships . . . . . . . . 660 555
Equity in earnings of joint ventures. . . . . . . . . . . . (1,005) (1,040)
Gain on sales of property . . . . . . . . . . . . . . . . . (4,310)
Changes in accrued rent and accounts receivable . . . . . . 4,589 7,434
Changes in other assets . . . . . . . . . . . . . . . . . . (5,541) (3,973)
Changes in accounts payable and accrued expenses. . . . . . (24,476) (23,076)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . 614 797
---------- ----------
Net cash provided by operating activities . . . . . . . . 11,684 13,083
---------- ----------
Cash Flows from Investing Activities:
Investment in properties. . . . . . . . . . . . . . . . . . . . . (77,064) (18,171)
Notes Receivable:
Advances. . . . . . . . . . . . . . . . . . . . . . . . . . (2,271) (2,641)
Collections . . . . . . . . . . . . . . . . . . . . . . . . 193 171
Proceeds from sales and disposition of property . . . . . . . . . 5,450
Real estate joint ventures and partnerships:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (550) (381)
Distributions . . . . . . . . . . . . . . . . . . . . . . . 921 687
---------- ----------
Net cash used in investing activities . . . . . . . . . . (73,321) (20,335)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of:
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,508
Common shares of beneficial interest. . . . . . . . . . . . 188,830
Principal payments of debt. . . . . . . . . . . . . . . . . . . . (101,123) (228)
Common and preferred dividends paid . . . . . . . . . . . . . . . (30,009) (25,030)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 811 (116)
---------- ----------
Net cash provided by financing activities . . . . . . . . 58,509 8,134
---------- ----------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . (3,128) 882
Cash and cash equivalents at January 1. . . . . . . . . . . . . . . . 7,321 4,603
---------- ----------
Cash and cash equivalents at March 31 . . . . . . . . . . . . . . . . $ 4,193 $ 5,485
========== ==========
See Notes to Consolidated Financial Statements.
Page 4
WEINGARTEN REALTY INVESTORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements included in this report are
unaudited, except for the balance sheet as of December 31, 2000. In the
opinion of WRI, 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 WRI's
annual financial statements and notes.
2. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, WRI adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments. Specifically
SFAS No. 133 requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and to measure
those instruments at fair value. Additionally, the fair value adjustments
will affect either shareholders' equity or net income depending on whether
the derivative instruments qualifies as a hedge for accounting purposes
and, if so, the nature of the hedging activity.
WRI hedges the future cash flows of debt transactions principally through
interest rate swaps with major financial institutions. WRI has five
interest rate swap contracts with an aggregate notional amount of $90
million that convert variable interest payments to fixed interest payments
at rates from 6.8% to 7.87%. These swaps have been designated and qualify
as cash flow hedges. We have determined these swap agreements are highly
effective in offsetting future variable interest cash flows of the related
debt instruments. As of January 1, 2001, the adoption of the new standard
resulted in a cumulative transition adjustment of $1.9 million to
accumulated other comprehensive loss, a component of shareholders' equity,
and a corresponding liability of the same amount. For the three months
ended March 31, 2001, the change in fair market value of our interest rate
swaps was $1.2 million and was recorded in accumulated other comprehensive
loss. We do not anticipate any material reclassifications to earnings from
accumulated other comprehensive loss over the next 12 months.
In July 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on EITF Issue No. 00-1,"Investor
Balance Sheet and Income Statement Display under the Equity Method for
Investments in Certain Partnerships and Other Ventures." This consensus
requires that the proportionate share method of presenting balance sheet
and income statement information for partnerships and other ventures in
which entities have joint interest and control be discontinued, except in
limited circumstances. WRI was required to conform with the guidance
provided in this Issue effective December 31, 2000. Accordingly, the
consolidated financial statements for all periods presented in this Form
10-Q have been restated to conform with the revised presentation.
Page 5
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. Net
income per common share - diluted includes the effect of potentially
dilutive securities for the periods indicated, as follows (in thousands):
Three Months Ended
March 31,
---------------------
2001 2000
--------- ---------
Numerator:
Net income available to common shareholders - basic . . . . . $ 20,392 $ 14,441
Income attributable to operating partnership units. . . . . . 35 39
--------- ---------
Net income available to common shareholders - diluted . . . . $ 20,427 $ 14,480
========= =========
Denominator:
Weighted average shares outstanding - basic . . . . . . . . . 30,109 26,707
Effect of dilutive securities:
Share options and awards. . . . . . . . . . . . . . . . 97 19
Operating partnership units . . . . . . . . . . . . . . 51 132
--------- ---------
Weighted average shares outstanding - diluted . . . . . . . . 30,257 26,858
========= =========
4. DEBT
WRI's debt consists of the following (in thousands):
March 31, December 31,
2001 2000
------------ ------------
Fixed-rate debt payable to 2015 at 6.0% to 10.0%. . . $ 470,080 $ 472,271
Variable-rate unsecured notes payable to 2003 . . . . 50,000 50,000
Notes payable under revolving credit agreements . . . 131,190 230,100
Obligations under capital leases. . . . . . . . . . . 33,576 33,467
Industrial revenue bonds to 2015 at 3.65% to 6.0% . . 5,975 6,010
Other . . . . . . . . . . . . . . . . . . . . . . . . 518 505
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . $ 691,339 $ 792,353
============ ============
At March 31, 2001, the variable interest rate for notes payable under the
$20 and $350 million revolving credit agreement was 5.7%.
Page 6
In January 2000, WRI issued $10.5 million of ten-year 8.25% fixed-rate,
unsecured medium term notes. In connection with this debt issuance, we
entered into a ten-year interest rate swap agreement with a notional amount
of $10.5 million to swap 8.25% fixed-rate interest for floating-rate
interest. On January 4, 2001, we terminated this interest rate swap with
the counter-party, resulting in the receipt of $.9 million. As the swap was
accounted for as a hedge of the medium term note, the gain will be
amortized over the remaining life of the note, which lowers the effective
interest rate on the note to 7.4%
In March 2001, we filed a $500 million shelf registration statement which
can be utilized for the issuance of either debt or equity securities. This
registration statement is not yet effective.
WRI's debt can be summarized as follows (in thousands):
March 31, December 31,
2001 2000
------------ ------------
As to interest rate (including the effects of
interest rate swaps):
Fixed-rate debt . . . . . . . . . . . .$ 581,202 $ 572,783
Variable-rate debt. . . . . . . . . . . 110,137 219,570
------------ ------------
Total . . . . . . . . . . . . . . . . .$ 691,339 $ 792,353
============ ============
As to collateralization:
Unsecured debt. . . . . . . . . . . . .$ 570,208 $ 669,106
Secured debt. . . . . . . . . . . . . . 121,131 123,247
------------ ------------
Total . . . . . . . . . . . . . . . . .$ 691,339 $ 792,353
============ ============
5. PROPERTY
WRI's property consists of the following (in thousands):
March 31, December 31,
2001 2000
------------ ------------
Land . . . . . . . . . . . . . . $ 338,471 $ 328,462
Land held for development. . . . 24,855 24,013
Land under development . . . . . 45,675 42,430
Buildings and improvements . . . 1,344,347 1,302,092
Construction in-progress . . . . 43,852 33,620
------------ ------------
Total. . . . . . . . . . . . . . $ 1,797,200 $ 1,730,617
============ ============
Interest and ad valorem taxes capitalized to land under development or buildings
under construction was $2.0 million and $.7 million, respectively, for the
quarters ended March 31, 2001 and 2000.
Page 7
6. INVESTMENTS IN REAL ESTATE JOINT VENTURES
WRI owns interests in 17 joint ventures or limited partnerships where we do
not exercise financial and operating control. These partnerships are
accounted for under the equity method since WRI exercises significant
influence. Our interests range from 20% to 75% and, with the exception of
our partnership with American National Insurance Company ("AN") discussed
further below, each venture owns a single real estate asset. Combined
condensed financial information of these ventures is summarized as follows
(in thousands):
March 31, December 31,
2001 2000
------------ ------------
Combined Balance Sheets
Property. . . . . . . . . . . . .$ 176,733 $ 176,247
Accumulated Depreciation. . . . . (22,768) (21,755)
------------ ------------
Property - net. . . . . . . . . . 153,965 154,492
Other Assets. . . . . . . . . . . 8,933 10,800
------------ ------------
Total. . . . . . . . . . . .$ 162,898 $ 165,292
============ ============
Debt. . . . . . . . . . . . . . .$ 77,128 $ 77,274
Amounts Payable to WRI. . . . . . 16,318 16,622
Other liabilities . . . . . . . . 3,062 5,359
Accumulated Equity. . . . . . . . 66,390 66,037
------------ ------------
Total . . . . . . . . . . . . . .$ 162,898 $ 165,292
============ ============
Combined Statements of Income
Three Months Ended
March 31,
2001 2000
-------- --------
Revenues $ 6,321 $ 4,349
-------- --------
Expenses:
Depreciation and amortization. . . . 1,103 720
Operating. . . . . . . . . . . . . . 894 639
Interest . . . . . . . . . . . . . . 1,851 1,243
Ad valorem taxes . . . . . . . . . . 809 539
General and administrative . . . . . 16 4
-------- --------
Total . . . . . . . . . . . . . 4,673 3,145
-------- --------
Net Income . . . . . . . . . . . . .$ 1,648 $ 1,204
======== ========
Page 8
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
WRI to the joint ventures. This basis differential which totaled $2.0 million
at March 31, 2001 and December 31, 2000, respectively, is depreciated over the
useful lives of the related assets.
Fees earned by WRI for the management of these joint ventures totaled $.1
million and $.07 million, respectively, for the quarters ended March 31, 2001
and 2000.
In 1999, we entered into a limited partnership, Weingarten-Murphy, LTD., which
was formed to develop a shopping center in a suburb of Dallas. WRI is the
general partner and owns a 50% interest in the partnership.
In December 1999, WRI sold seven industrial properties totaling 2.0 million
square feet to a limited partnership, AN/WRI PARTNERSHIP, LTD. in which we
retained 20% ownership. WRI serves as general partner. WRI loaned $41.4
million to the partnership until August of 2000, at which time the loan was
replaced with a ten-year non-recourse third party mortgage with an interest rate
of 8.1%.
In March 2000, WRI formed a strategic joint venture with an institutional
investor to acquire $200 million of real estate assets using limited leverage.
Each asset purchase is made by a separate limited partnership in which WRI has a
30% interest. As general partner in the joint venture, WRI is responsible for
the acquisition process, as well as, the on-going leasing and management
activities of the acquired properties, subject to limited partner approval of
significant transactions. Two shopping centers were acquired in June and one in
August of 2000 under this joint venture arrangement. WRI loaned these three
partnerships an aggregate of $32.0 million which was replaced with ten-year
non-recourse third party mortgages with a weighted average rate of 7.8%.
7. SEGMENT INFORMATION
The operating segments presented are the segments of WRI 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. WRI evaluates the performance of its operating
segments based on net operating income that is defined as total revenues
less operating expenses and ad valorem taxes.
The shopping center segment is engaged in the acquisition, development and
management of real estate, primarily anchored neighborhood and community
shopping centers located in Texas, Louisiana, Arizona, Nevada, Arkansas,
New Mexico, Oklahoma, Tennessee, Kansas, Colorado, Missouri, Illinois,
Florida and Maine. The customer base includes supermarkets, 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 located in Texas, Nevada 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.
Page 9
Information concerning WRI's reportable segments is as follows (in thousands):
SHOPPING
CENTER INDUSTRIAL OTHER TOTAL
----------- ---------- --------- ------------
Three Months Ended
March 31, 2001:
Revenues . . . . . . . . . . . . . . . . . . . $ 58,661 $ 7,662 $ 1,895 $ 68,218
Net operating income . . . . . . . . . . . . . 42,698 5,443 1,605 49,746
Equity in earnings of joint ventures . . . . . 913 125 (33) 1,005
Investment in real estate joint ventures . . . 25,305 1,512 1,035 27,852
Total assets . . . . . . . . . . . . . . . . . 1,283,265 185,356 108,009 1,576,630
Three Months Ended
March 31, 2000:
Revenues . . . . . . . . . . . . . . . . . . . $ 51,068 $ 6,449 $ 2,182 $ 59,699
Net operating income . . . . . . . . . . . . . 36,944 4,584 2,293 43,821
Equity in earnings of joint ventures . . . . . 820 291 (71) 1,040
Investment in real estate joint ventures . . . 16,892 1,474 420 18,786
Total assets . . . . . . . . . . . . . . . . . 1,047,972 161,899 120,464 1,330,335
Net operating income reconciles to net income as shown on the Statements of
Consolidated Income as follows (in thousands):
Three Months Ended
March 31,
2001 2000
--------- ---------
Total segment net operating income. . . . . . . . . . . $ 49,746 $ 43,821
Less:
Depreciation and amortization . . . . . . . . . . 15,751 12,935
Interest. . . . . . . . . . . . . . . . . . . . . 10,873 10,046
General and administrative. . . . . . . . . . . . 2,375 1,874
Minority interest in income of partnerships . . . 660 555
Equity in earnings of joint ventures. . . . . . . (1,005) (1,040)
Gain on sales of property . . . . . . . . . . . . (4,310)
--------- ---------
Net Income. . . . . . . . . . . . . . . . . . . . . . . $ 25,402 $ 19,451
========= =========
8. COMMON SHARES OF BENEFICIAL INTEREST
On January 29, 2001, we issued 4.5 million common shares of beneficial
interest in a secondary public offering. In February 2001, the underwriters
exercised their over-allotment option and purchased an additional 200,000
shares. Net proceeds of 188.1 million based on a price of $42.19 per share
were used to pay down the amounts outstanding under our $350 million
revolving line of credit.
On May 7, 2001, we issued an additional 690,000 common shares of beneficial
interest in a secondary public offering. Net proceeds of $28.1 million
based on a price of $42.85 per share were used to pay down amounts
Page 10
outstanding under our $350 million revolving line of credit. Had this
transaction occurred on January 1, 2001, earnings per common share - basic
and earnings per common share - diluted would have both decreased by $.02
per share.
9. SUBSEQUENT EVENT
On April 2, 2001, we purchased 19 supermarket-anchored shopping centers,
aggregating 2.5 million square feet, in California from Burnham Pacific
Properties, Inc. The purchase price for the properties was $277.5 million,
including the assumption of approximately $132 million in debt secured by
all 19 properties. These properties, which are over 96% leased, are located
in the Sacramento/San Francisco Bay area (13 properties) and in the Los
Angeles area (six properties).
These 19 properties having a net book value of approximately $277.5 million
at April 2, 2001 (collectively the "Bankruptcy Remote Properties", and each
a "Bankruptcy Remote Property"), are wholly-owned by various "Bankruptcy
Remote Entities". Each Bankruptcy Remote Entity is an indirect subsidiary
of the Company. 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 the Company, its
affiliates, or any other person or entity. No Bankruptcy Remote Entity has
agreed to pay or make its assets available to pay creditors of the Company,
any of its affiliates, or any other person or entity. Neither the Company
nor any of its affiliates has agreed to pay or make its assets available to
pay creditors of any Bankruptcy Remote Entity (other than any agreement by
a Bankruptcy Remote Entity to pay its own creditors). No affiliate of any
Bankruptcy Remote Entity has agreed to pay or make its assets available to
pay creditors of any Bankruptcy Remote Entity.
The accounts of the Bankruptcy Remote Entities are included in WRI's
consolidated financial statements as WRI owns, indirectly, 100% of each of
the entities. Additionally, WRI, through its wholly-owned subsidiaries,
makes all day to day operating and financial decisions with respect to
these properties, subject to approval by the loan servicing agent for
certain significant transactions. WRI has the right to prepay the loan at
any time, which would eliminate all encumbrances and restrictions.
10. RESTATEMENT
Subsequent to the issuance of its financial statements for the quarters
ended March 31, 2001 and 2000, WRI determined that 17 joint ventures or
partnerships which had previously been consolidated should have been
accounted for under the equity method. The accompanying financial
statements have been restated to present these joint ventures and
Page 11
partnerships on the equity method. The restatement did not change net
income or shareholders' equity. The effect of the restatement on specific
line items on the statements of consolidated income and consolidated
balance sheets is as follows (in thousands):
Three Months Ended March 31,
---------------------------------------------------------
2001 2000
-------------------------- --------------------------
As As
Previously As Previously As
Reported Restated Reported Restated
------------ ------------ ------------ ------------
Operating results:
Rental revenues . . . . . . . . . . . . . .$ 72,696 $ 66,479 $ 62,154 $ 57,888
Interest Income . . . . . . . . . . . . . . 923 870 1,403 1,378
Other . . . . . . . . . . . . . . . . . . . 880 869 415 433
Expenses:
Depreciation and amortization . . . . . . . 16,855 15,751 13,655 12,935
Interest. . . . . . . . . . . . . . . . . . 12,421 10,873 10,143 10,046
Operating . . . . . . . . . . . . . . . . . 10,663 9,961 9,007 8,491
Ad valorem taxes. . . . . . . . . . . . . . 9,319 8,511 7,926 7,387
General and administrative. . . . . . . . . 2,377 2,375 1,874 1,874
Minority interest in income of partnerships . 1,772 660 1,916 555
Equity in earnings of joint ventures. . . . . 1,005 1,040
March 31, 2001 December 31, 2000
-------------------------- --------------------------
As As
Previously As Previously As
Reported Restated Reported Restated
------------ ------------ ------------ ------------
Balance sheet:
Property . . . . . . . . . . . . . . . . . . $ 1,973,500 $ 1,797,200 $ 1,906,431 $ 1,730,617
Accumulated Depreciation . . . . . . . . . . (396,503) (373,716) (387,118) (365,344)
Investment in real estate joint ventures . . 27,852 27,871
Notes receivable from real estate joint
ventures and partnerships. . . . . . . . . 33,522 40,568 31,002 38,636
Unamortized Debt and Lease Costs . . . . . . 38,178 36,717 38,453 36,970
Accrued Rent and Accounts Receivable . . . . 15,549 19,496 22,273 24,485
Cash and Cash Equivalents. . . . . . . . . . 9,277 4,193 14,825 7,321
Other Assets . . . . . . . . . . . . . . . . 27,498 24,320 20,145 17,025
Debt . . . . . . . . . . . . . . . . . . . . 771,613 691,339 869,627 792,353
Accounts Payable and Accrued
Interest . . . . . . . . . . . . . . . . . 40,496 37,198 69,561 63,884
Other Liabilities. . . . . . . . . . . . . . 3,409 7,244 4,263 3,891
Minority Interest. . . . . . . . . . . . . . 74,450 29,796 72,693 27,586
Page 12
PART I
FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
WRI's financial statements for the three months ended March 31, 2001 and 2000
have been restated as discussed in Note 10 to the accompanying consolidated
financial statements. The information included in the following discussion gives
effect to that restatement. 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
report. Historical results and trends which might appear should not be taken as
indicative of future operations.
Weingarten Realty Investors owned and operated 198 anchored shopping centers, 55
industrial properties, one multi-family residential property and one office
building at March 31, 2001. Of WRI's 255 developed properties, 186 are located
in Texas (including 98 in Houston and Harris County). Our remaining properties
are located in Arizona (12), Louisiana (11), Nevada (9), Arkansas (6), New
Mexico (6), Kansas (5), Colorado (5), Oklahoma (4), Tennessee (4), Florida (3),
Missouri (2), Illinois (1) and Maine (1). WRI has 5,000 leases and 3,900
different tenants. Leases for our properties range from less than a year for
smaller spaces to over 25 years for larger tenants; leases generally include
minimum lease payments and contingent rentals for payment of taxes, insurance
and maintenance and for an amount based on a percentage of the tenants' sales.
The majority of our anchor tenants are supermarkets, value-oriented apparel and
discount stores and other retailers, which generally sell basic necessity-type
items.
CAPITAL RESOURCES AND LIQUIDITY
WRI anticipates that cash flows from operating activities will continue to
provide adequate capital for all dividend payments in accordance with REIT
requirements. Cash on hand, borrowings under our existing credit facilities,
issuance of unsecured debt and the use of project financing, as well as other
debt and equity alternatives, will provide the necessary capital to achieve
growth. Cash flow from operating activities as reported in the Statements of
Consolidated Cash Flows was $11.7 million for the first three months of 2001 as
compared to $13.1 million for the same period of 2000. The decrease was due
primarily to the timing of cash receipts and payments.
Our Board of Trust Managers approved a quarterly dividend per common share of
$.79 for the first quarter of 2001. Our dividend payout ratio on common equity
for the first quarter of 2001 and 2000 was 79% and 73%, respectively, based on
funds from operations for the applicable period.
WRI invested $54.4 million for the acquisition of two shopping centers during
the first quarter. In February, a community shopping center in Orlando, Florida
was purchased for $54 million. Strategically located near downtown Orlando,
Colonial Plaza contains 488,000 square feet of building area and is anchored by
Barnes and Noble, Old Navy, Stein Mart, Linens 'N Things, Marshalls, Babies 'R'
Us, Rhodes, Staples, Ross Dress For Less, Circuit City and Just For Feet. This
center, which is currently 97% leased, represents our third property in the
Florida market. In March, our second acquisition was purchased in Lake Charles,
Louisiana, a 23,000 square foot building.
With respect to new development, in March we acquired land in Chandler, Arizona,
a suburb of Phoenix, for the development of retail space adjacent to a
corporately-owned Target. Including this Arizona development, WRI has fourteen
new development projects at various stages of completion that represents an
investment of approximately $152 million and will add 1.3 million square feet to
the portfolio. We expect to invest approximately $75.3 million in these
properties during 2001. These projects will come on-line beginning in early
2001 through mid 2002. Additionally, we commenced an $11 million redevelopment
of a shopping center in Las Vegas which will include a new 220,000 square foot
Super Wal-Mart and a 120,000 square foot Home Depot.
Page 13
On April 2, 2001, we completed the largest acquisition in the history of the
Company, purchasing 19 supermarket-anchored shopping centers, an aggregate of
2.5 million square feet, in California from Burnham Pacific Properties, Inc.
This purchase provides an outstanding platform for our entry into the California
market as the 19 centers immediately give us the critical mass of properties
necessary for efficient and effective leasing and management. These properties,
which are over 96% leased, are located in the Sacramento/San Francisco Bay area
(13 properties) and in the Los Angeles area (six properties). Anchor merchants
include the market's major supermarket companies such as Ralph's (Kroger),
Albertson's, Safeway, Raley's and Food 4 Less (Fleming Company). Additionally,
the properties include other well-known anchor retailers including Target,
K-Mart, Home Depot, and Walgreens, with whom we have solid long-standing
relationships. The properties are located in trade areas with high population
density and have significant barriers to entry for new competition. The
purchase price for the properties was $277.5 million, including the assumption
of approximately $132 million in debt secured by all 19 properties.
In January, we issued 4.5 million common shares of beneficial interest in a
secondary public offering and an additional 200,000 shares in February, as the
underwriters exercised their over-allotment option. Net proceeds of $188.1
million, based on a price of $42.19 per share, were used to pay down amounts
outstanding under our $350 million revolving line of credit.
On May 7, 2001, we issued an additional 690,000 common shares of beneficial
interest in a secondary public offering. Net proceeds of $28.1 million based on
a price of $42.85 per share were used to pay down amounts outstanding under our
$350 million revolving line of credit.
Total debt outstanding decreased to $691.3 million at quarter-end from $792.4 at
December 31, 2000. This decrease was primarily due to the retirement of debt
with the $188.1 million of net proceeds from the common share offering, offset
by the funding of acquisitions and ongoing development and redevelopment
efforts. Included in total debt outstanding of $691.3 at March 31, 2001 is
variable-rate debt of $84.1 million, after recognizing the effect of $90.0
million of interest rate swaps and $26.0 million of variable-rate notes
receivables from joint venture partners.
In January 2000, WRI issued $10.5 million of ten-year 8.25% fixed-rate,
unsecured medium term notes. In connection with this debt issuance, we entered
into a ten-year interest rate swap agreement with a notional amount of $10.5
million to swap 8.25% fixed-rate interest for floating-rate interest. On
January 4, 2001, we terminated this swap with the counter-party, resulting in
the receipt of $.9 million. As the swap was accounted for as a hedge of the
medium term note, the gain will be amortized over the remaining life of the
note, which lowers the effective interest rate on the note to 7.4%.
In March 2001, we filed a $500 million shelf registration statement that can be
utilized for the issuance of either debt or equity securities. This
registration statement is not yet effective.
FUNDS FROM OPERATIONS
The Board of Governors of the National Association of Real Estate Investment
Trusts 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. Most industry analysts and equity REITS, including
Weingarten, believe FFO is an appropriate measure of performance relative to
other REITs. FFO provides investors with an understanding of our ability to
incur and service debt, make capital expenditures and pay common share
dividends. There can be no assurance that FFO presented by Weingarten is
Page 14
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.
Funds from operations - diluted for the three months ended March 31, 2001 and
2000 is calculated as follows:
Three Months Ended
March 31,
--------------------
2001 2000
--------- ---------
Net income available to common shareholders . . . . . . . . . . . . . . $ 20,392 $ 14,441
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 15,211 12,793
Depreciation and amortization of unconsolidated joint ventures. . . . . 462 311
Gain on sales of property . . . . . . . . . . . . . . . . . . . . . . . (4,310)
--------- ---------
Funds from operations . . . . . . . . . . . . . . . . . . 31,755 27,545
Funds from operations attributable to operating
partnership units . . . . . . . . . . . . . . . . . . . . . . . . . . 60 83
--------- ---------
Funds from operations assuming conversion of OP units . . $ 31,815 $ 27,628
========= =========
Weighted average shares outstanding - basic . . . . . . . . . . . . . . 30,109 26,707
Effect of dilutive securities:
Share options and awards. . . . . . . . . . . . . . . . . . . . . 97 19
Operating partnership units . . . . . . . . . . . . . . . . . . . 51 132
--------- ---------
Weighted average shares outstanding - diluted . . . . . . . . . . . . . 30,257 26,858
========= =========
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001
Net income available to common shareholders increased to $20.4 million, or $.68
per diluted share, from $14.4 million, or $.54 per diluted share for the first
quarter of 2001 as compared with the same quarter of 2000. Included in net
income available to common shareholders for 2001 is a gain on the sale of a
shopping center of $4.3 million. No comparable transaction occurred in the
first quarter of 2000.
Rental revenues were $66.5 million in 2001, as compared to $57.9 million in
2000, representing an increase of approximately $8.6 million or 14.8%. Of these
increases, property acquisitions and new development contributed $6.1 million in
2001, as compared to $5.8 million for the same period of 2000. The remaining
portion of these increases is due to activity at our existing properties.
Occupancy of the total portfolio increased to 92.3% as compared to 91.5% as of
March 31, 2000. The occupancy of the retail portfolio was 92.5%, up from 91.5%
at March 31, 2000, while the industrial portfolio decreased from 94.1% at March
31, 2000 to 91.6%. During the first three months of 2001, WRI completed 205
renewals or leases comprising 1.0 million square feet at an average rental rate
increase of 8.1%. Net of the amortized portion of capital costs for tenant
improvements, the increased averaged 6.8%.
Page 15
Gross interest costs, before capitalization of interest, increased by $2.2
million from $10.7 million in the first quarter of 2000 to $12.9 million in the
first quarter of 2001. The increase is due primarily to an increase in the
average debt outstanding between periods of $593.5 in 2000 to $695.0 million in
2001. The average interest rate increased from 7.2% in 2000 to 7.3% in 2001.
The amount of interest capitalized during the period was $2.0 million and $.6
million in 2001 and 2000, respectively.
The increases in depreciation and amortization, operating expenses and ad
valorem taxes were primarily the result of WRI's acquisitions and new
development programs.
NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, WRI adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments. Specifically
SFAS No. 133 requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and to measure those
instruments at fair value. Additionally, the fair value adjustments will affect
either shareholders' equity or net income depending on whether the derivative
instruments qualifies as a hedge for accounting purposes and, if so, the nature
of the hedging activity.
WRI hedges the future cash flows of debt transactions principally through
interest rate swaps with major financial institutions. WRI has five interest
rate swap contracts with an aggregate notional amount of $90 million that
convert variable interest payments to fixed interest payments at rates from 6.8%
to 7.87%. These swaps have been designated and qualify as cash flow hedges. We
have determined these swaps agreements are highly effective in offsetting future
variable interest cash flows of the related debt instruments. As of January 1,
2001, the adoption of the new standard resulted in a cumulative transition
adjustment of $1.9 million to accumulated other comprehensive loss, a component
of shareholders' equity and a corresponding liability of the same amount. For
the three months ended March 31, 2001, the change in fair market value of our
interest rate swaps was $1.2 million and was recorded in accumulated other
comprehensive loss. We do not anticipate any material reclassifications to
earnings from accumulated other comprehensive loss over the next 12 months.
In July 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on EITF Issue No. 00-1,"Investor Balance
Sheet and Income Statement Display under the Equity Method for Investments in
Certain Partnerships and Other Ventures." This consensus requires that the
proportionate share method of presenting balance sheet and income statement
information for partnerships and other ventures in which entities have joint
interest and control be discontinued, except in limited circumstances. WRI was
required to conform with the guidance provided in this Issue effective December
31, 2000. Accordingly, the consolidated financial statements for all periods
presented in this Form 10-Q have been restated to conform with the revised
presentation.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
WRI uses fixed and floating-rate debt to finance its capital requirements.
These transactions expose WRI 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 WRI to credit risk in the event of non-performance
by the counter-parties to the swaps. We do not engage in the trading of
derivative financial instruments in the normal course of business. At March 31,
2001, WRI had fixed-rate debt of $581.2 million and variable-rate debt of $84.1
million, after adjusting for the effect of $90 million of interest rate swaps
and $26.0 million of variable-rate notes receivables from joint venture
partners.
Page 16
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation
S-K)
(12) A statement of computation of ratios of earnings and
funds from operations to combined fixed charges and
preferred dividends.
(b) Reports on Form 8-K
A Form 8-K, dated January 22, 2001, was filed to report a
significant acquisition in response to Item 5., Other Events
and Item 7., Financial Statements, Pro Forma Financial
Information and Exhibits.
A Form 8-K, dated March 22, 2001, was filed to report
significant acquisitions in response to Item 2.,
Acquisitions or Dispositions of Assets and Item 7.,
Financial Statements, Pro Forma Financial Information and
Exhibits.
Page 17
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: October 25, 2001
----------------
Page 18