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 September 30, 2003
------------------
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
---------------------------------------------------------- -------------------
(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 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 November 5, 2003, there were 53,493,439 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 related to the Company's adoption of SFAS No. 150, as discussed
in Note 13 thereto.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WEINGARTEN REALTY INVESTORS
STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Revenues:
Rentals. . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,547 $ 90,474 $ 300,556 $ 262,254
Interest income. . . . . . . . . . . . . . . . . . . . . . 480 270 1,283 701
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,118 2,039 5,756 4,048
---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . 107,145 92,783 307,595 267,003
---------- ---------- ---------- ----------
Expenses:
Depreciation and amortization. . . . . . . . . . . . . . . 23,251 19,174 66,810 55,772
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 22,220 17,062 62,695 48,590
Operating. . . . . . . . . . . . . . . . . . . . . . . . . 16,661 14,729 46,885 40,313
Ad valorem taxes . . . . . . . . . . . . . . . . . . . . . 12,586 11,786 35,403 32,583
General and administrative . . . . . . . . . . . . . . . . 3,655 2,576 10,126 8,650
---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . 78,373 65,327 221,919 185,908
---------- ---------- ---------- ----------
Operating Income . . . . . . . . . . . . . . . . . . . . . . 28,772 27,456 85,676 81,095
Equity in Earnings of Joint Ventures . . . . . . . . . . . . 1,485 989 3,521 3,028
Income Allocated to Minority Interests . . . . . . . . . . . (591) (578) (2,323) (1,637)
Gain on Sale of Properties . . . . . . . . . . . . . . . . . 8
---------- ---------- ---------- ----------
Income Before Discontinued Operations. . . . . . . . . . . . 29,674 27,867 86,874 82,486
---------- ---------- ---------- ----------
Operating Income from Discontinued Operations. . . . . . . . 46 740 442 2,532
Gain on Sale of Properties . . . . . . . . . . . . . . . . . 3,465 10,818 4,228 15,158
---------- ---------- ---------- ----------
Income From Discontinued Operations . . . . . . . . . 3,511 11,558 4,670 17,690
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . 33,185 39,425 91,544 100,176
---------- ---------- ---------- ----------
Dividends on Preferred Shares. . . . . . . . . . . . . . . . 4,804 4,939 14,646 14,817
Original Issuance Costs associated with Redeemed
Series A Preferred Shares. . . . . . . . . . . . . . . . . 2,488
---------- ---------- ---------- ----------
Net Income Available to Common Shareholders. . . . . . . . . $ 28,381 $ 34,486 $ 74,410 $ 85,359
========== ========== ========== ==========
Net Income Per Common Share - Basic:
Income Before Discontinued Operations. . . . . . . . . . . $ .47 $ .44 $ 1.34 $ 1.31
Income From Discontinued Operations. . . . . . . . . . . . .07 .22 .09 .34
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ .54 $ .66 $ 1.43 $ 1.65
========== ========== ========== ==========
Net Income Per Common Share - Diluted:
Income Before Discontinued Operations. . . . . . . . . . . $ .47 $ .44 $ 1.33 $ 1.31
Income From Discontinued Operations. . . . . . . . . . . . .07 .21 .09 .33
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ .54 $ .65 $ 1.42 $ 1.64
========== ========== ========== ==========
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,185 $ 39,425 $ 91,544 $ 100,176
---------- ---------- ---------- ----------
Other Comprehensive Income:
Unrealized derivative gain on interest rate swaps. . . . . 387 905 1,506 1,627
Amortization of forward-starting interest rate swaps . . . (40) (40) (120) (120)
---------- ---------- ---------- ----------
Other Comprehensive Income . . . . . . . . . . . . . . . . . 347 865 1,386 1,507
---------- ---------- ---------- ----------
Comprehensive Income . . . . . . . . . . . . . . . . . . . . $ 33,532 $ 40,290 $ 92,930 $ 101,683
========== ========== ========== ==========
See Notes to Consolidated Financial Statements.
Page 2
WEINGARTEN REALTY INVESTORS
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
September 30, December 31,
2003 2002
------------- -------------
(as restated,
see Note 13)
ASSETS
Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,018,599 $ 2,695,286
Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . (508,781) (460,832)
------------- -------------
Property - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,509,818 2,234,454
Investment in Real Estate Joint Ventures. . . . . . . . . . . . . . . . . . . . 28,240 28,738
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,538,058 2,263,192
Notes Receivable from Real Estate Joint Ventures and Partnerships . . . . . . . 30,136 14,747
Unamortized Debt and Lease Costs . . . . . . . . . . . . . . . . . . . . 54,696 48,377
Accrued Rent and Accounts Receivable (net of allowance for doubtful
accounts of $4,192 in 2003 and $4,302 in 2002). . . . . . . . . . . . . . . . 38,398 38,156
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,741 27,420
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,430 31,997
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,717,459 $ 2,423,889
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,653,368 $ 1,330,369
Preferred Shares Subject to Mandatory Redemption, net . . . . . . . . . . . . . 194,214
Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . . . . . . 72,395 81,488
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,894 23,636
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,940,871 1,435,493
------------- -------------
Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,080 54,983
------------- -------------
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 at December 31, 2002 . 90
7.125% Series B cumulative redeemable preferred shares of
beneficial interest; 3,600 shares issued and 3,518 shares
outstanding at December 31, 2002. . . . . . . . . . . . . . . . . . . 106
7.0% Series C cumulative redeemable preferred shares of
beneficial interest; 2,300 shares issued and 2,253 shares
outstanding at December 31, 2002. . . . . . . . . . . . . . . . . . . 67
6.75% Series D cumulative redeemable preferred shares of
beneficial interest; 3,000 shares issued and outstanding;
liquidation preference $75,000. . . . . . . . . . . . . . . . . . . . 90
Common Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 150,000; shares issued and outstanding:
52,222 in 2003 and 52,076 in 2002 . . . . . . . . . . . . . . . . . . . . 1,563 1,559
Capital Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 894,009 1,082,046
Accumulated Dividends in Excess of Net Income . . . . . . . . . . . . . . . . (164,938) (147,853)
Accumulated Other Comprehensive Loss. . . . . . . . . . . . . . . . . . . . . (1,216) (2,602)
------------- -------------
Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 729,508 933,413
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,717,459 $ 2,423,889
============= =============
See Notes to Consolidated Financial Statements.
Page 3
WEINGARTEN REALTY INVESTORS
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Nine Months Ended
September 30,
----------------------
2003 2002
---------- ----------
Cash Flows from Operating Activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,544 $ 100,176
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 67,151 57,060
Equity in earnings of joint ventures. . . . . . . . . . . (3,521) (3,028)
Income allocated to minority interests. . . . . . . . . . 2,323 1,637
Gain on sale of properties. . . . . . . . . . . . . . . . (4,228) (15,158)
Changes in accrued rent and accounts receivable . . . . . (374) 198
Changes in other assets . . . . . . . . . . . . . . . . . (21,632) (11,271)
Changes in accounts payable and accrued expenses. . . . . (11,406) (10,978)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . 699 384
---------- ----------
Net cash provided by operating activities . . . . . 120,556 119,020
---------- ----------
Cash Flows from Investing Activities:
Investment in properties. . . . . . . . . . . . . . . . . . . . (249,796) (162,661)
Notes Receivable:
Advances. . . . . . . . . . . . . . . . . . . . . . . . . (15,760) (4,747)
Collections . . . . . . . . . . . . . . . . . . . . . . . 381 2,166
Proceeds from sales and disposition of property . . . . . . . . 13,575 37,525
Real estate joint ventures and partnerships:
Investments . . . . . . . . . . . . . . . . . . . . . . . (801) (5,355)
Distributions . . . . . . . . . . . . . . . . . . . . . . 4,053 3,217
---------- ----------
Net cash used in investing activities . . . . . . . (248,348) (129,855)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of:
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 317,102 201,997
Common shares of beneficial interest. . . . . . . . . . . 2,173 13,454
Preferred shares of beneficial interest . . . . . . . . . 72,691
Redemption of preferred shares of beneficial interest . . . . . (75,000)
Principal payments of debt. . . . . . . . . . . . . . . . . . . (95,577) (77,735)
Common and preferred dividends paid . . . . . . . . . . . . . . (106,141) (101,342)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . (135) (123)
---------- ----------
Net cash provided by financing activities . . . . . 115,113 36,251
---------- ----------
Net increase (decrease) in cash and cash equivalents. . . . . . . . (12,679) 25,416
Cash and cash equivalents at January 1. . . . . . . . . . . . . . . 27,420 12,434
---------- ----------
Cash and cash equivalents at September 30 . . . . . . . . . . . . . $ 14,741 $ 37,850
========== ==========
See Notes to Consolidated Financial Statements.
Page 4
WEINGARTEN REALTY INVESTORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements included in this report are
unaudited; however, amounts presented in the balance sheet as of December
31, 2002 are derived from the audited financial statements of WRI at that
date. 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/A and do not contain certain information included in WRI's
annual financial statements and notes. These Consolidated Financial
Statements should be read in conjunction with WRI's Annual Report on Form
10-K for the year ended December 31, 2002.
Certain reclassifications of prior year's amounts have been made to conform
to the current year presentation.
2. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure- an amendment of FASB Statement No.
123", which is effective for fiscal years beginning after December 15,
2002. This statement provides alternative methods of transition for an
entity that voluntarily changes to the fair value-based method of
accounting for stock-based employee compensation. It also amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. We adopted this statement effective January 1, 2003 using
the prospective method, which requires us to recognize stock-based employee
compensation as new share options are awarded. Stock-based employee
compensation associated with share options awarded during 2003 was $2
thousand for the quarter ending September 30, 2003 and $7 thousand for the
nine months ended September 30, 2003, respectively. With respect to share
options awarded prior to January 1, 2003, WRI accounted for stock-based
employee compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. In accordance with this opinion,
no stock-based employee compensation had been recognized in WRI's financial
statements prior to January 1, 2003.
Page 5
The following table illustrates the effect on net income available to
common shareholders and net income per common share if the fair value-based
method had been applied to all outstanding and unvested awards in each
period (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income available to common shareholders. . . . . . . $ 28,381 $ 34,486 $ 74,410 $ 85,359
Stock-based employee compensation included in
net income available to common shareholders. . . . . . 2 7
Stock-based employee compensation determined
under the fair value-based method for all awards . . . (103) (86) (310) (258)
--------- --------- --------- ---------
Pro forma net income available to
common shareholders. . . . . . . . . . . . . . . . . . $ 28,280 $ 34,400 $ 74,107 $ 85,101
========= ========= ========= =========
Net income per common share:
Basic - as reported. . . . . . . . . . . . . . . . $ .54 $ .66 $ 1.43 $ 1.65
========= ========= ========= =========
Basic - pro forma. . . . . . . . . . . . . . . . . $ .54 $ .66 $ 1.42 $ 1.64
========= ========= ========= =========
Net income per common share:
Diluted - as reported. . . . . . . . . . . . . . . $ .54 $ .65 $ 1.42 $ 1.64
========= ========= ========= =========
Diluted - pro forma. . . . . . . . . . . . . . . . $ .54 $ .65 $ 1.41 $ 1.63
========= ========= ========= =========
In November 2002, FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". FIN 45 establishes new disclosure
and liability-recognition requirements for direct and indirect debt
guarantees with specified characteristics. The initial measurement and
recognition requirements of FIN 45 are effective prospectively for
guarantees issued or modified after December 31, 2002. However, the
disclosure requirements are effective for interim and annual
financial-statement periods ending after December 15, 2002. WRI has adopted
the disclosure provisions, and management has concluded that the full
adoption of FIN 45 does not have a material impact on our financial
position, results of operations or cash flows.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities". FIN 46 requires a variable interest entity to
be consolidated by a company if that company is subject to a majority of
the risk of loss from the variable interest entity's activities or entitled
to receive a majority of the entity's residual returns or both. FIN 46
requires disclosures about variable interest entities that a company is not
required to consolidate, but in which it has a significant variable
interest. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. Certain of the
disclosure requirements apply in all financial statements issued after
January 31, 2003, regardless of when the variable interest entity was
established. On October 9, 2003, the FASB issued FIN 46-6 deferring the
effective date until the first interim or annual period ending after
December 15, 2003 for interests held in entities created before February 1,
2003. WRI is evaluating the potential impact of FIN 46 on our financial
position, results of operations and cash flows for those entities created
prior to February 1, 2003. WRI has assessed its joint ventures formed
subsequent to February 1, 2003 and determined that the adoption of FIN 46
did not have a material impact to our financial position, results of
operations or cash flows.
Page 6
In May 2003, FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" which is
effective in the first interim period beginning after June 15, 2003. 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. WRI's Series B and Series C Cumulative
Redeemable Preferred Shares fall within the scope of SFAS No. 150, since
they are mandatorily redeemable and redemption is through transfer of cash
or a variable number of WRI common shares. As a result as of September 30,
2003, we reclassified the redemption value, net of unamortized issuance
costs of $6.3 million, of these shares from equity to liabilities
identified as "Preferred Shares Subject to Mandatory Redemption."
3. DISCONTINUED OPERATIONS
On January 1, 2002, WRI adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses
accounting and reporting for the impairment or disposal of a segment of a
business. More specifically, this Statement broadens the presentation of
discontinued operations to include a component of an entity whose
operations and cash flows can be clearly distinguished, operationally and
for financial reporting purposes, from the rest of the entity.
In 2002, we sold five retail projects located in Houston (3), Grand Prairie
and San Antonio, Texas, one industrial building located in Houston, Texas
and the River Pointe Apartments located in Conroe, Texas. Accordingly, the
operating results and the gain on sale of the disposed properties have been
reclassified and reported as discontinued operations in the Statements of
Consolidated Income and Comprehensive Income.
In January 2003, a warehouse building was sold that was classified as held
for sale in 2002. In May 2003, a retail property in San Antonio, Texas was
sold. During the third quarter of 2003, two retail properties located in
McKinney (suburb of Dallas) and Nacogdoches, Texas were sold. The operating
results of these properties have been reclassified and reported as
discontinued operations in the Statements of Consolidated Income and
Comprehensive Income. Included in the Consolidated Balance Sheet at
December 31, 2002 is $1.6 million reported as property held for sale for
the warehouse building and $8.8 million of Property and $2.4 million of
Accumulated Depreciation associated with the three retail centers in Texas.
Subsequent to quarter-end, two retail centers in Houston, Texas were sold.
The operating results of both properties had been reclassified and reported
as discontinued operations in the Statements of Consolidated Income and
Comprehensive Income, and $5.8 million is reported as property held for
sale in the Consolidated Balance Sheet at September 30, 2003.
4. DERIVATIVES AND HEDGING
WRI hedges the future cash flows of debt transactions principally through
interest rate swaps with major financial institutions. WRI has two interest
rate swap contracts with an aggregate notional amount of $20 million, which
are designated as cash flow hedges, and eleven interest rate swap contracts
with an aggregate notional amount of $107.5 million, which are designated
as fair value hedges. In July 2003, an interest rate swap with a notional
amount of $25 million matured.
Page 7
On September 30, 2003, the derivative instruments designated as cash flow
hedges were reported at their fair values as Other Liabilities, net of
accrued interest, of $.9 million. The derivative instruments designated as
fair value hedges on September 30, 2003 were reported at their fair values
as Other Assets, net of accrued interest, of $6.4 million.
Within the next 12 months, the Company expects to reclassify to earnings as
interest expense approximately $.7 million of the current balance held in
accumulated other comprehensive loss. 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.
5. 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 Nine Months Ended
September 30, September 30,
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Numerator:
Net income available to common shareholders - basic . . . . $ 28,381 $ 34,486 $ 74,410 $ 85,359
Income attributable to operating partnership units. . . . . 755 764 2,347 1,640
--------- --------- --------- ---------
Net income available to common shareholders - diluted . . . $ 29,136 $ 35,250 $ 76,757 $ 86,999
========= ========= ========= =========
Denominator:
Weighted average shares outstanding - basic . . . . . . . . 52,161 51,993 52,127 51,869
Effect of dilutive securities:
Share options and awards. . . . . . . . . . . . . . . 598 369 499 326
Operating partnership units . . . . . . . . . . . . . 1,358 1,479 1,427 1,001
--------- --------- --------- ---------
Weighted average shares outstanding - diluted . . . . . . . 54,117 53,841 54,053 53,196
========= ========= ========= =========
Options to purchase 300 and 800 common shares for the third quarter ended
September 30, 2003 and 2002, 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, while options to purchase 1,100
and 1,050 common shares have been excluded from the calculation of net
income per common share - diluted for the nine months ended September 30,
2003 and 2002, respectively.
Page 8
6. DEBT
WRI's debt consists of the following (in thousands):
September 30, December 31,
2003 2002
------------- -------------
Fixed-rate debt payable to 2030 at 5.0 to 8.8% . . . . . . . . . $ 1,378,170 $ 1,097,185
Variable-rate unsecured notes payable. . . . . . . . . . . . . . 50,000 75,000
Unsecured notes payable under revolving credit agreements. . . . 183,490 119,000
Obligations under capital leases . . . . . . . . . . . . . . . . 33,462 33,462
Industrial revenue bonds payable to 2015 at 1.1% to 3.0% . . . . 8,246 5,722
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,653,368 $ 1,330,369
============= =============
As of September 30, 2003, WRI had a $350 million unsecured revolving credit
facility and a $50 million unsecured term loan that would mature on
November 21, 2003. WRI determined that, as of September 30, 2003, it was
not in compliance with one covenant under these facilities. On November 14,
2003, WRI closed on an Amended and Restated Credit Agreement and
concurrently borrowed funds under this $400 million unsecured facility that
were used to retire the $195.0 million outstanding under the existing
facilities. WRI is in full compliance with the Amended and Restated Credit
Agreement.
At September 30, 2003, the variable interest rates for notes payable under
the $50 million term loan agreement and the $350 million revolving credit
agreement were 1.6% and 1.9%, respectively. At September 30, 2003, $15.5
million was outstanding under the $20 million revolving credit agreement at
1.5%.
For the nine months ended September 30, 2003, WRI issued a total of $136
million of unsecured fixed-rate medium term notes at a weighted average
interest rate of 5.4% and a weighted average term of 11.4 years. Proceeds
received were used to pay down amounts outstanding under our $350 million
revolving credit facility. Following is a summary of the medium term note
activity for the nine months ended September 30, 2003 (in thousands, except
years to maturity and interest rate):
YEARS TO INTEREST
DATE ISSUED PRINCIPAL MATURITY RATE
-------------------------- ----------- --------- ----------
January 15, 2003 . . . . . $ 20,000 12.0 5.75%
January 28, 2003 . . . . . 15,000 10.0 5.50%
January 28, 2003 . . . . . 6,000 10.0 5.50%
February 12, 2003. . . . . 20,000 12.0 5.57%
February 26, 2003. . . . . 25,000 12.0 5.35%
February 28, 2003. . . . . 25,000 12.0 5.25%
March 5, 2003. . . . . . . 25,000 10.5 4.99%
-----------
Total. . . . . . . . . $ 136,000
===========
Page 9
Subsequent to quarter-end, WRI issued a seven-year $15 million medium term
note bearing interest at 4.48%. Proceeds received were used to pay down
amounts outstanding under our $350 million revolving credit facility.
WRI's debt can be summarized as follows (in thousands):
September 30, December 31,
2003 2002
------------- -------------
As to interest rate (including the effects of
interest rate swaps):
Fixed-rate debt . . . . . . . . . . . $ 1,311,672 $ 1,055,688
Variable-rate debt. . . . . . . . . . 341,696 274,681
------------- -------------
Total . . . . . . . . . . . . . . $ 1,653,368 $ 1,330,369
============= =============
As to collateralization:
Unsecured debt. . . . . . . . . . . . $ 1,132,780 $ 958,719
Secured debt. . . . . . . . . . . . . 520,588 371,650
------------- -------------
Total . . . . . . . . . . . . . . $ 1,653,368 $ 1,330,369
============= =============
7. PROPERTY
WRI's property consists of the following (in thousands):
September 30, December 31,
2003 2002
------------- -------------
Land . . . . . . . . . . . . . . $ 565,533 $ 497,168
Land held for development. . . . 21,371 23,613
Land under development . . . . . 31,293 44,847
Buildings and improvements . . . 2,313,164 2,051,065
Construction in-progress . . . . 81,484 77,006
Property held for sale . . . . . 5,754 1,587
------------- -------------
Total. . . . . . . . $ 3,018,599 $ 2,695,286
============= =============
Interest and ad valorem taxes capitalized to land under development or
buildings under construction was $1.7 million and $2.2 million for the
quarters ended September 30, 2003 and 2002, respectively, and $5.6 million
and $7.3 million for the nine months ended September 30, 2003 and 2002,
respectively.
Page 10
8. INVESTMENTS IN REAL ESTATE JOINT VENTURES
WRI owns interests in 18 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 WRI exercises significant
influence. Our interests in these joint ventures and limited partnerships
range from 20% to 75% and, with the exception of one partnership, which
owns seven industrial properties, each venture owns a single real estate
asset. Combined condensed financial information of these ventures (at 100%)
is summarized as follows (in thousands):
September 30, December 31,
2003 2002
------------- -------------
Combined Balance Sheets
Property . . . . . . . . . . . . $ 199,717 $ 177,396
Accumulated depreciation . . . . (25,718) (23,877)
------------- -------------
Property - net. . . . . . . . 173,999 153,519
Other assets . . . . . . . . . . 12,373 11,898
------------- -------------
Total . . . . . . . . . . $ 186,372 $ 165,417
============= =============
Debt . . . . . . . . . . . . . . $ 76,724 $ 71,985
Amounts payable to WRI . . . . . 31,318 16,334
Other liabilities. . . . . . . . 3,476 4,152
Accumulated equity . . . . . . . 74,854 72,946
------------- -------------
Total . . . . . . . . . . $ 186,372 $ 165,417
============= =============
Combined Statements of Income
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues. . . . . . . . . . . . . . . . . . $ 5,642 $ 6,129 $ 17,599 $ 18,831
--------- --------- --------- ---------
Expenses:
Depreciation and amortization . . . . . . 1,140 1,175 3,350 3,658
Operating . . . . . . . . . . . . . . . . 826 839 2,465 2,547
Interest. . . . . . . . . . . . . . . . . 1,532 1,550 4,536 4,813
Ad valorem taxes. . . . . . . . . . . . . 832 798 2,413 2,391
General and administrative. . . . . . . . 17 16 73 44
--------- --------- --------- ---------
Total. . . . . . . . . . . . . . . . . 4,347 4,378 12,837 13,453
--------- --------- --------- ---------
Gain on sale of property. . . . . . . . . . 1,016 1,016
--------- --------- --------- ---------
Net Income. . . . . . . . . . . . . . . . . $ 2,311 $ 1,751 $ 5,778 $ 5,378
========= ========= ========= =========
Page 11
Our investment in real estate joint ventures, as reported on the balance
sheets, differs from our proportionate share of the joint ventures'
underlying net assets due to basis differentials, which arose upon the
transfer of assets from WRI to the joint ventures. These basis
differentials, which totaled $4.8 million at September 30, 2003 and
December 31, 2002, respectively, are depreciated over the useful lives of
the related assets.
Fees earned by WRI for the management of these joint ventures totaled $.1
million for the quarters ended September 30, 2003 and 2002, respectively,
and $.4 million for the nine months ended September 30, 2003 and 2002,
respectively.
In April 2003, a 38%-owned limited partnership commenced construction on
Green Valley Ranch Town Center, a 116,000 square foot center in Denver,
Colorado, which will include a corporate-owned King Sooper Supermarket of
67,000 square feet.
In July 2003, a 20%-owned limited partnership commenced construction on a
300,000 square foot state-of-the-art distribution warehouse, which is
located in Houston, Texas and is leased to Shell Oil Products US.
In August 2003, a 50%-owned joint venture sold a shopping center in Lake
Charles, Louisiana resulting in a gain of $1.0 million.
9. 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 neighborhood and community shopping
centers located in Texas, California, Louisiana, Arizona, Nevada, Arkansas,
New Mexico, Oklahoma, Tennessee, Kansas, Colorado, Missouri, Illinois,
Florida, Mississippi, North Carolina and Maine. The customer base includes
supermarkets, discount retailers, drugstores and other retailers or service
providers who generally sell basic necessity-type goods and services. 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.
Page 12
Information concerning WRI's reportable segments is as follows (in
thousands):
SHOPPING
CENTER INDUSTRIAL OTHER TOTAL
------------ ------------ ------------ --------------
Three Months Ended
September 30, 2003:
Revenues . . . . . . . . . . . . . . . . . . . $ 95,751 $ 10,710 $ 684 $ 107,145
Net operating income . . . . . . . . . . . . . 69,944 7,478 476 77,898
Equity in earnings of joint ventures . . . . . 1,525 (19) (21) 1,485
Investment in real estate joint ventures . . . 28,007 233 28,240
Total assets . . . . . . . . . . . . . . . . . 2,230,312 290,082 197,065 2,717,459
Three Months Ended
September 30, 2002:
Revenues . . . . . . . . . . . . . . . . . . . $ 83,161 $ 9,073 $ 549 $ 92,783
Net operating income . . . . . . . . . . . . . 59,795 6,260 213 66,268
Equity in earnings of joint ventures . . . . . 913 84 (8) 989
Investment in real estate joint ventures . . . 29,083 678 29,761
Total assets . . . . . . . . . . . . . . . . . 2,008,031 212,215 142,694 2,362,940
Nine Months Ended
September 30, 2003:
Revenues . . . . . . . . . . . . . . . . . . . $ 275,606 $ 30,330 $ 1,659 $ 307,595
Net operating income . . . . . . . . . . . . . 202,874 21,635 798 225,307
Equity in earnings of joint ventures . . . . . 3,505 86 (70) 3,521
Nine Months Ended
September 30, 2002:
Revenues . . . . . . . . . . . . . . . . . . . $ 238,487 $ 27,033 $ 1,483 $ 267,003
Net operating income . . . . . . . . . . . . . 174,811 18,752 544 194,107
Equity in earnings of joint ventures . . . . . 2,821 239 (32) 3,028
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 Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2003 2002 2003 2002
--------- --------- ---------- ----------
Total segment net operating income. . . . . . . . $ 77,898 $ 66,268 $ 225,307 $ 194,107
Less:
Depreciation and amortization. . . . . . . . 23,251 19,174 66,810 55,772
Interest . . . . . . . . . . . . . . . . . . 22,220 17,062 62,695 48,590
General and administrative . . . . . . . . . 3,655 2,576 10,126 8,650
Income allocated to minority interests . . . 591 578 2,323 1,637
Equity in earnings of joint ventures . . . . (1,485) (989) (3,521) (3,028)
Gain on sale of properties . . . . . . . . . (8)
--------- --------- ---------- ----------
Income Before Discontinued Operations . . . . . . $ 29,674 $ 27,867 $ 86,874 $ 82,486
========= ========= ========== ==========
Page 13
10. COMMON SHARES OF BENEFICIAL INTEREST
In February 2002, a three-for-two share split, effected in the form of a
50% share dividend, was declared for shareholders of record on April 1,
2002, payable April 15, 2002. We issued 17.3 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 stock from retained
earnings.
In February 2002, we completed the sale of .3 million common shares of
beneficial interest. Net proceeds to WRI totaled $9.5 million based on a
price of $33.65 per share and were used to pay down amounts outstanding
under our $350 million revolving credit facility.
Subsequent to quarter-end, we completed the sale of 1.15 million common
shares of beneficial interest. Net proceeds to WRI totaled $50.9 million
based on a price of $45.50 per share. These funds may be used for the
possible redemption of a portion of our 7.125% Series B Cumulative
Redeemable Preferred Shares, but in the interim we have paid down amounts
outstanding under our $350 million revolving credit facility.
11. BANKRUPTCY REMOTE PROPERTIES
WRI has 33 properties, having a net book value of approximately $555.1
million at September 30, 2003 (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 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 exercises financial and operating
control.
12. PREFERRED SHARES
On April 4, 2003, WRI called for redemption of the 7.44% Series A
Cumulative Redeemable Preferred Shares. The redemption of these shares on
May 5, 2003 was financed through the issuance on April 30, 2003 of $75
million of depositary shares. Each depositary share, representing
one-thirtieth of a Series D Cumulative Redeemable Preferred Share, is
redeemable at par at WRI's election on or after April 30, 2008. The
depositary shares pay a 6.75% annual dividend and have a liquidation value
of $25 per share.
Page 14
13. RESTATEMENT
Subsequent to the issuance of its financial statements for the quarter
ended September 30, 2003, WRI concluded that its Series B and Series C
Cumulative Redeemable Preferred Shares fell within the scope of SFAS No.
150 as discussed in Note 2. The accompanying financial statements have been
restated to present the reclassification of these preferred shares from
equity to liabilities identified as "Preferred Shares Subject to Mandatory
Redemption." The effect of the restatement on specific line items on the
Consolidated Balance Sheet is as follows (in thousands):
September 30, 2003
----------------------------
As
Previously As
Reported Restated
------------ ------------
Balance Sheet:
Preferred Shares Subject to Mandatory Redemption, net. . . . . . . $ 194,214
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,746,657 1,940,871
7.125% Series B Cumulative Redeemable Preferred Shares . . . . . . 106
7.0% Series C Cumulative Redeemable Preferred Shares . . . . . . . 67
Capital Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . 1,088,050 894,009
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . 923,722 729,508
Page 15
*****
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The accompanying management's discussion and analysis of financial condition and
results of operations gives effect to the restatement of the unaudited
consolidated financial statements for the period ended September 30, 2003 as
described in Note 13 to those unaudited consolidated financial statements.
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/A. Historical results and
trends which might appear should not be taken as indicative of future
operations. The results of operations and financial condition of the company, 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 the company's tenants. Management believes the
most critical accounting policies in this regard are the estimation of an
allowance for doubtful receivables (including the allowance for straight-line
rent receivables), the determination of reserves for self-insured general
liability insurance and the periodic determination of whether the value of a
real estate asset has been impaired. Each of these issues requires management to
make judgments that are subjective in nature; however, management considers and
assesses a significant amount of historical data and current market data in
arriving at what it believes to be reasonable estimates.
At September 30, 2003, WRI owned or operated under long-term leases, either
directly or through its interests in joint ventures, 313 developed
income-producing properties located in 18 states that span from coast to coast
in the southern half of the United States. Included in the portfolio are 252
shopping centers, 60 industrial properties and one office building. WRI has
approximately 6,400 leases and 4,600 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/discount stores and other retailers or
service providers who generally sell basic necessity-type goods and services.
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, should provide the necessary capital to achieve
growth. Cash flow from operating activities as reported in the Statements of
Consolidated Cash Flows increased to $120.6 million for the first nine months of
2003 as compared to $119.0 million for the same period of 2002.
Our Board of Trust Managers approved a quarterly dividend of $.585 per common
share for the third quarter of 2003. Our dividend payout ratio on common equity
for the third quarter of 2003 and 2002 was 66% and 67%, respectively, based on
funds from operations for the applicable period.
WRI invested $128.1 million for the acquisition of three retail centers and one
industrial property during the third quarter of 2003.
In August 2003, we acquired Thousand Oaks Shopping Center located in San
Antonio, Texas. This 163,000 square foot center, anchored by an HEB Supermarket,
Palais Royal and Tuesday Morning, is 97% occupied.
In September 2003, we completed the acquisition of Siempre Viva Business Park
located in San Diego, California. Part of a 1.26 million square foot industrial
park, our acquisition of this state-of-the-art dock-high project includes seven
buildings totaling 727,000 square feet. The property is 100% leased to tenants
such as UPS Supply Chain Solutions, Hitachi, Pioneer and Bose Corporation.
Also in September of 2003, we acquired Fiesta Trails Shopping Center located in
San Antonio, Texas and Durham Festival located in Durham, North Carolina.
Fiesta Trails Shopping Center, which is 92% occupied, is a 312,000 square foot
shopping center anchored by Barnes & Noble, Marshalls, OfficeMax, Regal Cinemas
Page 16
and Steinmart. This shopping center also includes an HEB Supermarket and a
Target which are corporately-owned. Durham Festival is a 134,000 square foot
shopping center anchored by Kroger and is 99% occupied.
With respect to new development, we have 17 projects at various stages of
construction. These projects, upon completion, will represent an investment of
approximately $176 million and will add 1.3 million square feet to the
portfolio. We expect to invest approximately $64.7 million in these properties
during 2003. These projects will continue to come on-line during the remainder
of 2003 and into 2004.
In July 2003, a 20%-owned limited partnership commenced construction on a
300,000 square foot state-of-the-art distribution warehouse, which is located in
Houston, Texas and is leased to Shell Oil Products US.
As of September 30, 2003, WRI had a $350 million unsecured revolving credit
facility and a $50 million unsecured term loan that would mature on November 21,
2003. WRI determined that, as of September 30, 2003, it was not in compliance
with one covenant under these facilities. On November 14, 2003, WRI closed on an
Amended and Restated Credit Agreement and concurrently borrowed funds under this
$400 million unsecured facility that were used to retire the $195.0 million
outstanding under the existing facilities. WRI is in full compliance with the
Amended and Restated Credit Agreement.
For the nine months ended September 30, 2003, WRI issued a total of $136 million
of unsecured fixed-rate medium term notes at a weighted average interest rate of
5.4% and a weighted average term of 11.4 years. Proceeds received were used to
pay down amounts outstanding under our $350 million revolving credit facility.
Following is a summary of the medium term note activity for the nine months
ended September 30, 2003 (in thousands, except years to maturity and interest
rate):
YEARS TO INTEREST
DATE ISSUED PRINCIPAL MATURITY RATE
-------------------------- ----------- --------- ----------
January 15, 2003 . . . . . . . . $ 20,000 12.0 5.75%
January 28, 2003 . . . . . . . . 15,000 10.0 5.50%
January 28, 2003 . . . . . . . . 6,000 10.0 5.50%
February 12, 2003. . . . . . . . 20,000 12.0 5.57%
February 26, 2003. . . . . . . . 25,000 12.0 5.35%
February 28, 2003. . . . . . . . 25,000 12.0 5.25%
March 5, 2003. . . . . . . . . . 25,000 10.5 4.99%
-----------
Total . . . . . . . . . $ 136,000
===========
Subsequent to quarter-end, WRI issued a seven-year $15 million medium term note
bearing interest at 4.48%. Proceeds received were used to pay down amounts
outstanding under our $350 million revolving credit facility.
Total debt outstanding increased $323.0 million to $1.7 billion during the nine
month period ending September 30, 2003. This increase was primarily due to the
funding of the Company's acquisitions and ongoing development and redevelopment
efforts. Included in total debt outstanding of $1.7 billion at September 30,
2003 is variable-rate debt of $341.7 million, after recognizing the net effect
of $127.5 million of interest rate swaps.
On April 24, 2003, the SEC declared effective WRI's $1 billion shelf
registration statement, of which $932.7 million is currently available.
On April 4, 2003, WRI called for redemption of the 7.44% Series A Cumulative
Redeemable Preferred Shares. The redemption of these shares on May 5, 2003 was
financed through the issuance on April 30, 2003 of $75 million of depositary
shares. Each depositary share, representing one-thirtieth of a Series D
Cumulative Redeemable Preferred Share, is redeemable at par at WRI's election on
or after April 30, 2008. The depositary shares pay a 6.75% annual dividend and
have a liquidation value of $25 per share.
Page 17
Subsequent to quarter-end, we completed the sale of 1.15 million common shares
of beneficial interest. Net proceeds to WRI totaled $50.9 million based on a
price of $45.50 per share. These funds may be used for the possible redemption
of a portion of our 7.125% Series B Cumulative Redeemable Preferred Shares, but
in the interim we have paid down amounts outstanding under our $350 million
revolving credit facility.
FUNDS FROM OPERATIONS
The Board of Governors of 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. In the third quarter of 2003, NAREIT amended its
definition of FFO to include the effect of writing off original issuance costs
associated with preferred share redemptions. We calculate FFO in a manner
consistent with the NAREIT definition and have adjusted FFO for the nine months
ending September 30, 2003 for the $2.5 million of issuance costs associated with
the redemption of Series A Preferred Shares in May 2003. Most industry analysts
and equity REITS, including WRI, believe FFO is an appropriate alternative
measurement of operating performance relative to other REITs. FFO provides
investors with additional information to better understand our ability to incur
and service debt, make capital expenditures and pay common share dividends.
There can be no assurance that FFO presented by WRI 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.
Funds from operations - diluted for the three and nine months ended September
30, 2003 and 2002 is calculated as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2003 2002 2003 2002
--------- --------- ---------- ----------
Net income available to common shareholders . . . . $ 28,381 $ 34,486 $ 74,410 $ 85,359
Depreciation and amortization . . . . . . . . . . . 21,340 18,691 61,518 54,921
Depreciation and amortization of unconsolidated
joint ventures. . . . . . . . . . . . . . . . . . 460 476 1,357 1,494
Gain on sale of properties. . . . . . . . . . . . . (3,473) (10,818) (4,238) (15,158)
Gain on sale of properties of unconsolidated
joint ventures. . . . . . . . . . . . . . . . . . (508) (508)
--------- --------- ---------- ----------
Funds from operations . . . . . . . . 46,200 42,835 132,539 126,616
Funds from operations attributable to operating
partnership units . . . . . . . . . . . . . . . . 1,207 1,089 3,561 2,288
--------- --------- ---------- ----------
Funds from operations assuming
conversion of OP units. . . . . . . $ 47,407 $ 43,924 $ 136,100 $ 128,904
========= ========= ========== ==========
Weighted average shares outstanding - basic . . . . 52,161 51,993 52,127 51,869
Effect of dilutive securities:
Share options and awards. . . . . . . . . . . 598 369 499 326
Operating partnership units . . . . . . . . . 1,358 1,479 1,427 1,001
--------- --------- ---------- ----------
Weighted average shares outstanding - diluted . . . 54,117 53,841 54,053 53,196
========= ========= ========== ==========
Page 18
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Net income available to common shareholders decreased to $28.4 million, or $.54
per diluted share, from $34.5 million, or $.65 per diluted share for the third
quarter of 2003 as compared with the same quarter of 2002. The decrease in net
income available to common shareholders is due primarily to the $10.8 million
gain from the disposition of non-core assets in 2002, whereas the third quarter
of 2003 only contains $3.5 million of such gains.
Rental revenues were $103.5 million in the third quarter of 2003, as compared to
$90.5 million in the third quarter of 2002, representing an increase of
approximately $13.0 million, or 14.4%. Property acquisitions and new development
contributed $10.2 million to this increase, with the remaining increase of $2.8
million attributable to our existing properties. Occupancy of the total
portfolio was 92.6% at September 30, 2003 as compared to 91.4% at September 30,
2002. The occupancy of the retail portfolio was 93.1% at September 30, 2003 as
compared to 92.3% at September 30, 2002, while the occupancy of the industrial
portfolio increased to 91.0% from 88.0% in the prior year. During the first nine
months of 2003, WRI completed 855 renewals or new leases comprising 4.7 million
square feet at an average rental rate increase of 8.7%. Net of the amortized
portion of capital costs for tenant improvements, the increase averaged 5.1%.
Other income increased by $1.1 million to $3.1 million in the third quarter of
2003 from $2.0 million for the same quarter of 2002. This increase is due
primarily to an increase in lease cancellation income from various tenants.
Gross interest costs, before capitalization of interest, increased by $4.4
million from $19.3 million in the third quarter of 2002 to $23.7 million for the
third quarter of 2003. The increase is due primarily to an increase in the
average debt outstanding between periods of $.3 billion from $1.2 billion in
2002 to $1.5 billion in 2003. The average interest rate remained unchanged at
6.2% in 2002 and 2003, respectively. The amount of interest capitalized during
the period was $1.5 million and $2.2 million in 2003 and 2002, respectively.
The decrease in interest capitalized between periods is due primarily to the
completion of new development projects.
General and administrative expenses increased by $1.1 million to $3.7 million in
the third quarter of 2003 from $2.6 for the same quarter of 2002. This increase
is due primarily to an increase in staffing necessitated by growth in portfolio
from acquisitions and new development.
The increases in depreciation and amortization, operating expenses and ad
valorem taxes were primarily the result of WRI's acquisitions and new
development programs.
Equity in earnings of joint ventures increased by $.5 million to $1.5 million in
the third quarter of 2003 from $1.0 million for the same quarter of 2002. This
increase is due primarily from the gain on the sale of a shopping center in Lake
Charles, Louisiana in a 50%-owned joint venture.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Net income available to common shareholders decreased to $74.4 million, or $1.42
per diluted share, from $85.4 million, or $1.64 per diluted share for the nine
months of 2003 as compared with the same period of 2002. The decrease in net
income available to common shareholders is due primarily to the $15.2 million
gain from the disposition of non-core assets in 2002, whereas the nine months of
2003 only contains $4.2 million of such gains.
Page 19
Rental revenues were $300.6 million for the nine months of 2003, as compared to
$262.3 million for the nine months of 2002, representing an increase of
approximately $38.3 million, or 14.6%. Property acquisitions and new development
contributed $31.2 million to this increase, with the remaining increase of $7.1
million attributable to our existing properties.
Other income increased by $1.7 million to $5.7 million for the nine months of
2003 from $4.0 million for the same period of 2002. This increase is due
primarily to an increase in lease cancellation income from various tenants.
Gross interest costs, before capitalization of interest, increased by $12.0
million from $55.5 million for the nine months of 2002 to $67.5 million for the
nine months of 2003. The increase is due primarily to an increase in the
average debt outstanding between periods of $.2 billion from $1.2 billion in
2002 to $1.4 billion in 2003. The average interest rate decreased from 6.3% in
2002 to 6.2% in 2003. The amount of interest capitalized during the period was
$4.8 million and $6.9 million in 2003 and 2002, respectively. The decrease in
interest capitalized between periods is due primarily to the completion of new
development projects.
General and administrative expenses increased by $1.4 million to $10.1 million
for the nine months of 2003 from $8.7 million for the same period of 2002. The
increase is due primarily to an increase in staffing necessitated by the growth
in the portfolio from acquisitions and new development.
The increases in depreciation and amortization, operating expenses and ad
valorem taxes were primarily the result of WRI's acquisitions and new
development programs.
Equity in earnings of joint ventures increased by $.5 million to $3.5 million
for the nine months of 2003 from $3.0 million for the same period of 2002. This
increase is due primarily from the gain on the sale of a shopping center in Lake
Charles, Louisiana in a 50%-owned joint venture.
Income allocated to minority interests increased by $.7 million to $2.3 million
for the nine months of 2003 from $1.6 million for the same period of 2002. The
increase is due primarily from the acquisition of seven supermarket-anchored
shopping centers in the Raleigh-Durham market in April 2002 utilizing a DownREIT
structure. These limited partnerships are included in our consolidated
financial statements because we exercise financial and operating control.
NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure- an amendment of FASB Statement No. 123",
which is effective for fiscal years beginning after December 15, 2002. This
statement provides alternative methods of transition for an entity that
voluntarily changes to the fair value-based method of accounting for stock-based
employee compensation. It also amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. We adopted this
statement effective January 1, 2003 using the prospective method, which requires
us to recognize stock-based employee compensation as new share options are
awarded. Stock-based employee compensation associated with share options
awarded during 2003 was $2 thousand for the quarter ending September 30, 2003
and $7 thousand for the nine months ended September 30, 2003, respectively.
With respect to share options awarded prior to January 1, 2003, WRI accounted
for stock-based employee compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. In accordance with this
opinion, no stock-based employee compensation had been recognized in WRI's
financial statements prior to January 1, 2003.
Page 20
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 Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2003 2002 2003 2002
--------- --------- ---------- ----------
Net income available to common shareholders. . . . . . . $ 28,381 $ 34,486 $ 74,410 $ 85,359
Stock-based employee compensation included in
net income available to common shareholders. . . . . . 2 7
Stock-based employee compensation determined
under the fair value-based method for all awards . . . (103) (86) (310) (258)
--------- --------- ---------- ----------
Pro forma net income available to
common shareholders. . . . . . . . . . . . . . . . . . $ 28,280 $ 34,400 $ 74,107 $ 85,101
========= ========= ========== ==========
Net income per common share:
Basic - as reported. . . . . . . . . . . . . . . . $ .54 $ .66 $ 1.43 $ 1.65
========= ========= ========== ==========
Basic - pro forma. . . . . . . . . . . . . . . . . $ .54 $ .66 $ 1.42 $ 1.64
========= ========= ========== ==========
Net income per common share:
Diluted - as reported. . . . . . . . . . . . . . . $ .54 $ .65 $ 1.42 $ 1.64
========= ========= ========== ==========
Diluted - pro forma. . . . . . . . . . . . . . . . $ .54 $ .65 $ 1.41 $ 1.63
========= ========= ========== ==========
In November 2002, FASB issued Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". FIN 45 establishes new disclosure and
liability-recognition requirements for direct and indirect debt guarantees with
specified characteristics. The initial measurement and recognition requirements
of FIN 45 are effective prospectively for guarantees issued or modified after
December 31, 2002. However, the disclosure requirements are effective for
interim and annual financial-statement periods ending after December 15, 2002.
WRI has adopted the disclosure provisions, and management has concluded that the
full adoption of FIN 45 does not have a material impact on the financial
position, results of operations or cash flows.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities". FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. FIN 46 requires disclosures
about variable interest entities that a company is not required to consolidate,
but in which it has a significant variable interest. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. On October 9, 2003, the FASB issued
FIN 46-6 deferring the effective date until the first interim or annual period
ending after December 15, 2003 for interests held in entities created before
February 1, 2003. WRI is evaluating the potential impact of FIN 46 on our
financial position, results of operations and cash flows for those entities
created prior to February 1, 2003. WRI has assessed its joint ventures formed
subsequent to February 1, 2003 and determined that the adoption of FIN 46 did
not have a material impact to our financial position, results of operations or
cash flows.
Page 21
In May 2003, FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" which is
effective in the first interim period beginning after June 15, 2003. 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. WRI's Series B and Series C Cumulative Redeemable Preferred Shares
fall within the scope of SFAS No. 150, since they are mandatorily redeemable and
redemption is through transfer of cash or a variable number of WRI common
shares. As a result as of September 30, 2003, we reclassified the redemption
value, net of unamortized issuance costs of $6.3 million, of these shares from
equity to liabilities identified as "Preferred Shares Subject to Mandatory
Redemption."
ITEM 3. 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 September
30, 2003, WRI had fixed-rate debt of $1.3 billion and variable-rate debt of
$341.7 million, after adjusting for the net effect of $127.5 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-14(e) and 15d-14(c) of the Securities
Exchange Act of 1934) as of September 30, 2003. 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 September 30,
2003.
In January 2004, WRI determined that a newly-released accounting standard
governing financial instruments having characteristics of both liabilities and
equity needed to be applied in a manner different from that previously applied
in its financial statements for the period ended September 30, 2003. Steps have
been taken to enhance our internal controls to ensure that we properly apply new
accounting standards including access to enhanced accounting research tools. We
will continue to evaluate the effectiveness of our disclosure controls over
financial reporting on an on-going basis and will take further action as
appropriate.
Other than described above, there has been no change to our internal control
over financial reporting during the quarter ended September 30, 2003 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Page 22
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12.1 A statement of computation of ratios of earnings
and funds from operations to combined fixed
charges and preferred dividends.
31.1 Certification pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
31.2 Certification pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
32.1 Certification pursuant to 18 U.S.C. Sec. 1350, as
adopted pursuant to Sec. 906 of the Sarbanes-Oxley
Act of 2002 (Chief Executive Officer).
32.2 Certification pursuant to 18 U.S.C. Sec. 1350, as
adopted pursuant to Sec. 906 of the Sarbanes-Oxley
Act of 2002 (Chief Financial Officer).
(b) Reports on Form 8-K
A Form 8-K, dated August 15, 2003, was filed in response
to Item 7. Exhibits and Item 12. Results of Operation
and Financial Condition.
Page 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEINGARTEN REALTY INVESTORS
-----------------------------
(Registrant)
BY: /s/ Andrew M. Alexander
---------------------------------
Andrew M. Alexander
President/Chief Executive Officer
(Principal Executive Officer)
BY: /s/ Joe D. Shafer
---------------------------------
Joe D. Shafer
Vice President/Controller
(Principal Accounting Officer)
DATE: February 24, 2004
------------------
Page 24
EXHIBIT INDEX
EXHIBIT
NUMBER
------
12.1 A statement of computation of ratios of earnings and funds from
operations to combined fixed charges and preferred dividends.
31.1 Certification pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002 (Chief Executive Officer).
31.2 Certification pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002 (Chief Financial Officer).
32.1 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant
to Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer).
32.2 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant
to Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).
Page 25