_________________
Total square footage includes 464,561 square feet of building area and 12,267,045 square feet of land leased from others.
Footnotes for detail property listing:
| (1) | Denotes partial ownership. The square feet figures represent our proportionate ownership of the property held by the joint venture or partnership. |
| (2) | Denotes property currently under development. |
| (3) | Denotes properties that are not consolidated under generally accepted accounting principles. |
| NOTE: | Square feet are reflective of area available to be leased. Certain listed properties may have additional square feet that are not owned by us. |
General. In 2008, no single property accounted for more than 1.7% of our total assets or 1.5% of gross revenues. The five largest properties, in the aggregate, represented approximately 6.7% of our gross revenues for the year ended December 31, 2008; otherwise, none of the remaining properties accounted for more than 1.2% of our gross revenues during the same period. The weighted average occupancy rate for all of our improved properties as of December 31, 2008 was 92.6% compared to 94.4% as of December 31, 2007. The average effective annual rental per square foot was approximately $13.16 in 2008, $12.57 in 2007, $12.12 in 2006, $11.38 in 2005 and $11.01 in 2004 for retail properties and $4.98 in 2008, $4.86 in 2007, $4.91 in 2006, $4.89 in 2005 and $4.70 in 2004 for industrial properties.
The majority of our properties are owned directly by us (subject in some cases to mortgages), although our interests in some properties are held indirectly through interests in real estate joint ventures or under long-term leases. In our opinion, our properties are well maintained and in good repair, suitable for their intended uses, and adequately covered by insurance.
We participate in 69 real estate joint ventures or partnerships that hold 140 of our properties. Our ownership interest ranges from 7.8% to 99%; we are normally the managing or operating partner and receive a fee for acting in this capacity.
We may use a DownREIT operating partnership structure in the acquisition of some real estate properties. In these transactions, a fair value purchase price is agreed upon between us, as general partner of the DownREIT, and the seller where the seller receives operating partnership units in exchange for some or all of its ownership interest in the property. Each operating partnership unit is the equivalent of one of our common shares of beneficial interest. These units generally allow our partners the right to put their limited partnership units’ interest to us on or after the first anniversary of the entity’s formation. We may acquire these limited partnership units for either cash or a fixed number of our common shares of beneficial interest at our discretion.
Shopping Centers. At December 31, 2008, we owned or operated under long-term leases, either directly or through our interest in real estate joint ventures or partnerships, a total of 299 developed income-producing properties and 24 properties under various stages of construction and development, which are located in 22 states spanning the USA from coast to coast.
Our shopping centers are primarily neighborhood and community shopping centers that typically range in size from 100,000 to 600,000 square feet of building area, as distinguished from large regional enclosed malls and small strip centers, which generally contain 5,000 to 25,000 square feet. Almost none of the centers have climatized common areas, but are designed to allow retail customers to park their automobiles in close proximity to any retailer in the center. Our centers are customarily constructed of masonry, steel and glass, and all have lighted, paved parking areas, which are typically landscaped with berms, trees and shrubs. They are generally located at major intersections in close proximity to neighborhoods that have existing populations sufficient to support retail activities of the types conducted in our centers.
We have approximately 7,200 separate leases with 5,300 different tenants. Included among our top revenue-producing tenants are: The Kroger Co., T.J.X. Companies, Safeway, Ross Stores, Publix, Home Depot, Office Depot, Blockbuster Video, Petsmart and Gap. The diversity of our tenant base is also evidenced by the fact that our largest tenant accounted for only 2.7% of rental revenues during 2008.
Lease expirations as of December 31, 2008 for the next ten years, assuming tenants do not exercise renewal options:
| | | | | | | | | | Annual Net Rent of Expiring Leases | |
| Year | | Number of Expiring Leases | | Square Feet of Expiring Leases (000's) | | Percentage of Leaseable Square Feet | | | Total (000’s) | | | Per Square Foot | |
| 2009 | | 925 | | 4,746 | | 10.48 | % | | $ | 49,223 | | | $ | 10.37 | |
| 2010 | | 1,144 | | 5,955 | | 13.16 | % | | | 70,667 | | | | 11.87 | |
| 2011 | | 1,099 | | 5,998 | | 13.25 | % | | | 73,830 | | | | 12.31 | |
| 2012 | | 742 | | 5,153 | | 11.38 | % | | | 61,072 | | | | 11.85 | |
| 2013 | | 748 | | 5,583 | | 12.33 | % | | | 62,148 | | | | 11.13 | |
| 2014 | | 271 | | 3,532 | | 7.80 | % | | | 32,720 | | | | 9.26 | |
| 2015 | | 128 | | 1,339 | | 2.96 | % | | | 15,168 | | | | 11.33 | |
| 2016 | | 105 | | 1,303 | | 2.88 | % | | | 15,596 | | | | 11.97 | |
| 2017 | | 111 | | 1,513 | | 3.34 | % | | | 20,505 | | | | 13.55 | |
| 2018 | | 116 | | 1,637 | | 3.62 | % | | | 18,904 | | | | 11.55 | |
In the ordinary course of business, we have tenants who cease making payments under their leases or who file for bankruptcy protection. We are unable to predict or forecast the timing of store closings or unexpected vacancies. While we believe the effect of this will not have a material impact on our financial position, results of operations, or liquidity due to the significant diversification of our tenant base, the uncertainty in the economy and commercial credit markets could result in a negative impact.
Our shopping center leases have lease terms generally ranging from three to five years for tenant space under 5,000 square feet and from 10 to 25 years for tenant space over 10,000 square feet. Leases with primary lease terms in excess of 10 years, generally for anchor and out-parcels, frequently contain renewal options which allow the tenant to extend the term of the lease for one or more additional periods, with each of these periods generally being of a shorter duration than the primary lease term. The rental rates paid during a renewal period are generally based upon the rental rate for the primary term; sometimes adjusted for inflation, market conditions or an amount of the tenant's sales during the primary term.
Most of our leases provide for the monthly payment in advance of fixed minimum rentals, the tenants' pro rata share of ad valorem taxes, insurance (including fire and extended coverage, rent insurance and liability insurance) and common area maintenance for the center (based on estimates of the costs for these items). They also provide for the payment of additional rentals based on a percentage of the tenants' sales. Utilities are generally paid directly by tenants except where common metering exists with respect to a center. In this case we make payments for the utilities, and the tenants on a monthly basis reimburse us. Generally, our leases prohibit the tenant from assigning or subletting its space. They also require the tenant to use its space for the purpose designated in its lease agreement and to operate its business on a continuous basis. Some of the lease agreements with major tenants contain modifications of these basic provisions in view of the financial condition, stability or desirability of those tenants. Where a tenant is granted the right to assign its space, the lease agreement generally provides that the original lessee will remain liable for the payment of the lease obligations under that lease agreement.
In January 2008, we acquired a 4,000 square foot pad building located in Florida through a 25%-owned unconsolidated joint venture.
In March 2008, we contributed 18 neighborhood/community shopping centers located in Texas with an aggregate value of approximately $227.5 million, and aggregating more than 2.1 million square feet, to a joint venture. We sold an 85% interest in this joint venture to AEW Capital Management on behalf of one of its institutional clients and received proceeds approximating $216.1 million. We maintain a 15% ownership interest in this venture, which is consolidated in our financial statements.
In May 2008, we acquired Kirby Strip Center, a 10,000 square foot building located in Texas.
In August 2008, we executed a real estate limited partnership with a foreign institutional investor to purchase up to $250 million of retail properties in various states. Our ownership in this unconsolidated real estate limited partnership is 20.1%. As of December 31, 2008, no properties have been purchased.
In November 2008, we contributed eight neighborhood/community shopping centers with an aggregate value of approximately $205.1 million, and aggregating approximately 1.1 million square feet, to a joint venture. Four of these shopping centers are located in Texas, two in Tennessee and one each in Florida and Georgia. We sold a 70% interest in this joint venture to Hines REIT Retail Holdings, LLC and received proceeds of approximately $121.8 million. We maintain a 30% ownership interest in this venture, which is consolidated in our financial statements.
During 2008, we sold nine shopping centers, of which five are located in Texas, one in California and three in Louisiana. Sales proceeds from these dispositions totaled $138.4 million and generated gains of $66.3 million.
Industrial Properties. At December 31, 2008, we owned, either directly or through our interest in real estate joint ventures or partnerships, 78 industrial projects and three other operating properties totaling approximately 17.7 million square feet of building area. Our industrial properties consist of bulk warehouse, business distribution and office-service center assets ranging in size from 9,000 to 727,000 square feet. Similar to our shopping centers, these properties are customarily constructed of masonry, steel and glass, and have lighted, concrete parking areas and are well landscaped. The national and regional tenants in our industrial centers include Hitachi Transport Systems, Sears Logistics, Publix, Shell, Rooms to Go, UPS Supply Chain Solutions, Sanderson Industries, General Electric Company, G.E. Polymershapes, Inc., Interline Brands, Inc., Rooftop Systems Inc., Wells Fargo Bank and Iron Mountain. Our properties are located in Arizona, California, Florida, Georgia, Tennessee, Texas and Virginia.
In 2008, we sold one industrial center totaling 59,000 square feet located in Texas. Sales proceeds from this disposition totaled $5.6 million and generated a gain of $2.4 million.
Land Held for Development. At December 31, 2008, we owned 31 parcels of unimproved land consisting of approximately 29.8 million square feet of land area located in Arizona, California, Colorado, Florida, Georgia, Louisiana, Nevada, North Carolina and Texas. These properties include approximately .2 million square feet of land adjacent to certain of our existing developed properties, which may be used for expansion of these developments, as well as approximately 29.6 million square feet of land, which may be used for new development. Most of the land held for development is served by roads and utilities and are suitable for development as shopping centers or industrial projects, and we intend to emphasize the development of these parcels for such purpose. Due to our analysis of current economic considerations, including the effects of tenant bankruptcies, lack of available funding and halt of tenant expansion plans for new development projects and declines in the real estate values, plans related to our new development properties including land held for development changed, and the use of these assets was no longer certain which brought about an impairment change. Impairments, primarily related to our new development properties, of $52.5 million were recongnized for the year ended December 31, 2008.
New Development Properties. At December 31, 2008, we had 25 projects under construction or in preconstruction stages with an estimated final square footage of approximately 6.5 million. These properties are slated to be completed over the next one to four years.
During 2008, we generated gains of $8.3 million from the sale of 24 parcels of land located in Arizona, California, Colorado, Florida, Georgia, Nevada, North Carolina and Texas, and the recognition of a deferred gain from the sale of a land parcel in Nevada. In an unconsolidated real estate joint venture and partnership, two land parcels were sold in Colorado and Washington. Our share of the sales proceeds and the gain generated totaled $.7 million and $.4 million, respectively.
We are involved in various matters of litigation arising in the normal course of business. While we are unable to predict with certainty the amounts involved, our management and counsel believe that when such litigation is resolved, our resulting liability, if any, will not have a material adverse effect on our consolidated financial statements.
None.
Our common shares of beneficial interest are listed and traded on the New York Stock Exchange under the symbol "WRI." The number of holders of record of our common shares of beneficial interest as of January 31, 2009 was 3,225. The closing high and low sale prices per common share as reported on the New York Stock Exchange, and dividends per share paid for the fiscal quarters indicated were as follows:
| | | High | | | Low | | | Dividends | |
| | | | | | | | | | |
| 2008: | | | | | | | | | |
| Fourth | | $ | 35.08 | | | $ | 10.10 | | | $ | .525 | |
| Third | | | 40.00 | | | | 27.38 | | | | .525 | |
| Second | | | 38.71 | | | | 30.32 | | | | .525 | |
| First | | | 35.42 | | | | 28.37 | | | | .525 | |
| | | | | | | | | | | | | |
| 2007: | | | | | | | | | | | | |
| Fourth | | $ | 44.82 | | | $ | 31.44 | | | $ | .495 | |
| Third | | | 42.15 | | | | 36.34 | | | | .495 | |
| Second | | | 49.00 | | | | 40.84 | | | | .495 | |
| First | | | 52.16 | | | | 46.06 | | | | .495 | |
The following table summarizes the equity compensation plans under which our common shares of beneficial interest may be issued as of December 31, 2008:
| Plan category | | Number of shares to be issued upon exercise of outstanding options, warrants and rights | | | Weighted average exercise price of outstanding options, warrants and rights | | | Number of shares remaining available for future issuance | |
| | | | | | | | | | |
| Equity compensation plans approved by shareholders | | | 3,317,655 | | | $ | 32.96 | | | | 2,011,682 | |
| | | | | | | | | | | | | |
| Equity compensation plans not approved by shareholders | | | ― | | | | ― | | | | ― | |
| | | | | | | | | | | | | |
| Total | | | 3,317,655 | | | $ | 32.96 | | | | 2,011,682 | |
Performance Graph
The graph below provides an indicator of cumulative total shareholder returns for us as compared with the S&P 500 Stock Index and the NAREIT All Equity Index, weighted by market value at each measurement point. The graph assumes that $100 was invested on December 31, 2003 in our common shares of beneficial interest and that all dividends were reinvested by the shareholder.
Comparison of Five Year Cumulative Return
| | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2008 | |
| | | | | | | | | | | | | | | | |
| Weingarten | | | 142.37 | | | | 140.59 | | | | 179.24 | | | | 128.19 | | | | 91.88 | |
| S&P 500 Index | | | 110.88 | | | | 116.33 | | | | 134.70 | | | | 142.10 | | | | 89.53 | |
| The NAREIT All Equity Index | | | 131.58 | | | | 147.58 | | | | 199.32 | | | | 168.05 | | | | 104.65 | |
There can be no assurance that our share performance will continue into the future with the same or similar trends depicted in the graph above. We will not make or endorse any predications as to future share performance.
In July 2007, our Board of Trust Managers authorized a common share repurchase program as part of our ongoing investment strategy. Under the terms of the program, we may purchase up to a maximum value of $300 million of our common shares of beneficial interest during the following two years. Share repurchases may be made in the open market or in privately negotiated transactions at the discretion of management and as market conditions warrant. We anticipate funding the repurchase of shares primarily through the proceeds received from our property disposition program, as well as from general corporate funds.
The maximum dollar value of shares that may yet be purchased under the program is $196.7 million.
The following table sets forth our selected consolidated financial data and should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements and accompanying Notes in "Item 8. Financial Statements and Supplementary Data" and the financial schedules included elsewhere in this Form 10-K.
| | | (Amounts in thousands, except per share amounts) | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
| | | | | | | | | | | | | | | | |
| Revenues (primarily real estate rentals) | | $ | 614,968 | | | $ | 583,767 | | | $ | 523,424 | | | $ | 473,974 | | | $ | 428,144 | |
| Expenses: | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 155,912 | | | | 128,061 | | | | 117,443 | | | | 106,949 | | | | 95,219 | |
| Other | | | 269,803 | | | | 197,365 | | | | 170,196 | | | | 143,106 | | | | 134,284 | |
| Total | | | 425,715 | | | | 325,426 | | | | 287,639 | | | | 250,055 | | | | 229,503 | |
| Operating Income | | | 189,253 | | | | 258,341 | | | | 235,785 | | | | 223,919 | | | | 198,641 | |
| Interest Expense | | | (148,475 | ) | | | (148,829 | ) | | | (145,374 | ) | | | (129,160 | ) | | | (116,142 | ) |
| Interest and Other Income, net | | | 4,334 | | | | 8,486 | | | | 9,044 | | | | 2,854 | | | | 1,389 | |
| Loss on Redemption of Preferred Shares | | | | | | | | | | | | | | | | | | | (3,566 | ) |
| Gain on Redemption of Convertible Senior Unsecured Notes | | | 10,658 | | | | | | | | | | | | | | | | | |
| Equity in Earnings of Real Estate Joint Ventures and Partnerships, net | | | 12,196 | | | | 19,853 | | | | 14,655 | | | | 6,610 | | | | 5,384 | |
| Income Allocated to Minority Interests | | | (8,943 | ) | | | (10,237 | ) | | | (6,414 | ) | | | (6,060 | ) | | | (4,928 | ) |
| Gain on Land and Merchant Development Sales | | | 8,342 | | | | 16,385 | | | | 7,166 | | | | 804 | | | | | |
| Gain on Sale of Properties | | | 1,998 | | | | 4,086 | | | | 22,493 | | | | 22,306 | | | | 1,562 | |
| Benefit (Provision) for Income Taxes | | | 10,148 | | | | (4,073 | ) | | | (1,366 | ) | | | | | | | | |
| Income from Continuing Operations | | | 79,511 | | | | 144,012 | | | | 135,989 | | | | 121,273 | | | | 82,340 | |
| Income from Discontinued Operations (1) | | | 72,170 | | | | 94,005 | | | | 169,021 | | | | 98,380 | | | | 59,041 | |
| Net Income | | $ | 151,681 | | | $ | 238,017 | | | $ | 305,010 | | | $ | 219,653 | | | $ | 141,381 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net Income Available to Common Shareholders | | $ | 115,120 | | | $ | 212,642 | | | $ | 294,909 | | | $ | 209,552 | | | $ | 133,911 | |
| Per Share Data - Basic: | | | | | | | | | | | | | | | | | | | | |
| Income from Continuing Operations | | $ | 0.51 | | | $ | 1.39 | | | $ | 1.43 | | | $ | 1.25 | | | $ | 0.87 | |
| Net Income | | $ | 1.36 | | | $ | 2.49 | | | $ | 3.36 | | | $ | 2.35 | | | $ | 1.55 | |
| Weighted Average Number of Shares | | | 84,474 | | | | 85,504 | | | | 87,719 | | | | 89,224 | | | | 86,171 | |
| Per Share Data - Diluted: | | | | | | | | | | | | | | | | | | | | |
| Income from Continuing Operations | | $ | 0.51 | | | $ | 1.38 | | | $ | 1.43 | | | $ | 1.25 | | | $ | 0.87 | |
| Net Income | | $ | 1.36 | | | $ | 2.44 | | | $ | 3.27 | | | $ | 2.31 | | | $ | 1.54 | |
| Weighted Average Number of Shares | | | 84,917 | | | | 88,893 | | | | 91,779 | | | | 93,166 | | | | 89,511 | |
| | | | | | | | | | | | | | | | | | | | | |
| Property (at cost) | | $ | 4,915,472 | | | $ | 4,972,344 | | | $ | 4,445,888 | | | $ | 4,033,579 | | | $ | 3,751,607 | |
| Total Assets | | $ | 5,114,699 | | | $ | 4,993,343 | | | $ | 4,373,887 | | | $ | 3,737,741 | | | $ | 3,470,318 | |
| Debt | | $ | 3,171,537 | | | $ | 3,165,059 | | | $ | 2,941,039 | | | $ | 2,348,504 | | | $ | 2,138,842 | |
| | | | | | | | | | | | | | | | | | | | | |
| Other Data: | | | | | | | | | | | | | | | | | | | | |
| Cash Flows from Operating Activities | | $ | 220,150 | | | $ | 223,309 | | | $ | 242,592 | | | $ | 200,525 | | | $ | 203,886 | |
| Cash Flows from Investing Activities | | $ | (115,391 | ) | | $ | (480,630 | ) | | $ | (314,686 | ) | | $ | (104,459 | ) | | $ | (349,654 | ) |
| Cash Flows from Financing Activities | | $ | (111,590 | ) | | $ | 252,095 | | | $ | 100,407 | | | $ | (97,791 | ) | | $ | 170,928 | |
| Cash Dividends per Common Share | | $ | 2.10 | | | $ | 1.98 | | | $ | 1.86 | | | $ | 1.76 | | | $ | 1.66 | |
| Funds from Operations: (2) | | | | | | | | | | | | | | | | | | | | |
| Net Income Available to Common Shareholders | | $ | 115,120 | | | $ | 212,642 | | | $ | 294,909 | | | $ | 209,552 | | | $ | 133,911 | |
| Depreciation and Amortization | | | 162,035 | | | | 141,150 | | | | 131,792 | | | | 125,742 | | | | 114,342 | |
| Gain on Sale of Properties | | | (70,068 | ) | | | (86,076 | ) | | | (172,056 | ) | | | (87,561 | ) | | | (26,316 | ) |
| Total | | $ | 207,087 | | | $ | 267,716 | | | $ | 254,645 | | | $ | 247,733 | | | $ | 221,937 | |
| (1) | SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" requires the operating results and gain (loss) on the sale of operating properties to be reported as discontinued operations for all periods presented. |
| (2) | The National Association of Real Estate Investment Trusts (“NAREIT”) defines funds from operations (“FFO”) as net income (loss) available to common shareholders computed in accordance with generally accepted accounting principles, excluding gains or losses from sales of real estate assets and extraordinary items, plus depreciation and amortization of operating properties, including our share of unconsolidated real estate joint ventures and partnerships. We calculate FFO in a manner consistent with the NAREIT definition. Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income by itself as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that uses historical cost accounting is insufficient by itself. There can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs. FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. |
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. Our results of operations and financial condition, as reflected in the accompanying consolidated financial statements and related footnotes, are subject to management's evaluation and interpretation of business conditions, retailer performance, changing capital market conditions and other factors which could affect the ongoing viability of our tenants.
Executive Overview
Weingarten Realty Investors is a real estate investment trust (“REIT”) organized under the Texas Real Estate Investment Trust Act. We, and our predecessor entity, began the ownership and development of shopping centers and other commercial real estate in 1948. Our primary business is leasing space to tenants in the shopping and industrial centers we own or lease. We also manage centers for joint ventures in which we are partners or for other outside owners for which we charge fees.
We operate a portfolio of rental properties which includes neighborhood and community shopping centers and industrial properties of approximately 73.0 million square feet. We have a diversified tenant base with our largest tenant comprising only 2.7% of total rental revenues during 2008.
Our long-term strategy is to focus on increasing funds from operations (“FFO”) and growing dividend payments to our common shareholders. We do this through hands-on leasing, management and selected redevelopment of the existing portfolio of properties, through disciplined growth from selective acquisitions and new developments, and through the disposition of assets that no longer meet our ownership criteria. We do this while remaining committed to maintaining a conservative balance sheet, a well-staggered debt maturity schedule and strong credit agency ratings. The depressed economic environment and capital markets have caused us to currently refocus our efforts on maintaining our operating properties at current levels and managing our capital resources to ensure adequate liquidity.
We strive to maintain a strong, conservative capital structure, which provides ready access to a variety of attractive capital sources. We carefully balance obtaining low cost financing with minimizing exposure to interest rate movements and matching long-term liabilities with the long-term assets acquired or developed. The turmoil in the current capital markets has adversely affected both the pricing and the availability of both debt and equity capital. Our strategy for the upcoming year is focused on the sourcing of new capital whether it is in the form of proceeds from asset dispositions, joint venture relationships, new financings or new equity issuances.
At December 31, 2008, we owned or operated under long-term leases, either directly or through our interest in real estate joint ventures or partnerships, a total of 379 developed income-producing properties and 25 properties under various stages of construction and development. The total number of centers includes 323 neighborhood and community shopping centers, 78 industrial projects and three other operating properties located in 23 states spanning the country from coast to coast.
We also owned interests in 31 parcels of land held for development that totaled approximately 29.8 million square feet.
We had approximately 7,200 leases with 5,300 different tenants at December 31, 2008.
Leases for our properties range from less than a year for smaller spaces to over 25 years for larger tenants. Rental revenues generally include minimum lease payments, which often increase over the lease term, reimbursements of property operating expenses, including ad valorem taxes, and additional rent payments based on a percentage of the tenants' sales. The majority of our anchor tenants are supermarkets, value-oriented apparel/discount stores and other retailers or service providers who generally sell basic necessity-type goods and services. Through this challenging economic environment, we believe stability of our anchor tenants, combined with convenient locations, attractive and well-maintained properties, high quality retailers and a strong tenant mix, should ensure the long-term success of our merchants and the viability of our portfolio.
In assessing the performance of our properties, management carefully tracks the occupancy of the portfolio. The weakened economy contributed to a drop in our occupancy from 94.4% at December 31, 2007 to 92.6% at December 31, 2008. While we will continue to monitor the economy and the effects on our retailers, we believe the significant diversification of our portfolio both geographically and by tenant base will allow us to maintain occupancy levels of above 90% as we move through the year, absent bankruptcies by multiple national or regional tenants. Another important indicator of performance is the increase in rental rates on a same-space basis as we complete new leases and renew existing leases. We completed 1,243 new leases or renewals during 2008 totaling 6.3 million square feet, increasing rental rates an average of 10.2% on a cash basis.
New Development
At December 31, 2008, we had 25 properties in various stages of development. We have invested $366.1 million to-date on these projects and, at completion, we estimate our total investment to be $470.7 million. These properties are slated to open over the next one to four years with a projected return on investment of approximately 8.1% when completed. Also, five additional properties have been stabilized during 2008 with a total investment of $89.5 million and a projected return on investment of 9.1%.
In 2008, we had $118.1 million in properties that were held for future development pending improvement in economic conditions. Due to current economic factors, obtaining new projects in 2008 proved challenging as potential retail anchors delayed or halted their expansion plans due to the deterioration of the economy. Due to our analysis of current economic considerations, including the effects of tenant bankruptcies, lack of available funding and halt of tenant expansion plans for new development projects and declines in the real estate values, plans related to our new development properties including land held for development changed, and the use of these assets was no longer certain which brought about an impairment charge. Impairments, primarily related to our new development properties, of $52.5 million were recognized for the year ended December 31, 2008. While we will continue to seek opportunities and monitor this market closely, we anticipate little if any investment in new projects in 2009.
Merchant development is a program where we acquire or develop a project with the objective of selling all or part of it, instead of retaining it in our portfolio on a long-term basis. Also, disposition of land parcels are included in this program. We generated gains of approximately $8.3 million from this program during 2008. While our 2009 business plan calls for merchant development gains similar to those obtained in 2008, there is no assurance this will occur due to the depressed state of the commercial real estate markets.
Acquisitions and Joint Ventures
Acquisitions and joint venture arrangements are a key component of our strategy. However, the turmoil in the capital markets has significantly reduced transactions in the marketplace and, therefore, created uncertainty with respect to pricing. Partnering with institutional investors through real estate joint ventures enables us to acquire high quality assets in our target markets while also meeting our financial return objectives. We benefit from access to lower-cost capital, as well as leveraging our expertise to provide fee-based services, such as asset management and the acquisition, leasing and management of properties, to the joint ventures.
During 2008, we acquired one shopping center and invested in a 25%-owned unconsolidated joint venture to acquire a 4,000 square foot pad building located in Florida for a purchase price of approximately $2.7 million.
In March 2008, we contributed 18 neighborhood/community shopping centers located in Texas with an aggregate value of approximately $227.5 million, and aggregating more than 2.1 million square feet, to a joint venture. We sold an 85% interest in this joint venture to AEW Capital Management on behalf of one of its institutional clients. Financing totaling $154.3 million was placed on the properties and guaranteed by us for tax planning purposes.
In August 2008, we executed a real estate limited partnership with a foreign institutional investor to purchase up to $250 million of retail properties in various states. Our ownership in this unconsolidated real estate limited partnership is 20.1%. As of December 31, 2008, no properties had been purchased.
In November 2008, we contributed eight neighborhood/community shopping centers with an aggregate value of approximately $205.1 million, and aggregating approximately 1.1 million square feet, to a joint venture. Four of these shopping centers are located in Texas, two in Tennessee and one each in Florida and Georgia. We sold a 70% interest in this joint venture to Hines REIT Retail Holdings, LLC. Financing totaling $100.0 million was placed on the properties and guaranteed by us for tax planning purposes.
Subsequent to December 31, 2008, we contributed two additional properties to the joint venture with Hines REIT Retail Holdings, LLC with an aggregate value of approximately $23.3 million, and aggregating approximately .1 million square feet. These two shopping centers are located in Georgia and North Carolina, and we received proceeds of approximately $6.9 million. Additionally, we have a commitment to contribute two additional properties to this joint venture in 2009.
Joint venture fee income for 2008 was approximately $7.2 million or a decrease of $1.0 million over the prior year. This decrease is a result of acquisition fees recognized in 2007 that did not occur in 2008.
Dispositions
During 2008, we sold nine shopping centers and one industrial property for $144.0 million. Although the availability of debt financing for prospective acquirers has decreased in the current capital markets, we expect to continue to dispose of non-core properties during 2009 as opportunities present themselves. Dispositions are part of an ongoing portfolio management process where we prune our portfolio of properties that do not meet our geographic or growth targets and provide capital to recycle into properties that have barrier-to-entry locations within high growth metropolitan markets. Over time, we expect this to produce a portfolio with higher occupancy rates and stronger internal revenue growth.
Summary of Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
Rental revenue is generally recognized on a straight-line basis over the life of the lease, which begins the date the leasehold improvements are substantially complete, if owned by us, or the date the tenant takes control of the space, if the leasehold improvements are owned by the tenant. Revenue from tenant reimbursements of taxes, maintenance expenses and insurance is recognized in the period the related expense is recognized. Revenue based on a percentage of tenants' sales is recognized only after the tenant exceeds their sales breakpoint. In addition, in circumstances where we would provide a tenant improvement allowance for improvements that are owned by the tenant, we would recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease. Other revenue is income from contractual agreements with third parties, tenants or partially owned real estate joint ventures or partnerships, which is recognized as the related services are performed under the respective agreements.
Real Estate Joint Ventures and Partnerships
To determine the method of accounting for partially owned real estate joint ventures and partnerships, we first apply the guidelines set forth in Financial Accounting Standards Board (“FASB”) Interpretation No. 46R (“FIN 46R”), "Consolidation of Variable Interest Entities." Entities identified as variable interest entities are consolidated if we are determined to be the primary beneficiary of the partially owned real estate joint venture or partnership.
Partially owned real estate joint ventures and partnerships over which we exercise financial and operating control are consolidated in our financial statements. In determining if we exercise financial and operating control, we consider factors such as ownership interest, authority to make decisions, kick-out rights and substantive participating rights. If there are changes in these factors, these reconsideration events are assessed to determine if the consolidation treatment remains appropriate. Management analyzes and assesses reconsideration events as soon as they become aware of them. Partially owned real estate joint ventures and partnerships where we have the ability to exercise significant influence, but do not exercise financial and operating control, are accounted for using the equity method. Decisions regarding consolidation of partially owned entities frequently require significant judgment by our management. Errors in the assessment of consolidation could result in material changes to our consolidated financial statements.
Our investments in partially owned real estate joint ventures and partnerships are reviewed for impairment, periodically, if events or circumstances change indicating that the carrying amount of our investments may not be recoverable. The ultimate realization of our investments in partially owned real estate joint ventures and partnerships is dependent on a number of factors, including the performance of each investment and market conditions. We will record an impairment charge if we determine that a decline in the value of an investment is other than temporary. This evaluation involves a considerable amount of judgment by our management. Our overall future plans for the investment, our investment partner’s financial outlook and our views on current market and economic conditions may have a significant impact on the resulting factors analyzed for these purposes.
Property
Real estate assets are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method, generally over estimated useful lives of 18-40 years for buildings and 10-20 years for parking lot surfacing and equipment. Major replacements where the betterment extends the useful life of the asset are capitalized, and the replaced asset and corresponding accumulated depreciation are removed from the accounts. All other maintenance and repair items are charged to expense as incurred. If we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be misstated.
Acquisitions of properties are accounted for utilizing the purchase method and, accordingly, the results of operations of an acquired property are included in our results of operations from the date of acquisition. We have used estimates of future cash flows and other valuation techniques to allocate the purchase price of acquired property among land, buildings on an "as if vacant" basis, tenant improvements and other identifiable intangibles. Current economic and operational property conditions, known trends and changes expected in current market conditions are considered in the estimates of future cash flows used for purchase price allocation purposes. Other identifiable intangible assets and liabilities include the effect of out-of-market leases, the value of having leases in place (“as is” versus “as if vacant” and absorption costs), out-of-market assumed mortgages and tenant relationships. Depreciation and amortization is computed using the straight-line method, generally over estimated useful lives of 40 years for buildings and over the lease term which includes bargain renewal options for other identifiable intangible assets. The impact of these estimates could result in significant differences related to the purchased assets, liabilities and resulting depreciation or amortization. Initial valuations are subject to change until such information is finalized, no later than 12 months from the acquisition date. The impact of incorrect estimates in connection with acquisition asset values and related estimated useful lives could be material to our consolidated financial statements.
Property also includes costs incurred in the development of new operating properties and properties in our merchant development program. Merchant development is a new program in which we develop a project with the objective of selling all or part of it, instead of retaining it in our portfolio on a long-term basis. Also, disposition of land parcels and non-operating properties are included in this program. These properties are carried at cost and no depreciation is recorded on these assets until the commencement of rental revenue or no later than one year from the completion of major construction. These costs include pre-acquisition costs directly identifiable with the specific project, development and construction costs, interest and real estate taxes. Indirect development costs, including salaries and benefits, travel and other related costs that are directly attributable to the development of the property, are also capitalized. The capitalization of such costs ceases at the earlier of one year from the completion of major construction or when the property, or any completed portion, becomes available for occupancy. The impact of the estimates related to the allocation of indirect costs and interest could result in incorrect estimates in connection with determining the asset value which could be material to our consolidated financial statements.
Property also includes costs for tenant improvements paid by us, including reimbursements to tenants for improvements that are owned by us and will remain our property after the lease expires.
Our properties are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the property, including any identifiable intangible assets (including site costs and capitalized interest), may not be recoverable. In such an event, a comparison is made of the current and projected operating cash flows of each such property into the foreseeable future on an undiscounted basis to the carrying amount of such property. Fair values are also determined by obtaining third-party broker and appraisal estimates. In accordance with FASB’s Statement of Financial Accounting Standards (“SFAS”) No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” such carrying amount is adjusted, if necessary, to the estimated fair value to reflect an impairment in the value of the asset.
Due to our analysis of current economic considerations at each reporting period, including the effects of tenant bankruptcies, lack of available funding and halt of tenant expansion plans for new development projects and declines in the real estate values, plans related to our new development properties including land held for development changed, and the use of these assets was no longer certain which brought about an impairment charge in 2008. Determining whether a property is impaired and, if impaired, the amount of required write-down to fair value requires a significant amount of judgment by management and is based on the best information available to management at the time of evaluation. If market conditions continue to deteriorate or managements’ plans for certain properties change, additional write-downs could be required in the future.
Interest Capitalization
Interest is capitalized on land under development and buildings under construction based on rates applicable to borrowings outstanding during the period and the weighted average balance of qualified assets under development/construction during the period. Differences in methodologies to calculate applicable interest rates and the cost of qualified assets can yield significant differences in the amounts capitalized and, as a result, the amount of depreciation recognized.
Deferred Charges
Debt financing costs are amortized primarily on a straight-line basis, which approximates the effective interest method, over the terms of the debt. Lease costs represent the initial direct costs incurred in origination, negotiation and processing of a lease agreement. Such costs include outside broker commissions and other independent third party costs, as well as salaries and benefits, travel and other internal costs directly related to completing a lease and are amortized over the life of the lease on a straight-line basis. Costs related to supervision, administration, unsuccessful origination efforts and other activities not directly related to completed lease agreements are charged to expense as incurred. Differences in methodologies to calculate and defer these costs can yield differences in the amounts deferred and, accordingly, the amount of amortization recognized.
Sales of Real Estate
Sales of real estate include the sale of shopping center pads, property adjacent to shopping centers, shopping center properties, merchant development properties, investments in real estate joint ventures and partnerships and partial sales to real estate joint ventures and partnerships in which we participate.
We recognize profit on sales of real estate, including merchant development sales, in accordance with FASB’s SFAS No. 66 (“SFAS 66”), “Accounting for Sales of Real Estate.” Profits are not recognized until (a) a sale is consummated; (b) the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay; (c) the seller’s receivable is not subject to future subordination; and (d) we have transferred to the buyer the usual risks and rewards of ownership in the transaction, and we do not have a substantial continuing involvement with the property. A considerable amount of judgment by our management is used in this evaluation.
We recognize gains on the sale of real estate to joint ventures and partnerships in which we participate to the extent we receive cash from the joint venture or partnership, if it meets the sales criteria in accordance with SFAS 66, and we do not have a commitment to support the operations of the real estate joint venture or partnership to an extent greater than our proportionate interest in the real estate joint venture or partnership.
Accrued Rent and Accounts Receivable
Receivable balances outstanding include base rents, tenant reimbursements and receivables attributable to the straight-lining of rental commitments. An allowance for the uncollectible portion of accrued rents and accounts receivable is determined based upon an analysis of balances outstanding, historical bad debt levels, tenant credit worthiness and current economic trends. Additionally, estimates of the expected recovery of pre-petition and post-petition claims with respect to tenants in bankruptcy are considered in assessing the collectibility of the related receivables. As these factors change, the allowance is subject to revision and may impact our results of operations.
Income Taxes
We have elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended. As a REIT, we generally will not be subject to corporate level federal income tax on taxable income we distribute to our shareholders. To be taxed as a REIT, we must meet a number of requirements including defined percentage tests concerning the amount of our assets and revenues that come from, or are attributable to, real estate operations. As long as we distribute at least 90% of the taxable income of the REIT (without regard to capital gains or the dividends paid deduction) to our shareholders as dividends, we will not be taxed on the portion of our income we distribute as dividends.
The Tax Relief Extension Act of 1999 gave REITs the ability to conduct activities which a REIT was previously precluded from doing as long as such activities are performed in entities which have elected to be treated as taxable REIT subsidiaries under the IRS code. These activities include buying or developing properties with the express purpose of selling them. We conduct certain of these activities in taxable REIT subsidiaries that we have created. We calculate and record income taxes in our consolidated financial statements based on the activities in those entities. We also record deferred taxes for the temporary tax differences that have resulted from those activities as required under SFAS No. 109, “Accounting for Income Taxes.” We use estimates in preparing our deferred tax amounts and if revised, these estimates could impact our results of operations.
Results of Operations
Comparison of the Year Ended December 31, 2008 to the Year Ended December 31, 2007
Revenues
Total revenues were $615.0 million for the year ended 2008 versus $583.8 million for the year ended 2007, an increase of $31.2 million or 5.3%. This increase resulted primarily from an increase in rental revenues of $30.4 million and other income of $.8 million.
Property acquisitions and new development activity contributed $26.7 million of the rental income increase with $3.7 million resulting from 1,243 renewals and new leases, comprising 6.3 million square feet at an average rental rate increase of 10.2%.
Occupancy (leased space) of the portfolio as compared to the prior year was as follows:
| | | December 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Shopping Centers | | | 93.0 | % | | | 95.1 | % |
| Industrial | | | 91.6 | % | | | 92.0 | % |
| Total | | | 92.6 | % | | | 94.4 | % |
Other income increased by $.8 million from the prior year due from an increase in lease cancellation revenue from various tenants.
Expenses
Total expenses for 2008 were $425.7 million versus $325.4 million in 2007, an increase of $100.3 million or 30.8%.
The increases in 2008 for depreciation and amortization expense ($27.8 million), operating expenses ($14.8 million) and ad valorem taxes ($6.4 million) were primarily a result of the properties acquired and developed during the year. In addition, operating expenses increased as a result of Hurricane Ike in 2008 and depreciation expense increased as a result of redevelopment activities. In 2008, an impairment loss was recorded of $52.5 million due to primarily our new development properties based on current economic conditions; including the lack of available funding, a halt in tenant expansion plans and declines in the real estate values. The decrease in general and administrative expenses of $1.2 million results primarily from a reduction in our workforce. Overall, direct operating costs and expenses (operating and ad valorem tax expense) of operating our properties as a percentage of rental revenues were 31.9% and 29.9% in 2008 and 2007, respectively.
Interest Expense
Interest expense totaled $148.5 million for 2008, down by $.4 million or .2% from 2007. The components of interest expense were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Gross interest expense | | $ | 176,772 | | | $ | 180,612 | |
| Over-market mortgage adjustment of acquired properties | | | (8,007 | ) | | | (6,758 | ) |
| Capitalized interest | | | (20,290 | ) | | | (25,025 | ) |
| | | | | | | | | |
| Total | | $ | 148,475 | | | $ | 148,829 | |
Gross interest expense totaled $176.8 million in 2008, down $3.8 million or 2.1% from 2007. The decrease in gross interest expense results primarily from a net gain of $2.8 million on the settlement of a forward starting swap in March 2008. Over-market mortgage adjustment increased $1.2 million due primarily to a write-off of an intangible liability as a result of a loan pay off. Capitalized interest decreased $4.7 million due to a decrease in the annualized average interest capitalization rate of 5.9% in 2008 compared to 8.4% in 2007.
Interest and Other Income
Interest and other income was $4.3 million in 2008 versus $8.5 million in 2007, a decrease of $4.2 million or 49.4%. This decrease resulted from the fair value decline in the assets held in a grantor trust related to our deferred compensation plan and a reduction in interest earned from a qualified escrow account. Offsetting this $7.0 million decrease is the interest earned on notes receivable from real estate joint ventures and partnerships for new development activities and other receivables.
Gain on Redemption of Convertible Senior Unsecured Notes
The gain results from the purchase and cancellation of $37.8 million of our 3.95% convertible senior unsecured notes at a discount to par value.
Equity in Earnings of Real Estate Joint Ventures and Partnerships, net
Our equity in earnings of real estate joint ventures and partnerships was $12.2 million in 2008 versus $19.9 million in 2007, a decrease of $7.7 million or 38.7%. The decrease results primarily from our share of the write-off of pre-development costs of $4.6 million and impairment losses of $3.3 million in 2008. No such activity is present in 2007.
Income Allocated to Minority Interests
Income allocated to minority interests was $8.9 million in 2008 versus $10.2 million in 2007, a decrease of $1.3 million or 12.7%. This decrease resulted primarily from the 2007 gain on sale of three shopping centers that were each held in a 50%-owned consolidated entity. Offsetting this decrease of $3.8 million is earnings related to our investment in two newly formed consolidated joint ventures in 2008.
Gain on Sale of Properties
Gain on sale of properties was $2.0 million in 2008 versus $4.1 million in 2007, a decrease of $2.1 million or 51.2%. The gain in 2007 resulted primarily from gain deferrals and adjustments that did not recur in 2008.
Gain on Land and Merchant Development Sales
Gain on land and merchant development sales totaled $8.3 million in 2008. We sold 24 land parcels, of which five each are located in Florida, North Carolina and Texas, three in Nevada, two each in Arizona and California and one each in Colorado and Georgia. Also, in 2008 we realized a deferred gain of $2.1 million associated with a land parcel sale in Nevada. The activity in 2007 of $16.4 million resulted primarily from the sale of two vacant industrial buildings in California, the River Pointe apartments in Texas, a shopping center in Arizona and 17 parcels of land, of which 11 are located in Texas, three in Arizona and one each in Florida, Louisiana and Tennessee.
Benefit (Provision) for Income Taxes
The decrease of $14.2 million resulted primarily to the decrease in income at our taxable REIT subsidiary associated with a reduction in merchant development gains, write-off of pre-development costs and impairment charges.
Income from Discontinued Operations
Income from discontinued operations was $72.2 million in 2008 versus $94.0 million in 2007, a decrease of $21.8 million or 23.2%. This decrease was due primarily to the decrease in gain on sale of 10 properties in 2008 as compared to the gain on sale of 18 properties in 2007. Also, the income from discontinued operations for 2007 includes the operating results of the properties disposed of in 2008.
Results of Operations
Comparison of the Year Ended December 31, 2007 to the Year Ended December 31, 2006
Revenues
Total revenues were $583.8 million for the year ended 2007 versus $523.4 million for the year ended 2006, an increase of $60.4 million or 11.5%. This increase resulted primarily from an increase in rental revenues of $53.9 million and other income of $6.5 million.
Property acquisitions and new development activity contributed $56.6 million of the rental income increase with $4.8 million resulting from 1,261 renewals and new leases, comprising 7.0 million square feet at an average rental rate increase of 10.3%. Offsetting these rental income increases was a decrease of $7.5 million, which resulted from the sale of an 80% interest in five industrial centers in the third quarter of 2006.
Occupancy (leased space) of the portfolio as compared to the prior year was as follows:
| | | December 31, | |
| | | 2007 | | | 2006 | |
| | | | | | | |
| Shopping Centers | | | 95.1 | % | | | 95.0 | % |
| Industrial | | | 92.0 | % | | | 91.2 | % |
| Total | | | 94.4 | % | | | 94.1 | % |
Other income increased by $6.5 million from the prior year. This increase resulted primarily from the increase in joint venture fee income of $5.7 million and miscellaneous tenant revenue of $.8 million.
Expenses
Total expenses for 2007 were $325.4 million versus $287.6 million in 2006, an increase of $37.8 million or 13.1%.
The increases in 2007 for depreciation and amortization expense ($10.7 million), operating expenses ($18.0 million), ad valorem taxes ($5.9 million) and general and administrative expenses ($3.2 million) were primarily a result of the properties acquired and developed during the year, an increase in property insurance expenses as a result of the hurricanes experienced in 2005, and increases associated with additional headcount needed to achieve growth in the portfolio. Overall, direct operating costs and expenses (operating and ad valorem tax expense) of operating our properties as a percentage of rental revenues were 29.9% in 2007 and 28.3% in 2006.
Interest Expense
Interest expense totaled $148.8 million for 2007, up $3.5 million or 2.4% from 2006. The components of interest expense were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2007 | | | 2006 | |
| | �� | | | | | |
| Gross interest expense | | $ | 180,612 | | | $ | 160,454 | |
| Over-market mortgage adjustment of acquired properties | | | (6,758 | ) | | | (7,464 | ) |
| Capitalized interest | | | (25,025 | ) | | | (7,616 | ) |
| | | | | | | | | |
| Total | | $ | 148,829 | | | $ | 145,374 | |
Gross interest expense totaled $180.6 million in 2007, up $20.2 million or 12.6% from 2006. The increase in gross interest expense was due to an increase in the average debt outstanding from $2.5 billion in 2006 to $3.0 billion in 2007 at a weighted average interest rate of 5.9% in 2007 and 6.0% for 2006. Capitalized interest increased $17.4 million due to an increase in new development activity, and the over-market mortgage adjustment decreased by $.7 million.
Equity in Earnings of Real Estate Joint Ventures and Partnerships, net
Our equity in earnings of real estate joint ventures and partnerships was $19.9 million in 2007 versus $14.7 million in 2006, an increase of $5.2 million or 35.4%. This increase was attributable primarily to our incremental income from our investments in newly formed joint ventures for the acquisition and development of retail and industrial properties.
Income Allocated to Minority Interests
Income allocated to minority interests was $10.2 million in 2007 versus $6.4 million in 2006, an increase of $3.8 million or 59.4%. This increase resulted primarily from the gain on sale of three shopping centers that were each held in a 50% consolidated joint venture.
Gain on Sale of Properties
The decrease in gain on sale of properties of $18.4 million resulted primarily from the sale of an 80% interest in five industrial properties in the San Diego, Memphis and Atlanta markets in 2006.
Gain on Land and Merchant Development Sales
Gain on land and merchant development sales totaled $16.4 million in 2007. We sold two vacant industrial buildings in San Diego, California; one shopping center in Phoenix, Arizona, the River Pointe apartments in Conroe, Texas and 17 parcels of land, of which 11 are located in Texas, three in Arizona, and one each in Florida, Louisiana, Tennessee. The activity in 2006 of $7.1 million resulted from the disposition of the Timber Springs shopping center in Orlando, Florida and the sale of three parcels of land in Arizona (1) and Texas (2).
Provision for Income Taxes
The increase is attributable to an increase of $1.9 million in the Texas franchise tax, which was enacted in the second quarter of 2006 and an increase of $.8 million at our taxable REIT subsidiary.
Income from Discontinued Operations
Income from discontinued operations was $94.0 million in 2007 versus $169.0 million in 2006, a decrease of $75.0 million or 44.4%. This decrease was due primarily to the decrease in gain on sale of 18 properties in 2007 as compared to the gain on sale of 23 properties in 2006. Also, the income from discontinued operations for 2006 includes the operating results of the properties disposed of in 2008 and 2007.
Effects of Inflation
We have structured our leases in such a way as to remain largely unaffected should significant inflation occur. Most of the leases contain percentage rent provisions whereby we receive increased rentals based on the tenants' gross sales. Many leases provide for increasing minimum rentals during the terms of the leases through escalation provisions. In addition, many of our leases are for terms of less than 10 years, which allow us to adjust rental rates to changing market conditions when the leases expire. Most of our leases also require the tenants to pay their proportionate share of operating expenses and ad valorem taxes. As a result of these lease provisions, increases due to inflation, as well as ad valorem tax rate increases, generally do not have a significant adverse effect upon our operating results as they are absorbed by our tenants.
Capital Resources and Liquidity
Our primary liquidity needs are payment of our common and preferred dividends, maintaining and operating our existing properties, payment of our debt service costs and funding planned growth. Although we anticipate that cash flows from operating activities primarily in the form of rental revenues will decline due to tenant bankruptcies and store closings, we believe operating activities will continue to provide adequate capital for common and preferred dividends, debt service costs and the capital necessary to maintain and operate our existing properties. While we project our occupancy could drop to the 90% level by mid-year 2009, the operating cash flow generated at that occupancy should remain adequate to provide capital for these liquidity needs.
While planned acquisitions are minimal, the primary sources of capital for funding any acquisitions and the new development program are our revolving credit facilities, cash generated from sale of properties and the formation of joint ventures, cash flow generated by our operating properties and proceeds from capital issuances, both debt and equity. Amounts outstanding under the revolving credit agreement are retired as needed with proceeds from the issuance of long-term debt, common and preferred equity, cash generated from disposition of properties and cash flow generated by our operating properties. As of December 31, 2008, the balance outstanding under our $575 million revolving credit facility was $383.0 million, and no amount was outstanding under our $30 million credit facility, which we use for cash management purposes.
The current credit market turmoil has significantly affected our ability to obtain additional capital; however, we have been able to complete some transactions and continue to pursue additional sources of capital. As described under Investing Activities and Financing Activities below, we completed have completed in the fourth quarter of 2008 1) a $98 million common shares of beneficial interest equity offering, 2) a joint venture that has provided $121.8 million in cash, and 3) a new $100 million secured loan with a major life insurance company at a consolidated real estate joint venture. We currently have two transactions in process including a $106 million industrial joint venture and a $200 million to $300 million retail joint venture. We have term sheets for a $100 million secured loan with a major life insurance company and an unsecured term loan ranging from $100 million to $200 million. We presently have $78 million of dispositions under contract, none of which were deemed to be held for sale at December 31, 2008, and another $33 million under letters of intent. Additionally, we have more than $300 million of individual properties currently being marketed for sale. There can be no assurance that these transactions can be completed as planned. With $2.7 billion in unencumbered properties, we have adequate assets to leverage or sell, to raise new capital.
Our business plan reflects cost reductions, cutbacks in new development expenditures and no operational growth, it also is capable of fully funding all new development and other capital needs including the $97 million of principal debt payments due in 2009. However, if unexpected events result in the need for additional capital, we have discretionary capital expenditures that could be deferred, if necessary. In the event additional unexpected capital needs arise, we also have the ability to pay up to 90% of our common share dividend in our common shares of beneficial interest, which would provide up to $42 million of cash savings per quarter. Accordingly, we currently anticipate that our available cash resources and credit will be sufficient to meet our anticipated working capital, debt maturities and new development expenditures in 2009.
If market conditions continue to deteriorate, we have the ability to delay the funding of discretionary capital expenditures. Also, without the availability of additional funds over the long-term, we may not be able to respond to competitive pressures, or take advantage of unanticipated opportunities. We believe we are currently in compliance with our debt covenants. Our most restrictive debt covenants including debt to assets, fixed charge and unencumbered interest coverage ratios, limit the amount of additional leverage we can add; however, we believe the sources of capital described above are adequate to execute our current business plan and remain in compliance with our debt covenants.
Our capital structure also includes non-recourse secured debt that we assume in conjunction with our acquisitions program. We also have non-recourse debt secured by acquired or developed properties held in several of our real estate joint ventures and partnerships. We hedge the future cash flows of certain debt transactions, as well as changes in the fair value of our debt instruments, principally through interest rate swaps with major financial institutions. We generally have the right to sell or otherwise dispose of our assets except in certain cases where we are required to obtain our joint venture partners’ consent or a third party consent for assets held in special purpose entities, which are 100% owned by us.
Investing Activities:
Acquisitions and Joint Ventures
Retail Properties.
In January 2008, we acquired a 4,000 square foot pad building located in Florida through a 25%-owned unconsolidated joint venture.
In March 2008, we contributed 18 neighborhood/community shopping centers located in Texas with an aggregate value of approximately $227.5 million, and aggregating more than 2.1 million square feet, to a joint venture. We sold an 85% interest in this joint venture to AEW Capital Management on behalf of one of its institutional clients and received proceeds approximating $216.1 million. We maintain a 15% ownership interest in this venture, which is consolidated in our financial statements.
In May 2008, we acquired Kirby Strip Center, a 10,000 square foot building located in Texas.
In August 2008, we executed a real estate limited partnership with a foreign institutional investor to purchase up to $250 million of retail properties in various states. Our ownership in this unconsolidated real estate limited partnership is 20.1%. As of December 31, 2008, no properties have been purchased.
In November 2008, we contributed eight neighborhood/community shopping centers with an aggregate value of approximately $205.1 million, and aggregating approximately 1.1 million square feet, to a joint venture. Four of these shopping centers are located in Texas, two in Tennessee and one each in Florida and Georgia. We sold a 70% interest in this joint venture to Hines REIT Retail Holdings, LLC and received proceeds of approximately $121.8 million. We maintain a 30% ownership interest in this venture, which is consolidated in our financial statements.
Subsequent to December 31, 2008, we contributed two additional properties to the joint venture with Hines REIT Retail Holdings, LLC with an aggregate value of approximately $23.3 million, and aggregating approximately .1 million square feet. These two shopping centers are located in Georgia and North Carolina, and we received proceeds of approximately $6.9 million. Additionally, we have a commitment to contribute two additional properties to this joint venture in 2009.
Industrial Properties.
There were no acquisitions of industrial properties during 2008.
Dispositions
Retail Properties.
During 2008, we sold nine shopping centers, of which five are located in Texas, one in California and three in Louisiana. Sales proceeds from these dispositions totaled $138.4 million and generated gains of $66.3 million.
Industrial Properties.
During 2008, we sold one industrial center located in Texas. Sales proceeds from this disposition totaled $5.6 million and generated a gain of $2.4 million.
New Development and Capital Expenditures
At December 31, 2008, we had 25 projects under construction or in preconstruction stages with a total square footage of approximately 6.5 million. These properties are slated to be completed over the next one to four years.
Merchant Development Properties.
During 2008, we generated gains of $8.3 million from the sale of 24 parcels of land located in Arizona, California, Colorado, Florida, Georgia, Nevada, North Carolina and Texas, and the recognition of a deferred gain from the sale of a land parcel in Nevada. In an unconsolidated real estate joint venture and partnership, two land parcels were sold in Colorado and Washington. Our share of the sales proceeds and the gain generated totaled $.7 million and $.4 million, respectively.
Our new development projects are financed initially under our revolving credit facilities, using available cash generated from dispositions of properties or cash flow generated by our operating properties for new development activities.
Capital expenditures for additions to the existing portfolio, acquisitions, new development and our share of investments in unconsolidated real estate joint ventures and partnerships totaled $437.7 million in 2008 and $1.1 billion in both 2007 and 2006. We have entered into commitments aggregating $102.4 million comprised principally of construction contracts which are generally due in 12 to 36 months. We expect to invest a total of $470.7 million to complete construction of properties under various stages of development over the next one to four years.
Financing Activities:
Debt
Total debt outstanding was $3.2 billion at both December 31, 2008 and 2007. Total debt at December 31, 2008 included $2.7 billion of which interest rates are fixed and $449.0 million, including the effect of $50 million of interest rate swaps, that bears interest at variable rates. Additionally, debt totaling $1.0 billion was secured by operating properties while the remaining $2.1 billion was unsecured.
We have a $575 million unsecured revolving credit facility held by a syndicate of banks. This unsecured revolving facility expires in February 2010 and provides a one year extension option available at our request. Borrowing rates under this facility float at a margin over LIBOR, plus a facility fee. The borrowing margin and facility fee, which are currently 60.0 and 15.0 basis points, respectively, are priced off a grid that is tied to our senior unsecured credit rating. This facility includes a competitive bid feature where we are allowed to request bids for borrowings up to $287.5 million from the syndicate banks. As of February 17, 2009, there was $393.0 million outstanding under this facility. We also maintain a $30 million unsecured and uncommitted overnight facility that is used for cash management purposes, and as of February 17, 2009, there was no outstanding balance under this facility. The available balance under our revolving credit agreement was $171.9 million at February 17, 2009, which is reduced by amounts outstanding for letters of credit.
We believe we were in full compliance with all our covenants as of December 31, 2008. Our three most restrictive covenants include debt to assets, fixed charge and unencumbered interest coverage ratios. These ratios as defined in our agreements were as follows at December 31, 2008:
| Covenant | | Restriction | | Actual |
| Debt to Asset Ratio | | Less than 60.0% | | 54.55% |
| Fixed Charge Ratio | | Greater than 1.5 | | 2.15 |
| Unencumbered Interest Ratio | | Greater than 2.0 | | 2.56 |
In November 2008, we elected to repurchase a portion of the 3.95% convertible senior unsecured notes due 2026 in the open market. We purchased and subsequently retired a face value of $37.8 million for $26.7 million resulting in a net gain of $10.7 million in 2008. We originally issued $575 million notes in 2006 and the net proceeds from the sale of the debentures, after repurchasing 4.3 million of our common shares of beneficial interest, were used for general business purposes and to reduce amounts outstanding under our revolving credit facility. The debentures are convertible under certain circumstances for our common shares of beneficial interest at an initial conversion rate of 20.3770 common shares of beneficial interest per $1,000 of principal amount of debentures (an initial conversion price of $49.075). Upon the conversion of debentures, we will deliver cash for the principal return, as defined, and cash or common shares of beneficial interest, at our option, for the excess of the conversion value, as defined, over the principal return. The debentures are redeemable for cash at our option beginning in 2011 for the principal amount plus accrued and unpaid interest. Holders of the debentures have the right to require us to repurchase their debentures for cash equal to the principal of the debentures plus accrued and unpaid interest in 2011, 2016 and 2021 and in the event of a change in control.
In November 2008, we contributed assets to a joint venture with an institutional investor. In conjunction with this transaction, the joint venture issued $100.0 million of fixed-rate long-term debt with a five year term at a rate of 6.0% that we guaranteed for tax planning purposes. The net proceeds received from the issuance of this debt were used to reduce amounts outstanding under our $575 million revolving credit facility.
In March 2008, we contributed assets to a joint venture with an institutional investor. In conjunction with this transaction, the joint venture issued $154.3 million of fixed-rate long-term debt with an average life of 7.3 years at an average rate of 5.4% that we guaranteed for tax planning purposes. The net proceeds received from the issuance of this debt were used to reduce amounts outstanding under our $575 million revolving credit facility.
In January 2008, we elected to repay at par a fixed rate 8.33% mortgage totaling $121.8 million that was secured by 19 supermarket-anchored shopping centers in California originally acquired in April 2001.
During the year ended December 31, 2008, no debt or capital lease obligations were assumed in conjunction with acquisitions.
As of December 31, 2008 and 2007, we had two interest rate swap contracts designated as fair value hedges with an aggregate notional amount of $50.0 million that convert fixed interest payments at rates of 4.2% to variable interest payments of 2.0% and 5.0% at December 31, 2008 and 2007, respectively. We could be exposed to losses in the event of nonperformance by the counter-parties; however, management believes the likelihood of such nonperformance is unlikely.
During the year ended December 31, 2007, the balance of secured debt that was assumed in conjunction with 2007 acquisitions was $99.4 million. A capital lease obligation totaling $12.9 million was assumed and subsequently settled in 2007.
At December 31, 2007, we had two forward-starting interest rate swap contracts with an aggregate notional amount of $118.6 million to mitigate the risk of future fluctuations in interest rates on forecasted issuances of long-term debt. These contracts were settled shortly after we contributed assets to a joint venture with an institutional investor and concurrently issued $154.3 million of fixed-rate long-term debt that we guaranteed.
In July, November and December 2007, swaps of $10 million, $5 million and $10 million, respectively, matured in conjunction with the maturity of the associated medium term notes. These hedge contracts were designated as a fair value hedges.
In conjunction with the disposition of properties completed during 2007, we incurred a net loss of $.4 million on the early extinguishment of three loans totaling $22.2 million.
Equity
Common and preferred dividends increased to $213.6 million in 2008, compared to $194.5 million in 2007. The dividend rate for our common shares of beneficial interest increased for each quarter of 2008 to $.525 compared to $.495 for the same period of 2007. Our dividend payout ratio on common equity for 2008, 2007 and 2006 approximated 85.9%, 63.2% and 64.0%, respectively, based on basic funds from operations for the respective periods.
In June and July of 2008, we redeemed $120 million and $80 million of depositary shares, respectively, retiring all of the Series G Cumulative Redeemable Preferred Shares. Each depositary share represented one-hundredth of a Series G Cumulative Redeemable Preferred Share. These depositary shares were redeemed, at our option, at a redemption price of $25 multiplied by a graded rate per depositary share based on the date of redemption plus any accrued and unpaid dividends thereon. Upon the redemption of these shares, the related original issuance costs of $1.9 million were reported as a deduction in arriving at net income available to common shareholders. In September 2007, these depositary shares were issued through a private placement, and net proceeds of $193.6 million were used to repay amounts outstanding under our credit facilities. The Series G Preferred Shares paid a variable-rate quarterly dividend through July 2008 and had a liquidation preference of $2,500 per share. The variable-rate dividend was calculated on the period’s three-month LIBOR rate plus a percentage determined by the number of days outstanding.
We issued $150 million and $200 million of depositary shares on June 6, 2008 and January 30, 2007, respectively. Each depositary share represents one-hundredth of a Series F Cumulative Redeemable Preferred Share. The depositary shares are redeemable, in whole or in part, on or after January 30, 2012 at our option, at a redemption price of $25 per depositary share, plus any accrued and unpaid dividends thereon. The depositary shares are not convertible or exchangeable for any of our other property or securities. The Series F Preferred Shares pay a 6.5% annual dividend and have a liquidation value of $2,500 per share. Series F Preferred Shares issued in June 2008 were issued at a discount, resulting in an effective rate of 8.25%. Net proceeds of $117.8 million and $194.0 million from the issuance in June 2008 and January 2007, respectively, were used to repay amounts outstanding under our revolving credit facilities and for general business purposes. Subsequent to the 2008 issuance, our revolving credit facilities were used to finance the partial redemption of the Series G Cumulative Redeemable Preferred Shares as described above.
In October 2008, we issued 3.0 million common shares of beneficial interest at $34.20 per share. Net proceeds from this offering were $98.1 million and were used to repay indebtedness outstanding under our revolving credit facilities and for other general corporate purposes.
In July 2007, our Board of Trust Managers authorized a common share repurchase program as part of our ongoing investment strategy. Under the terms of the program, we may purchase up to a maximum value of $300 million of our common shares of beneficial interest during the following two years. Share repurchases may be made in the open market or in privately negotiated transactions at the discretion of management and as market conditions warrant. We anticipate funding the repurchase of shares primarily through the proceeds received from our property disposition program, as well as from general corporate funds.
During 2007, we repurchased 2.8 million common shares of beneficial interest at an average share price of $37.12 and cancelled 1.4 million common shares of beneficial interest in both 2008 and 2007. As of December 31, 2008, the remaining value of common shares of beneficial interest available to be repurchased is $196.7 million.
In December 2008, we filed a universal shelf registration which is effective for the next three years. We will continue to closely monitor both the debt and equity markets and carefully consider our available financing alternatives, including both public and private placements.
Contractual Obligations
We have debt obligations related to our mortgage loans and unsecured debt, including our credit facilities. We have shopping centers that are subject to non-cancelable long-term ground leases where a third party owns and has leased the underlying land to us to construct and/or operate a shopping center. In addition, we have non-cancelable operating leases pertaining to office space from which we conduct our business. The table below excludes obligations related to a lawsuit in which we have recorded a $41 million contingent liability as discussed in Off-Balance Sheet Arrangements and our new development projects. We have entered into commitments aggregating $102.4 million comprised principally of construction contracts which are generally due in 12 to 36 months. The following table summarizes our primary contractual obligations as of December 31, 2008 (in thousands):
| | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | Thereafter | | | Total | |
| Mortgages and Notes Payable: (1) | | | | | | | | | | | | | | | | | | | | | |
| Unsecured Debt (2) | | $ | 123,652 | | | $ | 531,719 | | | $ | 293,856 | | | $ | 263,723 | | | $ | 230,175 | | | $ | 1,392,677 | | | $ | 2,835,802 | |
| Secured Debt | | | 123,842 | | | | 125,272 | | | | 139,640 | | | | 179,505 | | | | 172,245 | | | | 588,034 | | | | 1,328,538 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ground Lease Payments | | | 3,568 | | | | 3,528 | | | | 3,439 | | | | 3,251 | | | | 3,222 | | | | 129,400 | | | | 146,408 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Obligations (3) | | | 40,701 | | | | | | | | | | | | | | | | | | | | | | | | 40,701 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Contractual Obligations | | $ | 291,763 | | | $ | 660,519 | | | $ | 436,935 | | | $ | 446,479 | | | $ | 405,642 | | | $ | 2,110,111 | | | $ | 4,351,449 | |
_______________
| (1) | Includes principal and interest with interest on variable-rate debt calculated using rates at December 31, 2008 excluding the effect of interest rate swaps, as they are currently in a net receivable position. |
| (2) | Unsecured debt in 2010 includes the maturity of our revolving credit facility of $383.0 million at December 31, 2008, which we have the option to extend for a one-year period. |
| (3) | Other obligations include income and ad valorem tax payments, contributions to our retirement plan and other employee payments. Severance and change in control agreements have not been included as the amounts and payouts are unknown. |
Off Balance Sheet Arrangements
As of December 31, 2008, none of our off-balance sheet arrangements had a material effect on our liquidity or availability of, or requirement for, our capital resources. Letters of credit totaling $10.1 million and $9.2 million were outstanding under the revolving credit facility at December 31, 2008 and 2007, respectively.
In accordance with SFAS No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities,” our 3.95% convertible senior unsecured notes totaling $537.2 million, as of December 31, 2008, which are due 2026, meet the scope exception requirements; whereby the notes’ embedded features are not considered and treated as a derivative instrument. We currently anticipate that the scope exception in SFAS 133 will continue to be available for these instruments. Although we have not determined the financial impact, we believe there may be a material impact on our consolidated financial statements if these instruments were recorded.
We have entered into several unconsolidated real estate joint ventures and partnerships. Under many of these agreements, we and our joint venture partners are required to fund operating capital upon shortfalls in working capital. We have also committed to funding the capital requirements of several new development joint ventures. As operating manager of most of these entities, we have considered these funding requirements in our business plan.
Reconsideration events could cause us to consolidate these joint ventures and partnerships. We evaluate reconsideration events as we become aware of them. Some triggers to be considered are additional contributions required by each partner and each partners’ ability to make those contributions. Under certain of these circumstances, we may purchase our partner’s interest. Many of our material unconsolidated real estate joint ventures are with entities which appear sufficiently stable to weather the current market crisis; however, if market conditions continue to deteriorate and our partners are unable to meet their commitments, there is a possibility we may have to consolidate these entities. If we were to consolidate all of our unconsolidated real estate joint ventures, we would still be in compliance with our debt covenants, and we believe there would not be a material change in our credit ratings.
Related to our investment in a redevelopment project in Sheridan, Colorado that is held in an unconsolidated real estate joint venture, we, our joint venture partner and the joint venture have each provided a guaranty for the payment of any debt service shortfalls on bonds issued in connection with the project. The Sheridan Redevelopment Agency issued $97 million of Series A bonds used for an urban renewal project. The bonds are to be repaid with incremental sales and property taxes and a public improvement fee (“PIF”) to be assessed on current and future retail sales. The incremental taxes and PIF are to remain intact until the bond liability has been paid in full, including any amounts we may have to provide. At inception on February 27, 2007, we evaluated and determined that the fair value of the guaranty is nominal to us as the guarantor. However, a liability has been recorded by the joint venture equal to amounts funded under the bonds.
In connection with the above project, we and our joint venture partner are also signatories to a completion guaranty that requires, among other things, certain infrastructure to be substantially completed and occupants of 75% of the retail space to be open for regular business as of December 31, 2008. Under specified circumstances, the completion guaranty allows for extension of the completion date until June 30, 2009. At inception on February 27, 2007, we evaluated the guaranty and determined that its then fair value was nominal. By a letter dated December 1, 2008, the guarantors requested extension of the completion date pursuant to the terms of the guaranty. On December 16, 2008, one of the parties benefited by the guaranty filed a lawsuit against us alleging that we were not entitled to the extension and is seeking $97 million in liquidated damages together with other relief. On February 5, 2009, we filed an answer and counterclaim in which we asserted, among other things, that we were entitled to the extension. We have recorded a contingent liability of $41 million as of December 31, 2008 based on our belief that we were entitled to the requested extension in December of 2008, but that since completion under the guaranty is not anticipated to be achieved by June 30, 2009, a provision of the guaranty requiring redemption of a certain portion of the outstanding bonds may be triggered. The contingent liability of $41 million is based on a weighted probability analysis of potential outcomes.
Since the $41 million contingent liability would be funded through the joint venture and the joint venture would purchase the bonds, it has been recorded as an increase in our investment in real estate joint ventures and partnerships. The increased basis in our investment did not result in an impairment to our investment in accordance to the Accounting Principles Board’s APB 18, “The Equity Method of Accounting for Investments in Common Stock.”
Also in connection with the Sheridan, Colorado joint venture and the issuance of the related Series A bonds, we, our joint venture partner and the joint venture have also provided a performance guaranty on behalf of the Sheridan Redevelopment Agency for the satisfaction of all obligations arising from two interest rate swap agreements for the combined notional amount of $97.0 million that matures in December 2029. We evaluated and determined that the fair value of the guaranty both at inception and December 31, 2008 was nominal.
In July 2008, a 47.75%-owned unconsolidated real estate joint venture acquired an 83.34% interest in a joint venture owning a 919,000 square foot new development to be constructed in Aurora, Colorado. The acquired joint venture is a variable interest entity to the unconsolidated joint venture since it provided a guaranty on debt obtained by the acquired joint venture which was approximately $28.3 million at December 31, 2008. We have evaluated and determined that the fair value of the guaranty both at inception and December 31, 2008 was nominal.
In August 2008, we executed a real estate limited partnership with a foreign institutional investor to purchase up to $250 million of retail properties in various states. Our ownership in this unconsolidated real estate limited partnership is 20.1%. As of December 31, 2008, no properties had been purchased.
Funds from Operations
The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) available to common shareholders computed in accordance with generally accepted accounting principles, excluding gains or losses from sales of operating real estate assets and extraordinary items, plus depreciation and amortization of operating properties, including our share of unconsolidated real estate joint ventures and partnerships. We calculate FFO in a manner consistent with the NAREIT definition.
Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income by itself as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that uses historical cost accounting is insufficient by itself. There can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs.
FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.
FFO is calculated as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| Net income available to common shareholders | | $ | 115,120 | | | $ | 212,642 | | | $ | 294,909 | |
| Depreciation and amortization | | | 150,137 | | | | 129,946 | | | | 126,713 | |
Depreciation and amortization of unconsolidated real estate joint ventures and partnerships | | | 11,898 | | | | 11,204 | | | | 5,079 | |
| Gain on sale of properties | | | (70,066 | ) | | | (83,907 | ) | | | (168,004 | ) |
Gain on sale of properties of unconsolidated real estate joint ventures and partnerships | | | (2 | ) | | | (2,169 | ) | | | (4,052 | ) |
| Funds from operations | | | 207,087 | | | | 267,716 | | | | 254,645 | |
| Funds from operations attributable to operating partnership units | | | | | | | 4,407 | | | | 5,453 | |
| Funds from operations assuming conversion of operating partnership units | | $ | 207,087 | | | $ | 272,123 | | | $ | 260,098 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Weighted average shares outstanding - basic | | | 84,474 | | | | 85,504 | | | | 87,719 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Share options and awards | | | 443 | | | | 891 | | | | 926 | |
| Operating partnership units | | | | | | | 2,498 | | | | 3,134 | |
| Weighted average shares outstanding - diluted | | | 84,917 | | | | 88,893 | | | | 91,779 | |
Newly Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value Measurements.” This statement defines fair value and establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The key changes to current practice are (1) the definition of fair value, which focuses on an exit price rather than an entry price; (2) the methods used to measure fair value, such as emphasis that fair value is a market-based measurement, not an entity-specific measurement, as well as the inclusion of an adjustment for risk, restrictions and credit standing and (3) the expanded disclosures about fair value measurements. This statement does not require any new fair value measurements.
We adopted SFAS 157 in the first quarter of 2008 regarding our financial assets and liabilities currently recorded or disclosed at fair value. The FASB has issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” which defers the provisions of SFAS 157 relating to nonfinancial assets and liabilities, and delays implementation by us until January 1, 2009. SFAS 157 has not and is not expected to materially affect how we determine fair value, but it has resulted in certain additional disclosures.
In October 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active,” to clarify the provisions of SFAS 157 relating to valuing a financial asset when the market for that asset is not active. This FSP was effective upon issuance and has not had a material effect on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158 (“SFAS 158”), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – An Amendment of FASB Statements No. 87, 88, 106, and 132R.” This new standard requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. These changes will be reported in comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements were effective for us as of December 31, 2006, and as a result we recognized an additional liability of $803,000. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for us on December 31, 2008. The adoption of the measurement provision of SFAS 158 has not had a material effect on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. This statement was effective for us on January 1, 2008, and we elected not to measure any of our current eligible financial assets or liabilities at fair value upon adoption; however, we do have the option to elect to measure eligible financial assets or liabilities acquired in the future at fair value.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations.” SFAS 141R expands the original guidance’s definition of a business. It broadens the fair value measurement and recognition to all assets acquired, liabilities assumed and interests transferred as a result of business combinations. SFAS 141R requires expanded disclosures to improve the ability to evaluate the nature and financial effects of business combinations. SFAS 141R is effective for us for business combinations made on or after January 1, 2009. Due to current economic conditions, we do not plan any significant acquisitions in the upcoming year, thereby upon adoption, no material effect is anticipated. However SFAS 141R could have a material effect on our accounting for future acquisition of properties.
In December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” SFAS 160 requires that a noncontrolling interest in an unconsolidated entity be reported as equity and any losses in excess of an unconsolidated entity’s equity interest be recorded to the noncontrolling interest. The statement requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. SFAS 160 is effective for us on January 1, 2009 and many provisions will be applied retrospectively. SFAS 160 may materially increase our shareholders’ equity, however due to the complexities and number of entities included in our minority interest, we have not yet been able to formalize the impact on our consolidated financial statements. Future changes to noncontrolling interests could materially affect shareholders’ equity. Also upon adoption, net income will no longer include income allocated to minority interests which may result in a material increase in net income. However, income available to common shareholders should not be affected.
In March 2008, the FASB issued SFAS No. 161 (“SFAS 161”), “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133.” SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities. SFAS 161 is effective for us on January 1, 2009. Implementation of SFAS 161 will result in certain additional disclosures to be included in our consolidated financial statements.
In May 2008, the FASB issued FASB Staff Position No. APB 14-1 (“FSP APB 14-1”), “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 will require that the initial debt proceeds from the sale of our convertible and exchangeable senior debentures be allocated between a liability component and an equity component in a manner that will reflect our effective nonconvertible borrowing rate. The resulting debt discount would be amortized using the effective interest method over the period the debt is expected to be outstanding as additional interest expense. FSP APB 14-1 is effective for us on January 1, 2009 and requires retroactive application. Upon the adoption of FSP APB 14-1, the unamortized debt discount as of December 31, 2008 of approximately $22.9 million will be included as a reduction of debt and approximately $41.5 million will be included as accumulated additional paid-in capital on our consolidated balance sheet. Incremental interest expense will be approximately $8.3 million, $7.9 million and $3.2 million for the year ended December 31, 2008, 2007 and 2006, respectively. Additionally, our gain on the redemption of convertible unsecured notes will approximate $12.9 million for the year ended December 31, 2008.
In June 2008, the FASB’s Emerging Issues Task Force (“EITF”) issued EITF Issue 07-5 (“EITF 07-5”), “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock.” EITF 07-5 proposes a two step method in determining if an instrument previously qualifying for the scope exception of FASB Statement 133 will continue to qualify as an instrument indexed to the entity’s stock. EITF 07-5 is effective for us on January 1, 2009. We believe that the adoption of this standard on its effective date will not effect our consolidated financial statements.
In November 2008, the FASB’s EITF issued EITF Issue 08-6 (“EITF 08-6”), “Equity Method Investments Accounting Considerations.” EITF 08-6 requires an investment accounted for under the equity method to be evaluated and recorded in accordance with SFAS 141R business combinations definition and modeling. EITF 08-6 is effective for us for equity method investments made on or after January 1, 2009. We believe that the adoption of this standard on its effective date will not have a material effect our consolidated financial statements.
In December 2008, the FASB issued FASB Staff Position No. FAS 140-4 and FIN 46(R)-8 (“FSP FAS 140-4”), “Disclosures by Public Entities (enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.” FSP FAS 140-4 requires additional disclosures about transfers of financial assets under FASB Statement 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” and their involvement with variable interest entities under FIN 46R. The disclosures required by FSP FAS 140-4 are intended to provide greater transparency to financial statement users. FSP FAS 140-4 is effective for us on December 31, 2008. FSP FAS 140-4 has resulted in certain additional footnote disclosures.
We use fixed and floating-rate debt to finance our capital requirements. These transactions expose us to market risk related to changes in interest rates. Derivative financial instruments are used to manage a portion of this risk, primarily interest rate swap agreements with major financial institutions. These swap agreements expose us to credit risk in the event of non-performance by the counter-parties to the swaps. We do not engage in the trading of derivative financial instruments in the normal course of business. At December 31, 2008, we had fixed-rate debt of $2.7 billion and variable-rate debt of $449.0 million, after adjusting for the net effect of $50 million notional amount of interest rate swaps. At December 31, 2007, we had fixed-rate debt of $2.8 billion and variable-rate debt of $321.7 million, after adjusting for the net effect of $50 million notional amount of interest rate swaps. In the event interest rates were to increase 100 basis points, annual net income and cash flows would decrease by approximately $10.2 million and $3.2 million based upon the variable-rate debt and notes receivable outstanding at December 31, 2008 and 2007, respectively, and the fair value of fixed-rate debt at December 31, 2008 and 2007 would decrease by $143.3 million and $204.5 million, respectively.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trust Managers and Shareholders of
Weingarten Realty Investors
Houston, Texas
We have audited the accompanying consolidated balance sheets of Weingarten Realty Investors and subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of income and comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Weingarten Realty Investors and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2009 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/Deloitte & Touche LLP
Houston, Texas
March 2, 2009
STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Rentals | | $ | 600,918 | | | $ | 570,487 | | | $ | 516,669 | |
| Other | | | 14,050 | | | | 13,280 | | | | 6,755 | |
| | | | | | | | | | | | | |
| Total | | | 614,968 | | | | 583,767 | | | | 523,424 | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Depreciation and amortization | | | 155,912 | | | | 128,061 | | | | 117,443 | |
| Operating | | | 118,477 | | | | 103,737 | | | | 85,722 | |
| Ad valorem taxes | | | 73,026 | | | | 66,649 | | | | 60,673 | |
| General and administrative | | | 25,761 | | | | 26,979 | | | | 23,801 | |
| Impairment loss | | | 52,539 | | | | | | | | | |
| | | | | | | | | | | | | |
| Total | | | 425,715 | | | | 325,426 | | | | 287,639 | |
| | | | | | | | | | | | | |
| Operating Income | | | 189,253 | | | | 258,341 | | | | 235,785 | |
| Interest Expense | | | (148,475 | ) | | | (148,829 | ) | | | (145,374 | ) |
| Interest and Other Income, net | | | 4,334 | | | | 8,486 | | | | 9,044 | |
| Gain on Redemption of Convertible Senior Unsecured Notes | | | 10,658 | | | | | | | | | |
Equity in Earnings of Real Estate Joint Ventures and Partnerships, net | | | 12,196 | | | | 19,853 | | | | 14,655 | |
| Income Allocated to Minority Interests | | | (8,943 | ) | | | (10,237 | ) | | | (6,414 | ) |
| Gain on Sale of Properties | | | 1,998 | | | | 4,086 | | | | 22,493 | |
| Gain on Land and Merchant Development Sales | | | 8,342 | | | | 16,385 | | | | 7,166 | |
| Benefit (Provision) for Income Taxes | | | 10,148 | | | | (4,073 | ) | | | (1,366 | ) |
| Income from Continuing Operations | | | 79,511 | | | | 144,012 | | | | 135,989 | |
| Operating Income from Discontinued Operations | | | 3,448 | | | | 10,346 | | | | 23,527 | |
| Gain on Sale of Properties from Discontinued Operations | | | 68,722 | | | | 83,659 | | | | 145,494 | |
| Income from Discontinued Operations | | | 72,170 | | | | 94,005 | | | | 169,021 | |
| Net Income | | | 151,681 | | | | 238,017 | | | | 305,010 | |
| | | | | | | | | | | | | |
| Dividends on Preferred Shares | | | (34,711 | ) | | | (25,375 | ) | | | (10,101 | ) |
| Redemption Costs of Preferred Shares | | | (1,850 | ) | | | | | | | | |
| Net Income Available to Common Shareholders | | $ | 115,120 | | | $ | 212,642 | | | $ | 294,909 | |
| | | | | | | | | | | | | |
| Net Income Per Common Share - Basic: | | | | | | | | | | | | |
| Income from Continuing Operations | | $ | .51 | | | $ | 1.39 | | | $ | 1.43 | |
| Income from Discontinued Operations | | | .85 | | | | 1.10 | | | | 1.93 | |
| Net Income | | $ | 1.36 | | | $ | 2.49 | | | $ | 3.36 | |
| | | | | | | | | | | | | |
| Net Income Per Common Share - Diluted: | | | | | | | | | | | | |
| Income from Continuing Operations | | $ | .51 | | | $ | 1.38 | | | $ | 1.43 | |
| Income from Discontinued Operations | | | .85 | | | | 1.06 | | | | 1.84 | |
| Net Income | | $ | 1.36 | | | $ | 2.44 | | | $ | 3.27 | |
| | | | | | | | | | | | | |
| Comprehensive Income: | | | | | | | | | | | | |
| Net Income | | $ | 151,681 | | | $ | 238,017 | | | $ | 305,010 | |
| Other Comprehensive Loss: | | | | | | | | | | | | |
| Unrealized loss on derivatives | | | | | | | (5,014 | ) | | | (2,861 | ) |
| Loss on derivatives | | | (7,204 | ) | | | | | | | | |
| Amortization of loss on derivatives | | | 2,095 | | | | 878 | | | | 364 | |
| Minimum pension liability adjustment | | | (9,092 | ) | | | 1,161 | | | | (1,150 | ) |
| Other Comprehensive Loss | | | (14,201 | ) | | | (2,975 | ) | | | (3,647 | ) |
| | | | | | | | | | | | | |
| Comprehensive Income | | $ | 137,480 | | | $ | 235,042 | | | $ | 301,363 | |
See Notes to Consolidated Financial Statements.
| CONSOLIDATED BALANCE SHEETS | |
| (In thousands, except per share amounts) | |
| | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2008 | | | 2007 | |
| ASSETS | | | | | | |
| Property | | $ | 4,915,472 | | | $ | 4,972,344 | |
| Accumulated Depreciation | | | (812,323 | ) | | | (774,321 | ) |
| Property, net | | | 4,103,149 | | | | 4,198,023 | |
| Investment in Real Estate Joint Ventures and Partnerships | | | 357,634 | | | | 300,756 | |
| Total | | | 4,460,783 | | | | 4,498,779 | |
| Notes Receivable from Real Estate Joint Ventures and Partnerships | | | 232,544 | | | | 81,818 | |
| Unamortized Debt and Lease Costs | | | 119,951 | | | | 114,969 | |
Accrued Rent and Accounts Receivable (net of allowance for doubtful accounts of $12,412 in 2008 and $8,721 in 2007) | | | 103,873 | | | | 94,607 | |
| Cash and Cash Equivalents | | | 58,946 | | | | 65,777 | |
| Restricted Deposits and Mortgage Escrows | | | 33,252 | | | | 38,884 | |
| Other | | | 105,350 | | | | 98,509 | |
| Total | | $ | 5,114,699 | | | $ | 4,993,343 | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | |
| Debt | | $ | 3,171,537 | | | $ | 3,165,059 | |
| Accounts Payable and Accrued Expenses | | | 179,432 | | | | 155,137 | |
| Other | | | 90,461 | | | | 104,439 | |
| Total | | | 3,441,430 | | | | 3,424,635 | |
| | | | | | | | | |
| Commitments and Contingencies | | | 41,000 | | | | | |
| | | | | | | | | |
| Minority Interest | | | 204,031 | | | | 96,885 | |
| | | | | | | | | |
| Shareholders' Equity: | | | | | | | | |
Preferred Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 10,000 | | | | | | | | |
6.75% Series D cumulative redeemable preferred shares of beneficial interest; 100 shares issued and outstanding in 2008 and 2007; liquidation preference $75,000 | | | 3 | | | | 3 | |
6.95% Series E cumulative redeemable preferred shares of beneficial interest; 29 shares issued and outstanding in 2008 and 2007; liquidation preference $72,500 | | | 1 | | | | 1 | |
6.5% Series F cumulative redeemable preferred shares of beneficial interest, 140 shares issued; 140 and 80 shares outstanding in 2008 and 2007, respectively; liquidation preference $350,000 in 2008 and $200,000 in 2007 | | | 4 | | | | 2 | |
Variable-rate Series G cumulative redeemable preferred shares of beneficial interest, 80 shares issued; none in 2008 and 80 shares outstanding in 2007; liquidation preference $200,000 in 2007 | | | | | | | 2 | |
Common Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 150,000; shares issued and outstanding: | | | | | | | | |
| 87,102 in 2008 and 85,146 in 2007 | | | 2,625 | | | | 2,565 | |
Treasury Shares of Beneficial Interest - par value, $.03 per share; none in 2008 and 1,370 shares in 2007 | | | | | | | (41 | ) |
| Accumulated Additional Paid-In Capital | | | 1,475,397 | | | | 1,442,027 | |
| Net Income in Excess of (Less Than) Accumulated Dividends | | | (20,116 | ) | | | 42,739 | |
| Accumulated Other Comprehensive Loss | | | (29,676 | ) | | | (15,475 | ) |
| Shareholders' Equity | | | 1,428,238 | | | | 1,471,823 | |
| Total | | $ | 5,114,699 | | | $ | 4,993,343 | |
| | | | | | | | | |
| See Notes to Consolidated Financial Statements. | |
| STATEMENTS OF CONSOLIDATED CASH FLOWS | |
| (In thousands) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| Cash Flows from Operating Activities: | | | | | | | | | |
| Net Income | | $ | 151,681 | | | $ | 238,017 | | | $ | 305,010 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | 157,894 | | | | 134,676 | | | | 131,992 | |
| Write-off of pre-development/acquisition costs | | | 11,724 | | | | | | | | | |
| Impairment loss | | | 52,539 | | | | | | | | | |
| Equity in earnings of real estate joint ventures and partnerships, net | | | (12,196 | ) | | | (19,853 | ) | | | (14,655 | ) |
| Income allocated to minority interests | | | 8,943 | | | | 10,237 | | | | 6,414 | |
| Gain on land and merchant development sales | | | (8,342 | ) | | | (16,385 | ) | | | (7,166 | ) |
| Gain on sale of properties | | | (70,720 | ) | | | (87,745 | ) | | | (167,987 | ) |
| Gain on redemption of convertible senior unsecured notes | | | (10,658 | ) | | | | | | | | |
Distributions of income from unconsolidated real estate joint ventures and partnerships | | | 3,602 | | | | 6,251 | | | | 2,524 | |
| Changes in accrued rent and accounts receivable | | | (11,255 | ) | | | (22,276 | ) | | | (18,056 | ) |
| Changes in other assets | | | (24,505 | ) | | | (26,813 | ) | | | (37,607 | ) |
| Changes in accounts payable and accrued expenses | | | (36,397 | ) | | | 4,852 | | | | 43,641 | |
| Other, net | | | 7,840 | | | | 2,348 | | | | (1,518 | ) |
| Net cash provided by operating activities | | | 220,150 | | | | 223,309 | | | | 242,592 | |
| | | | | | | | | | | | | |
| Cash Flows from Investing Activities: | | | | | | | | | | | | |
| Investment in property | | | (294,886 | ) | | | (753,462 | ) | | | (880,471 | ) |
| Proceeds from sale and disposition of properties, net | | | 265,421 | | | | 341,383 | | | | 661,175 | |
| Change in restricted deposits and mortgage escrows | | | 2,688 | | | | 56,331 | | | | (79,737 | ) |
Notes receivable from real estate joint ventures and partnerships and other receivables: | | | | | | | | | | | | |
| Advances | | | (150,064 | ) | | | (145,735 | ) | | | (54,800 | ) |
| Collections | | | 46,254 | | | | 82,852 | | | | 47,617 | |
| Real estate joint ventures and partnerships: | | | | | | | | | | | | |
| Investments | | | (4,759 | ) | | | (78,794 | ) | | | (21,547 | ) |
| Distributions of capital | | | 19,955 | | | | 16,795 | | | | 13,077 | |
| Net cash used in investing activities | | | (115,391 | ) | | | (480,630 | ) | | | (314,686 | ) |
| | | | | | | | | | | | | |
| Cash Flows from Financing Activities: | | | | | | | | | | | | |
| Proceeds from issuance of: | | | | | | | | | | | | |
| Debt | | | 486,060 | | | | 270,092 | | | | 780,782 | |
| Common shares of beneficial interest, net | | | 101,016 | | | | 4,010 | | | | 4,570 | |
| Preferred shares of beneficial interest, net | | | 117,891 | | | | 387,678 | | | | | |
Purchase of marketable securities in connection with the legal defeasance of mortgage notes payable | | | | | | | (22,536 | ) | | | | |
| Repurchase of preferred shares of beneficial interest, net | | | (195,824 | ) | | | | | | | | |
| Repurchase of common shares of beneficial interest, net | | | | | | | (103,366 | ) | | | (167,573 | ) |
| Principal payments of debt | | | (396,902 | ) | | | (89,419 | ) | | | (327,601 | ) |
| Common and preferred dividends paid | | | (213,569 | ) | | | (194,492 | ) | | | (173,010 | ) |
| Debt issuance costs paid | | | (6,822 | ) | | | (1,451 | ) | | | (13,681 | ) |
| Other, net | | | (3,440 | ) | | | 1,579 | | | | (3,080 | ) |
| Net cash (used in) provided by financing activities | | | (111,590 | ) | | | 252,095 | | | | 100,407 | |
| | | | | | | | | | | | | |
| Net (decrease) increase in cash and cash equivalents | | | (6,831 | ) | | | (5,226 | ) | | | 28,313 | |
| Cash and cash equivalents at January 1 | | | 65,777 | | | | 71,003 | | | | 42,690 | |
| Cash and cash equivalents at December 31 | | $ | 58,946 | | | $ | 65,777 | | | $ | 71,003 | |
| | | | | | | | | | | | | |
| See Notes to Consolidated Financial Statements. | | | | | |
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
Year Ended December 31, 2008, 2007 and 2006
| | | Preferred Shares of Beneficial Interest | | | Common Shares of Beneficial Interest | | | Treasury Shares of Beneficial Interest | | | Accumulated Additional Paid-In Capital | | | Net Income in Excess of (Less Than) Accumulated Dividends | | | Accumulated Other Comprehensive Loss | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, January 1, 2006 | | $ | 4 | | | $ | 2,686 | | | | | | $ | 1,288,432 | | | $ | (132,786 | ) | | $ | (8,050 | ) | | $ | 1,150,286 | |
| Net income | | | | | | | | | | | | | | | | | | 305,010 | | | | | | | | 305,010 | |
| Shares issued in exchange for interests in limited partnerships | | | | | | | 7 | | | | | | | 7,988 | | | | | | | | | | | | 7,995 | |
| Shares cancelled | | | | | | | (128 | ) | | | | | | (167,445 | ) | | | | | | | | | | | (167,573 | ) |
| Shares issued under benefit plans | | | | | | | 17 | | | | | | | 7,506 | | | | | | | | | | | | 7,523 | |
| Dividends declared – common shares (1) | | | | | | | | | | | | | | | | | | (162,909 | ) | | | | | | | (162,909 | ) |
| Dividends declared – preferred shares (2) | | | | | | | | | | | | | | | | | | (10,101 | ) | | | | | | | (10,101 | ) |
| Adjustment to initially apply FASB Statement No. 158 | | | | | | | | | | | | | | | | | | | | | | (803 | ) | | | (803 | ) |
| Other comprehensive loss | | | | | | | | | | | | | | | | | | | | | | (3,647 | ) | | | (3,647 | ) |
| Balance, December 31, 2006 | | | 4 | | | | 2,582 | | | | | | | 1,136,481 | | | | (786 | ) | | | (12,500 | ) | | | 1,125,781 | |
| Net income | | | | | | | | | | | | | | | | | | 238,017 | | | | | | | | 238,017 | |
| Issuance of Series F preferred shares | | | 2 | | | | | | | | | | | 193,972 | | | | | | | | | | | | 193,974 | |
| Issuance of Series G preferred shares | | | 2 | | | | | | | | | | | 193,548 | | | | | | | | | | | | 193,550 | |
| Shares issued in exchange for interests in limited partnerships | | | | | | | 17 | | | | | | | 13,562 | | | | | | | | | | | | 13,579 | |
| Shares repurchased (5) | | | | | | | | | | $ | (41 | ) | | | (49,966 | ) | | | | | | | | | | | (50,007 | ) |
| Shares repurchased and cancelled | | | | | | | (42 | ) | | | | | | | (53,317 | ) | | | | | | | | | | | (53,359 | ) |
| Shares issued under benefit plans | | | | | | | 8 | | | | | | | | 7,747 | | | | | | | | | | | | 7,755 | |
| Dividends declared – common shares (1) | | | | | | | | | | | | | | | | | | | (169,117 | ) | | | | | | | (169,117 | ) |
| Dividends declared – preferred shares (3) | | | | | | | | | | | | | | | | | | | (25,375 | ) | | | | | | | (25,375 | ) |
| Other comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | (2,975 | ) | | | (2,975 | ) |
| Balance, December 31, 2007 | | | 8 | | | | 2,565 | | | | (41 | ) | | | 1,442,027 | | | | 42,739 | | | | (15,475 | ) | | | 1,471,823 | |
| Net income | | | | | | | | | | | | | | | | | | | 151,681 | | | | | | | | 151,681 | |
| Issuance of Series F preferred shares | | | 2 | | | | | | | | | | | | 116,949 | | | | 883 | | | | | | | | 117,834 | |
| Redemption of Series G preferred shares | | | (2 | ) | | | | | | | | | | | (193,548 | ) | | | (1,850 | ) | | | | | | | (195,400 | ) |
| Issuance of common shares | | | | | | | 90 | | | | | | | | 97,971 | | | | | | | | | | | | 98,061 | |
| Shares issued in exchange for interests in limited partnerships | | | | | | | 2 | | | | | | | | 3,295 | | | | | | | | | | | | 3,297 | |
| Treasury shares cancelled (5) | | | | | | | (41 | ) | | | 41 | | | | | | | | | | | | | | | | - | |
| Shares issued under benefit plans | | | | | | | 9 | | | | | | | | 8,703 | | | | | | | | | | | | 8,712 | |
| Dividends declared – common shares (1) | | | | | | | | | | | | | | | | | | | (177,975 | ) | | | | | | | (177,975 | ) |
| Dividends declared – preferred shares (4) | | | | | | | | | | | | | | | | | | | (35,594 | ) | | | | | | | (35,594 | ) |
| Other comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | (14,201 | ) | | | (14,201 | ) |
| Balance, December 31, 2008 | | $ | 8 | | | $ | 2,625 | | | $ | - | | | $ | 1,475,397 | | | $ | (20,116 | ) | | $ | (29,676 | ) | | $ | 1,428,238 | |
| (1) | Common dividends per share were $2.10, $1.98 and $1.86 for the year ended December 31, 2008, 2007 and 2006, respectively. |
| (2) | Series D and Series E preferred dividends per share were $50.63 and $173.75, respectively, for the year ended December 31, 2006. |
| (3) | Series D, E, F and G preferred dividends per share were $50.63, $173.75, $142.64 and $34.88, respectively, for the year ended December 31, 2007. |
| (4) | Series D, E, F and G preferred dividends per share were $50.63, $173.75, $162.50 and $73.73, respectively, for the year ended December 31, 2008. |
| (5) | A total of 1.4 million common shares of beneficial interest were purchased in 2007 and subsequently retired on January 11, 2008. |
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Business
Weingarten Realty Investors is a real estate investment trust organized under the Texas Real Estate Investment Trust Act. We, and our predecessor entity, began the ownership and development of shopping centers and other commercial real estate in 1948. Our primary business is leasing space to tenants in the shopping and industrial centers we own or lease. We also manage centers for joint ventures in which we are partners or for other outside owners for which we charge fees.
We operate a portfolio of properties that include neighborhood and community shopping centers and industrial properties of approximately 73.0 million square feet. We have a diversified tenant base with our largest tenant comprising only 2.7% of total rental revenues during 2008.
We currently operate, and intend to operate in the future, as a real estate investment trust (“REIT”).
Basis of Presentation
Our consolidated financial statements include the accounts of our subsidiaries and certain partially owned real estate joint ventures or partnerships which meet the guidelines for consolidation. All intercompany balances and transactions have been eliminated.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. Such statements require management to make estimates and assumptions that affect the reported amounts on our consolidated financial statements. Actual results could differ from these estimates.
Revenue Recognition
Rental revenue is generally recognized on a straight-line basis over the life of the lease, which begins the date the leasehold improvements are substantially complete, if owned by us, or the date the tenant takes control of the space, if the leasehold improvements are owned by the tenant. Revenue from tenant reimbursements of taxes, maintenance expenses and insurance is recognized in the period the related expense is recognized. Revenue based on a percentage of tenants' sales is recognized only after the tenant exceeds their sales breakpoint. In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease. Other revenue is income from contractual agreements with third parties, tenants or partially owned real estate joint ventures or partnerships, which is recognized as the related services are performed under the respective agreements.
Real Estate Joint Ventures and Partnerships
To determine the method of accounting for partially owned real estate joint ventures and partnerships, we first apply the guidelines set forth in Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”). Entities identified as variable interest entities are consolidated if we are determined to be the primary beneficiary of the partially owned real estate joint venture or partnership.
Partially owned real estate joint ventures and partnerships over which we exercise financial and operating control are consolidated in our financial statements. In determining if we exercise financial and operating control, we consider factors such as ownership interest, authority to make decisions, kick-out rights and substantive participating rights. Partially owned real estate joint ventures and partnerships where we have the ability to exercise significant influence, but do not exercise financial and operating control, are accounted for using the equity method.
Our investments in partially owned real estate joint ventures and partnerships are reviewed for impairment, periodically, if events or circumstances change indicating that the carrying amount of our investments may not be recoverable. The ultimate realization of our investments in partially owned real estate joint ventures and partnerships is dependent on a number of factors, including the performance of each investment and market conditions. In accordance with the Accounting Principles Board’s APB 18, “The Equity Method of Accounting for Investments in Common Stock,” we will record an impairment charge if we determine that a decline in the value of an investment is other than temporary. Based on our analysis of the facts and circumstances at each reporting period, no impairment was recorded for the year ended December 31, 2008, 2007 and 2006. However, due to the current credit and real estate market conditions, there is no certainty that impairments would not occur in the future.
Property
Real estate assets are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method, generally over estimated useful lives of 18-40 years for buildings and 10-20 years for parking lot surfacing and equipment. Major replacements where the betterment extends the useful life of the asset are capitalized and the replaced asset and corresponding accumulated depreciation are removed from the accounts. All other maintenance and repair items are charged to expense as incurred.
Acquisitions of properties are accounted for utilizing the purchase method and, accordingly, the results of operations of an acquired property are included in our results of operations from the date of acquisition. We have used estimates of future cash flows and other valuation techniques to allocate the purchase price of acquired property among land, buildings on an "as if vacant" basis, tenant improvements and other identifiable intangibles. Other identifiable intangible assets and liabilities include the effect of out-of-market leases, the value of having leases in place (“as is” versus “as vacant” basis and absorption costs), out-of-market assumed mortgages and tenant relationships. Depreciation and amortization is computed using the straight-line method, generally over estimated useful lives of 40 years for buildings and over the lease term which includes bargain renewal options for other identifiable intangible assets. Initial valuations are subject to change until such information is finalized, no later than 12 months from the acquisition date.
Property also includes costs incurred in the development of new operating properties and properties in our merchant development program. Merchant development is a new program in which we develop a project with the objective of selling all or part of it, instead of retaining it in our portfolio on a long-term basis. Also, disposition of land parcels and non-operating properties are included in this program. These properties are carried at cost and no depreciation is recorded on these assets until the commencement of rental revenue or no later than one year from the completion of major construction. These costs include preacquisition costs directly identifiable with the specific project, development and construction costs, interest and real estate taxes. Indirect development costs, including salaries and benefits, travel and other related costs that are directly attributable to the development of the property, are also capitalized. The capitalization of such costs ceases at the earlier of one year from the completion of major construction or when the property, or any completed portion, becomes available for occupancy.
Property also includes costs for tenant improvements paid by us, including reimbursements to tenants for improvements that are owned by us and will remain our property after the lease expires.
Our properties are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the property, including any identifiable intangible assets (including site costs and capitalized interest), may not be recoverable. In such an event, a comparison is made of the current and projected operating cash flows of each such property into the foreseeable future on an undiscounted basis to the carrying amount of such property. Fair values are also determined by obtaining third-party broker and appraisal estimates. In accordance with FASB’s Statement of Financial Accounting Standards (“SFAS”) No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” such carrying amount is adjusted, if necessary, to the estimated fair value to reflect an impairment in the value of the asset.
Due to our analysis of current economic considerations at each reporting period, including the effects of tenant bankruptcies, lack of available funding and halt of tenant expansion plans for new development projects and declines in the real estate values, plans related to our new development properties including land held for development changed, and the use of these assets was no longer certain which brought about an impairment charge. Impairments, primarily related to our new development properties, of $52.5 million were recognized for the year ended December 31, 2008. No impairment was recorded for the year ended December 31, 2007 and 2006. Determining whether a property is impaired and, if impaired, the amount of required write-down to fair value requires a significant amount of judgment by management and is based on the best information available to management at the time of evaluation. If market conditions continue to deteriorate or managements’ plans for certain properties change, additional write-downs could be required in the future.
Some of our properties are held in single purpose entities. A single purpose entity is a legal entity typically established at the request of a lender solely for the purpose of owning a property or group of properties subject to a mortgage. There may be restrictions limiting the entity’s ability to engage in an activity other than owning or operating the property, assuming or guaranteeing the debt of any other entity, or dissolving itself or declaring bankruptcy before the debt has been repaid. Most of our single purpose entities are 100% owned by us and are consolidated in our financial statements.
Interest Capitalization
Interest is capitalized on land under development and buildings under construction based on rates applicable to borrowings outstanding during the period and the weighted average balance of qualified assets under development/construction during the period.
Deferred Charges
Debt financing costs are amortized primarily on a straight-line basis, which approximates the effective interest method, over the terms of the debt. Lease costs represent the initial direct costs incurred in origination, negotiation and processing of a lease agreement. Such costs include outside broker commissions and other independent third party costs, as well as salaries and benefits, travel and other internal costs directly related to completing a lease and are amortized over the life of the lease on a straight-line basis. Costs related to supervision, administration, unsuccessful origination efforts and other activities not directly related to completed lease agreements are charged to expense as incurred.
Sales of Real Estate
Sales of real estate include the sale of shopping center pads, property adjacent to shopping centers, shopping center properties, merchant development properties, investments in real estate joint ventures and partnerships and partial sales to real estate joint ventures and partnerships in which we participate.
We recognize profit on sales of real estate, including merchant development sales, in accordance with FASB’s SFAS No. 66 (“SFAS 66”), “Accounting for Sales of Real Estate.” Profits are not recognized until (a) a sale is consummated; (b) the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay; (c) the seller’s receivable is not subject to future subordination; and (d) we have transferred to the buyer the usual risks and rewards of ownership in the transaction, and we do not have a substantial continuing involvement with the property.
We recognize gains on the sale of real estate to joint ventures and partnerships in which we participate to the extent we receive cash from the joint venture or partnership, if it meets the sales criteria in accordance with SFAS 66 and we do not have a commitment to support the operations of the real estate joint venture or partnership to an extent greater than our proportionate interest in the real estate joint venture or partnership.
Accrued Rent and Accounts Receivable, net
Receivable balances outstanding include base rents, tenant reimbursements and receivables attributable to the straight-lining of rental commitments. An allowance for the uncollectible portion of accrued rents and accounts receivable is determined based upon an analysis of balances outstanding, historical bad debt levels, tenant credit worthiness and current economic trends. Additionally, estimates of the expected recovery of pre-petition and post-petition claims with respect to tenants in bankruptcy are considered in assessing the collectibility of the related receivables.
Restricted Deposits and Mortgage Escrows
Restricted deposits and mortgage escrows consist of escrow deposits held by lenders primarily for property taxes, insurance and replacement reserves and restricted cash that is held for a specific use or in a qualified escrow account for the purposes of completing like-kind exchange transactions. At December 31, 2008 and December 31, 2007, we had $22.5 million and $21.3 million of restricted cash, respectively, and $10.8 million and $17.6 million held in escrow related to our mortgages, respectively.
Other Assets
Other assets in our consolidated financial statements include investments held in grantor trusts, prepaid expenses, the value of above-market leases and the related accumulated amortization, deferred tax assets and other miscellaneous receivables. Investments held in grantor trusts are adjusted to fair value at each period end with changes included in our Statements of Consolidated Income and Comprehensive Income. Above-market leases are amortized over terms of the acquired leases.
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):
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Numerator: | | | | | | | | | |
| Net income available to common shareholders – basic | | $ | 115,120 | | | $ | 212,642 | | | $ | 294,909 | |
| Income attributable to operating partnership units | | | | | | | 4,407 | | | | 5,453 | |
| Net income available to common shareholders – diluted | | $ | 115,120 | | | $ | 217,049 | | | $ | 300,362 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Weighted average shares outstanding – basic | | | 84,474 | | | | 85,504 | | | | 87,719 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Share options and awards | | | 443 | | | | 891 | | | | 926 | |
| Operating partnership units | | | | | | | 2,498 | | | | 3,134 | |
| Weighted average shares outstanding – diluted | | | 84,917 | | | | 88,893 | | | | 91,779 | |
Options to purchase common shares of beneficial interest of 2.4 million in 2008 and .5 million in both 2007 and 2006, 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 for the year. For the year ended December 31, 2008, 2.4 million of operating partnership units was not included in the calculation of net income per common share – diluted because these units had an anti-dilutive effect.
Income Taxes
We have elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended. As a REIT, we generally will not be subject to corporate level federal income tax on taxable income we distribute to our shareholders. To be taxed as a REIT, we must meet a number of requirements including defined percentage tests concerning the amount of our assets and revenues that come from, or are attributable to, real estate operations. As long as we distribute at least 90% of the taxable income of the REIT to our shareholders as dividends, we will not be taxed on the portion of our income we distribute as dividends unless we have ineligible transactions.
The Tax Relief Extension Act of 1999 gave REITs the ability to conduct activities which a REIT was previously precluded from doing as long as such activities are performed in entities which have elected to be treated as taxable REIT subsidiaries under the IRS code. These activities include buying or developing properties with the express purpose of selling them. We conduct certain of these activities in taxable REIT subsidiaries that we have created. We calculate and record income taxes in our consolidated financial statements based on the activities in those entities. We also record deferred taxes for the temporary tax differences that have resulted from those activities as required under SFAS No. 109, “Accounting for Income Taxes.”
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered cash equivalents. Cash and cash equivalents are primarily held at major financial institutions in the United States. At December 31, 2008 and 2007, we had cash and cash equivalents in certain financials institutions in excess of federally insured levels. We have diversified our cash and cash equivalents amongst several banking institutions in an attempt to minimize exposure to any one of these entities. We believe we are not exposed to any significant credit risk and regularly monitor the financial stability of these financial institutions. The Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank. Beginning October 3, 2008 through December 31, 2009, the FDIC will insure up to $250,000 per depositor per insured bank; on January 1, 2010, the standard coverage limit will return to $100,000 for most deposit categories. Unlimited deposit insurance coverage will be available to our non-interest bearing transaction accounts held at those institutions participating in FDIC’s Temporary Liquidity Guaranty program through December 31, 2009.
Cash Flow Information
We issued common shares of beneficial interest valued at $2.3 million, $13.6 million and $8.0 million during 2008, 2007 and 2006, respectively, in exchange for interests in real estate joint ventures and partnerships, which had been formed to acquire properties. We also accrued $25.8 million, $15.5 million and $6.5 million during 2008, 2007 and 2006, respectively, associated with the construction of property. Cash payments for interest on debt, net of amounts capitalized, of $154.8 million, $153.2 million and $139.1 million were made during 2008, 2007 and 2006, respectively. A cash payment of $5.1 million, $.8 million and $.6 million for income taxes was made during 2008, 2007 and 2006, respectively.
In association with property acquisitions and investments in unconsolidated real estate joint ventures, items assumed were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Debt | | $ | - | | | $ | 99,428 | | | $ | 140,740 | |
| Obligations Under Capital Leases | | | - | | | | 12,888 | | | | - | |
| Minority Interest | | | 634 | | | | 27,932 | | | | 15,816 | |
| Net Assets and Liabilities | | | 8,450 | | | | 14,322 | | | | 21,597 | |
In connection with the sale of improved properties, we received notes receivable totaling $6.0 million during 2008. Net assets and liabilities were reduced by $68.3 million during 2008 from the reorganization of four joint ventures, which were previously consolidated. In addition, we recorded a $41 million non-cash contingent liability as an increase to our investment in real estate joint ventures and partnerships and accrued $8.5 million associated with Hurricane Ike.
In conjunction with the disposition of properties completed during 2007, we defeased three mortgage loans totaling $22.2 million and transferred marketable securities totaling $22.5 million in connection with the legal defeasance of these three loans. Also, we settled a $12.9 million capital lease obligation. Net assets and liabilities were reduced by $59.8 million during 2007 from the reorganization of three joint ventures, two of which were previously consolidated, to tenancy-in-common arrangements where we have a 50% interest. This net reduction from the reorganization of three joint ventures was offset by the assumption of debt totaling $33.2 million.
In connection with the sale of an 80% interest in 12 properties in 2006, we retained a 20% unconsolidated investment of $90.6 million. In connection with the sale of improved properties, we received notes receivable totaling $2.6 million in 2006.
Accumulated Other Comprehensive Loss
As of December 31, 2008, the balance in accumulated other comprehensive loss relating to derivatives and our retirement liability was $16.9 million and $12.8 million, respectively. As of December 31, 2007, the balance in accumulated other comprehensive loss relating to derivatives and our retirement liability was $11.8 million and $3.7 million, respectively.
Reclassifications
The reclassification of prior years’ operating results for certain properties to discontinued operations was made to conform to the current year presentation. This reclassification had no impact on previously reported net income, net income per share, shareholders’ equity or cash flows.
Note 2. Newly Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value Measurements.” This statement defines fair value and establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The key changes to current practice are (1) the definition of fair value, which focuses on an exit price rather than an entry price; (2) the methods used to measure fair value, such as emphasis that fair value is a market-based measurement, not an entity-specific measurement, as well as the inclusion of an adjustment for risk, restrictions and credit standing and (3) the expanded disclosures about fair value measurements. This statement does not require any new fair value measurements.
We adopted SFAS 157 in the first quarter of 2008 regarding our financial assets and liabilities currently recorded or disclosed at fair value. The FASB has issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” which defers the provisions of SFAS 157 relating to nonfinancial assets and liabilities, and delays implementation by us until January 1, 2009. SFAS 157 has not and is not expected to materially affect how we determine fair value, but it has resulted in certain additional disclosures (see Note 18).
In October 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active,” to clarify the provisions of SFAS 157 relating to valuing a financial asset when the market for that asset is not active. This FSP was effective upon issuance and has not had a material effect on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158 (“SFAS 158”), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – An Amendment of FASB Statements No. 87, 88, 106, and 132R.” This new standard requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. These changes will be reported in comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements were effective for us as of December 31, 2006, and as a result we recognized an additional liability of $803,000. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for us on December 31, 2008. The adoption of the measurement provision of SFAS 158 has not had a material effect on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. This statement was effective for us on January 1, 2008, and we elected not to measure any of our current eligible financial assets or liabilities at fair value upon adoption; however, we do have the option to elect to measure eligible financial assets or liabilities acquired in the future at fair value.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations.” SFAS 141R expands the original guidance’s definition of a business. It broadens the fair value measurement and recognition to all assets acquired, liabilities assumed and interests transferred as a result of business combinations. SFAS 141R requires expanded disclosures to improve the ability to evaluate the nature and financial effects of business combinations. SFAS 141R is effective for us for business combinations made on or after January 1, 2009. Due to current economic conditions, we do not plan any significant acquisitions in the upcoming year, thereby upon adoption, no material effect is anticipated. However SFAS 141R could have a material effect on our accounting for future acquisition of properties.
In December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” SFAS 160 requires that a noncontrolling interest in an unconsolidated entity be reported as equity and any losses in excess of an unconsolidated entity’s equity interest be recorded to the noncontrolling interest. The statement requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. SFAS 160 is effective for us on January 1, 2009 and many provisions will be applied retrospectively. SFAS 160 may materially increase our shareholders’ equity; however due to the complexities and number of entities included in our minority interest, we have not yet been able to formalize the impact on our consolidated financial statements. Future changes to noncontrolling interests could materially affect shareholders’ equity. Also upon adoption, net income will no longer include income allocated to minority interests which may result in a material increase in net income. However, income available to common shareholders should not be affected.
In March 2008, the FASB issued SFAS No. 161 (“SFAS 161”), “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133.” SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities. SFAS 161 is effective for us on January 1, 2009. Implementation of SFAS 161 will result in certain additional disclosures to be included in our consolidated financial statements.
In May 2008, the FASB issued FASB Staff Position No. APB 14-1 (“FSP APB 14-1”), “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 will require that the initial debt proceeds from the sale of our convertible and exchangeable senior debentures be allocated between a liability component and an equity component in a manner that will reflect our effective nonconvertible borrowing rate. The resulting debt discount would be amortized using the effective interest method over the period the debt is expected to be outstanding as additional interest expense. FSP APB 14-1 is effective for us on January 1, 2009 and requires retroactive application. Upon the adoption of FSP APB 14-1, the unamortized debt discount as of December 31, 2008 of approximately $22.9 million will be included as a reduction of debt and approximately $41.5 million will be included as accumulated additional paid-in capital on our consolidated balance sheet. Incremental interest expense will be approximately $8.3 million, $7.9 million and $3.2 million for the year ended December 31, 2008, 2007 and 2006, respectively. Additionally, our gain on the redemption of convertible unsecured notes will approximate $12.9 million for the year ended December 31, 2008.
In June 2008, the FASB’s Emerging Issues Task Force (“EITF”) issued EITF Issue 07-5 (“EITF 07-5”), “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock.” EITF 07-5 proposes a two step method in determining if an instrument previously qualifying for the scope exception of FASB Statement 133 will continue to qualify as an instrument indexed to the entity’s stock. EITF 07-5 is effective for us on January 1, 2009. We believe that the adoption of this standard on its effective date will not effect our consolidated financial statements.
In November 2008, the FASB’s EITF issued EITF Issue 08-6 (“EITF 08-6”), “Equity Method Investments Accounting Considerations.” EITF 08-6 requires an investment accounted for under the equity method to be evaluated and recorded in accordance with SFAS 141R business combinations definition and modeling. EITF 08-6 is effective for us for equity method investments made on or after January 1, 2009. We believe that the adoption of this standard on its effective date will not have a material effect our consolidated financial statements.
In December 2008, the FASB issued FASB Staff Position No. FAS 140-4 and FIN 46(R)-8 (“FSP FAS 140-4”), “Disclosures by Public Entities (enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.” FSP FAS 140-4 requires additional disclosures about transfers of financial assets under FASB Statement 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” and their involvement with variable interest entities under FIN 46R. The disclosures required by FSP FAS 140-4 are intended to provide greater transparency to financial statement users. FSP FAS 140-4 is effective for us on December 31, 2008. FSP FAS 140-4 has resulted in certain additional disclosures included in Note 3.
Note 3. Variable Interest Entities
Management determines whether an entity is a variable interest entity (“VIE”) and, if so, determines which party is the primary beneficiary by analyzing which party absorbs a majority of the expected losses or a majority of the expected residual returns of the VIE, or both. Significant judgments and assumptions inherent in this analysis include the design of the entity structure, the nature of the entity’s operations, future cash flow projections, the entity’s financing and capital structure, and contractual relationships and terms. We consolidate a VIE when we have determined that we are the primary beneficiary. Assets held by VIEs which are currently consolidated approximate $241.9 million and none at December 31, 2008 and 2007, respectively. Entities for which we are the primary beneficiary and we consolidate are described below.
In March 2008, we contributed 18 neighborhood/community shopping centers located in Texas with an aggregate value of approximately $227.5 million, and aggregating more than 2.1 million square feet, to a joint venture. The activities of this venture principally consist of owning and operating these shopping centers. We sold an 85% interest in this joint venture to AEW Capital Management on behalf of one of its institutional clients and received proceeds of approximately $216.1 million. Financing totaling $154.3 million was placed on the properties and guaranteed solely by us for tax planning purposes. This venture is deemed to be a variable interest entity and, due to our guaranty of the debt, we are the primary beneficiary and have consolidated this joint venture. Our maximum exposure to loss associated with this joint venture is primarily limited to our guaranty of the debt, which was approximately $154.3 million at December 31, 2008.
We also contributed eight neighborhood/community shopping centers with an aggregate value of approximately $205.1 million, and aggregating approximately 1.1 million square feet, to a joint venture in November 2008. Four of these shopping centers are located in Texas, two in Tennessee and one each in Florida and Georgia. The activities of this venture principally consist of owning and operating these shopping centers. We sold a 70% interest in this joint venture to Hines REIT Retail Holdings, LLC and received proceeds of approximately $121.8 million. Financing totaling $100.0 million was placed on the properties and guaranteed solely by us for tax planning purposes. This venture is deemed to be a variable interest entity and, due to our guaranty of the debt, we are the primary beneficiary and have consolidated this joint venture. Our maximum exposure to loss associated with this joint venture is primarily limited to our guaranty of the debt, which was approximately $100.0 million at December 31, 2008.
Restrictions on the use of these assets are significant because they are secured as collateral for their debt, and we would be required to obtain our partners’ approval in accordance with the partnership agreements on any major transactions. The impact of these transactions on our consolidated financial statements has been limited to changes in minority interest and reductions in debt from our partners’ contributions.
In addition, we have an unconsolidated joint venture with an interest in an entity which is deemed to be a VIE as described. In July 2008, a 47.75%-owned unconsolidated real estate joint venture acquired an 83.34% interest in a joint venture owning a 919,000 square foot new development to be constructed in Aurora, Colorado. The unconsolidated joint venture provided a guaranty on debt obtained by acquired joint venture. The unconsolidated joint venture’s maximum exposure to loss is limited to the guaranty of the debt, which was approximately $28.3 million at December 31, 2008.
Note 4. Derivatives and Hedging
In order to manage our interest rate risk, we occasionally hedge the future cash flows of our debt transactions, as well as changes in the fair value of our debt instruments, principally through interest rate swaps with major financial institutions. In accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” we recognize all derivatives as either assets or liabilities at fair value and have designated our current interest rate swaps as fair value hedges of fixed rate borrowings. At December 31, 2008 and 2007, we had two interest rate swap contracts designated as fair value hedges with an aggregate notional amount of $50.0 million that convert fixed interest payments at rates of 4.2% to variable interest payments of 2.0% and 5.0% at December 31, 2008 and 2007, respectively. We have determined that they are highly effective in limiting our risk of changes in the fair value of fixed-rate notes attributable to changes in variable interest rates.
Also, at December 31, 2007, we had two forward-starting interest rate swap contracts with an aggregate notional amount of $118.6 million, which were designated as cash flow hedges to mitigate the risk of future fluctuations in interest rates on forecasted issuances of long-term debt.
On March 20, 2008, the cash flow hedge was completed through the issuance of $154.3 million of fixed-rate long-term debt issued by a joint venture that is consolidated by us. A loss of $12.8 million was recorded in accumulated other comprehensive loss based on the fair value of the interest rate swap contracts on that date. On March 27, 2008, the interest rate swap contracts were settled resulting in a loss of $10.0 million. For the period between the completion of the cash flow hedge and the settlement of the swap contracts, a gain of $2.8 million was recognized as a reduction of interest expense.
In July, November and December 2007, swaps of $10 million, $5 million and $10 million, respectively, matured in conjunction with the maturity of the associated medium term notes. These hedge contracts were designated as fair value hedges.
Changes in the fair value of interest rate swap contracts designated as fair value hedges, as well as changes in the fair value of the related debt being hedged, are recorded in earnings each reporting period. For the twelve months ended December 31, 2008 and 2007, these changes in fair value offset. The derivative instruments at December 31, 2008 were reported at their fair values in other assets, net of accrued interest, of $4.6 million, and we had no derivative instruments reported in other liabilities. At December 31, 2007, derivative instruments were reported at their fair values in other liabilities, net of accrued interest, of $5.8 million, and we had no derivative instruments reported in other assets.
As of December 31, 2008 and December 31, 2007, the balance in accumulated other comprehensive loss relating to derivatives was $16.9 million and $11.8 million, respectively. Amounts amortized to interest expense were $2.1 million in 2008, $.9 million in 2007 and $.4 million in 2006. Within the next 12 months, approximately $2.2 million of the balance in accumulated other comprehensive loss is expected to be amortized to interest expense.
The interest rate swaps decreased interest expense and increased net income by $.8 million and decreased the average interest rate of our debt by .03% in 2008. The interest rate swaps increased interest expense and decreased net income by $.6 million and $.5 million in 2007 and 2006, respectively, and increased the average interest rate of our debt by .02% in both 2007 and 2006. We could be exposed to losses in the event of nonperformance by the counter-parties; however, management believes the likelihood of such nonperformance is unlikely.
Note 5. Debt
Our debt consists of the following (in thousands):
| | | December 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Debt payable to 2030 at 4.5% to 8.8% | | $ | 2,755,475 | | | $ | 2,876,445 | |
| Unsecured notes payable under revolving credit agreements | | | 383,000 | | | | 255,000 | |
| Obligations under capital leases | | | 29,725 | | | | 29,725 | |
| Industrial revenue bonds payable to 2015 at 2.4% to 2.1% | | | 3,337 | | | | 3,889 | |
| | | | | | | | | |
| Total | | $ | 3,171,537 | | | $ | 3,165,059 | |
The grouping of total debt between fixed and variable-rate as well as between secured and unsecured is summarized below (in thousands):
| | | December 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| As to interest rate (including the effects of interest rate swaps): | | | | | | |
| Fixed-rate debt | | $ | 2,722,510 | | | $ | 2,843,320 | |
| Variable-rate debt | | | 449,027 | | | | 321,739 | |
| | | | | | | | | |
| Total | | $ | 3,171,537 | | | $ | 3,165,059 | |
| | | | | | | | | |
| As to collateralization: | | | | | | | | |
| Unsecured debt | | $ | 2,139,392 | | | $ | 2,095,506 | |
| Secured debt | | | 1,032,145 | | | | 1,069,553 | |
| | | | | | | | | |
| Total | | $ | 3,171,537 | | | $ | 3,165,059 | |
We have a $575 million unsecured revolving credit facility held by a syndicate of banks that expires in February 2010 and provides a one-year extension option available at our request. Borrowing rates under this facility float at a margin over LIBOR, plus a facility fee. The borrowing margin and facility fee, which are currently 60.0 and 15.0 basis points, respectively, are priced off a grid that is tied to our senior unsecured credit ratings. This facility retains a competitive bid feature that allows us to request bids for amounts up to $287.5 million from each of the syndicate banks, allowing us an opportunity to obtain pricing below what we would pay using the pricing grid.
At December 31, 2008 and December 31, 2007, the balance outstanding under the revolving credit facility was $383.0 million at a variable interest rate of 1.6% and $255.0 million at a variable interest rate of 5.4%, respectively. We also have an agreement for a $30 million unsecured and uncommitted overnight facility with a bank that we use for cash management purposes, of which no amounts were outstanding at December 31, 2008 and December 31, 2007. Letters of credit totaling $10.1 million and $9.2 million were outstanding under the revolving credit facility at December 31, 2008 and December 31, 2007, respectively. The available balance under our revolving credit agreement was $181.9 million and $310.8 million at December 31, 2008 and December 31, 2007, respectively. During the twelve months ended December 31, 2008, the maximum balance and weighted average balance outstanding under both facilities combined were $503.0 million and $362.0 million, respectively, at a weighted average interest rate of 3.4%. During 2007, the maximum balance and weighted average balance outstanding under both facilities combined were $312.4 million and $96.7 million, respectively, at a weighted average interest rate of 6.1%.
In November 2008, we contributed assets to a joint venture with an institutional investor. In conjunction with this transaction, the joint venture issued $100.0 million of fixed-rate secured long-term debt with a five year term at a rate of 6.0% that we guaranteed. The net proceeds received from the issuance of this debt were used to reduce amounts outstanding under our $575 million revolving credit facility.
In March 2008, we contributed assets to a joint venture with an institutional investor. In conjunction with this transaction, the joint venture issued $154.3 million of fixed-rate secured long-term debt with an average life of 7.3 years at an average rate of 5.4% that we guaranteed. We received all of the proceeds from the issuance of this debt and such proceeds were used to reduce amounts outstanding under our $575 million revolving credit facility.
In January 2008, we elected to repay at par a fixed-rate 8.33% mortgage totaling $121.8 million that was secured by 19 supermarket-anchored shopping centers in California originally acquired in April 2001.
As of December 31, 2007, the balance of secured debt that was assumed in conjunction with 2007 acquisitions was $99.4 million. A capital lease obligation totaling $12.9 million was assumed and subsequently settled in 2007. No debt or capital lease obligations were assumed in 2008 in conjunction with acquisitions.
Various leases and properties, and current and future rentals from those lease and properties, collateralize certain debt. At December 31, 2008 and December 31, 2007, the carrying value of such property aggregated $1.8 billion and $1.9 billion, respectively.
Scheduled principal payments on our debt (excluding $383.0 million due under our revolving credit agreements, $21.0 million of certain capital leases, $4.6 million fair value of interest rate swaps and $21.7 million of non-cash debt-related items) are due during the following years (in thousands):
| 2009 | | $ | 96,987 | |
| 2010 | | | 127,975 | |
| 2011 | | | 303,412 | |
| 2012 | | | 334,701 | |
| 2013 | | | 413,440 | |
| 2014 | | | 374,743 | |
| 2015 | | | 249,780 | |
| 2016 | | | 147,123 | |
| 2017 | | | 29,391 | |
| 2018 | | | 54,007 | |
| Thereafter | | | 609,636 | |
| Total | | $ | 2,741,195 | |
Our various debt agreements contain restrictive covenants, including minimum interest and fixed charge coverage ratios, minimum unencumbered interest coverage ratios, minimum net worth requirements and maximum total debt levels. We believe we were in compliance with all restrictive covenants as of December 31, 2008.
In August 2006, we issued an offering of $575 million of 3.95% convertible senior unsecured notes due 2026. Interest is payable semi-annually in arrears on February 1 and August 1 of each year, beginning February 1, 2007. The debentures are convertible under certain circumstances for our common shares of beneficial interest at an initial conversion rate of 20.3770 common shares of beneficial interest per $1,000 of principal amount of debentures (an initial conversion price of $49.075). In addition, the conversion rate may be adjusted if certain change in control transactions or other specified events occur on or prior to August 4, 2011. Upon the conversion of debentures, we will deliver cash for the principal return, as defined, and cash or common shares of beneficial interest, at our option, for the excess of the conversion value, as defined, over the principal return. The debentures are redeemable for cash at our option beginning in 2011 for the principal amount plus accrued and unpaid interest. Holders of the debentures have the right to require us to repurchase their debentures for cash equal to the principal of the debentures plus accrued and unpaid interest in 2011, 2016 and 2021 and in the event of a change in control. In November 2008, we elected to repurchase a portion of these notes in the open market. We purchased and subsequently retired $37.8 million face for $26.7 million resulting in a net gain of $10.7 million in the fourth quarter of 2008.
In connection with the issuance of these debentures, we filed a registration statement related to the resale of the debentures and the common shares of beneficial interest issuable upon the conversion of the debentures. This registration statement has been declared effective by the SEC.
Note 6. Preferred Shares
In June and July of 2008, we redeemed $120 million and $80 million of depositary shares, respectively, retiring all of the Series G Cumulative Redeemable Preferred Shares. Each depositary share represented one-hundredth of a Series G Cumulative Redeemable Preferred Share. These depositary shares were redeemed, at our option, at a redemption price of $25 multiplied by a graded rate per depositary share based on the date of redemption plus any accrued and unpaid dividends thereon. Upon the redemption of these shares, the related original issuance costs of $1.9 million were reported as a deduction in arriving at net income available to common shareholders. In September 2007, these depositary shares were issued through a private placement, and net proceeds of $193.6 million were used to repay amounts outstanding under our credit facilities. The Series G Preferred Shares paid a variable-rate quarterly dividend through July 2008 and had a liquidation preference of $2,500 per share. The variable-rate dividend was calculated on the period’s three-month LIBOR rate plus a percentage determined by the number of days outstanding. At December 31, 2007, the variable-rate dividend was 5.9%.
We issued $150 million and $200 million of depositary shares on June 6, 2008 and January 30, 2007, respectively. Each depositary share represents one-hundredth of a Series F Cumulative Redeemable Preferred Share. The depositary shares are redeemable, in whole or in part, on or after January 30, 2012 at our option, at a redemption price of $25 per depositary share, plus any accrued and unpaid dividends thereon. The depositary shares are not convertible or exchangeable for any of our other property or securities. The Series F Preferred Shares pay a 6.5% annual dividend and have a liquidation value of $2,500 per share. Series F Preferred Shares issued in June 2008 were issued at a discount, resulting in an effective rate of 8.25%. Net proceeds of $117.8 million and $194.0 million from the issuance in June 2008 and January 2007, respectively, were used to repay amounts outstanding under our revolving credit facilities and for general business purposes. Subsequent to the 2008 issuance, our revolving credit facilities were used to finance the partial redemption of the Series G Cumulative Redeemable Preferred Shares as described above.
In July 2004, we issued $72.5 million of depositary shares with each share representing one-hundredth of a Series E Cumulative Redeemable Preferred Share. The depositary shares are redeemable at our option on or after July 8, 2009, in whole or in part, for cash at a redemption price of $25 per depositary share, plus any accrued and unpaid dividends thereon. The depositary shares are not convertible or exchangeable for any of our other property or securities. The Series E preferred shares pay a 6.95% annual dividend and have a liquidation value of $2,500 per share.
In April 2003, $75 million of depositary shares were issued with each share representing one-thirtieth of a Series D Cumulative Redeemable Preferred Share. The depositary shares are currently redeemable at our option, in whole or in part, for cash at a redemption price of $25 per depositary share, plus any accrued and unpaid dividends thereon. The depositary shares are not convertible or exchangeable for any of our property or securities. The Series D preferred shares pay a 6.75% annual dividend and have a liquidation value of $750 per share.
Note 7. Common Shares of Beneficial Interest
In July 2007, our Board of Trust Managers authorized a common share repurchase program as part of our ongoing investment strategy. Under the terms of the program, we may purchase up to a maximum value of $300 million of our common shares of beneficial interest during the following two years. Share repurchases may be made in the open market or in privately negotiated transactions at the discretion of management and as market conditions warrant. We anticipate funding the repurchase of shares primarily through the proceeds received from our property disposition program, as well as from general corporate funds.
During 2007, we repurchased 2.8 million common shares of beneficial interest at an average share price of $37.12 and cancelled 1.4 million common shares of beneficial interest in both 2008 and 2007. As of December 31, 2008, the remaining value of common shares of beneficial interest available to be repurchased under the common share repurchase plan is $196.7 million.
In October 2008, we sold 3.0 million common shares of beneficial interest at $34.20 per share. Net proceeds from this offering were $98.1 million and were used to repay indebtedness outstanding under our revolving credit facilities and for other general corporate purposes.
Note 8. Treasury Shares of Beneficial Interest
At December 31, 2007, a total of 1.4 million common shares of beneficial interest were repurchased by us at an average share price of $36.47. These shares were subsequently retired on January 11, 2008.
Note 9. Property
Our property consisted of the following (in thousands):
| | | December 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Land | | $ | 964,982 | | | $ | 974,145 | |
| Land held for development | | | 118,078 | | | | 62,033 | |
| Land under development | | | 101,587 | | | | 223,827 | |
| Buildings and improvements | | | 3,488,385 | | | | 3,533,037 | |
| Construction in-progress | | | 242,440 | | | | 179,302 | |
| | | | | | | | | |
| Total | | $ | 4,915,472 | | | $ | 4,972,344 | |
The following carrying charges were capitalized (in thousands):
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Interest | | $ | 20,290 | | | $ | 25,025 | | | $ | 7,616 | |
| Ad valorem taxes | | | 2,730 | | | | 1,985 | | | | 780 | |
| | | | | | | | | | | | | |
| Total | | $ | 23,020 | | | $ | 27,010 | | | $ | 8,396 | |
During 2008, we invested $176.3 million in new developments projects. We commenced three new development projects, of which two are located in Texas and one in Florida. Of these, one property is held in a 70%-owned consolidated real estate joint venture. We also disposed of nine shopping centers, one industrial property and 24 land parcels.
In 2008, five real estate joint venture agreements were amended, which produced a reduction of $143.3 million to property as these ventures were previously included in this caption of our consolidated financial statements and are now accounted for under the equity method of accounting and are included as investment in real estate joint ventures and partnerships.
An impairment charge, as described in Note 1, of $52.5 million was recognized for the year ended December 31, 2008, and no impairment was recorded for the year ended December 31, 2007 and 2006.
Note 10. Discontinued Operations
During 2008, one industrial center located in Texas and nine shopping centers, five of which were located in Texas, one in California and three in Louisiana, were sold. In 2007, we sold 17 shopping centers and one industrial center, 10 of which were located in Texas, three in Louisiana, two each in Colorado and Illinois, and one in Georgia. The operating results of these properties have been reclassified and reported as discontinued operations in the Statements of Consolidated Income and Comprehensive Income in accordance with SFAS No. 144, as well as any gains on the respective disposition. Revenues recorded in operating income from discontinued operations totaled $7.8 million in 2008, $26.2 million in 2007 and $55.6 million in 2006. Included in the Consolidated Balance Sheet at December 31, 2007 were $108.4 million of property and $40.1 million of accumulated depreciation related to properties sold during 2008.
The discontinued operations reported in 2008 had no debt that was required to be repaid upon their disposition.
In 2007, we incurred a net loss of $.4 million on the defeasance of three loans totaling $22.2 million that were required to be settled upon the disposition of the related properties. These defeasance costs were recognized as interest expense and have been reclassified and reported as discontinued operations.
We elected not to allocate other consolidated interest to discontinued operations because the interest savings to be realized from the proceeds of the sale of these operations was not material.
Note 11. Notes Receivable from Real Estate Joint Ventures and Partnerships
We have ownership interests in a number of real estate joint ventures and partnerships. Notes receivable from these entities bear interest ranging from 2.8% to 10.0% at December 31, 2008 and 5.7% to 10.0% at December 31, 2007. These notes are due at various dates through 2028 and are generally secured by real estate assets. We believe these notes are fully collectible and no allowance has been recorded at December 31, 2008 and 2007. We recognized interest income on these notes as follows, in millions: $4.0 in 2008, $1.5 in 2007 and $1.3 in 2006.
Note 12. Related Parties
Through our management activities and transactions with our real estate joint venture and partnerships, we had accounts receivables of $2.0 million and $4.7 million outstanding as of December 31, 2008 and 2007, respectively. We also had accounts payable and accrued expenses of $10.2 million and $2.2 million outstanding as of December 31, 2008 and 2007, respectively. For the year ended December 31, 2008, 2007 and 2006, we recorded joint venture fee income of $5.9 million, $5.0 million and $1.9 million, respectively.
In 2008, we contributed 18 neighborhood/community shopping centers located in Texas with an aggregate value of approximately $227.5 million, and aggregating more than 2.1 million square feet, to a joint venture. We sold an 85% interest in this joint venture to AEW Capital Management on behalf of one of its institutional clients and received proceeds approximating $216.1 million. We maintain a 15% ownership interest in this venture, which is consolidated in our financial statements.
We also contributed eight neighborhood/community shopping centers with an aggregate value of approximately $205.1 million, and aggregating approximately 1.1 million square feet, to a joint venture in November 2008. Four of these shopping centers are located in Texas, two in Tennessee and one each in Florida and Georgia. We sold a 70% interest in this joint venture to Hines REIT Retail Holdings, LLC and received proceeds of approximately $121.8 million. We maintain a 30% ownership interest in this venture, which is consolidated in our financial statements.
Subsequent to December 31, 2008, we contributed two additional properties to the joint venture with Hines REIT Retail Holdings, LLC with an aggregate value of approximately $23.3 million, and aggregating approximately .1 million square feet. These two shopping centers are located in Georgia and North Carolina, and we received proceeds of approximately $6.9 million.
In 2007, we acquired our partner’s 50% interest in a shopping center in Las Vegas, Nevada. As part of this transaction, our $22.2 million note receivable from this partner was settled.
In 2007, we sold a 12.6% interest in a shopping center located in Lafayette, Louisiana to our outside partner. Sales proceeds and the gain generated totaled $4.4 million and $.8 million, respectively.
Note 13. Investment in Real Estate Joint Ventures and Partnerships
We own interests in real estate joint ventures or limited partnerships and have tenancy-in-common interests in which we exercise significant influence, but do not have financial and operating control. We account for these investments using the equity method, and our interests range from 7.8% to 75%. Combined condensed financial information of these ventures (at 100%) is summarized as follows (in thousands):
| | | December 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Combined Condensed Balance Sheets | | | | | | |
| | | | | | | |
| Property | | $ | 1,951,771 | | | $ | 1,660,915 | |
| Accumulated depreciation | | | (129,227 | ) | | | (71,998 | ) |
| Property, net | | | 1,822,544 | | | | 1,588,917 | |
| | | | | | | | | |
| Other assets | | | 256,688 | | | | 238,166 | |
| | | | | | | | | |
| Total | | $ | 2,079,232 | | | $ | 1,827,083 | |
| | | | | | | | | |
| Debt (primarily mortgage payable) | | $ | 472,486 | | | $ | 378,206 | |
| Notes and accounts payable to Weingarten Realty Investors | | | 248,969 | | | | 87,191 | |
| Other liabilities | | | 149,265 | | | | 138,150 | |
| Accumulated equity | | | 1,208,512 | | | | 1,223,536 | |
| | | | | | | | | |
| Total | | $ | 2,079,232 | | | $ | 1,827,083 | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Combined Condensed Statements of Income | | | | | | | | | |
| | | | | | | | | | |
| Revenues | | $ | 162,737 | | | $ | 146,642 | | | $ | 65,002 | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Depreciation and amortization | | | 41,146 | | | | 38,574 | | | | 15,390 | |
| Interest | | | 20,424 | | | | 23,093 | | | | 17,398 | |
| Operating | | | 37,592 | | | | 22,396 | | | | 8,750 | |
| Ad valorem taxes | | | 18,739 | | | | 15,767 | | | | 6,187 | |
| General and administrative | | | 6,055 | | | | 1,243 | | | | 783 | |
| Impairment loss | | | 5,151 | | | | | | | | | |
| | | | | | | | | | | | | |
| Total | | | 129,107 | | | | 101,073 | | | | 48,508 | |
| | | | | | | | | | | | | |
| Gain on land and merchant development sales | | | 933 | | | | 1,295 | | | | 1,938 | |
| Gain on sale of properties | | | 13 | | | | 5,422 | | | | 5,991 | |
| Net income | | $ | 34,576 | | | $ | 52,286 | | | $ | 24,423 | |
Our investment in real estate joint ventures and partnerships, as reported on our Consolidated Balance Sheets, differs from our proportionate share of the entities' underlying net assets due to basis differentials, which arose upon the transfer of assets to the joint ventures. The basis differentials, which totaled $12.1 million and $15.8 million at December 31, 2008 and December 31, 2007, respectively, are generally amortized over the useful lives of the related assets.
In accordance with SFAS 144, our real estate joint ventures and partnerships determined that the carrying amount of certain properties was not recoverable and that the properties should be written down to fair value. Our unconsolidated real estate joint ventures and partnerships recorded an impairment charge of $5.2 million as of December 31, 2008, and no impairment was recorded for the year ended December 31, 2007 and 2006.
Fees earned by us for the management of these real estate joint ventures and partnerships totaled $5.9 million in 2008, $5.0 million in 2007 and $1.9 million in 2006.
During 2008, a 25%-owned unconsolidated real estate joint venture acquired a 4,000 square foot building located in Port Charlotte, Florida. A 50%-owned unconsolidated real estate joint venture was formed for the purposes of developing an industrial building in Houston, Texas, while a 32%-owned unconsolidated real estate joint venture commenced construction of a retail property in Salt Lake City, Utah.
In July 2008, a 47.75%-owned unconsolidated real estate joint venture acquired an 83.34% interest in a joint venture owning a 919,000 square foot new development to be constructed in Aurora, Colorado.
In August 2008, we executed a real estate limited partnership with a foreign institutional investor to purchase up to $250 million of retail properties in various states. Our ownership in this unconsolidated real estate limited partnership is 20.1%. As of December 31, 2008, no properties have been purchased.
In December 2008, a 50%-owned real estate joint venture was executed related to the redevelopment project in Sheridan, Colorado. The joint venture entered into a financing arrangement totaling $6.7 million, which matures in December 2038 and is secured by its property.
Effective December 31, 2008, four previously consolidated joint venture agreements were amended, which triggered a reconsideration event and resulted in the de-consolidation of these entities from our consolidated financial statements.
During 2007, a 25%-owned unconsolidated real estate joint venture acquired two shopping centers. Cole Park Plaza is located in Chapel Hill, North Carolina, and Sunrise West is located in Sunrise, Florida. A 50%-owned unconsolidated real estate joint venture was formed for the purpose of developing a retail shopping center. A 20%-owned unconsolidated real estate joint venture acquired seven industrial properties, one each in Ashland and Chester, Virginia, two in Colonial Heights, Virginia and three in Richmond, Virginia. We invested in a 20%-owned unconsolidated real estate joint venture, which acquired three retail power centers: Pineapple Commons located in Stuart, Florida; Mansell Crossing located in Alpharetta, Georgia; and Preston Shepard Place located in Plano, Texas. We acquired a 10% interest in two retail shopping centers each through a tenancy-in-common arrangement that are located in San Jose, California and Destin, Florida.
In March 2007, three joint ventures, two of which were previously consolidated, were reorganized and our 50% interest in each of these properties is now held in a tenancy-in-common arrangement.
In November 2007, we sold a 12.6% interest in a shopping center located in Lafayette, Louisiana to our outside partner. Sales proceeds and the gain generated totaled $4.4 million and $.8 million, respectively.
In December 2007, we acquired our partner’s 50% interest in a shopping center located in Las Vegas, Nevada, which was previously held in an unconsolidated real estate joint venture.
In December 2007, a retail center in Highland Ranch, Colorado was sold. This property was held in a 40%-owned unconsolidated real estate joint venture, and our share of the sales proceeds and the gain generated was $11.2 million and $2.2 million, respectively. Also, a land parcel was sold in Liberty Lakes, Washington, which was held in a 50%-owned unconsolidated real estate joint venture. Our share of the sales proceeds and the gain generated totaled $1.5 million and $.6 million, respectively.
Note 14. Federal Income Tax Considerations
We qualify as a REIT under the provisions of the Internal Revenue Code, and therefore, no tax is imposed on our taxable income distributed to shareholders. To maintain our REIT status, we must distribute at least 90% of our ordinary taxable income to our shareholders and meet certain income source and investment restriction requirements.
Taxable income differs from net income for financial reporting purposes principally because of differences in the timing of recognition of depreciation, rental revenue, compensation expense and gain from sales of property. As a result of these differences, the book value of our net fixed assets exceeds the tax basis by $220 million at December 31, 2008 and $275 million at December 31, 2007.
The following table reconciles net income to REIT taxable income for the year ended December 31, 2008, 2007 and 2006 (in thousands):
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Net Income | | $ | 151,681 | | | $ | 238,017 | | | $ | 305,010 | |
| Net (income) loss of taxable REIT subsidiaries included above | | | 34,803 | | | | (6,352 | ) | | | (4,264 | ) |
| Net Income from REIT operations | | | 186,484 | | | | 231,665 | | | | 300,746 | |
| Book depreciation and amortization including discontinued operations | | | 157,893 | | | | 134,676 | | | | 131,992 | |
| Tax depreciation and amortization | | | (144,816 | ) | | | (98,238 | ) | | | (86,002 | ) |
| Book/tax difference on gains/losses from capital transactions | | | 35,891 | | | | (76,054 | ) | | | (128,628 | ) |
| Deferred/prepaid/above and below market rents, net (1) | | | (20,113 | ) | | | (7,349 | )) | | | 574 | |
| Impairment loss | | | 31,461 | | | | | | | | | |
| Other book/tax differences, net (1) | | | (31,267 | ) | | | 10,047 | | | | (23,108 | ) |
| REIT taxable income | | | 215,533 | | | | 194,747 | | | | 195,574 | |
| Dividends paid deduction | | | (215,533 | ) | | | (194,747 | ) | | | (195,574 | ) |
| Dividends paid in excess of taxable income | | $ | - | | | $ | - | | | $ | - | |
_______________
(1) Certain amounts in prior periods have been reclassified to conform to the current year presentation.
The dividends paid deduction in 2008, 2007 and 2006 includes designated dividends of $4.7 million from 2009, $10.9 million from 2008 and $10.2 million from 2007, respectively.
For federal income tax purposes, the cash dividends distributed to common shareholders are characterized as follows:
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Ordinary income | | | 45.5 | % | | | 85.6 | % | | | 76.2 | % |
| Capital gain distributions | | | 54.5 | | | | 14.4 | | | | 23.8 | |
| | | | | | | | | | | | | |
| Total | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
Our taxable REIT subsidiary is subject to federal, state and local income taxes. We have recorded a federal income tax benefit of $12.1 million for the year ended December 31, 2008. A federal tax provision of $2.1 million and $1.3 million has been recorded for the year ended December 31, 2007 and 2006, respectively. Also, a current tax obligation of $.6 million and $2.3 million has been recorded at December 31, 2008 and 2007, respectively, in association with this tax.
Our deferred tax assets and liabilities consisted of the following (in thousands):
| | | December 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Deferred Assets: | | | | | | |
| Impairment loss | | $ | 9,936 | | | | |
| Allowance on other assets | | | 1,363 | | | | |
| Interest expense | | | 861 | | | $ | 267 | |
| Book/tax basis differential | | | | | | | 884 | |
| Other | | | 174 | | | | | |
| | | | | | | | | |
| Total | | $ | 12,334 | | | $ | 1,151 | |
| | | | | | | | | |
| Deferred Liabilities: | | | | | | | | |
| Pre-development costs | | | | | | $ | 1,411 | |
| Straight-line rentals | | $ | 152 | | | | | |
We have reviewed our tax positions under FASB’s Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the financial statements if it is more likely than not that the tax position will be sustained upon examination. We believe it is more likely than not that our tax positions will be sustained in any tax examinations.
In May 2006, the State of Texas enacted a new business tax (the “Revised Texas Franchise Tax”) that replaced its existing franchise tax. In general, legal entities that do business in Texas are subject to the Revised Texas Franchise Tax. Most REITs are subject to the Revised Franchise Tax, whereas they were previously exempt. The Revised Texas Franchise Tax became effective for franchise tax reports due on or after January 1, 2008 and is based on revenues earned during the fiscal year.
Because the Revised Texas Franchise Tax is determined by applying a tax rate to a base that considers both revenues and expenses, it is considered an income tax and is accounted for in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes.”
For the year ended December 31, 2008, 2007 and 2006, we recorded a provision for the Revised Texas Franchise Tax of $2.2 million, $2.0 million and $.1 million, respectively. The deferred tax assets associated with this tax each totaled $.1 million as of December 31, 2008 and 2007, and the deferred tax liabilities totaled $.2 million and $.1 million as of December 31, 2008 and 2007, respectively. Also, a current tax obligation of $2.4 million and $2.0 million has been recorded at December 31, 2008 and 2007, respectively, in association with this tax.
Note 15. Leasing Operations
The terms of our leases range from less than one year for smaller tenant spaces to over 25 years for larger tenant spaces. In addition to minimum lease payments, most of the leases provide for contingent rentals (payments for taxes, maintenance and insurance by lessees and an amount based on a percentage of the tenants' sales). Future minimum rental income from non-cancelable tenant leases at December 31, 2008, in millions, is: $441.8 in 2009; $385.3 in 2010; $311.0 in 2011; $245.0 in 2012; $186.2 in 2013; and $770.2 thereafter. The future minimum rental amounts do not include estimates for contingent rentals. Such contingent rentals, in millions, aggregated $131.7 in 2008, $126.3 in 2007 and $119.0 in 2006.
Note 16. Commitments and Contingencies
We are engaged in the operation of shopping centers, which are either owned or, with respect to certain shopping centers, operated under long-term ground leases. These ground leases expire at various dates through 2069, with renewal options. Space in our shopping centers is leased to tenants pursuant to agreements that provide for terms ranging generally from one month to 25 years and, in some cases, for annual rentals subject to upward adjustments based on operating expense levels, sales volume, or contractual increases as defined in the lease agreements.
Scheduled minimum rental payments under the terms of all non-cancelable operating leases in which we are the lessee, principally for shopping center ground leases, for the subsequent five years and thereafter ending December 31, are as follows (in thousands):
| 2009 | | $ | 3,568 | |
| 2010 | | | 3,528 | |
| 2011 | | | 3,439 | |
| 2012 | | | 3,251 | |
| 2013 | | | 3,222 | |
| Thereafter | | | 129,400 | |
| | | $ | 146,408 | |
Rental expense (including insignificant amounts for contingent rentals) for operating leases was, in millions: $4.0 in 2008; $3.4 in 2007 and $3.2 in 2006.
The scheduled future minimum revenues under subleases, applicable to the ground lease rentals above, under the terms of all non-cancelable tenant leases, assuming no new or renegotiated leases or option extensions for the subsequent five years and thereafter ending December 31, are as follows (in thousands):
| 2009 | | $ | 34,253 | |
| 2010 | | | 30,343 | |
| 2011 | | | 26,057 | |
| 2012 | | | 22,066 | |
| 2013 | | | 18,578 | |
| Thereafter | | | 88,457 | |
| | | $ | 219,754 | |
Property under capital leases, consisting of four shopping centers at both December 31, 2008 and 2007 aggregated $29.1 million, and is included in buildings and improvements. Amortization of property under capital leases is included in depreciation and amortization expense, and the balance of accumulated depreciation associated with these capital leases at December 31, 2008 and 2007 was $15.4 million and $14.2 million, respectively. Future minimum lease payments under these capital leases total $48.2 million, with annual payments due, in millions, $2.0 in each of 2009 and 2010; $2.1 in each of 2011 and 2012 and $2.2 in 2013; and $37.8 thereafter. The amount of these total payments representing interest is $18.5 million. Accordingly, the present value of the net minimum lease payments was $29.7 million at December 31, 2008.
We participate in six real estate ventures structured as DownREIT partnerships that have properties in Arkansas, California, Georgia, North Carolina, Texas and Utah. As a general partner, we have operating and financial control over these ventures and consolidate their operations in our consolidated financial statements. These ventures allow the outside limited partners to put their interest to the partnership for our common shares of beneficial interest or an equivalent amount in cash. We may acquire any limited partnership interests that are put to the partnership, and we have the option to redeem the interest in cash or a fixed number of our common shares of beneficial interest, at our discretion. We also participate in a real estate venture that has a property in Texas that allows its outside partner to put operating partnership units to us for our common shares of beneficial interest or an equivalent amount of cash. We have the option to redeem these units in cash or a fixed number of our common shares of beneficial interest, at our discretion. In 2008 and 2007, we issued common shares of beneficial interest valued at $2.3 million and $13.6 million, respectively, in exchange for certain of these limited partnership interests or operating partnership units. The aggregate redemption value of the operating partnership units was approximately $46 million and $76 million as of December 31, 2008 and 2007, respectively.
In January 2007, we acquired two retail properties in Arizona. This purchase transaction includes an earnout provision of approximately $29 million that is contingent upon the subsequent development of space by the property seller. This contingency agreement expires in 2010. We have an estimated obligation of $3.9 million and $4.2 million recorded as of December 31, 2008 and 2007, respectively. Since inception of this obligation, $8.8 million has been paid. Amounts paid or accrued under such earnouts are treated as additional purchase price and capitalized to the related property.
In April 2007, we acquired an industrial building located in Virginia. This purchase transaction includes an earnout provision of approximately $6 million that is contingent upon the lease up of vacant space by the property seller. This contingency agreement expires in 2009. We have an estimated obligation of $2.3 million and $5.6 million recorded as of December 31, 2008 and 2007, respectively. Since inception of this obligation, $3.3 million has been paid. Amounts paid or accrued under such earnouts are treated as additional purchase price and capitalized to the related property.
In August 2006, we acquired a portfolio of five properties, including four properties in Georgia and one in Florida. The purchase agreement allows for the subsequent development and leasing of an additional phase of Brookwood Marketplace by the property seller. If the terms of the purchase agreement are met by the seller, the purchase price would be increased by approximately $6.9 million. This agreement expired in August 2008; however, we have entered into a 180-day extension period per the terms of the purchase agreement. We have an estimated obligation of $1.6 million recorded as of December 31, 2008, and we had no obligation recorded for this contingency as of December 31, 2007. Since inception of this obligation, $1.3 million has been paid. Amounts paid or accrued under such earnouts are treated as additional purchase price and capitalized to the related property.
We are subject to numerous federal, state and local environmental laws, ordinances and regulations in the areas where we own or operate properties. We are not aware of any material contamination, which may have been caused by us or any of our tenants that would have a material effect on our consolidated financial statements.
As part of our risk management activities, we have applied and been accepted into state sponsored environmental programs which will limit our expenses if contaminants need to be remediated. We also have an environmental insurance policy that covers us against third party liabilities and remediation costs.
While we believe that we do not have any material exposure to environmental remediation costs, we cannot give absolute assurance that changes in the law or new discoveries of contamination will not result in increased liabilities to us.
Related to our investment in a redevelopment project in Sheridan, Colorado that is held in an unconsolidated real estate joint venture, we, our joint venture partner and the joint venture have each provided a guaranty for the payment of any debt service shortfalls on bonds issued in connection with the project. The Sheridan Redevelopment Agency issued $97 million of Series A bonds used for an urban renewal project. The bonds are to be repaid with incremental sales and property taxes and a public improvement fee (“PIF”) to be assessed on current and future retail sales. The incremental taxes and PIF are to remain intact until the bond liability has been paid in full, including any amounts we may have to provide. At inception on February 27, 2007, we evaluated and determined that the fair value of the guaranty is nominal to us as the guarantor. However, a liability has been recorded by the joint venture equal to amounts funded under the bonds.
In connection with the above project, we and our joint venture partner are also signatories to a completion guaranty that requires, among other things, certain infrastructure to be substantially completed and occupants of 75% of the retail space to be open for regular business as of December 31, 2008. Under specified circumstances, the completion guaranty allows for extension of the completion date until June 30, 2009. At inception on February 27, 2007, we evaluated the guaranty and determined that its then fair value was nominal. By a letter dated December 1, 2008, the guarantors requested extension of the completion date pursuant to the terms of the guaranty. On December 16, 2008, one of the parties benefited by the guaranty filed a lawsuit against us alleging that we were not entitled to the extension and is seeking $97 million in liquidated damages together with other relief. On February 5, 2009, we filed an answer and counterclaim in which we asserted, among other things, that we were entitled to the extension. We have recorded a contingent liability of $41 million as of December 31, 2008 based on our belief that we were entitled to the requested extension in December of 2008, but that since completion under the guaranty is not anticipated to be achieved by June 30, 2009, a provision of the guaranty requiring redemption of a certain portion of the outstanding bonds may be triggered. The contingent liability of $41 million is based on a weighted probability analysis of potential outcomes.
Since the $41 million contingent liability would be funded through the joint venture and the joint venture would purchase the bonds, it has been recorded as an increase in our investment in real estate joint ventures and partnerships. The increased basis in our investment did not result in an impairment to our investment in accordance to the Accounting Principles Board’s APB 18, “The Equity Method of Accounting for Investments in Common Stock.”
Also in connection with the Sheridan, Colorado joint venture and the issuance of the related Series A bonds, we, our joint venture partner and the joint venture have also provided a performance guaranty on behalf of the Sheridan Redevelopment Agency for the satisfaction of all obligations arising from two interest rate swap agreements for the combined notional amount of $97.0 million that matures in December 2029. We evaluated and determined that the fair value of the guaranty both at inception and December 31, 2008 was nominal.
We are also involved in various matters of litigation arising in the normal course of business. While we are unable to predict with certainty the amounts involved, our management and counsel are of the opinion that, when such litigation is resolved, any additional liability, if any, will not have a material effect on our consolidated financial statements.
Note 17. Identified Intangible Assets and Liabilities
Identified intangible assets and liabilities associated with our property acquisitions are as follows (in thousands):
| | | December 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Identified Intangible Assets: | | | | | | |
| Above-Market Leases (included in Other Assets) | | $ | 17,921 | | | $ | 18,590 | |
| Above-Market Leases – Accumulated Amortization | | | (9,771 | ) | | | (7,323 | ) |
| Below-Market Assumed Mortgages (included in Debt) | | | 2,072 | | | | 2,072 | |
| Below-Market Assumed Mortgages – Accumulated Amortization | | | (525 | ) | | | (246 | ) |
| Valuation of In Place Leases (included in Unamortized Debt and Lease Cost) | | | 64,027 | | | | 59,498 | |
| Valuation of In Place Leases – Accumulated Amortization | | | (29,104 | ) | | | (22,308 | ) |
| | | | | | | | | |
| | | $ | 44,620 | | | $ | 50,283 | |
| | | | | | | | | |
| Identified Intangible Liabilities: | | | | | | | | |
| Below-Market Leases (included in Other Liabilities) | | $ | 38,712 | | | $ | 39,141 | |
| Below-Market Leases – Accumulated Amortization | | | (18,265 | ) | | | (11,949 | ) |
| Above-Market Assumed Mortgages (included in Debt) | | | 53,895 | | | | 58,414 | |
| Above-Market Assumed Mortgages – Accumulated Amortization | | | (28,284 | ) | | | (24,517 | ) |
| | | | | | | | | |
| | | $ | 46,058 | | | $ | 61,089 | |
These identified intangible assets and liabilities are amortized over the applicable lease terms as defined by FASB's SFAS No. 98, "Accounting for Leases" or the remaining lives of the assumed mortgages, as applicable.
The net amortization of above-market and below-market leases increased rental revenues by $3.5 million, $3.2 million and $1.3 million in 2008, 2007 and 2006, respectively. The estimated net amortization of these intangible assets and liabilities will increase rental revenues for each of the next five years as follows (in thousands):
| 2009 | | $ | 2,695 | |
| 2010 | | | 1,879 | |
| 2011 | | | 1,372 | |
| 2012 | | | 1,117 | |
| 2013 | | | 982 | |
The amortization of the in place lease intangible assets recorded in depreciation and amortization, was $8.5 million, $8.3 million and $7.6 million in 2008, 2007 and 2006, respectively. The estimated amortization of this intangible asset will increase depreciation and amortization for each of the next five years as follows (in thousands):
| 2009 | | $ | 6,700 | |
| 2010 | | | 5,868 | |
| 2011 | | | 4,591 | |
| 2012 | | | 3,702 | |
| 2013 | | | 2,884 | |
The amortization of above-market and below-market assumed mortgages decreased interest expense by $8.0 million, $6.7 million and $7.3 million in 2008, 2007 and 2006, respectively. The estimated amortization of these intangible assets and liabilities will decrease interest expense for each of the next five years as follows (in thousands):
| 2009 | | $ | 4,337 | |
| 2010 | | | 3,713 | |
| 2011 | | | 2,416 | |
| 2012 | | | 1,242 | |
| 2013 | | | 798 | |
Note 18. Fair Value Measurements
On January 1, 2008, we adopted SFAS 157 for our financial assets and liabilities. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.
SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The fair value of our financial instruments was determined using available market information and appropriate valuation methodologies as defined by SFAS 157 as of December 31, 2008. Unless otherwise described below, all other financial instruments are carried at amounts which approximate their fair values.
Debt
The fair values of our financial instruments approximate their carrying value in our financial statements except for debt. We estimated the fair value of our debt based on quoted market prices for publicly-traded debt and on the discounted estimated future cash payments to be made for other debt. The discount rates used approximate current lending rates for loans or groups of loans with similar maturities and credit quality, assumes the debt is outstanding through maturity and considers the debt’s collateral (if applicable). We have utilized market information as available or present value techniques to estimate the amounts required to be disclosed. Since such amounts are estimates that are based on limited available market information for similar transactions, there can be no assurance that the disclosed value of any financial instrument could be realized by immediate settlement of the instrument. Fixed-rate debt with carrying values of $2.7 billion and $2.8 billion at December 31, 2008 and 2007, respectively, have fair values of approximately $2.3 billion and $2.9 billion, respectively. Variable-rate debt with carrying values of $449.0 million and $321.7 million as of December 31, 2008 and 2007, respectively, has fair values of approximately $432.1 million and $321.7 million, respectively.
Investments held in grantor trusts
These assets are valued based on publicly quoted market prices.
Derivative instruments
We use interest rate swaps with major financial institutions to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of our interest rate swaps have been determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
To comply with the provisions of SFAS 157, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counter-party’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral, thresholds and guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counter-parties. However, as of December 31, 2008, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2008, aggregated by the level in the fair value hierarchy in which those measurements fall, are as follows (in thousands):
| | | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Fair Value at December 31, 2008 | |
| | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | |
| Derivative instruments | | | | | $ | 4,625 | | | | | | $ | 4,625 | |
| Investments held in grantor trusts | | $ | 25,595 | | | | | | | | | | | 25,595 | |
| Total | | $ | 25,595 | | | $ | 4,625 | | | | - | | | $ | 30,220 | |
| | | | | | | | | | | | | | | | | |
Note 19. Share Options and Awards
In 1992, we adopted the Employee Share Option Plan that grants 100 share options to every employee, excluding officers, upon completion of each five-year interval of service. This plan expires in 2012 and provides options for a maximum of 225,000 common shares of beneficial interest, of which .2 million is available for future grant of options or awards at December 31, 2008. Options granted under this plan are exercisable immediately.
In 1993, we adopted the Incentive Share Option Plan that provided for the issuance of up to 3.9 million common shares of beneficial interest, either in the form of restricted shares or share options. This plan expired in 2002, but some awards made pursuant to it remain outstanding as of December 31, 2008. The share options granted to non-officers vest over a three-year period beginning after the grant date, and for officers vest over a seven-year period beginning two years after the grant date.
In 2001, we adopted the Long-term Incentive Plan for the issuance of options and share awards. In 2006, the maximum number of common shares of beneficial interest issuable under this plan was increased to 4.8 million common shares of beneficial interest, of which 1.8 million is available for the future grant of options or awards at December 31, 2008. This plan expires in 2011. The share options granted to non-officers vest over a three-year period beginning after the grant date, and share options and restricted shares for officers vest over a five-year period after the grant date. Restricted shares granted to trust managers and options or awards granted to retirement eligible employees are expensed immediately.
The grant price for the Employee Share Option Plan is equal to the closing price of our common shares of beneficial interest on the date of grant. The grant price of the Long-term Incentive Plan is calculated as an average of the high and low of the quoted fair value of our common shares of beneficial interest on the date of grant. In both plans, these options expire upon termination of employment or 10 years from the date of grant. In the Long-term Incentive Plan, restricted shares for officers and trust managers are granted at no purchase price. Our policy is to recognize compensation expense for equity awards ratably over the vesting period, except for retirement eligible amounts. Compensation expense, net of forfeitures, associated with share options and restricted shares totaled $4.9 million in 2008, $5.1 million in 2007 and $4.9 million in 2006, of which $1.3 million in 2008, 2007 and 2006 was capitalized.
The fair value of share options and restricted shares is estimated on the date of grant using the Black-Scholes option pricing method based on the expected weighted average assumptions in the following table. The dividend yield is an average of the historical yields at each record date over the estimated expected life. We estimate volatility using our historical volatility data for a period of 10 years, and the expected life is based on historical data from an option valuation model of employee exercises and terminations. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair value and weighted average assumptions are as follows:
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Fair value per share option | | $ | 3.07 | | | $ | 4.29 | | | $ | 4.97 | |
| Dividend yield | | | 5.1 | % | | | 5.5 | % | | | 5.7 | % |
| Expected volatility | | | 18.8 | % | | | 18.1 | % | | | 18.2 | % |
| Expected life (in years) | | | 6.2 | | | | 6.0 | | | | 5.9 | |
| Risk-free interest rate | | | 2.8 | % | | | 4.1 | % | | | 4.4 | % |
Following is a summary of the option activity for the three years ended December 31, 2008:
| | | | | | Weighted | |
| | | Shares | | | Average | |
| | | Under | | | Exercise | |
| | | Option | | | Price | |
| | | | | | | |
| Outstanding, January 1, 2006 | | | 3,179,646 | | | $ | 27.47 | |
| Granted | | | 544,346 | | | | 47.41 | |
| Forfeited or expired | | | (65,996 | ) | | | 28.63 | |
| Exercised | | | (510,843 | ) | | | 20.73 | |
| Outstanding, December 31, 2006 | | | 3,147,153 | | | | 31.99 | |
| Granted | | | 7,821 | | | | 42.63 | |
| Forfeited or expired | | | (73,156 | ) | | | 35.78 | |
| Exercised | | | (241,528 | ) | | | 23.24 | |
| Outstanding, December 31, 2007 | | | 2,840,290 | | | | 32.66 | |
| Granted | | | 832,106 | | | | 32.22 | |
| Forfeited or expired | | | (174,376 | ) | | | 35.85 | |
| Exercised | | | (180,365 | ) | | | 21.99 | |
| Outstanding, December 31, 2008 | | | 3,317,655 | | | $ | 32.96 | |
The total intrinsic value of options exercised was $2.2 million in 2008, $5.0 million in 2007 and $10.3 million in 2006. As of December 31, 2008 and 2007, there was approximately $3.4 million and $3.3 million, respectively, of total unrecognized compensation cost related to unvested share options, which is expected to be amortized over a weighted average of 1.7 years and 2.0 years, respectively.
The following table summarizes information about share options outstanding and exercisable at December 31, 2008:
| | | Outstanding | | | Exercisable | |
| | | | | Weighted | | | | | | | | | | | | | Weighted | | | |
| | | | | Average | | Weighted | | | Aggregate | | | | | | Weighted | | Average | | Aggregate | |
| | | | | Remaining | | Average | | | Intrinsic | | | | | | Average | | Remaining | | Intrinsic | |
| Range of | | | | Contractual | | Exercise | | | Value | | | | | | Exercise | | Contractual | | Value | |
| Exercise Prices | | Number | | Life | | Price | | | (000’s) | | | Number | | | Price | | Life | | (000’s) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| $17.94 - $26.91 | | | 882,939 | | 3.0 years | | $ | 22.11 | | | | | | | | 822,163 | | | $ | 21.93 | | 3.0 years | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $26.92 - $40.38 | | | 1,946,412 | | 7.3 years | | $ | 34.25 | | | | | | | | 963,427 | | | $ | 35.11 | | 5.8 years | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $40.39 - $49.62 | | | 488,304 | | 7.9 years | | $ | 47.46 | | | | | | | | 213,878 | | | $ | 47.46 | | 7.9 years | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | 3,317,655 | | 6.2 years | | $ | 32.96 | | | $ | - | | | | 1,999,468 | | | $ | 31.01 | | 4.9 years | | $ | - | |
A summary of the status of unvested restricted shares for the year ended December 31, 2008 is as follows:
| | | Unvested | | | Weighted | |
| | | Restricted | | | Average Grant | |
| | | Shares | | | Date Fair Value | |
| | | | | | | |
| Outstanding, January 1, 2008 | | | 117,539 | | | $ | 41.45 | |
| Granted | | | 129,260 | | | | 32.28 | |
| Vested | | | (61,426 | ) | | | 36.94 | |
| Forfeited | | | (17,971 | ) | | | 36.65 | |
| Outstanding, December 31, 2008 | | | 167,402 | | | $ | 36.54 | |
As of December 31, 2008 and 2007, there was approximately $4.1 million and $4.4 million, respectively, of total unrecognized compensation cost related to unvested restricted shares, which is expected to be amortized over a weighted average of 2.3 years and 2.7 years, respectively.
Note 20. Employee Benefit Plans
We have a Savings and Investment Plan pursuant to which eligible employees may elect to contribute from 1% of their salaries to the maximum amount established annually by the Internal Revenue Service. Employee contributions are matched by us at the rate of $.50 per $1.00 for the first 6% of the employee's salary. The employees vest in the employer contributions ratably over a five year period. Compensation expense related to the plan was $1.0 million in both 2008 and 2007 and $.8 million in 2006.
We also have an Employee Share Purchase Plan under which 562,500 of our common shares of beneficial interest have been authorized. These shares, as well as common shares of beneficial interest purchased by us on the open market, are made available for sale to employees at a discount of 15% from the quoted market price as defined by the plan. Shares purchased by the employee under the plan are restricted from being sold for two years from the date of purchase or until termination of employment. A total of 36,119, 30,437 and 24,181 shares were purchased by employees at an average price of $24.52, $33.49 and $35.38 during 2008, 2007 and 2006, respectively.
Effective April 1, 2002, we converted a noncontributory pension plan to a noncontributory cash balance retirement plan ("Retirement Plan") under which each participant received an actuarially determined opening balance. Annual additions to each participant's account include a service credit ranging from 3-5% of compensation, depending on years of service, and an interest credit based on the ten-year US Treasury Bill rate not to be less than 2.05%. Vesting generally occurs after three years of service. Certain participants were grandfathered under the prior pension plan formula. In addition to the plan described above, effective September 1, 2002, we established two separate and independent nonqualified supplemental retirement plans ("SRP") for certain employees, the assets of which are held in a grantor trust. These unfunded plans provide benefits in excess of the statutory limits of our noncontributory cash balance retirement plan. Annual additions to each participant's account include a service credit ranging from 3-5% of compensation, depending on years of service, and an interest credit of 7.5%. Vesting generally occurs after three years of service. We have elected to use the actuarial present value of the vested benefits to which the participant is entitled if the participant separates immediately from the SRP, as defined in EITF 88-1, “Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan.”
At December 31, 2006, we adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” As a result of the adoption we recognized additional minimum liability directly to accumulated other comprehensive income of $803,000.
The estimated net loss, prior service cost, and transition obligation that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $1,051,000, ($117,000) and zero, respectively.
The following tables summarize changes in the benefit obligation, the plan assets and the funded status of our pension plans as well as the components of net periodic benefit costs, including key assumptions. The measurement dates for plan assets and obligations were December 31, 2008 and 2007.
| | | Fiscal Year End | |
| | | 2008 | | | 2007 | |
| Change in Projected Benefit Obligation: | | | | | | |
| Benefit obligation at beginning of year | | $ | 41,083 | | | $ | 38,997 | |
| Service cost | | | 2,414 | | | | 3,846 | |
| Interest cost | | | 2,639 | | | | 2,175 | |
| Actuarial (gains) losses | | | 1,093 | | | | (1,325 | ) |
| Benefit payments | | | (1,081 | ) | | | (2,610 | ) |
| Benefit obligation at end of year | | $ | 46,148 | | | $ | 41,083 | |
| | | | | | | | | |
| Change in Plan Assets: | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | 20,434 | | | $ | 17,933 | |
| Actual return on plan assets | | | (5,946 | ) | | | 1,185 | |
| Employer contributions | | | 2,065 | | | | 3,926 | |
| Benefit payments | | | (1,081 | ) | | | (2,610 | ) |
| Fair value of plan assets at end of year | | $ | 15,472 | | | $ | 20,434 | |
| | | | | | | | | |
| Unfunded Status at End of Year: | | $ | 30,676 | | | $ | 20,649 | |
| | | | | | | | | |
| Accumulated benefit obligation | | $ | 45,052 | | | $ | 40,101 | |
| | | | | | | | | |
| Amounts recognized in accumulated other comprehensive loss consist of: | | | | | | | | |
| Net loss | | $ | 13,262 | | | $ | 4,287 | |
| Prior service credit | | | (470 | ) | | | (587 | ) |
| Total amount recognized | | $ | 12,792 | | | $ | 3,700 | |
The following is the required information for other changes in plan assets and benefit obligations recognized in other comprehensive income:
| | | 2008 | | | 2007 | | 2006 |
| | | | | | | | |
| Net loss (gain) | | $ | 9,231 | | | $ | (925 | ) | NA |
| Amortization of net gain | | | (256 | ) | | | (353 | ) | NA |
| Amortization of prior service cost | | | 117 | | | | 117 | | NA |
| Total recognized in other comprehensive income | | $ | 9,092 | | | $ | (1,161 | ) | NA |
| | | | | | | | | | |
| | | | | | | | | | |
| Total recognized in net periodic benefit costs and other comprehensive income | | $ | 12,093 | | | $ | 3,511 | | NA |
The following is the required information for plans with an accumulated benefit obligation in excess of plan assets at each year end:
| | | 2008 | | | 2007 | |
| | | | | | | |
| Projected benefit obligation | | $ | 46,149 | | | $ | 41,083 | |
| Accumulated benefit obligation | | | 45,052 | | | | 40,101 | |
| Fair value of plan assets | | | 15,472 | | | | 20,434 | |
At December 31, 2008 and 2007, the Retirement Plan was underfunded by $10.7 million and $2.7 million, respectively, and is included in the accounts payable and accrued expenses. The SRP was underfunded by $20.0 million and $17.9 million, respectively, and is included in other liabilities.
The components of net periodic benefit cost for both plans are as follows (in thousands):
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Service cost | | $ | 2,414 | | | $ | 3,846 | | | $ | 3,090 | |
| Interest cost | | | 2,639 | | | | 2,175 | | | | 2,309 | |
| Expected return on plan assets | | | (1,832 | ) | | | (1,500 | ) | | | (1,385 | ) |
| Prior service cost | | | (117 | ) | | | (117 | ) | | | (128 | ) |
| Recognized (gain) loss | | | (104 | ) | | | 269 | | | | 407 | |
| | | | | | | | | | | | | |
| Total | | $ | 3,000 | | | $ | 4,673 | | | $ | 4,293 | |
The assumptions used to develop periodic expense for both plans are shown below:
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Discount rate – Retirement Plan and SRP | | | 6.25 | % | | | 5.75 | % | | | 5.75 | % |
| Salary scale increases – Retirement Plan | | | 4.00 | % | | | 4.00 | % | | | 4.00 | % |
| Salary scale increases – SRP | | | 5.00 | % | | | 5.00 | % | | | 5.00 | % |
| Long-term rate of return on assets – Retirement Plan | | | 8.50 | % | | | 8.50 | % | | | 8.50 | % |
The selection of the discount rate follows the guidance provided in SFAS No. 87, "Employers' Accounting for Pensions." The selection of the discount rate is made annually after comparison to yields based on high quality fixed-income investments. The salary scale is the composite rate which reflects anticipated inflation, merit increases, and promotions for the group of covered participants. The long-term rate of return is a composite rate for the trust. It is derived as the sum of the percentages invested in each principal asset class included in the portfolio multiplied by their respective expected rates of return. We considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This analysis resulted in the selection of 8.50% as the long-term rate of return assumption for 2008.
The assumptions used to develop the actuarial present value of the benefit obligations at year-end for both plans are shown below:
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Discount rate – Retirement Plan and SRP | | | 6.00 | % | | | 6.25 | % | | | 5.75 | % |
| Salary scale increases – Retirement Plan | | | 4.00 | % | | | 4.00 | % | | | 4.00 | % |
| Salary scale increases – SRP | | | 5.00 | % | | | 5.00 | % | | | 5.00 | % |
The expected contribution to be paid for the Retirement plan by us during 2009 is approximately $4.3 million. The expected benefit payments for the next ten years for both plans are as follows, in millions: $1.9 in 2009; $1.8 in each of 2010 and 2011; $3.9 in 2012, $1.9 in 2013 and $13.0 in 2014 through 2018.
The participant data used in determining the liabilities and costs was collected as of January 1, 2008 and no significant changes have occurred through December 31, 2008.
The allocation of the fair value of plan assets as provided by the plan trustee was as follows (in thousands):
| | | December 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Cash and short-term investments | | | 4 | % | | | 3 | % |
| Mutual funds – equity | | | 61 | % | | | 69 | % |
| Mutual funds – fixed income | | | 35 | % | | | 28 | % |
| | | | | | | | | |
| Total | | | 100 | % | | | 100 | % |
Our investment policy and strategy for plan assets require that plan assets be allocated based on a "Broad Market Diversification" model. At December 31, 2008, approximately 60% of plan assets are allocated to equity investments and 40% to fixed income investments. On a quarterly basis, the plan assets are reviewed in an effort to maintain this asset allocation. Selected investment funds are monitored as reasonably necessary to permit our Investment Committee to evaluate any material changes to the investment fund's performance.
We also have a deferred compensation plan for eligible employees allowing them to defer portions of their current cash salary or share-based compensation. Deferred amounts are deposited in a grantor trust, which are included in Other Assets, and are reported as compensation expense in the year service is rendered. Cash deferrals are invested based on the employee’s investment selections from a mix of assets based on a “Broad Market Diversification” model. Deferred share-based compensation cannot be diversified, and distributions from this plan are made in the same form as the original deferral.
Note 21. Segment Information
The reportable segments presented are the segments for which separate financial information is available, and for which operating performance is evaluated regularly by senior management in deciding how to allocate resources and in assessing performance. We evaluate the performance of the reportable segments based on net operating income, defined as total revenues less operating expenses and ad valorem taxes. Management does not consider the effect of gains or losses from the sale of property in evaluating segment operating performance.
The shopping center segment is engaged in the acquisition, development and management of real estate, primarily anchored neighborhood and community shopping centers located in Arizona, Arkansas, California, Colorado, Florida, Georgia, Illinois, Kansas, Kentucky, Louisiana, Maine, Missouri, Nevada, New Mexico, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Utah and Washington. The customer base includes supermarkets, discount retailers, drugstores and other retailers who generally sell basic necessity-type commodities. The industrial segment is engaged in the acquisition, development and management of bulk warehouses and office/service centers. Its properties are located in California, Florida, Georgia, Tennessee, Texas and Virginia, and the customer base is diverse. Included in "Other" are corporate-related items, insignificant operations and costs that are not allocated to the reportable segments.
Information concerning our reportable segments is as follows (in thousands):
| | | Shopping | | | | | | | | | | |
| | | Center | | | Industrial | | | Other | | | Total | |
| | | | | | | | | | | | | |
| Year Ended December 31, 2008: | | | | | | | | | | | | |
| Revenues | | $ | 548,249 | | | $ | 57,913 | | | $ | 8,806 | | | $ | 614,968 | |
| Net Operating Income (Loss) | | | 382,839 | | | | 40,769 | | | | (143 | ) | | | 423,465 | |
| Equity in Earnings (Loss) of Real Estate Joint Ventures and Partnerships, net | | | 15,012 | | | | 1,428 | | | | (4,244 | ) | | | 12,196 | |
| Capital Expenditures | | | 247,723 | | | | 22,315 | | | | 29,052 | | | | 299,090 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2007: | | | | | | | | | | | | | | | | |
| Revenues | | $ | 519,233 | | | $ | 53,650 | | | $ | 10,884 | | | $ | 583,767 | |
| Net Operating Income | | | 371,697 | | | | 37,151 | | | | 4,533 | | | | 413,381 | |
| Equity in Earnings of Real Estate Joint Ventures and Partnerships, net | | | 18,309 | | | | 1,348 | | | | 196 | | | | 19,853 | |
| Capital Expenditures | | | 771,590 | | | | 91,881 | | | | 24,874 | | | | 888,345 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2006: | | | | | | | | | | | | | | | | |
| Revenues | | $ | 467,307 | | | $ | 53,429 | | | $ | 2,688 | | | $ | 523,424 | |
| Net Operating Income (Loss) | | | 340,072 | | | | 37,362 | | | | (405 | ) | | | 377,029 | |
| Equity in Earnings of Real Estate Joint Ventures and Partnerships, net | | | 13,713 | | | | 377 | | | | 565 | | | | 14,655 | |
| Capital Expenditures | | | 920,017 | | | | 96,504 | | | | 5,582 | | | | 1,022,103 | |
| | | | | | | | | | | | | | | | | |
| As of December 31, 2008: | | | | | | | | | | | | | | | | |
| Investment in Real Estate Joint Ventures and Partnerships | | $ | 318,003 | | | $ | 39,631 | | | $ | - | | | $ | 357,634 | |
| Total Assets | | | 3,747,037 | | | | 348,691 | | | | 1,018,971 | | | | 5,114,699 | |
| | | | | | | | | | | | | | | | | |
| As of December 31, 2007: | | | | | | | | | | | | | | | | |
| Investment in Real Estate Joint Ventures and Partnerships | | $ | 261,293 | | | $ | 35,103 | | | $ | 4,360 | | | $ | 300,756 | |
| Total Assets | | | 3,908,105 | | | | 353,157 | | | | 732,081 | | | | 4,993,343 | |
| | | | | | | | | | | | | | | | | |
| As of December 31, 2006: | | | | | | | | | | | | | | | | |
| Investment in Real Estate Joint Ventures and Partnerships | | $ | 174,587 | | | $ | 25,156 | | | $ | 4,096 | | | $ | 203,839 | |
| Total Assets | | | 3,516,080 | | | | 324,343 | | | | 533,464 | | | | 4,373,887 | |
Net operating income reconciles to Income from Continuing Operations as shown on the Statements of Consolidated Income and Comprehensive Income as follows (in thousands):
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Total Segment Net Operating Income | | $ | 423,465 | | | $ | 413,381 | | | $ | 377,029 | |
| Depreciation and Amortization | | | (155,912 | ) | | | (128,061 | ) | | | (117,443 | ) |
| General and Administrative | | | (25,761 | ) | | | (26,979 | ) | | | (23,801 | ) |
| Impairment Loss | | | (52,539 | ) | | | | | | | | |
| Interest Expense | | | (148,475 | ) | | | (148,829 | ) | | | (145,374 | ) |
| Interest and Other Income, net | | | 4,334 | | | | 8,486 | | | | 9,044 | |
| Gain on Redemption of Convertible Senior Unsecured Notes | | | 10,658 | | | | | | | | | |
Equity in Earnings of Real Estate Joint Ventures and Partnerships, net | | | 12,196 | | | | 19,853 | | | | 14,655 | |
| Income Allocated to Minority Interests | | | (8,943 | ) | | | (10,237 | ) | | | (6,414 | ) |
| Gain on Sale of Properties | | | 1,998 | | | | 4,086 | | | | 22,493 | |
| Gain on Land and Merchant Development Sales | | | 8,342 | | | | 16,385 | | | | 7,166 | |
| Benefit (Provision) for Income Taxes | | | 10,148 | | | | (4,073 | ) | | | (1,366 | ) |
| Income from Continuing Operations | | $ | 79,511 | | | $ | 144,012 | | | $ | 135,989 | |
Note 22. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data is as follows (in thousands):
| | | First | | | Second | | | | Third | | | Fourth | | | |
| | | | | | | | | | | | | | | | |
| 2008: | | | | | | | | | | | | | | | |
| Revenues (3) | | $ | 152,096 | | | $ | 153,678 | | | | $ | 158,017 | | | $ | 151,177 | | | |
| Net income (loss) available to common shareholders | | | 28,776 | | | | 66,999 | | (1) | | | 29,053 | | | | (9,708 | ) | (2) | |
| Net income (loss) per common share – basic | | | 0.34 | | | | 0.80 | | (1) | | | 0.35 | | | | (0.11 | ) | (2) | |
| Net income (loss) per common share – diluted | | | 0.34 | | | | 0.79 | | (1) | | | 0.34 | | | | (0.11 | ) | (2) | |
| | | | | | | | | | | | | | | | | | | | |
| 2007: | | | | | | | | | | | | | | | | | | | |
| Revenues (3) | | $ | 139,776 | | | $ | 141,314 | | | | $ | 152,194 | | | $ | 150,483 | | | |
| Net income available to common shareholders | | | 46,657 | | | | 70,002 | | (1) | | | 38,281 | | | | 57,702 | | (1) | |
| Net income per common share – basic | | | 0.54 | | | | 0.81 | | (1) | | | 0.45 | | | | 0.68 | | (1) | |
| Net income per common share – diluted | | | 0.53 | | | | 0.79 | | (1) | | | 0.44 | | | | 0.67 | | (1) | |
______________________
| (1) | The quarter results include significant gains on the sale of properties. |
| (2) | The quarter results include significant impairment charges. |
| (3) | Revenues from the sale of operating properties have been reclassified and reported as operating income from discontinued operations for all periods presented. |
****
Not applicable.
Under the supervision and with the participation of our principal executive officer and principal financial officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2008. 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 December 31, 2008.
There has been no change to our internal control over financial reporting during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Weingarten Realty Investors and its subsidiaries ("WRI") maintain a system of internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act, which is a process designed under the supervision of WRI's principal executive officer and principal financial officer and effected by WRI's Board of Trust Managers, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
WRI's internal control over financial reporting includes those policies and procedures that:
§ Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of WRI's assets;
§ Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of WRI are being made only in accordance with authorizations of management and trust managers of WRI; and
§ Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of WRI's assets that could have a material effect on the financial statements.
WRI's management has responsibility for establishing and maintaining adequate internal control over financial reporting for WRI. Management, with the participation of WRI's Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of WRI's internal control over financial reporting as of December 31, 2008 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on their evaluation of WRI's internal control over financial reporting, WRI's management along with the Chief Executive and Chief Financial Officers believe that WRI's internal control over financial reporting is effective as of December 31, 2008.
Deloitte & Touche LLP, WRI's independent registered public accounting firm that audited the consolidated financial statements and financial statement schedules included in this Form 10-K, has issued an attestation report on the effectiveness of WRI's internal control over financial reporting.
March 2, 2009
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trust Managers and Shareholders of
Weingarten Realty Investors
Houston, Texas
We have audited the internal control over financial reporting of Weingarten Realty Investors and subsidiaries (the "Company") as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report On Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of trust managers, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and trust managers of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2008 of the Company and our report dated March 2, 2009 expressed an unqualified opinion on those financial statements.
/s/Deloitte & Touche LLP
Houston, Texas
March 2, 2009
Not applicable.
Information with respect to our trust managers and executive officers is incorporated herein by reference to the "Proposal One - Election of Trust Managers - Nominees," "Executive Officers" and “Share Ownership of Certain Beneficial Owners and Management—Section 16(a) Beneficial Ownership Reporting Compliance” sections of our definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 1, 2009.
Code of Ethics
We have adopted a code of business and ethics for trust managers, officers and employees, known as the Code of Conduct and Ethics. The Code of Conduct and Ethics is available on our website at www.weingarten.com. Shareholders may request a free copy of the Code of Conduct and Ethics from:
Weingarten Realty Investors
Attention: Investor Relations
2600 Citadel Plaza Drive, Suite 125
Houston, Texas 77008
(713) 866-6000
www.weingarten.com
We have also adopted a Code of Conduct for Financial Managers setting forth a code of ethics applicable to our principal executive officer, principal financial officer and financial managers, which is available on our website at www.weingarten.com. Shareholders may request a free copy of the Code of Conduct for Financial Managers from the address and phone number set forth above.
Governance Guidelines
We have adopted Trust Managers Governance Guidelines, which are available on our website at www.weingarten.com. Shareholders may request a free copy of the Trust Managers Governance Guidelines from the address and phone number set forth above under "—Code of Ethics."
Information with respect to executive compensation is incorporated herein by reference to the “Executive Compensation,” “Proposal One - Election of Trust Managers,” “Compensation Committee Report,” “Summary Compensation Table” and “Trust Manager Compensation Table” sections of our definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 1, 2009.
The "Share Ownership of Certain Beneficial Owners and Management" section of our definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 1, 2009 is incorporated herein by reference.
The following table summarizes the equity compensation plans under which our common shares of beneficial interest may be issued as of December 31, 2008:
| | | Number of shares to | | Weighted average | | |
| | | be issued upon exercise | | exercise price of | | Number of shares |
| | | of outstanding options, | | outstanding options, | | remaining available |
| Plan category | | warrants and rights | | warrants and rights | | for future issuance |
| | | | | | | |
| Equity compensation plans approved by shareholders | | 3,317,655 | | $ 32.96 | | 2,011,682 |
| | | | | | | |
| Equity compensation plans not approved by shareholders | | ― | | ― | | ― |
| | | | | | | |
| Total | | 3,317,655 | | $ 32.96 | | 2,011,682 |
The “Governance of Our Company,” “Compensation Committee Interlocks and Insider Participation" and “Certain Transactions” sections of our definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 1, 2009 are incorporated herein by reference.
The "Independent Registered Public Accounting Firm Fees" section within “Proposal Two – Ratification of Independent Registered Public Accounting Firm” of our definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 1, 2009 is incorporated herein by reference.
| (a) | | Financial Statements and Financial Statement Schedules: | Page |
| | | | | |
| | (1) | (A) | Report of Independent Registered Public Accounting Firm | 50 |
| | | (B) | Financial Statements | |
| | | | (i) | Statements of Consolidated Income and Comprehensive Income for the year ended December 31, 2008, 2007 and 2006 | 51 |
| | | | (ii) | Consolidated Balance Sheets as of December 31, 2008 and 2007 | 52 |
| | | | (iii) | Statements of Consolidated Cash Flows for the year ended December 31, 2008, 2007 and 2006 | 53 |
| | | | (iv) | Statements of Consolidated Shareholders' Equity for the year ended December 31, 2008, 2007 and 2006 | 54 |
| | | | (v) | Notes to Consolidated Financial Statements | 55 |
| | (2) | Financial Statement Schedules: |
| | | | | |
| | | Report of Independent Registered Public Accounting Firm | 97 |
| | | Schedule | |
| | | |
| | | | II | Valuation and Qualifying Accounts | 98 |
| | | | III | Real Estate and Accumulated Depreciation | 99 |
| | | | IV | Mortgage Loans on Real Estate | 109 |
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes hereto.
| (b) | | Exhibits: |
| | | |
| 3.1 | — | Restated Declaration of Trust (filed as Exhibit 3.1 to WRI's Registration Statement on Form 8-A dated January 19, 1999 and incorporated herein by reference). |
| 3.2 | — | Amendment of the Restated Declaration of Trust (filed as Exhibit 3.2 to WRI's Registration Statement on Form 8-A dated January 19, 1999 and incorporated herein by reference). |
| 3.3 | — | Second Amendment of the Restated Declaration of Trust (filed as Exhibit 3.3 to WRI's Registration Statement on Form 8-A dated January 19, 1999 and incorporated herein by reference). |
| 3.4 | — | Third Amendment of the Restated Declaration of Trust (filed as Exhibit 3.4 to WRI's Registration Statement on Form 8-A dated January 19, 1999 and incorporated herein by reference). |
| 3.5 | — | Fourth Amendment of the Restated Declaration of Trust dated April 28, 1999 (filed as Exhibit 3.5 to WRI's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference). |
| 3.6 | — | Fifth Amendment of the Restated Declaration of Trust dated April 20, 2001 (filed as Exhibit 3.6 to WRI's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference). |
| 3.7 | — | Amended and Restated Bylaws of WRI (filed as Exhibit 99.2 to WRI's Registration Statement on Form 8-A dated February 23, 1998 and incorporated herein by reference). |
| 3.8 | — | Amendment of Bylaws-Direct Registration System, Section 7.2(a) dated May 3, 2007 (filed as Exhibit 3.8 to WRI’s Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference). |
| 4.1 | — | Subordinated Indenture dated as of May 1, 1995 between WRI and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association) (filed as Exhibit 4(a) to WRI's Registration Statement on Form S-3 (No. 33-57659) and incorporated herein by reference). |
| 4.2 | — | Subordinated Indenture dated as of May 1, 1995 between WRI and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association) (filed as Exhibit 4(b) to WRI's Registration Statement on Form S-3 (No. 33-57659) and incorporated herein by reference). |
| 4.3 | — | Form of Fixed Rate Senior Medium Term Note (filed as Exhibit 4.19 to WRI’s Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference). |
| 4.4 | — | Form of Floating Rate Senior Medium Term Note (filed as Exhibit 4.20 to WRI’s Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference). |
| 4.5 | — | Form of Fixed Rate Subordinated Medium Term Note (filed as Exhibit 4.21 to WRI’s Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference). |
| 4.6 | — | Form of Floating Rate Subordinated Medium Term Note (filed as Exhibit 4.22 to WRI’s Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference). |
| 4.7 | — | Statement of Designation of 6.75% Series D Cumulative Redeemable Preferred Shares (filed as Exhibit 3.1 to WRI’s Registration Statement on Form 8-A dated April 17, 2003 and incorporated herein by reference). |
| 4.8 | — | Statement of Designation of 6.95% Series E Cumulative Redeemable Preferred Shares (filed as Exhibit 3.1 to WRI’s Registration Statement on Form 8-A dated July 8, 2004 and incorporated herein by reference). |
| 4.9 | — | Statement of Designation of 6.50% Series F Cumulative Redeemable Preferred Shares (filed as Exhibit 3.1 to WRI’s Registration Statement on Form 8-A dated January 29, 2007 and incorporated herein by reference). |
| 4.10 | — | 6.75% Series D Cumulative Redeemable Preferred Share Certificate (filed as Exhibit 4.2 to WRI’s Registration Statement on Form 8-A dated April 17, 2003 and incorporated herein by reference). |
| 4.11 | — | 6.95% Series E Cumulative Redeemable Preferred Share Certificate (filed as Exhibit 4.2 to WRI’s Registration Statement on Form 8-A dated July 8, 2004 and incorporated herein by reference). |
| 4.12 | — | 6.50% Series F Cumulative Redeemable Preferred Share Certificate (filed as Exhibit 4.2 to WRI’s Registration Statement on Form 8-A dated January 29, 2007 and incorporated herein by reference). | |
| 4.13 | — | Form of Receipt for Depositary Shares, each representing 1/30 of a share of 6.75% Series D Cumulative Redeemable Preferred Shares, par value $.03 per share (filed as Exhibit 4.3 to WRI’s Registration Statement on Form 8-A dated April 17, 2003 and incorporated herein by reference). | |
| 4.14 | — | Form of Receipt for Depositary Shares, each representing 1/100 of a share of 6.95% Series E Cumulative Redeemable Preferred Shares, par value $.03 per share (filed as Exhibit 4.3 to WRI’s Registration Statement on Form 8-A dated July 8, 2004 and incorporated herein by reference). | |
| 4.15 | — | Form of Receipt for Depositary Shares, each representing 1/100 of a share of 6.50% Series F Cumulative Redeemable Preferred Shares, par value $.03 per share (filed as Exhibit 4.3 to WRI’s Registration Statement on Form 8-A dated January 29, 2007 and incorporated herein by reference). | |
| 4.16 | — | Form of 7% Notes due 2011 (filed as Exhibit 4.17 to WRI’s Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference). | |
| 4.17 | — | Form of 3.95% Convertible Senior Notes due 2026 (filed as Exhibit 4.2 to WRI’s Form 8-K on August 2, 2006 and incorporated herein by reference). | |
| 10.1† | — | 1988 Share Option Plan of WRI, as amended (filed as Exhibit 10.1 to WRI’s Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference). | |
| 10.2† | — | The Savings and Investment Plan for Employees of Weingarten Realty Investors dated December 17, 2003 (filed as Exhibit 10.34 on WRI’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). | |
| 10.3† | — | The Savings and Investment Plan for Employees of WRI, as amended (filed as Exhibit 4.1 to WRI’s Registration Statement on Form S-8 (No. 33-25581) and incorporated herein by reference). | |
| 10.4† | — | First Amendment to the Savings and Investment Plan for Employees of Weingarten Realty Investors dated August 1, 2005 (filed as Exhibit 10.25 on WRI’s Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference). | |
| 10.5† | — | The Fifth Amendment to Savings and Investment Plan for Employees of WRI (filed as Exhibit 4.1.1 to WRI’s Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (No. 33-25581) and incorporated herein by reference). | |
| 10.6† | — | Mandatory Distribution Amendment for the Savings and Investment Plan for Employees of Weingarten Realty Investors dated August 1, 2005 (filed as Exhibit 10.26 on WRI’s Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference). | |
| 10.7† | — | The 1993 Incentive Share Plan of WRI (filed as Exhibit 4.1 to WRI’s Registration Statement on Form S-8 (No. 33-52473) and incorporated herein by reference). | |
| 10.8† | — | 1999 WRI Employee Share Purchase Plan (filed as Exhibit 10.6 to WRI’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference). | |
| 10.9† | — | 2001 Long Term Incentive Plan (filed as Exhibit 10.7 to WRI’s Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference). | |
| 10.10 | — | Master Promissory Note in the amount of $20,000,000 between WRI, as payee, and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association), as maker, effective December 30, 1998 (filed as Exhibit 4.15 to WRI’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference). | |
| 10.11† | — | Weingarten Realty Retirement Plan restated effective April 1, 2002 (filed as Exhibit 10.29 on WRI’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). | |
| 10.12† | — | First Amendment to the Weingarten Realty Retirement Plan, dated December 31, 2003 (filed as Exhibit 10.33 on WRI’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). | |
| 10.13† | — | First Amendment to the Weingarten Realty Pension Plan, dated August 1, 2005 (filed as Exhibit 10.27 on WRI’s Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference). |
| 10.14† | — | Mandatory Distribution Amendment for the Weingarten Realty Retirement Plan dated August 1, 2005 (filed as Exhibit 10.28 on WRI’s Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference). |
| 10.15† | — | Weingarten Realty Investors Supplemental Executive Retirement Plan amended and restated effective September 1, 2002 (filed as Exhibit 10.10 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.16† | — | First Amendment to the Weingarten Realty Investors Supplemental Executive Retirement Plan amended on November 3, 2003 (filed as Exhibit 10.11 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.17† | — | Second Amendment to the Weingarten Realty Investors Supplemental Executive Retirement Plan amended October 22, 2004 (filed as Exhibit 10.12 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.18† | — | Third Amendment to the Weingarten Realty Investors Supplemental Executive Retirement Plan amended October 22, 2004 (filed as Exhibit 10.13 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.19† | — | Weingarten Realty Investors Retirement Benefit Restoration Plan adopted effective September 1, 2002 (filed as Exhibit 10.14 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.20† | — | First Amendment to the Weingarten Realty Investors Retirement Benefit Restoration Plan amended on November 3, 2003 (filed as Exhibit 10.15 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.21† | — | Second Amendment to the Weingarten Realty Investors Retirement Benefit Restoration Plan amended October 22, 2004 (filed as Exhibit 10.16 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.22† | — | Third Amendment to the Weingarten Realty Pension Plan dated December 23, 2005 (filed as Exhibit 10.30 on WRI’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). |
| 10.23† | — | Weingarten Realty Investors Deferred Compensation Plan amended and restated as a separate and independent plan effective September 1, 2002 (filed as Exhibit 10.17 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.24† | — | Supplement to the Weingarten Realty Investors Deferred Compensation Plan amended on April 25, 2003 (filed as Exhibit 10.18 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.25† | — | First Amendment to the Weingarten Realty Investors Deferred Compensation Plan amended on November 3, 2003 (filed as Exhibit 10.19 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.26† | — | Second Amendment to the Weingarten Realty Investors Deferred Compensation Plan, as amended, dated October 13, 2005 (filed as Exhibit 10.29 on WRI’s Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference). |
| 10.27† | — | Trust Under the Weingarten Realty Investors Deferred Compensation Plan amended and restated effective October 21, 2003 (filed as Exhibit 10.21 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.28† | — | Fourth Amendment to the Weingarten Realty Investors Deferred Compensation Plan, dated December 23, 2005 (filed as Exhibit 10.31 on WRI’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). |
| 10.29† | — | Trust Under the Weingarten Realty Investors Retirement Benefit Restoration Plan amended and restated effective October 21, 2003 (filed as Exhibit 10.22 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.30† | — | Trust Under the Weingarten Realty Investors Supplemental Executive Retirement Plan amended and restated effective October 21, 2003 (filed as Exhibit 10.23 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.31† | — | First Amendment to the Trust Under the Weingarten Realty Investors Deferred Compensation Plan, Supplemental Executive Retirement Plan, and Retirement Benefit Restoration Plan amended on March 16, 2004 (filed as Exhibit 10.24 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference). |
| 10.32† | — | Third Amendment to the Weingarten Realty Investors Deferred Compensation Plan dated August 1, 2005 (filed as Exhibit 10.30 on WRI’s Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference). |
| 10.33 | — | Amended and Restated Credit Agreement dated February 22, 2006 among Weingarten Realty Investors, the Lenders Party Hereto and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.32 on WRI’s Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). |
| 10.34 | — | Amendment Agreement dated November 7, 2007 to the Amended and Restated Credit Agreement (filed as Exhibit 10.34 on WRI’s Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference). |
| 10.35† | — | Fifth Amendment to the Weingarten Realty Investors Deferred Compensation Plan (filed as Exhibit 10.34 to WRI’s Form 10-Q for quarter ended June 30, 2006 and incorporated herein by reference). |
| 10.36† | — | Restatement of the Weingarten Realty Investors Supplemental Executive Retirement Plan dated August 4, 2006 (filed as Exhibit 10.35 to WRI’s Form 10-Q for the quarter ended September 30, 2006 and incorporated herein by reference). |
| 10.37† | — | Restatement of the Weingarten Realty Investors Deferred Compensation Plan dated August 4, 2006 (filed as Exhibit 10.36 to WRI’s Form 10-Q for the quarter ended September 30, 2006 and incorporated herein by reference). |
| 10.38† | — | Restatement of the Weingarten Realty Investors Retirement Benefit Restoration Plan dated August 4, 2006 (filed as Exhibit 10.37 to WRI’s Form 10-Q for the quarter ended September 30, 2006 and incorporated herein by reference). |
| 10.39† | — | Amendment No. 1 to the Weingarten Realty Investors Supplemental Executive Retirement Plan dated December 15, 2006 (filed as Exhibit 10.38 on WRI’s Form 10-K for the year ended December 31, 2006 and incorporated herein by reference). |
| 10.40† | — | Amendment No. 1 to the Weingarten Realty Investors Retirement Benefit Restoration Plan dated December 15, 2006 (filed as Exhibit 10.39 on WRI’s Form 10-K for the year ended December 31, 2006 and incorporated herein by reference). |
| 10.41† | — | Amendment No. 1 to the Weingarten Realty Investors Deferred Compensation Plan dated December 15, 2006 (filed as Exhibit 10.40 on WRI’s Form 10-K for the year ended December 31, 2006 and incorporated herein by reference). |
| 10.42† | — | Final 401(k)/401(m) Regulations Amendment dated December 15, 2006 (filed as Exhibit 10.41 on WRI’s Form 10-K for the year ended December 31, 2006 and incorporated herein by reference). |
| 10.43† | — | Amendment No. 2 to the Weingarten Realty Investors Retirement Benefit Restoration Plan dated November 9, 2007 (filed as Exhibit 10.43 on WRI’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference). |
| 10.44† | — | Amendment No. 2 to the Weingarten Realty Investors Deferred Compensation Plan dated November 9, 2007 (filed as Exhibit 10.44 on WRI’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference). |
| 10.45† | — | Amendment No. 2 to the Weingarten Realty Investors Supplemental Executive Retirement Plan dated November 9, 2007 (filed as Exhibit 10.45 on WRI’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference). |
| 10.46† | — | Severance Benefit and Stay Pay Bonus Plan dated September 20, 2007 (filed as Exhibit 10.46 on WRI’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference). |
| 10.47† | — | 2007 Reduction in Force Severance Pay Plan dated November 6, 2007 (filed as Exhibit 10.47 on WRI’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference). |
| 10.48† | — | Fifth Amendment to the Weingarten Realty Retirement Plan, dated August 1, 2008 (filed as Exhibit 10.48 on WRI’s Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference). |
| 10.49† | — | Amendment No. 3 to the Weingarten Realty Investors Retirement Benefit Restoration Plan dated November 17, 2008 (filed as Exhibit 10.1 on WRI’s Form 8-K on December 4, 2008 and incorporated herein by reference). |
| 10.50† | — | Amendment No. 3 to the Weingarten Realty Investors Deferred Compensation Plan dated November 17, 2008 (filed as Exhibit 10.2 on WRI’s Form 8-K on December 4, 2008 and incorporated herein by reference). |
| 10.51† | — | Amendment No. 3 to the Weingarten Realty Investors Supplemental Executive Retirement Plan dated November 17, 2008 (filed as Exhibit 10.3 on WRI’s Form 8-K on December 4, 2008 and incorporated herein by reference). |
| 10.52† | — | Amendment No. 1 to the Weingarten Realty Investors 2001 Long Term Incentive Plan dated November 17, 2008 (filed as Exhibit 10.4 on WRI’s Form 8-K on December 4, 2008 and incorporated herein by reference). |
| 10.53† | — | The Savings and Investment Plan for Employees of Weingarten Realty Investors Amendment for the Final 415 Regulations dated November 17, 2008 (filed as Exhibit 10.5 on WRI’s Form 8-K on December 4, 2008 and incorporated herein by reference). |
| 10.54†* | — | |
| 10.55†* | — | |
| 10.56†* | — | |
| 10.57†* | — | |
| 12.1* | — | |
| 14.1 | — | Code of Ethical Conduct for Senior Financial Officers – Andrew M. Alexander (filed as Exhibit 14.1 to WRI’s Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference). |
| 14.2 | — | Code of Ethical Conduct for Senior Financial Officers – Stephen C. Richter (filed as Exhibit 14.2 to WRI’s Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference). |
| 14.3 | — | Code of Ethical Conduct for Senior Financial Officers – Joe D. Shafer (filed as Exhibit 14.3 to WRI’s Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference). |
| 21.1* | — | Listing of Subsidiaries of the Registrant. |
| 23.1* | — | |
| 31.1* | — | |
| 31.2* | — | |
| 32.1** | — | |
| 32.2** | — | |
_____________
| ** | Furnished with this report. |
| † | Management contract or compensation plan or arrangement. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities and 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 |
| | | |
| | | |
| | By: | /s/ Andrew M. Alexander |
| | | Andrew M. Alexander |
| | | Chief Executive Officer |
Date: March 2, 2009
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of Weingarten Realty Investors, a real estate investment trust organized under the Texas Real Estate Investment Trust Act, and the undersigned trust managers and officers of Weingarten Realty Investors hereby constitutes and appoints Andrew M. Alexander, Stanford Alexander, Stephen C. Richter and Joe D. Shafer or any one of them, its or his true and lawful attorney-in-fact and agent, for it or him and in its or his name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this Report, and to file each such amendment to the Report, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as it or he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirement of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
| | Signature | Title | Date |
| | | | |
| | | | |
| | | | |
| By: | /s/ Stanford Alexander | Chairman | March 2, 2009 |
| | Stanford Alexander | and Trust Manager | |
| | | | |
| By: | /s/ Andrew M. Alexander | Chief Executive Officer, | |
| | Andrew M. Alexander | President and Trust Manager | |
| | | | |
| By: | /s/ James W. Crownover | Trust Manager | |
| | James W. Crownover | | |
| | | | |
| By: | /s/ Robert J. Cruikshank | Trust Manager | |
| | Robert J. Cruikshank | | |
| | | | |
| By: | /s/ Melvin Dow | Trust Manager | |
| | Melvin Dow | | |
| | | | |
| By: | /s/ Stephen A. Lasher | Trust Manager | |
| | Stephen A. Lasher | | |
| | | | |
| By: | /s/ Stephen C. Richter | Executive Vice President and | |
| | Stephen C. Richter | Chief Financial Officer | |
| | | | |
| By: | /s/ Douglas W. Schnitzer | Trust Manager | |
| | Douglas W. Schnitzer | | |
| | | | |
| By: | /s/ Joe D. Shafer | Vice President/Chief Accounting Officer | |
| | Joe D. Shafer | (Principal Accounting Officer) | |
| | | | |
| By: | /s/ C. Park Shaper | Trust Manager | |
| | C. Park Shaper | | |
| | | | |
| By: | /s/ Marc J. Shapiro | Trust Manager | |
| | Marc J. Shapiro | | |
| | | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trust Managers and Shareholders of
Weingarten Realty Investors
Houston, Texas
We have audited the consolidated financial statements of Weingarten Realty Investors and subsidiaries (the "Company") as of December 31, 2008 and 2007, and for each of the three years in the period ended December 31, 2008, and the Company's internal control over financial reporting as of December 31, 2008, and have issued our reports thereon dated March 2, 2009; such reports are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedules of the Company listed in Item 15. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/Deloitte & Touche LLP
Houston, Texas
March 2, 2009
Schedule II
WEINGARTEN REALTY INVESTORS
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2008, 2007, and 2006
(Amounts in thousands)
| | | | | | Charged | | | | | | | |
| | | Balance at | | | to costs | | | | | | Balance | |
| | | beginning | | | and | | | Deductions | | | at end of | |
| Description | | of period | | | expenses | | | (A) | | | period | |
| | | | | | | | | | | | | |
| 2008 | | | | | | | | | | | | |
| Allowance for Doubtful Accounts | | $ | 8,721 | | | $ | 11,441 | | | $ | 7,750 | | | $ | 12,412 | |
| 2007 | | | | | | | | | | | | | | | | |
| Allowance for Doubtful Accounts | | $ | 5,995 | | | $ | 5,929 | | | $ | 3,203 | | | $ | 8,721 | |
| 2006 | | | | | | | | | | | | | | | | |
| Allowance for Doubtful Accounts | | $ | 4,673 | | | $ | 3,917 | | | $ | 2,595 | | | $ | 5,995 | |
_______________
Note A - Write-offs of accounts receivable previously reserved.
Schedule III
WEINGARTEN REALTY INVESTORS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2008
(Amounts in thousands)
| | | Initial Cost to Company | | | Gross Amounts at Close of Period | | | | | | | | | | | | | | |
| Description | | Land | | | Building and Improvements | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total (D) | | | Accumulated Depreciation | | | Total Costs, Net of Accumulated Depreciation | | | Encumbrances (A) | | | | | Date of Acquisition / Construction |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shopping Center: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 10-Federal Shopping Center | | $ | 1,791 | | | $ | 7,470 | | | $ | 38 | | | $ | 1,791 | | | $ | 7,508 | | | $ | 9,299 | | | $ | (4,617 | ) | | $ | 4,682 | | | $ | - | | | B | | 03/20/2008 |
| 580 Market Place | | | 3,892 | | | | 15,570 | | | | 377 | | | | 3,889 | | | | 15,950 | | | | 19,839 | | | | (3,212 | ) | | | 16,627 | | | | - | | | | | 04/02/2001 |
| Academy Place | | | 1,537 | | | | 6,168 | | | | 1,150 | | | | 1,532 | | | | 7,323 | | | | 8,855 | | | | (2,351 | ) | | | 6,504 | | | | - | | | | | 10/22/1997 |
| Alabama Shepherd Shopping Ctr | | | 637 | | | | 2,026 | | | | 5,884 | | | | 1,062 | | | | 7,485 | | | | 8,547 | | | | (2,788 | ) | | | 5,759 | | | | - | | | | | 04/30/2004 |
| Angelina Village | | | 200 | | | | 1,777 | | | | 9,773 | | | | 1,127 | | | | 10,623 | | | | 11,750 | | | | (5,039 | ) | | | 6,711 | | | | - | | | | | 04/30/1991 |
| Arcade Square | | | 1,497 | | | | 5,986 | | | | 424 | | | | 1,495 | | | | 6,412 | | | | 7,907 | | | | (1,390 | ) | | | 6,517 | | | | - | | | | | 04/02/2001 |
| Argyle Village Shopping Center | | | 4,524 | | | | 18,103 | | | | 658 | | | | 4,526 | | | | 18,759 | | | | 23,285 | | | | (3,623 | ) | | | 19,662 | | | | - | | | | | 11/30/2001 |
| Arrowhead Festival S/C | | | 1,294 | | | | 154 | | | | 2,596 | | | | 1,366 | | | | 2,678 | | | | 4,044 | | | | (924 | ) | | | 3,120 | | | | - | | | | | 12/31/2000 |
| Avent Ferry Shopping Center | | | 1,952 | | | | 7,814 | | | | 1,024 | | | | 1,952 | | | | 8,838 | | | | 10,790 | | | | (1,723 | ) | | | 9,067 | | | | (1,155 | ) | | | | 04/04/2002 |
| Ballwin Plaza | | | 2,988 | | | | 12,039 | | | | 1,788 | | | | 3,017 | | | | 13,798 | | | | 16,815 | | | | (3,351 | ) | | | 13,464 | | | | - | | | | | 10/01/1999 |
| Bartlett Towne Center | | | 3,479 | | | | 14,210 | | | | 620 | | | | 3,443 | | | | 14,866 | | | | 18,309 | | | | (3,218 | ) | | | 15,091 | | | | (6,949 | ) | | | | 05/15/2001 |
| Basha's Valley Plaza | | | 1,414 | | | | 5,818 | | | | 1,490 | | | | 1,422 | | | | 7,300 | | | | 8,722 | | | | (2,624 | ) | | | 6,098 | | | | - | | | | | 12/31/1997 |
| Bayshore Plaza | | | 728 | | | | 1,452 | | | | 684 | | | | 728 | | | | 2,136 | | | | 2,864 | | | | (1,885 | ) | | | 979 | | | | - | | | | | 08/21/1981 |
| Baywood Shopping Center | | | - | | | | 3 | | | | 5 | | | | - | | | | 8 | | | | 8 | | | | (8 | ) | | | - | | | | - | | | | | 01/04/1990 |
| Bell Plaza | | | 1,322 | | | | 7,151 | | | | 75 | | | | 1,322 | | | | 7,226 | | | | 8,548 | | | | (2,277 | ) | | | 6,271 | | | | - | | | B | | 03/20/2008 |
| Bellaire Blvd Shopping Center | | | 124 | | | | 37 | | | | - | | | | 124 | | | | 37 | | | | 161 | | | | (36 | ) | | | 125 | | | | - | | | C | | 11/13/2008 |
| Best in the West | | | 13,191 | | | | 77,159 | | | | 2,998 | | | | 13,194 | | | | 80,154 | | | | 93,348 | | | | (7,333 | ) | | | 86,015 | | | | (36,288 | ) | | | | 04/28/2005 |
| Boca Lyons Plaza | | | 3,676 | | | | 14,706 | | | | 249 | | | | 3,651 | | | | 14,980 | | | | 18,631 | | | | (2,829 | ) | | | 15,802 | | | | - | | | | | 08/17/2001 |
| Boswell Towne Center | | | 1,488 | | | | - | | | | 1,755 | | | | 615 | | | | 2,628 | | | | 3,243 | | | | (949 | ) | | | 2,294 | | | | - | | | | | 12/31/2003 |
| Boulevard Market Place | | | 340 | | | | 1,430 | | | | 352 | | | | 340 | | | | 1,782 | | | | 2,122 | | | | (921 | ) | | | 1,201 | | | | - | | | | | 09/01/1990 |
| Braeswood Square Shopping Ctr. | | | - | | | | 1,421 | | | | 1,118 | | | | - | | | | 2,539 | | | | 2,539 | | | | (2,051 | ) | | | 488 | | | | - | | | | | 05/28/1969 |
| Broadway & Ellsworth | | | 152 | | | | - | | | | 1,116 | | | | 356 | | | | 912 | | | | 1,268 | | | | (312 | ) | | | 956 | | | | - | | | | | 12/31/2002 |
| Broadway Marketplace | | | 898 | | | | 3,637 | | | | 781 | | | | 906 | | | | 4,410 | | | | 5,316 | | | | (1,810 | ) | | | 3,506 | | | | - | | | | | 12/16/1993 |
| Broadway Shopping Center | | | 234 | | | | 3,166 | | | | 1 | | | | 235 | | | | 3,166 | | | | 3,401 | | | | (2,221 | ) | | | 1,180 | | | | - | | | B | | 03/20/2008 |
| Brookwood Marketplace | | | 7,050 | | | | 15,134 | | | | 6,925 | | | | 7,576 | | | | 21,533 | | | | 29,109 | | | | (967 | ) | | | 28,142 | | | | (19,775 | ) | | | | 08/22/2006 |
| Brookwood Square Shopping Ctr | | | 4,008 | | | | 19,753 | | | | 915 | | | | 4,008 | | | | 20,668 | | | | 24,676 | | | | (2,660 | ) | | | 22,016 | | | | - | | | | | 12/16/2003 |
| Brownsville Commons | | | 1,333 | | | | 5,536 | | | | 5 | | | | 1,333 | | | | 5,541 | | | | 6,874 | | | | (366 | ) | | | 6,508 | | | | - | | | | | 05/22/2006 |
| Buena Vista Marketplace | | | 1,958 | | | | 7,832 | | | | 533 | | | | 1,956 | | | | 8,367 | | | | 10,323 | | | | (1,759 | ) | | | 8,564 | | | | - | | | | | 04/02/2001 |
| Bull City Market | | | 930 | | | | 6,651 | | | | 38 | | | | 930 | | | | 6,689 | | | | 7,619 | | | | (596 | ) | | | 7,023 | | | | - | | | | | 06/10/2005 |
| Burbank Station | | | 20,366 | | | | 28,832 | | | | 43 | | | | 20,378 | | | | 28,863 | | | | 49,241 | | | | (1,082 | ) | | | 48,159 | | | | - | | | | | 07/03/2007 |
| Calder Shopping Center | | | 134 | | | | 278 | | | | 368 | | | | 134 | | | | 646 | | | | 780 | | | | (533 | ) | | | 247 | | | | - | | | | | 03/31/1965 |
| Camelback Village Square | | | - | | | | 8,720 | | | | 525 | | | | - | | | | 9,245 | | | | 9,245 | | | | (3,365 | ) | | | 5,880 | | | | - | | | | | 09/30/1994 |
| Camp Creek Mktpl II | | | 6,169 | | | | 32,036 | | | | 863 | | | | 4,697 | | | | 34,371 | | | | 39,068 | | | | (2,058 | ) | | | 37,010 | | | | (22,857 | ) | | | | 08/22/2006 |
| Capital Square | | | 1,852 | | | | 7,406 | | | | 629 | | | | 1,852 | | | | 8,035 | | | | 9,887 | | | | (1,517 | ) | | | 8,370 | | | | - | | | | | 04/04/2002 |
| Cedar Bayou Shopping Center | | | 63 | | | | 307 | | | | 91 | | | | 63 | | | | 398 | | | | 461 | | | | (360 | ) | | | 101 | | | | - | | | | | 09/20/1977 |
| Centerwood Plaza | | | 915 | | | | 3,659 | | | | 1,426 | | | | 914 | | | | 5,086 | | | | 6,000 | | | | (868 | ) | | | 5,132 | | | | - | | | | | 04/02/2001 |
| Central Plaza | | | 1,710 | | | | 6,900 | | | | 2,340 | | | | 1,710 | | | | 9,240 | | | | 10,950 | | | | (3,009 | ) | | | 7,941 | | | | - | | | | | 03/03/1998 |
| Centre at Post Oak | | | 13,731 | | | | 115 | | | | 20,865 | | | | 17,874 | | | | 16,837 | | | | 34,711 | | | | (9,621 | ) | | | 25,090 | | | | - | | | | | 12/31/1996 |
| Champions Village | | | 7,205 | | | | 36,579 | | | | 43 | | | | 7,205 | | | | 36,622 | | | | 43,827 | | | | (9,953 | ) | | | 33,874 | | | | - | | | C | | 11/13/2008 |
| Charleston Commons SC | | | 23,230 | | | | 36,877 | | | | 1,049 | | | | 23,210 | | | | 37,946 | | | | 61,156 | | | | (1,935 | ) | | | 59,221 | | | | (31,686 | ) | | | | 12/20/2006 |
| Cherokee Plaza | | | 22,219 | | | | 9,718 | | | | - | | | | 22,219 | | | | 9,718 | | | | 31,937 | | | | (586 | ) | | | 31,351 | | | | - | | | C | | 11/13/2008 |
| Chino Hills Marketplace | | | 7,218 | | | | 28,872 | | | | 8,798 | | | | 7,234 | | | | 37,654 | | | | 44,888 | | | | (6,544 | ) | | | 38,344 | | | | (23,303 | ) | | | | 08/20/2002 |
| College Park Shopping Center | | | 2,201 | | | | 8,845 | | | | 4,569 | | | | 2,641 | | | | 12,974 | | | | 15,615 | | | | (5,578 | ) | | | 10,037 | | | | (11,004 | ) | | | | 11/16/1998 |
| Colonial Plaza | | | 10,806 | | | | 43,234 | | | | 7,853 | | | | 10,813 | | | | 51,080 | | | | 61,893 | | | | (9,625 | ) | | | 52,268 | | | | - | | | | | 02/21/2001 |
Schedule III
(Continued)
| | | Initial Cost to Company | | | Gross Amounts at Close of Period | | | | | | | | | | | | | | |
| Description | | Land | | | Building and Improvements | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total (D) | | | Accumulated Depreciation | | | Total Costs, Net of Accumulated Depreciation | | | Encumbrances (A) | | | | | Date of Acquisition / Construction |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commons at Dexter Lake I | | $ | 2,923 | | | $ | 12,007 | | | $ | - | | | $ | 2,923 | | | $ | 12,007 | | | $ | 14,930 | | | $ | (2,378 | ) | | $ | 12,552 | | | $ | - | | | C | | 11/13/2008 |
| Commons at Dexter Lake II | | | 2,023 | | | | 6,940 | | | | - | | | | 2,023 | | | | 6,940 | | | | 8,963 | | | | (551 | ) | | | 8,412 | | | | - | | | C | | 11/13/2008 |
| Coronado Shopping Center | | | 246 | | | | 1,009 | | | | 592 | | | | 246 | | | | 1,601 | | | | 1,847 | | | | (973 | ) | | | 874 | | | | - | | | | | 01/03/1992 |
| Countryside Centre | | | 13,908 | | | | 26,387 | | | | 452 | | | | 13,943 | | | | 26,804 | | | | 40,747 | | | | (999 | ) | | | 39,748 | | | | (26,951 | ) | | | | 07/06/2007 |
| Countryside Centre-Albertson's | | | 1,616 | | | | 3,432 | | | | - | | | | 1,616 | | �� | | 3,432 | | | | 5,048 | | | | (129 | ) | | | 4,919 | | | | - | | | | | 07/06/2007 |
| Creekside Center | | | 1,732 | | | | 6,929 | | | | 833 | | | | 1,730 | | | | 7,764 | | | | 9,494 | | | | (1,501 | ) | | | 7,993 | | | | - | | | | | 04/02/2001 |
| Crossroads Shopping Center | | | - | | | | 2,083 | | | | 1,428 | | | | - | | | | 3,511 | | | | 3,511 | | | | (3,086 | ) | | | 425 | | | | - | | | | | 05/11/1972 |
| Cullen Place | | | - | | | | - | | | | 264 | | | | - | | | | 264 | | | | 264 | | | | (175 | ) | | | 89 | | | | - | | | | | 02/17/1966 |
| Cullen Plaza Shopping Center | | | 106 | | | | 2,841 | | | | 168 | | | | 106 | | | | 3,009 | | | | 3,115 | | | | (2,411 | ) | | | 704 | | | | - | | | B | | 03/20/2008 |
| Custer Park Shopping Center | | | 503 | | | | 2,005 | | | | 8,117 | | | | 2,017 | | | | 8,608 | | | | 10,625 | | | | (3,062 | ) | | | 7,563 | | | | - | | | | | 03/31/2000 |
| Cypress Pointe | | | 3,468 | | | | 8,700 | | | | 288 | | | | 3,468 | | | | 8,988 | | | | 12,456 | | | | (4,631 | ) | | | 7,825 | | | | - | | | | | 04/04/2002 |
| Cypress Station Square | | | 3,736 | | | | 8,374 | | | | (729 | ) | | | 2,389 | | | | 8,992 | | | | 11,381 | | | | (7,931 | ) | | | 3,450 | | | | - | | | | | 12/06/1972 |
| Dallas Commons Shopping Center | | | 1,582 | | | | 4,969 | | | | 21 | | | | 1,582 | | | | 4,990 | | | | 6,572 | | | | (292 | ) | | | 6,280 | | | | - | | | | | 09/14/2006 |
| Danville Plaza Shopping Center | | | - | | | | 3,360 | | | | 1,764 | | | | - | | | | 5,124 | | | | 5,124 | | | | (4,673 | ) | | | 451 | | | | - | | | | | 09/30/1960 |
| De Vargas Shopping Center | | | 5,142 | | | | 14,261 | | | | 6,745 | | | | 5,186 | | | | 20,962 | | | | 26,148 | | | | (8,156 | ) | | | 17,992 | | | | - | | | | | 07/23/1999 |
| Discovery Plaza | | | 2,193 | | | | 8,772 | | | | 194 | | | | 2,191 | | | | 8,968 | | | | 11,159 | | | | (1,778 | ) | | | 9,381 | | | | - | | | | | 04/02/2001 |
| Durham Festival | | | 1,924 | | | | 10,020 | | | | 774 | | | | 1,924 | | | | 10,794 | | | | 12,718 | | | | (1,722 | ) | | | 10,996 | | | | - | | | | | 09/30/2003 |
| Eastdale Shopping Center | | | 1,423 | | | | 5,809 | | | | 1,532 | | | | 1,417 | | | | 7,347 | | | | 8,764 | | | | (2,448 | ) | | | 6,316 | | | | - | | | | | 12/31/1997 |
| Eastern Horizon | | | 10,282 | | | | 16 | | | | (496 | ) | | | 1,569 | | | | 8,233 | | | | 9,802 | | | | (2,653 | ) | | | 7,149 | | | | - | | | | | 12/31/2002 |
| Eastpark Shopping Center | | | 634 | | | | 3,392 | | | | (3,976 | ) | | | 47 | | | | 3 | | | | 50 | | | | - | | | | 50 | | | | - | | | | | 12/31/1970 |
| Edgebrook Shopping Center | | | 183 | | | | 1,914 | | | | 11 | | | | 183 | | | | 1,925 | | | | 2,108 | | | | (1,584 | ) | | | 524 | | | | - | | | B | | 03/20/2008 |
| El Camino Shopping Center | | | 4,431 | | | | 20,557 | | | | 3,743 | | | | 4,429 | | | | 24,302 | | | | 28,731 | | | | (1,920 | ) | | | 26,811 | | | | (11,834 | ) | | | | 05/21/2004 |
| Embassy Lakes Shopping Center | | | 2,803 | | | | 11,268 | | | | 146 | | | | 2,803 | | | | 11,414 | | | | 14,217 | | | | (1,774 | ) | | | 12,443 | | | | - | | | | | 12/18/2002 |
| Entrada de Oro Plaza SC | | | 6,041 | | | | 10,511 | | | | 264 | | | | 6,115 | | | | 10,701 | | | | 16,816 | | | | (517 | ) | | | 16,299 | | | | - | | | | | 01/22/2007 |
| Falls Pointe Shopping Center | | | 3,535 | | | | 14,289 | | | | 107 | | | | 3,522 | | | | 14,409 | | | | 17,931 | | | | (2,289 | ) | | | 15,642 | | | | (10,949 | ) | | | | 12/17/2002 |
| Festival on Jefferson Court | | | 5,041 | | | | 13,983 | | | | 1,357 | | | | 5,041 | | | | 15,340 | | | | 20,381 | | | | (1,645 | ) | | | 18,736 | | | | - | | | | | 12/22/2004 |
| Fiesta Center | | | - | | | | 4,730 | | | | 336 | | | | - | | | | 5,066 | | | | 5,066 | | | | (3,045 | ) | | | 2,021 | | | | - | | | | | 12/31/1990 |
| Fiesta Market Place | | | 137 | | | | 429 | | | | - | | | | 137 | | | | 429 | | | | 566 | | | | (429 | ) | | | 137 | | | | - | | | B | | 03/20/2008 |
| Fiesta Trails | | | 8,825 | | | | 32,790 | | | | 1,938 | | | | 8,825 | | | | 34,728 | | | | 43,553 | | | | (4,900 | ) | | | 38,653 | | | | (24,172 | ) | | | | 09/30/2003 |
| Flamingo Pines Shopping Center | | | 10,403 | | | | 35,014 | | | | 721 | | | | 10,410 | | | | 35,728 | | | | 46,138 | | | | (3,536 | ) | | | 42,602 | | | | - | | | | | 01/28/2005 |
| Food King Place | | | 140 | | | | 212 | | | | 491 | | | | 115 | | | | 728 | | | | 843 | | | | (398 | ) | | | 445 | | | | - | | | | | 06/01/1967 |
| Fountain Plaza | | | 1,319 | | | | 5,276 | | | | 113 | | | | 1,095 | | | | 5,613 | | | | 6,708 | | | | (2,343 | ) | | | 4,365 | | | | - | | | | | 03/10/1994 |
| Francisco Center | | | 1,999 | | | | 7,997 | | | | 3,867 | | | | 2,403 | | | | 11,460 | | | | 13,863 | | | | (4,737 | ) | | | 9,126 | | | | (9,996 | ) | | | | 11/16/1998 |
| Freedom Centre | | | 2,929 | | | | 15,302 | | | | 4,475 | | | | 6,944 | | | | 15,762 | | | | 22,706 | | | | (852 | ) | | | 21,854 | | | | (2,176 | ) | | | | 06/23/2006 |
| Galleria Shopping Center | | | 10,795 | | | | 10,339 | | | | 8,134 | | | | 10,804 | | | | 18,464 | | | | 29,268 | | | | (962 | ) | | | 28,306 | | | | (20,473 | ) | | | | 12/11/2006 |
| Galveston Place | | | 2,713 | | | | 5,522 | | | | 6,229 | | | | 3,279 | | | | 11,185 | | | | 14,464 | | | | (6,811 | ) | | | 7,653 | | | | (2,487 | ) | | | | 11/30/1983 |
| Gateway Plaza | | | 4,812 | | | | 19,249 | | | | 1,122 | | | | 4,808 | | | | 20,375 | | | | 25,183 | | | | (4,127 | ) | | | 21,056 | | | | - | | | | | 04/02/2001 |
| Gillham Circle | | | 36 | | | | 201 | | | | 236 | | | | 36 | | | | 437 | | | | 473 | | | | (292 | ) | | | 181 | | | | - | | | | | 05/04/1948 |
| Glenbrook Square Shopping Ctr | | | 632 | | | | 3,576 | | | | 121 | | | | 632 | | | | 3,697 | | | | 4,329 | | | | (1,530 | ) | | | 2,799 | | | | - | | | B | | 03/20/2008 |
| Grayson Commons | | | 3,180 | | | | 9,023 | | | | 7 | | | | 3,163 | | | | 9,047 | | | | 12,210 | | | | (942 | ) | | | 11,268 | | | | (6,950 | ) | | | | 11/09/2004 |
| Greenhouse Marketplace | | | 992 | | | | 4,901 | | | | 160 | | | | 992 | | | | 5,061 | | | | 6,053 | | | | (673 | ) | | | 5,380 | | | | - | | | | | 01/28/2004 |
| Greenhouse Marketplace | | | 3,615 | | | | 17,870 | | | | 815 | | | | 3,618 | | | | 18,682 | | | | 22,300 | | | | (2,342 | ) | | | 19,958 | | | | (12,365 | ) | | | | 01/28/2004 |
| Griggs Road Shopping Center | | | 257 | | | | 2,303 | | | | 40 | | | | 257 | | | | 2,343 | | | | 2,600 | | | | (2,086 | ) | | | 514 | | | | - | | | B | | 03/20/2008 |
| Hallmark Town Center | | | 1,368 | | | | 5,472 | | | | 693 | | | | 1,367 | | | | 6,166 | | | | 7,533 | | | | (1,293 | ) | | | 6,240 | | | | - | | | | | 04/02/2001 |
| Harrisburg Plaza | | | 1,278 | | | | 3,924 | | | | 383 | | | | 1,278 | | | | 4,307 | | | | 5,585 | | | | (3,593 | ) | | | 1,992 | | | | - | | | B | | 03/20/2008 |
| Harrison Pointe Center | | | 7,173 | | | | 13,493 | | | | 1,051 | | | | 7,153 | | | | 14,564 | | | | 21,717 | | | | (2,011 | ) | | | 19,706 | | | | - | | | | | 01/30/2004 |
Schedule III
(Continued)
| | | Initial Cost to Company | | | Gross Amounts at Close of Period | | | | | | | | | | | | | | |
| Description | | Land | | | Building and Improvements | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total (D) | | | Accumulated Depreciation | | | Total Costs, Net of Accumulated Depreciation | | | Encumbrances (A) | | | | | Date of Acquisition / Construction |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Heights Plaza Shopping Center | | $ | 58 | | | $ | 699 | | | $ | 1,830 | | | $ | 612 | | | $ | 1,975 | | | $ | 2,587 | | | $ | (1,061 | ) | | $ | 1,526 | | | $ | - | | | | | 06/30/1995 |
| Heritage Station | | | 6,253 | | | | 3,989 | | | | (305 | ) | | | 6,139 | | | | 3,798 | | | | 9,937 | | | | (406 | ) | | | 9,531 | | | | (6,111 | ) | | | | 12/15/2006 |
| High House Crossing | | | 2,576 | | | | 10,305 | | | | 173 | | | | 2,576 | | | | 10,478 | | | | 13,054 | | | | (1,851 | ) | | | 11,203 | | | | (8,689 | ) | | | | 04/04/2002 |
| Highland Square | | | - | | | | - | | | | 1,887 | | | | - | | | | 1,887 | | | | 1,887 | | | | (194 | ) | | | 1,693 | | | | - | | | | | 10/06/1959 |
| Hollywood Hills Plaza | | | 966 | | | | 3,865 | | | | (202 | ) | | | 1,400 | | | | 3,229 | | | | 4,629 | | | | (464 | ) | | | 4,165 | | | | - | | | | | 04/29/2003 |
| Hollywood Hills Plaza | | | 6,997 | | | | 27,990 | | | | 3,737 | | | | 6,278 | | | | 32,446 | | | | 38,724 | | | | (4,652 | ) | | | 34,072 | | | | (20,671 | ) | | | | 04/29/2003 |
| Humblewood Shopping Center | | | 2,215 | | | | 4,724 | | | | 2,782 | | | | 1,166 | | | | 8,555 | | | | 9,721 | | | | (7,656 | ) | | | 2,065 | | | | - | | | | | 03/09/1977 |
| I45/Telephone Rd. | | | 678 | | | | 11,182 | | | | 438 | | | | 678 | | | | 11,620 | | | | 12,298 | | | | (3,404 | ) | | | 8,894 | | | | - | | | B | | 03/20/2008 |
| Independence Plaza | | | 2,006 | | | | 8,318 | | | | 2,447 | | | | 1,995 | | | | 10,776 | | | | 12,771 | | | | (2,935 | ) | | | 9,836 | | | | - | | | | | 12/31/1997 |
| Johnston Road Plaza | | | 3,671 | | | | 11,829 | | | | 18 | | | | 3,673 | | | | 11,845 | | | | 15,518 | | | | (1,067 | ) | | | 14,451 | | | | (9,912 | ) | | | | 06/10/2005 |
| Killeen Marketplace | | | 2,262 | | | | 9,048 | | | | 456 | | | | 2,275 | | | | 9,491 | | | | 11,766 | | | | (1,989 | ) | | | 9,777 | | | | - | | | | | 12/21/2000 |
| Kirby Strip Center | | | 1,201 | | | | 945 | | | | 1 | | | | 1,202 | | | | 945 | | | | 2,147 | | | | (15 | ) | | | 2,132 | | | | - | | | | | 05/27/2008 |
| Kohl's Shopping Center | | | 2,298 | | | | 9,193 | | | | 95 | | | | 2,298 | | | | 9,288 | | | | 11,586 | | | | (2,031 | ) | | | 9,555 | | | | - | | | | | 04/24/2000 |
| Kroger/Fondren Square | | | 1,383 | | | | 2,810 | | | | 726 | | | | 1,387 | | | | 3,532 | | | | 4,919 | | | | (2,895 | ) | | | 2,024 | | | | - | | | | | 09/30/1985 |
| Lake Pointe Market | | | 1,404 | | | | - | | | | 4,122 | | | | 1,960 | | | | 3,566 | | | | 5,526 | | | | (1,530 | ) | | | 3,996 | | | | - | | | | | 12/31/2004 |
| Lake Washington Square | | | 1,232 | | | | 4,928 | | | | 704 | | | | 1,235 | | | | 5,629 | | | | 6,864 | | | | (917 | ) | | | 5,947 | | | | - | | | | | 06/28/2002 |
| Lakeside Marketplace | | | 6,064 | | | | 22,989 | | | | 1,092 | | | | 6,150 | | | | 23,995 | | | | 30,145 | | | | (1,500 | ) | | | 28,645 | | | | (18,883 | ) | | | | 08/22/2006 |
| Largo Mall | | | 10,817 | | | | 40,906 | | | | 1,052 | | | | 10,810 | | | | 41,965 | | | | 52,775 | | | | (5,148 | ) | | | 47,627 | | | | - | | | | | 03/01/2004 |
| Laveen Village Marketplace | | | 1,190 | | | | - | | | | 4,832 | | | | 1,006 | | | | 5,016 | | | | 6,022 | | | | (1,093 | ) | | | 4,929 | | | | - | | | | | 08/15/2003 |
| Lawndale Shopping Center | | | 82 | | | | 927 | | | | 195 | | | | 82 | | | | 1,122 | | | | 1,204 | | | | (848 | ) | | | 356 | | | | - | | | B | | 03/20/2008 |
| League City Plaza | | | 1,918 | | | | 7,592 | | | | 64 | | | | 1,918 | | | | 7,656 | | | | 9,574 | | | | (3,102 | ) | | | 6,472 | | | | - | | | B | | 03/20/2008 |
| Leesville Towne Centre | | | 7,183 | | | | 17,162 | | | | 321 | | | | 7,183 | | | | 17,483 | | | | 24,666 | | | | (2,194 | ) | | | 22,472 | | | | (10,066 | ) | | | | 01/30/2004 |
| Little Brier Creek | | | 942 | | | | 3,393 | | | | 303 | | | | 1,433 | | | | 3,205 | | | | 4,638 | | | | (220 | ) | | | 4,418 | | | | - | | | | | 07/10/2006 |
| Little York Plaza Shopping Ctr | | | 342 | | | | 5,170 | | | | 283 | | | | 342 | | | | 5,453 | | | | 5,795 | | | | (4,028 | ) | | | 1,767 | | | | - | | | B | | 03/20/2008 |
| Lone Star Pavilion | | | 2,186 | | | | 10,341 | | | | 58 | | | | 2,221 | | | | 10,364 | | | | 12,585 | | | | (2,388 | ) | | | 10,197 | | | | (5,500 | ) | | | | 04/30/2004 |
| Lynnwood Collection S/C | | | 2,231 | | | | 8,477 | | | | 548 | | | | 2,231 | | | | 9,025 | | | | 11,256 | | | | (1,035 | ) | | | 10,221 | | | | - | | | | | 12/03/2004 |
| Lyons Avenue Shopping Center | | | 249 | | | | 1,183 | | | | 23 | | | | 249 | | | | 1,206 | | | | 1,455 | | | | (994 | ) | | | 461 | | | | - | | | B | | 03/20/2008 |
| Madera Village Shopping Center | | | 3,788 | | | | 13,507 | | | | 352 | | | | 3,816 | | | | 13,831 | | | | 17,647 | | | | (627 | ) | | | 17,020 | | | | (9,825 | ) | | | | 03/13/2007 |
| Manhattan Plaza | | | 4,645 | | | | - | | | | 19,886 | | | | 5,000 | | | | 19,531 | | | | 24,531 | | | | (5,028 | ) | | | 19,503 | | | | - | | | | | 12/31/2004 |
| Market at Southside | | | 953 | | | | 3,813 | | | | 821 | | | | 958 | | | | 4,629 | | | | 5,587 | | | | (1,269 | ) | | | 4,318 | | | | - | | | | | 08/28/2000 |
| Market at Town Center-Sgrlnd | | | 8,600 | | | | 26,627 | | | | 16,929 | | | | 8,600 | | | | 43,556 | | | | 52,156 | | | | (12,066 | ) | | | 40,090 | | | | - | | | | | 12/23/1996 |
| Market at Westchase SC | | | 1,199 | | | | 5,821 | | | | 2,074 | | | | 1,415 | | | | 7,679 | | | | 9,094 | | | | (4,338 | ) | | | 4,756 | | | | - | | | | | 02/15/1991 |
| Market Street Shopping Center | | | 424 | | | | 1,271 | | | | 1,320 | | | | 424 | | | | 2,591 | | | | 3,015 | | | | (1,446 | ) | | | 1,569 | | | | - | | | | | 04/26/1978 |
| Marketplace at Seminole Towne | | | 15,067 | | | | 53,743 | | | | 1,779 | | | | 21,734 | | | | 48,855 | | | | 70,589 | | | | (2,857 | ) | | | 67,732 | | | | (45,140 | ) | | | | 08/21/2006 |
| Markham Square Shopping Center | | | 1,236 | | | | 3,075 | | | | 1,763 | | | | 1,139 | | | | 4,935 | | | | 6,074 | | | | (4,222 | ) | | | 1,852 | | | | - | | | | | 06/18/1974 |
| Markham West Shopping Center | | | 2,694 | | | | 10,777 | | | | 3,747 | | | | 2,696 | | | | 14,522 | | | | 17,218 | | | | (4,062 | ) | | | 13,156 | | | | - | | | | | 09/18/1998 |
| Marshall's Plaza | | | 1,802 | | | | 12,315 | | | | 467 | | | | 1,804 | | | | 12,780 | | | | 14,584 | | | | (1,188 | ) | | | 13,396 | | | | (6,540 | ) | | | | 06/01/2005 |
| Mendenhall Commons | | | 2,655 | | | | 9,165 | | | | 47 | | | | 2,655 | | | | 9,212 | | | | 11,867 | | | | (574 | ) | | | 11,293 | | | | - | | | C | | 11/13/2008 |
| Menifee Town Center | | | 1,827 | | | | 7,307 | | | | 4,301 | | | | 1,824 | | | | 11,611 | | | | 13,435 | | | | (2,021 | ) | | | 11,414 | | | | - | | | | | 04/02/2001 |
| Millpond Center | | | 3,155 | | | | 9,706 | | | | 954 | | | | 3,161 | | | | 10,654 | | | | 13,815 | | | | (1,014 | ) | | | 12,801 | | | | (865 | ) | | | | 07/28/2005 |
| Mineral Springs Village | | | 794 | | | | 3,175 | | | | 194 | | | | 794 | | | | 3,369 | | | | 4,163 | | | | (640 | ) | | | 3,523 | | | | - | | | | | 04/04/2002 |
| Mission Center | | | 1,237 | | | | 4,949 | | | | 5,896 | | | | 2,120 | | | | 9,962 | | | | 12,082 | | | | (3,635 | ) | | | 8,447 | | | | - | | | | | 12/18/1995 |
| Mktplace at Seminole Outparcel | | | 1,000 | | | | - | | | | 137 | | | | 1,020 | | | | 117 | | | | 1,137 | | | | - | | | | 1,137 | | | | - | | | | | 08/21/2006 |
| Monte Vista Village Center | | | 1,485 | | | | 58 | | | | 4,895 | | | | 755 | | | | 5,683 | | | | 6,438 | | | | (1,570 | ) | | | 4,868 | | | | - | | | | | 12/31/2004 |
| Montgomery Plaza Shopping Ctr. | | | 2,500 | | | | 9,961 | | | | 9,139 | | | | 2,884 | | | | 18,716 | | | | 21,600 | | | | (7,662 | ) | | | 13,938 | | | | - | | | | | 06/09/1993 |
| Moore Plaza | | | 6,445 | | | | 26,140 | | | | 5,666 | | | | 6,487 | | | | 31,764 | | | | 38,251 | | | | (10,049 | ) | | | 28,202 | | | | - | | | | | 03/20/1998 |
Schedule III
(Continued)
| | | Initial Cost to Company | | | Gross Amounts at Close of Period | | | | | | | | | | | | | | |
| Description | | Land | | | Building and Improvements | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total (D) | | | Accumulated Depreciation | | | Total Costs, Net of Accumulated Depreciation | | | Encumbrances (A) | | | | | Date of Acquisition / Construction |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| New Boston Rd. Shopping Center | | $ | 329 | | | $ | 2,152 | | | $ | 1,396 | | | $ | 329 | | | $ | 3,548 | | | $ | 3,877 | | | $ | (3,098 | ) | | $ | 779 | | | $ | - | | | | | 06/01/1959 |
| North Creek Plaza | | | 6,915 | | | | 25,625 | | | | 865 | | | | 6,954 | | | | 26,451 | | | | 33,405 | | | | (2,975 | ) | | | 30,430 | | | | (3,745 | ) | | | | 08/19/2004 |
| North Main Place | | | 68 | | | | 53 | | | | 522 | | | | 68 | | | | 575 | | | | 643 | | | | (275 | ) | | | 368 | | | | - | | | | | 06/29/1976 |
| North Oaks Shopping Center | | | 3,644 | | | | 22,040 | | | | 1,848 | | | | 3,644 | | | | 23,888 | | | | 27,532 | | | | (16,629 | ) | | | 10,903 | | | | - | | | B | | 03/20/2008 |
| North Towne Plaza | | | 960 | | | | 3,928 | | | | 6,081 | | | | 879 | | | | 10,090 | | | | 10,969 | | | | (4,985 | ) | | | 5,984 | | | | - | | | | | 02/15/1990 |
| North Triangle Shops | | | - | | | | 431 | | | | 218 | | | | 15 | | | | 634 | | | | 649 | | | | (341 | ) | | | 308 | | | | - | | | | | 01/15/1977 |
| Northbrook Shopping Center | | | 1,629 | | | | 4,489 | | | | 2,877 | | | | 1,713 | | | | 7,282 | | | | 8,995 | | | | (6,128 | ) | | | 2,867 | | | | - | | | | | 11/06/1967 |
| Northridge Shopping Center | | | 7,087 | | | | 28,361 | | | | 2,966 | | | | 7,102 | | | | 31,312 | | | | 38,414 | | | | (5,751 | ) | | | 32,663 | | | | - | | | | | 03/25/2002 |
| Northwoods Shopping Center | | | 1,768 | | | | 7,071 | | | | 163 | | | | 1,772 | | | | 7,230 | | | | 9,002 | | | | (1,277 | ) | | | 7,725 | | | | - | | | | | 04/04/2002 |
| Oak Forest Shopping Center | | | 760 | | | | 2,726 | | | | 2,338 | | | | 748 | | | | 5,076 | | | | 5,824 | | | | (4,154 | ) | | | 1,670 | | | | - | | | | | 12/30/1976 |
| Oak Grove Market Center | | | 5,758 | | | | 10,508 | | | | (313 | ) | | | 5,861 | | | | 10,092 | | | | 15,953 | | | | (437 | ) | | | 15,516 | | | | (7,358 | ) | | | | 06/15/2007 |
| Oak Park Village | | | 678 | | | | 3,332 | | | | - | | | | 678 | | | | 3,332 | | | | 4,010 | | | | (1,338 | ) | | | 2,672 | | | | - | | | C | | 11/13/2008 |
| Oracle Crossing | | | 4,614 | | | | 18,274 | | | | 21,180 | | | | 10,582 | | | | 33,486 | | | | 44,068 | | | | (1,279 | ) | | | 42,789 | | | | - | | | | | 01/22/2007 |
| Oracle Wetmore Shopping Center | | | 24,686 | | | | 26,878 | | | | 2,342 | | | | 23,102 | | | | 30,804 | | | | 53,906 | | | | (1,476 | ) | | | 52,430 | | | | - | | | | | 01/22/2007 |
| Orchard Green Shopping Center | | | 777 | | | | 1,477 | | | | 1,760 | | | | 786 | | | | 3,228 | | | | 4,014 | | | | (2,073 | ) | | | 1,941 | | | | - | | | | | 10/11/1973 |
| Orleans Station | | | 165 | | | | - | | | | 57 | | | | 185 | | | | 37 | | | | 222 | | | | (37 | ) | | | 185 | | | | - | | | | | 06/29/1976 |
| Overton Park Plaza | | | 9,266 | | | | 37,789 | | | | 894 | | | | 9,264 | | | | 38,685 | | | | 47,949 | | | | (5,094 | ) | | | 42,855 | | | | - | | | | | 10/24/2003 |
| Palmer Plaza | | | 765 | | | | 3,081 | | | | 2,347 | | | | 827 | | | | 5,366 | | | | 6,193 | | | | (3,172 | ) | | | 3,021 | | | | - | | | | | 07/31/1980 |
| Palmilla Center | | | 1,258 | | | | - | | | | 12,649 | | | | 3,280 | | | | 10,627 | | | | 13,907 | | | | (4,439 | ) | | | 9,468 | | | | - | | | | | 12/31/2002 |
| Paradise Marketplace | | | 2,153 | | | | 8,612 | | | | 744 | | | | 2,155 | | | | 9,354 | | | | 11,509 | | | | (3,464 | ) | | | 8,045 | | | | - | | | | | 07/20/1995 |
| Park Plaza Shopping Center | | | 257 | | | | 7,815 | | | | 864 | | | | 314 | | | | 8,622 | | | | 8,936 | | | | (7,570 | ) | | | 1,366 | | | | - | | | | | 01/24/1975 |
| Parkway Pointe | | | 1,252 | | | | 5,010 | | | | 578 | | | | 1,260 | | | | 5,580 | | | | 6,840 | | | | (1,208 | ) | | | 5,632 | | | | (1,779 | ) | | | | 06/29/2001 |
| Parliament Square II | | | 2 | | | | 10 | | | | 1,176 | | | | 3 | | | | 1,185 | | | | 1,188 | | | | (168 | ) | | | 1,020 | | | | - | | | | | 06/24/2005 |
| Parliament Square Shopping Ctr | | | 443 | | | | 1,959 | | | | 1,047 | | | | 443 | | | | 3,006 | | | | 3,449 | | | | (1,610 | ) | | | 1,839 | | | | - | | | | | 03/18/1992 |
| Pavilions at San Mateo | | | 3,272 | | | | 26,215 | | | | 378 | | | | 5,181 | | | | 24,684 | | | | 29,865 | | | | (5,253 | ) | | | 24,612 | | | | (14,000 | ) | | | | 04/30/2004 |
| Pembroke Commons | | | 6,401 | | | | 25,420 | | | | 3,127 | | | | 6,419 | | | | 28,529 | | | | 34,948 | | | | (6,332 | ) | | | 28,616 | | | | - | | | | | 12/01/1999 |
| Perimeter Village | | | 29,701 | | | | 42,337 | | | | (2,506 | ) | | | 34,404 | | | | 35,128 | | | | 69,532 | | | | (1,465 | ) | | | 68,067 | | | | - | | | | | 07/03/2007 |
| Phelan West Shopping Center | | | 401 | | | | - | | | | 1,221 | | | | 414 | | | | 1,208 | | | | 1,622 | | | | (531 | ) | | | 1,091 | | | | - | | | | | 06/03/1998 |
| Pinecrest Plaza Shopping Ctr | | | 5,837 | | | | 19,166 | | | | 782 | | | | 5,837 | | | | 19,948 | | | | 25,785 | | | | (1,974 | ) | | | 23,811 | | | | (10,912 | ) | | | | 04/06/2005 |
| Pitman Corners | | | 2,686 | | | | 10,745 | | | | 1,469 | | | | 2,693 | | | | 12,207 | | | | 14,900 | | | | (2,335 | ) | | | 12,565 | | | | (9,308 | ) | | | | 04/08/2002 |
| Plantation Centre | | | 3,463 | | | | 14,821 | | | | 291 | | | | 3,471 | | | | 15,104 | | | | 18,575 | | | | (1,644 | ) | | | 16,931 | | | | (4,672 | ) | | | | 08/19/2004 |
| Portairs Shopping Center | | | 902 | | | | 3,720 | | | | 2,630 | | | | 902 | | | | 6,350 | | | | 7,252 | | | | (4,770 | ) | | | 2,482 | | | | - | | | | | 07/21/1988 |
| Prien Lake Plaza | | | 63 | | | | 960 | | | | 76 | | | | 41 | | | | 1,058 | | | | 1,099 | | | | (24 | ) | | | 1,075 | | | | - | | | | | 07/26/2007 |
| Promenade Shopping Center | | | 1,058 | | | | 4,248 | | | | 491 | | | | 941 | | | | 4,856 | | | | 5,797 | | | | (954 | ) | | | 4,843 | | | | (3,965 | ) | | | | 03/18/2004 |
| Prospector's Plaza | | | 3,746 | | | | 14,985 | | | | 566 | | | | 3,716 | | | | 15,581 | | | | 19,297 | | | | (3,088 | ) | | | 16,209 | | | | - | | | | | 04/02/2001 |
| Publix at Laguna Isles | | | 2,913 | | | | 9,554 | | | | 103 | | | | 2,914 | | | | 9,656 | | | | 12,570 | | | | (1,283 | ) | | | 11,287 | | | | (7,772 | ) | | | | 10/31/2003 |
| Publix at Princeton Lakes | | | 2,740 | | | | 10,519 | | | | 384 | | | | 2,192 | | | | 11,451 | | | | 13,643 | | | | (684 | ) | | | 12,959 | | | | (7,950 | ) | | | | 08/22/2006 |
| Pueblo Anozira Shopping Center | | | 2,750 | | | | 11,000 | | | | 3,582 | | | | 2,768 | | | | 14,564 | | | | 17,332 | | | | (5,360 | ) | | | 11,972 | | | | - | | | | | 06/16/1994 |
| Rainbow Plaza | | | 6,059 | | | | 24,234 | | | | 1,337 | | | | 6,081 | | | | 25,549 | | | | 31,630 | | | | (7,401 | ) | | | 24,229 | | | | - | | | | | 10/22/1997 |
| Rainbow Plaza I | | | 3,883 | | | | 15,540 | | | | 411 | | | | 3,896 | | | | 15,938 | | | | 19,834 | | | | (3,379 | ) | | | 16,455 | | | | - | | | | | 12/28/2000 |
| Rancho Encanto | | | 957 | | | | 3,829 | | | | 4,112 | | | | 962 | | | | 7,936 | | | | 8,898 | | | | (1,403 | ) | | | 7,495 | | | | - | | | | | 04/28/1997 |
| Rancho San Marcos Village | | | 3,533 | | | | 14,138 | | | | 3,792 | | | | 3,887 | | | | 17,576 | | | | 21,463 | | | | (2,649 | ) | | | 18,814 | | | | - | | | | | 02/26/2003 |
| Rancho Towne & Country | | | 1,161 | | | | 4,647 | | | | 319 | | | | 1,166 | | | | 4,961 | | | | 6,127 | | | | (1,793 | ) | | | 4,334 | | | | - | | | | | 10/16/1995 |
| Randalls Center/Kings Crossing | | | 3,570 | | | | 8,147 | | | | - | | | | 3,570 | | | | 8,147 | | | | 11,717 | | | | (3,902 | ) | | | 7,815 | | | | - | | | C | | 11/13/2008 |
| Randall's/Norchester Village | | | 1,852 | | | | 4,510 | | | | 1,189 | | | | 1,904 | | | | 5,647 | | | | 7,551 | | | | (3,843 | ) | | | 3,708 | | | | - | | | | | 09/30/1991 |
| Ravenstone Commons | | | 2,616 | | | | 7,986 | | | | (180 | ) | | | 2,580 | | | | 7,842 | | | | 10,422 | | | | (751 | ) | | | 9,671 | | | | (6,035 | ) | | | | 03/22/2005 |
Schedule III
(Continued)
| | | Initial Cost to Company | | | Gross Amounts at Close of Period | | | | | | | | | | | | | | |
| Description | | Land | | | Building and Improvements | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total (D) | | | Accumulated Depreciation | | | Total Costs, Net of Accumulated Depreciation | | | Encumbrances (A) | | | | | Date of Acquisition / Construction |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Red Mountain Gateway | | $ | 2,166 | | | $ | 89 | | | $ | 9,146 | | | $ | 2,737 | | | $ | 8,664 | | | $ | 11,401 | | | $ | (2,578 | ) | | $ | 8,823 | | | $ | - | | | | | 12/31/2003 |
| Regency Centre | | | 3,791 | | | | 15,390 | | | | 664 | | | | 2,180 | | | | 17,665 | | | | 19,845 | | | | (1,113 | ) | | | 18,732 | | | | (9,675 | ) | | | | 07/28/2006 |
| Regency Panera Tract | | | 1,825 | | | | 3,126 | | | | 65 | | | | 1,400 | | | | 3,616 | | | | 5,016 | | | | (218 | ) | | | 4,798 | | | | - | | | | | 07/28/2006 |
| Reynolds Shops Shopping Center | | | 4,276 | | | | 9,186 | | | | 34 | | | | 4,276 | | | | 9,220 | | | | 13,496 | | | | (548 | ) | | | 12,948 | | | | - | | | | | 09/14/2006 |
| Richmond Square | | | 1,993 | | | | 953 | | | | 1,685 | | | | 2,966 | | | | 1,665 | | | | 4,631 | | | | (915 | ) | | | 3,716 | | | | - | | | | | 12/31/1996 |
| River Oaks Shopping Center | | | 1,354 | | | | 1,946 | | | | 349 | | | | 1,363 | | | | 2,286 | | | | 3,649 | | | | (1,871 | ) | | | 1,778 | | | | - | | | | | 12/04/1992 |
| River Oaks Shopping Center | | | 3,534 | | | | 17,741 | | | | 20,776 | | | | 3,979 | | | | 38,072 | | | | 42,051 | | | | (14,199 | ) | | | 27,852 | | | | - | | | | | 12/04/1992 |
| Rockwall Market Center | | | 5,344 | | | | 22,700 | | | | 252 | | | | 5,341 | | | | 22,955 | | | | 28,296 | | | | (4,681 | ) | | | 23,615 | | | | (12,500 | ) | | | | 04/30/2004 |
| Rose-Rich Shopping Center | | | 502 | | | | 2,738 | | | | 2,825 | | | | 502 | | | | 5,563 | | | | 6,065 | | | | (4,730 | ) | | | 1,335 | | | | - | | | | | 03/01/1982 |
| Roswell Corners | | | 5,835 | | | | 20,465 | | | | 688 | | | | 5,835 | | | | 21,153 | | | | 26,988 | | | | (2,495 | ) | | | 24,493 | | | | (10,636 | ) | | | | 06/24/2004 |
| Roswell Corners | | | 301 | | | | 982 | | | | - | | | | 301 | | | | 982 | | | | 1,283 | | | | (113 | ) | | | 1,170 | | | | - | | | | | 06/24/2004 |
| San Marcos Plaza | | | 1,360 | | | | 5,439 | | | | 184 | | | | 1,358 | | | | 5,625 | | | | 6,983 | | | | (1,145 | ) | | | 5,838 | | | | - | | | | | 04/02/2001 |
| Sandy Plains Exchange | | | 2,468 | | | | 7,549 | | | | 171 | | | | 2,469 | | | | 7,719 | | | | 10,188 | | | | (1,080 | ) | | | 9,108 | | | | (6,299 | ) | | | | 10/17/2003 |
| Scottsdale Horizon | | | - | | | | 3,241 | | | | 18 | | | | 1 | | | | 3,258 | | | | 3,259 | | | | (156 | ) | | | 3,103 | | | | - | | | | | 01/22/2007 |
| Shasta Crossroads | | | 2,844 | | | | 11,377 | | | | 194 | | | | 2,842 | | | | 11,573 | | | | 14,415 | | | | (2,298 | ) | | | 12,117 | | | | - | | | | | 04/02/2001 |
| Shawnee Village S/C | | | 1,470 | | | | 5,881 | | | | 2,172 | | | | 1,333 | | | | 8,190 | | | | 9,523 | | | | (2,677 | ) | | | 6,846 | | | | (6,610 | ) | | | | 04/19/1996 |
| Sheldon Forest Shopping Center | | | 374 | | | | 635 | | | | 254 | | | | 354 | | | | 909 | | | | 1,263 | | | | (743 | ) | | | 520 | | | | - | | | | | 05/14/1970 |
| Sheldon Forest Shopping Center | | | 629 | | | | 1,955 | | | | 800 | | | | 629 | | | | 2,755 | | | | 3,384 | | | | (2,543 | ) | | | 841 | | | | - | | | | | 05/14/1970 |
| Shoppes at Bears Path | | | 3,252 | | | | 5,503 | | | | 445 | | | | 3,290 | | | | 5,910 | | | | 9,200 | | | | (268 | ) | | | 8,932 | | | | (3,373 | ) | | | | 03/13/2007 |
| Shoppes of Parkland | | | 5,413 | | | | 16,726 | | | | 882 | | | | 9,506 | | | | 13,515 | | | | 23,021 | | | | (948 | ) | | | 22,073 | | | | (15,745 | ) | | | | 05/31/2006 |
| Shoppes of South Semoran | | | 4,283 | | | | 9,785 | | | | (96 | ) | | | 5,508 | | | | 8,464 | | | | 13,972 | | | | (310 | ) | | | 13,662 | | | | (9,855 | ) | | | | 08/31/2007 |
| Shops at Three Corners | | | 6,215 | | | | 9,303 | | | | 5,259 | | | | 6,224 | | | | 14,553 | | | | 20,777 | | | | (6,725 | ) | | | 14,052 | | | | - | | | | | 12/31/1989 |
| Silver Creek Plaza | | | 3,231 | | | | 12,924 | | | | 2,702 | | | | 3,228 | | | | 15,629 | | | | 18,857 | | | | (3,333 | ) | | | 15,524 | | | | - | | | | | 04/02/2001 |
| Six Forks Shopping Center | | | 6,678 | | | | 26,759 | | | | 2,711 | | | | 6,728 | | | | 29,420 | | | | 36,148 | | | | (5,245 | ) | | | 30,903 | | | | - | | | | | 04/04/2002 |
| South Semoran - Pad | | | 1,056 | | | | - | | | | 21 | | | | 1,077 | | | | - | | | | 1,077 | | | | - | | | | 1,077 | | | | - | | | | | 09/06/2007 |
| Southampton Center | | | 4,337 | | | | 17,349 | | | | 693 | | | | 4,333 | | | | 18,046 | | | | 22,379 | | | | (3,649 | ) | | | 18,730 | | | | - | | | | | 04/02/2001 |
| Southgate Shopping Center | | | 127 | | | | 116 | | | | 84 | | | | 127 | | | | 200 | | | | 327 | | | | (157 | ) | | | 170 | | | | - | | | | | 10/15/1948 |
| Southgate Shopping Center | | | 571 | | | | 3,402 | | | | 4,287 | | | | 531 | | | | 7,729 | | | | 8,260 | | | | (5,690 | ) | | | 2,570 | | | | - | | | | | 03/26/1958 |
| Southgate Shopping Center | | | 232 | | | | 8,389 | | | | 144 | | | | 232 | | | | 8,533 | | | | 8,765 | | | | (4,643 | ) | | | 4,122 | | | | - | | | B | | 03/20/2008 |
| Spring Plaza Shopping Center | | | 863 | | | | 2,288 | | | | 46 | | | | 863 | | | | 2,334 | | | | 3,197 | | | | (2,043 | ) | | | 1,154 | | | | - | | | B | | 03/20/2008 |
| Squaw Peak Plaza | | | 816 | | | | 3,266 | | | | 868 | | | | 818 | | | | 4,132 | | | | 4,950 | | | | (1,330 | ) | | | 3,620 | | | | - | | | | | 12/20/1994 |
| Steele Creek Crossing | | | 310 | | | | 11,774 | | | | 3,210 | | | | 3,281 | | | | 12,013 | | | | 15,294 | | | | (1,159 | ) | | | 14,135 | | | | (7,719 | ) | | | | 06/10/2005 |
| Steeplechase | | | 1,492 | | | �� | 6,034 | | | | 3,143 | | | | 1,489 | | | | 9,180 | | | | 10,669 | | | | (3,468 | ) | | | 7,201 | | | | - | | | | | 07/28/1993 |
| Stella Link Shopping Center | | | 227 | | | | 423 | | | | 1,489 | | | | 294 | | | | 1,845 | | | | 2,139 | | | | (1,486 | ) | | | 653 | | | | - | | | | | 07/10/1970 |
| Stella Link Shopping Center | | | 2,602 | | | | 1,418 | | | | 4 | | | | 2,602 | | | | 1,422 | | | | 4,024 | | | | (48 | ) | | | 3,976 | | | | - | | | | | 08/21/2007 |
| Stonehenge Market | | | 4,740 | | | | 19,001 | | | | 1,122 | | | | 4,740 | | | | 20,123 | | | | 24,863 | | | | (3,726 | ) | | | 21,137 | | | | (7,177 | ) | | | | 04/04/2002 |
| Stony Point Plaza | | | 3,489 | | | | 13,957 | | | | 607 | | | | 3,453 | | | | 14,600 | | | | 18,053 | | | | (2,914 | ) | | | 15,139 | | | | - | | | | | 04/02/2001 |
| Studewood Shopping Center | | | 261 | | | | 552 | | | | - | | | | 261 | | | | 552 | | | | 813 | | | | (552 | ) | | | 261 | | | | - | | | | | 05/25/1984 |
| Summer Center | | | 2,379 | | | | 8,343 | | | | 3,697 | | | | 2,396 | | | | 12,023 | | | | 14,419 | | | | (2,155 | ) | | | 12,264 | | | | - | | | | | 05/15/2001 |
| Summerhill Plaza | | | 1,945 | | | | 7,781 | | | | 1,630 | | | | 1,943 | | | | 9,413 | | | | 11,356 | | | | (2,018 | ) | | | 9,338 | | | | - | | | | | 04/02/2001 |
| Sunset 19 Shopping Center | | | 5,519 | | | | 22,076 | | | | 399 | | | | 5,547 | | | | 22,447 | | | | 27,994 | | | | (4,104 | ) | | | 23,890 | | | | (13,509 | ) | | | | 10/29/2001 |
| Sunset Shopping Center | | | 1,121 | | | | 4,484 | | | | 868 | | | | 1,120 | | | | 5,353 | | | | 6,473 | | | | (1,166 | ) | | | 5,307 | | | | - | | | | | 04/02/2001 |
| Tamiami Trail Shops | | | 3,269 | | | | 13,075 | | | | 1,513 | | | | 3,391 | | | | 14,466 | | | | 17,857 | | | | (2,000 | ) | | | 15,857 | | | | - | | | | | 06/30/2003 |
| Tates Creek Centre | | | 4,802 | | | | 25,366 | | | | 2,037 | | | | 6,302 | | | | 25,903 | | | | 32,205 | | | | (3,254 | ) | | | 28,951 | | | | - | | | | | 03/01/2004 |
| Taylorsville Town Center | | | 2,179 | | | | 9,718 | | | | 618 | | | | 2,180 | | | | 10,335 | | | | 12,515 | | | | (1,431 | ) | | | 11,084 | | | | - | | | | | 12/19/2003 |
| Texas City Plaza | | | 143 | | | | 117 | | | | (117 | ) | | | 143 | | | | - | | | | 143 | | | | - | | | | 143 | | | | - | | | | | 05/04/1948 |
Schedule III
(Continued)
| | | Initial Cost to Company | | | Gross Amounts at Close of Period | | | | | | | | | | | | | | |
| Description | | Land | | | Building and Improvements | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total (D) | | | Accumulated Depreciation | | | Total Costs, Net of Accumulated Depreciation | | | Encumbrances (A) | | | | | Date of Acquisition / Construction |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The Plaza at Cottonwood | | $ | 3,061 | | | $ | 12,613 | | | $ | 23 | | | $ | 3,061 | | | $ | 12,636 | | | $ | 15,697 | | | $ | (1,317 | ) | | $ | 14,380 | | | $ | (9,177 | ) | | | | 10/27/2004 |
| The Village Arcade | | | - | | | | 6,657 | | | | 564 | | | | - | | | | 7,221 | | | | 7,221 | | | | (4,120 | ) | | | 3,101 | | | | - | | | | | 12/31/1992 |
| Thompson Bridge Commons | | | 3,045 | | | | 9,264 | | | | 3,545 | | | | 3,016 | | | | 12,838 | | | | 15,854 | | | | (924 | ) | | | 14,930 | | | | (6,510 | ) | | | | 04/26/2005 |
| Thousand Oaks Shopping Center | | | 2,973 | | | | 13,142 | | | | 4 | | | | 2,973 | | | | 13,146 | | | | 16,119 | | | | (1,983 | ) | | | 14,136 | | | | - | | | B | | 03/20/2008 |
| TJ Maxx Plaza | | | 3,400 | | | | 19,283 | | | | 740 | | | | 3,430 | | | | 19,993 | | | | 23,423 | | | | (2,487 | ) | | | 20,936 | | | | - | | | | | 03/01/2004 |
| Town & Country Shopping Center | | | 2,512 | | | | 2,744 | | | | (3,904 | ) | | | 300 | | | | 1,052 | | | | 1,352 | | | | (865 | ) | | | 487 | | | | - | | | | | 01/05/1988 |
| Town & Country Shopping Center | | | - | | | | 3,891 | | | | 3,716 | | | | - | | | | 7,607 | | | | 7,607 | | | | (4,184 | ) | | | 3,423 | | | | - | | | | | 01/31/1989 |
| Town and Country - Hammond, LA | | | 1,030 | | | | 7,404 | | | | 203 | | | | 1,029 | | | | 7,608 | | | | 8,637 | | | | (3,869 | ) | | | 4,768 | | | | - | | | | | 12/30/1997 |
| Tropicana Beltway Center | | | 13,947 | | | | 42,186 | | | | 25 | | | | 13,949 | | | | 42,209 | | | | 56,158 | | | | (4,253 | ) | | | 51,905 | | | | (34,955 | ) | | | | 11/20/2007 |
| Tropicana Marketplace | | | 2,118 | | | | 8,477 | | | | 645 | | | | 2,120 | | | | 9,120 | | | | 11,240 | | | | (3,316 | ) | | | 7,924 | | | | - | | | | | 07/24/1995 |
| Tyler Shopping Center | | | 5 | | | | 21 | | | | 3,662 | | | | 300 | | | | 3,388 | | | | 3,688 | | | | (1,711 | ) | | | 1,977 | | | | - | | | | | 12/31/2002 |
| Uintah Gardens | | | 2,209 | | | | 13,051 | | | | 2,101 | | | | 2,205 | | | | 15,156 | | | | 17,361 | | | | (1,195 | ) | | | 16,166 | | | | (6,305 | ) | | | | 12/22/2005 |
| University Palms Shopping Ctr | | | 2,765 | | | | 10,181 | | | | - | | | | 2,765 | | | | 10,181 | | | | 12,946 | | | | (1,406 | ) | | | 11,540 | | | | - | | | C | | 11/13/2008 |
| University Plaza | | | 1,360 | | | | 5,439 | | | | 3,202 | | | | 1,362 | | | | 8,639 | | | | 10,001 | | | | (3,468 | ) | | | 6,533 | | | | - | | | | | 03/18/1996 |
| Val Vista Towne Center | | | 2,614 | | | | 8 | | | | 8,000 | | | | 2,985 | | | | 7,637 | | | | 10,622 | | | | (3,469 | ) | | | 7,153 | | | | - | | | | | 12/31/2001 |
| Valley Shopping Center | | | 4,293 | | | | 13,736 | | | | 401 | | | | 8,170 | | | | 10,260 | | | | 18,430 | | | | (720 | ) | | | 17,710 | | | | - | | | | | 04/07/2006 |
| Valley View Shopping Center | | | 1,006 | | | | 3,980 | | | | 1,999 | | | | 1,006 | | | | 5,979 | | | | 6,985 | | | | (2,516 | ) | | | 4,469 | | | | - | | | | | 11/20/1996 |
| Venice Pines Shopping Center | | | 1,432 | | | | 5,730 | | | | 69 | | | | 1,077 | | | | 6,154 | | | | 7,231 | | | | (1,241 | ) | | | 5,990 | | | | - | | | | | 06/06/2001 |
| Village Arcade II Phase III | | | - | | | | 16 | | | | 14,975 | | | | - | | | | 14,991 | | | | 14,991 | | | | (6,782 | ) | | | 8,209 | | | | - | | | | | 12/31/1996 |
| Village Arcade-Phase II | | | - | | | | 787 | | | | 134 | | | | - | | | | 921 | | | | 921 | | | | (501 | ) | | | 420 | | | | - | | | | | 12/31/1992 |
| Vizcaya Square Shopping Center | | | 3,044 | | | | 12,226 | | | | 217 | | | | 3,044 | | | | 12,443 | | | | 15,487 | | | | (1,911 | ) | | | 13,576 | | | | - | | | | | 12/18/2002 |
| West Jordan Town Center | | | 4,306 | | | | 17,776 | | | | 1,515 | | | | 4,308 | | | | 19,289 | | | | 23,597 | | | | (2,411 | ) | | | 21,186 | | | | (14,482 | ) | | | | 12/19/2003 |
| Westchase Shopping Center | | | 3,085 | | | | 7,920 | | | | 5,814 | | | | 3,189 | | | | 13,630 | | | | 16,819 | | | | (10,580 | ) | | | 6,239 | | | | (14,061 | ) | | | | 08/29/1978 |
| Westgate Shopping Center | | | 245 | | | | 1,425 | | | | 379 | | | | 245 | | | | 1,804 | | | | 2,049 | | | | (1,592 | ) | | | 457 | | | | - | | | | | 07/02/1965 |
| Westhill Village Shopping Ctr. | | | 408 | | | | 3,002 | | | | 4,387 | | | | 437 | | | | 7,360 | | | | 7,797 | | | | (4,459 | ) | | | 3,338 | | | | - | | | | | 05/01/1958 |
| Westland Fair | | | 6,715 | | | | 10,506 | | | | 2,799 | | | | 6,735 | | | | 13,285 | | | | 20,020 | | | | (3,280 | ) | | | 16,740 | | | | - | | | | | 12/29/2000 |
| Westland Fair | | | 20,847 | | | | - | | | | 7,180 | | | | 20,999 | | | | 7,028 | | | | 28,027 | | | | (3,458 | ) | | | 24,569 | | | | - | | | | | 12/29/2000 |
| Westland Terrace Plaza | | | 1,649 | | | | 6,768 | | | | 2,587 | | | | 2,526 | | | | 8,478 | | | | 11,004 | | | | (902 | ) | | | 10,102 | | | | - | | | | | 10/22/2003 |
| Westminster Center | | | 11,215 | | | | 44,871 | | | | 5,047 | | | | 11,204 | | | | 49,929 | | | | 61,133 | | | | (9,824 | ) | | | 51,309 | | | | - | | | | | 04/02/2001 |
| Westminster Plaza | | | 1,759 | | | | 7,036 | | | | 387 | | | | 1,759 | | | | 7,423 | | | | 9,182 | | | | (1,212 | ) | | | 7,970 | | | | (6,405 | ) | | | | 06/21/2002 |
| Westmont Shopping Center | | | 940 | | | | 3,929 | | | | 1,338 | | | | 966 | | | | 5,241 | | | | 6,207 | | | | (4,965 | ) | | | 1,242 | | | | - | | | | | 04/28/1971 |
| Westwood Village Shopping Ctr. | | | - | | | | 6,968 | | | | 1,810 | | | | - | | | | 8,778 | | | | 8,778 | | | | (7,199 | ) | | | 1,579 | | | | (2,115 | ) | | | | 08/25/1978 |
| Whitehall Commons | | | 2,529 | | | | 6,901 | | | | 73 | | | | 2,522 | | | | 6,981 | | | | 9,503 | | | | (599 | ) | | | 8,904 | | | | (4,987 | ) | | | | 10/06/2005 |
| Winter Park Corners | | | 2,159 | | | | 8,636 | | | | 165 | | | | 2,159 | | | | 8,801 | | | | 10,960 | | | | (1,662 | ) | | | 9,298 | | | | - | | | | | 09/06/2001 |
| Wolflin Village Shopping Ctr | | | 846 | | | | 4,374 | | | | 2,258 | | | | 695 | | | | 6,783 | | | | 7,478 | | | | (4,158 | ) | | | 3,320 | | | | - | | | | | 01/03/1992 |
| Wyoming Mall | | | 1,919 | | | | 7,678 | | | | 4,324 | | | | 2,193 | | | | 11,728 | | | | 13,921 | | | | (705 | ) | | | 13,216 | | | | - | | | | | 03/31/1995 |
| | | | 834,296 | | | | 2,563,697 | | | | 502,512 | | | | 868,516 | | | | 3,031,989 | | | | 3,900,505 | | | | (703,504 | ) | | | 3,197,001 | | | | (703,163 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Industrial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1625 Diplomat Drive | | | 506 | | | | 3,107 | | | | 78 | | | | 508 | | | | 3,183 | | | | 3,691 | | | | (244 | ) | | | 3,447 | | | | - | | | | | 12/22/2005 |
| 1801 Massaro | | | 865 | | | | 3,461 | | | | (83 | ) | | | 671 | | | | 3,572 | | | | 4,243 | | | | (511 | ) | | | 3,732 | | | | - | | | | | 04/24/2003 |
| 3500 Atlanta Industrial Pkwy | | | 770 | | | | 795 | | | | 28 | | | | 770 | | | | 823 | | | | 1,593 | | | | (87 | ) | | | 1,506 | | | | - | | | | | 10/14/2004 |
| 3550 Southside Industrial Pkwy | | | 449 | | | | 1,666 | | | | - | | | | 449 | | | | 1,666 | | | | 2,115 | | | | (198 | ) | | | 1,917 | | | | - | | | | | 05/04/2004 |
| 610 and 11th Street Warehouses | | | 253 | | | | 3,593 | | | | (906 | ) | | | 76 | | | | 2,864 | | | | 2,940 | | | | (1,762 | ) | | | 1,178 | | | | - | | | | | 09/13/1974 |
| Atlanta Industrial Park | | | 1,946 | | | | 7,785 | | | | 1,832 | | | | 2,078 | | | | 9,485 | | | | 11,563 | | | | (1,530 | ) | | | 10,033 | | | | (850 | ) | | | | 02/19/2003 |
Schedule III
(Continued)
| | | Initial Cost to Company | | | Gross Amounts at Close of Period | | | | | | | | | | | | | | |
| Description | | Land | | | Building and Improvements | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total (D) | | | Accumulated Depreciation | | | Total Costs, Net of Accumulated Depreciation | | | Encumbrances (A) | | | | | Date of Acquisition / Construction |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Atlanta Industrial Park | | $ | 657 | | | $ | 2,626 | | | $ | 200 | | | $ | 479 | | | $ | 3,004 | | | $ | 3,483 | | | $ | (487 | ) | | $ | 2,996 | | | $ | - | | | | | 02/19/2003 |
| Beltway 8 at West Bellfort | | | 674 | | | | - | | | | 8,709 | | | | 784 | | | | 8,599 | | | | 9,383 | | | | (3,979 | ) | | | 5,404 | | | | - | | | | | 12/31/2001 |
| Blankenship Distribution Cntr. | | | 271 | | | | 1,097 | | | | 632 | | | | 273 | | | | 1,727 | | | | 2,000 | | | | (641 | ) | | | 1,359 | | | | - | | | | | 08/07/1998 |
| Braker 2 Business Center | | | 394 | | | | 1,574 | | | | 323 | | | | 394 | | | | 1,897 | | | | 2,291 | | | | (472 | ) | | | 1,819 | | | | - | | | | | 09/28/2000 |
| Brookhollow Business Center | | | 734 | | | | 2,938 | | | | 1,972 | | | | 736 | | | | 4,908 | | | | 5,644 | | | | (2,258 | ) | | | 3,386 | | | | - | | | | | 07/27/1995 |
| Central Park N/W Ph 6 | | | 697 | | | | 2,786 | | | | 3,200 | | | | 700 | | | | 5,983 | | | | 6,683 | | | | (3,117 | ) | | | 3,566 | | | | - | | | | | 12/17/1992 |
| Central Park N/W Ph VII | | | 433 | | | | 1,735 | | | | 1,876 | | | | 433 | | | | 3,611 | | | | 4,044 | | | | (1,760 | ) | | | 2,284 | | | | - | | | | | 03/29/1994 |
| Central Plano Business Park | | | 1,343 | | | | 5,578 | | | | 433 | | | | 1,344 | | | | 6,010 | | | | 7,354 | | | | (578 | ) | | | 6,776 | | | | - | | | | | 09/28/2005 |
| Corporate Center Park | | | 1,027 | | | | 4,114 | | | | 2,490 | | | | 1,027 | | | | 6,604 | | | | 7,631 | | | | (2,436 | ) | | | 5,195 | | | | - | | | | | 05/23/1997 |
| Crestview | | | 7,424 | | | | 555 | | | | (7,140 | ) | | | 206 | | | | 633 | | | | 839 | | | | (538 | ) | | | 301 | | | | - | | | | | 11/10/1980 |
| Crosspoint Warehouse | | | 441 | | | | 1,762 | | | | 195 | | | | 441 | | | | 1,957 | | | | 2,398 | | | | (475 | ) | | | 1,923 | | | | - | | | | | 12/23/1998 |
| Enterchange at Northlake A | | | 4,051 | | | | 7,804 | | | | (95 | ) | | | 1,624 | | | | 10,136 | | | | 11,760 | | | | (422 | ) | | | 11,338 | | | | - | | | | | 04/20/2007 |
| Enterchange at Walthall D | | | 3,190 | | | | 7,618 | | | | 6,025 | | | | 2,493 | | | | 14,340 | | | | 16,833 | | | | (572 | ) | | | 16,261 | | | | - | | | | | 04/20/2007 |
| Freeport Business Center | | | 3,196 | | | | 10,032 | | | | 868 | | | | 3,203 | | | | 10,893 | | | | 14,096 | | | | (918 | ) | | | 13,178 | | | | - | | | | | 07/22/2005 |
| Freeport Commerce Center | | | 598 | | | | 2,918 | | | | 639 | | | | 1,536 | | | | 2,619 | | | | 4,155 | | | | (193 | ) | | | 3,962 | | | | - | | | | | 11/29/2006 |
| Hopewell Industrial Center | | | 926 | | | | 8,074 | | | | 129 | | | | 2,740 | | | | 6,389 | | | | 9,129 | | | | (343 | ) | | | 8,786 | | | | (4,074 | ) | | | | 11/03/2006 |
| Houston Cold Storage Warehouse | | | 1,087 | | | | 4,347 | | | | 1,923 | | | | 1,072 | | | | 6,285 | | | | 7,357 | | | | (1,757 | ) | | | 5,600 | | | | - | | | | | 06/12/1998 |
| Interwest Business Park | | | 1,449 | | | | 5,795 | | | | 1,438 | | | | 1,461 | | | | 7,221 | | | | 8,682 | | | | (1,748 | ) | | | 6,934 | | | | - | | | | | 12/22/2000 |
| ISOM Business Center | | | 2,661 | | | | 6,699 | | | | 438 | | | | 2,662 | | | | 7,136 | | | | 9,798 | | | | (639 | ) | | | 9,159 | | | | - | | | | | 10/24/2005 |
| Jester Plaza | | | 360 | | | | 6 | | | | 2,694 | | | | 361 | | | | 2,699 | | | | 3,060 | | | | (1,361 | ) | | | 1,699 | | | | - | | | | | 06/24/1996 |
| Jupiter Business Center | | | 588 | | | | 2,353 | | | | 932 | | | | 588 | | | | 3,285 | | | | 3,873 | | | | (1,085 | ) | | | 2,788 | | | | - | | | | | 07/27/1999 |
| Kempwood Industrial Park | | | 734 | | | | 3,044 | | | | 55 | | | | 129 | | | | 3,704 | | | | 3,833 | | | | (1,149 | ) | | | 2,684 | | | | - | | | | | 08/27/1996 |
| Kennesaw 75 | | | 3,012 | | | | 7,659 | | | | 65 | | | | 3,007 | | | | 7,729 | | | | 10,736 | | | | (759 | ) | | | 9,977 | | | | - | | | | | 02/23/2005 |
| Lakeland Industrial Center | | | 3,265 | | | | 13,059 | | | | 1,827 | | | | 3,266 | | | | 14,885 | | | | 18,151 | | | | (3,432 | ) | | | 14,719 | | | | - | | | | | 12/06/2001 |
| Lakeland Interstate Bus. Park | | | 1,526 | | | | 9,077 | | | | (271 | ) | | | 547 | | | | 9,785 | | | | 10,332 | | | | (516 | ) | | | 9,816 | | | | (5,290 | ) | | | | 01/11/2007 |
| Manana / 35 Business Center | | | 1,323 | | | | 5,293 | | | | 1,499 | | | | 1,315 | | | | 6,800 | | | | 8,115 | | | | (2,348 | ) | | | 5,767 | | | | - | | | | | 07/27/1999 |
| McGraw Hill Distribution Ctr | | | 3,155 | | | | 18,906 | | | | 2 | | | | 3,157 | | | | 18,906 | | | | 22,063 | | | | (1,379 | ) | | | 20,684 | | | | - | | | | | 02/14/2006 |
| Midpoint I-20 Distrib. Center | | | 1,254 | | | | 7,070 | | | | 2,895 | | | | 2,820 | | | | 8,399 | | | | 11,219 | | | | (460 | ) | | | 10,759 | | | | - | | | | | 10/13/2006 |
| Midway Business Center | | | 1,078 | | | | 4,313 | | | | 2,044 | | | | 1,078 | | | | 6,357 | | | | 7,435 | | | | (2,365 | ) | | | 5,070 | | | | - | | | | | 07/27/1999 |
| Newkirk Business Center | | | 686 | | | | 2,745 | | | | 828 | | | | 686 | | | | 3,573 | | | | 4,259 | | | | (1,242 | ) | | | 3,017 | | | | - | | | | | 07/27/1999 |
| Northeast Crossing | | | 392 | | | | 1,568 | | | | 1,022 | | | | 350 | | | | 2,632 | | | | 2,982 | | | | (981 | ) | | | 2,001 | | | | - | | | | | 07/27/1999 |
| Northwest Crossing | | | 1,274 | | | | 2,892 | | | | 1,483 | | | | 824 | | | | 4,825 | | | | 5,649 | | | | (1,784 | ) | | | 3,865 | | | | - | | | | | 07/27/1999 |
| Oak Hill Business Park | | | 1,294 | | | | 5,279 | | | | 1,091 | | | | 1,299 | | | | 6,365 | | | | 7,664 | | | | (1,691 | ) | | | 5,973 | | | | - | | | | | 10/18/2001 |
| O'Connor Road Business Park | | | 1,028 | | | | 4,110 | | | | 903 | | | | 1,029 | | | | 5,012 | | | | 6,041 | | | | (1,185 | ) | | | 4,856 | | | | - | | | | | 12/22/2000 |
| Railwood | | | 7,072 | | | | 7,965 | | | | (1,566 | ) | | | 2,870 | | | | 10,601 | | | | 13,471 | | | | (3,981 | ) | | | 9,490 | | | | - | | | | | 12/31/1975 |
| Randol Mill Place | | | 371 | | | | 1,513 | | | | 674 | | | | 372 | | | | 2,186 | | | | 2,558 | | | | (884 | ) | | | 1,674 | | | | - | | | | | 12/31/1998 |
| Red Bird | | | 406 | | | | 1,622 | | | | 221 | | | | 406 | | | | 1,843 | | | | 2,249 | | | | (586 | ) | | | 1,663 | | | | - | | | | | 09/29/1998 |
| Regal Distribution Center | | | 801 | | | | 3,208 | | | | 820 | | | | 806 | | | | 4,023 | | | | 4,829 | | | | (1,444 | ) | | | 3,385 | | | | - | | | | | 04/17/1998 |
| Riverview Distribution Center | | | 1,518 | | | | 9,613 | | | | 257 | | | | 1,521 | | | | 9,867 | | | | 11,388 | | | | (353 | ) | | | 11,035 | | | | - | | | | | 08/10/2007 |
| Rutland 10 Business Center | | | 738 | | | | 2,951 | | | | 490 | | | | 739 | | | | 3,440 | | | | 4,179 | | | | (895 | ) | | | 3,284 | | | | - | | | | | 09/28/2000 |
| Sherman Plaza Business Park | | | 705 | | | | 2,829 | | | | 2,001 | | | | 710 | | | | 4,825 | | | | 5,535 | | | | (1,994 | ) | | | 3,541 | | | | - | | | | | 04/01/1999 |
| South Loop Business Park | | | 168 | | | | 575 | | | | 100 | | | | 168 | | | | 675 | | | | 843 | | | | (644 | ) | | | 199 | | | | - | | | | | 12/04/1975 |
| Southpark 3075 | | | 1,251 | | | | 8,385 | | | | (47 | ) | | | 1,213 | | | | 8,376 | | | | 9,589 | | | | (272 | ) | | | 9,317 | | | | - | | | | | 10/03/2007 |
| Southpark A, B, C | | | 1,079 | | | | 4,375 | | | | 637 | | | | 1,080 | | | | 5,011 | | | | 6,091 | | | | (1,274 | ) | | | 4,817 | | | | - | | | | | 09/28/2000 |
| Southpoint | | | 4,167 | | | | 10,967 | | | | 399 | | | | 4,168 | | | | 11,365 | | | | 15,533 | | | | (842 | ) | | | 14,691 | | | | - | | | | | 12/29/2005 |
| Southpoint Business Center | | | 597 | | | | 2,392 | | | | 873 | | | | 600 | | | | 3,262 | | | | 3,862 | | | | (997 | ) | | | 2,865 | | | | - | | | | | 05/20/1999 |
Schedule III
(Continued)
| | | Initial Cost to Company | | | Gross Amounts at Close of Period | | | | | | | | | | | | | | |
| Description | | Land | | | Building and Improvements | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total (D) | | | Accumulated Depreciation | | | Total Costs, Net of Accumulated Depreciation | | | Encumbrances (A) | | | | | Date of Acquisition / Construction |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Southport Business Park 5 | | $ | 562 | | | $ | 2,172 | | | $ | 1,280 | | | $ | 562 | | | $ | 3,452 | | | $ | 4,014 | | | $ | (1,008 | ) | | $ | 3,006 | | | $ | - | | | | | 12/23/1998 |
| Southwest Park II | | | 197 | | | | 791 | | | | 791 | | | | 200 | | | | 1,579 | | | | 1,779 | | | | (1,006 | ) | | | 773 | | | | - | | | | | 05/14/1993 |
| Space Center Industrial Park | | | 1,036 | | | | 4,143 | | | | 1,419 | | | | 1,025 | | | | 5,573 | | | | 6,598 | | | | (1,633 | ) | | | 4,965 | | | | - | | | | | 05/29/1998 |
| Stonecrest Business Center | | | 601 | | | | 2,439 | | | | 1,588 | | | | 601 | | | | 4,027 | | | | 4,628 | | | | (1,518 | ) | | | 3,110 | | | | - | | | | | 06/03/1997 |
| Tampa East Ind. Portfolio | | | 5,424 | | | | 18,155 | | | | 1,165 | | | | 5,409 | | | | 19,335 | | | | 24,744 | | | | (1,498 | ) | | | 23,246 | | | | - | | | | | 11/21/2005 |
| Town and Country Commerce Ctr | | | 4,188 | | | | 9,628 | | | | (577 | ) | | | 4,311 | | | | 8,928 | | | | 13,239 | | | | (262 | ) | | | 12,977 | | | | - | | | | | 06/29/2007 |
| West Loop Commerce Center | | | 2,203 | | | | 1,672 | | | | (847 | ) | | | 536 | | | | 2,492 | | | | 3,028 | | | | (2,382 | ) | | | 646 | | | | - | | | | | 12/14/1981 |
| West-10 Business Center | | | - | | | | 3,125 | | | | 1,717 | | | | - | | | | 4,842 | | | | 4,842 | | | | (3,583 | ) | | | 1,259 | | | | - | | | | | 08/28/1992 |
| West-10 Business Center II | | | 414 | | | | 1,662 | | | | 742 | | | | 389 | | | | 2,429 | | | | 2,818 | | | | (1,210 | ) | | | 1,608 | | | | - | | | | | 08/20/1997 |
| Westgate Business Center | | | 1,472 | | | | 3,471 | | | | 2,003 | | | | 1,470 | | | | 5,476 | | | | 6,946 | | | | (1,050 | ) | | | 5,896 | | | | - | | | | | 12/12/2003 |
| Westlake 125 | | | 1,174 | | | | 6,630 | | | | 70 | | | | 1,066 | | | | 6,808 | | | | 7,874 | | | | (221 | ) | | | 7,653 | | | | - | | | | | 10/03/2007 |
| Wirt Road & I10 | | | 1,003 | | | | - | | | | 45 | | | | 1,048 | | | | - | | | | 1,048 | | | | - | | | | 1,048 | | | | - | | | | | 05/24/2007 |
| | | | 94,158 | | | | 296,116 | | | | 56,528 | | | | 79,886 | | | | 366,916 | | | | 446,802 | | | | (78,939 | ) | | | 367,863 | | | | (10,214 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1919 North Loop West | | | 1,334 | | | | 8,451 | | | | 9,734 | | | | 1,337 | | | | 18,182 | | | | 19,519 | | | | (798 | ) | | | 18,721 | | | | - | | | | | 12/05/2006 |
| Citadel Building | | | 3,236 | | | | 6,168 | | | | 7,152 | | | | 534 | | | | 16,022 | | | | 16,556 | | | | (10,906 | ) | | | 5,650 | | | | - | | | | | 12/30/1975 |
| Phoenix Office Building | | | 1,696 | | | | 3,255 | | | | 924 | | | | 1,773 | | | | 4,102 | | | | 5,875 | | | | (207 | ) | | | 5,668 | | | | - | | | | | 01/31/2007 |
| | | | 6,266 | | | | 17,874 | | | | 17,810 | | | | 3,644 | | | | 38,306 | | | | 41,950 | | | | (11,911 | ) | | | 30,039 | | | | - | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Land Held/Under Development: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ambassador Parcel D | | | 98 | | | | - | | | | - | | | | 98 | | | | - | | | | 98 | | | | - | | | | 98 | | | | - | | | | | 10/26/2007 |
| Citadel Drive at Loop 610 | | | 3,747 | | | | - | | | | (239 | ) | | | 3,508 | | | | - | | | | 3,508 | | | | - | | | | 3,508 | | | | - | | | | | 12/30/1975 |
| ClayPoint Distribution Park | | | 2,413 | | | | 3,117 | | | | 17,264 | | | | 2,897 | | | | 19,897 | | | | 22,794 | | | | (1,999 | ) | | | 20,795 | | | | - | | | | | 06/23/1999 |
| Colonial Landing | | | 1,813 | | | | 14,577 | | | | 11,193 | | | | - | | | | 27,583 | | | | 27,583 | | | | (1,829 | ) | | | 25,754 | | | | - | | | | | 04/26/2006 |
| Crabtree Towne Center | | | 18,810 | | | | 54 | | | | (8,919 | ) | | | 9,043 | | | | 902 | | | | 9,945 | | | | - | | | | 9,945 | | | | - | | | | | 01/31/2007 |
| Cullen Blvd. at East Orem | | | 172 | | | | - | | | | 3 | | | | 175 | | | | - | | | | 175 | | | | - | | | | 175 | | | | - | | | | | 02/24/1975 |
| Curry Ford Road | | | 1,878 | | | | 7 | | | | (39 | ) | | | 1,817 | | | | 29 | | | | 1,846 | | | | - | | | | 1,846 | | | | - | | | | | 10/05/2007 |
| Decatur 215 | | | 32,525 | | | | 8,200 | | | | (17,559 | ) | | | 15,846 | | | | 7,320 | | | | 23,166 | | | | - | | | | 23,166 | | | | - | | | | | 12/26/2007 |
| Epic Village St. Augustine | | | 2,263 | | | | 1,171 | | | | 1,824 | | | | 2,306 | | | | 2,952 | | | | 5,258 | | | | - | | | | 5,258 | | | | - | | | | | 04/09/2008 |
| Festival Plaza | | | 751 | | | | 6 | | | | 123 | | | | 794 | | | | 86 | | | | 880 | | | | - | | | | 880 | | | | - | | | | | 12/08/2006 |
| Gateway Station | | | 1,622 | | | | 3 | | | | 8,008 | | | | 1,821 | | | | 7,812 | | | | 9,633 | | | | (67 | ) | | | 9,566 | | | | - | | | | | 07/21/2006 |
| Gladden Farms | | | 1,619 | | | | 4 | | | | 1,744 | | | | 1,713 | | | | 1,654 | | | | 3,367 | | | | - | | | | 3,367 | | | | - | | | | | 08/21/2007 |
| Harrison Pointe Pad | | | 1,057 | | | | - | | | | - | | | | 1,057 | | | | - | | | | 1,057 | | | | - | | | | 1,057 | | | | - | | | | | 05/01/2008 |
| Horne Street Market | | | 4,239 | | | | 37 | | | | 4,683 | | | | 4,742 | | | | 4,217 | | | | 8,959 | | | | - | | | | 8,959 | | | | - | | | | | 06/22/2007 |
| Lockwood Drive | | | 313 | | | | - | | | | (319 | ) | | | (6 | ) | | | - | | | | (6 | ) | | | - | | | | (6 | ) | | | - | | | | | 11/14/1949 |
| Mainland Mall-Tracts 1 & 2 | | | 321 | | | | - | | | | 69 | | | | 390 | | | | - | | | | 390 | | | | - | | | | 390 | | | | - | | | | | 11/29/1967 |
| Mohave Crossroads | | | 5,033 | | | | 63 | | | | 37,295 | | | | 5,574 | | | | 36,817 | | | | 42,391 | | | | (290 | ) | | | 42,101 | | | | - | | | | | 06/12/2007 |
| North Towne Plaza JV | | | 6,646 | | | | 99 | | | | 8,116 | | | | 11,515 | | | | 3,346 | | | | 14,861 | | | | - | | | | 14,861 | | | | - | | | | | 12/27/2006 |
| NW Freeway at Gessner | | | 5,052 | | | | - | | | | (3,577 | ) | | | 1,475 | | | | - | | | | 1,475 | | | | - | | | | 1,475 | | | | - | | | | | 11/16/1972 |
| Palm Coast Landing Outparcels | | | 1,302 | | | | 149 | | | | (286 | ) | | | 762 | | | | 403 | | | | 1,165 | | | | - | | | | 1,165 | | | | - | | | | | 04/30/2008 |
| Phillips Crossing | | | - | | | | 1 | | | | 24,827 | | | | 665 | | | | 24,163 | | | | 24,828 | | | | (300 | ) | | | 24,528 | | | | - | | | | | 10/06/2006 |
| Phillips Landing | | | 1,521 | | | | 1,625 | | | | 9,929 | | | | 1,953 | | | | 11,122 | | | | 13,075 | | | | (451 | ) | | | 12,624 | | | | - | | | | | 12/14/2005 |
| Raintree Ranch Center | | | 11,442 | | | | 595 | | | | 16,036 | | | | 10,983 | | | | 17,090 | | | | 28,073 | | | | (1,127 | ) | | | 26,946 | | | | - | | | | | 06/15/2006 |
Schedule III
(Continued)
| | | Initial Cost to Company | | | Gross Amounts at Close of Period | | | | | | | | | | | | | | |
| Description | | Land | | | Building and Improvements | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total (D) | | | Accumulated Depreciation | | | Total Costs, Net of Accumulated Depreciation | | | Encumbrances (A) | | | | | Date of Acquisition / Construction |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ridgeway Trace | | $ | 26,629 | | | $ | 544 | | | $ | 6,157 | | | $ | 19,865 | | | $ | 13,465 | | | $ | 33,330 | | | $ | - | | | $ | 33,330 | | | $ | - | | | | | 11/09/2006 |
| River Pointe Venture | | | 2,874 | | | | - | | | | (2,063 | ) | | | 811 | | | | - | | | | 811 | | | | - | | | | 811 | | | | - | | | | | 08/04/2004 |
| Rock Prarie Marketplace | | | 2,364 | | | | - | | | | 10,254 | | | | 11,278 | | | | 1,340 | | | | 12,618 | | | | - | | | | 12,618 | | | | - | | | | | 05/15/2006 |
| Shreveport | | | 356 | | | | - | | | | 130 | | | | 486 | | | | - | | | | 486 | | | | - | | | | 486 | | | | - | | | | | 05/22/1973 |
| South Fulton Crossing | | | 14,373 | | | | 154 | | | | (7,429 | ) | | | 4,970 | | | | 2,128 | | | | 7,098 | | | | - | | | | 7,098 | | | | - | | | | | 01/10/2007 |
| Southern Pines Place | | | 8,046 | | | | 73 | | | | (1,895 | ) | | | 5,998 | | | | 226 | | | | 6,224 | | | | - | | | | 6,224 | | | | - | | | | | 02/09/2007 |
| Stanford Court | | | 693 | | | | - | | | | 21 | | | | 714 | | | | - | | | | 714 | | | | - | | | | 714 | | | | - | | | | | 04/20/1981 |
| Stevens Ranch | | | 36,939 | | | | 46 | | | | 525 | | | | 37,351 | | | | 159 | | | | 37,510 | | | | - | | | | 37,510 | | | | - | | | | | 05/16/2007 |
| Surf City Crossing | | | 3,220 | | | | 52 | | | | 1,053 | | | | 3,937 | | | | 388 | | | | 4,325 | | | | - | | | | 4,325 | | | | - | | | | | 12/06/2006 |
| The Shoppes @ Wilderness Oaks | | | 11,081 | | | | 50 | | | | 730 | | | | 11,518 | | | | 343 | | | | 11,861 | | | | - | | | | 11,861 | | | | - | | | | | 06/19/2008 |
| The Shoppes at Caveness Farms | | | 7,235 | | | | 135 | | | | 1,117 | | | | 3,702 | | | | 4,785 | | | | 8,487 | | | | - | | | | 8,487 | | | | - | | | | | 01/17/2006 |
| The Shoppes at Parkwood Ranch | | | 5,605 | | | | 52 | | | | 6,444 | | | | 4,123 | | | | 7,978 | | | | 12,101 | | | | (12 | ) | | | 12,089 | | | | - | | | | | 01/02/2007 |
| Thompson Bridge Commons | | | 604 | | | | - | | | | (79 | ) | | | 525 | | | | - | | | | 525 | | | | - | | | | 525 | | | | - | | | | | 07/28/2005 |
| Tomball Marketplace | | | 9,616 | | | | 262 | | | | 20,576 | | | | 15,190 | | | | 15,264 | | | | 30,454 | | | | - | | | | 30,454 | | | | - | | | | | 04/12/2006 |
| University Place | | | 500 | | | | 85 | | | | 524 | | | | 500 | | | | 609 | | | | 1,109 | | | | (14 | ) | | | 1,095 | | | | - | | | | | 02/08/2008 |
| Village Shopping Center | | | 64 | | | | 714 | | | | (689 | ) | | | 89 | | | | - | | | | 89 | | | | - | | | | 89 | | | | - | | | | | 12/31/2002 |
| Waterford Village | | | 5,830 | | | | - | | | | 6,537 | | | | 4,178 | | | | 8,189 | | | | 12,367 | | | | (111 | ) | | | 12,256 | | | | - | | | | | 06/11/2004 |
| West 11th @ Loop 610 | | | 1,667 | | | | - | | | | - | | | | 1,667 | | | | - | | | | 1,667 | | | | - | | | | 1,667 | | | | - | | | | | 12/14/1981 |
| Westover Square | | | 4,435 | | | | 20 | | | | (423 | ) | | | 3,418 | | | | 614 | | | | 4,032 | | | | - | | | | 4,032 | | | | - | | | | | 08/01/2006 |
| Westwood Center | | | 10,497 | | | | 36 | | | | 5,346 | | | | 7,442 | | | | 8,437 | | | | 15,879 | | | | (3 | ) | | | 15,876 | | | | - | | | | | 01/26/2007 |
| Wilcrest/Bissonnet-Alief Tr1-4 | | | 7,228 | | | | - | | | | (6,309 | ) | | | 919 | | | | - | | | | 919 | | | | - | | | | 919 | | | | - | | | | | 11/10/1980 |
| York Plaza | | | 162 | | | | - | | | | (45 | ) | | | 117 | | | | - | | | | 117 | | | | - | | | | 117 | | | | - | | | | | 08/28/1972 |
| | | | 264,655 | | | | 31,931 | | | | 150,658 | | | | 217,926 | | | | 229,318 | | | | 447,244 | | | | (6,203 | ) | | | 441,041 | | | | - | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance of Portfolio (not to exceed 5% of total) | | | 48,855 | | | | 163,963 | | | | (133,848 | ) | | | 14,676 | | | | 64,295 | | | | 78,971 | | | | (11,766 | ) | | | 67,205 | | | | - | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total of Portfolio | | $ | 1,248,230 | | | $ | 3,073,581 | | | $ | 593,660 | | | $ | 1,184,648 | | | $ | 3,730,824 | | | $ | 4,915,472 | | | $ | (812,323 | ) | | $ | 4,103,149 | | | $ | (713,377 | ) | | | | |
Depreciation is computed using the straight-line method, generally over estimated useful lives of 18-40 years for buildings and 10-20 years for parking lot surfacing and equipment. Tenant and leasehold improvements are depreciated over the remaining life of the lease or the useful life whichever is shorter.
| Note A - | Encumbrances do not include $40.4 million outstanding under fixed-rate mortgage debt associated with five properties each held in a tenancy-in-common arrangement. |
| Note B - | Property is collateral for a $154.3 million fixed-rate mortgage. |
| Note C - | Property is collateral for $100.0 million fixed-rate mortgage. |
| Note D - | The book value of our net fixed asset exceeds the tax basis by approximately $220 million at December 31, 2008. |
The changes in total cost of the properties for the year ended December 31, 2008, 2007 and 2006 were as follows:
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Balance at beginning of year | | $ | 4,972,344 | | | $ | 4,445,888 | | | $ | 4,033,579 | |
| Additions at cost | | | 299,090 | | | | 888,345 | | | | 1,022,103 | |
| Retirements or sales | | | (355,962 | ) | | | (361,889 | ) | | | (609,794 | ) |
| | | | | | | | | | | | | |
| Balance at end of year | | $ | 4,915,472 | | | $ | 4,972,344 | | | $ | 4,445,888 | |
The changes in accumulated depreciation for the year ended December 31, 2008, 2007 and 2006 were as follows:
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Balance at beginning of year | | $ | 774,321 | | | $ | 707,005 | | | $ | 679,642 | |
| Additions at cost | | | 118,160 | | | | 114,956 | | | | 110,406 | |
| Retirements or sales | | | (80,158 | ) | | | (47,640 | ) | | | (83,043 | ) |
| | | | | | | | | | | | | |
| Balance at end of year | | $ | 812,323 | | | $ | 774,321 | | | $ | 707,005 | |
Schedule IV
WEINGARTEN REALTY INVESTORS
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2008
(Amounts in thousands)
| | | | | | | Final | | Periodic | | Face | | | Carrying | |
| | | | Interest | | | Maturity | | Payment | | Amount of | | | Amount of | |
| | State | | Rate | | | Date | | Terms | | Mortgages | | | Mortgages(A) | |
| | | | | | | | | | | | | | | |
| SHOPPING CENTERS: | | | | | | | | | | | | | | |
| FIRST MORTGAGES: | | | | | | | | | | | | | | |
| Eastex Venture | TX | | | 8.00 | % | | | 10-31-09 | | $317 Annual P & I | | $ | 564 | | | $ | 564 | |
| | | | | | | | | | | | | | | | | | | |
| 363-410 Burma, LLC | TN | | | 6.50 | % | | | 07-01-11 | | $212 Annual P & I | | | 2,515 | | | | 2,515 | |
| | | | | | | | | | | | | | | | | | | |
| KIPP Finance Corporation | TX | | | 7.00 | % | | | 01-31-11 | | $220 Annual P & I | | | 3,537 | | | | 3,537 | |
| | | | | | | | | | | | | | | | | | | |
| WRI-SRP Cole Park Plaza, LLC | NC | | | 5.66 | % | | | 02-01-12 | | At Maturity | | | 6,200 | | | | 6,200 | |
| | | | | | | | | | | | | | | | | | | |
| SHOPPING CENTERS: | | | | | | | | | | | | | | | | | | |
| CONSTRUCTION LOANS: | | | | | | | | | | | | | | | | | | |
| Palm Coast Center, LLC | FL | | | 3.65 | % | | | 04-13-10 | | At Maturity | | | 28,611 | | | | 28,611 | |
| | | | | | | | | | | | | | | | | | | |
| WRI Alliance Riley Venture | CA | | | 7.50 | % | | | 11-20-10 | | At Maturity | | | 25,987 | | | | 25,987 | |
| | | | | | | | | | | | | | | | | | | |
| WRI Alliance Riley Venture III | CA | | | 4.45 | % | | | 11-20-10 | | At Maturity | | | 26,847 | | | | 26,847 | |
| | | | | | | | | | | | | | | | | | | |
| Weingarten I-4 Clermont Landing, LLC | FL | | | 2.75 | % | | | 06-14-10 | | At Maturity | | | 22,559 | | | | 22,559 | |
| | | | | | | | | | | | | | | | | | | |
| Weingarten Miller Buckingham, LLC | CO | | | 2.75 | % | | | 07-09-11 | | At Maturity | | | 16,395 | | | | 16,395 | |
| | | | | | | | | | | | | | | | | | | |
| Weingarten Miller Equiwest Salt Lake, LLC | UT | | | 2.75 | % | | | 03-13-12 | | At Maturity | | | 13,070 | | | | 13,070 | |
| | | | | | | | | | | | | | | | | | | |
| Weingarten Miller MDH Buckingham, LLC | CO | | | 2.75 | % | | | 07-09-11 | | At Maturity | | | 28,274 | | | | 28,274 | |
| | | | | | | | | | | | | | | | | | | |
| Weingarten Sheridan, LLC | CO | | | 2.75 | % | | | 12-15-10 | | At Maturity | | | 62,184 | | | | 62,184 | |
| | | | | | | | | | | | | | | | | | | |
| TOTAL MORTGAGE LOANS ON REAL ESTATE | | | | | | | | | | | | $ | 236,743 | | | $ | 236,743 | |
| Note A - | The aggregate cost at December 31, 2008 for federal income tax purposes is $236,743. |
Changes in mortgage loans for the year ended December 31, 2008, 2007 and 2006 are summarized below.
| | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | |
| Balance, Beginning of Year | | $ | 79,898 | | | $ | 5,308 | | | $ | 2,791 | |
| Additions to Existing Loans | | | 201,803 | | | | 155,855 | | | | 3,347 | |
| Collections of Principal | | | (44,958 | ) | | | (81,265 | ) | | | (830 | ) |
| | | | | | | | | | | | | |
| Balance, End of Year | | $ | 236,743 | | | $ | 79,898 | | | $ | 5,308 | |
