EXHIBIT 99.1
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES OF BENEFICIAL INTEREST AND
RELATED SHAREHOLDER MATTERS
WRI's common shares are listed and traded on the New York Stock Exchange under
the symbol "WRI". The number of holders of record of our common shares as of
February 20, 2004 was 3,387. 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
------ ------- ---------
2003:
Fourth . . . . $ 30.58 $ 28.39 $ 0.39
Third. . . . . 30.70 27.97 0.39
Second . . . . 28.28 26.33 0.39
First. . . . . 26.93 23.80 0.39
2002:
Fourth . . . . $ 25.50 $ 22.97 $ 0.37
Third. . . . . 25.76 20.57 0.37
Second . . . . 24.60 22.37 0.37
First. . . . . 22.95 21.42 0.37
1
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data with respect
to WRI, which has been updated to reflect the application of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," for the
disposition of two retail shopping centers in June 2004 and the three-for-two
share split declared in March 2004. These reclassifications have no effect on
the reported net income available to common shareholders in any prior period.
The following information 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,
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------
Revenues (primarily real estate rentals) . $ 416,041 $ 359,975 $ 303,801 $ 239,945 $ 216,064
------------ ------------ ------------ ------------ ------------
Expenses:
Depreciation and amortization. . . . . . 93,382 77,113 65,630 52,047 46,674
Interest . . . . . . . . . . . . . . . . 88,871 65,863 54,473 43,190 32,982
Other. . . . . . . . . . . . . . . . . . 128,296 109,566 93,502 73,970 66,995
------------ ------------ ------------ ------------ ------------
Total. . . . . . . . . . . . . . . . 310,549 252,542 213,605 169,207 146,651
------------ ------------ ------------ ------------ ------------
Income from operations . . . . . . . . . . 105,492 107,433 90,196 70,738 69,413
Equity in earnings of joint ventures . . . 4,743 4,043 5,547 4,143 3,654
Income allocated to minority interests . . (2,723) (3,553) (475) (630) (789)
Gain on sale of properties . . . . . . . . 714 188 8,339 382 20,594
Discontinued operations (1). . . . . . . . 8,054 23,756 4,935 4,368 3,258
------------ ------------ ------------ ------------ ------------
Net income . . . . . . . . . . . . . . . . $ 116,280 $ 131,867 $ 108,542 $ 79,001 $ 96,130
============ ============ ============ ============ ============
Net income available to common
shareholders . . . . . . . . . . . . . . $ 97,880 $ 112,111 $ 88,839 $ 58,961 $ 76,537
============ ============ ============ ============ ============
Cash flows from operations . . . . . . . . $ 163,545 $ 168,488 $ 146,659 $ 119,043 $ 113,351
============ ============ ============ ============ ============
Per share data - basic: (2)
Income before discontinued operations. $ 1.14 $ 1.13 $ 1.16 $ .91 $ 1.22
Net income . . . . . . . . . . . . . . $ 1.24 $ 1.44 $ 1.23 $ .98 $ 1.27
Weighted average number of shares. . . 78,800 77,866 72,155 60,245 60,051
Per share data - diluted: (2)
Income before discontinued operations. $ 1.14 $ 1.13 $ 1.16 $ .91 $ 1.22
Net income . . . . . . . . . . . . . . $ 1.24 $ 1.43 $ 1.23 $ .98 $ 1.27
Weighted average number of shares. . . 81,574 80,041 72,553 60,595 60,503
Cash dividends per common share (2). . . . $ 1.56 $ 1.48 $ 1.41 $ 1.33 $ 1.26
Property (at cost) . . . . . . . . . . . . $ 3,200,091 $ 2,695,286 $ 2,352,393 $ 1,728,414 $ 1,486,224
Total assets . . . . . . . . . . . . . . . $ 2,923,794 $ 2,423,889 $ 2,095,747 $ 1,498,477 $ 1,312,746
Debt . . . . . . . . . . . . . . . . . . . $ 1,810,706 $ 1,330,369 $ 1,070,835 $ 792,353 $ 592,978
Other data:
Funds from operations: (3)
Net income available to common
shareholders . . . . . . . . . . . $ 97,880 $ 112,111 $ 88,839 $ 58,961 $ 76,537
Depreciation and amortization. . . . 88,853 76,855 67,803 55,344 49,256
Gain on sale of properties . . . . . (7,273) (18,614) (9,795) (382) (20,596)
------------ ------------ ------------ ------------ ------------
Total. . . . . . . . . . $ 179,460 $ 170,352 $ 146,847 $ 113,923 $ 105,197
============ ============ ============ ============ ============
<FN>
(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.
(2) All per share and weighted average share information has been restated
to reflect the three-for-two share split in March 2004.
2
(3) The National Association of Real Estate Investment Trusts defines
funds from operations as net income (loss) computed in accordance with
generally accepted accounting principles, excluding gains or losses
from sales of property, plus real estate related depreciation and
amortization, and after adjustments for unconsolidated partnerships
and joint ventures. In addition, NAREIT recommends that extraordinary
items not be considered in arriving at FFO. We calculate FFO in a
manner consistent with the NAREIT definition. We believe FFO is an
appropriate supplemental measure of operating performance because it
helps investors compare the operating performance of our company
relative to other REITs. There can be no assurance that FFO presented
by WRI is comparable to similarly titled measures of other REITs. FFO
should not be considered as an alternative to net income or other
measurements under GAAP as an indicator of our operating performance
or to cash flows from operating, investing or financing activities as
a measure of liquidity. FFO does not reflect working capital changes,
cash expenditures for capital improvements or principal payments on
indebtedness.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and the comparative summary of selected
financial data appearing elsewhere in this report. Historical results and
trends which might appear should not be taken as indicative of future
operations. The results of operations and financial condition of the company,
as reflected in the accompanying statements and related footnotes, are subject
to management's evaluation and interpretation of business conditions, retailer
performance, changing capital market conditions and other factors which could
affect the ongoing viability of the company's tenants.
EXECUTIVE OVERVIEW
WRI focuses on increasing Funds from Operations and dividend payments to the
company's common shareholders through hands-on leasing and management of the
existing portfolio of properties and through disciplined growth from selective
acquisitions and new developments. The company is also committed to maintaining
a conservative balance sheet, a well-staggered debt maturity schedule and strong
credit agency ratings.
At December 31, 2003, WRI owned or operated under long-term leases, either
directly or through its interest in joint ventures or partnerships, a total of
327 developed income-producing properties located in 19 states that span the
southern half of the United States from coast to coast. Included in the
portfolio are 266 shopping centers and 61 industrial properties. WRI has
approximately 6,600 leases and 4,800 different tenants. Leases for our
properties range from less than a year for smaller spaces to over 25 years for
larger tenants. Leases generally include minimum lease payments (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. The stability of
our anchor tenants, combined with convenient locations, attractive and
well-maintained properties, high quality retailers and a strong tenant mix,
should ensure the long-term success of our merchants and the viability of our
portfolio.
In assessing the performance of the company's properties, management carefully
tracks the occupancy of the company's portfolio. Occupancy for the total
portfolio was 93.3% as of year-end 2003 compared to 91.7% as of year-end 2002.
Another important indicator of performance is the spread in rental rates on a
same-space basis as we complete new leases and renew existing leases. In 2003,
WRI completed 1,215 new leases or renewals for the year totaling 6.7 million
square feet, increasing rental rates an average of 9.2% on a same-space basis.
Net of capital costs, the average increase in rental rates was 5.1%.
With respect to external growth through acquisitions and new developments,
management closely monitors movements in returns in relation to its blended
weighted average cost of capital, the amount of product in its acquisition and
new development pipelines and the geographic areas in which opportunities are
present. The company purchased 16 shopping centers and five industrial
properties during 2003, comprising 4.5 million square feet, and representing a
total investment of $413.8 million. These purchases included six properties in
Florida, four each in Georgia and Texas, two in California, one each in
Colorado, Illinois and North Carolina, and two in the state of Utah. Utah
represents the 19th state in which WRI operates, and was a logical expansion
given WRI's geographic footprint in the southern part of the United States from
coast to coast.
3
With respect to new development, WRI completed 12 projects during 2003 totaling
1.1 million square feet, representing an investment of $151.1 million. As with
acquisitions, management closely monitors returns on new opportunities as well
as performance against underwritten returns on projects under development.
Projects completed in 2003 are 97.5% leased. WRI also has 13 shopping centers
in various stages of development in Arizona, Colorado, Louisiana, Nevada, Texas
and Utah, and the company anticipates that the majority of them will come
on-line during 2004.
Continuing its strategy of selling assets that no longer meet its ownership
criteria, the company disposed of eight properties during the year. These
property sales represented a total of 404,000 square feet and provided proceeds
of $17.9 million, generating a gain of $6.5 million, which includes $.5 million
from an unconsolidated joint venture.
Management is also committed to maintaining a strong, conservative capital
structure, which provides constant access to a variety of capital sources. The
strength of WRI's balance sheet is evidenced by unsecured debt ratings of "A" by
Standard and Poor's and "A3" by Moody's rating services, the highest combined
ratings of any public REIT. The company carefully balances obtaining low cost
financing with minimizing exposure to interest rate movements, matching
long-term liabilities with the long-term assets acquired or developed and
maintaining adequate debt to market capitalization, fixed charge coverage and
other ratios as necessary to retain our current credit ratings. In executing
this strategy, the company redeemed its Series A and B Cumulative Redeemable
Preferred Shares during the year through issuance of $75 million of depositary
shares, each representing one-thirtieth of a 6.75% Series D Cumulative
Redeemable Preferred Share, and 3.3 million common shares of beneficial
interest, respectively. The company also issued $211 million of unsecured
fixed-rate medium term notes during the year with a weighted average rate of
5.2% and a weighted average term of 10.7 years.
With respect to future trends, management expects continued improvement in the
performance of the existing portfolio through increased occupancy and rental
rate increases as the economy trends upward. With respect to external growth,
we have already closed seven acquisitions totaling $231.9 million in 2004 and
have nearly $140 million of properties in the pipeline. Each of these potential
acquisitions is still subject to a stringent due diligence process and,
therefore, there is no assurance that any or all will be purchased. Management
anticipates an increase in interest rates over the course of 2004. In managing
this risk and maintaining adequate capacity to fund external growth, the company
has issued $150 million of ten-year unsecured fixed-rate medium term notes with
a weighted average interest rate, net of the effect of related swaps, of 5.1%
thus far in 2004.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities
and contingencies as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. We evaluate our
assumptions and estimates on an on-going basis. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements.
Valuation of Receivables
An allowance for the uncollectible portion of accrued rents and accounts
receivable is determined based upon an analysis of balances outstanding,
historical bad debt levels, tenant credit worthiness and current economic
trends. Balances outstanding include base rents, tenant reimbursements and
receivables attributable to the straight-lining of rental commitments.
Additionally, estimates of the expected recovery of pre-petition and
post-petition claims with respect to tenants in bankruptcy is considered in
assessing the collectibility of the related receivables.
4
Property
Real estate assets are stated at cost less accumulated depreciation, which, in
the opinion of management, is not in excess of the individual property's
estimated undiscounted future cash flows, including estimated proceeds from
disposition. Depreciation is computed using the straight-line method, generally
over estimated useful lives of 18-50 years for buildings and 10-20 years for
parking lot surfacing and equipment. Major replacements where the 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.
Upon acquisitions of real estate, the company assesses the fair value of
acquired assets (including land, buildings on an "as if vacant" basis, acquired
out-of-market and in-place leases, and tenant relationships) and acquired
liabilities, and allocates the purchase price based on these assessments. The
company assesses fair value based on estimated cash flow projections that
utilize appropriate discount and capitalization rates and available market
information. Estimates of future cash flows are based on a number of factors
including the historical operating results, known trends, and specific
market/economic conditions that may affect the property.
Property also includes costs incurred in the development of new operating
properties. These costs include preacquisition costs directly identifiable with
the specific project, development and construction costs, interest and real
estate taxes. Indirect development costs, including salaries and benefits,
travel and other related costs that are clearly attributable to the development
of the property, are also capitalized. The capitalization of such costs ceases
at the earlier of one year from the completion of major construction or when the
property, or any completed portion, becomes available for occupancy.
WRI's properties are reviewed for impairment if events or changes in
circumstances indicate that the carrying amount of the property may not be
recoverable. In such an event, a comparison is made of the current and
projected operating cash flows of each such property into the foreseeable future
on an undiscounted basis to the carrying amount of such property. Such carrying
amount would be adjusted, if necessary, to estimated fair value to reflect an
impairment in the value of the asset.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2003 TO THE YEAR ENDED DECEMBER 31,
2002
Revenues
Total revenues increased by $56.0 million or 15.6% in 2003 ($416.0 million in
2003 versus $360.0 million in 2002). This increase resulted primarily from the
increase in rental revenues of $53.6 million and other income of $2.0 million.
Property acquisitions and new development activity contributed $45.7 million of
the rental income increase with the remainder of $7.9 million due to the
activity at our existing properties, as described below.
Occupancy (leased space) of the total portfolio increased as compared to the
prior year as follows:
DECEMBER 31,
-----------------
2003 2002
------ ------
Shopping Centers. . . . . . . . . . 93.5% 92.5%
Industrial. . . . . . . . . . . . . 92.4% 88.7%
Total . . . . . . . . . . . . . . . 93.3% 91.7%
In 2003, we completed 1,215 renewals and new leases comprising 6.7 million
square feet at an average rental rate increase of 9.2%. Net of the amortized
portion of capital costs for tenant improvements, the increase averaged 5.1%.
Other income increased by $2.0 million or 39.2% in 2003 ($7.1 million in 2003
versus $5.1 million in 2002). This increase is due primarily to an increase in
lease cancellation payments from various tenants.
5
Expenses
Total expenses increased by $58.0 million or 23.0% in 2003 ($310.5 million in
2003 versus $252.5 million in 2002).
The increases in 2003 for depreciation and amortization expense ($16.3 million),
operating expenses ($9.8 million) and ad valorem taxes ($3.5 million) are
primarily a result of the properties acquired and developed during the year.
Overall, direct operating costs and expenses (operating and ad valorem tax
expense) of operating our properties as a percentage of rental revenues declined
from 28% in 2002 to 27% in 2003.
Interest expense as reported represents the gross interest expense on our
indebtedness plus interest expense on our preferred shares classified as
liabilities less interest that is capitalized for properties under development
and over-market interest payments on mortgages assumed through acquisitions.
Interest expense as reported in 2003 increased by $23.0 million due to the
combination of increased gross interest expense, increased interest expense from
preferred shares, decreased interest capitalization and increased over-market
interest. Gross interest expense increased by $17.3 million in 2003 due to an
increase in the average debt outstanding from $1.2 billion in 2002 to $1.5
billion in 2003. This was offset by a decrease in the weighted-average interest
rate between the two periods from 6.3% in 2002 to 6.2% in 2003. Interest on
preferred shares increased by $3.4 million and represents the dividends paid or
accrued as of December 31, 2003 on WRI's Series B and Series C Cumulative
Redeemable Preferred Shares that are classified as liabilities in 2003 versus
equity in 2002, as a result of the adoption of SFAS No. 150. Interest
capitalized in 2003 decreased by $3.3 million versus 2002 due to completion of
new development projects in 2003. Interest from our over-market mortgages
increased from zero in 2002 to $1.0 million in 2003.
General and administrative expenses increased by $2.7 million or 24.3% in 2003
($13.8 million in 2003 versus $11.1 million in 2002). This increase results
primarily from normal compensation increases as well as increases in staffing
necessitated by the growth in the portfolio. General and administrative expense
as a percentage of rental revenues was 3% in 2003 and 2002, respectively.
Loss on early redemption of preferred shares of $2.7 million represents the
unamortized original issuance costs related to the Series B Cumulative
Redeemable Preferred Shares redeemed in December 2003.
Other
Equity in earnings of joint ventures increased by $.7 million or 17.5% in 2003
($4.7 million in 2003 versus $4.0 million in 2002). This increase is due
primarily to the gain on the sale of a shopping center in Lake Charles,
Louisiana in a 50%-owned unconsolidated joint venture.
Income allocated to minority interests decreased by $.8 million or 22.9% in 2003
($2.7 million in 2003 versus $3.5 million in 2002). This decrease resulted
primarily from a $1.1 million gain on the sale of a shopping center in a
consolidated partnership in 2002 that did not recur in 2003. Offsetting this
decrease is higher minority interest expense from the acquisition of an
industrial park in Atlanta in March 2003 and seven shopping centers in Raleigh
in April 2002, both of which utilized a DownREIT structure. These limited
partnerships are included in our consolidated financial statements because we
exercise financial and operating control.
WRI began reporting discontinued operations effective January 2002 based on the
guidelines established in SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which broadened the definition of discontinued
operations to include components of an entity whose operations and cash flows
are clearly distinguishable from the rest of the entity for operational and
financial reporting purposes. Income from discontinued operations decreased
$15.7 million in 2003 ($8.1 million in 2003 versus $23.8 million in 2002).
Included in this caption for 2003 are the operating results and gain from the
disposition of seven properties in 2003 totaling 371,000 square feet of gross
leasable area plus the operating results of two properties sold in the second
quarter of 2004. Included in the 2002 amounts are the operating results and
gain from the disposition of seven properties in 2002 totaling 681,000 square
feet of gross leasable area plus the operating results of the seven properties
sold in 2003 and the two properties sold in the second quarter of 2004.
6
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 TO THE YEAR ENDED DECEMBER 31,
2001
Revenues
Total revenues increased by $56.2 million or 18.5% in 2002 ($360.0 million in
2002 versus $303.8 million in 2001). This increase resulted primarily from the
increase in rental revenues of $55.2 million in 2002. Property acquisitions and
new development contributed $53.3 million of this increase. Bad debt expense
contributed $.9 million as it declined from $2.7 million in 2001 to $1.8 million
in 2002 due to the recovery of previously reserved receivables. The remaining
portion of the rental revenue increase is due to activity at our existing
properties, as described below, offset by the effect of property dispositions in
2001.
Occupancy (leased space) of the total portfolio decreased as compared to the
prior year as follows:
DECEMBER 31,
-----------------
2002 2001
------ ------
Shopping Centers. . . . . . . . . . 92.5% 92.8%
Industrial. . . . . . . . . . . . . 88.7% 90.1%
Total . . . . . . . . . . . . . . . 91.7% 92.2%
In 2002, we completed 1,301 renewals and new leases comprising 5.1 million
square feet at an average rental rate increase of 8.2%. Net of the amortized
portion of capital costs for tenant improvements, the increase averaged 5.6%.
Expenses
Total expenses increased by $38.9 million or 18.2% in 2002 ($252.5 million in
2002 versus $213.6 million in 2001).
The increases in 2002 for depreciation and amortization expense ($11.5 million),
operating expenses ($8.3 million) and ad valorem taxes ($6.2 million) are
primarily a result of the properties acquired and developed during the year.
Overall, direct operating costs and expenses (operating and ad valorem tax
expense) of operating our properties as a percentage of rental revenues were 28%
in 2002 and 2001, respectively.
Interest expense as reported represents the gross interest expense on our
indebtedness less interest that is capitalized for properties under development.
Gross interest expense increased by $11.3 million in 2002 due to an increase in
the average debt outstanding from $927.6 million in 2001 to $1.2 billion in
2002. This was offset by a decrease in the weighted-average interest rate
between the two periods from 6.9% in 2001 to 6.3% in 2002. Interest expense as
reported increased $11.4 million in 2002 due primarily to the increase in gross
interest expense.
General and administrative expenses increased by $1.6 million or 16.7% in 2002
($11.1 million in 2002 versus $9.6 million in 2001), which is primarily due to
normal compensation increases as well as increases in staffing necessitated by
the growth in the portfolio. General and administrative expense as a percentage
of rental revenues was 3% in 2002 and 2001, respectively.
Other
Equity in earnings of joint ventures decreased by $1.5 million or 27.3% in 2002
($4.0 million in 2002 versus $5.5 million in 2001). This decrease results
primarily from the gain on the sale of two mini-storage warehouses in 50%-owned
unconsolidated joint ventures in August 2001.
Income allocated to minority interests increased by $3.1 million in 2002 ($3.6
million in 2002 versus $.5 million in 2001). This increase is due primarily to
the acquisition of seven supermarket-anchored shopping centers in the
Raleigh-Durham market in April 2002 utilizing a DownREIT structure. These
limited partnerships are included in our consolidated financial statements
because we exercise financial and operating control. Also, $1.1 million of this
increase results from a gain from the sale of a shopping center in a
consolidated partnership that is reported as discontinued operations in the
Statements of Consolidated Income and Comprehensive Income.
7
Income from discontinued operations increased $18.9 million in 2002 ($23.8
million in 2002 versus $4.9 million in 2001). Included in this caption for 2002
are the operating results and gain from the disposition of seven properties in
2002 totaling 681,000 square feet of gross leasable area plus the operating
results of seven properties disposed in 2003 and two properties sold in the
second quarter of 2004. Included in the 2001 amounts are the operating results
of two properties sold in the second quarter of 2004 and seven properties sold
both in 2003 and 2002.
The gain on sale of $8.3 million in continuing operations in 2001 was due
primarily to the sale of nine properties. Prior to the application of SFAS No.
144, WRI reported its property dispositions in this caption.
FUNDS FROM OPERATIONS
The National Association of Real Estate Investment Trusts defines funds from
operations as net income (loss) computed in accordance with generally accepted
accounting principles, excluding gains or losses from sales of property, plus
real estate related depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. In addition, NAREIT recommends
that extraordinary items not be considered in arriving at FFO. We calculate FFO
in a manner consistent with the NAREIT definition. We believe FFO is an
appropriate supplemental measure of operating performance because it helps
investors compare the operating performance of our company relative to other
REITs. There can be no assurance that FFO presented by WRI is comparable to
similarly titled measures of other REITs. FFO should not be considered as an
alternative to net income or other measurements under GAAP as an indicator of
our operating performance or to cash flows from operating, investing or
financing activities as a measure of liquidity. FFO does not reflect working
capital changes, cash expenditures for capital improvements or principal
payments on indebtedness.
Funds from operations is calculated as follows (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------
2003 2002 2001
---------- ---------- ----------
Net income available to common shareholders . . . . . . . . . . . . . . . $ 97,880 $ 112,111 $ 88,839
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 86,913 74,870 65,940
Depreciation and amortization of unconsolidated joint ventures. . . . . . 1,940 1,985 1,863
Gain on sale of properties. . . . . . . . . . . . . . . . . . . . . . . . (6,765) (18,614) (8,368)
Gain on sale of properties of unconsolidated joint ventures . . . . . . . (508) (1,427)
---------- ---------- ----------
Funds from operations . . . . . . . . . . . . . . . . . . . 179,460 170,352 146,847
Funds from operations attributable to operating
partnership units . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,554 3,644 180
---------- ---------- ----------
Funds from operations assuming conversion of OP units . . . $ 184,014 $ 173,996 $ 147,027
========== ========== ==========
Weighted average shares outstanding - basic . . . . . . . . . . . . . . . 78,800 77,866 72,155
Effect of dilutive securities:
Share options and awards. . . . . . . . . . . . . . . . . . . . . . 690 492 282
Operating partnership units . . . . . . . . . . . . . . . . . . . . 2,084 1,683 116
---------- ---------- ----------
Weighted average shares outstanding - diluted . . . . . . . . . . . . . . 81,574 80,041 72,553
========== ========== ==========
8
EFFECTS OF INFLATION
The rate of inflation was relatively unchanged in 2003. WRI has structured its
leases, however, in such a way as to remain largely unaffected should
significant inflation occur. Most of the leases contain percentage rent
provisions whereby WRI receives 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 WRI's leases are
for terms of less than ten years, which allows WRI to adjust rental rates to
changing market conditions when the leases expire. Most of WRI's 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 WRI's operating results.
CAPITAL RESOURCES AND LIQUIDITY
WRI anticipates that cash flows from operating activities will continue to
provide adequate capital for all dividend payments in accordance with REIT
requirements. Cash on hand, internally-generated cash flow, borrowings under
our existing credit facilities, issuance of secured and unsecured debt, as well
as other debt and equity alternatives, should provide the necessary capital to
maintain and operate our properties, refinance debt maturities and achieve
planned growth, which are WRI's primary liquidity needs.
Investing Activities - Acquisitions
During 2003, WRI invested $404.6 million in the acquisition of operating
properties of which $307.8 million was invested in shopping centers and $96.8
million was invested in industrial properties. Additionally, we acquired a
retail property through an investment of $9.2 million in a 40%-owned
unconsolidated joint venture. We acquired 16 shopping centers adding 2.6
million square feet and five industrial properties adding 1.9 million square
feet to our portfolio. Non-recourse secured debt totaling $180.2 million, of
which $25.2 million is held by joint ventures or partnerships in which we
participate, was assumed in conjunction with these purchases. Additionally,
operating partnership units valued at $6.8 million were issued in conjunction
with the purchase of three properties that used the DownREIT structure. The
cash requirements for all acquisitions in 2003 were initially financed under
WRI's revolving credit facilities, funded with excess cash flow from our
existing portfolio of properties or with proceeds from property dispositions.
Investing Activities - New Development and Capital Expenditures
With respect to new development, WRI completed 12 projects during 2003 totaling
1.1 million square feet, representing an investment of $151.1 million. As of
December 31, 2003, WRI has 13 retail developments underway in which we invested
$41.3 million during 2003 and expect to invest $22.7 million in 2004. Upon
completion, these projects will represent a total investment of approximately
$129.0 million and will add 944,000 square feet to the portfolio. These
projects will come on-line during 2004. All new development in 2003 was
initially financed under WRI's revolving credit facilities, funded with excess
cash flow from our existing portfolio of properties or with proceeds from
property dispositions.
Capital expenditures for additions to the existing portfolio, acquisitions, and
new development totaled $507.7 million in 2003 and $351.2 million in 2002.
WRI's share of capital expenditures for unconsolidated joint ventures or
partnerships, including the purchase and development of properties by
newly-formed joint ventures or partnerships was $20.9 million in 2003 and $1.8
million in 2002.
Financing Activities - Debt
Total debt outstanding increased to $1.8 billion at December 31, 2003 from $1.3
billion at December 31, 2002, due primarily to funding of acquisitions and new
development. Total debt at December 31, 2003 includes $1.5 billion on which
interest rates are fixed, including the net effect of our $112.5 million of
interest rate swaps, and $351.9 million which bears interest at variable rates.
Additionally, debt totaling $593.7 million is secured by operating properties
while the remaining $1.2 billion is unsecured.
In November 2003, WRI closed on an Amended and Restated Credit Agreement for a
$400 million unsecured revolving credit facility with a syndicate of banks. The
facility bears an interest rate of LIBOR plus 50 basis points. Additionally,
the facility includes a competitive bid option that allows WRI to hold auctions
at lower pricing for short-term funds for up to $200 million and an accordion
feature, which can increase the facility amount up to $600 million at our
9
option. WRI used $195.0 million under this facility to retire in full its
outstanding obligations under a $350 million unsecured revolving credit facility
and a $50 million unsecured term loan, both of which matured in November 2003.
As of December 31, 2003, WRI is in full compliance with the Amended and Restated
Credit Agreement currently in place. WRI also has an unsecured and uncommitted
overnight credit facility totaling $20 million to be used for cash management
purposes.
During the year ended December 31, 2003, WRI issued a total of $211 million of
unsecured fixed-rate medium term notes with a weighted average interest rate of
5.2% and a weighted average term of 10.7 years. Subsequent to year-end, WRI
issued a total of $150 million of ten-year unsecured fixed-rate medium term
notes with a weighted average rate of 5.1%, including the effect of related swap
transactions discussed below. Proceeds received from both the 2003 and 2004
medium term note issuances were used to pay down amounts outstanding under our
revolving credit facilities. In addition, a $25 million floating-rate medium
term note matured in July 2003, and a $15 million fixed-rate medium term note
matured in December 2003.
WRI hedges the future cash flows of its debt transactions, as well as changes in
the fair value of its debt instruments, principally through interest rate swaps
with major financial institutions. As of December 31, 2003, we have two
interest rate swap contracts, which fix interest rates at 7.7% on an aggregate
notional amount of $20 million and expire in June 2004. We have determined that
these swap contracts are highly effective in offsetting future variable interest
cash flows of the revolving credit debt and, accordingly, they have been
designated as cash flow hedges with a fair value, net of accrued interest, of
$.6 million at December 31, 2003 and are included in Other Liabilities. Also,
we have ten interest rate swap contracts with an aggregate notional amount of
$92.5 million at December 31, 2003 that convert fixed interest payments at rates
ranging from 6.4% to 7.4% to variable interest payments. These contracts have
been designated as fair value hedges. We have determined that they are highly
effective in limiting our risk of changes in the fair value of the fixed-rate
notes attributable to changes in variable interest rates. The fair value of
these ten interest rate swaps, net of accrued interest, at December 31, 2003 was
$5.1 million and is included in Other Assets.
In December 2003, we entered into two forward-starting interest rate swaps with
an aggregate notional amount of $97.0 million in anticipation of the issuance of
fixed-rate medium term notes subsequent to year-end. These contracts were
designated as a cash flow hedge of forecasted interest payments for $100 million
of unsecured notes with a coupon of 4.9% that were sold in February 2004.
Concurrent with the sale of the 4.9% notes, we settled our $97.0 million
forward-starting interest rate swap contracts, resulting in a loss of $.9
million recorded in accumulated other comprehensive income. This $.9 million
loss is being amortized to earnings over the life of the 4.9% notes. In January
2004, we entered into four additional forward-starting interest rate swaps with
an aggregate notional amount of $194.0 million in anticipation of the issuance
of fixed-rate medium term notes before April 2004. Medium term notes totaling
$50 million were issued in January 2004, at which time one of the four
forward-starting interest rate swaps with a notional amount of $48.5 million was
settled at a loss of $.7 million.
In conjunction with acquisitions completed during 2003, we assumed $155.0
million of non-recourse debt secured by the related properties. The weighted
average interest rate on this debt is 7.1%, and the weighted average remaining
life is 6.6 years. Additionally, we assumed non-recourse debt secured by three
properties that are held by joint ventures or partnerships in which we
participate. Our share of this debt totaled $25.2 million with a weighted
average interest rate of 7.6% and a weighted average remaining life of 7.5
years.
In December 2003, $88.0 million of 7.125% Series B Cumulative Redeemable
Preferred Shares were redeemed from the proceeds of the common share offerings
in the fourth quarter of 2003.
Financing Activities - Equity
Common and preferred dividends increased to $139.3 million in 2003, compared to
$135.2 million in 2002 and $123.0 million in 2001. WRI satisfied its REIT
requirement of distributing at least 90% of ordinary taxable income for each of
the three years ending December 31, 2003. Our dividend payout ratio on common
equity for 2003, 2002 and 2001 approximated 68.8%, 67.7% and 70.4%,
respectively, based on funds from operations for the applicable year.
In April 2003, the SEC declared effective WRI's $1 billion shelf registration
statement, of which $555.9 million was available as of March 2, 2004. WRI will
continue to closely monitor both the debt and equity markets and carefully
consider its available financing alternatives, including both public and private
placements.
10
With respect to its preferred shares, WRI has engaged in the following
transactions:
In April 2003, the company issued $75 million of depositary shares. Each
depositary share represents one-thirtieth of a 6.75% Series D Cumulative
Redeemable Preferred Share 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 other property or securities of WRI and are
classified as equity at December 31, 2003.
The 7.44% Series A Cumulative Redeemable Preferred Shares were redeemed in May
2003 with proceeds from the April 2003 issuance of $75 million of depositary
shares. The original issuance costs of $2.5 million for the Series A shares
were reported as a deduction in arriving at Net Income Available to Common
Shareholders.
The 7.125% Series B Cumulative Redeemable Preferred Shares were redeemed in
December 2003 with proceeds from common share offerings in the fourth quarter of
2003. Due to the adoption of SFAS No. 150 in the third quarter of 2003, these
shares were reclassified from equity to liabilities. The unamortized original
issuance costs of $2.7 million for these shares were reported as a loss in
arriving at Operating Income.
The 7.0% Series C Cumulative Redeemable Preferred Shares remain outstanding as
of December 31, 2003, have a liquidation value of $50 per share, and, due to the
adoption of SFAS No. 150 in the third quarter of 2003, were reclassified from
equity to liabilities.
In October 2003, we issued 1.8 million common shares of beneficial interest.
Net proceeds to WRI totaled $50.9 million based on a price of $30.33 per share.
In November 2003, we issued an additional 1.5 million common shares of
beneficial interest. Net proceeds to WRI totaled $44.5 million based on a price
of $30.47 per share. The proceeds from the above offerings were used primarily
to redeem our Series B preferred shares.
In March 2004, we issued an additional 3.6 million common shares of beneficial
interest. Net proceeds to WRI totaled $118.0 million based on a price of $33.64
per share. The proceeds from this offering will be used primarily to redeem our
Series C preferred shares on April 1, 2004.
CONTRACTUAL OBLIGATIONS
The following table summarizes the company's principal contractual obligations
as of December 31, 2003 (in thousands):
2004 2005 2006 2007 2008 Thereafter Total
---------- --------- ---------- --------- ---------- ----------- ------------
Unsecured Debt: (1)
Medium Term Notes. . . . . . . . $ 50,000 $ 52,500 $ 37,000 $ 79,000 $ 36,000 $ 500,500 $ 755,000
7% 2011 Bonds. . . . . . . . . . 200,000 200,000
Revolving Credit Facilities. . . 18,050 241,000 259,050
Secured Debt . . . . . . . . . . . . . 53,412 21,824 21,063 19,378 163,682 314,349 593,708
Ground Lease Payments. . . . . . . . . 1,468 1,310 1,075 904 874 22,986 28,617
Construction Contracts on
Development Projects . . . . . . . . 22,651 22,651
---------- --------- ---------- --------- ---------- ----------- ------------
Total Contractual Obligations. . . . . $ 145,581 $ 75,634 $ 300,138 $ 99,282 $ 200,556 $ 1,037,835 $ 1,859,026
========== ========= ========== ========= ========== ============ ============
<FN>
- ---------------------------
(1) Total unsecured debt obligations as shown above are $2.9 million less than
total unsecured debt as reported due to amortization of the discount on
medium term notes and the fair value of interest rate swaps.
As of year-end 2003 and 2002, WRI did not have any off-balance sheet
arrangements.
11
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, WRI adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 broadened the definition of
discontinued operations to include components of an entity whose operations and
cash flows are clearly distinguishable from the rest of the entity for
operational and financial reporting purposes. Included in Income from
Discontinued Operations for 2003 are the operating results and gain from the
disposition of seven properties in 2003 totaling 371,000 square feet of gross
leasable area plus the operating results of two properties sold in the second
quarter of 2004. Included in the 2002 amounts are the operating results and
gain from the disposition of seven properties in 2002 totaling 681,000 square
feet of gross leasable area plus the operating results of the seven properties
sold in 2003 and the two properties sold in the second quarter of 2004.
In November 2002, FASB issued Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others". FIN 45 establishes new disclosure and
liability-recognition requirements for direct and indirect debt guarantees with
specified characteristics. The initial measurement and recognition requirements
of FIN 45 are effective prospectively for guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 did not have a material impact on
WRI's financial position, results of operations or cash flows.
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123", which was effective for fiscal years beginning after December 15, 2002.
This statement provides alternative methods of transition for an entity that
voluntarily changes to the fair value-based method of accounting for stock-based
employee compensation. It also amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. We adopted this
statement effective January 1, 2003 using the prospective method, which requires
us to recognize stock-based employee compensation as an expense when new share
options are awarded, and determined that the adoption of SFAS No. 148 did not
have a material impact on our results of operations or cash flows.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities". FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. FIN 46, as amended, requires
disclosures about variable interest entities that a company is not required to
consolidate, but in which it has a significant variable interest (other than a
majority voting interest). WRI has assessed its joint ventures and believes
that the adoption of FIN 46 will not have a material impact on our financial
position, results of operations or cash flows.
In May 2003, FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", which was
effective for the first interim period beginning after June 15, 2003. SFAS No.
150 requires that certain financial instruments that incorporate an obligation
by the issuer to transfer assets or issue equity be reported as liabilities.
Financial instruments that fall within the scope of SFAS No. 150 include equity
shares and non-controlling interests in subsidiaries that are mandatorily
redeemable. WRI's Series B and Series C Cumulative Redeemable Preferred Shares
fall within the scope of SFAS No. 150, since they are mandatorily redeemable and
redemption is through transfer of cash or a variable number of WRI common
shares. Accordingly, we reclassified the redemption value, net of unamortized
issuance costs of $6.3 million, from equity to liabilities identified as
"Preferred Shares Subject to Mandatory Redemption" as of September 30, 2003.
FORWARD-LOOKING STATEMENTS
This Annual Report includes certain forward-looking statements reflecting WRI's
expectations in the near term that involve a number of risks and uncertainties;
however, many factors may materially affect the actual results, including demand
for our properties, changes in rental and occupancy rates, changes in property
operating costs, interest rate fluctuations, and changes in local and general
economic conditions. Accordingly, there is no assurance that WRI's expectations
will be realized.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trust Managers and Shareholders of
Weingarten Realty Investors:
We have audited the accompanying consolidated balance sheets of Weingarten
Realty Investors and subsidiaries (the "Company") as of December 31, 2003 and
2002, and the related statements of consolidated income and comprehensive
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2003. Our audits also included the financial
statement schedules listed in the Index at Item 15. These financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedules 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 at December 31, 2003 and 2002, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2003 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such 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.
As discussed in Note 2 to the consolidated financial statements, in 2002
the Company changed its method of accounting for the impairment and disposal of
long-lived assets to conform to Statement of Financial Accounting Standards No.
144.
DELOITTE & TOUCHE LLP
Houston, Texas
March 9, 2004, except for Notes 1, 2, 7, 8, 9, 16, 18,
19, 20, and financial statement schedule III, as to which the
date is September 8, 2004
13
STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31,
----------------------------------
2003 2002 2001
---------- ---------- ----------
Revenues:
Rentals . . . . . . . . . . . . . . . . . . . . . . . . . $ 407,387 $ 353,783 $ 298,580
Interest income . . . . . . . . . . . . . . . . . . . . . 1,587 1,054 1,167
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 7,067 5,138 4,054
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . 416,041 359,975 303,801
---------- ---------- ----------
Expenses:
Depreciation and amortization . . . . . . . . . . . . . . 93,382 77,113 65,630
Interest. . . . . . . . . . . . . . . . . . . . . . . . . 88,871 65,863 54,473
Operating . . . . . . . . . . . . . . . . . . . . . . . . 64,608 54,816 46,487
Ad valorem taxes. . . . . . . . . . . . . . . . . . . . . 47,129 43,602 37,445
General and administrative. . . . . . . . . . . . . . . . 13,820 11,148 9,570
Loss on early redemption of preferred shares. . . . . . . 2,739
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . 310,549 252,542 213,605
---------- ---------- ----------
Operating Income . . . . . . . . . . . . . . . . . . . . . . . 105,492 107,433 90,196
Equity in Earnings of Joint Ventures. . . . . . . . . . . 4,743 4,043 5,547
Income Allocated to Minority Interests. . . . . . . . . . (2,723) (3,553) (475)
Gain on Sale of Properties. . . . . . . . . . . . . . . . 714 188 8,339
---------- ---------- ----------
Income Before Discontinued Operations. . . . . . . . . . . . . 108,226 108,111 103,607
---------- ---------- ----------
Operating Income from Discontinued Operations . . . . . . 2,015 4,284 4,935
Gain on Sale of Properties. . . . . . . . . . . . . . . . 6,039 19,472
---------- ---------- ----------
Income from Discontinued Operations . . . . 8,054 23,756 4,935
---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 116,280 131,867 108,542
---------- ---------- ----------
Preferred Share Dividends . . . . . . . . . . . . . . . . (15,912) (19,756) (19,703)
Redemption Costs of Series A Preferred Shares . . . . . . (2,488)
---------- ---------- ----------
Net Income Available to Common Shareholders. . . . . . . . . . $ 97,880 $ 112,111 $ 88,839
========== ========== ==========
Net Income Per Common Share - Basic:
Income Before Discontinued Operations . . . . . . . . . . $ 1.14 $ 1.13 $ 1.16
Discontinued Operations . . . . . . . . . . . . . . . . . .10 .31 .07
---------- ---------- ----------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . $ 1.24 $ 1.44 $ 1.23
========== ========== ==========
Net Income Per Common Share - Diluted:
Income Before Discontinued Operations . . . . . . . . . . $ 1.14 $ 1.13 $ 1.16
Discontinued Operations . . . . . . . . . . . . . . . . . .10 .30 .07
---------- ---------- ----------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . $ 1.24 $ 1.43 $ 1.23
========== ========== ==========
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 116,280 $ 131,867 $ 108,542
---------- ---------- ----------
Other Comprehensive Income (Loss):
Cumulative effect of change in accounting principle
(SFAS No. 133) on other comprehensive loss. . . . . . . (1,877)
Unrealized derivative gain (loss) on interest rate swaps. 1,451 2,065 (2,579)
Unrealized derivative gain (loss) on forward-starting
interest rate swaps . . . . . . . . . . . . . . . . . . (159) (159) 1,520
Minimum pension liability adjustment. . . . . . . . . . . 959 (1,572)
---------- ---------- ----------
Other Comprehensive Income (Loss). . . . . . . . . . . . . . . 2,251 334 (2,936)
---------- ---------- ----------
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . $ 118,531 $ 132,201 $ 105,606
========== ========== ==========
See Notes to Consolidated Financial Statements.
14
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 31,
--------------------------
2003 2002
------------ ------------
ASSETS
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,200,091 $ 2,695,286
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (527,375) (460,832)
------------ ------------
Property - net . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,672,716 2,234,454
Investment in Real Estate Joint Ventures . . . . . . . . . . . . . . . . . 32,742 28,738
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,705,458 2,263,192
------------ ------------
Notes Receivable from Real Estate Joint Ventures and Partnerships. . . . . 36,825 14,747
Unamortized Debt and Lease Costs . . . . . . . . . . . . . . . . . . . . . 70,895 48,377
Accrued Rent and Accounts Receivable (net of allowance for doubtful
accounts of $4,066 in 2003 and $4,302 in 2002) . . . . . . . . . . . . . 43,368 38,156
Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . 20,255 27,420
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,993 31,997
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . $ 2,923,794 $ 2,423,889
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,810,706 $ 1,330,369
Preferred Shares Subject to Mandatory Redemption, net. . . . . . . . . . . 109,364
Accounts Payable and Accrued Expenses. . . . . . . . . . . . . . . . . . . 79,686 81,488
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,671 23,636
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,052,427 1,435,493
------------ ------------
Minority Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,804 54,983
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 10,000
7.44% Series A cumulative redeemable preferred shares of
beneficial interest; 3,000 shares issued and outstanding
at December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . 90
7.125% Series B cumulative redeemable preferred shares of
beneficial interest; 3,600 shares issued and 3,518 shares
outstanding at December 31, 2002 . . . . . . . . . . . . . . . . 106
7.0% Series C cumulative redeemable preferred shares of
beneficial interest; 2,300 shares issued and 2,253 shares
outstanding at December 31, 2002 . . . . . . . . . . . . . . . . 67
6.75% Series D cumulative redeemable preferred shares of
beneficial interest; 100 shares issued and outstanding
at December 31, 2003; liquidation preference $75,000 . . . . . . 90
Common Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 150,000; shares issued and outstanding:
81,889 in 2003 and 78,113 in 2002. . . . . . . . . . . . . . . . . . 2,488 2,415
Capital Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . 993,570 1,082,046
Accumulated Dividends in Excess of Net Income. . . . . . . . . . . . . (174,234) (148,709)
Accumulated Other Comprehensive Loss . . . . . . . . . . . . . . . . . (351) (2,602)
------------ ------------
Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . 821,563 933,413
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . $ 2,923,794 $ 2,423,889
============ ============
See Notes to Consolidated Financial Statements.
15
STATEMENTS OF CONSOLIDATED CASH FLOWS
(AMOUNTS IN THOUSANDS)
Year Ended December 31,
-----------------------------------------
2003 2002 2001
----------- ----------- -----------
Cash Flows from Operating Activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 116,280 $ 131,867 $ 108,542
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 94,455 79,344 68,316
Loss on early redemption of preferred shares. . . . . . 2,739
Equity in earnings of joint ventures. . . . . . . . . . (4,743) (4,043) (5,547)
Income allocated to minority interests. . . . . . . . . 2,723 3,553 475
Gain on sale of properties. . . . . . . . . . . . . . . (6,753) (19,660) (8,339)
Changes in accrued rent and accounts receivable . . . . (5,596) (9,016) (12,680)
Changes in other assets . . . . . . . . . . . . . . . . (31,579) (16,947) (22,869)
Changes in accounts payable and accrued expenses. . . . (3,491) 2,940 17,307
Other, net. . . . . . . . . . . . . . . . . . . . . . . (490) 450 1,454
----------- ----------- -----------
Net cash provided by operating activities . . . 163,545 168,488 146,659
----------- ----------- -----------
Cash Flows from Investing Activities:
Investment in properties. . . . . . . . . . . . . . . . . . (339,287) (214,128) (471,174)
Notes receivable:
Advances. . . . . . . . . . . . . . . . . . . . . . . . (22,577) (9,663) (2,895)
Collections . . . . . . . . . . . . . . . . . . . . . . 509 2,285 7,943
Proceeds from sale of properties. . . . . . . . . . . . . . 21,713 45,763 23,146
Real estate joint ventures and partnerships:
Investments . . . . . . . . . . . . . . . . . . . . . . (3,888) (5,355) (1,011)
Distributions . . . . . . . . . . . . . . . . . . . . . 5,064 5,229 4,774
----------- ----------- -----------
Net cash used in investing activities . . . . . (338,466) (175,869) (439,217)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of:
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . 467,625 275,997 442,650
Common shares of beneficial interest. . . . . . . . . . 100,250 13,850 307,722
Preferred shares of beneficial interest . . . . . . . . 72,758
Redemption of preferred shares. . . . . . . . . . . . . . . (162,995)
Principal payments of debt. . . . . . . . . . . . . . . . . (170,408) (132,189) (329,824)
Common and preferred dividends paid . . . . . . . . . . . . (139,317) (135,160) (123,015)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . (157) (131) 138
----------- ----------- -----------
Net cash provided by financing activities . . . 167,756 22,367 297,671
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents. . . . . . (7,165) 14,986 5,113
Cash and cash equivalents at January 1. . . . . . . . . . . . . 27,420 12,434 7,321
----------- ----------- -----------
Cash and cash equivalents at December 31. . . . . . . . . . . . $ 20,255 $ 27,420 $ 12,434
=========== =========== ===========
See Notes to Consolidated Financial Statements.
16
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
Year Ended December 31, 2003, 2002 and 2001
Preferred Common Accumulated Accumulated
Shares of Shares of Dividends in Other
Beneficial Beneficial Capital Excess of Comprehensive
Interest Interest Surplus Net Income Loss
----------- ------------ ------------ ----------- -------------
Balance, January 1, 2001. . . . . . . . . . . . . . . $ 265 $ 2,182 $ 758,363 $ (130,943)
Net income. . . . . . . . . . . . . . . . . . . . . 108,542
Issuance of common shares . . . . . . . . . . . . . 216 301,824
Shares issued under benefit plans . . . . . . . . . 4 6,571
Dividends declared - common shares. . . . . . . . . (103,312)
Dividends declared - preferred shares . . . . . . . (19,703)
Redemption of Series B preferred shares . . . . . . (1) 1
Redemption of Series C preferred shares . . . . . . (1) 1 (1)
Other comprehensive loss. . . . . . . . . . . . . . $ (2,936)
----------- ------------ ------------ ----------- -------------
Balance, December 31, 2001. . . . . . . . . . . . . . 263 2,404 1,066,757 (145,416) (2,936)
Net income. . . . . . . . . . . . . . . . . . . . . 131,867
Issuance of common shares . . . . . . . . . . . . . 6 9,482
Shares issued under benefit plans . . . . . . . . . 5 5,807
Dividends declared - common shares. . . . . . . . . (115,404)
Dividends declared - preferred shares . . . . . . . (19,756)
Other comprehensive income. . . . . . . . . . . . . 334
----------- ------------ ------------ ----------- -------------
Balance, December 31, 2002. . . . . . . . . . . . . . 263 2,415 1,082,046 (148,709) (2,602)
Net income. . . . . . . . . . . . . . . . . . . . . 116,280
Issuance of common shares . . . . . . . . . . . . . 65 95,201
Shares issued under benefit plans . . . . . . . . . 5 4,708
Shares issued in exchange for interests
in limited partnerships . . . . . . . . . . . . . 3 5,410
Dividends declared - common shares. . . . . . . . . (123,405)
Dividends declared - preferred shares . . . . . . . (15,912)
Redemption of Series A preferred shares . . . . . . (90) (72,422) (2,488)
Issuance of Series D preferred shares . . . . . . . 90 72,668
Effect of adoption of SFAS No. 150. . . . . . . . . (173) (194,041)
Other comprehensive income. . . . . . . . . . . . . 2,251
----------- ------------ ------------ ------------- -------------
Balance, December 31, 2003. . . . . . . . . . . . . . $ 90 $ 2,488 $ 993,570 $ (174,234) $ (351)
=========== ============ ============ =========== =============
See Notes to Consolidated Financial Statements.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Weingarten Realty Investors, a Texas real estate investment trust, is engaged in
the management, acquisition and development of real estate, primarily anchored
neighborhood and community shopping centers and, to a lesser extent, industrial
properties. Over 45% of the building square footage of WRI's portfolio is in
Texas, with the remainder located primarily in the southern half of the United
States. WRI's major tenants include supermarkets, discount retailers, drugstores
and other merchants who generally sell basic, necessity-type goods and services.
WRI currently operates, and intends to operate in the future, as a real estate
investment trust.
Basis of Presentation
The consolidated financial statements include the accounts of WRI and its
subsidiaries, as well as 100% of the accounts of joint ventures and partnerships
over which WRI exercises financial and operating control and the related amounts
of minority interests. All significant intercompany balances and transactions
have been eliminated. Investments in joint ventures and partnerships where WRI
has the ability to exercise significant influence, but does not exercise
financial and operating control, are accounted for using the equity method.
Revenue Recognition
Rental revenue is generally recognized on a straight-line basis over the life of
the lease. Revenue from tenant reimbursements of taxes, maintenance expenses
and insurance is recognized in the period the related expense is recorded.
Revenue based on a percentage of tenants' sales is recognized only after the
tenant exceeds their sales breakpoint.
Accrued Rent and Accounts Receivable
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, customer credit worthiness and current economic
trends. Balances outstanding include base rents, tenant reimbursements and
receivables attributable to the straight-lining of rental commitments.
Additionally, estimates of the expected recovery of pre-petition and
post-petition claims with respect to tenants in bankruptcy is considered in
assessing the collectibility of the related receivables.
Property
Real estate assets are stated at cost less accumulated depreciation, which, in
the opinion of management, is not in excess of the individual property's
estimated undiscounted future cash flows, including estimated proceeds from
disposition. Depreciation is computed using the straight-line method, generally
over estimated useful lives of 18-50 years for buildings and 10-20 years for
parking lot surfacing and equipment. Major replacements where the 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 (as
set forth in SFAS No. 141 and SFAS No. 142) and, accordingly, the results of
operations are included in the company's results of operations from the
respective dates of acquisition. The company has used estimates of future cash
flows and other valuation techniques to allocate the purchase price of acquired
property among land, buildings on an "as if vacant" basis, and other
identifiable intangibles. Other identifiable intangibles include the effect of
out-of-market leases, the value of having leases in place, out-of-market assumed
mortgages and tenant relationships.
Property also includes costs incurred in the development of new operating
properties. These costs include preacquisition costs directly identifiable with
the specific project, development and construction costs, interest and real
estate taxes. Indirect development costs, including salaries and benefits,
travel and other related costs that are clearly attributable to the development
of the property, are also capitalized. The capitalization of such costs ceases
at the earlier of one year from the completion of major construction or when the
property, or any completed portion, becomes available for occupancy.
18
WRI's properties are reviewed for impairment if events or changes in
circumstances indicate that the carrying amount of the property may not be
recoverable. In such an event, a comparison is made of the current and
projected operating cash flows of each such property into the foreseeable future
on an undiscounted basis to the carrying amount of such property. Such carrying
amount would be adjusted, if necessary, to estimated fair value to reflect an
impairment in the value of the asset.
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 construction
during the period.
Deferred Charges
Debt and lease costs are amortized primarily on a straight-line basis, which
approximates the effective interest method, over the terms of the debt and over
the lives of leases, respectively. 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 related internal costs
incurred in completing the leases. Costs related to supervision, administration,
unsuccessful origination efforts and other activities not directly related to
completed lease agreements are charged to expense as incurred.
Stock-Based Compensation
As a result of adopting SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure - an amendment of FASB Statement No. 123", beginning
January 1, 2003, WRI recognized stock-based employee compensation as new shares
were awarded. With respect to share options awarded prior to January 1, 2003,
WRI accounted for stock-based employee compensation using the intrinsic value
method set forth in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations. In accordance with APB
Opinion No. 25, no stock-based employee compensation had been recognized in
WRI's financial statements prior to January 1, 2003.
The following table illustrates the effect on net income available to common
shareholders and net income per common share if the fair value-based method had
been applied to all outstanding and unvested awards in each period (in
thousands, except per share amounts):
Year Ended December 31,
--------------------------------
2003 2002 2001
--------- ---------- ---------
Net income available to common shareholders. . . . . . . $ 97,880 $ 112,111 $ 88,839
Stock-based employee compensation included in
net income available to common shareholders. . . . . . 7
Stock-based employee compensation determined
under the fair value-based method for all awards . . . (410) (344) (531)
--------- ---------- ---------
Pro forma net income available to
common shareholders. . . . . . . . . . . . . . . . . . $ 97,477 $ 111,767 $ 88,308
========= ========== =========
Net income per common share:
Basic - as reported. . . . . . . . . . . . . . . . $ 1.24 $ 1.44 $ 1.23
========= ========== =========
Basic - pro forma. . . . . . . . . . . . . . . . . $ 1.24 $ 1.44 $ 1.22
========= ========== =========
Net income per common share:
Diluted - as reported. . . . . . . . . . . . . . . $ 1.24 $ 1.43 $ 1.23
========= ========== =========
Diluted - pro forma. . . . . . . . . . . . . . . . $ 1.23 $ 1.43 $ 1.22
========= ========== =========
19
The weighted average fair value per share of options granted during 2003, 2002
and 2001 was $1.64, $1.75 and $1.62, respectively. The fair value of each
option grant was estimated on the date of grant using the Black-Scholes
option-pricing method with the following weighted-average assumptions in 2003,
2002 and 2001, respectively: dividend yield of 6.6%, 6.0% and 6.6%; expected
volatility of 15.1%, 16.5% and 15.3%; expected lives of 6.8, 7.4 and 7.4 and
risk-free interest rates of 3.7%, 3.6% and 5.1%.
Use of Estimates
The preparation of financial statements requires management to make use of
estimates and assumptions that affect amounts reported in the financial
statements as well as certain disclosures. Actual results could differ from
those estimates.
Per Share Data
Net income per common share - basic is computed using net income available to
common shareholders and the weighted average shares outstanding that have been
adjusted for the three-for-two share split described in Note 7. 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,
-----------------------------------
2003 2002 2001
---------- ---------- ---------
Numerator:
Net income available to common shareholders - basic. . . . . . . . . $ 97,880 $ 112,111 $ 88,839
Income attributable to operating partnership units . . . . . . . . . 3,040 2,388 83
---------- ---------- ---------
Net income available to common shareholders - diluted. . . . . . . . $ 100,920 $ 114,499 $ 88,922
========== ========== =========
Denominator:
Weighted average shares outstanding - basic. . . . . . . . . . . . . 78,800 77,866 72,155
Effect of dilutive securities:
Share options and awards. . . . . . . . . . . . . . . . . . . . 690 492 282
Operating partnership units . . . . . . . . . . . . . . . . . . 2,084 1,683 116
---------- ---------- ---------
Weighted average shares outstanding - diluted. . . . . . . . . . . . 81,574 80,041 72,553
========== ========== =========
Options to purchase, in millions: .5, .6 and .6 common shares of beneficial
interest in 2003, 2002 and 2001, 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.
Statements of Cash Flows - Additional Data
WRI considers all highly liquid investments with original maturities of three
months or less as cash equivalents. WRI issued .2 million common shares of
beneficial interest in 2003 valued at $5.4 million in exchange for interests in
limited partnerships which had been formed to acquire operating properties. We
assumed debt totaling $180.2 million, $105.1 million and $165.0 million in
connection with purchases of property during 2003, 2002 and 2001, respectively.
Reclassifications
Certain reclassifications of prior years' amounts have been made to conform with
the current year presentation.
NOTE 2. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, WRI adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 broadened the definition of
discontinued operations to include components of an entity whose operations and
cash flows are clearly distinguishable from the rest of the entity for
operational and financial reporting purposes. Included in Income from
Discontinued Operations for 2003 are the operating results and gain from the
disposition of seven properties in 2003 totaling 371,000 square feet of gross
20
leasable area plus the operating results of two properties sold in the second
quarter of 2004. Included in the 2002 amounts are the operating results and
gain from the disposition of seven properties in 2002 totaling 681,000 square
feet of gross leasable area plus the operating results of the seven properties
sold in 2003 and the two properties sold in the second quarter of 2004.
In November 2002, FASB issued Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others". FIN 45 establishes new disclosure and
liability-recognition requirements for direct and indirect debt guarantees with
specified characteristics. The initial measurement and recognition requirements
of FIN 45 are effective prospectively for guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 did not have a material impact on
WRI's financial position, results of operations or cash flows.
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123", which was effective for fiscal years beginning after December 15, 2002.
This statement provides alternative methods of transition for an entity that
voluntarily changes to the fair value-based method of accounting for stock-based
employee compensation. It also amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. We adopted this
statement effective January 1, 2003 using the prospective method, which requires
us to recognize stock-based employee compensation as an expense when new share
options are awarded, and determined that the adoption of SFAS No. 148 did not
have a material impact on our results of operations or cash flows.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities". FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. FIN 46, as amended, requires
disclosures about variable interest entities that a company is not required to
consolidate, but in which it has a significant variable interest (other than a
majority voting interest). WRI has assessed its joint ventures and believes
that the adoption of FIN 46 will not have a material impact on our financial
position, results of operations or cash flows.
In May 2003, FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", which was
effective for the first interim period beginning after June 15, 2003. SFAS No.
150 requires that certain financial instruments that incorporate an obligation
by the issuer to transfer assets or issue equity be reported as liabilities.
Financial instruments that fall within the scope of SFAS No. 150 include equity
shares and non-controlling interests in subsidiaries that are mandatorily
redeemable. WRI's Series B and Series C Cumulative Redeemable Preferred Shares
fall within the scope of SFAS No. 150, since they are mandatorily redeemable and
redemption is through transfer of cash or a variable number of WRI common
shares. Accordingly, we reclassified the redemption value, net of unamortized
issuance costs of $6.3 million, from equity to liabilities identified as
"Preferred Shares Subject to Mandatory Redemption" as of September 30, 2003.
NOTE 3. DERIVATIVES AND HEDGING
On January 1, 2001, WRI adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended. SFAS No. 133, as amended,
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and to measure those instruments at fair
value. Additionally, the fair value adjustments will affect either
shareholders' equity or net income depending on whether the derivative
instrument qualifies as a hedge for accounting purposes and, if so, the nature
of the hedging activity.
WRI hedges the future cash flows of its debt transactions, as well as changes in
the fair value of its debt instruments, principally through interest rate swaps
with major financial institutions. As of December 31, 2003, we have two
interest rate swap contracts, which fix interest rates at 7.7% on an aggregate
notional amount of $20 million and expire in June 2004. We have determined that
these swap contracts are highly effective in offsetting future variable interest
cash flows of the revolving credit debt and, accordingly, they have been
designated as cash flow hedges with a fair value, net of accrued interest, of $
..6 million at December 31, 2003 and are included in Other Liabilities. Also, we
have ten interest rate swap contracts with an aggregate notional amount of $92.5
million at December 31, 2003 that convert fixed interest payments at rates
ranging from 6.4% to 7.4% to variable interest payments. These contracts have
21
been designated as fair value hedges. We have determined that they are highly
effective in limiting our risk of changes in the fair value of fixed-rate notes
attributable to changes in variable interest rates. The fair value of these ten
interest rate swaps, net of accrued interest, at December 31, 2003 was $5.1
million and is included in Other Assets.
In December 2003, we entered into two forward-starting interest rate swaps with
an aggregate notional amount of $97.0 million in anticipation of the issuance of
fixed-rate medium term notes subsequent to year-end. These contracts were
designated as a cash flow hedge of forecasted interest payments for $100 million
of unsecured notes with a coupon of 4.9% that were sold in February 2004.
Concurrent with the sale of the 4.9% notes, we settled our $97.0 million
forward-starting interest rate swap contracts, resulting in a loss of $.9
million recorded in accumulated other comprehensive income. This $.9 million
loss is being amortized to earnings over the life of the 4.9% notes. In January
2004, we entered into four additional forward-starting interest rate swaps with
an aggregate notional amount of $194.0 million in anticipation of the issuance
of fixed-rate medium term notes before April 2004. Medium term notes totaling
$50 million were issued in January 2004, at which time one of the four
forward-starting interest rate swaps with a notional amount of $48.5 million was
settled at a loss of $.7 million.
On December 31, 2003 and 2002, the derivative instruments designated as cash
flow hedges were reported at their fair values as Other Liabilities, net of
accrued interest, of $0.9 million and $2.4 million, respectively. The
derivative instruments designated as fair value hedges on December 31, 2003 and
2002 were reported at their fair values as Other Assets, net of accrued
interest, of $5.1 million and $7.7 million, respectively.
Within the next twelve months, the Company expects to reclassify to earnings as
interest expense approximately $0.6 million of the current balance held in
accumulated other comprehensive loss. As of December 31, 2003 and 2002, the
balance in accumulated other comprehensive income (loss) relating to the
derivatives was $.3 million and ($1.0) million, respectively. With respect to
fair value hedges, both changes in fair market value of the derivative hedging
instrument and changes in the fair value of the hedged item will be recorded in
earnings each reporting period. These amounts should completely offset with no
impact to earnings, except for the portion of the hedge that proves to be
ineffective, if any.
The interest rate swaps decreased interest expense and increased net income by
$2.3 million in 2003. In 2002 and 2001, the interest rate swaps increased
interest expense and decreased net income by $.8 million and $.5 million,
respectively. The interest rate swaps decreased the average rate for our debt
by .2% for 2003. In 2002 and 2001, the interest rate swaps increased the
average rate by .1% for both years. WRI could be exposed to credit losses in
the event of non-performance by the counter-party; however, management believes
the likelihood of such non-performance is remote.
NOTE 4. DEBT
WRI's debt consists of the following (in thousands):
DECEMBER 31,
---------------------------
2003 2002
------------ ------------
Fixed-rate debt payable to 2030 at 4.5% to 8.9%. . . . . . . $ 1,510,294 $ 1,097,185
Variable-rate unsecured notes payable. . . . . . . . . . . . 75,000
Unsecured notes payable under revolving credit agreements. . 259,050 119,000
Obligations under capital leases . . . . . . . . . . . . . . 33,458 33,462
Industrial revenue bonds payable to 2015 at 1.3% to 3.0% . . 7,904 5,722
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . $ 1,810,706 $ 1,330,369
============ ============
22
The grouping of WRI's total debt between fixed and variable-rate as well as
between secured and unsecured is summarized below (in thousands):
DECEMBER 31,
---------------------------
2003 2002
------------ ------------
As to interest rate (including the effects of interest rate swaps):
Fixed-rate debt. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,458,792 $ 1,055,688
Variable-rate debt . . . . . . . . . . . . . . . . . . . . . . . . 351,914 274,681
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,810,706 $ 1,330,369
============ ============
As to collateralization:
Unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,216,998 $ 958,719
Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 593,708 371,650
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $1,810,706 $ 1,330,369
============ ============
In November 2003, WRI entered into an Amended and Restated Credit Agreement
creating a $400 million unsecured revolving credit facility. The agreement
expires in November 2006, but we can request a one-year extension of the
agreement, solely at our option. We also have an agreement for an unsecured and
uncommitted overnight credit facility totaling $20 million with a bank to be
used for cash management purposes. WRI had letters of credit totaling $14.9
million outstanding under the $400 million revolving credit facility at December
31, 2003. The revolving credit agreements are subject to normal banking terms
and conditions and do not adversely restrict our operations or liquidity.
At December 31, 2003, the variable interest rate for notes payable under the
$400 million revolving credit agreement was 1.7%. During 2003, the maximum
balance and weighted average balance outstanding under both the $400 million and
the $20 million revolving credit facilities were $275.2 million and $110.6
million, respectively, at a weighted average interest rate of 2.2%. WRI made
cash payments for interest on debt, net of amounts capitalized, of $84.5 million
in 2003, $63.1 million in 2002 and $42.9 million in 2001.
During the year ended December 31, 2003, WRI issued a total of $211 million of
unsecured fixed-rate medium term notes with a weighted average rate of 5.2% and
a weighted average term of 10.7 years. Subsequent to year-end, WRI issued a
total of $150 million of ten-year unsecured fixed-rate medium term notes with a
weighted average rate, net of the effect of related swaps, of 5.1%. Proceeds
received from both 2003 and 2004 medium term note issuances were used to pay
down amounts outstanding under our revolving credit facilities. In addition, a
$25 million floating-rate medium term note matured in July 2003, and a $15
million fixed-rate medium term note matured in December 2003.
In conjunction with property acquisitions completed during 2003, we assumed
$155.0 million of non-recourse debt secured by the related properties. The
weighted average interest rate on this debt is 7.1% and the weighted average
remaining life is 6.6 years. Additionally, we assumed non-recourse debt secured
by three properties that are held by joint ventures or partnerships in which we
participate. Our share of this debt totaled $25.2 million with a weighted
average interest rate of 7.6% and a weighted average remaining life of 7.5
years. This non-recourse assumed debt falls within the scope of SFAS No. 141
and 142 since the contractual interest rate was higher than current market
rates. The over-market mortgage adjustment on all debt assumed in 2003 was
$24.4 million and is reported in Other Liabilities.
Various leases and properties, and current and future rentals from those leases
and properties, collateralize certain debt. At December 31, 2003 and 2002, the
carrying value of such property aggregated $933.5 million and $688.5 million,
respectively.
23
Scheduled principal payments on our debt (excluding $259 million due under our
revolving credit agreements, $21.0 million of capital leases and $5.1 million
market value of rate swaps) are due during the following years (in thousands):
2004 . . . . . . $ 82,402
2005 . . . . . . 74,324
2006 . . . . . . 58,063
2007 . . . . . . 98,378
2008 . . . . . . 199,682
2009 . . . . . . 94,277
2010 . . . . . . 71,021
2011 . . . . . . 282,778
2012 . . . . . . 144,879
2013 . . . . . . 240,745
Thereafter . . . 181,162
Various debt agreements contain restrictive covenants, the most restrictive of
which requires WRI to maintain a pool of qualifying assets, as defined, of not
less than 160% of unsecured debt. Other restrictions include minimum interest
and fixed charge coverage ratios, minimum unencumbered interest coverage ratios,
minimum net worth requirements and both secured and unsecured debt to total
asset value measures. Management believes that WRI is in compliance with all
restrictive covenants.
NOTE 5. PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION
In May 2003, FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", which was
effective for the first interim period beginning after June 15, 2003. SFAS No.
150 requires that certain financial instruments that incorporate an obligation
by the issuer to transfer assets or issue equity be reported as liabilities.
Financial instruments that fall within the scope of SFAS No. 150 include equity
shares and non-controlling interests in subsidiaries that are mandatorily
redeemable. WRI's Series B and Series C Cumulative Redeemable Preferred Shares
fall within the scope of SFAS No. 150, since they are mandatorily redeemable and
redemption is through transfer of cash or a variable number of WRI common
shares. Accordingly, we reclassified the redemption value of these shares, net
of unamortized issuance costs of $6.3 million, from equity to liabilities
identified as "Preferred Shares Subject to Mandatory Redemption" as of September
30, 2003.
In December 2003, WRI redeemed $88.0 million of 7.125% Series B Cumulative
Redeemable Preferred Shares. This early redemption resulted in a loss equal to
the unamortized original issuance cost of $2.7 million. Proceeds from the
common share offerings in October and November 2003 were used to redeem these
shares.
Preferred Shares Subject to Mandatory Redemption at December 31, 2003 of $109.4
million represents the redemption value, net of unamortized issuance costs
totaling $3.6 million, of the 7.0% Series C Cumulative Redeemable Preferred
Shares. These shares, with a liquidation preference of $50 per share and no
stated maturity, can be redeemed by the holder only upon their death in either
cash or a variable number of common shares at our option. There are limitations
on the number of shares per shareholder and in the aggregate that may be
redeemed per year. These shares are also redeemable by WRI any time on or after
March 15, 2004. On March 2, 2004, WRI called for redemption of all of these
shares effective April 1, 2004.
NOTE 6. PREFERRED SHARES
In February 1998, WRI issued $75 million of 7.44% Series A Cumulative Redeemable
Preferred Shares with a liquidation preference of $25 per share, which were
called for redemption in April 2003. Upon the redemption of these shares, the
related original issuance costs of $2.5 million were reported as a deduction in
arriving at Net Income Available to Common Shareholders. The redemption in May
2003 was financed through the issuance of $75 million of depositary shares in
April 2003. Each depositary share represents one-thirtieth of a Series D
Cumulative Redeemable Preferred Share. The depositary shares are redeemable, in
whole or in part, for cash on or after April 30, 2008 at the option of WRI, at a
redemption price of $25 per depositary share, plus any accrued and unpaid
dividends thereon. The depositary shares are not convertible or exchangeable
24
for any other property or securities of WRI. The Series D preferred shares pay
a 6.75% annual dividend and have a liquidation value of $750 per share.
NOTE 7. COMMON SHARES
In October 2003, we issued 1.8 million common shares of beneficial interest.
Net proceeds to WRI totaled $50.9 million based on a price of $30.33 per share.
In November 2003, we issued an additional 1.5 million common shares of
beneficial interest. Net proceeds to WRI totaled $44.5 million based on a price
of $30.47 per share. The proceeds from the above offerings were used primarily
to redeem our 7.125% Series B Cumulative Redeemable Preferred Shares.
In February 2004, a three-for-two share split, effected in the form of a 50%
share dividend, was declared for shareholders of record on March 16, 2004,
payable March 30, 2004. In March 2004, we issued an additional 3.6 million
common shares of beneficial interest. Net proceeds to WRI totaled $118.0
million based on a price of $33.64 per share. The proceeds from this offering
will be used primarily to redeem our 7.0% Series C Cumulative Redeemable
Preferred Shares. All references to the number of shares and per share amounts
have been restated to reflect the three-for-two share split in March 2004, and
an amount equal to the par value of the number of common shares issued has been
reclassified to common shares from retained earnings.
In February 2002, a three-for-two share split, affected in the form of a 50%
share dividend, was declared for shareholders of record on April 1, 2002,
payable April 15, 2002. We issued 17.3 million common shares of beneficial
interest as a result of the share split. All references to the number of shares
and per share amounts have been restated to reflect the share split, and an
amount equal to the par value of the number of common shares issued has been
reclassified to common shares from retained earnings. Also in February 2002, we
completed the sale of .4 million common shares of beneficial interest. Net
proceeds to WRI totaled $9.5 million based on a price of $22.43 per share and
were used to pay down amounts outstanding under our revolving credit
facilities.
NOTE 8. PROPERTY
WRI's property consists of the following (in thousands):
DECEMBER 31,
---------------------------
2003 2002
------------ ------------
Land . . . . . . . . . . . . . . . . $ 600,369 $ 497,168
Land held for development. . . . . . 21,112 23,613
Land under development . . . . . . . 22,459 44,847
Buildings and improvements . . . . . 2,467,605 2,051,065
Construction in-progress . . . . . . 69,068 77,006
Property held for sale . . . . . . . 19,478 1,587
------------ ------------
Total. . . . . . . . . . . $ 3,200,091 $ 2,695,286
============ ============
The following carrying charges were capitalized (in thousands):
YEAR ENDED DECEMBER 31,
--------------------------------
2003 2002 2001
-------- --------- ---------
Interest . . . . . . . . . . . . $ 6,361 $ 9,642 $ 9,698
Ad valorem taxes . . . . . . . . 945 974 383
-------- --------- ---------
Total . . . . . . . . $ 7,306 $ 10,616 $ 10,081
======== ========= =========
25
Acquisitions of properties are accounted for utilizing the purchase method (as
set forth in SFAS No. 141 and SFAS No. 142) and, accordingly, the results of
operations are included in the company's results of operations from the
respective dates of acquisition. The company has used estimates of future cash
flows and other valuation techniques to allocate the purchase price of acquired
property among land, buildings on an "as if vacant" basis, and other
identifiable intangibles. Other identifiable intangibles include the effect of
out-of-market leases, the value of having leases in place and out-of-market
assumed mortgages. At December 31, 2003, the company included deferred charges
of $5.2 million for above-market leases in Other Assets, deferred credits of
$4.9 million for below-market leases and $24.4 million for out-of-market assumed
mortgages in Other Liabilities and deferred charges of $12.4 million for lease
origination costs in Unamortized Debt and Lease Costs. These identifiable debit
and credit intangibles are amortized over the terms of the acquired leases or
the remaining lives of the mortgages.
During 2003, WRI invested $404.6 million in the acquisition of operating
properties of which $307.8 million was invested in shopping centers and $96.8
million was invested in industrial properties. Additionally, we acquired a
retail property through an investment of $9.2 million in a 40%-owned
unconsolidated joint venture. We acquired 16 shopping centers adding 2.6
million square feet and five industrial properties adding 1.9 million square
feet to our portfolio. Non-recourse secured debt totaling $180.2 million, of
which $25.2 million is held by joint ventures or partnerships in which we
participate, was assumed in conjunction with these purchases. Additionally,
operating partnership units valued at $6.8 million were issued in conjunction
with the purchase of three properties that used the DownREIT structure. The
cash requirements for all acquisitions in 2003 were initially financed under
WRI's revolving credit facilities, funded with excess cash flow from our
existing portfolio of properties or with proceeds from property dispositions.
In 2003, WRI acquired land, either directly or through its interests in joint
ventures, at four separate locations for the development of three retail
shopping centers and one industrial distribution warehouse. During 2003, we
invested $64.0 million in new developments.
NOTE 9. DISCONTINUED OPERATIONS
On January 1, 2002, WRI adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 addresses accounting and reporting
for the impairment or disposal of a component of a business. More specifically,
this Statement broadens the presentation of discontinued operations to include a
component of an entity whose operations and cash flows can be clearly
distinguished, operationally and for financial reporting purposes, from the rest
of the entity.
In 2003, we sold five retail projects located in San Antonio (1), McKinney (1),
Nacogdoches (1) and Houston (2), Texas. Also, a warehouse building in Memphis,
Tennessee and a retail building in Houston, Texas were sold. The operating
results and the gain on sale of these properties have been reclassified and
reported as discontinued operations in the Statements of Consolidated Income and
Comprehensive Income. Included in the Consolidated Balance Sheet at December
31, 2002 is $1.6 million reported as property held for sale for the warehouse
building and $14.3 million of Property and $4.7 million of Accumulated
Depreciation associated with the remaining 2003 property dispositions.
In 2002, we sold five retail projects located in Houston (3), Grand Prairie and
San Antonio, Texas, one industrial building located in Houston, Texas and the
River Pointe Apartments located in Conroe, Texas. Accordingly, the operating
results and the gain on sale of the disposed properties have been reclassified
and reported as discontinued operations in the Statements of Consolidated Income
and Comprehensive Income.
Property held for sale as of December 31, 2003 represents two retail shopping
centers located in Webster and Kingwood, Texas that were sold in June 2004. The
operating results of these shopping centers were reclassified and reported as
discontinued operations in the Statements of Consolidated Income and
Comprehensive Income, and $19.5 million is reported as property held for sale in
the Consolidated Balance Sheet at December 31, 2003.
Discontinued operations for properties sold in 2002, 2003 and 2004 had no debt
that was required to be repaid upon their disposition. In addition, we elected
not to allocate other consolidated interest to discontinued operations since the
interest savings to be realized from the proceeds of the sale of these
operations was not material.
26
NOTE 10. RELATED PARTY TRANSACTIONS
WRI has mortgage bonds and notes receivable from WRI Holdings, Inc. of $2.8
million, net of deferred gain of $3.0 million at both December 31, 2003 and
2002. WRI and WRI Holdings share certain directors and are under common
management. Unimproved land collateralizes these receivables. Management
believes that the fair market value of the collateral exceeds the carrying value
of the bonds and notes. The bonds and notes bear interest at rates of 16% and
prime plus 1%, respectively. However, due to WRI Holdings' poor financial
condition, WRI has limited the recognition of interest income for financial
statement purposes to the amount of cash payments received. WRI did not receive
any interest payments in 2003 or 2002, and does not anticipate receiving such
payments in the near term. No interest income has been recognized for financial
reporting purposes in the last three years.
In 2002, undeveloped land from WRI Holdings of 6.9 acres was sold and the net
proceeds of $1.4 million were used to pay down amounts outstanding under
mortgage bonds and notes payable to WRI.
WRI's unrecorded receivable for interest on the mortgage bonds and notes
receivable was $30.0 million and $28.1 million at December 31, 2003 and 2002,
respectively. Interest income not recognized by WRI for financial reporting
purposes aggregated, in millions, $1.9, $1.9 and $2.5 for 2003, 2002 and 2001,
respectively. WRI does not anticipate recovery of the unrecorded receivable in
the future.
WRI owns interests in several joint ventures and partnerships. Notes receivable
from these entities bear interest at 3.5% to 10% at December 31, 2003, are due
at various dates through 2028 and are generally secured by real estate assets.
WRI recognized interest income on these notes as follows, in millions: $.5 in
2003; $.3 in 2002 and $.6 in 2001.
NOTE 11. INVESTMENT IN REAL ESTATE JOINT VENTURES
WRI owns interests in joint ventures or limited partnerships where we do not
exercise financial and operating control. These partnerships are accounted for
under the equity method since WRI exercises significant influence. Our
interests in these joint ventures and limited partnerships range from 20% to 75%
and, with the exception of one partnership which owns seven industrial
properties, each venture owns a single real estate asset. Combined condensed
financial information of these ventures (at 100%) is summarized as follows (in
thousands):
DECEMBER 31,
------------------------
2003 2002
---------- ----------
Combined Balance Sheets
Property. . . . . . . . . . . . . . . . $ 229,285 $ 177,396
Accumulated depreciation. . . . . . . . (26,845) (23,877)
---------- ----------
Property - net . . . . . . . . . . 202,440 153,519
Other assets. . . . . . . . . . . . . . 15,788 11,898
---------- ----------
Total . . . . . . . . . . . . $ 218,228 $ 165,417
========== ==========
Debt. . . . . . . . . . . . . . . . . . $ 92,839 $ 71,985
Amounts payable to WRI. . . . . . . . . 38,105 16,334
Other liabilities . . . . . . . . . . . 4,729 4,152
Accumulated equity. . . . . . . . . . . 82,555 72,946
---------- ----------
Total . . . . . . . . . . . . $ 218,228 $ 165,417
========== ==========
27
YEAR ENDED DECEMBER 31,
---------------------------------
2003 2002 2001
--------- --------- ---------
Combined Statements of Income
Revenues. . . . . . . . . . . . . . . . . . $ 24,572 $ 25,094 $ 25,548
--------- --------- ---------
Expenses:
Interest. . . . . . . . . . . . . . . . . 6,212 6,311 7,082
Depreciation and amortization . . . . . . 4,730 4,902 4,519
Operating . . . . . . . . . . . . . . . . 3,586 3,430 3,578
Ad valorem taxes. . . . . . . . . . . . . 3,238 3,220 3,294
General and administrative. . . . . . . . 81 44 46
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . 17,847 17,907 18,519
--------- --------- ---------
Gain on sale of properties. . . . . . . . . 1,016 2,854
--------- --------- ---------
Net income. . . . . . . . . . . . . . . . . $ 7,741 $ 7,187 $ 9,883
========= ========= =========
Our investment in real estate joint ventures, as reported on the balance sheets,
differs from our proportionate share of the joint ventures' underlying net
assets due to basis differentials, which arose upon the transfer of assets from
WRI to the joint ventures. This basis differential, which totaled $4.8 million
at December 31, 2003 and 2002, respectively, is depreciated over the useful
lives of the related assets.
Fees earned by WRI for the management of these joint ventures totaled, in
millions, $.6 in 2003 and $.5 in both 2002 and 2001.
In April 2003, a 38%-owned limited partnership commenced construction on a
116,000 square foot center in Denver, Colorado, which will include a
corporate-owned King Sooper Supermarket of 67,000 square feet. In July 2003, a
20%-owned limited partnership commenced construction on a 300,000 square foot
state-of-the-art distribution warehouse, which is located in Houston, Texas. In
August 2003, a 50%-owned joint venture sold a shopping center in Lake Charles,
Louisiana resulting in a gain of $1.0 million. In October 2003, a 40%-owned
joint venture acquired an 88,000 square foot shopping center in Highlands Ranch,
Colorado.
In May 2002, a 50%-owned joint venture commenced construction on a 660,000
square foot center in Las Vegas, Nevada, which will include a corporate-owned
Wal-Mart of 224,000 square feet and a corporate-owned Lowe's of 170,000 square
feet. In August 2002, a 33%-owned limited partnership commenced construction on
a 240,000 square foot center in American Fork, Utah, which will include a
corporate-owned Target of 147,000 square feet. Also, in August 2002, WRI
acquired a joint venture partner's 50% interest in a shopping center in
Lewiston, Maine.
NOTE 12. FEDERAL INCOME TAX CONSIDERATIONS
Federal income taxes are not provided because WRI qualifies as a REIT under the
provisions of the Internal Revenue Code. Shareholders of WRI include their
proportionate taxable income in their individual tax returns. As a REIT, 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 interest, ad
valorem taxes, depreciation, rental revenue and pension expense. As a result of
these differences, the tax basis exceeds the book value of our net assets by
$6.7 million at December 31, 2003.
28
For federal income tax purposes, the cash dividends distributed to common
shareholders are characterized as follows:
2003 2002 2001
------ ------ ------
Ordinary income . . . . . . . . . . . . . . . . . 91.0% 97.1% 92.2%
Return of capital (generally non-taxable) . . . . 8.7 6.2
Capital gain distributions. . . . . . . . . . . . 0.3 2.9 1.6
------ ------ ------
Total . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
====== ====== ======
NOTE 13. LEASING OPERATIONS
WRI's lease terms range from less than one year for smaller tenant spaces to
over twenty-five 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, 2003, in millions, is: $341.5 in 2004; $301.7 in 2005; $255.1 in
2006; $207.8 in 2007; $164.6 in 2008 and $660.2 thereafter. The future minimum
rental amounts do not include estimates for contingent rentals. Such contingent
rentals, in millions, aggregated $82.1 in 2003, $72.5 in 2002 and $64.0 in
2001.
NOTE 14. COMMITMENTS AND CONTINGENCIES
On certain properties, WRI leases from the landowners and then subleases these
properties to other parties. Future minimum rental payments under these
operating leases, in millions, are: $1.5 in 2004; $1.3 in 2005; $1.1 in 2006;
$.9 in 2007; $.9 in 2008; and $23.0 thereafter. Future minimum rental payments
on these leases have not been reduced by future minimum sublease rentals
aggregating $19.1 million through 2023 that are due under various non-cancelable
subleases. Rental expense (including insignificant amounts for contingent
rentals) for operating leases was, in millions: $2.8 in 2003; $2.7 in 2002 and
$2.8 in 2001. Sublease rental revenue (excluding amounts for improvements
constructed by WRI on the leased land) from these leased properties was as
follows, in millions: $3.2 in 2003, $3.0 in 2002 and $3.1 in 2001.
Property under capital leases, consisting of four shopping centers, aggregated
$29.1 million at December 31, 2003 and 2002, respectively, and is included in
buildings and improvements. Amortization of property under capital leases is
included in depreciation and amortization expense. Future minimum lease
payments under these capital leases total $61.6 million, with annual payments
due, in millions, of $1.9 in 2004; $2.0 in each of 2005, 2006 and 2007; $2.1 in
2008 and $51.6 thereafter. The amount of these total payments representing
interest is $28.1 million. Accordingly, the present value of the net minimum
lease payments is $33.5 million at December 31, 2003.
WRI owns interests in six limited partnerships (referred to as DownREITs) that
have acquired properties in Utah, Georgia, Arkansas and North Carolina. These
limited partnerships allow the outside limited partners to put their interest to
the partnership for WRI common shares of beneficial interest or an equivalent
amount in cash. WRI may assume the right to acquire any limited partnership
interests that are put to the partnership and may, at its option, settle the put
in cash or a fixed number of WRI common shares. In 2003, WRI paid $4.2 million
and issued .1 million common shares of beneficial interest valued at $5.4
million in exchange for certain of these limited partnership interests. WRI, as
general partner, exercises operating and financial control of the partnerships
and consolidates their operations in the accompanying consolidated financial
statements.
WRI expects to invest $22.7 million in 2004 to complete construction of
properties currently under development.
29
WRI is involved in various matters of litigation arising in the normal course of
business. While WRI is unable to predict with certainty the amounts involved,
WRI's management and counsel are of the opinion that, when such litigation is
resolved, WRI's resulting liability, if any, will not have a material effect on
WRI's consolidated financial statements.
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of WRI's financial instruments was determined using available
market information and appropriate valuation methodologies as of December 31,
2003. Unless otherwise described below, all other financial instruments are
carried at amounts which approximate their fair values.
Based on rates currently available to WRI for debt with similar terms and
average maturities, fixed-rate debt with carrying values of $1.5 billion and
$1.1 billion have fair values of approximately $1.6 billion and $1.2 billion at
December 31, 2003 and 2002, respectively. The fair value of WRI's variable-rate
debt approximates its carrying values of $351.9 million and $274.7 million at
year-end 2003 and 2002, respectively.
NOTE 16. SHARE OPTIONS AND AWARDS
WRI had an incentive share option plan, which provided for the issuance of
options and share awards up to a maximum of 1.6 million common shares that
expired in December 1997. Options granted under this plan generally became
exercisable in equal increments over a three-year period. WRI has an additional
share option plan, which grants 100 share options to every employee of WRI,
excluding officers, upon completion of each five-year interval of service. This
plan, which expires in 2012, provides options for a maximum of 225,000 common
shares. Options granted under this plan are exercisable immediately. For both
of these share option plans, options are granted to employees of WRI at an
exercise price equal to the quoted fair market value of the common shares on the
date the options are granted and expire upon termination of employment or ten
years from the date of grant.
WRI has another share option plan, which expired in 2002, that provided for the
issuance of up to 3.9 million common shares, either in the form of restricted
shares or share options. Prior to 2000, the restricted shares generally vested
over a ten-year period, with potential acceleration of vesting due to
appreciation in the market value of our common shares. Beginning in 2000, the
vesting period is five years. During 2003 and 2002, the vesting of certain
restricted share grants was accelerated pursuant to the terms of the award
agreements, due to appreciation in the market share price, resulting in
additional compensation expense of $.7 million for both 2003 and 2002. The
share options granted to non-officers vest over a three-year period beginning
one year after the date of grant, and over a seven-year period beginning two
years after the date of grant for officers. Share options were granted at the
quoted fair market value on the date of grant. Restricted shares are issued at
no cost to the employee, and as such we recognized compensation expense relating
to restricted shares, excluding the effect of accelerated vesting, as follows,
in millions: $.5 in 2003, $.7 in 2002 and $.8 in 2001.
In April 2001, WRI adopted the 2001 Long Term Incentive Plan for the issuance of
options and share awards up to a maximum of 2.3 million common shares. The plan
expires in April 2011. In December 2003, .5 million share options were granted.
The share options granted to non-officers vest over a three-year period
beginning one year after the date of grant and, for officers over a five-year
period one year after the date of grant.
30
Following is a summary of the option activity for the three years ended December
31, 2003:
SHARES WEIGHTED
UNDER AVERAGE
OPTION EXERCISE PRICE
---------- --------------
Outstanding, January 1, 2001 . . . . . 3,185,531 $ 17.46
Granted. . . . . . . . . . . . . . . 791,190 20.71
Canceled . . . . . . . . . . . . . . (249,525) 16.80
Exercised. . . . . . . . . . . . . . (644,477) 16.34
----------
Outstanding, December 31, 2001 . . . . 3,082,719 18.58
Granted. . . . . . . . . . . . . . . 592,176 24.39
Canceled . . . . . . . . . . . . . . (49,974) 19.89
Exercised. . . . . . . . . . . . . . (564,683) 16.79
----------
Outstanding, December 31, 2002 . . . . 3,060,238 19.99
Granted. . . . . . . . . . . . . . . 499,083 30.01
Canceled . . . . . . . . . . . . . . (7,800) 22.28
Exercised. . . . . . . . . . . . . . (458,985) 17.38
----------
Outstanding, December 31, 2003 . . . . 3,092,536 $ 22.01
==========
The number of share options exercisable at December 31, 2003, 2002 and 2001 was,
in millions: 1.0, 1.2 and 1.6, respectively. Options exercisable at year-end
2003 had a weighted average exercise price of $18.67. The weighted average fair
value per share of options granted during 2003, 2002 and 2001 was $1.64, $1.75
and $1.62, respectively. There were 1.9 million common shares available for the
future grant of options or awards at December 31, 2003.
The following table summarizes information about share options outstanding and
exercisable at December 31, 2003:
OUTSTANDING EXERCISABLE
----------------------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE PRICE NUMBER PRICE
--------------- --------- ---------------- -------- --------- ----------
$16.44 - $24.58 2,601,817 6.50 years $ 20.49 1,040,907 $ 18.67
$24.58 - $30.09 490,719 10.00 years 30.09
--------- ---------------- --------- --------- ----------
Total. . . . 3,092,536 7.06 years $ 22.01 1,040,907 $ 18.67
========= ================ ========= ========= ==========
31
NOTE 17. BANKRUPTCY REMOTE PROPERTIES
WRI has 41 properties, having a net book value of approximately $711.8 million
at December 31, 2003 (collectively the "Bankruptcy Remote Properties", and each
a "Bankruptcy Remote Property"), which are wholly owned by various "Bankruptcy
Remote Entities". Each Bankruptcy Remote Entity is either a direct or an
indirect subsidiary of WRI. The assets of each Bankruptcy Remote Entity,
including the respective Bankruptcy Remote Property or Properties owned by each,
are owned by that Bankruptcy Remote Entity alone and are not available to
satisfy claims that any creditor may have against WRI, its affiliates, or any
other person or entity. No Bankruptcy Remote Entity has agreed to pay or make
its assets available to pay creditors of WRI, any of its affiliates, or any
other person or entity. Neither WRI nor any of its affiliates has agreed to pay
or make its assets available to pay creditors of any Bankruptcy Remote Entity
(other than any agreement by a Bankruptcy Remote Entity to pay its own
creditors). No affiliate of any Bankruptcy Remote Entity has agreed to pay or
make its assets available to pay creditors of any Bankruptcy Remote Entity.
The accounts of the Bankruptcy Remote Entities are included in WRI's
consolidated financial statements because WRI exercises financial and operating
control over each of these entities.
NOTE 18. EMPLOYEE BENEFIT PLANS
WRI has 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
WRI 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 six-year period.
Compensation expense related to the plan was $.5 million in both 2003 and 2002
and $.4 million in 2001.
WRI also has an Employee Share Purchase Plan under which .4 million of WRI
common shares have been authorized. These shares, as well as common shares
purchased by WRI on the open market, are made available for sale to employees at
a discount of 15%. 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 with WRI. A total of 19,220, 23,033 and 23,792 shares
were purchased by employees at an average price of $28.90, $20.08 and $17.22
during 2003, 2002 and 2001, respectively.
32
Prior to April 1, 2002, WRI maintained a non-contributory pension plan covering
substantially all of its employees. Effective April 1, 2002, WRI converted to a
non-contributory cash balance 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. Vesting generally occurs after five years of
service. Certain participants were grandfathered under the prior pension plan.
Reconciliation of the benefit obligation, plan assets at fair value, funded
status of the plan and net amount recognized are as follows (in thousands):
2003 2002
--------- ---------
Benefit obligation at beginning of year. . . . . . . . $ 13,290 $ 12,197
Service cost . . . . . . . . . . . . . . . . . . . . . 509 384
Interest cost. . . . . . . . . . . . . . . . . . . . . 870 807
Amendments . . . . . . . . . . . . . . . . . . . . . . (1,407)
Assumption changes . . . . . . . . . . . . . . . . . . 1,607
Actuarial loss . . . . . . . . . . . . . . . . . . . . 704 115
Benefit payments . . . . . . . . . . . . . . . . . . . (433) (413)
--------- ---------
Benefit obligation at end of year. . . . . . . . . . . $ 14,940 $ 13,290
========= =========
Fair value of plan assets at beginning of year . . . . $ 9,183 $ 10,826
Actual return on plan assets . . . . . . . . . . . . . 2,089 (1,230)
Employer contributions . . . . . . . . . . . . . . . . 550
Benefit payments . . . . . . . . . . . . . . . . . . . (433) (413)
--------- ---------
Fair value of plan assets at end of year . . . . . . . $ 11,389 $ 9,183
========= =========
Funded status. . . . . . . . . . . . . . . . . . . . . $ (3,551) $ (4,107)
Unrecognized actuarial loss. . . . . . . . . . . . . . 2,680 3,481
Unrecognized prior service cost. . . . . . . . . . . . (1,151) (1,279)
--------- ---------
Pension liability. . . . . . . . . . . . . . . . . . . $ (2,022) $ (1,905)
========= =========
Amounts recognized in the Consolidated Balance Sheets:
Accrued benefit liability. . . . . . . . . . . . . . . $ (2,635) $ (3,477)
Accumulated other comprehensive loss . . . . . . . . . 613 1,572
--------- ---------
Net amount recognized. . . . . . . . . . . . . . . . . $ (2,022) $ (1,905)
========= =========
33
The components of net periodic benefit cost are as follows (in thousands):
2003 2002 2001
------ ------- ---------
Service cost . . . . . . . . . . . . . . . . $ 509 $ 384 $ 556
Interest cost. . . . . . . . . . . . . . . . 870 807 825
Expected return on plan assets . . . . . . . (807) (961) (1,092)
Prior service cost . . . . . . . . . . . . . (128) (128)
Recognized (gain) loss . . . . . . . . . . . 224 (158)
------ ------ ---------
Total . . . . . . . . . . . . . . . . . $ 668 $ 102 $ 131
====== ======= =========
The assumptions used to develop periodic expense are shown below:
2003 2002 2001
----- ----- -----
Discount rate for net periodic benefit cost. . . . . . . . . . . 6.50% 7.50% 7.50%
Salary scale increases for net periodic benefit cost . . . . . . 4.00% 5.00% 5.00%
Long-term rate of return on assets . . . . . . . . . . . . . . . 8.75% 9.00% 9.00%
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. WRI 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 8.75% as the
long-term rate of return assumption for 2003.
The assumptions used to develop the actuarial present value of the benefit
obligations were:
2003 2002 2001
----- ----- -----
Discount rate. . . . . . . . . . . . . . 6.25% 6.50% 7.50%
Salary scale increases . . . . . . . . . 4.00% 4.00% 5.00%
Contributions expected to be paid to the plan during 2004 are approximately
$500,000.
The measurement dates for the non-contributory pension plan were December 31,
2003 and December 31, 2002. The participant data used in determining the
liabilities and costs was collected as of January 1, 2003.
34
The fair value of the major categories of plan assets as provided by the plan
trustee is as follows (in thousands):
AS OF DECEMBER 31, 2003
-----------------------
Cash and short-term investments . . . . . . . . $ 357 3%
Mutual funds - equity . . . . . . . . . . . . . 8,062 71%
Mutual funds - fixed income . . . . . . . . . . 2,970 26%
--------- ----
Total. . . . . . . . . . . . . . $ 11,389 100%
========= ====
WRI's investment policy and strategy for plan assets require that plan assets be
allocated based on a "Broad Market Diversification" model. For purposes of
classifying domestic stock funds, approximately 65% of plan assets will be
allocated to large company funds and 20% to mid and small-company funds.
Approximately 15% of the overall stock allocation will be in the foreign stock
category. The remaining balance of plan assets is in the fixed-income component
of the portfolio that is divided between a short-term bond option and at least
two intermediate-term bond options. On a semi-annual basis, the plan assets are
rebalanced to maintain this asset allocation. Selected investment funds are
monitored as reasonably necessary to permit the WRI Investment Committee to
evaluate any material changes to the investment fund's performance.
WRI also has a non-qualified supplemental retirement plan for officers of WRI,
which provides for benefits in excess of the statutory limits of its
non-contributory cash balance retirement plan. The obligation is funded in a
grantor trust with a mix of assets similar to the non-contributory cash balance
retirement plan. We recognized expense of $.6 million in 2003 and $.4 million
in both 2002 and 2001.
NOTE 19. SEGMENT INFORMATION
The operating segments presented are the segments of WRI for which separate
financial information is available, and operating performance is evaluated
regularly by senior management in deciding how to allocate resources and in
assessing performance. WRI evaluates the performance of its operating segments
based on net operating income that is defined as total revenues less operating
expenses and ad valorem taxes. Management does not consider the effect of gains
or losses from the sale of property in evaluating ongoing operating performance.
The shopping center segment is engaged in the acquisition, development and
management of real estate, primarily anchored neighborhood and community
shopping centers located in Texas, California, Louisiana, Arizona, Nevada,
Arkansas, New Mexico, Oklahoma, Tennessee, Kansas, Colorado, Missouri, Illinois,
Florida, North Carolina, Mississippi, Georgia, Utah and Maine. The customer
base includes supermarkets, discount retailers, drugstores and other retailers
who generally sell basic necessity-type commodities. The industrial segment is
engaged in the acquisition, development and management of bulk warehouses and
office/service centers. Its properties are located in Texas, Nevada, Georgia,
Florida, California and Tennessee, and the customer base is diverse. Included
in "Other" are corporate-related items, insignificant operations and costs that
are not allocated to the reportable segments.
35
Information concerning WRI's reportable segments is as follows (in thousands):
SHOPPING
CENTER INDUSTRIAL OTHER TOTAL
------------ ---------- ---------- ------------
2003:
Revenues . . . . . . . . . . . . . . . . . . . $ 371,431 $ 42,389 $ 2,221 $ 416,041
Net operating income . . . . . . . . . . . . . 272,538 30,268 1,498 304,304
Equity in earnings of joint ventures . . . . . 4,704 118 (79) 4,743
Investment in real estate joint ventures . . . 32,453 289 32,742
Total assets . . . . . . . . . . . . . . . . . 2,397,273 295,611 230,910 2,923,794
Capital expenditures . . . . . . . . . . . . . 429,666 105,773 1,914 537,353
2002:
Revenues . . . . . . . . . . . . . . . . . . . $ 321,847 $ 36,123 $ 2,005 $ 359,975
Net operating income . . . . . . . . . . . . . 235,407 24,653 1,497 261,557
Equity in earnings of joint ventures . . . . . 3,779 314 (50) 4,043
Investment in real estate joint ventures . . . 28,469 269 28,738
Total assets . . . . . . . . . . . . . . . . . 2,075,764 212,189 135,936 2,423,889
Capital expenditures . . . . . . . . . . . . . 374,864 6,395 7,752 389,011
2001:
Revenues . . . . . . . . . . . . . . . . . . . $ 269,458 $ 31,576 $ 2,767 $ 303,801
Net operating income . . . . . . . . . . . . . 195,943 22,065 1,861 219,869
Equity in earnings of joint ventures . . . . . 3,696 1,909 (58) 5,547
Investment in real estate joint ventures . . . 25,094 648 25,742
Total assets . . . . . . . . . . . . . . . . . 1,775,131 215,782 104,834 2,095,747
Capital expenditures . . . . . . . . . . . . . 615,144 44,083 3,306 662,533
Net operating income reconciles to income before discontinued operations as
shown on the Statements of Consolidated Income and Comprehensive Income as
follows (in thousands):
2003 2002 2001
---------- ---------- ----------
Total segment net operating income. . . . . . . . . . $ 304,304 $ 261,557 $ 219,869
Less:
Depreciation and amortization. . . . . . . . . . 93,382 77,113 65,630
Interest . . . . . . . . . . . . . . . . . . . . 88,871 65,863 54,473
General and administrative . . . . . . . . . . . 13,820 11,148 9,570
Loss on early redemption of preferred shares . . 2,739
Income allocated to minority interests . . . . . 2,723 3,553 475
Equity in earnings of joint ventures . . . . . . (4,743) (4,043) (5,547)
Gain on sale of properties . . . . . . . . . . . (714) (188) (8,339)
--------- --------- ----------
Income before discontinued operations . . . . . . . . $ 108,226 $ 108,111 $ 103,607
========== ========== ==========
36
NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows (in thousands, except per
share amounts):
FIRST SECOND THIRD FOURTH
--------- ---------- ---------- ----------
2003:
Revenues . . . . . . . . . . . . . . . . . . . $ 96,844 $ 101,994 $ 106,379 $ 110,824
Net income available to common shareholders. . 24,969 21,060 (1) 28,381 (2) 23,470 (1)
Net income per common share - basic. . . . . . 0.32 0.27 (1) 0.36 (2) 0.29 (1)
Net income per common share - diluted. . . . . 0.32 0.27 (1) 0.36 (2) 0.29 (1)
2002:
Revenues . . . . . . . . . . . . . . . . . . . $ 83,096 $ 89,557 $ 92,021 $ 95,301
Net income available to common shareholders. . 24,478 26,395 34,486 (2) 26,752
Net income per common share - basic. . . . . . 0.32 0.34 0.44 (2) 0.34
Net income per common share - diluted. . . . . 0.31 0.34 0.44 (2) 0.34
<FN>
(1) The change is primarily the result of non-cash charges for the
redemption of preferred shares during the quarter.
(2) The change is primarily the result of gains on the sale of
properties during the quarter.
* * * *
37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the "Share Ownership of Certain
Beneficial Owners" section of WRI's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held April 23, 2004.
The following table summarizes the equity compensation plans under which
WRI's common shares may be issued as of December 31, 2003:
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. . . . . . . 3,092,536 $ 22.01 1,882,056
Equity compensation plans not
approved by shareholders. . . . . . .
----------------------- -------------------- --------------------
Total . . . . . . 3,092,536 $ 22.01 1,882,056
======================= ==================== ====================
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(1) Financial Statement Schedules:
=================================
SCHEDULE PAGE
-------- ----
II Valuation and Qualifying Accounts. . . . . . . 39
III Real Estate and Accumulated Depreciation . . . 40
IV Mortgage Loans on Real Estate. . . . . . . . . 42
38
SCHEDULE II
WEINGARTEN REALTY INVESTORS
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
Charged
Balance at to costs Charged Balance
beginning and to other Deductions at end of
Description of period expenses accounts (A) period
----------------- ---------- --------- -------- ---------- ---------
2003:
Allowance for Doubtful Accounts. . . . . . . $ 4,302 $ 3,637 $ 3,873 $ 4,066
2002:
Allowance for Doubtful Accounts. . . . . . . $ 2,926 $ 3,869 $ 2,493 $ 4,302
2001:
Allowance for Doubtful Accounts. . . . . . . $ 1,884 $ 3,764 $ 2,722 $ 2,926
- -------------------
Note A - Write-offs of accounts receivable previously reserved.
39
SCHEDULE III
WEINGARTEN REALTY INVESTORS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
(AMOUNTS IN THOUSANDS)
Total Cost
---------------------------------------
Buildings Projects
and Under Total Accumulated Encumbrances
Land Improvements Development Cost Depreciation (A)
---------- ------------- ------------ ------------ ------------- ------------
SHOPPING CENTERS:
Texas. . . . . . .. . . . . . . . . . $ 187,674 $ 757,237 $ 944,911 $ 296,879 $ 57,981
Other States . . .. . . . . . . . . . 350,500 1,382,737 1,733,237 164,761 455,226
---------- ------------ ---------- ------------ ---------- ----------
Total Shopping Centers. . . . . . 538,174 2,139,974 2,678,148 461,640 513,207
INDUSTRIAL:
Texas. . . . . . .. . . . . . . . . . 32,591 166,957 199,548 44,065 2,555
Other States . . .. . . . . . . . . . 29,070 110,027 139,097 4,132 23,476
---------- ------------ ---------- ------------ ---------- ----------
Total Industrial. . . . . . . . . 61,661 276,984 338,645 48,197 26,031
OTHER:
Texas. . . . . . .. . . . . . . . . . 534 12,545 13,079 7,325
---------- ------------ ---------- ------------ ---------- ----------
Total Improved Properties . . . . 600,369 2,429,503 3,029,872 517,162 539,238
---------- ------------ ---------- ------------ ---------- ----------
LAND UNDER DEVELOPMENT
OR HELD FOR DEVELOPMENT:
Texas. . . . . . .. . . . . . . . . . $ 30,949 30,949
Other States . . .. . . . . . . . . . 12,622 12,622
---------- ------------ ---------- ------------ ---------- ----------
Total Land Under Development
or Held for Development. . . . 43,571 43,571
---------- ------------ ---------- ------------ ---------- ----------
PROPERTY HELD FOR SALE:
Texas. . . . . . .. . . . . . . . . . 3,603 15,809 66 19,478
---------- ------------ ---------- ------------ ---------- ----------
Total Property Held for Sale. . . 3,603 15,809 66 19,478
---------- ------------ ---------- ------------ ---------- ----------
LEASED PROPERTY
(SHOPPING CENTERS)
UNDER CAPITAL LEASE:
Texas. . . . . . .. . . . . . . . . . 9,048 9,048 697
Other States . . .. . . . . . . . . . 29,054 29,054 9,516 12,467
---------- ------------ ---------- ------------ ---------- ----------
Total Leased Property
Under Capital Lease. . . . . . 38,102 38,102 10,213 12,467
---------- ------------ ---------- ------------ ---------- ----------
CONSTRUCTION IN
PROGRESS:
Texas. . . . . . .. . . . . . . . . . 24,062 24,062
Other States . . .. . . . . . . . . . 45,006 45,006
---------- ------------ ---------- ------------ ---------- ----------
Total Construction in
Progress. .. . . . . . . . . . 69,068 69,068
---------- ------------ ---------- ------------ ---------- ----------
TOTAL OF ALL PROPERTIES . . . . . $ 603,972 $ 2,483,414 $ 112,705 $ 3,200,091 $ 527,375 $ 551,705
========== ============ ========== ============ ========== ==========
<FN>
Note A - Encumbrances do not include $21.0 million outstanding under a $30 million 20-year term loan, payable to a group
of insurance companies secured by a property collateral pool including all or part of three shopping centers.
40
SCHEDULE III
(CONTINUED)
The changes in total cost of the properties for the years ended December
31, 2003, 2002 and 2001 were as follows:
2003 2002 2001
------------ ------------ ------------
Balance at beginning of year. . . . . $ 2,695,286 $ 2,352,393 $ 1,728,414
Additions at cost . . . . . . . . . . 537,353 389,011 662,533
Retirements or sales. . . . . . . . . (32,548) (46,118) (38,554)
------------ ------------ ------------
Balance at end of year. . . . . . . . $ 3,200,091 $ 2,695,286 $ 2,352,393
============ ============ ============
The changes in accumulated depreciation for the years ended December 31,
2003, 2002 and 2001 were as follows:
2003 2002 2001
---------- ---------- ----------
Balance at beginning of year. . . . . $ 460,832 $ 402,958 $ 362,267
Additions at cost . . . . . . . . . . 77,067 70,403 58,297
Retirements or sales. . . . . . . . . (10,524) (12,529) (17,606)
---------- ---------- ----------
Balance at end of year. . . . . . . . $ 527,375 $ 460,832 $ 402,958
========== ========== ==========
41
SCHEDULE IV
WEINGARTEN REALTY INVESTORS
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2003
(AMOUNTS IN THOUSANDS)
Final Periodic Face Carrying
Interest Maturity Payment Amount of Amount of
Rate Date Terms Mortgages Mortgages(A)
-------- -------- ------------------ --------- ------------
SHOPPING CENTERS:
FIRST MORTGAGES:
Eastex Venture
Beaumont, TX
(Note D) . . . . . . . . . . 6.75% 10-31-09 $ 314 Annual P & I $ 2,300 $ 1,574
Main/O.S.T., Ltd.
Houston, TX
(Note D) . . . . . . . . . . 9.3% 02-01-20 $ 476 Annual P & I 4,800 4,250
($1,241 balloon)
INDUSTRIAL:
FIRST MORTGAGES:
South Loop Business Park
Houston, TX
(Note D) . . . . . . . . . . 9.25% 11-01-07 $ 74 Annual P & I 439 236
UNIMPROVED LAND:
SECOND MORTGAGE:
River Pointe, Conroe, TX
(Notes B and D). . . . . . . Prime 12-01-04 Varying 12,000 2,698
+1% ($2,698 balloon)
--------- --------
TOTAL MORTGAGE LOANS ON
REAL ESTATE (Note D). . . . . . . $ 19,539 $ 8,758
========= ========
<FN>
- ------------------------------------
Note A - The aggregate cost at December 31, 2003 for federal income tax purposes is $8,758.
Note B - Principal payments are due monthly to the extent of cash flow generated by the underlying
property.
Note C - Changes in mortgage loans for the years ended December 31, 2003, 2002 and 2001 are
summarized below.
Note D - Represents WRI share of mortgage loans to joint ventures.
2003 2002 2001
-------- --------- ---------
Balance, Beginning of Year . . . $ 9,006 $ 10,627 $ 14,327
Additions to Existing Loans. . . 80 173 205
Collections of Principal . . . . (328) (1,794) (3,905)
-------- --------- ---------
Balance, End of Year . . . . . . $ 8,758 $ 9,006 $ 10,627
======== ========= =========
42