UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to ____________________
Commission file number 1-9876
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WEINGARTEN REALTY INVESTORS
---------------------------
(Exact name of registrant as specified in its charter)
Texas 74-1464203
- ---------------------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 Citadel Plaza Drive, P.O. Box 924133, Houston, Texas 77292-4133
- ---------------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 866-6000
--------------
______________________________________________
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------. ------.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No
------. ------.
As of October 28, 2004, there were 88,931,301 common shares of beneficial
interest of Weingarten Realty Investors, $.03 par value, outstanding.
PART I-FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WEINGARTEN REALTY INVESTORS
STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS THAT ARE REPORTED ON A
POST-SPLIT BASIS)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenues:
Rentals . . . . . . . . . . . . . . . . . . . . . . . . . $ 128,433 $ 102,781 $ 365,844 $ 298,192
Interest income . . . . . . . . . . . . . . . . . . . . . 374 480 1,033 1,277
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,079 3,118 3,792 5,750
---------- ---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . 129,886 106,379 370,669 305,219
---------- ---------- ---------- ----------
Expenses:
Depreciation and amortization . . . . . . . . . . . . . . 30,421 23,070 86,128 66,265
Interest. . . . . . . . . . . . . . . . . . . . . . . . . 29,826 22,220 85,699 62,695
Operating . . . . . . . . . . . . . . . . . . . . . . . . 20,888 16,562 56,882 46,595
Ad valorem taxes. . . . . . . . . . . . . . . . . . . . . 14,453 12,466 43,565 35,080
General and administrative. . . . . . . . . . . . . . . . 4,085 3,655 12,047 10,126
Loss on early redemption of preferred shares. . . . . . . 3,566
---------- ---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . 99,673 77,973 287,887 220,761
---------- ---------- ---------- ----------
Operating Income. . . . . . . . . . . . . . . . . . . . . . 30,213 28,406 82,782 84,458
Equity in Earnings of Joint Ventures. . . . . . . . . . . . 1,656 1,485 4,593 3,521
Income Allocated to Minority Interests. . . . . . . . . . . (1,001) (591) (2,855) (2,323)
Impairment Loss on Land Held for Development. . . . . . . . (2,700)
Gain on Sale of Properties. . . . . . . . . . . . . . . . . 370 8 789
---------- ---------- ---------- ----------
Income Before Discontinued Operations . . . . . . . . . . . 31,238 29,308 82,609 85,656
---------- ---------- ---------- ----------
Operating Income from Discontinued Operations . . . . . . . 412 790 1,660
Gain on Sale of Properties. . . . . . . . . . . . . . . . . 3,465 13,430 4,228
---------- ---------- ---------- ----------
Income From Discontinued Operations. . . . . . . . . 3,877 14,220 5,888
---------- ---------- ---------- ----------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . 31,238 33,185 96,829 91,544
Dividends on Preferred Shares . . . . . . . . . . . . . . . 2,428 4,804 4,959 14,646
Original Issuance Cost Associated with Series A
Preferred Shares. . . . . . . . . . . . . . . . . . . . . 2,488
---------- ---------- ---------- ----------
Net Income Available to Common Shareholders . . . . . . . . $ 28,810 $ 28,381 $ 91,870 $ 74,410
========== ========== ========== ==========
Net Income Per Common Share - Basic:
Income Before Discontinued Operations . . . . . . . . . . $ .33 $ .31 $ .91 $ .88
Income From Discontinued Operations . . . . . . . . . . . .05 .17 .07
---------- ---------- ---------- ----------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . $ .33 $ .36 $ 1.08 $ .95
========== ========== ========== ==========
Net Income Per Common Share - Diluted:
Income Before Discontinued Operations . . . . . . . . . . $ .33 $ .31 $ .91 $ .88
Income From Discontinued Operations . . . . . . . . . . . .05 .16 .07
---------- ---------- ---------- ----------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . $ .33 $ .36 $ 1.07 $ .95
========== ========== ========== ==========
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . $ 31,238 $ 33,185 $ 96,829 $ 91,544
---------- ---------- ---------- ----------
Other Comprehensive Income (Loss):
Unrealized derivative gain on interest rate swaps . . . . 387 939 1,506
Amortization of forward-starting interest rate swaps. . . 86 (40) 151 (120)
Unrealized derivative loss on forward-starting
interest rate swaps . . . . . . . . . . . . . . . . . . (4,977)
---------- ---------- ---------- ----------
Other Comprehensive Income (Loss) . . . . . . . . . . . . . 86 347 (3,887) 1,386
---------- ---------- ---------- ----------
Comprehensive Income. . . . . . . . . . . . . . . . . . . . $ 31,324 $ 33,532 $ 92,942 $ 92,930
========== ========== ========== ==========
See Notes to Consolidated Financial Statements.
2
WEINGARTEN REALTY INVESTORS
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
September 30, December 31,
2004 2003
------------- ------------
ASSETS
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,695,442 $ 3,200,091
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . (594,910) (527,375)
------------- ------------
Property - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,100,532 2,672,716
Investment in Real Estate Joint Ventures . . . . . . . . . . . . . . . . . . . 46,686 35,085
------------- ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,147,218 2,707,801
Notes Receivable from Real Estate Joint Ventures and Partnerships. . . . . . . 18,949 36,825
Unamortized Debt and Lease Costs . . . . . . . . . . . . . . . . . . . . . . . 85,615 70,895
Accrued Rent and Accounts Receivable (net of allowance for doubtful
accounts of $4,185 in 2004 and $4,066 in 2003) . . . . . . . . . . . . . . . 43,987 40,325
Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . 38,236 20,255
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,122 46,993
------------- ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,390,127 $ 2,923,094
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,054,281 $ 1,810,706
Preferred Shares Subject to Mandatory Redemption, net. . . . . . . . . . . . . 109,364
Accounts Payable and Accrued Expenses. . . . . . . . . . . . . . . . . . . . . 88,881 78,986
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,198 52,671
------------- ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,225,360 2,051,727
------------- ------------
Minority Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,789 49,804
------------- ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 10,000;
6.75% Series D cumulative redeemable preferred shares of
beneficial interest; 100 shares issued and outstanding in 2004
and 2003; liquidation preference $75,000 . . . . . . . . . . . . . . 3 3
6.95% Series E cumulative redeemable preferred shares of
beneficial interest; 29 shares issued and outstanding in 2004;
liquidation preference $72,500 . . . . . . . . . . . . . . . . . . . 1
Common Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 150,000; shares issued and outstanding:
88,865 in 2004 and 81,889 in 2003. . . . . . . . . . . . . . . . . . . 2,661 2,488
Capital Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,283,897 993,657
Accumulated Dividends in Excess of Net Income. . . . . . . . . . . . . . . (190,346) (174,234)
Accumulated Other Comprehensive Loss . . . . . . . . . . . . . . . . . . . (4,238) (351)
------------- ------------
Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . 1,091,978 821,563
------------- ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,390,127 $ 2,923,094
============= ============
See Notes to Consolidated Financial Statements.
3
WEINGARTEN REALTY INVESTORS
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Nine Months Ended
September 30,
-----------------------
2004 2003
----------- ----------
Cash Flows from Operating Activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,829 $ 91,544
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 86,466 67,151
Loss on early redemption of preferred shares. . . . . . . . 3,566
Equity in earnings of joint ventures. . . . . . . . . . . . (4,593) (3,521)
Income allocated to minority interests. . . . . . . . . . . 2,855 2,323
Impairment loss on land held for development. . . . . . . . 2,700
Gain on sale of properties. . . . . . . . . . . . . . . . . (14,219) (4,228)
Changes in accrued rent and accounts receivable . . . . . . (3,933) (374)
Changes in other assets . . . . . . . . . . . . . . . . . . (29,703) (21,632)
Changes in accounts payable and accrued expenses. . . . . . 6,244 (11,406)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . 755 699
----------- ----------
Net cash provided by operating activities . . . . . . 146,967 120,556
----------- ----------
Cash Flows from Investing Activities:
Investment in properties. . . . . . . . . . . . . . . . . . . . . (349,321) (249,796)
Notes receivable:
Advances. . . . . . . . . . . . . . . . . . . . . . . . . . (18,316) (15,760)
Collections . . . . . . . . . . . . . . . . . . . . . . . . 36,132 381
Proceeds from sales and disposition of property . . . . . . . . . 27,440 13,575
Real estate joint ventures and partnerships:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (23,168) (801)
Distributions . . . . . . . . . . . . . . . . . . . . . . . 8,119 4,053
----------- ----------
Net cash used in investing activities . . . . . . . . (319,114) (248,348)
----------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of:
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 413,070 317,102
Common shares of beneficial interest, net . . . . . . . . . 222,134 2,173
Preferred shares of beneficial interest, net. . . . . . . . 70,009 72,691
Redemption of preferred shares of beneficial interest . . . . . . (112,940) (75,000)
Principal payments of debt. . . . . . . . . . . . . . . . . . . . (289,357) (95,577)
Common and preferred dividends paid . . . . . . . . . . . . . . . (112,941) (106,141)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 (135)
----------- ----------
Net cash provided by financing activities . . . . . . 190,128 115,113
----------- ----------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . 17,981 (12,679)
Cash and cash equivalents at January 1. . . . . . . . . . . . . . . . 20,255 27,420
----------- ----------
Cash and cash equivalents at September 30 . . . . . . . . . . . . . . $ 38,236 $ 14,741
=========== ==========
See Notes to Consolidated Financial Statements.
4
WEINGARTEN REALTY INVESTORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements included in this report are
unaudited; however, amounts presented in the balance sheet as of December
31, 2003 are derived from our audited financial statements at that date. In
our opinion, all adjustments necessary for a fair presentation of such
financial statements have been included. Such adjustments consisted of
normal recurring items. Interim results are not necessarily indicative of
results for a full year.
The consolidated financial statements and notes are presented as permitted
by Form 10-Q and do not contain certain information included in our annual
financial statements and notes. These Consolidated Financial Statements
should be read in conjunction with our Annual Report on Form 10-K for the
year ended December 31, 2003.
All highly liquid investments with original maturities of three months or
less are considered cash equivalents. We issued 24,615 and 86,776 common
shares of beneficial interest valued at $.6 million and $2.0 million for
the nine months ended September 30, 2004 and 2003, respectively, in
exchange for interests in limited partnerships, which had been formed to
acquire operating properties. We assumed debt totaling $123.6 million and
$100.1 million in connection with purchases of property during the nine
months ended September 30, 2004 and 2003, respectively. Cash payments for
interest on debt, net of amounts capitalized, of $88.5 million and $77.7
million were made during the nine months ended September 30, 2004 and 2003,
respectively. In satisfaction of obligations under mortgage bonds and notes
receivable from WRI Holding, Inc. of $2.9 million, we acquired 9.7 acres of
land in July 2004.
Certain reclassifications of prior year amounts have been made to conform
to the current year presentation.
2. STOCK-BASED COMPENSATION
On January 1, 2003, we adopted SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement
No. 123", and began recognizing stock-based employee compensation as new
shares were awarded. 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):
5
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Net income available to common shareholders. . . . . . $ 28,810 $ 28,381 $ 91,870 $ 74,410
Stock-based employee compensation included in
net income available to common shareholders. . . . . 54 2 147 7
Stock-based employee compensation determined
under the fair value-based method for all awards . . (147) (103) (427) (310)
--------- --------- --------- ---------
Pro forma net income available to
common shareholders. . . . . . . . . . . . . . . . . $ 28,717 $ 28,280 $ 91,590 $ 74,107
========= ========= ========= =========
Net income per common share:
Basic - as reported. . . . . . . . . . . . . . . $ .33 $ .36 $ 1.08 $ .95
========= ========= ========= =========
Basic - pro forma. . . . . . . . . . . . . . . . $ .33 $ .36 $ 1.07 $ .95
========= ========= ========= =========
Net income per common share:
Diluted - as reported. . . . . . . . . . . . . . $ .33 $ .36 $ 1.07 $ .95
========= ========= ========= =========
Diluted - pro forma. . . . . . . . . . . . . . . $ .33 $ .36 $ 1.07 $ .94
========= ========= ========= =========
3. PER SHARE DATA
Net income per common share - basic is computed using net income available
to common shareholders and the weighted average shares outstanding, which
have been adjusted for the three-for-two share split declared in February
2004 and described in Note 12. Net income per common share - diluted
includes the effect of potentially dilutive securities for the periods
indicated as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Numerator:
Net income available to common shareholders - basic . . . $ 28,810 $ 28,381 $ 91,870 $ 74,410
Income attributable to operating partnership units. . . . 951 755 2,643 2,347
--------- --------- --------- ---------
Net income available to common shareholders - diluted . . $ 29,761 $ 29,136 $ 94,513 $ 76,757
========= ========= ========= =========
Denominator:
Weighted average shares outstanding - basic . . . . . . . 86,951 78,241 85,237 78,191
Effect of dilutive securities:
Share options and awards. . . . . . . . . . . . . . 920 897 874 748
Operating partnership units . . . . . . . . . . . . 2,666 2,038 2,364 2,141
--------- --------- --------- ---------
Weighted average shares outstanding - diluted . . . . . . 90,537 81,176 88,475 81,080
========= ========= ========= =========
Options to purchase 1,000 and 450 common shares for the third quarter ended
September 30, 2004 and 2003, respectively, were not included in the
calculation of net income per common share - diluted as the exercise prices
were greater than the average market price, while 1,700 and 1,650 common
shares have been excluded from the nine months ended September 30, 2004 and
2003 calculations of net income per common share - diluted as the exercise
prices were greater than the average market price.
6
4. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In January 2003 FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", which was reissued as Interpretation No. 46R
in December 2003. FIN 46R requires a variable interest entity to be
consolidated by a company if that company absorbs a majority of the
variable interest entity's expected losses, receives a majority of the
entity's expected residual returns, or both. It further requires
disclosures about variable interest entities that a company is not required
to consolidate, but in which it has a significant variable interest. We
have applied FIN 46R to our joint ventures and concluded that it did not
require consolidation of additional entities.
5. DISCONTINUED OPERATIONS
In 2004 two retail projects located in Webster and Kingwood, Texas were
sold. In 2003 we sold five retail projects located in San Antonio (1),
McKinney (1), Nacogdoches (1) and Houston (2), Texas. Also, in 2003 a
warehouse building in Memphis, Tennessee and a retail building in Houston,
Texas were sold. The operating results and the gain on sale of these
properties have been reclassified and reported as discontinued operations
in the Statements of Consolidated Income and Comprehensive Income in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." Included in the Consolidated Balance Sheet at December
31, 2003 is $19.5 million of Property and $7.0 million of Accumulated
Depreciation associated with the two retail projects located in Texas,
which were sold in 2004.
The discontinued operations reported in 2004 and 2003 had no debt that was
required to be repaid upon their disposition. In addition, we elected not
to allocate other consolidated interest to discontinued operations since
the interest savings to be realized from the proceeds of the sale of these
operations was not material.
6. DERIVATIVES AND HEDGING
We hedge the future cash flows of our debt transactions, as well as changes
in the fair value of our debt instruments, principally through interest
rate swaps with major financial institutions. At September 30, 2004, we
have ten active interest rate swap contracts with an aggregate notional
amount of $132.5 million that convert fixed interest payments at rates
ranging from 4.2% to 7.4% to variable interest payments. These contracts
have been designated as fair value hedges. We have determined that they are
highly effective in limiting our risk of changes in the fair value of
fixed-rate notes attributable to changes in variable interest rates. The
derivative instruments designated as fair value hedges on September 30,
2004 were reported at their fair values as Other Assets, net of accrued
interest, of $2.9 million and as Other Liabilities, net of accrued
interest, of $1.5 million.
Changes in the market value of fair value hedges, both in the market value
of the derivative instrument and in market value of the hedged item, are
recorded in earnings each reporting period, except for the portion of the
hedge that proves ineffective. For the quarter and nine months ending
September 30, 2004, these changes in fair market value offset with no
impact to earnings.
During the nine month period ending September 30, 2004, we settled various
forward-starting interest rate swaps designed to hedge the cash flow of
forecasted interest payments on future debt. These contracts were
designated as cash flow hedges and are described in more detail below.
Losses on the settlement of these cash flow hedges were recorded to
Accumulated Other Comprehensive Loss and are being amortized to interest
expense over the life of the hedged item.
As of September 30, 2004, the balance in Accumulated Other Comprehensive
Loss relating to derivatives was $3.6 million. Within the next twelve
months, we expect to amortize to interest expense approximately $0.3
million of that balance.
7
In December 2003 we entered into two forward-starting interest rate swaps
with an aggregate notional amount of $97.0 million in anticipation of the
issuance of fixed-rate medium term notes subsequent to year-end. These
contracts were designated as a cash flow hedge of forecasted interest
payments for $100 million of unsecured notes that were ultimately sold in
February 2004. Concurrent with the sale of these notes, we settled our
$97.0 million forward-starting interest rate swap contracts, resulting in a
loss of $.9 million. In January 2004 we entered into four additional
forward-starting interest rate swaps designated as cash flow hedges with an
aggregate notional amount of $194.0 million in anticipation of the issuance
of fixed-rate medium term notes. A medium term note totaling $50 million
was issued in January 2004, at which time one of the four forward-starting
interest rate swaps with a notional amount of $48.5 million was settled at
a loss of $.7 million. An additional medium term note totaling $50 million
was issued in March 2004, at which time the second of the four
forward-starting interest rate swaps with a notional amount of $48.5
million was settled at a loss of $2.7 million. In the second quarter of
2004, the remaining two forward-starting interest rate swaps with an
aggregate notional amount of $97 million were settled concurrent with the
issuance of an additional $100 million of medium term notes at a net loss
of $.7 million. Each of the losses described above was recorded to
Accumulated Other Comprehensive Loss and is being amortized to interest
expense over the life of the related medium term notes.
Also, in June 2004 two interest rate swaps designated as cash flow hedges
and two interest rate swaps designated as fair value hedges expired.
7. DEBT
Our debt consists of the following (in thousands):
September 30, December 31,
2004 2003
------------- ------------
Fixed-rate debt payable to 2030 at 4.5% to 8.9%. . . . . . . . $ 1,977,500 $ 1,510,294
Unsecured notes payable under revolving credit agreements. . . 31,000 259,050
Obligations under capital leases . . . . . . . . . . . . . . . 33,458 33,458
Industrial revenue bonds payable to 2015 at 1.7% to 3.6% . . . 7,768 7,904
Variable-rate debt payable to 2009 . . . . . . . . . . . . . . 4,555
------------- ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,054,281 $ 1,810,706
============= ============
As of September 30, 2004, we had a $400 million unsecured revolving credit
facility that matures in November 2006, of which $31 million was
outstanding, and the variable interest rate was 2.3%. At September 30,
2004, we had nothing outstanding under a $20 million revolving credit
agreement.
8
Our debt can be summarized as follows (in thousands):
September 30, December 31,
2004 2003
------------- -------------
As to interest rate (including the effects of
interest rate swaps):
Fixed-rate debt . . . . . . . . . . . . . $ 1,865,998 $ 1,458,792
Variable-rate debt. . . . . . . . . . . . 188,283 351,914
------------- -------------
Total . . . . . . . . . . . . . . . . $ 2,054,281 $ 1,810,706
============= =============
As to collateralization:
Unsecured debt. . . . . . . . . . . . . . $ 1,334,771 $ 1,216,998
Secured debt. . . . . . . . . . . . . . . 719,510 593,708
------------- -------------
Total . . . . . . . . . . . . . . . . $ 2,054,281 $ 1,810,706
============= =============
Various debt agreements contain restrictive covenants, the most restrictive
of which requires us to maintain a pool of qualifying assets, as defined,
of not less than 160% of unsecured debt and a total debt to total asset
value ratio limited to 55%. Other restrictions include a minimum interest
coverage ratio of 2.25, a minimum fixed charge coverage ratio of 1.75, a
minimum net worth requirement and secured debt to total asset value ratio
limited to 30%. Management believes that we are in compliance with all
restrictive covenants.
8. PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION
In 2003 we adopted SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No.
150 requires that certain financial instruments that incorporate an
obligation by the issuer to transfer assets or issue equity be reported as
liabilities. Financial instruments that fall within the scope of SFAS No.
150 include equity shares and non-controlling interests in subsidiaries
that are mandatorily redeemable. Our 7.0% Series C Cumulative Redeemable
Preferred Shares fell within the scope of SFAS No. 150, since they were
mandatorily redeemable and redemption was through transfer of cash or a
variable number of our common shares.
Preferred Shares Subject to Mandatory Redemption reported at December 31,
2003 of $109.4 million represents the redemption value, net of unamortized
issuance costs totaling $3.6 million, of the 7.0% Series C Cumulative
Redeemable Preferred Shares. These shares were redeemed on April 1, 2004
resulting in the recognition of $3.6 million of unamortized issuance costs
as a loss on early redemption of preferred shares in arriving at Operating
Income.
9
9. PROPERTY
Our property consists of the following (in thousands):
September 30, December 31,
2004 2003
------------- -------------
Land . . . . . . . . . . . . . . $ 699,359 $ 603,972
Land held for development. . . . 22,459 21,112
Land under development . . . . . 20,098 22,459
Buildings and improvements . . . 2,876,642 2,483,414
Construction in-progress . . . . 76,884 69,134
------------- -------------
Total. . . . . . . . $ 3,695,442 $ 3,200,091
============= =============
Interest and ad valorem taxes capitalized to land under development or
buildings under construction was $1.1 million and $1.7 million for the
quarters ended September 30, 2004 and 2003, respectively, and $4.3 million
and $5.6 million for the nine months ended September 30, 2004 and 2003,
respectively.
Acquisitions of properties are accounted for utilizing the purchase method
(as set forth in SFAS No. 141 and SFAS No. 142) and, accordingly, the
results of operations are included in our results of operations from the
respective dates of acquisition. We have used estimates of future cash
flows and other valuation techniques to allocate the purchase price of
acquired property among land, buildings on an "as if vacant" basis, and
other identifiable intangibles. Other identifiable intangibles include the
effect of out-of-market leases, the value of having leases in place and
out-of-market assumed mortgages. At September 30, 2004, deferred charges of
$9.1 million for above-market leases are included in Other Assets, deferred
credits of $7.5 million for below-market leases and $32.0 million for
out-of-market assumed mortgages are included in Other Liabilities and
deferred charges of $25.1 million for lease origination costs are included
in Unamortized Debt and Lease Costs. These identifiable debit and credit
intangibles are amortized over the terms of the acquired leases or the
remaining lives of the mortgages.
During the first nine months of 2004, we purchased 17 shopping centers and
one industrial project, as well as the purchase of our partners' interest
in four of our existing centers. These transactions added 3.1 million
square feet to our portfolio and represent a total investment of $449.7
million. These purchases included two each in North Carolina, Florida and
California, seven in Texas, three in Georgia and one each in Missouri and
Kentucky. Of the 17 shopping centers acquired, four involved buying
shopping centers through four 50% unconsolidated joint ventures.
In addition to seven development properties in various stages of
construction that were started prior to this quarter, we commenced three
shopping center developments during the quarter. Two of these are in North
Carolina and one in Colorado.
In the second quarter of 2004, an impairment loss of $2.7 million was
recognized on a parcel of land held for development located in Houston,
Texas. During the second quarter of 2004, we determined that it was
probable that we would sell a portion of this land to a third party.
Accordingly, we revised the estimated holding period for this asset as well
as the estimates of future cash flows to be generated from the property,
resulting in the impairment loss.
10
10. INVESTMENTS IN REAL ESTATE JOINT VENTURES
We own interests in joint ventures or limited partnerships in which we
exercise significant influence but do not have financial and operating
control. These partnerships are accounted for under the equity method. Our
interests in these joint ventures and limited partnerships range from 20%
to 75% and, with the exception of one partnership, which owns seven
industrial properties, each venture owns a single real estate asset.
Combined condensed unaudited financial information of these ventures (at
100%) is summarized as follows (in thousands):
September 30, December 31,
2004 2003
------------- -------------
Combined Balance Sheets
Property . . . . . . . . . . $ 240,192 $ 229,285
Accumulated depreciation . . (23,527) (26,845)
------------- -------------
Property - net . . . . . 216,665 202,440
Other assets . . . . . . . . 17,623 15,088
------------- -------------
Total. . . . . . . . $ 234,288 $ 217,528
============= =============
Debt . . . . . . . . . . . . $ 110,108 $ 92,839
Amounts payable to WRI . . . 17,059 35,062
Other liabilities. . . . . . 6,354 4,729
Accumulated equity . . . . . 100,767 84,898
------------- -------------
Total. . . . . . . . $ 234,288 $ 217,528
============= =============
Combined Statements of Income
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
2004 2003 2004 2003
-------- -------- --------- ---------
Revenues. . . . . . . . . . . . . . $ 7,394 $ 5,642 $ 23,099 $ 17,599
-------- -------- --------- ---------
Expenses:
Interest. . . . . . . . . . . . 1,454 1,532 4,909 4,536
Depreciation and amortization . 1,660 1,140 4,811 3,350
Operating . . . . . . . . . . . 1,136 826 3,282 2,465
Ad valorem taxes. . . . . . . . 731 832 2,665 2,413
General and administrative. . . (5) 17 102 73
-------- -------- --------- ---------
Total . . . . . . . . . . . 4,976 4,347 15,769 12,837
-------- -------- --------- ---------
Gain (loss) on sale of property . . (7) 1,016 (7) 1,016
-------- -------- --------- ---------
Net Income. . . . . . . . . . . . . $ 2,411 $ 2,311 $ 7,323 $ 5,778
======== ======== ========= =========
11
Our investment in real estate joint ventures, as reported on the balance
sheets, differs from our proportionate share of the joint ventures'
underlying net assets due to basis differentials, which arose upon the
transfer of assets from us to the joint ventures. This basis differential,
which totaled $5.0 million and $4.8 million at September 30, 2004 and
December 31, 2003, respectively, is depreciated over the useful lives of
the related assets.
Fees earned by us for the management of these joint ventures totaled $.1
million for each quarter ended September 30, 2004 and 2003, and $.4 million
for each nine months ended September 30, 2004 and 2003.
In April 2004 we acquired our joint venture partners' interest in four of
our existing shopping centers, of which three are located in Texas and one
in New Mexico.
Also, in April 2004 three 50%-owned unconsolidated joint ventures acquired
an interest in three retail properties located in McAllen, Texas. Las
Tiendas Plaza, a 499,900 square foot center, is anchored by Target and
Mervyn's (both corporately-owned), as well as Ross Dress for Less,
Marshall's and Office Depot. Northcross is a 76,500 square foot center and
is anchored by Barnes & Noble and Blockbuster. The third property is HEB
South 10th Street, which is anchored by an HEB supermarket.
In June 2004 a 50%-owned unconsolidated joint venture acquired an interest
in a retail property located in Fenton, Missouri (a suburb of St. Louis).
Western Plaza is a 56,000 square foot center, which is anchored by Big
Lots.
In July 2004 a 25%-owned limited liability company commenced construction
on Heritage Station, a 69,000 square foot shopping center in Wake Forest,
North Carolina, which is anchored by Harris Teeter.
In August 2004 a 41%-owned limited liability company commenced construction
on Glenwood Meadows, a 402,000 square foot shopping center in Glenwood
Springs, Colorado, which will include a corporate-owned Target.
11. SEGMENT INFORMATION
The operating segments presented are the segments for which separate
financial information is available and operating performance is evaluated
regularly by senior management in deciding how to allocate resources and in
assessing performance. We evaluate the performance of our operating
segments based on net operating income that is defined as total revenues
less operating expenses and ad valorem taxes. Management does not consider
the effect of gains or losses from the sale of property in evaluating
ongoing operating performance.
The shopping center segment is engaged in the acquisition, development and
management of real estate, primarily neighborhood and community shopping
centers, located in Texas, California, Louisiana, Arizona, Nevada,
Arkansas, New Mexico, Oklahoma, Tennessee, Kansas, Colorado, Missouri,
Illinois, Florida, North Carolina, Mississippi, Georgia, Utah, Kentucky and
Maine. The customer base includes supermarkets, discount retailers,
drugstores and other retailers who generally sell basic necessity-type
commodities. The industrial segment is engaged in the acquisition,
development and management of bulk warehouses and office/service centers.
Its properties are currently located in Texas, Nevada, Georgia, Florida,
California and Tennessee, and the customer base is diverse. Included in
"Other" are corporate-related items, insignificant operations and costs
that are not allocated to the reportable segments.
12
Information concerning our reportable segments is as follows (in
thousands):
Shopping
Center Industrial Other Total
------------ ---------- ---------- ------------
Three Months Ended September 30, 2004:
Revenues . . . . . . . . . . . . . . . . . . $ 117,011 $ 12,328 $ 547 $ 129,886
Net operating income . . . . . . . . . . . . 85,246 8,883 416 94,545
Equity in earnings of joint ventures . . . . 1,627 16 13 1,656
Investment in real estate joint ventures . . 45,126 646 914 46,686
Total assets . . . . . . . . . . . . . . . . 2,855,081 291,360 243,686 3,390,127
Three Months Ended September 30, 2003:
Revenues . . . . . . . . . . . . . . . . . . $ 94,985 $ 10,710 $ 684 $ 106,379
Net operating income . . . . . . . . . . . . 69,397 7,478 476 77,351
Equity in earnings of joint ventures . . . . 1,525 (19) (21) 1,485
Investment in real estate joint ventures . . 28,007 233 28,240
Total assets . . . . . . . . . . . . . . . . 2,230,312 290,082 197,065 2,717,459
Nine Months Ended September 30, 2004:
Revenues . . . . . . . . . . . . . . . . . . $ 333,529 $ 35,594 $ 1,546 $ 370,669
Net operating income . . . . . . . . . . . . 244,076 25,316 830 270,222
Equity in earnings of joint ventures . . . . 4,633 120 (160) 4,593
Nine Months Ended September 30, 2003:
Revenues . . . . . . . . . . . . . . . . . . $ 273,230 $ 30,329 $ 1,660 $ 305,219
Net operating income . . . . . . . . . . . . 201,109 21,636 799 223,544
Equity in earnings of joint ventures . . . . 3,505 86 (70) 3,521
Net operating income reconciles to income before discontinued operations as
shown on the Statements of Consolidated Income and Comprehensive Income as
follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -----------------------
2004 2003 2004 2003
--------- --------- ---------- ----------
Total segment net operating income. . . . . . . . . . $ 94,545 $ 77,351 $ 270,222 $ 223,544
Less:
Depreciation and amortization. . . . . . . . . . 30,421 23,070 86,128 66,265
Interest . . . . . . . . . . . . . . . . . . . . 29,826 22,220 85,699 62,695
General and administrative . . . . . . . . . . . 4,085 3,655 12,047 10,126
Loss on early redemption of preferred shares . . 3,566
Income allocated to minority interests . . . . . 1,001 591 2,855 2,323
Impairment loss on land held for development . . 2,700
Equity in earnings of joint ventures . . . . . . (1,656) (1,485) (4,593) (3,521)
Gain on sale of properties . . . . . . . . . . . (370) (8) (789)
--------- --------- ---------- ----------
Income Before Discontinued Operations . . . . . . . . $ 31,238 $ 29,308 $ 82,609 $ 85,656
========= ========= ========== ==========
13
12. COMMON SHARES OF BENEFICIAL INTEREST
In February 2004 a three-for-two share split, effected in the form of a 50%
share dividend, was declared for shareholders of record on March 16, 2004,
payable March 30, 2004. We issued 28.5 million common shares of beneficial
interest as a result of the share split. All references to the number of
shares and per share amounts have been restated to reflect the share split,
and an amount equal to the par value of the number of common shares issued
has been reclassified to Common Shares of Beneficial Interest from
Accumulated Dividends in Excess of Net Income.
In March 2004 we issued an additional 3.6 million common shares of
beneficial interest. Net proceeds to us totaled $118.0 million. The
proceeds from this offering were used primarily to redeem our 7.0% Series C
Cumulative Redeemable Preferred Shares on April 1, 2004.
In August 2004 we issued an additional 3.2 million common shares of
beneficial interest. Net proceeds to us totaled $101.9 million. The
proceeds from this offering were used to pay down amounts outstanding under
our $400 million revolving credit facility.
13. PREFERRED SHARES
As of September 30, 2004, we have two series of preferred shares
outstanding: Series D and Series E, both of which are Cumulative Redeemable
Preferred Shares.
In April 2003 we issued $75 million of depositary shares. Each depositary
share represents one-thirtieth of a Series D Cumulative Redeemable
Preferred Share. The depositary shares are redeemable, in whole or in part,
for cash on or after April 30, 2008 at our option, at a redemption price of
$25 per depositary share, plus any accrued and unpaid dividends thereon.
The depositary shares are not convertible or exchangeable for any of our
other property or securities. The Series D preferred shares pay a 6.75%
annual dividend and have a liquidation value of $750 per share. Net
proceeds of $73.0 million were used to redeem the 7.44% Series A Cumulative
Redeemable Preferred Shares.
In July 2004 we issued $72.5 million of depositary shares. Each depositary
share represents one-hundredth of a Series E Cumulative Redeemable
Preferred Share. The depositary shares are redeemable, in whole or in part,
for cash on or after July 8, 2009 at our option, at a redemption price of
$25 per depositary share, plus any accrued and unpaid dividends thereon.
The depositary shares are not convertible or exchangeable for any of our
other property or securities. The Series E preferred shares pay a 6.95%
annual dividend and have a liquidation value of $2,500 per share. Net
proceeds of $70.2 million were utilized to pay down amounts outstanding
under our $400 million revolving credit facility.
14. EMPLOYEE BENEFIT PLANS
In December 2003 FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirements Benefits" as amended. SFAS No. 132
revises employers' disclosures about pension plans and other postretirement
benefit plans to include disclosures of the amount of net periodic benefit
cost and the total amount of employers' contributions made.
14
The components of net periodic benefit cost are as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Service cost . . . . . . . . . . . $ 27 $ 148 $ 329 $ 310
Interest cost. . . . . . . . . . . 47 253 565 530
Expected return on plan assets . . (43) (234) (523) (491)
Prior service cost . . . . . . . . (7) (37) (83) (78)
Recognized loss. . . . . . . . . . 12 65 146 136
-------- -------- -------- --------
Total . . . . . . . . . . . . $ 36 $ 195 $ 434 $ 407
======== ======== ======== ========
We contributed $850,000 to the plan in the second quarter of 2004. We are
not required to make any additional payments in 2004.
15. BANKRUPTCY REMOTE PROPERTIES
We had 51 properties, having a net book value of approximately $925.3
million at September 30, 2004 (collectively the "Bankruptcy Remote
Properties", and each a "Bankruptcy Remote Property"), which are wholly
owned by various "Bankruptcy Remote Entities". Each Bankruptcy Remote
Entity is either a direct or an indirect subsidiary of us. The assets of
each Bankruptcy Remote Entity, including the respective Bankruptcy Remote
Property or Properties owned by each, are owned by that Bankruptcy Remote
Entity alone and are not available to satisfy claims that any creditor may
have against us, our affiliates, or any other person or entity. No
Bankruptcy Remote Entity has agreed to pay or make its assets available to
pay our creditors, any of its affiliates, or any other person or entity.
Neither we nor any of our affiliates have agreed to pay or make its assets
available to pay creditors of any Bankruptcy Remote Entity (other than any
agreement by a Bankruptcy Remote Entity to pay its own creditors). No
affiliate of any Bankruptcy Remote Entity has agreed to pay or make its
assets available to pay creditors of any other Bankruptcy Remote Entity.
The accounts of the Bankruptcy Remote Entities are included in our
consolidated financial statements because we exercise financial and
operating control over each of these entities.
16. RELATED PARTY TRANSACTION
At December 31, 2003, we had mortgage bonds and notes receivable from WRI
Holdings, Inc. of $2.8 million, net of deferred gain of $3.0 million.
Unimproved land collateralized these receivables. We shared certain
directors and were under common management with WRI Holdings, Inc. On July
20, 2004, the shareholders of WRI Holdings, Inc. adopted a Plan of
Dissolution and transferred 9.7 acres of land in Conroe, Texas, the only
remaining asset, to us in satisfaction of its obligations under the bonds
and notes. The land was recorded at the net carrying value of the mortgage
bonds and notes. The estimated fair market value of the land is in excess
of this carrying value.
*****
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and the comparative summary of selected
financial data appearing elsewhere in this Form 10-Q. Historical results and
trends which might appear should not be taken as indicative of future
operations. Our results of operations and financial condition, as reflected in
the accompanying statements and related footnotes, are subject to management's
evaluation and interpretation of business conditions, retailer performance,
changing capital market conditions and other factors which could affect the
ongoing viability of our tenants.
EXECUTIVE OVERVIEW
We focus on increasing Funds from Operations and dividend payments to our common
shareholders through hands-on leasing and management of the existing portfolio
of properties and through disciplined growth from selective acquisitions and new
developments. We are also committed to maintaining a conservative balance
sheet, a well-staggered debt maturity schedule and strong credit agency ratings.
At September 30, 2004, we owned or operated under long-term leases, either
directly or through our interests in joint ventures, 343 income-producing
properties and three properties that are under development and have no rental
income. Our 346 properties are located in 20 states that span the southern half
of the United States from coast to coast and include 284 shopping centers and 62
industrial properties. We have approximately 6,800 leases and 5,000 different
tenants. Leases for our properties range from less than a year for smaller
spaces to over 25 years for larger tenants. Leases generally include minimum
lease payments that often increase over the lease term, reimbursements of
property operating expenses, including ad valorem taxes, and additional rent
payments based on a percentage of the tenants' sales. The majority of our anchor
tenants are supermarkets, value-oriented apparel/discount stores and other
retailers or service providers who generally sell basic necessity-type goods and
services. The stability of our anchor tenants, combined with convenient
locations, attractive and well-maintained properties, high quality retailers and
a strong tenant mix, should ensure the long-term success of our merchants and
the viability of our portfolio. As of September 30, 2004, no single tenant
accounted for more than 2.8% of annualized rental revenues.
In assessing the performance of our properties, management carefully tracks the
occupancy of our portfolio. Occupancy for the total portfolio was 94.2% at
September 30, 2004 compared to 92.6% at September 30, 2003. Another important
indicator of performance is the increase in rental rates on a same-space basis
as we complete new leases and renew existing leases. We completed 991 new
leases or renewals in the first nine months of 2004 totaling 4.0 million square
feet, increasing rental rates an average of 6.0% on a same-space basis. Net of
capital costs, the average increase in rental rates was 2.9%.
In evaluating growth through acquisitions, management closely monitors movements
in returns relative to our blended weighted average cost of capital, the amount
of product in our acquisition pipeline and the geographic areas where
opportunities are present. During the first nine months of 2004, we purchased 17
shopping centers and one industrial project, as well as the purchase of our
partners' interest in four of our existing centers. These transactions added 3.1
million square feet to our portfolio and represent a total investment of $449.7
million. These purchases included two each in North Carolina, Florida and
California, seven in Texas, three in Georgia and one each in Missouri and
Kentucky. Kentucky represents the 20th state in which we operate, and was a
logical expansion given our geographic footprint in the southern half of the
United States. Of the 17 shopping centers acquired, four involved buying
shopping centers through four 50% unconsolidated joint ventures.
As with growth through acquisitions, we monitor our new development activity
relative to our blended weighted average cost of capital, the amount of product
in our new development pipeline and the geographic areas where opportunities are
present. During the nine months ended September 30, 2004, we completed six new
development projects adding 518,000 square feet to our portfolio with an
investment of $62.2 million. These properties, two each in Texas and Louisiana
and one each in Colorado and Nevada, were 94.2% leased as of September 30, 2004.
We have ten shopping center developments underway including three that were
added during the quarter ended September 30, 2004. Of the new developments added
this quarter, two are in North Carolina and one is in Colorado. The remaining
16
seven shopping centers in various stages of development are located in Arizona,
Louisiana, Texas and Utah. We anticipate that the majority of these ten projects
will come on-line during the remainder of 2004 and into 2005.
Management is also committed to maintaining a strong, conservative capital
structure, which provides constant access to a variety of capital sources. The
strength of our balance sheet is evidenced by unsecured debt ratings of "A" by
Standard and Poor's and "A3" by Moody's rating services, the highest combined
ratings of any public REIT. We carefully balance obtaining low cost financing
with minimizing exposure to interest rate movements, matching long-term
liabilities with the long-term assets acquired or developed and maintaining
adequate debt to market capitalization, fixed charge coverage and other ratios
as necessary to retain our current credit ratings. In executing this strategy,
we redeemed our Series C Cumulative Redeemable Preferred Shares on April 1, 2004
and issued 3.6 million and 3.2 million of common shares of beneficial interest
in March and August of 2004, respectively. We also issued $200 million of
ten-year unsecured fixed-rate medium term notes during the first quarter of 2004
at a weighted average rate of 5.2%, net of the effect of related interest rate
swaps. In the second quarter of 2004, an additional $175 million of unsecured
fixed-rate medium term notes were issued with a weighted average life of 8.6
years at a weighted average interest rate of 5.3%, net of the effect of related
interest rate swaps.
In July 2004 we issued $72.5 million of depositary shares. Each depositary share
represents one-hundredth of a Series E Cumulative Redeemable Preferred Share.
The depositary shares are redeemable, in whole or in part, for cash on or after
July 8, 2009 at our option, at a redemption price of $25 per depositary share,
plus any accrued and unpaid dividends thereon. The depositary shares are not
convertible or exchangeable for any of our other property or securities. The
Series E preferred shares pay a 6.95% annual dividend and have a liquidation
value of $2,500 per share. Net proceeds of $70.2 million were utilized to pay
down amounts outstanding under our $400 million revolving credit facility.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities
and contingencies as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. We evaluate our
assumptions and estimates on an on-going basis. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements.
Valuation of Receivables
An allowance for the uncollectible portion of accrued rents and accounts
receivable is determined based upon an analysis of balances outstanding,
historical bad debt levels, tenant credit worthiness and current economic
trends. Balances outstanding include base rents, tenant reimbursements and
receivables attributable to the straight-lining of rental commitments.
Additionally, estimates of the expected recovery of pre-petition and
post-petition claims with respect to tenants in bankruptcy is considered in
assessing the collectibility of the related receivables.
Property
Real estate assets are stated at cost less accumulated depreciation, which, in
the opinion of management, is not in excess of the individual property's
estimated undiscounted future cash flows, including estimated proceeds from
disposition. Depreciation is computed using the straight-line method, generally
over estimated useful lives of 18-50 years for buildings and 10-20 years for
parking lot surfacing and equipment. Major replacements where the improvement
extends the useful life of the asset are capitalized, and the replaced asset and
corresponding accumulated depreciation are removed from the accounts. All other
maintenance and repair items are charged to expense as incurred.
17
Upon acquisitions of real estate, we assess the fair value of acquired assets
(including land, buildings on an "as if vacant" basis, acquired out-of-market
and in-place leases, and tenant relationships) and acquired liabilities, and
allocate the purchase price based on these assessments. We assess fair value
based on estimated cash flow projections that utilize appropriate discount and
capitalization rates and available market information. Estimates of future cash
flows are based on a number of factors including the historical operating
results, known trends, and specific market/economic conditions that may affect
the property.
Property also includes costs incurred in the development of new operating
properties. These costs include preacquisition costs directly identifiable with
the specific project, development and construction costs, interest and real
estate taxes. Indirect development costs, including salaries and benefits,
travel and other related costs that are clearly attributable to the development
of the property, are also capitalized. The capitalization of such costs ceases
at the earlier of one year from the completion of major construction or when the
property, or any completed portion, becomes available for occupancy.
Our properties are reviewed for impairment if events or changes in circumstances
indicate that the carrying amount of the property may not be recoverable. In
such an event, a comparison is made of the current and projected operating cash
flows of each such property into the foreseeable future on an undiscounted basis
to the carrying amount of such property. Such carrying amount would be
adjusted, if necessary, to estimated fair value to reflect an impairment in the
value of the asset. In the second quarter of 2004, we recognized a $2.7
impairment charge on a parcel of land held for development located in Houston,
Texas.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2004 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2003
Revenues
Total revenues increased by $23.5 million or 22.1% in 2004 ($129.9 million in
2004 versus $106.4 million in 2003). This increase resulted primarily from the
increase in rental revenues of $25.6 million and the decrease in other income of
$2.0 million. Property acquisitions and new development activity contributed
$21.8 million of the rental income increase with the remainder of $3.8 million
due to the activity at our existing properties, based on factors described
below.
Occupancy (leased space) of the total portfolio increased as compared to the
prior year as follows:
September 30,
----------------
2004 2003
----- -----
Shopping Centers . . . 95.0% 93.1%
Industrial . . . . . . 91.5% 91.0%
Total. . . . . . . . . 94.2% 92.6%
In the third quarter of 2004, we completed 373 renewals and new leases
comprising 1.4 million square feet at an average rental rate increase of 5.8%.
Net of the amortized portion of capital costs for tenant improvements, the
increase averaged 2.3%.
Other income decreased by $2.0 million or 64.5% in 2004 ($1.1 million in 2004
versus $3.1 million in 2003). This decrease is due primarily to lease
cancellation payments received from various tenants in 2003 that did not occur
to the same extent as in 2004.
Expenses
Total expenses increased by $21.7 million or 27.8% in 2004 ($99.7 million in
2004 versus $78.0 million in 2003).
The increases in 2004 for depreciation and amortization expense ($7.4 million),
operating expenses ($4.3 million) and ad valorem taxes ($1.9 million) are
primarily a result of growth in the portfolio due to properties acquired and
developed. Overall, direct operating costs and expenses (operating and ad
18
valorem tax expense) of operating our properties as a percentage of rental
revenues were 28% in both 2004 and 2003.
Interest expense as reported represents the gross interest on our indebtedness
less interest that is capitalized for properties under development and
over-market interest adjustments on mortgages assumed through acquisitions.
Interest expense as reported in 2004 increased by $7.6 million ($29.8 million in
2004 versus $22.2 million in 2003). The principal components of this increase
are as follows (in thousands):
Three Months Ended
September 30,
---------------------
2004 2003
--------- ---------
Interest expense paid or accrued . . . . . $ 32,249 $ 23,719
Capitalized interest . . . . . . . . . . . (1,096) (1,499)
Over-market mortgage adjustment. . . . . . (1,327)
--------- ---------
Interest expense as reported . . $ 29,826 $ 22,220
========= =========
Interest expense paid or accrued increased by $8.5 million in 2004 due to an
increase in the average debt outstanding from $1.5 billion in 2003 to $2.1
billion in 2004 and a relatively unchanged weighted-average interest rate of
6.2%. The interest benefit from the over-market mortgage adjustment increased
from zero in 2003 to $1.3 million in 2004.
General and administrative expenses increased by $.4 million or 10.8% in 2004
($4.1 million in 2004 versus $3.7 million in 2003). This increase results
primarily from normal compensation increases as well as increases in staffing
necessitated by the growth in the portfolio. General and administrative expense
as a percentage of rental revenues was 3.2% in 2004 and 3.6% in 2003.
Other
Income from discontinued operations decreased $3.9 million in 2004. Included in
this caption for 2003 are the operating results of two properties disposed in
2004 and seven properties disposed in 2003, plus the gain on dispositions during
the three months ended September 30, 2003. No such activity is present for the
third quarter of 2004.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2004 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2003
Revenues
Total revenues increased by $65.5 million or 21.5% in 2004 ($370.7 million in
2004 versus $305.2 million in 2003). This increase resulted primarily from the
increase in rental revenues of $67.6 million and the decrease in other income of
$2.0 million. Property acquisitions and new development activity contributed
$59.8 million of the rental income increase with the remainder of $7.8 million
due to the activity at our existing properties, based on factors described
below.
19
Occupancy (leased space) of the total portfolio increased as compared to the
prior year as follows:
September 30,
--------------
2004 2003
----- -----
Shopping Centers . . . . . . 95.0% 93.1%
Industrial . . . . . . . . . 91.5% 91.0%
Total. . . . . . . . . . . . 94.2% 92.6%
In 2004, we completed 991 renewals and new leases comprising 4.0 million square
feet at an average rental rate increase of 6.0%. Net of the amortized portion
of capital costs for tenant improvements, the increase averaged 2.9%.
Other income decreased by $2.0 million or 34.5% in 2004 ($3.8 million in 2004
versus $5.8 million in 2003). This decrease is due primarily to a decrease in
lease cancellation payments received from various tenants in 2003 that did not
occur to the same extent in 2004.
Expenses
Total expenses increased by $67.1 million or 30.4% in 2004 ($287.9 million in
2004 versus $220.8 million in 2003).
The increases in 2004 for depreciation and amortization expense ($19.8 million),
operating expenses ($10.3 million) and ad valorem taxes ($8.5 million) are
primarily a result of growth in the portfolio due to properties acquired and
developed. Overall, direct operating costs and expenses (operating and ad
valorem tax expense) of operating our properties as a percentage of rental
revenues were 27% in both 2004 and 2003.
Interest expense as reported represents the gross interest on our indebtedness
and the interest associated with our preferred shares less interest that is
capitalized for properties under development and over-market interest
adjustments on mortgages assumed through acquisitions. Interest expense as
reported in 2004 increased by $23.0 million ($85.7 million in 2004 versus $62.7
million in 2003). The principal components of this increase are as follows (in
thousands):
Nine Months Ended
September 30,
---------------------
2004 2003
--------- ---------
Interest expense paid or accrued. . . . . . . . . . . $ 91,147 $ 67,498
Interest on preferred shares subject to mandatory
redemption. . . . . . . . . . . . . . . . . . . . . 2,007
Capitalized interest. . . . . . . . . . . . . . . . . (3,802) (4,803)
Over-market mortgage adjustment . . . . . . . . . . . (3,653)
--------- ---------
Interest expense as reported. . . . . . . . $ 85,699 $ 62,695
========= =========
Interest expense paid or accrued increased by $23.6 million in 2004 due to an
increase in the average debt outstanding from $1.4 billion in 2003 to $2.0
billion in 2004, offset by a slight decrease in the weighted average interest
rate between the two periods from 6.2% in 2003 to 6.0% in 2004. The interest
benefit from the over-market mortgage adjustment increased from zero in 2003 to
$3.7 million in 2004. As a result of the adoption of SFAS No. 150, dividends
paid or accrued on our Series C Preferred Shares are reported as interest
expense, causing interest expense to increase by $2.0 million in 2004.
General and administrative expenses increased by $1.9 million or 18.8% in 2004
($12.0 million in 2004 versus $10.1 million in 2003). This increase results
primarily from normal compensation increases as well as increases in staffing
necessitated by the growth in the portfolio. General and administrative expense
as a percentage of rental revenues was 3.3% in 2004 and 3.4% in 2003.
20
Loss on early redemption of preferred shares of $3.6 million represents the
unamortized original issuance costs related to the Series C Cumulative
Redeemable Preferred Shares redeemed in April 2004.
Other
Equity in earnings of joint ventures increased by $1.1 million or 31.4% ($4.6
million in 2004 versus $3.5 million in 2003). This increase is due primarily to
the acquisition of four retail properties, each through a 50%-owned
unconsolidated joint venture.
Impairment loss on land held for development represents the $2.7 million charge
related to a parcel of land held for development in Houston, Texas. During the
second quarter of 2004, we determined that it was probable that we would sell a
portion of this land to a third party. Accordingly, we revised the estimated
holding period for this asset as well as the estimates of future cash flows to
be generated from the property, resulting in the impairment loss.
Income from discontinued operations increased $8.3 million in 2004 ($14.2
million in 2004 from $5.9 million in 2003). Included in this caption for 2004
are the operating results and gain from disposition of two retail properties
totaling 271,000 square feet of gross leasable area. Included in this caption
for 2003 are the operating results of properties disposed in 2004 and 2003 as
well as the gain on dispositions during the first nine months of 2003.
CAPITAL RESOURCES AND LIQUIDITY
We anticipate that cash flows from operating activities will continue to provide
adequate capital for all common and preferred dividend payments. 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 through
acquisitions and new development, which together with our dividend payments, are
our primary liquidity needs. We hedge the future cash flows of our debt
transactions, as well as changes in the fair value of our debt instruments,
principally through interest rate swaps with major financial institutions. We
generally have the right to sell or otherwise dispose of our assets except in
certain cases where we are required to obtain a third party consent, such as for
assets held in entities in which we have less than 100% ownership.
Investing Activities - Acquisitions
During the first nine months of 2004, we invested $449.7 million in the
acquisition of operating properties. Of this, $421.4 million was invested in 17
shopping centers (which includes the purchase of our partners' interest in four
of our existing centers), $2.1 million was invested in one industrial project,
and an additional $26.2 million was invested in four retail properties, each
through a 50%-owned unconsolidated joint venture. These combined acquisitions
added 3.1 million square feet to our portfolio.
In January 2004 we acquired three supermarket-anchored shopping centers.
Greenhouse Marketplace is located in San Leandro, California; Leesville Town
Centre is located in Raleigh, North Carolina and Harrison Pointe Center is
located in Cary, North Carolina, a suburb of Raleigh. All of these acquisitions
were acquired in limited partnerships utilizing a DownREIT structure and are
included in our consolidated financial statements because we exercise financial
and operating control.
In March 2004 we completed the acquisition of a portfolio of four shopping
centers. First Colony Commons is located in Sugar Land, Texas, a suburb of
Houston; T.J. Maxx Plaza is located in Kendall, Florida, a suburb of Miami;
Largo Mall is located near St. Petersburg, Florida and Tates Creek is located in
Lexington, Kentucky.
In April 2004 three 50%-owned unconsolidated joint ventures acquired an interest
in three retail properties located in McAllen, Texas. In April 2004 we also
acquired our joint venture partners' interests in four of our existing shopping
centers, of which three are located in Texas and one in New Mexico.
In May 2004 we acquired an industrial project and two retail centers. Southside
Industrial Parkway is located in Atlanta; Georgia, El Camino Promenade is
located in Encinitas, California and Village Shoppes of Sugarloaf is located in
Lawrenceville, Georgia, a suburb of Atlanta.
21
In June 2004 we acquired Roswell Corners, which is located in Roswell, Georgia.
In June 2004 we also acquired an interest in Western Plaza through a 50%-owned
unconsolidated joint venture. Western Plaza is located in Fenton, Missouri (a
suburb of St. Louis).
In August 2004 we acquired Northtown Plaza, a 74,000 square foot shopping
center, which is located in Lubbock, Texas and is anchored by United
Supermarkets. Also, in August 2004 we acquired two shopping centers in Laredo,
Texas. North Creek Plaza is a 245,000 square foot shopping center, which is
anchored by Best Buy, Old Navy, Bed, Bath & Beyond, TJ Maxx, Pier One and United
Artists. Plantation Centre is a 135,000 square foot shopping center anchored by
a 84,500 square foot HEB Supermarket. Both of the Laredo, Texas acquisitions
were acquired in a limited partnership utilizing a DownREIT structure and are
included in our consolidated financial statements because we exercise financial
and operating control.
Investing Activities - New Development and Capital Expenditures
Our new development activity includes two projects each in Texas and Louisiana
and one project each in Colorado and Nevada that were completed during the nine
months ended September 30, 2004 adding 518,000 square feet to our portfolio with
an investment of $62.2 million. These properties were 94.2% leased as of
September 30, 2004. We also commenced three shopping center developments, two
in North Carolina and one in Colorado. In addition, there are seven other
shopping centers in various stages of development in Arizona, Louisiana, Texas
and Utah. These projects, upon completion, will represent an investment of
approximately $84.8 million and will add .6 million square feet to the
portfolio. We invested $25.5 million in the first nine months of 2004 in these
properties and expect to invest approximately $5.7 million during the remainder
of 2004. These projects will continue to come on-line during the remainder of
2004 and into 2005.
Financing Activities - Debt
Total debt outstanding increased to $2.1 billion at September 30, 2004 from $1.8
billion at December 31, 2003. This increase was primarily due to the funding of
acquisitions and ongoing development and redevelopment efforts. Included in
total debt outstanding of $2.1 billion at September 30, 2004 is variable-rate
debt of $188.3 million, after recognizing the net effect of $132.5 million of
interest rate swaps.
During the nine month period ending September 30, 2004, we settled various
forward-starting interest rate swaps designed to hedge the cash flow of
forecasted interest payments on future debt. These contracts were designated as
cash flow hedges and are described in more detail below. Losses on the
settlement of these cash flow hedges were recorded to Accumulated Other
Comprehensive Loss and are being amortized to interest expense over the life of
the hedged item.
In December 2003 we entered into two forward-starting interest rate swaps with
an aggregate notional amount of $97.0 million in anticipation of the issuance of
fixed-rate medium term notes subsequent to year-end. These contracts were
designated as a cash flow hedge of forecasted interest payments for $100 million
of unsecured notes that were ultimately sold in February 2004. Concurrent with
the sale of these notes, we settled our $97.0 million forward-starting interest
rate swap contracts, resulting in a loss of $.9 million. In January 2004, we
entered into four additional forward-starting interest rate swaps designated as
cash flow hedges with an aggregate notional amount of $194.0 million in
anticipation of the issuance of fixed-rate medium term notes. A medium term
note totaling $50 million was issued in January 2004, at which time one of the
four forward-starting interest rate swaps with a notional amount of $48.5
million was settled at a loss of $.7 million. An additional medium term note
totaling $50 million was issued in March 2004, at which time the second of the
four forward-starting interest rate swaps with a notional amount of $48.5
million was settled at a loss of $2.7 million. In the second quarter of 2004,
the remaining two forward-starting interest rate swaps with an aggregate
notional amount of $97 million were settled concurrent with the issuance of an
additional $100 million of medium term notes at a net loss of $.7 million. Each
of the losses described above was recorded to Accumulated Other Comprehensive
Loss and is being amortized to interest expense over the life of the related
medium term notes.
For the three months ended March 31, 2004, we issued a total of $200 million of
ten-year unsecured fixed-rate medium term notes at a weighted average interest
rate of 5.2%, net of the effect of related interest rate swaps. Proceeds
received were used to pay down amounts outstanding under our $400 million
revolving credit facility.
22
For the three months ended June 30, 2004, we issued an additional $175 million
of unsecured fixed-rate medium term notes with a weighted average life of 8.6
years at a weighted average interest rate of 5.3%, net of the effect of related
interest rate swaps. Proceeds received were used to pay down amounts
outstanding under our $400 million revolving credit facility.
At September 30, 2004, we have ten active interest rate swap contracts with an
aggregate notional amount of $132.5 million that convert fixed interest payments
at rates ranging from 4.2% to 7.4% to variable interest payments. Included in
the ten active contracts are two interest rate swaps entered into in March 2004
with an aggregate notional amount of $50 million. These contracts have been
designated as fair value hedges. We have determined that they are highly
effective in limiting our risk of changes in the fair value of fixed-rate notes
attributable to changes in variable interest rates.
In June 2004, two interest rate swaps designated as cash flow hedges and two
interest rate swaps designated as fair value hedges expired.
In September 2004 the SEC declared effective two additional shelf registration
statements totaling $1.55 billion, all of which is available as of September 30,
2004. In addition, we have $160.4 million available as of September 30, 2004
under our $1 billion shelf registration statement, which became effective in
April 2003. We will continue to closely monitor both the debt and equity
markets and carefully consider our available financing alternatives, including
both public and private placements.
Financing Activities - Equity
Our Board of Trust Managers approved a quarterly dividend of $.415 per common
share for the third quarter of 2004. Our dividend payout ratio on common equity
for the third quarter of 2004 and 2003 was 64% and 66%, respectively, based on
funds from operations for the applicable period.
In February 2004 a three-for-two share split, effected in the form of a 50%
share dividend, was declared for shareholders of record on March 16, 2004,
payable March 30, 2004. We issued 28.5 million common shares of beneficial
interest as a result of the share split. All references to the number of shares
and per share amounts have been restated to reflect the share split, and an
amount equal to the par value of the number of common shares issued have been
reclassified to Common Shares of Beneficial Interest from Accumulated Dividends
in Excess of Net Income.
In March 2004 we issued an additional 3.6 million common shares of beneficial
interest. Net proceeds to us totaled $118.0 million. The proceeds from this
offering were used primarily to redeem our 7.0% Series C Cumulative Redeemable
Preferred Shares on April 1, 2004. The unamortized original issuance costs of
$3.6 million for these shares were reported as a loss in arriving at Operating
Income.
In August 2004 we issued an additional 3.2 million common shares of beneficial
interest. Net proceeds to us totaled $101.9 million. The proceeds from this
offering were used to pay down amounts outstanding under our $400 million
revolving credit facility.
In July 2004 we issued $72.5 million of depositary shares. Each depositary share
represents one-hundredth of a Series E Cumulative Redeemable Preferred Share.
The depositary shares are redeemable, in whole or in part, for cash on or after
July 8, 2009 at our option, at a redemption price of $25 per depositary share,
plus any accrued and unpaid dividends thereon. The depositary shares are not
convertible or exchangeable for any of our other property or securities. The
Series E preferred shares pay a 6.95% annual dividend and have a liquidation
value of $2,500 per share. Net proceeds of $70.2 million were utilized to pay
down amounts outstanding under our $400 million revolving credit facility.
23
CONTRACTUAL OBLIGATIONS
The following table summarizes our principal contractual obligations as of
September 30, 2004 (in thousands):
Remainder
of
2004 2005 2006 2007 2008 Thereafter Total
--------- --------- --------- ---------- ---------- ------------ ------------
Unsecured Debt: (1)
Medium Term Notes. . . . . . . $ 52,500 $ 37,000 $ 79,000 $ 36,000 $ 900,220 $ 1,104,720
7% 2011 Bonds. . . . . . . . . 200,000 200,000
Revolving Credit Facilities. . 31,000 31,000
Secured Debt . . . . . . . . . . . $ 35,196 32,825 23,233 21,667 167,027 439,562 719,510
Ground Lease Payments. . . . . . . 1,116 1,330 1,095 924 894 23,216 28,575
Obligations to Acquire/
Develop Properties . . . . . . . 22,504 22,504
--------- --------- --------- ---------- ---------- ------------ ------------
Total Contractual Obligations. . . $ 58,816 $ 86,655 $ 92,328 $ 101,591 $ 203,921 $ 1,562,998 $ 2,106,309
========= ========= ========= ========== ========== ============ ============
<FN>
- -------------------------------------------------------------------------------------------------------------
(1) Total unsecured debt obligations as shown above are $949 thousand higher 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 September 30, 2004 and 2003, we did not have any off-balance sheet
arrangements.
FUNDS FROM OPERATIONS
The National Association of Real Estate Investment Trusts (NAREIT) defines funds
from operations (FFO) as net income (loss) computed in accordance with generally
accepted accounting principles, excluding gains or losses from sales of
property, plus real estate related depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. In addition,
NAREIT recommends that extraordinary items not be considered in arriving at FFO.
We calculate FFO in a manner consistent with the NAREIT definition. We believe
FFO is an appropriate supplemental measure of operating performance because it
helps investors compare the operating performance to similarly titled measures
of other REITs. There can be no assurance that FFO presented by us is
comparable to similarly titled measures of other REITs. FFO should not be
considered as an alternative to net income or other measurements under GAAP as
an indicator of our operating performance or to cash flows from operating,
investing, or financing activities as a measure of liquidity. FFO does not
reflect working capital changes, cash expenditures for capital improvements or
principal payments on indebtedness.
24
Funds from operations is calculated as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2004 2003 2004 2003
--------- --------- ---------- ----------
Net income available to common shareholders . . . $ 28,810 $ 28,381 $ 91,870 $ 74,410
Depreciation and amortization . . . . . . . . . . 28,092 21,340 79,873 61,518
Depreciation and amortization of
unconsolidated joint ventures . . . . . . . . . 715 460 2,073 1,357
Gain on sale of properties. . . . . . . . . . . . (370) (3,473) (14,195) (4,238)
(Gain) loss on sale of properties of
unconsolidated joint ventures . . . . . . . . . 2 (508) 2 (508)
--------- --------- ---------- ----------
Funds from operations . . . . . . . 57,249 46,200 159,623 132,539
Funds from operations attributable to
operating partnership units (OP). . . . . . . . 1,625 1,207 4,463 3,561
--------- --------- ---------- ----------
Funds from operations assuming
conversion of OP units. . . . . . $ 58,874 $ 47,407 $ 164,086 $ 136,100
========= ========= ========== ==========
Weighted average shares outstanding - basic . . . 86,951 78,241 85,237 78,191
Effect of dilutive securities:
Share options and awards. . . . . . . . . . 920 897 874 748
Operating partnership units . . . . . . . . 2,666 2,038 2,364 2,141
--------- --------- ---------- ----------
Weighted average shares outstanding -
diluted . . . . . . . . . . . . . . . . . . . . 90,537 81,176 88,475 81,080
========= ========= ========== ==========
NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In January 2003 FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities", which was reissued as Interpretation No. 46R in December
2003. FIN 46R requires a variable interest entity to be consolidated by a
company if that company absorbs a majority of the variable interest entity's
expected losses, receives a majority of the entity's expected residual returns,
or both. It further requires disclosures about variable interest entities that
a company is not required to consolidate, but in which it has a significant
variable interest. We have applied FIN 46R to our joint ventures and concluded
that it did not require consolidation of additional entities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We use fixed and floating-rate debt to finance our capital requirements. These
transactions expose us to market risk related to changes in interest rates.
Derivative financial instruments are used to manage a portion of this risk,
primarily interest rate swap agreements with major financial institutions. These
swap agreements expose us to credit risk in the event of non-performance by the
counter-parties to the swaps. We do not engage in the trading of derivative
financial instruments in the normal course of business. At September 30, 2004,
we had fixed-rate debt of $1.9 billion and variable-rate debt of $188.3 million,
after adjusting for the net effect of $132.5 million notional amount of interest
rate swaps.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our principal executive
officer and principal financial officer, management has evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934) as of September 30, 2004. Based on that evaluation, our
principal executive officer and our principal financial officer have concluded
that our disclosure controls and procedures were effective as of September 30,
2004.
25
There has been no change to our internal control over financial reporting during
the quarter ended September 30, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
26
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12.1 A statement of computation of ratios of earnings and funds from
operations to combined fixed charges and preferred dividends.
31.1 Certification pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002 (Chief Executive Officer).
31.2 Certification pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002 (Chief Financial Officer).
32.1 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted
pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer).
32.2 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted
pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief
Financial Officer).
(b) Reports on Form 8-K
A Form 8-K, dated July 20, 2004, was filed in response to Item 2.
Acquisition or Disposition of Assets and Item 7. Financial Statements,
Pro Forma Financial Information and Exhibits.
A Form 8-K, dated July 28, 2004, was filed in response to Item 7.
Exhibits and Item 12. Results of Operation and Financial Condition.
A Form 8-K, dated September 8, 2004, was filed in response to Item
8.01 Other Events and Item 9.01 Financial Statements, Pro Forma
Financial Information and Exhibits.
A Form 8-K, dated September 9, 2004, was filed in response to Item
2.01 Completion of Acquisition or Disposition of Assets and Item 9.01
Financial Statements, Pro Forma Financial Information and Exhibits.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEINGARTEN REALTY INVESTORS
---------------------------------
(Registrant)
BY: /s/ Andrew M. Alexander
---------------------------------
Andrew M. Alexander
President/Chief Executive Officer
(Principal Executive Officer)
BY: /s/ Joe D. Shafer
---------------------------------
Joe D. Shafer
Vice President/Controller
(Principal Accounting Officer)
DATE: November 9, 2004
28
EXHIBIT INDEX
EXHIBIT
NUMBER
- ------
12.1 A statement of computation of ratios of earnings and funds from
operations to combined fixed charges and preferred dividends.
31.1 Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of
2002 (Chief Executive Officer).
31.2 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to
Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).
32.1 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to
Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).
32.2 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to
Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).
29