SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9876 WEINGARTEN REALTY INVESTORS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 74-1464203 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 2600 Citadel Plaza Drive P.O. Box 924133 Houston, Texas 77292-4133 (Address of principal executive offices) (Zip Code) (713) 866-6000 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act. Title of Each Class Name of each exchange on which registered - ----------------------------------------------------------------- ------------------------------------------- Common Shares of Beneficial Interest, $0.03 par value New York Stock Exchange Series A Cumulative Redeemable Preferred Shares, $0.03 par value New York Stock Exchange Series C Cumulative Redeemable Preferred Shares, $0.03 par value New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE 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 [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the common shares held by non-affiliates (based upon the closing sale price on the New York Stock Exchange) on February 23, 1999 was approximately $1,120,950,474. As of February 23, 1999 there were 26,689,297 shares of beneficial interest, $.03 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement in connection with its Annual Meeting of Shareholders to be held April 28, 1999 are incorporated by reference in Part III. Exhibit Index beginning on Page 40 TABLE OF CONTENTS ITEM NO. PAGE NO. - -------- -------- PART I 1. Business 1 2. Properties 3 3. Legal Proceedings 13 4. Submission of Matters to a Vote of Shareholders 13 Executive Officers of the Registrant 14 PART II 5. Market for Registrant's Common Shares of Beneficial Interest and Related Shareholder Matters 15 6. Selected Financial Data 16 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 7A. Qualitative and Quantitative Disclosure about Market Risk 21 8. Financial Statements and Supplementary Data 22 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 39 PART III 10. Trust Managers and Executive Officers of the Registrant 40 11. Executive Compensation 40 12. Security Ownership of Certain Beneficial Owners and Management 40 13. Certain Relationships and Related Transactions 40 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 40 PART I ITEM 1. BUSINESS General. Weingarten Realty Investors (the "Company"), an unincorporated trust organized under the Texas Real Estate Investment Trust Act, and its predecessor entity began the ownership and development of shopping centers and other commercial real estate in 1948. The Company is self-advised and self-managed and, as of December 31, 1998, owned or operated under long-term leases interests in 217 developed income-producing real estate projects, 179 of which were shopping centers, located in the Houston metropolitan area and in other parts of Texas and in Louisiana, Nevada, Arizona, New Mexico, Oklahoma, Arkansas, Kansas, Colorado, Missouri, Tennessee, Illinois and Maine. The Company's other commercial real estate projects included 37 industrial projects and one office building, which serves, in part, as the Company's headquarters. The Company's interests in these projects aggregated approximately 26.1 million square feet of building area and 96.6 million square feet of land area. The Company also owned interests in 27 parcels of unimproved land under development or held for future development which aggregated approximately 9.3 million square feet. The Company currently employs 188 persons and its principal executive offices are located at 2600 Citadel Plaza Drive, Houston, Texas 77008, and its phone number is (713) 866-6000. Reorganizations. In December 1984, the Company engaged in a series of transactions primarily designed to enable it to qualify as a real estate investment trust ("REIT") for federal income tax purposes for the 1985 calendar year and subsequent years. The Company contributed certain assets considered unsuitable for ownership by the Company as a REIT and $3.5 million in cash to WRI Holdings, Inc. ("Holdings"), a Texas corporation and a newly-formed subsidiary of the Company, in exchange for voting and non-voting common stock of Holdings (which was subsequently distributed to the Company's shareholders) and $26.8 million of mortgage bonds. For additional information concerning Holdings, refer to Note 4 of the Notes to Consolidated Financial Statements at page 31. On March 22, 1988, the Company's shareholders approved the conversion of the Company's form of organization from a Texas corporation to an unincorporated trust organized under the Texas Real Estate Investment Trust Act. The conversion was effected by the Company's predecessor entity, Weingarten Realty, Inc., transferring substantially all of its assets and liabilities to the newly-formed Company in exchange for common shares of beneficial interest, $.03 par value ("Common Shares"), of the Company. The shareholders of the corporation received Common Shares for their shares of Common Stock of the corporation (on a share-for-share basis), and the Company continues the business that was previously conducted by the corporation. The change did not affect the registrant's assets, liabilities, management or federal income tax status as a REIT. Location of Properties. Historically, the Company has emphasized investments in properties located primarily in the Houston area. Since 1987, the Company has actively acquired properties outside of Houston. Of the Company's 244 properties which were owned or operated under long-term leases as of December 31, 1998, 97 of its 217 developed properties and 16 of its 27 parcels of unimproved land were located in the Houston metropolitan area. In addition to these properties, the Company owned 65 developed properties and 8 parcels of unimproved land located in other parts of Texas. Because of the Company's investments in the Houston area, as well as in other parts of Texas, the Houston and Texas economies affect, to some degree, the business and operations of the Company. In 1998, the economies of Houston and Texas continued to grow, albeit at a slower pace than 1997, but still exceeding the national average; the economy of the entire southwestern United States, where the company has its primary operations, also remained strong relative to the national average. The Houston economy, because of its strengths in energy and engineering and construction, has become much more integrated into the international economy and is somewhat affected by the international climate. Thus, Houston's expansion is expected to pause in 1999 showing only modest growth but expand in 2000 and beyond. A deterioration in the Houston or Texas economies could adversely affect the Company. However, the Company's centers are generally anchored by grocery and drug stores under long term leases, and such types of stores, which deal in basic necessity-type items, tend to be less affected by economic change. Competition. There are other developers and owner-operators engaged in the development, acquisition and operation of shopping centers and commercial property who compete with the Company in its trade areas. This results in competition for both acquisitions of existing income-producing properties and also for prime development sites. There is also competition for tenants to occupy the space that the Company and its competitors develop, acquire and manage. The Company believes that the principal competitive factors in attracting tenants in its market areas are location, price, anchor tenants and maintenance of properties and that the Company's competitive advantages include the favorable locations of its properties, its ability to provide a retailer with multiple locations in the Houston area with anchor tenants and its practice of continuous maintenance and renovation of its properties. Financial Information. Certain additional financial information concerning the Company is included in the Company's Consolidated Financial Statements located on pages 23 through 38 herein. ITEM 2. PROPERTIES At December 31, 1998, the Company's real estate properties consisted of 244 locations in thirteen states. A complete listing of these properties, including the name, location, building area and land area (in square feet), as applicable, is as follows: SHOPPING CENTERS Building Name and Location Area Land Area - --------------------------------------------------------------------- ---------- ----------- HOUSTON AND HARRIS COUNTY, TOTAL. . . . . . . . . . . . . . . . . . . 7,084,000 28,074,000 Alabama-Shepherd, S. Shepherd at W. Alabama . . . . . . . . . . . . . 28,000 * 88,000 * Almeda Road, Almeda at Cleburne . . . . . . . . . . . . . . . . . . . 34,000 147,000 Bayshore Plaza, Spencer Hwy. at Burke Rd. . . . . . . . . . . . . . . 36,000 196,000 Bellaire Boulevard, Bellaire at S. Rice . . . . . . . . . . . . . . . 35,000 137,000 Bellfort, Bellfort at Southbank . . . . . . . . . . . . . . . . . . . 48,000 167,000 Bellfort Southwest, Bellfort at Gessner . . . . . . . . . . . . . . . 30,000 89,000 Bellwood, Bellaire at Kirkwood. . . . . . . . . . . . . . . . . . . . 136,000 655,000 Bingle Square, U.S. Hwy. 290 at Bingle. . . . . . . . . . . . . . . . 46,000 168,000 Braeswood Square, N. Braeswood at Chimney Rock. . . . . . . . . . . . 103,000 422,000 Centre at Post Oak, Westheimer at Post Oak Blvd.. . . . . . . . . . . 184,000 505,000 Copperfield Village, Hwy. 6 at F.M. 529 . . . . . . . . . . . . . . . 153,000 712,000 Crestview, Bissonnet at Wilcrest. . . . . . . . . . . . . . . . . . . 9,000 35,000 Crosby, F.M. 2100 at Kenning Road (61%) . . . . . . . . . . . . . . . 36,000 * 124,000 * Cullen Place, Cullen at Reed. . . . . . . . . . . . . . . . . . . . . 7,000 30,000 Cullen Plaza, Cullen at Wilmington. . . . . . . . . . . . . . . . . . 81,000 318,000 Cypress Pointe, F.M. 1960 at Cypress Station. . . . . . . . . . . . . 191,000 737,000 Cypress Village, Louetta and Grant Road . . . . . . . . . . . . . . . 25,000 134,000 Del Sol Market Place, Telephone at Monroe . . . . . . . . . . . . . . 26,000 87,000 Eastpark, Mesa Rd. at Tidwell . . . . . . . . . . . . . . . . . . . . 140,000 665,000 Edgebrook, Edgebrook at Gulf Fwy. . . . . . . . . . . . . . . . . . . 78,000 360,000 Fiesta Village, Quitman at Fulton . . . . . . . . . . . . . . . . . . 30,000 80,000 Fondren Southwest Village, Fondren at W. Bellfort . . . . . . . . . . 225,000 1,014,000 Fondren/West Airport, Fondren at W. Airport . . . . . . . . . . . . . 62,000 223,000 45/York Plaza, I-45 at W. Little York . . . . . . . . . . . . . . . . 210,000 840,000 Glenbrook Square, Telephone Road. . . . . . . . . . . . . . . . . . . 71,000 320,000 Griggs Road, Griggs at Cullen . . . . . . . . . . . . . . . . . . . . 85,000 422,000 Harrisburg Plaza, Harrisburg at Wayside . . . . . . . . . . . . . . . 95,000 334,000 Heights Plaza, 20th St. at Yale . . . . . . . . . . . . . . . . . . . 72,000 228,000 Humblewood Shopping Plaza, Eastex Fwy. at F.M. 1960 . . . . . . . . . 180,000 784,000 I-45/Telephone Rd. Center, I-45 at Maxwell Street . . . . . . . . . . 126,000 819,000 Inwood Village, W. Little York at N. Houston-Rosslyn. . . . . . . . . 68,000 305,000 Jacinto City, Market at Baca. . . . . . . . . . . . . . . . . . . . . 24,000 * 67,000 * Kingwood, Kingwood Dr. at Chesnut Ridge . . . . . . . . . . . . . . . 155,000 648,000 Landmark, Gessner at Harwin . . . . . . . . . . . . . . . . . . . . . 56,000 228,000 Lawndale, Lawndale at 75th St.. . . . . . . . . . . . . . . . . . . . 53,000 177,000 Little York Plaza, Little York at E. Hardy. . . . . . . . . . . . . . 118,000 486,000 Long Point, Long Point at Wirt (77%). . . . . . . . . . . . . . . . . 58,000 * 257,000 * Lyons Avenue, Lyons at Shotwell . . . . . . . . . . . . . . . . . . . 68,000 179,000 Market at Westchase, Westheimer at Wilcrest . . . . . . . . . . . . . 84,000 333,000 Miracle Corners, S. Shaver at Southmore . . . . . . . . . . . . . . . 87,000 386,000 Northbrook, Northwest Fwy. at W. 34th . . . . . . . . . . . . . . . . 204,000 656,000 North Main Square, Pecore at N. Main. . . . . . . . . . . . . . . . . 18,000 64,000 Table continued on next page Building Name and Location Area Land Area - --------------------------------------------------------------------- ---------- ----------- North Oaks, F.M. 1960 at Veterans Memorial. . . . . . . . . . . . . . 322,000 1,246,000 North Triangle, I-45 at F.M. 1960 . . . . . . . . . . . . . . . . . . 16,000 113,000 Northway, Northwest Fwy. at 34th. . . . . . . . . . . . . . . . . . . 212,000 793,000 Northwest Crossing, N.W. Fwy. at Hollister (75%). . . . . . . . . . . 135,000 * 671,000 * Northwest Park Plaza, F.M. 149 at Champions Forest. . . . . . . . . . 32,000 268,000 Oak Forest, W. 43rd at Oak Forest . . . . . . . . . . . . . . . . . . 158,000 541,000 Orchard Green, Gulfton at Renwick . . . . . . . . . . . . . . . . . . 64,000 257,000 Randall's/Cypress Station, F.M. 1960 at I-45. . . . . . . . . . . . . 141,000 618,000 Randall's/El Dorado, El Dorado at Hwy. 3. . . . . . . . . . . . . . . 119,000 429,000 Randall's/Kings Crossing, Kingwood Dr. at Lake Houston Pkwy.. . . . . 128,000 624,000 Randall's/Norchester, Grant at Jones. . . . . . . . . . . . . . . . . 109,000 475,000 Richmond Square, Richmond Ave. at W. Loop 610 . . . . . . . . . . . . 33,000 136,000 River Oaks, East, W. Gray at Woodhead . . . . . . . . . . . . . . . . 71,000 206,000 River Oaks, West, W. Gray at S. Shepherd. . . . . . . . . . . . . . . 235,000 609,000 Sheldon Forest, North, I-10 at Sheldon. . . . . . . . . . . . . . . . 22,000 131,000 Sheldon Forest, South, I-10 at Sheldon. . . . . . . . . . . . . . . . 38,000 * 164,000 * Shops at Three Corners, S. Main at Old Spanish Trail (70%). . . . . . 183,000 * 803,000 * Southgate, W. Fuqua at Hiram Clark. . . . . . . . . . . . . . . . . . 115,000 533,000 Spring Plaza, Hammerly at Campbell. . . . . . . . . . . . . . . . . . 56,000 202,000 Steeplechase, Jones Rd. at F.M. 1960. . . . . . . . . . . . . . . . . 193,000 849,000 Stella Link, North, Stella Link at S. Braeswood (77%) . . . . . . . . 40,000 * 156,000 * Stella Link, South, Stella Link at S. Braeswood . . . . . . . . . . . 15,000 56,000 Studemont, Studewood at E. 14th St. . . . . . . . . . . . . . . . . . 28,000 91,000 Ten Blalock Square, I-10 at Blalock . . . . . . . . . . . . . . . . . 97,000 321,000 10/Federal, I-10 at Federal . . . . . . . . . . . . . . . . . . . . . 132,000 474,000 University Plaza, Bay Area At Space Center. . . . . . . . . . . . . . 96,000 424,000 The Village Arcade, University at Kirby . . . . . . . . . . . . . . . 192,000 414,000 West Junction, Hwy. 6 at Kieth Harrow Dr.. . . . . . . . . . . . . . 67,000 264,000 Westbury Triangle, Chimney Rock at W. Bellfort. . . . . . . . . . . . 67,000 257,000 Westchase, Westheimer at Wilcrest . . . . . . . . . . . . . . . . . . 236,000 766,000 Westhill Village, Westheimer at Hillcroft . . . . . . . . . . . . . . 131,000 480,000 Wilcrest Southwest, Wilcrest at Southwest Fwy.. . . . . . . . . . . . 26,000 77,000 TEXAS (EXCLUDING HOUSTON & HARRIS CO.), TOTAL . . . . . . . . . . . . 6,056,000 25,883,000 Coronado, S.W. 34th St. at Wimberly Dr., Amarillo . . . . . . . . . . 49,000 201,000 Grand Plaza, Interstate Hwy 40 at Grand Ave., Amarillo. . . . . . . . 157,000 637,000 Puckett Plaza, Bell Road, Amarillo. . . . . . . . . . . . . . . . . . 133,000 621,000 Spanish Crossroads, Bell St. at Atkinson St., Amarillo. . . . . . . . 72,000 275,000 Wolflin Village, Wolflin Ave. at Georgia St., Amarillo. . . . . . . . 191,000 421,000 Brodie Oaks, South Lamar Blvd. at Loop 360, Austin. . . . . . . . . . 245,000 1,050,000 Southridge Plaza, William Cannon Dr. at S. 1st St., Austin. . . . . . 143,000 565,000 Baywood, State Hwy. 60 at Baywood Dr., Bay City . . . . . . . . . . . 40,000 169,000 Calder, Calder at 24th St., Beaumont. . . . . . . . . . . . . . . . . 34,000 129,000 North Park Plaza, Eastex Fwy. at Dowlen, Beaumont . . . . . . . . . . 70,000 * 318,000 * Phelan West, Phelan at 23rd St., Beaumont (67%) . . . . . . . . . . . 16,000 * 59,000 * Southgate, Calder Ave. at 6th St., Beaumont . . . . . . . . . . . . . 34,000 118,000 Westmont, Dowlen at Phelan, Beaumont. . . . . . . . . . . . . . . . . 95,000 507,000 Bryan Village, Texas at Pease, Bryan. . . . . . . . . . . . . . . . . 29,000 98,000 Parkway Square, Southwest Pkwy at Texas Ave., College Station . . . . 158,000 685,000 Table continued on next page Building Name and Location Area Land Area - --------------------------------------------------------------------- ---------- ----------- Montgomery Plaza, Loop 336 West, Conroe . . . . . . . . . . . . . . . 315,000 1,156,000 River Pointe, I-45 at Loop 336, Conroe. . . . . . . . . . . . . . . . 42,000 329,000 Moore Plaza, S. Padre Island Dr. at Staples, Corpus Christi . . . . . 360,000 1,491,000 Portairs, Ayers St. at Horne Rd., Corpus Christi. . . . . . . . . . . 121,000 416,000 Dickinson, I-45 at F.M. 517, Dickinson (72%). . . . . . . . . . . . . 55,000 * 225,000 * Coronado Hills, Mesa at Balboa, El Paso . . . . . . . . . . . . . . . 128,000 575,000 Southcliff, I-20 and Grandbury Rd., Ft. Worth . . . . . . . . . . . . 116,000 568,000 Broadway, Broadway at 59th St., Galveston (77%) . . . . . . . . . . . 58,000 * 167,000 * Galveston Place, Central City Blvd. at 61st St., Galveston. . . . . . 206,000 828,000 Food King Place, 25th St. at Avenue P, Galveston. . . . . . . . . . . 28,000 78,000 Fiesta, Belt Line Rd. at Marshall Dr., Grand Prairie. . . . . . . . . 32,000 236,000 Cedar Bayou, Bayou Rd., La Marque . . . . . . . . . . . . . . . . . . 15,000 51,000 Corum South, Gulf Fwy., League City . . . . . . . . . . . . . . . . . 112,000 680,000 Caprock Center, 50th at Boston Ave., Lubbock. . . . . . . . . . . . . 375,000 1,255,000 Central Plaza, Loop 289 at Slide Rd., Lubbock . . . . . . . . . . . . 152,000 529,000 Town & Country, 4th St. at University, Lubbock. . . . . . . . . . . . 134,000 339,000 Angelina Village, Hwy. 59 at Loop 287, Lufkin . . . . . . . . . . . . 254,000 1,835,000 Independence Plaza, Town East Blvd., Mesquite . . . . . . . . . . . . 179,000 787,000 McKinney Centre, US Hwy 380 at U.S Hwy 75, McKinney. . . . . . . . . 27,000 145,000 University Park Plaza, University Dr. at E. Austin St., Nacogdoches . 78,000 283,000 Mid-County, Twin Cities Hwy. at Nederland Ave., Nederland . . . . . . 107,000 611,000 Gillham Circle, Gillham Circle at Thomas, Port Arthur . . . . . . . . 33,000 94,000 Village, 9th Ave. at 25th St., Port Arthur (77%). . . . . . . . . . . 39,000 * 185,000 * Porterwood, Eastex Fwy. at F.M. 1314, Porter. . . . . . . . . . . . . 99,000 487,000 Plaza, Ave. H at U.S. Hwy. 90A, Rosenberg . . . . . . . . . . . . . . 41,000 * 135,000 * Rose-Rich, U.S. Hwy. 90A at Lane Dr., Rosenberg . . . . . . . . . . . 104,000 386,000 Bandera Village, Bandera at Hillcrest, San Antonio. . . . . . . . . . 57,000 607,000 Oak Park Village, Nacogdoches at New Braunfels, San Antonio . . . . . 65,000 221,000 Parliament Square, W. Ave. at Blanco, San Antonio . . . . . . . . . . 65,000 260,000 San Pedro Court, San Pedro at Hwy. 281N., San Antonio . . . . . . . . 2,000 18,000 Valley View, West Ave. at Blanco Rd., San Antonio . . . . . . . . . . 89,000 341,000 Market at Town Center, Town Center Blvd., Sugar Land. . . . . . . . . 392,000 1,732,000 Williams Trace, Hwy. 6 at Williams Trace, Sugar Land. . . . . . . . . 263,000 1,187,000 New Boston Road, New Boston at Summerhill, Texarkana. . . . . . . . . 90,000 335,000 Island Market Place, 6th St. at 9th Ave., Texas City. . . . . . . . . 27,000 90,000 Mainland, Hwy. 1765 at Hwy. 3, Texas City . . . . . . . . . . . . . . 69,000 279,000 Palmer Plaza, F.M. 1764 at 34th St., Texas City . . . . . . . . . . . 97,000 367,000 Broadway, S. Broadway at W. 9th St., Tyler (77%). . . . . . . . . . . 46,000 * 197,000 * Crossroads, I-10 at N. Main, Vidor. . . . . . . . . . . . . . . . . . 116,000 516,000 Watauga, Hwy. 377 at Bursey Rd., Watauga. . . . . . . . . . . . . . . 2,000 9,000 LOUISIANA, TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,337,000 5,504,000 Park Terrace, U.S. Hwy. 171 at Parish, DeRidder . . . . . . . . . . . 137,000 520,000 Town & Country Plaza, U.S. Hwy. 190 West, Hammond . . . . . . . . . . 215,000 915,000 Westwood Village, W. Congress at Bertrand, Lafayette. . . . . . . . . 141,000 942,000 East Town, 3rd Ave. at 1st St., Lake Charles. . . . . . . . . . . . . 33,000 * 117,000 * 14/Park Plaza, Hwy. 14 at General Doolittle, Lake Charles . . . . . . 207,000 654,000 Kmart Plaza, Ryan St., Lake Charles . . . . . . . . . . . . . . . . . 105,000 * 406,000 * Southgate, Ryan at Eddy, Lake Charles . . . . . . . . . . . . . . . . 171,000 628,000 Danville Plaza, Louisville at 19th, Monroe. . . . . . . . . . . . . . 143,000 539,000 Table continued on next page Building Name and Location Area Land Area - --------------------------------------------------------------------- ---------- ----------- LOUISIANA, (CONT'D.) Orleans Station, Paris, Robert E. Lee & Chatham, New Orleans. . . . . 5,000 31,000 Southgate, 70th at Mansfield, Shreveport. . . . . . . . . . . . . . . 73,000 359,000 Westwood, Jewella at Greenwood, Shreveport. . . . . . . . . . . . . . 107,000 393,000 NEVADA, TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,091,000 4,398,000 Francisco Centre, E. Desert Inn Rd. at S. Eastern Ave., Las Vegas . . 116,000 639,000 Mission Center, Flamingo Rd. at Maryland Pkwy, Las Vegas. . . . . . . 152,000 570,000 Paradise Marketplace, Flamingo Rd. at Sandhill, Las Vegas . . . . . . 149,000 536,000 Rainbow Plaza, Rainbow Blvd. at Charleston Blvd., Las Vegas . . . . . 280,000 1,063,000 Rancho Towne & Country, Rancho Dr. at Charleston Blvd., Las Vegas . . 87,000 350,000 Tropicana Marketplace, Tropicana at Jones Blvd., Las Vegas. . . . . . 143,000 519,000 College Park, E. Lake Mead Blvd. at Civic Ctr. Dr., North Las Vegas . 164,000 721,000 ARIZONA, TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,052,000 4,702,000 University Plaza, Plaza Way at Milton Rd., Flagstaff. . . . . . . . . 166,000 918,000 Arrowhead Festival, 75th Ave. and W. Bell Rd., Glendale . . . . . . . 26,000 157,000 Camelback Village Square, Camelback at 7th Avenue, Phoenix. . . . . . 135,000 543,000 Squaw Peak Plaza, 16th Street at Glendale Ave., Phoenix . . . . . . . 61,000 220,000 Fountain Plaza, 77th St. at McDowell, Scottsdale. . . . . . . . . . . 112,000 460,000 Rancho Encanto, 35th Avenue and Greenway Rd., Phoenix . . . . . . . . 71,000 259,000 Broadway Marketplace, Broadway at Rural, Tempe. . . . . . . . . . . . 86,000 347,000 Fry's Valley Plaza, S. McClintock at E. Southern, Tempe . . . . . . . 145,000 570,000 Pueblo Anozira, McClintock Dr. at Guadalupe Rd., Tempe. . . . . . . . 152,000 769,000 Desert Square Shopping Center, Golf Links at Kolb, Tucson . . . . . . 98,000 459,000 NEW MEXICO, TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . 703,000 3,177,000 Eastdale, Candelaria Rd. at Eubank Blvd., Albuquerque . . . . . . . . 111,000 601,000 North Towne Plaza, Academy Rd. @ Wyoming Blvd., Albuquerque . . . . . 103,000 607,000 Valle del Sol, Isleta Blvd. at Rio Bravo, Albuquerque . . . . . . . . 106,000 475,000 Wyoming Mall, Academy Rd. at Northeastern, Albuquerque. . . . . . . . 326,000 1,309,000 DeVargas, N. Guadalupe at Paseo de Peralta, Santa Fe (23%). . . . . . 57,000 * 185,000 * OKLAHOMA, TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 687,000 3,173,000 Bryant Square, Bryant Ave. at 2nd St., Edmond . . . . . . . . . . . . 268,000 1,259,000 Market Boulevard, E. Reno Ave. at N. Douglas Ave., Midwest City . . . 36,000 142,000 Town & Country, Reno Ave at North Air Depot, Midwest City . . . . . . 137,000 540,000 Windsor Hills Center, Meridian at Windsor Place, Oklahoma City. . . . 246,000 1,232,000 ARKANSAS, TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 596,000 2,323,000 Evelyn Hills, College Ave. at Abshier, Fayetteville . . . . . . . . . 154,000 750,000 Broadway Plaza, Broadway at W. Roosevelt, Little Rock . . . . . . . . 43,000 148,000 Geyer Springs, Geyer Springs at Baseline, Little Rock . . . . . . . . 153,000 415,000 Markham Square, W. Markham at John Barrow, Little Rock. . . . . . . . 134,000 535,000 Markham West, 11400 W. Markham, Little Rock (35%) . . . . . . . . . . 62,000 * 269,000 * Westgate, Cantrell at Bryant, Little Rock . . . . . . . . . . . . . . 50,000 206,000 Table continued on next page Building Name and Location Area Land Area - --------------------------------------------------------------------- ---------- ----------- KANSAS, TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466,000 2,231,000 West State Plaza, State Ave. at 78th St., Kansas City . . . . . . . . 94,000 401,000 Westbrooke Village, Quivira Road at 75th St., Shawnee . . . . . . . . 237,000 1,269,000 Shawnee Village, Shawnee Mission Pkwy. at Quivera Rd., Shawnee. . . . 135,000 561,000 COLORADO, TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,000 867,000 Carefree, Academy Blvd. at N. Carefree Circle, Colorado Springs . . . 127,000 460,000 Academy Place, Academy Blvd. at Union Blvd., Colorado Springs . . . . 84,000 407,000 MISSOURI, TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000 448,000 PineTree Plaza, U.S. Hwy. 150 at Hwy. 291, Lee's Summit . . . . . . . 135,000 448,000 MAINE, TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,000 482,000 The Promenade, Essex at Summit, Lewiston. . . . . . . . . . . . . . . 124,000 * 482,000 * TENNESSEE, TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 84,000 Highland Square, Summer at Highland, Memphis. . . . . . . . . . . . . 20,000 84,000 ILLINOIS, TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 29,000 Lincoln Place Centre, Hwy. 59, Fairview Heights (99%) . . . . . . . . 7,000 * 29,000 * Building INDUSTRIAL Area Land Area ---------- ----------- HOUSTON AND HARRIS COUNTY, TOTAL. . . . . . . . . . . . . . . . . . . 4,503,000 11,066,000 Blankenship Building, Kempwood Drive. . . . . . . . . . . . . . . . . 59,000 175,000 Brookhollow Business Center, Dacoma at Directors Row. . . . . . . . . 133,000 405,000 Cannon/So. Loop Business Park, Cannon Street (75%). . . . . . . . . . 221,000 * 362,000 * Central Park North, W. Hardy Rd. at Kendrick Dr.. . . . . . . . . . . 155,000 465,000 Central Park Northwest VI, Central Pkwy. at Dacoma. . . . . . . . . . 175,000 518,000 Central Park Northwest VII, Central Pkwy. at Dacoma . . . . . . . . . 104,000 283,000 Crosspoint Warehouse, Crosspoint. . . . . . . . . . . . . . . . . . . 73,000 179,000 Jester Plaza, West T.C. Jester. . . . . . . . . . . . . . . . . . . . 101,000 244,000 Kempwood Industrial, Kempwood Dr. at Blankenship Dr.. . . . . . . . . 320,000 778,000 Lathrop Warehouse, Lathrop St. at Larimer St. . . . . . . . . . . . . 252,000 436,000 Levitz Furniture Warehouse, Loop 610 South. . . . . . . . . . . . . . 184,000 450,000 Little York Mini-Storage, West Little York. . . . . . . . . . . . . . 32,000 * 124,000 * Navigation Business Park, Navigation At N. York . . . . . . . . . . . 238,000 555,000 Northway Park II, Loop 610 East at Homestead. . . . . . . . . . . . . 303,000 745,000 Park Southwest, Stancliff at Brooklet . . . . . . . . . . . . . . . . 52,000 159,000 Railwood Industrial Park, Mesa at U.S. 90 . . . . . . . . . . . . . . 1,112,000 2,913,000 South Loop Business Park, S. Loop at Long Dr. . . . . . . . . . . . . 46,000 * 103,000 * Southport Business Park 5, South Loop 610 . . . . . . . . . . . . . . 157,000 358,000 Southwest Park II, Rockley Road . . . . . . . . . . . . . . . . . . . 68,000 216,000 Stonecrest Business Center, Wilcrest at Fallstone . . . . . . . . . . 111,000 308,000 West-10 Business Center, Wirt Rd. at I-10 . . . . . . . . . . . . . . 141,000 330,000 West-10 Business Center II, Wirt Rd. at I-10. . . . . . . . . . . . . 83,000 150,000 West Loop Commerce Center, W. Loop N. at I-10 . . . . . . . . . . . . 34,000 91,000 610 and 11th St. Warehouse, Loop 610 at 11th St.. . . . . . . . . . . 349,000 719,000 Table continued on next page Building Name and Location Area Land Area - --------------------------------------------------------------------- ---------- ----------- TEXAS (EXCLUDING HOUSTON & HARRIS CO.), TOTAL . . . . . . . . . . . . 1,194,000 2,505,000 Randol Mill Place, Randol Mill Road, Arlington. . . . . . . . . . . . 55,000 178,000 Corporate Center I & II, Putnam Dr. at Research Blvd., Austin . . . . 117,000 326,000 River Pointe Mini-Storage, I-45 at Hwy. 336, Conroe . . . . . . . . . 32,000 * 97,000 * Northaven Business Center, Northaven Rd., Dallas. . . . . . . . . . . 151,000 178,000 Redbird Distribution Center, Joseph Hardin Drive, Dallas. . . . . . . 111,000 233,000 Regal Distribution Center, Leston Avenue, Dallas. . . . . . . . . . . 203,000 318,000 Space Center Industrial Park, Pulaski St. at Irving Blvd., Dallas . . 265,000 426,000 Walnut Trails Business Park, Walnut Hill Land, Dallas . . . . . . . . 103,000 311,000 DFW-Port America, Port America Place, Grapevine . . . . . . . . . . . 45,000 110,000 Nasa One Business Center, Nasa Road One at Hwy. 3, Webster. . . . . . 112,000 328,000 TENNESSEE, TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 679,000 1.471,000 Southwide Warehouse # 2, Federal Compress Ind. Pk., Memphis . . . . . 124,000 302,000 Southwide Warehouse # 3, Federal Compress Ind. Pk., Memphis . . . . . 112,000 209,000 Southwide Warehouse # 4, Federal Compress Ind. Pk., Memphis . . . . . 120,000 220,000 Thomas Street Warehouse, N. Thomas Street, Memphis. . . . . . . . . . 164,000 423,000 Crowfarn Drive Warehouse, Crowfarn Dr. at Getwell Rd., Memphis. . . . 159,000 317,000 OFFICE BUILDING HOUSTON & HARRIS COUNTY, TOTAL. . . . . . . . . . . . . . . . . . . . 121,000 171,000 Citadel Plaza, N. Loop 610 at Citadel Plaza Dr. . . . . . . . . . . . 121,000 171,000 Table continued on next page Building Name and Location Area Land Area - --------------------------------------------------------------------- ---------- ----------- UNIMPROVED LAND HOUSTON & HARRIS COUNTY, TOTAL. . . . . . . . . . . . . . . . . . . . 5,088,000 Beltway 8 at W. Belfort . . . . . . . . . . . . . . . . . . . . . . . 499,000 Bissonnet at Wilcrest . . . . . . . . . . . . . . . . . . . . . . . . 773,000 Citadel Plaza at 610 N. Loop. . . . . . . . . . . . . . . . . . . . . 137,000 East Orem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,000 Kirkwood at Dashwood Dr.. . . . . . . . . . . . . . . . . . . . . . . 322,000 Lockwood at Navigation. . . . . . . . . . . . . . . . . . . . . . . . 163,000 Mesa Rd. at Tidwell . . . . . . . . . . . . . . . . . . . . . . . . . 901,000 Mesa Rd. at Spikewood . . . . . . . . . . . . . . . . . . . . . . . . 1,030,000 Mowery at Cullen. . . . . . . . . . . . . . . . . . . . . . . . . . . 118,000 Northwest Fwy. at Gessner . . . . . . . . . . . . . . . . . . . . . . 484,000 Redman at W. Denham . . . . . . . . . . . . . . . . . . . . . . . . . 17,000 Renwick at Gulfton. . . . . . . . . . . . . . . . . . . . . . . . . . 17,000 Sheldon at I-10 . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,000 W. Little York at I-45. . . . . . . . . . . . . . . . . . . . . . . . 322,000 W. Little York at N. Houston-Rosslyn. . . . . . . . . . . . . . . . . 19,000 W. Loop N. at I-10. . . . . . . . . . . . . . . . . . . . . . . . . . 145,000 TEXAS (EXCLUDING HOUSTON & HARRIS CO.), TOTAL . . . . . . . . . . . . 2,142,000 McDermott Drive at Custer Rd., Allen. . . . . . . . . . . . . . . . . 369,000 Phelan Blvd., Beaumont. . . . . . . . . . . . . . . . . . . . . . . . 63,000 US Hwy 380 (University Drive) and US Hwy 75, McKinney . . . . . . . . 189,000 River Pointe Dr. at I-45, Conroe. . . . . . . . . . . . . . . . . . . 186,000 River Pointe Dr. at I-45, Conroe. . . . . . . . . . . . . . . . . . . 595,000 Hillcrest, Sunshine at Quill, San Antonio . . . . . . . . . . . . . . 171,000 Hwy. 3 at Hwy. 1765, Texas City . . . . . . . . . . . . . . . . . . . 184,000 Hwy 377 at Bursey Road, Watauga . . . . . . . . . . . . . . . . . . . 385,000 LOUISIANA, TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,284,000 U.S. Hwy. 171 at Parish, DeRidder . . . . . . . . . . . . . . . . . . 462,000 Woodland Hwy., Plaquemines Parish (5%). . . . . . . . . . . . . . . . 822,000 * ILLINOIS, TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,000 Lincoln Place Ctr., SBI Rt. 159 at Matilda , Fairview Heights (99%) . 474,000 * ARIZONA, TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 271,000 Dysart Rd. at McDowell Rd., Avondale. . . . . . . . . . . . . . . . . 271,000 Table continued on next page Building Area Land Area ---------- ----------- ALL PROPERTIES-BY LOCATION GRAND TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,066,000 105,847,000 Houston & Harris County . . . . . . . . . . . . . . . . . . . . . . . 11,708,000 44,399,000 Texas (excluding Houston & Harris County) . . . . . . . . . . . . . . 7,250,000 30,530,000 Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,337,000 6,788,000 Nevada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,091,000 4,398,000 Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,052,000 4,973,000 New Mexico. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703,000 3,177,000 Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699,000 1,555,000 Oklahoma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 687,000 3,173,000 Arkansas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596,000 2,323,000 Kansas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466,000 2,231,000 Colorado. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,000 867,000 Missouri. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000 448,000 Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,000 482,000 Illinois. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 503,000 ALL PROPERTIES-BY CLASSIFICATION GRAND TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,066,000 105,847,000 Shopping Centers. . . . . . . . . . . . . . . . . . . . . . . . . . . 19,569,000 81,375,000 Industrial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,376,000 15,042,000 Office Building . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,000 171,000 Unimproved Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,259,000 <FN> Note: Total square footage includes 8,060,000 square feet of land leased and 450,000 square feet of building leased from others. * Denotes partial ownership. The Company's interest is 50% except where noted. The square feet figures represent the Company's proportionate ownership of the entire property. General. In 1998, no single property accounted for more than 3.4% of the Company's total assets or 3.1% of gross revenues. Four properties, in the aggregate, represented approximately 10.6% of the Company's gross revenues for the year ended December 31, 1998; otherwise, none of the remaining properties accounted for more than 1.9% of the Company's gross revenues during the same period. The occupancy rate for all of the Company's improved properties as of December 31, 1998 was 93.1%. Substantially all of the Company's properties are owned directly by the Company (subject in certain cases to mortgages), although the Company's interests in certain of its properties are held indirectly through its interests in joint ventures or under long-term leases. In the opinion of management of the Company, its properties are well maintained and in good repair, suitable for their intended uses, and adequately covered by insurance. Shopping Centers. As of December 31, 1998, the Company owned or operated under long-term leases, either directly or through its interests in joint ventures, 179 shopping centers with approximately 19.6 million square feet of building area. The shopping centers were located predominantly in Texas with other locations in Louisiana, Oklahoma, Arkansas, Arizona, New Mexico, Maine, Tennessee, Nevada, Kansas, Missouri, Illinois and Colorado. The Company's shopping centers are primarily community shopping centers which range in size from 100,000 to 400,000 square feet, as distinguished from small strip centers which generally contain 5,000 to 25,000 square feet and from large regional enclosed malls which generally contain over 500,000 square feet. Most of the centers do not have climatized common areas but are designed to allow retail customers to park their automobiles in close proximity to any retailer in the center. The Company's centers are customarily constructed of masonry, steel and glass and all have lighted, paved parking areas which are typically landscaped with berms, trees and shrubs. They are generally located at major intersections in close proximity to neighborhoods which have existing populations sufficient to support retail activities of the types conducted in the Company's centers. The Company has approximately 3,900 separate leases with 2,900 different tenants in its portfolio, including national and regional supermarket chains, other nationally or regionally known stores (including drug stores, discount department stores, junior department stores and catalog stores) and a great variety of other regional and local retailers. The large number of locations offered by the Company and the types of traditional anchor tenants help attract prospective new tenants. Some of the national and regional supermarket chains which are tenants in the Company's centers include Albertson's, Fiesta, Smith's, H.E.B., Kroger Company, Randall's Food Markets, Fry's Food Stores and Safeway. In addition to these supermarket chains, the Company's nationally and regionally known retail store tenants include Eckerd, Walgreen and Osco drugstores; Kmart discount stores; Bealls, Palais Royal and Weiner's junior department stores; Marshall's, Office Depot, 50-Off, Office Max, Babies 'R' Us, Ross, Stein Mart and T.J. Maxx off-price specialty stores; Luby's, Piccadilly and Furr's cafeterias; Academy sporting goods; Service Merchandise catalog stores; FAO Schwarz toy store; Cost Plus Imports; Linens 'N Things; Barnes & Noble bookstore; Home Depot; Comp USA; and the following restaurant chains: Arby's, Burger King, Champ's, Church's Fried Chicken, Dairy Queen, Domino's, Jack-in-the-Box, CiCi Pizza, Long John Silver's, McDonald's, Olive Garden, Outback Steakhouse, Pizza Hut, Shoney's, Steak & Ale, Taco Bell and Whataburger. The Company also leases space in 3,000 to 10,000 square foot areas to national chains such as the Limited Store, The Gap, One Price Stores, Eddie Bauer and Radio Shack. The Company's shopping center leases have lease terms generally ranging from three to five years for tenant space under 5,000 square feet and from 10 to 35 years for tenant space over 10,000 square feet. Leases with primary lease terms in excess of 10 years, generally for anchor and out-parcels, frequently contain renewal options which allow the tenant to extend the term of the lease for one or more additional periods, each such period generally being of a shorter duration than the primary lease term. The rental rates paid during a renewal period are generally based upon the rental rate for the primary term, sometimes adjusted for inflation or for the amount of the tenant's sales during the primary term. Most of the Company's leases provide for the monthly payment in advance of fixed minimum rentals, the tenants' pro rata share of ad valorem taxes, insurance (including fire and extended coverage, rent insurance and liability insurance) and common area maintenance for the center (based on estimates of the costs for such items) and for the payment of additional rentals based on a percentage of the tenants' sales ("percentage rentals"). Utilities are generally paid directly by tenants except where common metering exists with respect to a center, in which case the Company makes the payments for the utilities and is reimbursed by the tenants on a monthly basis. Generally, the Company's leases prohibit the tenant from assigning or subletting its space and require the tenant to use its space for the purpose designated in its lease agreement and to operate its business on a continuous basis. Certain of the lease agreements with major tenants contain modifications of these basic provisions in view of the financial condition, stability or desirability of such tenants. Where a tenant is granted the right to assign its space, the lease agreement generally provides that the original lessee will remain liable for the payment of the lease obligations under such lease agreement. During 1998, the Company added approximately 3.3 million square feet to its portfolio of properties through acquisitions and another .2 million square feet of space through development. Regarding the retail portfolio, the Company purchased anchored shopping centers in Corpus Christi, Austin and Lubbock, Texas, and a free-standing supermarket in the Dallas/Fort Worth area. The Company also purchased the second phase of a center it already owned in Las Vegas and bought adjoining buildings at two of its Houston-area shopping centers. A partnership formed by the Company acquired an anchored shopping center in Little Rock, Arkansas in exchange for operating partnership units and the assumption of $9.1 million of debt. The Company has an effective ownership interest of 35% in this partnership. These transactions increased the Company's retail portfolio by 1.1 million square feet of building area and represent an investment of $82.8 million. The Company also entered into long-term lease agreements with purchase options for two anchored shopping centers in Las Vegas totaling 280,000 square feet. With respect to new development, construction was completed on retail space adjacent to an occupant-owned supermarket at a newly developed shopping center in Phoenix. The Company currently has four retail centers under development and has investments in two additional retail centers under construction in the Denver area in joint ventures with a Denver-based developer. Industrial Properties. The Company currently owns a total of 37 industrial projects and was expanded in 1998 through the purchase of fifteen facilities. The Company purchased seven facilities in Dallas and three properties in Memphis, its first industrial projects in both of these cities. The Company also acquired five buildings in the Houston area, including a refrigerated storage facility in Railwood, the Company's master planned industrial park. These projects added 2.2 million square feet to the industrial portfolio and represent an investment of $45.6 million. During 1998, the Company completed the development of a 162,000 square foot speculative bulk warehouse facility on a tract of undeveloped land located in the Company's Railwood Industrial Park. Office Building. The Company owns a seven-story, 121,000 square foot masonry office building with a detached, covered, three-level parking garage situated on 171,000 square feet of land fronting on North Loop 610 West in Houston. The building serves as the Company's headquarters. Other than the Company, the major tenant of the building is Nations Bank, which currently occupies 9% of the office space. Multi-family Residential Properties. During 1998, the Company sold its joint venture interest in the apartment project located in San Antonio, Texas. The Company began development of a 260-unit luxury apartment complex on land within a multi-use master-planned project developed by the Company in a suburb north of Houston. An unrelated Houston-based developer will build and lease the property on the Company's behalf. Construction is scheduled for completion in the spring of 1999. Unimproved Land. The Company owns, directly or through its interest in a joint venture, 27 parcels of unimproved land aggregating approximately 9.3 million square feet of land area located in Texas, Arizona, Illinois and Louisiana. These properties include approximately 3.6 million square feet of land adjacent to certain of the Company's existing developed properties, which may be used for expansion of these developments, as well as approximately 5.7 million square feet of land, which may be used for new development. Almost all of these unimproved properties are served by roads and utilities and are ready for development. Most of these parcels are suitable for development as shopping centers or industrial projects, and the Company intends to emphasize the development of these parcels for such purpose. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company is a party or to which any of its properties are subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information with respect to the executive officers of the Company as of February 23, 1999. All executive officers of the Company are elected annually by the Board of Trust Managers and serve until the successors are elected and qualified. Name Age Position Stanford Alexander . . . 70 Chairman/Chief Executive Officer Martin Debrovner . . . . 62 Vice Chairman Andrew M. Alexander. . . 42 President Joseph W. Robertson, Jr. 51 Executive Vice President/Chief Financial Officer Stephen C. Richter . . . 44 Senior Vice President/Financial Administration and Treasurer Mr. S. Alexander is the Company's Chairman and its Chief Executive Officer. He has been employed by the Company since 1955 and has served in his present capacity since January 1, 1993. Prior to becoming Chairman, Mr. Alexander served as President and Chief Executive Officer of the Company since 1962. Mr. Alexander is President, Chief Executive Officer and a Trust Manager of Weingarten Properties Trust and a member of the Houston Regional Advisory Board of Chase Bank of Texas, N.A. through January 27, 1999. Mr. Debrovner became Vice Chairman of the Company on February 25, 1997. Prior to assuming such position, Mr. Debrovner served as President and Chief Operating Officer since January 1, 1993. Mr. Debrovner served as President of Weingarten Realty Management Company (the "Management Company") since the Company's reorganization in December 1984. Prior to such time, Mr. Debrovner was an employee of the Company for 17 years, holding the positions of Senior Vice President from 1980 until March 1984 and Executive Vice President until December 1984. As Executive Vice President, Mr. Debrovner was generally responsible for the Company's operations. Mr. Debrovner is also a Trust Manager of Weingarten Properties Trust. Mr. A. Alexander became President of the Company on February 25, 1997. Prior to his present position, Mr. Alexander was Executive Vice President/Asset Management of the Company and President of the Management Company. Prior to such time, Mr. Alexander was Senior Vice President/Asset Management of the Management Company. He also served as Vice President of the Management Company and, prior to the Company's reorganization in December 1984, was Vice President and an employee of the Company since 1978. Mr. Alexander has been primarily involved with leasing operations at both the Company and the Management Company. Mr. Alexander is also a Trust Manager of Weingarten Properties Trust and a Director of Academy Sports and Outdoors, Inc. Mr. Robertson became Executive Vice President of the Company and its Chief Financial Officer on January 1, 1993. Prior to becoming Executive Vice President, Mr. Robertson served as Senior Vice President and Chief Financial Officer since 1980. He has been with the Company since 1971. Mr. Robertson is also a Trust Manager of Weingarten Properties Trust. Mr. Richter became Senior Vice President/Financial Administration and Treasurer on January 1, 1997. Prior to his present position, Mr. Richter served as Vice President/Financial Administration and Treasurer of the Company since January 1, 1993. For the five years prior to that time, he served as Vice President/Financial Administration and Treasurer of the Management Company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES OF BENEFICIAL INTEREST AND RELATED SHAREHOLDER MATTERS The Company's Common Shares are listed and traded on the New York Stock Exchange under the symbol "WRI". The number of holders of record of the Company's Common Shares as of February 23, 1999 was 3,437. The high and low sale prices per share of the Company's Common Shares, as reported on the New York Stock Exchange composite tape, and dividends per share paid for the fiscal quarters indicated were as follows: HIGH LOW DIVIDENDS ---------- ---------- --------- 1998: Fourth . . . . $ 46 7/8 $ 39 3/4 $ 0.67 Third. . . . . 43 35 15/16 0.67 Second . . . . 44 15/16 40 5/8 0.67 First. . . . . 45 5/8 43 7/8 0.67 1997: Fourth . . . . $ 45 $ 38 7/8 $ 0.64 Third. . . . . 44 1/8 39 7/16 0.64 Second . . . . 45 5/8 41 3/8 0.64 First. . . . . 44 3/4 40 0.64 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial data with respect to the Company and should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements and accompanying Notes in "Item 8. Financial Statements and Supplementary Data" and the financial schedules included elsewhere in this Form 10-K. (Amounts in thousands, except per share amounts) Years Ended December 31, 1998 1997 1996 1995 1994 ----------- ----------- --------- --------- --------- Revenues (primarily real estate rentals) $ 198,467 $ 174,512 $151,123 $134,197 $120,793 ----------- ----------- --------- --------- --------- Expenses: Depreciation and amortization. . . . 41,946 37,976 33,769 30,060 26,842 Interest . . . . . . . . . . . . . . 33,654 30,009 21,975 16,707 10,694 Other. . . . . . . . . . . . . . . . 61,995 54,888 47,004 42,614 39,235 ----------- ----------- --------- --------- --------- Total. . . . . . . . . . . . . . 137,595 122,873 102,748 89,381 76,771 ----------- ----------- --------- --------- --------- Income from operations . . . . . . . . . 60,872 51,639 48,375 44,816 44,022 Gain (loss) on sales of property and securities . . . . . . . . . . . . . . 885 3,327 5,563 (14) (234) Extraordinary charge (early retirement of debt) . . . . . . . . . . . . . . . (1,392) ----------- ----------- --------- --------- --------- Net income . . . . . . . . . . . . . . . $ 60,365 $ 54,966 $ 53,938 $ 44,802 $ 43,788 =========== =========== ========= ========= ========= Net income available to common shareholders . . . . . . . . . . . . . $ 54,484 $ 54,966 $ 53,938 $ 44,802 $ 43,788 =========== =========== ========= ========= ========= Cash flows from operations . . . . . . . $ 97,464 $ 89,902 $ 76,299 $ 72,498 $ 64,305 =========== =========== ========= ========= ========= Weighted average number of common shares outstanding: Basic. . . . . . . . . . . . . . . . 26,667 26,638 26,555 26,464 26,190 Diluted. . . . . . . . . . . . . . . 26,869 26,771 26,598 26,493 26,245 Net income per common share - basic. . . $ 2.04 $ 2.06 $ 2.03 $ 1.69 $ 1.67 Net income per common share - diluted. . $ 2.03 $ 2.05 $ 2.03 $ 1.69 $ 1.67 Cash dividends per common share. . . . . $ 2.68 $ 2.56 $ 2.48 $ 2.40 $ 2.28 Property (at cost) . . . . . . . . . . . $1,294,632 $1,118,758 $970,418 $849,894 $735,134 Total assets . . . . . . . . . . . . . . $1,107,043 $ 946,793 $831,097 $734,824 $682,037 Debt . . . . . . . . . . . . . . . . . . $ 516,366 $ 507,366 $389,225 $289,339 $229,597 Other data: Funds from operations (1) Net income available to common shareholders. . . . . . . . . . . . $ 54,484 $ 54,966 $ 53,938 $ 44,802 $ 43,788 Depreciation and amortization (2). . 41,580 37,544 33,414 29,813 26,842 (Gain) loss on sales of property and securities. . . . . . . . . . . (885) (3,327) (5,563) 14 234 Extraordinary charge . . . . . . . . 1,392 ----------- ----------- --------- --------- --------- Total. . . . . . . . . . . . . . $ 96,571 $ 89,183 $ 81,789 $ 74,629 $ 70,864 =========== =========== ========= ========= ========= <FN> (1) Funds from operations does not represent cash flows from operations as defined by generally accepted accounting principles and should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. (2) In accordance with the NAREIT definition of funds from operations adopted during the year ended December 31, 1995, debt cost amortization is not included beginning with that year. 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. Weingarten Realty Investors owned or operated under long-term leases 179 shopping centers, 37 industrial properties and one office building at December 31, 1998. Of the Company's 217 developed properties, 162 are located in Texas (including 97 in Houston and Harris County). The Company's remaining properties are located in Louisiana (11), Arizona (10), Nevada (7), New Mexico (5), Oklahoma (4), Arkansas (6), Tennessee (4), Kansas (3), Colorado (2), Missouri (1), Illinois (1) and Maine (1). The Company has nearly 3,900 leases and 2,900 different tenants. Leases for the Company's properties range from less than a year for smaller spaces to over 25 years for larger tenants; leases generally include minimum lease payments and contingent rentals for payment of taxes, insurance and maintenance and for an amount based on a percentage of the tenants' sales. The majority of the Company's anchor tenants are supermarkets, drugstores and other retailers, which generally sell basic necessity-type items. CAPITAL RESOURCES AND LIQUIDITY The Company anticipates that cash flows from operating activities will continue to provide adequate capital for all dividend payments in accordance with REIT requirements and that cash on hand, borrowings under its existing credit facility, issuance of unsecured debt and the use of project financing, as well as other debt and equity alternatives, will provide the necessary capital to achieve growth. Cash flow from operating activities as reported in the Statements of Consolidated Cash Flows increased to $97.5 million for 1998 from $89.9 million for 1997 and $76.3 million for 1996. Common and preferred dividends increased to $77.3 million in 1998, compared to $68.2 million in 1997 and $65.9 million in 1996. The Company satisfied its REIT requirement of distributing at least 95% of ordinary taxable income for each of the three years ended December 31, 1998, and, accordingly, federal income taxes were not required to be paid in these years. The Company's dividend payout ratio on common equity for 1998, 1997 and 1996 approximated 74.4%, 76.4% and 80.5%, respectively, based on funds from operations for the applicable year. The Company invested $128.4 million in acquisitions in 1998, adding 3.3 million square feet to its portfolio of properties. Regarding the retail portfolio, the Company purchased anchored shopping centers in Corpus Christi, Austin and Lubbock, Texas, and a free-standing supermarket in the Dallas/Fort Worth area. The Company also purchased the second phase of a center it already owned in Las Vegas and bought adjoining buildings at two of its Houston-area shopping centers. A partnership formed by the Company acquired an anchored shopping center in Little Rock, Arkansas in exchange for operating partnership units and the assumption of $9.1 million of debt. The Company has an effective ownership interest of 35% in this partnership. These transactions increased the Company's retail portfolio by 1.1 million square feet of building area and represent an investment of $82.8 million. The Company also entered into long-term lease agreements with purchase options for two anchored shopping centers in Las Vegas totaling 280,000 square feet. The Company's industrial portfolio was expanded in 1998 through the purchase of fifteen facilities. The Company purchased seven facilities in Dallas and three properties in Memphis, its first industrial projects in both of these cities. The Company also acquired five buildings in the Houston area, including a refrigerated storage facility in Railwood, the Company's master planned industrial park. These projects added 2.2 million square feet to the industrial portfolio and represent an investment of $45.6 million. With respect to new development, construction was completed on retail space adjacent to an occupant-owned supermarket at a newly-developed shopping center in Phoenix and on a bulk warehouse facility in the Company's Railwood Industrial Park. The Company currently has several other facilities under development, including four retail centers, an industrial office/service center and a 260-unit luxury apartment project. The Company also has investments in two additional retail centers under construction in the Denver area in joint ventures with a Denver-based developer. The projects under construction or completed in 1998 represent an estimated investment by the Company of $58.4 million and will add .7 million square feet to our portfolio. Additionally, the Company has an ongoing program for maintaining and renovating its existing portfolio of properties. Capitalized expenditures for acquisitions, new development and additions to the existing portfolio were, in millions, $176.5, $152.6 and $131.6 during 1998, 1997 and 1996, respectively. All of the acquisitions and new development during 1998 were either initially financed under the Company's revolving credit facility or funded with excess cash balances. Capital expenditures in 1999 are expected to equal, if not exceed, the total for 1998. The Company issued $165 million of preferred shares in 1998 and $115 million subsequent to year-end in underwritten public offerings. In February 1998, the Company issued $75 million of 7.44% Series A Cumulative Redeemable Preferred Shares with a liquidation preference of $25 per share. The shares are callable at the Company's option any time after March 31, 2003 and have no stated maturity. In October, the Company issued $90 million of 7.125% Series B Cumulative Redeemable Preferred Shares with a liquidation preference of $25 per share and no stated maturity. The Company can elect to redeem the shares anytime after October 20, 2003. The Series B preferred shares are redeemable by the holder only upon their death and are also redeemable in either cash or common shares at the Company's option. There are limitations on the number of shares per shareholder and in the aggregate that may be redeemed per year. In January of 1999, the Company issued $115 million of 7.0% Series C Cumulative Redeemable Preferred Shares with a liquidation preference of $50 per share and no stated maturity. The Company can elect to redeem these shares anytime after March 15, 2004. The redemption rights of the shareholders and the related restrictions are effectively the same as for the Series B preferred shares. The proceeds of these offerings were used to pay down variable-rate debt, to fund acquisition and new development activity and to retire $35 million of 9.11% secured notes payable to an insurance company. The early extinguishment of the $35 million of secured notes in February of 1998 that were scheduled to mature in August of 2001 resulted in an extraordinary loss of $1.4 million. Any redemption of preferred shares initiated by the Company must be funded with proceeds from an offering of additional common or preferred shares. During 1998, the Company completed $54.5 million of the prospective transactions through the sale of fixed-rate, unsecured Medium Term Notes with an average life of seven years and an average interest rate of 6.3%. The Company also issued $82 million of two-year, variable-rate Medium Term Notes during the year. Interest on these Medium Term Notes accrues at a rate of LIBOR plus .17%, which averaged 5.9% during 1998. The $82 million of Medium Term Notes were retired in February of 1999 with the proceeds from the Series C preferred share offering. The Company has three interest rate swap contracts with an aggregate notional amount of $40 million which fix interest rates on variable-rate debt at 8.1% and expire through 2004. Total debt outstanding increased to $516.4 million at December 31, 1998 from $507.4 million at December 31, 1997, primarily to fund acquisitions and new development. Continued growth through acquisitions and new development will eventually necessitate the need for additional capital. The Company will continue to closely monitor both the debt and equity markets and carefully consider its available alternatives, including both public and private placements. During 1997, the Company's $200 million unsecured revolving credit facility was amended to improve the pricing and, effectively, extend the term of the commitment. The Company has an annual option to request a one-year extension of the commitment, which currently expires in November of 2000. Additionally, the Company has an unsecured and uncommitted overnight credit facility totaling $20 million to be used for cash management purposes. The Company will maintain adequate funds available under the $200 million revolving credit facility at all times to cover the outstanding balance under the $20 million facility. At December 31, 1998, the Company had approximately $175 million of funds available under the revolving credit facilities in addition to $15 million of proceeds from its Series B preferred share offering which were invested in short-term instruments. In the second quarter of 1998, the Company filed a $400 million shelf registration statement with the Securities and Exchange Commission (which includes $11.5 million from the Company's prior shelf registration) which allows for the issuance of debt, equity securities or warrants. At December 31, 1998, amounts available under the shelf registration totaled $221 million, however, this amount was reduced by $115 million due to the issuance of Series C preferred shares subsequent to year-end. The Company intends to amend the shelf registration in early 1999 to increase the amount available by $80 million. During 1998, the Company sold its investment in U.S. government agency guaranteed pass-through certificates for $12.2 million, resulting in a gain of less than $.1 million. The proceeds from the sale were used primarily to retire overnight repurchase agreements, which were collateralized by these marketable debt securities. MARKET RISK The Company uses fixed- and floating-rate debt to finance its capital requirements. These transactions expose the Company to market risk related to changes in interest rates. Derivative financial instruments are used to manage a portion of this risk. During 1998, the Company entered into and settled three forward treasury lock agreements with a total notional amount of $85 million as a hedge against potential changes in interest rates of prospective issuances of fixed-rate debt. Amounts paid or received upon settlement of these contracts are deferred and amortized as an adjustment to interest expense over the life of the fixed-rate debt. At year-end, the Company had a deferred loss of $1.9 million which will be amortized over the life of the next $30.5 million of fixed-rate debt issues. At December 31, 1998, the Company had fixed-rate debt of $444.1 million and variable-rate debt of $72.3 million, after adjusting for the effect of interest rate swaps. In the event that interest rates were to increase 100 basis points, the fair value of fixed-rate debt would decrease by $27.9 million and net income, funds from operations and future cash flows would decrease $.7 million based upon the debt outstanding at December 31, 1998. Following the issuance of the Series C preferred shares in January of 1999 and the related retirement of the variable-rate Medium Term Notes, all variable-rate debt other than that covered by the interest rate swaps was eliminated. FUNDS FROM OPERATIONS Funds from operations is an alternate measure of the performance of an equity REIT since such measure does not recognize depreciation and amortization of real estate assets as operating expenses. Management believes that reductions for these charges are not meaningful in evaluating income-producing real estate, which historically has not depreciated. The National Association of Real Estate Investment Trusts defines funds from operations as net income plus depreciation and amortization of real estate assets, less gains and losses on sales of properties. Funds from operations does not represent cash flows from operations as defined by generally accepted accounting principles and should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. Funds from operations increased to $96.6 million in 1998, as compared to $89.2 million in 1997 and $81.8 million in 1996. These increases relate primarily to the impact of the Company's acquisitions and new developments and, to a lesser degree, the activity at its existing properties. For further information on changes between years, see "Results of Operations" below. RESULTS OF OPERATIONS Rental revenues increased 15.1%, or $25.6 million, from $169.0 million in 1997 to $194.6 million in 1998 and by 16.3%, or $23.7 million, from $145.3 million in 1996. These increases are primarily the result of the Company's acquisition and new development programs. Occupancy of the Company's shopping centers and total portfolio increased to 93% at December 31, 1998 from 92% at the end of 1997. The Company's industrial portfolio occupancy was 93% at December 31, 1998 and 1997. The Company completed 830 renewals or leases comprising 3.4 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 3.2%. Interest income totaled $2.1 million in 1998, $2.5 million in 1997 and $3.1 million in 1996. This decrease in income is primarily the result of the Company selling $12.2 million of its marketable debt securities during the first quarter of 1998 offset by interest earned on the investment of excess cash balances resulting from the Company's preferred share offerings. Equity in earnings of real estate joint ventures and partnerships totaled $.3 million in 1998, $1.0 million in 1997 and $1.2 million in 1996. The decrease in 1998 is due to the Company's purchase at December 31, 1997 of its joint venture partner's 85% interest in four shopping centers. Direct costs and expenses of operating the Company's properties (i.e., operating and ad valorem tax expenses) increased to $54.8 million in 1998 from $49.2 million in 1997 and $41.9 million in 1996. These increases are primarily due to property acquired and developed during these periods. Overall, direct operating costs and expenses as a percentage of rental revenues were 28% in 1998 and 29% in 1997 and 1996. Depreciation and amortization have increased to $41.9 million in 1998 from $38.0 million in 1997 and $33.8 million in 1996, also as a result of the properties acquired and developed during these periods. General and administrative expense have increased to $7.1 million in 1998 from $5.6 million in 1997 and $5.1 million in 1996. The increase in 1998 results primarily from the Company's adoption of a new Emerging Issues Task Force consensus decision which provides that internal costs of identifying and acquiring operating property incurred subsequent to March 19, 1998 should be expensed. The Company realized an increase in expense of $1.1 million in 1998 due to the adoption of this standard. Gross interest costs, before capitalization of interest to development projects, increased by $4.2 million from $30.8 million in 1997 to $35.0 million in 1998. This increase in interest cost was due mainly to the increase in the average debt outstanding from $422.9 million for 1997 to $492.2 million for 1998. The weighted-average interest rate decreased from 7.27% in 1997 to 7.11% in 1998. Interest expense, net of amounts capitalized, increased $3.6 million from 1997. The amount of interest capitalized increased to $1.4 million in 1998 from $.8 million in 1997 due to an increase in the amount of development activity during the year. Included in interest expense during 1997 was $.7 million related to repurchase agreements which were collateralized by the Company's investment in marketable debt securities which were sold during the first quarter of 1998. Comparing 1997 to 1996, gross interest costs increased from $23.3 million in 1996 to $30.8 million in 1997. This was due to an increase in the average debt outstanding from $314.4 million in 1996 to $422.9 million in 1997. The weighted-average interest rate decreased slightly between the two periods from 7.36% in 1996 to 7.27% in 1997. Interest expense, net of amounts capitalized, increased $8.0 million from 1996 due to an increase in the amount of development activity during the year. The gain on sale of $.9 million in 1998 was due primarily to the sale of its joint venture interest in an apartment project located in San Antonio, Texas and the sale of excess land associated with the Company's investment in the development of a retail center in Denver, Colorado. The gain on sale of $3.3 million in 1997 was primarily due to the condemnation of a portion of a shopping center by the State of Texas. The Company leased back the portion of the shopping center purchased by the state, and continues to operate the center. EFFECTS OF INFLATION The rate of inflation was relatively unchanged in 1998. The Company 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 the Company receives 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 the Company's leases are for terms of less than ten years, which allows the Company to adjust rental rates to changing market conditions when the leases expire. Most of the Company's leases 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 the Company's operating results. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. This statement requires that an entity recognize all derivatives as either assets or liabilities and measure the instruments at fair value. The accounting for changes in fair value of a derivative depends upon its intended use. The Company will adopt the provisions of this statement in the first quarter of fiscal year 2000. The Company is still evaluating the effects of adopting this statement. YEAR 2000 COMPLIANCE Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code field. These date code fields will need to be amended to allow the system to distinguish 21st century dates from the 20th century dates. The use of software and computer systems that are not Year 2000 compliant could result in system failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with Year 2000 requirements. The Company has completed a review of its software and hardware and determined that all mission-critical systems are Year 2000 compliant. Non-mission critical software and hardware have also been reviewed and the Company has identified certain personal computers, local area networks and file servers which are scheduled for upgrades or replacement as part of the Company's ongoing maintenance of its information system technology. The Company has also completed a review of Year 2000 issues not related to information technology including, but not limited to, the use of imbedded chips or internal clocks in machinery or equipment. As the Company owns primarily single-story industrial buildings and neighborhood retail centers without enclosed common areas, the use of this technology is very limited and, accordingly, the Company believes that it is Year 2000 compliant. The Company has no incremental costs in addressing these Year 2000 issues. The Company has communicated with its major tenants, financial institutions and utility companies to determine the extent to which the Company is vulnerable to third parties' failures to resolve their Year 2000 issues. Based on the representations received from these third parties, the Company does not believe this represents a material risk to the Company. Nevertheless, the Company has no guarantee that such third party systems will operate as represented. In the event significant systems of one of these third parties fails, the operating results and financial condition of the Company could be adversely effected. Based on the Company's assessment of the readiness of its own systems and those of significant third parties, it has not deemed it necessary to develop a formal contingency plan. In the event additional information comes to the Company's attention which would change its current assessment, it will consider the need for a contingency plan at that time. FORWARD-LOOKING STATEMENTS This Annual Report includes certain forward-looking statements reflecting the Company'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 the Company's expectations will be realized. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK Reference is made to Item 7 of this Form 10-K under the caption "Market Risk". ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT To the Board of Trust Managers and Shareholders of Weingarten Realty Investors: We have audited the accompanying consolidated balance sheets of Weingarten Realty Investors (the "Company") as of December 31, 1998 and 1997, and the related statements of consolidated income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedules listed in the Index at Item 14. 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 generally accepted auditing standards. 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 at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. 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. DELOITTE & TOUCHE LLP Houston, Texas February 23, 1999 STATEMENTS OF CONSOLIDATED INCOME (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Years Ended December 31, ----------------------------- 1998 1997 1996 --------- -------- -------- Revenues: Rentals . . . . . . . . . . . . . . . . . . . . $194,624 $169,041 $145,307 Interest Securities and Other. . . . . . . . . . . . . 511 1,053 1,572 Affiliates. . . . . . . . . . . . . . . . . . 1,578 1,434 1,576 Equity in earnings of real estate joint ventures and partnerships. . . . . . . . . . . 342 1,003 1,232 Other . . . . . . . . . . . . . . . . . . . . . 1,412 1,981 1,436 --------- -------- -------- Total . . . . . . . . . . . . . . . . . 198,467 174,512 151,123 --------- -------- -------- Expenses: Depreciation and amortization . . . . . . . . . 41,946 37,976 33,769 Interest. . . . . . . . . . . . . . . . . . . . 33,654 30,009 21,975 Operating . . . . . . . . . . . . . . . . . . . 30,413 27,131 23,021 Ad valorem taxes. . . . . . . . . . . . . . . . 24,436 22,110 18,874 General and administrative. . . . . . . . . . . 7,146 5,647 5,109 --------- -------- -------- Total . . . . . . . . . . . . . . . . . 137,595 122,873 102,748 --------- -------- -------- Income from Operations. . . . . . . . . . . . . . 60,872 51,639 48,375 Gain on Sales of Property and Securities. . . . . 885 3,327 5,563 --------- -------- -------- Income Before Extraordinary Charge. . . . . . . . 61,757 54,966 53,938 Extraordinary Charge (early retirement of debt) . (1,392) --------- -------- -------- Net Income. . . . . . . . . . . . . . . . . . . . $ 60,365 $ 54,966 $ 53,938 ========= ======== ======== Net Income Available to Common Shareholders . . . $ 54,484 $ 54,966 $ 53,938 ========= ======== ======== Net Income Per Common Share - Basic: Income Before Extraordinary Charge. . . . . . $ 2.09 $ 2.06 $ 2.03 Extraordinary Charge. . . . . . . . . . . . . (.05) --------- -------- -------- Net Income. . . . . . . . . . . . . . . . . $ 2.04 $ 2.06 $ 2.03 ========= ======== ======== Net Income Per Common Share - Diluted: Income Before Extraordinary Charge. . . . . . $ 2.08 $ 2.05 $ 2.03 Extraordinary Charge. . . . . . . . . . . . . (.05) --------- -------- -------- Net Income. . . . . . . . . . . . . . . . . $ 2.03 $ 2.05 $ 2.03 ========= ======== ======== See Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) December 31, ------------------------ 1998 1997 ----------- ----------- ASSETS Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,294,632 $1,118,758 Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . . . (296,989) (262,551) ----------- ----------- Property - net. . . . . . . . . . . . . . . . . . . . . . . . . . 997,643 856,207 Investment in Real Estate Joint Ventures and Partnerships . . . . . . 2,741 2,824 ----------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,384 859,031 Mortgage Bonds and Notes Receivable from: Affiliate (net of deferred gain of $4,487 in 1998 and 1997) . . . 13,444 14,752 Real Estate Joint Ventures and Partnerships . . . . . . . . . . . 23,388 15,250 Marketable Debt Securities. . . . . . . . . . . . . . . . . . . . . . 14,951 12,345 Unamortized Debt and Lease Costs. . . . . . . . . . . . . . . . . . . 25,612 23,536 Accrued Rent and Accounts Receivable (net of allowance for doubtful accounts of $888 in 1998 and $1,000 in 1997). . . . . . . . . . . . 15,197 14,583 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . 1,672 2,754 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,395 4,542 ----------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . $1,107,043 $ 946,793 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 516,366 $ 507,366 Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . 49,269 43,305 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,229 6,136 ----------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573,864 556,807 ----------- ----------- Commitments and Contingencies Shareholders' Equity: Preferred Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 10,000 7.44% Series A cumulative redeemable preferred shares of beneficial interest; 3,000 shares issued and outstanding; liquidation preference $25 per share. . . . . . . . . . . . . 90 7.125% Series B cumulative redeemable preferred shares of beneficial interest; 3,600 shares issued and outstanding; liquidation preference $25 per share. . . . . . . . . . . . . 108 Common Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 150,000; shares issued and outstanding: 26,673 in 1998 and 26,660 in 1997 . . . . . . . . . . . . . . . . 800 800 Capital Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . 532,254 389,186 Deferred Compensation Obligation. . . . . . . . . . . . . . . . . . (73) ----------- ----------- Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . . 533,179 389,986 ----------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . $1,107,043 $ 946,793 =========== =========== See Notes to Consolidated Financial Statements. STATEMENTS OF CONSOLIDATED CASH FLOWS (AMOUNTS IN THOUSANDS) Years Ended December 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- Cash Flows from Operating Activities: Net income. . . . . . . . . . . . . . . . . . . . . . . $ 60,365 $ 54,966 $ 53,938 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . 41,946 37,976 33,769 Equity in earnings of real estate joint ventures and partnerships. . . . . . . . . . . . . . . . . (342) (1,003) (1,232) Gain on sales of property and securities. . . . . . (885) (3,327) (5,563) Extraordinary charge (early retirement of debt) . . 1,392 Changes in accrued rent and accounts receivable . . (621) (2,462) (1,836) Changes in other assets . . . . . . . . . . . . . . (12,662) (6,105) (7,507) Changes in accounts payable and accrued expenses. . 7,614 9,113 4,032 Other, net. . . . . . . . . . . . . . . . . . . . . 657 744 698 ---------- ---------- ---------- Net cash provided by operating activities. . . 97,464 89,902 76,299 ---------- ---------- ---------- Cash Flows from Investing Activities: Investment in properties. . . . . . . . . . . . . . . . (172,470) (136,632) (121,379) Mortgage bonds and notes receivable: Advances. . . . . . . . . . . . . . . . . . . . . (12,598) (1,501) (3,151) Collections . . . . . . . . . . . . . . . . . . . 3,745 2,090 6,188 Proceeds from sales and disposition of property . . . . 1,109 11,741 7,231 Purchase of marketable debt securities. . . . . . . . . (14,951) Proceeds from sales of marketable debt securities . . . 12,229 Real estate joint ventures and partnerships: Investments . . . . . . . . . . . . . . . . . . . (453) (59) (69) Distributions . . . . . . . . . . . . . . . . . . 345 808 1,032 Other, net. . . . . . . . . . . . . . . . . . . . . . . 241 2,517 3,291 ---------- ---------- ---------- Net cash used in investing activities. . . . . (182,803) (121,036) (106,857) ---------- ---------- ---------- Cash Flows from Financing Activities: Proceeds from issuance of: Debt. . . . . . . . . . . . . . . . . . . . . . . 136,575 104,526 95,770 Common shares of beneficial interest. . . . . . . 301 1,325 231 Preferred shares of beneficial interest . . . . . 159,552 Principal payments of debt. . . . . . . . . . . . . . . (134,443) (3,644) (2,350) Common and preferred dividends paid . . . . . . . . . . (77,347) (68,200) (65,851) Other, net. . . . . . . . . . . . . . . . . . . . . . . (381) (288) (428) ---------- ---------- ---------- Net cash provided by financing activities . . . 84,257 33,719 27,372 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents. . . (1,082) 2,585 (3,186) Cash and cash equivalents at January 1. . . . . . . . . . 2,754 169 3,355 ---------- ---------- ---------- Cash and cash equivalents at December 31. . . . . . . . . $ 1,672 $ 2,754 $ 169 ========== ========== ========== See Notes to Consolidated Financial Statements. STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (AMOUNTS IN THOUSANDS) Years Ended December 31, 1998, 1997 and 1996 Preferred Common Shares of Shares of Deferred Beneficial Beneficial Capital Retained Compensation Interest Interest Surplus Earnings Obligation ----------- ----------- --------- ---------- -------------- Balance, January 1, 1996 . . . . . . . . . . . $ 796 $410,803 Net income . . . . . . . . . . . . . . . . . $ 53,938 Shares exchanged for property. . . . . . . . 1 968 Shares issued under benefit plans. . . . . . 469 Dividends declared - common shares . . . . . (11,914) (53,938) Other. . . . . . . . . . . . . . . . . . . . (125) ----------- ----------- --------- ---------- -------------- Balance, December 31, 1996 . . . . . . . . . . 797 400,201 ---- Net income . . . . . . . . . . . . . . . . . 54,966 Shares exchanged for property. . . . . . . . 1 275 Shares issued under benefit plans. . . . . . 2 1,733 Dividends declared - common shares . . . . . (13,234) (54,966) Other. . . . . . . . . . . . . . . . . . . . 211 ----------- ----------- --------- ---------- -------------- Balance, December 31, 1997 . . . . . . . . . . 800 389,186 ---- Net income. . . . . . . . . . . . . . . . . 60,365 Issuance of Series A preferred shares. . . . $ 90 72,422 Issuance of Series B preferred shares. . . . 108 86,932 Shares issued under benefit plans . . . . . 696 Dividends declared - common shares. . . . . (16,982) (54,484) Dividends declared - preferred shares . . . (5,881) Adjustment for cumulative effect of adopting accounting for deferred compensation plan: Common shares held in plan . . . . . . . . $ (3,531) Deferred compensation obligation . . . . . 3,458 ----------- ----------- --------- ---------- -------------- Balance, December 31, 1998 . . . . . . . . . . $ 198 $ 800 $532,254 $ ---- $ (73) =========== =========== ========= ========== ============== See Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Weingarten Realty Investors (the "Company"), a Texas real estate investment trust, is engaged in the acquisition, development and management of real estate, primarily anchored neighborhood and community shopping centers and, to a lesser extent, industrial properties. Over 70% of the Company's properties are located in Texas, with the remainder located primarily throughout the southwestern part of the United States. The Company's major tenants include supermarkets, drugstores and other retailers who generally sell basic necessity-type commodities. The Company currently operates and intends to operate in the future as a real estate investment trust ("REIT"). Basis of Presentation The consolidated financial statements include the accounts of the Company, its subsidiaries and its interest in 50% or more-owned joint ventures and partnerships over which the Company exercises control. All significant intercompany balances and transactions have been eliminated. Investments in less than 50%-owned joint ventures and partnerships 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 estimated and accrued ratably over the year. If the Company recognized such revenue only after the tenant exceeded their sales breakpoint, revenue for 1998 would be reduced by $.3 million. 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 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. Capitalization Carrying charges, principally interest and ad valorem taxes, on land under development and buildings under construction are capitalized as part of land under development and buildings and improvements. The Company had also capitalized the direct internal costs of identifying and acquiring operating property. In March 1998, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus decision on Issue No. 97-11, "Accounting for Internal Costs Relating to Real Estate Property Acquisitions" which provides that internal costs of identifying and acquiring operating property incurred subsequent to March 19, 1998 should be expensed. The Company realized an increase in expense of $1.1 million in 1998 due to the adoption of this standard. Deferred Charges Unamortized debt and lease costs are amortized primarily on a straight-line basis over the terms of the debt and over the lives of leases, respectively. Marketable Debt Securities The Company's investment in marketable securities is classified as "available for sale." The securities are carried at market with any unrealized gains or losses included as a component of shareholders' equity. Premiums and discounts are amortized (accreted) to operations over the estimated remaining lives of the securities using the constant yield method. 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. Net income per common share - diluted includes the effect of potentially dilutive securities for the periods indicated, as follows (in thousands): 1998 1997 1996 ------- ------- ------- Numerator: Net income available to common shareholders - basic . $54,484 $54,966 $53,938 Income attributable to operating partnership units. . 37 ------- ------- ------- Net income available to common shareholders - diluted $54,521 $54,966 $53,938 ======= ======= ======= Denominator: Weighted average shares outstanding - basic . . . . . 26,667 26,638 26,555 Effect of dilutive securities: Share options and awards. . . . . . . . . . . . . . 132 132 43 Operating partnership units . . . . . . . . . . . . 70 1 ------- ------- ------- Weighted average shares outstanding - diluted . . . . 26,869 26,771 26,598 ======= ======= ======= Options to purchase 13,200, 800 and 25,000 shares in 1998, 1997 and 1996, 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 The Company considers all highly liquid investments with original maturities of three months or less as cash equivalents. The Company issued .1 million common shares of beneficial interest in 1997 and 1996 valued at $.2 million and $1.0 million in 1997 and 1996, respectively, in connection with purchases of property. The Company assumed debt and/or capital lease obligations totaling $6.7 million, $17.3 million and $6.6 million in connection with purchases of property during 1998, 1997 and 1996, respectively. The Company issued limited partnership interests in exchange for property valued at $4.0 million and $1.7 million in 1998 and 1997, respectively. New Accounting Pronouncement The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" in 1998. The Company's net income differs from comprehensive income by less than $50,000 in each year presented. Reclassifications Certain reclassifications of prior years' amounts have been made to conform with the current year presentation. NOTE 2. DEBT The Company's debt consists of the following (in thousands): DECEMBER 31, ------------------ 1998 1997 -------- -------- Fixed-rate debt payable to 2015 at 6.0% to 10.5% . . . . $404,061 $379,749 Variable-rate unsecured notes payable to 2000. . . . . . 82,000 Notes payable under revolving credit agreements. . . . . 10,250 94,400 Obligations under capital leases . . . . . . . . . . . . 12,467 12,467 Repurchase agreements. . . . . . . . . . . . . . . . . . 12,176 Industrial revenue bonds payable to 2015 at 3.6% to 5.8% 6,262 7,437 Other. . . . . . . . . . . . . . . . . . . . . . . . . . 1,326 1,137 -------- -------- Total. . . . . . . . . . . . . . . . . . . . . . . $516,366 $507,366 ======== ======== The Company has an unsecured $200 million revolving credit agreement with a bank syndicate. The agreement expires in November 2000, but the Company has an annual option to request a one-year extension of the agreement. All members of the bank syndicate must agree to the requested extension or the agreement expires on the scheduled date, at which time all loans outstanding under the credit agreement become payable over a two-year period. The Company also has an agreement for an unsecured and uncommitted overnight credit facility totaling $20 million with a bank to be used for cash management purposes. The Company will maintain adequate funds available under the $200 million revolving credit facility at all times to cover the outstanding balance under the $20 million facility. The Company also has letters of credit totaling $15.1 million outstanding under the $200 million revolving credit facility at December 31, 1998. The revolving credit agreements are subject to normal banking terms and conditions and do not adversely restrict the Company's operations or liquidity. At December 31, 1998, the variable interest rate for notes payable under the $20 million revolving credit agreement was 5.2%. During 1998, the maximum balance and weighted average balance outstanding under both credit facilities were $122.7 million and $65.8 million, respectively, at an average interest rate of 6.3%. The Company made cash payments for interest on debt, net of amounts capitalized, of $32.6 million in 1998, $27.4 million in 1997 and $21.3 million in 1996. Certain debt is collateralized by various leases or other property and current and future rentals from these leases and properties. At December 31, 1998 and 1997, the carrying value of such property aggregated $177 million and $209 million, respectively. The Company has three interest rate swap contracts with an aggregate notional amount of $40 million. Such contracts, which expire through 2004, have been outstanding since their purchase in 1992. The Company intends to hold such contracts through their expiration date and to use them as a means of managing interest rate risk by fixing the interest rate on a portion of the Company's variable-rate debt. The interest rate swaps have an effective interest rate of 8.1%. The difference between the interest received and paid on the interest rate swaps is recognized as interest expense as incurred. The interest rate swaps increased interest expense and decreased net income by $.9 million in 1998, 1997 and 1996. The interest rate swaps increased the average interest rate for the Company's debt by the following amounts: .2% for 1998 and 1997, and .3% for 1996. The Company could be exposed to credit losses in the event of non-performance by the counterparty; however, the likelihood of such non-performance is remote. During 1998, the Company entered into and settled three forward treasury lock agreements with an aggregate notional amount of $85 million as a hedge against potential changes in interest rates of prospective issues of fixed-rate debt. Amounts paid or received upon settlement of these contracts are deferred and amortized as an adjustment to interest expense over the life of the fixed-rate debt. During 1998, the Company completed $54.5 million of the prospective transactions through the sale of fixed-rate, unsecured Medium Term Notes ("MTNs") with an average life of seven years and an average interest rate of 6.3%. At year-end, the Company had a deferred loss of $1.9 million which will be amortized over the life of the next $30.5 million of fixed-rate debt issues. The Company also issued $82 million of two-year, variable-rate MTNs during the year. Interest on these MTNs accrues at a rate of LIBOR plus .17%, which averaged 5.9% during 1998. The $82 million of MTNs were retired in February of 1999 with the proceeds from the Series C preferred share offering. The Company's debt can be summarized as follows (in thousands): DECEMBER 31, ------------------ 1998 1997 -------- -------- As to interest rate: Fixed-rate debt (including amounts fixed through interest rate swaps). . $444,060 $419,792 Variable-rate debt. . . . . . . . . . . 72,306 87,574 -------- -------- Total . . . . . . . . . . . . . . $516,366 $507,366 ======== ======== As to collateralization: Unsecured debt. . . . . . . . . . . . . $440,433 $400,214 Secured debt. . . . . . . . . . . . . 75,933 107,152 -------- -------- Total . . . . . . . . . . . . . . $516,366 $507,366 ======== ======== Scheduled principal payments on the Company's debt (excluding $10.3 million potentially due under the Company's revolving credit agreements in 1999 and 2002 and $82 million of variable-rate MTNs retired in February of 1999) are due during the following years (in thousands): 1999. . . . . . . . . . . . . $ 6,196 2000. . . . . . . . . . . . . 28,499 2001. . . . . . . . . . . . . 30,851 2002. . . . . . . . . . . . . 30,729 2003. . . . . . . . . . . . . 27,759 2004 through 2008 . . . . . . 249,380 2009 through 2013 . . . . . . 45,077 Thereafter. . . . . . . . . . 5,750 Various debt agreements contain restrictive covenants, the most restrictive of which requires the Company to produce annual consolidated distributable cash flow, as defined by the agreements, of not less than 250% of interest payments, to limit the payment of dividends to no more than 100% of the Company's annual consolidated cash flow (as defined), to limit short-term debt (as defined) to the greater of 33% of total debt or $200 million and to maintain uncollateralized assets equal to at least 150% of unsecured debt. Management believes that the Company is in compliance with all restrictive covenants. In the second quarter of 1998, the Company filed a $400 million shelf registration statement with the Securities and Exchange Commission, which allows for the issuance of debt or equity securities or warrants. Following the Company's issuance of $115 million of Series C preferred shares in January of 1999, the unused portion of the shelf registration totaled $106 million. NOTE 3. PROPERTY The Company's property consists of the following (in thousands): DECEMBER 31, ---------------------- 1998 1997 ---------- ---------- Land . . . . . . . . . . . . . . . $ 236,221 $ 208,512 Land held for development. . . . . 30,156 31,679 Land under development . . . . . . 13,024 5,958 Buildings and improvements . . . . 1,009,166 870,669 Construction in-progress . . . . . 6,065 1,940 ---------- ---------- Total. . . . . . . . . . . . $1,294,632 $1,118,758 ========== ========== The following carrying charges were capitalized (in thousands): DECEMBER 31, --------------------- 1998 1997 1996 ------ ----- ------ Interest . . . . $1,375 $ 812 $1,285 Ad valorem taxes 50 33 269 ------ ----- ------ Total. . . $1,425 $ 845 $1,554 ====== ===== ====== In 1998 and 1997, the Company formed limited partnerships to acquire certain property. The Company controls the partnerships and consolidates their operations in the accompanying consolidated financial statements. The partnership agreements allow for the outside limited partners to put their interests to the partnership after the second anniversary of the agreement for the original consideration of $4.0 million and $1.7 million in 1998 and 1997, respectively, payable in cash or common shares of the Company, at the option of the Company. NOTE 4. RELATED PARTY TRANSACTIONS The Company has mortgage bonds and notes receivable of $13.4 million and $14.8 million, net of deferred gain of $4.5 million, at December 31, 1998 and 1997, respectively, from WRI Holdings, Inc. ("Holdings"). The Company and Holdings share certain directors and are under common management. These receivables are collateralized by unimproved land and an investment in a joint venture which owns and manages a motor hotel. The bonds and notes bear interest at rates of 16% and prime plus 1%, respectively. However, due to Holdings' poor financial condition, the Company has limited the recognition of interest income for financial statement purposes to the amount of cash payments received. The Company did not receive any interest payments in 1998 and does not anticipate receiving such payments going forward. Interest income recognized for financial reporting purposes was $.1 million and $.3 million in 1997 and 1996, respectively. During the second quarter of 1998, the Company purchased 13.7 acres of undeveloped land from Holdings to be used for the development of a luxury apartment complex in Conroe, Texas. The purchase price was $2.2 million and was based upon an independent third party appraisal. Holdings used the proceeds to pay down amounts outstanding under mortgage bonds and notes receivable. The Company's unrecorded receivable for interest on the mortgage bonds and notes receivable was $30.5 million and $26.4 million at December 31, 1998 and 1997, respectively. Interest income not recognized by the Company for financial reporting purposes aggregated, in millions, $4.2, $4.0 and $3.7 for 1998, 1997 and 1996, respectively. Management of the Company believes that the fair market value of the security collateralizing debt from Holdings is greater than the net investment in such debt and that there would not be a charge to operations if the Company were to foreclose on the debt. If foreclosure were required, the net investment in such debt would become the Company's basis of the repossessed assets. However, the Company does not currently anticipate foreclosure on Holdings' properties due to certain restrictions imposed on such assets in connection with the Company's REIT status. The Company's management does not presently believe that the net investment in the mortgage bonds and notes receivable from Holdings has been impaired. The Company owns interests in several joint ventures and partnerships. Notes receivable from these entities bear interest at 7.3% to 9.3% at December 31, 1998 and are due at various dates through 2020. The Company recognized interest income on these notes as follows, in millions: $1.5 in 1998; $1.4 in 1997 and $1.3 in 1996. During 1997, the Company purchased its joint venture partner's 85% interest in four shopping centers for $26 million. Chase Bank of Texas, National Association ("Chase") is a significant participant in and the agent for the banks that provide the Company's $200 million revolving credit agreement. The Company and Chase have a common director. NOTE 5. FEDERAL INCOME TAX CONSIDERATIONS Federal income taxes are not provided because the Company believes it qualifies as a REIT under the provisions of the Internal Revenue Code. Shareholders of the Company include their proportionate taxable income in their individual tax returns. As a REIT, the Company must distribute at least 95% of its ordinary taxable income to its 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, pension expense and installment gains on sales of property. As a result of these differences, the book value of the Company's net assets exceeds the tax basis by $97.3 million at December 31, 1998. For federal income tax purposes, the cash dividends distributed to common shareholders are characterized as follows: 1998 1997 1996 ------ ------ ------ Ordinary income . . . . . . . . . . . . . 97.0% 95.9% 87.1% Return of capital (generally non-taxable) 2.1 2.9 4.0 Capital gain distributions. . . . . . . . .9 1.2 8.9 ------ ------ ------ Total . . . . . . . . . . . . . . 100.0% 100.0% 100.0% ====== ====== ====== NOTE 6. LEASING OPERATIONS The Company'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 for an amount based on a percentage of the tenants' sales). Future minimum rental income from non-cancelable tenant leases at December 31, 1998, in millions, is: $153.9 in 1999; $134.0 in 2000; $114.9 in 2001; $95.8 in 2002; $80.6 in 2003 and $555.8 thereafter. The future minimum rental amounts do not include estimates for contingent rentals. Such contingent rentals, in millions, aggregated $40.9 in 1998, $36.8 in 1997 and $31.9 in 1996. NOTE 7. COMMITMENTS AND CONTINGENCIES The Company leases land and three shopping centers from the owners and then subleases these properties to other parties. Future minimum rental payments under these operating leases, in millions, are: $1.6 in 1999; $1.5 in 2000 and 2001; $1.3 in 2002; $1.1 in 2003 and $38.5 thereafter. Future minimum rental payments on these leases have not been reduced by future minimum sublease rentals aggregating $18.0 million through 2036 that are due under various non-cancelable subleases. Rental expense (including insignificant amounts for contingent rentals) for operating leases aggregated, in millions: $2.6 in 1998 and $2.0 in 1997 and $1.8 in 1996. Sublease rental revenue (excluding amounts for improvements constructed by the Company on the leased land) from these leased properties was as follows, in millions: $2.9 in 1998; $2.4 in 1997 and $2.0 in 1996. Property under capital leases, consisting of two shopping centers, aggregated $12.3 million at December 31, 1998 and 1997 and is included in buildings and improvements. Future minimum lease payments under these capital leases total $18.1 million, with annual payments due of $.5 million in each of 1999 through 2003, and $15.5 million thereafter. The amount of these total payments representing interest is $5.7 million. Accordingly, the present value of the net minimum lease payments is $12.4 million at December 31, 1998. The Company is involved in various matters of litigation arising in the normal course of business. While the Company is unable to predict with certainty the amounts involved, the Company's management and counsel are of the opinion that, when such litigation is resolved, the Company's resulting liability, if any, will not have a material effect on the Company's consolidated financial statements. NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's financial instruments was determined using available market information and appropriate valuation methodologies as of December 31, 1998. Unless otherwise described below, all other financial instruments are carried at amounts which approximate their fair values. Based on rates currently available to the Company for debt with similar terms and average maturities, fixed-rate debt with carrying values of $444.1 million and $419.8 million have fair values of approximately $443.9 million and $437.9 million at December 31, 1998 and 1997, respectively. The fair value of the Company's variable-rate debt approximates its carrying values of $72.3 million and $87.6 million at year-end 1998 and 1997, respectively. The fair value of the interest rate swap agreements is based on the estimated amounts the Company would receive or pay to terminate the contracts. If the Company had terminated these agreements at December 31, 1998 and 1997, the Company would have paid $3.8 million and $3.1 million at each year-end, respectively. The fair value of the mortgage bonds and notes receivable from Holdings was not determined because it is not practical to reasonably assess the credit adjustment that would be applied in the marketplace for such bonds and notes receivable. NOTE 9. SHARE OPTIONS AND AWARDS The Company has an incentive share option plan which provides for the issuance of options and share awards up to a maximum of 700,000 common shares that expired in December 1997. Options granted under this plan become exercisable in equal increments over a three-year period. The Company has an additional share option plan which grants 100 share options to every employee of the Company, excluding officers, upon completion of each five-year interval of service. This plan, which expires in 2002, provides options for a maximum of 100,000 common shares. Options granted under this plan are exercisable immediately. For both of these share option plans, options are granted to employees of the Company 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. In 1998, the Company granted 13,000 share options under a compensatory incentive share plan. This plan, which expires in 2002, provides for the issuance of up to 1,000,000 shares, either in the form of restricted shares or share options. The restricted shares generally vest over a ten-year period, with potential acceleration of vesting due to appreciation in the market value of the Company's shares. The share options vest over a five-year period beginning three years after the date of grant. Share options were granted at the quoted fair market value on the date of grant. The Company recognized compensation expense relating to restricted shares as follows, in millions: $.3 in 1998 and 1997, and $.2 in 1996. The Company does not recognize compensation cost for share options when the option exercise price equals or exceeds the quoted fair market value on the date of the grant. Had the Company determined compensation cost for its share option and award plans based on the fair value of the options granted at the grant dates, the Company's proforma net income available to common shareholders would have been as follows, in millions: $53.8, $54.3 and $53.9 in 1998, 1997 and 1996, respectively. Proforma net income per common share-basic would have been $2.02, $2.04 and $2.03 in 1998, 1997 and 1996, 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 1998, 1997 and 1996, respectively: dividend yield of 6.5%, 6.0% and 6.0%; expected volatility of 18.1%, 18.0% and 18.3%; expected lives of 6.9, 6.9 and 7.1 and risk-free interest rates of 4.8%, 6.5% and 6.4%. Following is a summary of the option activity for the three years ended December 31, 1998: SHARES WEIGHTED UNDER AVERAGE OPTION EXERCISE PRICE ---------- --------------- Outstanding, January 1, 1996 . 708,650 $ 35.25 Granted. . . . . . . . . . . . 24,260 38.10 Canceled . . . . . . . . . . . (34,300) 37.00 Exercised. . . . . . . . . . . (10,875) 27.00 ---------- Outstanding, December 31, 1996 687,735 35.40 Granted. . . . . . . . . . . . 558,600 40.25 Canceled . . . . . . . . . . . (9,400) 37.60 Exercised. . . . . . . . . . . (61,910) 32.00 ---------- Outstanding, December 31, 1997 1,175,025 37.85 Granted. . . . . . . . . . . . 14,900 42.99 Canceled . . . . . . . . . . . (7,802) 40.14 Exercised. . . . . . . . . . . (29,344) 34.01 ---------- Outstanding, December 31, 1998 1,152,779 $ 37.99 ========== The number of share options exercisable at December 31, 1998, 1997 and 1996 was 432,000, 296,000 and 243,000, respectively. Options exercisable at year-end 1998 had a weighted average exercise price of $35.91. The weighted average fair value of share options granted during 1998, 1997 and 1996 was $4.05, $5.35 and $5.10, respectively. Share options outstanding at December 31, 1998 had exercise prices ranging from $25.00 to $45.81 and a weighted average remaining contractual life of 6.6 years. Approximately 88% of the options outstanding at year-end 1998 have exercise prices between $37.00 and $40.25 and a weighted average contractual life of 7.0 years. There were 277,000 common shares available for the future grant of options or awards at December 31, 1998. NOTE 10. EMPLOYEE BENEFIT PLANS The Company has a Savings and Investment Plan to which eligible employees may elect to contribute from 1% to 12% of their salaries. Employee contributions are matched by the Company 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 $.3 million in 1998 and $.2 million in 1997 and 1996. The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation during the last five years of service. The Company's funding policy is to make annual contributions as required by applicable regulations, however, the Company has not been required to make contributions for any of the past three years. Reconciliations of the benefit obligation, plan assets at fair value and the funded status of the plan are as follows (in thousands): 1998 1997 -------- -------- Benefit obligation at beginning of year . . . . . $ 9,318 $ 7,943 Service cost. . . . . . . . . . . . . . . . . . . 457 430 Interest cost . . . . . . . . . . . . . . . . . . 663 587 Actuarial loss. . . . . . . . . . . . . . . . . . 245 527 Benefit payments. . . . . . . . . . . . . . . . . (198) (169) -------- -------- Benefit obligation at end of year . . . . . . . . $10,485 $ 9,318 ======== ======== Fair value of plan assets at beginning of year. . $10,348 $ 8,599 Actual return on plan assets. . . . . . . . . . . 526 1,918 Benefit payments. . . . . . . . . . . . . . . . . (198) (169) -------- -------- Fair value of plan assets at end of year. . . . . $10,676 $10,348 ======== ======== Plan assets at fair value less benefit obligation $ 191 $ 1,030 Unrecognized prior service cost . . . . . . . . . 8 55 Unrecognized gain . . . . . . . . . . . . . . . . (1,681) (2,447) -------- -------- Pension liability . . . . . . . . . . . . . . . . $(1,482) $(1,362) ======== ======== The components of net periodic pension cost are as follows (in thousands): ------ ------ ------ 1998 1997 1996 ------ ------ ------ Service cost . . . . . . . . . . . . . . . . . . . $ 457 $ 430 $ 361 Interest cost. . . . . . . . . . . . . . . . . . . 663 587 506 Expected return on plan assets . . . . . . . . . . (923) (703) (539) Amortization of transition asset . . . . . . . . . (54) (72) Prior service cost . . . . . . . . . . . . . . . . 47 47 47 Recognized gains . . . . . . . . . . . . . . . . . (124) (44) (43) ------ ------ ------ Total. . . . . . . . . . . . . . . . . . . . $ 120 $ 263 $ 260 ====== ====== ====== Assumptions used to develop periodic expense and the actuarial present value of the benefit obligations were: 1998 1997 1996 ----- ----- ----- Weighted average discount rate . . . . . . . . . 6.7% 7.0% 7.0% Expected long-term rate of return on plan assets 9.0% 9.0% 8.0% Rate of increase in compensation levels. . . . . 5.0% 5.0% 5.0% The Company also has a non-qualified supplemental retirement plan for officers of the Company which provides for benefits in excess of the statutory limits of its defined benefit pension plan. The obligation is funded in a grantor trust with common shares of the Company. The Company recognized expense as follows, in millions: $.3 in 1998, 1997 and 1996. NOTE 11. PREFERRED SHARES In February, the Company issued $75 million of 7.44% Series A cumulative redeemable preferred shares with a liquidation preference of $25 per share. The shares are callable at the Company's option any time after March 31, 2003 and have no stated maturity. In October, the Company issued $90 million of 7.125% Series B cumulative redeemable preferred shares with a liquidation preference of $25 per share and no stated maturity. The Company can elect to redeem the shares anytime after October 20, 2003. The Series B shares are redeemable by the holder only upon their death and are also redeemable in either cash or common shares at the Company's option. There are limitations on the number of shares per shareholder and in the aggregate that may be redeemed per year. In January of 1999, the Company issued $115 million of 7.0% Series C cumulative redeemable preferred shares with a liquidation preference of $50 per share and no stated maturity. The Company can elect to redeem these shares anytime after March 15, 2004. The redemption rights of the shareholders and the related restrictions are effectively the same as for the Series B preferred shares. The proceeds of these offerings were used to pay down amounts outstanding under the Company's revolving credit facilities, to fund acquisition and new development activity, to retire $35 million of 9.11% secured notes payable and to retire $82 million of variable-rate MTN's due in 2000. Any redemption of preferred shares initiated by the Company must be funded with proceeds from an offering of additional common or preferred shares. NOTE 12. MARKETABLE SECURITIES The Company's investment in marketable debt securities at December 31, 1998 consists of short-term commercial paper that matured January 4, 1999. The proceeds were used to pay down amounts outstanding under the Company's $20 million credit facility. The Company's investment in marketable debt securities at December 31, 1997 consisted of U.S. government agency guaranteed pass-through certificates. At December 31, 1997, the fair value of the investments totaled $12.3 million. The amortized cost of the investments at December 31, 1997 was $12.4 million, and the related unrealized loss was $.1 million, respectively. In January 1998, the Company sold its investment in these securities for $12.2 million, resulting in a gain of less than $.1 million. NOTE 13. SEGMENT INFORMATION The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" that requires disclosure of financial and descriptive information about the Company's reportable operating segments. The operating segments presented are the segments of the Company 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. The Company evaluates the performance of its operating segments based on net operating income that is defined as total revenues less operating expenses and ad valorem taxes. The shopping center segment is engaged in the acquisition, development and management of real estate, primarily anchored neighborhood and community shopping centers located in Texas, Louisiana, Arizona, Nevada, New Mexico, Oklahoma, Arkansas, Kansas, Colorado, Missouri, Illinois, Maine and Tennessee. The customer base includes supermarkets, drugstores and other retailers who generally sell basic necessity-type commodities. The industrial segment is engaged in the acquisition, development and management of bulk warehouses and office/service centers. Its properties are located in Texas, Nevada and Tennessee, and the customer base is diverse. Included in "Other" are corporate-related items, insignificant operations and costs that are not allocated to the reportable segments. Information concerning the Company's reportable segments is as follows (in thousands): SHOPPING CENTER INDUSTRIAL OTHER TOTAL --------- ----------- ------- ---------- 1998: Revenues . . . . . . $ 176,269 $ 18,574 $ 3,624 $ 198,467 Net operating income 125,949 13,342 4,327 143,618 Total assets . . . . 898,805 133,379 74,859 1,107,043 Capital expenditures 117,190 54,790 7,607 179,587 1997: Revenues . . . . . . $ 154,979 $ 14,912 $ 4,621 $ 174,512 Net operating income 109,776 10,855 4,640 125,271 Total assets . . . . 816,852 88,091 41,850 946,793 Capital expenditures 138,365 16,908 2,985 158,258 1996: Revenues . . . . . . $ 135,375 $ 11,294 $ 4,454 $ 151,123 Net operating income 96,527 8,078 4,623 109,228 Total assets . . . . 707,133 73,025 50,939 831,097 Capital expenditures 113,626 17,017 1,466 132,109 Net operating income reconciles to income from operations as shown on the Statements of Consolidated Income as follows (in thousands): ---------------------------- 1998 1997 1996 -------- -------- -------- Total segment net operating income. . $143,618 $125,271 $109,228 Less: Depreciation and amortization. . . 41,946 37,976 33,769 Interest . . . . . . . . . . . . . 33,654 30,009 21,975 General and administrative . . . . 7,146 5,647 5,109 -------- -------- -------- Income from operations . . . . . . . . $ 60,872 $ 51,639 $ 48,375 ======== ======== ======== Equity in earnings of real estate joint ventures and partnerships as shown on the Statements of Consolidated Income are included in net operating income of the shopping center segment, with the exception of $.2 million included in "Other" in 1996. The corresponding investment balances relate exclusively to the shopping center segment. NOTE 14. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) During the year ended December 31, 1998, the Company acquired eight retail centers and fifteen industrial projects for a total of $128 million. The pro forma financial information for the years ended December 31, 1998 and 1997 is based on the historical statements of the Company after giving effect to the acquisitions as if such acquisitions took place on January 1, 1998 and 1997, respectively. The pro forma financial information shown below is presented for informational purposes only and may not be indicative of results that would have actually occurred if the acquisitions had been in effect at the dates indicated, nor does it purport to be indicative of the results that may be achieved in the future (in thousands, except per share amounts). DECEMBER 31, ------------------ 1998 1997 -------- -------- Pro forma revenues. . . . . . . . . . . . . . . . . . $208,869 $192,903 ======== ======== Pro forma net income available to common shareholders $ 56,518 $ 57,915 ======== ======== Pro forma net income per common share - basic . . . . $ 2.12 $ 2.17 ======== ======== Pro forma net income per common share - diluted . . . $ 2.10 $ 2.16 ======== ======== NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for the years ended December 31, 1998 and 1997 is as follows: FIRST SECOND THIRD FOURTH ------- ------- ------- ------- 1998: Revenues. . . . . . . . . . . . . . . . . . $46,962 $48,808 $49,955 $52,742 Net income available to common shareholders 12,329 13,682 14,304 14,169 Net income per common share - basic . . . . 0.46 0.51 0.54 0.53 Net income per common share - diluted . . . 0.46 0.51 0.53 0.53 1997: Revenues. . . . . . . . . . . . . . . . . . $41,673 $42,843 $44,000 $45,996 Net income available to common shareholders 12,776 12,755 16,177 (1) 13,258 Net income per common share - basic . . . . 0.48 0.48 0.61 (1) 0.50 Net income per common share - diluted . . . 0.48 0.48 0.60 (1) 0.50 <FN> (1) Increase is primarily the result of a gain on the sale of property during the quarter. NOTE 16. PRICE RANGE OF COMMON SHARES (UNAUDITED) The high and low sale prices per share of the Company's common shares, as reported on the New York Stock Exchange composite tape, and dividends per share paid for the fiscal quarters indicated were as follows: HIGH LOW DIVIDENDS ---------- ---------- --------- 1998: Fourth . . . . $ 46 7/8 $ 39 3/4 $ 0.67 Third. . . . . 43 35 15/16 0.67 Second . . . . 44 15/16 40 5/8 0.67 First. . . . . 45 5/8 43 7/8 0.67 1997: Fourth . . . . $ 45 $ 38 7/8 $ 0.64 Third. . . . . 44 1/8 39 7/16 0.64 Second . . . . 45 5/8 41 3/8 0.64 First. . . . . 44 3/4 40 0.64 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. TRUST MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Information with respect to the Company's Trust Managers is incorporated herein by reference to the "Election of Trust Managers" section of the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 1999. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the "Executive Compensation" and "Pension Plan" sections of the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the "Election of Trust Managers" section of the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to the "Compensation Committee Interlocks and Insider Participation" section of the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules: PAGE ---- (1) (A) Independent Auditors' Report. . . . . . . . . . . . . 22 (B) Financial Statements (i) Statements of Consolidated Income for the years ended December 31, 1998, 1997 and 1996. . . . . 23 (ii) Consolidated Balance Sheets as of December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . 24 (iii) Statements of Consolidated Cash Flows for the years ended December 31, 1998, 1997 and 1996. . . . . 25 (iv) Statements of Consolidated Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996 26 (v) Notes to Consolidated Financial Statements . . 27 (2) Financial Statement Schedules: SCHEDULE PAGE -------- ---- II Valuation and Qualifying Accounts. . . . . . . . 46 III Real Estate and Accumulated Depreciation. . . . 47 IV Mortgage Loans on Real Estate . . . . . . . . . 49 All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes hereto. (b) No reports on Form 8-K were filed during the last quarter of the period covered by this annual report. (c) Exhibits: 3.1 ---- Restated Declaration of Trust (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-3 (No. 33-49206) and incorporated herein by reference). 3.2 ---- Amendment of the Restated Declaration of Trust (filed as Exhibit 3.2 to the Company's Registration Statement on Form 8-A dated January 19, 1999 and incorporated herein by reference). 3.3 ---- Second Amendment of the Restated Declaration of Trust (filed as Exhibit 3.3 to the Company's Registration Statement on Form 8-A dated January 19, 1999 and incorporated herein by reference). 3.4 ---- Third Amendment of the Restated Declaration of Trust (filed as Exhibit 3.4 to the Company's Registration Statement on Form 8-A dated January 19, 1999 and incorporated herein by reference). 3.5 ---- Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to the Company's Registration Statement on Form S-3 (No. 33-49206) and incorporated herein by reference). 4.1 ---- 16% Mortgage Bonds Due 2004 of WRI Holdings, Inc., dated December 28, 1984, payable to the Company in the original principal amount of $16,682,000 (filed as Exhibit 10.10 to the Company's Registration Statement on Form S-4 (No. 33-19730) and incorporated herein by reference). 4.2 ---- 16% Mortgage Bonds Due 1994 of WRI Holdings, Inc. dated December 28, 1984, payable to the Company in the original principal amount of $3,150,000 (filed as Exhibit 10.8 to the Company's Registration Statement on Form S-4 (No. 33-19730) and incorporated herein by reference). 4.2.1* ---- Fifth Bonds Renewal and Extension Agreement, effective December 28, 1998, for the 16% Mortgage Bonds of WRI Holdings, Inc., payable to the Company in the original principal amount of $3,150,000. 4.3 ---- Trust Indenture, dated December 28, 1984, between WRI Holdings, Inc. and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association), as Trustee, relating to the 16% Mortgage Bonds Due 1994 of WRI Holdings, Inc. in the original principal amount of $3,150,000 (filed as Exhibit 10.9 to the Company's Registration Statement on Form S-4 (No. 33-19730) and incorporated herein by reference). 4.3.1 ---- Supplemental Indenture of Trust, dated February 22, 1995, between WRI Holdings, Inc. and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association) relating to the 16% Mortgage Bonds due December 28, 1994 of WRI Holdings, Inc. in the original principal amount of $3,150,000 (filed as exhibit 10.4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 4.4* ---- Fifth Supplemental Indenture of Trust between WRI Holdings, Inc. and Chase Bank of Texas, National Association (formerly, Texas Commerce Trust Company of New York), as Trustee, amending Trust Indenture, dated December 28, 1984, between WRI Holdings, Inc. and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association), as Trustee, relating to the 16% Mortgage Bonds Due 1994 of WRI Holdings, Inc. in the original principal amount of $3,150,000. 4.5 ---- Trust Indenture, dated December 28, 1984, between WRI Holdings, Inc. and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association), as Trustee, relating to the 16% Mortgage Bonds Due 2004 of WRI Holdings, Inc. in the original principal amount of $16,682,000 (filed as Exhibit 10.11 to the Company's Registration Statement on Form S-4 (No. 33-19730) and incorporated herein by reference). 4.5.1 ---- First Supplemental Indenture of Trust between WRI Holdings, Inc. and Chase Bank of Texas, National Association (formerly, Texas Commerce Trust Company of New York), as Trustee, amending Trust Indenture, dated December 28, 1984, between WRI Holdings, Inc. and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association), as Trustee, relating to the 16% Mortgage Bonds Due 2004 of WRI Holdings, Inc. in the original principal amount of $16,682,000 (filed as Exhibit 10.7.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 and incorporated herein by reference). 4.6 ---- Third Amended Promissory Note, as restated, effective as of January 1, 1992, executed by WRI Holdings, Inc., pursuant to which it may borrow up to the principal sum of $40,000,000 from the Company (filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 4.7 ---- 16% Mortgage Bonds Due 2004 of WRI Holdings, Inc., dated December 28, 1984, payable to the Company in the original principal amount of $7,000,000 (filed as Exhibit 10.13 to the Company's Registration Statement on Form S-4 (No. 33-19730) and incorporated herein by reference). 4.8 ---- Trust Indenture, dated December 28, 1984, between WRI Holdings, Inc. and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association), as Trustee, relating to the 16% Mortgage Bonds Due 2004 of WRI Holdings, Inc. in the original principal amount of $7,000,000 (filed as Exhibit 10.14 to the Company's Registration Statement on Form S-4 (No. 33-19730) and incorporated herein by reference). 4.8.1 ---- First Supplemental Indenture of Trust between WRI Holdings, Inc. and Chase Bank of Texas, National Association (formerly, Texas Commerce Trust Company of New York), as Trustee, amending Trust Indenture, dated December 28, 1984, between WRI Holdings, Inc. and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association), as Trustee, relating to the 16% Mortgage Bonds Due 2004 of WRI Holdings, Inc. in the original principal amount of $7,000,000 (filed as Exhibit 10.10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 and incorporated herein by reference). 4.9 ---- Agreement Correcting Trust Indenture, dated February 11, 1985, relating to 16% Mortgage Bonds Due 2004 of WRI Holdings, Inc. in the original principal amount of $7,000,000 (filed as Exhibit 10.15 to the Company's Registration Statement on Form S-4 (No. 33-19730) and incorporated herein by reference). 4.10 ---- Amendment to Note Purchase Agreement, dated March 31, 1991, amending loan agreement, dated August 6, 1987, Life and Accident Insurance Company for $5,000,000, American General Life Insurance Company of Delaware for $5,000,000, Republic National Life Insurance Company for $3,000,000 and American Amicable Life Insurance Company of Texas for $2,000,000 (filed as Exhibit 10.15.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 4.11 ---- Promissory Note in the amount of $12,000,000 between the Company, as payee, and Plaza Construction, Inc., as maker (filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference). 4.11.1* ---- Tenth Renewal and Extension of Promissory Note in the amount of $12,000,000, effective as of December 1, 1998, between the Company, as payee, and Plaza Construction, Inc., as maker. 4.12 ---- Amended and Restated Master Swap Agreement dated as of January 29, 1992, between the Company and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association) (filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 4.12.1 ---- Rate Swap Transaction, dated as of May 15, 1992, between the Company and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association) (filed as Exhibit 10.24.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 4.12.2 ---- Rate Swap Transaction, dated as of June 24, 1992, between the Company and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association) (filed as Exhibit 10.24.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 4.12.3 ---- Rate Swap Transaction, dated as of July 2, 1992, between the Company and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association) (filed as Exhibit 10.24.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 4.13 ---- Amended and Restated Credit Agreement dated as of November 21, 1996 between the Company and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association), as Agent, and individually as a Bank, and the Banks defined therein (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 4.13.1 ---- First, Second and Third Amendments to the Amended and Restated Credit Agreement dated November 21, 1996 between the Company and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association) (filed as Exhibit 10.17.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 4.14 ---- Note Purchase Agreement, dated April 1, 1994, between The Variable Annuity Life Insurance Company, American General Life Insurance Company and the Company in the amount of 30,000,000 (filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 4.15* ---- Master Promissory Note in the amount of $20,000,000 between the Company, as payee, and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association), as maker, effective December 30, 1998. 4.16 ---- Distribution Agreement among the Company and the Agents dated November 15, 1996 relating to the Medium Term Notes (filed as Exhibit 1.1 to the Company's Current Report of Form 8-K dated November 15, 1996 and incorporated herein by reference). 4.17 ---- Senior Indenture dated as of May 1, 1995 between the Company and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association), as trustee (filed as Exhibit 4(a) to the Company's Registration Statement on Form S-3 (No. 33-57659) and incorporated herein by reference). 4.18 ---- Subordinated Indenture dated as of May 1, 1995 between the Company and Chase Bank of Texas, National Association (formerly, Texas Commerce Bank National Association) (filed as Exhibit 4(b) to the Company's Registration Statement on Form S-3 (No. 33-57659) and incorporated herein by reference). 4.19* ---- Form of Fixed Rate Senior Medium Term Note. 4.20* ---- Form of Floating Rate Senior Medium Term Note. 4.21* ---- Form of Fixed Rate Subordinated Medium Term Note. 4.22* ---- Form of Floating Rate Subordinated Medium Term Note. 4.23 ---- Statement of Designation of 7.44% Series A Cumulative Redeemable Preferred Shares (filed as Exhibit 99 to the Company's Current Report on Form 8-A dated February 18, 1998 and incorporated herein by reference). 4.24 ---- Statement of Designation of 7.125% Series B Cumulative Redeemable Preferred Shares (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated October 28, 1998 and incorporated herein by reference). 4.25 ---- Statement of Designation of 7.00% Series C Cumulative Redeemable Preferred Shares (filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A dated January 19, 1999 and incorporated herein by reference). 4.26 ---- 7.44% Series A Cumulative Redeemable Preferred Share Certificate (filed as Exhibit 4 to the Company's Current Report on Form 8-K dated February 23, 1998 and incorporated herein by reference). 4.27 ---- 7.125% Series B Cumulative Redeemable Preferred Share Certificate (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated October 28, 1998 and incorporated herein by reference). 4.28 ---- 7.00% Series C Cumulative Redeemable Preferred Share Certificate (filed as Exhibit 4.2 to the Company's Registration Statement on Form 8-A dated January 19, 1999 and incorporated herein by reference). 4.29 ---- Distribution Agreement among the Company and the Agents dated August 10, 1998 relating to the Medium Term Notes (filed as Exhibit 1.1 to the Company's current report on Form 8-K dated August 12, 1998 and incorporated herein by reference). 10.1** ---- 1988 Share Option Plan of the Company, as amended (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference). 10.2** ---- Weingarten Realty Investors Supplemental Retirement Account Plan, as amended and restated (filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 10.3** ---- The Savings and Investment Plan for Employees of the Company, as amended (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 33-25581) and incorporated herein by reference). 10.4** ---- The Fifth Amendment to Savings and Investment Plan for Employees of the Company (filed as Exhibit 4.1.1 to the Company's Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (No. 33-25581) and incorporated herein by reference). 10.5** ---- The 1993 Incentive Share Plan of the Company (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 33-52473) and incorporated herein by reference). 12.1* ---- Computation of Fixed Charges Ratios. 21.1* ---- Subsidiaries of the Registrant. 23.1* ---- Consent of Deloitte & Touche LLP. 27.1* ---- Financial Data Schedule. <FN> * Filed with this report. ** Management contract or compensatory plan or arrangement. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WEINGARTEN REALTY INVESTORS By: Stanford Alexander -------------------------- Stanford Alexander Chairman/Chief Executive Officer Date: March 12, 1999 Pursuant to the requirement of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: SIGNATURE TITLE DATE --------- ----- ---- By: Stanford Alexander Chairman and Trust Manager March 12, 1999 ------------------------ Stanford Alexander (Chief Executive Officer) By: Andrew M. Alexander President March 12, 1999 ------------------------ Andrew M. Alexander and Trust Manager By: Robert J. Cruikshank Trust Manager March 12, 1999 ------------------------ Robert J. Cruikshank By: Martin Debrovner Vice Chairman March 12, 1999 ------------------------ Martin Debrovner and Trust Manager By: Melvin Dow Trust Manager March 12, 1999 ------------------------ Melvin Dow By: Stephen A. Lasher Trust Manager March 12, 1999 ------------------------ Stephen A. Lasher By: Joseph W. Robertson, Jr. Executive Vice President and March 12, 1999 ------------------------ Joseph W. Robertson, Jr. Trust Manager (Chief Financial Officer) By: Douglas W. Schnitzer Trust Manager March 12, 1999 ------------------------ Douglas W. Schnitzer By: Marc J. Shapiro Trust Manager March 12, 1999 ------------------------ Marc J. Shapiro By: J.T. Trotter Trust Manager March 12, 1999 ------------------------ J.T. Trotter By: Stephen C. Richter Senior Vice President/ March 12, 1999 ------------------------ Stephen C. Richter Financial Administration and Treasurer (Principal Accounting Officer) SCHEDULE II WEINGARTEN REALTY INVESTORS VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 1998, 1997 AND 1996 (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 - ----------------------------------- ----------- --------- -------- ------------ ---------- 1998: Allowance for Doubtful Accounts $ 1,000 $ 683 $ 795 $ 888 1997: Allowance for Doubtful Accounts $ 1,236 $ 877 $ 1,113 $ 1,000 1996: Allowance for Doubtful Accounts $ 1,436 $ 1,014 $ 1,214 $ 1,236 Note A -- Write-offs of accounts receivable previously reserved. SCHEDULE III WEINGARTEN REALTY INVESTORS REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) Total Cost ------------------------------------- Buildings Projects and Under Total Accumulated Encumbrances Land Improvements Development Cost Depreciation (A) -------- ------------- ------------ ---------- ------------ -------------- SHOPPING CENTERS: Texas . . . . . . . . . . . $156,679 $ 596,365 $ 753,044 $ 206,043 $ 8,800 Other States. . . . . . . . 52,350 257,560 309,910 50,591 24,637 -------- ------------- ------------ ---------- ------------ -------------- Total Shopping Centers. . 209,029 853,925 1,062,954 256,634 33,437 INDUSTRIAL PROPERTIES: Texas . . . . . . . . . . . 24,908 120,794 145,702 26,748 5,711 Other States. . . . . . . . 1,750 7,002 8,752 44 -------- ------------- ------------ ---------- ------------ -------------- Total Shopping Centers. . 26,658 127,796 154,454 26,792 5,711 OFFICE BUILDING: Texas . . . . . . . . . . . 534 15,191 15,725 9,964 -------- ------------- ------------ ---------- ------------ -------------- Total Improved Properties. . . . . . . 236,221 996,912 1,233,133 293,390 39,148 -------- ------------- ------------ ---------- ------------ -------------- LAND UNDER DEVELOPMENT OR HELD FOR DEVELOPMENT: Texas . . . . . . . . . . . $ 35,347 35,347 Other States. . . . . . . . 7,833 7,833 -------- ------------- ------------ ---------- ------------ -------------- Total Land Under Development. . . . . . 43,180 43,180 -------- ------------- ------------ ---------- ------------ -------------- LEASED PROPERTY (SHOPPING CENTER) UNDER CAPITAL LEASE: Other States . . . . . . 12,254 12,254 3,599 5,857 -------- ------------- ------------ ---------- ------------ -------------- CONSTRUCTION IN PROGRESS: Texas . . . . . . . . . . . 4,575 4,575 Other States. . . . . . . . 1,490 1,490 -------- ------------- ------------ ---------- ------------ -------------- Total Construction in Progress . . . . . . . . 6,065 6,065 -------- ------------- ------------ ---------- ------------ -------------- TOTAL OF ALL PROPERTIES. . . . . . . . $236,221 $ 1,009,166 $ 49,245 $1,294,632 $ 296,989 $ 45,005 ======== ============= ============ ========== ============ ============== Note A -- Encumbrances do not include $25.6 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. SCHEDULE III (CONTINUED) The changes in total cost of the properties for the years ended December 31, 1998, 1997 and 1996 were as follows: 1998 1997 1996 ----------- ----------- --------- Balance at beginning of year $1,118,758 $ 970,418 $849,894 Additions at cost. . . . . . 179,587 158,258 132,109 Retirements or sales . . . . (3,713) (9,918) (11,585) ----------- ----------- --------- Balance at end of year . . . $1,294,632 $1,118,758 $970,418 =========== =========== ========= The changes in accumulated depreciation for the years ended December 31, 1998, 1997 and 1996 were as follows: 1998 1997 1996 --------- --------- --------- Balance at beginning of year $262,551 $233,514 $216,657 Additions at cost. . . . . . 35,678 32,226 27,732 Retirements or sales . . . . (1,240) (3,189) (10,875) --------- --------- --------- Balance at end of year . . . $296,989 $262,551 $233,514 ========= ========= ========= SCHEDULE IV WEINGARTEN REALTY INVESTORS MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) FINAL PERIODIC FACE CARRYING INTEREST MATURITY PAYMENT AMOUNT OF AMOUNT OF RATE DATE TERMS MORTGAGES MORTGAGES(C) --------- -------- ---------- --------- ------------ SHOPPING CENTERS: FIRST MORTGAGES: Eastex Venture Beaumont, TX (Note A) . Prime 12-31-98 Varying 3,500 2,243 +1 1/2 ($2,243 balloon) Main/O.S.T., Ltd. Houston, TX . . . . 9.3% 02-01-20 $476 4,800 4,572 Annual P & I ($1,241 balloon) Markham West Shopping Center L.P. Little Rock, AK . . 10% 12-31-28 Varying 3,104 3,116 ($3,116 balloon) INDUSTRIAL: FIRST MORTGAGES: Railwood Houston, TX . . . . 10% 12-28-04 Varying 7,000 6,223 ($6,223 balloon) River Pointe, Conroe,TX (Note D). . . . . . 9% 11-30-03 Varying 2,133 1,890 Little York, Houston, TX (Note D). . . . . . Prime 12-31-03 Varying 1,922 1,758 +2% Schedule continued on next page SCHEDULE IV (CONTINUED) WEINGARTEN REALTY INVESTORS MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) FINAL PERIODIC FACE CARRYING INTEREST MATURITY PAYMENT AMOUNT OF AMOUNT OF RATE DATE TERMS MORTGAGES MORTGAGES(C) --------- -------- --------- ---------- ------------- UNIMPROVED LAND: SECOND MORTGAGE: River Pointe Conroe, TX . . . . Prime 12-01-99 Varying 12,000 8,557 +1% ($8,557 balloon) TOTAL MORTGAGE LOANS ON ---------- ------------- REAL ESTATE (Note B) $ 34,459 $ 28,359 ========== ============= <FN> Note A -- Mortgage Loan was amended effective January 1, 1999 as follows: The maturity date was extended to October 31, 2009, and The interest rate was modified to 6% through October 31, 1999 and to 8% commencing November 1, 1999 through the maturity date. Note B -- Changes in mortgage loans for the years ended December 31, 1998, 1997 and 1996 are summarized below: 1998 1997 1996 -------- -------- -------- Balance, Beginning of year $25,653 $27,157 $31,292 New Mortgage Loans. . . . . 3,116 Additions to Existing Loans 1,560 589 1,075 Collections of Principal. . (1,970) (2,093) (5,210) -------- -------- -------- Balance, End of Year . . . $28,359 $25,653 $27,157 ======== ======== ======== Note C -- The aggregate cost at December 31, 1998 for federal income tax purposes is $27,895. Note D -- Principal payments are due monthly to the extent of cash flow generated by the underlying property.