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5
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to ____________________
Commission file number 1-9876
------
WEINGARTEN REALTY INVESTORS
---------------------------
(Exact name of registrant as specified in its charter)
Texas 74-1464203
- ---------------------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 Citadel Plaza Drive, P.O. Box 924133, Houston, Texas 77292-4133
- ---------------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 866-6000
--------------
____________________________________________
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes . No .
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X . No .
----- -----
As of August 6, 2003, there were 52,145,735 common shares of beneficial
interest of Weingarten Realty Investors, $.03 par value, outstanding.
PART 1
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WEINGARTEN REALTY INVESTORS
STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Revenues:
Rentals. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,774 $ 89,024 $ 197,326 $ 172,084
Interest income. . . . . . . . . . . . . . . . . . . . . . . 560 231 806 431
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,619 1,253 2,639 2,011
---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 102,953 90,508 200,771 174,526
---------- ---------- ---------- ----------
Expenses:
Depreciation and amortization. . . . . . . . . . . . . . . . 22,584 19,040 43,689 36,698
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 21,036 16,532 40,475 31,528
Operating. . . . . . . . . . . . . . . . . . . . . . . . . . 16,215 13,451 30,304 25,656
Ad valorem taxes . . . . . . . . . . . . . . . . . . . . . . 11,415 10,708 22,858 20,837
General and administrative . . . . . . . . . . . . . . . . . 3,414 3,398 6,471 6,074
---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 74,664 63,129 143,797 120,793
---------- ---------- ---------- ----------
Operating Income . . . . . . . . . . . . . . . . . . . . . . . 28,289 27,379 56,974 53,733
Equity in Earnings of Joint Ventures . . . . . . . . . . . . . 998 965 2,036 2,039
Income Allocated to Minority Interests . . . . . . . . . . . . (837) (943) (1,732) (1,059)
Loss on Sale of Properties . . . . . . . . . . . . . . . . . . (17) (8)
---------- ---------- ---------- ----------
Income Before Discontinued Operations. . . . . . . . . . . . . 28,433 27,401 57,270 54,713
---------- ---------- ---------- ----------
Operating Income from Discontinued Operations. . . . . . . . . 143 814 326 1,698
Gain (Loss) on Sale of Properties. . . . . . . . . . . . . . . (108) 3,119 763 4,340
---------- ---------- ---------- ----------
Income From Discontinued Operations . . . . . . . . . . 35 3,933 1,089 6,038
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 28,468 31,334 58,359 60,751
---------- ---------- ---------- ----------
Dividends on Preferred Shares. . . . . . . . . . . . . . . . . 4,920 4,939 9,842 9,878
Original Issuance Costs associated with Redeemed
Series A Preferred Shares. . . . . . . . . . . . . . . . . . 2,488 2,488
---------- ---------- ---------- ----------
Net Income Available to Common Shareholders. . . . . . . . . . $ 21,060 $ 26,395 $ 46,029 $ 50,873
========== ========== ========== ==========
Net Income Per Common Share - Basic:
Income Before Discontinued Operations. . . . . . . . . . . . $ .40 $ .44 $ .86 $ .87
Income From Discontinued Operations. . . . . . . . . . . . . .07 .02 .11
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $ .40 $ .51 $ .88 $ .98
========== ========== ========== ==========
Net Income Per Common Share - Diluted:
Income Before Discontinued Operations. . . . . . . . . . . . $ .40 $ .44 $ .86 $ .87
Income From Discontinued Operations. . . . . . . . . . . . . .07 .02 .11
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $ .40 $ .51 $ .88 $ .98
========== ========== ========== ==========
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,468 $ 31,334 $ 58,359 $ 60,751
---------- ---------- ---------- ----------
Other Comprehensive Income:
Unrealized derivative gain (loss) on interest rate swaps . . 590 (444) 1,119 722
Amortization of forward-starting interest rate swaps . . . . (40) (40) (80) (80)
---------- ---------- ---------- ----------
Other Comprehensive Income (Loss). . . . . . . . . . . . . . . 550 (484) 1,039 642
---------- ---------- ---------- ----------
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . $ 29,018 $ 30,850 $ 59,398 $ 61,393
========== ========== ========== ==========
See Notes to Consolidated Financial Statements.
Page 2
WEINGARTEN REALTY INVESTORS
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
June 30, December 31,
2003 2002
------------ ------------
ASSETS
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,866,838 $ 2,695,286
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (490,137) (460,832)
------------ ------------
Property - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,376,701 2,234,454
Investment in Real Estate Joint Ventures . . . . . . . . . . . . . . . . . . . . . . 28,460 28,738
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,405,161 2,263,192
Notes Receivable from Real Estate Joint Ventures and Partnerships. . . . . . . . . . 24,432 14,747
Unamortized Debt and Lease Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 52,659 48,377
Accrued Rent and Accounts Receivable (net of allowance for doubtful
accounts of $3,944 in 2003 and $4,302 in 2002) . . . . . . . . . . . . . . . . . . 33,870 38,156
Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,177 27,420
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,500 31,997
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,575,799 $ 2,423,889
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,509,965 $ 1,330,369
Accounts Payable and Accrued Expenses. . . . . . . . . . . . . . . . . . . . . . . . 75,941 81,488
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,945 23,636
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,604,851 1,435,493
------------ ------------
Minority Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,018 54,983
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 10,000
7.44% Series A cumulative redeemable preferred shares of beneficial
interest; 3,000 shares issued and outstanding at December 31, 2002. . . . 90
7.125% Series B cumulative redeemable preferred shares of
beneficial interest; 3,600 shares issued and 3,518 shares
outstanding in 2003 and 2002; liquidation preference $87,950 . . . . . . . 106 106
7.0% Series C cumulative redeemable preferred shares of
beneficial interest; 2,300 shares issued and 2,252 and 2,253 shares
outstanding in 2003 and 2002; liquidation preference $112,590. . . . . . . 67 67
6.75% Series D cumulative redeemable preferred shares of
beneficial interest; 3,000 shares issued and outstanding;
liquidation preference $75,000 . . . . . . . . . . . . . . . . . . . . . . 90
Common Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 150,000; shares issued and outstanding:
52,141 in 2003 and 52,076 in 2002. . . . . . . . . . . . . . . . . . . . . . . 1,561 1,559
Capital Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,084,476 1,082,046
Accumulated Dividends in Excess of Net Income. . . . . . . . . . . . . . . . . . . (162,807) (147,853)
Accumulated Other Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . (1,563) (2,602)
------------ ------------
Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 921,930 933,413
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,575,799 $ 2,423,889
============ ============
See Notes to Consolidated Financial Statements.
Page 3
WEINGARTEN REALTY INVESTORS
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Six Months Ended
June 30,
------------------------
2003 2002
---------- ----------
Cash Flows from Operating Activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,359 $ 60,751
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 43,859 37,588
Equity in earnings of joint ventures. . . . . . . . . . . . (2,036) (2,039)
Income allocated to minority interests. . . . . . . . . . . 1,732 1,059
Gain on sale of properties. . . . . . . . . . . . . . . . . (755) (4,340)
Changes in accrued rent and accounts receivable . . . . . . 4,401 4,341
Changes in other assets . . . . . . . . . . . . . . . . . . (14,871) (10,933)
Changes in accounts payable and accrued expenses. . . . . . (9,970) (3,585)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . 352 303
---------- ----------
Net cash provided by operating activities . . . . . . 81,071 83,145
---------- ----------
Cash Flows from Investing Activities:
Investment in properties. . . . . . . . . . . . . . . . . . . . . (146,718) (116,312)
Notes Receivable:
Advances. . . . . . . . . . . . . . . . . . . . . . . . . . (9,930) (653)
Collections . . . . . . . . . . . . . . . . . . . . . . . . 255 2,032
Proceeds from sales and disposition of property . . . . . . . . . 5,499 20,134
Real estate joint ventures and partnerships:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (386) (5,355)
Distributions . . . . . . . . . . . . . . . . . . . . . . . 2,242 2,130
---------- ----------
Net cash used in investing activities . . . . . . . . (149,038) (98,024)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of:
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,485 122,000
Common shares of beneficial interest. . . . . . . . . . . . 1,849 11,886
Preferred shares of beneficial interest . . . . . . . . . . 72,691
Redemption of preferred shares of beneficial interest . . . . . . (75,000)
Principal payments of debt. . . . . . . . . . . . . . . . . . . . (63,387) (27,667)
Common and preferred dividends paid . . . . . . . . . . . . . . . (70,825) (67,552)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (89) (79)
---------- ----------
Net cash provided by financing activities . . . . . . 64,724 38,588
---------- ----------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . (3,243) 23,709
Cash and cash equivalents at January 1. . . . . . . . . . . . . . . . 27,420 12,434
---------- ----------
Cash and cash equivalents at June 30. . . . . . . . . . . . . . . . . $ 24,177 $ 36,143
========== ==========
See Notes to Consolidated Financial Statements.
Page 4
WEINGARTEN REALTY INVESTORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements included in this report are
unaudited, however, amounts presented in the balance sheet as of December
31, 2002 are derived from the audited financial statements of the Company
at that date. In the opinion of WRI, all adjustments necessary for a fair
presentation of such financial statements have been included. Such
adjustments consisted of normal recurring items. Interim results are not
necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as permitted
by Form 10-Q, and do not contain certain information included in WRI's
annual financial statements and notes.
Certain reclassifications of prior year's amounts have been made to conform
to the current year presentation.
2. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure- an amendment of FASB Statement No.
123", which is effective for fiscal years beginning after December 15,
2002. This statement provides alternative methods of transition for an
entity that voluntarily changes to the fair value-based method of
accounting for stock-based employee compensation. It also amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. We adopted this statement effective January 1, 2003 using
the prospective method, which requires us to recognize stock-based employee
compensation as new share options are awarded. Stock-based employee
compensation of five thousand was recognized for the quarter ending June
30, 2003 associated with the options awarded during 2003. With respect to
share options awarded prior to January 1, 2003, WRI accounted for
stock-based employee compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations. In accordance with
this opinion, no stock-based employee compensation had been recognized in
WRI's financial statements prior to January 1, 2003.
Page 5
The following table illustrates the effect on net income available to
common shareholders and net income per common share if the fair value-based
method had been applied to all outstanding and unvested awards in each
period:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income available to common shareholders. . . . . . . $ 21,060 $ 26,395 $ 46,029 $ 50,873
Stock-based employee compensation included in
net income available to common shareholders. . . . . . 5 5
Stock-based employee compensation determined
under the fair value-based method for all awards . . . (106) (86) (207) (172)
--------- --------- --------- ---------
Pro forma net income available to
common shareholders. . . . . . . . . . . . . . . . . . $ 20,959 $ 26,309 $ 45,827 $ 50,701
========= ========= ========= =========
Net income per common share:
Basic - as reported. . . . . . . . . . . . . . . . $ .40 $ .51 $ .88 $ .98
========= ========= ========= =========
Basic - pro forma. . . . . . . . . . . . . . . . . $ .40 $ .51 $ .88 $ .98
========= ========= ========= =========
Net income per common share:
Diluted - as reported. . . . . . . . . . . . . . . $ .40 $ .51 $ .88 $ .98
========= ========= ========= =========
Diluted - pro forma. . . . . . . . . . . . . . . . $ .40 $ .51 $ .88 $ .97
========= ========= ========= =========
In November 2002, FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". FIN 45 establishes new disclosure
and liability-recognition requirements for direct and indirect debt
guarantees with specified characteristics. The initial measurement and
recognition requirements of FIN 45 are effective prospectively for
guarantees issued or modified after December 31, 2002. However, the
disclosure requirements are effective for interim and annual
financial-statement periods ending after December 15, 2002. WRI has adopted
the disclosure provisions, and management has concluded that the full
adoption of FIN 45 does not have a material impact on the financial
position, results of operations or cash flows.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities". FIN 46 requires a variable interest entity to
be consolidated by a company if that company is subject to a majority of
the risk of loss from the variable interest entity's activities or entitled
to receive a majority of the entity's residual returns or both. FIN 46
requires disclosures about variable interest entities that a company is not
required to consolidate, but in which it has a significant variable
interest. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. The
consolidation requirements apply to existing entities in the first fiscal
year or interim period beginning after June 15, 2003. Certain of the
disclosure requirements apply in all financial statements issued after
January 31, 2003, regardless of when the variable interest entity was
established. We adopted this statement in 2003, and we do not expect the
adoption of this statement to have a material impact on our financial
position, results of operations or cash flows.
Page 6
3. DISCONTINUED OPERATIONS
On January 1, 2002, WRI adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses
accounting and reporting for the impairment or disposal of a segment of a
business. More specifically, this Statement broadens the presentation of
discontinued operations to include a component of an entity whose
operations and cash flows can be clearly distinguished, operationally and
for financial reporting purposes, from the rest of the entity.
In 2002, we sold five retail projects located in Houston (3), Grand Prairie
and San Antonio, Texas; one industrial building located in Houston, Texas
and the River Pointe Apartments located in Conroe, Texas. Accordingly, the
operating results and the gain on sale of the disposed properties have been
reclassified and reported as discontinued operations in the Statements of
Consolidated Income and Comprehensive Income.
In January 2003, a warehouse building was sold that was classified as held
for sale in 2002. In May 2003, a retail property in San Antonio, Texas was
sold. The operating results of both properties have been reclassified and
reported as discontinued operations in the Statements of Consolidated
Income and Comprehensive Income. Included in the Consolidated Balance Sheet
at December 31, 2002 is $1.6 million reported as property held for sale for
the industrial facility and $3.8 million of Property and $1.2 million of
Accumulated Depreciation associated with the retail property in San
Antonio, Texas.
Subsequent to quarter-end, two retail centers in McKinney (suburb of
Dallas) and Nacogdoches, Texas were sold. The operating results of both
properties have been reclassified and reported as discontinued operations
in the Statements of Consolidated Income and Comprehensive Income, and $4.3
million is reported as property held for sale in the Consolidated Balance
Sheet at June 30, 2003.
4. DERIVATIVES AND HEDGING
WRI hedges the future cash flows of debt transactions principally through
interest rate swaps with major financial institutions. WRI has three
interest rate swap contracts with an aggregate notional amount of $45
million, which are designated as cash flow hedges, and eleven interest rate
swap contracts with an aggregate notional amount of $107.5 million, which
are designated as fair value hedges.
On June 30, 2003, the derivative instruments designated as cash flow hedges
were reported at their fair values as Other Liabilities, net of accrued
interest, of $1.3 million. The derivative instruments designated as fair
value hedges on June 30, 2003 were reported at their fair values as Other
Assets, net of accrued interest, of $7.9 million.
Within the next twelve months, the Company expects to reclassify to
earnings as interest expense approximately $1.3 million of the current
balance held in accumulated other comprehensive loss. With respect to fair
value hedges, both changes in fair market value of the derivative hedging
instrument and changes in the fair value of the hedged item will be
recorded in earnings each reporting period. These amounts should completely
offset with no impact to earnings, except for the portion of the hedge that
proves to be ineffective, if any.
Page 7
5. PER SHARE DATA
Net income per common share - basic is computed using net income available
to common shareholders and the weighted average shares outstanding. Net
income per common share - diluted includes the effect of potentially
dilutive securities for the periods indicated, as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Numerator:
Net income available to common shareholders - basic . . . $ 21,060 $ 26,395 $ 46,029 $ 50,873
Income attributable to operating partnership units. . . . 760 845 1,592 875
--------- --------- --------- ---------
Net income available to common shareholders - diluted . . $ 21,820 $ 27,240 $ 47,621 $ 51,748
========= ========= ========= =========
Denominator:
Weighted average shares outstanding - basic . . . . . . . 52,128 51,926 52,110 51,806
Effect of dilutive securities:
Share options and awards. . . . . . . . . . . . . . 514 396 453 344
Operating partnership units . . . . . . . . . . . . 1,396 1,432 1,462 759
--------- --------- --------- ---------
Weighted average shares outstanding - diluted . . . . . . 54,038 53,754 54,025 52,909
========= ========= ========= =========
Options to purchase 500 and 150 common shares for the second quarter ended
June 30, 2003 and 2002, respectively, were not included in the calculation
of net income per common share - diluted as the exercise prices were
greater than the average market price, while 900 and 150 common shares have
been excluded from the calculation of net income per common share - diluted
for the six months ended June 30, 2003 and 2002, respectively.
6. DEBT
WRI's debt consists of the following (in thousands):
June 30, December 31,
2003 2002
------------ ------------
Fixed-rate debt payable to 2030 at 5.0 to 8.8% . . . . . . . . $ 1,324,905 $ 1,097,185
Variable-rate unsecured notes payable. . . . . . . . . . . . . 75,000 75,000
Unsecured notes payable under revolving credit agreements. . . 68,310 119,000
Obligations under capital leases . . . . . . . . . . . . . . . 33,462 33,462
Industrial revenue bonds payable to 2015 at 1.1% to 3.0% . . . 8,288 5,722
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,509,965 $ 1,330,369
============ ============
At June 30, 2003, the variable interest rates for notes payable under the
$50 million term loan agreement and the $350 million revolving credit
agreement were 1.6% and 1.7%, respectively. At June 30, 2003, $12.3 million
was outstanding under the $20 million revolving credit agreement at 1.6%.
Page 8
During 2003, WRI issued a total of $136 million of unsecured fixed-rate
medium term notes at a weighted average rate of 5.4% and a weighted average
term of 11.4 years. Proceeds received were used to pay down amounts
outstanding under our $350 million revolving credit facility. Following is
a summary of the medium term note activity for the six months ended June
30, 2003 (in thousands, except years to maturity and interest rate):
YEARS TO INTEREST
DATE ISSUED PRINCIPAL MATURITY RATE
----------------------- ---------- -------- --------
January 15, 2003. . . . $ 20,000 12.0 5.75%
January 28, 2003. . . . 15,000 10.0 5.50%
January 28, 2003. . . . 6,000 10.0 5.50%
February 12, 2003 . . . 20,000 12.0 5.57%
February 26, 2003 . . . 25,000 12.0 5.35%
February 28, 2003 . . . 25,000 12.0 5.25%
March 5, 2003 . . . . . 25,000 10.5 4.99%
----------
Total. . . . . . $ 136,000
==========
On April 24, 2003, the SEC declared effective WRI's $1 billion shelf
registration statement. As of June 30, 2003, WRI has not used the shelf
registration statement for offerings of its securities.
WRI's debt can be summarized as follows (in thousands):
June 30, December 31,
2003 2002
----------- -----------
As to interest rate (including the effects of
interest rate swaps):
Fixed-rate debt . . . . . . . . . . . . . . $ 1,283,407 $ 1,055,688
Variable-rate debt. . . . . . . . . . . . . 226,558 274,681
----------- -----------
Total . . . . . . . . . . . . . . . . . $ 1,509,965 $ 1,330,369
=========== ===========
As to collateralization:
Unsecured debt. . . . . . . . . . . . . . . $ 1,044,100 $ 958,719
Secured debt. . . . . . . . . . . . . . . . 465,865 371,650
----------- -----------
Total . . . . . . . . . . . . . . . . . $ 1,509,965 $ 1,330,369
=========== ===========
Page 9
7. PROPERTY
WRI's property consists of the following (in thousands):
June 30, December 31,
2003 2002
------------ ------------
Land . . . . . . . . . . . . . . $ 533,262 $ 497,168
Land held for development. . . . 22,206 23,613
Land under development . . . . . 37,637 44,847
Buildings and improvements . . . 2,198,770 2,051,065
Construction in-progress . . . . 70,659 77,006
Property held for sale . . . . . 4,304 1,587
------------ ------------
Total. . . . . . . . $ 2,866,838 $ 2,695,286
============ ============
Interest and ad valorem taxes capitalized to land under development or
buildings under construction was $1.8 million and $2.5 million for the
quarters ended June 30, 2003 and 2002, respectively, and $3.9 million and
$5.1 million for the six months ended June 30, 2003 and 2002, respectively.
8. INVESTMENTS IN REAL ESTATE JOINT VENTURES
WRI owns interests in 17 joint ventures or limited partnerships where we do
not exercise financial and operating control. These partnerships are
accounted for under the equity method since WRI exercises significant
influence. Our interests in these joint ventures and limited partnerships
range from 20% to 75% and, with the exception of one partnership, which
owns seven industrial properties, each venture owns a single real estate
asset. Combined condensed financial information of these ventures (at 100%)
is summarized as follows (in thousands):
June 30, December 31,
2003 2002
------------ ------------
Combined Balance Sheets
Property. . . . . . . . . . . . . . . $ 189,876 $ 177,396
Accumulated depreciation. . . . . . . (25,845) (23,877)
------------ ------------
Property - net . . . . . . . . . 164,031 153,519
Other assets. . . . . . . . . . . . . 11,863 11,898
------------ ------------
Total. . . . . . . . . . . . . . $ 175,894 $ 165,417
============ ============
Debt. . . . . . . . . . . . . . . . . $ 71,671 $ 71,985
Amounts payable to WRI. . . . . . . . 26,162 16,334
Other liabilities . . . . . . . . . . 2,911 4,152
Accumulated equity. . . . . . . . . . 75,150 72,946
------------ ------------
Total. . . . . . . . . . . . . . $ 175,894 $ 165,417
============ ============
Page 10
Combined Statements of Income
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
2003 2002 2003 2002
-------- -------- --------- ---------
Revenues . . . . . . . . . . . . . . . . $ 5,815 $ 6,281 $ 11,957 $ 12,702
-------- -------- --------- ---------
Expenses:
Depreciation and amortization. . . . . 1,152 1,319 2,210 2,483
Operating. . . . . . . . . . . . . . . 861 848 1,639 1,708
Interest . . . . . . . . . . . . . . . 1,486 1,629 3,004 3,263
Ad valorem taxes . . . . . . . . . . . 799 796 1,581 1,593
General and administrative . . . . . . 18 13 56 28
-------- -------- --------- ---------
Total . . . . . . . . . . . . 4,316 4,605 8,490 9,075
-------- -------- --------- ---------
Net Income . . . . . . . . . . . . . . . $ 1,499 $ 1,676 $ 3,467 $ 3,627
======== ======== ========= =========
Our investment in real estate joint ventures, as reported on the balance
sheets, differs from our proportionate share of the joint ventures'
underlying net assets due to basis differentials, which arose upon the
transfer of assets from WRI to the joint ventures. This basis differential,
which totaled $4.8 million at June 30, 2003 and December 31, 2002,
respectively, is depreciated over the useful lives of the related assets.
Fees earned by WRI for the management of these joint ventures totaled $.1
million for the quarters ended June 30, 2003 and 2002, respectively, and
$.3 million for the six months ended June 30, 2003 and 2002, respectively.
In April of 2003, a 38%-owned limited partnership commenced construction on
Green Valley Ranch Town Center, a 116,000 square foot center in Denver,
Colorado, which will include a corporate-owned King Sooper of 67,000 square
feet.
9. SEGMENT INFORMATION
The operating segments presented are the segments of WRI for which separate
financial information is available, and operating performance is evaluated
regularly by senior management in deciding how to allocate resources and in
assessing performance. WRI evaluates the performance of its operating
segments based on net operating income that is defined as total revenues
less operating expenses and ad valorem taxes.
The shopping center segment is engaged in the acquisition, development and
management of real estate, primarily anchored neighborhood and community
shopping centers located in Texas, California, Louisiana, Arizona, Nevada,
Arkansas, New Mexico, Oklahoma, Tennessee, Kansas, Colorado, Missouri,
Illinois, Florida, Mississippi, North Carolina and Maine. The customer base
includes supermarkets, discount retailers, drugstores and other retailers
who generally sell basic necessity-type commodities. The industrial segment
is engaged in the acquisition, development and management of bulk
warehouses and office/service centers. Its properties are currently located
in Texas, Nevada, Georgia, Florida and Tennessee, and the customer base is
diverse. Included in "Other" are corporate-related items, insignificant
operations and costs that are not allocated to the reportable segments.
Page 11
Information concerning WRI's reportable segments is as follows (in
thousands):
SHOPPING
CENTER INDUSTRIAL OTHER TOTAL
------------ ---------- ---------- ------------
Three Months Ended
June 30, 2003:
Revenues . . . . . . . . . . . . . . . . . . $ 92,680 $ 9,790 $ 483 $ 102,953
Net operating income . . . . . . . . . . . . 67,954 7,195 174 75,323
Equity in earnings of joint ventures . . . . 1,003 13 (18) 998
Investment in real estate joint ventures . . 28,260 200 28,460
Total assets . . . . . . . . . . . . . . . . 2,163,861 235,838 176,100 2,575,799
Three Months Ended
June 30, 2002:
Revenues . . . . . . . . . . . . . . . . . . $ 81,086 $ 9,032 $ 390 $ 90,508
Net operating income . . . . . . . . . . . . 59,964 6,265 120 66,349
Equity in earnings of joint ventures . . . . 921 59 (15) 965
Investment in real estate joint ventures . . 29,881 851 30,732
Total assets . . . . . . . . . . . . . . . . 1,962,078 222,027 115,076 2,299,181
Six Months Ended
June 30, 2003:
Revenues . . . . . . . . . . . . . . . . . . $ 180,298 $ 19,498 $ 975 $ 200,771
Net operating income . . . . . . . . . . . . 133,221 14,067 321 147,609
Equity in earnings of joint ventures . . . . 1,980 105 (49) 2,036
Six Months Ended
June 30, 2002:
Revenues . . . . . . . . . . . . . . . . . . $ 155,630 $ 17,961 $ 935 $ 174,526
Net operating income . . . . . . . . . . . . 115,210 12,492 331 128,033
Equity in earnings of joint ventures . . . . 1,908 155 (24) 2,039
Net operating income reconciles to income before discontinued operations as
shown on the Statements of Consolidated Income and Comprehensive Income as
follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------------
2003 2002 2003 2002
--------- --------- ---------- ----------
Total segment net operating income . . . . . . . $ 75,323 $ 66,349 $ 147,609 $ 128,033
Less:
Depreciation and amortization . . . . . . . 22,584 19,040 43,689 36,698
Interest. . . . . . . . . . . . . . . . . . 21,036 16,532 40,475 31,528
General and administrative. . . . . . . . . 3,414 3,398 6,471 6,074
Income allocated to minority interests. . . 837 943 1,732 1,059
Equity in earnings of joint ventures. . . . (998) (965) (2,036) (2,039)
Loss on sale of properties. . . . . . . . . 17 8
--------- --------- ---------- ----------
Income Before Discontinued Operations. . . . . . $ 28,433 $ 27,401 $ 57,270 $ 54,713
========= ========= ========== ==========
Page 12
10. COMMON SHARES OF BENEFICIAL INTEREST
In February 2002, a three-for-two share split, effected in the form of a
50% share dividend, was declared for shareholders of record on April 1,
2002, payable April 15, 2002. We issued 17.3 million common shares of
beneficial interest as a result of the share split. All references to the
number of shares and per share amounts have been restated to reflect the
share split, and an amount equal to the par value of the number of common
shares issued have been reclassified to common stock from retained
earnings.
In February 2002, we completed the sale of .3 million common shares of
beneficial interest. Net proceeds to WRI totaled $9.5 million based on a
price of $33.65 per share and were used to pay down amounts outstanding
under our $350 million revolving credit facility.
11. BANKRUPTCY REMOTE PROPERTIES
WRI has 30 properties, having a net book value of approximately $488.9
million at June 30, 2003 (collectively the "Bankruptcy Remote Properties",
and each a "Bankruptcy Remote Property"), which are wholly owned by various
"Bankruptcy Remote Entities". Each Bankruptcy Remote Entity is an indirect
subsidiary of the Company. The assets of each Bankruptcy Remote Entity,
including the respective Bankruptcy Remote Property or Properties owned by
each, are owned by that Bankruptcy Remote Entity alone and are not
available to satisfy claims that any creditor may have against the Company,
its affiliates, or any other person or entity. No Bankruptcy Remote Entity
has agreed to pay or make its assets available to pay creditors of the
Company, any of its affiliates, or any other person or entity. Neither the
Company nor any of its affiliates has agreed to pay or make its assets
available to pay creditors of any Bankruptcy Remote Entity (other than any
agreement by a Bankruptcy Remote Entity to pay its own creditors). No
affiliate of any Bankruptcy Remote Entity has agreed to pay or make its
assets available to pay creditors of any Bankruptcy Remote Entity.
The accounts of the Bankruptcy Remote Entities are included in WRI's
consolidated financial statements as WRI exercises financial and operating
control.
12. PREFERRED SHARES
On April 4, 2003, WRI called for redemption of the 7.44% Series A
Cumulative Redeemable Preferred Shares. The redemption of these shares on
May 5, 2003 was financed through the issuance on April 30, 2003 of $75
million of depositary shares. Each depositary share, representing
one-thirtieth of a Series D Cumulative Redeemable Preferred Share, is
redeemable at par at WRI's election on or after April 30, 2008. The
depositary shares pay a 6.75% annual dividend and have a liquidation value
of $25 per share.
Page 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and the comparative summary of selected
financial data appearing elsewhere in this report. Historical results and
trends which might appear should not be taken as indicative of future
operations.
At June 30, 2003, WRI owned or operated under long-term leases, either directly
or through its interests in joint ventures, 310 developed income-producing
properties located in 18 states that span from coast to coast in the southern
half of the United States. Included in the portfolio are 250 shopping centers,
59 industrial properties and one office building. WRI has 5,900 leases and
4,500 different tenants. Leases for our properties range from less than a year
for smaller spaces to over 25 years for larger tenants; leases generally include
minimum lease payments and contingent rentals for payment of taxes, insurance
and maintenance and for an amount based on a percentage of the tenants' sales.
The majority of our anchor tenants are supermarkets, value-oriented
apparel/discount stores and other retailers, which generally sell basic
necessity-type items.
CAPITAL RESOURCES AND LIQUIDITY
WRI anticipates that cash flows from operating activities will continue to
provide adequate capital for all dividend payments in accordance with REIT
requirements. Cash on hand, borrowings under our existing credit facilities,
issuance of unsecured debt and the use of project financing, as well as other
debt and equity alternatives, will provide the necessary capital to achieve
growth. Cash flow from operating activities as reported in the Statements of
Consolidated Cash Flows decreased to $81.1 million for the first six months of
2003 as compared to $83.1 million for the same period of 2002. This decrease
was due primarily to changes in working capital items.
Our Board of Trust Managers approved a quarterly dividend of $.585 per common
share for the second quarter of 2003. Our dividend payout ratio on common
equity for the second quarter of 2003 and 2002 was 68%, respectively, based on
funds from operations for the applicable period.
WRI invested $84.2 million for the acquisition of three retail centers and one
industrial property during the second quarter of 2003.
In April 2003, we acquired 1801 Massaro Boulevard located in Tampa, Florida.
This 159,000 square foot distribution/manufacturing facility that is rail served
is 100% occupied. In April 2003, we also acquired Hollywood Hills Plaza, a
365,000 square foot shopping center anchored by Publix, Target and Eckerd Drug.
The center is located in Hollywood, Florida, and is 98% occupied.
In June 2003, we completed the acquisition of Lincoln Place II, a 168,000 square
foot shopping center anchored by Marshall's, Linens N Things, Office Depot, Old
Navy and Ultimate Electronics. The center is located in Fairview Heights,
Illinois (a St. Louis, Missouri suburb), and is currently 99% occupied. In June
2003, we also acquired Tamiami Trail Shops, a 111,000 square foot center located
in Miami, Florida. This center anchored by Publix and Eckerd Drug is 100%
leased.
In April 2003, a 38%-owned limited partnership commenced construction on Green
Valley Ranch Town Center, a 116,000 square foot center in Denver, Colorado,
which will include a corporate-owned King Sooper of 67,000 square feet.
With respect to new development, we have 19 projects at various stages of
construction. These projects, upon completion, will represent an investment of
approximately $219 million and will add 1.6 million square feet to the
portfolio. We expect to invest approximately $72.0 million in these properties
during 2003. These projects will continue to come on-line during the remainder
of 2003 and into 2004.
Page 14
During 2003, WRI issued a total of $136 million of unsecured fixed-rate medium
term notes at a weighted average rate of 5.4% and a weighted average term of
11.4 years. Proceeds received were used to pay down amounts outstanding under
our $350 million revolving credit facility. Following is a summary of the
medium term note activity for the six months ended June 30, 2003 (in thousands,
except years to maturity and interest rate):
YEARS TO INTEREST
DATE ISSUED PRINCIPAL MATURITY RATE
- ----------------------- ---------- -------- --------
January 15, 2003. . . . $ 20,000 12.0 5.75%
January 28, 2003. . . . 15,000 10.0 5.50%
January 28, 2003. . . . 6,000 10.0 5.50%
February 12, 2003 . . . 20,000 12.0 5.57%
February 26, 2003 . . . 25,000 12.0 5.35%
February 28, 2003 . . . 25,000 12.0 5.25%
March 5, 2003 . . . . . 25,000 10.5 4.99%
----------
Total $ 136,000
==========
Total debt outstanding increased $179.6 million to $1.5 billion during the six
month period ending June 30, 2003. This increase was primarily due to the
funding of the Company's acquisitions and ongoing development and redevelopment
efforts. Included in total debt outstanding of $1.5 billion at June 30, 2003 is
variable-rate debt of $226.6 million, after recognizing the net effect of $152.5
million of interest rate swaps.
On April 24, 2003, the SEC declared effective WRI's $1 billion shelf
registration statement. As of June 30, 2003, WRI has not used the shelf
registration statement for offerings of its securities.
On April 4, 2003, WRI called for redemption of the 7.44% Series A Cumulative
Redeemable Preferred Shares. The redemption of these shares on May 5, 2003 was
financed through the issuance on April 30, 2003 of $75 million of depositary
shares. Each depositary share, representing one-thirtieth of a Series D
Cumulative Redeemable Preferred Share, is redeemable at par at WRI's election on
or after April 30, 2008. The depositary shares pay a 6.75% annual dividend and
have a liquidation value of $25 per share.
FUNDS FROM OPERATIONS
The Board of Governors of the National Association of Real Estate Investment
Trusts (NAREIT) defines funds from operations (FFO) as net income (loss)
computed in accordance with generally accepted accounting principles, excluding
gains or losses from sales of property, plus real estate related depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. In addition, NAREIT recommends that extraordinary items not be
considered in arriving at FFO. We calculate FFO in a manner consistent with the
NAREIT definition. Most industry analysts and equity REITS, including WRI,
believe FFO is an appropriate alternative measurement of performance relative to
other REITs. FFO provides investors with additional information to better
understand our ability to incur and service debt, make capital expenditures and
pay common share dividends. There can be no assurance that FFO presented by WRI
is comparable to similarly titled measures of other REITs. FFO should not be
considered as an alternative to net income or other measurements under GAAP as
an indicator of our operating performance or to cash flows from operating,
investing, or financing activities as a measure of liquidity. FFO does not
reflect working capital changes, cash expenditures for capital improvements, or
principal payments on indebtedness.
Page 15
Funds from operations - diluted for the three and six months ended June 30, 2003
and 2002 is calculated as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income available to common shareholders . . . . . . . . $ 21,060 $ 26,395 $ 46,029 $ 50,873
Depreciation and amortization . . . . . . . . . . . . . . . 20,786 18,754 40,178 36,230
Depreciation and amortization of unconsolidated
joint ventures. . . . . . . . . . . . . . . . . . . . . . 463 543 897 1,018
(Gain) loss on sale of properties . . . . . . . . . . . . . 115 (3,119) (765) (4,340)
Original issuance costs associated with
redeemed Series A Preferred Shares. . . . . . . . . . . . 2,488 2,488
--------- --------- --------- ---------
Funds from operations . . . . . . . . . . . . 44,912 42,573 88,827 83,781
Funds from operations attributable to operating
partnership units . . . . . . . . . . . . . . . . . . . . 1,091 1,144 2,355 1,199
--------- --------- --------- ---------
Funds from operations assuming
conversion of OP units. . . . . . . . . . . $ 46,003 $ 43,717 $ 91,182 $ 84,980
========= ========= ========= =========
Weighted average shares outstanding - basic . . . . . . . . 52,128 51,926 52,110 51,806
Effect of dilutive securities:
Share options and awards. . . . . . . . . . . . . . . 514 396 453 344
Operating partnership units . . . . . . . . . . . . . 1,396 1,432 1,462 759
--------- --------- --------- ---------
Weighted average shares outstanding - diluted . . . . . . . 54,038 53,754 54,025 52,909
========= ========= ========= =========
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
Net income available to common shareholders decreased to $21.1 million, or $.40
per diluted share, from $26.4 million, or $.51 per diluted share for the second
quarter of 2003 as compared with the same quarter of 2002. The decrease in net
income available to common shareholders is due primarily to the disposition of
non-core assets, plus $2.5 million of issuance costs associated with the
redemption of the Series A Preferred Shares in 2003 that was not present in
2002.
Rental revenues were $100.8 million in 2003, as compared to $89.0 million in
2002, representing an increase of approximately $11.8 million or 13.2%.
Property acquisitions and new development contributed $9.5 million to this
increase, with the remaining increase of $2.3 million attributable to our
existing properties. Occupancy of the total portfolio was 92.2% at June 30,
2003 as compared to 91.3% at June 30, 2002. The occupancy of the retail
portfolio was 92.6% at June 30, 2003 as compared to 91.9% at June 30, 2002,
while the occupancy of the industrial portfolio increased to 91.0% from 89.0% in
the prior year. During the first six months of 2003, WRI completed 511 renewals
or new leases comprising 2.5 million square feet at an average rental rate
increase of 8.1%. Net of the amortized portion of capital costs for tenant
improvements, the increase averaged 4.5%.
Other income increased by $.3 million to $1.6 million in the second quarter of
2003 from $1.3 million for the same quarter of 2002. This increase is due
primarily to an increase in lease cancellation income from various tenants.
Page 16
Gross interest costs, before capitalization of interest, increased by $3.6
million from $18.9 million in the second quarter of 2002 to $22.5 million for
the second quarter of 2003. The increase is due primarily to an increase in the
average debt outstanding between periods of $1.2 billion in 2002 to $1.4 billion
in 2003. The average interest rate decreased from 6.4% in 2002 to 6.3% in 2003.
The amount of interest capitalized during the period was $1.5 million and $2.3
million in 2003 and 2002, respectively. The decrease in interest capitalized
between periods is due primarily to the completion of new development projects.
The increases in depreciation and amortization, operating expenses and ad
valorem taxes were primarily the result of WRI's acquisitions and new
development programs.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
Net income available to common shareholders decreased to $46.0 million, or $.88
per diluted share, from $50.9 million, or $.98 per diluted share for the six
months of 2003 as compared with the same period of 2002. The decrease in net
income available to common shareholders is due primarily to the disposition of
non-core assets, plus $2.5 million of issuance costs associated with the
redemption of the Series A Preferred Shares in 2003 that was not present in
2002.
Rental revenues were $197.3 million in 2003, as compared to $172.1 million in
2002, representing an increase of approximately $25.2 million or 14.7%.
Property acquisitions and new development contributed $21.0 million to this
increase, with the remaining increase of $4.2 million attributable to our
existing properties.
Other income increased by $.6 million to $2.6 million for the six months of 2003
from $2.0 million for the same period of 2002. This increase is due primarily
to an increase in lease cancellation income from various tenants.
Gross interest costs, before capitalization of interest, increased by $7.5
million from $36.3 million for the six months of 2002 to $43.8 million for the
six months of 2003. The increase is due primarily to an increase in the average
debt outstanding between periods of $1.1 billion in 2002 to $1.4 billion in
2003. The average interest rate decreased from 6.4% in 2002 to 6.3% in 2003.
The amount of interest capitalized during the period was $3.3 million and $4.7
million in 2003 and 2002, respectively. The decrease in interest capitalized
between periods is due primarily to the completion of new development projects.
General and administrative expenses increased by $.4 million to $6.5 million for
the six months of 2003 from $6.1 million for the period of 2002. The increase
is due primarily to an increase in staffing necessitated by the growth in the
portfolio from acquisitions and new development.
The increases in depreciation and amortization, operating expenses and ad
valorem taxes were primarily the result of WRI's acquisitions and new
development programs.
Income allocated to minority interests increased by $.6 million to $1.7 million
for the six months of 2003 from $1.1 million for the period of 2002. The
increase is due primarily from the acquisition of seven supermarket-anchored
shopping centers in the Raleigh-Durham market in April 2002 utilizing a DownREIT
structure. These limited partnerships are included in our consolidated
financial statements because we exercise financial and operating control.
NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure- an amendment of FASB Statement No. 123",
which is effective for fiscal years beginning after December 15, 2002. This
statement provides alternative methods of transition for an entity that
voluntarily changes to the fair value-based method of accounting for stock-based
employee compensation. It also amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. We adopted this
Page 17
statement effective January 1, 2003 using the prospective method, which requires
us to recognize stock-based employee compensation as new share options are
awarded. Stock-based employee compensation of five thousand was recognized for
the quarter ending June 30, 2003 associated with the options awarded during
2003. With respect to share options awarded prior to January 1, 2003, WRI
accounted for stock-based employee compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. In accordance with this
opinion, no stock-based employee compensation had been recognized in WRI's
financial statements prior to January 1, 2003.
The following table illustrates the effect on net income available to common
shareholders and net income per common share if the fair value-based method had
been applied to all outstanding and unvested awards in each period:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income available to common shareholders . . . . . . . . $ 21,060 $ 26,395 $ 46,029 $ 50,873
Stock-based employee compensation included in
net income available to common shareholders . . . . . . . 5 5
Stock-based employee compensation determined
under the fair value-based method for all awards. . . . . (106) (86) (207) (172)
--------- --------- --------- ---------
Pro forma net income available to
common shareholders . . . . . . . . . . . . . . . . . . . $ 20,959 $ 26,309 $ 45,827 $ 50,701
========= ========= ========= =========
Net income per common share:
Basic - as reported . . . . . . . . . . . . . . . . . $ .40 $ .51 $ .88 $ .98
========= ========= ========= =========
Basic - pro forma . . . . . . . . . . . . . . . . . . $ .40 $ .51 $ .88 $ .98
========= ========= ========= =========
Net income per common share:
Diluted - as reported . . . . . . . . . . . . . . . . $ .40 $ .51 $ .88 $ .98
========= ========= ========= =========
Diluted - pro forma . . . . . . . . . . . . . . . . . $ .40 $ .51 $ .88 $ .97
========= ========= ========= =========
In November 2002, FASB issued Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". FIN 45 establishes new disclosure and
liability-recognition requirements for direct and indirect debt guarantees with
specified characteristics. The initial measurement and recognition requirements
of FIN 45 are effective prospectively for guarantees issued or modified after
December 31, 2002. However, the disclosure requirements are effective for
interim and annual financial-statement periods ending after December 15, 2002.
WRI has adopted the disclosure provisions, and management has concluded that the
full adoption of FIN 45 does not have a material impact on the financial
position, results of operations or cash flows.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities". FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. FIN 46 requires disclosures
about variable interest entities that a company is not required to consolidate,
but in which it has a significant variable interest. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003. The consolidation requirements apply to existing
entities in the first fiscal year or interim period beginning after June 15,
2003. Certain of the disclosure requirements apply in all financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was established. We adopted this statement in 2003, and we do not expect the
adoption of this statement to have a material impact on our financial position,
results of operations or cash flows.
Page 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
WRI uses fixed and floating-rate debt to finance its capital requirements.
These transactions expose WRI to market risk related to changes in interest
rates. Derivative financial instruments are used to manage a portion of this
risk, primarily interest rate swap agreements with major financial institutions.
These swap agreements expose WRI to credit risk in the event of non-performance
by the counter-parties to the swaps. We do not engage in the trading of
derivative financial instruments in the normal course of business. At June 30,
2003, WRI had fixed-rate debt of $1.3 billion and variable-rate debt of $226.6
million, after adjusting for the net effect of $152.5 million of interest rate
swaps.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our principal executive
officer and principal financial officer, management has evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(e) and 15d-14(c) of the Securities
Exchange Act of 1934) as of June 30, 2003. Based on that evaluation, our
principal executive officer and our principal financial officer have concluded
that our disclosure controls and procedures were effective as of June 30, 2003.
There has been no change to our internal control over financial reporting during
the quarter ended June 30, 2003 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
Page 19
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12.1 A statement of computation of ratios of earnings and
funds from operations to combined fixed charges and
preferred dividends.
31.1 Certification pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
31.2 Certification pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
32.1 Certification pursuant to 18 U.S.C. Sec. 1350, as
adopted pursuant to Sec. 906 of the Sarbanes-Oxley
Act of 2002 (Chief Executive Officer).
32.2 Certification pursuant to 18 U.S.C. Sec. 1350, as
adopted pursuant to Sec. 906 of the Sarbanes-Oxley
Act of 2002 (Chief Financial Officer).
(b) Reports on Form 8-K
A Form 8-K, dated April 30, 2003, was filed in response
to Item 7. Exhibits and Item 12. Results of
Operation and Financial Condition.
A Form 8-K, dated June 26, 2003, was filed in response
to Item 4. Changes in Registrant's Certifying
Accountant (soley for the Weingarten Realty Investors
Employee Savings and Investment Plan and the
Weingarten Realty Pension Plan) and Item 7. Financial
Statements and Exhibits.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEINGARTEN REALTY INVESTORS
--------------------------------------
(Registrant)
BY: /s/ Andrew M. Alexander
-----------------------------------
Andrew M. Alexander
President/Chief Executive Officer
(Principal Executive Officer)
BY: /s/ Joe D. Shafer
-----------------------------------
Joe D. Shafer
Vice President/Controller
(Principal Accounting Officer)
DATE: August 14, 2003
-----------------
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EXHIBIT INDEX
EXHIBIT
NUMBER
- -------
12.1 A statement of computation of ratios of earnings and funds from
operations to combined fixed charges and preferred dividends.
31.1 Certification pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002 (Chief Executive Officer).
31.2 Certification pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002 (Chief Financial Officer).
32.1 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant
to Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer).
32.2 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant
to Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief
Financial Officer).
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