form10q-1q2008.htm
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
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|
For
the quarter ended March 31, 2008
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OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from [__________________] to
[________________]
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|
Commission
file number 1-9876
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Weingarten
Realty Investors
(Exact
name of registrant as specified in its charter)
TEXAS
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74-1464203
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(State
or other jurisdiction of incorporation or organization)
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|
(IRS
Employer Identification No.)
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2600
Citadel Plaza Drive
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P.O.
Box 924133
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|
Houston,
Texas
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77292-4133
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(Address
of principal executive offices)
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(Zip
Code)
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(713)
866-6000
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(Registrant's
telephone number)
|
(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 xNO ¨.
Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer x Accelerated
Filer ¨ Non-accelerated
Filer ¨.
Indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).YES
¨NO x.
As of April 30, 2008, there were
83,950,047 common shares of beneficial interest of Weingarten Realty Investors,
$.03 par value, outstanding.
PART
I-FINANCIAL INFORMATION
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ITEM
1.
Financial Statements
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WEINGARTEN
REALTY INVESTORS
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|
CONDENSED
STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
|
|
(Unaudited)
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|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
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|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
Rentals
|
|
$ |
152,428 |
|
|
$ |
140,668 |
|
Other
|
|
|
2,732 |
|
|
|
2,020 |
|
Total
|
|
|
155,160 |
|
|
|
142,688 |
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|
|
|
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|
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|
Expenses:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
43,324 |
|
|
|
31,685 |
|
Operating
|
|
|
26,748 |
|
|
|
23,042 |
|
Ad
valorem taxes
|
|
|
18,249 |
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|
|
16,184 |
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General
and administrative
|
|
|
6,854 |
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|
6,609 |
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Total
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|
95,175 |
|
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|
77,520 |
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Operating
Income
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|
|
59,985 |
|
|
|
65,168 |
|
Interest
Expense
|
|
|
(35,480 |
) |
|
|
(36,089 |
) |
Interest
and Other Income
|
|
|
1,049 |
|
|
|
1,712 |
|
Equity
in Earnings of Real Estate Joint Ventures and Partnerships,
net
|
|
|
5,247 |
|
|
|
3,347 |
|
Income
Allocated to Minority Interests
|
|
|
(1,826 |
) |
|
|
(1,178 |
) |
Gain
on Sale of Properties
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|
12 |
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|
|
2,089 |
|
Gain
on Land and Merchant Development Sales
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|
519 |
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|
666 |
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(Provision)
Benefit for Income Taxes
|
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(747 |
) |
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9 |
|
Income
from Continuing Operations
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|
28,759 |
|
|
|
35,724 |
|
Operating
Income from Discontinued Operations
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|
265 |
|
|
|
2,805 |
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Gain
on Sale of Properties from Discontinued Operations
|
|
|
8,370 |
|
|
|
12,856 |
|
Income
from Discontinued Operations
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|
8,635 |
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|
15,661 |
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Net
Income
|
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|
37,394 |
|
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|
51,385 |
|
Dividends
on Preferred Shares
|
|
|
(8,618 |
) |
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(4,728 |
) |
Net
Income Available to Common Shareholders
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$ |
28,776 |
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|
$ |
46,657 |
|
Net
Income Per Common Share - Basic:
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Income
from Continuing Operations
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$ |
0.24 |
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$ |
0.36 |
|
Income
from Discontinued Operations
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|
0.10 |
|
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|
0.18 |
|
Net
Income
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|
$ |
0.34 |
|
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$ |
0.54 |
|
Net
Income Per Common Share - Diluted:
|
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|
|
|
|
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Income
from Continuing Operations
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|
$ |
0.24 |
|
|
$ |
0.36 |
|
Income
from Discontinued Operations
|
|
|
0.10 |
|
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|
0.17 |
|
Net
Income
|
|
$ |
0.34 |
|
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$ |
0.53 |
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|
|
|
|
|
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Net
Income
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$ |
37,394 |
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$ |
51,385 |
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Other
Comprehensive Income (Loss):
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|
|
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Unrealized
gain on derivatives
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25 |
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Realized
loss on derivatives, net
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|
(7,204 |
) |
|
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Amortization
of loss on derivatives
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|
219 |
|
|
|
219 |
|
Other
Comprehensive Income (Loss)
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|
(6,985 |
) |
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|
244 |
|
Comprehensive
Income
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|
$ |
30,409 |
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$ |
51,629 |
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See
Notes to Condensed Consolidated Financial Statements.
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WEINGARTEN
REALTY INVESTORS
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CONDENSED
CONSOLIDATED BALANCE SHEETS
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|
(Unaudited)
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|
(In
thousands, except per share amounts)
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|
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March
31,
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December
31,
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|
2008
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|
2007
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ASSETS
|
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|
|
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Property
|
|
$ |
4,993,765 |
|
|
$ |
4,972,344 |
|
Accumulated
Depreciation
|
|
|
(789,244 |
) |
|
|
(774,321 |
) |
Property
Held for Sale,net
|
|
|
7,590 |
|
|
|
|
|
Property
- net
|
|
|
4,212,111 |
|
|
|
4,198,023 |
|
Investment
in Real Estate Joint Ventures and Partnerships
|
|
|
297,412 |
|
|
|
300,756 |
|
Total
|
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|
4,509,523 |
|
|
|
4,498,779 |
|
Notes
Receivable from Real Estate Joint Ventures and
Partnerships
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|
109,661 |
|
|
|
81,818 |
|
Unamortized
Debt and Lease Costs
|
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|
118,368 |
|
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|
114,969 |
|
Accrued
Rent and Accounts Receivable (net of allowance for doubtful accounts
of $8,990 in 2008 and $8,721 in 2007)
|
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|
95,628 |
|
|
|
94,607 |
|
Cash
and Cash Equivalents
|
|
|
61,488 |
|
|
|
65,777 |
|
Restricted
Deposits and Mortgage Escrows
|
|
|
31,066 |
|
|
|
38,884 |
|
Other
|
|
|
117,951 |
|
|
|
98,509 |
|
Total
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|
$ |
5,043,685 |
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|
$ |
4,993,343 |
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Debt
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|
$ |
3,214,656 |
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|
$ |
3,165,059 |
|
Accounts
Payable and Accrued Expenses
|
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|
117,111 |
|
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|
155,137 |
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Other
|
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|
99,754 |
|
|
|
104,439 |
|
Total
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|
3,431,521 |
|
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|
3,424,635 |
|
Minority
Interest
|
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|
160,449 |
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|
96,885 |
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Commitments
and Contingencies
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Shareholders'
Equity:
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Preferred
Shares of Beneficial Interest - par value, $.03 per share; shares
authorized: 10,000
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|
|
|
|
|
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|
6.75%
Series D cumulative redeemable preferred shares of beneficial
interest; 100 shares issued and outstanding in
2008 and 2007; liquidation preference
$75,000
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|
3 |
|
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|
3 |
|
6.95%
Series E cumulative redeemable preferred shares of beneficial
interest; 29 shares issued and outstanding in 2008 and
2007; liquidation preference $72,500
|
|
|
1 |
|
|
|
1 |
|
6.5%
Series F cumulative redeemable preferred shares of beneficial
interest; 80 shares issued and outstanding in 2008 and
2007; liquidation preference $200,000
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|
2 |
|
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2 |
|
Variable-rate
Series G cumulative redeemable preferred shares of beneficial
interest, 80 shares issued and outstanding in 2008 and
2007; liquidation preference $200,000
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2 |
|
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|
2 |
|
Common
Shares of Beneficial Interest - par value, $.03 per share; shares
authorized: 150,000; shares issued and outstanding:
83,933
in 2008 and 85,146 in 2007
|
|
|
2,528 |
|
|
|
2,565 |
|
Treasury
Shares of Beneficial Interest - par value, $.03 per share; none
in 2008 and 1,370 shares outstanding in 2007
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(41 |
) |
Accumulated
Additional Paid-In Capital
|
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|
1,444,180 |
|
|
|
1,442,027 |
|
Net
Income in Excess of Accumulated Dividends
|
|
|
27,459 |
|
|
|
42,739 |
|
Accumulated
Other Comprehensive Loss
|
|
|
(22,460 |
) |
|
|
(15,475 |
) |
Shareholders'
Equity
|
|
|
1,451,715 |
|
|
|
1,471,823 |
|
Total
|
|
$ |
5,043,685 |
|
|
$ |
4,993,343 |
|
|
|
|
|
|
|
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|
See
Notes to Condensed Consolidated Financial Statements.
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WEINGARTEN
REALTY INVESTORS
|
|
CONDENSED
STATEMENTS OF CONSOLIDATED CASH FLOWS
|
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
Net
Income
|
|
$ |
37,394 |
|
|
$ |
51,385 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
43,505 |
|
|
|
33,384 |
|
Equity
in earnings of real estate joint ventures and partnerships,
net
|
|
|
(5,247 |
) |
|
|
(3,347 |
) |
Income
allocated to minority interests
|
|
|
1,826 |
|
|
|
1,178 |
|
Gain
on land and merchant development sales
|
|
|
(519 |
) |
|
|
(666 |
) |
Gain
on sale of properties
|
|
|
(8,382 |
) |
|
|
(14,945 |
) |
Distributions
of income from unconsolidated real estate joint ventures
and partnerships
|
|
|
1,747 |
|
|
|
1,121 |
|
Changes
in accrued rent and accounts receivable
|
|
|
(4,389 |
) |
|
|
1,805 |
|
Changes
in other assets
|
|
|
(6,939 |
) |
|
|
(23,699 |
) |
Changes
in accounts payable and accrued expenses
|
|
|
(48,703 |
) |
|
|
(45,648 |
) |
Other,
net
|
|
|
(720 |
) |
|
|
(53 |
) |
Net
cash provided by operating activities
|
|
|
9,573 |
|
|
|
515 |
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Investment
in property
|
|
|
(65,699 |
) |
|
|
(225,656 |
) |
Proceeds
from sale and disposition of properties, net
|
|
|
80,578 |
|
|
|
17,848 |
|
Change
in restricted deposits and mortgage escrows
|
|
|
7,818 |
|
|
|
64,587 |
|
Notes
receivable from real estate joint ventures and partnerships and
other receivables:
|
|
|
|
|
|
|
|
|
Advances
|
|
|
(42,850 |
) |
|
|
(18,427 |
) |
Collections
|
|
|
4,860 |
|
|
|
178 |
|
Real
estate joint ventures and partnerships:
|
|
|
|
|
|
|
|
|
Investments
|
|
|
(591 |
) |
|
|
(21,165 |
) |
Distributions
of capital
|
|
|
7,037 |
|
|
|
1,612 |
|
Net
cash used in investing activities
|
|
|
(8,847 |
) |
|
|
(181,023 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of:
|
|
|
|
|
|
|
|
|
Debt
|
|
|
175,240 |
|
|
|
522 |
|
Common
shares of beneficial interest
|
|
|
786 |
|
|
|
2,263 |
|
Preferred
shares of beneficial interest, net
|
|
|
|
|
|
|
194,162 |
|
Principal
payments of debt
|
|
|
(126,179 |
) |
|
|
(4,731 |
) |
Common
and preferred dividends paid
|
|
|
(52,674 |
) |
|
|
(47,508 |
) |
Debt
issuance costs paid
|
|
|
(609 |
) |
|
|
(140 |
) |
Other,
net
|
|
|
(1,579 |
) |
|
|
443 |
|
Net
cash (used in) provided by financing activities
|
|
|
(5,015 |
) |
|
|
145,011 |
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(4,289 |
) |
|
|
(35,497 |
) |
Cash
and cash equivalents at January 1
|
|
|
65,777 |
|
|
|
71,003 |
|
Cash
and cash equivalents at March 31
|
|
$ |
61,488 |
|
|
$ |
35,506 |
|
|
|
|
|
|
|
|
|
|
See
Notes to Condensed Consolidated Financial Statements.
|
|
WEINGARTEN
REALTY INVESTORS
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1. Interim
Financial Statements
The
condensed consolidated financial statements included in this report are
unaudited; however, amounts presented in the condensed consolidated balance
sheet as of December 31, 2007 are derived from our audited financial statements
at that date. In our opinion, all adjustments necessary for a fair
presentation of such financial statements have been included. Such
adjustments consisted of normal recurring items. Interim results are
not necessarily indicative of results for a full year.
The
condensed consolidated financial statements and notes are presented as permitted
by Form 10-Q and certain information included in our annual financial statements
and notes has been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2007.
Business
Weingarten
Realty Investors is a real estate investment trust (“REIT”) organized under the
Texas Real Estate Investment Trust Act. We, and our predecessor
entity, began the ownership and development of shopping centers and other
commercial real estate in 1948. Our primary business is leasing space
to tenants in the shopping and industrial centers we own or lease. We
also manage centers for joint ventures in which we are partners or for other
outside owners for which we charge fees.
We
operate a portfolio of properties that include neighborhood and community
shopping centers and industrial properties of approximately 74.0 million square
feet. We have a diversified tenant base with our largest tenant
comprising only 2.7% of total rental revenues during 2008.
We
currently operate, and intend to operate in the future, as a REIT.
Basis
of Presentation
Our
condensed consolidated financial statements include the accounts of our
subsidiaries and certain partially owned real estate joint ventures or
partnerships which meet the guidelines for consolidation. All
significant intercompany balances and transactions have been
eliminated.
Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States. Such statements require
management to make estimates and assumptions that affect the reported amounts on
our condensed consolidated financial statements. Actual results could
differ from these estimates.
Real
Estate Joint Ventures and Partnerships
To
determine the method of accounting for partially owned real estate joint
ventures and partnerships, we first apply the guidelines set forth in Financial
Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of
Variable Interest Entities.” In March 2008, we contributed 18
neighborhood/community shopping centers located in Texas with an aggregate value
of approximately $227.5 million, and aggregating more than 2.1 million square
feet, to a joint venture. We sold an 85% interest in this joint
venture to AEW Capital Management on behalf of one of its institutional clients
and received proceeds of approximately $216.1 million. Financing totaling
$154.3 million was placed on the properties and guaranteed by
us. This venture is a variable interest entity (“VIE”) and due to our
guarantee of the debt, we have consolidated this joint venture. Our
maximum exposure to loss associated with this joint venture is primarily limited
to our guarantee of the debt, which was approximately $154.3 million at March
31, 2008.
Partially
owned real estate joint ventures and partnerships over which we exercise
financial and operating control are consolidated in our financial
statements. In determining if we exercise financial and operating
control, we consider factors such as ownership interest, authority to make
decisions, kick-out rights and substantive participating
rights. Partially owned real estate joint ventures and partnerships
where we have the ability to exercise significant influence, but do not exercise
financial and operating control, are accounted for using the equity
method.
Our
investments in partially owned real estate joint ventures and partnerships are
reviewed for impairment, periodically, if events or circumstances change
indicating that the carrying amount of our investments may not be
recoverable. The ultimate realization of our investments in partially
owned real estate joint ventures and partnerships is dependent on a number of
factors, including the performance of each investment and market
conditions. We will record an impairment charge if we determine that
a decline in the value of an investment is other than temporary. No
impairment was recorded for the three months ended March 31, 2008 or
2007.
Restricted
Deposits and Mortgage Escrows
Restricted
deposits and mortgage escrows consist of escrow deposits held by lenders
primarily for property taxes, insurance and replacement reserves and restricted
cash that is held in a qualified escrow account for the purposes of completing
like-kind exchange transactions. At March 31, 2008 and December 31,
2007, we had $14.0 million and $21.3 million held for like-kind exchange
transactions, respectively, and $17.1 million and $17.6 million held in escrow
related to our mortgages, respectively.
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
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$ |
28,776 |
|
|
$ |
46,657 |
|
Income
attributable to operating partnership units
|
|
|
|
|
|
|
1,106 |
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders - diluted
|
|
$ |
28,776 |
|
|
$ |
47,763 |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
83,679 |
|
|
|
86,005 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
Share
options and awards
|
|
|
488 |
|
|
|
1,123 |
|
Operating
partnership units
|
|
|
|
|
|
|
2,681 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - diluted
|
|
|
84,167 |
|
|
|
89,809 |
|
Options
to purchase 2.1 million and 2,020 common shares of beneficial interest for the
three months ended March 31, 2008 and 2007, respectively, were not included in
the calculation of net income per common share - diluted because the exercise
prices were greater than the average market price for the period. For
the three months ended March 31, 2008, 2.4 million of operating partnership
units were not included in the calculation of net income per common share –
diluted because these units had an anti-dilutive effect for the
period.
Cash
Flow Information
All
highly liquid investments with original maturities of three months or less are
considered cash equivalents. We issued common shares of beneficial
interest valued at $.2 million and $12.6 million for the three months ended
March 31, 2008 and 2007, respectively, in exchange for interests in real estate
joint ventures and partnerships, which had been formed to acquire
properties. We also accrued $17.4 million and $7.2 million as of
March 31, 2008 and 2007, respectively, associated with the construction of
property. Cash payments for interest on debt, net of amounts
capitalized, of $61.2 million and $62.4 million were made during the three
months ended March 31, 2008 and 2007, respectively. A cash payment of
$2.2 million for federal income taxes was made during the three months ended
March 31, 2008, and no federal income tax payments were made during the three
months ended March 31, 2007.
In
association with property acquisitions and investments in unconsolidated real
estate joint ventures, items assumed were as follows (in
thousands):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Debt
|
|
|
-
|
|
|
$ |
19,061 |
|
Net
Assets and Liabilities
|
|
|
-
|
|
|
|
3,086 |
|
In
connection with the sale of improved properties, we received notes receivable
totaling $3.6 million during the three months ended March 31,
2008. Net assets and liabilities were reduced by $59.8 million during
the three months ended March 31, 2007 from the reorganization of three joint
ventures, two of which were previously consolidated, to tenancy-in-common
arrangements where we have a 50% interest. This net reduction from
the reorganization of three joint ventures was offset by the assumption of debt
totaling $33.2 million.
Reclassifications
The
reclassification of prior years’ operating results for certain properties to
discontinued operations was made to conform to the current year
presentation. This reclassification had no impact on previously
reported net income, net income per share, shareholders’ equity or cash
flows.
Note
2. Newly
Issued Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value
Measurements.” This statement defines fair value and establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. The key
changes to current practice are (1) the definition of fair value, which focuses
on an exit price rather than an entry price; (2) the methods used to measure
fair value, such as emphasis that fair value is a market-based measurement, not
an entity-specific measurement, as well as the inclusion of an adjustment for
risk, restrictions and credit standing and (3) the expanded disclosures about
fair value measurements. This statement does not require any new fair
value measurements.
We
adopted SFAS 157 in the first quarter of 2008 regarding our financial assets and
liabilities currently recorded or disclosed at fair value. The FASB has
issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No.
157,” to defer the provisions of SFAS 157 relating to nonfinancial assets and
liabilities that delays implementation by us until January 1,
2009. SFAS 157 has not and is not expected to materially affect how
we determine fair value, but it has resulted in certain additional disclosures
(see Note 15).
In
September 2006, the FASB issued SFAS No. 158 (“SFAS 158”), “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – An
Amendment of FASB Statements No. 87, 88, 106, and 132R.” This new
standard requires an employer to: (a) recognize in its statement of financial
position an asset for a plan’s overfunded status or a liability for a plan’s
underfunded status; (b) measure a plan’s assets and its obligations that
determine its funded status as of the end of the employer’s fiscal year (with
limited exceptions); and (c) recognize changes in the funded status of a defined
benefit postretirement plan in the year in which the changes
occur. These changes will be reported in comprehensive
income. The requirement to measure plan assets and benefit
obligations as of the date of the employer’s fiscal year-end statement of
financial position (the “Measurement Provision”) is effective for fiscal years
ending after December 15, 2008. We have assessed the potential impact
of the Measurement Provision of SFAS 158 and concluded that its adoption will
not have a material effect on our consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option
for Financial Assets and Financial Liabilities.” SFAS 159 expands
opportunities to use fair value measurement in financial reporting and permits
entities to choose to measure many financial instruments and certain other items
at fair value. This statement was effective for us on January 1,
2008, and we have elected not to measure any of our current eligible financial
assets or liabilities at fair value upon adoption; however, we do have the
option to elect to measure eligible financial assets or liabilities acquired in
the future at fair value.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business
Combinations.” SFAS 141R expands the original guidance’s definition
of a business. It broadens the fair value measurement and recognition
to all assets acquired, liabilities assumed and interests transferred as a
result of business combinations. SFAS 141R requires expanded
disclosures to improve the ability to evaluate the nature and financial effects
of business combinations. SFAS 141R is effective for us for business
combinations made on or after January 1, 2009. While we have not
formally quantified the effect, we expect the adoption of SFAS 141R to have a
material effect on our accounting for future acquisition of properties, which
may fall under the definition of a business.
In
December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51.” SFAS 160 requires that a noncontrolling interest in an
unconsolidated entity be reported as equity and any losses in excess of an
unconsolidated entity’s equity interest be recorded to the noncontrolling
interest. The statement requires fair value measurement of any
noncontrolling equity investment retained in a deconsolidation. SFAS
160 is effective for us on January 1, 2009 and most provisions will be applied
retrospectively. We are currently evaluating the impact SFAS 160 will
have on our consolidated financial statements.
In March
2008, the FASB issued SFAS No. 161 (“SFAS 161”), “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133.” SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities. SFAS 161 is effective for us on
January 1, 2009. We are currently evaluating the impact SFAS 161 will
have on our consolidated financial statements.
On August
31, 2007, the FASB authorized a proposed FASB Staff Position (the “proposed
FSP”) that, if issued, would affect the accounting for our convertible and
exchangeable senior debentures. If issued in the form expected, the
proposed FSP would require that the initial debt proceeds from the sale of our
convertible and exchangeable senior debentures be allocated between a liability
component and an equity component. The resulting debt discount would
be amortized using the effective interest method over the period the debt is
expected to be outstanding as additional interest expense. The
proposed FSP has not been issued, but the FASB has indicated that it is expected
to be effective for fiscal years beginning after December 15, 2008 and requires
retroactive application. Upon the adoption of the proposed FSP on
January 1, 2009, we estimate the unamortized debt discount (as of March 31,
2008) to be approximately $32.3 million to be included as a reduction of debt
and approximately $46.3 million as accumulated additional paid-in capital on our
consolidated balance sheet. We estimate incremental interest expense
to be approximately $2.2 million for the first three months of 2008 and $8.4
million and $3.4 million for the years ended December 31, 2007 and 2006,
respectively.
Note
3. Derivatives
and Hedging
We
occasionally hedge the future cash flows of our debt transactions, as well as
changes in the fair value of our debt instruments, principally through interest
rate swaps with major financial institutions. At March 31, 2008, we
had two interest rate swap contracts designated as fair value hedges with an
aggregate notional amount of $50.0 million that convert fixed interest payments
at rates of 4.2% to variable interest payments. We have determined
that they are highly effective in limiting our risk of changes in the fair value
of fixed-rate notes attributable to changes in variable interest
rates.
At
December 31, 2007, we had two forward-starting interest rate swap contracts with
an aggregate notional amount of $118.6 million, which were designated as cash
flow hedges to mitigate the risk of future fluctuations in interest rates on
forecasted issuances of long-term debt.
On March
20, 2008, the cash flow hedge was completed through the issuance of $154.3
million of fixed-rate long-term debt issued by a joint venture that is
consolidated by us. A loss of $12.8 million was recorded in
accumulated other comprehensive loss based on the fair value of the interest
rate swap contracts on that date. On March 27, 2008, the interest
rate swap contracts were settled resulting in a loss of $10.0
million. For the period between the completion of the cash flow hedge
and the settlement of the swap contracts, a gain of $2.8 million was recognized
as a reduction of interest expense.
Changes
in the fair value of fair value hedges, as well as changes in the fair value of
the hedged item attributable to the hedge risk, are recorded in earnings each
reporting period. For the three months ended March 31, 2008 and 2007,
these changes in fair value were offset through earnings. The
derivative instruments at March 31, 2008 were reported at their fair values in
other assets, net of accrued interest, of $1.8 million, and we had no derivative
instruments reported in other liabilities. At December 31, 2007,
derivative instruments were reported at their fair values in other liabilities,
net of accrued interest, of $5.8 million, and we had no derivative instruments
reported in other assets.
As of
March 31, 2008 and December 31, 2007, the balance in accumulated other
comprehensive loss relating to derivatives was $18.8 million and $11.8 million,
respectively. Amounts amortized to interest expense were $.2 million
during both the three months ended March 31, 2008 and 2007. Within
the next 12 months, approximately $2.2 million of the balance in accumulated
other comprehensive loss is expected to be amortized to interest
expense.
For the
three months ended March 31, 2008, the interest rate swaps decreased interest
expense and increased net income by $.2 million and decreased the average
interest rate of our debt by .02%. For the three months ended March
31, 2007, the interest rate swaps increased interest expense and decreased net
income by $.1 million and increased the average interest rate of our debt by
..02%. We could be exposed to losses in the event of nonperformance by the
counter-parties; however, management believes the likelihood of such
nonperformance is unlikely.
Note
4. Debt
Our debt
consists of the following (in thousands):
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Debt
payable to 2030 at 4.5% to 8.8%
|
|
$ |
2,905,165 |
|
|
$ |
2,876,445 |
|
Unsecured
notes payable under revolving credit agreements
|
|
|
275,940 |
|
|
|
255,000 |
|
Obligations
under capital leases
|
|
|
29,725 |
|
|
|
29,725 |
|
Industrial
revenue bonds payable to 2015 at 2.2% to 3.9%
|
|
|
3,826 |
|
|
|
3,889 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,214,656 |
|
|
$ |
3,165,059 |
|
The
grouping of total debt between fixed and variable-rate as well as between
secured and unsecured is summarized below (in thousands):
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
As
to interest rate (including the effects of interest rate
swaps):
|
|
|
|
|
|
|
Fixed-rate
debt
|
|
$ |
2,872,086 |
|
|
$ |
2,843,320 |
|
Variable-rate
debt
|
|
|
342,570 |
|
|
|
321,739 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,214,656 |
|
|
$ |
3,165,059 |
|
|
|
|
|
|
|
|
|
|
As
to collateralization:
|
|
|
|
|
|
|
|
|
Unsecured
debt
|
|
$ |
2,118,583 |
|
|
$ |
2,095,506 |
|
Secured
debt
|
|
|
1,096,073 |
|
|
|
1,069,553 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,214,656 |
|
|
$ |
3,165,059 |
|
We have a
$575 million unsecured revolving credit facility held by a syndicate of banks
that expires in February 2010 and provides a one-year extension option available
at our request. Borrowing rates under this facility float at a margin
over LIBOR, plus a facility fee. The borrowing margin and facility
fee, which are currently 42.5 and 15.0 basis points, respectively, are priced
off a grid that is tied to our senior unsecured credit ratings. This
facility retains a competitive bid feature that allows us to request bids for
amounts up to $287.5 million from each of the syndicate banks, allowing us an
opportunity to obtain pricing below what we would pay using the pricing
grid.
At March
31, 2008 and December 31, 2007, the balance outstanding under the revolving
credit facility was $265 million at a variable interest rate of 3.2% and $255
million at a variable interest rate of 5.4%, respectively. We also
have an agreement for a $30 million unsecured and uncommitted overnight facility
with a bank that we use for cash management purposes, of which $10.9 million was
outstanding at March 31, 2008, and no amounts were outstanding at December 31,
2007. Letters of credit totaling $10.2 million and $9.2 million were
outstanding under the revolving credit facility at March 31, 2008 and December
31, 2007, respectively. The available balance under our revolving
credit agreement was $288.7 million and $310.8 million at March 31, 2008 and
December 31, 2007, respectively. During the three months ended March
31, 2008, the maximum balance and weighted average balance outstanding under
both facilities combined were $470.9 million and $358.6 million, respectively,
at a weighted average interest rate of 4.2%. During 2007, the maximum
balance and weighted average balance outstanding under both facilities combined
were $312.4 million and $96.7 million, respectively, at a weighted average
interest rate of 6.1%.
In
January 2008, we elected to repay at par a fixed-rate 8.33% mortgage totaling
$121.8 million that was secured by 19 supermarket-anchored shopping centers in
California originally acquired in April 2001.
As of
December 31, 2007, the balance of secured debt that was assumed in conjunction
with 2007 acquisitions was $99.4 million. A capital lease obligation
totaling $12.9 million was assumed and subsequently settled in
2007.
On March
20, 2008, we contributed assets to a joint venture with an institutional
investor. In conjunction with this transaction, the joint venture
issued $154.3 million of fixed-rate long-term debt with an average life of 7.3
years at an average rate of 5.4% that we guaranteed. We received all
of the proceeds from the issuance of this debt and such proceeds were used to
reduce amounts outstanding under our $575 million revolving credit
facility.
Various
leases and properties, and current and future rentals from those lease and
properties, collateralize certain debt. At March 31, 2008 and
December 31, 2007, the carrying value of such property aggregated $1.8 billion
and $1.9 billion, respectively.
Scheduled
principal payments on our debt (excluding $275.9 million due under our revolving
credit agreements, $21.0 million of certain capital leases, $1.8 million fair
value of interest rate swaps and $28.1 million of non-cash debt-related items)
are due during the following years (in thousands):
2008
|
|
$ |
128,434 |
|
2009
|
|
|
113,506 |
|
2010
|
|
|
119,183 |
|
2011
|
|
|
891,893 |
|
2012
|
|
|
335,317 |
|
2013
|
|
|
334,984 |
|
2014
|
|
|
375,249 |
|
2015
|
|
|
249,943 |
|
2016
|
|
|
143,517 |
|
2017
|
|
|
29,680 |
|
Thereafter
|
|
|
166,102 |
|
Total
|
|
$ |
2,887,808 |
|
Our
various debt agreements contain restrictive covenants, including minimum
interest and fixed charge coverage ratios, minimum unencumbered interest
coverage ratios, minimum net worth requirements and maximum total debt
levels. We were in compliance with all restrictive covenants as of
March 31, 2008.
In July
2006, we priced an offering of $575 million of 3.95% convertible senior
unsecured notes due 2026, which closed on August 2, 2006. Interest is
payable semi-annually in arrears on February 1 and August 1 of each year,
beginning February 1, 2007. The debentures are convertible under
certain circumstances for our common shares of beneficial interest at an initial
conversion rate of 20.3770 common shares of beneficial interest per $1,000 of
principal amount of debentures (an initial conversion price of
$49.075). In addition, the conversion rate may be adjusted if certain
change in control transactions or other specified events occur on or prior to
August 4, 2011. Upon the conversion of debentures, we will deliver
cash for the principal return, as defined, and cash or common shares of
beneficial interest, at our option, for the excess of the conversion value, as
defined, over the principal return. The debentures are redeemable for
cash at our option beginning in 2011 for the principal amount plus accrued and
unpaid interest. Holders of the debentures have the right to require
us to repurchase their debentures for cash equal to the principal of the
debentures plus accrued and unpaid interest in 2011, 2016 and 2021 and in the
event of a change in control.
In
connection with the issuance of these debentures, we filed a registration
statement related to the resale of the debentures and the common shares of
beneficial interest issuable upon the conversion of the
debentures. This registration statement has been declared effective
by the SEC.
Note
5. Preferred
Shares
On
September 25, 2007, we issued $200 million of depositary shares in a private
placement, and the net proceeds of $193.6 million were used to repay amounts
outstanding under our credit facilities. Each depositary share
represents one-hundredth of a Series G Cumulative Redeemable Preferred
Share. The depositary shares are redeemable, in whole or in part at
our option, at a redemption price of $25 multiplied by a graded rate per
depositary share based on the date of redemption plus any accrued and unpaid
dividends thereon. The depositary shares are not convertible or
exchangeable for any of our other property or securities. The Series
G Preferred Shares pay a variable-rate quarterly dividend through September 2008
and then a variable-rate monthly dividend and have a liquidation preference of
$2,500 per share. The variable-rate dividend is calculated on the
period’s three-month LIBOR rate plus a percentage determined by the number of
days outstanding. Further, the rate may vary if any of our
outstanding preferred shares are downgraded. The variable-rate
dividend is not to exceed 20%. At March 31, 2008 and December 31,
2007, the variable-rate dividend was 3.6% and 5.9%, respectively.
On
January 30, 2007, we issued $200 million of depositary shares. Each
depositary share represents one-hundredth of a Series F Cumulative Redeemable
Preferred Share. The depositary shares are redeemable, in whole or in
part, on or after January 30, 2012 at our option, at a redemption price of $25
per depositary share, plus any accrued and unpaid dividends
thereon. The depositary shares are not convertible or exchangeable
for any of our other property or securities. The Series F Preferred
Shares pay a 6.5% annual dividend and have a liquidation value of $2,500 per
share. Net proceeds of $194.0 million were used to repay amounts
outstanding under our credit facilities and for general business
purposes.
In July
2004, we issued $72.5 million of depositary shares with each share representing
one-hundredth of a Series E Cumulative Redeemable Preferred
Share. The depositary shares are redeemable, in whole or in part, for
cash on or after July 8, 2009 at our option, at a redemption price of $25 per
depositary share, plus any accrued and unpaid dividends thereon. The
depositary shares are not convertible or exchangeable for any of our other
property or securities. The Series E preferred shares pay a 6.95%
annual dividend and have a liquidation value of $2,500 per share.
In April
2003, $75 million of depositary shares were issued with each share representing
one-thirtieth of a Series D Cumulative Redeemable Preferred
Share. The depositary shares are redeemable, in whole or in part, for
cash on or after April 30, 2008 at our option, at a redemption price of $25 per
depositary share, plus any accrued and unpaid dividends thereon. The
depositary shares are not convertible or exchangeable for any of our property or
securities. The Series D preferred shares pay a 6.75% annual dividend
and have a liquidation value of $750 per share.
Note
6. Common
Shares of Beneficial Interest
In July
2007, our Board of Trust Managers authorized a common share repurchase program
as part of our ongoing investment strategy. Under the terms of the
program, we may purchase up to a maximum value of $300 million of our common
shares of beneficial interest during the next two years. Share
repurchases may be made in the open market or in privately negotiated
transactions at the discretion of management and as market conditions
warrant. We anticipate funding the repurchase of shares primarily
through the proceeds received from our property disposition program, as well as
from general corporate funds.
During
2007, we repurchased 2.8 million common shares of beneficial interest at an
average share price of $37.12 and cancelled 1.4 million common shares of
beneficial interest in both 2008 and 2007. As of March 31, 2008, the
remaining value of common shares of beneficial interest available to be
repurchased is $196.7 million.
Note
7. Treasury
Shares of Beneficial Interest
At
December 31, 2007, a total of 1.4 million common shares of beneficial interest
were outstanding that were purchased at an average share price of
$36.47. These shares were subsequently retired on January 11,
2008.
Note
8. Property
Our
property consisted of the following (in thousands):
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
973,767 |
|
|
$ |
974,145 |
|
Land
held for development
|
|
|
60,913 |
|
|
|
62,033 |
|
Land
under development
|
|
|
227,769 |
|
|
|
223,827 |
|
Buildings
and improvements
|
|
|
3,529,694 |
|
|
|
3,533,037 |
|
Construction
in-progress
|
|
|
201,622 |
|
|
|
179,302 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,993,765 |
|
|
$ |
4,972,344 |
|
The
following carrying charges were capitalized (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
5,178 |
|
|
$ |
5,855 |
|
Ad
valorem taxes
|
|
|
574 |
|
|
|
505 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
5,752 |
|
|
$ |
6,360 |
|
During
the three months ended March 31, 2008, we invested $43.4 million in 25 new
development projects and commenced a wholly-owned new development in
Texas.
Note
9. Discontinued
Operations
In the
first quarter of 2008, we sold two shopping centers located in California and
Texas, and we classified three properties, totaling $7.6 million, as held for
sale as of March 31, 2008. During 2007, we sold 17 shopping centers
and one industrial center, 10 of which were located in Texas, three in
Louisiana, two each in Colorado and Illinois, and one in Georgia. The
operating results of these properties have been reclassified and reported as
discontinued operations in the Condensed Statements of Consolidated Income
and Comprehensive Income in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," as well as any gains on the
respective dispositions for all periods presented. Revenues recorded
in operating income from discontinued operations for the three months ended
March 31, 2008 and 2007, totaled $.6 million and $6.6 million,
respectively. Included in the Condensed Consolidated Balance Sheet at
December 31, 2007 were $15.9 million of property and $ 5.7 million of
accumulated depreciation related to the property sold during the three months
ended March 31, 2008.
We
elected not to allocate other consolidated interest expense to discontinued
operations because the interest savings to be realized from the proceeds of the
sale of these operations was not material.
Subsequent
to March 31, 2008, we sold a shopping center and an industrial property both
located in Texas and classified as held for sale as of March 31,
2008.
Note
10. Notes
Receivable from Real Estate Joint Ventures and Partnerships
We have
ownership interests in a number of real estate joint ventures and
partnerships. Notes receivable from these entities bear interest
ranging from 4.8% to 10% at March 31, 2008 and 5.7% to 10% at December 31,
2007. These notes are due at various dates through 2028 and are
generally secured by real estate assets. Interest income recognized
on these notes was $.9 million and $.2 million for the three months ended March
31, 2008 and 2007.
Note
11. Investment
in Real Estate Joint Ventures and Partnerships
We own
interests in real estate joint ventures or limited partnerships and have
tenancy-in-common interests in which we exercise significant influence, but do
not have financial and operating control. We account for these
investments using the equity method, and our interests range from 7.8% to
75%. Combined condensed financial information of these ventures (at
100%) is summarized as follows (in thousands):
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Combined
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
$ |
1,695,028 |
|
|
$ |
1,660,915 |
|
Accumulated
depreciation
|
|
|
(80,207 |
) |
|
|
(71,998 |
) |
Property
– net
|
|
|
1,614,821 |
|
|
|
1,588,917 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
217,166 |
|
|
|
238,166 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,831,987 |
|
|
$ |
1,827,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
(primarily mortgage payables)
|
|
$ |
377,650 |
|
|
$ |
378,206 |
|
Amounts
payable to Weingarten Realty Investors
|
|
|
114,389 |
|
|
|
87,191 |
|
Other
liabilities
|
|
|
125,687 |
|
|
|
138,150 |
|
Accumulated
equity
|
|
|
1,214,261 |
|
|
|
1,223,536 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,831,987 |
|
|
$ |
1,827,083 |
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Combined
Condensed Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
38,673 |
|
|
$ |
31,219 |
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Interest
|
|
|
3,921 |
|
|
|
5,090 |
|
Depreciation
and amortization
|
|
|
8,618 |
|
|
|
7,003 |
|
Operating
|
|
|
6,263 |
|
|
|
4,615 |
|
Ad
valorem taxes
|
|
|
4,788 |
|
|
|
4,055 |
|
General
and administrative
|
|
|
265 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23,855 |
|
|
|
20,928 |
|
|
|
|
|
|
|
|
|
|
Gain
on land and merchant development sales
|
|
|
495 |
|
|
|
|
|
Gain
on sale of properties
|
|
|
38 |
|
|
|
|
|
Net
income
|
|
$ |
15,351 |
|
|
$ |
10,291 |
|
Our
investment in real estate joint ventures and partnerships, as reported on our
Condensed Consolidated Balance Sheets, differs from our proportionate share of
the entities' underlying net assets due to basis differentials, which arose upon
the transfer of assets to the joint ventures. The basis
differentials, which totaled $15.6 million and $15.8 million at March 31, 2008
and December 31, 2007, respectively, are generally amortized over the useful
lives of the related assets.
Fees
earned by us for the management of these real estate joint ventures and
partnerships totaled, in millions, $1.4 and $1.0 for the quarters ended
March 31, 2008 and 2007, respectively.
During
the first quarter of 2008, a 25%-owned unconsolidated real estate joint venture
acquired a 4,000 square foot building located in Port Charlotte,
Florida. A 50%-owned unconsolidated real estate joint venture was
formed for the purposes of developing an industrial building in Houston, Texas,
while a 32%-owned unconsolidated real estate joint venture commenced
construction of a retail property in Salt Lake City, Utah.
During
the first quarter of 2007, a 25%-owned unconsolidated real estate joint venture
acquired two shopping centers. Cole Park Plaza is located
in Chapel Hill, North Carolina, and Sunrise West is located in Sunrise,
Florida. A 50%-owned unconsolidated real estate joint venture was
formed for the purpose of developing a retail shopping center.
In March
2007, three joint ventures, two of which were previously consolidated, were
reorganized and our 50% interest in each of these properties is now held in a
tenancy-in-common arrangement.
Note
12. Federal
Income Tax Considerations
We
qualify as a REIT under the provisions of the Internal Revenue Code, and
therefore, no tax is imposed on us for our taxable income distributed to
shareholders. To maintain our REIT status, we must distribute at
least 90% of our ordinary taxable income to our shareholders and meet certain
income source and investment restriction requirements. Our
shareholders must report their share of income distributed in the form of
dividends.
Our
taxable REIT subsidiary is subject to federal, state and local income
taxes. We have recorded a federal income tax provision of
$.2 million during the three months ended March 31, 2008, and a federal
income tax benefit of $.5 million was recognized during the three months ended
March 31, 2007. Our deferred tax assets at March 31, 2008 and
December 31, 2007 were $1.4 million and $1.1 million, respectively, with the
deferred tax liabilities totaling $1.6 million and $1.4 million,
respectively. Also, an accrued tax payable of $.4 million
and $2.3 million has been recorded at March 31, 2008 and December 31, 2007,
respectively, in association with this tax.
We have
reviewed our tax positions under FASB Interpretation No. 48 (“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in the financial statements. The interpretation prescribes
a recognition threshold and measurement attribute for the financial statement
recognition of a tax position taken, or expected to be taken, in a tax
return. A tax position may only be recognized in the financial
statements if it is more likely than not that the tax position will be sustained
upon examination. We believe it is more likely than not that our tax
positions will be sustained in any tax examinations.
In May
2006, the State of Texas enacted a new business tax (the “Revised Texas
Franchise Tax”) that replaces its existing franchise tax. In general,
legal entities that do business in Texas are subject to the Revised Texas
Franchise Tax. Most REITs are subject to the Revised Texas Franchise
Tax, whereas they were previously exempt. The Revised Texas Franchise
Tax became effective for franchise tax reports due on or after January 1, 2008
and is based on revenues earned during the 2007 fiscal year.
Because
the Revised Texas Franchise Tax is determined by applying a tax rate to a base
that considers both revenues and expenses, it is considered an income tax and is
accounted for in accordance with the provisions of SFAS No. 109, “Accounting for
Income Taxes.”
For the
three months ended March 31, 2008 and 2007, we recorded a provision for the
Revised Texas Franchise Tax of $.5 million in both periods. The
deferred tax assets and deferred tax liability associated with this tax each
totaled $.1 million as of March 31, 2008 and December 31, 2007. Also,
an accrued tax payable of $2.5 million and $2.0 million has been recorded
at March 31, 2008 and December 31, 2007, respectively, in association with this
tax.
Note
13. Commitments
and Contingencies
We
participate in six ventures, structured as DownREIT partnerships, which have
properties in Arkansas, California, Georgia, North Carolina, Texas and
Utah. As a general partner, we have operating and financial control
over these ventures and consolidate their operations in our condensed
consolidated financial statements. These ventures allow the outside
limited partners to put their interest to the partnership for our common shares
of beneficial interest or an equivalent amount in cash. We may
acquire any limited partnership interests that are put to the partnership, and
we have the option to redeem the interest in cash or a fixed number of our
common shares of beneficial interest, at our discretion. We also
participate in two real estate ventures that have properties in Florida and
Texas that allow their outside partners to put their interest to operating
partnership units to us for our common shares of beneficial interest or an
equivalent amount in cash. We have the option to redeem these units
in cash or a fixed number of our common shares of beneficial interest, at our
discretion. During the first quarter of 2008 and 2007, we issued
common shares of beneficial interest valued at $.2 million and $12.6 million,
respectively, in exchange for certain of these limited partnership interests or
operating partnership units. The aggregate redemption value of these
operating partnership units was approximately $81 million and $76 million as of
March 31, 2008 and December 31, 2007, respectively.
In
January 2007, we acquired two retail properties in Arizona. This
purchase transaction includes an earnout provision of approximately $29 million
that is contingent upon the subsequent development of space by the property
seller. This contingency agreement expires in 2010. We
have an estimated obligation of $4.2 million recorded as of both March 31, 2008
and December 31, 2007. Since inception of this obligation, $5.2
million has been paid. Amounts paid or accrued under such earnouts
are treated as additional purchase price and capitalized to the related
property.
In April
2007, we acquired an industrial building located in
Virginia. This purchase transaction includes an earnout
provision of approximately $6 million that is contingent upon the lease up of
vacant space by the property seller. This contingency agreement
expires in 2009. We have an estimated obligation of $5.6 million
recorded as of both March 31, 2008 and December 31, 2007. Amounts
paid or accrued under such earnouts are treated as additional purchase price and
capitalized to the related property.
In August
2006, we acquired a portfolio of five properties, including four properties in
Georgia and one in Florida. The purchase agreement allows for the
subsequent development and leasing of an additional phase of Brookwood
Marketplace by the property seller. If the terms of the purchase
agreement are met by the seller, the purchase price would be increased by
approximately $6.9 million. This agreement expires in August
2008. We have no obligation for this contingency as of both March 31, 2008
and December 31, 2007.
We are
subject to numerous federal, state and local environmental laws, ordinances and
regulations in the areas where we own or operate properties. We are
not aware of any material contamination, which may have been caused by us or any
of our tenants that would have a material effect on our condensed consolidated
financial statements.
As part
of our risk management activities, we have applied and been accepted into
state-sponsored environmental programs which will limit our expenses if
contaminants need to be remediated. We also have an environmental
insurance policy that covers us against third party liabilities and remediation
costs.
While we
believe that we do not have any material exposure to environmental remediation
costs, we cannot give absolute assurance that changes in the law or new
discoveries of contamination will not result in increased liabilities to
us.
Related
to our investment in a redevelopment project in Sheridan, Colorado that is held
in an unconsolidated real estate joint venture, we, our joint venture partner
and the joint venture have each provided a guarantee for the payment of any
annual sinking fund requirement shortfalls on bonds issued in connection with
the project. The Sheridan Redevelopment Agency issued $97 million of
Series A bonds used for an urban renewal project. The bonds are to be
repaid with incremental sales and property taxes and a public improvement fee
(“PIF”) to be assessed on future retail sales. The incremental taxes
and PIF are to remain intact until the bond liability has been paid in full,
including any amounts we may have to provide. We have evaluated and
determined that the fair value of the guarantee is nominal. However,
due to the guarantee, a liability has been recorded by the joint venture equal
to amounts funded under the bonds.
We are
involved in various matters of litigation arising in the normal course of
business. While we are unable to predict with certainty the amounts
involved, our management and counsel are of the opinion that, when such
litigation is resolved, our resulting liability, if any, will not have a
material effect on our condensed consolidated financial statements.
Note
14. Identified
Intangible Assets and Liabilities
Identified
intangible assets and liabilities associated with our property acquisitions are
as follows (in thousands):
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Identified
Intangible Assets:
|
|
|
|
|
|
|
Above-Market
Leases (included in Other Assets)
|
|
$ |
18,608 |
|
|
$ |
18,590 |
|
Above-Market
Leases – Accumulated Amortization
|
|
|
(7,925 |
) |
|
|
(7,323 |
) |
Below-Market
Assumed Mortgages (included in Debt)
|
|
|
2,072 |
|
|
|
2,072 |
|
Below-Market
Assumed Mortgages – Accumulated Amortization
|
|
|
(316 |
) |
|
|
(246 |
) |
Valuation
of In Place Leases (included in Unamortized Debt and Lease
Costs)
|
|
|
61,918 |
|
|
|
59,498 |
|
Valuation
of In Place Leases – Accumulated Amortization
|
|
|
(24,208 |
) |
|
|
(22,308 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
50,149 |
|
|
$ |
50,283 |
|
|
|
|
|
|
|
|
|
|
Identified
Intangible Liabilities:
|
|
|
|
|
|
|
|
|
Below-Market
Leases (included in Other Liabilities)
|
|
$ |
39,482 |
|
|
$ |
39,141 |
|
Below-Market
Leases – Accumulated Amortization
|
|
|
(13,417 |
) |
|
|
(11,949 |
) |
Above-Market
Assumed Mortgages (included in Debt)
|
|
|
58,414 |
|
|
|
58,414 |
|
Above-Market
Assumed Mortgages – Accumulated Amortization
|
|
|
(26,189 |
) |
|
|
(24,517 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
58,290 |
|
|
$ |
61,089 |
|
These
identified intangible assets and liabilities are amortized over the terms of the
acquired leases or the remaining lives of the assumed mortgages.
The net
amortization of above-market and below-market leases increased rental revenues
by $.9 million and $.8 million for the quarters ended March 31, 2008 and 2007,
respectively. The estimated net amortization of these intangible
assets and liabilities will increase rental revenues for each of the next five
years as follows (in thousands):
2009
|
|
$ |
2,779 |
|
2010
|
|
|
1,948 |
|
2011
|
|
|
1,374 |
|
2012
|
|
|
1,118 |
|
2013
|
|
|
974 |
|
The
amortization of the in place lease intangible recorded in depreciation and
amortization, was $2.4 million and $2.1 million for the quarters ended March 31,
2008 and 2007, respectively. The estimated amortization of this
intangible asset will increase depreciation and amortization for each of the
next five years as follows (in thousands):
2009
|
|
$ |
6,200 |
|
2010
|
|
|
5,178 |
|
2011
|
|
|
3,996 |
|
2012
|
|
|
3,203 |
|
2013
|
|
|
2,433 |
|
The
amortization of above-market and below-market assumed mortgages decreased
interest expense by $1.6 million and $1.8 million for the quarters ended
March 31, 2008 and 2007, respectively. The estimated amortization of
these intangible assets and liabilities will decrease interest expense for each
of the next five years as follows (in thousands):
2009
|
|
$ |
4,476 |
|
2010
|
|
|
3,823 |
|
2011
|
|
|
2,526 |
|
2012
|
|
|
1,355 |
|
2013
|
|
|
908 |
|
Note
15. Fair
Value Measurements
On
January 1, 2008, we adopted SFAS 157 for our financial assets and
liabilities. SFAS
157 defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. SFAS 157 applies
to reported balances that are required or permitted to be measured at fair value
under existing accounting pronouncements; accordingly, the standard does not
require any new fair value measurements of reported balances.
SFAS 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. Therefore, a fair value measurement should be determined
based on the assumptions that market participants would use in pricing an asset
or liability. As a basis for considering market participant
assumptions in fair value measurements, SFAS 157 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on
market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy).
Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets
or liabilities that we have the ability to access. Level 2 inputs are
inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 2 inputs may
include quoted prices for similar assets and liabilities in active markets, as
well as inputs that are observable for the asset or liability (other than quoted
prices), such as interest rates and yield curves that are observable at commonly
quoted intervals. Level 3 inputs are unobservable inputs for the asset or
liability, which are typically based on an entity’s own assumptions, as there is
little, if any, related market activity. In instances where the
determination of the fair value measurement is based on inputs from different
levels of the fair value hierarchy, the level in the fair value hierarchy within
which the entire fair value measurement falls is based on the lowest level input
that is significant to the fair value measurement in its entirety. Our
assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to
the asset or liability.
Investments
held in grantor trusts
These
assets are valued based on publicly quoted market prices.
Derivative
instruments
We use
interest rate swaps with major financial institutions to manage our interest
rate risk. The
valuation of these instruments is determined using widely accepted valuation
techniques including discounted cash flow analysis on the expected cash flows of
each derivative. This analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses observable market-based
inputs, including interest rate curves and implied volatilities. The fair
values of our interest rate swaps have been determined using the market standard
methodology of netting the discounted future fixed cash receipts (or payments)
and the discounted expected variable cash payments (or receipts). The
variable cash payments (or receipts) are based on an expectation of future
interest rates (forward curves) derived from observable market interest rate
curves.
To comply
with the provisions of SFAS 157, we incorporate credit valuation adjustments to
appropriately reflect both our own nonperformance risk and the respective
counterparty’s nonperformance risk in the fair value measurements. In
adjusting the fair value of our derivative contracts for the effect of
nonperformance risk, we have considered the impact of netting and any applicable
credit enhancements, such as collateral, thresholds and guarantees.
Although
we have determined that the majority of the inputs used to value our derivatives
fall within Level 2 of the fair value hierarchy, the credit valuation
adjustments associated with our derivatives utilize Level 3 inputs,
such as estimates of current credit spreads to evaluate the likelihood of
default by itself and its counterparties. However, as of March 31,
2008, we have assessed the significance of the impact of the credit valuation
adjustments on the overall valuation of our derivative positions and have
determined that the credit valuation adjustments are not significant to the
overall valuation of our derivatives. As a result, we have determined
that the derivative valuations in their entirety are classified in Level 2 of
the fair value hierarchy.
Assets
and liabilities measured at fair value on a recurring basis as of March 31,
2008, aggregated by the level in the fair value hierarchy in which those
measurements fall, are as follows (in thousands):
|
|
Quoted
Prices in Active Markets for Identical Assets and Liabilities
(Level
1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
Fair
Value at March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
held in grantor trusts
|
|
$ |
33,085 |
|
|
|
|
|
|
|
|
$ |
33,085 |
|
Derivative
instruments
|
|
|
|
|
|
$ |
1,776 |
|
|
|
|
|
|
1,776 |
|
Total
|
|
$ |
33,085 |
|
|
$ |
1,776 |
|
|
|
-
|
|
|
$ |
34,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
associated with derivative instruments
|
|
|
|
|
|
$ |
51,776 |
|
|
|
|
|
|
$ |
51,776 |
|
Deferred
compensation plan obligations
|
|
$ |
13,799 |
|
|
|
|
|
|
|
|
|
|
|
13,799 |
|
Total
|
|
$ |
13,799 |
|
|
$ |
51,776 |
|
|
|
-
|
|
|
$ |
65,575 |
|
We do not
have any assets or liabilities measured at fair value on a recurring basis whose
fair value measurements use significant unobservable inputs (Level 3) as of
March 31, 2008.
Note
16. Share
Options and Awards
In 1992,
we adopted the Employee Share Option Plan that grants 100 share options to every
employee, excluding officers, upon completion of each five-year interval of
service. This plan expires in 2012 and provides options for a maximum
of 225,000 common shares of beneficial interest, of which .2 million is
available for future grant of share options at March 31, 2008. Share
options granted under this plan are exercisable immediately.
In 1993,
we adopted the Incentive Share Option Plan that provided for the issuance of up
to 3.9 million common shares of beneficial interest, either in the form of
restricted share awards or share options. This plan expired in 2002,
but some share options issued under the plan remain outstanding as of March 31,
2008. The share options granted to non-officers vest over a
three-year period beginning after the grant date, and for officers vest over a
seven-year period beginning two years after the grant date.
In 2001,
we adopted the Long-term Incentive Plan for the issuance of share options and
share awards. In 2006, the maximum number of common shares of
beneficial interest issuable under this plan was increased to 4.8 million common
shares of beneficial interest, of which 1.7 million is available for the future
grant of share options or share awards at March 31, 2008. This plan
expires in 2011. The share options granted to non-officers vest over
a three-year period beginning after the grant date, and share options and
restricted share awards for officers vest over a five-year period after the
grant date. Restricted share awards granted to trust managers and
share options or share awards granted to retirement eligible employees are
expensed immediately.
The grant
price for the Employee Share Option Plan is equal to the closing price of our
common shares of beneficial interest on the date of grant. The grant
price of the Long-term Incentive Plan is calculated as an average of the high
and low of the quoted fair value of our common shares of beneficial interest on
the date of grant. In both plans, these share options expire upon
termination of employment or 10 years from the date of grant. In the
Long-term Incentive Plan, restricted share awards for officers and trust
managers are granted at no purchase price. Our policy is to recognize
compensation expense for equity awards ratably over the vesting period, except
for retirement eligible amounts. For the three months ended March 31,
2008 and 2007, compensation expense, net of forfeitures, associated with share
options and restricted share awards totaled $1.0 million and $1.3 million, of
which $.3 million and $.4 million was capitalized,
respectively.
The fair
value of share options is estimated on the date of grant using the Black-Scholes
option pricing method based on the expected weighted average assumptions in the
following table. The dividend yield is an average of the historical
yields at each record date over the estimated expected life. We
estimate volatility using our historical volatility data for a period of 10
years, and the expected life is based on historical data from an option
valuation model of employee exercises and terminations. The risk-free
rate is based on the U.S. Treasury yield curve in effect at the time of
grant. The fair value and weighted average assumptions are as
follows:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Fair
value per share
|
|
$ |
3.07 |
|
|
$ |
4.91 |
|
Dividend
yield
|
|
|
5.1 |
% |
|
|
5.7 |
% |
Expected
volatility
|
|
|
18.8 |
% |
|
|
18.2 |
% |
Expected
life (in years)
|
|
|
6.2 |
|
|
|
5.9 |
|
Risk-free
interest rate
|
|
|
2.8 |
% |
|
|
4.4 |
% |
Following
is a summary of the share option activity for the three months ended March 31,
2008:
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Average
|
|
|
|
Under
|
|
|
Exercise
|
|
|
|
Option
|
|
|
Price
|
|
|
|
|
|
|
|
|
Outstanding,
January 1, 2008
|
|
|
2,840,290 |
|
|
$ |
32.66 |
|
Granted
|
|
|
832,106 |
|
|
|
32.22 |
|
Forfeited
or expired
|
|
|
(4,983 |
) |
|
|
39.71 |
|
Exercised
|
|
|
(43,649 |
) |
|
|
22.49 |
|
Outstanding,
March 31, 2008
|
|
|
3,623,764 |
|
|
$ |
32.67 |
|
The total
intrinsic value of options exercised during the first quarter of 2008 and 2007
was $.4 million and $3.6 million, respectively. As of March 31, 2008
and December 31, 2007, there was approximately $4.7 million and $3.3 million,
respectively, of total unrecognized compensation cost related to unvested share
options, which is expected to be amortized over a weighted average of 2.3 years
and 2.0 years, respectively.
The
following table summarizes information about share options outstanding and
exercisable at March 31, 2008:
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
Weighted
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
Range
of
|
|
|
|
Contractual
|
|
Exercise
|
|
|
Value
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Value
|
|
Exercise
Prices
|
|
Number
|
|
Life
|
|
Price
|
|
|
|
(000’s)
|
|
|
Number
|
|
|
Price
|
|
Life
|
|
|
(000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$17.89
- $26.83
|
|
|
1,020,775 |
|
3.7
years
|
|
$ |
21.95 |
|
|
|
|
|
|
|
831,153 |
|
|
$ |
21.54 |
|
3.6
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$26.84
- $40.26
|
|
|
2,086,292 |
|
8.0
years
|
|
$ |
34.26 |
|
|
|
|
|
|
|
810,892 |
|
|
$ |
34.94 |
|
6.5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$40.27
- $49.62
|
|
|
516,697 |
|
8.7years
|
|
$ |
47.47 |
|
|
|
|
|
|
|
113,865 |
|
|
$ |
47.47 |
|
8.7
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,623,764 |
|
6.9
years
|
|
$ |
32.67 |
|
|
$ |
6,414 |
|
|
|
1,755,910 |
|
|
$ |
29.41 |
|
5.3
years
|
|
$ |
8,832 |
|
A summary
of the status of unvested restricted share awards for the three months
ended March 31, 2008 is as follows:
|
|
Unvested
|
|
|
|
|
|
|
Restricted
|
|
|
Weighted
|
|
|
|
Share
|
|
|
Average
Grant
|
|
|
|
Awards
|
|
|
Date
Fair Value
|
|
|
|
|
|
|
|
|
Outstanding,
January 1, 2008
|
|
|
117,539 |
|
|
$ |
41.45 |
|
Granted
|
|
|
107,913 |
|
|
|
32.22 |
|
Vested
|
|
|
(527 |
) |
|
|
35.42 |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
Outstanding,
March 31, 2008
|
|
|
224,925 |
|
|
$ |
37.04 |
|
As of
March 31, 2008 and December 31, 2007, there was approximately $6.3
million and $4.4 million, respectively, of total unrecognized compensation cost
related to unvested restricted share awards, which is expected to be amortized
over a weighted average of 3.0 years and 2.7 years, respectively.
Note
17. Employee
Benefit Plans
We
sponsor a noncontributory qualified retirement plan and a separate and
independent nonqualified supplemental retirement plan for our
officers. The components of net periodic benefit costs for both plans
are as follows (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
900 |
|
|
$ |
878 |
|
Interest
cost
|
|
|
965 |
|
|
|
563 |
|
Expected
return on plan assets
|
|
|
(482 |
) |
|
|
(319 |
) |
Prior
service cost
|
|
|
(31 |
) |
|
|
(25 |
) |
Recognized
(gain) loss
|
|
|
(29 |
) |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,323 |
|
|
$ |
1,152 |
|
For the
three months ended March 31, 2008 and 2007, we contributed $1.5 million and $2.0
million, respectively, to the qualified retirement plan. For the
supplemental retirement plan, $.1 million and $.9 million was contributed during
the three months ended March 31, 2008 and 2007, respectively. In
April 2008, we contributed an additional $1.1 million to the supplemental
retirement plan. Currently, we do not anticipate making any
additional contributions to either plan in 2008.
We have a
Savings and Investment Plan pursuant to which eligible employees may elect to
contribute from 1% of their salaries to the maximum amount established annually
by the Internal Revenue Service. We match employee contributions 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 and $.2 million for the three months ended March 31, 2008 and 2007,
respectively.
We have
an Employee Share Purchase Plan under which .6 million of our common shares of
beneficial interest have been authorized. These shares, as well as
common shares of beneficial interest purchased by us on the open market, are
made available for sale to employees at a discount of 15% from the quoted market
price on the purchase date. Shares purchased by the employee under
the plan are restricted from being sold for two years from the date of purchase
or until termination of employment. During the three months ended
March 31, 2008 and 2007, a total of 13,075 and 7,177 common shares of beneficial
interest were purchased for the employees at a discounted average per share
price of $26.75 and $40.43, respectively.
We also
have a deferred compensation plan for eligible employees allowing them to defer
portions of their current cash salary or share-based
compensation. Deferred amounts are deposited in a grantor trust,
which are included in other assets, and are reported as compensation expense in
the year service is rendered. Cash deferrals are invested based on
the employee’s investment selections from a mix of assets based on a “Broad
Market Diversification” model. Deferred share-based compensation
cannot be diversified, and distributions from this plan are made in the same
form as the original deferral.
Note
18. Segment
Information
The
reportable segments presented are the segments for which separate financial
information is available, and for which operating performance is evaluated
regularly by senior management in deciding how to allocate resources and in
assessing performance. We evaluate the performance of the reportable
segments based on net operating income, defined as total revenues less operating
expenses and ad valorem taxes. Management does not consider the
effect of gains or losses from the sale of property in evaluating segment
operating performance.
The
shopping center segment is engaged in the acquisition, development and
management of real estate, primarily anchored neighborhood and community
shopping centers located in Arizona, Arkansas, California, Colorado, Florida,
Georgia, Illinois, Kansas, Kentucky, Louisiana, Maine, Missouri, Nevada, New
Mexico, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Utah
and Washington. The customer base includes supermarkets, discount
retailers, drugstores and other retailers who generally sell basic
necessity-type commodities. The industrial segment is engaged in the
acquisition, development and management of bulk warehouses and office/service
centers. Its properties are located in California, Florida, Georgia,
Tennessee, Texas and Virginia, and the customer base is
diverse. Included in "Other" are corporate-related items,
insignificant operations and costs that are not allocated to the reportable
segments.
Information
concerning our reportable segments is as follows (in thousands):
|
|
Shopping
|
|
|
|
|
|
|
|
|
|
|
|
|
Center
|
|
|
Industrial
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
138,932 |
|
|
$ |
14,178 |
|
|
$ |
2,050 |
|
|
$ |
155,160 |
|
Net Operating Income
|
|
|
99,275 |
|
|
|
9,949 |
|
|
|
939 |
|
|
|
110,163 |
|
Equity
in Earnings of Real Estate Joint Ventures and Partnerships,
net
|
|
|
4,763 |
|
|
|
441 |
|
|
|
43 |
|
|
|
5,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
128,663 |
|
|
$ |
12,452 |
|
|
$ |
1,573 |
|
|
$ |
142,688 |
|
Net Operating Income
|
|
|
93,956 |
|
|
|
8,747 |
|
|
|
759 |
|
|
|
103,462 |
|
Equity
in Earnings of Real Estate Joint Ventures and Partnerships,
net
|
|
|
2,937 |
|
|
|
350 |
|
|
|
60 |
|
|
|
3,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in Real Estate Joint Ventures and Partnerships
|
|
$ |
257,704 |
|
|
$ |
35,295 |
|
|
$ |
4,413 |
|
|
$ |
297,412 |
|
Total Assets
|
|
|
3,929,748 |
|
|
|
351,180 |
|
|
|
762,757 |
|
|
|
5,043,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in Real Estate Joint Ventures and Partnerships
|
|
$ |
225,818 |
|
|
$ |
25,082 |
|
|
$ |
4,513 |
|
|
$ |
255,413 |
|
Total Assets
|
|
|
3,669,649 |
|
|
|
323,164 |
|
|
|
525,184 |
|
|
|
4,517,997 |
|
Net
operating income reconciles to income from continuing operations as shown on the
Condensed Statements of Consolidated Income and Comprehensive Income as follows
(in thousands):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Total
Segment Net Operating Income
|
|
$ |
110,163 |
|
|
$ |
103,462 |
|
Depreciation
and Amortization
|
|
|
(43,324 |
) |
|
|
(31,685 |
) |
General
and Administrative
|
|
|
(6,854 |
) |
|
|
(6,609 |
) |
Interest
Expense
|
|
|
(35,480 |
) |
|
|
(36,089 |
) |
Interest
and Other Income
|
|
|
1,049 |
|
|
|
1,712 |
|
Equity
in Earnings of Real Estate Joint Ventures
and Partnerships, net
|
|
|
5,247 |
|
|
|
3,347 |
|
Income
Allocated to Minority Interests
|
|
|
(1,826 |
) |
|
|
(1,178 |
) |
Gain
on Land and Merchant Development Sales
|
|
|
519 |
|
|
|
666 |
|
Gain
on Sale of Properties
|
|
|
12 |
|
|
|
2,089 |
|
(Provision)
Benefit for Income Taxes
|
|
|
(747 |
) |
|
|
9 |
|
Income
from Continuing Operations
|
|
$ |
28,759 |
|
|
$ |
35,724 |
|
****
ITEM
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking
Statements
This
quarterly report on Form 10-Q, together with other statements and information
publicly disseminated by us, contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We
intend such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 and include this statement for purposes of
complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or
similar expressions. You should not rely on forward-looking
statements since they involve known and unknown risks, uncertainties and other
factors, which are, in some cases, beyond our control and which could materially
affect actual results, performances or achievements. Factors which
may cause actual results to differ materially from current expectations include,
but are not limited to, (i) general economic and local real estate conditions,
(ii) the inability of major tenants to continue paying their rent obligations
due to bankruptcy, insolvency or general downturn in their business, (iii)
financing risks, such as the inability to obtain equity, debt, or other sources
of financing on favorable terms, (iv) changes in governmental laws and
regulations, (v) the level and volatility of interest rates, (vi) the
availability of suitable acquisition opportunities, (vii) changes in expected
development activity, (viii) increases in operating costs, (ix) tax matters,
including failure to qualify as a real estate investment trust, could have
adverse consequences and (x) investments through real estate joint ventures and
partnerships involve risks not present in investments in which we are the sole
investor. Accordingly, there is no assurance that our expectations
will be realized.
The
following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto and the comparative summary
of selected financial data appearing elsewhere in this
report. Historical results and trends which might appear should not
be taken as indicative of future operations. Our results of
operations and financial condition, as reflected in the accompanying financial
statements and related footnotes, are subject to management's evaluation and
interpretation of business conditions, retailer performance, changing capital
market conditions and other factors which could affect the ongoing viability of
our tenants.
Executive
Overview
Weingarten
Realty Investors is a real estate investment trust (“REIT”) organized under the
Texas Real Estate Investment Trust Act. We, and our predecessor
entity, began the ownership and development of shopping centers and other
commercial real estate in 1948. Our primary business is leasing space
to tenants in the shopping and industrial centers we own or lease. We
also manage centers for real estate joint ventures in which we are partners or
for other outside owners for which we charge fees.
We
operate a portfolio of rental properties which includes neighborhood and
community shopping centers and industrial properties of approximately 74.0
million square feet. We have a diversified tenant base with our
largest tenant comprising only 2.7% of total rental revenues during
2008.
We focus
on increasing funds from operations (“FFO”) and growing dividend payments to our
common shareholders. We do this through hands-on leasing, management
and selected redevelopment of the existing portfolio of properties, through
disciplined growth from selective acquisitions and new developments, through
sale of properties in our merchant development program and through the
disposition of assets that no longer meet our ownership criteria. We
do this while remaining committed to maintaining a conservative balance sheet, a
well-staggered debt maturity schedule and strong credit agency
ratings.
We
continue to maintain a strong, conservative capital structure, which provides
ready access to a variety of attractive capital sources. We carefully
balance obtaining low cost financing with minimizing exposure to interest rate
movements and matching long-term liabilities with the long-term assets acquired
or developed. The turmoil in the current capital markets has
adversely affected both the pricing and the availability of certain financial
instruments. However, based on our business plan for the current
year, we believe that asset dispositions, joint venture relationships and
existing capital resources such as our revolving credit facilities will provide
adequate capital to execute our business plan.
At March
31, 2008, we owned or operated under long-term leases, either directly or
through our interest in real estate joint ventures or partnerships, a total of
381 developed income-producing properties and 35 properties under various stages
of construction and development. The total number of centers includes
335 neighborhood and community shopping centers located in 22 states spanning
the country from coast to coast. We also owned 78 industrial projects
located in California, Florida, Georgia, Tennessee, Texas and Virginia and
three other operating properties located in Arizona and Texas.
We also
owned interests in 19 parcels of unimproved land held for future development
that totaled approximately 9.1 million square feet.
We had
approximately 7,500 leases with 5,500 different tenants at March 31,
2008.
Leases
for our properties range from less than a year for smaller spaces to over 25
years for larger tenants. Rental revenues generally include minimum
lease payments, which often increase over the lease term, reimbursements of
property operating expenses, including ad valorem taxes, and additional rent
payments based on a percentage of the tenants' sales. The majority of
our anchor tenants are supermarkets, value-oriented apparel/discount stores and
other retailers or service providers who generally sell basic necessity-type
goods and services. We believe stability of our anchor tenants,
combined with convenient locations, attractive and well-maintained properties,
high quality retailers and a strong tenant mix, should ensure the long-term
success of our merchants and the viability of our portfolio.
In
assessing the performance of our properties, management carefully tracks the
occupancy of the portfolio. A weakening economy contributed to a drop
in our occupancy from 94.4% at March 31, 2007 compared to 93.7% at March 31,
2008. While we will continue to monitor the economy and the effects
on our retailers, we believe the significant diversification of our portfolio
both geographically and by tenant base, will allow us to maintain similar
occupancy levels as we move through the year. Another important
indicator of performance is the spread in rental rates on a same-space basis as
we complete new leases and renew existing leases. We completed 288
new leases or renewals during the first three months of 2008 totaling 1.7
million square feet, increasing rental rates an average of 12.5% on a cash
basis.
New
Development
At March
31, 2008, we had 35 properties in various stages of development including
those in our merchant development program. We have invested $382 million
to-date on these projects and, at completion, we estimate our total investment
to be $657 million. These properties are slated to open over the next one
to five years with a projected return on investment of approximately 8.9% when
completed.
In
addition to these projects, we have a development pipeline with six development
sites under contract, which will represent a projected investment of
approximately $76.2 million. Due to current economic factors,
obtaining new projects this year may prove challenging as potential retail
anchors are delaying their expansion plans due to the softening of the economy.
We will continue to seek opportunities and monitor this market
closely.
Merchant
development is a program where we acquire or develop a project with the
objective of selling all or part of it, instead of retaining it in our portfolio
on a long-term basis. Also, disposition of land parcels are included
in this program. We generated gains of approximately $.5 million from
this program during the first three months of 2008. We expect this
number to grow throughout the year.
Acquisitions and Joint
Ventures
Acquisitions
are a key component of our strategy. However, the turmoil in the credit
markets has significantly reduced transactions in the marketplace and,
therefore, created uncertainty with respect to pricing. Partnering
with institutional investors through real estate joint ventures enables us to
acquire high quality assets in our target markets while also meeting our
financial return objectives. We benefit from access to lower-cost
capital, as well as leveraging our expertise to provide fee-based services, such
as asset-management and the acquisition, leasing and management of properties,
to the joint ventures.
During
the first three months of 2008, we invested in a 25%-owned unconsolidated joint
venture to acquire a 4,000 square foot pad building located in
Florida.
In March
2008, we contributed 18 neighborhood/community shopping centers located in Texas
with an aggregate value of approximately $227.5 million, and aggregating more
than 2.1 million square feet, to a joint venture. We sold an 85%
interest in this joint venture to AEW Capital Management on behalf of one of its
institutional clients. Financing totaling $154.3 million was placed on the
properties and guaranteed by us.
Joint
venture fee income for the first three months of 2008 was approximately $1.6
million or an increase of $.6 million over the prior year. This is a
direct result of our strategy initiative to develop new real estate joint
venture relationships. We expect continued strong growth in joint
venture fee income during the year.
Dispositions
During
the first three months of 2008, we sold two shopping centers for $19.1
million. Although lenders for prospective acquirers have tightened
their underwriting criteria, we expect to continue to dispose certain properties
during the year as opportunities present themselves. Dispositions are
part of an ongoing portfolio management process where we prune our portfolio of
properties that do not meet our geographic or growth targets and provide capital
to recycle into properties that have barrier-to-entry locations within high
growth metropolitan markets. Over time, we expect this to produce a
stronger portfolio with higher occupancy rates and internal revenue
growth.
Summary
of Critical Accounting Policies
Our
discussion and analysis of financial condition and results of operations is
based on our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities and contingencies as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. We evaluate our assumptions and estimates on an
ongoing basis. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under
different assumptions or conditions.
A
disclosure of our critical accounting policies is included in our Annual Report
on Form 10-K for the year ended December 31, 2007 in Management’s Discussion and
Analysis of Financial Condition. There have been no significant
changes to our policies during 2008.
Results
of Operations
Comparison
of the Three Months Ended March 31, 2008 to the Three Months Ended March 31,
2007
Revenues
Total
revenues were $155.2 million in the first quarter of 2008 versus $142.7 million
in the first quarter of 2007, an increase of $12.5 million or
8.8%. This increase resulted from an increase in rental revenues of
$11.8 million and other income of $.7 million.
Property
acquisitions and new development activity contributed $10.7 million of the
rental income increase with $1.1 million resulting from 288 renewals and new
leases, comprising 1.7 million square feet at an average rental rate increase of
12.5%.
Occupancy
(leased space) of the portfolio as compared to the prior year was as
follows:
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Shopping
Centers
|
|
|
94.8 |
% |
|
|
95.4 |
% |
Industrial
|
|
|
90.7 |
% |
|
|
90.8 |
% |
Total
Portfolio
|
|
|
93.7 |
% |
|
|
94.4 |
% |
Other
income increased by $.7 million from the first quarter of 2007. This
increase resulted from the increase in joint venture fee income $.6 million and
miscellaneous tenant revenue of $.1 million.
Expenses
Total
expenses for the first quarter of 2008 were $95.2 million versus $77.5 million
in the first quarter of 2007, an increase of $17.7 million or
22.8%.
The
increases in 2008 for depreciation and amortization expense ($11.6 million),
operating expenses ($3.7 million), ad valorem taxes ($2.1 million) and general
and administrative expenses ($.3 million) were primarily a result of the
properties acquired and developed and an increase in depreciation expense as a
result of redevelopment activities. Overall, direct operating costs
and expenses (operating and ad valorem taxes) of operating our properties as a
percentage of rental revenues were 29.5% and 27.9% in 2008 and 2007,
respectively.
Interest
Expense
Interest
expense totaled $35.5 million for the first quarter 2008, down $.6 million or
1.7% from the first quarter of 2007. The components of interest
expense were as follows (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Gross
interest expense
|
|
$ |
42,259 |
|
|
$ |
43,746 |
|
Adjustment
for out-of-market mortgage debt acquired
|
|
|
(1,601 |
) |
|
|
(1,802 |
) |
Capitalized
interest
|
|
|
(5,178 |
) |
|
|
(5,855 |
) |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
35,480 |
|
|
$ |
36,089 |
|
Gross
interest expense totaled $42.3 million in the first quarter of 2008, down $1.5
million or 3.4% from the first quarter of 2007. The decrease in gross
interest expense was due primarily to the $2.8 million gain from the rate swap
termination, which was offset by an increase in the weighted average debt
outstanding at both periods. Average debt outstanding was increased
from $2.9 billion in 2007 to $3.2 billion in 2008 at a weighted average interest
rate of 5.5% in 2008 and 5.8% for 2007. Capitalized interest
decreased $.7 million due to a decrease in the annualized average interest
capitalization rate of 5.8% in 2008 compared to 8.1% in 2007.
Interest
and Other Income
Interest
and other income for the first quarter of 2008 was $1.0 million versus $1.7
million in the first quarter of 2007, a decrease of $.7 million or
41.2%. This decrease resulted from the fair value decline in the
assets held in a grantor trust related to our deferred compensation plan and a
reduction in interest earned from a qualified escrow
account. Offsetting this $1.6 million decrease is the interest earned
on notes receivable from real estate joint ventures and partnerships for new
development activities and other receivables.
Equity
in Earnings of Real Estate Joint Ventures and Partnerships, net
Equity in
earnings of real estate joint ventures and partnerships totaled $5.2 million in
the first quarter of 2008, up $1.9 million or 57.6% from the first quarter of
2007. This increase was attributable to incremental income from our
investments in newly formed joint ventures for the acquisition and development
of retail and industrial properties.
Income
Allocated to Minority Interests
Income
allocated to minority interests was $1.8 million in the first quarter of 2008
versus $1.2 million in the first quarter of 2007, an increase of $.6 million or
50.0%. This increase resulted primarily from earnings generated by a
15%-owned newly formed consolidated real estate joint venture and the
recognition of a deferred gain totaling $.4 million in a 50%-owned consolidated
real estate joint venture.
Gain
on Sale of Properties
The
decrease in gain on sale of properties of $2.1 million resulted primarily from
gain deferrals and adjustments in 2007 that did not recur in 2008.
Income
from Discontinued Operations
Income
from discontinued operations was $8.6 million in the first quarter of 2008
versus $15.7 million in the first quarter of 2007, a decrease of $7.1 million or
45.2%. This decrease was due primarily to the decrease in gain on
sale of one property in each period. Also, the decrease in operating
income from discontinued operations results primarily from dispositions of 17
shopping centers and one industrial property in 2007 plus the held for sale
classification of two shopping centers and one industrial property in the first
quarter of 2008.
Effects
of Inflation
We have
structured our leases in such a way as to remain largely unaffected should
significant inflation occur. Most of the leases contain percentage
rent provisions whereby we receive increased rentals based on the tenants' gross
sales. Many leases provide for increasing minimum rentals during the
terms of the leases through escalation provisions. In addition, many
of our leases are for terms of less than 10 years, which allow us to adjust
rental rates to changing market conditions when the leases
expire. Most of our leases also require the tenants to pay their
proportionate share of operating expenses and ad valorem taxes. As a
result of these lease provisions, increases due to inflation, as well as ad
valorem tax rate increases, generally do not have a significant adverse effect
upon our operating results because they are absorbed by our
tenants.
Capital
Resources and Liquidity
Our
primary liquidity needs are payment of our common and preferred dividends,
maintaining and operating our existing properties, payment of our debt service
costs and funding planned growth. We anticipate that cash flows from
operating activities will continue to provide adequate capital for all common
and preferred dividend payments and debt service costs, as well as the capital
necessary to maintain and operate our existing properties. We do not
anticipate that the current turmoil in the capital markets will have a
significant effect on our ability to obtain capital or to execute our business
plan. We believe that asset dispositions, real estate joint venture
relationships and existing capital resources such as our revolving credit
facilities will provide adequate capital. Our most restrictive debt
covenants limit the amount of additional leverage we can add; however, we
believe the sources of capital described above are adequate to execute our
current business plan and remain in compliance with our debt
covenants.
Primary
sources of capital for funding our acquisitions and new development programs are
our revolving credit facilities, cash generated from sale of properties and
notes receivable from real estate joint ventures and partnerships for new
development activities, transactions with venture partners, cash flow generated
by our operating properties and proceeds from capital issuances as
needed. Amounts outstanding under the revolving credit agreement are
retired as needed with proceeds from the issuance of long-term debt, common and
preferred equity, cash generated from disposition of properties and cash flow
generated by our operating properties. As of March 31, 2008, the
balance outstanding under our $575 million revolving credit facility was $265.0
million, and $10.9 million was outstanding under our $30 million credit
facility, which we use for cash management purposes.
Our
capital structure also includes non-recourse secured debt that we assume in
conjunction with our acquisitions program. We also have non-recourse
debt secured by acquired or developed properties held in several of our real
estate joint ventures and partnerships. We hedge the future cash
flows of certain debt transactions, as well as changes in the fair value of our
debt instruments, principally through interest rate swaps with major financial
institutions. We generally have the right to sell or otherwise
dispose of our assets except in certain cases where we are required to obtain
our joint venture partners’ consent or a third party consent for assets held in
special purpose entities, which are 100% owned by us.
Investing
Activities:
Acquisitions
Retail
Properties.
In
January 2008, we acquired a 4,000 square foot pad building located in
Florida through a 25%-owned unconsolidated joint venture.
In March
2008, we contributed 18 neighborhood/community shopping centers located in Texas
with an aggregate value of approximately $227.5 million, and aggregating more
than 2.1 million square feet, to a joint venture. We sold an 85% interest
in this joint venture to AEW Capital Management on behalf of one of its
institutional clients and received proceeds approximating $216.1
million. We maintain a 15% ownership interest in this venture, which
is consolidated in our financial statements.
Industrial Properties.
There
were no acquisitions of industrial properties in the first quarter of
2008.
Dispositions
Retail
Properties.
During
the first quarter of 2008, we sold two shopping centers that were located in
California and Texas. Sales proceeds from these dispositions totaled
$19.1 million and generated gains of $8.4 million. Also, we
classified two shopping centers, totaling $4.6 million, as held for sale as of
March 31, 2008, which are located in Texas and Louisiana.
Industrial
Properties.
There
were no dispositions of industrial properties in the first quarter of 2008, but
we have classified a Texas property, totaling $3.0 million, as held for sale as
of March 31, 2008.
Subsequent
to March 31, 2008, we sold a shopping center and an industrial property both
located in Texas and classified as held for sale as of March 31,
2008.
New
Development and Capital Expenditures
At March
31, 2008, we had 35 projects under construction or in preconstruction stages
with a total square footage of approximately 10.3 million. These
properties are slated to be completed over the next one to five
years.
Merchant
Development Properties.
During
the first quarter of 2008, we sold two parcels of land located in Texas, which
generated gains of $.5 million. In an unconsolidated real estate
joint venture and partnership, a land parcel was sold in
Colorado. Our share of the sales proceeds and the gain generated
totaled $.3 million and $.2 million, respectively.
Our new
development projects are financed initially under our revolving credit
facilities, using available cash generated from dispositions of properties, cash
flow generated by our operating properties or proceeds from notes receivable
from real estate joint venture and partnerships for new development
activities.
Capital
expenditures for additions to the existing portfolio, acquisitions, new
development and our share of investments in unconsolidated real estate joint
ventures totaled $97.1 million and $267.3 million for the first quarter of
2008 and 2007, respectively. We expect to invest $142.3 million
in the remainder of 2008, $74.7 million in 2009, $37.5 million in 2010, $18.0
million in 2011 and $1.7 million in both 2012 and 2013 to complete construction
of 35 properties under various stages of development.
Financing
Activities:
Debt
Total
debt outstanding remained stable at $3.2 billion at March 31, 2008 and December
31, 2007. Total debt at March 31, 2008 included $2.9 billion of which
interest rates are fixed and $342.6 million that bears interest at variable
rates, after adjusting for the net effect of $50 million of interest rate
swaps. Additionally, debt totaling $1.1 billion was secured by
operating properties while the remaining $2.1 billion was
unsecured.
We have a
$575 million unsecured revolving credit facility held by a syndicate of
banks. This unsecured revolving facility expires in February 2010 and
provides a one year extension option available at our
request. Borrowing rates under this facility float at a margin over
LIBOR, plus a facility fee. The borrowing margin and facility fee,
which are currently 42.5 and 15.0 basis points, respectively, are priced off a
grid that is tied to our senior unsecured credit rating. This
facility includes a competitive bid feature where we are allowed to request bids
for borrowings up to $287.5 million from the syndicate banks. As of
April 30, 2008, there was $290.0 million outstanding under this
facility. We also maintain a $30 million unsecured and uncommitted
overnight facility that is used for cash management purposes, and as of April
30, 2008, $6.7 million was outstanding under this facility. The
available balance under our revolving credit agreement was $268.1 million at
April 30, 2008, which is reduced by amounts outstanding for letters of credit
and our overnight facility. We were in full compliance with the
covenants of our unsecured revolving credit facilities as of March 31,
2008.
As of
December 31, 2007, the balance of secured debt that was assumed in conjunction
with 2007 acquisitions was $99.4 million. A capital lease obligation
totaling $12.9 million was assumed and subsequently settled in
2007.
On March
20, 2008, we contributed assets to a joint venture with an institutional
investor. In conjunction with this transaction, the joint venture
issued $154.3 million of fixed-rate long-term debt with an average life of 7.3
years at an average rate of 5.4% that we guaranteed. We received all
of the proceeds from the issuance of this debt and such proceeds were used to
reduce amounts outstanding under our $575 million revolving credit
facility.
In
January 2008, we elected to repay at par a fixed-rate 8.33% mortgage totaling
$121.8 million that was secured by 19 supermarket-anchored shopping centers in
California originally acquired in April 2001.
At March
31, 2008, we had two interest rate swap contracts designated as fair value
hedges with an aggregate notional amount of $50.0 million that convert fixed
interest payments at rates of 4.2% to variable interest payments. We
could be exposed to losses in the event of nonperformance by the
counter-parties; however, management believes the likelihood of such
nonperformance is unlikely.
At
December 31, 2007, we had two forward-starting interest rate swap contracts with
an aggregate notional amount of $118.6 million to mitigate the risk of future
fluctuations in interest rates on forecasted issuances of long-term
debt. These contracts were settled approximately one week after we
contributed assets to a joint venture with an institutional investor and
concurrently issued $154.3 million of fixed-rate long-term debt that we
guaranteed.
Equity
Common
and preferred dividends increased to $52.7 million in the first three months of
2008, compared to $47.5 million for the first three months of
2007. The quarterly dividend rate for our common shares of beneficial
interest increased to $.525 in 2008 compared to $.495 for the same period of
2007. Our dividend payout ratio on common equity for the three months
of 2008 and 2007 approximated 66.9% and 65.1%, respectively, based on basic
funds from operations for the respective periods.
In July
2007, our Board of Trust Managers authorized a common share repurchase
program as part of our ongoing investment strategy. Under the terms
of the program, we may purchase up to a maximum value of $300 million of our
common shares of beneficial interest during the next two years. Share
repurchases may be made in the open market or in privately negotiated
transactions at the discretion of management and as market conditions
warrant. We anticipate funding the repurchase of shares primarily
through the proceeds received from our property disposition program, as well as
from general corporate funds.
During
2007, we repurchased 2.8 million common shares of beneficial interest at an
average share price of $37.12 and cancelled 1.4 million common shares of
beneficial interest in both 2008 and 2007. As of March 31, 2008, the
remaining value of common shares of beneficial interest available to be
repurchased is $196.7 million.
On
September 25, 2007, we issued $200 million of depositary shares in a private
placement, and the net proceeds of $193.6 million were used to repay amounts
outstanding under our credit facilities. Each depositary share
represents one-hundredth of a Series G Cumulative Redeemable Preferred
Share. The depositary shares are redeemable, in whole or in part at
our option, at a redemption price of $25 multiplied by a graded rate per
depositary share based on the date of redemption plus any accrued and unpaid
dividends thereon. The depositary shares are not convertible or
exchangeable for any of our other property or securities. The Series
G Preferred Shares pay a variable-rate quarterly dividend through September 2008
and then a variable-rate monthly dividend and have a liquidation preference of
$2,500 per share. The variable-rate dividend is calculated on the
period’s three month LIBOR rate plus a percentage determined by the number of
days outstanding. Further, the rate may vary if any of our
outstanding preferred shares are downgraded. The variable-rate
dividend is not to exceed 20%.
On
January 30, 2007, we issued $200 million of depositary shares. Each
depositary share represents one-hundredth of a 6.5% Series F Cumulative
Redeemable Preferred Share. The depositary shares are redeemable, in
whole or in part, on or after January 30, 2012 at our option, at a redemption
price of $25 per depositary share, plus any accrued and unpaid dividends
thereon. The depositary shares are not convertible or exchangeable
for any of our other property or securities. The Series F Preferred
Shares pay a 6.5% annual dividend and have a liquidation value of $2,500 per
share. Net proceeds of $194.0 million were used to repay amounts
outstanding under our credit facilities and for general business
purposes.
In
September 2004, the SEC declared effective two additional shelf registration
statements totaling $1.55 billion, of which $1.35 billion was available as of
April 30, 2008. In addition, we have $85.4 million available as of
April 30, 2008 under our $1 billion shelf registration statement, which
became effective in April 2003. These shelf registrations will expire
at December 31, 2008. We will continue to closely monitor both the
debt and equity markets and carefully consider our available financing
alternatives, including both public and private placements.
Contractual
Obligations
The
following table summarizes our primary contractual obligations as of March 31,
2008 (in thousands):
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
Mortgages
and Notes Payable: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
Debt
|
|
$ |
141,416 |
|
|
$ |
123,522 |
|
|
$ |
415,750 |
|
|
$ |
860,566 |
|
|
$ |
242,216 |
|
|
$ |
797,690 |
|
|
$ |
2,581,160 |
|
Secured
Debt
|
|
|
114,055 |
|
|
|
142,299 |
|
|
|
124,634 |
|
|
|
151,401 |
|
|
|
177,697 |
|
|
|
728,556 |
|
|
|
1,438,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ground
Lease Payments
|
|
|
2,037 |
|
|
|
3,114 |
|
|
|
3,073 |
|
|
|
3,000 |
|
|
|
2,858 |
|
|
|
114,489 |
|
|
|
128,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
to Develop Projects
|
|
|
142,271 |
|
|
|
74,739 |
|
|
|
37,500 |
|
|
|
17,981 |
|
|
|
1,659 |
|
|
|
1,659 |
|
|
|
275,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Contractual Obligations
|
|
$ |
399,779 |
|
|
$ |
343,674 |
|
|
$ |
580,957 |
|
|
$ |
1,032,948 |
|
|
$ |
424,430 |
|
|
$ |
1,642,394 |
|
|
$ |
4,424,182 |
|
____________________
(1) Includes
principal and interest with interest on variable-rate debt calculated using
rates at March 31, 2008 excluding the effect of interest rate
swaps.
Off
Balance Sheet Arrangements
As of
March 31, 2008 and December 31, 2007, none of our off-balance sheet arrangements
had a material effect on our liquidity or availability of, or requirement for,
our capital resources. Letters of credit totaling $10.2 million and
$9.2 million were outstanding under the revolving credit facility at March 31,
2008 and December 31, 2007, respectively.
Related
to our investment in a redevelopment project in Sheridan, Colorado that is held
in an unconsolidated real estate joint venture, we, our joint venture partner
and the joint venture have each provided a guarantee for the payment of any
annual sinking fund requirement shortfalls on bonds issued in connection with
the project. The Sheridan Redevelopment Agency issued $97 million of
Series A bonds used for an urban renewal project. The bonds are to be
repaid with incremental sales and property taxes and a public improvement fee
(“PIF”) to be assessed on future retail sales. The incremental taxes
and PIF are to remain intact until the bond liability has been paid in full,
including any amounts we may have to provide. We have evaluated and
determined that the fair value of the guarantee is nominal. However,
due to the guarantee, a liability has been recorded by the joint venture equal
to amounts funded under the bonds.
Funds
from Operations
The
National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as
net income (loss) available to common shareholders computed in accordance with
generally accepted accounting principles, excluding gains or losses from sales
of operating real estate assets and extraordinary items, plus depreciation and
amortization of operating properties, including our share of unconsolidated real
estate joint ventures and partnerships. We calculate FFO in a manner
consistent with the NAREIT definition.
Management
uses FFO as a supplemental measure to conduct and evaluate our business because
there are certain limitations associated with using GAAP net income by itself as
the primary measure of our operating performance. Historical cost
accounting for real estate assets in accordance with GAAP implicitly assumes
that the value of real estate assets diminishes predictably over
time. Since real estate values instead have historically risen or
fallen with market conditions, management believes that the presentation of
operating results for real estate companies that uses historical cost accounting
is insufficient by itself. There can be no assurance that FFO
presented by us is comparable to similarly titled measures of other
REITs.
FFO
should not be considered as an alternative to net income or other measurements
under GAAP as an indicator of our operating performance or to cash flows from
operating, investing or financing activities as a measure of
liquidity. FFO does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on
indebtedness.
Funds
from operations is calculated as follows (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$ |
28,776 |
|
|
$ |
46,657 |
|
Depreciation
and amortization
|
|
|
42,302 |
|
|
|
31,979 |
|
Depreciation
and amortization of unconsolidated real estate joint
ventures and partnerships
|
|
|
2,540 |
|
|
|
2,057 |
|
Gain
on sale of properties
|
|
|
(7,736 |
) |
|
|
(14,945 |
) |
Gain
on sale of properties of unconsolidated real estate joint
ventures and partnerships
|
|
|
(14 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Funds
from operations
|
|
|
65,868 |
|
|
|
65,748 |
|
Funds
from operations attributable to operating partnership
units
|
|
|
- |
|
|
|
1,106 |
|
|
|
|
|
|
|
|
|
|
Funds
from operations assuming conversion of OP units
|
|
$ |
65,868 |
|
|
$ |
66,854 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
83,679 |
|
|
|
86,005 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
Share options and awards
|
|
|
488 |
|
|
|
1,123 |
|
Operating partnership units
|
|
|
- |
|
|
|
2,681 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - diluted
|
|
|
84,167 |
|
|
|
89,809 |
|
Newly
Issued Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value
Measurements.” This statement defines fair value and establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. The key
changes to current practice are (1) the definition of fair value, which focuses
on an exit price rather than an entry price; (2) the methods used to measure
fair value, such as emphasis that fair value is a market-based measurement, not
an entity-specific measurement, as well as the inclusion of an adjustment for
risk, restrictions and credit standing and (3) the expanded disclosures about
fair value measurements. This statement does not require any new fair
value measurements.
We
adopted SFAS 157 in the first quarter of 2008 regarding our financial assets and
liabilities currently recorded or disclosed at fair value. The FASB has
issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No.
157,” to defer the provisions of SFAS 157 relating to nonfinancial assets and
liabilities that delays implementation by us until January 1,
2009. SFAS 157 has not and is not expected to materially affect how
we determine fair value, but it has resulted in certain additional
disclosures.
In
September 2006, the FASB issued SFAS No. 158 (“SFAS 158”), “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – An
Amendment of FASB Statements No. 87, 88, 106, and 132R.” This new
standard requires an employer to: (a) recognize in its statement of financial
position an asset for a plan’s overfunded status or a liability for a plan’s
underfunded status; (b) measure a plan’s assets and its obligations that
determine its funded status as of the end of the employer’s fiscal year (with
limited exceptions); and (c) recognize changes in the funded status of a defined
benefit postretirement plan in the year in which the changes
occur. These changes will be reported in comprehensive
income. The requirement to measure plan assets and benefit
obligations as of the date of the employer’s fiscal year-end statement of
financial position (the “Measurement Provision”) is effective for fiscal years
ending after December 15, 2008. We have assessed the potential impact
of the Measurement Provision of SFAS 158 and concluded that its adoption will
not have a material effect on our consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option
for Financial Assets and Financial Liabilities.” SFAS 159 expands
opportunities to use fair value measurement in financial reporting and permits
entities to choose to measure many financial instruments and certain other items
at fair value. This statement was effective for us on January 1,
2008, and we have elected not to measure any of our current eligible financial
assets or liabilities at fair value upon adoption; however, we do have the
option to elect to measure eligible financial assets or liabilities acquired in
the future at fair value.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business
Combinations.” SFAS 141R expands the original guidance’s definition
of a business. It broadens the fair value measurement and recognition
to all assets acquired, liabilities assumed and interests transferred as a
result of business combinations. SFAS 141R requires expanded
disclosures to improve the ability to evaluate the nature and financial effects
of business combinations. SFAS 141R is effective for us for business
combinations made on or after January 1, 2009. While we have not
formally quantified the effect, we expect the adoption of SFAS 141R to have a
material effect on our accounting for future acquisition of properties, which
may fall under the definition of a business.
In
December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51.” SFAS 160 requires that a noncontrolling interest in an
unconsolidated entity be reported as equity and any losses in excess of an
unconsolidated entity’s equity interest be recorded to the noncontrolling
interest. The statement requires fair value measurement of any
noncontrolling equity investment retained in a deconsolidation. SFAS
160 is effective for us on January 1, 2009 and most provisions will be applied
retrospectively. We are currently evaluating the impact SFAS 160 will
have on our consolidated financial statements.
In March
2008, the FASB issued SFAS No. 161 (“SFAS 161”), “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133.” SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities. SFAS 161 is effective for us on
January 1, 2009. We are currently evaluating the impact SFAS 161 will
have on our consolidated financial statements.
On August
31, 2007, the FASB authorized a proposed FASB Staff Position (the “proposed
FSP”) that, if issued, would affect the accounting for our convertible and
exchangeable senior debentures. If issued in the form expected, the
proposed FSP would require that the initial debt proceeds from the sale of our
convertible and exchangeable senior debentures be allocated between a liability
component and an equity component. The resulting debt discount would
be amortized using the effective interest method over the period the debt is
expected to be outstanding as additional interest expense. The
proposed FSP has not been issued, but the FASB has indicated that it is expected
to be effective for fiscal years beginning after December 15, 2008 and requires
retroactive application. Upon the adoption of the proposed FSP on
January 1, 2009, we estimate the unamortized debt discount (as of March 31,
2008) to be approximately $32.3 million to be included as a reduction of debt
and approximately $46.3 million as accumulated additional paid-in capital on our
consolidated balance sheet. We estimate incremental interest expense
to be approximately $2.2 million for the first three months of 2008 and $8.4
million and $3.4 million for the years ended December 31, 2007 and 2006,
respectively.
ITEM
3. Quantitative
and Qualitative Disclosures About Market Risk
We use
fixed and floating-rate debt to finance our capital
requirements. These transactions expose us to market risk related to
changes in interest rates. Derivative financial instruments are used
to manage a portion of this risk, primarily interest rate swap agreements with
major financial institutions. These swap agreements expose us to
credit risk in the event of non-performance by the counter-parties to the
swaps. We do not engage in the trading of derivative financial
instruments in the normal course of business. At March 31, 2008, we
had fixed-rate debt of $2.9 billion and variable-rate debt of $342.6 million,
after adjusting for the net effect of $50 million notional amount of interest
rate swaps. At December 31, 2007, we had fixed-rate debt of $2.8
billion and variable-rate debt of $321.7 million, after adjusting for the net
effect of $50 million notional amount of interest rate
swaps.
ITEM
4. Controls
and Procedures
Under the
supervision and with the participation of our principal executive officer and
principal financial officer, management has evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of March
31, 2008. Based on that evaluation, our principal executive officer
and our principal financial officer have concluded that our disclosure controls
and procedures were effective as of March 31, 2008.
There has
been no change to our internal control over financial reporting during the
quarter ended March 31, 2008 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II-OTHER INFORMATION
ITEM
1. Legal
Proceedings
We are
involved in various matters of litigation arising in the normal course of
business. While we are unable to predict with certainty the amounts
involved, our management and counsel believe that when such litigation is
resolved, our resulting liability, if any, will not have a material adverse
effect on our condensed consolidated financial statements.
ITEM
1A. Risk
Factors
There
were no material changes to the risk factors discussed in our Annual Report on
Form 10-K for the year ended December 31, 2007.
ITEM
2. Unregistered
Sales of Equity Securities and Use of Proceeds
None.
ITEM
3. Defaults
Upon Senior Securities
None.
ITEM
4. Submission
of Matters to a Vote of Shareholders
None.
ITEM
5. Other
Information
Not
applicable.
ITEM
6. Exhibits
The
exhibits required by this item are set forth on the Exhibit Index attached
hereto.
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.
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WEINGARTEN
REALTY INVESTORS
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(Registrant)
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By:
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/s/
Andrew M. Alexander
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Andrew
M. Alexander
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Chief
Executive Officer
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By:
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/s/
Joe D. Shafer
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Joe
D. Shafer
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Vice
President/Chief Accounting Officer
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(Principal
Accounting Officer)
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DATE: May
9, 2008
EXHIBIT
INDEX
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(a)
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Exhibits:
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3.1
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—
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Restated
Declaration of Trust (filed as Exhibit 3.1 to WRI's Registration Statement
on Form 8-A dated January 19, 1999 and incorporated herein by
reference).
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3.2
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—
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Amendment
of the Restated Declaration of Trust (filed as Exhibit 3.2 to WRI's
Registration Statement on Form 8-A dated January 19, 1999 and incorporated
herein by reference).
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3.3
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—
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Second
Amendment of the Restated Declaration of Trust (filed as Exhibit 3.3 to
WRI's Registration Statement on Form 8-A dated January 19, 1999 and
incorporated herein by reference).
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3.4
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—
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Third
Amendment of the Restated Declaration of Trust (filed as Exhibit 3.4 to
WRI's Registration Statement on Form 8-A dated January 19, 1999 and
incorporated herein by reference).
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3.5
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—
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Fourth
Amendment of the Restated Declaration of Trust dated April 28, 1999 (filed
as Exhibit 3.5 to WRI's Annual Report on Form 10-K for the year ended
December 31, 2001 and incorporated herein by
reference).
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3.6
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—
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Fifth
Amendment of the Restated Declaration of Trust dated April 20, 2001 (filed
as Exhibit 3.6 to WRI's Annual Report on Form 10-K for the year ended
December 31, 2001 and incorporated herein by
reference).
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3.7
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—
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Amended
and Restated Bylaws of WRI (filed as Exhibit 99.2 to WRI's Registration
Statement on Form 8-A dated February 23, 1998 and incorporated herein by
reference).
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3.8
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—
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Amendment
of Bylaws-Direct Registration System, Section 7.2(a) dated May 3,
2007 (filed as Exhibit 3.8 to WRI’s Form 10-Q for the quarter ended June
30, 2007 and incorporated herein by reference).
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4.1
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—
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Subordinated
Indenture dated as of May 1, 1995 between WRI and Chase Bank of Texas,
National Association (formerly, Texas Commerce Bank National Association)
(filed as Exhibit 4(a) to WRI's Registration Statement on Form S-3 (No.
33-57659) and incorporated herein by reference).
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4.2
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—
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Subordinated
Indenture dated as of May 1, 1995 between WRI and Chase Bank of Texas,
National Association (formerly, Texas Commerce Bank National Association)
(filed as Exhibit 4(b) to WRI's Registration Statement on Form S-3 (No.
33-57659) and incorporated herein by reference).
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4.3
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—
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Form
of Fixed Rate Senior Medium Term Note (filed as Exhibit 4.19 to WRI’s
Annual Report on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference).
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4.4
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—
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Form
of Floating Rate Senior Medium Term Note (filed as Exhibit 4.20 to WRI’s
Annual Report on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference).
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4.5
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—
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Form
of Fixed Rate Subordinated Medium Term Note (filed as Exhibit 4.21 to
WRI’s Annual Report on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference).
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4.6
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—
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Form
of Floating Rate Subordinated Medium Term Note (filed as Exhibit 4.22 to
WRI’s Annual Report on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference).
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4.7
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—
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Statement
of Designation of 6.75% Series D Cumulative Redeemable Preferred Shares
(filed as Exhibit 3.1 to WRI’s Registration Statement on Form 8-A dated
April 17, 2003 and incorporated herein by reference).
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4.8
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—
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Statement
of Designation of 6.95% Series E Cumulative Redeemable Preferred Shares
(filed as Exhibit 3.1 to WRI’s Registration Statement on Form 8-A dated
July 8, 2004 and incorporated herein by reference).
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4.9
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—
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Statement
of Designation of 6.50% Series F Cumulative Redeemable Preferred Shares
(filed as Exhibit 3.1 to WRI’s Registration Statement on Form 8-A dated
January 29, 2007 and incorporated herein by reference).
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4.10
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—
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Statement
of Designation of Adjustable Rate Series G Cumulative Redeemable Preferred
Shares (filed as Exhibit 3.1 to WRI’s Form 8-K dated September 25, 2007
and incorporated herein by
reference).
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4.11
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—
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6.75%
Series D Cumulative Redeemable Preferred Share Certificate (filed as
Exhibit 4.2 to WRI’s Registration Statement on Form 8-A dated April 17,
2003 and incorporated herein by reference).
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4.12
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—
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6.95%
Series E Cumulative Redeemable Preferred Share Certificate (filed as
Exhibit 4.2 to WRI’s Registration Statement on Form 8-A dated July 8, 2004
and incorporated herein by reference).
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4.13
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—
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6.50%
Series F Cumulative Redeemable Preferred Share Certificate (filed as
Exhibit 4.2 to WRI’s Registration Statement on Form 8-A dated January 29,
2007 and incorporated herein by reference).
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4.14
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—
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Form
of Receipt for Depositary Shares, each representing 1/30 of a share of
6.75% Series D Cumulative Redeemable Preferred Shares, par value $.03 per
share (filed as Exhibit 4.3 to WRI’s Registration Statement on Form 8-A
dated April 17, 2003 and incorporated herein by
reference).
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4.15
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—
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Form
of Receipt for Depositary Shares, each representing 1/100 of a share of
6.95% Series E Cumulative Redeemable Preferred Shares, par value $.03 per
share (filed as Exhibit 4.3 to WRI’s Registration Statement on Form 8-A
dated July 8, 2004 and incorporated herein by reference).
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4.16
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—
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Form
of Receipt for Depositary Shares, each representing 1/100 of a share of
6.50% Series F Cumulative Redeemable Preferred Shares, par value $.03 per
share (filed as Exhibit 4.3 to WRI’s Registration Statement on Form 8-A
dated January 29, 2007 and incorporated herein by
reference).
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4.17
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—
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Purchase
Agreement for Depositary Shares, each representing 1/100 of a share of
Adjustable Rate Series G Cumulative Redeemable Preferred Shares, par value
$.03 per share (filed as Exhibit 10.1 to WRI’s Form 8-K dated September
25, 2007 and incorporated herein by reference).
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4.18
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—
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Form
of 7% Notes due 2011 (filed as Exhibit 4.17 to WRI’s Annual Report on Form
10-K for the year ended December 31, 2001 and incorporated herein by
reference).
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4.19
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—
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Form
of 3.95% Convertible Senior Notes due 2026 (filed as Exhibit 4.2 to WRI’s
Form 8-K on August 2, 2006 and incorporated herein by
reference).
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10.1†
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—
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1988
Share Option Plan of WRI, as amended (filed as Exhibit 10.1 to WRI’s
Annual Report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference).
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10.2†
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—
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The
Savings and Investment Plan for Employees of Weingarten Realty Investors
dated December 17, 2003 (filed as Exhibit 10.34 on WRI’s Annual Report on
Form 10-K for the year ended December 31, 2005 and incorporated herein by
reference).
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10.3†
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—
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The
Savings and Investment Plan for Employees of WRI, as amended (filed as
Exhibit 4.1 to WRI’s Registration Statement on Form S-8 (No. 33-25581) and
incorporated herein by reference).
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10.4†
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—
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First
Amendment to the Savings and Investment Plan for Employees of Weingarten
Realty Investors dated August 1, 2005 (filed as Exhibit 10.25 on WRI’s
Form 10-Q for the quarter ended September 30, 2005 and incorporated herein
by reference).
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10.5†
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—
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The
Fifth Amendment to Savings and Investment Plan for Employees of WRI (filed
as Exhibit 4.1.1 to WRI’s Post-Effective Amendment No. 1 to Registration
Statement on Form S-8 (No. 33-25581) and incorporated herein by
reference).
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10.6†
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—
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Mandatory
Distribution Amendment for the Savings and Investment Plan for Employees
of Weingarten Realty Investors dated August 1, 2005 (filed as Exhibit
10.26 on WRI’s Form 10-Q for the quarter ended September 30, 2005 and
incorporated herein by reference).
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10.7†
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—
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The
1993 Incentive Share Plan of WRI (filed as Exhibit 4.1 to WRI’s
Registration Statement on Form S-8 (No. 33-52473) and incorporated herein
by reference).
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10.8†
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—
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1999
WRI Employee Share Purchase Plan (filed as Exhibit 10.6 to WRI’s Annual
Report on Form 10-K for the year ended December 31, 1999 and incorporated
herein by reference).
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10.9†
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—
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2001
Long Term Incentive Plan (filed as Exhibit 10.7 to WRI’s Annual Report on
Form 10-K for the year ended December 31, 2001 and incorporated herein by
reference).
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10.10
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—
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Master
Promissory Note in the amount of $20,000,000 between WRI, as payee, and
Chase Bank of Texas, National Association (formerly, Texas Commerce Bank
National Association), as maker, effective December 30, 1998 (filed as
Exhibit 4.15 to WRI’s Annual Report on Form 10-K for the year ended
December 31, 1999 and incorporated herein by reference).
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10.11†
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—
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Weingarten
Realty Retirement Plan restated effective April 1, 2002 (filed as Exhibit
10.29 on WRI’s Annual Report on Form 10-K for the year ended December 31,
2005 and incorporated herein by reference).
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10.12†
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—
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First
Amendment to the Weingarten Realty Retirement Plan, dated December 31,
2003 (filed as Exhibit 10.33 on WRI’s Annual Report on Form 10-K for the
year ended December 31, 2005 and incorporated herein by
reference).
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10.13†
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—
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First
Amendment to the Weingarten Realty Pension Plan, dated August 1, 2005
(filed as Exhibit 10.27 on WRI’s Form 10-Q for the quarter ended September
30, 2005 and incorporated herein by reference).
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10.14†
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—
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Mandatory
Distribution Amendment for the Weingarten Realty Retirement Plan dated
August 1, 2005 (filed as Exhibit 10.28 on WRI’s Form 10-Q for the quarter
ended September 30, 2005 and incorporated herein by
reference).
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10.15†
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—
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Weingarten
Realty Investors Supplemental Executive Retirement Plan amended and
restated effective September 1, 2002 (filed as Exhibit 10.10 on WRI’s Form
10-Q for the quarter ended June 30, 2005 and incorporated herein by
reference).
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10.16†
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—
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First
Amendment to the Weingarten Realty Investors Supplemental Executive
Retirement Plan amended on November 3, 2003 (filed as Exhibit 10.11 on
WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated
herein by reference).
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10.17†
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—
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Second
Amendment to the Weingarten Realty Investors Supplemental Executive
Retirement Plan amended October 22, 2004 (filed as Exhibit 10.12 on WRI’s
Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by
reference).
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10.18†
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—
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Third
Amendment to the Weingarten Realty Investors Supplemental Executive
Retirement Plan amended October 22, 2004 (filed as Exhibit 10.13 on WRI’s
Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by
reference).
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10.19†
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—
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Weingarten
Realty Investors Retirement Benefit Restoration Plan adopted effective
September 1, 2002 (filed as Exhibit 10.14 on WRI’s Form 10-Q for the
quarter ended June 30, 2005 and incorporated herein by
reference).
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10.20†
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—
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First
Amendment to the Weingarten Realty Investors Retirement Benefit
Restoration Plan amended on November 3, 2003 (filed as Exhibit 10.15 on
WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated
herein by reference).
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10.21†
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—
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Second
Amendment to the Weingarten Realty Investors Retirement Benefit
Restoration Plan amended October 22, 2004 (filed as Exhibit 10.16 on WRI’s
Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by
reference).
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10.22†
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—
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Third
Amendment to the Weingarten Realty Pension Plan dated December 23, 2005
(filed as Exhibit 10.30 on WRI’s Annual Report on Form 10-K for the year
ended December 31, 2005 and incorporated herein by
reference).
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10.23†
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—
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Weingarten
Realty Investors Deferred Compensation Plan amended and restated as a
separate and independent plan effective September 1, 2002 (filed as
Exhibit 10.17 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and
incorporated herein by reference).
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10.24†
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—
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Supplement
to the Weingarten Realty Investors Deferred Compensation Plan amended on
April 25, 2003 (filed as Exhibit 10.18 on WRI’s Form 10-Q for the quarter
ended June 30, 2005 and incorporated herein by
reference).
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10.25†
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—
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First
Amendment to the Weingarten Realty Investors Deferred Compensation Plan
amended on November 3, 2003 (filed as Exhibit 10.19 on WRI’s Form 10-Q for
the quarter ended June 30, 2005 and incorporated herein by
reference).
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10.26†
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—
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Second
Amendment to the Weingarten Realty Investors Deferred Compensation Plan,
as amended, dated October 13, 2005 (filed as Exhibit 10.29 on WRI’s Form
10-Q for the quarter ended September 30, 2005 and incorporated herein by
reference).
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10.27†
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—
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Trust
Under the Weingarten Realty Investors Deferred Compensation Plan amended
and restated effective October 21, 2003 (filed as Exhibit 10.21 on WRI’s
Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by
reference).
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10.28†
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—
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Fourth
Amendment to the Weingarten Realty Investors Deferred Compensation Plan,
dated December 23, 2005 (filed as Exhibit 10.31 on WRI’s Annual Report on
Form 10-K for the year ended December 31, 2005 and incorporated herein by
reference).
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10.29†
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—
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Trust
Under the Weingarten Realty Investors Retirement Benefit Restoration Plan
amended and restated effective October 21, 2003 (filed as Exhibit 10.22 on
WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated
herein by reference).
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10.30†
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—
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Trust
Under the Weingarten Realty Investors Supplemental Executive Retirement
Plan amended and restated effective October 21, 2003 (filed as Exhibit
10.23 on WRI’s Form 10-Q for the quarter ended June 30, 2005 and
incorporated herein by reference).
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10.31†
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—
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First
Amendment to the Trust Under the Weingarten Realty Investors Deferred
Compensation Plan, Supplemental Executive Retirement Plan, and Retirement
Benefit Restoration Plan amended on March 16, 2004 (filed as Exhibit 10.24
on WRI’s Form 10-Q for the quarter ended June 30, 2005 and incorporated
herein by reference).
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10.32†
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—
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Third
Amendment to the Weingarten Realty Investors Deferred Compensation Plan
dated August 1, 2005 (filed as Exhibit 10.30 on WRI’s Form 10-Q for the
quarter ended September 30, 2005 and incorporated herein by
reference).
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10.33
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—
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Amended
and Restated Credit Agreement dated February 22, 2006 among Weingarten
Realty Investors, the Lenders Party Hereto and JPMorgan Chase Bank, N.A.,
as Administrative Agent (filed as Exhibit 10.32 on WRI’s Form 10-K for the
year ended December 31, 2005 and incorporated by
reference).
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10.34
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—
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Amendment
Agreement dated November 7, 2007 to the Amended and Restated Credit
Agreement (filed as Exhibit 10.34 on WRI’s Form 10-Q for the quarter ended
September 30, 2007 and incorporated herein by
reference).
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10.35†
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—
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Fifth
Amendment to the Weingarten Realty Investors Deferred Compensation Plan
(filed as Exhibit 10.34 to WRI’s Form 10-Q for quarter ended June 30, 2006
and incorporated herein by reference).
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10.36†
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—
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Restatement
of the Weingarten Realty Investors Supplemental Executive Retirement Plan
dated August 4, 2006 (filed as Exhibit 10.35 to WRI’s Form 10-Q for the
quarter ended September 30, 2006 and incorporated herein by
reference).
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10.37†
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—
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Restatement
of the Weingarten Realty Investors Deferred Compensation Plan dated August
4, 2006 (filed as Exhibit 10.36 to WRI’s Form 10-Q for the quarter ended
September 30, 2006 and incorporated herein by
reference).
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10.38†
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—
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Restatement
of the Weingarten Realty Investors Retirement Benefit Restoration Plan
dated August 4, 2006 (filed as Exhibit 10.37 to WRI’s Form 10-Q for the
quarter ended September 30, 2006 and incorporated herein by
reference).
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10.39†
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—
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Amendment
No. 1 to the Weingarten Realty Investors Supplemental Executive Retirement
Plan dated December 15, 2006 (filed as Exhibit 10.38 on WRI’s Form 10-K
for the year ended December 31, 2006 and incorporated by
reference).
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10.40†
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—
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Amendment
No. 1 to the Weingarten Realty Investors Retirement Benefit Restoration
Plan dated December 15, 2006 (filed as Exhibit 10.39 on WRI’s Form 10-K
for the year ended December 31, 2006 and incorporated by
reference).
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10.41†
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—
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Amendment
No. 1 to the Weingarten Realty Investors Deferred Compensation Plan dated
December 15, 2006 (filed as Exhibit 10.40 on WRI’s Form 10-K for the year
ended December 31, 2006 and incorporated by reference).
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10.42†
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—
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Final
401(k)/401(m) Regulations Amendment dated December 15, 2006 (filed as
Exhibit 10.41 on WRI’s Form 10-K for the year ended December 31, 2006 and
incorporated by reference).
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10.43†
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—
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Amendment
No. 2 to the Weingarten Realty Investors Retirement Benefit Restoration
Plan dated November 9, 2007 (filed as Exhibit 10.43 on WRI’s Form 10-K for
the year ended December 31, 2007 and incorporated by
reference).
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10.44†
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—
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Amendment
No. 2 to the Weingarten Realty Investors Deferred Compensation Plan dated
November 9, 2007 (filed as Exhibit 10.44 on WRI’s Form 10-K for the year
ended December 31, 2007 and incorporated by reference).
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10.45†
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—
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Amendment
No. 2 to the Weingarten Realty Investors Supplemental Executive Retirement
Plan dated November 9, 2007 (filed as Exhibit 10.45 on WRI’s Form 10-K for
the year ended December 31, 2007 and incorporated by
reference).
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10.46†
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—
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Severance
Benefit and Stay Pay Bonus Plan dated September 20, 2007 (filed as Exhibit
10.46 on WRI’s Form 10-K for the year ended December 31, 2007 and
incorporated by reference).
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10.47†
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—
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2007
Reduction in Force Severance Pay Plan dated November 6, 2007 (filed as
Exhibit 10.47 on WRI’s Form 10-K for the year ended December 31, 2007 and
incorporated by reference).
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14.1
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—
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Code
of Ethical Conduct for Senior Financial Officers – Andrew M. Alexander
(filed as Exhibit 14.1 to WRI’s Annual Report on Form 10-K for the year
ended December 31, 2003 and incorporated herein by
reference).
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14.2
|
—
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Code
of Ethical Conduct for Senior Financial Officers – Stephen C. Richter
(filed as Exhibit 14.2 to WRI’s Annual Report on Form 10-K for the year
ended December 31, 2003 and incorporated herein by
reference).
|
14.3
|
—
|
Code
of Ethical Conduct for Senior Financial Officers – Joe D. Shafer (filed as
Exhibit 14.3 to WRI’s Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by
reference).
|
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).
|
_______________
*
|
Filed
with this report.
|
**
|
Furnished
with this report.
|
†
|
Management
contract or compensation plan or
arrangement.
|
42