10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________________ to ____________________ Commission file number 1-9876 ------ WEINGARTEN REALTY INVESTORS --------------------------- (Exact name of registrant as specified in its charter) Texas 74-1464203 ---------------------------------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2600 Citadel Plaza Drive, P.O. Box 924133, Houston, Texas 77292-4133 ---------------------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 866-6000 -------------- ____________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes . No . --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of October 20, 2000, there were 26,807,764 common shares of beneficial interest of Weingarten Realty Investors, $.03 par value, outstanding.
PART 1 FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS WEINGARTEN REALTY INVESTORS STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenues: Rentals. . . . . . . . . . . . . . . . . . . . . . . . . $ 63,595 $ 57,171 $ 184,396 $ 165,593 Interest: Affiliates . . . . . . . . . . . . . . . . . . . . . . 1,512 529 4,240 1,627 Securities and Other . . . . . . . . . . . . . . . . . 118 125 314 649 Equity in earnings (loss) of real estate joint ventures and partnerships . . . . . . . . . . . . . . . . . . (37) 43 (135) 211 Other. . . . . . . . . . . . . . . . . . . . . . . . . . 798 519 1,955 1,383 ---------- ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . 65,986 58,387 190,770 169,463 ---------- ---------- ---------- ---------- Expenses: Depreciation and amortization. . . . . . . . . . . . . . 14,141 12,640 40,571 35,804 Interest . . . . . . . . . . . . . . . . . . . . . . . . 11,626 8,155 32,488 23,679 Operating. . . . . . . . . . . . . . . . . . . . . . . . 9,813 9,026 28,711 26,386 Ad valorem taxes . . . . . . . . . . . . . . . . . . . . 8,437 7,146 23,689 20,909 General and administrative . . . . . . . . . . . . . . . 2,107 1,843 6,020 5,633 ---------- ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . 46,124 38,810 131,479 112,411 ---------- ---------- ---------- ---------- Income from Operations . . . . . . . . . . . . . . . . . . 19,862 19,577 59,291 57,052 Loss on Sales of Property. . . . . . . . . . . . . . . . . (5) (60) ---------- ---------- ---------- ---------- Income Before Extraordinary Charge . . . . . . . . . . . . 19,862 19,572 59,291 56,992 Extraordinary Charge (early retirement of debt). . . . . . (149) ---------- ---------- ---------- ---------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . 19,862 19,572 59,291 56,843 Dividends on Preferred Shares. . . . . . . . . . . . . . . 5,010 5,010 15,030 14,583 ---------- ---------- ---------- ---------- Net Income Available to Common Shareholders. . . . . . . . $ 14,852 $ 14,562 $ 44,261 $ 42,260 ========== ========== ========== ========== Net Income Per Common Share - Basic: Income Before Extraordinary Charge. . . . . . . . . $ .55 $ .55 $ 1.65 $ 1.59 Extraordinary Charge. . . . . . . . . . . . . . . . (.01) ---------- ---------- ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . $ .55 $ .55 $ 1.65 $ 1.58 ========== ========== ========== ========== Net Income Per Common Share - Diluted: Income Before Extraordinary Charge. . . . . . . . . $ .55 $ .54 $ 1.65 $ 1.58 Extraordinary Charge. . . . . . . . . . . . . . . . (.01) ---------- ---------- ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . $ .55 $ .54 $ 1.65 $ 1.57 ========== ========== ========== ==========
See Notes to Consolidated Financial Statements. Page 2
WEINGARTEN REALTY INVESTORS CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) September 30, December 31, 2000 1999 ------------- ------------- (unaudited) ASSETS Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,659,388 $ 1,514,139 Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (361,616) (328,645) ------------- ------------- Property - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,297,772 1,185,494 Investment in Real Estate Joint Ventures and Partnerships. . . . . . . . . . . . 2,417 2,006 ------------- ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,189 1,187,500 Mortgage Bonds and Notes Receivable from: Real Estate Joint Ventures and Partnerships. . . . . . . . . . . . . . . . . 36,583 52,824 Affiliate (net of deferred gain of $3,050 in 2000 and 1999). . . . . . . . . 4,135 3,907 Unamortized Debt and Lease Costs . . . . . . . . . . . . . . . . . . . . . . . . 33,807 29,986 Accrued Rent and Accounts Receivable (net of allowance for doubtful accounts of $1,619 in 2000 and $908 in 1999) . . . . . . . . . . . . . . . . . 14,420 16,874 Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,345 5,842 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,817 12,463 ------------- ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,410,296 $ 1,309,396 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 716,355 $ 594,185 Accounts Payable and Accrued Expenses. . . . . . . . . . . . . . . . . . . . . . 53,058 57,518 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,077 11,791 ------------- ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778,490 663,494 ------------- ------------- Commitments and Contingencies Shareholders' Equity: Preferred Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 10,000 7.44% Series A cumulative redeemable preferred shares of beneficial interest; 3,000 shares issued and outstanding; liquidation preference $25 per share . . . . . . . . . . . . . . . . . 89 90 7.125% Series B cumulative redeemable preferred shares of beneficial interest; 3,600 shares issued and 3,566 and 3,600 shares outstanding in 2000 and 1999; liquidation preference $25 per share . . 108 108 7.0% Series C cumulative redeemable preferred shares of beneficial interest; 2,300 shares issued and 2,272 and 2,297 shares outstanding in 2000 and 1999; liquidation preference $50 per share . . 68 69 Common Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 150,000; shares issued and outstanding: 26,808 in 2000 and 26,695 in 1999. . . . . . . . . . . . . . . . . . . . . 806 801 Capital Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 754,839 753,030 Accumulated Dividends in Excess of Net Income. . . . . . . . . . . . . . . . . (124,104) (108,193) Deferred Compensation Obligation . . . . . . . . . . . . . . . . . . . . . . . (3) ------------- ------------- Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631,806 645,902 ------------- ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,410,296 $ 1,309,396 ============= =============
See Notes to Consolidated Financial Statements. Page 3
WEINGARTEN REALTY INVESTORS STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (AMOUNTS IN THOUSANDS) Nine Months Ended September 30, ------------------------ 2000 1999 ----------- ----------- Cash Flows from Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,291 $ 56,843 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . . 40,571 35,804 Equity in (earnings) loss of real estate joint ventures and partnerships . . . . . . . . . . . . . . . . . . . . . . . . . 135 (211) Loss on sales of property. . . . . . . . . . . . . . . . . . . . 60 Extraordinary charge (early retirement of debt). . . . . . . . . 149 Changes in accrued rent and accounts receivable. . . . . . . . . 2,770 2,603 Changes in other assets. . . . . . . . . . . . . . . . . . . . . (11,328) (7,542) Changes in accounts payable and accrued expenses . . . . . . . . (4,691) (7,208) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) 729 ----------- ----------- Net cash provided by operating activities. . . . . . . . . . . 86,728 81,227 ----------- ----------- Cash Flows from Investing Activities: Investment in properties . . . . . . . . . . . . . . . . . . . . . . . (139,229) (150,547) Mortgage bonds and notes receivable: Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,630) (6,031) Collections. . . . . . . . . . . . . . . . . . . . . . . . . . . 61,613 1,284 Proceeds from sales and disposition of property. . . . . . . . . . . . 3 Proceeds from the sale of marketable debt securities . . . . . . . . . 15,000 Real estate joint ventures and partnerships: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,510) (1,321) Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . 216 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) ----------- ----------- Net cash used in investing activities. . . . . . . . . . . . . (111,756) (141,403) ----------- ----------- Cash Flows from Financing Activities: Proceeds from issuance of: Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,068 105,658 Common shares of beneficial interest . . . . . . . . . . . . . . 14 475 Preferred shares of beneficial interest. . . . . . . . . . . . . 111,263 Principal payments of debt . . . . . . . . . . . . . . . . . . . . . . (26,584) (83,993) Common and preferred dividends paid. . . . . . . . . . . . . . . . . . (75,202) (71,435) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (765) (230) ----------- ----------- Net cash provided by financing activities. . . . . . . . . . . 26,531 61,738 ----------- ----------- Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . . 1,503 1,562 Cash and cash equivalents at January 1 . . . . . . . . . . . . . . . . . . 5,842 1,672 ----------- ----------- Cash and cash equivalents at September 30. . . . . . . . . . . . . . . . . $ 7,345 $ 3,234 =========== ===========
See Notes to Consolidated Financial Statements. Page 4 WEINGARTEN REALTY INVESTORS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (AMOUNTS IN THOUSANDS) 1. INTERIM FINANCIAL STATEMENTS The consolidated financial statements included in this report are unaudited, except for the balance sheet as of December 31, 1999. In the opinion of WRI, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in WRI's annual financial statements and notes. 2. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENT Effective January 1, 2000, WRI adopted the SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" that requires recognition of percentage rental revenue only after a tenant exceeds their sales breakpoint. 3. PER SHARE DATA Net income per common share - basic is computed using net income available to common shareholders and the weighted average shares outstanding. Net income per common share - diluted includes the effect of potentially dilutive securities for the periods indicated, as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Numerator: Net income available to common shareholders - basic . . . . $ 14,852 $ 14,562 $ 44,261 $ 42,260 Income attributable to operating partnership units. . . . . 22 35 103 111 --------- --------- --------- --------- Net income available to common shareholders - diluted . . . $ 14,874 $ 14,597 $ 44,364 $ 42,371 ========= ========= ========= ========= Denominator: Weighted average shares outstanding - basic . . . . . . . . 26,792 26,692 26,751 26,688 Effect of dilutive securities: Share options and awards. . . . . . . . . . . . . . . 81 57 46 77 Operating partnership units . . . . . . . . . . . . . 103 142 112 142 --------- --------- --------- --------- Weighted average shares outstanding - diluted . . . . . . . 26,976 26,891 26,909 26,907 ========= ========= ========= =========
Page 5 4. DEBT WRI's debt consists of the following (in thousands):
September 30, December 31, 2000 1999 ------------- ------------- Fixed-rate debt payable to 2015 at 6.0% to 10.0% . . . . . . . $ 440,899 $ 423,906 Variable-rate unsecured notes payable to 2003. . . . . . . . . 50,000 Notes payable under revolving credit agreements. . . . . . . . 183,705 114,000 Obligations under capital leases . . . . . . . . . . . . . . . 33,467 48,467 Industrial revenue bonds to 2015 at 5.6% to 7.1% . . . . . . . 6,043 6,141 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,241 1,671 ------------- ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . $ 716,355 $ 594,185 ============= =============
At September 30, 2000, the variable interest rate for notes payable under the $200 million revolving credit agreement was 7.1%, and the variable interest rate under the $20 million revolving credit agreement was 6.9%. Effective March 1, 2000, WRI finalized an unsecured $100 million revolving credit agreement with a bank. This one-year facility is renewable at our option for an additional two-year period. At September 30, 2000, no amounts were outstanding under this line. In January 2000, WRI issued $10.5 million of ten-year 8.25% fixed-rate, unsecured medium term notes. In connection with this debt issuance, we entered into a ten-year interest rate swap agreement with a notional amount of $10.5 million to swap 8.25% fixed-rate interest for floating-rate interest. Additionally, WRI has three interest rate swap contracts with an aggregate notional amount of $40 million which swap floating-rate interest for fixed-rate interest. Such contracts, which expire through 2004, have been outstanding since their purchase in 1992. These interest rate swaps have an effective interest rate of 8.1%. In July 2000, WRI issued $50 million of variable-rate, unsecured medium term notes. Of the $50 million issued, $25 million is a two-year variable-rate note that bears interest at 50 basis points over LIBOR. The other $25 million is a three-year variable-rate note that bears interest at 60 basis points over LIBOR. At the time of issuance, the interest rates were 7.23% and 7.33%, respectively. In July 2000, we filed a $400 million shelf registration statement, of which $350 million is currently available. Page 6 WRI's debt can be summarized as follows (in thousands):
September 30, December 31, 2000 1999 ------------- ------------- As to interest rate (including the effects of interest rate swaps): Fixed-rate debt . . . . . . . . . . . $ 491,412 $ 499,919 Variable-rate debt. . . . . . . . . . 224,943 94,266 ------------- ------------- Total . . . . . . . . . . . . . . . . $ 716,355 $ 594,185 ============= ============= As to collateralization: Unsecured debt. . . . . . . . . . . . $ 588,446 $ 482,671 Secured debt. . . . . . . . . . . . . 127,909 111,514 ------------- ------------- Total . . . . . . . . . . . . . . . . $ 716,355 $ 594,185 ============= =============
5. PROPERTY WRI's property consists of the following (in thousands):
September 30, December 31, 2000 1999 ------------- ------------- Land. . . . . . . . . . . . . . . . . . . . . $ 299,312 $ 279,871 Land held for development . . . . . . . . . . 24,603 24,509 Land under development. . . . . . . . . . . . 30,765 12,139 Buildings and improvements. . . . . . . . . . 1,276,817 1,189,687 Construction in-progress. . . . . . . . . . . 27,891 7,933 ------------- ------------- Total . . . . . . . . . . . . . . . . . . . . $ 1,659,388 $ 1,514,139 ============= =============
Interest and ad valorem taxes capitalized to land under development or buildings under construction was $1.1 million and $1.0 million, respectively, for the quarters ended September 30, 2000 and 1999 and $2.6 million and $2.3 million, respectively, for the nine months ended September 30, 2000 and 1999. 6. SEGMENT INFORMATION The operating segments presented are the segments of WRI for which separate financial information is available and operating performance is evaluated regularly by senior management in deciding how to allocate resources and in assessing performance. WRI evaluates the performance of its operating segments based on net operating income that is defined as total revenues less operating expenses and ad valorem taxes. The shopping center segment is engaged in the acquisition, development and management of real estate, primarily anchored neighborhood and community shopping centers located in Texas, Louisiana, Arizona, Nevada, Arkansas, New Mexico, Oklahoma, Tennessee, Kansas, Colorado, Missouri, Illinois, Florida and Maine. The customer base includes supermarkets, drugstores and other retailers who generally sell basic necessity-type commodities. The industrial segment is engaged in the acquisition, development and management of bulk warehouses and office/service centers. Its properties are located in Texas, Nevada and Tennessee, and the customer base is diverse. Included in "Other" are corporate-related items, insignificant operations and costs that are not allocated to the reportable segments. Page 7 Information concerning WRI's reportable segments is as follows (in thousands):
SHOPPING CENTER INDUSTRIAL OTHER TOTAL ----------- ---------- ---------- ------------ Three Months Ended September 30, 2000: Revenues . . . . . . . . . . . $ 56,340 $ 7,176 $ 2,470 $ 65,986 Net operating income . . . . . 40,300 4,670 2,766 47,736 Total assets . . . . . . . . . 1,174,775 177,349 58,172 1,410,296 Three Months Ended September 30, 1999: Revenues . . . . . . . . . . . $ 49,514 $ 7,745 $ 1,128 $ 58,387 Net operating income . . . . . 35,449 5,538 1,228 42,215 Total assets . . . . . . . . . 983,697 185,717 80,724 1,250,138 Nine Months Ended September 30, 2000: Revenues . . . . . . . . . . . $ 162,540 $ 21,340 $ 6,890 $ 190,770 Net operating income . . . . . 116,755 14,755 6,860 138,370 Nine Months Ended September 30, 1999: Revenues . . . . . . . . . . . $ 145,587 $ 20,391 $ 3,485 $ 169,463 Net operating income . . . . . 103,753 14,679 3,736 122,168
Net operating income reconciles to income from operations as shown on the Statements of Consolidated Income as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Total segment net operating income. . . . . . . . . . . . . $ 47,736 $ 42,215 $ 138,370 $ 122,168 Less: Depreciation and amortization . . . . . . . . . . . . 14,141 12,640 40,571 35,804 Interest. . . . . . . . . . . . . . . . . . . . . . . 11,626 8,155 32,488 23,679 General and administrative. . . . . . . . . . . . . . 2,107 1,843 6,020 5,633 ---------- ---------- ---------- ---------- Income from operations. . . . . . . . . . . . . . . . . . . $ 19,862 $ 19,577 $ 59,291 $ 57,052 ========== ========== ========== ==========
Equity in earnings (loss) of real estate joint ventures and partnerships as shown on the Statements of Consolidated Income and the corresponding investment balances relate exclusively to the shopping center segment. Page 8 14 PART I FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and notes thereto and the comparative summary of selected financial data appearing elsewhere in this report. Historical results and trends which might appear should not be taken as indicative of future operations. Weingarten Realty Investors owned and operated 196 anchored shopping centers, 53 industrial properties, one multi-family residential property and one office building at September 30, 2000. Of WRI's 251 developed properties, 185 are located in Texas (including 100 in Houston and Harris County). Our remaining properties are located in Louisiana (11), Arizona (11), Nevada (8), Arkansas (6), New Mexico (6), Kansas (5), Colorado (5), Oklahoma (4), Tennessee (4), Missouri (2), Florida (2), Illinois (1) and Maine (1). WRI has 4,400 leases and 3,400 different tenants. Leases for our properties range from less than a year for smaller spaces to over 25 years for larger tenants; leases generally include minimum lease payments and contingent rentals for payment of taxes, insurance and maintenance and for an amount based on a percentage of the tenants' sales. The majority of our anchor tenants are supermarkets, value-oriented apparel and discount stores and other retailers, which generally sell basic necessity-type items. CAPITAL RESOURCES AND LIQUIDITY WRI anticipates that cash flows from operating activities will continue to provide adequate capital for all dividend payments in accordance with REIT requirements. Cash on hand, borrowings under our existing credit facilities, issuance of unsecured debt and the use of project financing, as well as other debt and equity alternatives, will provide the necessary capital to achieve growth. Cash flow from operating activities as reported in the Statements of Consolidated Cash Flows was $86.7 million for the first nine months of 2000 as compared to $81.2 million for the same period of 1999. The increase was due primarily to WRI's acquisition and new development programs and improvements in the performance of its existing portfolio of properties. Our Board of Trust Managers approved a quarterly dividend per common share of $.75 for the third quarter of 2000. Our dividend payout ratio on common equity for the third quarter of 2000 and 1999 was 70%, based on funds from operations for the applicable period. WRI invested an additional $50.0 million for the acquisition of three shopping centers and three industrial projects during the third quarter. In August, WRI purchased Regency Park Shopping Center in Overland Park, Kansas. This 202,000 square foot center is anchored by Micro Center, Border's Books and Music, Marshall's and Old Navy and represents our fifth property in this market. Later in August, WRI in partnership with Dana Commercial Credit Corporation acquired Rockwall Market Center located in Rockwall, Texas, a suburb of Dallas. Rockwall Market Center contains 217,000 square feet and is anchored by Linens 'n Things, Ross Dress for Less, Office Max, Petco, Michael's Crafts, Pier 1 Imports and Old Navy and is 96% leased. This is the third purchase under the joint venture relationship between WRI and Dana, bringing the total investment in these partnerships to nearly $62 million. WRI and Dana have agreed to invest up to $200 million under this agreement. Page 9 Also in August, WRI purchased the Market at Southside, our first shopping center in the Orlando area. Anchored by a Walgreen's and Ross Dress for Less, this 97,000 square foot center is part of a 310,000 square foot center anchored by Office Depot, Publix and Albertson's. Lastly, we purchased three office/service facilities in Austin, Texas. Collectively, these buildings added 160,000 square feet to the portfolio and were 96% occupied at the date of purchase. With these acquisitions, we now have seven industrial and two retail properties in Austin, comprising more than 850,000 square feet of building area. With respect to new development, in July we purchased 23 acres of land in Baton Rouge, Louisiana for the development of a 173,000 square foot shopping center adjacent to a new 181,000 square foot Super Target. This project is expected to open in the fall of 2001. In August, Miller Weingarten, our Denver-based development partnership, entered into a ground lease in Englewood, Colorado, a suburb of Denver, for the purpose of developing a 200,000 square foot shopping center within an 800,000 square foot mixed use development. This development will also contain a 130,000 square foot Super Wal Mart, a 450-unit apartment project and a new City Hall complex, including a library and a performing arts center. Completion is expected in mid to late 2001. With the addition of these properties, WRI now has eleven new development projects at various stages of completion. These projects will add 876,000 square feet to the portfolio and will represent a total investment of $103 million. We recently announced the formation of an alliance with a North Carolina-based developer, Bob Hughes Associates. Founded in 1980, Bob Hughes Associates will be responsible for the identification and development of primarily supermarket-anchored retail centers, while WRI will provide leasing and management support. Additionally, WRI will assume leasing and management responsibility for the majority of the retail properties currently owned by Bob Hughes Associates, a portfolio totaling 1.4 million square feet. We will also manage all properties developed under this alliance. Total debt outstanding increased to $716.4 million at quarter-end from $594.2 at December 31, 1999. This increase was primarily due to acquisitions and WRI's ongoing development and redevelopment efforts. Included in total debt outstanding of $716.4 at September 30, 2000 is variable-rate debt of $204.4 million, after recognizing the effect of $50.5 million of interest rate swaps and $20.6 million of variable-rate notes receivables. WRI's debt to total capitalization is a conservative 34.3% and the interest coverage ratio is 3.8 to 1 for the four quarters ended September 30, 2000. In January 2000, WRI issued $10.5 million of ten-year 8.25% fixed-rate, unsecured medium term notes. In connection with this debt issuance, we entered into a ten-year interest rate swap agreement with a notional amount of $10.5 million to swap 8.25% fixed-rate interest for floating-rate interest. Effective March 1, 2000, WRI finalized an unsecured $100 million revolving credit agreement with a bank. This one-year facility is renewable at our option for an additional two-year period. In July 2000, WRI issued $50 million of variable-rate, unsecured medium term notes. Of the $50 million issued, $25 million is a two-year variable-rate note that bears interest at 50 basis points over LIBOR. The other $25 million is a three-year variable-rate note that bears interest at 60 basis points over LIBOR. At the time of issuance, the interest rates were 7.23% and 7.33%, respectively. Page 10 FUNDS FROM OPERATIONS Industry analysts generally consider funds from operations to be an appropriate measure of the performance of an equity REIT since such measure does not recognize depreciation and amortization of real estate assets as operating expenses. Management believes that reductions for these charges are not meaningful in evaluating income-producing real estate, which historically has not depreciated. The National Association of Real Estate Investment Trusts defines funds from operations as net income plus depreciation and amortization of real estate assets, less gains and losses on sales of properties and securities. Funds from operations does not represent cash flows from operations as defined by generally accepted accounting principles and should not be considered as an alternative to net income as an indicator of WRI's operating performance or to cash flows from operations as a measure of liquidity. Funds from operations - diluted for the three months and nine months ended September 30, 1999 and 2000 is calculated as follows:
Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Numerator: Net income available to common shareholders. . . . . . $ 14,852 $ 14,562 $ 44,261 $ 42,260 Depreciation and amortization. . . . . . . . . . . . . 14,032 12,554 40,258 35,544 Loss on sales of property. . . . . . . . . . . . . . . 5 60 Extraordinary charge - early retirement of debt. . . . 149 --------- --------- --------- --------- Funds from Operations - Basic. . . . . . . . . 28,884 27,121 84,519 78,013 Funds from operations attributable to operating partnership units. . . . . . . . . . . . . . . . . . 69 79 239 243 --------- --------- --------- --------- Funds from Operations - Diluted. . . . . . . . $ 28,953 $ 27,200 $ 84,758 $ 78,256 ========= ========= ========= ========= Denominator: Weighted average shares outstanding - basic. . . . . . 26,792 26,692 26,751 26,688 Effect of dilutive securities: Share options and awards . . . . . . . . . . . . 81 57 46 77 Operating partnership units. . . . . . . . . . . 103 142 112 142 --------- --------- --------- --------- Weighted average shares outstanding - diluted. . . . . 26,976 26,891 26,909 26,907 ========= ========= ========= =========
RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 Net income available to common shareholders increased to $14.9 million from $14.6 million for the third quarter of 2000 as compared with the same quarter of 1999. Net income per common share-basic was $.55 in 2000 and 1999, while net income per share-diluted increased to $.55 in 2000 from $.54 in 1999. Rental revenues were $63.6 million in 2000, as compared to $57.2 million in 1999, representing an increase of approximately $6.4 million or 11.2%. Of these increases, property acquisitions and new development contributed $5.3 million in 2000, as compared to $6.5 million for the same period of 1999. The remaining portion of these increases is due to activity at our existing properties. Occupancy of the total portfolio increased to 92.8% as compared to 91.3% as of December 31, 1999. The occupancy of the retail portfolio was also 92.8%, up from 91.3% at year-end 1999, while the industrial portfolio increased from 91.0% at year-end to 92.5%. This increase in occupancy results from significant leasing activity during the last several months. During the first nine months of 2000, WRI completed 704 renewals or leases comprising 3.6 million square feet at an average rental rate increase of 10.2%. Net of the amortized portion of capital costs for tenant improvements, the increased averaged 7.2%. Retail sales on the same-store basis increased by 1.5% based on sales reported during the last twelve months. Page 11 Gross interest costs, before capitalization of interest, increased by $3.7 million from $9.0 million in the third quarter of 1999 to $12.7 million in the third quarter of 2000. The increase is due primarily to an increase in the average debt outstanding between periods of $512.5 in 1999 to $690.8 million in 2000. The average interest rate increased from 7.1% in 1999 to 7.3% in 2000. The amount of interest capitalized during the period was $1.0 million and $.9 million in 2000 and 1999. The increases in depreciation and amortization, operating expenses and ad valorem taxes were primarily the result of WRI's acquisitions and new development programs. NINE MONTHS ENDED SEPTEMBER 30, 2000 Net income available to common shareholders increased to $44.3 million from $42.3 million for the first nine months of 2000 as compared with the same period of 1999. Net income per common share-basic increased to $1.65 in 2000 from $1.58 in 1999, while net income per share-diluted also increased to $1.65 in 2000 from $1.57 in 1999. Rental revenues were $184.4 million in 2000, as compared to $165.6 million in 1999, representing an increase of approximately $18.8 million or 11.4%. Of these increases, property acquisitions and new development contributed $17.1 million in 2000, as compared to $19.0 million for the same period of 1999. The remaining portion of these increases is due to activity at our existing properties. Gross interest costs, before capitalization of interest, increased by $9.1 million from $25.8 million for the first nine months of 1999 to $34.9 million for the same period of 2000. The increase was due primarily to an increase in the average debt outstanding between periods from $482.2 million in 1999 to $644.6 million in 2000. The average interest rate remained unchanged at 7.1%. The amount of interest capitalized during the period increased to $2.4 million in 2000 from $2.1 million in 1999. The increases in depreciation and amortization, operating expenses and ad valorem taxes were primarily the result of WRI's acquisition and new development programs. Page 12 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K) (12) A statement of computation of ratios of earnings and funds from operations to combined fixed charges and preferred dividends. (27) Article 5 Financial Data Schedule (EDGAR filing only). Page 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEINGARTEN REALTY INVESTORS ----------------------------- (Registrant) BY: /s/ Stanford Alexander ----------------------------- Stanford Alexander Chairman/Chief Executive Officer (Principal Executive Officer) BY: /s/ Stephen C. Richter ----------------------------- Stephen C. Richter Senior Vice President/Chief Financial Officer (Principal Accounting Officer) DATE: October 24, 2000 ------------------ Page 14