10-Q 1 doc1.txt 10 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, 2001 ------------------ 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 31, 2001, there were 32,513,500 common shares of beneficial interest of Weingarten Realty Investors, $.03 par value, outstanding. PART 1 FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS WEINGARTEN REALTY INVESTORS STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended September 30, September 30, -------------------- ---------------------- 2001 2000 2001 2000 --------- --------- ---------- ---------- Revenues: Rentals . . . . . . . . . . . . . . . . . . . . . . . $ 81,428 $ 61,822 $ 224,939 $ 179,534 Interest income . . . . . . . . . . . . . . . . . . . 795 1,615 2,580 4,520 Other . . . . . . . . . . . . . . . . . . . . . . . . 790 781 3,275 1,896 --------- --------- ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . 83,013 64,218 230,794 185,950 --------- --------- ---------- ---------- Expenses: Depreciation and amortization . . . . . . . . . . . . 17,085 13,817 49,551 39,712 Interest. . . . . . . . . . . . . . . . . . . . . . . 14,677 11,403 40,072 31,875 Operating . . . . . . . . . . . . . . . . . . . . . . 12,857 9,400 33,769 27,390 Ad valorem taxes. . . . . . . . . . . . . . . . . . . 9,921 8,207 28,114 23,110 General and administrative. . . . . . . . . . . . . . 2,385 2,110 7,489 6,033 --------- --------- ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . 56,925 44,937 158,995 128,120 --------- --------- ---------- ---------- Income Before Equity in Earnings of Joint Ventures, Minority Interest in Income of Partnerships and Gain (Loss) on Sales of Property. . . . . . . . . . . 26,088 19,281 71,799 57,830 Equity in Earnings of Joint Ventures. . . . . . . . . . 2,517 1,210 4,571 3,323 Minority Interest in Income of Partnerships . . . . . . (699) (629) (2,065) (1,862) Gain (Loss) on Sales of Property. . . . . . . . . . . . (517) 4,467 --------- --------- ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . . . 27,389 19,862 78,772 59,291 Dividends on Preferred Shares . . . . . . . . . . . . . 5,010 5,010 15,030 15,030 --------- --------- ---------- ---------- Net Income Available to Common Shareholders . . . . . . $ 22,379 $ 14,852 $ 63,742 $ 44,261 ========= ========= ========== ========== Net Income Per Common Share - Basic . . . . . . . . . . $ .69 $ .55 $ 2.02 $ 1.65 ========= ========= ========== ========== Net Income Per Common Share - Diluted . . . . . . . . . $ .69 $ .55 $ 2.01 $ 1.65 ========= ========= ========== ========== Net Income. . . . . . . . . . . . . . . . . . . . . . . $ 27,389 $ 19,862 $ 78,772 $ 59,291 --------- --------- ---------- ---------- Other Comprehensive Loss: Cumulative effect of change in accounting principle (SFAS 133) on other comprehensive loss. . . . . . . (1,877) Unrealized derivative loss on interest rate swaps . . (1,669) (2,656) Unrealized derivative gain (loss) on forward-starting interest rate swaps . . . . . . . . . . . . . . . . (2,210) 1,561 --------- --------- ---------- ---------- Other Comprehensive Loss. . . . . . . . . . . . . . . . (3,879) (2,972) --------- --------- ---------- ---------- Comprehensive Income. . . . . . . . . . . . . . . . . . $ 23,510 $ 19,862 $ 75,800 $ 59,291 ========= ========= ========== ==========
See Notes to Consolidated Financial Statements. Page 2
WEINGARTEN REALTY INVESTORS CONSOLIDATED BALANCE SHEETS (unaudited) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) September 30, December 31, 2001 2000 ------------- ------------- ASSETS Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,232,284 $ 1,730,617 Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (402,070) (365,344) ------------- ------------- Property - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,830,214 1,365,273 Investment in Real Estate Joint Ventures . . . . . . . . . . . . . . . . . . . . 28,788 27,871 ------------- ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,859,002 1,393,144 Notes Receivable from Real Estate Joint Ventures and Partnerships. . . . . . . . 33,524 38,636 Unamortized Debt and Lease Costs . . . . . . . . . . . . . . . . . . . . . . . . 41,239 36,970 Accrued Rent and Accounts Receivable (net of allowance for doubtful accounts of $2,209 in 2001 and $1,884 in 2000) . . . . . . . . . . . . . . . . 28,980 24,485 Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,298 7,321 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,892 17,025 ------------- ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,011,935 $ 1,517,581 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,076,077 $ 792,353 Accounts Payable and Accrued Expenses. . . . . . . . . . . . . . . . . . . . . . 59,857 63,884 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,119 3,891 ------------- ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,146,053 860,128 ------------- ------------- Minority Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,656 27,586 ------------- ------------- Commitments and Contingencies Shareholders' Equity: Preferred Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 10,000 7.44% Series A cumulative redeemable preferred shares of beneficial interest; 3,000 shares issued and outstanding; liquidation preference $25 per share . . . . . . . . . . . . . . . . . 90 90 7.125% Series B cumulative redeemable preferred shares of beneficial interest; 3,600 shares issued and 3,528 and 3,552 shares outstanding in 2001 and 2000; liquidation preference $25 per share . . 106 107 7.0% Series C cumulative redeemable preferred shares of beneficial interest; 2,300 shares issued and 2,256 and 2,266 shares outstanding in 2001 and 2000; liquidation preference $50 per share . . 68 68 Common Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 150,000; shares issued and outstanding: 32,491 in 2001 and 26,921 in 2000. . . . . . . . . . . . . . . . . . . . . 974 807 Capital Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 979,980 758,363 Accumulated Dividends in Excess of Net Income. . . . . . . . . . . . . . . . . (142,020) (129,568) Accumulated Other Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . (2,972) ------------- ------------- Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 836,226 629,867 ------------- ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,011,935 $ 1,517,581 ============= =============
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, ------------------------- 2001 2000 ----------- ----------- Cash Flows from Operating Activities: Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 78,772 $ 59,291 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . 49,551 39,712 Equity in earnings of joint ventures. . . . . . . . . (4,571) (3,323) Minority interest in income of partnerships . . . . . 2,065 1,862 Gain on sales of property . . . . . . . . . . . . . . (4,467) Changes in accrued rent and accounts receivable . . . (6,135) 6,196 Changes in other assets . . . . . . . . . . . . . . . (22,838) (8,982) Changes in accounts payable and accrued expenses. . . (10,337) (6,574) Other, net. . . . . . . . . . . . . . . . . . . . . . 965 1,256 ----------- ----------- Net cash provided by operating activities . . . . . 83,005 89,438 ----------- ----------- Cash Flows from Investing Activities: Investment in properties. . . . . . . . . . . . . . . . . . (353,073) (127,164) Notes Receivable: Advances. . . . . . . . . . . . . . . . . . . . . . . (13,444) (40,592) Collections . . . . . . . . . . . . . . . . . . . . . 21,782 62,047 Proceeds from sales and disposition of property . . . . . . 8,321 Real estate joint ventures and partnerships: Investments . . . . . . . . . . . . . . . . . . . . . (1,011) (10,845) Distributions . . . . . . . . . . . . . . . . . . . . 3,279 2,502 ----------- ----------- Net cash used in investing activities . . . . . . . (334,146) (114,052) ----------- ----------- Cash Flows from Financing Activities: Proceeds from issuance of: Debt. . . . . . . . . . . . . . . . . . . . . . . . . 431,150 126,835 Common shares of beneficial interest. . . . . . . . . 221,401 14 Principal payments of debt. . . . . . . . . . . . . . . . . (297,261) (26,584) Common and preferred dividends paid . . . . . . . . . . . . (91,224) (75,202) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . 52 (537) ----------- ----------- Net cash provided by financing activities . . . . . 264,118 24,526 ----------- ----------- Net increase (decrease) in cash and cash equivalents. . . . . . 12,977 (88) Cash and cash equivalents at January 1. . . . . . . . . . . . . 7,321 4,603 ----------- ----------- Cash and cash equivalents at September 30 . . . . . . . . . . . $ 20,298 $ 4,515 =========== ===========
See Notes to Consolidated Financial Statements. Page 4 WEINGARTEN REALTY INVESTORS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (AMOUNTS IN THOUSANDS) 1. INTERIM FINANCIAL STATEMENTS The consolidated financial statements included in this report are unaudited, however, amounts presented in the balance sheet as of December 31, 2000 are derived from the audited financial statements of the Company at that date. In the opinion of WRI, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in WRI's annual financial statements and notes. Certain reclassifications of prior year's amounts have been made to conform to the current year presentation. 2. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS On January 1, 2001, WRI adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments. Specifically SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income depending on whether the derivative instruments qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. WRI hedges the future cash flows of debt transactions principally through interest rate swaps with major financial institutions. WRI has four interest rate swap contracts with an aggregate notional amount of $70 million that convert variable interest payments to fixed interest payments at rates from 6.80% to 7.87%. These swaps have been designated and qualify as cash flow hedges. We have determined these swap agreements are highly effective in offsetting future variable interest cash flows of the related debt instruments. As of January 1, 2001, the adoption of the new standard resulted in a cumulative transition adjustment of $1.9 million to accumulated other comprehensive loss, a component of shareholders' equity, and a corresponding liability of the same amount. For the nine months ended September 30, 2001, the change in fair market value of our interest rate swaps was $2.7 million and was recorded in accumulated other comprehensive loss and other liabilities. On June 25, 2001, WRI entered into two forward-starting interest rate swap contracts with a notional amount of $188.7 million. These contracts were designated as a cash flow hedge of forecasted interest payments for $200 million of unsecured notes with a coupon of 7% that were sold on July 12, 2001. Concurrent with the sale of the 7% notes, we settled our $188.7 million forward-starting interest rate swap contracts, resulting in a gain of $1.6 million recorded in accumulated other comprehensive income. This $1.6 million gain will be amortized to earnings over the life of the 7% notes. Page 5 On July 26, 2001, the Company entered into eleven interest rate swaps with an aggregate notional amount of $107.5 million that convert fixed interest payments to variable interest payments at rates from 6.35% to 7.35%. These interest rate swaps have been designated as fair value hedges. We have determined that these contracts will be highly effective in limiting our risk of changes in the fair value of the fixed-rate notes attributable to changes in variable interest rates. For the nine months ended September 30, 2001, the change in fair market value of the eleven interest rate swaps was $3.3 million and was recorded in other assets and fixed-rate debt. Within the next twelve months, the Company expects to reclassify to earnings as interest expense approximately $2.4 million of the current balance held in accumulated other comprehensive loss. With respect to fair value hedges, both changes in fair market value of the derivative hedging instrument and changes in the fair value of the hedged item will be recorded in earnings each reporting period. These amounts should completely offset with no impact to earnings, except for the portion of the hedge that proves to be ineffective, if any. In July 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus on EITF Issue No. 00-1,"Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures." This consensus requires that the proportionate share method of presenting balance sheet and income statement information for partnerships and other ventures in which entities have joint interest and control be discontinued, except in limited circumstances. WRI was required to conform to the guidance provided in this Issue effective December 31, 2000. Accordingly, the consolidated financial statements for all periods of the prior year presented in this Form 10-Q have been restated to conform to the revised presentation. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of SFAS No. 143 will not have a material impact on our financial position, results of operations, or cash flows. In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 addresses accounting and reporting for the impairment or disposal of a segment of a business. The adoption of SFAS No. 144 will not have a material impact on our financial position, results of operations, or cash flows. 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 Page 6 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, -------------------- -------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Numerator: Net income available to common shareholders - basic . . . . $ 22,379 $ 14,852 $ 63,742 $ 44,261 Income attributable to operating partnership units. . . . . 10 22 75 103 --------- --------- --------- --------- Net income available to common shareholders - diluted . . . $ 22,389 $ 14,874 $ 63,817 $ 44,364 ========= ========= ========= ========= Denominator: Weighted average shares outstanding - basic . . . . . . . . 32,443 26,792 31,556 26,751 Effect of dilutive securities: Share options and awards. . . . . . . . . . . . . . . 159 81 109 46 Operating partnership units . . . . . . . . . . . . . 51 103 51 112 --------- --------- --------- --------- Weighted average shares outstanding - diluted . . . . . . . 32,653 26,976 31,716 26,909 ========= ========= ========= =========
Options to purchase common shares that were not included in the calculation of net income per common share - diluted as the exercise prices were greater than the average market price for the applicable period were 100 and 14,700 for the quarters ended September 30, 2001 and 2000, respectively, and 1,200 and 613,000 for the nine months ended September 30, 2001 and 2000, respectively. 4. DEBT WRI's debt consists of the following (in thousands):
September 30, December 31, 2001 2000 ------------- ------------- Fixed-rate debt payable to 2015 at 6.0% to 10.0% . . . $ 813,594 $ 472,271 Variable-rate unsecured notes payable to 2003. . . . . 50,000 50,000 Notes payable under revolving credit agreements. . . . 173,000 230,100 Obligations under capital leases . . . . . . . . . . . 33,566 33,467 Industrial revenue bonds to 2015 at 2.4% to 4.5% . . . 5,904 6,010 Other. . . . . . . . . . . . . . . . . . . . . . . . . 13 505 ------------- ------------- Total . . . . . . . . . . . . . . . . . . . . . . $ 1,076,077 $ 792,353 ============= =============
At September 30, 2001, the variable interest rate for notes payable under the $50 and $350 million revolving credit agreements was 3.5% and 3.6%, respectively. At September 30, 2001 we had nothing outstanding under the $20 million revolving credit agreement. Page 7 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. On January 4, 2001, we terminated this interest rate swap with the counter-party, resulting in the receipt of $.9 million. As the swap was accounted for as a hedge of the medium term note, the gain will be amortized over the remaining life of the note, which lowers the effective interest rate on the note to 7.4% In March 2001, we filed a $500 million shelf registration statement, of which $412.2 million is currently available. This registration statement became effective in October 2001. WRI's debt can be summarized as follows (in thousands):
September 30, December 31, 2001 2000 ------------- ------------- As to interest rate (including the effects of interest rate swaps): Fixed-rate debt . . . . . . . . . . . . . . . .$ 797,207 $ 572,783 Variable-rate debt. . . . . . . . . . . . . . . 278,870 219,570 ------------- ------------- Total . . . . . . . . . . . . . . . . . . . . .$ 1,076,077 $ 792,353 ============= ============= As to collateralization: Unsecured debt. . . . . . . . . . . . . . . . .$ 799,256 $ 669,106 Secured debt. . . . . . . . . . . . . . . . . . 276,821 123,247 ------------- ------------- Total . . . . . . . . . . . . . . . . . . . . .$ 1,076,077 $ 792,353 ============= =============
On July 5, 2001, we entered into a $50 million unsecured term loan with two banks that also participate in our $350 million revolving credit facility. The terms of the $50 million loan are substantially identical to those of our $350 million revolving credit facility, and it also matures on the same date. On July 12, 2001, we sold $200 million of unsecured notes with a coupon of 7%. Net proceeds from the offering totaled $198.3 million and were used to pay down amounts outstanding under our $350 revolving credit facility. Concurrent with the sale of the 7% notes, we settled our $188.7 million forward-starting interest rate swap contracts, resulting in a gain of $1.6 million. These swap contracts had been designated as a cash flow hedge of forecasted interest payments for fixed-rate notes to be issued in future periods, and accordingly, the gain will be amortized over the life of the 7% notes. On July 26, 2001, the Company entered into eleven interest rate swaps with an aggregate notional amount of $107.5 million that convert fixed interest payments to variable interest payments at rates from 6.35% to 7.35%. These interest rate swaps have been designated as fair value hedges. We have determined that these contracts will be highly effective in limiting our risk of changes in the fair value of the fixed-rate notes attributable to changes in variable interest rates. Page 8 5. PROPERTY WRI's property consists of the following (in thousands):
September 30, December 31, 2001 2000 ------------- ------------- Land . . . . . . . . . . . . . . . . . . . . . . . . . $ 416,353 $ 328,462 Land held for development. . . . . . . . . . . . . . . 25,472 24,013 Land under development . . . . . . . . . . . . . . . . 53,447 42,430 Buildings and improvements . . . . . . . . . . . . . . 1,659,314 1,302,092 Construction in-progress . . . . . . . . . . . . . . . 77,698 33,620 ------------- ------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,232,284 $ 1,730,617 ============= =============
Interest and ad valorem taxes capitalized to land under development or buildings under construction was $2.9 million and $1.2 million, respectively, for the quarters ended September 30, 2001 and 2000 and $7.4 million and $3.0 million, respectively, for the nine months ended September 30, 2001 and 2000. 6. INVESTMENTS IN REAL ESTATE JOINT VENTURES WRI owns interests in 17 joint ventures or limited partnerships where we do not exercise financial and operating control. These partnerships are accounted for under the equity method since WRI exercises significant influence. Our interests range from 20% to 75% and, with the exception of our partnership with American National Insurance Company ("AN") discussed further below, each venture owns a single real estate asset. Combined condensed financial information of these ventures is summarized as follows (in thousands):
September 30, December 31, 2001 2000 ------------- ------------- Combined Balance Sheets Property. . . . . . . . . . . . . . . . . . . . . . . .$ 171,555 $ 176,247 Accumulated Depreciation. . . . . . . . . . . . . . . . (23,866) (21,755) ------------- ------------- Property - net . . . . . . . . . . . . . . . . . . 147,689 154,492 Other Assets. . . . . . . . . . . . . . . . . . . . . . 9,248 10,800 ------------- ------------- Total . . . . . . . . . . . . . . . . . . . .$ 156,937 $ 165,292 ============= ============= Debt. . . . . . . . . . . . . . . . . . . . . . . . . .$ 76,808 $ 77,274 Amounts Payable to WRI. . . . . . . . . . . . . . . . . 8,839 16,622 Other liabilities . . . . . . . . . . . . . . . . . . . 4,053 5,359 Accumulated Equity. . . . . . . . . . . . . . . . . . . 67,237 66,037 ------------- ------------- Total . . . . . . . . . . . . . . . . . . . .$ 156,937 $ 165,292 ============= =============
Page 9
Combined Statements of Income Three Months Ended Nine Months Ended September 30, September 30, ------------------ -------------------- 2001 2000 2001 2000 -------- -------- --------- --------- Revenues . . . . . . . . . . . . . . . . $ 6,435 $ 6,051 $ 19,198 $ 14,871 -------- -------- --------- --------- Expenses: Depreciation and amortization. . . . . 1,061 1,080 3,307 2,560 Operating. . . . . . . . . . . . . . . 870 858 2,663 2,215 Interest . . . . . . . . . . . . . . . 1,758 1,769 5,437 4,459 Ad valorem taxes . . . . . . . . . . . 845 825 2,437 1,902 General and administrative . . . . . . 9 44 18 -------- -------- --------- --------- Total . . . . . . . . . . . . . . . 4,534 4,541 13,888 11,154 -------- -------- --------- --------- Gain on Sales of Property. . . . . . . . 2,855 2,855 -------- -------- --------- --------- Net Income . . . . . . . . . . . . . . . $ 4,756 $ 1,510 $ 8,165 $ 3,717 ======== ======== ========= =========
Our investment in real estate joint ventures, as reported on the balance sheets, differs from our proportionate share of the joint ventures' underlying net assets due to basis differentials, which arose upon the transfer of assets from WRI to the joint ventures. This basis differential, which totaled $2.0 million at September 30, 2001 and December 31, 2000, respectively, is depreciated over the useful lives of the related assets. Fees earned by WRI for the management of these joint ventures totaled: $.1 million for the quarters ended September 30, 2001 and 2000, respectively, and $.4 million and $.2 million for the nine months ended September 30, 2001 and 2000, respectively. In 1999, we entered into a limited partnership, Weingarten-Murphy, LTD., which was formed to develop a shopping center in a suburb of Dallas. WRI is the general partner and owns a 50% interest in the partnership. In December 1999, WRI sold seven industrial properties totaling 2.0 million square feet to a limited partnership, AN/WRI PARTNERSHIP, LTD. in which we retained 20% ownership. WRI serves as general partner. WRI loaned $41.4 million to the partnership until August of 2000, at which time the loan was replaced with a ten-year non-recourse third party mortgage with an interest rate of 8.1%. In March 2000, WRI formed a strategic joint venture with an institutional investor to acquire $200 million of real estate assets using limited leverage. Each asset purchase is made by a separate limited partnership in which WRI has a 30% interest. As general partner in the joint venture, WRI is responsible for the acquisition process, as well as, the on-going leasing and management activities of the acquired properties, subject to limited partner approval of significant transactions. Two shopping centers were acquired in June 2000 and one in August of 2000 under this joint venture arrangement. WRI loaned these three partnerships an aggregate of $32.0 million which was replaced with ten-year non-recourse third party mortgages with a weighted average rate of 7.8%. Page 10 7. SEGMENT INFORMATION The operating segments presented are the segments of WRI for which separate financial information is available and operating performance is evaluated regularly by senior management in deciding how to allocate resources and in assessing performance. WRI evaluates the performance of its operating segments based on net operating income that is defined as total revenues less operating expenses and ad valorem taxes. The shopping center segment is engaged in the acquisition, development and management of real estate, primarily anchored neighborhood and community shopping centers located in Texas, California, Louisiana, Arizona, Nevada, Arkansas, New Mexico, Oklahoma, Tennessee, Kansas, Colorado, Missouri, Illinois, Florida, Mississippi, North Carolina and Maine. The customer base includes supermarkets, drugstores and other retailers who generally sell basic necessity-type commodities. The industrial segment is engaged in the acquisition, development and management of bulk warehouses and office/service centers. Its properties are located in Texas, Nevada and Tennessee, and the customer base is diverse. Included in "Other" are corporate-related items, insignificant operations and costs that are not allocated to the reportable segments. Information concerning WRI's reportable segments is as follows (in thousands):
SHOPPING CENTER INDUSTRIAL OTHER TOTAL ------------ ---------- ---------- ------------ Three Months Ended September 30, 2001: Revenues . . . . . . . . . . . . . . . . . . . $ 73,804 $ 7,845 $ 1,364 $ 83,013 Net operating income . . . . . . . . . . . . . 53,560 5,390 1,285 60,235 Equity in earnings of joint ventures . . . . . 1,265 1,270 (18) 2,517 Investment in real estate joint ventures . . . 24,820 2,748 1,220 28,788 Total assets . . . . . . . . . . . . . . . . . 1,695,906 184,634 131,395 2,011,935 Three Months Ended September 30, 2000: Revenues . . . . . . . . . . . . . . . . . . . $ 55,072 $ 6,644 $ 2,502 $ 64,218 Net operating income . . . . . . . . . . . . . 39,332 4,320 2,959 46,611 Equity in earnings of joint ventures . . . . . 1,024 223 (37) 1,210 Investment in real estate joint ventures . . . 25,883 1,338 965 28,186 Total assets . . . . . . . . . . . . . . . . . 1,135,771 174,352 99,655 1,409,778 Nine Months Ended September 30, 2001: Revenues . . . . . . . . . . . . . . . . . . . $ 202,179 $ 23,488 $ 5,127 $ 230,794 Net operating income . . . . . . . . . . . . . 147,674 16,462 4,775 168,911 Equity in earnings of joint ventures . . . . . 3,111 1,530 (70) 4,571 Nine Months Ended September 30, 2000: Revenues . . . . . . . . . . . . . . . . . . . $ 159,125 $ 19,821 $ 7,004 $ 185,950 Net operating income . . . . . . . . . . . . . 114,195 13,721 7,534 135,450 Equity in earnings of joint ventures . . . . . 2,681 776 (134) 3,323
Page 11 Net operating income reconciles to net income as shown on the Statements of Consolidated Income as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, -------------------- ---------------------- 2001 2000 2001 2000 --------- --------- ---------- ---------- Total segment net operating income . . . . . . . . . . . . .$ 60,235 $ 46,611 $ 168,911 $ 135,450 Less: Depreciation and amortization . . . . . . . . . . . . . 17,085 13,817 49,551 39,712 Interest. . . . . . . . . . . . . . . . . . . . . . . . 14,677 11,403 40,072 31,875 General and administrative. . . . . . . . . . . . . . . 2,385 2,110 7,489 6,033 Minority interest in income of partnerships . . . . . . 699 629 2,065 1,862 Equity in earnings of joint ventures. . . . . . . . . . (2,517) (1,210) (4,571) (3,323) Gain (loss) on sales of property. . . . . . . . . . . . 517 (4,467) --------- --------- ---------- ---------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . .$ 27,389 $ 19,862 $ 78,772 $ 59,291 ========= ========= ========== ==========
8. COMMON SHARES OF BENEFICIAL INTEREST On January 29, 2001, we issued 4.5 million common shares of beneficial interest in a secondary public offering. In February 2001, the underwriters exercised their over-allotment option and purchased an additional 200,000 shares. Net proceeds of $188.1 million based on a price of $42.19 per share were used to pay down the amounts outstanding under our $350 million revolving line of credit. On May 7, 2001, we issued an additional 690,000 common shares of beneficial interest in a secondary public offering. Net proceeds of $27.9 million based on a price of $42.85 per share were used to pay down amounts outstanding under our $350 million revolving line of credit. On November 7, 2001, we issued an additional 1.8 million common shares of beneficial interest. Net proceeds of $83.3 million based on a price of $50.20 per share were used to pay down amounts outstanding under our $350 million revolving line of credit. 9. BANKRUPTCY REMOTE PROPERTIES On April 2, 2001, we purchased 19 supermarket-anchored shopping centers, aggregating 2.5 million square feet, in California from Burnham Pacific Properties, Inc. The purchase price for the properties was $277.5 million, including the assumption of approximately $132 million in debt secured by all 19 properties. These properties are located in the Sacramento/San Francisco Bay area (13 properties) and in the Los Angeles area (six properties). Page 12 These 19 properties, having a net book value of approximately $275.5 million at September 30, 2001 (collectively the "Bankruptcy Remote Properties", and each a "Bankruptcy Remote Property"), are wholly owned by various "Bankruptcy Remote Entities". Each Bankruptcy Remote Entity is an indirect subsidiary of the Company. The assets of each Bankruptcy Remote Entity, including the respective Bankruptcy Remote Property or Properties owned by each, are owned by that Bankruptcy Remote Entity alone and are not available to satisfy claims that any creditor may have against the Company, its affiliates, or any other person or entity. No Bankruptcy Remote Entity has agreed to pay or make its assets available to pay creditors of the Company, any of its affiliates, or any other person or entity. Neither the Company nor any of its affiliates has agreed to pay or make its assets available to pay creditors of any Bankruptcy Remote Entity (other than any agreement by a Bankruptcy Remote Entity to pay its own creditors). No affiliate of any Bankruptcy Remote Entity has agreed to pay or make its assets available to pay creditors of any Bankruptcy Remote Entity. The accounts of the Bankruptcy Remote Entities are included in WRI's consolidated financial statements, as WRI owns, indirectly, 100% of each of the entities. Additionally, WRI, through its wholly owned subsidiaries, makes all day to day operating and financial decisions with respect to these properties, subject to approval by the loan servicing agent for the certain significant transactions. WRI has the right to prepay the loan at any time, which would eliminate all encumbrances and restrictions. Page 13 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 282 anchored shopping centers, 53 industrial properties, one multi-family residential property and one office building at September 30, 2001. Of WRI's 282 developed properties, 182 are located in Texas (including 96 in Houston and Harris County). Our remaining properties are located in California (19), Louisiana (14), Arizona (13), Nevada (9), Tennessee (7), Florida (6), Arkansas (6), New Mexico (6), Kansas (5), Colorado (5), Oklahoma (4), Missouri (2), Illinois (1), North Carolina (1), Mississippi (1) and Maine (1). WRI has 5,200 leases and 4,000 different tenants. Leases for our properties range from less than a year for smaller spaces to over 25 years for larger tenants; leases generally include minimum lease payments 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 $83.0 million for the first nine months of 2001 as compared to $89.4 million for the same period of 2000. The decrease was due primarily to the timing of cash receipts and payments. Our Board of Trust Managers approved a quarterly dividend per common share of $.79 for the third quarter of 2001. Our dividend payout ratio on common equity for the third quarter of 2001 and 2000 was 67% and 70%, respectively, based on funds from operations for the applicable period. WRI invested $30.1 million for the acquisition of two shopping centers during the third quarter. On August 17, 2001, we acquired the Boca Lyons Shopping Center in Boca Raton, Florida. This center is anchored by Ross Dress for Less and also includes Ethan Allen Furniture, Sun Trust Bank and World Savings. This 113,000 square foot center was 94% leased upon acquisition. On September 6, 2001, we purchased Winter Park Corners in Winter Park, Florida. This 103,000 square foot center is anchored by Whole Foods and includes Bank of America and Outback Steakhouse and is 100% leased. With the acquisition of these two shopping centers, we now own six centers in Florida totaling over 1.2 million square feet. With respect to new development, we had 15 retail developments underway at the beginning of the third quarter, including three joint ventures with our development partner in Denver. During the quarter, we purchased three additional sites. In July, we purchased four acres in the Dallas-Fort Worth area that will be anchored by a 62,000 square foot Albertsons-owned supermarket. In August, 24 acres were purchased in Lafayette, Louisiana, which will be anchored by a 175,000 square foot corporately-owned Super Target. Lastly, we acquired six acres in Denver with our development partner in Colorado. This center will be anchored by a 53,000 square foot Albertsons-owned supermarket. These projects, upon completion, will represent an investment of approximately $190 million and will add 1.6 million square feet to the portfolio. We expect to invest approximately $79.0 million in these properties during 2001. These projects will continue to come on-line during the last quarter of this year and through mid 2003. Page 14 In January, we issued 4.5 million common shares of beneficial interest in a secondary public offering and an additional 200,000 shares in February, as the underwriters exercised their over-allotment option. Net proceeds of $188.1 million, based on a price of $42.19 per share, were used to pay down amounts outstanding under our $350 million revolving line of credit. On May 7, 2001, we issued an additional 690,000 common shares of beneficial interest in a secondary public offering. Net proceeds of $27.9 million based on a price of $42.85 per share were used to pay down amounts outstanding under our $350 million revolving line of credit. On November 7, 2001, we issued an additional 1.8 million common shares of beneficial interest. Net proceeds of $83.3 million based on a price of $50.20 per share were used to pay down amounts outstanding under our $350 million revolving line of credit. Total debt outstanding increased to $1.1 billion at quarter-end from $792.4 million at December 31, 2000. This increase was primarily due to the funding of the Company's acquisitions and ongoing development and redevelopment efforts, offset by the use of proceeds from the common equity offerings. Included in total debt outstanding of $1.1 billion at September 30, 2001 is variable-rate debt of $256.5 million, after recognizing the net effect of $177.5 million of interest rate swaps and $22.4 million of variable-rate notes receivables from joint venture partners. In March 2001, we filed a $500 million shelf registration statement, of which $412.2 is currently available. On July 5, 2001, we entered into a $50 million unsecured term loan with two banks that also participate in our $350 million revolving credit facility. The terms of the $50 million loan are substantially identical to those of our $350 million revolving credit facility, and it also matures on the same date. On July 12, 2001, we sold $200 million of unsecured notes with a coupon of 7%. Net proceeds from the offering totaled $198.3 million and were used to pay down amounts outstanding under our $350 revolving credit facility. Concurrent with the sale of the 7% notes, we settled our $188.7 million forward-starting interest rate swap contracts, resulting in a gain of $1.6 million. These swap contracts had been designated as a cash flow hedge of forecasted interest payments for fixed-rate notes to be issued in future periods, and accordingly, the gain will be amortized over the life of the 7% notes. On July 26, 2001, the Company entered into eleven interest rate swaps with an aggregate notional amount of $107.5 million that convert fixed interest payments to variable interest payments at rates from 6.35% to 7.35%. These interest rate swaps have been designated as fair value hedges. We have determined that these contracts will be highly effective in limiting our risk of changes in the fair value of the fixed-rate notes attributable to changes in variable interest rates. FUNDS FROM OPERATIONS The Board of Governors of the National Association of Real Estate Investment Trusts defines funds from operations (FFO) as net income (loss) computed in accordance with generally accepted accounting principles, excluding gains or losses from sales of property, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In addition, NAREIT recommends that extraordinary items not be considered in arriving at FFO. We calculate FFO in a manner consistent with the NAREIT definition. Most industry analysts and equity REITS, including Weingarten, believe FFO is an appropriate measure of performance relative to other REITs. FFO provides investors with an understanding of our ability to incur and service debt, make capital expenditures and pay common share dividends. There can be no assurance that FFO presented by Weingarten is comparable to similarly titled measures of other REITs. FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing, or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements, or principal payments on indebtedness. Page 15 Funds from operations - diluted for the three and nine months ended September 30, 2001 and 2000 is calculated as follows:
Three Months Ended Nine Months Ended September 30, September 30, -------------------- ---------------------- 2001 2000 2001 2000 --------- --------- ---------- ---------- Net income available to common shareholders . . . . . . . . . . .$ 22,379 $ 14,852 $ 63,742 $ 44,261 Depreciation and amortization . . . . . . . . . . . . . . . . . . 16,451 13,546 47,897 39,131 Depreciation and amortization of unconsolidated joint ventures. . . . . . . . . . . . . . . . . . . . . . . . . 435 486 1,376 1,127 (Gain) loss on sales of property. . . . . . . . . . . . . . . . . 517 (4,467) Gain on sales of property of unconsolidated joint ventures. . . . . . . . . . . . . . . . . . . . . . . . . (1,427) (1,427) --------- --------- ---------- ---------- Funds from operations . . . . . . . . . . . . . . . 38,355 28,884 107,121 84,519 Funds from operations attributable to operating partnership units . . . . . . . . . . . . . . . . . . . . . . . 35 69 147 239 --------- --------- ---------- ---------- Funds from operations assuming conversion of OP units . . . . . . . . . . . . . . . . . . .$ 38,390 $ 28,953 $ 107,268 $ 84,758 ========= ========= ========== ========== Weighted average shares outstanding - basic . . . . . . . . . . . 32,443 26,792 31,556 26,751 Effect of dilutive securities: Share options and awards. . . . . . . . . . . . . . . . . . 159 81 109 46 Operating partnership units . . . . . . . . . . . . . . . . 51 103 51 112 --------- --------- ---------- ---------- Weighted average shares outstanding - diluted . . . . . . . . . . 32,653 26,976 31,716 26,909 ========= ========= ========== ==========
RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 Net income available to common shareholders increased to $22.4 million, or $.69 per diluted share, from $14.9 million, or $.55 per diluted share for the third quarter of 2001 as compared with the same quarter of 2000. The increase in net income available to common shareholders is due primarily from the growth in the portfolio from acquisitions and new development. Rental revenues were $81.4 million in 2001, as compared to $61.8 million in 2000, representing an increase of approximately $19.6 million or 31.7%. Of these increases, property acquisitions and new development contributed $18.0 million in 2001, as compared to $4.9 million for the same period of 2000. The remaining portion of these increases is due to activity at our existing properties. Occupancy of the total portfolio was 92.4% at the end of the quarter as compared to 92.8% last year. The occupancy of the retail portfolio stood at 92.4% as compared to 92.8% at September 30, 2000, while the occupancy of the industrial portfolio was 92.4% compared to 92.5% in the prior year. During the first nine months of 2001, WRI completed 690 renewals or new leases comprising 3.2 million square feet at an average rental rate increase of 10.6%. Net of the amortized portion of capital costs for tenant improvements, the increase averaged 7.6%. Gross interest costs, before capitalization of interest, increased by $4.8 million from $12.5 million in the third quarter of 2000 to $17.4 million for the third quarter of 2001. The increase is due primarily to an increase in the average debt outstanding between periods of $689.1 in 2000 to $1.0 billion in 2001. The average interest rate decreased from 7.2% in 2000 to 6.98% in 2001. The amount of interest capitalized during the period was $2.7 million and $1.1 million in 2001 and 2000, respectively. Page 16 General and administrative expenses increased by $.3 million to $2.4 million in the third quarter of 2001 from $2.1 million in the same quarter of 2000. The increase is due primarily to an increase in staffing necessitated by the growth in the portfolio from acquisitions and new development. The increases in depreciation and amortization, operating expenses and ad valorem taxes were primarily the result of WRI's acquisitions and new development programs. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2001 Net income available to common shareholders increased to $63.7 million, or $2.01 per diluted share, from $44.3 million, or $1.65 per diluted share for the nine months of 2001 as compared with the same period of 2000. The increase in net income available to common shareholders is due primarily from the growth in the portfolio from acquisitions and new development, as well as a gain on the sales of property of $4.5 million in 2001 that is absent from 2000. Rental revenues were $224.9 million in 2001, as compared to $179.5 million in 2000, representing an increase of approximately $45.4 million or 25.3%. Of these increases, property acquisitions and new development contributed $40.4 million in 2001, as compared to $16.6 million for the same period of 2000. The remaining portion of these increases is due to activity at our existing properties. Gross interest costs, before capitalization of interest, increased by $12.5 million from $34.6 million for the nine months of 2000 to $47.1 million for the nine months of 2001. The increase is due primarily to an increase in the average debt outstanding between periods of $644.7 million in 2000 to $891.9 million in 2001. The average interest rate decreased from 7.1% in 2000 to 7.0% in 2001. The amount of interest capitalized during the period was $7.0 million and $2.8 million in 2001 and 2000, respectively. General and administrative expenses increased by $1.5 million to $7.5 million for the nine months of 2001 from $6.0 million for the same period of 2000. The increase is due primarily to an increase in staffing necessitated by the growth in the portfolio from acquisitions and new development, as well as an increase in professional fees from a non-recurring adjustment of $.2 million in June 2001. The increases in depreciation and amortization, operating expenses and ad valorem taxes were primarily the result of WRI's acquisitions and new development programs. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS On January 1, 2001, WRI adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments. Specifically SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income depending on whether the derivative instruments qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. WRI hedges the future cash flows of debt transactions principally through interest rate swaps with major financial institutions. WRI has four interest rate swap contracts with an aggregate notional amount of $70 million that convert variable interest payments to fixed interest payments at rates from 6.80% to 7.87%. These swaps have been designated and qualify as cash flow hedges. We have determined these swap agreements are highly effective in offsetting future variable interest cash flows of the related debt instruments. As of January 1, 2001, the adoption of the new standard resulted in a cumulative transition adjustment of $1.9 million to accumulated other comprehensive loss, a component of shareholders' equity, and a corresponding liability of the same amount. For the nine months ended September 30, 2001, the change in fair market value of our interest rate swaps was $2.7 million and was recorded in accumulated other comprehensive loss and other liabilities. Page 17 On June 25, 2001, WRI entered into two forward-starting interest rate swap contracts with a notional amount of $188.7 million. These contracts were designated as a cash flow hedge of forecasted interest payments for $200 million of unsecured notes with a coupon of 7% that were sold on July 12, 2001. Concurrent with the sale of the 7% notes, we settled our $188.7 million forward-starting interest rate swap contracts, resulting in a gain of $1.6 million recorded in accumulated other comprehensive income. This $1.6 million gain will be amortized to earnings over the life of the 7% notes. On July 26, 2001, the Company entered into eleven interest rate swaps with an aggregate notional amount of $107.5 million that convert fixed interest payments to variable interest payments at rates from 6.35% to 7.35%. These interest rate swaps have been designated as fair value hedges. We have determined that these contracts will be highly effective in limiting our risk of changes in the fair value of the fixed-rate notes attributable to changes in variable interest rates. For the nine months ended September 30, 2001, the change in fair market value of the eleven interest rate swaps was $3.3 million and was recorded in other assets and fixed-rate debt. Within the next twelve months, the Company expects to reclassify to earnings as interest expense approximately $2.4 million of the current balance held in accumulated other comprehensive loss. With respect to fair value hedges, both changes in fair market value of the derivative hedging instrument and changes in the fair value of the hedged item will be recorded in earnings each reporting period. These amounts should completely offset with no impact to earnings, except for the portion of the hedge that proves to be ineffective, if any. In July 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus on EITF Issue No. 00-1,"Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures." This consensus requires that the proportionate share method of presenting balance sheet and income statement information for partnerships and other ventures in which entities have joint interest and control be discontinued, except in limited circumstances. WRI was required to conform with the guidance provided in this Issue effective December 31, 2000. Accordingly, the consolidated financial statements for all periods of the prior year presented in this Form 10-Q have been restated to conform with the revised presentation. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of SFAS No. 143 will not have a material impact on our financial position, results of operations, or cash flows. In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 addresses accounting and reporting for the impairment or disposal of a segment of a business. The adoption of SFAS No. 144 will not have a material impact on our financial position, results of operations, or cash flows. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK WRI uses fixed and floating-rate debt to finance its capital requirements. These transactions expose WRI to market risk related to changes in interest rates. Derivative financial instruments are used to manage a portion of this risk, primarily interest rate swap agreements with major financial institutions. These swap agreements expose WRI to credit risk in the event of non-performance by the counter-parties to the swaps. We do not engage in the trading of derivative financial instruments in the normal course of business. At September 30, 2001, WRI had fixed-rate debt of $797.2 million and variable-rate debt of $256.5 million, after adjusting for the net effect of $177.5 million of interest rate swaps and $22.4 million of variable-rate notes receivables from joint venture partners. Page 18 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. (b) Reports on Form 8-K A Form 8-K, dated August 13, 2001, was filed in response to Item 5., Other Events and Item 7., Financial Statements, Pro Forma Financial Information and Exhibits. Page 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEINGARTEN REALTY INVESTORS ----------------------------- (Registrant) BY: /s/ Andrew M. Alexander ---------------------------------- Andrew M. Alexander President/Chief Executive Officer (Principal Executive Officer) BY: /s/ Joe D. Shafer ---------------------------------- Joe D. Shafer Vice President/Controller (Principal Accounting Officer) DATE: November 14, 2001 -------------------- Page 20