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, 1998
------------------
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
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WEINGARTEN REALTY INVESTORS
---------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Texas 74-1464203
- ---------------------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<S> <C>
2600 Citadel Plaza Drive, P.O. Box 924133, Houston, Texas. 77292-4133
- ---------------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
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 26, 1998,
there were 26,666,834 common shares of beneficial interest of Weingarten
Realty Investors, $.03 par value, outstanding.
PART 1
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
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,
------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues:
Rentals . . . . . . . . . . . . . . . . . . . . . $ 49,169 $ 42,600 $ 143,192 $ 124,480
Interest:
Securities and Other. . . . . . . . . . . . . . 65 249 143 800
Affiliates. . . . . . . . . . . . . . . . . . . 356 364 1,040 1,095
Equity in earnings of real estate joint ventures
and partnerships. . . . . . . . . . . . . . . . 89 266 275 769
Other . . . . . . . . . . . . . . . . . . . . . . 276 521 1,075 1,372
--------- --------- --------- ---------
Total. . . . . . . . . . . . . . . . . . . . 49,955 44,000 145,725 128,516
--------- --------- --------- ---------
Expenses:
Depreciation and amortization . . . . . . . . . . 10,493 9,450 30,798 28,191
Interest. . . . . . . . . . . . . . . . . . . . . 8,479 7,588 24,899 21,729
Operating . . . . . . . . . . . . . . . . . . . . 7,439 6,625 21,727 19,337
Ad valorem taxes. . . . . . . . . . . . . . . . . 6,530 5,618 18,588 16,479
General and administrative. . . . . . . . . . . . 1,662 1,381 5,058 4,013
--------- --------- --------- ---------
Total. . . . . . . . . . . . . . . . . . . . 34,603 30,662 101,070 89,749
--------- --------- --------- ---------
Income from Operations. . . . . . . . . . . . . . . 15,352 13,338 44,655 38,767
Gain on sales of property and securities. . . . . . 347 2,839 417 2,941
--------- --------- --------- ---------
Income Before Extraordinary Charge. . . . . . . . . 15,699 16,177 45,072 41,708
Extraordinary Charge (early retirement of debt) . . (1,392)
--------- --------- --------- ---------
Net Income. . . . . . . . . . . . . . . . . . . . . 15,699 16,177 43,680 41,708
Dividends on Preferred Shares . . . . . . . . . . . 1,395 3,364
--------- --------- --------- ---------
Net Income Available to Common Shareholders . . . . $ 14,304 $ 16,177 $ 40,316 $ 41,708
========= ========= ========= =========
Net Income Per Common Share - Basic:
Income Before Extraordinary Charge. . . . . . . . $ .54 $ .61 $ 1.56 $ 1.57
Extraordinary Charge. . . . . . . . . . . . . . . (.05)
--------- --------- --------- ---------
Net Income. . . . . . . . . . . . . . . . . . . . $ .54 $ .61 $ 1.51 $ 1.57
========= ========= ========= =========
Net Income Per Common Share - Diluted:
Income Before Extraordinary Charge. . . . . . . . $ .53 $ .60 $ 1.55 $ 1.56
Extraordinary Charge. . . . . . . . . . . . . . . (.05)
--------- --------- --------- ---------
Net Income. . . . . . . . . . . . . . . . . . . . $ .53 $ .60 $ 1.50 $ 1.56
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
WEINGARTEN REALTY INVESTORS
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
September 30, December 31,
1998 1997
--------------- --------------
(unaudited)
ASSETS
<S> <C> <C>
Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,227,530 $ 1,118,758
Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . . . . (288,006) (262,551)
--------------- --------------
Property - net. . . . . . . . . . . . . . . . . . . . . . . . . . . 939,524 856,207
Investment in Real Estate Joint Ventures and Partnerships . . . . . . . 2,425 2,824
--------------- --------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 941,949 859,031
Mortgage Bonds and Notes Receivable from:
Affiliate (net of deferred gain of $4,487 in 1998 and 1997) . . . . 12,872 14,752
Real Estate Joint Ventures and Partnerships . . . . . . . . . . . . 21,502 15,250
Marketable Debt Securities 12,345
Unamortized Debt and Lease Costs. . . . . . . . . . . . . . . . . . . . 24,841 23,536
Accrued Rent and Accounts Receivable (net of allowance for doubtful
accounts of $903 in 1998 and $1,000 in 1997). . . . . . . . . . . . . 15,258 14,583
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . 2,451 2,754
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,379 4,542
--------------- --------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,025,252 $ 946,793
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 529,356 $ 507,366
Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . . 39,041 43,305
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,206 6,136
--------------- --------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575,603 556,807
--------------- --------------
Shareholders' Equity:
Preferred Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 10,000; shares issued and outstanding:
3,000 in 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Common Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 150,000; shares issued and outstanding:
26,667 in 1998 and 26,660 in 1997 . . . . . . . . . . . . . . . . . 800 800
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . 448,759 389,186
--------------- --------------
Shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . 449,649 389,986
--------------- --------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,025,252 $ 946,793
=============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WEINGARTEN REALTY INVESTORS
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Nine Months Ended
September 30,
---------------------
1998 1997
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,680 $ 41,708
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . 30,798 28,191
Equity in earnings of real estate joint ventures and
partnerships . . . . . . . . . . . . . . . . . . . . . (204) (769)
Gain on sales of property. . . . . . . . . . . . . . . . (418) (2,941)
Extraordinary charge (early retirement of debt). . . . . 1,392
Amortization of direct financing leases. . . . . . . . . 483 513
Changes in accrued rents and accounts receivable . . . . (560) 295
Changes in other assets. . . . . . . . . . . . . . . . . (8,125) (5,560)
Changes in accounts payable and accrued expenses . . . . (3,362) (2,823)
Other, net . . . . . . . . . . . . . . . . . . . . . . . (89) 54
---------- ---------
Net cash provided by operating activities. . . . . . . 63,595 58,668
---------- ---------
Cash Flows from Investing Activities:
Investment in properties . . . . . . . . . . . . . . . . . . (103,714) (69,191)
Mortgage bonds and notes receivable:
Advances . . . . . . . . . . . . . . . . . . . . . . . . (7,298) (1,388)
Collections. . . . . . . . . . . . . . . . . . . . . . . 884 1,462
Proceeds from sales and disposition of property. . . . . . . 371 8,749
Real estate joint ventures and partnerships:
Investments (53)
Distributions. . . . . . . . . . . . . . . . . . . . . . 279 558
Proceeds from sale of marketable debt securities . . . . . . 12,229
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 241 1,845
---------- ---------
Net cash used in investing activities. . . . . . . . . (97,008) (58,018)
---------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of:
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 138,528 102,220
Common shares of beneficial interest . . . . . . . . . . 124 1,582
Preferred shares of beneficial interest. . . . . . . . . 72,512
Principal payments of debt . . . . . . . . . . . . . . . . . (120,847) (50,271)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . (56,962) (51,138)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . (245) (214)
---------- ---------
Net cash provided by financing activities. . . . . . . 33,110 2,179
---------- ---------
Net (decrease)/increase in cash and cash equivalents . . . . . (303) 2,829
Cash and cash equivalents at January 1 . . . . . . . . . . . . 2,754 169
---------- ---------
Cash and cash equivalents at September 30. . . . . . . . . . $ 2,451 $ 2,998
========== =========
</TABLE>
See notes to consolidated financial statements.
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, 1997. In the opinion of the
Company, 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 the Company's
annual financial statements and notes.
2. SIGNIFICANT ACCOUNTING POLICIES
On March 19, 1998, the Emerging Issues Task Force of the Financial Accounting
Standards Board ("EITF") reached a consensus decision on Issue No. 97-11,
"Accounting for Internal Costs Relating to Real Estate Property Acquisitions"
which provides that internal costs of identifying and acquiring operating
property incurred subsequent to March 19, 1998 should be expensed. The
Company has historically capitalized the direct internal costs of identifying
and acquiring operating property and, accordingly, realized an increase in
expense in each of the quarters ended June 30, 1998 and September 30, 1998 of
$.3 million or approximately $.01 per common share. The Company expects that
this level of acquisition costs will continue in the future.
On May 21, 1998, the EITF reached a consensus decision on Issue No. 98-9,
"Accounting for Contingent Rent In Interim Financial Periods" which provides
that recognition of rental income in interim periods must be deferred until
the specified target that triggers the contingent rental income is achieved.
The Company has historically recognized rental income based on a percentage of
tenant sales ratably over the course of the year. This consensus was
effective May 21, 1998 and requires the Company to defer recognition of this
income until the date that the tenant's sales exceed the breakpoint set forth
in the lease agreement. The application of this consensus resulted in a
reduction in rental revenue in the quarter ended September 30, 1998 of $.2
million and is expected to result in similar reductions in each of the next
three fiscal quarters.
<PAGE>
3. PER SHARE DATA
Net income per common share-basic ("Basic EPS") and net income per common
share-diluted ("Diluted EPS") are computed as follows (in thousands except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
<S> <C> <C> <C> <C>
September 30, September 30,
--------- --------- --------- ---------
1998 1997 1998 1997
--------- --------- --------- ---------
Basic EPS:
Numerator:
Net income . . . . . . . . . . . . . . . . . . . $ 15,699 $ 16,177 $ 43,680 $ 41,708
Preferred dividends. . . . . . . . . . . . . . . (1,395) (3,364)
--------- --------- --------- ---------
Net income available to common shareholders. . . $ 14,304 $ 16,177 $ 40,316 $ 41,708
========= ========= ========= =========
Denominator:
Weighted average common
shares outstanding . . . . . . . . . . . . . . 26,667 26,652 26,666 26,631
========= ========= ========= =========
Net income per common share - basic. . . . . . . . . $ .54 $ .61 $ 1.51 $ 1.57
========= ========= ========= =========
Diluted EPS:
Numerator:
Net income . . . . . . . . . . . . . . . . . . . $ 15,699 $ 16,177 $ 43,680 $ 41,708
Preferred dividends. . . . . . . . . . . . . . . (1,395) (3,364)
Adjustment for convertible partnership interests 5 5
--------- --------- --------- ---------
$ 14,309 $ 16,177 $ 40,321 $ 41,708
========= ========= ========= =========
Denominator:
Weighted average of common
shares outstanding . . . . . . . . . . . . . . 26,667 26,652 26,666 26,631
Effect of dilutive securities:
Employee share options . . . . . . . . . . . . 65 129 124 141
Convertible partnership interests. . . . . . . 54 44
--------- --------- --------- ---------
26,786 26,781 26,834 26,772
========= ========= ========= =========
Net income per common share - diluted. . . . . . . . $ .53 $ .60 $ 1.50 $ 1.56
========= ========= ========= =========
</TABLE>
<PAGE>
4. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement requires presentation of the components of comprehensive income,
including the changes in equity from non-owner sources such as unrealized
gains on marketable securities. The Company's total comprehensive income was
as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income . . . . . . . . . . . . . . . . . . . . . $ 15,699 $ 16,177 $ 43,680 $ 41,708
--------- --------- --------- ---------
Unrealized gains (loss) on marketable securities:
Unrealized holding gain (loss) arising during period 11 58 (81)
Less: Reclassification adjustment for gain
included in net income (1)
--------- --------- --------- ---------
11 57 (81)
--------- --------- --------- ---------
Comprehensive Income . . . . . . . . . . . . . . . . $ 15,699 $ 16,188 $ 43,737 $ 41,627
========= ========= ========= =========
</TABLE>
5. DEBT
The Company's debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
Fixed-rate debt payable to 2015 at 6.0% to 10.5%. $ 402,900 $ 379,749
Variable-rate unsecured notes to 2000 . . . . . . 82,000
Notes payable under revolving credit agreements . 24,590 94,400
Obligations under capital leases. . . . . . . . . 12,467 12,467
Repurchase agreements 12,176
Industrial revenue bonds to 2015 at 4.05% to 6.2%
at September 30, 1998 . . . . . . . . . . . . 6,290 7,437
Other . . . . . . . . . . . . . . . . . . . . . . 1,109 1,137
-------------- -------------
Total . . . . . . . . . . . . . . . . . . $ 529,356 $ 507,366
============== =============
</TABLE>
At September 30, 1998, the variable interest rate for notes payable under the
$200 million revolving credit agreement was 5.8% and the variable interest
rate under the $20 million revolving credit agreement was 6.5%.
<PAGE>
During the quarter, the Company issued $129.5 million of unsecured Medium Term
Notes. Of those issued $47.5 million are fixed-rate notes with an average life
of 6.4 years at an average interest rate of 6.3%. Including the effect of
a gain of $.7 million on the sale of a Treasury lock which was designated as
a hedge against $28 million of the fixed-rate notes, the average rate is 6.0%.
The remaining $82 million of Medium Term Notes are two-year variable-rate
notes which bear interest at 17 basis points over LIBOR and are callable
quarterly by the Company after six months. At September 30, 1998 the interest
rate on these variable-rate notes was 5.9%.
The Company's debt can be summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
As to interest rate:
Fixed-rate debt (including amounts fixed
through interest rate swaps). . . . . $ 442,900 $ 419,792
Variable-rate debt. . . . . . . . . . . 86,456 87,574
-------------- -------------
Total . . . . . . . . . . . . . . $ 529,356 $ 507,366
============== =============
As to collateralization:
Secured debt. . . . . . . . . . . . . . $ 73,848 $ 107,152
Unsecured debt. . . . . . . . . . . . . 455,508 400,214
-------------- -------------
Total . . . . . . . . . . . . . . $ 529,356 $ 507,366
============== =============
</TABLE>
6. PROPERTY
The Company's property consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . $ 222,313 $ 208,512
Land held for development. . . . . . . 30,541 31,679
Land under development . . . . . . . . 12,355 5,958
Buildings and improvements . . . . . . 953,128 863,567
Construction in-progress . . . . . . . 2,978 1,940
Property under direct financing leases 6,215 7,102
-------------- -------------
Total. . . . . . . . . . . . . . . . . $ 1,227,530 $ 1,118,758
============== =============
</TABLE>
<PAGE>
7. CARRYING CHARGES CAPITALIZED
During the periods shown, the following carrying charges were capitalized:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest . . . . . . . $ 361 $ 277 $ 1,010 $ 574
Ad valorem taxes . . . 13 6 34 23
-------- -------- -------- --------
Total. . . . . . . . . $ 374 $ 283 $ 1,044 $ 597
======== ======== ======== ========
</TABLE>
8. SUBSEQUENT EVENT
On October 20, 1998, the Company issued $90 million of 7.125% Series B
cumulative redeemable preferred shares with a liquidation preference of $25
per share in an underwritten public offering. These shares are redeemable by
the shareholder only upon death in cash or common shares, at the Company's
option, and are redeemable by the Company any time after October 20, 2003 in
cash only. The redemption price is payable solely out of the sale proceeds
of other capital shares of the Company, which may include other series
of preferred shares. Dividends are cumulative and are payable quarterly
on or about the 15th day of each March, June, September and December. The
net proceeds of $87.2 million from the preferred shares will be used to
pay down all amounts outstanding under the Company's $200 million revolving
credit facility, with the excess invested in short-term interest-bearing
securities.
<PAGE>
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 176 anchored shopping centers,
28 industrial properties and one office building at September 30, 1998. Of
the Company's 205 developed properties, 155 are located in Texas (including 95
in Houston and Harris County). The Company's remaining properties are located
in Louisiana (11), Arizona (10), Arkansas (6), Nevada (5), New Mexico (5),
Oklahoma (4), Kansas (3), Colorado (2), Missouri (1), Illinois (1), Maine (1)
and Tennessee (1). The Company has nearly 3,300 leases and 2,500 different
tenants. Leases for the Company's properties range from less than a year for
smaller spaces to over 25 years for larger tenants; leases generally include
minimum lease payments and contingent rentals for payment of taxes, insurance
and maintenance and for an amount based on a percentage of the tenants' sales.
The majority of the Company's anchor tenants are supermarkets, drugstores and
other retailers which generally sell basic necessity-type items.
CAPITAL RESOURCES AND LIQUIDITY
The Company anticipates that cash flows from operating activities will
continue to provide adequate capital for all dividend payments in accordance
with REIT requirements, and that cash on hand, borrowings under its existing
credit 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 $63.6 million for the first nine
months of 1998 as compared to $58.7 million for the same period of 1997. The
increase was due primarily to the Company's acquisition and new development
programs.
The Company's Board of Trust Managers approved a quarterly dividend per common
share of $.67 for the third quarter of 1998. The percentage of funds from
operations paid out in cash dividends, or dividend payout ratio, was 74% and
75% for the third quarters of 1998 and 1997, respectively.
The Company invested an additional $28.7 million in the portfolio through
acquisitions, new development and redevelopment of existing properties,
bringing the 1998 total to $111.4 million. Acquisitions during the quarter
added .5 million square feet to the portfolio, representing an investment of
$15.1 million. The Company purchased three industrial projects during the
quarter, including two facilities in Houston and one facility in Dallas. The
Company purchased a 111,000 square foot distribution facility located in this
market. This property was 100% leased at the time of purchase and represents
the Company's third industrial facility in Dallas. In Houston, the Company
purchased a 60,000 square foot office/warehouse facility which is 100% leased
and a 184,000 square foot office/warehouse facility which was vacant.
Additionally, the Company purchased the 81,000 square foot Phase II of Mission
Center, a retail center in Las Vegas purchased by the Company in 1995. In
mid-September, the Company purchased a 30% partnership interest in the 178,000
square foot Markham Commercial Center in Little Rock, Arkansas, the Company's
fifth property in the Little Rock market. Subsequent to quarter-end, Brodie
Oaks Shopping Center, a 245,000 square foot center located in Austin, Texas,
was acquired.
With respect to new development, the Company purchased land and started
development of 32,000 square feet of retail space adjacent to a 63,000
square foot Smith's Food Store in Avondale, Arizona, a suburb of Phoenix
Construction continues at two retail locations where the Company is
constructing space adjacent to occupant-owned supermarkets or other national
retailers. Construction is also underway on the first of three office/service
buildings which will be developed on 11.5 acres of land in southwest Houston
purchased in the first quarter of 1998. The first building of this 158,000
square foot industrial facility will be completed in the fourth quarter of
1998, with the remainder to be finished in 1999. Additionally, construction
began on the 260-unit luxury apartment project in River Pointe, a multi-use
master-planned project developed by the Company in Conroe, a suburb north of
Houston. The projected total investment in these development projects is
$37.1 million.
Construction was completed earlier in the year on Arrowhead Festival Shopping
Center in Glendale, Arizona, a suburb of Phoenix. This 26,000 square foot
center is now 100% leased. A bulk warehouse facility located at the Company's
Railwood Industrial Park in Houston has also been completed with 126,000
square feet currently leased. The Company's investment in these projects
totals $8.5 million.
During the quarter, the Company issued $47.5 million of fixed-rate unsecured
notes and $82 million of two-year variable-rate unsecured notes. The
fixed-rate notes have an average life of 6.4 years and an average rate of
6.0%, including the effect of a gain of $.7 million on the sale of a Treasury
lock which was designated as a hedge against $28 million of the fixed-rate
notes. The variable-rate notes are priced at 17 basis points over LIBOR and
are callable quarterly by the Company after six months.
Total debt outstanding increased to $529.4 million at quarter-end from $507.4
at December 31, 1997. This increase was primarily due to the funding of
acquisitions, new development activity and other capital expenditures, offset
by the retirement of debt with the $72.5 million of proceeds from the
Company's first quarter preferred share offering. The Company had an average
interest rate for the third quarter of 7.08%, down from 7.34% in 1997. The
Company's debt to total capitalization is a conservative 31.2% and its cash
flow covers its interest costs a strong 3.75 times for the four quarters ended
September 30, 1998.
Subsequent to quarter-end, the Company sold $90 million of 7.125% Series B
cumulative redeemable preferred shares with a liquidation preference of $25
per share in an underwritten public offering. These shares are redeemable by
the shareholder only upon death in cash or common shares, at the Company's
option, and are redeemable by the Company any time after five years from the
date of issuance in cash only. The proceeds from the preferred share offering
will be used to pay down all amounts outstanding under the Company's $200
million revolving credit facility and the excess funds will be invested in
short-term interest-bearing securities. Such excess funds will be used
to fund acquisition and new development activity and to retire the two-year
variable-rate unsecured notes on or before maturity.
FUNDS FROM OPERATIONS
The Company considers funds from operations to be an alternate measure of the
performance of an equity REIT since such measure does not recognize
depreciation and amortization of real estate assets as operating expenses.
Management believes that reductions for these charges are not meaningful in
evaluating income-producing real estate, which historically has not
depreciated. The National Association of Real Estate Investment Trusts
defines funds from operations as net income plus depreciation and amortization
of real estate assets, less gains and losses on sales of properties 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 the
Company's operating performance or to cash flows from operations as a measure
of liquidity.
Funds from operations increased to $24.4 million for the third quarter of
1998, as compared to $22.7 million for the same period of 1997. For the nine
months ended September 30, 1998, funds from operations increased to $71.8
million from $66.6 million. These increases relate primarily to the impact of
the Company's acquisitions and, to a lesser degree, new development and
activity at its existing properties.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
Net income available to common shareholders decreased to $14.3 million from
$16.2 million for the third quarter of 1998 as compared with the same quarter
of 1997. Basic net income per share decreased to $.54 in 1998 from $.61 in
1997 while diluted net income per share decreased to $.53 in 1998 from $.60 in
1997. Included in net income in 1997 was $2.9 million, or $.11 per share, of
gain on the condemnation of a portion of a shopping center, while net income
in 1998 included a gain on the sale of the Company's interest in an apartment
complex of $.3 million, or $.01 per share. Excluding these gains, the
increase in net income is due primarily to the Company's acquisitions and new
developments during the past twelve months.
Rental revenues were $49.2 million for 1998, as compared to $42.6 million for
1997, representing an increase of approximately $6.6 million or 15.4%. This
increase relates primarily to acquisitions and, to a lesser degree, new
development and activity at the Company's existing properties. Occupancy of
the Company's total portfolio increased to 93.1% at September 30, 1998 from
92.4% at the end of the third quarter of the prior year and was up from 91.8%
at year-end 1997. During the first nine months of 1998, the Company completed
593 renewals or leases comprising 2.5 million square feet of space. Rental
rates increased an average of 5.8% over the rates charged to the prior
tenants. Net of capital costs for tenant improvements, the increase averaged
2.8%. Retail sales on a same-store basis increased by 1% based on sales
reported during the last twelve months.
Gross interest costs, before capitalization of interest, increased by $1.0
million from $7.9 million in the third quarter of 1997 to $8.8 million in the
third quarter of 1998. The increase was due primarily to the increase in the
average debt outstanding between periods from $427.6 million in 1997 to $500.3
million in 1998. The average interest rate between periods decreased from
7.3% in 1997 to 7.1% in 1998. The amount of interest capitalized during the
period increased from $.3 million in 1997 to $.4 million in 1998 due to an
increase in new development activity.
General and administrative expenses increased by $.3 million to $1.7 million
in the third quarter of 1998 from $1.4 million in the same quarter of 1997.
The increase is partly due to the expensing of $.3 million of direct costs of
acquiring operating properties in 1998, while such costs were capitalized in
1997. Also contributing to the increase is an increase in staffing
necessitated by the growth in the portfolio and the increased activity in
acquisitions and new development.
The increases in depreciation and amortization, operating expenses and ad
valorem taxes were primarily the result of the Company's acquisition and new
development programs.
NINE MONTHS ENDED SEPTEMBER 30, 1998
Net income available to common shareholders decreased by $1.4 million to $40.3
million for the first nine months of 1998 from $41.7 million for the
comparable period in 1997. Basic net income per share decreased to $1.51 in
1998 from $1.57 in 1997 while diluted net income per share decreased to $1.50
in 1998 from $1.56 in 1997. Included in net income in 1997 was $2.9 million,
or $.11 per share, of gain on the condemnation of a shopping center, while net
income in 1998 included a gain on the sale of the Company's interest in an
apartment complex of $.3 million, or $.01 per share. Also included in net
income for 1998 is an extraordinary loss of $1.4 million, or $.05 per share,
on the early retirement of debt. Excluding these items, the increase in net
income is due primarily to the Company's acquisitions and new developments
during the past twelve months.
Rental revenues increased 15.0% to $143.2 million, compared with $124.5
million for the same period of the prior year. This increase relates
primarily to acquisitions and, to a lesser degree, new development and
activity at the Company's existing properties.
Gross interest costs, before capitalization of interest, increased by $3.6
million to $25.9 million in the first nine months of 1998 from $22.3 million
in the same period of 1997, or 16.2%. The increase was due primarily to an
increase in the average debt outstanding between periods, from $409.3 million
in 1997 to $483.7 million in 1998. The average interest rate decreased from
7.3% in 1997 to 7.1% in 1998. The amount of interest capitalized during the
period increased from $.6 million in 1997 to $1.0 million in 1998 due to an
increase in new development activity.
<PAGE>
General and administrative expense increased by $1.0 million, from $4.0
million in 1997 to $5.1 million in 1998. The increase is partly due to the
expensing of $.6 million of direct costs of acquiring operating properties in
1998, while such costs were capitalized in 1997. Also contributing to the
increase is an increase in staffing necessitated by the growth in the
portfolio and the increased activity in acquisitions and new development.
The increases in depreciation and amortization, operating expenses and ad
valorem taxes were primarily the result of the Company's acquisition and new
development programs.
<PAGE>
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to be amended to allow the system to distinguish 21st century dates
from the 20th century dates. The use of software and computer systems that
are not Year 2000 compliant could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in normal business activities. As
a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with Year 2000 requirements.
The Company has completed a review of its software and hardware and determined
that all mission-critical systems are Year 2000 compliant. Non-mission
critical software and hardware have also been reviewed and the Company has
identified certain personal computers, local area networks and file servers
which are scheduled for upgrades or replacement as part of the Company's
ongoing maintenance of its information system technology. The Company has
also completed a review of Year 2000 issues not related to information
technology including, but not limited to, the use of imbedded chips or
internal clocks in machinery or equipment. As the Company owns primarily
single story industrial buildings and neighborhood retail centers without
enclosed common areas, the use of this technology is very limited and,
accordingly, the Company has determined that it is Year 2000 compliant. The
Company has no incremental costs in addressing these Year 2000 issues.
The Company has communicated with its major tenants, financial institutions
and utility companies to determine the extent to which the Company is
vulnerable to third parties' failures to resolve their Year 2000 issues.
Based on the representations received from these third parties, the Company
does not believe this represents a material risk to the Company.
Nevertheless, the Company has no guarantee that such third party systems will
operate as represented. In the event significant systems of one of these
third parties fails, the operating results and financial condition of the
Company could be adversely effected.
Based on the Company's assessment of the readiness of its own systems and
those of significant third parties, it has not deemed it necessary to develop
a formal contingency plan. In the event additional information comes to the
Company's attention which would change its current assessment, it will
consider the need for a contingency plan at that time.
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 ratios of earnings and funds from operations
to fixed charges.
(27) Article 5 Financial Data Schedule (EDGAR filing only).
<PAGE>
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/Financial
Administration and Treasurer
(Principal Accounting Officer)
DATE: October 27, 1998
------------------
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
WEINGARTEN REALTY INVESTORS
COMPUTATION OF RATIOS OF EARNINGS AND FUNDS FROM OPERATIONS
TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
(DOLLAR AMOUNTS IN THOUSANDS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . $14,304 $16,177 $ 40,316 $41,708
Add:
Portion of rents representative of the interest factor. 207 155 609 490
Interest on indebtedness. . . . . . . . . . . . . . . . 8,479 7,588 24,899 21,729
Preferred Dividends . . . . . . . . . . . . . . . . . . 1,395 3,364
Amortization of debt cost . . . . . . . . . . . . . . . 87 105 279 315
-------- -------- --------- --------
Net income as adjusted. . . . . . . . . . . . . . . $24,472 $24,025 $ 69,467 $64,242
======== ======== ========= ========
Fixed charges:
Interest on indebtedness. . . . . . . . . . . . . . . . $ 8,479 $ 7,588 $ 24,899 $21,729
Capitalized interest. . . . . . . . . . . . . . . . . . 361 277 1,010 574
Preferred Dividends . . . . . . . . . . . . . . . . . . 1,395 3,364
Amortization of debt cost . . . . . . . . . . . . . . . 87 105 279 315
Portion of rents representative of the interest factor. 207 155 609 490
-------- -------- --------- --------
Fixed charges . . . . . . . . . . . . . . . . . . . $10,529 $ 8,125 $ 30,161 $23,108
======== ======== ========= ========
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED DIVIDENDS . . . . . . . . . . . . 2.32 2.96 2.30 2.78
======== ======== ========= ========
Net income. . . . . . . . . . . . . . . . . . . . . . . $14,304 $16,177 $ 40,316 $41,708
Depreciation and amortization . . . . . . . . . . . . . 10,406 9,345 30,519 27,876
Gain on sales of property and securities. . . . . . . . (347) (2,839) (417) (2,941)
Extraordinary charge (early retirement of debt) . . . . 1,392
-------- -------- --------- --------
Funds from operations . . . . . . . . . . . . . . . 24,363 22,683 71,810 66,643
Add:
Portion of rents representative of the interest factor. 207 155 609 490
Preferred dividends . . . . . . . . . . . . . . . . . . 1,395 3,364
Interest on indebtedness. . . . . . . . . . . . . . . . 8,479 7,588 24,899 21,729
Amortization of debt cost . . . . . . . . . . . . . . . 87 105 279 315
-------- -------- --------- --------
Funds from operations as adjusted . . . . . . . . . $34,531 $30,531 $100,961 $89,177
======== ======== ========= ========
RATIO OF FUNDS FROM OPERATIONS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS . . . . . . . . . 3.28 3.76 3.35 3.86
======== ======== ========= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM WEINGARTEN REALTY INVESTORS' QUARTERLY REPORT FOR THE PERIOD
ENDED SEPTEMBER 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,451
<SECURITIES> 0
<RECEIVABLES> 16,161
<ALLOWANCES> 903
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,227,530
<DEPRECIATION> 288,006
<TOTAL-ASSETS> 1,025,252
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
90
<COMMON> 800
<OTHER-SE> 448,759
<TOTAL-LIABILITY-AND-EQUITY> 1,025,252
<SALES> 0
<TOTAL-REVENUES> 145,725
<CGS> 0
<TOTAL-COSTS> 40,315
<OTHER-EXPENSES> 35,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,899
<INCOME-PRETAX> 44,655
<INCOME-TAX> 0
<INCOME-CONTINUING> 45,072
<DISCONTINUED> 0
<EXTRAORDINARY> 1,392
<CHANGES> 0
<NET-INCOME> 43,680
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.50
</TABLE>
