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Weingarten Realty Investors 10-K 2007 Documents found in this filing:UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
_________________
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
file number 1-9876
 WEINGARTEN
REALTY INVESTORS
(Exact
name of registrant as specified in its charter)
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer (as defined
in
Rule 405 of the Securities Act). YES
x NO
¨.
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES
¨ NO
x.
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
¨.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. x.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer x Accelerated
filer ¨ Non-accelerated
filer ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES
¨ NO
x.
The
aggregate market value of the common shares held by non-affiliates (based upon
the closing sale price on the New York Stock Exchange of $38.28) on June 30,
2006 was $3,003,015,509. As of June 30, 2006, there were 89,704,771 common
shares of beneficial interest, $.03 par value, outstanding.
As
of
February 2, 2007 there were 85,857,373 common shares outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant's Proxy Statement relating to its Annual Meeting of
Shareholders to be held May 3, 2007 are incorporated by reference in Part
III.
Forward-Looking
Statements
This
annual report on Form 10-K, together with other statements and information
publicly disseminated by us, contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We intend such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 and include this statement for purposes of complying with these
safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words “believe,” “expect,” “intend,”
“anticipate,” “estimate,” “project,” or similar expressions. You should not rely
on forward-looking statements since they involve known and unknown risks,
uncertainties and other factors, which are, in some cases, beyond our control
and which could materially affect actual results, performances or achievements.
Factors which may cause actual results to differ materially from current
expectations include, but are not limited to, (i) general economic and local
real estate conditions, (ii) the inability of major tenants to continue paying
their rent obligations due to bankruptcy, insolvency or general downturn in
their business, (iii) financing risks, such as the inability to obtain equity,
debt, or other sources of financing on favorable terms, (iv) changes in
governmental laws and regulations, (v) the level and volatility of interest
rates, (vi) the availability of suitable acquisition opportunities and (vii)
changes in operating costs. Accordingly, there is no assurance that our
expectations will be realized.
For
these
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
You are cautioned not to place undue reliance on our forward-looking statements,
which speak only as of the date of this annual report on Form 10-K or the date
of any document incorporated by reference. All subsequent written and oral
forward-looking statements attributable to us or any person acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained
or referred to in this section. We do not undertake any obligation to release
publicly any revisions to our forward-looking statements to reflect events
or
circumstances after the date of this Form 10-K.
PART
I
General.
Weingarten Realty Investors is a real estate investment trust organized under
the Texas Real Estate Investment Trust Act. We, and our predecessor entity,
began the ownership and development of shopping centers and other commercial
real estate in 1948. Our primary business is leasing space to tenants in the
shopping and industrial centers we own or lease. We also manage centers for
joint ventures in which we are partners or for other outside owners for which
we
charge fees.
At
December 31, 2006, we owned or operated under long-term leases, either directly
or through our interest in joint ventures or partnerships, a total of 363
developed income-producing properties and 26 properties under various stages
of
construction and development. The total number of centers includes 322
neighborhood and community shopping centers located in Arizona, Arkansas,
California, Colorado, Florida, Georgia, Illinois, Kansas, Kentucky, Louisiana,
Maine, Missouri, Nevada, New Mexico, North Carolina, Oklahoma, Oregon,
Tennessee, Utah, Texas, South Carolina and Washington. We also owned 67
industrial projects located in California, Florida, Georgia, Tennessee and
Texas. The portfolio of properties is approximately 65 million square feet.
We
also
owned interests in 15 parcels of unimproved land held for future development
that totaled approximately 5.7 million square feet.
At
December 31, 2006, we employed 457 full-time persons and our principal executive
offices are located at 2600 Citadel Plaza Drive, Houston, Texas 77008, and
our
phone number is (713) 866-6000. We also have 13 regional offices located in
various parts of the United States.
Investment
and Operating Strategy. Our
investment strategy is to increase cash flow and the value of our portfolio
through intensive hands-on management of our existing portfolio of assets,
selective remerchandising and renovation of properties and the acquisition
and
development of income-producing real estate assets where the returns on such
investments exceed our blended long-term cost of capital. We have expanded
our
new development program to include both operating properties and a merchant
developer component where we will build, lease and then sell the developed
real
estate. Our estimated gross investment in the 26 properties currently under
development or predevelopment is $657 million.
To
help
fund our growth strategy we pursue the disposition of selective noncore assets
as circumstances warrant when we believe the sales proceeds can be effectively
redeployed into assets with higher growth potential.
At
December 31, 2006, neighborhood and community shopping centers generated 89.7%
of total revenue and industrial properties accounted for 9.8%. We expect to
continue to focus the future growth of the portfolio in neighborhood and
community centers and bulk and office/service industrial properties in markets
where we currently operate as well as other markets primarily throughout the
United States. While we do not anticipate significant investment in other
classes of real estate such as multi-family or office assets, we remain open
to
opportunistic uses of our undeveloped land.
We
may
either purchase or lease income-producing properties in the future, and may
also
participate with other entities in property ownership through partnerships,
joint ventures or similar types of co-ownership. Equity investments may be
subject to existing mortgage financing and other indebtedness or such financing
or indebtedness may be incurred in connection with acquiring such investments.
We
may
invest in mortgages; however, we currently have only invested in first mortgages
to joint ventures or partnerships in which we own an equity interest. We may
also invest in securities of other issuers for the purpose, among others, of
exercising control over such entities, subject to the gross income and asset
tests necessary for REIT qualification.
Our
operating strategy consists of intensive hands-on management and leasing of
our
properties. In acquiring and developing properties, we attempt to accumulate
enough properties in a geographic area to allow for the establishment of a
regional office, which enables us to obtain in-depth knowledge of the market
from a leasing perspective and to have easy access to the property and our
tenants from a management viewpoint.
Diversification
from both a geographic and tenancy perspective is a critical component of our
operating strategy. While over 38% of the building square footage of our
properties is located in the State of Texas, we continue to expand our holdings
outside the state. With respect to tenant diversification, our two largest
merchants accounted for 3.0% and 1.6%, respectively, of our total rental
revenues for the year-end December
31, 2006. No other tenant accounted for more than 1.5% of our total rental
revenues.
We
finance our growth and working capital needs in a conservative manner. We have
a
credit rating of A- from Standard & Poors and Baa1 from Moody's Investor
Services. We intend to maintain a conservative approach to managing our balance
sheet, which, in turn, gives us many options to raising debt or equity capital
when needed. At December 31, 2006, our fixed charge coverage ratio was 2.4
to 1
and our debt to total market capitalization was 40.6%.
Our
policies with respect to the investment and operating strategies discussed
above
are reviewed by our Board of Trust Managers periodically and may be modified
without a vote of our shareholders.
Location
of Properties. Our
properties are located in 22 states, primarily throughout the southern half
of
the country. Of our 389 properties that were owned or operated under long-term
leases, either directly or through our interest in joint ventures or
partnerships, as of December 31, 2006, 77 are located in the Houston
metropolitan area and an additional 96 properties are located in other parts
of
Texas. We also have 15 parcels of unimproved land, nine of which are located
in
the Houston area and four of which are located in other parts of Texas. Because
of our investments in the Houston area, as well as in other parts of Texas,
the
Houston and Texas economies affect, to a degree, our business and operations.
Economic
Factors.
The
national economy remained strong in 2006. The US economy is expected to continue
to grow in 2007, although at a more moderate pace. While the housing market
and
energy prices may indicate economic uncertainty, we are strategically positioned
in markets that are forecasted to exceed the national average according to
many
economic measures. Many of our operating areas throughout the United States
are
showing high employment growth and higher than average rent growth among larger
metropolitan areas. Any downturn in the economy could adversely affect us;
however, the vast majority of our properties are located in densely populated
metropolitan areas and are anchored by supermarkets and discount stores, which
generally provide basic necessity-type items and tend to be less affected by
economic changes.
Competition.
We
compete with numerous other developers and real estate companies (both public
and private), financial institutions and other investors engaged in the
development, acquisition and operation of shopping centers and commercial
property in our trade areas. This results in competition for the acquisition
of
both existing income-producing properties and prime development sites. There
is
also competition for tenants to occupy the space that is developed, acquired
and
managed by our competitors or us.
We
believe that the principal competitive factors in attracting tenants in our
market areas are location, price, anchor tenants and maintenance of properties.
We also believe that our competitive advantages include the favorable locations
of our properties, knowledge of markets and customer bases, our ability to
provide a retailer with multiple locations with anchor tenants and the practice
of continuous maintenance and renovation of our properties.
Materials
Available on Our Website.
Copies
of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to those reports, as well as Reports on
Forms 3, 4 and 5 regarding Officers, Trustees or 10% Beneficial Owners of the
Company, filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the
Securities Exchange Act of 1934 are available free of charge through our website
(www.weingarten.com)
as soon
as reasonably practicable after we electronically file the material with, or
furnish it to, the Securities and Exchange Commission. We have also made
available on our website copies of our Audit Committee Charter, Management
Development and Compensation Committee Charter, Governance Committee Charter,
Code of Conduct and Ethics and Governance Policies. In the event of any changes
to these charters or the code or guidelines, changed copies will also be made
available on our website. You may also read and copy any materials we file
with
the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C.
20549.
Financial
Information.
Additional financial information concerning us is included in the Consolidated
Financial Statements located on pages 45 through 72 herein.
The
economic performance and value of our shopping centers depend on many factors,
each of which could have an adverse impact on our cash flows and operating
results.
The
economic performance and value of our properties can be affected by many
factors, including the following:
Our
properties consist primarily of neighborhood and community shopping centers
and,
therefore, our performance is linked to general economic conditions in the
market for retail space. The market for retail space has been and may continue
to be adversely affected by weakness in the national, regional and local
economies where our properties are located, the adverse financial condition
of
some large retailing companies, the ongoing consolidation in the retail sector,
the excess amount of retail space in a number of markets and increasing consumer
purchases through catalogues and the Internet. To the extent that any of these
conditions occur, they are likely to affect market rents for retail space.
In
addition, we may face challenges in the management and maintenance of the
properties or encounter increased operating costs, such as real estate taxes,
insurance and utilities, which may make our properties unattractive to
tenants.
Our
acquisition activities may not produce the cash flows that we expect and may
be
limited by competitive pressures or other factors.
We
intend
to acquire existing retail properties to the extent that suitable acquisitions
can be made on advantageous terms. Acquisitions of commercial properties involve
risks such as:
In
addition, we may not be in a position or have the opportunity in the future
to
make suitable property acquisitions on advantageous terms due to competition
for
such properties with others engaged in real estate investment. Our inability
to
successfully acquire new properties may have an adverse effect on our results
of
operations.
Our
dependence on rental income may adversely affect our ability to meet our debt
obligations and make distributions to our shareholders.
The
substantial majority of our income is derived from rental income from real
property. As a result, our performance depends on our ability to collect rent
from tenants. Our income and funds for distribution would be negatively affected
if a significant number of our tenants, or any of our major tenants (as
discussed in more detail below):
Any
of
these actions could result in the termination of the tenant’s leases and the
loss of rental income attributable to the terminated leases. Lease terminations
by an anchor tenant or a failure by that anchor tenant to occupy the premises
could also result in lease terminations or reductions in rent by other tenants
in the same shopping centers under the terms of some leases. In addition, we
cannot be sure that any tenant whose lease expires will renew that lease or
that
we will be able to re-lease space on economically advantageous terms. The loss
of rental revenues from a number of our tenants and our inability to replace
such tenants may adversely affect our profitability and our ability to meet
debt
and other financial obligations and make distributions to the
shareholders.
Our
development and construction activities could affect our operating
results.
We
intend
to continue the selective development and construction of retail properties
in
accordance with our development and underwriting policies as opportunities
arise. Our development and construction activities include risks
that:
Additionally,
the time frame required for development, construction and lease-up of these
properties means that we may have to wait years for a significant cash return.
If any of the above events occur, the development of properties may hinder
our
growth and have an adverse effect on our results of operations. In addition,
new
development activities, regardless of whether or not they are ultimately
successful, typically require substantial time and attention from
management.
Real
estate property investments are illiquid, and therefore we may not be able
to
dispose of properties when appropriate or on favorable
terms.
Real
estate property investments generally cannot be disposed of quickly. In
addition, the federal tax code imposes restrictions on the ability of a REIT
to
dispose of properties that are not applicable to other types of real estate
companies. Therefore, we may not be able to vary our portfolio in response
to
economic or other conditions promptly or on favorable terms, which could cause
us to incur extended losses and reduce our cash flows and adversely affect
distributions to shareholders.
Our
cash flows and operating results could be adversely affected by required
payments of debt or related interest and other risks of our debt
financing.
We
are
generally subject to risks associated with debt financing. These risks
include:
If
a
property is mortgaged to secure payment of indebtedness and we cannot make
the
mortgage payments, we may have to surrender the property to the lender with
a
consequent loss of any prospective income and equity value from such property.
Any of these risks can place strains on our cash flows, reduce our ability
to
grow and adversely affect our results of operations.
Property
ownership through partnerships and joint ventures could limit our control of
those investments and reduce our expected return.
Partnership
or joint venture investments may involve risks not otherwise present for
investments made solely by us, including the possibility that our partner or
co-venturer might become bankrupt, that our partner or co-venturer might at
any
time have different interests or goals than us, and that our partner or
co-venturer may take action contrary to our instructions, requests, policies
or
objectives. Other risks of joint venture investments could include impasse
on
decisions, such as a sale, because neither our partner or co-venturer nor we
would have full control over the partnership or joint venture. These factors
could limit the return that we receive from those investments or cause our
cash
flows to be lower than our estimates.
Our
financial condition could be adversely affected by financial covenants.
Our
credit facilities and public debt indentures under which our indebtedness is,
or
may be, issued contain certain financial and operating covenants, including,
among other things, certain coverage ratios, as well as limitations on our
ability to incur secured and unsecured indebtedness, sell all or substantially
all of our assets and engage in mergers and consolidations and certain
acquisitions. These covenants could limit our ability to obtain additional
funds
needed to address cash shortfalls or pursue growth opportunities or transactions
that would provide substantial return to our shareholders. In addition, a breach
of these covenants could cause a default under or accelerate some or all of
our
indebtedness, which could have a material adverse effect on our financial
condition.
If
we fail to qualify as a REIT in any taxable year, we will be subject to U.S.
federal income tax as a regular corporation and could have significant tax
liability.
We
intend
to operate in a manner that allows us to qualify as a REIT for U.S. federal
income tax purposes. However, REIT qualification requires us to satisfy numerous
requirements (some on an annual or quarterly basis) established under highly
technical and complex provisions of the Internal Revenue Code, for which there
are a limited number of judicial or administrative interpretations. Our status
as a REIT requires an analysis of various factual matters and circumstances
that
are not entirely within our control. Accordingly, it is not certain we will
be
able to qualify and remain qualified as a REIT for U.S. federal income tax
purposes. Even a technical or inadvertent violation of the REIT requirements
could jeopardize our REIT qualification. Furthermore, Congress or the IRS might
change the tax laws or regulations and the courts might issue new rulings,
in
each case potentially having retroactive effect that could make it more
difficult or impossible for us to qualify as a REIT. If we fail to qualify
as a
REIT in any tax year, then:
Even
if
we remain qualified as a REIT, we may face other tax liabilities that reduce
our
cash flow. We may also be subject to certain U.S. federal, state and local
taxes
on our income and property either directly or at the level of our subsidiaries.
Any of these taxes would decrease cash available for distribution to our
shareholders.
Compliance
with REIT requirements may negatively affect our operating decisions.
To
maintain our status as a REIT for U.S. federal income tax purposes, we must
meet
certain requirements, on an ongoing basis, including requirements regarding
our
sources of income, the nature and diversification of our assets, the amounts
we
distribute to our shareholders and the ownership of our shares. We may also
be
required to make distributions to our shareholders when we do not have funds
readily available for distribution or at times when our funds are otherwise
needed to fund capital expenditures.
As
a
REIT, we must distribute at least 90% of our annual net taxable income
(excluding net capital gains) to our shareholders. To the extent that we satisfy
this distribution requirement, but distribute less than 100% of our net taxable
income, we will be subject to U.S. federal corporate income tax on our
undistributed taxable income. From time to time, we may generate taxable income
greater than our income for financial reporting purposes, or our net taxable
income may be greater than our cash flow available for distribution to our
shareholders. If we do not have other funds available in these situations,
we
could be required to borrow funds, sell a portion of our securities at
unfavorable prices or find other sources of funds in order to meet the REIT
distribution requirements.
Dividends
paid by REITs generally do not qualify for reduced tax rates.
In
general, the maximum U.S. federal income tax rate for dividends paid to
individual U.S. shareholders is 15% (through 2008). Unlike dividends received
from a corporation that is not a REIT, our distributions to individual
shareholders generally are not eligible for the reduced rates.
Our
real estate investments may contain environmental risks that could adversely
affect our operating results.
The
acquisition of certain assets may subject us to liabilities, including
environmental liabilities. Our operating expenses could be higher than
anticipated due to the cost of complying with existing or future environmental
laws and regulations. In addition, under various federal, state and local laws,
ordinances and regulations, we may be considered an owner or operator of real
property or to have arranged for the disposal or treatment of hazardous or
toxic
substances. As a result, we may become liable for the costs of removal or
remediation of certain hazardous substances released on or in our
property.
We
may
also be liable for other potential costs that could relate to hazardous or
toxic
substances (including governmental fines and injuries to persons and property).
We may incur such liability whether or not we knew of, or were responsible
for,
the presence of such hazardous or toxic substances. Any liability could be
of
substantial magnitude and divert management’s attention from other aspects of
our business and, as a result, could have a material adverse effect on our
operating results and financial condition, as well as our ability to make
distributions to the shareholders.
An
uninsured loss or a loss that exceeds the policies on our properties could
subject us to lost capital or revenue on those properties.
Under
the
terms and conditions of the leases currently in force on our properties, tenants
generally are required to indemnify and hold us harmless from liabilities
resulting from injury to persons, air, water, land or property, on or off the
premises, due to activities conducted on the properties, except for claims
arising from our negligence or intentional misconduct or that of our agents.
Tenants are generally required, at the tenant’s expense, to obtain and keep in
full force during the term of the lease, liability and property damage insurance
policies. We have obtained comprehensive liability, casualty, property, flood
and rental loss insurance policies on our properties. All of these policies
may
involve substantial deductibles and certain exclusions. In addition, we cannot
assure the shareholders that the tenants will properly maintain their insurance
policies or have the ability to pay the deductibles. Should a loss occur that
is
uninsured or in an amount exceeding the combined aggregate limits for the
policies noted above, or in the event of a loss that is subject to a substantial
deductible under an insurance policy, we could lose all or part of our capital
invested in, and anticipated revenue from, one or more of the properties, which
could have a material adverse effect on our operating results and financial
condition, as well as our ability to make distributions to the
shareholders.
Compliance
with the Americans with Disabilities Act and fire, safety and other regulations
may require us to make unintended expenditures that adversely affect our cash
flows.
All
of
our properties are required to comply with the Americans with Disabilities
Act
(ADA). The ADA has separate compliance requirements for “public accommodations”
and “commercial facilities,” but generally requires that buildings be made
accessible to people with disabilities. Compliance with the ADA requirements
could require removal of access barriers, and noncompliance could result in
imposition of fines by the U.S. government or an award of damages to private
litigants, or both. While the tenants to whom we lease properties are obligated
by law to comply with the ADA provisions, and typically under tenant leases
are
obligated to cover costs associated with compliance, if required changes involve
greater expenditures than anticipated, or if the changes must be made on a
more
accelerated basis than anticipated, the ability of these tenants to cover costs
could be adversely affected. As a result, we could be required to expend funds
to comply with the provisions of the ADA, which could adversely affect the
results of operations and financial condition and our ability to make
distributions to shareholders. In addition, we are required to operate the
properties in compliance with fire and safety regulations, building codes and
other land use regulations, as they may be adopted by governmental agencies
and
bodies and become applicable to the properties. We may be required to make
substantial capital expenditures to comply with those requirements, and these
expenditures could have a material adverse effect on our ability to meet the
financial obligations and make distributions to our shareholders.
None.
At
December 31, 2006, our real estate properties consisted of 389 locations in
22
states. A complete listing of these properties, including the name, location,
building area and land area:
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