XNYS:WRI Weingarten Realty Investors Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2012
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 incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
2600 Citadel Plaza Drive
 
P.O. Box 924133
 
Houston, Texas
77292-4133
(Address of principal executive offices)
(Zip Code)
 
(713) 866-6000
 
 
(Registrant's telephone number)
 
 
 
 
 
 
 
 
(Former name, former address and former fiscal
year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     YES ý NO¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     YES ý         NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
        Large accelerated filer ý
Accelerated filer ¨
        Non-accelerated filer ¨
Smaller reporting company ¨
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     YES ¨             NO ý

As of July 31, 2012, there were 121,259,414 common shares of beneficial interest of Weingarten Realty Investors, $.03 par value, outstanding.



TABLE OF CONTENTS
 
PART I.
 
Financial Information:
Page Number
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
PART II.
 
Other Information:
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I-FINANCIAL INFORMATION
ITEM 1. Financial Statements
WEINGARTEN REALTY INVESTORS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Rentals, net
$
123,005

 
$
117,843

 
$
241,724

 
$
232,511

Other
2,615

 
5,482

 
5,330

 
8,020

Total
125,620

 
123,325

 
247,054

 
240,531

Expenses:
 
 
 
 
 
 
 
Depreciation and amortization
34,332

 
33,457

 
68,431

 
66,154

Operating
24,315

 
23,646

 
47,103

 
44,925

Real estate taxes, net
14,744

 
13,736

 
28,801

 
27,914

Impairment loss
4,293

 
18,891

 
11,145

 
19,661

General and administrative
6,378

 
6,600

 
14,684

 
13,136

Total
84,062

 
96,330

 
170,164

 
171,790

Operating Income
41,558

 
26,995

 
76,890

 
68,741

Interest Expense, net
(29,311
)
 
(37,036
)
 
(60,740
)
 
(73,649
)
Interest and Other Income, net
582

 
1,423

 
2,968

 
3,478

Gain on Sale of Real Estate Joint Venture and Partnership Interests

 

 
5,562

 

Equity in (Losses) Earnings of Real Estate Joint Ventures
and Partnerships, net
(15,695
)
 
3,579

 
(11,620
)
 
6,976

Benefit for Income Taxes
220

 
190

 
242

 
506

(Loss) Income from Continuing Operations
(2,646
)
 
(4,849
)
 
13,302

 
6,052

Operating Income from Discontinued Operations
4,059

 
7,652

 
6,675

 
12,879

Gain on Sale of Property from Discontinued Operations
31,264

 

 
34,898

 

Income from Discontinued Operations
35,323

 
7,652

 
41,573

 
12,879

Gain on Sale of Property
84

 
136

 
524

 
1,196

Net Income
32,761

 
2,939

 
55,399

 
20,127

Less: Net Income Attributable to Noncontrolling Interests
(1,342
)
 
(1,236
)
 
(2,783
)
 
(2,328
)
Net Income Adjusted for Noncontrolling Interests
31,419

 
1,703

 
52,616

 
17,799

Dividends on Preferred Shares
(8,869
)
 
(8,869
)
 
(17,738
)
 
(17,738
)
Net Income (Loss) Attributable to Common Shareholders
$
22,550

 
$
(7,166
)
 
$
34,878

 
$
61

Earnings Per Common Share - Basic:
 
 
 
 
 
 
 
Loss from continuing operations attributable to common shareholders
$
(0.10
)
 
$
(0.12
)
 
$
(0.05
)
 
$
(0.11
)
Income from discontinued operations
0.29

 
0.06

 
0.34

 
0.11

Net income (loss) attributable to common shareholders
$
0.19

 
$
(0.06
)
 
$
0.29

 
$

Earnings Per Common Share - Diluted:
 
 
 
 
 
 
 
Loss from continuing operations attributable to common shareholders
$
(0.10
)
 
$
(0.12
)
 
$
(0.05
)
 
$
(0.11
)
Income from discontinued operations
0.29

 
0.06

 
0.34

 
0.11

Net income (loss) attributable to common shareholders
$
0.19

 
$
(0.06
)
 
$
0.29

 
$

Comprehensive Income:
 
 
 
 
 
 
 
Net Income
$
32,761

 
$
2,939

 
$
55,399

 
$
20,127

Net unrealized loss on derivatives
(148
)
 
(401
)
 
(132
)
 
(290
)
Amortization of loss on derivatives
662

 
619

 
1,321

 
1,238

Comprehensive Income
33,275

 
3,157

 
56,588

 
21,075

Comprehensive Income Attributable to Noncontrolling Interests
(1,342
)
 
(1,236
)
 
(2,783
)
 
(2,328
)
Comprehensive Income Adjusted for Noncontrolling Interests
$
31,933

 
$
1,921

 
$
53,805

 
$
18,747

See Notes to Condensed Consolidated Financial Statements.

3


WEINGARTEN REALTY INVESTORS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
 
June 30,
2012
 
December 31,
2011
ASSETS
 
 
 
Property
$
4,345,891

 
$
4,688,526

Accumulated Depreciation
(1,000,138
)
 
(1,059,531
)
Property Held for Sale, net
63,747

 
73,241

Property, net *
3,409,500

 
3,702,236

Investment in Real Estate Joint Ventures and Partnerships, net
317,781

 
341,608

Total
3,727,281

 
4,043,844

Notes Receivable from Real Estate Joint Ventures and Partnerships
89,363

 
149,204

Unamortized Debt and Lease Costs, net
113,578

 
115,191

Accrued Rent and Accounts Receivable (net of allowance for doubtful accounts of $9,777 in 2012
and $11,301 in 2011) *
71,267

 
86,530

Cash and Cash Equivalents *
15,097

 
13,642

Restricted Deposits and Mortgage Escrows
33,211

 
11,144

Other, net
168,356

 
168,671

Total Assets
$
4,218,153

 
$
4,588,226

LIABILITIES AND EQUITY
 
 
 
Debt, net *
$
2,194,685

 
$
2,531,837

Accounts Payable and Accrued Expenses
114,660

 
124,888

Other, net
111,539

 
107,919

Total Liabilities
2,420,884

 
2,764,644

Commitments and Contingencies

 

Equity:
 
 
 
Shareholders’ Equity:
 
 
 
Preferred Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 10,000
 
 
 
6.75% Series D cumulative redeemable preferred shares of beneficial interest; 100 shares
issued and outstanding in 2012 and 2011; liquidation preference $75,000
3

 
3

6.95% Series E cumulative redeemable preferred shares of beneficial interest; 29 shares
issued and outstanding in 2012 and 2011; liquidation preference $72,500
1

 
1

6.5% Series F cumulative redeemable preferred shares of beneficial interest; 140 shares
issued and outstanding in 2012 and 2011; liquidation preference $350,000
4

 
4

Common Shares of Beneficial Interest - par value, $.03 per share; shares authorized:
275,000; shares issued and outstanding: 121,249 in 2012 and 120,844 in 2011
3,653

 
3,641

Additional Paid-In Capital
1,993,351

 
1,983,978

Net Income Less Than Accumulated Dividends
(339,904
)
 
(304,504
)
Accumulated Other Comprehensive Loss
(26,554
)
 
(27,743
)
Total Shareholders’ Equity
1,630,554

 
1,655,380

Noncontrolling Interests
166,715

 
168,202

Total Equity
1,797,269

 
1,823,582

Total Liabilities and Equity
$
4,218,153

 
$
4,588,226

*   Consolidated Variable Interest Entities’ Assets and Liabilities included in the above balances (See Note 17):
Property, net
$
227,094

 
$
230,159

Accrued Rent and Accounts Receivable, net
7,071

 
8,564

Cash and Cash Equivalents
9,360

 
11,382

Debt, net
277,880

 
279,301

See Notes to Condensed Consolidated Financial Statements.

4


WEINGARTEN REALTY INVESTORS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Six Months Ended
June 30,
 
2012
 
2011
Cash Flows from Operating Activities:
 
 
 
Net Income
$
55,399

 
$
20,127

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
73,359

 
78,562

Amortization of deferred financing costs and debt discount
316

 
2,079

Impairment loss
15,074

 
22,550

Equity in losses (earnings) of real estate joint ventures and partnerships, net
11,620

 
(6,976
)
Gain on acquisition

 
(4,559
)
Gain on sale of property
(35,422
)
 
(1,196
)
Gain on sale of real estate joint venture and partnership interests
(5,562
)
 

Distributions of income from real estate joint ventures and partnerships, net
1,562

 
1,500

Changes in accrued rent and accounts receivable, net
10,064

 
17,541

Changes in other assets, net
(15,193
)
 
(14,692
)
Changes in accounts payable, accrued expenses and other liabilities, net
(9,458
)
 
(16,142
)
Other, net
7,686

 
5,687

Net cash provided by operating activities
109,445

 
104,481

Cash Flows from Investing Activities:
 
 
 
Acquisition of real estate and land
(116,960
)
 
(45,293
)
Development and capital improvements
(45,585
)
 
(36,799
)
Proceeds from sale of property and real estate equity investments, net
419,370

 
43,013

Change in restricted deposits and mortgage escrows
(22,010
)
 
(21,795
)
Notes receivable from real estate joint ventures and partnerships and other receivables:
 
 
 
Advances
(4,865
)
 
(2,251
)
Collections
73,563

 
4,375

Real estate joint ventures and partnerships:
 
 
 
Investments
(7,129
)
 
(12,626
)
Distributions of capital
7,568

 
8,373

Proceeds from tax increment revenue bonds

 
16,545

Net cash provided by (used in) investing activities
303,952

 
(46,458
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of:
 
 
 
Debt

 
15,750

Common shares of beneficial interest, net
3,212

 
3,650

Principal payments of debt
(384,116
)
 
(87,303
)
Changes in unsecured revolving credit facilities
62,500

 
97,850

Common and preferred dividends paid
(86,704
)
 
(82,833
)
Debt issuance costs paid
(1,685
)
 
(356
)
Distributions to noncontrolling interests
(7,333
)
 
(7,259
)
Contributions from noncontrolling interests
2,123

 
3,717

Other, net
61

 
(724
)
Net cash used in financing activities
(411,942
)
 
(57,508
)
Net increase in cash and cash equivalents
1,455

 
515

Cash and cash equivalents at January 1
13,642

 
23,859

Cash and cash equivalents at June 30
$
15,097

 
$
24,374

Interest paid during the period (net of amount capitalized of $1,594 and $654, respectively)
$
61,959

 
$
70,863

Income taxes paid during the period
$
1,548

 
$
1,578

See Notes to Condensed Consolidated Financial Statements.

5


WEINGARTEN REALTY INVESTORS
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except per share amounts)
 
 
Preferred
Shares of
Beneficial
Interest
 
Common
Shares of
Beneficial
Interest
 
Additional
Paid-In
Capital
 
Net Income
Less Than
Accumulated
Dividends
 
Accumulated 
Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
Total
Balance, January 1, 2011
$
8

 
$
3,630

 
$
1,969,905

 
$
(151,780
)
 
$
(21,774
)
 
$
180,268

 
$
1,980,257

Net income
 
 
 
 
 
 
17,799

 
 
 
2,328

 
20,127

Shares issued under benefit plans
 
 
10

 
7,516

 
 
 
 
 
 
 
7,526

Dividends declared – common shares (1)
 
 
 
 
 
 
(66,407
)
 
 
 
 
 
(66,407
)
Dividends declared – preferred shares (2)
 
 
 
 
 
 
(16,426
)
 
 
 
 
 
(16,426
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
(7,259
)
 
(7,259
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
3,717

 
3,717

Other comprehensive income
 
 
 
 
 
 
 
 
948

 
 
 
948

Other, net
 
 
 
 
2,864

 
(1,312
)
 
 
 
(2,449
)
 
(897
)
Balance, June 30, 2011
$
8

 
$
3,640

 
$
1,980,285

 
$
(218,126
)
 
$
(20,826
)
 
$
176,605

 
$
1,921,586

Balance, January 1, 2012
$
8

 
$
3,641

 
$
1,983,978

 
$
(304,504
)
 
$
(27,743
)
 
$
168,202

 
$
1,823,582

Net income
 
 
 
 
 
 
52,616

 
 
 
2,783

 
55,399

Shares issued under benefit plans
 
 
12

 
8,264

 
 
 
 
 
 
 
8,276

Dividends declared – common shares (1)
 
 
 
 
 
 
(70,278
)
 
 
 
 
 
(70,278
)
Dividends declared – preferred shares (2)
 
 
 
 
 
 
(16,426
)
 
 
 
 
 
(16,426
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
(7,333
)
 
(7,333
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
2,123

 
2,123

Other comprehensive income
 
 
 
 
 
 
 
 
1,189

 
 
 
1,189

Other, net
 
 
 
 
1,109

 
(1,312
)
 
 
 
940

 
737

Balance, June 30, 2012
$
8

 
$
3,653

 
$
1,993,351

 
$
(339,904
)
 
$
(26,554
)
 
$
166,715

 
$
1,797,269

_______________
(1)
Common dividend per share was $0.58 and $0.55 for the six months ended June 30, 2012 and 2011, respectively.
(2)
Series D, E and F preferred dividend per share was $25.31, $86.88 and $81.25, respectively, for both the six months ended June 30, 2012 and 2011.
See Notes to Condensed Consolidated Financial Statements.

6


WEINGARTEN REALTY INVESTORS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1. Summary of Significant Accounting Policies
Business
Weingarten Realty Investors is a real estate investment trust (“REIT”) organized under the Texas Business Organizations Code. 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 centers and other properties we own or lease. We also manage centers for joint ventures in which we are partners or for other outside owners for which we charge fees.
We operate a portfolio of rental properties, primarily neighborhood and community shopping centers, that totals approximately 63.8 million square feet. We have a diversified tenant base with our largest tenant comprising only 3.3% of total rental revenues during the first six months of 2012.
We currently operate, and intend to operate in the future, as a REIT.
Basis of Presentation
Our consolidated financial statements include the accounts of our subsidiaries, certain partially owned real estate joint ventures or partnerships and variable interest entities (“VIEs”) which meet the guidelines for consolidation. All intercompany balances and transactions have been eliminated.
The condensed consolidated financial statements included in this report are unaudited; however, amounts presented in the condensed consolidated balance sheet as of December 31, 2011 are derived from our audited financial statements at that date. In our opinion, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year.
The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and certain information included in our annual financial statements and notes has been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such statements require management to make estimates and assumptions that affect the reported amounts on our consolidated financial statements. Actual results could differ from these estimates. We have evaluated subsequent events for recognition or disclosure in our consolidated financial statements.
Reportable Segments
Our primary focus is to lease space to tenants in shopping centers or other properties that we own, lease or manage. Historically, we reviewed operating and financial information for each property by commercial use and on an individual basis. Each commercial use or each property represents an individual operating segment.

We evaluate the performance of the reportable segments based on net operating income, defined as total revenues less operating expenses and real estate taxes. Management does not consider the effect of gains or losses from the sale of property or interests in real estate joint ventures and partnerships in evaluating segment operating performance.
With the sale of our industrial portfolio in May 2012, we no longer analyze our properties by commercial use. Further, no individual property constitutes more than 10% of our revenues or net operating income, and we have no operations outside of the United States of America. Therefore, our properties have been aggregated into one reportable segment since the properties share similar economic and operating characteristics.
Restricted Deposits and Mortgage Escrows
Restricted deposits and mortgage escrows consist of escrow deposits held by lenders primarily for property taxes, insurance and replacement reserves and restricted cash that is held for a specific use or in a qualified escrow account for the purposes of completing like-kind exchange transactions.

7


Our restricted deposits and mortgage escrows consist of the following (in thousands):
 
 
June 30,
2012
 
December 31,
2011
Restricted cash
$
26,120

 
$
3,169

Mortgage escrows
7,091

 
7,975

Total
$
33,211

 
$
11,144


Accumulated Other Comprehensive Loss
Our accumulated other comprehensive loss consists of the following (in thousands):
 
 
June 30,
2012
 
December 31,
2011
Derivatives
$
8,827

 
$
10,016

Retirement liability
17,727

 
17,727

Total
$
26,554

 
$
27,743

Reclassifications
The reclassification of prior years’ operating results for certain properties classified as discontinued operations was made to conform to the current year presentation (see Note 10 for additional information). Also, we have disaggregated certain line items in our Condensed Consolidated Statements of Cash Flows to conform to the current year presentation. Prior years’ distribution to noncontrolling interests and contributions from noncontrolling interests was reclassified from other, net, and the acquisition of real estate and land was segregated from development and capital improvements (which was previously titled investment in property). These items had no impact on previously reported net income, earnings per share, the consolidated balance sheet or cash flows.
 
Note 2. Newly Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which amends previous guidance resulting in common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. The amendments both clarify the application of existing fair value measurement requirements and changes certain principles or requirements for measuring fair value or for disclosing information about fair value measurements. The provisions of this update were effective for us at January 1, 2012. The adoption of this update did not materially impact our consolidated financial statements.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05 (“ASU 2011-05”), “Presentation of Comprehensive Income,” which amends previous guidance by requiring all nonowner changes in equity to be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, an entity will be required to present on the face of the financial statements, reclassification adjustments for items reclassified from other comprehensive income to net income. In December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which primarily defers the provision of ASU 2011-05 requiring the presentation on the face of the financial statements other comprehensive income reclassification adjustments. All other provisions of ASU 2011-05 were effective for us at January 1, 2012. As of December 31, 2011, our early adoption of this update did not materially impact our consolidated financial statements.
 

8



Note 3. Property
Our property consists of the following (in thousands):
 
 
June 30,
2012
 
December 31,
2011
Land
$
870,826

 
$
918,627

Land held for development
126,616

 
124,528

Land under development
15,545

 
20,281

Buildings and improvements
3,267,219

 
3,557,173

Construction in-progress
65,685

 
67,917

Total
$
4,345,891

 
$
4,688,526


The following carrying charges were capitalized (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
  
2012
 
2011
 
2012
 
2011
Interest
$
811

 
$
317

 
$
1,594

 
$
654

Real estate taxes
123

 
72

 
246

 
83

Total
$
934

 
$
389

 
$
1,840

 
$
737

During the six months ended June 30, 2012, we acquired two shopping centers and other retail property for approximately $118.3 million.
During the six months ended June 30, 2012, we sold 13 shopping centers, 53 industrial properties and other retail property. We also assigned a 75% consolidated joint venture interest to our partner. Aggregate gross sales proceeds, including the assumption of debt by the buyer, from these transactions totaled $444.1 million and generated gains of $35.4 million.
Also, seven properties totaling $84.0 million and $94.8 million before accumulated depreciation have been classified as held for sale as of June 30, 2012 and December 31, 2011, respectively. See Note 10 for additional information.


9


Note 4. Investment in Real Estate Joint Ventures and Partnerships
We own interests in real estate joint ventures or limited partnerships and have tenancy-in-common interests in which we exercise significant influence, but do not have financial and operating control. We account for these investments using the equity method, and our interests range from 10% to 75% for the 2012 periods presented and 7.8% to 75% for the 2011 periods presented. Combined condensed financial information of these ventures (at 100%) is summarized as follows (in thousands):
 
 
June 30,
2012
 
December 31,
2011
Combined Condensed Balance Sheets
 
 
 
Property
$
1,933,796

 
$
2,108,745

Accumulated depreciation
(310,024
)
 
(296,496
)
Property, net
1,623,772

 
1,812,249

Other assets, net
169,644

 
173,130

Total
$
1,793,416

 
$
1,985,379

Debt, net (primarily mortgages payable)
$
551,012

 
$
556,920

Amounts payable to Weingarten Realty Investors and affiliates
106,952

 
170,007

Other liabilities, net
41,837

 
41,907

Total
699,801

 
768,834

Accumulated equity
1,093,615

 
1,216,545

Total
$
1,793,416

 
$
1,985,379

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
  
2012
 
2011
 
2012
 
2011
Combined Condensed Statements of Operations
 
 
 
 
 
 
 
Revenues, net
$
50,026

 
$
50,866

 
$
99,873

 
$
102,192

Expenses:
 
 
 
 
 
 
 
Depreciation and amortization
15,481

 
16,913

 
31,617

 
34,544

Interest, net
8,961

 
9,573

 
18,047

 
18,837

Operating
8,571

 
8,936

 
17,196

 
17,830

Real estate taxes, net
6,159

 
6,128

 
12,397

 
12,606

General and administrative
225

 
877

 
586

 
1,969

Provision for income taxes
95

 
116

 
168

 
201

Impairment loss
96,498

 

 
96,498

 
2,058

Total
135,990

 
42,543

 
176,509

 
88,045

Gain (loss) on sale of property
246

 

 
246

 
(21
)
Net (loss) income
$
(85,718
)
 
$
8,323

 
$
(76,390
)
 
$
14,126



10


Our investment in real estate joint ventures and partnerships, as reported in our Condensed Consolidated Balance Sheets, differs from our proportionate share of the entities' underlying net assets due to basis differences, which arose upon the transfer of certain assets to the joint ventures. The net basis differences, which totaled $5.7 million and $7.5 million at June 30, 2012 and December 31, 2011, respectively, are generally amortized over the useful lives of the related assets.
At June 30, 2012, our real estate joint ventures and partnerships determined that the carrying amount of certain properties was not recoverable and that the properties should be written down to fair value. For both the three and six months ended June 30, 2012, our unconsolidated real estate joint ventures and partnerships recorded an impairment charge of $96.5 million on various properties that are being marketed for sale. For the six months ended June 30, 2011, our unconsolidated real estate joint ventures and partnerships recorded an impairment charge of $2.1 million.
Fees earned by us for the management of these real estate joint ventures and partnerships totaled $1.6 million and $1.5 million for the three months ended June 30, 2012 and 2011, respectively, and $3.3 million and $3.1 million for the six months ended June 30, 2012 and 2011, respectively.
In February 2012, we sold a 47.8% unconsolidated joint venture interest in a Colorado development project to our partner with gross sales proceeds totaling $29.1 million, which includes the assumption of our share of debt, generating a gain of $3.5 million.
In April 2011, we acquired a 50%-owned unconsolidated real estate joint venture interest in three shopping centers for approximately $11.6 million. We also acquired our partner’s 50% unconsolidated joint venture interest in a Florida development property that we had previously accounted for under the equity method. This transaction resulted in the consolidation of the property in our consolidated financial statements.
 
Note 5. Notes Receivable from Real Estate Joint Ventures and Partnerships
We have ownership interests in a number of real estate joint ventures and partnerships. Notes receivable from these entities bear interest ranging from approximately 2.9% to 10.0% at June 30, 2012 and 2.8% to 10.0% at December 31, 2011. These notes are due at various dates through 2014 and are generally secured by underlying real estate assets.
We believe these notes are fully collectible, and no allowance has been recorded. Interest income recognized on these notes was $.7 million and $.9 million for the three months ended June 30, 2012 and 2011, respectively, and $1.4 million and $1.7 million for the six months ended June 30, 2012 and 2011, respectively.
In February 2012, we received $59.2 million in payment of our notes receivable from real estate joint ventures and partnerships, in conjunction with the sale of our interest in an unconsolidated real estate joint venture. See Note 15 for additional information.

In April 2011, we eliminated $21.9 million of our notes receivable from real estate joint ventures and partnerships upon the purchase of our partner’s 50% unconsolidated joint venture interest in a Florida development property.

Note 6. Debt
Our debt consists of the following (in thousands):
 
 
June 30,
2012
 
December 31,
2011
Debt payable to 2038 at 2.6% to 8.8%
$
1,869,191

 
$
2,268,668

Debt service guaranty liability
74,075

 
74,075

Unsecured notes payable under revolving credit facilities
229,000

 
166,500

Obligations under capital leases
21,000

 
21,000

Industrial revenue bonds payable to 2015 at 2.4%
1,419

 
1,594

Total
$
2,194,685

 
$
2,531,837


11


The grouping of total debt between fixed and variable-rate as well as between secured and unsecured is summarized below (in thousands):
 
 
June 30,
2012
 
December 31,
2011
As to interest rate (including the effects of interest rate contracts):
 
 
 
Fixed-rate debt
$
1,819,541

 
$
2,014,834

Variable-rate debt
375,144

 
517,003

Total
$
2,194,685

 
$
2,531,837

As to collateralization:
 
 
 
Unsecured debt
$
1,257,125

 
$
1,510,932

Secured debt
937,560

 
1,020,905

Total
$
2,194,685

 
$
2,531,837

Effective September 30, 2011, we entered into an amended and restated $500 million unsecured revolving credit facility. The facility expires in September 2015 and provides for a one-year extension upon our request and borrowing rates that float at a margin over LIBOR plus a facility fee. The borrowing margin and facility fee, which are priced off a grid that is tied to our senior unsecured credit ratings, are currently 125.0 and 25.0 basis points, respectively. The facility also contains a competitive bid feature that will allow us to request bids for up to $250 million. Additionally, an accordion feature allows us to increase the facility amount up to $700 million.
Effective May 2010, we entered into an agreement with a bank for an unsecured and uncommitted overnight facility totaling $99 million that we intend to maintain for cash management purposes. The facility provides for fixed interest rate loans at a 30 day LIBOR rate plus a borrowing margin based on market liquidity.

The following table discloses certain information regarding our unsecured notes payable under our revolving credit facilities (in thousands, except percentages):
 
 
June 30,
2012
 
December 31,
2011
Unsecured revolving credit facility:
 
 
 
Balance outstanding
$
170,000

 
$
145,000

Available balance
326,571

 
351,571

Letter of credit outstanding under facility
3,429

 
3,429

Variable interest rate (excluding facility fee)
1.2
%
 
1.3
%
Unsecured and uncommitted overnight facility:
 
 
 
Balance outstanding
$
59,000

 
$
21,500

Variable interest rate
1.5
%
 
1.5
%
Both facilities:
 
 
 
Maximum balance outstanding during the year
$
281,700

 
$
330,700

Weighted average balance
169,746

 
151,814

Year-to-date weighted average interest rate (excluding facility fee)
1.3
%
 
1.5
%
Related to a development project in Sheridan, Colorado, we have provided a guaranty for the payment of any debt service shortfalls until a coverage rate of 1.4x is met on tax increment revenue bonds issued in connection with the project. The bonds are to be repaid with incremental sales and property taxes and a public improvement fee (“PIF”) to be assessed on current and future retail sales and, to the extent necessary, any amounts we may have to provide under a guaranty. The incremental taxes and PIF are to remain intact until the earlier of the date the bond liability has been paid in full or 2040, as extended by the Sheridan Redevelopment Agency (“Agency”) in April 2011. Therefore, a debt service guaranty liability equal to the fair value of the amounts funded under the bonds was recorded. For both periods ended at June 30, 2012 and December 31, 2011, we had $74.1 million outstanding for the debt service guaranty liability.

12


On August 29, 2011, we entered into a $200 million unsecured term loan of which the proceeds were used to pay down amounts outstanding under our revolving credit facility. The initial term of the loan was one year, which we repaid at par after nine months on May 31, 2012 at our option. In addition, a $115 million 5.3% fixed-rate medium term note matured in May 2012.
Various leases and properties, and current and future rentals from those leases and properties, collateralize certain debt. At June 30, 2012 and December 31, 2011, the carrying value of such assets aggregated $1.6 billion and $1.7 billion, respectively.
Scheduled principal payments on our debt (excluding $229.0 million due under our revolving credit facilities, $21.0 million of certain capital leases, $10.8 million fair value of interest rate contracts, $1.6 million net premium/(discount) on debt, $9.6 million of non-cash debt-related items, and $74.1 million debt service guaranty liability) are due during the following years (in thousands): 
2012 remaining
$
103,354

2013
315,056

2014
473,804

2015
239,346

2016
231,661

2017
142,096

2018
64,441

2019 (1)
153,724

2020
3,746

2021
2,763

Thereafter (2)
118,575

Total
$
1,848,566

_______________
(1)
Includes $100.0 million of our 8.1% senior unsecured notes due 2019 which may be redeemed by us at any time on or after September 2014 at our option.
(2)
Includes $54.1 million of our 3.95% convertible senior unsecured notes outstanding due 2026, which may be called by us at any time and have future put options in 2016 and 2021.

Our various debt agreements contain restrictive covenants, including minimum interest and fixed charge coverage ratios, minimum unencumbered interest coverage ratios, minimum net worth requirements and maximum total debt levels. We believe we were in compliance with our public debt and revolving credit facility covenants as of June 30, 2012.

Note 7. Derivatives and Hedging
The fair value of all our interest rate contracts is reported as follows (in thousands):
 
Assets
 
Liabilities
 
Balance Sheet
Location
 
Amount
 
Balance Sheet
Location
 
Amount
Designated Hedges:
 
 
 
 
 
 
 
June 30, 2012
Other Assets, net
 
$
10,854

 
Other Liabilities, net
 
$
783

December 31, 2011
Other Assets, net
 
10,816

 
Other Liabilities, net
 
674

Cash Flow Hedges:
As of June 30, 2012 and December 31, 2011, we had three active interest rate contracts designated as cash flow hedges with an aggregate notional amount of $26.8 million and $27.1 million, respectively. These contracts have maturities through September 2017 and either fix or cap interest rates ranging from 2.3% to 5.0%. We have determined that these contracts are highly effective in offsetting future variable interest cash flows.

13


As of June 30, 2012 and December 31, 2011, the balance in accumulated other comprehensive loss relating to cash flow interest rate contracts was $8.8 million and $10.0 million, respectively, and will be reclassified to net interest expense as interest payments are made on our fixed-rate debt. Within the next 12 months, approximately $2.9 million of the balance in accumulated other comprehensive loss is expected to be amortized to net interest expense related to settled interest rate contracts.
A summary of cash flow interest rate contract hedging activity is as follows (in thousands):
Derivatives Hedging
Relationships
 
Amount of Gain
(Loss) 
Recognized
in Other
Comprehensive
Income on
Derivative 
(Effective
Portion)
 
Location of Gain
(Loss)
Reclassified from
Accumulated
Other
Comprehensive
Loss into Income
 
Amount of Gain
(Loss)  Reclassified
from Accumulated
Other
Comprehensive
Loss into Income
(Effective
Portion)
 
Location of Gain
(Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion and
Amount 
Excluded from
Effectiveness
Testing)
 
Amount of Gain
(Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion and
Amount Excluded
from
Effectiveness
Testing)
Three Months Ended
June 30, 2012
 
$
148

 
Interest expense,
net
 
$
(662
)
 
Interest expense,
net
 
$

Six Months Ended
June 30, 2012
 
132

 
Interest expense,
net
 
(1,321
)
 
Interest expense,
net
 

Three Months Ended
June 30, 2011
 
420

 
Interest expense,
net
 
(619
)
 
Interest expense,
net
 
(19
)
Six Months Ended
June 30, 2011
 
302

 
Interest expense,
net
 
(1,238
)
 
Interest expense,
net
 
(12
)
Fair Value Hedges:
As of June 30, 2012 and December 31, 2011, we had four interest rate contracts, maturing through October 2017, with an aggregate notional amount of $118.7 million and $119.3 million, respectively, that were designated as fair value hedges and convert fixed interest payments at rates from 4.2% to 7.5% to variable interest payments ranging from 0.5% to 4.4%. We have determined that our fair value hedges are highly effective in limiting our risk of changes in the fair value of fixed-rate notes attributable to changes in interest rates.

A summary of the changes in fair value of our interest rate contracts is as follows (in thousands):
 
Gain (Loss) 
on
Contracts
 
Gain (Loss) 
on
Borrowings
 
Gain (Loss)
Recognized 
in Income
Three Months Ended June 30, 2012
 
 
 
 
 
Interest expense, net
$
591

 
$
(591
)
 
$

Six Months Ended June 30, 2012
 
 
 
 
 
Interest expense, net
61

 
(61
)
 

Three Months Ended June 30, 2011
 
 
 
 
 
Interest expense, net
2,000

 
(2,000
)
 

Six Months Ended June 30, 2011
 
 
 
 
 
Interest expense, net
495

 
(495
)
 

A summary of our fair value interest rate contract hedges impact on net income is as follows (in thousands):
Derivatives Hedging Relationships
 
Location of Gain
(Loss) Recognized
in Income on
Derivative
 
Amount of Gain 
(Loss)
Recognized in
Income
on Derivative
 
Location of Gain
(Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion and
Amount 
Excluded from
Effectiveness
Testing)
 
Amount of Gain
(Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion and
Amount Excluded
from
Effectiveness
Testing)
Three Months Ended June 30, 2012
 
Interest expense, net
 
$
1,589

 
Interest expense, net
 
$

Six Months Ended June 30, 2012
 
Interest expense, net
 
2,060

 
Interest expense, net
 

Three Months Ended June 30, 2011
 
Interest expense, net
 
3,042

 
Interest expense, net
 

Six Months Ended June 30, 2011
 
Interest expense, net
 
2,572

 
Interest expense, net
 


14


Note 8. Noncontrolling Interests
The following table summarizes the effect of changes in our ownership interest in subsidiaries on the equity attributable to us as follows (in thousands):
 
 
Six Months Ended
June 30,
 
2012
 
2011
Net income adjusted for noncontrolling interests
$
52,616

 
$
17,799

Transfers from the noncontrolling interests:
 
 
 
Net increase in equity for the acquisition of noncontrolling interests

 
1,668

Change from net income adjusted for noncontrolling interests and transfers
from the noncontrolling interests
$
52,616

 
$
19,467


Note 9. Impairment
The following impairment charges were recorded on the following assets based on the difference between the carrying amount of the assets and the estimated fair value (see Note 19 for additional fair value information) (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Continuing operations:
 
 
 
 
 
 
 
Property marketed for sale or sold (1)
$
4,293

 
$
154

 
$
4,537

 
$
924

Investments in real estate joint ventures and partnerships (2)

 

 
6,608

 

Tax increment revenue bonds (4)

 
18,737

 

 
18,737

Total reported in continuing operations
4,293

 
18,891

 
11,145

 
19,661

Discontinued operations:
 
 
 
 
 
 
 
Property held for sale or sold (3)
758

 
2,434

 
3,929

 
2,889

Total impairment charges
5,051

 
21,325

 
15,074

 
22,550

Other financial statement captions impacted by impairment:
 
 
 
 
 
 
 
Equity in losses of real estate joint ventures and partnerships,
net
19,889

 

 
19,889

 
110

Net impact of impairment charges
$
24,940

 
$
21,325

 
$
34,963

 
$
22,660

_______________
(1)
These charges resulted from changes in management’s plans for these properties, primarily the marketing of these properties for sale. Also included in this caption are impairments associated with dispositions that did not qualify to be reported in discontinued operations.
(2)
Amounts reported in 2012 are based on third party offers to buy our interests in industrial real estate joint ventures.
(3)
Amounts reported in 2012 are based on third party offers.
(4)
During 2011, the tax increment revenue bonds were remarketed by the Agency. All of the outstanding bonds were recalled, and new bonds were issued. We recorded an $18.7 million net credit loss on the exchange of bonds associated with our investment in the subordinated tax increment revenue bonds.

Note 10. Discontinued Operations
For the six months ended June 30, 2012, we sold 13 shopping centers, 53 industrial properties, and we assigned a 75% consolidated joint venture interest to our partner, of which 47 were located in Texas, six each in Georgia and Florida, two each in Louisiana and Virginia and one each in Kansas, North Carolina, Maine and Tennessee. We classified seven shopping centers, of which four are located in Texas and one each in Arizona, Illinois and Oklahoma, as held for sale. As part of these 2012 dispositions, we sold in May 2012 a portfolio of 52 wholly-owned industrial properties in order to exit the industrial real estate market and further align and strengthen our position solely as a retail REIT. As of June 30, 2012, the seven properties classified as held for sale consisted of property and accumulated depreciation totaling $84.0 million and $20.2 million, respectively.

15


During 2011, we sold three industrial properties, of which two were located in Georgia and one in Texas, and eight shopping centers, of which five were located in Texas and one each in Florida, Kansas and North Carolina. As of December 31, 2011, we classified as held for sale seven shopping centers with a net book value of $73.2 million, of which three were located in Texas and one each in Arizona, Florida, Illinois and North Carolina.
Included in the Condensed Consolidated Balance Sheet at December 31, 2011 were $588.1 million of property and $139.2 million of accumulated depreciation related to retail and industrial properties that were either sold during 2012 or classified as held for sale as of June 30, 2012.

The operating results of these properties, which includes the seven properties held for sale, have been reclassified and reported as discontinued operations in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows (in thousands):
 
  
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Revenues, net
$
11,422

 
$
18,478

 
$
27,638

 
$
36,398

Depreciation and amortization
(177
)
 
(6,356
)
 
(4,928
)
 
(12,408
)
Operating expenses
(2,584
)
 
(3,296
)
 
(5,511
)
 
(6,487
)
Real estate taxes, net
(1,549
)
 
(2,669
)
 
(4,138
)
 
(5,411
)
Impairment loss
(758
)
 
(2,434
)
 
(3,929
)
 
(2,889
)
General and administrative
(1,946
)
 
(12
)
 
(1,961
)
 
(32
)
Interest expense, net
(76
)
 
(288
)
 
(223
)
 
(521
)
Gain on acquisition (see Note 18)

 
4,559

 

 
4,559

Provision for income taxes
(273
)
 
(330
)
 
(273
)
 
(330
)
Operating income from discontinued operations
4,059

 
7,652

 
6,675

 
12,879

Gain on sale of property from discontinued operations
31,264

 

 
34,898

 

Income from discontinued operations
$
35,323

 
$
7,652

 
$
41,573

 
$
12,879

We do not allocate other consolidated interest to discontinued operations because the interest savings to be realized from the proceeds of the sale of these operations is not material.



16


Note 11. Cash Flow Information
Non-cash investing and financing activities are summarized as follows (in thousands):

  
Six Months Ended
June 30,
 
2012
 
2011
Accrued property construction costs
$
6,931

 
$
5,279

Increase in equity for the acquisition of noncontrolling interests in consolidated
real estate joint ventures

 
1,668

Reduction of debt service guaranty liability

 
(22,925
)
Property acquisitions and investments in unconsolidated real estate joint
ventures:
 
 
 
Increase in debt, net

 
24,383

Decrease in property, net
(2,532
)
 
(3,812
)
Increase in security deposits
1,116

 
22

Increase in noncontrolling interests
968

 

Decrease in real estate joint ventures and partnerships - investments

 
(153
)
Sale of property and property interest:
 
 
 
Decrease in debt, net due to debt assumption
(3,366
)
 

Decrease in restricted deposits and mortgage escrows
(204
)
 

Decrease in property, net
(2,855
)
 

Decrease in real estate joint ventures and partnerships - investments
(95
)
 

Decrease in noncontrolling interests
(95
)
 

Decrease in security deposits
(11
)
 

Consolidation of joint ventures (see Note 18):
 
 
 
Decrease in notes receivable from real estate joint ventures
and partnerships

 
(21,872
)
Increase in property, net

 
32,307

Decrease in real estate joint ventures and partnerships - investments

 
(10,092
)



17


Note 12. Earnings Per Share
Earnings per common share – basic is computed using net income attributable to common shareholders and the weighted average number of shares outstanding. Earnings per common share – diluted include the effect of potentially dilutive securities. Income from continuing operations attributable to common shareholders includes gain on sale of property in accordance with Securities and Exchange Commission guidelines. Earnings per common share – basic and diluted components for the periods indicated are as follows (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Numerator:
 
 
 
 
 
 
 
Continuing Operations:
 
 
 
 
 
 
 
(Loss) income from continuing operations
$
(2,646
)
 
$
(4,849
)
 
$
13,302

 
$
6,052

Gain on sale of property
84

 
136

 
524

 
1,196

Net income attributable to noncontrolling interests
(1,342
)
 
(1,236
)
 
(2,783
)
 
(2,328
)
Preferred share dividends
(8,869
)
 
(8,869
)
 
(17,738
)
 
(17,738
)
Loss from continuing operations attributable to common
shareholders – basic and diluted
$
(12,773
)
 
$
(14,818
)

$
(6,695
)

$
(12,818
)
Discontinued Operations:
 
 
 
 
 
 
 
Income from discontinued operations attributable to common
shareholders – basic and diluted
$
35,323

 
$
7,652

 
$
41,573

 
$
12,879

Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
120,661

 
120,345

 
120,571

 
120,244

Effect of dilutive securities:
 
 
 
 
 
 
 
Share options and awards
1,034

 

 
991

 
967

Weighted average shares outstanding – diluted
121,695

 
120,345

 
121,562

 
121,211

Anti-dilutive securities, which are excluded from the calculation of net income per common share – diluted, are as follows (in thousands):

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Share options (1)
2,362

 
2,383

 
2,362

 
2,384

Operating partnership units
1,582

 
1,628

 
1,583

 
1,636

Share options and awards

 
980

 

 

Total anti-dilutive securities
3,944

 
4,991

 
3,945

 
4,020

_______________
(1)
Exclusion results as exercise prices were greater than the average market price for each respective period.

Note 13. Share Options and Awards
In November 2011, we announced changes to the long-term incentive program under our Amended and Restated 2010 Long-Term Incentive Plan. Future grants of awards will incorporate service-based and two market-based measures for restricted share awards to promote share ownership among the participants and to emphasize the importance of total shareholder return. The terms of each grant vary depending upon the participant's responsibilities and position within the Company. We categorize these share awards as either service-based share awards or market-based share awards. All awards were valued at the fair market value on the date of grant and earn dividends throughout the vesting period. Compensation expense is measured at the grant date and recognized over the vesting period. All share awards are awarded subject to the participant’s continued employment with us.


18


The share awards are subject to a three-year cliff vesting basis. Service-based share and market-based share awards are subject to the achievement of select performance goals as follows:
Service-based awards and accumulated dividends vest upon the third anniversary of the grant date. These grants are subject only to continued employment and not dependent on future performance measures. Accordingly, if such vesting criteria are not met, compensation cost previously recognized would be reversed.
Market-based awards vest based upon the performance metrics at the end of a three-year period. These awards are based 50% on our three-year relative total shareholder return (“TSR”) as compared to the FTSE NAREIT U.S. Shopping Center Index. The other 50% is tied to our three-year absolute TSR. At the end of a three year period, the performance measures are analyzed; the actual number of shares earned is determined and the earned shares and the accumulated dividends vest. The probability of meeting the market criteria is considered when calculating the estimated fair value on the date of grant using a Monte Carlo simulation. These awards are accounted for as awards with market criteria, with compensation cost recognized over the service period, regardless of whether the market criteria are achieved and the awards are ultimately earned and vest.
The fair value of the market-based share awards was estimated on the date of grant using a Monte Carlo valuation model based on the following assumptions:

 
Six Months Ended
June 30, 2012
 
Minimum
 
Maximum
Dividend yield
0.0
%
 
4.4
%
Expected volatility
27.7
%
 
51.6
%
Expected life (in years)

 
3

Risk-free interest rate
0.1
%
 
0.4
%
A summary of the status of unvested restricted share awards for the six months ended June 30, 2012 is as follows:

 
Unvested
Restricted
Share
Awards
 
Weighted
Average 
Grant
Date Fair 
Value
Outstanding, January 1, 2012
407,328

 
$
20.43

Granted:
 
 
 
Service-based awards
129,813

 
24.91

Market-based awards relative to FTSE NAREIT U.S. Shopping Center
Index
57,650

 
26.45

Market-based awards relative to three-year absolute TSR
57,650

 
27.65

Vested
(116,135
)
 
20.19

Forfeited
(595
)
 
24.91

Outstanding, June 30, 2012
535,711

 
$
22.99


As of June 30, 2012 and December 31, 2011, there was approximately $6.7 million and $5.0 million, respectively, of total unrecognized compensation cost related to unvested restricted shares, which is expected to be amortized over a weighted average of 2.4 years and 2.3 years, respectively.



19


Note 14. Employee Benefit Plans
We sponsor a noncontributory qualified retirement plan and a separate and independent nonqualified supplemental retirement plan for certain employees. The components of net periodic benefit cost for both plans are as follows (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
  
2012
 
2011
 
2012
 
2011
Service cost
$
491

 
$
789

 
$
1,389

 
$
1,931

Interest cost
969

 
724

 
2,067

 
1,890

Expected return on plan assets
(667
)
 
(405
)
 
(1,769
)
 
(1,225
)
Prior service cost
(35
)
 
(21
)
 
(93
)
 
(70
)
Recognized loss
467

 
151

 
856

 
462

Total
$
1,225

 
$
1,238

 
$
2,450

 
$
2,988

For the six months ended June 30, 2012 and 2011, we contributed $2.5 million and $2.2 million, respectively, to the qualified retirement plan. Currently, we do not anticipate making any additional contributions to this plan during 2012.
 
Note 15. Related Parties
Through our management activities and transactions with our real estate joint ventures and partnerships, we had net accounts receivable of $1.5 million and $2.2 million outstanding as of June 30, 2012 and December 31, 2011, respectively. We also had accounts payable and accrued expenses of $7.6 million and $8.2 million outstanding as of June 30, 2012 and December 31, 2011, respectively. For the three months ended June 30, 2012 and 2011, we recorded joint venture fee income of $1.6 million and $1.5 million, respectively. For the six months ended June 30, 2012 and 2011, we recorded joint venture fee income of $3.3 million and $3.1 million, respectively.
In February 2012, we sold our 47.8% unconsolidated joint venture interest in a Colorado development project to our partner with gross sales proceeds totaling $29.1 million, which includes the assumption of our share of debt, generating a gain of $3.5 million.

Note 16. Commitments and Contingencies
As of June 30, 2012, we participate in four real estate ventures structured as DownREIT partnerships that have properties in Arkansas, California, North Carolina, Texas and Utah. As a general partner, we have operating and financial control over these ventures and consolidate them in our consolidated financial statements. These ventures allow the outside limited partners to exchange their interest in the partnership for our common shares or an equivalent amount in cash. We may acquire any limited partnership interests that are put to the partnership, and we have the option to redeem the interest in cash or a fixed number of our common shares, at our discretion. We also participate in a real estate venture that has a property in Texas that allows its outside partner to put operating partnership units to us. We have the option to redeem these units in cash or a fixed number of our common shares, at our discretion. No common shares were issued in exchange for any of these interests during the six months ended June 30, 2012 and 2011. The aggregate redemption value of these interests was approximately $42 million and $35 million as of June 30, 2012 and December 31, 2011, respectively.
We are subject to numerous federal, state and local environmental laws, ordinances and regulations in the areas where we own or operate properties. We are not aware of any contamination which may have been caused by us or any of our tenants that would have a material effect on our consolidated financial statements.
As part of our risk management activities, we have been accepted into state sponsored environmental programs which will limit our expenses if contaminants need to be remediated. We also have an environmental insurance policy that covers us against third party liabilities and remediation costs.
While we believe that we do not have any material exposure to environmental remediation costs, we cannot give absolute assurance that changes in the law or new discoveries of contamination will not result in additional liabilities to us.

20


During 2011, we filed a lawsuit against our joint venture partner in connection with a development project in Sheridan, Colorado for failure to perform on the joint venture’s past due intercompany note payable to us, which has been eliminated within our consolidated financial statements. We are also involved in a consolidated and two unconsolidated joint ventures with this partner. To date, we are unable to determine the outcome of the lawsuit or its potential effects on our other joint ventures with this partner.
As of June 30, 2012, we have entered into commitments aggregating $67.3 million comprised principally of construction contracts which are generally due in 12 to 36 months.
We are also involved in various matters of litigation arising in the normal course of business. While we are unable to predict with certainty the amounts involved, our management and counsel are of the opinion that, when such litigation is resolved, any additional liability, if any, will not have a material effect on our consolidated financial statements.

Note 17. Variable Interest Entities
Consolidated VIEs:
Two of our real estate joint ventures whose activities principally consist of owning and operating 30 neighborhood/community shopping centers, of which 22 are located in Texas, three in Georgia, two each in Tennessee and Florida and one in North Carolina, were determined to be VIEs. These VIEs have financing agreements that are guaranteed solely by us for tax planning purposes. We have determined that we are the primary beneficiary and have consolidated these joint ventures.
A summary of our consolidated VIEs is as follows (in thousands):
 
 
June 30,
2012
 
December 31,
2011
Maximum Risk of Loss (1)
$
137,645

 
$
138,176

Assets held by VIEs
295,987

 
309,387

Assets held as collateral for debt
243,525

 
250,105

_______________
(1)
The maximum risk of loss has been determined to be limited to our guaranties of debt for each real estate joint venture.
Restrictions on the use of these assets are significant because they are collateral for the VIEs’ debt, and we would generally be required to obtain our partners’ approval in accordance with the joint venture agreements for any major transactions. Transactions with these joint ventures on our consolidated financial statements have been limited to changes in noncontrolling interests and reductions in debt from our partners’ contributions. We and our partners are subject to the provisions of the joint venture agreements which include provisions for when additional contributions may be required including operating cash shortfalls and unplanned capital expenditures. We have not provided any additional support to the VIEs as of June 30, 2012.
Unconsolidated VIEs:
At June 30, 2012 and December 31, 2011, two unconsolidated real estate joint ventures were determined to be VIEs through the issuance of secured loans, of which $21.2 million of debt associated with a tenancy-in-common arrangement is recorded in our Condensed Consolidated Balance Sheet, since the lenders have the ability to make decisions that could have a significant impact on the success of the entities. At December 31, 2011, we had one unconsolidated real estate joint venture with an interest in an entity, which was deemed to be a VIE since the unconsolidated joint venture provided a guaranty for the entity’s debt; however, in February 2012, our unconsolidated joint venture interest associated with these entities was sold. A summary of our unconsolidated VIEs is as follows (in thousands):
 
 
June 30,
2012
 
December 31,
2011
Investment in Real Estate Joint Ventures and Partnerships, net (1)
$
30,090

 
$
30,377

Maximum Risk of Loss (2)
33,517

 
75,274

_______________
(1)
The carrying amount of the investments represents our contributions to the real estate joint ventures net of any distributions made and our portion of the equity in earnings of the joint ventures.
(2)
The maximum risk of loss has been determined to be limited to our debt exposure for each real estate joint venture.


21


We and our partners are subject to the provisions of the joint venture agreements that specify conditions, including operating shortfalls and unplanned capital expenditures, under which additional contributions may be required.

Note 18. Business Combinations
Effective April 13, 2011, we acquired our partner’s 50% interest in an unconsolidated joint venture related to a development property in Florida, which resulted in the consolidation of this property. Management has determined that this transaction qualified as a business combination to be accounted for under the acquisition method. Accordingly, the assets and liabilities of this transaction were recorded in our Condensed Consolidated Balance Sheet at its estimated fair value as of the effective date, with any applicable partner’s share of the resulting net change included in noncontrolling interests. Fair value of assets acquired, liabilities assumed and equity interests was estimated using market-based measurements, including cash flow and other valuation techniques. The fair value measurement is based on both significant inputs for similar assets and liabilities in comparable markets and significant inputs that are not observable in the markets in accordance with our fair value measurements accounting policy. Key assumptions include third-party broker valuation estimates, discount rate of 8%, a terminal capitalization rate for similar properties, and factors that we believe market participants would consider in estimating fair value. The result of this transaction is included in our Condensed Consolidated Statements of Operations and Comprehensive Income beginning April 13, 2011.
The following table summarizes the transaction related to the business combination, including the assets acquired and liabilities assumed as indicated (in thousands):
 
 
April 13,
2011
Fair value of our equity interest before business combinations
$
7,578

Fair value of consideration transferred (1)
$
11,462

Amounts recognized for assets and liabilities assumed:
 
Assets:
 
Property
$
32,807

Unamortized debt and lease costs
2,421

Accrued rent and accounts receivable
211

Cash and cash equivalents
1,402

Other, net
694

Liabilities:
 
Accounts payable and accrued expenses
(137
)
Other, net
(318
)
Total net assets
$
37,080

Noncontrolling interests of the real estate joint venture
$

_______________
(1)
Consideration included $.5 million of cash and $11.0 million in debt reimbursement.

As a result of the above business combination, we recognized a gain of $4.6 million which is attributable to the realization upon consolidation of our preferred return on equity. For the three and six months ended June 30, 2011, this gain is included in discontinued operations in the Condensed Consolidated Statements of Operations and Comprehensive Income as the property was sold during December 2011.


22


During 2012, we have acquired two shopping centers located in California and Texas. The following table summarizes the transactions related to these acquisitions, including the assets acquired and liabilities assumed as indicated (in thousands):

 
June 30,
2012
Fair value of consideration transferred
$
104,460

Amounts recognized for assets and liabilities assumed:
 
Assets:
 
Property
$
97,703

Unamortized debt and lease costs
7,910

Other, net
531

Liabilities:
 
Accounts payable and accrued expenses
(1,812
)
Other, net
(1,824
)
Total net assets
$
102,508

 
 
Acquisition costs (included in operating expenses)
$
398


The following table summarizes the impact to revenues and net income attributable to common shareholders from our acquisitions as follows (in thousands):

 
Three Months Ended
June 30, 2012
 
Six Months Ended
June 30, 2012
Increase in revenues
$
209

 
$
242

Increase in net income attributable to common shareholders
133

 
148

 
 
 
 

The following table summarizes the pro forma impact of these transactions as if they had been consolidated or acquired on January 1, 2011, the earliest year presented, as follows (in thousands, except per share amounts):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Pro Forma
2012(1)
 
Pro Forma
2011(1)
 
Pro Forma
2012(1)
 
Pro Forma
2011(1)
Revenues
$
127,489

 
$
125,405

 
$
250,967

 
$
245,549

Net income
33,871

 
3,713

 
57,720

 
21,720

Net income (loss) attributable to common shareholders
23,660

 
(6,392
)
 
37,199

 
1,654

Earnings per share – basic
0.20

 
(0.05
)
 
0.31

 
0.01

Earnings per share – diluted
0.19

 
(0.05
)
 
0.31

 
0.01

 
_______________
(1)
There are no non-recurring pro forma adjustments included within or excluded from the amounts in the preceding table.


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Note 19. Fair Value Measurements
Recurring Fair Value Measurements:
Investments Held in Grantor Trusts
These assets are valued based on publicly quoted market prices for identical assets.
Derivative Instruments
We use interest rate contracts with major financial institutions to manage our interest rate risk. The valuation of these instruments is determined based on assumptions that management believes market participants would use in pricing, using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of our interest rate contracts have been determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counter-party’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral, thresholds and guarantees. In conjunction with the FASB’s fair value measurement guidance, an accounting policy election was made to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counter-parties. However, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

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Assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011, aggregated by the level in the fair value hierarchy in which those measurements fall, are as follows (in thousands):
 
 
Quoted Prices
in Active
Markets for
Identical
Assets
and Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value at
June 30, 2012
Assets:
 
 
 
 
 
 
 
Investments in grantor trusts
$
15,692

 
 
 
 
 
$
15,692

Derivative instruments:
 
 
 
 
 
 
 
Interest rate contracts
 
 
$
10,854

 
 
 
10,854

Total
$
15,692

 
$
10,854

 
$

 
$
26,546

Liabilities:
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
Interest rate contracts