SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: September 30, 1996
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Commission File No. 1-7533
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FEDERAL REALTY INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
District of Columbia 52-0782497
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1626 East Jefferson Street, Rockville, Maryland 20852-4041
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(Address of principal executive offices) (Zip Code)
(301) 998-8100
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(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 5,1996
- ------------------------------------ ------------------------------
Common Shares of Beneficial Interest 34,181,194
This report including exhibits, contains 40 pages.
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
September 30, 1996
I N D E X
PART I. FINANCIAL INFORMATION PAGE NO.
Accountants' Report 4
Consolidated Balance Sheets 5
September 30, 1996 (unaudited) and
December 31, 1995 (audited)
Consolidated Statements of Operations (unaudited)
Nine months ended September 30, 1996 and 1995 6
Consolidated Statements of Operations (unaudited)
Three months ended September 30, 1996 and 1995 7
Consolidated Statements of Shareholders'
Equity (unaudited)
Nine months ended September 30 1996 and 1995 8
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 1996 and 1995 9
Notes to Financial Statements 10-13
Management's Discussion and Analysis of 14-20
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 21-40
2
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
September 30, 1996
PART I. FINANCIAL INFORMATION
The following financial information is submitted in response to
the requirements of Form 10-Q and does not purport to be financial
statements prepared in accordance with generally accepted accounting
principles since they do not include all disclosures which might be
associated with such statements. In the opinion of management, such
information includes all adjustments, consisting only of normal
recurring accruals, necessary to a fair statement of the results for
the interim periods presented.
The balance sheet as of December 31, 1995 was audited by Grant
Thornton LLP, independent public accountants, who expressed an
unqualified opinion on it in their report dated February 9, 1996. All
other financial information presented is unaudited but has been
reviewed as of September 30, 1996 and for each of the nine months
ended September 30, 1996 and 1995 by Grant Thornton LLP whose report
thereon appears on Page 4. All adjustments and disclosures proposed
by them have been reflected in the data presented.
3
Accountants' Review Report
- --------------------------
Trustees and Shareholders
Federal Realty Investment Trust
We have reviewed the accompanying consolidated balance sheet of Federal Realty
Investment Trust as of September 30, 1996 and the related consolidated
statements of operations, shareholders' equity and cash flows for the nine month
periods ended September 30, 1996 and 1995, and the consolidated statements of
operations for the three month periods ended September 30, 1996 and 1995. These
financial statements are the responsibility of the Trust's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
February 9, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1995 is
stated fairly, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Grant Thornton LLP
Washington, D.C.
November 4, 1996
4
Federal Realty Investment Trust
CONSOLIDATED BALANCE SHEETS
(see accountants' review report)
September December 31,
1996 1995
--------------- ----------------
(unaudited)
ASSETS (in thousands)
Investments
Real estate, at cost $1,058,525 $1,009,682
Less accumulated depreciation and amortization (215,267) (190,795)
-------- --------
843,258 818,887
Mortgage notes receivable 26,975 13,561
-------- --------
870,233 832,448
Other Assets
Cash 9,071 10,521
Investments 595 261
Notes receivable - officers 1,187 1,011
Accounts receivable 15,727 15,091
Prepaid expenses and other assets, principally
property taxes and lease commissions 28,234 22,987
Debt issue costs (net of accumulated amortization
of $1,910,000 and $1,376,000, respectively) 3,550 3,835
-------- --------
$928,597 $886,154
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Obligations under capital leases $130,930 $131,829
Mortgages payable 89,515 90,488
Notes payable 18,880 49,980
Accrued expenses 17,716 19,048
Accounts payable 9,646 8,571
Dividends payable 14,343 13,191
Security deposits 3,225 3,083
Prepaid rents 2,585 787
Senior notes and debentures 215,000 165,000
5 1/4% Convertible subordinated debentures 75,289 75,289
Investors' interest in consolidated assets 1,380 1,420
Commitments and contingencies - -
Shareholders' equity
Common shares of beneficial interest, no par
or stated value, unlimited authorization,
issued 34,211,280 and 32,221,670 shares,
respectively 551,912 508,870
Accumulated dividends in excess of Trust net income (193,324) (172,835)
-------- --------
358,588 336,035
Less 62,386 and 61,328 common shares in treasury - at cost, respectively,
deferred compensation and subscriptions receivable (8,500) (8,567)
-------- --------
350,088 327,468
-------- --------
$928,597 $886,154
======== ========
The accompanying notes are an integral part of these statements.
5
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(see accountants' review report)
(unaudited)
Nine months ended September 30,
1996 1995
----------- ----------
(In thousands, except per share data)
Revenue
Rental income $121,555 $104,557
Interest 3,148 3,049
Other income 6,976 5,283
-------- --------
131,679 112,889
Expenses
Rental 30,510 25,059
Real estate taxes 12,111 10,704
Interest 33,559 28,814
Administrative 6,074 4,483
Depreciation and amortization 28,125 25,815
-------- --------
110,379 94,875
-------- --------
Operating income before investors' share
of operations and loss on sale of real estate 21,300 18,014
Investors' share of operations (254) 275
-------- --------
Income before loss on sale of real estate 21,046 18,289
Loss on sale of real estate - (545)
-------- --------
Net Income $21,046 $17,744
======== ========
Weighted Average Number of Common Shares 33,193 31,744
======== ========
Earnings per share
Income before loss on sale of real estate $0.63 $0.58
Loss on sale of real estate 0.00 (0.02)
-------- --------
$0.63 $0.56
======== ========
The accompanying notes are an integral part of these statements.
6
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(see accountants' review report)
(unaudited)
Three months ended September 30,
1996 1995
-------------- -------------
(In thousands, except per share data)
Revenue
Rental income $40,895 $35,910
Interest 1,229 1,156
Other income 2,213 1,907
-------------- --------------
44,337 38,973
Expenses
Rental 8,793 8,840
Real estate taxes 4,142 3,719
Interest 11,271 10,098
Administrative 2,252 1,666
Depreciation and amortization 9,449 8,827
-------------- -------------
35,907 33,150
-------------- -------------
Operating income before investors' share
of operations and loss on sale of real estate 8,430 5,823
Investors' share of operations (307) 105
-------------- -------------
Income before loss on sale of real estate 8,123 5,928
Loss on sale of real estate - (10)
------------- -------------
Net Income $8,123 $5,918
============= =============
Weighted Average Number of Common Shares 34,236 31,850
============= =============
Earnings per share
Income before loss on sale of real estate $0.24 $0.19
Loss on sale of real estate 0.00 (0.00)
------------- --------------
$0.24 $0.19
============= ==============
The accompanying notes are an integral part of these statements.
7
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(see accountants' review report)
(unaudited)
Nine months ended September 30,
1996 1995
------------- ----------- ------------ ----------
(In thousands, except per share amounts) Shares Amount Shares Amount
Common Shares of Beneficial Interest
Balance, beginning of period 32,221,670 $508,870 31,669,434 $496,958
Net proceeds from sale of shares 1,818,182 39,327 - -
Shares issued to purchase shopping center - - 337,527 $7,341
Exercise of stock options 31,501 635 19,244 359
Shares issued under dividend reinvestment plan 139,927 3,080 148,585 3,157
---------- -------- ---------- --------
Balance, end of period 34,211,280 $551,912 32,174,790 $507,815
========== ======== ========== ========
Common Shares of Beneficial Interest
in Treasury, Deferred Compensation and
Subscriptions Receivable
Balance, beginning of period (500,095) ($8,567) (539,188) ($9,130)
Amortization of deferred compensation 30,250 482 34,250 568
Purchase of shares under share purchase plan 1,250 19 - -
Purchase of treasury shares (1,058) (24) (1,128) (25)
Payment of (issuance of) stock option loans, net (20,667) (410) 5,682 17
-------- ------- -------- -------
Balance, end of period (490,320) ($8,500) (500,384) ($8,570)
======== ======= ======== =======
Allowance for Unrealized Loss on Marketable Securities
Balance, beginning of period $0 ($53)
Unrealized (loss) recovery 0 53
------ ----
Balance, end of period $0 $0
====== ====
Accumulated Dividends in Excess of Trust Net Income
Balance, beginning of period ($172,835) ($144,553)
Net income 21,046 17,744
Dividends declared to shareholders (41,535) (38,201)
--------- ---------
Balance, end of period ($193,324) ($165,010)
========= =========
The accompanying notes are an integral part of these statements.
8
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS
(see accountants' review report)
(unaudited)
Nine months ended September 30,
(In thousands) 1996 1995
----------------- ------------------
OPERATING ACTIVITIES
Net income $21,046 $17,744
Adjustments to reconcile net income to net cash
provided by operations
Depreciation and amortization 28,125 25,815
Rent abatements in lieu of leasehold improvements,
net of tenant improvements retired 200 (1,098)
Imputed interest and amortization of debt cost 531 543
Amortization of deferred compensation and
forgiveness of officers' notes 373 399
Loss on sale of real estate - 545
Other 104 90
Changes in assets and liabilities
(Increase) decrease in accounts receivable (636) 2,706
Increase in prepaid expenses and other
assets before depreciation and amortization (7,760) (5,576)
Increase in operating accounts payable
security deposits and prepaid rent 1,964 812
Increase (decrease) in accrued expenses (1,165) 5,369
-------- --------
Net cash provided by operating activities 42,782 47,349
INVESTING ACTIVITIES
Acquisition of real estate (19,494) (67,851)
Capital expenditure (29,638) (26,026)
Proceeds from sale of real estate - 1,782
Net increase in notes receivable (13,602) (218)
Net increase in temporary investments (334) (56)
-------- --------
Net cash used in investing activities (63,068) (92,369)
FINANCING ACTIVITIES
Regular payments on mortgages, capital leases, and
notes payable (2,045) (1,665)
Balloon payments of mortgages and notes payable (3,000) (23,601)
Net change in lines of credit (27,970) (18,825)
Issuance of senior notes, net of costs 49,751 123,761
Dividends paid (38,411) (35,463)
Issuance of shares of beneficial interest 40,551 1,336
Decrease in minority interest (40) (1,087)
-------- --------
Net cash provided by financing activities 18,836 44,456
-------- --------
Increase (decrease) in cash (1,450) (564)
Cash at beginning of period 10,521 3,995
-------- --------
Cash at end of period 9,071 3,431
======== ========
The accompanying notes are an integral part of these statements.
9
Federal Realty Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(see accountants' review report)
(unaudited)
NOTE A - ACCOUNTING POLICIES AND OTHER DATA
Reference should be made to the notes to financial statements included in
the Annual Report to shareholders for the year ended December 31, 1995 which
contain the Trust's accounting policies and other data.
NOTE B - DIVIDENDS PAYABLE
On September 11, 1996 the Trustees declared a cash dividend of $.42 per
share, payable October 15, 1996 to shareholders of record September 26, 1996.
NOTE C - REAL ESTATE
On February 28, 1996 the Trust purchased, for cash, two retail buildings
totalling 28,446 square feet in Winter Park, Florida for a cost of $6.8 million.
On May 6, 1996 the Trust purchased a 14,712 square foot building in
Greenwich, Connecticut, for $3.2 million in cash. On June 4, 1996 the Trust
purchased a 21,954 square foot building in Greenwich, Connecticut for $9.5
million in cash.
On October 1, 1996 the Trust acquired Saugus Plaza Shopping Center, located
in the metropolitan Boston, Massachusetts area, for a cash purchase price of
$12.2 million. On October 29, 1996 the Trust purchased Wynnewood Shopping
Center in suburban Philadelphia, Pennsylvania for $20.9 million in cash. In
connection with the Connecticut and Massachusetts acquisitions, The Trust paid
$170,000 in commissions to a company owned by the brother of the Trust's
president.
NOTE D - MORTGAGE NOTES RECEIVABLE
On April 22, 1996 the Trust made a $9.2 million convertible participating
loan to a partnership, secured by retail properties in Manayunk, Pennsylvania.
The loan bears interest at 10% plus additional interest based upon the gross
income of the secured properties. In addition, upon sale of the properties, the
Trust will share in the appreciation of the properties. From and after April
2006, which date may be extended to April 2008, the Trust has the option to
convert the loan into a partnership interest.
10
In 1995 the Trust issued a mortgage for up to $900,000 to a partnership
with common ownership to the partnership above. During 1996 the Trust loaned the
partnership $514,000 on this mortgage for a total outstanding of $893,000. The
loan, which is due November 1997, is secured by properties in Manayunk,
Pennsylvania and requires monthly interest payments at the greater of prime plus
2% or 10%.
On July 2, 1996 the Trust was granted a purchase option on a parcel of land
in Bethesda, Maryland in exchange for a refundable deposit of $50,000 and a $3.6
million loan secured by the land. The loan requires monthly payments of
interest at 9% until March 31, 1997 and 9.5% thereafter. The Note is due on the
earlier of the exercise of the purchase option or March 31, 1998.
NOTE E - NOTES PAYABLE
In August 1996 the Trust amended its unsecured medium term revolving credit
facilities with four banks, increasing the aggregate amount available from $130
million to $135 million, extending the maturity from three years to five, and
decreasing the interest rate from LIBOR plus 75 to 100 basis points to LIBOR
plus 75 basis points. The facilities require fees and have covenants requiring
a minimum shareholders' equity and a maximum ratio of debt to net worth. At
September 30, 1996 there was $12.1 million borrowed under these credit
facilities. The maximum drawn during the first nine months of 1996 was $76.2
million. The weighted average interest rate on borrowings for the nine months
ended September 30, 1996 was 6.5%.
In June 1996 the Trust repaid a $3 million note which had been issued in
connection with the purchase of Federal Plaza in 1989.
NOTE F - SENIOR NOTES AND DEBENTURES
On August 16, 1996 the Trust issued $50.0 million of 7.48% Debentures due
August 15, 2026, netting approximately $49.8 million after adjusting for
underwriting discounts and other costs. The debentures, which were issued at a
price of 99.96%, pay interest semiannually on February 15 and August 15. The
debentures are redeemable at par at the option of the holders on August 15, 2008
and by the Trust at any time thereafter.
NOTE G - SHAREHOLDERS' EQUITY
On May 24, 1996 the Trust sold 1.8 million shares at $22 per share, netting
$39.3 million.
During the first nine months of 1996, 31,501 shares were issued at prices
ranging from $18.00 a share to $20.875 a share as the result of the exercise of
stock options. The Trust accepted notes of $410,000 from certain of its
officers and
11
employees in connection with the issuance of 20,667 of these shares.
On February 16, 1996, 58,681 options at $21.125 per share were granted to
employees of the Trust. An option for 20,000 shares at $21 per share was granted
to an employee upon commencement of his employment.
On May 2, 1996 each of the trustees, other than the president, was awarded
2,500 options at $21.625 per share.
NOTE H - INTEREST EXPENSE
The Trust incurred interest expense totaling $34.2 million during the first
nine months of 1996 and $29.5 million during the first nine months of 1995, of
which $690,000 and $672,000, respectively, were capitalized. Interest paid was
$33.4 million in the first nine months of 1996 and $23.8 million in the first
nine months of 1995.
The ratio of earnings to fixed charges was 1.55x for the first nine months
of 1996 and 1.58x for the comparable period in 1995. The ratio of funds from
operations to fixed charges was
2.27x for the first nine months of 1996 and 2.39x for the first nine months of
1995.
NOTE I - COMMITMENTS AND CONTINGENCIES
As previously reported, certain of the Trust's shopping centers have some
environmental contamination. The Trust has installed a system to remediate
contamination from a dry cleaning spill at Eastgate Shopping Center in Chapel
Hill, North Carolina. Estimates to remediate the spill range from $300,000 to
$500,000. The Trust has entered into an agreement with two previous owners of
the shopping center to share the costs of the remediation. In 1993 the Trust
recorded a liability of $120,000 as its estimated share of the clean up costs.
The Trust has retained an environmental consultant to investigate the
contamination at a shopping center in New Jersey. The Trust is evaluating
whether it has insurance coverage for this matter. At this time, the Trust has
not determined what the range of remediation costs might be. The Trust has also
identified chlorinated solvent contamination at another property. The
contamination appears to be linked to the current and/or previous dry cleaner.
The Trust intends to look to the responsible parties for any remediation effort.
Evaluation of this situation is preliminary and it is impossible, at this time,
to estimate the range of remediation costs, if any.
Pursuant to the provisions of the respective partnership agreements, in the
event of the exercise of put options by the
12
other partners, the Trust would be required to purchase the 99% limited
partnership interest at Loehmann's Plaza at its then fair market value and a
22.5% interest at Congressional Plaza at its then fair market value.
At September 30, 1996 in connection with certain redevelopment projects and
tenant improvements, the Trust is contractually obligated on contracts of
approximately $6.3 million. At September 30, 1996 the Trust is also obligated
under leases with tenants to provide up to an additional $8.4 million for
improvements.
NOTE J - COMPONENTS OF RENTAL INCOME
The components of rental income for the nine months ended September 30 are
as follows:
1996 1995
(in thousands)
Retail properties
Minimum rents $95,899 $81,644
Cost reimbursements 20,876 17,813
Percentage rents 2,942 3,262
Apartments 1,838 1,838
-------- --------
$121,555 $104,557
======== ========
13
FORM 10-Q
September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Federal Realty meets its liquidity requirements through net cash provided
by operating activities, long term borrowing through debt offerings and
mortgages, medium and short term borrowing under revolving credit facilities,
and equity offerings. Because a significant portion of the Trust's net cash
provided by operating activities is distributed to shareholders, capital outlays
for property acquisitions, renovation projects and debt repayments require
additional funding from borrowing or equity offerings.
Operating activities during the first nine months of 1996 generated $42.8
million, of which $38.4 million was distributed to shareholders. During the
first nine months of 1995, $47.3 million was generated from operating
activities, of which $35.5 million was distributed to shareholders. Despite a
$3.3 million increase in net income in 1996 over 1995 and a $3.0 million
increase in non-cash charges such as depreciation in 1996 over the same period
in 1995, less cash was generated from operating activites in the first nine
months of 1996 than the first nine months of 1995 because these increases to
cash were offset by an increased usage of $10.9 million in 1996 over 1995 for
other operating purposes, primarily increases in accounts receivable and prepaid
expenses and decreases in accrued expenses.
During the first nine months of 1996 the Trust purchased four retail
properties; in February the Trust purchased two retail buildings in Winter Park,
Florida for $6.8 million in cash, in May the Trust purchased a retail building
in Greenwich, Connecticut for $3.2 million in cash and in June the Trust
purchased another retail building in Greenwich for $9.5 million in cash. During
the first nine months of 1996 another $29.6 million was spent on tenant work
and improvements to Trust properties; these improvements included: (1) $2.5
million on the redevelopment of Brick Plaza which was begun in 1995; (2) $2.2
million to buy out below market leases; (3) $9.7 million on the final tenant
work and construction of an additional 30,000 square feet at Congressional
Plaza, which includes the Trust's corporate offices; and (4) $2.9 million to
begin the redevelopment and expansion of a portion of Bethesda Row.
During the first nine months of 1996 the Trust made three mortgage loans.
Two of the loans are secured by retail property
14
in Manayunk, Pennsylvania; a $9.2 million 25 year loan which bears base interest
at 10% and which is convertible into a partnership interest in the secured
properties and a $514,000 loan due November 1997 which bears interest at the
greater of prime plus 2% or 10%. In July 1996 the Trust was granted a purchase
option on land in Bethesda, Maryland in exchange for a refundable deposit of
$50,000 and a $3.6 million loan secured by the land. The loan, which requires
monthly payments of interest at 9% until March 31, 1997 and 9.5% thereafter, is
due on the earlier of the exercise of the purchase option or March 31, 1998.
In June 1996 the Trust repaid a $3 million note which had been issued in
connection with the purchase of Federal Plaza in 1989.
These expenditures were initially financed with borrowings under the
Trust's revolving credit facilities with four banks. In August 1996, the Trust
amended these unsecured medium-term revolving credit facilities, increasing the
aggregate amount available from $130 million to $135 million, extending the
maturity from three years to five, and decreasing the interest rate from LIBOR
plus 75 to 100 basis points to LIBOR plus 75 basis points. The facilities,
which require fees and have covenants requiring a minimum shareholders' equity
and a maximum ratio of debt to net worth, are used to fund acquisitions and
other cash requirements until conditions are favorable for issuing equity or
long term debt. At September 30, 1996 the Trust had $12.1 million borrowed
under these facilities. The maximum amount borrowed under these facilities
during the first nine months of 1996 was $76.2 million. The weighted average
interest rate on borrowings during the nine months ended September 30, 1996 was
6.5%.
In August 1996 the Trust issued $50.0 million of 7.48% Debentures due
August 15, 2026, netting approximately $49.8 million. The debentures, which pay
interest semiannually on February 15 and August 15, are redeemable at par at the
option of the holders on August 15, 2008 and by the Trust at any time
thereafter. The proceeds were used to repay amounts drawn on the revolving
credit facilities.
On May 24, 1996 the Trust sold 1.8 million shares at $22 per share, netting
$39.3 million. These proceeds were used to repay borrowings on the Trust's
revolving credit facilities.
The Trust is contractually obligated on contracts of approximately $6.3
million for redevelopment and tenant improvements and is committed under leases
for up to an additional $8.4 million in tenant work. These committed
improvements include the completion of a 30,000 square foot expansion at
Congressional Plaza, the completion of a renovation and expansion of a portion
of Bethesda Row, a reconstruction of a portion of Crossroads Shopping Center,
and a retenanting and
15
renovation of a portion of Troy Shopping Center. These expenditures will be
funded with the revolving credit facilities pending their long term financing
with either equity or debt.
The Trust is continuing to seek acquisition and development opportunities
in its core markets, and, in addition, is looking for acquisition and
development opportunities in new markets. Therefore, the Trust has amended its
bylaws to permit investments west of the Mississippi River. The Trust has
entered into a nonbinding letter of intent to form a joint venture for the
purpose of acquiring and redeveloping main street retail buildings in
California, Oregon and Washington. The Trust is also actively seeking to
acquire shopping centers on the west coast. In addition, the Trust continues to
look for sites in its core markets to permit the Trust to build new shopping
centers.
The Trust will need additional capital in order to fund these acquisitions,
expansions and refinancings. Sources of this funding may be proceeds from the
sale of existing properties, additional debt and additional equity. The timing
and choice between additional debt or equity financing will depend upon many
factors, including the market price for the Trust's shares, interest rates and
the ratio of debt to net worth. The Trust believes that it will be able to
raise this capital as needed, based on its past success in so doing.
CONTINGENCIES
As previously reported, certain of the Trust's shopping centers have some
environmental contamination. The Trust has installed a system to remediate
contamination from a dry cleaning spill at Eastgate Shopping Center in Chapel
Hill, North Carolina. Estimates to remediate the spill range from $300,000 to
$500,000. The Trust has entered into an agreement with two previous owners of
the shopping center to share the costs of the remediation. In 1993 the Trust
recorded a liability of $120,000 as its estimated share of the clean up costs.
The Trust has retained an environmental consultant to investigate the
contamination at a shopping center in New Jersey. The Trust is evaluating
whether it has insurance coverage for this matter. At this time, the Trust has
not determined what the range of remediation costs might be. The Trust has also
identified chlorinated solvent contamination at another property. The
contamination appears to be linked to the current and/or previous dry cleaner.
The Trust intends to look to the responsible parties for any remediation effort.
Evaluation of this situation is preliminary and it is impossible, at this time,
to estimate the range of remediation costs, if any.
Pursuant to the provisions of the respective partnership agreements, in the
event of the exercise of put options by the
16
other partners, the Trust would be required to purchase the 99% limited
partnership interest at Loehmann's Plaza at its then fair market value and a
22.5% interest at Congressional Plaza at its then fair market value.
Recently the unfavorable trends in the retail environment have led to a
number of retail bankruptcies. A further weakening of the retail environment
and additional bankruptcies could adversely impact the Trust, by increasing
vacancies and decreasing rents. In past difficult retail and real estate
environments, the Trust has been able to replace weak and bankrupt tenants with
stronger tenants; management believes that the quality of the Trust's
properties will continue to generate demand for its retail space.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The Trust has historically reported its funds from operations in addition
to its net income. Funds from operations is a supplemental measure of real
estate companies' operating performance which excludes historical cost
depreciation, since real estate values have historically risen and fallen with
market conditions rather than over time. Funds from operations is defined by
The National Association of Real Estate Investment Trusts ("NAREIT") as follows:
income before depreciation and amortization of real estate assets and before
extraordinary items and significant non-recurring events less gains on sale of
real estate. The Trust complies with this definition. Funds from operations
does not replace net income as a measure of performance or net cash provided by
operating activities as a measure of liquidity. Rather, funds from operations
has been adopted by real estate investment trusts to provide a consistent
supplemental measure of operating performance in the industry.
The reconciliation of net income to funds from operations for the nine
months ended September 30 is as follows:
1996 1995
(in thousands)
Net income $21,046 $17,744
Plus: depreciation and amortization
of real estate assets 25,156 22,890
amortization of initial direct
costs of leases 1,777 1,795
loss on sale of real estate - 545
------- -------
Funds from operations $47,979 $42,974
======= =======
Funds from operations increased 12% to $48.0 million for the nine months
ended September 30, 1996 from $43.0 million for the nine months ended September
30, 1995.
17
Rental income, which consists of minimum rent, percentage rent and cost
recoveries, increased 16.3% from $104.6 million in the first nine months of 1995
to $121.6 million in the first nine months of 1996. If properties purchased and
sold in 1995 and 1996 are excluded, rental income increased 6.7%.
Minimum rent increased 17.1% from $83.5 million in the first nine months of
1995 to $97.7 million in the first nine months of 1996. Excluding properties
purchased and sold in 1995 and 1996, minimum rent increased 6.7%. Forty-six
percent of the increase results from rent increases at Brick Plaza, Gaithersburg
Square and Congressional Plaza, all of which have recently been renovated and
retenanted.
Cost reimbursements consist of tenant reimbursements of real estate taxes
(real estate tax recovery) and common area maintenance expenses (CAM recovery).
Cost reimbursements increased 17% from $17.8 million during the first nine
months of 1995 to $20.9 million during the first nine months of 1996. The
increase was due to the recent acquisitions, the partial recovery of increased
CAM expenses, primarily snow removal, and an acceleration of billing CAM capital
items from once at year end to monthly.
Other property income includes items which tend to fluctuate from period to
period, such as utility reimbursements, telephone income, merchant association
dues, lease termination fees, late fees and temporary tenant income. Other
property income increased from $5.3 million during the first nine months of 1995
to $7.0 million during the first nine months of 1996, primarily due to increases
in lease termination fees.
Rental expenses have increased 22% in the first nine months of 1996 over
the first nine months of 1995, to $30.5 million from $25.1 million. If centers
acquired and sold during 1995 and 1996 are excluded, rental expenses increased
11%, due to increased snow removal costs incurred during this winter's heavy
snowfalls and due to a loss resulting from the decision to demolish a portion of
Crossroads Shopping Center to allow for construction of new space.
Real estate taxes have increased from $10.7 million during the first nine
months of 1995 to $12.1 million during the first nine months of 1996; $965,000
of the increase was due to taxes on the 1995 and 1996 acquisitions.
Depreciation and amortization in the first nine months of 1996 was 9% greater
than in the first nine months of 1995. Excluding the effect from the 1995 and
1996 acquisitions, depreciation and amortization increased 4%, primarily due to
increases attributable to Brick Plaza, Gaithersburg Square and Congressional
Plaza, all of which have recently been or are being redeveloped.
18
Interest expense increased from $28.8 million during the first nine months
of 1995 to $33.6 million during the first nine months of 1996, primarily due to
interest expense on the $165 million of senior notes issued during 1995, due to
interest on the 7.48% debentures issued August 1996, due to the mortgage on
Bristol Plaza which was purchased in September 1995 and due to increased
interest on the revolving credit facilities due to higher average outstanding
balances in 1996 than in 1995. The ratio of earnings to fixed charges was 1.55x
for the first nine months of 1996 and 1.58x for the comparable period in 1995.
The ratio of funds from operations to fixed charges was 2.27x for the first nine
months of 1996 and 2.39x for the first nine months of 1995.
Administrative expenses as a percentage of total revenue have increased
from 4.0% in 1995 to 4.6% in 1996, primarily because of the write off of costs
associated with unconsummated acquisitions and developments and because of costs
associated with the relocation of the Trust's headquarters.
In 1995 the Trust had a $545,000 loss on the sale of North City Plaza.
As a result of the foregoing items, net income increased from $17.8 million
during the first nine months of 1995 to $21.0 million during the first nine
months of 1996.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Funds from operations increased 19.5% to $17.2 million in the third quarter
of 1996 from $14.4 million in the third quarter of 1995.
Rental income increased 14% from $35.9 million in the third quarter of 1995
to $40.9 million in 1996. If properties purchased and sold in 1995 and 1996 are
excluded, rental income increased 6%. Seventy-three percent of this increase is
attributable to Brick Plaza, Gaithersburg and Congressional Plaza, all of which
have recently been redeveloped and retenanted.
Minimum rent, a component of rental income, increased 16% from $28.4
million in the third quarter of 1995 to $33.0 million in the third quarter of
1996. If properties purchased and sold in 1995 and 1996 are excluded, minimum
rent increased 7%. Forty-eight percent of this increase is attributable to
Brick Plaza, Gaithersburg, and Congressional Plaza.
Cost reimbursements, another component of rental income, increased 7% from
$6.9 million in the third quarter of 1995 to $7.4 million in the third quarter
of 1996. The increase is primarily due to the 1995 and 1996 acquisitions, but
also to an
19
acceleration of billing CAM capital items from once at year end to monthly.
Other property income has increased 16% from $1.9 million in the third
quarter of 1995 to $2.2 million in the third quarter of 1996, primarily due to
lease termination fees.
Rental expenses have decreased slightly , despite the acquisition of new
properties, from the third quarter of 1995 to the third quarter of 1996, due to
decreases in bad debt and shopping center maintenance costs. Real estate taxes
have increased primarily due to the acquisition of new properties.
Interest expense has increased to $11.3 million in the third quarter of
1996 from $10.1 million in the third quarter of 1995 due to interest on the
6.625% Senior Notes issued in December 1995, the 7.48% Debentures issued in
August 1996 and the mortgage on the Bristol Shopping Center.
Administrative expenses have increased due to increases in payroll expense
and due to costs associated with the relocation of the Trust's corporate office.
Depreciation and amortization expense was 7% greater during the third
quarter of 1996 as compared to the third quarter of 1995, due to the 1995 and
1996 acquisitions and increased depreciation on Brick Plaza, Gaithersburg Square
and Congressional Plaza.
As a result of the foregoing items, net income increased from $5.9
million in the third quarter of 1995 to $8.1 million in the third quarter of
1996.
20
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(3)(ii) Bylaws of Federal Realty Investment Trust,
amended September 11, 1996. 23-40
(27) Financial Data Schedule....................................Edgar
filing only
(B) Reports on Form 8-K
A Form 8-K, dated August 19, 1996, was filed in response to
Item 7.(c)
21
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FEDERAL REALTY INVESTMENT TRUST
-------------------------------
(Registrant)
Date: November 6, 1996 Steven J. Guttman
--------------------- --------------------------
Steven J. Guttman, President
(Chief Executive Officer)
Date: November 6, 1996 Cecily A. Ward
--------------------- ---------------------------
Cecily A. Ward, Vice President
(Principal Accounting Officer)
22
Exhibit 3(ii)
BYLAWS OF
FEDERAL REALTY INVESTMENT TRUST
ARTICLE I. SHAREHOLDERS
Section 1.1. Notice of Shareholder Meetings. Notice of each annual
------------ -------------------------------
meeting of shareholders, stating the date, place and purposes of the meeting,
shall be given by the President to each shareholder at least ten (10) days and
not more than sixty (60) days before any such meeting. Notice for any special
meeting of shareholders shall be sent within a reasonable period of time after
the request for such meeting has been made in accordance with the requirements
set forth in the Declaration of Trust and shall be held at such place and on
such date as the Trustees shall designate in the notice.
Section 1.2. Adjourned Meetings of Shareholders. Any meeting of
------------ -----------------------------------
shareholders may be adjourned from time to time by a majority of the votes
properly cast upon the matter, whether or not a quorum is present, and such
meeting may be reconvened without notice other than that given at such meeting.
At any reconvened session of the meeting at which there shall be a quorum any
business may be transacted which might have been transacted at the meeting as
originally noticed.
Section 1.3. Voting by Proxy. At any meeting of
------------ ----------------
23
shareholders, a shareholder may vote by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the Trust before or at the time of the meeting. No proxy shall be
valid after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy.
Section 1.4. Inspectors of Election. In advance of any meeting of
------------ -----------------------
shareholders, the Board of Trustees may appoint any person other than a nominee
for Trustee as an inspector of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one (1) or three
(3). Any such appointment shall not be altered at the meeting for which such
appointment has been made. If inspector(s) of election are not so appointed,
the President may, or on the request of the holders of not less than ten percent
(10%) of the Shares present in person or by proxy at the meeting and entitled to
vote thereat, the President shall, make such appointment at the meeting. If
inspector(s) are appointed at the meeting upon request of the shareholders, the
majority of votes cast shall determine whether one (1) or three (3) inspectors
are to be appointed. In case any person appointed as inspector fails to appear
or fails or refuses to act as an inspector, the vacancy may be filled by
appointment by the Board of Trustees in advance of the meeting or at the meeting
by the President.
The duties of such inspector(s) shall include: determining the number of
Shares outstanding and the voting power of each
24
Share, the Shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies; receiving votes, ballots or
consents; hearing and determining all challenges and questions in any way
arising in connection with rights to vote; counting and tabulating all votes,
ballots or consents; determining the result of any vote; and such other acts as
may be proper to conduct the election or vote with fairness to all shareholders.
Section 1.5. Notice of Shareholder Proposals. (a) At an annual meeting
------------ --------------------------------
of the shareholders, only such business shall be conducted and only such
proposals shall be acted upon as shall have been brought before the annual
meeting (i) by, or at the direction of, the Board of Trustees or (ii) by any
shareholder of record of the Trust who complies with the notice procedures set
forth in this Section 1.5 of these Bylaws. For a proposal to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the Trust. To be
timely, a shareholder's notice must be delivered to, or mailed and received at,
the principal executive offices of the Trust not less than sixty (60) days nor
more than ninety (90) days prior to the anniversary date of the prior annual
meeting. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (i) a brief
description of the proposal desired to be brought before the annual meeting and
the
25
reasons for conducting such business at the annual meeting, (ii) the name and
address, as they appear on the Trust's books, of the shareholder proposing such
business and any other shareholders known by such shareholder to be supporting
such proposal, (iii) the class and number of Shares of the Trust which are
beneficially owned by the shareholder on the date of such shareholder notice and
by any other shareholders known by such shareholder to be supporting such
proposal on the date of such shareholder notice, and (iv) any financial interest
of the shareholder in such proposal.
(b) If the presiding officer of the annual meeting determines that a
shareholder proposal was not made in accordance with the terms of this Section
1.5, he shall so declare at the annual meeting and any such proposal shall not
be acted upon at the annual meeting.
(c) This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers of the Trust or
Trustees and committees of the Board of Trustees, but, in connection with such
reports, no business shall be acted upon at such annual meeting unless stated,
filed and received as herein provided in the Section 1.5.
(d) Any shareholder seeking to bring a proposal before an annual meeting
of the Trust shall continue to be subject, to the
26
extent applicable, to the requirements of Section 14(a) of the Securities
Exchange Act of 1934, as amended, and the regulations thereunder, as well as the
requirements of this Section 1.5 and Section 7.2 of the Declaration of Trust.
Section 1.6. Record Date for Consent Solicitation. In order that the
------------ -------------------------------------
Trust may determine the shareholders entitled to consent to action in writing
without a meeting, the Board of Trustees may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Trustees, and which date shall not be more than ten
(10) days after the date upon which the resolution fixing the record date is
adopted by the Board of Trustees. Any shareholder of record seeking to have the
shareholders authorize or take action by written consent shall, by written
notice of the Secretary of the Trust, request the Board of Trustees to fix a
record date. The Board of Trustees shall promptly, but in all events within ten
(10) days of the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board of
Trustees within ten (10) days of the date on which such a request is received
and no prior action by the Board of Trustees is required by applicable law, the
record date for determining shareholders entitled to consent to action in
writing without a meeting shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Trust by
27
delivery to its registered office in the District of Columbia, its principal
place of business, or an officer or agent of the Trust having custody of the
book in which proceedings of shareholders meetings are recorded, in each case to
the attention of the Secretary of the Trust. Delivery shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Trustees within ten (10) days of the date on which
such a request is received and prior action by the Board of Trustees is required
by applicable law, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be at the close of business
on the date on which the Board of Trustees adopts the resolution taking such
prior action.
ARTICLE II. TRUSTEES
Section 2.1. Regular Meetings of Trustees. A regular meeting of the Board
------------ -----------------------------
of Trustees shall be held without further notice than this Bylaw on the same day
as the annual meeting of shareholders either at the same place as such meeting
or at the Trust's principal offices. The Board of Trustees may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than the adoption of such resolutions.
28
Section 2.2. Adjourned Meetings of Trustees. Any meeting of the Trustees
------------ -------------------------------
may be adjourned from time to time by a vote of the majority of Trustees present
at such meeting, whether or not a quorum is present, and such meeting may be
reconvened without notice other than that given at such meeting. At any
reconvened session of a meeting at which there shall be a quorum any business
may be transacted which might have been transacted at the meeting as originally
noticed.
Section 2.3. Presumption of Assent. A Trustee who is present at a meeting
------------ ----------------------
of the Board of Trustees at which action on any matter is taken shall be
presumed to have assented to the action unless he shall have requested the
secretary of the meeting to enter his dissent or abstention in the minutes of
the meeting.
Section 2.4. Trustee Nominations. Nominations for the election of
------------ --------------------
Trustees may be made by the Board of Trustees or a nominating committee
appointed by the Board of Trustees or by any shareholder entitled to vote in the
election of Trustees generally. However, any shareholder entitled to vote in
the election of Trustees generally may nominate one or more persons for election
as Trustees at a meeting only if written notice of such shareholder's intent to
make such a nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
29
Trust not later than (i) with respect to an election to be held at an annual
meeting of shareholders, ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting, and (ii) with respect to an election to be
held at a special meeting of shareholders for the election of Trustees, the
close of business on the tenth (10th) day following the date on which notice of
such meeting is first given to shareholders. Each such notice shall set forth:
(a) the name and address of the shareholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
shareholder is a holder of record of shares of the Trust entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission as then in effect; and (e) the
consent of each nominee to serve as a Trustee of the Trust if so elected. The
presiding officer of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
30
ARTICLE III. OFFICERS
Section 3.1. Election. The officers of the Trust shall be elected by the
------------ ---------
Trustees. There shall be a President and a Secretary, in each case elected by
the Trustees. In addition, the Trustees may also elect such additional
officers, including vice-presidents, one (1) or more assistant secretaries, a
treasurer and one (1) or more assistant treasurers, as they may designate. All
officers of the Trust shall exercise such powers and perform such duties as the
Trustees may determine from time to time, in addition to those provided in these
Bylaws. The President shall be a Trustee, but no other officers need be
Trustees.
Section 3.2. Term of Office. The officers of the Trust shall be elected
------------ ---------------
by the Trustees at such intervals as the Trustees may determine, and shall hold
office until death, resignation or removal, or until their successors are
elected and qualify. Any officer may be removed at any time by the affirmative
vote of two-thirds of the full Board of Trustees taken at any regular or special
meeting of the Trustees, without prejudice to any contractual rights which such
officer may have. Any vacancy occurring in the office of President of the Trust
shall be filled by the Trustees.
31
Section 3.3. President. The President, who shall be a Trustee, shall be
------------ ----------
the chief executive officer of the Trust, shall preside at all meetings of the
shareholders and of the Trustees, shall have general management and supervision
of the business and affairs of the Trust, and shall see that all orders and
resolutions of the Trustees are carried into effect. The President shall have
the authority to execute bonds, mortgages, documents and other contracts of the
Trust, and the power to delegate such authority to other officers of the Trust
on the terms and under the circumstances as he shall determine.
Section 3.4. Secretary. The Secretary shall keep minutes of all meetings
------------ ----------
of the Trustees, shall have custody of the seal of the Trust, and generally
shall perform the duties usually performed by a secretary of a corporation,
including certifying as to Trust resolutions and other documents.
Section 3.5. Succession. The Trustees shall from time to time determine
------------ -----------
the order in which officers of the Trust shall, in the absence or disability of
the President, perform the duties and exercise the powers of the President,
except that if any such officer is not a Trustee, he shall not preside at
meetings of the shareholders or of the Trustees.
32
ARTICLE IV. INVESTMENTS
Section 4.1. Restrictions on Investments. The Trust shall not:
------------ ----------------------------
(a) invest in commodities, foreign currencies of chattels, except as
required in the day-to-day business of the Trust or in connection with its
investments;
(b) invest in contracts for sale of Real Property in excess of a
value of one percent (1%) of all of the Trust's Property; provided, however,
that nothing in this Section 4.1 shall prevent the holding of contracts of sale
as security for loans made by the Trust and the ownership of such contracts of
sale upon foreclosure of, or realization upon, such security interests, and
contracts of sale so held or owned shall be excluded from the computation
required by this Section 4.1(b);
(c) engage in any short sale;
(d) engage in trading as compared with investment activities, or
engage in the business of underwriting or agency distribution of Securities
issued by others; provided that this prohibition shall not prevent the Trust
from acquiring Securities as permitted herein, in circumstances where if such
Securities were sold the Trust might be deemed to be an "underwriter" within
33
the meaning of the Securities Act of 1933 and the rules and regulations
thereunder, and provided further that this prohibition shall not prevent the
Trust from selling participations in Mortgage loans or interests in Real
Property;
(e) hold property primarily for sale to customers in the ordinary
course of the trade or business of the Trust, but this prohibition shall not be
construed to deprive the Trust of the power to sell any property (including
divided or undivided interests in such property) which it owns at any time;
(f) invest more than ten percent (10%) of the total value of the
Trust's Property in the ownership of, or participations in the ownership of,
unimproved non-income-producing Real Property, or in Mortgage loans (other than
development or construction loans) secured by Mortgages upon unimproved non-
income-producing Real Property, excluding Real Property which is being developed
or will be developed within a reasonable period;
(g) invest more than ten percent (10%) of the total value of the
Trust's Property in junior Mortgage loans, including wraparound Mortgage loans
but excluding junior Mortgage loans where the Trust either holds a first
Mortgage loan on Real Property subject to the junior Mortgage loan in question,
or a participation in a first Mortgage loan thereon which is pro rata
34
no less than the participation of the Trust in the junior Mortgage loan in
question;
(h) invest in equity Securities (except Securities acquired as
additional consideration in connection with Mortgage loans made by the Trust or
leases of Real Property owned by the Trust) issued by any corporation or other
trust which, to the actual knowledge of the Trustees, is then holding
investments or engaging in activities prohibited to the Trust;
(i) invest in bullion;
(j) enter into contracts or other documents evidencing obligations of
the Trust unless such contract complies with Section 8.3 of the Declaration of
Trust;
(k) issue debt Securities (other than: (a) commercial paper having a
maturity not in excess of two hundred seventy (270) days from its issuance, or
(b) Securities issued in a transaction exempt from registration under the
Securities Act of 1933, as from time to time amended, as a transaction by an
issuer not involving any public offering) unless the historical cash flow, or
the substantiated future cash flow of the Trust, giving effect to the receipt of
an investment of the proceeds of the offering of debt Securities (excluding in
each case extraordinary items), is sufficient in the opinion of the Trustees to
cover the
35
interest on such debt Securities. The Trustees shall receive and may rely upon
a certificate of a financial officer of the Trust as to the computations
contemplated by the preceding sentence prior to issuing such debt Securities;
(l) invest in any Real Property which is subject to a Mortgage or
other encumbrance to other than a bank, insurance company, pension fund,
institutional lender or corporation engaged in the business of Mortgage
investments, except in the case of a purchase money Mortgage;
(m) invest in any Mortgage on unimproved Real Property or in any
Mortgage other than a first Mortgage not in a greater percentage of value as
confirmed by a competent independent appraiser, than permitted under local law
to a savings and loan association.
Section 4.2. Investment Criteria. The following are the Investment
------------ --------------------
Criteria of the Trust:
(a) Shopping Centers - The minimum size for a shopping center is one
----------------
hundred thousand (100,000) square feet, unless the center is adjacent to an
existing Trust property or part of a multiple property purchase.
36
(b) Apartment Buildings - The minimum size for an apartment building
-------------------
is two hundred (200) units.
(c) Geographic Limitations - Investments will only be made in
----------------------
properties located within a fifty (50) mile radius of major metropolitan areas
with a minimum population of one hundred fifty thousand (150,000), except for
apartment buildings which will only be acquired within a two hundred (200) mile
radius of Washington, D.C.
(d) New Development of Shopping Centers - New development of shopping
-----------------------------------
centers is authorized and raw land may be acquired for the sole purpose of new
development of shopping centers.
(e) Partial Interest - No less than a fifty-one percent (51%)
----------------
interest in any property will be acquired, unless such lesser interest has total
control over financing, operations, sale, and other matters relating to the
business conducted on the property.
(f) Other Real Property - Acquisition is authorized for existing low-
-------------------
rise buildings located in urban and suburban areas that serve densely populated
and stable residential communities, providing the Trust's ultimate intended use
of the building is primarily retail.
37
Any person covered by Section 8.9 of the Declaration of Trust who
desires to acquire a property which meets the Investment Criteria of the Trust
must either notify the President of the Trust of the proposed acquisition so
that it may be considered at the next regularly scheduled or special meeting of
the Trustees or include in the purchase contract relating to such property a
stipulation that the Trust has the right of first refusal regarding the property
and may be the purchaser.
ARTICLE V. GENERAL PROVISIONS
Section 5.1. Capitalized Terms. Except as otherwise provided herein,
------------ ------------------
the capitalized terms used in these Bylaws shall have the same meanings in
Section 1.4 of the Trust's Third Amended and Restated Declaration of Trust.
Section 5.2. Amendment. These Bylaws may be amended, modified,
------------ ----------
repealed, or added to only by vote of at least two-thirds (2/3) of the Trustees,
such vote to be given at a meeting of the Trustees for which at least forty-
eight (48) hours notice was given specifying the proposed change to these
Bylaws, unless such change is approved by the written consent of all of the
Trustees.
Section 5.3. Severance. All provisions of these Bylaws shall be
------------ ----------
construed, insofar as possible, as supplemental to and
38
consistent with the Declaration of Trust. If any Section, clause or provision
of these Bylaws, or the application thereof, shall be held to be invalid by any
federal or state court having jurisdiction over the issue, such invalidity shall
not affect any other Section, clause or provision of these Bylaws or their
application, except to the extent necessary to comply with the determination of
such court.
Section 5.4. Lost, Mutilated or Destroyed Certificates. The Trust
------------ ------------------------------------------
shall issue a new certificate to replace a previously issued certificate which
has been lost, mutilated or destroyed upon receipt of an affidavit from the
registered owner of such certificate reciting the facts and circumstances
regarding such loss, mutilation or destruction and a bond sufficient to
indemnify the Trust against any claim that may be made against it on account of
such loss, mutilation or destruction.
Section 5.5. Inspection of Trust Records. The share register, the
------------ ----------------------------
books of accounts and the minutes of the proceedings of the Trust's shareholders
and its Trustees shall be open at any reasonable time during normal business
hours upon the demand of any person who is the record owner of ten percent (10%)
or more of the outstanding Shares. Such inspection may be made in person or by
an agent or attorney and only for a purpose reasonably related to such
shareholder's interests as a
39
shareholder. Demand of inspection other than at a shareholder's meeting shall
be made in writing delivered to the Trust.
Section 5.6. Effective Date. These Bylaws have been adopted by the
------------ ---------------
Trustees effective at the close of business on February 11, 1985.
Amended on: April 28, 1986
September 10, 1990
August 3, 1994
November 30, 1994
September 11, 1996
40
5
1,000
9-MOS
DEC-31-1996
SEP-30-1996
9,071
595
16,914
0
0
0
1,058,525
(215,267)
928,597
0
529,614
0
0
551,912
(201,824)
928,597
0
128,531
0
42,621
0
0
33,559
21,046
0
0
0
0
0
21,046
.63
0
Current assets and current liabilities are not listed since Federal Realty
does not prepare a classified balance sheet.
