SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: March 5, 1997
FEDERAL REALTY INVESTMENT TRUST
-------------------------------
(Exact name of registrant as specified in its charter)
District of Columbia 1-7533 52-0782497
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1626 East Jefferson Street, Rockville, Maryland 20852-4041
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 301/998-8100
Exhibit Index appears on page 5.
Item 5. OTHER EVENTS
During the eight months from January 1, 1997 through August 31, 1997,
Federal Realty Investment Trust (the "Trust") purchased two shopping centers,
seven main street retail buildings and two
parcels of land for future development.
On March 5, 1997 the Trust, through a Limited Liability Company ( "the
LLC") organized by the Trust, purchased the 320,000 square foot San Jose Town &
Country Village Shopping Center in San Jose, California for $42.8 million. The
other member of the LLC has a minor interest in the profits. On March 31, 1997
the 159,000 square foot Pike 7 Shopping Center in Tysons Corner, Virginia was
purchased for $31.5 million by a partnership formed to own the center. The Trust
contributed $30.9 million to the partnership which was used to pay existing debt
on the center. The other partners contributed the shopping center and its
existing debt in exchange for partnership units valued at $495,000 which are
exchangeable, at the option of the Trust, for cash or 18,074 common shares of
the Trust. On April 17, 1997 Street Retail West II, a partnership which was
organized in December 1996, exercised its purchase option on a retail building
in Santa Monica, California. The total cost, including the buyout of the
existing tenant, was $7.1 million. In accordance with the provisions of the
partnership agreement, the Trust contributed 90% of the costs to the partnership
with the other 10% being contributed by the minority interests. The Trust funded
its share of the acquisition of these three properties (the "Acquired
Properties") with borrowings under its revolving credit facilities. Financial
statements and pro forma financial information on the "Acquired Properties" are
submitted in Item 7 of this report.
Financial statements for the four properties described below are not
available; however, none of these four buildings, individually, nor the four in
the aggregate are significant. On January 22, 1997 the Trust purchased a 5,000
square foot main street retail building in Chicago, Illinois for cash of $4.2
million. On March 31, 1997 two partnerships were formed to purchase property in
California. One of the partnerships purchased a 15,000 square foot building in
Santa Monica, California for $4.0 million and the other purchased a 20,000
square foot building in San Diego, California for $850,000. In accordance with
the provisions of the two partnership agreements, the Trust contributed 90% of
the costs to the partnerships with the other 10% being contributed by the
minority interests.
On August 28, 1997 the Trust, through a second Limited Liability Company
(Street Retail Forest Hills I,LLC, "SRFHI") organized by the Trust, purchased
three main street retail properties in Forest Hills, New York for a total cost
of approximately $12.6 million. The Trust contributed $11.4 million of the cost
with the remaining cost of $1.2 million being
2
contributed by the minority interest. Two of the properties with a cost of $8.9
million were occupied by their owners prior to the acquisition and are therefore
not classified as real estate operations and consequently financial statements
are not presented.
The Trust funded the acquisition of all these properties with borrowings
under its revolving credit facilities.
3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements, pro forma financial information and
exhibits are filed as part of this report:
(a) Financial statements of the real estate operations acquired, prepared
pursuant to Rule 3.14 of Regulation S-X:
Page No
1. Town and Country Village Shopping Center
Report of Independent Certified Public Accountants 6
Historical Summary of Gross Income and Direct
Operating Expenses 7
Notes to Historical Summary of Gross Income
and Direct Operating Expenses 8-9
2. M & R Associates Limited Partnership
Independent Auditor's Report 10
Statements of Assets, Liabilities and Partners'
Equity Deficiency 11-12
Statements of Revenue and Expenses 13
Statements of Partners' Equity Deficiency 14
Statements of Cash Flows 15
Notes to Financial Statements 16-19
3. J.C. Penney Company Building
Report of Independent Certified Public Accountants 20
Historical Summary of Gross Income and Direct
Operating Expenses 21
Notes to Historical Summary of Gross Income and
Direct Operating Expenses 22-23
(b) Pro Forma financial information required pursuant to Article 11 of
Regulation S-X:
1. Pro Forma Condensed Financial Statements (unaudited) of
Federal Realty Investment Trust and the Acquired Properties
Pro Forma Condensed Balance Sheet - June 30, 1997 *
Pro Forma Condensed Statement of Operations
Year ended December 31, 1996 24
Pro Forma Condensed Statement of Operations
Six months ended June 30, 1997 25
* No Pro Forma Condensed Balance Sheet as of June 30, 1997 is filed since
the acquisition of the Acquired Properties is reflected in the actual balance
sheet of Federal Realty as of June 30, 1997.
4
The Pro Forma Condensed Statement of Operations for the year ended December
31, 1996 is based on audited historical financial statements of operations of
the Acquired Properties and the Trust after giving effect to the acquisition of
the Acquired Properties and the adjustments as described in the accompanying
notes to the pro forma financial statements.
The Pro Forma Condensed Statement of Operations for the six months ended
June 30, 1997 is based on unaudited historical financial statements of the
Acquired Properties and the Trust after giving effect to the acquisition of the
Acquired Properties and the adjustments as described in the accompanying notes
to the pro forma financial statement.
The Pro Forma Condensed Statements of Operations have been prepared by the
Trust based upon the financial statements of the Acquired Properties. These pro
forma financial statements may not be indicative of the results that actually
would have occurred if the acquisitions had been in effect on the dates
indicated or which may be obtained in the future. The pro forma financial
statements should be read in conjunction with the audited financial statements
and notes of the Acquired Centers filed herein, the audited consolidated
financial statements of the Trust in its Annual Report on Form 10-K for the year
ended December 31, 1996 and the unaudited financial statements of the Trust on
Form 10-Q for the six months ended June 30, 1997.
(c) Exhibits in accordance with the provisions of Item 601 of
Regulation S-K:
Item 23. Independent Auditors' Consents
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Federal Realty Investment Trust
(Registrant)
Date: October 1, 1997 /s/ Cecily A. Ward
------------------
Cecily A. Ward
Vice President - Controller
(Principal Accounting Officer)
EXHIBIT INDEX
ITEM NO.
- --------
(23) Independent Auditors' Consents
5
Report of Certified Public Accountants
--------------------------------------
To the Board of Trustees of
Federal Realty Investment Trust
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses of Town and Country Village Shopping Center, San Jose,
California, ("Historical Summary"), for the year ended December 31, 1996. The
Historical Summary is the responsibility of the Center's management. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Historical Summary is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the Historical Summary. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
excludes certain material items of income and expense, as described in Note B,
that would not be comparable to those resulting from the future operations of
the Center acquired by Federal Realty Investment Trust. The Historical Summary
is not intended to be a complete presentation of the Center's income and
expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses as described
in Note B of Town and Country Village Shopping Center for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
Grant Thornton LLP
San Jose, California
April 11, 1997
6
Town and Country Village Shopping Center
HISTORICAL SUMMARY OF GROSS INCOME AND
DIRECT OPERATING EXPENSES
Year ended December 31, 1996
GROSS INCOME:
Base rent $3,445,734
Percentage rent 199,360
Expense recoveries 1,080,995
Other 61,047
----------
Total Gross Income 4,787,136
DIRECT OPERATING EXPENSES:
Bad debts 156,867
Supplies 55,915
Security 76,380
Insurance 73,512
Office 166,398
Professional fees 63,858
Marketing and promotions 344,389
Property taxes 861,342
Repairs and maintenance 388,937
Utilities 111,377
----------
Total Direct Operating Expenses 2,298,975
----------
Excess of Gross Income Over Direct Operating Expenses $2,488,161
==========
The accompanying notes are an integral part of the Historical Summary.
7
Town and Country Village Shopping Center
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND
DIRECT OPERATING EXPENSES
Year ended December 31, 1996
NOTE A - NATURE OF BUSINESS
Town and Country Village Shopping Center (the "Center") is located at
the intersection of Stevens Creek and Winchester Boulevard in San Jose,
California. The Center consists of a retail shopping center with
approximately 320,000 square feet of rentable space.
The Center's activities consist of the operation of the shopping center
and the leasing of retail stores as well as office space to various
tenants. Expense recoveries represent property operating expenses
billed to the tenants, including common area maintenance, real estate
taxes and other recoverable costs. Expense recoveries are recognized in
the period the expenses are incurred. All leases are classified as
operating leases and expire at various times through 2011.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
The following is a summary of the Center's significant accounting
policies applied in the preparation of the accompanying Historical
Summary of Gross Income and Direct
Operating Expenses.
Basis of Presentation
---------------------
Federal Realty Investment Trust purchased the Center on March 5, 1997.
The Historical Summary of Gross Income and Direct Operating Expenses
has been prepared for the purpose of complying with Regulation S-X,
Rule 3-14 of the Securities and Exchange Commission ("SEC"), which
requires certain information with respect to real estate operations be
included with certain filings with the SEC. The Historical Summary
includes the historical gross income and direct operating expenses of
the Center, exclusive of certain items of income and expense which are
not comparable to the proposed future operations of the Center. Upon
the purchase of the Center, Federal Realty Investment Trust began
operating the shopping center under its policies and procedures. The
excluded income and expense items are as follows:
1) Property tax refunds
2) Bad debt recoveries
3) Depreciation of property and equipment
4) Management and leasing fees
5) Brokers' fees
8
Town and Country Village Shopping Center
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND
DIRECT OPERATING EXPENSES
Year ended December 31, 1996
NOTE B - SUMMARY OF ACCOUNTING POLICIES (continued)
Revenue Recognition
-------------------
Lease revenue is recognized over the lease term on a straight line
basis as it is earned. Revenue from reimbursement by tenants, of costs
incurred on their behalf, is recognized when the expenses are incurred.
These expenses include property taxes and common area maintenance
costs.
Allowance for Doubtful Receivables
----------------------------------
An allowance for doubtful accounts receivable is recognized for amounts
aged greater than 90 days.
Use of Estimates
----------------
In preparing the Center's Historical Summary of Gross Income and Direct
Operating Expenses, management is required to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
9
INDEPENDENT AUDITOR'S REPORT
To the Partners
M & R Associates Limited Partnership
Rockville, Maryland
We have audited the accompanying statements of assets, liabilities and partners'
equity deficiency (income tax basis) of M & R Associates Limited Partnership as
of December 31, 1996 and 1995, and the related statements (income tax basis) of
revenue and expenses, partners' equity deficiency and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2, the financial statements were prepared on the accounting
basis used for income tax purposes and are not intended to be a presentation in
conformity with generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities and partners' equity deficiency
of M & R Associates Limited Partnership as of December 31, 1996 and 1995, and
its revenue, expenses, and cash flows for the years then ended, on the income
tax basis of accounting described in Note 2.
Friedman & Fuller, P.C.
February 17, 1997
(April 22, 1997 as to Note 7)
10
M & R ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' EQUITY DEFICIENCY
(INCOME TAX BASIS)
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
------------- -------------
Real estate (Note 4):
Land 10,314,774 10,314,774
Building and improvements 5,510,106 5,398,855
------------- -------------
Total real estate, at cost 15,824,880 15,713,629
Less accumulated depreciation 2,141,702 1,908,169
------------- -------------
13,683,178 13,805,460
------------- -------------
Other assets:
Cash and cash equivalents 529,990 251,292
Cash, restricted for future capital improvements 51,031
Due from partners (Note 5) 10,000 10,000
Prepaid expenses and other assets 2,847 3,893
Due from related entity (Note 5) 13,289
Rents receivable 6,426 29,650
Property tax refund receivable 44,217
Deferred expenses, less accumulated amortization
of $3,850,978 and $3,315,144 (Note 3) 4,113,797 4,505,121
------------- -------------
Total other assets 4,707,277 4,864,276
------------- -------------
Total assets $18,390,455 $18,669,736
============= =============
See Notes to Financial Statements
11
M & R ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' EQUITY DEFICIENCY
(INCOME TAX BASIS)
DECEMBER 31, 1996 AND 1995
LIABILITIES AND PARTNERS' EQUITY DEFICIENCY
1996 1995
------------- -------------
Liabilities:
Mortgage loan payable (Note 4) $30,387,820 $30,215,841
------------- -------------
Other liabilities
Loans payable, partners (Note 5) 478,657 42,103
Accrued interest 656,145 238,372
Loan payable, Bankruptcy Estate of
Richard H. and Julia Lee Rubin (Note 5) 92,977 92,977
Accrued expenses 40,651 26,214
Security deposits held 45,744 49,038
------------- -------------
Total other liabilities 1,314,174 448,704
------------- -------------
31,701,994 30,664,545
Partners' equity deficiency (13,311,539) (11,994,809)
------------- -------------
Total liabilities and partners' equity deficiency $18,390,455 $18,669,736
============= =============
See Notes to Financial Statements
12
M & R ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF REVENUE AND EXPENSES
(INCOME TAX BASIS)
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
------------ ------------
Revenue from rents:
Base rents $2,584,935 $3,033,273
Contingent rents 480,357 521,973
------------ ------------
Total revenue from rents 3,065,292 3,555,246
Operating expenses 3,608,076 3,588,967
------------ ------------
Operating loss (542,784) (33,721)
Other income (deductions):
Interest income 7,442 9,720
Depreciation of buildings and improvements (233,691) (233,209)
Amortization of deferred expenses (537,087) (533,565)
Miscellaneous income 7,390 56,588
------------ ------------
Other deductions, net (755,946) (700,466)
------------ ------------
Excess of expenses over revenue ($1,298,730) ($734,187)
============ ============
See Notes to Financial Statements
13
M & R ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY DEFICIENCY
(INCOME TAX BASIS)
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
-------------- --------------
Partners' equity deficiency, beginning of year ($11,994,809) ($11,233,409)
Excess of expenses over revenue (1,298,730) (734,187)
Distributions to partners (18,000) (27,213)
-------------- --------------
Partners' equity deficiency, end of year ($13,311,539) ($11,994,809)
============== ==============
See Notes to Financial Statements
14
M & R ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(INCOME TAX BASIS)
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
-------------- ---------------
Operating activities:
Excess of expenses over revenue ($1,298,730) ($734,187)
Adjustments to reconcile excess of expenses over
revenue to net cash provided by operating activities:
Depreciation and amortization 770,778 766,774
Accrued interest added to mortgage and
partner loans payable 192,208
Loss on disposal of building improvements and
deferred leasing costs 8,028
Changes in assets and liabilities:
(Increase) decrease in:
Prepaid expenses and other assets 1,046 1,257
Due from/to related entities 13,289 13,196
Rents receivable 23,224 (10,216)
Property tax refund receivable (44,217)
Increase (decrease) in:
Accrued interest 417,773 9,447
Accrued expenses 14,437 (14,851)
Security deposits held (3,294)
-------------- ---------------
Net cash provided by operating activities 94,542 31,420
-------------- ---------------
Investing activities:
Cash, restricted for future capital improvements, net 51,031 29,420
Expenditures for building and improvements (115,991)
Lease buy-out payments (149,209)
-------------- ---------------
Net cash provided by (used in) investing activities (214,169) 29,420
-------------- ---------------
Financing activities:
Loans from partners 432,615
Distributions to partners (18,000) (27,213)
Principal repayments on mortgage loan (16,290) (64,113)
-------------- ---------------
Net cash provided by (used in) financing activities 398,325 (91,326)
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 278,698 (30,486)
Cash and cash equivalents, beginning of year 251,292 281,778
-------------- ---------------
Cash and cash equivalents, end of year $529,990 $251,292
============== ===============
Supplemental disclosure of cash flow information:
Interest paid $2,120,970 $2,623,875
============== ===============
See Notes to Financial Statements
15
M & R ASSOCIATES LIMITED PARTNERSHIP
Notes to Financial Statements
(Income Tax Basis)
Years Ended December 31, 1996 and 1995
1. Organization:
M & R Associates Limited Partnership is a Virginia limited partnership.
On December 15, 1986, the Partnership purchased a commercial shopping
center located in Fairfax County, Virginia, consisting of approximately
156,000 square feet of rentable building area.
2. Summary of significant accounting policies:
Basis of accounting:
The Partnership's policy is to prepare its financial statements on the
accounting basis used for Federal income tax reporting purposes. The
income tax basis of accounting differs from generally accepted
accounting principles in the following significant respects.
Depreciation and amortization charges are based on rates and terms
established or permitted by the Internal Revenue Service rather than
over the future period expected to be benefitted. Valuation allowances
are not established to reflect the expected collectibility of accounts
and notes receivable; rather, such items are written off in full in the
year in which they become worthless, as defined by the Internal Revenue
Code. Further, revenue received in advance is recognized when received
rather than when earned.
Cash and equivalents:
The Partnership maintains its cash primarily in one financial
institution. The bank balance, at times, significantly exceeds the
Federally insured amount.
Income taxes:
The Partnership's financial statements do not contain a provision for
income taxes since the net income or loss is recognized by the
individual partners in accordance with the Partnership Agreement and
the Internal Revenue Code.
Depreciation:
Depreciation of buildings and improvements is being computed by the
straight-line method over a useful life of 19 years, in accordance with
the Accelerated Cost Recovery System in compliance the Tax Reform Act
of 1986. In accordance with the Modified Accelerated Cost Recovery
System, assets acquired after 1986 are being depreciated using the
straight-line method over a useful life of 31.5 years, and assets
acquired after 1993 are depreciated over a useful life of 39 years.
16
Use of estimates in preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
3. Deferred expenses:
Deferred expenses are being amortized by the straight-line method over
the period applicable to each cost category, as follows:
December 31, 1996
-----------------------------
Period of Deferred Accumulated
amortization expenses amortization
------------ -------- ------------
Leasing costs* 5 - 15 years $ 7,567,692 $ 3,654,697
Construction/permanent
loan costs 15 years 397,083 196,281
----------- -----------
$ 7,964,775 $ 3,850,978
=========== ===========
* During 1989, the Partnership acquired certain leases of major
tenants for $6,933,021. This payment has been classified as
deferred leasing costs and is being amortized over 5 - 15
years.
4. Mortgage loan payable:
In connection with the transaction described in Note 7, the mortgage
loan was assumed by a successor partnership on March 31, 1997.
As of December 31, 1996 and 1995, the mortgage loan was a nonrecourse
mortgage loan payable to Aetna Life Insurance Company in the original
amount of $28,500,000 and was secured by the Partnership's real and
personal property. Monthly payments of $190,000 for interest only were
due through June 30, 1994. Thereafter, monthly payments of principal
and interest were due as follows: $229,425 to June 1, 1995; $239,610 to
January 1, 1996. Effective January 1, 1996, the loan was modified.
Beginning February 1, 1996 through December 1, 2000, interest only
payments calculated at 9% of the outstanding note balance were due.
Thereafter, monthly payments of principal and interest of $237,058 were
due, with a final installment due July 1, 2004.
17
The original loan bore interest at stated rates beginning at 9% in 1994
and was to increase periodically thereafter by 1/2% to a final stated
rate of 10-1/2%. Per the loan modification, the stated interest rate
was changed to 9.5% through the term of the loan. The difference
between the stated interest and the monthly payments was added to the
principal balance. The lender was also entitled to additional interest
based on operating cash flow and disposition of the property or
refinancing proceeds, as more fully described in the promissory note.
5. Related party transactions:
Due to/from related entities:
At December 31, 1995, the Partnership had loaned funds to another
partnership. Interest is receivable on this demand loan at an annual
rate of 9%. The amount due from the related party, $13,289, is due from
an entity which is inactive and does not have sufficient assets to
repay this amount. This amount was written off during 1996. The general
partners of this entity have filed Chapter 11 bankruptcy.
Due from partners:
Loans due from partners are non-interest bearing and due on demand.
Loans payable, partners:
The balances of $478,657 and $42,103 at December 31, 1996 and 1995,
respectively, bear interest at the prime rate plus 2%.
Management fees:
During 1996 and 1995, the Partnership incurred management fees of
$152,369 and $176,620, respectively, to an entity owned by certain
partners.
6. Leases:
The Partnership has entered into various leases with its tenants, which
generally provide for minimum annual rentals, plus additional rent
based on real estate tax reimbursements, tenant gross receipts and
other variable items. Minimum future annual rentals on noncancellable
leases as of December 31, 1996, were as follows:
1997 $ 3,231,000
1998 3,188,000
1999 2,649,000
2000 2,191,000
2001 1,962,000
Thereafter 8,040,000
------------
$ 21,261,000
============
18
7. Subsequent events:
On March 31, 1997, the Partnership transferred substantially all of its
assets to FR Pike 7 Limited Partnership ("Pike 7"), a newly-formed
partnership, which assumed substantially all of the existing debt. The
Partnership has a stated interest in Pike 7 of 1%. In connection with
the transfer of the property, Pike 7 prepaid approximately $18,000,000
of the outstanding mortgage indebtedness. Subsequent to this
transaction, the remaining Partnership assets were distributed to the
partners and the Partnership was liquidated.
19
Report of Independent Certified Public Accountants
Board of Trustees
Federal Realty Investment Trust
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of J.C. Penney Company Building, Santa
Monica, California, for the year ended December 31, 1996. The Historical Summary
is the responsibility of the Building's management. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Historical Summary is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the Historical Summary. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
excludes certain material items of income and expenses, as described in Note B,
that would not be comparable to those resulting from the future operations of
the Building acquired by Federal Realty Investment Trust. The Historical Summary
is not intended to be a complete presentation of the Building's income and
expenses.
In our opinion, the Historical Summary referred to above, presents fairly, in
all material respects, the gross income and direct operating expenses as
described in Note B of J.C. Penney Company Building, Santa Monica, California,
for the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
Grant Thornton
Washington, D.C.
May 14, 1997
20
J.C. Penney Company Building
Historical Summary of Gross Income
and Direct Operating Expenses
Year ended December 31, 1996
Gross Income
Fixed rent $ 12,000
Percentage rent 136,861
----------
Total Gross Income 148,861
Direct Operating Expenses
Insurance 3,884
Property taxes 67,448
Repairs and maintenance 7,025
Miscellaneous 1,184
----------
Total Direct Operating Expenses 79,541
----------
Excess of Gross Income Over Direct Operating Expenses $ 69,320
==========
The accompanying notes are an integral part of this statement.
21
J.C. Penney Company Building
Notes to Historical Summary of Gross Income
and Direct Operating Expenses
December 31, 1996
NOTE A - NATURE OF BUSINESS
J.C. Penney Company Building (the Building) is located at the intersection of
Wilshire Boulevard and Third Street in Santa Monica, California. The Building
consists of a store building and its parking lot.
The Building's activity consists of the leasing of the Building to J.C. Penney.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
The following is a summary of the Building's significant accounting policies
applied in the preparation of the accompanying Historical Summary of Gross
Income and Direct Operating Expenses.
Basis of Presentation
Federal Realty Investment Trust purchased the Building on April 30, 1997. The
Historical Summary of Gross Income and Direct Operating Expenses has been
prepared for the purpose of complying with Regulation S-X, Rule 314 of the
Securities and Exchange Commission (SEC), which requires certain information
with respect to real estate operations acquired to be included with certain
filings with the SEC. The Historical summary includes the historical gross
income and direct operating expenses of the Building, exclusive of certain items
of income and expense which are not comparable to the proposed future operations
of the Building. Upon the purchase of the Building, Federal Realty Investment
Trust began operating the Building under its policies and procedures. The
excluded income and expense items are property tax refunds, depreciation of
property and equipment, management and leasing fees, and brokers' fees.
Revenue Recognition
According to the lease agreement, the Building will receive a fixed rent of
$12,000 per annum and a monthly percentage rent equal to 3% of the net retail
sales made by the J.C. Penney store during such period.
Using Estimates in Preparing Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make
22
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenue and expense during the reporting period.
Actual results could differ from those estimates.
23
Federal Realty Investment Trust
Pro Forma Condensed Statement of Operations
(unaudited)
Year ended December 31, 1996
(in thousands, except per share data)
Trust Acquired Pro Forma Adjustments Pro Forma
Actual Properties Debit Credit Combined
Actual (6)
Revenue
Rental income $164,887 $7,940 4 ($149) $172,678
Other income 9,816 61 9,877
Interest income 4,352 - 4,352
----------- ----------- ----------- ----------- -----------
179,055 8,001 (149) 0 186,907
Expenses
Interest 45,555 2,731 2 3,991 5 (2,731) 49,546
Depreciation and amortization 38,154 - 1 1,352 39,506
Administrative expenses 9,100 - 9,100
Operating expenses 57,098 3,256 4 (80) 60,274
----------- ----------- ----------- ----------- -----------
149,907 5,987 5,343 (2,811) 158,426
Income before investors share of operations
and loss on sale of real estate 29,148 2,014 (5,492) 28,481
Investors' share of operations (394) 3 (30) (424)
----------- ----------- ----------- ----------- -----------
Income before loss on sale of real estate 28,754 2,014 (5,522) 0 28,057
Loss on sale of real estate (12) (12)
----------- ----------- ----------- ----------- -----------
$28,742 $2,014 ($5,522) $0 $28,045
=========== =========== =========== =========== ===========
Weighted average number of common shares 33,573 33,573
=========== ===========
Earnings per share
Income before loss on sale of real estate $0.86 $0.84
Loss on sale of real estate - -
----------- -----------
$0.86 $0.84
=========== ===========
The Pro Forma Condensed Statement of Operations of the Trust gives effect
to the acquisition of the Acquired Properties as though they were acquired at
the beginning of the period presented.
1) Reflects additional depreciation based on the book value of depreciable
real estate purchased, as if the Acquired Properties were purchased at the
beginning of the period.
2) Reflects additional interest expcnse on the Trust's revolving credit
facilities, adjusted for interest capitalized, as if the Acquired
Properties were purchased at the beginning of the period.
3) Reflects additional earnings attributable to minority interests, as if the
Acquired Properties were purchased at the beginning of the period.
4) Reflects additional costs to be capitalized as part of redevelopment work,
offset by incidental revenues, as if the Acquired Properties were purchased
at the beginning of the period.
5) Reduction of interest expense of prior owners of Pike 7 which is not
comparable to future operations of the Trust
6) Includes only those balances which are comparable to estimated future
operations. Therefore, the balances used for Pike 7, although prepared on
the income tax basis, are not materially different than if prepared in
accordance with generally accepted accounting principles.
24
Federal Realty Investment Trust
Pro Forma Condensed Statement of Operations
(unaudited)
Six Months ended June 30, 1997
(in thousands, except per share data)
Trust Acquired Pro Forma Adjustments Pro Forma
Actual Properties Debit Credit Combined
Actual
Revenue
Rental income $90,981 $1,880 4 ($57) $92,804
Other income 5,520 18 5,538
Interest income 2,948 - 2,948
--------- --------- --------- --------- ---------
99,449 1,898 (57) 0 101,290
Expenses
Interest 23,988 - 2 769 24,757
Depreciation and amortization 20,528 - 1 297 20,825
Administrative expenses 4,594 - 4,594
Operating expenses 30,471 749 4 (24) 31,196
--------- --------- --------- --------- ---------
79,581 749 1,066 (24) 81,372
Income before investors share of operations
and gain on sale of real estate 19,868 1,149 (1,123) 19,918
Investors' share of operations (581) 3 (8) (589)
--------- --------- --------- --------- ---------
Income before gain on sale of real estate 19,287 1,149 (1,131) 0 19,329
Gain on sale of real estate 7,034 7,034
--------- --------- --------- --------- ---------
$26,321 $1,149 ($1,131) $0 $26,363
========= ========= ========= ========= =========
Weighted average number of common shares 38,633 38,633
========= =========
Earnings per share
Income before loss on sale of real estate $0.50 $0.50
Loss on sale of real estate 0.18 0.18
========= =========
$0.68 $0.68
========= =========
The Pro Forma Condensed Statement of Operations of the Trust gives effect
to the acquisition of the Acquired Properties as though they were acquired at
the beginning of the period presented. Three months of the operations of Pike 7
Shopping Center, four months of the operations of Town & Country Village
Shopping Center and two and one-half months of the operations of the main street
retail building in Santa Monica are included in the actual numbers at June 30,
1997 since the properties were acquired on March 31, March 5, and April 17,
respectively. Operations for the periods prior to acquisition are reflected in
the Acquired Properties actual numbers.
1) Reflects additional depreciation based on the book value of depreciable
real estate purchased, as if the Acquired Properties were purchased at the
beginning of the period.
2) Reflects additional interest expense on the Trust's revolving credit
facilities, adjusted for interest capitalized, as if the Acquired
Properties were purchased at the beginning of the period.
3) Reflects additional earnings attributable to minority interests, as if the
Acquired Properties were purchased at the beginning of the period.
4) Reflects additional costs to be capitalized as part of redevelopment work,
offset by incidental revenues, as if the Acquired Properties were purchased
at the beginning of the period.
25
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Form 8-K of our report dated February 17,
1997, and April 22, 1997, with respect to Note 7, on our audit of the financial
statements of M & R Associates Limited Partnership as of and for the years ended
December 31, 1996 and 1995.
We also consent to the incorporation by reference of said report in the
Registration Statements of Federal Realty Investment Trust on Form S-3 (File No.
33-15264, effective August 4, 1987), (File No. 33-63687, effective November 6,
1995) and (File No. 33-63955, effective November 3, 1995).
Friedman & Fuller, P.C.
Rockville, Maryland
October 1, 1997
We have issued our reports dated February 5, 1997, accompanying the consolidated
financial statements and schedules included in the Annual Report of Federal
Realty Investment Trust on Form 10-K for the year ended December 31, 1996. We
hereby consent to the incorporation by reference of said reports in the
Registration Statements of Federal Realty Investment Trust on Form S-3 (File No.
33-15264, effective August 4, 1997; File No. 33-63687, effective November 6,
1995: and File No. 63955, effective November 3, 1995).
Grant Thornton LLP
Vienna, Virginia
October 1, 1997
We consent to the inclusion in this Form 8-K of our reports dated April 11,
1997, and May 14, 1997, on our audits of the Historical Summary of Gross Income
and Direct Operating Expenses of Town and Country Village Shopping Center, San
Jose, California, and the Historical Summary of Gross Income and Direct
Operating Expenses of the J.C. Penney Company Building, Santa Monica,
California, respectively, for the year ended December 31, 1996. We also consent
to the incorporation by reference of said reports in the Registration Statements
of Federal Realty Investment Trust on Form S-3 (File No. 33-15264, effective
August 4, 1987; File No. 33- 63687, effective November 6, 1995; and File No.
63955, effective November 3, 1995).
Grant Thornton LLP
Vienna, Virginia
October 1, 1997
