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: June 30, 1998
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Commission File No. 17533
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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_____.
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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 July 31, 1998
- ---------------------------------- ----------------------------
Common Shares of Beneficial Interest 39,917,063
This report, including exhibits, contains 42 pages.
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
June 30, 1998
I N D E X
PART I. FINANCIAL INFORMATION PAGE NO.
Accountants' Report 4
Consolidated Balance Sheets 5
June 30, 1998 (unaudited) and
December 31, 1997 (audited)
Consolidated Statements of Operations (unaudited)
Six months ended June 30, 1998 and 1997
6
Consolidated Statements of Operations (unaudited)
Three months ended June 30, 1998 and 1997 7
Consolidated Statements
of Shareholders' Equity (unaudited)
Six months ended June 30, 1998 and 1997 8
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 1998 and 1997 9
Notes to Financial Statements 10-13
Management's Discussion and Analysis of 14-21
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 22
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
June 30, 1998
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, 1997 was audited by Grant
Thornton LLP, independent public accountants, who expressed an
unqualified opinion on it in their report dated February 5, 1998. All
other financial information presented is unaudited but has been
reviewed as of June 30, 1998 and for each of the six and three month
periods ended June 30, 1998 and 1997 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 June 30, 1998 and the related consolidated statements of
operations, shareholders' equity and cash flows for the six month periods ended
June 30, 1998 and 1997, and the consolidated statements of operations for the
three month periods ended June 30, 1998 and 1997. 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, 1997 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 5, 1998, 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, 1997 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.
August 5, 1998
4
Federal Realty Investment Trust
CONSOLIDATED BALANCE SHEETS
(see accountants' review report)
June 30, December 31,
1998 1997
(unaudited)
-------------- -------------
(in thousands)
ASSETS
Investments
Real estate, at cost $1,513,127 $1,453,639
Less accumulated depreciation and amortization (265,622) (247,497)
---------- -----------
1,247,505 1,206,142
Mortgage notes receivable 34,883 38,360
---------- -----------
1,282,388 1,244,502
Other Assets
Cash 13,554 17,043
Notes receivable - officers 1,060 1,190
Accounts receivable 16,651 17,604
Prepaid expenses and other assets, principally
property taxes and lease commissions 34,878 32,128
Debt issue costs 3,147 4,106
---------- -----------
$1,351,678 $1,316,573
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Obligations under capital leases $122,573 $125,940
Mortgages payable 58,376 95,633
Notes payable 125,079 119,028
Accrued expenses 22,275 23,419
Accounts payable 5,200 7,093
Dividends payable 18,466 18,368
Security deposits 4,675 4,423
Prepaid rents 4,315 2,818
Senior notes 335,000 255,000
5 1/4% Convertible subordinated debentures 75,289 75,289
Investors' interest in consolidated assets 35,621 35,752
Commitments and contingencies - -
Shareholders' equity
7.95% Series A Cumulative Redeemable Preferred Shares, liquidation
preference $25 per share, 4,000,000 shares issued in 1997 100,000 100,000
Common shares of beneficial interest, no par
or stated value, unlimited authorization,
issued 39,922,154 and 39,200,201 shares,
respectively 702,983 684,823
Accumulated dividends in excess of Trust net income (236,291) (222,709)
---------- -----------
566,692 562,114
Less 58,419 and 52,386 common shares in treasury - at cost, respectively,
deferred compensation and subscriptions receivable (21,883) (8,304)
---------- -----------
544,809 553,810
---------- -----------
$1,351,678 $1,316,573
========== ===========
The accompanying notes are an integral part of these statements.
5
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(see accountants' review report)
(unaudited)
Six months ended June 30,
1998 1997
------ ------
(In thousands, except per share data)
Revenue
Rental income $ 106,608 $ 90,981
Interest and other income 2,935 2,948
Other property income 5,036 5,520
----------- -----------
114,579 99,449
Expenses
Rental 23,269 21,005
Real estate taxes 11,217 9,466
Interest 26,097 23,988
Administrative 5,836 4,594
Depreciation and amortization 21,972 20,528
----------- -----------
88,391 79,581
----------- -----------
Operating income before investors' share
of operations and gain on sale of real estate 26,188 19,868
Investors' share of operations (1,531) (581)
----------- -----------
Income before gain on sale of real estate 24,657 19,287
Gain on sale of real estate - 7,034
----------- -----------
Net Income $ 24,657 $ 26,321
Dividends on preferred stock (3,975) -
----------- -----------
Net income available for common shareholders $ 20,682 $ 26,321
=========== ===========
Earnings per common share, basic
Income before gain on sale of real estate $ 0.53 $ 0.51
Gain on sale of real estate - 0.18
----------- -----------
$ 0.53 $ 0.69
=========== ===========
Weighted average number of common shares, basic 39,057 38,126
=========== ===========
Earnings per common share, diluted
Income before gain on sale of real estate $ 0.53 $ 0.50
Gain on sale of real estate - 0.18
----------- -----------
$ 0.53 $ 0.68
=========== ===========
Weighted average number of common shares, diluted 39,896 38,616
=========== ===========
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 June 30,
1998 1997
---- ----
(In thousands, except per share data)
Revenue
Rental income $54,127 $47,061
Interest and other income 1,341 1,448
Other property income 2,934 2,293
------- -------
58,402 50,802
Expenses
Rental 11,347 10,789
Real estate taxes 5,745 4,892
Interest 13,404 11,999
Administrative 3,995 2,493
Depreciation and amortization 11,203 10,404
------- -------
45,694 40,577
------- -------
Operating income before investors' share
of operations and gain on sale of real estate 12,708 10,225
Investors' share of operations (745) (249)
------- -------
Income before gain on sale of real estate 11,963 9,976
Gain on sale of real estate - 7,034
------- -------
Net Income $11,963 $17,010
Dividends on preferred stock (1,987) -
------- -------
Net income available for common shareholders $ 9,976 $17,010
------- -------
Earnings per common share, basic
Income before gain on sale of real estate $ 0.26 $ 0.26
Gain on sale of real estate - 0.18
------- -------
$ 0.26 $ 0.44
------- -------
Weighted average number of common shares, basic 39,122 38,754
------- -------
Earnings per common share, diluted
Income before gain on sale of real estate $ 0.25 $ 0.25
Gain on sale of real estate 0.00 0.18
------- -------
$ 0.25 $ 0.43
======= =======
Weighted average number of common shares, diluted 39,900 39,200
======= =======
The accompanying notes are an integral part of these statements.
7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(see accountants' review report)
(unaudited)
Six months ended June 30,
1998 1997
------------- ------------- ------------- -------------
(In thousands, except per share amounts) Shares Amount Shares Amount
Common Shares of Beneficial Interest
Balance, beginning of period 39,200,201 $ 684,823 35,948,044 $ 597,917
Net proceeds from sale of shares - - 3,000,000 83,925
Exercise of stock options 130,905 2,798 66,468 1,401
Shares issued under dividend reinvestment plan 76,993 1,927 74,838 2,009
Performance and Restricted Shares granted 514,055 13,435 22,000 621
------------- ------------- ------------- -------------
Balance, end of period 39,922,154 $ 702,983 39,111,350 $ 685,873
============= ============= ============= =============
Common Shares of Beneficial Interest
in Treasury, Deferred Compensation and
Subscriptions Receivable
Balance, beginning of period (457,111) ($8,304) (480,948) ($8,332)
Amortization of deferred compensation 47,093 875 30,125 480
Performance and Restricted Shares granted (549,055) (14,084) (22,000) (621)
Purchase of shares under share purchase plan 50,521 764 16,753 236
Purchase of treasury shares, net of reissuance (6,033) (353) - -
Increase in stock option loans, net (32,937) (781) (10,500) (223)
------------- ------------- ------------- -------------
Balance, end of period (947,522) ($21,883) (466,570) ($8,460)
============= ============= ============= =============
Accumulated Dividends in Excess of Trust Net Income
Balance, beginning of period ($222,709) ($200,700)
Net income 24,657 26,321
Dividends declared to shareholders (38,239) (32,782)
------------- -------------
Balance, end of period ($236,291) ($207,161)
============= =============
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)
Six months ended June 30,
(In thousands) 1998 1997
------------- --------------
OPERATING ACTIVITIES
Net income $ 24,657 $ 26,321
Adjustments to reconcile net income to net cash
provided by operations
Depreciation and amortization 21,972 20,527
Rent abatements in lieu of leasehold improvements,
net of tenant improvements retired (1,044) (526)
Imputed interest and amortization of debt cost 384 326
Amortization of deferred compensation and
forgiveness of officers' notes 1,074 344
Gain on sale of real estate (7,034)
Changes in assets and liabilities
Decrease (increase) in accounts receivable 953 (584)
Increase in prepaid expenses and other
assets before depreciation and amortization (3,436) (3,303)
Increase (decrease) in operating accounts payable,
security deposits and prepaid rent 1,528 (666)
Decrease in accrued expenses (1,314) (2,155)
------------ -------------
Net cash provided by operating activities 44,774 33,250
INVESTING ACTIVITIES
Acquisition of real estate (29,013) (103,269)
Capital expenditures (26,913) (23,571)
Application of deposit on real estate - 23,447
Net increase in notes receivable (5,305) (10,250)
------------ ------------
Net cash used in investing activities (61,231) (113,643)
FINANCING ACTIVITIES
Regular payments on mortgages, capital leases, and
notes payable (1,204) (992)
Balloon payment on mortgages (36,607) -
Increase in short-term debt, net 6,209 33,695
Issuance of senior notes, net of costs 79,540 -
Dividends paid (36,845) (30,149)
Issuance of shares of beneficial interest 2,742 86,044
(Decrease) increase in minority interest (867) 250
----------- -------------
Net cash provided by financing activities 12,968 88,848
----------- -------------
Increase (decrease) in cash (3,489) 8,455
Cash at beginning of period 17,043 11,041
----------- ------------
Cash at end of period $ 13,554 $ 19,496
=========== ============
The accompanying notes are an integral part of these statements.
9
Federal Realty Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(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, 1997 which
contain the Trust's accounting policies and other data.
The following table sets forth the reconciliation between basic and diluted
EPS:
Six months Three months
1998 1997 1998 1997
NUMERATOR
Net income available for common
shareholders - basic $20,682 $26,321 $ 9,976 $17,010
Income attributable to operating
partnership units 414 - 207 -
------- ------- ------- -------
Net income available for common
shareholders - diluted $21,096 $26,321 $10,183 $17,010
DENOMINATOR
Denominator for basic EPS-
weighted average shares 39,057 38,126 39,122 38,754
Effect of dilutive securities
Stock options and awards 358 490 297 446
Operating partnership units 481 - 481 -
------- ------- ------- -------
Denominator for diluted EPS 39,896 38,616 39,900 39,200
On March 19, 1998 the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus opinion on issue #97-11,
"Accounting for Internal Costs Relating to Real Estate Property Acquisitions"
which requires that the internal costs of preacquisition activities incurred in
connection with the acquisition of an operating property be expensed as
incurred, whereas the internal costs of preacquisition activities directly
identifiable with the acquisition of a nonoperating or to be developed property
should be capitalized as part of the cost of the acquisition. The Trust has
traditionally capitalized internal preacquisition costs of both operating and
nonoperating properties as a component of the acquisition price. Consequently,
as a result of the adoption of this EITF in the second quarter of 1998, the
Trust's general and administrative expense has increased by approximately
$900,000. The effect of the EITF on general and administrative expenses each
quarter will depend on the acquisition effort spent on acquiring operating
properties versus development properties.
10
NOTE B - REAL ESTATE AND ENCUMBRANCES
During February and March 1998 the Trust purchased seven properties in San
Antonio, Texas for $10.7 million in cash. An additional two properties were
purchased during the second quarter of 1998 for $3.5 million in cash. These
properties, located on Houston Street near San Antonio's River Walk, are
currently vacant and will be redeveloped, retenanted and remerchandised.
On February 3, 1998 the Trust purchased a retail building in close
proximity to its other properties in Santa Monica, California for $2.0 million
in cash. During the first half of 1998 the Trust spent $2.0 million in cash to
purchase two properties and to secure a long term ground lease on a third
property in Bethesda, Maryland; all three properties are adjacent to the Trust's
Bethesda Row property and were purchased in order to allow for future expansion.
On May 7, 1998 the Trust acquired two main street retail properties in
Tempe, Arizona. The Trust acquired one property for $5.2 million in cash. The
Trust acquired, for $4.6 million in cash, an eighty-five percent interest in a
partnership which owns the second property which is valued at $5.4 million.
On June 30, 1998 the Trust, for $8.5 million, terminated the capital lease
on Lawrence Park Shopping Center and purchased the fee interest in the property
upon the maturity of a note of $8.5 million which the Trust had loaned to the
seller in January 1997.
On January 14, 1998 the Trust increased by $2.3 million, extended and
refinanced mortgage loans which had been made on retail properties in
Philadelphia, Pennsylvania. The new loan, which is available for up to $25
million, bears interest at 10%, and is due May 1, 2021, totalled $5.3 million at
June 30, 1998. From and after May 2006, which date may be extended to April
2008, the Trust has the option to convert the loan into a partnership interest
in the properties.
In June 1998 the Trust made a loan of $2.5 million, which matures July 1,
2001 and is secured by a property in Studio City, California. The loan earns
interest at 10% and participates in certain revenues and appreciation of the
property.
On June 1, 1998 the Trust paid off mortgages totalling $36.6 million on
Barracks Road, Falls Plaza, Old Keene Mill, and West Falls Shopping Centers.
NOTE C - NOTES PAYABLE
11
In December 1997 the Trust replaced its unsecured medium term revolving
credit facilities with four banks with a five-year syndicated line, thereby
increasing the aggregate amount available from $135 million to $300 million.
The syndicated line bears interest at LIBOR plus 65 basis points, requires fees
and has covenants requiring a minimum shareholders' equity and a maximum ratio
of debt to net worth. At June 30, 1998 there was $121 million borrowed under
this facility. The maximum drawn during the first half of 1998 was $136
million. The weighted average interest rate on borrowings for the six months
ended June 30, 1998 was 6.2%.
NOTE D - INTEREST EXPENSE
The Trust incurred interest expense totaling $28.9 million during the first
six months of 1998 and $25.2 million during the first six months of 1997, of
which $2.8 million and $1.2 million, respectively, was capitalized. Interest
paid was $27.3 million in the first six months of 1998 and $24.8 million in the
first six months of 1997.
NOTE E - COMMITMENTS AND CONTINGENCIES
The Trust is involved in various lawsuits and environmental matters arising
in the normal course of business. Management believes that such matters will
not have a material effect on the financial condition or results of operations
of the Trust.
Pursuant to the provisions of the respective partnership agreements, in the
event of the exercise of put options by the 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 an 18.75% interest at Congressional Plaza at its
then fair market value.
Under the terms of certain other partnerships, if certain leasing and
revenue levels are obtained for the properties owned by the partnerships, the
limited partners may require the Trust to purchase their partnership interests
at a formula price based upon net operating income. The purchase price may be
paid in cash or common stock of the Trust at the election of the limited
partners. If the limited partners do not redeem their interest, the Trust may
choose to purchase the limited partnership interests upon the same terms. Under
the terms of another partnership, the partners may exchange their 481,378
operating units into cash or common shares of the Trust, at the option of the
Trust.
The Trust is currently working to resolve the potential impact of the year
2000 on the processing of information by the Trust's computerized information
systems as well as the potential impact on the operations of its real estate
properties by computerized components of its buildings' operating systems.
Based on current
12
information, costs of addressing and solving potential problems are not expected
to have a material adverse impact on the Trust's financial condition.
NOTE F - COMPONENTS OF RENTAL INCOME
The components of rental income for the periods ended June 30 are as
follows:
Six months Three months
1998 1997 1998 1997
Retail properties
Minimum rents $85,627 $71,226 $43,383 $36,756
Cost reimbursements 16,918 16,258 8,925 8,639
Percentage rents 2,786 2,259 1,181 1,049
Apartments 1,277 1,238 638 617
------- ------- ------- -------
$106,608 $90,981 $54,127 $47,061
NOTE G - SUBSEQUENT EVENTS
On July 31, 1998 the Trust paid off a $6.3 million mortgage on Loehmann's
Plaza. On August 3, 1998 the Trust paid off a $10.7 million mortgage on Bristol
Shopping Center. The payoff of these mortgages was funded by borrowings on the
Trust's line of credit.
On July 10, 1998 the Trust, through a 90% owned partnership, purchased
another property on Third Street Promenade in Santa Monica. The cost of the
property was $6.6 million in cash, of which the Trust contributed 90%. On July
22, 1998 the Trust acquired a pad site adjacent to North Lake Commons for $1
million in cash. On August 5, 1998 the Trust purchased the Hauppauge Shopping
Center in Hauppauge, New York for a cash purchase price of $25 million.
13
FEDERAL REALTY INVESTMENT TRUST
FORM 10-Q
JUNE 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. Portions of this discussion
include certain forward-looking statements about the Trust's and management's
intentions and expectations. Although these intentions and expectations are
based upon reasonable assumptions, many factors, such as general economic
conditions, local and national real estate conditions, increases in interest
rates and operating costs, may cause actual results to differ materially from
current expectations.
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
funding from borrowing or equity offerings.
Net cash provided by operating activities increased to $44.8 million in the
first half of 1998 from $33.3 million in the first half of 1997 due to improved
operating results from the core portfolio and due to the contributions from
recently acquired and redeveloped properties. Distributions to shareholders in
the first six months of 1998 totalled $36.8 million compared to 1997's $30.1
million.
During the first half of 1998, the Trust invested $29.0 million in cash to
acquire real estate assets, $26.9 million to improve its properties and $5.3
million in mortgage notes receivable. The Trust purchased nine properties in San
Antonio, Texas for $14.2 million in cash. These properties, located on Houston
Street near San Antonio's River Walk, are currently vacant and will be
redeveloped, retenanted and remerchandised. The Trust purchased a retail
building in close proximity to its other properties in Santa Monica, California
for $2.0 million in cash. The Trust acquired for another $2.0 million in cash
two properties and a long term ground lease on a third property adjacent to its
Bethesda Row property in order to allow for future expansion. In May 1998 the
Trust purchased a main street retail property in Tempe, Arizona and an eighty-
five percent interest in a partnership, which owns a second property in Tempe
valued at $5.4 million, for $5.2 million and $4.6 million, respectively.
On July 10, 1998 the Trust, through a 90% owned partnership, purchased
another property on Third Street Promenade in Santa Monica. The cost of the
property was $6.6 million in cash, of which the Trust contributed 90%. On July
22, 1998 the Trust acquired a pad site adjacent to North Lake Commons for $1
million in cash. On August 5, 1998 the Trust purchased the Hauppauge Shopping
Center in Hauppauge, New York for a cash purchase price of $25 million.
14
On July 31, 1998 and August 3, 1998 the Trust paid balloon mortgage
obligations, totalling $16.9 million.
Improvements to Trust properties during the first half of 1998 included
$3.4 million on the renovation of Gratiot Plaza; $2.9 million on the
redevelopment of Old Town Center in Los Gatos, California; $2.4 million on
predevelopment work at San Jose Town & Country Village Shopping Center; $2.4
million on the expansion of the Falls and West Falls Shopping Centers in
suburban Washington, D.C.; $1.9 million on the retenanting of Finley Shopping
Center in suburban Chicago; $1.1 million on the renovation of Feasterville
Shopping Center in Pennsylvania; and $1.5 million on renovations of main street
retail properties in Santa Monica and Pasadena, California.
On January 14, 1998 the Trust increased by $2.3 million, extended and
refinanced mortgage loans which had been made on retail properties in
Philadelphia, Pennsylvania. The new loan, which is available for up to $25
million, bears interest at 10%, and is due May 1, 2021, totalled $5.3 million at
June 30, 1998. From and after May 2006, which date may be extended to April
2008, the Trust has the option to convert the loan into a partnership interest
in the properties. In June 1998 the Trust made a mortgage loan of $2.5 million
on a property in Studio City, California. The loan, which matures July 1, 2001,
earns interest at 10% and participates in certain revenues and appreciation of
the property.
In December 1997 the Trust replaced its unsecured medium term revolving
credit facilities with four banks with a five-year syndicated line, thereby
increasing the aggregate amount available from $135 million to $300 million.
The Trust uses borrowings on the credit facility to fund its acquisitions,
improvements, and debt repayment requirements, until issuing equity or long term
debt. The syndicated line bears interest at LIBOR plus 65 basis points,
requires fees and has covenants requiring a minimum shareholders' equity and a
maximum ratio of debt to net worth. At June 30, 1998 there was $121 million
borrowed under this facility. The maximum drawn during the first half of 1998
was $136 million and the weighted average interest rate on borrowings for the
six months was 6.2%.
On March 5, 1998 the Trust issued $39.5 million of 6.74% Medium-Term Notes
due 2004, netting approximately $39.3 million, and $40.5 million of 6.99%
Medium-Term Notes due 2006, netting approximately $40.2 million. The notes pay
interest semi-annually on March 30 and September 30. In anticipation of this
transaction, on January 13, 1998 the Trust purchased a Treasury Yield Hedge
(notional amount of $50 million) to minimize the risk of changes in interest
rates. The hedge was terminated on March 5, 1998 at a gain of $1.1 million
which will be recognized as a reduction in interest expense over the lives of
the notes. Proceeds from this issuance were used to reduce borrowings on the
credit facility.
15
The Trust is contractually obligated on contracts of approximately
$16.3 million for redevelopment and tenant improvements and is committed under
leases for up to an additional $7.4 million in tenant work and general
improvements to its properties. In addition to these committed amounts, the
Trust has budgeted an additional $25 million for the remainder of 1998 for
improvements to its properties. These committed and budgeted improvements
include the redevelopment of Old Town Center, the renovation and retenanting of
certain of the San Diego and Santa Monica main street retail properties, the
renovation of Feasterville Shopping Center, the completion of the renovation and
expansion of Gratiot Plaza and the redevelopment of a portion of Bethesda Row.
These expenditures will be funded with the revolving credit facilities pending
their long term financing with either equity or debt.
The Trust plans to acquire additional retail properties and, in addition,
has located sites where it intends to build new retail properties. The Trust
will need additional capital in order to fund these acquisitions, expansions,
developments and refinancings. Sources of this funding may be additional debt
and additional equity. The timing and choice between additional debt or equity
will depend upon many factors, including the market price for the Trust's
shares, interest rates and the Trust's ratio of debt to net worth. The Trust
believes, based on past experience, that it has the access to the capital
markets needed to raise this capital.
CONTINGENCIES
The Trust is involved in various lawsuits and environmental matters arising
in the normal course of business. Management believes that such matters will
not have a material effect on the financial condition or results of operations
of the Trust.
Pursuant to the provisions of the respective partnership agreements, in the
event of the exercise of put options by the 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 an 18.75% interest at Congressional Plaza at its
then fair market value.
Under the terms of certain other partnerships, if certain leasing and
revenue levels are obtained for the properties owned by the partnerships, the
limited partners may require the Trust to purchase their partnership interests
at a formula price based upon net operating income. The purchase price may be
paid in cash or common stock of the Trust at the election of the limited
partners. If the limited partners do not redeem their interest, the Trust may
choose to purchase the limited partnership interests upon the same terms. Under
the terms of another partnership, the partners may
16
exchange their 481,378 operating units into cash or common shares of the Trust,
at the option of the Trust.
The Trust is currently working to resolve the potential impact of the year
2000 on the processing of information by the Trust's computerized information
systems as well as the potential impact on the operations of its real estate
properties by computerized components of its buildings' operating systems. Based
on current information, costs of addressing and solving potential problems are
not expected to have a material adverse impact on the Trust's financial
position.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Net income and funds from operations have been affected by the Trust's
recent acquisition, redevelopment and financing activities. The Trust has
historically reported its funds from operations in addition to its net income
and net cash provided by operating activities. 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 available for common
shareholders 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 six
months ended June 30 is as follows:
1998 1997
(in thousands)
Net income available for common
shareholders $20,682 $26,321
Less: gain on sale of real estate - (7,034)
Plus: depreciation and amortization
of real estate assets 19,906 18,418
amortization of initial direct
costs of leases 1,181 1,148
income attributable to operating
partnership units 414 -
------- -------
Funds from operations, diluted $42,183 $38,853
======= =======
17
Funds from operations increased 9% to $42.2 million in the first half of
1998 from $38.9 million in the first half of 1997.
Rental income, which consists of minimum rent, percentage rent and cost
recoveries, increased 17% from $91.0 million in the first half of 1997 to $106.6
million in the first half of 1998. If properties purchased and sold in 1997 and
1998 are excluded, rental income increased 5%. The majority of the increase is
attributable to retail properties which have recently been renovated and
retenanted.
Minimum rent increased 20% from $72.5 million in the first half of 1997 to
$86.9 million in the first half of 1998. Excluding properties purchased and sold
in 1997 and 1998, minimum rent increased 7%. The majority of the increase is
attributable to retail properties which have recently been renovated and
retenanted, including Troy, Wynnewood, Brick, Finley, Crossroads and Bethesda
Row Shopping Centers.
Cost reimbursements consist of tenant reimbursements of real estate taxes
(real estate tax recovery) and common area maintenance expenses (CAM recovery).
Cost reimbursements increased 4% from $16.3 million during the first half of
1997 to $16.9 million during the first half of 1998. Excluding properties
purchased and sold in 1997 and 1998, cost reimbursements decreased from $15.5
million in 1997 to $14.7 million in 1998. Real estate tax recovery on the core
portfolio increased in line with increases in taxes, while CAM recovery
decreased on the core portfolio as CAM expenses, mainly snow removal decreased.
Other property income includes items which, although recurring, tend to
fluctuate from period to period, such as utility reimbursements, telephone
income, merchant association dues, late fees and temporary tenant income. It
also includes nonrecurring items such as lease termination fees. Other property
income decreased from $5.5 million during the first half of 1997 to $5.0 million
during the first half of 1998. If other income is adjusted to remove the effect
of properties sold and acquired in 1997 and 1998, other income decreased $1.1
million, primarily due to a decrease in lease termination fees from $1.8 million
in 1997 to $370,000 in 1998.
Rental expenses have increased 11% in the first half of 1998 from the first
half of 1997, to $23.3 million from $21.0 million. If centers acquired and sold
during 1997 and 1998 are excluded, rental expenses decreased 4%, refecting the
decrease in CAM expenses.
Real estate taxes have increased from $9.5 million during the first half of
1997 to $11.2 million during the first half of 1998, due to the recent
acquisitions. Depreciation and amortization in the first half of 1998 was 7%
greater than in the first half of 1997. Excluding the effect from the 1997 and
1998 acquisitions,
18
depreciation and amortization increased 5% due to depreciation on recent tenant
work and property improvements.
Interest expense increased from $24.0 million during the first half of 1997
to $26.1 million during the first half of 1998, due to interest expense on the
Medium Term Notes issued in 1997 and 1998 and increased interest from greater
usage on the line of credit, partially offset by an increase in interest
capitalized, and decreases in mortgage and participation interest. The ratio
of earnings to combined fixed charges and preferred dividends was 1.43x for the
first half of 1998; there were no preferred dividends in the first half of 1997.
The ratio of earnings to fixed charges was 1.6x and 1.7x during the first half
of 1998 and 1997, respectively. The ratio of funds from operations to fixed
charges was 2.34x for the first half of 1998 and 2.47x for the first half of
1997.
Administrative expenses have increased from $4.6 million during the first
half of 1997 to $5.8 million during the first half of 1998, primarily due to the
expensing of internal costs of acquisition activities during the second quarter
of 1998 in accordance with EITF 97-11, "Accounting for Internal Costs Relating
to Real Estate Property Acquisitions" and due to increased expenses of
unsuccessful acquisition and development efforts during the second quarter.
Investors' share of operations increased from $581,000 to $1.5 million from
the first six months of 1997 to the comparable period in 1998, primarily because
of the Trust's partners share of the increased earnings in Congressional Plaza
and the Trust's partners share of the earnings in the December 1997 acquisition
of Courthouse and Magruder's shopping centers.
As a result of the foregoing items, net income before gain on sale of real
estate increased from $19.3 million during the first half of 1997 to $24.7
million during the first half of 1998. Net income available for common
shareholders before gain on sale of real estate was $20.7 million in the first
half of 1998 after deducting a $4.0 million dividend on the $100 million of
7.95% Series A Cumulative Redeemable Preferred Shares issued in October 1997 and
$19.3 million in 1997. Net income was $24.7 million in 1998 and $26.3 million
in 1997 which had a $7.0 million gain on sale of real estate.
The Trust intends to continue acquiring retail properties during the
remainder of 1998. If successful in so doing, these acquisitions should
contribute to growth in rental income and expenses and, thereby, net income.
However, the competitive market for properties may adversely impact the Trust's
ability to acquire properties or the price at which they can be acquired. In
response to this increasingly competitive environment, the Trust is focusing
considerable time and resources now and in the future on development, with the
belief that such new development, although
19
not having a positive effect on net income and funds from operations in the very
near future, will have a positive impact in the longer term.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Funds from operations increased five percent from $19.9 million in the
second quarter of 1997 to $20.9 million in the second quarter of 1998.
Rental income increased 15% from $47.1 million in 1997 to $54.1 million in
1998. Excluding properties acquired and sold in 1997 and 1998, rental income
increased 4%, in large part due to the contribution from retail properties
recently renovated and retenanted.
Minimum rent increased 18% from $37.4 million in the second quarter of 1997
to $44.0 million in the second quarter of 1998 due primarily to the impact of
1997 acquisitions. On a same property basis, minimum rent increased 7% due
primarily to the recently renovated and retenanted properties.
Cost reimbursements, a component of rental income, increased 3% in the
second quarter of 1998 over the comparable period of 1997, substantially due to
the impact of properties acquired in 1997 and 1998.
Other property income increased from $2.3 million in the second quarter of
1997 to $2.9 million in the second quarter of 1998. The major component of this
increase was a national telephone contract of $405,000.
Rental expenses have increased 5% from $10.8 million in the second quarter
of 1997 to $11.3 million in the second quarter of 1998. On a same property
basis, rental expenses were down 10%, reflecting a decrease in snow, repair,
environmental and leasing costs. Real estate taxes increased 17% from 1997 to
1998, but on a same property basis increased 7%, primarily reflecting increased
assessments on recently renovated centers. Depreciation and amortization
expense increased 8% due to depreciation expense on the recent acquisitions and
renovations.
Interest expense increased from $12.0 million in the second quarter of 1997
to $13.4 million in the comparable period of 1998, primarily reflecting the
interest on the issuance of $120 million of medium term notes, partially offset
by lower mortgage interest expense as mortgages were paid during the second
quarter of 1998.
General and administrative expenses have increased from $2.5 million in the
second quarter of 1997 to $4.0 million in the second quarter of 1998, primarily
due to the expensing of internal costs of acquisition activities during the
second quarter of 1998 in
20
accordance with EITF 97-11 and due to increased expenses of unsuccessful
acquisition and development efforts during the second quarter.
Investor's share of operations increased from $249,000 in the second
quarter of 1997 to $745,000 in 1998, primarily because of the Trust's partners'
share of the increased earnings in Congressional Plaza and the Trust's partners
share of the earnings in the December 1997 acquisition of Courthouse and
Magruder's shopping centers.
As a result of the foregoing items, net income before gain on sale of real
estate increased from $10.0 million in the second quarter of 1997 to $12.0
million in the second quarter of 1998. Net income available for common
shareholders (before gain on sale of real estate) was $10.0 million in the
second quarter of 1998 after deducting a $2.0 million dividend on the $100
million of 7.95% Series A Cumulative Redeemable Preferred Shares issued in
October 1997 and $10.0 million in the second quarter of 1997 as well. Net income
was $12.0 million in the second quarter of 1998 compared to 1997's $17.0 million
which had a $7.0 million gain on sale of real estate.
21
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
At the 1998 Annual Meeting of Shareholders on May 6, 1998 the Shareholders
elected two trustees to serve for the ensuing three years and the Shareholders
approved the Amendment to the Amended and Restated 1993 Long-Term Incentive Plan
("Amended Plan") and the Shareholders approved a stock option award to the Chief
Executive Officer. Holders of 33.5 million shares voted for both of the trustees
and holders of 362,000 shares voted against both of the trustees. Holders of
25.6 million shares voted for the Amended Plan and holders of 7.9 million shares
voted against the Amended Plan. Holders of 30.9 million shares voted to approve
the stock option award to the Chief Executive Officer and holders of 2.5 million
shares voted against approval.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(3)(ii) Bylaws of Federal Realty Investment Trust as last
amended on May 6, 1998 24-42
(27) Financial Data Schedules.......................Edgar
filing only
(B) Reports on Form 8-K
A Form 8-K, dated March 31, 1998, was filed on May 11, 1998 in response
to Item 7.(c).
22
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)
August 12, 1998 Steven J. Guttman
-----------------
Steven J. Guttman, President
(Chief Executive Officer)
August 12, 1998 Cecily A. Ward
--------------
Cecily A. Ward, Controller
(Principal Accounting Officer)
23
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 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. Treatment of Abstentions and Broker Non-Votes. Votes which
------------ ---------------------------------------------
are marked as abstentions at a shareholders' meeting will count for the purposes
of determining a quorum, and will be included in the calculation of a vote, in
respect of each proposal before the shareholders. Votes at a shareholders'
meeting on non-routine matters for New York Stock Exchange, Inc. purposes where
a broker does not cast a vote on behalf of the party for which it acts as
nominee (which are known as "broker non-votes") will be counted for quorum
purposes but not for purposes of a vote.
Section 1.5. 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
2
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 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 1.6. 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
3
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 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
4
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 this 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 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 1.7. 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
5
or take action by written consent shall, by written notice to 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 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.
6
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.
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 taken unless he shall have requested the
secretary of the meeting to enter his dissent or abstention in the minutes of
the meeting.
7
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
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
8
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.
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
9
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.
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.
10
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.
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;
11
(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 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;
12
(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 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
13
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 and 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
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:
14
(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.
(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.
15
(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.
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
16
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 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
17
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
shareholder. Demand of inspection other than at a shareholder's meeting shall
be made in writing delivered to the Trust.
18
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
May 6, 1998
19
5
1,000
6-MOS
DEC-31-1998
JUN-30-1998
13,554
0
17,711
0
0
0
1,513,127
(265,622)
1,351,678
0
716,317
0
100,000
702,983
(258,174)
1,351,678
0
111,644
0
34,486
0
0
26,097
20,682
0
0
0
0
0
20,682
.53
.53
CURRENT ASSETS AND CURRENT LIABILITIES ARE NOT LISTED SINCE FEDERAL REALTY DOES
NOT PREPARE A CLASSIFIED BALANCE SHEET.
5
1,000
6-MOS
DEC-31-1997
JUN-30-1997
19,496
0
17,915
0
0
0
1,266,649
(233,401)
1,144,647
0
611,914
0
0
685,873
(215,621)
1,144,647
0
96,501
0
30,471
0
0
23,988
26,321
0
0
0
0
0
26,321
.69
.68
CURRENT ASSETS AND CURRENT LIABILITIES ARE NOT LISTED SINCE FEDERAL REALTY DOES
NOT PREPARE A CLASSIFIED BALANCE SHEET.
