SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: March 31, 2000
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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)
Maryland 52-0782497
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1626 East Jefferson Street, Rockville, Maryland 20852-4041
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(Address of principal executive offices) (Zip Code)
(301) 998-8100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No_____.
-----.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 2000
- ------------------------------ -----------------------------
Common Shares of Beneficial Interest 39,341,740
This report, including exhibits, contains 26 pages.
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
March 31, 2000
I N D E X
PART I. FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheets
March 31, 2000 (unaudited) and
December 31, 1999 (audited) 4
Consolidated Statements of Operations (unaudited)
Three months ended March 31, 2000 and 1999 5
Consolidated Statements
of Shareholders' Equity (unaudited)
Three months ended March 31, 2000 and 1999 6
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 2000 and 1999 7
Notes to Financial Statements 8-12
Management's Discussion and Analysis of 13-20
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 21
2
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
March 31, 2000
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.
3
Federal Realty Investment Trust
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
(unaudited)
----------- ------------
ASSETS (in thousands)
Investments
Real estate, at cost $1,760,541 $1,721,459
Less accumulated depreciation and amortization (327,847) (317,921)
---------- ----------
1,432,694 1,403,538
Mortgage notes receivable 56,943 53,495
---------- ----------
1,489,637 1,457,033
Other Assets
Cash 13,711 11,738
Accounts and notes receivable 19,961 23,130
Prepaid expenses and other assets, principally
property taxes and lease commissions 33,643 36,807
Debt issue costs 5,150 5,340
---------- ----------
$1,562,102 $1,534,048
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Obligations under capital leases $ 121,927 $ 122,026
Mortgages payable 50,406 50,547
Notes payable 316,121 162,768
Accounts payable and accrued expenses 31,470 34,974
Dividends payable 19,021 19,431
Security deposits 5,282 5,068
Prepaid rents 8,679 6,788
Senior notes and debentures 410,000 510,000
5 1/4% Convertible subordinated debentures 75,289 75,289
Investors' interest in consolidated assets 45,910 45,330
Commitments and contingencies
Shareholders' equity
Preferred stock, authorized 15,000,000 shares, $.01 par 7.95% Series A
Cumulative Redeemable Preferred Shares, (stated at
liquidation preference $25 per share), 4,000,000 shares issued in 1997 100,000 100,000
Common shares of beneficial interest, $.01 par, 100,000,000 shares
authorized, 40,685,871 and 40,418,766 issued, respectively 407 404
Additional paid in capital 718,450 713,354
Accumulated dividends in excess of Trust net income (291,892) (286,348)
---------- ----------
526,965 527,410
Less:1,374,544 and 217,644 common shares in treasury - at cost, respectively (26,421) (4,334)
Deferred compensation on restricted shares (16,936) (15,219)
Notes receivable from employee stock plans (5,611) (6,030)
---------- ----------
477,997 501,827
---------- ----------
$1,562,102 $1,534,048
========== ==========
The accompanying notes are an integral part of these consolidated statements.
4
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended March 31,
2000 1999
--------- ---------
(In thousands, except per share data)
Revenue
Rental income $64,232 $59,433
Other property income 2,765 2,272
Interest income 2,107 1,878
-------- --------
69,104 63,583
Expenses
Rental 14,620 13,648
Real estate taxes 6,457 6,012
Interest 16,493 15,133
Administrative 2,922 2,254
Depreciation and amortization 12,655 12,281
-------- --------
53,147 49,328
-------- --------
Operating income before investors' share
of operations 15,957 14,255
Investors' share of operations (1,818) (701)
-------- --------
Net Income 14,139 13,554
Dividends on preferred stock (1,988) (1,988)
-------- --------
Net income available for common shareholders $12,151 $11,566
======== ========
Earnings per common share, basic $0.31 $0.29
======== ========
Weighted average number of common shares, basic 39,444 39,435
======== ========
Earnings per common share, diluted $0.31 $0.29
======== ========
Weighted average number of common shares, diluted 40,595 40,545
======== ========
The accompanying notes are an integral part of these consolidated statements.
5
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
(unaudited)
Three months ended March 31,
2000
---------- --------- --------------- ----------
(In thousands, except share data) Shares Amount Additional Shares
Paid-in-Capital
Common Shares of Beneficial Interest
Balance, beginning of period 40,418,766 $404 $713,354 40,139,675
Shares issued under dividend reinvestment plan 40,796 1 806 37,362
Performance and Restricted Shares granted, net
of Restricted Shares retired 226,309 2 4,290 50,654
---------- --------- -------- ----------
Balance, end of period 40,685,871 $407 $718,450 40,227,691
========== ========= ======== ==========
Accumulated Dividends in Excess of Trust Net Income
Balance, beginning of period ($286,348)
Net income 14,139
Dividends declared to common shareholders (17,695)
Dividends declared to preferred shareholders (1,988)
---------
Balance, end of period ($291,892)
=========
Common Shares of Beneficial Interest in Treasury
Balance, beginning of period (217,644) ($4,334) (59,425)
Performance and Restricted Shares forfeited - - 1,006
Purchase of treasury shares (1,156,900) (22,087) -
---------- --------- ----------
Balance, end of period (1,374,544) ($26,421) (58,419)
========== ========= ==========
Deferred Compensation on Restricted Shares
Balance, beginning of period (599,427) ($15,219) (582,910)
Performance and Restricted Shares issued,
net of Forfeitures (202,271) (3,833) (41,327)
Vesting in Performance and Restricted Shares 82,323 2,116 -
---------- --------- ----------
Balance, end of period (719,375) ($16,936) (624,237)
========== ========= ==========
Subscriptions receivable from employee stock plans
Balance, beginning of period (317,606) ($6,030) (337,111)
Subscription loans paid 25,514 419 19,588
---------- --------- ----------
Balance, end of period (292,092) ($5,611) (317,523)
========== ========= ==========
1999
-------- ---------------
(In thousands, except share data) Amount Additional
Paid-in-Capital
Common Shares of Beneficial Interest
Balance, beginning of period $707,724 -
Shares issued under dividend reinvestment plan 873 -
Performance and Restricted Shares granted, net
of Restricted Shares retired 1,145 -
-------- ----------
Balance, end of period $709,742 $ 0
======== ==========
Accumulated Dividends in Excess of Trust Net Income
Balance, beginning of period ($255,211)
Net income 13,554
Dividends declared to common shareholders (17,672)
Dividends declared to preferred shareholders (1,988)
--------
Balance, end of period ($261,317)
========
Common Shares of Beneficial Interest in Treasury
Balance, beginning of period ($1,376)
Performance and Restricted Shares forfeited 21
Purchase of treasury shares -
--------
Balance, end of period ($1,355)
========
Deferred Compensation on Restricted Shares
Balance, beginning of period ($14,892)
Performance and Restricted Shares issued,
net of Forfeitures ($910)
Vesting in Performance and Restricted Shares -
--------
Balance, end of period ($15,802)
========
Subscriptions receivable from employee stock plans
Balance, beginning of period ($6,298)
Subscription loans paid 322
--------
Balance, end of period ($5,976)
========
The accompanying notes are an integral part of these consolidated statements.
6
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended March 31,
2000 1999
------- -------
(In thousands)
OPERATING ACTIVITIES
Net income $14,139 $13,554
Items not requiring cash outlays
Depreciation and amortization 12,655 12,281
Other, net 208 497
Changes in assets and liabilities
Decrease in accounts receivable 3,169 381
Decrease in prepaid expenses and other
assets before depreciation and amortization 2,115 2,325
Increase (decrease) in operating accounts payable,
security deposits and prepaid rent 2,186 (1,016)
Decrease in accrued expenses (2,030) (5,719)
------- ------
Net cash provided by operating activities 32,442 22,303
INVESTING ACTIVITIES
Acquisition of real estate (17,879) (15,260)
Capital expenditures (21,941) (16,366)
Issuance of mortgage notes receivable, net (3,448) (4,397)
------- -------
Net cash used in investing activities (43,268) (36,023)
FINANCING ACTIVITIES
Borrowing of short-term debt, net 153,500 28,852
Repayment of senior notes, net of costs (100,000) -
Issuance of common shares 697 343
Common shares repurchased (22,087) -
Payments on mortgages, capital leases and notes payable, including
prepayment fees (387) (354)
Dividends paid (19,425) (18,995)
Increase (decrease) in minority interest, net 501 (809)
-------- -------
Net cash provided by financing activities 12,799 9,037
-------- -------
Increase (decrease) in cash 1,973 (4,683)
Cash at beginning of period 11,738 17,230
-------- -------
Cash at end of period $13,711 $12,547
======== =======
The accompanying notes are an integral part of these consolidated statements.
7
Federal Realty Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(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, 1999 which
contain the accounting policies and other data of Federal Realty Investment
Trust (the "Trust").
The following table sets forth the reconciliation between basic and diluted
EPS:
Three months ending
March 31,
Numerator 2000 1999
Net income available for common
shareholders - basic $12,151 $11,566
Income attributable to operating
partnership units 613 264
Net income available for common ------- -------
shareholders - diluted $12,764 $11,830
======= =======
Denominator
Denominator for basic EPS-
weighted average shares 39,444 39,435
Effect of dilutive securities
Stock options and awards 146 230
Operating partnership units 1,005 880
------- -------
Denominator for diluted EPS 40,595 40,545
======= =======
NOTE B - REAL ESTATE ASSETS AND ENCUMBRANCES
On January 5, 2000 the Trust purchased the 75,000 square foot Greenlawn
Plaza in Greenlawn, New York for $6.2 million, with plans to renovate and expand
the center by 35,000 square feet. On February 16, 2000 control of a parcel of
land for future development in Hillsboro, Oregon was acquired for $11.7 million.
An additional $1.6 million will be owed if certain cash flow criteria are met
during the first ten years of operations.
On January 1, 2000 the Trust issued 190,000 partnership units valued at
$3.6 million in exchange for the minority partner's interest in Loehmann's
Plaza.
In addition, the Trust invested $3.4 million in mortgage notes receivable
with an average weighted interest rate of 9.7% during the first quarter of 2000.
8
NOTE C - NOTES PAYABLE
At March 31, 2000 there was $184.1 million borrowed under the Trust's
syndicated credit facility, which also represents the maximum drawn during the
quarter. The weighted average interest rate on borrowings for the three months
ended March 31, 2000 was 6.6%. The facility requires fees and has various
covenants including the maintenance of a minimum shareholders' equity and a
maximum ratio of debt to net worth.
On January 17, 2000 the Trust's $100 million of 8.875% Notes matured and
were paid with borrowings on the Trust's revolving credit facilities. Also in
January 2000 the Trust obtained a construction loan commitment for up to $24.5
million in connection with the Trust's Woodmont East development in Bethesda,
Maryland. The loan, which has a floating interest rate of LIBOR plus 1.5% has an
initial term of 24 months with two, one-year extension options. There have been
no draws to date under this construction loan. The property secures the
construction loan facility. In connection with the land for future development
in Hillsboro, Oregon the Trust issued a $3.4 million note due on August 14,
2000. The loan bears interest at LIBOR plus 1.25%. The property secures the loan
facility.
NOTE D - SHAREHOLDERS' EQUITY
In February 2000, options for 280,000 shares at prices ranging from $18 to
$19 1/8 per share, fair value at the dates of award, were awarded to certain
employees of the Trust. The options vest over three and four year terms.
In December 1999 the Trustees authorized a share repurchase program of up
to an aggregate of four million of the Trust's common shares. The repurchase
program will end upon the earlier of December 31, 2000 or the date when the
repurchase limit has been met. During the first quarter of 2000, 1,156,900
common shares at a cost of $22.1 million were repurchased bringing the total
purchased under the program as of March 31, 2000, to 1,297,400 common shares at
a cost of $24.7 million. An additional 28,500 shares were repurchased in April
2000 at a cost of $544,000.
NOTE E - INTEREST EXPENSE
The Trust incurred interest expense totaling $18.7 million during the first
three months of 2000 and $16.3 million during the first three months of 1999 of
which $2.2 million and $1.2 million, respectively, was capitalized in connection
with development projects.
9
Interest paid was $19.9 million in the first three months of 2000 and $18.8
million in the first three months of 1999.
NOTE F - 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 partnership agreement, in the event of
the exercise of put options by another partner, the Trust would be required to
purchase a 37.5% interest of Congressional Plaza at its then fair market value.
Based on management's current estimate of fair market value, the Trust's
estimated liability upon exercise of the put option is approximately $27
million.
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. In certain of the partnerships, 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 other partnerships, the partners may exchange their
1,004,589 operating units into cash or the same number of common shares of the
Trust, at the option of the Trust.
During 1999 the Trust focused on ways to minimize the risk of disruption
from the "Year 2000 Issue" which generally refers to the inability of systems
hardware and software to correctly identify two-digit references to specific
calendar years, beginning with 2000. The Year 2000 Issue could have effected the
Trust directly by impairing its internal data-based operations or processing and
indirectly by impairing its suppliers and tenants data-based operations or
processing. The Trust identified all accounting systems and other internal
systems of high priority. In addition the Trust requested information concerning
and reviewed the equipment at its properties, including the use of embedded
chips in machinery. The Trust also communicated with its major banks, tenants
and suppliers to determine their Year 2000 compliance. To date the operations
and financial condition of the Trust had not been impacted by any Year 2000
failures and the Trust does not believe that there is any material risk to the
Trust in these areas in the future.
10
NOTE G - COMPONENTS OF RENTAL INCOME
The components of rental income for the periods ended March 31 are as
follows (in thousands):
2000 1999
------- -------
Retail properties
Minimum rents $51,723 $48,134
Cost reimbursements 10,258 9,199
Percentage rents 1,556 1,426
Apartments 695 674
------- -------
$64,232 $59,433
======= =======
NOTE H - SEGMENT INFORMATION
The Trust operates its portfolio of properties in three geographic
operating regions: Northeast, Mid-Atlantic and West.
A summary of the Trust's operations by geographic region is presented below
(in thousands):
Three months ended North Mid
March 31, 2000 East Atlantic West Other Total
- --------------------------------------------------------------------------------
Rental income $ 27,286 $ 28,122 $ 8,824 $ 64,232
Other income 1,048 931 786 2,765
Rental expense (6,346) (6,284) (1,990) (14,620)
Real estate tax (3,517) (2,104) (836) (6,457)
-------- -------- -------- ---------
Net operating income 18,471 20,665 6,784 45,920
Interest income 2,107 2,107
Interest expense (16,493) (16,493)
Administrative expense (2,922) (2,922)
Depreciation and
amortization (5,873) (5,263) (1,273) ( 246) (12,655)
-------- -------- ------- -------- ---------
Income before investors'
share of operations $ 12,598 $ 15,402 $ 5,511 $(17,554)$ 15,957
===================================================
Capital expenditures $ 14,333 $ 7,771 $ 18,909 $ 41,013
======== ======== ======== ==========
Real estate assets $730,070 $668,894 $361,577 $1,760,541
======== ======== ======== ==========
11
Three months ended North Mid
March 31, 1999 East Atlantic West Other Total
- --------------------------------------------------------------------------------
Rental income $ 24,858 $ 27,462 $ 7,113 $ 59,433
Other income 1,169 811 292 2,272
Rental expense (5,813) (5,934) (1,901) (13,648)
Real estate tax (3,087) (2,169) (756) (6,012)
-------- -------- -------- ----------
Net operating income 17,127 20,170 4,748 42,045
Interest income 1,878 1,878
Interest expense (15,133) (15,133)
Administrative expense (2,254) (2,254)
Depreciation and
amortization (5,438) (5,694) (918) (231) (12,281)
-------- -------- -------- ------ ----------
Income before investors'
share of operations $ 11,689 $ 14,476 $ 3,830 $(15,740) $ 14,255
======== ======== ======== ======== ==========
Capital expenditures $ 2,095 $ 7,437 $ 25,020 $ 34,552
======== ======== ======== ==========
Real estate assets $686,177 $684,154 $305,939 $1,676,270
======== ======== ======== ==========
There are no transactions between geographic areas.
12
FEDERAL REALTY INVESTMENT TRUST
FORM 10-Q
March 31, 2000
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. Certain statements made in
this report contain forward-looking statements, within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause actual results, performance or achievements of the Trust to be
materially different from the results of operations or plans expressed or
implied by such forward-looking statements. Such factors include, among others,
general economic and business conditions which will affect credit-worthiness of
tenants, financing availability and cost, retailing trends and rental rates;
risks of real estate development and acquisitions; governmental and
environmental regulations; and competition with other real estate companies and
technology. 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, along with traditional debt and equity funding
alternatives available to it. A significant portion of cash provided by
operating activities is distributed to common and preferred shareholders in the
form of dividends. Accordingly, capital outlays for property acquisitions,
major renovation and development projects and balloon debt repayments require
debt or equity funding. The Trust also expects proceeds from the sale of
selected assets to provide an additional source of capital in 2000 and 2001.
Net cash provided by operating activities was $32.4 million in the first
quarter of 2000 and $22.3 million in the first quarter of 1999 of which $19.4
million and $19.0 million, respectively, was distributed to shareholders.
Contributions from retenanted and redeveloped properties, as more fully
described below, as well as, cash provided from changes in operating assets and
liabilities were the primary sources of these increases.
13
Net cash used in investing activities was $43.3 million during the first
quarter of 2000 and $36.0 million during the first quarter of 1999. The Trust
purchased real estate totaling $17.9 million in the first quarter of 2000 and
$16.9 million in the first quarter of 1999, requiring cash outlays of $17.9
million and $15.3 million, respectively. During these two periods, the Trust
expended an additional $21.9 million and $16.4 million, respectively, in capital
improvements to its properties. The Trust invested $3.4 million during the first
quarter of 2000 and $4.4 million during the first quarter of 1999 in mortgage
notes receivable with an average weighted interest rate of 9.7% and 10%,
respectively.
On January 5, 2000 the Trust purchased the 75,000 square foot Greenlawn
Plaza in Greenlawn, New York for $6.2 million, with plans to renovate and expand
the center by 35,000 square feet. On February 16, 2000 control of a parcel of
land for future development in Hillsboro, Oregon was acquired for $11.7 million.
An additional $1.6 million will be owed if certain cash flow criteria are met
during the first ten years of operations.
On January 1, 2000 the Trust issued 190,000 partnership units valued at
$3.6 million in exchange for the minority partner's interest in Loehmann's
Plaza.
Of the $21.9 million spent in the first quarter of 2000 on the Trust's
existing real estate portfolio, approximately $11.0 million was invested in
predevelopment and development projects in Bethesda, Maryland; San Jose,
California; San Antonio, Texas; and Arlington, Virginia. The remaining $10.9
million of capital expenditures relates to improvements to common areas, tenant
work and various redevelopments, including the renovation of Greenlawn Plaza.
Net cash provided by financing activities, before dividend payments, was
$32.2 million in the first quarter of 2000 and $28.0 million in the first
quarter of 1999. The Trust utilizes its unsecured line of credit to fund
acquisitions and capital expenditures. In addition during the first quarter of
2000, the Trust used its unsecured line of credit to repay $100 million of
senior notes which matured in January 2000 and to repurchase 1,156,900 treasury
shares at a cost of $22.1 million. At March 31, 2000 there was $184.1 million
borrowed under this syndicated credit facility, which also represents the
maximum drawn during the quarter. The weighted average interest rate on
borrowings for the three months ended March 31, 2000 was 6.6%. The facility
requires fees and has various covenants including the maintenance of a minimum
shareholders' equity and a maximum ratio of debt to net worth.
Capital requirements for the remainder of 2000 will depend on new
development efforts, acquisition opportunities, the level of improvements and
redevelopments on existing properties and the level of common shares that the
Trust can repurchase.
14
The Trust will need additional capital in order to fund these
acquisitions, expansions, developments, refinancings and its share repurchase
program. Sources of this funding may be additional debt, both secured and
unsecured; additional equity; proceeds from the sale of properties; and joint
venture relationships. The Trust has obtained a construction loan commitment for
up to $24.5 million in connection with the Trust's Woodmont East development in
Bethesda, Maryland. There have been no draws to date under this construction
loan. The timing and choice of capital sources will depend on the cost and
availability of that capital, among other things. The Trust believes, based on
past experience, that access to the capital needed to execute its business plan
will be available to it.
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 partnership agreement, in the event of
the exercise of put options by another partner, the Trust would be required to
purchase a 37.5% interest of Congressional Plaza at its then fair market value.
Based on management's current estimate of fair market value, the Trust's
estimated liability upon exercise of the put option is approximately $27
million.
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. In certain of the partnerships, 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 other partnerships, the partners may exchange their
1,004,589 operating units into cash or the same number of common shares of the
Trust, at the option of the Trust.
During 1999 the Trust focused on ways to minimize the risk of disruption
from the "Year 2000 Issue" which generally refers to the inability of systems
hardware and software to correctly identify two-digit references to specific
calendar years, beginning with 2000. The Year 2000 Issue could have effected the
Trust directly by impairing its internal data-based operations or processing and
indirectly by impairing its suppliers and tenants data-based operations or
processing. The Trust identified all accounting systems and other internal
systems of high priority. In addition the Trust requested information concerning
and reviewed the equipment at its properties, including the use of embedded
chips in machinery. The Trust also communicated with its major banks, tenants
and suppliers to determine
15
their Year 2000 compliance. To date the operations and financial condition of
the Trust had not been impacted by any Year 2000 failures and the Trust does not
believe that there is any material risk to the Trust in these areas in the
future.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 AND 1999
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. As of
January 1, 2000 the National Association of Real Estate Investment Trusts
("NAREIT") defines funds from operations as follows: income available for common
shareholders before depreciation and amortization of real estate assets and
before extraordinary items less gains on sale of real estate. Prior to January
1, 2000 funds from operations also excluded significant nonrecurring events.
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 measure of operating performance in the industry.
Nevertheless, funds from operations, as presented by the Trust, may not be
comparable to funds from operations as presented by other real estate investment
trusts.
The reconciliation of net income to funds from operations for the three
months ended March 31 is as follows:
2000 1999
---- ----
(in thousands)
Net income available for common
shareholders $12,151 $11,566
Depreciation and amortization
of real estate assets 11,487 11,128
Amortization of initial direct
costs of leases 830 718
Income attributable to operating
partnership units 613 264
------- -------
Funds from operations for common
shareholders $25,081 $23,676
======= =======
Consolidated Results
- --------------------
Rental income, which consists of minimum rent, percentage rent and cost
recoveries, increased 8% from $59.4 million in the first quarter of 1999 to
$64.2 million in the first quarter of 2000. If properties acquired, sold and
developed in 2000 and 1999 are excluded, rental income increased 7%, due
primarily to the favorable impact of redeveloped and retenanted centers.
16
Other property income includes items such as utility reimbursements,
telephone income, merchant association dues, late fees and temporary tenant
income. Other property income increased 22% from $2.3 million in 1999 to $2.8
million in 2000 due primarily to an increase in lease termination fees and
temporary tenant income, an area identified by the Trust as one with additional
growth opportunity.
Rental expenses increased 7% from $13.6 million in the first quarter of
1999 to $14.6 million in the first quarter of 2000. If rental expenses are
adjusted for properties acquired, sold and developed in 2000 and 1999, rental
expenses increased 6% from $13.3 million in 1999 to $14.1 million in 2000,
primarily due to increased snow removal costs in 2000.
Real estate taxes increased 7% from $6.0 million in the first quarter of
1999 to $6.5 million in the first quarter of 2000. If real estate taxes are
adjusted for properties acquired, sold and developed in 2000 and 1999, real
estate taxes increased 8% due primarily to increased taxes on recently
redeveloped properties.
Depreciation and amortization expenses increased 3% from $12.3 million in
the first quarter of 1999 to $12.7 million in the first quarter of 2000. If
depreciation and amortization are adjusted for properties acquired, sold and
developed in 2000 and 1999, depreciation and amortization also increased 3%
reflecting the impact of recent tenant work and property improvements.
During the first quarter of 2000 the Trust incurred interest expense of
$18.7 million, of which $2.2 million was capitalized, as compared to 1999's
$16.3 million of which $1.2 million was capitalized. The increase in interest
expense reflects the additional debt issued to fund the Trust's share repurchase
and capital improvement programs. The ratio of earnings to combined fixed
charges and preferred dividends was 1.43x and 1.53x for the first quarter of
2000 and 1999, respectively. The ratio of earnings to fixed charges was 1.56x
and 1.7x during the first quarter of 2000 and 1999, respectively. The ratio of
funds from operations to combined fixed charges and preferred dividends was
1.9x for the first quarter of 2000 and 2.0x for the first quarter of 1999.
Administrative expenses increased from $2.3 million, or 3.5% of revenue in
the first quarter of 1999 to $2.9 million, or 4.2% of revenue in the first
quarter of 2000 primarily due to increased personnel costs. The tight labor
market in the Trust's operating regions resulted in higher salaries both to
existing and new employees.
As a result of the foregoing items, net income increased from
17
$13.6 million during the first quarter of 1999 to $14.1 million during the first
quarter of 2000 and net income available for common shareholders increased from
$11.6 million to $12.2 million.
While the Trust expects growth in net income and funds from operations
during the remainder of 2000, the growth rate will be less than in 1999. Growth
in 1999 was fueled by contributions from 1998 acquisitions, by higher leverage
combined with low interest rates, by savings from the 1998 restructuring and by
growth from the core portfolio. There are no significant income producing
acquisitions in 1999 to fuel 2000 growth; there will be no significant
contribution in 2000 from the Trust's development projects and the savings from
the 1998 restructuring have already been realized. Consequently, the growth in
2000 is primarily dependent on contributions from the core portfolio. Growth of
net income from the core portfolio is, in part, dependent on controlling
expenses, some of which are beyond the complete control of the Trust, such as
snow removal and trends in the retailing environment, such as the evolution of
the Internet and demand for retail space. The Trust currently expects that
demand for its retail space should remain at levels similar to those in 1999. A
weakening of the retail environment could, however, adversely impact the Trust
by increasing vacancies and decreasing rents. In past weak retail and real
estate environments, the Trust has been able to replace weak and bankrupt
tenants with stronger tenants; management believes that due to the quality of
the Trust's properties there will continue to be demand for its space.
Growth in net income is also dependent on the amount of leverage and
interest rates. The Trust is currently exploring various options for financing
its development pipeline and other capital needs. This recapitalization will
result in interest rates higher than the Trust's current rates. In addition, the
Trust will continue to have exposure to changes in market interest rates. As
interest rates increase, net income and funds from operations, as well as the
ultimate cost of the Trust's development projects will be negatively impacted
due to the variable interest rates on the Trust's revolving credit facilities.
18
Segment Results
- ---------------
The Trust operates its portfolio of properties in three geographic
operating regions: Northeast, Mid-Atlantic and West.
Historical operating results for the three regions are as follows (in
thousands):
For the three months ended March 31,
2000 1999
- --------------------------------------------------------------------------------
Rental income
Northeast $27,286 $24,858
Mid-Atlantic 28,122 27,462
West 8,824 7,113
------- -------
Total $64,232 $59,433
======= =======
For the three months ended March 31,
2000 1999
- --------------------------------------------------------------------------------
Net operating income
Northeast $18,471 $17,127
Mid-Atlantic 20,665 20,170
West 6,784 4,748
------- -------
$45,920 $42,045
======= =======
The Northeast
- -------------
The Northeast region is comprised of fifty-four assets, extending from
suburban Philadelphia north through New York and its suburbs into New England
and west to Illinois and Michigan.
When comparing the first quarter of 2000 with 1999, rental income increased
10% from $24.9 million in 1999 to $27.3 million in 2000, primarily due to
increases at recently redeveloped and retenanted shopping centers, such as Bala
Cynwyd, Lawrence Park, Gratiot, Feasterville, and Wynnewood.
Net operating income increased 8% from $17.1 million in 1999 to $18.5
million in 2000, primarily due to increases at the recently redeveloped and
retenanted shopping centers.
The Mid-Atlantic
- ----------------
The Mid-Atlantic region is comprised of thirty-one assets, located from
Baltimore south to metropolitan Washington, D.C. and further south through
Virginia, North Carolina, and Florida.
19
When comparing the first quarter of 2000 with 1999, rental income increased
2% from $27.5 million in 1999 to $28.1 million in 2000. On a same center basis,
excluding Northeast Plaza in Atlanta, GA which was sold in 1999 and the recently
developed Phase 4 of the Bethesda Row project in Bethesda, Maryland, rental
income increased 4%, due in part to new anchor leases at several centers.
When comparing the first quarter of 2000 with 1999, net operating income
increased 3% from $20.2 million in 1999 to $20.7 million in 2000. On the same
center basis as above net operating income increased 4%.
The West
- --------
The Western region is comprised of forty assets, located from Texas to the
West Coast.
When comparing the first quarter of 2000 with 1999, rental income increased
24% from $7.1 million in 1999 to $8.8 million in 2000. Excluding newly
developed properties and properties acquired since January 1, 1999, rental
income increased 11%, primarily due to increases from recently redeveloped and
retenanted properties.
When comparing the first quarter of 2000 with 1999, net operating income
increased 43% from $4.7 million in 1999 to $6.8 million in 2000. Excluding
newly developed properties and properties acquired since January 1, 1999, net
operating income increased 28%, primarily due to increases from the recently
redeveloped and retenanted properties.
20
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits pp. 22-26
(10)(i) Form of Restricted Share Award Agreement between Federal Realty
Investment Trust and certain of its officers dated February 9, 2000
as described in its 2000 Proxy Statement.
(27) Financial Data Schedules Edgar filing only
(B) Reports on Form 8-K
A Form 8-K, dated December 31, 1999, was filed on February 15, 2000 in
response to Item 5.
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)
May 4, 2000 Steven J. Guttman
-----------------
Steven J. Guttman, President
(Chief Executive Officer)
May 4, 2000 Cecily A. Ward
--------------
Cecily A. Ward, Chief Financial
Officer
(Principal Accounting Officer)
21
Exhibit (10)(i)
FEDERAL REALTY INVESTMENT TRUST
RESTRICTED SHARE AWARD AGREEMENT
February 9, 2000
The parties to this Restricted Share Award Agreement (this "Agreement") are
Federal Realty Investment Trust, a Maryland real estate investment trust (the
"Trust"), and __________________________, an individual employee of the Trust
(the "Key Employee").
The Board of Trustees of the Trust (the "Board of Trustees") has authorized
the award by the Trust to the Key Employee, under the Trust's Amended and
Restated 1993 Long-Term Incentive Plan (the "Amended Plan") of a Restricted
Share Award for a certain number of shares of beneficial interest of the Trust
(the "Shares"), subject to certain restrictions and covenants on the part of Key
Employee. The parties hereto desire to set forth in this Agreement their
respective rights and obligations with respect to such Shares.
Capitalized terms used in this Agreement, unless otherwise defined herein,
have the respective meanings given to such terms in the Amended Plan. The terms
of the Amended Plan are incorporated by reference as if set forth herein in
their entirety. To the extent this Restricted Share Award Agreement is in any
way inconsistent with the Amended Plan, the terms and provisions of the Amended
Plan shall prevail.
In consideration of the covenants set forth in this Agreement, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Award of Restricted Shares.
--------------------------
(a) The Trust hereby confirms the grant to the Key Employee, as of
February 9, 2000 (the "Award Date"), of _______________________ (______) Shares
(the "Restricted Shares"), subject to the restrictions and other terms and
conditions set forth herein and in the Amended Plan.
(b) On or as soon as practicable after the Award Date, the Trust shall
cause one or more stock certificates representing the Restricted Shares to be
registered in the name of the Key Employee. Such stock certificate or
certificates shall be subject to such stop-transfer orders and other
restrictions as the Board of Trustees or any committee thereof may deem
advisable under the rules, regulations, and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Shares are listed and
any applicable federal or state securities law, and the Trust may cause a legend
22
or legends to be placed on such certificate or certificates to make appropriate
reference to such restrictions.
The certificate or certificates representing the Restricted Shares shall be
held in custody by the Chief Financial Officer of the Trust until the
Restriction Period (as hereinafter defined in Paragraph 3) with respect thereto
shall have lapsed. Simultaneously with the execution and delivery of this
Agreement, the Key Employee shall deliver to the Trust one or more undated stock
powers endorsed in blank relating to the Restricted Shares. The Trust shall
deliver or cause to be delivered to the Key Employee or, in the case of the Key
Employee's death, to the Key Employee's Beneficiary, one or more stock
certificates for the appropriate number of Shares, free of all such
restrictions, as to which the restrictions shall have expired. Upon forfeiture,
in accordance with Paragraph 4, of all or any portion of the Restricted Shares,
the certificate or certificates representing the forfeited Restricted Shares
shall be canceled.
2. Restrictions Applicable to Restricted Shares.
--------------------------------------------
(a) Beginning on the Award Date, the Key Employee shall have all
rights and privileges of a stockholder with respect to the Restricted Shares,
except that the following restrictions shall apply:
(i) none of the Restricted Shares may be assigned or
transferred (other than by will or the laws of descent and distribution, or in
the Committee's discretion, pursuant to a domestic relations order within the
meaning of Rule 16a-12 of the Securities Exchange Act of 1934, as amended),
pledged or sold, during the Restriction Period (as hereinafter defined in
Paragraph 3);
(ii) all or a portion of the Restricted Shares may be forfeited
in accordance with Paragraph 4; and
(iii) any Shares distributed as a dividend or otherwise with
respect to any Restricted Shares as to which the restrictions have not yet
lapsed shall be subject to the same restrictions as such Restricted Shares and
shall be represented by book entry and held in the same manner as the Restricted
Shares with respect to which they were distributed.
(b) Any attempt to dispose of Restricted Shares in a manner contrary
to the restrictions set forth in this Agreement shall be null, void and
ineffective. As the restrictions set forth in this Paragraph 2 hereof lapse in
accordance with the terms of this Agreement as to all or a portion of the
Restricted Shares, such shares shall no longer be considered Restricted Shares
for purposes of this Agreement.
23
3. Restriction Period.
------------------
(a) The restrictions set forth in Paragraph 2 shall apply for a
period (the "Restriction Period") from the Award Date until such Restriction
Period lapses as follows:
(i) with respect to ____________________________ (______)
Restricted Shares, the Restriction Period shall lapse on February 9, 2001;
(ii) with respect to an additional __________________________
(_____) Restricted Shares, the Restriction Period shall lapse on February 9,
2002;
(iii) with respect to an additional __________________________
(_____) Restricted Shares, the Restriction Period shall lapse on February 9,
2003;
(iv) with respect to an additional __________________________
(_____) Restricted Shares, the Restriction Period shall lapse on February 9,
2004; and
(iii) with respect to the remaining _______________________
(____) Restricted Shares, the Restriction Period shall lapse on February 9,
2005;
provided, however, that the Restriction Period for any particular Restricted
Shares shall not lapse on the date set forth above unless the Key Employee has
tendered to the Trust, on or before that date, the amount of any state and
federal withholding tax obligation which will be imposed on the Trust by reason
of the lapsing of the Restriction Period for such Restricted Shares on that
date.
(b) Notwithstanding the foregoing, the Restriction Period shall lapse
as to all Restricted Shares (i) in the event of the death or Disability of the
Key Employee, or (ii) in the event that the Key Employee is discharged by the
Trust without Cause as defined in the Amended Plan, provided in any case that
the Key Employee shall have completed at least one year of employment after the
Award Date, and provided further that the Key Employee or his legal
representative shall first tender, within ninety (90) days after the death,
Disability or discharge without Cause, the amount of any state and federal
withholding tax obligation which will be imposed on the Trust by reason of the
lapsing of the Restriction Period for such Restricted Shares.
(c) Also notwithstanding the foregoing, the Restriction Period shall
lapse as to all Restricted Shares upon the occurrence of a Change in Control,
and in such event, the Trust shall deliver or cause to be delivered to the Key
Employee within ten (10) business days after the Change in Control one or more
stock certificates representing those Shares as to which the Restriction Period
shall have lapsed, provided that the Key Employee shall first tender the amount
of any state and federal withholding tax obligation which will be imposed on the
Trust by reason of the lapsing of the Restriction Period for
24
such Restricted Shares.
4. Forfeiture. Subject to Paragraph 3(c), if during the Restriction
----------
Period (i) the Key Employee is discharged by the Trust for Cause, (ii) the Key
Employee resigns from employment with the Trust, or (iii) any of the events
described in Paragraph 3(b) above occur prior to the completion by the Key
Employee of one year of employment after the Award Date, then all rights of the
Key Employee to any and all then-remaining Restricted Shares shall terminate and
be forfeited. In addition, in the event the Key Employee or his legal
representative fails to tender to the Trust any required tax withholding amount
in accordance with Paragraphs 3(a), 3(b), or 3(c) above by the date specified
therein, then the Trust shall retain a portion of the Restricted Shares
sufficient to meet its tax withholding obligation.
5. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the heirs and representatives of the Key Employee and the assigns and
successors of the Trust, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by the Key Employee.
6. Entire Agreement; Amendment. This Agreement constitutes the entire
---------------------------
agreement of the parties with respect to the subject matter hereof and shall
supersede all prior agreements and understandings, oral or written, between the
parties with respect thereto. This Agreement may be amended at any time by
written agreement of the parties hereto.
7. Governing Law. This Agreement and its validity, interpretation,
-------------
performance and enforcement shall be governed by the laws of the State of
Maryland other than the conflict of laws provisions of such laws, and shall be
construed in accordance therewith.
8. Severability. If, for any reason, any provision of this Agreement is
------------
held invalid, such invalidity shall not affect any other provision of this
Agreement not so held invalid, and each such other provision shall to the full
extent consistent with law continue in full force and effect. If any provision
of this Agreement shall be held invalid in part, such invalidity shall in no way
affect the rest of such provision not held so invalid, and the rest of such
provision, together with all other provisions of this Agreement, shall to the
full extent consistent with law continue in full force and effect.
9. Continued Employment. This Agreement shall not confer upon the Key
--------------------
Employee any right with respect to continuance of employment by the Trust.
10. Certain References. References to the Key Employee in any provision
------------------
of this Agreement under circumstances where the provision should logically be
construed to apply to the Key Employee's executors or the administrators, or the
person or persons to
25
whom all or any portion of the Restricted Shares may be transferred by will or
the laws of descent and distribution, shall be deemed to include such person or
persons.
IN WITNESS WHEREOF, the Trust has caused this Agreement to be duly executed
and the Key Employee has hereunto set his hand effective as of the day and year
first above written.
FEDERAL REALTY INVESTMENT TRUST
By:__________________________________
Name:
Title: Chair, Compensation Committee
WITNESS: KEY EMPLOYEE
__________________________ _____________________________________
[name]
26
5
1,000
3-MOS
DEC-31-2000
MAR-31-2000
13,711
0
19,961
0
0
0
1,760,541
(327,847)
1,562,102
0
973,743
0
100,000
718,857
(340,860)
1,562,102
0
66,997
0
21,077
0
0
16,493
12,151
0
0
0
0
0
11,566
.31
.31
Current assets and current liabilities are not listed since Federal Realty
does not prepare a classified balance sheet.
