UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
For Fiscal Year Ended: December 31, 2001
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Commission File No.1-07533
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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
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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)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Shares of Beneficial Interest,
par value $0.01 per share, with
associated Common Share
Purchase Rights New York Stock Exchange
7.95% Series A Cumulative Redeemable
Preferred Shares of Beneficial
Interest (Liquidation Preference
$25.00 per share) New York Stock Exchange
8.5% Series B Cumulative Redeemable
Preferred Shares of Beneficial
Interest (Liquidation Preference
$25.00 per share) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
At March 7, 2002, the aggregate market value of Common Shares of Beneficial
Interest of Federal Realty Investment Trust held by nonaffiliates was $1.053
billion based upon the closing price of such Shares on the New York Stock
Exchange.
As of March 7, 2002, 40,252,891 of the Trust's Common Shares of Beneficial
Interest were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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PART III
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Portions of the Trust's Proxy Statement in connection with its Annual Meeting to
be held on May 1, 2002 (hereinafter called the "2002 Proxy Statement") are
incorporated herein by reference.
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PART I & II
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
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The Trust and its representatives may from time to time make written or
oral statements that are "forward-looking", 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,
. changes in our business strategy;
. general economic and business conditions which will affect the credit
worthiness of tenants;
. financing availability and cost;
. retailing trends and rental rates;
. risks of real estate development and acquisitions, including the risk
that potential acquisitions or development projects may not perform in
accordance with expectations;
. our ability to satisfy the complex rules in order to qualify for taxation
as a REIT for federal income tax purposes and to operate effectively
within the limitations imposed by these rules;
. government approvals, actions and initiatives including the need for
compliance with environmental and safety requirements, and changes in
laws and regulations or the interpretation thereof; and
. competition with other real estate companies, real estate projects and
technology.
We identify forward-looking statements by using words or phrases such as
"anticipate", "believe", "estimate", "expect", "intend", "may be", "objective",
"plan", "predict", "project", and "will be" and similar words or phrases, or the
negatives thereof or other similar variations thereof or comparable terminology.
We undertake no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
Item 1. Business
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Federal Realty Investment Trust (the "Trust") is an equity real estate
investment trust specializing in the ownership, management, development and
redevelopment of high quality retail and mixed-use properties. The Trust
consolidates the financial statements of various entities which it controls. At
December 31, 2001 the Trust owned or had an interest in 58 community and
neighborhood shopping centers comprising over 12 million square feet, primarily
located in densely populated and affluent communities throughout the Northeast
and Mid-Atlantic
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United States. In addition, the Trust owns 62 retail and urban mixed-use
properties comprising over 2 million square feet located in strategic markets
across the United States and one apartment complex. Federal Realty has paid
quarterly dividends to its shareholders continuously since its founding in 1962,
and has increased its dividend rate for 34 consecutive years.
The Trust, which is organized as a Maryland real estate investment trust,
operates in a manner intended to enable it to qualify as a real estate
investment trust (REIT) for federal income tax purposes. A REIT which
distributes at least 90% of its real estate investment trust taxable income to
its shareholders each year and which meets certain other conditions will not be
taxed on that portion of its taxable income which is distributed to its
shareholders. Therefore, no provision for Federal income taxes is required.
Prior to 2001, the distribution requirement for a REIT was 95% of its taxable
income.
An important part of the Trust's strategy has been to acquire older,
well-located properties in densely populated and affluent areas and to enhance
their operating performance through a program of renovation, expansion,
reconfiguration and retenanting. The traditional focus of the Trust has been on
community and neighborhood shopping centers that are anchored by supermarkets,
drug stores or high volume, value oriented retailers that provide consumer
necessities. Late in 1994, recognizing a trend of consumer shopping preferences
and retailer expansion to main streets, the Trust expanded its investment
strategy to include "street retail" or "mixed-use" properties. The mixed-use
properties are typically centered around a retail component but may also include
office, residential and hotel components, in established main street shopping
areas. In addition, from 1997 through 2001 the Trust has obtained control of
various land parcels and has devoted substantial resources for the purpose of
developing mixed-use projects in urban areas that center around the retail
component. On February 28, 2002 the board of trustees approved the adoption of a
business plan which returns the Trust's primary focus to its traditional
business of acquiring and redeveloping community and neighborhood shopping
centers. The Trust will complete its mixed-use projects in San Jose, California,
Arlington, Virginia and Bethesda, Maryland, but will not pursue any further new,
large-scale ground-up development projects.
The Trust continually evaluates its properties for renovation,
retenanting and expansion opportunities. Similarly, the Trust regularly reviews
its portfolio and from time to time considers selling stabilized lower-growth
properties or exchanging them for other real estate assets. Proceeds from the
sale of such properties may be used to acquire other properties, to fund the
Trust's current redevelopment and development projects or to fund other capital
needs.
The Trust's portfolio of properties has grown from 86 as of January 1,
1997 to 121 at December 31, 2001. During this
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five year period the Trust acquired 43 retail and mixed-use properties for
approximately $502 million. During this same period eight properties were sold.
Also during this period the Trust spent over $600 million to develop, renovate,
expand, improve and retenant its properties.
At December 31, 2001 the Trust has $322 million invested in three
mixed-used ground-up developments. Two of the projects, with costs totaling $306
million at December 31, 2001, are currently under construction. During 2002 and
2003, the Trust estimates that it will spend $240 million and $21 million,
respectively, to complete the current phases of these two projects, which are
located in San Jose, California and Arlington, Virginia. In connection with the
adoption of the new business plan on February 28, 2002, the Trust has
discontinued plans for the third development, located in Portland, Oregon. In
the first quarter of 2002, the Trust estimates it will record a charge of $16
million to $18 million to write down this and other developments and record
severance and other compensation costs related to a management restructuring as
a result of the new business plan.
Consistent with the Trust's renewed focus on neighborhood and community
shopping centers, the Trust will seek older, well-located shopping centers and
retail buildings to acquire, renovate, retenant and remerchandise, thereby
enhancing their revenue potential. In addition, the Trust may seek opportunities
to develop ground-up grocery anchored shopping centers in and around the
Metropolitan Washington, D.C., Philadelphia and New York markets and will
identify and execute expansion and development opportunities in its existing
portfolio.
Although the Trust does not have any policy restricting its ability to make
investments in properties or development sites, the Trust will generally look
for properties and sites in densely populated or growing affluent areas where
barriers to entry or further development are high. The Trust will evaluate each
investment on its individual merits, looking for investments where it believes
it will be able to increase the cash flow from the property both in near-term
and over time. Although the Trust usually purchases a 100% fee interest in its
acquisitions, on occasion, it has entered into long-term leases, classified as
capital leases under the provisions of SFAS No. 13, "Accounting for Leases", as
a means of acquiring control of properties. A capital lease transfers the
benefits and risks of ownership of the property to the Trust and the Trust
records the lease as an acquisition of the property with a corresponding
incurrence of a liability. In addition, the Trust has purchased certain
properties in partnership with others. Certain of the partnerships, known as
"downreit partnerships", are a means of allowing property owners to make a tax
deferred contribution of their property in exchange for partnership units, which
receive the same distributions as Trust common shares and may be convertible
into common shares of the Trust.
Since a significant portion of cash provided by operating activities is
distributed to common and preferred shareholders,
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capital outlays for acquisitions, developments and redevelopments typically
require debt or equity funding. During the Trust's 40 years of existence, it has
financed its operations and other capital needs in a variety of ways during a
variety of economic conditions, including through issuance of senior securities
and subordinated debt and by borrowing money on its credit facilities. Since
January 1, 1999, the Trust has financed its capital needs primarily with debt.
Debt issuances since January 1, 1999 were as follows:
. In November 1999, the Trust issued $175 million of 8.75% Notes to the
public. The notes pay interest semi-annually on June 1 and December 1
and are due December 1, 2009.
. In February 2000, the Trust obtained a $24.5 million construction loan
for its development project in Bethesda, Maryland. The loan bears
interest at LIBOR plus 1.2% - 1.5% depending upon occupancy, matures
August 2002 and has two one-year extension options.
. In June 2000, the Trust modified certain covenants and extended its $300
million syndicated credit facility and its $125 million term loan for an
additional year to December 19, 2003.
. In October 2000, the Trust obtained a $152 million mortgage loan, which
is secured by five shopping centers. The mortgage bears interest at 7.95%
and matures November 1, 2015.
. In April 2001, the Trust obtained a $33 million mortgage loan secured by
Brick Plaza. The mortgage bears interest at 7.415% and matures November
1, 2015.
. In April 2001, The Trust closed on a $295 million construction loan on
its Santana Row project in San Jose, California. The loan initially bears
interest at LIBOR plus 212.5 basis points, matures April 2004 and
provides for two one-year extension options, subject to attaining certain
operating targets. The interest rate on the loan will decrease over time
if specified operating hurdles are achieved. There is no assurance that
these targets and hurdles will be met. The initial funding of the
construction loan took place on August 23, 2001 when the equity and
pre-leasing requirements were met.
. In May 2001, the Trust refinanced the mortgage loan secured by Federal
Plaza. The new $36.5 million loan bears interest at 6.75% and matures on
June 11, 2011. The prior outstanding mortgage loan of $26.5 million was
paid off with these proceeds.
. In August 2001, The Trust refinanced the mortgage loan secured by Tyson's
Station. The new $7.0 million loan bears interest at 7.4% and matures on
September 1, 2011. The prior outstanding mortgage loan of $3.9 million
was paid off with these proceeds.
. In September 2001, in connection with the purchase of Friendship Center
the Trust placed a $17.0 million mortgage on the property. The loan bears
interest at LIBOR plus 135 basis points, matures September 22, 2003
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and has three one-year extension options.
The Trust is in compliance with all financial covenants associated with its
debt.
In addition, since January 1, 1999 through December 31, 2001, the Trust has
issued 478,717 common shares of beneficial interest under its Dividend
Reinvestment Plan, realizing proceeds of $10.0 million.
On November 19, 2001 the Trust issued 5.4 million 8.5% Series B Cumulative
Redeemable Preferred Shares at $25 per share in a public offering, netting
approximately $130.8 million.
In the future, the Trust intends to satisfy its capital needs through
private and public offerings of its equity and debt securities, by entering into
joint ventures and/or by borrowing on its syndicated credit facility. The Trust
may also seek to extend, expand or renew its syndicated credit facility, or
obtain new credit facilities or lines of credit. In addition, if necessary the
Trust may seek to obtain mortgages on its properties. The board of trustees has
not adopted a policy limiting the amount or number of mortgages that may be
placed on a particular property, although the mortgage financing instruments
typically do limit additional indebtedness on properties covered by existing
mortgages.
The Trust's 121 properties are located in fifteen states and the District
of Columbia. Twenty-seven of the properties are located in the Washington, D.C.
metropolitan area; twenty-five are in California; fourteen are in Connecticut;
ten are in Pennsylvania, primarily in the Philadelphia area; ten are in New
Jersey; nine are in Texas; seven are in New York; six are in Illinois; four are
in Massachusetts; two are in central Virginia; two are in Florida; two are in
Arizona; and there is one in each of the following states: Michigan, North
Carolina and Oregon. No single property accounts for over 10% of the Trust's
revenues.
The Trust operates its business on an asset management model, where small
focused teams are responsible for a portfolio of assets. The Trust has divided
its portfolio of properties into three operating regions: the Northeast,
Mid-Atlantic and West. Each region is operated under the direction of a regional
chief operating officer, with dedicated leasing, property management and
financial staff and operates largely autonomously with respect to day to day
operating decisions. (See "Segment Results" in Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations for a further
discussion of the segments and their results.)
The Trust has approximately 2,100 tenants, ranging from sole proprietors to
major national retailers; no one tenant or corporate group of tenants accounts
for more than 2.7% of revenue. The Trust's exposure to recent bankruptcy filings
has not been significant, with the Trust's largest tenant to
7
declare bankruptcy, Kmart Corporation, accounting for only 1.0% of revenue and
3.4% of leaseable square footage. The Trust's leases with these tenants are
classified as operating leases and typically are structured to include minimum
rents, percentage rents based on tenants' gross sales volumes and reimbursement
of certain operating expenses and real estate taxes.
While the Trust's emphasis will continue to be on equity real estate
investments, the Trust may, at its discretion, invest in mortgages and other
similar interests. The Trust does not intend to be a lender to a significant
extent. Similarly, although the Trust does not intend to do so to a significant
degree, it may invest in securities of other entities engaged in real estate
activities or securities of other issuers. The Trust does not, however, intend
to make investments that would cause it to be required to register as an
investment company under the Investment Company Act of 1940, nor will it
underwrite securities of other issuers. The Trust has in the past and may in the
future repurchase or otherwise reacquire its own securities if the Trust
determines that it would be beneficial to do so. In December 1999 the board of
trustees authorized a share repurchase program for calendar year 2000. A total
of 1,325,900 shares were repurchased at a cost of $25.2 million under this plan.
The success of the Trust is subject to various risks, including risks
associated with changing economic conditions that affect the real estate
industry as a whole. Such risks include the following:
Risk Factors
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Risks Relating To Owning, Operating and Developing Retail and Mixed-Use Real
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Estate
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The Trust may be unable to renew leases or relet space as leases expire
which may result in reduced cash flow and may adversely affect the Trust's
ability to make distributions to shareholders. If tenants decide not to renew
their leases upon their expiration, the Trust may not be able to relet the space
promptly. Even if the tenants do renew or the space can be relet, the terms of
renewal or reletting, including the cost of required renovations may be less
favorable than current lease terms. From January 1, 2002 through December 31,
2006, leases, excluding leases with options to renew, will expire on a total of
2.7 million rentable square feet or 18% of the rentable square feet at the
current properties. If the Trust is unable to promptly renew the leases or relet
this space, or if the rental rates upon such renewal or reletting are
significantly lower than expected rates, then the cash flow and ability to make
distributions to shareholders may suffer.
Revenue from the Trust's properties depends in part on the success of its
tenants' retail operations, making the Trust vulnerable to general economic
downturns and other conditions affecting the retail industry. The Trust's leases
provide for base rent plus contractual base rent increases. A number of the
8
leases also provide for additional rent above the base amount based upon a
specified percentage of the revenues the tenants generate. In 2001, 170 of the
Trusts 2,107 tenants paid percentage rent totaling an aggregate of $6.1 million,
or 2.2% of the Trust's rental income for the year.
Under the percentage rent leases, the revenue from tenants may increase or
decrease as revenues of the tenants fluctuate. Generally, retailers face
declining revenues during downturns in the economy. In addition, traditional
retailers are facing competition from Internet sales. To the extent that the
Internet is successful in attracting customers away from the Trust's tenants,
these tenants' revenues could be adversely affected. As a result, the portion of
the Trust's revenue which is derived from percentage rent leases could decline
upon a general economic downturn and competition from Internet sales. In
addition, these same issues could cause tenants to go bankrupt and terminate
their leases with the Trust.
The ground-up development of real estate properties, as opposed to
renovation and redevelopment of existing properties, is a new line of business
for the Trust and presents a substantial risk not faced before. The Trust has
devoted substantial resources, including money and manpower, to its development
business. At December 31, 2001, the Trust has invested $306 million in
development of two projects, Pentagon Row in Arlington, Virginia and Phase 1 of
Santana Row in San Jose, California. The Trust estimates that it will spend $261
million to complete these two projects. The Trust is competing with other
companies that may have more development experience and that may have more
resources than are available to the Trust. The business of developing properties
has many risks, as noted in the paragraph below. If the projects are not
successful, it may adversely affect the Trust's financial condition and results
of operations.
The Trust faces a variety of risks relating to its development,
construction and renovation activities, any of which may negatively impact its
results of operations. Although the Trust does not intend to initiate any new
large scale mixed-use ground-up development projects, it does expect to complete
developments currently underway at Pentagon Row and Santana Row, and to pursue
development, expansion and renovation projects on income-producing properties
that it already owns. Risks associated with development, construction and
renovation activities include the risks that:
. a development opportunity may be abandoned after expending significant
resources if the Trust determines that the development opportunity is not
feasible or if it is unable to obtain all necessary zoning and other
required governmental permits and authorizations;
. development, construction and renovation costs of a project may exceed
original estimates;
. the Trust may be unable to attract credit-worthy tenants
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that attract visitors to its properties;
. occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable;
. construction and/or permanent financing may not be available on favorable
terms or may not be available at all; and
. projects may not be completed on schedule as a result of several factors,
many of which are beyond the control of the Trust, such as weather, labor
conditions and material shortages, resulting in increased debt service
expense and construction costs and decreases in revenue.
Properties developed or acquired for development may generate little or
no cash flow from the date of acquisition through the date of completion of
development and may experience operating deficits after the date of completion.
In addition, new development and renovation activities, regardless of whether or
not they are ultimately successful, may require a substantial portion of
management's time and attention.
The Santana Row development project is the largest, most expensive project
the Trust has undertaken and if it is not successful, it could have a material
adverse effect on the Trust's financial condition and results of operations. The
project in San Jose, California is being developed on 42 acres of land acquired
in 1997. Phase 1 of Santana Row consists of a 1,500 foot "main street" framed by
nine buildings which are scheduled to contain 538,000 square feet of retail
space, 501 residential housing units and a 214-room hotel, as well as the
development's own central utility plant. Phase 1 is anticipated to cost $475
million. Phase 1 of Santana Row, upon completion, will comprise approximately
20% of the Trust's total real estate at cost, therefore, for each one percent
change in the yield on the Santana Row investment, net operating income would
be affected by $4.8 million.
On April 17, 2001 the Trust obtained a $295 million construction loan for
Phase 1 of Santana Row. As of December 31, 2001, $62.0 million had been borrowed
under the loan and the Trust had invested $229 million in Santana Row. The Trust
intends to finance any amounts needed in excess of the construction loan to
complete Phase 1 through borrowings from its syndicated credit facility or
through other sources of capital.
The recent downturn in the economy has severely impacted the San Jose
economy, producing decreased market rents in both the residential and retail
sectors and higher vacancies in the residential sector than were projected at
commencement of Phase 1. The Trust has not finalized the cost and scope of
future phases of Santana Row, and will not do so until the success of Phase 1
and future demand for rental space, both residential and retail, can be
determined.
Competition for acquisitions results in increased prices for, and lower
returns on, properties. The Trust expects other
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major real estate investors will compete with it for attractive investment
opportunities. These competitors include other publicly traded REITs, private
REITs, investment banking firms, private institutional investment funds,
individual investors, opportunity funds and local, regional and national
developers. Many of the competitors are larger and have greater financial
resources than the Trust.
Acquired properties may fail to perform as expected, adversely affecting
the Trust's financial condition. The Trust may acquire retail properties to the
extent that the properties can be acquired on advantageous terms and meet the
Trust's investment criteria and to the extent the Trust can obtain capital on
commercially reasonable terms. Newly acquired properties may fail to perform as
expected. The Trust may underestimate the costs necessary to bring an acquired
property up to standards established for its intended market position. These
failures could adversely affect the Trust's financial condition and results of
operations.
Expenses remain relatively constant even if revenue drops. The expenses of
owning and operating a property, including debt service, real estate taxes,
insurance and maintenance costs, are not necessarily reduced when market factors
and competition may require the Trust to reduce rents charged on a property to
attract or retain tenants. Furthermore, if operating expenses increase, the
local rental market may limit the extent to which rents can be raised without
decreasing occupancy rates. If the Trust cannot increase rents or control its
costs, its financial condition and results of operations may be adversely
affected.
Risks Relating to the Trust's Level of Indebtedness
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Scheduled debt payments could adversely affect the Trust's financial
condition and its ability to make distributions to shareholders. Like many
owners of real estate, the Trust relies on borrowings and debt issuances to
assist it in acquiring, holding and developing properties. As of December 31,
2001, the Trust had $1.0 billion of debt outstanding, including $44 million
drawn on its $300 million syndicated credit facility but excluding capital
leases. The Trust may also incur additional debt in connection with future
property acquisitions or development, construction or redevelopment activities.
Consequently, its business will be affected by risks normally associated with
debt financing. If the Trust cannot refinance, extend or make principal payments
due at maturity with proceeds of other capital transactions, including new
equity capital, its cash flow may not be sufficient to repay all maturing debt.
If prevailing interest rates or other factors at the time of refinancing,
including the possible reluctance of lenders to make commercial loans, result in
higher interest rates, increased interest expense would adversely affect the
Trust's cash flow and its ability to make distributions to shareholders.
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The following table shows the interest rate and maturity for debt
outstanding at December 31, 2001. All dollar references are in thousands. This
table does not include scheduled monthly amortization payments.
Description Principal Interest Rate Maturity
Date
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5 1/4% Convertible subordinated $ 289 5.25% 2002
debentures
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8% Senior notes 25,000 8.0% 2002
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Note issued in connection 3,400 LIBOR + 1.25% 2002
with land purchase
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5 1/4% Convertible subordinated 75,000 5.25% 2003
debentures
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Term note with banks (1) 125,000 LIBOR + .95% 2003
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Revolving credit facilities 44,000 LIBOR + .80% 2003
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Mortgage loan 17,000 LIBOR + 1.35% 2003
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Construction loan 23,164 LIBOR + 1.35% 2004
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6.74% Medium Term Notes 39,500 6.74% 2004
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Construction loan 62,004 LIBOR + 2.125% 2004
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6.62% Notes 40,000 6.62% 2005
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6.99% Medium Term Notes 40,500 6.99% 2006
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6.82% Medium Term Notes, due 2027, 40,000 6.82% 2007
redeemable by holder 2007
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7.48% Debentures due 2027, 50,000 7.48% 2008
redeemable by holder 2008
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Mortgage loans 10,204 6.51% - 7.5% 2008
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8.75% Notes 175,000 8.75% 2009
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Mortgage loans 43,271 6.75% - 7.4% 2011
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Amortizing debt 2,443 7.5% - 10% 2013
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Mortgage loans 185,000 7.415% - 7.95% 2015
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Municipal bonds 9,400 Variable 2016
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$1,010,175
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(1) During 2001, the Trust entered into interest rate swaps that fixed the LIBOR
interest rate at 5.27%.
The Trust's obligation to comply with financial covenants in its syndicated
credit facility and term loans could restrict its range of operating activities
and ability to incur indebtedness. These covenants require the Trust to:
. limit the amount of debt as a percentage of gross asset value to under .6
to 1 (the Trust maintained a ratio of .44 to 1 as of December 31, 2001);
. limit the amount of secured debt as a percentage of gross asset value to
under .35 to 1 (the Trust maintained a ratio of .18 to 1 as of December 31,
2001);
. limit the amount of debt so that interest coverage will exceed 1.75 to 1 on
a rolling four quarter basis (the Trust
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maintained a ratio of 2.17 to 1 as of December 31, 2001);
. limit the amount of secured debt so that unencumbered asset value to
unsecured debt will equal or exceed 1.67 to 1 (the Trust maintained a ratio
of 2.14 to 1 as of December 31, 2001); and
. limit the total cost of development projects under construction to 30% or
less of gross asset value (the budgeted total cost of the Trusts projects
under construction represented 22% of gross asset value as of December 31,
2001).
There is no limitation on debt incurrence in the Trust's organizational
documents which could result in it incurring more debt than can be serviced. The
organizational documents do not contain any limitation on the amount of
indebtedness the Trust may incur. Accordingly, the Trust could become highly
leveraged, resulting in an increase in debt service that could increase its risk
of default on its indebtedness, which would adversely affect the Trust's cash
flow and its ability to make distributions to shareholders.
The Trust depends on external sources of capital for future growth. As with
other REIT's, but unlike corporations generally, the Trust's ability to reduce
its debt and finance its growth must be funded largely by external sources of
capital, because the Trust generally will have to distribute to its shareholders
90% of net taxable income in order to qualify as a REIT, including taxable
income where the Trust does not receive corresponding cash. For taxable years
prior to January 1, 2001, the Trust was required to distribute 95% of its net
taxable income to qualify as a REIT. The Trust's access to external capital will
depend upon a number of factors, including general market conditions, the
market's perception of its growth potential, current and potential future
earnings, cash distributions and the market price of the Trust's common shares.
Risks Relating to the Real Estate Industry
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Because real estate investments are illiquid, the Trust may not be able to
sell properties when appropriate, which could adversely affect its financial
condition. Real estate investments generally cannot be sold quickly. As a
result, the Trust may not be able to diversify its portfolio promptly in
response to economic or other conditions. The Trust's inability to respond
rapidly to changes in the performance of its investments could adversely affect
its financial condition and results of operations.
The Trust's performance and share value will be affected by risks
associated with the real estate industry. Factors that may adversely affect the
economic performance and value of the Trust's properties include:
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. changes in the national, regional and local economic climate;
. local conditions such as an oversupply of, or a reduction in demand for,
main street retail, residential, office or shopping center properties;
. the attractiveness of the Trust's properties to shoppers, residents and
tenants; and
. competition from other main street retail and mixed-use properties as well
as community shopping centers, regional shopping malls and the Internet.
If the Trust co-invests in properties with third parties, it may not
control the management of those properties. The Trust may co-invest in
properties with third parties through partnerships, joint ventures or other
vehicles. In some of these co-investments, the Trust may acquire non-controlling
interests in, or shared management responsibility for, the affairs of the
property and, therefore, may not be able to control decisions relating to the
property. Even in co-investments where the Trust does control ordinary
management of the property, it may not be able to sell or finance the property
without the consent of the co-investor. Where the Trust acquires non-controlling
interests, the co-investors may be in a position to take action contrary to the
Trust's instructions or requests and contrary to its policies or objectives. If
the Trust shares management responsibilities, it and the co-investor may reach
an impasse on major decisions, such as a sale, because neither the Trust nor the
co-investor would have full control over the management of the investment
property.
Currently the Trust has co-investors in 8 shopping centers and 9 mixed-use
buildings centered on their retail component. The Trust has the managing general
partnership interest in all of these co-investments, but it must obtain the
consent of the co-investor or meet defined criteria to sell or to finance 10 of
these properties.
Co-investments may create increased bankruptcy, liability and other risks.
Co-investments in partnerships, joint ventures or other vehicles may involve
risks not present were a third party not involved, including the possibility
that:
. the co-investors might fail to fund their share of required capital
contributions;
. the co-investors might at any time have economic or other business
interests or goals which are inconsistent with the Trust's business
interests or goals; and
. the Trust may be liable for the actions of its co-investors.
Some potential losses are not covered by insurance. The
14
Trust carries comprehensive liability, fire, extended coverage and rental loss
insurance on its properties. There are, however, some types of losses, such as
lease and other contract claims or losses caused by acts of war, that may not be
insured. Should an uninsured loss or a loss in excess of insured limits occur,
the Trust could lose all or a portion of the capital it has invested in a
property, as well as the anticipated future revenue from the property. In that
event, the Trust may nevertheless remain obligated for any mortgage debt or
other financial obligations related to the property. In addition, there can be
no assurance as to future costs and the scope of coverage that may be available
under the Trust's insurance policies.
The Trust carries earthquake insurance on all of its properties in
California. These earthquake policies contain coverage limitations. The Trust
also carries environmental insurance on most of its properties, which policies
also contain coverage limitations. The Trust cannot assure shareholders that
material losses in excess of insurance proceeds will not occur in the future.
Under the terms of certain of the Trust's debt and other agreements, the
Trust is required to maintain adequate insurance coverage. As a result of the
terrorist attacks of September 11, 2001, acts of terrorism may no longer be
covered by property insurance and additional coverage for terrorism may be
expensive or unavailable. The Trust has terrorism insurance coverage through
September 30, 2002 and is evaluating the availability and costs of such coverage
thereafter in order to determine whether obtaining any meaningful level of
terrorism coverage is economically feasible. In any event, the Trust's financial
condition and results of operations may be subject to the risks associated with
acts of terrorism and the potential for uninsured losses as a result of any such
act.
Environmental problems are possible and can be costly. Federal, state and
local laws and regulations relating to the protection of the environment may
require a current or previous owner or operator of real estate to investigate
and clean up hazardous or toxic substances or petroleum product releases at such
property. If unidentified environmental problems arise, the Trust may have to
make substantial payments which could adversely affect its cash flow.
Environmental laws also govern the presence, maintenance and removal of
asbestos. These laws may impose fines and penalties on building owners or
operators who fail to comply with these requirements and may allow third parties
to seek recovery from owners or operators for personal injury associated with
exposure to asbestos fibers.
Investments in real property create a potential for environmental liability
on the part of the current and previous owners of, or any mortgage lender on,
such real property. If hazardous substances are discovered on or emanating from
any property, the owner or operator of the property may be held liable for costs
and liabilities relating to such hazardous substances. The Trust has
environmental insurance on most of its properties. Subject to certain exclusions
and deductibles,
15
the insurance provides coverage for unidentified, pre-existing conditions and
for future contamination caused by tenants and third parties. The Trust's
current policy is to require an environmental study on each property it seeks
to acquire. On recent acquisitions, any substances identified prior to closing
which are required, by applicable laws, to be remediated have been or are in
the process of investigation and remediation. Costs related to the abatement
of asbestos which increase the value of Trust properties are capitalized. Other
costs are expensed. In 2001 and 2000 approximately $720,000 and $1,453,000,
respectively, was spent on environmental matters, of which $369,000 and
$464,000, respectively, was capitalized abatement costs. The Trust has budgeted
approximately $1,025,000 in 2002 for environmental matters, a majority of which
is projected for asbestos abatement.
Risks Relating to Owning the Trust's Common Shares
- --------------------------------------------------
An increase in the number of the Trust's common shares that are or become
available for future sale could adversely affect the price for the common
shares. Sales of a substantial number of the Trust's common shares, or the
perception that sales could occur, could adversely affect prevailing market
prices for the common shares. In addition, holders of limited partnership
interests in some of the subsidiary partnerships have the right to receive
common shares for those limited partnership interests and upon registration or
an exemption from registration will be able to sell their shares freely after
they are received, unless the person is an affiliate. Further, a substantial
number of the Trust's common shares have been and will be issued or reserved for
issuance from time to time under employee benefit plans, including shares paid
to officers and some employees as bonuses pursuant to the incentive compensation
plans and common shares reserved for options, and these common shares would be
available for sale in the public markets from time to time pursuant to
exemptions from registration or upon registration. Moreover, the issuance of
additional common shares by the Trust in the future would be available for sale
in the public markets. The Trust can make no prediction about the effect that
future sales of its common shares would have on the market price of its common
shares.
The Trust's earnings and cash distributions will affect the market price
of our common shares. The Trust believes that the market value of a REIT's
equity securities is based upon the market's perception of the REIT's growth
potential, its current and potential future cash distributions, whether from
operations, sales, acquisitions, development or refinancings, and upon the value
of the underlying assets. The Trust's common shares may trade at prices that are
higher or lower than the net asset value per share. To the extent the Trust
retains operating cash flow for investment purposes, working capital reserves or
other purposes rather than distributing such cash flow to shareholders, these
retained funds, while increasing the value of its underlying assets, may not
correspondingly increase the market price of its common shares.
16
Market interest rates may affect the price of the Trust's common shares.
One of the factors that investors consider important in deciding whether to buy
or sell shares of a REIT is the dividend distribution rate on such shares,
considered as a percentage of the price of such shares, relative to market
interest rates. If market interest rates increase, prospective purchasers of
REIT shares may expect a higher distribution rate. Thus, higher market interest
rates could cause the market price of the Trust's shares to go down.
Risks Relating to Provisions in Governing Documents and Maryland Law, Including
- -------------------------------------------------------------------------------
Limiting Changes in Control
- ---------------------------
The Board of Trustees may make changes in operating policies without
shareholder approval. The Trust's investment, financing and borrowing policies
and policies with respect to all other activities, such as growth, debt,
capitalization and operations, will be determined by the board of trustees. The
board of trustees may amend or revise these policies at any time and from time
to time at its discretion without a vote of the shareholders. A change in these
policies could adversely affect the financial condition, results of operations
and the market price of the Trust's securities.
Provisions of the Declaration of Trust and Bylaws and Maryland Law, and the
Shareholder Rights Plan, could inhibit changes in control. Provisions of the
declaration of trust and bylaws and Maryland law contain provisions that may
delay or prevent a change in control or other transaction that could provide the
Trust's shareholders with a premium over the then-prevailing market price of
their shares or which might otherwise be in their best interests. These
provisions include:
. The board's authority to issue preferred shares having a preference as to
dividends or distributions upon liquidation over the common shares without
shareholder approval.
. A staggered board consisting of three classes of trustees and fixed size
of board of trustees, within a range,
17
may make it more difficult for a third party to gain control of the board.
. Special meeting's of the Trust's shareholders may be called only by the
president, by two-thirds of the trustees or by shareholders possessing not
less than 25% of all the votes entitled to be cast at such meeting, which
limits the ability of shareholders to call special meetings.
. The board of trustees, without a shareholder vote, can classify or
reclassify unissued shares of beneficial interest, including the
reclassification of common shares into preferred shares and vice versa.
. A two-thirds shareholder vote is required to approve some amendments to the
declaration of trust. These supermajority vote requirements may make it
difficult for the Trust's shareholders to amend the declaration of trust.
. The advance notice requirements for proposals to be presented at
shareholder meetings in the Trust's bylaws may limit the ability of
shareholders to make nominations for trustees or introduce other proposals
for consideration at a meeting.
. Maryland law limitations on changes in control may prevent or delay a
change in control or other transaction that may provide the Trust's
shareholders with a premium or which might otherwise be in their best
interests.
18
. Shareholder rights plan. The Trust adopted a shareholder rights plan which
provides, among other things, that when specified events occur, its
shareholders will be entitled to purchase from it a number of common shares
equal in value to two times the purchase price, initially equal to $65.00
per share, subject to adjustment upon the occurrence of specified events.
Therefore, for example, if the Trust's common shares had a current market
value of $21.66 and the purchase price was $65.00, a shareholder would be
entitled to purchase six common shares for $65.00. The share purchase
rights are triggered by the earlier to occur of (1) the date of a public
announcement that a person or group acting in concert has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
Trust's outstanding common shares without the prior consent of the board of
trustees or (2) ten days after the commencement of or announcement of an
intention to make a tender offer or exchange offer, the consummation of
which would result in the acquiring person becoming the beneficial owner of
15% or more of the Trust's outstanding common shares. The share purchase
rights would cause substantial dilution to a person or group that attempts
to acquire the Trust on terms not approved by the board of trustees.
If the Trust elects to be governed by it in the future, the Maryland
Control Share Acquisition Law could delay or prevent a change in control. Under
Maryland law, unless a REIT elects not to be subject to the provision, "control
shares" acquired in a "control share acquisition" have no voting rights except
to the extent approved by shareholders by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares owned by the acquiror and by
officers or trustees who are employees of the REIT. "Control shares" are voting
shares which would entitle the acquiror to exercise voting power in electing
trustees within specified ranges of voting power. A "control share acquisition"
means the acquisition of control shares, with some exceptions.
The Trust's bylaws state that the Maryland control share acquisition law
shall not apply to any acquisition by any person of its common shares. This
bylaw provision may be repealed, in whole or in part, at any time, whether
before or after an acquisition of control shares and, upon such repeal, may, to
the extent provided by any successor bylaw, apply to any prior or subsequent
control share acquisition.
Federal Income Tax Risks Relating to Operating as a Real Estate Investment Trust
- --------------------------------------------------------------------------------
The Trust intends to qualify as a REIT, but the Trust cannot guarantee that
it will qualify. The Trust believes that it has qualified for taxation as a REIT
for federal income tax purposes commencing with its taxable year ended December
31, 1962. If the Trust qualifies as a REIT, it generally will not be subject to
federal income tax on its income that is distributed to its
19
shareholders. The Trust plans to continue to meet the requirements for taxation
as a REIT, but there can be no assurance that it will do so. Many of the REIT
requirements are highly technical and complex. The determination that the Trust
is a REIT requires an analysis of various factual matters and circumstances that
may not be totally within its control. For example, to qualify as a REIT, at
least 95% of its gross income must come from sources that are itemized in the
REIT tax laws. REIT's generally are prohibited from owning more than 10% of the
voting securities or more than 10% of the value of the outstanding securities of
any one issuer, subject to certain exceptions, including an exception with
respect to corporations electing to be "taxable REIT subsidiaries," and are also
required to distribute to shareholders at least 90% of REIT taxable income,
excluding capital gains. Furthermore, Congress and the Internal Revenue Service
might make changes to the tax laws and regulations, and the courts might issue
new rulings that make it more difficult, or impossible, for the Trust to remain
qualified as a REIT. The Trust does not believe, however, that any pending or
proposed tax law changes would jeopardize its REIT status. If the Trust failed
to qualify as a REIT, it would be subject to federal income tax at regular
corporate rates. Also, unless the Internal Revenue Service granted it relief
under certain statutory provisions, it would remain disqualified as a REIT for
the four years following the year it first failed to qualify.
If the Trust failed to qualify as a REIT, it would have to pay significant
income taxes and would therefore have less money available for investments or
for distributions to shareholders. This would likely have a significant adverse
affect on the value of the Trust's common shares.
The Trust pays some taxes. Even if the Trust does qualify as a REIT, it is
required to pay some federal, state and local taxes on its income and property.
In addition, any net taxable income earned directly by the taxable REIT
subsidiaries is subject to federal, state and local corporate tax. A taxable
REIT subsidiary is a fully taxable corporation and is limited in its ability to
deduct interest payments made to the Trust. In addition, the Trust will be
subject to a 100% penalty tax on some payments that it receives if the economic
arrangements between the Trust, its tenants, and the taxable REIT subsidiary are
not arm's length.
Current Developments
- --------------------
In 2001 improvements to properties totaled $219.5 million, including $174.0
million on development projects in Bethesda, Maryland; San Jose, California; and
Arlington, Virginia. Construction of Woodmont East in Bethesda, Maryland, a
130,000 square foot retail and office complex, was completed with occupancy at
95% as of December 31, 2001. Construction on the $475 million Phase 1 of Santana
Row, a multi-phased mixed-use project to be built on 42 acres in San Jose,
California continues. Santana Row Phase 1 is expected to begin generating
revenues in the third quarter of 2002 and be stabilized twelve to eighteen
months later. As of December 31, 2001, the Trust has incurred costs of $229
million including the purchase of
20
the land. Construction also continues on Pentagon Row, a mixed-use project in
Arlington, Virginia. The Trust is developing the retail component which was 95%
leased and 66% occupied as of December 31, 2001. Completion of the retail space
is anticipated during the first quarter of 2002.
Real estate acquisitions totaling $52.8 million were made in 2001. The
acquisitions consisted of two street retail buildings, one in San Francisco,
California and one in Washington, D.C., the purchase of the fee interest
underlying the capital lease obligation on Brick Plaza, in Brick, New Jersey,
the buy-out of the minority partner's interest in nine street retail buildings
in southern California and the exchange, with the minority partner, of the
Trust's 90% interest in a street retail building in Forest Hills, New York for
the minority partner's 10% interest in three other street retail buildings, also
located in Forest Hills, New York.
The Trust invested $900,000 in mortgage notes receivable with a weighted
average interest rate of 10.0%, with $4.2 million of notes being repaid.
Williamsburg Shopping Center in Williamsburg, Virginia was sold in April 2001
for $16.7 million, resulting in a gain of $7.9 million. 101 E. Oak Street, a
street retail property in Chicago, Illinois, was sold in December 2001 for $6.1
million, resulting in a gain of $1.8 million. The exchange of properties in
Forest Hills, New York with the minority partner resulted in an accounting loss
of approximately $500,000.
In April 2001 the Trust closed on a $295 million construction loan for
Santana Row. The initial funding of the construction loan took place in August
2001 when the equity and pre-leasing requirements were met.
In November 2001 the Trust issued 5.4 million 8.5% Series B Cumulative
Redeemable Preferred Shares at $25 per share in a public offering, netting
approximately $130.8 million in cash which was used to pay down the Trust's
syndicated credit facility.
The Trust utilized its syndicated credit facility, the proceeds from the
sale of Williamsburg Shopping Center and the construction loan for Santana Row
to fund its 2001 acquisitions and capital expenditures.
At December 31, 2001 the Trust has 243 full-time employees.
Subsequent Events
- -----------------
On February 28, 2002 the Trust adopted a business plan which returns the
Trust's primary focus to its traditional business of acquiring and redeveloping
community and neighborhood shopping centers that are anchored by supermarkets,
drug stores or high volume, value oriented retailers that provide consumer
necessities. Concurrent with the adoption of the business plan, the Trust
adopted a management succession plan and restructured its management team.
21
The Trust will complete Bethesda Row, Pentagon Row and Santana Row, but
does not plan any new, large-scale, mixed-use, ground-up development projects.
Rather, the Trust will return its focus to community and neighborhood shopping
centers. The Trust will seek to acquire income producing centers, may seek
opportunities to develop ground-up grocery anchored shopping centers in and
around the Metropolitan Washington, D.C., Philadelphia and New York markets and
will identify and execute redevelopment opportunities in its existing portfolio.
Steven J. Guttman, the Trust's Chief Executive Officer and Chairman of the
Board, will primarily devote his attention to the completion of Santana Row.
Upon Mr. Guttman's planned retirement in March 2003, it is expected that Donald
C. Wood will become Chief Executive Officer with Mr. Guttman remaining as
Chairman of the Board. Effective March 1, 2002, the Trust combined functions of
its previous Chief Investment Officer and Chief Financial Officer, and appointed
Larry E. Finger, to the new executive office of Chief Financial Officer in
charge of capital markets, investor relations and financial reporting. With the
renewed emphasis on acquisitions, Jeffrey S. Berkes was appointed an executive
officer, Senior Vice President - Strategic Transactions.
As a result of the change in the Trust's business plan, the Trust estimates
it will record a charge of $16 million to $18 million in the first quarter of
2002. The charge includes severance and other compensation costs related to the
management restructuring as well as charges to write-down the Trust's
Tanasbourne and other development projects to fair value since the Trust will
hold the Tanasbourne project for sale. The Trust is re-evaluating the most
effective way to realize value on these assets on a risk-adjusted return basis.
22
Executive Officers of the Trust
- -------------------------------
The Executive Officers at December 31, 2001 were:
Name Age Position with Trust
---- --- -------------------
Steven J. Guttman 55 Chairman of the Board and Chief Executive
Officer
Donald C. Wood 41 President and Chief Operating Officer
Nancy J. Herman 38 Senior Vice President, General Counsel and
Secretary
Ron D. Kaplan 38 Senior Vice President-Capital Markets, Chief
(terminated employment Investment Officer
as of March 1, 2002)
Cecily A. Ward 55 Vice President-Chief Financial Officer and
(Ceased serving as an Treasurer
Executive Officer on
February 28, 2002 and
will terminate
employment late 2002)
New appointees to serve as Executive Officers on March 1, 2002 are:
Jeffrey S. Berkes 38 Senior Vice President - Strategic
Transactions
Larry E. Finger 48 Senior Vice President - Chief Financial
Officer and Treasurer
Steven J. Guttman, the Trust's President and Chief Executive Officer since April
1980 was on February 14, 2001 appointed Chairman of the Board and Chief
Executive Officer. Mr. Guttman has been associated with the Trust since 1972,
became Chief Operating Officer in 1975 and a Managing Trustee in 1979.
Donald C. Wood was appointed President and Chief Operating Officer on February
14, 2001, prior to that time he served as Senior Vice President - Chief
Operating Officer. Mr. Wood joined the Trust in May 1998 as Senior Vice
President, Chief Financial Officer and Treasurer. Prior to joining the Trust,
Mr. Wood was Senior Vice President and Chief Financial Officer for Caesars
World, Inc., a wholly-owned subsidiary of ITT Corporation, where he was
responsible for all aspects of finance throughout the company including
strategic planning, process re-engineering, capital allocation and financial
analysis. Prior to joining ITT in 1990, Mr. Wood was employed at Arthur Andersen
LLP from 1982 where he served in numerous positions including audit manager.
23
Nancy J. Herman became the Trust's Vice President, General Counsel and Secretary
on December 21, 1998 and was appointed Senior Vice President on July 1, 2000. In
this position, Ms. Herman has overall responsibility for the Trust's legal
affairs and human resources. Ms. Herman joined the Trust in 1990 as a staff
attorney. Prior to joining the Trust in 1990, Ms. Herman practiced real estate
law at Hogan & Hartson L.L.P.
Ron D. Kaplan joined the Trust in November 1992 as Senior Vice President-Capital
Markets. Mr. Kaplan was formerly a Vice President of Salomon Brothers Inc where
he was responsible for capital raising and financial advisory services for
public and private real estate companies. While at Salomon Brothers which he
joined in 1985, he participated in two of the Trust's debt offerings. Mr. Kaplan
terminated employment effective March 1, 2002. Under the terms of his severance
agreement with the Trust, he will serve as a consultant until September 30,
2002.
Cecily A. Ward was appointed Vice President - Chief Financial Officer and
Treasurer on February 9, 2000. Ms. Ward had previously served as Vice President
- - Controller and Treasurer. Ms. Ward joined the Trust in April 1987 as
Controller. Prior to joining the Trust, Ms. Ward, a certified public accountant,
was employed by Grant Thornton LLP. Ms. Ward ceased serving as an executive
officer on February 28, 2002. Under the terms of her severance agreement with
the Trust, she will serve as vice-president until August 30, 2002 during which
time she will transition her duties to other Trust personnel.
Jeffrey S. Berkes was appointed Senior Vice President - Strategic Transactions,
effective February 28, 2002. Mr. Berkes oversees acquisition and dispositions
for the Trust. He joined the Trust in February 2000 as Vice President -
Strategic Transactions. From September 1998 until joining the Trust in February
2000, Mr. Berkes was Vice President of Acquisitions and Finance for Velsor
Properties LLC, a northern Virginia-based private real estate investment firm.
From April 1997 to August 1998, he was Director of Acquisitions for Federal
Realty. Prior to his first tenure at Federal Realty in 1997, he was Vice
President of Acquisitions for Heitman Financial.
Larry E. Finger joined the Trust on March 1, 2002 as Senior Vice President -
Chief Financial Officer and Treasurer when the functions of Chief Investment
Officer and Chief Financial Officer, previously held by Mr. Kaplan and Ms. Ward,
respectively, were combined. Mr. Finger will be in charge of capital markets,
investor relations and financial reporting. Prior to joining the Trust, Mr.
Finger was with Washington Real Estate Investment Trust from 1993 through
October 15, 2001, where he most recently served as Senior Vice President and
Chief Financial Officer responsible for capital markets, financial reporting,
public relations and investor relations.
24
Item 2. Properties
Retail Properties
The following table sets forth information concerning each retail property in
which the Trust owns an equity interest or has a leasehold interest as of
December 31, 2001. Except as otherwise noted, retail properties are 100%
owned in fee by the Trust.
Occupancy (1)
Year Year Square Number of Overall / Principal
NORTHEAST Completed Acquired Feet (2) Tenants Acres (3) Economic Tenants
- --------- --------- -------- -------- ------- --------- ------------ --------------
Shopping Centers
- ----------------
Allwood 1958 1988 52,000 7 5 100% / 100% Stop & Shop
Clifton, NJ 07013 (4) Mandee's
Andorra 1953 1988 259,000 39 23 93% / 93% Acme Markets
Philadelphia, PA 19128 (5) Andorra Theater
Kohl's
Bala Cynwyd 1955 1993 281,000 23 22 100% / 100% Acme Markets
Bala Cynwyd, PA 19004 Lord & Taylor
Blue Star 1959 1988 410,000 37 55 98% / 98% Kohl's
Watchung, NJ 07060 (4) Michael's
Shop Rite
Toys R Us
Brick Plaza 1958 1989 409,000 36 42 100% / 99% A&P Supermarket
Brick Township, NJ 08723 Barnes & Noble
Sony Theatres
Sports Authority
Bristol 1959 1995 296,000 33 22 93% / 93% Bradlees
Bristol, CT 06010 Super Stop & Shop
TJ Maxx
Brunswick 1957 1988 318,000 22 22 97% / 77% A&P Supermarket
North Brunswick, NJ 08902 (4) Ames
Clifton 1959 1988 80,000 12 8 91% / 91% Acme Markets
Clifton, NJ 07013 (4) Drug Fair
Dollar Express
Crossroads 1959 1993 173,000 24 15 100% / 100% Comp USA
Highland Park, IL 60035 Golfsmith
Dedham 1959 1993 240,000 32 18 93% / 93% Ames
Dedham, MA 02026 Pier One Imports
Ellisburg Circle 1959 1992 259,000 32 27 97% / 97% Bed, Bath & Beyond
Cherry Hill, NJ 08034 Shop Rite
Feasterville 1958 1980 116,000 8 12 84% / 84% Genuardi Markets
Feasterville, PA 19047 Office Max
25
Occupancy (1)
Year Year Square Number of Overall / Principal
Completed Acquired Feet (2) Tenants Acres (3) Economic Tenants
--------- -------- -------- ------- --------- ------------- --------------
Finley Square 1974 1995 313,000 17 21 82% / 82% Bed, Bath & Beyond
Downers Grove, IL 60515 Service Merchandise
Sports Authority
Flourtown 1957 1980 191,000 21 15 100% / 100% Genuardi Markets
Flourtown, PA 19031
Fresh Meadows 1949 1997 410,000 74 25 98% / 98% Cineplex Odeon
Queens, NY 11365 Value City
K Mart
Garden Market 1958 1994 142,000 18 12 85% / 85% Dominick's
Western Springs, IL 60558
Gratiot Plaza 1964 1973 218,000 10 20 100% / 100% Bed, Bath and Beyond
Roseville, MI 48066 Best Buy
Farmer Jack
Greenlawn Plaza 1975 2000 92,000 15 13 81% / 81% Waldbaum's
Greenlawn, NY 11740
Hamilton 1961 1988 190,000 14 18 100% / 100% Shop Rite
Hamilton, NJ 08690 (4) Steven's Furniture
A.C. Moore
Hauppauge 1963 1998 131,000 20 15 100% / 100% Shop Rite
Hauppauge, NY 11788 Office Max
Dress Barn
Huntington 1962 1988 279,000 14 21 100% / 100% Barnes & Noble
Huntington, NY 11746 (4) Bed, Bath and Beyond
Buy Buy Baby
Michael's
Toys R Us
Lancaster 1958 1980 107,000 15 11 94% / 94% A.C. Moore
Lancaster, PA 17601 (4) Giant Food
Langhorne Square 1966 1985 216,000 28 21 96% / 96% Drug Emporium
Levittown, PA 19056 Marshalls
Redner's Market
Lawrence Park 1972 1980 326,000 40 28 98% / 98% Acme Markets
Broomall, PA 19008 TJ Maxx
Today's Man
26
Occupancy (1)
Year Year Square Number of Overall / Principal
Completed Acquired Feet (2) Tenants Acres (3) Economic Tenants
--------- -------- -------- ------- --------- ------------- -----------------------
Northeast 1959 1983 292,000 35 19 97% / 97% Burlington Coat Factory
Philadelphia, PA 19114 Marshalls
Tower Records
North Lake Commons 1989 1994 129,000 19 14 88% / 88% Dominick's
Lake Zurich, IL 60047
Queen Anne Plaza 1967 1994 149,000 10 18 99% / 99% TJ Maxx
Norwell, MA 02061 Victory Markets
Rutgers 1973 1988 217,000 19 27 89% / 89% Edwards Super Food
Franklin, N.J. 08873 (4) K Mart
Saugus Plaza 1976 1996 171,000 7 19 100% / 100% K Mart
Saugus, MA 01906 Super Stop & Shop
Troy 1966 1980 202,000 21 19 100% / 100% Comp USA
Parsippany-Troy, NJ 07054 Pathmark
Toys R Us
Willow Grove 1953 1984 215,000 25 14 97% / 97% Barnes and Noble
Willow Grove, PA 19090 Marshalls
Toys R Us
Wynnewood 1948 1996 257,000 28 16 99% / 99% Bed, Bath and Beyond
Wynnewood, PA 19096 Borders Books
Genuardi's
Main Street Retail Properties
- -----------------------------
Thirteen buildings in CT 1900 - 1991 1994 -1996 233,000 78 - 90% / 90% Eddie Bauer
Pottery Barn
Sak Fifth Avenue
Two buildings in IL 1920 - 1927 1995 19,000 3 - 100% / 100% Foodstuffs
The Gap
One building in MA 1930 1995 13,000 7 - 74% / 74% AT&T Wireless
Three buildings in NY 1937 - 1987 1997 85,000 9 - 100% / 100% Midway Theatre
Duane Reade
The Gap
One building in NJ 1940 1995 11,000 2 - 100% / 100% Legg Mason
27
Occupancy (1)
Year Year Square Number of Overall / Principal
MID ATLANTIC Completed Acquired Feet (2) Tenants Acres (3) Economic Tenants
- ------------ --------- -------- -------- ------- --------- ------------- --------------
Shopping Centers
- ----------------
Barracks Road 1958 1985 484,000 85 39 99% / 99% Bed, Bath & Beyond
Charlottesville, VA 22905 Harris Teeter
Kroger
Congressional Plaza 1965 1965 339,000 46 22 95% / 95% Buy Buy Baby
Rockville, MD 20852 (6) Fresh Fields
Tower Records
Courthouse Center 1970 1997 38,000 11 2 72% / 72% Rockville Interiors
Rockville, MD 20852 (7)
Eastgate 1963 1986 159,000 30 17 97% / 97% Food Lion
Chapel Hill, NC 27514 Southern Season
Falls Plaza 1962 1967 73,000 10 6 100% / 100% Giant Food
Falls Church, VA 22046
Falls Plaza - East 1960 1972 71,000 18 5 100% / 100% CVS Pharmacy
Falls Church, VA 22046 Staples
Federal Plaza 1970 1989 247,000 39 18 98% / 98% Comp USA
Rockville, MD 20852 Ross Dress For Less
TJ Maxx
Gaithersburg Square 1966 1993 205,000 36 17 98% / 98% Bed, Bath & Beyond
Gaithersburg, MD 20878 Borders Books and Music
Governor Plaza 1963 1985 252,000 23 26 100% / 92% Office Depot
Glen Burnie, MD 21961 (5) Syms
Idylwood Plaza 1991 1994 73,000 17 6 95% / 95% Fresh Fields
Falls Church, VA 22030
Laurel Centre 1956 1986 386,000 56 26 94% / 93% Giant Food
Laurel, MD 20707 Marshalls
Toys R Us
Leesburg Plaza 1967 1998 247,000 27 24 100% / 100% Giant Food
Leesburg, VA 20176 (7) K Mart
Peebles
Loehmann's Plaza 1971 1983 242,000 54 18 98% / 97% Linens N Things
Fairfax, VA 22042 (7) Loehmann's Dress Shop
28
Occupancy (1)
Year Year Square Number of Overall / Principal
Completed Acquired Feet (2) Tenants Acres (3) Economic Tenants
--------- -------- -------- --------- --------- ------------- --------------------
Magruder's Center 1955 1997 109,000 23 5 100% / 100% Magruder's
Rockville, MD 20852 (7) Tuesday Morning
Mid-Pike Plaza 1963 1982 312,000 23 20 99% / 99% Bally Total Fitness
Rockville, MD 20852 (4) Frugal Fannies
Toys R Us
Old Keene Mill 1968 1976 92,000 21 11 100% / 100% Fresh Fields
Springfield, VA 22152
Pan Am 1979 1993 218,000 31 25 93% / 92% Michael's
Fairfax, VA 22031 Micro Center
Safeway
Perring Plaza 1963 1985 412,000 17 27 100% / 100% Burlington Coat Factory
Baltimore, MD 21134 (5) Home Depot
Metro Foods
Pike 7 Plaza 1968 1997 164,000 26 13 99% / 99% Staples
Vienna, VA 22180 TJ Maxx
Quince Orchard 1975 1993 237,000 31 16 95% / 95% Circuit City
Gaithersburg, MD 20877 (9) Dyncorp
Staples
Tower Shopping Center 1960 1998 109,000 28 12 86% / 83% Virginia Fine Wine
Springfield, VA 22150 Talbot's Outlet
Tysons Station 1954 1978 50,000 17 4 100% / 100% Trader Joe's
Falls Church, VA 22043
Wildwood 1958 1969 83,000 33 13 100% / 96% CVS Pharmacy
Bethesda, MD 20814 Sutton Place Gourmet
The Shops at Willow Lawn 1957 1983 505,000 82 37 79% / 79% Dillards
Richmond, VA 23230 Hannaford Brothers
Development
-----------
Land in Bethesda, MD 20814 1997 - 2000 1
29
Occupancy (1)
Year Year Square Number of Overall / Principal
Completed Acquired Feet (2) Tenants Acres (3) Economic Tenants
--------- --------- -------- ------- --------- ------------- --------------------
Main Street Retail Properties
- -----------------------------
Bethesda Row 1945-1991, 1993-1998 418,000 84 8 100% / 98% Barnes and Noble
Bethesda, MD 20814 (8) 2001 Giant Food
Friendship Center 1998 2001 119,000 5 1 100% / 100% Maggiano's
Washington, D.C 20015 Eddie Bauer
Pentagon Row n/a 1999 215,000 34 18 98% / 94% Harris Teeter
Arlington, VA 22202 (9) (11) Bed, Bath & Beyond
Sam's Park & Shop 1930 1995 50,000 12 1 100% / 100% Petco
Washington, DC 20036 Pizzeria Uno
Shirlington 1940 1995 202,000 45 16 98% / 98% Carlyle Grand Cafe
Arlington, VA 22206 Cineplex Odeon
Two buildings in FL 1920 1996 28,000 8 - 85% / 85% Express
WEST COAST
Shopping Centers
- ----------------
Escondido Promenade 1987 1996 222,000 56 18 97% / 97% Toys R Us
Escondido, CA 92029 (20) TJ Maxx
King's Court 1960 1998 78,000 18 8 99% / 99% Lunardi's Supermarket
Los Gatos, CA 95032 (7) (9) Longs Drug
Main Street Retail Properties
- -----------------------------
Old Town Center 1962 1997 97,000 20 4 94% / 93% Borders Books and Music
Los Gatos, CA 95030 Gap Kids
Banana Republic
150 Post Street 1965 1997 103,000 20 - 86% / 86% Brooks Brothers
San Francisco, CA 94108 Williams - Sonoma
Uptown Shopping Center Various 1997 100,000 67 7 99% / 98% Elephant's Delicatessen
Portland, OR 97210 Zupan's Markets
Nine buildings in Santa Monica,
CA (13) 1888 - 1995 1996 - 2000 201,000 24 - 95% / 93% Abercrombie & Fitch
J. Crew
Banana Republic
Three buildings in Hollywood,
CA (18) 1921 - 1991 1999 160,000 15 - 79% / 79% General Cinema
Hollywood Entertainment
Museum
Four buildings in San Diego,
CA (12) 1888 - 1995 1996 - 1997 51,000 21 - 94% / 94% Urban Outfitters
Four buildings in CA (16) (19) 1922 1996 - 1998 87,000 25 - 99% / 99% Pottery Barn
Banana Republic
30
Two buildings in AZ (17) 1996 - 1998 1998 40,000 10 - 100% / 100% Gordon Biersch
Brewing Co.
Development
- -----------
Santana Row n/a 1997 n/a n/a 42 n/a / n/a
San Jose, CA 95128 (10) (14)
Nine buildings in San Antonio,
TX (15) 1890 - 1935 1998 n/a 5 - n/a / n/a The Palm
(1) Overall occupancy is expressed as a percentage of rentable square
feet and includes square feet covered by leases for stores not yet
opened. Economic occupancy is expressed as a percentage of rentable
square feet , but only includes leases currently generating rental
income.
(2) Represents the physical square feet of the property, which may exceed
the rentable square feet used to express occupancy.
(3) Acreage on each individual main street retail building is not
significant.
(4) The Trust has a leasehold interest in this property.
(5) The Trust owns a 99.99% general partnership interest in these
properties.
(6) The Trust owns a 55.7% equity interest in this center.
(7) The Trust owns this property in a "downreit" partnership.
(8) This property contains twelve buildings; seven are subject to a
leasehold interest, one is subject to a ground lease and four are
owned 100% by the Trust.
(9) The Trust owns this property subject to a ground lease.
(10) As of December 31, 2001 the Trust owns the controlling interest in
this center. A minority owner with an interest in the profits of
the center was bought out on February 1, 2002.
(11) Occupancy is based on three completed buildings, the fourth building
is under development.
(12) As of December 31, 2001 the Trust owns 100% of three buildings and a
90% general partnership interest in one building.
(13) As of December 31, 2001 the Trust owns 100% of seven buildings and a
90% general partnership interest in two buildings.
(14) Under development.
(15) The Trust is redeveloping these properties, many of which are
currently vacant.
(16) As of December 31, 2001 the Trust owns 100% of one building, a 90%
general partnership interest in two buildings and a 75% LLC interest
in one building.
(17) The Trust owns 100% of one building and an 85% partnership interest
in the second building.
(18) The Trust owns a 90% general partnership interest in these buildings.
(19) Occupancy is based on two occupied buildings in Pasadena, CA. Two
additional buildings are currently under redevelopment.
(20) As of December 31, 2001 the Trust owns the controlling interest in
this center.
31
Apartments
The following table sets forth information concerning the Trust's apartment
development as of December 31, 2001 which is 100% owned by the Trust in fee.
This development is not subject to rent control.
Year Year
Property Completed Acquired Acres 1-BR 2-BR 3-BR Total Occupancy
Rollingwood 1960 1971 14 58 163 61 282 99%
Silver Spring, MD
9 three-story buildings
32
Item 3. Legal Proceedings.
- ------ -----------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None
Item 5. Market for Registrant's Common Equity and Related Stockholder
- ------ -------------------------------------------------------------
Matters.
--------
The Trust's common shares of beneficial interest are listed on the New
York Stock Exchange ("NYSE") under the symbol "FRT".
The following table shows the high and low sales prices of the common shares as
reported on the NYSE over the past two years, as well as the amounts of
quarterly dividends declared over that period. The Trust generally pays
dividends in the quarter after they are declared.
Dividends
Quarter ended High Low Declared
- ------------- ---- --- ---------
December 31, 2001 $23.67 $21.04 $.48
September 30, 2001 23.71 20.32 .48
June 30, 2001 21.56 18.98 .47
March 31, 2001 20.20 19.0625 .47
December 31, 2000 $20.00 $18.75 $.47
September 30, 2000 21.9375 19.125 .47
June 30, 2000 22.3125 18.9375 .45
March 31, 2000 20.50 17.75 .45
The number of holders of record for Federal Realty's common shares of
beneficial interest at March 7, 2002 was 5,932.
For the year ended December 31, 2000, $.11 of dividends paid on common
shares represented a return of capital and $.04 of dividends paid on common
shares represented capital gain. There was no return of capital or capital
gains for the year ended December 31, 2001.
The Trust intends to pay regular quarterly distributions to its common
stockholders. Future distributions will depend upon cash generated by operating
activities, the Trust's financial condition, capital requirements, annual
distribution requirements under the REIT provisions of the Internal Revenue
Code and such other factors as the Board of Trustees deems relevant.
33
Item 6. Selected Financial Data.
-----------------------
In thousands, except per share data
Year ended December 31,
2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
Operating Data
Rental Income $279,935 $260,684 $245,833 $222,186 $188,529
Income before
gain (loss) on
sale of real
estate 59,571 56,842 55,493 44,960 40,129
Gain (loss) on
sale of real
estate 9,185 3,681 (7,050) --- 6,375
Net income 68,756 60,523 48,443 44,960 46,504
Net income
available for
common
shareholders 59,722 52,573 40,493 37,010 44,627
Net cash provided
by operating
activities (1) 108,545 106,146 102,183 90,427 72,170
Net cash used in
investing
activities (1) 232,138 121,741 99,313 187,646 279,343
Net cash provided
by (used in)
financing
activities (1) 129,799 15,214 (8,362) 97,406 213,175
Dividends
declared on
common shares 75,863 72,512 71,630 69,512 66,636
Weighted average
number of common
shares
outstanding:
Basic 39,164 38,796 39,574 39,174 38,475
Diluted 40,266 39,910 40,638 40,080 38,988
Per share:
Earnings per
common share:
Basic $1.52 $1.36 $1.02 $.94 $1.16
Diluted 1.52 1.35 1.02 .94 1.14
Dividends
declared per
common share 1.90 1.84 1.78 1.74 1.70
Other Data
- --------------------------------------------------------------------------------------------------------------------------
Funds from
Operations (2) $110,432 $102,173 $96,795 $86,536 $79,733
======== ======== ======= ======= =======
34
As of December 31,
2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Real Estate at
cost $2,104,304 $1,854,913 $1,721,459 $1,642,136 $1,453,639
Total assets 1,837,978 1,621,079 1,534,048 1,484,317 1,316,573
Mortgage and
construction
loans and
capital lease
obligations 450,336 340,152 172,573 173,480 221,573
Notes payable 174,843 209,005 162,768 263,159 119,028
Senior notes 410,000 410,000 510,000 335,000 225,000
Convertible
subordinated
debentures 75,289 75,289 75,289 75,289 75,289
Redeemable
Preferred
Shares 235,000 100,000 100,000 100,000 100,000
Shareholders'
equity 592,388 467,654 501,827 529,947 553,810
Number of
common shares
outstanding 40,071 39,469 40,201 40,080 39,148
(1) Determined in accordance with Financial Accounting Standards Board
Statement No. 95, Statement of Cash Flows.
(2) As of January 1, 2000, funds from operations is defined by the National
Association of Real Estate Investment Trusts (NAREIT) as income available for
common shareholders before depreciation and amortization of real estate assets
and before extraordinary items less gains (losses) on sale of real estate.
Prior to January 1, 2000 funds from operation also excluded significant
nonrecurring events. Funds from operations differs from net cash provided by
operating activities primarily because funds from operations does not include
changes in operating assets and liabilities. Funds from operations is a
supplemental measure of performance used in the real estate industry that 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.
35
The calculation of funds from operations for the periods presented is reflected
in the following table:
Year ended December 31,
2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
(in thousands)
Net income
available for
common
shareholders $59,722 $52,573 $40,493 $37,010 $44,627
Depreciation and
Amortization 54,350 48,456 45,388 41,792 37,281
Amortization of
initial direct
cost of leases 4,161 3,514 3,033 2,491 2,249
(Gain) loss on
sale of real
estate (9,185) (3,681) 7,050 --- (6,375)
Income
attributable to
partnership units 1,384 1,311 831 578 ---
Non-recurring
items --- --- --- 4,665 1,951
-------- -------- -------- ------- ---------
Funds from
Operations $110,432 $102,173 $96,795 $86,536 $79,733
======== ======== ======= ======= =======
36
Item 7. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
The following discussion should be read together with the Consolidated
Financial Statements and Notes thereto of Federal Realty Investment Trust (the
"Trust").
The Trust is engaged in the ownership, management, development and
redevelopment of high quality retail and mixed-use properties. The Trust,
which has traditionally acquired and redeveloped community and neighborhood
shopping centers, expanded its investments to the development of urban
mixed-used properties, beginning in 1997. Management continually evaluates the
future prospects of its real estate portfolio, not only to identify expansion
and renovation opportunities, but also to identify properties that no longer
fit the Trust's investment criteria and therefore, should be monetized or
exchanged into other real estate assets. At December 31, 2001 the Trust owned
120 retail properties and one apartment complex.
Critical Accounting Policies
- ----------------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that in certain circumstances affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities, and revenues and expenses. These estimates are prepared using
management's best judgment, after considering past and current events. Actual
results could differ from these estimates. The most significant accounting
policies which involve the use of estimates and assumptions as to future
uncertainties and, therefore, may result in actuals differing from estimates
are as follows.
Revenue Recognition and Accounts Receivable
- -------------------------------------------
Leases with tenants are classified as operating leases. Minimum rents are
recognized on a straight-line basis over the terms of the related leases net
of valuation adjustments based on management's assessment of credit,
collection and other business risk. The Trust makes estimates of the
collectibility of its accounts receivable, related to base rents including
straight line rentals, expense reimbursements and other revenue or income. In
some cases the ultimate collectibility of these claims exceeds beyond a year.
These estimates have a direct impact on the Trust's net income, because a
higher bad debt reserve results in less net income.
Real Estate
- -----------
Land, buildings and real estate under development are recorded at cost.
Depreciation is computed using the straight-line method with useful lives
ranging from three to 50 years on buildings and improvements. Maintenance and
repair costs are charged to operations as incurred. Tenant work and other
major improvements are capitalized and depreciated over the life of the
37
lease or their estimated useful life, respectively. Certain external and
internal costs directly related to the development, redevelopment and leasing
of real estate including applicable salaries and their related direct costs
are capitalized. The capitalized costs associated with developments,
redevelopments and leasing are depreciated or amortized over the life of the
improvement and lease, respectively. Unamortized leasing costs and
undepreciated tenant work are charged to operations if the applicable tenant
vacates before the expiration of its lease.
The Trust, when applicable as lessee, classifies its leases of land and
buildings as operating or capital leases in accordance with the provisions of
Statement of Financial Accounting Standard ("SFAS") No. 13, "Accounting for
Leases". The Trust is required to use judgment and make estimates in determining
the lease term, the estimated economic life of the property and the interest
rate to be used in applying the provisions of SFAS No. 13. These estimates
determine whether or not the lease meets the qualification of a capital lease
and is recorded as an asset.
The Trust is required to make subjective assessments as to the useful
lives of its real estate for purposes of determining the amount of
depreciation to reflect on an annual basis. These assessments have a direct
impact on net income. Should the Trust lengthen the expected useful life of an
asset, it would be depreciated over more years, resulting in less annual
depreciation expense and higher annual net income. Likewise, the Trust must
make subjective assumptions as to which costs should be capitalized. These
assumptions have a direct impact on net income, because the capitalization of
costs results in higher net income.
Interest costs on developments and major redevelopments are capitalized as
part of the development and redevelopment. Capitalization of interest
commences when development activities and expenditures begin and end upon
completion, i.e. when the asset is ready for its intended used. Generally
rental property is considered substantially complete and ready for its
intended use upon completion of tenant improvements, but no later than one
year from completion of major construction activity. The Trust makes judgments
as to the time period over which to capitalize costs and these assumptions
have a direct impact on net income. If the time period is extended, more
interest is capitalized, thereby increasing net income.
Long-Lived Assets
- -----------------
The Trust evaluates the carrying value of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". In cases where particular
assets are being held for sale, impairment is based on whether the fair value
(estimated sales price less costs of disposal) of each individual property to be
sold is less than the net book value. Otherwise, impairment is based on whether
it is probable that undiscounted future cash flows from each property will be
less than its net book value. If a property is impaired, its basis is adjusted
to its fair market value.
The Trust is required to make estimates of undiscounted cash flows in
determining whether there is an impairment. Actual results could be
significantly different from the estimates. These estimates have a direct
impact on net income, because taking an impairment results in a negative
adjustment to net income.
38
Contingencies
- -------------
The Trust is involved in various lawsuits and environmental matters
arising in the ordinary course of business. Management makes assumptions and
estimates concerning the amount and likelihood of loss relating to these
matters. These estimates and assumptions have a direct impact on net income,
because the likelihood of loss and a higher amount of loss result in less net
income.
Liquidity and Capital Resources
- -------------------------------
The Trust meets its liquidity requirements through net cash provided by
operating activities, along with 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. At times, proceeds from the sale of selected assets may
also provide an additional source of capital. From 1998 until November 2001,
the Trust relied primarily on debt to fund these capital needs, and
accordingly, debt as a percentage of total capitalization steadily increased
over that period. In November 2001 the Trust issued $135 million of preferred
stock. In the future, the Trust will look to common, preferred and
joint-venture equity in addition to debt to fund longer term growth needs.
Net cash provided by operating activities was $108.5 million in 2001,
$106.1 million in 2000, and $102.2 million in 1999, of which $80.6 million,
$77.5 million, and $76.6 million, respectively, was distributed to
shareholders. Contributions from newly acquired properties and from
retenanted and redeveloped properties, as more fully described below, were the
primary sources of these increases.
Net cash used in investing activities was $232.1 million in 2001, $121.7
million in 2000, and $99.3 million in 1999. The Trust acquired real estate
assets totaling $52.8 million in 2001, $26.8 million in 2000, and $26.4
million in 1999 requiring cash outlays of $61.4 million, $52.8 million to
purchase new assets and $8.6 million to purchase the capital lease obligation
on Brick Plaza and to fund the buy-out of the minority partners' interests;
$23.6 million; and $25.3 million, respectively. During these same three years
the Trust expended an additional $199.1 million, $145.8 million, and $90.8
million in capital improvements to its properties, of which $158.0 million in
2001, $81.0 million in 2000 and $32.6 million in 1999 related to new
development. The Trust received mortgage note repayments, net of funds
invested, of $3.3 million in 2001 and $494,000 in 2000. The Trust invested,
net of loan repayments, $2.3 million in 1999 in mortgage notes receivable. The
weighted average stated interest rate on these loans was 10.0% for the years
1999 through 2001. Certain of these mortgages also participate in the gross
revenues and appreciation and are convertible into ownership interests in the
properties by which they are secured. Cash of $25.1 million in 2001, $47.2
million in 2000 and $19.2 million in 1999 was received from the sale of
properties.
39
During 2001 the Trust expended cash of $61.4 million to acquire real
estate and an additional $199.1 million to improve, redevelop and develop its
existing real estate. Of the $199.1 million spent in 2001 on the Trust's
existing real estate portfolio, approximately $158.0 million was invested in
the Trust's development projects, primarily the projects in Bethesda,
Maryland; San Jose, California; and in Arlington, Virginia. The remaining
$41.0 million of capital expenditures relates to improvements to common areas,
tenant work and various redevelopments, including the office expansion and
retenanting of Willow Lawn Shopping Center, the renovation of Brunswick
Shopping Center, the redevelopment of retail buildings in San Antonio, Texas
and the redevelopment and retenanting of certain of the Trust's California
street retail buildings.
On February 16, 2001 the Trust bought the fee interest underlying the
capital lease obligation of $21.4 million, thereby terminating the capital
lease, on Brick Plaza in Brick, New Jersey for a purchase price of $28
million. A mortgage note receivable of $3.2 million owed to the Trust by the
lessor and a $3 million security deposit on the capital lease were credited to
the purchase price, resulting in a cash outlay of approximately $21.5 million.
On March 1, 2001 the limited partners in two partnerships, owning street
retail properties in southern California, exercised their rights under the
partnership agreements and put their interests to the Trust for $18.1 million
plus additional consideration to be determined based upon meeting certain
leasing requirements in the future. The Trust paid the initial $18.1 million,
$11.4 million in cash at closing and the $6.7 million balance in 328,116 common
shares issued to the limited partners on June 19, 2001. To date, leasing
transactions have resulted in a purchase price adjustment of $188,000;
$160,000 of which was paid by the issuance of 7,120 common shares on December
6, 2001 and the remainder paid in cash. The Trust estimates that an additional
$1.0 to $1.2 million will be owed to the limited partners upon completion of
certain other leasing transactions.
In connection with the buyout of the minority partner at Santana Row in a
transaction being structured as a tax-free exchange the Trust made an equity
investment of $2.6 million and a loan of $5.9 million to a partnership which
purchased a building for $8.5 million. Upon consummation of the exchange in
January 2002, the Trust received the minority interest in Santana Row in
exchange for its $2.6 million investment in the building. The $5.9 million
loan is due to the Trust on January 12, 2003.
On April 27, 2001 the Trust sold the Williamsburg Shopping Center in
Williamsburg, Virginia for $16.7 million resulting in a gain of $7.9 million.
The proceeds from the sale were held by a qualified intermediary until the
execution of a tax-free exchange for Friendship Center.
On September 21, 2001 the Trust purchased Friendship Center, a 119,000
square foot street retail property in Washington, D.C. for $33.4 million. The
purchase price was funded from the proceeds from the sale of Williamsburg
Shopping Center and a $17.0 million
40
mortgage loan.
On December 18, 2001 the Trust sold the street retail property located at
101 E. Oak Street in Chicago, Illinois for $6.1 million resulting in a gain of
$1.8 million. The proceeds from the sale are being held by a qualified
intermediary for purposes of executing a tax-free property exchange.
On December 30, 2001 the Trust exchanged its 90% interest in a street
retail building in Forest Hills, New York to the minority partner in exchange
for the minority partners 10% interest in three other street retail buildings
in Forest Hills, New York resulting in an accounting loss of approximately
$500,000.
Net cash provided by financing activities, before dividend payments, was
$210.4 million in 2001, $92.7 million in 2000, and $68.3 million in 1999. The
Trust utilized the proceeds from the sale of Williamsburg Shopping Center, its
syndicated credit facility and the construction loan for Santana Row to fund
acquisitions, most capital expenditures and balloon debt repayments.
On April 12, 2001 the Trust obtained a $33 million mortgage loan secured
by Brick Plaza in Brick, New Jersey. The mortgage, which bears interest at
7.415%, matures November 15, 2015. The loan provides for interest only
payments for the initial 29 months, then monthly principal and interest
payments based on a twenty-seven year amortization schedule until the maturity
date. The proceeds from the mortgage loan were used to fund the purchase of
the fee interest of Brick Plaza.
On April 17, 2001 the Trust closed on a $295 million construction loan
for Santana Row in San Jose, California, which is described below.
On May 3, 2001 the Trust refinanced the mortgage loan secured by Federal
Plaza in Rockville, Maryland. The new $36.5 million mortgage loan bears
interest at 6.75% and matures on June 1, 2011. The loan provides for monthly
principal and interest payments of $236,700 based on a thirty year
amortization schedule until the maturity date. The proceeds from the
refinancing were first used to payoff the outstanding mortgage balance on the
property of $26.5 million. The remaining proceeds were used to pay down the
Trust's syndicated credit facility.
On August 30, 2001 the Trust refinanced the mortgage loan secured by
Tysons Station in Falls Church, Virginia. The new $7.0 million mortgage bears
interest at 7.4% and matures on September 1, 2011. The loan provides for
monthly principal and interest payments of $51,300 based on a twenty-five year
amortization schedule until the maturity date. The proceeds from the
refinancing were first used to payoff the outstanding mortgage balance on the
property of $3.9 million. The remaining proceeds were used to pay down on the
Trust's syndicated credit facility.
In connection with the purchase of Friendship Center in Washington, D.C.
on September 21, 2001 the Trust placed a $17.0 million mortgage on the
property. The loan, which bears interest at LIBOR plus 135 basis points,
matures September 22, 2003 with three
41
one-year extension options. The loan provides for interest only payments
through maturity.
On November 19, 2001 the Trust issued 5.4 million 8.5% Series B
Cumulative Redeemable Preferred Shares at $25 per share in a public offering,
netting approximately $130.8 million. The proceeds from the share issuance
were used to pay down the Trust's syndicated credit facility.
The Trust has a $300 million syndicated credit facility with seven banks
which is due December 19, 2003. This facility requires fees and has various
covenants including the maintenance of a minimum shareholders' equity and a
maximum ratio of debt to net worth. At December 31, 2001, 2000 and 1999, $44.0
million, $78.0 million and $34.0 million, respectively, was borrowed under the
syndicated credit facility. The maximum borrowed during 2001, 2000 and 1999
was $183.5 million, $218.1 million and $205.0 million, respectively. The
weighted average interest rate on borrowings during 2001, 2000 and 1999 was
4.9%, 7.1% and 5.9%, respectively.
In December 1998, the Trust obtained a four-year loan of $125 million
from five institutional lenders. The loan requires fees and has the same
covenants as the syndicated credit facility. In 2000, the loan was extended
for an additional year to December 19, 2003. The weighted average interest
rate on the term loan during 2001, 2000 and 1999 was 6.4%, 7.4% and
6.1%, respectively.
In order to minimize the risk of changes in interest rates the Trust will
enter into derivative contracts, which qualify as cash flow hedges. During
2001, to hedge its exposure to interest rates on its $125 million term loan,
the Trust entered into interest rate swaps, which fixed the LIBOR interest
rate on the term loan at 5.27%. The current interest rate on the term loan is
LIBOR plus 95 basis points thus fixing the interest rate at 6.22% on notional
amounts totaling $125 million. The interest rate swaps mature concurrently
with the $125 million term loan on December 19, 2003. There were no open hedge
agreements at December 31, 2000.
Capital requirements in 2002 will depend upon acquisition opportunities,
the rate of build-out on the Trust's current developments and the level of
improvements and redevelopments on existing properties. The Trust has budgeted
approximately $240 million for 2002 for its Santana Row and Pentagon Row
developments and $52 million for redevelopments and expansions of its existing
portfolio, tenant work and improvements to the core portfolio. The Trust's
syndicated credit facility, with $256 million available at December 31, 2001,
and the $295 million Santana Row construction loan are anticipated to be
sufficient to fund these needs.
The Trust will need additional capital in order to fund acquisitions,
expansions and any new developments, including future phases of Santana Row,
if any, and to refinance its maturing debt. Sources of this future funding may
be additional debt, both secured and unsecured, additional equity and joint
venture relationships.
The Trust's long term debt has varying maturity dates and in a number of
instances includes balloon payments or other contractual provisions that could
require significant repayments during a
42
particular period. In 2002, the $23.2 million construction loan on Woodmont
East matures, unless the options to extend are exercised, as well as the $3.4
million note held in connection with the land held for future development in
Hillsboro, Oregon and $25.0 million of Senior Notes. The next significant
maturities occur in 2003 when $75.0 million of Senior Notes are due in October
and the $17 million Friendship Center mortgage loan, if the option to extend
is not exercised, is due in September. In addition, the Trust's syndicated
credit facility and its $125 million term loan expire in December 2003.
Santana Row
In 2002, the Trust's single largest capital use is anticipated to be the
development of Santana Row, a multi-phase mixed-use project being built on 42
acres in San Jose, California in the heart of Silicon Valley. The project will
consist of residential, retail and hotel components, creating a community with
the feel of an urban district. Phase 1 of the project includes Santana Row,
the "1,500 foot long main street" and nine buildings which will contain
approximately 538,000 square feet of retail space, 501 residential units, a
214 room hotel and the supporting infrastructure. Eight buildings comprising
440,000 square feet of retail space are expected to be completed during the
third and fourth quarters of 2002 with the ninth building being completed
twelve to eighteen months later. The total cost of Phase 1 is expected to be
$475 million. As of December 31, 2001, the Trust has incurred costs of $229
million including the purchase of the land; the Trust estimates that it will
spend approximately $225 million in 2002 and the balance in 2003 to complete
the first phase of the project.
On April 17, 2001, the Trust closed on a $295 million construction loan.
The loan, which initially bears interest at LIBOR plus 212.5 basis points,
matures April 16, 2004 with two one-year extension options, subject to
obtaining certain operating targets. The interest rate will decrease to LIBOR
plus 187.5 basis points then to LIBOR plus 162.5 basis points upon the
achievement of certain leasing, occupancy and net operating income hurdles.
There is no assurance that these targets and hurdles will be met. The
construction loan requires fees and has various covenants including the
maintenance of a minimum shareholders' equity and a maximum ratio of debt to
gross asset value. The initial funding of the construction loan took place on
August 23, 2001 when the equity and pre-leasing requirements were met. As of
December 31, 2001, $62.0 million was borrowed under the loan.
The success of Santana Row will depend on many factors which cannot be
assured and are not entirely within the Trust's control. These factors include
among others, the demand for retail and residential space and at what rents,
the ability to construct the current and later phases at reasonable costs, the
cost of operations, including utilities and insurance, the availability and
cost of capital and the general economy, particularly in the Silicon Valley.
The Trust has not finalized the cost and scope for all future
43
phases of Santana Row and will not do so until the success of Phase 1 and
future demand for rental space can be determined. However, as Phase 1 utilizes
only part of the retail and residential entitlements of the property, and as
Phase 1 contains infrastructure for further phases, the Trust expects to
identify and execute economically viable additional phases to the project.
Subsequent Events
- -----------------
On February 28, 2002 the Trust adopted a business plan which returns
the Trust's primary focus to its traditional business of acquiring and
redeveloping community and neighborhood shopping centers that are anchored by
supermarkets, drug stores or high volume, value oriented retailers that
provide consumer necessities. Concurrent with the adoption of the business
plan, the Trust adopted a management succession plan and restructured its
management team.
The Trust will complete Bethesda Row, Pentagon Row and Santana Row, but
does not plan any new, large-scale, mixed-use, ground-up development projects.
Rather, the Trust will return its focus to community and neighborhood shopping
centers. The Trust will seek to acquire income producing centers, may seek
opportunities to develop ground-up grocery anchored shopping centers in and
around the Metropolitan Washington, D.C., Philadelphia and New York markets and
will identify and execute redevelopment opportunities in its existing portfolio.
Steven J. Guttman, the Trust's Chief Executive Officer and Chairman of
the Board, will primarily devote his attention to the completion of Santana Row.
Upon Mr. Guttman's planned retirement in March 2003, it is expected that Donald
C. Wood will become Chief Executive Officer with Mr. Guttman remaining as
Chairman of the Board. Effective March 1, 2002, the Trust combined functions of
its previous Chief Investment Officer and Chief Financial Officer, and appointed
Larry E. Finger, to the new executive office of Chief Financial Officer in
charge of capital markets, investor relations and financial reporting. With the
renewed emphasis on acquisitions, Jeffrey S. Berkes was appointed an executive
officer, Senior Vice President - Strategic Transactions.
As a result of the change in the Trust's business plan, the Trust estimates it
will record a charge of $16 million to $18 million in the first quarter of 2002.
The charge includes severance and other compensation costs related to the
management restructuring as well as charges to write-down the Trust's
Tanasbourne and other development projects to fair value since the Trust will
hold the Tanasbourne project for sale. The Trust is re-evaluating the most
effective way to realize value on these assets on a risk-adjusted return basis.
Contingencies
- -------------
Pentagon Row is a mixed-use project with the retail component being
developed by the Trust and the residential component being developed by an
unrelated developer. In October 2000 the general contractor on the project was
replaced by the Trust and the
44
residential developer, because of schedule delays and other events that caused
the Trust and the residential developer to conclude that the original
contractor was either unable or unwilling to comply with its contractual
obligations. The Trust and the residential developer filed suit against the
original contractor to recover damages that are being incurred as a result of
defaults under the contract. Though not quantifiable until the project is
completed, the combined damage claim is estimated to be in excess of $40.0
million. The original contractor filed a counterclaim against the Trust and
the residential developer for damages of $7 million plus interest, attorneys'
fees and litigation costs. The Trust believes that the counterclaim is
generally without merit and that the outcome of the counterclaim will not have
a material adverse effect on its financial condition, results of operations or
on the project. Work continues under the direction of the new general
contractor. Due to the delay and other costs associated with the change in
general contractor the estimated cost of the project is now $92 million, if
there is no recovery of damages from the original general contractor. The
lawsuit against the original contractor is scheduled for mediation in May
2002, and, should mediation prove unsuccessful, is scheduled to go to trial in
October 2002.
In addition, the Trust is involved in various other 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.
Under the terms of the Congressional Plaza partnership agreement, from
and after January 1, 1986 Rockville Plaza Company, an unaffiliated third
party, has the right to require the Trust and the two other minority partners
to purchase from half to all of Rockville Plaza Company's 37.5% interest in
Congressional Plaza at the interest's then-current 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 $27.5 million. In
conjunction with a redevelopment currently taking place at the property, the
Trust has reached an agreement with Rockville Plaza Company to acquire an
additional 7.5% interest in Congressional Plaza in exchange for funding
approximately $7 million of Rockville Plaza Company's share of the
redevelopment cost. This funding will take place through 2002 and the
transaction will be completed in 2003.
Under the terms of five other partnership agreements, 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 for two of the partnerships, a limited number of
common shares 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 partnership agreements, the partners may redeem
their 904,589 operating units for cash or exchange into the same number of
common shares of the Trust, at the option of the
45
Trust
As of December 31, 2001 in connection with renovation and development
projects, the Trust has contractual obligations of approximately $172 million,
including approximately $154 million for Santana Row.
A subcontractor of the Trust's Santana Row project has entered into a
contract with a wood supply company in which a trustee of the Trust owns an
indirect 9.7% interest. The contract provides for a payment to the company of
approximately $330,000 for wood flooring. The dollar amount of the contract does
not represent a material amount of business to the wood supply company. Terms
of the contract were negotiated at arms-length.
The centerpiece of Santana Row is a four-star, 214 room boutique hotel. The
Trust has entered into a 99 year ground lease with the hotel requiring minimum
rent of $450,000 per annum with rental increases every five years and percentage
rent on room, parking and other revenues. The Trust has committed to loan $7.2
million to the hotel. The loan bears interest at rates ranging from 12% to 15%
and has a ten year term. During the first five years, interest is payable from
cash flow, if available. If cash flow is not sufficient to pay interest, it will
accrue and bear interest at the same rate as the initial principal. In addition,
the Trust has committed approximately $5.5 million to four restaurant joint
ventures at Santana Row in lieu of tenant allowances. The Trust will participate
in profits, losses and cash flow in accordance with the terms of each individual
venture.
46
Results of Operations
- ---------------------
The Trust's retail leases generally provide for minimum rents with
periodic increases. Most retail tenants pay a majority of on-site operating
expenses and real estate taxes. Many leases also contain a percentage rent
clause which calls for additional rents based on gross tenant sales. These
features in the Trust's leases reduce the Trust's exposure to higher costs
caused by inflation and allow it to participate in improved tenant sales.
Consolidated Results
- --------------------
2001 vs. 2000
- -------------
Rental income, which consists of minimum rent, percentage rent and cost
recoveries, increased 7.4 % from $260.7 million in 2000 to $279.9 million in
2001. On a same center basis, rental income increased 6.4%, due primarily to
the favorable impact of redeveloped and retenanted centers, as well as,
increases associated with lease rollovers and increased cost recoveries. Same
center basis, in 2001, excludes Williamsburg Shopping Center in Williamsburg,
Virginia and Peninsula Shopping Center in Palos Verdes, California which were
sold on April 27, 2001 and June 30, 2000, respectively, as well as, properties
acquired and properties under development in 2000 and 2001, including
Friendship Center in Washington, D.C., Woodmont East in Bethesda, Maryland,
Pentagon Row in Arlington, Virginia, 214 Wilshire Boulevard in Santa Monica,
California and Town & Country Shopping Center in San Jose, California, which
was demolished to make way for the new Santana Row development.
Other property income includes items, which although recurring, tend to
fluctuate more than rental income from period to period, such as utility
reimbursements, telephone income, merchant association dues, late fees, lease
termination fees and temporary tenant income. Other property income increased
26.3% from $11.1 million in 2000 to $14.0 million in 2001 due primarily to
increases in lease termination fees of $1.2 million and parking income. On a
same center basis, other property income increased 18.4%.
Rental expenses increased 12.8% from $56.3 million in 2000 to $63.5
million in 2001. Increased leasing and marketing costs associated with the
Trust's development projects, as well as operating costs associated with the
Woodmont East project which was in service for a full year in 2001 were major
components of this overall increase. Rental expense as a percentage of
property income, rental income plus other property income, increased from
20.7% in 2000 to 21.6% in 2001. On a same center basis, rental expenses
increased 4.4% from $54.5 million in 2000 to $57.0 million in 2001, primarily
due to general cost increases along with increased property management costs
in 2001.
Real estate taxes increased 8.1% from $26.6 million in 2000 to $28.8
million in 2001. On a same center basis, real estate taxes increased 9.3% due
primarily to increased taxes on recently redeveloped properties.
47
Depreciation and amortization expenses increased 12.5% from $53.3 million
in 2000 to $59.9 million in 2001 reflecting the impact of recent new
development, tenant work and property redevelopments which were placed in
service during the year.
In 2001, the Trust incurred interest expense of $87.1 million, of which
$17.8 million was capitalized, as compared to 2000's $79.7 million, of which
$13.3 million was capitalized. The increase in interest expense reflects the
additional debt issued to fund the Trust's acquisitions and capital
improvement programs. To mitigate its exposure to changes in variable interest
rates, the Trust has entered into interest rate swaps on its $125 million term
loan which locks the LIBOR interest rate on this loan at 5.27%. The current
interest rate on the term loan is LIBOR plus 95 basis points, thus fixing the
interest rate at 6.22%. The weighted average interest rate was 7.6% in 2001
compared with 7.9% in 2000. The ratio of earnings to combined fixed charges
and preferred dividends was 1.33x in 2001 and 1.40x in 2000. The ratio of
earnings to fixed charges was 1.50x both in 2001 and 2000. The ratio of funds
from operations to combined fixed charges and preferred dividends was 1.9x in
2001 and 2.0x in 2000.
Administrative expenses increased from $13.3 million in 2000 to $14.3
million in 2001 due to increased personnel costs, legal and accounting fees.
Administrative expenses as a percentage of revenue remained constant in 2001
and 2000 at 4.8%.
Investors' share of operations represents the minority interest in the
income of certain properties. The overall $1.3 million decrease from $6.5
million in 2000 to $5.2 million in 2001 is due to the Trust's buy-out of the
minority partners' in nine street retail buildings in southern California,
thereby increasing the Trust's ownership to 100%.
On April 27, 2001, the Trust sold the Williamsburg Shopping Center in
Williamsburg, Virginia for $16.7 million, resulting in a gain of $7.9 million.
On December 18, 2001 the Trust sold the street retail property located at 101
E. Oak Street in Chicago, Illinois for $6.1 million, resulting in a gain of
$1.8 million. On December 30, 2001 the Trust exchanged its 90% interest in a
street retail building in Forest Hills, New York to the minority partner in
exchange for the minority partner's 10% interest in three other street retail
buildings in Forest Hills, New York resulting in an accounting loss of
approximately $500,000. On June 30, 2000, the Trust sold the 296,000 square foot
Peninsula Shopping Center located in Palos Verdes, California for $48.6 million
resulting in a gain of $3.7 million.
As a result of the foregoing items, net income before gain on the sale of
real estate increased from $56.8 million in 2000 to $59.6 million in 2001,
while net income increased from $60.5 million in 2000 to $68.8 million in 2001
and net income available for common shareholders increased from $52.6 million
to $59.7 million.
Growth in net income in 2002 will continue to be primarily dependent on
contributions from the core portfolio. Growth of net
48
income from the core portfolio is, in part, dependent on the financial health of
the Trust's tenants and on controlling expenses, some of which are beyond the
complete control of the Trust, such as snow removal, insurance and real estate
tax assessments and the general economy. The current weakening of the retail and
overall economic environment could adversely impact the Trust by increasing
vacancies and decreasing rents. In past weak retail and real estate
environments, however, 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
the core portfolio, however, will be offset by expenses at Santana Row. Leasing,
marketing and pre-opening expenses at Santana Row prior to its scheduled opening
in fall 2002 and additional depreciation and interest expense as the project is
phased into operations will have a dilutive effect on 2002 earnings.
Growth in net income is also dependent on the amount of leverage and
interest rates. The Trust's leverage is increasing as it finances its
development projects. In addition, to the extent variable-rate debt is
unhedged, the Trust will continue to have exposure to changes in market
interest rates. If 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. Net income available for common shareholders and
funds from operations will also be reduced by the issuance of the 8.5% Series
B Cumulative Redeemable Preferred Shares.
2000 vs. 1999
- -------------
Rental income, which consists of minimum rent, percentage rent and cost
recoveries, increased 6.0 % from $245.8 million in 1999 to $260.7 million in
2000. On a same center basis, rental income increased 7.7%, due primarily to
the favorable impact of redeveloped and retenanted centers, as well as
increases associated with lease rollovers. Same center basis, in 2000,
excludes properties acquired in 2000 and 1999, Peninsula Shopping Center in
Palos Verdes, California and Northeast Plaza in Atlanta, Georgia which were
sold on June 30, 2000 and October 18, 1999, respectively and properties
developed in 2000 and 1999, including Bethesda Row Phase 3 in Bethesda,
Maryland, Old Town in Los Gatos, California and Town & Country Shopping Center
in San Jose, California which was vacated as the Santana Row development began.
Other property income includes items which, although recurring, tend to
fluctuate more than rental income from period to period, such as utility
reimbursements, telephone income, merchant association dues, late fees, lease
termination fees and temporary tenant income. Other property income remained
constant in 2000 compared to 1999. On a same center basis, other property
income decreased $473,000 in 2000 compared to 1999, due mostly to decreases in
lease termination fees.
Rental expenses increased 4.8% from $53.7 million in 1999 to $56.3
million in 2000. Rental expense as a percentage of property income, rental
income plus other property income, remained constant in both periods at 21%.
On a same center basis, rental
49
expenses increased 6.0% from $49.6 million in 1999 to $52.6 million in 2000,
primarily due to general cost increases along with increased snow removal and
utility costs in 2000.
Real estate taxes increased 6.4% from $25.0 million in 1999 to $26.6
million in 2000. On a same center basis, real estate taxes increased 5.9% due
primarily to increased taxes on recently redeveloped properties.
Depreciation and amortization expenses increased 6.5% from $50.0 million
in 1999 to $53.3 million in 2000 reflecting the impact of recent tenant work
and property improvements.
In 2000, the Trust incurred interest expense of $79.7 million, of which
$13.3 million was capitalized, as compared to 1999's $68.4 million, of which
$6.9 million was capitalized. The increase in interest expense reflects the
additional debt issued to fund the Trust's share repurchase and capital
improvement programs and increased borrowing costs. The weighted average
interest rate was 7.9% in 2000 compared with 7.6% in 1999. The ratio of
earnings to combined fixed charges and preferred dividends was 1.40x in 2000
and 1.52x in 1999. The ratio of earnings to fixed charges was 1.50x in 2000
and 1.70x in 1999. The ratio of funds from operations to combined fixed
charges and preferred dividends was 2.0x in 2000 and 2.2x in 1999.
Administrative expenses decreased from $15.1 million in 1999 to $13.3
million in 2000. In 1999 the Trust incurred expenses of approximately $2.8
million related to a terminated merger transaction. The decrease in these
costs was offset by increased personnel costs and several key new hires. The
tight labor market in the Trust's operating regions resulted in higher
compensation costs both to existing and new employees.
Investors' share of operations represents the minority interest in the
income of certain properties. The majority of the $2.6 million increase from
$3.9 million in 1999 to $6.5 million in 2000 is due to the allocation of
operating losses to minority owners in 1999 and 1998 in accordance with the
respective partnership agreements. The remainder of the increase represents
the minority partners' share of increased earnings in certain shopping center
and street retail assets.
On June 30, 2000, the Trust sold the 296,000 square foot Peninsula
Shopping Center located in Palos Verdes, California for $48.6 million
resulting in a gain of $3.7 million. During the second quarter of 1999, the
Trust recorded a $7.1 million charge, representing the estimated loss on a
potential sale of certain assets, principally Northeast Plaza in Atlanta,
Georgia, thereby valuing the assets at their estimated fair value less
estimated costs to sell. On October 18, 1999, the Trust sold Northeast Plaza
for $19.6 million, realizing a loss of $6.3 million.
As a result of the foregoing items, net income before gain (loss) on the
sale of real estate increased from $55.5 million in 1999 to $56.8 million in
2000, while net income increased from $48.4 million in 1999 to $60.5 million
in 2000 and net income available for common shareholders increased from $40.5
million to
50
$52.6 million.
Segment Results
- ---------------
The Trust's operating structure is organized on an asset management model,
where small focused teams are responsible for a portfolio of assets. The Trust
has divided its portfolio of properties into three geographic operating
regions: Northeast, Mid-Atlantic and West. Each region is operated under the
direction of a chief operating officer, with dedicated leasing, property
management and financial staff and operates largely autonomously with respect
to day to day operating decisions. Incentive compensation, throughout the
regional teams, is tied to the net operating income of the respective
portfolios.
Historical operating results for the three regions are as follows (in
thousands):
2001 2000 1999
- ------------------------------------------------------------------------
Rental Income
Northeast $120,313 $113,078 $102,452
Mid-Atlantic 124,765 114,371 111,624
West 34,857 33,235 31,757
-------- -------- --------
Total $279,935 $260,684 $245,833
======== ======== ========
Net Operating Income
Northeast $86,512 $79,685 $74,276
Mid-Atlantic 92,086 84,346 81,425
West 23,061 24,818 22,665
-------- -------- --------
Total $201,659 $188,849 $178,366
======== ======== ========
The Northeast
The Northeast region is comprised of 52 assets, extending from suburban
Philadelphia north to New York and its suburbs into New England and west to
Illinois and Michigan. A significant portion of this portfolio has been held by
the Trust for many years although acquisitions, redevelopment and retenanting
remain major components to the current and future performance of the region.
Several redevelopment projects were completed in 2000 and 2001, which enhanced
revenues and net operating income in 2001.
When comparing 2001 with 2000, rental income, on an overall and same
center basis, increased 6.4% from $113.1 million in 2000 to $120.3 million in
2001, primarily due to increases at recently redeveloped and retenanted
shopping centers and street retail properties, such as Greenlawn, Blue Star,
Brunswick, Ellisburg, Fresh Meadows and Austin Street.
51
Net operating income increased 8.6% from $79.7 million in 2000 to $86.5
million in 2001, primarily due to increases at the recently redeveloped and
retenanted shopping centers and street retail properties, as well as, increased
lease termination fees of $1.0 million in 2001 over 2000's $265,000.
When comparing 2000 with 1999, rental income increased 10% from $102.5
million in 1999 to $113.1 million in 2000. Excluding Greenlawn Plaza in
Greenlawn, New York which was acquired on January 5, 2000, on a same center
basis, rental income also increased 10%, primarily due to increases at the
recently redeveloped and retenanted shopping centers such as, Bala Cynwyd,
Lawrence Park, Gratiot, Langhorne Square, and Wynnewood.
Net operating income increased 7% from $74.3 million in 1999 to $79.7
million in 2000. Excluding Greenlawn Plaza in Greenlawn, New York which was
acquired on January 5, 2000, on a same center basis, net operating income also
increased 7%, primarily due to increases at the recently redeveloped and
retenanted Bala Cynwyd, Lawrence Park, Gratiot, Langhorne Square, and Wynnewood
shopping centers.
The Mid-Atlantic
The Mid-Atlantic region is comprised of 32 assets, including Pentagon Row,
the final phase of which is currently under development, extending from
Baltimore south to metropolitan Washington, D.C. and further south through
Virginia and North Carolina into Florida. As with the Northeast region, a
significant portion of this portfolio has been held by the Trust for many years
although acquisitions, new development, redevelopment and retenanting remain
major components to its current and future performance.
When comparing 2001 with 2000, rental income increased 9.1% from $114.4
million in 2000 to $124.8 million in 2001 reflecting the contribution from the
recently completed Woodmont East project in Bethesda, Maryland, the rental
income generated from the first three buildings at the Pentagon Row project in
Arlington, Virginia and the September 21, 2001 acquisition of Friendship Center
in Washington, D.C. On a same center basis, which excludes Woodmont East,
Pentagon Row, Friendship Center and Williamsburg Shopping Center, which was
sold on April 27, 2001, rental income increased 4.3% from $112.4 million in
2000 to $117.2 million in 2001.
Net operating income increased 9.2% from $84.3 million in 2000 to $92.1
million in 2001. On a same center basis as defined above, net operating income
increased 5.2% from $82.9 million in 2000 to $87.1 million in 2001 due
primarily to successful anchor, small shop and office leasing.
When comparing 2000 with 1999, rental income increased 3% from $111.6
million in 1999 to $114.4 million in 2000. On a same center basis, excluding
Northeast Plaza in Atlanta, Georgia which was sold in 1999 and the recently
developed Phase 3 of the Bethesda Row project in Bethesda, Maryland, rental
income increased 4%, due in part to new anchor leases at several centers. Net
operating income increased 4% from $81.4 million in 1999 to $84.3 million in
2000. On
52
a same center basis as above, net operating income increased 5%, due primarily
to new anchor leases and lease termination fees.
The West
The West region is comprised of 37 assets, including Santana Row which is
currently under development, extending from Texas to the West Coast. Unlike the
Northeast and Mid-Atlantic regions, this portfolio is relatively new to the
Trust and is part of a deliberate expansion west over the past several years.
This region is the fastest growing at the Trust and includes the Trust's
largest new development project, Santana Row in San Jose, California. Several
redevelopment projects were completed in 2000 and 2001 which contributed to
revenues and net operating income in 2001 and will for future years as well.
When comparing 2001 with 2000, on a same center basis, which excludes
properties acquired and sold in 2001 and 2000 and Santana Row, which is
currently under development, rental income increased 14.9% from $28.9 million
in 2000 to $33.2 million in 2001, due primarily to increases from recently
redeveloped and retenanted properties in Los Angeles and San Francisco,
California. On an overall basis, which includes the impact of the sale of
Peninsula Shopping Center on June 30, 2000, rental income increased 4.9% from
$33.2 million in 2000 to $34.9 million in 2001.
On a same center basis as defined above, net operating income increased
10.9% from $22.0 million in 2000 to $24.4 million in 2001, primarily due to the
recently redeveloped and retenanted properties in Los Angeles and San
Francisco, California. Overall net operating income decreased 7.1% from $24.8
million in 2000 to $23.1 million in 2001, again reflecting the sale of
Peninsula Shopping Center and the marketing and leasing costs associated with
the Santana Row development.
When comparing 2000 with 1999 on a same center basis, which excludes newly
developed properties, Santana Row, which is currently under development, and
properties sold and acquired since January 1, 1999, rental income increased 20%
from $19.7 million in 1999 to $23.5 million in 2000, due primarily to recently
redeveloped and retenanted properties in the Los Angeles and San Francisco,
California areas. On an overall basis, which includes the impact of the sale of
Peninsula Shopping Center on June 30, 2000 and the temporary reduction in
earnings caused by the demolition of the old Town & Country Shopping Center to
make way for the new Santana Row development, rental income increased 5% from
$31.8 million in 1999 to $33.2 million in 2000.
On the same center basis as defined above, net operating income increased
25% from $14.2 million in 1999 to $17.8 million in 2000, due to increases from
the recently redeveloped and retenanted properties in the Los Angeles and San
Francisco, California areas. Overall net operating income increased 10% from
$22.7 million in 1999 to $24.8 million in 2000, again reflecting the sale of
Peninsula Shopping Center and the temporary reduction in earnings caused by the
Santana Row development.
53
Funds from Operations
- ---------------------
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 (losses) 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 is as
follows (in thousands):
Year ended December 31,
2001 2000 1999
- ------------------------------------------------------------------------------
Net income available for common
shareholders $59,722 $52,573 $40,493
Depreciation and amortization of real
estate assets 54,350 48,456 45,388
Amortization of initial direct costs of
leases 4,161 3,514 3,033
Income attributable to operating
partnership units 1,384 1,311 831
(Gain) loss on sale of
real estate (9,185) (3,681) 7,050
-------- -------- -------
Funds from operations for common
shareholders $110,432 $102,173 $96,795
======== ======== =======
54
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- -----------------------------------------------------------------------
The Trust's primary financial market risk is the fluctuation in interest
rates. At December 31, 2001, the Trust had $97.0 million of variable rate debt,
not including $62.0 million in variable rate construction loans of which the
interest is capitalized to the development project. Based upon this balance of
variable operating debt, if interest rates increased 1%, the Trust's earnings
and cash flows would decrease by approximately $1.0 million. If interest rates
decreased 1%, the Trust's earnings and cash flows would increase by
approximately $1.0 million. The Trust believes that the change in the fair
value of its financial instruments resulting from a forseeable fluctuation in
interest rates would be immaterial to its total assets and total liabilities.
Item 8. Financial Statements and Supplementary Data.
- --------------------------------------------------------
Included in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ---------------------------------------------------------------------------
Financial Disclosure.
- ---------------------
N/A
55
Part III
--------
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
(a) The table identifying the Trust's Trustees under the caption
"Election of Trustees" of the 2002 Proxy Statement is incorporated herein by
reference.
(b) The information required by this item is included in this report at
Item 1 under the caption "Executive Officers of the Registrant".
Item 11. Executive Compensation.
- -------- -----------------------
The sections entitled "Summary Compensation Table" and "Aggregated Option
Exercises in 2001 and December 31, 2001 Option Values" of the 2002 Proxy
Statement are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
The sections entitled "Ownership of Shares by Certain Beneficial Owners"
and "Ownership of Shares by Trustees and Officers" of the 2002 Proxy Statement
are incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
The section entitled "Certain Relationships and Related Transactions" of
the 2002 Proxy Statement is incorporated herein by reference.
56
Part IV
-------
Item 14. Exhibits, Financial Statement
- -------- -----------------------------
Schedules, and Reports on
-------------------------
Form 8-K
--------
(a) 1. Financial Statements
--------------------
Report of Independent
Public Accountants F-1
Consolidated Balance Sheets-
December 31, 2001 and 2000 F-2
Consolidated Statements of
Operations - years ended
December 31, 2001, 2000
and 1999 F-3
Consolidated Statements of Common
Shareholders' Equity - years
ended December 31, 2001, 2000
and 1999 F-4
Consolidated Statements of
Cash Flows - years ended
December 31, 2001, 2000 and
1999 F-5
Notes to Consolidated
Financial Statements
(Including Selected Quarterly
Data) F-6 - F28
2. Financial Statement Schedules
-----------------------------
Schedule III - Summary of Real Estate
and Accumulated Depreciation..................... F29 - F32
Schedule IV - Mortgage Loans on Real
Estate .......................................... F33 - F34
57
(a) 3. Exhibits
(3) (i) Declaration of Trust of Federal Realty Investment
Trust dated May 5, 1999 filed with the Commission on May 25, 1999
as an exhibit to the Trust's Current Report on Form 8-K is
incorporated herein by reference thereto.
(ii) Bylaws of the Trust dated May 5, 1999 filed with the
Commission on May 25, 1999 as an exhibit to the Trust's Current
Report on Form 8-K is incorporated herein by reference thereto.
(4) (i) A description of a Common Share of Beneficial Interest
certificate filed with the Commission as a portion of Exhibit 4 to
the Trust's Annual Report on Form 10-K for the year ended December
31, 1999 is incorporated herein by reference thereto.
(ii) A description of a 7.95% Series A Cumulative Redeemable
Preferred Share certificate filed with the Commission as a portion
of Exhibit 4 to the Trust's Annual Report on Form 10-K for the year
ended December 31, 1999 is incorporated herein by reference thereto.
(iii) Statement of Designation for Shares, filed on Form 8-K with
the Commission on October 3, 1997, is incorporated herein by
reference thereto.
(iv) The 5 1/4% Convertible Subordinated Debenture due 2002 as
described in Amendment No. 1 to Form S-3 (File No. 33-15264), filed
with the Commission on August 4, 1987 is incorporated herein by
reference thereto.
(v) Amended and Restated Rights Agreement, dated March 11, 1999,
between the Trust and American Stock Transfer & Trust Company, filed
as an exhibit to the Trust's Form 8-A/A filed with the Commission on
March 11, 1999, is incorporated herein by reference thereto.
(vi) Indenture dated December 13, 1993, related to the Trust's
7.48% Debentures due August 15, 2026; 8 7/8% Senior Notes due
January 15, 2000; 8% Notes due April 21, 2002; 6 5/8% Notes due
2005; 6.82% Medium Term Notes due August 1, 2027; 6.74% Medium Term
Notes due March 10, 2004; and 6.99% Medium Term Notes due March 10,
2006, filed with the commission on December 13, 1993 as exhibit 4(a)
to the Trust's Registration Statement on Form S-3, (File No.
33-51029) and amended on Form S-3 (File No. 33-63687), effective
December 4, 1995 is incorporated herein by reference thereto.
(vii) Indenture dated September 1, 1998 related to the Trust's
8.75% Notes due December 1, 2009 filed as exhibit 4(a) to the
Trust's Registration Statement on Form S-3 (File No. 333-63619)
is incorporated herein by reference thereto.
58
(viii) A description of a 8.5% Series B Cumulative Redeemable
Preferred Share certificate filed with the commission on November
26, 2001 as a portion of Exhibit 4 to the Trust's Form 8-A is
incorporated herein by reference thereto.
(10) (i) The Trust's 1983 Stock Option Plan adopted May 12, 1983,
filed with the Commission as Exhibit 10 (vi) to the Trust's Annual
Report on Form 10-K for the year ended December 31, 1983, is
incorporated herein by reference.
(ii) * Deferred Compensation Agreement with Steven J. Guttman
dated December 13, 1978, filed with the Commission as Exhibit 10
(iv) to the Trust's Annual Report on Form 10-K for the year ended
December 31, 1980 is incorporated herein by reference thereto.
(iii) The Trust's 1985 Non-Qualified Stock Option Plan, adopted on
September 13, 1985, filed with the Commission as a portion of
Exhibit 10 to the Trust's Annual Report on Form 10-K for the year
ended December 31, 1985 is incorporated herein by reference thereto.
(iv) The 1991 Share Purchase Plan, dated January 31, 1991, filed
with the Commission as a portion of Exhibit 10 to the Trust's Annual
Report on Form 10-K for the year ended December 31, 1990 is
incorporated herein by reference thereto.
(v) * Employment and Relocation Agreement between the Trust and
Ron D. Kaplan, dated September 30, 1992, filed as an exhibit to the
Trust's Annual Report on Form 10-K for the year ended December
31, 1992 is incorporated herein by reference thereto.
(vi) Amendment dated October 1, 1992, to Voting Trust Agreement
dated as of March 3, 1989 by and between I. Wolford Berman and
Dennis L. Berman filed as an exhibit to the Trust's Annual Report on
Form 10-K for the year ended December 31, 1992 is incorporated
herein by reference thereto.
(vii) Federal Realty Investment Trust Amended and Restated 1993
Long-Term Incentive Plan, as amended on October 6, 1997 and further
amended on May 6, 1998 , filed with the Commission as portions of
Item 10 to the Trust's Annual Report on Form 10-K for the year ended
December 31, 1998, is incorporated herein by reference thereto.
The following documents, filed with the Commission as portions of Item 6
to the Trust's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993 are incorporated herein by reference thereto:
(viii) Fiscal Agency Agreement dated as of October 28, 1993 between
Federal Realty Investment Trust and Citibank, N.A.
59
(ix) * Other Share Award and Purchase Note between Federal Realty
Investment Trust and Ron D. Kaplan, dated January 1, 1994, filed
with the Commission as a portion of Item 6 to the Trust's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994 is
incorporated herein by reference thereto.
(x) Amended and Restated 1983 Stock Option Plan of Federal Realty
Investment Trust and 1985 Non-Qualified Stock Option Plan of Federal
Realty Investment Trust, filed with the Commission on August 17,
1994 on Form S-8, (File No. 33-55111) is incorporated herein by
reference thereto.
(xi) Form of Severance Agreement between Federal Realty Investment
Trust and Certain of its Officers dated December 31, 1994, filed
with the Commission as a portion of Exhibit 10 to the Trust's Annual
Report on Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference thereto.
The following filed with the Commission as portions of Exhibit 10 to the
Trust's Annual Report on Form 10-K for the year ended December 31, 1997, are
incorporated herein by reference thereto:
(xii) Credit Agreement Dated as of December 19, 1997 by and
among Federal Realty Investment Trust, as Borrower, The Financial
Institutions Party Thereto and Their Assignees Under Section
13.5.(a), as Lenders, Corestates Bank, N.A., as Syndication Agent,
First Union National Bank, as Administrative Agent and as Arranger,
and Wells Fargo Bank, as Documentation Agent and as Co-Arranger.
(xiii) * Performance Share Award Agreement between Federal Realty
Investment Trust and Steven J. Guttman, as of January 1, 1998.
(xiv) * Form of Amended and Restated Restricted Share Award
Agreements between Federal Realty Investment Trust and Steven
J. Guttman for the years 1998 through 2002.
(xv) * Performance Share Award Agreements between Federal Realty
Investment Trust and Ron D. Kaplan, as of January 1, 1998.
(xvi) * Restricted Share Award Agreements between Federal Realty
Investment Trust and Ron D. Kaplan, as of January 1, 1998.
(xvii) * Amended and Restated Employment Agreement between the
Trust and Steven J. Guttman as of March 6, 1998.
(xviii) * Amended and Restated Executive Agreement between the
Trust and Steven J. Guttman as of March 6, 1998.
60
(xix) * Executive Agreement between the Trust and Ron D. Kaplan
as of March 6, 1998.
(xx) * Amended and Restated Severance Agreement between the
Trust and Ron D. Kaplan as of March 6, 1998.
The following filed with the Commission as portions of Exhibit 10 to the
Trust's Annual Report on Form 10-K for the year ended December 31, 1998, is
incorporated herein by reference thereto:
(xxi) Term Loan Agreement, dated as of December 22, 1998 by and
among Federal Realty Investment Trust, as Borrower, the Financial
Institutions Party Thereto and Their Assignees Under Section
13.5.(d), as Lenders,Commerzbank Aktiengesellschaft, New York
Branch as Syndication Agent, PNC, National Association, as
Administrative Agent and Fleet National Bank, as documentation
agent.
The following filed with the Commission as portions of Exhibit 10 to the
Trust's Annual Report on Form 10-K for the year ended December 31, 1999, is
incorporated herein by reference thereto:
(xxii) * Amended and Restated Severance Agreement between the
Trust and Nancy J. Herman as of December 27, 1999.
(xxiii) * Performance Share Award Agreement dated as of February
9, 2000 between the Trust and Donald C. Wood.
(xxiv) * Restricted Share Award Agreement dated as of February
9, 2000 between the Trust and Donald C. Wood.
(xxv) * Amendment to Performance Share Award Agreement dated as
of February 25, 2000 between Federal Realty Investment Trust and
Steven J. Guttman.
(xxvi) * Amendments to Performance Share Award Agreements dated
as of February 25, 2000 between Federal Realty Investment Trust
and Ron D. Kaplan.
(xxvii) * Severance Agreement between Federal Realty Investment
Trust and Donald C. Wood dated February 22, 1999.
(xxviii) * Executive Agreement between Federal Realty Investment
Trust and Donald C. Wood dated February 22, 1999.
The following filed with the Commission as portions of Exhibit 10 to the
Trust's Annual Report on Form 10-K for the year ended December 31, 2000, is
incorporated herein by reference thereto:
(xxix) * Amendment to Restricted Share Award Agreement dated
December 8, 2000 between Federal Realty Investment Trust and Ron
D. Kaplan.
61
(xxx) * Amendment to Restricted Share Award Agreement dated
December 8, 2000 between Federal Realty Investment Trust and Ron
D. Kaplan.
(xxxi) * Amendment to Restricted Share Award Agreement dated
December 8, 2000 between Federal Realty Investment Trust and Don
C. Wood.
(xxxii) * Split Dollar Life Insurance Agreement dated May 20,
1998 between Federal Realty Investment Trust and The Ronald D.
Kaplan Family Trust.
(xxxiii) * Split Dollar Life Insurance Agreement dated June 7,
1998 between Federal Realty Investment Trust and The Guttman
Family 1998 Trust.
(xxxiv) * Split Dollar Life Insurance Agreement dated August 12,
1998 between Federal Realty Investment Trust and Donald C. Wood.
(xxxv) * Split Dollar Life Insurance Agreement dated November 2,
2000 between Federal Realty Investment Trust and The Nancy J.
Herman Insurance Trust.
The following documents, filed with the commission as portions of Item 6
to the Trust's Quarterly Report on Form 10-Q for the quarter ended June 30,
2001 are incorporated herein by reference hereto:
(xxxvi) Building Loan Agreement among FRIT San Jose Town and
Country Village LLC, San Jose Residential, Inc. and Street
Retail, Inc. jointly and severally as Borrower, Commerzbank AG,
New York Branch, Fleet National Bank, Bayerische Hypo-Und
Vereinsbank AG, New York Branch and Other Lenders named herein.
The following are filed as exhibits hereto:
(10) (xxxvii) * Restricted Share Agreement dated February 15, 2000
between Federal Realty Investment Trust and Jeffrey S. Berkes.
(xxxviii) * Severance Agreement between Federal Realty Investment
Trust and Jeffrey S. Berkes dated March 1, 2000.
(xxxix) * Termination letter dated March 1, 2002 between Federal
Realty Investment Trust and Ron D. Kaplan.
(xl) * Consulting Agreement dated March 1, 2002 between Federal
Realty Investment Trust and Ron D. Kaplan.
(xli) * Full Recourse Secured Promissory Note dated March 14,
2002 between Federal Realty Investment Trust and Ron D. Kaplan.
(xlii) * Share Pledge Agreement dated March 14, 2002 between
Federal Realty Investment Trust and Ron D. Kaplan.
(21) Subsidiaries of the registrant...................
Filed as an exhibit hereto.
(23) Consent of Arthur Andersen.......................
(99) Letter concerning Arthur Andersen's
representation to the Trust in
accordance with Temporary Note 3T
to Article 3 of Regulation S-X...................
62
(b) Reports on Form 8-K Filed during the Last Quarter
-------------------------------------------------
A Form 8-K, dated November 1, 2001, was filed in response
to Item 5, amended by Form 8-K/A dated December 6, 2001.
A Form 8-K, dated November 19, 2001 was filed in response
to Item 5, amended by Form 8-K/A dated November 29, 2001 .
___________
* Management contract or compensatory plan required to be filed under item 14
(c) of Form 10-K.
63
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) 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
Date: March 22, 2202 By: Steven J. Guttman
-----------------
Steven J. Guttman
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
Chairman of the Board
and Chief Executive
Steven J. Guttman Officer March 22, 2202
- ---------------------- --------------
Steven J. Guttman
President and
Donald C. Wood Chief Operating Officer March 22, 2202
- ---------------------- --------------
Donald C. Wood
Senior Vice-President,
Chief Financial Officer
And Treasurer (Chief
Larry E. Finger Accounting Officer) March 22, 2202
- ---------------------- --------------
Larry E. Finger
Dennis L. Berman Trustee March 22, 2202
- ---------------------- --------------
Dennis L. Berman
Kenneth D. Brody Trustee March 22, 2202
- ---------------- --------------
Kenneth D. Brody
Kristin Gamble Trustee March 22, 2202
- ---------------------- --------------
Kristin Gamble
Walter F. Loeb Trustee March 22, 2202
- ---------------------- --------------
Walter F. Loeb
Mark S. Ordan Trustee March 22, 2202
- ---------------------- --------------
Mark S. Ordan
64
FINANCIAL STATEMENTS
AND
SCHEDULES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
Federal Realty Investment Trust:
We have audited the accompanying consolidated balance sheets of Federal Realty
Investment Trust (a Maryland real estate investment trust) and subsidiaries as
of December 31, 2001 and 2000 and the related consolidated statements of
operations, common shareholders' equity, and cash flows for each of the years
in the three year period ended December 31, 2001. These financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Federal Realty
Investment Trust and subsidiaries as of December 31, 2001 and 2000 and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedules included on pages F-29 through F-34 of the Form 10-K are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not a required part of the basic consolidated financial statements.
These schedules have been subjected to the auditing procedures applied in our
audit of the basic consolidated financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic consolidated
financial statements taken as a whole.
Arthur Andersen LLP
Vienna, Virginia
February 11, 2002
F1
Federal Realty Investment Trust
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2001 2000
ASSETS (In thousands, except share data)
Real estate, at cost
Operating $ 1,782,318 $ 1,679,289
Development 321,986 175,624
----------- -----------
2,104,304 1,854,913
Less accumulated depreciation and amortization (395,767) (351,258)
----------- -----------
1,708,537 1,503,655
Other Assets
Cash 17,563 11,357
Mortgage notes receivable 35,607 47,360
Accounts and notes receivable 18,580 13,092
Prepaid expenses and other assets, principally
property taxes and lease commissions 50,739 38,140
Debt issue costs, net of accumulated amortization
of $4,840 and $3,982, respectively 6,952 7,475
----------- -----------
$ 1,837,978 $ 1,621,079
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Obligations under capital leases $ 100,293 $ 121,611
Mortgages and construction loans payable 350,043 218,541
Notes payable 174,843 209,005
Accounts payable and accrued expenses 64,014 36,810
Dividends payable 21,664 19,892
Security deposits 6,026 5,537
Prepaid rents 10,400 8,819
Senior notes and debentures 410,000 410,000
5 1/4% Convertible subordinated debentures 75,289 75,289
Investors' interest in consolidated assets 33,018 47,921
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
8.5% Series B Cumulative Redeemable Preferred Shares, (stated at
liquidation preference $25 per share), 5,400,000 shares issued in 2001 135,000 --
Common shares of beneficial interest, $.01 par , 100,000,000 shares
authorized, 41,524,165 and 40,910,972 issued, respectively 417 410
Additional paid in capital 730,835 723,078
Accumulated dividends in excess of Trust net income (322,428) (306,287)
----------- -----------
643,824 517,201
Less:1,452,926 and 1,441,594 common shares in treasury - at cost, respectively (27,990) (27,753)
Deferred compensation on restricted shares (15,005) (17,254)
Notes receivable from employee stock plans (4,148) (4,540)
Accumulated other comprehensive income (loss) (4,293) --
----------- -----------
592,388 467,654
----------- -----------
$ 1,837,978 $ 1,621,079
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
F2
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
2001 2000 1999
--------- --------- ---------
(In thousands, except per share data)
Revenue
Rental income $ 279,935 $ 260,684 $ 245,833
Interest and other income 6,590 7,532 7,649
Other property income 13,977 11,065 11,231
--------- --------- ---------
300,502 279,281 264,713
Expenses
Rental 63,481 56,280 53,677
Real estate taxes 28,772 26,620 25,021
Interest 69,313 66,418 61,492
Administrative 14,281 13,318 15,120
Depreciation and amortization 59,914 53,259 50,011
--------- --------- ---------
235,761 215,895 205,321
--------- --------- ---------
Operating income before investors' share
of operations 64,741 63,386 59,392
Investors' share of operations (5,170) (6,544) (3,899)
--------- --------- ---------
Income before gain (loss) on sale of real estate 59,571 56,842 55,493
Gain (loss) on sale of real estate 9,185 3,681 (7,050)
--------- --------- ---------
Net income 68,756 60,523 48,443
Dividends on preferred stock (9,034) (7,950) (7,950)
--------- --------- ---------
Net income available for common shareholders $ 59,722 $ 52,573 $ 40,493
========= ========= =========
Earnings per common share, basic
Income before gain (loss) on sale of real estate $ 1.29 $ 1.26 $ 1.20
Gain (loss) on sale of real estate 0.23 0.10 (0.18)
--------- --------- ---------
$ 1.52 $ 1.36 $ 1.02
========= ========= =========
Weighted average number of common shares, basic 39,164 38,796 39,574
========= ========= =========
Earnings per common share, diluted
Income before gain (loss) on sale of real estate $ 1.29 $ 1.26 $ 1.19
Gain (loss) on sale of real estate 0.23 0.09 (0.17)
--------- --------- ---------
$ 1.52 $ 1.35 $ 1.02
========= ========= =========
Weighted average number of common shares, diluted 40,266 39,910 40,638
========= ========= =========
The accompanying notes are an integral part of these consolidated statements.
F3
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Year ended December 31,
2001 2000
---------- ------------ ---------- ---------- ---------- ----------
(In thousands, except share data) Shares Amount Additional Shares Amount Additional
Paid-in Paid-in
Capital Capital
Common Shares of Beneficial Interest
Balance, beginning of year 40,910,972 $ 410 $ 723,078 40,418,766 $ 404 $ 713,354
Adjustment to reflect change in par value -- -- -- -- -- --
Shares issued to purchase partnership interests 335,236 3 6,919 -- -- --
Exercise of stock options 22,066 -- 459 67,684 1 1,398
Shares issued under dividend reinvestment plan 159,234 2 3,277 153,713 2 3,136
Performance and Restricted Shares granted, net
of Restricted Shares retired 96,657 2 1,877 270,809 3 5,190
Cost of 8.5% Series B Cumulative Preferred Shares -- -- (4,775) -- -- --
---------- ------------ ---------- ---------- ---------- ---------
Balance, end of year 41,524,165 $ 417 $ 730,835 40,910,972 $ 410 $
========== ============ ========== ========== ========== =========
Accumulated Dividends in Excess of Trust Net Income
Balance, beginning of year ($306,287) ($286,348)
Net income 68,756 60,523
Dividends declared to common shareholders (75,863) (72,512)
Dividends declared to preferred shareholders (9,034) (7,950)
------------ ----------
Balance, end of year ($322,428) ($306,287)
============ ==========
Common Shares of Beneficial Interest in Treasury
Balance, beginning of year (1,441,594) ($27,753) (217,644) ($ 4,334)
Performance and Restricted Shares forfeited (11,332) (237) (38,550) (787)
Purchase of treasury shares -- -- (1,185,400) (22,632)
---------- ------------ ---------- ----------
Balance, end of year (1,452,926) ($27,990) (1,441,594) ($ 27,753)
========== ============ ========== ==========
Deferred Compensation on Restricted Shares
Balance, beginning of year (735,875) ($17,254) (599,427) ($15,219)
Performance and Restricted Shares issued,
net of forfeitures (61,369) (830) (218,771) (4,151)
Vesting of Performance and Restricted Shares 130,588 3,079 82,323 2,116
---------- ------------ ---------- ----------
Balance, end of year (666,656) ($15,005) (735,875) ($17,254)
========== ============ ========== ==========
Subscriptions receivable from employee stock plans
Balance, beginning of year (242,638) ($4,540) (317,606) ($6,030)
Subscription loans issued (3,333) (70) (5,500) (115)
Subscription loans paid 27,416 462 80,468 1,605
---------- ------------ ---------- ----------
Balance, end of year (218,555) ($4,148) (242,638) ($4,540)
========== ============ ========== ==========
Accumulated other comprehensive income (loss)
Balance, beginning of year -- --
Change due to recognizing gain on securities $ 49 --
Change in valuation on interest rate swap (4,342) --
------------ ----------
Balance, end of year ($4,293) $ 0
============ ==========
Other comprehensive income
Net income $ 68,756 --
Change due to recognizing gain on securities 49 --
Change in valuation on interest rate swap (4,342) --
------------ ----------
Total other comprehensive income $ 64,463 $ 0
============ ==========
Year ended December 31,
1999
------------ ------------ ------------
(In thousands, except share data) Shares Amount Additional
Paid-in
Capital
Common Shares of Beneficial Interest
Balance, beginning of year 40,139,675 $ 707,724 --
Adjustment to reflect change in par value -- (707,324) $ 707,323
Shares issued to purchase partnership interests -- -- --
Exercise of stock options 52,667 1 1,092
Shares issued under dividend reinvestment plan 165,770 2 3,566
Performance and Restricted Shares granted, net
of Restricted Shares retired 60,654 1 1,373
Cost of 8.5% Series B Cumulative Preferred Shares -- -- --
------------ ------------ ------------
Balance, end of year 40,418,766 $ 404 $ 713,354
============ ============ ============
Accumulated Dividends in Excess of Trust Net Income
Balance, beginning of year
Net income ($255,211)
Dividends declared to common shareholders 48,443
Dividends declared to preferred shareholders (71,630)
(7,950)
Balance, end of year ------------
($286,348)
============
Common Shares of Beneficial Interest in Treasury
Balance, beginning of year
Performance and Restricted Shares forfeited (59,425) ($1,376)
Purchase of treasury shares (17,719) (393)
(140,500) (2,565)
Balance, end of year ------------ ------------
(217,644) ($4,334)
============ ============
Deferred Compensation on Restricted Shares
Balance, beginning of year
Performance and Restricted Shares issued, (582,910) ($14,892)
net of forfeitures
Vesting of Performance and Restricted Shares (31,660) (730)
15,143 403
Balance, end of year ------------ ------------
(599,427) ($15,219)
============ ============
Subscriptions receivable from employee stock plans
Balance, beginning of year
Subscription loans issued (337,111) ($6,298)
Subscription loans paid (9,083) (190)
28,588 458
Balance, end of year ------------ ------------
(317,606) ($6,030)
============ ============
Accumulated other comprehensive income (loss)
Balance, beginning of year
Change due to recognizing gain on securities --
Change in valuation on interest rate swap --
--
Balance, end of year ------------
$ 0
============
Other comprehensive income
Net income
Change due to recognizing gain on securities --
Change in valuation on interest rate swap --
--
Total other comprehensive income ------------
$ 0
============
The accompanying notes are an integral part of these consolidated statements.
F4
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
2001 2000 1999
--------- --------- ---------
(In thousands)
OPERATING ACTIVITIES
Net income $ 68,756 $ 60,523 $ 48,443
Items not requiring cash outlays
Depreciation and amortization 59,914 53,259 50,011
(Gain) loss on sale of real estate (9,185) (3,681) 7,050
Other, net 1,041 1,634 2,395
Changes in assets and liabilities
(Increase) decrease in accounts receivable (5,544) 323 (5,257)
Increase in prepaid expenses and other
assets before depreciation and amortization (18,305) (6,834) (2,183)
Increase (decrease) in operating accounts payable,
security deposits and prepaid rent 4,132 3,342 (1,202)
Increase (decrease) in accrued expenses 7,736 (2,420) 2,926
--------- --------- ---------
Net cash provided by operating activities 108,545 106,146 102,183
INVESTING ACTIVITIES
Acquisition of real estate (61,415) (23,554) (25,337)
Capital expenditures - development (158,048) (81,023) (32,589)
Capital expenditures - other (41,013) (64,815) (58,207)
Repayments (issuance) of mortgage notes receivable, net 3,275 494 (2,341)
Proceeds from sale of real estate, net of costs 25,063 47,157 19,161
--------- --------- ---------
Net cash used in investing activities (232,138) (121,741) (99,313)
FINANCING ACTIVITIES
Borrowing (repayment) of short-term debt, net (34,000) 47,400 (100,147)
Proceeds from mortgage and construction financing, net of costs 145,427 166,383 --
(Repayment) issuance of senior notes, net of costs -- (100,000) 172,193
Issuance of Series B Preferred shares, net of costs 130,225 -- --
Issuance of common shares 1,301 3,428 2,243
Common shares repurchased -- (22,632) (2,565)
Payments on mortgages, capital leases and notes payable (31,550) (2,169) (1,151)
Dividends paid (80,593) (77,499) (76,617)
(Decrease) increase in minority interest, net (1,011) 303 (2,318)
--------- --------- ---------
Net cash provided by (used in) financing activities 129,799 15,214 (8,362)
--------- --------- ---------
Increase (decrease) in cash 6,206 (381) (5,492)
Cash at beginning of year 11,357 11,738 17,230
--------- --------- ---------
Cash at end of year $ 17,563 $ 11,357 $ 11,738
========= ========= =========
The accompanying notes are an integral part of these consolidated statements.
F5
Federal Realty Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Federal Realty Investment Trust (the "Trust") is a full-service real
estate company, which owns and operates community and neighborhood shopping
centers and owns and develops main street retail properties, retail buildings
and mixed-use properties located in densely developed urban and suburban areas.
The Trust operates in a manner intended to enable it to qualify as a real
estate investment trust for federal income tax purposes. A trust which
distributes at least 90% of its real estate investment trust taxable income to
its shareholders each year and which meets certain other conditions will not be
taxed on that portion of its taxable income which is distributed to its
shareholders. Therefore, no provision for Federal income taxes is required.
The consolidated financial statements of the Trust include the accounts of
the Trust, its wholly owned corporate subsidiaries, several corporations where
the Trust has a majority ownership, numerous partnerships and a joint venture,
all of which it controls. The equity interests of other investors are reflected
as investors' interest in consolidated assets. All significant intercompany
transactions and balances are eliminated in consolidation.
Revenue Recognition. Leases with tenants are classified as operating leases.
Minimum rents are recognized on a straight-line basis over the terms of the
related leases net of valuation adjustments based on management's assessment of
credit, collection and other business risk. Percentage rents, which represent
additional rents based on gross tenant sales, are recognized at the end of the
lease year or other period in which tenant sales' thresholds have been reached
and the percentage rents are due. Real estate tax and other cost reimbursements
are recognized on an accrual basis over the periods in which the expenditures
occurred.
Real Estate. Land, buildings and real estate under development are recorded at
cost. Depreciation is computed using the straight-line method. Estimated useful
lives range from three to 25 years on apartment buildings and improvements, and
from three to 50 years on retail properties and improvements. Maintenance and
repair costs are charged to operations as incurred. Tenant work and other major
improvements are capitalized and depreciated over the life of the lease or their
estimated useful life, respectively. In accordance with Statement of Financial
Accounting Standard ("SFAS") No. 66, "Accounting for Sales of Real Estate",
sales are recognized at closing only when sufficient down payments have been
obtained, possession and other attributes of ownership have been transferred to
the buyer and the Trust has no significant continuing involvement. The gain or
loss resulting from the sale of properties is included in net income at the time
of sale. Upon termination of a lease, undepreciated tenant improvement costs are
charged to operations if the assets
F6
are replaced and the asset and the corresponding accumulated depreciation are
retired.
The Trust evaluates the carrying value of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". In cases where particular
assets are being held for sale, impairment is based on whether the fair value
(estimated sales price less costs of disposal) of each individual property to be
sold is less than the net book value. Otherwise, impairment is based on whether
it is probable that undiscounted future cash flows from each property will be
less than its net book value. If a property is impaired, its basis is adjusted
to its fair market value.
In August 2001 the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (effective for the Trust on
January 1, 2002). SFAS No. 144 requires that one accounting model be used for
long-lived assets to be disposed of by sale, whether previously held and used
or newly-acquired, and broadens the presentation of discontinued operations to
include more disposal transactions.
The Trust, when applicable as lessee, classifies its leases of land and
buildings as operating or capital leases in accordance with the provisions of
SFAS No. 13, "Accounting for Leases".
Certain external and internal costs directly related to the development,
redevelopment and leasing of real estate including applicable salaries and
their related direct costs are capitalized. The capitalized costs associated
with developments, redevelopments and leasing are depreciated or amortized over
the life of the improvement and lease, respectively. Unamortized leasing costs
are charged to operations if the applicable tenant vacates before the
expiration of their lease.
Interest costs on developments and major redevelopments are capitalized as
part of the development and redevelopment. Capitalization of interest commences
when development activities and expenditures begin and end upon completion,
i.e. when the asset is ready for its intended use. Generally rental property is
considered substantially complete and ready for its intended use upon
completion of tenant improvements, but no later than one year from the
completion of major construction activity.
Debt Issue Costs. Costs related to the issuance of debt instruments are
capitalized and are amortized as interest expense over the life of the related
issue using the effective interest method. Upon conversion or in the event of
redemption, applicable unamortized costs are charged to shareholders' equity or
to operations, respectively.
Cash and Cash Equivalents. The Trust defines cash as cash on hand, demand
deposits with financial institutions and short term liquid investments with an
initial maturity under three months. Cash balances in individual banks may
exceed insurable amounts from time to time.
Risk Management. Upon adoption of SFAS No. 133 "Accounting for
F7
Derivative Instruments and Hedging Activities" on January 1, 2001, the Trust
had no derivatives and thus there was no transition adjustment upon adoption.
SFAS No. 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge of the exposure to certain risks. The Trust
enters into derivative contracts, which qualify as cash flow hedges, in order
to manage interest rate risk. Derivatives are not purchased for speculation.
During 2001, to hedge its exposure to interest rates on its $125 million term
loan, the Trust entered into interest rate swaps, which fixed the LIBOR
interest rate on the term loan at 5.27%. The current interest rate on the term
loan is LIBOR plus 95 basis points, thus fixing the interest rate at 6.22% on
notional amounts totaling $125 million. The Trust is exposed to credit loss in
the event of non-performance by the counterparties to the interest rate
protection agreement should interest rates exceed the cap. However, management
does not anticipate non-performance by the counterparties. The counterparties
have long-term debt ratings of A- or above by S&P and AA2 or above by Moody's.
Although the Trust's cap is not exchange-traded, there are a number of
financial institutions which enter into these types of transactions as part of
their day-to-day activities. The interest rate swaps mature concurrently with
the $125 million term loan on December 19, 2003. The swaps were documented as
cash flow hedges and designated as effective at inception of the swap contract.
Consequently, the unrealized gain or loss upon measuring the swaps at their
fair market value is recorded as a component of other comprehensive income
within stockholders' equity and either a derivative instrument asset or
liability is recorded on the balance sheet. At December 31, 2001, an unrealized
loss of $4,342,000, representing the difference between the current market
value and the 6.22% fixed interest rate on the swap, was recorded in other
comprehensive income with a corresponding derivative liability on the balance
sheet. Interest expense of approximately $2,217,000 will be reclassified from
other comprehensive income into current earnings over the next twelve months to
bring the effective interest rate up to 6.22%. There were no open derivative
contracts at December 31, 2000 or 1999.
Acquisition, Development and Construction Loan Arrangements. The Trust has made
certain mortgage loans that, because of their nature, qualify as loan
receivables. At the time the loans were made the Trust did not intend for the
arrangement to be anything other than a financing and did not contemplate a
real estate investment. Using guidance set forth in the Third Notice to
Practitioners issued by the AICPA in February 1986 entitled "ADC Arrangements"
("the Third Notice"), the Trust evaluates each investment to determine whether
the loan arrangement qualifies under the Third Notice as a loan, joint venture
or real estate investment and the appropriate accounting thereon; such
determination affects the Trust's balance sheet classification of these
investments and the recognition of interest income derived therefrom.
Generally, the Trust receives additional interest on these loans, however the
Trust never receives in excess of 50% of the residual profit in the project (as
defined in the Third Notice) and because the borrower has either a substantial
investment in the project or has guaranteed all or a portion of
F8
the Trust's loan (or a combination thereof) the loans qualify for loan
accounting. The amounts under ADC arrangements at December 31, 2001 and 2000
are $35.6 million and $47.4 million, respectively and interest income
recognized thereon was $4.1 million and $5.0 million, respectively.
Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. These estimates are
prepared using management's best judgment, after considering past and current
events. Actual results could differ from these estimates.
Comprehensive Income. The Trust's interest rate swaps were documented as cash
flow hedges and designated as effective at inception of the swap contract,
therefore, the unrealized gain or loss upon measuring the swaps at their fair
market value is recorded as a component of other comprehensive income within
stockholders' equity. In accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", investments purchased in connection
with the Trust's nonqualified deferred compensation plan are classified as
available for sale securities and reported at fair value. Unrealized gains or
losses on these investments purchased to match the Trust's obligation to the
participants is also recorded as a component of other comprehensive income. At
December 31, 2001 these investments consisted of mutual funds and are stated at
market value.
F9
Earnings Per Share. The Trust calculates basic and diluted earnings per share
in accordance with SFAS No. 128, "Earnings Per Share". Basic EPS excludes
dilution and is computed by dividing net income available for common
shareholders by the weighted number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or
converted into common shares and then shared in the earnings of the Trust.
The following table sets forth the reconciliation between basic and
diluted EPS (in thousands, except per share data):
2001 2000 1999
- ------------------------------------------------------------------
Numerator
- ---------
Net income available for common
shareholders - basic $59,722 $52,573 $40,493
Income attributable to
operating partnership units 1,384 1,311 831
------- ------- -------
Net income available for common
shareholders - diluted $61,106 $53,884 $41,324
======= ======= =======
Denominator
- -----------
Denominator for basic EPS-
weighted average shares 39,164 38,796 39,574
Effect of dilutive securities
Stock options and awards 197 155 214
Operating partnership units 905 959 850
------- ------- -------
Weighted average shares - diluted 40,266 39,910 40,638
======= ======= =======
Earnings per common share - basic $ 1.52 $ 1.36 $ 1.02
======= ======= =======
Earnings per common share - diluted $ 1.52 $ 1.35 $ 1.02
======= ======= =======
Stock options are accounted for in accordance with APB 25, as interpreted,
whereby if options are priced at fair market value or above at the date of
grant, no compensation expense is recognized.
Reclassifications. Certain components of real estate, mortgages and
construction loans payable and notes payable on the December 31, 2000 Balance
Sheet have been reclassified to assure comparability of all periods presented.
F10
NOTE 1: REAL ESTATE AND ENCUMBRANCES
A summary of the Trust's properties at December 31, 2001 and 2000 is as
follows (in thousands):
Accumulated
Cost depreciation and
2001 amortization Encumbrances
- -----------------------------------------------------------------
Retail properties $1,928,554 $ 329,911 $ 350,043
Retail properties
under capital leases 169,072 59,967 100,293
Apartments 6,678 5,889 --
---------- ---------- ----------
$2,104,304 $ 395,767 $ 450,336
========== ========== ==========
2000
Retail properties $1,633,448 $ 276,982 $ 218,541
Retail properties
under capital leases 214,805 68,564 121,611
Apartments 6,660 5,712 --
---------- ---------- ----------
$1,854,913 $ 351,258 $ 340,152
========== ========== ==========
During 2001 the Trust expended cash of $61.4 million to acquire real
estate and an additional $199.1 million to improve, redevelop and develop its
existing real estate. Of the $199.1 million spent in 2001 on the Trust's
existing real estate portfolio, approximately $158.0 million was invested in
the Trust's development projects, primarily the projects in Bethesda, Maryland;
San Jose, California; and in Arlington, Virginia. The remaining $41.0 million
of capital expenditures relates to improvements to common areas, tenant work
and various redevelopments, including the office expansion and retenanting of
Willow Lawn Shopping Center, the renovation of Brunswick Shopping Center, the
redevelopment of retail buildings in San Antonio, Texas and the redevelopment
and retenanting of certain of the Trust's California street retail buildings.
On February 16, 2001 the Trust bought the fee interest underlying the
capital lease obligation of $21.4 million, thereby terminating the capital
lease, on Brick Plaza in Brick, New Jersey for a purchase price of $28 million.
A mortgage note receivable of $3.2 million owed to the Trust by the lessor and
a $3 million security deposit on the capital lease were credited to the
purchase price, resulting in a cash outlay of approximately $21.5 million.
On March 1, 2001 the limited partners in two partnerships, owning street
retail properties in southern California, exercised their rights under the
partnership agreements and put their interests to the Trust for $18.1 million
plus additional consideration to be determined upon meeting certain leasing
requirements in the future. The Trust paid the initial $18.1 million, $11.4
million in cash at closing, and the $6.7 million
F11
balance in 328,116 common shares issued to the limited partners on June 19,
2001. To date, leasing transactions have resulted in a purchase price
adjustment of $188,000; $160,000 of which was paid by the issuance of 7,120
common shares on December 6, 2001 and the remainder paid in cash. The Trust
estimates that an additional $1.0 to $1.2 million will be owed to the limited
partners upon completion of certain other leasing transactions.
In connection with the buyout of the minority partner at Santana Row in a
transaction being structured as a tax-free exchange the Trust made an equity
investment of $2.6 million and a loan of $5.9 million to a partnership which
purchased a building for $8.5 million. Upon consummation of the exchange in
January 2002, the Trust received the minority interest in Santana Row in
exchange for its $2.6 million investment in the building. The $5.9 million loan
is due to the Trust on January 12, 2003.
On April 27, 2001 the Trust sold the Williamsburg Shopping Center in
Williamsburg, Virginia for $16.7 million resulting in a gain of $7.9 million.
The proceeds from the sale were held by a qualified intermediary until the
execution of a tax-free exchange for Friendship Center.
On September 21, 2001 the Trust purchased Friendship Center, a 119,000
square foot street retail property in Washington, D.C. for $33.4 million. The
purchase was funded from the proceeds from the sale of Williamsburg Shopping
Center and a $17.0 million mortgage loan.
On December 18, 2001 the Trust sold the street retail property located at
101 E. Oak Street in Chicago, Illinois for $6.1 million resulting in a gain of
$1.8 million. The proceeds from the sale are being held by a qualified
intermediary for purposes of executing a tax-free property exchange.
On December 30, 2001 the Trust exchanged its 90% interest in a street
retail building in Forest Hills, New York to the minority partner in exchange
for the minority partner's 10% interest in three other street retail buildings
in Forest Hills, New York resulting in an accounting loss of approximately
$500,000.
The Trust's 120 retail properties at December 31, 2001 are located in 15
states and the District of Columbia. There are approximately 2,100 tenants
providing a wide range of retail products and services. These tenants range
from sole proprietorships to national retailers; no one tenant or corporate
group of tenants accounts for more than 2.7% of revenue.
Mortgage notes receivable of $35.6 million are due over various terms from
January 2002 to May 2021 and have an average weighted interest rate of 10.0%.
Under the terms of certain of these mortgages, the Trust will receive
additional interest based upon the gross income of the secured properties and,
upon sale of the properties, the Trust will share in the appreciation of the
properties.
Mortgages and construction loans payable and capital lease obligations are
due in installments over various terms extending to 2016 and 2060,
respectively, with interest rates ranging from 4.1% to 11.25%. Certain of the
capital lease obligations require
F12
additional interest payments based upon property performance. The Trust
refinanced two maturing mortgages totaling $30.5 million during 2001 by placing
new mortgage notes totaling $43.5 million on these properties. In addition the
Trust placed new mortgage loans on two properties, Brick Plaza and Friendship
Center, totaling $50.0 million. There were no maturing mortgages in 2000 or
1999.
On April 17, 2001 the Trust closed on a $295 million construction loan for
Santana Row in San Jose, California. The loan, which initially bears interest
at LIBOR plus 212.5 basis points, matures April 16, 2004 with two one-year
extension options, subject to obtaining certain operating targets. The interest
rate will decrease to LIBOR plus 187.5 basis points and then to LIBOR plus
162.5 basis points upon the achievement of certain leasing, occupancy and net
operating income hurdles. There is no assurance that these targets and hurdles
will be met. The construction loan requires fees and has various covenants
including the maintenance of a minimum shareholders' equity and a maximum ratio
of debt to gross asset value. The initial funding of the construction loan took
place on August 23, 2001 when the equity and pre-leasing requirements were met.
As of December 31, 2001, $62.0 million was borrowed under the loan. No
principal payments are due until maturity. The property secures the
construction loan facility.
At December 31, 2001 there was $23.2 million borrowed under the
construction loan for the Trust's Woodmont East development in Bethesda,
Maryland. The loan, which has a floating interest rate of LIBOR plus 120 to 150
basis points, depending on occupancy levels, matures August 29, 2002 with two
one-year extension options. No principal payments are due until maturity. The
property secures the construction loan facility.
F13
Scheduled principal payments on mortgage and construction loan
indebtedness, assuming the option to extend the Woodmont East construction loan
is exercised, as of December 31, 2001 are as follows (in thousands):
Year ending December 31,
2002 $ 498
2003 17,709
2004 87,826
2005 2,896
2006 3,227
Thereafter 237,887
---------
$ 350,043
=========
Future minimum lease payments and their present value for property under
capital leases as of December 31, 2001, are as follows (in thousands):
Year ending December 31,
2002 $ 9,394
2003 9,324
2004 9,539
2005 9,539
2006 9,539
Thereafter 375,012
---------
422,347
Less amount representing interest (322,054)
---------
Present value $ 100,293
=========
Leasing Arrangements
- --------------------
The Trust's leases with retail property and apartment tenants are
classified as operating leases. Leases on apartments are generally for a period
of one year, whereas retail property leases generally range from three to 10
years (certain leases with anchor tenants may be longer), and usually provide
for contingent rentals based on sales and sharing of certain operating costs.
The components of rental income are as follows (in thousands):
Year ended December 31,
2001 2000 1999
- -----------------------------------------------------------------
Retail and mixed-use properties
Minimum rents $223,515 $208,474 $197,299
Cost reimbursements 47,328 43,056 39,574
Percentage rent 6,107 6,364 6,277
Apartments - rents 2,985 2,790 2,683
-------- -------- --------
$279,935 $260,684 $245,833
======== ======== ========
F14
The components of rental expense are as follows (in thousands):
Year ended December 31,
2001 2000 1999
- ---------------------------------------------------------------
Repairs and maintenance $17,383 $16,590 $15,347
Management fees and costs 11,995 9,831 10,635
Utilities 8,129 8,096 7,120
Payroll - properties 4,709 4,510 4,440
Ground rent 3,698 3,190 2,933
Insurance 3,150 2,900 2,774
Other operating 14,417 11,163 10,428
------- ------- -------
$63,481 $56,280 $53,677
======= ======= =======
Minimum future retail property rentals on noncancelable operating leases,
before any reserve for uncollectible amounts, on operating properties as of
December 31, 2001 are as follows (in thousands):
Year ending December 31,
2002 $ 231,787
2003 221,169
2004 200,241
2005 179,164
2006 153,902
Thereafter 898,538
----------
$1,884,801
==========
F15
NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------------
The following disclosure of estimated fair value was determined by the
Trust, using available market information and appropriate valuation methods.
Considerable judgment is necessary to develop estimates of fair value. The
estimates presented herein are not necessarily indicative of the amounts that
could be realized upon disposition of the financial instruments.
The Trust estimates the fair value of its financial instruments using the
following methods and assumptions: (1) quoted market prices, when available, are
used to estimate the fair value of investments in marketable debt and equity
securities; (2) quoted market prices are used to estimate the fair value of the
Trust's marketable convertible subordinated debentures; (3) discounted cash flow
analyses are used to estimate the fair value of mortgage notes receivable and
payable, using the Trust's estimate of current interest rates for similar notes;
(4) carrying amounts in the balance sheet approximate fair value for cash,
accounts payable, accrued expenses and short term borrowings. Notes receivable
from officers are excluded from fair value estimation since they have been
issued in connection with employee stock ownership programs.
December 31, 2001 December 31, 2000
(in thousands) Carrying Fair Carrying Fair
Value Value Value Value
------------------- ------------------
Cash & equivalents $ 17,563 $ 17,563 $ 11,357 $ 11,357
Investments 2,739 2,739 2,356 2,356
Mortgage notes
receivable 35,607 36,427 47,360 48,039
Mortgages and
construction loans
and notes payable 524,886 559,179 427,546 427,937
Convertible
debentures 75,289 70,696 75,289 71,058
Senior notes 410,000 425,970 410,000 411,934
F16
NOTE 3. NOTES PAYABLE
- ---------------------
The Trust's notes payable consist of the following (in thousands):
2001 2000
- ---------------------------------------------------------------------
Revolving credit facilities $ 44,000 $ 78,000
Term note with banks 125,000 125,000
Other 5,843 6,005
-------- --------
$174,843 $209,005
======== ========
In December 1997 the Trust obtained a five year syndicated revolving
credit facility for $300 million due December 2002. The syndicated facility
requires fees and has various covenants including the maintenance of a minimum
shareholders' equity and a maximum ratio of debt to net worth. In June 2000,
the Trust modified certain covenants and extended the maturity date to December
19, 2003. The current borrowing rate on the syndicated credit facility is LIBOR
plus 80 basis points.
In December 1998 the Trust obtained a four year loan of $125 million from
five institutional lenders. The loan was originally due December 2002 and was
extended to December 19, 2003 along with the syndicated credit facility. The
loan requires the payment of certain fees and has the same covenants as the
syndicated credit facility. The current borrowing rate on the term loan is
LIBOR plus 95 basis points.
The maximum amount drawn under these facilities during 2001, 2000 and 1999
was $308.5 million, $343.1 million and $330.0 million, respectively. In 2001,
2000 and 1999 the weighted average interest rate on borrowings was 5.6%, 7.2%
and 5.9%, respectively, and the average amount outstanding was $269.7 million,
$283.2 million and $296.4 million, respectively.
In connection with the land held for future development in Hillsboro,
Oregon, the Trust issued a $3.4 million note which was originally due June 30,
2001. The note has been extended one year to June 30, 2002. The loan bears
interest at LIBOR plus 125 basis points. The property secures the loan facility.
NOTE 4. 5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
- --------------------------------------------------
In October 1993, the Trust issued $75.0 million of 5 1/4% convertible
subordinated debentures, realizing cash proceeds of approximately $73.0 million.
The debentures were not registered under the Securities Act of 1933 and were not
publicly distributed within the United States. The debentures, which mature in
2003, are convertible into shares of beneficial interest at $36 per share. The
debentures are redeemable by the Trust, in whole, at any time after October 28,
1998 at 100% of the principal amount plus accrued
F17
interest
At December 2001 and 2000 the Trust had outstanding $289,000 of 5 1/4%
convertible subordinated debentures due 2002. The debentures which are
convertible into shares of beneficial interest at $30.625 were not registered
under the Securities Act of 1933 and were not publicly distributed within the
United States.
There are no significant financial covenants on these debentures. The Trust
is in compliance with the terms and covenants of these borrowings. No principal
is due on these notes prior to maturity.
NOTE 5. SENIOR NOTES AND DEBENTURES
- -----------------------------------
Unsecured senior notes and debentures at December 31, 2001 and 2000
consist of the following (in thousands):
2001 2000
- -------------------------------------------------------------
8% Notes due April 21, 2002 $ 25,000 $ 25,000
6.74% Medium-Term Notes due March 10, 2004 39,500 39,500
6.625% Notes due December 1, 2005 40,000 40,000
6.99% Medium-Term Notes due March 10, 2006 40,500 40,500
6.82% Medium-Term Notes due August 1, 2027,
redeemable at par by holder August 1, 2007 40,000 40,000
7.48% Debentures due August 15, 2026,
redeemable at par by holder August 15, 2008 50,000 50,000
8.75% Notes due December 1, 2009 175,000 175,000
-------- --------
$410,000 $410,000
======== ========
On January 17, 2000 the Trust's $100 million of 8.875% Notes matured and
were paid with borrowings from the Trust's syndicated credit facilities.
The loan agreements contain various covenants, including limitations on
the amount of debt and minimum debt service coverage ratios. The Trust is in
compliance with all covenants. No principal is due on these notes prior to
maturity.
In September 1998 the Trust filed a $500 million shelf registration
statement with the Securities and Exchange Commission which allows the issuance
of debt securities, preferred shares and common shares. As of December 31,
2001, $190 million is available under the shelf registration.
The Trust plans to pay-off the 8% Notes due April 21,2002 through
borrowings from its syndicated credit facility.
NOTE 6. DIVIDENDS
- -----------------
On November 1, 2001 the Trustees declared a quarterly cash dividend of
$.48 per common share, payable January 15, 2002 to common shareholders of
record January 2, 2002. For the years ended December 31, 2000 and 1999 $.11 and
$.16, of dividends
F18
paid per common share, respectively, represented a return of capital. There was
no return of capital in 2001.
On November 1, 2001 the Trustees declared a quarterly cash dividend of
$.49687 per share on its Series A Cumulative Redeemable Preferred Shares,
payable on January 31, 2002 to shareholders of record on January 15, 2002.
On January 2, 2002 the Trustees declared a quarterly cash dividend of
$.3778 per share on its Series B Cumulative Redeemable Preferred Shares,
payable January 31, 2002 to shareholders of record on January 15, 2002.
For the year ended December 31, 2000, $.04 of dividends paid per common
share and per preferred share represent a capital gain. There were no capital
gains in 2001 or 1999.
NOTE 7. COMMITMENTS AND CONTINGENCIES
- -------------------------------------
Pentagon Row is a mixed-use project with the retail component being
developed by the Trust and the residential component being developed by an
unrelated developer. In October 2000 the general contractor on the project was
replaced by the Trust and the residential developer, because of schedule delays
and other events that caused the Trust and the residential developer to
conclude that the original contractor was either unable or unwilling to comply
with its contractual obligations. The Trust and the residential developer filed
suit against the original contractor to recover damages that are being incurred
as a result of defaults under the contract. Though not quantifiable until the
project is completed, the combined damage claim is estimated to be in excess of
$40.0 million. The original contractor filed a counterclaim against the Trust
and the residential developer for damages of $7 million plus interest,
attorneys' fees and litigation costs. The Trust believes that the counterclaim
is generally without merit and that the outcome of the counterclaim will not
have a material adverse effect on its financial condition, results of
operations or on the project. Work continues under the direction of the new
general contractor. Due to the delay and other costs associated with the change
in general contractor the estimated cost of the project is now $92 million, if
there is no recovery of damages from the original general contractor. The
lawsuit against the original contractor is scheduled for mediation in May 2002,
and, should mediation prove unsuccessful, is scheduled to go to trial in
October 2002.
In addition, the Trust is involved in various other 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.
Under the terms of the Congressional Plaza partnership agreement, from and
after January 1, 1986 Rockville Plaza Company, an unaffiliated third party, has
the right to require the Trust and the two other minority partners to purchase
from half to all of Rockville Plaza Company's 37.5% interest in Congressional
Plaza at the interest's then-current fair market value. Based on management's
current estimate of fair market value, the Trust's estimated
F19
liability upon exercise of the put option is approximately $27.5 million. In
conjunction with a redevelopment currently taking place at the property, the
Trust has reached an agreement with Rockville Plaza Company to acquire an
additional 7.5% interest in Congressional Plaza in exchange for funding
approximately $7 million of Rockville Plaza Company's share of the
redevelopment cost. The funding will take place through 2002 and the
transaction will be completed in early 2003.
Under the terms of five other partnership agreements, 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 for two of the partnerships, a limited number of
common shares 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 partnership agreements, the partners may redeem
their 904,589 operating units for cash or exchange into the same number of
common shares of the Trust, at the option of the Trust.
As of December 31, 2001 in connection with renovation and development
projects, the Trust has contractual obligations of approximately $172 million,
including approximately $154 million for Santana Row.
A subcontractor of the Trust's Santana Row project has entered into a
contract with a wood supply company in which a trustee of the Trust owns an
indirect 9.7% interest. The contract provides for a payment to the company of
approximately $330,000 for wood flooring. The dollar amount of the contract does
not represent a material amount of business to the wood supply company. Terms
of the contract were negotiated at arms-length.
The centerpiece of Santana Row is a four-star, 214 room boutique hotel. The
Trust has entered into a 99 year ground lease with the hotel requiring minimum
rent of $450,000 per annum with rental increases every five years and percentage
rent on room, parking and other revenues. The Trust has committed to loan $7.2
million to the hotel. The loan bears interest at rates ranging from 12% to 15%
and has a ten year term. During the first five years, interest is payable from
cash flow, if available. If cash flow is not sufficient to pay interest, it will
accrue and bear interest at the same rate as the initial principal. In addition,
the Trust has committed approximately $5.5 million to four restaurant joint
ventures at Santana Row in lieu of tenant allowances. The Trust will participate
in profits, losses and cash flow in accordance with the terms of each individual
venture.
The Trust is obligated under ground lease agreements on several shopping
centers requiring minimum annual payments as follows (in thousands):
2002 $ 3,909
2003 3,910
2004 3,921
2005 3,930
2006 3,977
Thereafter 252,229
--------
$271,876
========
F20
NOTE 8. SHAREHOLDERS' EQUITY
- ----------------------------
In May 1999, the Trust reorganized as a Maryland real estate investment
trust by amending and restating its declaration of trust and bylaws. The
Amended Declaration of Trust changed the number of authorized shares of common
and preferred shares from unlimited to 100,000,000 and 15,000,000,
respectively. In addition, all common shares of beneficial interest, no par
value, which were issued and outstanding were changed to common shares of
beneficial interest, $0.01 par value per share and all Series A Cumulative
Redeemable Preferred Shares of beneficial interest, no par value, which were
issued and outstanding were changed to Series A Cumulative Redeemable Preferred
Shares of beneficial interest, $0.01 par value per share.
On October 6, 1997 the Trust issued four million 7.95% Series A Cumulative
Redeemable Preferred Shares at $25 per share in a public offering, realizing
cash proceeds of approximately $96.6 million after costs of $3.4 million. The
Series A Preferred Shares are not redeemable prior to October 6, 2002. On or
after that date, the Preferred Shares may be redeemed, in whole or in part, at
the option of the Trust, at a redemption price of $25 per share plus all
accrued and unpaid dividends. The redemption price is payable solely out of
proceeds from the sale of other capital shares of the Trust. Dividends on the
Preferred Shares are payable quarterly in arrears on the last day of January,
April, July and October.
On November 19, 2001 the Trust issued 5.4 million 8.5% Series B Cumulative
Redeemable Preferred Shares at $25 per share in a public offering, realizing
cash proceeds of approximately $130.2 million after costs of $4.8 million. The
Series B Preferred Shares are not redeemable prior to November 27, 2006. On or
after that date, the Preferred Shares may be redeemed, in whole or in part, at
the option of the Trust, at a redemption price of $25 per share plus all
accrued and unpaid dividends. The redemption price is payable solely out of
proceeds from the sale of other capital shares of the Trust. Dividends on the
Preferred Shares are payable quarterly in arrears on the last day of January,
April, July and October.
The Trust has a Dividend Reinvestment Plan, whereby shareholders may use
their dividends and make optional cash payments to purchase shares. In 2001,
2000 and 1999, 159,234 shares, 153,713 shares and 165,770 shares, respectively,
were issued under the Plan.
In December 1999, the Trustees authorized a share repurchase program for
calendar year 2000 of up to an aggregate of 4 million of the Trust's common
shares. During 2000 a total of 1,325,900 shares were repurchased, at a cost of
$25.2 million. The Trust did not repurchase shares in 2001.
In 2001 and 2000, 96,657 common shares and 270,809 common
F21
shares, respectively, were awarded to the Trust's Chief Executive Officer and
other key employees under various incentive compensation programs designed to
directly link a significant portion of their current and long term compensation
to the prosperity of the Trust and its shareholders. The shares vest over terms
from 3 to 8 years.
In 1999, 65,660 common shares were awarded, and 5,006 shares were
forfeited and retired, to the Trust's Chief Executive Officer and other key
employees under various incentive compensation programs. Fifteen thousand
shares vested upon award, and the balance vest over terms from 5 to 13 years.
In January 1994 under the terms of the 1993 Long Term Incentive Plan, an
officer of the Trust purchased 40,000 common shares at $25 per share with the
assistance of a $1.0 million loan from the Trust. The loan, which has a term of
12 years and a current balance of $500,000, bears interest at 6.24%.
Forgiveness of up to 75% of the loan is subject to the future performance of
the Trust. One eighth of the loan was forgiven on January 31, 1995 and an
additional one sixteenth has been forgiven each January 31 since then as
certain performance criteria of the Trust were met.
In January 1991 the Trustees adopted the Federal Realty Investment Trust
Share Purchase Plan. Under the terms of this plan, officers and certain
employees of the Trust purchased 446,000 common shares at $15.125 per share
with the assistance of loans of $6.7 million from the Trust. Originally, the
Plan called for one sixteenth of the loan to be forgiven each year for eight
years, as long as the participant was still employed by the Trust. The loans
for all participants, but two, were modified in 1994 to extend the term an
additional four years and to tie forgiveness in 1995 and thereafter to certain
performance criteria of the Trust. One sixteenth of the loan has been forgiven
during each year of the plan. At December 31, 2001 the Trust has outstanding
purchase loans to participants of $1.3 million. The purchase loans bear
interest at 9.39%. The shares purchased under the plan may not be sold, pledged
or assigned until both the purchase and tax loans associated with the plan are
satisfied and the term has expired, without the consent of the Compensation
Committee of the Board of Trustees.
Tax loans with a balance of $3.1 million in 2001, $2.2 million in 2000 and
$1.3 million in 1999 have been made in connection with restricted share grants
to the Trust's Chief Executive Officer, President and Chief Investment Officer
and in connection with the Share Purchase Plans. The loans, which bear interest
ranging from 6.36% to 9.39%, are due over periods ranging from 8 to 13 years
from the date of the loan.
On April 13, 1999, the Shareholder Rights Plan adopted in 1989 expired. On
March 11, 1999 the Trust entered into an Amended and Restated Rights Agreement
with American Stock Transfer and Trust Company, pursuant to which (i)the
expiration date of the Trust's shareholder rights plan was extended for an
additional ten years to April 24, 2009, (ii)the beneficial ownership percentage
at which a person
F22
becomes an "Acquiring Person" under the plan was reduced from 20% to 15%, and
(iii) certain other amendments were made.
NOTE 9. STOCK OPTION PLAN
- -------------------------
The 1993 Long Term Incentive Plan ("Plan") has been amended to authorize
the grant of options and other stock based awards for up to 5.5 million shares.
Options granted under the Plan have ten year terms and vest in one to five
years. Under the Plan, on each annual meeting date during the term of the Plan,
each nonemployee Trustee will be awarded 2,500 options.
In May 2001 the Trust's shareholders' approved the 2001 Long Term
Incentive Plan ("2001 Plan") which authorized an additional 1,750,000 shares
for future option and other stock based awards.
The option price to acquire shares under the 2001 Plan and previous plans
is required to be at least the fair market value at the date of grant. As a
result of the exercise of options, the Trust had outstanding from its officers
and employees notes for $2.5 million, $2.6 million and $3.6 million at December
31, 2001, 2000 and 1999, respectively. The notes issued under the 1993 Plan bear
interest at the lesser of (i) the Trust's borrowing rate on the date of
exercise or (ii) the dividend rate on the date of exercise divided by the
purchase price of such shares. The notes issued under the previous plans bear
interest at the lesser of (i) the Trust's borrowing rate or (ii) the current
indicated annual dividend rate on the shares acquired pursuant to the option,
divided by the purchase price of such shares. The notes are collateralized by
the shares and are with recourse. The loans have a term extending to the
employee's or officer's retirement date.
SFAS No. 123, "Accounting for Stock-Based Compensation" requires pro forma
information regarding net income and earnings per share as if the Trust
accounted for its stock options under the fair value method of that Statement.
The fair value for options issued in 2001, 2000 and 1999 has been estimated as
$350,000, $549,000 and $434,000, respectively, as of the date of grant, using a
binomial model with the following weighted-average assumptions for 2001, 2000
and 1999, respectively: risk-free interest rates of 4.9%, 5.2% and 5.4%;
volatility factors of the expected market price of the Trust's shares of 20%,
14% and 15%; and a weighted average expected life of the option of 6.9 years,
5.7 years and 6.6 years. The Trust's assumed weighted average dividend yield
used to estimate the fair value of the options issued was 9.598% in 2001.
Because option valuation models require the input of highly subjective
assumptions, such as the expected stock price volatility, and because changes
in these subjective input assumptions can materially affect the fair value
estimate, the existing model may not necessarily provide a reliable single
measure of the fair value of its stock options.
F23
For purposes of pro forma disclosures, the estimated fair value of the
options are amortized to expense over the options' vesting period. The pro
forma information is as follows (in thousands except for earnings per share):
2001 2000 1999
- -------------------------------------------------------------
Pro forma net income $68,076 $59,445 $46,368
Pro forma earnings per share, basic $1.51 $1.33 $.97
Pro forma earnings per share, diluted $1.50 $1.32 $.97
A summary of the Trust's stock option activity for the years ended
December 31, is as follows:
Shares Weighted
Under Average
Option Exercise Price
------ --------------
January 1, 1999 3,608,816 $25.00
Options granted 720,000 21.12
Options exercised (52,667) 20.73
Options forfeited (380,635) 25.29
----------
December 31, 1999 3,895,514 24.31
Options granted 737,500 19.75
Options exercised (67,684) 20.50
Options forfeited (847,049) 24.27
----------
December 31, 2000 3,718,281 23.46
Options granted 417,500 19.80
Options exercised (27,566) 20.81
Options forfeited (351,834) 22.88
----------
December 31, 2001 3,756,381 23.12
==========
At December 31, 2001 and 2000, options for 2.7 million and 2.3 million
shares, respectively, were exercisable. The average remaining contractual life
of options outstanding at December 31, 2001 and 2000 was 5.8 years and 8.1
years, respectively. The weighted average grant date fair value per option for
options granted in 2001 and 2000 was $1.04 and $.72, respectively. The exercise
price of options outstanding at December 31, 2001 ranged from $18.00 per share
to $27.13 per share.
NOTE 10. SAVINGS AND RETIREMENT PLANS
- -------------------------------------
The Trust has a savings and retirement plan in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. Employees'
contributions range, at the discretion of each employee, from 1% to 20% of
compensation up to a maximum of $10,500. Under the plan, the Trust, out of its
current net income, contributes 50% of each employee's first 5% of
contributions. In addition, the Trust may make discretionary contributions
within the limits of deductibility set forth by the Code. Employees of the
Trust are immediately eligible to
F24
become plan participants. Employees are not eligible to receive matching
contributions until their first anniversary of employment. The Trust's expense
for the years ended December 31, 2001, 2000 and 1999 was $243,000, $216,000 and
$223,000, respectively.
A nonqualified deferred compensation plan for Trust officers and directors
was established in 1994. The plan allows the participants to defer future
income until the earlier of age 65 or termination of employment with the Trust.
As of December 31, 2001, the Trust is liable to participants for approximately
$2.4 million under this plan. Although this is an unfunded plan, the Trust has
purchased certain investments with which to match this obligation.
NOTE 11. INTEREST EXPENSE
- -------------------------
The Trust incurred interest expense totaling $87.1 million, $79.7 million
and $68.4 million in 2001, 2000 and 1999, respectively, of which $17.8 million,
$13.3 million, and $6.9 million respectively, was capitalized. Interest paid
was $84.1 million in 2001, $83.1 million in 2000 and $67.0 million in 1999.
NOTE 12. SUBSEQUENT EVENTS
- --------------------------
On January 31, 2002 the Trust received repayment of $1,152,000 of mortgage
notes receivable.
On February 1, 2002, to complete the buyout of the minority partner at
Santana Row, the Trust received the minority partner's interest in Santana Row
in exchange for a $2.6 million investment in a partnership which had purchased a
building. A $5.9 million loan made by the Trust to the partnership as part of
the original purchase is due January 12, 2003.
As has been the practice over the past four years, under a Restricted
Share Agreement designed to link his compensation with the prosperity of the
shareholders, the Trust's Chief Executive Officer elected to accept stock in
lieu of cash for his 2002 salary and 2001 bonus. As a result, in 2002, 28,913
common shares were awarded to the Chief Executive Officer in lieu of his 2002
cash salary and 14,908 shares in lieu of his 2001 bonus.
Pursuant to the 2001 Incentive Bonus Plan, vice presidents and certain key
employees receive part of their 2001 bonus in Federal Realty shares which vest
over three years. Consequently, on February 28, 2002, 23,168 shares were
awarded under this plan.
In February 2002, 415,000 options and 30,000 performance shares were
granted to certain officers and key employees.
F25
NOTE 13. SUBSEQUENT EVENTS - CHANGE IN BUSINESS PLAN (UNAUDITED)
- ----------------------------------------------------------------
On February 28, 2002 the Trust adopted a business plan which returns the
Trust's primary focus to its traditional business of acquiring and redeveloping
community and neighborhood shopping centers that are anchored by supermarkets,
drug stores or high volume, value oriented retailers that provide consumer
necessities. Concurrent with the adoption of the business plan, the Trust
adopted a management succession plan and restructured its management team.
The Trust will complete Bethesda Row, Pentagon Row and Santana Row, but
does not plan any new, large-scale, mixed-use, ground-up development projects.
Rather, the Trust will return its focus to community and neighborhood shopping
centers. The Trust will seek to acquire income producing centers, may seek
opportunities to develop ground-up grocery anchored shopping centers in and
around the Metropolitan Washington, D.C., Philadelphia and New York markets and
will identify and execute redevelopment opportunities in its existing portfolio.
Steven J. Guttman, the Trust's Chief Executive Officer and Chairman of the
Board, will primarily devote his attention to the completion of Santana Row.
Upon Mr. Guttman's planned retirement in March 2003, it is expected that Donald
C. Wood will become Chief Executive Officer with Mr. Guttman remaining as
Chairman of the Board. Effective March 1, 2002, the Trust combined functions of
its previous Chief Investment Officer and Chief Financial Officer, and appointed
Larry E. Finger, to the new executive office of Chief Financial Officer in
charge of capital markets, investor relations and financial reporting. With the
renewed emphasis on acquisitions, Jeffrey S. Berkes was appointed an executive
officer, Senior Vice President - Strategic Transactions.
As a result of the change in the Trust's business plan, the Trust estimates
it will record a charge of $16 million to $18 million in the first quarter of
2002. The charge includes severance and other compensation costs related to the
management restructuring as well as charges to write-down the Trust's
Tanasbourne and other development projects to fair value since the Trust will
hold the Tanasbourne project for sale. The Trust is re-evaluating the most
effective way to realize value on these assets on a risk-adjusted return basis.
NOTE 14. SEGMENT INFORMATION
- ----------------------------
The Trust operates its portfolio of assets in three geographic operating
regions: Northeast, Mid-Atlantic and West.
F26
A summary of the Trust's operations by geographic region is presented
below (in thousands):
North Mid
2001 East Atlantic West Other Consolidated
- ------------------------------------------------------------------------------------------------------------------------------
Rental income $120,313 $124,765 $ 34,857 - $ 279,935
Other income 5,659 5,715 2,603 - 13,977
Rental expense (23,597) (28,443) (11,441) - (63,481)
Real estate tax (15,863) (9,951) (2,958) - (28,772)
-------- -------- -------- ----------
Net operating income 86,512 92,086 23,061 201,659
Interest income - - - $6,590 6,590
Interest expense - - - (69,313) (69,313)
Administrative expense - - - (14,281) (14,281)
Depreciation and Amortization (27,576) (23,921) (7,383) (1,034) (59,914)
-------- -------- -------- --------- ----------
Income before investors'
Share of operations and
Gain on sale of real Estate $ 58,936 $ 68,165 $ 15,678 ($78,038) $ 64,741
======== ======== ======== ========= ==========
Capital expenditures $ 15,386 $ 87,706 $169,278 _ $ 272,370
======== ======== ======== ==========
Real estate assets $760,849 $793,566 $549,889 _ $2,104,304
======== ======== ======== ==========
North Mid
2000 East Atlantic West Other Consolidated
- -------------------------------------------------------------------------------------------------------------------------------
Rental income $113,078 $114,371 $ 33,235 - $ 260,684
Other income 4,215 3,900 2,950 - 11,065
Rental expense (23,261) (24,766) (8,253) - (56,280)
Real estate tax (14,347) (9,159) (3,114) - (26,620)
-------- -------- -------- ----------
Net operating income 79,685 84,346 24,818 188,849
Interest income - - - $7,532 7,532
Interest expense - - - (66,418) (66,418)
Administrative expense - - - (13,318) (13,318)
Depreciation and Amortization (25,169) (21,915) (5,242) (933) (53,259)
-------- -------- -------- --------- ----------
Income before investors'
Share of operations and
Gain on sale of real Estate $ 54,516 $ 62,431 $ 19,576 ($73,137) $ 63,386
======== ======== ======== ========= ==========
Capital expenditures $ 38,696 $ 60,783 $ 83,205 _ $ 182,684
======== ======== ======== ==========
Real estate assets $754,048 $720,208 $380,657 _ $1,854,913
======== ======== ======== ==========
North Mid
1999 East Atlantic West Other Consolidated
- -------------------------------------------------------------------------------------------------------------------------------
Rental income $102,452 $111,624 $ 31,757 - $ 245,833
Other income 5,672 3,903 1,656 - 11,231
Rental expense (20,702) (25,096) (7,879) - (53,677)
Real estate tax (13,146) (9,006) (2,869) - (25,021)
-------- -------- -------- ----------
Net operating income 74,276 81,425 22,665 178,366
Interest income - - - $7,649 7,649
Interest expense - - - (61,492) (61,492)
Administrative expense - - - (15,120) (15,120)
Depreciation and Amortization (22,648) (22,473) (4,101) (789) (50,011)
-------- -------- -------- --------- ----------
Income before investors'
Share of operations and
Loss on sale of real Estate $ 51,628 $ 58,952 $ 18,564 ($69,752) $ 59,392
======== ======== ======== ========= ==========
Capital expenditures $ 32,547 $ 26,444 $ 62,512 - $ 121,503
======== ======== ======== ==========
Real estate assets $715,772 $663,019 $342,668 - $1,721,459
======== ======== ======== ==========
There are no transactions between geographic areas.
F27
NOTE 15. QUARTERLY DATA (UNAUDITED)
- -----------------------------------
The following summary represents the results of operations for each
quarter in 2001 and 2000 (in thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
2001
Revenue $71,703 $73,398 $75,524 $79,877
Net income available
for common shares
12,245 20,180 (1) 13,194 14,103 (2)
Earnings per common
share - basic
.32 .51 .34 .35
Earnings per common
share - diluted (4) .32 .51 .33 .35
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
2000
Revenue $69,104 $68,806 $68,581 $72,790
Net income available
for common shares
12,151 16,087 (3) 12,433 11,902
Earnings per common
share - basic
.31 .42 .32 .31
Earnings per common
share - diluted
.31 .41 .32 .31
(1)Net income includes a $7.9 million gain on sale of real estate ($.20 gain
per share - basic and diluted).
(2)Net income includes a net $1.3 million gain on sale of real estate ($.03
gain per share - basic and $.02 gain per share - diluted).
(3)Net income includes a $3.7 million gain on sale of real estate ($.10 gain
per share - basic and $.09 gain per share - diluted).
(4)The sum of quarterly earnings per common share - diluted, $1.51 differs from
the annual earnings per common share - diluted, $1.52, due to rounding.
F28
COLUMN A COLUMN B COLUMN C COLUMN D
- ------------------------------------- ----------- ------------- ----------------
Initial cost to company
Cost Capitalized
Building and Subsequent to
Descriptions Encumbrance Land Improvements Acquisition
- ------------------------------------- ----------- --------------- ------------ ----------------
ALLWOOD (New Jersey) $ 3,523,000 $ $ 3,920,000 $ 344,000
ANDORRA (Pennsylvania) 2,432,000 12,346,000 3,645,000
ARIZONA BUILDINGS (2) 1,334,000 9,104,000 598,000
BALA CYNWYD (Pennsylvania) 3,565,000 14,466,000 6,186,000
BARRACKS ROAD (Virginia) 44,300,000 4,363,000 16,459,000 18,295,000
BETHESDA ROW (Maryland) 36,046,000 9,114,000 20,821,000 45,562,000
BLUESTAR (New Jersey) 26,893,000 29,922,000 8,963,000
BRICK PLAZA (New Jersey) 33,000,000 24,715,000 28,901,000
BRISTOL (Connecticut) 3,856,000 15,959,000 1,835,000
BRUNSWICK (New Jersey) 11,195,000 12,456,000 8,497,000
CALIFORNIA RETAIL BUILDINGS
SANTA MONICA (9) 22,645,000 12,709,000 34,312,000
SAN DIEGO (4) 3,844,000 1,352,000 6,901,000
150 POST STREET (San Francisco) 11,685,000 9,181,000 6,903,000
OTHER (7) 19,496,000 25,752,000 8,787,000
CLIFTON (New Jersey) 3,277,000 3,646,000 1,151,000
CONGRESSIONAL PLAZA (Maryland) 2,793,000 7,424,000 36,839,000
CONNECTICUT RETAIL BUILDINGS (13) 25,061,000 27,739,000 2,385,000
COURTHOUSE CENTER (Maryland) 1,750,000 1,869,000 112,000
CROSSROADS (Illinois) 4,635,000 11,611,000 5,435,000
DEDHAM PLAZA (Massachusetts) 12,369,000 12,918,000 2,799,000
EASTGATE (North Carolina) 1,608,000 5,775,000 5,311,000
ELLISBURG CIRCLE (New Jersey) 4,028,000 11,309,000 10,301,000
ESCONDIDO PROMENADE (California) 9,400,000 11,505,000 12,147,000 833,000
FALLS PLAZA (Virginia) 1,260,000 735,000 6,159,000
FALLS PLAZA - East (Virginia) 538,000 535,000 2,277,000
FEASTERVILLE (Pennsylvania) 1,431,000 1,600,000 8,474,000
FEDERAL PLAZA (Maryland) 36,304,000 10,216,000 17,895,000 33,366,000
FINLEY SQUARE (Illinois) 9,252,000 9,544,000 6,929,000
FLORIDA RETAIL BUILDINGS (2) 5,206,000 1,631,000 36,000
FLOURTOWN (Pennsylvania) 1,345,000 3,943,000 3,337,000
FRESH MEADOWS (New York) 24,625,000 25,255,000 14,272,000
FRIENDSHIP CTR (District of Columbia) 17,000,000 12,696,000 20,803,000 4,000
GAITHERSBURG SQUARE (Maryland) 7,701,000 5,271,000 10,505,000
GARDEN MARKET (Illinois) 2,677,000 4,829,000 2,823,000
GOVERNOR PLAZA (Maryland) 2,068,000 4,905,000 10,170,000
GRATIOT PLAZA (Michigan) 525,000 1,601,000 14,517,000
GREENLAWN (New York) 2,294,000 3,864,000 4,401,000
HAMILTON (New Jersey) 4,857,000 5,405,000 2,175,000
HAUPPAUGE (New York) 16,700,000 8,791,000 15,262,000 2,077,000
HUNTINGTON (New York) 14,387,000 16,008,000 6,487,000
IDYLWOOD PLAZA (Virginia) 4,308,000 10,026,000 456,000
ILLINOIS RETAIL BUILDINGS (2) 1,291,000 2,325,000 645,000
KINGS COURT (California) 10,714,000 151,000
LANCASTER (Pennsylvania) 68,000 2,103,000 2,588,000
LANGHORNE SQUARE (Pennsylvania) 720,000 2,974,000 13,768,000
LAUREL (Maryland) 7,458,000 22,525,000 15,254,000
LAWRENCE PARK (Pennsylvania) 31,400,000 5,723,000 7,160,000 10,540,000
LEESBURG PLAZA (Virginia) 9,900,000 8,184,000 10,722,000 1,166,000
LOEHMANN'S PLAZA (Virginia) 1,237,000 15,096,000 8,605,000
COLUMN A COLUMN E
- --------------------------------- -------------------------------------------------
Gross amount at which carried at close of period
Building and
Descriptions Land Improvements Total
- --------------------------------- ------------ ------------ -----------
ALLWOOD (New Jersey) $ 4,264,000 $ 4,264,000
ANDORRA (Pennsylvania) 2,432,000 15,991,000 18,423,000
ARIZONA BUILDINGS (2) 1,334,000 9,702,000 11,036,000
BALA CYNWYD (Pennsylvania) 3,565,000 20,652,000 24,217,000
BARRACKS ROAD (Virginia) 4,363,000 34,754,000 39,117,000
BETHESDA ROW (Maryland) 9,127,000 66,370,000 75,497,000
BLUESTAR (New Jersey) 38,885,000 38,885,000
BRICK PLAZA (New Jersey) 3,788,000 49,828,000 53,616,000
BRISTOL (Connecticut) 3,856,000 17,794,000 21,650,000
BRUNSWICK (New Jersey) 20,953,000 20,953,000
CALIFORNIA RETAIL BUILDINGS
SANTA MONICA (9) 22,645,000 47,021,000 69,666,000
SAN DIEGO (4) 3,844,000 8,253,000 12,097,000
150 POST STREET (San Francisco) 11,685,000 16,084,000 27,769,000
OTHER (7) 19,496,000 34,539,000 54,035,000
CLIFTON (New Jersey) 4,797,000 4,797,000
CONGRESSIONAL PLAZA (Maryland) 2,793,000 44,263,000 47,056,000
CONNECTICUT RETAIL BUILDINGS (13) 25,061,000 30,124,000 55,185,000
COURTHOUSE CENTER (Maryland) 1,750,000 1,981,000 3,731,000
CROSSROADS (Illinois) 4,635,000 17,046,000 21,681,000
DEDHAM PLAZA (Massachusetts) 12,369,000 15,717,000 28,086,000
EASTGATE (North Carolina) 1,608,000 11,086,000 12,694,000
ELLISBURG CIRCLE (New Jersey) 4,028,000 21,610,000 25,638,000
ESCONDIDO PROMENADE (California) 11,505,000 12,980,000 24,485,000
FALLS PLAZA (Virginia) 1,260,000 6,894,000 8,154,000
FALLS PLAZA - East (Virginia) 559,000 2,791,000 3,350,000
FEASTERVILLE (Pennsylvania) 1,431,000 10,074,000 11,505,000
FEDERAL PLAZA (Maryland) 10,216,000 51,261,000 61,477,000
FINLEY SQUARE (Illinois) 9,252,000 16,473,000 25,725,000
FLORIDA RETAIL BUILDINGS (2) 5,206,000 1,667,000 6,873,000
FLOURTOWN (Pennsylvania) 1,345,000 7,280,000 8,625,000
FRESH MEADOWS (New York) 24,625,000 39,527,000 64,152,000
FRIENDSHIP CTR (District of Columbia) 12,696,000 20,807,000 33,503,000
GAITHERSBURG SQUARE (Maryland) 6,012,000 17,465,000 23,477,000
GARDEN MARKET (Illinois) 2,677,000 7,652,000 10,329,000
GOVERNOR PLAZA (Maryland) 2,068,000 15,075,000 17,143,000
GRATIOT PLAZA (Michigan) 525,000 16,118,000 16,643,000
GREENLAWN (New York) 2,294,000 8,265,000 10,559,000
HAMILTON (New Jersey) 7,580,000 7,580,000
HAUPPAUGE (New York) 8,791,000 17,339,000 26,130,000
HUNTINGTON (New York) 22,495,000 22,495,000
IDYLWOOD PLAZA (Virginia) 4,308,000 10,482,000 14,790,000
ILLINOIS RETAIL BUILDINGS (2) 1,291,000 2,970,000 4,261,000
KINGS COURT (California) 10,865,000 10,865,000
LANCASTER (Pennsylvania) 4,691,000 4,691,000
LANGHORNE SQUARE (Pennsylvania) 720,000 16,742,000 17,462,000
LAUREL (Maryland) 7,458,000 37,779,000 45,237,000
LAWRENCE PARK (Pennsylvania) 5,734,000 17,689,000 23,423,000
LEESBURG PLAZA (Virginia) 8,184,000 11,888,000 20,072,000
LOEHMANN'S PLAZA (Virginia) 1,248,000 23,690,000 24,938,000
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
- --------------------------------- ----------------- ------------ ---------- ----------------------
Life on which
Accumulated Date depreciation in latest
Depreciation and of Date income statements
Descriptions Amortization Construction Acquired is computed
- --------------------------------- ----------------- ------------- ---------- ---------------------
ALLWOOD (New Jersey) $ 1,653,000 1958 12/12/88 35 years
ANDORRA (Pennsylvania) 6,809,000 1953 01/12/88 35 years
ARIZONA BUILDINGS (2) 965,000 1995-1998 05/07/98 35 years
BALA CYNWYD (Pennsylvania) 4,990,000 1955 09/22/93 35 years
BARRACKS ROAD (Virginia) 17,800,000 1958 12/31/85 35 years
BETHESDA ROW (Maryland) 8,642,000 1945-2000 12/31/93 35 - 50 years
BLUESTAR (New Jersey) 13,151,000 1959 12/12/88 35 years
BRICK PLAZA (New Jersey) 16,595,000 1958 12/28/89 35 years
BRISTOL (Connecticut) 3,382,000 1959 9/22/95 35 years
BRUNSWICK (New Jersey) 6,024,000 1957 12/12/88 35 years
CALIFORNIA RETAIL BUILDINGS
SANTA MONICA (9) 4,348,000 1888-2000 1996-2000 35 years
SAN DIEGO (4) 467,000 1888-1995 1996-1997 35 years
150 POST STREET (San Francisco) 1,694,000 1908 10/23/97 35 years
OTHER (7) 1,854,000 var 1996-1999 35 years
CLIFTON (New Jersey) 1,766,000 1959 12/12/88 35 years
CONGRESSIONAL PLAZA (Maryland) 16,099,000 1965 04/01/65 35 years
CONNECTICUT RETAIL BUILDINGS (13) 5,659,000 1900-1991 1994-1996 35 years
COURTHOUSE CENTER (Maryland) 238,000 1975 12/17/97 35 years
CROSSROADS (Illinois) 4,556,000 1959 07/19/93 35 years
DEDHAM PLAZA (Massachusetts) 3,880,000 1959 12/31/93 35 years
EASTGATE (North Carolina) 5,712,000 1963 12/18/86 35 years
ELLISBURG CIRCLE (New Jersey) 8,657,000 1959 10/16/92 35 years
ESCONDIDO PROMENADE (California) 1,903,000 1987 12/31/96 35 years
FALLS PLAZA (Virginia) 2,222,000 1962 09/30/67 22 3/4 years
FALLS PLAZA - East (Virginia) 2,574,000 1960 10/05/72 25 years
FEASTERVILLE (Pennsylvania) 4,619,000 1958 07/23/80 20 years
FEDERAL PLAZA (Maryland) 16,489,000 1970 06/29/89 35 years
FINLEY SQUARE (Illinois) 4,212,000 1974 04/27/95 35 years
FLORIDA RETAIL BUILDINGS (2) 284,000 1920 02/28/96 35 years
FLOURTOWN (Pennsylvania) 3,262,000 1957 04/25/80 35 years
FRESH MEADOWS (New York) 4,389,000 1946-1949 12/05/97 35 years
FRIENDSHIP CTR (District of Columbia) 197,000 1998 09/21/01 35 years
GAITHERSBURG SQUARE (Maryland) 5,637,000 1966 04/22/93 35 years
GARDEN MARKET (Illinois) 1,568,000 1958 07/28/94 35 years
GOVERNOR PLAZA (Maryland) 8,877,000 1963 10/01/85 35 years
GRATIOT PLAZA (Michigan) 4,138,000 1964 03/29/73 25 3/4 years
GREENLAWN (New York) 476,000 1975 01/05/00 35 years
HAMILTON (New Jersey) 3,530,000 1961 12/12/88 35 years
HAUPPAUGE (New York) 1,636,000 1963 08/06/98 35 years
HUNTINGTON (New York) 8,995,000 1962 12/12/88 35 years
IDYLWOOD PLAZA (Virginia) 2,408,000 1991 04/15/94 35 years
ILLINOIS RETAIL BUILDINGS (2) 606,000 1900-1927 1995-1997 35 years
KINGS COURT (California) 1,391,000 1960 08/24/98 26 years
LANCASTER (Pennsylvania) 3,980,000 1958 04/24/80 22 years
LANGHORNE SQUARE (Pennsylvania) 5,820,000 1966 01/31/85 35 years
LAUREL (Maryland) 17,396,000 1956 08/15/86 35 years
LAWRENCE PARK (Pennsylvania) 13,635,000 1972 07/23/80 22 years
LEESBURG PLAZA (Virginia) 1,142,000 1967 09/15/98 35 years
LOEHMANN'S PLAZA (Virginia) 2,016,000 1971 07/21/83 35 years
F29
COLUMN A COLUMN B COLUMN C COLUMN D
- -------------------------------- ----------------- -------------- --------------- --------------------
Initial cost to company
Cost Capitalized
Building and Subsequent to
Descriptions Encumbrance Land Improvements Acquisition
- -------------------------------- ----------------- -------------- --------------- ---------------------
MAGRUDERS (Maryland) 4,554,000 4,859,000 588,000
MASSACHUSETTS RETAIL BLDG (1) 1,873,000 1,884,000 223,000
MID PIKE PLAZA (Maryland) 10,243,000 10,335,000 6,294,000
NEW JERSEY RETAIL BUILDING (1) 737,000 1,466,000 1,060,000
NEW YORK RETAIL BUILDINGS (3) 5,891,000 6,051,000 12,024,000
NORTHEAST (Pennsylvania) 1,152,000 10,596,000 9,434,000
NORTH LAKE COMMONS (Illinois) 2,782,000 8,604,000 1,556,000
OLD KEENE MILL (Virginia) 638,000 998,000 3,406,000
OLD TOWN CENTER (California) 3,420,000 2,765,000 26,660,000
PAN AM SHOPPING CENTER (Virginia) 8,694,000 12,929,000 2,777,000
PERRING PLAZA (Maryland) 2,800,000 6,461,000 14,655,000
PIKE 7 (Virginia) 9,709,000 22,799,000 775,000
QUEEN ANNE PLAZA (Massachusetts) 3,319,000 8,457,000 2,879,000
QUINCE ORCHARD PLAZA (Maryland) 3,197,000 7,949,000 7,248,000
ROLLINGWOOD APTS. (Maryland) 552,000 2,246,000 3,880,000
RUTGERS (New Jersey) 12,968,000 14,429,000 1,414,000
SAM'S PARK & SHOP (District of Columbia) 4,840,000 6,319,000 573,000
SAUGUS (Massachusetts) 4,383,000 8,291,000 394,000
SHIRLINGTON (Virginia) 9,761,000 14,808,000 6,772,000
TEXAS RETAIL BUILDINGS (9) 304,000 14,680,000 1,976,000 28,698,000
TOWER (Virginia) 7,170,000 10,518,000 180,000
TROY (New Jersey) 3,126,000 5,193,000 12,040,000
TYSONS STATION (Virginia) 6,967,000 388,000 453,000 2,416,000
UPTOWN (Oregon) 10,257,000 5,846,000 357,000
WILDWOOD (Maryland) 27,600,000 9,111,000 1,061,000 5,499,000
WILLOW GROVE (Pennsylvania) 1,499,000 6,643,000 17,575,000
WILLOW LAWN (Virginia) 3,192,000 7,723,000 50,620,000
WYNNEWOOD (Pennsylvania) 32,000,000 8,055,000 13,759,000 13,086,000
DEVELOPMENT PROJECTS:
PENTAGON ROW (Virginia) 2,955,000 73,754,000
TANASBOURNE (Oregon) 8,200,000 7,705,000
SANTANA ROW (California) 62,004,000 41,969,000 1,161,000 186,242,000
------------ ------------ ------------ ------------
TOTALS $450,336,000 $441,578,000 $735,865,000 $926,861,000
============ ============ ============ ============
COLUMN A COLUMN E
- ------------------------------- -------------------- -------------- -------------
Gross amount at which carried at close of period
Building and
Descriptions Land Improvements Total
- ------------------------------ -------------------- -------------- -------------
MAGRUDERS (Maryland) 4,554,000 5,447,000 10,001,000
MASSACHUSETTS RETAIL BLDG (1) 1,873,000 2,107,000 3,980,000
MID PIKE PLAZA (Maryland) 16,629,000 16,629,000
NEW JERSEY RETAIL BUILDING (1) 737,000 2,526,000 3,263,000
NEW YORK RETAIL BUILDINGS (3) 6,140,000 17,826,000 23,966,000
NORTHEAST (Pennsylvania) 1,153,000 20,029,000 21,182,000
NORTH LAKE COMMONS (Illinois) 2,782,000 10,160,000 12,942,000
OLD KEENE MILL (Virginia) 638,000 4,404,000 5,042,000
OLD TOWN CENTER (California) 3,420,000 29,425,000 32,845,000
PAN AM SHOPPING CENTER (Virginia) 8,694,000 15,706,000 24,400,000
PERRING PLAZA (Maryland) 2,800,000 21,116,000 23,916,000
PIKE 7 (Virginia) 9,709,000 23,574,000 33,283,000
QUEEN ANNE PLAZA (Massachusetts) 3,319,000 11,336,000 14,655,000
QUINCE ORCHARD PLAZA (Maryland) 2,928,000 15,466,000 18,394,000
ROLLINGWOOD APTS. (Maryland) 572,000 6,106,000 6,678,000
RUTGERS (New Jersey) 15,843,000 15,843,000
SAM'S PARK & SHOP (District of Columbia) 4,840,000 6,892,000 11,732,000
SAUGUS (Massachusetts) 4,383,000 8,685,000 13,068,000
SHIRLINGTON (Virginia) 9,816,000 21,525,000 31,341,000
TEXAS RETAIL BUILDINGS (9) 14,680,000 30,674,000 45,354,000
TOWER (Virginia) 7,129,000 10,739,000 17,868,000
TROY (New Jersey) 3,126,000 17,233,000 20,359,000
TYSONS STATION (Virginia) 475,000 2,782,000 3,257,000
UPTOWN (Oregon) 10,257,000 6,203,000 16,460,000
WILDWOOD (Maryland) 9,111,000 6,560,000 15,671,000
WILLOW GROVE (Pennsylvania) 1,499,000 24,218,000 25,717,000
WILLOW LAWN (Virginia) 7,790,000 53,745,000 61,535,000
WYNNEWOOD (Pennsylvania) 8,055,000 26,845,000 34,900,000
DEVELOPMENT PROJECTS:
PENTAGON ROW (Virginia) 76,709,000 76,709,000
TANASBOURNE (Oregon) 15,905,000 15,905,000
SANTANA ROW (California) 41,969,000 187,403,000 229,372,000
------------ -------------- --------------
TOTALS $456,138,000 $1,648,166,000 $2,104,304,000
============ ============== ==============
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------- ------------------ ------------- ---------- ---------------------
Life on which
Accumulated Date depreciation in latest
Depreciation and of Date income statements
Descriptions Amortization Construction Acquired is computed
- ------------------------------- ------------------ ------------- ---------- ---------------------
MAGRUDERS (Maryland) 660,000 1955 12/17/97 35 years
MASSACHUSETTS RETAIL BLDG (1) 457,000 1930 09/07/95 35 years
MID PIKE PLAZA (Maryland) 8,748,000 1963 05/18/82 50 years
NEW JERSEY RETAIL BUILDING (1) 555,000 1940 08/16/95 35 years
NEW YORK RETAIL BUILDINGS (3) 1,288,000 1937 - 1987 12/16/97 35 years
NORTHEAST (Pennsylvania) 9,960,000 1959 08/30/83 35 years
NORTH LAKE COMMONS (Illinois) 2,268,000 1989 04/27/94 35 years
OLD KEENE MILL (Virginia) 3,110,000 1968 06/15/76 33 1/3 years
OLD TOWN CENTER (California) 2,755,000 1997 - 1998 10/22/97 35 years
PAN AM SHOPPING CENTER (Virginia) 5,373,000 1979 02/05/93 35 years
PERRING PLAZA (Maryland) 10,156,000 1963 10/01/85 35 years
PIKE 7 (Virginia) 3,409,000 1968 03/31/97 35 years
QUEEN ANNE PLAZA (Massachusetts) 3,117,000 1967 12/23/94 35 years
QUINCE ORCHARD PLAZA (Maryland) 5,293,000 1975 04/22/93 35 years
ROLLINGWOOD APTS. (Maryland) 5,889,000 1960 01/15/71 25 years
RUTGERS (New Jersey) 5,908,000 1973 12/12/88 35 years
SAM'S PARK & SHOP (District of Columbia) 1,390,000 1930 12/01/95 35 years
SAUGUS (Massachusetts) 1,380,000 1976 10/01/96 35 years
SHIRLINGTON (Virginia) 3,363,000 1940 12/21/95 35 years
TEXAS RETAIL BUILDINGS (9) 380,000 var 1998-1999 35 years
TOWER (Virginia) 1,068,000 1953 - 1960 08/24/98 35 years
TROY (New Jersey) 10,675,000 1966 07/23/80 22 years
TYSONS STATION (Virginia) 2,282,000 1954 01/17/78 17 years
UPTOWN (Oregon) 842,000 1913- 1959 09/26/97 35 years
WILDWOOD (Maryland) 5,859,000 1958 05/05/69 33 1/3 years
WILLOW GROVE (Pennsylvania) 11,137,000 1953 11/20/84 35 years
WILLOW LAWN (Virginia) 24,354,000 1957 12/05/83 35 years
WYNNEWOOD (Pennsylvania) 3,978,000 1948 10/29/96 35 years
DEVELOPMENT PROJECTS:
PENTAGON ROW (Virginia) 742,000 1998
TANASBOURNE (Oregon) 2000
SANTANA ROW (California) 1,028,000 03/05/97
------------
TOTALS $395,767,000
============
F30
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE III
SUMMARY OF REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
Three Years Ended December 31, 2001
Reconciliation of Total Cost
Balance, January 1, 1999 $1,642,136,000
Additions during period
Acquisitions 26,355,000
Improvements 95,148,000
Deduction during period - disposition
of property and miscellaneous retirements and impairments (42,180,000)
--------------
Balance, December 31, 1999 1,721,459,000
Additions during period
Acquisitions 26,794,000
Improvements 156,021,000
Deduction during period - disposition
of property and miscellaneous retirements (49,361,000)
--------------
Balance, December 31, 2000 1,854,913,000
Additions during period
Acquisitions 52,820,000
Improvements 219,549,000
Deduction during period - disposition
of property and miscellaneous retirements (22,978,000)
--------------
Balance, December 31, 2001 $2,104,304,000
==============
(A) For Federal tax purposes, the aggregate cost basis is approximately
$1,898,190,000 as of December 31, 2001.
F31
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE III
SUMMARY OF REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
Three Years Ended December 31, 2001
Reconciliation of Accumulated Depreciation and Amortization
------------------------------------------------------------
Balance, January 1, 1999 $286,053,000
Additions during period
Depreciation and amortization expense 46,133,000
Deductions during period - disposition of
property and miscellaneous retirements (14,265,000)
-------------
Balance, December 31, 1999 317,921,000
Additions during period
Depreciation and amortization expense 49,176,000
Deductions during period - disposition of property,
miscellaneous retirements and acquisition of minority interest (15,839,000)
-------------
Balance, December 31, 2000 351,258,000
Additions during period
Depreciation and amortization expense 55,048,000
Deductions during period - disposition of property,
miscellaneous retirements and acquisition of minority interest (10,539,000)
-------------
Balance, December 31, 2001 $395,767,000
=============
F32
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
Year Ended December 31, 2001
Column A Column B Column C Column D Column E
- ------------------------- ----------------------- ----------------- ------------------------- ---------------
Periodic Payment
Description of Lien Interest Rate Maturity Date Terms Prior Liens
- ------------------------- ----------------------- ----------------- ------------------------- ---------------
Leasehold mortgage 10% December 2003 Interest only --
on shopping monthly; $10,000,000
center in New Jersey balloon paYment due
at maturity
Mortgages on retail 10% January 2002 Interest only monthly; --
buildings in balloon payment due
Pennsylvania at maturity
Mortgage on retail Greater of prime plus May 2021 Interest only --
buildings in Philadelphia 2% or 10% monthly; balloon payment
due at maturity
Mortgage on retail 10% plus participation May 2021 Interest only; balloon --
buildings in Philadelphia payment due at maturity
Mortgage on land in 10% plus participation July 2002 None. Balloon and --
Santa Monica, California accrued interest due at
maturity
-------------
--
=============
Column A Column F Column G
- ------------------------- ------------- ----------------
Carrying
Face Amount Amount of
Description of Lien of Mortgages Mortgages (1)
- ------------------------- ------------- ----------------
Leasehold mortgage $10,000,000 $10,000,000 (2)
on shopping
center in New Jersey
Mortgages on retail 1,152,000 1,152,000 (3)
buildings in
Pennsylvania
Mortgage on retail 25,000,000 11,964,000 (4)
buildings in Philadelphia
Mortgage on retail 9,250,000 9,250,000
buildings in Philadelphia
Mortgage on land in 2,569,000 3,241,000
Santa Monica, California plus accrued
interest and
development cost
------------- ----------------
$47,971,000 $35,607,000
============= ================
1) For Federal tax purposes, the aggregate tax basis is approximately
$35,607,000 as of December 31, 2001. No payments are delinquent on these
mortgages.
2) This mortgage is extendable for up to 45 years with interest increasing to a
maximum of 11%.
3) This mortgage balance was repaid on January 31, 2002.
4) This mortgage is available for up to $25,000,000.
F33
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE - CONTINUED
Three Years Ended December 31, 2001
Reconciliation of Carrying Amount
Balance, January 1, 1999 $51,154,000
Additions during period
Issuance of loan 2,516,000
Deductions during period
Collection of loan (175,000)
--------------------
Balance, December 31, 1999 53,495,000
Additions during period
Issuance of loans 5,701,000
Deductions during period
Collection and satisfaction of loans (11,836,000)
--------------------
Balance, December 31, 2000 47,360,000
Additions during period
Issuance of loans 925,000
Deductions during period
Collection and satisfaction of loans (12,678,000)
--------------------
Balance, December 31, 2001 $35,607,000
====================
F34
FEDERAL REALTY INVESTMENT TRUST
RESTRICTED SHARE AWARD AGREEMENT
February 15, 2000
The parties to this Restricted Share Award Agreement (this "Agreement")
are Federal Realty Investment Trust, an unincorporated business trust organized
under the laws of the District of Columbia (the "Trust"), and Jeffrey S.
Berkes, 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,
no par value, 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 15, 2000 (the "Award Date"), of Twenty Thousand (20,000) 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
Page 1 of 5
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.
Page 2 of 5
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 Four Thousand (4,000) Restricted Shares,
the Restriction Period shall lapse on February 15 , 2001;
(ii) with respect to an additional Four Thousand (4,000)
Restricted Shares, the Restriction Period shall lapse on February 15, 2002; and
(iii) with respect to an additional Four Thousand (4,000)
Restricted Shares, the Restriction Period shall lapse on February 15, 2003; and
(iv) with respect to an additional Four Thousand (4,000)
Restricted Shares, the Restriction Period shall lapse on February 15, 2004, and
(v) with respect to the remaining Four Thousand (4,000)
Restricted Shares, the Restriction Period shall lapse on February 15, 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
Page 3 of 5
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
Page 4 of 5
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:________________________
WITNESS: KEY EMPLOYEE
________________________ ______________________________
Jeffrey S. Berkes
Page 5 of 5
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT ("Severance Agreement"), made and entered into as
of this 1st day of March, 2000 by and between FEDERAL REALTY INVESTMENT TRUST,
a Maryland real estate investment trust ("Employer"), and JEFFREY S. BERKES
("Employee").
WHEREAS, commencing on February 15, 2000, Employee will serve as
Employer's Vice President - Strategic Transactions and Employer and Employee
wish to set forth the terms of a Severance Agreement for Employee.
NOW THEREFORE, in consideration of the foregoing, of the mutual promises
herein contained and of other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Effective Date of Severance Agreement. This Severance Agreement
--------------------------------------
shall be effective as of the date first written above and shall
continue and remain in full force and effect until terminated by the
parties in writing.
2. Termination Without Cause. In the event that Employee's employment
-------------------------
with Employer is terminated under any of the circumstances in Sections
2(a) or 2(b), Employee will be deemed to have been Terminated Without
Cause and shall receive payments and benefits as described in this
Section 2; provided, however, in the event Employee's employment with
Employer is terminated under any of the circumstances in Sections 2(a)
or 2(b) under circumstances described in Section 7 below, Employee
shall receive such payments and benefits as are set forth in Section 7
in lieu of the payments and benefits under this Section 2:
(a) by Employer other than with Cause (as "Cause" is defined in
Section 4 hereof);
(b) by Employee within six (6) months following the
occurrence of one or more of the following events:
(i) the nature of Employee's duties or the scope
of Employee's responsibilities or authority as of
the date first written above are materially
modified by Employer without Employee's written
consent where such material modification constitutes
an actual or constructive demotion of Employee;
provided, however, that a change in the position(s)
to whom Employee reports shall not by itself
constitute a material modification of Employee's
responsibilities unless Employee is assigned to
report to a position below the level of executive
officer; provided, further, that if Employee
voluntarily becomes an employee of an affiliate of
the Employer in connection with a Spin-off (as
defined in Section 16) of that affiliate, the nature
of Employee's duties and the scope of
responsibilities and authority referred to above in
this paragraph (i) shall mean those as in effect as
of the first day of employment with the affiliate
following the Spin-off and not those in effect with
the Employer as of the date first written above;
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(ii) Employer changes the location of its principal office
to outside a fifty (50) mile radius of Washington,
D.C.;
(iii) Employer's setting of Employee's base salary for any
year at an amount which is less than ninety percent
(90%) of the greater of (A) Employee's base salary
for 2000, or (B) Employee's highest base salary
during the three (3) then most recent calendar years
(including the year of termination), regardless of
whether such salary reduction occurs in one year or
over the course of years; and
(iv) this Severance Agreement is not expressly assumed by
any successor (directly or indirectly, whether by
purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of
Employer.
(c) Decision by Employer to Terminate Without Cause.
-------------------------------------------------
Employer's decision to terminate Employee's employment
Without Cause shall be made by the Board of Trustees.
(d) Severance Payment Upon Termination Without Cause. In the
-------------------------------------------------
event of Termination Without Cause other than under
circumstances describedin Section 7 below, Employee will
receive as severance pay an amount in cash equal to one (1)
year's salary. For the purpose of calculating amounts
payable pursuant to this Section 2(d), "salary" shall be
an amount equal to (i) the greater of (A) Employee's
highest annual base salary paid during the previous
three (3) years or (B) Employee's annual base salary in
the year of termination, plus (ii) the greatest annual
aggregate amount of any cash and/or stock bonus paid to
Employee in respect of any of the three (3) fiscal years
immediately preceding such termination (it being
understood and agreed that such amount shall not include
compensation paid pursuant to performance share awards).
For purposes of the preceding sentence: (i) a stock bonus
will be considered to have been paid in respect of a
particular year if (A) in the case of a bonus paid under
Employer's Incentive Bonus Plan (as the same may be amended
from time or time, or any successor plan, the "Bonus
Plan"), the stock bonus was awarded in respect of that
year, even if it did not vest in that year, or (B) in the
case of any other stock bonus, the shares vested in that
year (other than as a result of the Termination Without
Cause); and (ii) a stock bonus will be valued (A) in the
case of a bonus paid under the Bonus Plan, at a figure
equal to the number of shares awarded, multiplied by the
per-share value (closing price) on the date on which the
bonus was approved by the Compensation Committee of
Employer's Board of Trustees, and (B) in the case of any
other stock bonus, at a figure equal to the number of shares
that vested, multiplied by the per-share value (closing
price) on the date on which they vested. Payment also will
be made for vacation time that has accrued, but is unused as
of the date of termination.
(e) Benefits. In the event of Termination Without Cause other
---------
than under circumstances described in Section 7 below,
Employee shall receive "Full Benefits" for nine (9) months.
Employer shall have satisfied its obligation to
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provide Full Benefits to Employee if it (i) pays premiums due
in connection with COBRA continuation coverage to
continue Employee's medical and dental insurance coverage
at not less than the levels of coverage immediately prior
to termination of Employee's employment; (ii) maintains at
not less than Employee's highest levels of coverage prior
to Termination Without Cause individual life insurance
policies and accidental death and dismemberment policies
for the benefit of Employee and pays the annual premiums
associated therewith; (iii) to the extent that Employer
maintained a long-term disability policy that provided
coverage to Employee in excess of the coverage provided
under Employer's group long-term disability policy,
maintains at not less than Employee's highest levels of
coverage prior to Termination Without Cause an individual
long-term disability policy for the benefit of Employee and
pays the annual premiums associated therewith, subject to
the limitations of the policy; and (iv) pays the annual
premiums associated with Employee's continued
participation, at not less than Employee's highest levels
of coverage prior to Termination Without Cause, under
Employer's group long-term disability policy for a
period of one (1) year following Termination Without
Cause, subject to the limitations of the policy.
Notwithstanding the foregoing, Employee shall be required
to pay the premiums and any other costs of such Full
Benefits in the same dollar amount that Employee was
required to pay for such costs immediately prior to
Termination Without Cause.
(f) Stock Options. Notwithstanding any agreement to the contrary,
-------------
in the event of any Termination Without Cause other than
under circumstances described in Section 7 below, the vesting
of options to purchase shares of Employer's common stock
granted to Employee and outstanding as of the date of
Employee's termination and scheduled to vest during the
twelve (12) months thereafter shall be accelerated such that
all such options will be vested as of the date of Employee's
termination of employment with Employer. The terms of the
stock option agreements shall determine the period during
which any vested options may be exercisable.
(g) Outplacement Services. In the event of Termination Without
---------------------
Cause other than under circumstances described in Section 7
below, Employer shall make available at Employer's expense to
Employee at Employee's option the services of an employment
search/outplacement agency selected by Employer for a period
not to exceed six (6) months from the date of Employee's
termination.
(h) Provision of Telephone/Secretary. In the event of Termination
--------------------------------
Without Cause other than under circumstances described in
Section 7 below, Employer shall provide Employee for a period
not to exceed six (6) months from Employee's date of
termination with a telephone number assigned to Employee at
Employer's offices, telephone mail and a secretary to answer
the telephone. Such benefits shall not include an office or
physical access to Employer's offices and will cease upon
commencement by Employee of employment with another employer.
(i) Notice. If Employee terminates his or her employment pursuant
------
to Section 2(b) hereof other than under circumstances
described in Section 7 below and (i)
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Employee is not an executive officer of Employer, Employee
shall give sixty (60) days' written notice to Employer of
such termination, or (ii) if Employee is an executive officer
of Employer, Employee shall give ninety (90) days' written
notice to Employer of such termination.
(j) Notwithstanding the foregoing provisions of this Agreement,
it shall not be considered a Termination Without Cause in the
event that the Employee voluntarily becomes an employee of an
affiliate of the Employer in connection with a Spin-off of
that affiliate if the Employer has assigned this Agreement to
the affiliate as contemplated in Section 16 and the affiliate
has assumed the obligations hereunder.
3. Voluntary Resignation. If Employee is not an executive officer of
---------------------
Employer, Employee shall give sixty (60) days' written notice to
Employer of Employee's resignation from employment in all capacities
with Employer other than under circumstances described in Section 7
below; if Employee is an executive officer of Employer, Employee shall
give ninety (90) days' written notice to Employer of Employee's
resignation from employment in all capacities with Employer other than
under circumstances described in Section 7 below.
4. Severance Benefits Upon Termination With Cause. Employee shall be
-----------------------------------------------
deemed to have been terminated with Cause in the event that the
employment of Employee is terminated for any of the following
reasons other than under circumstances described in Section 7 below:
(a) failure (other than failure due to disability) to
substantially perform his or her duties with Employer or an
affiliate thereof; which failure remains uncured after
written notice thereof and the expiration of a reasonable
period of time thereafter in which Employee is diligently
pursuing cure ("Failure to Perform");
(b) willful conduct which is demonstrably and materially
injurious to Employer or an affiliate thereof, monetarily or
otherwise;
(c) breach of fiduciary duty involving personal profit; or
(d) willful violation in the course of performing his or her
duties for Employer of any law, rule or regulation (other
than traffic violations or misdemeanor offenses). No act or
failure to act shall be considered willful unless done or
omitted to be done in bad faith and without reasonable belief
that the action or omission was in the best interest of
Employer.
(e) Decision by Employer to Terminate With Cause. The
decision to terminate the employment of Employee with
Cause shall be made by the Board of Trustees.
(f) Severance Payment Upon Termination with Cause. In the event
of termination for Failure to Perform pursuant to Section
4(a), or termination for cause pursuant to Section 4(b), (c)
or (d) above, the terms of the stock option agreements
between
4 of 20
Employer and Employee thereunder will determine the terms of
the vesting of options and the exercisability of vested
options.
(i) For Cause Termination for Failure to Perform. In the
--------------------------------------------
event that Employee's employment is terminated with
Cause pursuant to Section 4(a) above, Employee shall
receive as severance pay an amount in cash equal to
one (1) month's salary for every year of service to
Employer in excess of five (5) years of service;
such severance payment shall not exceed six (6)
months' pay. The number of months for which such a
payment is due shall determine the length of the for
cause term ("For Cause Term"). For the purposes of
this Section 4(f)(i) only, "salary" shall mean
Employee's then current annual base salary and
shall not include any bonus or other compensation.
Payment shall also be made for accrued, but
unused, vacation time. Employee shall also receive
Full Benefits (as defined above) for the For Cause
Term. In the event that, following Employee's
termination for Failure to Perform, Employee becomes
employed by or affiliated with, as a partner,
consultant, contractor or otherwise, any entity
which is substantially engaged in the business of
property investment or management ("Competitor"),
all payments specified in this Section 4(f)(i)
shall cease upon the date Employee commences such
employment or affiliation; provided, however,
Employee shall continue to receive medical and dental
care benefits from Employer until (i) Employee is
eligible to receive medical and dental care benefits
from the Competitor, or (ii) the date of expiration of
Employee's For Cause Term, whichever comes first.
(ii) Other Cause Termination. In the event that Employee's
-----------------------
employment is terminated with Cause pursuant to
Section 4(b), (c) or (d), Employee shall receive all
base salary due and payable as of the date of
Employee's termination of employment. No payment shall
be made for bonus or other compensation. Payment also
will be made for accrued, but unused vacation time.
5. Severance Benefits Upon Termination Upon Disability. Employer may
---------------------------------------------------
terminate Employee upon thirty (30) days' prior written notice if (i)
Employee's Disability has disabled Employee from rendering service
to Employer for at least a six (6) month consecutive period during
the term of Employee's employment, (ii) Employee's "Disability" is
within the meaning of such defined term in Employer's group
long-term disability policy, and (iii) Employee is covered
under such policy. In the event of Employee's Termination Upon
Disability, Employee shall be entitled to receive as severance pay
each month for the year immediately following the date of
termination an amount in cash equal to the difference, if any,
between (i) the sum of (y) the amount of payments Employee receives
or will receive during that month pursuant to the disability
insurance policies maintained by Employer for Employee's benefit and
(z) the adjustment described in the next sentence and (ii)
Employee's base monthly salary on the date of termination due to
Disability. The adjustment referred to in clause (z) of the
preceding sentence is the amount by which any tax-exempt payments
referred to in clause (y) would need to be increased if such payments
were subject to tax in order to make the after-tax proceeds of
such payments equal to the actual amount of such tax-exempt payments.
5 of 20
(a) Benefits. Employee shall receive Full Benefits (as defined
--------
above) for one (1) year following termination due to
Disability.
(b) Stock Options. In the event that Employee's employment is
-------------
terminated due to Disability, the terms of the stock option
agreements between Employer and Employee shall determine the
vesting of any options held by Employee as of the date of
termination due to Disability and the exercise period for any
vested option.
6. Severance Benefits Upon Termination Upon Death. If Employee dies,
-----------------------------------------------
Employee's estate shall be entitled to receive an amount in cash equal
to Employee's then-current base salary through the last day of the
month in which Employee's death occurs plus any bonus previously
awarded but unpaid and any accrued vacation pay through the last day
of the month in which Employee's death occurs. The terms of the stock
option agreements between Employer and Employee shall determine the
vesting of any options held by Employee as of the date of his or her
death and the exercise period for any vested option.
7. Severance Benefits Upon Termination Upon Change in Control.
----------------------------------------------------------
(a) Change in Control Defined. No benefits shall be payable under
-------------------------
this Section 7 unless there shall have occurred a Change in
Control of Employer, as defined below. For purposes of this
Section 7, a "Change in Control" of Employer shall mean any
of the following events:
(i) An acquisition in one or more transactions (other
than directly from Employer or pursuant to options
granted by Employer) of any voting securities of
Employer (the "Voting Securities") by any "Person"
(as the term is used for purposes of Section 13(d) or
14(d) of the Securities Act of 1934, as amended (the
"Exchange Act")) immediately after which such Person
has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of
20% or more of the combined voting power of
Employer's then outstanding Voting Securities;
provided, however, in determining whether a Change
in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
A "Non-Control Acquisition" shall mean an
acquisition by (A) an employee benefit plan (or a
trust forming a part thereof) maintained by (1)
Employer or (2) any corporation or other Person of
which a majority of its voting power or its equity
securities or equity interest is owned directly or
indirectly by Employer (a "Subsidiary"), (B)
Employer or any Subsidiary, or (C) any Person in
connection with a "Non-Control Transaction" (as
hereinafter defined);
(ii) The individuals who, as of the date of this
Severance Agreement, are members of the Board of
Trustees (the "Incumbent Trustees"), cease for any
reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or
nomination for election by Employer's
6 of 20
shareholders, of any new member was approved by a vote
of at least two-thirds of the Incumbent Trustees,
such new member shall, for purposes of this Severance
Agreement, be considered as a member of the
Incumbent Trustees; provided, further, however, that
no individual shall be considered a member of the
Incumbent Trustees if such individual initially
assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule
14a-11 promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than
the Board of Trustees (a "Proxy Contest")
including by reason of any agreement intended to avoid
or settle any Election Contest or Proxy Contest; or
(iii) Approval by shareholders of Employer of
(A) A merger, consolidation or reorganization
involving Employer, unless:
(1) the shareholders of Employer, immediately
before such merger, consolidation or
reorganization, own, directly or indirectly
immediately following such merger,
consolidation or reorganization, at least a
majority of the combined voting power of the
outstanding voting securities of the Person
resulting from such merger or consolidation
or reorganization (the "Surviving Person") in
substantially the same proportion as their
ownership of the Voting Securities
immediately before such merger, consolidation
or reorganization,
(2) the individuals who were members of the
Incumbent Trustees immediately prior to the
execution of the agreement providing for such
merger, consolidation or reorganization
constitute at least two-thirds of the members
of the board of directors of the Surviving
Person,
(3) no Person (other than Employer or any
Subsidiary, any employee benefit plan (or any
trust forming a part thereof) maintained by
Employer, or any Subsidiary, or any Person
which, immediately prior to such merger,
consolidation or reorganization had
Beneficial Ownership of 20% or more of the
then outstanding Voting Securities) has
Beneficial Ownership of 20% or more of the
combined voting power of the Surviving
Person's then outstanding voting securities,
and
(4) a transaction described in clauses (1)
through (3) shall herein be referred to as a
"Non-Control Transaction;"
(B) A complete liquidation or dissolution of Employer;
or
7 of 20
(C) An agreement for the sale or other disposition of
all or substantially all of the assets of Employer
to any Person (other than a transfer to a
Subsidiary).
(iv) Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur (A) solely because any
Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the
acquisition of Voting Securities by Employer which,
by reducing the number of Voting Securities
outstanding, increases the proportional number of
Voting Securities Beneficially Owned by the Subject
Person; provided, however, that if a Change in
Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting
Securities by Employer, and after such share
acquisition by Employer, the Subject Person becomes
the Beneficial Owner of any additional Voting
Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall
occur; or (B) if Employer (1) establishes a
wholly-owned subsidiary ("Holding Company"), (2)
causes the Holding Company to establish a
wholly-owned subsidiary ("Merger Sub"), and (3)
merges with Merger Sub, with Employer as the
surviving entity (such transactions collectively
are referred as the "Reorganization").
Immediately following the completion of the
Reorganization, all references to the Voting
Securities shall be deemed to refer to the voting
securities of the Holding Company.
(v) Notwithstanding anything contained in this Severance
Agreement to the contrary, if Employee's employment
is terminated while this Severance Agreement is in
effect and Employee reasonably demonstrates that
such termination (A) was at the request of a third
party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control
and who effectuates a Change in Control (a "Third
Party") or (B) otherwise occurred in connection
with, or in anticipation of, a Change in Control
which actually occurs, then for all purposes of this
Severance Agreement, the date of a Change in Control
with respect to Employee shall mean the date
immediately prior to the date of such termination of
Employee's employment.
(b) Termination of Employment Following Change in Control.
-----------------------------------------------------
If a Change in Control of Employer occurs, Employee shall
be entitled to the benefits provided in this Section 7
upon the subsequent termination of Employee's
employment with Employer for any reason, either
voluntarily or involuntarily, within six (6) months of
such Change of Control, unless such termination is
because of Employee's death, Disability or retirement.
The term "Retirement" shall mean termination of
employment in accordance with (x) a qualified employee
pension or profit-sharing plan maintained by Employer,
or (y) Employer's retirement policy in effect immediately
prior to the Change in Control. For purposes of this
Section 7, Employee's employment shall be terminated by
written notice
8 of 20
delivered by either Employer or Employee to the other party.
The date of Employee's termination of employment shall be
the earlier of the date of Employee's or Employer's
written notice terminating Employee's employment with
Employer, unless such notice shall specify an effective
date of termination occurring later than the date of such
notice, in which event such specified effective date
shall govern ("Termination Date").
(c) Payment of Benefits upon Termination. If, after a Change in
------------------------------------
Control has occurred, Employee's employment with Employer is
terminated in accordance with Section 7(b) above, then
Employer shall pay to Employee and provide Employee, his or
her beneficiaries and estate, the following:
(i) Employer shall pay to Employee a single cash payment
equal to the amount described in Section 2(d) above
(without giving effect to any accelerated vesting
which may have occurred as a result of the Change
in Control). If Employee's employment is
terminated by Employee by a written notice which
specifies a Termination Date at least five (5)
business days later than the date of such notice, the
payment shall be made on the Termination Date. If
Employee gives less than five (5) business days
notice, then such payment shall be made within
five (5) business days of the date of such notice;
(ii) Employee shall receive Full Benefits for one (1) year
following the Termination Date;
(iii) Employer, to the extent legally permissible, shall
continue to provide to Employee all other officer
perquisites, allowances, accommodations of employment,
and benefits on the same terms and conditions as such
are from time to time made available generally to the
other officers of Employer but in no event less than
the highest level of the perquisites, allowances,
accommodations of employment and benefits that were
available to Employee during the last twelve (12)
months of Employee's employment prior to the Change in
Control for a period of one (1) year following the
Termination Date;
(iv) For the purposes of this Section 7(c),
Employee's right to receive officer perquisites,
allowances and accommodations of employment is
intended to include (A) Employee's right to have
Employer provide Employee for a period not to exceed
six (6) months from Employee's Termination Date with
a telephone number assigned to Employee at Employer's
offices, telephone mail and a secretary to answer
the telephone; provided, however, such benefits
described in this Section 7(c)(iv)(A) shall not
include an office or physical access to Employer's
offices and will cease upon the commencement by
Employee of employment with another employer, and (B)
Employee's right to have Employer make available
at Employer's expense to Employee at Employee's option
the services of an employment search/outplacement
agency selected by Employee for a period not to exceed
six (6) months.
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(v) Upon the occurrence of a Change in Control, all
restrictions on the receipt of any option to acquire
or grant of Voting Securities to Employee shall lapse
and such option shall become immediately and fully
exercisable. Notwithstanding any applicable
restrictions or any agreement to the contrary, Employee
may exercise any options to acquire Voting Securities
as of the Change in Control by delivery to Employer of
a written notice dated on or prior to the expiration of
the stated term of the option.
(d) Redemption.
----------
(i) Except as provided in subsection (ii) below, Employer
shall within five (5) business days of receipt of
written notice from Employee given at any time
after the occurrence of a Change in Control but prior
to the latest stated expiration date of any option
held by Employee on the date of the Change in Control,
redeem any Voting Securities held by Employee
(whether acquired by exercise of any such option or
grant or otherwise), at a price equal to the average
closing price of Voting Securities as quoted on
the New York Stock Exchange, or if such Voting
Securities are not listed thereon, then the average
of the closing "bid" and "ask" prices per share in
the over-the-counter securities market for the
fifteen (15) trading days prior to the date of such
notice;
(ii) If, during the fifteen (15) day trading period,
Voting Securities are not listed, quoted or reported
on any publicly traded securities market for at
least two-thirds (2/3) of the days included in
such period, then the redemption price shall be
determined as follows: (A) Employee shall designate
in a written notice to Employer an appraiser to
appraise the value of the Voting Securities to be
redeemed; (B) within ten (10) business days of receipt
of such notice Employer shall designate an appraiser
to appraise the value of the Voting Securities to be
redeemed, (C) such designated appraisers shall
together designate, within ten (10) business days
of the date the appraiser is designated by Employer,
a third appraiser to appraise the value of such Voting
Securities, (D) each appraiser shall value such Voting
Securities within twenty (20) business days of the
designation of the third appraiser using generally
accepted appraisal methods for valuing such
securities based upon the value of all of
Employer's assets less all of its liabilities
without giving effect for any costs of liquidation or
distress sale, if otherwise applicable, and (E)
the average of the three (3) values determined by the
three (3) appraisers shall constitute the price at
which Employer must redeem the Voting Securities
covered by Employee's written notice within five (5)
business days of the completion of this appraisal
process. All costs and expenses associated with any
appraisal prepared pursuant to this Section 7(d)(ii)
shall be borne entirely by Employer.
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(e) Excise Tax Payments.
--------------------
(i) In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Code) that is
provided for hereunder (other than the payment
provided for in this Section 7(e)(i)) to be paid to
or for the benefit of Employee (including, without
limitation, the payments or benefits provided for
under any provision of this Section 7) or payments or
benefits under any other plan, agreements or
arrangement between Employee and Employer (a
"Payment" or "Payments"), be determined or alleged
to be subject to an excise or similar purpose tax
pursuant to Section 4999 of the Code or any successor
or other comparable federal, state, or local tax laws
or any interest or penalties incurred by Employee
with respect to such excise or similar purpose tax
(such excise tax, together with any such
interest and penalties, hereinafter collectively
referred to as the "Excise Tax") Employer shall pay
to Employee such additional compensation as is
necessary (after taking into account all federal, state
and local taxes (including any interest and
penalties imposed with respect to such taxes),
including any income or Excise Tax, payable by
Employee as a result of the receipt of such
additional compensation) (a "Gross-Up Payment") to
place Employee in the same after-tax position
(including federal, state and local taxes) Employee
would have been in had no such Excise Tax been paid or
incurred.
(ii) All mathematical determinations, and all
determinations as to whether any of the Total Payments
are "parachute payments" (within the meaning of
Section 280G of the Code), that are required to be
made under this Section 7(e), including
determinations as to whether a Gross-Up Payment is
required, and the amount of such Gross-Up Payment,
shall be made by an independent accounting firm
selected by the Employee from among the six (6) largest
accounting firms in the United States (the "Accounting
Firm"), which shall provide its determination (the
"Determination"), together with detailed supporting
calculations regarding the amount of any Gross-Up
Payment and any other relevant matter, both to
Employer and the Employee by no later than ten (10)
days following the Termination Date, if applicable,
or such earlier time as is requested by Employer or the
Employee (if the Employee reasonably believes that
any of the Payments may be subject to the Excise Tax).
If the Accounting Firm determines that no Excise
Tax is payable by the Employee, it shall furnish the
Employee and Employer with a written statement that
such Accounting Firm has concluded that no Excise
Tax is payable (including the reasons therefor) and
that the Employee has substantial authority not to
report any Excise Tax on her federal income tax
return. If a Gross-Up Payment is determined to be
payable, it shall be paid to the Employee within
twenty (20) days after the Determination (and all
accompanying calculations and other material
supporting the Determination) is delivered to
Employer by the Accounting Firm. The cost of
obtaining the Determination shall be borne by
Employer, any determination by the Accounting Firm
shall be binding upon Employer and the Employee, absent
manifest error. Without
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limiting the obligation of Employer hereunder,
Employee agrees, in the event that Employer makes a
Gross-Up Payment to cover any Excise Tax, to
negotiate with Employer in good faith with respect
to procedures reasonably requested by Employer
which would afford Employer the ability to contest
the imposition of such Excise Tax; provided,
however, that Employee will not be required to afford
Employer any right to contest the applicability of
any such Excise Tax to the extent that Employee
reasonably determines (based upon the opinion of the
Accounting Firm) that such contest is inconsistent
with the overall tax interest of Employee.
(iii) As a result of the uncertainty in the application
of Sections 4999 and 280G of the Code, it is possible
that a Gross-Up Payment (or a portion thereof) will
be paid which should not have been paid (an "Excess
Payment") or a Gross-Up Payment (or a portion
thereof) which should have been paid will not have
been paid (an "Underpayment"). An Underpayment shall
be deemed to have occurred (A) upon notice (formal or
informal) to Employee from any governmental taxing
authority that Employee's tax liability (whether
in respect of Employee's current taxable year or in
respect of any prior taxable year) may be increased
by reason of the imposition of the Excise Tax on
a Payment or Payments with respect to which
Employer has failed to make a sufficient Gross-Up
Payment, (B) upon determination by a court, (C) by
reason of determination by Employer (which shall
include the position taken by Employer, together
with its consolidated group, on its federal income
tax return) or (D) upon the resolution of the Dispute
to Employee's satisfaction. If an Underpayment
occurs, Employee shall promptly notify Employer and
Employer shall promptly, but in any event, at least
five (5) days prior to the date on which the
applicable governmental taxing authority has
requested payment, pay to Employee an additional
Gross-Up Payment equal to the amount of the
Underpayment plus any interest and penalties
(other than interest and penalties imposed by
reason of Employee's failure to file a timely tax
return or pay taxes shown due on Employee's return
where such failure is not due to Employer's
actions or omissions) imposed on the Underpayment.
An Excess Payment shall be deemed to have occurred
upon a "Final Determination" (as hereinafter
defined) that the Excise Tax shall not be imposed upon
a Payment or Payments (or a portion thereof) with
respect to which Employee had previously received a
Gross-Up Payment. A "Final Determination" shall be
deemed to have occurred when Employee has
received from the applicable governmental taxing
authority a refund of taxes or other reduction in
Employee's tax liability by reason of the Excess
Payment and upon either (x) the date a determination
is made by, or an agreement is entered into with, the
applicable governmental taxing authority which
finally and conclusively binds Employee and such
taxing authority, or in the event that a claim is
brought before a court of competent jurisdiction,
the date upon which a final determination has been
made by such court and either all appeals have
been taken and finally resolved or the time for all
appeals has expired or (y) the statute of limitations
with respect to Employee's applicable tax
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return has expired. If an Excess Payment is
determined to have been made, the amount of the
Excess Payment shall be treated as a loan by Employer
to Employee and Employee shall pay to Employer on
demand (but not less than ten (10) days after the
determination of such Excess Payment and written
notice has been delivered to Employee) the amount of
the Excess Payment plus interest at an annual rate
equal to the Applicable Federal Rate provided for
in Section 1274(d) of the Code from the date the
Gross-Up Payment (to which the Excess Payment
relates) was paid to Employee until date of repayment
of the Excess Payment to Employer.
(iv) Notwithstanding anything contained in this Section 7
to the contrary, in the event that, according to the
Final Determination, an Excise Tax will be imposed on
any Payment or Payments, Employer shall pay to the
applicable governmental taxing authorities as Excise
Tax withholding, the amount of the Excise Tax that
Employer has actually withheld from the Payment or
Payments.
(f) No Set-Off. After a Change in Control, Employer shall have no
----------
right of set-off, reduction or counterclaim in respect of any
debt or other obligation of Employee to Employer against any
payment, benefit or other Employer obligation to Employee
provided for in this Section 7 or pursuant to any other plan,
agreement or policy.
(g) Interest on Amounts Payable. After a Change of Control, if
-----------------------------
any amounts which are required or determined to be paid or
payable or reimbursed or reimbursable to Employee under
this Section 7 (or under any other plan, agreement,
policy or arrangement with Employer) are not so paid
promptly at the times provided herein or therein,
such amounts shall accrue interest, compounded daily at
the annual percentage rate which is three percentage
points (3%) above the interest rate which is announced by
The Riggs National Bank (Washington, D.C.) from time to
time as its prime lending rate, from the date such amounts
were required or determined to have been paid or payable or
reimbursed or reimbursable to Employee until such
amounts and any interest accrued thereon are finally and
fully paid; provided, however, that in no event shall
the amount of interest contracted for, charged or
received hereunder exceed the maximum non-usurious amount
of interest allowed by applicable law.
(h) Disputes; Payment of Expenses. At any time after a Change
-------------------------------
of Control, all costs and expenses (including legal,
accounting and other advisory fees and expenses of
investigation) incurred by Employee in connection with (i)
any dispute as to the validity, interpretation or
application of any term or condition of this Section 7,
(ii) the determination in any tax year of the tax
consequences to Employee of any amounts payable (or
reimbursable) under this Section 7, or (iii) the
preparation of responses to an Internal Revenue Service
audit of, and other defense of, Employee's personal income
tax return for any year which is the subject of any such
audit or an adverse determination, administrative
proceeding or civil litigation arising therefrom that is
occasioned by or related to an audit of the
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Internal Revenue Service of Employer's
income tax returns are, upon written demand by Employee,
to be paid by Employer (and Employee shall be entitled,
upon application to any court of competent jurisdiction,
to the entry of a mandatory injunction, without the
necessity of posting any bond with respect thereto,
compelling Employer) promptly on a current basis (either
directly or by reimbursing Employee). Under no
circumstances shall Employee be obligated to pay or
reimburse Employer for any attorneys' fees, costs or
expenses incurred by Employer.
8. Confidentiality - Employer's Obligations. Unless Employee and
------------------------------------------
Employer mutually agree on appropriate language for such purposes,
in the event that Employee's employment is Terminated Without Cause
pursuant to Section 2 above, With Cause pursuant to Section 4(a)
above, or under circumstances described in Section 7, or Employee
voluntarily resigns, Employer, except to the extent required by
law, will not make or publish, without the express prior written
consent of Employee, any written or oral statement concerning
Employee's work related performance or the reasons or basis for the
severing of Employee's employment relationship with Employer;
provided, however, that the foregoing restriction is not
applicable to information which was or became generally available
to the public other than as a result of a disclosure by Employer.
9. Confidentiality - Employee's Obligations. Employee acknowledges and
------------------------------------------
reaffirms that Employee will comply with the terms of the
confidentiality letter executed by Employee upon commencement of
Employee's employment with Employer.
10. Payments. In the event of the termination of Employee's employment
--------
under circumstances described in Section 7, the severance payment made
pursuant to that section shall be made as a lump sum payment. In the
event of Employee's voluntary resignation other than under
circumstances described in Section 7, severance payments made pursuant
to this Severance Agreement shall be made pro rata on a monthly basis.
All other severance payments payable to Employee pursuant to the terms
of this Severance Agreement may be made either as a lump sum payment
or pro rata on a monthly basis, at Employee's option.
11. Tax Withholding. Employer may withhold from any benefits payable under
----------------
this Severance Agreement, and pay over to the appropriate authority,
all federal, state, county, city or other taxes (other than any excise
tax imposed under Section 4999 of the Code or any similar tax to which
the indemnity provisions of Section 7(e) of this Severance Agreement
shall apply) as shall be required pursuant to any law or governmental
regulation or ruling.
12. Arbitration.
------------
(a) Any controversy, claim or dispute arising out of or relating
to this Severance Agreement or the breach thereof shall be
settled by arbitration in accordance with the then existing
Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction
thereof. The parties irrevocably consent
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to the jurisdiction
of the federal and state courts located in Maryland for this
purpose. Each such arbitration proceeding shall be located in
Maryland.
(b) The arbitrator(s) may, in the course of the proceedings,
order any provisional remedy or conservatory measure
(including, without limitation, attachment, preliminary
injunction or the eposit of specified security) that the
arbitrator(s) consider to be necessary, just and equitable.
The failure of a party to comply with such an interim order
may, after due notice and opportunity to cure with such
noncompliance, be treated by the arbitrator(s) as a default,
and some or all of the claims or defenses of the defaulting
party may be stricken and partial or final award entered
against such party, or the arbitrator(s) may impose such
lesser sanctions as the arbitrator(s) may deem appropriate.
A request for interim or provisional relief by a party to a
court shall not be deemed incompatible with the agreement to
arbitrate or a waiver of that agreement.
(c) The parties acknowledge that any remedy at law for breach of
this Severance Agreement may be inadequate, and that, in the
event of a breach by Employee of Sections 9 or 15, any remedy
at law would be inadequate in that such breach would cause
irreparable competitive harm to Employer. Consequently, in
addition to any other relief that may be available, the
arbitrator(s) also may order permanent injunctive relief,
including, without limitation, specific performance, without
the necessity of the prevailing party proving actual damages
and without regard to the adequacy of any remedy at law.
(d) In the event that Employee is the prevailing party in such
arbitration, then Employee shall be entitled to reimbursement
by Employer for all reasonable legal and other professional
fees and expenses incurred by Employee in such arbitration or
in enforcing the award, including reasonable attorney's fees.
(e) The parties agree that the results of any such arbitration
proceeding shall be conclusive and binding upon them.
13. Continued Employment. This Severance Agreement shall not confer upon
---------------------
the Employee any right with respect to continuance of employment by
Employer; provided, however, that Employer shall not, prior to
February 15, 2001, (i) terminate Employee's employment other than
with Cause (as "Cause" is defined in Section 4 hereof); or (ii) do
any of the things described in Section 2(b)(i) or 2(b)(iii) which
would entitle Employee to resign and receive a severance payment
pursuant to Section 2(d) of this Agreement.
14. Mitigation. Employee shall not be required to mitigate the amount of
-----------
any payment, benefit or other Employer obligation provided for in this
Severance Agreement by seeking other employment or otherwise and no
such payment shall be offset or reduced by the amount of any
compensation or benefits provided to Employee in any subsequent
employment.
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1.5 Restrictions on Competition; Solicitation; Hiring.
--------------------------------------------------
(a) During the term of his or her employment by or with Employer, and
for one (1) year from the date of the termination of Employee's
employment with Employer (the "Post Termination Period"), Employee
shall not, without the prior written consent of Employer, for
himself or herself or on behalf of or in conjunction with any other
person, persons, company, firm, partnership, corporation, business,
group or other entity (each, a "Person"), work on or participate in
the acquisition, leasing, financing, pre-development or development
of any project or property which was considered and actively
pursued by Employer or its affiliates for acquisition, leasing,
financing, pre-development or development within one year prior to
the date of termination of Employee's employment.
(b) During the term of his or her employment by or with Employer, and
thereafter during the Post Termination Period, Employee shall not,
for any reason whatsoever, directly or indirectly, for himself or
herself or on behalf of or in conjunction with any other Person:
(i) so that Employer may maintain an uninterrupted workforce,
solicit and/or hire any Person who is at the time of
termination of employment, or has been within six (6)
months prior to the time of termination of Employee's
employment, an employee of Employer or its affiliates, for
the purpose or with the intent of enticing such employee
away from or out of the employ of Employer or its
affiliates, provided that Employee shall be permitted to
call upon and hire any member of the Employee's immediate
family;
(ii) in order to protect the confidential information and
proprietary rights of Employer, solicit, induce or attempt
to induce any Person who or that is, at the time of
termination of Employee's employment, or has been within
six (6) months prior to the time of termination of
Employee's employment, an actual customer, client, business
partner, property owner, developer or tenant or a
prospective customer, client, business partner, property
owner, developer or tenant (i.e. , a customer, client,
business partner, property owner, developer or tenant who
is party to a written proposal or letter of intent with
Employer, in each case written less than six (6) months
prior to termination of Employee's employment) of Employer,
for the purpose or with the intent of (A) inducing or
attempting to induce such Person to cease doing business
with Employer or its affiliates, or (B) in any way
interfering with the relationship between such Person and
Employer or its affiliates; or
(iii) solicit, induce or attempt to induce any Person who is or
that is, at the time of termination of Employee's
employment, or has been within six (6) months prior to the
time of termination of Employee's employment, a tenant,
supplier, licensee or consultant of, or provider of goods
or services to Employer or its affiliates, for the purpose
or with the intent of (A) inducing or attempting to induce
such Person to cease doing business with
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Employer or its affiliates or (B) in any way interfering
with the relationship between such Person and Employer or
its affiliates.
(c) The above notwithstanding, the restrictions contained in
subsections (a) and (b) above shall not apply to Employee in the
Post-Termination Period in the event that Employee has ceased to be
employed by Employer under circumstances described in Section 7 of
this Severance Agreement.
(d) Because of the difficulty of measuring economic losses to Employer
as a result of a breach of the foregoing covenants, and because of
the immediate and irreparable damage that could be caused to
Employer for which it would have no other adequate remedy,
Employee agrees that the foregoing covenants, in addition to and
not in limitation of any other rights, remedies or damages
available to Employer at law, in equity or under this Agreement,
may be enforced by Employer in the event of the breach or
threatened breach by Employee, by injunctions and/or restraining
orders. If Employer is involved in court or other legal proceedings
to enforce the covenants contained in this Section 15, then in the
event Employer prevails in such proceedings, Employee shall be
liable for the payment of reasonable attorneys' fees, costs and
ancillary expenses incurred by Employer in enforcing its rights
hereunder.
(e) It is agreed by the parties that the covenants contained in this
Section 15 impose a fair and reasonable restraint on Employee in
light of the activities and business of Employer on the date of the
execution of this Agreement and the current plans of Employer; but
it is also the intent of Employer and Employee that such covenants
be construed and enforced in accordance with the changing
activities, business and locations of Employer and its affiliates
throughout the term of these covenants.
(f) It is further agreed by the parties hereto that, in the event
that Employee shall cease to be employed hereunder, and enters
into a business or pursues other activities that, at such time,are
not in competition with Employer or its affiliates or with any
business or activity which Employer or its affiliates contemplated
pursuing, as of the date of termination of Employee's employment,
within twelve (12) months from such date of termination, or similar
activities or business in locations the operation of which, under
such circumstances, does not violate this Section 15 or any of
Employee's obligations under this Section 15, Employee shall not be
chargeable with a violation of this Section 15 if Employer or its
affiliates subsequently enter the same (or a similar) competitive
business, course of activities or location, as applicable.
(g) The covenants in this Section 15 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court
of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth herein are unreasonable, then it
is the intention of the parties that such restrictions be enforced
to the fullest extent that such court deems reasonable, and the
Agreement shall thereby be reformed to reflect the same.
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(h) All of the covenants in this Section 15 shall be construed as an
agreement independent of any other provision in this Agreement, and
the existence of any claim or cause of action of Employee against
Employer whether predicated on this Agreement or otherwise shall
not constitute a defense to the enforcement by Employer of such
covenants. It is specifically agreed that the Post Termination
Period, during which the agreements and covenants of Employee made
in this Section 15 shall be effective, shall be computed by
excluding from such computation any time during which Employee is
in violation of any provision of this Section 15.
(i) Notwithstanding any of the foregoing, if any applicable law,
judicial ruling or order shall reduce the time period during which
Employee shall be prohibited from engaging in any competitive
activity described in Section 15 hereof, the period of time for
which Employee shall be prohibited pursuant to Section 15 hereof
shall be the maximum time permitted by law.
16. No Assignment. Neither this Severance Agreement nor any right, remedy,
--------------
obligation or liability arising hereunder or by reason hereof shall be
assignable by either Employer or Employee without the prior written
consent of the other party; provided, however, that this provision shall
not preclude Employee from designating one or more beneficiaries to
receive any amount that may be payable after Employee's death and shall
not preclude Employee's executor or administrator from assigning any right
hereunder to the person or persons entitled thereto; provided, further,
that in connection with a voluntary transfer, the Employer may assign this
Severance Agreement (and its rights, remedies, obligations, and
liabilities) to an affiliate of the Employer without the consent of the
Employee in connection with a spin off of such affiliate (whether by a
transfer of shares of beneficial ownership, assets, or other substantially
similar transaction) to all or substantially all of the shareholders of
the Employer (a "Spin-off") and, upon such assignment, the affiliate shall
be deemed the Employer for all purposes of this Severance Agreement. This
Severance Agreement shall not be terminated either by the voluntary or
involuntary dissolution or the winding up of the affairs of Employer, or
by any merger or consolidation wherein Employer is not the surviving
entity, or by any transfer of all or substantially all of Employer's
assets on a consolidated basis. In the event of any such merger,
consolidation or transfer of assets, the provisions of this Severance
Agreement shall be binding upon and shall inure to the benefit of the
surviving entity or to the entity to which such assets shall be
transferred.
17. Amendment. This Severance Agreement may be terminated, amended, modified or
----------
supplemented only by a written instrument executed by Employee and Employer.
18. Waiver. Either party hereto may by written notice to the other: (i) extend
-------
the time for performance of any of the obligations or other actions of the
other party under this Severance Agreement; (ii) waive compliance with any
of the conditions or covenants of the other party contained in this
Severance Agreement; (iii) waive or modify performance of any of the
obligations of the other party under this Severance Agreement. Except as
provided in the preceding sentence, no action taken pursuant to this
Severance Agreement shall be deemed to constitute a waiver by the party
taking such action of compliance with
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any representations, warranties, covenants or agreements contained herein.
The waiver by any party hereto of a breach of any provision of this
Severance Agreement shall not operate or be construed as a waiver of any
preceding or succeeding breach. No failure by either party to exercise any
right or privilege hereunder shall be deemed a waiver of such party's
rights to exercise the same any subsequent time or times hereunder.
19. Severability. In case any one or more of the provisions of this Severance
-------------
Agreement shall, for any reason, be held or found by determination of the
arbitrator(s) pursuant to an arbitration held in accordance with Section
12 above to be invalid, illegal or unenforceable in any respect (i) such
invalidity, illegality or unenforceability shall not affect any other
provisions of this Severance Agreement, (ii) this Severance Agreement
shall be construed as if such invalid, illegal or unenforceable provision
had never been contained herein, and (iii) if the effect of a holding or
finding that any such provision is either invalid, illegal or
unenforceable is to modify to Employee's detriment, reduce or eliminate
any compensation, reimbursement, payment, allowance or other benefit to
Employee intended by Employer and Employee in entering into this Severance
Agreement, Employer shall promptly negotiate and enter into an agreement
with Employee containing alternative provisions (reasonably acceptable to
Employee), that will restore to Employee (to the extent legally
permissible) substantially the same economic, substantive and income tax
benefits Employee would have enjoyed had any such provision of this
Severance Agreement been upheld as legal, valid and enforceable. Failure
to insist upon strict compliance with any provision of this Severance
Agreement shall not be deemed a waiver of such provision or of any other
provision of this Severance Agreement.
20. Governing Law. This Severance Agreement has been executed and delivered in
--------------
the State of Maryland and its validity, interpretation, performance and
enforcement shall be governed by the laws of said State; provided,
however, that any arbitration under Section 12 hereof shall be conducted
in accordance with the Federal Arbitration Act as then in force.
21. No Attachment. Except as required by law, no right to receive payments
--------------
under this Severance Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or the execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary,
to effect any such action shall be null, void and of no effect.
22. Source of Payments. All payments provided under this Severance Agreement
-------------------
shall be paid in cash from the general funds of Employer, and no special
or separate fund shall be established and no other segregation of assets
shall be made to assure payment.
23. Headings. The section and other headings contained in this Severance
---------
Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Severance Agreement.
24. Notices. Any notice required or permitted to be given under this Severance
--------
Agreement shall be in writing and shall be deemed to have been given when
delivered in person or when deposited in the U.S. mail, registered or
certified, postage prepaid, and mailed to Employee's addresses set forth
herein and the business address of Employer, unless a
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party changes its address for receiving notices by giving notice in
accordance with this Section, in which case, to the address specified in
such notice.
25. Counterparts. This Severance Agreement may be executed in multiple
-------------
counterparts with the same effect as if each of the signing parties had
signed the same document. All counterparts shall be construed together and
constitute the same instrument.
26. Entire Agreement. Except as may otherwise be provided herein, this
-----------------
Severance Agreement supersedes any and all prior written agreements
existing between Employer and Employee with regard to the subject matter
hereof.
IN WITNESS WHEREOF, the parties have executed and delivered this Severance
Agreement to be effective as of the day and year indicated above.
--------------------------------------
Employee's Signature
Employee's Permanent Address:
2930 28th Street, N.W.
Washington, DC 20008
FEDERAL REALTY INVESTMENT TRUST
By:___________________________________
Name: ________________________________
Title:________________________________
Address: 1626 East Jefferson Street
Rockville, Maryland 20852
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March 1, 2002
Mr. Ron D. Kaplan
7909 Greentree Road
Bethesda, Maryland 20817
Dear Ron:
This letter agreement will set forth the terms of the termination of
your employment with Federal Realty Investment Trust (the "Trust"):
1. Your employment was terminated without cause pursuant to the
Amended and Restated Severance Agreement dated March 6, 1998 between you and the
Trust (the "Severance Agreement") effective March 1, 2002 (the "Termination
Date"). You and the Trust acknowledge that you have been paid through the
Termination Date and that the Trust owes you payment for all accrued unused
vacation as of the Termination Date, plus an additional eleven vacation days.
2. The Trust will make a severance payment to you in the amount of
$1,035,400 pursuant to Section 3(d) of your Severance Agreement. You agree that
the above amount is the correct amount payable under that section of your
Severance Agreement. Your severance payment will be payable in a lump sum on the
date on which this letter agreement becomes effective and enforceable (i.e., the
day after the expiration of the revocation period referred to in paragraph 15
below without your having revoked this letter agreement). You will also be
entitled to all benefits and balances under your 401-K and Non-Qualified
Deferred Compensation plans.
3. You will receive Full Benefits as described in Section 3(e) of the
Severance Agreement for the periods specified in Section 3(e) plus an additional
period of seven (7) months.
4. You will receive outplacement services as described in Section 3(h)
for a period not to exceed six (6) months and beginning on any date elected by
you in writing during the sixteen (16) month period commencing on the
Termination Date.
5. You will receive the perquisites described in Section 3(i) of the
Severance Agreement beginning September 30, 2002.
6. Effective as of the Termination Date, you will receive loan
forgiveness described
in Section 3(f) of the Severance Agreement as well as loan forgiveness
provided for upon termination of your employment without cause under the
performance share award, restricted share award, share purchase plan and option
agreements between you and the Trust. It is hereby acknowledged and agreed that
the balance of your outstanding indebtedness to the Trust as of the Termination
Date, after giving effect to the debt forgiveness triggered by your Termination
Without Cause, is $1,729,988.50 ("Total Outstanding Debt") and this amount, and
the debt forgiveness, is itemized on Exhibit A.
7. The Trust has agreed to modify and extend the terms of your
obligation to repay the Total Outstanding Debt as follows: the Total Outstanding
Debt will bear interest at a fixed annual rate of 5.85% and will have a maturity
date of September 30, 2007, unless earlier forgiven or prepaid and will require
interest-only quarterly payments of $25,301.08, which shall be due and payable
on each January 15th, April 15th, July 15th and October 15th during the Term;
the obligation will be recourse to you and you shall maintain collateral in the
form of unencumbered Federal Realty stock or cash or any cash equivalent having
a then current market value of not less than 110% of the outstanding loan
balance. The sufficiency of Collateral will be evaluated as of March 1 of each
year during the term of the loan. In the event that the value of the Collateral
is less than 100% of the outstanding loan balance as of March 1, you will post
additional Collateral as required in order to satisfy this requirement. In the
event that the value of the Collateral exceeds 110% of the outstanding loan
balance as of March 1, excess Collateral will be released at your request. If
the Trust contemplates a change in control (as that term is defined in the
Trust's 2001 Long-Term Incentive Plan) prior to September 30, 2007, the Trust
may, but shall have no obligation to, engage you in connection with such
transaction, and, if the Trust does so engage you pursuant to a written
agreement signed by you and Steve Guttman or any Executive Officer on behalf of
the Trust, the outstanding principal balance of the Total Outstanding Debt will
be forgiven in full in the event that the change in control transaction is
completed on or before September 30, 2007. In consideration for the
modifications and extension provided herein and the cancellation of all existing
promissory notes which previously evidenced the Total Outstanding Debt, you will
execute, concurrently herewith, the Full Recourse Secured Promissory Note and
Share Pledge Agreement in the forms attached hereto as Exhibit B, evidencing and
securing your obligation with respect to the Total Outstanding Debt.
8. Effective as of the Termination Date, you will receive the
accelerated vesting of stock options, performance shares and restricted shares,
pursuant to Section 3(g) of your Severance Agreement and other agreements
between you and the Trust, as itemized in Exhibit C hereto (and the options may
be exercised for a period of seven months commencing on the date first set forth
above, plus the period specified in such agreements).
9. It is acknowledged and agreed that the Split Dollar Life Insurance
Agreement between you, the Trust and the Ronald D. Kaplan Family Trust shall
remain in full force and effect in accordance with the Split Dollar Life
Insurance Agreement.
10. The Trust may withhold from any amounts payable under this letter
agreement, and pay over to the appropriate authority, all federal, state,
county, city or other taxes as shall be required pursuant to any law or
governmental regulation or ruling.
2
11. You understand and acknowledge that the payments provided for in
this letter agreement are the only payments to which you will be entitled and
that they exceed the payments and benefits to which you were otherwise entitled.
In consideration of these payments, you agree that you will not be entitled to
collect unemployment compensation. You acknowledge and recognize that in
agreeing to provide you with the payments provided under this letter agreement,
the Trust in no way admits any wrongdoing or liability to you arising out of any
basis, including but not limited to your employment and/or ending of employment
with the Trust.
12. You acknowledge that the Trust's business reputation in the real
estate industry and the morale of its employees are of great value to the Trust.
Thus, in consideration of the payments provided under this letter agreement, you
agree that (a) you will not disparage the Trust, its affiliates or its and their
officers, directors, trustees or employees, and (b) you will comply with all the
terms and conditions of the confidentiality letter you executed as a condition
of employment with the Trust (a copy of which is attached to this letter
agreement as Attachment A) and you will not divulge and will keep confidential
all proprietary and private information regarding the Trust which was made known
to you during your employment, other than any disclosure required by any law or
regulation, court of competent jurisdiction, recognized subpoena power, or
governmental agency or authority, or to the extent necessary for Kaplan to
enforce Federal's obligations hereunder.
The Trust acknowledges your reputation and its great value to you. The
Trust agrees that neither it nor its officers, directors, trustees, or agents
will disparage your work performance or ethic or your integrity, or otherwise
comment upon you unfavorably; and that neither it nor its officers, directors,
trustees, or agents will make or publish, without your express prior written
consent, any disparaging written or oral statement concerning you or your work
performance or ethic or your integrity.
13. You agree to return to the Trust all items containing proprietary
information or trade secrets and any other property belonging to the Trust on or
before the last day of the Term of the Consulting Agreement between you and the
Trust. Notwithstanding the foregoing, you may retain, as your personal property,
the Compaq Armada M300 laptop computer and docking station that the Trust
provided for your use ("Computer"), provided that you must present the Computer
to Lisa Denson on or before the last day of the Term of the Consulting Agreement
so that she may delete any proprietary or confidential information stored
thereon.
14. In consideration of the mutual promises of the parties and of the
payments and other benefits promised herein by the Trust, you agree to release
the Trust, all affiliated companies, and all employees, representatives,
officers, trustees and directors of those entities of any and all claims or
causes of action which you could assert arising, directly or indirectly, out of,
or in any way connected with, based upon, or related to your employment by the
Trust or your retirement under all statutes, laws, and regulations, whether,
federal, state or local by executing a Release (in the form attached to this
letter agreement as Attachment A) simultaneously with the execution of this
letter agreement, and the Release shall be attached to and form a part of this
letter agreement.
15. You acknowledge that you have been given at least twenty-one (21)
days to consider this letter agreement, that you have seven (7) days from the
date you sign this letter
3
agreement in which to revoke it, and that this letter agreement will not be
effective or enforceable until after the seven-day revocation period ends
without your revocation of it. Revocation can be made by delivery of a written
notice of revocation to Nancy Herman, Senior Vice President - General Counsel,
on or before the seventh calendar day after you sign this letter agreement.
16. This letter agreement (i) supersedes all other agreements between
you and the Trust with regard to the subject matter hereof, (ii) will be
governed by and interpreted under the laws of Maryland, and (iii) will become
final and binding on both parties only upon full execution by both parties, your
execution of the Release and the passage of the seven-day revocation period
without your revocation.
It has been an honor and a pleasure working with you, Ron. On behalf of
myself, the other officers and employees of the Trust, and the Board of
Trustees, I want to thank you for your many years of devoted and very
professional service to the Trust. We wish you all the best in your future
endeavors.
WITNESS: FEDERAL REALTY INVESTMENT TRUST
______________________________ By: ______________________________________
Nancy J. Herman
Senior Vice President-General Counsel
and Secretary
WITNESS:
______________________________ ______________________________________
Ron D. Kaplan
Date of Signature: ___________________
4
ATTACHMENT A
RELEASE
This Release, entered into and effective for all purposes as of this ____ day of
March, 2002, between Ron D. Kaplan ("Employee") and Federal Realty Investment
Trust ("Employer"),
KNOW ALL MEN BY THESE PRESENTS THAT:
A. In consideration of Employer's agreement to make the payments and to
provide other benefits to Employee as set forth in a letter agreement dated
March 1, 2002, the receipt and sufficiency of which are hereby acknowledged,
Employee hereby irrevocably and unconditionally releases, remits, acquits, and
discharges Employer and any affiliate of Employer and its present and former
officers, Trustees, agents, employees, contractors, successors and assigns
(separately and collectively "releasees"), jointly and individually, from any
and all claims, known or unknown, which Employee, her heirs, successors or
assigns have or may have against releasees and any and all liability which the
releasees may have to her whether called claims, demands, causes of action,
obligations, damages or liabilities arising from any and all basis, however
called, including but not limited to claims of discrimination under any federal,
state or local law, rule or regulation. This release relates to claims known or
unknown arising prior to and during Employee's employment by Employer, whether
those claims are past or present, whether they arise from common law, contract
or statute, whether they arise from labor laws or discrimination laws, or any
other law, rule or regulation, provided, however, that this release does not
apply to any rights or claims that may arise after the date of this Release.
Employee specifically acknowledges that this release is applicable to any claim
under the CIVIL RIGHTS ACT OF 1964, as amended, the AGE DISCRIMINATION IN
EMPLOYMENT ACT, as amended, and/or the AMERICANS WITH DISABILITIES ACT. This
release is for any relief, no matter how called, including but not limited to
reinstatement, wages, back pay, front pay, severance pay, compensatory damages,
punitive damages or damages for pain or suffering, or attorney fees.
B. Subject to Paragraph D. below, Employer and its successors and
assigns hereby irrevocably and unconditionally release, remit, acquit, and
discharge Employee from any and all claims, known or unknown, which Employer has
or may have against Employee and any and all liability which Employee may have
to it whether called claims, demands, causes of action, obligations, damages or
liabilities arising from any and all basis, however called. This release relates
to claims known or unknown arising prior to and during Employee's employment by
Employer, whether those claims are past or present, whether they arise from
common law, contract or statute, whether they arise from labor laws or
discrimination laws, or any other law, rule or regulation, provided, however,
that this release does not apply to any rights or claims that relate to events
occurring after the date of this Mutual Release. This release is for any relief,
no matter how called, including but not limited to compensatory damages,
punitive damages or damages for pain or suffering, or attorney fees.
5
C. Employee represents that he has not filed any administrative or
judicial claim or complaint against releasees. Employer represents that it has
filed no administrative or judicial claim or complaint against Employee.
D. This Release shall be and remain in effect despite any alleged
breach of the letter agreement or the discovery or existence of any new or
additional fact or any fact different from that which Employee or Employer or
their counsel now know or believe to be true. Notwithstanding the foregoing,
nothing in this Release shall be construed as or constitute a release of
Employee's or Employer's rights to enforce the terms of the letter agreement, or
to seek relief, including but not limited to any damages, for any breach of the
letter agreement.
E. Employee acknowledges that he has read the foregoing Release; that
he has had a right to consult an attorney, and has been encouraged by the
Employer to review this Release with an attorney; that he has been given a
period of not less than 21 days in which to consider this Release; that he
understands it; and that he accepts and agrees to all the provisions contained
herein. Employee understands that this Release sets forth the entire
understanding of the parties, and he acknowledges that he has not relied upon
any other representations or promises in entering into this Release.
Employee may revoke this Release at any time during the seven days
immediately following his execution of the Release, after which time the Release
shall be irrevocable and enforceable in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Release as of the
date first above written.
______________________________________
Ron D. Kaplan
FEDERAL REALTY INVESTMENT TRUST
By: ___________________________________
Title:
6
EXHIBIT A
---------
TOTAL OUTSTANDING DEBT
----------------------
Debt Forgiven On Total Outstanding
Existing Debt TWOC/1/ Debt
-------------- ---------------- -----------------
Stock Option Loans $1,104,988.50 $ 0 $1,104,988.50
Share Purchase Loans and
Associated Tax Loans $ 750,000.00 $125,000.00 $ 625,000.00
Tax Loans on Restricted Shares $ 333,377.19 $333,377.19 $ 0
Tax Loans on Performance
Shares $ 398,656.25 $398,656.25 $ 0
------------- ----------- -------------
Total $2,587,021.94 $857,033.44 $1,729,988.50
------------- ----------- -------------
Newly Created Debt Debt Forgiven
as a Result of TWOC on TWOC
------------------- -------------
Tax Loans on Restricted
Shares $393,251 $393,251
Tax Loans on Performance
Shares $314,500 $314,500
-------- --------
Total $707,751 $707,751
-------- --------
- ------------------
/1/ "TWOC" refers to Termination Without Cause, as defined in Section 3 of Ron
Kaplan's Amended and Restated Severance Agreement.
7
EXHIBIT B
FORM OF FULL RECOURSE SECURED PROMISSORY NOTE AND STOCK
PLEDGE AGREEMENT
8
EXHIBIT C
ACCELERATED VESTING
TYPE OF AWARD ACCELERATION
- --------------------------------------------- ----------------------------------------------------
Performance Share Award Agreements Accelerated vesting of remaining 25,000 shares
- --------------------------------------------- ----------------------------------------------------
Restricted Share Award Agreements
(Service Awards) Accelerated vesting of remaining 29,950 shares
- --------------------------------------------- ----------------------------------------------------
Restricted Share Award Agreements (Bonus) Accelerated vesting of 4,805 shares
- --------------------------------------------- ----------------------------------------------------
Options Accelerated vesting of 69,999 options; vested
options are exercisable for 12 months
- --------------------------------------------- ----------------------------------------------------
9
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made as of the _1st___
day of March, 2002, by and between Federal Realty Investment Trust, with an
address of 1626 East Jefferson Street, Rockville, MD 20852 ("Federal") and Ron
D. Kaplan, an individual with an address of 7909 Greentree Road, Bethesda,
Maryland 20817 ("Kaplan ").
WHEREAS Federal desires to engage Kaplan to serve as a consultant to
Federal and Kaplan desires to so serve as a consultant to Federal.
NOW THEREFORE, in consideration of the promises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Appointment as Independent Consultant. Federal agrees to engage
-------------------------------------
Kaplan as an independent consultant, for the purposes set forth in Paragraph 3
of this Agreement (the "Services"). The parties acknowledge and agree that
Kaplan's employment with Federal was terminated effective March 1, 2002 and that
nothing in this Agreement shall constitute or be construed as constituting,
creating or extending an agency, partnership, master-servant or
employer-employee relationship between Federal and Kaplan. Federal shall not be
liable for any act or omission of Kaplan or for any obligation or debt incurred
by Kaplan, unless the same shall have been authorized by any Executive Officer
of Federal.
2. Term. The term of this Agreement shall commence on March 1, 2002,
----
and shall continue through September 30, 2002 or the Termination Date ("Term").
Kaplan shall return to Federal any and all records, reports, documents and other
materials relating to the Services that are in his possession or control, by
overnight courier within twenty-four (24) hours after the first to occur of: (i)
a request by Federal, or (ii) the Termination Date, or (iii) September 30, 2002.
Federal shall promptly reimburse Kaplan for actual charges incurred to deliver
such materials.
3. Services. Kaplan agrees to use reasonable best efforts to complete
--------
each and all of the following Services, to the reasonable satisfaction of Steven
Guttman (or such other Federal designee as may be appointed by the Chief
Executive Officer of Federal) on or before September 30, 2002. Kaplan shall
devote the time required as determined in his reasonable discretion to complete
the Services.
a. Transition all matters, projects and other business for
which Kaplan was responsible during the term of his
employment with Federal to Don Wood and Larry Finger and
other designated employees.
b. Renegotiate the Santana Row construction loan on terms
acceptable to Federal.
4. Consulting Fees, Expenses and Support.
-------------------------------------
a. Federal agrees to pay Kaplan a consulting fee of $27,100 per
month for each
month of the Term, payable in equal installments on the 1st and
15th of each month in arrears, with the first payment due on
March 15, 2002 ("Consulting Fee").
b. Kaplan will be eligible to receive a success fee ("Success
Fee"), the target amount of which shall be $500,000, payable
promptly after Kaplan procures on behalf of the Trust a
restructured Santana Row construction loan on terms acceptable
to the Trust, provided that Steve Guttman (or, in the event he
is incapacitated his successor) recommends and the
Compensation Committee approves the payment of the Success
Fee.
c. During the Term of this Agreement, Federal will provide Kaplan
with his current office space in Federal's Rockville, Maryland
office, as well as administrative support (which may be shared),
computer services (with a connection to Federal's network), a
phone, fax and other items and services that Kaplan had
available to him prior to February 28, 2002 and necessary to
enable Kaplan to perform the Services. Notwithstanding anything
to the contrary in the preceding sentence, Federal will not
terminate Kaplan's existing administrative assistant, Karen Fox
("Fox") without cause prior to June 1, 2002, and she will
continue to support Kaplan through June 1, 2002 (or earlier if
she elects to terminate her employment or is terminated with
cause). Federal agrees that in the event that Federal terminates
Fox effective June 1, 2002, she will be notified of the
termination on or about April 15, 2002 and will receive a
severance payment equal to four (4) weeks' base salary in
exchange for a release of claims.
d. Federal will reimburse Kaplan or pay directly in accordance with
Federal's Travel and Entertainment Policy, all reasonable costs
and expenses necessary in connection with the performance of the
Services hereunder, such as out of town travel and related
expenses, provided that any expenditures in excess of $5,000 per
month must be expressly authorized by Federal in advance.
5. Confidentiality and Nondisclosure.
---------------------------------
a. In connection with the performance of the Services, Kaplan
acknowledges that he may have access to Federal's confidential
information and other secret or confidential matters relating to
the business of Federal or its affiliates. "Confidential
Information" means any information, oral or written, that is not
generally known outside of Federal and/or its affiliates. It is
understood that all such information shall have been received by
Kaplan in confidence and Kaplan specifically agrees to retain
all such information in strict confidence, disclosing it to no
third party (other than Federal) and making no use of that
information for Kaplan's own benefit or for any purpose
whatsoever (other than as contemplated herein), without express
written authorization from Federal, other than any disclosure
required by any law or regulation, court of competent
jurisdiction, recognized subpoena power, or governmental agency
or authority, or to the extent necessary for Kaplan to enforce
Federal's obligations hereunder.
b. The terms of this Confidentiality and Nondisclosure agreement
shall survive the termination of Kaplan's association with
Federal, regardless of the manner of such
termination.
6. Ownership of Intellectual Property. Kaplan shall perform the
----------------------------------
Services solely for the benefit of Federal and it is the parties' intent that
Federal shall own all title in all material and works created by Kaplan under
this Agreement (the "Works"). Kaplan hereby assignees to Federal all of Kaplan's
right, title and interest, including copyright, throughout the world, in and to
all such Works, including the rights to bring suit or make any claim in
Federal's name for prior or future infringement of rights in the Works. Kaplan
further agrees, at the request and expense of Federal or its successor in
interest, to do all lawful acts which may be required for obtaining and
enforcing copyright rights in the Works and otherwise to aid Federal or its
successor in enforcing rights in the Works.
7. Governing Law. Any controversy or claim arising out of or relating
-------------
to this Agreement, or the breach thereof, shall be governed by the laws of
Maryland.
8. Assignability. It is understood that the Services provided hereunder
-------------
are personal to Kaplan. Therefore, Kaplan may not assign, transfer or sell his
rights under this Agreement, or delegate his duties hereunder unless as
expressly provided herein or otherwise with the prior written consent of
Federal. Any attempted assignments or delegation without such consent shall be
void and without effect.
9. Termination. Federal may terminate this Agreement by written notice
-----------
to Kaplan in the event that Kaplan engages in willful misconduct, bad faith or
gross negligence in the performance of the Services which conduct results in
actual injury to Federal, in which event Federal's obligation to pay, and
Kaplan's right to receive, the Consulting Fee and the Success Fee shall
terminate as of the date of termination. Kaplan may terminate this Agreement by
written notice to Federal in the event that Federal engages in willful
misconduct, bad faith or gross negligence in connection with this Agreement,
which conduct results in actual injury to Kaplan, in which event Kaplan's
obligation to provide the Services shall terminate and Federal shall promptly
pay to Kaplan the balance of the Consulting Fee and the Success Fee. Kaplan may
terminate this Agreement by written notice to Federal for any other reason, in
which event Kaplan's obligation to provide the Services shall terminate and
Federal's obligation to pay Kaplan the balance of the Consulting Fee and the
Success Fee shall also terminate. The effective date of any termination pursuant
to this provision shall herein be referred to as the "Termination Date". These
rights shall be in addition to and not in lieu of any other right or remedy
otherwise available for any breach of this Agreement.
10. Indemnification. Federal hereby agrees to indemnify and hold Kaplan
---------------
harmless from and against all claims, liabilities, losses, damages and expenses
incurred or arising out of Kaplan's performance of the Services pursuant to this
Agreement to the fullest extent permitted under Maryland law, except for any
claim, liability, loss, damage or expense that relates to or arises from any
action or failure to act by Kaplan constituting willful misconduct, bad faith or
gross negligence.
11. Limited Liability. The parties hereto agree that the obligations of
-----------------
Federal under
this Agreement are not binding upon any of the trustees, officers or
shareholders of Federal individually. The parties to this Agreement agree that
no trustee, officer or shareholder of Federal may be held personally liable or
responsible for any obligations of Federal arising out of this Agreement.
12. Entire Agreement. This Agreement represents the entire agreement
----------------
between the parties hereto with regard to the subject matter hereof. Any
modifications, amendments or waivers of any of the provisions, herein shall be
effective only if made in writing and duly signed by each party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
FEDERAL REALTY INVESTMENT TRUST
------------------------------------------
By: Nancy J. Herman
Its: Senior Vice President-General Counsel
-------------------------------------------
Ron D. Kaplan
FULL RECOURSE SECURED PROMISSORY NOTE
-------------------------------------
$1,729,988.50 March 14, 2002
FOR VALUE RECEIVED, the undersigned, Ron D. Kaplan (the "Maker"),
promises to pay to the order of Federal Realty Investment Trust, a Maryland real
estate investment trust (the "Trust"), on the Maturity Date (as defined herein),
the aggregate principal sum of One Million Seven Hundred Twenty-nine Thousand
Nine Hundred Eighty-eight Dollars and Fifty Cents ($1,729,988.50).
1. Letter Agreement. This Note is the promissory note referred to
----------------
in section 7 of the certain letter agreement dated as of March 1, 2002 by and
between Maker and the Trust (the "Letter Agreement"). Maker is executing and
delivering this Note as required pursuant to the terms of the Letter Agreement.
2. Interest. Interest on the outstanding principal amount of this
--------
Note shall be payable at the rate of 5.85% per annum. Interest shall be due and
payable quarterly in arrears on January 15, April 15, July 15 and October 15 of
each year for so long as any principal amount remains outstanding. All payments
under this Note shall be made to the order of the Trust at the address listed in
Section 9, or such other address as the Trust may designate in writing to the
Maker.
3. Maturity Date. The principal balance of and all accrued and
-------------
unpaid interest on this Note shall be paid in full on the earliest of: (a)
September 30, 2007 or (b) the occurrence of any Event of Default (as defined
herein) (the "Maturity Date").
4. Payment. This Note, as well as any accrued interest hereunder,
-------
may be prepaid at any time in full or from time to time in part, without premium
or penalty. In the event of any prepayment, such prepayment shall be applied
first toward accrued and unpaid interest hereon, and any balance shall then be
applied to the unpaid principal balance hereof. In the event of any partial
prepayment, the Trust shall prepare and attach a schedule to this Note which
reflects the adjusted balance of the principal and accrued interest on this
Note. Except as set forth in Section 5 of this Note, all payments of principal
and interest on this Note shall be paid in the legal currency of the United
States. The Maker, or his successors and assigns, waives diligence, presentment
for payment, demand, protest, and notice of protest, dishonor and nonpayment of
this Note and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time and that the holder hereof may accept security for
this Note or release security for this Note, all without in any way affecting
the liability of the Maker hereunder.
This Note will be forgiven in full, pursuant to section 7 of the Letter
Agreement if the Trust engages the Maker pursuant to a written agreement signed
by the Maker and Steve Guttman or any Executive Officer on behalf of the Trust
in connection with a contemplated change in control (as that term is defined in
the Trust's 2001 Long-Term Incentive Plan) prior to September 30, 2007 and the
change in control transaction is completed on or before September 30, 2007.
- 1 -
5. Payment in Common Shares. In addition to payment pursuant
------------------------
to paragraph 4 above, this Note may also be paid in full or in part by the Maker
at any time or from time to time by either (a) the surrender to the Trust for
cancellation of a certificate or certificates registered in the name of the
Maker (or his successors or assigns) representing the Trust's common shares of
beneficial interest, par value $.01 per share ("Common Shares"), or (b) the
delivery by the Maker to the Trust of a written instrument notifying the Trust
of the Maker's intent to surrender for cancellation of a specified number of the
Pledged Shares (as defined below) then held by the Trust pursuant to the terms
of the Pledge Agreement (as defined below) for the purpose of making such
payment. In either case, the aggregate amount of the accrued but unpaid interest
and principal, if any, to be paid shall be calculated based on the aggregate
Value (as defined below) of the Common Shares surrendered or to be surrendered
for cancellation by the Trust. For purposes of this Note, "Value" shall mean the
product of the number of Common Shares so delivered, multiplied by the Fair
Market Value of a Common Share. "Fair Market Value" shall mean 100% of the
closing sale price of the Trust's common shares of beneficial interest (as
reported on The New York Stock Exchange's Composite Transactions Tape) for the
trading day immediately preceding the day on which the Trust has taken delivery
of the Common Shares or the Maker's written request for the application of
Pledged Shares for such purpose, as the case may be, in connection with such
payment.
6. Security. Payment of this Note shall be secured by a Share
--------
Pledge Agreement, in substantially the form attached hereto as Exhibit A (the
"Pledge Agreement"), to be executed and delivered by the Maker and providing,
among other things, for the pledge by the Maker of Common Shares having an
aggregate Value (calculated as of March 1, 2002) of at least One Million Nine
Hundred Two Thousand Nine Hundred Eighty-seven Dollars and Thirty-five Cents
($1,902,987.35) (such Common Shares, the "Pledged Shares"). Notwithstanding the
foregoing, this Note is a "recourse" Note and the right of the Trust under the
Pledge Agreement to foreclose upon and dispose of the Pledged Shares shall be in
addition to, and shall not in any way limit, hinder or affect, any other rights
and remedies that may be available to the Trust under applicable law.
7. Default. The occurrence of any of the following shall
-------
constitute an "Event of Default" under this Note:
(a) Default in the payment of any installment of principal
and/or interest on this Note when due and the continuation of such default for
more than ten (10) days;
(b) The occurrence of any event of default under the
Pledge Agreement securing this Note.
Upon the occurrence of any such Event of Default, the entire
unpaid balance of principal on this Note, together with all accrued interest
thereon, shall be due and payable either immediately or at any time during the
continuance of such Event of Default, at the option of the Trust. Failure to
exercise this option upon or during an Event of Default shall not constitute a
waiver of the right to exercise the same upon the occurrence of any subsequent
Event of Default. No delay or omission on the part of the Trust in exercising
any rights hereunder shall operate as a waiver of such rights or of any other
right under this Note. Without limiting the
- 2 -
generality of the foregoing, upon the occurrence of an Event of Default the rate
at which interest shall accrue on the outstanding principal balance and other
amounts due hereunder shall increase to 10% per annum until all such amounts
have been paid in full.
8. Attorneys' Fees. If the Maker fails to pay any amounts due
---------------
under this Note when due, the Maker shall pay to the holder hereof, in addition
to such amounts due, all costs of collection, including reasonable attorneys'
fees.
9. Notices. Any notice, request, demand, claim, or other
-------
communication under this Note shall be in writing and shall be either personally
delivered, sent by facsimile or sent by reputable overnight courier service
(charges prepaid) to the recipient at the following address:
If to the Trust:
---------------
Federal Realty Investment Trust
1626 East Jefferson Street
Rockville, MD 20852
Attn: Legal Department
Tel: (301) 998-8100
Fax: (301) 998-3814
If to the Maker:
---------------
Ron D. Kaplan
7909 Greentree Road
Bethesda, MD 20817
Tel: (301) 469-7834
Fax: (301) 469-6256
or such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement will be deemed to have been given
hereunder when delivered personally or sent by facsimile, and one day after
deposit with a respectable overnight courier service.
10. Governing Law. All issues concerning this Agreement shall be
-------------
governed by and construed in accordance with the laws of the State of MARYLAND,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of MARYLAND or any other jurisdiction) that would cause
the application of the law of any jurisdiction other than the State of MARYLAND.
11. Jurisdiction; Venue; Jury Trial. The Maker hereby consents
---------------------------------
to the exclusive jurisdiction of the federal and state courts located in THE
State of MARYLAND, and waives any
- 3 -
objections of improper venue and forum of such courts, in connection with any
action hereunder. The Maker further consents to personal jurisdiction in the
State of MARYLAND and agrees that service of process by certified mail, return
receipt requested, shall constitute good and valid service (in addition to any
other proper service). The Maker hereby waives any right to a jury trial in any
such action.
12. Enforceability. If any one or more of the provisions of
--------------
this Note is determined to be unenforceable, in whole or in part, for any
reason, the remaining provisions shall remain fully operative. No renewal or
extension of this Note, delay in enforcing any right of the Trust under this
Note, or assignment by the Trust of this Note shall affect the liability of the
Maker. All rights of the Trust under this Note are cumulative and may be
exercised concurrently or consecutively at the Trust's option.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Maker has caused this Secured
Promissory Note to be executed on its behalf as of the date first above written.
THE MAKER:
--------------------------------
Ron D. Kaplan
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Exhibit A: Share Pledge Agreement
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SHARE PLEDGE AGREEMENT
THIS SHARE PLEDGE AGREEMENT (this "Agreement") is entered into
as of March _14_, 2002, by and between Ron D. Kaplan, an individual having his
principal residence in the State of Maryland ("Pledgor") and Federal Realty
Investment Trust, a Maryland real estate investment trust (together with its
successors and assigns, "Secured Party").
WHEREAS, Secured Party and Pledgor have entered into that
certain letter agreement dated as of March 1, 2002 (the "Letter Agreement"),
pursuant to which Secured Party has agreed to modify and extend the terms of
Pledgor's obligation to repay Pledgor's outstanding indebtedness to Secured
Party in aggregate principal amount of One Million Seven Hundred Twenty-nine
Thousand Nine Hundred Eighty-eight Dollars and Fifty Cents ($1,729,988.50) (the
"Total Outstanding Indebtedness"), upon the terms and subject to the conditions
set forth in the Letter Agreement;
WHEREAS, pursuant to the Letter Agreement and in consideration
of the cancellation of all promissory notes which previously evidenced the Total
Outstanding Indebtedness, Pledgor has executed and delivered a Note of even date
herewith (the "Note") evidencing and setting forth the terms and conditions
governing Pledgor's obligations to repay the Total Outstanding Indebtedness;
WHEREAS, in accordance with the Letter Agreement and the Note,
Pledgor is required to execute and deliver this Agreement and to pledge
hereunder the Collateral (as hereinafter defined) as security for Pledgor's
obligations under the Note; and
WHEREAS, all capitalized terms used herein which are not
herein defined shall have the meanings ascribed to them in the Note;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS
For the purposes of this Agreement:
(a) "Business Day" means a day (other than a Saturday or a
Sunday) on which banks generally are open for business in Washington, D.C.
(b) "Calculation Date" means, prior to the Maturity Date,
each March 1 on which principal or accrued interest remains outstanding under
the Note. If March 1 is not a Business Day, the Calculation Date shall be the
next succeeding Business Day.
(c) "Collateral" means (i) 85,000 Common Shares, owned by
Pledgor on the date hereof (and the certificates, copies of which are attached
hereto, representing such Common
Shares); (ii) if the aggregate Value of the Collateral pledged pursuant to this
Section 1(c) is less than the Minimum Collateral Level as calculated on any
Calculation Date, that number of additional Common Shares that are required to
raise the aggregate Value of the Collateral to the Required Collateral Level as
calculated on such Calculation Date (and the certificates representing such
shares), and (iii) any dividends, distributions in property, returns of capital
or other distributions made on or with respect to any of the foregoing shares to
the extent provided in Section 3(b) hereof. Notwithstanding the foregoing,
Collateral shall not include that number of Common Shares that are required to
lower the aggregate Value of the Collateral to the Required Collateral Level as
calculated on any Calculation Date (and the certificates representing such
shares) if the aggregate Value of the Collateral pledged pursuant to this
Section 1(c) is more than the Required Collateral Level as calculated on any
Calculation Date.
(d) "Event of Default" means: (i) the occurrence of any Event
of Default under the Note and the continuance thereof beyond any applicable
period of cure provided therein; or (ii) any breach by Pledgor of any covenant
contained in Section 2 of this Agreement.
(e) "Minimum Collateral Level" means 100% of the outstanding
principal balance, together with accrued but unpaid interest thereon, under the
Note.
(f) "Required Collateral Level" means 110% of the outstanding
principal balance, together with accrued but unpaid interest thereon, under the
Note.
2. PLEDGE OF COLLATERAL
(a) As security for the due and punctual payment and
performance by Pledgor of all of his obligations under the Note (the "Secured
Obligations"), Pledgor hereby pledges and assigns to Secured Party all of the
Collateral, and grants to Secured Party a first priority security interest in
the Collateral and the proceeds thereof.
(b) Simultaneously with the execution of this Agreement,
Pledgor shall deliver to Secured Party certificates representing the Collateral
described in Section 1(c)(i) hereof, and will deliver to Secured Party the
certificates for the shares of Collateral described in Section 1(c)(iii) hereof
within five (5) days after Pledgor's acquisition of such shares. Pledgor further
agrees that, if it is determined following any calculation performed on a
Calculation Date that the aggregate Value of the Collateral pledged on such
Calculation Date (the "Calculation Date Value") is less than the Minimum
Collateral Level, he shall deliver to Secured Party within ten (10) business
days following such Calculation Date a certificate or certificates representing
that number of Common Shares having an aggregate Value equal to the difference
between (x) the Required Collateral Level, less (y) such Calculation Date Value.
Each such certificate shall be registered in the name of Pledgor, duly endorsed
in blank or accompanied by a stock power duly executed by Pledgor in blank, in
form and substance satisfactory to the Secured Party, with any documentary tax
stamps and any other documents necessary to cause Secured Party to have a good,
valid and perfected first pledge of, lien on and security interest in the
Collateral, free and clear of any mortgage, pledge, lien, security interest,
hypothecation, assignment, charge, right, encumbrance or restriction
(individually, "Encumbrance" and collectively, "Encumbrances"). At any time
following an Event of Default, any or all of the Collateral held by Secured
Party
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hereunder and having a value up to the Required Collateral Level as of that date
may, at the option of Secured Party exercised in accordance with Section 3(d)
hereof, be registered in the name of Secured Party or in the name of its
nominee, and Pledgor hereby covenants that, upon demand therefor by Secured
Party, Pledgor shall effect such registration.
(c) Secured Party hereby confirms receipt of the certificates
representing the Collateral described in Section 1(c)(i) hereof and agrees to
hold the Collateral in accordance with the terms of this Agreement.
3. VOTING RIGHTS, DIVIDENDS AND DISTRIBUTIONS
So long as no Event of Default shall have occurred:
(a) Pledgor shall be entitled to exercise any and all voting
and/or consensual rights and powers relating or pertaining to the Collateral or
any part thereof, subject to the terms hereof.
(b) Pledgor shall be entitled to receive and retain cash
dividends payable on the Collateral; provided, however, that all other dividends
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(including, without limitation, stock and liquidating dividends), distributions
in property, returns of capital and other distributions made on or in respect of
the Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of Secured Party or received
in exchange for the Collateral or any part thereof or as a result of any merger,
consolidation, acquisition or other exchange of assets to which Secured Party
may be a party or otherwise, and any and all cash and other property received in
exchange for or redemption of any of the Collateral, shall be retained by
Secured Party, or, if delivered to Pledgor, shall be held in trust for the
benefit of Secured Party and forthwith delivered to Secured Party and shall be
considered as part of the Collateral for all purposes of this Agreement.
Notwithstanding the above, if any dividend is retained by the Secured Party, it
shall be deemed, at the option of either the Pledgor or Secured Party, to be a
Calculation Date and any Collateral in excess of the Required Collateral Level
shall be released to Pledgor and any deficiency in the Collateral below the
Required Collateral Level shall be cured by Pledgor's delivery of additional
Collateral pursuant to paragraph 2 (b) hereof.
(c) Secured Party shall execute and deliver (or cause to be
executed and delivered) to Pledgor all such proxies, powers of attorney,
dividend orders, and other instruments as Pledgor may request for the purpose of
enabling Pledgor to exercise the voting and/or consensual rights and powers
which Pledgor is entitled to exercise pursuant to Section 3(a) above and/or to
receive the dividends which Pledgor is authorized to receive and retain pursuant
to Section 3(b) above; and Pledgor shall execute and deliver to Secured Party
such instruments as may be required or may be requested by Secured Party to
enable Secured Party to receive and retain the dividends, distributions in
property, returns of capital and other distributions it is authorized to receive
and retain pursuant to Section 3(b) above.
(d) Upon the occurrence of an Event of Default, all rights of
Pledgor to exercise the voting and/or consensual rights and powers which Pledgor
is entitled to exercise pursuant to Section 3(a) above and/or to receive the
dividends which Pledgor is authorized to
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receive and retain pursuant to Section 3(b) above shall cease, at the option of
Secured Party, on not less than one (1) day's notice to Pledgor, and all such
rights shall thereupon become vested in Secured Party. In such case Pledgor
shall execute and deliver such documents as Secured Party may request. In
addition, Secured Party is hereby appointed the attorney-in-fact of Pledgor,
with full power of substitution, which appointment as attorney-in-fact is
irrevocable and coupled with an interest, to take all such actions after the
occurrence of an Event of Default, whether in the name of Secured Party or
Pledgor, as Secured Party may consider necessary or desirable. Any and all money
and other property paid over to or received by Secured Party pursuant to the
provisions of this Section 3(d) shall be retained by Secured Party as part of
the Collateral and shall be applied in accordance with the provisions hereof.
4. REMEDIES ON DEFAULT
(a) If at any time an Event of Default shall have occurred,
then, in addition to having the right to exercise any right or remedy of a
secured party upon default under the Uniform Commercial Code as then in effect
in the jurisdiction in which the Collateral is held by Secured Party, Secured
Party may, to the extent permitted by law, without being required to give any
notice to Pledgor except as provided below:
(i) Apply any cash held by it hereunder in the manner
provided in Section 4(h) below; and
(ii) If there shall be no such cash or if the cash so
applied shall be insufficient to pay in full the items specified in Sections
4(h)(i) and (h)(ii) below, exercise any and all the rights, powers and remedies
of any owner of the Collateral (including without limitation the right to vote
the Common Shares and receive dividends and distributions with respect to such
Common Shares and sell such Common Shares as described below). In the event of
such default and without limiting the foregoing, Secured Party is authorized to
retire or cancel (if allowable under applicable law and, if so, subject to the
provisions set forth in the next succeeding two sentences) or sell, assign and
deliver at its discretion, from time to time, all or any part of the Collateral
upon five (5) business days prior written notice to Pledgor. Pledgor and Secured
Party hereby agree and acknowledge that upon retirement or cancellation, the
Secured Obligations shall be reduced by the aggregate Value of the Common Shares
so retired or canceled. Secured Party further agrees that if elects to pursue
the remedy of retirement or cancellation, Secured Party will retire or cancel
only such number of Common Shares as have an aggregate Value equal to the sum of
(x) the aggregate amount of the Secured Obligations then outstanding, with any
remaining Collateral returned to Pledgor pursuant to the provisions of Section 8
hereof. Pledgor shall have no right to redeem the Collateral after any such
sale, assignment, retirement or cancellation. In case of any sale or assignment
of the Collateral, the proceeds shall be applied as provided in Section 4(h)
below.
(b) Secured Party, instead of exercising the power of
retirement, cancellation or sale of the Collateral herein conferred upon it, may
proceed by a suit or suits at law or in equity to foreclose its lien or security
interest arising from this Agreement and sell the Collateral, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
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(c) Upon the occurrence of an Event of Default, Secured Party
or its nominee shall have the right, upon not less than five (5) business day's
written notice to Pledgor, to exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any shares of the Collateral as if it were the absolute owner thereof,
including, without limitation, the right to exchange, at its discretion, any or
all of the Collateral upon the merger, consolidation, reorganization,
recapitalization or other readjustment of Secured Party, and, in connection
therewith, to deposit and deliver any and all of the Collateral with any
committee, depository, transfer agent, registrar or other designated agency upon
such terms and conditions as Secured Party may determine.
(d) On any sale of the Collateral, Secured Party is hereby
authorized to comply with any limitation or restriction in connection with such
sale that it may be advised by counsel is necessary in order to avoid any
violation of applicable law or in order to obtain any required approval of the
purchaser or purchasers by any governmental regulatory authority or officer or
court.
(e) Compliance with the foregoing procedures shall result in
such sale or disposition being considered or deemed to have been made in a
commercially reasonable manner.
(f) Each of the rights, powers, and remedies provided herein,
or now or hereafter existing at law or in equity or by statute or otherwise,
shall be cumulative and concurrent and shall be in addition to every other
right, power or remedy provided for herein or therein or now or hereafter
existing at law or in equity or by statute or otherwise. The exercise of any
such right, power or remedy shall not preclude the simultaneous or later
exercise of any or all other such rights, powers or remedies. No notice to or
demand on Pledgor in any case shall entitle Pledgor to any other notice or
demand in similar or other circumstances.
(g) The proceeds of any collection, recovery, receipt,
appropriation, realization or sale as aforesaid shall be applied by Secured
Party in the following order:
(i) First, to the payment of any amounts due under the
-----
Secured Obligations; (ii) Second, to the payment of all reasonable costs and
------
expenses incurred by Secured Party as a result of any Event of Default; (iii)
Finally, to the payment to Pledgor of any surplus then remaining from such
- -------
proceeds, unless otherwise required by law or directed by a court of competent
jurisdiction; provided that Pledgor shall be liable for any deficiency if such
--------
proceeds are insufficient to satisfy all of the Secured Obligations.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR
(a) Pledgor represents, warrants and covenants that:
(i) Pledgor has all requisite capacity, power and
authority, being under no legal restriction, limitation or disability, to own
the Collateral and to execute, deliver and perform this Agreement.
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(ii) This Agreement has been duly executed and delivered
by Pledgor and constitutes a legal, valid, and binding obligation of Pledgor,
enforceable in accordance with its terms.
(iii) Pledgor is or, with respect to the Collateral
described in Sections 1(b)(ii) and (iii) hereof, not later than the time of
delivery of certificates therefor will be, the direct record and beneficial
owner of each share of the Collateral. Pledgor has and will have good, valid and
marketable title thereto, free and clear of all Encumbrances other than the
security interest created by this Agreement.
(iv) The Collateral is and will be duly and validly
pledged to Secured Party in accordance with law, and Secured Party has a good,
valid, and perfected first priority security interest in the Collateral and the
proceeds thereof, and no filing or other action will be necessary to perfect or
protect such security interest.
(v) The execution, delivery and performance by Pledgor
of this Agreement does not and will not: (A) conflict with or result in a breach
of or constitute a default or require any consent under, or result in or require
the acceleration of any of indebtedness pursuant to, any agreement, indenture or
other instrument to which Pledgor is a party or by which Pledgor or any of his
property may be bound or affected; or (B) conflict with or violate any judgment,
decree, order, law, statute, ordinance, license or other governmental rule or
regulation applicable to Pledgor.
(vi) No approval, consent or other action by Pledgor,
any governmental authority, or any other person or entity is or will be
necessary to permit the valid execution, delivery or performance of this
Agreement by Pledgor. Pledgor's spouse has waived any and all ownership, joint
tenancy, community property or common law interest in, or other claim, whether
in law or equity, that she may have to, the Collateral.
(vii) There is no action, claim, suit, proceeding or
investigation pending, or to the knowledge of Pledgor, threatened or reasonably
anticipated, against or affecting Pledgor, this Agreement, or the transactions
contemplated hereby, before or by any court, arbitrator or governmental
authority which might adversely affect Pledgor's ability to perform his
obligations under this Agreement or might materially adversely affect the value
of the Collateral.
(b) Until all Secured Obligations have been paid and
performed in full or until all of the Collateral is returned to Pledgor pursuant
to Section 6 hereof, whichever is earlier, Pledgor hereby covenants that, unless
Secured Party otherwise consents in advance in writing:
(i) Pledgor shall: (A) at the request of Secured Party,
execute, deliver, and file any and all financing statements, continuation
statements, stock powers, instruments, and other documents, necessary or
desirable, in Secured Party's opinion, to create, perfect, preserve, validate or
otherwise protect the pledge of the Collateral to Secured Party and Secured
Party's lien on and security interest in the Collateral and the first priority
thereof; (B) maintain, or cause to be maintained, at all times, the pledge of
the Collateral to Secured Party and Secured Party's lien on and security
interest in the Collateral and the first priority thereof; and (C) defend the
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Collateral and Secured Party's interest therein against all claims and demands
of all persons at any time claiming the same or any interest therein adverse to
Secured Party.
(ii) Pledgor shall not sell, transfer, pledge, assign or
otherwise dispose of any of the Collateral or any interest therein, and Pledgor
shall not create, incur, assume or suffer to exist any Encumbrance with respect
to any of the Collateral or any interest therein (except pursuant hereto).
(iii) Pledgor shall pay and discharge promptly all taxes,
assessments and governmental charges or levies imposed upon him or upon the
Collateral before the same shall become past due.
(iv) Pledgor shall not take or permit to be taken any
action in connection with the Collateral or otherwise which would impair the
value of the interests or rights of Pledgor therein or which would impair the
interests or rights of Secured Party therein or with respect thereto.
6. RETURN OF COLLATERAL
(a) When the Note has been paid in full and provided any Event
of Default has been cured, this Agreement shall terminate and the Collateral
held by Secured Party shall be returned within five (5) business days to Pledgor
at the address of Pledgor set forth herein or at such other address as Pledgor
may direct in writing. Secured Party shall not be deemed to have made any
representation or warranty with respect to any Collateral so delivered, except
that such Collateral is free and clear, on the date of delivery, of any and all
liens, charges and encumbrances arising from its own acts.
(b) If, on any Calculation Date, the Calculation Date Value
exceeds the Required Collateral Level, Secured Party shall within ten (10)
business days return to Pledgor at the address of Pledgor set forth herein or at
such other address as Pledgor may direct in writing a certificate or
certificates representing a number of Common Shares with an aggregate Value
equal to such excess over the Required Collateral Level. Notwithstanding
anything to the contrary in this Agreement, provided that Pledgor is not in
default of its obligations under the Note or this Agreement, Pledgor may, on no
more that two (2) occasions during the term of this Agreement not counting
Calculation Dates, request by written notice to the Secured Party, that
Collateral in excess of the Required Collateral Level be returned to Pledgor,
whereupon the Secured Party shall calculate the aggregate Value of the
Collateral pledged on the date that the Secured Party receives such request and
return to Pledgor a certificate or certificates representing a number of Common
Shares with an aggregate Value equal to the excess over the Required Collateral
Level. Secured Party shall not be deemed to have made any representation or
warranty with respect to any Collateral so delivered, except that such
Collateral is free and clear, on the date of delivery, of any and all liens,
charges and encumbrances arising from its own acts.
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7. ADDITIONAL ACTIONS AND DOCUMENTS
Pledgor hereby agrees to take or cause to be taken such
further actions (including, without limitation, the delivery of certificates for
all of the Collateral that may be required to be pledged following any
Calculation Date), to execute, deliver and file or cause to be executed,
delivered and filed such further documents and instruments, and to obtain such
consents as may be necessary or desirable, in the opinion of Secured Party, in
order to fully effectuate the purposes, terms and conditions of this Agreement,
whether before, at or after the occurrence of an Event of Default.
8. SURVIVAL
It is the express intention and agreement of the parties
hereto that all covenants, agreements, statements, representations, warranties
and indemnities made by Pledgor herein shall survive the execution and delivery
of this Agreement.
9. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements, commitments or understandings with respect to
the matters provided for herein.
10. NOTICES
Any notice or request hereunder shall be given to the Pledgor or to the
Secured Party at their respective addresses set forth below or at such other
address as such Person may hereafter specify in a notice designated as a notice
given in the manner required under this Section 12. Any notice or request
hereunder shall be given by (a) hand delivery, (b) registered or certified mail,
return receipt requested, (c) delivery by an internationally recognized
overnight courier, or (d) facsimile to the number set forth below (or such other
number as may hereafter be specified in a notice given in the manner required
under this Section 12) with telephone communication to Pledgor or a duly
authorized officer of Secured Party, as the case may be, confirming its receipt
as subsequently confirmed by registered or certified mail. Notices and requests
shall be deemed to have been given (x) in the case of those by mail, five (5)
Business Days after being deposited in the mail at the addresses as provided in
this Section 12, (y) in the case of those by overnight courier, one (1) day
after deposit with such courier, and (z) in the case of those given by
facsimile, upon receipt.
(i) If to the Secured Party:
Federal Realty Investment Trust
1626 East Jefferson Street
Rockville, MD 20852
Attention: Legal Department
Telephone: (301) 998-8100
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FAX: (301) 998-3814
(ii) If to Pledgor:
Ron D. Kaplan
7909 Greentree Road
Bethesda, MD 20817
Telephone: (301) 469-7834
FAX: (301) 469-6256
11. AMENDMENT
No amendment, modification or supplement of or to this
Agreement shall be valid or binding unless set forth in writing and duly
executed by the party against whom enforcement of the amendment, modification or
supplement is sought.
12. BENEFIT AND ASSIGNMENT
(a) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by Pledgor. In the event of a sale
or assignment by Secured Party of all or any part of the interests in the Note,
Secured Party may assign and transfer its rights and interests under this
Agreement in whole or in part to the purchaser or purchasers of such interests
in the Note, whereupon such purchaser or purchasers shall become vested with all
of the powers and rights given to Secured Party hereunder, and shall be deemed
to be a "Secured Party" for all purposes hereunder, and the predecessor Secured
Party shall thereafter be forever released and fully discharged from any
liability or responsibility hereunder with respect to the rights and interests
so assigned.
13. WAIVER
No delay or failure on the part of Secured Party in exercising
any right, power or privilege under this Agreement or under any other
instruments given in connection with or pursuant to this Agreement shall impair
any such right, power or privilege or be construed as a waiver of any default or
any acquiescence therein. No single or partial exercise of any such right, power
or privilege shall preclude the further exercise of such right, power or
privilege, or the exercise of any other right, power or privilege. No waiver
shall be valid against Secured Party unless made in writing and signed by
Secured Party and then only to the extent expressly specified therein.
14. SEVERABILITY
If any part of any provision of this Agreement or any other
agreement, document or writing given pursuant to or in connection with this
Agreement shall be invalid or
9
unenforceable in any respect, such part shall be ineffective to the extent of
such invalidity or unenforceability only, without in any way affecting the
remaining parts of such provision or the remaining provisions of this Agreement.
15. GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland without giving effect to its
conflict of laws rules. Any judicial proceeding brought by or against the
Pledgor with respect to any of the obligations, this Agreement or any related
agreement may be brought in any federal or state court of competent jurisdiction
located in the State of Maryland, and, by execution and delivery of this
Agreement, Pledgor accepts for itself and in connection with its properties,
generally and unconditionally the non-exclusive jurisdiction of the aforesaid
courts, and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement. Pledgor hereby waives personal service of
process and consents that service of process upon it may be made by certified or
registered mail, return receipt requested, at its address specified or
determined in accordance with Section 12 hereof, and service so made shall be
deemed completed on the third (3rd) Business Day after mailing. Nothing herein
shall affect the right to serve process in any manner permitted by law or shall
limit the right of the Secured Party to bring proceedings against Pledgor in the
courts of any other jurisdiction having jurisdiction over Pledgor. Pledgor
waives any objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of jurisdiction or
venue or based upon forum non conveniens. Any judicial proceedings by Pledgor
against the Secured Party involving, directly or indirectly, any matter or claim
in any way arising out of, related to or connected with this Agreement or any
related agreement, shall be brought only in a federal or state court located in
the State of Maryland.
16. PRONOUNS
All pronouns and any variations thereof in this Agreement
shall be deemed to refer to the masculine, feminine, neuter, singular or plural,
as the identity of the person or entity may require.
17. HEADINGS
Section headings contained in this Agreement are inserted for
convenience of reference only, shall not be deemed to be a part of this
Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
18. EXECUTION
To facilitate execution, this Agreement may be executed in as
many counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart;
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but it shall be sufficient that the signature of, or on behalf of, each party,
or that the signatures of the persons required to bind any party, appear on one
or more of the counterparts. All counterparts shall collectively constitute a
single agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than that number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
[Signature Page Follows]
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IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement, or has caused this Agreement to be duly executed on its
behalf, as of the day and year first above written.
Federal Realty Investment Trust:
------------------------------------
Nancy J. Herman
Senior Vice President - General
Counsel and Secretary
------------------------------------
Ron D. Kaplan
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Exhibit 21
Subsidiaries of the Registrant
- ------------------------------
STATE OF DOING
NAME INCORPORATION BUSINESS AS NAME
- ---- ------------- ----------------
Street Retail, Inc. Maryland Street Retail, Inc.
Exhibit 23
Consent of Independent Public Accountants
- -----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report included in this From 10-K, into Federal Realty Investment Trust's
previously filed Registration Statements File No. 333-63619, File No. 33-63687,
File No. 33-63955, File No. 33-15264 and File No. 33-55111.
Arthur Andersen LLP
Vienna, Virginia
March 22, 2002
Exhibit 99
March 22, 2002
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Reference: Annual Report on Form 10-K for the year ended
December 31, 2001 for Federal Realty Investment
Trust
Commission File No. 52-0782497
Consistent with the Commission's release of March 18, 2002, please be advised
that the Trust has obtained a letter from Arthur Andersen LLP, the Company's
independent public accountants, dated March 22, 2002, containing the following
representations regarding the audits performed on the Trust's consolidated
balance sheets as of December 31, 2001 and 2000 and the related consolidated
statements of operations, common shareholder's equity and cash flows for each of
the years in the three year period ended December 31, 2001:
o the audits were subject to Arthur Andersen's quality control system
for the U.S. accounting and auditing practice to provide reasonable
assurance that the engagement was conducted in compliance with
professional standards;
o there was appropriate continuity of Arthur Andersen personnel working
on the audits; and
o there was appropriate availability of national office consultation.
Representation relating to the availability of personnel at foreign affiliates
of Arthur Andersen was not relevant to these audits.
Sincerely,
/s/ Donald C. Wood
------------------
Donald C. Wood
President and Chief Operating
Officer
