SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: March 31, 1995
Commission File No. 1-7533
FEDERAL REALTY INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
District of Columbia 52-0782497
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4800 Hampden Lane, Suite 500, Bethesda, Maryland 20814
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(Address of principal executive offices) (Zip Code)
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(301) 652-3360
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes __X__. No_____.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 4, 1995
------------------------------------ --------------------------
Common Shares of Beneficial Interest 31,702,844
This report, including exhibits, contains 25 pages.
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
March 31, 1995
I N D E X
PART I. FINANCIAL INFORMATION PAGE NO.
Accountants' Report 4
Consolidated Balance Sheets 5
March 31, 1995 (unaudited) and
December 31, 1994 (audited)
Consolidated Statements of Operations (unaudited) 6
Three months ended March 31, 1995 and 1994
Consolidated Statements 7
of Shareholders' Equity (unaudited)
Three months ended March 31, 1995 and 1994
Consolidated Statements of Cash Flows (unaudited) 8
Three months ended March 31, 1995 and 1994
Notes to Financial Statements 9-12
Management's Discussion and Analysis of 13-17
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 18
2
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
March 31, 1995
PART I. FINANCIAL INFORMATION
The following financial information is submitted
in response to the requirements of Form 10-Q and does not
purport to be financial statements prepared in accordance
with generally accepted accounting principles since they
do not include all disclosures which might be associated
with such statements. In the opinion of management, such
information includes all adjustments, consisting only of
normal recurring accruals, necessary to a fair statement
of the results for the interim periods presented.
The balance sheet as of December 31, 1994 was
audited by Grant Thornton LLP, independent public
accountants, who expressed an unqualified opinion on it
in their report dated February 10, 1995. All other
financial information presented is unaudited but has been
reviewed as of March 31, 1995 and for each of the three
months ended March 31, 1995 and 1994 by Grant Thornton LLP
whose report thereon appears on Page 4. All adjustments
and disclosures proposed by them have been reflected in
the data presented.
3
Accountants' Review Report
--------------------------
Trustees and Shareholders
Federal Realty Investment Trust
We have reviewed the accompanying consolidated balance sheet of Federal
Realty Investment Trust as of March 31, 1995 and the related consolidated
statements of operations, shareholders' equity and cash flows for the
three month periods ended March 31, 1995 and 1994. These financial
statements are the responsibility of the Trust's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994 and the
related consolidated statements of operations, shareholders' equity and
cash flows for the year then ended (not presented herein); and in our
report dated February 10, 1995, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet as of
December 31, 1994 is stated fairly, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Grant Thornton LLP
Washington, D.C.
May 5, 1995
4
Federal Realty Investment Trust
CONSOLIDATED BALANCE SHEETS
(see accountants' review report)
March 31, December 31,
1995 1994
----------- -----------
(unaudited)
ASSETS (in thousands)
Investments
Real estate, at cost $863,916 $852,722
Less accumulated depreciation and amortization (168,006) (160,636)
---------- ----------
695,910 692,086
Mortgage notes receivable 13,179 13,178
---------- ----------
709,089 705,264
Other Assets
Cash 17,959 3,995
Investments 3,567 3,588
Notes receivable - officers 2,988 2,778
Accounts receivable 14,293 16,023
Prepaid expenses and other assets, principally
property taxes, insurance, and lease commissions 20,151 19,158
Debt issue costs (net of accumulated amortization
of $3,374,000 and $3,206,000, respectively) 3,858 2,931
--------- ---------
$771,905 $753,737
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Obligations under capital leases $132,661 $132,924
Mortgages payable 80,032 102,781
Notes payable 7,397 61,883
Accrued expenses 12,852 10,675
Accounts payable 4,394 6,566
Dividends payable 12,508 12,486
Security deposits 2,715 2,687
Prepaid rents 791 1,017
8 7/8% Notes, due 2000 100,000 -
5 1/4% Convertible subordinated debentures, due 2003 75,000 75,000
5 1/4% Convertible subordinated debentures, due 2002 289 289
Investors' interest in consolidated assets 2,245 2,274
Commitments and contingencies
- -
5
Shareholders' equity
Common shares of beneficial interest, no par
or stated value, unlimited authorization,
issued 31,727,180 and 31,669,434 shares,
respectively 498,116 496,958
Accumulated dividends in excess of Trust net income (150,438) (144,553)
Allowance for unrealized loss on marketable securities (6) (53)
---------- ---------
347,672 352,352
Less 60,200 common shares in treasury - at cost, deferred
compensation and subscriptions receivable (6,651) (7,197)
--------- ---------
341,021 345,155
--------- ---------
$771,905 $753,737
========= =========
The accompanying notes are an integral part of these statements.
6
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(see accountants' review report)
(unaudited)
Three months ended March 31,
1995 1994
--------- ---------
(In thousands, except per share data)
Revenue
Rental income $34,407 $31,481
Interest 1,006 869
Other income 1,514 1,342
-------------- --------------
36,927 33,692
Expenses
Rental 7,955 10,112
Real estate taxes 3,397 2,859
Interest 9,157 8,178
Administrative 1,427 1,381
Depreciation and amortization 8,369 6,897
------------- --------------
30,305 29,427
------------- -------------
Operating income before investors' share
of operations 6,622 4,265
Investors' share of operations 1 (182)
------------- --------------
Net Income $6,623 $4,083
=========== ===========
Weighted Average Number of Common Shares 31,658 28,151
=========== ===========
Earnings per share
$0.21 $0.15
=========== ===========
The accompanying notes are an integral part of these statements.
7
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(see accountants' review report)
(unaudited)
Three months ended March 31,
1995 1994
--------- --------- --------- ---------
(In thousands, except per share amounts) Shares Amount Shares Amount
Common Shares of Beneficial Interest
Balance, beginning of period 31,669,434 $496,958 28,077,999 $408,005
Exercise of stock options 7,744 122 17,216 372
Shares issued under dividend reinvestment plan 50,002 1,036 35,103 917
Shares purchased under share purchase plan -- 40,000 1,000
---------- ---------- --------- ---------
Balance, end of period 31,727,180 $498,116 28,170,318 $410,294
========== ========= ========== ========
Common Shares of Beneficial Interest
in Treasury, Deferred Compensation and
Subscriptions Receivable
Balance, beginning of period (434,700) ($7,197) (422,575) ($6,619)
Amortization of deferred compensation 32,875 546 27,875 422
Subscription of shares under share purchase plan - - (40,000) (1,000)
---------- ----------- ---------- ----------
Balance, end of period (401,825) ($6,651) (434,700) ($7,197)
======== ======== ========== =======
Allowance for Unrealized Loss on Marketable Securities
Balance, beginning of period ($53) ($364)
Unrealized (loss ) recovery 47 (50)
----------- ---------
Balance, end of period ($6) ($414)
======= ======
Accumulated Dividends in Excess of Trust Net Income
Balance, beginning of period ($144,553) ($116,823)
Net income 6,623 4,083
Dividends declared to shareholders (12,508) (10,963)
----------- ----------
Balance, end of period ($150,438) ($123,703)
========= ========
The accompanying notes are an integral part of these
statements.
8
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS
(see accountants' review report)
(unaudited)
Three months ended March 31,
(In thousands) 1995 1994
--------- ---------
OPERATING ACTIVITIES
Net income $6,623 $4,083
Adjustments to reconcile net income to net cash
provided by operations
Depreciation and amortization 8,368 6,897
Rent abatements in lieu of leasehold improvements,
net of tenant improvements retired (454) 147
Imputed interest and amortization of debt cost 171 162
Amortization of deferred compensation and
forgiveness of officers' notes 133 140
Changes in assets and liabilities
(Increase) decrease in accounts receivable 1,730 (257)
Increase in prepaid expenses and other
assets before depreciation and amortization (1,828) (1,906)
Decrease in operating accounts payable,
security deposits and prepaid rent (1,252) (64)
Increase in accrued expenses, before
accretion of interest 2,616 435
----------- ------------
Net cash provided by operating activities 16,107 9,637
INVESTING ACTIVITIES
Acquisition of real estate (2,025) -
Capital expenditures (8,627) (8,690)
Net increase in notes receivable (218) (4,614)
Net decrease in temporary investments 69 95
----------- ------------
Net cash used in investing activities (10,801) (13,209)
FINANCING ACTIVITIES
Regular payments on mortgages, capital leases, and
notes payable (540) (505)
Balloon payments on mortgages and notes payable (23,601) -
Proceeds of mortgage financings, net of costs - 22,500
Repayments of short-term debt, net (54,745) (9,013)
Proceeds from senior notes 98,906 -
Dividends paid (11,804) (10,272)
Issuance of shares of beneficial interest 471 293
Decrease in minority interest (29) (116)
----------- ------------
Net cash provided by financing activities 8,658 2,887
----------- ------------
Increase (decrease) in cash 13,964 (685)
Cash at beginning of period 3,995 9,635
9
----------- ------------
Cash at end of period $17,959 $8,950
========= ==========
The accompanying notes are an integral part of these statements.
10
Federal Realty Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(see accountants' review report)
(unaudited)
NOTE A - ACCOUNTING POLICIES AND OTHER DATA
Reference should be made to the notes to financial statements
included in the Annual Report to shareholders for the year ended December
31, 1994 which contain the Trust's accounting policies and other data.
NOTE B - DIVIDENDS PAYABLE
On March 16, 1995 the Trustees declared a cash dividend of $.395
per share, payable April 14, 1995 to shareholders of record March 24,
1995.
NOTE C - REAL ESTATE
On February 16, 1995 the Trust purchased a 6,800 square foot
retail building in Greenwich, Connecticut for $2.0 million in cash. On
April 5, 1995 the Trust purchased a 125,800 square foot portfolio of
retail buildings in the West Hartford, Connecticut area for approximately
$15.2 million in cash. On April 12, 1995 the Trust purchased a 35,500
square foot retail building in Greenwich, Connecticut for cash of
approximately $12.9 million. Brokerage commissions of $452,000 were paid
in connection with these purchases. The commissions were paid to a
company which is fifty percent owned by a brother of the Trust's
president. These commissions were paid pursuant to a brokerage contract
on terms comparable to terms contained in contracts which the Trust has
with brokers in other geographic areas in connection with the acquisition
of retail buildings.
On April 27, 1995 the Trust purchased the 302,000 square foot Finley
Square Shopping Center in Downers Grove, Illinois for cash of
approximately $18.0 million.
NOTE D - Senior Notes
On January 19, 1995 the Trust issued $100.0 million of 8 7/8%
Notes, due January 15, 2000. The notes, which were issued at a price of
99.815%, pay interest semiannually on January 15 and July 15 and are not
redeemable prior to maturity. After deducting the underwriter discount
and other costs, the Trust netted approximately $98.9 million.
In order to protect itself against the risk that the general level of
interest rates for such securities would rise before the senior notes were
priced, in December 1994, the Trust entered into two interest rate hedge
9
agreements on a total principal amount of $75.0 million. The cost of the
agreements, which terminated on January 20, 1995, was $21,000, which is
being amortized into interest expense over the life of the notes.
In January 1995, the Trust executed a five year interest rate swap on
$25.0 million, whereby the Trust swapped fixed interest payment
obligations of 8.136% for a floating rate interest payment of three month
LIBOR. The floating rate during the first quarter of 1995 was 6.1875%.
On April 21, 1995 the Trust issued $25 million of senior notes. The
notes, which are due April 21, 2002 and bear interest of 8%, payable
semiannually, were issued at a price of 99.683%. The proceeds of $24.9
million were used to repay amounts which had been borrowed on the
revolving credit facilities during April 1995 to fund acquisitions and
property renovations.
NOTE E - MORTGAGES PAYABLE
In January, 1995 the Trust repaid the $22.5 million mortgage on
Northeast Plaza in Atlanta, Georgia with proceeds from the senior note
offering.
NOTE F - NOTES PAYABLE
The Trust has $130 million of unsecured medium term revolving
credit facilities with four banks. The facilities, which bear interest at
LIBOR plus 85 to 100 basis points, require fees and have covenants
requiring a minimum shareholders' equity and a maximum ratio of debt to
net worth. The maximum drawn under these facilities during the first
quarter of 1995 was $66.8 million which was repaid in January from the
proceeds of the senior notes issuance. The weighted average interest rate
on borrowings for the quarter ended March 31, 1995 was 7.0%. There was no
borrowing under these facilities at March 31, 1995.
In January 1995 the Trust paid a $1.1 million note that had been
issued in connection with the purchase of Queen Anne Plaza in December
1994. In connection with the buyout of a tenant at Queen Anne Plaza in
January 1995, the Trust issued a noninterest bearing note payable of $2.2
million, due in annual installments of $200,000 for 11 years. Using an
interest rate of 8 7/8%, the note has been recorded at its discounted
value of $1.7 million.
10
NOTE H - SHAREHOLDERS' EQUITY
During the first three months of 1995, 7,744 shares were issued at
prices ranging from $15.00 a share to $20.50 a share as the result of the
exercise of stock options. The Trust accepted a note from one of its
officers of $5,002 in connection with the issuance of certain of these
shares.
On February 15, 1995, 719,000 options at $20.75 were granted to
employees of the Trust.
NOTE I - INTEREST EXPENSE
The Trust incurred interest expense totaling $9.2 million during
the first quarter of 1995 and $8.2 million during the first quarter of
1994, of which $75,000 and $107,000, respectively, were capitalized.
Interest paid was $6.7 million in the first quarter of 1995 and $6.5
million in the first quarter of 1994.
NOTE J - COMMITMENTS AND CONTINGENCIES
The State of New Jersey Division of Taxation has assessed the
Trust $364,000 in taxes, penalty and interest for the years 1985 through
1990, since the State has disallowed the dividends paid deduction in
computing New Jersey taxable income. The Trust is protesting this
assessment since the Trust believes that it is entitled to the deduction.
At this time, the outcome of this matter is unknown; however in a case
involving another real estate investment trust, the New Jersey tax court
recently ruled that the dividends paid deduction was allowable. However,
the State of New Jersey has appealed this ruling.
Included in the Trust's investments is $3.0 million of Olympia
and York Senior First Mortgage Notes. The Olympia & York notes were
written down in 1992 to management's best estimate of their net realizable
value.
As previously reported, certain of the Trust's shopping centers have
some environmental contamination. The North Carolina Department of the
Environment, Health and Natural Resources ("DEHNR") issued a Notice of
Violation ("NOV") against a former drycleaner tenant at Eastgate Shopping
Center in Chapel Hill, North Carolina concerning a spill at the shopping
center. As owner of the shopping center, the Trust was named in and
received a copy of the NOV. Estimates to remediate the spill range from
$300,000 to $500,000. The Trust has entered into an agreement with two
previous owners of the shopping center to share the costs to assess and
remediate. In 1993 the Trust recorded a liability of $120,000 as its
estimated share of the clean up costs.
In 1992 contaminants at levels in excess of New Jersey cleanup
standards were identified at a shopping center in New Jersey. The Trust
has retained an environmental consultant to investigate the contamination.
The Trust is also evaluating whether it has insurance coverage for this
11
matter. At this time, the Trust is unable to determine what the range of
remediation costs might be. The Trust had also identified chlorinated
solvent contamination at two other properties. In each case, the
contamination appears to be linked to the current and/or previous dry
cleaner. One site has been cleared. The Trust intends to look to the
responsible parties for any remediation effort at the other property.
Evaluation of the remaining situation is preliminary and it is impossible
to estimate the range of remediation costs, if any.
The Trust reserved $2.25 million at closing in 1993 for
environmental issues principally associated with Gaithersburg Square
Shopping Center. Pursuant to an indemnity agreement entered into with the
seller at closing, the Trust agreed to take certain actions with respect
to identified chlorinated solvent contamination. The seller indemnified
the Trust for certain third party claims and government requirements
related to contamination at adjacent properties.
At March 31, 1995 in connection with certain redevelopment
projects and tenant fitouts, the Trust is contractually obligated on
contracts of approximately $2.9 million. At March 31, 1995 the Trust is
also contractually obligated under leases with tenants to provide
approximately $7.9 million for improvements.
NOTE K - COMPONENTS OF RENTAL INCOME
The components of rental income for the three months ended March
31 are as follows:
1995 1994
(in thousands)
Shopping Centers
Minimum rents $26,540 $23,233
Cost reimbursements 5,650 6,114
Percentage rents 1,604 1,564
Apartments 613 570
------- -------
$34,407 $31,481
======= =======
12
FEDERAL REALTY INVESTMENT TRUST
FORM 10-Q
MARCH 31, 1995
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Federal Realty meets its liquidity requirements through net cash
provided by operating activities, long term borrowing through debt
offerings and mortgages, medium and short term borrowing under revolving
credit facilities, and equity offerings. Because all or a significant
portion of the Trust's net cash provided by operating activities is
distributed to shareholders, capital outlays for property acquisitions,
renovation projects and debt repayments require funding from borrowing or
equity offerings.
In February 1995 the Trust purchased a main street retail building
for $2.0 million in cash. During the first quarter of 1995 the Trust
spent $8.6 million on tenant work and improvements to its properties;
these improvements included: (1) $2.6 million on Congressional Plaza whose
redevelopment is in the final phases; (2) $1.7 million to buy out a below
market lease at Queen Anne Plaza; and (3) $900,000 on Gaithersburg Square
which is currently being expanded, redeveloped and retenanted.
On January 19, 1995 the Trust issued $100.0 million of 8 7/8%
Notes, due January 15, 2000, netting proceeds of approximately $98.9
million. The proceeds from this issuance were used to repay a $22.5
million mortgage, to repay $66.8 million which was outstanding on its
revolving credit facilities and to partially fund the first quarter
property acquisitions and improvements.
The Trust has available $130.0 million of unsecured medium-term
revolving credit facilities with four banks. The facilities, which
require fees and have covenants requiring a minimum shareholders' equity
and a maximum ratio of debt to net worth, are used to fund acquisitions
and other cash requirements until conditions are favorable for issuing
equity or long term debt. At March 31, 1995 there was no borrowing under
these facilities. The maximum amount borrowed under these facilities
during the first quarter of 1995 was $66.8 million. Amounts advanced
under these facilities bear interest at LIBOR plus 85 - 100 basis points;
the weighted average interest rate on borrowings during the quarter was
7.0%.
The Trust is committed under leases for approximately $7.9 million
in tenant work. In addition the Trust has budgeted approximately $39
million for the remainder of 1995 for improvements to its properties,
including the renovations of Brick Plaza, Gaithersburg Square and the
completion of the renovation of Congressional Plaza. Furthermore, the
Trust is actively seeking to acquire shopping centers in its core major
metropolitan markets and to acquire retail buildings in densely developed
13
urban and suburban areas. The Trust is also continuing to study site
acquisitions in its core markets to permit the Trust to develop shopping
centers. These expenditures will be funded with the revolving credit
facilities pending their permanent financing with either equity or debt.
On April 5, 1995 the Trust purchased a 125,800 square foot portfolio
of seven retail buildings in the West Hartford, Connecticut area for $15.2
million. Then on April 12, 1995 the Trust purchased a 35,500 square foot
retail building in Greenwich, Connecticut for $12.9 million. These
expenditures were funded with available cash and the revolving credit
facilities until April 21, 1995 when the Trust issued $25.0 million of 8%
senior notes due 2002, the proceeds from which were used to repay the
revolving credit facilities.
On April 27, 1995 the Trust purchased the 302,000 square foot Finley
Square Shopping Center in Downers Grove, Illinois for cash of
approximately $18.0 million.
The Trust believes that the amounts available under its revolving
credit facilities provide it with the liquidity needed for its short term
renovation and acquisition plans. The Trust believes that the
unencumbered value of its properties and its access to the capital
markets, as demonstrated by its past success in raising capital, give it
the ability to raise the capital, both debt and equity, needed to fund its
long term capital and debt repayment needs.
CONTINGENCIES
The State of New Jersey Division of Taxation has assessed the Trust
$364,000 in taxes, penalty and interest for the years 1985 through 1990,
since the State has disallowed the dividends paid deduction in computing
New Jersey taxable income. The Trust is protesting this assessment since
the Trust believes that it is entitled to the deduction. At this time,
the outcome of this matter is unknown; however in a case involving another
real estate investment trust, the New Jersey tax court recently ruled that
the dividends paid deduction was allowable. However, the State of New
Jersey has appealed this ruling.
Included in the Trust's investments is $3.0 million of Olympia
and York Senior First Mortgage Notes. The Olympia and York notes were
written down during 1992 to management's best estimate of their net
realizable value. Interest income on these notes is not being recorded as
revenue, but is being treated as a reduction of principal.
As previously reported, certain of the Trust's shopping centers
have some environmental contamination. The North Carolina Department of
the Environment, Health and Natural Resources ("DEHNR") issued a Notice of
Violation ("NOV") against a drycleaner tenant at Eastgate Shopping Center
in Chapel Hill, North Carolina concerning a spill at the shopping center.
As owner of the shopping center, the Trust was named in and received a
copy of the NOV. Estimates to remediate the spill range from $300,000 to
$500,000. The Trust has entered into an agreement with two previous
14
owners of the shopping center to share the costs to assess and remediate.
In 1993 the Trust recorded a liability of $120,000 as its estimated share
of the clean up costs.
In 1992 contaminants at levels in excess of New Jersey cleanup
standards were identified at a shopping center in New Jersey. The Trust
has retained an environmental consultant to investigate the contamination.
The Trust is also evaluating whether it has insurance coverage for this
matter. At this time, the Trust is unable to determine what the range of
remediation costs might be. The Trust had also previously identified
chlorinated solvent contamination at two other properties. In each case,
the contamination appears to be linked to the current and/or previous dry
cleaner. One site has been cleared. The Trust intends to look to the
responsible parties for any remediation effort at the other property.
Evaluation of the remaining situation is preliminary and it is impossible
to estimate the range of remediation costs, if any.
The Trust reserved $2.25 million at closing in 1993 for
environmental issues principally associated with Gaithersburg Square
Shopping Center. Pursuant to an indemnity agreement entered into with the
seller at closing, the Trust agreed to take certain actions with respect
to identified chlorinated solvent contamination. The seller indemnified
the Trust of certain third party claims and government requirements
related to contamination at adjacent properties.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1995 AND 1994
The Trust has historically reported its funds from operations in
addition to its net income. Funds from operations is a supplemental
measure of real estate companies' operating performance which excluded
historical cost depreciation, since real estate values have historically
risen and fallen with market conditions rather than over time. Funds from
operations was defined as income before depreciation and amortization and
extraordinary items less gains on sale of real estate. The National
Association of Real Estate Investment Trusts ("NAREIT") has recently
issued a white paper, which has amended the definition as follows: income
before depreciation and amortization of real estate assets and before
extraordinary items and significant non-recurring events less gains on
sale of real estate. The Trust intends to comply with this new definition
and has consequently restated funds from operations for prior periods.
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 to provide a
consistent measure of operating performance in the industry.
The reconciliation of net income to funds from operations for the
three months ended March 31 is as follows:
15
1995 1994
(in thousands)
Net income $6,623 $4,083
Plus: depreciation and amortization
of real estate assets 7,392 6,137
amortization of initial direct
costs of leases 609 588
-------- -------
Funds from operations $14,624 $10,808
======== =======
Funds from operations increased 35% to $14.6 million in the first
quarter of 1995 from $10.8 million in the first quarter of 1994.
Rental income, which consists of minimum rent, percentage rent
and cost recoveries, increased 9% from $31.5 million in the first quarter
of 1994 to $34.4 million in the first quarter of 1995. If rental income
is adjusted to remove the effect of properties purchased in 1994 and 1995,
it increased 4%. Forty-five percent of the increase is from Congressional
Plaza, which was renovated and retenanted in 1994. Ellisburg Circle,
whose redevelopment was completed in 1994, contributed
an additional 14% of the increase.
Minimum rent increased 14% from $23.8 million in the first quarter of
1994 to $27.2 million in the first quarter of 1995. If properties
purchased in 1994 and 1995 are excluded, minimum rent increased $2.0
million or 8.5%. A major component of this increase is contributions from
recently renovated centers and from the retenanting of some anchor spaces.
Cost recoveries have decreased from $6.1 million in the first quarter of
1994 to $5.7 million in the first quarter of 1995, primarily because of a
decrease of $1.6 million in snow removal expense from 1994 to 1995.
Other income which includes items which tend to fluctuate from period
to period, such as utility reimbursements, telephone income, merchant
association dues, lease termination fees, late fees and temporary tenant
income, has increased from $1.3 million in 1994 to $1.5 million in 1995
due principally to a commission on telephone services.
Rental expenses have decreased from $10.1 million in the first
quarter of 1994 to $8.0 million in the first quarter of 1995, despite the
acquisition of new properties in 1994 and 1995. The major decrease is in
snow removal expense, but there was also a significant decrease in bad
debt and related expenses. Real estate tax expense has increased because
of the new properties and because of increased assessments at several
centers.
Interest expense has increased from $8.2 million during the first
quarter of 1994 to $9.2 million during the comparable period of 1995.
Interest expense on the $100 million of senior notes issued January 1995
exceeds the interest saved due to the redemption in April 1994 of most of
the convertible subordinated debentures due 2002. The ratio of earnings
16
to fixed charges was 1.69x in 1995 and 1.47x in 1994. The ratio of funds
from operations to fixed charges was 2.53x in 1995 and 2.26x in 1994.
Depreciation and amortization expense has increased because of
the recent acquisitions and because of depreciation on tenant work and
recent property improvements.
As a result of the foregoing items, primarily the
increases in rental income and the decreases in rental expense, net income
rose from $4.1 million in the first quarter of 1994 to $6.6 million in the
first quarter of 1995.
17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(10) Exclusive Brokerage Agreement between Street Retail Inc.
and Westport Advisors Corporation
(27) Financial Data Schedule.................................Edgar
filing only
(B) Reports on Form 8-K
A Form 8-K, dated March 31, 1995, was filed in response to Item 7.(c)
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FEDERAL REALTY INVESTMENT TRUST
-------------------------------
(Registrant)
Date: May 9, 1995 /s/ Steven J. Guttman
----------- ----------------------------------
Steven J. Guttman, President
(Chief Executive Officer)
Date: May 9, 1995 /s/ Cecily A. Ward
------------ -----------------------------------
Cecily A. Ward
(Principal Accounting Officer)
18
EXCLUSIVE BROKERAGE AGREEMENT
This Agreement is made and entered into on this 6th day of February, 1995
by and between Street Retail, Inc., a Maryland corporation and wholly-
owned subsidiary of Federal Realty Investment Trust ("Client"), and
Westport Advisors Corporation ("Broker").
In consideration of the mutual covenants set forth in this Agreement, the
parties agree as follows:
1. Client hereby appoints Broker as its exclusive real estate
advisor for the purchase of urban retail buildings (i.e. not traditional
"strip" shopping centers or shopping malls) located in Connecticut and
Westchester County, New York (the "Metro Area"). Broker shall perform the
duties of a real estate advisor; specifically, Broker shall conduct
searches for properties which fit the criteria established by Client and
assist Client with all aspects of the due diligence process in order to
enable Client to evaluate the desirability and feasibility of acquiring
such properties or any interest therein; such assistance shall include
collecting and providing Client with market information such as
demographics, information on competing properties, comparable rentals and
sales and assistance in the appraisal and underwriting of the properties.
2. Broker represents and warrants that:
a) Broker will act in accordance with the highest
professional standards of the industry and in compliance
with all applicable laws, regulations, codes, ordinances
and orders.
b) There are no obligations, commitments, or impediments of
any kind that will limit or prevent the Broker's
performance of its services and obligations pursuant to
this Agreement.
c) The Broker is duly licensed as a real estate broker in
the State of Connecticut and New York.
d) Broker will perform its services in a professional manner
and in the most expeditious and economical manner
consistent with the interest of Client.
e) Advisor is an independent contractor and not an employee
of Client.
3. Broker's authority is limited to performing the services in
accordance with the terms of this Agreement. Broker does not have any
authority to enter into or execute any agreement for or on behalf of
Client. No written proposals, offers or other information concerning
Client shall be distributed without Client's prior written consent, which
may be withheld in Client's sole and absolute discretion. Client shall
have the right to specify Broker's degree of involvement, if any, with
1
respect to any negotiation of any contract of sale ("Contract of Sale").
Broker acknowledges that entering into a Contract of Sale involves
negotiation of complex provisions and issues, including business, tax and
operational issues and liabilities relating to a property, and that
Client, therefore, expressly reserves the right to reject any and all
proposals for a Contract of Sale and to approve any and all terms and
conditions of any proposed Contract of Sale as Client sees fit, in
Client's sole and absolute discretion.
4. The term of this Agreement ("Term") shall commence on January 1,
1995 and end at midnight on December 31, 1995, unless sooner terminated in
accordance with the provisions of this Agreement.
5. Client shall pay Broker a commission (the "Commission") equal to
1.50% (one and one-half percent) of the first twenty-five million dollars
($25,000,000) of the aggregate gross sales price of the properties
acquired subject to this Agreement (i.e. each urban retail building, or
buildings located in the Metro Area) (hereinafter, the "Properties") and
2.00% (two percent) of the aggregate gross sales price of the Properties
acquired subject to this Agreement thereafter. Notwithstanding the
foregoing, Commissions on the Udolf Portfolio, People's Bank and Mel
Gordon Properties will be paid in accordance with Exhibit A attached
hereto and will be specifically excluded from the $25,000,000 amount
referenced above. Notwithstanding the foregoing, in the event a seller of
one or more Properties has a broker representing its interest and the
seller is paying a commission to such broker, Broker shall negotiate with
the seller's broker to receive a portion of the commission paid by seller.
Notwithstanding anything to the contrary contained in this Agreement, the
following shall be conditions precedent to Client's obligation to pay the
Commission:
a) The execution and delivery by Client and seller of a
Contract of Sale for one or more Properties acceptable in
form and substance to Client, in Client's sole and
absolute discretion; and
b) The actual closing of the sale, including Client's
payment of all monies due at closing, and transfer of
title, or other evidence of ownership, to Client.
Failure of either of these conditions shall preclude any claim for a
Commission by Broker.
It is further understood that the Commission shall be paid to Broker if,
(i) within One Hundred Eighty (180) days after the expiration or
termination of the Term, Client enters into a Contract of Sale for one or
more Properties presented by Broker during the Term and named in a written
list delivered to Client by Broker within ten (10) days following the
expiration of the Term or the termination of this Agreement, (ii) such
purchase is ultimately consummated, and (iii) the two conditions precedent
to Client's obligation to pay the Commission, as set forth above, have
been met. Broker's Commission shall be the sole compensation paid to
2
Broker and Broker shall not be entitled to reimbursement for any expenses
or any other sums Broker incurs related to or involving the performance of
the services. The Commission shall be paid to Broker at closing and
Client hereby authorizes the attorney or title company conducting the
closing to disburse the Commission to Broker at such closing. The
Commission shall be payable if the transfer or sale is structured as a
cash sale, like-kind exchange, partial sale, joint venture, newly formed
partnership or transfer of stock.
6. In no event shall Client be responsible to pay any persons or
entities, other than Broker, any commissions or other remunerations of any
kind in connection with this Agreement or by virtue of their association
with Broker. Further, Client shall not be obligated to see to the
application of the Commission, if any, due under this Agreement or the
payment of any other remuneration for the benefit of any persons or
entities other than Broker, and no other persons or entity shall be a
third party beneficiary of this Agreement. Broker shall be solely
responsible for the direct payment of any commissions or other
remuneration of any kind due to other persons or entities claiming
entitlement to a share of the Commission or any other remuneration under
this Agreement or by virtue of their association with Broker. Broker
hereby agrees to indemnify and hold Client harmless from and against any
and all claims, demands, obligations, liabilities, losses and damages
(including, without limitation, attorney's fees of counsel selected by
Client) arising directly or indirectly out of or in connection with any
claim for commissions or other remuneration of any kind for any person or
entity claiming by, through or under Broker or relating in any way to this
Agreement, or Broker's actions or failure to act pursuant to this
Agreement; it being understood and agreed that Client's liability
hereunder shall be limited to the payment to Broker of the Commission, if
any, owed under the Agreement. This provision shall survive any
termination of this Agreement.
7. This Agreement may be terminated by either party upon thirty (30)
days' written notice. In the event of termination by either party, Broker
shall be entitled to receive only that Commission which it has earned
pursuant to and in accordance with Section 5 of this Agreement and Client
shall have no further obligations or liabilities hereunder.
8. Broker's failure or refusal to perform or observe any obligation,
covenant, or condition of this Agreement shall constitute an Event of
Default. Should an Event of Default occur, Client may, at its option,
terminate this Agreement without affecting any other remedy which it may
have at law or in equity. Such termination shall be effective immediately
upon Broker's receipt of written notice from Client. In such event,
Broker shall be entitled to receive only that Commission which it has
earned pursuant to and in accordance with Section 5 of this Agreement,
less any and all damages, losses, claims, costs and expenses incurred or
suffered by Client as a result of Broker's failure or refusal to perform
and Client shall have no further obligations or liabilities hereunder.
3
9. The name, "Federal Realty Investment Trust," refers to the
Trustees, as trustees, but not individually or personally, under a Third
Amended and Restated Declaration of Trust on file in the office of the
Recorder of Deeds of the District of Columbia, which Declaration provides
that neither the shareholders nor the Trustees, nor any officer, employee,
representative or agent of Federal Realty Investment Trust shall be
personally liable for the satisfaction of obligations of any nature
whatsoever of Federal Realty Investment Trust. Accordingly, and in
addition to the other limitations on liability set forth herein, Broker
hereby agrees to look solely to Street Retail, Inc.'s property or Federal
Realty Investment Trust's trust property for the satisfaction of any claim
arising from this Agreement and shall not seek to impose personal
liability on any shareholder, Trustee, officer, employee, representative
or agent of Federal Realty Investment Trust. A similar limitation on
liability shall be inserted in each document executed by Street Retail,
Inc. (if any) pursuant to this Agreement.
10. Whenever any demand, request, approval consent or notice
("Notice") shall or may be given by one party to the other, Notice shall
be addressed to the parties at their respective addresses as set forth
below and delivered by (i) hand, (ii) facsimile, (iii) a nationally
recognized overnight express courier, or (iv) registered or certified mail
return receipt requested. The date of actual receipt shall be deemed the
date of service of Notice. In the event an addressee refuses to accept
delivery, however, then Notice shall be deemed to have been served on
either (i) the date hand delivery is refused, (ii) the next business day
in the case of delivery by overnight courier, or (iii) three (3) business
days after mailing the notice in the case of registered or certified mail.
Either party may, at any time, change its Notice address by giving the
other party Notice, in accordance with the above, stating the change and
setting forth the new address.
Client: Charles E. Garner II
Vice President
Street Retail, Inc.
4800 Hampden Lane, Suite 500
Bethesda, Maryland 20814
with a copy to:
Street Retail, Inc.
4800 Hampden Lane, Suite 500
Bethesda, Maryland 20814
Attn: Secretary
Broker: Westport Advisors Corporation
25 Sylvan Road South, Building F
Westport, Connecticut 06880
Attn: Jack Alan Guttman, President
11. This Agreement contains the entire agreement between Client and
Broker, supersedes any prior agreements or understandings, and no oral
4
statements or prior written matter not specifically incorporated in this
Agreement shall be of any force and effect. No variation, modification,
or changes of this Agreement shall be binding on either party to the
Agreement unless set forth in a document executed by these parties or a
duly authorized agent, officer, or representative hereof.
12. Neither Client nor Broker shall file or record any instrument or
document relative to this Agreement in any public records.
13. The heirs, transferees, successors, and assigns of the parties
hereof shall be duly bound by the provisions hereof, provided Broker may
not assign or otherwise transfer its right or obligation hereunder.
14. The terms of the Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
15. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original and shall together constitute one and
the same instrument.
5
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the day and year first above stated.
CLIENT:
STREET RETAIL, INC.
By: Charles E. Garner II
Charles E. Garner II
Vice President
BROKER:
WESTPORT ADVISORS CORPORATION
By: Jack Alan Guttman
Jack Alan Guttman
President
6
EXHIBIT A
1. Udolf Properties - West Hartford and Avon, CT - Two percent
(2.00%) commission.
2. Peoples Bank (410 Greenwich Avenue) - Greenwich, CT - Two percent
(2.00%) commission.
3. Mel Gordon Properties - Bronxville, NY - Two percent (2.00%)
commission.
7
5
1,000
3-MOS
DEC-31-1995
MAR-31-1995
$17,959
3,567
17,281
0
0
0
863,916
(168,006)
771,905
0
395,379
498,116
0
0
(157,095)
771,905
0
35,921
0
11,352
0
0
9,157
6,623
0
0
0
0
0
6,623
.21
0
Current assets and current liabilities are not listed since Federal Realty
does not prepare a classified balance sheet.
