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: September 30, 1994
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Commission File No. 1-7533
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FEDERAL REALTY INVESTMENT TRUST
-------------------------------
(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)
(301) 652-3360
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X . No .
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 7, 1994
-------------------------------- -------------------------------
Common Shares of Beneficial Interest 31,598,152
This report, including exhibits, contains 20 pages.
<PAGE>
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
September 30, 1994
I N D E X
PART I. FINANCIAL INFORMATION PAGE NO.
Accountants' Report 4
Consolidated Balance Sheets 5
September 30, 1994 (unaudited) and
December 31, 1993 (audited)
Consolidated Statements of Operations (unaudited) 6
Nine months ended September 30, 1994 and 1993
Consolidated Statements of Operations (unaudited) 7
Three months ended September 30, 1994 and 1993
Consolidated Statements 8
of Shareholders' Equity (unaudited)
Nine months ended September 30, 1994 and 1993
Consolidated Statements of Cash Flows (unaudited) 9
Nine months ended September 30, 1994 and 1993
Notes to Financial Statements 10-13
Management's Discussion and Analysis of 14-19
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Exhibit 27 - Financial Data Schedule (For Edgar
filing only)
2
<PAGE>
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
September 30, 1994
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, 1993 was
audited by Grant Thornton, independent public
accountants, who expressed an unqualified opinion on it
in their report dated February 14, 1994. All other
financial information presented is unaudited but has been
reviewed as of September 30, 1994 and for each of the
nine month and three month periods ended September 30,
1994 and 1993 by Grant Thornton whose report thereon
appears on Page 4. All adjustments and disclosures
proposed by them have been reflected in the data
presented.
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<PAGE>
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 September 30, 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows
for the nine-month periods ended September 30, 1994 and 1993, and the
consolidated statements of operations for the three-month periods ended
September 30, 1994 and 1993. 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, 1993 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 14, 1994, 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, 1993 is stated fairly, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Grant Thornton
Washington, D.C.
November 9, 1994
4
<PAGE>
<TABLE>
<CAPTION>
Federal Realty Investment Trust
CONSOLIDATED BALANCE SHEETS
(see accountants' review report)
September 30, 1994 December 31, 1993
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Investments
Real estate, at cost $822,549 $758,088
Less accumulated depreciation and amortization (153,476) (135,045)
---------- ---------
669,073 623,043
Mortgage notes receivable 13,177 13,871
--------- ----------
682,250 636,914
Other Assets
Cash 7,314 9,635
Investments 3,673 4,008
Notes receivable - officers 2,797 1,890
Accounts receivable 14,910 15,681
Prepaid expenses and other assets, principally 19,499
property taxes, interest, and lease commissions 20,466
Debt issue costs (net of accumulated
amortization of $3,087,000 and $3,862,000, respectively) 2,991 3,316
---------- ----------
$734,401 $690,943
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Obligations under capital leases $136,580 $137,308
Mortgages payable 103,028 81,237
Notes payable 34,053 30,519
Accrued expenses 10,186 19,104
Accounts payable 6,624 5,785
Dividends payable 12,466 10,927
Security deposits 2,603 2,430
Prepaid rents 1,216 1,783
5 1/4% Convertible subordinated debentures, 75,000 75,000
due 2003
5 1/4% Convertible subordinated debentures, 289 40,167
due 2002
Investors' interest in consolidated assets 2,379 2,484
Commitments and contingencies - -
Shareholders' equity
Common shares of beneficial interest, no 495,914 408,005
par or stated value, unlimited authorization, issued
31,618,611 and 28,077,999 shares, respectively
5
<PAGE>
Accumulated dividends in excess of Trust net (138,278) (116,823)
income
Allowance for unrealized loss on marketable
securities (462) (364)
---------- ----------
357,174 290,818
Less 60,200 common shares in treasury - at cost, (7,197) (6,619)
and subscriptions receivable ---------- ----------
349,977 284,199
---------- ----------
$734,401 $690,943
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(see accountants' review report)
(unaudited)
Nine months ended September 30
1994 1993
---- ----
<S>
(In thousands, except per share data) <C> <C>
Revenue
Rental income $94,168 $77,185
Interest 3,046 2,858
Other income 4,068 3,943
---------- ----------
101,282 83,986
Expenses
Rental 27,183 19,393
Real estate taxes 8,874 7,606
Interest 23,533 23,474
Administrative 4,448 3,286
Other charges 758
Depreciation and amortization 21,736 18,643
---------- ----------
86,532 72,402
---------- ----------
Operating income before investors' 14,750 11,584
share of operations and extraordinary item
Investors' share of operations (495) (673)
---------- ----------
Income before extraordinary item 14,255 10,911
Extraordinary item --- (1,027)
Net loss on early extinguishment of debt ---------- ----------
Net Income $14,255 $9,884
========== ==========
Weighted Average Number of Common Shares 30,368 26,713
========== ==========
Earnings per share $0.47 $0.41
Income before extraordinary item
Extraordinary item --- (0.04)
---------- ----------
$0.47 $0.37
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(see accountants' review report)
(unaudited)
Three months ended
September 30,
<S> 1994 1993
------ ------
<C> <C>
(In thousands, except per share data)
Revenue
Rental income $32,238 $26,460
Interest 1,009 802
Other income 1,549 1,636
---------- ----------
34,796 28,898
Expenses
Rental 9,247 6,655
Real estate taxes 3,254 2,758
Interest 7,718 7,268
Administrative 1,264 964
Other charges 758
Depreciation and amortization 7,570 6,522
---------- ----------
29,811 24,167
---------- ----------
Operating income before investors' 4,985 4,731
share of operations and extraordinary item
Investors' share of operations (19) (193)
---------- ----------
Net Income $4,966 $4,538
========== ==========
Weighted Average Number of Common Shares 31,563 27,852
========== ==========
Earnings per share $0.16 $0.16
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(see accountants' review report)
(unaudited)
<S> <C> <C> <C> <C>
Nine months ended September 30
1994 1993
-------------- -------------- -------------- --------------
(In thousands, except per share amounts) Shares Amount Shares Amount
Common Shares of Beneficial Interest
Balance, beginning of period 28,077,999 $408,005 24,777,831 $322,903
Exercise of stock options 45,740 1,009 53,384 1,053
Shares issued under dividend reinvestment 113,143 2,873 100,841 2,709
plan
Conversion of 8 3/4% subordinated - - 137,364 2,209
debentures, net of costs of $50,000
Conversion of 5 1/4% subordinated 1,729 64
debentures, net
Shares purchased under share purchase plan 40,000 1,000
Net proceeds of public offering and private 3,340,000 82,963 2,757,800 72,807
placement ---------- ---------- --------- ----------
Balance, end of period 31,618,611 $495,914 27,827,220 $401,681
========== ========== ========== ==========
Common Shares of Beneficial Interest in
Treasury, Deferred Compensation and
Subscriptions Receivable
Balance, beginning of period (422,575) ($6,619) (426,575) ($6,708)
Amortization of deferred compensation 27,875 422 3,000 67
Subscription of shares under share purchase (40,000) (1,000) - -
plan ---------- ---------- ---------- --------
Balance, end of period (434,700) ($7,197) (423,575) ($6,641)
========== ========== ========== ==========
Allowance for Unrealized Loss on Marketable
Securities
Balance, beginning of period ($364) ($385)
Unrealized (loss) recovery (98) (93)
---------- ----------
($462) ($292)
========== ==========
Accumulated Dividends in Excess of Trust
Net Income
Balance, beginning of period ($116,823) ($92,932)
Net income 14,255 9,884
Dividends declared to shareholders (35,710) (31,094)
---------- ----------
Balance, end of period ($138,278) ($114,142)
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE/>
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<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS
(see accountants' review report)
(unaudited)
(In thousands) Nine months ended September 30,
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES
Net income $14,255 $9,884
Adjustments to reconcile net income to net cash provided by
operations
Depreciation and amortization 21,736 18,643
Rent abatements in lieu of leasehold improvements, net of tenant (394) (866)
improvements retired
Imputed interest and amortization of debt cost 418 374
Amortization of deferred compensation and forgiveness of officers' 460 443
notes
Payment of trustees' fees in shares of beneficial interest 132 185
Write off of mortgage note receivable and accrued interest 758
Net loss on early extinguishment of debt --- 1,027
Changes in assets and liabilities
(Increase) decrease in accounts receivable 713 (3,445)
Increase in prepaid expenses and other assets before depreciation (4,668) (3,960)
and amortization
(Decrease) increase in operating accounts payable, security deposits (1,963) 1,556
and prepaid rent
Decrease in accrued expenses, net of the premium put on the 5 1/4% (884) (372)
convertible subordinated debentures ---------- ----------
Net cash provided by operating activities 30,563 23,469
INVESTING ACTIVITIES
Acquisition of real estate (33,840) (76,723)
Capital expenditures (27,504) (19,945)
Net payment on (issuance of) notes receivable (122) 11
Net decrease in temporary investments 237 31,512
---------- ----------
Net cash used in investing activities (61,229) (65,145)
FINANCING ACTIVITIES
Regular payments on mortgages, capital leases, and notes payable (1,543) (1,649)
Balloon payments on mortgages, including prepayment fees --- (10,046)
Proceeds of mortgage financings, net of costs 22,500 ---
10
<PAGE>
Borrowings of short term debt, net 3,587 32,100
Redemption of 8 3/4% convertible debentures --- (176)
Redemption of senior notes (50,505)
Redemption of 5 1/4% convertible subordinated debentures including (47,790)
premium put
Dividends paid (32,185) (27,912)
Issuance of shares of beneficial interest 83,881 73,819
(Decrease) increase in minority interest (105) 24
---------- ----------
Net cash provided by financing activities 28,345 15,655
---------- ----------
Decrease in cash (2,321) (26,021)
Cash at beginning of period 9,635 36,316
---------- ----------
Cash at end of period $7,314 $10,295
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
Federal Realty Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(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, 1993 which contain the Trust's accounting policies and other data.
NOTE B - DIVIDENDS PAYABLE
On September 14, 1994 the Trustees declared a cash dividend of
$.395 per share, payable October 14, 1994 to shareholders of record
September 26, 1994.
NOTE C - REAL ESTATE
On April 15, 1994 the Trust purchased Idylwood Plaza in Fairfax,
Virginia for a cash price of $14.3 million. On April 29, 1994 the Trust
purchased North Lake Commons Shopping Center in Lake Zurich, Illinois for
a cash price of $10.8 million. A parcel of land with a grocery store
adjoining the Trust's Bala Cynwyd Shopping Center was also purchased on
April 29, for a cash price of $990,000.
On July 28, 1994 the Trust acquired Garden Market Shopping Center
which is located in the Village of Western Springs, Illinois, a suburb of
Chicago for a cash price of $7.3 million.
NOTE D - MORTGAGE NOTES RECEIVABLE
On March 1, 1994 the Trust loaned $4.4 million to the lessor of
Bethesda Row. The note, which bore interest at 10.625%, was due and
repaid in September, 1994 and was secured by a portion of Bethesda Row,
the leasehold interest in which was acquired by the Trust in December
1993.
At September 1994, the Trust has written off a $700,000 second
mortgage note plus accrued interest on a shopping center in Delaware. The
note was issued in connection with the sale of the shopping center by the
Trust in 1982.
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<PAGE>
NOTE E - MORTGAGES PAYABLE
On January 31, 1994 the Trust placed with a bank a $22.5 million
mortgage on Northeast Plaza in Atlanta, Georgia. The mortgage, which
matures on January 31, 1995, originally bore interest at 150 basis points
over LIBOR (London Interbank Offered Rate). The interest rate was reduced
to 100 basis points over LIBOR as of April 7, 1994 provided that the Trust
does not draw over $15.0 million on its $20.0 million line of credit with
the
bank.
NOTE F - NOTES PAYABLE
In February 1994 the Trust obtained a $15.0 million revolving
credit facility with a bank, bringing the Trust's total availability of
revolving credit facilities to $85.0 million. All four facilities
require fees and have covenants requiring a minimum shareholders' equity
and a maximum ratio of debt to net worth. At September 30, 1994 there was
$28.0 million outstanding on these facilities. The average weighted
interest rate on borrowings as of September 30, 1994 was 5.1%. The
maximum amount borrowed under these facilities during the first nine
months of 1994 was $33.5 million.
In October 1994 the Trust either restated or amended its four
separate bank agreements, increasing the total availability of revolving
credit facilities to $130.0 million. All four agreements have original
maturities of three years and bear interest at LIBOR plus 85-100 basis
points. All four agreements require fees and have covenants requiring,
among other things, a minimum shareholders' equity and a maximum ratio of
debt to net worth.
NOTE G - 5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
On April 30, 1994 $39.8 million of the Trust's 5 1/4% convertible
subordinated debentures due 2002 were redeemed at a redemption price equal
to 120% of their principal amount or $47.8 million. A principal amount of
$53,000 of these debentures were converted into 1,729 shares.
NOTE H - SHAREHOLDERS' EQUITY
On April 5, 1994 the Trust sold 840,000 shares at $25.875 to an
institutional investor, raising net proceeds of $21.7 million. In a
concurrent public offering, on April 6, 1994 the Trust sold 2.5 million
shares at $26 per share, raising net proceeds of $61.3 million.
On January 1, 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, bears interest at 6.24%. One-
sixteenth of the loan will be forgiven on January 31, 1995. Forgiveness
of the remainder of the loan is subject to the future performance of the
Trust.
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<PAGE>
During the first nine months of 1994, 45,740 shares were issued
at prices ranging from $20.50 a share to $22.63 a share as the result of
the exercise of stock options. The Trust accepted notes from its officers
and employees of $846,000 in connection with the issuance of certain of
these shares.
NOTE I - INTEREST EXPENSE
The Trust incurred interest expense totaling $23.7 million during
the first nine months of 1994 and $23.7 million during the first nine
months of 1993, of which $190,000 and $200,000, respectively, were
capitalized. Interest paid was $31.3 million in the first nine months of
1994 and $24.0 million in the first nine months of 1993.
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.
The Trust's non real estate investments consist principally of
$426,000 of marketable equity securities, at market, and $3.2 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.
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 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.
As previously reported, 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 has also
identified chlorinated solvent contamination at two Virginia properties.
In each case, the contamination appears to be linked to the current and/or
previous dry cleaner. The Trust intends to look to the responsible
parties for any remediation effort. Evaluation of these situations is
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<PAGE>
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 September 30, 1994 in connection with certain redevelopment
projects, the Trust is contractually obligated on contracts of
approximately $5.9 million. At September 30, 1994 the Trust is also
contractually obligated under leases with tenants to provide approximately
$4.4 million for improvements.
NOTE K - COMPONENTS OF RENTAL INCOME
The components of rental income for the nine months ended
September 30 are as follows:
1994 1993
(in thousands)
Shopping Centers
Minimum rents $72,043 $59,796
Cost reimbursements 17,025 12,677
Percentage rents 3,328 2,953
Apartments 1,772 1,759
------- -------
$94,168 $77,185
======= =======
15
<PAGE>
FEDERAL REALTY INVESTMENT TRUST
FORM 10-Q
SEPTEMBER 30, 1994
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 lines of
credit, 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.
During the first nine months of 1994, the Trust spent $33.8
million in cash to acquire properties: the 73,405 square foot Idylwood
Shopping Center in Fairfax, Virginia; the 121,000 square foot North Lake
Commons Shopping Center and the 125,747 square foot Garden Market Shopping
Center in suburban Chicago, Illinois; and a parcel of land adjacent to the
Trust's Bala Cynwyd Shopping Center containing a 36,370 square foot
grocery store. During this period the Trust also spent $27.5 million in
improvements to its properties; included in these improvements were $9.7
million, $3.8 million and $1.7 million towards the redevelopment and
retenanting of Congressional Shopping Center, Ellisburg Circle Shopping
Center and Gaithersburg Square Shopping Center, respectively.
In April 1994 $39.8 million of the Trust's 5 1/4% convertible
subordinated debentures due 2002 were redeemed at a price equal to 120% of
their principal amount or $47.8 million.
These expenditures were funded by sales of equity and additional
borrowings. In April the Trust raised net proceeds of $61.3 million from
a public offering of 2.5 million shares. In a concurrent offering of
840,000 shares to an institutional investor, the Trust raised net proceeds
of $21.7 million; since there was no underwriter in this offering, the
Trust saved approximately $1.2 million in underwriting fees, based on the
schedule of fees in the concurrent public offering. In January 1994 the
Trust placed a $22.5 million one year mortgage on Northeast Plaza in
Atlanta, Georgia.
At September 30, 1994 the Trust had available $85.0 million of
unsecured medium-term revolving credit facilities with four banks. In
October 1994 the Trust either amended or restated these agreements,
increasing the total availability to $130.0 million. 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
16
<PAGE>
acquisitions and other cash requirements until conditions are favorable
for issuing equity or long-term debt. At September 30, 1994 there was
$28.0 million outstanding on these facilities. The facilities bear
interest at LIBOR plus 85-100 basis points. The average weighted interest
rate on borrowings through September 30, 1994 was 5.1%. The maximum
amount borrowed under these facilities during the first nine months of
1994 was $33.5 million.
The Trust is committed under leases for approximately $4.4
million in tenant work. In addition in connection with certain
redevelopment projects,the Trust is contractually obligated on contracts
of approximately $5.9 million. The Trust is actively seeking to acquire
both existing shopping centers and sites for development of new shopping
centers. Accordingly since the Trust has identified certain opportunities
for development of new shopping centers, the Trustees have amended the
Bylaws to allow the Trust to acquire raw land for the purpose of new
development of shopping centers. Management believes that carefully
planned development can offer yields that exceed the yields obtainable on
the purchase of existing properties, thereby compensating for the
additional risk to the Trust. These expenditures will be funded with the
revolving credit facilities pending their permanent financing with either
equity or debt. 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 these activities as well as its
longer term growth and debt refinancing 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.
Included in the Trust's non real estate investments of $3.7
million is $3.2 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 been contaminated. 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.
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<PAGE>
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.
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 has also identified chlorinated
solvent contamination at two Virginia properties. In each case, the
contamination appears to be linked to the current and/or previous dry
cleaner. The Trust intends to look to the responsible parties for any
remediation effort. Evaluation of these situations 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.
RESULT OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Funds from operations is defined as income before depreciation
and amortization and extraordinary items less gains on sale of real
estate. Management believes that funds from operations is an appropriate
supplemental measure of the Trust's operating performance because it
believes that reductions for depreciation and amortization charges are not
meaningful in evaluating income-producing real estate, which have
historically been appreciating assets. The Trust acquires, evaluates and
sells income-producing properties based upon operating income without
taking into account property depreciation and amortization charges and
utilizes funds from operations, together with other factors in setting
shareholder distribution levels. Gains on sale of real estate and
extraordinary items are also excluded from this supplemental measure of
performance because such amounts are not part of the ongoing operations of
the Trust's portfolio. 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.
Funds from operations increased 22% to $36.0 million in the first
nine months of 1994 from $29.6 million in the first nine months of 1993.
If funds from operations are adjusted to remove the effect of a
nonrecurring write off of a mortgage note receivable, funds from
operations increased 24% to $36.7 million from $29.6 million.
During the first nine months of 1994, rental income, which
consists of minimum rent, percentage rent and cost recoveries, increased
18
<PAGE>
22% to $94.2 million from 1993's $77.2 million. If rental income is
adjusted to remove the effect of properties purchased in 1993 and 1994,
rental income increased 7.0%, despite a $700,000 reduction in rental
income at Congressional Plaza, whose occupancy was reduced during its
redevelopment. The components of rental income with the greatest change
are minimum rent and common area maintenance recovery (CAM recovery).
Minimum rent increased 20% from the first nine months of 1993 to the
comparable period of 1994; removing the effect of properties purchased in
1993 and 1994, the increase was 4%. CAM recovery on the portfolio,
adjusted to remove the effect of properties purchased in 1993 and 1994,
increased $2.8 million due to the corresponding increase in CAM expenses
such as snow removal, landscaping and security costs.
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 $3.9 million in 1993 to $4.1 million in
1994.
Rental expenses have increased from $19.4 million for the first
nine months of 1993 to $27.2 million for the first nine months of 1994. If
rental expenses are adjusted to remove the effect of properties purchased
in 1993 and 1994, rental expenses increased 14% or $2.5 million, primarily
because of an increase in snow removal due to the heavy snows of 1994 and
because of increased security costs. Real estate taxes have increased
primarily because of the 1993 and 1994 acquisitions. Depreciation and
amortization charges increased because of the new acquisitions, but also
because of depreciation on recent tenant work and property improvements.
While interest expense has stayed relatively constant at $23.5
million in both periods, the components have changed. Decreases in
interest expense resulting from the repayment of several mortgages and the
senior notes in 1993 and the redemption on April 30, 1994 of the 5 1/4%
convertible debentures due 2002 were offset by increases in interest
expense because of the issuance of the 5 1/4% convertible subordinated
debentures due 2003, because of the interest portion of the capital lease
payment on Bethesda Row, and because of interest on increased usage of the
revolving credit facilities.
Administrative expenses are increasing as the Trust grows and as
it seeks new acquisition and development opportunities. A major component
of the increase in 1994 over 1993 is an increase in costs connected with
the review and analysis of properties which were not acquired. During the
third quarter of 1994 the Trust has written down a mortgage note
receivable and accrued interest on the note, totalling $758,000. The note
was issued in 1982 in connection with the sale by the Trust of a shopping
center in Delaware. Although the Trust will continue to pursue payment of
the note, due to the current cash flow of the collateral property,
collectibility is not certain.
Income before extraordinary item increased from $10.9 million
during the first nine months of 1993 to $14.3 million during the
19
<PAGE>
comparable period of 1994 because of the contribution of 1993 and 1994
acquisitions and because of growth in the core portfolio.
During the first nine months of 1993 the Trust incurred losses on
the early extinguishment of debt of $1.0 million due to the prepayment of
two mortgages and the redemption of its 8 3/4% convertible subordinated
debentures and senior notes.
As a result of the foregoing items, primarily the increases in
property income, net income rose from $9.9 million in the first nine
months of 1993 to $14.3 million in the first nine months of 1994.
RESULTS OF OPERATIONS-THREE MONTHS ENDED SEPTEMBER 30, 1994
AND 1993
Funds from operations increased 13% from $11.1 million in the
third quarter of 1993 to $12.5 million in the third quarter of 1994. If
funds from operations are adjusted to remove the nonrecurring charge of
$758,000 for a write down of a mortgage note, funds from operations
increased 20% from $11.1 million in the third quarter of 1993 to $13.3
million in the third quarter of 1994. Rental income increased 22% from
$26.5 million in the third quarter of 1993 to $32.2 million in the
comparable period of 1994. If the contribution of the new acquisitions is
excluded, rental income increased 7.6% or $1.9 million; the increase is
related primarily to increases in minimum rent and CAM recovery.
Rental expenses increased from $6.7 million during the third
quarter of 1993 to $9.2 million during the same period of 1994, primarily
because of the 1993 and 1994 acquisitions. Real estate taxes also rose
from 1993 to 1994 because of the recent acquisitions. If the properties
acquired in 1993 and 1994 are excluded, rental expenses increased
approximately $500,000. The 1993 and 1994 acquisitions were the primary
cause of the increase in depreciation and amortization expense, followed
by increased depreciation on recent tenant work and renovations.
Interest expense has increased from $7.3 million in the third
quarter of 1993 to $7.7 million in the third quarter of 1994. Decreases
in interest expense resulting from the repayment of several mortgages in
1993 and the redemption on April 30, 1994 of the 5 1/4% convertible
debentures due 2002 are offset by increases in interest because of the
issuance of the 5 1/4% convertible subordinated debentures due 2003,
because of the interest portion of the capital lease payment on Bethesda
Row, and because of interest on increased usage of the revolving credit
facilities.
Administrative expenses are increasing as the Trust grows and as
it seeks new development and acquisition opportunities. During the third
quarter of 1994, a major component of the increase in 1994 administrative
expense over 1993 expenses is the increase of costs connected with the
review and analysis of properties which were not acquired.
20
<PAGE>
During the third quarter of 1994 the Trust has written down a
mortgage note receivable and accrued interest on the note, totalling
$758,000. The note was issued in 1982 in connection with the sale by the
Trust of a shopping center in Delaware. Although the Trust will continue
to pursue payment of the note, due to the current cash flow of the
collateral property, collectibility is not certain.
As a result of the foregoing items, net income rose from $4.5
million for the third quarter of 1993 to $5.0 million for the third
quarter of 1994.
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: November 10, 1994 Steven J. Guttman
----------------- -------------------------------
Steven J. Guttman, President
(Chief Executive Officer)
Date: November 10, 1994 Cecily A. Ward
----------------- ------------------------------
Cecily A. Ward
(Principal Accounting Officer)
21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet of Federal Realty Investment Trust as of September
30, 1994 and the related consolidated statement of operations for the nine
months ended September 30, 1994 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> $7,314
<SECURITIES> 3,673
<RECEIVABLES> 14,910
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 822,549
<DEPRECIATION> (153,476)
<TOTAL-ASSETS> 734,401
<CURRENT-LIABILITIES> 0
<BONDS> 273,661
<COMMON> 495,914
0
0
<OTHER-SE> (145,937)
<TOTAL-LIABILITY-AND-EQUITY> 734,401
<SALES> 0
<TOTAL-REVENUES> 98,236
<CGS> 0
<TOTAL-COSTS> 36,057
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,533
<INCOME-PRETAX> 14,255
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,255
<EPS-PRIMARY> .47
<EPS-DILUTED> 0
<FN>
<F1>Current assets and current liabilities are not listed since Federal Realty does
not prepare a classified balance sheet.
</FN>
</TABLE>
