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, 1994
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)
(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
DC-142784.1
<PAGE>
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 9, 1994
------------------------------------ -------------------------------------
Common Shares of Beneficial Interest 31,481,183
This report contains 24 pages.
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FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
March 31, 1994
I N D E X
PART I. FINANCIAL INFORMATION PAGE NO.
Accountants' Report 4
Consolidated Balance Sheets 5
March 31, 1994 (unaudited) and
December 31, 1993 (audited)
Consolidated Statements of Operations (unaudited) 6
Three months ended March 31, 1994 and 1993
Consolidated Statements 7
of Shareholders' Equity (unaudited)
Three months ended March 31, 1994 and 1993
Consolidated Statements of Cash Flows (unaudited) 8
Three months ended March 31, 1994 and 1993
Notes to Financial Statements 9-11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-16
PART II. OTHER INFORMATION 17
<PAGE>
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
March 31, 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
March 31, 1994 and for each of the three months ended March 31, 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.
<PAGE>
Accountants' Review Report
Trustees and Shareholders
Federal Realty Investment Trust
We have made a review of the consolidated balance sheet of Federal Realty
Investment Trust as of March 31, 1994 and the related consolidated
statements of earnings, shareholders' equity and cash flows for the three-
month periods ended March 31, 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 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 principals, except that they
do not include all disclosures which might be associated with such
statments.
We have previously audited, in accordance with generally accepted auditing
standards, the consoldiated 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 consolidated
balance sheet as of December 31, 1993 is stated fairly, in all material
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respects, in relation to the consolidated balance sheet from which it has
been derived.
Grant Thornton
Washington, D.C.
May 9, 1994
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<TABLE>
<CAPTION>
Federal Realty Investment Trust
CONSOLIDATED BALANCE SHEETS
(See Accountants' Review Report)
March 31, December 31,
1994 1993
---------- ------------
(unaudited)
ASSETS (in
thousands)
<S> <C> <C>
Investments
Real estate, at cost $765,615 $758,088
Less accumulated depreciation and
amortization -140,397 -135,045
-------- --------
625,218 623,043
Mortgage notes receivable 18,316 13,871
-------- --------
643,534 636,914
Other Assets
Cash 8,950 9,635
Investments 3,863 4,008
Notes receivable - officers 2,381 1,890
Accounts receivable 15,938 15,681
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Prepaid expenses and other assets,
principally property taxes, insurance, and
lease commissions 20,650 19,499
Debt issue costs (net of accumulated
amortization of $2,839,000 and $3,862,000,
respectively) 3,197 3,316
-------- --------
$698,513 $690,943
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Obligations under capital leases $137,072 $137,308
Mortgages payable 103,506 81,237
Notes payable 21,484 30,519
Accrued expenses 19,225 19,104
Accounts payable 5,248 5,785
Dividends payable 10,963 10,927
Security deposits 2,431 2,430
Prepaid rents 2,069 1,783
5 1/4% Convertible subordinated debentures,
due 2003 75,000 75,000
5 1/4% Convertible subordinated debentures,
due 2002 40,167 40,167
Investors' interest in consolidated assets 2,368 2,484
Commitments and contingencies - -
Shareholders' equity
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Common shares of beneficial interest, no par
or stated value, unlimited authorization,
issued 28,170,318 and 28,077,999 shares,
respectively 410,294 408,005
Accumulated dividends in excess of Trust net
income -123,703 -116,823
Allowance for unrealized loss on marketable
securities -414 -364
-------- --------
286,177 290,818
Less 60,200 common shares in treasury - at
cost, and subscriptions receivable -7,197 -6,619
-------- --------
278,980 284,199
-------- --------
$698,513 $690,943
======== ========
The accompanying notes are an integral part of
these statements.
</TABLE>
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<TABLE>
<CAPTION>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(see accountants' review report)
(unaudited)
Three months ended
March 31,
1994 1993
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(In thousands, except per share data)
<S> <C> <C>
Revenue
Rental income $31,481 $24,567
Interest 869 1,044
Other income 1,342 1,033
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33,692 26,644
Expenses
Rental 10,112 6,054
Real estate taxes 2,859 2,398
Interest 8,178 8,501
Administrative 1,381 1,025
Depreciation and amortization 6,897 5,936
-------- --------
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29,427 23,914
-------- --------
Operating income before investors' share 4,265 2,730
of operations and extraordinary item
Investors' share of operations -182 -144
-------- --------
Income before extraordinary item 4,083 2,586
Extraordinary item
Net (loss) gain on early
extinquishment of debt - -65
-------- --------
Net Income $4,083 $2,521
======== ========
Weighted Average Number of Common Shares 28,151 24,846
======== ========
Earnings per share
Income before extraordinary item $0.15 $0.10
Extraordinary item - -
-------- --------
$0.15 $0.10
======== ========
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 SHAREHOLDERS' EQUITY
(see accountants' review report)
(unaudited)
Three months ended March 31,
1994 1993
--------- ---------- ---------- ----------
(In thousands, except Shares Amount Shares Amount
per share amounts)
<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest
Balance, beginning of
period 28,077,999 $408,005 24,777,831 $322,903
Exercise of stock
options 17,216 372 27,634 563
Shares issued under
dividend reinvestment
plan 35,103 917 31,686 807
Conversion of 8 3/4%
subordinated deben-
tures, net of costs
of $50,000 - - 137,364 2,209
Shares purchased under
share purchase plan 40,000 1,000
---------- ---------- ---------- ----------
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<PAGE>
Balance, end of period 28,170,318 $410,294 24,974,515 $326,482
========== ========== ========== ==========
Common Shares of Bene-
ficial Interest in
Treasury, Deferred
Compensation and
Subscriptions
Receivable
Balance, beginning of -422,575 -$6,619 -426,575 -$6,708
period
Amortization of deferred 27,875 422 1,000 22
compensation
Subscription of shares
under share purchase
plan -40,000 -1,000 - -
---------- ---------- ---------- ----------
Balance, end of period -434,700 $-7,197 -425,575 $-6,686
========== ========== ========== ==========
Allowance for Unrealized Loss on -$364 -$385
Marketable Securities Balance,
beginning of period
Unrealized (loss)
recovery -50 114
-------- --------
Balance, end of period -$414 -$271
======== ========
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Accumulated Dividends in
Excess of Trust Net
Income
Balance, beginning of
period -$116,823 -$92,932
Net income 4,083 2,521
Dividends declared to
shareholders -10,963 -9,592
-------- --------
Balance, end of period -$123,703 -$100,003
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
<CAPTION>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS
(see accountants' review report)
(unaudited)
Three months ended March 31,
(In thousands) 1994 1993
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $4,083 $2,521
Adjustments to reconcile net income to net cash
provided by operations
Depreciation and amortization 6,897 5,936
Rent abatements in lieu of leasehold improvements, 147 -484
net of tenant improvements retired
Imputed interest and amortization of debt cost 162 153
Amortization of deferred compensation and
forgiveness of officers' notes 140 147
Payment of trustees' fees in shares of beneficial
interest - 39
Net loss (gain) on early extinguishment of debt - 65
Changes in assets and liabilities
(Increase) decrease in accounts receivable -257 -1,280
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Increase in prepaid expenses and other assets -1,906 -1,817
before depreciation and amortization
(Decrease) increase in operating accounts payable, -64 1,101
security deposits and prepaid rent
Increase in accrued expenses, before accretion of
interest 435 1,599
---------- ----------
Net cash provided by operating activities 9,637 7,980
INVESTING ACTIVITIES
Acquisition of real estate - -21,623
Capital expenditures -8,690 -7,771
Net decrease (increase) in notes receivable -4,614 12
Net decrease in temporary investments 95 25,320
---------- ----------
Net cash used in investing activities -13,209 -4,062
FINANCING ACTIVITIES
Regular payments on mortgages, capital leases, and -505 -578
notes payable
Balloon payments on mortgages, including prepayment - -3,387
fees
Proceeds of mortgage financings, net of costs 22,500 -
Repayments of short-term debt, net -9,013 -
Redemption of 8 3/4% convertible debentures - -176
Dividends paid -10,272 -9,517
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<PAGE>
Issuance of shares of beneficial interest 293 824
Increase (decrease) in minority interest -116 34
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Net cash provided by (used) in financing activities 2,887 -12,800
---------- ----------
Decrease in cash -685 -8,882
Cash at beginning of period 9,635 36,316
---------- ----------
Cash at end of period $8,950 $27,434
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
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Federal Realty Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 3, 1994 the Trustees declared a cash dividend of $.39 per
share, payable April 15, 1994 to shareholders of record March 25, 1994.
NOTE C - MORTGAGE NOTES RECEIVABLE
On March 1, 1994 the Trust issued a mortgage note receivable for $4.4
million. The note, which bears interest at 10.625%, is due in September,
1994 and is secured by a portion of Bethesda Row, the leasehold interest
in which was acquired by the Trust in December 1993.
NOTE D - 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
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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 E - 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 March 31, 1994 there was $15.4 million outstanding
on these facilities. The average weighted interest rate on borrowings as
of March 31, 1994 was 4.3%. The maximum amount borrowed under these
facilities during the first three months of 1994 was $33.5 million.
NOTE F - SHAREHOLDERS' EQUITY
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.
During the first three months of 1994, 17,216 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 $341,000 in connection with the issuance of certain of these
shares.
NOTE G - INTEREST EXPENSE
The Trust incurred interest expense totaling $8.2 million in the first
quarter of 1994 and $8.5 million in the first quarter of 1993, of which
$107,000 and $34,000, respectively, were capitalized. Interest paid was
$6.5 million in the first quarter of 1994 and $6.5 million in the first
quarter of 1993.
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NOTE H - 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 similar 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 of $473,000 in
marketable equity securities and $3.4 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 dry
cleaner 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. An agreement is
being negotiated with two previous owners of the shopping center to share
the costs to 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 other 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.
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<PAGE>
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, 1994 in connection with certain redevelopment projects,
the Trust is contractually obligated on contracts of approximately $3.7
million. At March 31, 1994 the Trust is also contractually obligated under
leases with tenants to provide approximately $7.1 million for improvements.
NOTE I - SUBSEQUENT EVENTS
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 approximately $61.2
million.
On April 30, 1994 $39.8 million of the Trust's $40.2 million 5 1/4%
subordinated convertible debentures due 2002 were redeemed at a redemption
price equal to 120% of their principal amount or $47.8 million.
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, 1994 for a price of $990,000.
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<PAGE>
FEDERAL REALTY INVESTMENT TRUST
FORM 10-Q
MARCH 31, 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 1992 and 1993 in order to improve its capital structure and to
finance and expand its real estate portfolio, the Trust restructured debt
and raised equity. The Trust continues to believe that now is an opportune
time to acquire or develop shopping centers, so as capital is needed to
acquire or develop properties, the Trust will again seek to issue equity or
additional debt securities.
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. 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. The proceeds of
this mortgage were used to fund improvements to Trust properties and to
repay borrowings on the Trust's revolving credit facilities.
In early April 1994 the Trust sold 840,000 shares at $25.875 to an
institutional investor, raising net proceeds of $21.7 million. In a
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<PAGE>
concurrent public offering, on April 6, 1994 the Trust sold 2.5 million
shares at $26 per share, raising net proceeds of approximately $61.2
million. Proceeds from these offerings were used to redeem $39.8 million
of the Trust's 5 1/4% convertible subordinated debentures due 2002 which
were redeemable on April 30, 1994 by the noteholders at 120% of their
principal amount or $47.8 million.
Proceeds from the offerings were also used to purchase shopping
centers. On April 15, 1994 the Trust purchased Idylwood Plaza in Fairfax,
Virginia for a price of $14.3 million in cash. On April 29, 1994 the Trust
purchased North Lake Commons Shopping Center in Lake Zurich, Illinois for a
price of $10.8 million in cash. A parcel of land with a grocery store
adjoining the Trust's Bala Cynwyd Shopping Center was also purchased on
April 29, 1994 for a price of $990,000 in cash.
The Trust has available $85.0 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, 1994 there was $15.4 million outstanding on
these facilities. The average weighted interest rate on borrowings as of
March 31, 1994 was 4.3%. The maximum amount borrowed under these
facilities during the first three months of 1994 was $33.5 million.
Major expenditures of capital by the Trust during the first quarter of
1994 included the following: (1) $9.0 million to reduce borrowings on the
medium-term bank facilities and (2) $8.7 million in tenant work and
improvements to the shopping centers. These improvements include $1.1
million to begin the redevelopment of Congressional Plaza, $1.9 million for
the renovation and tenant work at Ellisburg Circle Shopping Center and
$886,000 in tenant work and improvements at Perring Plaza.
The Trust is committed under leases for approximately $7.1 million in
tenant work. In addition the Trust has budgeted approximately $33.7
million for the remainder of 1994 for improvements to its properties.
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<PAGE>
These expenditures will be paid from borrowings on the revolving credit
facilities or from other financing.
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 similar 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 $3.9 million is
$3.4 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.
The North Carolina Department of the Environment, Health and Natural
Resources ("DEHNR") issued a Notice of Violation ("NOV") against a dry
cleaner 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. An agreement is
being negotiated with two previous owners of the shopping center to share
the costs to 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 other properties. In each case, the contamination appears to be
linked to the current and/or previous dry cleaner. The Trust intends to
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<PAGE>
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.
Management believes that the combination of cash at March 31, 1994,
the revolving credit facilities, and the unencumbered value of the Trust's
properties provide the Trust with adequate capital resources and liquidity
for operating purposes in the near future. The Trust, however, continues
to renovate its existing centers and seeks to acquire more shopping
centers. The Trust will need to continue to raise equity or issue
additional debt in order to fund these activities. Subject to market
conditions, the Trust believes that it will continue to be able to raise
this needed capital through the offering of equity and debt securities so
that it may pursue its growth plans as well as to meet its longer term
capital and debt refinancing needs.
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<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 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 29% to $11.0 million in the first
quarter of 1994 from $8.5 million in the first quarter of 1993.
Rental income, which consists of minimum rent, percentage rent and
cost recoveries, increased 28% from $24.6 million in the first quarter of
1993 to $31.5 million in the first quarter of 1994. The properties
acquired in 1993 contributed 20% of this 28% increase. The major component
of the remaining increase is cost recoveries, the increase in which is due
to recovery of the large increase in snow removal expense during the first
quarter of 1994.
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 $1.0 million in 1993 to $1.3 million in 1994
because of the 1993 acquisitions and because of lease termination fees paid
to the Trust.
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<PAGE>
Rental expenses have increased from $6.1 million in the first quarter
of 1993 to $10.1 million in the first quarter of 1994. This increase
results primarily from new acquisitions and from an increase of over $1.5
million in snow removal expenses during the winter of 1994. The other
major component of the increase in rental expense is in bad debt and the
write off of tenant improvements for tenants which vacated prior to the end
of their lease term. Real estate taxes have increased because of the 1993
acquisitions. Depreciation and amortization charges increased because of
the 1993 acquisitions but also because of depreciation on recent tenant
work and property improvements. Administrative expenses are increasing as
the Trust grows, but are relatively constant as a percentage of total
revenue at approximately 4%.
Interest income has decreased from $1.0 million in the first quarter
of 1993 to $869,000 in the first quarter of 1994, because of lower cash
balances during 1994.
Interest expense has decreased from $8.5 million in the first quarter
of 1993 to $8.2 million in the first quarter of 1994. Decreases in interest
expense resulting from the repayment of several mortgages and the senior
notes in 1993 are mostly 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 the larger outstanding balances of the
revolving credit facilities.
Income before extraordinary item increased from $2.6 million in the
first quarter of 1993 to $4.1 million in the first quarter of 1994
primarily due to increased revenue from the Trust's new acquisitions.
During the first quarter of 1993 the Trust incurred losses on the
early extinguishment of debt of $65,000 due to the prepayment of a mortgage
and the redemption of its 8 3/4% convertible subordinated debentures.
As a result of the foregoing items, primarily the increases in
property income, net income rose from $2.5 million in the first quarter of
1993 to $4.1 million in the first quarter of 1994.
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<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10. Other Share Award and Purchase Note between Federal Realty
Investment Trust and Ron D. Kaplan, dated January 1, 1994.
(B) Reports on Form 8-K
None.
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<PAGE>
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 11, 1994 Steven J. Guttman
------------------------------
Steven J. Guttman, President
(Chief Executive Officer)
Date: May 11, 1994 Cecily A. Ward
------------------------------
Cecily A. Ward
(Principal Accounting Officer)
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<PAGE>
December 17, 1993
Dear Mr. Kaplan:
The Board of Trustees of Federal Realty Investment Trust ("Trust") is
pleased to inform you that you have been awarded an "Other Award" under the
terms of the Federal Realty Investment Trust 1993 Long-Term Incentive Plan
("Plan"), a copy of which is available to you. This purchase is effective
January 1, 1994.
The terms of the "Other Award" are substantially similar to the terms of a
"Stock Purchase Award" under the Plan, with the following modifications:
(1) You are entitled to stock purchase loan forgiveness for a fiscal
year of 1/16th of the original principal amount of your stock
purchase loan if growth in the Trust's funds from operations per
share ("FFO") is equal to or greater than 5% during that fiscal
year.
(2) Beginning with the forgiveness scheduled to occur on January 31,
1997, if growth in FFO is equal to or greater than 10% during the
immediately preceding fiscal year and if total return to the
Trust's shareholders is equal to or greater than 10% during the
same fiscal year, then an additional 1/16th of the original
principal amount of your stock purchase loan will be forgiven on
January 31 of the following fiscal year.
(3) With respect to the forgiveness scheduled to occur on January 31,
1995 only, you are entitled to stock purchase loan forgiveness of
1/16th of the original principal amount of your stock purchase
loan even if the FFO test is not met for fiscal year 1994. If
the FFO test described in (1) is met for fiscal year 1994, you
are entitled to total stock purchase loan forgiveness of 2/16th
<PAGE>
of the original principal amount of your stock purchase loan on
January 31, 1995.
(4) Except as provided in the first sentence of (3) above, if growth
in FFO does not equal 5% in any fiscal year, no stock purchase
loan forgiveness on the following January 31 will occur.
(5) If you are entitled to stock purchase loan forgiveness in any
year, forgiveness shall occur on January 31 of the following
year, beginning on January 31, 1995; provided, however, that 25%
of the original principal amount of your stock purchase loan
shall not be subject to forgiveness.
(6) The term of your stock purchase loan shall be twelve years and
the stock purchase loan, and any related tax loan, shall be non-
recourse loans. Any tax loans you may receive shall also have a
term of twelve years.
(7) The interest rates on your stock purchase loan and any related
tax loans shall be 6.24% per annum or such higher rate as shall
be necessary to avoid imputed interest under the Internal Revenue
Code.
(8) The stock purchase price per share shall be the closing price per
share on The New York Stock Exchange, Inc. for Trust shares on
December 31, 1993.
The members of the Trust's Compensation Committee are pleased to make this
award in recognition of your contributions to the Trust.
Also enclosed is a copy of the Prospectus for the Plan as well as a copy of
the Trust's annual report to shareholders for the year ended December 31,
1992. We will provide you with a copy of the Trust's annual report to
shareholders for the year ended December 31, 1993 as soon as it is
available.
<PAGE>
Please indicate your acceptance of this award under the terms described
above by signing where indicated below.
Very truly yours,
FEDERAL REALTY INVESTMENT TRUST
By: Dennis L. Berman
-------------------------------
Name: Dennis L. Berman
Title: Chairman, Compensation Committee
ACCEPTED AND AGREED:
Ron D. Kaplan
-------------------
Ron D. Kaplan
<PAGE>
PURCHASE NOTE
January 1, 1994
FOR VALUE RECEIVED, Ron D. Kaplan ("Borrower"), promises to pay to the
order of FEDERAL REALTY INVESTMENT TRUST ("Payee") at 4800 Hampden Lane,
Bethesda, Maryland 20814, or at such other place as the holder hereof may
from time to time designate in writing, in lawful money of the United
States of America, the principal sum of One Million Dollars and No Cents
($1,000,000.00) together with interest as described below on the principal
balance hereof from time to time outstanding, all in accordance with the
following terms and provisions:
1. Other Share Award. This promissory note (as the same may be amended,
modified or supplemented from time to time, the "Purchase Note") represents
the Purchase Loan referred to in the Federal Realty Investment Trust 1993
Long-Term Incentive Plan (as amended, modified or supplemented from time to
time, "the Plan"). Terms defined in the Plan shall have the same meanings
when such terms are used in this Purchase Note. This Purchase Note
evidences a non-recourse, secured loan made by Payee to Borrower to enable
Borrower to purchase Shares pursuant to Borrower's Other Share Award issued
under the Plan. The performance of the Borrower's obligations hereunder are
secured by (a) a pledge of the Shares purchased by Borrower under the Plan
and (b) an Assignment to Payee of all quarterly cash Dividends paid on the
Shares purchased by Borrower under the Plan.
2. Interest. The unpaid principal balance of this Purchase Note,
outstanding from time to time, shall bear Interest of Six and 24/100
percent (6.24%) per anum or such higher rate as shall be necessary to avoid
imputed interest under the Internal Revenue Code and shall be due and
payable quarterly in arrears on each date of payment of a cash Dividend on
the Shares owned by Borrower pursuant to the Plan. If no quarterly cash
Dividend is paid on the Shares for a quarter, Interest shall accrue on the
last day of the quarter, and shall be satisfied from future cash Dividends
paid on such Shares. Any accrued but unpaid Interest on the Purchase Note
shall be due and payable on July 31, 2006.
3. Principal Payments. Payee shall forgive the repayment of one-sixteenth
(six and one quarter percent) of the original principal of this Purchase
<PAGE>
Note on the 31st day of January, so long as Funds From Operations per Share
("FFO") grew 5% or more during the immediately preceding fiscal year. The
Payee shall also forgive an additional one-sixteenth of the original
principal of the loan beginning on January 31, 1997, and each scheduled
forgiveness date thereafter, if growth in FFO for the preceding fiscal year
was greater than or equal to 10% and total return to shareholders for the
preceding fiscal year was greater than or equal to 10%. Payee also agrees
to forgive one-sixteenth of the original principal on January 31, 1995.
Except as provided in the immediately preceding sentence, Payee will not
forgive any portion of the original principal of the loan on the 31st day
of January if growth in FFO was less than 5% during the preceding year. In
order for the forgiveness to occur, Borrower must be an employee on the
forgiveness date.
Unless due earlier in accordance with Paragraphs 4 and 6 of this Purchase
Note, the balance of the Purchase Note that is not forgiven in accordance
with the schedule set forth in this Paragraph 3, shall be due and payable
on July 31, 2006.
4. Termination of Employment. In the event there is a Termination of
Employment of Borrower, the following shall apply:
a. Termination of Employment by Voluntary Resignation.
In the event of Borrower's Termination of Employment by voluntary
resignation, the outstanding balance of the Purchase Loan and
any accrued but unpaid Interest hereon shall be due and payable
within ninety (90) days of the date of Borrower's Termination of
Employment by voluntary resignation.
b. Termination of Employment by Death, Disability or
Change of Control.
In the event of a Borrower's Termination of Employment by reason
of death, Disability or a Change of Control, the timetable set
forth in Paragraph 3 of this Purchase Note shall be accelerated
so that an aggregate of one-half of the original principal of the
Purchase Note shall be forgiven as of the date of Borrower's
Termination of Employment by reason of death, Disability or a
- 2 -
<PAGE>
Change of Control. In that event, the outstanding balance of the
Purchase Note and any accrued but unpaid Interest thereon shall
be due and payable within one hundred eighty (180) days of such
Termination of Employment.
c. Termination of Employment Constituting Discharge for
Cause.
In the event of Borrower's Termination of Employment that
constitutes a Discharge for Cause, the outstanding balance of the
Purchase Note and any accrued but unpaid Interest thereon shall
be due and payable immediately upon the date of Borrower's
Termination of Employment that constitutes a Discharge for Cause.
d. Other Termination of Employment.
In the event of Borrower's Termination of Employment for reasons
other than those set forth in the foregoing subparagraphs (a)
through (c), the outstanding balance of the Purchase Note and any
accrued but unpaid Interest thereon shall be due and payable
within twelve (12) months of the date of Borrower's Termination
of Employment.
5. Prepayment. This Purchase Note may be prepaid in whole or in part
at any time, and from time to time, without penalty. All partial
prepayments shall be applied to the outstanding principal balance of the
Purchase Note.
6. Default. An Event of Default shall occur hereunder if the Borrower
shall fail to repay the balance of the Purchase Note or the Tax Note and
any accrued but unpaid Interest thereon within the applicable time periods
set forth in the foregoing Paragraphs 2, 3 and 4 hereof or in the Tax Note
and such failure shall continue for a period of ten days after written
notice thereof has been given to the Borrower by the Payee. Upon the
occurrence of an Event of Default, the outstanding balance of this Purchase
Note and any outstanding Tax Notes and any accrued but unpaid Interest
thereon shall become immediately due and payable at the option of the
- 3 -
<PAGE>
Payee. Any delay by the Payee in exercising, or any failure of the Payee
to exercise, the aforesaid option to accelerate with respect to an Event of
Default shall not constitute a waiver of its right to exercise such an
option with respect to that or any subsequent Event of Default.
7. Retention of Security. If there is an Event of Default and Payee
exercises its option to accelerate this Purchase Note, then in that event
Payee shall be entitled to retain that portion of the Share Purchase Award
that has a Fair Market Value (as of the last day of the applicable time
period for repayment as set forth in Paragraphs 2, 3 and 4 of this Purchase
Note) equal to the sum of the outstanding principal balance of this
Purchase Note and any accrued but unpaid Interest thereon, such Fair Market
Value and balance to be determined as of the date of Payee's notice of
acceleration. This remedy is the sole and exclusive remedy of Payee for
any Event of Default.
8. Waiver; Extension. Presentment, demand, notice of dishonor, protest
and the benefits of the homestead and all other exemptions provided debtors
are hereby waived. The Borrower agrees that he shall remain liable for the
payment hereof notwithstanding any agreement for the extension of the due
date of any amount payable hereunder made by the Payee after the maturity
thereof.
9. Notices. All notices, requests, demands and other communications with
respect to this Purchase Note shall be in writing and shall be delivered by
hand or sent by the United States mail, certified, postage prepaid, return
receipt requested, to the following addresses:
If to the Payee:
Federal Realty Investment Trust
4800 Hampden Lane
Suite 500
Bethesda, MD 20814
Attn: Legal Department
If to the Borrower:
- 4 -
<PAGE>
Ron D.Kaplan
7909 Greentree Road
Bethesda, MD 20817
Any notice, request, demand or other communication delivered or sent in the
manner aforesaid shall be deemed given or made (as the case may be) upon
the date it is actually received if it is delivered by hand or on the third
business day after the day on which it is deposited in the United States
mail. The Borrower or Payee may change its address by notifying the other
party of the new address in any manner permitted by this Paragraph 9.
10. Severability. If any provision of this Purchase Note, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of the provisions of this Purchase
Note, or the application of such provision to other persons or
circumstances shall not be affected thereby, and each provision of this
Purchase Note shall be valid and enforceable to the fullest extent
permitted by law.
11. Successors and Assigns. This Purchase Note shall be binding upon and
inure to the benefit of Borrower and Payee, and their respective heirs,
administrators, personal representatives, successors and assigns; provided,
however, that the Borrower may not assign or delegate his obligations
hereunder without the prior written consent of Payee.
12. Governing Law. This Purchase Note shall be governed by and construed
in accordance with the laws of the State of Maryland, without regard to
conflict of law principles.
IN WITNESS WHEREOF, the Borrower has executed this Purchase Note.
Ron D. Kaplan
-------------------
Ron D. Kaplan
- 5 -
<PAGE>
ASSIGNMENT OF DIVIDENDS
I hereby assign to Federal Realty Investment Trust all cash Dividends
distributed on the 40,000 Shares issued to me as an "Offer Award" (but
pledged to the Trust) under the Federal Realty Investment Trust 1993 Long-
Term Incentive Plan ("Plan") and authorize the Trust to deduct from such
cash Dividends the Interest payments due the Trust under my Purchase Loan
and any Tax Loan and remit the balance (if any) to me.
This Assignment of Dividend is made pursuant to the Plan and all terms
defined in the Plan shall have the same meaning when used herein.
Ron D. Kaplan
-----------------------
Ron D. Kaplan
04/27/94
-----------------------
Date
WITNESS:
Cindy Schwartzman
-----------------------------
- 6 -
<PAGE>
