<PAGE>
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: June 30, 1995
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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
(Registrant's telephone number, including area code)
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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 August 4, 1995
-------------------------------- -----------------------------
Common Shares of Beneficial Interest 31,759,946
This report, including exhibits, contains 22 pages.
<PAGE>
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
June 30, 1995
I N D E X
PART I. FINANCIAL INFORMATION PAGE NO.
Accountants' Report 4
Consolidated Balance Sheets 5
June 30, 1995 (unaudited) and
December 31, 1994 (audited)
Consolidated Statements of Operations (unaudited) 6
Six months ended June 30, 1995 and 1994
Consolidated Statements of Operations (unaudited)
Three months ended June 30, 1995 and 1994 7
Consolidated Statements 8
of Shareholders' Equity (unaudited)
Six months ended June 30, 1995 and 1994
Consolidated Statements of Cash Flows (unaudited) 9
Six months ended June 30, 1995 and 1994
Notes to Financial Statements 10-14
Management's Discussion and Analysis of 15-20
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 21
<PAGE>
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
June 30, 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 June 30, 1995 and for each of the six
months ended June 30, 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.
<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 June 30, 1995 and the related consolidated
statements of operations, shareholders' equity and cash flows for the six
month periods ended June 30, 1995 and 1994 and the consolidated statements
of operations for the three-month periods ended June 30, 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.
August 8, 1995
<PAGE>
<TABLE>
<CAPTION>
Federal Realty Investment Trust
CONSOLIDATED BALANCE SHEETS
(see accountants' review report)
June 30, 1995
-------- December 31, 1994
(unaudited) --------
ASSETS (in thousands)
<S> <C> <C>
Investments
Real estate, at cost $927,504 $852,722
Less accumulated depreciation and amortization (175,674) (160,636)
--------- ---------
751,830 692,086
Mortgage notes receivable 13,180 13,178
--------- ---------
765,010 705,264
Other Assets
Cash 8,558 3,995
Investments 3,504 3,588
Notes receivable - officers 2,925 2,778
Accounts receivable 12,305 16,023
Prepaid expenses and other assets, principally
property taxes, insurance, and lease commissions 19,008 19,158
Debt issue costs (net of accumulated amortization
of $3,554,000 and $3,206,000, respectively) 3,822 2,931
--------- ---------
$815,132 $753,737
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Obligations under capital leases $132,391 $132,924
Mortgages payable 79,783 102,781
Notes payable 26,754 61,883
Accrued expenses 16,519 10,675
Accounts payable 6,142 6,566
Dividends payable 12,527 12,486
Security deposits 2,921 2,687
Prepaid rents 1,012 1,017
Senior notes 125,000 -
Convertible subordinated debentures 75,289 75,289
Investors' interest in consolidated assets 2,114 2,274
Commitments and contingencies - -
Shareholders' equity
Common shares of beneficial interest, no par
or stated value, unlimited authorization,
issued 31,773,932 and 31,669,434 shares,
respectively 499,104 496,958
Accumulated dividends in excess of Trust net income (157,762) (144,553)
Allowance for unrealized loss on marketable securities (11) (53)
-------- ---------
341,331 352,352
Less 60,200 common shares in treasury - at cost, deferred
compensation and subscriptions receivable (6,651) (7,197)
--------- ---------
334,680 345,155
--------- ---------
$815,132 $753,737
========= =========
The accompanying notes are an integral part of these statements.
<PAGE>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(see accountants' review report)
(unaudited)
Six months ended June 30,
1995 1994
---- ----
(In thousands, except per share data)
Revenue
Rental income $68,647 $61,930
Interest 1,893 2,037
Other income 3,376 2,519
-------- -------
73,916 66,486
Expenses
Rental 16,219 17,936
Real estate taxes 6,985 5,620
Interest 18,716 15,815
Administrative 2,817 3,184
Depreciation and amortization 16,988 14,166
-------- --------
61,725 56,721
--------- --------
Operating income before investors' share
of operations and loss on real estate to be sold 12,191 9,765
Investors' share of operations 170 (476)
-------- --------
Income before loss on real estate to be sold 12,361 9,289
Loss on real estate to be sold (535) -
-------- --------
Net Income $11,826 $9,289
======== ========
Weighted Average Number of Common Shares 31,691 29,760
======== ========
Earnings per share
Income before loss on real estate to be sold $0.39 $0.31
Loss on real estate to be sold (0.02) -
------- -------
$0.37 $0.31
======== ========
The accompanying notes are an integral part of these statements.
<PAGE>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(see accountants' review report)
(unaudited)
Three months ended June 30,
1995 1994
---- ----
(In thousands, except per share data)
Revenue
Rental income $34,240 $30,449
Interest 887 1,168
Other income 1,862 1,177
------- -------
36,989 32,794
Expenses
Rental 8,264 7,824
Real estate taxes 3,588 2,761
Interest 9,559 7,637
Administrative 1,390 1,803
Depreciation and amortization 8,619 7,269
------- -------
31,420 27,294
------ -------
Operating income before investors' share
of operations and loss on real estate to be sold 5,569 5,500
Investors' share of operations 169 (294)
------- -------
Income before loss on real estate to be sold 5,738 5,206
Loss on real estate to be sold (535) -
------- -------
Net Income $5,203 $5,206
======= =======
Weighted Average Number of Common Shares 31,723 31,351
======= =======
Earnings per share
Income before loss on real estate to be sold $0.18 $0.17
Loss on real estate to be sold (0.02) -
------- -------
$0.16 $0.17
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(see accountants' review report)
(unaudited)
Six months ended June 30,
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 18,716 406
Shares issued under dividend reinvestment plan 96,754 2,024 73,520 1,864
Conversion of 5 1/4% subordinated debentures, net 1,729 64
Shares purchased under share purchase plan - - 40,000 1,000
Net proceeds of public offering and private placement 3,340,000 82,963
---------- --------- --------- ------
Balance, end of period 31,773,932 $499,104 31,551,964 $494,302
=========== ======== ========== ========
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 42 (122)
---- -----
Balance, end of period ($11) ($486)
==== ======
Accumulated Dividends in Excess of Trust Net Income
Balance, beginning of period ($144,553) ($116,823)
Net income 11,826 9,289
Dividends declared to shareholders (25,035) (23,244)
---------- ----------
Balance, end of period ($157,762) ($130,778)
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS
(see accountants' review report)
(audited)
Six months ended June 30,
(In thousands) 1995 1994
------------- --------------
OPERATING ACTIVITIES
Net income $11,826 $9,289
Adjustments to reconcile net income to net cash
provided by operations
Depreciation and amortization 16,988 14,166
Rent abatements in lieu of leasehold improvements,
net of tenant improvements retired (918) (122)
Imputed interest and amortization of debt cost 356 297
Amortization of deferred compensation and
forgiveness of officers' notes 265 300
Loss on real estate to be sold 535
Changes in assets and liabilities
Decrease in accounts receivable 3,718 400
Increase in prepaid expenses and other
assets before depreciation and amortization (1,569) (631)
(Decrease) increase in operating accounts payable,
security deposits and prepaid rent 1,108 (822)
Increase (decrease) in accrued expenses, net of the premium
put on the 5 1/4% convertible subordinated debentures 6,179 (2,014)
----- -------
Net cash provided by operating activities 38,488 20,863
INVESTING ACTIVITIES
Acquisition of real estate (56,759) (26,334)
Capital expenditures (17,820) (17,132)
Net increase in notes receivable (168) (4,566)
Net decrease in temporary investments 142 190
------- -------
Net cash used in investing activities (74,605) (47,842)
FINANCING ACTIVITIES
Regular payments on mortgages, capital leases, and
notes payable (1,087) (1,018)
(Balloon payments) issuance of mortgages and notes payable (23,601) 22,500
Net change in lines of credit (35,380) (6,913)
Issuance of senior notes, net of costs 123,761 -
Redemption of 5 1/4% convertible subordinated
debentures including premium put - (47,790)
Dividends paid (23,625) (20,574)
Issuance of shares of beneficial interest 772 83,577
Increase in minority interest (160) 24
-------- -------
Net cash provided by (used in) financing activities 40,680 29,806
-------- -------
Increase (decrease) in cash 4,563 2,827
Cash at beginning of period 3,995 9,635
------ ------
Cash at end of period $8,558 $12,462
====== =======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
Federal Realty Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 May 11, 1995 the Trustees declared a cash dividend of $.395
per share, payable July 14, 1995 to shareholders of record June 27, 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 seven
retail buildings in the West Hartford, Connecticut area for $15.3 million
in cash. On April 12, 1995 the Trust purchased a 35,500 square foot
retail building in Greenwich, Connecticut for cash of $12.9 million. On
June 15, 1995 the Trust purchased a 10,000 square foot retail building in
Westport, Connecticut for $5.7 million in cash. In connection with these
purchases, brokerage commissions of $548,000 were incurred to a company
that 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 providing
similar services in other geographic areas.
On April 27, 1995 the Trust purchased the 302,000 square foot Finley
Square Shopping Center in Downers Grove, Illinois for cash of $18.8
million. On June 12, 1995 the Trust purchased a 12,400 square foot
building contiguous to its Bethesda Row property for $2.0 million in cash.
During the second quarter of 1995, the Trust recognized a
$535,000 impairment in the value of North City Plaza in New Castle,
Pennsylvania, thereby valuing the center at its fair value less estimated
costs to sell, pending its disposal. On August 1, 1995 the center was
sold for $1.8 million.
<PAGE>
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 underwriting
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
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%.
In May 1995 the swap was terminated and the Trust sold the swap for $1.5
million, which is being amortized as a deduction to interest expense over
the remaining term.
On April 21, 1995 the Trust issued $25 million of senior notes. The
notes, which are due April 21, 2002 and bear interest at 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 six
months 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 six months ended June 30, 1995 was 7.1%. At June
30, 1995 there was $19.4 million drawn under these facilities.
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
<PAGE>
interest rate of 8 7/8%, the note has been recorded at its discounted
value of $1.7 million.
NOTE H - SHAREHOLDERS' EQUITY
During the first six months of 1995, 7,744 shares were issued at
prices ranging from $15.00 per share to $20.50 per 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 stock options at $20.75 per share
were granted to employees of the Trust. On May 10, 1995, the eight
trustees of the Trust other than the president were each awarded options
to purchase 2,500 shares at $22 per share.
NOTE I - INTEREST EXPENSE
The Trust incurred interest expense totaling $19.1 million during
the first six months of 1995 and $15.9 million during the first six months
of 1994, of which $390,000 and $76,000, respectively, were capitalized.
Interest paid was $13.0 million in the first six months of 1995 and $24.8
million in the first six months 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
ruled that the dividends paid deduction was allowable and this decision
was upheld by the Appellate Court.
Included in the Trust's investments is $2.9 million of Olympia &
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
<PAGE>
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 another property. 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 this 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 June 30, 1995 in connection with certain redevelopment
projects and tenant fitouts, the Trust is contractually obligated on
contracts of approximately $4.7 million. At June 30, 1995 the Trust is
also contractually obligated under leases with tenants to provide
approximately $8.5 million for improvements.
<PAGE>
NOTE K - COMPONENTS OF RENTAL INCOME
The components of rental income for the six months ended June 30
are as follows:
1995 1994
(in thousands)
Retail Properties
Minimum rent $53,847 $47,173
Cost reimbursements 10,946 10,944
Percentage rents 2,630 2,649
Apartments 1,224 1,164
------- -------
$68,647 $61,930
======= =======
<PAGE>
FEDERAL REALTY INVESTMENT TRUST
FORM 10-Q
JUNE 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.
During the first six months of 1995 the Trust purchased $35.9 million
of street retail properties, i.e. retail buildings in densely developed
urban and suburban areas. In addition, during April 1995 the Trust
purchased the 302,000 square foot Finley Square Shopping Center in Downers
Grove, Illinois for $18.8 million. In June 1995 the Trust purchased a
newly constructed 12,400 square foot building, contiguous to its Bethesda
Row property, for $2.0 million in cash. During the first six months of
1995 the Trust spent $17.8 million on tenant work and improvements to its
properties; these improvements included: (1) $2.4 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; (3) $3.6 million on
Gaithersburg Square which is currently being expanded, redeveloped and
retenanted; and (4) $1.4 million on the renovation of Brick Plaza.
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.
On April 21, 1995 the Trust issued $25 million of senior notes
due 2002, the proceeds of which were used to repay amounts which had been
borrowed on the revolving credit facilities during April to fund
acquisitions and property renovations.
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 June 30, 1995 there was $19.4 million drawn
under these facilities. The maximum amount borrowed under these
facilities during the first six months of 1995 was $66.8 million. Amounts
advanced under these facilities bear interest at LIBOR plus 85 - 100 basis
<PAGE>
points; the weighted average interest rate on borrowings during the first
six months of 1995 was 7.1%.
The Trust is committed under leases for approximately $8.5
million in tenant work. In addition the Trust has budgeted approximately
$25 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
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 August 1, 1995 the Trust sold North City Plaza in New Castle,
Pennsylvania for $1.8 million. The Trust recorded a loss of $535,000
during the second quarter to adjust the carrying value of North City to
its fair value or sales price less costs to sell.
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 funds
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
ruled that the dividends paid deduction was allowable and this decision
was upheld by the Appellate Court.
Included in the Trust's investments is $2.9 million of Olympia &
York Senior First Mortgage Notes. The Olympia & 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
<PAGE>
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
chorlinated solvent contamination at another property. 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 this 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 against certain third party claims and government requirements
related to contamination at adjacent properties.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 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 excludes
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
six months ended June 30 is as follows:
<PAGE>
1995 1994
(in thousands)
Net income $11,826 $ 9,289
Plus: depreciation and amortization
of real estate assets 15,028 12,622
amortization of initial direct
costs of leases 1,218 1,185
loss on sale and nonrecurring
items 535 --
------- -------
Funds from operations $28,607 $23,096
======= =======
Funds from operations increased 24% to $28.6 million in the first
six months of 1995 from $23.1 million in the first six months of 1994.
Rental income, which consists of minimum rent, percentage rent
and cost recoveries, increased 11% from $61.9 million in the first six
months of 1994 to $68.6 million in the first six months of 1995. If
rental income is adjusted to remove the effect of properties purchased in
1994 and 1995, it increased 5%. Forty 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 $48.3 million in the first six
months of 1994 to $55.1 million in the first six months of 1995. If
properties purchased in 1994 and 1995 are excluded, minimum rent increased
$3.6 million or 7.5%. A major component of this increase is contributions
from recently renovated centers and from the retenanting of some anchor
spaces. Cost recoveries, if adjusted to remove the effect of 1995 and
1994 acquisitions, are down slightly, primarily due to the decrease in
snow removal expense in 1995 as compared to 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 $2.5 million in 1994 to $3.4 million in
1995 due principally to a commission on telephone services and to lease
termination fees.
Rental expenses have decreased from $17.9 million in the first
six months of 1994 to $16.2 million in the first six months 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 $15.8 million during the
first six months of 1994 to $18.7 million during the comparable period of
1995. Interest expense on the senior notes issued January and April 1995
exceeds the interest saved due to the redemption in April 1994 of most of
<PAGE>
the convertible subordinated debentures due 2002. The ratio of earnings
to fixed charges was 1.61x in 1995 and 1.56x in 1994. The ratio of funds
from operations to fixed charges was 2.43x in 1995 and 2.41x in 1994.
Depreciation and amortization expense has increased because of
the recent acquisitions and because of depreciation on tenant work and
recent property improvements.
During the second quarter of 1995 the Trust recorded a $535,000
loss, resulting from the write down of North City Plaza to its fair value
less costs to sell, since it was being prepared for sale.
As a result of the foregoing items, primarily the increases in
minimum rent and other income and the decreases in rental expense, net
income rose from $9.3 million in the first six months of 1994 to $11.8
million in the first six months of 1995.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1995 AND 1994
Funds from operations for the quarter ended June 30, 1995
increased 14% to $14.0 million as compared to $12.3 million in the second
quarter of 1994.
Rental income, which consists of minimum rent, percentage rent
and cost recoveries, increased 12% from $30.4 million in the second
quarter of 1994 to $34.2 million in the second quarter of 1995. If rental
income is adjusted to remove the effect of properties purchased in 1994
and 1995, it increased 5%. Thirty-six percent of this 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 $24.5 million in the second quarter of
1994 to $27.9 million in the second quarter of 1995. If properties
purchased in 1994 and 1995 are excluded, minimum rent increased 6.5%. A
major component of this increase is contributions from recently renovated
centers and from the retenanting of some spaces. Cost recoveries in the
second quarter of 1995 have increased over the second quarter 1994
recoveries due to the 1994 and 1995 property acquisitions.
Other income has increased from $1.2 million in the second
quarter of 1994 to $1.9 million in the second quarter of 1995. The
largest component of the increase was due to lease termination fees.
Rental expenses have increased from the second quarter of 1994 to
the second quarter of 1995 because of the 1994 and 1995 acquisitions.
Real estate tax expense has increased because of the new acquisitions and
because of increased assessments at several centers.
Interest expense has increased from $7.6 million in the second
quarter of 1994 to $9.6 million during the comparable period of 1995, due
to interest on the $125 million of senior notes issued in 1995.
<PAGE>
General and administrative expenses are down in the second
quarter of 1995 as compared to the same quarter of 1994, primarily because
of a decrease in costs related to unsuccessful acquisitions.
Depreciation and amortization expense has increased from the
second quarter of 1994 to the second quarter of 1995 because of the recent
acquisitions and because of depreciation on tenant work and recent
property improvements.
During the second quarter of 1995 the Trust recorded a $535,000
loss, resulting from the write down of North City Plaza to its fair value
less costs to sell, since it was being prepared for sale.
Net income for the second quarter of 1995 was $5.2 million, the
same as the second quarter of 1994, as a result of the foregoing items.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
At the 1995 Annual Meeting of Shareholders on May 10, 1995, the
Shareholders elected three Trustees to serve for the ensuing three years.
Holders of 25.4 million shares voted for each of the three Trustees and
holders of approximately 209,000 shares voted against each of the three
Trustees.
A. Exhibits
(27) Financial Data Schedule....................Edgar filing only
B. Reports on Form 8-K
A Form 8-K, dated May 25, 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: August 11, 1995 Steven J. Guttman
-------------- ------------------
Steven J. Guttman, President
(Chief Executive Officer)
Date: August 11, 1995 Cecily A. Ward
-------------- ------------------------------
Cecily A. Ward
(Principal Accounting Officer)
<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 June 30, 1995 and the related consolidated
statement of operations for the six months ended
June 30, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> $8,558
<SECURITIES> 3,504
<RECEIVABLES> 15,230
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 927,504
<DEPRECIATION> (175,674)
<TOTAL-ASSETS> 815,132
<CURRENT-LIABILITIES> 0
<BONDS> 439,217
<COMMON> 499,104
0
0
<OTHER-SE> (164,424)
<TOTAL-LIABILITY-AND-EQUITY> 815,132
<SALES> 0
<TOTAL-REVENUES> 72,023
<CGS> 0
<TOTAL-COSTS> 23,204
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,716
<INCOME-PRETAX> 11,826
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,826
<EPS-PRIMARY> .37
<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>
