<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: March 31, 1997
--------------------------------------
Commission File No. 17533
-------------------------
FEDERAL REALTY INVESTMENT TRUST
-------------------------------
(Exact name of registrant as specified in its charter)
District of Columbia 52-0782497
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1626 East Jefferson Street, Rockville, Maryland 20852-4041
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(301) 998-8100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 5, 1997
- ------------------------------------ --------------------------
Common Shares of Beneficial Interest 39,037,235
This report contains 20 pages.
<PAGE>
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
March 31, 1997
I N D E X
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Accountants' Report 4
Consolidated Balance Sheets 5
March 31, 1997 (unaudited) and
December 31, 1996 (audited)
Consolidated Statements of Operations (unaudited) 6
Three months ended March 31, 1997 and 1996
Consolidated Statements 7
of Shareholders' Equity (unaudited)
Three months ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows (unaudited) 8
Three months ended March 31, 1997 and 1996
Notes to Financial Statements 9-12
Management's Discussion and Analysis of 13-18
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 19
</TABLE>
2
<PAGE>
FEDERAL REALTY INVESTMENT TRUST
S.E.C. FORM 10-Q
March 31, 1997
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, 1996 was audited by Grant
Thornton LLP, independent public accountants, who expressed an
unqualified opinion on it in their report dated February 5, 1997. All
other financial information presented is unaudited but has been
reviewed as of March 31, 1997 and for each of the three month periods
ended March 31, 1997 and 1996 by Grant Thornton LLP whose report
thereon appears on Page 4. All adjustments and disclosures proposed by
them have been reflected in the data presented.
3
<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 March 31, 1997 and the related consolidated statements of
operations, shareholders' equity and cash flows for the three month periods
ended March 31, 1997 and 1996. 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, 1996 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 5, 1997, 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, 1996 is
stated fairly, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Grant Thornton LLP
Washington, D.C.
May 2, 1997
4
<PAGE>
Federal Realty Investment Trust
CONSOLIDATED BALANCE SHEETS
(see accountants' review report)
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(unaudited) 1996
--------- -----------
ASSETS (in thousands)
<S> <C> <C>
Investments
Real estate, at cost $1,251,867 $1,147,865
Less accumulated depreciation and amortization (232,487) (223,553)
------------ -------------
1,019,380 924,312
Mortgage notes receivable 37,406 27,913
------------ -------------
1,056,786 952,225
Other Assets
Cash 11,762 11,041
Notes receivable - officers 1,235 1,183
Accounts receivable 14,897 16,111
Prepaid expenses and other assets, principally
property taxes and lease commissions 27,217 51,374
Debt issue costs 3,192 3,372
------------ -------------
$1,115,089 $1,035,306
========== =============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Liabilities
Obligations under capital leases $126,553 $130,613
Mortgages payable 98,228 98,576
Notes payable 70,832 66,106
Accrued expenses 17,182 20,405
Accounts payable 6,621 6,783
Dividends payable 16,382 15,072
Security deposits 3,626 3,515
Prepaid rents 3,365 3,801
Senior notes 215,000 215,000
5 1/4% Convertible subordinated debentures 75,289 75,289
Investors' interest in consolidated assets 13,473 11,261
Commitments and contingencies - -
Shareholders' equity
Common shares of beneficial interest, no par
or stated value, unlimited authorization,
issued 39,071,542 and 35,948,044 shares,
respectively 684,853 597,917
Accumulated dividends in excess of Trust net income (207,771) (200,700)
------------ -------------
477,082 397,217
Less 62,386 and 61,328 common shares in treasury - at cost, respectively,
deferred compensation and subscriptions receivable (8,544) (8,332)
------------ -------------
468,538 388,885
------------ -------------
$1,115,089 $1,035,306
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
(see accountants' review report)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
-------------- -------------
<S> <C> <C>
(In thousands, except per share data)
Revenue
Rental income $43,920 $40,747
Interest 1,500 863
Other income 3,227 2,162
------------- -----------
48,647 43,772
Expenses
Rental 10,216 11,793
Real estate taxes 4,574 3,924
Interest 11,989 11,149
Administrative 2,101 1,686
Depreciation and amortization 10,124 9,332
------------- -----------
39,004 37,884
------------- -----------
Operating income before investors' share
of operations 9,643 5,888
Investors' share of operations (332) 138
------------- -----------
Net Income $9,311 $6,026
============= ===========
Weighted Average Number of Common Shares 38,033 32,265
============= ===========
Earnings per share
$0.24 $0.19
============= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(see accountants' review report)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
------------- ------------- ------------- -------------
(In thousands, except per share amounts) Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest
Balance, beginning of period 35,948,044 $597,917 32,221,670 $508,870
Net proceeds from sale of shares 3,000,000 83,925
Exercise of stock options 64,501 1,360 20,667 410
Shares issued under dividend reinvestment plan 36,997 1,030 46,481 1,033
Shares granted under bonus plan 22,000 621
----------- ----------- ----------- -----------
Balance, end of period 39,071,542 $684,853 32,288,818 $510,313
=========== =========== =========== ===========
Common Shares of Beneficial Interest
in Treasury, Deferred Compensation and
Subscriptions Receivable
Balance, beginning of period (480,948) ($8,332) (500,095) ($8,567)
Amortization of deferred compensation 30,125 480 30,250 482
Deferred compensation under bonus plan (22,000) (621)
Purchase of shares under share purchase plan 13,856 193 1,250 19
Purchase of treasury shares - - (1,058) (24)
Increase in stock option loans (12,500) (264) (19,000) (375)
----------- ----------- ----------- -----------
Balance, end of period (471,467) ($8,544) (488,653) ($8,465)
=========== =========== =========== ===========
Accumulated Dividends in Excess of Trust Net Income
Balance, beginning of period ($200,700) ($172,835)
Net income 9,311 6,026
Dividends declared to shareholders (16,382) (13,213)
----------- -----------
Balance, end of period ($207,771) ($180,022)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS
(see accountants' review report)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
(In thousands) 1997 1996
----------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $9,311 $6,026
Adjustments to reconcile net income to net cash
provided by operations
Depreciation and amortization 10,124 9,332
Rent abatements in lieu of leasehold improvements,
net of tenant improvements retired (178) (147)
Imputed interest and amortization of debt cost 165 187
Amortization of deferred compensation and
forgiveness of officers' notes 172 124
Changes in assets and liabilities
(Increase) decrease in accounts receivable 1,214 (722)
Increase in prepaid expenses and other
assets before depreciation and amortization (152) (1,228)
Decrease in operating accounts payable,
security deposits and prepaid rent (548) (686)
Decrease in accrued expenses (2,900) (766)
----------- ---------
Net cash provided by operating activities 17,208 12,120
INVESTING ACTIVITIES
Acquisition of real estate (96,550) (6,799)
Capital expenditures (9,369) (10,337)
Application of deposit on real estate 23,447 -
Net increase in notes receivable (9,545) (704)
----------- ---------
Net cash used in investing activities (92,017) (17,840)
FINANCING ACTIVITIES
Regular payments on mortgages, capital leases, and
notes payable (654) (718)
Borrowing of short-term debt, net 4,845 16,455
Dividends paid (14,403) (12,546)
Issuance of shares of beneficial interest 85,575 418
Increase (decrease) in minority interest 167 (158)
----------- ---------
Net cash provided by financing activities 75,530 3,451
----------- ---------
Increase (decrease) in cash 721 (2,269)
Cash at beginning of period 11,041 10,521
----------- ---------
Cash at end of period $11,762 $8,252
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
Federal Realty Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(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, 1996 which
contain the Trust's accounting policies and other data.
The Financial Accounting Standards Board has issued SFAS 128, "Earnings Per
Share" which will be effective for financial statements issued for periods
ending after December 15, 1997. SFAS 128 requires that public companies present
basic and diluted earnings per share, which are computed differently than the
currently used primary and fully diluted earnings per share. The most
significant difference in the computation for the Trust is the exclusion of the
effect of dilutive stock options from the computation of basic earnings per
share. Basic earnings per share for the quarters ended March 31, 1997 and 1996
would be $.25 and $.19, respectively. Diluted earnings per share for the
quarters ended March 31, 1997 and 1996 would be $.24 and $.19, respectively.
NOTE B - DIVIDENDS PAYABLE
On February 19, 1997 the Trustees declared a cash dividend of $.42 per
share, payable April 15, 1997 to shareholders of record March 25, 1997.
NOTE C - REAL ESTATE
On January 6, 1997 the Trust purchased the fee interest in Shillington,
Troy and Feasterville Shopping Centers for $1.9 million, $5.7 million and $2.2
million, respectively. The Trust also contracted to purchase the fee interest
in Lawrence Park Shopping Center in June 1998 for $8.5 million. In connection
with the purchase agreement for Lawrence Park, in January 1997 the Trust lent
the seller $8.8 million at 8% which is due in June 1998. The Trust had
previously held these properties under a capital lease.
On February 24, 1997 the Trust purchased a 16 acre tract of land underlying
part of the Shops at Willow Lawn for $4.6 million in cash.
9
<PAGE>
The Trust purchased three retail buildings and two shopping centers during
the first quarter of 1997. On January 22, 1997 the Trust purchased a 5,000
square foot retail building in Chicago, Illinois for cash of $4.2 million. On
March 31, 1997 two partnerships were formed to purchase property in California.
One of the partnerships purchased a 15,000 square foot building in Santa
Monica, California for $4.0 million and the other purchased a 20,000 square foot
building in San Diego, California for $850,000. In accordance with the
provisions of the partnership agreements, the Trust contributed 90% of the cost
of the buildings to the partnerships with the other 10% being contributed by the
minority interests.
On March 5, 1997 the Trust, through a Limited Liability Company ("the LLC")
organized by the Trust, purchased the 320,000 square foot San Jose Town &
Country Village Shopping Center in San Jose, California for $42.8 million. The
other member of the LLC has a minor interest in the profits. On March 31, 1997
the 159,000 square foot Pike 7 Shopping Center in Tysons Corner, Virginia was
purchased for $31.5 million by a partnership formed to own the center. The
Trust contributed $30.9 million to the partnership which was used to pay off
existing debt on the center. The other partners contributed the shopping center
and its existing debt in exchange for partnership units valued at $495,000 which
are exchangeable, at the option of the Trust, for cash or 18,074 common shares
of the Trust.
NOTE D - NOTES PAYABLE
The Trust has $135 million of unsecured medium term revolving credit
facilities with four banks. The facilities, which bear interest at LIBOR plus
75 basis points, require fees and have covenants requiring a minimum
shareholders' equity and a maximum ratio of debt to net worth. At March 31,
1997 there was $64.2 million borrowed under these credit facilities. The
maximum drawn during the first quarter of 1997 was $68.9 million. The weighted
average interest rate on borrowings for the quarter ended March 31, 1997 was
6.3%.
NOTE E - SHAREHOLDERS' EQUITY
On February 4, 1997 the Trust sold 3.0 million shares to an institutional
investor for $28 per share, netting $83.9 million. During the first three months
of 1997, 64,501 shares were issued at prices ranging from $20.50 a share to
$24.125 a share from the exercise of stock options. The Trust accepted notes of
$264,000 from certain of its officers and employees in connection with the
issuance of 12,500 of these shares.
On January 31, 1997, 22,000 restricted shares were granted to an officer
and two employees of the Trust. The shares vest over three years.
10
<PAGE>
During March 1997, 770,000 options at prices ranging from $26.69 per share
to $26.875 per share were granted to certain officers.
NOTE F - INTEREST EXPENSE
The Trust incurred interest expense totaling $12.4 million during the first
quarter of 1997 and $11.4 million during the first quarter of 1996, of which
$368,000 and $302,000, respectively, were capitalized. Interest paid was $13.0
million in the first quarter of 1997 and $11.5 million in the first quarter of
1996.
NOTE G - COMMITMENTS AND CONTINGENCIES
As previously reported, certain of the Trust's shopping centers have
some environmental contamination. The Trust has retained an environmental
consultant to investigate contamination at a shopping center in New Jersey. The
Trust is evaluating whether it has insurance coverage for this matter. At this
time, the Trust has not determined what the range of remediation costs might be,
but does not believe that the costs will have a material effect upon the Trust's
financial condition. 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, at this time, to estimate the range of
remediation costs, if any.
Pursuant to the provisions of the respective partnership agreements, in the
event of the exercise of put options by the other partners, the Trust would be
required to purchase the 99% limited partnership interest at Loehmann's Plaza at
its then fair
11
<PAGE>
market value and a 22.5% interest at Congressional Plaza at its then fair market
value.
Under the terms of the CIM partnerships, if certain leasing and revenue
levels are obtained for the properties owned by the partnerships, the limited
partners may require the Trust to purchase their partnership interests at a
formula price based upon net operating income. The purchase price may be paid
in cash or common stock of the Trust at the election of the limited partners.
If the limited partners do not redeem their interest, the Trust may choose to
purchase the limited partnership interests upon the same terms.
At March 31, 1997 in connection with certain redevelopment projects and
tenant improvements, the Trust is contractually obligated on contracts of
approximately $7.0 million. At March 31, 1997 the Trust is also obligated under
leases with tenants to provide up to an additional $7.5 million for
improvements.
NOTE H - COMPONENTS OF RENTAL INCOME
The components of rental income for the three months ended March 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
(in thousands)
Retail properties
Minimum rents $34,470 $31,334
Cost reimbursements 7,619 7,471
Percentage rents 1,210 1,334
Apartments 621 608
------- -------
$43,920 $40,747
======= =======
</TABLE>
NOTE I - SUBSEQUENT EVENTS
On April 17, 1997 a partnership organized in December 1996 exercised its
purchase option on a retail building in Santa Monica, California for $6.9
million in cash. In accordance with the provisions of the partnership
agreement, the Trust contributed 90% of the cost to the partnership and the
minority interests contributed the other 10%. Also, on April 17, 1997 the Trust
loaned the minority partners in this partnership $3.9 million. The loan is
secured by property in Santa Monica, earns interest at 10% and participates in
any profits or appreciation of the property.
12
<PAGE>
On April 24, 1997 the Trust purchased Terranomics Retail Services, a
property management and brokerage company, for approximately $2.0 million, to
provide it with leasing and property management services on the west coast.
13
<PAGE>
FEDERAL REALTY INVESTMENT TRUST
FORM 10-Q
MARCH 31, 1997
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.
Net cash provided by operating activities increased from $12.1 million
during the first quarter of 1996 to $17.2 million during the first quarter of
1997. The $5.1 million increase resulted primarily from the cash effects of a
$3.3 million increase in net income, a $792,000 increase in depreciation and
amortization, and a $1.0 million decrease in cash used for operating activities
such as accounts receivable, accounts payable and accrued expenses. Dividends
paid in cash were $14.4 million in 1997 and $12.5 million in 1996.
During the first quarter of 1997, the Trust spent $96.6 million in cash to
acquire real estate assets, $9.4 million to improve its properties and $9.5
million in mortgage notes receivable. On January 6, 1997 the Trust purchased
the fee interest in Shillington, Troy and Feasterville Shopping Centers for $1.9
million, $5.7 million and $2.2 million, respectively. In connection with the
purchase agreement for Lawrence Park, in January 1997 the Trust lent the seller
$8.8 million at 8% which is due in June 1998. The Trust had previously held
these properties under capital leases. On February 24, 1997 the Trust purchased
a 16 acre tract of land underlying part of the Shops at Willow Lawn for $4.6
million in cash.
The Trust purchased three retail buildings and two shopping centers during
the first quarter of 1997. On January 22, 1997 the Trust purchased a 5,000
square foot retail building in Chicago, Illinois for cash of $4.2 million. On
March 31, 1997 two partnerships were formed to purchase property in California.
One of the partnerships purchased a 15,000 square foot building in Santa Monica,
California for $4.0 million and the other purchased a 20,000 square foot
building in San Diego, California for $850,000. In accordance with the
provisions of the partnership agreements, the Trust contributed 90% of the cost
of
14
<PAGE>
these buildings to the partnerships with the other 10% being contributed by the
minority interests.
On March 5, 1997 the Trust, through a Limited Liability Company ("the LLC")
organized by the Trust, purchased the 320,000 square foot San Jose Town &
Country Village Shopping Center in San Jose, California for $42.8 million. The
other member of the LLC has a minor interest in the profits. On March 31, 1997
the 159,000 square foot Pike 7 Shopping Center in Tysons Corner, Virginia was
purchased for $31.5 million by a partnership formed to own the center. The
Trust contributed $30.9 million to the partnership which was used to pay off
existing debt on the center. The other partners contributed the shopping center
and its existing debt in exchange for partnership units valued at $495,000 which
are exchangeable, at the option of the Trust, for cash or 18,074 common shares
of the Trust.
Improvements to Trust properties during the first quarter of 1997 included
$1.5 million for the second phase of the redevelopment of Brick Plaza, $771,000
to begin the redevelopment of Wynnewood Shopping Center, $301,000 on the
redevelopment of Troy Shopping Center and $3.2 million of tenant work.
On April 17, 1997 a partnership organized in December 1996 exercised its
purchase option on a retail building in Santa Monica, California for $6.9
million in cash. In accordance with the provisions of the partnership
agreement, the Trust contributed 90% of the cost to the partnership and the
minority interests contributed the other 10%. Also, on April 17, 1997 the Trust
loaned the minority partners in this partnership $3.9 million. The loan is
secured by property in Santa Monica, earns interest at 10% and participates in
any profits or appreciation of the property.
On April 24, 1997 the Trust purchased Terranomics Retail Services, a
property management and brokerage company for approximately $2.0 million, to
provide it with leasing and property management services on the west coast.
The Trust has $135.0 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,
1997 the Trust had borrowed $64.2 million under these facilities; the maximum
amount borrowed under these facilities during the first quarter of 1997 was
$68.9 million. Amounts advanced under these facilities bear interest at LIBOR
plus 75 basis points; the weighted average interest rate on borrowings during
the quarter was 6.3%.
On February 4, 1997 the Trust sold 3.0 million shares to an institutional
investor for $28 per share, netting $83.9 million.
15
<PAGE>
Proceeds from this offering were used primarily to repay borrowings on the
revolving credit facilities.
The Trust is contractually obligated on contracts of approximately $7.0
million for redevelopment and tenant improvements and is committed under leases
for up to an additional $7.5 million in tenant work and general improvements to
its properties. In addition to these committed amounts, the Trust has budgeted
an additional $19 million for the remainder of 1997 for improvements to its
properties. These committed and budgeted improvements include the second phase
of the redevelopment and expansion of Brick Plaza, the renovation and
retenanting of Troy Shopping Center, the renovation of Feasterville Shopping
Center and the completion of the renovation and expansion of a portion of
Bethesda Row. These expenditures will be funded with the revolving credit
facilities pending their long term financing with either equity or debt.
The Trust plans additional acquisitions of retail properties,
both shopping center and main street retail buildings during the remainder of
1997. In addition, the Trust has identified a limited number of sites in its
core markets for the development of new shopping centers.
The Trust will need additional capital in order to fund these acquisitions,
expansions and refinancings. Sources of this funding may be additional debt,
additional equity or proceeds from the sale of existing properties. The timing
and choice between additional debt or equity financing will depend upon many
factors, including the market price for the Trust's shares, interest rates and
the ratio of debt to net worth. The Trust believes that it will be able to
raise this capital as needed, based on its past success in so doing.
CONTINGENCIES
As previously reported, certain of the Trust's shopping centers have some
environmental contamination. The Trust has retained an environmental consultant
to investigate contamination at a shopping center in New Jersey. The Trust is
evaluating whether it has insurance coverage for this matter. At this time, the
Trust has not determined what the range of remediation costs might be, but does
not believe that the costs will have a material effect upon the Trust's
financial condition. 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, at this time, to estimate the range of
remediation costs, if any.
16
<PAGE>
Pursuant to the provisions of the respective partnership agreements, in the
event of the exercise of put options by the other partners, the Trust would be
required to purchase the 99% limited partnership interest at Loehmann's Plaza at
its then fair market value and a 22.5% interest at Congressional Plaza at its
then fair market value.
Under the terms of the CIM partnerships, if certain leasing and revenue
levels are obtained for the properties owned by the partnerships, the limited
partners may require the Trust to purchase their partnership interests at a
formula price based upon net operating income. The purchase price may be paid
in cash or common stock of the Trust at the election of the limited partners.
If the limited partners do not redeem their interest, the Trust may choose to
purchase the limited partnership interests upon the same terms.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net income and funds from operations have been affected by the Trust's
recent acquisition, redevelopment and financing activities. The Trust has
historically reported its funds from operations in addition to its net income
and net cash provided by operating activities. Funds from operations is a
supplemental measure of real estate companies' operating performance which
excludes historical cost depreciation, since real estate values have
historically risen and fallen with market conditions rather
17
<PAGE>
than over time. Funds from operations is defined by The National Association of
Real Estate Investment Trusts ("NAREIT") in a white paper issued during 1995,
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 complies with this definition. Funds from
operations does not replace net income as a measure of performance or net cash
provided by operating activities as a measure of liquidity. Rather, funds from
operations has been adopted by real estate investment trusts to provide a
consistent supplemental measure of operating performance in the industry.
The reconciliation of net income to funds from operations for the three
months ended March 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Net income $ 9,311 $ 6,026
Plus: depreciation and amortization
of real estate assets 9,064 8,342
amortization of initial direct
costs of leases 584 593
------- -------
Funds from operations $18,959 $14,961
======= =======
</TABLE>
Funds from operations increased 27% to $19.0 million in the first quarter
of 1997 from $15.0 million in the first quarter of 1996.
Rental income, which consists of minimum rent, percentage rent and cost
recoveries, increased 8% from $40.7 million in the first quarter of 1996 to
$43.9 million in the first quarter of 1997. If properties purchased and sold in
1996 and 1997 are excluded, rental income increased 1%.
Minimum rent increased 10% from $31.9 million in the first quarter of 1996
to $35.1 million in the first quarter of 1997. Excluding properties purchased
and sold in 1996 and 1997, minimum rent increased 2.5%.
Cost reimbursements consist of tenant reimbursements of real estate taxes
(real estate tax recovery) and common area maintenance expenses (CAM recovery).
Cost reimbursements increased 2% from $7.5 million during the first quarter of
1996 to $7.6 million during the first quarter of 1997. Excluding properties
purchased and sold in 1996 and 1997, cost reimbursements decreased from $7.4
million to $7.1 million. Real estate tax recovery on the core portfolio
increased $161,000 as real estate taxes increased, CAM recovery decreased
$478,000 on the core portfolio as CAM expenses, mainly snow removal decreased.
18
<PAGE>
Other property income 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.
Other property income increased from $2.2 million during the first quarter of
1996 to $3.2 million during the first quarter of 1997, primarily due to an
increase of $1.1 million in lease termination fees.
Rental expenses have decreased 13% in the first quarter of 1997 from the
first quarter of 1996, to $10.2 million from $11.8 million. If centers acquired
and sold during 1996 and 1997 are excluded, rental expenses decreased 18%,
primarily due to decreased snow removal costs on the east coast in 1997 as
compared to 1996.
Real estate taxes have increased from $3.9 million during the first quarter
of 1996 to $4.6 million during the first quarter of 1997; $352,000 of the
increase was due to taxes on the 1996 and 1997 acquisitions. Depreciation and
amortization in the first quarter of 1997 was 8% greater than in the first
quarter of 1996. Excluding the effect from the 1996 and 1997 acquisitions,
depreciation and amortization increased 5% due to depreciation on recent tenant
work and property improvements.
Interest expense increased from $11.1 million during the first quarter of
1996 to $12.0 million during the first quarter of 1997, primarily due to
interest expense on the $50 million of 7.48% Debentures issued in August 1996.
The ratio of earnings to fixed charges was 1.72x for the first quarter of 1997
and 1.47x for the comparable period in 1996. The ratio of funds from operations
to fixed charges was 2.48x for the first quarter of 1997 and 2.25x for the first
quarter of 1996.
Administrative expenses have increased from $1.7 million during the first
quarter of 1996 to $2.1 million during the first quarter of 1997, primarily due
to increased personnel costs as the Trust is expanding and increased state
income taxes.
As a result of the foregoing items, net income increased from $6.0 million
during the first quarter of 1996 to $9.3 million during the first quarter of
1997.
Recently there have been a number of retailer consolidations. These
consolidations and a weakening of the retail environment could adversely impact
the Trust, by increasing vacancies and by decreasing rents. In past weak retail
and real estate environments, the Trust has been able to replace tenants who
leave or go bankrupt with stronger tenants. Management believes that due to the
quality of the Trust's properties there will be continued demand for its retail
space.
19
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(27) Financial Data Schedule.......................Edgar filing only
(B) Reports on Form 8-K
A Form 8-K, dated January 29, 1997, was filed in response to Item 7.(a)
A Form 8-K, dated February 3, 1997, was filed in response to Item 5.
A Form 8-K, dated February 24, 1997, was filed in response to Item 7.(c).
20
<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 7, 1997 Steven J. Guttman
---------------- ------------------------------
Steven J. Guttman, President
(Chief Executive Officer)
Date: May 7, 1997 Cecily A. Ward
---------------- -------------------------------
Cecily A. Ward
(Principal Accounting Officer)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF FEDERAL REALTY INVESTMENT TRUST AS OF MARCH 31,
1997 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,762
<SECURITIES> 0
<RECEIVABLES> 16,132
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,251,867
<DEPRECIATION> (232,487)
<TOTAL-ASSETS> 1,115,089
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 585,902
684,853
0
<COMMON> 0
<OTHER-SE> (216,315)
<TOTAL-LIABILITY-AND-EQUITY> 1,115,089
<SALES> 0
<TOTAL-REVENUES> 47,147
<CGS> 0
<TOTAL-COSTS> 14,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,989
<INCOME-PRETAX> 9,311
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,311
<EPS-PRIMARY> .24
<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>
