FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] Quarterly Report Pursuant to Section
13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 1997
Commission File Number 0-25230
FIRST WASHINGTON REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-1879972
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
4350 East-West Highway, Suite 400, Bethesda, MD 20814
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (301) 907-7800
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
Common Stock, $.01 par value, outstanding as of November 13, 1997:
7,289,653 Shares of Common Stock
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
FORM 10-Q
INDEX
Part I: Financial Information Page
Item 1. Consolidated Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996 1
Consolidated Statements of Operations (unaudited)
for the three months and
nine months ended September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1997 and 1996 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II: Other Information
Item 2. Market for the Registrant's Common Equity and Related
Shareholders Matters 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except share data)
-----------
<TABLE>
September 30, December 31,
1997 1996
(unaudited)
ASSETS
<S> <C> <C>
Rental properties:
Land $ 83,949 $ 61,959
Buildings and improvements 342,984 252,276
-------- --------
426,933 314,235
Accumulated depreciation (37,686) (30,450)
--------- ---------
Rental properties, net 389,247 283,785
Cash and equivalents 7,547 11,780
Tenant receivables, net 6,821 4,639
Deferred financing costs, net 3,045 4,403
Other assets 9,832 9,006
---------- ----------
Total assets $416,492 $313,613
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $193,719 $167,047
Debentures 25,000 25,000
Accounts payable and accrued expenses 13,130 6,328
-------- ----------
Total liabilities 231,849 198,375
Minority interest 32,346 16,661
Stockholders' equity:
Convertible preferred stock $.01 par
value, 3,800,000 shares designated;
2,314,189 issued and outstanding
(aggregate liquidation preference
of $57,855) 23 23
Common stock $.01 par value, 90,000,000
shares authorized; 7,289,653 and
4,946,245 shares issued and outstanding,
respectively 72 49
Additional paid-in capital 178,027 116,068
Accumulated distributions in excess
of earnings (25,825) (17,563)
---------- -----------
Total stockholders' equity 152,297 98,577
-------- ---------
Total liabilities and
stockholders' equity $416,492 $313,613
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share data)
(unaudited)
-------
<TABLE>
For three months ended For nine months ended
September 30, September 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Revenues:
Minimum rents $11,127 $8,390 $31,793 $23,408
Tenant reimbursements 2,499 1,742 6,730 5,015
Percentage rents 263 107 836 501
Other income 365 275 946 1,189
-------- -------- -------- --------
Total revenues 14,254 10,514 40,305 30,113
------- ------- ------ ------
Expenses:
Property operating and
maintenance 3,590 2,631 10,316 7,623
General and administrative 611 648 2,751 2,348
Interest 4,747 3,999 13,675 11,025
Depreciation and
amortization 2,750 2,039 7,867 5,783
------- ------- ------- -------
Total expenses 11,698 9,317 34,609 26,779
------- ------- ------ ------
Income before income from Management
Company, extraordinary items,
minority interest and
distributions to Preferred
Stockholders 2,556 1,197 5,696 3,334
Income from Management Company 77 90 376 97
-------- ----- ------ --------
Income before extraordinary item,
minority interest and
distributions to Preferred
Stockholders 2,633 1,287 6,072 3,431
Extraordinary item - loss on early
extinguishment of debt (561) - (695) -
-------- ----------- ------- -----
Income before minority interest and
distributions to
Preferred Stockholders 2,072 1,287 5,377 3,431
Income allocated to minority interest (339) (188) (838) (486)
-------- --------- ----- -----
Income before distributions to
Preferred Stockholders 1,733 1,099 4,539 2,945
Distributions to Preferred
Stockholders (1,410) (1,410) (4,231) (4,231)
------- ------- ------- -------
Income (loss) allocated to common
stockholders $323 ($311) $308 ($1,286)
========= ========= ======= ==========
Net income (loss) per Common Share $0.06 ($0.09) $0.06 ($0.40)
======== ========== ======= =======
Weighted average shares of Common
Stock, in thousands 5,396 3,288 5,114 3,227
======== ========= ========== ========
Distributions per share $0.4875 $0.4875 $1.4625 $1.4625
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
--------
<TABLE>
For the nine months ended
September 30,
1997 1996
<S> <C> <C>
Operating Activities:
Income before distributions to Preferred
Stockholders $4,539 $2,945
Adjustment to reconcile net cash provided
by operating activities:
Income allocated to minority interest 838 486
Depreciation and amortization 7,867 5,784
Gain of sale of rental property (45) -
Loss on early extinguishment of debt 695 -
Amortization of deferred financing costs
and loan discounts 1,071 1,668
Equity in earnings of Management Company (16) 263
Compensation paid or payable in company
stock 1,678 1,136
Provision for uncollectible accounts 902 228
Recognition of deferred rent (912) (691)
Net changes in:
Tenant receivables (2,172) (1,015)
Other assets (1,138) (1,359)
Account payable and accrued expenses 2,553 21
--------- -----------
Net cash provided by operating
activities 15,860 9,466
--------- ---------
Investing Activities:
Additions to rental properties (5,309) (3,298)
Acquisition of rental properties (17,252) (38,962)
Proceeds from sale of rental property 1,172 -
--------- ----------
Net cash used in investing
activities (21,389) (42,260)
-------- --------
Financing Activities:
Proceeds from line of credit 20,500 8,348
Proceeds from mortgage notes 1,098 30,225
Proceeds from issuance of common
stock 51,737 -
Cost of raising capital (2,808) -
Repayment of line of credit (20,500) -
Repayment on mortgage notes (34,512) (612)
Additions to deferred financing costs (537) (591)
Prepayment penalties (44) -
Distributions paid to Preferred
Stockholders (4,231) (4,231)
Distributions paid to Common
Stockholders (7,361) (4,720)
Distributions paid to minority
interest (2,046) (1,561)
-------- ----------
Net cash provided by financing
activities 1,296 26,858
----------- ---------
Net increase (decrease) in cash and
equivalents (4,233) (5,936)
Cash and equivalents, beginning
of period 11,780 7,806
------------ ----------
Cash and equivalents,
end of period $7,547 $1,870
=========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
1. Business
General
First Washington Realty Trust, Inc. (the "Company") is a fully
integrated real estate organization with expertise in acquisitions,
property management, leasing, renovation and development of principally
supermarket-anchored neighborhood shopping centers. The Company owns a
portfolio of 46 retail properties containing a total of approximately
5.0 million square feet of gross leasable area located in the
Mid-Atlantic region and the Chicago metropolitan area and two
multifamily properties located in Charleston, South Carolina.
The Company, incorporated in Maryland in April 1994, is
self-managed and self-administered and has elected to be taxed as a
real estate investment trust ("REIT") under the Internal Revenue Code
of 1986, as amended (the "Code").
The Company currently owns approximately 80.2% of the
partnership interests in First Washington Realty Limited Partnership
(the "Operating Partnership"). All of the Company's operations are
conducted through the Operating Partnership. The Operating Partnership
owns 33 Properties directly and 15 Properties are owned by lower tier
partnerships or limited liability companies in which the Operating
Partnership owns a 99% partnership interest and the Company (or a
wholly-owned subsidiary of the Company) owns a 1% partnership interest.
Due to the Company's ability, as the general partner, to
exercise both financial and operational control over the Operating
Partnership, the Operating Partnership is consolidated for financial
reporting purposes. Allocation of net income to the limited partners of
the Operating Partnership is based on their respective partnership
interests and is reflected in the accompanying Consolidated Financial
Statements as minority interests. Losses allocable to the limited
partners in excess of their basis are allocated to the Common
Stockholders as the limited partners have no requirement to fund
losses.
The Operating Partnership also owns 100% of the non-voting
preferred stock of First Washington Management, Inc. ("FWM") and is
entitled to 99% of the cash flow from FWM. FWM provides management,
leasing and related services for the Properties and to third-party
clients, including individual, institutional and corporate property
owners. FWM is also referred to herein as the "Management Company".
In December 1996 the Company completed a public offering of
1,655,000 shares of Common Stock (the "December 1996 Offering"). The
shares of stock were priced at $21.75 per share, resulting in net
proceeds of $33.4 million after deducting the underwriter's discount
and offering expenses of $2.6 million.
In May 1997 the Company issued 85,562 common shares of Common
Stock in a private placement to a current shareholder. The Company
received proceeds of approximately $2.0 million which it used to pay
down a portion of its outstanding line of credit.
4
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
In September 1997 the Company completed a public offering of
2,070,000 shares of Common Stock (the "September 1997 Offering"). The
shares of stock were priced at $24.00 per share, resulting in net
proceeds of $47.0 million after deducting the underwriter's discount
and offering expenses of $2.7 million. The proceeds of the offering
were used to retire indebtedness of approximately $46.4 million.
2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited interim consolidated financial statements of the
Company are prepared pursuant to the Securities and Exchange
Commission's rules and regulations for reporting on Form 10-Q and
should be read in conjunction with the financial statement and the
notes thereto of the Company's 1996 Annual Report to Stockholders.
Accordingly, certain disclosures accompanying annual financial
statements prepared in accordance with generally accepted accounting
principles are omitted. In the opinion of management, all adjustments,
consisting solely of normal recurring adjustments, necessary for fair
presentation of the consolidated financial statements for the interim
periods have been included. The current period's results of operations
are not necessarily indicative of results which ultimately may be
achieved for the year.
The consolidated financial statements include the accounts of
the Company and its majority owned partnerships, including the
Operating Partnership. All significant intercompany balances and
transactions have been eliminated.
Income/Loss per Share
Income/loss per share is calculated by dividing income after
minority interest, less preferred distributions by the weighted average
number of common shares outstanding during the three months and nine
months ended September 30, 1997 and 1996 respectively. Potentially
dilutive items i.e. the exercise of outstanding stock options and the
conversion of Convertible Preferred Stock, Operating Partnership Units
and Exchangeable Debentures would not have a material dilutive effect.
Recent Accounting Pronouncements
Effective for the Company's fiscal year ending December 31,
1997, the Company will be required to adopt Statements of Financial
Accounting Standards No. 128, "Earnings per Share". Statements No. 130
"Reporting Comprehensive Income", No. 131 "Disclosures about Segment of
an Enterprise and Related Information" are required for fiscal years
beginning January 1, 1998 and will be adopted by the Company in 1998.
The potential impact on the Company of adopting the new standards has
not been quantified at this time.
3. Acquisition of Rental Properties
In January 1997 the Company acquired City Line Shopping
Center, located in Philadelphia, Pennsylvania for an approximate price
of $14.8 million. The shopping center is anchored by Acme Market and
Thrift Drugs. The acquisition was financed through the issuance of
approximately 143,000 Common Units to the seller of the property with a
value of approximately $3.4 million, assumed mortgage indebtedness of
approximately $10.0 million, the issuance of $1.0 million of new
indebtedness and the payment of $0.4 million in cash. The assumed
mortgage loan bears interest at 8.00% per annum and is payable monthly
based on a 24 year amortization schedule. The loan matures in October
2005.
5
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
In January 1997 the Company acquired Four Mile Fork Shopping
Center located in Fredericksburg, Virginia for an approximate price of
$5.7 million, paid in cash. The center is anchored by Safeway and
CVS/Pharmacy.
In January 1997 the Company acquired Shoppes of Graylyn
located in Wilmington, Delaware. The price of the property was $7.2
million. The center is anchored by Rite Aid. The acquisition was
financed by a $3.8 million draw on the Company's line of credit, $.4
million from the proceeds of the sale of Thieves Market and the payment
of $3.0 million in cash.
In March 1997 the Company acquired Ashburn Farms Village
Center located in Ashburn, Virginia for an approximate price of $9.2
million. The center is anchored by Superfresh Supermarket. The
acquisition was financed with assumed mortgage debt of $6.8 million,
the issuance of approximately 55,000 Common Units to the seller of the
property with a value of approximately $1.2 million, the issuance of
approximately 9,500 Preferred Units to the seller of the property with
a value of approximately $0.2 million and the payment of approximately
$1.0 million in cash. The mortgage loan bears interest at LIBOR + 1.5%
per annum, has an annual amortization of approximately $.1 million, and
matures in January 2001.
In September 1997 the Company acquired six shopping centers
located in the Chicago, Illinois metropolitan area for an approximate
price of $67.9 million. The acquired centers and anchor tenants are as
follows:
<TABLE>
<S> <C> <C> <C>
Center GLA Anchor Tenant Location
Mallard Creek 143,759 Omni Supermarket Round Lake
Beach, IL
McHenry Commons 100,526 Omni Supermarket McHenry, IL
Pheasant Hill Plaza 111,190 Dominick's Bolingbrook, IL
Riverside Square/River's Edge 169,434 Dominick's Chicago, IL
Stonebrook Plaza 95,825 Dominick's Merrionette
Park, IL
The Oaks 138,274 Dominick's Des Plaines, IL
</TABLE>
The acquisition was financed through the issuance of
approximately 858,000 Common Units to the seller of the properties with
a value of approximately $20.4 million, the assumption of mortgage
indebtedness with a value of $46.0 million and $1.5 million in cash.
The assumed mortgage indebtedness consists of six separate
mortgage loans with effective interest rates ranging from 7.16% to
7.42% and a weighted average interest rate of 7.26%. The mortgage notes
mature as follows:
1999 $20,200
2000 13,500
2003 9,500
---------
Total $43,200
6
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
The following unaudited pro forma condensed combined results
of operations are presented as if the acquisitions of the rental
properties (including Mitchellville Plaza which was acquired on October
1, 1997) occurred on January 1 of the period presented. In preparing
the pro forma data, adjustments have been made to assume that the
September 1997 Offering and December 1996 Offering occurred on January
1 of the periods presented. The proforma statements are provided for
information purposes only. They are based on historical information and
do not necessarily reflect the actual results that would have occurred
nor are they necessarily indicative of future results of operations of
the Company.
<TABLE>
For the nine months ended For the year
September 30, ended
1997 1996 Dec. 31, 1996
---- ---- -------------
<S> <C> <C> <C>
Total revenues $49,854 $46,711 $62,676
Expenses:
Property operating
and maintenance 13,430 11,637 17,220
General and administrative 2,751 3,411 3,137
Interest 14,225 14,119 18,891
Depreciation and
amortization 9,376 8,760 11,906
----- ----- -------
Total Expenses 39,782 37,927 51,154
------ ------ ------
Income before income
from Management
Company, extraordinary
item, minority interest
and distributions to
Preferred Stockholders 10,072 8,784 11,522
Income from Management
Company 376 97 221
--- -- ------
Income before extraordinary
item, minority interest and
distributions to Preferred
Stockholders 10,448 8,881 11,743
Extraordinary item - loss
on early extinguishment
of debt (695) 0 0
-------- ------- ---------
Income before minority
interest and distributions
to Preferred Stockholders 9,753 8,881 11,743
Income allocated to minority
interest (1,947) (1,550) (2,046)
------- ------- ---------
Income before distributions
to Preferred Stockholders 7,806 7,331 9,697
Distributions to Preferred
Stockholders (4,231) (4,231) (5,641)
------- ------- -------
Income (loss) allocated to
Common Stockholders $3,575 $3,100 $4,056
========= ======= =======
Net Income (loss) per common
share $0.49 $0.45 $0.58
========== ======== =======
</TABLE>
4. Mortgage Debt
To minimize the Company's exposure to interest rates on debt
that is maturing in 1999, the Company has recently entered into two
interest rate swap contracts. On June 13, 1997, the Company purchased
an option to enter into a five year interest rate swap effective June
1, 1999. The underlying swap would be for a notional amount of $15
million. If exercised, the Company would pay a fixed rate of 7.5% per
annum and would receive variable payments from the counter party based
on the 30 day Libor rate. The cost of the option was $159,000 which
will be amortized over the life of the underlying swap commencing June
1, 1999. On August 1, 1997, the Company entered into a five year
interest rate swap contract with a notional amount of $20 million. The
contract is effective March 1, 1999. The Company will pay a fixed rate
of 6.438% and will receive variable payments from the counter party
based on the 30 day Libor rate. The contracts are accounted for on the
accrual basis with net payments/receipts due on the swap recognized as
an adjustment to interest expense.
7
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
5. Summary of Noncash Investing and Financing Activities
Significant noncash transactions for the nine months ended September
30, 1997 and 1996 were as follows:
<TABLE>
<S> <C> <C>
1997 1996
---- ----
Liabilities assumed in acquisition
of rental properties $60,057 $8,097
Common units in the Operating Partnership
issued in connection with the acquisition
of rental properties $25,013 $5,646
Preferred units in the Operating
Partnership issued in connection with the
acquisition of rental properties $277 $1,679
Increase in minority interest's ownership
of the Operating Partnership $14,847 $1,485
Compensation paid through the issuance of
Common Stock $3,233 -
The above information supplements the
disclosures required by Statement of
Financial Accounting Standards
No. 95 - "Statement of Cash Flows."
</TABLE>
6. Stock Option Plans
On May 16, 1997, the Stockholders approved an amendment to the
Company's 1994 Stock Option Plan. The amendment increases the number of
shares available for issuance under the Stock Option Plan from 351,540
to 801,540 shares.
On June 1, 1997, as part of the overall incentive compensation
plan, the Company issued 129,500 options to certain officers, directors
and employees.
7. Subsequent Events
On October 1, 1997, the Company acquired Mitchellville Plaza
located in Mitchellville, Maryland for an approximate price of $21.3
million. The center is anchored by Food Lion. The acquisition was
financed through the issuance of approximately 185,000 Common Units to
the seller of the property with a value of approximately $4.6 million,
the assumption of mortgage indebtedness with a valve of $15.9
million and the payment of $0.8 million in cash. The assumed
mortgage loan has an effective rate of 7.11% per annum, payable
monthly based on a 17 year amortization period, and matures on
January 1, 2005.
On October 18, 1997, the Board of Directors declared a
distribution of $0.4875 and $.6094 per share of Common Stock and
Preferred Stock, respectively to shareholders of record as of November
1, 1997, payable on November 15, 1997.
8
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
On October 31, 1997, the Company sold .357 acres of land and
5,500 square feet of building at the Laburnum Park Shopping Center to
Ukrop's Supermarket, Inc. for approximately $0.9 million. The resulting
gain on sale amounted to approximately $0.5 million and $0.4 million of
the proceeds were used to retire outstanding debt collateralized by the
property.
In November 1997, the Company entered into an agreement to
sell the two multi-family properties located in Charleston, South
Carolina for a combined price of approximately $8.1 million. The sale
is contingent upon the purchaser obtaining financing and the Company
identifying an exchange property (for federal tax purposes) within one
year of the signing of the agreement. The resulting gain on the sale of
the two properties is estimated to be approximately $1.6 million.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Overview
The following discussion should be read in conjunction with the
"Selected Consolidated Financial Information" and the Financial Statements and
notes thereto of the Company appearing elsewhere in this Form 10-Q.
Comparison of the three months ended September 30, 1997 to the three months
ended September 30, 1996
For the three months ended September 30, 1997, the net income allocated
to common stockholders increased by $634,000 from a net loss of $311,000 to a
net income $323,000, when compared to the three months ended September 30, 1996,
primarily due to an increase in revenues offset by an increase in expenses, an
item of extraordinary loss and an increase in the amount of income allocated to
minority interests.
Total revenues increased by $3,740,000 or 35.6%, from $10,514,000 to
$14,254,000, due primarily to an increase in minimum rents of $2,737,000 and
tenant reimbursements of $757,000. The increases were primarily due to the
purchase of Kings Park Shopping Center in December 1996, Newtown Square Shopping
Center in December 1996 and Northway Shopping Center in December 1996 (the
"Three Month 1996 Acquisitions"), City Line Shopping Center in January 1997,
Four Mile Fork Shopping Center in January 1997, Shoppes of Graylyn in January
1997, Ashburn Farm Village Shopping Center in March 1997 and the six Chicago
properties purchased in September 1997 (the "1997 Acquisitions").
Property operating and maintenance expense increased by $959,000, or
36.5%, from $2,631,000 to $3,590,000, due primarily to the Three Month 1996
Acquisitions and the 1997 Acquisitions. General and administrative expenses
decreased by $37,000 or 5.7%, due primarily to a decrease in the amount of
compensation paid or payable in Company stock of $271,000, offset by other cash
expenses of $109,000 and accrued cash bonuses of $125,000.
Interest expense increased by $748,000, or 18.7%, from $3,999,000 to
$4,747,000, due primarily to the increase mortgage indebtedness associated with
the Three Month 1996 Acquisitions and the 1997 Acquisitions. The average debt
outstanding increased from $186.4 million for 1996 to $218.1 million for 1997.
The weighted average interest rate was 8.6% in 1996 and 8.7% in 1997.
Depreciation and amortization expenses increased by $711,000, or 34.9%,
from $2,039,000 to $2,750,000, primarily due to the Three Month 1996
Acquisitions and the 1997 Acquisitions.
During 1997 there was a $695,000 extraordinary loss due to the
early extinguishment of debt. There was no such item in 1996.
Income allocated to minority interests increased by $151,000 from
$188,000 to $339,000 due to an increase in net income and an increase in the
minority interests' ownership of the Operating Partnership.
Comparison of the nine months ended September 30, 1997 to the nine months ended
September 30, 1996
For the nine months ended September 30, 1997, the net income allocated
to common stockholders increased by $1,594,000 from a net loss of $1,286,000 to
a net income of $308,000, when compared to the nine months ended September 30,
1996, primarily due to an increase in revenues offset by an increase in
expenses, an item of extraordinary loss and an increase in the amount of income
allocated to minority interests.
10
<PAGE>
Total revenues increased by $10,192,000 or 33.8%, from $30,113,000 to
$40,305,000, due primarily to an increase in minimum rents of $8,385,000 and
tenant reimbursements of $1,715,000. The increases were primarily due to the
purchase of Centre Ridge Marketplace in March 1996, Takoma Park Shopping Center
in April 1996, Southside Marketplace in June 1996, Kings Park Shopping Center in
December 1996, Newtown Square Shopping Center in December 1996 and Northway
Shopping Center in December 1996 (the "Nine Month 1996 Acquisitions"), City Line
Shopping Center in January 1997, Four Mile Fork Shopping Center in January 1997,
Shoppes of Graylyn in January 1997, Ashburn Farm Village Shopping Center in
March 1997 and the six Chicago properties in September 1997 (the "1997
Acquisitions").
Property operating and maintenance expense increased by $2,693,000, or
35.3%, from $7,623,000 to $10,316,000, due primarily to the Nine Month 1996
Acquisitions and the 1997 Acquisitions. General and administrative expenses
increased by $403,000 or 17.2%, from $2,348,000 to $2,751,000, due primarily to
an increase in the amount of compensation paid or payable in Company stock of
$543,000 offset by a decrease in other cash expenses of $140,000.
Interest expense increased by $2,650,000, or 24.0%, from $11,025,000 to
$13,675,000, due primarily to the increase mortgage indebtedness associated with
the Nine Month 1996 Acquisitions and the 1997 Acquisitions. The average debt
outstanding increased from $172.0 million for 1996 to $217.1 million for 1997.
The weighted average interest rate was 8.6% in 1996 and 8.4% 1997.
Depreciation and amortization expenses increased by $2,084,000, or
36.0%, from $5,783,000 to $7,867,000, primarily due to the Nine Month 1996
Acquisitions and the 1997 Acquisitions.
During 1997, there was a $695,000 extraordinary loss due to the early
extinguishment of debt. There was no such item in 1996.
Income allocated to minority interests increased by $352,000 from
$486,000 to $838,000 due to an increase in net income and an increase in the
minority interests ownership of the Operating Partnership.
Liquidity and Capital Resources
Indebtedness
As of September 30, 1997, the Company had total indebtedness of
approximately $218.7 million (including $25.0 million of debentures and
approximately $193.7 million of mortgage indebtedness). The mortgage
indebtedness consists of approximately $186.6 million in indebtedness
collateralized by 33 of the Properties and tax-exempt bond financing obligations
issued by the Philadelphia Authority for Industrial Development (the "Bond
Obligations") of approximately $7.1 million collateralized by one of the
properties. Of the Company's indebtedness, $13.8 million (6.3%) is variable rate
indebtedness, and $204.9 million (93.7%) is at a fixed rate. The effective
interest rates range from 6.6% to 9.9%, with a weighted average interest rate
(excluding the Bond Obligations) of 8.3% on the mortgage indebtedness, and will
mature between 1999 and 2014. A large portion of the Company's indebtedness will
become due by 2000, requiring balloon payments of $92.8 million in 1999, and
$24.2 million in 2000. From 1999 through 2014, the Company will have to
refinance an aggregate of approximately $191.3 million. Since the Company
anticipates that only a small portion of the principal of such indebtedness will
be repaid prior to maturity and the Company will likely not have sufficient
funds on hand to repay such indebtedness, the Company will need to refinance
such indebtedness through modification or extension of existing indebtedness,
additional debt financing or through an additional offering of equity
securities.
The Company currently has three collateralized revolving lines of
credit (the "Lines of Credit") totaling approximately $39 million. The Company
has a collateralized revolving line of credit of up to $5.8 million from First
11
<PAGE>
Union Bank. Loans under the line of credit bear interest at LIBOR plus two
percent (2%) per annum, and mature on June 30, 1998. Loans under the line of
credit are collateralized by a first mortgage lien on Brafferton Shopping
Center. The Company has an additional collateralized revolving line of credit of
approximately $8.25 million with Mellon Bank. This line is collateralized by
Kenhorst Plaza and expires March 29, 1998. Loans under this line bear interest
at LIBOR plus 1.5%. On January 31, 1997, the Company closed a $25 million line
of credit with Corestates Bank. The line is collateralized by Shoppes of
Graylyn, Newtown Square, Four Mile Fork and Centre Ridge Marketplace, bears
interest at LIBOR plus 1.50% and expires January 31, 2000. As of September 30,
1997, there were no outstanding draws under the lines of credit.
The Company expects to meet its short-term liquidity requirements
generally through its working capital, net cash provided by operations and draws
on the Lines of Credit. The Company believes that the foregoing sources of
liquidity will be sufficient to fund liquidity needs through 1998.
The Company expects to meet certain long-term liquidity requirements
such as development, property acquisitions, scheduled debt maturities,
renovations, expansions and other non-recurring capital improvements through
long-term secured and unsecured indebtedness, including the Lines of Credit and
the issuance of additional equity securities. The Company also expects to use
funds available under the Lines of Credit to fund acquisitions, development
activities and capital improvements on an interim basis.
During 1999, $92.8 million of the Company's indebtedness becomes due,
including the $25.0 million Exchangeable Debentures. The Company believes that
it will be able to retire this debt through either a refinancing of the debt
using the properties as collateral, an equity offering or a combination of both.
The Company currently believes that the loan-to-values on the properties are at
a level that will enable the Company to refinance the loans without an
additional requirement for capital.
In order to minimize the Company's exposure to interest rates on debt
that is maturing in 1999, the Company has recently entered into two interest
rate swap contracts. On June 13, 1997, the Company purchased an option to enter
into a five year interest rate swap effective June 1, 1999. The underlying swap
would be for a notional amount of $15 million. If exercised, the Company would
pay a fixed rate of 7.5% per annum and would receive variable payments from the
counter party based on the 30 day Libor rate. The cost of the option was
$159,000 which will be amortized over the life of the underlying swap commencing
June 1, 1999. On August 1, 1997, the Company entered into a five year interest
rate swap contract with a notional amount of $20 million. The contract is
effective March 1, 1999. The Company will pay a fixed rate of 6.438% and will
receive variable payments from the counter party based on the 30 day Libor rate.
The contracts are accounted for on the accrual basis with net payments/receipts
due on the swap recognized as an adjustment to interest expense.
The Company has elected to qualify as a REIT for federal income tax
purposes commencing with its tax year ended December 31, 1994. To qualify as a
REIT, the Company is required, among other items, to pay distributions to its
shareholders of at least 95% of its taxable income. The Company intends to make
quarterly distributions to its shareholders from operating cash flow.
12
<PAGE>
Part II
OTHER INFORMATION
Item 2. Recent Sales of Unregistered Equity Securities
(a) Securities Sold
The following table sets forth the date of sale, title and
amount of unregistered securities sold by the Company since
December 31, 1996:
Date of Sale Title Amount
01/24/97 Common Units 143,385 units
03/19/97 Common Units 55,335 units
03/19/97 Preferred Units 9,538 units
09/01/97 Common Units 858,224 units
10/01/97 Common Units 184,865 units
(b) Underwriters and other purchasers
i. January 24, 1997 Sales. Underwriters were not retained
in connection with the sale of these securities. These
units were sold to the seller of City Line Shopping
Center, an "accredited investor".
ii. March 19, 1997 Sales. Underwriters were not retained
in connection with the sale of these securities. These
units were sold to the seller of Ashburn Farm Village
Shopping Center, an "accredited investor".
iii. September 1, 197 Sales. Underwriters were not retained
in connection with the sale of these securities. These
units were sold to the sellers of the Chicago
properties, "accredited" investors.
iv. October 1, 1997 Sales. Underwriters were not retained
in connection with the sale of these securities. These
units were sold to the seller of Mitchellville Plaza,
an "accredited: investor.
(c) Consideration
i. January 24, 1997 Sales. These units were issued in
exchange for property having a value of approximately
$4.8 million, net of assumed indebtedness. There were
no underwriting discounts or commissions with respect
to such securities.
ii. March 19, 1997 Sales. These units were issued in
exchange for property having a value of approximately
$3.8 million, net of assumed indebtedness. There were
no underwriting discounts or commissions with respect
to such securities.
iii. September 1, 1997 Sales. These units were issued in
exchange for property having a value of approximately
$24.7 million net of assumed indebtedness. There were
no underwriting
13
<PAGE>
discounts or commissions with respect to such securities.
iv. October 1, 1997 Sales. These units were issued in
exchange for property having a value of approximately
$5.4 million net of assumed indebtedness. There were
no underwriting discounts or commissions with respect
to such securities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company (3)
21.1 List of Subsidiaries (1)
27 Financial Data Schedule (2)
- -----------------------------------------------------------------------
(1) Incorporated herein by reference from the Company's Form 10-K
for the year ended December 31, 1996.
(2) Filed herewith.
(3) Incorporated herein by reference from the Company's Registration
Statement on Form S-11 (No. 33-
83960).
(b) Reports on Form 8-K.
An interim report on Form 8-K was filed on August 1, 1997,
reporting the acquisition of six retail properties.
An interim report on Form 8-K was filed on September 9, 1997,
setting forth certain risk factors.
An interim report on Form 8-K was filed on September 10, 1997,
including financial information with respect to probable
acquisitions.
An interim report on Form 8-K was filed on September 17, 1997,
including certain exhibits thereto.
An interim report on Form 8-K was filed on September 19, 1997,
including certain exhibits thereto.
14
<PAGE>
SIGNATURES
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.
FIRST WASHINGTON REALTY TRUST, INC.
Date: November 13, 1997 /s/ William J. Wolfe
------------------------------
By: William J. Wolfe
President and
Chief Executive Officer
Date: November 13, 1997 /s/ James G. Blumenthal
------------------------------
By: James G. Blumenthal
Executive Vice President and
Chief Financial Officer
15
<PAGE>
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