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 June 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 August 13, 1997:
5,211,013 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 June 30, 1997 (unaudited) and
December 31, 1996 1
Consolidated Statements of Operations (unaudited) for the three
months and six months ended June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 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 9
Part II: Other Information
Item 2. Market for the Registrant's Common Equity and Related Shareholders
Matters 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 14
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except share data)
-----------
<TABLE>
<S> <C> <C>
June 30, December 31,
1997 1996
(unaudited)
ASSETS
Rental properties:
Land $ 70,930 $ 61,959
Buildings and improvements 287,549 252,276
--------- --------
358,479 314,235
Accumulated depreciation (35,056) (30,450)
--------- ---------
Rental properties, net 323,423 283,785
Cash and equivalents 2,650 11,780
Tenant receivables, net 5,783 4,639
Deferred financing costs, net 3,964 4,403
Other assets 8,253 9,006
---------- ----------
Total assets $344,073 $313,613
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Liabilities:
Mortgage notes payable $192,377 $167,047
Debentures 25,000 25,000
Accounts payable and accrued expenses 10,179 6,328
----------- ----------
Total liabilities 227,556 198,375
Minority interest 18,418 16,661
Stockholders' equity:
Convertible preferred stock $.01 par value,
3,750,000 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; 5,038,999 and 4,946,245
shares issued and outstanding, respectively 50 49
Additional paid-in capital 121,247 116,068
Accumulated distributions in excess of
earnings (23,221) (17,563)
---------- -----------
Total stockholders' equity 98,099 98,577
--------- ---------
Total liabilities and stockholders'
equity $344,073 $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 six months ended
June 30, June 30,
----------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Minimum rents $10,514 $7,920 $20,666 $15,018
Tenant reimbursements 2,108 1,718 4,231 3,273
Percentage rents 245 199 573 394
Other income 260 401 447 914
-------- -------- -------- --------
Total revenues 13,127 10,238 25,917 19,599
------- ------- ------ ------
Expenses:
Property operating and
maintenance 3,152 2,451 6,726 4,992
General and administrative 1,282 1,114 2,140 1,700
Interest 4,556 3,711 8,928 7,026
Depreciation and amortization 2,656 2,008 5,117 3,744
------- ------- ------- -------
Total expenses 11,646 9,284 22,911 17,462
------- ------- ------ ------
Income before income from Management
Company, minority interest
and distributions to Preferred
Stockholders 1,481 954 3,006 2,137
Income from Management Company 136 30 299 7
-------- ----- ------ ------
Income before minority interest and
distributions to
Preferred Stockholders 1,617 984 3,305 2,144
Income allocated to minority interest (242) (126) (499) (298)
-------- -------- ----- -----
Income before distributions to
Preferred Stockholders 1,375 858 2,806 1,846
Distributions to Preferred
Stockholders (1,410) (1,410) (2,820) (2,820)
------- ------- ------- -------
Net Income (loss) allocated to
common stockholders ($35) ($552) ($14) ($974)
========== ========= ========== ========
Net Income (loss) per Common Share ($0.01) ($0.17) ($0.00) ($0.30)
========== ========== ========= =======
Weighted average shares of
Common Stock, in thousands 4,989 3,201 4,968 3,196
======== ========= ========== ========
Distributions per share $0.4875 $0.4875 $0.9750 $0.9750
======= ======= ======= =======
</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 six months ended
June 30,
1997 1996
<S> <C> <C>
Operating activities:
Income before distributions
to Preferred Stockholders $2,806 $1,846
Adjustment to reconcile net cash
provided by operating activities:
Income allocated to minority interest 499 298
Depreciation and amortization 5,117 3,744
Amortization of deferred financing
costs and loan discounts 902 1,165
Equity in earnings of Management Company (59) 233
Compensation paid or payable in
company stock 1,400 743
Provision for uncollectible accounts 759 157
Recognition of deferred rent (621) (446)
Gain on sale of rental property (45) -
Net changes in:
Tenant receivables (1,282) (978)
Other assets 736 (719)
Account payable and accrued expenses 149 (320)
------- ---------
Net cash provided by operating
activities 10,361 5,723
--------- ---------
Investing activities:
Additions to rental properties (4,841) (1,675)
Acquisition of rental properties (16,751) (38,962)
Proceeds from sale of rental property 1,172 -
--------- -----------
Net cash used in investing
activities (20,420) (40,637)
-------- --------
Financing activities:
Proceeds from line of credit 18,100 6,848
Proceeds from mortgage notes 2,235 29,615
Proceeds from issuance of common stock 2,000 -
Repayment on mortgage notes (11,918) (449)
Additions to deferred financing costs (525) (554)
Distributions paid to Preferred
Stockholders (2,820) (2,820)
Distributions paid to Common Stockholders (4,823) (3,115)
Distributions paid to minority interest (1,320) (958)
-------- --------
Net cash provided by financing
activities 929 28,567
--------- ---------
Net decrease in cash and equivalents (9,130) (6,347)
Cash and equivalents, beginning of period 11,780 7,806
------------ ----------
Cash and equivalents, end of period $2,650 $1,459
=========== ==========
</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 39 retail properties containing a total of approximately
4.1 million square feet of gross leasable area and two related
multifamily properties located in the Mid-Atlantic region.
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 84.0% 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 27 Properties directly and 14 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. In addition to the
Properties, FWM provides management, leasing and related services to
third-party clients, including individual, institutional and corporate
property owners. FWM is also referred to herein as the "Management
Company".
On December 2, 1996, the Company completed a public offering
of 1,500,000 shares of Common Stock (the "December 1996 Offering"). The
shares of stock were priced at $21.75 per share, resulting in gross
offering proceeds of $32.6 million. The Company netted $30.2 million
after deducting the underwriter's discount and offering expenses of
$2.4 million.
On December 30, 1996, an additional 155,000 shares of Common
Stock were issued pursuant to the exercise of a portion of the
underwriter's over-allotment option. The Company received additional
proceeds of $3.2 million net of underwriter's discount.
On April 17, 1997, the Company's Registration Statement on
Form S-3, which provides for the offering from time-to-time of $175
million of securities was declared effective.
4
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
On May 9, 1997, 85,562 common shares of stock were issued 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.
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 six
months ended June 30, 1997 and 1996 respectively. The weighted average
number of common shares outstanding during three months ended June 30,
1997 and 1996 were 4,989,000 and 3,201,000, respectively and the
weighted average number of common shares outstanding during six months
ended June 30, 1997 and 1996 were 4,968,000 and 3,196,000,
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", No. 130, "Reporting
Comprehensive Income", No. 131, "Disclosures about Segment of an
Enterprise and Related Information". The potential impact on the
Company of adopting the new standards has not been quantified at this
time. The Company intends to adopt the statements in the fourth quarter
of 1997.
3. Acquisition of Rental Properties
On January 24, 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, new indebtedness of $1.0 million and $0.4
million in cash. The mortgage loan bears interest at 8.00% per annum
and is payable monthly based on a 24 year amortization schedule. The
loan is due in October 2005.
5
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
On January 28, 1997, the Company acquired Four Mile Fork
Shopping Center located in Fredericksburg, Virginia for an approximate
price of $5.7 million. The center is anchored by Safeway and
CVS/Pharmacy. The acquisition was financed with proceeds of the
December 1996 Offering.
On January 31, 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 $3.0
million in cash from the proceeds of the December 1996 Offering.
On March 19, 1997 (effective March 1, 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 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
approximately $1.0 million in cash. The mortgage loan bears interest at
LIBOR + 1.5% per annum and has an annual amortization of approximately
$.1 million. The loan is due in January 2001.
The following unaudited pro forma condensed combined results
of operations are presented as if the acquisitions of the rental
properties occurred on January 1 of the period presented. In preparing
the pro forma data, adjustments have been made to assume that the
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 six months For the year
ended June 30, ended
1997 1996 Dec. 31, 1996
---- ---- -------------
<S> <C> <C> <C>
Total revenues $25,917 $24,586 $49,679
Expenses:
Property operating and
maintenance 6,726 6,299 12,562
General and administrative 2,140 1,700 3,137
Interest 8,928 8,786 18,152
Depreciation and amortizatio 5,117 4,710 9,704
----- ----- -------
22,911 21,494 43,555
------ ------ ------
Income before income from Management
Company, minority interest and
distributions to Preferred
Stockholders 3,006 3,092 6,124
Income from Management Company 299 7 221
--- - ------
Income before minority interest and
distributions to Preferred
Stockholders 3,305 3,099 6,345
Income allocated to minority
interest (499) (484) (990)
----- ----- -----
Income before distributions to
Preferred Stockholders 2,806 2,615 5,355
Distributions to Preferred
Stockholders (2,820) (2,820) (5,641)
------- ------- -------
Net Income (loss) allocated
to Common Stockholders $(14) $(205) $(286)
======== ======= =======
Net Income (loss) per
common share $0.00 $(0.04) $(0.06)
====== ======= =======
</TABLE>
6
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
4. Mortgage Debt
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.
5. Summary of Noncash Investing and Financing Activities
Significant noncash transactions for the six months ended June 30, 1997
and 1996 and were as follows:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Liabilities assumed in acquisition
of rental properties $16,843 $8,097
Common units in the Operating
Partnership issued in connection
with the acquisition of rental properties $4,660 $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 $1,258 $1,921
</TABLE>
The above information supplements the disclosures required by
Statement of Financial Accounting Standards No. 95 -
"Statement of Cash Flows."
6. Commitments & Contingencies
The Company has entered into agreements to acquire six
supermarket-anchored neighborhood shopping centers in the Chicago
metropolitan area. The total consideration for all six of the
properties is approximately $67 million. The properties contain
approximately 760,000 square feet of gross leasable area. Four
properties are anchored by Dominick's supermarkets and two of the
properties are anchored by Omni Supermarket. Both food store formats
are owned and operated by Dominick's Supermarkets, Inc. Closing is
expected to take place in early September 1997. Financing of the
properties will be through the assumption of existing mortgage debt of
approximately $43.6 million, the issuance of approximately 836,000
Common Units to the Seller of the property with a value of
approximately $19.6 million and the balance in cash.
7. 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.
7
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
On June 1, 1997, the Company issued 129,500 options to certain
offices, directors and employees.
8. Subsequent Events
On July 17, 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 August 1,
1997, payable on August 15, 1997.
Under the terms of their employment agreements, two of the
Company's officers (or their designees) were eligible to receive 66,667
shares each of Common Stock based on the Company meeting certain
operating result requirements. These requirements were satisfied and
the shares were issued on July 1, 1997. The total value of the shares
was approximately $3.2 million and had been recorded as compensation
expense over the periods earned.
8
<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 June 30, 1997 to the three months ended
June 30, 1996
For the three months ended June 30, 1997, the net loss allocated to
common stockholders decreased by $517,000 from a net loss of $552,000 to a net
loss of $35,000, when compared to the three months ended June 30, 1996,
primarily due to an increase in revenues off set by an increase in expenses and
an increase in the amount of income allocated to minority interests.
Total revenues increased by $2,889,000 or 28.2%, from $10,238,000 to
$13,127,000, due primarily to an increase in minimum rents of $2,594,000 and
tenant reimbursements of $390,000. The increases were primarily due to the
purchase of Takoma Park Shopping Center on April 29, 1996, Southside Marketplace
on June 7, 1996, Kings Park Shopping Center on December 19, 1996, Newtown Square
Shopping Center on December 27, 1996 and Northway Shopping Center on December
30, 1996 (the "1996 Acquisitions"), City Line Shopping Center on January 24,
1997, Four Mile Fork Shopping Center on January 28, 1997, Shoppes of Graylyn on
January 31, 1997 and Ashburn Farm Village Shopping Center on March 19, 1997 (the
"1997 Acquisitions").
Property operating and maintenance expense increased by $701,000, or
28.6%, from $2,451,000 to $3,152,000, due primarily to the 1996 and 1997
Acquisitions. General and administrative expenses increased by $168,000 or
15.1%, due primarily to an increase in the amount of compensation paid or
payable in Company stock of $585,000, offset by a decrease in other cash
expenses, primarily cash bonuses of $155,000 and one time NYSE filing fees of
$180,000 paid in 1996.
Interest expense increased by $845,000, or 22.8%, from $3,711,000 to
$4,556,000, due primarily to the increase mortgage indebtedness associated with
the 1996 and 1997 Acquisitions. The average debt outstanding increased from
$175.8 million for 1996 to $216.6 million for 1997. The weighted average
interest rate was 8.4% in 1996 and 1997.
Depreciation and amortization expenses increased by $648,000, or 32.3%,
from $2,008,000 to $2,656,000, primarily due to the 1996 and 1997 Acquisitions.
Income allocated to minority interests increased by $116,000 from
$126,000 to $242,000 due to an increase in net income and an increase in the
minority interests ownership of the Operating Partnership.
Comparison of the six months ended June 30, 1997 to the six months ended
June 30, 1996
For the six months ended June 30, 1997, the net loss allocated to
common stockholders decreased by $960,000 from a net loss of $974,000 to a net
loss of $14,000, when compared to the six months ended June 30, 1996, primarily
due to an increase in revenues off set by an increase in expenses and an
increase in the amount of income allocated to minority interests.
Total revenues increased by $6,318,000 or 32.2%, from $19,599,000 to
$25,917,000, due primarily to an increase in minimum rents of $5,648,000 and
tenant reimbursements of $958,000. The increases were primarily due to the
purchase of Centre Ridge Marketplace on March 29, 1996, Takoma Park Shopping
Center on April 29, 1996, Southside Marketplace on June 7, 1996, Kings Park
Shopping Center on December 19, 1996, Newtown Square Shopping Center on December
27, 1996 and Northway Shopping Center on December 30, 1996 (the "1996
9
<PAGE>
Acquisitions"), City Line Shopping Center on January 24, 1997, Four Mile Fork
Shopping Center on January 28, 1997, Shoppes of Graylyn on January 31, 1997 and
Ashburn Farm Village Shopping Center on March 19, 1997 (the "1997
Acquisitions").
Property operating and maintenance expense increased by $1,734,000, or
34.7%, from $4,992,000 to $6,726,000, due primarily to the 1996 and 1997
Acquisitions. General and administrative expenses increased by $440,000 or
25.9%, due primarily to an increase in the amount of compensation paid or
payable in Company stock of $812,000 offset by a decrease in other cash expenses
primarily cash bonuses of $155,000 and one time NYSE filing of $180,000 paid in
1996.
Interest expense increased by $1,902,000, or 27.1%, from $7,026,000 to
$8,928,000, due primarily to the increase mortgage indebtedness associated with
the 1996 and 1997 Acquisitions. The average debt outstanding increased from
$163.2 million for 1996 to $204.8 million for 1997. The weighted average
interest rate was 8.7% in 1996 and 1997.
Depreciation and amortization expenses increased by $1,373,000, or
36.7%, from $3,744,000 to $5,117,000, primarily due to the 1996 and 1997
Acquisitions.
Income allocated to minority interests increased by $201,000 from
$298,000 to $499,000 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 June 30, 1997, the Company had total indebtedness of
approximately $217.4 million (including $25.0 million of debentures and
approximately $192.4 million of mortgages and lines of credit). The mortgage
indebtedness consisted of approximately $185.3 million in indebtedness
collateralized by 39 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 mortgage indebtedness, $36.6 million (19.0%) is
variable rate indebtedness, and $155.8 million (81.0%) is at a fixed rate. This
indebtedness has interest rates ranging from 5.0% to 10.125%, with a weighted
average interest rate (excluding the Bond Obligations) of 7.7%, and will mature
between 1998 and 2021. A large portion of the Company's indebtedness will become
due by 2000, requiring balloon payments of $4.1 million in 1998, $87.5 million
in 1999, and $34.1 million in 2000. From 1998 through 2021, the Company will
have to refinance an aggregate of approximately $194.9 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
Union Bank. Loans under the line of credit will bear interest at LIBOR plus two
percent (2%) per annum, and will mature on June 30, 1998. Loans under the line
of credit will be 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 will bear
interest at LIBOR plus 1.5% ( recently reduced from 2%). 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 June 30, 1997, $18.1 was outstanding under the lines of credit.
10
<PAGE>
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 1997.
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, $87.5 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 fully 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.
11
<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
(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".
(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.
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)
10.40 Revolving Credit Loan Agreement dated January 31, 1997 between
Corestates Bank, N.A. and First
Washington Realty Limited Partnership. (1)
12
<PAGE>
10.41 Contribution Agreement dated March 19, 1997, by and between
Ashburn Farms Village Center, L.L.C.
and First Washington Limited Partnership. (1)
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.
13
<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: August 13, 1997 /s/ William J. Wolfe
------------------------------
By: William J. Wolfe
President and
Chief Executive Officer
Date: August 13, 1997 /s/ James G. Blumenthal
------------------------------
By: James G. Blumenthal
Executive Vice President and
Chief Financial Officer
14
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
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