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 March 31, 1999
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 May 14, 1999:
8,603,218 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 March 31, 1999 (unaudited) and
December 31, 1998 1
Consolidated Statements of Operations (unaudited) for the three months
ended March 31, 1999 and 1998 2
Consolidated Statements of Cash Flows (unaudited) for the three months
ended March 31, 1999 and 1998 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Item 3. Qualitative and Quantitative Disclosures about Risk 12
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 13
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FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except share data)
-----------
March 31, December 31,
1999 1998
---- ----
(unaudited)
ASSETS
Rental properties:
Land $111, 767 $108,562
Buildings and improvements 461,849 447,584
-------- --------
573,616 556,146
Accumulated depreciation (55,481) (51,475)
--------- ---------
Rental properties, net 518,135 504,671
Cash and equivalents 4,611 3,163
Tenant receivables, net 9,913 9,463
Deferred financing costs, net 4,964 1,921
Other assets 11,289 13,736
----------- -----------
Total assets $548,912 $532,954
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $262,324 $244,113
Debentures 25,000 25,000
Accounts payable and accrued expenses 10,557 11,542
----------- -----------
Total liabilities 297,881 280,655
Minority interest 65,613 66,218
Commitments and Contingencies
Stockholders' equity:
Convertible preferred stock $.01 par
value, 3,800,000 shares designated;
2,315,469 and 2,314,189 issued and
outstanding, respectively(aggregate
liquidation preference of $57,887
and 57,855 respectively) 23 23
Common stock $.01 par value, 90,000,000
shares authorized; 8,603,218 and
8,566,985 shares issued and outstanding,
respectively 86 86
Additional paid-in capital 219,405 218,345
Accumulated distributions in excess of
earnings (34,096) (32,373)
---------- -----------
Total stockholders' equity 185,418 186,081
-------- ----------
Total liabilities and stockholders'
equity $548,912 $532,954
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
1
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FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
-------
For three months ended
March 31,
----------------------
1999 1998
---- -----
Revenues:
Minimum rents $15,976 $12,928
Tenant reimbursemen 4,298 3,088
Percentage rents 381 396
Other income 470 228
-------- -------
Total revenues 21,125 16,640
------- -------
Expenses:
Property operating and maintenance 5,205 4,143
General and administrative 1,095 837
Interest 5,525 4,851
Depreciation and amortization 4,212 3,265
------- -------
Total expenses 16,037 13,096
------- --------
Income before gain on sale of properties, income from Management
Company, extraordinary item, minority interest and distributions
to Preferred
Stockholders 5,088 3,544
Gain on sale of properties 0 1,683
Income from Management Company 85 280
------- -----
Income before extraordinary item,
minority interest and distributions
to Preferred Stockholders 5,173 5,507
Extraordinary item - loss on early
extinguishment of debt 0 (358)
------- -----
Income before minority interest and
distributions to Preferred Stockholders 5,173 5,149
Income allocated to minority interest (1,306) (1,065)
---------- ----------
Income before distributions to
Preferred Stockholders 3,867 4,084
Distributions to Preferred Stockholders (1,410) (1,410)
------- -------
Income allocated to Common Stockholders $2,457 $2,674
========= =========
Earnings per Common Share - Basic
Income before extraordinary item $0.29 $0.41
Extraordinary item 0.00 (0.05)
--------- ---------
Net income $0.29 $0.36
========= =========
Earnings per Common Share - Diluted
Income before extraordinary item $0.28 $0.41
Extraordinary item 0.00 (0.05)
-------- ---------
Net income $0.28 $0.36
======= =========
Shares of Common Stock - Basic 8,575 7,380
========= =========
Shares of Common Stock - Diluted 8,649 7,481
========= =========
Distributions per share $0.4875 $0.4875
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
2
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FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
--------
For three months ended
March 31,
----------------------
1999 1998
---- ----
Operating Activities:
Income before distributions to
Preferred Stockholders $3,867 $4,084
Adjustment to reconcile net cash
provided by operating activities:
Income allocated to minority interest 1,306 1,065
Depreciation and amortization 4,212 3,265
Gain of sale of rental properties 0 (1,683)
Loss on early extinguishment of debt 0 358
Amortization of deferred financing costs
and loan premiums (203) (120)
Equity in earnings of Management Company 35 (160)
Compensation paid or payable in company
stock 286 323
Provision for uncollectible accounts 540 627
Recognition of deferred rent (319) (145)
Net changes in:
Tenant receivables (671) 22
Other assets 394 (40)
Accounts payable and accrued expenses (124) (652)
-------- --------
Net cash provided by operating
activities 9,323 6,944
-------- --------
Investing Activities:
Additions to rental properties (2,296) (1,914)
Acquisition of rental properties (10,344) (17,989)
Proceeds from sale of rental properties 0 4,253
-------- --------
Net cash used in investing activities (12,640) (15,650)
-------- --------
Financing Activities:
Net proceeds from line of credit 16,800 21,437
Proceeds from exercise of stock options 50 37
Repayment of line of credit 0 (6,300)
Mortgage notes principal payments (1,167) (978)
Additions to deferred financing costs (3,311) (487)
Distributions paid to Preferred Stockholders (1,410) (1,410)
Distributions paid to Common Stockholders (4,182) (3,619)
Distributions paid to minority interest (2,015) (1,185)
-------- ----------
Net cash provided by financing
activities 4,765 7,495
-------- ----------
Net change in cash and equivalents 1,448 (1,211)
Cash and equivalents, beginning of period 3,163 3,142
-------- ----------
Cash and equivalents, end of period $4,611 $1,931
======== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
3
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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 that 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 owns a
portfolio of 56 retail properties containing a total of approximately
6.0 million square feet of gross leasable area located in the
Mid-Atlantic region and the Chicago, Illinois metropolitan area.
The Company currently owns approximately 73.1% 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 38 Properties directly and 18 Properties are owned by lower tier
entities in which the Operating Partnership owns a 99% partnership
interest and the Company (or a wholly-owned subsidiary of the Company)
owns a 1% 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" or
"Management Company") 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.
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 statements and the
notes thereto of the Company's 1998 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 entities, including the Operating
Partnership. All significant intercompany balances and transactions
have been eliminated.
4
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FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
Derivatives
The Company may enter into various forward interest rate swap
arrangements from time to time in anticipation of a specific debt
transaction. These arrangements are used to manage the Company's
exposure to fluctuations in interest rates. The Company does not
utilize these arrangements for trading or speculative purposes. These
arrangements, considered qualifying hedges, are not recorded in the
financial statements until the debt transaction is consummated and the
arrangement is settled. The proceeds or payments resulting from the
settlement of the arrangement are deferred and amortized over the life
of the debt as an adjustment to interest expense. Premiums paid to
purchase interest rate protection agreements (such as caps) are
capitalized and amortized over the terms of those agreements using the
interest method. Unamortized premiums are included in deferred
financing costs in the consolidated balance sheet. Amounts received
under the interest rate protection agreements are recorded as a
reduction of interest expense.
With the application to Met Life, (see note 6) the Company
executed a rate lock agreement thereby fixing the interest rate for the
term of the loans. Accordingly, in February 1999 the Company closed out
three forward interest rate swap arrangements which were to commence in
1999. These arrangements which had a combined notional amount of $73.5
million were closed out at a combined cost to the Company of $3,100.
This cost which is included in deferred financing costs will be
amortized over the life of the Met Life loan using the effective
interest rate method.
3. Acquisition of Rental Properties
During the first three months of 1999, the Company acquired
one shopping center for an aggregate acquisition cost of approximately
$15,204. All the acquisitions were accounted for using the purchase
method of accounting and the operations of the property is included in
the Company's Statement of Operations from the date of acquisition. The
following is a summary of the acquisition transaction:
Date Property Total Anchor Anchor
Acquired Name Location GLA Cost Tenant (GLA)
- -------- -------- -------- --- ----- ------ ------
1/99 Kamp Fairfax,
Washington Virginia 71,825 $15,204 Border Books 30,000
The acquisition was financed as follows:
Number of
Property Partnerships Market Assumed Mortgage Line of Credit
Name Units Value Debt (1) Draw Cash Total
- -------- ------------ ------ ---------------- ------------- ---- -----
Kamp - - $3,045 $9,800 $2,359 $15,204
Washington
5
<PAGE>
(1) Includes loan premiums.
(2) Includes net proceeds from the sale of properties that occurred in the
fourth quarter of 1998. Approximately $1,814 of net proceeds were used to
acquire Kamp Washington in a Section 1031 tax free exchange.
The following unaudited pro forma condensed combined results
of operations are presented as if the acquisitions and sales of the
rental properties that occurred during 1998 and 1999, and the July 1998
offering had occurred on January 1, 1998. 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.
6
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FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
For the three months ended
March 31,
--------------------------
(unaudited)
1999 1998
---- ----
Pro forma Total Revenues $21,125 $19,098
======= =======
Pro forma net income $ 2,457 $ 2,431
======= =======
Pro forma earnings per Common
Share - Basic $ 0.29 $ 0.28
======= =======
Pro forma earnings per Common
Share - Diluted $ 0.28 $ 0.28
======= =======
4. Summary of Noncash Investing and Financing Activities
Significant noncash transactions for the three months ended March 31,
1999 and 1998 were as follows:
1999 1998
---- ----
Liabilities assumed in acquisition
of rental properties $3,045 $5,400
Common units in the Operating
Partnership issued in connection
with the acquisition of rental
properties - $5,384
Increase in minority interest's
ownership of the Operating
Partnership $104 $2,125
Accrued compensation paid
through the issuance of Common
Stock $1,116 $760
7
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
5. Business Segments
The Company owns one property type only i.e. neighborhood shopping
centers. The Company's management makes decisions on allocation of resources,
designs compensation packages and performs internal financial analysis based on
the following business segments:
Retail FWM,
Properties Inc. Other (1) Total
---------- --------- --------- -----
Three months ended March 31, 1999:
Revenues $20,806 $1,810 ($1,491) $21,125
Operating and maintenance expenses 5,205 1,725 (1,725) 5,205
------- ----- ------- ------
Income from operations $15,601 $85 $ 234 $15,920
======== ===== ===== =======
Commercial real estate property
expenditures $17,404 $ - $ - $17,404
======== ====== ===== =======
Segment assets at March 31, 1999 $548,912 $ - $ - $548,912
======== ====== ===== ========
Three months ended March 31, 1998:
Revenues $16,495 $2,045 ($1,900) $16,640
Operating and maintenance expenses 4,143 1,765 (1,765) 4,143
------- ------ ------- ------
Income from operations $12,352 $280 ($135) $12,497
======= ==== ====== =======
Commercial real estate property
expenditures $28,309 $ - $ - $28,309
======== ====== ====== =======
Segment assets at March 31, 1998 $456,872 $ - $ - $456,872
======== ====== ====== ========
The following table reconciles income from operations for reportable
segments to income (loss) before extraordinary items as reported in the
Consolidated Statements of Operations.
Three months ended March 31
---------------------------
1999 1998
---- ----
Income from operations for reportable segments $15,920 $12,497
General and administrative expenses (1,095) (837)
Interest expense (5,525) (4,851)
Depreciation and amortization (4,212) (3,265)
Income allocated to minority interest (1,306) (1,065)
Distributions to Preferred Stockholders (1,410) (1,410)
Income from Management Company 85 280
Gain on sale of properties -0- 1,683
------- -------
Income before extraordinary items $2,457 $3,032
======= =======
8
<PAGE>
(1) Represents the adjustment for straight-lining of rents and reflecting the
net income from FWM using the equity method of accounting.
6. Subsequent Events
On April 16, 1999, the Board of Directors declared a distribution of
$0.4875 and $0.6094 per share of Common Stock and Preferred Stock, respectively
to shareholders of record as of May 1, 1999, payable on May 15, 1999.
In April 1999, Metropolitan Life Insurance Company approved the pending
application for six loans totaling $75.0 million ("Met Life Loan"), subject to
final environmental reviews being performed at some of the collateral
properties. In April 1999, two of the six loans were closed totaling $17,600.
The proceeds of these loans were used to pay off the maturing loans
collateralized by Mallard Creek and McHenry Commons Shopping Centers.
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. Dollars are in
thousands except per share data.
Comparison of the three months ended March 31, 1999 to the three months ended
March 31, 1998
For the three months ended March 31, 1999, the net income allocated to
common stockholders decreased by $217 or 8.1% from $2,674 to $2,457, when
compared to the three months ended March 31, 1998, primarily due to a gain on
sale of properties of $1,683 recorded during the first quarter of 1998, offset
by an increase in revenues which were primarily due to the purchase of Watkins
Park Plaza in March 1998, Parkville Shopping Center in April 1998, Elkridge
Corners Shopping Center in May 1998, Village Shopping Center in June 1998,
Wilston Centre I, Wilston Centre II and Town Center at Sterling in November 1998
(the "1998 Acquisitions"), and Kamp Washington in January, 1999 (the "1999
Acquisition").
Total revenues increased by $4,485 or 27.0%, from $16,640 to $21,125, due
primarily to an increase in minimum rents of $3,048 and tenant reimbursements of
$1,210. The increases were primarily due to the 1998 Acquisitions and 1999
Acquisitions.
Property operating and maintenance expense increased by $1,062, or 25.6%,
from $4,143 to $5,205, due primarily to the 1998 Acquisitions and the 1999
Acquisitions. General and administrative expenses increased by $258 or 30.8%,
from $837 to $1,095 due primarily to an increase in the amount of internal
preacquisition costs of $157. Prior to March 19, 1998, internal preacquisition
costs were capitalized and included in the cost of acquiring rental properties.
Interest expense increased by $674, or 13.9%, from $4,851 to $5,525 due
primarily to the increased mortgage indebtedness associated with the 1998
Acquisitions and the 1999 Acquisitions. The average debt outstanding increased
from $244.4 million for 1998 to $278.2 million for 1999 and the weighted average
interest rate remained constant at 7.9%.
Depreciation and amortization expenses increased by $947 or 29.0%, from
$3,265 to $4,212, primarily due to the 1998 Acquisitions and the 1999
Acquisitions.
There were no sales of properties or extraordinary losses during 1999. For
the same period in 1998, there was a $1,683 gain on sale of properties, and a
$358 extraordinary loss due to the early extinguishment of debt.
9
<PAGE>
Income allocated to minority interests increased by $241 or 22.6% from
$1,065 to $1,306 primarily due to an increase in the minority interests'
ownership of the Operating Partnership from 21.2% to 26.9%.
Earnings per Common Share-Basic decreased from $0.36 to $0.29 due to items
that occurred in 1998 but not in 1999. In 1998, there was gain on sale of
properties of $1,683 and an extraordinary loss on early extinguishment of debt
of $358. These items did not occur in 1999. If not for these items, Earnings per
Common Share-Basic for 1998 would have been $0.18.
Liquidity and Capital Resources
Indebtedness
As of March 31, 1999, the Company had total indebtedness of approximately
$287.3 million (including $25.0 million of debentures and approximately $262.3
million of mortgage indebtedness). The mortgage indebtedness consists of
approximately $255.6 million in indebtedness collateralized by 46 of the
Properties and tax-exempt bond financing obligations issued by the Philadelphia
Authority for Industrial Development (the "Bond Obligations") of approximately
$6.7 million collateralized by one of the properties. Of the Company's
indebtedness, $39.3 million (13.7%) is variable rate indebtedness, and $248.0
million (86.3%) is at a fixed rate. The effective interest rates of the
indebtedness range from 4.5% to 9.8%, with a weighted average interest rate of
7.8%, and will mature between 1999 and 2014. A large portion of the Company's
indebtedness will become due by 2000, requiring balloon payments of $88.9
million in 1999, and $24.4 million in 2000. From 1999 through 2014, the Company
will have to refinance an aggregate of $249.2 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 two collateralized revolving lines of credit (the
"Lines of Credit"). The Company has a collateralized revolving Line of Credit of
up to $45,000 with Union Bank of Switzerland. This line is collateralized by
seven properties (Kenhorst Plaza, Shoppes of Graylyn, Watkins Park Plaza, Four
Mile Fork, Takoma Park, Centre Ridge Marketplace and Newtown Square). The line
matures on January 31, 2001 and loans under this line will bear interest at
LIBOR plus one percent (1%). The Company has an additional collateralized
revolving Line of Credit of up to $5,775 from First Union Bank. Loans under this
line will bear interest at LIBOR plus two percent (2%) per annum, and will
mature on August 31, 1999. This Line of Credit is collaterized by a first
mortgage lien on Brafferton Shopping Center. As of March 31, 1999, there was
$26,000 outstanding under the Lines of Credit.
Liquidity
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 2000.
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.
10
<PAGE>
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.
Other
- -----
Year 2000 Issue
The "Year 2000 Issue" is the result of many existing computer programs
using only the last two digits to refer to a year. Therefore, these computer
programs may not properly recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail or create
erroneous results.
The Company is in the process of conducting a review of its computer
systems to identify which systems could be affected by the "Year 2000" problem
and to what extent such problems will have an impact on the Company 's ability
to conduct its business.
The Company has developed a Year 2000 Compliance Plan ("The Plan") to
address these issues. The Plan is being managed by two of the Company's senior
executives and has been approved by senior management. The progress of the Plan
is being monitored by the Company's Board of Directors. The Plan focuses on four
major components: IT systems such as the Company's accounting and property
management software packages and related hardware; non-IT systems such as the
Company's telephone system, voice mail system and other office equipment; the
state of readiness of the Company's critical trading partners such as its banks,
utilities and tenants; and embedded systems, particularly those located at the
Company's Retail Properties such as sprinkler systems, security systems, etc.
(Note: the Retail Properties access does not rely on elevator service because
the structures are no higher than two stories.) The Plan contains ten phases as
follows:
Estimated Estimated
Phase Description Start Date Completion Date
- ----------------- ---------- ---------------
1. Educate senior management Commenced Completed
2. Designate a Plan manager Commenced Completed
3. Inventory all systems Commenced June 1, 1999
4. Contact suppliers of systems Commenced Mail by July 1, 1999
5. Send questionnaire to tenants All have been mailed Currently receiving
responses
6. Send questionnaire to other
critical trading partners Commenced Mail by July 1, 1999
7. Prioritize problems
(critical vs. non-critical) Commenced July 1, 1999
8. Identify solutions
(repair or replace) Commenced August 1, 1999
9. Test Solutions July 1, 1999 September 30, 1999
10.Anticipate contingencies
including the most reasonably
likely worst case scenarios Commenced Continuous
The Company has incurred approximately $20 to date in the
implementation of the Plan. These costs have primarily been incurred to upgrade
the desktop PC's at the Company's home office. The Company has determined that
implementing the Plan will cost less than $100. However, the Company has
budgeted $500 to replace its current accounting and property management software
system. Although the Company believes that the current system is materially Year
2000 compliant the Company has decided to migrate because of the improved
technology and reporting capabilities of the new system. The Company anticipates
going live on the new system by October 1, 1999. These costs will be funded from
the Company's cash flow. The Plan efforts will be primarily staffed by employees
of the Company.
11
<PAGE>
The most reasonably likely worst case scenario is that the Company's
tenants are delayed in generating their rental payments due to their own Year
2000 IT problems. If this occurs the Company's property managers will attempt to
accelerate rental payments by requesting manual checks by personally visiting
the tenants or by contacting the appropriate personnel at the tenants' accounts
payable departments. Also, the Company will have available its Lines of Credit
to fund immediate cash flow needs if such delay occurs.
The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or if assessment, remediation and testing
are not effected timely or accurately with respect to Year 2000 issues that are
identified, there can be no assurance that the Year 2000 issue will not
materially adversely affect the Company's results of operations. Also, there can
be no assurance that the Year 2000 issues of the Company's suppliers, vendors,
tenants and other important trading partners will not have a material adverse
impact on the Company's business or results of operations.
The costs of the Company's Year 2000 identification, assessment,
remediation and testing efforts and the dates on which the Company believes it
will complete such efforts are based upon management's best estimates, which
were derived using numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans, and
other factors. There can be no assurance that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of relevant computer
codes and embedded technology, and similar uncertainties. Although some of the
Company's agreements with suppliers and contractors contain provisions requiring
such parties to indemnify the Company under some circumstances, there can be no
assurance that such indemnification agreements will cover all of the Company's
liabilities and costs related to claims by third parties related to the Year
2000 issue.
Item 3. Qualitative and Quantitative Disclosure about Market Risk
As of March 31, 1999, there has been no significant changes in market
risks of the Company since December 31, 1999. Refer to the Annual Report on Form
10K for disclosure.
Part II
OTHER INFORMATION
- -----------------
Item 2. Recent Sales of Unregistered Equity Securities
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
- -----------------------------------------------------------------------
(b) Reports on Form 8-K.
An interim report on Form 8-K was filed on March 10, 1999 reporting the
acquisition of two retail properties.
Three interim reports on Form 8-K were filed on March 24, 1999
including certain exhibits thereto.
An interim report on Form 8-K was filed on March 24, 1999 regarding
Risk Factors.
12
<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: May 14, 1999 /s/ William J. Wolfe
------------------------------------
By: William J. Wolfe
President and
Chief Executive Officer
Date: May 14, 1999 /s/ James G. Blumenthal
------------------------------------
By: James G. Blumenthal
Executive Vice President and
Chief Financial Officer
13
<PAGE>
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