SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 8-K/A
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 30, 1998
First Washington Realty Trust, Inc.
(Exact Name of Registrant as
Specified in Charter)
Maryland 0-25230 52-1879972
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
4350 East-West Highway
Suite 400
Bethesda, Maryland 20814
(Address of Principal
Executive Offices)
(301) 907-7800
(Registrant's telephone
number, including area code)
1
<PAGE>
ITEM 5. Other Events
As a prospective investor in securities of First Washington Realty Trust,
Inc., you should carefully consider the following risk factors.
Although First Washington Realty Trust, Inc., First Washington Realty
Limited Partnership and First Washington Management, Inc. are separate entities,
for ease of reference, the terms "the Company," "we," "us," and "ours" refer to
the business and properties of all of these entities, unless the context
indicates otherwise.
Risk Factors
We have substantial amounts of debt, which presents various risks.
We may have insufficient cash resources to make required payments of
principal and interest. At the current time, we have a significant level of
debt. We cannot guarantee that we can refinance or repay our existing
indebtedness at maturity. Also, the terms of any such refinancing may not be as
favorable as the terms of the existing financing. As of September 30, 1998, we
had outstanding approximately $218 million of long-term mortgage indebtedness
and $25 million of exchangeable debentures. Our debt to total market
capitalization ratio is approximately 40.5%. The ratio of our debt to total
market capitalization, excluding the exchangeable debentures, is approximately
36.3%. We define debt to market capitalization as debt divided by the sum of
debt and the market value of our outstanding partnership units and shares of
common stock.
Much of our debt comes due in the next two years. Additionally, a large
portion of our mortgage indebtedness will become due by 2000. These mortgages
provide for the repayment of principal in a lump sum or "balloon" payment at
maturity. This type of mortgage involves greater risks than mortgages with
principal amounts amortized over the term of the loan, since our ability to
repay the outstanding principal amount at maturity may depend on obtaining
adequate refinancin or selling the property which is subject to the mortgage.
These mortgages require balloon payments of $88.9 million, including $25.0
million of exchangeable debentures, in 1999 and $24.3 million in 2000. From 1998
through 2021, we will have to refinance an aggregate of approximately $204
million of debt.
We will need to refinance much of our debt. Only a small portion of the
principal of our mortgage indebtedness will be repaid prior to maturity and we
do not plan to retain in advance enough cash to repay this indebtedness at
maturity. Therefore, we will have to refinance this debt through additional debt
financing or equity offerings. If we cannot refinance this indebtedness on
acceptable terms, we may have to dispose of properties upon disadvantageous
terms, which may result in losses to us and lower distributions to stockholders.
If the refinancing has a higher interest rate, our interest expense would
increase, which would limit the amount of cash to pay expected distributions to
stockholders. Further, if we cannot meet mortgage payments, we could lose the
mortgaged property or properties through foreclosure. Even if the indebtedness
is otherwise nonrecourse, the lender may have the right to recover deficiencies
from us in certain circumstances, including environmental liabilities.
Rising interest rates could cause us to pay more interest. At December 31,
1998, $22.7 million of our debt carried a variable interest rate, and we may
incur additional debt in the future that also bears interest at variable rates.
If market interest rates increase, our debt service requirements would also
increase.
We can incur additional debt. While not required by our organizational
documents, we have a policy of maintaining a ratio of debt to total market
capitalization of 50% or less. However, our charter and bylaws do not contain
any debt incurrence restrictions and the board of directors could alter or
eliminate this policy.
Some of our properties secure more than a single mortgage loan. A total of
17 properties are cross-collateralized with one or more other properties. A
default in a single loan which is cross-collateralized by other properties may
result in the foreclosure on all of the properties by the mortgagee with a
consequent loss of income and asset value to us.
We have experienced operating losses.
We historically have experienced losses allocated to common stockholders
before extraordinary items. For the years ending December 31, 1996, 1995 and
1994 we incurred losses allocated to common stockholders of $0.46, $1.19, and
$0.95 per share, respectively. These net losses reflect substantial non-cash
charges such as depreciation and amortization and the effect of distributions to
holders of the convertible preferred stock.
The terms of our preferred stock limit the amount of dividends we can pay
to our common stockholders.
When the board of directors authorizes distributions, each share of
convertible preferred stock is entitled to receive distributions equal to
$0.6094 per quarter. Each share of convertible preferred stock is also entitled
to a participating distribution, which is equal to the amount of distributions
in excess of $0.4875 per quarter payable to the common stock multiplied by the
number of shares of common stock into which the convertible preferred stock is
then convertible. The payment of distributions to the convertible preferred
stock reduces the income allocable to the holders of common stock, which causes
a decrease in common stockholders' equity. The entitlement of the convertible
preferred stock to participating distributions limits the level of distributions
we can pay on the outstanding shares of common stock.
Our properties are concentrated in the Mid-Atlantic region.
Local economic and real estate conditions could affect our results. Our
properties are located primarily in the Mid-Atlantic region. More particularly,
approximately 45% of the total gross leasable area of our properties is located
in the Washington-Baltimore corridor. Adverse economic developments in this area
could adversely impact the operations of our properties and therefore our
profitability. The concentration of properties in a limited number of markets
may expose us to risks of adverse economic developments which are greater than
the risks of owning properties in several markets.
The exchange of exchangeable debentures would reduce cash available for
distribution to common stockholders.
As part of our formation, First Washington Limited Partnership issued $25.0
million of exchangeable debentures, which are exchangeable for 1,000,000 shares
of convertible preferred stock. The exchangeable debentures bear interest at the
rate of 8.25% per year. If the exchangeable debentures are exchanged for
convertible preferred stock, our annual amount of distribution payments on the
convertible preferred stock net of reductions in interest payments would be
increased by approximately $0.375 million. Such an increase in distributions on
the convertible preferred stock would reduce the annual cash available for
distribution payable on outstanding shares of common stock by $0.04 per share.
Environmental problems are possible and could be costly.
Various federal, state and local laws, ordinances and regulations subject
property owners or operators to liability for the costs of removal or
remediation of hazardous substances released on a property. These laws often
impose liability without regard to whether the owner or operator knew of, or was
responsible for, the release of the hazardous substances. The presence or the
failure to properly remediate hazardous substances may adversely affect our
ability to sell, rent or borrow against contaminated property. In addition to
the costs associated with investigation and remediation actions brought by
governmental agencies, the presence of hazardous wastes on a property could
result in personal injury or similar claims by private plaintiffs.
Various laws also impose, on persons who arrange for the disposal or
treatment of hazardous or toxic substances, liability for the cost of removal or
remediation of hazardous substances at the treatment facility. These laws often
impose liability whether or not the person arranging for the disposal ever owned
or operated the disposal facility.
Independent environmental consultants have completed Phase I or similar
environmental audits on all of our properties. Phase I environmental site
assessments are intended to identify potential sources of contamination for
which a company may be responsible and to assess the status of environmental
regulatory compliance. An environmental audit involves general inspections
without soil sampling or groundwater analysis. These environmental assessments
and audits indicat that dry cleaning solvents, petroleum and/or hydraulic fluid
have been detected in the soil and/or groundwater at seven of our properties.
Existing environmental studies of our properties may not have revealed all
environmental conditions, liabilities or compliance concerns. Also,
environmental conditions, liabilities or compliance concerns may have arisen at
a property after the related review was completed.
Our third-party management, leasing and related service business presents
various risks.
Management contracts are generally terminable on short notice. We intend to
pursue actively the management, including contracts to lease space, of
properties owned by third parties. Managing properties owned by third parties
presents risks, including:
. Management and leasing contracts may generally be canceled upon 30 days'
notice or upon other events, including sale of the property. The property
owner may terminate these contracts, or we may lose the contracts in
connection with a sale of the property.
. Contracts may not be renewed upon expiration or may not be renewed on terms
consistent with current terms.
. Management fees are based on rental revenues which may decline as a result
of general or specific market conditions.
We have limited control over the business of First Washington Management.
Certain members of our management, own 100% of the voting common stock of First
Washington Management and have the ability to elect the board of directors of
First Washington Management. Consequently, we have no ability to influence the
decisions of First Washington Management. As a result, the board of directors
and management of First Washington Management may implement business policies or
decisions that are adverse to our interests or that lead to adverse financial
results. The voting common stock of First Washington Management is subject to an
assignable right of first refusal held by Stuart D. Halpert and William J.
Wolfe.
Our REIT status limits the business of First Washington Management. Certain
requirements for REIT qualification may limit our ability to increase
third-party management, leasing and related services offered by First Washington
Management.
Some of our management team have conflicts of interest regarding the sale
of some of our properties.
Holders of common units may suffer adverse tax consequences upon the sale
or refinancing of property contributed to First Washington Limited Partnership
in exchange for units. Therefore, holders of common units, including members of
our management may have their own objectives regarding the appropriate pricing
and timing of a property's sale or refinancing. Although we, as the sole general
partner of First Washington Limited Partnership have the exclusive authority to
sell or refinance an individual property, officers and directors who hold common
units may influence us not to sell or refinance, or repay debt collateralized by
properties originally contributed by these officers or directors. Even though a
sale or refinancing might be financially advantageous to stockholders, the sale
or refinancing might trigger adverse tax consequences for the officer or
director who originally contributed the property. Three officers received in the
aggregate 3333 units in exchange for the contribution of Prince George's County
Commercial and Technical Park. In the aggregate, management holds under 1.0 % of
the common units of First Washington Limited Partnership. Policies adopted by
the Board to minimize the impact of this conflict may not succeed in eliminating
the influence of officers and directors who hold common units.
Some of our management own a shopping center that is managed by First
Washington Management.
Messrs. Halpert, Wolfe and Zimmerman are the owners, with others, of a
corporation that is the general partner of a general partner of Mid-Atlantic
Centers Limited Partnership. This partnership owns one shopping center,
Tarrytown Mall, which is currently managed by First Washington Management.
Although charging a high management fee may be in the best interest of
investors, these members of management may desire a lower management fee for
this property.
We can change our investment and financing policies without stockholder
approval.
The board of directors determines our investment and financing policies,
and our policies with respect to other activities, including our growth, debt,
capitalization, distributions, REIT status and operating policies. Although they
have no present intention to do so, the board of directors may amend or revise
these policies from time to time without notice to or a vote of our
stockholders. Accordingly, stockholders may not have control over changes in our
policies.
Our executive officers have substantial influence over our affairs.
As of December 31, 1998, our officers as a group beneficially owned
approximately 10.5% of the total issued and outstanding shares of common stock,
assuming exchange of common units and exercise of options, and 5.6% of the
outstanding shares of common stock, assuming the exchange and/or conversion of
all other securities convertible into common stock. They have substantial
influence on us which might not be consistent with the interests of our other
stockholders. Also, they may in the future have a substantial influence on the
outcome of any matters submitted to our stockholders for approval.
We are dependent on a very limited member of key personnel.
We depend on the efforts of our executive officers, particularly Messrs.
Halpert and Wolfe. While we believe that we could replace these individuals, the
loss of their services could have an adverse effect on our operations. Messrs.
Halpert and Wolfe have entered into employment and non-compete agreements with
us.
We face risks common to all real estate companies.
Our ability to make expected distributions to stockholders depends on our
ability to generate funds from operations in excess of scheduled principal
payments on debt and capital expenditure requirements. Events and conditions
beyond our control may adversely affect funds from operations and the value of
our properties. Examples include:
. an adverse economic climate, particularly in the Mid-Atlantic Region;
. attractiveness of properties to tenants;
. an oversupply of space or reduction of demand for space in the areas where
we operate;
. competition from other retail properties;
. our ability to provide adequate maintenance and insurance;
. increased operating costs, including insurance premiums, real estate taxes,
repair costs and renovation costs;
. changes in market rental rates;
. the availability of financing and interest rate levels;
. zoning or other regulatory restrictions;
. changes in traffic patterns; and
. environmental liability.
New acquisitions and developments could fail to perform as expected.
Acquisition and development of neighborhood shopping centers entails risks that
investments will fail to perform in accordance with our expectations. Expansion,
renovation and development projects generally require expenditure of capital as
well as various government and other approvals, which cannot be assured. We will
incur risks, including expenditures of funds on, and devotion of management's
time to, projects which we may not complete. Also, acquisition agreements could
fail to close. Although from time to time we enter into agreements for the
acquisition of retail properties, these agreements are subject to customary
conditions to closing, including completion of due diligence investigations to
our satisfaction. It is possible that these agreements may not be consummated.
Any of the foregoing could have a material adverse effect on our ability to make
anticipated distributions to you.
We are dependent upon the financial health of our tenants. We derive most
of our income from rental income. A tenant may experience a downturn in its
business, which may weaken its financial condition and result in its failure to
make timely rental payments. Also, when our tenants decide not to renew their
leases, we may not be able to relet the space. Even if tenants do renew, the
terms of renewal or reletting may not be as favorable as current lease terms.
Leases on 9.4% and 9.5% of the gross leasable area in the properties will be
expiring in 1999 and 2000, respectively. In the event of default by a lessee, we
may experience delays in enforcing our rights as lessor and may incur
substantial costs in protecting our investment.
The bankruptcy or insolvency of a major tenant may adversely affect the
income produced by our properties. As of October 23, 1998, three tenants were
involved in bankruptcy proceedings. These tenants represent approximately 0.15%
of the total annual minimum rents of our properties. These bankrupt tenants may
not continue to pay rent and additional tenants may become bankrupt or
insolvent.
Some of our properties are not anchored by a supermarket or drug store.
Nine of our properties are relatively small in size, with less than 50,000
square feet of gross leasable area, and are not anchored by a supermarket or
drug store tenant. These properties may experience greater variability in
consumer traffic.
Real estate investments are illiquid. We may not be able to sell
properties at the appropriate time. Equity real estate investments are
relatively illiquid and therefore tend to limit our ability to vary our
portfolio promptly in response to changes in economic or other conditions.
Our properties primarily are neighborhood shopping centers, and we do not
presently intend to substantially vary the types of real estate in our
portfolio. In addition, significant expenditures associated with each
equity investment are generally not reduced when circumstances cause a
reduction in income from the investment. These expenditures include
mortgage payments, real estate taxes and maintenance costs.
Some potential losses are not covered by insurance. Certain types of
losses, generally of a catastrophic nature, such as wars or earthquakes may
be either uninsurable or not economically insurable. Should an uninsured
loss occur, we could lose both our invested capital in and anticipated
profits from a property. In such event, we might nevertheless remain
obligated to repay any mortgage indebtedness on the property.
We face vigorous competition. Numerous companies compete with us in
seeking properties for acquisition and tenants who will lease space in
these properties. We may not be able to acquire suitable leased properties
and tenants for our properties in the future.
We could invest in mortgages. Although we currently have no plans to
invest in mortgages, we may invest in mortgages in the future. If we were
to invest in mortgages, we would incur the risks of this type of
investment, which include:
. borrowers may not be able to make debt service payments or pay principal
when due;
. the value of mortgage property may be less than the amount owed; and
. interest rates payable on the mortgages may be lower than our costs of
funds.
Complying with the Americans with Disabilities Act and similar laws
could be costly. Under the Americans with Disabilities Act of 1990 all
public accommodations must meet federal requirements related to access and
use by disabled persons. Although we believe that our properties
substantially comply with present requirements of the act, we have not
conducted an audit or investigation of all of our properties to determine
our compliance. We may incur additional costs of complying with the act. A
number of additional federal, state and local laws also may require
modifications to our properties, or restrict our ability to renovate our
properties. We cannot currently ascertain the ultimate amount of the cost
of compliance with the act or other legislation. Although we do not expect
such costs to have a material effect on us, such costs could be
substantial.
In order to protect our REIT status among other things, our charter contains
limitations on ownership of our capital stock.
Our charter contains restrictions on the ownership and transfer of our
capital stock. These restrictions aim to prevent concentration of stock
ownership. These limitations may:
. discourage a change of control;
. deter tender offers for the capital stock, which may be attractive to our
stockholders; or
. limit the opportunity for stockholders to receive a premium for their
capital stock.
To maintain our qualification as a REIT, not more than 50% in value of
our outstanding capital stock may be owned, either actually or
constructively under the applicable attribution rules of the Internal
Revenue Code as currently in effect, by five or fewer individuals at any
time during the last half of our taxable year other than during the first
taxable year for which we elected to be taxed as a REIT. This requirement
is referred to as the "five or fewer" requirement. For purposes o this five
or fewer requirement, individuals include the entities that are set forth
in Section 542(a)(2) of the Internal Revenue Code. In addition, rent from a
related party tenant, as defined in the Internal Revenue Code, is not
qualifying income for purposes of the REIT gross income test. Attribution
rules in the Internal Revenue Code determine if any individual or entity
constructively owns our stock under the "five or fewer" requirement and
under the related party tenant rules. Primarily because of fluctuations in
values among the different classes of our capital stock, these restrictions
may not ensure that we will satisfy the "five or fewer" requirement, or
avoid receiving rent from a related party tenant. If we do not satisfy the
"five or fewer" requirement, our status as a REIT will terminate. We will
not be able to prevent such termination.
The board of directors may waive some of these limitations with
respect to a particular stockholder if it is satisfied, based upon the
advice of tax counsel, that ownership in excess of these limitations will
not jeopardize our status as a REIT. Any attempted acquisition, actual or
constructive, of shares by a person who, as a result, would violate one of
these limitations will cause the shares purportedly transferred to be
automatically transferred to a trust for the benefit of a charitable
beneficiary or the transfer will be deemed void. In addition, changes in
the relative values of different classes of our capital stock or other
events that cause violations of the ownership limitations generally will
result in our automatic repurchase of the violative shares.
In addition, there are circumstances where a holder of convertible
preferred stock who is not otherwise in violation of the ownership limits
could be prevented from converting its convertible preferred stock into
shares of common stock.
Our charter also contains other provisions that may delay, defer, or prevent a
change of control.
We have a staggered Board. Our board of directors has been divided
into three classes of directors. The staggered terms for directors may
reduce the possibility of a tender offer or an attempt to change control
even if a tender offer or a change in control were in the stockholders'
interest.
We could issue preferred stock without stockholder approval. Our
charter authorizes the board of directors to issue up to 10,000,000 shares
of preferred stock, including the convertible preferred stock. The board of
directors may establish the preferences, rights and other terms of any
shares issued, including the right to vote and the right to convert into
common stock . The issuance of preferred stock could delay or prevent a
tender offer or a change in control even if a tender offe or a change in
control were in our stockholders' interest. No shares of preferred stock
other than the convertible preferred stock are currently issued or
outstanding.
We have exempted our Chairman and our CEO from the Maryland Business
Combination Law. The Maryland General Corporation Law, as currently in
effect, prohibits "business combinations" between a Maryland corporation
and an "interested stockholder" or an affiliate of an interested
stockholder for five years after the most recent date on which the
interested stockholder becomes an interested stockholder. An interested
stockholder is any person who beneficially owns ten percent or more of th
voting power of the corporation's shares. After the five-year prohibition,
any business combination must be approved by two supermajority stockholder
votes unless, among other conditions, the corporation's common stockholders
receive a minimum price for their shares and receive consideration in cash
or in the same form as previously paid by the interested stockholder for
its shares. This means that, unless an exemption applies, the transaction
must be approved by at least:
. 80% of the votes entitled to be cast by holders of outstanding voting
shares, and
. two-thirds of the votes entitled to be cast by holders of outstanding
voting shares other than shares held by the interested stockholder with
whom or with whose affiliate or associate the business combination is to be
effected.
As permitted by the statute, our board of directors has exempted any
business combination involving Messrs. Halpert and Wolfe and any of their
affiliates or associates or any person acting in concert with any of such
persons. Consequently, the five-year prohibition and the super-majority
vote requirements described above will not apply to business combinations
between us and any of these people. As a result, Messrs. Halpert and Wolfe
and other persons referred to in the preceding sentence may be able to
enter into business combinations with us which may not be in the best
interest of the stockholders. In such case, we would not have to comply
with the super-majority vote requirements and other provisions of the
statute.
We could adopt the Maryland Control Share Acquisition Statute.
Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to
the extent approved by a stockholder vote. Two-thirds of the shares
eligible to vote must vote in favor of granting the "control shares" voting
rights. "Control shares" are shares of stock that, taken together with all
other shares of stock the acquiror previously acquired, would entitle the
acquiror to exercise voting power in electing directors within three ranges
of voting power, beginning with one-fifth of all voting power. Control
shares do not include shares of stock the acquiring person is entitled to
vote as a result of having previously obtained stockholder approval. A
"control share acquisition" generally means the acquisition of control
shares.
If a person who has made or proposes to make a control share
acquisition agrees to pay expenses and satisfies other conditions, he may
compel the board of directors to call a special meeting of stockholders to
be held within 50 days to consider the voting rights of the shares. If this
person makes no request for a meeting, the corporation has the option to
present the question at any stockholders' meeting.
If voting rights are not approved at a meeting of stockholders then,
the corporation generally may redeem any or all of the control shares for
fair value, except those for which voting rights have previously been
approved. Fair value is determined without regard to the absence of voting
rights for control shares, as of the date of either:
. the last control share acquisition; or
. any meeting where stockholders considered and did not approve voting rights
of the control shares.
If voting rights for control shares are approved at a stockholders'
meeting and the acquiror becomes entitled to vote a majority of the shares
of stock entitled to vote, all other stockholders may exercise appraisal
rights. Under Maryland law, the fair value as determined for purposes of
these appraisal rights may not be less than the highest price per share
paid in the control share acquisition.
Pursuant to the statute, our bylaws contain a provision exempting from
the control share acquisition act any and all acquisitions by any person of
our shares of stock. Our board of directors may amend or eliminate this
provision at any time in the future.
We have a Stockholder Rights Plan. On October 10, 1998, our board of
directors adopted a stockholder rights plan and declared a distribution of
one preferred share purchase right for each outstanding share of common
stock. The rights were issued on October 26, 1998 to each stockholder of
record on that date. The rights have anti-takeover effects. The rights
would cause substantial dilution to a person or group that attempts to
acquire us on terms that our board of directors does not approve. We may
redeem the shares for $.01 per right, prior to the time that a person or
group has acquired beneficial ownership of 15% or more of our common stock.
Therefore, the rights should not interfere with any merger or business
combination our board of directors approves.
Our classification as a REIT depends on compliance with federal law. Failure to
qualify as a REIT would have serious adverse consequences.
The requirements for qualification as a REIT are technical and
complex, and we could fail to qualify. We believe we have operated so as to
qualify as a REIT under the Internal Revenue Code, commencing with our
taxable year ended December 31, 1994. However, we may not have qualified,
or may not remain qualified. Qualification as a REIT involves the
application of highly technical and complex Internal Revenue Code
provisions for which there are only limited judicial and administrative
interpretations. The determination of various factual matters and
circumstances not entirely within our control may affect our ability to
qualify as a REIT. For example, in order to qualify as a REIT, at least 95%
of our gross income in any year must be derived from qualifying sources.
Also, we must make distributions to stockholders aggregating annually at
least 95% of our REIT taxable income, excluding capital gains. In addition,
legislation, new regulations, administrative interpretations or court
decisions may significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification.
To qualify as a REIT, not more than 5% of our total assets may consist
of securities of one issuer. We believe that the value of the securities of
First Washington Management held by us did not exceed at any time 5% of the
value of our total assets and will not exceed such amount in the future. We
based this belief on the initial allocation of shares among participants in
the formation transactions and our opinion regarding the maximum value that
could be assigned to the existing and expected future assets and net
operating income of First Washington Management. If we fail to qualify as a
REIT in any year, we would be subject to federal income tax, including any
applicable alternative minimum tax on our taxable income at regular
corporate rates. Distributions to shareholders in any year in which we fail
to qualify will not be deductible by us, nor will they be required to be
made. If this happens, to the extent of our current or accumulated earnings
and profits, all distributions to shareholders will be dividends, and
subject to limitations specified in the Internal Revenue Code, corporate
distributees may be eligible for the dividends-received deduction. Unless
we are entitled to relief under statutory provisions, we will also be
disqualified from taxation as a REIT for the four taxable years following
the year during which we lost our qualification. The additional tax would
significantly reduce the cash flow available for distribution to
stockholders.
In order to satisfy the REIT qualifications, we might need to borrow
money to fund distributions to our stockholders. To qualify as a REIT, we
generally must distribute to our stockholders at least 95% of our net
taxable income each year. In addition, we will be subject to a 4%
nondeductible excise tax on the amount by which certain distributions paid
by us in any calendar year are less than the sum of 85% of ordinary income,
95% of capital gain net income and 100% of undistributed income from prior
years.
We might need to borrow funds on a short-term basis to meet the
distribution requirements necessary to qualify as a REIT. These short-term
borrowing needs could result from differences in timing between the actual
receipt of income and inclusion of income for tax purposes, or the effect
of non-deductible capital expenditures, the creation of reserves or
required debt or amortization payments. In this instance, we might need to
borrow funds to avoid adverse tax consequences even if then prevailing
market conditions were not generally favorable for these borrowings.
We continue to pay some taxes. Even if we qualify as a REIT, we will
be subject to federal, state and local taxes on our income and property. In
addition, First Washington Management generally is subject to federal and
state income tax at regular corporate rates on its net taxable income,
which includes its management, leasing and related service business.
Our computer system could be vulnerable to the Year 2000 Problem.
Many of the world's computer systems currently record years in a two
digit format. These computer systems will be unable to properly interpret
dates beyond the year 1999, which could lead to disruptions in our
operations. This problem is commonly referred to as the Year 2000 issue.
Although we are taking steps to establish Year 2000 compliance, we
cannot guarantee that all of our systems will be Year 2000 compliant or
that other companies on which we rely will be timely converted. As a
result, our operations could be adversely affected.
Sales of a substantial number of shares of common stock, or the perception that
this could occur, could adversely affect prevailing prices for our common stock.
We have reserved:
. 2,876,828 shares of common stock for issuance upon exchange of common units
issued in connection with our formation and in connection with property
acquisitions.
. 2,966,908 shares of common stock for issuance upon conversion of
outstanding convertible preferred stock issued in connection with our
formation and in connection with property acquisitions. This convertible
preferred stock becomes convertible on or after May 31, 1999.
. 1,832,239 shares of common stock for issuance upon conversion of reserved
convertible preferred stock. These shares are reserved for exchange of
exchangeable preferred units and the exchangeable debentures issued in
connection with the formation and subsequent property acquisitions.
. 1,862,523 shares of common stock for issuance under our employee benefit
plans.
We have filed or have agreed to file registration statements covering
the issuance of shares of common stock and convertible preferred stock upon
exchange of common units and exchangeable preferred units and the resale of
convertible preferred stock issued in connection with our formation and
subsequent property acquisitions. We also have filed registration
statements covering the sale of common stock issued or to be issued under
our employee benefit plans. The exchange of partnership units for common
stock and convertible preferred stock will increase the number of
outstanding shares of common stock and convertible preferred stock, and
will increase our percentage ownership interest in First Washington Limited
Partnership.
ITEM 7(c). Exhibits
Exhibits
10.1 Second Amended and Restated Employment Agreement Between First Washington
Realty Trust, Inc. and William J. Wolfe, dated as of May 1, 1998, effective
as of March 13, 1998.*
10.2 Second Amended and Restated Employment Agreement Between First Washington
Realty Trust, Inc. and Stuart D. Halpert, dated as of May 1, 1998,
effective as of March 13, 1998.*
* Previously Filed.
2
<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 hereunto duly authorized.
First Washington Realty Trust, Inc.
By:/s/ Jeffrey S. Distenfeld
----------------------------------
Jeffrey S. Distenfeld
Senior Vice President and General Counsel
Date: March 24, 1999
3
<PAGE>
Exhibit Index
10.1 Second Amended and Restated Employment Agreement Between First Washington
Realty Trust, Inc. and William J. Wolfe, dated as of May 1, 1998, effective
as of March 13, 1998.*
10.2 Second Amended and Restated Employment Agreement Between First Washington
Realty Trust, Inc. and Stuart D. Halpert, dated as of May 1, 1998,
effective as of March 13, 1998.*
* Previously Filed.
II-1
