FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 2000
Commission File Number 0-25230
FIRST WASHINGTON REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-1879972
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
4350 East-West Highway, Suite 400, Bethesda, MD 20814
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (301) 907-7800
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Common Stock, $.01 par value, outstanding as of November 14, 2000
10,643,862 Shares of Common Stock
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I: Financial Information Page
Item 1. Consolidated Balance Sheets as of September 30, 2000 (unaudited) and
December 31, 1999 ................................................ 1
Consolidated Statements of Operations (unaudited) for the three months
and nine months ended September 30, 2000 and 1999 ................ 2
Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 2000 and 1999 ................................ 3
Notes to Unaudited Consolidated Financial Statements .................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation ..................................................... 10
Item 3 Quali1tive and Quantitative Disclosures about Market Risk
Part II: Other Information
Item 2. Recent Sales of Unregistered Equity Securities ........................ 13
Item 4. Submission of Matters to a Vote of Security Holders ................... 13
Item 6. Exhibits and Reports on Form 8-K ...................................... 14
Signatures ..................................................................... 15
</TABLE>
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except share data)
-----------
September 30, December 31,
2000 1999
---- ----
(unaudited)
ASSETS
Rental properties:
Land .............................................. $ 120,684 $ 119,965
Buildings and improvements ........................ 500,656 495,031
--------- ---------
621,340 614,996
Accumulated depreciation ............................ (79,751) (67,029)
--------- ---------
Rental properties, net .............................. 541,589 547,967
Cash and equivalents ................................ 6,698 4,332
Tenant receivables, net ............................. 16,232 11,750
Deferred financing costs, net ....................... 6,395 5,137
Other assets ........................................ 17,634 14,107
--------- ---------
Total assets .............................. $ 588,548 $ 583,293
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ............................ $ 309,748 $ 298,116
Accounts payable and accrued expenses ............. 14,362 12,350
--------- ---------
Total liabilities ......................... 324,110 310,466
Minority interest ................................... 64,143 66,267
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock $.01 par value,
10,000,000 shares authorized, 3,800,000 shares
designated; 1,960,604 and 2,359,202 issued
and outstanding, respectively, liquidation
value of $25.00 per share ....................... 20 24
Common stock $.01 par value, 90,000,000 shares
authorized; 10,472,525 and 9,709,670 shares
issued and outstanding, respectively ............ 105 97
Additional paid-in capital ........................ 244,445 245,054
Accumulated distributions in excess of earnings ... (44,275) (38,615)
--------- ---------
Total stockholders' equity ................ 200,295 206,560
--------- ---------
Total liabilities and stockholders' equity $ 588,548 $ 583,293
========= =========
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
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For three months ended For nine months ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Minimum rents ......................................... $ 17,988 $ 16,765 $ 53,796 $ 49,187
Tenant reimbursements ................................. 4,315 3,828 14,439 12,232
Percentage rents ...................................... 527 435 1,469 1,317
Other income .......................................... 1,343 594 2,417 1,452
-------- -------- -------- --------
Total revenues ........................................ 24,173 21,622 72,121 64,188
-------- -------- -------- --------
Expenses:
Property operating and maintenance .................... 5,297 4,676 16,817 14,669
General and administrative ............................ 1,093 1,004 3,426 3,168
Disposition and merger costs .......................... 2,097 -- 2,097 --
Interest .............................................. 5,980 4,864 17,765 16,066
Depreciation and amortization ......................... 4,694 4,288 14,094 12,781
-------- -------- -------- --------
Total expenses ................................. 19,161 14,832 54,199 46,684
-------- -------- -------- --------
Income before gain on sale of properties, loss from
Management Company, minority interest, extraordinary
item, and distributions to Preferred Stockholders .. 5,012 6,790 17,922 17,504
Gain on sale of properties ............................ -- -- 648 --
Loss from Management Company .......................... (351) (444) (810) (674)
-------- -------- -------- --------
Income before minority interest, extraordinary
item, and distributions to Preferred Stockholders .... 4,661 6,346 17,760 16,830
Income allocated to minority interest ................. (1,040) (1,512) (4,467) (4,091)
-------- -------- -------- --------
Income before extraordinary item and distributions
to Preferred Stockholders ............................ 3,621 4,834 13,293 12,739
Extraordinary item (net of minority interest)-
Loss on early extinguishment of debt ................ -- -- (117) --
-------- -------- -------- --------
Net income ............................................ 3,621 4,834 13,176 12,739
Distributions to Preferred Stockholders ............... (1,230) (1,658) (3,958) (4,480)
-------- -------- -------- --------
Net income allocated to Common Stockholders ........... $ 2,391 $ 3,176 $ 9,218 $ 8,259
======== ======== ======== ========
Earnings per Common Share - Basic
Income before extraordinary item .................... $ 0.23 $ 0.34 $ 0.91 $ 0.93
Extraordinary item .................................. 0.00 0.00 (0.01) 0.00
-------- -------- -------- --------
Net income .......................................... $ 0.23 $ 0.34 $ 0.90 $ 0.93
======== ======== ======== ========
Earnings per Common Share - Diluted
Income before extraordinary item .................... $ 0.23 $ 0.33 $ 0.91 $ 0.91
Extraordinary item .................................. 0.00 0.00 (.01) 0.00
-------- -------- -------- --------
Net income .......................................... $ 0.23 $ 0.33 $ 0.90 $ 0.91
======== ======== ======== ========
Weighted average shares of Common Stock - Basic .... 10,415 9,411 10,212 8,928
Dilutive effect of stock options and contingent stock 85 118 62 108
-------- -------- -------- --------
Weighted average shares of Common Stock - Diluted ... 10,500 9,529 10,274 9,036
======== ======== ======== ========
Distributions per share ............................ $ 0.4875 $ 0.4875 $ 1.4625 $ 1.4625
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
--------
For nine months ended
September 30,
------------------------
2000 1999
---- ----
Operating Activities:
Net income ........................................ $ 13,176 $ 12,739
Adjustments to reconcile net income to
net cash provided by operating activities:
Income allocated to minority interest .......... 4,467 4,091
Depreciation and amortization .................. 14,094 12,781
Gain on sale of rental properties .............. (648) --
Loss on early extinguishment of debt ........... 117 --
Amortization of deferred financing costs
and loan premiums ............................. (153) (402)
Equity in earnings of Management Company ....... 1,170 1,034
Compensation paid or payable in common
shares ........................................ 990 936
Provision for uncollectible accounts ........... 466 657
Recognition of deferred rent ................... (789) (922)
Net changes in:
Tenant receivables ........................... (4,159) (1,007)
Other assets ................................. (5,530) (2,385)
Accounts payable and accrued expenses ........ 2,835 205
-------- --------
Net cash provided by operating
activities ............................... 26,036 27,727
-------- --------
Investing Activities:
Acquisition of rental properties .................. (4,222) (10,797)
Additions to rental properties .................... (3,436) (4,136)
Net proceeds from sale of rental property ......... 1,351 --
-------- --------
Net cash used in investing
activities ............................... (6,307) (14,933)
-------- --------
Financing Activities:
Proceeds from line of credit ..................... 56,500 27,000
Proceeds from mortgage notes refinancings ........ 26,873 18,822
Repayment of line of credit ...................... (52,500) (23,200)
Repayment of mortgage notes ...................... (18,283) (7,414)
Additions to deferred financing costs ............ (2,146) (4,030)
Proceeds from exercise of stock options .......... 21 62
Distributions paid to Preferred Stockholders ..... (3,958) (4,480)
Distributions paid to Common Stockholders ........ (14,878) (12,960)
Distributions paid to minority interest .......... (6,470) (6,128)
Repurchase of Preferred and Common Shares ........ (2,522) --
-------- --------
Net cash used in financing activities ..... (17,363) (12,328)
-------- --------
Net increase in cash and equivalents ............. 2,366 466
Cash and equivalents, beginning of period ........ 4,332 3,163
-------- --------
Cash and equivalents, end of period .............. $ 6,698 $ 3,629
======== ========
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 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 62 retail properties (the
"Retail Properties") containing a total of approximately 6.7 million square feet
of gross leasable area ("GLA") located in the Mid-Atlantic region and the
Chicago, Illinois and Milwaukee, Wisconsin metropolitan areas.
The Company currently owns approximately 74.2% of the partnership
interests in First Washington Realty Limited Partnership (the "Operating
Partnership"). All of the Company's operations are conducted through the
Operating Partnership. The Operating Partnership owns 43 Properties directly and
19 Properties are owned by lower tier entities in which the Operating
Partnership either owns a 100% or a 99% 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 Retail 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 1999 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 a 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
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
3. Pending Sale of the Company
On September 27, 2000, the Company and U.S. Retail Partners, LLC
("USRP"), along with certain affiliates of the Company and USRP entered into a
Master Agreement, Agreement and Plan of Merger, Real Estate Purchase Agreement
and Limited Partnership Interest Purchase and Sale Agreement (collectively, the
"Agreements") whereby the Company will sell substantially all of its assets to,
and merge with and into, certain affiliates of USRP. Management estimates that
the net proceeds of the transactions will yield to the shareholders as a
liquidation distribution, approximately $26.00 per share of common stock in cash
(and approximately $33.33 per share of preferred stock in cash). The ultimate
amount of the distribution value is subject to a variety of closing adjustments
and expenses related to the transaction.
The transactions contemplated by the Agreements are subject to various
customary closing conditions, including obtaining the approval of the Company's
stockholders and the partners of the Operating Partnership. It is expected that
the transaction will close in January 2001.
As of September 30, 2000, the Company has incurred approximately $2,097
in legal, advisory and other expenses relating to this transaction and has
reflected these costs as disposition and merger costs in the Consolidated
Statements of Operations.
4. Acquisition and Disposition of Rental Properties
During the first nine months of 2000, the Company acquired Goshen Plaza
for an aggregate cost of approximately $4,300. The Company sold one property
during the first nine months of 2000 for $1,485. Net proceeds of $1,351 were
used to purchase Goshen Plaza in July 2000 in a Section 1031 tax-free exchange.
A gain on sale of property was recognized in the amount of $648.
During the first nine months of 1999, the Company acquired two shopping
centers for an aggregate acquisition cost of approximately $27,349. The
acquisitions were accounted for using the purchase method of accounting and the
operations of the properties are included in the Company's Statement of
Operations from the dates of acquisition. The following is a summary of the
acquisition transactions:
<TABLE>
<CAPTION>
Date Total Anchor Anchor
Acq Property Name Location GLA Cost Tenant (GLA)
--- ------------- -------- --- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1/99 Kamp Washington Fairfax, VA 71,825 $15,204 Border Books 30,000
8/99 Newark Shopping Center Newark, DE 182,860 12,145
------- ------
254,685 $27,349
======= =======
</TABLE>
The acquisitions were financed as follows:
<TABLE>
<CAPTION>
Number of Market Assumed Line
Partnership Value Mortgage Of Credit
Property Name Units of Units Debt (1) Draw Cash Total
------------- ----- -------- -------- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Kamp Washington -- $ -- $ 3,045 $9,800 $2,359(2) $15,204
Newark Shopping Center 103,795 2,309 9,364 -- 472 12,145
------- ----- ------ ------ ------ ------
103,795 $2,309 $12,409 $9,800 $2,831 $27,349
======= ====== ====== ====== ====== =======
</TABLE>
-------------
(1) Includes loan premiums.
(2) Includes net proceeds from the sale of properties that occurred in the
fourth quarter of 1998. Aproximately $1,814 of net proceeds were used to
acquire Kamp Washington in a Section 1031 tax-free exchange.
5
<PAGE>
The following unaudited pro forma results of operations are presented as if the
acquisitions and sales of the rental properties that occurred during the first
nine months of 2000 and 1999 had occurred on January 1 of the period 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.
For the nine months ended
September 30,
-------------------------
2000 1999
---- ----
Pro forma total revenues ........................... $ 72,410 $ 65,205
======== ==========
Pro forma net income ............................... $ 13,335 $ 12,912
======== ==========
Pro forma earnings per Common Share - Basic ........ $ 0.92 $ 0.94
======== ==========
Pro forma earnings per Common Share - Diluted ...... $ 0.91 $ 0.93
======== ==========
5. Mortgage Debt
During the nine months ended September 30, 2000 the Company closed on
the following loans:
All in Amortization
Collateral Properties Date Amount Rate Term Period
--------------------- ---- ------ ---- ---- ------
Cudahy Center 1/00 $ 2,215 7.94% 10 years 30 years
Racine Centre 1/00 $ 4,585 7.89% 10 years 30 years
Whitnall Square 1/00 $ 5,525 7.89% 10 years 30 years
Festival at Woodholme 6/00 $13,800 7.75% 10 years 30 years
Stonebrook Plaza 7/00 $ 6,400 8.90% 5 years 20 years
On May 19, 2000 the Company closed on a line of credit facility with
First Union National Bank ("FUNB"). This line is collateralized by thirteen
properties (Brafferton Center, Bryans Road, Kamp Washington, Kenhorst Plaza,
Newtown Square, Riverside Square, Shoppes of Graylyn, Spring Valley, Takoma
Park, The Village, Watkins Park Plaza, Willston Center I and Woodmoor Shopping
Center). The line matures on May 19, 2003, and loans under this line will bear
interest at the 30-day LIBOR rate plus 1.35% or 1.50% depending on certain
financial ratios. As of September 30, 2000, there was $48,000 outstanding under
the Line of Credit. This line of credit replaces the UBS AG line of credit which
was due to mature in January 2001. An extraordinary loss of $117 was recognized
due to the early extinguishment of the UBS AG line of credit.
The Company currently has in place a cap on 30-day LIBOR in the
notional amount of $46,000, which limits the Company's exposure to an increase
in interest rates. The cap contract covers the period from July 19, 2000 through
January 19, 2001. The cap counter party is required to pay to the Company any
amount in excess of 6.5%, thereby limiting the Company's exposure to 30-day
LIBOR to a maximum of 6.5%.
In May 2000, simultaneously with the execution of rate lock agreements
with the lenders of Festival at Woodholme and Stonebrook Plaza the Company sold
its $24,000 forward interest rate swap contract for $1,640. These proceeds will
be amortized over the life of the new loans and will be recorded as a reduction
of interest expense.
6. Preferred Stock
Effective June 1, 1999, shares of Convertible Preferred Stock became
convertible into 1.282051 shares of Common Stock. During the nine months ended
September 30, 2000, 298,198 shares of Convertible Preferred Stock were converted
into 382,305 shares of Common Stock. The Company may redeem the Convertible
Preferred Stock at a redemption price of $26.95 which reduces annually in stages
to $25.00 on July 15, 2004.
6
<PAGE>
7. Share Buyback Authorization
In December 1999, the Company's Board of Directors authorized the
repurchase of the Company's Common and Preferred Stock up to 1,000,000 common
equivalent shares (after taking into account the Preferred Stock conversion
ratio). Since December 1999 the Company has repurchased 29,900 common shares and
219,646 preferred shares for an aggregate cost of $5,857. The repurchases were
funded primarily from operating cash flows and borrowings under the Line of
Credit.
8. Stock and Stock Option Plans
In January 2000, under the current Stock Option Plan the Company issued
250,000 options each to two executive officers at a strike price of $18.6875 per
share. The fair value of the options issued are estimated to be $555, as of the
date of the grant, using a binomial model with the following weighted-average
assumptions: risk-free interest rate of 6.4%, dividend rate of 9.3 %, volatility
factors of the expected market price of the Company's shares of 17.5%, and a
weighted average expected life of the options of 2.8 years.
On January 1, 2000, two executive officers received restricted stock
grants of 150,000 shares of common stock each in accordance with their
employment agreements. In March, 2000, these officers also received stock grants
of 12,500 shares of common stock each in accordance with their employment
agreements.
7
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
9. Summary of Noncash Investing and Financing Activities
Significant noncash transactions for the nine months ended September
30, 2000 and 1999 were as follows:
2000 1999
---- ----
Liabilities assumed in acquisition of
rental properties .................................... $ -- $12,409
Common units in the Operating Partnership
issued in connection with the payoff of
deferred acquisition liabilities ..................... $ 1,344 $ 2,309
Increase (decrease) in minority interest's
ownership of the
Operating Partnership ............................... $ (81) $ 1,128
Accrued compensation paid through the issuance
of Common Stock ..................................... $ 524 $ 1,258
Exchange of debentures for 1,000,000 shares
of preferred stock .................................. $ -- $25,000
10. Business Segments
The Company owns one property type only (i.e. neighborhood shopping
centers). Resource allocation, determination of compensation packages and
financial analysis are performed by the Company's management for each segment.
The Company measures performance of the segments based on total revenues less
property operating and maintenance expenses, as detailed in the following table:
8
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
<TABLE>
<CAPTION>
Retail
Properties FWM Other (1) Total
---------- --- --------- -----
Nine months ended September 30, 2000:
<S> <C> <C> <C> <C>
Revenues ............................. $ 71,332 $ 4,609 $ (3,820) $ 72,121
Operating and maintenance expenses ... 16,817 5,419 (5,419) 16,817
-------- -------- -------- --------
Income (loss) from operations ........ $ 54,515 $ (810) $ 1,599 $ 55,304
======== ======== ======== ========
Commercial real estate property
expenditures ........................ $ 7,658 $ (--) $ -- $ 7,658
======== ======== ======== ========
Segment assets at September 30, 2000 . $621,340 $ -- $ -- $621,340
======== ======== ======== ========
Nine months ended September 30, 1999:
Revenues ............................. $ 63,266 $ 4,782 ($ 3,860) $ 64,188
Operating and maintenance expenses ... 14,669 5,456 (5,456) 14,669
-------- -------- -------- --------
Income from operations ............... $ 48,597 $ (674) $ 1,596 $ 49,519
======== ======== ======== ========
Commercial real estate property
expenditures ........................ $ 31,465 $ -- $ -- $ 31,465
======== ======== ======== ========
Segment assets at September 30, 1999 . $556,171 $ -- $ -- $556,171
======== ======== ======== ========
Retail
Properties FWM Other (1) Total
---------- --- --------- -----
Three months ended September 30, 2000:
Revenues ............................. $ 23,893 $ 1,150 $ (870) $ 24,173
Operating and maintenance expenses ... 5,297 1,501 $ 1,501 5,297
-------- -------- -------- --------
Income (loss) from operations ........ $ 18,596 $ (351) $ 631 $ 18,876
======== ======== ======== ========
Commercial real estate property
expenditures ........................ $ 5,548 $ -- $ -- $ 5,548
======== ======== ======== ========
Three months ended September 30, 1999:
Revenues ............................. $ 21,332 $ 1,406 $ (1,116) $ 21,622
Operating and maintenance expenses ... 4,676 1,850 (1,850) 4,676
-------- -------- -------- --------
Income from operations ............... $ 16,656 $ (444) $ 734 $ 16,946
======== ======== ======== ========
Commercial real estate property
expenditures ........................ $ 13,456 $ -- $ -- $ 13,456
======== ======== ======== ========
</TABLE>
9
<PAGE>
The following table reconciles income from operations for reportable
segments to net income as reported in the Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from operations for reportable segments $ 18,876 $ 16,946 $ 55,304 $ 49,519
General and administrative expenses .......... (1,093) (1,004) (3,426) (3,168)
Disposition and merger costs ................. (2,097) -- (2,097) --
Interest expense ............................. (5,980) (4,864) (17,765) (16,066)
Depreciation and amortization ................ (4,694) (4,288) (14,094) (12,781)
Income allocated to minority interest ........ (1,040) (1,512) (4,467) (4,091)
Distributions to Preferred Stockholders ...... (1,230) (1,658) (3,958) (4,480)
Loss from Management Company ................. (351) (444) (810) (674)
Gain on sale of properties ................... -- -- 648 --
-------- -------- -------- --------
Income before extraordinary items ............ $ 2,391 $ 3,176 $ 9,335 $ 8,259
======== ======== ======== ========
</TABLE>
-------------
(1) Represents the adjustment for straight-lining of rents and reflecting the
net income from FWM using the equity method of accounting.
11. Subsequent Events
On October 13, 2000, the Board of Directors declared a distribution of
$0.4875 and $0.6094 per share of Common Stock and Preferred Stock, respectively,
to stockholders of record as of November 1, 2000, payable on November 15, 2000.
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
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 September 30, 2000 to the three
months ended September 30, 1999
For the three months ended September 30, 2000, the net income allocated
to common stockholders decreased by $785 or 24.7% from $3,176 to $2,391, when
compared to the three months ended September 30, 1999, primarily due to
disposition and merger costs, an increase in expenses, and an increase in the
amount of income allocated to minority interests, offset by a net increase in
revenues.
Total revenues increased by $2,551 or 11.8% from $21,622 to $24,173,
due primarily to the purchase of Newark Shopping Center in August 1999, Saratoga
Shopping Center in October 1999, Woodmoor Shopping Center in November 1999, and
Westmont Shopping Center, Cudahy Center, Racine Centre and Whitnall Square in
December 1999 (collectively the "1999 Acquisitions") and Goshen Plaza in July
2000 (the "2000 Acquisition"). Total revenues increased by $1,673 due to the
1999 and 2000 Acquisitions. This increase in total revenues was due primarily to
an increase in minimum rents of $1,254 and tenant reimbursements of $285. For
properties owned for all of 1999 and 2000, total revenues increased by $788
(3.8%). This increase was primarily due to increases in minimum rents of $591
(3.8%) and tenant reimbursements of $282 (7.6%). The increases in total revenues
were offset by a decrease of $396 due to the sale of properties during 1999 and
2000.
Property operating and maintenance expense increased by $621 or 13.3%
from $4,676 to $5,297. Operating and maintenance expenses increased by $429 due
to the purchase of the 1999 and 2000 Acquisitions. For properties owned for all
of 1999 and 2000 total operating and maintenance expense increased by $266
(5.9%) due to an overall increase in operating expenses. Operating and
maintenance expenses decreased by $74 due to properties sold during 1999 and
2000. General and administrative expenses increased by $210 or 17.3%, from
$1,004 to $1,215 due primarily to increases in write offs of abandoned project
costs.
10
<PAGE>
For the three months ended September 30, 2000, the Company incurred
$2,097 of disposition and merger costs related to the pending sale of the
Company. There were no such costs in 1999.
Interest expense increased by $1,116, or 22.9% from $4,864 to $5,980,
due primarily to the associated increased line of credit borrowings and mortgage
indebtedness associated with the 1999 Acquisitions. The weighted average debt
outstanding increased from $264.9 million in 1999 to $306.0 million in 2000, and
the weighted average interest rate increased from 7.4% to 7.8%.
Depreciation and amortization expenses increased by $406 or 9.5% from
$4,288 to $4,694 primarily due to the 1999 and 2000 Acquisitions.
Income allocated to minority interests decreased by $472, or 31.2% ,
from $1,512 to $1,040 due to an decrease in net income, and decrease in the
minority interests ownership of the Operating Partnership from 23.8% to 22.3%.
Comparison of the nine months ended September 30, 2000 to the nine
months ended September 30, 1999
For the nine months ended September 30, 2000, the net income allocated
to common stockholders increased by $959 or 11.6% from $8,259 to $9,218 when
compared to the nine months ended September 30, 1999, primarily due to
disposition and merger costs, increases in revenues offset by an increase in
expenses, and an increase in the amount of income allocated to minority
interests.
Total revenues increased by $7,933 or 12.4%, from $64,188 to $72,121,
due primarily to the purchase of Newark Shopping Center in August 1999, Saratoga
Shopping Center in October 1999, Woodmoor Shopping Center in November 1999, and
Westmont Shopping Center, Cudahy Center, Racine Centre and Whitnall Square in
December 1999 (collectively the "1999 Acquisitions") and Goshen Plaza in July
2000 (the "2000 Acquisition"). Total revenues increased by $5,521 due to the
1999 and 2000 Acquisitions. This increase in total revenues was due primarily to
an increase in minimum rents of $3,938 and tenant reimbursements of $1,155. For
properties owned for all of 1999 and 2000, total revenues increased by $2,371
(3.8%). This increase was primarily due to increases in minimum rents of $1,479
(3.2%) and tenant reimbursements of $1,301 (10.9%). The increases in total
revenues were offset by a decrease of $1,167 due to the sale of properties
during 1999.
Property operating and maintenance expense increased by $2,148, or
14.6%, from $14,669 to $16,817. Operating and maintenance expenses increased by
$1,484 due to the purchase of the 1999 and 2000 Acquisitions. For properties
owned for all of 1999 and 2000 total operating and maintenance expense increased
by $925 (6.5%) primarily due to an increase in snow removal expenses. Operating
and maintenance expenses decreased by $261 due to properties sold during 1999.
General and administrative expenses increased by $382 or 12.1%, from $3,167 to
$3,549 due primarily to increases in payroll expenses and the write off of
abandoned project costs.
For the nine months ended September 30, 2000, the Company incurred
$2,097 of disposition and merger costs related to the pending sale of the
Company. There were no such costs in 1999.
Interest expense increased by $1,699, or 10.6%, from $16,066 to
$17,765, due primarily to the increase in borrowings under the Line of Credit,
an increase in new and assumed mortgage indebtedness associated with the 1999
Acquisitions and an increase in borrowings from net refinancing proceeds, offset
by a decrease in indebtedness due to the curtailment of mortgage debt. The
weighted average debt outstanding increased from $276.8 million in 1999 to
$304.5 million in 2000, and the weighted average interest rate increased from
7.7% to 7.8%.
Depreciation and amortization expenses increased by $1,313 or 10.3%
from $12,781 to $14,467 primarily due to the 1999 and 2000 Acquisitions.
Income allocated to minority interests increased by $376, or 9.2%, from
$4,091 to $4,467 due to an increase in net income and an increase in the
minority interests ownership of the Operating Partnership from 24.3% to 25.2%.
11
<PAGE>
Liquidity and Capital Resources
Indebtedness
As of September 30, 2000, the Company had total mortgage indebtedness
of approximately $309,748. The mortgage indebtedness is collateralized by 48 of
the properties. Of the Company's indebtedness, $63,443 (20.5%) is variable rate
indebtedness, and $246,305 (79.5%) is at a fixed rate. The effective interest
rates of the indebtedness range from 6.4% to 9.1%, with a weighted average
interest rate of 7.9%, and will mature between 2001 and 2014. Approximately 4.4%
of the Company's indebtedness will become due during 2001, requiring balloon
payments of $13,680. From 2001 through 2014, the Company will have to refinance
an aggregate of $258,858. 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 has a collateralized revolving Line of Credit of $100,000
with the First Union National Bank. This line is collateralized by thirteen
properties (Brafferton Center, Bryans Road, Kamp Washington, Kenhorst Plaza,
Newtown Square, Riverside Square, Shoppes of Graylyn, Spring Valley, Takoma
Park, The Village, Watkins Park Plaza, Willston Center I, Woodmoor Shopping
Center). The line matures on May 19, 2003 and loans under this line will bear
interest at the 30-day LIBOR rate plus 1.35% or 1.50% depending on certain
financial ratios. As of September 30, 2000, there was $48,000 outstanding under
the Line of Credit. This line of credit replaces the UBS AG line of credit which
was due to mature in January 2001. An extraordinary loss of $117 was recognized
due to the early extinguishment of the UBS AG line of credit.
The Company currently has in place a cap on 30-day LIBOR in the
notional amount of $46,000, which limits the Company's exposure to an increase
in interest rates. The cap contract covers the period from July 19, 2000 through
January 19, 2001. The cap counter party is required to pay to the Company any
amount in excess of 6.5%, thereby limiting the Company's exposure to 30-day
LIBOR to a maximum of 6.5%.
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 Line of Credit and the leveraging of currently unencumbered Retail
Properties. The Company believes that the foregoing sources of liquidity will be
sufficient to fund liquidity needs through 2001.
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 Line of Credit and
the issuance of additional equity and debt securities. The Company also expects
to use funds available under the Line of Credit to fund acquisitions,
development activities and capital improvements on an interim basis.
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.
Item 3. Qualitative and Quantitative Disclosure about Market Risk
The Company is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates. Interest rate fluctuations are
monitored by management as an integral part of the Company's overall risk
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect on the Company's results. Our
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower our overall borrowing costs. To
achieve these objectives, from time to time we enter into interest rate hedge
contracts such as swap and cap agreements in order to mitigate our interest rate
risk with respect to various debt instruments. We do not hold or issue these
derivative contracts for trading or speculative purposes. The effect of interest
rate fluctuations historically has been small relative to other factors
affecting operating results, such as rental rates and occupancy.
The Company's operating results are affected by changes in interest
rates on variable rate borrowings including the Company's Line of Credit
facilities as well as other mortgages and notes with variable interest rates. If
interest rates increased by 100 basis points, the Company's interest expense for
the nine months ended September 30, 2000 would have increased by $434 based on
balances during the nine months ending September 30, 2000. The following is a
summary of the Company's long term debt as of September 30, 2000:
12
<PAGE>
<TABLE>
<CAPTION>
Expected Maturity Date of Balloon Payments
Total Fair Value
Balloon of Debt as of
2000 2001 2002 2003 2004 Thereafter Payments 9/30/00
---- ---- ---- ---- ---- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED RATE ........................... -- $ 7,237 $ 9,031 $ 14,927 -- $167,567 $198,762 $236,938
Average Interest Rate ........... -- 7.8% 7.0% 7.2% -- 7.8%
VARIABLE RATE
LIBOR-based(1):
Potomac Plaza (LIBOR plus 2.25%) 2,418 2,418 2,418
Line of Credit (LIBOR
plus 1.35%)(2) ............ 48,000 48,000 48,000
Ashburn Farms (LIBOR
plus 1.5%) ................... 6,443 6,443 6,443
-------- -------- -------- -------- -------- -------- -------- --------
Total LIBOR-based .................... -- 6,443 -- 48,000 2,418 -- 56,861 56,861
Tax-exempt:
Mayfair Shopping
Center (3) .................... 3,235 3,235 3,235
-------- -------- -------- -------- -------- -------- -------- --------
Total variable rate debt ............. -- 6,443 -- 48,000 2,418 3,235 60,096 60,096
-------- -------- -------- -------- -------- -------- -------- --------
Total Debt ........................... $ 0 $ 13,680 $ 9,031 $ 62,927 $ 2,418 $170,802 $258,858 $297,034
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
---------------
(1) At September 30, 2000 the LIBOR rate was 6.6%.
(2) This schedule assumes that the Line of Credit is repaid at the maturity
date.
(3) The interest rate is determined weekly at the rate necessary to produce a
bid in the process of remarketing the obligation equal to par plus accrued
interest. The Company also pays a 1.5% letter of credit enhancement fee to
Mellon Bank.
Part II
OTHER INFORMATION
Item 2. Recent Sales of Unregistered Equity Securities
None
Item 4. Submission of matters to a vote of security holders
None
13
<PAGE>
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
An interim report on Form 8-K was filed on September 28, 2000
announcing the sale of subtantially all of the Company's assets.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST WASHINGTON REALTY TRUST, INC.
Date: November 14, 2000 By: /s/ James G. Blumenthal
-------------------------------------
James G. Blumenthal
Executive Vice President and
Chief Financial Officer
15
