FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 30, 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
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (301) 907-7800
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Common Stock, $.01 par value, outstanding as of August 8, 2000:
10,382,293 Shares of Common Stock
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
FORM 10-Q
INDEX
Part I: Financial Information Page
------ --------------------- ----
Item 1. Consolidated Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999 1
Consolidated Statements of Operations (unaudited)
for the three months and six months ended
June 30, 2000 and 1999 2
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 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 8
Item 3. Qualitative and Quantitative Disclosures about
Market Risk 10
Part II: Other Information
------- ---------------------
Item 2. Recent Sales of Unregistered Equity Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except share data)
-----------
June 30 December 31,
2000 1999
------- ------
(unaudited)
ASSETS
Rental properties:
Land $119,845 $119,965
Buildings and improvements 495,947 495,031
-------- --------
615,792 614,996
Accumulated depreciation (75,327) (67,029)
-------- --------
Rental properties, net 540,465 547,967
Cash and equivalents 12,134 4,332
Tenant receivables, net 15,470 11,750
Deferred financing costs, net 6,575 5,137
Other assets 16,194 14,107
-------- --------
Total assets $590,838 $583,293
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $308,609 $298,116
Accounts payable and accrued expenses 14,009 12,350
-------- --------
Total liabilities 322,618 310,466
Minority interest 64,834 66,267
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock $.01 par value,
10,000,000 shares authorized, 3,800,000 shares
designated;
2,030,205 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;
10,382,293 and 9,709,670 shares issued and
outstanding, respectively 104 97
Additional paid-in capital 244,858 245,054
Accumulated distributions in excess of earnings ( 41,596) (38,615)
-------- --------
Total stockholders' equity 203,386 206,560
-------- --------
Total liabilities and stockholders' equity $590,838 $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)
For three For six
months ended months ended
June 30, June 30,
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Minimum rents $18,097 $16,445 $35,808 $32,422
Tenant reimbursements 4,717 4,106 10,124 8,404
Percentage rents 495 501 942 881
Other income 648 388 1,075 858
------- ------ ------- -------
Total revenues 23,957 21,440 47,949 42,565
------- ------ ------- -------
Expenses:
Property operating
and maintenance 5,450 4,787 11,520 9,993
General and administrative 1,117 1,068 2,334 2,162
Interest 5,964 5,677 11,784 11,202
Depreciation and amortization 4,776 4,282 9,400 8,494
----- ----- ------ ------
Total expenses 17,307 15,814 35,038 31,851
------ ------ ------ ------
Income before gain on sale of
properties, loss from
Management Company, minority
interest, extraordinary
item, and distributions to
Preferred Stockholders 6,650 5,626 12,911 10,714
Gain on sale of properties 648 - 648 -
Loss from Management Company (357) (315) (459) (230)
----- ----- ------ ------
Income before minority interest,
extraordinary item, and
distributions to Preferred
Stockholders 6,941 5,311 13,100 10,484
Income allocated to minority interest (1,796) (1,273) (3,427) (2,579)
------- ------- ------ -------
Income before extraordinary item and
distributions to Preferred
Stockholders 5,145 4,038 9,673 7,905
Extraordinary item (net of minority
interest)-
Loss on early extinguishment
of debt (117) - (117) -
----- ----- ----- ------
Net income 5,028 4,038 9,556 7,905
Distributions to preferred stockholders (1,361) (1,412) (2,728) (2,822)
------ ------ ------ -------
Net income allocated to
Common Stockholders $3,667 $2,626 $6,828 $5,083
====== ====== ====== ======
Earnings per Common Share - Basic
Income before extraordinary item $ 0.37 $ 0.30 $ 0.69 $ 0.59
Extraordinary item (0.01) 0.00 (0.01) 0.00
------ ------ ------ ------
Net income $ 0.36 $ 0.30 $ 0.68 $ 0.59
====== ====== ====== ======
Earnings per Common Share - Diluted
Income before extraordinary item $ 0.37 $ 0.30 $ 0.68 $ 0.58
Extraordinary item (0.01) 0.00 (0.01) 0.00
------ ------ ------ ------
Net income $ 0.36 $ 0.30 $ 0.67 $ 0.58
====== ====== ====== ======
Weighted average shares of Common
Stock - Basic 10,157 8,787 10,100 8,682
Dilutive effect of stock
options and contingent stock 90 88 52 81
------ ----- ------ -----
Weighted average shares of
Common Stock - Diluted 10,247 8,875 10,152 8,763
======= ====== ====== =====
Distributions per share $0.4875 $0.4875 $0.9750 $0.9750
======= ======= ======= ======
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 six months ended
June 30,
--------------------
2000 1999
==== ====
Operating Activities:
Net Income $9,556 $7,905
Adjustments to reconcile net
income to net cash provided by
operating activities:
Income allocated to minority interest 3,427 2,579
Depreciation and amortization 9,400 8,494
Gain on sale of rental properties (648) -
Loss on early extinguishment of debt 117 -
Amortization of deferred financing costs
and loan premiums (148) (252)
Equity in earnings of Management Company 699 470
Compensation paid or payable in common shares 759 642
Provision for uncollectible accounts 227 637
Recognition of deferred rent (508) (632)
Net changes in:
Tenant receivables (3,438) 73
Other assets (3,275) 858
Accounts payable and accrued expenses 2,713 (339)
------- -------
Net cash provided by operating
activities 18,881 20,435
------- -------
Investing Activities:
Acquisition of rental properties - (10,345)
Additions to rental properties (2,110) (2,804)
Net proceeds from sale of
rental property 1,351 -
------ -------
Net cash used in investing activities ( 759) (13,149)
------ -------
Financing Activities:
Proceeds from line of credit 54,500 19,300
Proceeds from mortgage notes refinancings 26,125 18,822
Proceeds from exercise of stock options - 49
Repayment of line of credit (52,500) (23,200)
Repayment of mortgage notes (16,957) (2,131)
Additions to deferred financing costs (2,048) (3,965)
Loan prepayment penalties (78) -
Distributions paid to Preferred Stockholders (2,728) (2,822)
Distributions paid to Common Stockholders (9,809) (8,375)
Distributions paid to minority interest (4,303) (4,082)
Repurchase of Preferred and Common Shares (2,522) -
------- -------
Net cash used in financing activities (10,320) (6,404)
------- -------
Net increase in cash and equivalents 7,802 882
Cash and equivalents, beginning of period 4,332 3,163
------- -------
Cash and equivalents, end of period $12,134 $4,045
======= =======
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 61 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 42 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 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. Acquisition and disposition of Rental Properties
There were no acquisitions during the first six months of 2000. In
July, 2000 the Company acquired Goshen Plaza for an aggregate cost of
approximately $4,300. During the first six months of 1999, the Company acquired
one shopping center for an aggregate cost of approximately $15,184. The Company
sold one property during the first six months of 2000 for $1,485. Net proceeds
of $1,351 were used to purchase Goshen Plaza in July 2000 in a tax-free
exchange. A gain on sale of property was recognized in the amount of $648.
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 six 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 six months ended
June 30,
------------------------
2000 1999
---- ----
Pro forma total revenues $47,854 $42,565
======= ========
Pro forma net income $ 6,793 $ 5,083
======= ========
Pro forma earnings per Common Share
- Basic $ 0.67 $ 0.59
======= =======
Pro forma earnings per Common Share
- Diluted $ 0.67 $ 0.58
======= =======
4. Mortgage Debt
During the six months ended June 30, 2000 the Company closed on the
following loans:
All in
Collateral Properties Date Amount Rate
--------------------- ---- ------ ----
Cudahy Center 1/00 $ 2,215 7.94%
Racine Centre 1/00 $ 4,585 7.89%
Whitnall Square 1/00 $ 5,525 7.89%
Festival at Woodholme 6/00 $13,800 7.75%
Amortization
Term Period
---- ------------
10 years 30 years
10 years 30 years
10 years 30 years
10 years 30 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 June 30, 2000, there was $46,000 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 (see subsequent
events) 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.
5. Preferred Stock
Effective June 1, 1999, shares of Convertible Preferred Stock became
convertible into 1.282051 shares of Common Stock. During the six months ended
June 30, 2000, 228,597 shares of Convertible Preferred Stock were converted into
293,073 shares of Common Stock. Commencing July 15, 1999 the Company may redeem
the Convertible Preferred Stock. The current redemption price is $26.95 and
reduces annually in stages to $25.00 on July 15, 2004.
5
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
6. Share Buyback Authorization
In December 1999, the Company's Board of Directors authorized the
repurchase of the Company's Common and Preferred Shares up to 1,000,000 common
equivalent shares (after taking into account the Preferred Stock conversion
ratio). 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.
7. 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 each in accordance with their employment agreements. In March
2000 these officers also received stock grants of 12,500 shares each in
accordance with their employment agreements.
8. Summary of Noncash Investing and Financing Activities
Significant noncash transactions for the six months ended June, 2000
and 1999 were as follows:
2000 1999
---- ----
Liabilities assumed in acquisition of rental properties $ - $ 3,045
Common units in the Operating Partnership issued
in connection with the payoff of deferred
acquisition liabilities $1,344 $ -
Increase (decrease) in minority interest's ownership of
the Operating Partnership ($ 517) $ 1,307
Accrued compensation paid through the issuance
of Common Stock $ 467 $ 1,129
Exchange of debentures for 1,000,000 shares
of preferred stock $ - $25,000
9. 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:
6
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
<TABLE>
<S>
<C> <C> <C>
Retail
Properties FWM Other (1)
---------- --- ---------
Six months ended June 30, 2000:
Revenues $ 47,441 $3,459 ($ 2,951)
Operating and maintenance expenses 11,520 3,918 ( 3,918)
-------- ------ ---------
Income (loss) from operations $ 35,921 ($ 459) $ 967
======== ====== =========
Commercial real estate property
expenditures $ 2,110 $ - $ -
======== ====== =========
Segment assets at June 30, 2000 $590,838 - $ -
======== ====== =========
<C>
Total
=====
$ 47,949
11,520
--------
$ 36,429
========
2,110
--------
590,838
========
</TABLE>
Six months ended June 30, 1999:
<TABLE>
<S>
<C> <C> <C>
Revenues $ 41,933 $3,446 ($ 2,814)
Operating and maintenance expenses 9,993 3,676 ( 3,676)
------- ------ ---------
Income from operations $ 31,940 ($ 230) $ 862
======= ======= ========
Commercial real estate property
expenditures $ 18,009 $ - $ -
======== ======= =========
Segment assets at June 30, 1999 $543,488 $ - $ -
======== ======= =========
<C>
Total
=====
$ 18,009
--------
543,488
========
</TABLE>
<TABLE>
<S>
<C> <C> <C>
Retail
Properties FWM Other (1)
---------- --- ---------
Three months ended June 30, 2000:
Revenues $ 23,708 $ 1,578 ($ 1,329)
Operating and maintenance expenses 5,450 1,935 (1,935)
-------- ------- --------
Income (loss) from operations $ 18,258 ($ 357) $ 606
======== ======= =========
Commercial real estate property
expenditures $ 850 $ - $ -
======== ======= ==========
<C>
Total
======
$23,957
5,450
-------
18,507
=======
$ 850
=======
</TABLE>
<TABLE>
<S>
<C> <C> <C>
Retail
Properties FWM Other (1)
---------- --- ---------
Three months ended June 30, 1999:
Revenues $ 21,127 $1,636 ($ 1,323)
Operating and maintenance expenses 4,787 1,951 ( 1,951)
-------- ------- ---------
Income from operations $ 16,340 ($ 315) $ 628
======== ======== =========
Commercial real estate property
expenditures $ 605 $ - $ -
======== ========= =========
<C>
Total
======
$21,440
4,787
-------
$16,653
=======
$ 605
=======
</TABLE>
7
<PAGE>
The following table reconciles income from operations for reportable
segments to net income as reported in the Consolidated Statements of Operations.
<TABLE>
<S> <C>
Three months ended
------------------------
June 30,
---------------------------
<C> <C>
2000 1999
---- ----
Income from operations for reportable segments $18,507 $16,653
General and administrative expenses (1,117) (1,068)
Interest expense (5,964) (5,677)
Depreciation and amortization (4,776) (4,282)
Income allocated to minority interest (1,796) (1,273)
Distributions to Preferred Stockholders (1,361) (1,412)
Loss from Management Company ( 357) ( 315)
Gain on sale of properties 648 -
-------- -----------
Income before extraordinary items $ 3,784 $2,626
======== ======
<C>
Six months ended
----------------
June 30,
----------------
<C> <C>
2000 1999
---- ----
$36,429 $32,572
( 2,334) (2,162)
(11,784) (11,202)
( 9,400) (8,494)
( 3,427) (2,579)
( 2,728) (2,822)
( 459) ( 230)
648 -
------- -----
$ 6,945 $5,083
======= ======
</TABLE>
(1) Represents the adjustment for straight-lining of rents and reflecting the
net income from FWM using the equity method of accounting.
10. Subsequent Events
On July 14, 2000, 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 August 1, 2000, payable on August 15, 2000.
On July 27, 2000, the Company refinanced the mortgage loan collateralized
by Stonebrook Plaza. The new loan is in the amount of $6,400; matures in 5 years
and has an all in interest rate of 7.3% including the amortization of interest
rate swap contract proceeds.
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 June 30, 2000 to the three months
ended June 30, 1999
For the three months ended June 30, 2000, the net income allocated to
common stockholders increased by $1,041 or 39.7% from $2,626 to $3,667, when
compared to the three months ended June 30, 1999, primarily due to 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 $2,517 or 11.7% from $21,440 to $23,957, due
primarily to an increase in minimum rents of $1,652, and tenant reimbursements
of $611. The increases were primarily due 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"). Total revenues increased by $1,905 due to the 1999 Acquisitions.
This increase in total revenues was due primarily to an increase in minimum
rents of $1,370 and tenant reimbursements of $407. For properties owned for all
of 1999 and 2000, total revenues increased by $623 (3.0%). This increase was
primarily due to increases in minimum rents of $529 (3.4%) and tenant
reimbursements of $285 (7.1%). The increases in total revenues were offset by a
decrease of $376 due to the sale of properties during 1999.
Property operating and maintenance expense increased by $663 or 13.9% from
$4,787 to $5,450. Operating and maintenance expenses increased by $482 due to
the purchase of the 1999 Acquisitions. For properties owned for all of 1999 and
2000 total operating and maintenance expense increased by $272 (5.8%) due to an
overall increase in operating expenses. Operating and maintenance expenses
decreased by $91 due to properties sold during 1999. General and administrative
expenses increased by $49 or 4.6%, from $1,068 to $1,117 due primarily to
increases in payroll expenses.
8
<PAGE>
Interest expense increased by $287, or 5.1% from $5,677 to $5,964, 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 $287.2 million in 1999 to $302.2 million in 2000, and
the weighted average interest rate remained the same at 7.9%.
Depreciation and amortization expenses increased by $494 or 11.5% from
$4,282 to $4,776 primarily due to the 1999 Acquisitions.
Income allocated to minority interests by $523, or 41.1% , from $1,273 to
$1,796 due to an increase in net income, and an increase in the minority
interests ownership of the Operating Partnership from 23.9% to 25.9%.
Comparison of the six months ended June 30, 2000 to the six months ended June
30, 1999
For the six months ended June 30, 2000, the net income allocated to common
stockholders increased by $1,745 or 34.3% from $5,083 to $6,828 when compared to
the six months ended June 30, 1999, primarily due to 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 $5,384 or 12.6%, from $42,565 to $47,949, due
primarily to an increase in minimum rents of $3,386, and tenant reimbursements
of $1,720. The increases were primarily due 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"). Total revenues increased by $3,848 due to the 1999 Acquisitions.
This increase in total revenues was due primarily to an increase in minimum
rents of $2,774 and tenant reimbursements of $871. For properties owned for all
of 1999 and 2000, total revenues increased by $1,575 (3.8%). This increase was
primarily due to increases in minimum rents of $770 (2.4%) and tenant
reimbursements of $1,019 (12.4%). The increases in total revenues were offset by
a decrease of $764 due to the sale of properties during 1999.
Property operating and maintenance expense increased by $1,527, or 15.3%,
from $9,993 to $11,520. Operating and maintenance expenses increased by $1,055
due to the purchase of the 1999 Acquisitions. For properties owned for all of
1999 and 2000 total operating and maintenance expense increased by $658 (6.7%)
primarily due to an increase in snow removal expenses. Operating and maintenance
expenses decreased by $186 due to properties sold during 1999. General and
administrative expenses increased by $172 or 8.0%, from $2,162 to $2,334 due
primarily to increases in payroll expenses.
Interest expense increased by $582, or 5.2%, from $11,202 to $11,784, due
primarily to the increase in borrowings under the Line of Credit ($40,700) and
an increase in new and assumed mortgage indebtedness associated with the 1999
Acquisitions ($28,501) and net refinancing proceeds ($2,619), offset by a
decrease in indebtedness due to the curtailment of mortgage debt ($22,326). The
weighted average debt outstanding increased from $282.7 million in 1999 to
$302.1 million in 2000, and the weighted average interest rate decreased from
7.9% to 7.8%.
Depreciation and amortization expenses increased by $906 or 10.7% from
$8,494 to $9,400 primarily due to the 1999 Acquisitions.
Income allocated to minority interests increased by $848, or 32.9%, from
$2,579 to $3,427 due to an increase in net income, and an increase in the
minority interests ownership of the Operating Partnership from 24.6% to 26.2%.
Liquidity and Capital Resources
Indebtedness
As of June 30, 2000, the Company had total mortgage indebtedness of
approximately $308,600. The mortgage indebtedness is collateralized by 48 of the
properties. Of the Company's indebtedness, $61,464 (19.9%) is variable rate
indebtedness, and $247,145 (80.1%) is at a fixed rate. The effective interest
rates of the indebtedness range from 7.0% to 8.9%, with a weighted average
interest rate of 7.8%, and will mature between 2000 and 2014. Approximately 9.5%
of the Company's indebtedness will become due by 2001, requiring balloon
payments of $5,695 in 2000, and $13,680 in 2001. From 2000 through 2014, the
Company will have to refinance an aggregate of $256,765. 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.
9
<PAGE>
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 June 30, 2000, there was $46,000 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 six
months ended June 30, 2000 would have increased by $276 based on balances during
the six months ending June 30, 2000. The following is a summary of the Company's
long term debt as of June 30, 2000:
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Expected Maturity Date of Balloon Payments
<TABLE>
<S>
<C> <C> <C> <C>
2000 2001 2002 2003
-------- ------- ------ --------
FIXED RATE $5,695 $7,237 $9,031 $14,927
-----------
Average Interest Rate 8.5% 7.8% 7.0% 7.2%
VARIABLE RATE
LIBOR-based(1):
Potomac Plaza (LIBOR plus 2.25%)
Line of Credit (LIBOR
plus 1.35%) (2) 46,000
Ashburn Farms (LIBOR
plus 1.5%) 6,443
-------- -------- -------- --------
Total LIBOR-based - 6,443 - 46,000
Tax-exempt:
Mayfair Shopping
Center (3)
-------- -------- -------- --------
Total variable rate debt - 6,443 - 46,000
-------- -------- -------- --------
Total Debt $5,695 $13,680 $9,031 $60,927
======== ======== ======== ========
<C> <C> <C> <C>
Total Fair Value
Balloon of Debt as of
2004 Thereafter Payments 6/30/00
--------- ---------- -------- -------------
- $ 161,779 $198,669 $ 235,076
7.7%
2,418 2,418 2,418
46,000 46,000
6,443 6,443
---------- ----------- --------- -------------
2,418 - 54,861 54,861
3,235 3,235 3,235
---------- ---------- -------- -----------
2,418 3,235 58,096 58,096
---------- ---------- -------- -----------
$2,418 $165,014 $256,765 $293,172
========== ========== ======== ===========
</TABLE>
(1) At June 30, 2000 the LIBOR rate was 6.5%.
(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
On May 12, 2000 the Company held its annual meeting of
shareholders. The matters on which the shareholders voted, in person or by
proxy, were (i) for the election of two nominees to serve on the Board of
Directors for a term of three years or until their respective successors are
duly elected and qualify (ii) the ratification of the appointment of
PricewaterhouseCoopers as the Company's independent auditors and (iii)
amendements to the Company's Stock Option Plan. The two nominees were elected,
and the ratification of the appointment of the independent auditors and
amendment of the Stock Option Plan were approved. The results of the voting are
shown below:
Election of Directors:
Votes Cast
Director Votes Cast For Against or Withheld
-------- -------------- -------------------
Stuart D. Halpert 9,365,819 61,734
Heywood Wilansky 9,365,819 61,734
11
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Ratification of Appointment of Independent Auditors:
Votes Cast
Votes Cast For Against or Withheld
============== ===================
9,379,646 47,907
Amendment of the Stock Option Plan
Votes Cast
Votes Cast For Against or Withheld
============== ===================
8,846,112 581,441
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 New line of Credit Agreement
10.2 Amendment to Stock Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST WASHINGTON REALTY TRUST, INC.
Date: August 8, 2000 /s/ James G. Blumenthal
---------------------------------
By: James G. Blumenthal
Executive Vice President and
Chief Financial Officer
13
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