UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
For Fiscal Year Ended: December 31, 1998 Commission File No.17533
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FEDERAL REALTY INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
District of Columbia 52-0782497
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1626 East Jefferson Street, Rockville, Maryland 20852
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(Address of principal executive offices) (Zip Code)
(301) 998-8100
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- ---------------------
Common Shares of Beneficial Interest New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
7.95% Series A Cumulative Redeemable
Preferred Shares New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
6 5/8% Senior Notes 6.74% Medium-Term Notes
7.48% Senior Debentures 6.99% Medium-Term Notes
8 7/8% Senior Notes 6.82% Medium-Term Notes
8% Senior Notes
Subordinated Debt Securities*
* None issued, registered pursuant to a shelf registration
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
At March 12, 1999, the aggregate market value of Common Shares of Beneficial
Interest of Federal Realty Investment Trust held by nonaffiliates was $883.6
million based upon the closing price of such Shares on the New York Stock
Exchange.
Indicate the number of shares outstanding of each of the issuers' classes of
common stock.
Class Outstanding at March 12, 1999
- ----- -----------------------------
Common Shares of Beneficial Interest 40,165,744
1
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
PART III
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Portions of the Trust's Proxy Statement in connection with its Annual
Meeting to be held on May 5, 1999 (hereinafter called "1999 Proxy
Statement"). Specifically, the Sections entitled "Summary Compensation
Table", "Employment Agreements;Termination of Employment and Change in
Control Arrangements", "Aggregated Option Exercises in 1998 and December 31,
1998 Option Values", "Retirement and Disability Plans", and "Compensation
Committee Interlocks and Insider Participation", "Ownership of Shares by
Trustees and Officers", "Certain Transactions" and "Section 16(a) Beneficial
Ownership Reporting Compliance" appearing in the 1999 Proxy Statement are
incorporated herein by reference.
The Exhibit Index for this report is found on page 32.
This report, including Exhibits, contains 188 pages.
2
PART I & II
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Item 1. Business
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Federal Realty Investment Trust (the "Trust") is engaged in the ownership,
management, development and redevelopment of prime retail properties. Founded in
1962 as a District of Columbia business trust of unlimited duration, the Trust
is a self-administered equity real estate investment trust. The Trust
consolidates the financial statements of various entities which it controls. At
December 31, 1998 the Trust owned 120 retail properties and one apartment
complex.
The Trust operates in a manner intended to enable it to qualify as a real
estate investment trust (REIT) under Sections 856- 860 of the Internal Revenue
Code. Under those sections, a REIT which distributes at least 95% of its real
estate investment trust taxable income to its shareholders each year and which
meets certain other conditions will not be taxed on that portion of its taxable
income which is distributed to its shareholders. Therefore, no provision for
Federal income taxes is required.
An important part of the Trust's strategy is to acquire older, well-located
properties in prime, densely populated and affluent areas and to enhance their
operating performance through a program of renovation, expansion,
reconfiguration and retenanting. The Trust's traditional focus has been on
community and neighborhood shopping centers that are anchored by supermarkets,
drug stores or high volume, value oriented retailers that provide consumer
necessities. Late in 1994 the Trust expanded this strategy to include retail
buildings and shopping centers in prime established main street shopping areas.
In addition, the Trust has various land parcels under its control for the
purpose of developing multi-use projects that center around the retail
component. The Trust believes that development is an important source of growth
in the future.
The Trust continually evaluates its properties for renovation, retenanting
and expansion opportunities. Similarly, the Trust regularly reviews its
portfolio and from time to time considers selling certain of its properties.
The Trust's portfolio of properties has grown from 49 as of January 1, 1994
to 121 at December 31, 1998. During this five year period the Trust acquired 77
retail properties for approximately $798 million. During this same period five
shopping centers were sold. Also during this period the Trust spent over $297
million to develop, renovate, expand, improve and retenant its properties.
Although the Trust usually purchases a 100% fee interest in its acquisitions, on
occasion, it has entered into leases as a means of acquiring properties. In
addition, the Trust has purchased certain properties in partnership with others.
Certain of the partnerships, known as "downreits", are a means of allowing
property owners to make a tax deferred contribution of their property in
exchange for partnership units, which receive the same distributions as Trust
common shares and may be convertible into common shares of the
3
Trust. The majority of acquisitions are funded with cash, but, on occasion,
usually in connection with the partnerships, debt financing is used. Since a
significant portion of cash provided by operating activities is distributed to
common and preferred shareholders, capital outlays for acquisitions,
developments and redevelopments require debt or equity funding.
The Trust's 120 retail properties are located in 16 states and the District
of Columbia. Twenty-four of the properties are located in the Washington, D.C.
metropolitan area; twenty-two are in California; fourteen are in Connecticut;
eleven are in Pennsylvania, primarily in the Philadelphia area; ten are in New
Jersey; ten are in Texas; seven are in Illinois; three are in Virginia; four are
in Massachusetts; seven are in New York; two are in Florida; two are in Arizona;
and there is one in each of the following states: Georgia, Michigan, North
Carolina and Oregon. No single property accounts for over 10% of the Trust's
revenues.
The Trust has traditionally operated its business as a single business
segment. During the fourth quarter of 1998, however, the Trust completed a
comprehensive restructuring program which, among other things, changed the
Trust's operating structure from a functional hierarchy to an asset management
model, where small, focused teams are responsible for a portfolio of assets. As
a result the Trust has divided its portfolio of properties into three operating
regions: the Northeast, Mid-Atlantic and West. Each region is operated under the
direction of a chief operating officer, with dedicated leasing, property
management and financial staff and operates largely autonomously with respect to
day to day operating decisions. (See "Segment Results" in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations for a
further discussion of the segments and their results.)
The Trust has approximately 2,290 tenants, ranging from sole proprietors to
major national retailers; no one tenant or corporate group of tenants accounts
for 3% or more of revenue. The Trust's leases with these tenants are classified
as operating leases and typically are structured to include minimum rents,
percentage rents based on tenants' sales volumes and reimbursement of certain
operating expenses and real estate taxes.
The Trust continues to seek older, well-located shopping centers and retail
buildings to acquire, renovate, retenant and remerchandise, thereby enhancing
their revenue potential. The Trust also continues to identify and secure
additional sites for new development. During each of the years ended December
31, 1998, 1997 and 1996, retail properties have contributed 96% of the Trust's
total revenue. The extent to which the Trust might mortgage or otherwise finance
investments varies with the investment involved and the economic climate.
The success of the Trust depends upon, among other factors, the trends of
the economy, including interest rates, construction costs, retailing trends,
income tax laws, increases or decreases in operating expenses, governmental
regulations, population
4
trends, zoning laws, legislation and the ability of the Trust to keep its
properties leased at profitable levels. The Trust competes for tenants with
other real estate owners and the Trust's properties account for only a small
fraction of the retail space available for lease. The Trust competes for
investment opportunities and debt and equity capital with individuals,
partnerships, corporations, financial institutions, life insurance companies,
pension funds, trust funds and other real estate investment trusts.
Investments in real property create a potential for environmental liability
on the part of the current and previous owners of, or any mortgage lender on,
such real property. If hazardous substances are discovered on or emanating from
any property, the owner or operator of the property may be held liable for costs
and liabilities relating to such hazardous substances. The Trust has
environmental insurance on many of its properties. Subject to certain exclusions
and deductibles, the insurance provides coverage for unidentified, pre-existing
conditions and for future contamination caused by tenants and third parties.
The Trust's current policy is to require an environmental study on each
property it seeks to acquire. On recent acquisitions, any substances identified
prior to closing which are required, by applicable laws, to be remediated have
been or are in the process of investigation and remediation. Costs related to
the abatement of asbestos which increase the value of Trust properties are
capitalized. Other costs are expensed. In 1998 and 1997 approximately $616,000
and $1.3 million, respectively, of which $453,000 and $732,000, respectively,
was capitalized abatement costs, was spent on environmental matters. The Trust
has budgeted approximately $800,000 for 1999 for environmental matters, a
majority of which is projected for asbestos abatement.
Current Developments
- --------------------
In 1998 the Trust acquired real estate at a cost of $120.4 million,
consisting primarily of four shopping centers and fifteen street retail
properties. The Trust spent another $73.0 million in improvements to its
properties, including $25.0 million on its predevelopment and development
projects in Bethesda, Maryland; Los Gatos, California; San Jose, California; and
Arlington, Virginia. The Trust invested $21.4 million in mortgage notes
receivable with an average weighted stated interest rate of 10%. Mortgages on
six properties,totaling $53.3 million, were paid upon their maturity in 1998.
The Trust utilized its unsecured line of credit to fund these acquisitions,
capital expenditures and balloon debt repayments. Repayments on the line of
credit were made from the issuance in December 1998 of a $125 million four year
loan from five institutional lenders and from the issuance of $80.0 million of
Medium-Term Notes in March 1998.
In September 1998 the Trust filed a $500 million shelf registration
statement with the Securities and Exchange
5
Commission which allows for the issuance of debt securities, preferred shares
and common shares.
At December 31, 1998 the Trust had 225 full-time employees.
The Trust, in its 1999 Proxy Statement, has proposed for shareholder
consideration the reorganization of the Trust under the laws of the State of
Maryland through an amendment and restatement of its declaration of trust.
6
Item 2. Properties
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Retail Properties
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The following table sets forth information concerning each retail property in
which the Trust owns an equity interest or has a leasehold interest as of
December 31, 1998. Except as otherwise noted, retail properties are 100% owned
in fee by the Trust.
Year Year Number of Occupancy (1)
NORTHEAST Completed Acquired Square Feet (2) Tenants Acres Overall / Economic
------------- ----------- -------------------- ----------- ------- ------------------------
Allwood 1958 1988 52,000 8 5 100% / 100%
Clifton, NJ 07013 (3)
Andorra 1953 1988 259,000 43 23 98% / 97%
Philadelphia, PA 19128 (4)
Bala Cynwyd 1955 1993 279,000 28 22 98% / 98%
Bala Cynwyd, PA 19004
Blue Star 1959 1988 392,000 30 55 89% / 89%
Watchung, NJ 07060 (3)
Brick Plaza 1958 1989 404,000 34 42 99% / 99%
Brick Township, NJ 08723 (3)
Bristol 1959 1995 296,000 34 22 90% / 90%
Bristol, CT 06010
Brunswick 1957 1988 261,000 21 22 100% / 96%
North Brunswick, NJ 08902 (3)
Clifton 1959 1988 80,000 13 8 96% / 96%
Clifton, NJ 07013 (3)
Dedham 1959 1993 250,000 32 18 92% / 90%
Dedham, MA 02026
Ellisburg Circle 1959 1992 255,000 35 27 97% / 97%
Cherry Hill, NJ 08034
Feasterville 1958 1980 116,000 9 12 90% / 90%
Feasterville, PA 19047
Principal
Tenants
-----------------
Allwood Grand Union
Clifton, NJ 07013 (3) Mandee Shop
Andorra Acme Markets
Philadelphia, PA 19128 (4) Andorra Theater
Kohl's
Bala Cynwyd Lord & Taylor
Bala Cynwyd, PA 19004 Acme Markets
Blue Star Caldor
Watchung, NJ 07060 (3) Shop Rite
Toys R Us
Brick Plaza A&P Supermarket
Brick Township, NJ 08723 (3) Loews Theatre
Steinbach's
Bristol Bradlees
Bristol, CT 06010 Super Stop & Shop
TJ Maxx
Brunswick Caldor
North Brunswick, NJ 08902 (3) Grand Union
Schwartz Furniture
Clifton Acme Markets
Clifton, NJ 07013 (3)
Dedham Ames
Dedham, MA 02026 Cherry & Webb
Ellisburg Circle Bed, Bath & Beyond
Cherry Hill, NJ 08034 Ross Dress For Le
Shop Rite
Feasterville Office Max
Feasterville, PA 19047 Genuardi Markets
7
Year Year Number of Occupancy (1)
Completed Acquired Square Feet (2) Tenants Acres Overall / Economic
------------- ----------- ------------------- ----------- ------- --------------------
Flourtown 1957 1980 191,000 20 15 100% /100%
Flourtown, PA 19031
Fresh Meadows 1949 1997 411,000 68 147 96% / 96%
Queens, NY 11365
Hamilton 1961 1988 190,000 13 18 100% / 97%
Hamilton, NJ 08690 (3)
Hauppauge 1963 1998 131,000 21 15 100% / 100%
Hauppauge, NY 11788
Huntington 1962 1988 274,000 12 21 99% / 99%
Huntington, NY 11746 (3)
Lancaster 1958 1980 107,000 16 11 97% /97%
Lancaster, PA 17601 (3)
Langhorne Square 1966 1985 200,000 28 21 100% / 77%
Levittown, PA 19056
Lawrence Park 1972 1980 340,000 40 28 79% / 79%
Broomall, PA 19008
Northeast 1959 1983 296,000 34 19 92% / 92%
Philadelphia, PA 19114
Queen Anne Plaza 1967 1994 149,000 11 18 100% / 100%
Norwell, MA 02061
Rutgers 1973 1988 216,000 19 27 99% / 99%
Franklin, N.J. 08873 (3)
Saugus Plaza 1976 1996 171,000 7 19 100% / 100%
Saugus, MA 01906
Troy 1966 1980 202,000 21 19 100% /100%
Parsippany-Troy, NJ 07054
Willow Grove 1953 1984 213,000 27 14 100% / 100%
Willow Grove, PA 19090
Principal
Tenants
----------------------
Flourtown K Mart
Flourtown, PA 19031 Genuardi Markets
Fresh Meadows Cineplex Odeon
Queens, NY 11365 Filene's
K Mart
Hamilton Shop Rite
Hamilton, NJ 08690 (3) Steven's Furniture
A.C. Moore
Hauppauge Shop Rite
Hauppauge, NY 11788 Office Max
Huntington Bed, Bath and Beyond
Huntington, NY 11746 (3) Service Merchandise
Toys R Us
Lancaster Giant Eagle
Lancaster, PA 17601 (3) A.C. Moore
Langhorne Square Drug Emporium
Levittown, PA 19056 Marshalls
Lawrence Park Acme Markets
Broomall, PA 19008
Northeast Burlington Coat Factory
Philadelphia, PA 19114 Marshalls
Med Max
Queen Anne Plaza TJ Maxx
Norwell, MA 02061 Star Markets
Rutgers Edwards Super Food
Franklin, N.J. 08873 (3) K Mart
Saugus Plaza K Mart
Saugus, MA 01906 Super Stop & Shop
Troy Comp USA
Parsippany-Troy, NJ 07054 Pathmark
Toys R Us
Willow Grove Barnes and Noble
Willow Grove, PA 19090 Marshalls
Toys R Us
8
Year Year Number of
Completed Acquired Square Feet (2) Tenants Acres
------------- ----------- ----------------- --------- --------
Wynnewood 1948 1996 257,000 27 16
Wynnewood, PA 19096
Retail buildings
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Thirteen buildings in CT 1900 - 1991 1994 -1996 232,000 81
One building in MA 1930 1995 13,000 8
Four buildings in NY (4) 1937 - 1987 1997 87,000 20
One building in NJ 1940 1995 11,000 2
MID ATLANTIC
Barracks Road 1958 1985 479,000 82 39
Charlottesville, VA 22905
Bethesda Row 1945-1991 1993 275,000 69 8
Bethesda, MD 20814 (3)
Congressional Plaza 1965 1965 341,000 46 22
Rockville, MD 20852 (5)
Courthouse Center 1970 1997 38,000 10 1
Rockville, MD 20852 (6)
Eastgate 1963 1986 159,000 32 17
Chapel Hill, NC 27514
Falls Plaza 1962 1967 69,000 10 6
Falls Church, VA 22046
Falls Plaza - East 1960 1972 71,000 19 5
Falls Church, VA 22046
Occupancy (1) Principal
Overall / Economic Tenants
----------------------- ----------------------
Wynnewood 96% / 96% Bed, Bath and Beyond
Wynnewood, PA 19096 Borders Books
Food Fare
Retail buildings
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Thirteen buildings in CT 98% / 94% Eddie Bauer
Pottery Barn
One building in MA 100% / 100%
Four buildings in NY (4) 99% / 98% Midway Theatre
One building in NJ 100% / 100% Legg Mason
MID ATLANTIC
Barracks Road 98% / 97% Harris Teeter
Charlottesville, VA 22905 Kroger
Superfresh
Bethesda Row 100% / 98% Barnes and Noble
Bethesda, MD 20814 (3) Giant Food
Giant Pharmacy
Congressional Plaza 99% / 99% Buy Buy Baby
Rockville, MD 20852 (5) Fresh Fields
Tower Records
Courthouse Center 88% / 88% Rockville Interiors
Rockville, MD 20852 (6)
Eastgate 100% / 100% Food Lion
Chapel Hill, NC 27514 Southern Season
Falls Plaza 100% / 77% Giant Food
Falls Church, VA 22046
Falls Plaza - East 100% / 100% CVS Pharmacy
Falls Church, VA 22046 Staples
9
Year Year Number of
Completed Acquired Square Feet (2) Tenants Acres
------------- ----------- ------------------ ---------- --------
Federal Plaza 1970 1989 242,000 38 18
Rockville, MD 20852
Gaithersburg Square 1966 1993 208,000 36 17
Gaithersburg, MD 20878
Governor Plaza 1963 1985 252,000 22 26
Glen Burnie, MD 21961 (4)
Idylwood Plaza 1991 1994 73,000 16 6
Falls Church, VA 22030
Laurel Centre 1956 1986 384,000 54 26
Laurel, MD 20707
Leesburg Plaza 1967 1998 247,000 25 24
Leesburg, VA 20176 (6)
Loehmann's Plaza 1971 1983 242,000 55 18
Fairfax, VA 22042 (7)
Magruder's Center 1955 1997 109,000 22 5
Rockville, MD 20852 (6)
Mid-Pike Plaza 1963 1982 315,000 23 20
Rockville, MD 20852 (3)
Northeast Plaza 1952 1986 448,000 45 44
Atlanta, GA 30329
Old Keene Mill 1968 1976 92,000 20 11
Springfield, VA 22152
Pan Am 1979 1993 218,000 31 25
Fairfax, VA 22031
Occupancy (1) Principal
Overall / Economic Tenants
----------------------- ----------------------
Federal Plaza 98% / 98% Comp USA
Rockville, MD 20852 TJ Maxx
Gaithersburg Square 94% / 94% Borders Books
Gaithersburg, MD 20878 Bed, Bath & Beyond
Governor Plaza 99% / 99% Office Depot
Glen Burnie, MD 21961 (4) Syms
Idylwood Plaza 95% / 77% Fresh Fields
Falls Church, VA 22030
Laurel Centre 90% / 89% Giant Food
Laurel, MD 20707 Marshalls
Toys R Us
Leesburg Plaza 97% / 97% K Mart
Leesburg, VA 20176 (6) Giant Food
Peebles
Loehmann's Plaza 98% / 98% Loehmann's Dress Shop
Fairfax, VA 22042 (7) Linens N Things
Magruder's Center 97% / 97% Magruder's
Rockville, MD 20852 (6) Tuesday Morning
Mid-Pike Plaza 100% / 100% Bally's Total Fitness
Rockville, MD 20852 (3) Filene's Basement
Toys R Us
Northeast Plaza 66% / 66% Publix
Atlanta, GA 30329 Cinema 12
Mars Music
Old Keene Mill 100% / 98% Fresh Fields
Springfield, VA 22152 One Stop Pet & Aquarium
Pan Am 98% / 98% Micro Center
Fairfax, VA 22031 Safeway
MJ Designs
10
Year Year Number of Occupancy (1)
Completed Acquired Square Feet (2) Tenants Acres Overall / Economic
------------- ----------- ------------------ ------------ -------- --------------------
Park & Shop 1930 1995 50,000 12 1 100% / 100%
Washington, DC 20036
Perring Plaza 1963 1985 412,000 16 27 100% / 100%
Baltimore, MD 21134 (4)
Pike 7 Plaza 1968 1997 163,000 25 13 96% / 96%
Vienna, VA 22180
Quince Orchard 1975 1993 240,000 31 16 96% / 85%
Gaithersburg, MD 20877 (8)
Shirlington 1940 1995 212,000 46 16 94% / 94%
Arlington, VA 22206
Tower Shopping Center 1960 1998 109,000 34 12 97% / 97%
Springfield, VA 22150
Tysons Station 1954 1978 50,000 16 4 100% / 100%
Falls Church, VA 22043
Wildwood 1958 1969 85,000 35 13 100% / 100%
Bethesda, MD 20814
Williamsburg 1961 1986 251,000 33 21 100% / 100%
Williamsburg, VA 23187
The Shops at Willow Lawn 1957 1983 450,000 104 37 91% / 91%
Richmond, VA 23230
Development
- -----------
Land in Bethesda, MD 20814 1997 - 1998 3 2
Retail buildings
- ----------------
Two buildings in FL 1920 1996 28,000 10 100% / 100%
Principal
Tenants
-----------------------------
Park & Shop Petco
Washington, DC 20036 Pizzeria Uno
Perring Plaza Burlington Coat Factory
Baltimore, MD 21134 (4) Home Depot
Metro Foods
Pike 7 Plaza Staples
Vienna, VA 22180 TJ Maxx
Quince Orchard Circuit City
Gaithersburg, MD 20877 (8) Dyncorp
Shirlington Carlyle Grand Cafe
Arlington, VA 22206 Cineplex Odeon
Tower Shopping Center Virginia Fine Wines
Springfield, VA 22150 Talbot's Outlet
Tysons Station Trader Joe's
Falls Church, VA 22043
Wildwood CVS Pharmacy
Bethesda, MD 20814 Sutton Place Gourmet
Williamsburg Food Lion
Williamsburg, VA 23187 Peebles
Rose's
The Shops at Willow Lawn Cineplex Odeon
Richmond, VA 23230 Leggett Stores
Hannaford Brothers
Development
- -----------
Land in Bethesda, MD 20814
Retail buildings
- ----------------
Two buildings in FL Express
11
Year Year Number of Occupancy (1)
Completed Acquired Square Feet (2) Tenants Acres Overall / Economic
------------- ----------- ------------------- ----------- -------- ---------------------
WEST COAST
Crossroads 1959 1993 173,000 25 15 99% / 99%
Highland Park, IL 60035
Escondido Promenade 1987 1996 221,000 56 18 93% / 93%
Escondido, CA 92029 (9)
Finley Square 1974 1995 308,000 16 21 87% / 87%
Downers Grove, IL 60515
Garden Market 1958 1994 134,000 20 12 188% / 88%
Western Springs, IL 60558
Gratiot Plaza 1964 1973 154,000 5 20 100% / 100%
Roseville, MI 48066
King's Court 1960 1998 79,000 19 8 100% / 100%
Los Gatos, CA 95032 (6) (8)
North Lake Commons 1989 1994 129,000 20 14 98% / 97%
Lake Zurich, IL 60047
Peninsula Center 1962 1997 300,000 69 24 93% / 86%
Palos Verdes, CA 90274
150 Post Street 1965 1997 96,000 28 .3 94% / 91%
San Francisco, CA 94108
Uptown Shopping Center Various 1997 100,000 68 7 99% / 98%
Portland, OR 97210
Development
- -----------
Old Town Center 1962 1997 65,000 10 4 88%/83%
Los Gatos, CA 95030 (9) (10)
Town & Country 1962 1997 316,000 87 39 75%/75%
San Jose, CA 95128 (9) (11)
Ten buildings in San Antonio, TX (12) 1890 - 1935 1998 235,000 4 n/a
WEST COAST
Crossroads Comp USA
Highland Park, IL 60035 Binny's
Golfsmith
Escondido Promenade Toys R Us
Escondido, CA 92029 (9) TJ Maxx
Finley Square Bed, Bath & Beyond
Downers Grove, IL 60515 Service Merchandise
Garden Market Dominick's
Western Springs, IL 60558
Gratiot Plaza Bed, Bath & Beyond
Roseville, MI 48066 Farmer Jack
King's Court Lunardi's Supermarket
Los Gatos, CA 95032 (6) (8) Longs Drug
North Lake Commons Dominick's
Lake Zurich, IL 60047
Peninsula Center In Shape
Palos Verdes, CA 90274 TJ Maxx
Von's Pavillions
150 Post Street Episode
San Francisco, CA 94108 Williams - Sonoma
Uptown Shopping Center Elephant's Delicatessen
Portland, OR 97210 Zupan's Markets
Development
- -----------
Old Town Center
Los Gatos, CA 95030 (9) (10)
Town & Country AMC Theatre
San Jose, CA 95128 (9) (11) Courtesy Chevrolet
Ten buildings in San Antonio, TX (12)
12
Year Year Number of
Completed Acquired Square Feet (2) Tenants Acres
------------- ----------- ------------------ ----------- -------
Retail buildings
- ----------------
Nine buildings in Santa Monica, CA (4) 1888 - 1995 1996 - 1998 153,000 44
Five buildings in San Diego, CA (4) 1888 - 1995 1996 - 1997 64,000 1
Three buildings in CA (4) 1922 1996 - 1998 72,000 23
Two buildings in AZ (15) 1996 - 1998 1998 40,000 10
Three buildings in IL 1920 - 1927 1995 - 1997 24,000 3
Occupancy (1) Principal
Overall/ Economic Tenants
--------------------- ---------------
Nine buildings in Santa Monica, CA (4) 98% / 97% Abercrombie & Fitch
J. Crew
The Gap
Five buildings in San Diego, CA (4) 23% / 19% (13) Urban Outfitters
Three buildings in CA (4) 65% / 65% (14) Pottery Barn
Two buildings in AZ (15) 95% / 95% Gordon Biersch Brewing Co.
Three buildings in IL 69% / 69% Foodstuffs
Gianni Versace
(1) Overall occupancy is expressed as a percentage of rentable square feet
and includes square feet covered by leases for stores not yet opened.
Economic occupancy is expressed as a percentage of rentable square feet ,
but only includes leases currently generating rental income.
(2) Represents the physical square feet of the property, which may exceed the
rentable square feet used to express occupancy.
(3) The Trust has a leasehold interest in this property
(4) The Trust owns the general partnership interest in these buildings.
(5) The Trust owns a 55.7% equity interest in this center.
(6) The Trust owns this property in a "downreit" partnership.
(7) The Trust has a 1% general partnership interest and manages the
partnership. A 99% interest is held by a limited partner.
(8) The Trust owns this property subject to a ground lease.
(9) The Trust owns the controlling interest in this center. A minority owner
has an interest in the profits of the center.
(10) An additional 35,000 square feet is being developed.
(11) Under development.
(12) The Trust plans to develop these properties, most of which are currently
vacant.
(13) Occupancy is based on one occupied building. The other four buildings are
under redevelopment.
(14) Occupancy is based on two occupied buildings.
(15) The Trust owns 100% of one building and an 85% partnership interest in
the second property.
APARTMENTS
- ----------
The following table sets forth information concerning the Trust's apartment
development as of December 31, 1998 which is 100% owned by the Trust in fee.
This development is not subject to rent control.
Year Year
Property Completed Acquired Acres 1-BR 2-BR 3-BR Total Occupancy
- ---------------------------------------------------------------------------------------------------------------------------------
Rollingwood 1960 1971 14 58 163 61 282 99%
Silver Spring, MD
9 three-story buildings
13
Item 3. Legal Proceedings.
- ------ -----------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------ ---------------------------------------------------------------------
Market Quotations
Dividends
Quarter ended High Low Paid
------------- ---- --- ---------
December 31, 1998 $ 24 1/2 $ 20 $ .44
September 30, 1998 25 1/8 19 3/8 .43
June 30, 1998 25 7/8 23 1/2 .43
March 31, 1998 25 15/16 23 5/8 .43
December 31, 1997 $ 27 11/16 $ 25 $ .43
September 30, 1997 27 1/4 24 9/16 .42
June 30, 1997 28 25 1/8 .42
March 31, 1997 28 3/4 25 3/4 .42
The number of holders of record for Federal Realty's common shares of
beneficial interest at December 31, 1998 was 7,051.
For the years ended December 31, 1998 and 1997, $.31 and $.19, respectively,
of dividends paid on common shares represented a return of capital.
Dividends declared on common shares per quarter during the last two fiscal
years were as follows:
Quarter Ended 1998 1997
------------------- ---- ----
March 31 $ .43 $ .42
June 30 .43 .42
September 30 .44 .43
December 31 .44 .43
The Trust's common shares of beneficial interest are listed on the New York
Stock Exchange.
On March 11, 1999 the Trust entered into an Amended and Restated Rights
Agreement with American Stock Transfer and Trust Company, pursuant to which
(i)the expiration date of the Trust's shareholder rights plan was extended for
an additional ten years to April 24, 2009, (ii)the beneficial ownership
percentage at which a person becomes an "Acquiring Person" under the plan was
reduced from 20% to 15%, and (iii)certain other amendments were made. A
description of the shareholder rights plan, as amended, is included in the Form
8-A/A filed with the Securities and Exchange Commission on March 11, 1999.
14
Item 6. Selected Financial Data.
-----------------------
In thousands, except per share data
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
OPERATING DATA
Rental Income $222,186 $188,529 $164,887 $142,841 $128,133
Income before gain
on sale of real
estate 44,960 40,129 28,754 23,655 20,466
Gain (loss) on sale
of real estate --- 6,375 (12) (545) ---
Net income 44,960 46,504 28,742 23,110 20,466
Net income available for
common shareholders 37,010 44,627 28,742 23,110 20,466
Net cash provided
by operating
activities (1) 90,427 72,170 65,648 65,117 45,199
Dividends declared
on common shares 69,512 66,636 56,607 51,392 48,196
Weighted average number
of common shares
outstanding:
basic 39,174 38,475 33,175 31,481 30,267
diluted 40,080 38,988 33,573 31,860 30,679
PER SHARE:
Earnings per common share:
basic .94 1.16 .87 .73 .68
diluted .94 1.14 .86 .72 .67
Dividends declared
per common share 1.74 1.70 1.66 1.61 1.57
OTHER DATA
Funds from
Operations (2) 86,536 79,733 65,254 57,034 50,404
- --------------------------------------------------------------------------------
15
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
BALANCE SHEET DATA
- ------------------------------------------------------------------------------
Real estate
at cost $1,642,136 $1,453,639 $1,147,865 $1,009,682 $852,722
Total assets 1,484,317 1,316,573 1,035,306 886,154 751,804
Mortgage and
capital lease
obligations 173,480 221,573 229,189 222,317 235,705
Notes payable 263,159 119,028 66,106 49,980 61,883
Senior notes 335,000 255,000 215,00 165,000 ---
Convertible
subordinated
debentures 75,289 75,289 75,289 75,289 75,289
Redeemable preferred
shares 100,000 100,000 --- --- ---
Shareholders' equity 529,947 553,810 388,885 327,468 343,222
Number of common shares
outstanding 40,080 39,148 35,886 32,160 31,609
(1) Determined in accordance with Financial Accounting Standards Board Statement
No. 95.
(2) Defined as income available for common shareholders before depreciation and
amortization of real estate assets and before extraordinary items and
significant nonrecurring events less gains on sale of real estate. Funds from
operations differs from net cash provided by operating activities primarily
because funds from operations does not include changes in operating assets and
liabilities. Funds from operations is a supplemental measure of performance that
does not replace net income as a measure of performance or net cash provided by
operating activities as a measure of liquidity.
16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto of Federal Realty Investment Trust (the
"Trust"). Certain statements made in this report contain forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements of the Trust to be materially different from the results of
operations or plans expressed or implied by such forward-looking statements.
Such factors include, among others, general economic and business conditions
which will affect credit-worthiness of tenants, financing availability and cost,
retailing trends and rental rates; risks of real estate development and
acquisitions; governmental and environmental regulations; and competition with
other real estate companies and technology.
The Trust is engaged in the ownership, management, development and
redevelopment of prime retail properties for the purpose of increasing funds
from operations per share and enhancing shareholder value. At December 31, 1998
the Trust owned 120 retail properties.
Liquidity and Capital Resources
- -------------------------------
The Trust meets its liquidity requirements through net cash provided by
operating activities, along with traditional debt and equity funding
alternatives available to it. A significant portion of cash provided by
operating activities is distributed to common and preferred shareholders in the
form of dividends. Accordingly, capital outlays for property acquisitions, major
renovation and development projects and balloon debt repayments require debt or
equity funding. On occasion, asset sales provide an additional source of
capital.
Net cash provided by operating activities was $90.4 million in 1998, $72.2
million in 1997, and $65.6 million in 1996 of which $74.3 million, $62.6
million, and $52.1 million, respectively, was distributed to shareholders.
Contributions from newly acquired properties and from retenanted and redeveloped
properties, as more fully described below, were the primary sources of these
increases.
Net cash used in investing activities was $187.6 million in 1998, $279.3
million in 1997 and $161.8 million in 1996. The Trust acquired properties
totaling $120.4 million in 1998, $275.2 million in 1997 and $105.6 million in
1996 requiring cash outlays of $92.9 million, $251.4 million and $85.8 million
in 1998, 1997 and 1996, respectively. During these same three years the Trust
expended an additional $73.0 million, $50.3 million and $42.4 million,
respectively, in capital improvements to its properties, of which $25.0 million
related to new development in 1998 (1997 and 1996 amounts related to new
development were insignificant). The Trust invested $21.4 million, $10.4 million
and $14.4 million in 1998, 1997, and 1996, respectively, in mortgage notes
receivable, with an average weighted stated interest rate of 10%, 9% and 9%,
respectively. Certain of these mortgages also participate in the
17
gross revenues and appreciation and are convertible into ownership interests in
the properties by which they are secured. Cash of $9.4 million in 1997 and $4.7
million in 1996 was received from the sale of properties in accordance with the
Trust's policy of disposing of properties that no longer meet its long-term
investment objectives.
Real estate acquisitions during 1998 were as follows (in thousands, except
for square footage):
Existing
Total Cash Leasable
Property Cost Portion Square Footage
- --------------------------------------------------------------------------------
Shopping Centers
Hauppauge, Long Island,NY $24,053 $24,053 131,000
Leesburg, Leesburg, VA (1)(2) 18,906 5,556 247,000
Tower, Springfield, VA 17,688 17,688 109,000
Kings Court, Los Gatos, CA (1)(3) 10,714 4,340 79,000
Leasehold buyout and other 7,736 2,012 -
Street Retail
Ten properties, San Antonio,TX (4) 14,163 14,163 235,000
Two properties, Tempe,AZ (5) 10,557 9,807 40,000
Two properties, Santa Monica,CA (6) 8,685 8,028 19,000
One property, Pasadena,CA (6) 6,366 5,733 17,000
Other 1,566 1,566 -
-------- ------- -------
$120,434 $92,946 877,000
======== ======= =======
1)The Trust acquired these properties in partnership with third
parties, whose partnership units, valued at $3.5 million and $6.4
million, respectively, may be converted into shares of the Trust.
2)The Trust placed a $9.9 million mortgage on this property.
3)The Trust acquired a leasehold interest in this property.
4)The Trust plans to develop these properties on Houston Street, most
of which are currently vacant.
5)The Trust owns 100% of one property and an 85% partnership
interest in the second property
6)The Trust acquired a 90% partnership interest in these
properties.
The minority owners in Leesburg and Kings Court shopping centers may exchange
their 138,000 and 260,163 partnership units, respectively, into the same number
of common shares of the Trust or cash, at the Trust's option, after September
15, 2000 and August 24, 1999, respectively. A $9.9 million mortgage was placed
on Leesburg Plaza which bears interest at 6.51%, requires interest only payments
until October 2005 and is due September 1, 2008.
Approximately $25.0 million was invested in 1998 in predevelopment and
development projects in Bethesda, Maryland; Los Gatos, California; San Jose,
California; and in Arlington, Virginia. Other major capital expenditures include
$4.7 million on the renovation of Gratiot Plaza, $4.9 million on the renovation
of Feasterville shopping center, $3.3 million on the renovation of Falls Plaza,
and $3.1 million on the retenanting of Finley shopping
18
center.
Net cash provided by financing activities, before dividend payments, was
$171.7 million in 1998, $275.8 million in 1997 and $148.8 million in 1996. The
Trust utilized its unsecured lines of credit to fund acquisitions, capital
expenditures and balloon debt repayments.
In December 1997 the Trust replaced its unsecured medium-term revolving
credit facilities with four banks with a five-year syndicated credit facility,
thereby increasing the aggregate amount available from $135 million to $300
million and decreasing the interest rate from LIBOR plus 75 basis points to
LIBOR plus 65 basis points. As did prior credit facilities, the syndicated
facility requires fees and has various covenants including the maintenance of a
minimum shareholders' equity and a maximum ratio of debt to net worth. At
December 31, 1998, 1997 and 1996, $134.1 million, $114.8 million, and $59.4
million, respectively, was borrowed under these facilities. The maximum amount
borrowed during 1998, 1997 and 1996 was $259.1 million, $114.8 million, and
$76.2 million, respectively. The weighted average interest rate on borrowings
during 1998, 1997 and 1996 was 6.1%, 6.5%, and 6.4%, respectively. Repayments
on the credit facilities were made from the following debt and equity issuances.
In December 1998 the Trust obtained a four-year loan of $125 million from five
institutional lenders. The loan, which bears interest at LIBOR plus 75 basis
points, 6.3% at December 31, 1998, requires fees and has the same covenants as
the syndicated credit facility. Proceeds were used to repay amounts drawn on
the syndicated credit facility.
On March 5, 1998 the Trust issued $39.5 million of 6.74% Medium-Term Notes due
2004, netting approximately $39.3 million, and $40.5 million of 6.99% Medium-
Term Notes due 2006, netting approximately $40.2 million. The notes pay
interest semi-annually on March 30 and September 30.
In order to minimize the risk of changes in interest rates, from time to time
in connection with the issuance of certain debt issues the Trust will enter into
interest rate hedge agreements. In anticipation of the March 1998 Medium-Term
Note issuance, the Trust purchased a Treasury Yield Hedge (notional amount of
$50 million) on January 13, 1998 which was terminated on March 5, 1998 at a gain
of $1.1 million. The gain is being recognized as a reduction in interest
expense over the terms of the notes. There were no open hedge agreements at
December 31, 1998.
On February 4, 1997 the Trust sold three million common shares to an
institutional investor for $28 per share, netting $83.9 million. On July 29,
1997 the Trust sold $40 million of 6.82% Medium-Term Notes, netting
approximately $39.8 million. On October 6, 1997 the Trust issued four million
7.95% Series A Cumulative Redeemable Preferred Shares at $25 per share in a
public offering, netting approximately $96.8 million.
Capital requirements in 1999 will depend on acquisition opportunities, new
development efforts, improvements and
19
redevelopments on existing properties, and tenant work and allowances. Initial
funding for such projects is expected to be provided under the line of credit
facility.
The Trust's long term debt has varying maturity dates and in a number of
instances includes balloon payments or other contractual provisions that could
require significant repayments during a particular period. The next significant
maturity is of the Trust's $100 million 8 7/8% Senior Notes in January 2000.
The Trust will need additional capital in order to fund acquisitions,
expansions, developments and refinancings. Sources of this funding may be
additional debt, additional equity, proceeds from the sale of properties and the
issuance of operating partnership units. The timing and choice of capital
sources will depend on the cost and availability of that capital, among other
things. In September 1998 the Trust filed a $500 million shelf registration
statement with the Securities and Exchange Commission which allows for the
issuance of debt securities, preferred shares and common shares. The Trust
believes, based on past experience, that access to the capital needed to execute
its business plan will be available to it.
Contingencies
- -------------
The Trust is involved in various lawsuits and environmental matters arising in
the normal course of business. Management believes that such matters will not
have a material effect on the financial condition or results of operations of
the Trust.
Pursuant to the provisions of the respective partnership agreements, in the
event of the exercise of put options by the other partners, the Trust would be
required to purchase the 99% limited partnership interest at Loehmann's Plaza at
its then fair market value and an 18.75% interest at Congressional Plaza at its
then fair market value.
Under the terms of certain partnerships, if certain leasing and revenue levels
are obtained for the properties, the limited partners may require the Trust to
purchase their partnership interests at a formula price based upon net operating
income. The purchase price may be paid in cash or common shares of the Trust,
at the election of the limited partners. If the limited partners do not redeem
their interest, the Trust may choose to purchase the limited partnership
interests upon the same terms. Under the terms of other partnerships, the
partners may exchange their 879,541 operating partnership units into cash or the
same number of common shares of the Trust, at the option of the Trust.
The Trust has reviewed the software and hardware systems used internally to
operate its business, in order to assess their ability to handle the "Year 2000
Issue" which generally refers to the inability of systems hardware and software
to correctly identify two-digit references to specific calendar years, beginning
with 2000. The Year 2000 Issue may affect the Trust directly by impairing its
internal data-based operations or processing and indirectly by impairing its
suppliers' and tenants' data-based operations or processing. The Trust has
identified and evaluated
20
the Year 2000 compliance of its internal systems; the Trust believes that the
remediation of all accounting systems and other systems of high priority is
complete. The Trust will endeavor to remediate the remaining internal systems
throughout 1999.
The Trust is currently requesting information from its major banks, tenants,
suppliers and manufacturers of computerized components of its real estate
properties to determine their Year 2000 compliance. Based on costs spent to
date and projections of future costs, costs of addressing and solving potential
internal problems are not expected to have a material adverse impact on the
Trust's financial condition.
Results of Operations
- ---------------------
Net income and funds from operations have been affected by the Trust's recent
acquisition, redevelopment and financing activities. The Trust has historically
reported its funds from operations in addition to its net income and net cash
provided by operating activities. Funds from operations is a supplemental
measure of real estate companies' operating performance. The National
Association of Real Estate Investment Trusts (NAREIT) defines funds from
operations as follows: income available for common shareholders before
depreciation and amortization of real estate assets and before extraordinary
items and significant non-recurring events less gains on sale of real estate.
Funds from operations does not replace net income as a measure of performance or
net cash provided by operating activities as a measure of liquidity. Rather,
funds from operations has been adopted by real estate investment trusts to
provide a consistent measure of operating performance in the industry.
The reconciliation of net income to funds from operations is as follows (in
thousands):
Year ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net income available for common shareholders $ 37,010 $ 44,627 $ 28,742
Depreciation and amortization
of real estate assets 41,792 37,281 34,128
Amortization of initial direct
costs of leases 2,491 2,249 2,372
Income attributable to operating
Partnership units 578 - -
(Gain) loss on sale of real estate
and non-recurring items 4,665 (4,424) 12
--------- ---------- ----------
Funds from operations for
common shareholders $ 86,536 $ 79,733 $ 65,254
========= ========== ==========
The Trust's retail leases generally provide for minimum rents with periodic
increases. Most retail tenants pay a majority of on-site operating expenses and
real estate taxes. Many leases also contain a percentage rent clause which calls
for additional rents based on tenant sales. These features in the Trust leases
reduce
21
the Trust's exposure to higher costs caused by inflation and allow it to
participate in improved tenant sales.
Consolidated Results
- --------------------
1998 vs. 1997
Rental income, which consists of minimum rent, percentage rent and cost
recoveries, increased 18% or $33.7 million from $188.5 million in 1997 to
$222.2 million in 1998. If properties acquired and sold in 1998 and 1997 are
excluded, rental income increased 5%, due primarily to the favorable impact of
redeveloped and retenanted centers and to higher percentage rent.
Other property income includes items which, although recurring, tend to
fluctuate from period to period, such as utility reimbursements, telephone
income, merchant association dues, late fees, and temporary tenant income. Also
included are less regularly recurring items, such as lease termination fees.
Other income increased 6.6% from 1997 to $10.3 million in 1998 due to
contributions from the 1998 and 1997 acquisitions, which were partly offset by a
$1.3 million decrease in lease termination fees.
Rental expenses increased 16% from 1997 to $49.5 million in 1998, due to the
1998 and 1997 acquisitions. If rental expenses are adjusted for properties
acquired and sold in 1998 and 1997, rental expenses are constant at $40.6
million. Decreases in environmental expenses and common area expenses such as
snow removal were offset by increases in bad debt expense which had been
unusually low in 1997 due to the recovery in 1997 of amounts written off in
prior years.
Real estate taxes increased 19% from 1997 to $23.3 million in 1998, due to the
1998 and 1997 acquisitions. If real estate taxes are adjusted for properties
acquired and sold in 1998 and 1997, real estate taxes increased 5% due primarily
to increased taxes on recently redeveloped properties.
Depreciation and amortization expenses increased 11% from 1997 to $46.0
million in 1998 reflecting the impact of properties acquired in 1998 and 1997
and of recent tenant work and property improvements.
In 1998 the Trust incurred interest expense of $60.2 million, of which $5.1
million was capitalized, as compared to 1997's $50.9 million, of which $3.6
million was capitalized. The increase in interest expense reflects the
additional debt issued to fund the Trust's approximately $200 million of real
estate investments made in 1998. The weighted average interest rate was 8% in
1998 compared with 8.5% in 1997. The ratio of earnings to combined fixed
charges and preferred dividends was 1.46x in 1998 and 1.64x in 1997. The ratio
of earnings to fixed charges was 1.65x in 1998 and 1.70x in 1997. The ratio of
funds from operations to combined fixed charges and preferred dividends was
2.46x in 1998 and 2.50x in 1997.
Administrative expenses in 1998 reflect the adoption of the Emerging Issues
Task Force ("EITF") Issue 97-11, which requires the expensing of internal costs
of acquisition activities beginning in late March 1998. Prior to this date,
such costs were capitalized as
22
a component of the basis of the acquired asset. The increase in administrative
expenses from $9.8 million in 1997 to $11.8 million in 1998 is substantially due
to its adoption. Administrative expenses for the fourth quarter of 1998,
however, have decreased approximately 5% from the fourth quarter of 1997 as the
benefits of the Trust's 1998 reorganization program are beginning to be
realized.
Reorganization expenses of $4.7 million in 1998 represent a one time charge
recorded in the third quarter related to a comprehensive restructuring program.
The charge included a provision for employee severance and related costs, office
closing and downsizing expenses, as well as legal and consulting fees related to
the restructuring program. The Trust's workforce was reduced by approximately
15% including several vice presidents and other senior personnel. The
foundation of the restructuring effort focused on a change in the Trust's
operating model from a functional hierarchy to an asset management discipline
where small focused teams are responsible for and compensated based on the
operating performance of a portfolio of assets. In addition, the restructuring
effort included a significant downsizing of the Trust's acquisition department,
in response to changing market conditions and business emphasis. In 1997 the
Trust incurred $2.0 million of costs associated with severance and other
expenses related to changes in the Trust's executive management.
Investors' share of operations represents the minority interest in the income
of certain properties. The increase from $1.3 million in 1997 to $3.1 million in
1998 is primarily due to the income attributable to the operating partnership
units issued upon the acquisition of Courthouse, Magruder's, Kings Court and
Leesburg Plaza shopping centers in late 1997 and 1998 and due to the minority
partners' share of the increased earnings in Congressional Plaza.
As a result of the foregoing items, net income before gain on sale of real
estate increased from $40.1 million in 1997 to $45.0 million in 1998, reflecting
not only the contribution to net income from the Trust's acquisitions, but also
the contribution from improved results of the core portfolio. Net income,
including gain on sale of real estate, decreased from $46.5 million in 1997 to
$45.0 million in 1998. In 1997 three shopping centers were sold at a net gain of
$6.4 million. Net income available for common shareholders decreased from $44.6
million in 1997 to $37.0 million in 1998, due to a full year of preferred
dividends in 1998 of $8.0 million compared with a partial year in 1997 of $1.9
million since the $100 million of 7.95% Series A Cumulative Redeemable Preferred
Shares were issued in October 1997.
The Trust expects growth in net income in 1999 both from contributions of
acquisitions and from contributions of its core portfolio, primarily the
properties undergoing redevelopment and retenanting. However, growth of net
income from the core portfolio is, in part, dependent on controlling expenses,
some of which are beyond the complete control of the Trust, such as snow removal
and trends in the retailing environment. The Trust currently expects that demand
for its retail space should remain at levels similar to those in 1998. A
weakening of the retail environment could, however, adversely impact the Trust
by increasing vacancies and
23
decreasing rents. In past weak retail and real estate environments, the Trust
has been able to replace weak and bankrupt tenants with stronger tenants;
management believes that due to the quality of the Trust's properties there will
continue to be demand for its space. Growth in net income is also dependent on
interest rates and controlling administrative costs. If interest rates increase,
net income, as well as the ultimate cost of the Trust's development projects
will be negatively impacted due to the variable interest rates on the Trust's
revolving credit facilities. The Trust is aggressively managing its
administrative expenses through its reorganization efforts.
1997 vs. 1996
Rental income increased 14.3% or $23.6 million from $164.9 million in 1996 to
$188.5 million in 1997. If properties acquired and sold in 1996 and 1997 are
excluded, rental income increased 4.8%, due primarily to the favorable impact of
redeveloped and retenanted centers.
Other property income decreased 1% from 1996 to $9.7 million in 1997.
Contributions from the 1997 and 1996 acquisitions were offset by a decrease in
lease termination fees from 1996 to 1997.
Rental expenses increased 5% from 1996 to $42.8 million in 1997, due to the
1997 and 1996 acquisitions. If rental expenses are adjusted to remove the
effect of properties purchased and sold in 1997 and 1996, rental expenses
decreased 2% due primarily to decreases in snow removal and other related
expenses, such as roof and parking lot repairs. Real estate taxes increased 19%
from 1996 to $19.5 million in 1997, primarily due to properties acquired but
also due to increased assessments on recent renovations.
Depreciation and amortization expenses increased 9% from 1996 to $46.0 million
in 1997 reflecting the impact of properties acquired in 1997 and 1996 and of
recent tenant work and property improvements.
Interest income increased 39% from 1996 to $6.0 million in 1997, due to the
issuance of $10.4 million and $14.4 million, respectively, of mortgage notes
receivable in 1997 and 1996. In 1997 the Trust incurred interest expense of
$50.9 million, of which $3.6 million was capitalized, as compared to 1996's
$46.4 million of which $871,000 was capitalized. The increase in interest
expense reflects the additional debt issued to help fund the Trust's
approximately $316 million of real estate investments made in 1997. The ratio of
earnings to combined fixed charges and preferred dividends was 1.64x in 1997;
there were no preferred dividends in 1996. The ratio of earnings to fixed
charges was 1.70x in 1997 and 1.59x in 1996. The ratio of funds from operations
to combined fixed charges and preferred dividends was 2.50x in 1997; there were
no preferred dividends in 1996.
Administrative expenses increased 8% from 1996 to $9.8 million in 1997
primarily due to increased personnel costs as the Trust grew and as it
accelerated its acquisition and development efforts in 1997. Administrative
expenses as a percentage of total income, however, dropped from 5.1% in 1996 to
4.8% in 1997.
24
In 1997 the Trust incurred $2.0 million of costs associated with severance
and other expenses related to changes in the Trust's executive management.
Investors' share of operations represents the minority interest in the income
of certain properties. The increase from $394,000 in 1996 to $1.3 million in
1997 is primarily due to the acquisition since 1995 of several properties in
partnership with third parties.
As a result of the foregoing items, net income before gain on sale of real
estate increased from $28.8 million in 1996 to $40.1 million in 1997, reflecting
not only the contribution to net income from the Trust's acquisitions but also
the contribution from improved operating results of the core portfolio. Net
income, including gain on sale of real estate, increased from $28.7 million in
1996 to $46.5 million in 1997. In 1997 three shopping centers were sold at a
net gain of $6.4 million and in 1996 one shopping center was sold at a loss of
$12,000. Net income available for common shareholders was $44.6 million in 1997
after net income was adjusted for a $1.9 million dividend on the $100 million of
7.95% Series A Cumulative Redeemable Preferred Shares issued on October 6, 1997.
Segment Results
- ---------------
The Trust has traditionally operated its business as a single business
segment. During the fourth quarter of 1998, however, the Trust completed a
comprehensive restructuring program which, among other things, changed the
Trust's operating structure from a functional hierarchy to an asset management
model, where small focused teams are responsible for a portfolio of assets. As a
result the Trust has divided its portfolio of properties into three geographic
operating regions: Northeast, Mid-Atlantic and West. Each region is operated
under the direction of a chief operating officer, with dedicated leasing,
property management and financial staff and operates largely autonomously with
respect to day to day operating decisions. Incentive compensation, throughout
the regional teams, is tied to the net operating income of the respective
portfolios.
Historical operating results for the three regions are as follows (in
thousands):
25
1998 1997 1996
-------- -------- --------
Rental income
Northeast $ 81,965 $ 70,447 $ 63,725
Mid-Atlantic 103,676 96,818 90,995
West 36,545 21,264 10,167
-------- -------- --------
Total $222,186 $188,529 $164,887
======== ======== ========
Net operating income
Northeast $ 58,401 $ 50,887 $ 44,955
Mid-Atlantic 76,065 71,298 66,141
West 25,306 13,680 6,509
-------- -------- --------
Total $159,772 $135,865 $117,605
======== ======== ========
The Northeast
The Northeast region is comprised of forty-five assets, 762 tenants and 6.3
million square feet. Assets in this region extend from suburban Philadelphia
north to New York and its suburbs and further into New England. A significant
portion of this portfolio has been held by the Trust for many years although
acquisitions, redevelopment and retenanting remain major components to the
current and future performance of the region. Several redevelopment projects
are currently underway which are expected to add to revenues and net operating
income in 1999 and future years.
When comparing 1998 with 1997, rental income increased 16% from $70.4 million
in 1997 to $82.0 million in 1998. Excluding properties acquired and sold in
1998 and 1997, rental income increased 3.5%, driven by increases at the recently
redeveloped and retenanted Brick, Troy and Wynnewood shopping centers.
Net operating income increased 15% from $50.9 million in 1997 to $58.4 million
in 1998. Excluding properties acquired and sold in 1998 and 1997, net operating
income increased 5.2%, primarily due to increases at the recently redeveloped
and retenanted Brick, Troy and Wynnewood shopping centers.
When comparing 1997 with 1996, rental income increased 10.5% from $63.7
million in 1996 to $70.4 million in 1997. Excluding properties acquired and sold
in 1997 and 1996, rental income increased 3.9%, primarily due to increases from
the first phase of the redevelopment of Brick shopping center and from increases
at Willow Grove shopping center.
Net operating income increased 13% from $45.0 million in 1996 to $50.9 million
in 1997. Excluding properties acquired and sold in 1997 and 1996, net operating
income increased 4%.
The Mid-Atlantic
The Mid-Atlantic region is comprised of thirty-two assets, 1,020 tenants and
6.3 million square feet. Assets in this region extend from Baltimore south to
metropolitan Washington D.C. and
26
further south through Virginia, Georgia, and Florida. As with the Northeast
region, a significant portion of this portfolio has been held by the Trust for
many years although acquisitions, redevelopment and retenanting remain major
components to its current and future performance. No significant redevelopment
projects are currently underway in this region as several have recently been
completed. Two of the Trust's major new development projects, Pentagon Row and
additional phases in Bethesda, will be managed by this regional operating team
upon their completion.
When comparing 1998 with 1997, rental income increased 7.1% from $96.8 million
in 1997 to $103.7 million in 1998. Excluding properties acquired and sold in
1998 and 1997, rental income increased 3.9%, in large part due to increases at
Bethesda Row and new anchors at Barracks Road and Mid-Pike Plaza shopping
centers.
Net operating income increased 6.7% from $71.3 million in 1997 to $76.1
million in 1998. Excluding properties acquired and sold in 1998 and 1997, net
operating income increased 3.4%.
When comparing 1997 with 1996, rental income increased 6.4% from $91.0
million in 1996 to $96.8 million in 1997. Excluding properties acquired and
sold in 1997 and 1996, rental income increased 1.8%.
Net operating income increased 7.8% from $66.1 million in 1996 to $71.3
million in 1997. Excluding properties acquired and sold in 1997 and 1996, net
operating income increased 2.1%.
The West
The Western region is comprised of forty-four assets, 508 tenants and 2.7
million square feet. Assets in this region extend from the Mid-West to the West
Coast. Unlike the Northeast and Mid-Atlantic regions, this portfolio is
relatively new to the Trust and is part of a deliberate expansion west over the
past several years. This region is the fastest growing at the Trust and such
major new development projects as San Jose and San Antonio will be managed by
this regional operating team upon their completion. Several redevelopment
projects are currently underway, particularly in Southern California, which are
expected to add to revenues and net operating income in 1999 and future years.
When comparing 1998 with 1997, rental income increased 72% from $21.3
million in 1997 to $36.5 million in 1998, reflecting the Trust's expansion in
this region. Excluding properties acquired and sold, rental income increased
22%. Fifteen percent of the increase was driven by the recent redevelopment and
retenanting of three shopping centers, Gratiot, Crossroads, and Finley and
seven percent was attributable to the balance of the region's portfolio.
Net operating income increased 85% from $13.7 million in 1997 to $25.3 million
in 1998. Excluding properties acquired and sold, net operating income increased
32% from $9.5 million in 1997 to $12.6 million in 1998. This increase resulted
from the redevelopment and retenanting of Gratiot, Crossroads and Finley
shopping centers and the retenanting of two of the Trust's California street
retail properties.
27
When comparing 1997 with 1996, rental income increased 109% from $10.2 million
in 1996 to $21.3 million in 1997. Excluding properties acquired and sold in
1997 and 1996, rental income increased 6%.
Net operating income increased 110% from $6.5 million in 1996 to $13.7 million
in 1997. Excluding properties acquired and sold in 1997 and 1996, net operating
income increased 4.8%.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- --------------------------------------------------------------------
The Trust's primary financial market risk is the fluctuation in interest
rates. At December 31, 1998, the Trust had $268.5 million of variable rate
debt. Based upon this balance of variable debt, if interest rates increased 1%,
the Trust's earnings and cash flows would decrease by $2.7 million. If interest
rates decreased 1%, the Trust's earnings and cash flows would increase by $2.7
million. The Trust believes that the change in the fair value of its financial
instruments resulting from a forseeable fluctuation in interest rates would be
immaterial to its total assets and total liabilities.
Item 8. Financial Statements and Supplementary Data.
- ---------------------------------------------------
Included in Item 14.
Item 9. Disagreements on Accounting and Financial Disclosure.
- ------------------------------------------------------------
None.
28
Part III
--------
Item 10.Directors and Executive Officers of the Registrant.
---------------------------------------------------
Executive Officers of the Registrant
------------------------------------
The Executive Officers in 1998 were:
Name Age Position with Trust
---- --- -------------------
Steven J. Guttman 52 President, Chief Executive
Officer and Trustee
Howard S. Biel 51 Senior Vice President, Managing
Director of Development
Nathan P. Fishkin 51 Senior Vice President,
(Ceased serving as an Acquisitions
executive officer on
October 30, 1998)
Nancy J. Herman 35 Vice President, General Counsel
and Secretary
Ron D. Kaplan 35 Senior Vice President-Capital
Markets, Chief Investment Officer
Catherine R. Mack 54 Vice President, General Counsel
(Resigned as of and Secretary
December 21, 1998)
Donald C. Wood 38 Senior Vice President, Finance
and Treasurer
Cecily A. Ward 52 Vice President-Controller
Steven J. Guttman has been the Trust's President and Chief Executive Officer
since April 1980. Mr. Guttman has been associated with the Trust since 1972,
became Chief Operating Officer in 1975 and became a Managing Trustee in 1979.
Howard S. Biel joined the Trust in January 1998 as Senior Vice President-
Managing Director of Development. From 1991 through 1997, Mr. Biel was Regional
Partner for Faison where he was responsible for the development of over one
million square feet of retail and entertainment space in the Mid-Atlantic and
Northeast regions. From 1986 through 1990, Mr. Biel was Executive Vice President
for Western Development Corporation (now the Mills Corporation) where he oversaw
the development and management of over seven million square feet of value
oriented super-regional shopping malls. From 1979 through 1985, he was Senior
Vice President for Development at the Edward J. DeBartolo Corporation where he
was
29
responsible for the planning and development of ten regional malls and several
urban mixed-use projects.
Nathan P. Fishkin served as Senior Vice President, Acquisitions from January
1998 through November 2, 1998, at which time he became a consultant for the
Trust. Mr. Fishkin joined the Trust in 1985 as an acquisition officer. In
1987, he became Vice President, Special Projects, overseeing all anchor and
specialty tenant leasing and in 1997, he became Senior Vice President, Real
Estate. Prior to joining the Trust, Mr. Fishkin practiced law for twelve years.
Nancy J. Herman became the Trust's Vice President, General Counsel and Secretary
on December 21, 1998. In this position, Ms. Herman has overall responsibility
for the Trust's legal affairs. Ms. Herman joined the Trust in 1990 as a staff
attorney. Since that time, she has had responsibility for managing legal issues
related to environmental matters, intellectual property and computers, insurance
and other legal matters. Prior to joining the Trust in 1990, Ms. Herman
practiced real estate law at Hogan & Hartson.
Ron D. Kaplan joined the Trust in November 1992 as Vice President-Capital
Markets. Mr. Kaplan was formerly a Vice President of Salomon Brothers Inc where
he was responsible for capital raising and financial advisory services for
public and private real estate companies. While at Salomon Brothers which he
joined in 1985, he participated in two of the Trust's debt offerings.
Catherine R. Mack came to the Trust in January 1985 as General Counsel and
became a Vice President in February 1986. Before joining the Trust, Ms. Mack
was an Assistant United States Attorney for the District of Columbia and, prior
to that, an attorney with Fried, Frank, Harris, Shriver and Jacobson in
Washington, D.C. where she represented several local real estate entities. Ms.
Mack resigned effective December 21, 1998; under the terms of Ms. Mack's
severance agreement with the Trust, upon her voluntary resignation, she will act
in a legal advisory position to the Trust for a two-year period.
Donald C. Wood joined the Trust in May 1998 as Senior Vice President, Chief
Financial Officer. Prior to joining the Trust, Mr. Wood was Senior Vice-
President and Chief Financial Officer for Caesars World, Inc., a wholly-owned
subsidiary of ITT Corporation, where he was responsible for all aspects of
finance throughout the company including strategic planning, process re-
engineering, capital allocation and financial analysis. Prior to joining ITT in
1990, Mr. Wood was employed at Arthur Andersen & Co. from 1982 where he served
in numerous positions including audit manager.
Cecily A. Ward joined the Trust in April 1987 as Controller. Prior to joining
the Trust, Ms. Ward, a certified public accountant, was with Grant Thornton LLP,
the Trust's independent accountants.
The schedule identifying Trustees under the caption "Election of Trustees" of
the 1999 Proxy Statement is incorporated herein by reference thereto.
Item 11. Executive Compensation.
- -------- -----------------------
30
The sections entitled "Summary Compensation Table" and "Aggregated Option
Exercises in 1998 and December 31, 1998 Option Values" of the 1999 Proxy
Statement are incorporated herein by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
The section entitled "Ownership of Shares by Trustees and Officers" of the 1999
Proxy Statement is incorporated herein by reference thereto.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
The section entitled "Certain Transactions" of the 1999 Proxy Statement is
incorporated herein by reference thereto.
31
Part IV
-------
Item 14. Exhibits, Financial Statement
- -------- -----------------------------
Schedules, and Reports on
-------------------------
Form 8-K
--------
(a) 1. Financial Statements
--------------------
Report of Independent Certified
Public Accountants F-2
Consolidated Balance Sheets-
December 31, 1998 and 1997 F-3
Consolidated Statements of
Operations - years ended
December 31, 1998, 1997
and 1996 F-4
Consolidated Statements of
Shareholders' Equity - years
ended December 31, 1998, 1997
and 1996 F-5
Consolidated Statements of
Cash Flows - years ended
December 31, 1998, 1997 and
1996 F-6
Notes to Consolidated
Financial Statements
(Including Selected Quarterly
Data) F-7 - F23
(a) 2. Financial Statement Schedules
-----------------------------
Schedule III - Summary of Real Estate
and Accumulated Depreciation................... F24 - F27
Schedule IV - Mortgage Loans on Real
Estate......................................... F28 - F29
Report of Independent Certified
Public Accountants............................. F30
32
(a) 3. Exhibits
--------
(3) (i) The Trust's Third Amended and Restated Declaration of Trust dated
May 24, 1984, filed with the Commission on July 5, 1984 as Exhibit 4 to
the Trust's Registration Statement on Form S-2 (file No. 2-92057) is
incorporated herein by reference thereto.
(ii) Bylaws of the Trust, filed with the Commission as an exhibit to
the Trust's Current Report on Form 8-K dated February 20, 1985, as most
recently amended and filed with the Commission as portions of Item 6 to
the Trust's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, is incorporated herein by reference thereto.
(4) (i) Specimen Share of Beneficial Interest, filed with the Commission
on November 23, 1982 as Exhibit 4 to the Trust's Registration Statement
on Form S-2 (file No. 2-80524), is incorporated herein by reference
thereto.
(ii) Statement of Designation for Shares, filed on Form 8-K with the
Commission on October 3, 1997, is incorporated herein by reference
thereto.
(iii) The 5 1/4% Convertible Subordinated Debenture due 2002 as
described in Amendment No. 1 to Form S-3 (File No. 33-15264), filed with
the Commission on August 4, 1987 is incorporated herein by reference
thereto.
(iv) Amended and Restated Rights Agreement, dated March 11, 1999,
between the Trust and American Stock Transfer & Trust Company, filed as
an exhibit to the Trust's Form 8-A/A filed with the Commission on March
11, 1999, is incorporated herein by reference thereto.
(v) Indenture dated December 13, 1993, related to the Trust's 7.48%
Debentures due August 15, 2026; 8 7/8% Senior Notes due January 15, 2000;
8% Notes due April 21, 2002; 6 5/8% Notes due 2005; 6.82% Medium Term
Notes due August 1, 2027; 6.74% Medium Term Notes due March 10, 2004; and
6.99% Medium Term Notes due March 10, 2006, filed with the commission on
December 13, 1993 as exhibit 4 (a) to the Trust's Registration Statement
on Form S-3, (File No. 33-51029) and amended on Form S-3 (File
No. 33-63687, effective December 4, 1995 is incorporated herein by
reference thereto) is incorporated herein by reference thereto.
(vi) Indenture dated September 1, 1998 filed as exhibit 4(a) to the
Trust's Registration Statement on Form S-3 (File No. 333-63619) is
incorporated herein by reference thereto.
(vii) Dividend Reinvestment and Share Purchase Plan, dated November 3,
1995, filed with the Commission on Form S-3 on November 3, 1995 (File No.
33-63955) is incorporated herein by reference thereto.
(9) Voting Trust Agreement...............................*
(10) (i) Consultancy Agreement with Samuel J. Gorlitz, as amended, filed
with the Commission as Exhibit 10 (v) to the Trust's Annual Report on
Form 10-K for the year ended December 31, 1983, is incorporated herein by
reference
33
thereto.
(ii) The Trust's 1983 Stock Option Plan adopted May 12, 1983, filed
with the Commission as Exhibit 10 (vi) to the Trust's Annual Report on
Form 10-K for the year ended December 31, 1983, is incorporated herein by
reference.
(iii) Deferred Compensation Agreement with Steven J. Guttman dated
December 13, 1978, filed with the Commission as Exhibit 10 (iv) to the
Trust's Annual Report on Form 10-K for the year ended December 31, 1980 is
incorporated herein by reference thereto.
(iv) The Trust's 1985 Non-Qualified Stock Option Plan, adopted on
September 13, 1985, filed with the Commission as a portion of Exhibit 10
to the Trust's Annual Report on Form 10-K for the year ended December 31,
1985 is incorporated herein by reference thereto.
(v) Amendment No. 3 to Consultancy Agreement with Samuel J. Gorlitz,
filed as a portion of Exhibit 10 to the Trust's Annual Report on Form 10-K
for the year ended December 31, 1988 is incorporated herein by reference
thereto.
(vi) The 1991 Share Purchase Plan, dated January 31, 1991, filed with
the Commission as a portion of Exhibit 10 to the Trust's Annual Report on
Form 10-K for the year ended December 31, 1990 is incorporated herein by
reference thereto.
(vii) Amendment No. 4 to Consultancy Agreement with Samuel J. Gorlitz,
filed with the Commission as an exhibit to the Trust's Annual Report on
Form 10-K for the year ended December 31, 1992 is incorporated herein by
reference thereto.
(viii) Employment and Relocation Agreement between the Trust and Ron D.
Kaplan, dated September 30, 1992, filed as an exhibit to the Trust's
Annual Report on Form 10-K for the year ended December 31, 1992 is
incorporated herein by reference thereto.
(ix) Amendment dated October 1, 1992, to Voting Trust Agreement dated
as of March 3, 1989 by and between I. Wolford Berman and Dennis L. Berman
filed as an exhibit to the Trust's Annual Report on Form 10-K for the year
ended December 31, 1992 is incorporated herein by reference thereto.
(x) Federal Realty Investment Trust Amended and Restated 1993 Long-
Term Incentive Plan, as amended on October 6, 1997, filed with the
Commission as portions of Item 6 to the Trust's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, are incorporated herein by
reference thereto.
The following documents, filed with the Commission as portions of
34
Item 6 to the Trust's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993 are incorporated herein by reference thereto:
(xi) Consulting Agreement between Misner Development and Federal
Realty Investment Trust.
(xii) Fiscal Agency Agreement dated as of October 28, 1993 between
Federal Realty Investment Trust and Citibank, N.A.
(xiii) Other Share Award and Purchase Note between Federal Realty
Investment Trust and Ron D. Kaplan, dated January 1, 1994, filed with the
Commission as a portion of Item 6 to the Trust's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994 is incorporated herein by
reference there to.
(xiv) Amended and Restated 1983 Stock Option Plan of Federal Realty
Investment Trust and 1985 Non-Qualified Stock Option Plan of Federal Realty
Investment Trust, filed with the Commission on August 17, 1994 on Form S-8,
(File No. 33-55111) is incorporated herein by reference thereto.
(xv) Form of Severance Agreement between Federal Realty Investment
Trust and Certain of its Officers dated December 31, 1994, filed with the
Commission as a portion of Exhibit 10 to the Trust's Annual Report on Form
10-K for the year ended December 31, 1994, is incorporated herein by
reference thereto.
The following filed with the Commission as portions of Exhibit 10 to the Trust's
Annual Report on Form 10-K for the year ended December 31, 1997, are
incorporated herein by reference thereto:
(xvi) Credit Agreement Dated as of December 19, 1997 by and among
Federal Realty Investment Trust, as Borrower, The Financial Institutions
Party Hereto and Their Assignees Under Section 13.5.(a), as Lenders,
Corestates Bank, N.A., as Syndication Agent, First Union National Bank, as
Administrative Agent and as Arranger, and Wells Fargo Bank, as
Documentation Agent and as Co-Arranger.
(xvii) Performance Share Award Agreement between Federal Realty
Investment Trust and Steven J. Guttman, as of January 1, 1998.
(xviii) Form of Amended and Restated Restricted Share Award Agreements
between Federal Realty Investment Trust and Steven J. Guttman for the years
1998 through 2002.
(xix) Performance Share Award Agreements between Federal Realty
Investment Trust and Ron D. Kaplan, as of January 1, 1998.
(xx) Restricted Share Award Agreements between Federal Realty
Investment Trust and Ron D. Kaplan, as of
35
January 1, 1998.
(xxi) Amended and Restated Employment Agreement between the Trust and
Steven J. Guttman as of March 6, 1998.
(xxii) Amended and Restated Executive Agreement between the Trust and
Steven J. Guttman as of March 6, 1998.
(xxiii) Executive Agreement between the Trust and Ron D.Kaplan as of
March 6, 1998.
(xxiv) Amended and Restated Severance Agreement between the Trust and
Ron D. Kaplan as of March 6, 1998.
(xxv) Severance Agreement between the Trust and Catherine R. Mack as of
March 6, 1998.
The following are filed as exhibits hereto:
(xxvi) Federal Realty Investment Trust Amended and Restated 1993 Long-
Term Incentive Plan, as amended on May 6, 1998, and filed with the Trust's
1998 Proxy Statement.
(xxvii) Term Loan Agreement, dated as of December 22, 1998 by and among
Federal Realty Investment Trust, as Borrower, the Financial Institutions
Party Thereto and Their Assignees Under Section 13.5.(d), as Lenders,
Commerzbank Aktiengesellschaft, New York Branch as Syndication Agent, PNC,
National Association, as Administrative Agent and Fleet National Bank as
documentation agent.
(11) Statement regarding computation of per share
earnings.........................................*
(12) Statements regarding computation of ratios.......*
(13) Annual Report to Shareholders, Form 10Q or quarterly report to
shareholders...........................*
(18) Letter regarding change in accounting
principles.......................................*
(19) Report furnished to security holders.............*
(21) Subsidiaries of the registrant....................
(xxxvii) Articles of Incorporation of Street Retail, Inc. filed with the
Commission as a portion of Exhibit 21 to the Trust's Annual Report on Form
10-K for the year ended December 31, 1994 is incorporated herein by
reference thereto.
(xxxviii) By-Laws of Street Retail, Inc. filed with the Commission as a
portion of Exhibit 21 to the Trust's Annual Report on Form 10-K for the
year ended December 31, 1994 is incorporated herein by reference thereto.
36
(22) Published report regarding matters submitted to
vote of security holders.........................*
(23) Consent of Grant Thornton LLP....................
(24) Power of attorney................................*
(27) Financial Data Schedule..........................+
(99) Additional exhibits..............................*
(b) Reports on Form 8-K Filed during the Last Quarter
-------------------------------------------------
A Form 8-K, dated October 28, 1998, was filed in response to Item 5.
_________
* Not applicable.
+ For Edgar filing only.
37
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) 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.
FEDERAL REALTY INVESTMENT TRUST
Date: March 19, 1999 By: Steven J. Guttman
-----------------------
Steven J. Guttman
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
President and
Trustee (Chief
Steven J. Guttman Executive Officer) March 19, 1999
- ------------------------- --------------
Steven J. Guttman
Senior Vice-President,
Finance and Treasurer
Donald C. Wood (Chief Financial Officer) March 19, 1999
- ------------------------- --------------
Donald C. Wood
Vice-President and
Controller (Principal
Cecily A. Ward Accounting Officer) March 19, 1999
- ------------------------- --------------
Cecily A. Ward
Dennis L. Berman Trustee March 19, 1999
- ------------------------- --------------
Dennis L. Berman
Kenneth D. Brody Trustee March 19, 1999
- ------------------------- --------------
Kenneth D. Brody
A. Cornet de Ways Ruart Trustee March 19, 1999
- ------------------------- --------------
A. Cornet de Ways Ruart
Trustee March 19, 1999
- ------------------------- --------------
Samuel J. Gorlitz
Kristin Gamble Trustee March 19, 1999
- ------------------------- --------------
Kristin Gamble
Walter F. Loeb Trustee March 19, 1999
- ------------------------- --------------
Walter F. Loeb
Mark S. Ordan Trustee March 19, 1999
- ------------------------- --------------
Mark S. Ordan
George L. Perry Trustee March 19, 1999
- ------------------------ --------------
George L. Perry
38
FINANCIAL STATEMENTS AND
SCHEDULES
F1
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Trustees and Shareholders
Federal Realty Investment Trust
We have audited the accompanying consolidated balance sheets of Federal Realty
Investment Trust as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Federal Realty
Investment Trust as of December 31, 1998 and 1997 and the consolidated results
of its operations and its consolidated cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Washington, D.C.
February 8, 1999
F2
Federal Realty Investment Trust
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1998 1997
------------------ -----------------
ASSETS (in thousands)
Investments
Real estate, at cost $ 1,642,136 $ 1,453,639
Less accumulated depreciation and amortization (286,053) (247,497)
-------------- ----------------
1,356,083 1,206,142
Mortgage notes receivable 51,154 38,360
-------------- ----------------
1,407,237 1,244,502
Other Assets
Cash 17,230 17,043
Accounts and notes receivable 17,873 18,794
Prepaid expenses and other assets, principally
property taxes and lease commissions 38,502 32,128
Debt issue costs 3,475 4,106
-------------- ----------------
$ 1,484,317 $ 1,316,573
============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Obligations under capital leases $ 122,401 $ 125,940
Mortgages payable 51,079 95,633
Notes payable 263,159 119,028
Accounts payable and accrued expenses 34,073 30,512
Dividends payable 18,972 18,368
Security deposits 5,214 4,423
Prepaid rents 3,641 2,818
Senior notes and debentures 335,000 255,000
5 1/4% Convertible subordinated debentures 75,289 75,289
Investors' interest in consolidated assets 45,542 35,752
Commitments and contingencies
Shareholders' equity
7.95% Series A Cumulative Redeemable Preferred Shares,
liquidation preference $25 per share, 4,000,000 shares issued in 1997 100,000 100,000
Common shares of beneficial interest, no par
or stated value, unlimited authorization,
issued 40,139,675 and 39,200,201 shares,
respectively 707,724 684,823
Accumulated dividends in excess of Trust net income (255,211) (222,709)
-------------- ----------------
552,513 562,114
Less 59,425 and 52,386 common shares in treasury - at cost, respectively,
deferred compensation and subscriptions receivable (22,566) (8,304)
-------------- ----------------
529,947 553,810
-------------- ----------------
$ 1,484,317 $ 1,316,573
============== ================
The accompanying notes are an integral part of these statements.
F-3
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1998 1997 1996
----- ----- ------
(In thousands, except per share data)
Revenue
Rental income $222,186 $188,529 $164,887
Interest and other income 5,945 6,037 4,352
Other property income 10,347 9,705 9,816
------------ ----------- ------------
238,478 204,271 179,055
Expenses
Rental 49,490 42,844 40,687
Real estate taxes 23,271 19,525 16,411
Interest 55,125 47,288 45,555
Administrative 11,796 9,793 9,100
Reorganization expenses 4,665 1,951 -
Depreciation and amortization 46,047 41,399 38,154
------------ ----------- ------------
190,394 162,800 149,907
------------ ----------- ------------
Operating income before investors' share
of operations and gain (loss) on sale of real estate 48,084 41,471 29,148
Investors' share of operations (3,124) (1,342) (394)
------------ ----------- ------------
Income before gain (loss) on sale of real estate 44,960 40,129 28,754
Gain (loss) on sale of real estate - 6,375 (12)
------------ ----------- ------------
Net income 44,960 46,504 28,742
Dividends on preferred stock (7,950) (1,877) -
------------ ----------- ------------
Net income available for common shareholders $ 37,010 $ 44,627 $ 28,742
============ =========== ============
Earnings per common share, basic
Income before gain (loss) on sale of real estate $ 0.94 $ 0.99 $ 0.87
Gain (loss) on sale of real estate - 0.17 -
------------ ----------- ------------
$ 0.94 $ 1.16 $ 0.87
============ =========== ============
Weighted average number of common shares, basic 39,174 38,475 33,175
============ =========== ============
Earnings per common share, diluted
Income before gain (loss) on sale of real estate $ 0.94 $ 0.98 $ 0.86
Gain (loss) on sale of real estate - 0.16 -
------------ ----------- ------------
$ 0.94 $ 1.14 $ 0.86
============ =========== ============
Weighted average number of common shares, diluted 40,080 38,988 33,573
============ =========== ============
F-4
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year ended December 31,
1998 1997 1996
----------- ----------- ----------- ----------- ------------ -----------
(In thousands, except share amounts) Shares Amount Shares Amount Shares Amount
Common Shares of Beneficial Interest
Balance, beginning of year 39,200,201 $ 684,823 35,948,044 $ 597,917 32,221,670 $ 508,870
Exercise of stock options 230,908 4,880 76,184 1,604 126,918 2,705
Shares issued under dividend reinvestment plan 167,511 3,990 153,973 4,115 181,274 4,057
Performance and Restricted Shares granted 541,055 14,031 22,000 686 - -
Net proceeds from sale of shares - - 3,000,000 83,925 3,418,182 82,285
Cost of 7.95% Series A Cumulative Preferred Shares - - (3,424) - -
----------- ----------- ----------- ----------- ----------- -----------
Balance, end of year 40,139,675 $ 707,724 39,200,201 $ 684,823 35,948,044 $ 597,917
=========== =========== =========== =========== =========== ===========
Common Shares of Beneficial Interest
in Treasury, Deferred Compensation and
Subscriptions Receivable
Balance, beginning of year (457,111) ($8,304) (480,948) ($8,332) (500,095) ($8,567)
Amortization of deferred compensation 50,999 976 30,125 480 30,250 482
Performance and Restricted Shares granted (576,055) (14,680) (22,000) (621) - -
Net increase in stock option loans (41,761) (963) (14,166) (299) (10,167) (242)
Reissuance (purchase) of treasury shares,net (7,039) (374) 10,000 184 (2,186) (24)
Purchase under share purchase plan 51,521 779 19,878 284 1,250 19
----------- ----------- ----------- ----------- ----------- -----------
Balance, end of year (979,446) ($22,566) (457,111) ($8,304) (480,948) ($8,332)
=========== =========== =========== =========== =========== ===========
Accumulated Dividends in Excess of Trust Net Income
Balance, beginning of year ($222,709) ($200,700) ($172,835)
Net income 44,960 46,504 28,742
Dividends declared to common shareholders (69,512) (66,636) (56,607)
Dividends declared to preferred shareholders (7,950) (1,877) -
----------- ----------- ------------
Balance, end of year ($255,211) ($222,709) ($200,700)
=========== =========== ============
The accompanying notes are an integral part of these statements.
F-5
Federal Realty Investment Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
(In thousands) 1998 1997 1996
------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 44,960 $ 46,504 $ 28,742
Items not requiring cash outlays
Depreciation and amortization 46,047 41,399 38,154
(Gain) loss on sale of real estate - (6,375) 12
Other, net 2,301 818 1,174
Changes in assets and liabilities
Decrease (increase) in accounts receivable 878 (1,493) (1,020)
Increase in prepaid expenses and other
assets before depreciation and amortization (9,571) (11,263) (7,665)
Increase (decrease) in operating accounts payable,
security deposits and prepaid rent 2,148 (287) 3,133
Increase in accrued expenses 3,664 2,867 3,118
----------- ------------- -----------
Net cash provided by operating activities 90,427 72,170 65,648
INVESTING ACTIVITIES
Acquisition of real estate (92,946) (251,351) (85,792)
Capital expenditures (73,030) (50,349) (42,356)
Decrease (increase) in deposit on purchase of real estate - 23,447 (23,401)
Issuance of mortgage notes receivable, net (21,375) (10,447) (14,352)
Proceeds from sale of real estate - 9,364 4,680
Other, net (295) (7) (598)
------------ ------------- -------------
Net cash used in investing activities (187,646) (279,343) (161,819)
FINANCING ACTIVITIES
Borrowing of short-term debt, net 144,357 55,391 19,290
Issuance of senior notes, net of costs 79,540 39,750 49,749
Issuance of common shares 5,310 86,893 86,054
Issuance of preferred shares - 96,576 -
Payments on mortgages, capital leases and notes payable, including
prepayment fees (55,248) (3,712) (5,735)
Dividends paid (74,284) (62,621) (52,084)
Increase (decrease) in minority interest, net (2,269) 898 (583)
----------- ----------- ------------
Net cash provided by financing activities 97,406 213,175 96,691
----------- ----------- ------------
Increase in cash 187 6,002 520
Cash at beginning of year 17,043 11,041 10,521
----------- ----------- ------------
Cash at end of year $ 17,230 $ 17,043 $ 11,041
=========== =========== ============
The accompanying notes are an integral part of these statements.
F-6
Federal Realty Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, and 1996
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Federal Realty Investment Trust (the "Trust") invests in income-producing
retail real estate, primarily community and neighborhood shopping centers and
main street retail properties, retail buildings and shopping centers in densely
developed urban and suburban areas. In addition, the Trust has various land
parcels under its control for the purpose of developing multi-use projects that
center around the retail component.
The Trust operates in a manner intended to enable it to qualify as a real
estate investment trust under Sections 856-860 of the Internal Revenue Code (the
"Code"). Under those sections, a trust which distributes at least 95% of its
real estate trust taxable income to its shareholders each year and which meets
certain other conditions will not be taxed on that portion of its taxable income
which is distributed to its shareholders. Therefore, no provision for Federal
income taxes is required.
The consolidated financial statements of the Trust include the accounts of the
Trust, its wholly owned corporate subsidiaries, several corporations where the
Trust has a majority ownership, numerous partnerships and a joint venture. The
equity interests of other investors are reflected as investors' interest in
consolidated assets. All significant intercompany transactions and balances are
eliminated.
Revenue Recognition. The Trust's leases with tenants are classified as operating
leases. Minimum rents are recognized on an accrual basis over the terms of the
related leases with appropriate valuation adjustments recorded to consider
credit and other business risk. Percentage rents, which represent additional
rents based on tenant sales, are recognized at the end of the lease year or
other period in which tenant sales volumes have been reached and the percentage
rents are due. Real estate tax and other cost reimbursements are recognized on
an accrual basis over the periods in which the expenditures occurred.
Real Estate. The Trust uses the straight-line method in providing for
depreciation. Estimated useful lives range from three to 25 years on apartment
buildings and improvements, and from three to 35 years on retail properties and
improvements. Maintenance and repair costs are charged to operations as
incurred. Major improvements are capitalized. The gain or loss resulting from
the sale of properties is included in net income at the time of sale. The Trust
has adopted FAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". The Trust does not hold any assets that
meet the impairment criteria of FAS 121.
The Trust capitalizes certain external and internal costs
F7
directly related to the development, redevelopment and leasing of real estate
including applicable salaries and other related costs. The capitalized costs
associated with developments, redevelopments and leasing are depreciated or
amortized over the life of the improvement and lease, respectively. Through
March 1998, the Trust also capitalized internal costs of preacquisition
activities incurred in connection with the acquisition of an operating property.
On March 19, 1998 the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus opinion on issue #97-11,
"Accounting for Internal Costs Relating to Real Estate Property Acquisitions"
which requires that the internal costs of preacquisition activities incurred in
connection with the acquisition of an operating property be expensed as
incurred. Consequently, the Trust has been expensing these costs since March
1998.
Interest costs on developments and major redevelopments are capitalized as
part of the development and redevelopment.
Debt Issue Costs. Costs related to the issuance of debt instruments are
capitalized and are amortized as interest expense over the life of the related
issue using the interest method. Upon conversion or in the event of redemption,
applicable unamortized costs are charged to shareholders' equity or to
operations, respectively.
Cash and Cash Equivalents. The Trust defines cash as cash on hand, demand
deposits with financial institutions and short term liquid investments with an
initial maturity under three months. Cash balances may exceed insurable
amounts.
Risk Management. The Trust occasionally enters into derivative contracts prior
to a scheduled financing or refinancing in order to minimize the risk of changes
in interest rates. The derivative contracts are designated as hedges when
acquired. The cost or gain on these transactions is recognized as a component
of interest expense over the life of the financing. The Trust does not use
derivative financial instruments for trading or speculative purposes. There
were no open derivative contracts at December 31, 1998 or 1997.
Use of Estimates. Inherent in the preparation of the Trust's financial
statements are certain estimates. These estimates are prepared using
management's best judgment, after considering past and current events.
Earnings Per Share. In 1997 the Financial Accounting Standards Board issued
Financial Accounting Standards No. 128 - "Earnings Per Share". Statement 128
replaces the presentation of primary and fully diluted earnings per share
("EPS") pursuant to Accounting Principles Board Opinion No. 15 with the
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the weighted
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common shares were exercised or converted into common shares and then shared in
the
F8
earnings of the Trust.
The following table sets forth the reconciliation between basic and diluted
EPS (in thousands):
1998 1997 1996
- ----------------------------------------------------------------------
Numerator
- ---------
Net income available for common
shareholders - basic $37,010 $44,627 $28,742
Income attributable to
operating partnership units 578 32 -
------- ------- -------
Net income available for common
shareholders - diluted $37,588 $44,659 $28,742
======= ======= =======
Denominator
- -----------
Denominator for basic EPS-
weighted average shares 39,174 38,475 33,175
Effect of dilutive securities
Stock options and awards 292 494 398
Operating partnership units 614 19 -
------ ------ ------
Denominator for diluted EPS 40,080 38,988 33,573
====== ====== ======
Stock options are accounted for in accordance with APB 25, whereby if options
are priced at fair market value or above at the date of grant, no compensation
expense is recognized.
NOTE 1: REAL ESTATE AND ENCUMBRANCES
A summary of the Trust's properties at December 31, 1998 and 1997 is as
follows (in thousands):
Accumulated
depreciation and
1998 Cost amortization Encumbrances
- ----------------------------------------------------------------------
Retail properties $1,436,949 $227,728 $ 51,079
Retail properties
under capital leases 198,567 53,088 122,401
Apartments 6,620 5,237 -
---------- -------- --------
$1,642,136 $286,053 $173,480
========== ======== ========
1997
Retail properties $1,241,087 $186,195 $ 95,633
Retail properties
under capital leases 205,979 56,356 125,940
Apartments 6,573 4,946 -
---------- -------- --------
$1,453,639 $247,497 $221,573
========== ======== ========
F9
Real estate acquisitions during 1998 were as follows (in thousands, except for
quare footage):
Existing
Total Cash Leasable
Property Cost Portion Square Footage
- -------------------------------------------------------------------------
Shopping Centers
Hauppauge, Long Island,NY $ 24,053 $24,053 131,000
Leesburg, Leesburg, VA (1)(2) 18,906 5,556 247,000
Tower, Springfield, VA 17,688 17,688 109,000
Kings Court, Los Gatos, CA (1)(3) 10,714 4,340 79,000
Leasehold buyout and other 7,736 2,012 -
Street Retail
Ten properties, San Antonio,TX (4) 14,163 14,163 235,000
Two properties, Tempe,AZ (5) 10,557 9,807 40,000
Two properties, Santa Monica,CA (6) 8,685 8,028 19,000
One property, Pasadena,CA (6) 6,366 5,733 17,000
Other 1,566 1,566 -
-------- ------- -------
$120,434 $92,946 877,000
======== ======= =======
1)The Trust acquired these properties in partnership with
third parties, whose partnership units, valued at $3.5
million and $6.4 million, respectively, may be converted
into shares of the Trust.
2)The Trust placed a $9.9 million mortgage on this property.
3)The Trust acquired a leasehold interest in this property.
4)The Trust plans to develop these properties on Houston
Street, most of which are currently vacant.
5)The Trust owns 100% of one property and an 85% partnership
interest in the second property.
6)The Trust acquired a 90% partnership interest in these
properties.
The minority owners in Leesburg and Kings Court shopping centers may exchange
their 138,000 and 260,163 partnership units, respectively, into the same number
of common shares of the Trust or cash, at the Trust's option, after September
15, 2000 and August 24, 1999, respectively. A $9.9 million mortgage was placed
on Leesburg Plaza which bears interest at 6.51%, requires interest only payments
until October 2005 and is due September 1, 2008.
Approximately $25.0 million was invested in 1998 in predevelopment and
development projects in Bethesda, Maryland; Los Gatos, California; San Jose,
California; and in Arlington, Virginia. Other major capital expenditures include
$4.7 million on the renovation of Gratiot Plaza, $4.9 million on the renovation
of Feasterville shopping center, $3.3 million on the renovation of Falls Plaza,
and $3.1 million on the retenanting of Finley shopping center.
The Trust's 120 retail properties at December 31, 1998 are located in 16
states and the District of Columbia. There are approximately 2,290 tenants
providing a wide range of retail products and services. These tenants range
from sole proprietorships to national retailers; no one tenant or corporate
F10
group of tenants account for 3% or more of revenue.
Mortgage notes receivable of $51.2 million are due over various terms from
January 2000 to May 2021 and have an average weighted interest rate of 10%.
Under the terms of certain of these mortgages, the Trust will receive additional
interest based upon the gross income of the secured properties and upon sale of
the properties, the Trust will share in the appreciation of the properties.
On May 13, 1997 the Trust sold Town & Country Shopping Center in Springfield,
Illinois for $7.5 million, resulting in a gain of $5.3 million. On May 30, 1997
Shillington Shopping Center in Shillington, Pennsylvania was sold for $4.6
million, resulting in a gain of $1.7 million. On September 25, 1997 the Trust
sold Brainerd Village Shopping Center in Chattanooga, Tennessee for $10.2
million, resulting in a loss of $659,000.
On December 31, 1996 the Trust sold Town and Country Shopping Center in
Hammond, Louisiana for $4.9 million, resulting in a loss of $12,000.
Mortgages payable and capital lease obligations are due in installments over
various terms extending to 2016 and 2060, respectively, with interest rates
ranging from 6.1% to 11.25%. Certain of the mortgage and capital lease
obligations require additional interest payments based upon property
performance. In 1998 the Trust paid off maturing mortgages totaling $53.5
million on Barracks Road, Falls Plaza, Falls Plaza-East, Old Keene Mill,
Loehmann's Plaza and Bristol Plaza. In 1997 the Trust repaid a $1.5 million
mortgage on Northeast Shopping Center in Philadelphia, Pennsylvania.
Aggregate mortgage principal payments due during the next three years are
$532,000, $583,000, and $30.7 million, respectively. There are no further
mortgage principal payments due until 2005 when principal payments begin on the
Leesburg mortgage.
Future minimum lease payments and their present value for property under
capital leases as of December 31, 1998, are as follows (in thousands):
Year ending December 31,
1999 $ 11,299
2000 11,736
2001 11,736
2002 11,527
2003 11,458
Thereafter 525,717
---------
583,473
Less amount representing interest (461,072)
---------
Present value $ 122,401
=========
F11
Leasing Arrangements
- --------------------
The Trust's leases with retail property and apartment tenants are
classified as operating leases. Leases on apartments are generally for a period
of one year, whereas retail property leases generally range from three to 10
years and usually provide for contingent rentals based on sales and sharing of
certain operating costs.
The components of rental income are as follows (in thousands):
Year ended December 31,
1998 1997 1996
- ----------------------------------------------------------------------------
Retail properties
Minimum rents $178,936 $147,147 $129,077
Cost reimbursements 34,897 34,089 28,805
Percentage rent 5,766 4,801 4,550
Apartments - rents 2,587 2,492 2,455
-------- -------- --------
$222,186 $188,529 $164,887
======== ======== ========
The components of rental expense are as follows (in thousands):
Year ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------
Repairs and maintenance $13,942 $12,634 $11,865
Management fees and costs 9,510 8,452 7,264
Utilities 7,625 5,957 5,350
Payroll - properties 3,775 3,432 3,032
Ground rent 2,829 2,602 2,851
Insurance 2,610 2,227 2,183
Other operating 9,199 7,540 8,142
------- ------- -------
$49,490 $42,844 $40,687
======= ======= =======
Minimum future retail property rentals on noncancelable operating leases as
of December 31, 1998 are as follows (in thousands):
Year ending December 31,
1999 $ 183,301
2000 168,192
2001 151,910
2002 133,744
2003 112,787
Thereafter 613,649
----------
$1,363,583
==========
F12
NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------------
The following disclosure of estimated fair value was determined by the Trust,
using available market information and appropriate valuation methods.
Considerable judgment is necessary to develop estimates of fair value. The
estimates presented herein are not necessarily indicative of the amounts that
could be realized upon disposition of the financial instruments.
The Trust estimates the fair value of its financial instruments using the
following methods and assumptions: (1) quoted market prices, when available, are
used to estimate the fair value of investments in marketable debt and equity
securities; (2) quoted market prices are used to estimate the fair value of the
Trust's marketable convertible subordinated debentures; (3) discounted cash flow
analyses are used to estimate the fair value of long term notes receivable and
payable, using the Trust's estimate of current interest rates for similar notes;
(4) carrying amounts in the balance sheet approximate fair value for cash and
short term borrowings. Notes receivable from officers are excluded from fair
value estimation since they have been issued in connection with employee stock
ownership programs.
December 31, 1998 December 31, 1997
(in thousands) Carrying Fair Carrying Fair
Value Value Value Value
------------------ --------------------
Cash & equivalents $ 17,230 $ 17,230 $ 17,043 $ 17,043
Investments 1,661 1,661 1,304 1,304
Mortgage notes
receivable 51,154 52,433 38,360 39,864
Mortgages and notes
payable 314,238 316,722 214,662 218,194
Convertible
debentures 75,289 71,901 75,289 70,772
Senior notes 335,000 346,269 255,000 264,291
NOTE 3. NOTES PAYABLE
- ---------------------
The Trust's notes consist of the following (in thousands):
1998 1997
- --------------------------------------------------------
Revolving credit facilities $134,147 $114,790
Term note with banks 125,000 -
Other 4,012 4,238
-------- --------
$263,159 $119,028
======== ========
In December 1997 the Trust replaced its unsecured medium term revolving credit
facilities with four banks with a five year syndicated credit facility, thereby
increasing the aggregate amount available from $135 million to $300 million and
decreasing the interest rate from LIBOR plus 75 basis points to LIBOR plus 65
basis points. The syndicated facility requires fees and has
F13
various covenants including the maintenance of a minimum shareholders' equity
and a maximum ratio of debt to net worth.
In December 1998 the Trust obtained a four year loan of $125 million from five
institutional lenders. The loan, which bears interest at LIBOR plus 75 basis
points, requires fees and has the same covenants as the syndicated credit
facility.
The maximum drawn under these facilities during 1998, 1997 and 1996 was $259.1
million, $114.8 million and $76.2 million, respectively. In 1998, 1997 and 1996
the weighted average interest rate on borrowings was 6.1%, 6.5% and 6.4%,
respectively, and the average amount outstanding was $163.6 million, $59.9
million and $47.2 million, respectively.
NOTE 4. DIVIDENDS
- -----------------
On November 17, 1998 the Trustees declared a quarterly cash dividend of $.44
per common share, payable January 15, 1999 to common shareholders of record
January 4, 1999. For the years ended December 31, 1998, 1997 and 1996, $.31,
$.19, and $.21 of dividends paid per common share, respectively, represented a
return of capital.
On November 17, 1998 the Trustees declared a quarterly cash dividend of
$.49687 per share on its Series A Cumulative Redeemable Preferred Shares,
payable on February 1, 1999 to shareholders of record on January 15, 1999.
NOTE 5. COMMITMENTS AND CONTINGENCIES
- -------------------------------------
The Trust is involved in various lawsuits and environmental matters arising in
the normal course of business. Management believes that such matters will not
have a material effect on the financial condition or results of operations of
the Trust.
Pursuant to the provisions of the respective partnership agreements, in the
event of the exercise of put options by the other partners, the Trust would be
required to purchase the 99% limited partnership interest at Loehmann's Plaza at
its then fair market value and an 18.75% interest at Congressional Plaza at its
then fair market value.
Under the terms of certain partnerships, if certain leasing and revenue levels
are obtained for the properties, the limited partners may require the Trust to
purchase their partnership interests at a formula price based upon net operating
income. The purchase price may be paid in cash or common shares of the Trust, at
the election of the limited partners. If the limited partners do not redeem
their interest, the Trust may choose to purchase the limited partnership
interests upon the same terms. Under the terms of other partnerships, the
partners may exchange their 879,541 operating partnership units into cash or
the same number of common shares of the Trust, at the option of the Trust.
F14
As of December 31, 1998 in connection with the renovation of certain shopping
centers, the Trust has contractual obligations of $14.7 million and $251,000 of
letters of credit outstanding. In addition the Trust is contractually obligated
under leases to provide up to $6.1 million in building and tenant improvements.
The Trust is obligated under ground lease agreements on several shopping
centers requiring minimum annual payments as follows (in thousands):
1999 $ 3,178
2000 3,183
2001 3,183
2002 3,183
2003 3,258
Thereafter 178,230
--------
$194,215
========
NOTE 6. 5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
- ---------------------------------------------------
In October 1993 the Trust issued $75.0 million of 5 1/4% convertible
subordinated debentures, realizing cash proceeds of approximately $73.0 million.
The debentures were not registered under the Securities Act of 1933, and were
not publicly distributed within the United States. The debentures, which mature
in 2003, are convertible into shares of beneficial interest at $36 per share.
The debentures are redeemable by the Trust, in whole, at any time after October
28, 1998 at 100% of the principal amount plus accrued interest.
At December 1998 and 1997 the Trust had outstanding $289,000 of 5 1/4%
convertible subordinated debentures due 2002. The debentures which are
convertible into shares of beneficial interest at $30.625 were not registered
under the Securities Act of 1933 and were not publicly distributed within the
United States.
NOTE 7. SENIOR NOTES AND DEBENTURES
- -----------------------------------
Unsecured senior notes and debentures at December 31, 1998 and 1997 consist of
the following (in thousands):
1998 1997
- --------------------------------------------------------------------
8.875% Notes due January 15, 2000 $100,000 $100,000
8% Notes due April 21, 2002 25,000 25,000
6.74% Medium-Term Notes due March 10, 2004 39,500 -
6.625% Notes due December 1, 2005 40,000 40,000
6.99% Medium-Term Notes due March 10, 2006 40,500 -
7.48% Debentures due August 15, 2026,
redeemable at par by holder August 15, 2008 50,000 50,000
6.82% Medium-Term Notes due August 1, 2027,
redeemable at par by holder August 1, 2007 40,000 40,000
-------- --------
$335,000 $255,000
======== ========
F15
The loan agreements contain various covenants, including limitations on the
amount of debt and minimum debt service coverage ratios. The Trust is in
compliance with all covenants.
In anticipation of the March 1998 Medium-Term Note issuance, on January 13,
1998 the Trust purchased a Treasury Yield Hedge (notional amount of $50 million)
to minimize the risk of changes in interest rates. The hedge was terminated on
March 5, 1998 at a gain of $1.1 million which is being recognized as a reduction
in interest expense over the term of the notes. There were no open hedge
agreements at December 31, 1998 or 1997.
In September 1998 the Trust filed a $500 million shelf registration statement
with the Securities and Exchange Commission which allows the issuance of debt
securities, preferred shares and common shares. There have been no drawdowns
under the shelf registration.
NOTE 8. SHAREHOLDERS' EQUITY
- ----------------------------
On February 4, 1997 the Trust sold three million common shares to an
institutional investor for $28 per share, netting $83.9 million.
On October 6, 1997 the Trust issued four million 7.95% Series A Cumulative
Redeemable Preferred Shares at $25 per share in a public offering, realizing
cash proceeds of approximately $96.6 million after costs of $3.4 million. The
Series A Preferred Shares are not redeemable prior to October 6, 2002. On or
after that date, the Preferred Shares may be redeemed, in whole or in part, at
the option of the Trust, at a redemption price of $25 per share plus all accrued
and unpaid dividends. The redemption price is payable solely out of proceeds
from the sale of other capital shares of the Trust. Dividends on the Preferred
Shares will be payable quarterly in arrears on the last day of January, April,
July and October.
On May 24, 1996 the Trust sold, to an institutional investor, 1.8 million
common shares at $22 per share, netting $39.3 million. On December 13, 1996
the Trust sold another 1.6 million common shares to the public at $27 7/8 per
share, netting $42.9 million.
The Trust has a Dividend Reinvestment Plan, whereby shareholders may use their
dividends and make optional cash payments to purchase shares. In 1998, 1997, and
1996, 167,511 shares, 153,973 shares, and 181,274 shares, respectively, were
issued under the Plan.
In 1998, 576,055 common shares, of which 35,000 were issued from treasury
shares, were awarded to the Trust's president and certain other officers under
various programs designed to directly link a significant portion of their long
term compensation to the prosperity of the Trust and its shareholders. Ten
thousand shares
F16
vested upon award, 491,055 shares vest over terms from 5 to 13 years, and 75,000
shares vest upon the obtainment of certain performance criteria.
On January 31, 1997, 22,000 restricted shares were granted to an officer and
two employees of the Trust. The shares vest over three years. On September 26,
1997, 10,000 restricted common shares were granted to an officer; the shares,
which were fully vested upon grant, were issued from treasury shares.
In January 1994 under the terms of the 1993 Long Term Incentive Plan, an
officer of the Trust purchased 40,000 common shares at $25 per share with the
assistance of a $1.0 million loan from the Trust. The loan, which has a term of
12 years and a current balance of $687,500, bears interest at 6.24%. Forgiveness
of up to 75% of the loan is subject to the future performance of the Trust. One
eighth of the loan was forgiven on January 31, 1995 and an additional one
sixteenth has been forgiven each January 31 since then as certain performance
criteria of the Trust were met. The Trust has loaned the officer $125,000 to pay
taxes due in connection with the plan.
In January 1991 the Trustees adopted the Federal Realty Investment Trust Share
Purchase Plan. Under the terms of this plan, officers and certain employees of
the Trust purchased 446,000 common shares at $15.125 per share with the
assistance of loans of $6.7 million from the Trust. Originally, the Plan called
for one sixteenth of the loan to be forgiven each year for eight years, as long
as the participant was still employed by the Trust. The loans for all
participants, but two, were modified in 1994 to extend the term an additional
four years and to tie forgiveness in 1995 and thereafter to certain performance
criteria of the Trust. One sixteenth of the loan has been forgiven during each
year of the plan. At December 31, 1998 the Trust has outstanding loans to
participants of $3.0 million; $2.2 million of purchase loans and $824,000 of
loans with which to pay the taxes due in connection with the plan. The purchase
loans and the tax loans bear interest at 9.39%. The shares purchased under the
plan may not be sold, pledged or assigned until both the purchase and tax loans
are satisfied and the term has expired, without the consent of the Compensation
Committee of the Board of Trustees.
In connection with a restricted share grant, the Trust accepted from its
President a noninterest bearing note of $105,000 which is due April 15, 2001. In
connection with restricted share grants made in 1998 to the Chief Investment
Officer, the Trust accepted interest bearing notes of $93,000, which are due
eight years from issuance.
At December 31, 1998, 1997 and 1996, respectively, the Trust had 59,425 common
shares, 52,386 common shares and 62,386 common shares in treasury, at a cost of
$1.4 million, $1.0 million, and $1.2 million, respectively.
On April 13, 1989, the Trustees adopted a Shareholder Rights Plan (the Plan).
Under the Plan, one right was issued for each outstanding share of common stock
held as of April 24, 1989, and a
F17
right will be attached to each share issued in the future. The rights are
exercisable into common shares upon the occurrence of certain events, including
acquisition by a person or group of certain levels of beneficial ownership or a
tender offer by such a person or group. The rights are redeemable by the Trust
for $.01.
NOTE 9. STOCK OPTION PLAN
- -------------------------
The 1993 Long Term Incentive Plan ("Plan") has been amended to authorize the
grant of options and other stock based awards for up to 5.5 million shares.
Options granted under the Plan have ten year terms and vest in one to five
years. Under the Plan, on each annual meeting date during the term of the Plan,
each nonemployee Trustee will be awarded 2,500 options.
The option price to acquire shares under the 1993 Plan and previous plans is
required to be at least the fair market value at the date of grant. As a result
of the exercise of options, the Trust had outstanding from its officers and
employees notes for $3.4 million and $2.5 million at December 31, 1998 and 1997,
respectively. The notes issued under the 1993 Plan bear interest at the dividend
rate on the date of exercise divided by the purchase price of such shares. The
notes issued under the previous plans bear interest at the lesser of (i) the
Trust's borrowing rate or (ii) the current indicated annual dividend rate on the
shares acquired pursuant to the option, divided by the purchase price of such
shares. The notes are collateralized by the shares and are with recourse. The
loans have a term extending to the employee's or officer's retirement date.
FAS Statement No. 123, "Accounting for Stock-Based Compensation" requires pro
forma information regarding net income and earnings per share as if the Trust
accounted for its stock options under the fair value method of that Statement.
The fair value for options issued in 1998, 1997, and 1996 has been estimated as
$2.6 million, $4.0 million, and $120,000, respectively, as of the date of grant,
using a binomial model with the following weighted-average assumptions for 1998,
1997 and 1996, respectively: risk-free interest rates of 5.7%, 6.5%, and 5.7%;
volatility factors of the expected market price of the Trust's shares of 19%,
19% and 19%; and a weighted average expected life of the option of 6.3 years,
6.6 years, and 5.6 years.
Because option valuation models require the input of highly subjective
assumptions, such as the expected stock price volatility, and because changes in
these subjective input assumptions can materially affect the fair value
estimate, the existing model may not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
are amortized to expense over the options'
F18
vesting period. The pro forma information is as follows (in thousands except for
earnings per share):
1998 1997 1996
- -----------------------------------------------------------------------------
Pro forma net income $43,179 $45,214 $28,241
Pro forma earnings per share, basic $ .90 $ 1.13 $ .85
Pro forma earnings per share, diluted $ .88 $ 1.11 $ .84
A summary of the Trust's stock option activity for the years ended December
31, is as follows:
Shares Weighted
Under Average
Option Exercise Price
------ --------------
January 1, 1996 1,514,632 $ 22.71
Options granted 81,181 21.21
Options exercised (126,918) 21.31
Options forfeited (35,166) 22.47
---------
December 31, 1996 1,433,729 22.737
Options granted 1,611,500 26.43
Options exercised (75,884) 21.05
Options forfeited (121,003) 25.99
---------
December 31, 1997 2,848,342 24.73
Options granted 1,293,500 25.06
Options exercised (228,908) 21.14
Options forfeited (304,118) 25.62
---------
December 31, 1998 3,608,816 25.00
=========
At December 31, 1998 and 1997, options for 1.5 million and 1.2 million shares,
respectively, were exercisable. The average remaining contractual life of
options outstanding at December 31, 1998 and 1997 was 7.1 years and 7.9 years,
respectively. The weighted average grant date fair value per option for options
granted in 1998 and 1997 was $2.00 and $2.68, respectively. The exercise price
of options outstanding at December 31, 1998 ranged from $17.25 per share to
$27.13 per share.
NOTE 10. SAVINGS AND RETIREMENT PLANS
- -------------------------------------
The Trust has a savings and retirement plan in accordance with the provisions
of Section 401(k) of the Internal Revenue Code. Employees' contributions range,
at the discretion of each employee, from 1% to 17% of compensation up to a
maximum of $10,000. Under the plan, the Trust, out of its current net income,
contributes 50% of each employee's first 5% of contributions. In addition, the
Trust may make discretionary contributions within the limits of deductibility
set forth by the Code. Employees of the Trust, who work over 1,000 hours
annually,
F19
are eligible to become plan participants. The Trust's expense for the years
ended December 31, 1998, 1997 and 1996 was $218,000, $210,000 and $179,000,
respectively. In 1996 the Trust recorded a liability for an additional
contribution of 1.5% of salary for all nonofficer employees who were eligible
for the 401(k) plan. In addition, 1.5% of salary in 1996 was accrued for all
eligible nonofficer employees as a bonus.
A nonqualified deferred compensation plan for Trust officers was established
in 1994. The plan allows the officers to defer future income until the earlier
of age 65 or termination of employment with the Trust. As of December 31, 1998,
the Trust is liable to participants for approximately $1.7 million under this
plan. Although this is an unfunded plan, the Trust has purchased certain
investments with which to match this obligation.
NOTE 11. INTEREST EXPENSE
- -------------------------
The Trust incurred interest expense totaling $60.2 million, $50.9 million and
$46.4 million in 1998, 1997 and 1996, respectively, of which $5.1 million, $3.6
million, and $871,000, respectively, was capitalized. Interest paid was $57.8
million in 1998, $49.4 million in 1997, and $44.2 million in 1996.
NOTE 12. REORGANIZATION EXPENSES
- --------------------------------
At September 30, 1998 the Trust recorded a $4.7 million charge related to a
comprehensive restructuring program that was implemented during the fourth
quarter of 1998. The charge included a provision for employee severance and
related costs, office closing and downsizing expenses, as well as legal and
consulting fees related to the restructuring program. The Trust's workforce was
reduced by approximately 15% including several vice presidents and other senior
personnel. The foundation of the restructuring effort focused on a change in the
Trust's operating model from a functional hierarchy to an asset management
discipline where small focused teams are responsible for and compensated based
on the operating performance of a portfolio of assets. In addition, the
restructuring effort included a significant downsizing of the Trust's
acquisition department, in response to changing market conditions and business
emphasis. Cash payments against the reserve totalled $1.5 million through
December 31, 1998 with the remaining cash expected to be paid in 1999.
NOTE 13. Year 2000 Readiness
- ----------------------------
The Trust has reviewed the software and hardware systems used internally to
operate its business, in order to assess their ability to handle the "Year 2000
Issue" which generally refers to the inability of systems hardware and software
to correctly identify two-digit references to specific calendar years, beginning
with 2000. The Year 2000 Issue can affect the Trust directly by impairing its
internal data-based
F20
operations or processing and indirectly by impairing its suppliers' and tenants'
data-based operations or processing. The Trust has identified and evaluated the
Year 2000 compliance of its internal systems; the Trust believes that the
remediation of all accounting systems and other systems of high priority is
complete. The Trust will endeavor to remediate the remaining internal systems
throughout 1999.
The Trust is currently requesting information from its major banks, tenants,
suppliers and manufacturers of computerized components of its real estate
properties to determine their Year 2000 compliance. Based on costs spent to date
and projections of future costs, costs of addressing and solving potential
internal problems are not expected to have a material adverse impact on the
Trust's financial condition.
NOTE 14. SUBSEQUENT EVENTS
- --------------------------
Under a Restricted Share Agreement designed to link his compensation with the
prosperity of the shareholders, the Trust's President elected to accept stock in
lieu of cash for both his 1998 bonus and his 1999 salary. As a result, on
January 1, 1999, 26,741 common shares were awarded to the president in lieu of
his 1999 cash salary. Additional shares will be issued when his 1998 bonus is
determined. The shares vest at the end of five years if the president is still
employed by the Trust.
NOTE 15. SEGMENT INFORMATION
- ----------------------------
The Trust has traditionally operated its business as a single business
segment. During the fourth quarter of 1998, however, the Trust completed a
comprehensive restructuring program which, among other things, changed the
Trust's operating structure from a functional hierarchy to an asset management
model, where small focused teams are responsible for a portfolio of assets. As a
result the Trust has divided its portfolio of properties into three geographic
operating regions: Northeast, Mid-Atlantic and West. Each region is operated
under the direction of a chief operating officer, with dedicated leasing,
property management and financial staff and operates largely autonomously with
respect to day to day operating decisions.
F21
A summary of the Trust's operations by geographic region is presented below
(in thousands):
North Mid
1998 East Atlantic West Other Consolidated
- ---------------------------------------- -------------- --------------- -------------- --------------- --------------------
Rental income $ 81,964 $ 103,676 $ 36,546 - $ 222,186
Other income 5,591 3,637 1,119 - 10,347
Rental expense (18,179) (22,826) (8,485) - (49,490)
Real estate tax (10,975) (8,422) (3,874) - (23,271
------------- -------------- ------------- -------------------
Net operating income 58,401 76,065 25,306 159,772
Interest income - - - 5,945 5,945
Interest expense - - - (55,125) (55,125)
Administrative expense - - - (11,796) (11,796)
Reorganization expense - - - (4,665) (4,665)
Depreciation and amortization (17,793) (22,218) (5,081) (955) (46,047)
------------- -------------- ------------- -------------- -------------------
Income before investors'
share of operations and
gain on sale of real estate $ 40,608 $ 53,847 $ 20,225 $ (66,596) $ 48,084
============= ============== ============= ============== ===================
Capital expenditures $ 46,001 $ 57,872 $ 86,049 - $ 189,922
============= ============== ============= ===================
Real estate assets $ 596,340 $ 676,842 $ 368,954 - $ 1,642,136
============= ============== ============= ===================
North Mid
1997 East Atlantic West Other Consolidated
- ---------------------------------------- -------------- --------------- -------------- --------------- ---------------
Rental income $ 70,447 $ 96,818 $ 21,264 - $ 188,529
Other income 4,511 4,867 327 - 9,705
Rental expense (15,755) (22,387) (4,702) - (42,844)
Real estate tax (8,316) (8,000) (3,209) - (19,525)
------------- -------------- ------------- - ---------------
Net operating income 50,887 71,298 13,680 135,865
Interest income - - - 6,037 6,037
Interest expense - - - (47,288) (47,288)
Administrative expense - - - (9,793) (9,793)
Reorganization expense - - - (1,951) (1,951)
Depreciation and Amortization (15,558) (21,690) (3,117) (1,034) (41,399)
------------- -------------- ------------- -------------- ---------------
Income before investors'
share of operations and
gain on sale of real estate $ 35,329 $ 49,608 $ 10,563 $ (54,029) $ 41,471
============= ============== ============= ============== ===============
Capital expenditures $ 99,423 $ 67,794 $ 165,398 - $ 332,615
============= ============== ============= ===============
Real estate assets $ 551,763 $ 618,971 $ 282,905 - $ 1,453,639
============= ============== ============= ===============
North Mid
1996 East Atlantic West Other Consolidated
- ---------------------------------------- -------------- --------------- -------------- --------------- ---------------
Rental income $ 63,725 $ 90,995 $ 10,167 - $ 164,887
Other income 3,765 5,230 821 - 9,816
Rental expense (15,123) (22,820) (2,744) - (40,687)
Real estate tax (7,412) (7,264) (1,735) - (16,411)
------------- -------------- ------------- --------------- ---------------
Net operating income 44,955 66,141 6,509 117,605
Interest income - - - 4,352 4,352
Interest expense - - - (45,555) (45,555)
Administrative expense - - - (9,100) (9,100)
Depreciation and
Amortization (14,507) (20,736) (1,996) (915) (38,154)
------------- -------------- ------------- -------------- ---------------
Income before investors'
share of operations and
gain on sale of real
estate $ 30,448 $ 45,405 $ 4,513 $ (51,218) $ 29,148
============= ============== ============= ============== ===============
Capital expenditures $ 60,140 $ 29,403 $ 54,144 - $ 143,687
============= ============== ============= ===============
Real estate assets $ 456,753 $ 565,302 $ 125,810 - $ 1,147,865
============= ============== ============= ===============
There are no transactions between geographic areas.
F22
NOTE 16. QUARTERLY DATA (UNAUDITED)
- ----------------------------------
The following summary represents the results of operations for each quarter
in 1998 and 1997 (in thousands, except per share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
1998
Revenue $56,177 $58,402 $59,003 $64,896
Net income available
for common shares 10,706 9,976 5,532 (1) 10,796
Earnings per common
share -basic $ .27 $ .26 $ .14 $ .27
Earnings per common
share -diluted .27 .26 .14 .27
1997
Revenue $48,647 50,802 $49,813 $55,009
Net income available
for common shares 9,311 17,010 (2) 9,489 (3) 8,817 (4)
Earnings per common
share -basic $ .25 $ .44 $ .24 $ .23
Earnings per common
share -diluted .24 .44 .24 .22
(1)Net income includes a $4.7 million charge for reorganization expenses.
(2)Income before gain on sale of real estate was $10.0 million or $.26 per
common share, both basic and diluted.
(3)Income before loss on sale of real estate was $10.1 million or $.26 per
common share, both basic and diluted.
(4)Net income includes a $2.0 million charge for reorganization expenses.
F-23
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE III
SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------------
Initial cost to company Gross amount at which
Cost Capitalized carried at close of period
Building and Subsequent to
Descriptions Encumbrance Land Improvements Acquisition Land Land
- -----------------------------------------------------------------------------------------------------------------------------------
ALLWOOD (New Jersey) $3,549,000 $ $3,920,000 $230,000 $
ANDORRA (Pennsylvania) 2,432,000 12,346,000 3,061,000 2,432,000
ARIZONA BUILDINGS (2) 1,334,000 9,104,000 188,000 1,334,000
BALA CYNWYD (Pennsylvania) 3,565,000 14,466,000 2,426,000 3,565,000
BARRACKS ROAD (Virginia) 4,363,000 16,459,000 12,140,000 4,363,000
BETHESDA ROW (Maryland) 12,576,000 1,149,000 20,816,000 12,764,000 1,149,000
BLUESTAR (New Jersey) 27,091,000 29,922,000 2,971,000
BRICK PLAZA (New Jersey) 21,362,000 24,715,000 23,387,000
BRISTOL (Connecticut) 3,856,000 15,959,000 683,000 3,856,000
BRUNSWICK (New Jersey) 11,278,000 12,456,000 1,896,000
CALIFORNIA RETAIL BUILDINGS
SANTA MONICA (9) 20,055,000 12,709,000 13,643,000 20,055,000
SAN DIEGO (5) 3,844,000 1,352,000 1,958,000 3,844,000
150 POST STREET (SAN FRANCISCO) 11,685,000 9,181,000 226,000 11,685,000
OTHER (3) 6,379,000 4,338,000 3,090,000 6,379,000
CLIFTON (New Jersey) 3,301,000 3,646,000 541,000
CONGRESSIONAL PLAZA (Maryland) 2,793,000 7,424,000 35,209,000 2,793,000
CONNECTICUT RETAIL BUILDINGS (13) 25,061,000 27,739,000 2,043,000 25,061,000
COURTHOUSE CENTER (Maryland) 1,750,000 1,869,000 31,000 1,750,000
CROSSROADS (Illinois) 4,635,000 11,611,000 5,083,000 4,635,000
DEDHAM PLAZA (Massachusetts) 12,369,000 12,918,000 1,394,000 12,369,000
EASTGATE (North Carolina) 1,608,000 5,775,000 4,590,000 1,608,000
ESCONDIDO PROMENADE (California) 9,400,000 11,505,000 12,147,000 299,000 11,505,000
ELLISBURG CIRCLE (New Jersey) 4,028,000 11,309,000 9,758,000 4,028,000
FALLS PLAZA (Virginia) 530,000 735,000 6,419,000 530,000
FALLS PLAZA - East (Virginia) 538,000 535,000 2,256,000 559,000
FEASTERVILLE (Pennsylvania) 1,431,000 1,600,000 7,845,000 1,431,000
FEDERAL PLAZA (Maryland) 27,639,000 10,216,000 17,895,000 32,206,000 10,216,000
FINLEY SQUARE (Illinois) 9,252,000 9,544,000 5,891,000 9,252,000
FLORIDA RETAIL BUILDINGS (2) 5,206,000 1,631,000 17,000 5,206,000
FLOURTOWN (Pennsylvania) 1,345,000 3,943,000 3,214,000 1,345,000
FRESH MEADOWS (New York) 24,625,000 25,255,000 2,038,000 24,625,000
GAITHERSBURG SQUARE (Maryland) 7,701,000 5,271,000 10,084,000 6,012,000
GARDEN MARKET (Illinois) 2,677,000 4,829,000 670,000 2,677,000
GOVERNOR PLAZA (Maryland) 2,068,000 4,905,000 10,107,000 2,068,000
GRATIOT PLAZA (Michigan) 525,000 1,601,000 10,726,000 525,000
HAMILTON (New Jersey) 4,893,000 5,405,000 2,053,000
HAUPPAUGE (New York) 8,791,000 15,262,000 900,000 8,791,000
HUNTINGTON (New York) 14,493,000 16,008,000 4,675,000
IDYLWOOD PLAZA (Virginia) 4,308,000 10,026,000 575,000 4,308,000
ILLINOIS RETAIL BUILDINGS (3) 2,694,000 2,325,000 3,249,000 2,694,000
KINGS COURT (California) 10,714,000 95,000
LANCASTER (Pennsylvania) 753,000 2,103,000 2,535,000
LANGHORNE SQUARE (Pennsylvania) 720,000 2,974,000 8,853,000 720,000
LAUREL (Maryland) 7,458,000 22,525,000 14,167,000 7,458,000
LAWRENCE PARK (Pennsylvania) 5,723,000 7,160,000 7,542,000 5,723,000
LEESBURG PLAZA (Virginia) 9,900,000 8,184,000 10,722,000 653,000 8,184,000
LOEHMANN'S PLAZA (Virginia) 1,237,000 15,096,000 5,476,000 1,248,000
COLUMN F COLUMN G COLUMN H COLUMN I
- -----------------------------------------------------------------------------------------------------------------------------------
Life on which
Accumulated Date depreciation in latest
Building and Depreciation and of Date income statements
Descriptions Improvements Total Amortization Construction Acquired is computed
- -----------------------------------------------------------------------------------------------------------------------------------
ALLWOOD (New Jersey) $4,150,000 $4,150,000 $1,245,000 1958 12/12/88 35 years
ANDORRA (Pennsylvania) 15,407,000 17,839,000 4,794,000 1953 01/12/88 35 years
ARIZONA BUILDINGS (2) 9,292,000 10,626,000 130,000 1995-1998 05/07/98 35 years
BALA CYNWYD (Pennsylvania) 16,892,000 20,457,000 2,809,000 1955 09/22/93 35 years
BARRACKS ROAD (Virginia) 28,599,000 32,962,000 12,876,000 1958 12/31/85 35 years
BETHESDA ROW (Maryland) 33,580,000 34,729,000 3,685,000 1945-1991 12/31/93 35 years
BLUESTAR (New Jersey) 32,893,000 32,893,000 9,182,000 1959 12/12/88 35 years
BRICK PLAZA (New Jersey) 48,102,000 48,102,000 10,225,000 1958 12/28/89 35 years
BRISTOL (Connecticut) 16,642,000 20,498,000 1,546,000 1959 09/22/95 35 years
BRUNSWICK (New Jersey) 14,352,000 14,352,000 4,241,000 1957 12/12/88 35 years
CALIFORNIA RETAIL BUILDINGS
SANTA MONICA (9) 26,352,000 46,407,000 963,000 1888-1995 1996-1998 35 years
SAN DIEGO (5) 3,310,000 7,154,000 8,000 1888-1995 1996-1997 35 years
150 POST STREET (SAN FRANCISCO) 9,407,000 21,092,000 311,000 1908 10/23/97 35 years
OTHER (3) 7,428,000 13,807,000 84,000 var 1996-1998 35 years
CLIFTON (New Jersey) 4,187,000 4,187,000 1,145,000 1959 12/12/88 35 years
CONGRESSIONAL PLAZA (Maryland) 42,633,000 45,426,000 13,748,000 1965 04/01/65 20 years
CONNECTICUT RETAIL BUILDINGS (13) 29,782,000 54,843,000 2,790,000 1900-1991 1994-1996 35 years
COURTHOUSE CENTER (Maryland) 1,900,000 3,650,000 54,000 1975 12/17/97 35 years
CROSSROADS (Illinois) 16,694,000 21,329,000 2,385,000 1959 07/19/93 35 years
DEDHAM PLAZA (Massachusetts) 14,312,000 26,681,000 2,180,000 1959 12/31/93 35 years
EASTGATE (North Carolina) 10,365,000 11,973,000 4,793,000 1963 12/18/86 35 years
ESCONDIDO PROMENADE (California) 12,446,000 23,951,000 698,000 1987 12/31/96 35 years
ELLISBURG CIRCLE (New Jersey) 21,067,000 25,095,000 5,551,000 1959 10/16/92 35 years
FALLS PLAZA (Virginia) 7,154,000 7,684,000 1,665,000 1962 09/30/67 22 3/4 years
FALLS PLAZA - East (Virginia) 2,770,000 3,329,000 2,254,000 1960 10/05/72 25 years
FEASTERVILLE (Pennsylvania) 9,445,000 10,876,000 3,301,000 1958 07/23/80 20 years
FEDERAL PLAZA (Maryland) 50,101,000 60,317,000 11,823,000 1970 06/29/89 35 years
FINLEY SQUARE (Illinois) 15,435,000 24,687,000 1,790,000 1974 04/27/95 35 years
FLORIDA RETAIL BUILDINGS (2) 1,648,000 6,854,000 133,000 1920 02/28/96 35 years
FLOURTOWN (Pennsylvania) 7,157,000 8,502,000 2,013,000 1957 04/25/80 35 years
FRESH MEADOWS (New York) 27,293,000 51,918,000 743,000 1946-1949 12/05/97 35 years
GAITHERSBURG SQUARE (Maryland) 17,044,000 23,056,000 2,927,000 1966 04/22/93 35 years
GARDEN MARKET (Illinois) 5,499,000 8,176,000 813,000 1958 07/28/94 35 years
GOVERNOR PLAZA (Maryland) 15,012,000 17,080,000 7,296,000 1963 10/01/85 35 years
GRATIOT PLAZA (Michigan) 12,327,000 12,852,000 2,055,000 1964 03/29/73 25 3/4 years
HAMILTON (New Jersey) 7,458,000 7,458,000 2,590,000 1961 12/12/88 35 years
HAUPPAUGE (New York) 16,162,000 24,953,000 133,000 1963 08/06/98 35 years
HUNTINGTON (New York) 20,683,000 20,683,000 6,166,000 1962 12/12/88 35 years
IDYLWOOD PLAZA (Virginia) 10,601,000 14,909,000 1,579,000 1991 04/15/94 35 years
ILLINOIS RETAIL BUILDINGS (3) 5,574,000 8,268,000 383,000 1900-1927 1995-1997 35 years
KINGS COURT (California) 10,809,000 10,809,000 69,000 1960 08/24/98 26 years
LANCASTER (Pennsylvania) 4,638,000 4,638,000 3,394,000 1958 04/24/80 22 years
LANGHORNE SQUARE (Pennsylvania) 11,827,000 12,547,000 4,473,000 1966 01/31/85 35 years
LAUREL (Maryland) 36,692,000 44,150,000 13,080,000 1956 08/15/86 35 years
LAWRENCE PARK (Pennsylvania) 14,702,000 20,425,000 10,508,000 1972 07/23/80 22 years
LEESBURG PLAZA (Virginia) 11,375,000 19,559,000 77,000 1967 09/15/98 35 years
LOEHMANN'S PLAZA (Virginia) 20,561,000 21,809,000 9,668,000 1971 07/21/83 35 years
F-24
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE II
SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLOUM E
- ---------------------------------------------------------------------------------------------------------------------------------
Initial cost to company Gross amount at
Cost Capitalized which carried at
Building and Subsequent to close of period
Descriptions Encumbrance Land Improvements Acquisition Land
- ----------------------------------------------------------------------------------------------------------------------------------
MAGRUDERS (Maryland) 4,554,000 4,859,000 144,000 4,554,000
MASSACHUSETTS RETAIL BLDG (1) 1,873,000 1,884,000 210,000 1,873,000
MID PIKE PLAZA (Maryland) 10,041,000 10,335,000 6,211,000
NEW JERSEY RETAIL BUILDING (1) 737,000 1,466,000 1,056,000 737,000
NEW YORK RETAIL BUILDINGS (4) 7,541,000 7,912,000 1,933,000 7,541,000
NORTHEAST (Pennsylvania) 1,152,000 10,596,000 8,996,000 1,153,000
NORTHEAST PLAZA (Georgia) 6,930,000 26,236,000 5,285,000 6,933,000
NORTH LAKE COMMONS (Illinois) 2,529,000 8,604,000 1,533,000 2,529,000
OLD KEENE MILL (Virginia) 638,000 998,000 3,076,000 638,000
OLD TOWN CENTER (California) 3,420,000 2,765,000 12,830,000 3,420,000
PAN AM SHOPPING CENTER (Virginia) 8,694,000 12,929,000 2,646,000 8,694,000
PARK & SHOP (District of Columbia) 4,840,000 6,319,000 535,000 4,840,000
PENINSULA (California) 20,880,000 23,288,000 454,000 20,880,000
PERRING PLAZA (Maryland) 2,800,000 6,461,000 14,661,000 2,800,000
PIKE 7 (Virginia) 9,709,000 22,799,000 279,000 9,709,000
QUEEN ANNE PLAZA (Massachusetts) 3,319,000 8,457,000 2,384,000 3,319,000
QUINCE ORCHARD PLAZA (Maryland) 3,197,000 7,949,000 5,426,000 2,928,000
ROLLINGWOOD APTS. (Maryland) 552,000 2,246,000 3,822,000 572,000
RUTGERS (New Jersey) 13,064,000 14,429,000 1,337,000
SAUGUS (Massachusetts) 4,383,000 8,291,000 288,000 4,383,000
SHIRLINGTON (Virginia) 9,761,000 14,808,000 2,774,000 9,816,000
TEXAS RETAIL BUILDINGS (10) 12,213,000 1,976,000 1,711,000 12,213,000
TOWER (Virginia) 7,170,000 10,518,000 95,000 7,170,000
TOWN & COUNTRY (California) 41,606,000 1,161,000 8,556,000 41,606,000
TROY (New Jersey) 3,126,000 5,193,000 11,900,000 3,126,000
TYSONS STATION (Virginia) 4,140,000 388,000 453,000 2,458,000 475,000
UPTOWN (Oregon) 10,257,000 5,846,000 167,000 10,257,000
WILDWOOD (Maryland) 9,111,000 1,061,000 5,174,000 9,111,000
WILLIAMSBURG (Virginia) 2,758,000 7,160,000 3,250,000 2,758,000
WILLOW GROVE (Pennsylvania) 1,499,000 6,643,000 17,025,000 1,499,000
WILLOW LAWN (Virginia) 3,192,000 7,723,000 44,178,000 7,790,000
WYNNEWOOD (Pennsylvania) 8,055,000 13,759,000 9,799,000 8,055,000
LAND FOR DEVELOPMENT
PENTAGON ROW (Virginia) 2,955,000 484,000
WOODMONT EAST 5,804,000 1,146,000 5,804,000
4925 & 4929 BETHESDA AVENUE 1,698,000 5,000 101,000 1,698,000
- ----------------------------------------------------------------------------------------------------------------------------------
TOTALS $173,480,000 $432,026,000 $748,329,000 $461,781,000 $434,864,000
============ ============ ============ ============ ============
COLUMN A COLUMN F COLUMN G COLUMN H CLOUMN I
- -----------------------------------------------------------------------------------------------------------------------------------
Lie on which
depreciation in
Accumulated Date latest income
Building and Depreciation and of Date statements is
Descriptions improvements Total Amortization Construction Acquired computed
- ------------------------------------------------------------------------------------------------------------------------------------
MAGRUDERS (Maryland) 5,003,000 9,557,000 140,000 1955 12/17/97 35 years
MASSACHUSETTS RETAIL BLDG (1) 2,094,000 3,967,000 219,000 1930 09/07/95 35 years
MID PIKE PLAZA (Maryland) 16,546,000 16,546,000 7,158,000 1963 05/18/82 35 years
NEW JERSEY RETAIL BUILDING (1) 2,522,000 3,259,000 205,000 1940 08/16/95 35 years
NEW YORK RETAIL BUILDINGS (4) 9,845,000 17,386,000 286,000 1937 - 1987 12/16/97 35 years
NORTHEAST (Pennsylvania) 19,591,000 20,744,000 7,619,000 1959 08/30/83 35 years
NORTHEAST PLAZA (Georgia) 31,518,000 38,451,000 12,495,000 1952 12/31/86 35 years
NORTH LAKE COMMONS (Illinois) 10,137,000 12,666,000 1,273,000 1989 04/27/94 35 years
OLD KEENE MILL (Virginia) 4,074,000 4,712,000 2,325,000 1968 06/15/76 33 1/3 years
OLD TOWN CENTER (California) 15,595,000 19,015,000 37,000 1997-1998 10/22/97 35 years
PAN AM SHOPPING CENTER (Virginia) 15,575,000 24,269,000 3,682,000 1979 02/05/93 35 years
PARK & SHOP (District of Columbia) 6,854,000 11,694,000 623,000 1930 12/01/95 35 years
PENINSULA (California) 23,742,000 44,622,000 560,000 1960 12/19/97 35 years
PERRING PLAZA (Maryland) 21,122,000 23,922,000 7,754,000 1963 10/01/85 35 years
PIKE 7 (Virginia) 23,078,000 32,787,000 1,162,000 1968 03/31/97 35 years
QUEEN ANNE PLAZA (Massachusetts) 10,841,000 14,160,000 1,725,000 1967 12/23/94 35 years
QUINCE ORCHARD PLAZA (Maryland) 13,644,000 16,572,000 3,502,000 1975 04/22/93 35 years
ROLLINGWOOD APTS. (Maryland) 6,048,000 6,620,000 5,237,000 1960 01/15/71 25 years
RUTGERS (New Jersey) 15,766,000 15,766,000 4,317,000 1973 12/12/88 35 years
SAUGUS (Massachusetts) 8,579,000 12,962,000 521,000 1976 10/01/96 35 years
SHIRLINGTON (Virginia) 17,527,000 27,343,000 1,472,000 1940 12/21/95 35 years
TEXAS RETAIL BUILDINGS (10) 3,687,000 15,900,000 24,000 var Var 1998 35 years
TOWER (Virginia) 10,613,000 17,783,000 101,000 1953-1960 08/24/98 35 years
TOWN & COUNTRY (California) 9,717,000 51,323,000 512,000 1960-1962 03/05/97 35 years
TROY (New Jersey) 17,093,000 20,219,000 7,685,000 1966 07/23/80 22 years
TYSONS STATION (Virginia) 2,824,000 3,299,000 2,291,000 1954 01/17/78 17 years
UPTOWN (Oregon) 6,013,000 16,270,000 208,000 1913- 1959 09/26/97 35 years
WILDWOOD (Maryland) 6,235,000 15,346,000 5,236,000 1958 05/05/69 33 1/3 years
WILLIAMSBURG (Virginia) 10,410,000 13,168,000 4,234,000 1961 04/30/86 35 years
WILLOW GROVE (Pennsylvania) 23,668,000 25,167,000 8,698,000 1953 11/20/84 35 years
WILLOW LAWN (Virginia) 47,303,000 55,093,000 19,373,000 1957 12/05/83 35 years
WYNNEWOOD (Pennsylvania) 23,558,000 31,613,000 1,001,000 1948 10/29/96 35 years
LAND FOR DEVELOPMENT
PENTAGON ROW (Virginia) 3,439,000 3,439,000 1998
WOODMONT EAST 1,146,000 6,950,000 06/03/97
4925 & 4929 BETHESDA AVENUE 106,000 1,804,000 2,000 1997- 1998
- -------------------------------------------------------------------------------------------
TOTALS $1,207,272,000 $1,642,136,000 $286,053,000
============== ============== ==============
F-25
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE III
SUMMARY OF REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
THREE YEARS ENDED DECEMBER 31, 1998
RECONCILIATION OF TOTAL COST
------------------------------------------------
Balance, January 1, 1996 $1,009,682,000
Additions during period
Acquisitions 105,616,000
Improvements 42,257,000
Deduction during period - disposition
of property and miscellaneous retirements (9,690,000)
--------------
Balance, December 31, 1996 1,147,865,000
Additions during period
Acquisitions 275,207,000
Improvements 59,969,000
Deduction during period - disposition
of property and miscellaneous retirements (29,402,000)
--------------
Balance, December 31, 1997 1,453,639,000
Additions during period
Acquisitions 120,434,000
Improvements 73,296,000
Deduction during period - disposition
of property and miscellaneous retirements (5,233,000)
--------------
Balance, December 31, 1998 $1,642,136,000
==============
(A) For Federal tax purposes, the aggregate cost basis is approximately
$ 1,472,000,000 as of December 31, 1998.
F-26
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE III
SUMMARY OF REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
THREE YEARS ENDED DECEMBER 31, 1998
RECONCILIATION OF ACCUMULATED DEPRECIATION AND AMORTIZATION
-----------------------------------------------------------------
Balance, January 1, 1996 $190,795,000
Additions during period
Depreciation and amortization expense 34,803,000
Deductions during period - disposition of
property and miscellaneous retirements (2,045,000)
---------------
Balance, December 31, 1996 223,553,000
Additions during period
Depreciation and amortization expense 38,053,000
Deductions during period - disposition of
property and miscellaneous retirements (14,109,000)
---------------
Balance, December 31, 1997 247,497,000
Additions during period
Depreciation and amortization expense 42,542,000
Deductions during period - disposition of
property and miscellaneous retirements (3,986,000)
---------------
Balance, December 31, 1998 $286,053,000
===============
F-27
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
YEAR ENDED DECEMBER 31, 1998
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------------------------------
Periodic Payment
Description of Lien Interest Rate Maturity Date Terms Prior Liens
- ---------------------------------------------------------------------------------------------------------------------
Leasehold mortgage 10% December 2003 Interest only ---
on shopping monthly; $10,000,000
center in New Jersey balloon payment due
at maturity
Mortgages on retail 10% September 2000 Interest only monthly;
buildings in Florida balloon payment due
and Pennsylvania at maturity
Land in San Jose, 10% December 2003 Interest only monthly;
California balloon payment due
at maturity
Mortgage on 10% January 2000 Interest only ---
shopping center monthly; balloon
in New Jersey payment due at maturity
Mortgage on retail Greater of prime plus May 2021 Interest only
buildings in Philadelphia 2% or 10% monthly; balloon payment
due at maturity
Mortgage on shopping none May 1999 Balloon payment due at
center in Illinois maturity
Mortgage on retail 10% plus participation May 2021 Interest only; balloon
buildings in Philadelphia payment due at maturity
Mortgage on land in 10% plus participation July 2001 None. Balloon and
Santa Monica, California accrued interest due at
maturity
Mortgage on land in 10% plus participation May 2007 None. Balloon and
Santa Monica, California accrued interest due at
maturity
------------------
---
==================
Column A Column F Column G
- ----------------------------------------------------------
Carrying
Face Amount Amount of
Description of Lien of Mortgages Mortgages (1)
- ----------------------------------------------------------
Leasehold mortgage 10,000,000 10,000,000 (2)
on shopping
center in New Jersey
Mortgages on retail 11,548,000 11,548,000
buildings in Florida
and Pennsylvania
Land in San Jose, 4,250,000 4,250,000
California
Mortgage on 4,020,000 3,208,000 (3)
shopping center
in New Jersey
Mortgage on retail 25,000,000 7,296,000 (4)
buildings in Philadelphia
Mortgage on shopping 175,000 175,000
center in Illinois
Mortgage on retail 9,250,000 9,250,000
buildings in Philadelphia
Mortgage on land in 2,543,000 2,714,000
Santa Monica, California plus accrued
interest
Mortgage on land in 2,330,000 2,713,000
Santa Monica, California plus accrued
interest
----------------------------
$69,116,000 $51,154,000
============================
1) For Federal tax purposes, the aggregate tax basis is approximately
$51,154,000 as of December 31, 1998.
No payments are delinquent on these mortgages.
2) This mortgage is extendable for up to 45 years with interest increasing to
a maximum of 11%.
3) This mortgage is available for up to $4,020,000. At December 31, 1997,
$3,208,000 was outstanding.
3) This mortgage is available for up to $25,000,000.
F-28
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE - CONTINUED
THREE YEARS ENDED DECEMBER 31, 1998
RECONCILIATION OF CARRYING AMOUNT
---------------------------------------------
Balance, January 1, 1996 $13,561,000
Additions during period
Increase in existing loan 25,000
Issuance of loan 14,327,000
--------------
Balance, December 31, 1996 27,913,000
Additions during period
Issuance of loan 14,072,000
Deductions during period
Collection of loan (3,625,000)
--------------
Balance, December 31, 1997 38,360,000
Additions during period
Issuance of loans 21,375,000
Deductions during period
Collection of loan (8,581,000)
--------------
Balance, December 31, 1998 $51,154,000
==============
F-29
Report of Independent Certified Public Accountants
- --------------------------------------------------
on Supplemental Information
- ---------------------------
Trustees and Shareholders
Federal Realty Investment Trust
In connection with our audit of the consolidated financial statements of Federal
Realty Investment Trust referred to in our report dated February 8, 1999 which
is included in this Form 10-K, we have also audited Schedules III and IV as of
December 31, 1998 and for each of the three years then ended. In our opinion,
these schedules present fairly, in all material respects, the information
required to be set forth therein.
Grant Thornton LLP
Washington, D.C.
February 8, 1999
F-30