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, 2000 Commission File No. 1-07533 -------------------------------------------------------------------- FEDERAL REALTY INVESTMENT TRUST ------------------------------- (Exact name of registrant as specified in its charter) Maryland 52-0782497 --------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 1626 East Jefferson Street, Rockville, Maryland 20852 ----------------------------------------------------- (Address of principal executive offices) (Zip Code) (301) 998-8100 ---------------------------------------------------- (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 8.75% 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 ___. --- 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. [x] At March 9, 2001, the aggregate market value of Common Shares of Beneficial Interest of Federal Realty Investment Trust held by nonaffiliates was $793.5 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 9, 2001 - ----- ---------------------------- Common Shares of Beneficial Interest 39,573,814
DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- PART III - -------- Portions of the Trust's Proxy Statement in connection with its Annual Meeting to be held on May 2, 2001 (hereinafter called "2001 Proxy Statement") are incorporated herein by reference. 2
PART I & II - ----------- DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS ----------------------------------------------- The Trust and its representatives may from time to time make written or oral statements that are "forward-looking", 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 achievement's 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, . changes in our business strategy; . general economic and business conditions which will affect the credit worthiness of tenants; . financing availability and cost; . retailing trends and rental rates; . risks of real estate development and acquisitions, including the risk that potential acquisitions or development projects may not perform in accordance with expectations; . our ability to satisfy the complex rules in order to qualify for taxation as a REIT for federal income tax purposes and to operate effectively within the limitations imposed by these rules; . government approvals, actions and initiatives including the need for compliance with environmental and safety requirements, and changes in laws and regulations or the interpretation thereof; and . competition with other real estate companies and technology. We identify forward-looking statements by using words or phrases such as "anticipate", "believe", "estimate", "expect", "intend", "may be", objective", "plan", "predict", "project", and "will be" and similar words or phrases, or the negatives thereof or other similar variations thereof or comparable terminology. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. Item 1. Business ------- -------- Federal Realty Investment Trust (the "Trust") is engaged in the ownership, management, development and redevelopment of prime retail and mixed-use properties. Founded in 1962, the Trust is a self-administered equity real estate investment trust. The Trust, which had been founded as a District of Columbia business trust, re-organized as a Maryland real estate investment trust in May, 1999 by amending and restating its declaration of trust and bylaws. The Trust consolidates the financial statements of various 3
entities which it controls. At December 31, 2000 the Trust owned 123 retail or mixed-use properties and one apartment complex. The Trust operates in a manner intended to enable it to qualify as a real estate investment trust (REIT) for federal income tax purposes. 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. Beginning in 2001, the distribution requirement for a REIT was lowered from 95% to 90% of its taxable income. An important part of the Trust's strategy has been 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, recognizing a trend of consumer shopping preferences and retailer expansion to main streets, the Trust expanded its investment strategy to include shopping centers and retail and mixed-use buildings in prime established main street shopping areas. In addition, since 1997 the Trust has obtained control of various land parcels for the purpose of developing urban mixed-use projects that center around the retail component. The Trust believes that these mixed-use developments are an important source of future growth. The Trust's diversification from being solely a company focused on acquiring and renovating grocery anchored shopping centers to also being a developer of mixed-use urban properties involves substantial risks, many of which are not entirely within the Trust's control. These factors include among others, the ability to obtain financing, interest rates, the ability to construct at reasonable prices, the demand for retail, residential and office space in the Trust's markets, zoning laws, government regulations and the overall economy. The Trust believes that the geographically desirable locations of these mixed-use urban properties will make these successful projects and positive contributors to the underlying net asset value of the Trust. 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 properties that no longer fit the Trust's investment criteria and therefore should be monetized or exchanged into other real estate assets. Proceeds from the sale of such properties may be used either to acquire other properties, fund the Trust's current development pipeline or, in 2000 and 1999, to repurchase the Trust's common shares. 4
The Trust's portfolio of properties has grown from 71 as of January 1, 1996 to 124 at December 31, 2000. During this five year period the Trust acquired 59 retail properties for approximately $554 million. During this same period six shopping centers were sold. Also during this period the Trust spent over $424 million to develop, renovate, expand, improve and retenant its properties. At December 31, 2000 the Trust has invested $162 million in development in progress of three projects. During 2001 and 2002, the Trust estimates that it will spend $258 million and $161 million, respectively, to complete these three projects, which are located in Bethesda, Maryland, Arlington, Virginia and San Jose, California. Additional projects, which are in various stages of predevelopment, may also begin construction in 2001 and 2002. Although the Trust usually purchases a 100% fee interest in its acquisitions, on occasion, it has entered into leases as a means of acquiring control of properties. In addition, the Trust has purchased certain properties in partnership with others. Certain of the partnerships, known as "downreit partnerships", 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 Trust. The majority of acquisitions are funded with cash, but, on occasion, 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 typically require debt or equity funding. The Trust's 124 properties are located in fifteen states and the District of Columbia. Twenty-six of the properties are located in the Washington, D.C. metropolitan area; twenty-four are in California; fourteen are in Connecticut; eleven are in Texas; ten are in Pennsylvania, primarily in the Philadelphia area; ten are in New Jersey; eight are in New York; seven are in Illinois; four are in Massachusetts; three are in central Virginia; two are in Florida; two are in Arizona; and there is one in each of the following states: 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 regional chief operating officer, with dedicated leasing, property management and financial 5
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 2,100 tenants, ranging from sole proprietors to major national retailers; no one tenant or corporate group of tenants accounts for more than 2.1% 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' gross sales volumes and reimbursement of certain operating expenses and real estate taxes. The Trust continues to seek older, well-located shopping centers and street retail projects to acquire, renovate, retenant and remerchandise, thereby enhancing their revenue potential. The Trust also continues to identify and secure additional sites for new development of urban mixed-use properties. During each of the years ended December 31, 2000, 1999 and 1998, retail or mixed-use properties have contributed 96% of the Trust's total revenue. The success of the Trust is subject to various risks, including risks associated with changing economic conditions that affect the real estate industry as a whole. Such risks include the following: . competition from other retail properties and developers; . excessive building of comparable properties or increased unemployment in the areas in which its properties are located which may adversely affect occupancy levels or rental rates; . increases in operating costs due to inflation and other factors, which increases may not necessarily be offset by increased rents; . inability or unwillingness of tenants to pay rent increases; . changes in general economic conditions or consumer preferences that affect its tenants or that result in the merger, closing or relocation of its tenants; . limitation by local rental markets of the extent to which rents may be increased to meet increased expenses without decreasing occupancy rates; . future enactment of laws regulating public places, including present and possible future laws relating to access by disabled persons; . risks relating to leverage, including the ability to finance its development pipeline and to refinance its indebtedness, and the risk of higher interest rates; . unsuccessful development activities which could reduce cash flow; . the risk of uninsured losses; and . the risk of not meeting the requirements under the REIT provisions of the Internal Revenue Code. 6
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 most 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 2000 and 1999 approximately $1,453,000 and $952,000, respectively, was spent on environmental matters, of which $464,000 and $654,000, respectively, was capitalized abatement costs. The Trust has budgeted approximately $800,000 in 2001 for environmental matters, a majority of which is projected for asbestos abatement. Current Developments - -------------------- In 2000 improvements to properties totaled $153.1 million, including $82.1 million on development projects in Bethesda, Maryland; San Jose, California; and Arlington, Virginia. Construction of Woodmont East in Bethesda, Maryland neared completion with the first tenant opening in December 2000 and subsequent openings scheduled in 2001. In November 2000 construction began on the $475 million Phase 1 of Santana Row, a multi-phased mixed-use project to be built on 42 acres in San Jose, California. Santana Row Phase 1 is expected to begin generating revenues in mid-2002 and be stabilized during 2003. Construction also began on the $74 million Pentagon Row project in Arlington, Virginia with a phased-in completion expected throughout 2001. Real estate acquisitions totaling $26.8 million were made in 2000. Such acquisitions consisted of two parcels of land held for future development in Hillsboro, Oregon and Bethesda, Maryland along with three small retail properties. Additionally, in connection with the purchase of the limited partnership interest in Loehmann's Plaza the Trust expended $3.0 million. The Trust invested $5.7 million in mortgage notes receivable with an average weighted interest rate of 10.0%, with $6.2 million of notes being repaid. Peninsula Shopping Center in Palos Verdes, California was sold in June 2000 for $48.6 million, resulting in a gain of $3.7 million. In December 1999, the Trustees authorized a share 7
repurchase program for calendar year 2000 of up to an aggregate of 4 million of the Trust's common shares. A total of 1,325,900 shares were repurchased, at a cost of $25.2 million. The Trust does not expect to repurchase shares in 2001. The Trust utilized its syndicated credit facility to fund these acquisitions, capital expenditures and share repurchases. Repayments on the syndicated credit facility were made from the proceeds of the sale of Peninsula Shopping Center as well as the placement, on October 23, 2000, of a $152 million mortgage loan, which is secured by five shopping centers. In June 2000, the Trust modified certain covenants and extended its syndicated credit facility and its $125 million term loan for an additional year to December 19, 2003. Fees paid for this extension totaled $1.0 million. At December 31, 2000 the Trust had 230 full-time employees. Executive Officers of the Trust - ------------------------------- The Executive Officers at December 31, 2000 were: Name Age Position with Trust ---- --- ------------------- Steven J. Guttman 54 Chairman of the Board and Chief Executive Officer, effective February 14, 2001. Previously, President and Chief Executive Officer Nancy J. Herman 37 Senior Vice President, General Counsel and Secretary Ron D. Kaplan 37 Senior Vice President-Capital Markets, Chief Investment Officer Cecily A. Ward 54 Vice President-Chief Financial Officer and Treasurer Donald C. Wood 40 President and Chief Operating Officer, effective February 14, 2001. Previously, Senior Vice President - Chief Operating Officer Steven J. Guttman has been the Trust's President and Chief Executive Officer since April 1980. On February 14, 2001 Mr. Guttman was appointed Chairman of the Board and Chief Executive Officer. Mr. Guttman has been associated with the Trust since 1972, became Chief Operating Officer in 1975 and became a Managing Trustee in 1979. Nancy J. Herman became the Trust's Vice President, General Counsel and Secretary on December 21, 1998 and was appointed Senior Vice President on July 1, 2000. In this position, Ms. Herman has overall 8
responsibility for the Trust's legal affairs and human resources. Ms. Herman joined the Trust in 1990 as a staff attorney. Prior to joining the Trust in 1990, Ms. Herman practiced real estate law at Hogan & Hartson L.L.P. Ron D. Kaplan joined the Trust in November 1992 as Senior 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. Cecily A. Ward was appointed Vice President - Controller and Treasurer on December 16, 1999. On February 9, 2000 Ms. Ward was appointed Vice President - Chief Financial Officer and Treasurer. Ms. Ward joined the Trust in April 1987 as Controller. Prior to joining the Trust, Ms. Ward, a certified public accountant, was employed by Grant Thornton LLP, the Trust's independent accountants at that time. Donald C. Wood was appointed President and Chief Operating Officer on February 14, 2001. Since December 16, 1999 Mr. Wood served as Senior Vice President - Chief Operating Officer and Chief Financial Officer. Mr. Wood joined the Trust in May 1998 as Senior Vice President, Chief Financial Officer and Treasurer. 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 LLP from 1982 where he served in numerous positions including audit manager. 9
Item 2. Properties Retail Properties 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, 2000. Except as otherwise noted, retail properties are 100% owned in fee by the Trust. <TABLE> <CAPTION> Year Year Number of Occupancy (1) Principal Completed Acquired Square Feet (2) Tenants Acres (3) Overall / Economic Tenants --------- -------- --------------- --------- --------- ------------------ --------- <S> <C> <C> <C> <C> <C> <C> <C> NORTHEAST Allwood 1958 1988 52,000 8 5 100% / 100% Grand Union Clifton, NJ 07013 (4) Mandee Shop Andorra 1953 1988 259,000 39 23 92% / 92% Acme Markets Philadelphia, PA 19128 (5) Andorra Theater Kohl's Bala Cynwyd 1955 1993 279,000 22 22 100% / 100% Acme Markets Bala Cynwyd, PA 19004 Lord & Taylor Blue Star 1959 1988 403,000 35 55 95% / 95% Kohl's Watchung, NJ 07060 (4) Michael's Shop Rite Toys R Us Brick Plaza 1958 1989 409,000 36 42 100% / 100% A&P Supermarket Brick Township, NJ 08723 (4) Barnes & Noble Sony Theatres Sports Authority Bristol 1959 1995 296,000 34 22 94% / 94% Bradlees Bristol, CT 06010 Super Stop & Shop TJ Maxx Brunswick 1957 1988 285,000 20 22 77% / 75% A&P Supermarket North Brunswick, NJ 08902 (4) (11) Ames Clifton 1959 1988 80,000 13 8 93% / 93% Acme Markets Clifton, NJ 07013 (4) Drug Fair Dollar Express Crossroads 1959 1993 173,000 23 15 90% / 90% Comp USA Highland Park, IL 60035 Golfsmith Dedham 1959 1993 250,000 30 18 85% / 84% Ames Dedham, MA 02026 Pier One Imports Ellisburg Circle 1959 1992 258,000 33 27 94% / 89% Bed, Bath & Beyond Cherry Hill, NJ 08034 Shop Rite Feasterville 1958 1980 116,000 9 12 89% / 89% Genuardi Markets Feasterville, PA 19047 Office Max </TABLE> 10
<TABLE> <CAPTION> Year Year Number of Occupancy (1) Principal Completed Acquired Square Feet (2) Tenants Acres (3) Overall / Economic Tenants --------- -------- --------------- --------- --------- ------------------ -------------------- <S> <C> <C> <C> <C> <C> <C> <C> Finley Square 1974 1995 313,000 18 21 83% / 83% Bed, Bath & Beyond Downers Grove, IL 60515 Service Merchandise Sports Authority Flourtown 1957 1980 191,000 20 15 100% / 100% K Mart Flourtown, PA 19031 Genuardi Markets Fresh Meadows 1949 1997 410,000 72 25 97% / 97% Cineplex Odeon Queens, NY 11365 Filene's K Mart Garden Market 1958 1994 134,000 18 12 84% / 84% Dominick's Western Springs, IL 60558 Gratiot Plaza 1964 1973 218,000 10 20 100% / 100% Bed, Bath and Beyond Roseville, MI 48066 Best Buy Farmer Jack Greenlawn Plaza 1975 2000 92,000 14 13 78% / 78% Waldbaum's Greenlawn, NY 11740 Hamilton 1961 1988 190,000 14 18 100% / 100% Shop Rite Hamilton, NJ 08690 (4) Steven's Furniture A.C. Moore Hauppauge 1963 1998 131,000 20 15 100% / 99% Shop Rite Hauppauge, NY 11788 Office Max Dress Barn Huntington 1962 1988 279,000 14 21 100% / 100% Barnes & Noble Huntington, NY 11746 (4) Bed, Bath and Beyond Buy Buy Baby Michael's Toys R Us Lancaster 1958 1980 107,000 14 11 91% / 91% A.C. Moore Lancaster, PA 17601 (4) Giant Food Langhorne Square 1966 1985 210,000 29 21 100% / 100% Drug Emporium Levittown, PA 19056 Marshalls Redner's Market Lawrence Park 1972 1980 326,000 40 28 98% / 98% Acme Markets Broomall, PA 19008 TJ Maxx Today's Man CHI </TABLE> 11
<TABLE> <CAPTION> Year Year Number of Occupancy (1) Principal Completed Acquired Square Feet (2) Tenants Acres (3) Overall / Economic Tenants --------- -------- --------------- --------- --------- ------------------ --------- <S> <C> <C> <C> <C> <C> <C> <C> Northeast 1959 1983 297,000 36 19 94% / 94% Burlington Coat Factory Philadelphia, PA 19114 Marshalls Tower Records North Lake Commons 1989 1994 129,000 20 14 97% / 97% Dominick's Lake Zurich, IL 60047 Queen Anne Plaza 1967 1994 149,000 11 18 100% / 100% TJ Maxx Norwell, MA 02061 Victory Markets Rutgers 1973 1988 216,000 18 27 99% / 99% Edwards Super Food Franklin, N.J. 08873 (4) K Mart Saugus Plaza 1976 1996 171,000 7 19 100% / 100% K Mart Saugus, MA 01906 Super Stop & Shop Troy 1966 1980 202,000 21 19 100% / 100% Comp USA Parsippany-Troy, NJ 07054 Pathmark Toys R Us Willow Grove 1953 1984 215,000 25 14 98% / 98% Barnes and Noble Willow Grove, PA 19090 Marshalls Toys R Us Wynnewood 1948 1996 257,000 26 16 90% / 90% Bed, Bath and Beyond Wynnewood, PA 19096 Borders Books Genuardi's Retail buildings Thirteen buildings in CT 1900 - 1991 1994 -1996 233,000 81 - 97% / 97% Eddie Bauer Pottery Barn Sak Fifth Avenue Three buildings in IL 1920 - 1927 1995 - 1997 24,000 4 - 100% / 100% Foodstuffs Kate Spade The Gap One building in MA 1930 1995 13,000 8 - 100% / 100% Four buildings in NY (12) (21) 1937 - 1987 1997 91,000 17 - 88% / 88% Midway Theatre Duane Reade One building in NJ 1940 1995 11,000 2 - 100% / 100% Legg Mason </TABLE> 12
<TABLE> <CAPTION> Year Year Number of Occupancy (1) Principal Completed Acquired Square Feet (2) Tenants Acres (3) Overall / Economic Tenants --------- -------- -------------- -------- -------- ------------------- --------- MID ATLANTIC <S> <C> <C> <C> <C> <C> <C> <C> Barracks Road 1958 1985 484,000 82 39 99% / 98% Bed, Bath & Beyond Charlottesville, VA 22905 Harris Teeter Kroger Bethesda Row 1945 - 1991 1993 - 1998 331,000 83 8 100% / 100% Barnes and Noble Bethesda, MD 20814 (8) Giant Food Congressional Plaza 1965 1965 340,000 48 22 100% / 100% Buy Buy Baby Rockville, MD 20852 (6) Fresh Fields Tower Records Courthouse Center 1970 1997 38,000 11 2 72% / 68% Rockville Rockville, MD 20852 (7) Interiors Eastgate 1963 1986 159,000 31 17 98% / 98% Food Lion Chapel Hill, NC 27514 Southern Season Falls Plaza 1962 1967 74,000 10 6 100% / 100% Giant Food Falls Church, VA 22046 Falls Plaza - East 1960 1972 71,000 19 5 100% / 100% CVS Falls Church, VA 22046 Pharmacy Staples Federal Plaza 1970 1989 242,000 39 18 100% / 99% Comp USA Rockville, MD 20852 Ross Dress For Less TJ Maxx Gaithersburg Square 1966 1993 208,000 36 17 94% / 94% Bed, Bath & Beyond Gaithersburg, MD 20878 Borders Books and Music Governor Plaza 1963 1985 252,000 23 26 99% / 99% Office Depot Glen Burnie, MD 21961 (5) Syms Idylwood Plaza 1991 1994 73,000 17 6 100% / 100% Fresh Fields Falls Church, VA 22030 Laurel Centre 1956 1986 386,000 53 26 94% / 92% Giant Food Laurel, MD 20707 Marshalls Toys R Us Leesburg Plaza 1967 1998 247,000 26 24 99% / 99% Giant Food Leesburg, VA 20176 (7) K Mart Peebles Loehmann's Plaza 1971 1983 242,000 55 18 99% / 99% Linens N Things Fairfax, VA 22042 (7) Loehmann's Dress Shop </TABLE> 13
<TABLE> <CAPTION> Year Year Number of Occupancy (1) Principal Completed Acquired Square Feet (2) Tenants Acres (3) Overall / Economic Tenants --------- -------- --------------- --------- --------- ------------------ --------- <S> <C> <C> <C> <C> <C> <C> <C> Magruder's Center 1955 1997 109,000 23 5 100% / 100% Magruder's Rockville, MD 20852 (7) Tuesday Morning Mid-Pike Plaza 1963 1982 312,000 21 20 91% / 91% Bally Total Fitness Rockville, MD 20852 (4) Frugel Fannies Toys R Us Old Keene Mill 1968 1976 92,000 21 11 100% / 100% Fresh Fields Springfield, VA 22152 Pan Am 1979 1993 218,000 29 25 89% / 89% Michaels Fairfax, VA 22031 Micro Center Safeway Park & Shop 1930 1995 50,000 12 1 100% / 100% Petco Washington, DC 20036 Pizzeria Uno Perring Plaza 1963 1985 412,000 16 27 99% / 99% Burlington Coat Factory Baltimore, MD 21134 (5) Home Depot Metro Foods Pike 7 Plaza 1968 1997 164,000 26 13 100% / 100% Staples Vienna, VA 22180 TJ Maxx Quince Orchard 1975 1993 237,000 33 16 100% / 100% Circuit City Gaithersburg, MD 20877 (9) Dyncorp Staples Shirlington 1940 1995 203,000 42 16 93% / 93% Carlyle Grand Cafe Arlington, VA 22206 Cineplex Odeon Tower Shopping Center 1960 1998 109,000 29 12 85% / 85% Virginia Fine Wine Springfield, VA 22150 Talbot's Outlet Tysons Station 1954 1978 50,000 16 4 100% / 96% Trader Joe's Falls Church, VA 22043 Wildwood 1958 1969 85,000 33 13 94% / 94% CVS Pharmacy Bethesda, MD 20814 Sutton Place Gourmet Williamsburg 1961 1986 251,000 30 21 97% / 97% Food Lion Williamsburg, VA 23187 Peebles Rose's The Shops at Willow Lawn 1957 1983 448,000 93 37 89% / 89% Dillards Richmond, VA 23230 Hannaford Brothers Old Navy Virginia Department of Health </TABLE> 14
<TABLE> <CAPTION> Year Year Number of Occupancy (1) Principal Completed Acquired Square Feet (2) Tenants Acres (3) Overall / Economic Tenants --------- -------- --------------- --------- --------- ------------------ --------- <S> <C> <C> <C> <C> <C> <C> <C> Development n/a / n/a Woodmont East n/a 1997 n/a n/a 1 Bethesda, MD 20814 (14) n/a / n/a Pentagon Row n/a 1999 n/a n/a 18 Arlington, VA 22202 (9) (14) Land in Bethesda, MD 20814 1997 - 2000 1 Retail buildings 80% / 80% Express Two buildings in FL 1920 1996 28,000 8 - WEST COAST Escondido Promenade 1987 1996 222,000 57 18 99% / 92% Toys R Us Escondido, CA 92029 (10) TJ Maxx King's Court 1960 1998 78,000 19 8 100% / 100% Lunardi's Supermarket Los Gatos, CA 95032 (7) (9) Longs Drug Old Town Center 1962 1997 97,000 18 4 98% / 87% Borders Books and Music Los Gatos, CA 95030 (10) Gap Kids Banana Republic 150 Post Street 1965 1997 101,000 21 - 84% / 78% Brooks Brothers San Francisco, CA 94108 Williams - Sonoma Uptown Shopping Center Various 1997 100,000 69 7 100% / 100% Elephant's Delicatessen Portland, OR 97210 Zupan's Markets Development Santana Row n/a 1997 n/a n/a 39 n/a / n/a San Jose, CA 95128 (10) (14) Eleven buildings in San Antonio, TX (15) 1890 - 1935 1998 n/a 5 - n/a / n/a The Palm Retail buildings Nine buildings in Santa Monica, CA (13) (16) 1888 - 1995 1996 - 2000 198,000 25 - 100% / 100% Abercrombie & Fitch J. Crew Banana Republic Three buildings in Hollywood, CA (17) (21) 1921 - 1991 1999 198,000 16 - 96% / 96% General Cinema Hollywood Entertainment Museum </TABLE> 15
<TABLE> <CAPTION> Year Year Number of Occupancy (1) Principal Completed Acquired Square Feet (2) Tenants Acres (3) Overall / Economic Tenants --------- -------- --------------- --------- --------- ------------------ ----------- <S> <C> <C> <C> <C> <C> <C> <C> Four buildings in San Diego, CA (18) (21) 1888 - 1995 1996 - 1997 65,000 23 - 100% / 100% Urban Outfitters Three buildings in CA (19) (21) 1922 1996 - 1998 93,000 20 - 92% / 92% Pottery Barn Banana Republic Two buildings in AZ (20) 1996 - 1998 1998 40,000 10 - 100% / 100% Gordon Biersch Brewing Co. </TABLE> (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) Acreage on each individual main street retail building is not significant. (4) The Trust has a leasehold interest in this property. (5) The Trust owns a 99.99% general partnership interest in these properties. (6) The Trust owns a 55.7% equity interest in this center. (7) The Trust owns this property in a "downreit" partnership. (8) This property contains eleven buildings; seven are subject to a leasehold interest, one is subject to a ground lease and three are owned 100% by the Trust. (9) The Trust owns this property subject to a ground lease. (10) The Trust owns the controlling interest in this center. A minority owner has an interest in the profits of the center. (11) Under redevelopment. (12) Occupancy is based on three occupied buildings. The other building is under redevelopment. (13) The Trust owns a 90% general partnership interest in seven of these buildings and 100% of two buildings. (14) Under development (15) The Trust is redeveloping these properties, most of which are currently vacant. (16) Occupancy is based on seven occupied buildings. The other two buildings are under redevelopment. (17) Occupancy is based on one occupied building. The other two buildings are under redevelopment. (18) Occupancy is based on two occupied building. The other two buildings are under redevelopment. (19) Occupancy is based on two occupied buildings in Pasadena, CA. The other building, in Hermosa Beach, CA, is under redevelopment. (20) The Trust owns 100% of one building and an 85% partnership interest in the second building. (21) The Trust owns a 90% general partnership interest in these buildings. 16
Apartments The following table sets forth information concerning the Trust's apartment development as of December 31, 2000 which is 100% owned by the Trust in fee. This development is not subject to rent control. <TABLE> <CAPTION> Year Year Property Completed Acquired Acres 1-BR 2-BR 3-BR Total Occupancy <S> <C> <C> <C> <C> <C> <C> <C> <C> Rollingwood 1960 1971 14 58 163 61 282 100% Silver Spring, MD 9 three-story buildings </TABLE> Leases Expiring The following table summarizes leases expiring within the next five years. Leases which include options to renew are excluded. <TABLE> <CAPTION> Total Total Anchor Small Shop Total Percent Average Square Feet Square Feet Square Feet of Total Rent Per Year Expiring (1) Expiring (1) Expiring (1) Portfolio (2) Square Foot - ---- ------------ ------------ ------------ ------------- ----------- <S> <C> <C> <C> <C> <C> 2001 0 622,949 622,949 4% $ 18.12 2002 66,670 435,440 502,110 3% $ 20.19 2003 19,600 449,106 468,706 3% $ 21.27 2004 61,141 515,016 576,157 4% $ 23.21 2005 18,500 448,910 467,410 3% $ 24.09 </TABLE> (1) Excludes lease expirations with options. (2) Total portfolio square footage at December 31, 2000 is 14,921,597 representing the physical square footage of the properties including redevelopments, which may exceed the rentable square footage used to express occupancy. 17
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. - ------ --------------------------------------------------------------------- The Trust's common shares of beneficial interest are listed on the New York Stock Exchange under the symbol "FRT". Market Quotations <TABLE> <CAPTION> Dividends Quarter ended High Low Declared ------------- ---- --- ------------ <S> <C> <C> <C> December 31, 2000 $20 $18 3/4 $.47 September 30, 2000 21 15/16 19 1/8 .47 June 30, 2000 22 5/16 18 15/16 .45 March 31, 2000 20 1/2 17 3/4 .45 December 31, 1999 $20 15/16 $17 $.45 September 30, 1999 24 20 .45 June 30, 1999 24 1/16 20 9/16 .44 March 31, 1999 24 7/8 20 1/4 .44 </TABLE> The number of holders of record for Federal Realty's common shares of beneficial interest at March 9, 2001 was 6,246. For the years ended December 31, 2000 and 1999, $.11 and $.16, respectively, of dividends paid on common shares represented a return of capital. For the year ended December 31, 2000 $.04 of dividends paid on common shares represented capital gain. There were no capital gains for the year ended December 31, 1999. Dividends paid on common shares per quarter during the last two fiscal years were as follows: <TABLE> <CAPTION> Quarter Ended 2000 1999 ------------- ---- ---- <S> <C> <C> December 31 $.47 $.45 September 30 .45 .44 June 30 .45 .44 March 31 .45 .44 </TABLE> The Trust intends to pay regular quarterly distributions to its common stockholders. Future distributions will depend upon cash generated by operating activities, the Trust's financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as the Board of Trustees deems relevant. 18
Item 6. Selected Financial Data. ----------------------- In thousands, except per share data <TABLE> <CAPTION> Year ended December 31, 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Operating Data Rental Income $260,684 $245,833 $222,186 $188,529 $164,887 Income before gain (loss) on sale of real estate 56,842 55,493 44,960 40,129 28,754 Gain (loss) on sale of real estate 3,681 (7,050) --- 6,375 (12) Net income 60,523 48,443 44,960 46,504 28,742 Net income available for common shareholders 52,573 40,493 37,010 44,627 28,742 Net cash provided by operating activities (1) 106,146 102,183 90,427 72,170 65,648 Net cash used in investing activities (1) 121,741 99,313 187,646 279,343 161,819 Net cash provided (used) by financing activities (1) 15,214 (8,362) 97,406 213,175 96,691 Dividends declared on common shares 72,512 71,630 69,512 66,636 56,607 Weighted average number of common shares outstanding: Basic 38,796 39,574 39,174 38,475 33,175 Diluted 39,910 40,638 40,080 38,988 33,573 Per share: Earnings per common share: Basic $1.36 $1.02 $.94 $1.16 $.87 Diluted 1.35 1.02 .94 1.14 .86 Dividends declared per common share 1.84 1.78 1.74 1.70 1.66 Other Data ================================================================================ Funds from Operations (2) $102,173 $96,795 $86,536 $79,733 $65,254 ======== ======= ======= ======= ======= </TABLE> 19
<TABLE> <CAPTION> As of December 31, 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------- Balance Sheet Data <S> <C> <C> <C> <C> <C> Real Estate at cost $1,854,913 $1,721,459 $1,642,136 $1,453,639 $1,147,865 Total assets 1,621,079 1,534,048 1,484,317 1,316,573 1,035,306 Mortgage and capital lease obligations 323,911 172,573 173,480 221,573 229,189 Notes payable 225,246 162,768 263,159 119,028 66,106 Senior notes 410,000 510,000 335,000 255,000 215,000 Convertible subordinated debentures 75,289 75,289 75,289 75,289 75,289 Redeemable Preferred Shares 100,000 100,000 100,000 100,000 --- Shareholders' equity 467,654 501,827 529,947 553,810 388,885 Number of common shares outstanding 39,469 40,201 40,080 39,148 35,886 </TABLE> (1) Determined in accordance with Financial Accounting Standards Board Statement No. 95, Statement of Cash Flows. (2) As of January 1, 2000, Funds from operations is defined by the National Association of Real Estate Investment Trusts (NAREIT) as income available for common shareholders before depreciation and amortization of real estate assets and before extraordinary items less gains on sale of real estate. Prior to January 1, 2000 funds from operation also excluded significant nonrecurring events. 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 used in the real estate industry that 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. Nevertheless, funds from operations, as presented by the Trust, may not be comparable to funds from operations as presented by other real estate investment trusts. 20
The calculation of funds from operations for the periods presented is reflected in the following table: <TABLE> <CAPTION> Year ended December 31, 2000 1999 1998 1997 1996 (in thousands) - ---------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Net income available for common shareholders $52,573 $40,493 $37,010 $44,627 $28,742 Depreciation and Amortization 48,456 45,388 41,792 37,281 34,128 Amortization of initial direct cost of leases 3,514 3,033 2,491 2,249 2,372 (Gain) loss on sale of real estate (3,681) 7,050 --- (6,375) 12 Income attributable to partnership units 1,311 831 578 --- --- Non-recurring items --- --- 4,665 1,951 --- -------- ------- ------- ------- ------- Funds from Operations $102,173 $96,795 $86,536 $79,733 $65,254 ======== ======= ======= ======= ======= </TABLE> 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- The following discussion should be read together with the Consolidated Financial Statements and Notes thereto of Federal Realty Investment Trust (the "Trust"). The Trust is engaged in the ownership, management, development and redevelopment of prime retail and mixed-use properties. The Trust, which has traditionally acquired and redeveloped strip retail shopping centers, has expanded its investments to the development of urban mixed-used properties. Management continually evaluates the future prospects of its real estate portfolio, not only to identify expansion and renovation opportunities, but also to identify properties that no longer fit the Trust's investment criteria and therefore, should be monetized or exchanged into other real estate assets. At December 31, 2000 the Trust owned 123 retail properties and one apartment complex. 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. Proceeds from the sale of selected assets may also provide an additional source of capital in 2001 and 2002. Net cash provided by operating activities was $106.1 million in 2000, $102.2 million in 1999, and $90.4 million in 1998, of which $77.5 million, $76.6 million, and $74.3 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 $121.7 million in 2000, $99.3 million in 1999, and $187.6 million in 1998. The Trust acquired properties totaling $26.8 million in 2000, $26.4 million in 1999, and $120.4 million in 1998 requiring cash outlays of $23.6 million, $25.3 million, and $92.9 million, respectively. During these same three years the Trust expended an additional $145.8 million, $90.8 million, and $73.0 million in capital improvements to its properties, of which $82.1 million in 2000, $38.7 million in 1999 and $25.0 million in 1998 related to new development. The Trust received mortgage note repayments, net of funds invested, of $494,000 in 2000. The Trust invested, net of loan repayments, $2.3 million, and $21.4 million in 1999 and 1998, respectively, in mortgage notes receivable. The average weighted stated interest rate on these loans was 10.0% for the years 1998 through 2000. Certain of these mortgages also participate in the gross revenues and appreciation and are convertible into ownership interests in the properties by which they are secured. Cash of $47.2 million in 2000 22
and $19.2 million in 1999 was received from the sale of properties. During 2000 the Trust expended cash of $23.6 million to acquire real estate and an additional $145.8 million to improve, redevelop and develop its existing real estate. The Trust purchased the 75,000 square foot Greenlawn Plaza in Greenlawn, New York for $6.2 million. Control of a parcel of land for future development in Hillsboro, Oregon was acquired for $11.7 million; an additional $1.6 million will be owed if certain cash flow criteria are met during the first ten years of operations. Other acquisitions include a parcel of land in Bethesda, Maryland for $461,000; an additional property for the Trust's Houston Street project in San Antonio, Texas for cash of $1.2 million and the assumption of a $345,000 mortgage; a retail building in Santa Monica, California in satisfaction of a $5.2 million mortgage note receivable and cash of $1.7 million; and the $2.3 million redemption of 100,000 partnership units which had been issued in connection with the purchase of the Courthouse Square and Magruders Shopping Centers. Of the $145.8 million spent in 2000 on the Trust's existing real estate portfolio, approximately $82.1 million was invested in development projects in Bethesda, Maryland; San Jose, California; and in Arlington, Virginia. The remaining $63.7 million of capital expenditures relates to improvements to common areas, tenant work and various redevelopments, including the renovation of Greenlawn Plaza, the office expansion and retenanting of Willow Lawn Shopping Center, the renovation of Brunswick Shopping Center, and the redevelopment of retail buildings in Forest Hills, New York, San Antonio, Texas and southern California. The Trust, which held the 1% general partnership interest, obtained an additional 98% general partnership interest in the future operations of Loehmann's Plaza. The minority partner received 190,000 partnership units valued at $3.6 million and the satisfaction of amounts due the Trust from the partnership. Peninsula Shopping Center in Palos Verdes, California was sold in June 2000 for $48.6 million, resulting in a gain of $3.7 million. Net cash provided by financing activities, before dividend payments, was $92.7 million in 2000, $68.3 million in 1999, and $171.7 million in 1998. The Trust utilized the proceeds from the sale of Peninsula Shopping Center and its syndicated credit facility to fund acquisitions, most capital expenditures, share repurchases and balloon debt repayments. On February 29, 2000, the Trust obtained a construction loan for up to $24.5 million in connection with the Trust's Woodmont East development in Bethesda, Maryland. The loan, which has a floating interest rate of LIBOR plus 1.2% to 1.5%, depending on occupancy levels, matures August 29, 2002 with two one-year extension options. At December 31, 2000, the outstanding balance on the loan was $16.2 million. The property secures the construction loan facility. In connection with the land for future development in Hillsboro, Oregon, the Trust issued a $3.4 million note which is due June 30, 2001. The loan bears interest at LIBOR plus 1.25%. The property secures the loan facility. The Trust assumed a 23
mortgage with the purchase of the new East Houston Street property in San Antonio, Texas. The mortgage, which matures in October 2008, bears interest at 7.5% and provides for monthly principal and interest payments. On October 23, 2000, the Trust obtained a $152 million mortgage loan which is secured by five shopping centers. The mortgage, which bears interest at 7.95%, matures November 1, 2015 and required an up-front fee of $988,000. The loan provides for interest only payments for the initial three years, then monthly principal and interest payments based on a twenty-seven year amortization schedule until the maturity date. The proceeds from the mortgage loan were used to pay down the Trust's syndicated credit facility. The Trust has a $300 million syndicated credit facility with seven banks, originally due December 2002. This 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, 2000, 1999 and 1998, $78.0 million, $34.0 million and $134.1 million, respectively, was borrowed under the syndicated credit facility. The maximum borrowed during 2000, 1999 and 1998 was $218.1 million, $205.0 million and $259.1 million, respectively. The weighted average interest rate on borrowings during 2000, 1999 and 1998 was 7.1%, 5.9% and 6.1%, respectively. In December 1998, the Trust obtained a four-year loan of $125 million from five institutional lenders. The loan requires fees and has the same covenants as the syndicated credit facility. The average weighted interest rate on the term loan was 7.4% in 2000 and 6.1% in 1999. In June 2000, the Trust modified certain covenants and extended its syndicated credit facility and its $125 million term loan for an additional year to December 19, 2003. Fees paid for this extension totaled $1.0 million. In July 2000, citing the Trust's pursuit of development and the resultant capital requirements, Standard and Poor's lowered the rating on the Trust's senior notes from BBB+ to BBB flat with a positive outlook. Under the terms of the syndicated credit facility, this lowered rating resulted in an increase in the Trust's borrowing rate from LIBOR plus 65 basis points to LIBOR plus 80 basis points. The interest rate on the term loan increased from LIBOR plus 75 basis points to LIBOR plus 95 basis points. On November 30, 1999 the Trust issued $175 million of 8.75% Notes due December 1, 2009, netting cash proceeds of $172.2 million. The notes pay interest semi-annually on June 1 and December 1. 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 mortgage placement in the third quarter of 2000, the Trust purchased a Treasury Yield Hedge (notional amount of $140 million) to minimize the risk of increased interest rates prior to closing the mortgage. The hedge was terminated on June 30, 2000 at a gain of $165,000 which is being recognized as a reduction of 24
interest expense over the term of the mortgage loan. There were no open hedge agreements at December 31, 2000 and 1999. In December 1999 the Trustees authorized a share repurchase program for calendar year 2000 of up to an aggregate of 4 million of the Trust's common shares. A total of 1,325,900 shares were repurchased, at a cost of $25.2 million. The Trust does not expect to repurchase shares in 2001. Capital requirements in 2001 will depend upon acquisition opportunities, new development efforts, the rate of build-out on the Trust's current development pipeline and the level of improvements and redevelopments on existing properties. The Trust has budgeted approximately $258 million for 2001 for its three developments in progress and $75 million for new development, redevelopments, tenant work and improvements to the core portfolio. The Trust will need additional capital in order to fund acquisitions, expansions and developments, particularly Santana Row, and to refinance its maturing debt. Sources of this funding may be additional debt, both secured and unsecured, additional equity and joint venture relationships. In addition, the Trust has identified certain of its properties that may be exchanged or sold as a source of funding, if the Trust's sales price is met. 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. In 2001, $30.7 million of mortgage debt matures, as well as the $3.4 million note held in connection with the land held for future development in Hillsboro, Oregon. The next significant maturities are $25.0 million of Senior Notes, due April 2002 and the Woodmont East construction loan due August, 2002. The construction loan contains two, one-year options to extend. Santana Row In the next several years, the Trust's single largest capital need is expected to come from the development of Santana Row, a multi-phase mixed-use project to be built on 42 acres in San Jose, California in the heart of Silicon Valley. The project will consist of residential, retail and hotel components, creating a community with the feel of an urban district. Phase 1 of the project, for which construction began November 2000, includes Santana Row, the "1,500 foot long main street" framed by nine buildings which will contain approximately 538,000 square feet of retail space, 501 residential units, a 214 room hotel and the supporting infrastructure. Phase 1 is expected to begin generating revenues in mid-2002 and be stabilized during 2003. The total cost of Phase 1, which includes the land and infrastructure for the later phases, is expected to be $475 million. As of December 31, 2000, the Trust has incurred costs of $97 million including the purchase of the land; the trust estimates that it will spend approximately $200 million in 2001 and the balance in 2002 to complete the first phase of the project. The Trust has a signed commitment from three banks for up to $295 million of construction financing for Phase 1. Closing on the commitment is subject to the 25
completion of customary due diligence for loans of this type and funding is subject to satisfaction of leasing and other contingencies. Phase 1, which includes the land and infrastructure for future phases, comprises approximately 40% of the residential and 75% of the retail entitlement currently projected for the entire project. The success of Santana Row will depend on many factors which cannot be assured and are not entirely within the Trust's control. These factors include among others, continued strong demand for retail and residential space at current or increasing prices, the ability to construct the later phases at reasonable prices, the cost of operations, including utilities, the availability and cost of capital and the general economy, particularly in the Silicon Valley. The timing and choice of capital sources will depend on the cost and availability of that capital, among other things. The Trust believes, based on past experience, that access to capital needed to execute its business plan will be available to it. Contingencies - ------------- Pentagon Row is a mixed-use project with the retail component being developed by the Trust and the residential component being developed by an unrelated developer. In October 2000 the general contractor on the project was replaced by the Trust and the residential developer, because of schedule delays and other events that caused the Trust and the residential developer to conclude that the original contractor was either unable or unwilling to comply with its contractual obligations. The Trust and the residential developer filed suit against the original contractor to recover damages that they anticipate they will incur as a result of defaults under the contract. The original contractor filed a counter-claim against the Trust and the residential developer for damages of $7 million plus interest, attorneys' fees and litigation costs. The Trust believes that the counterclaim is generally without merit and that the outcome of the counterclaim will not have a material adverse effect on its financial condition, results of operations or on the project. Work continues under the direction of the new general contractor and the Trust does not believe that there will be any material impairment on the project as a result of the schedule delays. In addition, the Trust is involved in various other 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 Congressional Plaza partnership agreement, in the event of the exercise of put options by another partner, which are currently exercisable and have no expiration date, the Trust would be required to purchase a 37.5% interest at Congressional Plaza at its then fair market value. Based on management's current estimate of fair market value, the Trust's estimated cash requirement upon exercise of the put option is approximately $27 million. 26
Under the terms of six other partnership agreements, if certain leasing and revenue levels are obtained for the properties owned by the partnerships, 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 a limited number of common shares of the Trust, at the election of the limited partners. In certain of the partnerships, if the limited partners do not redeem their interest, the Trust may choose to purchase the limited partnership interests upon the same terms. The limited partners of two partnerships owning street retail properties in southern California have exercised their rights under these agreements. The Trust purchased their interests in March 2001 for approximately $18 million, approximately $7 million in common shares of the Trust and the balance in cash. Under the terms of other partnership agreements, the partners may redeem their 904,589 operating units for cash or exchange into the same number of common shares of the Trust, at the option of the Trust. During the third quarter of 2000 the Trust redeemed 100,000 operating units for cash of $2.3 million. As of December 31, 2000 in connection with renovation and development projects, the Trust has contractual obligations of approximately $46 million. 27
Results of Operations - --------------------- 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 gross tenant sales. These features in the Trust's leases reduce the Trust's exposure to higher costs caused by inflation and allow it to participate in improved tenant sales. Consolidated Results - -------------------- 2000 vs. 1999 Rental income, which consists of minimum rent, percentage rent and cost recoveries, increased 6.0 % from $245.8 million in 1999 to $260.7 million in 2000. On a same center basis, rental income increased 7.7%, due primarily to the favorable impact of redeveloped and retenanted centers, as well as, increases associated with lease rollovers. Same center basis, in 2000, excludes properties acquired in 2000 and 1999, Peninsula Shopping Center in Palos Verdes, California and Northeast Plaza in Atlanta, Georgia which were sold on June 30, 2000 and October 18, 1999, respectively and properties developed in 2000 and 1999, including Bethesda Row Phase 3 in Bethesda, Maryland, Old Town in Los Gatos, California and Town & Country Shopping Center in San Jose, California which was vacated as the Santana Row development began. 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 property income remained constant in 2000 compared to 1999. On a same center basis, other property income decreased $473,000 in 2000 compared to 1999, due mostly to decreases in lease termination fees. Rental expenses increased 4.8% from $53.7 million in 1999 to $56.3 million in 2000. On a same center basis, rental expenses increased 6.0% from $49.6 million in 1999 to $52.6 million in 2000, primarily due to general cost increases along with increased snow removal and utility costs in 2000. Rental expense as a percentage of property income, rental income plus other property income, remained constant in both periods at 21%. Real estate taxes increased 6.4% from $25.0 million in 1999 to $26.6 million in 2000. On a same center basis, real estate taxes increased 5.9% due primarily to increased taxes on recently redeveloped properties. Depreciation and amortization expenses increased 6.5% from $50.0 million in 1999 to $53.3 million in 2000 reflecting the impact of recent tenant work and property improvements. In 2000, the Trust incurred interest expense of $79.7 million, of which $13.3 million was capitalized, as compared to 1999's $68.4 million, of which $6.9 million was capitalized. The 28
increase in interest expense reflects the additional debt issued to fund the Trust's share repurchase and capital improvement programs and increased borrowing costs. The weighted average interest rate was 8.0% in 2000 compared with 7.6% in 1999. The ratio of earnings to combined fixed charges and preferred dividends was 1.40x in 2000 and 1.52x in 1999. The ratio of earnings to fixed charges was 1.50x in 2000 and 1.70x in 1999. The ratio of funds from operations to combined fixed charges and preferred dividends was 2.0x in 2000 and 2.2x in 1999. Administrative expenses decreased from $15.1 million in 1999 to $13.3 million in 2000. In 1999 the Trust incurred expenses of approximately $2.8 million related to a terminated merger transaction. The decrease in these costs was offset by increased personnel costs and several key new hires. The tight labor market in the Trust's operating regions resulted in higher compensation costs both to existing and new employees. Investors share of operations represents the minority interest in the income of certain properties. The majority of the $2.6 million increase from $3.9 million in 1999 to $6.5 million in 2000 is due to the allocation of operating losses to minority owners in 1999 and 1998 in accordance with the respective partnership agreements. The remainder of the increase represents the minority partners share of increased earnings in certain shopping center and street retail assets. On June 30, 2000, the Trust sold the 296,000 square foot Peninsula Shopping Center located in Palos Verdes, California for $48.6 million resulting in a gain of $3.7 million. During the second quarter of 1999, the Trust recorded a $7.1 million charge, representing the estimated loss on a potential sale of certain assets, principally Northeast Plaza in Atlanta, Georgia, thereby valuing the assets at their estimated fair value less estimated costs to sell. On October 18, 1999, the Trust sold Northeast Plaza for $19.6 million, realizing a loss of $6.3 million. As a result of the foregoing items, net income before gain (loss) on the sale of real estate increased from $55.5 million in 1999 to $56.8 million in 2000, while net income increased from $48.4 million in 1999 to $60.5 million in 2000 and net income available for common shareholders increased from $40.5 million to $52.6 million. Growth in net income and funds from operations in 2001 is expected to be slower than in 2000 based on the following factors; there will be a lower contribution from redevelopment projects as much of the Trust's southern California redevelopments were completed in 2000, higher administrative expenses necessitated by tight labor markets and the addition of key positions and a temporary reduction in earnings caused by the demolition of the old Town & Country Shopping Center in 2000 to make way for the new Santana Row development. The growth in 2001 will continue to be primarily dependent on contributions from the core portfolio. Growth of net income from the core portfolio is, in part, dependent on the financial health of the Trust's tenants and on controlling expenses, some of which are beyond the control of the Trust, such as snow removal and real estate tax assessments. The 29
Trust expects that demand for its retail space should remain at its current levels. A weakening of the retail environment could, however, adversely impact the Trust by increasing vacancies and 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 the amount of leverage and interest rates. The Trust's leverage is increasing as it finances its development pipeline. In addition, the Trust will continue to have exposure to changes in market interest rates. If interest rates increase, net income and funds from operations, as well as the ultimate cost of the Trust's development projects, will be negatively impacted. 1999 vs. 1998 Rental income, which consists of minimum rent, percentage rent and cost recoveries, increased 11% from $222.2 million in 1998 to $245.8 million in 1999. If properties acquired and sold in 1999 and 1998 are excluded, rental income increased 6%, with the recently renovated and retenanted centers contributing heavily to the growth, as well as, increases associated with lease rollovers. Other property income includes items, such as utility reimbursements, telephone income, merchant association dues, late fees, temporary income and lease termination fees. Other income increased 9% from $10.3 million in 1998 to $11.2 million in 1999. An increase of $650,000 in temporary tenant income, an area identified by the Trust as one with additional growth opportunity, and an increase of $550,000 in lease termination fees surpassed decreases in telephone income and decreases in marketing dues, as the Trust discontinued marketing funds at certain shopping centers in 1999. Rental expenses increased 8% from $49.5 million in 1998 to $53.7 million in 1999. If properties acquired and sold in 1999 and 1998 are excluded, rental expenses increased 5%. A $1.2 million increase in the write off of tenant work and lease costs associated with bankrupt or terminated leases coupled with a $975,000 increase in snow removal costs offset the decrease in marketing expenses, consistent with the decrease in marketing dues. Real estate taxes increased 7% from $23.3 million in 1998 to $25.0 million in 1999. If properties acquired and sold in 1999 and 1998 are excluded, real estate taxes increased 4%, primarily due to increased taxes on recently redeveloped properties. Depreciation and amortization expense increased 9% from $46.0 million in 1998 to $50.0 million in 1999. If properties acquired and sold in 1999 and 1998 are excluded, depreciation and amortization expense increased 7% due to the impact of recent tenant work and redevelopments. Interest income increased 29% from $5.9 million in 1998 to $7.6 million in 1999 due primarily to the issuance of approximately $24 million of mortgage notes receivable in 1999 and 1998. 30
In 1999 the Trust incurred interest expense of $68.4 million, of which $6.9 million was capitalized, as compared to 1998's $60.2 million, of which $5.1 million was capitalized. The increase in interest expense reflects the additional debt issued to help fund the Trust's 1999 real estate acquisitions and capital improvements of approximately $116 million. The weighted average interest rate was 7.6% in 1999 compared with 8% in 1998. The ratio of earnings to combined fixed charges and preferred dividends was 1.52x in 1999 and 1.46x in 1998. The ratio of earnings to fixed charges was 1.70x in 1999 and 1.65x in 1998. The ratio of funds from operations to combined fixed charges and preferred dividends was 2.2x in 1999 and 1998. Administrative expenses decreased from $16.5 million in 1998 to $15.1 million in 1999. Both years contained unusual expenses. During the third quarter of 1998, the Trust recorded a $4.7 million charge related to a comprehensive restructuring program. During the third quarter of 1999, the Trust, in exploring strategic alternatives to maximize shareholder value, considered spinning off certain of its assets and merging the remaining assets with another publicly traded shopping center company. The Trust incurred expenses of approximately $2.8 million in connection with this proposed merger and spin-off which were not consummated. In addition, costs related to abandoned acquisition and development projects increased approximately $1.5 million in 1999 over 1998. Investors' share of operations represents the minority interest in the income of certain properties. One third of the increase from $3.1 million in 1998 to $3.9 million in 1999 is due to the income attributable to the operating partnership units issued upon the acquisition of Kings Court and Leesburg Plaza in the second half of 1998. The majority of the remaining increase represents the minority partners' share of the increased earnings in the southern California street retail assets, many of which have been redeveloped during 1998 and 1999. As a result of the foregoing items, net income before loss on the sale of real estate increased from $45.0 million in 1998 to $55.5 million in 1999, reflecting both the contribution to net income from the Trust's acquisitions and the contribution from the core portfolio, primarily the recently redeveloped and retenanted properties. During the second quarter of 1999, the Trust recorded a $7.1 million charge, representing the estimated loss on the potential sale of certain assets, principally Northeast Plaza in Atlanta, Georgia. On October 18, 1999 the Trust sold Northeast Plaza for $19.6 million, realizing a loss of $6.3 million. Consequently, net income increased from $45.0 million in 1998 to $48.4 million in 1999 with net income available for common shareholders increasing from $37.0 million in 1998 to $40.5 million in 1999. 31
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): <TABLE> <CAPTION> 2000 1999 1998 - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> Rental Income Northeast $113,078 $102,452 $93,632 Mid-Atlantic 114,371 111,624 103,676 West 33,235 31,757 24,878 ---------- ---------- ---------- Total $260,684 $245,833 $222,186 ======== ======== ======== Net Operating Income Northeast $79,685 $74,276 $66,396 Mid-Atlantic 84,346 81,425 76,065 West 24,818 22,665 17,311 ---------- ---------- ---------- Total $188,849 $178,366 $159,772 ======== ======== ======== </TABLE> The Northeast The Northeast region is comprised of 54 assets, extending from suburban Philadelphia north to New York and its suburbs into New England and west to Illinois and Michigan. 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 were completed in 2000, which enhanced revenues and net operating income in 2000. When comparing 2000 with 1999, rental income increased 10% from $102.5 million in 1999 to $113.1 million in 2000. Excluding Greenlawn Plaza in Greenlawn, New York which was acquired on January 5, 2000, on a same center basis, rental income also increased 10%, primarily due to increases at the recently redeveloped and 32
retenanted shopping centers such as, Bala Cynwyd, Lawrence Park, Gratiot, Langhorne Square, and Wynnewood. Net operating income increased 7% from $74.3 million in 1999 to $79.7 million in 2000. Excluding Greenlawn Plaza in Greenlawn, New York which was acquired on January 5, 2000, on a same center basis, net operating income also increased 7%, primarily due to increases at the recently redeveloped and retenanted Bala Cynwyd, Lawrence Park, Gratiot, Langhorne Square, and Wynnewood shopping centers. When comparing 1999 with 1998, rental income increased 9% from $93.6 million in 1998 to $102.5 million in 1999. Excluding properties acquired during the two periods, rental income increased 7%, driven by increases at the recently redeveloped and retenanted Brick, Feasterville, Gratiot, Huntington and Wynnewood shopping centers. Net operating income increased 12% from $66.4 million in 1998 to $74.3 million in 1999. Excluding properties acquired in 1998 and 1999, net operating income increased 9%, primarily due to increases at the recently redeveloped and retenanted Brick, Feasterville, Gratiot, Huntington and Wynnewood shopping centers. The Mid-Atlantic The Mid-Atlantic region is comprised of 32 assets, including Pentagon Row which is currently under development, extending from Baltimore south to metropolitan Washington D.C. and further south through Virginia and North Carolina into 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. Two of the Trust's major new development projects, Pentagon Row and additional phases of Bethesda Row, will be managed by this regional operating team upon their completion. When comparing 2000 with 1999, rental income increased 3% from $111.6 million in 1999 to $114.4 million in 2000. On a same center basis, excluding Northeast Plaza in Atlanta, Georgia which was sold in 1999 and the recently developed Phase 3 of the Bethesda Row project in Bethesda, Maryland, rental income increased 4%, due in part to new anchor leases at several centers. Net operating income increased 4% from $81.4 million in 1999 to $84.3 million in 2000. On a same center basis as above, net operating income increased 5%, due primarily to new anchor leases and lease termination fees. When comparing 1999 with 1998, rental income increased 8% from $103.7 million in 1998 to $111.6 million in 1999. Excluding properties acquired and sold in 1999 and 1998, rental income increased 5%. Net operating income increased 7% from $76.1 million in 1998 to $81.4 million in 1999. Excluding properties acquired and sold in 1999 and 1998, net operating income increased 3%. 33
The West The West region is comprised of 38 assets, including Santana Row which is currently under development, extending from Texas 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 includes the Trust's largest new development project, Santana Row in San Jose, California. Several redevelopment projects were completed in 2000 and several more are currently underway, particularly in southern California and San Antonio, Texas, which are expected to add to revenues and net operating income in 2001 and future years. When comparing 2000 with 1999 on a same center basis, which excludes newly developed properties, Santana Row, which is currently under development, and properties sold and acquired since January 1, 1999, rental income increased 20% from $19.7 million in 1999 to $23.5 million in 2000, due primarily to recently redeveloped and retenanted properties in the Los Angeles and San Francisco, California areas. On an overall basis, which includes the impact of the sale of Peninsula Shopping Center on June 30, 2000 and the temporary reduction in earnings caused by the demolition of the old Town & Country Shopping Center to make way for the new Santana Row development, rental income increased 5% from $31.8 million in 1999 to $33.2 million in 2000. On the same center basis as defined above, net operating income increased 25% from $14.2 million in 1999 to $17.8 million in 2000, due to increases from the recently redeveloped and retenanted properties in the Los Angeles and San Francisco, California areas. Overall net operating income increased 10% from $22.7 million in 1999 to $24.8 million in 2000, again reflecting the sale of Peninsula Shopping Center and the temporary reduction in earnings caused by the Santana Row development. When comparing 1999 with 1998, rental income increased 28% from $24.9 million in 1998 to $31.8 million in 1999. Excluding properties acquired in 1999 and 1998, rental income increased 11%, driven by the redevelopment of Old Town in Los Gatos, California and several street retail buildings in southern California. Net operating income increased 31% from $17.3 million in 1998 to $22.7 million in 1999. Excluding properties acquired in 1999 and 1998, net operating income increased 14%, driven by the redevelopment of Old Town in Los Gatos, California and several street retail buildings in southern California. 34
Funds from Operations - --------------------- 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. As of January 1, 2000, 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 less gains on sale of real estate. Prior to January 1, 2000, funds from operations also excluded significant nonrecurring events. 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. Nevertheless, funds from operations, as presented by the Trust, may not be comparable to funds from operations as presented by other real estate investment trusts. The reconciliation of net income to funds from operations is as follows (in thousands): <TABLE> <CAPTION> Year ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Net income available for common shareholders $52,573 $40,493 $37,010 Depreciation and amortization of real estate assets 48,456 45,388 41,792 Amortization of initial direct costs of leases 3,514 3,033 2,491 Income attributable to operating partnership units 1,311 831 578 (Gain) loss on sale of real estate (3,681) 7,050 --- Non-recurring items --- --- 4,665 ----------- ----------- ----------- Funds from operations for common shareholders $102,173 $96,795 $86,536 ======== ======= ======= </TABLE> 35
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, 2000, the Trust had $232.0 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 $2.3 million. If interest rates decreased 1%, the Trust's earnings and cash flows would increase by $2.3 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. Changes in and Disagreements with Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosure. - -------------------- On May 5, 1999, the Trust appointed the accounting firm of Arthur Andersen LLP as independent public accountants to replace Grant Thornton LLP, which was dismissed effective the same date. The Trust's Board of Trustees approved the decision to change independent public accountants upon the recommendation of the Trust's Audit Committee. During the Trust's fiscal year ended December 31, 1998 and the interim period through March 31, 1999 there were no disagreements with Grant Thornton LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. The reports issued by Grant Thornton LLP on the financial statements for the year ended December 31, 1998 contained no adverse opinion or disclaimer of opinion, and were not qualified as to uncertainty, audit scope or accounting principles. During the Trust's fiscal year ended December 31, 1998 and the interim period through March 31, 1999, the Trust had not consulted with Arthur Andersen LLP regarding the application of accounting principles to a specified transaction, the type of audit opinion that might be rendered on the Trust's financial statements, or any matter that was either the subject of a disagreement or a reportable event. 36
Part III -------- Item 10.Directors and Executive Officers of the Registrant. -------------------------------------------------- (a) The table identifying the Trust's Trustees under the caption "Election of Trustees" of the 2001 Proxy Statement is incorporated herein by reference. (b) Executive Officers of the Registrant ------------------------------------ The information required by this item is included in this report at Item 1 under the caption "Executive Officers of the Registrant". Item 11. Executive Compensation. - ------- ---------------------- The sections entitled "Summary Compensation Table" and "Aggregated Option Exercises in 2000 and December 31, 2000 Option Values" of the 2001 Proxy Statement are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. - -------- --------------------------------------------------------------- The sections entitled "Ownership of Shares by Certain Beneficial Owners" and "Ownership of Shares by Trustees and Officers" of the 2001 Proxy Statement are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. - ------- ---------------------------------------------- The section entitled "Certain Relationships and Related Transactions" of the 2001 Proxy Statement is incorporated herein by reference. 37
Part IV ------- Item 14. Exhibits, Financial Statement - -------- ----------------------------- Schedules, and Reports on ------------------------- Form 8-K -------- (a) 1. Financial Statements -------------------- Reports of Independent Public Accountants F-1 - F-2 Consolidated Balance Sheets- December 31, 2000 and 1999 F-3 Consolidated Statements of Operations - years ended December 31, 2000, 1999 and 1998 F-4 Consolidated Statements of Common Shareholders' Equity - years ended December 31, 2000, 1999 and 1998 F-5 Consolidated Statements of Cash Flows - years ended December 31, 2000, 1999 and 1998 F-6 Notes to Consolidated Financial Statements (Including Selected Quarterly Data) F-7 - F27 2. Financial Statement Schedules ----------------------------- Schedule III - Summary of Real Estate and Accumulated Depreciation..................... F28 - F31 Schedule IV - Mortgage Loans on Real Estate .......................................... F32 - F33 38
(a) 3. Exhibits -------- (3) (i) Declaration of Trust of Federal Realty Investment Trust dated May 5, 1999 filed with the Commission on May 25, 1999 as an exhibit to the Trust's Current Report on Form 8-K is incorporated herein by reference thereto. (ii) Bylaws of the Trust dated May 5, 1999 filed with the Commission on May 25, 1999 as an exhibit to the Trust's Current Report on Form 8-K is incorporated herein by reference thereto. (4) (i) A description of a Common Share of Beneficial Interest certificate filed with the Commission as a portion of Exhibit 4 to the Trust's Annual Report on Form 10-K for the year ended December 31, 1999 is incorporated herein by reference thereto. (ii) A description of a 7.95% Series A Cumulative Redeemable Preferred Share certificate filed with the Commission as a portion of Exhibit 4 to the Trust's Annual Report on Form 10-K for the year ended December 31, 1999 is incorporated herein by reference thereto. (iii) Statement of Designation for Shares, filed on Form 8-K with the Commission on October 3, 1997, is incorporated herein by reference thereto. (iv) 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. (v) 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. (vi) 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. (vii) Indenture dated September 1, 1998 related to the Trust's 8.75% Notes due December 1, 2009 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. 39
(viii) 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. (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 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 40
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 and further amended on May 6, 1998 , filed with the Commission as portions of Item 10 to the Trust's Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference thereto. The following documents, 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, 1993 are incorporated herein by reference thereto: (xi) Fiscal Agency Agreement dated as of October 28, 1993 between Federal Realty Investment Trust and Citibank, N.A. (xii) 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 thereto. (xiii) 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. (xiv) 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: (xv) Credit Agreement Dated as of December 19, 1997 by and among Federal Realty Investment Trust, as Borrower, The Financial Institutions Party Thereto 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. (xvi) Performance Share Award Agreement between Federal Realty Investment Trust and Steven J. Guttman, as of January 1, 1998. (xvii) Form of Amended and Restated Restricted Share Award Agreements between Federal Realty Investment Trust 41
and Steven J. Guttman for the years 1998 through 2002. (xviii) Performance Share Award Agreements between Federal Realty Investment Trust and Ron D. Kaplan, as of January 1, 1998. (xix) Restricted Share Award Agreements between Federal Realty Investment Trust and Ron D. Kaplan, as of January 1, 1998. (xx) Amended and Restated Employment Agreement between the Trust and Steven J. Guttman as of March 6, 1998. (xxi) Amended and Restated Executive Agreement between the Trust and Steven J. Guttman as of March 6, 1998. (xxii) Executive Agreement between the Trust and Ron D. Kaplan as of March 6, 1998. (xxiii) Amended and Restated Severance Agreement between the Trust and Ron D. Kaplan as of March 6, 1998. (xxiv) Severance Agreement between the Trust and Catherine R. Mack as of March 6, 1998. 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, 1998, is incorporated herein by reference thereto: (xxv) 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. 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, 1999, is incorporated herein by reference thereto: (xxvi) Amended and Restated Severance Agreement between the Trust and Nancy J. Herman as of December 27, 1999. (xxvii) Performance Share Award Agreement dated as of February 9, 2000 between the Trust and Donald C. Wood. (xxviii) Restricted Share Award Agreement dated as of February 9, 2000 between the Trust and Donald C. Wood. (xxix) Amendment to Performance Share Award Agreement dated as of February 25, 2000 between Federal Realty Investment Trust and Steven J. Guttman. (xxx) Amendments to Performance Share Award Agreements 42
dated as of February 25, 2000 between Federal Realty Investment Trust and Ron D. Kaplan. The following are filed as exhibits hereto: (xxxi) Amendment to Restricted Share Award Agreement dated December 8, 2000 between Federal Realty Investment Trust and Ron D. Kaplan. (xxxii) Amendment to Restricted Share Award Agreement dated December 8, 2000 between Federal Realty Investment Trust and Ron D. Kaplan. (xxxiii) Amendment to Restricted Share Award Agreement dated December 8, 2000 between Federal Realty Investment Trust and Don C. Wood. (xxxiv) Split Dollar Life Insurance Agreement dated May 20, 1998 between Federal Realty Investment Trust and The Ronald D. Kaplan Family Trust. (xxxv) Split Dollar Life Insurance Agreement dated June 7, 1998 between Federal Realty Investment Trust and The Guttman Family 1998 Trust. (xxxvi) Split Dollar Life Insurance Agreement dated August 12, 1998 between Federal Realty Investment Trust and Donald C. Wood. (xxxvii) Split Dollar Life Insurance Agreement dated November 2, 2000 between Federal Realty Investment Trust and The Nancy J. Herman Insurance Trust. (12) Statements regarding computation of ratios....... (21) Subsidiaries of the registrant.................... Filed as an exhibit hereto. (23) Consent of Grant Thornton LLP.................... 43
(b) Reports on Form 8-K Filed during the Last Quarter ------------------------------------------------- A Form 8-K, dated November 3, 2000, was filed in response to Item 5. A Form 8-K, dated February 14, 2001 was filed in response to Item 5. --------- + For Edgar filing only. 44
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 15, 2001 By:Steven J. Guttman ----------------- Steven J. Guttman Chief Executive Officer 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 - ---------- ----- Chairman of the Board and Chief Executive Steven J. Guttman Officer March 15, 2001 - ---------------------- -------------- Steven J. Guttman President and Donald C. Wood Chief Operating Officer March 15, 2001 - ----------------------- -------------- Donald C. Wood Vice-President, Chief Financial Officer And Treasurer (Chief Cecily A. Ward Accounting Officer) March 15, 2001 - ---------------------- -------------- Cecily A. Ward Dennis L. Berman Trustee March 15, 2001 - ---------------------- -------------- Dennis L. Berman Kenneth D. Brody Trustee March 15, 2001 - ---------------------- -------------- Kenneth D. Brody Kristin Gamble Trustee March 15, 2001 - ---------------------- -------------- Kristin Gamble Walter F. Loeb Trustee March 15, 2001 - ---------------------- -------------- Walter F. Loeb Mark S. Ordan Trustee March 15, 2001 - ---------------------- -------------- Mark S. Ordan 45
FINANCIAL STATEMENTS AND SCHEDULES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Trustees and Shareholders of Federal Realty Investment Trust: We have audited the accompanying consolidated balance sheets of Federal Realty Investment Trust (a Maryland real estate investment trust) and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, common shareholders' equity, and cash flows for each of the years in the two year period ended December 31, 2000. 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 auditing standards generally accepted in the United States. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Federal Realty Investment Trust and subsidiaries as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the years in the two year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The financial statement schedules included on pages F-28 through F-33 of the Form 10-K are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in our audit of the basic consolidated financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Vienna, Virginia February 13, 2001 F1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Trustees and Shareholders Federal Realty Investment Trust We have audited the accompanying consolidated statement of operations, shareholders' equity and cash flows of Federal Realty Investment Trust for 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 results of Federal Realty Investment Trust operations and its consolidated cash flows for the year ended December 31, 1998 in conformity with generally accepted accounting principles. In connection with our audits of the consolidated financial statements referred to above, we have also audited Schedules III and IV for the year ended December 31, 1998. 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 F2
Federal Realty Investment Trust CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> December 31, December 31, 2000 1999 ASSETS (in thousands) <S> <C> <C> Investments Real estate, at cost $1,854,913 $1,721,459 Less accumulated depreciation and amortization (351,258) (317,921) -------------- --------------- 1,503,655 1,403,538 Other Assets Cash 11,357 11,738 Mortgage notes receivable 47,360 53,495 Accounts and notes receivable 13,092 23,130 Prepaid expenses and other assets, principally property taxes and lease commissions 38,140 36,807 Debt issue costs, net of accumulated amortization of 3,982 and 3,885, repsectively 7,475 5,340 -------------- --------------- $1,621,079 $1,534,048 ============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Obligations under capital leases $ 121,611 $ 122,026 Mortgages payable 202,300 50,547 Notes payable 225,246 162,768 Accounts payable and accrued expenses 36,810 34,974 Dividends payable 19,892 19,431 Security deposits 5,537 5,068 Prepaid rents 8,819 6,788 Senior notes and debentures 410,000 510,000 5 1/4% Convertible subordinated debentures 75,289 75,289 Investors' interest in consolidated assets 47,921 45,330 Commitments and contingencies Shareholders' equity Preferred stock, authorized 15,000,000 shares, $.01 par 7.95% Series A Cumulative Redeemable Preferred Shares, (stated at liquidation preference $25 per share), 4,000,000 shares issued in 1997 100,000 100,000 Common shares of beneficial interest, $.01 par , 100,000,000 shares authorized, 40,910,972 and 40,418,766 issued, respectively 410 404 Additional paid in capital 723,078 713,354 Accumulated dividends in excess of Trust net income (306,287) (286,348) -------------- --------------- 517,201 527,410 Less:1,441,594 and 217,644 common shares in treasury - at cost, respectively (27,753) (4,334) Deferred compensation on restricted shares (17,254) (15,219) Notes receivable from employee stock plans (4,540) (6,030) -------------- --------------- 467,654 501,827 -------------- --------------- $1,621,079 $1,534,048 ============== =============== </TABLE> The accompanying notes are an integral part of these consolidated statements. F3
Federal Realty Investment Trust CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> Year ended December 31, 2000 1999 1998 ---- ---- ---- (In thousands, except per share data) <S> <C> <C> <C> Revenue Rental income $260,684 $245,833 $222,186 Interest and other income 7,532 7,649 5,945 Other property income 11,065 11,231 10,347 --------- -------- -------- 279,281 264,713 238,478 Expenses Rental 56,280 53,677 49,490 Real estate taxes 26,620 25,021 23,271 Interest 66,418 61,492 55,125 Administrative 13,318 15,120 16,461 Depreciation and amortization 53,259 50,011 46,047 --------- -------- -------- 215,895 205,321 190,394 --------- -------- -------- Operating income before investors' share of operations and gain (loss) on sale of real estate 63,386 59,392 48,084 Investors' share of operations (6,544) (3,899) (3,124) --------- -------- -------- Income before gain (loss) on sale of real estate 56,842 55,493 44,960 Gain (loss) on sale of real estate 3,681 (7,050) - --------- -------- -------- Net income 60,523 48,443 44,960 Dividends on preferred stock (7,950) (7,950) (7,950) --------- -------- -------- Net income available for common shareholders $ 52,573 $ 40,493 $ 37,010 --------- -------- -------- Earnings per common share, basic Income before gain (loss) on sale of real estate $ 1.26 $ 1.20 $ 0.94 Gain (loss) on sale of real estate 0.10 (0.18) - --------- -------- -------- $ 1.36 $ 1.02 $ 0.94 ========= ======== ======== Weighted average number of common shares, basic 38,796 39,574 39,174 ========= ======== ======== Earnings per common share, diluted Income before gain (loss) on sale of real estate $ 1.26 $ 1.19 $ 0.94 Gain (loss) on sale of real estate 0.09 (0.17) - --------- -------- -------- $ 1.35 $ 1.02 $ 0.94 ========= ======== ======== Weighted average number of common shares, diluted 39,910 40,638 40,080 ========= ======== ======== </TABLE> The accompanying notes are an integral part of these consolidated statements. F4
Federal Realty Investment Trust CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY <TABLE> <CAPTION> Year ended December 31, 2000 1999 ---- ---- -------------------------------------------- -------------------------------------- (in thousands, except share data) Shares Amount Additional Shares Amount Additional Paid-in Capital Paid-in Capital <S> <C> <C> <C> <C> <C> <C> Common Shares of Beneficial Interest Balance, beginning of year 40,418,766 $ 404 $ 713,354 40,139,675 $ 707,724 - Adjustment to reflect change in par value - - - - (707,323) $ 707,323 Exercise of stock options 67,684 1 1,398 52,667 - 1,092 Shares issued under dividend reinvestment plan 153,713 2 3,136 165,770 2 3,566 Performance and Restricted Shares granted, net of Restricted Shares retired 270,809 3 5,190 60,654 1 1,373 ----------- ---------- --------- ---------- ---------- --------- Balance, end of year 40,910,972 $ 410 $ 723,078 40,418,766 $ 404 $ 713,354 =========== ========== ========= ========== ========== ========= Accumulated Dividends in Excess of Trust Net Income Balance, beginning of year ($286,348) ($255,211) Net income 60,523 48,443 Dividends declared to common shareholders (72,512) (71,630) Dividends declared to preferred shareholders (7,950) (7,950) ---------- ---------- Balance, end of year ($306,287) ($286,348) ========== ========== Common Shares of Beneficial Interest in Treasury Balance, beginning of year (217,644) ($4,334) (59,425) ($1,376) Performance and Restricted Shares issued - - - - Performance and Restricted Shares forfeited (38,550) (787) (17,719) (393) Purchase of treasury shares (1,185,400) (22,632) (140,500) (2,565) ----------- ---------- ========== ========== Balance, end of year (1,441,594) ($27,753) (217,644) ($4,334) =========== ========== ========== ========== Deferred Compensation on Restricted Shares Balance, beginning of year (599,427) ($15,219) (582,910) ($14,892) Performance and Restricted Shares issued, net of forfeitures (218,771) (4,151) (31,660) (730) Vesting of Performance and Restricted Shares 82,323 2,116 15,143 403 ----------- ---------- ---------- ---------- Balance, end of year (735,875) ($17,254) (599,427) ($15,219) =========== ========== ========== ========== Subscriptions receivable from employee stock plans Balance, beginning of year (317,606) ($6,030) (337,111) ($6,298) Subscription loans issued (5,500) (115) (9,083) (190) Subscription loans paid 80,468 1,605 28,588 458 ----------- ---------- ---------- ---------- Balance, end of year (242,638) ($4,540) (317,606) ($6,030) =========== ========== ========== ========== <CAPTION> 1998 ---- ------------------------------------------ (In thousands, except share data) Shares Amount Additional Paid-in Capital <S> <C> <C> <C> Common Shares of Beneficial Interest Balance, beginning of year 39,200,201 $ 684,823 - Adjustment to reflect change in par value - - - Exercise of stock options 230,908 4,880 - Shares issued under dividend reinvestment plan 167,511 3,990 - Performance and Restricted Shares granted, net of Restricted Shares retired 541,055 14,031 - ----------- ---------- ------------- Balance, end of year 40,139,675 $ 707,724 - =========== ========== ============= Accumulated Dividends in Excess of Trust Net Income Balance, beginning of year ($222,709) Net income 44,960 Dividends declared to common shareholders (69,512) Dividends declared to preferred shareholders (7,950) ---------- Balance, end of year ($255,211) ========== Common Shares of Beneficial Interest in Treasury Balance, beginning of year (52,386) ($1,002) Performance and Restricted Shares issued 35,000 649 Performance and Restricted Shares forfeited (42,039) (1,023) Purchase of treasury shares - - ----------- ---------- Balance, end of year (59,425) ($1,376) =========== ========== Deferred Compensation on Restricted Shares Balance, beginning of year (22,000) ($621) Performance and Restricted Shares issued, net of forfeitures (576,055) (14,679) Vesting of Performance and Restricted Shares 15,145 408 ----------- ---------- Balance, end of year (582,910) ($14,892) =========== ========== Subscriptions receivable from employee stock plans Balance, beginning of year (382,725) ($6,681) Subscription loans issued (111,114) (2,378) Subscription loans paid 156,728 2,761 ----------- ---------- Balance, end of year (337,111) ($6,298) =========== ========== </TABLE> The accompanying notes are an integral part of these consolidated statements. F5
Federal Realty Investment Trust CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Year ended December 31, 2000 1999 1998 ----------------- ----------------- --------------- (In thousands) <S> <C> <C> <C> OPERATING ACTIVITIES Net income $60,523 $48,443 $44,960 Items not requiring cash outlays Depreciation and amortization 53,259 50,011 46,047 (Gain) loss on sale of real estate (3,681) 7,050 - Other, net 1,634 2,395 2,301 Changes in assets and liabilities Decrease (increase) in accounts receivable 323 (5,257) 878 Increase in prepaid expenses and other assets before depreciation and amortization (6,834) (2,183) (9,571) Increase (decrease) in operating accounts payable, security deposits and prepaid rent 3,342 (1,202) 2,148 (Decrease) increase in accrued expenses (2,420) 2,926 3,664 ----------------- ------------------- ------------------- Net cash provided by operating activities 106,146 102,183 90,427 INVESTING ACTIVITIES Acquisition of real estate (23,554) (25,337) (92,946) Capital expenditures (145,838) (90,796) (73,030) Repayments (Issuance) of mortgage notes receivable, net 494 (2,341) (21,375) Proceeds from sale of real estate, net of costs 47,157 19,161 - Other, net - - (295) ----------------- ------------------- ------------------- Net cash used in investing activities (121,741) (99,313) (187,646) FINANCING ACTIVITIES Borrowing (repayment) of short-term debt, net 47,400 (100,147) 144,357 Proceeds from mortgage and construction financing, net of costs 166,383 - - (Repayment) issuance of senior notes, net of costs (100,000) 172,193 79,540 Issuance of common shares 3,428 2,243 5,310 Common shares repurchased (22,632) (2,565) - Payments on mortgages, capital leases and notes payable (2,169) (1,151) (55,248) Dividends paid (77,499) (76,617) (74,284) Increase (decrease) in minority interest, net 303 (2,318) (2,269) ----------------- ------------------- ------------------- Net cash provided by (used in) financing activities 15,214 (8,362) 97,406 ----------------- ------------------- ------------------- (Decrease) increase in cash (381) (5,492) 187 Cash at beginning of year 11,738 17,230 17,043 ----------------- ------------------- ------------------- Cash at end of year $11,357 $11,738 $17,230 ================= =================== =================== </TABLE> The accompanying notes are an integral part of these consolidated statements. F6
Federal Realty Investment Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000, 1999, and 1998 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Federal Realty Investment Trust (the "Trust") is a full-service real estate company, which owns and operates community and neighborhood shopping centers and which owns and develops main street retail properties, retail buildings and mixed-use properties located in densely developed urban and suburban areas. The Trust operates in a manner intended to enable it to qualify as a real estate investment trust for federal income tax purposes. A trust 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. 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, all of which it controls. The equity interests of other investors are reflected as investors' interest in consolidated assets. All significant intercompany transactions and balances are eliminated in consolidation. Revenue Recognition. Leases with tenants are classified as operating leases. Minimum rents are recognized on a straight-line basis over the terms of the related leases net of valuation adjustments based on management's assessment of credit, collection and other business risk. Percentage rents, which represent additional rents based on gross 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. Land, buildings and real estate under development are recorded at cost. Depreciation is computed using the straight-line method. 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. Tenant work and other major improvements are capitalized and depreciated over the life of the lease and their estimated useful life, respectively. The gain or loss resulting from the sale of properties is included in net income at the time of sale. Upon termination of a lease, undepreciated tenant improvement costs are charged to operations if the assets are replaced and the asset and the corresponding accumulated depreciation are retired. F7
The Trust evaluates the carrying value of its long-lived assets in accordance with Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". In cases where particular assets are being held for sale, impairment is based on whether the fair value (estimated sales price less costs of disposal) of each individual property to be sold is less than the net book value. Otherwise, impairment is based on whether it is probable that undiscounted future cash flows from each property will be less than its net book value. If a property is impaired, its basis is adjusted to its fair market value. The Trust, when applicable as lessee, classifies its leases of land and buildings as operating or capital leases in accordance with the provisions of SFAS No. 13, "Accounting for Leases". Certain external and internal costs directly related to the development, redevelopment and leasing of real estate including applicable salaries and their related direct costs are capitalized. The capitalized costs associated with developments, redevelopments and leasing are depreciated or amortized over the life of the improvement and lease, respectively. Unamortized leasing costs are charged to operations if the applicable tenant vacates before the expiration of their lease. Through March 1998, internal costs of preacquisition activities incurred in connection with the acquisition of an operating property were capitalized. 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 effective 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 in individual banks may exceed insurable amounts from time to time. Risk Management. The Trust has occasionally entered 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 gain or loss on these transactions is recognized as a component of interest expense over the life of the financing. F8
The Trust does not use derivative financial instruments for trading or speculative purposes. There were no open derivative contracts at December 31, 2000 or 1999. In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" was issued. This statement established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge of the exposure to certain risks. SFAS No. 137 "Deferral of Effective Date of SFAS No. 133" was issued and delayed the effective date of SFAS No. 133. SFAS No. 133 is effective January 1, 2001 for the Trust. As previously stated, the Trust has no derivatives as of December 31, 2000 and as a result, there is no related transition adjustment upon transition. Acquisition, Development and Construction Loan Arrangements. The Trust has made certain mortgage loans that, because of their nature, qualify as loan receivables. At the time the loans were made the Trust did not intend for the arrangement to be anything other than a financing and did not contemplate a real estate investment. Using guidance set forth in the Third Notice to Practitioners issued by the AICPA in February 1986 entitled "ADC Arrangements" ("the Third Notice"), the Trust evaluates each investment to determine whether the loan arrangement qualifies under the Third Notice as a loan, joint venture or real estate investment and the appropriate accounting thereon; such determination affects the Trust's balance sheet classification of these investments and the recognition of interest income derived therefrom. Generally, the Trust receives additional interest on these loans, however the Trust never receives in excess of 50% of the residual profit in the project (as defined in the Third Notice) and because the borrower has either a substantial investment in the project or has guaranteed all or a portion of the Trust's loan (or a combination thereof) the loans qualify for loan accounting. The amounts under ADC arrangements at December 31, 2000 and 1999 are $47.4 million and $53.5 million, respectively and interest income recognized thereon was $5.0 million and $5.7 million, respectively. Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates are prepared using management's best judgment, after considering past and current events. Actual results could differ from these estimates. Comprehensive Income. The Trust has no comprehensive income and therefore does not require separate reporting in the accompanying consolidated statements of operations. F9
Earnings Per Share. The Trust calculates basic and diluted earnings per share in accordance with SFAS No. 128, "Earnings Per Share". Basic EPS excludes dilution and is computed by dividing net income available for 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 earnings of the Trust. The following table sets forth the reconciliation between basic and diluted EPS (in thousands): 2000 1999 1998 - ------------------------------------------------------------------------- Numerator - --------- Net income available for common shareholders - basic $52,573 $40,493 $37,010 Income attributable to operating partnership units 1,311 831 578 ------- ------- ------- Net income available for common shareholders - diluted $53,884 $41,324 $37,588 ======= ======= ======= Denominator - ----------- Denominator for basic EPS- weighted average shares 38,796 39,574 39,174 Effect of dilutive securities Stock options and awards 155 214 292 Operating partnership units 959 850 614 ------- ------- ------- Weighted average shares - diluted 39,910 40,638 40,080 ======= ======= ======= 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. F10
NOTE 1: REAL ESTATE AND ENCUMBRANCES A summary of the Trust's properties at December 31, 2000 and 1999 is as follows (in thousands): Accumulated depreciation and 2000 Cost amortization Encumbrances - ------------------------------------------------------------------- Retail properties $1,633,448 $276,982 $ 202,300 Retail properties under capital leases 214,805 68,564 121,611 Apartments 6,660 5,712 - ---------- -------- -------- $1,854,913 $351,258 $323,911 ========== ======== ======== 1999 Retail properties $1,506,684 $251,946 $ 50,547 Retail properties under capital leases 208,135 60,487 122,026 Apartments 6,640 5,488 - ---------- -------- -------- $1,721,459 $317,921 $172,573 ========== ======== ======== During 2000, the Trust expended cash of $23.6 million to acquire real estate and an additional $145.8 million to improve, redevelop and develop its existing real estate. The Trust purchased the 75,000 square foot Greenlawn Plaza in Greenlawn, New York for $6.2 million. Control of a parcel of land for future development in Hillsboro, Oregon was acquired for $11.7 million; an additional $1.6 million will be owed if certain cash flow criteria are met during the first ten years of operations. Other acquisitions include a parcel of land in Bethesda, Maryland for $461,000; an additional property for the Trust's Houston Street project in San Antonio, Texas for cash of $1.2 million and the assumption of a $345,000 mortgage; a retail building in Santa Monica, California in satisfaction of a $5.2 million mortgage note receivable and cash of $1.7 million; and the $2.3 million redemption of 100,000 operating partnership units which had been issued in connection with the purchase of Courthouse Square and Magruders Shopping Centers. Of the $145.8 million spent in 2000 on the Trust's existing real estate portfolio, approximately $82.1 million was invested in development projects in Bethesda, Maryland; San Jose, California; and in Arlington, Virginia. The remaining $63.7 million of capital expenditures relates to improvements to common areas, tenant work and various redevelopments, including the renovation of Greenlawn Plaza, the office expansion and retenanting of Willow Lawn Shopping Center, the renovation of Brunswick Shopping Center, and the redevelopment of retail buildings in Forest Hills, New York, San Antonio, Texas and southern California. The Trust, which held the 1% general partnership interest, obtained F11
an additional 98% general partnership interest in the future operations of Loehmann's Plaza. The minority partner received 190,000 partnership units valued at $3.6 million and the satisfaction of amounts due the Trust from the partnership. The Trust's 123 retail properties at December 31, 2000 are located in 15 states and the District of Columbia. There are approximately 2,100 tenants providing a wide range of retail products and services. These tenants range from sole proprietorships to national retailers; no one tenant or corporate group of tenants accounts for more than 2.1% of revenue. Mortgage notes receivable of $47.4 million are due over various terms from January 2001 to May 2021 and have an average weighted interest rate of 10.0%. 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 June 30, 2000, the Trust sold the 296,000 square foot Peninsula Shopping Center located in Palos Verdes, California for $48.6 million resulting in a gain of $3.7 million. During the second quarter of 1999,the Trust recorded a $7.1 million charge, representing the estimated loss on the potential sale of certain assets, principally Northeast Plaza in Atlanta, Georgia. On October 18, 1999 the Trust sold Northeast Plaza for $19.6 million, realizing a loss of $6.3 million. Mortgages payable and capital lease obligations are due in installments over various terms extending to 2016 and 2060, respectively, with interest rates ranging from 5.5% to 11.25%. Certain of the capital lease obligations require additional interest payments based upon property performance. There were no maturing mortgages in 2000 or 1999. In 1998 the Trust paid off maturing mortgages totaling $53.5 million. On October 23, 2000, the Trust obtained a $152 million mortgage loan which is secured by five shopping centers. The mortgage, which bears interest at 7.95%, matures November 1, 2015 and required an up-front fee of $988,000. The loan provides for interest only payments for the initial three years, then monthly principal and interest payments based on a twenty-seven year amortization schedule until the maturity date. The proceeds from the mortgage loan were used to pay down the Trust's syndicated credit facility. In anticipation of the mortgage loan placement in the third quarter of 2000, the Trust purchased a Treasury Yield Hedge (notional amount of $140 million) to hedge the risk of changes in interest rates. The hedge was terminated on June 30, 2000 at a gain of $165,000 which is being recognized as a reduction of interest expense over the term of the mortgage loan. F12
Scheduled principal payments on mortgage indebtedness as of December 31, 2000 are as follows (in thousands): Year ending December 31, 2001 $ 30,696 2002 35 2003 172 2004 1,725 2005 1,886 Thereafter 167,786 ------- $ 202,300 ======= Future minimum lease payments and their present value for property under capital leases as of December 31, 2000, are as follows (in thousands): Year ending December 31, 2001 $ 11,736 2002 11,528 2003 11,458 2004 11,673 2005 11,673 Thereafter 504,161 ------- 562,229 Less amount representing interest (440,618) ------- Present value $ 121,611 ======= 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 (certain leases with anchor tenants may be longer), 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, 2000 1999 1998 - ---------------------------------------------------------- Retail properties Minimum rents $208,474 $197,299 $178,936 Cost reimbursements 43,056 39,574 34,897 Percentage rent 6,364 6,277 5,766 Apartments - rents 2,790 2,683 2,587 -------- -------- -------- $260,684 $245,833 $222,186 ======== ======== ======== F13
The components of rental expense are as follows (in thousands): Year ended December 31, 2000 1999 1998 - ----------------------------------------------------------- Repairs and maintenance $16,590 $15,347 $13,942 Management fees and costs 9,831 10,635 9,510 Utilities 8,096 7,120 7,625 Payroll - properties 4,510 4,440 3,775 Ground rent 3,190 2,933 2,829 Insurance 2,900 2,774 2,610 Other operating 11,163 10,428 9,199 ------- ------- ------- $56,280 $53,677 $49,490 ======= ======= ======= Minimum future retail property rentals on noncancelable operating leases, before any reserve for uncollectible amounts, on operating properties as of December 31, 2000 are as follows (in thousands): Year ending December 31, 2001 $ 201,753 2002 188,629 2003 169,579 2004 148,357 2005 127,460 Thereafter 713,263 ---------- $1,549,041 ========== F14
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 mortgage 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, accounts payable, accrued expenses 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, 2000 December 31, 1999 (in thousands) Carrying Fair Carrying Fair Value Value Value Value ----------------- ----------------- Cash & equivalents $11,357 $11,357 $11,738 $11,738 Investments 2,356 2,356 2,403 2,403 Mortgage notes receivable 47,360 48,039 53,495 54,174 Mortgages and notes payable 427,546 427,937 213,315 213,579 Convertible debentures 75,289 71,058 75,289 71,058 Senior notes 410,000 411,934 510,000 488,355 F15
NOTE 3. NOTES PAYABLE - --------------------- The Trust's notes consist of the following (in thousands): 2000 1999 - ------------------------------------------------------ Revolving credit facilities $ 78,000 $ 34,000 Term note with banks 125,000 125,000 Construction loan 16,241 - Other 6,005 3,768 -------- -------- $225,246 $162,768 ======== ======== In December 1997 the Trust obtained a five year syndicated revolving credit facility for $300 million due December 2002. 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. In December 1998 the Trust obtained a four year loan of $125 million from five institutional lenders. The loan, due December 2002, requires fees and has the same covenants as the syndicated credit facility. In June 2000, the Trust modified certain covenants and extended the maturity date to December 19, 2003 of its syndicated credit facility and its $125 million term loan. Fees paid for this extension totaled $1.0 million. The Trust is in compliance with all covenants. In July 2000, citing the Trust's pursuit of development and the resulting capital requirements, Standard and Poor's lowered the rating on the Trust's senior notes from BBB+ to BBB flat with a positive outlook. Under the terms of the syndicated credit facility, this lowered rating resulted in an increase in the Trust's borrowing rate from LIBOR plus 65 basis points to LIBOR plus 80 basis points. The interest rate on the term loan increased from LIBOR plus 75 basis points to LIBOR plus 95 basis points. The maximum drawn under these facilities during 2000, 1999 and 1998 was $343.1 million, $330.0 million and $259.1 million, respectively. In 2000, 1999 and 1998 the weighted average interest rate on borrowings was 7.2%, 5.9% and 6.1%, respectively, and the average amount outstanding was $283.2 million, $296.4 million and $163.6 million, respectively. On February 29, 2000, the Trust obtained a construction loan for up to $24.5 million in connection with the Trust's Woodmont East development in Bethesda, Maryland. The loan, which has a floating interest rate of LIBOR plus 1.2% to 1.5%, depending on occupancy levels, matures August 29, 2002 with two one-year extension options. At December 31, 2000, the outstanding balance on the construction loan was $16.2 million. No principal payments are due until maturity. The property secures the construction loan facility. F16
In connection with the land held for future development in Hillsboro, Oregon, the Trust issued a $3.4 million note which is due June 30, 2001. The loan bears interest at LIBOR plus 1.25%. The property secures the loan facility. NOTE 4. 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 2000 and 1999 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. The Trust is in compliance with the terms of these borrowings. No principal is due on these notes prior to maturity. NOTE 5. SENIOR NOTES AND DEBENTURES - ----------------------------------- Unsecured senior notes and debentures at December 31, 2000 and 1999 consist of the following (in thousands): 2000 1999 - --------------------------------------------------------------- 8.875% Notes due January 15, 2000 $ - $100,000 8% Notes due April 21, 2002 25,000 25,000 6.74% Medium-Term Notes due March 10, 2004 39,500 39,500 6.625% Notes due December 1, 2005 40,000 40,000 6.99% Medium-Term Notes due March 10, 2006 40,500 40,500 6.82% Medium-Term Notes due August 1, 2027, redeemable at par by holder August 1, 2007 40,000 40,000 7.48% Debentures due August 15, 2026, redeemable at par by holder August 15, 2008 50,000 50,000 8.75% Notes due December 1, 2009 175,000 175,000 -------- -------- $410,000 $510,000 ======== ======== On January 17, 2000 the Trust's $100 million of 8.875% Notes matured and were paid with borrowings from the Trust's syndicated credit facilities. 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. No principal is due on these notes prior to maturity. F17
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. As of December 31, 2000, $325 million is available under the shelf registration. NOTE 6. DIVIDENDS ----------------- On November 2, 2000 the Trustees declared a quarterly cash dividend of $.47 per common share, payable January 15, 2001 to common shareholders of record January 2, 2001. For the years ended December 31, 2000, 1999 and 1998, $.11, $.16, and $.31 of dividends paid per common share, respectively, represented a return of capital. On November 2, 2000 the Trustees declared a quarterly cash dividend of $.49687 per share on its Series A Cumulative Redeemable Preferred Shares, payable on January 31, 2001 to shareholders of record on January 15, 2001. For the year ended December 31, 2000, $.04 of dividends paid per common share and per preferred share represent a capital gain. There were no capital gains in 1999 or 1998. NOTE 7. COMMITMENTS AND CONTINGENCIES - ------------------------------------- Pentagon Row is a mixed-use project with the retail component being developed by the Trust and the residential component being developed by an unrelated residential developer. In October 2000 the general contractor on the project was replaced by the Trust and the residential developer, because of schedule delays and other events that caused the Trust and the residential developer to conclude that the original contractor was either unable or unwilling to comply with its contractual obligations. The Trust and the residential developer filed suit against the original contractor to recover damages that they anticipate they will incur as a result of defaults under the contract. The original contractor filed a counter-claim against the Trust and the residential developer for damages of $7 million plus interest, attorneys' fees and litigation costs. The Trust believes that the counterclaim is generally without merit and that the outcome of the counterclaim will not have a material adverse effect on its financial condition, results of operations or on the project. Work continues under the direction of the new general contractor and the Trust does not believe that there will be any material impairment on the project as a result of the schedule delays. In addition, the Trust is involved in various other 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. F18
Pursuant to the provisions of the Congressional Plaza partnership agreement, in the event of the exercise of put options by another partner, which are currently exercisable and have no expiration date, the Trust would be required to purchase a 37.5% interest at Congressional Plaza at its then fair market value. Based on management's current estimate of fair market value, the Trust's estimated liability upon exercise of the put option is approximately $27 million. Under the terms of six other partnership agreements, if certain leasing and revenue levels are obtained for the properties owned by the partnerships, 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 a limited number of common shares of the Trust, at the election of the limited partners. In certain of the partnerships if the limited partners do not redeem their interest, the Trust may choose to purchase the limited partnership interests upon the same terms. The limited partners of two partnerships, owning street retail properties in southern California, have exercised their rights under these agreements. The Trust purchased their interests in March 2001 for approximately $18 million, approximately $7 million in common shares of the Trust and the balance in cash. Under the terms of certain other partnership agreements, the partners may exchange their 904,589 operating partnership units for cash or exchange into the same number of common shares of the Trust, at the option of the Trust. During the third quarter of 2000 the Trust redeemed 100,000 operating units for cash of $2.3 million As of December 31, 2000 in connection with renovation and development projects, the Trust has contractual obligations of approximately $46 million. The Trust is obligated under ground lease agreements on several shopping centers requiring minimum annual payments as follows (in thousands): 2001 $4,095 2002 4,321 2003 4,398 2004 4,409 2005 4,463 Thereafter 278,608 -------- $300,294 ======== NOTE 8. SHAREHOLDERS' EQUITY - ---------------------------- In May 1999, the Trust reorganized as a Maryland real estate investment trust by amending and restating its declaration of trust and bylaws. The Amended Declaration of Trust changed the number of authorized shares of common and preferred shares from unlimited to 100,000,000 and 15,000,000, respectively. In addition, all common shares of beneficial F19
interest, no par value, which were issued and outstanding were changed to common shares of beneficial interest, $0.01 par value per share and all Series A Cumulative Redeemable Preferred Shares of beneficial interest, no par value, which were issued and outstanding were changed to Series A Cumulative Redeemable Preferred Shares of beneficial interest, $0.01 par value per share. 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 are payable quarterly in arrears on the last day of January, April, July and October. The Trust has a Dividend Reinvestment Plan, whereby shareholders may use their dividends and make optional cash payments to purchase shares. In 2000, 1999, and 1998, 153,713 shares, 165,770 shares, and 167,511 shares, respectively, were issued under the Plan. In December 1999, the Trustees authorized a share repurchase program for calendar year 2000 of up to an aggregate of 4 million of the Trust's common shares. A total of 1,325,900 shares were repurchased, at a cost of $25.2 million. The Trust does not expect to repurchase shares in 2001. In 2000, 270,809 common shares were awarded to the Trust's president and other key employees under various incentive compensation programs designed to directly link a significant portion of their current and long term compensation to the prosperity of the Trust and its shareholders. The shares vest over terms from 3 to 8 years. In 1999, 65,660 common shares were awarded, and 5,006 shares were forfeited and retired, to the Trust's president and other key employees under various incentive compensation programs. Fifteen thousand shares vested upon award, and the balance vest over terms from 5 to 13 years. 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 incentive compensation programs. Ten thousand shares 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. 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 $562,500, bears interest at F20
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. 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, 2000 the Trust has outstanding purchase loans to participants of $1.4 million. The purchase 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 associated with the plan are satisfied and the term has expired, without the consent of the Compensation Committee of the Board of Trustees. Tax loans with a balance of $2.2 million in 2000, $1.3 million in 1999 and $1.1 million in 1998 have been made in connection with restricted share grants to the Trust's President, Chief Investment Officer and Chief Operating Officer and in connection with the Share Purchase Plans. The loans, which bear interest ranging from 6.36% to 9.39%, are due over periods ranging from 8 to 13 years from the date of the loan. On April 13, 1999, the Shareholder Rights Plan adopted in 1989 expired. 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. 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 $2.6 million, $3.6 million and $3.4 F21
million at December 31, 2000, 1999 and 1998, 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. SFAS 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 2000, 1999, and 1998 has been estimated as $549,000, $434,000, and $2.6 million, respectively, as of the date of grant, using a binomial model with the following weighted-average assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of 5.2%, 5.4%,and 5.7%; volatility factors of the expected market price of the Trust's shares of 14%, 15%, and 19%; and a weighted average expected life of the option of 5.7 years, 6.6 years, and 6.3 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' vesting period. The pro forma information is as follows (in thousands except for earnings per share): 2000 1999 1998 - -------------------------------------------------------------- Pro forma net income $59,445 $46,368 $43,179 Pro forma earnings per share, basic $1.33 $.97 $.90 Pro forma earnings per share, diluted $1.32 $.97 $.88 F22
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, 1998 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 Options granted 720,000 21.12 Options exercised (52,667) 20.73 Options forfeited (380,635) 25.29 --------- December 31, 1999 3,895,514 24.31 Options granted 737,500 19.75 Options exercised (67,684) 20.50 Options forfeited (847,049) 24.27 --------- December 31, 2000 3,718,281 23.46 ========= At December 31, 2000 and 1999, options for 2.3 million and 1.9 million shares, respectively, were exercisable. The average remaining contractual life of options outstanding at December 31, 2000 and 1999 was 8.1 years and 6.7 years, respectively. The weighted average grant date fair value per option for options granted in 2000 and 1999 was $.72 and $.65, respectively. The exercise price of options outstanding at December 31, 2000 ranged from $18.00 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 20% of compensation up to a maximum of $10,500. 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 are immediately eligible to become plan participants. Employees are not eligible to receive matching contributions until their first anniversary of employment. The Trust's expense for the years ended December 31, 2000, 1999 and 1998 was $216,000, $223,000 and $218,000, respectively. 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, 2000, the Trust is liable to participants for approximately $2.4 million under this plan. Although this is an unfunded F23
plan, the Trust has purchased certain investments with which to match this obligation. NOTE 11. INTEREST EXPENSE - ------------------------- The Trust incurred interest expense totaling $79.7 million, $68.4 million and $60.2 million in 2000, 1999 and 1998, respectively, of which $13.3 million, $6.9 million, and $5.1 million respectively, was capitalized. Interest paid was $83.1 million in 2000, $67.0 million in 1999, and $57.8 million in 1998. NOTE 12. ADMINISTRATIVE EXPENSES - -------------------------------- During 1999 while exploring strategic alternatives to maximize shareholder value, the Trust considered spinning off certain of its assets (primarily those related to the development and operation of its main street retail program) in a taxable transaction to shareholders. Shortly thereafter, the remaining assets of the Trust were to be merged with another publicly traded shopping center company in exchange for cash and stock consideration. On September 24, 1999, the Trust announced that merger negotiations were terminated and that the spin-off was being reevaluated. In preparing for these transactions, the Trust incurred expenses of approximately $2.8 million related to legal, accounting, tax and other advisory services related to the spin-off and the merger. Such costs have been expensed and are reflected as administrative expenses in the accompanying consolidated statement of operations At September 30, 1998 the Trust recorded a $4.7 million charge related to a comprehensive restructuring program, the implementation of which was begun during the fourth quarter of 1998. All costs related to the reorganization have been expended as of December 31, 2000. NOTE 13. SUBSEQUENT EVENTS - -------------------------- Under a Restricted Share Agreement designed to link his compensation with the prosperity of the shareholders, the Trust's Chief Executive Officer elected to accept stock in lieu of cash for both his 2000 bonus and his 2001 salary. As a result, in 2001, 35,000 common shares were awarded to the Chief Executive Officer in lieu of his 2001 cash salary and 26,869 shares were awarded in lieu of his 2000 cash bonus. The shares vest at the end of five years if the Chief Executive Officer is still employed by the Trust. Pursuant to the 1999 Incentive Bonus Plan, vice presidents and certain key employees receive part of their 2000 bonus in Federal Realty shares which vest over three years. Consequently, on February 14, 2001, 23,390 shares were awarded under this plan. F24
On February 16, 2001, the Trust bought the land underlying the capital lease obligation, thereby, terminating the capital lease on Brick Plaza in Brick, New Jersey for $28 million. Concurrent with this transaction, the mortgage note receivable of $3.2 million owed to the Trust by the lessor was repaid. NOTE 14. SEGMENT INFORMATION - ---------------------------- The Trust 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, divided its portfolio of assets into three geographic operating regions: Northeast, Mid-Atlantic and West. F25
A summary of the Trust's operations by geographic region is presented below (in thousands): <TABLE> <CAPTION> North Mid 2000 East Atlantic West Other Consolidated - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Rental income $113,078 $114,371 $ 33,235 - $ 260,684 Other income 4,215 3,900 2,950 - 11,065 Rental expense (23,261) (24,766) (8,253) - (56,280) Real estate tax (14,347) (9,159) (3,114) - (26,620) -------- -------- -------- ---------- Net operating income 79,685 84,346 24,818 188,849 Interest income - - - 7,532 7,532 Interest expense - - - (66,418) (66,418) Administrative expense - - - (13,318) (13,318) Depreciation and Amortization (25,169) (21,915) (5,242) (933) (53,259) -------- -------- -------- ------- ---------- Income before investors' Share of operations and Gain on sale of real Estate $ 54,516 $ 62,431 $ 19,576 $(73,137) $ 63,386 ======== ======== ======== ======= ========== Capital expenditures $ 38,696 $ 60,783 $ 83,205 _ $ 182,684 ======== ======== ======== ========== Real estate assets $754,048 $720,208 $380,657 _ $1,854,913 ======== ======== ======== ========== </TABLE> <TABLE> <CAPTION> North Mid 1999 East Atlantic West Other Consolidated - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Rental income $102,452 $111,624 $ 31,757 - $ 245,833 Other income 5,672 3,903 1,656 - 11,231 Rental expense (20,702) (25,096) (7,879) - (53,677) Real estate tax (13,146) (9,006) (2,869) - (25,021) -------- -------- -------- ---------- Net operating income 74,276 81,425 22,665 178,366 Interest income - - - 7,649 7,649 Interest expense - - - (61,492) (61,492) Administrative expense - - - (15,120) (15,120) Depreciation and Amortization (22,648) (22,473) (4,101) (789) (50,011) -------- -------- -------- -------- ---------- Income before investors' Share of operations and Loss on sale of real Estate $ 51,628 $ 58,952 $ 18,564 $(69,752) $ 59,392 ======== ======== ======== ======== ========== Capital expenditures $ 32,547 $ 26,444 $ 62,512 - $ 121,503 ======== ======== ======== ========== Real estate assets $715,772 $663,019 $342,668 - $1,721,459 ======== ======== ======== ========== </TABLE> <TABLE> <CAPTION> North Mid 1998 East Atlantic West Other Consolidated - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Rental income $ 93,632 $103,676 $ 24,878 - $ 222,186 Other income 5,768 3,637 942 - 10,347 Rental expense (20,259) (22,826) (6,405) - (49,490) Real estate tax (12,745) (8,422) (2,104) - (23,271) -------- -------- -------- ---------- Net operating income 66,396 76,065 17,311 159,772 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 (20,224) (22,218) (2,650) (955) (46,047) -------- -------- -------- --------- ---------- Income before investors' Share of operations and Gain on sale of real Estate $ 46,172 $ 53,847 $ 14,661 $ (66,596) $ 48,084 ======== ======== ======== ========= ========== Capital expenditures $ 56,629 $ 60,687 $ 76,414 - $ 193,730 ======== ======== ======== ========== Real estate assets $684,318 $676,842 $280,976 - $1,642,136 ======== ======== ======== ========== </TABLE> There are no transactions between geographic areas. F26
NOTE 15. QUARTERLY DATA (UNAUDITED) - ----------------------------------- The following summary represents the results of operations for each quarter in 2000 and 1999 (in thousands, except per share data): <TABLE> <CAPTION> First Second Third Fourth Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 2000 Revenue $69,104 $68,806 $68,581 $72,790 Net income available for common shares 12,151 16,087 (1) 12,433 11,902 Earnings per common share - basic .31 .42 .32 .31 Earnings per common share - diluted .31 .41 .32 .31 </TABLE> <TABLE> <CAPTION> First Second Third Fourth Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 1999 Revenue $63,583 $64,195 $67,255 $69,680 Net income available for common shares 11,566 4,828 (2) 12,198 11,901 Earnings per common share - basic .29 .12 .31 .30 Earnings per common share - diluted (3) .29 .12 .30 .30 </TABLE> (1)Net income includes a $3.7 million gain on sale of real estate ($.10 gain per share - basic and $.09 gain per share - diluted). (2)Net income includes a $7.1 million loss on sale of real estate ($.18 loss per share - basic and $.17 loss per share - diluted). (3)The sum of quarterly earnings per common share - diluted, $1.01 differs from the annual earnings per common share - diluted, $1.02, due to rounding. F27
FEDERAL REALTY INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2000 <TABLE> <CAPTION> COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------ ------------- ----------- ------------ ---------------- ------------ ------------ Initial cost to company Gross amount at which carried Cost Capitalized Building and Subsequent to Building and Descriptions Encumbrance Land Improvements Acquisition Land Improvements - ------------------------------------ ------------- ----------- ------------ ---------------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> ALLWOOD (New Jersey) $ 3,533,000 $ $ 3,920,000 $ 342,000 $ $ 4,262,000 ANDORRA (Pennsylvania) 2,432,000 12,346,000 3,453,000 2,432,000 15,799,000 ARIZONA BUILDINGS (2) 1,334,000 9,104,000 585,000 1,334,000 9,689,000 BALA CYNWYD (Pennsylvania) 3,565,000 14,466,000 5,625,000 3,565,000 20,091,000 BARRACKS ROAD (Virginia) 44,300,000 4,363,000 16,459,000 17,706,000 4,363,000 34,165,000 BETHESDA ROW (Maryland) 12,576,000 2,157,000 20,821,000 21,668,000 2,171,000 42,475,000 BLUESTAR (New Jersey) 26,966,000 29,922,000 8,453,000 38,375,000 BRICK PLAZA (New Jersey) 21,362,000 24,715,000 25,103,000 49,818,000 BRISTOL (Connecticut) 3,856,000 15,959,000 1,523,000 3,856,000 17,482,000 BRUNSWICK (New Jersey) 11,225,000 12,456,000 6,861,000 19,317,000 CALIFORNIA RETAIL BUILDINGS SANTA MONICA (9) 22,645,000 12,709,000 25,715,000 22,645,000 38,424,000 SAN DIEGO (4) 3,844,000 1,352,000 6,022,000 3,844,000 7,374,000 150 POST STREET (San Francisco) 11,685,000 9,181,000 5,089,000 11,685,000 14,270,000 OTHER (6) 15,563,000 21,462,000 7,538,000 15,563,000 29,000,000 CLIFTON (New Jersey) 3,286,000 3,646,000 1,116,000 4,762,000 CONGRESSIONAL PLAZA (Maryland) 2,793,000 7,424,000 35,560,000 2,793,000 42,984,000 CONNECTICUT RETAIL BUILDINGS (13) 25,061,000 27,739,000 2,438,000 25,061,000 30,177,000 COURTHOUSE CENTER (Maryland) 1,750,000 1,869,000 91,000 1,750,000 1,960,000 CROSSROADS (Illinois) 4,635,000 11,611,000 5,168,000 4,635,000 16,779,000 DEDHAM PLAZA (Massachusetts) 12,369,000 12,918,000 1,685,000 12,369,000 14,603,000 EASTGATE (North Carolina) 1,608,000 5,775,000 4,728,000 1,608,000 10,503,000 ELLISBURG CIRCLE (New Jersey) 4,028,000 11,309,000 9,966,000 4,028,000 21,275,000 ESCONDIDO PROMENADE (California) 9,400,000 11,505,000 12,147,000 719,000 11,505,000 12,866,000 FALLS PLAZA (Virginia) 1,260,000 735,000 6,150,000 1,260,000 6,885,000 FALLS PLAZA - East (Virginia) 538,000 535,000 2,272,000 559,000 2,786,000 FEASTERVILLE (Pennsylvania) 1,431,000 1,600,000 8,384,000 1,431,000 9,984,000 FEDERAL PLAZA (Maryland) 26,675,000 10,216,000 17,895,000 32,396,000 10,216,000 50,291,000 FINLEY SQUARE (Illinois) 9,252,000 9,544,000 6,667,000 9,252,000 16,211,000 FLORIDA RETAIL BUILDINGS (2) 5,206,000 1,631,000 17,000 5,206,000 1,648,000 FLOURTOWN (Pennsylvania) 1,345,000 3,943,000 3,145,000 1,345,000 7,088,000 FRESH MEADOWS (New York) 24,625,000 25,255,000 13,336,000 24,625,000 38,591,000 GAITHERSBURG SQUARE (Maryland) 7,701,000 5,271,000 10,174,000 6,012,000 17,134,000 GARDEN MARKET (Illinois) 2,677,000 4,829,000 2,429,000 2,677,000 7,258,000 GOVERNOR PLAZA (Maryland) 2,068,000 4,905,000 10,050,000 2,068,000 14,955,000 GRATIOT PLAZA (Michigan) 525,000 1,601,000 14,516,000 525,000 16,117,000 GREENLAWN (New York) 2,294,000 3,864,000 3,907,000 2,294,000 7,771,000 HAMILTON (New Jersey) 4,871,000 5,405,000 2,174,000 7,579,000 HAUPPAUGE (New York) 16,700,000 8,791,000 15,262,000 2,107,000 8,791,000 17,369,000 HUNTINGTON (New York) 14,426,000 16,008,000 6,352,000 22,360,000 IDYLWOOD PLAZA (Virginia) 4,308,000 10,026,000 456,000 4,308,000 10,482,000 ILLINOIS RETAIL BUILDINGS (3) 2,694,000 2,325,000 3,609,000 2,694,000 5,934,000 KINGS COURT (California) 10,714,000 94,000 10,808,000 LANCASTER (Pennsylvania) 322,000 2,103,000 2,524,000 4,627,000 LANGHORNE SQUARE (Pennsylvania) 720,000 2,974,000 13,725,000 720,000 16,699,000 LAUREL (Maryland) 7,458,000 22,525,000 14,609,000 7,458,000 37,134,000 LAWRENCE PARK (Pennsylvania) 31,400,000 5,723,000 7,160,000 10,372,000 5,734,000 17,521,000 LEESBURG PLAZA (Virginia) 9,900,000 8,184,000 10,722,000 866,000 8,184,000 11,588,000 LOEHMANN'S PLAZA (Virginia) 1,237,000 15,096,000 8,589,000 1,248,000 23,674,000 </TABLE> <TABLE> <CAPTION> COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I - ------------------------------------ ------------ ---------------- ------------ ---------- ---------------------- at close of period Life on which Accumulated Date depreciation in latest Depreciation and of Date income statements Descriptions Total Amortization Construction Acquired is computed - ------------------------------------ ------------ ---------------- ------------ ---------- ---------------------- <S> <C> <C> <C> <C> <C> ALLWOOD (New Jersey) $ 4,262,000 $ 1,512,000 1958 12/12/88 35 years ANDORRA (Pennsylvania) 18,231,000 6,108,000 1953 01/12/88 35 years ARIZONA BUILDINGS (2) 11,023,000 666,000 1995-1998 05/07/98 35 years BALA CYNWYD (Pennsylvania) 23,656,000 4,142,000 1955 09/22/93 35 years BARRACKS ROAD (Virginia) 38,528,000 15,837,000 1958 12/31/85 35 years BETHESDA ROW (Maryland) 44,646,000 6,505,000 1945-1999 12/31/93 35 years BLUESTAR (New Jersey) 38,375,000 11,528,000 1959 12/12/88 35 years BRICK PLAZA (New Jersey) 49,818,000 14,467,000 1958 12/28/89 35 years BRISTOL (Connecticut) 21,338,000 2,681,000 1959 9/22/95 35 years BRUNSWICK (New Jersey) 19,317,000 5,228,000 1957 12/12/88 35 years CALIFORNIA RETAIL BUILDINGS SANTA MONICA (9) 61,069,000 2,854,000 1888-2000 1996-2000 35 years SAN DIEGO (4) 11,218,000 155,000 1888-1995 1996-1997 35 years 150 POST STREET (San Francisco) 25,955,000 1,086,000 1908 10/23/97 35 years OTHER (6) 44,563,000 871,000 var 1996-1999 35 years CLIFTON (New Jersey) 4,762,000 1,532,000 1959 12/12/88 35 years CONGRESSIONAL PLAZA (Maryland) 45,777,000 17,920,000 1965 04/01/65 35 years CONNECTICUT RETAIL BUILDINGS (13) 55,238,000 4,714,000 1900-1991 1994-1996 35 years COURTHOUSE CENTER (Maryland) 3,710,000 171,000 1975 12/17/97 35 years CROSSROADS (Illinois) 21,414,000 3,823,000 1959 07/19/93 35 years DEDHAM PLAZA (Massachusetts) 26,972,000 3,269,000 1959 12/31/93 35 years EASTGATE (North Carolina) 12,111,000 5,266,000 1963 12/18/86 35 years ELLISBURG CIRCLE (New Jersey) 25,303,000 7,547,000 1959 10/16/92 35 years ESCONDIDO PROMENADE (California) 24,371,000 1,482,000 1987 12/31/96 35 years FALLS PLAZA (Virginia) 8,145,000 1,998,000 1962 09/30/67 22 3/4 years FALLS PLAZA - East (Virginia) 3,345,000 2,496,000 1960 10/05/72 25 years FEASTERVILLE (Pennsylvania) 11,415,000 4,149,000 1958 07/23/80 20 years FEDERAL PLAZA (Maryland) 60,507,000 14,950,000 1970 06/29/89 35 years FINLEY SQUARE (Illinois) 25,463,000 3,432,000 1974 04/27/95 35 years FLORIDA RETAIL BUILDINGS (2) 6,854,000 233,000 1920 02/28/96 35 years FLOURTOWN (Pennsylvania) 8,433,000 2,845,000 1957 04/25/80 35 years FRESH MEADOWS (New York) 63,216,000 2,698,000 1946-1949 12/05/97 35 years GAITHERSBURG SQUARE (Maryland) 23,146,000 4,741,000 1966 04/22/93 35 years GARDEN MARKET (Illinois) 9,935,000 1,275,000 1958 07/28/94 35 years GOVERNOR PLAZA (Maryland) 17,023,000 8,404,000 1963 10/01/85 35 years GRATIOT PLAZA (Michigan) 16,642,000 3,360,000 1964 03/29/73 25 3/4 years GREENLAWN (New York) 10,065,000 141,000 1975 01/05/00 35 years HAMILTON (New Jersey) 7,579,000 3,209,000 1961 12/12/88 35 years HAUPPAUGE (New York) 26,160,000 1,086,000 1963 08/06/98 35 years HUNTINGTON (New York) 22,360,000 7,935,000 1962 12/12/88 35 years IDYLWOOD PLAZA (Virginia) 14,790,000 2,071,000 1991 04/15/94 35 years ILLINOIS RETAIL BUILDINGS (3) 8,628,000 791,000 1900-1927 1995-1997 35 years KINGS COURT (California) 10,808,000 928,000 1960 08/24/98 26 years LANCASTER (Pennsylvania) 4,627,000 3,838,000 1958 04/24/80 22 years LANGHORNE SQUARE (Pennsylvania) 17,419,000 5,295,000 1966 01/31/85 35 years LAUREL (Maryland) 44,592,000 15,918,000 1956 08/15/86 35 years LAWRENCE PARK (Pennsylvania) 23,255,000 12,498,000 1972 07/23/80 22 years LEESBURG PLAZA (Virginia) 19,772,000 765,000 1967 09/15/98 35 years LOEHMANN'S PLAZA (Virginia) 24,922,000 1,045,000 1971 07/21/83 35 years </TABLE> F28
<TABLE> <CAPTION> COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - --------------------------------- ------------ ------------ ------------ ---------------- ------------ ------------- Initial cost to company Gross amount at which carried Cost Capitalized Building and Subsequent to Building and Descriptions Encumbrance Land Improvements Acquisition Land Improvements - --------------------------------- ------------ ------------ ------------ ---------------- ----------- -------------- <S> <C> <C> <C> <C> <C> <C> MAGRUDERS (Maryland) 4,554,000 4,859,000 411,000 4,554,000 5,270,000 MASSACHUSETTS RETAIL BLDG (1) 1,873,000 1,884,000 231,000 1,873,000 2,115,000 MID PIKE PLAZA (Maryland) 10,041,000 10,335,000 6,308,000 16,643,000 NEW JERSEY RETAIL BUILDING (1) 737,000 1,466,000 1,056,000 737,000 2,522,000 NEW YORK RETAIL BUILDINGS (4) 7,541,000 7,912,000 10,492,000 7,541,000 18,404,000 NORTHEAST (Pennsylvania) 1,152,000 10,596,000 9,315,000 1,153,000 19,910,000 NORTH LAKE COMMONS (Illinois) 2,782,000 8,604,000 1,558,000 2,782,000 10,162,000 OLD KEENE MILL (Virginia) 638,000 998,000 3,405,000 638,000 4,403,000 OLD TOWN CENTER (California) 3,420,000 2,765,000 25,561,000 3,420,000 28,326,000 PAN AM SHOPPING CENTER (Virginia) 8,694,000 12,929,000 2,604,000 8,694,000 15,533,000 PARK & SHOP (District of Columbia) 4,840,000 6,319,000 539,000 4,840,000 6,858,000 PERRING PLAZA (Maryland) 2,800,000 6,461,000 14,627,000 2,800,000 21,088,000 PIKE 7 (Virginia) 9,709,000 22,799,000 547,000 9,709,000 23,346,000 QUEEN ANNE PLAZA (Massachusetts) 3,319,000 8,457,000 2,873,000 3,319,000 11,330,000 QUINCE ORCHARD PLAZA (Maryland) 3,197,000 7,949,000 6,216,000 2,928,000 14,434,000 ROLLINGWOOD APTS. (Maryland) 552,000 2,246,000 3,862,000 572,000 6,088,000 RUTGERS (New Jersey) 13,003,000 14,429,000 1,388,000 15,817,000 SAUGUS (Massachusetts) 4,383,000 8,291,000 296,000 4,383,000 8,587,000 SHIRLINGTON (Virginia) 9,761,000 14,808,000 4,995,000 9,816,000 19,748,000 TEXAS RETAIL BUILDINGS (11) 337,000 14,680,000 1,976,000 16,529,000 14,680,000 18,505,000 TOWER (Virginia) 7,170,000 10,518,000 147,000 7,129,000 10,706,000 TROY (New Jersey) 3,126,000 5,193,000 11,925,000 3,126,000 17,118,000 TYSONS STATION (Virginia) 3,988,000 388,000 453,000 2,292,000 475,000 2,658,000 UPTOWN (Oregon) 10,257,000 5,846,000 295,000 10,257,000 6,141,000 WILDWOOD (Maryland) 27,600,000 9,111,000 1,061,000 5,400,000 9,111,000 6,461,000 WILLIAMSBURG (Virginia) 2,758,000 7,160,000 3,602,000 2,758,000 10,762,000 WILLOW GROVE (Pennsylvania) 1,499,000 6,643,000 17,279,000 1,499,000 23,922,000 WILLOW LAWN (Virginia) 3,192,000 7,723,000 48,099,000 7,790,000 51,224,000 WYNNEWOOD (Pennsylvania) 32,000,000 8,055,000 13,759,000 12,052,000 8,055,000 25,811,000 DEVELOPMENT PROJECTS: PENTAGON ROW (Virginia) 2,955,000 36,854,000 39,809,000 WOODMONT EAST (Bethesda, MD) 6,957,000 18,538,000 6,957,000 18,538,000 TANASBOURNE (Oregon) 13,553,000 13,553,000 SANTANA ROW (California) 41,969,000 1,161,000 53,637,000 41,969,000 54,798,000 ------------ ------------ ------------ ------------ ------------ ------------------ TOTALS $323,911,000 $422,560,000 $719,793,000 $712,560,000 $425,379,000 $1,429,534,000 ============ ============ ============ ============ ============ ================== </TABLE> <TABLE> <CAPTION> COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I - ---------------------------------- ------------- ---------------- ------------ -------- ---------------------- at close of period Life on which Accumulated Date depreciation in latest Depreciation and of Date income statements Descriptions Total Amortization Construction Acquired is computed - ---------------------------------- ------------- ---------------- ------------ -------- ---------------------- <S> <C> <C> <C> <C> <C> MAGRUDERS (Maryland) 9,824,000 466,000 1955 12/17/97 35 years MASSACHUSETTS RETAIL BLDG (1) 3,988,000 382,000 1930 09/07/95 35 years MID PIKE PLAZA (Maryland) 16,643,000 8,318,000 1963 05/18/82 35 years NEW JERSEY RETAIL BUILDING (1) 3,259,000 442,000 1940 08/16/95 35 years NEW YORK RETAIL BUILDINGS (4) 25,945,000 921,000 1937-1987 12/16/97 35 years NORTHEAST (Pennsylvania) 21,063,000 9,185,000 1959 08/30/83 35 years NORTH LAKE COMMONS (Illinois) 12,944,000 1,935,000 1989 04/27/94 35 years OLD KEENE MILL (Virginia) 5,041,000 2,825,000 1968 06/15/76 33 1/3 years OLD TOWN CENTER (California) 31,746,000 1,426,000 1997-1998 10/22/97 35 years PAN AM SHOPPING CENTER (Virginia) 24,227,000 4,853,000 1979 02/05/93 35 years PARK & SHOP (District of Columbia) 11,698,000 1,131,000 1930 12/01/95 35 years PERRING PLAZA (Maryland) 23,888,000 9,383,000 1963 10/01/85 35 years PIKE 7 (Virginia) 33,055,000 2,650,000 1968 03/31/97 35 years QUEEN ANNE PLAZA (Massachusetts) 14,649,000 2,640,000 1967 12/23/94 35 years QUINCE ORCHARD PLAZA (Maryland) 17,362,000 4,684,000 1975 04/22/93 35 years ROLLINGWOOD APTS. (Maryland) 6,660,000 5,712,000 1960 01/15/71 25 years RUTGERS (New Jersey) 15,817,000 5,360,000 1973 12/12/88 35 years SAUGUS (Massachusetts) 12,970,000 1,085,000 1976 10/01/96 35 years SHIRLINGTON (Virginia) 29,564,000 2,609,000 1940 12/21/95 35 years TEXAS RETAIL BUILDINGS (11) 33,185,000 34,000 var 1998-1999 35 years TOWER (Virginia) 17,835,000 738,000 1953-1960 08/24/98 35 years TROY (New Jersey) 20,244,000 9,725,000 1966 07/23/80 22 years TYSONS STATION (Virginia) 3,133,000 2,171,000 1954 01/17/78 17 years UPTOWN (Oregon) 16,398,000 615,000 1913-1959 09/26/97 35 years WILDWOOD (Maryland) 15,572,000 5,686,000 1958 05/05/69 33 1/3 years WILLIAMSBURG (Virginia) 13,520,000 5,059,000 1961 04/30/86 35 years WILLOW GROVE (Pennsylvania) 25,421,000 10,265,000 1953 11/20/84 35 years WILLOW LAWN (Virginia) 59,014,000 22,008,000 1957 12/05/83 35 years WYNNEWOOD (Pennsylvania) 33,866,000 2,900,000 1948 10/29/96 35 years DEVELOPMENT PROJECTS: PENTAGON ROW (Virginia) 39,809,000 1998 WOODMONT EAST (Bethesda, MD) 25,495,000 06/03/97 TANASBOURNE (Oregon) 13,553,000 2000 SANTANA ROW (California) 96,767,000 585,000 03/05/97 35 years -------------- ------------ TOTALS $1,854,913,000 $351,258,000 ============== ============ </TABLE> F29
FEDERAL REALTY INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED Three Years Ended December 31, 2000 Reconciliation of Total Cost ---------------------------------- <TABLE> <S> <C> Balance, January 1, 1998 $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 Additions during period Acquisitions 26,355,000 Improvements 95,148,000 Deduction during period - disposition of property and miscellaneous retirements and impairments (42,180,000) -------------- Balance, December 31, 1999 1,721,459,000 Additions during period Acquisitions 26,794,000 Improvements 156,021,000 Deduction during period - disposition of property and miscellaneous retirements (49,361,000) -------------- $1,854,913,000 ============== Balance, December 31, 2000 </TABLE> (A) For Federal tax purposes, the aggregate cost basis is approximately $1,651,062,000 as of December 31, 2000. F30
FEDERAL REALTY INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED Three Years Ended December 31, 2000 Reconciliation of Accumulated Depreciation and Amortization ------------------------------------------------------------------ <TABLE> <S> <C> Balance, January 1, 1998 $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 Additions during period Depreciation and amortization expense 46,133,000 Deductions during period - disposition of property and miscellaneous retirements (14,265,000) ------------ Balance, December 31, 1999 317,921,000 Additions during period Depreciation and amortization expense 49,176,000 Deductions during period - disposition of property, miscellaneous retirements and acquisition of minority interest (15,839,000) ------------ Balance, December 31, 2000 $351,258,000 ============ </TABLE> F31
FEDERAL REALTY INVESTMENT TRUST SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE Year Ended December 31, 2000 <TABLE> <CAPTION> Column A Column B Column C Column D Column E Column F Column G - -------------------- --------------- ----------------- ------------------- ------------- -------------- --------------- Carrying Periodic Payment Face Amount Amount of Description of Lien Interest Rate Maturity Date Terms Prior Liens of Mortgages Mortgages(1) - ------------------- --------------- ----------------- ------------------- ------------- -------------- --------------- <S> <C> <C> <C> <C> <C> <C> Leasehold mortgage 10% December 2003 Interest only --- $10,000,000 $10,000,000 (2) on shopping monthly; $10,000,000 center in New Jersey balloon payment due at maturity Mortgages on retail 10% February 2001 Interest only monthly; --- 5,352,000 5,352,000 buildings in balloon payment due Pennsylvania at maturity Land in San Jose, 10% December 2003 Interest only monthly; --- 5,250,000 5,250,000 California balloon payment due at maturity Mortgage on 10% March 2001 Interest only --- 4,020,000 3,227,000(3) shopping center monthly; balloon payment in New Jersey due at maturity Mortgage on retail Greater of May 2021 Interest only --- 25,000,000 11,112,000(4) buildings in prime plus monthly; balloon payment Philadelphia 2% or 10% due at maturity Mortgage on retail 10% plus May 2021 Interest only; balloon --- 9,250,000 9,250,000 buildings in participation payment due at maturity Philadelphia Mortgage on land in 10% plus July 2001 None. Balloon and --- 2,569,000 3,169,000 Santa Monica, participation accrued interest due at plus accrued California maturity interest and development cost ------- ----------- ------------ --- $61,441,000 $47,360,000 ======= =========== ============ </TABLE> 1) For Federal tax purposes, the aggregate tax basis is approximately $47,360,000 as of December 31, 2000. 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, 2000, $3,227,000 was outstanding. 4) This mortgage is available for up to $25,000,000. F32
FEDERAL REALTY INVESTMENT TRUST SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE - CONTINUED Three Years Ended December 31, 2000 Reconciliation of Carrying Amount ---------------------------------------- <TABLE> <S> <C> Balance, January 1, 1998 $ 38,360,000 Additions during period Issuance of loan 21,375,000 Deductions during period Collection of loan (8,581,000) ------------- Balance, December 31, 1998 51,154,000 Additions during period Issuance of loan 2,516,000 Deductions during period Collection of loan (175,000) ------------- Balance, December 31, 1999 53,495,000 Additions during period Issuance of loans 5,701,000 Deductions during period Collections and satisfaction of loans (11,836,000) ------------- Balance, December 31, 2000 $ 47,360,000 ============= </TABLE> F33