Annual Report (Form 10-K), fiscal year 1994

Item 1. Business ------ -------- Federal Realty Investment Trust is an owner, operator and redeveloper of community and neighborhood shopping centers. The Trust is a self-administered real estate investment trust, founded in 1962, that manages, leases and supervises renovation of its properties. The Trust consolidates the financial statements of one wholly owned subsidiary, nine partnerships, and a joint venture. At December 31, 1994 the Trust owned 53 retail properties, primarily community and neighborhood centers, and one apartment complex. The Trust's properties are located primarily on the east coast between the New York metropolitan area and Richmond, Virginia.
The Trust operates in a manner intended to enable it to qualify as a real estate investment trust (REIT) under Sections 856-860 of the Internal Revenue Code. Under those sections, a REIT which distributes at least 95% of its real estate investment trust taxable income to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. The Trust intends to continue to qualify and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for Federal income taxes is required.
An important part of the Trust's strategy is to acquire older, well-located centers and to enhance their operating performance through a program of renovation, expansion, re-configuration, re-leasing and re- merchandising. The Trust has focused primarily on community and neighborhood shopping centers that are anchored by supermarkets, drug stores or high volume, value oriented retailers that provide consumer necessities. The Trust's shopping center leases typically are structured to include minimum rents and percentage rents based on tenants' sales volumes and reimbursement of operating and real estate tax expenses.
The Trust's real estate portfolio has increased from 43 properties as of January 1990 to 54 properties as of December 31, 1994. During this five year period the Trust acquired 13 shopping centers and one retail building, containing approximately 2.5 million square feet, at a cost of $191.5 million and sold three shopping centers containing 460,000 square feet. Three of these acquisitions were in the Chicago, Illinois area and two were in the Boston, Massachusetts area, both of which are new markets for the Trust. During this same period the Trust spent over $150 million to renovate, expand and improve its properties. One of the shopping centers acquired during the last five years was acquired by means of capital and ground leases, while the remainder were acquired primarily with cash. This growth was financed through borrowing and equity offerings, since each year the Trust has distributed all or the majority of its cash provided by operating activities to its shareholders.
At December 31, 1994, the Trust's 53 retail properties contain approximately 11.2 million net rentable square feet, with approximately 1,500 tenants who provide a wide range of retail products and services. These tenants range from sole proprietorships to national retailers. Fifteen of the shopping centers are located in the Maryland and Virginia suburbs of Washington, D.C., eleven are in Pennsylvania, nine are in New Jersey, three are in Virginia, two are in the Baltimore, Maryland suburbs, four are in Illinois, two are in Massachusetts, and there is one in each of the following, North Carolina, Michigan, Georgia, New York, Tennessee, and Louisiana. In addition, the Trust owns one retail building in Westport, Connecticut and one 282 unit apartment development located in Silver Spring, Maryland. No single property or tenant accounted for more than 10% or 5%, respectively, of the Trust's revenues.
An important part of the Trust's investment strategy has been and will continue to be to acquire older, well-located shopping centers in its core major metropolitan markets of New York/New Jersey, Philadelphia and Baltimore/Washington, D.C. as well as its newer Chicago and Boston markets and to enhance their revenue potential through a program of renovation, re-leasing and re-merchandising. In addition the Trust is planning to acquire retail buildings in densely developed urban and suburban areas (main street retail), in order to capitalize on the demand by retailers for space in these areas. In December 1994 the Trust formed Street Retail, Inc., a wholly owned subsidiary organized as a Maryland corporation, to own and operate these types of properties. The Trust is also looking for sites in its core markets, which are suitable for the development of new shopping centers. During the years ended December 31, 1994, 1993, and 1992, shopping centers have contributed 95%, 94% and 92%, respectively, of the Trust's total revenue.
The Trust is currently limited to investing east of the Mississippi River; to change this limitation requires Trustee approval. Investments are not required to be based on specific allocation by type of property. The extent to which the Trust may mortgage or otherwise finance investments varies with the investment involved and the economic climate.
The success of the Trust depends upon, among other factors, the trends of the economy,including interest rates, construction costs, retailing trends, income tax laws, increases or decreases in operating expenses and, governmental regulations, population trends, zoning laws, legislation and the ability of the Trust to keep its properties leased at profitable levels. The Trust competes for tenants with other real estate owners and the Trust's properties account for only a small fraction of the shopping centers available for lease. The Trust competes for investment opportunities and mortgage financing with individuals, partnerships, corporations, financial institutions, life insurance companies, pension funds and trust funds. The Trust regularly reviews its portfolio and from time to time considers the sale of certain of its properties.
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 properties, the owner or operator of the property may be held liable for costs and liabilities relating to such hazardous substances. The Trust's current policy is to obtain an environmental study on each property it seeks to acquire. On recent acquisitions, any substances identified prior to closing which present an immediate environmental hazard have been or are in the process of remediation. Costs related to the abatement of asbestos which increase the value of Trust properties are capitalized. Other costs are expensed. In 1994 approximately $1.4 million, of which $1.0 million was capitalized abatement costs, was spent on environmental matters. The Trust has budgeted approximately $1.5 million for 1995 for environmental matters, a majority of which is projected for asbestos abatement. (See Note 6 of Notes to Consolidated Financial Statements.)
Current Developments -------------------- During 1994, the Trust purchased four shopping centers totaling 469,000 square feet. The shopping centers are Idylwood Plaza in Falls Church, Virginia, North Lake Commons in Lake Zurich, Illinois, Garden Market Shopping Center in Western Springs, Illinois and Queen Anne Plaza in Norwell, Massachusetts. In addition, in April 1994 the Trust purchased a 3.9 acre parcel of land, underlying an Acme supermarket, which adjoins its Bala Cynwyd Shopping Center in Bala Cynwyd, Pennsylvania. In December 1994 the Trust purchased a 16,000 square foot retail building in Westport, Connecticut. These properties were acquired for a total price of $49.4 million.
In February 1995, the Trust purchased a 6,800 square foot retail building in downtown Greenwich, Connecticut for $2.0 million. This is the Trust's second main street retail property.
The Trust continued its strategy of renovating, expanding and reconfiguring its centers in 1994, spending approximately $42.3 million. These improvements included $15.5 million on the renovation and expansion of Congressional Plaza in Rockville, Maryland, $4.1 million to complete
the redevelopment of Ellisburg Circle Shopping Center in Cherry Hill, New Jersey, and $3.9 million to begin the redevelopment and retenanting of Gaithersburg Square Shopping Center in Gaithersburg, Maryland.
The Trust funded its 1994 acquisition, redevelopment projects and major debt repayment requirements through a variety of equity and debt issues. In April 1994 the Trust raised net proceeds of $61.3 million from a public offering of 2.5 million shares. In a concurrent offering of 840,000 shares to an institutional investor, the Trust raised net proceeds of $21.7 million. In January 1994 the Trust placed a $22.5 million one year mortgage on Northeast Plaza in Atlanta, Georgia.
In October 1994, the Trust modified its unsecured medium-term revolving credit facilities with four banks, increasing the Trust's access to funds from $85.0 million to $130.0 million. The Trust had $54.7 million drawn under these facilities at December 31, 1994. The facilities have covenants requiring a minimum shareholders' equity and a maximum ratio of debt to net worth.
In April 1994, $39.8 million of the Trust's 5 1/4% convertible subordinated debentures due 2002 were redeemed at a price equal to 120% of their principal amount or $47.8 million.
In January 1995 the Trust issued $100.0 million of 8 7/8% Senior Notes. The senior notes, which pay interest semi-annually on January 15 and July 15, mature January 15, 2000. Proceeds from this borrowing were used to repay amounts drawn on the Trust's revolving credit facilities and to repay the $22.5 million mortgage on Northeast Plaza.
At December 31, 1994 the Trust had 204 full-time employees.
Item 3.




Item 3. Legal Proceedings. ------ ----------------- None
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders ------ --------------------------------------------------- None
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. ------ -------------------------------------------------------------
Market Quotations
Dividends Quarter ended High Low Paid ------------- ---- --- ---------
December 31, 1994 $23 3/4 $19 5/8 $.395 September 30, 1994 26 1/8 21 .39
June 30, 1994 25 7/8 23 1/2 .39
March 31, 1994 29 1/2 23 .39
December 31, 1993 $29 7/8 $24 1/8 $.39 September 30, 1993 30 1/4 25 1/2 .385
June 30, 1993 28 7/8 24 3/4 .385
March 31, 1993 29 23 7/8 .385
The number of holders of record for Federal Realty's common shares of beneficial interest at December 31, 1994 was 4,549.
Dividends declared per quarter during the last two fiscal years were as follows:
Quarter Ended 1994 1993 ------------- ----- -----
March 31 $.39 $.385 June 30 .39 .385
September 30 .395 .39
December 31 .395 .39
The Trust's common shares of beneficial interest are listed on the New York Stock Exchange.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources ------------------------------- Federal Realty meets its liquidity requirements through net cash provided by operating activities, long term borrowing through debt offerings and mortgages, medium and short term borrowing under revolving credit facilities, and equity offerings. Because all or a significant portion of the Trust's net cash provided by operating activities is distributed to shareholders, capital outlays for property acquisitions, renovation projects and debt repayments require funding from borrowing or equity offerings.
During the period 1992 through 1994 the Trust acquired twelve shopping centers, one retail building, the land underlying one of its existing shopping centers and a parcel of land adjoining another of its centers. In addition, several centers underwent major renovation while general improvements and tenant work were done at many of the others.
During 1994 the Trust purchased four shopping centers and one retail building, Idylwood Plaza in Falls Church, Virginia, North Lake Commons in Lake Zurich, Illinois, Garden Market Shopping Center in Western Springs, Illinois, Queen Anne Plaza in Norwell, Massachusetts and the Ship's Building in Westport, Connecticut. In addition, the Trust purchased a 3.9 acre parcel of land, on which there is an Acme supermarket, which adjoins its Bala Cynwyd Shopping Center. These properties were acquired for a total cash investment of $49.4 million.
During 1994, $42.3 million was expended on improvements to Trust properties. These improvements included $15.5 million on the renovation and expansion of Congressional Plaza in Rockville, Maryland, $4.1 million to complete the redevelopment of Ellisburg Circle Shopping Center in Cherry Hill, New Jersey, and $3.9 million to begin the redevelopment and retenanting of Gaithersburg Square Shopping Center in Gaithersburg, Maryland.
In 1993 the Trust spent $101.8 million to acquire six shopping centers (Gaithersburg Square and Quince Orchard Shopping Centers in Gaithersburg, Maryland, Pan Am Shopping Center in Fairfax, Virginia, Crossroads Shopping Center in Highland Park, Illinois, Bala Cynwyd Shopping Center in suburban Philadelphia, Pennsylvania, and Dedham Plaza in Dedham, Massachusetts), $6.2 million in connection with the long term lease of Bethesda Row in Bethesda, Maryland, and $34.3 million in improvements to its properties. In 1992 the Trust acquired the Ellisburg Circle Shopping Center in Cherry Hill, New Jersey for $15.3 million and the land underlying Wildwood Shopping Center, which had been subject to a ground lease, for $9.1 million. Improvements to Trust properties totalled $15.2 million in 1992.
These acquisitions and improvements, as well as debt repayment requirements, were funded through a variety of equity and debt issues. In
April 1994 the Trust raised net proceeds of $61.3 million from a public offering of 2.5 million common shares of beneficial interest ("shares"). In a concurrent offering of 840,000 shares to an institutional investor, the Trust raised net proceeds of $21.7 million. In April 1993, 2.8 million shares were issued in a public offering, netting proceeds of $72.8 million. In December 1993 another 220,000 shares were issued for $5.4 million in a private placement in connection with the long term lease of Bethesda Row. In June 1992, 3.4 million shares were sold in a public offfering, raising net proceeds of $66.5 million.
In March 1992 the Trust exchanged $22.6 million principal amount of its 5 1/4% convertible subordinated debentures due 2002 for 1.3 million shares. Another $21.2 million principal amount of these debentures was retired in 1992 when they were repurchased by the Trust. The Trust purchased an additional $3.7 million of these debentures in 1993 and in April 1994, $39.8 million of the debentures were redeemed at a price equal to 120% of their principal amount or $47.8 million.
The Trust called its 8 3/4% convertible subordinated debentures and its 8.65% Senior Notes for redemption in 1993. The Trust redeemed $173,000 principal amount of the 8 3/4% debentures at a price of $1017.50 per debenture on March 15; the balance of the debentures that had been outstanding or $2.2 million were converted into shares. The senior notes were redeemed on May 14, at a price of $1010 for a total redemption price of $50.5 million.
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, which mature in 2003, are convertible into shares at $36 per share.
In 1992 the Trust placed a $30.0 million mortgage, initially bearing interest at 8 1/4%, on Federal Plaza. In November 1994 the Trust spent $4.2 million to exercise the option to purchase the land at Northeast Shopping Center, $3.4 million of which had been recorded as a capital lease obligation. During 1992 and 1993, respectively, $6.3 million and $34.9 million of mortgage obligations were prepaid. In January 1994 a $22.5 million one year mortgage was placed on Northeast Plaza in Atlanta, Georgia. The mortgage was repaid in January 1995.
At December 31, 1994 the Trust had $130 million of unsecured medium term revolving credit facilities with four banks. The facilities require fees and have covenants requiring a minimum shareholders' equity and a maximum ratio of debt to net worth. The Trust uses these facilities to fund acquisitions and other cash requirements until conditions are favorable for issuing equity or long term debt. At December 31, 1994 there was $54.7 million drawn under these facilities, which was the maximum drawn during 1994. Borrowings under these facilities bear interest at LIBOR (London Interbank Offered Rate) plus 85 to 100 basis points; the weighted average interest rate on borrowings during 1994 was 5.6%.
At December 1993 the Trust had $70.0 million of unsecured medium term revolving credit facilities with three banks. The maximum drawn under these facilities in 1993 was $64.1 million and at December 31, 1993, there was $24.4 million outstanding. The weighted average interest rate on borrowing during 1993 was 4.2%. At December 31, 1992 the Trust had a $20.0 million unsecured line of credit available. Interest on borrowings in 1995 are expected to be higher than in 1994 and 1993 as interest rates have risen.
The Trust has budgeted $47.0 million for capital improvements to its properties in 1995. These improvements include: (1) $14.5 million to complete the renovation and expansion of Congressional Plaza; (2) $5.0 million to renovate Brick Plaza, which was deferred from 1994; and (3) $5.2 million to complete the renovation at Gaithersburg Square.
The Trust's long term debt has varying maturity dates and in a number of instances includes balloon payments or other contractual provisions that could require significant repayments during a particular period. The next significant maturity is approximately $41.3 million of mortgage obligations which are due in 1998.
The Trust intends to continue to acquire shopping centers in 1995. Acquisitions are targeted for the Trust's core major metropolitan markets of New York/New Jersey, Philadelphia and Baltimore/Washington, D.C. as well as the Chicago, Illinois and Boston, Massachusetts markets. In addition, the Trust plans to acquire additional retail buildings in densely developed urban and suburban areas, such as the Ship's Building acquired in December 1994. In February 1995 a 6,800 square foot retail building in downtown Greenwich, Connecticut was purchased for $2.0 million. The Trust is also continuing to study site acquisitions in its core markets to permit the Trust to develop shopping centers.
In January 1995 the Trust issued $100 million of 8 7/8% Senior Notes, netting $99.2 million. The notes require interest payments semi- annually on January 15 and July 15 and are due January 15, 2000. Proceeds from the notes were used, in part, to repay the $22.5 million mortgage on Northeast Plaza and to repay amounts outstanding on the credit facilities. In order to protect itself against the risk that the general level of interest rates for such securities would rise before the senior notes were priced, in December 1994 the Trust entered into two interest rate hedge agreements on a total principal amount of $75.0 million. The cost of the agreements, which terminated on January 20, 1995, was $21,000 which will be amortized into interest expense over the life of the notes. In January 1995 the Trust executed an interest rate swap on $25.0 million, whereby the Trust swapped fixed interest payment obligations of 8.136% for a floating rate interest payment of three month LIBOR. Consequently, the Trust will have a floating rate of interest on $25.0 million of the senior notes.
The Trust believes that the combination of the remaining proceeds from the January 1995 senior note offering and the $130 million available under its revolving credit facilities provide it with the liquidity needed
for its 1995 renovation and acquisition plans. The Trust will need to raise equity or issue additional long term debt to meet its longer term capital and debt repayment needs. The Trust believes that the unencumbered value of its properties and its access to the capital markets, as demonstrated by its past success in raising capital, give it the ability to raise the capital, both debt and equity, needed to fund these longer term needs.
Contingencies ------------- The State of New Jersey Division of Taxation has assessed the Trust $364,000 in taxes, penalty and interest for the years 1985 through 1990, since the State has disallowed the dividends paid deduction in computing New Jersey taxable income. The Trust is protesting this assessment since the Trust believes that it is entitled to the deduction. At this time, the outcome of this matter is unknown; however, in a case involving another real estate investment trust, the New Jersey tax court recently ruled that the dividends paid deduction was allowable. However, the State of New Jersey has appealed this ruling.
Included in the Trust's investments is $3.1 million of Olympia and York Senior First Mortgage Notes. The Olympia and York notes were written down during 1992 to management's best estimate of their net realizable value. Interest income on these notes is not being recorded as revenue, but is being treated as a reduction of principal.
As previously reported, certain of the Trust's shopping centers have some environmental contamination. The North Carolina Department of the Environment, Health and Natural Resources ("DEHNR") issued a Notice of Violation ("NOV") against a former dry cleaner tenant at Eastgate Shopping Center in Chapel Hill, North Carolina concerning a spill at the shopping center. As owner of the shopping center, the Trust was named in and received a copy of the NOV. Estimates to remediate the spill range from $300,000 to $500,000. The Trust has entered into an agreement with two previous owners of the shopping center to share the costs to assess and remediate. In 1993 the Trust recorded a liability of $120,000 as its estimated share of the clean up costs.
In 1992 contaminants at levels in excess of New Jersey cleanup standards were identified at a shopping center in New Jersey. The Trust has retained an environmental consultant to investigate the contamination. The Trust is also evaluating whether it has insurance coverage for this matter. At this time, the Trust is unable to determine what the range of remediation costs might be. The Trust has also identified chlorinated solvent contamination at two other properties. In each case, the contamination appears to be linked to the current and/or previous dry cleaner. The Trust intends to look to the responsible parties for any remediation effort. Evaluation of these situations is preliminary and it is impossible, at this time, to estimate the range of remediation costs, if any.
The Trust reserved $2.25 million at closing in 1993 for environmental issues principally associated with Gaithersburg Square Shopping Center. Pursuant to an indemnity agreement entered into with the seller at closing, the Trust agreed to take certain actions with respect to identified chlorinated solvent contamination. The seller indemnified the Trust for certain third party claims and government requirements related to contamination at adjacent properties.
Results of Operations --------------------- The effect of the Trust's recent acquisition, redevelopment and financing transactions is reflected in the Trust's operations. Funds from operations, which is defined as income before depreciation and amortization and extraordinary items less gains on sale of real estate, increased 38% from $30.0 million in 1992 to $41.5 million in 1993 and increased 21% in 1994 to $50.3 million. If funds from operations are adjusted to remove the effect of nonrecurring charges of $1.1 million, funds from operations would have increased 24% in 1994 to $51.3 million. Management believes that funds from operations is an appropriate supplemental measure of the Trust's operating performance because it believes that reductions for depreciation and amortization charges are usually not meaningful in evaluating income producing real estate, which have historically been appreciating assets. The Trust acquires, evaluates and sells income producing properties based upon operating income without taking into account property depreciation and amortization charges. Gains on sale of real estate and extraordinary items are also excluded from this supplemental measure of performance because such amounts are not part of the ongoing operations of the Trust's portfolio. 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.
The Trust's shopping center leases generally provide for minimum rents, with periodic increases. Most shopping center tenants pay a majority of onsite operating expenses. Many leases also contain a percentage rent clause which calls for additional rents based on tenant sales, so that at a given sales volume, if prices increase, so does rental income. These features in the Trust leases reduce the Trust's exposure to higher costs caused by inflation, although inflation has not been significant in recent years.
Rental income, which consists of minimum rent, percentage rent, and cost recoveries, increased 17.8% from $90.0 million in 1992 to $105.9 million in 1993 and 20.9% in 1994 to $128.1 million. If centers acquired and sold in 1992, 1993 and 1994 are excluded, rental income increased 8.7% from 1992 to 1993 and 6.1% from 1993 to 1994. The components of rental income with the greatest change are minimum rent and common area maintenance recovery (CAM recovery).
Minimum rents increased 17.9% from $70.9 million in 1992 to $83.6 million in 1993 and 19.4% in 1994 to $99.9 million. If centers acquired and sold during these years are excluded, minimum rents increased 8.6% from 1992 to 1993. Minimum rents increased 4% from 1993 to 1994, despite
a $350,000 decrease in minimum rents at Congressional Plaza whose occupancy was reduced during its redevelopment in 1994.
CAM recovery on the portfolio, adjusted to remove the effect of properties purchased in 1992, 1993 and 1994, increased from $7.6 million in 1992 to $8.2 million in 1993 to $11.5 million in 1994. These increases correspond to increases in CAM expenses, primarily snow removal, landscaping and security. Real estate tax recovery, after removing the effect of properties purchased during the past three years, showed a slight decline; a major component of this decline was due to lower occupancy and refunds due at Congressional Plaza, which has been under redevelopment.
Other property income, which includes items which tend to fluctuate from period to period, such as utility reimbursements, telephone income, merchant association dues, lease termination fees, late fees and temporary tenant income, increased from $4.7 million in 1992 to $5.5 million in 1993 and to $5.7 million in 1994. Part of the increase was due to the addition of new properties and part was due to the fluctuating nature of the income.
Rental expenses increased from $20.9 million in 1992 to $26.5 million in 1993 to $35.8 million in 1994, which represents 22.1% of property income (rental income plus other income) in 1992, 23.8% in 1993 and 26.8% in 1994. The components of rental expense with the greatest percentage increase in both 1993 and 1994 are repairs and maintenance and other operating expenses and in 1994 ground rent. Snow removal expense, a component of repairs and maintenance, increased from approximately $270,000 in 1992 to approximately $910,000 in 1993 to over $2.4 million in 1994, because of the new properties and because of increased expense on the core portfolio resulting from the harsh weather conditions during the past two winters. Other operating expenses have increased from 4.7% of property income in 1992 to 5.2% in 1993 to 5.8% in 1994 because of increases in bad debt, environmental, marketing and grand opening expenses. Ground rent increased $2.1 million in 1994 over 1993 because of the acquisition of Bethesda Row on December 31, 1993, a large part of which is under ground lease. If rental expenses are adjusted to remove the effect of properties purchased and sold in 1992, 1993 and 1994, rental expenses increased from $20.6 million in 1992 to $24.4 million in 1993 to $26.8 million in 1994. Real estate taxes have declined slightly as a percentage of property income, from 9.4% in 1992 to 9.3% in 1993 to 9.0% in 1994.
Depreciation and amortization charges increased because of the new acquisitions, but also because of depreciation on recent tenant work and property improvements.
Interest income and expense have been affected by the Trust's financing transactions of the past three years. Interest income was $5.5 million in 1992 as compared to $3.9 million in 1993 and $3.9 million in 1994. In 1992 the Trust had higher average cash balances than in 1993 and 1994, since in 1992 the Trust did not have immediate uses for all the
proceeds from public offerings and temporarily invested the proceeds until they were used for acquisitions, renovations and debt repayments. In 1993 and 1994, proceeds from debt and equity offerings were used almost immediately to retire debt and to fund acquisitions and renovations.
While total interest expense remained relatively constant in 1993 and 1994, the components have changed. Decreases in interest expense, resulting from the repayment of several mortgages and the senior notes in 1993 and the redemption on April 30, 1994 of the 5 1/4% convertible subordinated debentures due 2002, were offset by increases in interest expense because of the issuance of the 5 1/4% convertible subordinated debentures due 2003, the interest portion of the capital lease payment on Bethesda Row, and interest on increased usage of the revolving credit facilities. The ratio of earnings to fixed charges was 1.50x in 1993 and 1.61x in 1994. The ratio of funds from operations to fixed charges was 2.29x in 1993 and 2.52x in 1994.
Interest expense decreased from $35.2 million in 1992 to $31.6 million in 1993, reflecting the redemption in 1993 of the senior notes and 8 3/4% convertible subordinated debentures, the reduction in the 5 1/4% convertible subordinated debentures due 2002 and the prepayment of various mortgages, partially offset by the interest expense on the revolving credit facilities and interest on the 5 1/4% convertible subordinated debentures due 2003.
Administrative expenses are increasing as the Trust grows and as it seeks new acquisition and development opportunities. Administrative expenses as a percentage of property income have gone from 4.3% in 1992 to 4.2% in 1993 to 5.0% in 1994. A major component of the increase in 1994 over 1993 was an increase in costs connected with the review and analysis of potential property acquisitions which were not purchased.
Other charges consists of three nonrecurring items in 1994. During the third quarter of 1994 the Trust wrote down a mortgage note receivable and accrued interest thereon, totalling $758,000. The mortgage note was issued in 1982 in connection with the sale by the Trust of a shopping center in Delaware. Although the Trust will continue to pursue payment of the mortgage note, due to the current cash flow of the collateral property, collectibility is uncertain. During the fourth quarter of 1994, the Trust recognized an unrealized loss of $449,000 on an investment in common shares of another real estate investment trust that it has held since 1989, since it appears that its decline in value is permanent. These two losses were partially offset by a $152,000 recovery of a legal settlement paid in 1987. In 1992 other charges consisted of a $960,000 writedown of an investment in Olympia and York notes, partially offset by the recovery of another portion of the legal settlement paid in 1987.
Income before gain on sale of real estate and extraordinary item increased from $7.0 million in 1992 to $16.1 million in 1993 to $20.5 million in 1994 reflecting increased revenues from the Trust's
acquisitions, decreased interest expense resulting from its financing activities and growth in the core portfolio.
Gain on sale of real estate is dependent on the extent and timing of sales. The 1992 gain was primarily due to the sale of two shopping centers.
In 1993 the Trust had a net gain of $2.0 million on the early extinguishment of debt, resulting from a $3.1 million gain on the extinguishment of one mortgage, offset by losses on the redemption of the senior notes, convertible subordinated debentures and two other mortgages. In 1992 the Trust had a net loss of $58,000 on the early extinguishment of debt, resulting from the prepayment of two mortgages and the exchange and repurchase of some of its 5 1/4% convertible subordinated debentures due 2002.
As a result of the foregoing items, net income rose from $9.4 million in 1992 to $18.1 million in 1993 to $20.5 million in 1994.
Item 8. Financial Statements and Supplementary Data. ------------------------------------------- Included in Item 14.
Item 9. Disagreements on Accounting and Financial Disclosure. ----------------------------------------------------- None
Part III --------
Item 10. Directors and Executive Officers of the Registrant. --------------------------------------------------
Executive Officers of the Registrant ------------------------------------
The Executive Officers are:
Name Age Position with Trust ---- --- -------------------
Steven J. Guttman 48 President and Chief Executive Officer and Trustee Ron D. Kaplan 32 Vice President-Capital Markets
Catherine R. Mack 50 Vice President-General Counsel and Secretary
Mary Jane Morrow 42 Senior Vice President-Finance and Treasurer Hal A. Vasvari 51 Executive Vice President and Chief Operating Officer
Cecily A. Ward 48 Vice President-Controller Robert S. Wennett 34 Senior Vice President- Acquisitions
Steven J. Guttman has been the Trust's President and Chief Executive Officer since April 1980. Mr. Guttman has been associated with the Trust since 1972, became Chief Operating Officer in 1975 and became a Managing Trustee in 1979.
Ron D. Kaplan joined the Trust in November 1992 as Vice President-Capital Markets. Mr. Kaplan was formerly a Vice President of Salomon Brothers Inc where he was responsible for capital raising and financial advisory services for public and private real estate companies. While at Salomon Brothers, he participated in two of the Trust's debt offerings.
Catherine R. Mack came to the Trust in January 1985 as General Counsel and became a Vice President in February 1986. Before joining the Trust, Ms. Mack was an Assistant United States Attorney for the District of Columbia and, prior to that, an attorney with Fried, Frank, Harris, Shriver and Jacobson in Washington, D.C. where she represented several local real estate entities. She has practiced law since 1974.
Mary Jane Morrow joined the Trust in January 1987 as Vice President-Finance and Treasurer. Before joining Federal Realty, Ms. Morrow was a Partner with Grant Thornton LLP, the Trust's independent accountants. She was with Grant Thornton LLP for over 10 years and has extensive experience in real estate and accounting.
Hal A. Vasvari joined Federal Realty Management, Inc., the Trust's former managing agent, in August 1985 as Executive Vice President. In January 1989, Mr. Vasvari became Executive Vice President- Management of the Trust. In December 1994, Mr. Vasvari was appointed Chief Operating Officer. Prior to August 1985, he was director of leasing for Kravco Co., a developer of shopping malls and shopping centers.
Cecily A. Ward joined the Trust in April 1987 as Controller. Prior to joining the Trust, Ms. Ward, a certified public accountant, was with Grant Thornton LLP, the Trust's independent accountants.
Robert S. Wennett joined the Trust's acquisitions department in April 1986. Prior to joining the Trust, Mr. Wennett was an associate with Chemical Realty Corporation in New York where he was involved in real estate financing for corporate clients.
The schedule identifying Trustees under the caption "Election of Trustees" of the 1995 Proxy Statement is incorporated herein by reference thereto.
Item 11. Executive Compensation. ----------------------- The sections entitled "Summary Compensation Table" and "Aggregated Option Exercises in 1994 and December 31, 1994 Option Values" of the 1995 Proxy Statement are incorporated herein by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------- The section entitled "Ownership of Shares by Trustees and Officers" of the 1995 Proxy Statement is incorporated herein by reference thereto.
Item 13. Certain Relationships and Related Transactions. ---------------------------------------------- The section entitled "Certain Transactions" of the 1995 Proxy Statement is incorporated herein by reference thereto.
Part IV --------
Item 14.Exhibits, Financial Statement Page No. Schedules, and Reports on -------- Form 8-K ------------------------------
(a) 1. Financial Statements -------------------- Report of Independent Certified Public Accountants
Consolidated Balance Sheets- December 31, 1994 and 1993
Consolidated Statements of Operations - years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity - years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows - years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements (Including Selected Quarterly Data) -
(a) 2. Financial Statement Schedules ------------------------------
Schedule III - Summary of Real Estate and Accumulated Depreciation.............. -
Schedule IV - Mortgage Loans on Real Estate ................................... -
Report of Independent Certified Public Accountants......................
(a) 3. Exhibits --------
(3) (i) The Trust's Third Amended and Restated Declaration of Trust dated May 24, 1984, filed with the Commission on July 5, 1984 as Exhibit 4 to the Trust's Registration Statement on Form S-2 (file No. 2-92057) is incorporated herein by reference thereto.
(ii) Bylaws of the Trust, filed with the Commission as an exhibit to the Trust's Current Report on Form 8-K dated February 20, 1985, as most recently amended and filed with the Commission as an exhibit to the Trust's Current Report on Form 8-K dated November 30, 1994, is incorporated herein by reference thereto.
(4) (i) Specimen Share of Beneficial Interest, filed with the Commission on November 23, 1982 as Exhibit 4 to the Trust's Registration Statement on Form S-2 (file No. 2- 80524), is incorporated herein by reference thereto.
(ii) Indenture dated March 15, 1985, relating to the Trust's 8 3/4 % Convertible Subordinated Debentures Due 2010, filed with the Commission on March 1, 1985 as Exhibit 4 (a) (2) to the Trust's Registration Statement on Form S-2 (File No. 2-96136) is incorporated herein by reference thereto.
(iii) Indenture dated April 1, 1986, relating to the Trust's 8.65% Senior Notes due 1996, filed with the commission on March 27, 1986 as exhibit 4 (a) 1 to the Trust's Registration Statement on Form S-3, (File No. 33- 3934) 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) Shareholder Rights Plan, dated April 13, 1989, filed with the Commission as an exhibit to the Trust's Current Report on Form 8-K, dated April 13, 1989, is incorporated herein by reference thereto.
(vi) Indenture dated December 13, 1993, related to the Trust's 8 7/8% Senior Notes, 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) is incorporated herein by reference thereto.
(9) Voting Trust Agreement............................*
(10) (i) Consultancy Agreement with Samuel J. Gorlitz, as amended, filed with the Commission as Exhibit 10 (v) to the Trust's Annual Report on Form 10-K for the year ended December 31, 1983, is incorporated herein by reference 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.
The following documents, 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, 1985, are incorporated herein by reference thereto.
(iv) The Trust's 1985 Non-Qualified Stock Option Plan, adopted on September 13, 1985
The following documents, 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, 1980, have been modified as noted below, and are incorporated herein by reference thereto.
(v) Consultancy Agreement with Daniel M. Lyons dated February 22, 1980, as amended (modified as of December l, 1983, to provide for an annual cost of living increase, not to exceed 10%).
The following documents filed as portions of Exhibit 10 to the Trust's Annual Report on Form 10-K for the year ended December 31, 1988 are incorporated herein by reference thereto:
(vi) The 1988 Share Bonus Plan.
(vii) Amendment No. 3 to Consultancy Agreement with Samuel J. Gorlitz.
The following documents filed with the Commission as portions of Item 6

Item 6 to the Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989 are incorporated herein by reference thereto;
(viii) Executive Agreement between the Trust and Steven J. Guttman, dated April 13, 1989.
(ix) Executive Agreement between the Trust and Catherine R. Mack, dated April 13, 1989.
(x) Executive Agreement between the Trust and Mary Jane Morrow, dated April 13, 1989.
(xi) Executive Agreement between the Trust and Hal A. Vasvari, dated April 13, 1989.
(xii) Employment Agreement between the Trust and Steven J. Guttman, dated April 13, 1989.
(xiii) Employment Agreement between the Trust and Catherine R. Mack, dated April 13, 1989.
(xiv) Employment Agreement between the Trust and Mary Jane Morrow, dated April 13, 1989.
(xv) Employment Agreement between the Trust and Hal A. Vasvari, dated April 13, 1989.
(xvi) Executive Agreement between the Trust and Robert S. Wennett, dated April 13 ,1989, modified January 1, 1990, 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, 1989 is incorporated herein by reference thereto.
(xvii) 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.
(xviii) Employment Agreement between the Trust and Robert S. Wennett, dated January 1, 1992, filed with the Commission as an exhibit to the Trust's Annual Report on Form 10-K for the year ended December 31, 1991 is incorporated herein by reference thereto.
(xix) 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.
(xx) 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.
(xxi) Employment Agreement between the Trust and Cecily A. Ward, dated January 1, 1993, 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.
(xxii) Amendment dated October 1, 1992, to Voting Trust Agreement dated as of March 3, 1989 by and between I. Wolford Berman and Dennis L. Berman filed as an exhibit to the Trust's Annual Report on Form 10-K for the year ended December 31, 1992 is incorporated herein by reference thereto.
(xxiii) 1993 Long-Term Incentive Plan and Certified Resolution Re: Amendment to 1993 Long-Term Incentive Plan, filed with the Commission as portions of Item 6 to the Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, are 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:
(xxiv) Revolving Credit Agreement dated as of September 1, 1993 among Federal Realty Investment Trust and Corestates Bank.
(xxv) Credit Agreement dated as of August 25, 1993 between Federal Realty Investment Trust and First Union National Bank of Virginia.
(xxvi) Revolving Credit Agreement dated as of June 22, 1993 between Federal Realty Investment Trust and Signet Bank/Maryland.
(xxvii) Consulting Agreement between Misner Development and Federal Realty Investment Trust.
(xxviii) Fiscal Agency Agreement dated as of October 28, 1993 between Federal Realty Investment Trust and Citibank, N.A.
(xxix) Credit Agreement dated as of February 11, 1994 between Federal Realty Investment Trust and Mellon Bank as filed as an exhibit to the Trust's Annual Report on Form 10-K for the year ended December 31, 1993 is incorporated herein by reference thereto.
(xxx) 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 to 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.
(xxxi) 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.
The following are filed as exhibits hereto:
(xxxii) Form of Severance Agreement between Federal Realty Investment Trust and Certain of its Officers dated December 31, 1994 is filed herewith as an exhibit.
(xxxiii) Credit Agreement dated as of September 30, 1994 between Federal Realty Investment Trust and First Union National Bank of Virginia is filed herewith as an exhibit.
(xxxiv) Second Amendment to Revolving Credit Agreement dated as of September 30, 1994 between Federal Realty Investment Trust and Corestates Bank is filed herewith as an exhibit.
(xxxv) First Amendment to Credit Agreement dated September 30, 1994 between Federal Realty Investment Trust and Mellon Bank is filed herewith as an exhibit.
(xxxvi) First Amendment to Revolving Credit Agreement dated September 30, 1994 between Federal Realty Investment Trust and Signet Bank/Maryland is filed herewith as an exhibit.
(11) Statement regarding computation of per share earnings.........................................*
(12) Statements regarding computation of ratios.......*
(13) Annual Report to Shareholders, Form 10Q or quarterly report to shareholders...........................*
(18) Letter regarding change in accounting principles.......................................*
(19) Report furnished to security holders.............*
(21) Subsidiaries of the registrant....................
(xxxvii) Articles of Incorporation of Street Retail, Inc. are filed herewith as an exhibit.
(xxxviii) By-Laws of Street Retail, Inc. are filed herewith as an exhibit.
(22) Published report regarding matters submitted to vote of security holders.........................*
(23) Consent of Grant Thornton LLP.....................
(24) Power of attorney................................*
(27) Financial Data Schedule..........................+
(99) Additional exhibits..............................*
(b) Reports on Form 8-K Filed during the Last Quarter ------------------------------------------------- A Form 8-K, dated November 30, 1994, was filed in response to Item 7.