F E D E R A L R E A LT Y I N V E S T M E N T T R U S T A N N U A L R E P O R T 2014
TOMORROW.
DELIVERING
NOW.
Tomorrow’s success requires foresight,
innovation and commitment. By delivering
ground-breaking and successful new mixed-
use properties, and creating enhanced value
through strategic redevelopments of our
core, we have demonstrated that tomorrow’s
success has already begun.
THE POWER OF NOW | FEDERAL REALTY ANNUAL REPORT 2014 [ 4 ]
DEAR SHAREHOLDERS,
Yesterday. Today. Tomorrow. One of the things that I’ve
always found difficult about writing an annual shareholders
letter that reports the results of a particular year (this is my
13th letter), is that the strategy and decisions that had the
most impact on the current year were made in the past—
sometimes as long as a decade ago, or even longer.
Similarly, strategy and decisions that are being made today won’t prove themselves
to be good ones (or not so good ones) until well into the future. Retail real estate
investing and development is just one of those businesses in which being a student
of history is equally important as being a predictor of the future. We are long-term
investors, with a business plan geared toward creating a steady stream of ever-
increasing cash flows and ever-more-valuable real estate, and accordingly, our world
needs to be viewed through a wide lens—one that looks concurrently to the past 10
years as well as the next 10 years. In our business, strategies can’t turn on a dime,
they take years to execute—particularly when they involve the development of great
mixed-use destinations–and so we had better get it right.
Viewed through that long-term historical and prospective lens, we are witnessing
lots of changes in the retail real estate business. We see modifications to
consumers’ shopping habits through their discovery of and excitement over
purchasing online, to retailers’ experimentation with an omni-channel business
model and differing brick-and-mortar space needs, to rapidly increasing offerings
and sophistication among restaurant, theater, health club and other entertainment
concepts. It’s really an exciting and innovative time to be in retail real estate—if
you’re in the right locations with the right product.
With all that change, there is one constant: Location matters—a lot. Throughout your
company’s 52-year history, we have never knowingly settled on an inferior retail
location—never. Areas of the country, and more specifically, particular cities and
communities with significant population density, above-average household income
and education levels, and most importantly, strong barriers to entry that make new
competition difficult, are the consistent threads running through our properties. With
all the changes we are seeing, our business is still one of supply and demand. Our
mantra is to acquire, operate and develop retail locations that, with the right product
offering, create more demand from retailers to be there than there is space to lease.
And while we are proud and protective of what we believe is the highest-quality
shopping center and mixed-use portfolio in the business, continuous pruning
is also a key part of our business. Sometimes, locations and shopping center
configurations that were once in demand become obsolete for one reason or
Continued...
Santana Row, San Jose, CA
THE POWER OF NOW | FEDERAL REALTY ANNUAL REPORT 2014 [ 6 ]
another and no longer fit our business plan of cash flow
and asset value growth. Such was the case in the 2014
sale of our 30% interest in Pleasant Shops in Weymouth,
Massachusetts and our 2015 planned sale of our mixed-
use buildings on Houston Street in San Antonio, Texas.
Proceeds to our company are expected to exceed $55
million, which we plan to reinvest in faster-growing assets
under development.
AN IMPORTANT YEAR IN THE JOURNEY
2014 was a year in which many of the decisions of the
past 10 years began to come to fruition. The first phases
of our multi-billion-dollar mixed-use development pipeline
successfully opened in Somerville, Massachusetts
(Assembly Row) and North Bethesda, Maryland (Pike
& Rose). Partners HealthCare began construction on its
massive 700,000-square-foot office complex on our land
at Assembly Row. Construction was completed on Misora,
our $76 million residential addition to Santana Row, which
was 99% leased by the end of the year. Construction
commenced and the first leases were signed at “The Point”
retail and office development at Plaza El Segundo. These
milestones are even more critical than they initially seem,
because their successful execution paves the way for add-
on phases at these retail locations, which we believe will
create more value for many years to come. In effect, they
validate our decision to ramp up our mixed-use development
effort during the lows of the last economic recession with
communities that are meant to serve open-air shopping
and lifestyle preferences during this decade, and for many
more to come. Yes, 2014 was an incredibly important year
in our strategic journey and positions us very well for cash
flow growth and value creation long into the future.
Misora at Santana Row, San Jose, CA
A FOUNDATIONAL CORE PORTFOLIO
We wouldn’t have been able to pursue that mixed-use
development strategy as aggressively as we have were it
not for what we widely believe to be the highest-quality
core portfolio in the business. And 2014 was another
record year. These properties span the East Coast
from Boston through Florida, the West Coast from San
Francisco to San Diego, with a few in Chicago to round
out the portfolio. In 2014, they generated $455 million
in property operating income—a record, and 4.1% higher
than those same properties produced in 2013. 340 new
leases and renewals of existing leases were executed for
2014 was an incredibly important year
in our strategic journey and positions
us very well for cash flow growth and
value creation for many years to come.
over 1.5 million square feet of space at rents that were, on
average, 16% higher than the rents they replaced, and the
portfolio ended the year at 94.7% occupied. We’ve added
exciting new retailers to our shopping centers—like ivivva,
lululemon’s new concept, and Sprouts Farmers Market,
the healthy-choice specialty food store—and, as always,
invested to maintain our centers in top condition. We’ve
invested over $80 million in our redevelopment program
aimed at modernizing and improving our shopping centers
to better serve today’s consumer shopping preferences. In
short, this business is as healthy as ever, and, surrounded
by superior demographics, these retail locations are well
positioned to continue to perform well into the future.
THE RIGHT CAPITAL STRUCTURE AND
INVESTMENT DECISIONS
Delivering a sustainable, growing dividend relies in no
small measure upon a conservative capital structure built
to withstand inevitable volatility in the capital markets and
to support investment decisions made for the long term.
Over the past several years, we’ve prudently funded over
$1 billion of development, redevelopment and acquisitions
with cash flow from operations, equity and long-term
debt—keeping a strong, A- rated balance sheet that affords
us unparalleled pricing of, and access to, capital. In fact,
this past year we became one of the first REITs ever to
successfully issue 30-year unsecured notes, which priced
at a very attractive fixed coupon of 4.5%. We apply this
same long-term thinking to our investment decisions,
focusing on opportunities that create value and growth in
cash flows for years to come. In addition to our ongoing
developments and redevelopments, we recently announced
the acquisition of San Antonio Center in Mountain View,
California. This infill shopping center, which was originally
built over 20 years ago, comprises 33 acres in what has
become a very dense and affluent area of Silicon Valley.
We couldn’t be more excited about the opportunities to
create value and drive growth at this location in the heart
of one of the most desirable markets in the country.
IN CLOSING
In a constantly changing and evolving retail environment,
the consistency of our outperformance truly stands
apart. Our success begins with a portfolio that has been
assembled over the past 50 years in some of the very
best locations in the country—areas with large, affluent
populations that drive business for our tenants. But that is
only part of the story. Our results are ultimately delivered
by a team of the most creative and talented leasing,
operations, development, legal and finance professionals
in the industry—a team of fellow shareholders with a
singular focus on driving long-term value. Led by a Board
of experienced and knowledgeable Trustees who provide
invaluable insight and perspective, we challenge each other
to continually improve, avoid ever becoming complacent
and always consider where we will be tomorrow and for
years to come. On behalf of each of us, thank you for
your continued support and for the opportunity to be an
important part of your long-term investment portfolio.
Sincerely,
Donald C. Wood | President & CEO
BOARD OF TRUSTEES (from left to right):
JOSEPH S. VASSALLUZZO Chairman, Federal Realty Investment Trust, Former Vice Chairman, Staples, Inc. | JON E. BORTZ Chairman, Chief Executive Officer
and President, Pebblebrook Hotel Trust | KRISTIN GAMBLE President, Flood Gamble Associates, Inc. | DAVID W. FAEDER Managing Partner, Fountain
Square Properties | GAIL P. STEINEL Owner, Executive Advisors | WARREN M. THOMPSON President and Chairman, Thompson Hospitality Corporation |
DONALD C. WOOD President and Chief Executive Officer, Federal Realty Investment Trust
THE POWER OF NOW | FEDERAL REALTY ANNUAL REPORT 2014 [ 8 ]
Properties Delivered:
CREATING
NEW
OPPORTUNITIES
The first phases of our multi-billion-dollar mixed-use
development pipeline successfully opened in Somerville,
Massachusetts (Assembly Row) and North Bethesda,
Maryland (Pike & Rose)… These milestones are even more
critical than they initially seem, because their successful
execution paves the way for add-on phases at these retail
locations, which we believe will create more value for many
years to come..— Donald C. Wood
Assembly Row An eclectic mix of
retail, outlets, restaurants, offices,
entertainment and residences, Assembly
Row opened last summer and quickly
became a regional destination.
THE DAWN OF A
NEW DOWNTOWN
Evan Goldman, Vice President — Development
With a rooftop music venue, chef-driven restaurants, a
world-class theater, office space and luxury apartments,
Pike & Rose has created a vibrant new district in the
heart of Montgomery County, Maryland. Retail in the
first phase of the project is fully committed, and we are
currently underway on phase two, which, among other
things, will showcase Canopy, one of the first hotels in
Hilton’s exciting new brand.
THE POWER OF NOW | FEDERAL REALTY ANNUAL REPORT 2014 [ 10 ]
INNOVATION IN ACTION
We constantly challenge ourselves to deliver a product that
stands apart in a rapidly evolving retail industry. Our assets
meet the unique needs of the urban communities they serve,
creating an experience that will be valued for years to come.
THE OUTLETS AT ASSEMBLY ROW
Who would have thought that outlets with offices,
apartments and great restaurants would work just
three miles from downtown Boston? We did.
Pike & Rose, North Bethesda, MD
IPIC THEATERS
The first theater of its kind in the greater DC
metro area, iPic fits perfectly into Pike & Rose’s
concept of delivering an exceptional and unique
experience for our customers.
Assembly Row, Somerville, MA
Pike & Rose, North Bethesda, MD
Assembly Row, Somerville, MA
THE POWER OF NOW | FEDERAL REALTY ANNUAL REPORT 2014 [ 12 ]
Properties Redeveloped:
ENHANCING
THE CORE
We’ve invested over $80 million in our
redevelopment program aimed at modernizing
and improving our shopping centers to better
serve today’s consumer shopping preferences
... surrounded by superior demographics, these
retail locations are well positioned to continue
to perform well into the future..– Donald C. Wood
Westgate Center, San Jose, CA
The mix of a great location, premium-branded value
retailers, and a bright new renovation has driven
outsized returns and created a new regional draw.
RE-ESTABLISHING
AN ANCHOR
Lance Billingsley
Director – Anchor Tenant Leasing
Core Shopping Center Division
Great locations attract the very best tenants. When Safeway
closed the Genuardi’s chain, we seized the opportunity to
redefine this neighborhood center and create significant
value at Ellisburg Shopping Center in Cherry Hill, NJ.
THE POWER OF NOW | FEDERAL REALTY ANNUAL REPORT 2014 [ 14 ]
IVIVVA ATHLETICA
Lululemon has long been a
tenant in our spaces. When
they were looking for a location
for their new concept, ivivva,
we found a market for them
with the demand and the
demographics that we knew
would help the store succeed.
In 2014, they opened their first
store in Los Angeles County at
Plaza El Segundo.
THE STORIES
We identified an underserved and growing segment
of customers who are seeking more convenient and
accessible living options. The Stories is a new residential
concept in Rockville, Maryland, that offers easy access to
shopping, dining, entertainment and transportation.
The Stories at Congressional Plaza
Rockville, MD
INNOVATION IN ACTION
We pride ourselves on thinking forward, modernizing and improving
our core shopping centers to better serve their communities.
Barracks Road Shopping Center, Charlottesville, VA
BARRACKS ROAD SHOPPING CENTER
We transformed an old gas station into over 8,000 square feet
of exciting, new-to-the market restaurants, creating additional
draw to this already-dominant shopping center in the heart of
Charlottesville, Virginia.
THE POWER OF NOW | FEDERAL REALTY ANNUAL REPORT 2014 [ 16 ]
SAN FRANCISCO
LOS GATOS
SAN JOSE
CALIFORNIA
NORTHERN CALIFORNIA
CHICAGO
ILLINOIS
MASSACHUSETTS
CONNECTICUT
BOSTON
NEW YORK
CONNECTICUT
LONG ISLAND
NEW YORK
NEW JERSEY
CHICAGO
BOSTON
NEW YORK
SUSTAINABILITY
FOR THE FUTURE
With a 50-plus-year history of careful stewardship
of our resources, we have demonstrated that
sustainability is fundamental to long-term success.
Our financial commitment of over $900 million to
sustainable practices has produced significant
returns while protecting our environment.
PENNSYLVANIA
PHILADELPHIA
NEW JERSEY
PHILADELPHIA
MARYLAND
BALTIMORE, MD
SOLAR PANELS
Our Northeast program alone is
expected to reduce our carbon
footprint by over 4,500 tons per year.
CALIFORNIA
PASADENA
SANTA MONICA LOS ANGELES
SAN DIEGO
FLORIDA
BOCA RATON
DAVIE
MARYLAND
VIRGINIA
WASHINGTON, DC
MARYLAND
BALTIMORE
SOUTHERN CALIFORNIA
SOUTH FLORIDA
WASHINGTON, DC
VIRGINIA
WASHINGTON, D.C.
BALTIMORE
MAPPING
OUR SUCCESS
Federal Realty owns 89 high-quality retail and
mixed-use centers, totaling approximately 20
million square feet. The majority of our GLA is
in the nation’s top 20 markets.
In strategically selected locations in the Northeast,
Mid-Atlantic, Florida and California, our properties
benefit from an average annual household income
of $105,000 and an average population of 137,000
within a three-mile radius. We tailor each of our
centers to the dynamic needs and desires of those
surrounding communities.
LED LIGHT BULBS
We use energy-efficient LED lights in many
of our communities’ exteriors and interiors,
as well as our corporate offices.
ZIPCAR
To encourage smarter travel, we have implemented an eco-friendly
car sharing service with dedicated parking.
BOCA RATONFLORIDADAVIETHE POWER OF NOW | FEDERAL REALTY ANNUAL REPORT 2014 [ 18 ]
OUR SUCCESS
CONTINUES
In 2014, we delivered our 47th consecutive year of increased dividends per share–
a record among all REITs and a long-term consistency exceeded by only a handful
of companies in any industry. With our balanced business plan and the growth
opportunities within our portfolio, we look to the years ahead with confidence.
$3.48*
$0..12*
1967
*Annualized Dividends
,
$
4
7
8
0
,
$
4
4
2
6
,
$
3
7
5
9
,
$
3
8
9
6
,
$
5
6
0
9
,
$
5
1
4
9
$
6
6
6
$
6
2
0
$
5
8
0
$
5
0
9
$
5
2
1
$
5
3
7
$
4
7
4
$
4
4
7
$
4
2
7
$
3
6
1
$
3
7
1
$
3
8
1
2009 2010 2011 2012 2013 2014
2009 2010 2011 2012 2013 2014
2009 2010 2011 2012 2013 2014
REAL ESTATE ASSETS
(AT COST, IN MILLIONS)
(AS OF DECEMBER 31)
RENTAL INCOME
(IN MILLIONS)
PROPERTY OPERATING INCOME (1)
(IN MILLIONS)
NOTE: (1) See discussion of calculation in Item 6 “Selected Financial Data” in our Form 10-K
2014
ANNUALIZED TOTAL RETURN COMPARISON (through December 31, 2014)
Federal Realty Investment Trust
FTSE NAREIT Equity REIT Index
S&P 500 Index
NASDAQ Composite Index
1 year
35.21%
28.03%
13.69%
14.80%
2 years
3 years
5 years
10 years
20 years
16.49%
14.75%
22.68%
26.83%
16.90%
16.35%
20.37%
23.66%
18.03%
16.90%
15.45%
17.27%
13.68%
8.31%
7.67%
9.26%
15.69%
11.51%
9.84%
10.49%
Source: Bloomberg | Assumes reinvestment of dividends
THE POWER OF NOW | FEDERAL REALTY ANNUAL REPORT 2014 10-K
FORM 10-K
The Form 10-K includes the Section 302 certifications filed with the SEC. Certain
exhibits to the Form 10-K are not reproduced here, but the Trust will provide them
to you upon request, addressed to Federal Realty Investment Trust, 1626 East
Jefferson Street, Rockville, MD 20852, Attention: Brittany Schmelz, and payment
of a fee covering the Trust’s reasonable expenses for copying and mailing.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO THE SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-07533
FEDERAL REALTY INVESTMENT TRUST
(Exact Name of Registrant as Specified in its Declaration of Trust)
Maryland
(State of Organization)
1626 East Jefferson Street, Rockville, Maryland
(Address of Principal Executive Offices)
52-0782497
(IRS Employer Identification No.)
20852
(Zip Code)
(301) 998-8100
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Shares of Beneficial Interest, $.01 par value per
share, with associated Common Share Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Name of Each Exchange On Which Registered
New York Stock Exchange
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
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
No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes
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.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
(Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of the Registrant's common shares held by non-affiliates of the Registrant, based upon the closing
sales price of the Registrant's common shares on June 30, 2014 was $8.2 billion.
The number of Registrant’s common shares outstanding on February 6, 2015 was 68,664,043.
FEDERAL REALTY INVESTMENT TRUST
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 2014
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission for the Registrant’s 2014
annual meeting of shareholders to be held in May 2015 will be incorporated by reference into Part III hereof.
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Business...........................................................................................................................................................
Risk Factors .....................................................................................................................................................
Unresolved Staff Comments............................................................................................................................
Properties.........................................................................................................................................................
Legal Proceedings ...........................................................................................................................................
Mine Safety Disclosures..................................................................................................................................
Market for Our Common Equity and Related Shareholder Matters and Issuer Purchases of Equity
Securities .........................................................................................................................................................
Selected Financial Data ...................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations..........................
Quantitative and Qualitative Disclosures about Market Risk .........................................................................
Financial Statements and Supplementary Data ...............................................................................................
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure .........................
Controls and Procedures..................................................................................................................................
Other Information............................................................................................................................................
Trustees, Executive Officers and Corporate Governance................................................................................
Executive Compensation .................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters .......
Certain Relationships and Related Transactions, and Trustee Independence..................................................
Principal Accountant Fees and Services..........................................................................................................
3
7
16
16
24
24
25
27
29
49
50
50
50
52
53
53
53
53
53
Exhibits and Financial Statement Schedules...................................................................................................
53
SIGNATURES .........................................................................................................................................................................
54
2
PART I
ITEM 1. BUSINESS
References to “we,” “us,” “our” or the “Trust” refer to Federal Realty Investment Trust and our business and operations
conducted through our directly or indirectly owned subsidiaries.
General
We are an equity real estate investment trust (“REIT”) specializing in the ownership, management, and redevelopment of high
quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected
metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, as well as in California. As of
December 31, 2014, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use
properties which are operated as 89 predominantly retail real estate projects comprising approximately 20.2 million square feet.
In total, the real estate projects were 95.6% leased and 94.7% occupied at December 31, 2014. A joint venture in which we own
a 30% interest owned six retail real estate projects totaling approximately 0.8 million square feet as of December 31, 2014. In
total, the joint venture properties in which we own an interest were 86.1% leased and 82.8% occupied at December 31, 2014.
We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our
dividends per common share for 47 consecutive years.
We were founded in 1962 as a REIT under the laws of the District of Columbia and re-formed as a REIT in the state of
Maryland in 1999. We operate in a manner intended to qualify as a REIT for tax purposes pursuant to provisions of the Internal
Revenue Code of 1986, as amended (the “Code”). Our principal executive offices are located at 1626 East Jefferson Street,
Rockville, Maryland 20852. Our telephone number is (301) 998-8100. Our website address is www.federalrealty.com. The
information contained on our website is not a part of this report and is not incorporated herein by reference.
Business Objectives and Strategies
Our primary business objective is to own, manage, acquire and redevelop a portfolio of high quality retail focused properties
that will:
•
•
•
•
provide increasing cash flow for distribution to shareholders;
generate higher internal growth than the shopping center industry;
provide potential for capital appreciation; and
protect investor capital.
Our portfolio includes, and we continue to acquire and redevelop, high quality retail in many formats ranging from regional,
community and neighborhood shopping centers that often are anchored by grocery stores to mixed-use properties that are
typically centered around a retail component but also include office, residential and/or hotel components.
Operating Strategies
Our core operating strategy is to actively manage our properties to maximize rents and maintain occupancy levels by attracting
and retaining a strong and diverse base of tenants and replacing less relevant, weaker, underperforming tenants with stronger
ones. Our properties are generally located in some of the most densely populated and affluent areas of the country. These strong
demographics help our tenants generate higher sales, which has enabled us to maintain higher occupancy rates, charge higher
rental rates, and maintain steady rent growth, all of which increase the value of our portfolio. Our operating strategies also
include:
•
increasing rental rates through the renewal of expiring leases or the leasing of space to new tenants at higher rental
rates while limiting vacancy and down-time;
• maintaining a diversified tenant base, thereby limiting exposure to any one tenant’s financial or operating difficulties;
• monitoring the merchandising mix of our tenant base to achieve a balance of strong national and regional tenants with
local specialty tenants;
• minimizing overhead and operating costs;
• monitoring the physical appearance of our properties and the construction quality, condition and design of the
buildings and other improvements located on our properties to maximize our ability to attract customers and thereby
generate higher rents and occupancy rates;
developing local and regional market expertise in order to capitalize on market and retailing trends;
•
3
•
•
•
leveraging the contacts and experience of our management team to build and maintain long-term relationships with
tenants, investors and financing sources;
providing exceptional customer service; and
creating an experience at many of our properties that is identifiable, unique and serves the surrounding communities to
help insulate these properties and the tenants at these properties from the impact of on-line retailing.
Investing Strategies
Our investment strategy is to deploy capital at risk-adjusted rates of return that exceed our long-term weighted average cost of
capital in projects that have potential for future income growth and increased value. Our investments primarily fall into one of
the following four categories:
•
•
•
•
renovating, expanding, reconfiguring and/or retenanting our existing properties to take advantage of under-utilized
land or existing square footage to increase revenue;
renovating or expanding tenant spaces for tenants capable of producing higher sales, and therefore, paying higher
rents;
acquiring quality retail and mixed-use properties located in densely populated and/or affluent areas where barriers to
entry for further development are high, and that have possibilities for enhancing operating performance and creating
value through renovation, expansion, reconfiguration and/or retenanting; and
developing the retail portions of mixed-use properties and developing or otherwise investing in non-retail portions of
mixed-use properties we already own in order to capitalize on the overall value created in these properties.
Investment Criteria
When we evaluate potential redevelopment, retenanting, expansion, acquisition and development opportunities, we consider
such factors as:
•
•
•
•
•
•
•
•
•
•
the expected returns in relation to our short and long-term cost of capital as well as the anticipated risk we will face in
achieving the expected returns;
the anticipated growth rate of operating income generated by the property;
the ability to increase the long-term value of the property through redevelopment and retenanting;
the tenant mix at the property, tenant sales performance and the creditworthiness of those tenants;
the geographic area in which the property is located, including the population density and household incomes, as well
as the population and income trends in that geographic area;
competitive conditions in the vicinity of the property, including competition for tenants and the ability of others to
create competing properties through redevelopment, new construction or renovation;
access to and visibility of the property from existing roadways and the potential for new, widened or realigned,
roadways within the property’s trade area, which may affect access and commuting and shopping patterns;
the level and success of our existing investments in the market area;
the current market value of the land, buildings and other improvements and the potential for increasing those market
values; and
the physical condition of the land, buildings and other improvements, including the structural and environmental
condition.
Financing Strategies
Our financing strategies are designed to enable us to maintain an investment grade balance sheet while retaining sufficient
flexibility to fund our operating and investing activities in the most cost-efficient way possible. Our financing strategies
include:
• maintaining a prudent level of overall leverage and an appropriate pool of unencumbered properties that is sufficient
to support our unsecured borrowings;
• managing our exposure to variable-rate debt;
• maintaining an available line of credit to fund operating and investing needs on a short-term basis;
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taking advantage of market opportunities to refinance existing debt, reduce interest costs and manage our debt
maturity schedule so that a significant portion of our debt does not mature in any one year;
selling properties that have limited growth potential or are not a strategic fit within our overall portfolio and
redeploying the proceeds to redevelop, renovate, retenant and/or expand our existing properties, acquire new
properties or reduce debt; and
utilizing the most advantageous long-term source of capital available to us to finance redevelopment and acquisition
opportunities, which may include:
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the sale of our equity or debt securities through public offerings, including our at the market ("ATM") equity
program in which we may from time to time offer and sell common shares, or private placements,
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the incurrence of indebtedness through unsecured or secured borrowings,
the issuance of operating partnership units in a new or existing “downREIT partnership” that is controlled
and consolidated by us (generally operating partnership units in a “downREIT” partnership are issued in
exchange for a tax deferred contribution of property; these units receive the same distributions as our
common shares and the holders of these units have the right to exchange their units for cash or the same
number of our common shares, at our option), or
the use of joint venture arrangements.
Employees
At February 6, 2015, we had 269 full-time employees and 136 part-time employees. None of our employees are represented by
a collective bargaining unit. We believe that our relationship with our employees is good.
Tax Status
We elected to be taxed as a REIT under the federal income tax laws when we filed our 1962 tax return. As a REIT, we are
generally not subject to federal income tax on taxable income that we distribute to our shareholders. Under the Code, REITs are
subject to numerous organizational and operational requirements, including the requirement to generally distribute at least 90%
of taxable income each year. We will be subject to federal income tax on our taxable income (including any applicable
alternative minimum tax) at regular corporate rates if we fail to qualify as a REIT for tax purposes in any taxable year, or to the
extent we distribute less than 100% of our taxable income. We will also generally not qualify for treatment as a REIT for
federal income tax purposes for four years following the year during which qualification is lost. Even if we qualify as a REIT
for federal income tax purposes, we may be subject to certain state and local income and franchise taxes and to federal income
and excise taxes on our undistributed taxable income.
We have elected to treat certain of our subsidiaries as taxable REIT subsidiaries, which we refer to as a TRS. In general, a TRS
may engage in any real estate business and certain non-real estate businesses, subject to certain limitations under the Code. A
TRS is subject to federal and state income taxes. Our TRS activities have not been material.
Governmental Regulations Affecting Our Properties
We and our properties are subject to a variety of federal, state and local environmental, health, safety and similar laws,
including without limitation:
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the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, which we refer
to as CERCLA;
the Resource Conservation & Recovery Act;
the Federal Clean Water Act;
the Federal Clean Air Act;
the Toxic Substances Control Act;
the Occupational Safety & Health Act; and
the Americans with Disabilities Act.
The application of these laws to a specific property that we own depends on a variety of property-specific circumstances,
including the current and former uses of the property, the building materials used at the property and the physical layout of the
property. Under certain environmental laws, principally CERCLA, we, as the owner or operator of properties currently or
previously owned, may be required to investigate and clean up certain hazardous or toxic substances, asbestos-containing
materials, or petroleum product releases at the property. We may also be held liable to a governmental entity or third parties for
property damage and for investigation and clean up costs incurred in connection with the contamination, whether or not we
knew of, or were responsible for, such contamination. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection with the contamination. As the owner or operator
of real estate, we also may be liable under common law to third parties for damages and injuries resulting from environmental
contamination emanating from the real estate. Such costs or liabilities could exceed the value of the affected real estate. The
presence of contamination or the failure to remediate contamination may adversely affect our ability to sell or lease real estate
or to borrow using the real estate as collateral.
Neither existing environmental, health, safety and similar laws nor the costs of our compliance with these laws has had a
material adverse effect on our financial condition or results of operations, and management does not believe they will in the
future. In addition, we have not incurred, and do not expect to incur, any material costs or liabilities due to environmental
contamination at properties we currently own or have owned in the past. However, we cannot predict the impact of new or
changed laws or regulations on properties we currently own or may acquire in the future. We have no current plans for
5
substantial capital expenditures with respect to compliance with environmental, health, safety and similar laws and we carry
environmental insurance which covers a number of environmental risks for most of our properties.
Competition
Numerous commercial developers and real estate companies compete with us with respect to the leasing and the acquisition of
properties. Some of these competitors may possess greater capital resources than we do, although we do not believe that any
single competitor or group of competitors in any of the primary markets where our properties are located are dominant in that
market. This competition may:
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reduce the number of properties available for acquisition;
increase the cost of properties available for acquisition;
interfere with our ability to attract and retain tenants, leading to increased vacancy rates and/or reduced rents; and
adversely affect our ability to minimize expenses of operation.
Retailers at our properties also face increasing competition from online retailers, outlet stores, discount shopping clubs,
superstores, and other forms of sales and marketing of goods and services, such as direct mail. This competition could
contribute to lease defaults and insolvency of tenants.
Available Information
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange
Act”) are available free of charge through the Investors section of our website at www.federalrealty.com as soon as reasonably
practicable after we electronically file the material with, or furnish the material to, the Securities and Exchange Commission, or
the SEC.
Our Corporate Governance Guidelines, Code of Business Conduct, Code of Ethics applicable to our Chief Executive Officer
and senior financial officers, Whistleblower Policy, organizational documents and the charters of our audit committee,
compensation committee and nominating and corporate governance committee are all available in the Corporate Governance
section of the Investors section of our website.
Amendments to the Code of Ethics or Code of Business Conduct or waivers that apply to any of our executive officers or our
senior financial officers will be disclosed in that section of our website as well.
You may obtain a printed copy of any of the foregoing materials from us by writing to us at Investor Relations, Federal Realty
Investment Trust, 1626 East Jefferson Street, Rockville, Maryland 20852.
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ITEM 1A. RISK FACTORS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. Also, documents that
we “incorporate by reference” into this Annual Report on Form 10-K, including documents that we subsequently file with the
SEC will contain forward-looking statements. When we refer to forward-looking statements or information, sometimes we use
words such as “may,” “will,” “could,” “should,” “plans,” “intends,” “expects,” “believes,” “estimates,” “anticipates” and
“continues.” In particular, the below risk factors describe forward-looking information. The risk factors describe risks that may
affect these statements but are not all-inclusive, particularly with respect to possible future events. Many things can happen that
can cause actual results to be different from those we describe. These factors include, but are not limited to the following:
Revenue from our properties may be reduced or limited if the retail operations of our tenants are not successful.
Revenue from our properties depends primarily on the ability of our tenants to pay the full amount of rent and other charges
due under their leases on a timely basis. Some of our leases provide for the payment, in addition to base rent, of additional rent
above the base amount according to a specified percentage of the gross sales generated by the tenants and generally provide for
reimbursement of real estate taxes and expenses of operating the property. Economic conditions may impact the success of our
tenants’ retail operations and therefore the amount of rent and expense reimbursements we receive from our tenants. Demand
for our retail spaces has been strong and while there can be no assurance that this will continue, we remain optimistic given the
trends we have seen over the past few years. However, any reduction in our tenants’ abilities to pay base rent, percentage rent
or other charges on a timely basis, including the filing by any of our tenants for bankruptcy protection, will adversely affect our
financial condition and results of operations. In the event of default by a tenant, we may experience delays and unexpected
costs in enforcing our rights as landlord under lease terms, which may also adversely affect our financial condition and results
of operations.
Our net income depends on the success and continued presence of our “anchor” tenants.
Our net income could be adversely affected in the event of a downturn in the business, or the bankruptcy or insolvency, of any
anchor store or anchor tenant. Anchor tenants generally occupy large amounts of square footage, pay a significant portion of the
total rents at a property and contribute to the success of other tenants by drawing significant numbers of customers to a
property. The closing of one or more anchor stores at a property could adversely affect that property and result in lease
terminations by, or reductions in rent from, other tenants whose leases may permit termination or rent reduction in those
circumstances or whose own operations may suffer as a result. While our anchor tenant space is currently well occupied, we
have seen an overall decrease in the number of tenants available to fill anchor spaces. Therefore, tenant demand for certain of
our anchor spaces may decrease and as a result, we may see an increase in vacancy and/or a decrease in rents for those spaces
that could have a negative impact to our net income.
We may be unable to collect balances due from tenants that file for bankruptcy protection.
If a tenant or lease guarantor files for bankruptcy, we may not be able to collect all pre-petition amounts owed by that party. In
addition, a tenant that files for bankruptcy protection may terminate our lease in which event we would have a general
unsecured claim that would likely be for less than the full amount owed to us for the remainder of the lease term, which could
adversely affect our financial condition and results of operations.
We may experience difficulty or delay in renewing leases or re-leasing space.
We derive most of our revenue directly or indirectly from rent received from our tenants. We are subject to the risks that, upon
expiration or termination of leases, whether by their terms, as a result of a tenant bankruptcy, general economic conditions or
otherwise, leases for space in our properties may not be renewed, space may not be re-leased, or the terms of renewal or re-
lease, including the cost of required renovations or concessions to tenants, may be less favorable than current lease terms and
may include decreases in rental rates. As a result, our net income could be reduced.
The amount of debt we have and the restrictions imposed by that debt could adversely affect our business and financial
condition.
As of December 31, 2014, we had approximately $2.4 billion of debt outstanding. Of that outstanding debt, approximately
$563.7 million was secured by all or a portion of 14 of our real estate projects and approximately $71.6 million represented
capital lease obligations on four of our properties. In addition, we own a 30% interest in a joint venture that had $34.4 million
of debt secured by two properties as of December 31, 2014. Approximately $2.4 billion (99.6%) of our debt as of December 31,
2014 is fixed rate debt, which includes all of our property secured debt, our capital lease obligations and our $275.0 million
term loan as the rate is effectively fixed by two interest rate swap agreements. Our unconsolidated joint venture’s debt of $34.4
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million is also fixed rate debt. Our organizational documents do not limit the level or amount of debt that we may incur. The
amount of our debt outstanding from time to time could have important consequences to our shareholders. For example, it
could:
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require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing
funds available for operations, property acquisitions, redevelopments and other appropriate business opportunities that
may arise in the future;
limit our ability to make distributions on our outstanding common shares and preferred shares;
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• make it difficult to satisfy our debt service requirements;
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require us to dedicate increased amounts of our cash flow from operations to payments on debt upon refinancing or on
our variable rate, unhedged debt, if interest rates rise;
limit our flexibility in planning for, or reacting to, changes in our business and the factors that affect the profitability of
our business;
limit our ability to obtain any additional debt or equity financing we may need in the future for working capital, debt
refinancing, capital expenditures, acquisitions, redevelopments or other general corporate purposes or to obtain such
financing on favorable terms; and/or
limit our flexibility in conducting our business, which may place us at a disadvantage compared to competitors with
less debt or debt with less restrictive terms.
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Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness will depend
primarily on our future performance, which to a certain extent is subject to economic, financial, competitive and other factors
beyond our control. There can be no assurance that our business will continue to generate sufficient cash flow from operations
in the future to service our debt or meet our other cash needs. If we are unable to generate this cash flow from our business, we
may be required to refinance all or a portion of our existing debt, sell assets or obtain additional financing to meet our debt
obligations and other cash needs, including the payment of dividends required to maintain our status as a real estate investment
trust. We cannot assure you that any such refinancing, sale of assets or additional financing would be possible on terms that we
would find acceptable.
We are obligated to comply with financial and other covenants pursuant to our debt obligations that could restrict our
operating activities, and the failure to comply with such covenants could result in defaults that accelerate payment
under our debt agreements.
Our revolving credit facility, term loan and certain series of notes include financial covenants that may limit our operating
activities in the future. We are also required to comply with additional covenants that include, among other things, provisions:
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relating to the maintenance of property securing a mortgage;
restricting our ability to pledge assets or create liens;
restricting our ability to incur additional debt;
restricting our ability to amend or modify existing leases at properties securing a mortgage;
restricting our ability to enter into transactions with affiliates; and
restricting our ability to consolidate, merge or sell all or substantially all of our assets.
As of December 31, 2014, we were in compliance with all of our financial covenants. If we were to breach any of our debt
covenants, including the covenants listed above, and did not cure the breach within any applicable cure period, our lenders
could require us to repay the debt immediately, and, if the debt is secured, could immediately begin proceedings to take
possession of the property securing the loan. Many of our debt arrangements, including our public notes, term loan and our
revolving credit facility, are cross-defaulted, which means that the lenders under those debt arrangements can put us in default
and require immediate repayment of their debt if we breach and fail to cure a default under certain of our other debt obligations.
As a result, any default under our debt covenants could have an adverse effect on our financial condition, our results of
operations, our ability to meet our obligations and the market value of our shares.
Our development activities have inherent risks.
The ground-up development of improvements on real property, as opposed to the renovation and redevelopment of existing
improvements, presents substantial risks. We generally do not look to acquire raw land for future development; however, we do
intend to complete the development and construction of future phases of projects we already own, such as Santana Row in San
Jose, California, Assembly Row in Somerville, Massachusetts, and Pike & Rose in North Bethesda, Maryland. We may
undertake development of these and other projects on our own or bring in third parties if it is justifiable on a risk-adjusted
return basis. We may also choose to delay completion of a project if market conditions do not allow an appropriate return. If
conditions arise and we are not able or decide not to complete a project or if the expected cash flows of our project do not
exceed the book value, an impairment of the project may be required. If additional phases of any of our existing projects or if
any new projects are not successful, it may adversely affect our financial condition and results of operations.
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During 2014, construction on Phase I of both Assembly Row and Pike & Rose continued with portions of both projects opening
in 2014 and the remainder of Phase I of both projects expected to be completed in 2015. Additionally, we plan to proceed with
the development of Phase II at Pike & Rose with construction expected to commence in the first half of 2015. At Santana Row,
we completed and stabilized the new 212 unit residential building and commenced construction in Q4 2014 on a new 225,500
square foot office building. A further discussion of these projects, expected costs, and current status can be found in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations in the "Outlook" subsection.
In addition to the risks associated with real estate investment in general, as described elsewhere and the specific risks above,
the risks associated with our remaining development activities include:
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contractor changes may delay the completion of development projects and increase overall costs;
significant time lag between commencement and stabilization subjects us to greater risks due to fluctuations in the
general economy;
delivery of residential product (both rental units and for sale condominium units) into uncertain residential
environments may result in lower rents or sale prices than underwritten;
substantial amount of our investment is related to infrastructure, the value of which may be negatively impacted if we
do not complete subsequent phases;
failure or inability to obtain construction or permanent financing on favorable terms;
failure or inability to obtain public funding from governmental agencies to fund infrastructure projects, including
expected public funding in connection with our development at Assembly Row;
expenditure of money and time on projects that may never be completed;
the third-party developer of office or other buildings may not deliver or may encounter delays in delivering space as
planned;
difficulty securing key anchor or other tenants may impact occupancy rates and projected revenue;
inability to achieve projected rental rates or anticipated pace of lease-up;
higher than estimated construction or operating costs, including labor and material costs; and
possible delay in completion of a project because of a number of factors, including weather, labor disruptions,
construction delays or delays in receipt of zoning or other regulatory approvals, acts of terror or other acts of violence,
or acts of God (such as fires, earthquakes or floods).
Redevelopments and acquisitions may fail to perform as expected.
Our investment strategy includes the redevelopment and acquisition of high quality, retail focused properties in densely
populated areas with high average household incomes and significant barriers to adding competitive retail supply. The
redevelopment and acquisition of properties entail risks that include the following, any of which could adversely affect our
results of operations and our ability to meet our obligations:
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our estimate of the costs to improve, reposition or redevelop a property may prove to be too low, or the time we
estimate to complete the improvement, repositioning or redevelopment may be too short. As a result, the property may
fail to achieve the returns we have projected, either temporarily or for a longer time;
we may not be able to identify suitable properties to acquire or may be unable to complete the acquisition of the
properties we identify;
we may not be able to integrate an acquisition into our existing operations successfully;
properties we redevelop or acquire may fail to achieve the occupancy or rental rates we project, within the time frames
we project, at the time we make the decision to invest, which may result in the properties’ failure to achieve the returns
we projected;
our pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or
identify necessary repairs until after the property is acquired, which could significantly increase our total acquisition
costs or decrease cash flow from the property; and
our investigation of a property or building prior to our acquisition, and any representations we may receive from the
seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the
property or increase our acquisition cost.
Our ability to grow will be limited if we cannot obtain additional capital.
Our growth strategy is focused on the redevelopment of properties we already own and the acquisition of additional properties.
We believe that it will be difficult to fund our expected growth with cash from operating activities because, in addition to other
requirements, we are generally required to distribute to our shareholders at least 90% of our taxable income each year to
continue to qualify as a REIT for federal income tax purposes. As a result, we must rely primarily upon the availability of debt
or equity capital, which may or may not be available on favorable terms or at all. Debt could include the sale of debt securities
and mortgage loans from third parties. If economic conditions and conditions in the capital markets are not favorable at the
time we need to raise capital, we may need to obtain capital on less favorable terms. Additionally, we cannot guarantee that
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additional financing, refinancing or other capital will be available in the amounts we desire or on favorable terms. Our access to
debt or equity capital depends on a number of factors, including the market’s perception of our growth potential and risk
profile, our ability to pay dividends, and our current and potential future earnings. Depending on the outcome of these factors
as well as the impact of the economic environment, we could experience delay or difficulty in implementing our growth
strategy on satisfactory terms, or be unable to implement this strategy.
Rising interest rates could adversely affect our cash flow and the market price of our outstanding debt and preferred
shares.
Of our approximately $2.4 billion of debt outstanding as of December 31, 2014, approximately $284.4 million bears interest at
variable rates of which $275.0 million is effectively fixed through two interest rate swap agreements. We have a $600.0 million
revolving credit facility, on which no balance is outstanding at December 31, 2014, that bears interest at LIBOR plus 90 basis
points. We may borrow additional funds at variable interest rates in the future. Increases in interest rates would increase the
interest expense on our variable rate debt and reduce our cash flow, which could adversely affect our ability to service our debt
and meet our other obligations and also could reduce the amount we are able to distribute to our shareholders. The interest rate
on our $275.0 million term loan is currently fixed at 2.62% as a result of two interest rate swap agreements. We may enter into
this type of hedging arrangements or other transactions for all or a portion of our variable rate debt to limit our exposure to
rising interest rates. However, the amounts we are required to pay under the term loan and any other variable rate debt to which
hedging or similar arrangements relate may increase in the event of non-performance by the counterparties to any of our
hedging arrangements. In addition, an increase in market interest rates may lead purchasers of our debt securities and preferred
shares to demand a higher annual yield, which could adversely affect the market price of our outstanding debt securities and
preferred shares and the cost and/or timing of refinancing or issuing additional debt securities or preferred shares.
The market value of our debt and equity securities is subject to various factors that may cause significant fluctuations
or volatility.
As with other publicly traded securities, the market price of our debt and equity securities depends on various factors, which
may change from time to time and/or may be unrelated to our financial condition, operating performance or prospects that may
cause significant fluctuations or volatility in such prices. These factors include, among others:
general economic and financial market conditions;
level and trend of interest rates;
our ability to access the capital markets to raise additional capital;
the issuance of additional equity or debt securities;
changes in our funds from operations (“FFO”) or earnings estimates;
changes in our debt or analyst ratings;
our financial condition and performance;
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• market perception of our business compared to other REITs; and
• market perception of REITs, in general, compared to other investment alternatives.
Loss of our key management could adversely affect performance and the value of our common shares.
We are dependent on the efforts of our key management. Although we believe qualified replacements could be found for any
departures of key executives, the loss of their services could adversely affect our performance and the value of our common
shares.
Our performance and value are subject to general risks associated with the real estate industry.
Our economic performance and the value of our real estate assets, and, consequently, the value of our investments, are subject
to the risk that if our properties do not generate revenues sufficient to meet our operating expenses, including debt service and
capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected. As a real
estate company, we are susceptible to the following real estate industry risks:
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economic downturns in general, or in the areas where our properties are located;
adverse changes in local real estate market conditions, such as an oversupply or reduction in demand;
changes in tenant preferences that reduce the attractiveness of our properties to tenants;
zoning or regulatory restrictions;
decreases in market rental rates;
weather conditions that may increase or decrease energy costs and other weather-related expenses;
costs associated with the need to periodically repair, renovate and re-lease space; and
increases in the cost of adequate maintenance, insurance and other operating costs, including real estate taxes,
associated with one or more properties, which may occur even when circumstances such as market factors and
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competition cause a reduction in revenues from one or more properties, although real estate taxes typically do not
increase upon a reduction in such revenues.
Each of these risks could result in decreases in market rental rates and increases in vacancy rates, which could adversely affect
our financial condition and results of operation.
Many real estate costs are fixed, even if income from our properties decreases.
Our financial results depend primarily on leasing space in our properties to tenants on terms favorable to us. Costs associated
with real estate investment, such as real estate taxes, insurance and maintenance costs, generally are not reduced even when a
property is not fully occupied, rental rates decrease, or other circumstances cause a reduction in income from the property. As a
result, cash flow from the operations of our properties may be reduced if a tenant does not pay its rent or we are unable to rent
our properties on favorable terms. Under those circumstances, we might not be able to enforce our rights as landlord without
delays and may incur substantial legal costs. Additionally, new properties that we may acquire or redevelop may not produce
any significant revenue immediately, and the cash flow from existing operations may be insufficient to pay the operating
expenses and debt service associated with such new properties until they are fully occupied.
Competition may limit our ability to purchase new properties and generate sufficient income from tenants.
Numerous commercial developers and real estate companies compete with us in seeking tenants for our existing properties and
properties for acquisition. This competition may:
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reduce properties available for acquisition;
increase the cost of properties available for acquisition;
reduce rents payable to us;
interfere with our ability to attract and retain tenants;
lead to increased vacancy rates at our properties; and
adversely affect our ability to minimize expenses of operation.
Retailers at our properties also face increasing competition from online retailers, outlet stores, discount shopping clubs and
other forms of sales and marketing of goods, such as direct mail. This competition could contribute to lease defaults and
insolvency of tenants. If we are unable to continue to attract appropriate retail tenants to our properties, or to purchase new
properties in our geographic markets, it could materially affect our ability to generate net income, service our debt and make
distributions to our shareholders.
We may be unable to sell properties when appropriate because real estate investments are illiquid.
Real estate investments generally cannot be sold quickly. In addition, there are some limitations under federal income tax laws
applicable to real estate and to REITs in particular that may limit our ability to sell our assets. We may not be able to alter our
portfolio promptly in response to changes in economic or other conditions including being unable to sell a property at a return
we believe is appropriate due to the economic environment. Our inability to respond quickly to adverse changes in the
performance of our investments could have an adverse effect on our ability to meet our obligations and make distributions to
our shareholders.
Our insurance coverage on our properties may be inadequate.
We currently carry comprehensive insurance on all of our properties, including insurance for liability, fire, flood, earthquake,
environmental matters, rental loss and acts of terrorism. All of these policies contain coverage limitations. We believe these
coverages are of the types and amounts customarily obtained for or by an owner of similar types of real property assets located
in the areas where our properties are located. We intend to obtain similar insurance coverage on subsequently acquired
properties.
The availability of insurance coverage may decrease and the prices for insurance may increase as a consequence of significant
losses incurred by the insurance industry and other factors outside our control. As a result, we may be unable to renew or
duplicate our current insurance coverage in adequate amounts or at reasonable prices. In addition, insurance companies may no
longer offer coverage against certain types of losses, such as losses due to terrorist acts and toxic mold, or, if offered, the
expense of obtaining these types of insurance may not be justified. We therefore may cease to have insurance coverage against
certain types of losses and/or there may be decreases in the limits of insurance available. If an uninsured loss or a loss in excess
of our insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the
anticipated future revenue from the property, but still remain obligated for any mortgage debt or other financial obligations
related to the property. We cannot guarantee that material losses in excess of insurance proceeds will not occur in the future. If
any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result
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in large expenses to repair or rebuild the property. Also, due to inflation, changes in codes and ordinances, environmental
considerations and other factors, it may not be feasible to use insurance proceeds to replace a building after it has been
damaged or destroyed. Further, we may be unable to collect insurance proceeds if our insurers are unable to pay or contest a
claim. Events such as these could adversely affect our results of operations and our ability to meet our obligations, including
distributions to our shareholders.
We may have limited flexibility in dealing with our jointly owned investments.
Our organizational documents do not limit the amount of funds that we may invest in properties and assets owned jointly with
other persons or entities. As of December 31, 2014, we held seven predominantly retail real estate projects jointly with other
persons in addition to our joint venture with affiliates of a discretionary fund created and advised by ING Clarion Partners
(“Clarion”) and properties owned in a “downREIT” structure. Additionally, in fourth quarter 2014, we entered into a joint
venture agreement related to the hotel component of Phase II of our Pike & Rose development project. We may make
additional joint investments in the future. Our existing and future joint investments may subject us to special risks, including
the possibility that our partners or co-investors might become bankrupt, that those partners or co-investors might have
economic or other business interests or goals which are unlike or incompatible with our business interests or goals, that those
partners or co-investors might be in a position to take action contrary to our suggestions or instructions, or in opposition to our
policies or objectives, and that disputes may develop with our joint venture partners over decisions affecting the property or the
joint venture, which may result in litigation or arbitration or some other form of dispute resolution. Although as of
December 31, 2014, we held the managing general partnership or membership interest in all of our existing co-investments
(except the hotel investment discussed above) we generally must obtain the consent of the co-investor or meet defined criteria
to sell or to finance these properties. Joint ownership gives a third party the opportunity to influence the return we can achieve
on some of our investments and may adversely affect our ability to make distributions to our shareholders. We may also be
liable for the actions of our co-investors.
On July 1, 2004, we entered into a joint venture with Clarion for purposes of acquiring properties. Although we are the
managing general partner of that entity, we have only a 30% ownership interest in that entity. Our partner’s consent is required
to take certain actions with respect to the properties acquired by the venture and, as a result, we may not be able to take actions
that we believe are necessary or desirable to protect or increase the value of the property or the property’s income stream.
Pursuant to the terms of our partnership, we must obtain our partner’s consent to do the following:
enter into new anchor tenant leases, modify existing anchor tenant leases or enforce remedies against anchor tenants;
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• make certain repairs, renovations or other changes or improvements to properties; and
•
sell or finance the property with secured debt.
Our joint venture with Clarion is subject to a buy-sell provision which is customary for real estate joint venture agreements and
the industry. Either partner may initiate these provisions at any time, which could result in either the sale of our interest or the
use of available cash or borrowings to acquire Clarion’s interest. Our investment in this joint venture is also subject to the risks
described above for jointly owned investments. As of December 31, 2014, this joint venture owned six properties.
Environmental laws and regulations could reduce the value or profitability of our properties.
All real property and the operations conducted on real property are subject to federal, state and local laws, ordinances and
regulations relating to hazardous materials, environmental protection and human health and safety. Under various federal, state
and local laws, ordinances and regulations, we and our tenants may be required to investigate and clean up certain hazardous or
toxic substances released on or in properties we own or operate, and also may be required to pay other costs relating to
hazardous or toxic substances. This liability may be imposed without regard to whether we or our tenants knew about the
release of these types of substances or were responsible for their release. The presence of contamination or the failure to
properly remediate contamination at any of our properties may adversely affect our ability to sell or lease those properties or to
borrow funds by using those properties as collateral. The costs or liabilities could exceed the value of the affected real estate.
We are not aware of any environmental condition with respect to any of our properties that management believes would have a
material adverse effect on our business, assets or results of operations taken as a whole. The uses of any of our properties prior
to our acquisition of the property and the building materials used at the property are among the property-specific factors that
will affect how the environmental laws are applied to our properties. If we are subject to any material environmental liabilities,
the liabilities could adversely affect our results of operations and our ability to meet our obligations.
We cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws
or regulations will be administered or interpreted or what environmental conditions may be found to exist on the properties in
the future. Compliance with existing and new laws and regulations may require us or our tenants to spend funds to remedy
environmental problems. Our tenants, like many of their competitors, have incurred, and will continue to incur, capital and
12
operating expenditures and other costs associated with complying with these laws and regulations, which will adversely affect
their potential profitability.
Generally, our tenants must comply with environmental laws and meet remediation requirements. Our leases typically impose
obligations on our tenants to indemnify us from any compliance costs we may incur as a result of the environmental conditions
on the property caused by the tenant. If a lease does not require compliance or if a tenant fails to or cannot comply, we could be
forced to pay these costs. If not addressed, environmental conditions could impair our ability to sell or re-lease the affected
properties in the future or result in lower sales prices or rent payments.
The Americans with Disabilities Act of 1990 could require us to take remedial steps with respect to existing or newly
acquired properties.
Our existing properties, as well as properties we may acquire, as commercial facilities, are required to comply with Title III of
the Americans with Disabilities Act of 1990. Investigation of a property may reveal non-compliance with this Act. The
requirements of this Act, or of other federal, state or local laws or regulations, also may change in the future and restrict further
renovations of our properties with respect to access for disabled persons. Future compliance with this Act may require
expensive changes to the properties.
The revenues generated by our tenants could be negatively affected by various federal, state and local laws to which
they are subject.
We and our tenants are subject to a wide range of federal, state and local laws and regulations, such as local licensing
requirements, consumer protection laws and state and local fire, life-safety and similar requirements that affect the use of the
properties. The leases typically require that each tenant comply with all laws and regulations. Failure to comply could result in
fines by governmental authorities, awards of damages to private litigants, or restrictions on the ability to conduct business on
such properties. Non-compliance of this sort could reduce our revenues from a tenant, could require us to pay penalties or fines
relating to any non-compliance, and could adversely affect our ability to sell or lease a property.
Failure to qualify as a REIT for federal income tax purposes would cause us to be taxed as a corporation, which would
substantially reduce funds available for payment of distributions.
We believe that we are organized and qualified as a REIT for federal income tax purposes and currently intend to operate in a
manner that will allow us to continue to qualify as a REIT under the Code. However, we cannot assure you that we will remain
qualified as such in the future.
Qualification as a REIT involves the application of highly technical and complex Code provisions and applicable income tax
regulations that have been issued under the Code. Certain facts and circumstances not entirely within our control may affect our
ability to qualify as a REIT. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be
derived from qualifying rents and certain other income. Satisfying this requirement could be difficult, for example, if defaults
by tenants were to reduce the amount of income from qualifying rents. As a REIT, we must generally make annual distributions
to shareholders of at least 90% of our taxable income. In addition, new legislation, new regulations, new administrative
interpretations or new court decisions may significantly change the tax laws with respect to qualification as a REIT or the
federal income tax consequences of such qualification. Any modification in the tax treatment of REITs could have a significant
adverse impact to our net income.
If we fail to qualify as a REIT:
•
•
•
•
•
•
we would not be allowed a deduction for distributions to shareholders in computing taxable income;
we would be subject to federal income tax at regular corporate rates;
we could be subject to the federal alternative minimum tax;
unless we are entitled to relief under specific statutory provisions, we could not elect to be taxed as a REIT for four
taxable years following the year during which we were disqualified;
we could be required to pay significant income taxes, which would substantially reduce the funds available for
investment or for distribution to our shareholders for each year in which we failed or were not permitted to qualify;
and
we would no longer be required by law to make any distributions to our shareholders.
13
We may be required to incur additional debt to qualify as a REIT.
As a REIT, we must generally make annual distributions to shareholders of at least 90% of our taxable income. We are subject
to income tax on amounts of undistributed taxable income and net capital gain. In addition, we would be subject to a 4% excise
tax if we fail to distribute sufficient income to meet a minimum distribution test based on our ordinary income, capital gain and
aggregate undistributed income from prior years. We intend to make distributions to shareholders to comply with the Code’s
distribution provisions and to avoid federal income and excise tax. We may need to borrow funds to meet our distribution
requirements because:
•
•
our income may not be matched by our related expenses at the time the income is considered received for purposes of
determining taxable income; and
non-deductible capital expenditures, creation of reserves, or debt service requirements may reduce available cash but
not taxable income.
In these circumstances, we might have to borrow funds on terms we might otherwise find unfavorable and we may have to
borrow funds even if our management believes the market conditions make borrowing financially unattractive. Current tax law
also allows us to pay a portion of our distributions in shares instead of cash.
To maintain our status as a REIT, we limit the amount of shares any one shareholder can own.
The Code imposes certain limitations on the ownership of the stock of a REIT. For example, not more than 50% in value of our
outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code)
during the last half of any taxable year. To protect our REIT status, our declaration of trust prohibits any one shareholder from
owning (actually or constructively) more than 9.8% in value of the outstanding common shares or of any class or series of
outstanding preferred shares. The constructive ownership rules are complex. Shares of our capital stock owned, actually or
constructively, by a group of related individuals and/or entities may be treated as constructively owned by one of those
individuals or entities. As a result, the acquisition of less than 9.8% in value of the outstanding common shares and/or a class or
series of preferred shares (or the acquisition of an interest in an entity that owns common shares or preferred shares) by an
individual or entity could cause that individual or entity (or another) to own constructively more than 9.8% in value of the
outstanding capital stock. If that happened, either the transfer of ownership would be void or the shares would be transferred to
a charitable trust and then sold to someone who can own those shares without violating the 9.8% ownership limit.
The Board of Trustees may waive these restrictions on a case-by-case basis. In addition, the Board of Trustees and two-thirds of
our shareholders eligible to vote at a shareholder meeting may remove these restrictions if they determine it is no longer in our
best interests to attempt to qualify, or to continue to qualify, as a REIT. The 9.8% ownership restrictions may delay, defer or
prevent a transaction or a change of our control that might involve a premium price for the common shares or otherwise be in
the shareholders’ best interest.
We cannot assure you we will continue to pay dividends at historical rates.
Our ability to continue to pay dividends on our common shares at historical rates or to increase our common share dividend
rate, and our ability to pay preferred share dividends and service our debt securities, will depend on a number of factors,
including, among others, the following:
•
•
•
•
our financial condition and results of future operations;
the performance of lease terms by tenants;
the terms of our loan covenants; and
our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates.
If we do not maintain or increase the dividend on our common shares, it could have an adverse effect on the market price of our
common shares and other securities. Any preferred shares we may offer in the future may have a fixed dividend rate that would
not increase with any increases in the dividend rate of our common shares. Conversely, payment of dividends on our common
shares may be subject to payment in full of the dividends on any preferred shares and payment of interest on any debt securities
we may offer.
Certain tax and anti-takeover provisions of our declaration of trust and bylaws may inhibit a change of our control.
Certain provisions contained in our declaration of trust and bylaws and the Maryland General Corporation Law, as applicable to
Maryland REITs, may discourage a third party from making a tender offer or acquisition proposal to us. If this were to happen,
it could delay, deter or prevent a change in control or the removal of existing management. These provisions also may delay or
prevent the shareholders from receiving a premium for their common shares over then-prevailing market prices. These
provisions include:
•
the REIT ownership limit described above;
14
•
•
•
•
•
authorization of the issuance of our preferred shares with powers, preferences or rights to be determined by the Board
of Trustees;
special meetings of our shareholders may be called only by the chairman of the board, the chief executive officer, the
president, by one-third of the trustees or by shareholders possessing no less than 25% of all the votes entitled to be
cast at the meeting;
the Board of Trustees, without a shareholder vote, can classify or reclassify unissued shares of beneficial interest,
including the reclassification of common shares into preferred shares and vice-versa;
a two-thirds shareholder vote is required to approve some amendments to the declaration of trust; and
advance-notice requirements for proposals to be presented at shareholder meetings.
In addition, if we elect to be governed by it in the future, the Maryland Control Share Acquisition Law could delay or prevent a
change in control. Under Maryland law, unless a REIT elects not to be subject to this law, “control shares” acquired in a
“control share acquisition” have no voting rights except to the extent approved by shareholders by a vote of two-thirds of the
votes entitled to be cast on the matter, excluding shares owned by the acquirer and by officers or trustees who are employees of
the REIT. “Control shares” are voting shares that would entitle the acquirer to exercise voting power in electing trustees within
specified ranges of voting power. A “control share acquisition” means the acquisition of control shares, with some exceptions.
Our bylaws state that the Maryland control share acquisition law will not apply to any acquisition by any person of our
common shares. This bylaw provision may be repealed, in whole or in part, at any time, whether before or after an acquisition
of control shares, by a vote of a majority of the shareholders entitled to vote, and, upon such repeal, may, to the extent provided
by any successor bylaw, apply to any prior or subsequent control share acquisition.
We may amend or revise our business policies without your approval.
Our Board of Trustees may amend or revise our operating policies without shareholder approval. Our investment, financing and
borrowing policies and policies with respect to all other activities, such as growth, debt, capitalization and operations, are
determined by the Board of Trustees. The Board of Trustees may amend or revise these policies at any time and from time to
time at its discretion. A change in these policies could adversely affect our financial condition and results of operations, and the
market price of our securities.
The current business plan adopted by our Board of Trustees focuses on our investment in high quality retail based properties
that are typically neighborhood and community shopping centers or mixed-use properties, principally through redevelopments
and acquisitions. If this business plan is not successful, it could have a material adverse effect on our financial condition and
results of operations.
Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements that we make,
including those in this Annual Report on Form 10-K. Except as may be required by law, we make no promise to update any of
the forward-looking statements as a result of new information, future events or otherwise. You should carefully review the
above risks and the risk factors.
Natural disasters and severe weather conditions could have an adverse impact on our cash flow and operating results.
Changing weather patterns and climatic conditions, such as global warming, may have added to the unpredictability and
frequency of natural disasters and severe weather conditions and created additional uncertainty as to future trends and
exposures. Our operations are located in areas that are subject to natural disasters and severe weather conditions such as
hurricanes, earthquakes, droughts, snow storms, floods and fires. The occurrence of natural disasters or severe weather
conditions can delay new development projects, increase investment costs to repair or replace damaged properties, increase
operation costs, increase future property insurance costs, and negatively impact the tenant demand for lease space. If insurance
is unavailable to us or is unavailable on acceptable terms, or if our insurance is not adequate to cover business interruption or
losses from these events, our earnings, liquidity or capital resources could be adversely affected.
We face risks relating to cybersecurity attacks that could cause loss of confidential information and other business
disruptions.
We rely extensively on computer systems to process transactions and manage our business, and our business is at risk from and
may be impacted by cybersecurity attacks. These could include attempts to gain unauthorized access to our data and computer
systems. Attacks can be both individual and/or highly organized attempts organized by very sophisticated hacking
organizations. We employ a number of measures to prevent, detect and mitigate these threats, which include password
encryption, frequent password change events, firewall detection systems, anti-virus software in-place, frequent backups, a
redundant data system for core applications and annual penetration testing; however, there is no guarantee such efforts will be
15
successful in preventing a cyber attack. A cybersecurity attack could compromise the confidential information of our
employees, tenants and vendors. A successful attack could disrupt and otherwise adversely affect our business operations.
Changes in accounting standards may adversely impact our financial results.
The Financial Accounting Standards Board ("FASB"), in conjunction with the SEC, has several key projects on their agenda
that could impact how we currently account for our material transactions, including lease accounting and other convergence
projects with the International Accounting Standards Board. At this time, we are unable to predict with certainty which, if any,
proposals may be passed or what level of impact any such proposal could have on the presentation of our consolidated financial
statements, our results of operations and our financial ratios required by our debt covenants.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
General
As of December 31, 2014, we owned or had a majority ownership interest in community and neighborhood shopping centers
and mixed-used properties which are operated as 89 predominantly retail real estate projects comprising approximately 20.2
million square feet. These properties are located primarily in densely populated and affluent communities in strategic
metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, as well as California. No single property
accounted for over 10% of our 2014 total revenue. We believe that our properties are adequately covered by commercial
general liability, fire, flood, earthquake, terrorism and business interruption insurance provided by reputable companies, with
commercially reasonable exclusions, deductibles and limits.
Tenant Diversification
As of December 31, 2014, we had approximately 2,700 leases, with tenants ranging from sole proprietors to major national and
international retailers. No one tenant or affiliated group of tenants accounted for more than 3.1% of our annualized base rent as
of December 31, 2014. As a result of our tenant diversification, we believe our exposure to any one bankruptcy filing in the
retail sector has not been and will not be significant, however, multiple filings by a number of retailers could have a significant
impact.
16
Geographic Diversification
Our 89 real estate projects are located in 13 states and the District of Columbia. The following table shows the number of
projects, the gross leasable area (“GLA”) of commercial space and the percentage of total portfolio gross leasable area of
commercial space in each state as of December 31, 2014.
State
Maryland..................................................................................................
Virginia....................................................................................................
California.................................................................................................
Pennsylvania(1) .......................................................................................
Massachusetts ..........................................................................................
New Jersey...............................................................................................
New York.................................................................................................
Illinois......................................................................................................
Florida......................................................................................................
Connecticut(1) .........................................................................................
Michigan..................................................................................................
Texas........................................................................................................
District of Columbia ................................................................................
North Carolina .........................................................................................
Total ........................................................................................................
Number of
Projects
Gross Leasable
Area
(In square feet)
Percentage
of Gross
Leasable
Area
18
15
13
10
7
6
5
4
3
3
1
1
2
1
89
3,851,000
3,595,000
3,411,000
2,295,000
1,708,000
1,688,000
1,137,000
751,000
698,000
398,000
217,000
172,000
168,000
153,000
20,242,000
19.0 %
17.8 %
16.9 %
11.3 %
8.4 %
8.3 %
5.6 %
3.7 %
3.4 %
2.0 %
1.1 %
0.9 %
0.8 %
0.8 %
100.0%
(1) Additionally, we own two participating mortgages totaling approximately $29.5 million secured by multiple buildings
in Manayunk, Pennsylvania, and an $11.7 million mortgage secured by a shopping center in Norwalk, Connecticut.
Leases, Lease Terms and Lease Expirations
Our leases are classified as operating leases and typically are structured to require the monthly payment of minimum rents in
advance, subject to periodic increases during the term of the lease, percentage rents based on the level of sales achieved by
tenants, and reimbursement of a majority of on-site operating expenses and real estate taxes. These features in our leases
generally reduce our exposure to higher costs and allow us to participate in improved tenant sales.
Commercial property leases generally range from three to ten years; however, certain leases, primarily with anchor tenants,
may be longer. Many of our leases contain tenant options that enable the tenant to extend the term of the lease at expiration at
pre-established rental rates that often include fixed rent increases, consumer price index adjustments or other market rate
adjustments from the prior base rent. Leases on residential units are generally for a period of one year or less and, in 2014,
represented approximately 5.6% of total rental income.
17
The following table sets forth the schedule of lease expirations for our commercial leases in place as of December 31, 2014
for each of the 10 years beginning with 2015 and after 2024 in the aggregate assuming that none of the tenants exercise future
renewal options. Annualized base rents reflect in-place contractual rents as of December 31, 2014.
Year of Lease Expiration
2015............................................................................
2016............................................................................
2017............................................................................
2018............................................................................
2019............................................................................
2020............................................................................
2021............................................................................
2022............................................................................
2023............................................................................
2024............................................................................
Thereafter...................................................................
Total
Lease Rollovers
Leased
Square
Footage
Expiring
1,203,000
1,907,000
2,602,000
2,425,000
2,619,000
1,471,000
1,230,000
1,257,000
909,000
1,002,000
2,547,000
19,172,000
Percentage of
Leased Square
Footage
Expiring
Annualized
Base Rent
Represented by
Expiring Leases
6% $
30,857,000
10%
51,812,000
14%
66,746,000
13%
59,936,000
14%
63,209,000
8%
37,669,000
6%
34,128,000
6%
31,054,000
5%
27,175,000
5%
28,994,000
59,022,000
13%
100% $ 490,602,000
Percentage of
Annualized
Base Rent
Represented by
Expiring Leases
6%
11%
14%
12%
13%
8%
7%
6%
5%
6%
12%
100%
For 2014, we signed leases for a total of 1,765,000 square feet of retail space including 1,545,000 square feet of comparable
space leases (leases for which there was a prior tenant) at an average rental increase of 16% on a cash basis and 29% on a
straight-line basis. New leases for comparable spaces were signed for 704,000 square feet at an average rental increase of 25%
on a cash basis and 38% on a straight-line basis. Renewals for comparable spaces were signed for 840,000 square feet at an
average rental increase of 11% on a cash basis and 23% on a straight-line basis. Tenant improvements and incentives for
comparable spaces were $44.46 per square foot for new leases and $1.27 per square foot for renewals in 2014.
For 2013, we signed leases for a total of 1,629,000 square feet of retail space including 1,370,000 square feet of comparable
space leases (leases for which there was a prior tenant) at an average rental increase of 20% on a cash basis and 33% on a
straight-line basis. New leases for comparable spaces were signed for 586,000 square feet at an average rental increase of 35%
on a cash basis and 51% on a straight-line basis. Renewals for comparable spaces were signed for 784,000 square feet at an
average rental increase of 10% on a cash basis and 21% on a straight-line basis. Tenant improvements and incentives for
comparable spaces were $45.83 per square foot for new leases and $1.70 for renewal leases in 2013.
The rental increases associated with comparable spaces generally include all leases signed in arms-length transactions
reflecting market leverage between landlords and tenants during the period. The comparison between average rent for expiring
leases and new leases is determined by including minimum rent and percentage rent paid on the expiring lease and minimum
rent and in some instances, projections of first lease year percentage rent, to be paid on the new lease. In atypical
circumstances, management may exercise judgment as to how to most effectively reflect the comparability of spaces reported
in this calculation. The change in rental income on comparable space leases is impacted by numerous factors including current
market rates, location, individual tenant creditworthiness, use of space, market conditions when the expiring lease was signed,
capital investment made in the space and the specific lease structure.
The leases signed in 2014 generally become effective over the following two years though some may not become effective until
2017 and beyond. Further, there is risk that some new tenants will not ultimately take possession of their space and that tenants
for both new and renewal leases may not pay all of their contractual rent due to operating, financing or other matters. However,
these increases do provide information about the tenant/landlord relationship and the potential increase we may achieve in
rental income over time.
Historically, we have executed comparable space leases for 1.2 to 1.5 million square feet of retail space each year and expect
that volume for 2015 will be in line with our historical averages with overall positive increases in rental income. However,
changes in rental income associated with individual signed leases on comparable spaces may be positive or negative, and we
can provide no assurance that the rents on new leases will continue to increase at the above disclosed levels, if at all.
18
Retail and Residential Properties
The following table sets forth information concerning all real estate projects in which we owned an equity interest, had a
leasehold interest, or otherwise controlled and are consolidated as of December 31, 2014. Except as otherwise noted, we are the
sole owner of our retail real estate projects. Principal tenants are the largest tenants in the project based on square feet leased or
are tenants important to a project’s success due to their ability to attract retail customers.
Year
Completed
Year
Acquired
Square Feet(1)
/Apartment
Units
Average Rent
Per Square
Foot(2)
Percentage
Leased(3)
Principal Tenant(s)
1908, 1965
1997
104,000
$44.73
98%
H & M
Property, City, State, Zip Code
California
150 Post Street
San Francisco, CA 94108
Colorado Blvd
Pasadena, CA 91103(4)
Crow Canyon Commons
San Ramon, CA 94583
East Bay Bridge
Emeryville & Oakland, CA 94608
Escondido Promenade
Escondido, CA 92029(5)
Hermosa Avenue
Hermosa Beach, CA 90254
Hollywood Blvd
Hollywood, CA 90028(6)
Kings Court
Los Gatos, CA 95032(4)(7)
Old Town Center
Los Gatos, CA 95030
Plaza El Segundo
El Segundo, CA 90245(5)(10)
Santana Row Residential
San Jose, CA 95128
Third Street Promenade
Santa Monica, CA 90401
Westgate Center
San Jose, CA 95129
Connecticut
Bristol Plaza
Bristol, CT 06010
Darien
Darien, CT 06820
1905-1988
1996/1998
69,000
$39.48
100%
1980, 1998,
2006
1994-2001,
2011, 2012
2005/2007
241,000
$22.12
98%
2012
438,000
$15.71
100%
1987
1996/2010
298,000
$23.58
98%
1922
1997
24,000
$36.92
100%
1929, 1991
1999
187,000
$30.53
99%
1960
1998
1962, 1998
1997
80,000
95,000
$31.11
100%
$37.26
98%
2006-2007
2011
380,000
$37.88
99%
Pottery Barn
Banana Republic
Sprouts
Rite Aid
Sports Authority
Home Depot
Michaels
Pak-N-Save
Target
TJ Maxx
Toys R Us
Dick's Sporting Goods
Ross Dress For Less
Marshalls
La La Land
DSW
L.A. Fitness
Fresh & Easy
Lunardi’s Supermarket
CVS
Gap
Banana Republic
Anthropologie
H&M
Anthropologie
Best Buy
HomeGoods
Whole Foods
Dick's Sporting Goods
Container Store
H&M
Crate & Barrel
Container Store
Best Buy
CineArts Theatre
Hotel Valencia
Abercrombie & Fitch
J. Crew
Old Navy
Banana Republic
Nike Factory
Target
Walmart Neighborhood
Market
Burlington Coat Factory
Ross Dress For Less
Michaels
Nordstrom Rack
J. Crew
Gap Factory Store
Santana Row
San Jose, CA 95128
2002, 2009
1997
649,000
$49.44
98%
2003-2006,
2011, 2014
1997, 2012
662 units
N/A
97%
1888-2000
1996-2000
209,000
$69.57
100%
1960-1966
2004
637,000
$16.11
98%
1959
1995
267,000
1920-2009
2013
95,000
$12.89
$28.04
91%
95%
Stop & Shop
TJ Maxx
Stop & Shop
Equinox
19
Property, City, State, Zip Code
Greenwich Avenue
Greenwich Avenue, CT 06830
District of Columbia
Friendship Center
Washington, DC 20015
Sam’s Park & Shop
Washington, DC 20008
Florida
Courtyard Shops
Wellington, FL 33414
Del Mar Village
Boca Raton, FL 33433
Tower Shops
Davie, FL 33324
Illinois
Crossroads
Highland Park, IL 60035
Finley Square
Downers Grove, IL 60515
Garden Market
Western Springs, IL 60558
North Lake Commons
Lake Zurich, IL 60047
Maryland
Bethesda Row
Bethesda, MD 20814(4)
Bethesda Row Residential
Bethesda, MD 20814
Congressional Plaza
Rockville, MD 20852(5)
Congressional Plaza Residential
Rockville, MD 20852(5)
Courthouse Center
Rockville, MD 20852
Federal Plaza
Rockville, MD 20852
Free State Shopping Center
Bowie, MD 20715(9)
Gaithersburg Square
Gaithersburg, MD 20878
Governor Plaza
Glen Burnie, MD 21961
Year
Completed
Year
Acquired
Square Feet(1)
/Apartment
Units
Average Rent
Per Square
Foot(2)
Percentage
Leased(3)
Principal Tenant(s)
1968
1995
36,000
$61.00
100%
Saks Fifth Avenue
1998
2001
119,000
$28.12
100%
Marshalls
DSW
Maggiano’s
Nordstrom Rack
1930
1995
49,000
$40.60
79%
Petco
1990, 1998
2008
130,000
$20.62
99%
Publix
1982, 1994
& 2007
2008/2014
194,000
1989
2011/2014
374,000
$15.53
$18.83
75%
99%
1959
1993
168,000
$21.39
93%
1974
1995
314,000
$11.58
91%
Winn Dixie
CVS
Ulta
Best Buy
DSW
Old Navy
Ross Dress For Less
TJ Maxx
Golfsmith
Guitar Center
L.A. Fitness
Bed, Bath & Beyond
Petsmart
Buy Buy Baby
Mariano's Fresh Market
Walgreens
1958
1989
1994
1994
140,000
$12.68
95%
129,000
$12.18
89%
Jewel Osco
1945-1991
2001, 2008
1993-2006
2008/2010
533,000
$48.08
97%
2008
1965
2003
1975
1970
1993
1965
1965
1997
1989
180 units
N/A
96%
328,000
$35.73
100%
146 units
N/A
35,000
$23.53
93%
67%
248,000
$33.78
100%
1970
2007
279,000
$16.54
87%
1966
1993
207,000
$26.55
91%
1963
1985
242,000
$18.39
97%
Apple Computer
Barnes & Noble
Equinox
Giant Food
Landmark Theater
Buy Buy Baby
Last Call Studio by Neiman
Marcus
Container Store
The Fresh Market
Micro Center
Ross Dress For Less
TJ Maxx
Trader Joe’s
Giant Food
TJ Maxx
Ross Dress For Less
Office Depot
Bed, Bath & Beyond
Ross Dress For Less
Ashley Furniture
HomeStore
Aldi
Dick’s Sporting Goods
20
Property, City, State, Zip Code
Laurel
Laurel, MD 20707
Year
Completed
Year
Acquired
Square Feet(1)
/Apartment
Units
Average Rent
Per Square
Foot(2)
Percentage
Leased(3)
1956
1986
389,000
$22.11
80%
Montrose Crossing
Rockville, MD 20852 (5)(10)
1960-1979,
1996, 2011
2011/2013
363,000
$24.55
99%
Perring Plaza
Baltimore, MD 21134
1963
1985
395,000
$14.23
96%
Pike & Rose
North Bethesda, MD 20852 (12)
1963, 2014
1982/2007/
2012
92,000
$44.96
100%
Principal Tenant(s)
L.A. Fitness
Giant Food
Marshalls
A.C. Moore
Giant Food
Sports Authority
Barnes & Noble
Marshalls
Micro Center
Burlington Coat Factory
Home Depot
Shoppers Food Warehouse
Jo-Ann Stores
iPic Theater
Gap/Gap Kids
The Shoppes at Nottingham Square
Baltimore, MD 21236
2005-2006
2007
Pike & Rose Residential
North Bethesda, MD 20852 (12)
Plaza Del Mercado
Silver Spring, MD 20906(9)
Quince Orchard
Gaithersburg, MD 20877(4)
Rockville Town Square
Rockville, MD 20852 (8)
Rollingwood Apartments
Silver Spring, MD 20910
9 three-story buildings(10)
THE AVENUE at White Marsh
Baltimore, MD 21236(7)(10)
White Marsh Other
Baltimore, MD 21236
White Marsh Plaza
Baltimore, MD 21236
Wildwood
Bethesda, MD 20814(10)
Massachusetts
Assembly Row/
Assembly Square Marketplace
Somerville, MA 02145 (12)
Atlantic Plaza
North Reading, MA 01864(9)
Campus Plaza
Bridgewater, MA 02324(9)
Chelsea Commons
Chelsea, MA 02150(10)
Chelsea Commons Residential
Chelsea, MA 02150
Dedham Plaza
Dedham, MA 02026
Linden Square
Wellesley, MA 02481
North Dartmouth
North Dartmouth, MA 02747
Queen Anne Plaza
Norwell, MA 02061
2014
1982/2007
174 units
N/A
85%
1969
1975
2004
1993
96,000
$35.56
62%
CVS
265,000
$21.86
92%
2006-2007
2006-2007
187,000
$29.82
88%
1960
1971
282 units
N/A
94%
1997
2007
298,000
$24.07
100%
HomeGoods
L.A. Fitness
Staples
CVS
Gold’s Gym
AMC Loews
Old Navy
Barnes & Noble
A.C. Moore
1985
1987
1958
2007
2007
1969
32,000
73,000
80,000
84,000
$46.75
$29.62
100%
100%
$21.70
100%
Giant Food
$90.51
87%
CVS
Balducci’s
2005, 2014
2005-2011,
2013
657,000
$22.49
99%
1960
1970
2004
2004
123,000
116,000
1962-1969,
2008
2006-2008
222,000
$17.10
$14.70
$11.41
88%
100%
100%
AMC Theatres
LEGOLAND Discovery
Center
Saks Fifth Avenue Off 5th
Nike Factory
J. Crew
Legal on the Mystic
Bed, Bath & Beyond
TJ Maxx
Stop & Shop
Roche Brothers
Burlington Coat Factory
Sav-A-Lot
Home Depot
Planet Fitness
2013
1959
2008
1993
56 units
N/A
93%
241,000
$15.92
97%
Star Market
1960, 2008
2006
223,000
$45.64
96%
Roche Brothers
Supermarket
CVS
2004
1967
2006
1994
48,000
$15.71
100%
Stop & Shop
149,000
$16.44
99%
HomeGoods
TJ Maxx
Hannaford
21
Principal Tenant(s)
Kmart
Super Stop & Shop
Bed, Bath & Beyond
Best Buy
Kroger
DSW
Stein Mart
Trader Joe’s
A&P Supermarket
Barnes & Noble
AMC Loews
Sports Authority
Ann Taylor
Banana Republic
Coach
Williams-Sonoma
Whole Foods
Buy Buy Baby
Stein Mart
Raymour & Flanigan
Bed, Bath & Beyond
DSW
TJ Maxx
Shop Rite
Lululemon
Brooks Brothers
Anthropologie
Pottery Barn
J. Crew
Banana Republic
Williams-Sonoma
Pathmark
L.A. Fitness
Island of Gold
Modell's
AMC Loews
Kohl’s
Michaels
Waldbaum’s
Tuesday Morning
Shop Rite
A.C. Moore
Nordstrom Rack
Bed, Bath & Beyond
Buy Buy Baby
Michaels
Property, City, State, Zip Code
Saugus Plaza
Saugus, MA 01906
Michigan
Gratiot Plaza
Roseville, MI 48066
North Carolina
Eastgate
Chapel Hill, NC 27514
New Jersey
Brick Plaza
Brick Township, NJ 08723(4)(10)
Brook 35
Sea Girt, NJ 08750(5)(7)(10)
Ellisburg
Cherry Hill, NJ 08034
Mercer Mall
Lawrenceville, NJ 08648(4)(8)
Year
Completed
Year
Acquired
Square Feet(1)
/Apartment
Units
Average Rent
Per Square
Foot(2)
Percentage
Leased(3)
1976
1996
168,000
$11.66
100%
1964
1973
217,000
$11.59
99%
1963
1986
153,000
$24.15
97%
1958
1989
422,000
$17.12
89%
1986, 2004
2014
98,000
$33.31
94%
1959
1992
268,000
$15.35
1975
2003
501,000
$24.25
97%
98%
The Grove at Shrewsbury
Shrewsbury, NJ 07702(5)(7)(10)
1988, 1993
& 2007
2014
192,000
$41.94
98%
Troy
Parsippany-Troy, NJ 07054
New York
Fresh Meadows
Queens, NY 11365
Greenlawn Plaza
Greenlawn, NY 11743(9)(10)
Hauppauge
Hauppauge, NY 11788(10)
Huntington
Huntington, NY 11746
Huntington Square
East Northport, NY 11731(4)
Melville Mall
Huntington, NY 11747(4)
Pennsylvania
Andorra
Philadelphia, PA 19128
Bala Cynwyd
Bala Cynwyd, PA 19004
1966
1980
207,000
$21.17
99%
1949
1997
404,000
$29.56
100%
1975, 2004
2006
106,000
1963
1998
134,000
$17.38
$27.77
95%
99%
1962
1988/2007
279,000
$25.66
100%
1980, 2007
2010
74,000
$26.67
93%
Barnes & Noble
1974
2006
246,000
$22.49
63%
1953
1988
265,000
$15.64
96%
1955
1993
295,000
$23.18
96%
Dick's Sporting Goods
Marshalls
Waldbaum's
Acme Markets
Kohl’s
Staples
L.A. Fitness
Acme Markets
Lord & Taylor
Michaels
L.A. Fitness
22
Year
Completed
Year
Acquired
Square Feet(1)
/Apartment
Units
Average Rent
Per Square
Foot(2)
Percentage
Leased(3)
Principal Tenant(s)
160,000
$20.67
97%
Giant Food
1957
1958
1966
1980
1980
1985
127,000
219,000
$17.03
$15.93
97%
99%
Property, City, State, Zip Code
Flourtown
Flourtown, PA 19031
Lancaster
Lancaster, PA 17601(8)
Langhorne Square
Levittown, PA 19056
Lawrence Park
Broomall, PA 19008(10)
Northeast
Philadelphia, PA 19114
Town Center of New Britain
New Britain, PA 18901
Willow Grove
Willow Grove, PA 19090
Wynnewood
Wynnewood, PA 19096(10)
Texas
Houston Street
San Antonio, TX 78205
Virginia
29th Place
Charlottesville, VA 22091(10)
Barcroft Plaza
Falls Church, VA 22041(9)(10)
Barracks Road
Charlottesville, VA 22905(10)
Falls Plaza/Falls Plaza—East
Falls Church, VA 22046
Graham Park Plaza
Fairfax, VA 22042
Idylwood Plaza
Falls Church, VA 22030
Leesburg Plaza
Leesburg, VA 20176
1972
1980
355,000
$18.65
97%
1959
1983
288,000
$12.56
89%
1969
1953
2006
1984
123,000
$9.60
212,000
$19.42
85%
99%
1948
1996
251,000
$26.88
98%
1890-1935
1998
172,000
$24.49
93%
1975-2001
2007
169,000
$17.31
98%
1963, 1972
& 1990
2006-2007
100,000
1958
1985
497,000
$24.14
$24.01
79%
97%
1960-1962
1967/1972
144,000
$33.13
100%
1971
1983
261,000
$27.39
92%
1991
1967
1994
1998
73,000
$45.04
100%
236,000
$22.86
93%
Mount Vernon/South Valley/
7770 Richmond Hwy
Alexandria, VA 22306(4)(7)
1966,
1972,1987
& 2001
2003/2006
569,000
$17.23
97%
Old Keene Mill
Springfield, VA 22152
Pan Am
Fairfax, VA 22031
Pentagon Row
Arlington, VA 22202
1968
1979
1976
1993
92,000
$36.35
84%
227,000
$21.95
100%
2001-2002
1998/2010
299,000
$36.93
97%
23
Giant Food
Michaels
Marshalls
Redner’s Warehouse
Market
Acme Markets
TJ Maxx
HomeGoods
Kaplan Career Institute
Burlington Coat Factory
Home Gallery
Marshalls
Giant Food
Rite Aid
Home Goods
Marshalls
Barnes & Noble
DSW
Bed, Bath & Beyond
Giant Food
Old Navy
Hotel Valencia
Walgreens
HomeGoods
DSW
Stein Mart
Staples
Harris Teeter
Bank of America
Anthropologie
Bed, Bath & Beyond
Harris Teeter
Kroger
Barnes & Noble
Old Navy
Michaels
Ulta
Giant Food
CVS
Staples
Stein Mart
Giant Food
L.A. Fitness
Whole Foods
Giant Food
Pier 1 Imports
Office Depot
Petsmart
Shoppers Food Warehouse
Bed, Bath & Beyond
Michaels
Home Depot
TJ Maxx
Gold’s Gym
Staples
Whole Foods
Walgreens
Michaels
Micro Center
Safeway
Harris Teeter
Bed, Bath & Beyond
L.A. Fitness
DSW
Property, City, State, Zip Code
Pike 7 Plaza
Vienna, VA 22180
Tower Shopping Center
Springfield, VA 22150
Tyson’s Station
Falls Church, VA 22043
Village at Shirlington
Arlington, VA 22206(8)
Willow Lawn
Richmond, VA 23230
Total All Regions—Retail(11)
Total All Regions—Residential
_____________________
Year
Completed
Year
Acquired
Square Feet(1)
/Apartment
Units
Average Rent
Per Square
Foot(2)
Percentage
Leased(3)
1968
1997
164,000
$42.52
100%
1960
1954
1940,
2006-2009
1998
1978
1995
109,000
$25.04
92%
49,000
$42.27
95%
Trader Joe's
261,000
$34.66
95%
1957
1983
445,000
$17.53
92%
20,242,000
1,500 units
$25.59
96%
94%
Principal Tenant(s)
DSW
Staples
TJ Maxx
Talbots
L.A. Mart
AMC Loews
Carlyle Grand Café
Harris Teeter
Kroger
Old Navy
Ross Dress For Less
Staples
(1) Represents the GLA of the commercial portion of the property. Some of our properties include office space which is included in this square footage
but is not material in total.
(2) Average base rent is calculated as the aggregate, annualized in-place contractual (defined as cash basis including adjustments for concessions)
minimum rent for all occupied spaces divided by the aggregate GLA of all occupied spaces.
(3) Retail percentage leased is expressed as a percentage of rentable commercial square feet occupied or subject to a lease. Residential percentage
leased is expressed as a percentage of units occupied or subject to a lease.
(4) All or a portion of this property is owned pursuant to a ground lease.
(5) We own the controlling interest in this center.
(6) We own a 90% general and limited partnership interest in these buildings.
(7) We own all or a portion of this property in a “downREIT” partnership, of which a wholly owned subsidiary of the Trust is the sole general partner,
with third party partners holding operating partnership units.
(8) All or a portion of this property is subject to a capital lease obligation.
(9) Properties acquired through a joint venture arrangement with affiliates of a discretionary fund created and advised by ING Clarion Partners.
(10) All or a portion of this property is encumbered by a mortgage loan.
(11) Aggregate information is calculated on a GLA weighted-average basis, excluding properties owned through a joint venture arrangement with
affiliates of a discretionary fund created and advised by ING Clarion Partners.
(12) Portion of property is currently under development. See further discussion in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
24
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common shares trade on the New York Stock Exchange under the symbol “FRT.” Listed below are the high and low
closing prices of our common shares as reported on the New York Stock Exchange and the dividends declared for each of the
periods indicated.
2014.......................................................................................................................
Fourth quarter................................................................................................. $
Third quarter .................................................................................................. $
Second quarter ............................................................................................... $
First quarter.................................................................................................... $
2013.......................................................................................................................
Fourth quarter................................................................................................. $
Third quarter .................................................................................................. $
Second quarter ............................................................................................... $
First quarter.................................................................................................... $
On February 6, 2015, there were 2,971 holders of record of our common shares.
Price Per Share
High
Low
Dividends
Declared
Per Share
137.18
125.80
123.11
114.72
108.15
107.44
117.96
109.30
$
$
$
$
$
$
$
$
118.28
117.12
112.07
100.90
100.30
96.99
96.21
104.50
$
$
$
$
$
$
$
$
0.870
0.870
0.780
0.780
0.780
0.780
0.730
0.730
Our ongoing operations generally will not be subject to federal income taxes as long as we maintain our REIT status and
distribute to shareholders at least 100% of our taxable income. Under the Code, REITs are subject to numerous organizational
and operational requirements, including the requirement to generally distribute at least 90% of taxable income.
Future distributions will be at the discretion of our Board of Trustees and will depend on our actual net income available for
common shareholders, financial condition, capital requirements, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Board of Trustees deems relevant. We have paid quarterly dividends to our
shareholders continuously since our founding in 1962 and have increased our regular annual dividend rate for 47 consecutive
years.
Our total annual dividends paid per common share for 2014 and 2013 were $3.21 per share and $2.97 per share, respectively.
The annual dividend amounts are different from dividends as calculated for federal income tax purposes. Distributions to the
extent of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to a
shareholder as ordinary dividend income. Distributions in excess of current and accumulated earnings and profits will be
treated as a nontaxable reduction of the shareholder’s basis in such shareholder’s shares, to the extent thereof, and thereafter as
taxable capital gain. Distributions that are treated as a reduction of the shareholder’s basis in its shares will have the effect of
increasing the amount of gain, or reducing the amount of loss, recognized upon the sale of the shareholder’s shares. No
assurances can be given regarding what portion, if any, of distributions in 2015 or subsequent years will constitute a return of
capital for federal income tax purposes. During a year in which a REIT earns a net long-term capital gain, the REIT can elect
under Section 857(b)(3) of the Code to designate a portion of dividends paid to shareholders as capital gain dividends. If this
election is made, then the capital gain dividends are generally taxable to the shareholder as long-term capital gains.
The following table reflects the income tax status of distributions per share paid to common shareholders:
Ordinary dividend........................................................................................................................... $
Capital gain.....................................................................................................................................
$
Year Ended
December 31,
2014
2013
3.178
0.032
3.210
$
$
2.911
0.059
2.970
Distributions on our 5.417% Series 1 Cumulative Convertible Preferred Shares were paid at the rate of $1.354 per share per
annum commencing on the issuance date of March 8, 2007. We do not believe that the preferential rights available to the
holders of our preferred shares or the financial covenants contained in our debt agreements had or will have an adverse effect
25
on our ability to pay dividends in the normal course of business to our common shareholders or to distribute amounts necessary
to maintain our qualification as a REIT.
Total Stockholder Return Performance
The following performance graph compares the cumulative total shareholder return on Federal Realty's common shares with
the S&P 500 Index and the index of equity real estate investment trusts prepared by the National Association of Real Estate
Investment Trusts ("NAREIT") for the five fiscal years commencing December 31, 2009, and ending December 31, 2014,
assuming an investment of $100 and the reinvestment of all dividends into additional common shares during the holding
period. Equity real estate investment trusts are defined as those that derive more than 75% of their income from equity
investments in real estate assets. The FTSE NAREIT Equity REIT Total Return Index includes all tax qualified real estate
investment trusts listed on the NYSE, NYSE Amex (formerly known as the American Stock Exchange), or the NASDAQ
National Market. Stock performance for the past five years is not necessarily indicative of future results.
Recent Sales of Unregistered Shares
Under the terms of various operating partnership agreements of certain of our affiliated limited partnerships, the interest of
limited partners in those limited partnerships may be redeemed, subject to certain conditions, for cash or an equivalent number
of our common shares, at our option. During the three months ended December 31, 2014, there were no redemptions of
operating partnership units. All other equity securities sold by us during 2014 that were not registered have been previously
reported in a Quarterly Report on Form 10-Q.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the fourth quarter of 2014, no equity securities were purchased by us.
26
ITEM 6. SELECTED FINANCIAL DATA
The following table includes certain financial information on a consolidated historical basis. You should read this section in
conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item
8. Financial Statements and Supplementary Data.” Our selected operating data, other data and balance sheet data for the years
ended December 31, 2010 through 2013 have been reclassified to conform to the 2014 presentation.
Year Ended December 31,
2014
2013
2012
2011
2010
(In thousands, except per share data and ratios)
Operating Data:
Rental income ...................................................... $ 666,322 $ 620,089 $ 580,114 $ 536,749 $ 520,677
Property operating income(1) .............................. $ 474,167 $ 446,959 $ 426,721 $ 381,335 $ 371,198
Income from continuing operations ..................... $ 167,888 $ 137,811 $ 142,972 $ 130,319 $ 124,778
Gain on sale of real estate .................................... $
1,410
4,401 $
Net income ........................................................... $ 172,289 $ 167,608 $ 156,232 $ 149,612 $ 128,237
Net income attributable to the Trust..................... $ 164,535 $ 162,681 $ 151,925 $ 143,917 $ 122,790
Net income available for common shareholders.. $ 163,994 $ 162,140 $ 151,384 $ 143,376 $ 122,249
Net cash provided by operating activities............ $ 346,130 $ 314,498 $ 296,633 $ 244,711 $ 256,735
Net cash used in investing activities .................... $ (396,150)
$ (187,088)
Net cash provided by (used in) financing
activities ............................................................... $
$ (189,239)
Dividends declared on common shares................ $ 224,190 $ 198,965 $ 182,813 $ 171,335 $ 163,382
Weighted average number of common shares
outstanding:
11,860 $
15,075 $
28,855 $
$ (53,893)
$ (273,558)
$ (345,198)
$ (196,369)
82,639
3,667
9,044
$
$
Basic .............................................................
Diluted ..........................................................
67,322
67,492
65,331
65,483
63,881
64,056
62,438
62,603
61,182
61,324
Earnings per common share, basic:
Continuing operations................................... $
Discontinued operations ...............................
Gain on sale of real estate.............................
Total.............................................................. $
2.35 $
2.01 $
2.15 $
1.98 $
—
0.07
0.38
0.08
0.02
0.19
0.31
—
2.42 $
2.47 $
2.36 $
2.29 $
Earnings per common share, diluted:
Continuing operations................................... $
Discontinued operations ...............................
2.34 $
2.00 $
2.14 $
1.97 $
—
0.38
0.02
0.31
1.93
0.05
0.01
1.99
1.93
0.04
0.08
2.46 $
0.07
2.41 $
Gain on sale of real estate.............................
Total.............................................................. $
Dividends declared per common share ................ $
Other Data:
Funds from operations available to common
shareholders(2)..................................................... $ 327,597 $ 289,938 $ 277,237 $ 251,576 $ 239,210
EBITDA(3) .......................................................... $ 447,495 $ 446,555 $ 410,918 $ 374,131 $ 352,481
Adjusted EBITDA(3)........................................... $ 443,094 $ 417,700 $ 399,058 $ 357,030 $ 351,071
Ratio of EBITDA to combined fixed charges
and preferred share dividends(3)(4).....................
0.19
2.35 $
0.01
1.98
2.28 $
3.02 $
3.30 $
2.84 $
2.72 $
2.66
—
3.3 x
3.5 x
3.3 x
3.5 x
3.1 x
Ratio of Adjusted EBITDA to combined fixed
charges and preferred share dividends(3)(4)........
3.5 x
3.1 x
3.2 x
3.3 x
3.1 x
27
2014
2013
2012
2011
2010
As of December 31,
(In thousands)
Balance Sheet Data:
Real estate, at cost.............................................. $ 5,608,998
Total assets......................................................... $ 4,546,870
Mortgages payable and capital lease
635,345
obligations.......................................................... $
Notes payable..................................................... $
290,519
Senior notes and debentures............................... $ 1,483,813
9,997
Preferred shares.................................................. $
$ 1,692,556
Shareholders’ equity
68,606
Number of common shares outstanding ............
$ 5,149,463
$ 4,219,294
$ 4,779,674
$ 3,898,565
$ 4,426,444
$ 3,666,210
$ 3,895,942
$ 3,159,553
660,127
$
$
300,822
$ 1,360,913
9,997
$
$ 1,471,297
66,701
832,482
$
$
299,575
$ 1,076,545
9,997
$
$ 1,310,593
64,815
810,616
$
$
295,159
$ 1,004,635
9,997
$
$ 1,240,604
63,544
589,441
$
$
97,881
$ 1,079,827
9,997
$
$ 1,115,768
61,526
(1) Property operating income is a non-GAAP measure that consists of rental income, other property income and mortgage
interest income, less rental expenses and real estate taxes. This measure is used internally to evaluate the performance of
property operations and we consider it to be a significant measure. Property operating income should not be considered an
alternative measure of operating results or cash flow from operations as determined in accordance with GAAP.
The reconciliation of operating income to property operating income is as follows:
2014
2013
2012
2011
2010
Operating income ..................................................... $ 271,037
32,316
General and administrative.......................................
Litigation provision ..................................................
—
170,814
Depreciation and amortization .................................
Property operating income ....................................... $ 474,167
$ 254,161
31,970
—
160,828
$ 446,959
(In thousands)
$ 253,862
31,158
—
141,701
$ 426,721
$ 226,462
28,985
—
125,888
$ 381,335
$
$
228,145
24,189
330
118,534
371,198
(2) Funds from operations ("FFO") is a supplemental non-GAAP financial measure of real estate companies’ operating
performances. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as follows: net
income, computed in accordance with U.S. GAAP, plus real estate related depreciation and amortization and excluding
extraordinary items and gains on the sale of real estate. We compute FFO in accordance with the NAREIT definition, and
we have historically reported our FFO available for common shareholders in addition to our net income.
We consider FFO available for common shareholders a meaningful, additional measure of operating performance primarily
because it excludes the assumption that the value of the real estate assets diminishes predictably over time, as implied by
the historical cost convention of GAAP and the recording of depreciation. We use FFO primarily as one of several means
of assessing our operating performance in comparison with other REITs. Comparison of our presentation of FFO to
similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application
of the NAREIT definition used by such REITs. Additional information regarding our calculation of FFO is contained in
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
28
The reconciliation of net income to FFO available for common shareholders is as follows:
2014
2013
2012
2011
2010
Gain on sale of real estate ............................................
Gain on deconsolidation of VIE ..................................
Depreciation and amortization of real estate assets .....
Net income ................................................................... $ 172,289
Net income attributable to noncontrolling interests.....
(7,754)
(4,401)
—
152,505
12,391
1,555
326,585
(541)
3,027
(1,474)
Funds from operations .................................................
Dividends on preferred shares .....................................
Income attributable to operating partnership units ......
Amortization of initial direct costs of leases................
Depreciation of joint venture real estate assets............
Income attributable to unvested shares ........................
Funds from operations available for common
shareholders ................................................................. $ 327,597
$ 167,608
(4,927)
(28,855)
—
144,873
10,694
1,504
290,897
(541)
888
(1,306)
(In thousands)
$ 156,232
(4,307)
(11,860)
—
125,611
10,935
1,513
278,124
(541)
943
(1,289)
$ 149,612
(5,695)
(15,075)
(2,026)
113,188
10,432
1,771
252,207
(541)
981
(1,071)
$ 128,237
(5,447)
(1,410)
—
107,187
9,552
1,499
239,618
(541)
980
(847)
$ 289,938
$ 277,237
$ 251,576
$ 239,210
(3) The SEC has stated that EBITDA is a non-GAAP measure as calculated in the table below. Adjusted EBITDA is a non-
GAAP measure that means net income or loss plus net interest expense, income taxes, depreciation and amortization, gain
or loss on sale of real estate and impairments of real estate if any. Adjusted EBITDA is presented because it approximates a
key performance measure in our debt covenants, but it should not be considered an alternative measure of operating results
or cash flow from operations as determined in accordance with GAAP. Adjusted EBITDA as presented may not be
comparable to other similarly titled measures used by other REITs.
The reconciliation of net income to EBITDA and adjusted EBITDA for the periods presented is as follows:
2014
2013
2012
2011
2010
Net income ............................................................... $ 172,289
170,814
Depreciation and amortization .................................
93,941
Interest expense ........................................................
10,545
Early extinguishment of debt ...................................
(94)
Other interest income ...............................................
447,495
EBITDA ...................................................................
(4,401)
Gain on sale of real estate ........................................
—
Gain on deconsolidation of VIE
Adjusted EBITDA.................................................... $ 443,094
$ 167,608
161,099
104,977
13,304
(433)
446,555
(28,855)
—
$ 417,700
(In thousands)
$ 156,232
142,039
113,336
—
(689)
410,918
(11,860)
—
$ 399,058
$ 149,612
126,568
98,465
(296)
(218)
374,131
(15,075)
(2,026)
$ 357,030
$
$
128,237
119,817
101,882
2,801
(256)
352,481
(1,410)
—
351,071
(4) Fixed charges consist of interest on borrowed funds (including capitalized interest), amortization of debt discount/
premiums and debt costs, costs related to the early extinguishment of debt, and the portion of rent expense representing an
interest factor. Excluding the $10.5 million and $13.3 million of early extinguishment of debt charge from fixed charges in
2014 and 2013, respectively, the ratio of EBITDA and adjusted EBITDA to combined fixed charges and preferred share
dividends is 3.9x and 3.8x, respectively, for 2014 and 3.7x and 3.4x, respectively, for 2013.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking Statements
Certain statements in this section or elsewhere in this report may be deemed “forward-looking statements”. See “Item 1A. Risk
Factors” in this report for important information regarding these forward-looking statements and certain risk and uncertainties
that may affect us. The following discussion should be read in conjunction with the consolidated financial statements and notes
thereto appearing in “Item 8. Financial Statements and Supplementary Data” of this report.
29
Overview
We are an equity real estate investment trust (“REIT”) specializing in the ownership, management, and redevelopment of high
quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected
metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, as well as in California. As of
December 31, 2014, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use
properties which are operated as 89 predominantly retail real estate projects comprising approximately 20.2 million square feet.
In total, the real estate projects were 95.6% leased and 94.7% occupied at December 31, 2014. A joint venture in which we own
a 30% interest owned six retail real estate projects totaling approximately 0.8 million square feet as of December 31, 2014. In
total, the joint venture properties in which we own a 30% interest were 86.1% leased and 82.8% occupied at December 31,
2014. We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our
dividends per common share for 47 consecutive years.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America, referred to as “GAAP”, requires management to make estimates and assumptions that in certain circumstances affect
the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These
estimates are prepared using management’s best judgment, after considering past and current events and economic conditions.
In addition, information relied upon by management in preparing such estimates includes internally generated financial and
operating information, external market information, when available, and when necessary, information obtained from
consultations with third party experts. Actual results could differ from these estimates. A discussion of possible risks which may
affect these estimates is included in “Item 1A. Risk Factors” of this report. Management considers an accounting estimate to be
critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition.
Our significant accounting policies are more fully described in Note 2 to the consolidated financial statements; however, the
most critical accounting policies, which involve the use of estimates and assumptions as to future uncertainties and, therefore,
may result in actual amounts that differ from estimates, are as follows:
Revenue Recognition and Accounts Receivable
Our leases with tenants are classified as operating leases. Substantially all such leases contain fixed escalations which occur at
specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant controls the
space through the term of the related lease, net of valuation adjustments, based on management’s assessment of credit,
collection and other business risk. Percentage rents, which represent additional rents based upon the level of sales achieved by
certain tenants, are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved
and the percentage rents are collectible. Real estate tax and other cost reimbursements are recognized on an accrual basis over
the periods in which the related expenditures are incurred. For a tenant to terminate its lease agreement prior to the end of the
agreed term, we may require that they pay a fee to cancel the lease agreement. Lease fees for which the tenant has relinquished
control of the space are generally recognized on the termination date. When a lease is terminated early but the tenant continues
to control the space under a modified lease agreement, the lease termination fee is generally recognized evenly over the
remaining term of the modified lease agreement.
Current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real estate
tax and other cost reimbursements. Accounts receivable from straight-line rent is typically longer term in nature and relates to
the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under the
contractual lease agreement.
We make estimates of the collectability of our current accounts receivable and straight-line rents receivable which requires
significant judgment by management. The collectability of receivables is affected by numerous factors including current
economic conditions, bankruptcies, and the ability of the tenant to perform under the terms of their lease agreement. While we
make estimates of potentially uncollectible amounts and provide an allowance for them through bad debt expense, actual
collectability could differ from those estimates which could affect our net income. With respect to the allowance for current
uncollectible tenant receivables, we assess the collectability of outstanding receivables by evaluating such factors as nature and
age of the receivable, past history and current financial condition of the specific tenant including our assessment of the tenant’s
ability to meet its contractual lease obligations, and the status of any pending disputes or lease negotiations with the tenant. At
December 31, 2014 and 2013, our allowance for doubtful accounts was $12.4 million and $12.7 million, respectively.
Historically, we have recognized bad debt expense between 0.4% and 1.3% of rental income and it was 0.3% in 2014 reflecting
positive economic changes and their impact to our tenants. A change in the estimate of collectability of a receivable would
result in a change to our allowance for doubtful accounts and correspondingly bad debt expense and net income. For example,
30
in the event our estimates were not accurate and we were required to increase our allowance by 1% of rental income, our bad
debt expense would have increased and our net income would have decreased by $6.7 million.
Due to the nature of the accounts receivable from straight-line rents, the collection period of these amounts typically extends
beyond one year. Our experience relative to unbilled straight-line rents is that a portion of the amounts otherwise recognizable
as revenue is never billed to or collected from tenants due to early lease terminations, lease modifications, bankruptcies and
other factors. Accordingly, the extended collection period for straight-line rents along with our evaluation of tenant credit risk
may result in the nonrecognition of a portion of straight-line rental income until the collection of such income is reasonably
assured. If our evaluation of tenant credit risk changes indicating more straight-line revenue is reasonably collectible than
previously estimated and realized, the additional straight-line rental income is recognized as revenue. If our evaluation of tenant
credit risk changes indicating a portion of realized straight-line rental income is no longer collectible, a reserve and bad debt
expense is recorded. At December 31, 2014 and 2013, accounts receivable includes approximately $66.1 million and $60.6
million, respectively, related to straight-line rents. Correspondingly, these estimates of collectability have a direct impact on our
net income.
Real Estate
The nature of our business as an owner, redeveloper and operator of retail shopping centers and mixed-use properties means
that we invest significant amounts of capital. Depreciation and maintenance costs relating to our properties constitute
substantial costs for us as well as the industry as a whole. We capitalize real estate investments and depreciate them on a
straight-line basis in accordance with GAAP and consistent with industry standards based on our best estimates of the assets’
physical and economic useful lives. We periodically review the estimated lives of our assets and implement changes, as
necessary, to these estimates and, therefore, to our depreciation rates. These reviews may take into account such factors as the
historical retirement and replacement of our assets, expected redevelopments, and general economic and real estate factors.
Certain events, such as unforeseen competition or changes in customer shopping habits, could substantially alter our
assumptions regarding our ability to realize the expected return on investment in the property and therefore reduce the
economic life of the asset and affect the amount of depreciation expense to be charged against both the current and future
revenues. These assessments have a direct impact on our net income. The longer the economic useful life, the lower the
depreciation expense will be for that asset in a fiscal period, which in turn will increase our net income. Similarly, having a
shorter economic useful life would increase the depreciation for a fiscal period and decrease our net income.
Land, buildings and real estate under development are recorded at cost. We compute depreciation using the straight-line method
with useful lives ranging generally from 35 years to a maximum of 50 years on buildings and major improvements.
Maintenance and repair costs are charged to operations as incurred. Tenant work and other major improvements, which
improve or extend the life of the asset, are capitalized and depreciated over the life of the lease or the estimated useful life of
the improvements, whichever is shorter. Minor improvements, furniture and equipment are capitalized and depreciated over
useful lives ranging from 2 to 20 years.
Capitalized costs associated with leases are depreciated or amortized over the base term of the lease. Unamortized leasing costs
are charged to expense if the applicable tenant vacates before the expiration of its lease. Undepreciated tenant work is written-
off if the applicable tenant vacates and the tenant work is replaced or has no future value. Additionally, we make estimates as to
the probability of certain development and redevelopment projects being completed. If we determine the redevelopment is no
longer probable of completion, we immediately expense all capitalized costs which are not recoverable.
Interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet
placed in service. Capitalization of interest commences when development activities and expenditures begin and end upon
completion, which is when the asset is ready for its intended use. Generally, rental property is considered substantially
complete and ready for its intended use upon completion of tenant improvements, but no later than one year from completion of
major construction activity. We make judgments as to the time period over which to capitalize such costs and these assumptions
have a direct impact on net income because capitalized costs are not subtracted in calculating net income. If the time period for
capitalizing interest is extended, more interest is capitalized, thereby decreasing interest expense and increasing net income
during that period.
Certain external and internal costs directly related to the development, redevelopment and leasing of real estate, including pre-
construction costs, real estate taxes, insurance, construction costs and salaries and related costs of personnel directly involved,
are capitalized. We capitalized external and internal costs related to both development and redevelopment activities of $277
million and $7 million, respectively, for 2014 and $275 million and $6 million, respectively, for 2013. We capitalized external
and internal costs related to other property improvements of $45 million and $2 million, respectively, for 2014 and $48 million
and $1 million, respectively, for 2013. We capitalized external and internal costs related to leasing activities of $29 million and
$7 million, respectively, for 2014 and $9 million and $6 million, respectively, for 2013. The amount of capitalized internal costs
31
for salaries and related benefits for development and redevelopment activities, other property improvements, and leasing
activities were $7 million, $1 million, and $6 million, respectively, for 2014 and $6 million, $1 million, and $5 million,
respectively, for 2013. Total capitalized costs were $367 million and $345 million for 2014 and 2013, respectively.
When applicable, as lessee, we classify our leases of land and building as operating or capital leases. We are required to use
judgment and make estimates in determining the lease term, the estimated economic life of the property and the interest rate to
be used in determining whether or not the lease meets the qualification of a capital lease and is recorded as an asset.
Real Estate Acquisitions
Upon acquisition of operating real estate properties, we estimate the fair value of assets and liabilities acquired including land,
building, improvements, leasing costs, intangibles such as in-place leases, assumed debt, and current assets and liabilities, if
any. Based on these estimates, we allocate the purchase price to the applicable assets and liabilities. We utilize methods similar
to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The value allocated to in-
place leases is amortized over the related lease term and reflected as rental income in the statement of operations. We consider
qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and
include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options. If
the value of below market lease intangibles includes renewal option periods, we include such renewal periods in the
amortization period utilized. If a tenant vacates its space prior to contractual termination of its lease, the unamortized balance of
any in-place lease value is written off to rental income.
Long-Lived Assets and Impairment
There are estimates and assumptions made by management in preparing the consolidated financial statements for which the
actual results will be determined over long periods of time. This includes the recoverability of long-lived assets, including our
properties that have been acquired or redeveloped and our investment in certain joint ventures. Management’s evaluation of
impairment includes review for possible indicators of impairment as well as, in certain circumstances, undiscounted and
discounted cash flow analysis. Since most of our investments in real estate are wholly-owned or controlled assets which are
held for use, a property with impairment indicators is first tested for impairment by comparing the undiscounted cash flows,
including residual value, to the current net book value of the property. If the undiscounted cash flows are less than the net book
value, the property is written down to expected fair value.
The calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows
including revenues, operating expenses, required maintenance and development expenditures, market conditions, demand for
space by tenants and rental rates over long periods. Because our properties typically have a long life, the assumptions used to
estimate the future recoverability of book value requires significant management judgment. Actual results could be
significantly different from the estimates. These estimates have a direct impact on net income, because recording an impairment
charge results in a negative adjustment to net income.
Contingencies
We are sometimes involved in lawsuits, warranty claims, and environmental matters arising in the ordinary course of business.
Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these
matters. We accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably
estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate
within the range; however, if no amount within the range is a better estimate than any other amount, the minimum within the
range is accrued. Any difference between our estimate of a potential loss and the actual outcome would result in an increase or
decrease to net income.
In addition, we reserve for estimated losses, if any, associated with warranties given to a buyer at the time an asset is sold or
other potential liabilities relating to that sale, taking any insurance policies into account. These warranties may extend up to ten
years and the calculation of potential liability requires significant judgment. If changes in facts and circumstances indicate that
warranty reserves are understated, we will accrue additional reserves at such time a liability has been incurred and the costs can
be reasonably estimated. Warranty reserves are released once the legal liability period has expired or all related work has been
substantially completed. Any changes to our estimated warranty losses would result in an increase or decrease in net income.
Self-Insurance
We are self-insured for general liability costs up to predetermined retained amounts per claim, and we believe that we maintain
adequate accruals to cover our retained liability. We currently do not maintain third party stop-loss insurance policies to cover
liability costs in excess of predetermined retained amounts. Our accrual for self-insurance liability is determined by
32
management and is based on claims filed and an estimate of claims projected to be incurred but not yet reported. Management
considers a number of factors, including third-party actuarial analysis and future increases in costs of claims, when making
these determinations. If our liability costs differ from these accruals, it will increase or decrease our net income.
Recently Adopted and Recently Issued Accounting Pronouncements
See Note 2 to the consolidated financial statements.
2014 Significant Property Acquisitions and Disposition
Effective January 1, 2014, we acquired a controlling interest in The Grove at Shrewsbury, a 187,000 square foot shopping
center in Shrewsbury, New Jersey, and Brook 35, a 99,000 square foot shopping center in Sea Girt, New Jersey for a gross
value of $161 million. Our effective economic interest approximates 84% and was funded by the assumption of our share of
$68 million of mortgage debt, 632,000 downREIT operating partnership units, and $13 million of cash (which was in an escrow
account at December 31, 2013). Approximately $1.7 million and $2.3 million of net assets acquired were allocated to other
assets for "above market leases" and other liabilities for "below market leases," respectively. Additionally, $71.1 million was
allocated to redeemable and nonredeemable noncontrolling interests. We incurred $2.0 million of acquisition costs, of which
$1.0 million were incurred in 2014, and are included in "general and administrative expenses" in 2014 and 2013 on the
accompanying consolidated statements of comprehensive income.
We entered into an agreement to acquire the interest of one of the noncontrolling interest holders in The Grove at Shrewsbury
in 2015. As this noncontrolling interest is mandatorily redeemable, it has been classified as a liability of approximately $9
million and is included in "other liabilities and deferred credits" on the December 31, 2014 consolidated balance sheet. An
additional noncontrolling interest holder has the right to require us to acquire its interests in The Grove at Shrewsbury and
Brook 35 at the then current fair market value beginning on January 1, 2017.
On July 24, 2014, the joint venture arrangement with affiliates of a discretionary fund created and advised by ING Clarion
Partners sold the fee interest in Pleasant Shops in Weymouth, Massachusetts for a sales price of $34.3 million, resulting in a
gain on sale of $14.5 million. Our share of the gain was $4.4 million. The joint venture partners received distributions totaling
$32.8 million as a result of the sale, of which our distribution was $10.4 million.
Subsequent Event - 2015 Property Acquisition
In January 2015, we acquired a controlling interest in San Antonio Center, a 376,000 square foot shopping center in Mountain
View, California based on a total value of $62.2 million. Our effective interest approximates 80% and was funded by the
assumption of our share of $18.7 million of mortgage debt, which has a stated interest rate of 5.27% and matures on January 1,
2016, approximately 58,000 downREIT operating partnership units and approximately $27 million of cash. We incurred $0.7
million of acquisition costs in 2014 which are included in "general and administrative expenses."
2014 Significant Debt and Equity Transactions
In connection with the acquisition of The Grove at Shrewsbury and Brook 35 on January 1, 2014, we assumed mortgage loans
with a face amount of $68.3 million and a fair value of $73.8 million. The mortgage loans are secured by the individual
properties with the following contractual terms:
Brook 35 Plaza .............................................................................. $
The Grove at Shrewsbury (East) ................................................... $
The Grove at Shrewsbury (West) .................................................. $
11.5
45.4
11.4
5.46%
5.82%
6.38%
July 1, 2014
October 1, 2017
March 1, 2018
Principal
Stated Interest Rate
Maturity Date
(In millions)
33
During 2014, we refinanced or issued the following loans or debt securities:
Stated
Interest
Rate
Amount
Refinance/Issuance
Date
Maturity Date
Brook 35 Plaza Mortgage Loan ........................... Refinance $
$
4.50% Senior Notes (1) ........................................ Issuance
THE AVENUE at White Marsh Mortgage Loan.. Refinance $
4.65%
June 2, 2014
July 1, 2029
250.0
4.50% November 14, 2014 December 1, 2044
52.7
3.35% December 15, 2014
January 1, 2022
(In millions)
11.5
(1) The net proceeds from this note offering after issuance discounts, underwriting fees and other costs were approximately
$244.6 million.
During 2014, we fully repaid or redeemed the following loans or debt securities:
Payoff Amount
Repayment Date
Maturity Date
(In millions)
Melville Mall Mortgage Loan ..............................
East Bay Bridge Mortgage Loan (1) ....................
5.65% Senior Notes (2) ........................................
$
$
$
20.3
June 3, 2014 September 1, 2014
61.0 December 10, 2014
March 1, 2016
125.0 December 12, 2014
June 1, 2016
(1) The total amount due at payoff of $64.0 million included a prepayment premium of $3.0 million and accrued but unpaid
interest of $0.1 million. The prepayment premium is included in "early extinguishment of debt" in 2014
(2) The redemption price of $134.5 million included a make-whole premium of approximately $9.2 million and accrued but
unpaid interest of $0.2 million. The make-whole premium is included in "early extinguishment of debt" in 2014.
On August 28, 2014, we amended our term loan agreement and lowered the spread over LIBOR by 40 basis points from 130
basis points to 90 basis points based on our current credit rating. The amendment also provides us the option to extend the
maturity date by one year.
On February 12, 2014 we replaced our existing at the market (“ATM”) equity program with a new ATM equity program in
which we may from time to time offer and sell common shares having an aggregate offering price of up to $300.0 million. We
intend to use the net proceeds to fund potential acquisition opportunities, fund our development and redevelopment pipeline,
repay amounts outstanding under our revolving credit facility and/or for general corporate purposes. For the three months
ended December 31, 2014, we issued 469,200 common shares at the weighted average price per share of $132.54 for net cash
proceeds of $61.5 million and paid $0.6 million in commissions and less than $0.1 million in additional offering expenses
related to the sales of these common shares. For the year ended December 31, 2014, we issued 1,768,583 common shares at a
weighted average price per share of $122.09 for net cash proceeds of $213.6 million and paid $2.2 million in commissions and
$0.2 million in additional offering expenses related to the sales of these common shares. As of December 31, 2014, we had the
capacity to issue up to $84.1 million in common shares under our ATM equity program.
Outlook
We seek growth in earnings, funds from operations, and cash flows primarily through a combination of the following:
•
•
•
growth in our same-center portfolio,
growth in our portfolio from property development and redevelopments, and
expansion of our portfolio through property acquisitions.
Our same-center growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in
portfolio occupancy. Over the long-term, the infill nature and strong demographics of our properties provide a strategic
advantage allowing us to maintain relatively high occupancy and increase rental rates. We have generally continued to see an
encouraging operating environment for many of our tenants as well as strong levels of interest from prospective tenants for our
retail spaces. While there can be no assurance that these conditions will continue, we remain optimistic given the trends we
have seen over the past few years. We believe the locations of our centers and diverse tenant base partially mitigates any
negative change in the economic environment; however, any significant reduction in our tenants' abilities to pay base rent,
percentage rent or other charges, will adversely affect our financial condition and results of operations. We seek to maintain a
mix of strong national, regional, and local retailers. At December 31, 2014, no single tenant accounted for more than 3.1% of
annualized base rent.
34
Our properties are located primarily in densely populated and/or affluent areas with high barriers to entry which allow us to
take advantage of redevelopment opportunities that enhance our operating performance through renovation, expansion,
reconfiguration, and/or retenanting. We evaluate our properties on an ongoing basis to identify these types of opportunities. In
2015, we expect to have redevelopment projects stabilizing with projected costs of approximately $67 million.
We continue our ongoing redevelopment efforts at Santana Row. Our most recent 212 unit residential building was completed
during second quarter. The building was 98.6% leased as of December 31, 2014, and had a total cost of $76 million. We are
also proceeding with our next phase of redevelopment which is a six story building including approximately 225,500 square
feet of office space, 1,500 square feet of retail space, and 670 parking spaces. After current phases, we have approximately 9
acres remaining for further redevelopment and entitlements in place for an additional 348 residential units and 69,000 square
feet of commercial space. We are currently in the process of seeking additional entitlements and have under control an
additional 12 acres of land adjacent to Santana Row.
We continue to invest in the development at Assembly Row which is a long-term development project we expect to be involved
in over the coming years. The carrying value of the development portion of this project at December 31, 2014 is approximately
$359 million. The project currently has zoning entitlements to build 3.4 million square feet of commercial-use buildings, 1,843
residential units, and a 170 room hotel. The first phase consists of approximately 326,000 square feet of retail space and 98,000
square feet of office space (both owned by the Trust) and 450 residential units owned by AvalonBay Communities. The
Massachusetts Bay Transit Authority (MBTA) constructed the new orange line T-Stop at the property, which opened in
September 2014. Minimal amounts of construction remain to be completed on the first phase. The retail space in Phase I
opened during 2014 and currently is 97.3% leased; the office space will open in 2015. Phase I is expected to stabilize in
2015/2016. Total expected costs for Phase I of Assembly Row range from $190 million to $200 million (net of reimbursements)
of which $189 million has been incurred to date. In total, we invested $74 million in Assembly Row in 2014, net of public
funding, and expect to invest between $20 million and $30 million in Assembly Row in 2015.
Additionally, we entered into a ground lease agreement with Partners HealthCare to bring more than 700,000 square feet of
office space and an additional 100,000 square feet of retail space to Assembly Row. The ground lease agreement includes a
purchase option. Partners HealthCare commenced construction on this new building in September 2014 and plans to relocate
over 4,500 employees to Assembly Row starting in 2016.
Our Pike & Rose project in North Bethesda, MD, a long-term multi-phased mixed-use project, currently has zoning
entitlements to build 1.6 million square feet of commercial-use buildings and 1,605 residential units. Phase I of Pike & Rose
involved demolition of roughly 25% of the gross leasable area at Mid-Pike Plaza (which was completed during the second
quarter of 2012). The remainder of Mid-Pike Plaza was fully demolished in the third quarter of 2014. Phase I of Pike & Rose
includes 493 residential units, 151,000 square feet of retail space and 79,000 square feet of office space. In late June 2014, our
174 unit residential building opened and is 85.1% leased as of December 31, 2014. Approximately 79,000 square feet of the
retail space in Phase I opened in 2014 and we expect the remaining retail, office and 319 unit residential building to open in
2015. We expect Phase I to stabilize in 2015/2016. Total expected costs for Phase I of Pike & Rose range from $255 million to
$265 million of which $217 million has been incurred to date.
Additionally, we are proceeding with development of Phase II of Pike & Rose and expect building construction to commence in
the first half of 2015. Phase II is expected to include approximately 185,000 square feet of retail space, a 177-room select-
service hotel and 264 residential units. Total expected costs range from $195 million to $200 million and stabilization is
expected in 2018/2019. The hotel will be owned and operated by a joint venture in which we will be a partner. Phase II is also
expected to include 104 for-sale condominium units with an expected cost of $50 million to $53 million. We invested $128
million in Pike & Rose in 2014 and expect to invest between $80 million and $110 million in Pike & Rose in 2015.
The development of future phases of Assembly Row, Pike & Rose and Santana Row will be pursued opportunistically based
on, among other things, market conditions, tenant demand, and our evaluation of whether those phases will generate an
appropriate financial return.
We continue to review acquisition opportunities in our primary markets that complement our portfolio and provide long-term
growth opportunities. Initially, some of our acquisitions do not contribute significantly to earnings growth; however, we believe
they provide long-term re-leasing growth, redevelopment opportunities, and other strategic opportunities. Any growth from
acquisitions is contingent on our ability to find properties that meet our qualitative standards at prices that meet our financial
hurdles. Changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both
the price that must be paid to acquire a property, as well as our ability to economically finance the property acquisition.
Generally, our acquisitions are initially financed by available cash and/or borrowings under our revolving credit facility which
may be repaid later with funds raised through the issuance of new equity or new long-term debt. We may also finance our
35
acquisitions through the issuance of common shares, preferred shares, or downREIT units as well as through new or assumed
mortgages.
At December 31, 2014, the leasable square feet in our properties was 94.7% occupied and 95.6% leased. The leased rate is
higher than the occupied rate due to leased spaces that are being redeveloped or improved or that are awaiting permits and,
therefore, are not yet ready to be occupied. Our occupancy and leased rates are subject to variability over time due to factors
including acquisitions, the timing of the start and stabilization of our redevelopment projects, lease expirations and tenant
bankruptcies.
Same-Center
Throughout this section, we have provided certain information on a “same-center” basis. Information provided on a same-
center basis includes the results of properties that we owned and operated for the entirety of both periods being compared
except for properties for which significant redevelopment or expansion occurred during either of the periods being compared
and properties classified as discontinued operations. For the year ended December 31, 2014 and the comparison of 2014 and
2013, all or a portion of 78 properties were considered same-center and thirteen properties were considered redevelopment or
expansion. For the year ended December 31, 2014, two properties were moved from same-center to redevelopment, one
property was moved from redevelopment to same-center, and one property was moved from redevelopment as it was vacant
and was demolished in 2014, compared to the designations as of December 31, 2013. For the year ended December 31, 2013
and the comparison of 2013 and 2012, all or a portion of 79 properties were considered same-center and eleven properties were
considered redevelopment or expansion. For the year ended December 31, 2013, three properties were moved from acquisition
to same-center and one property was moved from redevelopment to same-center compared to the designations as of
December 31, 2012. While there is judgment surrounding changes in designations, we typically move redevelopment properties
to same-center once they have stabilized, which is typically considered 95% occupancy or when the growth expected from the
redevelopment has been included in the comparable periods. We typically remove properties from same center when the
redevelopment has or is expected to have a significant impact to property operating income within the calendar year.
Acquisitions are moved to same-center once we have owned the property for the entirety of comparable periods and the
property is not under significant redevelopment or expansion.
36
YEAR ENDED DECEMBER 31, 2014 COMPARED TO YEAR ENDED DECEMBER 31, 2013
2014
2013
Dollars
%
(Dollar amounts in thousands)
Change
Rental income ................................................................................... $
Other property income......................................................................
Mortgage interest income .................................................................
Total property revenue...............................................................
Rental expenses ................................................................................
Real estate taxes................................................................................
Total property expenses.............................................................
Property operating income................................................................
Other interest income........................................................................
Income from real estate partnerships................................................
Interest expense ................................................................................
Early extinguishment of debt............................................................
General and administrative expense .................................................
Depreciation and amortization..........................................................
Total other, net...........................................................................
Income from continuing operations..................................................
Discontinued operations - income ....................................................
Discontinued operations - gain on sale of real estate .......................
Gain on sale of real estate.................................................................
Net income.................................................................................
Net income attributable to noncontrolling interests..........................
Net income attributable to the Trust ................................................. $
666,322
$
620,089
$
14,758
5,010
686,090
135,417
76,506
211,923
474,167
94
1,243
(93,941)
(10,545)
(32,316)
(170,814)
(306,279)
167,888
—
—
4,401
172,289
(7,754)
164,535
$
12,169
5,155
637,413
118,695
71,759
190,454
446,959
433
1,498
(104,977)
(13,304)
(31,970)
(160,828)
(309,148)
137,811
942
23,861
4,994
167,608
(4,927)
162,681
$
46,233
2,589
(145)
48,677
16,722
4,747
21,469
27,208
(339)
(255)
11,036
2,759
(346)
(9,986)
2,869
30,077
(942)
(23,861)
(593)
4,681
(2,827)
1,854
7.5 %
21.3 %
(2.8)%
7.6 %
14.1 %
6.6 %
11.3 %
6.1 %
(78.3)%
(17.0)%
(10.5)%
(20.7)%
1.1 %
6.2 %
(0.9)%
21.8 %
(100.0)%
(100.0)%
(11.9)%
2.8 %
57.4 %
1.1 %
Property Revenues
Total property revenue increased $48.7 million, or 7.6%, to $686.1 million in 2014 compared to $637.4 million in 2013. The
percentage occupied at our shopping centers decreased to 94.7% at December 31, 2014 compared to 95.1% at December 31,
2013. Changes in the components of property revenue are discussed below.
Rental Income
Rental income consists primarily of minimum rent, cost reimbursements from tenants and percentage rent. Rental income
increased $46.2 million, or 7.5%, to $666.3 million in 2014 compared to $620.1 million in 2013 due primarily to the following:
•
•
•
•
an increase of $17.7 million at same-center properties due primarily to higher rental rates of
approximately $9.4 million and a $7.4 million increase in recovery income (largely the result of
reimbursements for higher snow removal costs),
an increase of $16.6 million attributable to properties acquired in 2014 and 2013,
an increase of $8.0 million at redevelopment properties due primarily to the lease-up of our new 212
unit residential building at Santana Row and the net impact of other redevelopment properties, and
an increase of $6.4 million from Assembly Row and Pike &Rose as portions of both projects opened in
2014,
partially offset by,
•
a decrease of $1.9 million from Mid-Pike Plaza as the property was demolished in 2014 for the future
development of Pike & Rose.
37
Other Property Income
Other property income increased $2.6 million, or 21.3%, to $14.8 million in 2014 compared to $12.2 million in 2013. Included
in other property income are items which, although recurring, inherently tend to fluctuate more than rental income from period
to period, such as lease termination fees. This increase is primarily due to an increase in lease termination fees at same-center
properties.
Property Expenses
Total property expenses increased $21.5 million, or 11.3%, to $211.9 million in 2014 compared to $190.5 million in 2013.
Changes in the components of property expenses are discussed below.
Rental Expenses
Rental expenses increased $16.7 million, or 14.1%, to $135.4 million in 2014 compared to $118.7 million in 2013. This
increase is primarily due to the following:
•
•
•
•
•
an increase of $5.6 million in repairs and maintenance expenses at same-center and redevelopment
properties primarily due to higher snow removal costs,
an increase of $5.4 million related to Assembly Row and Pike & Rose, as portions of these projects
opened in 2014,
an increase of $3.2 million related to properties acquired in 2014 and 2013,
an increase of $1.6 million in bad debt expense at same-center properties, and
an increase of $0.8 million in utilities at our same-center and redevelopment properties primarily due to
higher electric costs and usage as a result of the harsh winter.
As a result of the changes in rental income and rental expenses as discussed above, rental expenses as a percentage of rental
income plus other property income increased to 19.9% for the year ended December 31, 2014 from 18.8% for the year ended
December 31, 2013.
Real Estate Taxes
Real estate tax expense increased $4.7 million, or 6.6% to $76.5 million in 2014 compared to $71.8 million in 2013 due
primarily to higher assessments and lower refunds at our same-center and redevelopment properties and real estate taxes on
properties acquired in 2014 and 2013.
Property Operating Income
Property operating income increased $27.2 million, or 6.1%, to $474.2 million in 2014 compared to $447.0 million in 2013.
This increase is primarily due to growth in earnings at same-center properties, properties acquired in 2014 and 2013, and
earnings from our redevelopment properties, partially offset by a decline in earnings at Mid-Pike Plaza, which was demolished
in 2014.
Other
Interest Expense
Interest expense decreased $11.0 million, or 10.5%, to $93.9 million in 2014 compared to $105.0 million in 2013. This
decrease is due primarily to the following:
•
•
a decrease of $12.0 million due to a lower overall weighted average borrowing rate, and
an increase of $4.8 million in capitalized interest due primarily to our ongoing development projects at
Assembly Row and Pike & Rose,
partially offset by
•
an increase of $5.6 million due to higher borrowings.
Gross interest costs were $114.9 million and $121.2 million in 2014 and 2013, respectively. Capitalized interest was $21.0
million and $16.2 million in 2014 and 2013, respectively.
38
Early Extinguishment of Debt
The $10.5 million early extinguishment of debt in 2014 relates to the make-whole premium paid as part of the early redemption
of our 5.65% senior notes, the prepayment premium on our East Bay Bridge mortgage loan, and the related write-off of
unamortized debt fees and mortgage premium balance.
The $13.3 million early extinguishment of debt in 2013 relates to the make-whole premiums paid as part of the early
redemption of our 5.40% senior notes and 5.95% senior notes, the prepayment premium on our 7.5% mortgage loans, and the
related write-off of unamortized debt fees.
Depreciation and Amortization
Depreciation and amortization expense increased $10.0 million, or 6.2%, to $170.8 million in 2014 from $160.8 million in
2013. This increase is due primarily to 2014 acquisitions and redevelopment projects placed in service in 2014, partially offset
by accelerated depreciation in 2013 due to the change in use of a redevelopment property.
Discontinued Operations— Income
Income from discontinued operations represents the operating income of properties that were disposed prior to January 1, 2014,
which were required to be reported separately from results of ongoing operations. The reported operating income of $0.9
million for 2013 primarily represents the operating income for the period during which we owned properties sold in 2013.
Discontinued Operations—Gain on Sale of Real Estate
The $23.9 million gain on sale of real estate from discontinued operations for 2013 is due to the sale of the fee interest in our
final building at Fifth Avenue on July 22, 2013 and the sale of the fee interest in our building in Forest Hills on September 10,
2013.
Gain on Sale of Real Estate
The $4.4 million gain on sale of real estate for 2014 is due to our portion of the gain resulting from the Partnership's sale of the
fee interest in Pleasant Shops in Weymouth, Massachusetts.
The $5.0 million gain on sale of real estate for 2013 is primarily due to the sale of the fee interest in the land under an office
building at our Village of Shirlington property in Arlington, Virginia, that was subject to a long term ground lease. The ground
lease included an option for the tenant to purchase the fee interest.
39
YEAR ENDED DECEMBER 31, 2013 COMPARED TO YEAR ENDED DECEMBER 31, 2012
2013
2012
Dollars
%
(Dollar amounts in thousands)
Change
Rental income................................................................................... $
Other property income .....................................................................
Mortgage interest income.................................................................
Total property revenue ..............................................................
Rental expenses ................................................................................
Real estate taxes ...............................................................................
Total property expenses.............................................................
Property operating income ...............................................................
Other interest income .......................................................................
Income from real estate partnership .................................................
Interest expense ................................................................................
Early extinguishment of debt ...........................................................
General and administrative expense.................................................
Depreciation and amortization .........................................................
Total other, net...........................................................................
Income from continuing operations .................................................
Discontinued operations - income....................................................
Discontinued operations - gain on sale of real estate .......................
Gain on sale of real estate ................................................................
Net income ................................................................................
Net income attributable to noncontrolling interests .........................
Net income attributable to the Trust................................................. $
620,089
$
580,114
$
12,169
5,155
637,413
118,695
71,759
190,454
446,959
433
1,498
(104,977)
(13,304)
(31,970)
(160,828)
(309,148)
137,811
942
23,861
4,994
167,608
(4,927)
162,681
$
20,211
5,466
605,791
112,616
66,454
179,070
426,721
689
1,757
(113,336)
—
(31,158)
(141,701)
(283,749)
142,972
1,400
—
11,860
156,232
(4,307)
151,925
$
39,975
(8,042)
(311)
31,622
6,079
5,305
11,384
20,238
(256)
(259)
8,359
(13,304)
(812)
(19,127)
(25,399)
(5,161)
(458)
23,861
(6,866)
11,376
(620)
10,756
6.9 %
(39.8)%
(5.7)%
5.2 %
5.4 %
8.0 %
6.4 %
4.7 %
(37.2)%
(14.7)%
(7.4)%
100.0 %
2.6 %
13.5 %
9.0 %
(3.6)%
(32.7)%
100.0 %
(57.9)%
7.3 %
14.4 %
7.1 %
Property Revenues
Total property revenue increased $31.6 million, or 5.2%, to $637.4 million in 2013 compared to $605.8 million in 2012. The
percentage occupied at our shopping centers increased to 95.1% at December 31, 2013 compared to 94.9% at December 31,
2012. Changes in the components of property revenue are discussed below.
Rental Income
Rental income consists primarily of minimum rent, cost reimbursements from tenants and percentage rent. Rental income
increased $40.0 million, or 6.9%, to $620.1 million in 2013 compared to $580.1 million in 2012 due primarily to the following:
•
•
•
an increase of $23.3 million at same-center properties due primarily to higher rental rates of
approximately $11.6 million, higher occupancy of approximately $3.9 million, and an increase in
recovery income due to higher recoverable expenses,
an increase of $14.0 million attributable to properties acquired in 2013 and 2012, and
an increase of $2.0 million at redevelopment properties due primarily to the lease-up and stabilization
of certain of our redevelopment properties partially offset by lower income from Mid-Pike Plaza as the
property was prepared for the development of Pike & Rose.
Other Property Income
Other property income decreased $8.0 million, or 39.8%, to $12.2 million in 2013 compared to $20.2 million in 2012. Included
in other property income are items which, although recurring, inherently tend to fluctuate more than rental income from period
to period, such as lease termination fees. This decrease is primarily due to lower lease termination fees at same-center
properties, largely from a $6.0 million lease termination fee received in 2012 from an anchor tenant at Ellisburg Shopping
Center.
40
Property Expenses
Total property expenses increased $11.4 million, or 6.4%, to $190.5 million in 2013 compared to $179.1 million in 2012.
Changes in the components of property expenses are discussed below.
Rental Expenses
Rental expenses increased $6.1 million, or 5.4%, to $118.7 million in 2013 compared to $112.6 million in 2012. This increase
is primarily due to the following:
•
•
•
an increase of $4.0 million in repairs and maintenance expenses at same-center and redevelopment
properties primarily due to snow removal costs,
an increase of $2.1 million related to properties acquired in 2013 and 2012,
an increase of $1.3 million in marketing expenses primarily at our Assembly Row and Pike & Rose
projects,
partially offset by
•
a decrease of $1.7 million in bad debt expense.
Rental expenses as a percentage of rental income plus other property income was 18.8% for the years ended December 31,
2013 and 2012.
Real Estate Taxes
Real estate tax expense increased $5.3 million, or 8.0% to $71.8 million in 2013 compared to $66.5 million in 2012 due
primarily to net higher assessments at same-center properties and properties acquired in 2013 and 2012.
Property Operating Income
Property operating income increased $20.2 million, or 4.7%, to $447.0 million in 2013 compared to $426.7 million in 2012.
This increase is primarily due to growth in earnings at same-center properties, properties acquired in 2013 and 2012, and
redevelopment properties.
Other
Interest Expense
Interest expense decreased $8.4 million, or 7.4%, to $105.0 million in 2013 compared to $113.3 million in 2012. This decrease
is due primarily to the following:
•
•
partially offset by
a decrease of $11.6 million due to a lower overall weighted average borrowing rate, and
an increase of $6.1 million in capitalized interest,
•
an increase of $9.3 million due to higher borrowings.
Gross interest costs were $121.2 million and $123.4 million in 2013 and 2012, respectively. Capitalized interest was $16.2
million and $10.1 million in 2013 and 2012, respectively.
Early Extinguishment of Debt
The $13.3 million early extinguishment of debt in 2013 relates to the make-whole premiums paid as part of the early
redemption of our 5.40% senior notes and 5.95% senior notes, the prepayment premium on our 7.5% mortgage loans, and the
related write-off of unamortized debt fees.
General and Administrative Expense
General and administrative expense increased $0.8 million, or 2.6%, to $32.0 million in 2013 from $31.2 million in 2012. This
increase is due primarily to an increase in employee related costs and transaction costs partially offset by costs incurred in 2012
related to the CFO transition.
41
Depreciation and Amortization
Depreciation and amortization expense increased $19.1 million, or 13.5%, to $160.8 million in 2013 from $141.7 million in
2012. This increase is due primarily to 2013 and 2012 acquisitions and accelerated depreciation due to the change in use of a
redevelopment property.
Discontinued Operations— Income
Income from discontinued operations represents the operating income of properties that were disposed prior to January 1, 2014,
which were required to be reported separately from results of ongoing operations. The reported operating income of $0.9
million and $1.4 million for 2013 and 2012, respectively, primarily represents the operating income for the period during which
we owned properties sold in 2013.
Discontinued Operations—Gain on Sale of Real Estate
The $23.9 million gain on sale of real estate from discontinued operations for 2013 is due to the sale of the fee interest in our
final building at Fifth Avenue on July 22, 2013 and the sale of the fee interest in our building in Forest Hills on September 10,
2013.
Gain on Sale of Real Estate
The $5.0 million gain on sale of real estate for 2013 is primarily due to the sale of the fee interest in the land under an office
building at our Village of Shirlington property in Arlington, Virginia, that was subject to a long term ground lease. The ground
lease included an option for the tenant to purchase the fee interest.
The $11.9 million gain on sale of real estate in 2012 is due to the sale of our Newbury Street Partnership's entire portfolio of
three buildings on October 31, 2011. Due to the timing of receiving information from the general partner, our share of earnings
was recorded one quarter in arrears. Therefore, we recognized the gain on sale of $11.9 million in 2012.
Liquidity and Capital Resources
Due to the nature of our business and strategy, we typically generate significant amounts of cash from operations. The cash
generated from operations is primarily paid to our common and preferred shareholders in the form of dividends. As a REIT, we
must generally make annual distributions to shareholders of at least 90% of our taxable income.
Our short-term liquidity requirements consist primarily of normal recurring operating expenses, obligations under our capital
and operating leases, regular debt service requirements (including debt service relating to additional or replacement debt, as
well as scheduled debt maturities), recurring expenditures, non-recurring expenditures (such as tenant improvements and
redevelopments) and dividends to common and preferred shareholders. Our long-term capital requirements consist primarily of
maturities under our long-term debt agreements, development and redevelopment costs and potential acquisitions.
We intend to operate with and maintain a conservative capital structure that will allow us to maintain strong debt service
coverage and fixed-charge coverage ratios as part of our commitment to investment-grade debt ratings. In the short and long
term, we may seek to obtain funds through the issuance of additional equity, unsecured and/or secured debt financings, joint
venture relationships relating to existing properties or new acquisitions, and property dispositions that are consistent with this
conservative structure.
At December 31, 2014, we had $48.0 million of cash and cash equivalents and no borrowings outstanding on our $600.0
million revolving credit facility that matures on April 21, 2017, subject to a one-year extension at our option. In addition, we
have an option (subject to bank approval) to increase the credit facility through an accordion feature to $1.0 billion. Our $275.0
million unsecured term loan that matures on November 21, 2018, subject to a one-year extension at our option, also has an
option (subject to bank approval) to increase the term loan through an accordion feature to $350.0 million. As of December 31,
2014, we had the capacity to issue up to $84.1 million in common shares under our ATM equity program.
For 2014, the maximum amount of borrowings outstanding under our revolving credit facility was $79.5 million, the weighted
average amount of borrowings outstanding was $12.5 million and the weighted average interest rate, before amortization of
debt fees, was 1.07%. In November 2014, we accessed the public debt markets issuing $250 million of 30-year unsecured
senior notes which bear interest at 4.5%. The opportunistic issuance resulted in net proceeds of $244.6 million which were
used to address $186 million of our 2016 debt maturities.
42
We currently believe that cash flows from operations, cash on hand, our ATM equity program, our revolving credit facility and
our general ability to access the capital markets will be sufficient to finance our operations and fund our debt service
requirements and capital expenditures.
Our overall capital requirements during 2015 will depend upon acquisition opportunities, the level of improvements and
redevelopments on existing properties and the timing and cost of development of Assembly Row, Pike & Rose and future
phases of Santana Row. While the amount of future expenditures will depend on numerous factors, we expect to continue to see
higher levels of capital investments in our properties under development and redevelopment in 2015 which is the result of the
continued development at both Assembly Row and Pike & Rose with openings of portions of both projects in 2015, the
commencement of construction on Phase II of Pike & Rose, and the current phase of Santana Row. With respect to other capital
investments related to our existing properties, we expect to incur levels consistent with prior years. Our capital investments will
be funded on a short-term basis with cash flow from operations, cash on hand and/or our revolving credit facility, and on a
long-term basis, with long-term debt or equity including shares issued under our ATM equity program. If necessary, we may
access the debt or equity capital markets to finance significant acquisitions. Given our past ability to access the capital markets,
we expect debt or equity to be available to us. Although there is no intent at this time, if market conditions deteriorate, we may
also delay the timing of certain development and redevelopment projects as well as limit future acquisitions, reduce our
operating expenditures, or re-evaluate our dividend policy.
In addition to conditions in the capital markets which could affect our ability to access those markets, the following factors
could affect our ability to meet our liquidity requirements:
•
•
restrictions in our debt instruments or preferred shares may limit us from incurring debt or issuing
equity at all, or on acceptable terms under then-prevailing market conditions; and
we may be unable to service additional or replacement debt due to increases in interest rates or a decline
in our operating performance.
Summary of Cash Flows
Year Ended December 31,
2014
2013
(In thousands)
Cash provided by operating activities............................................................................................ $
Cash used in investing activities ....................................................................................................
Cash provided by financing activities............................................................................................
(Decrease) increase in cash and cash equivalents..........................................................................
Cash and cash equivalents, beginning of year ...............................................................................
Cash and cash equivalents, end of year ......................................................................................... $
346,130
(396,150)
9,044
(40,976)
88,927
47,951
$
$
314,498
(345,198)
82,639
51,939
36,988
88,927
Net cash provided by operating activities increased $31.6 million to $346.1 million during 2014 from $314.5 million during
2013. The increase was primarily attributable to higher net income before certain non-cash items.
Net cash used in investing activities increased $51.0 million to $396.2 million during 2014 from $345.2 million during 2013.
The increase was primarily attributable to:
•
•
•
$93.7 million increase in capital investments and leasing costs in 2014 primarily related to our
development projects at Assembly Row and Pike & Rose,
$42.9 million in proceeds from the sale of real estate in 2013, and
$6.7 million contribution to our real estate partnership to repay the mortgage loans of two of its
properties,
partially offset by
•
•
•
$78.1 million decrease in acquisitions of real estate,
$10.4 million in distributions from our real estate partnership from the sale of Pleasant Shops in July
2014, and
$3.6 million received from the payoff of a mortgage loan receivable in July 2014.
43
Net cash provided by financing activities decreased $73.6 million to $9.0 million during 2014 from $82.6 million in 2013. The
decrease was primarily attributable to:
•
•
$319.8 million decrease from net proceeds on senior note issuances due to $244.6 million from our
4.50% senior notes issued in November 2014 as compared to $564.4 million from the issuance of our
2.75% senior notes in May 2013 and our 3.95% senior notes in December 2013, and
$22.2 million increase in dividends paid to shareholders due to an increase in the dividend rate and
increased number of shares outstanding,
partially offset by
•
•
•
$159.1 million decrease due to the redemption of $125.0 million of senior notes in 2014, as compared
to the redemption of $285.0 million of senior notes in 2013,
$79.3 million decrease in repayment of mortgages, capital leases and notes payable due to the payoff of
two mortgages totaling $84.3 million in 2014 compared to the repayment of six mortgages totaling
$161.7 million in 2013, and
$29.6 million increase in net proceeds from the issuance of common shares due primarily to the sale of
1.8 million shares under our ATM equity program at a weighted average price of $122.09 during 2014
compared to 1.7 million shares at a weighted average price of $108.01 during 2013.
Contractual Commitments
The following table provides a summary of our fixed, noncancelable obligations as of December 31, 2014:
Commitments Due by Period
Total
Less Than
1 Year
1-3 Years
3-5 Years
After 5
Years
Fixed rate debt (principal and interest)(1) ......... $ 3,181,151
Fixed rate debt - unconsolidated real estate
partnership (principal and interest)(2) ...............
11,288
Capital lease obligations (principal and
interest) ..............................................................
Variable rate debt (principal only)(3).................
Operating leases .................................................
Real estate commitments(4)(5) ..........................
Development, redevelopment, and capital
232,276
improvement obligations ...................................
Contractual operating obligations ......................
24,291
Total contractual obligations.............................. $ 3,889,683
189,182
9,400
165,763
76,332
_____________________
$
259,064
(In thousands)
602,388
$
$
437,453
$ 1,882,246
614
10,674
—
—
5,787
—
1,478
8,832
11,585
9,400
4,910
—
11,600
—
5,164
—
160,210
—
154,211
67,500
181,065
14,916
471,756
$
50,948
8,375
698,280
$
263
940
455,420
—
60
$ 2,264,227
$
(1) Fixed rate debt includes our $275.0 million term loan as the rate is effectively fixed by two interest rate swap
agreements.
(2) Amounts reflect our share of principal and interest payments on our unconsolidated joint venture's fixed rate debt.
(3) Variable rate debt includes a $9.4 million bond that had an interest rate of 0.06% at December 31, 2014 and our
revolving credit facility, which currently has no outstanding balance and bears interest at LIBOR plus 0.90%.
(4) A master lease on Melville Mall includes a fixed price put option requiring us to purchase the property for $5.0
million. This obligation is included in real estate commitments.
(5) Includes a $9 million liability to one of the noncontrolling interest holders in The Grove at Shrewsbury which is
expected to be settled in 2015.
In addition to the amounts set forth in the table above and other liquidity requirements previously discussed, the following
potential commitments exist:
(a) Under the terms of the Congressional Plaza partnership agreement, from and after January 1, 1986, an unaffiliated
third party has the right to require us and the other minority partner to purchase its 29.47% interest in Congressional Plaza at
the interest’s then-current fair market value. If the other minority partner defaults in their obligation, we must purchase the full
44
interest. Based on management’s current estimate of fair market value as of December 31, 2014, our estimated liability upon
exercise of the put option would range from approximately $72 million to $76 million.
(b) Under the terms of a partnership which owns a project in southern California, if certain leasing and revenue levels are
obtained for the property owned by the partnership, the other partner may require us to purchase their 10% partnership interest
at a formula price based upon property operating income. The purchase price for the partnership interest will be paid using our
common shares or, subject to certain conditions, cash. If the other partner does not redeem their interest, we may choose to
purchase the partnership interest upon the same terms.
(c) Under the terms of various other partnership agreements, the partners have the right to exchange their operating
partnership units for cash or the same number of our common shares, at our option. As of December 31, 2014, a total of
917,255 operating partnership units are outstanding.
(d) The other member in Montrose Crossing has the right to require us to purchase all of its 10.1% interest in Montrose
Crossing at the interest's then-current fair market value. If the other member fails to exercise its put option, we have the right to
purchase its interest on or after December 27, 2021 at fair market value. Based on management’s current estimate of fair
market value as of December 31, 2014, our estimated maximum liability upon exercise of the put option would range from
approximately $9 million to $10 million.
(e) Two of the members in Plaza El Segundo have the right to require us to purchase their 10.0% and 11.8% ownership
interests at the interests' then-current fair market value. If the members fail to exercise their put options, we have the right to
purchase each of their interests on or after December 30, 2026 at fair market value. Based on management’s current estimate of
fair market value as of December 31, 2014, our estimated maximum liability upon exercise of the put option would range from
approximately $18 million to $21 million. Also, between January 1, 2017 and February 1, 2017, we have an option to purchase
the preferred interest of another member in Plaza El Segundo. The purchase price will be the lesser of fair value or the $4.9
million stated value of the preferred interest plus any accrued and unpaid preferred returns.
(f) Effective January 1, 2017, the other member in The Grove at Shrewsbury and Brook 35 has the right to require us to
purchase all of its approximately 4.8% interest in The Grove at Shrewsbury and approximately 8.8% interest in Brook 35 at the
interests' then-current fair market value.
(g) At December 31, 2014, we had letters of credit outstanding of approximately $13.0 million which are collateral for
existing indebtedness and other obligations of the Trust.
Off-Balance Sheet Arrangements
We have a joint venture arrangement (the “Partnership”) with affiliates of a discretionary fund created and advised by ING
Clarion Partners (“Clarion”). We own 30% of the equity in the Partnership and Clarion owns 70%. We hold a general
partnership interest, however, Clarion also holds a general partnership interest and has substantive participating rights. We
cannot make significant decisions without Clarion’s approval. Accordingly, we account for our interest in the Partnership using
the equity method. As of December 31, 2014, the Partnership owned six retail real estate properties. We are the manager of the
Partnership and its properties, earning fees for acquisitions, management, leasing and financing. We also have the opportunity
to receive performance-based earnings through our Partnership interest. The Partnership is subject to a buy-sell provision which
is customary in real estate joint venture agreements and the industry. Either partner may initiate this provision at any time,
which could result in either the sale of our interest or the use of available cash or borrowings to acquire Clarion’s interest.
Accounting policies for the Partnership are similar to accounting policies followed by the Trust. At December 31, 2014, our
investment in the Partnership was $32.4 million and the Partnership had approximately $34.4 million of mortgages payable
outstanding.
Other than the joint venture described above and items disclosed in the Contractual Commitments Table, we have no off-
balance sheet arrangements as of December 31, 2014 that are reasonably likely to have a current or future material effect on our
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
45
Debt Financing Arrangements
The following is a summary of our total debt outstanding as of December 31, 2014:
Description of Debt
Mortgages payable (1)
Secured fixed rate
Barracks Road....................................................
Hauppauge .........................................................
Lawrence Park ...................................................
Wildwood...........................................................
Wynnewood .......................................................
Brick Plaza .........................................................
Plaza El Segundo ...............................................
The Grove at Shrewsbury (East)........................
The Grove at Shrewsbury (West).......................
Rollingwood Apartments ...................................
29th Place...........................................................
THE AVENUE at White Marsh.........................
Montrose Crossing .............................................
Brook 35.............................................................
Chelsea...............................................................
Subtotal ......................................................
Net unamortized premium ....................
Total mortgages payable ............................
Notes payable
Unsecured fixed rate
Term Loan (2) ....................................................
Various...............................................................
Unsecured variable rate
Escondido (municipal bonds) (3).......................
Revolving credit facility (4)...............................
Total notes payable ....................................
Senior notes and debentures
Unsecured fixed rate
6.20% notes........................................................
5.90% notes........................................................
3.00% notes........................................................
2.75% notes........................................................
3.95% notes........................................................
7.48% debentures...............................................
6.82% medium term notes .................................
4.50% notes........................................................
Subtotal ......................................................
Net unamortized discount.....................
Total senior notes and debentures..............
Capital lease obligations
Various..........................................................
Total debt and capital lease obligations
Original
Debt
Issued
Principal Balance
as of December 31,
2014
(Dollars in thousands)
Stated Interest Rate
as of December 31,
2014
Maturity Date
35,985
13,566
25,507
22,420
25,994
26,415
175,000
44,519
11,242
22,130
4,941
52,705
75,867
11,500
7,074
554,865
8,833
563,698
275,000
6,119
9,400
—
290,519
200,000
150,000
250,000
275,000
300,000
29,200
40,000
250,000
1,494,200
(10,387)
1,483,813
71,647
2,409,677
7.95%
7.95%
7.95%
7.95%
7.95%
7.42%
6.33%
5.82%
6.38%
5.54%
5.91%
3.35%
4.20%
4.65%
5.36%
November 1, 2015
November 1, 2015
November 1, 2015
November 1, 2015
November 1, 2015
November 1, 2015
August 5, 2017
October 1, 2017
March 1, 2018
May 1, 2019
January 31, 2021
January 1, 2022
January 10, 2022
July 1, 2029
January 15, 2031
LIBOR + 0.90%
11.31%
November 21, 2018
Various through 2028
0.06%
LIBOR + 0.90%
October 1, 2016
April 21, 2017
6.20%
5.90%
3.00%
2.75%
3.95%
7.48%
6.82%
4.50%
January 15, 2017
April 1, 2020
August 1, 2022
June 1, 2023
January 15, 2024
August 15, 2026
August 1, 2027
December 1, 2044
Various
Various through 2106
44,300
16,700
31,400
27,600
32,000
33,000
Acquired
Acquired
Acquired
24,050
Acquired
52,705
80,000
11,500
Acquired
275,000
7,239
9,400
600,000
200,000
150,000
250,000
275,000
300,000
50,000
40,000
250,000
$
$
46
_____________________
1)
2)
3)
4)
Mortgages payable do not include our 30% share ($10.3 million) of the $34.4 million debt of the partnership with a
discretionary fund created and advised by ING Clarion Partners.
We entered into two interest rate swap agreements that fix the LIBOR portion of the interest rate on the term loan at
1.72%. The spread on the term loan was reduced from 130 basis points to 90 basis points on August 28, 2014
resulting in a fixed rate of 2.62%.
The bonds require monthly interest only payments through maturity. The bonds bear interest at a variable rate
determined weekly, which would enable the bonds to be remarketed at 100% of their principal amount. The Escondido
Promenade property is not encumbered by a lien.
The maximum amount drawn under our revolving credit facility during 2014 was $79.5 million and the weighted
average effective interest rate on borrowings under our revolving credit facility, before amortization of debt fees, was
1.07%.
Our revolving credit facility, term loan and other debt agreements include financial and other covenants that may limit our
operating activities in the future. As of December 31, 2014, we were in compliance with all of the financial and other
covenants. If we were to breach any of our debt covenants and did not cure the breach within an applicable cure period, our
lenders could require us to repay the debt immediately and, if the debt is secured, could immediately begin proceedings to take
possession of the property securing the loan. Many of our debt arrangements, including our public notes, term loan and our
revolving credit facility, are cross-defaulted, which means that the lenders under those debt arrangements can put us in default
and require immediate repayment of their debt if we breach and fail to cure a default under certain of our other debt obligations.
As a result, any default under our debt covenants could have an adverse effect on our financial condition, our results of
operations, our ability to meet our obligations and the market value of our shares. Our organizational documents do not limit
the level or amount of debt that we may incur.
The following is a summary of our scheduled principal repayments as of December 31, 2014:
Unsecured
Secured
Capital Lease
Total
2015............................................................................... $
2016...............................................................................
369
9,806
2017...............................................................................
200,451 (1)
2018...............................................................................
2019...............................................................................
Thereafter ......................................................................
275,500
553
1,298,040
(In thousands)
$
153,395
$
3,774
220,438
13,326
22,731
141,201
31
30
34
37
42
$
153,795
13,610
420,923
288,863
23,326
71,473
1,510,714
$ 1,784,719
$
554,865
$
71,647
$ 2,411,231 (2)
_____________________
1)
2)
Our $600.0 million revolving credit facility matures on April 21, 2017, subject to a one-year extension at our option.
As of December 31, 2014, there was no balance outstanding under this credit facility.
The total debt maturities differs from the total reported on the consolidated balance sheet due to the unamortized net
premium or discount on certain mortgage loans and senior notes as of December 31, 2014.
47
Interest Rate Hedging
We may use derivative instruments to manage exposure to variable interest rate risk. We generally enter into interest rate swaps
to manage our exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the
issuance of debt. We enter into derivative instruments that qualify as cash flow hedges and do not enter into derivative
instruments for speculative purposes.
The interest rate swaps associated with our cash flow hedges are recorded at fair value on a recurring basis. We assess
effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value
of the interest rate swaps associated with our cash flow hedges is recorded in other comprehensive (loss) income which is
included in accumulated other comprehensive loss on our consolidated balance sheet and our consolidated statement of
shareholders' equity. Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt
instrument do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and LIBOR rate.
In addition, we evaluate the default risk of the counterparty by monitoring the credit worthiness of the counterparty which
includes reviewing debt ratings and financial performance. However, management does not anticipate non-performance by the
counterparty. If a cash flow hedge is deemed ineffective, the ineffective portion of changes in fair value of the interest rate
swaps associated with our cash flow hedges is recognized in earnings in the period affected.
As of December 31, 2014, we are party to two interest rate swap agreements that effectively fixed the rate on the term loan at
2.62%. Both swaps were designated and qualified as cash flow hedges and were recorded at fair value. Hedge ineffectiveness
has not impacted earnings in 2014, 2013 and 2012, and we do not anticipate it will have a significant effect in the future.
REIT Qualification
We intend to maintain our qualification as a REIT under Section 856(c) of the Code. As a REIT, we generally will not be
subject to corporate federal income taxes on income we distribute to our shareholders as long as we satisfy certain technical
requirements of the Code, including the requirement to distribute at least 90% of our taxable income to our shareholders.
Funds From Operations
Funds from operations (“FFO”) is a supplemental non-GAAP financial measure of real estate companies’ operating
performance. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as follows: net income,
computed in accordance with the U.S. GAAP, plus real estate related depreciation and amortization and excluding
extraordinary items and gains and losses on the sale of real estate. We compute FFO in accordance with the NAREIT
definition, and we have historically reported our FFO available for common shareholders in addition to our net income and net
cash provided by operating activities. It should be noted that FFO:
•
•
•
does not represent cash flows from operating activities in accordance with GAAP (which, unlike FFO,
generally reflects all cash effects of transactions and other events in the determination of net income);
should not be considered an alternative to net income as an indication of our performance; and
is not necessarily indicative of cash flow as a measure of liquidity or ability to fund cash needs,
including the payment of dividends.
We consider FFO available for common shareholders a meaningful, additional measure of operating performance primarily
because it excludes the assumption that the value of the real estate assets diminishes predictably over time, as implied by the
historical cost convention of GAAP and the recording of depreciation. We use FFO primarily as one of several means of
assessing our operating performance in comparison with other REITs. Comparison of our presentation of FFO to similarly titled
measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT
definition used by such REITs.
An increase or decrease in FFO available for common shareholders does not necessarily result in an increase or decrease in
aggregate distributions because our Board of Trustees is not required to increase distributions on a quarterly basis unless
necessary for us to maintain REIT status. However, we must distribute at least 90% of our taxable income to remain qualified
as a REIT. Therefore, a significant increase in FFO will generally require an increase in distributions to shareholders although
not necessarily on a proportionate basis.
In addition to FFO, we have also included FFO excluding the "early extinguishment of debt" charges in 2014 and 2013 which
relate to the early redemption of our 5.65% senior notes and East Bay Bridge mortgage loan in 2014, and our 5.40% senior
notes, 5.95% senior notes, and 7.50% mortgages loans in 2013. We believe the unusual nature of these charges, being make-
whole payments on the remaining principal and interest on the redeemed notes/mortgages, is worthy of separate evaluation and
consequently have provided both relevant metrics.
48
The reconciliation of net income to FFO available for common shareholders and to FFO available for common shareholders
excluding early extinguishment of debt is as follows:
Net income ............................................................................................................ $
Net income attributable to noncontrolling interests ..............................................
Gain on sale of real estate .....................................................................................
Depreciation and amortization of real estate assets ..............................................
Amortization of initial direct costs of leases.........................................................
Depreciation of joint venture real estate assets .....................................................
Funds from operations ...................................................................................
Dividends on preferred shares...............................................................................
Income attributable to operating partnership units................................................
Income attributable to unvested shares .................................................................
Funds from operations available for common shareholders ..........................
Early extinguishment of debt, net of allocation to unvested shares......................
Year Ended December 31,
2014
2013
2012
(In thousands, except per share data)
$
172,289
(7,754)
(4,401)
152,505
12,391
1,555
326,585
(541)
3,027
(1,474)
327,597
10,498
$
167,608
(4,927)
(28,855)
144,873
10,694
1,504
290,897
(541)
888
(1,306)
289,938
13,244
156,232
(4,307)
(11,860)
125,611
10,935
1,513
278,124
(541)
943
(1,289)
277,237
—
Funds from operations available for common shareholders excluding early
extinguishment of debt................................................................................... $
338,095
$
303,182
$
277,237
Weighted average number of common shares, diluted (1)....................................
68,410
65,778
64,389
Funds from operations available for common shareholders, per diluted share..... $
4.79
$
4.41
$
4.31
Funds from operations available for common shareholders excluding early
extinguishment of debt, per diluted share ............................................................. $
_____________________
4.94
$
4.61
$
4.31
(1)
The weighted average common shares used to compute FFO per diluted common share includes operating partnership
units that were excluded from the computation of diluted EPS. Conversion of these operating partnership units is
dilutive in the computation of FFO per diluted common share but is anti-dilutive for the computation of diluted EPS
for the periods presented.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our use of financial instruments, such as debt instruments, subjects us to market risk which may affect our future earnings and
cash flows, as well as the fair value of our assets. Market risk generally refers to the risk of loss from changes in interest rates
and market prices. We manage our market risk by attempting to match anticipated inflow of cash from our operating, investing
and financing activities with anticipated outflow of cash to fund debt payments, dividends to common and preferred
shareholders, investments, capital expenditures and other cash requirements.
We may enter into certain types of derivative financial instruments to further reduce interest rate risk. We use interest rate
protection and swap agreements, for example, to convert some of our variable rate debt to a fixed-rate basis or to hedge
anticipated financing transactions. We use derivatives for hedging purposes rather than speculation and do not enter into
financial instruments for trading purposes. As of December 31, 2014, we were party to two interest rate swap agreements that
effectively fix the rate on the $275.0 million term loan at 2.62%.
Interest Rate Risk
The following discusses the effect of hypothetical changes in market rates of interest on interest expense for our variable rate
debt and on the fair value of our total outstanding debt, including our fixed-rate debt. Interest rate risk amounts were
determined by considering the impact of hypothetical interest rates on our debt. Quoted market prices were used to estimate the
49
fair value of our marketable senior notes and debentures and discounted cash flow analysis is generally used to estimate the fair
value of our mortgages and notes payable. Considerable judgment is necessary to estimate the fair value of financial
instruments. This analysis does not purport to take into account all of the factors that may affect our debt, such as the effect that
a changing interest rate environment could have on the overall level of economic activity or the action that our management
might take to reduce our exposure to the change. This analysis assumes no change in our financial structure.
Fixed Interest Rate Debt
The majority of our outstanding debt obligations (maturing at various times through 2044 or, with respect to capital lease
obligations through 2106) have fixed interest rates which limit the risk of fluctuating interest rates. However, interest rate
fluctuations may affect the fair value of our fixed rate debt instruments. At December 31, 2014, we had $2.3 billion of fixed-
rate debt outstanding, including our $275.0 million term loan as the rate is effectively fixed by two interest rate swap
agreements; we also had capital lease obligations of $71.6 million. If market interest rates used to calculate the fair value on our
fixed-rate debt instruments at December 31, 2014 had been 1.0% higher, the fair value of those debt instruments on that date
would have decreased by approximately $133.6 million. If market interest rates used to calculate the fair value on our fixed-rate
debt instruments at December 31, 2014 had been 1.0% lower, the fair value of those debt instruments on that date would have
increased by approximately $149.8 million.
Variable Interest Rate Debt
Generally, we believe that our primary interest rate risk is due to fluctuations in interest rates on our variable rate debt. At
December 31, 2014, we had $9.4 million of variable rate debt outstanding which consisted of municipal bonds. Our revolving
credit facility had no outstanding balance as of December 31, 2014. Based upon this amount of variable rate debt and the
specific terms, if market interest rates increased 1.0%, our annual interest expense would increase by approximately $0.1
million, and our net income and cash flows for the year would decrease by approximately $0.1 million. Conversely, if market
interest rates decreased 1.0%, our annual interest expense would decrease by less than $0.1 million with a corresponding
increase in our net income and cash flows for the year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and supplementary data are included as a separate section of this Annual Report on Form
10-K commencing on page F-1 and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Quarterly Assessment
We carried out an assessment as of December 31, 2014 of the effectiveness of the design and operation of our disclosure
controls and procedures and our internal control over financial reporting. This assessment was done under the supervision and
with the participation of management, including our Chief Executive Officer and our Chief Financial Officer. Rules adopted by
the Securities and Exchange Commission ("SEC") require that we present the conclusions of our principal executive officer and
our principal financial officer about the effectiveness of our disclosure controls and procedures and the conclusions of our
management about the effectiveness of our internal control over financial reporting as of the end of the period covered by this
annual report.
Principal Executive Officer and Principal Financial Officer Certifications
Included as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K are forms of “Certification” of our principal executive
officer and our principal financial officer. The forms of Certification are required in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002. This section of this Annual Report on Form 10-K that you are currently reading is the information
concerning the assessment referred to in the Section 302 certifications and this information should be read in conjunction with
the Section 302 certifications for a more complete understanding of the topics presented.
50
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to
be disclosed in our Exchange Act reports, such as this report on Form 10-K, is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to
our management, including our President and Chief Executive Officer and Executive Vice President-Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. These controls and procedures are based closely on the
definition of “disclosure controls and procedures” in Rule 13a-15(e) promulgated under the Exchange Act. Rules adopted by
the SEC require that we present the conclusions of the Chief Executive Officer and Chief Financial Officer about the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report.
Internal Control over Financial Reporting
Establishing and maintaining internal control over financial reporting is a process designed by, or under the supervision of, our
President and Chief Executive Officer and Executive Vice President-Chief Financial Officer, as appropriate, and effected by our
employees, including management and our Board of Trustees, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles in the United States of America. This process includes policies and procedures that:
•
•
•
pertain to the maintenance of records that accurately and fairly reflect the transactions and dispositions of our assets in
reasonable detail;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are made only in
accordance with the authorization procedures we have established; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of any of our assets in circumstances that could have a material adverse effect on our financial statements.
Limitations on the Effectiveness of Controls
Management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and
procedures or internal control over financial reporting will prevent all errors and fraud. In designing and evaluating our control
system, management recognized that any control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must
reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, that may affect our
operation have been or will be detected. These inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by management’s override of the control. The design of
any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls
may become inadequate because of changes in conditions that cannot be anticipated at the present time, or the degree of
compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be detected.
Scope of the Evaluations
The evaluation by our Chief Executive Officer and our Chief Financial Officer of our disclosure controls and procedures and
our internal control over financial reporting included a review of our procedures and procedures performed by internal audit, as
well as discussions with our Disclosure Committee and others in our organization, as appropriate. In conducting this evaluation,
our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in the 2013 Internal Control—Integrated Framework. In the course of the evaluation, we sought to identify data
errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements,
were being undertaken. The evaluation of our disclosure controls and procedures and our internal control over financial
reporting is done on a quarterly basis, so that the conclusions concerning the effectiveness of such controls can be reported in
our Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.
Our internal control over financial reporting is also assessed on an ongoing basis by personnel in our accounting department
and by our independent auditors in connection with their audit and review activities. The overall goals of these various
evaluation activities are to monitor our disclosure controls and procedures and our internal control over financial reporting and
to make modifications as necessary. Our intent in this regard is that the disclosure controls and procedures and internal control
over financial reporting will be maintained and updated (including with improvements and corrections) as conditions warrant.
51
Among other matters, we sought in our evaluation to determine whether there were any “significant deficiencies” or “material
weaknesses” in our internal control over financial reporting, or whether we had identified any acts of fraud involving personnel
who have a significant role in our internal control over financial reporting. This information is important both for the evaluation
generally and because the Section 302 certifications require that our Chief Executive Officer and our Chief Financial Officer
disclose that information to the Audit Committee of our Board of Trustees and our independent auditors and also require us to
report on related matters in this section of the Annual Report on Form 10-K. In the Public Company Accounting Oversight
Board’s Auditing Standard No. 5, a “deficiency” in internal control over financial reporting exists when the design or operation
of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent
or detect misstatements on a timely basis. A “significant deficiency” is a deficiency, or a combination of deficiencies, in internal
control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those
responsible for oversight of the company’s financial reporting. A “material weakness” is defined in Auditing Standard No. 5 as
a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or
detected on a timely basis. We also sought to deal with other control matters in the evaluation, and in any case in which a
problem was identified, we considered what revision, improvement and/or correction was necessary to be made in accordance
with our on-going procedures.
Periodic Evaluation and Conclusion of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that such controls and procedures were effective as of the
end of the period covered by this report and provides reasonable assurance that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding
required disclosure.
Periodic Evaluation and Conclusion of Internal Control over Financial Reporting
Our Chief Executive Officer and Chief Financial Officer have conducted an evaluation of the effectiveness of the design and
operation of our internal control over financial reporting as of the end of our most recent fiscal year. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that such internal control over financial reporting was
effective as of the end of our most recent fiscal year and provides reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles in the United States of America.
Statement of Our Management
Our management has issued a report on its assessment of the Trust’s internal control over financial reporting, which appears on
page F-2 of this Annual Report on Form 10-K.
Statement of Our Independent Registered Public Accounting Firm
Grant Thornton LLP, our independent registered public accounting firm that audited the financial statements included in this
Annual Report on Form 10-K, has issued an attestation report on the Trust’s internal control over financial reporting, which
appears on page F-3 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during our fourth fiscal quarter of 2014 that materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
52
PART III
Certain information required in Part III is omitted from this Report but is incorporated herein by reference from our Proxy
Statement for the 2015 Annual Meeting of Shareholders (as amended or supplemented, the “Proxy Statement”).
ITEM 10. TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The tables and narrative in the Proxy Statement identifying our Trustees and Board committees under the caption “Election of
Trustees” and “Corporate Governance”, the sections of the Proxy Statement entitled “Executive Officers” and “Section 16(a)
Beneficial Ownership Reporting Compliance” and other information included in the Proxy Statement required by this Item 10
are incorporated herein by reference.
We have adopted a Code of Ethics, which is applicable to our Chief Executive Officer and senior financial officers. The Code
of Ethics is available in the Corporate Governance section of the Investors section of our website at www.federalrealty.com.
ITEM 11. EXECUTIVE COMPENSATION
The sections of the Proxy Statement entitled “Summary Compensation Table,” “Compensation Committee Interlocks and
Insider Participation,” “Compensation Committee Report,” “Trustee Compensation” and “Compensation Discussion and
Analysis” and other information included in the Proxy Statement required by this Item 11 are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
The sections of the Proxy Statement entitled “Share Ownership” and “Equity Compensation Plan Information” and other
information included in the Proxy Statement required by this Item 12 are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND TRUSTEE INDEPENDENCE
The sections of the Proxy Statement entitled “Certain Relationship and Related Transactions” and “Independence of Trustees”
and other information included in the Proxy Statement required by this Item 13 are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The sections of the Proxy Statement entitled “Ratification of Independent Registered Public Accounting Firm” and
“Relationship with Independent Registered Public Accounting Firm” and other information included in the Proxy Statement
required by this Item 14 are incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
Our consolidated financial statements and notes thereto, together with Management’s Report on Internal Control over Financial
Reporting and Reports of Independent Registered Public Accounting Firm are included as a separate section of this Annual
Report on Form 10-K commencing on page F-1.
(2) Financial Statement Schedules
Our financial statement schedules are included in a separate section of this Annual Report on Form 10-K commencing on page
F-30.
(3) Exhibits
A list of exhibits to this Annual Report on Form 10-K is set forth on the Exhibit Index immediately preceding such exhibits and
is incorporated herein by reference.
(b) See Exhibit Index
(c) Not Applicable
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized this February 10, 2015.
Federal Realty Investment Trust
By:
/S/ DONALD C. WOOD
Donald C. Wood
President, Chief Executive Officer and Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacity and on the dates indicated. Each person whose signature
appears below hereby constitutes and appoints each of Donald C. Wood and Dawn M. Becker as his or her attorney-in-fact and
agent, with full power of substitution and resubstitution for him or her in any and all capacities, to sign any or all amendments
to this Report and to file same, with exhibits thereto and other documents in connection therewith, granting unto such attorney-
in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary in connection
with such matters and hereby ratifying and confirming all that such attorney-in-fact and agent or his or her substitutes may do
or cause to be done by virtue hereof.
Signature
Title
Date
/S/ DONALD C. WOOD
Donald C. Wood
President, Chief Executive Officer and
February 10, 2015
Trustee (Principal Executive Officer)
/S/ JAMES M. TAYLOR, JR.
James M. Taylor, Jr.
/S/ JOSEPH S. VASSALLUZZO
Joseph S. Vassalluzzo
/S/ JON E. BORTZ
Jon E. Bortz
/S/ DAVID W. FAEDER
David W. Faeder
/S/ KRISTIN GAMBLE
Kristin Gamble
/S/ GAIL P. STEINEL
Gail P. Steinel
/S/ WARREN M. THOMPSON
Warren M. Thompson
Executive Vice President-Chief Financial
February 10, 2015
Officer and Treasurer (Principal
Financial and Accounting Officer)
Non-Executive Chairman
February 10, 2015
February 10, 2015
February 10, 2015
February 10, 2015
February 10, 2015
February 10, 2015
Trustee
Trustee
Trustee
Trustee
Trustee
54
Item 8 and Item 15(a)(1) and (2)
Index to Consolidated Financial Statements and Schedules
Consolidated Financial Statements
Management Assessment Report on Internal Control over Financial Reporting ..................................................
Page No.
Report of Independent Registered Public Accounting Firm..................................................................................
Report of Independent Registered Public Accounting Firm..................................................................................
Consolidated Balance Sheets .................................................................................................................................
Consolidated Statements of Comprehensive Income ............................................................................................
Consolidated Statement of Shareholders’ Equity ..................................................................................................
Consolidated Statements of Cash Flows................................................................................................................
Notes to Consolidated Financial Statements..........................................................................................................
Financial Statement Schedules
Schedule III—Summary of Real Estate and Accumulated Depreciation ..............................................................
Schedule IV—Mortgage Loans on Real Estate .....................................................................................................
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-30
F-37
All other schedules have been omitted either because the information is not applicable, not material, or is disclosed in our
consolidated financial statements and related notes.
F-1
Management Assessment Report on Internal Control over Financial Reporting
The management of Federal Realty Investment Trust (the "Trust") is responsible for establishing and maintaining adequate
internal control over financial reporting. Establishing and maintaining internal control over financial reporting is a process
designed by, or under the supervision of, our President and Chief Executive Officer and Executive Vice President - Chief
Financial Officer and Treasurer, as appropriate, and effected by our employees, including management and our Board of
Trustees, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. This process includes policies
and procedures that:
•
•
•
pertain to the maintenance of records that accurately and fairly reflect the transactions and dispositions of our assets in
reasonable detail;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are made only in
accordance with the authorization procedures we have established; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of any of our assets in circumstances that could have a material adverse effect on our financial statements.
Management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our internal control over
financial reporting will prevent all errors and fraud. In designing and evaluating our control system, management recognized
that any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of
achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource
constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, that may affect our operation have been
detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management’s override of the control. The design of any system of controls
also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions.
Management conducted an assessment of the effectiveness of the Trust’s internal control over financial reporting as of
December 31, 2014. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in the 2013 Internal Control—Integrated Framework. Based on this assessment,
management concluded that our internal control over financial reporting is effective, based on those criteria, as of
December 31, 2014.
Grant Thornton LLP, the independent registered public accounting firm that audited the Trust’s consolidated financial
statements included in this Annual Report on Form 10-K, has issued an attestation report on the Trust’s internal control over
financial reporting, which appears on page F-3 of this Annual Report on Form 10-K.
F-2
Report of Independent Registered Public Accounting Firm
Trustees and Shareholders of Federal Realty Investment Trust
We have audited the internal control over financial reporting of Federal Realty Investment Trust (a Maryland real estate
investment trust) and Subsidiaries (collectively, the "Trust") as of December 31, 2014, based on criteria established in the 2013
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Trust’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management
Assessment Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Trust’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Federal Realty Investment Trust and Subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements of the Trust as of and for the year ended December 31, 2014 and our report dated
February 10, 2015 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
McLean, Virginia
February 10, 2015
F-3
Report of Independent Registered Public Accounting Firm
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 (collectively, the "Trust") as of December 31, 2014 and 2013, and the related consolidated
statements of comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2014. Our audits of the basic consolidated financial statements included the financial statement schedules listed
in the index appearing under Item 15(a) (1) and (2). These financial statements and financial statement schedules are the
responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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, 2014 and 2013, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Trust’s internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
and our report dated February 10, 2015 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
McLean, Virginia
February 10, 2015
F-4
Federal Realty Investment Trust
Consolidated Balance Sheets
December 31,
2014
2013
(In thousands, except share and
per share data)
ASSETS
Real estate, at cost
Operating (including $282,303 and $265,138 of consolidated variable interest entities,
respectively) ..................................................................................................................... $ 5,128,757
Construction-in-progress ..................................................................................................
480,241
$ 4,618,258
531,205
5,608,998
5,149,463
Less accumulated depreciation and amortization (including $26,618 and $19,086 of
consolidated variable interest entities, respectively)........................................................
Net real estate ..........................................................................................................................
Cash and cash equivalents .......................................................................................................
Accounts and notes receivable, net .........................................................................................
Mortgage notes receivable, net................................................................................................
Investment in real estate partnerships......................................................................................
Prepaid expenses and other assets ...........................................................................................
Debt issuance costs, net of accumulated amortization of $11,441 and $9,535, respectively..
(1,467,050)
4,141,948
47,951
93,291
50,988
37,457
160,167
15,068
TOTAL ASSETS............................................................................................................................. $ 4,546,870
(1,350,471)
3,798,992
88,927
84,838
55,155
32,264
145,062
14,056
$ 4,219,294
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Mortgages payable (including $187,632 and $202,782 of consolidated variable
interest entities, respectively) ........................................................................................... $
Capital lease obligations...................................................................................................
Notes payable ...................................................................................................................
Senior notes and debentures .............................................................................................
Accounts payable and accrued expenses..........................................................................
Dividends payable ............................................................................................................
Security deposits payable .................................................................................................
Other liabilities and deferred credits ................................................................................
Total liabilities.........................................................................................................................
Commitments and contingencies (Note 9)
Redeemable noncontrolling interests
Shareholders’ equity
563,698
71,647
290,519
1,483,813
145,685
60,620
14,115
105,164
2,735,261
$
588,456
71,671
300,822
1,360,913
156,270
52,385
12,772
100,283
2,643,572
119,053
104,425
Preferred shares, authorized 15,000,000 shares, $.01 par: 5.417% Series 1 Cumulative
Convertible Preferred Shares, (stated at liquidation preference $25 per share), 399,896
shares issued and outstanding ..........................................................................................
Common shares of beneficial interest, $.01 par, 100,000,000 shares authorized,
68,605,783 and 66,701,422 shares issued and outstanding, respectively ........................
Additional paid-in capital.................................................................................................
Accumulated dividends in excess of net income .............................................................
Accumulated other comprehensive loss ...........................................................................
Total shareholders’ equity of the Trust....................................................................................
Noncontrolling interests ...................................................................................................
Total shareholders’ equity........................................................................................................
687
2,281,223
(683,991)
(3,515)
1,604,401
88,155
1,692,556
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY......................................................... $ 4,546,870
667
2,062,708
(623,795)
(1,417)
1,448,160
23,137
1,471,297
$ 4,219,294
9,997
9,997
The accompanying notes are an integral part of these consolidated statements.
F-5
Federal Realty Investment Trust
Consolidated Statements of Comprehensive Income
REVENUE
Rental income ................................................................................................ $
Other property income ...................................................................................
Mortgage interest income ..............................................................................
Total revenue ..........................................................................................
EXPENSES
Rental expenses..............................................................................................
Real estate taxes.............................................................................................
General and administrative ............................................................................
Depreciation and amortization.......................................................................
Total operating expenses.........................................................................
OPERATING INCOME........................................................................................
Other interest income.....................................................................................
Interest expense..............................................................................................
Early extinguishment of debt .........................................................................
Income from real estate partnerships .............................................................
INCOME FROM CONTINUING OPERATIONS...............................................
DISCONTINUED OPERATIONS
Discontinued operations - income .................................................................
Discontinued operations - gain on sale of real estate.....................................
Results from discontinued operations.....................................................
INCOME BEFORE GAIN ON SALE OF REAL ESTATE.................................
Gain on sale of real estate ..............................................................................
NET INCOME ......................................................................................................
Net income attributable to noncontrolling interests.......................................
NET INCOME ATTRIBUTABLE TO THE TRUST............................................
Dividends on preferred shares .......................................................................
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS................... $
EARNINGS PER COMMON SHARE, BASIC
Continuing operations.................................................................................... $
Discontinued operations.................................................................................
Gain on sale of real estate ..............................................................................
Weighted average number of common shares, basic.....................................
EARNINGS PER COMMON SHARE, DILUTED
Continuing operations.................................................................................... $
Discontinued operations.................................................................................
Gain on sale of real estate ..............................................................................
Weighted average number of common shares, diluted..................................
$
$
Year Ended December 31,
2014
2013
2012
(In thousands, except per share data)
666,322
14,758
5,010
686,090
135,417
76,506
32,316
170,814
415,053
271,037
94
(93,941)
(10,545)
1,243
167,888
—
—
—
167,888
4,401
172,289
(7,754)
164,535
(541)
163,994
2.35
—
0.07
2.42
67,322
2.34
—
0.07
2.41
67,492
$
$
620,089
12,169
5,155
637,413
580,114
20,211
5,466
605,791
118,695
71,759
31,970
160,828
383,252
254,161
433
(104,977)
(13,304)
1,498
137,811
942
23,861
24,803
162,614
4,994
167,608
(4,927)
162,681
(541)
162,140
2.01
0.38
0.08
2.47
65,331
2.00
0.38
0.08
2.46
65,483
$
$
$
$
$
112,616
66,454
31,158
141,701
351,929
253,862
689
(113,336)
—
1,757
142,972
1,400
—
1,400
144,372
11,860
156,232
(4,307)
151,925
(541)
151,384
2.15
0.02
0.19
2.36
63,881
2.14
0.02
0.19
2.35
64,056
$
$
$
$
$
NET INCOME ...................................................................................................... $
172,289
$
167,608
$
156,232
Other comprehensive (loss) income - change in value of interest rate
swaps..............................................................................................................
COMPREHENSIVE INCOME ............................................................................
Comprehensive income attributable to noncontrolling interests ...................
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE TRUST.................. $
(2,098)
170,191
(7,754)
162,437
$
10,971
178,579
(4,927)
173,652
$
(8,448)
147,784
(4,307)
143,477
The accompanying notes are an integral part of these consolidated statements.
F-6
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7
-
F
Federal Realty Investment Trust
Consolidated Statements of Cash Flows
Year Ended December 31,
2014
2013
2012
(In thousands)
OPERATING ACTIVITIES
Net income ................................................................................................................. $ 172,289
Adjustments to reconcile net income to net cash provided by operating activities
$ 167,608
$ 156,232
Depreciation and amortization, including discontinued operations ...................
Gain on sale of real estate...................................................................................
Early extinguishment of debt..............................................................................
Income from real estate partnerships..................................................................
Other, net ............................................................................................................
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
(Increase) decrease in accounts receivable, net ..................................................
(Increase) decrease in prepaid expenses and other assets...................................
Increase in accounts payable and accrued expenses...........................................
Increase in security deposits and other liabilities ...............................................
Net cash provided by operating activities..................................................................
INVESTING ACTIVITIES
Acquisition of real estate ...........................................................................................
Capital expenditures - development and redevelopment ...........................................
Capital expenditures - other .......................................................................................
Proceeds from sale of real estate................................................................................
Proceeds from sale of real estate in real estate partnership .......................................
Investment in real estate partnership..........................................................................
Distribution from real estate partnership in excess of earnings.................................
Leasing costs..............................................................................................................
Repayment of mortgage and other notes receivable, net ...........................................
Net cash used in investing activities ..........................................................................
170,814
(4,401)
10,545
(1,243)
733
(3,063)
(4,222)
4,253
425
346,130
(9,154)
(314,654)
(46,304)
—
10,406
(6,731)
565
(35,286)
5,008
(396,150)
FINANCING ACTIVITIES
Net repayments under revolving credit facility, net of costs .....................................
Issuance of senior notes, net of costs .........................................................................
Redemption and retirement of senior notes ...............................................................
Issuance of mortgages, capital leases and notes payable, net of costs.......................
Repayment of mortgages, capital leases and notes payable ......................................
Issuance of common shares .......................................................................................
Dividends paid to common and preferred shareholders ............................................
Distributions to and redemptions of noncontrolling interests....................................
Net cash provided by (used in) financing activities...................................................
(Decrease) Increase in cash and cash equivalents.............................................................
Cash and cash equivalents at beginning of year................................................................
Cash and cash equivalents at end of year.......................................................................... $
—
244,579
(134,240)
—
(94,422)
216,155
(215,216)
(7,812)
9,044
(40,976)
88,927
47,951
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161,099
(28,855)
13,304
(1,498)
2,704
(6,321)
69
5,325
1,063
314,498
(87,276)
(243,073)
(47,069)
42,866
—
—
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(12,393)
957
(345,198)
(1,929)
564,389
(293,360)
860
(173,735)
186,548
(193,016)
(7,118)
82,639
51,939
36,988
88,927
142,039
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—
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4,348
7,332
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3,259
4,833
296,633
(80,865)
(129,346)
(51,325)
—
—
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1,116
(14,233)
1,095
(273,558)
—
244,807
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5,399
(53,414)
112,270
(178,020)
(9,935)
(53,893)
(30,818)
67,806
36,988
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The accompanying notes are an integral part of these consolidated statements.
F-8
Federal Realty Investment Trust
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
NOTE 1—BUSINESS AND ORGANIZATION
Federal Realty Investment Trust (the “Trust”) is an equity real estate investment trust (“REIT”) specializing in the ownership,
management, and redevelopment of retail and mixed-use properties. Our properties are located primarily in densely populated
and affluent communities in strategically selected metropolitan markets in the Mid-Atlantic and Northeast regions of the United
States, as well as in California. As of December 31, 2014, we owned or had a majority interest in community and neighborhood
shopping centers and mixed-use properties which are operated as 89 predominantly retail real estate projects.
We operate in a manner intended to enable us to qualify as a REIT for federal income tax purposes. A REIT that distributes at
least 90% of its taxable income to its shareholders each year and meets certain other conditions is not taxed on that portion of
its taxable income which is distributed to its shareholders.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Our consolidated financial statements include the accounts of the Trust, its corporate subsidiaries, and all entities in which the
Trust has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity (“VIE”). The
equity interests of other investors are reflected as noncontrolling interests or redeemable noncontrolling interests. All
significant intercompany transactions and balances are eliminated in consolidation. We account for our interests in joint
ventures, which we do not control, using the equity method of accounting.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America, referred to as “GAAP,” requires management to make estimates and assumptions that in certain circumstances affect
the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These
estimates are prepared using management’s best judgment, after considering past, current and expected events and economic
conditions. Actual results could differ from these estimates.
Revenue Recognition and Accounts Receivable
Our leases with tenants are classified as operating leases. Substantially all such leases contain fixed escalations which occur at
specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant controls the
space through the term of the related lease, net of valuation adjustments, based on management’s assessment of credit,
collection and other business risk. Percentage rents, which represent additional rents based upon the level of sales achieved by
certain tenants, are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved
and the percentage rents are collectible. Real estate tax and other cost reimbursements are recognized on an accrual basis over
the periods in which the related expenditures are incurred. For a tenant to terminate its lease agreement prior to the end of the
agreed term, we may require that they pay a fee to cancel the lease agreement. Lease termination fees for which the tenant has
relinquished control of the space are generally recognized on the termination date. When a lease is terminated early but the
tenant continues to control the space under a modified lease agreement, the lease termination fee is generally recognized evenly
over the remaining term of the modified lease agreement.
We make estimates of the collectability of our accounts receivable related to minimum rents, straight-line rents, expense
reimbursements and other revenue. Accounts receivable is carried net of this allowance for doubtful accounts. Our
determination as to the collectability of accounts receivable and correspondingly, the adequacy of this allowance, is based
primarily upon evaluations of individual receivables, current economic conditions, historical experience and other relevant
factors. The allowance for doubtful accounts is increased or decreased through bad debt expense. Accounts receivable are
written-off when they are deemed to be uncollectible and we are no longer actively pursuing collection. At December 31, 2014
and 2013, our allowance for doubtful accounts was $12.4 million and $12.7 million, respectively.
In some cases, primarily relating to straight-line rents, the collection of accounts receivable extends beyond one year. Our
experience relative to unbilled straight-line rents is that a portion of the amounts otherwise recognizable as revenue is never
billed to or collected from tenants due to early lease terminations, lease modifications, bankruptcies and other factors.
Accordingly, the extended collection period for straight-line rents along with our evaluation of tenant credit risk may result in
the nonrecognition of a portion of straight-line rental income until the collection of such income is reasonably assured. If our
evaluation of tenant credit risk changes indicating more straight-line revenue is reasonably collectible than previously estimated
F-9
and realized, the additional straight-line rental income is recognized as revenue. If our evaluation of tenant credit risk changes
indicating a portion of realized straight-line rental income is no longer collectible, a reserve and bad debt expense is recorded.
At December 31, 2014 and 2013, accounts receivable include approximately $66.1 million and $60.6 million, respectively,
related to straight-line rents.
Real Estate
Land, buildings and improvements are recorded at cost. Depreciation is computed using the straight-line method. Estimated
useful lives range generally from 35 years to a maximum of 50 years on buildings and major improvements. Minor
improvements, furniture and equipment are capitalized and depreciated over useful lives ranging from 2 to 20 years.
Maintenance and repairs that do not improve or extend the useful lives of the related assets are charged to operations as
incurred. Tenant improvements are capitalized and depreciated over the life of the related lease or their estimated useful life,
whichever is shorter. If a tenant vacates its space prior to contractual termination of its lease, the undepreciated balance of any
tenant improvements are written off if they are replaced or have no future value. In 2014, 2013 and 2012, real estate
depreciation expense was $155.7 million, $147.7 million and $128.7 million, respectively, including amounts from
discontinued operations and assets under capital lease obligations.
Sales of real estate are recognized only when sufficient down payments have been obtained, possession and other attributes of
ownership have been transferred to the buyer and we have no significant continuing involvement. The application of these
criteria can be complex and requires us to make assumptions. We believe these criteria were met for all real estate sold during
the periods presented.
Our methodology of allocating the cost of acquisitions to assets acquired and liabilities assumed is based on estimated fair
values, replacement cost and/or appraised values. When we acquire operating real estate properties, the purchase price is
allocated to land, building, improvements, leasing costs, intangibles such as in-place leases, assumed debt, if any, and to current
assets and liabilities acquired, if any. The value allocated to in-place leases is amortized over the related lease term and
reflected as rental income in the consolidated statements of comprehensive income. We consider qualitative and quantitative
factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in
the calculation of in-place lease value when we consider these to be bargain renewal options. If the value of below market lease
intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a tenant
vacates its space prior to contractual termination of its lease, the unamortized balance of any in-place lease value is written off
to rental income.
Transaction costs related to the acquisition of a business, such as broker fees, transfer taxes, legal, accounting, valuation, and
other professional and consulting fees, are expensed as incurred and included in “general and administrative expenses” in our
consolidated statements of comprehensive income. The acquisition of an operating shopping center typically qualifies as a
business. For asset acquisitions not meeting the definition of a business, transaction costs are capitalized as part of the
acquisition cost.
When applicable, as lessee, we classify our leases of land and building as operating or capital leases. We are required to use
judgment and make estimates in determining the lease term, the estimated economic life of the property and the interest rate to
be used in determining whether or not the lease meets the qualification of a capital lease and is recorded as an asset.
We capitalize certain costs related to the development and redevelopment of real estate including pre-construction costs, real
estate taxes, insurance, construction costs and salaries and related costs of personnel directly involved. Additionally, we
capitalize interest costs related to development and redevelopment activities. Capitalization of these costs begin when the
activities and related expenditures commence and cease when the project is substantially complete and ready for its intended
use at which time the project is placed in service and depreciation commences. Additionally, we make estimates as to the
probability of certain development and redevelopment projects being completed. If we determine the development or
redevelopment is no longer probable of completion, we expense all capitalized costs which are not recoverable.
We review for impairment on a property by property basis. Impairment is recognized on properties held for use when the
expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down to
fair value. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell.
Effective January 1, 2014, we adopted ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity,” as further discussed in "Recently Adopted Accounting Pronouncements." Prior to January 1, 2014,
the sale or disposal of a “component of an entity” was treated as discontinued operations. The operating properties sold by us
prior to January 1, 2014 typically met the definition of a component of an entity and as such the revenues and expenses
associated with sold properties were reclassified to discontinued operations for all periods presented.
F-10
Cash and Cash Equivalents
We define cash and cash equivalents as cash on hand, demand deposits with financial institutions and short term liquid
investments with an initial maturity, when purchased, under three months. Cash balances in individual banks may exceed the
federally insured limit by the Federal Deposit Insurance Corporation (the “FDIC”). At December 31, 2014, we had $47.7
million in excess of the FDIC insured limit.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist primarily of lease costs, prepaid property taxes and acquired above market leases.
Capitalized lease costs are direct costs incurred which were essential to originate a lease and would not have been incurred had
the leasing transaction not taken place and include third party commissions and salaries and related costs of personnel directly
related to time spent obtaining a lease. Capitalized lease costs are amortized over the life of the related lease. If a tenant vacates
its space prior to the contractual termination of its lease, the unamortized balance of any previously capitalized lease costs are
written off.
Debt Issuance Costs
Costs related to the issuance of debt instruments are capitalized and are amortized as interest expense over the estimated life of
the related issue using the straight-line method which approximates the effective interest method. If a debt instrument is paid
off prior to its original maturity date, the unamortized balance of debt issuance costs are written off to interest expense or, if
significant, included in “early extinguishment of debt.”
Derivative Instruments
At times, we may use derivative instruments to manage exposure to variable interest rate risk. We generally enter into interest
rate swaps to manage our exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising
prior to the issuance of debt. We enter into derivative instruments that qualify as cash flow hedges and do not enter into
derivative instruments for speculative purposes.
The interest rate swaps associated with our cash flow hedges are recorded at fair value on a recurring basis. We assess
effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value
of the interest rate swaps associated with our cash flow hedges is recorded in accumulated other comprehensive loss and is
subsequently reclassified into interest expense as interest is incurred on the related variable rate debt; within the next twelve
months, we expect to reclassify an estimated $3.8 million as an increase to interest expense. Our cash flow hedges become
ineffective if critical terms of the hedging instrument and the debt instrument do not perfectly match such as notional amounts,
settlement dates, reset dates, calculation period and LIBOR rate. In addition, we evaluate the default risk of the counterparty
by monitoring the credit worthiness of the counterparty. When ineffectiveness exists, the ineffective portion of changes in fair
value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected. Hedge
ineffectiveness did not impact earnings in 2014, 2013 or 2012, and we do not anticipate it will have a significant effect in the
future.
See Note 8 for additional disclosures relating to our two existing interest rate swap agreements.
Mortgage Notes Receivable
We have made certain mortgage loans that, because of their nature, qualify as loan receivables. At the time the loans were
made, we did not intend for the arrangement to be anything other than a financing and did not contemplate a real estate
investment. We evaluate each investment to determine whether the loan arrangement qualifies as a loan, joint venture or real
estate investment and the appropriate accounting thereon. Such determination affects our balance sheet classification of these
investments and the recognition of interest income derived therefrom. On some of the loans we receive additional interest,
however, we never receive in excess of 50% of the residual profit in the project, and because the borrower has either a
substantial investment in the project or has guaranteed all or a portion of our loan (or a combination thereof), the loans qualify
for loan accounting. The amounts under these arrangements are presented as mortgage notes receivable at December 31, 2014
and 2013.
F-11
Mortgage notes receivable are recorded at cost, net of any valuation adjustments. Interest income is accrued as earned.
Mortgage notes receivable are considered past due based on the contractual terms of the note agreement. On a quarterly basis,
we evaluate the collectability of each mortgage note receivable based on various factors which may include payment history,
expected fair value of the collateral securing the loan, internal and external credit information and/or economic trends. A loan is
considered impaired when, based upon current information and events, it is probable that we will be unable to collect all
amounts due under the existing contractual terms. When a loan is considered impaired, the amount of the loss accrual is
calculated by comparing the carrying amount of the mortgage note receivable to the present value of expected future cash
flows. Since all of our loans are collateralized by either a first or second mortgage, the loans have risk characteristics similar to
the risks in owning commercial real estate.
Share Based Compensation
We grant share based compensation awards to employees and trustees typically in the form of restricted common shares,
commons shares, and options. We measure stock based compensation expense based on the grant date fair value of the award
and recognize the expense ratably over the requisite service period, which is typically the vesting period. See Note 15 for
further discussion regarding our share based compensation plans and policies.
Variable Interest Entities
Certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support from other parties or in which equity investors do not have the characteristics of a controlling financial
interest qualify as VIEs. VIEs are required to be consolidated by their primary beneficiary. The primary beneficiary of a VIE
has both the power to direct the activities that most significantly impact economic performance of the VIE and the obligation to
absorb losses or the right to receive benefits that could potentially be significant to the VIE.
We have evaluated our investments in certain joint ventures including our real estate partnership with affiliates of a
discretionary fund created and advised by ING Clarion Partners and determined that these joint ventures do not meet the
requirements of a variable interest entity and, therefore, consolidation of these ventures is not required. These investments are
accounted for using the equity method. We have also evaluated our mortgage loans receivable and determined that entities
obligated under the mortgage loans are not VIEs for all periods presented. Our investment balances from our real estate
partnership and mortgage notes receivable are presented separately in our consolidated balance sheets.
On October 16, 2006, we acquired the leasehold interest in Melville Mall under a 20 year master lease. Additionally, we loaned
the owner of Melville Mall $34.2 million secured by a second mortgage on the property. On June 3, 2014, we repaid the third
party mortgage loan as further discussed in Note 7, and effectively became the first mortgage lender on the property. We have
an option to purchase the shopping center on or after October 16, 2021 for a price of $5.0 million plus the assumption/
repayment of the first and second mortgages. If we fail to exercise our purchase option, the owner of Melville Mall has a put
option which would require us to purchase Melville Mall in 2023 for $5.0 million and the assumption of the owner’s mortgage
debt. We have determined that this property is held in a variable interest entity for which we are the primary beneficiary.
Accordingly, beginning October 16, 2006, we consolidated this property and its operations. As of December 31, 2013, $20.7
million is included in mortgages payable (net of unamortized discount) for the mortgage loan secured by Melville Mall,
however, the loan was not our legal obligation. At December 31, 2014 and 2013, net real estate assets related to Melville Mall
included in our consolidated balance sheets are approximately $61.9 million and $62.6 million, respectively.
In conjunction with the acquisition of Darien Shopping Center, we entered into a Reverse Section 1031 like-kind exchange
agreement with a third party intermediary. The exchange agreement was for a maximum of 180 days and allowed us, for tax
purposes, to defer gains on sale of other properties sold within this period. From April 3, 2013 to September 10, 2013, the third
party intermediary was the legal owner of the property, although we controlled the activities that most significantly impacted
the property, retained all of the economic benefits and risks associated with the property, and were the primary beneficiary.
Accordingly, effective April 3, 2013, we consolidated Darien Shopping Center and its operations even during the period it was
held by a third party intermediary.
We determined the joint venture that owns Plaza El Segundo is a variable interest entity for which we are the primary
beneficiary. We are the managing member and own 48.2% of the entity. We control the significant operating decisions,
consequently having the power to direct the activities that most significantly impact economic performance of the VIE, and
have the obligation to absorb the majority of the losses and receive the majority of the benefits. Therefore, the entity is
consolidated in our financial statements as of December 30, 2011. As of December 31, 2014 and 2013, net real estate assets
related to Plaza El Segundo included in our consolidated balance sheets are approximately $178.1 million and $183.4 million,
respectively, and mortgages payable (net of unamortized premium) of $180.3 million and $182.1 million, respectively. Plaza El
Segundo's creditors do not have recourse to our general credit. Our maximum exposure to loss is approximately $19.5 million.
F-12
As further discussed in Note 3, we have entered into an agreement to acquire the interest of one of the noncontrolling interest
holders in The Grove at Shrewsbury in 2015. The entity that holds this interest is a variable interest entity for which we are the
primary beneficiary. As of December 31, 2014, net real estate assets related to this entity's interest in The Grove at Shrewsbury
included in our consolidated balance sheet are approximately $15.7 million and a mortgage payable (net of unamortized
premium) of $7.4 million.
Redeemable Noncontrolling Interests
We have certain noncontrolling interests that are redeemable for cash upon the occurrence of an event that is not solely in our
control and therefore are classified outside of permanent equity. We adjust the carrying amounts of these noncontrolling
interests that are currently redeemable to redemption value at the balance sheet date. Adjustments to the carrying amount to
reflect changes in redemption value are recorded as adjustments to additional paid-in capital in shareholders' equity. These
amounts are classified within the mezzanine section of the consolidated balance sheets.
The following table provides a rollforward of the redeemable noncontrolling interests:
Beginning balance.............................................................................................................................. $
Net income ....................................................................................................................................
Distributions & Redemptions........................................................................................................
Contributions.................................................................................................................................
Adjustment to redeemable noncontrolling interests......................................................................
Ending balance................................................................................................................................... $
Year Ended
December 31,
2014
2013
(In thousands)
104,425
$
94,420
3,452
(3,714)
5,858
9,032
2,887
(3,822)
1,083
9,857
119,053
$
104,425
Income Taxes
We operate in a manner intended to enable us to qualify as a REIT for federal income tax purposes. A REIT that distributes at
least 90% of its taxable income to its shareholders each year and meets certain other conditions is not taxed on that portion of
its taxable income which is distributed to its shareholders. Therefore, federal income taxes on our taxable income have been
and are generally expected to be immaterial. We are obligated to pay state taxes, generally consisting of franchise or gross
receipts taxes in certain states. Such state taxes also have not been material.
We have elected to treat certain of our subsidiaries as taxable REIT subsidiaries, which we refer to as a TRS. In general, a TRS
may engage in any real estate business and certain non-real estate businesses, subject to certain limitations under the Internal
Revenue Code of 1986, as amended (the “Code”). A TRS is subject to federal and state income taxes. Our TRS activities have
not been material.
With few exceptions, we are no longer subject to U.S. federal, state, and local tax examinations by tax authorities for years
before 2010. As of December 31, 2014 and 2013, we had no material unrecognized tax benefits. While we currently have no
material unrecognized tax benefits, as a policy, we recognize penalties and interest accrued related to unrecognized tax benefits
as income tax expense.
Segment Information
Our primary business is the ownership, management, and redevelopment of retail and mixed-use properties. We review
operating and financial information for each property on an individual basis and therefore, each property represents an
individual operating segment. We evaluate financial performance using property operating income, which consists of rental
income, other property income and mortgage interest income, less rental expenses and real estate taxes. No individual property
constitutes more than 10% of our revenues or property operating income and we have no operations outside of the United
States of America. Therefore, we have aggregated our properties into one reportable segment as the properties share similar
long-term economic characteristics and have other similarities including the fact that they are operated using consistent
business strategies, are typically located in major metropolitan areas, and have similar tenant mixes.
F-13
Recently Adopted Accounting Pronouncements
In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity.” ASU 2014-08 amends the definition of a discontinued operation to include only the disposal of a
component of an entity that represents a strategic shift that has or will have a major impact on an entity’s operations and
financial results. The standard also requires additional disclosures about discontinued operations as well as disposal
transactions that do not meet the discontinued operations criteria. The standard is applicable prospectively for all disposals
initially classified as held for sale in periods after adoption. We adopted the standard effective January 1, 2014, and there was
no impact to the current period financial statements. In future periods, the adoption will result in most individual property
disposals not qualifying for discontinued operations presentation and thus, the results of those disposals will remain in “income
from continuing operations.” Properties sold prior to January 1, 2014, are not subject to ASU 2014-08 and therefore, continue
to be classified as discontinued operations using the previous definition.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 supersedes nearly all
existing revenue recognition guidance under GAAP and replaces it with a core revenue recognition principle, that an entity will
recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services, and creates a five-step model
for revenue recognition in accordance with this principle. ASU 2014-09 also requires new disclosures in both interim and
annual reporting periods. The guidance in ASU 2014-09 does not apply to contracts within the scope of ASC 840, Leases.
ASU 2014-09 will be effective for us in the first quarter of 2017 and allows for either full retrospective or modified
retrospective adoption. We are currently assessing the impact of this standard to our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going
Concern.” ASU 2014-15 provides guidance regarding management’s responsibility to evaluate whether there is substantial
doubt about an entity’s ability to continue as a going concern and if such doubt exists, requires specific disclosures. ASU
2014-15 is effective for us in the first quarter of 2017 and is not expected to have a significant impact on our consolidated
financial statements.
In January 2015, the FASB issued ASU 2015-01, "Income Statement - Extraordinary and Unusual Items." ASU 2015-01
eliminates the concept, and related presentation and disclosure requirements, of an extraordinary item. The presentation and
disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include
those items that are both unusual in nature and infrequently occurring. ASU 2015-01 is effective for us in the first quarter of
2016 and is not expected to have a significant impact on our consolidated financial statements.
Consolidated Statements of Cash Flows—Supplemental Disclosures
The following table provides supplemental disclosures related to the Consolidated Statements of Cash Flows:
Year Ended December 31,
2014
2013
2012
(In thousands)
SUPPLEMENTAL DISCLOSURES:
Total interest costs incurred ........................................................................... $
Interest capitalized .........................................................................................
Interest expense ...................................................................................... $
Cash paid for interest, net of amounts capitalized ......................................... $
Cash paid (refunded) for income taxes .......................................................... $
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Mortgage loans assumed with acquisition ..................................................... $
DownREIT operating partnership units issued with acquisition ................... $
Mortgage loans refinanced............................................................................. $
Repayment of note payable with public funding/related construction-in-
progress offset................................................................................................ $
Shares issued under dividend reinvestment plan ........................................... $
114,912
(20,971)
93,941
100,011
278
68,282
65,348
64,205
10,000
1,855
$
$
$
$
$
$
$
$
$
121,158
(16,181)
104,977
120,934
410
$
$
$
$
— $
— $
— $
— $
123,441
(10,105)
113,336
114,419
(1,151)
67,615
—
—
—
1,779
$
1,864
See Note 3 for additional disclosures relating to The Grove at Shrewsbury and Brook 35 acquisition.
F-14
Capitalized lease costs are direct costs incurred which were essential to originate a lease and would not have been incurred had
the leasing transaction not taken place. These costs include third party commissions and salaries and personnel costs related to
obtaining a lease. Capitalized lease costs are amortized over the initial term of the related lease which generally ranges from
three to ten years. We view these lease costs as part of the up-front initial investment we made in order to generate a long-term
cash inflow and therefore, we classify cash outflows related to leasing costs as an investing activity in our consolidated
statements of cash flows.
NOTE 3—REAL ESTATE
A summary of our real estate investments and related encumbrances is as follows:
December 31, 2014
Retail and mixed-use properties ...................................................
Retail properties under capital leases ...........................................
Residential ....................................................................................
December 31, 2013
Retail and mixed-use properties ...................................................
Retail properties under capital leases ...........................................
Residential ....................................................................................
Cost
Accumulated
Depreciation and
Amortization
(In thousands)
Encumbrances
$
$
$
$
5,478,085
121,069
9,844
5,608,998
5,024,800
115,028
9,635
5,149,463
$
$
$
$
(1,423,682) $
(35,179)
(8,189)
(1,467,050) $
(1,310,791) $
(31,955)
(7,725)
(1,350,471) $
541,568
71,647
22,130
635,345
565,935
71,671
22,521
660,127
Retail and mixed-use properties includes the residential portion of Santana Row, Bethesda Row, Pike & Rose, Congressional
Plaza and Chelsea Commons. The residential property investment is our investment in Rollingwood Apartments.
2014 Significant Property Acquisitions
Effective January 1, 2014, we acquired a controlling interest in The Grove at Shrewsbury, a 187,000 square foot shopping
center in Shrewsbury, New Jersey, and Brook 35, a 99,000 square foot shopping center in Sea Girt, New Jersey for a gross
value of $161 million. Our effective economic interest approximates 84% and was funded by the assumption of our share of
$68 million of mortgage debt, 632,000 downREIT operating partnership units, and $13 million of cash (which was in an escrow
account at December 31, 2013). Approximately $1.7 million and $2.3 million of net assets acquired were allocated to other
assets for "above market leases" and other liabilities for "below market leases," respectively. Additionally, $71.1 million was
allocated to redeemable and nonredeemable noncontrolling interests. We incurred $2.0 million of acquisition costs, of which
$1.0 million were incurred in 2014, and are included in "general and administrative expenses" in 2014 and 2013 on the
accompanying consolidated statements of comprehensive income.
We have entered into an agreement to acquire the interest of one of the noncontrolling interest holders in The Grove at
Shrewsbury in 2015. As this noncontrolling interest is mandatorily redeemable, it has been classified as a liability of
approximately $9 million and is included in "other liabilities and deferred credits" on the December 31, 2014 consolidated
balance sheet. An additional noncontrolling interest holder has the right to require us to acquire its interests in The Grove at
Shrewsbury and Brook 35 at the then current fair market value beginning on January 1, 2017.
2013 Significant Property Acquisitions and Dispositions
On April 3, 2013, we acquired the fee interest in a 95,000 square foot retail property located in Darien, Connecticut for $47.3
million. Approximately $0.1 million and $1.8 million of net assets acquired were allocated to other assets for "above market
leases" and other liabilities for "below market leases", respectively. We incurred $0.2 million of acquisition costs which are
included in "general and administrative expenses" in 2013.
On April 5, 2013, one of our tenants acquired our fee interest in the land under an office building at our Village of Shirlington
property in Arlington, Virginia, that was subject to a long term ground lease. The ground lease included an option for the tenant
to purchase the fee interest. The sales price was $6.5 million, and the gain was $5.0 million.
F-15
On July 22, 2013, we sold the fee interest in our final building at Fifth Avenue in San Diego, California, for a sales price of
$15.3 million resulting in a gain of $10.7 million. On September 10, 2013 we sold the fee interest in a building in Forest Hills
(Queens), New York, for a sales price of $20.4 million resulting in a gain of $13.2 million. Both sales were completed as a
Section 1031 tax deferred exchange transaction with the acquisition of the property in Darien.
On October 1, 2013, we acquired the fee interest in an 11.8 acre land parcel adjacent to our Assembly Row development project
for a purchase price of $18.0 million.
On December 19, 2013, we acquired the fee interest in a land parcel contiguous with our Montrose Crossing shopping center
that is encumbered by two retail ground leases. The total purchase price was $10.5 million and our 89.9% share was $9.4
million.
NOTE 4—MORTGAGE NOTES RECEIVABLE
At December 31, 2014 and 2013, we had four and five mortgage notes receivable with an aggregate carrying amount of $51.0
million and $55.2 million, respectively. Approximately $41.2 million and $44.8 million of the loans are secured by first
mortgages on retail buildings at December 31, 2014 and 2013, respectively. One of the loans, which is secured by a second
mortgage on a hotel at our Santana Row property, was considered impaired when it was amended in August 2006. At
December 31, 2014 and 2013, the loan has an outstanding face amount of $10.7 million and $11.9 million, respectively, and is
carried net of a valuation allowance of $1.0 million and $1.6 million, respectively. At December 31, 2014 and 2013, our
mortgages had a weighted average interest rate of 9.0%. Under the terms of certain of these mortgages, we receive additional
interest based upon the gross income of the secured properties and upon sale, share in the appreciation of the properties.
NOTE 5—REAL ESTATE PARTNERSHIPS
Federal/Lion Venture LP
We have a joint venture arrangement (the “Partnership”) with affiliates of a discretionary fund created and advised by ING
Clarion Partners (“Clarion”). We own 30% of the equity in the Partnership and Clarion owns 70%. We hold a general
partnership interest, however, Clarion also holds a general partnership interest and has substantive participating rights. We
cannot make significant decisions without Clarion’s approval. Accordingly, we account for our interest in the Partnership using
the equity method. As of December 31, 2014, the Partnership owned six retail real estate properties. We are the manager of the
Partnership and its properties, earning fees for acquisitions, dispositions, management, leasing, and financing. Intercompany
profit generated from fees is eliminated in consolidation. We also have the opportunity to receive performance-based earnings
through our Partnership interest. Accounting policies for the Partnership are similar to accounting policies followed by the
Trust. The Partnership is subject to a buy-sell provision which is customary for real estate joint venture agreements and the
industry. Either partner may initiate this provision at any time, which could result in either the sale of our interest or the use of
available cash or borrowings to acquire Clarion’s interest. As of December 31, 2014, we have made total contributions of $48.8
million and received total distributions of $30.4 million.
The following tables provide summarized operating results and the financial position of the Partnership:
OPERATING RESULTS
Revenue................................................................................................................. $
Expenses
Other operating expenses...............................................................................
Depreciation and amortization.......................................................................
Interest expense..............................................................................................
Total expenses.......................................................................................................
Net income before gain on sale of real estate .......................................................
Gain on sale of real estate .....................................................................................
Net income ............................................................................................................ $
Our share of net income from real estate partnership before gain on sale of real
estate...................................................................................................................... $
Our share of gain on sale of real estate ................................................................. $
F-16
Year Ended December 31,
2014
2013
2012
(In thousands)
18,329
$
19,209
$
19,051
5,948
5,678
2,759
14,385
3,944
14,507
18,451
1,423
4,401
$
$
$
5,999
5,506
3,363
14,868
4,341
—
4,341
1,498
$
$
— $
5,234
5,508
3,376
14,118
4,933
—
4,933
1,815
—
BALANCE SHEETS
Real estate, net ................................................................................................................................ $
Cash ................................................................................................................................................
Other assets.....................................................................................................................................
Total assets............................................................................................................................... $
Mortgages payable.......................................................................................................................... $
Other liabilities ...............................................................................................................................
Partners’ capital ..............................................................................................................................
Total liabilities and partners’ capital........................................................................................ $
Our share of unconsolidated debt ................................................................................................... $
Our investment in real estate partnership ....................................................................................... $
December 31,
2014
2013
(In thousands)
149,203
2,864
5,346
157,413
34,385
3,673
119,355
157,413
10,316
32,367
$
$
$
$
$
$
170,867
2,210
5,668
178,745
56,922
4,100
117,723
178,745
17,077
32,264
On June 5, 2014, the Partnership repaid an $11.9 million mortgage loan secured by one of its properties at par prior to the
original maturity date of July 5, 2014. The partners made additional capital contributions totaling $11.9 million to repay the
mortgage loan, of which our contribution was $3.6 million.
On July 24, 2014, the Partnership sold the fee interest in Pleasant Shops in Weymouth, Massachusetts for a sales price of $34.3
million, resulting in a gain on sale of $14.5 million. Our share of the gain was $4.4 million. The partners received distributions
totaling $32.8 million as a result of the sale, of which our distribution was $10.4 million.
On September 2, 2014, the Partnership repaid a $10.5 million mortgage loan secured by one of its properties at par prior to the
original maturity date of December 1, 2014. The partners made additional capital contributions totaling $10.5 million to repay
the mortgage loan, of which our contribution was $3.2 million.
Taurus Newbury Street JV II Limited Partnership
In May 2010, we formed Taurus Newbury Street JV II Limited Partnership ("Newbury Street Partnership"), a joint venture with
an affiliate of Taurus Investment Holdings, LLC ("Taurus"), to acquire, operate and redevelop properties located primarily in
the Back Bay section of Boston, Massachusetts. We held an 85% limited partnership interest in Newbury Street Partnership and
Taurus held a 15% limited partnership interest and served as general partner. As general partner, Taurus was responsible for the
operation and management of the properties, subject to our approval on major decisions. Accordingly, given Taurus' role as
general partner, we accounted for our interest in Newbury Street Partnership using the equity method. Due to the timing of
receiving financial information from the general partner, our share of earnings was recorded one quarter in arrears. On
October 31, 2011, our Newbury Street Partnership sold its entire portfolio of three buildings for $44.0 million. Due to our
earnings being recorded one quarter in arrears, we recognized the gain on sale of $11.9 million in the first quarter of 2012.
NOTE 6—ACQUIRED IN-PLACE LEASES
Acquired above market leases are included in prepaid expenses and other assets and had a balance of $32.7 million and $31.1
million and accumulated amortization of $19.3 million and $16.3 million at December 31, 2014 and 2013, respectively.
Acquired below market leases are included in other liabilities and deferred credits and had a balance of $109.8 million and
$111.1 million and accumulated amortization of $37.0 million and $34.9 million at December 31, 2014 and 2013, respectively.
The value allocated to in-place leases is amortized over the related lease term and reflected as additional rental income for
below market leases or a reduction of rental income for above market leases in the consolidated statements of comprehensive
income. Rental income included amortization from acquired above market leases of $3.4 million, $2.8 million and $3.4 million
in 2014, 2013 and 2012, respectively and amortization from acquired below market leases of $5.8 million, $5.9 million and
$4.5 million in 2014, 2013 and 2012, respectively. The remaining weighted-average amortization period as of December 31,
2014, is 5.1 years and 21.2 years for above market leases and below market leases, respectively.
F-17
The amortization for acquired in-place leases during the next five years and thereafter, assuming no early lease terminations, is
as follows:
Year ending December 31,
2015 ...........................................................................................................................
2016 ...........................................................................................................................
2017 ...........................................................................................................................
2018 ...........................................................................................................................
2019 ...........................................................................................................................
Thereafter ..................................................................................................................
Above Market
Leases
Below Market
Leases
(In thousands)
$
$
2,892
2,476
1,784
1,275
923
4,012
13,362
$
$
5,327
4,898
4,653
3,706
3,610
50,632
72,826
F-18
NOTE 7—DEBT
The following is a summary of our total debt outstanding as of December 31, 2014 and 2013:
Description of Debt
Mortgages payable
Melville Mall ....................................................
THE AVENUE at White Marsh........................
Barracks Road...................................................
Hauppauge ........................................................
Lawrence Park ..................................................
Wildwood .........................................................
Wynnewood......................................................
Brick Plaza........................................................
East Bay Bridge ................................................
Plaza El Segundo ..............................................
The Grove at Shrewsbury (East) ......................
The Grove at Shrewsbury (West) .....................
Rollingwood Apartments..................................
29th Place ..........................................................
THE AVENUE at White Marsh........................
Montrose Crossing............................................
Brook 35 ...........................................................
Chelsea..............................................................
Subtotal.....................................................
Net unamortized premium...................
Total mortgages payable...........................
Notes payable
Escondido (municipal bonds) ...........................
Revolving credit facility ...................................
Term loan..........................................................
Various..............................................................
Total notes payable...................................
Senior notes and debentures
5.65% notes ......................................................
6.20% notes ......................................................
5.90% notes ......................................................
3.00% notes ......................................................
2.75% notes ......................................................
3.95% notes ......................................................
7.48% debentures..............................................
6.82% medium term notes ................................
4.50% notes ......................................................
Subtotal.....................................................
Net unamortized discount....................
Total senior notes and debentures.............
Capital lease obligations
Principal Balance as of
December 31,
2014
2013
(Dollars in thousands)
Stated Interest Rate
as of
December 31, 2014
Stated Maturity Date
$
— $
—
35,985
13,566
25,507
22,420
25,994
26,415
—
175,000
44,519
11,242
22,130
4,941
52,705
75,867
11,500
7,074
554,865
8,833
563,698
9,400
—
275,000
6,119
290,519
—
200,000
150,000
250,000
275,000
300,000
29,200
40,000
250,000
1,494,200
(10,387)
1,483,813
20,705
54,112
37,069
13,974
26,275
23,095
26,777
27,254
61,980
175,000
—
—
22,521
5,119
—
77,341
—
7,269
578,491
9,965
588,456
9,400
—
275,000
16,422
300,822
125,000
200,000
150,000
250,000
275,000
300,000
29,200
40,000
—
1,369,200
(8,287)
1,360,913
5.25%
5.46%
7.95%
7.95%
7.95%
7.95%
7.95%
7.42%
5.13%
6.33%
5.82%
6.38%
5.54%
5.91%
3.35%
4.20%
4.65%
5.36%
September 1, 2014
January 1, 2015
November 1, 2015
November 1, 2015
November 1, 2015
November 1, 2015
November 1, 2015
November 1, 2015
March 1, 2016
August 5, 2017
October 1, 2017
March 1, 2018
May 1, 2019
January 31, 2021
January 1, 2022
January 10, 2022
July 1, 2029
January 15, 2031
0.06%
LIBOR + 0.90%
LIBOR + 0.90%
11.31%
October 1, 2016
April 21, 2017
November 21, 2018
Various through 2028
5.65%
6.20%
5.90%
3.00%
2.75%
3.95%
7.48%
6.82%
4.50%
June 1, 2016
January 15, 2017
April 1, 2020
August 1, 2022
June 1, 2023
January 15, 2024
August 15, 2026
August 1, 2027
December 1, 2044
Various.........................................................
Total debt and capital lease obligations
71,647
2,409,677
$
71,671
2,321,862
$
Various
Various through 2106
F-19
In connection with the acquisition of The Grove at Shrewsbury and Brook 35 on January 1, 2014, we assumed mortgage loans
with a face amount of $68.3 million and a fair value of $73.8 million. The mortgage loans are secured by the individual
properties with the following contractual terms:
Brook 35 Plaza .............................................................................. $
The Grove at Shrewsbury (East) ................................................... $
The Grove at Shrewsbury (West) .................................................. $
11.5
45.4
11.4
5.46%
5.82%
6.38%
July 1, 2014
October 1, 2017
March 1, 2018
Principal
Stated Interest Rate
Maturity Date
(In millions)
During 2014, we refinanced or issued the following loans or debt securities:
Stated
Interest
Rate
Amount
Refinance/Issuance
Date
Maturity Date
Brook 35 Plaza Mortgage Loan ........................... Refinance $
4.50% Senior Notes (1) ........................................ Issuance
$
THE AVENUE at White Marsh Mortgage Loan.. Refinance $
4.65%
June 2, 2014
July 1, 2029
250.0
4.50% November 14, 2014 December 1, 2044
52.7
3.35% December 15, 2014
January 1, 2022
(In millions)
11.5
(1) The net proceeds from this note offering after issuance discounts, underwriting fees and other costs were approximately
$244.6 million.
During 2014, we fully repaid or redeemed the following loans or debt securities:
Payoff Amount
Repayment Date
Maturity Date
(In millions)
Melville Mall Mortgage Loan ..............................
East Bay Bridge Mortgage Loan (1) ....................
5.65% Senior Notes (2) ........................................
$
$
$
20.3
June 3, 2014 September 1, 2014
61.0 December 10, 2014
March 1, 2016
125.0 December 12, 2014
June 1, 2016
(1) The total amount due at payoff of $64.0 million included a prepayment premium of $3.0 million and accrued but unpaid
interest of $0.1 million. The prepayment premium is included in "early extinguishment of debt" in 2014.
(2) The redemption price of $134.5 million included a make-whole premium of approximately $9.2 million and accrued but
unpaid interest of $0.2 million. The make-whole premium is included in "early extinguishment of debt" in 2014.
On August 28, 2014, we amended our term loan agreement and lowered the spread over LIBOR by 40 basis points from 130
basis points to 90 basis points based on our current credit rating. The amendment also provides us the option to extend the
maturity date by one year.
During 2014, 2013 and 2012, the maximum amount of borrowings outstanding under our revolving credit facility was $79.5
million, $76.0 million and $186.0 million, respectively. The weighted average amount of borrowings outstanding was $12.5
million, $10.5 million and $1.5 million, respectively, and the weighted average interest rate, before amortization of debt fees,
was 1.1%, 1.3% and 1.4%, respectively. The revolving credit facility requires an annual facility fee of $0.9 million. At
December 31, 2014 and 2013, our revolving credit facility had no balance outstanding.
Our revolving credit facility and certain notes require us to comply with various financial covenants, including the maintenance
of minimum shareholders’ equity and debt coverage ratios and a maximum ratio of debt to net worth. As of December 31, 2014,
we were in compliance with all loan covenants.
F-20
Scheduled principal payments on mortgages payable, notes payable, senior notes and debentures as of December 31, 2014 are
as follows:
Mortgages
Payable
Notes
Payable
Senior Notes and
Debentures
Total
Principal
(In thousands)
Year ending December 31,
2015.............................................................. $
2016..............................................................
2017..............................................................
2018..............................................................
2019..............................................................
Thereafter .....................................................
$
_____________________
153,395
3,774
220,438
13,326
22,731
141,201
554,865
451 (1)
200,000
$
369
9,806
275,500
553
3,840
$
— $
153,764
—
—
—
13,580
420,889
288,826
23,284
1,294,200
1,439,241
$
290,519
$
1,494,200
$
2,339,584
(2)
(1) Our $600.0 million revolving credit facility matures on April 21, 2017, subject to a one-year extension at our option.
As of December 31, 2014, there was no balance outstanding under this credit facility.
(2) The total debt maturities differ from the total reported on the consolidated balance sheet as of December 31, 2014 due
to the unamortized discount or premium on certain senior notes and mortgages payable.
Future minimum lease payments and their present value for property under capital leases as of December 31, 2014, are as
follows:
(In thousands)
Year ending December 31,.......................................................................................................................................
2015.......................................................................................................................................................................... $
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
Thereafter .................................................................................................................................................................
Less amount representing interest ............................................................................................................................
Present value ............................................................................................................................................................ $
5,787
5,788
5,797
5,800
5,800
160,210
189,182
(117,535)
71,647
NOTE 8—FAIR VALUE OF FINANCIAL INSTRUMENTS
A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an
orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:
1.
2.
3.
Level 1 Inputs—quoted prices in active markets for identical assets or liabilities
Level 2 Inputs—observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 Inputs—prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is
significant to the fair value measurement.
Except as disclosed below, the carrying amount of our financial instruments approximates their fair value. The fair value of our
mortgages payable, notes payable and senior notes and debentures is sensitive to fluctuations in interest rates. Quoted market
prices (Level 1) were used to estimate the fair value of our marketable senior notes and debentures and discounted cash flow
analysis (Level 2) is generally used to estimate the fair value of our mortgages and notes payable. Considerable judgment is
necessary to estimate the fair value of financial instruments. The estimates of fair value presented herein are not necessarily
F-21
indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the carrying
amount and fair value of our mortgages payable, notes payable and senior notes and debentures is as follows:
December 31, 2014
December 31, 2013
Carrying
Value
Fair Value
Carrying
Value
Fair Value
(In thousands)
Mortgages and notes payable ...................................................... $
854,217
Senior notes and debentures ........................................................ $ 1,483,813
$
880,866
$
889,278
$
912,251
$ 1,579,868
$ 1,360,913
$ 1,397,731
As of December 31, 2014, we have two interest rate swap agreements with a notional amount of $275.0 million that are
measured at fair value on a recurring basis. The interest rate swap agreements fix the variable portion of our $275.0 million
term loan at 1.72% from December 1, 2011 through November 1, 2018. The fair values of the interest rate swap agreements are
based on the estimated amounts we would receive or pay to terminate the contracts at the reporting date and are determined
using interest rate pricing models and interest rate related observable inputs. The fair value of our swaps at December 31, 2014
and 2013, was a liability of $3.5 million, and $1.4 million, respectively, and are included in "accounts payable and accrued
expenses" on our consolidated balance sheets. The changes in valuation on our interest rate swaps were a $2.1 million decrease
and an $11.0 million increase (including $4.3 million for both years reclassified from other comprehensive loss to earnings) for
2014 and 2013, and are included in "accumulated other comprehensive loss". A summary of our financial liabilities that are
measured at fair value on a recurring basis, by level within the fair value hierarchy is as follows:
December 31, 2014
December 31, 2013
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
(In thousands)
Interest rate swaps .................... $
— $ 3,515
$
— $ 3,515
$
— $
1,417
$
— $
1,417
NOTE 9—COMMITMENTS AND CONTINGENCIES
We are sometimes involved in lawsuits, warranty claims, and environmental matters arising in the ordinary course of business.
Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these
matters.
We are currently a party to various legal proceedings. We accrue a liability for litigation if an unfavorable outcome is probable
and the amount of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss
is a range, we accrue the best estimate within the range; however, if no amount within the range is a better estimate than any
other amount, the minimum within the range is accrued. Legal fees related to litigation are expensed as incurred. Other than as
described below, we do not believe that the ultimate outcome of these matters, either individually or in the aggregate, could
have a material adverse effect on our financial position or overall trends in results of operations; however, litigation is subject
to inherent uncertainties. Also under our leases, tenants are typically obligated to indemnify us from and against all liabilities,
costs and expenses imposed upon or asserted against us (1) as owner of the properties due to certain matters relating to the
operation of the properties by the tenant, and (2) where appropriate, due to certain matters relating to the ownership of the
properties prior to their acquisition by us.
We reserve for estimated losses, if any, associated with warranties given to a buyer at the time real estate is sold or other
potential liabilities relating to that sale, taking any insurance policies into account. These warranties may extend up to ten years
and require significant judgment. If changes in facts and circumstances indicate that warranty reserves are understated, we will
accrue additional reserves at such time a liability has been incurred and the costs can be reasonably estimated. Warranty
reserves are released once the legal liability period has expired or all related work has been substantially completed. Any
increases to our estimated warranty losses would usually result in a decrease in net income.
We are self-insured for general liability costs up to predetermined retained amounts per claim, and we believe that we maintain
adequate accruals to cover our retained liability. We currently do not maintain third party stop-loss insurance policies to cover
liability costs in excess of predetermined retained amounts. Our accrual for self-insurance liability is determined by
management and is based on claims filed and an estimate of claims incurred but not yet reported. Management considers a
number of factors, including third-party actuarial analysis and future increases in costs of claims, when making these
determinations. If our liability costs exceed these accruals, it will reduce our net income.
F-22
At December 31, 2014 and 2013, our reserves for warranties and general liability costs were $7.2 million and $7.4 million,
respectively, and are included in “accounts payable and accrued expenses” in our consolidated balance sheets. Any potential
losses which exceed our estimates would result in a decrease in our net income. During 2014 and 2013, we made payments
from these reserves of $1.4 million and $1.2 million, respectively. Although we consider the reserve to be adequate, there can
be no assurance that the reserve will prove to be adequate over-time to cover losses due to the difference between the
assumptions used to estimate the reserve and actual losses.
At December 31, 2014, we had letters of credit outstanding of approximately $13.0 million which are collateral for existing
indebtedness and other obligations of the Trust.
As of December 31, 2014 in connection with capital improvement, development, and redevelopment projects, the Trust has
contractual obligations of approximately $232.3 million.
We are obligated under ground lease agreements on several shopping centers requiring minimum annual payments as follows,
as of December 31, 2014:
Year ending December 31,
2015.......................................................................................................................................................................... $
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
Thereafter .................................................................................................................................................................
$
1,478
2,437
2,473
2,488
2,676
154,211
165,763
(In thousands)
A master lease for Mercer Mall includes a fixed purchase price option for $55 million in 2023. If we fail to exercise our
purchase option, the owner of Mercer Mall has a put option which would require us to purchase Mercer Mall for $60 million in
2025.
Under the terms of the Congressional Plaza partnership agreement, from and after January 1, 1986, an unaffiliated third party
has the right to require us and the other minority partner to purchase its 29.47% interest in Congressional Plaza at the interest’s
then-current fair market value. If the other minority partner defaults in their obligation, we must purchase the full interest.
Based on management’s current estimate of fair market value as of December 31, 2014, our estimated maximum liability upon
exercise of the put option would range from approximately $72 million to $76 million.
Under the terms of a partnership which owns a project in southern California, if certain leasing and revenue levels are obtained
for the property owned by the partnership, the other partner may require us to purchase their 10% partnership interest at a
formula price based upon property operating income. The purchase price for the partnership interest will be paid using our
common shares or, subject to certain conditions, cash. If the other partner does not redeem their interest, we may choose to
purchase the partnership interest upon the same terms.
A master lease for Melville Mall includes a fixed purchase price option in 2021 for $5 million. If we fail to exercise our
purchase option, the owner of Melville Mall has a put option which would require us to purchase Melville Mall in 2023 for $5
million.
The other member in Montrose Crossing has the right to require us to purchase all of its 10.1% interest in Montrose Crossing at
the interest's then-current fair market value. If the other member fails to exercise its put option, we have the right to purchase its
interest on or after December 27, 2021 at fair market value. Based on management’s current estimate of fair market value as of
December 31, 2014, our estimated maximum liability upon exercise of the put option would range from approximately $9
million to $10 million.
Two of the members in Plaza El Segundo have the right to require us to purchase their 10.0% and 11.8% ownership interests at
the interests' then-current fair market value. If the members fail to exercise their put options, we have the right to purchase each
of their interests on or after December 30, 2026 at fair market value. Based on management’s current estimate of fair market
value as of December 31, 2014, our estimated maximum liability upon exercise of the put option would range from
approximately $18 million to $21 million. Also, between January 1, 2017 and February 1, 2017, we have an option to purchase
F-23
the preferred interest of another member in Plaza El Segundo. The purchase price will be the lesser of fair value or the $4.9
million stated value of the preferred interest plus any accrued and unpaid preferred returns.
Effective January 1, 2017, the other member in The Grove at Shrewsbury and Brook 35 has the right to require us to purchase
all of its approximately 4.8% interest in The Grove at Shrewsbury and approximately 8.8% interest in Brook 35 at the interests'
then-current fair market value.
Under the terms of certain partnership agreements, the partners have the right to exchange their operating partnership units for
cash or the same number of our common shares, at our option. A total of 917,255 operating partnership units are outstanding
which have a total fair value of $122.4 million, based on our closing stock price on December 31, 2014.
NOTE 10—SHAREHOLDERS’ EQUITY
We have a Dividend Reinvestment Plan (the “Plan”), whereby shareholders may use their dividends and optional cash
payments to purchase shares. In 2014, 2013 and 2012, 18,705 shares, 20,026 shares and 22,814 shares, respectively, were
issued under the Plan.
As of December 31, 2014, 2013, and 2012, we had 399,896 shares of 5.417% Series 1 Cumulative Convertible Preferred
Shares (“Series 1 Preferred Shares”) outstanding that have a liquidation preference of $25 per share and
par value $0.01 per share. The Series 1 Preferred Shares accrue dividends at a rate of 5.417% per year and are convertible at
any time by the holders to our common shares at a conversion rate of $104.69 per share. The Series 1 Preferred Shares are also
convertible under certain circumstances at our election. The holders of the Series 1 Preferred Shares have no voting rights.
On February 12, 2014 we replaced our existing at the market (“ATM”) equity program with a new ATM equity program in
which we may from time to time offer and sell common shares having an aggregate offering price of up to $300.0 million. We
intend to use the net proceeds to fund potential acquisition opportunities, fund our development and redevelopment pipeline,
repay amounts of outstanding under our revolving credit facility and/or for general corporate purposes. For the year ended
December 31, 2014, we issued 1,768,583 common shares at a weighted average price per share of $122.09 for net cash
proceeds of $213.6 million and paid $2.2 million in commissions and $0.2 million in additional offering expenses related to the
sales of these common shares. For the year ended December 31, 2013, we issued 1,734,974 common shares at a weighted
average price per share of $108.01 for net cash proceeds of $185.2 million and paid $2.0 million in commissions and $0.2
million in additional offering expenses related to the sales of these common shares. As of December 31, 2014, we had the
capacity to issue up to $84.1 million in common shares under our ATM equity program.
NOTE 11—DIVIDENDS
The following table provides a summary of dividends declared and paid per share:
Declared
Common shares ..................................................................... $ 3.300
5.417% Series 1 Cumulative Convertible Preferred shares... $ 1.354
Paid
Declared
Paid
Declared
Paid
$ 3.210
$ 3.020
$ 2.970
$ 2.840
$ 2.800
$ 1.354
$ 1.354
$ 1.354
$ 1.354
$ 1.354
Year Ended December 31,
2014
2013
2012
A summary of the income tax status of dividends per share paid is as follows:
Common shares.....................................................................................................
Ordinary dividend .......................................................................................... $
Capital gain ....................................................................................................
5.417% Series 1 Cumulative Convertible Preferred shares ..................................
Ordinary dividend .......................................................................................... $
Capital gain ....................................................................................................
$
$
F-24
Year Ended December 31,
2014
2013
2012
3.178
0.032
3.210
1.340
0.014
1.354
$
$
$
$
2.911
0.059
2.970
1.327
0.027
1.354
$
$
$
$
2.772
0.028
2.800
1.340
0.014
1.354
On October 30, 2014, the Trustees declared a quarterly cash dividend of $0.87 per common share, payable January 15, 2015 to
common shareholders of record on January 2, 2015.
NOTE 12—OPERATING LEASES
At December 31, 2014, our 89 predominantly retail shopping center and mixed-use properties are located in 13 states and the
District of Columbia. There are approximately 2,700 leases with 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 3.1% of annualized base rent.
Our leases with commercial property and residential tenants are classified as operating leases. Commercial property leases
generally range from three to ten years (certain leases with anchor tenants may be longer), and in addition to minimum rents,
may provide for percentage rents based on the tenant’s level of sales achieved and cost recoveries for the tenant’s share of
certain operating costs. Leases on apartments are generally for a period of 1 year or less.
As of December 31, 2014, minimum future commercial property rentals from noncancelable operating leases, before any
reserve for uncollectible amounts and assuming no early lease terminations, at our operating properties are as follows:
Year ending December 31,
2015.......................................................................................................................................................................... $
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
Thereafter .................................................................................................................................................................
484,911
447,519
389,507
323,748
268,600
1,718,254
$ 3,632,539
(In thousands)
NOTE 13—COMPONENTS OF RENTAL INCOME AND EXPENSE
The principal components of rental income are as follows:
Year Ended December 31,
2014
2013
2012
(In thousands)
Minimum rents
Retail and commercial ................................................................................... $
Residential......................................................................................................
Cost reimbursement ..............................................................................................
Percentage rent ......................................................................................................
Other......................................................................................................................
Total rental income................................................................................................ $
472,602
$
448,058
$
420,989
36,099
135,592
10,169
11,860
28,902
122,578
9,359
11,192
27,611
112,424
8,568
10,522
666,322
$
620,089
$
580,114
Minimum rents include the following:
Straight-line rents .................................................................................................. $
Net amortization of above and below market leases............................................. $
Year Ended December 31,
2014
2013
2012
(In millions)
5.1
2.4
$
$
5.4
3.1
$
$
6.1
1.1
F-25
The principal components of rental expenses are as follows:
Repairs and maintenance ...................................................................................... $
Utilities..................................................................................................................
Management fees and costs...................................................................................
Payroll ...................................................................................................................
Marketing ..............................................................................................................
Insurance ...............................................................................................................
Ground Rent ..........................................................................................................
Bad debt expense ..................................................................................................
Other operating .....................................................................................................
Total rental expenses............................................................................................. $
Year Ended December 31,
2014
2013
2012
55,444
20,499
17,416
11,554
9,532
6,462
1,952
2,021
10,537
135,417
(In thousands)
46,600
$
19,219
16,250
9,237
8,664
6,811
1,916
442
9,556
118,695
$
$
$
41,550
19,201
15,167
8,691
7,321
6,267
2,189
2,173
10,057
112,616
NOTE 14—DISCONTINUED OPERATIONS
During 2013 and prior to our adoption of ASU 2014-08 as further discussed in Note 2, certain disposal transactions were
considered discontinued operations. A summary of the financial information for the discontinued operations is as follows:
Revenue from discontinued operations .......................................................................................... $
Income from discontinued operations ............................................................................................ $
NOTE 15—SHARE-BASED COMPENSATION PLANS
A summary of share-based compensation expense included in net income is as follows:
Year Ended December 31,
2013
2012
(in millions)
1.5
0.9
$
$
2.2
1.4
Share-based compensation incurred
Grants of common shares............................................................................... $
Grants of options............................................................................................
Capitalized share-based compensation .................................................................
Share-based compensation expense ...................................................................... $
Year Ended December 31,
2014
2013
2012
(In thousands)
12,892
$
10,907
$
49
12,941
(1,188)
11,753
$
292
11,199
(1,024)
10,175
$
9,846
525
10,371
(908)
9,463
As of December 31, 2014, we have grants outstanding under two share-based compensation plans. In May 2010, our
shareholders approved the 2010 Performance Incentive Plan, as amended (“the 2010 Plan”), which authorized the grant of
share options, common shares and other share-based awards for up to 2,450,000 common shares of beneficial interest. Our
2001 Long Term Incentive Plan (the “2001 Plan”), which expired in May 2010, authorized the grant of share options, common
shares and other share-based awards of 3,250,000 common shares of beneficial interest.
Option awards under both plans are required to have an exercise price at least equal to the closing trading price of our common
shares on the date of grant. Options and restricted share awards under these plans generally vest over three to six years and
option awards typically have a ten-year contractual term. We pay dividends on unvested shares. Certain options and share
awards provide for accelerated vesting if there is a change in control. Additionally, the vesting on certain option and share
awards can accelerate in part or in full upon retirement based on the age of the retiree or upon termination without cause.
The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities,
term, dividend yields, employee exercises and estimated forfeitures are primarily based on historical data. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair value of each share award is determined
F-26
based on the closing trading price of our common shares on the grant date. No options were granted in 2014, 2013 and 2012.
The following table provides a summary of option activity for 2014:
Shares
Under
Option
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual Term
Aggregate
Intrinsic
Value
(In years)
(In thousands)
Outstanding at December 31, 2013 .............................
Granted ........................................................................
Exercised .....................................................................
Forfeited or expired .....................................................
Outstanding at December 31, 2014 .............................
Exercisable at December 31, 2014 ..............................
375,460
—
(29,218)
(2,500)
343,742
343,599
$
$
$
63.00
—
73.38
82.15
61.55
61.55
3.4
3.4
$
$
24,719
24,709
The total cash received from options exercised during 2014, 2013 and 2012 was $2.3 million, $1.0 million and $5.7 million,
respectively. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $1.1
million, $0.7 million and $4.2 million, respectively.
The following table provides a summary of restricted share activity for 2014:
Unvested at December 31, 2013.............................................................................................
Granted ...................................................................................................................................
Vested......................................................................................................................................
Forfeited..................................................................................................................................
Unvested at December 31, 2014.............................................................................................
Shares
Weighted-Average
Grant-Date Fair
Value
298,203
119,677
(108,882)
(2,030)
306,968
$
$
93.71
111.45
94.12
98.02
100.45
The weighted-average grant-date fair value of stock awarded in 2014, 2013 and 2012 was $111.45, $106.70 and $96.35,
respectively. The total vesting-date fair value of shares vested during the year ended December 31, 2014, 2013 and 2012, was
$12.1 million, $10.6 million and $10.3 million, respectively.
As of December 31, 2014, there was $15.5 million of total unrecognized compensation cost related to unvested share-based
compensation arrangements (i.e. options and unvested shares) granted under our plans. This cost is expected to be recognized
over the next 9.4 years with a weighted-average period of 2.1 years.
Subsequent to December 31, 2014, common shares were awarded under various compensation plans as follows:
Date
February 6, 2015
January 2, 2015
Award
50,734 Restricted shares
5,059 Shares
Vesting Term
Beneficiary
2-5 years
Immediate
Officers and key employees
Trustees
NOTE 16—SAVINGS AND RETIREMENT PLANS
We have a savings and retirement plan in accordance with the provisions of Section 401(k) of the Code. Generally, employees
can elect, at their discretion, to contribute a portion of their compensation up to a maximum of $17,500 for 2014 and 2013, and
$17,000 for 2012. Under the plan, we contribute 50% of each employee’s elective deferrals up to 5% of eligible earnings. In
addition, we may make discretionary contributions within the limits of deductibility set forth by the Code. Our full-time
employees are immediately eligible to become plan participants. Employees are eligible to receive matching contributions
immediately on their participation; however, these matching payments will not vest until their third anniversary of employment
for new employees who joined the Trust after December 31, 2011, and their first anniversary of employment for all other
participants. Our expense for the years ended December 31, 2014, 2013 and 2012 was approximately $442,000, $384,000 and
$427,000, respectively.
A non-qualified deferred compensation plan for our officers and certain other employees was established in 1994 that allows
the participants to defer a portion of their income. As of December 31, 2014 and 2013, we are liable to participants for
approximately $10.3 million and $9.2 million, respectively, under this plan. Although this is an unfunded plan, we have
purchased certain investments to match this obligation. Our obligation under this plan and the related investments are both
included in the accompanying consolidated financial statements.
F-27
NOTE 17—EARNINGS PER SHARE
We have calculated earnings per share (“EPS”) under the two-class method. The two-class method is an earnings allocation
methodology whereby EPS for each class of common stock and participating securities is calculated according to dividends
declared and participation rights in undistributed earnings. For 2014, 2013 and 2012, we had 0.3 million weighted average
unvested shares outstanding, which are considered participating securities. Therefore, we have allocated our earnings for basic
and diluted EPS between common shares and unvested shares; the portion of earnings allocated to the unvested shares is
reflected as “earnings allocated to unvested shares” in the reconciliation below.
In the dilutive EPS calculation, dilutive stock options were calculated using the treasury stock method consistent with prior
periods. There were no anti-dilutive stock options in 2014, 2013, or 2012. The conversions of downREIT operating partnership
units and 5.417% Series 1 Cumulative Convertible Preferred Shares are anti-dilutive for all periods presented and accordingly,
have been excluded from the weighted average common shares used to compute diluted EPS.
Year Ended December 31,
2014
2013
2012
(In thousands, except per share data)
NUMERATOR
Income from continuing operations .................................................................................. $ 167,888
Less: Preferred share dividends ........................................................................................
(541)
(7,754)
(1,003)
158,590
Less: Earnings allocated to unvested shares .....................................................................
Less: Income from continuing operations attributable to noncontrolling interests...........
Income from continuing operations available for common shareholders.........................
Results from discontinued operations attributable to the Trust.........................................
—
Gain on sale of real estate .................................................................................................
4,401
Net income available for common shareholders, basic and diluted.................................. $ 162,991
DENOMINATOR
$ 137,811
(541)
(4,927)
(889)
131,454
$ 142,972
(541)
(4,307)
(845)
137,279
24,803
4,994
1,400
11,860
$ 161,251
$ 150,539
Weighted average common shares outstanding—basic....................................................
67,322
65,331
63,881
Effect of dilutive securities:
Stock options..............................................................................................................
Weighted average common shares outstanding—diluted .................................................
EARNINGS PER COMMON SHARE, BASIC
Continuing operations ....................................................................................................... $
Discontinued operations....................................................................................................
Gain on sale of real estate .................................................................................................
EARNINGS PER COMMON SHARE, DILUTED
Continuing operations ....................................................................................................... $
Discontinued operations....................................................................................................
Gain on sale of real estate .................................................................................................
$
2.41
Income from continuing operations attributable to the Trust............................................ $ 160,134
$
F-28
170
67,492
152
65,483
175
64,056
2.35
$
—
0.07
2.42
2.34
—
0.07
$
$
$
2.01
0.38
0.08
2.47
2.00
0.38
0.08
2.46
$
$
$
$
2.15
0.02
0.19
2.36
2.14
0.02
0.19
2.35
$ 132,884
$ 138,665
NOTE 18—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share data)
2014
Revenue ....................................................................................... $
Operating income ........................................................................ $
Net income(1).............................................................................. $
Net income attributable to the Trust(1) ....................................... $
Net income available for common shareholders(1)..................... $
Earnings per common share—basic(1) ....................................... $
Earnings per common share—diluted(1)..................................... $
170,828
63,444
40,545
38,753
38,618
0.58
0.57
$
$
$
$
$
$
$
167,947
68,361
45,416
43,545
43,410
0.64
0.64
$
$
$
$
$
$
$
170,938
67,622
49,049
47,075
46,939
0.69
0.69
First
Quarter
Second
Quarter
Third
Quarter
(In thousands, except per share data)
2013
Revenue(2) .................................................................................. $
Operating income ........................................................................ $
Net income(1).............................................................................. $
Net income attributable to the Trust(1) ....................................... $
Net income available for common shareholders(1)..................... $
Earnings per common share—basic(1) ....................................... $
Earnings per common share—diluted(1)..................................... $
157,149
62,502
35,842
34,588
34,453
0.53
0.53
$
$
$
$
$
$
$
157,388
63,488
38,797
37,539
37,404
0.57
0.57
$
$
$
$
$
$
$
159,030
64,701
63,366
62,098
61,962
0.94
0.94
$
$
$
$
$
$
$
$
$
$
$
$
$
$
176,377
71,610
37,279
35,162
35,027
0.51
0.51
Fourth
Quarter
163,846
63,470
29,603
28,456
28,321
0.43
0.42
(1)
(2)
Third quarter 2014 includes a $4.4 million gain on sale reflecting our share of the Partnership's sale of Pleasant Shops
as further discussed in Note 5. Third quarter 2013 includes a $23.9 million gain on sale of two retail buildings as
further discussed in Note 3.
Revenue in 2013 has been reduced to reflect the results of discontinued operations as further discussed in Note 14.
Revenue from discontinued operations, by quarter, is summarized as follows:
2013 revenue from discontinued operations.................. $
602
$
(In thousands)
559
$
385
$
—
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
NOTE 19—SUBSEQUENT EVENT
In January 2015, we acquired a controlling interest in San Antonio Center, a 376,000 square foot shopping center in Mountain
View, California based on a total value of $62.2 million. Our effective interest approximates 80% and was funded by the
assumption of our share of $18.7 million of mortgage debt, which has a stated interest rate of 5.27% and matures on January 1,
2016, approximately 58,000 downREIT operating partnership units and approximately $27 million of cash. We incurred $0.7
million of acquisition costs in 2014 which are included in "general and administrative expenses."
F-29
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T
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE III
SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
Three Years Ended December 31, 2014
Reconciliation of Total Cost
(in thousands)
Balance, December 31, 2011.................................................................................................................................... $ 4,426,444
Additions during period
Acquisitions ....................................................................................................................................................
Improvements .................................................................................................................................................
Deduction during period—disposition and retirements of property....................................................................
Balance, December 31, 2012....................................................................................................................................
Additions during period
Acquisitions ....................................................................................................................................................
Improvements .................................................................................................................................................
Deduction during period—disposition and retirements of property....................................................................
Balance, December 31, 2013....................................................................................................................................
193,131
187,990
(27,891)
4,779,674
76,359
329,522
(36,092)
5,149,463
Additions during period
Acquisitions ....................................................................................................................................................
Improvements .................................................................................................................................................
Deduction during period—disposition and retirements of property and transfer to joint venture ......................
174,328
329,674
(44,467)
Balance, December 31, 2014.................................................................................................................................... $ 5,608,998
_____________________
(1) For Federal tax purposes, the aggregate cost basis is approximately $5.1 billion as of December 31, 2014.
F-35
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE III
SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
Three Years Ended December 31, 2014
Reconciliation of Accumulated Depreciation and Amortization
(in thousands)
Additions during period—depreciation and amortization expense
Deductions during period—disposition and retirements of property ..................................................................
Balance, December 31, 2012....................................................................................................................................
Additions during period—depreciation and amortization expense .....................................................................
Deductions during period—disposition and retirements of property ..................................................................
Balance, December 31, 2011.................................................................................................................................... $ 1,127,588
128,654
(31,947)
1,224,295
147,730
(21,554)
1,350,471
155,662
(39,083)
Balance, December 31, 2014.................................................................................................................................... $ 1,467,050
Additions during period—depreciation and amortization expense .....................................................................
Deductions during period—disposition and retirements of property ..................................................................
Balance, December 31, 2013
F-36
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
Year Ended December 31, 2014
(Dollars in thousands)
Column A
Column B
Column C
Column D
Column E
Column F
Column G
Column H
Description of Lien
Mortgage on
retail buildings in
Philadelphia, PA
Mortgage on retail
buildings in
Philadelphia, PA
Second Mortgage
on hotel building
in San Jose, CA
Mortgage on retail
building in
Norwalk, CT
May 2021
Interest Rate Maturity Date
8% or 10%
based on
timing of
draws, plus
participation
10% plus
participation
May 2021
9%
August 2016
7%
June 2015
Prior
Liens
$ —
Face Amount
of Mortgages
$ 20,286
Carrying
Amount
of Mortgages(1)
(2)
$ 20,286
—
9,250
9,250
34,000
(4)
10,691
9,737
—
11,715
11,715
Periodic Payment
Terms
Interest only
monthly;
balloon
payment due
at maturity
Interest only
monthly;
balloon
payment due
at maturity
Principal and
interest; balloon
payment due
at maturity(3)
Interest only;
balloon payment
due at maturity
Principal
Amount
of Loans
Subject to
delinquent
Principal
or Interest
—
$
—
—
—
_____________________
(1) For Federal tax purposes, the aggregate tax basis is approximately $51.9 million as of December 31, 2014.
(2) This mortgage is available for up to $25.0 million.
(3) This note was amended on August 4, 2006. The amended note decreased the interest from 14% to 9% per annum, and requires monthly
payments of principal and interest based on 15-year amortization schedule.
(4) We do not hold the first mortgage loan on this property. Accordingly, the amount of the prior lien at December 31, 2014 is estimated.
$ 34,000
$ 51,942
$ 50,988
$
—
F-37
FEDERAL REALTY INVESTMENT TRUST
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE - CONTINUED
Three Years Ended December 31, 2014
Reconciliation of Carrying Amount
(in thousands)
Balance, December 31, 2011.................................................................................................................................... $
55,967
Additions during period:
Issuance of loans.............................................................................................................................................
70
Deductions during period:
Collection and satisfaction of loans................................................................................................................
Amortization of discount ................................................................................................................................
Balance, December 31, 2012....................................................................................................................................
Deductions during period:
Collection and satisfaction of loans................................................................................................................
Amortization of discount ................................................................................................................................
Balance, December 31, 2013....................................................................................................................................
Deductions during period:
Collection and satisfaction of loans................................................................................................................
Amortization of discount ................................................................................................................................
Balance, December 31, 2014.................................................................................................................................... $
(1,161)
772
55,648
(1,057)
564
55,155
(4,778)
611
50,988
F-38
EXHIBIT INDEX
Exhibit
No.
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Description
Declaration of Trust of Federal Realty Investment Trust dated May 5, 1999 as amended by the Articles of
Amendment of Declaration of Trust of Federal Realty Investment Trust dated May 6, 2004, as corrected by the
Certificate of Correction of Articles of Amendment of Declaration of Trust of Federal Realty Investment Trust
dated June 17, 2004, as amended by the Articles of Amendment of Declaration of Trust of Federal Realty
Investment Trust dated May 6, 2009 (previously filed as Exhibit 3.1 to the Trust’s Registration Statement on Form
S-3 (File No. 333-160009) and incorporated herein by reference)
Amended and Restated Bylaws of Federal Realty Investment Trust dated February 12, 2003, as amended
October 29, 2003, May 5, 2004, February 17, 2006 and May 6, 2009 (previously filed as Exhibit 3.2 to the Trust’s
Registration Statement on Form S-3 (File No. 333-160009) and incorporated herein by reference)
Specimen Common Share certificate (previously filed as Exhibit 4(i) to the Trust’s Annual Report on Form 10-K
for the year ended December 31, 1999 (File No. 1-07533) and incorporated herein by reference)
Articles Supplementary relating to the 5.417% Series 1 Cumulative Convertible Preferred Shares of Beneficial
Interest (previously filed as Exhibit 4.1 to the Trust’s Current Report on Form 8-K filed on March 13, 2007, (File
No. 1-07533) and incorporated herein by reference)
** Indenture dated December 1, 1993 related to the Trust’s 7.48% Debentures due August 15, 2026; and 6.82%
Medium Term Notes due August 1, 2027; (previously filed 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), filed on December 13, 1993 and
incorporated herein by reference)
** Indenture dated September 1, 1998 related to the Trust’s 5.65% Notes due 2016; 6.20% Notes due 2017; 5.95%
Notes due 2014 and the 5.90% Notes due 2020; 3.00% Notes due 2022; 2.75% Notes due 2023; 3.95% Notes due
2024; 4.50% Notes due 2044 (previously filed as Exhibit 4(a) to the Trust’s Registration Statement on Form S-3
(File No. 333-63619) filed on September 17, 1998 and incorporated herein by reference)
* Severance Agreement between the Trust and Donald C. Wood dated February 22, 1999 (previously filed as a
portion of Exhibit 10 to the Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 (File No.
1-07533) (the "1999 1Q Form 10-Q") and incorporated herein by reference)
* Executive Agreement between Federal Realty Investment Trust and Donald C. Wood dated February 22, 1999
(previously filed as a portion of Exhibit 10 to the 1999 1Q Form 10-Q and incorporated herein by reference)
* Amendment to Executive Agreement between Federal Realty Investment Trust and Donald C. Wood dated
February 16, 2005 (previously filed as Exhibit 10.12 to the Trust’s Annual Report on Form 10-K for the year ended
December 31, 2004 (File No. 1-07533) (the “2004 Form 10-K”) and incorporated herein by reference)
2001 Long-Term Incentive Plan (previously filed as Exhibit 99.1 to the Trust’s S-8 Registration Number
333-60364 filed on May 7, 2001 and incorporated herein by reference)
* Health Coverage Continuation Agreement between Federal Realty Investment Trust and Donald C. Wood dated
February 16, 2005 (previously filed as Exhibit 10.26 to the 2004 Form 10-K and incorporated herein by reference)
* Severance Agreement between the Trust and Dawn M. Becker dated April 19, 2000 (previously filed as Exhibit
10.26 to the Trust’s 2005 2Q Form 10-Q and incorporated herein by reference)
* Amendment to Severance Agreement between the Trust and Dawn M. Becker dated February 16, 2005
(previously filed as Exhibit 10.27 to the 2004 Form 10-K and incorporated herein by reference)
Form of Restricted Share Award Agreement for awards made under the Trust’s 2003 Long-Term Incentive Award
Program for shares issued out of 2001 Long-Term Incentive Plan (previously filed as Exhibit 10.28 to the 2004
Form 10-K and incorporated herein by reference)
Form of Restricted Share Award Agreement for long term vesting and retention awards for shares issued out of the
2010 Plan (previously filed as Exhibit 10.35 to the Trust's Annual Report on Form 10-K for the year ended
December 31, 2010 (File No. 1-07533) (the "2010 Form 10-K") and incorporated herein by reference)
10.10
Form of Option Award Agreement for awards made under the Trust’s 2003 Long-Term Incentive Award Program
for shares issued out of the 2001 Long-Term Incentive Plan (previously filed as Exhibit 10.32 to the 2005 Form 10-
K and incorporated herein by reference)
1
Exhibit
No.
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Description
Amended and Restated 2001 Long-Term Incentive Plan (previously filed as Exhibit 10.34 to the Trust’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 1-07533) and incorporated herein by
reference)
* Amendment to Severance Agreement between the Trust and Donald C. Wood dated January 1, 2009 (previously
filed as Exhibit 10.26 to the Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No.
1-07533) (“the 2008 Form 10-K”) and incorporated herein by reference)
* Second Amendment to Executive Agreement between the Trust and Donald C. Wood dated January 1, 2009
(previously filed as Exhibit 10.27 to the Trust’s 2008 Form 10-K and incorporated herein by reference)
* Amendment to Health Coverage Continuation Agreement between the Trust and Donald C. Wood dated January
1, 2009 (previously filed as Exhibit 10.28 to the Trust’s 2008 Form 10-K and incorporated herein by reference)
* Second Amendment to Severance Agreement between the Trust and Dawn M. Becker dated January 1, 2009
(previously filed as Exhibit 10.30 to the Trust’s 2008 Form 10-K and incorporated herein by reference)
2010 Performance Incentive Plan (previously filed as Appendix A to the Trust’s Definitive Proxy Statement for the
2010 Annual Meeting of Shareholders (File No. 01-07533) and incorporated herein by reference)
Amendment to 2010 Performance Incentive Plan (“the 2010 Plan”) (previously filed as Appendix A to the Trust’s
Proxy Supplement for the 2010 Annual Meeting of Shareholders (File No. 01-07533) and incorporated herein by
reference)
* Restricted Share Award Agreement between the Trust and Donald C. Wood dated October 12, 2010 (previously
filed as Exhibit 10.36 to the Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File
No. 01-07533) and incorporated herein by reference)
Form of Restricted Share Award Agreement for awards made under the Trust’s Long-Term Incentive Award
Program and the Trust’s Annual Incentive Bonus Program and basic awards with annual vesting for shares issued
out of the 2010 Plan (previously filed as Exhibit 10.34 to the Trust’s 2010 Form 10-K (File No. 1-07533) and
incorporated herein by reference)
Form of Option Award Agreement for awards made under the Trust’s Long-Term Incentive Award Program for
shares issued out of the 2010 Plan (previously filed as Exhibit 10.38 to the Trust’s 2010 Form 10-K (File No.
1-07533) and incorporated herein by reference)
Form of Option Award Agreement for front loaded awards made under the Trust’s Long-Term Incentive Award
Program for shares issued out of the 2010 Plan (previously filed as Exhibit 10.39 to the Trust’s 2010 Form 10-K
(File No. 1-07533) and incorporated herein by reference)
Form of Option Award Agreement for basic options awarded out of the 2010 Plan (previously filed as Exhibit
10.40 to the Trust’s 2010 Form 10-K (File No. 1-07533) and incorporated herein by reference)
Form of Restricted Share Award Agreement, dated as of February 10, 2011, between the Trust and Dawn M.
Becker (previously filed as Exhibit 10.41 to the Trust’s 2010 Form 10-K (File No. 1-07533) and incorporated
herein by reference)
* Severance Agreement between the Trust and James M. Taylor dated July 30, 2012 (previously filed as Exhibit
10.35 to the Trust's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (File No. 1-07533)
and incorporated herein by reference)
Credit Agreement dated as of July 7, 2011, by and among the Trust, as Borrower, the financial institutions party
thereto and their permitted assignees under Section 12.6., as Lenders, Wells Fargo Bank, National Association, as
Administrative Agent, PNC Bank, National Association, as Syndication Agent, Wells Fargo Securities, LLC, as a
Lead Arranger and Book Manager, and PNC Capital Markets LLC, as a Lead Arranger and Book Manager
(previously filed as Exhibit 10.1 to the Trust’s Current Report on Form 8-K (File No. 1-07533), filed on July 11,
2011 and incorporated herein by reference)
Term Loan Agreement dated as of November 22, 2011, by and among the Trust, as Borrower, the financial
institutions party thereto and their permitted assignees under Section 12.6., as Lenders, PNC Bank, National
Association, as Administrative Agent, Capital One, N.A., Syndication Agent, PNC Capital Markets, LLC, as a
Lead Arranger and Book Manager, and Capital One, N.A., as a Lead Arranger and Book Manager (previously filed
as Exhibit 10.1 to the Trust's Current Report on Form 8-K (File No. 1-07533), filed on November 28, 2011 and
incorporated herein by reference)
2
Exhibit
No.
10.27
10.28
10.29
10.30
10.31
10.32
10.33
21.1
23.1
31.1
31.2
32.1
32.2
101
Description
Revised Form of Restricted Share Award Agreement for front loaded awards made under the Trust’s Long-Term
Incentive Award Program for shares issued out of the 2010 Plan (previously filed as Exhibit 10.35 to the Trust's
Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 1-07533) (the "2012 Form 10-K")
and incorporated herein by reference)
Revised Form of Restricted Share Award Agreement for long-term vesting and retention awards made under the
Trust’s Long-Term Incentive Award Program for shares issued out of the 2010 Plan (previously filed as Exhibit
10.36 to the Trust's 2012 Form 10-K (File No. 1-07533) and incorporated herein by reference)
Revised Form of Performance Share Award Agreement for shares awarded out of the 2010 Plan (previously filed
as Exhibit 10.37 to the Trust's 2012 Form 10-K (File No. 1-07533) and incorporated herein by reference)
Revised Form of Restricted Share Award Agreement for awards made under the Trust’s Long-Term Incentive
Award Program and the Trust’s Annual Incentive Bonus Program and basic awards with annual vesting for shares
issued out of the 2010 Plan (previously filed as Exhibit 10.38 to the Trust's 2012 Form 10-K (File No. 1-07533)
and incorporated herein by reference)
First Amendment to the Credit Agreement, dated as of April 22, 2013, by and among Federal Realty Investment
Trust, each of the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent
(previously filed as Exhibit 10.1 to the Trust's Current Report on Form 8-K (File No. 1-07533), filed on April 26,
2013 and incorporated herein by reference)
First Amendment to the Term Loan Agreement, dated as of April 22, 2013, by and among Federal Realty
Investment Trust, each of the Lenders party thereto, and PNC Bank, National Association, as Administrative Agent
(previously filed as Exhibit 10.40 to the Trust's Quarterly Report on Form 10-Q for the quarter ended March 31,
2013 (File No. 1-07533) and incorporated herein by reference
Second Amendment to Term Loan Agreement, dated as of August 28, 2014, by and among Federal Realty
Investment Trust, each of the Lenders party thereto, and PNC Bank, National Association, as Administrative Agent
(previously filed as Exhibit 10.1 to the Trust's Current Report on Form 8-K (File No. 1-07533), filed on September
2, 2014 and incorporated herein by reference)
Subsidiaries of Federal Realty Investment Trust (filed herewith)
Consent of Grant Thornton LLP (filed herewith)
Rule 13a-14(a) Certification of Chief Executive Officer (filed herewith)
Rule 13a-14(a) Certification of Chief Financial Officer (filed herewith)
Section 1350 Certification of Chief Executive Officer (filed herewith)
Section 1350 Certification of Chief Financial Officer (filed herewith)
The following materials from Federal Realty Investment Trust’s Annual Report on Form 10-K for the year ended
December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (1) the Consolidated Balance
Sheets, (2) the Consolidated Statements of Comprehensive Income, (3) the Consolidated Statement of
Shareholders’ Equity, (4) the Consolidated Statements of Cash Flows, and (5) Notes to Consolidated Financial
Statements that have been detail tagged.
_____________________
* Management contract or compensatory plan required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
** Pursuant to Regulation S-K Item 601(b)(4)(iii), the Trust by this filing agrees, upon request, to furnish to the Securities and
Exchange Commission a copy of other instruments defining the rights of holders of long-term debt of the Trust.
3
I, Donald C. Wood, certify that:
CERTIFICATION
Exhibit 31.1
1)
2)
3)
4)
I have reviewed this annual report on Form 10-K of Federal Realty Investment Trust;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5)
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of trustees (or
persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
February 10, 2015
/s/ Donald C. Wood
Donald C. Wood,
President, Chief Executive Officer and Trustee
(Principal Executive Officer)
I, James M. Taylor, Jr., certify that:
CERTIFICATION
Exhibit 31.2
1)
2)
3)
4)
I have reviewed this annual report on Form 10-K of Federal Realty Investment Trust;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5)
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of trustees (or
persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
February 10, 2015
/s/ James M. Taylor, Jr.
James M. Taylor, Jr.,
Executive Vice President -
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
The undersigned, Donald C. Wood, the President and Chief Executive Officer of Federal Realty Investment Trust (the
“Company”), has executed this certification in connection with the filing with the Securities and Exchange Commission of the
Company’s Annual Report on Form 10-K for the period ended December 31, 2014 (the “Report”). The undersigned hereby
certifies, to the best of his knowledge, that:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 10, 2015
/s/ Donald C. Wood
Donald C. Wood,
President, Chief Executive Officer and Trustee
(Principal Executive Officer)
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
The undersigned, James M. Taylor, Jr., the Executive Vice President and Chief Financial Officer and Treasurer of Federal
Realty Investment Trust (the “Company”), has executed this certification in connection with the filing with the Securities and
Exchange Commission of the Company’s Annual Report on Form 10-K for the period ended December 31, 2014 (the
“Report”). The undersigned hereby certifies, to the best of his knowledge, that:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 10, 2015
/s/ James M. Taylor, Jr.
James M. Taylor, Jr.,
Executive Vice President -
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
CORPORATE INFORMATION
CORPORATE OFFICE
1626 East Jefferson Street
Rockville, MD 20852-4041
(301) 998-8100
GENERAL COUNSEL
Pillsbury Winthrop Shaw Pittman LLP
Washington, DC
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Grant Thornton LLP
McLean, VA
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
(718) 921-8200
(800) 937-5449
www.amstock.com
COMMON STOCK LISTING
New York Stock Exchange
Symbol: FRT
MEMBERSHIPS
International Council of Shopping Centers
National Association of Real Estate Investment Trusts
Urban Land Institute
ANNUAL MEETING
Federal Realty Investment Trust will hold its Annual Shareholder
Meeting at 10 a.m. on May 6, 2015, at AMP by Strathmore,
11810 Grand Park Avenue, North Bethesda, MD.
CORPORATE GOVERNANCE
The Trust’s Corporate Governance Guidelines and the charters
for the Audit Committee, the Compensation Committee, and the
Nominating and Corporate Governance Committee are available in
the Investors section of our Web site at www.federalrealty.com.
ANNUAL CEO CERTIFICATION
In 2014, we filed with the New York Stock Exchange
the certification of our Chief Executive Officer that is required
by Section 303A.12(a) of the NYSE Listed Company Manual.
The certification was filed without any qualifications.
AUTOMATIC CASH INVESTMENT AND DIRECT DEPOSIT
Federal Realty offers automatic cash investment, the option to
automatically withdraw funds from a checking/savings or other bank
account to purchase additional shares of FRT on the 1st and 15th of
each month. Federal Realty also offers shareholders the option to
directly deposit their dividends. To sign up for automatic cash investment
or direct deposit, please call (800) 937-5449 or visit www.amstock.com.
INTERNET
www.federalrealty.com
Visitors to the site can search for and download Securities and
Exchange Commission filings, review Federal Realty’s Dividend
Reinvestment Plan, obtain current stock quotes, read recent press
releases, and see a listing of our properties and the properties’
respective websites. Printed materials and e-mail news alerts can
also be requested.
INVESTOR RELATIONS CONTACT
You may communicate directly with Federal Realty’s Investor Relations
department via telephone at (800) 658-8980 or by e-mail at
IR@federalrealty.com.
LEADING US INTO TOMORROW
Executive Team
Core Team
Mixed-Use Team
Finance/Support Team
West Coast Team
EXECUTIVE TEAM
CORE TEAM
MIXED-USE TEAM
FINANCE/SUPPORT TEAM
WEST COAST TEAM
JAMES TAYLOR
Executive Vice President –
Chief Financial Officer & Treasurer
MICHAEL KELLEHER
Vice President – Specialty Leasing,
Retail and Office
CHRISTOPHER WEILMINSTER
Executive Vice President –
Real Estate and Leasing
WENDY SEHER
Senior Vice President – Leasing
Core Shopping Center Division
DONALD C. WOOD
President – Chief Executive Officer
DAWN BECKER
Executive Vice President –
Chief Operating Officer
JEFFREY BERKES
President – West Coast
DONALD BRIGGS
Executive Vice President –
Development
DEIRDRE JOHNSON
Vice President – Asset Management
Core Shopping Center Division
JOHN TSCHIDERER
Senior Vice President – Development
BARRY CARTY
Vice President – East Coast
Acquisitions
EVAN GOLDMAN
Vice President – Development
STUART BIEL
Vice President – Leasing
Mixed-Use Division
JOHN HENDRICKSON
Senior Vice President –
Mixed-Use Division
GEORGE STAMATAKOS
Vice President – Construction
PORTER BELLEW
Vice President –
Chief Information Officer
MELISSA SOLIS
Vice President –
Chief Accounting Officer
DEBBIE COLSON
Senior Vice President –
Legal Operations
[Not pictured]
PATRICK INABA
Vice President – Construction
and Tenant Services
SETH BLAND
Vice President – Development
West Coast
JAN SWEETNAM
Vice President – Western Region
Chief Operating Officer
JEFFREY KRESHEK
Vice President – Leasing
West Coast
THE POWER OF NOW | FEDERAL REALTY ANNUAL REPORT 2014 LOCATIONS
Corporate Headquarters
1626 E. Jefferson Street
Rockville, MD 20852
301.998.8100
Regional Offices
BOSTON
5 Middlesex Avenue
Suite 401
Somerville, MA 02145
617.684.1500
LOS ANGELES
710-B South Allied Way
El Segundo, CA 90245
310.414.5280
PHILADELPHIA
50 East Wynnewood Road
Suite 200
Wynnewood, PA 19096
610.896.5870
SAN JOSE
356 Santana Row
Suite 1005
San Jose, CA 95128
408.551.4600
federalrealty.com