Filed under Rule 424(b)(5)
No. 333-97945 and
No. 333-63619
PROSPECTUS SUPPLEMENT
(To prospectus dated September 30, 1998)
$150,000,000
[LOGO] FEDERAL REALTY
INVESTMENT TRUST
6 1/8% Notes due 2007
-----------------
We will pay interest on the notes on May 15 and November 15 of each year,
beginning May 15, 2003. Interest will accrue from November 19, 2002. We may
redeem the notes in whole or in part at any time before maturity at the
redemption price described in this prospectus supplement.
The notes will be unsecured obligations and rank equally with our other
unsecured senior indebtedness. The notes will be issued only in registered form
in denominations of $1,000.
Investing in our notes involves risks that are described in the "Risk
Factors" section on page S-2 of this prospectus supplement and in our Annual
Report on Form 10-K for the year ended December 31, 2001.
-----------------
Per Note Total
-------- -----
Public offering price (1)........... 99.764% $149,646,000
Underwriting discount............... .6% $900,000
Proceeds, before expenses, to us (1) 99.164% $148,746,000
(1) Plus accrued interest from November 19, 2002, if settlement occurs after
that date
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The notes will be ready for delivery only in book-entry form through The
Depository Trust Company on or about November 19, 2002.
-----------------
Joint Book-Running Managers
Merrill Lynch & Co. Salomon Smith Barney Wachovia Securities
-----------------
Commerzbank Securities
Banc of America Securities LLC
BMO Nesbitt Burns
Fleet Securities, Inc.
HVB Capital Markets, Inc.
Wells Fargo Brokerage Services, LLC
PNC Capital Markets, Inc.
-----------------
The date of this prospectus supplement is November 14, 2002.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
WHERE YOU CAN FIND MORE INFORMATION.......... S-1
RISK FACTORS................................. S-2
PROSPECTUS SUPPLEMENT SUMMARY................ S-3
2002 THIRD QUARTER HIGHLIGHTS................ S-7
USE OF PROCEEDS.............................. S-8
RATIOS OF EARNINGS TO FIXED CHARGES.......... S-9
CAPITALIZATION.............................. S-10
SELECTED CONSOLIDATED FINANCIAL DATA......... S-11
DESCRIPTION OF NOTES......................... S-13
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.... S-19
UNDERWRITING................................. S-20
NOTICE REGARDING ARTHUR ANDERSEN LLP......... S-21
LEGAL MATTERS................................ S-21
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents by Reference 2
The Trust...................................... 3
Use of Proceeds................................ 4
Ratios of Earnings to Fixed Charges............ 4
Description of Debt Securities................. 4
Description of Preferred Shares................ 15
Description of Common Shares................... 21
Federal Income Tax Considerations.............. 22
Plan of Distribution........................... 23
Legal Opinions................................. 24
Experts........................................ 24
-----------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
their respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
i
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or SEC. Our SEC
filings are available to the public at the SEC's website at www.sec.gov. You
may also read and copy any document we file at the SEC's Public Reference Room
at:
Public Reference Section
Securities and Exchange Commission
Room 1200
450 Fifth Street, N.W.
Washington, D.C. 20549
Please call the SEC at (800) SEC-0330 for further information on the
operating rules and procedures for the public reference room. Reports, proxy
statements and other information concerning Federal Realty Investment Trust may
also be inspected at the offices of the New York Stock Exchange, which are
located at 20 Broad Street, New York, NY 10005.
The SEC allows us to "incorporate by reference" the information we file with
the SEC and the New York Stock Exchange, which means we can disclose important
information to you by referring you to those documents. The information we
incorporate by reference is an important part of this prospectus supplement and
the accompanying prospectus, and all information that we will later file with
the SEC will automatically update and supersede that information. In
particular, the information appearing in the accompanying prospectus under the
caption "Federal Income Tax Considerations" has been superseded in its entirety
by information appearing in the Form 8-K filed on November 13, 2002. We
incorporate by reference the documents listed below as well as any future
filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934, or the Exchange Act (Exchange Act File No.
1-07533), from the date of this prospectus supplement until we terminate the
offering hereunder.
. Annual Report on Form 10-K for the fiscal year ended December 31, 2001
and filed on March 22, 2002
. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002
and filed on May 2, 2002
. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002
and filed on August 12, 2002
. Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2002 and filed on October 30, 2002
. Current Reports on Form 8-K filed with the SEC on November 13, 2002,
October 30, 2002, September 4, 2002, August 12, 2002, June 11, 2002, June
5, 2002, April 30, 2002, March 28, 2002, March 12, 2002 and February 12,
2002
Copies of these filings are available at no cost on our website,
www.federalrealty.com. Amendments to these filings will be posted to our
website as soon as reasonably practical after filing with the SEC. In addition,
you may obtain a copy of these filings and any amendments to the filings at no
cost, by writing or telephoning us. Those copies will not include exhibits to
the filings unless the exhibits are specifically incorporated by reference in
the documents or unless you specifically request them. You also may obtain
copies of any exhibits to the registration statement. Please direct your
request to:
Andrew P. Blocher
Vice President, Investor Relations and Capital Markets
Federal Realty Investment Trust
1626 E. Jefferson Street
Rockville, Maryland 20852
(301) 998-8100 or (800) 658-8980
S-1
This prospectus supplement and the accompanying prospectus do not contain
all of the information included in the registration statement. We have omitted
certain parts of the registration statement in accordance with the rules and
regulations of the SEC. For further information, we refer you to the
registration statement, including its exhibits and schedules. Statements
contained in this prospectus supplement and the accompanying prospectus about
the provisions or contents of any contract, agreement or any other document
referred to are not necessarily complete. Please refer to the actual exhibit
for a more complete description of the matters involved. You may obtain copies
of the exhibits by contacting the person named above.
You should rely only on the information in this prospectus supplement, the
accompanying prospectus and the documents that are incorporated by reference.
We have not authorized anyone else to provide you with different information.
We are not offering these securities in any state where the offer is prohibited
by law. You should not assume that the information in this prospectus
supplement, the accompanying prospectus or any incorporated document is
accurate as of any date other than the date of the document.
RISK FACTORS
This prospectus supplement and the accompanying prospectus contain
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 prospectus supplement and the accompanying prospectus,
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 risk factors included or incorporated by
reference in this prospectus supplement and the accompanying prospectus
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:
. risks that our growth will be limited if we cannot obtain additional
capital;
. risks of financing, such as our ability to consummate additional
financings or obtain replacement financing on terms which are acceptable
to us, our ability to comply with our existing financial covenants and
the possibility of increases in interest rates that would result in
increased interest expense;
. risks normally associated with the real estate industry, including risks
that our tenants will not pay rent or that we may be unable to renew
leases or relet space at favorable rents as leases expire, that new
acquisitions and our development, construction and renovation projects,
including our Santana Row project, may fail to perform as expected, that
competition for acquisitions could result in increased prices,
environmental risks, and, because real estate is illiquid, that we may
not be able to sell properties when appropriate; and
. risks related to our status as a real estate investment trust, commonly
referred to as a REIT, for federal income tax purposes, such as our
obligation to comply with complex tax regulations relating to our status
as a REIT, the effect of future changes in REIT requirements as a result
of new legislation and the adverse consequences if we fail to qualify as
a REIT.
Given these uncertainties, readers are cautioned not to place undue reliance
on these forward-looking statements or those incorporated into this prospectus
supplement and the accompanying prospectus. We also make no promise to update
any of the forward-looking statements. Investing in the notes involves risk,
and you should carefully review the risks and the risk factors incorporated by
reference into this prospectus supplement and the accompanying prospectus,
including those included in our Annual Report on Form 10-K for the year ended
December 31, 2001, as well as the other information in this prospectus
supplement and the accompanying prospectus before buying our notes.
S-2
PROSPECTUS SUPPLEMENT SUMMARY
The following is only a summary. It should be read together with the more
detailed information included elsewhere in this prospectus supplement and the
accompanying prospectus. In addition, important information is incorporated by
reference into this prospectus supplement and the accompanying prospectus.
The Trust
Federal Realty Investment Trust is an equity real estate investment trust
specializing in the ownership, management, development and redevelopment of
high quality retail and mixed-use properties. As of September 30, 2002, we
owned or had an interest in 113 community and neighborhood shopping centers and
urban retail and mixed-use properties comprising approximately 15 million
square feet and one apartment complex, all in strategic metropolitan markets
across the United States.
We operate in a manner intended to qualify as a real estate investment trust
pursuant to provisions of the Internal Revenue Code. Our offices are located at
1626 East Jefferson Street, Rockville, Maryland 20852. Our telephone number is
(301) 998-8100 or (800) 658-8980. Our website address is www.federalrealty.com.
The information contained in our website is not a part of this prospectus
supplement.
Our Competitive Strengths
We believe that we distinguish ourselves from other owners and operators of
retail and mixed-use properties in a number of ways, including by our:
. Diverse tenant base. As of September 30, 2002, we had in excess of 2,000
tenants. No single tenant currently represents more than 2.6% of our
annualized base rent and our top 10 tenants as a group only represent
approximately 16.6% of our annualized base rent.
. Attractive locations with strong market demographics. Our core portfolio
is located in some of the nation's strongest markets, which are
characterized by dense populations, affluent residents, and limited land
available for the development of competing properties.
. Seasoned management team. Our senior management team consists of
executives with an average of approximately 14 years experience in the
management, redevelopment, leasing, acquisition and construction of real
estate.
Our Business and Growth Strategy
Our primary objective is to redevelop and acquire community and neighborhood
shopping centers that are anchored by supermarkets, drug stores or high-volume,
value-oriented retailers that provide consumer necessities in order to
consistently achieve the highest internal growth rate in our sector. We
evaluate each investment opportunity on its individual merits, allocating
capital to those investments which we believe will contribute to increasing our
cash flow over both the short term and long term. The cornerstones of our
business strategy include:
. The operation of our properties to achieve the highest internal growth
rate in our sector;
. Acquisition of older, well-located shopping centers and retail buildings
in densely populated and affluent areas with possibilities for enhancing
their operating performance through renovation, expansion,
reconfiguration and/or retenanting; and
. The redevelopment, retenanting and expansion of our existing properties.
S-3
The Offering
All capitalized terms not defined herein have the meanings specified in
"Description of Notes" in this prospectus supplement or in "Description of Debt
Securities" in the accompanying prospectus. For a more complete description of
the terms of the notes specified in the following summary, see "Description of
Notes."
Securities Offered.... $150,000,000 aggregate principal amount of 6 1/8%
Notes due November 15, 2007.
Maturity.............. The notes will mature on November 15, 2007.
Interest Payment Dates Interest on the notes will be payable semi-annually in
arrears on May and November, commencing May 15,
2003, and at maturity.
Ranking............... The notes will rank pari passu with all of our other
unsecured and unsubordinated indebtedness, except
that the notes will be effectively subordinated to the
prior claims of each secured mortgage lender to any
specific property which secures such lender's
mortgage. After giving effect to the use of proceeds
from this offering, we will have outstanding
approximately $279.5 million of secured indebtedness
collateralized by 12 properties and approximately
$732.5 million of unsecured indebtedness (including
the $150,000,000 of 6 1/8% Notes due November 15,
2007) ranking pari passu with the notes.
Use of Proceeds....... Our net proceeds from this offering are estimated to
be $148.2 million, after deducting the underwriting
discount and estimated expenses of this offering. We
will use these net proceeds, together with available
insurance proceeds and borrowings under our $300
million credit facility, to pay in full and retire the
approximately $175.3 million balance outstanding
under the construction loan for the Santana Row
development in San Jose, California. See "Use of
Proceeds" on page S-8 for more information.
Limitations on
Incurrence of Debt.... The notes contain various covenants, including the
following:
(1) we will not, and will not permit any subsidiary to,
incur any Debt if, immediately after giving effect to
the incurrence of such Debt and the application of the
proceeds thereof, the aggregate principal amount of
all of our outstanding Debt and our subsidiaries on a
consolidated basis determined in accordance with
generally accepted accounting principles is greater
than 65% of the sum of (without duplication) (a)
Total Assets as of the end of the calendar quarter
covered in our Annual Report on Form 10-K or
S-4
Quarterly Report on Form 10-Q, as the case may be,
most recently filed with the SEC (or, if such filing is
not permitted under the Exchange Act, with the
Trustee) prior to the incurrence of such additional
Debt and (b) the purchase price of any real estate
assets or mortgages receivable acquired, and the
amount of any securities offering proceeds received
(to the extent such proceeds were not used to acquire
real estate assets or mortgages receivable or used to
reduce Debt), by us or any subsidiary since the end of
such calendar quarter, including those proceeds
obtained in connection with the incurrence of such
additional Debt;
(2) we will not, and will not permit any subsidiary to,
incur any Debt secured by any mortgage, lien, charge,
pledge, encumbrance or security interest of any kind
upon any of our or any of our subsidiaries' property
if, immediately after giving effect to the incurrence of
such Debt and the application of the proceeds thereof,
the aggregate principal amount of all of our and our
subsidiaries' outstanding Debt on a consolidated basis
which is secured by any mortgage, lien, charge,
pledge, encumbrance or security interest on our or our
subsidiaries' property is greater than 40% of the sum
of (without duplication) (a) Total Assets as of the end
of the calendar quarter covered in our Annual Report
on Form 10-K or Quarterly Report on Form 10-Q, as
the case may be, most recently filed with the SEC (or,
if such filing is not permitted under the Exchange
Act, with the Trustee) prior to the incurrence of such
additional Debt and (b) the purchase price of any real
estate assets or mortgages receivable acquired, and
the amount of any securities offering proceeds
received (to the extent such proceeds were not used to
acquire real estate assets or mortgages receivable or
used to reduce Debt), by us or any subsidiary since
the end of such calendar quarter, including those
proceeds obtained in connection with the incurrence
of such additional Debt; provided that for purposes of
this limitation, the amount of obligations under
capital leases shown as a liability on our consolidated
balance sheet shall be deducted from Debt and from
Total Assets;
(3) we will not, and will not permit any subsidiary to,
incur any Debt if the ratio of Consolidated Income
Available for Debt Service to the Annual Debt
Service Charge for the four consecutive fiscal
quarters most recently ended prior to the date on
S-5
which such additional Debt is to be incurred shall
have been less than 1.5 to 1, on an unaudited pro
forma basis after giving effect thereto and to the
application of the proceeds therefrom and calculated
on the assumption that (a) such Debt and any other
Debt incurred by us and our subsidiaries since the
first day of such four-quarter period and the
application of the proceeds therefrom, including to
refinance other Debt, had occurred at the beginning of
such period; (b) the repayment or retirement of any
other Debt by us and our subsidiaries since the first
day of such four-quarter period had been incurred,
repaid or retired at the beginning of such period
(except that, in making such computation, the amount
of Debt under any revolving credit facility shall be
computed based upon the average daily balance of
such Debt during such period); (c) in the case of
Acquired Debt (as defined below) or Debt incurred in
connection with any acquisition since the first day of
such four-quarter period, the related acquisition had
occurred as of the first day of such period, with the
appropriate adjustments with respect to such
acquisition being included in such unaudited pro
forma calculation; and (d) in the case of any
acquisition or disposition by us or our subsidiaries of
any asset or group of assets since the first day of such
four-quarter period, whether by merger, stock
purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of
Debt had occurred as of the first day of such period,
with the appropriate adjustments with respect to such
acquisition or disposition being included in such
unaudited pro forma calculation; and
(4) we, together with our subsidiaries, will maintain
an Unencumbered Total Asset Value in an amount not
less than 125% of the aggregate outstanding principal
amount of all of our and our subsidiaries' unsecured
Debt.
Optional Redemption The notes are redeemable at any time at our option, in
whole or in part, at a redemption price equal to the
greater of (1) 100% of the principal amount of the
notes being redeemed, or (2) the sum of the present
values of the remaining scheduled payments of
principal and interest thereon discounted to the
redemption date on a semi-annual basis at the
Adjusted Treasury Rate plus 37.5 basis points plus, in
each case, accrued interest thereon to the redemption
date. See "Description of Notes--Optional
Redemption."
S-6
2002 THIRD QUARTER HIGHLIGHTS
2002 Third Quarter Summary Results of Operations
Financial Results. On October 30, 2002, we announced our results of
operations for the quarter ended September 30, 2002. For the quarter ended
September 30, 2002, our funds from operations, or "FFO," were $29.7 million, as
compared to $28.3 million reported for the same period in the prior year.
FFO is a supplemental measure of real estate companies' operating
performance developed by the National Association of Real Estate Investment
Trusts ("NAREIT"). NAREIT defines FFO as follows: income available for common
shareholders before depreciation and amortization of real estate assets and
before extraordinary items less gains on sale of real estate. NAREIT developed
FFO as a relative measure of performance and liquidity of an equity REIT in
order to recognize that the value of income-producing real estate historically
has not depreciated on the basis determined under generally accepted accounting
principles, or GAAP. 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) and should not be considered an alternative to net income as an
indication of our performance or to cash flow as a measure of liquidity or
ability to pay dividends. We consider FFO a meaningful, additional measure of
operating performance because it primarily excludes the assumption that the
value of the real estate assets diminishes predictably over time, and because
industry analysts have accepted it as a performance measure. 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. For a
reconciliation of FFO to net income available for common shareholders, please
review "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations" of our Form 10-Q for the quarter
ended September 30, 2002.
Portfolio Results. Our rental income for the quarter ended September 30,
2002 was $72.3 million. This represents an increase of 6.0% over the $68.2
million reported for the same period in the prior year. On a same-center basis,
which excludes the impact of properties acquired, developed or sold during the
analyzed periods, rental income increased 3.1% from $67.1 million to $69.2
million and net operating income increased 4.0% from $49.2 million to $51.2
million.
At September 30, 2002, our occupancy remained strong at 95.5%, compared to
95.8% at September 30, 2001. During the third quarter, we signed leases for
over 480,000 square feet of retail space. On a comparable retail space basis,
we leased over 375,000 square feet at an average cash basis increase in rent
per square foot of 20%. The weighted-average new rent on these same space
leases was $19.05 per square foot compared to the previous average rent of
$15.93 per square foot.
Santana Row Update
Santana Row is our multi-phase, mixed-use project being built on 42 acres in
San Jose, California in the heart of Silicon Valley. On August 19, 2002, a fire
broke out at Building Seven in the Santana Row project. Building Seven
contained approximately 87,000 square feet of retail space, approximately 1,000
parking spaces and 246 residential units. All but 11 of the residential units
in the building, which were originally scheduled to open in early 2003, were
destroyed. The retail units and parking structure sustained water and smoke
damage but were not structurally impaired. The opening of these retail units,
originally scheduled for September 2002, will be delayed until early 2003. The
damage related to the fire was limited almost entirely to this single building.
We believe that we have adequate insurance coverage to substantially cover our
losses from the fire. We estimate the insurance claim to be in the range of $70
million to $90 million which includes costs to clean-up, repair and rebuild, as
well as to cover soft costs and lost rents. The cause of the fire has yet to be
determined but will not affect our insurance claim. To date, we have received
$21 million from our insurance carrier, of which $20 million is being held in
escrow by our construction lender, and we intend to use the escrowed funds as
part of the payoff and retirement of the construction loan.
S-7
As a result of the fire and the resulting delay in the opening of the
project from September 19, 2002, we have redefined Phase I of the project. The
redefined Phase I of the project includes a 1,500-foot-long main street and
eight buildings which will contain approximately 445,000 square feet of retail
space, 255 residential units, a 214 room hotel and the supporting
infrastructure. Crate & Barrel, a 40,000 square foot anchor tenant, opened at
Santana Row on June 27, 2002. An additional 123,623 square feet of Phase I
retail space at Santana Row opened on November 7, 2002, and the remaining Phase
I retail space is scheduled to open at various times from now through Spring
2003.
As of September 30, 2002 the retail leasing status of the Santana Row
project was as follows:
Santana Row Leasing Status
-------------------------------------------------------------
Percentage of Available Retail Percentage of First Floor "Main
Square Footage Street" Square Footage
------------------------------ -------------------------------
Leased.................... 67% 92%
Executed Letters of Intent 18 2
-- --
Total.................. 85% 94%
== ==
We estimate the total cost of Phase I to be approximately $445 million, net
of insurance proceeds, which includes the acquisition and infrastructure costs
for 19 acres of undeveloped land on which we have entitlements to build an
additional 946 residential units and approximately 150,000 square feet of
additional retail space. As of September 30, 2002, costs of approximately $396
million have been funded. We have capacity under our $300 million credit
facility that is more than sufficient to fund, prior to receipt of insurance
proceeds, the remaining $49 million of costs to complete Phase I.
We are evaluating our Building Seven residential options and alternatives,
taking into account costs incurred to date, costs to rebuild and market
conditions. We believe that we will be able to rebuild an economically viable
residential component for Building Seven. We have not determined the scope of
future phases of Santana Row and will not do so until the success of Phase I
and future demand for retail and residential space is determined. However, as
Phase I utilizes only part of the retail and residential entitlements of the
property, and as Phase I contains infrastructure for future phases, we expect
to identify and execute economically viable additional phases to the project.
Future phases will be smaller in scope and will compete for our capital with
other investment opportunities that are consistent with our business strategy.
USE OF PROCEEDS
The net proceeds to us from the sale of the notes offered hereby are
estimated to be $148.2 million after deducting the discount payable to the
underwriters and other estimated expenses of this offering. We will use these
net proceeds, together with $20 million in available insurance proceeds
relating to the Santana Row fire, and approximately $7.1 million in borrowings
under our $300 million credit facility, to pay in full and retire the
construction loan for the Santana Row development in San Jose, California. The
Santana Row construction loan, which has a current outstanding balance of
$175.3 million, is due in April 2004 and bears interest at an annual rate equal
to, at our election, the prime rate plus 0.375% or LIBOR plus 2.125%.
S-8
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical consolidated ratios of
earnings to fixed charges and our ratios of earnings to combined fixed charges
and preferred stock dividends for the periods shown:
Nine Months Ended
Year Ended December 31, September 30,
------------------------ --------------
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges....................... 1.7x 1.7x 1.7x 1.5x 1.5x 1.5x 1.4x(1)
Ratio of earnings to combined fixed charges and preferred
share dividends........................................ 1.6x 1.5x 1.5x 1.4x 1.3x 1.4x 1.1x(1)
--------
(1) Excluding a one-time $8.5 million restructuring charge incurred in the
first quarter of 2002, for the nine months ended September 30, 2002, the
ratio of earnings to fixed charges would have been 1.5x, and the ratio of
earnings to combined fixed charges and preferred share dividends would have
been 1.2x.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income before gain
(loss) on sale of real estate and fixed charges. Fixed charges consist of
interest on borrowed funds (including capitalized interest), amortization of
debt discount and expense and the portion of rent expense representing an
interest factor. The ratios of earnings to combined fixed charges and preferred
stock dividends were computed by dividing earnings by the sum of fixed charges
and preferred stock dividend requirements. Preferred share dividends consist of
dividends paid on our outstanding Series A preferred shares and Series B
preferred shares.
S-9
CAPITALIZATION
The following table sets forth our unaudited historical capitalization as of
September 30, 2002, and on an as adjusted basis assuming:
. the completion of this offering;
. additional borrowings of approximately $7.1 million under our $300
million credit facility; and
. the use of the net proceeds from this offering, the proceeds of the
borrowings and $20 million of available insurance proceeds relating to
the Santana Row fire to pay in full and retire the Santana Row
construction loan.
September 30, 2002
------------------------
Historical As Adjusted
---------- -----------
(in thousands)
Debt (including obligations under capital leases):
Obligations under capital leases...................... $ 104,454 $ 104,454
Mortgages and construction loans payable.............. 440,267(1) 288,942(2)
Notes payable......................................... 192,343 199,478
Senior notes and debentures........................... 385,000 385,000
5.25% Convertible subordinated debentures............. 75,000 75,000
6 1/8% Notes due November 15, 2007.................... -- 150,000
---------- ----------
Total debt........................................ 1,197,064(1) 1,202,874(2)
---------- ----------
Investors' interest in consolidated assets............... 29,987 29,987
---------- ----------
Shareholders' equity:
7.95% Series A Cumulative Redeemable Preferred Shares. 100,000 100,000
8.5% Series B Cumulative Redeemable Preferred Shares.. 135,000 135,000
Common Shares......................................... 448 448
Additional paid in capital............................ 812,354 812,354
Accumulated dividends in excess of Trust net income... (345,645) (345,645)
Less: Treasury shares and other....................... (55,768) (55,768)
---------- ----------
Total shareholders' equity........................ 646,389 646,389
---------- ----------
Total capitalization........................... $1,873,440 $1,879,250
========== ==========
--------
(1) Does not reflect an additional approximately $24.0 million outstanding
under the Santana Row construction loan as of the date of this prospectus
supplement as a result of draws of approximately $40.0 million and
repayment of $16.0 million subsequent to September 30, 2002.
(2) Does not reflect payment in full of the additional approximately $24.0
million outstanding under the Santana Row construction loan as of the date
of this prospectus supplement, as described in Note (1).
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected unaudited consolidated financial
data and should be read in conjunction with the consolidated financial
statements and notes incorporated by reference in the accompanying prospectus.
Our selected operating, other and balance sheet data for the years ended
December 31, 2001, 2000 and 1999 and for the periods then ended have been
derived from financial statements audited by Arthur Andersen LLP, independent
accountants. Our selected operating, other and balance sheet data for the years
ended December 31, 1998 and 1997 and for the periods then ended have been
derived from financial statements audited by Grant Thornton LLP, independent
accountants. Our selected operating, other and balance sheet data for the years
1977 through 2001 have been reclassified to conform to the presentation in 2002
as they relate to income from operations of discontinued assets and the
presentation of tax loans receivable issued in connection with employee stock
plans as contra-equity. The unaudited financial data for the nine months ended
September 30, 2002 and 2001 includes all adjustments, consisting of normal
recurring accruals, which we consider necessary for the fair presentation of
our financial position and the results of operations for such period. The
results for the nine-month period may not be indicative of the results to be
expected for the full year.
Nine months ended
September 30, Year-ended December 31,
------------------ ------------------------------------------------
(in thousands, except ratio 2002 2001 2001 2000 1999 1998 1997
information and per share data) -------- -------- -------- -------- -------- -------- --------
Operating Data:
Revenues
Rental income..................................... $214,242 $201,177 $274,567 $255,634 $241,356 $218,062 $185,770
Other property income............................. 11,393 10,189 13,953 11,023 11,203 10,261 9,697
Interest and other income......................... 3,762 5,275 6,590 7,532 7,649 5,936 6,036
-------- -------- -------- -------- -------- -------- --------
229,397 216,641 295,110 274,189 260,208 234,259 201,503
Expenses
Interest.......................................... 45,313 52,360 69,313 66,418 61,492 55,125 47,288
Depreciation and amortization..................... 47,826 43,561 59,171 52,559 49,359 45,435 40,966
Property expenses................................. 72,366 65,655 91,063 81,842 77,715 71,887 61,901
General, administrative and other (1)............. 18,698 9,971 14,281 13,318 15,120 16,461 11,744
-------- -------- -------- -------- -------- -------- --------
184,203 171,547 233,828 214,137 203,686 188,908 161,899
-------- -------- -------- -------- -------- -------- --------
Income before investors' share of operations and
gain (loss) on sale of real estate................. 45,194 45,094 61,282 60,052 56,522 45,351 39,604
Investors' share of operations...................... (3,357) (3,991) (5,170) (6,544) (3,899) (3,124) (1,342)
-------- -------- -------- -------- -------- -------- --------
Income before gain (loss) on sale of real estate and
discontinued operations............................ 41,837 41,103 56,112 53,508 52,623 42,227 38,262
Income from operations of discontinued assets....... 1,217 2,581 3,459 3,334 2,870 2,733 1,867
-------- -------- -------- -------- -------- -------- --------
Income before gain (loss) on sale of real estate.... 43,054 43,684 59,571 56,842 55,493 44,960 40,129
Gain (loss) on sale of real estate.................. 9,454 7,898 9,185 3,681 (7,050) -- 6,375
-------- -------- -------- -------- -------- -------- --------
Net income.......................................... 52,508 51,582 68,756 60,523 48,443 44,960 46,504
Dividends on preferred stock........................ (14,568) (5,963) (9,034) (7,950) (7,950) (7,950) (1,877)
-------- -------- -------- -------- -------- -------- --------
Net income available for common shareholders........ $ 37,940 $ 45,619 $ 59,722 $ 52,573 $ 40,493 $ 37,010 $ 44,627
======== ======== ======== ======== ======== ======== ========
Weighted average common shares
Basic............................................. 41,155 39,061 39,164 38,796 39,574 39,174 38,475
Diluted........................................... 42,421 40,136 40,266 39,910 40,638 40,080 38,988
Distributions declared on common shares............. $ 61,157 $ 56,607 $ 75,863 $ 72,512 $ 71,630 $ 69,512 $ 66,636
Distributions declared per common share............. $ 1.445 $ 1.42 $ 1.90 $ 1.84 $ 1.78 $ 1.74 $ 1.70
Other Data:
Net cash provided by operating activities (2)....... $ 96,864 $ 88,261 $108,545 $106,146 $102,183 $ 90,427 $ 72,170
Net cash provided (used by) by financing activities
(2)................................................ $ 78,343 $100,185 $129,799 $ 15,214 $ (8,362) $ 97,406 $213,175
Net cash used in investing activities (2)........... $168,118 $185,167 $232,138 $121,741 $ 99,313 $187,646 $279,343
FFO (3)............................................. $ 76,481 $ 81,924 $110,432 $102,173 $ 96,795 $ 86,536 $ 79,733
Ratio of earnings to fixed charges (4)(5)........... 1.4x 1.5x 1.5x 1.5x 1.7x 1.7x 1.7x
Ratio of earnings to combined fixed charges and
preferred dividends (4)(6)......................... 1.1x 1.4x 1.3x 1.4x 1.5x 1.5x 1.6x
Ratio of FFO to combined fixed charges and
preferred dividends (3)(4) (7)..................... 1.7x 2.0x 1.9x 2.0x 2.2x 2.2x 2.5x
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September 30, December 31,
--------------------- ------------------------------------------------------
(in thousands) 2002 2001 2001 2000 1999 1998 1997
-------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance Sheet Data:
Real estate assets, at cost $2,254,540 $2,065,402 $2,104,304 $1,854,913 $1,721,459 $1,642,136 $1,453,639
Total assets............... $2,003,534 $1,794,950 $1,834,881 $1,618,885 $1,532,764 $1,483,170 $1,315,383
Total debt (8)............. $1,197,064 $1,191,836 $1,110,468 $1,034,446 $ 920,630 $ 846,928 $ 670,890
Total liabilities.......... $1,357,145 $1,330,144 $1,245,590 $1,153,425 $1,032,221 $ 954,370 $ 762,763
Redeemable preferred shares $ 235,000 $ 100,000 $ 235,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000
Shareholders' equity....... $ 646,389 $ 464,806 $ 589,291 $ 465,460 $ 500,543 $ 528,800 $ 552,620
Number of common shares
outstanding............... 43,300 40,012 40,071 39,469 40,201 40,080 39,148
--------
(1) General, administrative, and other expenses includes $8.5 million of
restructuring costs in the nine months ended September 30, 2002, $2.8
million of costs related to an unconsummated merger in 1999 and $4.7
million of restructuring costs in 1998.
(2) Determined in accordance with Financial Accounting Standards Board
Statement No. 95. See our "Consolidated Statements of Cash Flows" contained
in our periodic reports filed with the SEC, which are incorporated by
reference in this prospectus supplement.
(3) The Trust has historically reported its FFO in addition to its net income
and net cash provided by operating activities. FFO, which is a non-GAAP
measure, is described under "Summary--2002 Third Quarter Highlights--2002
Third Quarter Results of Operations--Financial Results."
(4) The computation of these ratios is described under "Ratio of Earnings to
Fixed Charges."
(5) Excluding a one-time $8.5 million restructuring charge incurred in the
first quarter of 2002, for the nine months ended September 30, 2002, the
ratio of earnings to fixed charges would have been 1.5x.
(6) Excluding a one-time $8.5 million restructuring charge incurred in the
first quarter of 2002, for the nine months ended September 30, 2002, the
ratio of earnings to combined fixed charges and preferred share dividends
would have been 1.2x.
(7) Excluding a one-time $8.5 million restructuring charge incurred in the
first quarter of 2002, for the nine months ended September 30, 2002, the
ratio of FFO to combined fixed charges and preferred share dividends would
have been 1.8x.
(8) Includes obligations under capital leases.
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DESCRIPTION OF NOTES
The following description of the particular terms of the notes offered
hereby supplements the description of the general terms and provisions of Debt
Securities set forth in the accompanying prospectus under the caption
"Description of Debt Securities." Certain terms used in this prospectus
supplement are defined in that section of the accompanying prospectus.
General
We are offering $150 million of our 6 1/8% notes maturing on November 15,
2007. The notes are to be issued as a separate series of Debt Securities under
the Senior Indenture, which is more fully described in the accompanying
prospectus.
We will pay interest on the notes semi-annually in arrears on May 15 and
November 15 of each year, commencing May 15, 2003, to the registered holders of
the notes on the preceding May 1 or November 1.
The defeasance and covenant defeasance provisions of the Senior Indenture
apply to the notes.
Optional Redemption
We may redeem the notes at any time in whole or from time to time in part at
a redemption price equal to the greater of (1) 100% of the principal amount of
the notes being redeemed, or (2) as determined by the Quotation Agent (as
defined below), the sum of the present values of the remaining scheduled
payments of principal and interest thereon (not including any portion of such
payments of interest accrued as of the redemption date) discounted to the
redemption date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as defined below) plus
37.5 basis points plus, in each case, accrued interest thereon to the
redemption date.
As used herein:
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per year equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the
remaining term of the notes to be redeemed that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing
new issues of corporate debt securities of comparable maturity to the remaining
term of such notes.
"Comparable Treasury Price" means, with respect to any redemption date, (1)
the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (2) if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by us.
"Reference Treasury Dealer" means (1) each of Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Salomon Smith Barney Inc. and Wachovia Securities, Inc.
and their respective successors; provided, however, that if any of the
foregoing cease to be a primary U.S. Government securities dealer (a "Primary
Treasury Dealer"), we will substitute therefor another Primary Treasury Dealer;
and (2) any other Primary Treasury Dealer selected by us.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by us, of
the bid and asked prices for the Comparable Treasury Issue
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(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of the notes to be redeemed.
Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the notes or portions thereof
called for redemption.
Covenants
Limitations on Incurrence of Debt. The notes will provide that we will not,
and will not permit any subsidiary to, incur any Debt (as defined below) if,
immediately after giving effect to the incurrence of such Debt and the
application of the proceeds thereof, the aggregate principal amount of all of
our outstanding Debt and our subsidiaries on a consolidated basis determined in
accordance with generally accepted accounting principles is greater than 65% of
the sum of (without duplication) (1) Total Assets (as defined below) as of the
end of the calendar quarter covered in our Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with the
SEC (or, if such filing is not permitted under the Exchange Act, with the
Trustee) prior to the incurrence of such additional Debt and (2) the purchase
price of any real estate assets or mortgages receivable acquired, and the
amount of any securities offering proceeds received (to the extent such
proceeds were not used to acquire real estate assets or mortgages receivable or
used to reduce Debt), by us or any subsidiary since the end of such calendar
quarter, including those proceeds obtained in connection with the incurrence of
such additional Debt.
In addition to the foregoing limitation on the incurrence of Debt, the notes
will provide that we will not, and will not permit any subsidiary to, incur any
Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of our or any of our subsidiary's property if,
immediately after giving effect to the incurrence of such Debt and the
application of the proceeds thereof, the aggregate principal amount of all of
our and our subsidiaries' outstanding Debt on a consolidated basis which is
secured by any mortgage, lien, charge, pledge, encumbrance or security interest
on our or our subsidiaries' property is greater than 40% of the sum of (without
duplication) (1) Total Assets as of the end of the calendar quarter covered in
our Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case
may be, most recently filed with the SEC (or, if such filing is not permitted
under the Exchange Act, with the Trustee) prior to the incurrence of such
additional Debt and (2) the purchase price of any real estate assets or
mortgages receivable acquired, and the amount of any securities offering
proceeds received (to the extent such proceeds were not used to acquire real
estate assets or mortgages receivable or used to reduce Debt), by us or any
subsidiary since the end of such calendar quarter, including those proceeds
obtained in connection with the incurrence of such additional Debt; provided
that for purposes of this limitation, the amount of obligations under capital
leases shown as a liability on our consolidated balance sheet shall be deducted
from Debt and from Total Assets.
Furthermore, the notes also will provide that we will not, and will not
permit any subsidiary to, incur any Debt if the ratio of Consolidated Income
Available for Debt Service (as defined below) to the Annual Debt Service Charge
(as defined below) for the four consecutive fiscal quarters most recently ended
prior to the date on which such additional Debt is to be incurred shall have
been less than 1.5 to 1, on an unaudited pro forma basis after giving effect
thereto and to the application of the proceeds therefrom, and calculated on the
assumption that (1) such Debt and any other Debt incurred by us and our
subsidiaries since the first day of such four- quarter period and the
application of the proceeds therefrom, including to refinance other Debt, had
occurred at the beginning of such period; (2) the repayment or retirement of
any other Debt by us and our subsidiaries since the first day of such
four-quarter period had been incurred, repaid or retired at the beginning of
such period (except that, in making such computation, the amount of Debt under
any revolving credit facility shall be computed based upon the average daily
balance of such Debt during such period); (3) in the case of Acquired Debt (as
defined below) or Debt incurred in connection with any acquisition since the
first day of such four-quarter period, the related acquisition had occurred as
of the first day of such period with the appropriate
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adjustments with respect to such acquisition being included in such unaudited
pro forma calculation; and (4) in the case of any acquisition or disposition by
us or our subsidiaries of any asset or group of assets since the first day of
such four-quarter period, whether by merger, stock purchase or sale, or asset
purchase or sale, such acquisition or disposition or any related repayment of
Debt had occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being included in
such unaudited pro forma calculation.
Maintenance of Unencumbered Total Asset Value. The notes will provide that
we, together with our subsidiaries, will at all times maintain an Unencumbered
Total Asset Value (as defined below) in an amount not less than 125% of the
aggregate outstanding principal amount of all our and our subsidiaries'
unsecured Debt.
As used herein:
"Acquired Debt" means Debt of a Person (1) existing at the time such Person
becomes a subsidiary or (2) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a subsidiary.
"Annual Debt Service Charge" as of any date means the maximum amount which
is payable in any period for interest on, and original issue discount of, our
and our subsidiaries' Debt and the amount of dividends which are payable in
respect of any Disqualified Stock.
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for corporate stock),
warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means our
and our subsidiaries' Funds from Operations plus amounts which have been
deducted for interest on our and our subsidiaries' Debt.
"Debt" means any of our or any of our subsidiaries' indebtedness, whether or
not contingent, in respect of (without duplication) (1) borrowed money
evidenced by bonds, notes, debentures or similar instruments, (2) indebtedness
secured by any mortgage, pledge, lien, charge, encumbrance or any security
interest existing on property owned by us or any subsidiary, (3) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property or services, except any such
balance that constitutes an accrued expense or trade payable, or all
conditional sale obligations or obligations under any title retention
agreement, (4) the principal amount of all of our or any of our subsidiaries'
obligations with respect to redemption, repayment or other repurchase of any
Disqualified Stock or (5) any lease of property by us or any subsidiary as
lessee which is reflected on our consolidated balance sheet as a capitalized
lease in accordance with generally accepted accounting principles to the
extent, in the case of items of indebtedness under (1) through (3) above, that
any such items (other than letters of credit) would appear as a liability on
our consolidated balance sheet in accordance with generally accepted accounting
principles, and also includes, to the extent not otherwise included, any
obligation of us or any subsidiary to be liable for, or to pay, as obligor,
guarantor or otherwise (other than for purposes of collection in the ordinary
course of business or for the purposes of guaranteeing the payment of all
amounts due and owing pursuant to leases to which we are a party and have
assigned our interest, provided that such assignee of ours is not in default of
any amounts due and owing under such leases), Debt of another Person (other
than us or any subsidiary) (it being understood that Debt shall be deemed to be
incurred by us or any subsidiary whenever we or such subsidiary shall create,
assume, guarantee or otherwise become liable in respect thereof).
S-15
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (1) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (2)
is convertible into or exchangeable or exercisable for Debt or Disqualified
Stock or (3) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the Stated Maturity of the notes.
"Funds from Operations" for any period means income available to common
shareholders before depreciation and amortization of real estate assets and
before extraordinary items less gain on sale of real estate.
"Total Assets" as of any date means the sum of (1) our and all of our
subsidiaries' Undepreciated Real Estate Assets and (2) all of our other assets
determined in accordance with generally accepted accounting principles (but
excluding goodwill).
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of our and our subsidiaries' real estate assets
on such date, before depreciation and amortization determined on a consolidated
basis in accordance with generally accepted accounting principles.
"Unencumbered Total Asset Value" as of any date means the sum of (a) those
Undepreciated Real Estate Assets not encumbered by any mortgage, lien, charge,
pledge or security interest and (b) all of our and our subsidiaries' other
assets on a consolidated basis determined in accordance with generally accepted
accounting principles (but excluding intangibles and accounts receivable), in
each case which are unencumbered by any mortgage, lien, charge, pledge or
security interest.
See "Description of Debt Securities--Certain Covenants" in the accompanying
prospectus for a description of additional covenants applicable to us.
Book-Entry Form
We have established a depositary arrangement with The Depository Trust
Company (the "Depositary") with respect to the notes, the terms of which are
summarized below. Upon issuance, the notes will be represented by a single
Global Security and will be deposited with, or on behalf of, the Depositary and
will be registered in the name of the Depositary or a nominee of the
Depositary. No Global Security may be transferred except as a whole by a
nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or such nominee to a successor of the
Depositary or a nominee of such successor.
So long as the Depositary or its nominee is the registered owner of a Global
Security, the Depositary or its nominee, as the case may be, will be the sole
Holder of the notes for all purposes under the Senior Indenture. Except as
otherwise provided in this section, the Beneficial Owners of the Global
Security or Securities representing the notes will not be entitled to receive
physical delivery of Certificated notes and will not be considered the Holders
thereof for any purpose under the Senior Indenture, and no Global Security
representing the notes shall be exchangeable or transferable. Accordingly, each
Beneficial Owner must rely on the procedures of the Depositary and, if such
Beneficial Owner is not a Participant (as defined below), on the procedures of
the Participant through which such Beneficial Owner owns its interest in order
to exercise any rights of a Holder under such Global Security or the Senior
Indenture. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in certificated form. Such
laws may impair the ability to transfer beneficial interests in a Global
Security representing the notes.
The Global Security representing the notes will be exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations aggregating a like principal amount, only if (1) the Depositary
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notifies us that it is unwilling or unable to continue as Depositary for the
Global Securities or the Depositary ceases to be a clearing agency registered
under the Exchange Act (if so required by applicable law or regulation) and, in
each case, a successor Depositary is not appointed by us within 90 days after
we receive such notice or become aware of such unwillingness, inability or
ineligibility, (2) we, in our discretion, determine that the Global Security
shall be exchangeable for Certificated Notes or (3) there shall have occurred
and be continuing an Event of Default under the Senior Indenture with respect
to the notes and Beneficial Owners representing a majority in aggregate
principal amount of the notes represented by the Global Security advise the
Depositary to cease acting as depositary. Upon any such exchange, the
Certificated Notes shall be registered in the names of the Beneficial Owners of
the Global Security representing the notes, which names shall be provided by
the Depositary's relevant Participants (as identified by the Depositary) to the
Securities Registrar.
The information below concerning the Depositary and the Depositary's system
has been furnished by the Depositary, and we take no responsibility for the
accuracy thereof. The Depositary will act as securities depository for the
notes. The notes will be issued as fully registered securities registered in
the name of Cede & Co. (the Depositary's partnership nominee). One fully
registered Global Security will be issued for the notes, in the aggregate
principal amount of such issue, and will be deposited with the Depositary.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants ("Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants of the Depositary ("Direct
Participants") include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. The Depositary is owned
by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the Depositary's system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable
to the Depositary and its Participants are on file with the SEC.
Purchases of notes under the Depositary's system must be made by or through
Direct Participants, which will receive a credit for such notes on the
Depositary's records. The ownership interest of each actual purchaser of each
note represented by a Global Security ("Beneficial Owner") is in turn to be
recorded on the Direct Participants' and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depositary of
their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct Participants or Indirect
Participants through which such Beneficial Owner entered into the transaction.
Transfers of ownership interests in a Global Security representing the notes
are to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners of a Global Security
representing the notes will not receive Certificated Notes representing their
ownership interests therein, except in the event that use of the book-entry
system for such notes is discontinued.
To facilitate subsequent transfers, the Global Security representing the
notes which are deposited with, or on behalf of, the Depositary are registered
in the name of the Depositary's partnership nominee, Cede & Co. The deposit of
the Global Security with, or on behalf of, the Depositary and their
registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depositary has no knowledge of the actual Beneficial Owners of
the Global Security representing the notes; the Depositary's records reflect
only the identity of the Direct Participants to whose accounts such notes are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
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Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Global Security representing the notes. Under its usual procedures, the
Depositary mails an Omnibus Proxy to us as soon as possible after the
applicable record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the notes are
credited on the applicable record date (identified in a listing attached to the
Omnibus Proxy).
Principal, premium, if any, and/or interest payments on the Global Security
representing the notes will be made to the Depositary. The Depositary's
practice is to credit Direct Participants' accounts on the applicable payment
date in accordance with their respective holdings shown on the Depositary's
records unless the Depositary has reason to believe that it will not receive
payment on such date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
the Depositary, the Trustee or us, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
premium, if any, and/or interest to the Depositary is the responsibility of us
or the Paying Agent, disbursement of such payments to Direct Participants shall
be the responsibility of the Depositary, and disbursement of such payments to
the Beneficial Owners shall be the responsibility of Direct Participants and
Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the notes within an issue are being redeemed, the Depositary's practice
is to determine by lot the amount of the interest of each Direct Participant in
such issue to be redeemed.
The Depositary may discontinue providing its services as securities
depository with respect to the notes at any time by giving reasonable notice to
us or the Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, Certificated Notes are required to be
printed and delivered. We may decide to discontinue use of the system of
book-entry transfers through the Depositary (or a successor securities
depository). In that event, Certificated Notes will be printed and delivered.
S-18
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
Subject to the U.S. federal income tax considerations contained in our
Current Report on Form 8-K filed with the SEC on November 13, 2002, which is
incorporated into this prospectus supplement, the following is a general
discussion of the material U.S. federal income tax considerations applicable to
initial holders of the notes. Except as specifically provided below with
respect to non-U.S. holders (as described below), the discussion is limited to
holders of notes that are U.S. holders and who hold the notes as capital
assets. For purposes of this discussion, a U.S. holder means a holder of notes
that for U.S. federal income tax purposes is (i) a citizen of the United
States, (ii) a corporation or partnership (including an entity treated as a
corporation or partnership for U.S. federal income tax purposes) created or
organized in or under the laws of the United States or of a political
subdivision thereof, (iii) an estate whose income is includible in gross income
for U.S. federal income tax purposes regardless of its source, or (iv) any
trust with respect to which (A) a U.S. court is able to exercise primary
supervision over the administration of such trust and (B) one or more U.S.
persons have authority to control all substantial decisions of the trust. A
non-U.S. holder means any beneficial owner of a note that is not a U.S. holder.
Interest
A U.S. holder of the notes generally will be required to report interest
earned on the notes as ordinary income in accordance with the U.S. holder's
method of tax accounting.
Disposition
Upon the sale, exchange, redemption, retirement or other disposition of a
note, a U.S. holder who acquired the note upon its issuance will generally
recognize capital gain or loss equal to the difference (if any) between the
amount realized (other than amounts attributable to accrued but unpaid stated
interest which will be taxable as ordinary income) and such U.S. holder's tax
basis in the note. The U.S. holder's tax basis for a note generally will be the
purchase price for the note. Such gain or loss shall be treated as long-term
capital gain or loss if the note was held for more than one year.
Non-U.S. Holders
The rules governing the U.S. federal income taxation of non-U.S. holders are
complex, and no attempt will be made herein to provide more than a summary of
such rules. Prospective non-U.S. holders should consult with their own tax
advisors to determine the impact of federal, state and local laws with regard
to the notes.
A non-U.S. holder generally will not be subject to U.S. federal income or
withholding tax on payments of interest on a note, provided that (i) the
non-U.S. holder is not (A) a direct or indirect owner of 10% or more of the
total voting power of all our voting stock, (B) a controlled foreign
corporation related to us through stock ownership, or (C) a bank whose receipt
of interest on a note is pursuant to a loan agreement entered into in the
ordinary course of business; (ii) such interest payments are not effectively
connected with the conduct by the non-U.S. holder of a trade or business within
the United States; and (iii) we or our paying agent receives certain
information from the non-U.S. holder (or a financial institution that holds the
notes in the ordinary course of its trade or business) certifying that such
holder is a non-U.S. holder. Generally a non-U.S. holder will not be subject to
U.S. federal income or withholding tax on gains from the sale or other
disposition of a note provided that (i) such gains are not effectively
connected with the conduct by the non-U.S. holder of a trade or business within
the U.S.; (ii) such non-U.S. holder is not an individual who is present in the
U.S. for 183 days or more in the taxable year of disposition and meets certain
other requirements; and (iii) the non-U.S. holder is not subject to backup
withholding as a result of failing to provide to the selling broker evidence
establishing such holder's status as a non-U.S. holder, if required.
S-19
UNDERWRITING
We intend to offer the notes through the underwriters named below. Subject
to the terms and conditions contained in an underwriting agreement and the
related pricing agreement between us and the underwriters, we have agreed to
sell to the underwriters, and the underwriters severally have agreed to
purchase from us, the principal amount of the notes listed opposite their names
below.
Principal
Underwriter Amount
----------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............. $ 42,500,000
Salomon Smith Barney Inc............. 42,500,000
Wachovia Securities, Inc............. 42,500,000
Commerzbank Capital Markets Corp..... 6,000,000
Banc of America Securities LLC....... 3,000,000
BMO Nesbitt Burns Corp............... 3,000,000
Fleet Securities, Inc................ 3,000,000
HVB Capital Markets, Inc............. 3,000,000
Wells Fargo Brokerage Services, LLC.. 3,000,000
PNC Capital Markets, Inc............. 1,500,000
------------
Total....................... $150,000,000
============
The underwriters have agreed to purchase all of the notes sold pursuant to
the underwriting agreement if any of these notes are purchased. If an
underwriter defaults, the underwriting agreement provides that the purchase
commitments of the nondefaulting underwriters may be increased or the
underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the notes, subject to prior sale, when, as and
if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the notes, and other conditions
contained in the underwriting agreement, such as the receipt by the
underwriters of officer's certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
Commissions and Discounts
The underwriters have advised us that they propose initially to offer the
notes to the public at the public offering price on the cover page of this
prospectus supplement, and to dealers at that price less a concession not in
excess of .35% of the principal amount of the notes to other dealers. The
underwriters may allow, and the dealers may reallow, a discount not in excess
of .25% of the principal amount of the notes to other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
The expenses of the offering, not including the underwriting discount, are
estimated to be $500,000 and are payable by us.
New Issue of Notes
The notes are a new issue of securities with no established trading market.
We do not intend to apply for listing of the notes on any national securities
exchange or for quotation of the notes on any automated dealer quotation
system. We have been advised by the underwriters that they presently intend to
make a market in the notes after completion of the offering. However, they are
under no obligation to do so and may discontinue any market-making activities
at any time without any notice. We cannot assure the liquidity of the trading
market for the notes or that an active public market for the notes will
develop. If an active public trading market for the notes does not develop, the
market price and liquidity of the notes may be adversely affected.
S-20
Price Stabilization and Short Positions
In connection with the offering, the underwriters are permitted to engage in
transactions that stabilize the market price of the notes. Such transactions
consist of bids or purchases to peg, fix or maintain the price of the notes. If
the underwriters create a short position in the notes in connection with the
offering, i.e., if they sell more notes than are on the cover page of this
prospectus supplement, the underwriters may reduce that short position by
purchasing notes in the open market. Purchases of a security to stabilize the
price or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the notes. In addition, neither we nor
any of the underwriters makes any representation that the underwriters will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions. Wachovia Bank, National Association, an
affiliate of Wachovia Securities, Inc., acts as lead arranger and
administrative agent under our credit facility and is the Trustee under the
Senior Indenture.
NOTICE REGARDING ARTHUR ANDERSEN LLP
On June 4, 2002, we announced that we had appointed Grant Thornton LLP as
our independent auditor for fiscal year 2002, replacing Arthur Andersen LLP.
Section 11(a) of the Securities Act of 1933, as amended, provides that if
any part of a registration statement at the time it becomes effective contains
an untrue statement of a material fact or an omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, any person acquiring a security pursuant to the registration
statement (unless it is proved that at the time of the acquisition the person
knew of the untruth or omission) may sue, among others, every accountant who
has consented to be named as having prepared or certified any part of the
registration statement or as having prepared or certified any report or
valuation which is used in connection with the registration statement with
respect to the statement in the registration statement, report or valuation
which purports to have been prepared or certified by the accountant.
Prior to the date of this prospectus, the Arthur Andersen partners who
reviewed our most recent audited financial statements, as of December 31, 2001
and 2000 and for each of the three years in the period ended December 31, 2001,
resigned from Arthur Andersen. As a result, after reasonable efforts, we have
been unable to obtain Arthur Andersen's written consent to the incorporation by
reference into this prospectus supplement of its audit reports with respect to
our financial statements.
Under these circumstances, Rule 437a under the Securities Act permits us to
file the registration statement of which this prospectus supplement forms a
part without a written consent from Arthur Andersen. Accordingly, Arthur
Andersen will not be liable to you under Section 11(a) of the Securities Act
because it has not consented to being named as an expert in the registration
statement of which this prospectus supplement forms a part.
LEGAL MATTERS
The legality of the notes offered by this prospectus will be passed upon for
us by Shaw Pittman LLP, a law partnership including professional corporations.
In addition, the description of federal income tax consequences incorporated by
reference into this prospectus from our Current Report on Form 8-K filed with
the SEC on November 13, 2002 is, to the extent that it constitutes matters of
law, summaries of legal matters or legal conclusions, the opinion of Shaw
Pittman LLP. Sidley Austin Brown & Wood LLP, New York, New York, will act as
counsel to the underwriters.
S-21
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$150,000,000
[LOGO]
Federal Realty
Investment Trust
6 1/8% Notes due 2007
-----------------------
PROSPECTUS SUPPLEMENT
-----------------------
Merrill Lynch & Co.
Salomon Smith Barney
Wachovia Securities
Commerzbank Securities
Banc of America Securities LLC
BMO Nesbitt Burns
Fleet Securities, Inc.
HVB Capital Markets, Inc.
Wells Fargo Brokerage Services, LLC
PNC Capital Markets, Inc.
November 14, 2002
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