-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P+ylqOTRLy5cpiLju2palJoeZTmjXZRNXZS2iPBAxsL5ISDYrztK8Vqd8xg1HPpR 1cwH47DaAXT9/91fhAt9kQ== 0000926861-99-000017.txt : 19990517 0000926861-99-000017.hdr.sgml : 19990517 ACCESSION NUMBER: 0000926861-99-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST WASHINGTON REALTY TRUST INC CENTRAL INDEX KEY: 0000926861 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 521879972 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14571 FILM NUMBER: 99624255 BUSINESS ADDRESS: STREET 1: 4350 EAST WEST HWY - STE 400 CITY: BETHESDA STATE: MD ZIP: 20814 BUSINESS PHONE: 3019077800 MAIL ADDRESS: STREET 1: 4350 EAST WEST HIGHWAY SUITE 400 STREET 2: 4350 EAST WEST HIGHWAY SUITE 400 CITY: BETHESDA STATE: MD ZIP: 20814 10-Q 1 1ST QUARTER 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 31, 1999 Commission File Number 0-25230 FIRST WASHINGTON REALTY TRUST, INC. (Exact name of registrant as specified in its charter) Maryland 52-1879972 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification no.) 4350 East-West Highway, Suite 400, Bethesda, MD 20814 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (301) 907-7800 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Common Stock, $.01 par value, outstanding as of May 14, 1999: 8,603,218 Shares of Common Stock FIRST WASHINGTON REALTY TRUST, INC. FORM 10-Q INDEX ----- Part I: Financial Information Page - ------------------------------ ---- Item 1. Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 1 Consolidated Statements of Operations (unaudited) for the three months ended March 31, 1999 and 1998 2 Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 1999 and 1998 3 Notes to Unaudited Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Qualitative and Quantitative Disclosures about Risk 12 Part II: Other Information - --------------------------- Item 2. Market for the Registrant's Common Equity and Related Shareholders Matters 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands except share data) ----------- March 31, December 31, 1999 1998 ---- ---- (unaudited) ASSETS Rental properties: Land $111, 767 $108,562 Buildings and improvements 461,849 447,584 -------- -------- 573,616 556,146 Accumulated depreciation (55,481) (51,475) --------- --------- Rental properties, net 518,135 504,671 Cash and equivalents 4,611 3,163 Tenant receivables, net 9,913 9,463 Deferred financing costs, net 4,964 1,921 Other assets 11,289 13,736 ----------- ----------- Total assets $548,912 $532,954 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage notes payable $262,324 $244,113 Debentures 25,000 25,000 Accounts payable and accrued expenses 10,557 11,542 ----------- ----------- Total liabilities 297,881 280,655 Minority interest 65,613 66,218 Commitments and Contingencies Stockholders' equity: Convertible preferred stock $.01 par value, 3,800,000 shares designated; 2,315,469 and 2,314,189 issued and outstanding, respectively(aggregate liquidation preference of $57,887 and 57,855 respectively) 23 23 Common stock $.01 par value, 90,000,000 shares authorized; 8,603,218 and 8,566,985 shares issued and outstanding, respectively 86 86 Additional paid-in capital 219,405 218,345 Accumulated distributions in excess of earnings (34,096) (32,373) ---------- ----------- Total stockholders' equity 185,418 186,081 -------- ---------- Total liabilities and stockholders' equity $548,912 $532,954 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 1 FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) ------- For three months ended March 31, ---------------------- 1999 1998 ---- ----- Revenues: Minimum rents $15,976 $12,928 Tenant reimbursemen 4,298 3,088 Percentage rents 381 396 Other income 470 228 -------- ------- Total revenues 21,125 16,640 ------- ------- Expenses: Property operating and maintenance 5,205 4,143 General and administrative 1,095 837 Interest 5,525 4,851 Depreciation and amortization 4,212 3,265 ------- ------- Total expenses 16,037 13,096 ------- -------- Income before gain on sale of properties, income from Management Company, extraordinary item, minority interest and distributions to Preferred Stockholders 5,088 3,544 Gain on sale of properties 0 1,683 Income from Management Company 85 280 ------- ----- Income before extraordinary item, minority interest and distributions to Preferred Stockholders 5,173 5,507 Extraordinary item - loss on early extinguishment of debt 0 (358) ------- ----- Income before minority interest and distributions to Preferred Stockholders 5,173 5,149 Income allocated to minority interest (1,306) (1,065) ---------- ---------- Income before distributions to Preferred Stockholders 3,867 4,084 Distributions to Preferred Stockholders (1,410) (1,410) ------- ------- Income allocated to Common Stockholders $2,457 $2,674 ========= ========= Earnings per Common Share - Basic Income before extraordinary item $0.29 $0.41 Extraordinary item 0.00 (0.05) --------- --------- Net income $0.29 $0.36 ========= ========= Earnings per Common Share - Diluted Income before extraordinary item $0.28 $0.41 Extraordinary item 0.00 (0.05) -------- --------- Net income $0.28 $0.36 ======= ========= Shares of Common Stock - Basic 8,575 7,380 ========= ========= Shares of Common Stock - Diluted 8,649 7,481 ========= ========= Distributions per share $0.4875 $0.4875 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 2 FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) -------- For three months ended March 31, ---------------------- 1999 1998 ---- ---- Operating Activities: Income before distributions to Preferred Stockholders $3,867 $4,084 Adjustment to reconcile net cash provided by operating activities: Income allocated to minority interest 1,306 1,065 Depreciation and amortization 4,212 3,265 Gain of sale of rental properties 0 (1,683) Loss on early extinguishment of debt 0 358 Amortization of deferred financing costs and loan premiums (203) (120) Equity in earnings of Management Company 35 (160) Compensation paid or payable in company stock 286 323 Provision for uncollectible accounts 540 627 Recognition of deferred rent (319) (145) Net changes in: Tenant receivables (671) 22 Other assets 394 (40) Accounts payable and accrued expenses (124) (652) -------- -------- Net cash provided by operating activities 9,323 6,944 -------- -------- Investing Activities: Additions to rental properties (2,296) (1,914) Acquisition of rental properties (10,344) (17,989) Proceeds from sale of rental properties 0 4,253 -------- -------- Net cash used in investing activities (12,640) (15,650) -------- -------- Financing Activities: Net proceeds from line of credit 16,800 21,437 Proceeds from exercise of stock options 50 37 Repayment of line of credit 0 (6,300) Mortgage notes principal payments (1,167) (978) Additions to deferred financing costs (3,311) (487) Distributions paid to Preferred Stockholders (1,410) (1,410) Distributions paid to Common Stockholders (4,182) (3,619) Distributions paid to minority interest (2,015) (1,185) -------- ---------- Net cash provided by financing activities 4,765 7,495 -------- ---------- Net change in cash and equivalents 1,448 (1,211) Cash and equivalents, beginning of period 3,163 3,142 -------- ---------- Cash and equivalents, end of period $4,611 $1,931 ======== ========== The accompanying notes are an integral part of these consolidated financial statements. 3 FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except share data) --------- 1. Business General First Washington Realty Trust, Inc. (the "Company") is a fully integrated real estate organization with expertise in acquisitions, property management, leasing, renovation and development of principally supermarket-anchored neighborhood shopping centers that has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code") . The Company owns a portfolio of 56 retail properties containing a total of approximately 6.0 million square feet of gross leasable area located in the Mid-Atlantic region and the Chicago, Illinois metropolitan area. The Company currently owns approximately 73.1% of the partnership interests in First Washington Realty Limited Partnership (the "Operating Partnership"). All of the Company's operations are conducted through the Operating Partnership. The Operating Partnership owns 38 Properties directly and 18 Properties are owned by lower tier entities in which the Operating Partnership owns a 99% partnership interest and the Company (or a wholly-owned subsidiary of the Company) owns a 1% interest. Due to the Company's ability, as the general partner, to exercise both financial and operational control over the Operating Partnership, the Operating Partnership is consolidated for financial reporting purposes. Allocation of net income to the limited partners of the Operating Partnership is based on their respective partnership interests and is reflected in the accompanying Consolidated Financial Statements as minority interests. Losses allocable to the limited partners in excess of their basis are allocated to the Common Stockholders as the limited partners have no requirement to fund losses. The Operating Partnership also owns 100% of the non-voting preferred stock of First Washington Management, Inc. ("FWM" or "Management Company") and is entitled to 99% of the cash flow from FWM. FWM provides management, leasing and related services for the Properties and to third-party clients, including individual, institutional and corporate property owners. 2. Summary of Significant Accounting Policies Basis of Presentation The unaudited interim consolidated financial statements of the Company are prepared pursuant to the Securities and Exchange Commission's rules and regulations for reporting on Form 10-Q and should be read in conjunction with the financial statements and the notes thereto of the Company's 1998 Annual Report to Stockholders. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with generally accepted accounting principles are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments, necessary for fair presentation of the consolidated financial statements for the interim periods have been included. The current period's results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The consolidated financial statements include the accounts of the Company and its majority owned entities, including the Operating Partnership. All significant intercompany balances and transactions have been eliminated. 4 FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except share data) --------- Derivatives The Company may enter into various forward interest rate swap arrangements from time to time in anticipation of a specific debt transaction. These arrangements are used to manage the Company's exposure to fluctuations in interest rates. The Company does not utilize these arrangements for trading or speculative purposes. These arrangements, considered qualifying hedges, are not recorded in the financial statements until the debt transaction is consummated and the arrangement is settled. The proceeds or payments resulting from the settlement of the arrangement are deferred and amortized over the life of the debt as an adjustment to interest expense. Premiums paid to purchase interest rate protection agreements (such as caps) are capitalized and amortized over the terms of those agreements using the interest method. Unamortized premiums are included in deferred financing costs in the consolidated balance sheet. Amounts received under the interest rate protection agreements are recorded as a reduction of interest expense. With the application to Met Life, (see note 6) the Company executed a rate lock agreement thereby fixing the interest rate for the term of the loans. Accordingly, in February 1999 the Company closed out three forward interest rate swap arrangements which were to commence in 1999. These arrangements which had a combined notional amount of $73.5 million were closed out at a combined cost to the Company of $3,100. This cost which is included in deferred financing costs will be amortized over the life of the Met Life loan using the effective interest rate method. 3. Acquisition of Rental Properties During the first three months of 1999, the Company acquired one shopping center for an aggregate acquisition cost of approximately $15,204. All the acquisitions were accounted for using the purchase method of accounting and the operations of the property is included in the Company's Statement of Operations from the date of acquisition. The following is a summary of the acquisition transaction: Date Property Total Anchor Anchor Acquired Name Location GLA Cost Tenant (GLA) - -------- -------- -------- --- ----- ------ ------ 1/99 Kamp Fairfax, Washington Virginia 71,825 $15,204 Border Books 30,000 The acquisition was financed as follows: Number of Property Partnerships Market Assumed Mortgage Line of Credit Name Units Value Debt (1) Draw Cash Total - -------- ------------ ------ ---------------- ------------- ---- ----- Kamp - - $3,045 $9,800 $2,359 $15,204 Washington 5 (1) Includes loan premiums. (2) Includes net proceeds from the sale of properties that occurred in the fourth quarter of 1998. Approximately $1,814 of net proceeds were used to acquire Kamp Washington in a Section 1031 tax free exchange. The following unaudited pro forma condensed combined results of operations are presented as if the acquisitions and sales of the rental properties that occurred during 1998 and 1999, and the July 1998 offering had occurred on January 1, 1998. The proforma statements are provided for information purposes only. They are based on historical information and do not necessarily reflect the actual results that would have occurred nor are they necessarily indicative of future results of operations of the Company. 6 FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except share data) --------- For the three months ended March 31, -------------------------- (unaudited) 1999 1998 ---- ---- Pro forma Total Revenues $21,125 $19,098 ======= ======= Pro forma net income $ 2,457 $ 2,431 ======= ======= Pro forma earnings per Common Share - Basic $ 0.29 $ 0.28 ======= ======= Pro forma earnings per Common Share - Diluted $ 0.28 $ 0.28 ======= ======= 4. Summary of Noncash Investing and Financing Activities Significant noncash transactions for the three months ended March 31, 1999 and 1998 were as follows: 1999 1998 ---- ---- Liabilities assumed in acquisition of rental properties $3,045 $5,400 Common units in the Operating Partnership issued in connection with the acquisition of rental properties - $5,384 Increase in minority interest's ownership of the Operating Partnership $104 $2,125 Accrued compensation paid through the issuance of Common Stock $1,116 $760 7 FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except share data) --------- 5. Business Segments The Company owns one property type only i.e. neighborhood shopping centers. The Company's management makes decisions on allocation of resources, designs compensation packages and performs internal financial analysis based on the following business segments: Retail FWM, Properties Inc. Other (1) Total ---------- --------- --------- ----- Three months ended March 31, 1999: Revenues $20,806 $1,810 ($1,491) $21,125 Operating and maintenance expenses 5,205 1,725 (1,725) 5,205 ------- ----- ------- ------ Income from operations $15,601 $85 $ 234 $15,920 ======== ===== ===== ======= Commercial real estate property expenditures $17,404 $ - $ - $17,404 ======== ====== ===== ======= Segment assets at March 31, 1999 $548,912 $ - $ - $548,912 ======== ====== ===== ======== Three months ended March 31, 1998: Revenues $16,495 $2,045 ($1,900) $16,640 Operating and maintenance expenses 4,143 1,765 (1,765) 4,143 ------- ------ ------- ------ Income from operations $12,352 $280 ($135) $12,497 ======= ==== ====== ======= Commercial real estate property expenditures $28,309 $ - $ - $28,309 ======== ====== ====== ======= Segment assets at March 31, 1998 $456,872 $ - $ - $456,872 ======== ====== ====== ======== The following table reconciles income from operations for reportable segments to income (loss) before extraordinary items as reported in the Consolidated Statements of Operations. Three months ended March 31 --------------------------- 1999 1998 ---- ---- Income from operations for reportable segments $15,920 $12,497 General and administrative expenses (1,095) (837) Interest expense (5,525) (4,851) Depreciation and amortization (4,212) (3,265) Income allocated to minority interest (1,306) (1,065) Distributions to Preferred Stockholders (1,410) (1,410) Income from Management Company 85 280 Gain on sale of properties -0- 1,683 ------- ------- Income before extraordinary items $2,457 $3,032 ======= ======= 8 (1) Represents the adjustment for straight-lining of rents and reflecting the net income from FWM using the equity method of accounting. 6. Subsequent Events On April 16, 1999, the Board of Directors declared a distribution of $0.4875 and $0.6094 per share of Common Stock and Preferred Stock, respectively to shareholders of record as of May 1, 1999, payable on May 15, 1999. In April 1999, Metropolitan Life Insurance Company approved the pending application for six loans totaling $75.0 million ("Met Life Loan"), subject to final environmental reviews being performed at some of the collateral properties. In April 1999, two of the six loans were closed totaling $17,600. The proceeds of these loans were used to pay off the maturing loans collateralized by Mallard Creek and McHenry Commons Shopping Centers. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Overview The following discussion should be read in conjunction with the "Selected Consolidated Financial Information" and the Financial Statements and notes thereto of the Company appearing elsewhere in this Form 10-Q. Dollars are in thousands except per share data. Comparison of the three months ended March 31, 1999 to the three months ended March 31, 1998 For the three months ended March 31, 1999, the net income allocated to common stockholders decreased by $217 or 8.1% from $2,674 to $2,457, when compared to the three months ended March 31, 1998, primarily due to a gain on sale of properties of $1,683 recorded during the first quarter of 1998, offset by an increase in revenues which were primarily due to the purchase of Watkins Park Plaza in March 1998, Parkville Shopping Center in April 1998, Elkridge Corners Shopping Center in May 1998, Village Shopping Center in June 1998, Wilston Centre I, Wilston Centre II and Town Center at Sterling in November 1998 (the "1998 Acquisitions"), and Kamp Washington in January, 1999 (the "1999 Acquisition"). Total revenues increased by $4,485 or 27.0%, from $16,640 to $21,125, due primarily to an increase in minimum rents of $3,048 and tenant reimbursements of $1,210. The increases were primarily due to the 1998 Acquisitions and 1999 Acquisitions. Property operating and maintenance expense increased by $1,062, or 25.6%, from $4,143 to $5,205, due primarily to the 1998 Acquisitions and the 1999 Acquisitions. General and administrative expenses increased by $258 or 30.8%, from $837 to $1,095 due primarily to an increase in the amount of internal preacquisition costs of $157. Prior to March 19, 1998, internal preacquisition costs were capitalized and included in the cost of acquiring rental properties. Interest expense increased by $674, or 13.9%, from $4,851 to $5,525 due primarily to the increased mortgage indebtedness associated with the 1998 Acquisitions and the 1999 Acquisitions. The average debt outstanding increased from $244.4 million for 1998 to $278.2 million for 1999 and the weighted average interest rate remained constant at 7.9%. Depreciation and amortization expenses increased by $947 or 29.0%, from $3,265 to $4,212, primarily due to the 1998 Acquisitions and the 1999 Acquisitions. There were no sales of properties or extraordinary losses during 1999. For the same period in 1998, there was a $1,683 gain on sale of properties, and a $358 extraordinary loss due to the early extinguishment of debt. 9 Income allocated to minority interests increased by $241 or 22.6% from $1,065 to $1,306 primarily due to an increase in the minority interests' ownership of the Operating Partnership from 21.2% to 26.9%. Earnings per Common Share-Basic decreased from $0.36 to $0.29 due to items that occurred in 1998 but not in 1999. In 1998, there was gain on sale of properties of $1,683 and an extraordinary loss on early extinguishment of debt of $358. These items did not occur in 1999. If not for these items, Earnings per Common Share-Basic for 1998 would have been $0.18. Liquidity and Capital Resources Indebtedness As of March 31, 1999, the Company had total indebtedness of approximately $287.3 million (including $25.0 million of debentures and approximately $262.3 million of mortgage indebtedness). The mortgage indebtedness consists of approximately $255.6 million in indebtedness collateralized by 46 of the Properties and tax-exempt bond financing obligations issued by the Philadelphia Authority for Industrial Development (the "Bond Obligations") of approximately $6.7 million collateralized by one of the properties. Of the Company's indebtedness, $39.3 million (13.7%) is variable rate indebtedness, and $248.0 million (86.3%) is at a fixed rate. The effective interest rates of the indebtedness range from 4.5% to 9.8%, with a weighted average interest rate of 7.8%, and will mature between 1999 and 2014. A large portion of the Company's indebtedness will become due by 2000, requiring balloon payments of $88.9 million in 1999, and $24.4 million in 2000. From 1999 through 2014, the Company will have to refinance an aggregate of $249.2 million. Since the Company anticipates that only a small portion of the principal of such indebtedness will be repaid prior to maturity and the Company will likely not have sufficient funds on hand to repay such indebtedness, the Company will need to refinance such indebtedness through modification or extension of existing indebtedness, additional debt financing or through an additional offering of equity securities. The Company currently has two collateralized revolving lines of credit (the "Lines of Credit"). The Company has a collateralized revolving Line of Credit of up to $45,000 with Union Bank of Switzerland. This line is collateralized by seven properties (Kenhorst Plaza, Shoppes of Graylyn, Watkins Park Plaza, Four Mile Fork, Takoma Park, Centre Ridge Marketplace and Newtown Square). The line matures on January 31, 2001 and loans under this line will bear interest at LIBOR plus one percent (1%). The Company has an additional collateralized revolving Line of Credit of up to $5,775 from First Union Bank. Loans under this line will bear interest at LIBOR plus two percent (2%) per annum, and will mature on August 31, 1999. This Line of Credit is collaterized by a first mortgage lien on Brafferton Shopping Center. As of March 31, 1999, there was $26,000 outstanding under the Lines of Credit. Liquidity The Company expects to meet its short-term liquidity requirements generally through its working capital, net cash provided by operations and draws on the Lines of Credit. The Company believes that the foregoing sources of liquidity will be sufficient to fund liquidity needs through 2000. The Company expects to meet certain long-term liquidity requirements such as development, property acquisitions, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements through long-term secured and unsecured indebtedness, including the Lines of Credit and the issuance of additional equity securities. The Company also expects to use funds available under the Lines of Credit to fund acquisitions, development activities and capital improvements on an interim basis. 10 The Company has elected to qualify as a REIT for federal income tax purposes commencing with its tax year ended December 31, 1994. To qualify as a REIT, the Company is required, among other items, to pay distributions to its shareholders of at least 95% of its taxable income. The Company intends to make quarterly distributions to its shareholders from operating cash flow. Other - ----- Year 2000 Issue The "Year 2000 Issue" is the result of many existing computer programs using only the last two digits to refer to a year. Therefore, these computer programs may not properly recognize a year that begins with "20" instead of the familiar "19". If not corrected, many computer applications could fail or create erroneous results. The Company is in the process of conducting a review of its computer systems to identify which systems could be affected by the "Year 2000" problem and to what extent such problems will have an impact on the Company 's ability to conduct its business. The Company has developed a Year 2000 Compliance Plan ("The Plan") to address these issues. The Plan is being managed by two of the Company's senior executives and has been approved by senior management. The progress of the Plan is being monitored by the Company's Board of Directors. The Plan focuses on four major components: IT systems such as the Company's accounting and property management software packages and related hardware; non-IT systems such as the Company's telephone system, voice mail system and other office equipment; the state of readiness of the Company's critical trading partners such as its banks, utilities and tenants; and embedded systems, particularly those located at the Company's Retail Properties such as sprinkler systems, security systems, etc. (Note: the Retail Properties access does not rely on elevator service because the structures are no higher than two stories.) The Plan contains ten phases as follows: Estimated Estimated Phase Description Start Date Completion Date - ----------------- ---------- --------------- 1. Educate senior management Commenced Completed 2. Designate a Plan manager Commenced Completed 3. Inventory all systems Commenced June 1, 1999 4. Contact suppliers of systems Commenced Mail by July 1, 1999 5. Send questionnaire to tenants All have been mailed Currently receiving responses 6. Send questionnaire to other critical trading partners Commenced Mail by July 1, 1999 7. Prioritize problems (critical vs. non-critical) Commenced July 1, 1999 8. Identify solutions (repair or replace) Commenced August 1, 1999 9. Test Solutions July 1, 1999 September 30, 1999 10.Anticipate contingencies including the most reasonably likely worst case scenarios Commenced Continuous The Company has incurred approximately $20 to date in the implementation of the Plan. These costs have primarily been incurred to upgrade the desktop PC's at the Company's home office. The Company has determined that implementing the Plan will cost less than $100. However, the Company has budgeted $500 to replace its current accounting and property management software system. Although the Company believes that the current system is materially Year 2000 compliant the Company has decided to migrate because of the improved technology and reporting capabilities of the new system. The Company anticipates going live on the new system by October 1, 1999. These costs will be funded from the Company's cash flow. The Plan efforts will be primarily staffed by employees of the Company. 11 The most reasonably likely worst case scenario is that the Company's tenants are delayed in generating their rental payments due to their own Year 2000 IT problems. If this occurs the Company's property managers will attempt to accelerate rental payments by requesting manual checks by personally visiting the tenants or by contacting the appropriate personnel at the tenants' accounts payable departments. Also, the Company will have available its Lines of Credit to fund immediate cash flow needs if such delay occurs. The Company presently believes that the Year 2000 issue will not pose significant operational problems for the Company. However, if all Year 2000 issues are not properly identified, or if assessment, remediation and testing are not effected timely or accurately with respect to Year 2000 issues that are identified, there can be no assurance that the Year 2000 issue will not materially adversely affect the Company's results of operations. Also, there can be no assurance that the Year 2000 issues of the Company's suppliers, vendors, tenants and other important trading partners will not have a material adverse impact on the Company's business or results of operations. The costs of the Company's Year 2000 identification, assessment, remediation and testing efforts and the dates on which the Company believes it will complete such efforts are based upon management's best estimates, which were derived using numerous assumptions regarding future events, including the continued availability of certain resources, third-party remediation plans, and other factors. There can be no assurance that these estimates will prove to be accurate, and actual results could differ materially from those currently anticipated. Specific factors that could cause such material differences include, but are not limited to, the availability and cost of relevant computer codes and embedded technology, and similar uncertainties. Although some of the Company's agreements with suppliers and contractors contain provisions requiring such parties to indemnify the Company under some circumstances, there can be no assurance that such indemnification agreements will cover all of the Company's liabilities and costs related to claims by third parties related to the Year 2000 issue. Item 3. Qualitative and Quantitative Disclosure about Market Risk As of March 31, 1999, there has been no significant changes in market risks of the Company since December 31, 1999. Refer to the Annual Report on Form 10K for disclosure. Part II OTHER INFORMATION - ----------------- Item 2. Recent Sales of Unregistered Equity Securities None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule - ----------------------------------------------------------------------- (b) Reports on Form 8-K. An interim report on Form 8-K was filed on March 10, 1999 reporting the acquisition of two retail properties. Three interim reports on Form 8-K were filed on March 24, 1999 including certain exhibits thereto. An interim report on Form 8-K was filed on March 24, 1999 regarding Risk Factors. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST WASHINGTON REALTY TRUST, INC. Date: May 14, 1999 /s/ William J. Wolfe ------------------------------------ By: William J. Wolfe President and Chief Executive Officer Date: May 14, 1999 /s/ James G. Blumenthal ------------------------------------ By: James G. Blumenthal Executive Vice President and Chief Financial Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-mos DEC-31-1999 MAR-31-1999 4,611 0 9,913 0 0 0 573,616 55,481 548,912 0 297,881 0 23 86 219,405 548,912 0 21,125 0 10,512 0 0 5,525 2,457 0 2,457 0 0 0 2,457 .29 .28
-----END PRIVACY-ENHANCED MESSAGE-----