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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO THE SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 1-07533 
FEDERAL REALTY INVESTMENT TRUST
(Exact Name of Registrant as Specified in its Declaration of Trust) 
Maryland
 
52-0782497
(State of Organization)
 
(IRS Employer Identification No.)
 
 
1626 East Jefferson Street, Rockville, Maryland
 
20852
(Address of Principal Executive Offices)
 
(Zip Code)
(301) 998-8100
(Registrant’s Telephone Number, Including Area Code) 
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.    ý  Yes    ¨  No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
ý
Accelerated Filer
¨
 
 
 
 
Non-Accelerated Filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨  Yes    ý  No
The number of Registrant’s common shares outstanding on August 4, 2014 was 67,718,240.



FEDERAL REALTY INVESTMENT TRUST
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 2014

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
 
Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013
 
Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended June 30, 2014 and 2013
 
Consolidated Statement of Shareholders' Equity (unaudited) for the six months ended June 30, 2014
 
Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2014 and 2013
 
Notes to Consolidated Financial Statements (unaudited)
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
 
 
 
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
 
 
SIGNATURES



2


PART I—FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
The following balance sheet as of December 31, 2013, which has been derived from audited financial statements, and unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the company’s latest Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation for the periods presented have been included. The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the full year.



3


Federal Realty Investment Trust
Consolidated Balance Sheets
 
 
June 30,
 
December 31,
 
2014
 
2013
 
(In thousands, except share data)
 
(Unaudited)
 
 
ASSETS
 
 
 
Real estate, at cost
 
 
 
Operating (including $281,311 and $265,138 of consolidated variable interest entities, respectively)
$
5,004,993

 
$
4,618,258

Construction-in-progress
472,570

 
531,205

 
5,477,563

 
5,149,463

Less accumulated depreciation and amortization (including $22,840 and $19,086 of consolidated variable interest entities, respectively)
(1,417,376
)
 
(1,350,471
)
Net real estate
4,060,187

 
3,798,992

Cash and cash equivalents
41,312

 
88,927

Accounts and notes receivable, net
97,741

 
84,838

Mortgage notes receivable, net
54,932

 
55,155

Investment in real estate partnership
35,511

 
32,264

Prepaid expenses and other assets
128,564

 
145,062

Debt issuance costs, net of accumulated amortization of $10,969 and $9,535, respectively
13,238

 
14,056

TOTAL ASSETS
$
4,431,485

 
$
4,219,294

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Mortgages payable (including $188,739 and $202,782 of consolidated variable interest entities, respectively)
$
634,045

 
$
588,456

Capital lease obligations
71,659

 
71,671

Notes payable
290,765

 
300,822

Senior notes and debentures
1,361,282

 
1,360,913

Accounts payable and accrued expenses
168,615

 
156,270

Dividends payable
53,631

 
52,385

Security deposits payable
13,502

 
12,772

Other liabilities and deferred credits
109,242

 
100,283

Total liabilities
2,702,741

 
2,643,572

Commitments and contingencies (Note 7)

 

Redeemable noncontrolling interests
110,688

 
104,425

Shareholders’ equity
 
 
 
Preferred shares, authorized 15,000,000 shares, $.01 par: 5.417% Series 1 Cumulative Convertible Preferred Shares, (stated at liquidation preference $25 per share), 399,896 shares issued and outstanding
9,997

 
9,997

Common shares of beneficial interest, $.01 par, 100,000,000 shares authorized, 67,712,366 and 66,701,422 shares issued and outstanding, respectively
678

 
667

Additional paid-in capital
2,170,152

 
2,062,708

Accumulated dividends in excess of net income
(647,006
)
 
(623,795
)
Accumulated other comprehensive loss
(4,060
)
 
(1,417
)
Total shareholders’ equity of the Trust
1,529,761

 
1,448,160

Noncontrolling interests
88,295

 
23,137

Total shareholders’ equity
1,618,056

 
1,471,297

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
4,431,485

 
$
4,219,294


The accompanying notes are an integral part of these consolidated statements.

4


Federal Realty Investment Trust
Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per share data)
REVENUE
 
 
 
 
 
 
 
Rental income
$
162,383

 
$
153,212

 
$
328,576

 
$
305,828

Other property income
4,325

 
2,913

 
7,725

 
6,181

Mortgage interest income
1,239

 
1,263

 
2,474

 
2,528

Total revenue
167,947

 
157,388

 
338,775

 
314,537

EXPENSES
 
 
 
 
 
 
 
Rental expenses
31,405

 
28,209

 
68,535

 
57,710

Real estate taxes
19,164

 
17,632

 
37,864

 
35,204

General and administrative
8,124

 
8,302

 
15,828

 
15,359

Depreciation and amortization
40,893

 
39,757

 
84,743

 
80,274

Total operating expenses
99,586

 
93,900

 
206,970

 
188,547

OPERATING INCOME
68,361

 
63,488

 
131,805

 
125,990

Other interest income
18

 
65

 
43

 
95

Interest expense
(23,213
)
 
(27,147
)
 
(46,350
)
 
(54,552
)
Early extinguishment of debt

 
(3,399
)
 

 
(3,399
)
Income from real estate partnership
250

 
372

 
463

 
684

INCOME FROM CONTINUING OPERATIONS
45,416

 
33,379

 
85,961

 
68,818

DISCONTINUED OPERATIONS
 
 
 
 
 
 
 
Discontinued operations - income

 
424

 

 
827

INCOME BEFORE GAIN ON SALE OF REAL ESTATE
45,416

 
33,803

 
85,961

 
69,645

Gain on sale of real estate

 
4,994

 

 
4,994

NET INCOME
45,416

 
38,797

 
85,961

 
74,639

Net income attributable to noncontrolling interests
(1,871
)
 
(1,258
)
 
(3,663
)
 
(2,512
)
NET INCOME ATTRIBUTABLE TO THE TRUST
43,545

 
37,539

 
82,298

 
72,127

Dividends on preferred shares
(135
)
 
(135
)
 
(271
)
 
(271
)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS
$
43,410

 
$
37,404

 
$
82,027

 
$
71,856

EARNINGS PER COMMON SHARE, BASIC
 
 
 
 
 
 
 
Continuing operations
$
0.64

 
$
0.49

 
$
1.22

 
$
1.01

Discontinued operations

 

 

 
0.01

Gain on sale of real estate

 
0.08

 

 
0.08

 
$
0.64

 
$
0.57

 
$
1.22

 
$
1.10

Weighted average number of common shares, basic
67,110

 
65,149

 
66,858

 
64,922

EARNINGS PER COMMON SHARE, DILUTED
 
 
 
 
 
 
 
Continuing operations
$
0.64

 
$
0.49

 
$
1.22

 
$
1.01

Discontinued operations

 

 

 
0.01

Gain on sale of real estate

 
0.08

 

 
0.08

 
$
0.64

 
$
0.57

 
$
1.22

 
$
1.10

Weighted average number of common shares, diluted
67,277

 
65,311

 
67,021

 
65,080

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME
$
43,316

 
$
47,202

 
$
83,318

 
$
84,659

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE TRUST
$
41,445

 
$
45,944

 
$
79,655

 
$
82,147


The accompanying notes are an integral part of these consolidated statements.

5


Federal Realty Investment Trust
Consolidated Statement of Shareholders’ Equity
For the Six Months Ended June 30, 2014
(Unaudited)
 
Shareholders’ Equity of the Trust
 
 
 
 
 
Preferred Shares
 
Common Shares
 
Additional
Paid-in
Capital
 
Accumulated
Dividends in
Excess of Net
Income
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling Interests
 
Total Shareholders' Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
(In thousands, except share data)
BALANCE AT DECEMBER 31, 2013
399,896



$
9,997

 
66,701,422

 
$
667

 
$
2,062,708

 
$
(623,795
)
 
$
(1,417
)
 
$
23,137

 
$
1,471,297

Net income, excluding $1,640 attributable to redeemable noncontrolling interests

 

 

 

 

 
82,298

 

 
2,023

 
84,321

Other comprehensive loss - change in value of interest rate swaps

 

 

 

 

 

 
(2,643
)
 

 
(2,643
)
Dividends declared to common shareholders

 

 

 

 

 
(105,238
)
 

 

 
(105,238
)
Dividends declared to preferred shareholders

 

 

 

 

 
(271
)
 

 

 
(271
)
Distributions declared to noncontrolling interests

 

 

 

 

 

 

 
(2,201
)
 
(2,201
)
Common shares issued

 

 
896,545

 
9

 
102,330

 

 

 

 
102,339

Exercise of stock options

 

 
19,610

 
1

 
1,460

 

 

 

 
1,461

Shares issued under dividend reinvestment plan

 

 
9,443

 

 
1,031

 

 

 

 
1,031

Share-based compensation expense, net of shares withheld for employee taxes

 

 
85,346

 
1

 
3,291

 

 

 

 
3,292

Redemption of OP units

 

 

 

 
(39
)
 

 

 
(14
)
 
(53
)
Contributions from noncontrolling interests

 

 

 

 

 

 

 
65,350

 
65,350

Adjustment to redeemable noncontrolling interests







 
(629
)
 

 

 

 
(629
)
BALANCE AT JUNE 30, 2014
399,896

 
$
9,997

 
67,712,366

 
$
678

 
$
2,170,152

 
$
(647,006
)
 
$
(4,060
)
 
$
88,295

 
$
1,618,056


The accompanying notes are an integral part of these consolidated statements.

6


Federal Realty Investment Trust
Consolidated Statements of Cash Flows
 (Unaudited)
 
Six Months Ended June 30,
 
2014
 
2013
 
(In thousands)
OPERATING ACTIVITIES
 
Net income
$
85,961

 
$
74,639

Adjustment to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization, including discontinued operations
84,743

 
80,477

Gain on sale of real estate

 
(4,994
)
Income from real estate partnership
(463
)
 
(684
)
Other, net
2,348

 
2,128

Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Increase in accounts receivable
(10,839
)
 
(7,756
)
Decrease in prepaid expenses and other assets
8,175

 
7,683

Increase (decrease) in accounts payable and accrued expenses
967

 
(406
)
Increase (decrease) in security deposits and other liabilities
1,177

 
(4,391
)
Net cash provided by operating activities
172,069

 
146,696

INVESTING ACTIVITIES
 
 
 
Acquisition of real estate
(4,352
)
 
(47,202
)
Capital expenditures - development and redevelopment
(154,732
)
 
(93,290
)
Capital expenditures - other
(20,280
)
 
(20,014
)
Proceeds from sale of real estate

 
8,608

Investment in real estate partnership
(3,581
)
 

Distribution from real estate partnership in excess of earnings
301

 
68

Leasing costs
(8,118
)
 
(6,609
)
Repayment of mortgage and other notes receivable, net
640

 
261

Net cash used in investing activities
(190,122
)
 
(158,178
)
FINANCING ACTIVITIES
 
 
 
Costs to upsize and extend revolving credit facility

 
(1,929
)
Issuance of senior notes, net of costs

 
269,343

Redemption and retirement of senior notes

 
(135,000
)
Repayment of mortgages, capital leases and notes payable
(26,097
)
 
(34,505
)
Issuance of common shares
103,931

 
83,220

Dividends paid to common and preferred shareholders
(103,856
)
 
(94,196
)
Distributions to and redemptions of noncontrolling interests
(3,540
)
 
(4,073
)
Net cash (used in) provided by financing activities
(29,562
)
 
82,860

(Decrease) increase in cash and cash equivalents
(47,615
)
 
71,378

Cash and cash equivalents at beginning of year
88,927

 
36,988

Cash and cash equivalents at end of period
$
41,312

 
$
108,366


The accompanying notes are an integral part of these consolidated statements.


7


Federal Realty Investment Trust
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)

NOTE 1—BUSINESS AND ORGANIZATION
Federal Realty Investment Trust (the “Trust”) is an equity real estate investment trust (“REIT”) specializing in the ownership, management, and redevelopment of retail and mixed-use properties. Our properties are located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the Mid-Atlantic and Northeast regions of the United States, and California. As of June 30, 2014, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 89 predominantly retail real estate projects.
We operate in a manner intended to enable us to qualify as a REIT for federal income tax purposes. A REIT that distributes at least 90% of its taxable income to its shareholders each year and meets certain other conditions is not taxed on that portion of its taxable income which is distributed to its shareholders. Therefore, federal income taxes on our taxable income have been and are generally expected to be immaterial. We are obligated to pay state taxes, generally consisting of franchise or gross receipts taxes in certain states. Such state taxes also have not been material.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Our consolidated financial statements include the accounts of the Trust, its corporate subsidiaries, and all entities in which the Trust has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity (“VIE”). The equity interests of other investors are reflected as noncontrolling interests or redeemable noncontrolling interests. All significant intercompany transactions and balances are eliminated in consolidation. We account for our interests in joint ventures, which we do not control, using the equity method of accounting. Certain 2013 amounts have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, referred to as “GAAP,” requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.
Recently Adopted Accounting Pronouncements
In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition of a discontinued operation to include only the disposal of a component of an entity that represents a strategic shift that has or will have a major impact on an entity’s operations and financial results. The standard also requires additional disclosures about discontinued operations as well as disposal transactions that do not meet the discontinued operations criteria. The standard is applicable prospectively for all disposals initially classified as held for sale in periods after adoption. We adopted the standard effective January 1, 2014, and there was no impact to the current period financial statements.  In future periods, the adoption will result in most individual property disposals not qualifying for discontinued operations presentation and thus, the results of those disposals will remain in “income from continuing operations.”  Properties sold prior to January 1, 2014, are not subject to ASU 2014-08 and therefore, continue to be classified as discontinued operations using the previous definition.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 supersedes nearly all existing revenue recognition guidance under GAAP and replaces it with a core revenue recognition principle, that an entity will recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and creates a five-step model for revenue recognition in accordance with this principle. ASU 2014-09 also requires new disclosures in both interim and annual reporting periods. The guidance in ASU 2014-09 does not apply to contracts within the scope of ASC 840, Leases. ASU 2014-09 will be effective for us in the first quarter of 2017 and allows for either full retrospective or modified retrospective adoption. We are currently assessing the impact of this standard to our consolidated financial statements.


8


 
 
 
 
Consolidated Statements of Cash Flows—Supplemental Disclosures
The following table provides supplemental disclosures related to the Consolidated Statements of Cash Flows:

 
Six Months Ended
 
June 30,
 
2014
 
2013
 
(In thousands)
SUPPLEMENTAL DISCLOSURES:
 
 
 
Total interest costs incurred
$
57,364

 
$
61,155

Interest capitalized
(11,014
)
 
(6,603
)
Interest expense
$
46,350

 
$
54,552

Cash paid for interest, net of amounts capitalized
$
40,855

 
$
57,410

Cash paid for income taxes
$
309

 
$
378

NON-CASH INVESTING AND FINANCING TRANSACTIONS:
 
 
 
Mortgage loans assumed with acquisition
$
68,282

 
$

Mortgage loan refinanced
$
11,500

 
$

Repayment of note payable with public funding/related construction-in-progress offset
$
10,000

 
$

Shares issued under dividend reinvestment plan
$
900

 
$
894

See Note 3 for additional disclosures relating to The Grove at Shrewsbury and Brook 35 acquisition.

NOTE 3—REAL ESTATE
Effective January 1, 2014, we acquired a controlling interest in The Grove at Shrewsbury, a 187,000 square foot shopping center in Shrewsbury, New Jersey, and Brook 35, a 99,000 square foot shopping center in Sea Girt, New Jersey for a gross value of $161 million. Our effective economic interest approximates 84% and was funded by the assumption of our share of $68 million of mortgage debt, 632,000 downREIT operating partnership units, and $13 million of cash (which was in an escrow account at December 31, 2013). Approximately $1.7 million and $2.3 million of net assets acquired were allocated to other assets for "above market leases" and other liabilities for "below market leases," respectively. Additionally, $71.1 million was allocated to redeemable and nonredeemable noncontrolling interests. We incurred $2.0 million of acquisition costs, of which $0.9 million were incurred in 2014 and included in "general and administrative expense" for the six months ended June 30, 2014.
We have entered into an agreement to acquire the interest of one of the noncontrolling interest holders in The Grove at Shrewsbury in 2015. As this noncontrolling interest is mandatorily redeemable, it has been classified as a liability of approximately $9 million and is included in "other liabilities and deferred credits" on the June 30, 2014 consolidated balance sheet. An additional noncontrolling interest holder has the right to require us to acquire its interests in The Grove at Shrewsbury and Brook 35 at the then current fair market value beginning on January 1, 2017.

NOTE 4—REAL ESTATE PARTNERSHIP
We have a joint venture arrangement (the “Partnership”) with affiliates of a discretionary fund created and advised by ING Clarion Partners (“Clarion”). We own 30% of the equity in the Partnership and Clarion owns 70%. We hold a general partnership interest, however, Clarion also holds a general partnership interest and has substantive participating rights. We cannot make significant decisions without Clarion’s approval. Accordingly, we account for our interest in the Partnership using the equity method. As of June 30, 2014, the Partnership owned seven retail real estate properties. We are the manager of the Partnership and its properties, earning fees for acquisitions, dispositions, management, leasing, and financing. Intercompany profit generated from fees is eliminated in consolidation. We also have the opportunity to receive performance-based earnings through our Partnership interest. Accounting policies for the Partnership are similar to accounting policies followed by the Trust. The Partnership is subject to a buy-sell provision which is customary for real estate joint venture agreements and the industry. Either partner may initiate this provision at any time, which could result in either the sale of our interest or the use of available cash or borrowings to acquire Clarion’s interest.

9


The following tables provide summarized operating results and the financial position of the Partnership:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
OPERATING RESULTS
 
 
 
 
 
 
 
Revenue
$
4,469

 
$
4,624

 
$
9,487

 
$
9,573

Expenses
 
 
 
 
 
 
 
Other operating expenses
1,390

 
1,318

 
3,500

 
3,135

Depreciation and amortization
1,590

 
1,361

 
3,077

 
2,730

Interest expense
781

 
841

 
1,620

 
1,683

Total expenses
3,761

 
3,520

 
8,197

 
7,548

Net income
$
708

 
$
1,104

 
$
1,290

 
$
2,025

Our share of net income from real estate partnership
$
250

 
$
372

 
$
463

 
$
684


 
June 30,
 
December 31,
 
2014
 
2013
 
(In thousands)
BALANCE SHEETS
 
 
 
Real estate, net
$
169,193

 
$
170,867

Cash
3,046

 
2,210

Other assets
5,170

 
5,668

Total assets
$
177,409

 
$
178,745

Mortgages payable
$
44,885

 
$
56,922

Other liabilities
3,937

 
4,100

Partners’ capital
128,587

 
117,723

Total liabilities and partners’ capital
$
177,409

 
$
178,745

Our share of unconsolidated debt
$
13,466

 
$
17,077

Our investment in real estate partnership
$
35,511

 
$
32,264


On June 5, 2014, the Partnership repaid an $11.9 million mortgage loan secured by one of its properties at par prior to the original maturity date of July 5, 2014. Both partners made additional capital contributions totaling $11.9 million to repay the mortgage loan, of which our contribution was $3.6 million.

NOTE 5—DEBT
In connection with the acquisition of The Grove at Shrewsbury and Brook 35 on January 1, 2014, we assumed mortgage loans with a face amount of $68.3 million and a fair value of $73.8 million. The mortgage loans are secured by the individual properties with the following contractual terms:
 
Principal
 
Stated Interest Rate
 
Maturity Date
 
(In millions)
 
 
 
 
Brook 35
$
11.5

 
5.46
%
 
July 1, 2014
The Grove at Shrewsbury (East)
45.4

 
5.82
%
 
October 1, 2017
The Grove at Shrewsbury (West)
11.4

 
6.38
%
 
March 1, 2018
On June 2, 2014 we refinanced the above mortgage loan on Brook 35 at a face amount of $11.5 million. The new mortgage loan bears interest at 4.65% and matures on July 1, 2029.
On June 3, 2014 we repaid the mortgage loan on Melville Mall prior to its original maturity date at par for $20.3 million. The loan had an original maturity date of September 1, 2014.

10


During the three and six months ended June 30, 2014, the maximum amount of borrowings outstanding under our $600.0 million revolving credit facility was $19.0 million, the weighted average borrowings outstanding was $4.0 million and $2.1 million, respectively, and the weighted average interest rate, before amortization of debt fees, was 1.04% and 1.05%, respectively. At June 30, 2014, there was no balance outstanding. Our revolving credit facility, term loan and certain notes require us to comply with various financial covenants, including the maintenance of minimum shareholders’ equity and debt coverage ratios and a maximum ratio of debt to net worth. As of June 30, 2014, we were in compliance with all debt covenants.


NOTE 6—FAIR VALUE OF FINANCIAL INSTRUMENTS
Except as disclosed below, the carrying amount of our financial instruments approximates their fair value. The fair value of our mortgages payable, notes payable and senior notes and debentures is sensitive to fluctuations in interest rates. Quoted market prices (Level 1) were used to estimate the fair value of our marketable senior notes and debentures and discounted cash flow analysis (Level 2) is generally used to estimate the fair value of our mortgages and notes payable. Considerable judgment is necessary to estimate the fair value of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the carrying amount and fair value of our mortgages payable, notes payable and senior notes and debentures is as follows:

 
June 30, 2014
 
December 31, 2013
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
(In thousands)
Mortgages and notes payable
$
924,810

 
$
941,366

 
$
889,278

 
$
912,251

Senior notes and debentures
$
1,361,282

 
$
1,443,172

 
$
1,360,913

 
$
1,397,731

 
As of June 30, 2014, we have two interest rate swap agreements with a notional amount of $275.0 million that are measured at fair value on a recurring basis. The interest rate swap agreements fix the variable portion of our $275.0 million term loan at 1.72% through November 1, 2018, and effectively fix the rate of the term loan at 3.02%. We assess effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into interest expense as interest is incurred on the related variable rate debt. Within the next 12 months, we expect to reclassify an estimated $4.2 million as an increase to interest expense. Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and LIBOR rate. In addition, we evaluate the default risk of the counterparty by monitoring the credit-worthiness of the counterparty. When ineffectiveness exists, the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected. Hedge ineffectiveness has not impacted earnings as of June 30, 2014, and we do not anticipate it will have a significant effect in the future.
The fair values of the interest rate swap agreements are based on the estimated amounts we would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs. The fair value of our swaps at June 30, 2014 was a liability of $4.1 million and is included in "accounts payable and accrued expenses" on our consolidated balance sheet. For the three and six months ended June 30, 2014, the change in valuation on our interest rate swaps was $2.1 million and $2.6 million, respectively, (including $1.1 million and $2.2 million, respectively, reclassified from other comprehensive loss to interest expense) and is included in "accumulated other comprehensive loss."
A summary of our financial liabilities that are measured at fair value on a recurring basis, by level within the fair value hierarchy is as follows:
 
June 30, 2014
 
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Interest rate swaps
$

 
$
4,060

 
$

 
$
4,060

 
$

 
$
1,417

 
$

 
$
1,417



11


NOTE 7—COMMITMENTS AND CONTINGENCIES
We are sometimes involved in lawsuits, warranty claims, and environmental matters arising in the ordinary course of business. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters.
We are currently a party to various legal proceedings. We accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate within the range; however, if no amount within the range is a better estimate than any other amount, the minimum within the range is accrued. Legal fees related to litigation are expensed as incurred. We do not believe that the ultimate outcome of these matters, either individually or in the aggregate, could have a material adverse effect on our financial position or overall trends in results of operations; however, litigation is subject to inherent uncertainties. Also under our leases, tenants are typically obligated to indemnify us from and against all liabilities, costs and expenses imposed upon or asserted against us (1) as owner of the properties due to certain matters relating to the operation of the properties by the tenant, and (2) where appropriate, due to certain matters relating to the ownership of the properties prior to their acquisition by us.
Under the terms of certain partnership agreements, the partners have the right to exchange their operating partnership units for cash or the same number of our common shares, at our option. A total of 917,255 downREIT operating partnership units are outstanding which have a total fair value of $110.9 million, based on our closing stock price on June 30, 2014.

NOTE 8—SHAREHOLDERS’ EQUITY
The following table provides a summary of dividends declared and paid per share:

 
Six Months Ended June 30,
 
2014
 
2013
 
Declared
 
Paid
 
Declared
 
Paid
Common shares
$
1.560

 
$
1.560

 
$
1.460

 
$
1.460

5.417% Series 1 Cumulative Convertible Preferred shares
$
0.677

 
$
0.677

 
$
0.677

 
$
0.677


On February 12, 2014 we replaced our existing at the market (“ATM”) equity program with a new ATM equity program in which we may from time to time offer and sell common shares having an aggregate offering price of up to $300.0 million. We intend to use the net proceeds to fund potential acquisition opportunities, fund our development and redevelopment pipeline, repay amounts outstanding under our revolving credit facility and/or for general corporate purposes. For the three months ended June 30, 2014, we issued 440,778 common shares at a weighted average price per share of $119.66 for net cash proceeds of $52.2 million and paid $0.5 million in commissions and less than $0.1 million in additional offering expenses related to the sales of these common shares. For the six months ended June 30, 2014, we issued 896,490 common shares at a weighted average price per share of $115.44 for net cash proceeds of $102.3 million and paid $1.0 million in commissions and $0.1 million in additional offering expenses related to the sales of these common shares. As of June 30, 2014, we had the capacity to issue up to $196.5 million in common shares under our ATM equity program.


12


NOTE 9—COMPONENTS OF RENTAL INCOME
The principal components of rental income are as follows:

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Minimum rents
 
 
 
 
 
 
 
Retail and commercial
$
116,840

 
$
112,669

 
$
232,905

 
$
222,700

Residential
8,532

 
7,190

 
16,354

 
14,329

Cost reimbursement
32,158

 
28,658

 
69,617

 
59,486

Percentage rent
2,045

 
1,963

 
4,168

 
4,124

Other
2,808

 
2,732

 
5,532

 
5,189

Total rental income
$
162,383

 
$
153,212

 
$
328,576

 
$
305,828


Minimum rents include the following:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In millions)
Straight-line rents
$
1.1

 
$
1.8

 
$
2.2

 
$
2.6

Amortization of above market leases
$
(0.8
)
 
$
(0.7
)
 
$
(1.7
)
 
$
(1.5
)
Amortization of below market leases
$
1.5

 
$
1.5

 
$
2.9

 
$
3.0


NOTE 10—DISCONTINUED OPERATIONS
During 2013 and prior to our adoption of ASU 2014-08 as further discussed in Note 2, certain disposal transactions were considered discontinued operations. A summary of the financial information for these discontinued operations is as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2013
 
(In millions)
Revenue from discontinued operations
$
0.6

 
$
1.2

Income from discontinued operations
$
0.4

 
$
0.8


NOTE 11—SHARE-BASED COMPENSATION PLANS
A summary of share-based compensation expense included in net income is as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Share-based compensation incurred
 
 
 
 
 
 
 
Grants of common shares
$
3,069

 
$
2,624

 
$
6,592

 
$
5,613

Grants of options
1

 
68

 
36

 
154

 
3,070

 
2,692

 
6,628

 
5,767

Capitalized share-based compensation
(300
)
 
(186
)
 
(585
)
 
(388
)
Share-based compensation expense
$
2,770

 
$
2,506

 
$
6,043

 
$
5,379



13


NOTE 12—EARNINGS PER SHARE
We have calculated earnings per share (“EPS”) under the two-class method. The two-class method is an earnings allocation methodology whereby EPS for each class of common stock and participating securities is calculated according to dividends declared and participation rights in undistributed earnings. For the three and six months ended June 30, 2014 and 2013, we had 0.3 million weighted average unvested shares outstanding, which are considered participating securities. Therefore, we have allocated our earnings for basic and diluted EPS between common shares and unvested shares; the portion of earnings allocated to the unvested shares is reflected as “earnings allocated to unvested shares” in the reconciliation below.
In the dilutive EPS calculation, dilutive stock options were calculated using the treasury stock method consistent with prior periods. There were no anti-dilutive stock options for the three and six months ended June 30, 2014 and 2013. The conversions of downREIT operating partnership units and 5.417% Series 1 Cumulative Convertible Preferred Shares are anti-dilutive for all periods presented and accordingly, have been excluded from the weighted average common shares used to compute diluted EPS.

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per share data)
NUMERATOR
 
 
 
 
 
 
 
Income from continuing operations
$
45,416

 
$
33,379

 
$
85,961

 
$
68,818

Less: Preferred share dividends
(135
)
 
(135
)
 
(271
)
 
(271
)
Less: Income from continuing operations attributable to noncontrolling interests
(1,871
)
 
(1,258
)
 
(3,663
)
 
(2,512
)
Less: Earnings allocated to unvested shares
(237
)
 
(214
)
 
(475
)
 
(428
)
Income from continuing operations available for common shareholders
43,173

 
31,772

 
81,552

 
65,607

Results from discontinued operations attributable to the Trust

 
424

 

 
827

Gain on sale of real estate

 
4,994

 

 
4,994

Net income available for common shareholders, basic and diluted
$
43,173

 
$
37,190

 
$
81,552

 
$
71,428

DENOMINATOR
 
 
 
 
 
 
 
Weighted average common shares outstanding—basic
67,110

 
65,149

 
66,858

 
64,922

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
167

 
162

 
163

 
158

Weighted average common shares outstanding—diluted
67,277

 
65,311

 
67,021

 
65,080

EARNINGS PER COMMON SHARE, BASIC
 
 
 
 
 
 
 
Continuing operations
$
0.64

 
$
0.49

 
$
1.22

 
$
1.01

Discontinued operations

 

 

 
0.01

Gain on sale of real estate

 
0.08

 

 
0.08

 
$
0.64

 
$
0.57

 
$
1.22

 
$
1.10

EARNINGS PER COMMON SHARE, DILUTED
 
 
 
 
 
 
 
Continuing operations
$
0.64

 
$
0.49

 
$
1.22

 
$
1.01

Discontinued operations

 

 

 
0.01

Gain on sale of real estate

 
0.08

 

 
0.08

 
$
0.64

 
$
0.57

 
$
1.22

 
$
1.10

Income from continuing operations attributable to the Trust
$
43,545

 
$
32,121

 
$
82,298

 
$
66,306


NOTE 13—SUBSEQUENT EVENT
On July 24, 2014, our Partnership with Clarion sold the fee interest in Pleasant Shops in Weymouth, Massachusetts for a sales price of $34.3 million.

14


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion should be read in conjunction with the consolidated interim financial statements and notes thereto appearing in Item 1 of this report and the more detailed information contained in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission (the “SEC”) on February 11, 2014.
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. 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.” Forward-looking statements are not historical facts or guarantees of future performance and involve certain known and unknown risks, uncertainties, and other factors, many of which are outside our control, that could cause actual results to differ materially from those we describe.
Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements that we make, including those in this Quarterly Report on Form 10-Q. Except as may be required by law, we make no promise to update any of the forward-looking statements as a result of new information, future events or otherwise. You should carefully review the risks and the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2013 and under Part II, Item 1A in this Quarterly Report on Form 10-Q, before making any investments in us.
Overview
We are an equity real estate investment trust (“REIT”) specializing in the ownership, management, and redevelopment of high quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, and California. As of June 30, 2014, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 89 predominantly retail real estate projects comprising approximately 20.0 million square feet (excludes unconsolidated joint venture properties). In total, the real estate projects were 95.3% leased and 94.3% occupied at June 30, 2014. A joint venture in which we own a 30% interest owned seven retail real estate projects totaling approximately 1.0 million square feet as of June 30, 2014. In total, the joint venture properties in which we own a 30% interest were 84.0% leased and 84.0% occupied at June 30, 2014.
2014 Significant Property Acquisition and 2014 Property Disposition
Effective January 1, 2014, we acquired a controlling interest in The Grove at Shrewsbury, a 187,000 square foot shopping center in Shrewsbury, New Jersey, and Brook 35, a 99,000 square foot shopping center in Sea Girt, New Jersey for a gross value of $161 million. Our effective economic interest approximates 84% and was funded by the assumption of our share of $68 million of mortgage debt, 632,000 downREIT operating partnership units, and $13 million of cash (which was in an escrow account at December 31, 2013). Approximately $1.7 million and $2.3 million of net assets acquired were allocated to other assets for "above market leases" and other liabilities for "below market leases," respectively. Additionally, $71.1 million was allocated to redeemable and nonredeemable noncontrolling interests. We incurred $2.0 million of acquisition costs, of which $0.9 million were incurred in 2014 and included in "general and administrative expense" for the six months ended June 30, 2014.
We have entered into an agreement to acquire the interest of one of the noncontrolling interest holders in The Grove at Shrewsbury in 2015. As this noncontrolling interest is mandatorily redeemable it has been classified as a liability of approximately $9 million and is included in "other liabilities and deferred credits" on the June 30, 2014 consolidated balance sheet. An additional noncontrolling interest holder has the right to require us to acquire its interests in The Grove at Shrewsbury and Brook 35 at the then current fair market value beginning on January 1, 2017.
On July 24, 2014, our Partnership with Clarion sold the fee interest in Pleasant Shops in Weymouth, Massachusetts for a sales price of $34.3 million.
2014 Significant Debt and Equity Transactions
In connection with the acquisition of The Grove at Shrewsbury and Brook 35 on January 1, 2014, we assumed mortgage debt secured by the individual properties with the following contractual terms:

15


 
Principal
 
Stated Interest Rate
 
Maturity Date
 
(In millions)
 
 
 
 
Brook 35
$
11.5

 
5.46
%
 
July 1, 2014
The Grove at Shrewsbury (East)
45.4

 
5.82
%
 
October 1, 2017
The Grove at Shrewsbury (West)
11.4

 
6.38
%
 
March 1, 2018
On June 2, 2014 we refinanced the above mortgage loan on Brook 35 at a face amount of $11.5 million. The new mortgage loan bears interest at 4.65% and matures on July 1, 2029.
On June 3, 2014 we repaid the mortgage loan on Melville Mall prior to its original maturity date for $20.3 million. The loan had an original maturity date of September 1, 2014.
On February 12, 2014 we replaced our existing at the market (“ATM”) equity program with a new ATM equity program in which we may from time to time offer and sell common shares having an aggregate offering price of up to $300.0 million. We intend to use the net proceeds to fund potential acquisition opportunities, fund our development and redevelopment pipeline, repay amounts outstanding under our revolving credit facility and/or for general corporate purposes. For the three months ended June 30, 2014, we issued 440,778 common shares at a weighted average price per share of $119.66 for net cash proceeds of $52.2 million and paid $0.5 million in commissions and less than $0.1 million in additional offering expenses related to the sales of these common shares. For the six months ended June 30, 2014, we issued 896,490 common shares at a weighted average price per share of $115.44 for net cash proceeds of $102.3 million and paid $1.0 million in commissions and $0.1 million in additional operating expenses related to the sales of these common shares. As of June 30, 2014, we had the capacity to issue up to $196.5 million in common shares under our ATM equity program.
Capitalized Costs
Certain external and internal costs directly related to the development, redevelopment and leasing of real estate, including pre-construction costs, real estate taxes, insurance, construction costs and salaries and related costs of personnel directly involved, are capitalized. We capitalized external and internal costs related to both development and redevelopment activities of $147 million and $3 million, respectively, for the six months ended June 30, 2014 and $121 million and $3 million, respectively, for the six months ended June 30, 2013. We capitalized external and internal costs related to other property improvements of $19 million and $1 million, respectively, for the six months ended June 30, 2014 and $17 million and $1 million, respectively, for the six months ended June 30, 2013. We capitalized external and internal costs related to leasing activities of $8 million and $3 million, respectively, for the six months ended June 30, 2014 and $5 million and $3 million, respectively, for the six months ended June 30, 2013. The amount of capitalized internal costs for salaries and related benefits for development and redevelopment activities, other property improvements, and leasing activities were $3 million, $1 million, and $3 million, respectively, for the six months ended June 30, 2014 and $3 million, $1 million, and $2 million, respectively for the six months ended June 30, 2013.
Recently Adopted Accounting Pronouncements
In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition of a discontinued operation to include only the disposal of a component of an entity that represents a strategic shift that has or will have a major impact on an entity’s operations and financial results. The standard also requires additional disclosures about discontinued operations as well as disposal transactions that do not meet the discontinued operations criteria. The standard is applicable prospectively for all disposals initially classified as held for sale in periods after adoption. We adopted the standard effective January 1, 2014, and there was no impact to the current period financial statements.  In future periods, the adoption will result in most individual property disposals not qualifying for discontinued operations presentation and thus, the results of those disposals will remain in “income from continuing operations.”  Properties sold prior to January 1, 2014, are not subject to ASU 2014-08 and therefore, continue to be classified as discontinued operations using the previous definition.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 supersedes nearly all existing revenue recognition guidance under GAAP and replaces it with a core revenue recognition principle, that an entity will recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and creates a five-step model for revenue recognition in accordance with this principle. ASU 2014-09 also requires new disclosures in both interim and annual reporting periods. The guidance in ASU 2014-09 does not apply to contracts within the scope of ASC 840, Leases.

16


ASU 2014-09 will be effective for us in the first quarter of 2017 and allows for either full retrospective or modified retrospective adoption. We are currently assessing the impact of this standard to our consolidated financial statements.
Outlook
We seek growth in earnings, funds from operations, and cash flows primarily through a combination of the following:
growth in our same-center portfolio,
growth in our portfolio from property development and redevelopments, and
expansion of our portfolio through property acquisitions.
Our same-center growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in portfolio occupancy. Over the long-term, the infill nature and strong demographics of our properties provide a strategic advantage allowing us to maintain relatively high occupancy and increase rental rates. We have generally continued to see positive signs of improvement for many of our tenants as well as increased interest from prospective tenants for our retail spaces. While there can be no assurance that these positive signs will continue, we remain cautiously optimistic regarding the improved trends we have seen over the past few years. We believe the locations of our centers and diverse tenant base partially mitigates any negative change in the economic environment; however, any significant reduction in our tenants' abilities to pay base rent, percentage rent or other charges will adversely affect our financial condition and results of operations. We seek to maintain a mix of strong national, regional, and local retailers. At June 30, 2014, no single tenant accounted for more than 3.2% of annualized base rent.
Our properties are located in densely populated and/or affluent areas with high barriers to entry which allow us to take advantage of redevelopment opportunities that enhance our operating performance through renovation, expansion, reconfiguration, and/or retenanting. We evaluate our properties on an ongoing basis to identify these types of opportunities. In 2014, we expect to have redevelopment projects stabilizing with projected costs of approximately $87 million, including our 212 unit residential building at Santana Row discussed below. In 2015, we expect to have redevelopment projects stabilizing with projected costs of approximately $149 million.
We continue our ongoing redevelopment efforts at Santana Row. Our most recent 212 unit residential building was fully completed during second quarter. The building is expected to stabilize in 2014, was 93.9% leased as of June 30, 2014, and has a total cost of approximately $75 million. We are also proceeding with our next phase of redevelopment which is a six story building including approximately 225,500 square feet of office space, 1,500 square feet of retail space, and 670 parking spaces. After current phases, we have approximately 9 acres remaining for further redevelopment and entitlements in place for an additional 348 residential units and 69,000 square feet of commercial space. We are currently in the process of seeking additional entitlements and have under control an additional 12 acres of land adjacent to Santana Row.
We continue to invest in the development at Assembly Row which is a long-term development project we expect to be involved in over the coming years. The carrying value of the development portion of this project at June 30, 2014 is approximately $301 million. The project currently has zoning entitlements to build 3.4 million square feet of commercial-use buildings, 1,843 residential units, and a 170 room hotel. We have agreements with AvalonBay Communities ("AvalonBay") for a portion of the first phase of development at Assembly Row which includes 450 residential units (by AvalonBay) and approximately 326,000 square feet of retail space and 98,000 square feet of office space (both by the Trust).  The Massachusetts Bay Transit Authority (MBTA) is constructing the new orange line T-Stop at the property, which is expected to open in 2014. Construction on the first phase and infrastructure is ongoing. Approximately 213,000 square feet of retail space in Phase I opened in second quarter 2014, with the remainder of the retail and office space expected over the next three to nine months. Phase I is expected to stabilize in 2015. Total expected costs for Phase I of Assembly Row range from $190 million to $200 million (net of reimbursements) of which $172 million has been incurred to date. In total, including costs incurred in the first six months of 2014, we expect to invest between $65 million and $85 million in Assembly Row in 2014, net of expected public funding.
In the third quarter 2012, we broke ground on the first phase of Pike & Rose in Rockville, MD, a long-term multi-phased mixed-use project located on a portion of our Mid-Pike Plaza property. The property currently has zoning entitlements to build 1.7 million square feet of commercial-use buildings and 1,583 residential units. Phase I of Pike & Rose involved demolition of roughly 25% of the existing gross leasable area at Mid-Pike Plaza (which was completed during the second quarter of 2012). The remainder of Mid-Pike Plaza was fully demolished in the third quarter of 2014. Construction on the 493 residential units, 151,000 square feet of retail space and 79,000 square feet of office space in Phase I is ongoing. In late June 2014, the first phase of our 174 unit residential building opened. We expect a portion of Phase I to open in 2014 and the remainder in 2015 and expect Phase I to stabilize in 2015/2016. Total expected costs for Phase I of Pike & Rose range from $245 million to $255 million of which $173 million has been incurred to date. Including costs incurred in the first six months of 2014, we expect to invest between $90 million and $120 million in 2014 related to Phase I.

17


The development of future phases of Assembly Row, Pike & Rose and Santana Row will be pursued opportunistically based on, among other things, market conditions, tenant demand, and our evaluation of whether those phases will generate an appropriate financial return.
We continue to review acquisition opportunities in our primary markets that complement our portfolio and provide long-term growth opportunities. Some of our acquisitions do not initially contribute significantly to earnings growth; however, we believe they provide long-term re-leasing growth, redevelopment opportunities, and other strategic opportunities. Any growth from acquisitions is contingent on our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles. Changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property, as well as our ability to economically finance the property acquisition. Generally, our acquisitions are initially financed by available cash and/or borrowings under our revolving credit facility which may be repaid later with funds raised through the issuance of new equity or new long-term debt. On occasion we also finance our acquisitions through the issuance of common shares, preferred shares, or downREIT units as well as through new or assumed mortgages.
At June 30, 2014, the leasable square feet in our properties was 94.3% occupied and 95.3% leased. The leased rate is higher than the occupied rate due to leased spaces that are being redeveloped or improved or that are awaiting permits and, therefore, are not yet ready to be occupied. Our occupancy and leased rates are subject to variability over time due to factors including acquisitions, the timing of the start and stabilization of our redevelopment projects, lease expirations and tenant bankruptcies.
Lease Rollovers
For the second quarter of 2014, we signed leases for a total of 623,000 square feet of retail space including 537,000 square feet of comparable space leases (leases for which there was a prior tenant) at an average rental increase of 16% on a cash basis and 30% on a straight-line basis. New leases for comparable spaces were signed for 225,000 square feet at an average rental increase of 30% on a cash basis and 50% on a straight-line basis. Renewals for comparable spaces were signed for 312,000 square feet at an average rental increase of 8% on a cash basis and 20% on a straight-line basis. Tenant improvements and incentives for comparable spaces were $41.18 per square foot for new leases and $1.65 per square foot for renewals for the three months ended June 30, 2014.
For the six months ended June 30, 2014, we signed leases for a total of 987,000 square feet of retail space including 865,000 square feet of comparable space leases (leases for which there was a prior tenant) at an average rental increase of 17% on a cash basis and 30% on a straight-line basis. New leases for comparable spaces were signed for 402,000 square feet at an average rental increase of 24% on a cash basis and 40% on a straight-line basis. Renewals for comparable spaces were signed for 464,000 square feet at an average rental increase of 12% on a cash basis and 24% on a straight-line basis. Tenant improvements and incentives for comparable spaces were $42.12 per square foot for new leases and $1.47 per square foot for renewals for the six months ended June 30, 2014.
The rental increases associated with comparable spaces generally include all leases signed in arms-length transactions reflecting market leverage between landlords and tenants during the period. The comparison between average rent for expiring leases and new leases is determined by including minimum rent and percentage rent paid on the expiring lease and minimum rent and in some instances, projections of first lease year percentage rent, to be paid on the new lease. In atypical circumstances, management may exercise judgment as to how to most effectively reflect the comparability of spaces reported in this calculation. The change in rental income on comparable space leases is impacted by numerous factors including current market rates, location, individual tenant creditworthiness, use of space, market conditions when the expiring lease was signed, capital investment made in the space and the specific lease structure. Tenant improvements and incentives include the total dollars committed for the improvement (fit-out) of a space as it relates to a specific lease and, except for redevelopments, may also include base building costs (i.e. expansion, escalators or new entrances) which are required to make the space leasable. Incentives include amounts paid to tenants as an inducement to sign a lease that do not represent building improvements.
The leases signed in 2014 generally become effective over the following two years though some may not become effective until 2017 and beyond. Further, there is risk that some new tenants will not ultimately take possession of their space and that tenants for both new and renewal leases may not pay all of their contractual rent due to operating, financing or other matters. However, these increases do provide information about the tenant/landlord relationship and the potential increase we may achieve in rental income over time.
Historically, we have executed comparable space leases for 1.2 to 1.5 million square feet of retail space each year. We believe our leasing volume for 2014 will be in line with our historical averages with overall positive increases in rental income. However, changes in rental income associated with individual signed leases on comparable spaces may be positive or negative, and we can provide no assurance that the rents on new leases will continue to increase at the above disclosed levels, if at all.

18


Same-Center
Throughout this section, we have provided certain information on a “same-center” basis. Information provided on a same-center basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties for which significant redevelopment or expansion occurred during either of the periods being compared. For the three and six months ended June 30, 2014, all or a portion of 79 and 78 properties, respectively, were considered same-center and eleven and twelve properties, respectively, were considered redevelopment or expansion. For the six months ended June 30, 2014, two properties were moved from same-center to redevelopment, one property was moved from redevelopment to same-center, and one property was removed from redevelopment as it is vacant and prepared to be demolished, when compared to the designations as of December 31, 2013. For the three months ended June 30, 2014, one additional property was moved from redevelopment to same-center. While there is judgment surrounding changes in designations, we typically move redevelopment properties to same-center once they have stabilized, which is typically considered 95% occupancy or when the growth expected from the redevelopment has been included in the comparable periods. We typically remove properties from same center when the redevelopment has or is expected to have a significant impact to property operating income within the calendar year. Acquisitions are moved to same-center once we have owned the property for the entirety of comparable periods and the property is not under significant redevelopment or expansion.

19


        
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2014 AND 2013
 
 
 
 
 
 
Change
 
2014
 
2013
 
Dollars
 
%
 
(Dollar amounts in thousands)
Rental income
$
162,383

 
$
153,212

 
$
9,171

 
6.0
 %
Other property income
4,325

 
2,913

 
1,412

 
48.5
 %
Mortgage interest income
1,239

 
1,263

 
(24
)
 
(1.9
)%
Total property revenue
167,947

 
157,388

 
10,559

 
6.7
 %
Rental expenses
31,405

 
28,209

 
3,196

 
11.3
 %
Real estate taxes
19,164

 
17,632

 
1,532

 
8.7
 %
Total property expenses
50,569

 
45,841

 
4,728

 
10.3
 %
Property operating income
117,378

 
111,547

 
5,831

 
5.2
 %
Other interest income
18

 
65

 
(47
)
 
(72.3
)%
Income from real estate partnership
250

 
372

 
(122
)
 
(32.8
)%
Interest expense
(23,213
)
 
(27,147
)
 
3,934

 
(14.5
)%
Early extinguishment of debt

 
(3,399
)
 
3,399

 
(100.0
)%
General and administrative expense
(8,124
)
 
(8,302
)
 
178

 
(2.1
)%
Depreciation and amortization
(40,893
)
 
(39,757
)
 
(1,136
)
 
2.9
 %
Total other, net
(71,962
)
 
(78,168
)
 
6,206

 
(7.9
)%
Income from continuing operations
45,416

 
33,379

 
12,037

 
36.1
 %
Discontinued operations - income

 
424

 
(424
)
 
(100.0
)%
Gain on sale of real estate

 
4,994

 
(4,994
)
 
(100.0
)%
Net income
45,416

 
38,797

 
6,619

 
17.1
 %
Net income attributable to noncontrolling interests
(1,871
)
 
(1,258
)
 
(613
)
 
48.7
 %
Net income attributable to the Trust
$
43,545

 
$
37,539

 
$
6,006

 
16.0
 %

Property Revenues
Total property revenue increased $10.6 million, or 6.7%, to $167.9 million in the three months ended June 30, 2014 compared to $157.4 million in the three months ended June 30, 2013. The percentage occupied at our shopping centers decreased to 94.3% at June 30, 2014 compared to 94.5% at June 30, 2013. Changes in the components of property revenue are discussed below.
Rental Income
Rental income consists primarily of minimum rent, cost reimbursements from tenants and percentage rent. Rental income increased $9.2 million, or 6.0%, to $162.4 million in the three months ended June 30, 2014 compared to $153.2 million in the three months ended June 30, 2013 due primarily to the following:
an increase of $4.6 million at same-center properties due primarily to a $2.5 million increase in recovery income and higher rental rates of approximately $2.2 million,
an increase of $3.9 million attributable to properties acquired in 2014 and 2013, and
an increase of $1.3 million at redevelopment properties due primarily to the lease-up of our new 212 unit residential building at Santana Row.
partially offset by
a decrease of $0.5 million from Mid-Pike Plaza as the property is prepared to be demolished for the future development of Pike & Rose.


20


Other Property Income
Other property income increased $1.4 million, or 48.5%, to $4.3 million in the three months ended June 30, 2014 compared to $2.9 million in the three months ended June 30, 2013. Included in other property income are items which, although recurring, inherently tend to fluctuate more than rental income from period to period, such as lease termination fees. This increase is primarily due to an increase in lease termination fees at same-center properties.
Property Expenses
Total property expenses increased $4.7 million, or 10.3%, to $50.6 million in the three months ended June 30, 2014 compared to $45.8 million in the three months ended June 30, 2013. Changes in the components of property expenses are discussed below.
Rental Expenses
Rental expenses increased $3.2 million, or 11.3%, to $31.4 million in the three months ended June 30, 2014 compared to $28.2 million in the three months ended June 30, 2013. This increase is primarily due to the following:
an increase of $0.8 million related to properties acquired in 2014 and 2013,
an increase of $0.6 million in repairs and maintenance at same-center and redevelopment properties,
an increase of $0.6 million related to Assembly Row and Pike & Rose, as portions of these projects began to open during the second quarter of 2014,
an increase of $0.4 million in bad debt expense at same-center properties, and
an increase of $0.3 million in payroll expense at same-center and redevelopment properties.
As a result of the changes in rental income and rental expenses as discussed above, rental expenses as a percentage of rental income plus other property income increased to 18.8% in the three months ended June 30, 2014 from 18.1% in the three months ended June 30, 2013.
Real Estate Taxes
Real estate tax expense increased $1.5 million, or 8.7%, to $19.2 million in the three months ended June 30, 2014 compared to $17.6 million in the three months ended June 30, 2013 due primarily to higher assessments and lower refunds at our same-center properties and real estate taxes on properties acquired in 2014 and 2013.
Property Operating Income
Property operating income increased $5.8 million, or 5.2%, to $117.4 million in the three months ended June 30, 2014 compared to $111.5 million in the three months ended June 30, 2013. This increase is primarily due to growth in earnings at same-center properties, properties acquired in 2014 and 2013, and earnings from our redevelopment properties, partially offset by a decline in earnings at Mid-Pike Plaza and the impact of Assembly Row and Pike & Rose as portions of the projects opened in the second quarter of 2014.
Other
Interest Expense
Interest expense decreased $3.9 million, or 14.5%, to $23.2 million in the three months ended June 30, 2014 compared to $27.1 million in the three months ended June 30, 2013. This decrease is due primarily to the following:
a decrease of $2.9 million due to a lower overall weighted average borrowing rate, and
an increase of $1.7 million in capitalized interest due primarily to our ongoing development projects at Assembly Row and Pike & Rose,
partially offset by
an increase of $0.6 million due to higher borrowings.
Gross interest costs were $28.7 million and $30.9 million in the three months ended June 30, 2014 and 2013, respectively. Capitalized interest was $5.5 million and $3.8 million in the three months ended June 30, 2014 and 2013, respectively.
Early Extinguishment of Debt
The $3.4 million of early extinguishment of debt in the three months ended June 30, 2013 relates to the make-whole premium paid as part of the early redemption of our 5.40% senior notes and the related write-off of unamortized debt fees.

21


Depreciation and Amortization
Depreciation and amortization expense increased $1.1 million, or 2.9%, to $40.9 million in the three months ended June 30, 2014 from $39.8 million in the three months ended June 30, 2013. This increase is due primarily to 2014 acquisitions.
Discontinued Operations - Income
Income from discontinued operations represents the operating income of properties that were disposed prior to January 1, 2014, which were required to be reported separately from results of ongoing operations. The reported operating income of $0.4 million for the three months ended June 30, 2013 primarily represents the operating income for the period during which we owned properties sold in 2013.
Gain on Sale of Real Estate
The $5.0 million gain on sale of real estate for the three months ended June 30, 2013 is primarily due to the sale of the fee interest in the land under an office building at our Village of Shirlington property in Arlington, Virginia, that was subject to a long term ground lease. The ground lease included an option for the tenant to purchase the fee interest.

RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2014 AND 2013
 
 
 
 
 
Change
 
2014
 
2013
 
Dollars
 
%
 
(Dollar amounts in thousands)
Rental income
$
328,576

 
$
305,828

 
$
22,748

 
7.4
 %
Other property income
7,725

 
6,181

 
1,544

 
25.0
 %
Mortgage interest income
2,474

 
2,528

 
(54
)
 
(2.1
)%
Total property revenue
338,775

 
314,537

 
24,238

 
7.7
 %
Rental expenses
68,535

 
57,710

 
10,825

 
18.8
 %
Real estate taxes
37,864

 
35,204

 
2,660

 
7.6
 %
Total property expenses
106,399

 
92,914

 
13,485

 
14.5
 %
Property operating income
232,376

 
221,623

 
10,753

 
4.9
 %
Other interest income
43

 
95

 
(52
)
 
(54.7
)%
Income from real estate partnerships
463

 
684

 
(221
)
 
(32.3
)%
Interest expense
(46,350
)
 
(54,552
)
 
8,202

 
(15.0
)%
Early extinguishment of debt

 
(3,399
)
 
3,399

 
(100.0
)%
General and administrative expense
(15,828
)
 
(15,359
)
 
(469
)
 
3.1
 %
Depreciation and amortization
(84,743
)
 
(80,274
)
 
(4,469
)
 
5.6
 %
Total other, net
(146,415
)
 
(152,805
)
 
6,390

 
(4.2
)%
Income from continuing operations
85,961

 
68,818

 
17,143

 
24.9
 %
Discontinued operations - income

 
827

 
(827
)
 
(100.0
)%
Gain on sale of real estate

 
4,994

 
(4,994
)
 
(100.0
)%
Net income
85,961

 
74,639

 
11,322

 
15.2
 %
Net income attributable to noncontrolling interests
(3,663
)
 
(2,512
)
 
(1,151
)
 
45.8
 %
Net income attributable to the Trust
$
82,298

 
$
72,127

 
$
10,171

 
14.1
 %
 
 
 
 
 
 
 
 

Property Revenues
Total property revenue increased $24.2 million, or 7.7%, to $338.8 million in the six months ended June 30, 2014 compared to $314.5 million in the six months ended June 30, 2013. The percentage occupied at our shopping centers decreased to 94.3% at June 30, 2014 compared to 94.5% at June 30, 2013. Changes in the components of property revenue are discussed below.

22


Rental Income
Rental income consists primarily of minimum rent, cost reimbursements from tenants and percentage rent. Rental income increased $22.7 million, or 7.4%, to $328.6 million in the six months ended June 30, 2014 compared to $305.8 million in the six months ended June 30, 2013 due primarily to the following:
an increase of $12.3 million at same-center properties due primarily to a $7.6 million increase in recovery income (largely the result of reimbursements for higher snow removal costs) and higher rental rates of approximately $4.8 million,
an increase of $8.5 million attributable to properties acquired in 2014 and 2013, and
an increase of $3.2 million at redevelopment properties due primarily to the lease-up of our new 212 unit residential building at Santana Row and the net impact of other redevelopment properties,
partially offset by
a decrease of $1.1 million from Mid-Pike Plaza as the property is prepared to be demolished for the future development of Pike & Rose.
Other Property Income
Other property income increased $1.5 million, or 25.0%, to $7.7 million in the six months ended June 30, 2014 compared to $6.2 million in the six months ended June 30, 2013. Included in other property income are items which, although recurring, inherently tend to fluctuate more than rental income from period to period, such as lease termination fees. This increase is primarily due to an increase in lease termination fees at same-center properties.
Property Expenses
Total property expenses increased $13.5 million, or 14.5%, to $106.4 million in the six months ended June 30, 2014 compared to $92.9 million in the six months ended June 30, 2013. Changes in the components of property expenses are discussed below.
Rental Expenses
Rental expenses increased $10.8 million, or 18.8%, to $68.5 million in the six months ended June 30, 2014 compared to $57.7 million in the six months ended June 30, 2013. This increase is primarily due to the following:
an increase of $5.7 million in repairs and maintenance at same-center and redevelopment properties due primarily to higher snow removal costs,
an increase of $1.6 million related to properties acquired in 2014 and 2013,
an increase of $0.9 million related to Assembly Row and Pike & Rose, as portions of these projects began to open during the six months ended June 30, 2014,
an increase of $0.9 million in utilities at our same-center and redevelopment properties primarily due to higher electric costs and usage as a result of the harsh winter,
an increase of $0.7 million in payroll expense at same-center and redevelopment properties, and
an increase of $0.7 million in bad debt expense at same-center properties.
As a result of the changes in rental income and rental expenses as discussed above, rental expenses as a percentage of rental income plus other property income increased to 20.4% in the six months ended June 30, 2014 from 18.5% in the six months ended June 30, 2013.
Real Estate Taxes
Real estate tax expense increased $2.7 million, or 7.6%, to $37.9 million in the six months ended June 30, 2014 compared to $35.2 million in the six months ended June 30, 2013 due primarily to higher assessments and lower refunds at our same-center properties and real estate taxes on properties acquired in 2014 and 2013.
Property Operating Income
Property operating income increased $10.8 million, or 4.9%, to $232.4 million in the six months ended June 30, 2014 compared to $221.6 million in the six months ended June 30, 2013. This increase is primarily due to growth in earnings at our same-center properties, properties acquired in 2014 and 2013, and earnings from our redevelopment properties, partially offset by a decline in earnings at Mid-Pike Plaza.

23


Other
Interest Expense
Interest expense decreased $8.2 million, or 15.0%, to $46.4 million in the six months ended June 30, 2014 compared to $54.6 million in the six months ended June 30, 2013. This decrease is due primarily to the following:
a decrease of $6.9 million due to a lower overall weighted average borrowing rate, and
an increase of $4.4 million in capitalized interest due primarily to our ongoing development projects at Assembly Row and Pike & Rose,
partially offset by
an increase of $3.0 million due to higher borrowings.
Gross interest costs were $57.4 million and $61.2 million in the six months ended June 30, 2014 and 2013, respectively. Capitalized interest was $11.0 million and $6.6 million in the six months ended June 30, 2014 and 2013, respectively.
Early Extinguishment of Debt
The $3.4 million of early extinguishment of debt in the six months ended June 30, 2013 relates to the make-whole premium paid as part of the early redemption of our 5.40% senior notes and the related write-off of unamortized debt fees.
Depreciation and Amortization
Depreciation and amortization expense increased $4.5 million, or 5.6%, to $84.7 million in the six months ended June 30, 2014 from $80.3 million in the six months ended June 30, 2013. This increase is due primarily to 2014 and 2013 acquisitions.
Discontinued Operations - Income
Income from discontinued operations represents the operating income of properties that were disposed prior to January 1, 2014, which were required to be reported separately from results of ongoing operations. The reported operating income of $0.8 million for the six months ended June 30, 2013 primarily represents the operating income for the period during which we owned properties sold in 2013.
Gain on Sale of Real Estate
The $5.0 million gain on sale of real estate for the six months ended June 30, 2013 is primarily due to the sale of the fee interest in the land under an office building at our Village of Shirlington property in Arlington, Virginia, that was subject to a long term ground lease. The ground lease included an option for the tenant to purchase the fee interest.


Liquidity and Capital Resources
Due to the nature of our business and strategy, we typically generate significant amounts of cash from operations. The cash generated from operations is primarily paid to our common and preferred shareholders in the form of dividends. As a REIT, we must generally make annual distributions to shareholders of at least 90% of our taxable income.
Our short-term liquidity requirements consist primarily of normal recurring operating expenses, obligations under our capital and operating leases, regular debt service requirements (including debt service relating to additional or replacement debt, as well as scheduled debt maturities), recurring expenditures, non-recurring expenditures (such as tenant improvements and redevelopments) and dividends to common and preferred shareholders. Our long-term capital requirements consist primarily of maturities under our long-term debt agreements, development and redevelopment costs and potential acquisitions.
We intend to operate with and maintain a conservative capital structure that will allow us to maintain strong debt service coverage and fixed-charge coverage ratios as part of our commitment to investment-grade debt ratings. In the short and long term, we may seek to obtain funds through the issuance of additional equity, unsecured and/or secured debt financings, joint venture relationships relating to existing properties or new acquisitions, and property dispositions that are consistent with this conservative structure.
Cash and cash equivalents were $41.3 million at June 30, 2014. Additionally, we have a $600.0 million unsecured revolving credit facility which matures on April 21, 2017, subject to a one-year extension at our option, and had no borrowings outstanding at June 30, 2014. In addition, we have an option (subject to bank approval) to increase the credit facility through an accordion feature to $1.0 billion. Our $275.0 million unsecured term loan, which matures on November 21, 2018, also has an

24


option (subject to bank approval) to increase the term loan through an accordion feature to $350.0 million. As of June 30, 2014, we had the capacity to issue up to $196.5 million in common shares under our ATM equity program.
For the six months ended June 30, 2014, the maximum amount of borrowings outstanding under our revolving credit facility was $19.0 million, the weighted average amount of borrowings outstanding was $2.1 million and the weighted average interest rate, before amortization of debt fees, was 1.05%. For the remainder of 2014, we have no additional debt maturing. We currently believe that cash flows from operations, cash on hand, our ATM equity program, our revolving credit facility and our general ability to access the capital markets will be sufficient to finance our operations and fund our debt service requirements (including maturities) and capital expenditures.
Our overall capital requirements for the remainder of 2014 will depend upon acquisition opportunities, the level of improvements and redevelopments on existing properties and the timing and cost of development of Assembly Row, Pike & Rose and future phases of Santana Row. While the amount of future expenditures will depend on numerous factors, we expect to continue to see higher levels of capital investments in our properties under development and redevelopment in 2014 which is the result of the continued construction of Phase I at both Assembly Row and Pike & Rose with openings of portions of both projects in 2014. Over the next eighteen months, we expect to invest approximately $125 million related to the current phases of these two projects. With respect to other capital investments related to our existing properties, we expect to incur levels consistent with prior years. Our capital investments will be funded on a short-term basis with cash flow from operations, cash on hand and/or our revolving credit facility, and on a long-term basis with long-term debt or equity including shares issued under our ATM equity program. If necessary, we may access the debt or equity capital markets to finance significant acquisitions. Given our past ability to access the capital markets, we expect debt or equity to be available to us. Although there is no intent at this time, if market conditions deteriorate, we may also delay the timing of certain development and redevelopment projects as well as limit future acquisitions, reduce our operating expenditures, or re-evaluate our dividend policy.
In addition to conditions in the capital markets which could affect our ability to access those markets, the following factors could affect our ability to meet our liquidity requirements:
restrictions in our debt instruments or preferred shares may limit us from incurring debt or issuing equity at all, or on acceptable terms under then-prevailing market conditions; and
we may be unable to service additional or replacement debt due to increases in interest rates or a decline in our operating performance.
Summary of Cash Flows
 
Six Months Ended June 30,
 
2014
 
2013
 
(In thousands)
Cash provided by operating activities
$
172,069

 
$
146,696

Cash used in investing activities
(190,122
)
 
(158,178
)
Cash (used in) provided by financing activities
(29,562
)
 
82,860

(Decrease) increase in cash and cash equivalents
(47,615
)
 
71,378

Cash and cash equivalents, beginning of year
88,927

 
36,988

Cash and cash equivalents, end of period
$
41,312

 
$
108,366


Net cash provided by operating activities increased $25.4 million to $172.1 million during the six months ended June 30, 2014 from $146.7 million during the six months ended June 30, 2013. The increase was primarily attributable to higher net income before certain non-cash items.
Net cash used in investing activities increased $31.9 million to $190.1 million during the six months ended June 30, 2014 from $158.2 million during the six months ended June 30, 2013. The increase was primarily attributable to:
$63.2 million increase in capital investments and leasing costs in 2014 primarily related to our development projects at Assembly Row and Pike & Rose,
$8.6 million in proceeds from the sale of real estate in 2013, and
$3.6 million contribution to our real estate partnership to repay the mortgage loan of one of its properties prior to the original maturity date,
partially offset by
$42.9 million decrease in acquisitions of real estate due to the April 2013 Darien acquisition.

25


Net cash used in financing activities decreased $112.4 million to $29.6 million during the six months ended June 30, 2014 from $82.9 million provided during the six months ended June 30, 2013. The decrease was primarily attributable to:
$269.3 million in net proceeds from the issuance of 2.75% senior notes in May 2013, and
$9.7 million increase in dividends paid to shareholders due to an increase in the dividend rate and increased number of shares outstanding,
partially offset by
$135.0 million redemption of our 5.40% senior notes in June 2013,
$20.7 million increase in net proceeds from the issuance of common shares due primarily to the sale of 0.9 million shares under our ATM equity program at a weighted average price of $115.44 in the six months ended June 30, 2014 compared to 0.7 million shares at a weighted average price of $113.08 in the six months ended June 30, 2013, and
$8.4 million decrease in repayment of mortgages, capital leases, and notes payable due to the payoff of one mortgage for $20.3 million in 2014, compared to two mortgages totaling $28.2 million in 2013.
Off-Balance Sheet Arrangements
We have a joint venture arrangement (the “Partnership”) with affiliates of a discretionary fund created and advised by ING Clarion Partners (“Clarion”). We own 30% of the equity in the Partnership and Clarion owns 70%. We hold a general partnership interest, however, Clarion also holds a general partnership interest and has substantive participating rights. We cannot make significant decisions without Clarion’s approval. Accordingly, we account for our interest in the Partnership using the equity method. As of June 30, 2014, the Partnership owned seven retail real estate properties. We are the manager of the Partnership and its properties, earning fees for acquisitions, management, leasing and financing. We also have the opportunity to receive performance-based earnings through our Partnership interest. The Partnership is subject to a buy-sell provision which is customary in real estate joint venture agreements and the industry. Either partner may initiate this provision at any time, which could result in either the sale of our interest or the use of available cash or borrowings to acquire Clarion’s interest. Accounting policies for the Partnership are similar to accounting policies followed by the Trust. At June 30, 2014, our investment in the Partnership was $35.5 million and the Partnership had approximately $44.9 million of mortgages payable outstanding.
On July 24, 2014, our Partnership with Clarion sold the fee interest in Pleasant Shops in Weymouth, Massachusetts for a sales price of $34.3 million.


26



Debt Financing Arrangements
The following is a summary of our total debt outstanding as of June 30, 2014:

Description of Debt
Original
Debt
Issued
 
Principal Balance as of June 30, 2014
 
Stated Interest Rate as of June 30, 2014
 
Maturity Date
 
(Dollars in thousands)
 
 
 
 
Mortgages payable (1)
 
 
 
 
 
 
 
Secured fixed rate
 
 
 
 
 
 
 
THE AVENUE at White Marsh
Acquired

 
$
53,418

 
5.46
%
 
January 1, 2015
Barracks Road
44,300

 
36,538

 
7.95
%
 
November 1, 2015
Hauppauge
16,700

 
13,774

 
7.95
%
 
November 1, 2015
Lawrence Park
31,400

 
25,898

 
7.95
%
 
November 1, 2015
Wildwood
27,600

 
22,764

 
7.95
%
 
November 1, 2015
Wynnewood
32,000

 
26,393

 
7.95
%
 
November 1, 2015
Brick Plaza
33,000

 
26,842

 
7.42
%
 
November 1, 2015
East Bay Bridge
Acquired

 
61,474

 
5.13
%
 
March 1, 2016
Plaza El Segundo
Acquired

 
175,000

 
6.33
%
 
August 5, 2017
The Grove at Shrewsbury (East)
Acquired

 
44,980

 
5.82
%
 
October 1, 2017
The Grove at Shrewsbury (West)
Acquired

 
11,346

 
6.38
%
 
March 1, 2018
Rollingwood Apartments
24,050

 
22,326

 
5.54
%
 
May 1, 2019
29th Place
Acquired

 
5,031

 
5.91
%
 
January 31, 2021
Montrose Crossing
80,000

 
76,612

 
4.20
%
 
January 10, 2022
Brook 35
11,500

 
11,500

 
4.65
%
 
July 1, 2029
Chelsea
Acquired

 
7,172

 
5.36
%
 
January 15, 2031
Subtotal
 
 
621,068

 
 
 
 
Net unamort