FRT-09.30.2012-10Q
Table of Contents



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 September 30, 2012
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 October 29, 2012 was 64,625,539.


Table of Contents

FEDERAL REALTY INVESTMENT TRUST
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2012

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
 
Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011
 
Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2012 and 2011
 
Consolidated Statement of Shareholders' Equity (unaudited) for the nine months ended September 30, 2012
 
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2012 and 2011
 
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

Table of Contents

PART I—FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
The following balance sheet as of December 31, 2011, 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 nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the full year.



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Table of Contents

Federal Realty Investment Trust
Consolidated Balance Sheets
 
 
September 30,
 
December 31,
 
2012
 
2011
 
(In thousands, except share data)
 
(Unaudited)
 
 
ASSETS
 
 
 
Real estate, at cost
 
 
 
Operating (including $263,664 and $263,570 of consolidated variable interest entities, respectively)
$
4,276,146

 
$
4,232,608

Construction-in-progress
264,982

 
193,836

 
4,541,128

 
4,426,444

Less accumulated depreciation and amortization (including $10,253 and $4,991 of consolidated variable interest entities, respectively)
(1,195,336
)
 
(1,127,588
)
Net real estate
3,345,792

 
3,298,856

Cash and cash equivalents
147,680

 
67,806

Accounts and notes receivable, net
82,152

 
75,921

Mortgage notes receivable, net
55,661

 
55,967

Investment in real estate partnership
33,871

 
34,352

Prepaid expenses and other assets
127,592

 
121,492

Debt issuance costs, net of accumulated amortization of $10,052 and $9,098, respectively
11,591

 
11,816

TOTAL ASSETS
$
3,804,339

 
$
3,666,210

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Mortgages payable (including $205,907 and $207,683 of consolidated variable interest entities, respectively)
$
730,643

 
$
747,523

Capital lease obligations
71,698

 
63,093

Notes payable
299,618

 
295,159

Senior notes and debentures
1,076,456

 
1,004,635

Accounts payable and accrued expenses
121,233

 
104,660

Dividends payable
47,556

 
44,229

Security deposits payable
13,009

 
12,221

Other liabilities and deferred credits
50,353

 
68,761

Total liabilities
2,410,566

 
2,340,281

Commitments and contingencies (Note 7)

 

Redeemable noncontrolling interests
81,851

 
85,325

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, 64,620,923 and 63,544,150 shares issued and outstanding, respectively
647

 
636

Additional paid-in capital
1,867,494

 
1,764,940

Accumulated dividends in excess of net income
(577,214
)
 
(555,541
)
Accumulated other comprehensive loss
(13,227
)
 
(3,940
)
Total shareholders’ equity of the Trust
1,287,697

 
1,216,092

Noncontrolling interests
24,225

 
24,512

Total shareholders’ equity
1,311,922

 
1,240,604

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
3,804,339

 
$
3,666,210


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

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Federal Realty Investment Trust
Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands, except per share data)
REVENUE
 
 
 
 
 
 
 
Rental income
$
147,515

 
$
134,014

 
$
429,972

 
$
401,452

Other property income
9,008

 
2,341

 
17,848

 
6,577

Mortgage interest income
1,282

 
1,309

 
3,834

 
3,564

Total revenue
157,805

 
137,664

 
451,654

 
411,593

EXPENSES
 
 
 
 
 
 
 
Rental expenses
29,679

 
26,595

 
82,695

 
81,130

Real estate taxes
17,320

 
15,047

 
49,914

 
46,001

General and administrative
8,751

 
7,197

 
22,894

 
19,643

Depreciation and amortization
34,932

 
32,068

 
106,702

 
94,355

Total operating expenses
90,682

 
80,907

 
262,205

 
241,129

OPERATING INCOME
67,123

 
56,757

 
189,449

 
170,464

Other interest income
261

 
136

 
580

 
171

Interest expense
(28,218
)
 
(23,795
)
 
(85,744
)
 
(72,744
)
Early extinguishment of debt

 

 

 
296

Income from real estate partnerships
490

 
434

 
1,229

 
1,201

INCOME FROM CONTINUING OPERATIONS
39,656

 
33,532

 
105,514

 
99,388

DISCONTINUED OPERATIONS
 
 
 
 
 
 
 
Discontinued operations - income

 
13

 

 
943

Discontinued operations - gain on deconsolidation of VIE

 

 

 
2,026

Discontinued operations - gain on sale of real estate

 
14,757

 

 
14,800

Results from discontinued operations

 
14,770

 

 
17,769

INCOME BEFORE GAIN ON SALE OF REAL ESTATE
39,656

 
48,302

 
105,514

 
117,157

Gain on sale of real estate in real estate partnership

 

 
11,860

 

NET INCOME
39,656

 
48,302

 
117,374

 
117,157

Net income attributable to noncontrolling interests
(1,012
)
 
(1,249
)
 
(3,141
)
 
(4,161
)
NET INCOME ATTRIBUTABLE TO THE TRUST
38,644

 
47,053

 
114,233

 
112,996

Dividends on preferred shares
(136
)
 
(136
)
 
(406
)
 
(406
)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS
$
38,508

 
$
46,917

 
$
113,827

 
$
112,590

EARNINGS PER COMMON SHARE, BASIC
 
 
 
 
 
 
 
Continuing operations
$
0.60

 
$
0.51

 
$
1.59

 
$
1.52

Discontinued operations

 
0.23

 

 
0.28

Gain on sale of real estate

 

 
0.19

 

 
$
0.60

 
$
0.74

 
$
1.78

 
$
1.80

Weighted average number of common shares, basic
64,014

 
62,818

 
63,711

 
62,172

EARNINGS PER COMMON SHARE, DILUTED
 
 
 
 
 
 
 
Continuing operations
$
0.60

 
$
0.51

 
$
1.58

 
$
1.52

Discontinued operations

 
0.23

 

 
0.28

Gain on sale of real estate

 

 
0.19

 

 
$
0.60

 
$
0.74

 
$
1.77

 
$
1.80

Weighted average number of common shares, diluted
64,202

 
62,990

 
63,891

 
62,341

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME (Note 2)
$
36,804

 
$
48,302

 
$
108,087

 
$
117,157

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE TRUST (Note 2)
$
35,792

 
$
47,053

 
$
104,946

 
$
112,996


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

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Table of Contents

Federal Realty Investment Trust
Consolidated Statement of Shareholders’ Equity
For the Nine Months Ended September 30, 2012
(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, 2011
399,896


$
9,997

 
63,544,150

 
$
636

 
$
1,764,940

 
$
(555,541
)
 
$
(3,940
)
 
$
24,512

 
$
1,240,604

Net income, excluding $1,882 attributable to redeemable noncontrolling interests

 

 

 

 

 
114,233

 

 
1,259

 
115,492

Other comprehensive loss

 

 

 

 

 

 
(9,287
)
 

 
(9,287
)
Dividends declared to common shareholders

 

 

 

 

 
(135,500
)
 

 

 
(135,500
)
Dividends declared to preferred shareholders

 

 

 

 

 
(406
)
 

 

 
(406
)
Distributions declared to noncontrolling interests

 

 

 

 

 

 

 
(1,516
)
 
(1,516
)
Common shares issued

 

 
871,629

 
9

 
88,939

 

 

 

 
88,948

Exercise of stock options

 

 
75,918

 
1

 
4,248

 

 

 

 
4,249

Shares issued under dividend reinvestment plan

 

 
17,579

 

 
1,688

 

 

 

 
1,688

Share-based compensation expense, net

 

 
111,647

 
1

 
8,001

 

 

 

 
8,002

Conversion and redemption of OP units

 

 

 

 
(322
)
 

 

 
(135
)
 
(457
)
Contributions from noncontrolling interests

 

 

 

 

 

 

 
105

 
105

BALANCE AT SEPTEMBER 30, 2012
399,896

 
$
9,997

 
64,620,923

 
$
647

 
$
1,867,494

 
$
(577,214
)
 
$
(13,227
)
 
$
24,225

 
$
1,311,922


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

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Federal Realty Investment Trust
Consolidated Statements of Cash Flows
 (Unaudited)
 
Nine Months Ended September 30,
 
2012
 
2011
 
(In thousands)
OPERATING ACTIVITIES
 
Net income
$
117,374

 
$
117,157

Adjustment to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization, including discontinued operations
106,702

 
94,715

Gain on sale of real estate in real estate partnership
(11,860
)
 

Gain on sale of real estate

 
(14,800
)
Gain on deconsolidation of VIE

 
(2,026
)
Early extinguishment of debt

 
(296
)
Income from real estate partnerships
(1,229
)
 
(1,201
)
Other, net
4,236

 
2,702

Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Increase in accounts receivable
(2,419
)
 
(6,143
)
(Increase) decrease in prepaid expenses and other assets
(7,393
)
 
1,986

Increase (decrease) in accounts payable and accrued expenses
5,217

 
(17,532
)
Decrease in security deposits and other liabilities
(1,473
)
 
(1,611
)
Net cash provided by operating activities
209,155

 
172,951

INVESTING ACTIVITIES
 
 
 
Acquisition of real estate
(8,927
)
 
(26,304
)
Capital expenditures - development and redevelopment
(92,316
)
 
(57,026
)
Capital expenditures - other
(33,700
)
 
(32,316
)
Proceeds from sale of real estate

 
20,669

Investment in real estate partnerships

 
(6,947
)
Distribution from real estate partnership in excess of earnings
420

 
442

Leasing costs
(9,003
)
 
(9,130
)
Repayment of mortgage and other notes receivable, net
91

 
9,299

Net cash used in investing activities
(143,435
)
 
(101,313
)
FINANCING ACTIVITIES
 
 
 
Net borrowings under revolving credit facility, net of costs

 
76,841

Issuance of senior notes, net of costs
244,807

 

Retirement of senior notes/debentures
(175,000
)
 
(75,000
)
Issuance of mortgages, capital leases and notes payable, net of costs
5,399

 

Repayment of mortgages, capital leases and notes payable
(16,312
)
 
(88,955
)
Issuance of common shares
95,063

 
153,793

Dividends paid to common and preferred shareholders
(132,567
)
 
(125,306
)
Distributions to and redemptions of noncontrolling interests
(7,236
)
 
(6,738
)
Net cash provided by (used in) financing activities
14,154

 
(65,365
)
Increase in cash and cash equivalents
79,874

 
6,273

Cash and cash equivalents at beginning of year
67,806

 
15,797

Cash and cash equivalents at end of period
$
147,680

 
$
22,070


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


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Federal Realty Investment Trust
Notes to Consolidated Financial Statements
September 30, 2012
(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 September 30, 2012, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 87 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 2011 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.
Comprehensive Income
In June 2011, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity and requires the presentation of components of net income and components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB deferred the requirement to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. We adopted the standards effective January 1, 2012 and modified the presentation in our consolidated financial statements accordingly. Other comprehensive loss in our financial statements relates to the change in valuation on our interest rate swap agreements as further discussed in Note 6.

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The components of comprehensive income are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Net income
$
39,656

 
$
48,302

 
$
117,374

 
$
117,157

Other comprehensive loss
(2,852
)
 

 
(9,287
)
 

Comprehensive income
36,804

 
48,302

 
108,087

 
117,157

Net income attributable to noncontrolling interests
(1,012
)
 
(1,249
)
 
(3,141
)
 
(4,161
)
Comprehensive income attributable to the Trust
$
35,792

 
$
47,053

 
$
104,946

 
$
112,996

 
 
Other Recently Adopted Accounting Pronouncements
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The pronouncement was issued to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. We adopted the standard effective January 1, 2012 and it did not have a significant impact to our consolidated financial statements.
Consolidated Statements of Cash Flows—Supplemental Disclosures
The following table provides supplemental disclosures related to the Consolidated Statements of Cash Flows:

 
Nine Months Ended
 
September 30,
 
2012
 
2011
 
(In thousands)
SUPPLEMENTAL DISCLOSURES:
 
 
 
Total interest costs incurred
$
93,213

 
$
78,560

Interest capitalized
(7,469
)
 
(5,816
)
Interest expense
$
85,744

 
$
72,744

Cash paid for interest, net of amounts capitalized
$
89,959

 
$
76,520

Cash (refunded) paid for income taxes
$
(1,144
)
 
$
690

NON-CASH INVESTING AND FINANCING TRANSACTIONS:
 
 
 
Mortgage loan assumed with acquisition
$

 
$
42,938

Deconsolidation of VIE
$

 
$
18,311

Capital lease obligation
$

 
$
4,556


NOTE 3—REAL ESTATE
During 2012, we finalized the purchase price allocations for our December 2011 acquisitions of controlling interests in Montrose Crossing and Plaza El Segundo. The purchase price for Montrose Crossing was $141.5 million and our 89.9% ownership interest was $127.2 million which was funded with cash and our pro-rata share of $80.0 million of new mortgage debt.  Approximately $2.9 million and $3.8 million of net assets acquired were allocated to other assets for "above market leases" and other liabilities for "below market leases", respectively. The purchase price for Plaza El Segundo was $192.7 million and our 48.2% ownership interest was funded with $8.5 million of cash and the assumption of our pro-rata share of the existing $175.0 million mortgage debt.  Approximately $7.5 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. The balance sheet at December 31, 2011, has been adjusted to reflect the final purchase price allocation for both properties.
In July and September 2012, we acquired three residential apartment buildings with 47 units located adjacent to Santana Row for $9.0 million. These properties provide potential future redevelopment opportunities for Santana Row.


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NOTE 4—REAL ESTATE PARTNERSHIPS
Federal/Lion Venture LP
We have a joint venture arrangement (the “Partnership”) with affiliates of a discretionary fund created and advised by ING Clarion Partners (“Clarion”). We own 30% of the equity in the Partnership and Clarion owns 70%. We hold a general partnership interest, however, Clarion also holds a general partnership interest and has substantive participating rights. We cannot make significant decisions without Clarion’s approval. Accordingly, we account for our interest in the Partnership using the equity method. As of September 30, 2012, 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.
The following tables provide summarized operating results and the financial position of the Partnership:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
OPERATING RESULTS
 
 
 
 
 
 
 
Revenue
$
4,772

 
$
4,743

 
$
14,070

 
$
14,387

Expenses
 
 
 
 
 
 
 
Other operating expenses
1,242

 
1,276

 
3,809

 
4,260

Depreciation and amortization
1,372

 
1,296

 
4,123

 
3,864

Interest expense
844

 
846

 
2,533

 
2,542

Total expenses
3,458

 
3,418

 
10,465

 
10,666

Net income
$
1,314

 
$
1,325

 
$
3,605

 
$
3,721

Our share of net income from real estate partnership
$
490

 
$
452

 
$
1,286

 
$
1,253


 
September 30,
 
December 31,
 
2012
 
2011
 
(In thousands)
BALANCE SHEETS
 
 
 
Real estate, net
$
175,369

 
$
178,693

Cash
4,320

 
3,035

Other assets
5,391

 
6,116

Total assets
$
185,080

 
$
187,844

Mortgages payable
$
57,212

 
$
57,376

Other liabilities
4,303

 
5,391

Partners’ capital
123,565

 
125,077

Total liabilities and partners’ capital
$
185,080

 
$
187,844

Our share of unconsolidated debt
$
17,164

 
$
17,213

Our investment in real estate partnership
$
33,871

 
$
34,352


Taurus Newbury Street JV II Limited Partnership
On October 31, 2011, our Newbury Street Partnership sold its entire portfolio of three buildings for $44.0 million.  As part of the sale, we received $34.6 million of the net proceeds which included the repayment of our $11.8 million loans. Due to the timing of receiving financial information from the general partner, our share of earnings was recorded one quarter in arrears. Therefore, we recognized the gain on sale of $11.9 million in the first quarter 2012. The deferred gain was included in "other liabilities and deferred credits" on the balance sheet at December 31, 2011.


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NOTE 5—DEBT
On July 16, 2012, we repaid our $175.0 million 6.00% senior notes on the maturity date.
On July 19, 2012, we issued $250.0 million of fixed rate senior notes that mature on August 1, 2022 and bear interest at 3.00%. The net proceeds from this note offering after issuance discounts, underwriting fees and other costs were approximately $244.8 million.
During the three and nine months ended September 30, 2012, the maximum amount of borrowing outstanding under our $400.0 million revolving credit facility was $186.0 million for both periods, the weighted average borrowings outstanding was $6.1 million and $2.0 million, respectively, and the weighted average interest rate before amortization of debt fees was 1.42% for both periods. At September 30, 2012, 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 September 30, 2012, we were in compliance with all loan 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:

 
September 30, 2012
 
December 31, 2011
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
(In thousands)
Mortgages and notes payable
$
1,030,261

 
$
1,071,901

 
$
1,042,682

 
$
1,099,273

Senior notes and debentures
$
1,076,456

 
$
1,204,598

 
$
1,004,635

 
$
1,085,309

 
As of September 30, 2012, we have two interest rate swap agreements with a notional amount of $275.0 million that are measured at fair value on a recurring basis. The interest rate swap agreements fix the variable portion of our $275.0 million term loan at 1.72% from December 1, 2011 through November 1, 2018, and effectively fix the rate of the term loan at 3.17%. 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 income/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 September 30, 2012, 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 September 30, 2012 was a liability of $13.2 million and is included in "accounts payable and accrued expenses" on our consolidated balance sheet. The change in valuation on our interest rate swaps was $2.9 million and $9.3 million (including $1.1 million and $3.1 million , respectively, reclassified from other comprehensive loss to earnings) for the three and nine months ended September 30, 2012 and is included in "accumulated other comprehensive loss".

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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:
 
September 30, 2012
 
December 31, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Interest rate swaps
$

 
$
13,227

 
$

 
$
13,227

 
$

 
$
3,940

 
$

 
$
3,940


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 324,140 operating partnership units are outstanding which have a total fair value of $34.1 million, based on our closing stock price on September 30, 2012.

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

 
Nine Months Ended September 30,
 
2012
 
2011
 
Declared
 
Paid
 
Declared
 
Paid
Common shares
$
2.110

 
$
2.070

 
$
2.030

 
$
2.010

5.417% Series 1 Cumulative Convertible Preferred shares
$
1.016

 
$
1.016

 
$
1.016

 
$
1.016


On May 8, 2012, 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 September 30, 2012, we issued 491,094 common shares at a weighted average price per share of $107.43 for net cash proceeds of $52.1 million and paid $0.7 million in commissions related to the sales of these common shares. For the nine months ended September 30, 2012, we issued 873,210 common shares at a weighted average price per share of $103.54 for net cash proceeds of $89.1 million and paid $1.2 million in commissions related to the sales of these common shares.



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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Minimum rents
 
 
 
 
 
 
 
Retail and commercial
$
106,344

 
$
98,654

 
$
313,934

 
$
293,622

Residential (1)
7,116

 
5,746

 
20,467

 
16,958

Cost reimbursement
29,171

 
25,714

 
82,603

 
80,083

Percentage rent
1,667

 
1,673

 
5,167

 
4,598

Other
3,217

 
2,227

 
7,801

 
6,191

Total rental income
$
147,515

 
$
134,014

 
$
429,972

 
$
401,452

_____________________
(1)
Residential minimum rents consist of the rental amounts for residential units at Rollingwood Apartments, The Crest at Congressional Plaza Apartments, Santana Row and Bethesda Row.

Minimum rents include the following:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In millions)
Straight-line rents
$
1.8

 
$
1.6

 
$
3.9

 
$
3.9

Amortization of above market leases
$
(0.8
)
 
$
(0.6
)
 
$
(2.6
)
 
$
(1.8
)
Amortization of below market leases
$
1.1

 
$
0.9

 
$
3.4

 
$
2.8


NOTE 10—DISCONTINUED OPERATIONS
Results of properties disposed or held for disposal which meet certain requirements, constitute discontinued operations and as such, the operations of these properties are classified as discontinued operations for all periods presented. A summary of the financial information for the discontinued operations is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2011
 
2011
 
(in millions)
Revenue from discontinued operations
$
0.2

 
$
2.2

Income from discontinued operations
$

 
$
0.9




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NOTE 11—SHARE-BASED COMPENSATION PLANS
A summary of share-based compensation expense included in net income is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Share-based compensation incurred
 
 
 
 
 
 
 
Grants of common shares
$
2,754

 
$
1,847

 
$
7,644

 
$
5,433

Grants of options
77

 
210

 
358

 
672

 
2,831

 
2,057

 
8,002

 
6,105

Capitalized share-based compensation
(230
)
 
(167
)
 
(683
)
 
(525
)
Share-based compensation expense
$
2,601

 
$
1,890

 
$
7,319

 
$
5,580


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 nine months ended September 30, 2012 and 2011, 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 nine months ended September 30, 2012. Stock options of less than 0.1 million and 0.1 million have been excluded for the three and nine months ended September 30, 2011, respectively, as they were anti-dilutive. 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.


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Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands, except per share data)
NUMERATOR
 
 
 
 
 
 
 
Income from continuing operations
$
39,656

 
$
33,532

 
$
105,514

 
$
99,388

Less: Preferred share dividends
(136
)
 
(136
)
 
(406
)
 
(406
)
Less: Income from continuing operations attributable to noncontrolling interests
(1,012
)
 
(1,249
)
 
(3,141
)
 
(3,941
)
Less: Earnings allocated to unvested shares
(221
)
 
(207
)
 
(638
)
 
(509
)
Income from continuing operations available for common shareholders
38,287

 
31,940

 
101,329

 
94,532

Results from discontinued operations attributable to the Trust

 
14,770

 

 
17,549

Gain on sale of real estate in real estate partnership

 

 
11,860

 

Net income available for common shareholders, basic and diluted
$
38,287

 
$
46,710

 
$
113,189

 
$
112,081

DENOMINATOR
 
 
 
 
 
 
 
Weighted average common shares outstanding—basic
64,014

 
62,818

 
63,711

 
62,172

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
188

 
172

 
180

 
169

Weighted average common shares outstanding—diluted
64,202

 
62,990

 
63,891

 
62,341

EARNINGS PER COMMON SHARE, BASIC
 
 
 
 
 
 
 
Continuing operations
$
0.60

 
$
0.51

 
$
1.59

 
$
1.52

Discontinued operations

 
0.23

 

 
0.28

Gain on sale of real estate

 

 
0.19

 

 
$
0.60

 
$
0.74

 
$
1.78

 
$
1.80

EARNINGS PER COMMON SHARE, DILUTED
 
 
 
 
 
 
 
Continuing operations
$
0.60

 
$
0.51

 
$
1.58

 
$
1.52

Discontinued operations

 
0.23

 

 
0.28

Gain on sale of real estate

 

 
0.19

 

 
$
0.60

 
$
0.74

 
$
1.77

 
$
1.80

Income from continuing operations attributable to the Trust
$
38,644

 
$
32,283

 
$
102,373

 
$
95,447



NOTE 13—SUBSEQUENT EVENT
On October 22, 2012, we repaid the mortgage loan on Mount Vernon prior to its original maturity date at par for $10.2 million. This loan had an original maturity date of April 15, 2028; however, the loan was prepayable at any time after October 14, 2012.

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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, 2011 filed with the Securities and Exchange Commission (the “SEC”) on February 16, 2012.
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, 2011 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 September 30, 2012, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 87 predominantly retail real estate projects comprising approximately 19.1 million square feet (excludes unconsolidated joint venture properties). In total, the real estate projects were 95.1% leased and 94.2% occupied at September 30, 2012. 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 September 30, 2012. In total, the joint venture properties in which we own a 30% interest were 88.5% leased and 88.3% occupied at September 30, 2012.
2012 Significant Equity and Debt Transactions
On May 8, 2012, 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 September 30, 2012, we issued 491,094 common shares at a weighted average price per share of $107.43 for net cash proceeds of $52.1 million and paid $0.7 million in commissions related to the sales of these common shares. For the nine months ended September 30, 2012, we issued 873,210 common shares at a weighted average price per share of $103.54 for net cash proceeds of $89.1 million and paid $1.2 million in commissions related to the sales of these common shares. As of September 30, 2012, we had the capacity to issue up to $230.9 million in common shares under our ATM equity program.
On July 16, 2012, we repaid our $175.0 million 6.00% senior notes on the maturity date.
On July 19, 2012, we issued $250.0 million of fixed rate senior notes that mature on August 1, 2022 and bear interest at 3.00%. The net proceeds from this note offering after issuance discounts, underwriting fees and other costs were approximately $244.8 million.
On October 22, 2012, we repaid the mortgage loan on Mount Vernon prior to its original maturity date at par for $10.2 million. This loan had an original maturity date of April 15, 2028; however, the loan was prepayable at any time after October 14, 2012.
Final Purchase Price Allocation of 2011 Property Acquisitions and 2012 Property Acquisitions

During 2012, we finalized the purchase price allocations for our December 2011 acquisitions of controlling interests in Montrose Crossing and Plaza El Segundo. The purchase price for Montrose Crossing was $141.5 million and our 89.9% ownership interest was $127.2 million which was funded with cash and our pro-rata share of $80.0 million of new mortgage

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debt.  Approximately $2.9 million and $3.8 million of net assets acquired were allocated to other assets for "above market leases" and other liabilities for "below market leases", respectively. The purchase price for Plaza El Segundo was $192.7 million and our 48.2% ownership interest was funded with $8.5 million of cash and the assumption of our pro-rata share of the existing $175.0 million mortgage debt.  Approximately $7.5 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. The balance sheet at December 31, 2011, has been adjusted to reflect the final purchase price allocation for both properties.
In July and September 2012, we acquired three residential apartment buildings with 47 units located adjacent to Santana Row for $9.0 million. These properties provide potential future redevelopment opportunities for Santana Row.
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 $93 million and $3 million, respectively, for the nine months ended September 30, 2012 and $60 million and $3 million, respectively, for the nine months ended September 30, 2011. We capitalized external and internal costs related to other property improvements of $33 million and $1 million, respectively, for the nine months ended September 30, 2012 and $30 million and $1 million, respectively, for the nine months ended September 30, 2011. We capitalized external and internal costs related to leasing activities of $5 million and $4 million, respectively, for the nine months ended September 30, 2012 and $6 million and $4 million, respectively, for the nine months ended September 30, 2011. 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 $4 million, respectively, for the nine months ended September 30, 2012 and $2 million, $1 million, and $3 million, respectively, for the nine months ended September 30, 2011.
Chief Financial Officer Transition
On August 15, 2012, James M. Taylor, a senior managing director in the real estate investment banking group of an affiliate of Wells Fargo, succeeded Andrew Blocher as our chief financial officer. We believe that the addition of Mr. Taylor to our executive ranks will enhance our ability to source and evaluate corporate business development and strategic opportunities. For more information about Mr. Taylor's appointment, see our Current Report on Form 8-K filed with the SEC on July 11, 2012.
Outlook
We seek growth in earnings, funds from operations, and cash flows primarily through a combination of the following:
growth in our portfolio from property development and redevelopments,
growth in our same-center portfolio, and
expansion of our portfolio through property acquisitions.
Our properties are predominately located in densely populated, 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 2012, we expect to have redevelopment projects stabilizing with projected costs of approximately $55 million.
Additionally, 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 September 30, 2012 is approximately $158 million. The project currently has zoning entitlements to build 2.3 million square feet of commercial-use buildings, 2,100 residential units, and a 200 room hotel. In December 2011, we entered into agreements with AvalonBay Communities ("AvalonBay") for a portion of the first phase of residential and retail development at Assembly Row which will include 575 residential units (by AvalonBay) and approximately 323,000 square feet of retail space.  The Massachusetts Bay Transit Authority (MBTA) will also construct the new orange line T-Stop at the property.   Construction commenced during first quarter 2012 and we expect the first phase to be stabilized in 2015. We are also continuing our infrastructure work during 2012. We expect to invest between $30 million and $35 million in 2012, net of expected public funding.
We continue our predevelopment work related to the long-term redevelopment of Mid-Pike Plaza in Rockville, Maryland, which will be renamed Pike & Rose, a long-term, multi-phased, mixed-use project.  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 involves demolition of roughly 25% of the existing gross leasable area at Mid-Pike Plaza (which was completed during the

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second quarter 2012) and construction of 493 residential units, 151,000 square feet of retail space and 79,000 square of office space. Construction of Phase I commenced in the third quarter 2012 with stabilization expected in 2015/2016.  We expect to invest between $45 million and $55 million in 2012.

We continue our ongoing redevelopment efforts at Santana Row and are currently under construction on a 212 unit residential building which we expect to stabilize in 2014. During 2012, we expect to invest between $20 million and $25 million related to this building.
As of September 30, 2012 in connection with our development projects at Assembly Row, Pike & Rose and Santana Row mentioned above, we have contractual obligations of approximately $108 million. The development of future phases of Assembly Row, Pike & Rose and Santana Row will be pursued opportunistically based on, among other things, market conditions, our evaluation of whether those phases will generate an appropriate financial return and our ability to structure the development of those future phases, through entitlement sales, third party capital investment or otherwise, in a way that should mitigate our risk of those future phases.

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 continued to see 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 two years.  While we have seen improvements over much of our portfolio, we continue to see some tenants being negatively impacted by the economic environment and some filing for bankruptcy, though at a lower rate than in previous years.  We believe the locations of our centers and diverse tenant base mitigates the negative impact of the economic environment, however, any 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 expect to continue to see small changes in occupancy over the short term and expect increases in occupancy and rental rates to be a driver of our same-center growth over the long term as we are able to re-lease vacant spaces. We seek to maintain a mix of strong national, regional, and local retailers. At September 30, 2012, no single tenant accounted for more than 3.1% of annualized base rent.
We continue to review acquisition opportunities in our primary markets that complement our portfolio and provide long-term growth opportunities. Generally, our acquisitions do not initially contribute significantly to earnings growth; however, 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 September 30, 2012, the leasable square feet in our properties was 94.2% occupied and 95.1% 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 third quarter 2012, we signed leases for a total of 532,000 square feet of retail space including 504,000 square feet of comparable space leases (leases for which there was a prior tenant) at an average rental increase of 11% on a cash basis and 25% on a straight-line basis. New leases for comparable spaces were signed for 271,000 square feet at an average rental increase of 25% on a cash basis and 36% on a straight-line basis. Renewals for comparable spaces were signed for 233,000 square feet at an average rental decrease of 1% on a cash basis and an average rental increase of 15% on a straight-line basis.
For the nine months ended September 30, 2012, we signed leases for a total of 1,479,000 square feet of retail space including 1,321,000 square feet of comparable space leases (leases for which there was a prior tenant) at an average rental increase of 13% on a cash basis and 24% on a straight-line basis. New leases for comparable spaces were signed for 690,000 square feet at an average rental increase of 24% on a cash basis and 34% on a straight-line basis. Renewals for comparable spaces were signed for 631,000 square feet at an average rental increase of 3% on a cash basis and 14% on a straight-line basis.

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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 some instances, management exercises judgment as to how to most effectively reflect the comparability of spaces reported in this calculation. The change in rental income on comparable space leases is impacted by numerous factors including current market rates, location, individual tenant creditworthiness, use of space, market conditions when the expiring lease was signed, capital investment made in the space and the specific lease structure.
The leases signed in 2012 generally become effective over the following two years though some may not become effective until 2015 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.
In 2012, we expect a higher level of leasing activity compared to prior years 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.
Same-Center
Throughout this section, we have provided certain information on a “same-center” basis. Information provided on a same-center basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties for which significant redevelopment or expansion occurred during either of the periods being compared and properties classified as discontinued operations. For the three and nine months ended September 30, 2012, all or a portion of 78 and 77 properties, respectively, were considered same-center and for both periods, eight properties were considered redevelopment or expansion. For the nine months ended September 30, 2012, four properties were removed from same-center and one property was added to same-center compared to the designations as of December 31, 2011.  For the three months ended September 30, 2012, one additional property was moved from acquisitions to same-center designation. 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 development or expansion.


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RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
 
 
 
 
 
 
Change
 
2012
 
2011
 
Dollars
 
%
 
(Dollar amounts in thousands)
Rental income
$
147,515

 
$
134,014

 
$
13,501

 
10.1
 %
Other property income
9,008

 
2,341

 
6,667

 
284.8
 %
Mortgage interest income
1,282

 
1,309

 
(27
)
 
(2.1
)%
Total property revenue
157,805

 
137,664

 
20,141

 
14.6
 %
Rental expenses
29,679

 
26,595

 
3,084

 
11.6
 %
Real estate taxes
17,320

 
15,047

 
2,273

 
15.1
 %
Total property expenses
46,999

 
41,642

 
5,357

 
12.9
 %
Property operating income
110,806

 
96,022

 
14,784

 
15.4
 %
Other interest income
261

 
136

 
125

 
91.9
 %
Income from real estate partnerships
490

 
434

 
56

 
12.9
 %
Interest expense
(28,218
)
 
(23,795
)
 
(4,423
)
 
18.6
 %
General and administrative expense
(8,751
)
 
(7,197
)
 
(1,554
)
 
21.6
 %
Depreciation and amortization
(34,932
)
 
(32,068
)
 
(2,864
)
 
8.9
 %
Total other, net
(71,150
)
 
(62,490
)
 
(8,660
)
 
13.9
 %
Income from continuing operations
39,656

 
33,532

 
6,124

 
18.3
 %
Discontinued operations - income

 
13

 
(13
)
 
(100.0
)%
Discontinued operations - gain on sale of real estate

 
14,757

 
(14,757
)
 
(100.0
)%
Net income
39,656

 
48,302

 
(8,646
)
 
(17.9
)%
Net income attributable to noncontrolling interests
(1,012
)
 
(1,249
)
 
237

 
(19.0
)%
Net income attributable to the Trust
$
38,644

 
$
47,053

 
$
(8,409
)
 
(17.9
)%

Property Revenues
Total property revenue increased $20.1 million, or 14.6%, to $157.8 million in the three months ended September 30, 2012 compared to $137.7 million in the three months ended September 30, 2011. The percentage occupied at our shopping centers increased to 94.2% at September 30, 2012 compared to 92.2% at September 30, 2011. 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 $13.5 million, or 10.1%, to $147.5 million in the three months ended September 30, 2012 compared to $134.0 million in the three months ended September 30, 2011 due primarily to the following:
an increase of $7.2 million attributable to properties acquired in 2011 and 2012,
an increase of $4.6 million at same-center properties due primarily to increased occupancy, higher rental rates on new leases, and an increase in recovery income, and
an increase of $1.3 million at redevelopment properties due primarily to increased occupancy at certain properties, mainly our new residential building at Santana Row and higher rental rates on new leases partially offset by lower income from Mid-Pike Plaza as the property is prepared for the development of Pike & Rose.
Other Property Income
Other property income increased $6.7 million, or 284.8%, to $9.0 million in the three months ended September 30, 2012 compared to $2.3 million in the three months ended September 30, 2011. 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.

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Property Expenses
Total property expenses increased $5.4 million, or 12.9%, to $47.0 million in the three months ended September 30, 2012 compared to $41.6 million in the three months ended September 30, 2011. Changes in the components of property expenses are discussed below.
Rental Expenses
Rental expenses increased $3.1 million, or 11.6%, to $29.7 million in the three months ended September 30, 2012 compared to $26.6 million in the three months ended September 30, 2011. This increase is primarily due to the following:
an increase of $1.0 million in repairs and maintenance at same-center and redevelopment properties,
an increase of $0.9 million related to properties acquired in 2011 and 2012,
an increase of $0.4 million in bad debt expense at same-center properties, and
an increase of $0.3 million in marketing expenses at our Assembly Row and Pike & Rose projects.
As a result of the changes in rental income, other property income and rental expenses as discussed above, rental expenses as a percentage of rental income plus other property income decreased to 19.0% in the three months ended September 30, 2012 from 19.5% in the three months ended September 30, 2011.
Real Estate Taxes
Real estate tax expense increased $2.3 million, or 15.1% to $17.3 million in the three months ended September 30, 2012 compared to $15.0 million in the three months ended September 30, 2011 due primarily to an increase of $1.1 million from properties acquired in 2011 and 2012, and $0.9 million at same-center properties.
Property Operating Income
Property operating income increased $14.8 million, or 15.4%, to $110.8 million in the three months ended September 30, 2012 compared to $96.0 million in the three months ended September 30, 2011. This increase is primarily due to growth in earnings at same-center properties, properties acquired in 2011 and redevelopment properties.
Other
Interest Expense
Interest expense increased $4.4 million, or 18.6%, to $28.2 million in the three months ended September 30, 2012 compared to $23.8 million in the three months ended September 30, 2011. This increase is due primarily to the following:
an increase of $3.3 million due to mortgage loans secured by Plaza El Segundo and Montrose Crossing both of which were acquired in 2011, and
an increase of $2.2 million due to higher borrowings,
partially offset by
a decrease of $0.7 million due to a lower overall weighted average borrowing rate, and
an increase of $0.3 million in capitalized interest.
Gross interest costs were $30.7 million and $26.0 million in the three months ended September 30, 2012 and 2011, respectively. Capitalized interest was $2.5 million and $2.2 million in the three months ended September 30, 2012 and 2011, respectively.
General and Administrative Expense
General and administrative expense increased $1.6 million, or 21.6%, to $8.8 million in in the three months ended September 30, 2012 from $7.2 million in the three months ended September 30, 2011. This increase is due primarily to personnel costs related to our CFO change.
Depreciation and Amortization
Depreciation and amortization expense increased $2.9 million, or 8.9%, to $34.9 million in the three months ended September 30, 2012 from $32.1 million in the three months ended September 30, 2011. This increase is due primarily to 2011 acquisitions.

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Discontinued Operations— Income
Income from discontinued operations represents the operating income of properties that have been disposed or will be disposed, which is required to be reported separately from results of ongoing operations. For the three months ended September 30, 2011, the amount primarily represents the operating income for the period during which we owned properties sold/disposed of in 2011.
Discontinued Operations— Gain on Sale of Real Estate
The $14.8 million gain on sale of real estate from discontinued operations for the three months ended September 30, 2011 is due to the sale of Feasterville Shopping Center on July 12, 2011.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
 
 
 
 
 
 
Change
 
2012
 
2011
 
Dollars
 
%
 
(Dollar amounts in thousands)
Rental income
$
429,972

 
$
401,452

 
$
28,520

 
7.1
 %
Other property income
17,848

 
6,577

 
11,271

 
171.4
 %
Mortgage interest income
3,834

 
3,564

 
270

 
7.6
 %
Total property revenue
451,654

 
411,593

 
40,061

 
9.7
 %
Rental expenses
82,695

 
81,130

 
1,565

 
1.9
 %
Real estate taxes
49,914

 
46,001

 
3,913

 
8.5
 %
Total property expenses
132,609

 
127,131

 
5,478

 
4.3
 %
Property operating income
319,045

 
284,462

 
34,583

 
12.2
 %
Other interest income
580

 
171

 
409

 
239.2
 %
Income from real estate partnerships
1,229

 
1,201

 
28

 
2.3
 %
Interest expense
(85,744
)
 
(72,744
)
 
(13,000
)
 
17.9
 %
Early extinguishment of debt

 
296

 
(296
)
 
(100.0
)%
General and administrative expense
(22,894
)
 
(19,643
)
 
(3,251
)
 
16.6
 %
Depreciation and amortization
(106,702
)
 
(94,355
)
 
(12,347
)
 
13.1
 %
Total other, net
(213,531
)
 
(185,074
)
 
(28,457
)
 
15.4
 %
Income from continuing operations
105,514

 
99,388

 
6,126

 
6.2
 %
Discontinued operations - income

 
943

 
(943
)
 
(100.0
)%
Discontinued operations - gain on deconsolidation of VIE

 
2,026

 
(2,026
)
 
(100.0
)%
Discontinued operations - gain on sale of real estate

 
14,800

 
(14,800
)
 
(100.0
)%
Gain on sale of real estate in real estate partnership
11,860

 

 
11,860

 
100.0
 %
Net income
117,374

 
117,157

 
217

 
0.2
 %
Net income attributable to noncontrolling interests
(3,141
)
 
(4,161
)
 
1,020

 
(24.5
)%
Net income attributable to the Trust
$
114,233

 
$
112,996

 
$
1,237

 
1.1
 %

Property Revenues
Total property revenue increased $40.1 million, or 9.7%, to $451.7 million in the nine months ended September 30, 2012 compared to $411.6 million in the nine months ended September 30, 2011. The percentage occupied at our shopping centers increased to 94.2% at September 30, 2012 compared to 92.2% at September 30, 2011. 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 $28.5 million, or 7.1%, to $430.0 million in the nine months ended September 30, 2012 compared to $401.5 million in the nine months ended September 30, 2011 due primarily to the following:

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an increase of $21.4 million attributable to properties acquired in 2011 and 2012,
an increase of $3.4 million at same-center properties due primarily to increased occupancy and higher rental rates on new and renewal leases partially offset by lower recovery income as a result of lower recoverable expenses (primarily snow removal costs), and
an increase of $2.8 million at redevelopment properties due primarily to increased occupancy at certain properties, mainly our new residential building at Santana Row and higher rental rates on new leases partially offset by lower income from Mid-Pike Plaza as the property is prepared for the development of Pike & Rose.
Other Property Income
Other property income increased $11.3 million, or 171.4%, to $17.8 million in the nine months ended September 30, 2012 compared to $6.6 million in the nine months ended September 30, 2011. 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 $5.5 million, or 4.3%, to $132.6 million in the nine months ended September 30, 2012 compared to $127.1 million in the nine months ended September 30, 2011. Changes in the components of property expenses are discussed below.
Rental Expenses
Rental expenses increased $1.6 million, or 1.9%, to $82.7 million in the nine months ended September 30, 2012 compared to $81.1 million in the nine months ended September 30, 2011. This increase is primarily due to the following:
an increase of $2.3 million related to properties acquired in 2011 and 2012,
an increase of $0.8 million in other operating costs due primarily to higher demolition and legal costs, and
an increase of $0.8 million in marketing expenses at our Assembly Row and Pike & Rose projects,
partially offset by
a decrease of $2.7 million in repairs and maintenance at same-center and redevelopment properties primarily due to lower snow removal costs.
As a result of the changes in rental income, other property income and rental expenses as discussed above, rental expenses as a percentage of rental income plus other property income decreased to 18.5% in the nine months ended September 30, 2012 from 19.9% in the nine months ended September 30, 2011.
Real Estate Taxes
Real estate tax expense increased $3.9 million, or 8.5% to $49.9 million in the nine months ended September 30, 2012 compared to $46.0 million in the nine months ended September 30, 2011 due primarily to an increase of $3.0 million at properties acquired in 2011 and 2012, $0.4 million at redevelopment properties, and $0.4 million at same-center properties.
Property Operating Income
Property operating income increased $34.6 million, or 12.2%, to $319.0 million in the nine months ended September 30, 2012 compared to $284.5 million in the nine months ended September 30, 2011. This increase is primarily due to properties acquired in 2011 and growth in earnings at same-center and redevelopment properties.
Other
Interest Expense
Interest expense increased $13.0 million, or 17.9%, to $85.7 million in the nine months ended September 30, 2012 compared to $72.7 million in the nine months ended September 30, 2011. This increase is due primarily to the following:
an increase of $9.7 million due to mortgage loans secured by Plaza El Segundo and Montrose Crossing both of which were acquired in 2011,
an increase of $1.9 million due to a higher overall weighted average borrowing rate, and

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an increase of $3.0 million due to higher borrowings,
partially offset by
an increase of $1.7 million in capitalized interest.
Gross interest costs were $93.2 million and $78.6 million in the nine months ended September 30, 2012 and 2011, respectively. Capitalized interest was $7.5 million and $5.8 million in the nine months ended September 30, 2012 and 2011, respectively.
Early Extinguishment of Debt
The $0.3 million of income from early extinguishment of debt in the nine months ended September 30, 2011 is due to the write-off of unamortized debt premium net of a 3.0% prepayment premium and unamortized debt fees related to the payoff of our mortgage loan on Tower Shops prior to its contractual prepayment date.
General and Administrative Expense
General and administrative expense increased $3.3 million, or 16.6%, to $22.9 million in the nine months ended September 30, 2012 from $19.6 million in the nine months ended September 30, 2011. This increase is due primarily to costs related to our CFO change and higher personnel related costs partially offset by lower acquisition costs resulting from costs incurred related to our 2011 acquisitions.
Depreciation and Amortization
Depreciation and amortization expense increased $12.3 million, or 13.1%, to $106.7 million in the nine months ended September 30, 2012 from $94.4 million in the nine months ended September 30, 2011. This increase is due primarily to 2011 acquisitions and capital improvements at same-center and redevelopment properties.
Discontinued Operations— Income
Income from discontinued operations represents the operating income of properties that have been disposed or will be disposed, which is required to be reported separately from results of ongoing operations. The reported operating income of $0.9 million for the nine months ended September 30, 2011 primarily represents the operating income for the period during which we owned properties sold/disposed of in 2011.
Discontinued Operations— Gain on Deconsolidation of VIE
The $2.0 million gain on deconsolidation of VIE for the nine months ended September 30, 2011 is a result of the refinancing of a mortgage note receivable on a shopping center in Norwalk, Connecticut, resulting in us no longer being the primary beneficiary of the VIE.
Discontinued Operations—Gain on Sale of Real Estate
The $14.8 million gain on sale of real estate from discontinued operations for the nine months ended September 30, 2011 relates to the sale of Feasterville Shopping Center on July 12, 2011.
Gain on Sale of Real Estate in Real Estate Partnership
The $11.9 million gain on sale of real estate in real estate partnership in the nine months ended September 30, 2012 is due to the sale of our Newbury Street Partnership's entire portfolio of three buildings on October 31, 2011. Due to the timing of receiving financial information from the general partner, our share of earnings was recorded one quarter in arrears. Therefore, we recognized the gain on sale of $11.9 million in the nine months ended September 30, 2012.
Recently Adopted Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update (“ASU”) 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The pronouncement was issued to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. We adopted the standard effective January 1, 2012 and it did not have a significant impact to our consolidated financial statements.

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In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity and requires the presentation of components of net income and components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB deferred the requirement to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. We adopted the standards effective January 1, 2012 and modified the presentation in our consolidated financial statements accordingly.


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 increased $79.9 million to $147.7 million at September 30, 2012; however, cash and cash equivalents are not the only indicator of our liquidity. We have a $400.0 million unsecured revolving credit facility which matures on July 6, 2015 and had no borrowings outstanding at September 30, 2012. In addition, we have an option (subject to bank approval) to increase the credit facility through an accordion feature to $800.0 million. Our $275.0 million unsecured term loan which matures on November 21, 2018 also has an option (subject to bank approval) to increase the term loan through an accordion feature to $350.0 million. As of September 30, 2012, we had the capacity to issue up to $230.9 million in common shares under our ATM equity program.
On July 16, 2012, we repaid our $175.0 million 6.00% senior notes and have $20.2 million of debt maturing for the remainder of 2012. On July 19, 2012, we issued $250.0 million of fixed rate senior notes that mature on August 1, 2022 and bear interest at 3.00%. The net proceeds from this note offering after issuance discounts, underwriting fees and other costs were approximately $244.8 million. 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 2012 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 incur higher amounts in 2012 compared to those incurred in 2011 related to capital investments for development, redevelopment and existing properties as we progress with our active development pipeline. Additionally, over the next three years, we expect to incur approximately $400 million related to the current phases of development at Assembly Row, Pike & Rose and Santana Row. These amounts 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 proceeds from 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

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Table of Contents

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
 
Nine Months Ended September 30,
 
2012
 
2011
 
(In thousands)
Cash provided by operating activities
$
209,155

 
$
172,951

Cash used in investing activities
(143,435
)
 
(101,313
)
Cash provided by (used in) financing activities
14,154

 
(65,365
)
Increase in cash and cash equivalents
79,874

 
6,273

Cash and cash equivalents, beginning of year
67,806

 
15,797

Cash and cash equivalents, end of period
$
147,680

 
$
22,070


Net cash provided by operating activities increased $36.2 million to $209.2 million during the nine months ended September 30, 2012 from $173.0 million during the nine months ended September 30, 2011. The increase was primarily attributable to the payment in 2011 of the $16.2 million final judgment related to a previously disclosed lawsuit and higher net income before certain non-cash items in 2012.
Net cash used in investing activities increased $42.1 million to $143.4 million during the nine months ended September 30, 2012 from $101.3 million during the nine months ended September 30, 2011. The increase was primarily attributable to:
$36.7 million increase in capital investments in 2012,
$20.7 million in proceeds from the sales of real estate in 2011, primarily due to the sale of Feasterville Shopping Center, and
$8.7 million payment received in June 2011 related to the refinancing of a mortgage loan receivable,
partially offset by
$17.4 million decrease in acquisitions of real estate due to the January 2011 Tower Shops acquisition, and
$6.9 million in contributions to the Newbury Street Partnership in 2011.
Net cash provided by financing activities increased $79.5 million to $14.2 million during the nine months ended September 30, 2012 from $65.4 million used during the nine months ended September 30, 2011. The increase was primarily attributable to:
$244.8 million in net proceeds from the issuance of 3.00% senior notes in July 2012,
$72.6 million decrease in repayment of mortgages, capital leases and notes payable due to the payoff of three mortgages totaling $78.4 million in 2011 compared to one mortgage of $6.9 million in 2012, and
$5.4 million issuance of notes payable in June 2012,
partially offset by
$175.0 million repayment of 6.00% senior notes in July 2012,
$76.8 million decrease in net borrowings on our revolving credit facility,
$58.7 million decrease in net proceeds from the issuance of common shares due primarily to the sale of 1.7 million shares under our ATM equity program in the nine months ended September 30, 2011 compared to 0.9 million in the nine months ended September 30, 2012, and
$7.3 million increase in dividends paid to shareholders due to an increase in the dividend rate and increased number of shares outstanding.

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 September 30, 2012, the Partnership owned seven retail real estate properties. We are the manager of

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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 September 30, 2012, our investment in the Partnership was $33.9 million and the Partnership had approximately $57.2 million of mortgages payable outstanding.
On October 31, 2011, our Newbury Street Partnership sold its entire portfolio of three buildings for $44.0 million.  As part of the sale, we received $34.6 million of the net proceeds which included the repayment of our $11.8 million loans. Due to the timing of receiving financial information from the general partner, our share of earnings was recorded one quarter in arrears. Therefore, we recognized the gain on sale of $11.9 million in the first quarter 2012.

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Table of Contents


Debt Financing Arrangements
The following is a summary of our total debt outstanding as of September 30, 2012:

Description of Debt
Original
Debt
Issued
 
Principal Balance as of September 30, 2012
 
Stated Interest Rate as of September 30, 2012
 
Maturity Date
 
(Dollars in thousands)
 
 
 
 
Mortgages payable (1)
 
 
 
 
 
 
 
Secured fixed rate
 
 
 
 
 
 
 
Bethesda Row
Acquired

 
$
19,992

 
5.37
%
 
January 1, 2013
Bethesda Row
Acquired

 
3,900

 
5.05
%
 
February 1, 2013
White Marsh Plaza (2)
Acquired

 
9,050

 
6.04
%
 
April 1, 2013
Crow Canyon
Acquired

 
19,605

 
5.40
%
 
August 11, 2013
Idylwood Plaza
16,910

 
16,062

 
7.50
%
 
June 5, 2014
Leesburg Plaza
29,423

 
27,947

 
7.50
%
 
June 5, 2014
Loehmann’s Plaza
38,047

 
36,139

 
7.50
%
 
June 5, 2014
Pentagon Row
54,619

 
51,879

 
7.50
%
 
June 5, 2014
Melville Mall (3)
Acquired

 
21,737

 
5.25
%
 
September 1, 2014
THE AVENUE at White Marsh
Acquired

 
55,659

 
5.46
%
 
January 1, 2015
Barracks Road
44,300

 
38,309

 
7.95
%
 
November 1, 2015
Hauppauge
16,700

 
14,441

 
7.95
%
 
November 1, 2015
Lawrence Park
31,400

 
27,153

 
7.95
%
 
November 1, 2015
Wildwood
27,600

 
23,867

 
7.95
%
 
November 1, 2015
Wynnewood
32,000

 
27,672

 
7.95
%
 
November 1, 2015
Brick Plaza
33,000

 
28,219

 
7.42
%
 
November 1, 2015
Plaza El Segundo
Acquired

 
175,000

 
6.33
%
 
August 5, 2017
Rollingwood Apartments
24,050

 
22,980

 
5.54
%
 
May 1, 2019
Shoppers’ World
Acquired

 
5,327

 
5.91
%
 
January 31, 2021
Montrose Crossing
80,000

 
79,099

 
4.20
%
 
January 10, 2022
Mount Vernon (4)
13,250

 
10,253

 
5.66
%
 
April 15, 2028
Chelsea
Acquired

 
7,498

 
5.36
%
 
January 15, 2031
Subtotal
 
 
721,788

 
 
 
 
Net unamortized premium
 
 
8,855

 
 
 
 
Total mortgages payable
 
 
730,643

 
 
 
 
Notes payable
 
 
 
 
 
 
 
Unsecured fixed rate