FEDERAL REALTY INVESTMENT TRUST - Annual Report: 2014 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



ý	ANNUAL REPORT PURSUANT TO THE SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014



¨	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)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class		Name of Each Exchange On Which Registered
Common Shares of Beneficial Interest, $.01 par value per share, with associated Common Share Purchase Rights		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ý Yes ¨ No

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes ý No

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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 aggregate market value of the Registrant's common shares held by non-affiliates of the Registrant, based upon the closing sales price of the Registrant's common shares on June 30, 2014 was $8.2 billion.

The number of Registrant’s common shares outstanding on February 6, 2015 was 68,664,043.

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FEDERAL REALTY INVESTMENT TRUST

ANNUAL REPORT ON FORM 10-K

FISCAL YEAR ENDED DECEMBER 31, 2014

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission for the Registrant’s 2014 annual meeting of shareholders to be held in May 2015 will be incorporated by reference into Part III hereof.

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PART I
Item 1.	Business	3
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	16
Item 3.	Legal Proceedings	24
Item 4.	Mine Safety Disclosures	24

PART II
Item 5.	Market for Our Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	Selected Financial Data	27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	49
Item 8.	Financial Statements and Supplementary Data	50
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	50
Item 9A.	Controls and Procedures	50
Item 9B.	Other Information	52

PART III
Item 10.	Trustees, Executive Officers and Corporate Governance	53
Item 11.	Executive Compensation	53
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	53
Item 13.	Certain Relationships and Related Transactions, and Trustee Independence	53
Item 14.	Principal Accountant Fees and Services	53

PART IV
Item 15.	Exhibits and Financial Statement Schedules	53

SIGNATURES		54

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PART I

ITEM 1. BUSINESS

References to “we,” “us,” “our” or the “Trust” refer to Federal Realty Investment Trust and our business and operations conducted through our directly or indirectly owned subsidiaries.

General

We are an equity real estate investment trust (“REIT”) specializing in the ownership, management, and redevelopment of high quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, as well as in California. As of December 31, 2014, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 89 predominantly retail real estate projects comprising approximately 20.2 million square feet. In total, the real estate projects were 95.6% leased and 94.7% occupied at December 31, 2014. A joint venture in which we own a 30% interest owned six retail real estate projects totaling approximately 0.8 million square feet as of December 31, 2014. In total, the joint venture properties in which we own an interest were 86.1% leased and 82.8% occupied at December 31, 2014. We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 47 consecutive years.

We were founded in 1962 as a REIT under the laws of the District of Columbia and re-formed as a REIT in the state of Maryland in 1999. We operate in a manner intended to qualify as a REIT for tax purposes pursuant to provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Our principal executive offices are located at 1626 East Jefferson Street, Rockville, Maryland 20852. Our telephone number is (301) 998-8100. Our website address is www.federalrealty.com. The information contained on our website is not a part of this report and is not incorporated herein by reference.

Business Objectives and Strategies

Our primary business objective is to own, manage, acquire and redevelop a portfolio of high quality retail focused properties that will:


•	provide increasing cash flow for distribution to shareholders;


•	generate higher internal growth than the shopping center industry;


•	provide potential for capital appreciation; and


•	protect investor capital.

Our portfolio includes, and we continue to acquire and redevelop, high quality retail in many formats ranging from regional, community and neighborhood shopping centers that often are anchored by grocery stores to mixed-use properties that are typically centered around a retail component but also include office, residential and/or hotel components.

Operating Strategies

Our core operating strategy is to actively manage our properties to maximize rents and maintain occupancy levels by attracting and retaining a strong and diverse base of tenants and replacing less relevant, weaker, underperforming tenants with stronger ones. Our properties are generally located in some of the most densely populated and affluent areas of the country. These strong demographics help our tenants generate higher sales, which has enabled us to maintain higher occupancy rates, charge higher rental rates, and maintain steady rent growth, all of which increase the value of our portfolio. Our operating strategies also include:


•	increasing rental rates through the renewal of expiring leases or the leasing of space to new tenants at higher rental rates while limiting vacancy and down-time;


•	maintaining a diversified tenant base, thereby limiting exposure to any one tenant’s financial or operating difficulties;


•	monitoring the merchandising mix of our tenant base to achieve a balance of strong national and regional tenants with local specialty tenants;


•	minimizing overhead and operating costs;


•	monitoring the physical appearance of our properties and the construction quality, condition and design of the buildings and other improvements located on our properties to maximize our ability to attract customers and thereby generate higher rents and occupancy rates;


•	developing local and regional market expertise in order to capitalize on market and retailing trends;

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•	leveraging the contacts and experience of our management team to build and maintain long-term relationships with tenants, investors and financing sources;


•	providing exceptional customer service; and


•	creating an experience at many of our properties that is identifiable, unique and serves the surrounding communities to help insulate these properties and the tenants at these properties from the impact of on-line retailing.

Investing Strategies

Our investment strategy is to deploy capital at risk-adjusted rates of return that exceed our long-term weighted average cost of capital in projects that have potential for future income growth and increased value. Our investments primarily fall into one of the following four categories:


•	renovating, expanding, reconfiguring and/or retenanting our existing properties to take advantage of under-utilized land or existing square footage to increase revenue;


•	renovating or expanding tenant spaces for tenants capable of producing higher sales, and therefore, paying higher rents;


•	acquiring quality retail and mixed-use properties located in densely populated and/or affluent areas where barriers to entry for further development are high, and that have possibilities for enhancing operating performance and creating value through renovation, expansion, reconfiguration and/or retenanting; and


•	developing the retail portions of mixed-use properties and developing or otherwise investing in non-retail portions of mixed-use properties we already own in order to capitalize on the overall value created in these properties.

Investment Criteria

When we evaluate potential redevelopment, retenanting, expansion, acquisition and development opportunities, we consider such factors as:


•	the expected returns in relation to our short and long-term cost of capital as well as the anticipated risk we will face in achieving the expected returns;


•	the anticipated growth rate of operating income generated by the property;


•	the ability to increase the long-term value of the property through redevelopment and retenanting;


•	the tenant mix at the property, tenant sales performance and the creditworthiness of those tenants;


•	the geographic area in which the property is located, including the population density and household incomes, as well as the population and income trends in that geographic area;


•	competitive conditions in the vicinity of the property, including competition for tenants and the ability of others to create competing properties through redevelopment, new construction or renovation;


•	access to and visibility of the property from existing roadways and the potential for new, widened or realigned, roadways within the property’s trade area, which may affect access and commuting and shopping patterns;


•	the level and success of our existing investments in the market area;


•	the current market value of the land, buildings and other improvements and the potential for increasing those market values; and


•	the physical condition of the land, buildings and other improvements, including the structural and environmental condition.

Financing Strategies

Our financing strategies are designed to enable us to maintain an investment grade balance sheet while retaining sufficient flexibility to fund our operating and investing activities in the most cost-efficient way possible. Our financing strategies include:


•	maintaining a prudent level of overall leverage and an appropriate pool of unencumbered properties that is sufficient to support our unsecured borrowings;


•	managing our exposure to variable-rate debt;


•	maintaining an available line of credit to fund operating and investing needs on a short-term basis;


•	taking advantage of market opportunities to refinance existing debt, reduce interest costs and manage our debt maturity schedule so that a significant portion of our debt does not mature in any one year;


•	selling properties that have limited growth potential or are not a strategic fit within our overall portfolio and redeploying the proceeds to redevelop, renovate, retenant and/or expand our existing properties, acquire new properties or reduce debt; and


•	utilizing the most advantageous long-term source of capital available to us to finance redevelopment and acquisition opportunities, which may include:


◦	the sale of our equity or debt securities through public offerings, including our at the market ("ATM") equity program in which we may from time to time offer and sell common shares, or private placements,

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◦	the incurrence of indebtedness through unsecured or secured borrowings,

◦

the issuance of operating partnership units in a new or existing “downREIT partnership” that is controlled and consolidated by us (generally operating partnership units in a “downREIT” partnership are issued in exchange for a tax deferred contribution of property; these units receive the same distributions as our common shares and the holders of these units have the right to exchange their units for cash or the same number of our common shares, at our option), or


◦	the use of joint venture arrangements.

Employees

At February 6, 2015, we had 269 full-time employees and 136 part-time employees. None of our employees are represented by a collective bargaining unit. We believe that our relationship with our employees is good.

Tax Status

We elected to be taxed as a REIT under the federal income tax laws when we filed our 1962 tax return. As a REIT, we are generally not subject to federal income tax on taxable income that we distribute to our shareholders. Under the Code, REITs are subject to numerous organizational and operational requirements, including the requirement to generally distribute at least 90% of taxable income each year. We will be subject to federal income tax on our taxable income (including any applicable alternative minimum tax) at regular corporate rates if we fail to qualify as a REIT for tax purposes in any taxable year, or to the extent we distribute less than 100% of our taxable income. We will also generally not qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Even if we qualify as a REIT for federal income tax purposes, we may be subject to certain state and local income and franchise taxes and to federal income and excise taxes on our undistributed taxable income.

We have elected to treat certain of our subsidiaries as taxable REIT subsidiaries, which we refer to as a TRS. In general, a TRS may engage in any real estate business and certain non-real estate businesses, subject to certain limitations under the Code. A TRS is subject to federal and state income taxes. Our TRS activities have not been material.

Governmental Regulations Affecting Our Properties

We and our properties are subject to a variety of federal, state and local environmental, health, safety and similar laws, including without limitation:


•	the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, which we refer to as CERCLA;


•	the Resource Conservation & Recovery Act;


•	the Federal Clean Water Act;


•	the Federal Clean Air Act;


•	the Toxic Substances Control Act;


•	the Occupational Safety & Health Act; and


•	the Americans with Disabilities Act.

The application of these laws to a specific property that we own depends on a variety of property-specific circumstances, including the current and former uses of the property, the building materials used at the property and the physical layout of the property. Under certain environmental laws, principally CERCLA, we, as the owner or operator of properties currently or previously owned, may be required to investigate and clean up certain hazardous or toxic substances, asbestos-containing materials, or petroleum product releases at the property. We may also be held liable to a governmental entity or third parties for property damage and for investigation and clean up costs incurred in connection with the contamination, whether or not we knew of, or were responsible for, such contamination. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. As the owner or operator of real estate, we also may be liable under common law to third parties for damages and injuries resulting from environmental contamination emanating from the real estate. Such costs or liabilities could exceed the value of the affected real estate. The presence of contamination or the failure to remediate contamination may adversely affect our ability to sell or lease real estate or to borrow using the real estate as collateral.

Neither existing environmental, health, safety and similar laws nor the costs of our compliance with these laws has had a material adverse effect on our financial condition or results of operations, and management does not believe they will in the future. In addition, we have not incurred, and do not expect to incur, any material costs or liabilities due to environmental contamination at properties we currently own or have owned in the past. However, we cannot predict the impact of new or changed laws or regulations on properties we currently own or may acquire in the future. We have no current plans for

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substantial capital expenditures with respect to compliance with environmental, health, safety and similar laws and we carry environmental insurance which covers a number of environmental risks for most of our properties.

Competition

Numerous commercial developers and real estate companies compete with us with respect to the leasing and the acquisition of properties. Some of these competitors may possess greater capital resources than we do, although we do not believe that any single competitor or group of competitors in any of the primary markets where our properties are located are dominant in that market. This competition may:


•	reduce the number of properties available for acquisition;


•	increase the cost of properties available for acquisition;


•	interfere with our ability to attract and retain tenants, leading to increased vacancy rates and/or reduced rents; and


•	adversely affect our ability to minimize expenses of operation.

Retailers at our properties also face increasing competition from online retailers, outlet stores, discount shopping clubs, superstores, and other forms of sales and marketing of goods and services, such as direct mail. This competition could contribute to lease defaults and insolvency of tenants.

Available Information

Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available free of charge through the Investors section of our website at www.federalrealty.com as soon as reasonably practicable after we electronically file the material with, or furnish the material to, the Securities and Exchange Commission, or the SEC.

Our Corporate Governance Guidelines, Code of Business Conduct, Code of Ethics applicable to our Chief Executive Officer and senior financial officers, Whistleblower Policy, organizational documents and the charters of our audit committee, compensation committee and nominating and corporate governance committee are all available in the Corporate Governance section of the Investors section of our website.

Amendments to the Code of Ethics or Code of Business Conduct or waivers that apply to any of our executive officers or our senior financial officers will be disclosed in that section of our website as well.

You may obtain a printed copy of any of the foregoing materials from us by writing to us at Investor Relations, Federal Realty Investment Trust, 1626 East Jefferson Street, Rockville, Maryland 20852.

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ITEM 1A. RISK FACTORS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. Also, documents that we “incorporate by reference” into this Annual Report on Form 10-K, including documents that we subsequently file with the SEC will contain forward-looking statements. When we refer to forward-looking statements or information, sometimes we use words such as “may,” “will,” “could,” “should,” “plans,” “intends,” “expects,” “believes,” “estimates,” “anticipates” and “continues.” In particular, the below risk factors describe forward-looking information. The risk factors describe risks that may affect these statements but are not all-inclusive, particularly with respect to possible future events. Many things can happen that can cause actual results to be different from those we describe. These factors include, but are not limited to the following:

Revenue from our properties may be reduced or limited if the retail operations of our tenants are not successful.

Revenue from our properties depends primarily on the ability of our tenants to pay the full amount of rent and other charges due under their leases on a timely basis. Some of our leases provide for the payment, in addition to base rent, of additional rent above the base amount according to a specified percentage of the gross sales generated by the tenants and generally provide for reimbursement of real estate taxes and expenses of operating the property. Economic conditions may impact the success of our tenants’ retail operations and therefore the amount of rent and expense reimbursements we receive from our tenants. Demand for our retail spaces has been strong and while there can be no assurance that this will continue, we remain optimistic given the trends we have seen over the past few years. However, any reduction in our tenants’ abilities to pay base rent, percentage rent or other charges on a timely basis, including the filing by any of our tenants for bankruptcy protection, will adversely affect our financial condition and results of operations. In the event of default by a tenant, we may experience delays and unexpected costs in enforcing our rights as landlord under lease terms, which may also adversely affect our financial condition and results of operations.

Our net income depends on the success and continued presence of our “anchor” tenants.

Our net income could be adversely affected in the event of a downturn in the business, or the bankruptcy or insolvency, of any anchor store or anchor tenant. Anchor tenants generally occupy large amounts of square footage, pay a significant portion of the total rents at a property and contribute to the success of other tenants by drawing significant numbers of customers to a property. The closing of one or more anchor stores at a property could adversely affect that property and result in lease terminations by, or reductions in rent from, other tenants whose leases may permit termination or rent reduction in those circumstances or whose own operations may suffer as a result. While our anchor tenant space is currently well occupied, we have seen an overall decrease in the number of tenants available to fill anchor spaces. Therefore, tenant demand for certain of our anchor spaces may decrease and as a result, we may see an increase in vacancy and/or a decrease in rents for those spaces that could have a negative impact to our net income.

We may be unable to collect balances due from tenants that file for bankruptcy protection.

If a tenant or lease guarantor files for bankruptcy, we may not be able to collect all pre-petition amounts owed by that party. In addition, a tenant that files for bankruptcy protection may terminate our lease in which event we would have a general unsecured claim that would likely be for less than the full amount owed to us for the remainder of the lease term, which could adversely affect our financial condition and results of operations.

We may experience difficulty or delay in renewing leases or re-leasing space.

We derive most of our revenue directly or indirectly from rent received from our tenants. We are subject to the risks that, upon expiration or termination of leases, whether by their terms, as a result of a tenant bankruptcy, general economic conditions or otherwise, leases for space in our properties may not be renewed, space may not be re-leased, or the terms of renewal or re-lease, including the cost of required renovations or concessions to tenants, may be less favorable than current lease terms and may include decreases in rental rates. As a result, our net income could be reduced.

The amount of debt we have and the restrictions imposed by that debt could adversely affect our business and financial condition.

As of December 31, 2014, we had approximately $2.4 billion of debt outstanding. Of that outstanding debt, approximately $563.7 million was secured by all or a portion of 14 of our real estate projects and approximately $71.6 million represented capital lease obligations on four of our properties. In addition, we own a 30% interest in a joint venture that had $34.4 million of debt secured by two properties as of December 31, 2014. Approximately $2.4 billion (99.6%) of our debt as of December 31, 2014 is fixed rate debt, which includes all of our property secured debt, our capital lease obligations and our $275.0 million term loan as the rate is effectively fixed by two interest rate swap agreements. Our unconsolidated joint venture’s debt of $34.4

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million is also fixed rate debt. Our organizational documents do not limit the level or amount of debt that we may incur. The amount of our debt outstanding from time to time could have important consequences to our shareholders. For example, it could:


•	require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, property acquisitions, redevelopments and other appropriate business opportunities that may arise in the future;


•	limit our ability to make distributions on our outstanding common shares and preferred shares;


•	make it difficult to satisfy our debt service requirements;


•	require us to dedicate increased amounts of our cash flow from operations to payments on debt upon refinancing or on our variable rate, unhedged debt, if interest rates rise;


•	limit our flexibility in planning for, or reacting to, changes in our business and the factors that affect the profitability of our business;


•	limit our ability to obtain any additional debt or equity financing we may need in the future for working capital, debt refinancing, capital expenditures, acquisitions, redevelopments or other general corporate purposes or to obtain such financing on favorable terms; and/or


•	limit our flexibility in conducting our business, which may place us at a disadvantage compared to competitors with less debt or debt with less restrictive terms.

Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness will depend primarily on our future performance, which to a certain extent is subject to economic, financial, competitive and other factors beyond our control. There can be no assurance that our business will continue to generate sufficient cash flow from operations in the future to service our debt or meet our other cash needs. If we are unable to generate this cash flow from our business, we may be required to refinance all or a portion of our existing debt, sell assets or obtain additional financing to meet our debt obligations and other cash needs, including the payment of dividends required to maintain our status as a real estate investment trust. We cannot assure you that any such refinancing, sale of assets or additional financing would be possible on terms that we would find acceptable.

We are obligated to comply with financial and other covenants pursuant to our debt obligations that could restrict our operating activities, and the failure to comply with such covenants could result in defaults that accelerate payment under our debt agreements.

Our revolving credit facility, term loan and certain series of notes include financial covenants that may limit our operating activities in the future. We are also required to comply with additional covenants that include, among other things, provisions:


•	relating to the maintenance of property securing a mortgage;


•	restricting our ability to pledge assets or create liens;


•	restricting our ability to incur additional debt;


•	restricting our ability to amend or modify existing leases at properties securing a mortgage;


•	restricting our ability to enter into transactions with affiliates; and


•	restricting our ability to consolidate, merge or sell all or substantially all of our assets.

As of December 31, 2014, we were in compliance with all of our financial covenants. If we were to breach any of our debt covenants, including the covenants listed above, and did not cure the breach within any applicable cure period, our lenders could require us to repay the debt immediately, and, if the debt is secured, could immediately begin proceedings to take possession of the property securing the loan. Many of our debt arrangements, including our public notes, term loan and our revolving credit facility, are cross-defaulted, which means that the lenders under those debt arrangements can put us in default and require immediate repayment of their debt if we breach and fail to cure a default under certain of our other debt obligations. As a result, any default under our debt covenants could have an adverse effect on our financial condition, our results of operations, our ability to meet our obligations and the market value of our shares.

Our development activities have inherent risks.

The ground-up development of improvements on real property, as opposed to the renovation and redevelopment of existing improvements, presents substantial risks. We generally do not look to acquire raw land for future development; however, we do intend to complete the development and construction of future phases of projects we already own, such as Santana Row in San Jose, California, Assembly Row in Somerville, Massachusetts, and Pike & Rose in North Bethesda, Maryland. We may undertake development of these and other projects on our own or bring in third parties if it is justifiable on a risk-adjusted return basis. We may also choose to delay completion of a project if market conditions do not allow an appropriate return. If conditions arise and we are not able or decide not to complete a project or if the expected cash flows of our project do not exceed the book value, an impairment of the project may be required. If additional phases of any of our existing projects or if any new projects are not successful, it may adversely affect our financial condition and results of operations.

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During 2014, construction on Phase I of both Assembly Row and Pike & Rose continued with portions of both projects opening in 2014 and the remainder of Phase I of both projects expected to be completed in 2015. Additionally, we plan to proceed with the development of Phase II at Pike & Rose with construction expected to commence in the first half of 2015. At Santana Row, we completed and stabilized the new 212 unit residential building and commenced construction in Q4 2014 on a new 225,500 square foot office building. A further discussion of these projects, expected costs, and current status can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the "Outlook" subsection.

In addition to the risks associated with real estate investment in general, as described elsewhere and the specific risks above, the risks associated with our remaining development activities include:


•	contractor changes may delay the completion of development projects and increase overall costs;


•	significant time lag between commencement and stabilization subjects us to greater risks due to fluctuations in the general economy;


•	delivery of residential product (both rental units and for sale condominium units) into uncertain residential environments may result in lower rents or sale prices than underwritten;


•	substantial amount of our investment is related to infrastructure, the value of which may be negatively impacted if we do not complete subsequent phases;


•	failure or inability to obtain construction or permanent financing on favorable terms;


•	failure or inability to obtain public funding from governmental agencies to fund infrastructure projects, including expected public funding in connection with our development at Assembly Row;


•	expenditure of money and time on projects that may never be completed;


•	the third-party developer of office or other buildings may not deliver or may encounter delays in delivering space as planned;


•	difficulty securing key anchor or other tenants may impact occupancy rates and projected revenue;


•	inability to achieve projected rental rates or anticipated pace of lease-up;


•	higher than estimated construction or operating costs, including labor and material costs; and


•	possible delay in completion of a project because of a number of factors, including weather, labor disruptions, construction delays or delays in receipt of zoning or other regulatory approvals, acts of terror or other acts of violence, or acts of God (such as fires, earthquakes or floods).

Redevelopments and acquisitions may fail to perform as expected.

Our investment strategy includes the redevelopment and acquisition of high quality, retail focused properties in densely populated areas with high average household incomes and significant barriers to adding competitive retail supply. The redevelopment and acquisition of properties entail risks that include the following, any of which could adversely affect our results of operations and our ability to meet our obligations:


•	our estimate of the costs to improve, reposition or redevelop a property may prove to be too low, or the time we estimate to complete the improvement, repositioning or redevelopment may be too short. As a result, the property may fail to achieve the returns we have projected, either temporarily or for a longer time;


•	we may not be able to identify suitable properties to acquire or may be unable to complete the acquisition of the properties we identify;


•	we may not be able to integrate an acquisition into our existing operations successfully;


•	properties we redevelop or acquire may fail to achieve the occupancy or rental rates we project, within the time frames we project, at the time we make the decision to invest, which may result in the properties’ failure to achieve the returns we projected;


•	our pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs until after the property is acquired, which could significantly increase our total acquisition costs or decrease cash flow from the property; and


•	our investigation of a property or building prior to our acquisition, and any representations we may receive from the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost.

Our ability to grow will be limited if we cannot obtain additional capital.

Our growth strategy is focused on the redevelopment of properties we already own and the acquisition of additional properties. We believe that it will be difficult to fund our expected growth with cash from operating activities because, in addition to other requirements, we are generally required to distribute to our shareholders at least 90% of our taxable income each year to continue to qualify as a REIT for federal income tax purposes. As a result, we must rely primarily upon the availability of debt or equity capital, which may or may not be available on favorable terms or at all. Debt could include the sale of debt securities and mortgage loans from third parties. If economic conditions and conditions in the capital markets are not favorable at the time we need to raise capital, we may need to obtain capital on less favorable terms. Additionally, we cannot guarantee that

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additional financing, refinancing or other capital will be available in the amounts we desire or on favorable terms. Our access to debt or equity capital depends on a number of factors, including the market’s perception of our growth potential and risk profile, our ability to pay dividends, and our current and potential future earnings. Depending on the outcome of these factors as well as the impact of the economic environment, we could experience delay or difficulty in implementing our growth strategy on satisfactory terms, or be unable to implement this strategy.

Rising interest rates could adversely affect our cash flow and the market price of our outstanding debt and preferred shares.

Of our approximately $2.4 billion of debt outstanding as of December 31, 2014, approximately $284.4 million bears interest at variable rates of which $275.0 million is effectively fixed through two interest rate swap agreements. We have a $600.0 million revolving credit facility, on which no balance is outstanding at December 31, 2014, that bears interest at LIBOR plus 90 basis points. We may borrow additional funds at variable interest rates in the future. Increases in interest rates would increase the interest expense on our variable rate debt and reduce our cash flow, which could adversely affect our ability to service our debt and meet our other obligations and also could reduce the amount we are able to distribute to our shareholders. The interest rate on our $275.0 million term loan is currently fixed at 2.62% as a result of two interest rate swap agreements. We may enter into this type of hedging arrangements or other transactions for all or a portion of our variable rate debt to limit our exposure to rising interest rates. However, the amounts we are required to pay under the term loan and any other variable rate debt to which hedging or similar arrangements relate may increase in the event of non-performance by the counterparties to any of our hedging arrangements. In addition, an increase in market interest rates may lead purchasers of our debt securities and preferred shares to demand a higher annual yield, which could adversely affect the market price of our outstanding debt securities and preferred shares and the cost and/or timing of refinancing or issuing additional debt securities or preferred shares.

The market value of our debt and equity securities is subject to various factors that may cause significant fluctuations or volatility.

As with other publicly traded securities, the market price of our debt and equity securities depends on various factors, which may change from time to time and/or may be unrelated to our financial condition, operating performance or prospects that may cause significant fluctuations or volatility in such prices. These factors include, among others:


•	general economic and financial market conditions;


•	level and trend of interest rates;


•	our ability to access the capital markets to raise additional capital;


•	the issuance of additional equity or debt securities;


•	changes in our funds from operations (“FFO”) or earnings estimates;


•	changes in our debt or analyst ratings;


•	our financial condition and performance;


•	market perception of our business compared to other REITs; and


•	market perception of REITs, in general, compared to other investment alternatives.

Loss of our key management could adversely affect performance and the value of our common shares.

We are dependent on the efforts of our key management. Although we believe qualified replacements could be found for any departures of key executives, the loss of their services could adversely affect our performance and the value of our common shares.

Our performance and value are subject to general risks associated with the real estate industry.

Our economic performance and the value of our real estate assets, and, consequently, the value of our investments, are subject to the risk that if our properties do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected. As a real estate company, we are susceptible to the following real estate industry risks:


•	economic downturns in general, or in the areas where our properties are located;


•	adverse changes in local real estate market conditions, such as an oversupply or reduction in demand;


•	changes in tenant preferences that reduce the attractiveness of our properties to tenants;


•	zoning or regulatory restrictions;


•	decreases in market rental rates;


•	weather conditions that may increase or decrease energy costs and other weather-related expenses;


•	costs associated with the need to periodically repair, renovate and re-lease space; and


•	increases in the cost of adequate maintenance, insurance and other operating costs, including real estate taxes, associated with one or more properties, which may occur even when circumstances such as market factors and

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competition cause a reduction in revenues from one or more properties, although real estate taxes typically do not increase upon a reduction in such revenues.

Each of these risks could result in decreases in market rental rates and increases in vacancy rates, which could adversely affect our financial condition and results of operation.

Many real estate costs are fixed, even if income from our properties decreases.

Our financial results depend primarily on leasing space in our properties to tenants on terms favorable to us. Costs associated with real estate investment, such as real estate taxes, insurance and maintenance costs, generally are not reduced even when a property is not fully occupied, rental rates decrease, or other circumstances cause a reduction in income from the property. As a result, cash flow from the operations of our properties may be reduced if a tenant does not pay its rent or we are unable to rent our properties on favorable terms. Under those circumstances, we might not be able to enforce our rights as landlord without delays and may incur substantial legal costs. Additionally, new properties that we may acquire or redevelop may not produce any significant revenue immediately, and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with such new properties until they are fully occupied.

Competition may limit our ability to purchase new properties and generate sufficient income from tenants.

Numerous commercial developers and real estate companies compete with us in seeking tenants for our existing properties and properties for acquisition. This competition may:


•	reduce properties available for acquisition;


•	increase the cost of properties available for acquisition;


•	reduce rents payable to us;


•	interfere with our ability to attract and retain tenants;


•	lead to increased vacancy rates at our properties; and


•	adversely affect our ability to minimize expenses of operation.

Retailers at our properties also face increasing competition from online retailers, outlet stores, discount shopping clubs and other forms of sales and marketing of goods, such as direct mail. This competition could contribute to lease defaults and insolvency of tenants. If we are unable to continue to attract appropriate retail tenants to our properties, or to purchase new properties in our geographic markets, it could materially affect our ability to generate net income, service our debt and make distributions to our shareholders.

We may be unable to sell properties when appropriate because real estate investments are illiquid.

Real estate investments generally cannot be sold quickly. In addition, there are some limitations under federal income tax laws applicable to real estate and to REITs in particular that may limit our ability to sell our assets. We may not be able to alter our portfolio promptly in response to changes in economic or other conditions including being unable to sell a property at a return we believe is appropriate due to the economic environment. Our inability to respond quickly to adverse changes in the performance of our investments could have an adverse effect on our ability to meet our obligations and make distributions to our shareholders.

Our insurance coverage on our properties may be inadequate.

We currently carry comprehensive insurance on all of our properties, including insurance for liability, fire, flood, earthquake, environmental matters, rental loss and acts of terrorism. All of these policies contain coverage limitations. We believe these coverages are of the types and amounts customarily obtained for or by an owner of similar types of real property assets located in the areas where our properties are located. We intend to obtain similar insurance coverage on subsequently acquired properties.

The availability of insurance coverage may decrease and the prices for insurance may increase as a consequence of significant losses incurred by the insurance industry and other factors outside our control. As a result, we may be unable to renew or duplicate our current insurance coverage in adequate amounts or at reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and toxic mold, or, if offered, the expense of obtaining these types of insurance may not be justified. We therefore may cease to have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance available. If an uninsured loss or a loss in excess of our insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property, but still remain obligated for any mortgage debt or other financial obligations related to the property. We cannot guarantee that material losses in excess of insurance proceeds will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result

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in large expenses to repair or rebuild the property. Also, due to inflation, changes in codes and ordinances, environmental considerations and other factors, it may not be feasible to use insurance proceeds to replace a building after it has been damaged or destroyed. Further, we may be unable to collect insurance proceeds if our insurers are unable to pay or contest a claim. Events such as these could adversely affect our results of operations and our ability to meet our obligations, including distributions to our shareholders.

We may have limited flexibility in dealing with our jointly owned investments.

Our organizational documents do not limit the amount of funds that we may invest in properties and assets owned jointly with other persons or entities. As of December 31, 2014, we held seven predominantly retail real estate projects jointly with other persons in addition to our joint venture with affiliates of a discretionary fund created and advised by ING Clarion Partners (“Clarion”) and properties owned in a “downREIT” structure. Additionally, in fourth quarter 2014, we entered into a joint venture agreement related to the hotel component of Phase II of our Pike & Rose development project. We may make additional joint investments in the future. Our existing and future joint investments may subject us to special risks, including the possibility that our partners or co-investors might become bankrupt, that those partners or co-investors might have economic or other business interests or goals which are unlike or incompatible with our business interests or goals, that those partners or co-investors might be in a position to take action contrary to our suggestions or instructions, or in opposition to our policies or objectives, and that disputes may develop with our joint venture partners over decisions affecting the property or the joint venture, which may result in litigation or arbitration or some other form of dispute resolution. Although as of December 31, 2014, we held the managing general partnership or membership interest in all of our existing co-investments (except the hotel investment discussed above) we generally must obtain the consent of the co-investor or meet defined criteria to sell or to finance these properties. Joint ownership gives a third party the opportunity to influence the return we can achieve on some of our investments and may adversely affect our ability to make distributions to our shareholders. We may also be liable for the actions of our co-investors.

On July 1, 2004, we entered into a joint venture with Clarion for purposes of acquiring properties. Although we are the managing general partner of that entity, we have only a 30% ownership interest in that entity. Our partner’s consent is required to take certain actions with respect to the properties acquired by the venture and, as a result, we may not be able to take actions that we believe are necessary or desirable to protect or increase the value of the property or the property’s income stream. Pursuant to the terms of our partnership, we must obtain our partner’s consent to do the following:


•	enter into new anchor tenant leases, modify existing anchor tenant leases or enforce remedies against anchor tenants;


•	make certain repairs, renovations or other changes or improvements to properties; and


•	sell or finance the property with secured debt.

Our joint venture with Clarion is subject to a buy-sell provision which is customary for real estate joint venture agreements and the industry. Either partner may initiate these provisions at any time, which could result in either the sale of our interest or the use of available cash or borrowings to acquire Clarion’s interest. Our investment in this joint venture is also subject to the risks described above for jointly owned investments. As of December 31, 2014, this joint venture owned six properties.

Environmental laws and regulations could reduce the value or profitability of our properties.

All real property and the operations conducted on real property are subject to federal, state and local laws, ordinances and regulations relating to hazardous materials, environmental protection and human health and safety. Under various federal, state and local laws, ordinances and regulations, we and our tenants may be required to investigate and clean up certain hazardous or toxic substances released on or in properties we own or operate, and also may be required to pay other costs relating to hazardous or toxic substances. This liability may be imposed without regard to whether we or our tenants knew about the release of these types of substances or were responsible for their release. The presence of contamination or the failure to properly remediate contamination at any of our properties may adversely affect our ability to sell or lease those properties or to borrow funds by using those properties as collateral. The costs or liabilities could exceed the value of the affected real estate. We are not aware of any environmental condition with respect to any of our properties that management believes would have a material adverse effect on our business, assets or results of operations taken as a whole. The uses of any of our properties prior to our acquisition of the property and the building materials used at the property are among the property-specific factors that will affect how the environmental laws are applied to our properties. If we are subject to any material environmental liabilities, the liabilities could adversely affect our results of operations and our ability to meet our obligations.

We cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist on the properties in the future. Compliance with existing and new laws and regulations may require us or our tenants to spend funds to remedy environmental problems. Our tenants, like many of their competitors, have incurred, and will continue to incur, capital and

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operating expenditures and other costs associated with complying with these laws and regulations, which will adversely affect their potential profitability.

Generally, our tenants must comply with environmental laws and meet remediation requirements. Our leases typically impose obligations on our tenants to indemnify us from any compliance costs we may incur as a result of the environmental conditions on the property caused by the tenant. If a lease does not require compliance or if a tenant fails to or cannot comply, we could be forced to pay these costs. If not addressed, environmental conditions could impair our ability to sell or re-lease the affected properties in the future or result in lower sales prices or rent payments.

The Americans with Disabilities Act of 1990 could require us to take remedial steps with respect to existing or newly acquired properties.

Our existing properties, as well as properties we may acquire, as commercial facilities, are required to comply with Title III of the Americans with Disabilities Act of 1990. Investigation of a property may reveal non-compliance with this Act. The requirements of this Act, or of other federal, state or local laws or regulations, also may change in the future and restrict further renovations of our properties with respect to access for disabled persons. Future compliance with this Act may require expensive changes to the properties.

The revenues generated by our tenants could be negatively affected by various federal, state and local laws to which they are subject.

We and our tenants are subject to a wide range of federal, state and local laws and regulations, such as local licensing requirements, consumer protection laws and state and local fire, life-safety and similar requirements that affect the use of the properties. The leases typically require that each tenant comply with all laws and regulations. Failure to comply could result in fines by governmental authorities, awards of damages to private litigants, or restrictions on the ability to conduct business on such properties. Non-compliance of this sort could reduce our revenues from a tenant, could require us to pay penalties or fines relating to any non-compliance, and could adversely affect our ability to sell or lease a property.

Failure to qualify as a REIT for federal income tax purposes would cause us to be taxed as a corporation, which would substantially reduce funds available for payment of distributions.

We believe that we are organized and qualified as a REIT for federal income tax purposes and currently intend to operate in a manner that will allow us to continue to qualify as a REIT under the Code. However, we cannot assure you that we will remain qualified as such in the future.

Qualification as a REIT involves the application of highly technical and complex Code provisions and applicable income tax regulations that have been issued under the Code. Certain facts and circumstances not entirely within our control may affect our ability to qualify as a REIT. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying rents and certain other income. Satisfying this requirement could be difficult, for example, if defaults by tenants were to reduce the amount of income from qualifying rents. As a REIT, we must generally make annual distributions to shareholders of at least 90% of our taxable income. In addition, new legislation, new regulations, new administrative interpretations or new court decisions may significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. Any modification in the tax treatment of REITs could have a significant adverse impact to our net income.

If we fail to qualify as a REIT:


•	we would not be allowed a deduction for distributions to shareholders in computing taxable income;


•	we would be subject to federal income tax at regular corporate rates;


•	we could be subject to the federal alternative minimum tax;


•	unless we are entitled to relief under specific statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified;


•	we could be required to pay significant income taxes, which would substantially reduce the funds available for investment or for distribution to our shareholders for each year in which we failed or were not permitted to qualify; and


•	we would no longer be required by law to make any distributions to our shareholders.

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We may be required to incur additional debt to qualify as a REIT.

As a REIT, we must generally make annual distributions to shareholders of at least 90% of our taxable income. We are subject to income tax on amounts of undistributed taxable income and net capital gain. In addition, we would be subject to a 4% excise tax if we fail to distribute sufficient income to meet a minimum distribution test based on our ordinary income, capital gain and aggregate undistributed income from prior years. We intend to make distributions to shareholders to comply with the Code’s distribution provisions and to avoid federal income and excise tax. We may need to borrow funds to meet our distribution requirements because:


•	our income may not be matched by our related expenses at the time the income is considered received for purposes of determining taxable income; and


•	non-deductible capital expenditures, creation of reserves, or debt service requirements may reduce available cash but not taxable income.

In these circumstances, we might have to borrow funds on terms we might otherwise find unfavorable and we may have to borrow funds even if our management believes the market conditions make borrowing financially unattractive. Current tax law also allows us to pay a portion of our distributions in shares instead of cash.

To maintain our status as a REIT, we limit the amount of shares any one shareholder can own.

The Code imposes certain limitations on the ownership of the stock of a REIT. For example, not more than 50% in value of our outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code) during the last half of any taxable year. To protect our REIT status, our declaration of trust prohibits any one shareholder from owning (actually or constructively) more than 9.8% in value of the outstanding common shares or of any class or series of outstanding preferred shares. The constructive ownership rules are complex. Shares of our capital stock owned, actually or constructively, by a group of related individuals and/or entities may be treated as constructively owned by one of those individuals or entities. As a result, the acquisition of less than 9.8% in value of the outstanding common shares and/or a class or series of preferred shares (or the acquisition of an interest in an entity that owns common shares or preferred shares) by an individual or entity could cause that individual or entity (or another) to own constructively more than 9.8% in value of the outstanding capital stock. If that happened, either the transfer of ownership would be void or the shares would be transferred to a charitable trust and then sold to someone who can own those shares without violating the 9.8% ownership limit.

The Board of Trustees may waive these restrictions on a case-by-case basis. In addition, the Board of Trustees and two-thirds of our shareholders eligible to vote at a shareholder meeting may remove these restrictions if they determine it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. The 9.8% ownership restrictions may delay, defer or prevent a transaction or a change of our control that might involve a premium price for the common shares or otherwise be in the shareholders’ best interest.

We cannot assure you we will continue to pay dividends at historical rates.

Our ability to continue to pay dividends on our common shares at historical rates or to increase our common share dividend rate, and our ability to pay preferred share dividends and service our debt securities, will depend on a number of factors, including, among others, the following:


•	our financial condition and results of future operations;


•	the performance of lease terms by tenants;


•	the terms of our loan covenants; and


•	our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates.

If we do not maintain or increase the dividend on our common shares, it could have an adverse effect on the market price of our common shares and other securities. Any preferred shares we may offer in the future may have a fixed dividend rate that would not increase with any increases in the dividend rate of our common shares. Conversely, payment of dividends on our common shares may be subject to payment in full of the dividends on any preferred shares and payment of interest on any debt securities we may offer.

Certain tax and anti-takeover provisions of our declaration of trust and bylaws may inhibit a change of our control.

Certain provisions contained in our declaration of trust and bylaws and the Maryland General Corporation Law, as applicable to Maryland REITs, may discourage a third party from making a tender offer or acquisition proposal to us. If this were to happen, it could delay, deter or prevent a change in control or the removal of existing management. These provisions also may delay or prevent the shareholders from receiving a premium for their common shares over then-prevailing market prices. These provisions include:


•	the REIT ownership limit described above;

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•	authorization of the issuance of our preferred shares with powers, preferences or rights to be determined by the Board of Trustees;


•	special meetings of our shareholders may be called only by the chairman of the board, the chief executive officer, the president, by one-third of the trustees or by shareholders possessing no less than 25% of all the votes entitled to be cast at the meeting;


•	the Board of Trustees, without a shareholder vote, can classify or reclassify unissued shares of beneficial interest, including the reclassification of common shares into preferred shares and vice-versa;


•	a two-thirds shareholder vote is required to approve some amendments to the declaration of trust; and


•	advance-notice requirements for proposals to be presented at shareholder meetings.

In addition, if we elect to be governed by it in the future, the Maryland Control Share Acquisition Law could delay or prevent a change in control. Under Maryland law, unless a REIT elects not to be subject to this law, “control shares” acquired in a “control share acquisition” have no voting rights except to the extent approved by shareholders by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquirer and by officers or trustees who are employees of the REIT. “Control shares” are voting shares that would entitle the acquirer to exercise voting power in electing trustees within specified ranges of voting power. A “control share acquisition” means the acquisition of control shares, with some exceptions.

Our bylaws state that the Maryland control share acquisition law will not apply to any acquisition by any person of our common shares. This bylaw provision may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares, by a vote of a majority of the shareholders entitled to vote, and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition.

We may amend or revise our business policies without your approval.

Our Board of Trustees may amend or revise our operating policies without shareholder approval. Our investment, financing and borrowing policies and policies with respect to all other activities, such as growth, debt, capitalization and operations, are determined by the Board of Trustees. The Board of Trustees may amend or revise these policies at any time and from time to time at its discretion. A change in these policies could adversely affect our financial condition and results of operations, and the market price of our securities.

The current business plan adopted by our Board of Trustees focuses on our investment in high quality retail based properties that are typically neighborhood and community shopping centers or mixed-use properties, principally through redevelopments and acquisitions. If this business plan is not successful, it could have a material adverse effect on our financial condition and results of operations.

Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements that we make, including those in this Annual Report on Form 10-K. Except as may be required by law, we make no promise to update any of the forward-looking statements as a result of new information, future events or otherwise. You should carefully review the above risks and the risk factors.

Natural disasters and severe weather conditions could have an adverse impact on our cash flow and operating results.

Changing weather patterns and climatic conditions, such as global warming, may have added to the unpredictability and frequency of natural disasters and severe weather conditions and created additional uncertainty as to future trends and exposures. Our operations are located in areas that are subject to natural disasters and severe weather conditions such as hurricanes, earthquakes, droughts, snow storms, floods and fires. The occurrence of natural disasters or severe weather conditions can delay new development projects, increase investment costs to repair or replace damaged properties, increase operation costs, increase future property insurance costs, and negatively impact the tenant demand for lease space. If insurance is unavailable to us or is unavailable on acceptable terms, or if our insurance is not adequate to cover business interruption or losses from these events, our earnings, liquidity or capital resources could be adversely affected.

We face risks relating to cybersecurity attacks that could cause loss of confidential information and other business disruptions.

We rely extensively on computer systems to process transactions and manage our business, and our business is at risk from and may be impacted by cybersecurity attacks. These could include attempts to gain unauthorized access to our data and computer systems. Attacks can be both individual and/or highly organized attempts organized by very sophisticated hacking organizations. We employ a number of measures to prevent, detect and mitigate these threats, which include password encryption, frequent password change events, firewall detection systems, anti-virus software in-place, frequent backups, a redundant data system for core applications and annual penetration testing; however, there is no guarantee such efforts will be

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successful in preventing a cyber attack. A cybersecurity attack could compromise the confidential information of our employees, tenants and vendors. A successful attack could disrupt and otherwise adversely affect our business operations.

Changes in accounting standards may adversely impact our financial results.

The Financial Accounting Standards Board ("FASB"), in conjunction with the SEC, has several key projects on their agenda that could impact how we currently account for our material transactions, including lease accounting and other convergence projects with the International Accounting Standards Board. At this time, we are unable to predict with certainty which, if any, proposals may be passed or what level of impact any such proposal could have on the presentation of our consolidated financial statements, our results of operations and our financial ratios required by our debt covenants.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

General

As of December 31, 2014, we owned or had a majority ownership interest in community and neighborhood shopping centers and mixed-used properties which are operated as 89 predominantly retail real estate projects comprising approximately 20.2 million square feet. These properties are located primarily in densely populated and affluent communities in strategic metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, as well as California. No single property accounted for over 10% of our 2014 total revenue. We believe that our properties are adequately covered by commercial general liability, fire, flood, earthquake, terrorism and business interruption insurance provided by reputable companies, with commercially reasonable exclusions, deductibles and limits.

Tenant Diversification

As of December 31, 2014, we had approximately 2,700 leases, with tenants ranging from sole proprietors to major national and international retailers. No one tenant or affiliated group of tenants accounted for more than 3.1% of our annualized base rent as of December 31, 2014. As a result of our tenant diversification, we believe our exposure to any one bankruptcy filing in the retail sector has not been and will not be significant, however, multiple filings by a number of retailers could have a significant impact.

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Geographic Diversification

Our 89 real estate projects are located in 13 states and the District of Columbia. The following table shows the number of projects, the gross leasable area (“GLA”) of commercial space and the percentage of total portfolio gross leasable area of commercial space in each state as of December 31, 2014.



State	Number of Projects	Gross Leasable Area	Percentage of Gross Leasable Area
	(In square feet)
Maryland	18	3,851,000	19.0	%
Virginia	15	3,595,000	17.8	%
California	13	3,411,000	16.9	%
Pennsylvania(1)	10	2,295,000	11.3	%
Massachusetts	7	1,708,000	8.4	%
New Jersey	6	1,688,000	8.3	%
New York	5	1,137,000	5.6	%
Illinois	4	751,000	3.7	%
Florida	3	698,000	3.4	%
Connecticut(1)	3	398,000	2.0	%
Michigan	1	217,000	1.1	%
Texas	1	172,000	0.9	%
District of Columbia	2	168,000	0.8	%
North Carolina	1	153,000	0.8	%
Total	89	20,242,000	100.0	%


(1)	Additionally, we own two participating mortgages totaling approximately $29.5 million secured by multiple buildings in Manayunk, Pennsylvania, and an $11.7 million mortgage secured by a shopping center in Norwalk, Connecticut.

Leases, Lease Terms and Lease Expirations

Our leases are classified as operating leases and typically are structured to require the monthly payment of minimum rents in advance, subject to periodic increases during the term of the lease, percentage rents based on the level of sales achieved by tenants, and reimbursement of a majority of on-site operating expenses and real estate taxes. These features in our leases generally reduce our exposure to higher costs and allow us to participate in improved tenant sales.

Commercial property leases generally range from three to ten years; however, certain leases, primarily with anchor tenants, may be longer. Many of our leases contain tenant options that enable the tenant to extend the term of the lease at expiration at pre-established rental rates that often include fixed rent increases, consumer price index adjustments or other market rate adjustments from the prior base rent. Leases on residential units are generally for a period of one year or less and, in 2014, represented approximately 5.6% of total rental income.

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The following table sets forth the schedule of lease expirations for our commercial leases in place as of December 31, 2014 for each of the 10 years beginning with 2015 and after 2024 in the aggregate assuming that none of the tenants exercise future renewal options. Annualized base rents reflect in-place contractual rents as of December 31, 2014.



Year of Lease Expiration	Leased Square Footage Expiring	Percentage of Leased Square Footage Expiring		Annualized Base Rent Represented by Expiring Leases		Percentage of Annualized Base Rent Represented by Expiring Leases
2015	1,203,000	6	%	$	30,857,000	6	%
2016	1,907,000	10	%	51,812,000		11	%
2017	2,602,000	14	%	66,746,000		14	%
2018	2,425,000	13	%	59,936,000		12	%
2019	2,619,000	14	%	63,209,000		13	%
2020	1,471,000	8	%	37,669,000		8	%
2021	1,230,000	6	%	34,128,000		7	%
2022	1,257,000	6	%	31,054,000		6	%
2023	909,000	5	%	27,175,000		5	%
2024	1,002,000	5	%	28,994,000		6	%
Thereafter	2,547,000	13	%	59,022,000		12	%
Total	19,172,000	100	%	$	490,602,000	100	%

Lease Rollovers

For 2014, we signed leases for a total of 1,765,000 square feet of retail space including 1,545,000 square feet of comparable space leases (leases for which there was a prior tenant) at an average rental increase of 16% on a cash basis and 29% on a straight-line basis. New leases for comparable spaces were signed for 704,000 square feet at an average rental increase of 25% on a cash basis and 38% on a straight-line basis. Renewals for comparable spaces were signed for 840,000 square feet at an average rental increase of 11% on a cash basis and 23% on a straight-line basis. Tenant improvements and incentives for comparable spaces were $44.46 per square foot for new leases and $1.27 per square foot for renewals in 2014.

For 2013, we signed leases for a total of 1,629,000 square feet of retail space including 1,370,000 square feet of comparable space leases (leases for which there was a prior tenant) at an average rental increase of 20% on a cash basis and 33% on a straight-line basis. New leases for comparable spaces were signed for 586,000 square feet at an average rental increase of 35% on a cash basis and 51% on a straight-line basis. Renewals for comparable spaces were signed for 784,000 square feet at an average rental increase of 10% on a cash basis and 21% on a straight-line basis. Tenant improvements and incentives for comparable spaces were $45.83 per square foot for new leases and $1.70 for renewal leases in 2013.

The rental increases associated with comparable spaces generally include all leases signed in arms-length transactions reflecting market leverage between landlords and tenants during the period. The comparison between average rent for expiring leases and new leases is determined by including minimum rent and percentage rent paid on the expiring lease and minimum rent and in some instances, projections of first lease year percentage rent, to be paid on the new lease. In atypical circumstances, management may exercise judgment as to how to most effectively reflect the comparability of spaces reported in this calculation. The change in rental income on comparable space leases is impacted by numerous factors including current market rates, location, individual tenant creditworthiness, use of space, market conditions when the expiring lease was signed, capital investment made in the space and the specific lease structure.

The leases signed in 2014 generally become effective over the following two years though some may not become effective until 2017 and beyond. Further, there is risk that some new tenants will not ultimately take possession of their space and that tenants for both new and renewal leases may not pay all of their contractual rent due to operating, financing or other matters. However, these increases do provide information about the tenant/landlord relationship and the potential increase we may achieve in rental income over time.

Historically, we have executed comparable space leases for 1.2 to 1.5 million square feet of retail space each year and expect that volume for 2015 will be in line with our historical averages with overall positive increases in rental income. However, changes in rental income associated with individual signed leases on comparable spaces may be positive or negative, and we can provide no assurance that the rents on new leases will continue to increase at the above disclosed levels, if at all.

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Retail and Residential Properties

The following table sets forth information concerning all real estate projects in which we owned an equity interest, had a leasehold interest, or otherwise controlled and are consolidated as of December 31, 2014. Except as otherwise noted, we are the sole owner of our retail real estate projects. Principal tenants are the largest tenants in the project based on square feet leased or are tenants important to a project’s success due to their ability to attract retail customers.



Property, City, State, Zip Code	Year Completed	Year Acquired	Square Feet(1) /Apartment Units	Average Rent Per Square Foot(2)	Percentage Leased(3)	Principal Tenant(s)
California
150 Post Street San Francisco, CA 94108	1908, 1965	1997	104,000	$44.73	98%	H & M
Colorado Blvd Pasadena, CA 91103(4)	1905-1988	1996/1998	69,000	$39.48	100%	Pottery Barn Banana Republic
Crow Canyon Commons San Ramon, CA 94583	1980, 1998, 2006	2005/2007	241,000	$22.12	98%	Sprouts Rite Aid Sports Authority
East Bay Bridge Emeryville & Oakland, CA 94608	1994-2001, 2011, 2012	2012	438,000	$15.71	100%	Home Depot Michaels Pak-N-Save Target
Escondido Promenade Escondido, CA 92029(5)	1987	1996/2010	298,000	$23.58	98%	TJ Maxx Toys R Us Dick's Sporting Goods Ross Dress For Less
Hermosa Avenue Hermosa Beach, CA 90254	1922	1997	24,000	$36.92	100%
Hollywood Blvd Hollywood, CA 90028(6)	1929, 1991	1999	187,000	$30.53	99%	Marshalls La La Land DSW L.A. Fitness Fresh & Easy
Kings Court Los Gatos, CA 95032(4)(7)	1960	1998	80,000	$31.11	100%	Lunardi’s Supermarket CVS
Old Town Center Los Gatos, CA 95030	1962, 1998	1997	95,000	$37.26	98%	Gap Banana Republic Anthropologie
Plaza El Segundo El Segundo, CA 90245(5)(10)	2006-2007	2011	380,000	$37.88	99%	H&M Anthropologie Best Buy HomeGoods Whole Foods Dick's Sporting Goods Container Store
Santana Row San Jose, CA 95128	2002, 2009	1997	649,000	$49.44	98%	H&M Crate & Barrel Container Store Best Buy CineArts Theatre Hotel Valencia
Santana Row Residential San Jose, CA 95128	2003-2006, 2011, 2014	1997, 2012	662 units	N/A	97%
Third Street Promenade Santa Monica, CA 90401	1888-2000	1996-2000	209,000	$69.57	100%	Abercrombie & Fitch J. Crew Old Navy Banana Republic
Westgate Center San Jose, CA 95129	1960-1966	2004	637,000	$16.11	98%	Nike Factory Target Walmart Neighborhood Market Burlington Coat Factory Ross Dress For Less Michaels Nordstrom Rack J. Crew Gap Factory Store
Connecticut
Bristol Plaza Bristol, CT 06010	1959	1995	267,000	$12.89	91%	Stop & Shop TJ Maxx
Darien Darien, CT 06820	1920-2009	2013	95,000	$28.04	95%	Stop & Shop Equinox

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Property, City, State, Zip Code	Year Completed	Year Acquired	Square Feet(1) /Apartment Units	Average Rent Per Square Foot(2)	Percentage Leased(3)	Principal Tenant(s)
Greenwich Avenue Greenwich Avenue, CT 06830	1968	1995	36,000	$61.00	100%	Saks Fifth Avenue

District of Columbia
Friendship Center Washington, DC 20015	1998	2001	119,000	$28.12	100%	Marshalls DSW Maggiano’s Nordstrom Rack
Sam’s Park & Shop Washington, DC 20008	1930	1995	49,000	$40.60	79%	Petco
Florida
Courtyard Shops Wellington, FL 33414	1990, 1998	2008	130,000	$20.62	99%	Publix
Del Mar Village Boca Raton, FL 33433	1982, 1994 & 2007	2008/2014	194,000	$15.53	75%	Winn Dixie CVS
Tower Shops Davie, FL 33324	1989	2011/2014	374,000	$18.83	99%	Ulta Best Buy DSW Old Navy Ross Dress For Less TJ Maxx
Illinois
Crossroads Highland Park, IL 60035	1959	1993	168,000	$21.39	93%	Golfsmith Guitar Center L.A. Fitness
Finley Square Downers Grove, IL 60515	1974	1995	314,000	$11.58	91%	Bed, Bath & Beyond Petsmart Buy Buy Baby
Garden Market Western Springs, IL 60558	1958	1994	140,000	$12.68	95%	Mariano's Fresh Market Walgreens
North Lake Commons Lake Zurich, IL 60047	1989	1994	129,000	$12.18	89%	Jewel Osco
Maryland
Bethesda Row Bethesda, MD 20814(4)	1945-1991 2001, 2008	1993-2006 2008/2010	533,000	$48.08	97%	Apple Computer Barnes & Noble Equinox Giant Food Landmark Theater
Bethesda Row Residential Bethesda, MD 20814	2008	1993	180 units	N/A	96%
Congressional Plaza Rockville, MD 20852(5)	1965	1965	328,000	$35.73	100%	Buy Buy Baby Last Call Studio by Neiman Marcus Container Store The Fresh Market
Congressional Plaza Residential Rockville, MD 20852(5)	2003	1965	146 units	N/A	93%
Courthouse Center Rockville, MD 20852	1975	1997	35,000	$23.53	67%
Federal Plaza Rockville, MD 20852	1970	1989	248,000	$33.78	100%	Micro Center Ross Dress For Less TJ Maxx Trader Joe’s
Free State Shopping Center Bowie, MD 20715(9)	1970	2007	279,000	$16.54	87%	Giant Food TJ Maxx Ross Dress For Less Office Depot
Gaithersburg Square Gaithersburg, MD 20878	1966	1993	207,000	$26.55	91%	Bed, Bath & Beyond Ross Dress For Less Ashley Furniture HomeStore
Governor Plaza Glen Burnie, MD 21961	1963	1985	242,000	$18.39	97%	Aldi Dick’s Sporting Goods

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Property, City, State, Zip Code	Year Completed	Year Acquired	Square Feet(1) /Apartment Units	Average Rent Per Square Foot(2)	Percentage Leased(3)	Principal Tenant(s)
Laurel Laurel, MD 20707	1956	1986	389,000	$22.11	80%	L.A. Fitness Giant Food Marshalls
Montrose Crossing Rockville, MD 20852 (5)(10)	1960-1979, 1996, 2011	2011/2013	363,000	$24.55	99%	A.C. Moore Giant Food Sports Authority Barnes & Noble Marshalls
Perring Plaza Baltimore, MD 21134	1963	1985	395,000	$14.23	96%	Micro Center Burlington Coat Factory Home Depot Shoppers Food Warehouse Jo-Ann Stores
Pike & Rose North Bethesda, MD 20852 (12)	1963, 2014	1982/2007/2012	92,000	$44.96	100%	iPic Theater Gap/Gap Kids
Pike & Rose Residential North Bethesda, MD 20852 (12)	2014	1982/2007	174 units	N/A	85%
Plaza Del Mercado Silver Spring, MD 20906(9)	1969	2004	96,000	$35.56	62%	CVS
Quince Orchard Gaithersburg, MD 20877(4)	1975	1993	265,000	$21.86	92%	HomeGoods L.A. Fitness Staples
Rockville Town Square Rockville, MD 20852 (8)	2006-2007	2006-2007	187,000	$29.82	88%	CVS Gold’s Gym
Rollingwood Apartments Silver Spring, MD 20910 9 three-story buildings(10)	1960	1971	282 units	N/A	94%
THE AVENUE at White Marsh Baltimore, MD 21236(7)(10)	1997	2007	298,000	$24.07	100%	AMC Loews Old Navy Barnes & Noble A.C. Moore
The Shoppes at Nottingham Square Baltimore, MD 21236	2005-2006	2007	32,000	$46.75	100%
White Marsh Other Baltimore, MD 21236	1985	2007	73,000	$29.62	100%
White Marsh Plaza Baltimore, MD 21236	1987	2007	80,000	$21.70	100%	Giant Food
Wildwood Bethesda, MD 20814(10)	1958	1969	84,000	$90.51	87%	CVS Balducci’s
Massachusetts
Assembly Row/ Assembly Square Marketplace Somerville, MA 02145 (12)	2005, 2014	2005-2011, 2013	657,000	$22.49	99%	AMC Theatres LEGOLAND Discovery Center Saks Fifth Avenue Off 5th Nike Factory J. Crew Legal on the Mystic Bed, Bath & Beyond TJ Maxx
Atlantic Plaza North Reading, MA 01864(9)	1960	2004	123,000	$17.10	88%	Stop & Shop
Campus Plaza Bridgewater, MA 02324(9)	1970	2004	116,000	$14.70	100%	Roche Brothers Burlington Coat Factory
Chelsea Commons Chelsea, MA 02150(10)	1962-1969, 2008	2006-2008	222,000	$11.41	100%	Sav-A-Lot Home Depot Planet Fitness
Chelsea Commons Residential Chelsea, MA 02150	2013	2008	56 units	N/A	93%
Dedham Plaza Dedham, MA 02026	1959	1993	241,000	$15.92	97%	Star Market
Linden Square Wellesley, MA 02481	1960, 2008	2006	223,000	$45.64	96%	Roche Brothers Supermarket CVS
North Dartmouth North Dartmouth, MA 02747	2004	2006	48,000	$15.71	100%	Stop & Shop
Queen Anne Plaza Norwell, MA 02061	1967	1994	149,000	$16.44	99%	HomeGoods TJ Maxx Hannaford

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Property, City, State, Zip Code	Year Completed	Year Acquired	Square Feet(1) /Apartment Units	Average Rent Per Square Foot(2)	Percentage Leased(3)	Principal Tenant(s)
Saugus Plaza Saugus, MA 01906	1976	1996	168,000	$11.66	100%	Kmart Super Stop & Shop
Michigan
Gratiot Plaza Roseville, MI 48066	1964	1973	217,000	$11.59	99%	Bed, Bath & Beyond Best Buy Kroger DSW
North Carolina
Eastgate Chapel Hill, NC 27514	1963	1986	153,000	$24.15	97%	Stein Mart Trader Joe’s

New Jersey
Brick Plaza Brick Township, NJ 08723(4)(10)	1958	1989	422,000	$17.12	89%	A&P Supermarket Barnes & Noble AMC Loews Sports Authority
Brook 35 Sea Girt, NJ 08750(5)(7)(10)	1986, 2004	2014	98,000	$33.31	94%	Ann Taylor Banana Republic Coach Williams-Sonoma
Ellisburg Cherry Hill, NJ 08034	1959	1992	268,000	$15.35	97%	Whole Foods Buy Buy Baby Stein Mart
Mercer Mall Lawrenceville, NJ 08648(4)(8)	1975	2003	501,000	$24.25	98%	Raymour & Flanigan Bed, Bath & Beyond DSW TJ Maxx Shop Rite
The Grove at Shrewsbury Shrewsbury, NJ 07702(5)(7)(10)	1988, 1993 & 2007	2014	192,000	$41.94	98%	Lululemon Brooks Brothers Anthropologie Pottery Barn J. Crew Banana Republic Williams-Sonoma
Troy Parsippany-Troy, NJ 07054	1966	1980	207,000	$21.17	99%	Pathmark L.A. Fitness
New York
Fresh Meadows Queens, NY 11365	1949	1997	404,000	$29.56	100%	Island of Gold Modell's AMC Loews Kohl’s Michaels
Greenlawn Plaza Greenlawn, NY 11743(9)(10)	1975, 2004	2006	106,000	$17.38	95%	Waldbaum’s Tuesday Morning
Hauppauge Hauppauge, NY 11788(10)	1963	1998	134,000	$27.77	99%	Shop Rite A.C. Moore
Huntington Huntington, NY 11746	1962	1988/2007	279,000	$25.66	100%	Nordstrom Rack Bed, Bath & Beyond Buy Buy Baby Michaels
Huntington Square East Northport, NY 11731(4)	1980, 2007	2010	74,000	$26.67	93%	Barnes & Noble
Melville Mall Huntington, NY 11747(4)	1974	2006	246,000	$22.49	63%	Dick's Sporting Goods Marshalls Waldbaum's
Pennsylvania
Andorra Philadelphia, PA 19128	1953	1988	265,000	$15.64	96%	Acme Markets Kohl’s Staples L.A. Fitness
Bala Cynwyd Bala Cynwyd, PA 19004	1955	1993	295,000	$23.18	96%	Acme Markets Lord & Taylor Michaels L.A. Fitness

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Property, City, State, Zip Code	Year Completed	Year Acquired	Square Feet(1) /Apartment Units	Average Rent Per Square Foot(2)	Percentage Leased(3)	Principal Tenant(s)
Flourtown Flourtown, PA 19031	1957	1980	160,000	$20.67	97%	Giant Food
Lancaster Lancaster, PA 17601(8)	1958	1980	127,000	$17.03	97%	Giant Food Michaels
Langhorne Square Levittown, PA 19056	1966	1985	219,000	$15.93	99%	Marshalls Redner’s Warehouse Market
Lawrence Park Broomall, PA 19008(10)	1972	1980	355,000	$18.65	97%	Acme Markets TJ Maxx HomeGoods Kaplan Career Institute
Northeast Philadelphia, PA 19114	1959	1983	288,000	$12.56	89%	Burlington Coat Factory Home Gallery Marshalls
Town Center of New Britain New Britain, PA 18901	1969	2006	123,000	$9.60	85%	Giant Food Rite Aid
Willow Grove Willow Grove, PA 19090	1953	1984	212,000	$19.42	99%	Home Goods Marshalls Barnes & Noble
Wynnewood Wynnewood, PA 19096(10)	1948	1996	251,000	$26.88	98%	DSW Bed, Bath & Beyond Giant Food Old Navy
Texas
Houston Street San Antonio, TX 78205	1890-1935	1998	172,000	$24.49	93%	Hotel Valencia Walgreens
Virginia
29^th Place Charlottesville, VA 22091(10)	1975-2001	2007	169,000	$17.31	98%	HomeGoods DSW Stein Mart Staples
Barcroft Plaza Falls Church, VA 22041(9)(10)	1963, 1972 & 1990	2006-2007	100,000	$24.14	79%	Harris Teeter Bank of America
Barracks Road Charlottesville, VA 22905(10)	1958	1985	497,000	$24.01	97%	Anthropologie Bed, Bath & Beyond Harris Teeter Kroger Barnes & Noble Old Navy Michaels Ulta
Falls Plaza/Falls Plaza—East Falls Church, VA 22046	1960-1962	1967/1972	144,000	$33.13	100%	Giant Food CVS Staples
Graham Park Plaza Fairfax, VA 22042	1971	1983	261,000	$27.39	92%	Stein Mart Giant Food L.A. Fitness
Idylwood Plaza Falls Church, VA 22030	1991	1994	73,000	$45.04	100%	Whole Foods
Leesburg Plaza Leesburg, VA 20176	1967	1998	236,000	$22.86	93%	Giant Food Pier 1 Imports Office Depot Petsmart
Mount Vernon/South Valley/ 7770 Richmond Hwy Alexandria, VA 22306(4)(7)	1966, 1972,1987 & 2001	2003/2006	569,000	$17.23	97%	Shoppers Food Warehouse Bed, Bath & Beyond Michaels Home Depot TJ Maxx Gold’s Gym Staples
Old Keene Mill Springfield, VA 22152	1968	1976	92,000	$36.35	84%	Whole Foods Walgreens
Pan Am Fairfax, VA 22031	1979	1993	227,000	$21.95	100%	Michaels Micro Center Safeway
Pentagon Row Arlington, VA 22202	2001-2002	1998/2010	299,000	$36.93	97%	Harris Teeter Bed, Bath & Beyond L.A. Fitness DSW

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Property, City, State, Zip Code	Year Completed	Year Acquired	Square Feet(1) /Apartment Units	Average Rent Per Square Foot(2)	Percentage Leased(3)	Principal Tenant(s)
Pike 7 Plaza Vienna, VA 22180	1968	1997	164,000	$42.52	100%	DSW Staples TJ Maxx
Tower Shopping Center Springfield, VA 22150	1960	1998	109,000	$25.04	92%	Talbots L.A. Mart
Tyson’s Station Falls Church, VA 22043	1954	1978	49,000	$42.27	95%	Trader Joe's
Village at Shirlington Arlington, VA 22206(8)	1940, 2006-2009	1995	261,000	$34.66	95%	AMC Loews Carlyle Grand Café Harris Teeter
Willow Lawn Richmond, VA 23230	1957	1983	445,000	$17.53	92%	Kroger Old Navy Ross Dress For Less Staples
Total All Regions—Retail(11)			20,242,000	$25.59	96%
Total All Regions—Residential			1,500 units		94%

_____________________


(1)	Represents the GLA of the commercial portion of the property. Some of our properties include office space which is included in this square footage but is not material in total.


(2)	Average base rent is calculated as the aggregate, annualized in-place contractual (defined as cash basis including adjustments for concessions) minimum rent for all occupied spaces divided by the aggregate GLA of all occupied spaces.


(3)	Retail percentage leased is expressed as a percentage of rentable commercial square feet occupied or subject to a lease. Residential percentage leased is expressed as a percentage of units occupied or subject to a lease.


(4)	All or a portion of this property is owned pursuant to a ground lease.


(5)	We own the controlling interest in this center.


(6)	We own a 90% general and limited partnership interest in these buildings.


(7)	We own all or a portion of this property in a “downREIT” partnership, of which a wholly owned subsidiary of the Trust is the sole general partner, with third party partners holding operating partnership units.


(8)	All or a portion of this property is subject to a capital lease obligation.


(9)	Properties acquired through a joint venture arrangement with affiliates of a discretionary fund created and advised by ING Clarion Partners.


(10)	All or a portion of this property is encumbered by a mortgage loan.


(11)	Aggregate information is calculated on a GLA weighted-average basis, excluding properties owned through a joint venture arrangement with affiliates of a discretionary fund created and advised by ING Clarion Partners.


(12)	Portion of property is currently under development. See further discussion in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common shares trade on the New York Stock Exchange under the symbol “FRT.” Listed below are the high and low closing prices of our common shares as reported on the New York Stock Exchange and the dividends declared for each of the periods indicated.



	Price Per Share				Dividends Declared Per Share
	High		Low		Dividends Declared Per Share
2014
Fourth quarter	$	137.18	$	118.28	$	0.870
Third quarter	$	125.80	$	117.12	$	0.870
Second quarter	$	123.11	$	112.07	$	0.780
First quarter	$	114.72	$	100.90	$	0.780
2013
Fourth quarter	$	108.15	$	100.30	$	0.780
Third quarter	$	107.44	$	96.99	$	0.780
Second quarter	$	117.96	$	96.21	$	0.730
First quarter	$	109.30	$	104.50	$	0.730

On February 6, 2015, there were 2,971 holders of record of our common shares.

Our ongoing operations generally will not be subject to federal income taxes as long as we maintain our REIT status and distribute to shareholders at least 100% of our taxable income. Under the Code, REITs are subject to numerous organizational and operational requirements, including the requirement to generally distribute at least 90% of taxable income.

Future distributions will be at the discretion of our Board of Trustees and will depend on our actual net income available for common shareholders, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Trustees deems relevant. We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our regular annual dividend rate for 47 consecutive years.

Our total annual dividends paid per common share for 2014 and 2013 were $3.21 per share and $2.97 per share, respectively. The annual dividend amounts are different from dividends as calculated for federal income tax purposes. Distributions to the extent of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to a shareholder as ordinary dividend income. Distributions in excess of current and accumulated earnings and profits will be treated as a nontaxable reduction of the shareholder’s basis in such shareholder’s shares, to the extent thereof, and thereafter as taxable capital gain. Distributions that are treated as a reduction of the shareholder’s basis in its shares will have the effect of increasing the amount of gain, or reducing the amount of loss, recognized upon the sale of the shareholder’s shares. No assurances can be given regarding what portion, if any, of distributions in 2015 or subsequent years will constitute a return of capital for federal income tax purposes. During a year in which a REIT earns a net long-term capital gain, the REIT can elect under Section 857(b)(3) of the Code to designate a portion of dividends paid to shareholders as capital gain dividends. If this election is made, then the capital gain dividends are generally taxable to the shareholder as long-term capital gains.

The following table reflects the income tax status of distributions per share paid to common shareholders:



	Year Ended December 31,
	2014		2013
Ordinary dividend	$	3.178	$	2.911
Capital gain	0.032		0.059
	$	3.210	$	2.970

Distributions on our 5.417% Series 1 Cumulative Convertible Preferred Shares were paid at the rate of $1.354 per share per annum commencing on the issuance date of March 8, 2007. We do not believe that the preferential rights available to the holders of our preferred shares or the financial covenants contained in our debt agreements had or will have an adverse effect

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on our ability to pay dividends in the normal course of business to our common shareholders or to distribute amounts necessary to maintain our qualification as a REIT.

Total Stockholder Return Performance

The following performance graph compares the cumulative total shareholder return on Federal Realty's common shares with the S&P 500 Index and the index of equity real estate investment trusts prepared by the National Association of Real Estate Investment Trusts ("NAREIT") for the five fiscal years commencing December 31, 2009, and ending December 31, 2014, assuming an investment of $100 and the reinvestment of all dividends into additional common shares during the holding period. Equity real estate investment trusts are defined as those that derive more than 75% of their income from equity investments in real estate assets. The FTSE NAREIT Equity REIT Total Return Index includes all tax qualified real estate investment trusts listed on the NYSE, NYSE Amex (formerly known as the American Stock Exchange), or the NASDAQ National Market. Stock performance for the past five years is not necessarily indicative of future results.

Recent Sales of Unregistered Shares

Under the terms of various operating partnership agreements of certain of our affiliated limited partnerships, the interest of limited partners in those limited partnerships may be redeemed, subject to certain conditions, for cash or an equivalent number of our common shares, at our option. During the three months ended December 31, 2014, there were no redemptions of operating partnership units. All other equity securities sold by us during 2014 that were not registered have been previously reported in a Quarterly Report on Form 10-Q.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

During the fourth quarter of 2014, no equity securities were purchased by us.

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ITEM 6. SELECTED FINANCIAL DATA

The following table includes certain financial information on a consolidated historical basis. You should read this section in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data.” Our selected operating data, other data and balance sheet data for the years ended December 31, 2010 through 2013 have been reclassified to conform to the 2014 presentation.



	Year Ended December 31,
	2014				2013				2012				2011				2010
	(In thousands, except per share data and ratios)
Operating Data:
Rental income	$	666,322			$	620,089			$	580,114			$	536,749			$	520,677
Property operating income(1)	$	474,167			$	446,959			$	426,721			$	381,335			$	371,198
Income from continuing operations	$	167,888			$	137,811			$	142,972			$	130,319			$	124,778
Gain on sale of real estate	$	4,401			$	28,855			$	11,860			$	15,075			$	1,410
Net income	$	172,289			$	167,608			$	156,232			$	149,612			$	128,237
Net income attributable to the Trust	$	164,535			$	162,681			$	151,925			$	143,917			$	122,790
Net income available for common shareholders	$	163,994			$	162,140			$	151,384			$	143,376			$	122,249
Net cash provided by operating activities	$	346,130			$	314,498			$	296,633			$	244,711			$	256,735
Net cash used in investing activities	$	(396,150	)		$	(345,198	)		$	(273,558	)		$	(196,369	)		$	(187,088	)
Net cash provided by (used in) financing activities	$	9,044			$	82,639			$	(53,893	)		$	3,667			$	(189,239	)
Dividends declared on common shares	$	224,190			$	198,965			$	182,813			$	171,335			$	163,382
Weighted average number of common shares outstanding:
Basic	67,322				65,331				63,881				62,438				61,182
Diluted	67,492				65,483				64,056				62,603				61,324
Earnings per common share, basic:
Continuing operations	$	2.35			$	2.01			$	2.15			$	1.98			$	1.93
Discontinued operations	—				0.38				0.02				0.31				0.05
Gain on sale of real estate	0.07				0.08				0.19				—				0.01
Total	$	2.42			$	2.47			$	2.36			$	2.29			$	1.99
Earnings per common share, diluted:
Continuing operations	$	2.34			$	2.00			$	2.14			$	1.97			$	1.93
Discontinued operations	—				0.38				0.02				0.31				0.04
Gain on sale of real estate	0.07				0.08				0.19				—				0.01
Total	$	2.41			$	2.46			$	2.35			$	2.28			$	1.98
Dividends declared per common share	$	3.30			$	3.02			$	2.84			$	2.72			$	2.66
Other Data:
Funds from operations available to common shareholders(2)	$	327,597			$	289,938			$	277,237			$	251,576			$	239,210
EBITDA(3)	$	447,495			$	446,555			$	410,918			$	374,131			$	352,481
Adjusted EBITDA(3)	$	443,094			$	417,700			$	399,058			$	357,030			$	351,071
Ratio of EBITDA to combined fixed charges and preferred share dividends(3)(4)	3.5			x	3.3			x	3.3			x	3.5			x	3.1			x
Ratio of Adjusted EBITDA to combined fixed charges and preferred share dividends(3)(4)	3.5			x	3.1			x	3.2			x	3.3			x	3.1			x

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	As of December 31,
	2014		2013		2012		2011		2010
	(In thousands)
Balance Sheet Data:
Real estate, at cost	$	5,608,998	$	5,149,463	$	4,779,674	$	4,426,444	$	3,895,942
Total assets	$	4,546,870	$	4,219,294	$	3,898,565	$	3,666,210	$	3,159,553
Mortgages payable and capital lease obligations	$	635,345	$	660,127	$	832,482	$	810,616	$	589,441
Notes payable	$	290,519	$	300,822	$	299,575	$	295,159	$	97,881
Senior notes and debentures	$	1,483,813	$	1,360,913	$	1,076,545	$	1,004,635	$	1,079,827
Preferred shares	$	9,997	$	9,997	$	9,997	$	9,997	$	9,997
Shareholders’ equity	$	1,692,556	$	1,471,297	$	1,310,593	$	1,240,604	$	1,115,768
Number of common shares outstanding	68,606		66,701		64,815		63,544		61,526

(1)

Property operating income is a non-GAAP measure that consists of rental income, other property income and mortgage interest income, less rental expenses and real estate taxes. This measure is used internally to evaluate the performance of property operations and we consider it to be a significant measure. Property operating income should not be considered an alternative measure of operating results or cash flow from operations as determined in accordance with GAAP.

The reconciliation of operating income to property operating income is as follows:



	2014		2013		2012		2011		2010
	(In thousands)
Operating income	$	271,037	$	254,161	$	253,862	$	226,462	$	228,145
General and administrative	32,316		31,970		31,158		28,985		24,189
Litigation provision	—		—		—		—		330
Depreciation and amortization	170,814		160,828		141,701		125,888		118,534
Property operating income	$	474,167	$	446,959	$	426,721	$	381,335	$	371,198

(2)

Funds from operations ("FFO") is a supplemental non-GAAP financial measure of real estate companies’ operating performances. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as follows: net income, computed in accordance with U.S. GAAP, plus real estate related depreciation and amortization and excluding extraordinary items and gains on the sale of real estate. We compute FFO in accordance with the NAREIT definition, and we have historically reported our FFO available for common shareholders in addition to our net income.

We consider FFO available for common shareholders a meaningful, additional measure of operating performance primarily because it excludes the assumption that the value of the real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation. We use FFO primarily as one of several means of assessing our operating performance in comparison with other REITs. Comparison of our presentation of FFO to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs. Additional information regarding our calculation of FFO is contained in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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The reconciliation of net income to FFO available for common shareholders is as follows:



	2014			2013			2012			2011			2010
	(In thousands)
Net income	$	172,289		$	167,608		$	156,232		$	149,612		$	128,237
Net income attributable to noncontrolling interests	(7,754		)	(4,927		)	(4,307		)	(5,695		)	(5,447		)
Gain on sale of real estate	(4,401		)	(28,855		)	(11,860		)	(15,075		)	(1,410		)
Gain on deconsolidation of VIE	—			—			—			(2,026		)	—
Depreciation and amortization of real estate assets	152,505			144,873			125,611			113,188			107,187
Amortization of initial direct costs of leases	12,391			10,694			10,935			10,432			9,552
Depreciation of joint venture real estate assets	1,555			1,504			1,513			1,771			1,499
Funds from operations	326,585			290,897			278,124			252,207			239,618
Dividends on preferred shares	(541		)	(541		)	(541		)	(541		)	(541		)
Income attributable to operating partnership units	3,027			888			943			981			980
Income attributable to unvested shares	(1,474		)	(1,306		)	(1,289		)	(1,071		)	(847		)
Funds from operations available for common shareholders	$	327,597		$	289,938		$	277,237		$	251,576		$	239,210

(3) The SEC has stated that EBITDA is a non-GAAP measure as calculated in the table below. Adjusted EBITDA is a non-GAAP measure that means net income or loss plus net interest expense, income taxes, depreciation and amortization, gain or loss on sale of real estate and impairments of real estate if any. Adjusted EBITDA is presented because it approximates a key performance measure in our debt covenants, but it should not be considered an alternative measure of operating results or cash flow from operations as determined in accordance with GAAP. Adjusted EBITDA as presented may not be comparable to other similarly titled measures used by other REITs.

The reconciliation of net income to EBITDA and adjusted EBITDA for the periods presented is as follows:



	2014			2013			2012			2011			2010
	(In thousands)
Net income	$	172,289		$	167,608		$	156,232		$	149,612		$	128,237
Depreciation and amortization	170,814			161,099			142,039			126,568			119,817
Interest expense	93,941			104,977			113,336			98,465			101,882
Early extinguishment of debt	10,545			13,304			—			(296		)	2,801
Other interest income	(94		)	(433		)	(689		)	(218		)	(256		)
EBITDA	447,495			446,555			410,918			374,131			352,481
Gain on sale of real estate	(4,401		)	(28,855		)	(11,860		)	(15,075		)	(1,410		)
Gain on deconsolidation of VIE	—			—			—			(2,026		)	—
Adjusted EBITDA	$	443,094		$	417,700		$	399,058		$	357,030		$	351,071

(4) Fixed charges consist of interest on borrowed funds (including capitalized interest), amortization of debt discount/ premiums and debt costs, costs related to the early extinguishment of debt, and the portion of rent expense representing an interest factor. Excluding the $10.5 million and $13.3 million of early extinguishment of debt charge from fixed charges in 2014 and 2013, respectively, the ratio of EBITDA and adjusted EBITDA to combined fixed charges and preferred share dividends is 3.9x and 3.8x, respectively, for 2014 and 3.7x and 3.4x, respectively, for 2013.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements in this section or elsewhere in this report may be deemed “forward-looking statements”. See “Item 1A. Risk Factors” in this report for important information regarding these forward-looking statements and certain risk and uncertainties that may affect us. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in “Item 8. Financial Statements and Supplementary Data” of this report.

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Overview

We are an equity real estate investment trust (“REIT”) specializing in the ownership, management, and redevelopment of high quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, as well as in California. As of December 31, 2014, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 89 predominantly retail real estate projects comprising approximately 20.2 million square feet. In total, the real estate projects were 95.6% leased and 94.7% occupied at December 31, 2014. A joint venture in which we own a 30% interest owned six retail real estate projects totaling approximately 0.8 million square feet as of December 31, 2014. In total, the joint venture properties in which we own a 30% interest were 86.1% leased and 82.8% occupied at December 31, 2014. We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 47 consecutive years.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, referred to as “GAAP”, requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past and current events and economic conditions. In addition, information relied upon by management in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third party experts. Actual results could differ from these estimates. A discussion of possible risks which may affect these estimates is included in “Item 1A. Risk Factors” of this report. Management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition.

Our significant accounting policies are more fully described in Note 2 to the consolidated financial statements; however, the most critical accounting policies, which involve the use of estimates and assumptions as to future uncertainties and, therefore, may result in actual amounts that differ from estimates, are as follows:

Revenue Recognition and Accounts Receivable

Our leases with tenants are classified as operating leases. Substantially all such leases contain fixed escalations which occur at specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease, net of valuation adjustments, based on management’s assessment of credit, collection and other business risk. Percentage rents, which represent additional rents based upon the level of sales achieved by certain tenants, are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved and the percentage rents are collectible. Real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred. For a tenant to terminate its lease agreement prior to the end of the agreed term, we may require that they pay a fee to cancel the lease agreement. Lease fees for which the tenant has relinquished control of the space are generally recognized on the termination date. When a lease is terminated early but the tenant continues to control the space under a modified lease agreement, the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement.

Current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real estate tax and other cost reimbursements. Accounts receivable from straight-line rent is typically longer term in nature and relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under the contractual lease agreement.

We make estimates of the collectability of our current accounts receivable and straight-line rents receivable which requires significant judgment by management. The collectability of receivables is affected by numerous factors including current economic conditions, bankruptcies, and the ability of the tenant to perform under the terms of their lease agreement. While we make estimates of potentially uncollectible amounts and provide an allowance for them through bad debt expense, actual collectability could differ from those estimates which could affect our net income. With respect to the allowance for current uncollectible tenant receivables, we assess the collectability of outstanding receivables by evaluating such factors as nature and age of the receivable, past history and current financial condition of the specific tenant including our assessment of the tenant’s ability to meet its contractual lease obligations, and the status of any pending disputes or lease negotiations with the tenant. At December 31, 2014 and 2013, our allowance for doubtful accounts was $12.4 million and $12.7 million, respectively. Historically, we have recognized bad debt expense between 0.4% and 1.3% of rental income and it was 0.3% in 2014 reflecting positive economic changes and their impact to our tenants. A change in the estimate of collectability of a receivable would result in a change to our allowance for doubtful accounts and correspondingly bad debt expense and net income. For example,

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in the event our estimates were not accurate and we were required to increase our allowance by 1% of rental income, our bad debt expense would have increased and our net income would have decreased by $6.7 million.

Due to the nature of the accounts receivable from straight-line rents, the collection period of these amounts typically extends beyond one year. Our experience relative to unbilled straight-line rents is that a portion of the amounts otherwise recognizable as revenue is never billed to or collected from tenants due to early lease terminations, lease modifications, bankruptcies and other factors. Accordingly, the extended collection period for straight-line rents along with our evaluation of tenant credit risk may result in the nonrecognition of a portion of straight-line rental income until the collection of such income is reasonably assured. If our evaluation of tenant credit risk changes indicating more straight-line revenue is reasonably collectible than previously estimated and realized, the additional straight-line rental income is recognized as revenue. If our evaluation of tenant credit risk changes indicating a portion of realized straight-line rental income is no longer collectible, a reserve and bad debt expense is recorded. At December 31, 2014 and 2013, accounts receivable includes approximately $66.1 million and $60.6 million, respectively, related to straight-line rents. Correspondingly, these estimates of collectability have a direct impact on our net income.

Real Estate

The nature of our business as an owner, redeveloper and operator of retail shopping centers and mixed-use properties means that we invest significant amounts of capital. Depreciation and maintenance costs relating to our properties constitute substantial costs for us as well as the industry as a whole. We capitalize real estate investments and depreciate them on a straight-line basis in accordance with GAAP and consistent with industry standards based on our best estimates of the assets’ physical and economic useful lives. We periodically review the estimated lives of our assets and implement changes, as necessary, to these estimates and, therefore, to our depreciation rates. These reviews may take into account such factors as the historical retirement and replacement of our assets, expected redevelopments, and general economic and real estate factors. Certain events, such as unforeseen competition or changes in customer shopping habits, could substantially alter our assumptions regarding our ability to realize the expected return on investment in the property and therefore reduce the economic life of the asset and affect the amount of depreciation expense to be charged against both the current and future revenues. These assessments have a direct impact on our net income. The longer the economic useful life, the lower the depreciation expense will be for that asset in a fiscal period, which in turn will increase our net income. Similarly, having a shorter economic useful life would increase the depreciation for a fiscal period and decrease our net income.

Land, buildings and real estate under development are recorded at cost. We compute depreciation using the straight-line method with useful lives ranging generally from 35 years to a maximum of 50 years on buildings and major improvements. Maintenance and repair costs are charged to operations as incurred. Tenant work and other major improvements, which improve or extend the life of the asset, are capitalized and depreciated over the life of the lease or the estimated useful life of the improvements, whichever is shorter. Minor improvements, furniture and equipment are capitalized and depreciated over useful lives ranging from 2 to 20 years.

Capitalized costs associated with leases are depreciated or amortized over the base term of the lease. Unamortized leasing costs are charged to expense if the applicable tenant vacates before the expiration of its lease. Undepreciated tenant work is written-off if the applicable tenant vacates and the tenant work is replaced or has no future value. Additionally, we make estimates as to the probability of certain development and redevelopment projects being completed. If we determine the redevelopment is no longer probable of completion, we immediately expense all capitalized costs which are not recoverable.

Interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet placed in service. Capitalization of interest commences when development activities and expenditures begin and end upon completion, which is when the asset is ready for its intended use. Generally, rental property is considered substantially complete and ready for its intended use upon completion of tenant improvements, but no later than one year from completion of major construction activity. We make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income. If the time period for capitalizing interest is extended, more interest is capitalized, thereby decreasing interest expense and increasing net income during that period.

Certain external and internal costs directly related to the development, redevelopment and leasing of real estate, including pre-construction costs, real estate taxes, insurance, construction costs and salaries and related costs of personnel directly involved, are capitalized. We capitalized external and internal costs related to both development and redevelopment activities of $277 million and $7 million, respectively, for 2014 and $275 million and $6 million, respectively, for 2013. We capitalized external and internal costs related to other property improvements of $45 million and $2 million, respectively, for 2014 and $48 million and $1 million, respectively, for 2013. We capitalized external and internal costs related to leasing activities of $29 million and $7 million, respectively, for 2014 and $9 million and $6 million, respectively, for 2013. The amount of capitalized internal costs

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for salaries and related benefits for development and redevelopment activities, other property improvements, and leasing activities were $7 million, $1 million, and $6 million, respectively, for 2014 and $6 million, $1 million, and $5 million, respectively, for 2013. Total capitalized costs were $367 million and $345 million for 2014 and 2013, respectively.

When applicable, as lessee, we classify our leases of land and building as operating or capital leases. We are required to use judgment and make estimates in determining the lease term, the estimated economic life of the property and the interest rate to be used in determining whether or not the lease meets the qualification of a capital lease and is recorded as an asset.

Real Estate Acquisitions

Upon acquisition of operating real estate properties, we estimate the fair value of assets and liabilities acquired including land, building, improvements, leasing costs, intangibles such as in-place leases, assumed debt, and current assets and liabilities, if any. Based on these estimates, we allocate the purchase price to the applicable assets and liabilities. We utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The value allocated to in-place leases is amortized over the related lease term and reflected as rental income in the statement of operations. We consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options. If the value of below market lease intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a tenant vacates its space prior to contractual termination of its lease, the unamortized balance of any in-place lease value is written off to rental income.

Long-Lived Assets and Impairment

There are estimates and assumptions made by management in preparing the consolidated financial statements for which the actual results will be determined over long periods of time. This includes the recoverability of long-lived assets, including our properties that have been acquired or redeveloped and our investment in certain joint ventures. Management’s evaluation of impairment includes review for possible indicators of impairment as well as, in certain circumstances, undiscounted and discounted cash flow analysis. Since most of our investments in real estate are wholly-owned or controlled assets which are held for use, a property with impairment indicators is first tested for impairment by comparing the undiscounted cash flows, including residual value, to the current net book value of the property. If the undiscounted cash flows are less than the net book value, the property is written down to expected fair value.

The calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including revenues, operating expenses, required maintenance and development expenditures, market conditions, demand for space by tenants and rental rates over long periods. Because our properties typically have a long life, the assumptions used to estimate the future recoverability of book value requires significant management judgment. Actual results could be significantly different from the estimates. These estimates have a direct impact on net income, because recording an impairment charge results in a negative adjustment to net income.

Contingencies

We are sometimes involved in lawsuits, warranty claims, and environmental matters arising in the ordinary course of business. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters. We accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate within the range; however, if no amount within the range is a better estimate than any other amount, the minimum within the range is accrued. Any difference between our estimate of a potential loss and the actual outcome would result in an increase or decrease to net income.

In addition, we reserve for estimated losses, if any, associated with warranties given to a buyer at the time an asset is sold or other potential liabilities relating to that sale, taking any insurance policies into account. These warranties may extend up to ten years and the calculation of potential liability requires significant judgment. If changes in facts and circumstances indicate that warranty reserves are understated, we will accrue additional reserves at such time a liability has been incurred and the costs can be reasonably estimated. Warranty reserves are released once the legal liability period has expired or all related work has been substantially completed. Any changes to our estimated warranty losses would result in an increase or decrease in net income.

Self-Insurance

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management and is based on claims filed and an estimate of claims projected to be incurred but not yet reported. Management considers a number of factors, including third-party actuarial analysis and future increases in costs of claims, when making these determinations. If our liability costs differ from these accruals, it will increase or decrease our net income.

Recently Adopted and Recently Issued Accounting Pronouncements

See Note 2 to the consolidated financial statements.

2014 Significant Property Acquisitions and Disposition

Effective January 1, 2014, we acquired a controlling interest in The Grove at Shrewsbury, a 187,000 square foot shopping center in Shrewsbury, New Jersey, and Brook 35, a 99,000 square foot shopping center in Sea Girt, New Jersey for a gross value of $161 million. Our effective economic interest approximates 84% and was funded by the assumption of our share of $68 million of mortgage debt, 632,000 downREIT operating partnership units, and $13 million of cash (which was in an escrow account at December 31, 2013). Approximately $1.7 million and $2.3 million of net assets acquired were allocated to other assets for "above market leases" and other liabilities for "below market leases," respectively. Additionally, $71.1 million was allocated to redeemable and nonredeemable noncontrolling interests. We incurred $2.0 million of acquisition costs, of which $1.0 million were incurred in 2014, and are included in "general and administrative expenses" in 2014 and 2013 on the accompanying consolidated statements of comprehensive income.

We entered into an agreement to acquire the interest of one of the noncontrolling interest holders in The Grove at Shrewsbury in 2015. As this noncontrolling interest is mandatorily redeemable, it has been classified as a liability of approximately $9 million and is included in "other liabilities and deferred credits" on the December 31, 2014 consolidated balance sheet. An additional noncontrolling interest holder has the right to require us to acquire its interests in The Grove at Shrewsbury and Brook 35 at the then current fair market value beginning on January 1, 2017.

On July 24, 2014, the joint venture arrangement with affiliates of a discretionary fund created and advised by ING Clarion Partners sold the fee interest in Pleasant Shops in Weymouth, Massachusetts for a sales price of $34.3 million, resulting in a gain on sale of $14.5 million. Our share of the gain was $4.4 million. The joint venture partners received distributions totaling $32.8 million as a result of the sale, of which our distribution was $10.4 million.

Subsequent Event - 2015 Property Acquisition

In January 2015, we acquired a controlling interest in San Antonio Center, a 376,000 square foot shopping center in Mountain View, California based on a total value of $62.2 million. Our effective interest approximates 80% and was funded by the assumption of our share of $18.7 million of mortgage debt, which has a stated interest rate of 5.27% and matures on January 1, 2016, approximately 58,000 downREIT operating partnership units and approximately $27 million of cash. We incurred $0.7 million of acquisition costs in 2014 which are included in "general and administrative expenses."

2014 Significant Debt and Equity Transactions

In connection with the acquisition of The Grove at Shrewsbury and Brook 35 on January 1, 2014, we assumed mortgage loans with a face amount of $68.3 million and a fair value of $73.8 million. The mortgage loans are secured by the individual properties with the following contractual terms:



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

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During 2014, we refinanced or issued the following loans or debt securities:



		Amount		Stated Interest Rate		Refinance/Issuance Date	Maturity Date
		(In millions)
Brook 35 Plaza Mortgage Loan	Refinance	$	11.5	4.65	%	June 2, 2014	July 1, 2029
4.50% Senior Notes (1)	Issuance	$	250.0	4.50	%	November 14, 2014	December 1, 2044
THE AVENUE at White Marsh Mortgage Loan	Refinance	$	52.7	3.35	%	December 15, 2014	January 1, 2022

(1) The net proceeds from this note offering after issuance discounts, underwriting fees and other costs were approximately $244.6 million.

During 2014, we fully repaid or redeemed the following loans or debt securities:



	Payoff Amount		Repayment Date	Maturity Date
	(In millions)
Melville Mall Mortgage Loan	$	20.3	June 3, 2014	September 1, 2014
East Bay Bridge Mortgage Loan (1)	$	61.0	December 10, 2014	March 1, 2016
5.65% Senior Notes (2)	$	125.0	December 12, 2014	June 1, 2016

(1) The total amount due at payoff of $64.0 million included a prepayment premium of $3.0 million and accrued but unpaid interest of $0.1 million. The prepayment premium is included in "early extinguishment of debt" in 2014

(2) The redemption price of $134.5 million included a make-whole premium of approximately $9.2 million and accrued but unpaid interest of $0.2 million. The make-whole premium is included in "early extinguishment of debt" in 2014.

On August 28, 2014, we amended our term loan agreement and lowered the spread over LIBOR by 40 basis points from 130 basis points to 90 basis points based on our current credit rating. The amendment also provides us the option to extend the maturity date by one year.

On February 12, 2014 we replaced our existing at the market (“ATM”) equity program with a new ATM equity program in which we may from time to time offer and sell common shares having an aggregate offering price of up to $300.0 million. We intend to use the net proceeds to fund potential acquisition opportunities, fund our development and redevelopment pipeline, repay amounts outstanding under our revolving credit facility and/or for general corporate purposes. For the three months ended December 31, 2014, we issued 469,200 common shares at the weighted average price per share of $132.54 for net cash proceeds of $61.5 million and paid $0.6 million in commissions and less than $0.1 million in additional offering expenses related to the sales of these common shares. For the year ended December 31, 2014, we issued 1,768,583 common shares at a weighted average price per share of $122.09 for net cash proceeds of $213.6 million and paid $2.2 million in commissions and $0.2 million in additional offering expenses related to the sales of these common shares. As of December 31, 2014, we had the capacity to issue up to $84.1 million in common shares under our ATM equity program.

Outlook

We seek growth in earnings, funds from operations, and cash flows primarily through a combination of the following:


•	growth in our same-center portfolio,


•	growth in our portfolio from property development and redevelopments, and


•	expansion of our portfolio through property acquisitions.

Our same-center growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in portfolio occupancy. Over the long-term, the infill nature and strong demographics of our properties provide a strategic advantage allowing us to maintain relatively high occupancy and increase rental rates. We have generally continued to see an encouraging operating environment for many of our tenants as well as strong levels of interest from prospective tenants for our retail spaces. While there can be no assurance that these conditions will continue, we remain optimistic given the trends we have seen over the past few years. We believe the locations of our centers and diverse tenant base partially mitigates any negative change in the economic environment; however, any significant reduction in our tenants' abilities to pay base rent, percentage rent or other charges, will adversely affect our financial condition and results of operations. We seek to maintain a mix of strong national, regional, and local retailers. At December 31, 2014, no single tenant accounted for more than 3.1% of annualized base rent.

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Our properties are located primarily in densely populated and/or affluent areas with high barriers to entry which allow us to take advantage of redevelopment opportunities that enhance our operating performance through renovation, expansion, reconfiguration, and/or retenanting. We evaluate our properties on an ongoing basis to identify these types of opportunities. In 2015, we expect to have redevelopment projects stabilizing with projected costs of approximately $67 million.

We continue our ongoing redevelopment efforts at Santana Row. Our most recent 212 unit residential building was completed during second quarter. The building was 98.6% leased as of December 31, 2014, and had a total cost of $76 million. We are also proceeding with our next phase of redevelopment which is a six story building including approximately 225,500 square feet of office space, 1,500 square feet of retail space, and 670 parking spaces. After current phases, we have approximately 9 acres remaining for further redevelopment and entitlements in place for an additional 348 residential units and 69,000 square feet of commercial space. We are currently in the process of seeking additional entitlements and have under control an additional 12 acres of land adjacent to Santana Row.

We continue to invest in the development at Assembly Row which is a long-term development project we expect to be involved in over the coming years. The carrying value of the development portion of this project at December 31, 2014 is approximately $359 million. The project currently has zoning entitlements to build 3.4 million square feet of commercial-use buildings, 1,843 residential units, and a 170 room hotel. The first phase consists of approximately 326,000 square feet of retail space and 98,000 square feet of office space (both owned by the Trust) and 450 residential units owned by AvalonBay Communities. The Massachusetts Bay Transit Authority (MBTA) constructed the new orange line T-Stop at the property, which opened in September 2014. Minimal amounts of construction remain to be completed on the first phase. The retail space in Phase I opened during 2014 and currently is 97.3% leased; the office space will open in 2015. Phase I is expected to stabilize in 2015/2016. Total expected costs for Phase I of Assembly Row range from $190 million to $200 million (net of reimbursements) of which $189 million has been incurred to date. In total, we invested $74 million in Assembly Row in 2014, net of public funding, and expect to invest between $20 million and $30 million in Assembly Row in 2015.

Additionally, we entered into a ground lease agreement with Partners HealthCare to bring more than 700,000 square feet of office space and an additional 100,000 square feet of retail space to Assembly Row. The ground lease agreement includes a purchase option. Partners HealthCare commenced construction on this new building in September 2014 and plans to relocate over 4,500 employees to Assembly Row starting in 2016.

Our Pike & Rose project in North Bethesda, MD, a long-term multi-phased mixed-use project, currently has zoning entitlements to build 1.6 million square feet of commercial-use buildings and 1,605 residential units. Phase I of Pike & Rose involved demolition of roughly 25% of the gross leasable area at Mid-Pike Plaza (which was completed during the second quarter of 2012). The remainder of Mid-Pike Plaza was fully demolished in the third quarter of 2014. Phase I of Pike & Rose includes 493 residential units, 151,000 square feet of retail space and 79,000 square feet of office space. In late June 2014, our 174 unit residential building opened and is 85.1% leased as of December 31, 2014. Approximately 79,000 square feet of the retail space in Phase I opened in 2014 and we expect the remaining retail, office and 319 unit residential building to open in 2015. We expect Phase I to stabilize in 2015/2016. Total expected costs for Phase I of Pike & Rose range from $255 million to $265 million of which $217 million has been incurred to date.

Additionally, we are proceeding with development of Phase II of Pike & Rose and expect building construction to commence in the first half of 2015. Phase II is expected to include approximately 185,000 square feet of retail space, a 177-room select-service hotel and 264 residential units. Total expected costs range from $195 million to $200 million and stabilization is expected in 2018/2019. The hotel will be owned and operated by a joint venture in which we will be a partner. Phase II is also expected to include 104 for-sale condominium units with an expected cost of $50 million to $53 million. We invested $128 million in Pike & Rose in 2014 and expect to invest between $80 million and $110 million in Pike & Rose in 2015.

The development of future phases of Assembly Row, Pike & Rose and Santana Row will be pursued opportunistically based on, among other things, market conditions, tenant demand, and our evaluation of whether those phases will generate an appropriate financial return.

We continue to review acquisition opportunities in our primary markets that complement our portfolio and provide long-term growth opportunities. Initially, some of our acquisitions do not contribute significantly to earnings growth; however, we believe they provide long-term re-leasing growth, redevelopment opportunities, and other strategic opportunities. Any growth from acquisitions is contingent on our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles. Changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property, as well as our ability to economically finance the property acquisition. Generally, our acquisitions are initially financed by available cash and/or borrowings under our revolving credit facility which may be repaid later with funds raised through the issuance of new equity or new long-term debt. We may also finance our

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acquisitions through the issuance of common shares, preferred shares, or downREIT units as well as through new or assumed mortgages.

At December 31, 2014, the leasable square feet in our properties was 94.7% occupied and 95.6% leased. The leased rate is higher than the occupied rate due to leased spaces that are being redeveloped or improved or that are awaiting permits and, therefore, are not yet ready to be occupied. Our occupancy and leased rates are subject to variability over time due to factors including acquisitions, the timing of the start and stabilization of our redevelopment projects, lease expirations and tenant bankruptcies.

Same-Center

Throughout this section, we have provided certain information on a “same-center” basis. Information provided on a same-center basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties for which significant redevelopment or expansion occurred during either of the periods being compared and properties classified as discontinued operations. For the year ended December 31, 2014 and the comparison of 2014 and 2013, all or a portion of 78 properties were considered same-center and thirteen properties were considered redevelopment or expansion. For the year ended December 31, 2014, two properties were moved from same-center to redevelopment, one property was moved from redevelopment to same-center, and one property was moved from redevelopment as it was vacant and was demolished in 2014, compared to the designations as of December 31, 2013. For the year ended December 31, 2013 and the comparison of 2013 and 2012, all or a portion of 79 properties were considered same-center and eleven properties were considered redevelopment or expansion. For the year ended December 31, 2013, three properties were moved from acquisition to same-center and one property was moved from redevelopment to same-center compared to the designations as of December 31, 2012. While there is judgment surrounding changes in designations, we typically move redevelopment properties to same-center once they have stabilized, which is typically considered 95% occupancy or when the growth expected from the redevelopment has been included in the comparable periods. We typically remove properties from same center when the redevelopment has or is expected to have a significant impact to property operating income within the calendar year. Acquisitions are moved to same-center once we have owned the property for the entirety of comparable periods and the property is not under significant redevelopment or expansion.

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YEAR ENDED DECEMBER 31, 2014 COMPARED TO YEAR ENDED DECEMBER 31, 2013



							Change
	2014			2013			Dollars			%
	(Dollar amounts in thousands)
Rental income	$	666,322		$	620,089		$	46,233		7.5	%
Other property income	14,758			12,169			2,589			21.3	%
Mortgage interest income	5,010			5,155			(145		)	(2.8	)%
Total property revenue	686,090			637,413			48,677			7.6	%
Rental expenses	135,417			118,695			16,722			14.1	%
Real estate taxes	76,506			71,759			4,747			6.6	%
Total property expenses	211,923			190,454			21,469			11.3	%
Property operating income	474,167			446,959			27,208			6.1	%
Other interest income	94			433			(339		)	(78.3	)%
Income from real estate partnerships	1,243			1,498			(255		)	(17.0	)%
Interest expense	(93,941		)	(104,977		)	11,036			(10.5	)%
Early extinguishment of debt	(10,545		)	(13,304		)	2,759			(20.7	)%
General and administrative expense	(32,316		)	(31,970		)	(346		)	1.1	%
Depreciation and amortization	(170,814		)	(160,828		)	(9,986		)	6.2	%
Total other, net	(306,279		)	(309,148		)	2,869			(0.9	)%
Income from continuing operations	167,888			137,811			30,077			21.8	%
Discontinued operations - income	—			942			(942		)	(100.0	)%
Discontinued operations - gain on sale of real estate	—			23,861			(23,861		)	(100.0	)%
Gain on sale of real estate	4,401			4,994			(593		)	(11.9	)%
Net income	172,289			167,608			4,681			2.8	%
Net income attributable to noncontrolling interests	(7,754		)	(4,927		)	(2,827		)	57.4	%
Net income attributable to the Trust	$	164,535		$	162,681		$	1,854		1.1	%

Property Revenues

Total property revenue increased $48.7 million, or 7.6%, to $686.1 million in 2014 compared to $637.4 million in 2013. The percentage occupied at our shopping centers decreased to 94.7% at December 31, 2014 compared to 95.1% at December 31, 2013. Changes in the components of property revenue are discussed below.

Rental Income

Rental income consists primarily of minimum rent, cost reimbursements from tenants and percentage rent. Rental income increased $46.2 million, or 7.5%, to $666.3 million in 2014 compared to $620.1 million in 2013 due primarily to the following:


•	an increase of $17.7 million at same-center properties due primarily to higher rental rates of approximately $9.4 million and a $7.4 million increase in recovery income (largely the result of reimbursements for higher snow removal costs),


•	an increase of $16.6 million attributable to properties acquired in 2014 and 2013,


•	an increase of $8.0 million at redevelopment properties due primarily to the lease-up of our new 212 unit residential building at Santana Row and the net impact of other redevelopment properties, and


•	an increase of $6.4 million from Assembly Row and Pike &Rose as portions of both projects opened in 2014,

partially offset by,


•	a decrease of $1.9 million from Mid-Pike Plaza as the property was demolished in 2014 for the future development of Pike & Rose.

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Other Property Income

Other property income increased $2.6 million, or 21.3%, to $14.8 million in 2014 compared to $12.2 million in 2013. Included in other property income are items which, although recurring, inherently tend to fluctuate more than rental income from period to period, such as lease termination fees. This increase is primarily due to an increase in lease termination fees at same-center properties.

Property Expenses

Total property expenses increased $21.5 million, or 11.3%, to $211.9 million in 2014 compared to $190.5 million in 2013. Changes in the components of property expenses are discussed below.

Rental Expenses

Rental expenses increased $16.7 million, or 14.1%, to $135.4 million in 2014 compared to $118.7 million in 2013. This increase is primarily due to the following:


•	an increase of $5.6 million in repairs and maintenance expenses at same-center and redevelopment properties primarily due to higher snow removal costs,


•	an increase of $5.4 million related to Assembly Row and Pike & Rose, as portions of these projects opened in 2014,


•	an increase of $3.2 million related to properties acquired in 2014 and 2013,


•	an increase of $1.6 million in bad debt expense at same-center properties, and


•	an increase of $0.8 million in utilities at our same-center and redevelopment properties primarily due to higher electric costs and usage as a result of the harsh winter.

As a result of the changes in rental income and rental expenses as discussed above, rental expenses as a percentage of rental income plus other property income increased to 19.9% for the year ended December 31, 2014 from 18.8% for the year ended December 31, 2013.

Real Estate Taxes

Real estate tax expense increased $4.7 million, or 6.6% to $76.5 million in 2014 compared to $71.8 million in 2013 due primarily to higher assessments and lower refunds at our same-center and redevelopment properties and real estate taxes on properties acquired in 2014 and 2013.

Property Operating Income

Property operating income increased $27.2 million, or 6.1%, to $474.2 million in 2014 compared to $447.0 million in 2013. This increase is primarily due to growth in earnings at same-center properties, properties acquired in 2014 and 2013, and earnings from our redevelopment properties, partially offset by a decline in earnings at Mid-Pike Plaza, which was demolished in 2014.

Other

Interest Expense

Interest expense decreased $11.0 million, or 10.5%, to $93.9 million in 2014 compared to $105.0 million in 2013. This decrease is due primarily to the following:


•	a decrease of $12.0 million due to a lower overall weighted average borrowing rate, and


•	an increase of $4.8 million in capitalized interest due primarily to our ongoing development projects at Assembly Row and Pike & Rose,

partially offset by


•	an increase of $5.6 million due to higher borrowings.

Gross interest costs were $114.9 million and $121.2 million in 2014 and 2013, respectively. Capitalized interest was $21.0 million and $16.2 million in 2014 and 2013, respectively.

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Early Extinguishment of Debt

The $10.5 million early extinguishment of debt in 2014 relates to the make-whole premium paid as part of the early redemption of our 5.65% senior notes, the prepayment premium on our East Bay Bridge mortgage loan, and the related write-off of unamortized debt fees and mortgage premium balance.

The $13.3 million early extinguishment of debt in 2013 relates to the make-whole premiums paid as part of the early redemption of our 5.40% senior notes and 5.95% senior notes, the prepayment premium on our 7.5% mortgage loans, and the related write-off of unamortized debt fees.

Depreciation and Amortization

Depreciation and amortization expense increased $10.0 million, or 6.2%, to $170.8 million in 2014 from $160.8 million in 2013. This increase is due primarily to 2014 acquisitions and redevelopment projects placed in service in 2014, partially offset by accelerated depreciation in 2013 due to the change in use of a redevelopment property.

Discontinued Operations— Income

Income from discontinued operations represents the operating income of properties that were disposed prior to January 1, 2014, which were required to be reported separately from results of ongoing operations. The reported operating income of $0.9 million for 2013 primarily represents the operating income for the period during which we owned properties sold in 2013.

Discontinued Operations—Gain on Sale of Real Estate

The $23.9 million gain on sale of real estate from discontinued operations for 2013 is due to the sale of the fee interest in our final building at Fifth Avenue on July 22, 2013 and the sale of the fee interest in our building in Forest Hills on September 10, 2013.

Gain on Sale of Real Estate

The $4.4 million gain on sale of real estate for 2014 is due to our portion of the gain resulting from the Partnership's sale of the fee interest in Pleasant Shops in Weymouth, Massachusetts.

The $5.0 million gain on sale of real estate for 2013 is primarily due to the sale of the fee interest in the land under an office building at our Village of Shirlington property in Arlington, Virginia, that was subject to a long term ground lease. The ground lease included an option for the tenant to purchase the fee interest.

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YEAR ENDED DECEMBER 31, 2013 COMPARED TO YEAR ENDED DECEMBER 31, 2012



							Change
	2013			2012			Dollars			%
	(Dollar amounts in thousands)
Rental income	$	620,089		$	580,114		$	39,975		6.9	%
Other property income	12,169			20,211			(8,042		)	(39.8	)%
Mortgage interest income	5,155			5,466			(311		)	(5.7	)%
Total property revenue	637,413			605,791			31,622			5.2	%
Rental expenses	118,695			112,616			6,079			5.4	%
Real estate taxes	71,759			66,454			5,305			8.0	%
Total property expenses	190,454			179,070			11,384			6.4	%
Property operating income	446,959			426,721			20,238			4.7	%
Other interest income	433			689			(256		)	(37.2	)%
Income from real estate partnership	1,498			1,757			(259		)	(14.7	)%
Interest expense	(104,977		)	(113,336		)	8,359			(7.4	)%
Early extinguishment of debt	(13,304		)	—			(13,304		)	100.0	%
General and administrative expense	(31,970		)	(31,158		)	(812		)	2.6	%
Depreciation and amortization	(160,828		)	(141,701		)	(19,127		)	13.5	%
Total other, net	(309,148		)	(283,749		)	(25,399		)	9.0	%
Income from continuing operations	137,811			142,972			(5,161		)	(3.6	)%
Discontinued operations - income	942			1,400			(458		)	(32.7	)%
Discontinued operations - gain on sale of real estate	23,861			—			23,861			100.0	%
Gain on sale of real estate	4,994			11,860			(6,866		)	(57.9	)%
Net income	167,608			156,232			11,376			7.3	%
Net income attributable to noncontrolling interests	(4,927		)	(4,307		)	(620		)	14.4	%
Net income attributable to the Trust	$	162,681		$	151,925		$	10,756		7.1	%

Property Revenues

Total property revenue increased $31.6 million, or 5.2%, to $637.4 million in 2013 compared to $605.8 million in 2012. The percentage occupied at our shopping centers increased to 95.1% at December 31, 2013 compared to 94.9% at December 31, 2012. Changes in the components of property revenue are discussed below.

Rental Income

Rental income consists primarily of minimum rent, cost reimbursements from tenants and percentage rent. Rental income increased $40.0 million, or 6.9%, to $620.1 million in 2013 compared to $580.1 million in 2012 due primarily to the following:


•	an increase of $23.3 million at same-center properties due primarily to higher rental rates of approximately $11.6 million, higher occupancy of approximately $3.9 million, and an increase in recovery income due to higher recoverable expenses,


•	an increase of $14.0 million attributable to properties acquired in 2013 and 2012, and


•	an increase of $2.0 million at redevelopment properties due primarily to the lease-up and stabilization of certain of our redevelopment properties partially offset by lower income from Mid-Pike Plaza as the property was prepared for the development of Pike & Rose.

Other Property Income

Other property income decreased $8.0 million, or 39.8%, to $12.2 million in 2013 compared to $20.2 million in 2012. Included in other property income are items which, although recurring, inherently tend to fluctuate more than rental income from period to period, such as lease termination fees. This decrease is primarily due to lower lease termination fees at same-center properties, largely from a $6.0 million lease termination fee received in 2012 from an anchor tenant at Ellisburg Shopping Center.

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Property Expenses

Total property expenses increased $11.4 million, or 6.4%, to $190.5 million in 2013 compared to $179.1 million in 2012. Changes in the components of property expenses are discussed below.

Rental Expenses

Rental expenses increased $6.1 million, or 5.4%, to $118.7 million in 2013 compared to $112.6 million in 2012. This increase is primarily due to the following:


•	an increase of $4.0 million in repairs and maintenance expenses at same-center and redevelopment properties primarily due to snow removal costs,


•	an increase of $2.1 million related to properties acquired in 2013 and 2012,


•	an increase of $1.3 million in marketing expenses primarily at our Assembly Row and Pike & Rose projects,

partially offset by


•	a decrease of $1.7 million in bad debt expense.

Rental expenses as a percentage of rental income plus other property income was 18.8% for the years ended December 31, 2013 and 2012.

Real Estate Taxes

Real estate tax expense increased $5.3 million, or 8.0% to $71.8 million in 2013 compared to $66.5 million in 2012 due primarily to net higher assessments at same-center properties and properties acquired in 2013 and 2012.

Property Operating Income

Property operating income increased $20.2 million, or 4.7%, to $447.0 million in 2013 compared to $426.7 million in 2012. This increase is primarily due to growth in earnings at same-center properties, properties acquired in 2013 and 2012, and redevelopment properties.

Other

Interest Expense

Interest expense decreased $8.4 million, or 7.4%, to $105.0 million in 2013 compared to $113.3 million in 2012. This decrease is due primarily to the following:


•	a decrease of $11.6 million due to a lower overall weighted average borrowing rate, and


•	an increase of $6.1 million in capitalized interest,

partially offset by


•	an increase of $9.3 million due to higher borrowings.

Gross interest costs were $121.2 million and $123.4 million in 2013 and 2012, respectively. Capitalized interest was $16.2 million and $10.1 million in 2013 and 2012, respectively.

Early Extinguishment of Debt

General and Administrative Expense

General and administrative expense increased $0.8 million, or 2.6%, to $32.0 million in 2013 from $31.2 million in 2012. This increase is due primarily to an increase in employee related costs and transaction costs partially offset by costs incurred in 2012 related to the CFO transition.

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Depreciation and Amortization

Depreciation and amortization expense increased $19.1 million, or 13.5%, to $160.8 million in 2013 from $141.7 million in 2012. This increase is due primarily to 2013 and 2012 acquisitions and accelerated depreciation due to the change in use of a redevelopment property.

Discontinued Operations— Income

Income from discontinued operations represents the operating income of properties that were disposed prior to January 1, 2014, which were required to be reported separately from results of ongoing operations. The reported operating income of $0.9 million and $1.4 million for 2013 and 2012, respectively, primarily represents the operating income for the period during which we owned properties sold in 2013.

Discontinued Operations—Gain on Sale of Real Estate

Gain on Sale of Real Estate

The $11.9 million gain on sale of real estate in 2012 is due to the sale of our Newbury Street Partnership's entire portfolio of three buildings on October 31, 2011. Due to the timing of receiving information from the general partner, our share of earnings was recorded one quarter in arrears. Therefore, we recognized the gain on sale of $11.9 million in 2012.

Liquidity and Capital Resources

Due to the nature of our business and strategy, we typically generate significant amounts of cash from operations. The cash generated from operations is primarily paid to our common and preferred shareholders in the form of dividends. As a REIT, we must generally make annual distributions to shareholders of at least 90% of our taxable income.

Our short-term liquidity requirements consist primarily of normal recurring operating expenses, obligations under our capital and operating leases, regular debt service requirements (including debt service relating to additional or replacement debt, as well as scheduled debt maturities), recurring expenditures, non-recurring expenditures (such as tenant improvements and redevelopments) and dividends to common and preferred shareholders. Our long-term capital requirements consist primarily of maturities under our long-term debt agreements, development and redevelopment costs and potential acquisitions.

We intend to operate with and maintain a conservative capital structure that will allow us to maintain strong debt service coverage and fixed-charge coverage ratios as part of our commitment to investment-grade debt ratings. In the short and long term, we may seek to obtain funds through the issuance of additional equity, unsecured and/or secured debt financings, joint venture relationships relating to existing properties or new acquisitions, and property dispositions that are consistent with this conservative structure.

At December 31, 2014, we had $48.0 million of cash and cash equivalents and no borrowings outstanding on our $600.0 million revolving credit facility that matures on April 21, 2017, subject to a one-year extension at our option. In addition, we have an option (subject to bank approval) to increase the credit facility through an accordion feature to $1.0 billion. Our $275.0 million unsecured term loan that matures on November 21, 2018, subject to a one-year extension at our option, also has an option (subject to bank approval) to increase the term loan through an accordion feature to $350.0 million. As of December 31, 2014, we had the capacity to issue up to $84.1 million in common shares under our ATM equity program.

For 2014, the maximum amount of borrowings outstanding under our revolving credit facility was $79.5 million, the weighted average amount of borrowings outstanding was $12.5 million and the weighted average interest rate, before amortization of debt fees, was 1.07%. In November 2014, we accessed the public debt markets issuing $250 million of 30-year unsecured senior notes which bear interest at 4.5%. The opportunistic issuance resulted in net proceeds of $244.6 million which were used to address $186 million of our 2016 debt maturities.

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We currently believe that cash flows from operations, cash on hand, our ATM equity program, our revolving credit facility and our general ability to access the capital markets will be sufficient to finance our operations and fund our debt service requirements and capital expenditures.

Our overall capital requirements during 2015 will depend upon acquisition opportunities, the level of improvements and redevelopments on existing properties and the timing and cost of development of Assembly Row, Pike & Rose and future phases of Santana Row. While the amount of future expenditures will depend on numerous factors, we expect to continue to see higher levels of capital investments in our properties under development and redevelopment in 2015 which is the result of the continued development at both Assembly Row and Pike & Rose with openings of portions of both projects in 2015, the commencement of construction on Phase II of Pike & Rose, and the current phase of Santana Row. With respect to other capital investments related to our existing properties, we expect to incur levels consistent with prior years. Our capital investments will be funded on a short-term basis with cash flow from operations, cash on hand and/or our revolving credit facility, and on a long-term basis, with long-term debt or equity including shares issued under our ATM equity program. If necessary, we may access the debt or equity capital markets to finance significant acquisitions. Given our past ability to access the capital markets, we expect debt or equity to be available to us. Although there is no intent at this time, if market conditions deteriorate, we may also delay the timing of certain development and redevelopment projects as well as limit future acquisitions, reduce our operating expenditures, or re-evaluate our dividend policy.

In addition to conditions in the capital markets which could affect our ability to access those markets, the following factors could affect our ability to meet our liquidity requirements:


•	restrictions in our debt instruments or preferred shares may limit us from incurring debt or issuing equity at all, or on acceptable terms under then-prevailing market conditions; and


•	we may be unable to service additional or replacement debt due to increases in interest rates or a decline in our operating performance.

Summary of Cash Flows



	Year Ended December 31,
	2014			2013
	(In thousands)
Cash provided by operating activities	$	346,130		$	314,498
Cash used in investing activities	(396,150		)	(345,198		)
Cash provided by financing activities	9,044			82,639
(Decrease) increase in cash and cash equivalents	(40,976		)	51,939
Cash and cash equivalents, beginning of year	88,927			36,988
Cash and cash equivalents, end of year	$	47,951		$	88,927

Net cash provided by operating activities increased $31.6 million to $346.1 million during 2014 from $314.5 million during 2013. The increase was primarily attributable to higher net income before certain non-cash items.

Net cash used in investing activities increased $51.0 million to $396.2 million during 2014 from $345.2 million during 2013. The increase was primarily attributable to:


•	$93.7 million increase in capital investments and leasing costs in 2014 primarily related to our development projects at Assembly Row and Pike & Rose,


•	$42.9 million in proceeds from the sale of real estate in 2013, and


•	$6.7 million contribution to our real estate partnership to repay the mortgage loans of two of its properties,

partially offset by


•	$78.1 million decrease in acquisitions of real estate,


•	$10.4 million in distributions from our real estate partnership from the sale of Pleasant Shops in July 2014, and


•	$3.6 million received from the payoff of a mortgage loan receivable in July 2014.

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Net cash provided by financing activities decreased $73.6 million to $9.0 million during 2014 from $82.6 million in 2013. The decrease was primarily attributable to:


•	$319.8 million decrease from net proceeds on senior note issuances due to $244.6 million from our 4.50% senior notes issued in November 2014 as compared to $564.4 million from the issuance of our 2.75% senior notes in May 2013 and our 3.95% senior notes in December 2013, and


•	$22.2 million increase in dividends paid to shareholders due to an increase in the dividend rate and increased number of shares outstanding,

partially offset by


•	$159.1 million decrease due to the redemption of $125.0 million of senior notes in 2014, as compared to the redemption of $285.0 million of senior notes in 2013,


•	$79.3 million decrease in repayment of mortgages, capital leases and notes payable due to the payoff of two mortgages totaling $84.3 million in 2014 compared to the repayment of six mortgages totaling $161.7 million in 2013, and


•	$29.6 million increase in net proceeds from the issuance of common shares due primarily to the sale of 1.8 million shares under our ATM equity program at a weighted average price of $122.09 during 2014 compared to 1.7 million shares at a weighted average price of $108.01 during 2013.

Contractual Commitments

The following table provides a summary of our fixed, noncancelable obligations as of December 31, 2014:



	Commitments Due by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		After 5 Years
	(In thousands)
Fixed rate debt (principal and interest)(1)	$	3,181,151	$	259,064	$	602,388	$	437,453	$	1,882,246
Fixed rate debt - unconsolidated real estate partnership (principal and interest)(2)	11,288		614		10,674		—		—
Capital lease obligations (principal and interest)	189,182		5,787		11,585		11,600		160,210
Variable rate debt (principal only)(3)	9,400		—		9,400		—		—
Operating leases	165,763		1,478		4,910		5,164		154,211
Real estate commitments(4)(5)	76,332		8,832		—		—		67,500
Development, redevelopment, and capital improvement obligations	232,276		181,065		50,948		263		—
Contractual operating obligations	24,291		14,916		8,375		940		60
Total contractual obligations	$	3,889,683	$	471,756	$	698,280	$	455,420	$	2,264,227

_____________________


(1)	Fixed rate debt includes our $275.0 million term loan as the rate is effectively fixed by two interest rate swap agreements.


(2)	Amounts reflect our share of principal and interest payments on our unconsolidated joint venture's fixed rate debt.


(3)	Variable rate debt includes a $9.4 million bond that had an interest rate of 0.06% at December 31, 2014 and our revolving credit facility, which currently has no outstanding balance and bears interest at LIBOR plus 0.90%.


(4)	A master lease on Melville Mall includes a fixed price put option requiring us to purchase the property for $5.0 million. This obligation is included in real estate commitments.


(5)	Includes a $9 million liability to one of the noncontrolling interest holders in The Grove at Shrewsbury which is expected to be settled in 2015.

In addition to the amounts set forth in the table above and other liquidity requirements previously discussed, the following potential commitments exist:

(a) Under the terms of the Congressional Plaza partnership agreement, from and after January 1, 1986, an unaffiliated third party has the right to require us and the other minority partner to purchase its 29.47% interest in Congressional Plaza at the interest’s then-current fair market value. If the other minority partner defaults in their obligation, we must purchase the full

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interest. Based on management’s current estimate of fair market value as of December 31, 2014, our estimated liability upon exercise of the put option would range from approximately $72 million to $76 million.

(b) Under the terms of a partnership which owns a project in southern California, if certain leasing and revenue levels are obtained for the property owned by the partnership, the other partner may require us to purchase their 10% partnership interest at a formula price based upon property operating income. The purchase price for the partnership interest will be paid using our common shares or, subject to certain conditions, cash. If the other partner does not redeem their interest, we may choose to purchase the partnership interest upon the same terms.

(c) Under the terms of various other partnership agreements, the partners have the right to exchange their operating partnership units for cash or the same number of our common shares, at our option. As of December 31, 2014, a total of 917,255 operating partnership units are outstanding.

(d) The other member in Montrose Crossing has the right to require us to purchase all of its 10.1% interest in Montrose Crossing at the interest's then-current fair market value. If the other member fails to exercise its put option, we have the right to purchase its interest on or after December 27, 2021 at fair market value. Based on management’s current estimate of fair market value as of December 31, 2014, our estimated maximum liability upon exercise of the put option would range from approximately $9 million to $10 million.

(e) Two of the members in Plaza El Segundo have the right to require us to purchase their 10.0% and 11.8% ownership interests at the interests' then-current fair market value. If the members fail to exercise their put options, we have the right to purchase each of their interests on or after December 30, 2026 at fair market value. Based on management’s current estimate of fair market value as of December 31, 2014, our estimated maximum liability upon exercise of the put option would range from approximately $18 million to $21 million. Also, between January 1, 2017 and February 1, 2017, we have an option to purchase the preferred interest of another member in Plaza El Segundo. The purchase price will be the lesser of fair value or the $4.9 million stated value of the preferred interest plus any accrued and unpaid preferred returns.

(f) Effective January 1, 2017, the other member in The Grove at Shrewsbury and Brook 35 has the right to require us to purchase all of its approximately 4.8% interest in The Grove at Shrewsbury and approximately 8.8% interest in Brook 35 at the interests' then-current fair market value.

(g) At December 31, 2014, we had letters of credit outstanding of approximately $13.0 million which are collateral for existing indebtedness and other obligations of the Trust.

Off-Balance Sheet Arrangements

We have a joint venture arrangement (the “Partnership”) with affiliates of a discretionary fund created and advised by ING Clarion Partners (“Clarion”). We own 30% of the equity in the Partnership and Clarion owns 70%. We hold a general partnership interest, however, Clarion also holds a general partnership interest and has substantive participating rights. We cannot make significant decisions without Clarion’s approval. Accordingly, we account for our interest in the Partnership using the equity method. As of December 31, 2014, the Partnership owned six retail real estate properties. We are the manager of the Partnership and its properties, earning fees for acquisitions, management, leasing and financing. We also have the opportunity to receive performance-based earnings through our Partnership interest. The Partnership is subject to a buy-sell provision which is customary in real estate joint venture agreements and the industry. Either partner may initiate this provision at any time, which could result in either the sale of our interest or the use of available cash or borrowings to acquire Clarion’s interest. Accounting policies for the Partnership are similar to accounting policies followed by the Trust. At December 31, 2014, our investment in the Partnership was $32.4 million and the Partnership had approximately $34.4 million of mortgages payable outstanding.

Other than the joint venture described above and items disclosed in the Contractual Commitments Table, we have no off-balance sheet arrangements as of December 31, 2014 that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Debt Financing Arrangements

The following is a summary of our total debt outstanding as of December 31, 2014:



Description of Debt	Original Debt Issued	Principal Balance as of December 31, 2014			Stated Interest Rate as of December 31, 2014		Maturity Date
	(Dollars in thousands)
Mortgages payable (1)
Secured fixed rate
Barracks Road	44,300	$	35,985		7.95	%	November 1, 2015
Hauppauge	16,700	13,566			7.95	%	November 1, 2015
Lawrence Park	31,400	25,507			7.95	%	November 1, 2015
Wildwood	27,600	22,420			7.95	%	November 1, 2015
Wynnewood	32,000	25,994			7.95	%	November 1, 2015
Brick Plaza	33,000	26,415			7.42	%	November 1, 2015
Plaza El Segundo	Acquired	175,000			6.33	%	August 5, 2017
The Grove at Shrewsbury (East)	Acquired	44,519			5.82	%	October 1, 2017
The Grove at Shrewsbury (West)	Acquired	11,242			6.38	%	March 1, 2018
Rollingwood Apartments	24,050	22,130			5.54	%	May 1, 2019
29th Place	Acquired	4,941			5.91	%	January 31, 2021
THE AVENUE at White Marsh	52,705	52,705			3.35	%	January 1, 2022
Montrose Crossing	80,000	75,867			4.20	%	January 10, 2022
Brook 35	11,500	11,500			4.65	%	July 1, 2029
Chelsea	Acquired	7,074			5.36	%	January 15, 2031
Subtotal		554,865
Net unamortized premium		8,833
Total mortgages payable		563,698
Notes payable
Unsecured fixed rate
Term Loan (2)	275,000	275,000			LIBOR + 0.90%		November 21, 2018
Various	7,239	6,119			11.31	%	Various through 2028
Unsecured variable rate
Escondido (municipal bonds) (3)	9,400	9,400			0.06	%	October 1, 2016
Revolving credit facility (4)	600,000	—			LIBOR + 0.90%		April 21, 2017
Total notes payable		290,519
Senior notes and debentures
Unsecured fixed rate
6.20% notes	200,000	200,000			6.20	%	January 15, 2017
5.90% notes	150,000	150,000			5.90	%	April 1, 2020
3.00% notes	250,000	250,000			3.00	%	August 1, 2022
2.75% notes	275,000	275,000			2.75	%	June 1, 2023
3.95% notes	300,000	300,000			3.95	%	January 15, 2024
7.48% debentures	50,000	29,200			7.48	%	August 15, 2026
6.82% medium term notes	40,000	40,000			6.82	%	August 1, 2027
4.50% notes	250,000	250,000			4.50	%	December 1, 2044
Subtotal		1,494,200
Net unamortized discount		(10,387		)
Total senior notes and debentures		1,483,813
Capital lease obligations
Various		71,647			Various		Various through 2106
Total debt and capital lease obligations		$	2,409,677

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1)	Mortgages payable do not include our 30% share ($10.3 million) of the $34.4 million debt of the partnership with a discretionary fund created and advised by ING Clarion Partners.


2)	We entered into two interest rate swap agreements that fix the LIBOR portion of the interest rate on the term loan at 1.72%. The spread on the term loan was reduced from 130 basis points to 90 basis points on August 28, 2014 resulting in a fixed rate of 2.62%.


3)	The bonds require monthly interest only payments through maturity. The bonds bear interest at a variable rate determined weekly, which would enable the bonds to be remarketed at 100% of their principal amount. The Escondido Promenade property is not encumbered by a lien.


4)	The maximum amount drawn under our revolving credit facility during 2014 was $79.5 million and the weighted average effective interest rate on borrowings under our revolving credit facility, before amortization of debt fees, was 1.07%.

Our revolving credit facility, term loan and other debt agreements include financial and other covenants that may limit our operating activities in the future. As of December 31, 2014, we were in compliance with all of the financial and other covenants. If we were to breach any of our debt covenants and did not cure the breach within an applicable cure period, our lenders could require us to repay the debt immediately and, if the debt is secured, could immediately begin proceedings to take possession of the property securing the loan. Many of our debt arrangements, including our public notes, term loan and our revolving credit facility, are cross-defaulted, which means that the lenders under those debt arrangements can put us in default and require immediate repayment of their debt if we breach and fail to cure a default under certain of our other debt obligations. As a result, any default under our debt covenants could have an adverse effect on our financial condition, our results of operations, our ability to meet our obligations and the market value of our shares. Our organizational documents do not limit the level or amount of debt that we may incur.

The following is a summary of our scheduled principal repayments as of December 31, 2014:



	Unsecured			Secured		Capital Lease		Total
	(In thousands)
2015	$	369		$	153,395	$	31	$	153,795
2016	9,806			3,774		30		13,610
2017	200,451		(1)	220,438		34		420,923
2018	275,500			13,326		37		288,863
2019	553			22,731		42		23,326
Thereafter	1,298,040			141,201		71,473		1,510,714
	$	1,784,719		$	554,865	$	71,647	$	2,411,231	(2)

_____________________


1)	Our $600.0 million revolving credit facility matures on April 21, 2017, subject to a one-year extension at our option. As of December 31, 2014, there was no balance outstanding under this credit facility.


2)	The total debt maturities differs from the total reported on the consolidated balance sheet due to the unamortized net premium or discount on certain mortgage loans and senior notes as of December 31, 2014.

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Interest Rate Hedging

We may use derivative instruments to manage exposure to variable interest rate risk. We generally enter into interest rate swaps to manage our exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the issuance of debt. We enter into derivative instruments that qualify as cash flow hedges and do not enter into derivative instruments for speculative purposes.

The interest rate swaps associated with our cash flow hedges are recorded at fair value on a recurring basis. We assess effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in other comprehensive (loss) income which is included in accumulated other comprehensive loss on our consolidated balance sheet and our consolidated statement of shareholders' equity. Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and LIBOR rate. In addition, we evaluate the default risk of the counterparty by monitoring the credit worthiness of the counterparty which includes reviewing debt ratings and financial performance. However, management does not anticipate non-performance by the counterparty. If a cash flow hedge is deemed ineffective, the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected.

As of December 31, 2014, we are party to two interest rate swap agreements that effectively fixed the rate on the term loan at 2.62%. Both swaps were designated and qualified as cash flow hedges and were recorded at fair value. Hedge ineffectiveness has not impacted earnings in 2014, 2013 and 2012, and we do not anticipate it will have a significant effect in the future.

REIT Qualification

We intend to maintain our qualification as a REIT under Section 856(c) of the Code. As a REIT, we generally will not be subject to corporate federal income taxes on income we distribute to our shareholders as long as we satisfy certain technical requirements of the Code, including the requirement to distribute at least 90% of our taxable income to our shareholders.

Funds From Operations

Funds from operations (“FFO”) is a supplemental non-GAAP financial measure of real estate companies’ operating performance. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as follows: net income, computed in accordance with the U.S. GAAP, plus real estate related depreciation and amortization and excluding extraordinary items and gains and losses on the sale of real estate. We compute FFO in accordance with the NAREIT definition, and we have historically reported our FFO available for common shareholders in addition to our net income and net cash provided by operating activities. It should be noted that FFO:


•	does not represent cash flows from operating activities in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income);


•	should not be considered an alternative to net income as an indication of our performance; and


•	is not necessarily indicative of cash flow as a measure of liquidity or ability to fund cash needs, including the payment of dividends.

An increase or decrease in FFO available for common shareholders does not necessarily result in an increase or decrease in aggregate distributions because our Board of Trustees is not required to increase distributions on a quarterly basis unless necessary for us to maintain REIT status. However, we must distribute at least 90% of our taxable income to remain qualified as a REIT. Therefore, a significant increase in FFO will generally require an increase in distributions to shareholders although not necessarily on a proportionate basis.

In addition to FFO, we have also included FFO excluding the "early extinguishment of debt" charges in 2014 and 2013 which relate to the early redemption of our 5.65% senior notes and East Bay Bridge mortgage loan in 2014, and our 5.40% senior notes, 5.95% senior notes, and 7.50% mortgages loans in 2013. We believe the unusual nature of these charges, being make-whole payments on the remaining principal and interest on the redeemed notes/mortgages, is worthy of separate evaluation and consequently have provided both relevant metrics.

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The reconciliation of net income to FFO available for common shareholders and to FFO available for common shareholders excluding early extinguishment of debt is as follows:



	Year Ended December 31,
	2014			2013			2012
	(In thousands, except per share data)
Net income	$	172,289		$	167,608		$	156,232
Net income attributable to noncontrolling interests	(7,754		)	(4,927		)	(4,307		)
Gain on sale of real estate	(4,401		)	(28,855		)	(11,860		)
Depreciation and amortization of real estate assets	152,505			144,873			125,611
Amortization of initial direct costs of leases	12,391			10,694			10,935
Depreciation of joint venture real estate assets	1,555			1,504			1,513
Funds from operations	326,585			290,897			278,124
Dividends on preferred shares	(541		)	(541		)	(541		)
Income attributable to operating partnership units	3,027			888			943
Income attributable to unvested shares	(1,474		)	(1,306		)	(1,289		)
Funds from operations available for common shareholders	327,597			289,938			277,237
Early extinguishment of debt, net of allocation to unvested shares	10,498			13,244			—
Funds from operations available for common shareholders excluding early extinguishment of debt	$	338,095		$	303,182		$	277,237
Weighted average number of common shares, diluted (1)	68,410			65,778			64,389

Funds from operations available for common shareholders, per diluted share	$	4.79		$	4.41		$	4.31

Funds from operations available for common shareholders excluding early extinguishment of debt, per diluted share	$	4.94		$	4.61		$	4.31

_____________________


(1)	The weighted average common shares used to compute FFO per diluted common share includes operating partnership units that were excluded from the computation of diluted EPS. Conversion of these operating partnership units is dilutive in the computation of FFO per diluted common share but is anti-dilutive for the computation of diluted EPS for the periods presented.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our use of financial instruments, such as debt instruments, subjects us to market risk which may affect our future earnings and cash flows, as well as the fair value of our assets. Market risk generally refers to the risk of loss from changes in interest rates and market prices. We manage our market risk by attempting to match anticipated inflow of cash from our operating, investing and financing activities with anticipated outflow of cash to fund debt payments, dividends to common and preferred shareholders, investments, capital expenditures and other cash requirements.

We may enter into certain types of derivative financial instruments to further reduce interest rate risk. We use interest rate protection and swap agreements, for example, to convert some of our variable rate debt to a fixed-rate basis or to hedge anticipated financing transactions. We use derivatives for hedging purposes rather than speculation and do not enter into financial instruments for trading purposes. As of December 31, 2014, we were party to two interest rate swap agreements that effectively fix the rate on the $275.0 million term loan at 2.62%.

Interest Rate Risk

The following discusses the effect of hypothetical changes in market rates of interest on interest expense for our variable rate debt and on the fair value of our total outstanding debt, including our fixed-rate debt. Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our debt. Quoted market prices were used to estimate the

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fair value of our marketable senior notes and debentures and discounted cash flow analysis is generally used to estimate the fair value of our mortgages and notes payable. Considerable judgment is necessary to estimate the fair value of financial instruments. This analysis does not purport to take into account all of the factors that may affect our debt, such as the effect that a changing interest rate environment could have on the overall level of economic activity or the action that our management might take to reduce our exposure to the change. This analysis assumes no change in our financial structure.

Fixed Interest Rate Debt

The majority of our outstanding debt obligations (maturing at various times through 2044 or, with respect to capital lease obligations through 2106) have fixed interest rates which limit the risk of fluctuating interest rates. However, interest rate fluctuations may affect the fair value of our fixed rate debt instruments. At December 31, 2014, we had $2.3 billion of fixed-rate debt outstanding, including our $275.0 million term loan as the rate is effectively fixed by two interest rate swap agreements; we also had capital lease obligations of $71.6 million. If market interest rates used to calculate the fair value on our fixed-rate debt instruments at December 31, 2014 had been 1.0% higher, the fair value of those debt instruments on that date would have decreased by approximately $133.6 million. If market interest rates used to calculate the fair value on our fixed-rate debt instruments at December 31, 2014 had been 1.0% lower, the fair value of those debt instruments on that date would have increased by approximately $149.8 million.

Variable Interest Rate Debt

Generally, we believe that our primary interest rate risk is due to fluctuations in interest rates on our variable rate debt. At December 31, 2014, we had $9.4 million of variable rate debt outstanding which consisted of municipal bonds. Our revolving credit facility had no outstanding balance as of December 31, 2014. Based upon this amount of variable rate debt and the specific terms, if market interest rates increased 1.0%, our annual interest expense would increase by approximately $0.1 million, and our net income and cash flows for the year would decrease by approximately $0.1 million. Conversely, if market interest rates decreased 1.0%, our annual interest expense would decrease by less than $0.1 million with a corresponding increase in our net income and cash flows for the year.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements and supplementary data are included as a separate section of this Annual Report on Form 10-K commencing on page F-1 and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Quarterly Assessment

We carried out an assessment as of December 31, 2014 of the effectiveness of the design and operation of our disclosure controls and procedures and our internal control over financial reporting. This assessment was done under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer. Rules adopted by the Securities and Exchange Commission ("SEC") require that we present the conclusions of our principal executive officer and our principal financial officer about the effectiveness of our disclosure controls and procedures and the conclusions of our management about the effectiveness of our internal control over financial reporting as of the end of the period covered by this annual report.

Principal Executive Officer and Principal Financial Officer Certifications

Included as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K are forms of “Certification” of our principal executive officer and our principal financial officer. The forms of Certification are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. This section of this Annual Report on Form 10-K that you are currently reading is the information concerning the assessment referred to in the Section 302 certifications and this information should be read in conjunction with the Section 302 certifications for a more complete understanding of the topics presented.

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Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports, such as this report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and Executive Vice President-Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. These controls and procedures are based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e) promulgated under the Exchange Act. Rules adopted by the SEC require that we present the conclusions of the Chief Executive Officer and Chief Financial Officer about the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report.

Internal Control over Financial Reporting

Establishing and maintaining internal control over financial reporting is a process designed by, or under the supervision of, our President and Chief Executive Officer and Executive Vice President-Chief Financial Officer, as appropriate, and effected by our employees, including management and our Board of Trustees, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. This process includes policies and procedures that:


•	pertain to the maintenance of records that accurately and fairly reflect the transactions and dispositions of our assets in reasonable detail;


•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are made only in accordance with the authorization procedures we have established; and


•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of any of our assets in circumstances that could have a material adverse effect on our financial statements.

Limitations on the Effectiveness of Controls

Management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. In designing and evaluating our control system, management recognized that any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, that may affect our operation have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions that cannot be anticipated at the present time, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Scope of the Evaluations

The evaluation by our Chief Executive Officer and our Chief Financial Officer of our disclosure controls and procedures and our internal control over financial reporting included a review of our procedures and procedures performed by internal audit, as well as discussions with our Disclosure Committee and others in our organization, as appropriate. In conducting this evaluation, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control—Integrated Framework. In the course of the evaluation, we sought to identify data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken. The evaluation of our disclosure controls and procedures and our internal control over financial reporting is done on a quarterly basis, so that the conclusions concerning the effectiveness of such controls can be reported in our Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

Our internal control over financial reporting is also assessed on an ongoing basis by personnel in our accounting department and by our independent auditors in connection with their audit and review activities. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures and our internal control over financial reporting and to make modifications as necessary. Our intent in this regard is that the disclosure controls and procedures and internal control over financial reporting will be maintained and updated (including with improvements and corrections) as conditions warrant.

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Among other matters, we sought in our evaluation to determine whether there were any “significant deficiencies” or “material weaknesses” in our internal control over financial reporting, or whether we had identified any acts of fraud involving personnel who have a significant role in our internal control over financial reporting. This information is important both for the evaluation generally and because the Section 302 certifications require that our Chief Executive Officer and our Chief Financial Officer disclose that information to the Audit Committee of our Board of Trustees and our independent auditors and also require us to report on related matters in this section of the Annual Report on Form 10-K. In the Public Company Accounting Oversight Board’s Auditing Standard No. 5, a “deficiency” in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting. A “material weakness” is defined in Auditing Standard No. 5 as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We also sought to deal with other control matters in the evaluation, and in any case in which a problem was identified, we considered what revision, improvement and/or correction was necessary to be made in accordance with our on-going procedures.

Periodic Evaluation and Conclusion of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that such controls and procedures were effective as of the end of the period covered by this report and provides reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Periodic Evaluation and Conclusion of Internal Control over Financial Reporting

Our Chief Executive Officer and Chief Financial Officer have conducted an evaluation of the effectiveness of the design and operation of our internal control over financial reporting as of the end of our most recent fiscal year. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that such internal control over financial reporting was effective as of the end of our most recent fiscal year and provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

Statement of Our Management

Our management has issued a report on its assessment of the Trust’s internal control over financial reporting, which appears on page F-2 of this Annual Report on Form 10-K.

Statement of Our Independent Registered Public Accounting Firm

Grant Thornton LLP, our independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the Trust’s internal control over financial reporting, which appears on page F-3 of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during our fourth fiscal quarter of 2014 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

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PART III

Certain information required in Part III is omitted from this Report but is incorporated herein by reference from our Proxy Statement for the 2015 Annual Meeting of Shareholders (as amended or supplemented, the “Proxy Statement”).

ITEM 10. TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The tables and narrative in the Proxy Statement identifying our Trustees and Board committees under the caption “Election of Trustees” and “Corporate Governance”, the sections of the Proxy Statement entitled “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” and other information included in the Proxy Statement required by this Item 10 are incorporated herein by reference.

We have adopted a Code of Ethics, which is applicable to our Chief Executive Officer and senior financial officers. The Code of Ethics is available in the Corporate Governance section of the Investors section of our website at www.federalrealty.com.

ITEM 11. EXECUTIVE COMPENSATION

The sections of the Proxy Statement entitled “Summary Compensation Table,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report,” “Trustee Compensation” and “Compensation Discussion and Analysis” and other information included in the Proxy Statement required by this Item 11 are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The sections of the Proxy Statement entitled “Share Ownership” and “Equity Compensation Plan Information” and other information included in the Proxy Statement required by this Item 12 are incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND TRUSTEE INDEPENDENCE

The sections of the Proxy Statement entitled “Certain Relationship and Related Transactions” and “Independence of Trustees” and other information included in the Proxy Statement required by this Item 13 are incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The sections of the Proxy Statement entitled “Ratification of Independent Registered Public Accounting Firm” and “Relationship with Independent Registered Public Accounting Firm” and other information included in the Proxy Statement required by this Item 14 are incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

Our consolidated financial statements and notes thereto, together with Management’s Report on Internal Control over Financial Reporting and Reports of Independent Registered Public Accounting Firm are included as a separate section of this Annual Report on Form 10-K commencing on page F-1.

(2) Financial Statement Schedules

Our financial statement schedules are included in a separate section of this Annual Report on Form 10-K commencing on page F-30.

(3) Exhibits

A list of exhibits to this Annual Report on Form 10-K is set forth on the Exhibit Index immediately preceding such exhibits and is incorporated herein by reference.

(b) See Exhibit Index

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized this February 10, 2015.




	Federal Realty Investment Trust

By:	/S/ DONALD C. WOOD
	Donald C. Wood President, Chief Executive Officer and Trustee

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated. Each person whose signature appears below hereby constitutes and appoints each of Donald C. Wood and Dawn M. Becker as his or her attorney-in-fact and agent, with full power of substitution and resubstitution for him or her in any and all capacities, to sign any or all amendments to this Report and to file same, with exhibits thereto and other documents in connection therewith, granting unto such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that such attorney-in-fact and agent or his or her substitutes may do or cause to be done by virtue hereof.



Signature	Title	Date

/S/ DONALD C. WOOD	President, Chief Executive Officer and	February 10, 2015
Donald C. Wood	Trustee (Principal Executive Officer)

/S/ JAMES M. TAYLOR, JR.	Executive Vice President-Chief Financial	February 10, 2015
James M. Taylor, Jr.	Officer and Treasurer (Principal
	Financial and Accounting Officer)

/S/ JOSEPH S. VASSALLUZZO	Non-Executive Chairman	February 10, 2015
Joseph S. Vassalluzzo

/S/ JON E. BORTZ	Trustee	February 10, 2015
Jon E. Bortz

/S/ DAVID W. FAEDER	Trustee	February 10, 2015
David W. Faeder

/S/ KRISTIN GAMBLE	Trustee	February 10, 2015
Kristin Gamble

/S/ GAIL P. STEINEL	Trustee	February 10, 2015
Gail P. Steinel

/S/ WARREN M. THOMPSON	Trustee	February 10, 2015
Warren M. Thompson

Table of Contents

Item 8 and Item 15(a)(1) and (2)

Index to Consolidated Financial Statements and Schedules



Consolidated Financial Statements	Page No.
Management Assessment Report on Internal Control over Financial Reporting	F-2
Report of Independent Registered Public Accounting Firm	F-3
Report of Independent Registered Public Accounting Firm	F-4
Consolidated Balance Sheets	F-5
Consolidated Statements of Comprehensive Income	F-6
Consolidated Statement of Shareholders’ Equity	F-7
Consolidated Statements of Cash Flows	F-8
Notes to Consolidated Financial Statements	F-9

Financial Statement Schedules
Schedule III—Summary of Real Estate and Accumulated Depreciation	F-30
Schedule IV—Mortgage Loans on Real Estate	F-37

All other schedules have been omitted either because the information is not applicable, not material, or is disclosed in our consolidated financial statements and related notes.

F-1

Table of Contents

Management Assessment Report on Internal Control over Financial Reporting

The management of Federal Realty Investment Trust (the "Trust") is responsible for establishing and maintaining adequate internal control over financial reporting. Establishing and maintaining internal control over financial reporting is a process designed by, or under the supervision of, our President and Chief Executive Officer and Executive Vice President - Chief Financial Officer and Treasurer, as appropriate, and effected by our employees, including management and our Board of Trustees, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. This process includes policies and procedures that:


•	pertain to the maintenance of records that accurately and fairly reflect the transactions and dispositions of our assets in reasonable detail;


•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are made only in accordance with the authorization procedures we have established; and


•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of any of our assets in circumstances that could have a material adverse effect on our financial statements.

Management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our internal control over financial reporting will prevent all errors and fraud. In designing and evaluating our control system, management recognized that any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, that may affect our operation have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Management conducted an assessment of the effectiveness of the Trust’s internal control over financial reporting as of December 31, 2014. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control—Integrated Framework. Based on this assessment, management concluded that our internal control over financial reporting is effective, based on those criteria, as of December 31, 2014.

Grant Thornton LLP, the independent registered public accounting firm that audited the Trust’s consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the Trust’s internal control over financial reporting, which appears on page F-3 of this Annual Report on Form 10-K.

F-2

Table of Contents

Report of Independent Registered Public Accounting Firm

Trustees and Shareholders of Federal Realty Investment Trust

We have audited the internal control over financial reporting of Federal Realty Investment Trust (a Maryland real estate investment trust) and Subsidiaries (collectively, the "Trust") as of December 31, 2014, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Assessment Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Trust’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Federal Realty Investment Trust and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Trust as of and for the year ended December 31, 2014 and our report dated February 10, 2015 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

McLean, Virginia

February 10, 2015

F-3

Table of Contents

Report of Independent Registered Public Accounting Firm

Trustees and Shareholders of Federal Realty Investment Trust

We have audited the accompanying consolidated balance sheets of Federal Realty Investment Trust (a Maryland real estate investment trust) and Subsidiaries (collectively, the "Trust") as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits of the basic consolidated financial statements included the financial statement schedules listed in the index appearing under Item 15(a) (1) and (2). These financial statements and financial statement schedules are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Federal Realty Investment Trust and Subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Trust’s internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 10, 2015 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

McLean, Virginia

February 10, 2015

F-4

Table of Contents

Federal Realty Investment Trust

Consolidated Balance Sheets



	December 31,
	2014			2013
	(In thousands, except share and per share data)
ASSETS
Real estate, at cost
Operating (including $282,303 and $265,138 of consolidated variable interest entities, respectively)	$	5,128,757		$	4,618,258
Construction-in-progress	480,241			531,205
	5,608,998			5,149,463
Less accumulated depreciation and amortization (including $26,618 and $19,086 of consolidated variable interest entities, respectively)	(1,467,050		)	(1,350,471		)
Net real estate	4,141,948			3,798,992
Cash and cash equivalents	47,951			88,927
Accounts and notes receivable, net	93,291			84,838
Mortgage notes receivable, net	50,988			55,155
Investment in real estate partnerships	37,457			32,264
Prepaid expenses and other assets	160,167			145,062
Debt issuance costs, net of accumulated amortization of $11,441 and $9,535, respectively	15,068			14,056
TOTAL ASSETS	$	4,546,870		$	4,219,294
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Mortgages payable (including $187,632 and $202,782 of consolidated variable interest entities, respectively)	$	563,698		$	588,456
Capital lease obligations	71,647			71,671
Notes payable	290,519			300,822
Senior notes and debentures	1,483,813			1,360,913
Accounts payable and accrued expenses	145,685			156,270
Dividends payable	60,620			52,385
Security deposits payable	14,115			12,772
Other liabilities and deferred credits	105,164			100,283
Total liabilities	2,735,261			2,643,572
Commitments and contingencies (Note 9)
Redeemable noncontrolling interests	119,053			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, 68,605,783 and 66,701,422 shares issued and outstanding, respectively	687			667
Additional paid-in capital	2,281,223			2,062,708
Accumulated dividends in excess of net income	(683,991		)	(623,795		)
Accumulated other comprehensive loss	(3,515		)	(1,417		)
Total shareholders’ equity of the Trust	1,604,401			1,448,160
Noncontrolling interests	88,155			23,137
Total shareholders’ equity	1,692,556			1,471,297
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,546,870		$	4,219,294

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

F-5

Table of Contents

Federal Realty Investment Trust

Consolidated Statements of Comprehensive Income



	Year Ended December 31,
	2014			2013			2012
	(In thousands, except per share data)
REVENUE
Rental income	$	666,322		$	620,089		$	580,114
Other property income	14,758			12,169			20,211
Mortgage interest income	5,010			5,155			5,466
Total revenue	686,090			637,413			605,791
EXPENSES
Rental expenses	135,417			118,695			112,616
Real estate taxes	76,506			71,759			66,454
General and administrative	32,316			31,970			31,158
Depreciation and amortization	170,814			160,828			141,701
Total operating expenses	415,053			383,252			351,929
OPERATING INCOME	271,037			254,161			253,862
Other interest income	94			433			689
Interest expense	(93,941		)	(104,977		)	(113,336		)
Early extinguishment of debt	(10,545		)	(13,304		)	—
Income from real estate partnerships	1,243			1,498			1,757
INCOME FROM CONTINUING OPERATIONS	167,888			137,811			142,972
DISCONTINUED OPERATIONS
Discontinued operations - income	—			942			1,400
Discontinued operations - gain on sale of real estate	—			23,861			—
Results from discontinued operations	—			24,803			1,400
INCOME BEFORE GAIN ON SALE OF REAL ESTATE	167,888			162,614			144,372
Gain on sale of real estate	4,401			4,994			11,860
NET INCOME	172,289			167,608			156,232
Net income attributable to noncontrolling interests	(7,754		)	(4,927		)	(4,307		)
NET INCOME ATTRIBUTABLE TO THE TRUST	164,535			162,681			151,925
Dividends on preferred shares	(541		)	(541		)	(541		)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$	163,994		$	162,140		$	151,384
EARNINGS PER COMMON SHARE, BASIC
Continuing operations	$	2.35		$	2.01		$	2.15
Discontinued operations	—			0.38			0.02
Gain on sale of real estate	0.07			0.08			0.19
	$	2.42		$	2.47		$	2.36
Weighted average number of common shares, basic	67,322			65,331			63,881
EARNINGS PER COMMON SHARE, DILUTED
Continuing operations	$	2.34		$	2.00		$	2.14
Discontinued operations	—			0.38			0.02
Gain on sale of real estate	0.07			0.08			0.19
	$	2.41		$	2.46		$	2.35
Weighted average number of common shares, diluted	67,492			65,483			64,056

NET INCOME	$	172,289		$	167,608		$	156,232
Other comprehensive (loss) income - change in value of interest rate swaps	(2,098		)	10,971			(8,448		)
COMPREHENSIVE INCOME	170,191			178,579			147,784
Comprehensive income attributable to noncontrolling interests	(7,754		)	(4,927		)	(4,307		)
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE TRUST	$	162,437		$	173,652		$	143,477

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

F-6

Table of Contents

Federal Realty Investment Trust

Consolidated Statement of Shareholders’ Equity



	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		Additional Paid-in Capital			Accumulated Dividends in Excess of Net Income			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Shareholders' Equity
	(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 $2,592 attributable to redeemable noncontrolling interests	—	—		—	—		—			151,925			—			1,715			153,640
Other comprehensive loss - change in value of interest rate swaps	—	—		—	—		—			—			(8,448		)	—			(8,448		)
Dividends declared to common shareholders	—	—		—	—		—			(182,813		)	—			—			(182,813		)
Dividends declared to preferred shareholders	—	—		—	—		—			(541		)	—			—			(541		)
Distributions declared to noncontrolling interests	—	—		—	—		—			—			—			(2,232		)	(2,232		)
Common shares issued	—	—		1,039,405	10		106,209			—			—			—			106,219
Exercise of stock options	—	—		97,430	1		5,666			—			—			—			5,667
Shares issued under dividend reinvestment plan	—	—		22,814	—		2,248			—			—			—			2,248
Share-based compensation expense, net	—	—		111,647	1		10,370			—			—			—			10,371
Conversion and redemption of OP units	—	—		—	—		(439		)	—			—			(389		)	(828		)
Contributions from noncontrolling interests	—	—		—	—		—			—			—			175			175
Adjustment to redeemable noncontrolling interests	—	—		—	—		(13,469		)	—			—			—			(13,469		)
BALANCE AT DECEMBER 31, 2012	399,896	9,997		64,815,446	648		1,875,525			(586,970		)	(12,388		)	23,781			1,310,593
Net income, excluding $2,887 attributable to redeemable noncontrolling interests	—	—		—	—		—			162,681			—			2,040			164,721
Other comprehensive income - change in value of interest rate swaps	—	—		—	—		—			—			10,971			—			10,971
Dividends declared to common shareholders	—	—		—	—		—			(198,965		)	—			—			(198,965		)
Dividends declared to preferred shareholders	—	—		—	—		—			(541		)	—			—			(541		)
Distributions declared to noncontrolling interests	—	—		—	—		—			—			—			(1,887		)	(1,887		)
Common shares issued	—	—		1,735,089	18		185,164			—			—			—			185,182
Exercise of stock options	—	—		16,554	—		1,015			—			—			—			1,015
Shares issued under dividend reinvestment plan	—	—		20,026	—		2,130			—			—			—			2,130
Share-based compensation expense, net of shares withheld for employee taxes	—	—		91,831	1		9,356			—			—			—			9,357
Conversion and redemption of OP units	—	—		22,476	—		(625		)	—			—			(797		)	(1,422		)
Adjustment to redeemable noncontrolling interests	—	—		—	—		(9,857		)	—			—			—			(9,857		)
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 $3,452 attributable to redeemable noncontrolling interests	—	—		—	—		—			164,535			—			4,302			168,837
Other comprehensive loss - change in value of interest rate swaps	—	—		—	—		—			—			(2,098		)	—			(2,098		)
Dividends declared to common shareholders	—	—		—	—		—			(224,190		)	—			—			(224,190		)
Dividends declared to preferred shareholders	—	—		—	—		—			(541		)	—			—			(541		)
Distributions declared to noncontrolling interests	—	—		—	—		—			—			—			(4,620		)	(4,620		)
Common shares issued	—	—		1,768,703	18		213,562			—			—			—			213,580
Exercise of stock options	—	—		29,218	1		2,261			—			—			—			2,262
Shares issued under dividend reinvestment plan	—	—		18,705	—		2,168			—			—			—			2,168
Share-based compensation expense, net of shares withheld for employee taxes	—	—		87,735	1		9,605			—			—			—			9,606
Redemption of OP units	—	—		—	—		(49		)	—			—			(14		)	(63		)
Contributions from noncontrolling interests	—	—		—	—		—			—			—			65,350			65,350
Adjustment to redeemable noncontrolling interests	—	—		—	—		(9,032		)	—			—			—			(9,032		)
BALANCE AT DECEMBER 31, 2014	399,896	$	9,997	68,605,783	$	687	$	2,281,223		$	(683,991	)	$	(3,515	)	$	88,155		$	1,692,556

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

F-7

Table of Contents

Federal Realty Investment Trust

Consolidated Statements of Cash Flows



	Year Ended December 31,
	2014			2013			2012
	(In thousands)
OPERATING ACTIVITIES
Net income	$	172,289		$	167,608		$	156,232
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization, including discontinued operations	170,814			161,099			142,039
Gain on sale of real estate	(4,401		)	(28,855		)	(11,860		)
Early extinguishment of debt	10,545			13,304			—
Income from real estate partnerships	(1,243		)	(1,498		)	(1,757		)
Other, net	733			2,704			4,348
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
(Increase) decrease in accounts receivable, net	(3,063		)	(6,321		)	7,332
(Increase) decrease in prepaid expenses and other assets	(4,222		)	69			(7,793		)
Increase in accounts payable and accrued expenses	4,253			5,325			3,259
Increase in security deposits and other liabilities	425			1,063			4,833
Net cash provided by operating activities	346,130			314,498			296,633
INVESTING ACTIVITIES
Acquisition of real estate	(9,154		)	(87,276		)	(80,865		)
Capital expenditures - development and redevelopment	(314,654		)	(243,073		)	(129,346		)
Capital expenditures - other	(46,304		)	(47,069		)	(51,325		)
Proceeds from sale of real estate	—			42,866			—
Proceeds from sale of real estate in real estate partnership	10,406			—			—
Investment in real estate partnership	(6,731		)	—			—
Distribution from real estate partnership in excess of earnings	565			790			1,116
Leasing costs	(35,286		)	(12,393		)	(14,233		)
Repayment of mortgage and other notes receivable, net	5,008			957			1,095
Net cash used in investing activities	(396,150		)	(345,198		)	(273,558		)
FINANCING ACTIVITIES
Net repayments under revolving credit facility, net of costs	—			(1,929		)	—
Issuance of senior notes, net of costs	244,579			564,389			244,807
Redemption and retirement of senior notes	(134,240		)	(293,360		)	(175,000		)
Issuance of mortgages, capital leases and notes payable, net of costs	—			860			5,399
Repayment of mortgages, capital leases and notes payable	(94,422		)	(173,735		)	(53,414		)
Issuance of common shares	216,155			186,548			112,270
Dividends paid to common and preferred shareholders	(215,216		)	(193,016		)	(178,020		)
Distributions to and redemptions of noncontrolling interests	(7,812		)	(7,118		)	(9,935		)
Net cash provided by (used in) financing activities	9,044			82,639			(53,893		)
(Decrease) Increase in cash and cash equivalents	(40,976		)	51,939			(30,818		)
Cash and cash equivalents at beginning of year	88,927			36,988			67,806
Cash and cash equivalents at end of year	$	47,951		$	88,927		$	36,988

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

F-8

Table of Contents

Federal Realty Investment Trust

Notes to Consolidated Financial Statements

December 31, 2014, 2013 and 2012

NOTE 1—BUSINESS AND ORGANIZATION

Federal Realty Investment Trust (the “Trust”) is an equity real estate investment trust (“REIT”) specializing in the ownership, management, and redevelopment of retail and mixed-use properties. Our properties are located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the Mid-Atlantic and Northeast regions of the United States, as well as in California. As of December 31, 2014, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 89 predominantly retail real estate projects.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

Our consolidated financial statements include the accounts of the Trust, its corporate subsidiaries, and all entities in which the Trust has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity (“VIE”). The equity interests of other investors are reflected as noncontrolling interests or redeemable noncontrolling interests. All significant intercompany transactions and balances are eliminated in consolidation. We account for our interests in joint ventures, which we do not control, using the equity method of accounting.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, referred to as “GAAP,” requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.

Revenue Recognition and Accounts Receivable

Our leases with tenants are classified as operating leases. Substantially all such leases contain fixed escalations which occur at specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease, net of valuation adjustments, based on management’s assessment of credit, collection and other business risk. Percentage rents, which represent additional rents based upon the level of sales achieved by certain tenants, are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved and the percentage rents are collectible. Real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred. For a tenant to terminate its lease agreement prior to the end of the agreed term, we may require that they pay a fee to cancel the lease agreement. Lease termination fees for which the tenant has relinquished control of the space are generally recognized on the termination date. When a lease is terminated early but the tenant continues to control the space under a modified lease agreement, the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement.

We make estimates of the collectability of our accounts receivable related to minimum rents, straight-line rents, expense reimbursements and other revenue. Accounts receivable is carried net of this allowance for doubtful accounts. Our determination as to the collectability of accounts receivable and correspondingly, the adequacy of this allowance, is based primarily upon evaluations of individual receivables, current economic conditions, historical experience and other relevant factors. The allowance for doubtful accounts is increased or decreased through bad debt expense. Accounts receivable are written-off when they are deemed to be uncollectible and we are no longer actively pursuing collection. At December 31, 2014 and 2013, our allowance for doubtful accounts was $12.4 million and $12.7 million, respectively.

In some cases, primarily relating to straight-line rents, the collection of accounts receivable extends beyond one year. Our experience relative to unbilled straight-line rents is that a portion of the amounts otherwise recognizable as revenue is never billed to or collected from tenants due to early lease terminations, lease modifications, bankruptcies and other factors. Accordingly, the extended collection period for straight-line rents along with our evaluation of tenant credit risk may result in the nonrecognition of a portion of straight-line rental income until the collection of such income is reasonably assured. If our evaluation of tenant credit risk changes indicating more straight-line revenue is reasonably collectible than previously estimated

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and realized, the additional straight-line rental income is recognized as revenue. If our evaluation of tenant credit risk changes indicating a portion of realized straight-line rental income is no longer collectible, a reserve and bad debt expense is recorded. At December 31, 2014 and 2013, accounts receivable include approximately $66.1 million and $60.6 million, respectively, related to straight-line rents.

Real Estate

Land, buildings and improvements are recorded at cost. Depreciation is computed using the straight-line method. Estimated useful lives range generally from 35 years to a maximum of 50 years on buildings and major improvements. Minor improvements, furniture and equipment are capitalized and depreciated over useful lives ranging from 2 to 20 years. Maintenance and repairs that do not improve or extend the useful lives of the related assets are charged to operations as incurred. Tenant improvements are capitalized and depreciated over the life of the related lease or their estimated useful life, whichever is shorter. If a tenant vacates its space prior to contractual termination of its lease, the undepreciated balance of any tenant improvements are written off if they are replaced or have no future value. In 2014, 2013 and 2012, real estate depreciation expense was $155.7 million, $147.7 million and $128.7 million, respectively, including amounts from discontinued operations and assets under capital lease obligations.

Sales of real estate are recognized only when sufficient down payments have been obtained, possession and other attributes of ownership have been transferred to the buyer and we have no significant continuing involvement. The application of these criteria can be complex and requires us to make assumptions. We believe these criteria were met for all real estate sold during the periods presented.

Our methodology of allocating the cost of acquisitions to assets acquired and liabilities assumed is based on estimated fair values, replacement cost and/or appraised values. When we acquire operating real estate properties, the purchase price is allocated to land, building, improvements, leasing costs, intangibles such as in-place leases, assumed debt, if any, and to current assets and liabilities acquired, if any. The value allocated to in-place leases is amortized over the related lease term and reflected as rental income in the consolidated statements of comprehensive income. We consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options. If the value of below market lease intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a tenant vacates its space prior to contractual termination of its lease, the unamortized balance of any in-place lease value is written off to rental income.

Transaction costs related to the acquisition of a business, such as broker fees, transfer taxes, legal, accounting, valuation, and other professional and consulting fees, are expensed as incurred and included in “general and administrative expenses” in our consolidated statements of comprehensive income. The acquisition of an operating shopping center typically qualifies as a business. For asset acquisitions not meeting the definition of a business, transaction costs are capitalized as part of the acquisition cost.

We capitalize certain costs related to the development and redevelopment of real estate including pre-construction costs, real estate taxes, insurance, construction costs and salaries and related costs of personnel directly involved. Additionally, we capitalize interest costs related to development and redevelopment activities. Capitalization of these costs begin when the activities and related expenditures commence and cease when the project is substantially complete and ready for its intended use at which time the project is placed in service and depreciation commences. Additionally, we make estimates as to the probability of certain development and redevelopment projects being completed. If we determine the development or redevelopment is no longer probable of completion, we expense all capitalized costs which are not recoverable.

We review for impairment on a property by property basis. Impairment is recognized on properties held for use when the expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down to fair value. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. Effective January 1, 2014, we adopted ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” as further discussed in "Recently Adopted Accounting Pronouncements." Prior to January 1, 2014, the sale or disposal of a “component of an entity” was treated as discontinued operations. The operating properties sold by us prior to January 1, 2014 typically met the definition of a component of an entity and as such the revenues and expenses associated with sold properties were reclassified to discontinued operations for all periods presented.

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Cash and Cash Equivalents

We define cash and cash equivalents as cash on hand, demand deposits with financial institutions and short term liquid investments with an initial maturity, when purchased, under three months. Cash balances in individual banks may exceed the federally insured limit by the Federal Deposit Insurance Corporation (the “FDIC”). At December 31, 2014, we had $47.7 million in excess of the FDIC insured limit.

Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist primarily of lease costs, prepaid property taxes and acquired above market leases. Capitalized lease costs are direct costs incurred which were essential to originate a lease and would not have been incurred had the leasing transaction not taken place and include third party commissions and salaries and related costs of personnel directly related to time spent obtaining a lease. Capitalized lease costs are amortized over the life of the related lease. If a tenant vacates its space prior to the contractual termination of its lease, the unamortized balance of any previously capitalized lease costs are written off.

Debt Issuance Costs

Costs related to the issuance of debt instruments are capitalized and are amortized as interest expense over the estimated life of the related issue using the straight-line method which approximates the effective interest method. If a debt instrument is paid off prior to its original maturity date, the unamortized balance of debt issuance costs are written off to interest expense or, if significant, included in “early extinguishment of debt.”

Derivative Instruments

At times, we may use derivative instruments to manage exposure to variable interest rate risk. We generally enter into interest rate swaps to manage our exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the issuance of debt. We enter into derivative instruments that qualify as cash flow hedges and do not enter into derivative instruments for speculative purposes.

The interest rate swaps associated with our cash flow hedges are recorded at fair value on a recurring basis. We assess effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into interest expense as interest is incurred on the related variable rate debt; within the next twelve months, we expect to reclassify an estimated $3.8 million as an increase to interest expense. Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and LIBOR rate. In addition, we evaluate the default risk of the counterparty by monitoring the credit worthiness of the counterparty. When ineffectiveness exists, the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected. Hedge ineffectiveness did not impact earnings in 2014, 2013 or 2012, and we do not anticipate it will have a significant effect in the future.

See Note 8 for additional disclosures relating to our two existing interest rate swap agreements.

Mortgage Notes Receivable

We have made certain mortgage loans that, because of their nature, qualify as loan receivables. At the time the loans were made, we did not intend for the arrangement to be anything other than a financing and did not contemplate a real estate investment. We evaluate each investment to determine whether the loan arrangement qualifies as a loan, joint venture or real estate investment and the appropriate accounting thereon. Such determination affects our balance sheet classification of these investments and the recognition of interest income derived therefrom. On some of the loans we receive additional interest, however, we never receive in excess of 50% of the residual profit in the project, and because the borrower has either a substantial investment in the project or has guaranteed all or a portion of our loan (or a combination thereof), the loans qualify for loan accounting. The amounts under these arrangements are presented as mortgage notes receivable at December 31, 2014 and 2013.

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Mortgage notes receivable are recorded at cost, net of any valuation adjustments. Interest income is accrued as earned. Mortgage notes receivable are considered past due based on the contractual terms of the note agreement. On a quarterly basis, we evaluate the collectability of each mortgage note receivable based on various factors which may include payment history, expected fair value of the collateral securing the loan, internal and external credit information and/or economic trends. A loan is considered impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due under the existing contractual terms. When a loan is considered impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the mortgage note receivable to the present value of expected future cash flows. Since all of our loans are collateralized by either a first or second mortgage, the loans have risk characteristics similar to the risks in owning commercial real estate.

Share Based Compensation

We grant share based compensation awards to employees and trustees typically in the form of restricted common shares, commons shares, and options. We measure stock based compensation expense based on the grant date fair value of the award and recognize the expense ratably over the requisite service period, which is typically the vesting period. See Note 15 for further discussion regarding our share based compensation plans and policies.

Variable Interest Entities

Certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest qualify as VIEs. VIEs are required to be consolidated by their primary beneficiary. The primary beneficiary of a VIE has both the power to direct the activities that most significantly impact economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

We have evaluated our investments in certain joint ventures including our real estate partnership with affiliates of a discretionary fund created and advised by ING Clarion Partners and determined that these joint ventures do not meet the requirements of a variable interest entity and, therefore, consolidation of these ventures is not required. These investments are accounted for using the equity method. We have also evaluated our mortgage loans receivable and determined that entities obligated under the mortgage loans are not VIEs for all periods presented. Our investment balances from our real estate partnership and mortgage notes receivable are presented separately in our consolidated balance sheets.

On October 16, 2006, we acquired the leasehold interest in Melville Mall under a 20 year master lease. Additionally, we loaned the owner of Melville Mall $34.2 million secured by a second mortgage on the property. On June 3, 2014, we repaid the third party mortgage loan as further discussed in Note 7, and effectively became the first mortgage lender on the property. We have an option to purchase the shopping center on or after October 16, 2021 for a price of $5.0 million plus the assumption/repayment of the first and second mortgages. If we fail to exercise our purchase option, the owner of Melville Mall has a put option which would require us to purchase Melville Mall in 2023 for $5.0 million and the assumption of the owner’s mortgage debt. We have determined that this property is held in a variable interest entity for which we are the primary beneficiary. Accordingly, beginning October 16, 2006, we consolidated this property and its operations. As of December 31, 2013, $20.7 million is included in mortgages payable (net of unamortized discount) for the mortgage loan secured by Melville Mall, however, the loan was not our legal obligation. At December 31, 2014 and 2013, net real estate assets related to Melville Mall included in our consolidated balance sheets are approximately $61.9 million and $62.6 million, respectively.

In conjunction with the acquisition of Darien Shopping Center, we entered into a Reverse Section 1031 like-kind exchange agreement with a third party intermediary. The exchange agreement was for a maximum of 180 days and allowed us, for tax purposes, to defer gains on sale of other properties sold within this period. From April 3, 2013 to September 10, 2013, the third party intermediary was the legal owner of the property, although we controlled the activities that most significantly impacted the property, retained all of the economic benefits and risks associated with the property, and were the primary beneficiary. Accordingly, effective April 3, 2013, we consolidated Darien Shopping Center and its operations even during the period it was held by a third party intermediary.

We determined the joint venture that owns Plaza El Segundo is a variable interest entity for which we are the primary beneficiary. We are the managing member and own 48.2% of the entity. We control the significant operating decisions, consequently having the power to direct the activities that most significantly impact economic performance of the VIE, and have the obligation to absorb the majority of the losses and receive the majority of the benefits. Therefore, the entity is consolidated in our financial statements as of December 30, 2011. As of December 31, 2014 and 2013, net real estate assets related to Plaza El Segundo included in our consolidated balance sheets are approximately $178.1 million and $183.4 million, respectively, and mortgages payable (net of unamortized premium) of $180.3 million and $182.1 million, respectively. Plaza El Segundo's creditors do not have recourse to our general credit. Our maximum exposure to loss is approximately $19.5 million.

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As further discussed in Note 3, we have entered into an agreement to acquire the interest of one of the noncontrolling interest holders in The Grove at Shrewsbury in 2015. The entity that holds this interest is a variable interest entity for which we are the primary beneficiary. As of December 31, 2014, net real estate assets related to this entity's interest in The Grove at Shrewsbury included in our consolidated balance sheet are approximately $15.7 million and a mortgage payable (net of unamortized premium) of $7.4 million.

Redeemable Noncontrolling Interests

We have certain noncontrolling interests that are redeemable for cash upon the occurrence of an event that is not solely in our control and therefore are classified outside of permanent equity. We adjust the carrying amounts of these noncontrolling interests that are currently redeemable to redemption value at the balance sheet date. Adjustments to the carrying amount to reflect changes in redemption value are recorded as adjustments to additional paid-in capital in shareholders' equity. These amounts are classified within the mezzanine section of the consolidated balance sheets.

The following table provides a rollforward of the redeemable noncontrolling interests:



	Year Ended
	December 31,
	2014			2013
	(In thousands)
Beginning balance	$	104,425		$	94,420
Net income	3,452			2,887
Distributions & Redemptions	(3,714		)	(3,822		)
Contributions	5,858			1,083
Adjustment to redeemable noncontrolling interests	9,032			9,857
Ending balance	$	119,053		$	104,425

Income Taxes

We operate in a manner intended to enable us to qualify as a REIT for federal income tax purposes. A REIT that distributes at least 90% of its taxable income to its shareholders each year and meets certain other conditions is not taxed on that portion of its taxable income which is distributed to its shareholders. Therefore, federal income taxes on our taxable income have been and are generally expected to be immaterial. We are obligated to pay state taxes, generally consisting of franchise or gross receipts taxes in certain states. Such state taxes also have not been material.

We have elected to treat certain of our subsidiaries as taxable REIT subsidiaries, which we refer to as a TRS. In general, a TRS may engage in any real estate business and certain non-real estate businesses, subject to certain limitations under the Internal Revenue Code of 1986, as amended (the “Code”). A TRS is subject to federal and state income taxes. Our TRS activities have not been material.

With few exceptions, we are no longer subject to U.S. federal, state, and local tax examinations by tax authorities for years before 2010. As of December 31, 2014 and 2013, we had no material unrecognized tax benefits. While we currently have no material unrecognized tax benefits, as a policy, we recognize penalties and interest accrued related to unrecognized tax benefits as income tax expense.

Segment Information

Our primary business is the ownership, management, and redevelopment of retail and mixed-use properties. We review operating and financial information for each property on an individual basis and therefore, each property represents an individual operating segment. We evaluate financial performance using property operating income, which consists of rental income, other property income and mortgage interest income, less rental expenses and real estate taxes. No individual property constitutes more than 10% of our revenues or property operating income and we have no operations outside of the United States of America. Therefore, we have aggregated our properties into one reportable segment as the properties share similar long-term economic characteristics and have other similarities including the fact that they are operated using consistent business strategies, are typically located in major metropolitan areas, and have similar tenant mixes.

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Recently Adopted Accounting Pronouncements

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition of a discontinued operation to include only the disposal of a component of an entity that represents a strategic shift that has or will have a major impact on an entity’s operations and financial results. The standard also requires additional disclosures about discontinued operations as well as disposal transactions that do not meet the discontinued operations criteria. The standard is applicable prospectively for all disposals initially classified as held for sale in periods after adoption. We adopted the standard effective January 1, 2014, and there was no impact to the current period financial statements. In future periods, the adoption will result in most individual property disposals not qualifying for discontinued operations presentation and thus, the results of those disposals will remain in “income from continuing operations.” Properties sold prior to January 1, 2014, are not subject to ASU 2014-08 and therefore, continue to be classified as discontinued operations using the previous definition.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 supersedes nearly all existing revenue recognition guidance under GAAP and replaces it with a core revenue recognition principle, that an entity will recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and creates a five-step model for revenue recognition in accordance with this principle. ASU 2014-09 also requires new disclosures in both interim and annual reporting periods. The guidance in ASU 2014-09 does not apply to contracts within the scope of ASC 840, Leases. ASU 2014-09 will be effective for us in the first quarter of 2017 and allows for either full retrospective or modified retrospective adoption. We are currently assessing the impact of this standard to our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 provides guidance regarding management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and if such doubt exists, requires specific disclosures. ASU 2014-15 is effective for us in the first quarter of 2017 and is not expected to have a significant impact on our consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01, "Income Statement - Extraordinary and Unusual Items." ASU 2015-01 eliminates the concept, and related presentation and disclosure requirements, of an extraordinary item. The presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include those items that are both unusual in nature and infrequently occurring. ASU 2015-01 is effective for us in the first quarter of 2016 and is not expected to have a significant impact on our consolidated financial statements.

Consolidated Statements of Cash Flows—Supplemental Disclosures

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



	Year Ended December 31,
	2014			2013			2012
	(In thousands)
SUPPLEMENTAL DISCLOSURES:
Total interest costs incurred	$	114,912		$	121,158		$	123,441
Interest capitalized	(20,971		)	(16,181		)	(10,105		)
Interest expense	$	93,941		$	104,977		$	113,336
Cash paid for interest, net of amounts capitalized	$	100,011		$	120,934		$	114,419
Cash paid (refunded) for income taxes	$	278		$	410		$	(1,151	)
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Mortgage loans assumed with acquisition	$	68,282		$	—		$	67,615
DownREIT operating partnership units issued with acquisition	$	65,348		$	—		$	—
Mortgage loans refinanced	$	64,205		$	—		$	—
Repayment of note payable with public funding/related construction-in-progress offset	$	10,000		$	—		$	—
Shares issued under dividend reinvestment plan	$	1,855		$	1,779		$	1,864

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

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Capitalized lease costs are direct costs incurred which were essential to originate a lease and would not have been incurred had the leasing transaction not taken place. These costs include third party commissions and salaries and personnel costs related to obtaining a lease. Capitalized lease costs are amortized over the initial term of the related lease which generally ranges from three to ten years. We view these lease costs as part of the up-front initial investment we made in order to generate a long-term cash inflow and therefore, we classify cash outflows related to leasing costs as an investing activity in our consolidated statements of cash flows.

NOTE 3—REAL ESTATE

A summary of our real estate investments and related encumbrances is as follows:



	Cost		Accumulated Depreciation and Amortization			Encumbrances
	(In thousands)
December 31, 2014
Retail and mixed-use properties	$	5,478,085	$	(1,423,682	)	$	541,568
Retail properties under capital leases	121,069		(35,179		)	71,647
Residential	9,844		(8,189		)	22,130
	$	5,608,998	$	(1,467,050	)	$	635,345
December 31, 2013
Retail and mixed-use properties	$	5,024,800	$	(1,310,791	)	$	565,935
Retail properties under capital leases	115,028		(31,955		)	71,671
Residential	9,635		(7,725		)	22,521
	$	5,149,463	$	(1,350,471	)	$	660,127

Retail and mixed-use properties includes the residential portion of Santana Row, Bethesda Row, Pike & Rose, Congressional Plaza and Chelsea Commons. The residential property investment is our investment in Rollingwood Apartments.

2014 Significant Property Acquisitions

We have entered into an agreement to acquire the interest of one of the noncontrolling interest holders in The Grove at Shrewsbury in 2015. As this noncontrolling interest is mandatorily redeemable, it has been classified as a liability of approximately $9 million and is included in "other liabilities and deferred credits" on the December 31, 2014 consolidated balance sheet. An additional noncontrolling interest holder has the right to require us to acquire its interests in The Grove at Shrewsbury and Brook 35 at the then current fair market value beginning on January 1, 2017.

2013 Significant Property Acquisitions and Dispositions

On April 3, 2013, we acquired the fee interest in a 95,000 square foot retail property located in Darien, Connecticut for $47.3 million. Approximately $0.1 million and $1.8 million of net assets acquired were allocated to other assets for "above market leases" and other liabilities for "below market leases", respectively. We incurred $0.2 million of acquisition costs which are included in "general and administrative expenses" in 2013.

On April 5, 2013, one of our tenants acquired our fee interest in the land under an office building at our Village of Shirlington property in Arlington, Virginia, that was subject to a long term ground lease. The ground lease included an option for the tenant to purchase the fee interest. The sales price was $6.5 million, and the gain was $5.0 million.

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On July 22, 2013, we sold the fee interest in our final building at Fifth Avenue in San Diego, California, for a sales price of $15.3 million resulting in a gain of $10.7 million. On September 10, 2013 we sold the fee interest in a building in Forest Hills (Queens), New York, for a sales price of $20.4 million resulting in a gain of $13.2 million. Both sales were completed as a Section 1031 tax deferred exchange transaction with the acquisition of the property in Darien.

On October 1, 2013, we acquired the fee interest in an 11.8 acre land parcel adjacent to our Assembly Row development project for a purchase price of $18.0 million.

On December 19, 2013, we acquired the fee interest in a land parcel contiguous with our Montrose Crossing shopping center that is encumbered by two retail ground leases. The total purchase price was $10.5 million and our 89.9% share was $9.4 million.

NOTE 4—MORTGAGE NOTES RECEIVABLE

At December 31, 2014 and 2013, we had four and five mortgage notes receivable with an aggregate carrying amount of $51.0 million and $55.2 million, respectively. Approximately $41.2 million and $44.8 million of the loans are secured by first mortgages on retail buildings at December 31, 2014 and 2013, respectively. One of the loans, which is secured by a second mortgage on a hotel at our Santana Row property, was considered impaired when it was amended in August 2006. At December 31, 2014 and 2013, the loan has an outstanding face amount of $10.7 million and $11.9 million, respectively, and is carried net of a valuation allowance of $1.0 million and $1.6 million, respectively. At December 31, 2014 and 2013, our mortgages had a weighted average interest rate of 9.0%. Under the terms of certain of these mortgages, we receive additional interest based upon the gross income of the secured properties and upon sale, share in the appreciation of the properties.

NOTE 5—REAL ESTATE PARTNERSHIPS

Federal/Lion Venture LP

We have a joint venture arrangement (the “Partnership”) with affiliates of a discretionary fund created and advised by ING Clarion Partners (“Clarion”). We own 30% of the equity in the Partnership and Clarion owns 70%. We hold a general partnership interest, however, Clarion also holds a general partnership interest and has substantive participating rights. We cannot make significant decisions without Clarion’s approval. Accordingly, we account for our interest in the Partnership using the equity method. As of December 31, 2014, the Partnership owned six retail real estate properties. We are the manager of the Partnership and its properties, earning fees for acquisitions, dispositions, management, leasing, and financing. Intercompany profit generated from fees is eliminated in consolidation. We also have the opportunity to receive performance-based earnings through our Partnership interest. Accounting policies for the Partnership are similar to accounting policies followed by the Trust. The Partnership is subject to a buy-sell provision which is customary for real estate joint venture agreements and the industry. Either partner may initiate this provision at any time, which could result in either the sale of our interest or the use of available cash or borrowings to acquire Clarion’s interest. As of December 31, 2014, we have made total contributions of $48.8 million and received total distributions of $30.4 million.

The following tables provide summarized operating results and the financial position of the Partnership:



	Year Ended December 31,
	2014		2013		2012
	(In thousands)
OPERATING RESULTS
Revenue	$	18,329	$	19,209	$	19,051
Expenses
Other operating expenses	5,948		5,999		5,234
Depreciation and amortization	5,678		5,506		5,508
Interest expense	2,759		3,363		3,376
Total expenses	14,385		14,868		14,118
Net income before gain on sale of real estate	3,944		4,341		4,933
Gain on sale of real estate	14,507		—		—
Net income	$	18,451	$	4,341	$	4,933
Our share of net income from real estate partnership before gain on sale of real estate	$	1,423	$	1,498	$	1,815
Our share of gain on sale of real estate	$	4,401	$	—	$	—

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	December 31,
	2014		2013
	(In thousands)
BALANCE SHEETS
Real estate, net	$	149,203	$	170,867
Cash	2,864		2,210
Other assets	5,346		5,668
Total assets	$	157,413	$	178,745
Mortgages payable	$	34,385	$	56,922
Other liabilities	3,673		4,100
Partners’ capital	119,355		117,723
Total liabilities and partners’ capital	$	157,413	$	178,745
Our share of unconsolidated debt	$	10,316	$	17,077
Our investment in real estate partnership	$	32,367	$	32,264

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

On July 24, 2014, the Partnership sold the fee interest in Pleasant Shops in Weymouth, Massachusetts for a sales price of $34.3 million, resulting in a gain on sale of $14.5 million. Our share of the gain was $4.4 million. The partners received distributions totaling $32.8 million as a result of the sale, of which our distribution was $10.4 million.

On September 2, 2014, the Partnership repaid a $10.5 million mortgage loan secured by one of its properties at par prior to the original maturity date of December 1, 2014. The partners made additional capital contributions totaling $10.5 million to repay the mortgage loan, of which our contribution was $3.2 million.

Taurus Newbury Street JV II Limited Partnership

In May 2010, we formed Taurus Newbury Street JV II Limited Partnership ("Newbury Street Partnership"), a joint venture with an affiliate of Taurus Investment Holdings, LLC ("Taurus"), to acquire, operate and redevelop properties located primarily in the Back Bay section of Boston, Massachusetts. We held an 85% limited partnership interest in Newbury Street Partnership and Taurus held a 15% limited partnership interest and served as general partner. As general partner, Taurus was responsible for the operation and management of the properties, subject to our approval on major decisions. Accordingly, given Taurus' role as general partner, we accounted for our interest in Newbury Street Partnership using the equity method. Due to the timing of receiving financial information from the general partner, our share of earnings was recorded one quarter in arrears. On October 31, 2011, our Newbury Street Partnership sold its entire portfolio of three buildings for $44.0 million. Due to our earnings being recorded one quarter in arrears, we recognized the gain on sale of $11.9 million in the first quarter of 2012.

NOTE 6—ACQUIRED IN-PLACE LEASES

Acquired above market leases are included in prepaid expenses and other assets and had a balance of $32.7 million and $31.1 million and accumulated amortization of $19.3 million and $16.3 million at December 31, 2014 and 2013, respectively. Acquired below market leases are included in other liabilities and deferred credits and had a balance of $109.8 million and $111.1 million and accumulated amortization of $37.0 million and $34.9 million at December 31, 2014 and 2013, respectively. The value allocated to in-place leases is amortized over the related lease term and reflected as additional rental income for below market leases or a reduction of rental income for above market leases in the consolidated statements of comprehensive income. Rental income included amortization from acquired above market leases of $3.4 million, $2.8 million and $3.4 million in 2014, 2013 and 2012, respectively and amortization from acquired below market leases of $5.8 million, $5.9 million and $4.5 million in 2014, 2013 and 2012, respectively. The remaining weighted-average amortization period as of December 31, 2014, is 5.1 years and 21.2 years for above market leases and below market leases, respectively.

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The amortization for acquired in-place leases during the next five years and thereafter, assuming no early lease terminations, is as follows:



	Above Market Leases		Below Market Leases
	(In thousands)
Year ending December 31,
2015	$	2,892	$	5,327
2016	2,476		4,898
2017	1,784		4,653
2018	1,275		3,706
2019	923		3,610
Thereafter	4,012		50,632
	$	13,362	$	72,826

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NOTE 7—DEBT

The following is a summary of our total debt outstanding as of December 31, 2014 and 2013:



	Principal Balance as of December 31,						Stated Interest Rate as of
Description of Debt	2014			2013			December 31, 2014		Stated Maturity Date
Mortgages payable	(Dollars in thousands)
Melville Mall	$	—		$	20,705		5.25	%	September 1, 2014
THE AVENUE at White Marsh	—			54,112			5.46	%	January 1, 2015
Barracks Road	35,985			37,069			7.95	%	November 1, 2015
Hauppauge	13,566			13,974			7.95	%	November 1, 2015
Lawrence Park	25,507			26,275			7.95	%	November 1, 2015
Wildwood	22,420			23,095			7.95	%	November 1, 2015
Wynnewood	25,994			26,777			7.95	%	November 1, 2015
Brick Plaza	26,415			27,254			7.42	%	November 1, 2015
East Bay Bridge	—			61,980			5.13	%	March 1, 2016
Plaza El Segundo	175,000			175,000			6.33	%	August 5, 2017
The Grove at Shrewsbury (East)	44,519			—			5.82	%	October 1, 2017
The Grove at Shrewsbury (West)	11,242			—			6.38	%	March 1, 2018
Rollingwood Apartments	22,130			22,521			5.54	%	May 1, 2019
29^th Place	4,941			5,119			5.91	%	January 31, 2021
THE AVENUE at White Marsh	52,705			—			3.35	%	January 1, 2022
Montrose Crossing	75,867			77,341			4.20	%	January 10, 2022
Brook 35	11,500			—			4.65	%	July 1, 2029
Chelsea	7,074			7,269			5.36	%	January 15, 2031
Subtotal	554,865			578,491
Net unamortized premium	8,833			9,965
Total mortgages payable	563,698			588,456
Notes payable
Escondido (municipal bonds)	9,400			9,400			0.06	%	October 1, 2016
Revolving credit facility	—			—			LIBOR + 0.90%		April 21, 2017
Term loan	275,000			275,000			LIBOR + 0.90%		November 21, 2018
Various	6,119			16,422			11.31	%	Various through 2028
Total notes payable	290,519			300,822
Senior notes and debentures
5.65% notes	—			125,000			5.65	%	June 1, 2016
6.20% notes	200,000			200,000			6.20	%	January 15, 2017
5.90% notes	150,000			150,000			5.90	%	April 1, 2020
3.00% notes	250,000			250,000			3.00	%	August 1, 2022
2.75% notes	275,000			275,000			2.75	%	June 1, 2023
3.95% notes	300,000			300,000			3.95	%	January 15, 2024
7.48% debentures	29,200			29,200			7.48	%	August 15, 2026
6.82% medium term notes	40,000			40,000			6.82	%	August 1, 2027
4.50% notes	250,000			—			4.50	%	December 1, 2044
Subtotal	1,494,200			1,369,200
Net unamortized discount	(10,387		)	(8,287		)
Total senior notes and debentures	1,483,813			1,360,913
Capital lease obligations
Various	71,647			71,671			Various		Various through 2106
Total debt and capital lease obligations	$	2,409,677		$	2,321,862

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

During 2014, we refinanced or issued the following loans or debt securities:



		Amount		Stated Interest Rate		Refinance/Issuance Date	Maturity Date
		(In millions)
Brook 35 Plaza Mortgage Loan	Refinance	$	11.5	4.65	%	June 2, 2014	July 1, 2029
4.50% Senior Notes (1)	Issuance	$	250.0	4.50	%	November 14, 2014	December 1, 2044
THE AVENUE at White Marsh Mortgage Loan	Refinance	$	52.7	3.35	%	December 15, 2014	January 1, 2022

(1) The net proceeds from this note offering after issuance discounts, underwriting fees and other costs were approximately $244.6 million.

During 2014, we fully repaid or redeemed the following loans or debt securities:



	Payoff Amount		Repayment Date	Maturity Date
	(In millions)
Melville Mall Mortgage Loan	$	20.3	June 3, 2014	September 1, 2014
East Bay Bridge Mortgage Loan (1)	$	61.0	December 10, 2014	March 1, 2016
5.65% Senior Notes (2)	$	125.0	December 12, 2014	June 1, 2016

During 2014, 2013 and 2012, the maximum amount of borrowings outstanding under our revolving credit facility was $79.5 million, $76.0 million and $186.0 million, respectively. The weighted average amount of borrowings outstanding was $12.5 million, $10.5 million and $1.5 million, respectively, and the weighted average interest rate, before amortization of debt fees, was 1.1%, 1.3% and 1.4%, respectively. The revolving credit facility requires an annual facility fee of $0.9 million. At December 31, 2014 and 2013, our revolving credit facility had no balance outstanding.

Our revolving credit facility and certain notes require us to comply with various financial covenants, including the maintenance of minimum shareholders’ equity and debt coverage ratios and a maximum ratio of debt to net worth. As of December 31, 2014, we were in compliance with all loan covenants.

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Scheduled principal payments on mortgages payable, notes payable, senior notes and debentures as of December 31, 2014 are as follows:



	Mortgages Payable		Notes Payable			Senior Notes and Debentures		Total Principal
	(In thousands)
Year ending December 31,
2015	$	153,395	$	369		$	—	$	153,764
2016	3,774		9,806			—		13,580
2017	220,438		451		(1)	200,000		420,889
2018	13,326		275,500			—		288,826
2019	22,731		553			—		23,284
Thereafter	141,201		3,840			1,294,200		1,439,241
	$	554,865	$	290,519		$	1,494,200	$	2,339,584	(2)

_____________________


(1)	Our $600.0 million revolving credit facility matures on April 21, 2017, subject to a one-year extension at our option. As of December 31, 2014, there was no balance outstanding under this credit facility.


(2)	The total debt maturities differ from the total reported on the consolidated balance sheet as of December 31, 2014 due to the unamortized discount or premium on certain senior notes and mortgages payable.

Future minimum lease payments and their present value for property under capital leases as of December 31, 2014, are as follows:




	(In thousands)
Year ending December 31,
2015	$	5,787
2016	5,788
2017	5,797
2018	5,800
2019	5,800
Thereafter	160,210
	189,182
Less amount representing interest	(117,535		)
Present value	$	71,647

NOTE 8—FAIR VALUE OF FINANCIAL INSTRUMENTS

A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:



1.	Level 1 Inputs—quoted prices in active markets for identical assets or liabilities



2.	Level 2 Inputs—observable inputs other than quoted prices in active markets for identical assets and liabilities



3.	Level 3 Inputs—prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Except as disclosed below, the carrying amount of our financial instruments approximates their fair value. The fair value of our mortgages payable, notes payable and senior notes and debentures is sensitive to fluctuations in interest rates. Quoted market prices (Level 1) were used to estimate the fair value of our marketable senior notes and debentures and discounted cash flow analysis (Level 2) is generally used to estimate the fair value of our mortgages and notes payable. Considerable judgment is necessary to estimate the fair value of financial instruments. The estimates of fair value presented herein are not necessarily

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indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the carrying amount and fair value of our mortgages payable, notes payable and senior notes and debentures is as follows:



	December 31, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
Mortgages and notes payable	$	854,217	$	880,866	$	889,278	$	912,251
Senior notes and debentures	$	1,483,813	$	1,579,868	$	1,360,913	$	1,397,731

As of December 31, 2014, we have two interest rate swap agreements with a notional amount of $275.0 million that are measured at fair value on a recurring basis. The interest rate swap agreements fix the variable portion of our $275.0 million term loan at 1.72% from December 1, 2011 through November 1, 2018. The fair values of the interest rate swap agreements are based on the estimated amounts we would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs. The fair value of our swaps at December 31, 2014 and 2013, was a liability of $3.5 million, and $1.4 million, respectively, and are included in "accounts payable and accrued expenses" on our consolidated balance sheets. The changes in valuation on our interest rate swaps were a $2.1 million decrease and an $11.0 million increase (including $4.3 million for both years reclassified from other comprehensive loss to earnings) for 2014 and 2013, and are included in "accumulated other comprehensive loss". A summary of our financial liabilities that are measured at fair value on a recurring basis, by level within the fair value hierarchy is as follows:



	December 31, 2014								December 31, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(In thousands)
Interest rate swaps	$	—	$	3,515	$	—	$	3,515	$	—	$	1,417	$	—	$	1,417

NOTE 9—COMMITMENTS AND CONTINGENCIES

We are currently a party to various legal proceedings. We accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate within the range; however, if no amount within the range is a better estimate than any other amount, the minimum within the range is accrued. Legal fees related to litigation are expensed as incurred. Other than as described below, we do not believe that the ultimate outcome of these matters, either individually or in the aggregate, could have a material adverse effect on our financial position or overall trends in results of operations; however, litigation is subject to inherent uncertainties. Also under our leases, tenants are typically obligated to indemnify us from and against all liabilities, costs and expenses imposed upon or asserted against us (1) as owner of the properties due to certain matters relating to the operation of the properties by the tenant, and (2) where appropriate, due to certain matters relating to the ownership of the properties prior to their acquisition by us.

We reserve for estimated losses, if any, associated with warranties given to a buyer at the time real estate is sold or other potential liabilities relating to that sale, taking any insurance policies into account. These warranties may extend up to ten years and require significant judgment. If changes in facts and circumstances indicate that warranty reserves are understated, we will accrue additional reserves at such time a liability has been incurred and the costs can be reasonably estimated. Warranty reserves are released once the legal liability period has expired or all related work has been substantially completed. Any increases to our estimated warranty losses would usually result in a decrease in net income.

We are self-insured for general liability costs up to predetermined retained amounts per claim, and we believe that we maintain adequate accruals to cover our retained liability. We currently do not maintain third party stop-loss insurance policies to cover liability costs in excess of predetermined retained amounts. Our accrual for self-insurance liability is determined by management and is based on claims filed and an estimate of claims incurred but not yet reported. Management considers a number of factors, including third-party actuarial analysis and future increases in costs of claims, when making these determinations. If our liability costs exceed these accruals, it will reduce our net income.

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At December 31, 2014 and 2013, our reserves for warranties and general liability costs were $7.2 million and $7.4 million, respectively, and are included in “accounts payable and accrued expenses” in our consolidated balance sheets. Any potential losses which exceed our estimates would result in a decrease in our net income. During 2014 and 2013, we made payments from these reserves of $1.4 million and $1.2 million, respectively. Although we consider the reserve to be adequate, there can be no assurance that the reserve will prove to be adequate over-time to cover losses due to the difference between the assumptions used to estimate the reserve and actual losses.

At December 31, 2014, we had letters of credit outstanding of approximately $13.0 million which are collateral for existing indebtedness and other obligations of the Trust.

As of December 31, 2014 in connection with capital improvement, development, and redevelopment projects, the Trust has contractual obligations of approximately $232.3 million.

We are obligated under ground lease agreements on several shopping centers requiring minimum annual payments as follows, as of December 31, 2014:




	(In thousands)
Year ending December 31,
2015	$	1,478
2016	2,437
2017	2,473
2018	2,488
2019	2,676
Thereafter	154,211
	$	165,763

A master lease for Mercer Mall includes a fixed purchase price option for $55 million in 2023. If we fail to exercise our purchase option, the owner of Mercer Mall has a put option which would require us to purchase Mercer Mall for $60 million in 2025.

Under the terms of the Congressional Plaza partnership agreement, from and after January 1, 1986, an unaffiliated third party has the right to require us and the other minority partner to purchase its 29.47% interest in Congressional Plaza at the interest’s then-current fair market value. If the other minority partner defaults in their obligation, we must purchase the full interest. Based on management’s current estimate of fair market value as of December 31, 2014, our estimated maximum liability upon exercise of the put option would range from approximately $72 million to $76 million.

Under the terms of a partnership which owns a project in southern California, if certain leasing and revenue levels are obtained for the property owned by the partnership, the other partner may require us to purchase their 10% partnership interest at a formula price based upon property operating income. The purchase price for the partnership interest will be paid using our common shares or, subject to certain conditions, cash. If the other partner does not redeem their interest, we may choose to purchase the partnership interest upon the same terms.

A master lease for Melville Mall includes a fixed purchase price option in 2021 for $5 million. If we fail to exercise our purchase option, the owner of Melville Mall has a put option which would require us to purchase Melville Mall in 2023 for $5 million.

The other member in Montrose Crossing has the right to require us to purchase all of its 10.1% interest in Montrose Crossing at the interest's then-current fair market value. If the other member fails to exercise its put option, we have the right to purchase its interest on or after December 27, 2021 at fair market value. Based on management’s current estimate of fair market value as of December 31, 2014, our estimated maximum liability upon exercise of the put option would range from approximately $9 million to $10 million.

Two of the members in Plaza El Segundo have the right to require us to purchase their 10.0% and 11.8% ownership interests at the interests' then-current fair market value. If the members fail to exercise their put options, we have the right to purchase each of their interests on or after December 30, 2026 at fair market value. Based on management’s current estimate of fair market value as of December 31, 2014, our estimated maximum liability upon exercise of the put option would range from approximately $18 million to $21 million. Also, between January 1, 2017 and February 1, 2017, we have an option to purchase

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the preferred interest of another member in Plaza El Segundo. The purchase price will be the lesser of fair value or the $4.9 million stated value of the preferred interest plus any accrued and unpaid preferred returns.

Effective January 1, 2017, the other member in The Grove at Shrewsbury and Brook 35 has the right to require us to purchase all of its approximately 4.8% interest in The Grove at Shrewsbury and approximately 8.8% interest in Brook 35 at the interests' then-current fair market value.

Under the terms of certain partnership agreements, the partners have the right to exchange their operating partnership units for cash or the same number of our common shares, at our option. A total of 917,255 operating partnership units are outstanding which have a total fair value of $122.4 million, based on our closing stock price on December 31, 2014.

NOTE 10—SHAREHOLDERS’ EQUITY

We have a Dividend Reinvestment Plan (the “Plan”), whereby shareholders may use their dividends and optional cash payments to purchase shares. In 2014, 2013 and 2012, 18,705 shares, 20,026 shares and 22,814 shares, respectively, were issued under the Plan.

As of December 31, 2014, 2013, and 2012, we had 399,896 shares of 5.417% Series 1 Cumulative Convertible Preferred Shares (“Series 1 Preferred Shares”) outstanding that have a liquidation preference of $25 per share and

par value $0.01 per share. The Series 1 Preferred Shares accrue dividends at a rate of 5.417% per year and are convertible at any time by the holders to our common shares at a conversion rate of $104.69 per share. The Series 1 Preferred Shares are also convertible under certain circumstances at our election. The holders of the Series 1 Preferred Shares have no voting rights.

On February 12, 2014 we replaced our existing at the market (“ATM”) equity program with a new ATM equity program in which we may from time to time offer and sell common shares having an aggregate offering price of up to $300.0 million. We intend to use the net proceeds to fund potential acquisition opportunities, fund our development and redevelopment pipeline, repay amounts of outstanding under our revolving credit facility and/or for general corporate purposes. For the year ended December 31, 2014, we issued 1,768,583 common shares at a weighted average price per share of $122.09 for net cash proceeds of $213.6 million and paid $2.2 million in commissions and $0.2 million in additional offering expenses related to the sales of these common shares. For the year ended December 31, 2013, we issued 1,734,974 common shares at a weighted average price per share of $108.01 for net cash proceeds of $185.2 million and paid $2.0 million in commissions and $0.2 million in additional offering expenses related to the sales of these common shares. As of December 31, 2014, we had the capacity to issue up to $84.1 million in common shares under our ATM equity program.

NOTE 11—DIVIDENDS

The following table provides a summary of dividends declared and paid per share:



	Year Ended December 31,
	2014				2013				2012
	Declared		Paid		Declared		Paid		Declared		Paid
Common shares	$	3.300	$	3.210	$	3.020	$	2.970	$	2.840	$	2.800
5.417% Series 1 Cumulative Convertible Preferred shares	$	1.354	$	1.354	$	1.354	$	1.354	$	1.354	$	1.354

A summary of the income tax status of dividends per share paid is as follows:



	Year Ended December 31,
	2014		2013		2012
Common shares
Ordinary dividend	$	3.178	$	2.911	$	2.772
Capital gain	0.032		0.059		0.028
	$	3.210	$	2.970	$	2.800
5.417% Series 1 Cumulative Convertible Preferred shares
Ordinary dividend	$	1.340	$	1.327	$	1.340
Capital gain	0.014		0.027		0.014
	$	1.354	$	1.354	$	1.354

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On October 30, 2014, the Trustees declared a quarterly cash dividend of $0.87 per common share, payable January 15, 2015 to common shareholders of record on January 2, 2015.

NOTE 12—OPERATING LEASES

At December 31, 2014, our 89 predominantly retail shopping center and mixed-use properties are located in 13 states and the District of Columbia. There are approximately 2,700 leases with tenants providing a wide range of retail products and services. These tenants range from sole proprietorships to national retailers; no one tenant or corporate group of tenants accounts for more than 3.1% of annualized base rent.

Our leases with commercial property and residential tenants are classified as operating leases. Commercial property leases generally range from three to ten years (certain leases with anchor tenants may be longer), and in addition to minimum rents, may provide for percentage rents based on the tenant’s level of sales achieved and cost recoveries for the tenant’s share of certain operating costs. Leases on apartments are generally for a period of 1 year or less.

As of December 31, 2014, minimum future commercial property rentals from noncancelable operating leases, before any reserve for uncollectible amounts and assuming no early lease terminations, at our operating properties are as follows:




	(In thousands)
Year ending December 31,
2015	$	484,911
2016	447,519
2017	389,507
2018	323,748
2019	268,600
Thereafter	1,718,254
	$	3,632,539

NOTE 13—COMPONENTS OF RENTAL INCOME AND EXPENSE

The principal components of rental income are as follows:



	Year Ended December 31,
	2014		2013		2012
	(In thousands)
Minimum rents
Retail and commercial	$	472,602	$	448,058	$	420,989
Residential	36,099		28,902		27,611
Cost reimbursement	135,592		122,578		112,424
Percentage rent	10,169		9,359		8,568
Other	11,860		11,192		10,522
Total rental income	$	666,322	$	620,089	$	580,114

Minimum rents include the following:



	Year Ended December 31,
	2014		2013		2012
	(In millions)
Straight-line rents	$	5.1	$	5.4	$	6.1
Net amortization of above and below market leases	$	2.4	$	3.1	$	1.1

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The principal components of rental expenses are as follows:



	Year Ended December 31,
	2014		2013		2012
	(In thousands)
Repairs and maintenance	$	55,444	$	46,600	$	41,550
Utilities	20,499		19,219		19,201
Management fees and costs	17,416		16,250		15,167
Payroll	11,554		9,237		8,691
Marketing	9,532		8,664		7,321
Insurance	6,462		6,811		6,267
Ground Rent	1,952		1,916		2,189
Bad debt expense	2,021		442		2,173
Other operating	10,537		9,556		10,057
Total rental expenses	$	135,417	$	118,695	$	112,616

NOTE 14—DISCONTINUED OPERATIONS

During 2013 and prior to our adoption of ASU 2014-08 as further discussed in Note 2, certain disposal transactions were considered discontinued operations. A summary of the financial information for the discontinued operations is as follows:



	Year Ended December 31,
	2013		2012
	(in millions)
Revenue from discontinued operations	$	1.5	$	2.2
Income from discontinued operations	$	0.9	$	1.4

NOTE 15—SHARE-BASED COMPENSATION PLANS

A summary of share-based compensation expense included in net income is as follows:



	Year Ended December 31,
	2014			2013			2012
	(In thousands)
Share-based compensation incurred
Grants of common shares	$	12,892		$	10,907		$	9,846
Grants of options	49			292			525
	12,941			11,199			10,371
Capitalized share-based compensation	(1,188		)	(1,024		)	(908		)
Share-based compensation expense	$	11,753		$	10,175		$	9,463

As of December 31, 2014, we have grants outstanding under two share-based compensation plans. In May 2010, our shareholders approved the 2010 Performance Incentive Plan, as amended (“the 2010 Plan”), which authorized the grant of share options, common shares and other share-based awards for up to 2,450,000 common shares of beneficial interest. Our 2001 Long Term Incentive Plan (the “2001 Plan”), which expired in May 2010, authorized the grant of share options, common shares and other share-based awards of 3,250,000 common shares of beneficial interest.

Option awards under both plans are required to have an exercise price at least equal to the closing trading price of our common shares on the date of grant. Options and restricted share awards under these plans generally vest over three to six years and option awards typically have a ten-year contractual term. We pay dividends on unvested shares. Certain options and share awards provide for accelerated vesting if there is a change in control. Additionally, the vesting on certain option and share awards can accelerate in part or in full upon retirement based on the age of the retiree or upon termination without cause.

The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities, term, dividend yields, employee exercises and estimated forfeitures are primarily based on historical data. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair value of each share award is determined

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based on the closing trading price of our common shares on the grant date. No options were granted in 2014, 2013 and 2012. The following table provides a summary of option activity for 2014:



	Shares Under Option		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
					(In years)	(In thousands)
Outstanding at December 31, 2013	375,460		$	63.00
Granted	—		—
Exercised	(29,218	)	73.38
Forfeited or expired	(2,500	)	82.15
Outstanding at December 31, 2014	343,742		$	61.55	3.4	$	24,719
Exercisable at December 31, 2014	343,599		$	61.55	3.4	$	24,709

The total cash received from options exercised during 2014, 2013 and 2012 was $2.3 million, $1.0 million and $5.7 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $1.1 million, $0.7 million and $4.2 million, respectively.

The following table provides a summary of restricted share activity for 2014:



	Shares		Weighted-Average Grant-Date Fair Value
Unvested at December 31, 2013	298,203		$	93.71
Granted	119,677		111.45
Vested	(108,882	)	94.12
Forfeited	(2,030	)	98.02
Unvested at December 31, 2014	306,968		$	100.45

The weighted-average grant-date fair value of stock awarded in 2014, 2013 and 2012 was $111.45, $106.70 and $96.35, respectively. The total vesting-date fair value of shares vested during the year ended December 31, 2014, 2013 and 2012, was $12.1 million, $10.6 million and $10.3 million, respectively.

As of December 31, 2014, there was $15.5 million of total unrecognized compensation cost related to unvested share-based compensation arrangements (i.e. options and unvested shares) granted under our plans. This cost is expected to be recognized over the next 9.4 years with a weighted-average period of 2.1 years.

Subsequent to December 31, 2014, common shares were awarded under various compensation plans as follows:



Date	Award		Vesting Term	Beneficiary
February 6, 2015	50,734	Restricted shares	2-5 years	Officers and key employees
January 2, 2015	5,059	Shares	Immediate	Trustees

NOTE 16—SAVINGS AND RETIREMENT PLANS

We have a savings and retirement plan in accordance with the provisions of Section 401(k) of the Code. Generally, employees can elect, at their discretion, to contribute a portion of their compensation up to a maximum of $17,500 for 2014 and 2013, and $17,000 for 2012. Under the plan, we contribute 50% of each employee’s elective deferrals up to 5% of eligible earnings. In addition, we may make discretionary contributions within the limits of deductibility set forth by the Code. Our full-time employees are immediately eligible to become plan participants. Employees are eligible to receive matching contributions immediately on their participation; however, these matching payments will not vest until their third anniversary of employment for new employees who joined the Trust after December 31, 2011, and their first anniversary of employment for all other participants. Our expense for the years ended December 31, 2014, 2013 and 2012 was approximately $442,000, $384,000 and $427,000, respectively.

A non-qualified deferred compensation plan for our officers and certain other employees was established in 1994 that allows the participants to defer a portion of their income. As of December 31, 2014 and 2013, we are liable to participants for approximately $10.3 million and $9.2 million, respectively, under this plan. Although this is an unfunded plan, we have purchased certain investments to match this obligation. Our obligation under this plan and the related investments are both included in the accompanying consolidated financial statements.

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NOTE 17—EARNINGS PER SHARE

We have calculated earnings per share (“EPS”) under the two-class method. The two-class method is an earnings allocation methodology whereby EPS for each class of common stock and participating securities is calculated according to dividends declared and participation rights in undistributed earnings. For 2014, 2013 and 2012, we had 0.3 million weighted average unvested shares outstanding, which are considered participating securities. Therefore, we have allocated our earnings for basic and diluted EPS between common shares and unvested shares; the portion of earnings allocated to the unvested shares is reflected as “earnings allocated to unvested shares” in the reconciliation below.

In the dilutive EPS calculation, dilutive stock options were calculated using the treasury stock method consistent with prior periods. There were no anti-dilutive stock options in 2014, 2013, or 2012. The conversions of downREIT operating partnership units and 5.417% Series 1 Cumulative Convertible Preferred Shares are anti-dilutive for all periods presented and accordingly, have been excluded from the weighted average common shares used to compute diluted EPS.



	Year Ended December 31,
	2014			2013			2012
	(In thousands, except per share data)
NUMERATOR
Income from continuing operations	$	167,888		$	137,811		$	142,972
Less: Preferred share dividends	(541		)	(541		)	(541		)
Less: Income from continuing operations attributable to noncontrolling interests	(7,754		)	(4,927		)	(4,307		)
Less: Earnings allocated to unvested shares	(1,003		)	(889		)	(845		)
Income from continuing operations available for common shareholders	158,590			131,454			137,279
Results from discontinued operations attributable to the Trust	—			24,803			1,400
Gain on sale of real estate	4,401			4,994			11,860
Net income available for common shareholders, basic and diluted	$	162,991		$	161,251		$	150,539
DENOMINATOR
Weighted average common shares outstanding—basic	67,322			65,331			63,881
Effect of dilutive securities:
Stock options	170			152			175
Weighted average common shares outstanding—diluted	67,492			65,483			64,056
EARNINGS PER COMMON SHARE, BASIC
Continuing operations	$	2.35		$	2.01		$	2.15
Discontinued operations	—			0.38			0.02
Gain on sale of real estate	0.07			0.08			0.19
	$	2.42		$	2.47		$	2.36
EARNINGS PER COMMON SHARE, DILUTED
Continuing operations	$	2.34		$	2.00		$	2.14
Discontinued operations	—			0.38			0.02
Gain on sale of real estate	0.07			0.08			0.19
	$	2.41		$	2.46		$	2.35
Income from continuing operations attributable to the Trust	$	160,134		$	132,884		$	138,665

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NOTE 18—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data is as follows:



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In thousands, except per share data)
2014
Revenue	$	170,828	$	167,947	$	170,938	$	176,377
Operating income	$	63,444	$	68,361	$	67,622	$	71,610
Net income(1)	$	40,545	$	45,416	$	49,049	$	37,279
Net income attributable to the Trust(1)	$	38,753	$	43,545	$	47,075	$	35,162
Net income available for common shareholders(1)	$	38,618	$	43,410	$	46,939	$	35,027
Earnings per common share—basic(1)	$	0.58	$	0.64	$	0.69	$	0.51
Earnings per common share—diluted(1)	$	0.57	$	0.64	$	0.69	$	0.51
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In thousands, except per share data)
2013
Revenue(2)	$	157,149	$	157,388	$	159,030	$	163,846
Operating income	$	62,502	$	63,488	$	64,701	$	63,470
Net income(1)	$	35,842	$	38,797	$	63,366	$	29,603
Net income attributable to the Trust(1)	$	34,588	$	37,539	$	62,098	$	28,456
Net income available for common shareholders(1)	$	34,453	$	37,404	$	61,962	$	28,321
Earnings per common share—basic(1)	$	0.53	$	0.57	$	0.94	$	0.43
Earnings per common share—diluted(1)	$	0.53	$	0.57	$	0.94	$	0.42


(1)	Third quarter 2014 includes a $4.4 million gain on sale reflecting our share of the Partnership's sale of Pleasant Shops as further discussed in Note 5. Third quarter 2013 includes a $23.9 million gain on sale of two retail buildings as further discussed in Note 3.


(2)	Revenue in 2013 has been reduced to reflect the results of discontinued operations as further discussed in Note 14. Revenue from discontinued operations, by quarter, is summarized as follows:



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In thousands)
2013 revenue from discontinued operations	$	602	$	559	$	385	$	—

NOTE 19—SUBSEQUENT EVENT

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FEDERAL REALTY INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2014 (Dollars in thousands)

COLUMN A		COLUMN B		COLUMN C				COLUMN D		COLUMN E						COLUMN F		COLUMN G	COLUMN H	COLUMN I
Descriptions		Encumbrance		Initial cost to company				Cost Capitalized Subsequent to Acquisition		Gross amount at which carried at close of period						Accumulated Depreciation and Amortization		Date of Construction	Date Acquired	Life on which depreciation in latest income statements is computed
Descriptions		Encumbrance		Land		Building and Improvements		Cost Capitalized Subsequent to Acquisition		Land		Building and Improvements		Total		Accumulated Depreciation and Amortization		Date of Construction	Date Acquired
150 POST STREET (California)	CA	$	—	$	11,685	$	9,181	$	16,350	$	11,685	$	25,531	$	37,216	$	16,363	1908/1965	10/23/1997	35 years
29TH PLACE (Virginia)	VA	4,917		10,211		18,863		11,222		10,225		30,071		40,296		7,323		1975 - 2001	5/30/2007	35 years
ANDORRA (Pennsylvania)	PA	—		2,432		12,346		10,875		2,432		23,221		25,653		17,090		1953	1/12/1988	35 years
ASSEMBLY ROW/ASSEMBLY SQUARE MARKETPLACE (Massachusetts)	MA	—		93,252		34,196		305,854		93,252		340,050		433,302		21,953		2005, 2012-2014	2005-2013	35 years
THE AVENUE AT WHITE MARSH (Maryland)	MD	52,705		20,682		72,432		4,514		20,685		76,943		97,628		22,282		1997	3/8/2007	35 years
BALA CYNWYD (Pennsylvania)	PA	—		3,565		14,466		22,187		3,566		36,652		40,218		16,281		1955	9/22/1993	35 years
BARRACKS ROAD (Virginia)	VA	35,985		4,363		16,459		39,643		4,363		56,102		60,465		37,539		1958	12/31/1985	35 years
BETHESDA ROW (Maryland)	MD	—		46,579		35,406		141,226		44,880		178,331		223,211		56,776		1945-2008	12/31/93, 6/2/97, 1/20/06, 9/25/08, 9/30/08, & 12/27/10	35 - 50 years
BRICK PLAZA (New Jersey)	NJ	26,415		—		24,715		35,770		3,944		56,541		60,485		42,119		1958	12/28/1989	35 years
BRISTOL PLAZA (Connecticut)	CT	—		3,856		15,959		9,602		3,856		25,561		29,417		14,521		1959	9/22/1995	35 years
BROOK 35 (New Jersey)	NJ	11,500		7,128		38,355		573		7,128		38,928		46,056		1,312		1986/2004	1/1/2014	35 years
CHELSEA COMMONS (Massachusetts)	MA	6,790		9,417		19,466		13,825		9,396		33,312		42,708		5,484		1962/1969/2008	8/25/06, 1/30/07, & 7/16/08	35 years
COLORADO BLVD (California)	CA	—		5,262		4,071		8,787		5,262		12,858		18,120		9,336		1905-1988	12/31/96 & 8/14/98	35 years
CONGRESSIONAL PLAZA (Maryland)	MD	—		2,793		7,424		69,801		1,020		78,998		80,018		47,425		1965/2003	4/1/1965	35 years
COURTHOUSE CENTER (Maryland)	MD	—		1,750		1,869		1,142		1,750		3,011		4,761		1,589		1975	12/17/1997	35 years
COURTYARD SHOPS (Florida)	FL	—		16,862		21,851		2,025		16,894		23,844		40,738		5,731		1990/1998	9/4/2008	35 years
CROSSROADS (Illinois)	IL	—		4,635		11,611		14,897		4,635		26,508		31,143		14,056		1959	7/19/1993	35 years

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FEDERAL REALTY INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2014 (Dollars in thousands)

COLUMN A		COLUMN B	COLUMN C		COLUMN D	COLUMN E			COLUMN F	COLUMN G	COLUMN H	COLUMN I
Descriptions		Encumbrance	Initial cost to company		Cost Capitalized Subsequent to Acquisition	Gross amount at which carried at close of period			Accumulated Depreciation and Amortization	Date of Construction	Date Acquired	Life on which depreciation in latest income statements is computed
Descriptions		Encumbrance	Land	Building and Improvements	Cost Capitalized Subsequent to Acquisition	Land	Building and Improvements	Total	Accumulated Depreciation and Amortization	Date of Construction	Date Acquired
CROW CANYON COMMONS (California)	CA	—	27,245	54,575	4,915	27,245	59,490	86,735	15,878	Late 1970's/ 1998/2006	12/29/05 & 2/28/07	35 years
DARIEN (Connecticut)	CT	—	29,809	18,302	21	29,809	18,323	48,132	1,134	1920-2009	4/3/2013	35 years
DEDHAM PLAZA (Massachusetts)	MA	—	12,287	12,918	9,834	12,287	22,752	35,039	12,909	1959	12/31/1993	35 years
DEL MAR VILLAGE (Florida)	FL	—	15,624	41,712	2,494	15,587	44,243	59,830	15,971	1982/1994/2007	5/30/08, 7/11/08, & 10/14/14	35 years
EAST BAY BRIDGE (California)	CA	—	29,079	138,035	1,395	29,079	139,430	168,509	9,604	1994-2001, 2011/2012	12/21/2012	35 years
EASTGATE (North Carolina)	NC	—	1,608	5,775	20,329	1,608	26,104	27,712	17,343	1963	12/18/1986	35 years
ELLISBURG (New Jersey)	NJ	—	4,028	11,309	18,818	4,013	30,142	34,155	17,344	1959	10/16/1992	35 years
ESCONDIDO PROMENADE (California)	CA	—	19,117	15,829	12,118	19,117	27,947	47,064	12,034	1987	12/31/96 & 11/10/10	35 years
FALLS PLAZA (Virginia)	VA	—	1,798	1,270	9,787	1,819	11,036	12,855	7,607	1960/1962	9/30/67 & 10/05/72	25 years
FEDERAL PLAZA (Maryland)	MD	—	10,216	17,895	37,699	10,216	55,594	65,810	37,299	1970	6/29/1989	35 years
FINLEY SQUARE (Illinois)	IL	—	9,252	9,544	13,829	9,252	23,373	32,625	16,607	1974	4/27/1995	35 years
FLOURTOWN (Pennsylvania)	PA	—	1,345	3,943	9,010	1,345	12,953	14,298	4,490	1957	4/25/1980	35 years
FRESH MEADOWS (New York)	NY	—	24,625	25,255	30,115	24,633	55,362	79,995	30,687	1946-1949	12/5/1997	35 years
FRIENDSHIP CENTER (District of Columbia)	DC	—	12,696	20,803	3,999	12,696	24,802	37,498	8,889	1998	9/21/2001	35 years
GAITHERSBURG SQUARE (Maryland)	MD	—	7,701	5,271	12,810	5,973	19,809	25,782	15,980	1966	4/22/1993	35 years
GARDEN MARKET (Illinois)	IL	—	2,677	4,829	5,181	2,677	10,010	12,687	6,111	1958	7/28/1994	35 years
GOVERNOR PLAZA (Maryland)	MD	—	2,068	4,905	19,744	2,068	24,649	26,717	17,018	1963	10/1/1985	35 years
GRAHAM PARK PLAZA (Virginia)	VA	—	1,237	15,096	17,536	1,169	32,700	33,869	24,764	1971	7/21/1983	35 years
GRATIOT PLAZA (Michigan)	MI	—	525	1,601	17,092	525	18,693	19,218	15,431	1964	3/29/1973	25.75 years
GREENWICH AVENUE (Connecticut)	CT	—	7,484	5,444	1,041	7,484	6,485	13,969	3,590	1968	4/12/1995	35 years

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FEDERAL REALTY INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2014 (Dollars in thousands)

COLUMN A		COLUMN B	COLUMN C		COLUMN D	COLUMN E			COLUMN F	COLUMN G	COLUMN H	COLUMN I
Descriptions		Encumbrance	Initial cost to company		Cost Capitalized Subsequent to Acquisition	Gross amount at which carried at close of period			Accumulated Depreciation and Amortization	Date of Construction	Date Acquired	Life on which depreciation in latest income statements is computed
Descriptions		Encumbrance	Land	Building and Improvements	Cost Capitalized Subsequent to Acquisition	Land	Building and Improvements	Total	Accumulated Depreciation and Amortization	Date of Construction	Date Acquired
HAUPPAUGE (New York)	NY	13,566	8,791	15,262	4,060	8,426	19,687	28,113	9,591	1963	8/6/1998	35 years
HERMOSA AVENUE (California)	CA	—	1,116	280	4,485	1,368	4,513	5,881	2,365	1922	9/17/1997	35 years
HOLLYWOOD BLVD. (California)	CA	—	8,300	16,920	21,729	8,300	38,649	46,949	10,619	1929/1991	3/22/99 & 6/18/99	35 years
HOUSTON STREET (Texas)	TX	—	14,680	1,976	45,419	14,778	47,297	62,075	27,915	var	1998	35 years
HUNTINGTON (New York)	NY	—	11,713	16,008	16,042	11,713	32,050	43,763	12,121	1962	12/12/88 & 10/26/07	35 years
HUNTINGTON SQUARE (New York)	NY	—	—	10,075	2,307	—	12,382	12,382	1,717	1980/2004-2007	8/16/2010	35 years
IDYLWOOD PLAZA (Virginia)	VA	—	4,308	10,026	2,390	4,308	12,416	16,724	7,553	1991	4/15/1994	35 years
KINGS COURT (California)	CA	—	—	10,714	894	—	11,608	11,608	7,429	1960	8/24/1998	26 years
LANCASTER (Pennsylvania)	PA	4,907	—	2,103	11,441	75	13,469	13,544	7,341	1958	4/24/1980	22 years
LANGHORNE SQUARE (Pennsylvania)	PA	—	720	2,974	18,082	720	21,056	21,776	12,997	1966	1/31/1985	35 years
LAUREL (Maryland)	MD	—	7,458	22,525	22,974	7,464	45,493	52,957	32,934	1956	8/15/1986	35 years
LAWRENCE PARK (Pennsylvania)	PA	25,507	5,723	7,160	19,078	5,734	26,227	31,961	23,109	1972	7/23/1980	22 years
LEESBURG PLAZA (Virginia)	VA	—	8,184	10,722	16,729	8,184	27,451	35,635	12,093	1967	9/15/1998	35 years
LINDEN SQUARE (Massachusetts)	MA	—	79,382	19,247	48,105	79,269	67,465	146,734	15,329	1960-2008	8/24/2006	35 years
MELVILLE MALL (New York)	NY	—	35,622	32,882	1,401	35,622	34,283	69,905	7,968	1974	10/16/2006	35 years
MERCER MALL (New Jersey)	NJ	55,741	28,684	48,028	39,012	28,684	87,040	115,724	30,786	1975	10/14/2003	25 - 35 years
MONTROSE CROSSING (Maryland)	MD	75,867	48,624	91,819	12,663	48,624	104,482	153,106	12,524	1960s, 1970s, 1996 & 2011	12/27/11, 12/19/13	35 years
MOUNT VERNON/SOUTH VALLEY/7770 RICHMOND HWY. (Virginia)	VA	—	10,068	33,501	38,701	10,230	72,040	82,270	25,865	1966/1972/1987/2001	3/31/03, 3/21/03, & 1/27/06	35 years
TOWN CENTER OF NEW BRITAIN (Pennsylvania)	PA	—	1,282	12,285	1,064	1,341	13,290	14,631	3,752	1969	6/29/2006	35 years
NORTH DARTMOUTH (Massachusetts)	MA	—	9,366	—	2	9,366	2	9,368	2	2004	8/24/2006

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FEDERAL REALTY INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2014 (Dollars in thousands)

COLUMN A		COLUMN B	COLUMN C		COLUMN D	COLUMN E			COLUMN F	COLUMN G	COLUMN H	COLUMN I
Descriptions		Encumbrance	Initial cost to company		Cost Capitalized Subsequent to Acquisition	Gross amount at which carried at close of period			Accumulated Depreciation and Amortization	Date of Construction	Date Acquired	Life on which depreciation in latest income statements is computed
Descriptions		Encumbrance	Land	Building and Improvements	Cost Capitalized Subsequent to Acquisition	Land	Building and Improvements	Total	Accumulated Depreciation and Amortization	Date of Construction	Date Acquired
NORTHEAST (Pennsylvania)	PA	—	1,152	10,596	13,116	1,153	23,711	24,864	18,127	1959	8/30/1983	35 years
NORTH LAKE COMMONS (Illinois)	IL	—	2,782	8,604	5,184	2,628	13,942	16,570	7,064	1989	4/27/1994	35 years
OLD KEENE MILL (Virginia)	VA	—	638	998	4,744	638	5,742	6,380	4,870	1968	6/15/1976	33.33 years
OLD TOWN CENTER (California)	CA	—	3,420	2,765	31,637	3,420	34,402	37,822	19,398	1962, 1997-1998	10/22/1997	35 years
PAN AM SHOPPING CENTER (Virginia)	VA	—	8,694	12,929	7,178	8,695	20,106	28,801	13,321	1979	2/5/1993	35 years
PENTAGON ROW (Virginia)	VA	—	—	2,955	95,525	—	98,480	98,480	39,074	1999 - 2002	1998 & 11/22/10	35 years
PERRING PLAZA (Maryland)	MD	—	2,800	6,461	20,575	2,800	27,036	29,836	20,605	1963	10/1/1985	35 years
PIKE & ROSE (Maryland)	MD	—	31,471	10,335	240,995	26,201	256,600	282,801	1,326	1963 & 2012-2014	5/18/82, 10/26/07, & 7/31/12	50 years
PIKE 7 (Virginia)	VA	—	9,709	22,799	3,720	9,653	26,575	36,228	14,025	1968	3/31/1997	35 years
PLAZA EL SEGUNDO (California)	CA	180,269	62,127	153,556	36,876	62,127	190,432	252,559	18,186	2006 & 2007	12/30/11, 6/14/13, 7/26/13 & 12/27/13	35 years
QUEEN ANNE PLAZA (Massachusetts)	MA	—	3,319	8,457	6,274	3,319	14,731	18,050	8,433	1967	12/23/1994	35 years
QUINCE ORCHARD (Maryland)	MD	—	3,197	7,949	21,878	2,928	30,096	33,024	14,462	1975	4/22/1993	35 years
ROCKVILLE TOWN SQUARE (Maryland)	MD	4,508	—	8,092	41,858	—	49,950	49,950	11,727	2005 - 2007	2006 - 2007	50 years
ROLLINGWOOD APTS. (Maryland)	MD	22,130	552	2,246	7,046	572	9,272	9,844	8,189	1960	1/15/1971	25 years
SAM'S PARK & SHOP (District of Columbia)	DC	—	4,840	6,319	1,338	4,840	7,657	12,497	4,364	1930	12/1/1995	35 years
SANTANA ROW (California)	CA	—	66,682	7,502	619,379	57,574	635,989	693,563	135,085	1999-2006, 2009, 2011, 2014	3/5/97, 7/13/12, 9/6/12, 4/30/13 & 9/23/13	40 - 50 years
SAUGUS PLAZA (Massachusetts)	MA	—	4,383	8,291	2,227	4,383	10,518	14,901	5,436	1976	10/1/1996	35 years
SHIRLINGTON (Virginia)	VA	6,491	9,761	14,808	35,364	4,234	55,699	59,933	20,957	1940, 2006-2009	12/21/1995	35 years

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FEDERAL REALTY INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2014 (Dollars in thousands)

COLUMN A		COLUMN B		COLUMN C				COLUMN D		COLUMN E						COLUMN F		COLUMN G	COLUMN H	COLUMN I
Descriptions		Encumbrance		Initial cost to company				Cost Capitalized Subsequent to Acquisition		Gross amount at which carried at close of period						Accumulated Depreciation and Amortization		Date of Construction	Date Acquired	Life on which depreciation in latest income statements is computed
Descriptions		Encumbrance		Land		Building and Improvements		Cost Capitalized Subsequent to Acquisition		Land		Building and Improvements		Total		Accumulated Depreciation and Amortization		Date of Construction	Date Acquired
THE GROVE AT SHREWSBURY (New Jersey)	NJ	59,633		18,016		103,115		406		18,016		103,521		121,537		3,507		1988/1993/2007	1/1/2014 & 10/6/14	35 years
THE SHOPPES AT NOTTINGHAM SQUARE (Maryland)	MD	—		4,441		12,849		148		4,441		12,997		17,438		3,515		2005 - 2006	3/8/2007	35 years
THIRD STREET PROMENADE (California)	CA	—		22,645		12,709		42,994		25,125		53,223		78,348		28,315		1888-2000	1996-2000	35 years
TOWER (Virginia)	VA	—		7,170		10,518		3,715		7,280		14,123		21,403		7,396		1953-1960	8/24/1998	35 years
TOWER SHOPS (Florida)	FL	—		29,940		43,390		10,594		29,962		53,962		83,924		8,425		1989	1/19/11 & 6/13/14	35 years
TROY (New Jersey)	NJ	—		3,126		5,193		21,653		4,028		25,944		29,972		18,843		1966	7/23/1980	22 years
TYSON'S STATION (Virginia)	VA	—		388		453		3,679		475		4,045		4,520		3,277		1954	1/17/1978	17 years
WESTGATE CENTER (California)	CA	—		6,319		107,284		28,278		6,319		135,562		141,881		31,731		1960-1966	3/31/2004	35 years
WHITE MARSH PLAZA (Maryland)	MD	—		3,478		21,413		248		3,478		21,661		25,139		6,307		1987	3/8/2007	35 years
WHITE MARSH OTHER (Maryland)	MD	—		34,281		1,843		402		34,311		2,215		36,526		591		1985	3/8/2007	35 years
WILDWOOD (Maryland)	MD	22,420		9,111		1,061		8,354		9,111		9,415		18,526		7,946		1958	5/5/1969	33.33 years
WILLOW GROVE (Pennsylvania)	PA	—		1,499		6,643		21,819		1,499		28,462		29,961		23,185		1953	11/20/1984	35 years
WILLOW LAWN (Virginia)	VA	—		3,192		7,723		73,143		7,790		76,268		84,058		48,754		1957	12/5/1983	35 years
WYNNEWOOD (Pennsylvania)	PA	25,994		8,055		13,759		18,808		8,055		32,567		40,622		18,729		1948	10/29/1996	35 years
TOTALS		$	635,345	$	1,116,102	$	1,781,103	$	2,711,793	$	1,102,836	$	4,506,162	$	5,608,998	$	1,467,050

F-34

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FEDERAL REALTY INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED Three Years Ended December 31, 2014 Reconciliation of Total Cost (in thousands)

Balance, December 31, 2011	$	4,426,444
Additions during period
Acquisitions	193,131
Improvements	187,990
Deduction during period—disposition and retirements of property	(27,891		)
Balance, December 31, 2012	4,779,674
Additions during period
Acquisitions	76,359
Improvements	329,522
Deduction during period—disposition and retirements of property	(36,092		)
Balance, December 31, 2013	5,149,463
Additions during period
Acquisitions	174,328
Improvements	329,674
Deduction during period—disposition and retirements of property and transfer to joint venture	(44,467		)
Balance, December 31, 2014	$	5,608,998

_____________________


(1)	For Federal tax purposes, the aggregate cost basis is approximately $5.1 billion as of December 31, 2014.

F-35

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FEDERAL REALTY INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED Three Years Ended December 31, 2014 Reconciliation of Accumulated Depreciation and Amortization (in thousands)

Balance, December 31, 2011	$	1,127,588
Additions during period—depreciation and amortization expense	128,654
Deductions during period—disposition and retirements of property	(31,947		)
Balance, December 31, 2012	1,224,295
Additions during period—depreciation and amortization expense	147,730
Deductions during period—disposition and retirements of property	(21,554		)
Balance, December 31, 2013	1,350,471
Additions during period—depreciation and amortization expense	155,662
Deductions during period—disposition and retirements of property	(39,083		)
Balance, December 31, 2014	$	1,467,050

F-36

Table of Contents

FEDERAL REALTY INVESTMENT TRUST SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE Year Ended December 31, 2014 (Dollars in thousands)

Column A	Column B	Column C	Column D	Column E			Column F		Column G			Column H
Description of Lien	Interest Rate	Maturity Date	Periodic Payment Terms	Prior Liens			Face Amount of Mortgages		Carrying Amount of Mortgages(1)			Principal Amount of Loans Subject to delinquent Principal or Interest
Mortgage on retail buildings in Philadelphia, PA	8% or 10% based on timing of draws, plus participation	May 2021	Interest only monthly; balloon payment due at maturity	$	—		$	20,286	$	20,286	(2)	$	—
Mortgage on retail buildings in Philadelphia, PA	10% plus participation	May 2021	Interest only monthly; balloon payment due at maturity	—			9,250		9,250			—
Second Mortgage on hotel building in San Jose, CA	9%	August 2016	Principal and interest; balloon payment due at maturity(3)	34,000		(4)	10,691		9,737			—
Mortgage on retail building in Norwalk, CT	7%	June 2015	Interest only; balloon payment due at maturity	—			11,715		11,715			—
				$	34,000		$	51,942	$	50,988		$	—

_____________________


(1)	For Federal tax purposes, the aggregate tax basis is approximately $51.9 million as of December 31, 2014.


(2)	This mortgage is available for up to $25.0 million.


(3)	This note was amended on August 4, 2006. The amended note decreased the interest from 14% to 9% per annum, and requires monthly payments of principal and interest based on 15-year amortization schedule.


(4)	We do not hold the first mortgage loan on this property. Accordingly, the amount of the prior lien at December 31, 2014 is estimated.

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FEDERAL REALTY INVESTMENT TRUST SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE - CONTINUED Three Years Ended December 31, 2014 Reconciliation of Carrying Amount (in thousands)


Balance, December 31, 2011	$	55,967
Additions during period:
Issuance of loans	70
Deductions during period:
Collection and satisfaction of loans	(1,161		)
Amortization of discount	772
Balance, December 31, 2012	55,648
Deductions during period:
Collection and satisfaction of loans	(1,057		)
Amortization of discount	564
Balance, December 31, 2013	55,155
Deductions during period:
Collection and satisfaction of loans	(4,778		)
Amortization of discount	611
Balance, December 31, 2014	$	50,988

F-38

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EXHIBIT INDEX



Exhibit No.		Description

3.1		Declaration of Trust of Federal Realty Investment Trust dated May 5, 1999 as amended by the Articles of Amendment of Declaration of Trust of Federal Realty Investment Trust dated May 6, 2004, as corrected by the Certificate of Correction of Articles of Amendment of Declaration of Trust of Federal Realty Investment Trust dated June 17, 2004, as amended by the Articles of Amendment of Declaration of Trust of Federal Realty Investment Trust dated May 6, 2009 (previously filed as Exhibit 3.1 to the Trust’s Registration Statement on Form S-3 (File No. 333-160009) and incorporated herein by reference)

3.2		Amended and Restated Bylaws of Federal Realty Investment Trust dated February 12, 2003, as amended October 29, 2003, May 5, 2004, February 17, 2006 and May 6, 2009 (previously filed as Exhibit 3.2 to the Trust’s Registration Statement on Form S-3 (File No. 333-160009) and incorporated herein by reference)

4.1		Specimen Common Share certificate (previously filed as Exhibit 4(i) to the Trust’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-07533) and incorporated herein by reference)

4.2		Articles Supplementary relating to the 5.417% Series 1 Cumulative Convertible Preferred Shares of Beneficial Interest (previously filed as Exhibit 4.1 to the Trust’s Current Report on Form 8-K filed on March 13, 2007, (File No. 1-07533) and incorporated herein by reference)


4.3		** Indenture dated December 1, 1993 related to the Trust’s 7.48% Debentures due August 15, 2026; and 6.82% Medium Term Notes due August 1, 2027; (previously filed as Exhibit 4(a) to the Trust’s Registration Statement on Form S-3 (File No. 33-51029), and amended on Form S-3 (File No. 33-63687), filed on December 13, 1993 and incorporated herein by reference)

4.4		** Indenture dated September 1, 1998 related to the Trust’s 5.65% Notes due 2016; 6.20% Notes due 2017; 5.95% Notes due 2014 and the 5.90% Notes due 2020; 3.00% Notes due 2022; 2.75% Notes due 2023; 3.95% Notes due 2024; 4.50% Notes due 2044 (previously filed as Exhibit 4(a) to the Trust’s Registration Statement on Form S-3 (File No. 333-63619) filed on September 17, 1998 and incorporated herein by reference)

10.1		* Severance Agreement between the Trust and Donald C. Wood dated February 22, 1999 (previously filed as a portion of Exhibit 10 to the Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 (File No. 1-07533) (the "1999 1Q Form 10-Q") and incorporated herein by reference)

10.2		* Executive Agreement between Federal Realty Investment Trust and Donald C. Wood dated February 22, 1999 (previously filed as a portion of Exhibit 10 to the 1999 1Q Form 10-Q and incorporated herein by reference)

10.3		* Amendment to Executive Agreement between Federal Realty Investment Trust and Donald C. Wood dated February 16, 2005 (previously filed as Exhibit 10.12 to the Trust’s Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 1-07533) (the “2004 Form 10-K”) and incorporated herein by reference)

10.4		2001 Long-Term Incentive Plan (previously filed as Exhibit 99.1 to the Trust’s S-8 Registration Number 333-60364 filed on May 7, 2001 and incorporated herein by reference)

10.5		* Health Coverage Continuation Agreement between Federal Realty Investment Trust and Donald C. Wood dated February 16, 2005 (previously filed as Exhibit 10.26 to the 2004 Form 10-K and incorporated herein by reference)

10.6		* Severance Agreement between the Trust and Dawn M. Becker dated April 19, 2000 (previously filed as Exhibit 10.26 to the Trust’s 2005 2Q Form 10-Q and incorporated herein by reference)

10.7		* Amendment to Severance Agreement between the Trust and Dawn M. Becker dated February 16, 2005 (previously filed as Exhibit 10.27 to the 2004 Form 10-K and incorporated herein by reference)

10.8		Form of Restricted Share Award Agreement for awards made under the Trust’s 2003 Long-Term Incentive Award Program for shares issued out of 2001 Long-Term Incentive Plan (previously filed as Exhibit 10.28 to the 2004 Form 10-K and incorporated herein by reference)

10.9		Form of Restricted Share Award Agreement for long term vesting and retention awards for shares issued out of the 2010 Plan (previously filed as Exhibit 10.35 to the Trust's Annual Report on Form 10-K for the year ended December 31, 2010 (File No. 1-07533) (the "2010 Form 10-K") and incorporated herein by reference)

10.10		Form of Option Award Agreement for awards made under the Trust’s 2003 Long-Term Incentive Award Program for shares issued out of the 2001 Long-Term Incentive Plan (previously filed as Exhibit 10.32 to the 2005 Form 10-K and incorporated herein by reference)

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Exhibit No.		Description

10.11		Amended and Restated 2001 Long-Term Incentive Plan (previously filed as Exhibit 10.34 to the Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 1-07533) and incorporated herein by reference)

10.12		* Amendment to Severance Agreement between the Trust and Donald C. Wood dated January 1, 2009 (previously filed as Exhibit 10.26 to the Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 1-07533) (“the 2008 Form 10-K”) and incorporated herein by reference)

10.13		* Second Amendment to Executive Agreement between the Trust and Donald C. Wood dated January 1, 2009 (previously filed as Exhibit 10.27 to the Trust’s 2008 Form 10-K and incorporated herein by reference)

10.14		* Amendment to Health Coverage Continuation Agreement between the Trust and Donald C. Wood dated January 1, 2009 (previously filed as Exhibit 10.28 to the Trust’s 2008 Form 10-K and incorporated herein by reference)

10.15		* Second Amendment to Severance Agreement between the Trust and Dawn M. Becker dated January 1, 2009 (previously filed as Exhibit 10.30 to the Trust’s 2008 Form 10-K and incorporated herein by reference)

10.16		2010 Performance Incentive Plan (previously filed as Appendix A to the Trust’s Definitive Proxy Statement for the 2010 Annual Meeting of Shareholders (File No. 01-07533) and incorporated herein by reference)

10.17		Amendment to 2010 Performance Incentive Plan (“the 2010 Plan”) (previously filed as Appendix A to the Trust’s Proxy Supplement for the 2010 Annual Meeting of Shareholders (File No. 01-07533) and incorporated herein by reference)

10.18		* Restricted Share Award Agreement between the Trust and Donald C. Wood dated October 12, 2010 (previously filed as Exhibit 10.36 to the Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 01-07533) and incorporated herein by reference)

10.19		Form of Restricted Share Award Agreement for awards made under the Trust’s Long-Term Incentive Award Program and the Trust’s Annual Incentive Bonus Program and basic awards with annual vesting for shares issued out of the 2010 Plan (previously filed as Exhibit 10.34 to the Trust’s 2010 Form 10-K (File No. 1-07533) and incorporated herein by reference)

10.20		Form of Option Award Agreement for awards made under the Trust’s Long-Term Incentive Award Program for shares issued out of the 2010 Plan (previously filed as Exhibit 10.38 to the Trust’s 2010 Form 10-K (File No. 1-07533) and incorporated herein by reference)

10.21		Form of Option Award Agreement for front loaded awards made under the Trust’s Long-Term Incentive Award Program for shares issued out of the 2010 Plan (previously filed as Exhibit 10.39 to the Trust’s 2010 Form 10-K (File No. 1-07533) and incorporated herein by reference)

10.22		Form of Option Award Agreement for basic options awarded out of the 2010 Plan (previously filed as Exhibit 10.40 to the Trust’s 2010 Form 10-K (File No. 1-07533) and incorporated herein by reference)

10.23		Form of Restricted Share Award Agreement, dated as of February 10, 2011, between the Trust and Dawn M. Becker (previously filed as Exhibit 10.41 to the Trust’s 2010 Form 10-K (File No. 1-07533) and incorporated herein by reference)

10.24		* Severance Agreement between the Trust and James M. Taylor dated July 30, 2012 (previously filed as Exhibit 10.35 to the Trust's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (File No. 1-07533) and incorporated herein by reference)

10.25		Credit Agreement dated as of July 7, 2011, by and among the Trust, as Borrower, the financial institutions party thereto and their permitted assignees under Section 12.6., as Lenders, Wells Fargo Bank, National Association, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, Wells Fargo Securities, LLC, as a Lead Arranger and Book Manager, and PNC Capital Markets LLC, as a Lead Arranger and Book Manager (previously filed as Exhibit 10.1 to the Trust’s Current Report on Form 8-K (File No. 1-07533), filed on July 11, 2011 and incorporated herein by reference)

10.26		Term Loan Agreement dated as of November 22, 2011, by and among the Trust, as Borrower, the financial institutions party thereto and their permitted assignees under Section 12.6., as Lenders, PNC Bank, National Association, as Administrative Agent, Capital One, N.A., Syndication Agent, PNC Capital Markets, LLC, as a Lead Arranger and Book Manager, and Capital One, N.A., as a Lead Arranger and Book Manager (previously filed as Exhibit 10.1 to the Trust's Current Report on Form 8-K (File No. 1-07533), filed on November 28, 2011 and incorporated herein by reference)

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Exhibit No.		Description

10.27		Revised Form of Restricted Share Award Agreement for front loaded awards made under the Trust’s Long-Term Incentive Award Program for shares issued out of the 2010 Plan (previously filed as Exhibit 10.35 to the Trust's Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 1-07533) (the "2012 Form 10-K") and incorporated herein by reference)

10.28		Revised Form of Restricted Share Award Agreement for long-term vesting and retention awards made under the Trust’s Long-Term Incentive Award Program for shares issued out of the 2010 Plan (previously filed as Exhibit 10.36 to the Trust's 2012 Form 10-K (File No. 1-07533) and incorporated herein by reference)

10.29		Revised Form of Performance Share Award Agreement for shares awarded out of the 2010 Plan (previously filed as Exhibit 10.37 to the Trust's 2012 Form 10-K (File No. 1-07533) and incorporated herein by reference)

10.30		Revised Form of Restricted Share Award Agreement for awards made under the Trust’s Long-Term Incentive Award Program and the Trust’s Annual Incentive Bonus Program and basic awards with annual vesting for shares issued out of the 2010 Plan (previously filed as Exhibit 10.38 to the Trust's 2012 Form 10-K (File No. 1-07533) and incorporated herein by reference)

10.31		First Amendment to the Credit Agreement, dated as of April 22, 2013, by and among Federal Realty Investment Trust, each of the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent (previously filed as Exhibit 10.1 to the Trust's Current Report on Form 8-K (File No. 1-07533), filed on April 26, 2013 and incorporated herein by reference)

10.32		First Amendment to the Term Loan Agreement, dated as of April 22, 2013, by and among Federal Realty Investment Trust, each of the Lenders party thereto, and PNC Bank, National Association, as Administrative Agent (previously filed as Exhibit 10.40 to the Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (File No. 1-07533) and incorporated herein by reference

10.33		Second Amendment to Term Loan Agreement, dated as of August 28, 2014, by and among Federal Realty Investment Trust, each of the Lenders party thereto, and PNC Bank, National Association, as Administrative Agent (previously filed as Exhibit 10.1 to the Trust's Current Report on Form 8-K (File No. 1-07533), filed on September 2, 2014 and incorporated herein by reference)

21.1		Subsidiaries of Federal Realty Investment Trust (filed herewith)

23.1		Consent of Grant Thornton LLP (filed herewith)

31.1		Rule 13a-14(a) Certification of Chief Executive Officer (filed herewith)

31.2		Rule 13a-14(a) Certification of Chief Financial Officer (filed herewith)

32.1		Section 1350 Certification of Chief Executive Officer (filed herewith)

32.2		Section 1350 Certification of Chief Financial Officer (filed herewith)

101		The following materials from Federal Realty Investment Trust’s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (1) the Consolidated Balance Sheets, (2) the Consolidated Statements of Comprehensive Income, (3) the Consolidated Statement of Shareholders’ Equity, (4) the Consolidated Statements of Cash Flows, and (5) Notes to Consolidated Financial Statements that have been detail tagged.

_____________________

* Management contract or compensatory plan required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.

** Pursuant to Regulation S-K Item 601(b)(4)(iii), the Trust by this filing agrees, upon request, to furnish to the Securities and Exchange Commission a copy of other instruments defining the rights of holders of long-term debt of the Trust.