[0] S&P Lowers Ratings on Federal Realty Investment Trust.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 17, 2000

Standard & Poor's today lowered its corporate credit rating on Federal Realty Investment Trust to triple-'B' from triple-'B'-plus. In addition, the rating on the company's preferred stock was lowered to triple-'B'-minus from triple-'B'. The outlook is stable.

The rating change is driven by a long-term moderation in cash flow protection measures, modest concerns regarding the company's fairly aggressive pursuit of development at this point in the economic cycle, and the significant capital funding requirements of this large and geographically diverse development pipeline.

The revised ratings of this Bethesda, Md.-based retail REIT are strongly supported by a $1,230 million (71% of total portfolio cost) seasoned, well-performing operating portfolio of in-fill, necessity-focused, grocery-anchored retail centers and an experienced, fiscally thoughtful, management team. This portion of the company's portfolio generates a very stable cash flow stream with yields solidly in the low teens and occupancies in the mid- to high-90% range.

The moderation in cash flow protection measures over the past few years has been driven primarily by the earnings drag and capitalized interest burden from the large development pipeline of "street retail" projects. Since the mid-1990s, Federal has leveraged the stable, grocery-anchored cash flow stream to slowly grow into the more dynamic, growth oriented street retail projects. These projects, which currently represent about 25% of total portfolio cost, typically maintain a retail focus with a mixed-use component such as residential, hotel and/or office, and have a downtown urban feel and ambiance to them. Examples of these projects are the successful 3rd Street Promenade in Santa Monica, Calif. and downtown Greenwich, Conn.

While street retail is not a new foray for Federal, the current pipeline of projects is larger and more geographically diverse than the company's past initiatives. This nearly US$700 million pipeline includes projects in San Jose, Calif.; Houston, Texas; Hillsboro, Ore.; Bethesda, Md; and Arlington, Va. Aside from the logistical challenges associated with managing such a widespread pipeline, individually, these projects are fairly large in size, resulting in greater capital requirements and a protracted stabilization period. Federal has addressed the construction management concerns by staffing each project with knowledgeable local project managers with senior management spending an appropriate amount of time overseeing activities.

Federal has historically maintained a modestly conservative financial profile, with a very manageable debt maturity schedule. Although Federal's portfolio is generally unencumbered, financial flexibility is expected to moderate somewhat over the next 18 to 24 months as the company funds its development pipeline with credit facility borrowings, secured construction financing, and asset sales proceeds. As a result of this development activity, fixed-charge coverage is expected to decrease to about 2.0 times during 2001 and 2002.

OUTLOOK: STABLE

The rating continues to be supported by a very solid portfolio of seasoned in-fill retail properties and a talented management team. The revised rating provides ample flexibility for Federal to pursue its current attractive development projects, Standard & Poor's said. -- CreditWire