FEDERAL REALTY INVESTMENT TRUSTFRT
FEDERAL REALTY INVESTMENT TRUST Commitments Disclosure
COMMITMENTS AND CONTINGENCIES
We are sometimes involved in lawsuits, warranty claims, and environmental matters arising in the ordinary course of business. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters.
We are currently a party to various legal proceedings. We accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate within the range; however, if no amount within the range is a better estimate than any other amount, the minimum within the range is accrued. Legal fees related to litigation are expensed as incurred. We do not believe that the ultimate outcome of these matters, either individually or in the aggregate, could have a material adverse effect on our financial position or overall trends in results of operations; however, litigation is subject to inherent uncertainties. Also
under our leases, tenants are typically obligated to indemnify us from and against all liabilities, costs and expenses imposed upon or asserted against us (1) as owner of the properties due to certain matters relating to the operation of the properties by the tenant, and (2) where appropriate, due to certain matters relating to the ownership of the properties prior to their acquisition by us.
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. 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, previous experience in our portfolio, and future increases in costs of claims, when making these determinations. If our liability costs exceed these accruals, it will reduce our net income.
At December 31, 2025 and 2024, our reserves for general liability costs were $5.0 million and $4.4 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 2025 and 2024, we made payments from these reserves of $2.9 million and $2.1 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.
On December 11, 2019, we received proceeds related to the sale under threat of condemnation at San Antonio Center as discussed in our Annual Report on Form 10-K for the year ended December 31, 2019. We indemnified the condemning authority for all costs incurred related to the condemnation proceedings including any payments required to tenants at the property and recorded a corresponding liability for our estimate of these costs. At December 31, 2025, we have a liability of $3.4 million to reflect our estimate of the remaining costs.
In June 2018, we formed a joint venture to develop Freedom Plaza (formerly Jordan Downs Plaza), for which we own 92%. The investment in this development qualified for tax credits under the New Market Tax Credit ("NMTC") Program, established by the Community Renewal Tax Relief Act of 2000. In 2018, we transferred the earned tax credits to a third-party bank in exchange for cash proceeds. The proceeds received and related transaction costs were deferred until the end of the seven-year NMTC compliance period, which concluded in June 2025. As a result, for the year ended December 31, 2025, we recognized $14.2 million ($13.0 million, net of income attributable to noncontrolling interest) in income related to the sale of the new market tax credits.
At December 31, 2025, we had letters of credit outstanding of approximately $5.5 million.
As of December 31, 2025 in connection with capital improvement, development, and redevelopment projects, we have contractual obligations of approximately $314.2 million.
We are obligated under operating lease agreements on several shopping centers and one office lease requiring minimum annual payments as follows, as of December 31, 2025:
| (In thousands) | |||||
| Year ending December 31, | |||||
| 2026 | $ | 5,618 | |||
| 2027 | 5,325 | ||||
| 2028 | 5,389 | ||||
| 2029 | 5,422 | ||||
| 2030 | 5,427 | ||||
| Thereafter | 184,020 | ||||
| Total future minimum operating lease payments | 211,201 | ||||
| Less amount representing interest | (138,897) | ||||
| Operating lease liabilities | $ | 72,304 | |||
Future minimum lease payments and their present value for properties under finance leases as of December 31, 2025, are as follows:
| (In thousands) | |||||
| Year ending December 31, | |||||
| 2026 | $ | 713 | |||
| 2027 | 748 | ||||
| 2028 | 801 | ||||
| 2029 | 801 | ||||
| 2030 | 802 | ||||
| Thereafter | 66,272 | ||||
| Total future minimum finance lease payments | 70,137 | ||||
| Less amount representing interest | (57,234) | ||||
| Finance lease liabilities | $ | 12,903 | |||
Under the terms of the Congressional Plaza partnership agreement, a minority partner has the right to require us and the other minority partner to purchase its 26.63% 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, 2025, our estimated maximum liability upon exercise of the put option would range from approximately $62 million to $63 million.
The master lease for Melville Mall, as amended on January 15, 2026, includes a fixed price put option at any time on or prior to June 30, 2030 for $4.5 million. Additionally, we have the right to purchase Melville Mall in 2031 for approximately $5.0 million.
The other member in The Grove at Shrewsbury and Brook 35 has the right to require us to purchase all of its approximately 4.1% interest in The Grove at Shrewsbury and approximately 6.5% interest in Brook 35 at the interests' then-current fair market value. Based on management's current estimate of fair market value as of December 31, 2025, our estimated maximum liability upon exercise of the put option would range from $9 million to $10 million.
The other member in Hoboken has the right to require us to purchase all of its 10.0% ownership interest at the interest's then-current fair market value. Based on management's current estimate of fair market value as of December 31, 2025, our estimated maximum liability upon exercise of the put option would range from $12 million to $13 million.
Effective June 14, 2026, the other member in Camelback Colonnade and The Shops at Hilton Village has the right to require us to purchase all of its 2.0% ownership interest at the interest's then-current fair market value. Based on management's current estimate of fair value as of December 31, 2025, our estimated maximum liability upon exercise of the put option would range from $4 million to $5 million.
Effective October 6, 2027, the other member in the partnership that owns equity method investments in Chandler Festival and Chandler Gateway has the right to require us to purchase its 2.5% net ownership interest. Based on management's current estimate of fair value as of December 31, 2025, our estimated maximum liability upon exercise of the put option would range from $1 million and $2 million.
Effective June 1, 2029, the other member in Grossmont Center has the right to require us to purchase all of its 40.0% ownership interest at the interest's then-current fair market value. Based on management's current estimate of fair value as of December 31, 2025, our estimated maximum liability upon exercise of the put option would range from $68 million to $73 million.
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 526,915 downREIT operating partnership units are outstanding which have a total fair value of $53.1 million, based on our closing stock price on December 31, 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 12, 2024 | |
| 2022 | Feb 8, 2023 | |
| 2021 | Feb 10, 2022 | |
| 2020 | Feb 11, 2021 | |
| 2019 | Feb 10, 2020 | |
| 2018 | Feb 13, 2019 | |
| 2017 | Feb 13, 2018 | |
| 2016 | Feb 13, 2017 | |
| 2015 | Feb 9, 2016 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.