Federal Realty Investment Trust (FRT) 10-K risk factor changes: FY2008 vs FY2007

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 [added: generally provide] for reimbursement of real estate taxes and expenses of operating the property.

[removed: General economic downturns and other conditions affecting] [added: The current downturn in] the [removed: retail industry] [added: economy] may [removed: affect] [added: impact] the success of our tenants’ retail operations and therefore the amount of rent and expense reimbursements we receive from our tenants.

Any reduction in our tenants’ [removed: ability] [added: abilities] to pay base rent, percentage rent or other charges, including the filing by any of our tenants for bankruptcy protection, may adversely affect our financial condition and results of operations.

As of December 31, [removed: 2007,] [added: 2008,] we had approximately [removed: $1.6] [added: $1.7] billion of debt outstanding.

Of that outstanding debt, approximately [removed: $349.4] [added: $365.3] million was secured by [removed: 18] [added: 17] of our properties and approximately [removed: $76.1] [added: $63.5] million represented capital lease obligations on four of our properties.

In addition, we own a 30% interest in a joint venture that had [removed: $81.5 million of debt secured by six properties as of December 31, 2007.]

Approximately $1.4 billion [removed: (87%)] [added: (81%)] of our debt as of December 31, [removed: 2007,] [added: 2008,] which includes all of our property secured debt and our capital lease obligations, is fixed rate debt.

Our joint venture’s debt of [removed: $81.5] [added: $81.4] million is also fixed rate debt.

[added: Our organizational] documents do not limit the level or amount of debt that we may incur.

| | • | | 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, [removed: redevelopment] [added: redevelopments] or other general corporate purposes or to obtain such financing on favorable terms; [removed: and] [added: and/or] |

We are obligated to comply with financial and other covenants [removed: in] [added: pursuant to] our debt [added: 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.

As of December 31, [removed: 2007,] [added: 2008,] 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 [removed: begin proceedings to take possession of the property securing the loan.]

We generally do not intend to undertake on our own construction of any new large-scale mixed-use, ground-up development projects; however, we do intend to complete the development and construction of remaining phases of projects we already have started, such as [removed: Bethesda Row in Bethesda, Maryland,] Santana Row in San Jose, [removed: California, and Assembly Square in Somerville, Massachusetts.][added: California.]

| | • | | significant time lag between commencement and [removed: completion] [added: stabilization] subjects us to greater risks due to fluctuations in the general economy; |

| | • | | higher than estimated construction [added: 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, [added: acts of terror] or [added: other] acts of [added: violence, or acts of] God (such as fires, earthquakes or floods). |

| | • | | properties we redevelop or acquire [removed: may, within the time frames we project,] [added: may] fail to achieve the occupancy or rental rates we [removed: project] [added: 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; |

Depending on the outcome of these [removed: factors,] [added: factors as well as the impact of the current recession,] we could experience delay or difficulty in implementing our growth strategy on satisfactory terms, or be unable to implement this strategy.

Of our approximately [removed: $1.6] [added: $1.7] billion of debt outstanding as of December 31, [removed: 2007,] [added: 2008,] approximately [removed: $209.4] [added: $332.9] million bears interest at variable rates and was unhedged.

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 [added: and/or timing] of refinancing or issuing additional debt securities or preferred shares.

We may not be able to alter our portfolio promptly in response to changes in economic or other [removed: conditions.][added: conditions including being unable to sell a property at a return we believe is appropriate due to the current economic environment.]

[removed: 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.

[added: 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.

Our organizational documents do not limit the amount of funds that we may invest in properties and assets jointly with other persons or entities and as of [removed: February 22,] [added: December 31,] 2008, excluding our joint venture with [added: affiliates of a discretionary fund created and advised by ING] Clarion [removed: Lion Properties Fund,] [added: Partners (“Clarion”) and properties owned in a “downREIT” structure,] we hold [removed: ten] [added: three] predominantly retail real estate projects jointly with other persons.

Although we hold the managing general partnership or membership interest in all of our existing co-investments as of [removed: February 22,] [added: December 31,] 2008, we must obtain the consent of the co-investor or meet defined criteria to sell or to finance [removed: three of] these properties.

In addition, on July 1, 2004, we entered into a joint venture with [removed: affiliates of] Clarion [removed: Lion Properties Fund] for purposes of acquiring properties.

As of December 31, [removed: 2007,] [added: 2008,] this joint venture owned seven properties.

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 [added: operate, and also may be required to pay other costs relating to hazardous or toxic substances.]

The requirements of this Act, or of other federal, state or local [removed: laws,] [added: laws or regulations,] also may change in the future and restrict further renovations of our properties with respect to access for disabled persons.

The leases typically require that each tenant comply with all [added: laws and] regulations.

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 [added: certain] other income.

In these circumstances, we might have to borrow funds on [removed: unfavorable] terms [added: we might otherwise find unfavorable] and we may have to borrow funds even if our management believes the market conditions make borrowing financially unattractive.

[removed: 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.

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 [added: capital] stock.

[added: If that] happened, either the transfer or 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.

We have seen tenants experiencing declining sales, vacating early, or filing for bankruptcy, as well as seeking rent relief from us as landlord.

As a result of the current downturn in the economy, we have seen a decrease in the number of tenants available to fill anchor spaces due to the recent bankruptcies.

Therefore, tenant demand for certain of our anchor spaces may decrease and as a result, we may in certain categories see an increase in vacancy and/or a decrease in rents for those spaces that could have a negative impact to our net income.

$81.4 million of debt secured by six properties as of December 31, 2008.

begin proceedings to take possession of the property securing the loan.

The current recession and dislocation in the capital markets, however, has resulted in less favorable terms and availability than in recent years for debt financings.

We believe these coverages are of the types and amounts customarily obtained for or by an owner of

Alternatively, if we are unable to borrow funds at acceptable terms, we could choose to pay a portion of our distributions in shares instead of cash.

To protect our REIT status, our declaration of trust prohibits any one

This could reduce our net income.

Our organizational

We do not have a policy limiting the ratio of our debt to total capitalization or assets.

In addition, insurance companies may no

operate, and also may be required to pay other costs relating to hazardous or toxic substances.

If that

| --- | --- |

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.

Overview

We are an equity real estate investment trust specializing in the ownership, management, development and redevelopment of high quality retail and mixed-use properties.

As of December 31, 2008, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 84 predominantly retail real estate projects comprising approximately 18.1 million square feet.

These properties are located primarily in densely populated and affluent communities in strategic metropolitan markets in the Mid-Atlantic and Northeast regions of the United States, as well as in California.

In total, the real estate projects were 95.0% leased and 94.3% occupied at December 31, 2008.

A joint venture in which we own a 30% interest owned seven retail real estate projects totaling approximately 1.0 million square feet as of December 31, 2008.

In total, the joint venture properties in which we own an interest were 97.4% leased and occupied at December 31, 2008.

We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 41 consecutive years.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, which we refer to as GAAP, requires management to make estimates and assumptions that in

##### [Table of Contents](#toc)

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.

The most significant 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 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 collectibility of our accounts receivable related to minimum rents, straight-line rents, expense reimbursements and other revenue or income.

In some cases, primarily relating to straight-line rents, the collection of these amounts extends beyond one year.

Our experience relative to unbilled straight-line rents is that a certain 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, 2008 and 2007, accounts receivable include approximately $37.2 million and $32.0 million, respectively, related to straight-line rents.

These estimates have a direct impact on our net income.

At December 31, 2008 and 2007, our allowance for doubtful accounts was $11.8 million and $7.0 million, respectively.

As of December 31, [removed: 2007,] [added: 2008,] we were not party to any open derivative financial instruments.

Interest [added: rate] risk amounts were determined by considering the impact of hypothetical interest rates on our debt.

At December 31, [removed: 2007] [added: 2008] we had $1.4 billion of fixed-rate debt outstanding.

If interest rates on our fixed-rate debt instruments at December 31, [removed: 2007] [added: 2008] had been 1.0% higher, the fair value of those debt instruments on that date would have decreased by approximately [removed: $70.1] [added: $47.0] million.

If interest rates on our fixed-rate debt instruments at December 31, [removed: 2007] [added: 2008] had been 1.0% lower, the fair value of those debt instruments on that date would have increased by approximately [removed: $71.0] [added: $49.5] million.

At December 31, [removed: 2007,] [added: 2008,] we had [removed: $209.4] [added: $332.9] million of variable rate debt outstanding.

Based upon this amount of variable rate debt, if interest rates increased by 1.0% our annual interest expense would increase by approximately [removed: $2.1] [added: $3.3] million, and our net income and cash flows for the year would decrease by approximately [removed: $2.1] [added: $3.3] million.

Conversely, if interest rates decreased by 1.0%, our annual interest expense would decrease by approximately [removed: $2.1] [added: $3.3] million, and our net income and cash flows for the year would increase by approximately [removed: $2.1] [added: $3.3] million.

As of December 31, [removed: 2007,] [added: 2008,] we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as [removed: 82] [added: 84] predominantly retail real estate projects comprising approximately [removed: 18.2] [added: 18.1] million square feet.

In total, [removed: these 82] [added: the] real estate projects were [removed: 96.7%] [added: 95.0%] leased [added: and 94.3% occupied] at December 31, [removed: 2007.][added: 2008.]

A joint venture in which we own a 30% interest owned seven retail real estate projects totaling approximately 1.0 million square feet as of December 31, [removed: 2007.][added: 2008.]

In total, the joint venture properties in which we own an interest were [removed: 98.3%] [added: 97.4%] leased [added: and occupied] at December 31, [removed: 2007.][added: 2008.]

We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for [removed: 40] [added: 41] consecutive years.

The information contained on our [removed: Web site] [added: website] is not a part of this report.

Our financing [removed: strategy is] [added: strategies are] designed to enable us to maintain a strong balance sheet while retaining sufficient flexibility to fund our operating and investing activities in the most cost-efficient way possible.

At February [removed: 22, 2008,] [added: 24, 2009,] we had [removed: 301] [added: 276] full-time employees and [removed: 155] [added: 133] part-time employees.

Under the [removed: internal revenue] [added: Internal Revenue] Code of 1986, as amended, which we refer to as the Code, REITs are subject to numerous organizational and operational requirements, [removed: including the requirement to generally distribute at least 90% of REIT taxable income each year.]

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, [removed: the] [added: such] contamination.

[added: Such costs or liabilities] could exceed the value of the affected real estate.

| | • | | interfere with our ability to attract and retain tenants, leading to increased vacancy rates and/or reduced [removed: rents,] [added: rents;] and |

Our financing strategies include:

| | • | | maintaining an available line of credit to fund short-term operating needs; |

including the requirement to generally distribute at least 90% of REIT taxable income each year.

In 2008, 2007, and 2006, our TRS incurred approximately $(0.8) million, $1.5 million and $2.4 million, respectively, of income taxes, primarily related to sales of condominiums at Santana Row, sales of three properties in 2007, and our investment in certain restaurant joint ventures at Santana Row.

| --- | --- | --- | --- |

Revenue, property operating income, and other financial information of each reportable segment are described in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the financial statements contained in “Item 8.

Financial Statements and Supplementary Data” of this Form 10-K.

Our financing strategy includes:

The sales of condominiums at Santana Row, which occurred between August 2005 and August 2006, and the sales of Bath Shopping Center, Key Road Plaza and Riverside Plaza in 2007 were conducted through a TRS.

In 2007, 2006, and 2005, our TRS incurred approximately $1.5 million, $2.4 million and $3.5 million, respectively, of income taxes.

Such costs or liabilities

[removed: We have now received reports] [added: Reports] from our experts and the plaintiff’s experts [removed: which] show potential damages ranging from $600,000 to $24 million.

If we [added: choose not to appeal or we appeal and] are not successful in overturning the jury verdict, we will be liable for damages.

Depending on the amount of damages awarded, it is [removed: possible] [added: possible,] there could be a material adverse impact on our net income in the period in which it becomes both probable that we will have to pay the damages and such damages can be reasonably estimated.

In any event, management does not believe [removed: it] [added: this matter] will have a material impact on our financial position.

A trial on the issue of damages was held in April 2008; however, the judge has not yet issued a ruling.

Pending the judge’s ruling, we cannot make a reasonable estimate of potential damages.

We will evaluate whether to appeal the jury verdict after the judge issues his ruling on damages taking into account a variety of factors including the amount of damages awarded.

A trial as to liability only was concluded in April 2007, and in May 2008, a judgment was entered that ruled in our favor on certain legal issues and against us on other legal issues.

In December 2008, we reached a settlement with the plaintiff of those matters where the court ruled against us and determined that we are liable.

The total settlement was $2.3 million of which we paid $1.15 million and the third party management agent paid $1.15 million.

We are currently in the process of settling the amount of the portion of the plaintiff’s legal fees which we are required to pay; we expect the amount to be approximately $1.0 million of which we will pay 50% and the third party management agent will pay 50%.

Our share of the total estimated settlement of $1.6 million is included in “general and administrative expense” in the statement of operations.

A trial on the issue of damages has been set for April 2008.

The complaint did not specify the amount of damages claimed.

We cannot make a reasonable estimate of potential damages until discovery is completed on the damages issue and the court rules on various legal issues impacting the calculation of damages.

We intend to appeal the jury verdict; however, no appeal of the judgment can be taken until the trial on damages has been completed.

A trial as to liability only has been concluded and post-trial briefs have been filed, but no decision has been rendered.

One of the plaintiffs in the matter has filed for bankruptcy protection and as a result, the judge in our case has stayed further proceedings in the case.

If we are found liable once the stay has been lifted, a trial will be held to determine the amount of damages.

Based on the information available to us, we believe there is a reasonable possibility that we will be found liable.

If a verdict is rendered against us, we may seek indemnification from the third party management company that negotiated the lease on our behalf.

We cannot assess with any certainty at this time the potential damages for which we would be liable if a verdict is rendered against us or the potential amounts we might recover against the third party management company; however, if a verdict is rendered against us, there may be a material adverse impact on our net income in the period in which it becomes both probable that we will have to pay the damages and such damages can be reasonably estimated.

In any event, management does not believe it will have a material impact on our financial position.

þ Annual report pursuant to the Section 13 or 15(d) of the Securities Exchange Act of 1934 [removed: For the fiscal year ended December 31, 2007]

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [removed: For the transition period from to]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, [removed: or] a non-accelerated [removed: filer.][added: filer or a smaller reporting company.]

See [removed: definition] [added: definitions] of [removed: “accelerated filer and large] [added: “large] accelerated [added: filer,” “accelerated] filer” [added: and “smaller reporting company”] in Rule 12b-2 of the Exchange Act.

[removed: (Check one):] [added: |] Large Accelerated Filer [added: | |] þ [added: | | | |] Accelerated Filer [removed: ¨ Non-Accelerated Filer] [added: | |] ¨ [added: |]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the [added: Exchange] Act).

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, [removed: 2007] [added: 2008] was [removed: $4.4] [added: $4.1] billion.

The number of Registrant’s common shares outstanding on February [removed: 22, 2008] [added: 24, 2009] was [removed: 58,754,117.][added: 59,075,627.]

FISCAL YEAR ENDED DECEMBER 31, [removed: 2007][added: 2008]

Portions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission for Registrant’s [removed: 2008] [added: 2009] annual meeting of shareholders to be held in May [removed: 2008] [added: 2009] will be incorporated by reference into Part III hereof.

| Item 1. | | [removed: [Business](#tx20389_2)] [added: [Business](#tx86578_2)] | | 3 |

| Item 1A. | | [Risk [removed: Factors](#tx20389_3)] [added: Factors](#tx86578_3)] | | 8 |

| Item 1B. | | [Unresolved Staff [removed: Comments](#tx20389_4)] [added: Comments](#tx86578_4)] | | 17 |

| Item 2. | | [removed: [Properties](#tx20389_5)] [added: [Properties](#tx86578_5)] | | 17 |

| Item 3. | | [Legal [removed: Proceedings](#tx20389_6)] [added: Proceedings](#tx86578_6)] | | 25 |

| Item 4. | | [Submission of Matters to a Vote of [removed: Shareholders](#tx20389_7)] [added: Shareholders](#tx86578_7)] | | 25 |

| Item 5. | | [Market for Our Common Equity and Related Shareholder Matters and Issuer Purchases of Equity [removed: Securities](#tx20389_9)] [added: Securities](#tx86578_9)] | | 26 |

| Item 6. | | [Selected Financial [removed: Data](#tx20389_10)] [added: Data](#tx86578_10)] | | 28 |

| Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#tx20389_11)] [added: Operations](#tx86578_11)] | | 30 |

| Item 7A. | | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#tx20389_12)] [added: Risk](#tx86578_12)] | | [removed: 57] [added: 56] |

| Item 8. | | [Financial Statements and Supplementary [removed: Data](#tx20389_13)] [added: Data](#tx86578_13)] | | [removed: 58] [added: 57] |

| Item 9. | | [Changes In and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#tx20389_14)] [added: Disclosure](#tx86578_14)] | | [removed: 58] [added: 57] |

| Item 9A. | | [Controls and [removed: Procedures](#tx20389_15)] [added: Procedures](#tx86578_15)] | | [removed: 58] [added: 57] |

| Item 9B. | | [Other [removed: Information](#tx20389_16)] [added: Information](#tx86578_16)] | | [removed: 60] [added: 59] |

| [PART [removed: III](#tx20389_17)] [added: III](#tx86578_17)] | | | | |

| Item 10. | | [Trustees, Executive Officers and Corporate [removed: Governance](#tx20389_18)] [added: Governance](#tx86578_18)] | | [removed: 61] [added: 60] |

| Item 11. | | [Executive [removed: Compensation](#tx20389_19)] [added: Compensation](#tx86578_19)] | | [removed: 61] [added: 60] |

| Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder [removed: Matters](#tx20389_20)] [added: Matters](#tx86578_20)] | | [removed: 61] [added: 60] |

| Item 13. | | [Certain Relationships and Related Transactions, and Trustee [removed: Independence](#tx20389_21)] [added: Independence](#tx86578_21)] | | [removed: 61] [added: 60] |

| Item 14. | | [Principal Accountant Fees and [removed: Services](#tx20389_22)] [added: Services](#tx86578_22)] | | [removed: 61] [added: 60] |

| Item 15. | | [Exhibits and Financial Statement [removed: Schedules](#tx20389_24)] [added: Schedules](#tx86578_24)] | | [removed: 62] [added: 61] |

For the fiscal year ended December 31, 2008

For the transition period from to

(Check one):

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Non-Accelerated Filer | | ¨ | | (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨ |

| [PART I](#tx86578_1) | | | | |

| [PART II](#tx86578_8) | | | | |

| [PART IV](#tx86578_23) | | | | |

| [SIGNATURES](#tx86578_25) | | | | 62 |

| [PART I](#tx20389_1) | | | | |

| [PART II](#tx20389_8) | | | | |

| [PART IV](#tx20389_23) | | | | |

| [SIGNATURES](#tx20389_25) | | | | 63 |

As of December 31, [removed: 2007,] [added: 2008,] we owned or had a majority ownership interest in community and neighborhood shopping centers and mixed-used properties which are operated as [removed: 82] [added: 84] predominantly retail real estate projects comprising approximately [removed: 18.2] [added: 18.1] 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 [removed: United States, as well as California.]

No single property accounted for over 10% of our [removed: 2007] [added: 2008] total revenue.

As of December 31, [removed: 2007,] [added: 2008,] we had approximately [removed: 2,400] [added: 2,450] leases, with tenants ranging from sole proprietors to major national retailers.

No one tenant or affiliated group of tenants accounted for more than [removed: 2.5%] [added: 2.6%] of our annualized base rent as of December 31, [removed: 2007.][added: 2008.]

As a result of our tenant diversification, we believe our exposure to any [added: one] recent [removed: and] [added: or] future bankruptcy filing in the retail sector has not been and will not be [removed: significant.][added: significant, however, multiple filings by a number of retailers could have a significant impact.]

Our [removed: 82] [added: 84] real estate projects are located in [removed: 12] [added: 13] states and the District of Columbia.

The following table shows, by region and state within the region, the number of projects, the gross leasable area of commercial space and the percentage of total portfolio gross leasable area of commercial space in each state as of December 31, [removed: 2007.][added: 2008.]

| Region and State | | Number of Projects | | Gross Leasable Area | | [removed: Percentage of] [added: Percentage of] Gross [removed: Leasable Area] [added: Leasable Area] | |

| New Jersey | | 4 | | [removed: 1,384,000] [added: 1,385,000] | | 7.6 | % |

| New York | | 5 | | [removed: 1,110,000] [added: 1,109,000] | | 6.1 | % |

| Connecticut [added: (1)] | | 2 | | [removed: 315,000] [added: 308,000] | | 1.7 | % |

| North Carolina | | 1 | | [removed: 156,000] [added: 153,000] | | 0.8 | % |

| Total all regions | | [removed: 82] [added: 84] | | [removed: 18,195,000] [added: 18,119,000] | | 100.0 | % |

| (1) | Additionally, we own two participating mortgages totaling approximately $28.3 million secured by multiple buildings in Manayunk, [removed: Pennsylvania.] [added: Pennsylvania, and one $5.5 million loan secured by a property in Norwalk, Connecticut.] |

These features in our leases [added: generally] reduce our exposure to higher costs and allow us to participate in improved tenant sales.

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 [removed: 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 [removed: 2007,] [added: 2008,] represented approximately [removed: 3.3%] [added: 3.7%] of total rental [removed: revenues.][added: income.]

The following table sets forth the schedule of lease expirations for our commercial leases in place as of December 31, [removed: 2007] [added: 2008] for each of the 10 years beginning with [removed: 2008] [added: 2009] and after [removed: 2017] [added: 2018] in the aggregate, in both cases, assuming that none of the tenants exercise future renewal options.

Annualized base rents reflect in-place contractual rents as of December 31, [removed: 2007.][added: 2008.]

| Year of Lease Expiration | | Leased [removed: Square Footage] [added: Square Footage] Expiring | | Percentage of Leased Square Footage Expiring | | | Annualized Base Rent Represented by Expiring Leases | | | Percentage of [removed: Annualized Base] [added: Annualized Base] Rent Represented by Expiring Leases | |

The following table sets forth information concerning all real estate projects in which we owned an equity interest, had a leasehold interest, or controlled and are consolidated as of December 31, [removed: 2007.][added: 2008.]

| [removed: EAST REGION] | | Year Completed | | Year Acquired | | Square [removed: Feet(1) /Apartment] [added: Feet(1) /Apartment] Units | | [added: Average Rent Per Square Foot | |] Percentage Leased(2) | | Principal Tenant(s) |

| Andorra Philadelphia, PA 19128 | | 1953 | | 1988 | | 267,000 | | [removed: 99%] [added: $13.58] | | [added: 94% | |] Acme Markets Kohl’s Staples L.A. Fitness |

| Assembly [removed: Square/Sturtevant Street] [added: Square] Somerville, MA 02145 | | 2005 | | [removed: 2005-2007] [added: 2005-2008] | | [removed: 554,000] [added: 332,000] | | [added: $16.25 | |] 100% | | Bed, Bath & Beyond Christmas Tree Shops Kmart Staples TJ Maxx A.C. Moore Sports Authority |

| Bala Cynwyd Bala Cynwyd, PA 19004 | | 1955 | | 1993 | | 280,000 | | [added: $17.01 | |] 100% | | Acme Markets Lord & Taylor L.A. Fitness |

| Barracks Road Charlottesville, VA 22905 | | 1958 | | 1985 | | 488,000 | | [removed: 100%] [added: $20.17] | | [added: 94% | |] Bed, Bath & Beyond Harris Teeter Kroger Barnes & Noble Old Navy |

| Bethesda Row Bethesda, MD 20814(7) | | 1945-1991 2001 | | 1993-2006 [added: 2008] | | [removed: 477,000] [added: 521,000] | | [removed: 92%] [added: $41.13] | | [added: 95% | |] Barnes & Noble Giant Food Landmark Theater |

| Brick Plaza Brick Township, NJ 08723(6) | | 1958 | | 1989 | | 409,000 | | [added: $15.11 | |] 100% | | A&P Supermarket Barnes & Noble AMC Loews Sports Authority |

| Bristol Bristol, CT 06010 | | 1959 | | 1995 | | [removed: 273,000] [added: 272,000] | | [removed: 98%] [added: $12.06] | | [added: 86% | |] Stop & Shop TJ Maxx |

| Chelsea Commons Chelsea, MA 02150 | | 1962-1969 | | [removed: 2006-2007] [added: 2006-2008] | | [removed: 196,000] [added: 222,000] | | [added: $10.16 | |] 91% | | Sav-A-Lot Home Depot |

| Congressional Plaza Rockville, MD 20852(4) | | 1965 | | 1965 | | [removed: 338,000] [added: 334,000] | | [removed: 91%] [added: $29.78] | | [added: 95% | |] Buy Buy Baby Whole Foods Container Store |

| Congressional Plaza Residential Rockville, MD 20852(4) | | 2003 | | 1965 | | 146 units | | [removed: 90%] [added: N/A] | | [added: 97%] | [added: | |]

| Courthouse Center Rockville, MD [removed: 20852(5)] [added: 20852] | | 1970 | | 1997 | | 37,000 | | [removed: 81%] [added: $19.12] | | [added: 77%] | [added: | |]

| Crossroads Highland Park, IL 60035 | | 1959 | | 1993 | | 173,000 | | [removed: 89%] [added: $19.24] | | [added: 71% | |] Golfsmith Guitar Center |

| Dedham Dedham, MA 02026 | | 1959 | | 1993 | | 242,000 | | [removed: 91%] [added: $14.69] | | [added: 89% | |] Star Market |

| Eastgate Chapel Hill, NC 27514 | | 1963 | | 1986 | | [removed: 156,000] [added: 153,000] | | [added: $19.59 | |] 97% | | Stein Mart |

| Ellisburg Circle Cherry Hill, NJ 08034 | | 1959 | | 1992 | | 268,000 | | [added: $14.51 | |] 99% | | Genuardi’s [added: Buy Buy Baby] Stein Mart |

| Falls Plaza/Falls Plaza—East Falls Church, VA 22046 | | 1960-1962 | | 1967-1972 | | [removed: 144,000] [added: 143,000] | | [added: $26.74 | |] 99% | | Giant Food CVS Staples |

| [removed: EAST REGION] | | Year Completed | | Year Acquired | | Square [removed: Feet(1) /Apartment] [added: Feet(1) /Apartment] Units | | [added: Average Rent Per Square Foot | |] Percentage Leased(2) | | Principal Tenant(s) |

United States, as well as California.

| Maryland | | 17 | | 3,708,000 | | 20.5 | % |

| Virginia | | 15 | | 3,602,000 | | 19.9 | % |

| California | | 12 | | 2,453,000 | | 13.6 | % |

| Pennsylvania(1) | | 11 | | 2,405,000 | | 13.3 | % |

| Massachusetts | | 7 | | 1,378,000 | | 7.6 | % |

| Florida | | 2 | | 308,000 | | 1.7 | % |

| Texas | | 1 | | 168,000 | | 0.9 | % |

adjustments or other market rate adjustments from the prior base rent.

| 2009 | | 1,128,000 | | 7 | % | | | 25,533,000 | | 7 | % |

| 2010 | | 1,587,000 | | 9 | % | | | 34,589,000 | | 9 | % |

| 2011 | | 1,972,000 | | 12 | % | | | 46,300,000 | | 13 | % |

| 2012 | | 2,109,000 | | 12 | % | | | 46,894,000 | | 13 | % |

| 2013 | | 2,070,000 | | 12 | % | | | 47,803,000 | | 13 | % |

| 2014 | | 1,862,000 | | 11 | % | | | 38,065,000 | | 10 | % |

| 2015 | | 914,000 | | 5 | % | | | 19,900,000 | | 5 | % |

| 2016 | | 800,000 | | 5 | % | | | 19,691,000 | | 5 | % |

| 2017 | | 1,056,000 | | 6 | % | | | 24,066,000 | | 7 | % |

| 2018 | | 941,000 | | 6 | % | | | 17,840,000 | | 5 | % |

| Thereafter | | 2,565,000 | | 15 | % | | | 49,213,000 | | 13 | % |

| Total | | 17,004,000 | | 100 | % | | $ | 369,894,000 | | 100 | % |

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| California | | | | | | | | | | | | |

| Connecticut | | | | | | | | | | | | |

| District of Columbia | | | | | | | | | | | | |

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Florida | | | | | | | | | | | | |

| Courtyard Shops Wellington, FL 33414 | | 1990, 1998 | | 2008 | | 130,000 | | $18.48 | | 92% | | Publix |

| Del Mar Village Boca Raton, FL 33433 | | 1982, 1994 & 2007 | | 2008 | | 178,000 | | $18.41 | | 89% | | Winn Dixie CVS |

| Illinois | | | | | | | | | | | | |

| Maryland | | | | | | | | | | | | |

| Bethesda Row Residential Bethesda, MD 20814(7) | | 2008 | | 1993 | | 180 units | | N/A | | 94% | | |

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Massachusetts | | | | | | | | | | | | |

| Michigan | | | | | | | | | | | | |

| North Carolina | | | | | | | | | | | | |

| New Jersey | | | | | | | | | | | | |

We operate our business on an asset management model, where asset management teams are responsible for a portfolio of assets.

We manage our portfolio as two operating regions: the East and West.

Property management teams consist of asset managers, leasing agents, development staff and financial personnel each of whom has responsibility for a distinct portfolio.

| | | | | | | | |

| East region | | | | | | | |

| Maryland | | 17 | | 3,809,000 | | 20.9 | % |

| Virginia | | 15 | | 3,607,000 | | 19.8 | % |

| Pennsylvania(1) | | 11 | | 2,394,000 | | 13.2 | % |

| Massachusetts | | 7 | | 1,651,000 | | 9.1 | % |

| | | | | | | | |

| Total East region | | 69 | | 15,568,000 | | 85.5 | % |

| | | | | | | | |

| West region | | | | | | | |

| California | | 12 | | 2,450,000 | | 13.5 | % |

| Texas | | 1 | | 177,000 | | 1.0 | % |

| Total West region | | 13 | | 2,627,000 | | 14.5 | % |

| 2008 | | 1,273,000 | | 7 | % | | $ | 21,948,000 | | 6 | % |

| 2009 | | 2,050,000 | | 12 | % | | | 39,036,000 | | 11 | % |

| 2010 | | 1,623,000 | | 9 | % | | | 33,002,000 | | 9 | % |

| 2011 | | 1,788,000 | | 10 | % | | | 43,408,000 | | 12 | % |

| 2012 | | 1,995,000 | | 12 | % | | | 43,926,000 | | 12 | % |

| 2013 | | 1,532,000 | | 9 | % | | | 30,912,000 | | 9 | % |

| 2014 | | 1,148,000 | | 7 | % | | | 26,387,000 | | 8 | % |

| 2015 | | 809,000 | | 5 | % | | | 17,209,000 | | 5 | % |

| 2016 | | 822,000 | | 5 | % | | | 20,448,000 | | 6 | % |

| 2017 | | 1,027,000 | | 6 | % | | | 23,194,000 | | 7 | % |

| Thereafter | | 3,221,000 | | 18 | % | | | 53,580,000 | | 15 | % |

| Total | | 17,288,000 | | 100 | % | | $ | 353,050,000 | | 100 | % |

| | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | |

| Total East Region—Retail | | | | | | 15,568,000 | | 97% | | |

| Total East Region—Residential | | | | | | 428 units | | 94% | | |

| | | | | | | | | | | |

No matters were submitted to a vote of our shareholders during the fourth quarter of the fiscal year ended December 31, [removed: 2007.][added: 2008.]

| | | Price Per Share | | | | | | Dividends [removed: Declared Per] [added: Declared Per] Share | | [removed: |]

| | | High | | | Low | | | | | [removed: |]

| 2007 | | | | | | | | | | [removed: |]

| Fourth quarter | | $ | 95.19 | | $ | 78.58 | | $ | 0.610 | [removed: |]

| Third quarter | | $ | 88.92 | | $ | 73.82 | | $ | 0.610 | [removed: |]

| Second quarter | | $ | 92.59 | | $ | 75.27 | | $ | 0.575 | [removed: |]

| First quarter | | $ | 97.12 | | $ | 81.93 | | $ | 0.575 | [removed: |]

On February [removed: 22, 2008,] [added: 24, 2009,] there were [removed: 4,385] [added: 4,115] holders of record of our common shares.

We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our regular annual dividend rate for [removed: 40] [added: 41] consecutive years.

Our total annual dividends paid per common share for [removed: 2007] [added: 2008] and [removed: 2006] [added: 2007] were [removed: $2.335] [added: $2.480] per share and [removed: $2.440] [added: $2.335] per [removed: share (including a $0.20 special dividend),] [added: share,] respectively.

No assurances can be given regarding what portion, if any, of distributions in [removed: 2008] [added: 2009] or subsequent years will constitute a return of capital for federal income tax purposes.

| | | Year Ended December 31, | | | | | [removed: |]

| Ordinary dividend | | $ | [removed: 2.174] [added: 2.455] | | $ | [removed: 1.813 |] [added: 2.174] |

| Ordinary dividend eligible for 15% tax rate | | | [removed: 0.044 |] [added: 0.025] | | [removed: 0.066] | [added: 0.044] |

| Capital gain | | | [removed: 0.117 |] [added: —] | | [removed: —] | [added: 0.117] |

All [added: other] equity securities sold by us during [removed: 2007] [added: 2008] that were not registered have been previously reported in a Quarterly Report on Form 10-Q.

No equity securities were purchased by us during [removed: 2007.][added: 2008.]

However, [removed: 2,326] [added: 13,961] common shares were placed into treasury as a result of restricted shares forfeited by former employees.

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| 2008 | | | | | | | | | |

| Fourth quarter | | $ | 84.96 | | $ | 43.46 | | $ | 0.650 |

| Third quarter | | $ | 95.00 | | $ | 61.87 | | $ | 0.650 |

| Second quarter | | $ | 85.00 | | $ | 68.25 | | $ | 0.610 |

| First quarter | | $ | 83.41 | | $ | 61.60 | | $ | 0.610 |

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | | 2008 | | | 2007 | |

| | | | | | | |

| | | $ | 2.480 | | $ | 2.335 |

| | | | | | | |

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, 2008, 3,000 operating partnership units were redeemed for cash.

| --- | --- |

| | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| 2006 | | | | | | | | | | |

| Fourth quarter | | $ | 87.15 | | $ | 73.47 | | $ | 0.575 | |

| Third quarter | | $ | 76.42 | | $ | 69.37 | | $ | 0.575 | |

| Second quarter | | $ | 72.43 | | $ | 64.72 | | $ | 0.555 | |

| First quarter | | $ | 75.38 | | $ | 61.63 | | $ | 0.755 | (1) |

| (1) | Includes regular dividend of $0.555 and special dividend of $0.20 resulting from the sales of condominiums at Santana Row. |

| --- | --- |

State income taxes are not material to our operations or cash flows.

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | | 2007 | | | 2006 | | |

| Return of capital | | | — | | | 0.561 | |

| | | | | | | | |

| | | $ | 2.335 | | $ | 2.440 | (1) |

| | | | | | | | |

| (1) | Includes a special dividend of $0.20 resulting from the sales of condominiums at Santana Row. |

Distributions on our 8.5% Series B Cumulative Redeemable Preferred Shares were paid at the rate of $2.125 per share per annum, prior to distributions on our common shares.

On November 27, 2006, the Trust redeemed all 5,400,000 outstanding shares of our 8.5% Series B Cumulative Redeemable Preferred Shares at their redemption price of $25.00 per share, plus accrued and unpaid dividends through the redemption date of $0.159 per share.

Financial Statements and Supplementary Data.” Our selected operating data, other data and balance sheet data for the years ended [removed: 2003] [added: 2004] through [removed: 2006] [added: 2007] has been reclassified to conform to the presentation for the year ended [removed: 2007.][added: 2008.]

| | | [removed: 2007] [added: 2008] | | | | [removed: 2006] [added: 2007] | | | | [removed: 2005] [added: 2006] | | | | [removed: 2004] [added: 2005] | | | | [removed: 2003] [added: 2004] | | |

| Gain on sale of real estate | | $ | [removed: 94,768] [added: 12,572] | | | $ | [removed: 23,956] [added: 94,768] | | | $ | [removed: 30,748] [added: 23,956] | | | $ | [removed: 14,052] [added: 30,748] | | | $ | [removed: 20,053] [added: 14,052] | |

| Net income | | $ | [removed: 195,537] [added: 129,787] | | | $ | [removed: 118,712] [added: 195,537] | | | $ | [removed: 114,612] [added: 118,712] | | | $ | [removed: 84,156] [added: 114,612] | | | $ | [removed: 94,497] [added: 84,156] | |

| Net income available for common shareholders | | $ | [removed: 195,095] [added: 129,246] | | | $ | [removed: 103,514] [added: 195,095] | | | $ | [removed: 103,137] [added: 103,514] | | | $ | [removed: 72,681] [added: 103,137] | | | $ | [removed: 75,990] [added: 72,681] | |

| Net cash provided by operating activities(2) | | $ | [removed: 214,209] [added: 228,285] | | | $ | [removed: 186,654] [added: 214,209] | | | $ | [removed: 174,941] [added: 186,654] | | | $ | [removed: 174,148] [added: 174,941] | | | $ | [removed: 136,393] [added: 174,148] | |

| Net cash used in investing activities(2) | | $ | [removed: (151,439] [added: (207,567] | ) | | $ | [removed: (317,429] [added: (151,439] | ) | | $ | [removed: (152,730] [added: (317,429] | ) | | $ | [removed: (157,611] [added: (152,730] | ) | | $ | [removed: (98,166] [added: (157,611] | ) |

| Net cash (used in) provided by financing activities(2) | | $ | [removed: (23,574] [added: (56,186] | ) | | $ | [removed: 133,631] [added: (23,574] | [added: )] | | $ | [removed: (44,047] [added: 133,631] | [removed: )] | | $ | [removed: (21,030] [added: (44,047] | ) | | $ | [removed: (26,382] [added: (21,030] | ) |

| Dividends declared on common shares | | $ | [removed: 135,102] [added: 148,444] | | | $ | [removed: 133,066] [added: 135,102] | | | $ | [removed: 124,928] [added: 133,066] | | | $ | [removed: 101,969] [added: 124,928] | | | $ | [removed: 93,889] [added: 101,969] | |

| Basic | | | [removed: 56,108] [added: 58,665] | | | | [removed: 53,469] [added: 56,108] | | | | [removed: 52,533] [added: 53,469] | | | | [removed: 51,008] [added: 52,533] | | | | [removed: 47,379] [added: 51,008] | |

| Diluted | | | [removed: 56,543] [added: 58,914] | | | | [removed: 53,962] [added: 56,543] | | | | [removed: 53,050] [added: 53,962] | | | | [removed: 51,547] [added: 53,050] | | | | [removed: 48,619] [added: 51,547] | |

| Continuing operations | | $ | [removed: 1.71] [added: 1.96] | | | $ | [removed: 1.41] [added: 1.67] | | | $ | [removed: 1.36] [added: 1.40] | | | $ | [removed: 1.02] [added: 1.36] | | | $ | [removed: 1.04] [added: 1.02] | |

| Discontinued operations | | | [removed: 1.77] [added: 0.24] | | | | [removed: 0.39] [added: 1.81] | | | | [removed: 0.60] [added: 0.40] | | | | [removed: 0.40] [added: 0.60] | | | | [removed: 0.56] [added: 0.40] | |

| Gain on sale of real estate | | | — | | | | [removed: 0.14] [added: —] | | | | [removed: —] [added: 0.14] | | | | — | | | | — | |

| Total | | $ | [removed: 3.48] [added: 2.20] | | | $ | [removed: 1.94] [added: 3.48] | | | $ | [removed: 1.96] [added: 1.94] | | | $ | [removed: 1.42] [added: 1.96] | | | $ | [removed: 1.60] [added: 1.42] | |

| Continuing operations | | $ | [removed: 1.70] [added: 1.95] | | | $ | [removed: 1.40] [added: 1.65] | | | $ | [removed: 1.35] [added: 1.39] | | | $ | [removed: 1.01] [added: 1.35] | | | $ | [removed: 1.04] [added: 1.01] | |

| Discontinued operations | | | [removed: 1.75] [added: 0.24] | | | | [removed: 0.38] [added: 1.80] | | | | [removed: 0.59] [added: 0.39] | | | | [removed: 0.40] [added: 0.59] | | | | [removed: 0.55] [added: 0.40] | |

| Gain on sale of real estate | | | — | | | | [removed: 0.14] [added: —] | | | | [removed: —] [added: 0.14] | | | | — | | | | — | |

| Total | | $ | [removed: 3.45] [added: 2.19] | | | $ | [removed: 1.92] [added: 3.45] | | | $ | [removed: 1.94] [added: 1.92] | | | $ | [removed: 1.41] [added: 1.94] | | | $ | [removed: 1.59] [added: 1.41] | |

| Dividends declared per common share(3) | | $ | [removed: 2.37] [added: 2.52] | | | $ | [removed: 2.46] [added: 2.37] | | | $ | [removed: 2.37] [added: 2.46] | | | $ | [removed: 1.99] [added: 2.37] | | | $ | [removed: 1.95] [added: 1.99] | |

| Funds from operations available to common [removed: shareholders(4)(5)] [added: shareholders(4)(5)(6)] | | $ | [removed: 206,762] [added: 229,176] | | | $ | [removed: 177,113] [added: 206,762] | | | $ | [removed: 163,544] [added: 177,113] | | | $ | [removed: 148,671] [added: 163,544] | | | $ | [removed: 131,257] [added: 148,671] | |

| [removed: EBITDA(6)] [added: EBITDA(7)] | | $ | [removed: 417,560] [added: 339,099] | | | $ | [removed: 316,783] [added: 417,560] | | | $ | [removed: 292,465] [added: 316,783] | | | $ | [removed: 258,143] [added: 292,465] | | | $ | [removed: 243,956] [added: 258,143] | |

| Adjusted [removed: EBITDA(6)] [added: EBITDA(7)] | | $ | [removed: 322,792] [added: 326,527] | | | $ | [removed: 292,827] [added: 322,792] | | | $ | [removed: 261,717] [added: 292,827] | | | $ | [removed: 244,091] [added: 261,717] | | | $ | [removed: 223,903] [added: 244,091] | |

| Ratio of EBITDA to combined fixed charges and preferred share [removed: dividends(6)(7)] [added: dividends(7)(8)] | | | [removed: 3.3x] [added: 3.2x] | | | | [removed: 2.6x] [added: 3.3x] | | | | [removed: 2.7x] [added: 2.6x] | | | | [removed: 2.5x] [added: 2.7x] | | | | [removed: 2.2x] [added: 2.5x] | |

| Ratio of Adjusted EBITDA to combined fixed charges and preferred share [removed: dividends(6)(7)] [added: dividends(7)(8)] | | | [removed: 2.5x] [added: 3.1x] | | | | [removed: 2.4x] [added: 2.5x] | | | | 2.4x | | | | 2.4x | | | | [removed: 2.1x] [added: 2.4x] | |

| | | [added: 2008 | | |] 2007 | | | 2006 | | | 2005 | | | 2004 | | [removed: | 2003 | |]

| Real [removed: estate] [added: estate,] at cost | | $ | [removed: 3,452,847] [added: 3,673,685] | | $ | [removed: 3,204,258] [added: 3,452,847] | | $ | [removed: 2,829,321] [added: 3,204,258] | | $ | [removed: 2,666,276] [added: 2,829,321] | | $ | [removed: 2,470,149] [added: 2,666,276] |

| Total assets | | $ | [removed: 2,989,297] [added: 3,092,776] | | $ | [removed: 2,688,606] [added: 2,989,297] | | $ | [removed: 2,350,852] [added: 2,688,606] | | $ | [removed: 2,266,896] [added: 2,350,852] | | $ | [removed: 2,141,185] [added: 2,266,896] |

| [removed: Mortgage, construction loans] [added: Mortgages payable] and capital lease obligations | | $ | [removed: 450,084] [added: 452,810] | | $ | [removed: 460,398] [added: 450,084] | | $ | [removed: 419,713] [added: 460,398] | | $ | [removed: 410,885] [added: 419,713] | | $ | [removed: 414,357] [added: 410,885] |

| Notes payable | | $ | [removed: 210,820] [added: 336,391] | | $ | [removed: 109,024] [added: 210,820] | | $ | [removed: 316,755] [added: 109,024] | | $ | [removed: 325,051] [added: 316,755] | | $ | [removed: 361,323] [added: 325,051] |

| Senior notes and debentures | | $ | [removed: 977,556] [added: 956,584] | | $ | [removed: 1,127,508] [added: 977,556] | | $ | [removed: 653,675] [added: 1,127,508] | | $ | [removed: 568,121] [added: 653,675] | | $ | [removed: 532,750] [added: 568,121] |

| Preferred stock | | $ | 9,997 | | $ | [removed: —] [added: 9,997] | | $ | [removed: 135,000] [added: —] | | $ | 135,000 | | $ | 135,000 |

| Shareholders’ equity | | $ | [removed: 1,114,632] [added: 1,114,602] | | $ | [removed: 784,078] [added: 1,114,632] | | $ | [removed: 774,847] [added: 784,078] | | $ | [removed: 790,534] [added: 774,847] | | $ | [removed: 691,374] [added: 790,534] |

| Number of common shares outstanding | | | [added: 58,986 | | |] 58,646 | | | 55,321 | | | 52,891 | | | 52,137 | [removed: | | 49,201 |]

| (1) | Property operating income 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 [removed: our regional operations,] [added: property operations] and we consider it to be a significant measure. |

| | | [removed: 2007] [added: 2008] | | | | [removed: 2006] [added: 2007] | | | | [removed: 2005] [added: 2006] | | | | [removed: 2004] [added: 2005] | | | | [removed: 2003] [added: 2004] | | |

| Net income | | $ | [removed: 195,537] [added: 129,787] | | | $ | [removed: 118,712] [added: 195,537] | | | $ | [removed: 114,612] [added: 118,712] | | | $ | [removed: 84,156] [added: 114,612] | | | $ | [removed: 94,497] [added: 84,156] | |

| Gain on sale of real estate | | | [removed: (94,768] [added: (12,572] | ) | | | [removed: (23,956] [added: (94,768] | ) | | | [removed: (30,748] [added: (23,956] | ) | | | [removed: (14,052] [added: (30,748] | ) | | | [removed: (20,053] [added: (14,052] | ) |

| Depreciation and amortization of real estate assets | | | [removed: 95,565] [added: 101,450] | | | | [removed: 88,649] [added: 95,565] | | | | [removed: 82,752] [added: 88,649] | | | | [removed: 81,649] [added: 82,752] | | | | [removed: 68,202] [added: 81,649] | |

| Amortization of initial direct costs of leases | | | [removed: 8,473] [added: 8,771] | | | | [removed: 7,390] [added: 8,473] | | | | [removed: 6,972] [added: 7,390] | | | | [removed: 7,151] [added: 6,972] | | | | [removed: 5,801] [added: 7,151] | |

| Rental income | | $ | 501,964 | | | $ | 465,728 | | | $ | 414,261 | | | $ | 375,655 | | | $ | 350,837 | |

| Property operating income(1) | | $ | 355,093 | | | $ | 336,862 | | | $ | 301,513 | | | $ | 273,398 | | | $ | 245,022 | |

| Income from continuing operations | | $ | 115,338 | | | $ | 94,009 | | | $ | 89,952 | | | $ | 83,058 | | | $ | 63,566 | |

| (5) | Includes a charge of $1.6 million in 2008 related to the settlement of a litigation matter relating to a shopping center in New Jersey. The matter is further discussed in Note 8 of the financial statements. |

| Rental income | | $ | 468,498 | | | $ | 414,979 | | | $ | 375,927 | | | $ | 351,101 | | | $ | 318,549 | |

| Property operating income(1) | | $ | 338,269 | | | $ | 301,574 | | | $ | 272,304 | | | $ | 245,253 | | | $ | 219,675 | |

| Income from continuing operations | | $ | 96,380 | | | $ | 90,552 | | | $ | 83,247 | | | $ | 63,755 | | | $ | 67,716 | |

##### [Table of Contents](#toc)

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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.

The reconciliation of net income to funds from operations available for common shareholders is as follows:

##### [Table of Contents](#toc)

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| --- | --- |

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

| --- | --- |

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.

Overview

We are an equity real estate investment trust specializing in the ownership, management, development and redevelopment of high quality retail and mixed-use properties.

As of December 31, 2007, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 82 predominantly retail real estate projects comprising approximately 18.2 million square feet.

These properties are located primarily in densely populated and affluent communities in strategic metropolitan markets in the Mid-Atlantic and Northeast regions of the United States, as well as in California.

In total, these 82 real estate projects were 96.7% leased at December 31, 2007.

A joint venture in which we own a 30% interest owned seven retail real estate projects totaling approximately 1.0 million square feet as of December 31, 2007.

In total, the joint venture properties in which we own an interest were 98.3% leased at December 31, 2007.

We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 40 consecutive years.

##### [Table of Contents](#toc)

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, which we refer 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 or accrual results could have a material impact on our consolidated results of operations or financial condition.

The most significant 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:

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

| --- | --- |

Not applicable.

| ITEM 9A. CON TROLS | AND PROCEDURES |

| --- | --- |

Quarterly Assessment

We carried out an assessment as of December 31, 2007 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 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 currently are 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.

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 and 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 and 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.

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; |

| --- | --- | --- | --- |

##### [Table of Contents](#toc)

| | • | | 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 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 procedures and our internal audit, as well as discussions with our Disclosure Committee, independent public accountants 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 _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.

None.

| ITEM | 9A. CONTROLS AND PROCEDURES |

| --- | --- |

Quarterly Assessment

We carried out an assessment as of December 31, 2008 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 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 currently are 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.

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 Senior Vice President and 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 Senior Vice President and 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; |

| --- | --- | --- | --- |

##### [Table of Contents](#toc)

| | • | | 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 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, independent public accountants 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 _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.

Certain information required in Part III is omitted from this Report but is incorporated herein by reference from our Proxy Statement for the [removed: 2008] [added: 2009] Annual Meeting of Shareholders (the “Proxy Statement”).

Our financial statement schedules are included in a separate section of this Annual Report on Form 10-K commencing on page [removed: F-35.][added: F-37.]

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 [removed: 25] [added: 26th] day of February, [removed: 2008.][added: 2009.]

| [removed: /s/] [added: /S/] DONALD C. WOOD Donald C. Wood | | Chief Executive Officer, Trustee (Principal Executive Officer) | | February [removed: 25, 2008] [added: 26, 2009] |

| [removed: /s/ JOSEPH M. SQUERI Joseph M. Squeri] [added: /S/ ANDREW P. BLOCHER Andrew P. Blocher] | | [removed: Executive] [added: Senior] Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | | February [removed: 25, 2008] [added: 26, 2009] |

| [removed: /s/] [added: /S/] JOSEPH S. VASSALLUZZO Joseph S. Vassalluzzo | | Non-Executive Chairman | | February 26, [removed: 2008] [added: 2009] |

| [removed: /s/] [added: /S/] JON E. BORTZ Jon Bortz | | Trustee | | February [removed: 25, 2008] [added: 26, 2009] |

| [removed: /s/] [added: /S/] DAVID W. FAEDER David W. Faeder | | Trustee | | February [removed: 25, 2008] [added: 26, 2009] |

| [removed: /s/] [added: /S/] KRISTIN GAMBLE Kristin Gamble | | Trustee | | February 26, [removed: 2008] [added: 2009] |

| [removed: /s/] [added: /S/] GAIL P. STEINEL Gail P. Steinel | | Trustee | | February [removed: 25, 2008] [added: 26, 2009] |

| [removed: /s/] [added: /S/] WARREN M. THOMPSON Warren M. Thompson | | Trustee | | February [removed: 25, 2008] [added: 26, 2009] |

| [Management Assessment Report on Internal Control over Financial [removed: Reporting](#fin20389_1)] [added: Reporting](#fin86578_1)] | | F-2 |

| [Report of Independent Registered Public Accounting [removed: Firm](#fin20389_2)] [added: Firm](#fin86578_2)] | | F-3 |

| [Report of Independent Registered Public Accounting [removed: Firm](#fin20389_3)] [added: Firm](#fin86578_3)] | | F-4 |

| [Consolidated Balance [removed: Sheets](#fin20389_4)] [added: Sheets](#fin86578_4)] | | F-5 |

| [Consolidated Statements of [removed: Operations](#fin20389_5)] [added: Operations](#fin86578_5)] | | F-6 |

| [Consolidated Statement of Shareholders’ [removed: Equity](#fin20389_6)] [added: Equity](#fin86578_6)] | | F-7 |

| [Consolidated Statements of Cash [removed: Flows](#fin20389_7)] [added: Flows](#fin86578_7)] | | F-8 |

| [Notes to Consolidated Financial [removed: Statements](#fin20389_8)] [added: Statements](#fin86578_8)] | | [removed: F-9-F-34] [added: F-9-F-36] |

| [Schedule III—Summary of Real Estate and Accumulated [removed: Depreciation](#fin20389_9)] [added: Depreciation](#fin86578_9)] | | [removed: F-35-F-41] [added: F-37-F-43] |

| [Schedule IV—Mortgage Loans on Real [removed: Estate](#fin20389_10)] [added: Estate](#fin86578_10)] | | [removed: F-42-F-43] [added: F-44-F-45] |

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 [removed: Executive] [added: Senior] Vice President and 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.

Management conducted an assessment of the effectiveness of the Trust’s internal control over financial reporting as of December 31, [removed: 2007.][added: 2008.]

In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in _Internal [removed: Control – Integrated] [added: 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, [removed: 2007.][added: 2008.]

We have audited Federal Realty Investment Trust (a Maryland real estate investment trust) and subsidiaries’ (the Trust) internal control over financial reporting as of December 31, [removed: 2007,] [added: 2008,] based on criteria established in _Internal Control—Integrated Framework_ issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, Federal Realty Investment Trust and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2007,] [added: 2008,] based on criteria established in _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 balance sheets of Federal Realty Investment Trust and subsidiaries as of December 31, [removed: 2007] [added: 2008] and [removed: 2006,] [added: 2007,] and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, [removed: 2007] [added: 2008] and our report dated February 25, [removed: 2008] [added: 2009] expressed an unqualified opinion.

We have audited the accompanying consolidated balance sheets of Federal Realty Investment Trust (a Maryland real estate investment trust) and subsidiaries (the Trust) as of December 31, [removed: 2007] [added: 2008] and [removed: 2006,] [added: 2007,] and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, [removed: 2007.][added: 2008.]

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Trust as of December 31, [removed: 2007] [added: 2008] and [removed: 2006,] [added: 2007,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2007] [added: 2008] in conformity with accounting principles generally accepted in the United States of America.

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, [removed: 2007,] [added: 2008,] based on criteria established in _Internal Control—Integrated Framework_ issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 25, [removed: 2008] [added: 2009] expressed an unqualified opinion.

| | | [added: 2008 | | | |] 2007 | | | | 2006 | | |

| Construction-in-progress | | | [removed: 147,925] [added: 106,650] | | | | [removed: 99,774] [added: 147,925] | |

| Assets held for sale (discontinued operations) | | | — | | | | [removed: 173,093] [added: 39,902] | |

| Less accumulated depreciation and amortization | | | [removed: (756,703] [added: (846,258] | ) | | | [removed: (740,507] [added: (756,703] | ) |

| Net real estate | | | [removed: 2,696,144] [added: 2,827,427] | | | | [removed: 2,463,751] [added: 2,696,144] | |

| Cash and cash equivalents | | | [removed: 50,691] [added: 15,223] | | | | [removed: 11,495] [added: 50,691] | |

| Accounts and notes receivable | | | [removed: 61,108] [added: 73,688] | | | | [removed: 47,493] [added: 61,108] | |

| Mortgage notes receivable | | | [removed: 40,638] [added: 45,780] | | | | [removed: 40,756] [added: 40,638] | |

| Investment in real estate partnership | | | [removed: 29,646] [added: 29,252] | | | | [removed: 10,322] [added: 29,646] | |

| Prepaid expenses and other assets | | | [removed: 103,620] [added: 95,344] | | | | [removed: 106,172] [added: 103,620] | |

| Debt issuance costs, net of accumulated amortization of [removed: $4,815] [added: $6,484] and [removed: $4,986,] [added: $4,815,] respectively | | | [removed: 7,450] [added: 6,062] | | | | [removed: 8,617] [added: 7,450] | |

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.

February 25, 2009

February 25, 2009

| | | 2008 | | | | 2007 | | |

| Operating | | $ | 3,567,035 | | | $ | 3,265,020 | |

| | | | 3,673,685 | | | | 3,452,847 | |

| Rental income | | $ | 501,964 | | | $ | 465,728 | | | $ | 414,261 | |

| Total revenue | | | 520,525 | | | | 483,122 | | | | 426,816 | |

| Rental expenses | | | 109,718 | | | | 99,363 | | | | 84,164 | |

| Real estate taxes | | | 55,714 | | | | 46,897 | | | | 41,139 | |

| General and administrative | | | 26,732 | | | | 26,581 | | | | 21,921 | |

| Depreciation and amortization | | | 111,022 | | | | 101,633 | | | | 92,751 | |

| Total operating expenses | | | 303,186 | | | | 274,474 | | | | 239,975 | |

| OPERATING INCOME | | | 217,339 | | | | 208,648 | | | | 186,841 | |

| INCOME FROM CONTINUING OPERATIONS | | | 115,338 | | | | 94,009 | | | | 89,952 | |

| Results from discontinued operations | | | 14,449 | | | | 101,528 | | | | 21,319 | |

| Discontinued operations | | | 0.24 | | | | 1.81 | | | | 0.40 | |

| Continuing operations | | $ | 1.95 | | | $ | 1.65 | | | $ | 1.39 | |

| Net income/comprehensive income | | — | | | | — | | | — | | | — | | | — | | | | 129,787 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 129,787 | |

| Common shares issued | | — | | | | — | | | 274 | | | — | | | 19 | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | | | | 19 | |

| Exercise of stock options | | — | | | | — | | | 214,853 | | | 2 | | | 8,006 | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | | | | 8,008 | |

| Share-based compensation expense (SFAS No.123 (R)) | | — | | | | — | | | 99,504 | | | 2 | | | 7,776 | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | | | | 7,778 | |

| BALANCE AT DECEMBER 31, 2008 | | 399,896 | | | $ | 9,997 | | | 60,487,244 | | $ | 605 | | $ | 1,559,381 | | | $ | (426,574 | ) | | (1,501,566 | ) | | $ | (28,807 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | 1,114,602 | |

| Extension fee on term loan | | | (200 | ) | | | — | | | | — | |

As of December 31, 2008, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 84 predominantly retail real estate projects.

Percentage rents, which represent

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 use derivative instruments to manage exposure to variable interest rate risk.

We enter into derivative instruments that qualify as cash flow hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and do not enter into derivative instruments for speculative purposes.

As of December 31, 2008 and 2007, we had no outstanding hedging instruments.

support from other parties or in which equity investors do not have the characteristics of a controlling financial interest (“variable interest entities”).

As of December 31, 2008 and 2007, $24.5 million and $25.1 million, respectively, is included in mortgages payable for the mortgage loan secured by Melville Mall, however, the loan is not our legal obligation.

At December 31, 2008, net real estate assets related to Melville Mall included in our consolidated balance sheet are approximately $66.5 million.

In conjunction with the acquisitions of several of our properties, we entered into Reverse Section 1031 like-kind exchange agreements with a third party intermediary.

The exchange agreements are for a maximum of 180 days and allow us, for tax purposes, to defer gains on sale of other properties sold within this period.

Until the earlier of termination of the exchange agreements or 180 days after the respective acquisition dates, the third party intermediary is the legal owner of each property, although we control each property and retain all of the economic benefits and risks associated with the property.

Each property is held by a third party intermediary in a variable interest entity for which we are the primary beneficiary.

Accordingly, we consolidate these properties and their operations even during the period they are held by a third party intermediary.

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February 25, 2008

As discussed in Note 1 to the Notes to Consolidated Financial Statements, the Trust adopted SFAS No. 123R “_Share-Based Payment”_, effective January 1, 2006.

February 25, 2008

| Operating | | $ | 3,304,922 | | | $ | 2,931,391 | |

| | | | 3,452,847 | | | | 3,204,258 | |

| Capital lease obligations of assets held for sale | | | — | | | | 54,245 | |

| Rental income | | $ | 468,498 | | | $ | 414,979 | | | $ | 375,927 | |

| Total revenue | | | 485,892 | | | | 427,535 | | | | 390,808 | |

| Rental | | | 100,389 | | | | 84,763 | | | | 82,055 | |

| Real estate taxes | | | 47,234 | | | | 41,198 | | | | 36,449 | |

| General and administrative | | | 25,575 | | | | 21,340 | | | | 19,909 | |

| Depreciation and amortization | | | 101,675 | | | | 92,793 | | | | 84,521 | |

| Total operating expenses | | | 274,873 | | | | 240,094 | | | | 222,934 | |

| OPERATING INCOME | | | 211,019 | | | | 187,441 | | | | 167,874 | |

| INCOME FROM CONTINUING OPERATIONS | | | 96,380 | | | | 90,552 | | | | 83,247 | |

| Results from discontinued operations | | | 99,157 | | | | 20,719 | | | | 31,365 | |

| Continuing operations | | $ | 1.71 | | | $ | 1.41 | | | $ | 1.36 | |

| Discontinued operations | | | 1.75 | | | | 0.38 | | | | 0.59 | |

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| BALANCE AT DECEMBER 31, 2004 | | 5,400 | | | $ | 135,000 | | | 53,616,827 | | $ | 536 | | $ | 1,108,213 | | | $ | (416,026 | ) | | (1,480,202 | ) | | $ | (28,786 | ) | | $ | (8,641 | ) | | $ | (2,083 | ) | | $ | 2,321 | | | $ | 790,534 | |

| Net income | | — | | | | — | | | — | | | — | | | — | | | | 114,612 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 114,612 | |

| Change due to recognizing gain on securities | | — | | | | — | | | — | | | — | | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | 60 | | | | 60 | |

| Change in valuation on interest rate swaps | | — | | | | — | | | — | | | — | | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | 297 | | | | 297 | |

| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 114,969 | |

| Exercise of stock options | | — | | | | — | | | 409,920 | | | 4 | | | 10,947 | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,951 | |

| Grants of restricted common shares | | — | | | | — | | | 78,591 | | | 1 | | | 4,061 | | | | — | | | — | | | | — | | | | (3,494 | ) | | | — | | | | — | | | | 568 | |

| Vesting of restricted common shares | | — | | | | — | | | — | | | — | | | — | | | | — | | | — | | | | — | | | | 2,431 | | | | — | | | | — | | | | 2,431 | |

| Deferred sock compensation associated with variable accounting (APB No. 25) | | — | | | | — | | | — | | | — | | | 893 | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | | | | 893 | |

In our 2006 Form 10-K, the operations of the property prior to June 2006 and the gain on sale of real estate were included in discontinued operations.

operations through the date of sale to continuing operations and reclassified the gain on sale from “discontinued operations—gain on sale of real estate” to “gain on sale of real estate.” This reclassification did not impact net income.

We do not purchase derivatives for speculation.

The ineffective portion of changes in fair value of our cash flow hedges is recognized in earnings in the period affected.

We

This swap fixed the LIBOR portion at 2.401% through October 2006.

The full notional amount of this swap qualified as a cash flow hedge until we repaid the $150 million term loan on July 17, 2006.