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Federal Realty Investment Trust said Thursday it plans to appeal a $14.4 million court verdict that helped send the Rockville developer's first-quarter profits plunging by 62 percent from a year ago.

Federal Realty, whose holdings include Bethesda Row in downtown Bethesda, Congressional Plaza in Rockville and White Marsh Plaza in Baltimore, said its profits were reduced overall by $20.6 million due to the lawsuit award and associated legal expenses and interest.

Federal Realty this week reported a first-quarter profit of $11.9 million, down from $31.3 million in the first quarter of 2008.

The company lost the lawsuit, filed in 2003, on April 22 when a U.S. District Court judge in California ruled Federal Realty breached an agreement to buy a building next to its Santana Row shopping center in San Jose, Calif. The company had negotiated to buy the property in 2000, with plans to demolish it and build a new parking structure with a residential tower next to its shopping center, but negotiations fell through, Federal Realty officials said.

Federal Realty plans to appeal because the company's "final proposal" had clearly stated that the deal was subject to approval in a final contract, CEO and President Donald Wood said Thursday in a quarterly conference call with investors and reporters.

"We're incredulous as to the court's logic in the damages," Wood said. "You can be assured we'll appeal the court's decision vigorously."

The company had thought in 1999 that the property next to the Santana Row shopping center would be a good addition, but never reached a final agreement and it was never an important factor in the plans for Santana Row, one of several sites Federal Realty owns in California.

The agreement that led to the verdict against the company clearly states it was "subject only to the terms and agreement of a formal agreement," Wood said.

"We thought we'd like to have it, but we didn't really need it," Wood said.

Company executives are in the process of interviewing appellate counsel to represent Federal Realty, he said.

Federal Realty's occupancy rate is about 94.2 percent, down slightly from 96.1 percent for the same period a year ago.

In general, the company has seen fewer tenants seeking to modify their lease agreements, but company officials are uncertain whether that's because the market has stabilized or if it stems from other factors, Wood said.

The company also is less likely to modify a lease now and factors in the tenant's ability to pay, the importance to the shopping center and the likelihood of finding a better tenant for the location, Wood said.

"We're probably more likely to let a tenant go dark and have a higher vacancy for a shorter time because we could have better options to lease the space," Wood said.

In the first quarter, Federal Realty's revenues rose to $131.2 million from $126.4 million a year ago. Funds from operations, a key measure in the industry, took a hit from the court verdict, falling to $37.8 million from $55.2 million.

This report originally appeared in The Business Gazette.