Table of Contents
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    
 
SECURITIES EXCHANGE ACT OF 1934
 
OR
 
¨    
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    
 
SECURITIES EXCHANGE ACT OF 1934.
 
    
 
  For quarter ended September 30, 2002
 
Commission File No. 1-6622
 
 
WASHINGTON REAL ESTATE INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
 
MARYLAND
  
53-0261100
(State or other jurisdiction of incorporation or organization)
  
(IRS Employer Identification Number)
 
6110 Executive Boulevard, Rockville, Maryland
  
20852
(Address of principal executive office)
  
(Zip code)
 
 
Registrant’s telephone number, including area code (301) 984-9400
 
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the close of the period covered by this report.
 
SHARES OF BENEFICIAL INTEREST 39,146,220
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or such shorter period that the Registrant was required to file such report) and (2) has been subject to such filing requirements for the past ninety (90) days. YES  x  NO  ¨             
 
 

Table of Contents
WASHINGTON REAL ESTATE INVESTMENT TRUST
 
INDEX
 
              
Page
Part I:
   
Financial Information
     
    
Item l.
   
Financial Statements
     
            
3
            
4
            
5
            
6
            
7
    
Item 2.
      
16
    
Item 3.
      
23
    
Item 4.
      
24
Part II:
   
Other Information
     
    
Item l.
      
25
    
Item 2.
      
25
    
Item 3.
      
25
    
Item 4.
      
25
    
Item 5.
      
25
    
Item 6.
      
25
  
27
 
Part I
 
FINANCIAL INFORMATION
 
The information furnished in the accompanying Consolidated Balance Sheets, Statements of Income, Statements of Cash Flows and Statement of Changes in Shareholders’ Equity reflect all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes for the three years ended December 31, 2001 included in the Trust’s 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
 

2

Table of Contents
 
Part I
Item I.  Financial Statements
 
WASHINGTON REAL ESTATE INVESTMENT TRUST
 
CONSOLIDATED BALANCE SHEETS
(In Thousands, except per share amounts)
(Unaudited)
 
    
September 30, 2002
     
December 31, 2001
  
Assets
                  
Land
   
$
169,045
 
   
$
151,782
 
Building
   
 
679,365
 
   
 
622,804
 
    
  
Total real estate, at cost
   
$
848,410
 
   
 
774,586
 
Accumulated depreciation
   
 
(139,965
)
   
 
(122,625
)
    
  
Total investment in real estate
   
 
708,445
 
   
 
651,961
 
Cash and cash equivalents
   
 
15,818
 
   
 
26,441
 
Rents and other receivables, net of allowance for doubtful accounts of $2,400 and $1,993, respectively
   
 
12,617
 
   
 
10,523
 
Prepaid expenses and other assets
   
 
21,083
 
   
 
19,010
 
    
  
    
$
757,963
 
   
$
707,935
 
    
  
Liabilities
                  
Accounts payable and other liabilities
   
 
11,869
 
   
 
13,239
 
Advance rents
   
 
4,172
 
   
 
3,604
 
Tenant security deposits
   
 
6,442
 
   
 
6,148
 
Mortgage notes payable
   
 
87,197
 
   
 
94,726
 
Line of credit payable
   
 
53,750
 
   
 
—  
 
Notes payable
   
 
265,000
 
   
 
265,000
 
    
  
    
 
428,430
 
   
 
382,717
 
    
  
Minority interest
   
 
1,554
 
   
 
1,611
 
    
  
Shareholders' Equity
                  
Shares of beneficial interest; $.01 par value; 100,000 shares authorized: 39,146 and 38,829 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively
   
 
391
 
   
 
388
 
Additional paid-in capital
   
 
328,387
 
   
 
323,257
 
Retained earnings (deficit)
   
 
(799
)
   
 
(38
)
    
  
Total Shareholders' Equity
   
 
327,979
 
   
 
323,607
 
    
  
Total Liabilities and Shareholders' Equity
   
$
757,963
 
   
$
707,935
 
    
  
 
See accompanying notes to financial statements

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Table of Contents
WASHINGTON REAL ESTATE INVESTMENT TRUST
 
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share amounts)
(Unaudited)
 
    
Three Months Ended September 30,
     
Nine Months Ended September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Revenue
                                    
Real estate rental revenue
   
$
38,324
 
   
$
37,510
 
   
$
113,903
 
   
$
109,528
 
Other income
   
 
177
 
   
 
302
 
   
 
552
 
   
 
1,251
 
    
  
  
  
    
 
38,501
 
   
 
37,812
 
   
 
114,455
 
   
 
110,779
 
Expenses
                                    
Real estate expenses
   
 
(11,453
)
   
 
(10,732
)
   
 
(32,779
)
   
 
(31,475
)
Interest expense
   
 
(7,068
)
   
 
(6,731
)
   
 
(20,838
)
   
 
(20,178
)
Depreciation and amortization
   
 
(7,303
)
   
 
(6,777
)
   
 
(21,305
)
   
 
(19,624
)
General and administrative
   
 
(1,034
)
   
 
(1,303
)
   
 
(3,505
)
   
 
(4,541
)
    
  
  
  
    
 
(26,858
)
   
 
(25,543
)
   
 
(78,427
)
   
 
(75,818
)
Income from continuing operations
   
 
11,643
 
   
 
12,269
 
   
 
36,028
 
   
 
34,961
 
Discontinued operations:
                                    
Income (loss) from operations of property disposed
   
 
—  
 
   
 
259
 
   
 
(82
)
   
 
690
 
Gain on property disposed
   
 
—  
 
   
 
—  
 
   
 
3,838
 
   
 
—  
 
    
  
  
  
Income before gain on sale of real estate investment
   
 
11,643
 
   
 
12,528
 
   
 
39,784
 
   
 
35,651
 
Gain on sale of real estate investment
   
 
—  
 
   
 
4,296
 
   
 
—  
 
   
 
4,296
 
    
  
  
  
Net Income
   
$
11,643
 
   
$
16,824
 
   
$
39,784
 
   
$
39,947
 
    
  
  
  
Per share information based on the weighted average of shares outstanding
                                    
Shares—Basic
   
 
39,134
 
   
 
38,460
 
   
 
39,030
 
   
 
37,312
 
Shares—Diluted
   
 
39,358
 
   
 
38,795
 
   
 
39,265
 
   
 
37,618
 
Income from continuing operations - Basic
   
$
0.30
 
   
$
0.32
 
   
$
0.92
 
   
$
0.94
 
    
  
  
  
Income from continuing operations - Diluted
   
$
0.30
 
   
$
0.32
 
   
$
0.92
 
   
$
0.93
 
    
  
  
  
Income (loss) from operations of property disposed - Basic
   
$
0.00
 
   
$
0.01
 
   
$
0.00
 
   
$
0.02
 
    
  
  
  
Income (loss) from operations of property disposed - Diluted
   
$
0.00
 
   
$
0.00
 
   
$
0.00
 
   
$
0.02
 
    
  
  
  
Gain on property disposed - Basic
   
$
0.00
 
   
$
0.00
 
   
$
0.10
 
   
$
0.00
 
    
  
  
  
Gain on property disposed - Diluted
   
$
0.00
 
   
$
0.00
 
   
$
0.09
 
   
$
0.00
 
    
  
  
  
Income before gain on sale of real estate investment - Basic
   
$
0.30
 
   
$
0.33
 
   
$
1.02
 
   
$
0.96
 
    
  
  
  
Income before gain on sale of real estate investment - Diluted
   
$
0.30
 
   
$
0.32
 
   
$
1.01
 
   
$
0.95
 
    
  
  
  
Gain on sale of real estate investment - Basic
   
$
0.00
 
   
$
0.11
 
   
$
0.00
 
   
$
0.11
 
    
  
  
  
Gain on sale of real estate investment - Diluted
   
$
0.00
 
   
$
0.11
 
   
$
0.00
 
   
$
0.11
 
    
  
  
  
Net income per share - Basic
   
$
0.30
 
   
$
0.44
 
   
$
1.02
 
   
$
1.07
 
    
  
  
  
Net income per share - Diluted
   
$
0.30
 
   
$
0.43
 
   
$
1.01
 
   
$
1.06
 
    
  
  
  
Dividends paid
   
$
0.3525
 
   
$
0.3325
 
   
$
1.0375
 
   
$
0.9775
 
    
  
  
  
 
See accompanying notes to financial statements

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Table of Contents
 
WASHINGTON REAL ESTATE INVESTMENT TRUST
 
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(In Thousands)
(Unaudited)
 
    
Shares
   
Par Value
   
Additional
Paid in Capital
   
Retained
Earnings
(deficit)
     
Shareholders'
Equity
  
Balance, December 31, 2001
   
38,829
   
$
388
   
$
323,257
   
$
(38
)
   
$
323,607
 
Net income
   
—  
   
 
—  
   
 
—  
   
 
39,784
 
   
 
39,784
 
Dividends
   
—  
   
 
—  
   
 
—  
   
 
(40,545
)
   
 
(40,545
)
Share Options Exercised
   
310
   
 
3
   
 
4,949
   
 
—  
 
   
 
4,952
 
Share Grants
   
7
   
 
—  
   
 
181
   
 
—  
 
   
 
181
 
    
  
  
  
  
Balance, September 30, 2002
   
39,146
   
$
391
   
$
328,387
   
$
(799
)
   
$
327,979
 
    
  
  
  
  
 
See accompanying notes to financial statements

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WASHINGTON REAL ESTATE INVESTMENT TRUST
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
    
Nine Months Ended
September 30,
  
    
2002
     
2001
  
Cash Flow From Operating Activities
                  
Net income
   
$
39,784
 
   
$
39,947
 
Adjustments to reconcile net income to net cash provided by operating activities
                  
Gain on sale of real estate
   
 
(3,838
)
   
 
(4,296
)
Depreciation and amortization
   
 
21,317
 
   
 
19,694
 
Bad debt expense
   
 
1,024
 
   
 
701
 
Changes in other assets
   
 
(6,955
)
   
 
(3,997
)
Changes in other liabilities
   
 
(493
)
   
 
(695
)
Share Grants
   
 
110
 
   
 
154
 
    
  
Net cash provided by operating activities
   
 
50,949
 
   
 
51,508
 
    
  
Cash Flow From Investing Activities
                  
Real estate acquisitions
   
 
(58,074
)
   
 
(46,070
)
Capital improvements to real estate
   
 
(19,793
)
   
 
(8,794
)
Non-real estate capital improvements
   
 
(146
)
   
 
(212
)
Cash received for sale of real estate
   
 
5,813
 
   
 
8,115
 
    
  
Net cash used in investing activities
   
 
(72,200
)
   
 
(46,961
)
    
  
Cash Flow From Financing Activities
                  
Share Offering
   
 
—  
 
   
 
53,083
 
Line of Credit Borrowings
   
 
53,750
 
   
 
—  
 
Line of Credit Repayments
   
 
—  
 
   
 
—  
 
Notes payable
   
 
(40,545
)
   
 
(36,780
)
Principal payments - Mortgage note payable
   
 
(7,529
)
   
 
(619
)
Share options exercised
   
 
4,952
 
   
 
6,296
 
    
  
Net cash provided by financing activities
   
 
10,628
 
   
 
21,980
 
    
  
Net (decrease) increase in cash and cash equivalents
   
 
(10,623
)
   
 
26,527
 
Cash and temporary investments at beginning of year
   
 
26,441
 
   
 
6,426
 
    
  
Cash and cash equivalents at end of period
   
$
15,818
 
   
$
32,953
 
    
  
Supplemental disclosure of cash flow information:
                  
Cash paid for interest during the nine months ended
   
$
22,816
 
   
$
22,082
 
    
  
 
See accompanying notes to financial statements.

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Table of Contents
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
 
NOTE 1: NATURE OF BUSINESS
Washington Real Estate Investment Trust (“WRIT”, the “Trust” or the “company”), a Maryland Real Estate Investment Trust, is a self-administered, self managed equity real estate investment trust, successor to a trust organized in 1960. The Trust’s business consists of the ownership of income-producing real estate properties in the greater Washington - Baltimore region. WRIT owns a diversified portfolio of office buildings, industrial/flex centers, multi-family buildings and retail centers.
 
Federal Income Taxes
 
WRIT has qualified as a Real Estate Investment Trust (REIT) under Sections 856-860 of the Internal Revenue Code and intends to continue to qualify as such. To maintain its status as a REIT, the company is required to distribute 90% of its ordinary taxable income (95% for years prior to 2001) to its shareholders. The company has the option of (i) reinvesting the sale price of properties sold, allowing for a deferral of income taxes on the sale, (ii) paying out capital gains to the shareholders with no tax to the company or (iii) treating the capital gains as having been distributed to the shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to the shareholders. The company distributed all of its 2001, 2000 and 1999 ordinary taxable income to its shareholders. Gain on sale of properties disposed during 2001, 2000 and 1999 were reinvested in replacement properties, therefore no capital gains were distributed to shareholders during these periods. Accordingly, no provision for income taxes was necessary.
 
NOTE 2: ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although WRIT believes that the disclosures made are adequate to make the information presented not misleading. In addition, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the financial statements and notes included in WRIT’s Annual Report on Form 10-K for the year ended December 31, 2001.
 
New Accounting Pronouncements
 
Impairment or Disposal of Long-Lived Assets
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”. SFAS No. 144 is effective for all quarters of fiscal years beginning after December 15, 2001. WRIT will classify a property as held for sale when the company commits to the disposal of the property and begins to actively pursue the sale of the property.
 
On February 28, 2002, WRIT sold 1501 South Capitol Street, an industrial/flex center in Washington, D.C., for $6.2 million resulting in a gain of $3.8 million. This property provided no real estate revenue in 2002 because it had been vacant since November 2001. The property produced a net loss of $0.1 million for the nine months ended September 30, 2002 and total revenue of $1.0 million and net income of $0.7 million for the nine months ended

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Table of Contents
 
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
 
September 30, 2001 and is reflected as a discontinued operation. WRIT recognized no impairment loss on this property prior to or upon sale. As of September 30, 2002, WRIT had no properties held for sale.
 
Revenue Recognition
 
Residential properties are leased under operating leases with terms of generally one year or less, and commercial properties are leased under operating leases with average terms of three to five years. WRIT recognizes rental income and rental abatements from the company’s residential and commercial leases when earned in accordance with SFAS No. 13, “Accounting for Leases”. WRIT records an allowance for doubtful accounts equal to the estimated uncollectible amounts. This estimate is based on WRIT’s historical experience and a review of the current status of the company’s receivables. Contingent rents are recorded when cumulative sales exceed the amount necessary for the contingent rents to equal minimum annual rent and WRIT has been informed of cumulative sales data; thereafter, percentage rent is accrued based on subsequent sales.
 
WRIT recognizes cost reimbursement income from pass-through expenses on an accrual basis over the periods in which the expenses were incurred. Pass-through expenses are comprised of real estate taxes, operating expenses and common area maintenance costs which are reimbursed by tenants in accordance with specific allowable costs per tenant lease agreements.
 
Minority Interest
 
WRIT formed a limited liability company with a member of the entity which previously owned Northern Virginia Industrial Park in conjunction with the acquisition of this property in May 1998. This resulted in a minority ownership interest in this property based upon defined company ownership units at the date of purchase. WRIT accounts for this activity by allocating the minority owner’s percentage ownership interest of the net operating income of the property to minority interest. Quarterly distributions are made to the minority owner equal to the quarterly distribution per share for each ownership unit in the limited liability company.
 
Deferred Financing Costs
 
Costs associated with the issuance of mortgage and other notes and draws on lines of credit are capitalized and amortized using the effective interest rate method over the term of the related notes and are included in interest expense on the accompanying consolidated statements of income.
 
Real Estate and Depreciation
 
Buildings are depreciated on a straight-line basis over estimated useful lives not exceeding 50 years. All capital improvement expenditures associated with replacements, improvements, or major repairs to real property are depreciated using the straight-line method over their estimated useful lives ranging from 3 to 30 years. All tenant improvements are amortized over the shorter of the useful life or the term of the lease. Maintenance and repair costs are charged to expense as incurred.
 
In accordance with SFAS 144, WRIT recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the net undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If such carrying amount is in excess of the estimated projected operating cash flows of the property, WRIT would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to the estimated fair market value. There were no property impairments recognized during 2001 or the nine months ended September 30, 2002. In accordance with SFAS No. 66, “Accounting for Sales of

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Table of Contents
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
 
Real Estate,” sales are recognized at closing only when sufficient down payments have been obtained, possession and other attributes of ownership have been transferred to the buyer and the Trust has no significant continuing involvement. The gain or loss resulting from the sale of properties is included in net income at the time of sale.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include investments readily convertible to known amounts of cash with original maturities of 90 days or less.
 
Stock Based Compensation
 
WRIT maintains Stock Option Plans, which include qualified and non-qualified options for eligible employees. Stock options are accounted for in accordance with Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees”, whereby if options are priced at fair market value or above at the date of grant, no compensation expense is recognized.
 
Comprehensive Income
 
WRIT has no items of comprehensive income that would require separate reporting in the accompanying consolidated statements of income.
 
Earnings Per Common Share
 
The Trust calculates basic and diluted earnings per share in accordance with SFAS No. 128, “Earnings Per Share.” “Basic earnings per share” is computed as net income divided by the weighted-average common shares outstanding. “Diluted earnings per share” is computed as net income divided by the total weighted-average common shares outstanding plus the effect of dilutive common equivalent shares outstanding for the period. Dilutive common equivalent shares reflect the assumed issuance of additional common shares pursuant to certain of the Trust’s share based compensation plans that could potentially reduce or “dilute” earnings per share, based on the treasury stock method.
 
Use of Estimates in the Financial Statements
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Reclassifications
 
Certain prior year amounts have been reclassified to conform to the current year presentation.

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Table of Contents
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
 
NOTE 3: REAL ESTATE INVESTMENTS
WRIT’s real estate investment portfolio, at cost, consists of properties located in Maryland, Washington, D.C. and Virginia as follows:
 
    
September 30,
2002
    
(in thousands)
Office buildings
   
$
458,651
Industrial/Flex Centers
   
 
138,181
Multi-family Properties
   
 
109,465
Retail centers
   
 
142,113
    
    
$
848,410
    
 
WRIT acquired the following properties during 2002:
 
Acquisition Date
  
Property
Name
  
Property
Type
  
Rentable
Square Feet
  
Purchase
Contract Cost
(in thousands)
January 25, 2002
  
1620 Wilson Boulevard
  
Retail
  
5,364
  
$  2,250
June 21, 2002
  
Centre at Hagerstown
  
Retail
  
326,846
  
$41,700
July 23, 2002
  
The Atrium Building
  
Office
  
81,390
  
$14,200
 
On February 28, 2002 WRIT sold its 1501 South Capitol Street industrial/flex center in Washington, DC for $6.2 million, resulting in a gain of $3.8 million. The proceeds and resultant gain on sale were reinvested on a tax-free basis in the acquisition of the Centre at Hagerstown.
 
NOTE 4: MORTGAGE NOTES PAYABLE
On August 22, 1995, WRIT assumed a $7.8 million mortgage note payable as partial consideration for WRIT’s acquisition of Frederick County Square retail center. The mortgage bore interest at 9.00 percent per annum. On September 4, 2002, WRIT prepaid this $6.7 million unpaid mortgage principal and interest. This mortgage was paid in full without penalty through a draw on the unsecured line of credit facility bearing interest at 2.52 percent per annum (see Note 5).
 
On November 30, 1998, WRIT assumed a $9.2 million mortgage note payable and a $12.4 million mortgage note payable as partial consideration for WRIT’s acquisition of Woodburn Medical Park I and II. Both mortgages bear interest at 7.69 percent per annum. Principal and interest are payable monthly until September 15, 2005, at which time all unpaid principal and interest are payable in full.
 
On September 20, 1999, WRIT assumed an $8.7 million mortgage note payable as partial consideration for WRIT’s acquisition of the Avondale Apartments. The mortgage bears interest at 7.88 percent per annum. Principal and interest are payable monthly until November 1, 2005, at which time all unpaid principal and interest are payable in full.
 
On September 27, 1999, WRIT executed a $50.0 million mortgage note payable secured by Munson Hill Towers, Country Club Towers, Roosevelt Towers, Park Adams Apartments, and the Ashby Apartments. The mortgage

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WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
 
bears interest at 7.14 percent per annum and is payable monthly until October 1, 2009, at which time all unpaid principal and interest are payable in full.
 
On November 1, 2001, WRIT assumed an $8.5 million mortgage note payable with an estimated fair value of $9.3 million as partial consideration for WRIT’s acquisition of Sullyfield Commerce Center. The mortgage bears interest at 9.00 percent per annum. Principal and interest are payable monthly until February 1, 2007, at which time all unpaid principal and interest are payable in full. In accordance with the purchase method of accounting, the mortgage was recorded at its estimated fair value of $9.3 million resulting in an adjustment to the basis of this property and an effective interest rate of 6.8%.
 
Annual maturities of principal as of September 30, 2002 are as follows:
 
    
(in thousands)
2002
   
$
246
2003
   
 
1,030
2004
   
 
1,110
2005
   
 
26,634
2006
   
 
331
Thereafter
   
 
57,846
    
Total
   
$
87,197
    
 
NOTE 5: UNSECURED LINES OF CREDIT PAYABLE
WRIT has two unsecured lines of credit in the aggregate amount of $75.0 million, with $53.8 million outstanding under the lines of credit as of September 30, 2002. Amounts outstanding under the lines of credit during the three months ended September 30, 2002 bore interest at 2.52%. This rate was calculated based upon a LIBOR rate of 1.82% increased by a 70 basis point spread. All unpaid interest and principal can be prepaid without penalty prior to the expiration of WRIT’s interest rate lock-in periods. Advances will reprice upon rate expiration if not paid in full by WRIT in accordance with the terms discussed below.
 
The $50.0 million line of credit, renewed on July 25, 2002, requires WRIT to pay the lender unused line of credit fees at the rate of 0.200 percent per annum on the amount by which the unused portion of the line of credit exceeds the balance of outstanding advances and term loans. Advances under this agreement bear interest at either LIBOR plus a spread, the Prime rate plus a spread, or an advance can be converted into a term loan based upon a Treasury rate plus a spread. All outstanding advances are due and payable upon maturity in July 2005.
 
The $25.0 million line of credit, renewed on July 23, 2002, requires WRIT to pay the lender unused line of credit fees based on a sliding scale as usage is increased. These fees are payable quarterly. Advances under this agreement bear interest at either LIBOR plus a spread or the higher of the Prime rate or the Federal Funds effective rate plus a spread based on WRIT’s credit rating on its publicly issued debt. All outstanding advances are due and payable upon maturity in July 2004.
 
The lines of credit contain certain financial and non-financial covenants, all of which WRIT met as of September 30, 2002. The covenants under the lines of credit require WRIT to maintain insurance on its properties in such amounts and covering such risks as are (a) customarily carried by companies engaged in similar businesses or (b)

11

Table of Contents
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
 
consistent with sound business practices. WRIT renewed its property insurance coverage effective September 1, 2002 resulting in premiums increasing approximately 31% over the prior year policy. The line of credit agreements require WRIT to insure its properties against loss or damage at least equal to their then full insurable value. The renewed policy does not specifically exclude terrorism activities, but the Trust’s financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts.
 
NOTE 6: NOTES PAYABLE
On August 13, 1996 WRIT sold $50.0 million of 7.125 percent unsecured 7-year notes due August 13, 2003, and $50.0 million of 7.25 percent unsecured 10-year notes due August 13, 2006. The 7-year notes were sold at 99.107 percent of par and the 10-year notes were sold at 98.166 percent of par. Net proceeds to the Trust after deducting underwriting expenses were $97.6 million. The 7-year notes bear an effective interest rate of 7.46 percent, and the 10-year notes bear an effective interest rate of 7.49 percent, for a combined effective interest rate of 7.47 percent. WRIT used the proceeds of these notes to repay advances on its lines of credit and to finance acquisitions and capital improvements to its properties.
 
On February 20, 1998, WRIT sold $50.0 million of 7.25 percent unsecured notes due February 25, 2028 at 98.653 percent to yield approximately 7.36 percent. WRIT also sold $60.0 million in unsecured Mandatory Par Put Remarketed Securities (“MOPPRS”) at an effective borrowing rate through the remarketing date (February 2008) of approximately 6.74 percent. The net proceeds to WRIT after deducting loan origination fees was $102.8 million. WRIT used the proceeds of these notes for general business purposes, including repayment of outstanding advances under its lines of credit and to finance acquisitions and capital improvements to its properties. WRIT’s costs of the borrowings of approximately $7.2 million will be amortized over the lives of the notes using the effective interest method.
 
On November 6, 2000, WRIT sold $55.0 million of 7.78 percent unsecured notes due November 2004. The notes bear an effective interest rate of 7.89 percent. Total proceeds to the Trust, net of underwriting fees, were $54.8 million. WRIT used the proceeds of these notes to repay advances on its lines of credit.
 
These notes contain certain financial and non-financial covenants, all of which WRIT met as of September 30, 2002. The covenants under the lines of credit require WRIT to maintain insurance on its properties in such amounts and covering such risks as are (a) customarily carried by companies engaged in similar businesses or (b) consistent with sound business practices. WRIT renewed its property insurance coverage effective September 1, 2002 resulting in premiums increasing approximately 31% over the prior year policy. The notes require WRIT to insure its properties against loss or damage at least equal to their then full insurable value. The renewed policy does not specifically exclude terrorism activities, but the Trust’s financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts.
 
NOTE 7: BENEFIT PLANS
The Trust adopted a split dollar life insurance plan for senior officers, excluding the Chief Executive Officer (“CEO”), in 2000. It is intended that the Trust will recover its costs from the life insurance policies at death prior to retirement, upon termination prior to retirement or upon retirement at age 65. The Trust has a security interest in the cash value and death benefit of each policy to the extent of the sum of premium payments made by the Trust. The cash values of the policy in excess of the Trust’s interest can be used by the executive. Annual premiums for the split dollar life insurance plan are due each April. On July 30, 2002, the Sarbanes-Oxley Act of 2002 (the “Act”) was signed into law. Section 402 of the Act prohibits a public company from making or maintaining a personal loan to any of its directors or executive officers, either directly or indirectly. As of September 30, 2002, the Trust is awaiting definitive guidance from either Congress or the Securities and Exchange Commission (the “SEC”) in determining if its split dollar life insurance executive benefit arrangement will be considered in compliance with the Act.)
 
The Trust adopted a non-qualified deferred compensation plan for the CEO and members of the Board of Trustees in 2000. The plan allows for a deferral of a percentage of annual cash compensation and trustee fees.

12

Table of Contents
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
 
Compensation deferred will be credited with interest equal to 7.5%. The plan is unfunded and payments are to be made from general assets of the Trust. The deferred compensation liability was $0.7 million at September 30, 2002 including $0.1 million recognized for the nine months ended September 30, 2002.
 
WRIT established a Supplemental Executive Retirement Plan (“SERP”) effective July 1, 2002 for the benefit of the CEO. Upon the CEO’s termination of employment from the Company for any reason other than death, discharge for cause or total and permanent disability, the CEO will be entitled to receive an annual benefit equal to his accrued benefit times his vested interest as outlined in the SERP.
 
WRIT purchased a universal life insurance policy on the CEO’s life to serve as a source of funds to assist WRIT in meeting its liabilities under the SERP. Through an endorsement split dollar arrangement, WRIT has made available to the CEO pre-retirement life insurance coverage through age 70.
 
In the event the CEO continues in the employment of the Company until age 70, the annual benefit to be paid to the CEO shall be $200,000. The SERP is not subject to vesting, funding and fiduciary requirements under ERISA. WRIT recognized $70,000 as the deferred compensation liability and service cost for the SERP for the three months ended September 30, 2002 in accordance with the requirements of SFAS 87.
 
NOTE 8: SEGMENT INFORMATION
WRIT has four reportable segments: Office Buildings, Industrial/Flex Centers, Multi-family Properties and Retail Centers. For the nine months ended September 30, 2002 Office Buildings, which include medical office buildings, represented 52 percent of real estate rental revenue and provide office space for various professions and businesses. Industrial/Flex Centers represented 14 percent of real estate rental revenue and are used for warehousing, distribution and related offices. Multi-family Properties represented 19 percent of real estate rental revenue and provide housing for families throughout the Washington Metropolitan area. Retail Centers represented the remaining 15 percent of real estate rental revenue and are typically neighborhood grocery store or drug store anchored retail centers.
 
The accounting policies of each of the segments are the same as those described in Note 2. WRIT evaluates performance based upon operating income from the combined properties in each segment. WRIT’s reportable segments are consolidations of similar properties. They are managed separately because each segment requires different operating, pricing and leasing strategies. All of these properties have been acquired separately and are incorporated into the applicable segment.

13

Table of Contents
 
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 20, 2002
(UNAUDITED)
 
    
Three Months Ended September 30, 2002
                 
    
Office Buildings
   
Industrial/Flex Centers
   
Multi-family
   
Retail Centers
   
Corporate And Other
     
Consolidated
    
(in thousands)
                 
Revenue
                                            
Real estate rental revenue
   
$
19,484
   
$
5,240
   
$
7,205
   
$
6,395
   
$
—  
 
   
$
38,324
Other income
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
177
 
   
 
177
    
  
  
  
  
  
    
 
19,484
   
 
5,240
   
 
7,205
   
 
6,395
   
 
177
 
   
 
38,501
Expenses
                                            
Real estate expenses
   
 
6,385
   
 
1,122
   
 
2,666
   
 
1,280
   
 
—  
 
   
 
11,453
Interest expense
   
 
389
   
 
160
   
 
1,075
   
 
100
   
 
5,344
 
   
 
7,068
Depreciation and amortization
   
 
3,888
   
 
1,210
   
 
1,036
   
 
883
   
 
286
 
   
 
7,303
General and administration
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
1,034
 
   
 
1,034
    
  
  
  
  
  
    
 
10,662
   
 
2,492
   
 
4,777
   
 
2,263
   
 
6,664
 
   
 
26,858
Income from continuing operations
   
 
8,822
   
 
2,748
   
 
2,428
   
 
4,132
   
 
(6,487
)
   
 
11,643
Discontinued Operations:
                                            
Income (loss) from operations of disposed property
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
—  
 
   
 
—  
Gain on property disposed
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
  
  
  
Income before sale of real estate investment
   
 
8,822
   
 
2,748
   
 
2,428
   
 
4,132
   
 
(6,487
)
   
 
11,643
Gain on sale of real estate investment
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
  
  
  
Net Income
   
$
8,822
   
$
2,748
   
$
2,428
   
$
4,132
   
$
(6,487
)
   
$
11,643
    
  
  
  
  
  
Capital expenditures (including acquisitions)
   
$
3,964
   
$
552
   
$
1,812
   
$
42,684
   
$
84
 
   
$
49,096
    
  
  
  
  
  
Total assets
   
$
399,859
   
$
123,083
   
$
80,439
   
$
127,285
   
$
27,297
 
   
$
757,963
    
  
  
  
  
  
 
    
Three Months Ended September 30, 2001
                 
    
Office Buildings
   
Industrial/Flex Centers
   
Multi-family
   
Retail Centers
   
Corporate And Other
     
Consolidated
    
(in thousands)
                 
Revenue
                                            
Real estate rental revenue
   
$
21,278
   
$
4,605
   
$
7,016
   
$
4,611
   
$
—  
 
   
$
37,510
Other income
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
302
 
   
 
302
    
  
  
  
  
  
    
 
21,278
   
 
4,605
   
 
7,016
   
 
4,611
   
 
302
 
   
 
37,812
Expenses
                                            
Real estate expenses
   
 
6,401
   
 
932
   
 
2,459
   
 
940
   
 
—  
 
   
 
10,732
Interest expense
   
 
398
   
 
—  
   
 
1,078
   
 
155
   
 
5,100
 
   
 
6,731
Depreciation and amortization
   
 
3,939
   
 
992
   
 
956
   
 
580
   
 
310
 
   
 
6,777
General and administration
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
1,303
 
   
 
1,303
    
  
  
  
  
  
    
 
10,738
   
 
1,924
   
 
4,493
   
 
1,675
   
 
6,713
 
   
 
25,543
Income from continuing operations
   
 
10,540
   
 
2,681
   
 
2,523
   
 
2,936
   
 
(6,411
)
   
 
12,269
Discontinued Operations:
                                            
Income (loss) from operations of
disposed property
   
 
—  
   
 
259
   
 
—  
   
 
—  
   
 
—  
 
   
 
259
Gain on property disposed
   
 
—  
   
 
—  
   
 
—  
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
  
  
  
Income before sale of real estate investment
   
 
10,540
   
 
2,940
   
 
2,523
   
 
2,936
   
 
(6,411
)
   
 
12,528
Gain on sale of real estate investment
   
 
4,296
   
 
—  
   
 
—  
   
 
—  
   
 
—  
 
   
 
4,296
    
  
  
  
  
  
Net Income
   
$
14,836
   
$
2,940
   
$
2,523
   
$
2,936
   
$
(6,411
)
   
$
16,824
    
  
  
  
  
  
Capital expenditures (including acquisitions)
   
$
1,917
   
$
421
   
$
766
   
$
381
   
$
141
 
   
$
3,626
    
  
  
  
  
  
Total assets
   
$
381,131
   
$
106,500
   
$
80,228
   
$
81,749
   
$
45,193
 
   
$
694,801
    
  
  
  
  
  
 

14

Table of Contents
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
 
    
Nine Months Ended September 30, 2002
                   
    
Office Buildings
   
Industrial/Flex Centers
       
Multi-family
   
Retail Centers
   
Corporate And Other
     
Consolidated
  
    
(in thousands)
                   
Revenue
                                                  
Real estate rental revenue
   
$
59,279
   
$
16,046
 
     
$
21,430
   
$
17,148
   
$
—  
 
   
$
113,903
 
Other income
   
 
—  
   
 
—  
 
     
 
—  
   
 
—  
   
 
552
 
   
 
552
 
    
  
    
  
  
  
    
 
59,279
   
 
16,046
 
     
 
21,430
   
 
17,148
   
 
552
 
   
 
114,455
 
Expenses
                                                  
Real estate expenses
   
 
18,177
   
 
3,543
 
     
 
7,649
   
 
3,410
   
 
—  
 
   
 
32,779
 
Interest expense
   
 
1,173
   
 
482
 
     
 
3,227
   
 
405
   
 
15,551
 
   
 
20,838
 
Depreciation and amortization
   
 
11,582
   
 
3,603
 
     
 
3,087
   
 
2,147
   
 
886
 
   
 
21,305
 
General and administration
   
 
—  
   
 
—  
 
     
 
—  
   
 
—  
   
 
3,505
 
   
 
3,505
 
    
  
    
  
  
  
    
 
30,932
   
 
7,628
 
     
 
13,963
   
 
5,962
   
 
19,942
 
   
 
78,427
 
Income from continuing operations
   
 
28,347
   
 
8,418
 
     
 
7,467
   
 
11,186
   
 
(19,390
)
   
 
36,028
 
Discontinued Operations:
                                                  
Income (loss) from operations of disposed property
   
 
—  
   
 
(82
)
     
 
—  
   
 
—  
   
 
—  
 
   
 
(82
)
Gain on property disposed
   
 
—  
   
 
3,838
 
     
 
—  
   
 
—  
   
 
—  
 
   
 
3,838
 
    
  
    
  
  
  
Income before sale of real estate investment
   
 
28,347
   
 
12,174
 
     
 
7,467
   
 
11,186
   
 
(19,390
)
   
 
39,784
 
Gain on sale of real estate investment
   
 
—  
   
 
—  
 
     
 
—  
   
 
—  
   
 
—  
 
   
 
—  
 
    
  
    
  
  
  
Net Income
   
$
28,347
   
$
12,174
 
     
$
7,467
   
$
11,186
   
$
(19,390
)
   
$
39,784
 
    
  
    
  
  
  
Capital expenditures (including acquisitions)
   
$
27,454
   
$
862
 
     
$
3,279
   
$
46,272
   
$
146
 
   
$
78,013
 
    
  
    
  
  
  
Total assets
   
$
399,859
   
$
123,083
 
     
$
80,439
   
$
127,285
   
$
27,297
 
   
$
757,963
 
    
  
    
  
  
  
 
    
Nine Months Ended September 30, 2002
                 
    
Office Buildings
   
Industrial/Flex Centers
     
Multi-family
   
Retail Centers
   
Corporate And Other
     
Consolidated
    
(in thousands)
                 
Revenue
                                              
Real estate rental revenue
   
$
60,507
   
$
14,310
     
$
20,512
   
$
14,199
   
$
—  
 
   
$
109,528
Other income
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
1,251
 
   
 
1,251
    
  
    
  
  
  
    
 
60,507
   
 
14,310
     
 
20,512
   
 
14,199
   
 
1,251
 
   
 
110,779
Expenses
                                              
Real estate expenses
   
 
18,038
   
 
3,118
     
 
7,309
   
 
3,010
   
 
—  
 
   
 
31,475
Interest expense
   
 
1,134
   
 
—  
     
 
3,238
   
 
468
   
 
15,338
 
   
 
20,178
Depreciation and amortization
   
 
11,246
   
 
2,989
     
 
2,849
   
 
1,746
   
 
794
 
   
 
19,624
General and administration
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
4,541
 
   
 
4,541
    
  
    
  
  
  
    
 
30,418
   
 
6,107
     
 
13,396
   
 
5,224
   
 
20,673
 
   
 
75,818
Income from continuing operations
   
 
30,089
   
 
8,203
     
 
7,116
   
 
8,975
   
 
(19,422
)
   
 
34,961
Discontinued Operations:
                                              
Income (loss) from operations of disposed property
   
 
—  
   
 
690
     
 
—  
   
 
—  
   
 
—  
 
   
 
690
Gain on disposal
   
 
—  
   
 
—  
     
 
—  
   
 
—  
   
 
—  
 
   
 
—  
    
  
    
  
  
  
Income before sale of real estate investment
   
 
30,089
   
 
8,893
     
 
7,116
   
 
8,975
   
 
(19,422
)
   
 
35,651
Gain on sale of real estate investment
   
 
4,296
   
 
—  
     
 
—  
   
 
—  
   
 
—  
 
   
 
4,296
    
  
    
  
  
  
Net Income
   
$
34,385
   
$
8,893
     
$
7,116
   
$
8,975
   
$
(19,422
)
   
$
39,947
    
  
    
  
  
  
Capital expenditures (including acquisitions)
   
$
49,713
   
$
1,614
     
$
2,995
   
$
542
   
$
212
 
   
$
55,076
    
  
    
  
  
  
Total assets
   
$
381,131
   
$
106,500
     
$
80,228
   
$
81,749
   
$
45,193
 
   
$
694,801
    
  
    
  
  
  
 

15

Table of Contents
 
ITEM2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
WRIT’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires WRIT to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, WRIT evaluates these estimates, including those related to estimated useful lives of real estate assets, cost reimbursement income, bad debts, contingencies and litigation. WRIT bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.
 
CRITICAL ACCOUNTING POLICIES
 
WRIT believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of its consolidated financial statements. WRIT’s significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements.
 
Revenue Recognition
 
Residential properties are leased under operating leases with terms of generally one year or less, and commercial properties are leased under operating leases with average terms of three to five years. WRIT recognizes rental income and rental abatements from the company’s residential and commercial leases when earned in accordance with SFAS No. 13. WRIT records an allowance for doubtful accounts equal to the estimated uncollectible amounts. This estimate is based on WRIT’s historical experience and a review of the current status of the company’s receivables. Contingent rents are recorded when cumulative sales exceed the amount necessary for the contingent rents to equal minimum annual rent and WRIT has been informed of cumulative sales data; thereafter, percentage rent is accrued based on subsequent sales.
 
WRIT recognizes cost reimbursement income from pass-through expenses on an accrual basis over the periods in which the expenses were incurred. Pass-through expenses are comprised of real estate taxes, operating expenses and common area maintenance costs which are reimbursed by tenants in accordance with specific allowable costs per tenant lease agreements.
 
Estimated Useful Lives of Real Estate Assets
 
Real estate assets are depreciated on a straight-line basis over estimated useful lives not exceeding 50 years. All capital improvement expenditures associated with replacements, improvements, or major repairs to real property are depreciated using the straight-line method over their estimated useful lives ranging from 3 to 30 years. All tenant improvements are amortized over the shorter of the useful life or the term of the lease. Maintenance and repair costs are charged to expense as incurred.
 
Impairment Losses on Long-Lived Assets
 
In accordance with SFAS 144, WRIT recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the net undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If such carrying amount is in excess of the estimated projected operating cash flows of the property, WRIT would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to the estimated fair market value. There were no property impairments recognized during the

16

Table of Contents
 
ITEM2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
period ended September 30, 2002. WRIT reflects the results of properties as discontinued operations when classified and held for sale.
 
Federal Income Taxes
 
WRIT has qualified as a Real Estate Investment Trust (REIT) under Sections 856-860 of the Internal Revenue Code and intends to continue to qualify as such. To maintain its status as a REIT, the company is required to distribute 90% of its ordinary taxable income (95% for years prior to 2001) to its shareholders. The company has the option of (i) reinvesting the sale price of properties sold allowing for a deferral of income taxes on the sale, (ii) paying out capital gains to the shareholders with no tax to the company or (iii) treating the capital gains as having been distributed to the shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to the shareholders. The company distributed all of its 2001, 2000 and 1999 ordinary taxable income to its shareholders. Gain on sale of properties disposed during 2001, 2000 and 1999 were reinvested in replacement properties, therefore no capital gains were distributed to shareholders during these periods. Accordingly, no provision for income taxes was necessary.
 
RESULTS OF OPERATIONS
 
FORWARD LOOKING STATEMENTS
 
WRIT’s Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that may be considered forward-looking. Although WRIT believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that could cause actual results to differ materially from WRIT’s current expectations include the economic health of WRIT’s tenants, the economic health of the greater Washington-Baltimore region or other markets WRIT may enter, the supply of competing properties, inflation, consumer confidence, unemployment rates, consumer tastes and preferences, stock price and interest rate fluctuations, WRIT’s future capital requirements, compliance with applicable laws, including those concerning the environment and access by persons with disabilities, weather conditions and the additional matters discussed in the Annual Report on Form 10-K under the caption “Risk Factors”.
 
REAL ESTATE RENTAL REVENUE AND OPERATING INCOME: Three Months Ended September 30, 2002 Compared to the Three Months Ended September 30, 2001
 
Total revenues for the third quarter of 2002 increased 2.1% ($0.8 million) to $38.3 million from $37.5 million in the third quarter of 2001. Operating income increased 0.4% ($0.1 million) to $26.9 million from $26.8 million in the third quarter of 2001.
 
For the third quarter of 2002, WRIT’s office buildings had decreases of 8.4% in revenues and 12.0% in operating income compared to the third quarter of 2001. These decreases were primarily due to decreased revenues and operating income as a result of increased vacancy and the September 2001 sale of 10400 Connecticut Avenue. Real estate expenses over the same periods were relatively flat. Occupancy rates for the overall office portfolio declined from 97.1% in the third quarter of 2001 to 87.6% in the third quarter of 2002. Comparing those office buildings owned by WRIT for the entire third quarter of 2001 and 2002, revenue and operating income decreased 8.1% and 10.8%, respectively. These decreases in revenues and operating income were primarily due to increased vacancy. Occupancy rates in the core office portfolio decreased to 88.5% in third quarter 2002 from 97.2% in third quarter

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ITEM2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
2001. The changes in these occupancy rates are due primarily to 156,000 square feet of vacant space at 7900 Westpark Drive effective December 31, 2001. As of September 30, 2002 WRIT has released 6,500 square feet leaving the remaining vacancy at 149,500 square feet. Due to the very soft Northern Virginia market, WRIT anticipates that it will take several additional quarters before the vacancy at 7900 Westpark Drive will be absorbed.
 
For the third quarter of 2002, WRIT’s industrial/flex centers revenues and operating income increased 13.8% and 12.1%, respectively, over the third quarter of 2001. These increases in revenue and operating income, offset by a $0.2 million (20.4%) increase in real estate expenses, were primarily due to the acquisition of Sullyfield Commerce Center in November 2001. Occupancy rates for the overall industrial portfolio decreased from 98.8% in third quarter 2001 to 93.0% in third quarter 2002 due to increased vacancies at five industrial properties. Comparing those industrial/flex centers owned by WRIT for the entire third quarter of 2001 and 2002, revenue and operating income decreased 0.2% and 0.9%, respectively. These decreases in revenue and operating income were primarily due to increased vacancy levels and a 2.5% increase in real estate expenses for the third quarter of 2002. Occupancy rates for the core industrial property decreased to 91.9% in the third quarter of 2002 from 98.7% in the third quarter of 2001 due to increased vacancies at five industrial properties.
 
For the third quarter of 2002, WRIT’s multi-family revenues increased 2.7% and operating income decreased 0.4% as compared to the third quarter of 2001. Revenue increases were primarily due to increased rental rates offset in part by increased vacancy. Occupancy rates decreased slightly from 96.3% in the third quarter of 2001 to 94.6% in the third quarter of 2002. Operating income decreased due to a $0.2 million (8.4%) increase in real estate expenses during third quarter 2002 due primarily to increased marketing costs as a result of increased vacancy and increased utility costs.
 
For the third quarter of 2002, WRIT’s retail center revenues and operating income increased 38.7% and 39.3%, respectively, over the third quarter of 2001. These increases were primarily due to the acquisition of the Centre at Hagerstown in June 2002 and increased core portfolio revenues and operating income. Occupancy rates for the overall retail portfolio were relatively unchanged from 95.3% in third quarter 2001 to 95.1% in third quarter 2002. Comparing those shopping centers owned by WRIT for the entire third quarter of 2001 and 2002, revenue and operating income increased by 10.3% and 11.2%, respectively. These increases were primarily due to increased rental rates and tenant pass through recoveries, offset in part by decreased occupancy. Occupancy rates for the core retail center portfolio decreased slightly from 95.3% in the third quarter of 2001 to 94.9% in the third quarter of 2002. Operating income was primarily offset by a $0.1 million (6.5%) increase in real estate expenses during third quarter 2002 due to increases in repairs and maintenance and real estate tax expense at core retail properties.
 
REAL ESTATE RENTAL REVENUE AND OPERATING INCOME: Nine Months Ended September 30, 2002 Compared to the Nine Months Ended September 30, 2001
 
Total revenues for the first nine months of 2002 increased 4.0% ($4.4 million) to $113.9 million from $109.5 million for the first nine months of 2001. Operating income increased 3.9% ($3.0 million) to $81.1 million for the first nine months of 2002 from $78.1 million for the first nine months of 2001.
 
For the first nine months of 2002, WRIT’s office buildings had decreases of 2.0% in revenues and 3.2% in operating income, respectively, over the first nine months of 2001. These decreases were primarily due to decreases in core portfolio operating income as a result of increased vacancies and the sale of 10400 Connecticut Avenue in September 2001. Occupancy rates for the overall office portfolio decreased from 97.8% for the nine months ended September 2001 to 89.0% for the nine months ended September 2002. Comparing those office buildings owned by WRIT for the entire first nine months of 2001 and 2002, revenue and operating income decreased 5.9% and 7.8%, respectively. These decreases in revenues and operating income were primarily due to

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ITEM2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
increased vacancy and a slight increase in real estate expenses of $0.1 million (0.5%) from $18.0 million in 2001 to $18.1 million in 2002. Occupancy rates for the core office portfolio declined from 97.8% for the nine months ended September 2001 to 88.6% for the nine months ended September 2002. The changes in these occupancy rates are due primarily to 156,000 square feet of vacant space at 7900 Westpark Drive effective December 31, 2001. As of September 30, 2002 WRIT has released 6,500 square feet leaving the remaining vacancy at 149,500 square feet. Due to the very soft Northern Virginia market, WRIT anticipates that it will take several additional quarters before the vacancy at 7900 Westpark Drive will be absorbed.
 
For the first nine months of 2002, WRIT’s industrial/flex center revenues and operating income increased 12.1% and 11.7%, respectively, over the first nine months of 2001. These increases were primarily due to the acquisition of Sullyfield Commerce Center in November 2001. Occupancy rates for the industrial portfolio declined from 98.8% for the nine months ended September 2001 to 93.6% for the nine months ended September 2002. Comparing those industrial/flex centers owned by WRIT for the entire first nine months of 2001 and 2002, revenue and operating income decreased by 3.4% and 3.5%, respectively. These decreases in revenues and operating income were primarily due to increased vacancy, decreased tenant pass through expense recoveries and an increase of $0.1 million (2.8%) in real estate expenses in the first nine months of 2002. Occupancy rates for the core industrial portfolio declined from 98.7% for the nine months ended September 2001 to 93.8% for the nine months ended September 2002.
 
For the first nine months of 2002, WRIT’s multi-family property revenues and operating income increased 4.5% and 4.4%, respectively, over the first nine months of 2001. These increases were primarily due to increases in rental rates across the sector. Operating income was partially offset by an increase of $0.3 million (4.7%) in real estate expense in the first nine months of 2002. Occupancy rates for the multi-family portfolio declined slightly from 95.3% for the nine months ended September 2001 to 94.5% for the nine months ended September 2002.
 
For the first nine months of 2002, WRIT’s retail center revenues increased 20.8% and operating income increased 22.8%, respectively, over the first nine months of 2001. These increases were primarily due to increased rental rates, other income in the form of lease termination fees, core portfolio revenue and operating income and the acquisition of the Centre at Hagerstown in June 2002. Occupancy rates for the overall retail portfolio were relatively unchanged at 95% for the nine months ended September 2002 compared to the nine months ended September 2001. Comparing those shopping centers owned by WRIT for the entire first nine months for 2001 and 2002, revenue and operating income increased by 10.1% and 12.7%, respectively. These increases were primarily due to increased rental rates and other income in the form of lease termination fees. Operating income was partially offset by an increase of $0.1 million (1.2%) in real estate expenses in the first nine months of 2002. Occupancy rates for the core retail portfolio declined from 95.5% for the nine months ended September 2001 to 94.4% for the nine months ended September 2002.
 
OPERATING EXPENSES AND OTHER RESULTS OF OPERATIONS: Three Months Ended September 30, 2002 Compared to the Three Months Ended September 30, 2001
 
Real estate expenses increased $0.7 million or 6.7% to $11.4 million for the third quarter of 2002 as compared to $10.7 million for the third quarter of 2001. This increase was primarily due to expenses relating to $67.8 million of properties acquired in 2001 and $58.1 million of properties acquired in 2002, partially offset by the impact of the $8.4 million property sold in 2001 and the $6.2 million property sold in 2002.
 
Depreciation and amortization expense increased $0.5 million or 7.8% to $7.3 million for the third quarter of 2002 as compared to $6.8 million for the third quarter of 2001. This was primarily due to the impact of $67.8 million of acquisitions throughout 2001, $58.1 million of properties acquired in 2002 and capital and tenant improvement

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ITEM2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
expenditures for 2001 and 2002, which totaled $8.8 million and $19.8 million, respectively. This amount was partially offset by the property dispositions of $8.4 million in 2001 and $6.2 million in 2002.
 
Total interest expense increased $0.4 million or 5.0% to $7.1 million for the third quarter of 2002 as compared to $6.7 million for the third quarter of 2001. This increase was primarily attributable to the assumption of an $8.5 million mortgage in November 2001 with the acquisition of Sullyfield Commerce Center and increased line of credit borrowings due to the June 2002 and July 2002 acquisitions of the Centre at Hagerstown and the Atrium Building, respectively. For the third quarter of 2002, notes payable interest expense was $5.1 million, mortgage interest expense was $1.7 million and lines of credit interest expense was $0.3 million. For the third quarter of 2001, notes payable interest expense was $5.0 million, mortgage interest expense was $1.6 million and lines of credit interest expense was $0.1 million.
 
General and administrative expenses decreased $0.3 million or 20.6% to $1.0 million for the third quarter of 2002 as compared to $1.3 million for the third quarter of 2001. The change was primarily attributable to decreased incentive compensation as a result of a reduced rate of growth of the Trust, offset by increased corporate legal expenses and corporate salaries due to increased staffing levels. For the third quarter of 2002, general and administrative expenses as a percentage of revenue were 2.7% as compared to 3.5% for the third quarter of 2001.
 
OPERATING EXPENSES AND OTHER RESULTS OF OPERATIONS: Nine Months Ended September 30, 2002 Compared to the Nine Months Ended September 30, 2001
 
Real estate expenses increased $1.3 million or 4.1% to $32.8 million for the first nine months of 2002 as compared to $31.5 million for the first nine months of 2001. This increase was primarily due to expenses relating to properties acquired in 2001 and 2002 as well as increased core portfolio real estate taxes, insurance and repairs and maintenance expenses in 2002 as compared to 2001.
 
Depreciation and amortization expense increased $1.7 million or 8.6% to $21.3 million for the first nine months of 2002 as compared to $19.6 million for the first nine months of 2001. This was primarily due to 2001 and year to date 2002 acquisitions of $67.8 million and $58.1 million, respectively, and 2001 and year to date 2002 capital and tenant improvement expenditures which totaled $14.0 million and $19.8 million, respectively.
 
Total interest expense was $20.8 million for the first nine months of 2002 as compared to $20.2 million for the first nine months of 2001. This increase was primarily attributable to the assumption of an $8.5 million mortgage in November 2001 with the acquisition of Sullyfield Commerce Center and increased line of credit borrowings due to the June 2002 and July 2002 acquisitions of the Centre at Hagerstown and the Atrium Building, respectively. For the first nine months of 2002, notes payable interest expense was $15.1 million, mortgage interest expense was $5.3 million and lines of credit interest expense was $0.4 million. For the first nine months of 2001, notes payable interest expense was $15.1 million, mortgage interest expense was $4.8 million and lines of credit interest expense was $0.3 million.
 
General and administrative expenses decreased $1.0 million to $3.5 million for the first nine months of 2002 as compared to $4.5 million for the first nine months of 2001. This change was primarily attributable to decreased incentive compensation as a result of a reduced rate of growth of the Trust. For the first nine months of 2002, general and administrative expenses as a percentage of revenue were 3.1% as compared to 4.1% for the first nine months of 2001.

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ITEM2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
Other Income decreased $0.7 million to $0.6 million for the first nine months of 2002 as compared to $1.3 million for the first nine months quarter of 2001. The decrease was attributable to a utility divestiture sharing distribution received in June 2001.
 
Gain on sale of property disposed for the nine months ended September 30, 2002 was $3.8 million, resulting from the sale of 1501 South Capitol Street. Gain on sale of real estate for the nine months ended September 30, 2001 was $4.3 million, resulting from the sale of 10400 Connecticut Avenue.
 
CAPITAL RESOURCES AND LIQUIDITY
 
WRIT has utilized the proceeds of share offerings, medium and long-term fixed interest rate debt, bank lines of credit and cash flow from operations for its capital needs. External sources of capital are available to WRIT from its existing unsecured lines of credit and management believes that additional sources of capital are available from the sale of additional shares, the sale of medium or long-term notes, the sale of property and/or through secured financing. The funds raised would be used to pay off any outstanding advances on the Trust’s lines of credit or other Trust debt and/or for new acquisitions, capital improvements and development.
 
WRIT anticipates that over the near term, interest rate fluctuations will not have a material adverse effect on earnings. WRIT’s long-term fixed-rate notes payable have maturities ranging from August 2003 through February 2028 (see Note 6).
 
WRIT has lines of credit in place from commercial banks for up to $75 million which bear interest at an adjustable spread over LIBOR based on the Trust’s interest coverage ratio and public debt rating. As of September 30, 2002, WRIT had $53.8 million outstanding under its lines of credit at an average interest rate of 2.5%.
 
The senior and medium-term notes payable contain certain financial and non-financial covenants, all of which WRIT met as of September 30, 2002. The covenants under the notes require WRIT to maintain insurance on its properties in such amounts and covering such risks as are (a) customarily carried by companies engaged in similar businesses or (b) consistent with sound business practices. WRIT renewed its property insurance coverage effective September 1, 2002 resulting in premiums increasing approximately 31% over the prior year policy. The notes require WRIT to insure its properties against loss or damage at least equal to their then full insurable value. The policy does not specifically exclude terrorism activities, but the Trust’s financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts.
 
WRIT acquired three properties in 2001 and three properties in 2002 (as of September 30) for total acquisition costs of $67.8 million and $58.1 million, respectively. The 2001 acquisitions were financed through income from operations, line of credit advances, proceeds of the public offering in April 2001 and the assumption of an $8.5 million mortgage. The 2002 acquisitions were financed through proceeds from the dispositions of 10400 Connecticut Avenue and 1501 South Capitol Street, proceeds of the public offering in April 2001 and line of credit advances.
 
Cash flow from operating activities totaled $50.9 million for the first nine months of 2002, as a result of income from continuing operations of $36.0 million, adding back depreciation and amortization of $21.3 million, decreases in other assets of $7.0 million, bad debt expense of $1.0 million and decreases in liabilities (other than mortgage notes, senior notes and lines of credit payable) of $0.5 million. The decline in net cash flow from operating activities was due primarily to increased vacancy offset by a larger property portfolio and increased rental rates.

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ITEM2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
Cash flow from operating activities totaled $51.5 million for the first nine months of 2001, as a result of income from continuing operations of $35.0 million, adding back depreciation and amortization of $19.7 million, decreases in other assets of $4.0 million, bad debt expense of $0.7 million and increases in liabilities (other than mortgage note, senior notes and lines of credit payable) of $0.7 million.
 
Net cash used in investing activities for the first nine months of 2002 was $72.2 million, including real estate acquisitions of $58.1 million, capital improvements to real estate of $19.8 million and non-real estate investments of $0.1 million, offset by cash received from sale of real estate property of $5.8 million. Net cash used in investing activities from the first nine months of 2001 was $47.0 million, including real estate acquisitions of $46.1 million and capital improvements to real estate of $8.8 million, offset by cash received from the sale of real estate of $8.1 million.
 
Net cash provided by financing activities for the first nine months of 2002 was $10.6 million, including line of credit borrowings of $53.8 million, share option exercises of $5.0 million, offset by principal repayments on the mortgage notes payable of $7.5 million and $40.5 million in dividends paid. Net cash provided by financing activities for the first nine months of 2001 was $22.0 million, including $53.1 million from share offering proceeds and share option exercises of $6.3 million, offset by principal repayments on the mortgage notes payable of $0.6 million and $36.8 million in dividends paid. Rental revenue has been the principal source of funds to pay WRIT’s operating expenses, interest expense and dividends to shareholders.
 
Management believes that WRIT has the liquidity and the capital resources necessary to meet all of its known obligations and to make additional property acquisitions and capital improvements when appropriate to enhance long-term growth.
 
RATIOS OF EARNINGS TO FIXED CHARGES AND DEBT SERVICE COVERAGE
 
The following table sets forth the Trust’s ratios of earnings to fixed charges and debt service coverage for the periods shown:
 
    
Nine months ended
September 30,
   
Year Ended
December 31,
    
  2002  
   
  2001  
   
    2001    
   
    2000    
   
    1999    
Earnings to fixed charges
   
2.72x
   
2.77x
   
2.78x
   
2.63x
   
2.61x
Debt service coverage
   
3.61x
   
3.60x
   
3.60x
   
3.40x
   
3.42x
 
The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, earnings consist of income from continuing operations plus fixed charges. Fixed charges consist of interest expense, including interest costs capitalized, and the amortized costs of debt issuance.
 
Debt service coverage is computed by dividing income before (a) gain on sale of real estate; (b) interest income; (c) interest expense; and (d) depreciation and amortization by the sum of interest expense, including interest costs capitalized, and the amortized costs of debt issuance plus mortgage principal amortization.

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ITEM 3: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
FINANCIAL MARKET RISK
 
The principal financial market risk to which WRIT is exposed is interest rate risk. WRIT’s exposure to market risk for changes in interest rates relates primarily to refinancing long-term fixed rate obligations, the opportunity cost of fixed rate obligations in a falling interest rate environment and its variable rate lines of credit. WRIT enters into debt obligations primarily to support general corporate purposes including acquisition of real estate properties, capital improvements and working capital needs. In the past, WRIT has used interest rate hedge agreements to hedge against rising interest rates in anticipation of refinancing or new debt issuance.
 
WRIT’s interest rate risk has not changed significantly from its risk as disclosed in its 2001 Form 10-K.

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ITEM 4: CONTROLS AND PROCEDURES
 
The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Trust’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Trust’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
Within 90 days prior to the date of this report, the Trust carried out an evaluation, under the supervision and with the participation of the Trust’s management, including the Trust’s Chief Executive Officer and the Trust’s Chief Financial Officer, of the effectiveness of the design and operation of the Trust’s disclosure controls and procedures. Based on the foregoing, the Trust’s Chief Executive Officer and Chief Financial Officer concluded that the Trust’s disclosure controls and procedures were effective.
 
There have been no significant changes in the Trust’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Trust completed its evaluation.

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PART II
 
OTHER INFORMATION
 
Item 1.
   
Legal Proceedings
    
None
Item 2.
   
Changes in Securities
    
None
Item 3.
   
Defaults Upon Senior Securities
    
None
Item 4.
   
Submission of Matters to a Vote of Security Holders
    
None
Item 5.
   
Other Information
    
None
Item 6.
   
Exhibits and Reports on Form 8-K
    
Exhibits
    
(4)    
    
(l)    Credit agreement dated July 23, 2002 between Washington Real Estate Investment Trust, as borrower, Bank One, as lender, and Bank One, as agent.
    
(m)    Amended and restated credit agreement dated July 25, 2002, among Washington Real Estate Investment Trust, as borrower, SunTrust Bank, successor to Crestar Bank, as Agent, and SunTrust Bank (SunTrust), successor to Crestar Bank, and Wachovia Bank, National Association (Wachovia), successor to First Union National Bank (the Credit Agreement).
    
(10)  Management contracts, plans and arrangements
    
(j)    Share Purchase Plan
    
(k)    Supplemental Executive Retirement Plan
    
(12)  Computation of Ratios
    
(99)  Written Statement of Chief Executive Officer and Chief Financial Officer
    
(b)    Reports on Form 8-K

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1.
 
July 22, 2002 – Report pursuant to Item 5 on the release of the Trust’s June 30, 2002 earnings information.
 
 
2.
 
November 4, 2002 – Report pursuant to Item 5 on the release of the Trust’s September 30, 2002 earnings information.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
WASHINGTON REAL ESTATE INVESTMENT TRUST
/s/    Edmund B. Cronin, Jr.
Edmund B. Cronin, Jr.
Chairman of the Board, President and
Chief Executive Officer
 
/s/    Laura M. Franklin
Laura M. Franklin
Senior Vice President
Accounting, Administration and
Corporate Secretary
 
/s/    Sara L. Grootwassink
Sara L. Grootwassink
Chief Financial Officer
 
Date: November 14, 2002
 

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CERTIFICATION
 
I, Edmund B. Cronin, Jr., certify that:
 
 
1.
 
I have reviewed this quarterly report on Form 10-Q of Washington Real Estate Investment Trust;
 
 
2.
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
 
3.
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
 
4.
 
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 
a.
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
 
b.
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
 
c.
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 
5.
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
 
a.
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
 
b.
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
 
6.
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
DATE: November 14, 2002
      
/s/    Edmund B. Cronin, Jr.
       
Edmund B. Cronin,Jr.
Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
 

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CERTIFICATION
 
I, Laura M. Franklin, certify that:
 
 
1)
 
I have reviewed this quarterly report on Form 10-Q of Washington Real Estate Investment Trust;
 
 
2)
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
 
3)
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
 
4)
 
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 
a.
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
 
b.
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
 
c.
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 
5)
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
 
a.
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
 
b.
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
 
6)
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
DATE: November 14, 2002
      
/s/    Laura M. Franklin
       
Laura M. Franklin
Senior Vice President
Accounting, Administration and Corporate Secretary
 
 
 
 
 

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CERTIFICATION
 
I, Sara L. Grootwassink, certify that:
 
 
a.
 
I have reviewed this quarterly report on Form 10-Q of Washington Real Estate Investment Trust;
 
 
b.
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
 
c.
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
 
d.
 
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 
a.
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
 
b.
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
 
c.
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 
e.
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
 
a.
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
 
b.
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
 
f.
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
DATE: November 14, 2002
      
/s/    Sara L. Grootwassink
       
Sara L. Grootwassink
Chief Financial Officer

30