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, 1994 COMMISSION FILE NO. 1-6622
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WASHINGTON REAL ESTATE INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
DISTRICT OF COLUMBIA 53-0261100
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
10400 CONNECTICUT AVENUE, KENSINGTON, MARYLAND 20895
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code (301) 929-5900
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- - - - --------------------------------------------------------------------------------
(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 28,242,544
- - - - --------------------------------------------------------------------------------
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
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1
WASHINGTON REAL ESTATE INVESTMENT TRUST
INDEX
Page
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Part I: Financial Information
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Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Statement of Changes in Shareholders' Equity 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis 9
Part II: Other Information
-----------------
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Part I
FINANCIAL INFORMATION
The information furnished in the accompanying Balance Sheets, Statements of
Operations, 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 of 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, 1993 included in the Trust's 1993 Form 10-K Report filed
with the Securities and Exchange Commission.
2
PART I
ITEM I. FINANCIAL STATEMENTS
WASHINGTON REAL ESTATE INVESTMENT TRUST
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
------------ ------------
Assets
Real estate at cost $205,379,681 $170,461,454
Accumulated depreciation (36,172,144) (33,255,332)
------------ ------------
169,207,537 137,206,122
Mortgage note receivable 800,000 800,000
------------ ------------
Total investment in real estate 170,007,537 138,006,122
Cash and cash equivalents 992,817 1,759,471
Marketable investment securities 1,976,477 16,284,832
Rents and other receivables 2,031,914 2,473,024
Prepaid expenses and other assets 3,606,970 3,487,203
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$178,615,715 $162,010,652
============ ============
Liabilities
Accounts payable and other liabilities $2,157,626 $1,696,986
Tenant security deposits 1,470,409 1,318,464
Advance rents 1,475,347 1,647,146
Line of credit payable 18,000,000 -
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23,103,382 4,662,596
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Shareholders' Equity
Shares of beneficial interest, unlimited
authorization, without par value 140,193,668 142,029,391
Undistributed gains on real estate dispositions 15,318,665 15,318,665
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155,512,333 157,348,056
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$178,615,715 $162,010,652
============ ============
See accompanying notes to financial statements
3
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1994 1993 1994 1993
----------- ---------- ----------- -----------
Real estate rental revenue $11,759,339 $9,904,958 $33,830,442 $29,376,936
Real estate expenses (3,829,643) (3,058,448) (10,380,913) (8,796,141)
----------- ---------- ----------- -----------
7,929,696 6,846,510 23,449,529 20,580,795
Depreciation (1,052,951) (909,605) (2,950,286) (2,716,013)
----------- ---------- ----------- -----------
Income from real estate 6,876,745 5,936,905 20,499,243 17,864,782
Other income (expense) 107,645 323,804 (382,157) 1,188,594
Interest expense (277,809) - (319,315) (61,462)
General and administrative (859,632) (725,344) (2,318,079) (2,104,789)
----------- ---------- ----------- -----------
Income before gain on sale of real estate 5,846,949 5,535,365 17,479,692 16,887,125
Gain on sale of real estate - - - 741,217
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Net Income 5,846,949 5,535,365 17,479,692 17,628,342
=========== ========== =========== ===========
Per share information based on
the weighted average number
of shares outstanding
Weighted average shares 28,239,480 28,226,116 28,238,368 28,222,010
Income before gain on sale of real estate $0.21 $0.20 $0.62 $0.60
=========== ========== =========== ===========
Net income $0.21 $0.20 $0.62 $0.62
=========== ========== =========== ===========
Dividends paid $0.23 $0.22 $0.69 $0.66
=========== ========== =========== ===========
See accompanying notes to financial statements
4
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1994 1993
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Cash Flow From Operating Activities
Net income $17,479,692 $17,628,342
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 2,950,286 2,716,013
Changes in other assets and liabilities 728,658 (1,394,586)
Gain on sale of property - (741,217)
Loss on sale of marketable investment securities 799,571 -
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Cash flow from operating activities 21,958,207 18,208,552
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Cash Flow From Investing Activities
Improvements to real estate (4,189,043) (3,862,792)
Proceeds from the sale of property - 176,000
Real estate acquisitions (30,729,184) -
Payment received on mortgage note
receivable for sale of property - 38,586
Decrease in marketable investment securities 13,508,781 24,915,789
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Net cash (used in) provided by investing activities (21,409,446) 21,267,583
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Cash Flow From Financing Activities
Dividends paid (19,485,603) (18,629,229)
Mortgage principal retirements - (1,087,924)
Repayment of short-term bank loan - (21,000,000)
Mortgage principal payments - (27,269)
Borrowings - Line of credit 18,000,000 -
Net proceeds from stock options exercised 170,188 186,669
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Net cash flow (used in) financing activities (1,315,415) (40,557,753)
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Net (decrease) in cash and cash equivalents (766,654) (1,081,618)
Cash and cash equivalents at beginning of period 1,759,471 1,804,488
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Cash and cash equivalents at end of period $992,817 $722,870
=========== ===========
See accompanying notes to financial statements
5
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(Unaudited)
Shares of Beneficial
Interest Outstanding
Shares Amount
-------------------- ------------
Balance, December 31, 1993 28,227,605 $142,029,391
Net income 17,479,692
Dividends (19,485,603)
Share options exercised 14,939 170,188
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Balance, September 30, 1994 28,242,544 $140,193,668
==================== ============
See accompanying notes to financial statements
6
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1994 (Unaudited)
NOTE A: ACCOUNTING POLICIES
Washington Real Estate Investment Trust (WRIT) has elected to qualify as a real
estate investment trust under the Internal Revenue Code. WRIT intends to
distribute at least 95% of its ordinary taxable income and, accordingly, no
income tax provisions are made on ordinary income.
Cash equivalents consist of investments readily convertible to known amounts of
cash generally with original maturities of 90 days or less.
Buildings and improvements are depreciated on a straight-line basis over
estimated useful lives not exceeding 50 and 30 years, respectively.
NOTE B: MARKETABLE INVESTMENT SECURITIES
Marketable investment securities are considered available for sale and at
September 30, 1994, the carrying value approximates market. Marketable
investment securities, including accrued interest, consist of the following:
U.S. Government and U.S. Government agency obligations $ 938,611
Federally insured certificates of deposit 50,000
Corporate notes and other 987,866
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$1,976,477
==========
One hundred percent (100%) of the portfolio matures in less than one year.
NOTE C: REAL ESTATE INVESTMENTS
WRIT's real estate investment portfolio at September 30, 1994 at cost consists
of properties located in Maryland, Washington, D.C., Virginia and Delaware as
follows:
Office buildings $ 88,598,505
Apartment buildings 26,410,680
Shopping centers 65,280,159
Business centers 25,090,337
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$205,379,681
============
On June 1, 1994 WRIT acquired Tycon Plaza, two (2) office buildings with
293,000 square feet in Vienna, Virginia, at a contract purchase price of
$21,250,000. On June 30, 1994 WRIT acquired The Shoppes of Foxchase, a
shopping center located in Alexandria, Virginia at a contract purchase price of
$8,800,000. The center has 123,000 square feet of gross leasable area.
7
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1994 (Unaudited)
NOTE D: LINE OF CREDIT PAYABLE
On June 1, 1994 WRIT obtained an unsecured interim credit commitment from a
bank in the amount of $20,000,000 for the express purpose of purchasing income
producing property. On June 1, 1994, WRIT borrowed $9,000,000 on this credit
facility for the acquisition of Tycon Plaza and on June 30, 1994, WRIT borrowed
an additional $9,000,000 for the purchase of The Shoppes of Foxchase. Interest
only was payable monthly on the unpaid principal balance at the rate of libor
plus 1.10%. At June 30, 1994 this rate was approximately 5.7%. On August 26,
1994, the $20,000,000 interim credit commitment was replaced with an unsecured
credit commitment of $25,000,000 and the outstanding advances of $18,000,000
were transferred to this new commitment. Borrowings of $18,000,000 as of
September 30, 1994 bear interest at the rate of 6.3125% until May 25, 1995.
Interest only is payable monthly, in arrears, on the unpaid principal balance.
All unpaid interest and principal are due August 25, 1995 and can be prepaid
prior to this date without a fee. Any new advances shall bear interest at
libor plus a spread based on WRIT's interest coverage ratio.
This credit agreement provides the option to WRIT to convert any advances or
portion thereof, into a term loan at any time after February 26, 1995 and prior
to August 25, 1995. The principal amount of each term loan, if any, shall be
repaid on August 26, 1998. Such term loan(s) may be prepaid subject to a
prepayment fee.
The $25,000,000 credit commitment requires WRIT to pay the lender an unused
commitment fee at the rate of 0.25% per annum, on the amount that the
$25,000,000 exceeds the balance of outstanding advances and term loans. This
fee is payable monthly beginning September, 1994 until August 25, 1995. This
commitment also contains certain covenants which WRIT is required to meet
periodically.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
WRIT's fundamental emphasis is on long-term growth of cash flow from operating
activities. Dividends to shareholders are based upon these cash flows. WRIT's
capital improvement program, strong leasing and management, and acquisitions of
additional properties are the major contributors to the sustained growth of
cash flows.
Occupancy rates have a major impact on rental revenue. Other factors such as
new or renewal leases at higher rates, CPI based annual rent increases,
increases in rentable space, tenant sales, new property acquisitions and
certain other capital expenditures also influence rental revenue.
Income from real estate in the third quarter of 1994 of $6,876,745 increased
16% compared with $5,936,905 for the third quarter of 1993. Income from real
estate for the nine months ended September 30, 1994 of $20,499,243 increased
15% compared to $17,864,782 for the same nine month period in 1993. This
increase is primarily attributable to the Heritage Business Park acquired in
November, 1993, the Tycon Plaza office buildings acquired June 1, 1994 and the
Shoppes of Foxchase acquired June 30, 1994.
Income before gain on sale of real estate for the three months ended September
30, 1994 in the amount of $5,846,949 or $.21 per share increased 5.6% from
$5,535,365 or $.20 per share from the comparable quarter of 1993. Income
before gain on sale of real estate for the nine months ended September 30, 1994
of $17,479,692 or $.62 per share increased 3.5% as compared to $16,887,125 or
$.60 per share for the same period in 1993.
Average occupancy levels declined slightly in the third quarter of 1994 to 94%
as compared to 96% for the same quarter of 1993. This is due primarily to
vacancies at one of WRIT's office buildings, 1901 Pennsylvania Avenue and one
shopping center, Jenifer One Mall. Vacancies at 1901 Pennsylvania Avenue are
expected to continue through the fourth quarter of 1994 and into 1995.
Vacancies at Jenifer One Mall will continue until May, 1995. WRIT has signed a
lease with a national retail discount chain for a majority of the Jenifer One
vacancy. This lease commences May, 1995. The average occupancy of 95% for the
year 1993 remained at 95% for the first nine months of 1994. This is compared
to 94% for the first nine months of 1993.
Real estate operating expenses as a percentage of revenue was 33% for the three
months ended September 30, 1994 and 31% for the nine months ended September 30,
1994 as compared to 31% and 30% respectively, for the comparable periods of
1993. This increase is primarily attributable to the fact that operating
expenses as a percentage of revenues are higher for office building properties
than shopping centers, business centers and the WRIT portfolio as a whole.
WRIT's percentage of office buildings within its entire real estate portfolio
has increased from 36% at September 30, 1993 to 43% of the portfolio as of
September 30, 1994. This 7% increase is primarily attributable to the
acquisition of Heritage Business Park (three office buildings) in November,
1993 and Tycon II and III office buildings in June, 1994.
At March 31, 1994, a marketable investment security was written down to its
estimated realizable value, resulting in a charge of $799,571 to operations in
the first quarter of 1994. This security was sold in May, 1994 for its March
31, 1994 net realizable value.
Interest income decreased in the first nine months of 1994 due to fewer
marketable investment securities as compared to the first nine months of 1993.
Marketable investment securities have decreased as a result of sales and
maturities used to acquire properties.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS(continued)
Interest expense was $41,506 for the second quarter of 1994 as a result of the
$9,000,000 borrowing on the credit commitment on June 1, 1994 for the
acquisition of Tycon Plaza. Interest expense of $277,809 for the third quarter
of 1994 was paid on the $18,000,000 of outstanding advances on the credit
commitment for the entire third quarter of 1994 (See note D). Interest expense
for the first nine months of 1993 was $61,462. This was a result of WRIT's
prepayment of its only remaining mortgage in April, 1993.
CAPITAL RESOURCES AND LIQUIDITY
In recent years, WRIT has utilized equity stock offerings, cash flow from
operations and a line of credit for its capital needs. The WRIT philosophy has
been to acquire real estate with strong growth potential and to improve its
real estate holdings through carefully planned additions or enhancements to
generate higher rental income, to reduce operating expenses or both. Capital
improvements of $4,189,043 were completed in the first nine months of 1994,
including tenant improvements and continuing enhancements.
In February 1994, WRIT purchased land adjacent to its Wheaton Park shopping
center for a total cost of $173,000. WRIT plans to add additional retail and
parking space to the center. On June 1, 1994 WRIT acquired Tycon Plaza in
Vienna, Virginia at a contract purchase price of $21,250,000. Tycon Plaza
consists of two (2) office buildings containing approximately 293,000 rentable
square feet. WRIT borrowed $9,000,000 and invested $12,800,000 of its own
funds for the purchase. On June 30, 1994 WRIT acquired The Shoppes of Foxchase
in Alexandria, Virginia at a contract purchase price of $8,800,000. The center
has 123,000 rentable square feet. WRIT borrowed $9,000,000 for this
acquisition.
After the acquisition of Tycon Plaza in June, 1994 and capital improvements in
the third quarter of 1994, the remainder of cash and marketable investment
securities was approximately $2,969,294 at September 30, 1994.
Management believes that it has the liquidity and the capital resources
necessary to meet all of its known obligations and to make additional property
acquisitions when appropriate. WRIT continues to pursue acquisition
opportunities and capital improvement projects to enhance long-term growth.
10
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
(a) Exhibits
The exhibits required have been filed in previous reports and are herein incorporated by
reference.
(b) Reports on Form 8-K
Form 8-K was filed on June 30, 1994 with the Securites and Exchange Commission
11
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
//Larry E. Finger//
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Larry E. Finger, Vice President Finance
and Chief Financial Officer
//Laura M. Franklin//
------------------------------------------------
Laura M. Franklin
Assistant Vice President-Finance
Date: November 14, 1994
12
EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule