SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL 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 THE FISCAL YEAR ENDED December 31, 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
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(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code (301) 929-5900
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Title of Each Class Name of exchange on which registered
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Shares of Beneficial Interest (No Par Value) American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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As of March 24, 1995, 28,242,544 Shares of Beneficial Interest were outstanding
and the aggregate market value of such shares held by non-affiliates of the
registrant was approximately $430,529,000 (based on the closing price of the
stock on March 24, 1995).
WASHINGTON REAL ESTATE INVESTMENT TRUST
1994 FORM 10-K ANNUAL REPORT
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the Trust's 1995
Notice of Annual Meeting and Proxy Statement.
INDEX
PART I Page
----
Item 1. Business 3
Item 2. Properties 4
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and Management 13
Item 13. Certain Relationships and Related Transactions 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14
Signatures 15
2
PART I
ITEM 1. BUSINESS
Washington Real Estate Investment Trust (WRIT or the Trust) is a
self-administered qualified equity real estate investment trust. The Trust's
business consists of the ownership of income-producing real estate properties
principally in the Washington, D.C. metropolitan area. Upon the purchase of a
property, WRIT begins a program of improving the real estate to increase the
value and to improve the operations with the goals of generating higher rental
income and reducing expenses.
WRIT has elected to qualify as a real estate investment trust under the
Internal Revenue Code. Accordingly, WRIT is relieved of federal income taxes
provided that its ordinary income and capital gains are distributed to
shareholders in the form of dividends. Over the last five years dividends paid
per share have been $.92 for 1994, $.89 for 1993, $.84 for 1992, $.79 for 1991
and $.73 for 1990 . The indicated annualized dividend rate for 1995, based
upon the March 31, 1995 dividend, is $.96.
The Trust currently owns a diversified portfolio consisting of eleven shopping
centers, thirteen office buildings, five high-rise apartment buildings and
eight business centers. WRIT's principal objective is to invest in high
quality real estate in prime locations and to monitor closely the management of
these properties, including active leasing and ongoing capital improvement
programs. The percentage of total real estate rental revenue by property group
for 1994, 1993 and 1992 and the percent leased as of December 31, 1994 were as
follows:
Percent Leased Real Estate Rental Revenue
--------------------------
December 31, 1994 1994 1993 1992
----------------- ---- ---- ----
92% Office buildings 39% 34% 33%
95% Apartment buildings 25% 27% 31%
95% Shopping centers 26% 29% 24%
94% Business centers 10% 10% 12%
---- ---- ----
100% 100% 100%
==== ==== ====
On a combined basis, WRIT's portfolio was 95% occupied in 1994 and 1993 and 93%
in 1992.
Total revenue was $45,511,482 for 1994, $39,375,282 for 1993 and $34,132,217
for 1992. In 1992 through 1994 there were acquisitions of seven office
buildings which increased this group's percentage of total revenue. No single
tenant accounted for more than 2.25% of 1994 revenue. Various agencies of the
U.S. Government are counted separately and include the Department of Commerce,
Immigration and Naturalization Service, Department of Justice, Social Security
Administration and U.S. Patent Office. The larger non-federal government
tenants include the District of Columbia Metropolitan Police Department, Pepsi
Cola, Giant Food, Crestar Bank, Evans, CVS, Rite-Aid, and Montgomery
County, Maryland.
Only one property - Montgomery Village Shopping Center described in Item 2
under "Shopping Centers" - accounted for more than 10% of total assets. In
June 1994, WRIT acquired the Tycon II and Tycon III office buildings in one
transaction. The aggregate price for the two buildings represents more than
10% of total assets, however, the individual basis of each building does not.
No single property accounted for more than 10% of 1994 revenues.
3
ITEM 1. BUSINESS, (continued)
WRIT's properties compete for tenants with other properties throughout the
respective areas in which they are located. All properties compete for tenants
on the basis of location, quality and rent charged. Generally, the Trust has
experienced lower vacancy rates than those prevailing in the markets in which
its properties are located.
The actual day-to-day management functions at the properties owned by the Trust
are carried out by an independent management company. WRIT closely monitors
the activities of this company to assure the highest quality of services and
cost controls. No WRIT Trustee or officer is a director or officer, or owns
any interest in the management company.
The Trust has purchased real estate primarily in the Washington Metropolitan
Area because of management's familiarity with the area and the growth and
stability of the Nation's Capital. The Trust believes that the stable
employment base provided by the federal government, supplemented by continuing
business growth in the region, makes the Washington, D.C. metropolitan area an
attractive real estate market. Of the 37 properties owned by WRIT, 34 are in
the immediate Washington Metropolitan Area. The three remaining are shopping
centers located in Westminster and Salisbury, Maryland and Dover, Delaware.
The Trust also competes for the opportunity to invest in additional property.
WRIT acquires property which management believes has strong growth potential in
prime locations. WRIT typically is a cash buyer for 100% ownership of the
property. Over the years, properties have also been acquired by trades
involving tax-free exchanges.
Capital improvements are made by WRIT on an ongoing basis to its properties for
the purpose of maintaining and increasing their value. Major improvements
and/or renovations to the properties in 1994 and planned for 1995 are discussed
by property category on pages 6-8.
Further description of the property groups is contained in Item 2, Properties
and in Schedule III. Reference is also made to Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations.
The Trust's shares have been traded on the American Stock Exchange since 1971.
This provides the vehicle which allows shareholders to pool their funds to
share in the ownership of a large, diversified portfolio of income-producing
real estate while maintaining investment liquidity. The Trust's shares were
split 3-for-1 in March, 1981, 3-for-2 in July, 1985, 3-for-2 in December, 1988
and 3- for-2 in May, 1992.
The number of persons employed by the Trust was 25 as of December 31, 1994.
ITEM 2. PROPERTIES
The following schedule lists the Trust's real estate investment portfolio as of
December 31, 1994. The Montgomery Village Center, listed as one property,
consists of one shopping center and office/townhouse units named the Village
Quarters. Therefore, the total number of properties is 37.
As of December 31, 1994 the percent leased is the percentage of net rentable
space for which fully executed leases exist and may include signed leases for
space not yet occupied by the tenant.
Cost information is included in Schedule III of this Form 10-K Annual Report.
4
SCHEDULE OF PROPERTIES
Net Rentable* Percent
Year Year Square Leased
Property Location Acquired Constructed Feet (1) 12/31/94
-------- -------- -------- ----------- -------- --------
Shopping Centers
----------------
Concord Centre Springfield, VA 1973 1960 76,383 100%
Bradlee Alexandria, VA 1984 1955 167,974 100%
Clairmont Salisbury, MD 1976 1965 40,455 100%
Dover Mart Dover, DE 1973 1960 44,044 100%
Jenifer Washington, DC 1985 1975 39,304 92%
Prince William Plaza Woodbridge, VA 1968 1967 53,999 72%
Takoma Park Takoma Park, MD 1963 1962 58,811 100%
Westminster Westminster, MD 1972 1969 171,531 88%
Wheaton Park Wheaton, MD 1977 1967 46,716 100%
Montgomery Village Center Gaithersburg, MD 1992 1969 196,464 99%
Foxchase Alexandria, VA 1994 1960 127,564 94%
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Sub-total 1,023,245
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Office Buildings
----------------
10400 Connecticut Avenue Kensington, MD 1979 1965 65,885 100%
1901 Pennsylvania Avenue Washington, DC 1977 1960 96,506 52%
One Metro Square Rockville, MD 1979 1975 208,243 97%
444 N. Frederick Avenue Gaithersburg, MD 1989 1981 65,809 92%
7700 Leesburg Pike Falls Church, VA 1990 1976 122,257 96%
Arlington Financial Center Arlington, VA 1992 1963 51,655 100%
515 King Street Alexandria, VA 1992 1966 78,073 96%
Lexington Rockville, MD 1993 1970 47,751 100%
Saratoga Rockville, MD 1993 1977 59,014 96%
Brandywine Rockville, MD 1993 1969 34,982 100%
Tycon II Vienna, VA 1994 1981 141,043 87%
Tycon III Vienna, VA 1994 1978 151,670 94%
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Sub-total 1,122,888
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Apartment Buildings/# units
---------------------------
Country Club Towers/227 Arlington, VA 1969 1965 276,000 91%
Munson Hill Towers/279 Falls Church, VA 1970 1963 340,000 96%
Park Adams/200 Arlington, VA 1969 1959 210,000 99%
Roosevelt Towers/191 Falls Church, VA 1965 1964 229,000 95%
Wiltshire North/307 Washington, DC 1963 1951 242,000 95%
---------
Sub-total 1,297,000
---------
Business Centers
----------------
Pepsi-Cola Distribution Forestville, MD 1987 1971 68,750 100%
Capitol Freeway Center Washington ,DC 1974 1940 145,000 100%
Department of Commerce Springfield, VA 1971 1964 105,000 100%
Fullerton Springfield, VA 1985 1980 103,339 91%
Port Royal Center Springfield, VA 1986 1965 29,000 100%
Shirley I-395 Arlington, VA 1961/1986 1960 112,585 95%
V Street Distribution Washington, DC 1973 1960 30,753 0%
Charleston Business Center Rockville, MD 1993 1973 85,267 95%
--------
Sub-total 679,694
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TOTAL 4,122,827
==========
*Apartment buildings are presented in gross square feet
(1) Property square feet, reported in prior 10-K filings, was presented at
gross. Gross square feet includes surface and garage parking, if
applicable.
5
SHOPPING CENTERS
In February 1994, WRIT purchased land adjacent to its Wheaton Park
Shopping Center for a total contract purchase price of $173,000 and WRIT plans
to add additional retail and parking space to the center. On June 30, 1994,
WRIT purchased The Shoppes of Foxchase in Alexandria, Virginia at a contract
purchase price of $8,800,000. The center has approximately 128,000 rentable
square feet. WRIT borrowed $9,000,000 for this acquisition and planned capital
improvements. In 1994, cosmetic improvements were made to the property and as
of December 31, 1994, the property was 94% leased. Foxchase renovations
planned for 1995 include re-paving of the rear alley and adding 54 parking
spaces.
Major capital improvements completed during 1994 included:
- A new facade, landscaping, island additions and overall
cosmetic improvements at Westminster Shopping Center
- New roof at Concord Shopping Center
- Conversion of the mezzanine to office use at Wheaton Park
Shopping Center
- Major roof and HVAC improvements at Montgomery Village
Shopping Center
Major capital improvements planned in 1995 for shopping centers include
the completion in spring 1995 of the underground space conversion at Jenifer
One Mall into mezzanine level retail space, the majority of which is leased
to a national retail tenant. An addition at Wheaton Park Shopping Center to
increase rentable area by 20,000 square feet is planned to commence in late
1995 or early 1996.
In 1994, average shopping center occupancy, excluding Foxchase, was 96%. For
all shopping centers, the consolidated average occupancy was 97% for 1994,
1993 and 1992.
Most shopping center leases have automatic annual increases based on changes in
the Consumer Price Index. In addition, these leases contain clauses for
reimbursement for real estate taxes, common area maintenance and contingent
rentals for additional rents based on a percentage of a tenant's gross sales.
OFFICE BUILDINGS
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 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 and
planned capital improvements. The Tycon Buildings were 71% occupied on
acquisition in June of 1994, and 90% occupied at December 31, 1994. In 1994,
major capital improvements to Tycon II and III included HVAC repairs and
replacements (continuing into 1995), landscaping and a new roof at Tycon III.
1995 planned improvements to the Tycon Plaza buildings include new signage,
flagstone repairs and completion of major HVAC improvements that commenced in
1994.
Major capital improvements completed during 1994 included:
- New roof at 1901 Pennsylvania Avenue
- Lighting retrofits at 444 N. Frederick Avenue
- New glass storefront at 7700 Leesburg Pike
- Installation of an energy management system, a new
roof and the addition of windows to an area of the
building previously unleasable at 515 King Street
- HVAC repairs, signage, fire safety, new roof, and
major parking deck repairs at the Heritage office
buildings
- New rooftop units, boilers/ chillers at 10400
Connecticut Avenue and One Metro Square
- New antenna tower at One Metro Square
6
OFFICE BUILDINGS, (CONTINUED)
In 1995, WRIT has major capital improvement plans for three of its office
buildings; 1901 Pennsylvania Avenue, One Metro Square, and 7700 Leesburg Pike.
Improvement plans at 1901 Pennsylvania Avenue include renovations to the main
lobby, common areas , elevator cabs, exterior cosmetic improvements and HVAC
equipment replacements. At One Metro Square, WRIT plans to replace the roof,
renovate the elevator cabs and repair and replace elevator equipment. At 7700
Leesburg Pike, WRIT plans to convert 20,000 square feet of existing upper-level
(surface) parking space into 20,000 square feet of enclosed office space.
In 1994, average building occupancy, excluding the Tycon Plaza office
buildings, was 95%. For all office buildings, the consolidated average
occupancy was 89% for 1992, 94% for 1993 and 93% for 1994. WRIT expects that
office building occupancy will continue to improve.
Office building leases generally have a three to five year term. Most leases
have automatic annual increases based on changes in the Consumer Price Index.
APARTMENT BUILDINGS
WRIT's five high-rise apartment buildings are well located and have a combined
total of approximately 1,200 units consisting of efficiency and one-two-or
three bedroom apartments. Apartment leases are generally for periods of one
year or less. There is a continuous emphasis on the upgrading of the quality of
management and services to residents. Improvement programs during 1992, 1993
and 1994 have included remodeled lobbies, modernized kitchens and bathrooms, and
improved security. These programs were designed to increase resident retention
and to enhance the appeal in the market.
In 1995, for all apartment properties, WRIT intends to continue its
modernization of kitchens and bathrooms for units not modernized in prior
years, and to modify the elevators and public restrooms in accordance with the
requirements of the Americans with Disabilities Act (ADA). Improvement plans
at Country Club Towers and Wiltshire North include the installation of energy
management systems. Wiltshire North improvement plans also include major
repairs to the HVAC system. At Park Adams, major repairs to the swimming pool
and deck, replacement of building windows and improvements to the parking lot
lighting are planned. For all of the Virginia apartment buildings, WRIT plans
to re-surface and re-stripe the parking lots in 1995.
Four of the apartment buildings are in nearby northern Virginia with convenient
transportation routes to downtown Washington. Wiltshire North is on
Connecticut Avenue in Washington, D.C. and these apartments are subject to the
rent control laws of the District of Columbia. The laws provide landlords with
annual rent increases tied to the rate of inflation subject to an annual
maximum of 10% and also afford landlords the opportunity for additional rent
increases as units are re-rented to new tenants. Occupancy rates for all
apartments were 94% for 1992, 95% for 1993 and 97% for 1994.
BUSINESS CENTERS
WRIT's business centers provide warehousing, distribution, research and
development and service business and office space to tenants as varied as the
U.S. Postal Service, Washington Golf Center, the District of Columbia
Metropolitan Police Department, Pepsi Cola and the U.S. Department of
Commerce.
7
BUSINESS CENTERS, (CONTINUED)
Major capital improvements completed during 1994 included:
- HVAC and facia improvements at the Department of Commerce
- New roofs at V Street Distribution Center and Charleston
Business Center
As a group, business center occupancy averaged 93% for 1992, 89% for 1993 and
94% for 1994.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Trust's Shares of Beneficial Interest are traded on the American Stock
Exchange and there are approximately 32,000 shareholders.
The high and low sales price for the Trust's shares for 1994 and 1993, by
quarter, and the amount of dividends paid by the Trust are as follows:
Quarterly Share Price Range
---------------------------
Dividends
Quarter Per Share High Low
------- --------- ---- ---
1994
4 $.23 $18 $14 7/8
3 .23 19 7/8 17
2 .23 21 1/8 17 5/8
1 .23 21 18 5/8
1993
4 $.23 $22 1/8 $18 5/8
3 .22 23 3/8 21 3/8
2 .22 23 19 1/8
1 .22 24 3/4 18 3/4
The Trust has historically paid dividends on a quarterly basis and there are
currently no restrictions on the Trust's present or future ability to pay such
dividends. Dividends are normally paid based on the Trust's cash flow from
operating activities. The indicated annual dividend rate was $.96 as of March
1995.
8
Item 6. Selected Financial Data
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Real estate revenue $45,511,482 $39,375,282 $34,132,217 $33,311,399 $30,233,388
Income before gain on sale of real estate $23,122,240 $22,506,219 $20,429,264 $18,386,398 $16,121,519
Gain on sale of real estate - $741,217 - - -
Net income $23,122,240 $23,247,436 $20,429,264 $18,386,398 $16,121,519
Income before gain on sale of real estate per share $0.82 $0.80 $0.76 $0.74 $0.69
Net income per share $0.82 $0.82 $0.76 $0.74 $0.69
Cash flow from operating activities $29,818,808 $25,032,160 $23,730,735 $21,414,649 $19,118,631
Total assets $178,806,110 $162,010,652 $185,673,242 $135,741,092 $106,955,071
Line of credit payable/Short-term bank loan $18,000,000 - $21,000,000 - -
Mortgage payable - - $1,115,193 $11,329,370 $12,379,100
Shareholders' equity $154,659,100 $157,348,056 $159,026,525 $119,944,265 $90,621,253
Cash dividends paid $25,981,388 $24,380,361 $22,513,368 $19,672,408 $17,030,987
Distribution of gain on sale of real estate - $741,217 - - -
Cash dividends paid per share $0.92 $0.89 $0.84 $0.79 $0.73
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
WRIT's fundamental emphasis is on the growth of cash flow from operating
activities. Dividends to shareholders are based upon these cash flows. WRIT's
capital improvements, leasing and management, and acquisitions of additional
properties are the major contributors to sustained growth of cash flows.
Occupancy rates have a major impact on rental revenue. Other factors such as
new or renewal leases at market rates, CPI based annual rental rate increases,
increases in rentable area, new property acquisitions and certain other capital
expenditures also influence rental revenue.
The percentage increase (decrease) in real estate rental revenue from 1992 to
1993 and from 1993 to 1994 by property type was as follows:
1992/1993 1993/1994
--------- ---------
Office Buildings 16% 34%
Apartments 2% 4%
Shopping Centers 40% 5%
Business Centers (1%) 17%
During 1994, WRIT's office building group achieved increases of 34% in revenues
and 36% in operating income, mostly due to the acquisitions of the three
Heritage office buildings in November 1993 and the two Tycon Plaza office
buildings in June of 1994.
The Tycon office buildings were 71% occupied upon acquisition in June of 1994,
90% occupied at December 31, 1994, and are 92% occupied as of February 28,
1995. The Heritage properties were acquired in November, 1993 and include
three office buildings (the Lexington, Saratoga and Brandywine) and one
business center (the Charleston). At December 31, 1993, and 1994, the
Lexington and Brandywine office buildings were 100% leased and the Saratoga was
97% and 96% leased, respectively.
The income growth from office buildings owned all three years in 1992,
1993 and 1994, was due to increases in rental rates and improved occupancy
levels at 7700 Leesburg Pike. This growth was partially offset by a
substantial increase in vacancy during 1994 at the 1901 Pennsylvania Avenue
property, which lost 3 major tenants resulting in an occupancy level of 52%
at year end. The Trust commenced a major capital improvement program at 1901
Pennsylvania Avenue in 1994 in order to assure the expeditious lease-up of
this property (refer to Item 2, Office Buildings).
The increase of 16% in real estate rental revenue from 1992 to 1993 for office
buildings was primarily attributable to the June and July 1992 acquisitions of
Arlington Financial Center and 515 King Street, respectively.
During 1994, WRIT's apartment group showed increases of 4% in revenues and 7%
in operating income, due to the combination of a 2% increase in rental rates
and an overall increase in occupancy to 97% in 1994 from 95% in 1993, combined
with an increase in operating expenses of only 1%.
10
RESULTS OF OPERATIONS - (continued)
During 1994, WRIT's shopping center group showed an increase of 5% in revenues
and 3% in operating income, due to the acquisition of the Shoppes at Foxchase
in June of 1994.
Excluding the Shoppes at Foxchase, shopping center revenue was down 1% and
operating income down 4%. Major elements of the decrease in operating income
included a 10% increase in overall operating expenses and the vacancy at Jenifer
Mall to accommodate renovations. (Refer to Item 2, Shopping Centers.) WRIT
has a lease with a national retail discount chain for a majority of the
Jenifer Mall vacancy. This lease is scheduled to commence in May, 1995.
The 40% increase in real estate rental revenue from 1992 to 1993 for
shopping centers was due primarily to the acquisition of Montgomery Village
Shopping Center on December 30, 1992. Operating income increased 37% from 1992
to 1993 as a result of that acquisition as well.
During 1994, WRIT's business center group showed increases of 17% in
revenues and 15% in operating income, due to the acquisition of the Charleston
business center in November of 1993 and major occupancy increases at the
Fullerton and Port Royal properties, only slightly offset by a vacancy increase
at the V Street property.
For 1994, excluding the Charleston business center, business center revenue was
up 4% and operating income was up 3%. In 1994, rental rates for these business
centers declined 1% from 1993, but overall occupancy increased to 94% in 1994
from 89% in 1993.
The 1% decrease in business center real estate rental revenue from 1992 to 1993
was the result of a decline in occupancy levels. Average occupancy in 1992 was
93% and this declined to 89% in 1993.
The average occupancy (for the entire real estate portfolio) of 95% for the
year 1993 remained at 95% for 1994. This is compared to 93% for 1992.
Real estate operating expenses as a percentage of revenue was 31% for 1994 as
compared to 30% for 1993 and 1992. This increase is primarily attributable to
the fact that operating expenses as a percentage of revenues are higher for
office building properties than all other property types within the portfolio.
WRIT's percentage of office buildings within its portfolio has increased
from 38% at December 31, 1993 to 43% of the portfolio as of December
31, 1994. This 13% 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.
Other income declined from 1992 to 1993 due to substantial funds previously
invested in marketable securities being utilized for 1993 acquisitions and a
reduction in market interest rates earned on WRIT's marketable investment
securities.
11
RESULTS OF OPERATIONS - (continued)
In 1994, other income (expense) became an expense/charge to operations in 1994
as a result of the following:
a) A decline in interest income from 1993 to 1994 due to the use
of these funds for properties acquired in 1994.
b) 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
realizable value.
c) During 1994, WRIT was audited by a State Unclaimed Property
Division resulting in an assessment to WRIT of $270,521.
This amount was charged to operations in the fourth quarter
of 1994.
Interest expense was $614,162 for the year of 1994 as a result of the
$9,000,000 advance on the credit commitment on June 1, 1994 for the
acquisitions of Tycon Plaza and an additional advance of $9,000,000 for the
acquisition of The Shoppes of Foxchase on June 30, 1994. (See Note F).
Interest expense for 1993 was $61,462. This declined significantly from
interest expense of $454,382 for 1992. In 1992, WRIT prepaid four of its
mortgages, and in April, 1993, WRIT prepaid its only remaining mortgage.
CAPITAL RESOURCES AND LIQUIDITY
WRIT has utilized equity share offerings, long-term fixed interest rate debt,
lines of credit and cash flow from operations 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
improvements to generate higher rental income, to reduce operating expenses or
both.
In February 1994, WRIT purchased land adjacent to its Wheaton Park shopping
center for a contract purchase price 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 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 at Foxchase in Alexandria, Virginia at a contract
purchase price of $8,800,000. The center has approximately 128,000 rentable
square feet. WRIT borrowed $9,000,000 for this acquisition.
Cash and marketable investment securities totaled approximately $2,736,000 at
December 31, 1994. In addition to the 1994 acquisitions, 1994 capital
improvements were approximately $5,787,000. Capital improvements to WRIT
properties in 1993 and 1992 were approximately $4,712,000 and $3,410,000,
respectively.
During 1993 and 1992, WRIT paid $1,088,000 and $9,715,000, respectively, in the
retirement of its last five mortgages.
12
CAPITAL RESOURCES AND LIQUIDITY - (continued)
External sources of capital are available to WRIT from its existing unsecured
credit commitments as described in Notes F and K to the financial statements
and management believes that additional sources of capital are available from
selling additional shares and/or the issuance of debt.
Cash flow from operating activities has been more than adequate to meet
dividend requirements.
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.
WRIT is a qualified real estate investment trust (REIT), and is not required to
pay income taxes since it distributes substantially all of its real estate
trust taxable income to shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed under Item 14(a) and
filed as part of this report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Report in that
the Registrant will file a definitive proxy statement pursuant to Regulation
14A (the "Proxy Statement") not later than 120 days after the end of the fiscal
year covered by this Report, and certain information included therein is
incorporated herein by reference. Only those sections of the Proxy Statement
which specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Performance Graph included
in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is hereby incorporated herein by
reference to WRIT's 1995 Annual Meeting Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is hereby incorporated by reference to
WRIT's 1995 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is hereby incorporated by reference to
WRIT's 1995 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is hereby incorporated by reference to
WRIT's 1995 Proxy Statement.
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements: The following Financial Statements of
Washington Real Estate Investment Trust and Report of Independent
Accountants are included in this Report:
Report of Independent Accountants.
Balance Sheets at December 31, 1994 and 1993.
Statements of Operations for the years ended December 31, 1994, 1993
and 1992.
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1994, 1993 and 1992.
Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992.
Notes to Financial Statements.
2. Financial Statements: The following financial statement schedules of
Washington Real Estate Investment Trust for the periods indicated are
filed as part of this Report and should be read in conjunction with
the Financial Statements of Washington Real Estate Investment Trust.
Schedule Page
-------- ----
III Real Estate and Accumulated Depreciation.................................................. 26-27
IV Mortgage Note Receivable.................................................................. 28
Supplementary Information: Quarterly Financial Results (unaudited)........................ 29
Schedules not listed above have been omitted because they are not applicable or
are not required or the information to be set forth therein is included in the
Financial Statements or Notes thereto.
3. Exhibits: The exhibits required by Item 601 of Regulation S-K have
been filed with previous reports by the registrant and are herein
incorporated by reference thereto.
The registrant's proxy statement is to be filed with the Commission on or about
April 21, 1995.
(b) Reports on Form 8-K: Form 8-K was filed on June 30, 1994 with the
Securities and Exchange Commission.
14
SIGNATURES
Pursuant to the requirements of Section 13 and 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WASHINGTON REAL ESTATE INVESTMENT TRUST
By / s / Edmund B. Cronin, Jr.
-------------------------------------
Date: March 30, 1995
Edmund B. Cronin, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Security and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/ s / Arthur A. Birney Chairman and March 30, 1995
---------------------------------- Trustee
Arthur A. Birney
/ s / William N. Cafritz Trustee March 30, 1995
----------------------------------
William N. Cafritz
/ s / Benjamin H. Dorsey Secretary,
---------------------------------- General Counsel
and, Trustee March 30, 1995
/ s / David M. Osnos Trustee, Retired Chairman March 30, 1995
---------------------------------- and Chief Executive Officer
David M. Osnos
/ s / Stanley P. Snyder Trustee March 30, 1995
----------------------------------
Stanley P. Snyder
/ s / Larry E. Finger Vice President, Finance
---------------------------------- and Chief Financial Officer March 30, 1995
Larry E. Finger
/ s / B. Franklin Kahn Trustee March 30, 1995
----------------------------------
B. Franklin Kahn
/ s / Laura M. Franklin
---------------------------------- Assistant Vice President, Finance March 30, 1995
Laura M. Franklin
15
Report of Independent Accountants
To the Trustees and Shareholders of
Washington Real Estate Investment Trust
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) and (2) on page 14 present fairly, in all material respects, the
financial position of Washington Real Estate Investment Trust at December 31,
1994 and 1993, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Washington, D.C.
February 22, 1995
16
WASHINGTON REAL ESTATE INVESTMENT TRUST
BALANCE SHEETS
December 31, December 31,
1994 1993
------------- -------------
Assets
Real estate at cost $206,377,733 $170,461,454
Accumulated depreciation (36,588,540) (33,255,332)
------------- -------------
169,789,193 137,206,122
Mortgage note receivable 800,000 800,000
------------- -------------
Total investment in real estate 170,589,193 138,006,122
Cash and cash equivalents 1,301,393 1,759,471
Marketable investment securities 1,434,790 16,284,832
Rents and other receivables, net of allowance for doubtful
accounts of $650,356 and $307,699, respectively 2,207,069 2,473,024
Prepaid expenses and other assets 3,273,665 3,487,203
------------- -------------
$178,806,110 $162,010,652
============= =============
Liabilities
Accounts payable and other liabilities $2,975,691 $1,696,986
Tenant security deposits 1,517,762 1,318,464
Advance rents 1,653,557 1,647,146
Line of credit payable 18,000,000 -
------------- -------------
24,147,010 4,662,596
------------- -------------
Shareholders' Equity
Shares of beneficial interest, unlimited authorization,
without par value 139,340,435 142,029,391
Undistributed gains on real estate dispositions 15,318,665 15,318,665
------------- -------------
154,659,100 157,348,056
------------- -------------
$178,806,110 $162,010,652
============= =============
See accompanying notes to financial statements
17
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
Year Ended December 31,
1994 1993 1992
------------ ------------ ------------
Real estate rental revenue $45,511,482 $39,375,282 $34,132,217
Real estate expenses (14,030,844) (11,829,702) (10,330,285)
------------ ------------ ------------
31,480,638 27,545,580 23,801,932
Depreciation (3,978,301) (3,655,802) (3,421,612)
------------ ------------ ------------
Income from real estate 27,502,337 23,889,778 20,380,320
Other income (expense) (550,276) 1,496,326 3,310,863
Interest expense (614,162) (61,462) (454,382)
General and administrative (3,215,659) (2,818,423) (2,807,537)
------------ ------------ ------------
Income before gain on sale of real estate 23,122,240 22,506,219 20,429,264
Gain on sale of real estate - 741,217 ---
------------ ------------ ------------
Net income $23,122,240 $23,247,436 $20,429,264
============ ============ ============
Income before gain on sale of real estate per share $0.82 $0.80 $0.76
============ ============ ============
Net income per share $0.82 $0.82 $0.76
============ ============ ============
See accompanying notes to financial statements
18
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Undistributed
Gains on
Shares of Beneficial Real Estate
Interest Amount Dispositions
-------------------- ------- -------------
Balance, December 31, 1991 17,062,768 $104,625,600 $15,318,665
Net income 20,429,264
Dividends (22,513,368)
Net proceeds from sale of shares 2,497,000 39,890,863
Shares issued for 3-for-2 share split 8,530,282 (40,554)
Share options exercised 121,337 1,316,055
---------- ------------ -----------
Balance, December 31, 1992 28,211,387 143,707,860 15,318,665
Net income 22,506,219
Gain on sale of real estate 741,217
Dividends (24,380,361) (741,217)
Share options exercised 16,218 195,673
---------- ------------ -----------
Balance, December 31, 1993 28,227,605 142,029,391 15,318,665
Net income 23,122,240
Dividends (25,981,388)
Share options exercised 14,939 170,192
---------- ------------ -----------
Balance, December 31, 1994 28,242,544 $139,340,435 $15,318,665
========== ============ ===========
See accompanying notes to financial statements
19
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1994 1993 1992
------------ ------------ -----------
Cash Flow From Operating Activities
Net income $23,122,240 $23,247,436 $20,429,264
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 3,978,301 3,655,802 3,421,612
Changes in other assets and liabilities 1,918,696 (1,129,861) (120,141)
Gain on sale of property - (741,217) -
Loss on sale of marketable investment securites 799,571 - -
------------ ------------ -----------
Cash flow from operating activities 29,818,808 25,032,160 23,730,735
------------ ------------ -----------
Cash Flow From Investing Activities
Improvements to real estate (5,786,977) (4,711,662) (3,410,263)
Real estate acquisitions (30,729,184) (11,049,907) (35,056,567)
Purchases of marketable investment securities (34,995,496) (15,524,945) (92,906,567)
Maturities and sales of marketable investment securities 49,045,967 53,000,435 76,960,642
Proceeds from the sale of real property - 176,000 -
Payments received on mortgage note receivable
for sale of property - 74,000 -
------------ ------------ -----------
Net cash (used in) provided by investing activities (22,465,690) 21,963,921 (54,412,755)
------------ ------------ -----------
Cash Flow From Financing Activities
Dividends paid (25,981,388) (24,380,361) (22,513,368)
Distribution of gain on sale of real estate - (741,217) -
Short-term bank loan - - 21,000,000
Repayment of short-term bank loan - (21,000,000) -
Mortgage principal payments - (27,269) (499,030)
Mortgage principal retirements - (1,087,924) (9,715,147)
Borrowings - Line of credit 18,000,000
Net proceeds from sale of shares - - 39,890,863
Other changes in shareholders' equity, net 170,192 195,673 1,275,501
------------ ------------ -----------
Net cash flow (used in) provided by financing activities (7,811,196) (47,041,098) 29,438,819
------------ ------------ -----------
Net (decrease) in cash and cash equivalents (458,078) (45,017) (1,243,201)
Cash and cash equivalents at beginning of year 1,759,471 1,804,488 3,047,689
------------ ------------ -----------
Cash and cash equivalents at end of year $1,301,393 $1,759,471 $1,804,488
============ ============ ===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 514,811 $ 61,462 $ 454,382
============ ============ ===========
See accompanying notes to financial statements
20
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE A: ACCOUNTING POLICIES
Washington Real Estate Investment Trust (WRIT) operates in a manner intended to
enable it to qualify as a real estate investment trust under the Internal
Revenue Code (the "Code"). According to the Code, a trust which distributes at
least 95% of its real estate trust taxable income to its shareholders each year
and which meets certain other conditions will not be taxed on that portion of
its taxable income which is distributed to its shareholders. Accordingly, no
provision for Federal income taxes is required.
Cash equivalents consist of investments readily convertible to known amounts of
cash generally with original maturities of 90 days or less.
Residential properties are leased under operating leases with terms of generally
one year or less, and commercial properties are leased under operating leases
with terms of generally three to five years. WRIT recognizes rental income
from its residential and commercial leases when earned, which is not materially
different than revenue recognition on a straight line basis.
Buildings and improvements are depreciated on a straight-line basis over
estimated useful lives not exceeding 50 and 30 years, respectively.
Depreciation expense for Federal income tax purposes differs from that reported
for financial statement purposes due to the use of different lives and
depreciation methods. As of December 31, 1994 the net assets as reported in
WRIT's financial statements exceeded the net basis for Federal Income Tax
purposes by 14,571,577 due to a lower basis of certain real estate assets
acquired by tax free exchanges.
Cash equivalents, marketable investment securities, mortgage note receivable,
rents and other receivables, prepaid expenses and other assets, accounts
payable and other liabilities, tenant security deposits, advance rents and
line of credit payable are carried at amounts which reasonably approximate
their fair values.
Disclosure about fair value of financial instruments are based on pertinent
information available to WRIT as of December 31, 1994. Although WRIT is not
aware of any factors that would significantly affect the reasonable fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and current estimates of fair value
may differ significantly from the carrying amounts.
NOTE B: MARKETABLE INVESTMENT SECURITIES
Marketable investment securities are considered available for sale and at
December 31, 1994 and 1993, the carrying value approximates market. Marketable
investment securities, including accrued interest, consist of the following:
December 31,
1994 1993
--------------- -----------------
U.S. Government and U.S. Government agency obligations $ 1,384,790 $ 14,138,327
Federally insured certificates of deposit 50,000 50,000
Corporate notes and other - 2,096,505
--------------- ----------------
$ 1,434,790 $ 16,284,832
=============== ================
At December 31, 1994, one hundred percent (100%) of the portfolio matures in
less than one year.
21
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE C: REAL ESTATE INVESTMENTS
WRIT's real estate investment portfolio, at cost, consists of properties
located in Maryland, Washington, D.C., Virginia and Delaware as follows:
December 31,
1994 1993
-------------- --------------
Office buildings $ 88,968,658 $ 64,853,787
Apartment buildings 26,369,011 25,165,713
Shopping centers 65,921,524 55,634,752
Business centers 25,118,540 24,807,202
-------------- --------------
$206,377,733 $170,461,454
============== ==============
On June 1, 1994, WRIT acquired Tycon Plaza, two office buildings with
approximately 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 approximately 128,000 rentable square feet. In
June 1993, WRIT sold its headquarters building for $1,050,000 and recognized a
gain of $741,217. Proceeds received were $176,000 in cash and $874,000 in a
mortgage note receivable. The mortgage bears interest at 9% and matures in
June 1996. Principal payments received in 1993 totaled $74,000. Interest only
is payable monthly from December 1993 until June, 1996. At that time, all
accrued and unpaid interest and principal are due in full. At December 31,
1994, the fair value of the mortgage note receivable approximates its carrying
amount.
NOTE D: MORTGAGES
During 1993, WRIT paid in full its only remaining mortgage, which had a
principal balance of $1,115,193 at December 31, 1992. The mortgage had an
interest rate of 8.5%. Interest paid on mortgages during the years ended
December 31, 1993 and 1992 was $61,462 and $454,382, respectively.
NOTE E: SHORT - TERM BANK LOAN
WRIT borrowed $21,000,000 for the purchase of Montgomery Village Shopping
Center on December 29, 1992. The loan was repaid on January 22, 1993 from the
proceeds of the sale of certain marketable investment securities which had
served collateral for the loan. The interest income and realized gain from
the sale of the marketable investment securities exceeded the 4.6% fixed
interest paid to the bank for the 25 days the loan was outstanding.
NOTE F: 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
December 31, 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 any pre-payment fee. Any new advances shall bear
interest at LIBOR plus a spread based on WRIT's interest coverage ratio.
22
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE F: LINE OF CREDIT PAYABLE - (continued)
This credit agreement provides the option to WRIT to convert any advances or
portions 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 by which
$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.
NOTE G: SHARES OF BENEFICIAL INTEREST AND DIVIDENDS
Net income per share is calculated by dividing net income by the weighted
average number of shares outstanding during the year. The weighted average
shares outstanding were 28,239,420, 28,223,307 and 26,910,046 in 1994, 1993 and
1992, respectively.
The following is a breakdown of the taxable percentage of WRIT's dividends for
1994, 1993 and 1992, respectively:
Ordinary Income Capital Gain Return of Capital
--------------- ------------ -----------------
1994 90.54% -- 9.46%
1993 95.80% 2.60% 1.60%
1992 98.00% 2.00% --
NOTE H: SHARE OPTIONS
WRIT maintains an Incentive Share Option Plan under which up to 1,348,829
shares may be awarded to eligible employees. Options, which are issued at
market price on the date of grant, vest after not more than two years and
expire ten years following the date of grant. Activity under the plan is
summarized below:
Number Options
of Shares Option Price Exercisable
--------- ------------ -----------
Balance,
December 31, 1991 262,006 $ 7.07 - $15.21 154,974
Granted 23,788 18.62
Exercised (91,337) 7.07 - 15.21
Canceled (1,315) 15.21
-------
Balance,
December 31, 1992 193,142 7.07 - 18.62 101,986
Exercised (16,218) 7.07 - 15.21
---------
Balance,
December 31, 1993 176,924 7.07 - 18.62 119,394
Granted 57,798 15.1875- 20.625
Exercised (14,939) 7.07 - 15.21
Canceled (23,642) 12.79 - 20.625
---------
Balance,
December 31, 1994 196,141 $ 8.09 - $20.625 100,868
23
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE H: SHARE OPTIONS - (continued)
On June 27, 1990, the then President/Chairman of the Trustees was granted
non-qualified share options for 150,000 shares at $11.71, the per share market
price on that day. These options are exercisable 20% at date of grant and 20%
upon each anniversary over a four year period. Share options of 60,000 in 1991
and 30,000 in 1992 were exercised leaving 60,000 remaining to be exercised at
December 31, 1994.
On December 14, 1994, the President/Chief Operating Officer of WRIT was granted
non-qualified share options for 9,091 shares at the June 1, 1994 market price
of $19.25. These shares are exercisable 50% after the first anniversary date
of December 14, 1995 and 50% exercisable after the second anniversary date of
December 14, 1996.
NOTE I: PENSION PLAN
WRIT maintains a noncontributory defined benefit pension plan for all eligible
employees. Benefits under the plan are generally based on years of service and
final average pay. The pension assets include U.S. Government Agency
obligations, U.S. Treasury money market fund and interest-bearing certificates
of deposit. Pension costs are accrued and funded annually from entry date in
the plan to projected retirement date and include service costs for benefits
earned during the period and interest costs on the projected benefit obligation
less the return on plan assets. Pension costs were $90,000, $164,000 and
$293,000 in 1994, 1993 and 1992, respectively. The actual return (loss) on
plan assets was $27,000, $(31,000) and $19,000 for 1994, 1993 and 1992
respectively. The assumed long-term rate of return is 8.00%. Plan obligations
in excess of amounts permitted under the Tax Equity and Fiscal Responsibility
Act of 1982 are accrued as a liability of WRIT and included in total pension
cost. The funded status of the plan is:
December 31,
1994 1993
------------- -------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $3,269,000 $3,295,000
Accumulated benefit obligation 3,271,000 3,299,000
Projected benefit obligation 3,364,000 3,440,000
Plan assets at market value 3,281,000 3,235,000
The liabilities are calculated using an assumed rate of compensation increase
of 5.00% and an assumed discount rate of 8.00% for December 31, 1994 and 1993.
NOTE J: RENTALS UNDER OPERATING LEASES
Noncancelable commercial operating leases provide for minimum rental income
during each of the next five years of approximately $26,555,361, $20,784,277,
$15,003,482, $10,222,438, $7,790,060 and $13,832,568 thereafter. Apartment
leases are not included as they are generally for one year. Many of these
commercial rentals increase in future years based on changes in the Consumer
Price Index. Contingent rentals from the shopping centers, based on a
percentage of tenants' gross sales, were $428,000, $447,000 and $480,000 in
1994, 1993 and 1992 respectively.
24
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE K: SUBSEQUENT EVENTS
On January 26, 1995, WRIT acquired an office building, 6110 Executive
Boulevard, with 200,000 net rentable square feet of office plus a three-story
parking deck in Rockville, Maryland, for a contract purchase price of
$16,380,000. WRIT borrowed $16,000,000 on a short-term bank loan from a bank
at the bank's then prime-rate of 8.50%. This loan matures 45 days from January
25, 1995 and is to be replaced by an unsecured line of credit from the same
bank at an anticipated lower rate of interest.
25
WASHINGTON REAL ESTATE INVESTMENT TRUST SCHEDULE III
SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Gross Amounts at which carried at
Initial Cost (b) Net December 31, 1994
--------------------------- Improvements ---------------------------------
Building (Retirements) Buildings
and since and
Properties Location Land Improvements Acquisition Land Improvements
------------------------ ----------------------- ----------- -------------- ------------- ----------------- --------------
SHOPPING CENTERS
Concord Centre Virginia $412,500 $850,038 $2,603,703 $412,500 $3,453,741
Bradlee Virginia 4,151,583 5,428,251 3,401,158 4,151,583 8,829,409
Clairmont Maryland 154,739 891,608 629,950 154,739 1,521,558
Dover Mart Delaware 243,500 463,858 657,088 243,500 1,120,946
Jenifer One Washington, D.C. 1,549,262 4,304,434 854,078 1,549,262 5,158,512
Prince William Plaza Virginia 171,482 820,465 336,919 171,482 1,157,384
Takoma Park Maryland 415,200 1,084,453 1,203 415,200 1,085,656
Westminster Maryland 552,745 1,889,032 1,641,354 552,745 3,530,386
Wheaton Park Maryland 622,908 856,683 688,923 622,908 1,545,606
Montgomery Village Maryland 11,624,500 9,105,262 445,832 11,624,500 9,551,094
Foxchase Virginia 5,838,138 2,979,469 251,206 5,838,138 3,230,675
----------- -------------- ------------- ----------------- --------------
25,736,557 28,673,553 11,511,414 25,736,557 40,184,967
----------- -------------- ------------- ----------------- --------------
OFFICE BUILDINGS
Writ Building Maryland 222,000 1,690,497 2,888,861 222,000 4,579,358
1901 Pennsylvania Ave. Washington, D.C. 891,600 3,481,239 2,965,796 891,600 6,447,035
One Metro Square Maryland 840,000 10,868,917 5,129,995 840,000 15,998,912
444 N. Frederick Ave. Maryland 812,901 3,817,459 1,176,654 812,901 4,994,113
7700 Leesburg Pike Virginia 3,669,464 4,000,406 2,081,989 3,669,464 6,082,395
Arlington Financial Virginia 3,000,000 3,293,122 135,635 3,000,000 3,428,757
515 King Street Virginia 4,102,276 3,931,408 595,207 4,102,276 4,526,615
Lexington Office Bldg. Maryland 1,179,700 1,262,472 92,810 1,179,700 1,355,282
Saratoga Office Bldg. Maryland 1,464,140 1,554,284 304,167 1,464,140 1,858,451
Brandywine Center Maryland 718,180 735,381 97,240 718,180 832,621
Tycon II Virginia 3,261,965 7,242,691 180,186 3,261,965 7,422,877
Tycon III Virginia 3,254,670 7,794,189 231,157 3,254,670 8,025,346
----------- -------------- ------------- ----------------- --------------
23,416,896 49,672,065 15,879,697 23,416,896 65,551,762
----------- -------------- ------------- ----------------- --------------
APARTMENT BUILDINGS
Country Club Towers Virginia 299,389 2,561,473 2,224,750 299,389 4,786,223
Munson Hill Towers Virginia (a) 3,337,038 3,413,597 (a) 6,750,635
Park Adams Virginia 286,588 1,653,833 2,273,518 286,588 3,927,351
Roosevelt Towers Virginia 335,831 1,996,340 1,510,216 335,831 3,506,556
Wiltshire North Washington, D.C. 419,483 2,678,440 3,378,515 419,483 6,056,955
----------- -------------- ------------- ----------------- --------------
1,341,291 12,227,124 12,800,596 1,341,291 25,027,720
----------- -------------- ------------- ----------------- --------------
BUSINESS CENTERS
Pepsi-Cola Maryland 759,927 1,791,754 1,510,933 759,927 3,302,687
Capitol Freeway Washington, D.C. 300,000 1,204,748 2,613,218 300,000 3,817,966
Dept. of Commerce Virginia 346,817 1,008,864 1,248,369 346,817 2,257,233
Fullerton Virginia 950,000 3,317,305 604,879 950,000 3,922,184
Sharp Electronics Virginia 391,490 1,059,291 336,630 391,490 1,395,921
Shirley-395 Virginia 652,474 1,264,695 935,777 652,474 2,200,472
V Street Washington, D.C. 125,500 317,019 132,983 125,500 450,002
Charleston Maryland 2,044,930 2,090,821 110,116 2,044,930 2,200,937
----------- -------------- ------------- ----------------- --------------
5,571,138 12,054,497 7,492,905 5,571,138 19,547,402
----------- -------------- ------------- ----------------- --------------
Totals $56,065,882 $102,627,239 $47,684,612 $56,065,882 $150,311,851
=========== ============== ============= ================= ==============
Gross Amounts at
which carried at
December 31, 1994 Accumulated
----------------- Depreciation
at
December 31, Year of Date of Net Rentable Depreciation
Properties Total (d) 1994 Construction Acquisition Square Feet (f) Life (c)
------------------------ ----------------- ------------ ------------ ------------------- --------------- --------------
SHOPPING CENTERS
Concord Centre $3,866,241 $839,476 1960 December 1973 76,383 33 Years
Bradlee 12,980,992 2,450,123 1955 December 1984 167,974 40 Years
Clairmont 1,676,297 581,326 1965 December 1976 40,455 39 Years
Dover Mart 1,364,446 368,463 1960 January 1973 44,044 40 Years
Jenifer One 6,707,774 846,798 1975 September 1985 39,304 50 Years
Prince William Plaza 1,328,866 545,386 1967 August 1968 53,999 50 Years
Takoma Park 1,500,856 712,157 1962 July 1963 58,811 50 Years
Westminster 4,083,131 1,613,031 1969 September 1972 171,531 37 Years
Wheaton Park 2,168,514 374,488 1967 September 1977 46,716 49 Years
Montgomery Village 21,175,594 369,991 1969 December 1992 196,464 50 Years
Foxchase 9,068,813 37,659 1960 June 1994 127,564 50 Years
------------ ----------- ---------------
65,921,524 8,738,898 1,023,245
------------ ----------- ---------------
OFFICE BUILDINGS
Writ Building 4,801,358 1,165,501 1965 August 1979 65,885 31 Years
1901 Pennsylvania Ave. 7,338,635 2,677,851 1960 May 1977 96,506 28 Years
One Metro Square 16,838,912 4,977,099 1975 August 1979 208,243 41 Years
444 N. Frederick Ave. 5,807,014 372,282 1981 October 1989 65,809 50 Years
7700 Leesburg Pike 9,751,859 311,872 1976 October 1990 122,257 50 Years
Arlington Financial 6,428,757 170,044 1963 June 1992 51,655 50 Years
515 King Street 8,628,891 188,061 1966 July 1992 78,073 50 Years
Lexington Office Bldg. 2,534,982 21,502 1970 November 1993 47,751 50 Years
Saratoga Office Bldg. 3,322,591 22,067 1977 November 1993 59,014 50 Years
Brandywine Center 1,550,801 15,520 1969 November 1993 34,982 50 Years
Tycon II 10,684,842 86,702 1981 June 1994 141,043 50 Years
Tycon III 11,280,016 93,459 1978 June 1994 151,670 50 Years
------------ ----------- ---------------
88,968,658 10,101,960 1,122,888
------------ ----------- ---------------
APARTMENT BUILDINGS
Country Club Towers 5,085,612 2,284,099 1965 July 1969 276,000 35 Years
Munson Hill Towers 6,750,635 3,171,524 1963 January 1970 340,000 33 Years
Park Adams 4,213,939 1,709,657 1959 January 1969 210,000 35 Years
Roosevelt Towers 3,842,387 1,743,526 1964 May 1965 229,000 40 Years
Wiltshire North 6,476,438 3,439,617 1951 January 1963 242,000 30 Years
------------ ----------- ---------------
26,369,011 12,348,423 1,297,000
------------ ----------- ---------------
BUSINESS CENTERS
Pepsi-Cola 4,062,614 416,761 1971 October 1987 68,750 40 Years
Capitol Freeway 4,117,966 1,342,909 1940 July 1974 145,000 25 Years
Dept. of Commerce 2,604,050 1,335,973 1964 December 1971 105,000 43 Years
Fullerton 4,872,184 693,776 1980 September 1985 103,339 50 Years
Sharp Electronics 1,787,411 227,642 1965 December 1986 29,000 40 Years
Shirley-395 2,852,946 1,142,223 1960 September 1961 112,585 40 Years
V Street 575,502 191,853 1960 October 1973 30,753 40 Years
Charleston 4,245,867 48,122 1973 Novemeber 1993 85,267 50 Years
------------ ----------- ---------------
25,118,540 5,399,260 679,694
------------ ----------- ---------------
Totals $206,377,733 $36,588,540 4,122,827
============ =========== ===============
Notes:
(a) The site of Munson Hill Towers is rented under a lease requiring
annual payments of $22,590 until the expiration of the lease in 2060.
(b) The purchase of real estate investments has been divided between land
and buildings and improvements on the basis of valuations by the
Trust.
(c) The useful life shown is for the main structure. Building improvements
are depreciated over various useful lives ranging from 3 to 50 years.
(d) At December 31, 1994 total land, buildings and improvements are carried
at $191,806,156 for federal income tax purposes.
(e) At December 31, 1994, there were no encumbrances on any of the
properties.
(f) Residential properties are presented in gross square feet.
26
WASHINGTON REAL ESTATE INVESTMENT TRUST SCHEDULE III
SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Continued
The following is a reconciliation of real estate assets and accumulated
depreciation for the years ended December 31, 1994, 1993, and 1992:
Year Ended December 31,
1994 1993 1992
------------------------------------------
REAL ESTATE ASSETS
Balance, beginning of period $170,461,454 $155,765,010 $117,575,741
Additions - property acquisitions 30,729,184 11,049,907 35,056,567
- improvements 5,786,977 4,711,662 3,410,263
Deductions - write-off of fully
depreciated assets (599,882) (410,783) (277,561)
- sale of 4936 Fairmont - (654,342) -
------------------------------------------
Balance, end of period $206,377,733 $170,461,454 $155,765,010
==========================================
ACCUMULATED DEPRECIATION
Balance, beginning of period $33,255,332 $30,460,618 $27,358,995
Additions - depreciation (a) 3,933,090 3,616,190 3,379,184
Deductions - write-off of fully
depreciated assets (599,882) (410,783) (277,561)
- sale of 4936 Fairmont - (410,693)
------------------------------------------
Balance, end of period $36,588,540 $33,255,332 $30,460,618
==========================================
(a) Total depreciation charged to income in 1994, 1993, and 1992,
respectively, consists of the following:
1994 1993 1992
------------------------------------------
Depreciation on real estate investments $3,933,090 $3,616,190 $3,379,184
Depreciation on office furniture, fixtures
and equipment 45,211 39,612 42,428
------------------------------------------
$3,978,301 $3,655,802 $3,421,612
==========================================
27
WASHINGTON REAL ESTATE INVESTMENT TRUST
MORTGAGE NOTE RECEIVABLE SCHEDULE IV
Final Periodic Face Carrying
Interest Maturity Payment Prior Amount of Amount of
Description Rate Date Terms Liens Mortgages Mortgages(2)
-------------------------------------------------------------------------------------------------------------------------------
Interest only from
July 1, 1993 until Dec.
28, 1993. On Dec. 28,
1993, principal payment
of $70,000 due. Interest
only from Dec. 28, 1993
until final maturity date
Mortgage note receivable of June 28, 1996 at which
dated June 28, 1993, secured time all accrued and unpaid
by a first lien deed of trust and interest and principal are
security agreement 9.00% June 28, 1996 due in full. N/A $874,000 $800,000(1)
Principal
Amount of
Mortgage
subject to
delinquent
principal or
Description interest
------------------------------------------------------
Mortgage note receivable
dated June 28, 1993, secured
by a first lien deed of trust and
security agreement None
(1) Reconciliation of Carrying Amount:
Face amount July 1, 1993 $874,000
Principal payment Dec. 28, 1993 (74,000)
----------
Carrying amount at Dec. 31, 1994 and 1993 $800,000
==========
(2) Aggregate cost is equal to cost for Federal income tax purposes.
28
SUPPLEMENTARY INFORMATION:
QUARTERLY FINANCIAL RESULTS (Unaudited)
Quarter
1994 First Second Third Fourth
---- ----- ------ ----- ------
Real estate rental revenue $11,312,489 $10,758,614 $11,759,339 $11,681,040
Net income from operations 5,805,007 5,827,737 5,846,949 5,642,547
Net income from operations per share $0.21 $0.21 $0.21 $0.20
1993
----
Real estate rental revenue $9,758,105 $9,713,873 $9,904,958 $9,998,346
Net income from operations 5,770,868 5,580,892 5,535,365 5,619,095
Net income from operations per share $0.20 $0.20 $0.20 $0.20
1992
----
Real estate rental revenue $8,478,402 $8,186,741 $8,866,761 $8,600,313
Net income from operations 4,901,906 4,766,036 5,522,894 5,238,428
Net income from operations per share $0.19 $0.19 $0.20 $0.19
29