Filed Pursuant to Rule 424(b)(5)
Registration No. 333-05777
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED AUGUST 2, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 29, 1996)
[WRIT LOGO] $100,000,000
WASHINGTON REAL ESTATE INVESTMENT TRUST
$ ,000,000 % SENIOR NOTES DUE AUGUST , 2003
$ ,000,000 % SENIOR NOTES DUE AUGUST , 2006
------------------------
The % Senior Notes due August , 2003 (the "2003 Notes") and the %
Senior Notes due August , 2006 (the "2006 Notes," and together with the 2003
Notes, the "Notes") offered hereby (the "Offering") are being issued by
Washington Real Estate Investment Trust, an equity real estate investment trust
("WRIT" or the "Trust"), in an aggregate principal amount equal to $100,000,000.
Interest on the Notes will be payable semi-annually in arrears on each February
and August , commencing February , 1997. The 2003 Notes and the 2006 Notes
will mature on August , 2003 and August , 2006, respectively, and are
redeemable at any time after August , 200 at the option of the Trust, in whole
or in part, at a redemption price equal to the sum of (i) the principal amount
of the Notes being redeemed plus accrued interest to the redemption date and
(ii) the Make-Whole Amount (as defined in "Description of the Notes -- Optional
Redemption"), if any. The Notes are not subject to any mandatory sinking fund.
See "Description of the Notes."
Each series of Notes will be represented by a single fully-registered note
in book-entry form (each, a "Global Security") registered in the name of a
nominee of The Depository Trust Company ("DTC"). Beneficial interests in the
Global Securities will be shown on, and transfers thereof will be effected only
through, records maintained by DTC (with respect to beneficial interests of
participants) or by participants or persons that hold interests through
participants (with respect to beneficial interests of beneficial owners). Owners
of beneficial interests in the Global Securities will be entitled to physical
delivery of Notes in certificated form equal in principal amount to their
respective beneficial interests only under the limited circumstances described
under "Description of the Notes -- Book-Entry System." Settlement for the Notes
will be made in immediately available funds. The Notes will trade in DTC's
Same-Day Funds Settlement System until maturity or earlier redemption, as the
case may be, or until the Notes are issued in certificated form, and secondary
market trading activity in the Notes will therefore settle in immediately
available funds. All payments of principal and interest in respect of the Notes
will be made by the Trust in immediately available funds. See "Description of
the Notes -- Same-Day Settlement and Payment."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) TRUST(1)(3)
- --------------------------------------------------------------------------------------------------------------
Per 2003 Note............................... % % %
- --------------------------------------------------------------------------------------------------------------
Per 2006 Note............................... % % %
- --------------------------------------------------------------------------------------------------------------
Total....................................... $ $ $
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from August , 1996.
(2) The Trust has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $225,000 payable by the Trust.
------------------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued by the Trust and delivered to and accepted by the Underwriters,
subject to approval of certain legal matters by counsel for the Underwriters and
subject to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Notes offered hereby will be made in
book-entry form through the facilities of DTC in New York, New York on or about
August , 1996.
------------------------
MERRILL LYNCH & CO. ALEX. BROWN & SONS
INCORPORATED
------------------------
The date of this Prospectus Supplement is August , 1996.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT
LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated herein and therein by reference. Unless
the context indicates otherwise, the term "Trust" as used herein and in the
accompanying Prospectus includes the Trust and its subsidiary.
THE TRUST
Washington Real Estate Investment Trust ("WRIT" or the "Trust"), founded in
1960, is an equity real estate investment trust investing in income-producing
properties throughout the greater Washington-Baltimore region. The Trust owns a
diversified portfolio of 44 properties consisting of 16 office buildings, 12
shopping centers, 6 high-rise apartment buildings and 10 industrial distribution
centers. The Trust has a fundamental strategy of regional focus, diversified
property type ownership and conservative financial management.
WRIT's principal objective is to increase operating income by investing in
high quality real estate with strong growth potential in prime locations and
aggressively managing these properties with active leasing and capital
improvement programs. The percentage leased at June 30, 1996 for the Trust's
properties was 93% for office buildings, 89% for shopping centers, 95% for
apartment buildings and 98% for industrial distribution centers. Total debt (all
medium term) on June 30, 1996 was $74,600,000, which represented approximately
14% of the total market capitalization of the Trust.
THE OFFERING
All capitalized terms not defined herein have the meanings specified in
"Description of the Notes." For a more complete description of the terms of the
Notes specified in the following summary, see "Description of the Notes" herein
and "Description of Securities" in the Prospectus.
Securities Offered......... $ ,000,000 aggregate principal amount of %
Senior Notes due August , 2003 (the "2003 Notes")
and
$ ,000,000 aggregate principal amount of %
Senior Notes due August , 2006 (the "2006
Notes").
Maturity................... The 2003 Notes will mature on August , 2003 and
the 2006 Notes will mature on August , 2006.
Interest Payment Dates..... Interest on the Notes is payable semi-annually on
each February and August , commencing February
, 1997, and at maturity.
Ranking.................... The Notes will be direct obligations of the Trust
and will rank equally with each other and with all
other unsecured and unsubordinated indebtedness of
the Trust.
Use of Proceeds............ To repay borrowings outstanding under the Trust's
unsecured lines of credit and to fund the
acquisition and/or renovation, expansion or
improvement of income-producing properties.
Limitations on Incurrence
of Debt.................. The Notes contain various covenants, including the
following:
(1) The Trust will not, and will not permit any
Subsidiary to, incur any Debt if, immediately
after giving effect thereto and the application
of the proceeds thereof, the aggregate
principal amount of all outstanding Debt of the
Trust and its Subsidiaries on a consolidated
basis is greater than 60% of the sum of: (i)
the Trust's Total Assets as of the end of the
most recent calendar quarter prior to the
S-3
incurrence of such additional Debt and (ii) any
increase in the Trust's Total Assets since the
end of such quarter, including any increase in
Total Assets resulting from the incurrence of
such additional Debt (such increase, together
with the Trust's Total Assets being referred to
as "Adjusted Total Assets").
(2) The Trust will not, and will not permit any
Subsidiary to, incur any Secured Debt if,
immediately after giving effect thereto and the
application of the proceeds thereof, the
aggregate principal amount of all outstanding
Secured Debt of the Trust and its Subsidiaries
on a consolidated basis is greater than 40% of
Adjusted Total Assets.
(3) The Trust will not, and will not permit any
Subsidiary to, incur any Debt if the ratio of
Consolidated Income Available for Debt Service
to the Annual Service Charge for the four
consecutive fiscal quarters most recently ended
prior to the date on which such additional Debt
is to be incurred shall have been less than 1.5
to 1 on a pro forma basis, after giving effect
thereto and the application of the proceeds
thereof.
Maintenance of Total
Unencumbered Assets...... The Trust must maintain Total Unencumbered Assets
of not less than 150% of the aggregate outstanding
principal amount of Unsecured Debt of the Trust and
its Subsidiaries.
Optional Redemption........ The Notes are redeemable at any time after August
, 200 at the option of the Trust, in whole or in
part, at a redemption price equal to the sum of:
(i) the principal amount of the Notes being
redeemed plus accrued interest to the redemption
date and (ii) the Make-Whole Amount, if any. See
"Description of the Notes -- Optional Redemption."
S-4
THE TRUST
Washington Real Estate Investment Trust ("WRIT" or the "Trust"), founded in
1960, is an equity real estate investment trust investing in a diversified range
of income-producing properties throughout the greater Washington-Baltimore
region. The Trust has a fundamental strategy of regional focus, diversified
property type ownership and conservative financial management.
The Trust owns a diversified portfolio of 44 properties consisting of 16
office buildings, 12 shopping centers, 6 high-rise apartment buildings and 10
industrial distribution centers. The percentage leased at June 30, 1996 for the
Trust's properties was 93% for office buildings, 89% for shopping centers, 95%
for apartment buildings and 98% for industrial distribution centers. Total debt
(all medium-term) on June 30, 1996 was $74,600,000, which represented
approximately 14% of the total market capitalization of the Trust.
The principal offices of the Trust are located at 10400 Connecticut Avenue,
Kensington, Maryland 20895, telephone (301) 929-5900/(800) 565-9748.
RECENT DEVELOPMENTS
On May 17, 1996, WRIT Limited Partnership, a 99.9% owned subsidiary of
WRIT, purchased Maryland Trade Center I and II, office buildings containing
approximately 350,000 rentable square feet located in Greenbelt, Maryland, for a
purchase price of $28,000,000. The purchase price was paid out of an advance
from WRIT's unsecured line of credit. On the date of acquisition, the buildings
were 98.5% leased. Major tenants include NationsBank, OAO, Orbital Sciences
Corporation, Lockheed Martin Corporation, TRW and various law and accounting
firms.
On June 25, 1996, the Trust completed its reorganization as a Maryland
business trust. The Trust was originally organized in 1960 as a District of
Columbia business trust.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Trust's ratios of earnings to fixed
charges for the periods shown:
YEAR ENDED DECEMBER 31, THREE MONTHS
- ---------------------------------------------------- ENDED MARCH 31,
1991 1992 1993 1994 1995 1996
- ------- ------- -------- ------- ------- ---------------
17.94x 45.13x 366.95x 38.65x 12.95x 11.54x
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income from continuing
operations and fixed charges. Fixed charges consist of interest expense
(including interest costs capitalized) and the amortization of debt issuance
costs.
S-5
USE OF PROCEEDS
The net proceeds to the Trust from the sale of the Notes offered hereby are
estimated at approximately $ million. Up to $67 million of the proceeds will be
used to repay borrowings outstanding under the Trust's lines of credit. The
borrowings outstanding under the lines of credit presently bear interest at a
weighted average rate of 6.0% and are due and payable between August 27, 1996
and January 31, 1999. The balance of the net proceeds will be used for general
business purposes, including the acquisition and/or renovation, expansion or
improvement of income-producing properties. It is expected that the properties
purchased in the future will be of the same general character as those presently
held by the Trust. Pending such uses, the net proceeds may be invested in
short-term income producing investments such as investments in commercial paper,
government securities or money market funds that invest in government
securities.
CAPITALIZATION
The following table sets forth the capitalization of the Trust as of March
31, 1996, and as adjusted to give effect to an increase of approximately $28
million in amounts outstanding under the Trust's lines of credit since March 31,
1996, the issuance and sale of the Notes offered hereby and the anticipated use
of $67 million of the net proceeds thereof to repay indebtedness outstanding
under the lines of credit.
MARCH 31, 1996
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
Lines of credit payable:............................................... $ 39,000 $ --(1)
Long-term debt:
Mortgage notes payable............................................ 7,678 7,678
Unsecured Senior Notes............................................ -- 100,000
---------- -----------
Total debt................................................... $ 46,678 $ 107,678
======== =========
Shareholders' equity:
Shares of beneficial interest; without par value; unlimited
authorization(2):
31,751,734 shares issued and outstanding..................... $ 183,431 $ 183,431
Undistributed gains on real estate dispositions................... 15,319 15,319
---------- -----------
Total shareholders' equity................................... 198,749 198,749
---------- -----------
Total capitalization....................................... $ 245,427 $ 306,427
======== =========
- ---------------
(1) As of June 30, 1996, the Trust's unsecured lines of credit had an
outstanding balance of $67 million, including $28 million borrowed for the
purchase of Maryland Trade Center I and II. The entire $67 million balance
is anticipated to be paid with a portion of the proceeds of the Offering.
(2) Upon the Trust's reorganization under Maryland law, the shares of beneficial
interest have a par value of $.01 per share and 100,000,000 shares are
authorized for issuance, subject to increase upon the approval of the
Trustees and without a vote of the shareholders.
S-6
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Trust and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Trust and related notes thereto incorporated herein
by reference.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA
Real estate rental revenue........................... $ 33,311 $ 34,132 $ 39,375 $ 45,511 $ 52,597 $ 12,463 $ 14,680
Real estate expenses................................. (10,089) (10,330) (11,830) (14,031) (16,600) (4,003) (4,912)
-------- -------- -------- -------- -------- -------- --------
23,222 23,802 27,545 31,480 35,997 8,460 9,768
Depreciation......................................... (3,289) (3,388) (3,616) (3,933) (5,083) (1,075) (1,528)
-------- -------- -------- -------- -------- -------- --------
Income from real estate.............................. 19,933 20,414 23,929 27,547 30,914 7,385 8,240
Other income (expense)............................... 2,326 3,311 1,496 (550) 715 101 121
Interest expense..................................... (1,080) (454) (61) (614) (2,169) (531) (654)
General and administrative........................... (2,793) (2,842) (2,858) (3,261) (3,355) (796) (754)
-------- -------- -------- -------- -------- -------- --------
Income before gain on sale of real estate............ 18,386 20,429 22,506 23,122 26,105 6,159 6,953
Gain on sale of real estate.......................... 0 0 741 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Net income........................................... $ 18,386 $ 20,429 $ 23,247 $ 23,122 $ 26,105 $ 6,159 $ 6,953
======== ======== ======== ======== ======== ======== ========
Income before gain on sale of real estate per
share(1)........................................... $ 0.74 $ 0.76 $ 0.80 $ 0.82 $ 0.88 $ 0.22 $ 0.22
======== ======== ======== ======== ======== ======== ========
Net income per share(1).............................. $ 0.74 $ 0.76 $ 0.82 $ 0.82 $ 0.88 $ 0.22 $ 0.22
======== ======== ======== ======== ======== ======== ========
DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA
Real estate (at cost)................................ $117,576 $155,765 $170,461 $206,378 $272,597 $225,585 $284,784
Total assets......................................... 135,741 185,673 162,011 178,806 241,783 195,034 251,920
Mortgages payable.................................... 11,329 1,115 0 0 7,706 0 7,678
Line of credit payable/Short-term bank loan.......... 0 21,000 0 18,000 28,000 34,000 39,000
Shareholders' equity................................. 119,944 159,027 157,348 154,659 199,734 154,040 198,749
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
OTHER DATA
Funds from Operations(2)............................. $21,675 $23,817 $26,122 $27,055 $31,187 $7,234.. $8,481
EBITDA(3)............................................ $22,788 $24,305 $26,223 $27,715 $33,420 $7,777 $9,155
Ratio of earnings to fixed charges(4)(5)............. 17.94x 45.13x 366.95x 38.65x 12.95x 12.59x 11.54x
Ratio of Funds from Operations to fixed
charges(2)(5)...................................... 19.97x 51.45x 424.75x 44.05x 14.27x 13.61x 12.86x
Ratio of EBITDA to fixed charges(3)(5)............... 20.99x 52.51x 426.40x 45.12x 15.30x 14.63x 13.88x
Interest coverage.................................... 21.1x 53.5x 429.2x 45.1x 15.4x 14.6x 14.0x
Ratio of net operating income to total debt.......... 204.98% 107.63% N/A 174.89% 100.81% 47.01% 20.93%
Ratio of Funds from Operations to total debt(2)...... 191.32% 107.70% N/A 150.31% 87.34% 40.19% 18.17%
- ---------------
(1) Adjusted to give effect to the 3 for 2 share split in May 1992.
(2) Funds from Operations ("FFO"), as defined by the National Association of
Real Estate Investment Trusts ("NAREIT"), is net income adjusted for
depreciation and amortization and gains or losses from property sales. FFO
does not represent cash flows from operations as defined by generally
accepted accounting principles, should be considered along with, but not as
an alternative to, net income as an indicator of the Trust's operating
performance and is not indicative of cash available to fund all cash flow
needs. In March 1995, NAREIT issued a clarification of its definition of
FFO. The clarification provides that amortization of deferred financing
costs and depreciation of non-real estate estate assets are no longer to be
added back to net income in arriving at FFO and that extraordinary,
nonrecurring items should be adjusted out of net income. The amounts
reflected in this Prospectus Supplement and the Prospectus have been
adjusted to incorporate that clarification.
(3) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA does not represent cash generated from operating
activities as defined by generally accepted accounting principles and,
therefore, should not be considered as an alternative to net income as the
primary indicator of operating performance or to cash flow as a measure of
liquidity, nor does it indicate that cash flow is sufficient to fund all
cash requirements.
(4) For purposes of computing this ratio, earnings consist of income from
continuing operations and fixed charges.
(5) Fixed charges consist of interest expense (including interest costs
capitalized) and the amortization of debt issuance costs.
S-7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1995
Real Estate Rental Revenue
Total revenues in the first quarter of 1996 increased $2.2 million to $14.7
million from $12.5 million in the first quarter of 1995.
In the first quarter of 1996, WRIT's office building group had increases of
16.1% in revenues and 14.8% in operating income as compared to the first quarter
of 1995. These increases were due primarily to the acquisition of the 6110
Executive Boulevard and the 1220 19th Street office buildings in 1995. Comparing
those office buildings owned by WRIT for the entire first quarter of 1996 to
their same results in the first quarter of 1995, revenue decreased 2.9% and
operating income decreased 5.5%. The decrease in revenues and operating income
is primarily attributable to increased vacancies at One Metro Square.
WRIT's apartment group had increases of 4.4% in revenues and .8% in
operating income as compared to the first quarter of 1995. The increase in
revenues and operating income is due primarily to the acquisition of Walker
House Apartments on March 13, 1996 and increased rental rates at 3801
Connecticut Avenue partially offset by increases in utility and snow removal
expense due to the unusually severe weather in the first quarter of 1996.
Comparing those apartment buildings owned by WRIT for the entire first quarter
of 1996 to their same results in the first quarter of 1995, revenue increased
1.2% and operating income decreased 2.7%. The increase in revenues resulted from
an average rental rate increase of 2.7% partially offset by increased vacancies
at Munson Hill Towers. The decrease in operating income was caused by increased
utility and snow removal expense as explained above.
WRIT's shopping center group had increases of 24.8% in revenues and 18.4%
in operating income as compared to the first quarter of 1995. These increases
were due primarily to the repositioning of Chevy Chase Metro Plaza and the
acquisition of Frederick County Square in 1995, offset partially by increased
snow removal expense in the first quarter of 1996. Comparing those shopping
centers owned by WRIT for the entire first quarter of 1996 to their same results
in the first quarter of 1995, revenue increased 7.8% and operating income
increased 3.9%. The increase in revenue is primarily attributable to the
repositioning of Chevy Chase Metro Plaza and increased common area maintenance
recoveries resulting from increased snow removal expense in the first quarter of
1996. The increase in operating income is primarily attributable to the
repositioning of Chevy Chase Metro Plaza.
WRIT's industrial distribution center group had increases of 37.4% in
revenues and 36.5% in operating income as compared to the first quarter of 1995.
This was due primarily to the 1995 acquisitions of Tech 100 Industrial Park and
Crossroads Distribution Center. Comparing those industrial distribution centers
owned by WRIT for the entire first quarter of 1996 to their same results in the
first quarter of 1995, revenue increased 6.9% and operating income increased 8%.
These increases are primarily due to increased rental rates and occupancy levels
in this group.
Operating Expenses and Other Results of Operations
Real estate operating expenses as a percentage of revenue was 33% for the
first quarter of 1996, as compared to 32% for the first quarter of 1995. This
increase is primarily attributable to the increase in snow removal and utility
expenses caused by the unusually severe weather in the first quarter of 1996.
Other income increased as compared to the first quarter of 1995 due to
investment earnings in 1996 on the $3.4 million remaining net proceeds from the
sale of 3,500,000 shares of beneficial interest in July, 1995. Interest expense
was $654,200 for the first quarter of 1996. Interest expense related to lines of
credit was $481,000, attributable to $28 million of advances on the lines of
credit to finance 1995 acquisitions and $11 million advanced on March 13, 1996
to finance the purchase of Walker House Apartments. Interest expense related to
the mortgage note payable was $173,200, attributable to the mortgage note
payable assumed in
S-8
August 1995 for the acquisition of Frederick County Square. Interest expense was
$532,000 for the first quarter of 1995 attributable to advances on the lines of
credit for the acquisitions of Tycon Plaza, The Shoppes of Foxchase, and 6110
Executive Boulevard.
General and administrative expenses decreased $43,000 to $754,000 for the
first quarter 1996 from $797,000 for the first quarter 1995. General and
administrative expenses as a percentage of revenue decreased to 5.1% in the
first quarter of 1996 from 6.4% in the first quarter of 1995. The majority of
the decrease for the first quarter 1996 as compared to the first quarter 1995 is
attributable to reductions in personnel expense. Personnel expense decreased due
to the completion of severance pay in June, 1995 to WRIT's former Chairman and
Chief Executive Officer, B. Franklin Kahn, who retired in March, 1995, which was
partially offset by personnel additions in 1995 and 1996.
CAPITAL RESOURCES AND LIQUIDITY
WRIT has utilized the proceeds of share offerings, long-term fixed interest
rate debt, bank lines of credit and cash flow from operations for its capital
needs. External sources of capital will continue to be available to WRIT from
its existing unsecured credit commitments, and management believes that
additional sources of capital are available from selling additional shares
and/or the sale of long-term senior notes. The funds raised would be used to pay
off any outstanding advances on the lines of credit and for new acquisitions and
capital improvements.
Net cash provided by operating activities totaled $8.2 million for the
first quarter 1996, as a result of net income of $6.9 million and depreciation
of $1.5 million offset by increases in other assets and liabilities. Increases
in other assets of $410,000 were due to increases in prepaid real estate taxes
and other assets. Increases in other liabilities was primarily due to increases
in accounts payable. The majority of these increases were due to a larger
property portfolio. Rental revenue has been the principal source of funds to pay
WRIT's operating expenses, interest expense and dividends to shareholders. For
the first quarter 1996, WRIT paid dividends totaling $7.9 million
Net cash used in investing activities for the first quarter 1996 was $12.2
million including first quarter property acquisitions of $10.8 million and
improvements to real estate of $1.4 million.
WRIT has unsecured lines of credit with commercial banks for up to $75
million which bear interest at an adjustable spread over LIBOR based on the
Trust's interest coverage ratio. As of June 30, 1996, WRIT had $67 million of
borrowings outstanding under its lines of credit with a weighted average
interest rate of 6.0%, and $8 million available for future advances. The $67
million of borrowings were used for acquisitions of three properties in 1995,
the acquisition of Walker House Apartments, a 196 unit 8 story apartment
building located in Gaithersburg, Maryland, on March 13, 1996, for an
acquisition cost of $10.8 million and the acquisition of Maryland Trade Center I
and II, office buildings containing approximately 350,000 rentable square feet
located in Greenbelt, Maryland, on May 17, 1996, for an acquisition price of $28
million. Line of credit maturities range from August 27, 1996 to January 31,
1999.
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.
Historically WRIT has acquired 100% ownership in property. However, in 1995
WRIT formed a subsidiary partnership, WRIT Limited Partnership, in which WRIT
currently owns 99.9% of the partnership interest. As of June 30, 1996, WRIT
Limited Partnership has acquired five properties for cash contributed by WRIT.
WRIT intends to use WRIT Limited Partnership to offer property owners an
opportunity to contribute properties in exchange for WRIT Limited Partnership
units. Such a transaction will enable property owners to diversify their
holdings and to obtain a tax deferred contribution for WRIT Limited Partnership
units rather than make a taxable cash sale. To date, no such transactions have
occurred. WRIT believes that WRIT Limited Partnership will provide WRIT an
opportunity to acquire real estate assets which might not otherwise have been
offered to it.
S-9
BUSINESS AND PROPERTIES
GREATER WASHINGTON-BALTIMORE REAL ESTATE MARKET
The Trust has purchased real estate primarily in the greater
Washington-Baltimore region because of management's familiarity with the region,
its expected growth and proven stability. The greater Washington-Baltimore
region is the nation's fourth largest with a population exceeding 6.9 million.
This regional real estate market continues to be one of the strongest in the
country. The region is ranked first in U.S. median household income and
percentage of population with education at the undergraduate and postgraduate
level.
Total non-farm employment in the Washington area has grown 88% from 1.6
million jobs in 1970, to 3.1 million jobs in 1995, while the percentage of
Federal Government employment in the region has decreased from 38.3% to 15.6%.
Since January 1980, seasonally-adjusted unemployment in the Washington area has
averaged 4.1% with December 1995 unemployment at 3.6%.
The Washington-Baltimore region is a leader in the rapidly growing
technology/infocom and biotech/health care industries. It is the center of the
U.S. space commerce/satellite industry with Comsat, GTE Spacenet, Intelsat and
NASA all located there. The region has the nation's second highest concentration
of technology companies and the third highest concentration of biotech
companies.
This region is also the headquarters for several of the largest U.S. and
international financial institutions including the World Bank, International
Monetary Fund, Inter-American Development Bank, Export-Import Bank, Federal
National Mortgage Association (FNMA), Federal Home Loan Mortgage Corp. (Freddie
Mac) and the Student Loan Marketing Association (Sallie Mae).
The Greater Washington-Baltimore regional economy is principally service
industry oriented and, particularly in the case of the Greater Washington area,
is driven by the presence of the Federal Government. There has been, and
management expects there will continue to be, a shrinking in the size of the
Federal Government as evidenced by, among other things, a decrease in direct
Federal Government employment. However, management believes Federal spending
cuts nationally have caused Federal contractors to move closer to their Federal
clients in order to retain business. As a result, while Federal spending
decreased nationally, it has become more concentrated and increased in the
Washington area. Total Federal procurement (outsourcing) decreased 5% nationally
from 1991 to 1994, but increased in the Washington area by over 23% during this
same period. Despite a decrease of 1.7% in Federal procurement in 1994,
Washington area Federal procurement grew 11%. In 1995, Washington area Federal
procurement grew at 9.2%, about double the national rate. While the Federal
Government workforce reductions to date have not resulted in any major negative
impact on the business of the Trust, no assurance can be given as to the effect
on the Trust of further cutbacks in Federal spending or employment.
GENERAL OPERATING PRACTICES
The Trust is an equity real estate investment trust investing in
income-producing properties throughout the greater Washington-Baltimore region.
The Trust owns a diversified portfolio of 44 properties consisting of 16 office
buildings, 12 shopping centers, 6 high-rise apartment buildings and 10
industrial distribution centers. The Trust has a fundamental strategy of
regional focus, diversified property type ownership and conservative financial
management.
Property Type Diversification. In order to avoid the greater risks of
speculative development, the Trust generally buys existing income-producing
properties. The Trust seeks to invest in properties with different supply-demand
cycles and growth periods, which helps to ensure a lack of dependence on any
given sector. For the six months ended June 30, 1996, for example, the Trust's
real estate revenue was generated as follows according to property group: office
buildings 43%, shopping centers 25%, apartment buildings 21% and industrial
distribution centers 11%. As of June 30, 1996, no single property accounted for
more than 10% of total assets or more than 10% of total revenues.
S-10
The following tables set forth the real estate rental revenues and the
percent leased for each of the Trust's property types for the periods shown:
REAL ESTATE RENTAL REVENUE
------------------------------
1995 1994 1993
---- ---- ----
Office buildings................................................. 41% 39% 34%
Apartment buildings.............................................. 22% 25% 27%
Shopping centers................................................. 26% 26% 29%
Industrial distribution centers.................................. 11% 10% 10%
--- --- ---
100% 100% 100%
PERCENT LEASED BY PROPERTY TYPE
[The Prospectus Supplement sets forth a graph plotting the following sets of
data points, with each of the four sets of data points set forth as a separate
and distinctly identified line. The percentage occupancy is shown on the
vertical axis and the year is shown on the horizontal axis.]
Shopping Centers Industrial Distribution Centers
year occupancy year occupancy
1980 98% 1980 100%
1981 99 1981 98
1982 98 1982 100
1983 98 1983 100
1984 96 1984 98
1985 99 1985 97
1986 94 1986 96
1987 95 1987 96
1988 94 1988 96
1989 97 1989 99
1990 98 1990 98
1991 95 1991 98
1992 97 1992 93
1993 97 1993 89
1994 97 1994 94
1995 94 1995 97
Office Buildings Apartment Buildings
year occupancy year occupancy
1980 99% 1980 93%
1981 97 1981 97
1982 92 1982 94
1983 97 1983 95
1984 94 1984 96
1985 90 1985 95
1986 83 1986 95
1987 87 1987 94
1988 94 1988 95
1989 92 1989 95
1990 86 1990 94
1991 87 1991 94
1992 89 1992 94
1993 95 1993 95
1994 93 1994 97
1995 89 1995 96
Tenant Diversification. The Trust also seeks to maintain a diversified
tenant base in its commercial properties in order to minimize the influence of
any one tenant on the Trust's revenues. As of June 30, 1996, WRIT's commercial
tenant base was diversified among approximately 800 tenants, with the average
tenant occupying less than approximately 4,700 square feet and no single lease
accounting for more than 1.9% of the Trust's annual revenues. As of the same
date, annual rents attributable to all Federal Government tenants totaled
approximately 3.7% of the Trust's annual revenues.
WRIT's ten largest commercial tenants in order of annual rental revenues
are: Federal Government (various agencies), Crestar Bank, OAO Corporation,
District of Columbia Metropolitan Police Department, TRW, Inc., NationsBank, TJ
Maxx, Pepsi Cola, CVS, and Lockheed Martin Corporation.
Commercial Leasing Policy. WRIT has focused its leasing efforts toward the
private sector smaller space user and toward shorter lease terms. This policy,
consistent with the Trust's local, hands-on strategic approach to real estate,
enables WRIT to use its first-hand knowledge of the greater Washington-Baltimore
region to seek to maximize periodic rental rate increases in its commercial
property portfolio. In 1996, 218 commercial leases are scheduled to expire,
representing approximately 716,000 square feet. During the six months ended June
30, 1996, WRIT entered into 168 commercial leases for approximately 549,000
square feet.
S-11
[The Prospectus Supplement sets forth a map of the Washington, D.C.
metropolitan area showing the location of each of the Trust's 44 properties and
indicating the type of property (shopping center, industrial distribution
center, apartment building or office building). It also includes a list of
properties, substantially similar to the list set forth on page S-13 of the
Prospectus Supplement, with each property on the list keyed to its location on
the map.]
S-12
INVESTMENTS OF THE TRUST
The following table lists the Trust's 44 properties as of June 30, 1996.
Net square footage does not include garage or surface parking. The percentage
leased is the percentage of net rentable space leased for which fully executed
leases exist and may include signed leases for space not yet occupied by the
tenants.
CAPITAL
NET IMPROVEMENTS
YEAR SQUARE PERCENT ACQUISITION SINCE TOTAL
REAL ESTATE INVESTMENTS ACQUIRED FEET LEASED COST ACQUISITION INVESTMENT
- ------------------------------------- -------- --------- ------- ------------ ------------ ------------
SHOPPING CENTERS
Concord Centre....................... 1973 76,383 81% $ 1,263,000 $ 2,644,067 $ 3,907,067
Bradlee Shopping Center.............. 1984 167,974 98 9,580,000 3,529,538 13,109,538
Clairmont Shopping Center............ 1976 40,455 68 1,046,000 641,357 1,687,357
Dover Mart Shopping Center........... 1973 44,044 77 707,000 691,053 1,398,053
Chevy Chase Metro Plaza.............. 1985 50,663 98 5,854,000 2,854,518 8,708,518
Prince William Plaza................. 1968 54,584 96 992,000 579,027 1,571,027
Takoma Park Shopping Center.......... 1963 58,811 100 1,500,000 856 1,500,856
Westminster Shopping Center.......... 1972 165,774 92 2,442,000 1,748,763 4,190,763
Wheaton Park Shopping Center......... 1977 46,716 98 1,480,000 808,440 2,288,440
Montgomery Village Center............ 1992 196,063 74 20,730,000 518,061 21,248,061
The Shoppes of Foxchase.............. 1994 126,901 99 8,818,000 778,899 9,596,899
Frederick County Square.............. 1995 232,783 87 13,417,139 18,775 13,435,914
--------- ------- ------------ ------------ ------------
Sub-Total................... 1,261,151 89% $ 67,827,139 $14,813,354 $ 82,642,493
--------- ------- ------------ ------------ ------------
OFFICE BUILDINGS
The WRIT Building.................... 1979 65,653 95% $ 1,912,000 $ 3,010,626 $ 4,922,626
1901 Pennsylvania Avenue............. 1977 96,450 80 4,373,000 4,920,441 9,293,441
One Metro Square..................... 1979 206,296 85 11,709,000 5,944,241 17,653,241
444 North Frederick Avenue........... 1989 65,463 82 4,630,000 1,241,045 5,871,045
7700 Leesburg Pike................... 1990 121,819 99 7,670,000 2,642,893 10,312,893
Arlington Financial Center........... 1992 51,082 100 6,293,000 152,446 6,445,446
515 King Street...................... 1992 77,986 94 8,034,000 713,529 8,747,529
The Lexington Building............... 1993 47,579 84 2,442,000 286,252 2,728,252
The Saratoga Building................ 1993 59,237 97 3,018,000 604,603 3,622,603
Brandywine Center.................... 1993 34,982 84 1,454,000 104,000 1,665,540
Tycon II............................. 1994 138,361 97 10,505,000 820,645 11,325,645
Tycon III............................ 1994 151,922 95 11,049,000 695,827 11,744,827
6110 Executive Boulevard............. 1995 198,553 93 16,409,000 1,386,149 17,795,149
1220 19th Street..................... 1995 103,860 95 19,165,817 55,511 19,221,328
Maryland Trade Center I.............. 1996 190,620 100 16,076,723 1,792 16,078,515
Maryland Trade Center II............. 1996 159,193 98 12,312,839 3,744 12,316,583
--------- ------- ------------ ------------ ------------
Sub-Total................... 1,769,056 93% $137,053,380 $22,583,743 $159,744,663
--------- ------- ------------ ------------ ------------
APARTMENT BUILDINGS/UNITS (1)
Country Club Towers/227.............. 1969 276,000 95% $ 2,861,000 $ 2,387,738 $ 5,248,738
Munson Hill Towers/279 (2)........... 1970 340,000 95 3,337,000 3,715,621 7,052,621
Park Adams/200....................... 1969 210,000 96 1,940,000 2,416,960 4,356,960
Roosevelt Towers/191................. 1965 229,000 94 2,332,000 1,678,403 4,010,403
3801 Connecticut Avenue/307.......... 1963 242,000 94 3,098,000 3,785,789 6,883,789
Walker House Apartments/196.......... 1996 148,000 97 10,796,773 31,996 10,828,769
--------- ------- ------------ ------------ ------------
Sub-Total................... 1,445,000 95% $ 24,364,773 $14,016,507 $ 38,381,280
--------- ------- ------------ ------------ ------------
INDUSTRIAL DISTRIBUTION CENTERS
Pepsi-Cola Distribution Center....... 1987 68,750 100% $ 2,552,000 $ 1,559,598 $ 4,111,598
Capital Freeway Center............... 1974 145,000 100 1,505,000 2,624,006 4,129,006
Department of Commerce............... 1971 105,000 100 1,356,000 1,292,907 2,648,907
Fullerton Business Center............ 1985 103,339 100 4,267,000 725,921 4,992,921
Ravensworth Center................... 1986 29,000 79 1,451,000 345,449 1,796,449
Shirley I-395 Business Center........ 1961 112,585 100 1,917,000 1,101,877 3,018,877
V Street Distribution Center......... 1973 30,753 100 443,000 162,461 605,461
Charleston Business Center........... 1993 85,306 95 4,136,000 130,064 4,266,064
Tech 100 Industrial Park............. 1995 167,267 98 6,832,000 48,151 6,880,151
Crossroads Distribution Center....... 1995 84,550 100 2,839,998 11,363 2,851,361
--------- ------- ------------ ------------ ------------
Sub-Total................... 931,550 98% $ 27,298,998 $ 8,001,797 $ 35,300,795
--------- ------- ------------ ------------ ------------
TOTAL................................ 5,406,757 $256,546,290 $59,415,401 $316,069,231
========= ============= ============ =============
- ---------------
(1) Apartment buildings are presented in gross square feet.
(2) 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.
S-13
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations,
such as the Comprehensive Environmental Response Compensation and Liability Act
or "CERCLA," and common law, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in such property as well as certain other costs, including governmental fines
and injuries to persons and property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. The presence of such
substances, or the failure to remediate such substances properly, may adversely
affect the owner's or operator's ability to sell or rent such property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic substances may also be liable for the costs
of removal or remediation of such substances at a disposal or treatment
facility, whether or not such facility is owned or operated by such person.
Certain environmental laws, including the Clean Air Act and the Occupational
Safety and Health Act, may impose liability for the release of
asbestos-containing materials ("ACM") into the air. Also, third parties may seek
recovery from owners or operators of real property for personal injuries
associated with ACM. The potential for release of, or exposure to, asbestos from
ACMs is greater if ACMs are damaged and "friable." Friable ACMs are generally
any ACMs that can be crumbled, pulverized or reduced to powder by hand pressure.
The Trust has obtained asbestos inspections at the 29 properties which were
constructed before 1981 or which have not been subject to significant
construction or renovation within approximately the past year. These inspections
have revealed the existence of nonfriable and friable ACMs and presumed ACMs at
a number of properties. A release of asbestos could occur if ACMs at these
properties are not properly maintained or are inadvertently disturbed. The Trust
has initiated an operations and maintenance program to manage, and, where
appropriate, remove, ACMs. The Trust believes that the implementation of this
program will not constitute a material expenditure to the Trust, and that even
if a release of asbestos did occur it would not have a material adverse effect
on the Trust or its financial position, results of operations or liquidity.
S-14
MANAGEMENT
TRUSTEES
The following persons serve as the Trustees of the Trust.
Mr. Arthur A. Birney, age 68, a founding Trustee and Chairman of the
Trustees, is Managing Partner and Chief Executive Officer of Washington Brick &
Terra Cotta Co., a real estate investment and holding company founded in 1892,
President of Port Annapolis Marina, Inc. and Managing Partner of Queenstown
Harbor Golf Links L.P.
Mr. Edmund B. Cronin, Jr., age 59, the Trust's President and Chief
Executive Officer, has 35 years of real estate investment, development,
operations and finance experience in the Washington, D.C. metropolitan market.
From 1977 to 1993, he served as Chairman and Chief Executive Officer of Smithy
Braedon Company, a full service commercial real estate firm providing leasing,
sales, asset management, finance, consulting, advisory and development services.
From 1993 until joining the Trust in June 1994, Mr. Cronin was Chief Executive
Officer of H.G. Smithy Company, a real estate management and advisory service
company whose debt and equity assets under management total approximately $1.5
billion.
Mr. David M. Osnos, age 64, is a partner of Arent Fox Kintner Plotkin &
Kahn, the Trust's legal counsel. He is a director of VSE Corporation, an
engineering firm, and East Group Properties, a real estate investment trust.
Mr. William N. Cafritz, age 70, is President of William Cafritz Development
Corp., a real estate development firm.
Mr. Benjamin H. Dorsey, age 72, retired as General Counsel of the Trust as
of December 31, 1995. Mr. Dorsey had served as Secretary and General Counsel of
the Trust since 1960. Mr. Dorsey continues to serve as Secretary and as a
Trustee.
Mr. B. Franklin Kahn, age 71, retired as Chairman of the Trustees and Chief
Executive Officer of the Trust effective March 9, 1995, a position he had held
since 1960. Mr. Kahn continues to serve as a Trustee.
Mr. Stanley P. Snyder, age 61, is Chairman of Snyder, Kamerow & Associates,
P.C., an accounting firm.
OTHER EXECUTIVE OFFICERS
The following persons are the other executive officers of the Trust.
Ms. Mary Beth Avedesian, age 35, joined the Trust as Vice
President -- Investments in March 1995. Ms. Avedesian was an Assistant Vice
President for Towle Financial Services from 1993-1995, where she performed
acquisition due diligence and asset management. Before Towle, Ms. Avedesian was
employed for 2 years as an Assistant Manager and Marketing Manager for AMRESCO,
a subsidiary of NationsBank formed to dispose of bank-owned property; and for 4
years with Himmel and Company as a Financial Analyst and Development
Coordinator.
Mr. Larry E. Finger, age 42, an attorney and CPA, joined the Trust as Vice
President and Chief Financial Officer in December 1993 and was elected Senior
Vice President and Chief Financial Officer in June 1995. Prior to joining the
Trust, Mr. Finger served as Chief Operating Officer of Savage/Fogarty Companies,
Inc., a real estate investment, management and development company based in
Alexandria, Virginia. Mr. Finger was employed by Savage/Fogarty for 13 years,
from 1978-1991. During 1992 and until he joined the Trust, Mr. Finger created
and operated a multi-restaurant delivery business in Richmond, Virginia.
Mr. Brian J. Fitzgerald, age 34, joined the Trust in January of 1996 as
Vice President and Division Manager of Leasing. Prior to coming to the Trust,
Mr. Fitzgerald served as a commercial leasing broker from 1984 to 1993 with
Smithy Braedon Company, in Northern Virginia. In 1993, he became a Vice
President of H.G. Smithy Company, with responsibilities for managing all agency
leasing activities. From the date of the merger of H.G. Smithy Commercial
Management Group with Cushman & Wakefield of Washington, D.C.,
S-15
Inc. in June 1994 until joining the Trust, Mr. Fitzgerald managed institutional
agency leasing activities at Cushman & Wakefield, Inc. of Washington, D.C.
Ms. Laura M. Franklin, age 35, a CPA, joined the Trust as Assistant Vice
President -- Finance in 1993 and was elected Vice President and Chief Accounting
Officer in June 1995. Prior to joining the Trust, Ms. Franklin spent over 10
years with the public accounting firm of Reznick, Fedder and Silverman, P.C.
specializing in auditing and tax for real estate clients.
Ms. Sandra T. Hunt, age 44, joined the Trust in 1983 and has held the
position of Vice President -- Leasing since 1984.
Mr. Thomas L. Regnell, age 39, joined the Trust as Vice
President -- Acquisitions in January of 1995. From 1992 through 1994, Mr.
Regnell served as an Investment Officer with Federal Realty Investment Trust in
Bethesda, Maryland. Mr. Regnell was responsible for Federal Realty's real estate
acquisitions in the Midwest and Southeast United States. Prior to joining
Federal Realty, Mr. Regnell was a Vice President with Spaulding & Slye Company,
a real estate development, brokerage and management company in Bethesda,
Maryland. Mr. Regnell was associated with Spaulding & Slye for seven years.
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the "Securities")
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of Securities set forth in the Prospectus,
to which description reference is hereby made. The following statements relating
to the Notes and the Indenture between the Trust and The First National Bank of
Chicago (the "Indenture Trustee"), dated as of August 1, 1996 (the "Indenture"),
are summaries of provisions contained therein and do not purport to be complete.
Such statements are qualified by reference to the provisions of the Indenture,
including the definitions therein of certain terms. (Capitalized terms not
otherwise defined herein shall have the meanings given to them in the
Prospectus.)
GENERAL
The 2003 Notes and the 2006 Notes constitute separate series of securities,
each to be issued under the Indenture, and will be limited to aggregate
principal amounts of $ and $ , respectively. The 2003 Notes will
mature on August , 2003, and the 2006 Notes will mature on August , 2006
(each, a "Maturity Date"). The Notes are not subject to any sinking fund
provisions. The Notes will only be issued in fully registered book-entry form
without coupons in denominations of $1,000 and integral multiples thereof,
except under the limited circumstances described below under "Book-Entry
System."
The Notes will be direct obligations of the Trust and will rank equally
with each other and with all other unsecured and unsubordinated indebtedness of
the Trust. The Notes will be effectively subordinated to the prior claims of
each secured mortgage lender to any specific property of the Trust which secures
such lender's loan. As of June 30, 1996, such mortgage loans aggregated
approximately $7,649,000. Subject to certain limitations set forth in the
Indenture and as described under "Description of Securities -- Certain
Covenants" and "-- Merger, Consolidation or Sale" in the accompanying
Prospectus, the Indenture will permit the Trust to incur additional secured and
unsecured indebtedness.
Reference is made to the section entitled "Description of
Securities -- Certain Covenants" in the accompanying Prospectus for a
description of the covenants applicable to the Notes. Compliance with such
covenants generally may not be waived by the Indenture Trustee unless the
Holders of at least a majority in principal amount of all outstanding Notes
consent to such waiver; provided, however, that the defeasance and covenant
defeasance provisions in the Indenture described under "Description of
Securities -- Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus will apply to the Notes.
Except as described under "Description of Securities -- Certain
Covenants -- Limitations on Incurrence of Debt" and under "Description of
Securities -- Merger, Consolidation or Sale" in the accompanying
S-16
Prospectus, the Indenture does not contain any other provisions that would limit
the ability of the Trust to incur indebtedness or that would afford Holders of
the Notes protection in the event of (i) a highly leveraged or similar
transaction involving the Trust or (ii) a reorganization, restructuring, merger
or similar transaction involving the Trust that may adversely affect the Holders
of the Notes. In addition, subject to the limitations set forth under
"Description of Securities -- Certain Covenants" and "-- Merger, Consolidation
or Sale" in the accompanying Prospectus, the Trust may, in the future, enter
into certain transactions such as the sale of all or substantially all of its
assets or the merger or consolidation of the Trust with another entity that
would increase the amount of the Trust's indebtedness or substantially reduce or
eliminate the Trust's assets, which may have an adverse effect on the Trust's
ability to service its indebtedness, including the Notes. The Trust has no
present intention of engaging in a highly leveraged or similar transaction
involving the Trust.
PRINCIPAL AND INTEREST
The Notes will bear interest at the respective rates set forth on the cover
page of this Prospectus Supplement from August , 1996, or the most recent
Interest Payment Date (as defined below) to which interest has been paid or
provided for, payable semi-annually in arrears on each February and August ,
commencing February , 1997 (each, an "Interest Payment Date"), and on the
applicable Maturity Date to the persons (the "Holders") in whose names the
applicable Notes are registered in the securities register applicable to the
Notes at the close of business 15 calendar days prior to such payment date
regardless of whether such day is a Business Day, as defined below (each, a
"Regular Record Date"). Interest on the Notes will be computed on the basis of a
360-day year of twelve 30-day months.
The principal of each Note payable on the applicable Maturity Date will be
paid against presentation and surrender of such Note at the corporate trust
office of the Indenture Trustee, located initially at c/o First Chicago Trust
Company of New York, 14 Wall Street, Eighth Floor -- Window 2, New York, New
York, in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
If any Interest Payment Date or a Maturity Date falls on a day that is not
a Business Day, the required payment shall be made on the next Business Day as
if it were made on the date such payment was due and no interest shall accrue on
the amount so payable for the period from and after such Interest Payment Date
or such Maturity Date, as the case may be. "Business Day" means any day, other
than a Saturday or Sunday, that is neither a legal holiday nor a day on which
banking institutions in the City of New York are authorized or required by law,
regulation or executive order to close.
OPTIONAL REDEMPTION
The Notes may be redeemed at any time after August , 200 , at the option
of the Trust, in whole or from time to time in part, at a redemption price equal
to the sum of (i) the principal amount of the Notes being redeemed plus accrued
interest thereon to the redemption date and (ii) the Make-Whole Amount (as
defined below), if any, with respect to such Notes (the "Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes called for redemption shall have been made available on
the redemption date referred to in such notice, such Notes will cease to bear
interest on the date fixed for such redemption specified in such notice and the
only right of the Holders from and after the redemption date will be to receive
payment of the Redemption Price upon surrender of such Notes in accordance with
such notice.
Notice of any optional redemption of any Notes will be given to Holders at
their addresses, as shown in the security register for the Notes, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Notes held by such Holder to be redeemed.
If less than all the Notes are to be redeemed at the option of the Trust,
the Trust will notify the Indenture Trustee at least 45 days prior to giving
notice of redemption (or such shorter period as is satisfactory to the Indenture
Trustee) of the aggregate principal amount of Notes to be redeemed and their
redemption date.
S-17
The Indenture Trustee shall select, in such manner as it shall deem fair and
appropriate, Notes to be redeemed in whole or in part.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption
of any Note, the excess, if any, of (i) the aggregate present value as of
the date of such redemption of each dollar of principal being redeemed and
the amount of interest (exclusive of interest accrued to the date of
redemption) that would have been payable in respect of each such dollar if
such redemption had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given) from the respective dates on which such principal and
interest would have been payable if such redemption had not been made, over
(ii) the aggregate principal amount of the Notes being redeemed.
"Reinvestment Rate" means % plus the arithmetic mean of the
yields under the respective heading "Week Ending" published in the most
recent Statistical Release under the caption "Treasury Constant Maturities"
for the maturity (rounded to the nearest month) corresponding to the
remaining life to maturity, as of the payment date of the principal being
redeemed. If no maturity exactly corresponds to such maturity, yields for
the two published maturities most closely corresponding to such maturity
shall be calculated pursuant to the immediately preceding sentence and the
Reinvestment Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding in each of such relevant periods to the
nearest month. For the purposes of calculating the Reinvestment Rate, the
most recent Statistical Release published prior to the date of
determination of the Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which establishes yields on actively traded
United States government securities adjusted to constant maturities, or, if
such statistical release is not published at the time of any determination
under the Indenture, then such other reasonably comparable index which
shall be designated by the Trust.
BOOK-ENTRY SYSTEM
The following are summaries of certain rules and operating procedures of
DTC that affect the payment of principal and interest and transfers of interests
in the Global Securities. Upon issuance, each series of Notes will only be
issued in the form of a Global Security which will be deposited with, or on
behalf of, DTC and will be registered in the name of Cede & Co., as nominee of
DTC. Unless and until it is exchanged in whole or in part for Notes in
definitive form under the limited circumstances described below, a Global
Security may not be transferred except as a whole (i) by DTC to a nominee of
DTC, (ii) by a nominee of DTC to DTC or another nominee of DTC or (iii) by DTC
or any such nominee to a successor of DTC or a nominee of such successor.
Ownership of beneficial interests in a Global Security will be limited to
persons that have accounts with DTC for such Global Security ("participants") or
persons that may hold interests through participants. Upon the issuance of a
Global Security, DTC will credit, on its book-entry registration and transfer
system, the participants' accounts with the respective principal amounts of the
Notes represented by such Global Security beneficially owned by such
participants. Ownership of beneficial interests in Global Securities will be
shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such laws may limit or impair the ability to own, transfer or pledge
beneficial interests in the Global Securities.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Notes represented by such Global Security for all purposes under
the Indenture. Except as set forth below, owners of beneficial interests in a
Global Security
S-18
will not be entitled to have Notes represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of such Notes in certificated form and will not be considered the
registered owners or Holders of any Notes under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Security must rely on the
procedures of DTC and, if such person is not a participant, on the procedures of
the participant through which such person owns its interest, to exercise any
rights of a Holder under the Indenture. The Trust understands that under
existing industry practices, if the Trust requests any action of Holders or if
an owner of a beneficial interest in a Global Security desires to give or take
any action that a Holder is entitled to give or take under the Indenture, DTC
would authorize the participants holding the relevant beneficial interests to
give or take such action, and such participants would authorize beneficial
owners owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners holding through them.
Principal and interest payments on interests represented by a Global
Security will be made to DTC or its nominee, as the case may be, as the
registered owner of such Global Security. None of the Trust, the Indenture
Trustee or any other agent of the Trust or agent of the Indenture Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership of interests in the Global
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Trust expects that DTC, upon receipt of any payment of principal or
interest in respect of a Global Security, will immediately credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in such Global Security as shown on the records of DTC. The Trust also
expects that payments by participants to owners of beneficial interests in the
Global Securities held through such participants will be governed by standing
customer instructions and customary practice, as is now the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participants.
If DTC is at any time unwilling or unable to continue a depository for the
Notes and the Trust fails to appoint a successor depository registered as a
clearing agency under the Exchange Act within 90 days, the Trust will issue the
Notes in definitive form in exchange for the respective Global Securities. Any
Notes issued in definitive form in exchange for the Global Securities will be
registered in such name or names, and will be issued in denominations of $1,000
and such integral multiples thereof, as DTC shall instruct the Indenture
Trustee. It is expected that such instructions will be based upon directions
received by DTC from participants with respect to ownership of beneficial
interests in the Global Securities.
The following is based on information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC holds
securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers
(including the Underwriters), banks, trust companies, clearing
corporations, and certain other organizations ("Direct Participants"). DTC
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers and banks and
trust companies that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly. The rules
applicable to DTC and its Participants are on file with the Securities and
Exchange Commission.
S-19
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest in respect of the Notes
will be made by the Trust in immediately available funds, so long as DTC
continues to make its Same-Day Funds Settlement System available to the Trust.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until the
Notes are issued in certificated form, and secondary market trading activity in
the Notes will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Notes.
UNDERWRITING
Subject to the terms and conditions contained in the terms agreement and
the related underwriting agreement (together, the "Underwriting Agreement"), the
Trust has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Alex. Brown & Sons Incorporated are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Trust, the respective principal amount of the Notes set forth opposite their
names below.
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF 2003 NOTES OF 2006 NOTES
---------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
Alex. Brown & Sons Incorporated...............................
------------ ------------
Total............................................ $ $
============ ============
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters will be obligated to purchase all of the Notes if any are
purchased.
The Underwriters have advised the Trust that the Underwriters propose
initially to offer each series of Notes to the public at the public offering
price set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of % (in the case of
the 2003 Notes) and % (in the case of the 2006 Notes) of the principal amount
thereof. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of % of the principal amount thereof on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
Each series of Notes is a new issue of securities with no established
trading market. The Trust does not intend to apply for listing of the Notes on a
national securities exchange. The Trust has been advised by the Underwriters
that the Underwriters intend to make a market in the Notes as permitted by
applicable laws and regulations, but the Underwriters are not obligated to do so
and may discontinue market-making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the Notes.
The Trust has agreed to indemnify the Underwriters against civil
liabilities, including certain liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
The Representatives from time to time provide investment banking and
financial advisory services to the Trust. The Representatives also acted as
representatives of various underwriters in connection with the public offering
of the Trust's shares of beneficial interest in 1995.
S-20
[WRIT LOGO]
PROSPECTUS
$100,000,000
WASHINGTON REAL ESTATE INVESTMENT TRUST
DEBT SECURITIES
------------------------
Washington Real Estate Investment Trust ("WRIT" or the "Trust") may from
time to time offer, in one or more series, unsecured debt securities with an
aggregate public offering price of up to $100,000,000 (or its equivalent in
another currency based on the exchange rate at the time of sale) in amounts, at
prices and on terms to be determined at the time of offering (the "Securities").
The Securities may be offered in separate series in amounts, at prices and on
terms to be set forth in one or more supplements to this Prospectus (each a
"Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: the specific title, aggregate principal amount,
currency, form (which may be registered or bearer, or certificated or global),
authorized denominations, maturity, rate (or manner of calculation thereof) and
time of payment of interest, terms for redemption at the option of the Trust or
repayment at the option of the holder, terms for sinking fund payments,
covenants and any initial public offering price.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Trust or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of the Securities, their names, and
any applicable purchase price, fee, commission or discount arrangement between
or among them, will be set forth, or will be calculable from the information set
forth, in an accompanying Prospectus Supplement. See "Plan of Distribution." No
Securities may be sold without delivery of a Prospectus Supplement describing
the method and terms of the offering of such series of Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is July 29, 1996.
AVAILABLE INFORMATION
The Trust is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Trust can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's Regional Offices at 7 World Trade Center, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Trust's shares of beneficial interest are listed on
the American Stock Exchange, 86 Trinity Place, New York, New York 10005 and
reports, proxy statements and other information filed by the Trust can be
inspected at such Exchange.
The Trust has filed a registration statement on Form S-3 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Trust hereby incorporates by reference the following documents filed
with the Commission pursuant to the Exchange Act:
1. The Trust's Annual Report on Form 10-K for the year ended December
31, 1995.
2. The Trust's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
3. The Trust's Proxy Statement dated April 22, 1996.
4. The Trust's Current Report on Form 8-K dated May 31, 1996, as
amended by Amendment No. 1 dated July 25, 1996.
5. The Trust's Form 8-B dated July 10, 1996.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be a part
hereof from the date of filing of such document. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained in this Prospectus (in the case of a
statement in a previously-filed document incorporated or deemed to be
incorporated by reference herein), in any accompanying Prospectus Supplement
relating to a specific offering of Securities or in any other subsequently filed
document that is also incorporated or deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or any accompanying Prospectus Supplement.
Subject to the foregoing, all information appearing in this Prospectus and each
accompanying Prospectus Supplement is qualified in its entirety by the
information appearing in the documents incorporated by reference.
The Trust will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon their written or oral request, a copy of any or
all of the documents incorporated herein by reference (other than exhibits to
such documents). Written requests for such copies should be addressed to Larry
E. Finger, Washington Real Estate Investment Trust, 10400 Connecticut Avenue,
Kensington, Maryland 20895, telephone (301) 929-5900 or (800) 565-9748.
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION........................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................. 2
THE TRUST....................................................................... 3
USE OF PROCEEDS................................................................. 3
RATIOS OF EARNINGS TO FIXED CHARGES............................................. 3
DESCRIPTION OF SECURITIES....................................................... 4
PLAN OF DISTRIBUTION............................................................ 15
LEGAL OPINIONS.................................................................. 15
EXPERTS......................................................................... 15
2
THE TRUST
The Trust is an equity real estate investment trust investing in income
producing properties principally in the greater Washington-Baltimore region. The
Trust owns a diversified portfolio of 44 properties consisting of 16 office
buildings, 12 shopping centers, 6 high-rise apartment buildings and 10
industrial distribution properties.
WRIT's principal objective is to increase operating income by investing in
high quality real estate with strong growth potential in prime locations and
aggressively managing these properties with active leasing and capital
improvement programs. The percentage leased at March 31, 1996 for the Trust's
properties was 90% for office buildings, 90% for shopping centers, 95% for
apartment buildings and 96% for industrial distribution properties.
Total debt (all medium term) on March 31, 1996 was $46,700,000, which
represented approximately 9% of the market capitalization of the Trust.
WRIT's income from operations and funds from operations per share have
increased for 30 consecutive years. WRIT concentrates on increasing its funds
from operations to achieve its objective of paying increasing dividends to its
shareholders. Consecutive quarterly dividends have been paid for 34 years, and
the annual dividend paid has increased every year for the last 25 years.
The Trust has elected to be taxed as a real estate investment trust under
the Internal Revenue Code. Real estate investment trusts which meet certain
qualifications are relieved of federal income taxes on ordinary income and
capital gains distributed to shareholders.
The Trust is a Maryland business trust, successor to a trust founded in
1960. The principal offices of the Trust are located at 10400 Connecticut
Avenue, Kensington, Maryland 20895, telephone (301) 929-5900 or (800) 565-9748.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust intends to use the net proceeds from the sale of Securities for general
business purposes, including the acquisition and/or renovation, expansion or
improvement of income-producing properties or the repayment of indebtedness
drawn under the Trust's lines of credit. It is expected that properties
purchased in the future will be of the same general character as those presently
held by the Trust. Pending such uses, the net proceeds may be invested in short-
term income producing investments such as commercial paper, government
securities or money market funds that invest in government securities.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Trust's ratios of earnings to fixed
charges for the periods shown:
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ----------------------------------------------
1996 1995 1994 1993 1992 1991
- ------------ ----- ----- ------ ----- -----
11.54x 12.95x 38.65x 366.95x 45.13x 17.94x
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income from continuing
operations and fixed charges. Fixed charges consist of interest expense
(including interest costs capitalized) and the amortization of debt issuance
costs.
3
DESCRIPTION OF SECURITIES
GENERAL
The Securities will be direct unsecured obligations of the Trust and will
rank equally with all other unsecured and unsubordinated indebtedness of the
Trust. The Securities will be issued under an indenture (the "Indenture")
between the Trust and The First National Bank of Chicago, as trustee (the
"Indenture Trustee"). A form of the Indenture has been filed as an exhibit to
the Registration Statement to which this Prospectus is a part and is available
for inspection at the corporate trust office of the Indenture Trustee at 14 Wall
Street, Eighth Floor, New York, New York 10005. The Indenture will be subject to
and governed by the Trust Indenture Act of 1939, as amended (the "TIA"). The
statements made under this heading relating to the Securities and the Indenture
are summaries of the provisions thereof and do not purport to be complete and
are qualified in their entirety by reference to the Indenture and such
Securities. All Section references herein are to sections of the Indenture, and
capitalized terms used but not defined herein shall have the respective meanings
set forth in the Indenture.
TERMS
Except as set forth in any Prospectus Supplement, the Securities may be
issued without limit as to aggregate principal amount, in one or more series, in
each case as established from time to time by the Trust or as established in the
Indenture or in one or more indentures supplemental to such Indenture. All
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the Securities of such series, for issuances of additional Securities of such
series (Section 301).
The Indenture provides that there may be more than one Indenture Trustee
thereunder, each with respect to one or more series of Securities. Any Indenture
Trustee under the Indenture may resign or be removed with respect to one or more
series of Securities, and a successor Indenture Trustee may be appointed to act
with respect to such series (Section 608). In the event that two or more persons
are acting as Indenture Trustee with respect to different series of Securities,
each such Indenture Trustee shall be an Indenture Trustee of a trust under the
Indenture separate and apart from the trust administered by any other Indenture
Trustee (Section 609), and, except as otherwise indicated herein, any action
described herein to be taken by an Indenture Trustee may be taken by each such
Indenture Trustee with respect to, and only with respect to, the one or more
series of Securities for which it is Indenture Trustee under the Indenture.
The Prospectus Supplement relating to the series of Securities being
offered will contain the specific terms thereof, including:
(1) The title of such Securities;
(2) The aggregate principal amount of such Securities and any limit on
such aggregate principal amount;
(3) The percentage of the principal amount at which such Securities will
be issued and, if other than the principal amount thereof, the portion
of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or the method by which any such
portion shall be determined;
(4) The date or dates, or the method for determining such date or dates,
on which the principal of such Securities will be payable;
(5) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Securities
will bear interest, if any;
(6) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the
persons to whom such
4
interest shall be payable, and the basis upon which interest shall be
calculated if other than that of a 360-day year of twelve 30-day
months;
(7) The place or places where the principal of (and premium, if any) and
interest, if any, on such Securities will be payable, where such
Securities may be surrendered for registration of transfer or exchange
and where notices or demands to or upon the Trust in respect of such
Securities and the Indenture may be served;
(8) The period or periods within which, the price or prices at which and
the other terms and conditions upon which such Securities may be
redeemed, as a whole or in part, at the option of the Trust, if the
Trust is to have such an option;
(9) The obligation, if any, of the Trust to redeem, repay or purchase such
Securities pursuant to any sinking fund or analogous provision or at
the option of a holder thereof, and the period or periods within
which, the price or prices at which and the other terms and conditions
upon which such Securities will be redeemed, repaid or purchased, as a
whole or in part, pursuant to such obligation;
(10) If other than U.S. dollars, the currency or currencies in which such
Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(11) Whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Securities may be determined with
reference to an index, formula or other method (which index, formula
or method may, but need not be, based on a currency, currencies,
currency unit or units or composite currency or currencies) and the
manner in which such amounts shall be determined;
(12) The events of default or covenants of such Securities, to the extent
different from those described herein;
(13) Whether such Securities will be issued in certificated or book-entry
form;
(14) Whether such Securities will be in registered or bearer form and, if
in registered form, the denominations thereof if other than $1,000 and
any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(15) The applicability, if any, of the defeasance and covenant defeasance
provisions described herein, or any modification thereof;
(16) Whether and under what circumstances the Trust will pay any additional
amounts on such Securities in respect of any tax, assessment or
governmental charge and, if so, whether the Trust will have the option
to redeem such Securities in lieu of making such payment; and
(17) Any other terms of such Securities.
The Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Securities
will not contain any provisions that would limit the ability of the Trust to
incur indebtedness or that would afford holders of Securities protection in the
event of a highly leveraged or similar transaction involving the Trust or in the
event of a change of control. Reference is made to the applicable Prospectus
Supplement for information with respect to any deletions from, modifications of,
or additions to, the events of default or covenants of the Trust that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
5
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of
Securities will be payable at the corporate trust office of the Indenture
Trustee, which initially shall be c/o First Chicago Trust Company of New York,
14 Wall Street, Eighth Floor, New York, New York 10005; provided that, at the
option of the Trust, payment of interest may be made by check mailed to the
address of the person entitled thereto as it appears in the applicable register
for such Securities or by wire transfer of funds to such person at an account
maintained within the United States (Sections 301, 307 and 1002).
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a Security ("Defaulted Interest") will forthwith
cease to be payable to the holder on the applicable Regular Record Date and may
either be paid to the Person in whose name such Security is registered at the
close of business on a special record date (the "Special Record Date") for the
payment of such Defaulted Interest to be fixed by the Indenture Trustee, notice
whereof shall be given to the holder of such Security not less than 10 days
prior to such Special Record Date, or may be paid at any time in any other
lawful manner, all as more completely described in the Indenture (Section 307).
Subject to certain limitations imposed upon Securities issued in book-entry
form, the Securities of any series will be exchangeable for other Securities of
the same series and of a like aggregate principal amount and tenor of different
authorized denominations upon surrender of such Securities at the corporate
trust office of the Indenture Trustee referred to above. In addition, subject to
certain limitations imposed upon Securities issued in book-entry form, the
Securities of any series may be surrendered for registration of transfer or
exchange thereof at the corporate trust office of the Indenture Trustee. Every
Security surrendered for registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Securities, but
the Trust may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith (Section 305). If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the Indenture Trustee) initially designated by the Trust with respect to any
series of Securities, the Trust may at any time rescind the designation of any
such transfer agent or approve a change in the location through which any such
transfer agent acts, except that the Trust will be required to maintain a
transfer agent in each place of payment for such series. The Trust may at any
time designate additional transfer agents with respect to any series of
Securities (Section 1002).
Neither the Trust nor the Indenture Trustee shall be required to (i) issue,
register the transfer of or exchange Securities of any series during a period
beginning at the opening of business 15 days before any selection of Securities
of that series to be redeemed and ending at the close of business on the day of
mailing of the relevant notice of redemption; (ii) register the transfer of or
exchange any Security, or portion thereof, called for redemption, except the
unredeemed portion of any Security being redeemed in part; or (iii) issue,
register the transfer of or exchange any Security that has been surrendered for
repayment at the option of the holder, except the portion, if any, of such
Security not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Trust will be permitted to consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity provided that (a) either the Trust shall be the continuing entity, or the
successor entity (if other than the Trust) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such assets
shall expressly assume payment of the principal of (and premium, if any) and
interest on all of the Securities and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture;
(b) immediately after giving effect to such transaction and treating any
indebtedness that becomes an obligation of the Trust or any Subsidiary as a
result thereof as having been incurred by the Trust or such Subsidiary at the
time of such transaction, no Event of Default under the Indenture, and no event
which, after notice or the lapse of time, or both, would become
6
such an Event of Default, shall have occurred and be continuing; and (c) an
officer's certificate and legal opinion covering such conditions shall be
delivered to the Indenture Trustee (Sections 801 and 803).
CERTAIN COVENANTS
Limitations on Incurrence of Debt. The Indenture provides that the Trust
will not, and will not permit any Subsidiary to, incur any Debt (as defined
below) if, immediately after giving effect to the incurrence of such Debt and
the application of the proceeds thereof, the aggregate principal amount of all
outstanding Debt of the Trust and its Subsidiaries on a consolidated basis
determined in accordance with generally accepted accounting principles is
greater than 60% of the sum of (without duplication) (i) the Trust's Total
Assets as of the end of the calendar quarter covered in the Trust's Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most
recently filed with the Commission (or, if such filing is not permitted under
the Exchange Act, with the Indenture Trustee) prior to the incurrence of such
additional Debt and (ii) any increase in the Trust's Total Assets since the end
of such quarter including, without limitation, any increase in Total Assets
resulting from the incurrence of such additional Debt (such increase together
with the Trust's Total Assets being referred to as "Adjusted Total Assets")
(Section 1011).
In addition to the foregoing limitation on the incurrence of Debt, the
Indenture provides that the Trust will not, and will not permit any Subsidiary
to, incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or
security interest of any kind upon any of the property of the Trust or any
Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such additional Secured Debt and the application of the proceeds thereof, the
aggregate principal amount of all outstanding Secured Debt of the Trust and its
Subsidiaries on a consolidated basis is greater than 40% of the Trust's Adjusted
Total Assets (Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Indenture provides that the Trust will not, and will not permit any Subsidiary
to, incur any Debt if the ratio of Consolidated Income Available for Debt
Service (as defined below) to the Annual Service Charge (as defined below) for
the four consecutive fiscal quarters most recently ended prior to the date on
which such additional Debt is to be incurred shall have been less than 1.5 to
1.0, on a pro forma basis after giving effect thereto and to the application of
the proceeds therefrom, and calculated on the assumption that (i) such Debt and
any other Debt incurred by the Trust and its Subsidiaries since the first day of
such four-quarter period and the application of the proceeds therefrom,
including to refinance other Debt, had occurred at the beginning of such period;
(ii) the repayment or retirement of any other Debt by the Trust and its
Subsidiaries since the first day of such four-quarter period had been incurred,
repaid or retired at the beginning of such period (except that, in making such
computation, the amount of Debt under any revolving credit facility shall be
computed based upon the average daily balance of such Debt during such period);
(iii) in the case of Acquired Debt (as defined below) or Debt incurred in
connection with any acquisition since the first day of such four-quarter period,
the related acquisition had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation; and (iv) in the case of any acquisition or disposition by
the Trust or its Subsidiaries of any asset or group of assets since the first
day of such four-quarter period, whether by merger, stock purchase or sale, or
asset purchase or sale, such acquisition or disposition or any related repayment
of Debt had occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being included in
such pro forma calculation (Section 1011).
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Trust or a
Subsidiary whenever the Trust or such Subsidiary shall create, assume, guarantee
or otherwise become liable in respect thereof.
Maintenance of Total Unencumbered Assets. The Trust is required to
maintain Total Unencumbered Assets (as defined below) of not less than 150% of
the aggregate outstanding principal amount of the Unsecured Debt (as defined
below) of the Trust (Section 1012).
7
As used herein:
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
becomes a Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Subsidiary.
"Annual Service Charge" as of any date means the maximum amount which is
payable in any period for interest on, and original issue discount of, Debt of
the Trust and its Subsidiaries.
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for corporate stock),
warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income (as defined below) of the Trust and its Subsidiaries (i)
plus amounts which have been deducted for (a) interest on Debt of the Trust and
its Subsidiaries, (b) provision for taxes of the Trust and its Subsidiaries
based on income, (c) amortization of debt discount, (d) depreciation and
amortization, (e) the effect of any noncash charge resulting from a change in
accounting principles in determining Consolidated Net Income for such period,
(f) amortization of deferred charges and (g) provision for or realized losses on
properties and (ii) less amounts which have been included for gains on
properties.
"Consolidated Net Income" for any period means the amount of consolidated
net income (or loss) of the Trust and its Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Debt" of the Trust or any Subsidiary means any indebtedness of the Trust
or any Subsidiary, whether or not contingent, in respect of (i) borrowed money
evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness
secured by any mortgage, pledge, lien, charge, encumbrance or any security
interest existing on property owned by the Trust or any Subsidiary, (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property except any such balance that
constitutes an accrued expense or trade payable, or all conditional sale
obligations or obligations under any title retention agreement, (iv) the
principal amount of all obligations of the Trust or any Subsidiary with respect
to redemption, repayment or other repurchase of any Disqualified Stock, or (v)
any lease of property by the Trust or any Subsidiary as lessee which is
reflected in the Trust's consolidated balance sheet as a capitalized lease in
accordance with generally accepted accounting principles to the extent, in the
case of items of indebtedness under (i) through (iii) above, that any such items
(other than letters of credit) would appear as a liability on the Trust's
consolidated balance sheet in accordance with generally accepted accounting
principles, and also includes, to the extent not otherwise included, any
obligation by the Trust or any Subsidiary to be liable for, or to pay, as
obligor, guarantor or otherwise (other than for purposes of collection in the
ordinary course of business), indebtedness of another person (other than the
Trust or any Subsidiary).
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (ii)
is convertible into or exchangeable or exercisable for Debt or Disqualified
Stock or (iii) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the Stated Maturity of the series of Debt
Securities.
"Encumbrance" means any mortgage, security interest, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other) or
preference, priority or other security agreement, except: (i) liens for taxes
(a) which are not yet delinquent, (b) which are not in an aggregate amount, as
to the Trust and all Subsidiaries, of greater than 10% of Total Assets or (c)
which are being contested in good faith by all appropriate proceedings, provided
that adequate reserves with respect thereto are maintained on
8
the books of the Trust or its Subsidiaries, as the case may be, in conformity
with GAAP; (ii) carriers, warehousemen's, mechanic's, materialmen's, repairmen's
or other like liens (a) which are not in an aggregate amount, as to the Trust
and all Subsidiaries, of greater than 10% of Total Assets, (b) which do not
remain unsatisfied or undischarged for a period of more than 90 days or (c)
which are being contested in good faith by all appropriate proceedings; (iii)
pledges or deposits in connection with workers compensation, unemployment
insurance and other social security legislation and deposits securing liability
to insurance carriers under insurance or self-insurance arrangements; (iv)
deposits to secure the performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; and (v) easements, rights of way, restrictions,
development orders, plats and other similar encumbrances.
"Subsidiary" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Trust or by one or more other Subsidiaries of the Trust. For
the purposes of this definition, "voting stock" means stock having voting power
for the election of directors, or trustees, as the case may be, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Total Assets" as of any date means the sum of (i) the Undepreciated Real
Estate Assets and (ii) all other assets of the Trust and its Subsidiaries
determined in accordance with generally accepted accounting principles (but
excluding accounts receivable and intangibles).
"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an Encumbrance and (ii) all other assets of the
Trust and its Subsidiaries not subject to an Encumbrance determined in
accordance with generally accepted accounting principles (but excluding accounts
receivable and intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Trust and its
Subsidiaries on such date, before depreciation and amortization, determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Unsecured Debt" means Debt of the Trust or any Subsidiary which is not
secured by any mortgage, lien, charge, pledge or security interest of any kind
upon any of the properties owned by the Trust or any of its Subsidiaries.
Existence. Except as permitted under "-- Merger, Consolidation or Sale,"
the Trust will be required to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights and franchises;
provided, however, that the Trust shall not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business (Section 1004).
Maintenance of Properties. The Trust will be required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Trust may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times (Section 1005).
Insurance. The Trust will be required to, and will be required to cause
each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, having a specified rating from a recognized insurance
rating service (Section 1006).
Payment of Taxes and Other Claims. The Trust will be required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Trust or any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a material lien upon the
property of the Trust or any Subsidiary; provided, however, that the Trust shall
not be
9
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith (Section 1007).
Provision of Financial Information. Whether or not the Trust is subject to
Section 13 or 15(d) of the Exchange Act, the Trust will be required, within 15
days of each of the respective dates by which the Trust would have been required
to file annual reports, quarterly reports and other documents with the
Commission if the Trust were so subject, to (i) transmit by mail to all holders
of Securities, as their names and addresses appear in the applicable register
for such Securities, without cost to such holders, copies of the annual reports,
quarterly reports and other documents that the Trust would have been required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if
the Trust were subject to such sections, (ii) file with the Indenture Trustee
copies of the annual reports, quarterly reports and other documents that the
Trust would have been required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act if the Trust were subject to such Sections, and
(iii) promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
holder (Section 1008).
Additional Covenants. Any additional covenants of the Trust with respect
to any series of Securities will be set forth in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Securities issued thereunder: (a) default for 30
days in the payment of any installment of interest on any Security of such
series; (b) default in the payment of principal of (or premium, if any, on) any
Security of such series at its maturity; (c) default in making any sinking fund
payment as required for any Security of such series; (d) default in the
performance or breach of any other covenant or warranty of the Trust contained
in the Indenture (other than a covenant added to the Indenture solely for the
benefit of a series of Securities issued thereunder other than such series),
continued for 60 days after written notice as provided in the Indenture; (e) a
default under any bond, debenture, note or other evidence of indebtedness for
money borrowed by the Trust (including obligations under leases required to be
capitalized on the balance sheet of the lessee under generally accepted
accounting principles but not including any indebtedness or obligations for
which recourse is limited to property purchased) in an aggregate principal
amount in excess of $5,000,000 or under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any indebtedness for money borrowed by the Trust (including such leases, but not
including such indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $5,000,000,
whether such indebtedness now exists or shall hereafter be created which default
shall have resulted in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable or such obligations being accelerated, without such acceleration having
been rescinded or annulled; (f) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Trust or any Significant Subsidiary of the Trust; and (g) any other event of
default provided with respect to a particular series of Securities (Section
501). The term "Significant Subsidiary" means each significant subsidiary (as
defined in Regulation S-X promulgated under the Securities Act) of the Trust.
If an Event of Default under the Indenture with respect to Securities of
any series at the time outstanding occurs and is continuing, then in every such
case the Indenture Trustee or the holders of not less than 25% in principal
amount of the outstanding Securities of that series will have the right to
declare the principal amount (or, if the Securities of that series are Original
Issue Discount Securities or Indexed Securities, such portion of the principal
amount as may be specified in the terms thereof) of all the Securities of that
series to be due and payable immediately by written notice thereof to the Trust
(and to the Indenture Trustee if given by the holders). However, at any time
after such a declaration of acceleration with respect to Securities of such
series (or of all Securities then outstanding under any Indenture, as the case
may be) has been made, but before a judgment or decree for payment of the money
due has been obtained by the Indenture Trustee, the holders of not less than a
majority in principal amount of outstanding Securities of such series (or of all
Securities then outstanding under the Indenture, as the case may be) may rescind
and annul such declaration and its consequences if (a) the Trust shall have
deposited with the Indenture Trustee all required payments of
10
the principal of (and premium, if any) and interest on the Securities of such
series (or of all Securities then outstanding under the Indenture, as the case
may be), plus certain fees, expenses, disbursements and advances of the
Indenture Trustee and (b) all Events of Default, other than the non-payment of
accelerated principal (or specified portion thereof), with respect to Securities
of such series (or of all Securities then outstanding under the Indenture, as
the case may be) have been cured or waived as provided in the Indenture (Section
502). The Indenture also provides that the holders of not less than a majority
in principal amount of the outstanding Securities of any series (or of all
Securities then outstanding under the Indenture, as the case may be) may waive
any past default with respect to such series and its consequences, except a
default (x) in the payment of the principal of (or premium, if any) or interest
on any Security of such series or (y) in respect of a covenant or provision
contained in the Indenture that cannot be modified or amended without the
consent of the holder of each outstanding Security affected thereby (Section
513).
The Indenture Trustee will be required to give notice to the holders of
Securities within 90 days of a default under the Indenture unless such default
shall have been cured or waived; provided, however, that such Indenture Trustee
may withhold notice to the holders of any series of Securities of any default
with respect to such series (except a default in the payment of the principal of
(or premium, if any) or interest on any Security of such series or in the
payment of any sinking fund installment in respect of any Security of such
series) if specified responsible officers of such Indenture Trustee consider
such withholding to be in the interest of such holders (Section 601).
The Indenture provides that no holders of Securities of any series may
institute any proceedings, judicial or otherwise, with respect to such Indenture
or for any remedy thereunder, except in the cases of failure of the Indenture
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an event of default from the holders of not
less than 25% in principal amount of the outstanding Securities of such series,
as well as an offer of indemnity reasonably satisfactory to it (Section 507).
This provision will not prevent, however, any holder of Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Securities at the respective due dates
thereof.
Subject to provisions in the Indenture relating to its duties in case of
default, the Indenture Trustee will not be under any obligation to exercise any
of its rights or powers under the Indenture at the request or direction of any
holders of any series of Securities then outstanding under such Indenture,
unless such holders shall have offered to the Indenture Trustee thereunder
reasonable security or indemnity (Section 602). The holders of not less than a
majority in principal amount of the outstanding Securities of any series (or of
all Securities then outstanding under the Indenture, as the case may be) shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Indenture Trustee, or of exercising any trust or
power conferred upon such Indenture Trustee. However, an Indenture Trustee may
refuse to follow any direction which is in conflict with any law or the
Indenture, which may involve the Indenture Trustee in personal liability or
which may be unduly prejudicial to the holders of Securities of such series not
joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Trust will be
required to deliver to the Indenture Trustee a certificate, signed by one of
several specified officers of the Trust, stating whether or not such officer has
knowledge of any default under the Indenture and, if so, specifying each such
default and the nature and status thereof (Section 1009).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Securities issued under the Indenture which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the holder of each such
Security affected thereby, (a) change the stated maturity of the principal of,
or any installment of interest (or premium, if any) on, any such Security; (b)
reduce the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any such Security, or reduce the amount of
principal of an Original Issue Discount Security that would be due and payable
upon declaration of acceleration of the maturity thereof or would be
11
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such Security; (c) change the place of payment, or the coin or currency,
for payment of principal of, premium, if any, or interest on any such Security;
(d) impair the right to institute suit for the enforcement of any payment on or
with respect to any such Security; (e) reduce the above-stated percentage of
outstanding Securities of any series necessary to modify or amend the Indenture,
to waive compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements set forth
in the Indenture; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the holder of such Security (Section 902).
The holders of not less than a majority in principal amount of outstanding
Securities issued under the Indenture will have the right to waive compliance by
the Trust with certain covenants in the Indenture (Section 1013).
Modifications and amendments of the Indenture will be permitted to be made
by the Trust and the Indenture Trustee thereunder without the consent of any
holder of Securities for any of the following purposes: (i) to evidence the
succession of another person to the Trust as obligor under the Indenture; (ii)
to add to the covenants of the Trust for the benefit of the holders of all or
any series of Securities or to surrender any right or power conferred upon the
Trust in the Indenture; (iii) to add events of default for the benefit of the
holders of all or any series of Securities; (iv) to add or change any provisions
of the Indenture to facilitate the issuance of, or to liberalize certain terms
of, Securities in bearer form, or to permit or facilitate the issuance of
Securities in uncertificated form, provided that such action shall not adversely
affect the interests of the holders of the Securities of any series in any
material aspect; (v) to change or eliminate any provisions of the Indenture,
provided that any such change or elimination shall become effective only when
there are no Securities outstanding of any series created prior thereto which
are entitled to the benefit of such provision; (vi) to secure the Securities;
(vii) to establish the form or terms of Securities of any series; (viii) to
provide for the acceptance of appointment by a successor Indenture Trustee or
facilitate the administration of the trusts under the Indenture by more than one
Indenture Trustee; (ix) to cure any ambiguity, defect or inconsistency in the
Indenture, provided that such action shall not adversely affect the interests of
holders of Securities of any series issued under such Indenture in any material
respect; or (x) to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and discharge of any series
of such Securities, provided that such action shall not adversely affect the
interests of the holders of the Securities of any series in any material respect
(Section 901).
The Indenture will provide that in determining whether the holders of the
requisite principal amount of outstanding Securities of a series have given any
request, demand, authorization, direction, notice, consent or waiver thereunder
or whether a quorum is present at a meeting of holders of Securities, (i) the
principal amount of an Original Issue Discount Security that shall be deemed to
be outstanding shall be the amount of the principal thereof that would be due
and payable as of the date of such determination upon declaration of
acceleration of the maturity thereof, (ii) the principal amount of any Security
denominated in a foreign currency that shall be deemed outstanding shall be the
U.S. dollar equivalent, determined on the issue date for such Security, of the
principal amount (or, in the case of Original Issue Discount Security, the U.S.
dollar equivalent on the issue date of such Security of the amount determined as
provided in (i) above), (iii) the principal amount of an Indexed Security that
shall be deemed outstanding shall be the principal face amount of such Indexed
Security at original issuance, unless otherwise provided with respect to such
indexed security pursuant to Section 301 of the Indenture, and (iv) Securities
owned by the Trust or any other obligor upon the Securities or any affiliate of
the Trust or of such other obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the holders of
Securities of a series (Section 1501). A meeting will be permitted to be called
at any time by the Indenture Trustee, and also, upon request, by the Trust or
the holders of at least 10% in principal amount of the outstanding Securities of
such series, in any such case upon notice given as provided in the Indenture
(Section 1502). Except for any consent that must be given by the holder of each
Security affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is
12
present may be adopted by the affirmative vote of the holders of a majority in
principal amount of the outstanding Securities of that series; provided,
however, that, except as referred to above, any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the holders of a specified
percentage, which is less than a majority, in principal amount of the
outstanding Securities of a series may be adopted at a meeting or adjourned
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding Securities of that series. Any resolution passed or decision
taken at any meeting of holders of Securities of any series duly held in
accordance with the Indenture will be binding on all holders of Securities of
that series. The quorum at any meeting called to adopt a resolution, and at any
reconvened meeting, will be persons holding or representing a majority in
principal amount of the outstanding Securities of a series; provided, however,
that if any action is to be taken at such meeting with respect to a consent or
waiver which may be given by the holders of not less than a specified percentage
in principal amount of the outstanding Securities of a series, the persons
holding or representing such specified percentage in principal amount of the
outstanding Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, the Indenture provides that if
any action is to be taken at a meeting of holders of Securities of any series
with respect to any request, demand, authorization, direction, notice, consent,
waiver and other action that the Indenture expressly provides may be made, given
or taken by the holders of a specified percentage in principal amount of all
outstanding Securities affected thereby, or of the holders of such series and
one or more additional series: (i) there shall be no minimum quorum requirement
for such meeting, and (ii) the principal amount of the outstanding Securities of
such series that vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into account
in determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
Indenture (Section 1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Trust may be permitted under the Indenture to discharge certain
obligations to holders of any series of Securities issued thereunder that have
not already been delivered to the Indenture Trustee for cancellation and that
either have become due and payable or will become due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the Indenture Trustee, in trust, funds in such currency in which such
Securities are payable in an amount sufficient to pay the entire indebtedness on
such Securities in respect of principal (and premium, if any) and interest to
the date of such deposit (if such Securities have become due and payable) or to
the stated maturity or redemption date, as the case may be (Section 401).
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Securities of or within any series pursuant to Section 301 of
the Indenture, the Trust may elect either (a) to defease and be discharged from
any and all obligations with respect to such Securities (except for the
obligation to pay additional amounts, if any, upon the occurrence of certain
events of tax, assessment or governmental charge with respect to payments on
such Securities and the obligations to register the transfer or exchange of such
Securities, to replace temporary or mutilated, destroyed, lost or stolen
Securities, to maintain an office or agency in respect of such Securities and to
hold moneys for payment in trust) ("defeasance") (Section 1402) or (b) to be
released from its obligations with respect to such Securities under Sections
1004 to 1008, inclusive, and Sections 1011 and 1012 under the Indenture (being
the restrictions described under "-- Certain Covenants") or, if provided
pursuant to the Indenture, its obligations with respect to any other covenant,
and any omission to comply with such obligations shall not constitute an event
of default with respect to such Securities ("covenant defeasance") (Section
1403), in either case upon the irrevocable deposit by the Trust with the
Indenture Trustee, in trust, of an amount, in such currency in which such
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor (Section 1404).
13
Such a trust will only be permitted to be established if, among other
things, the Trust has delivered to the Indenture Trustee an opinion of counsel
(as specified in the Indenture) to the effect that the holders of such
Securities will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such opinion of counsel, in the case of
defeasance, will be required to refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable United States federal income
tax law occurring after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Securities of a particular series are payable for the
payment of which its full faith and credit is pledged or (ii) obligations of a
person controlled or supervised by and acting as an agency or instrumentality of
the United States of America or the government which issued the foreign currency
in which the Securities of a particular series are payable, the payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount receiving by
the custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Trust has deposited funds and/or Government Obligations to effect defeasance
or covenant defeasance with respect to Securities of any series, (a) the holder
of a Security of such series is entitled to, and does, elect pursuant to Section
301 of the Indenture or the terms of such Security to receive payment in a
currency, currency unit or composite currency other than that in which such
deposit has been made in respect of such Security, or (b) a Conversion Event (as
defined below) occurs in respect of the currency, currency unit or composite
currency in which such deposit has been made, the indebtedness represented by
such Security shall be deemed to have been, and will be, fully discharged and
satisfied through the payment of the principal of (and premium, if any) and
interest on such Security as they become due out of the proceeds yielded by
converting the amount so deposited in respect of such Security into the
currency, currency unit or composite currency in which such Security becomes
payable as a result of such election or such cessation of usage based on the
applicable market exchange rate (Section 1405). "Conversion Event" means the
cessation of use of (i) a currency, currency unit or composite currency both by
the government of the country which issued such currency and for the settlement
of transactions by a central bank or other public institutions of or within the
international banking community, (ii) the ECU both within the European Monetary
System and for the settlement of transactions by public institutions of or
within the European Communities or (iii) any currency unit or composite currency
other than the ECU for the purposes for which it was established. Unless
otherwise provided in the applicable Prospectus Supplement, all payments of
principal of (and premium, if any) and interest on any Security that is payable
in a foreign currency that ceases to be used by its government of issuance shall
be in U.S. dollars (Section 101).
In the event the Trust effects covenant defeasance with respect to any
Securities and such Securities are declared due and payable because of the
occurrence of any event of default other than the event of default described in
clause (d) under "Events of Default, Notice and Waiver" with respect to Sections
1004 to 1008, inclusive, and Sections 1011 and 1012 of the Indenture (which
sections would no longer be applicable to such Securities) or described in
clause (g) under "Events of Default, Notice and Waiver" with respect to any
other covenant as to which there has been covenant defeasance, the amount in
such currency in which such Securities are payable, and Government Obligations
on deposit with the Indenture Trustee, will be sufficient to pay amounts due on
such Securities at the time of their stated maturity but may not be sufficient
to pay amounts due on such Securities at the time of the acceleration resulting
from such event of default. However, the Trust would remain liable to make
payment of such amounts due at the time of acceleration.
14
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Securities
of or within a particular series.
GLOBAL SECURITIES
The Securities of a series may be issued in whole or in part in the form of
one or more global securities (the "Global Securities") that will be deposited
with, or on behalf of, a depositary identified in the applicable Prospectus
Supplement relating to such series. Global Securities may be issued in either
registered or bearer form and in either temporary or permanent form. The
specific terms of the depositary arrangement with respect to a series of
Securities will be described in the applicable Prospectus Supplement relating to
such series.
PLAN OF DISTRIBUTION
The Trust may sell Securities to or through underwriters, and also may sell
Securities directly to other purchasers or through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Trust or from purchasers of Securities, for whom they may
act as agents, in the form of discounts, concessions, or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions, or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters, and any discounts or commissions
they receive from the Trust, and any profit on the resale of Securities they
realize may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from the Trust will be described, in the Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market. The
Trust may elect to list any series of Securities on an exchange, but is not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for the
Securities.
Under agreements the Trust may enter into, underwriters, dealers, and
agents who participate in the distribution of Securities may be entitled to
indemnification by the Trust against certain liabilities, including liabilities
under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Trust in the ordinary course of
business.
LEGAL OPINIONS
The legality of the Securities offered hereby is being passed upon for the
Trust by Arent Fox Kintner Plotkin & Kahn, Washington, D.C. David M. Osnos, a
trustee of the Trust, is a partner of Arent Fox Kintner Plotkin & Kahn. Andrews
& Kurth L.L.P., Washington, D.C., will act as counsel to any underwriters,
dealers or agents.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Trust's Annual Report on Form 10-K for the year ended December 31, 1995 have
been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
15
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS OF THE TRUST SINCE
THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PAGE
-----
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary........ S-3
The Trust............................ S-5
Recent Developments.................. S-5
Ratios of Earnings to Fixed
Charges............................ S-5
Use of Proceeds...................... S-6
Capitalization....................... S-6
Selected Financial Data.............. S-7
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... S-8
Business and Properties.............. S-10
Management........................... S-15
Description of the Notes............. S-16
Underwriting......................... S-20
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 2
The Trust............................ 3
Use of Proceeds...................... 3
Ratios of Earnings to Fixed
Charges............................ 3
Description of Securities............ 4
Plan of Distribution................. 15
Legal Opinions....................... 15
Experts.............................. 15
$100,000,000
[WRIT LOGO]
WASHINGTON REAL ESTATE
INVESTMENT TRUST
$ ,000,000
% SENIOR NOTES
DUE AUGUST , 2003
$ ,000,000
% SENIOR NOTES
DUE AUGUST , 2006
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
AUGUST , 1996
- ------------------------------------------------------
- ------------------------------------------------------