SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED December 31, 1996 COMMISSION FILE NO. 1-6622
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WASHINGTON REAL ESTATE INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
MARYLAND 53-0261100
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(State or other jurisdiction
of incorporation or organization) (IRS Employer Identification Number)
10400 CONNECTICUT AVENUE, KENSINGTON, MARYLAND 20895
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code (301) 929-5900
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of exchange on which registered
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Shares of Beneficial Interest American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of February 27, 1997, 31,827,844 Shares of Beneficial Interest were
outstanding and the aggregate market value of such shares held by non-affiliates
of the registrant was approximately $559,296,000 (based on the closing price of
the stock on February 27, 1997).
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the Trust's 1997
Notice of Annual Meeting and Proxy Statement.
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WASHINGTON REAL ESTATE INVESTMENT TRUST
1996 FORM 10-K ANNUAL REPORT
INDEX
PART I Page
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Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 18
Signatures 20
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PART I
ITEM 1. BUSINESS
Washington Real Estate Investment Trust ("WRIT" or the "Trust") is a
self-administered qualified equity real estate investment trust ("REIT"). The
Trust's business consists of the ownership of income-producing real estate
properties in the Mid-Atlantic Region. The Trust has a fundamental strategy of
regional focus, diversified property type ownership and conservative financial
management.
WRIT has elected to qualify as a REIT under the Internal Revenue Code ("the
Code"). Accordingly, WRIT is relieved of federal income taxes provided that
capital gains and at least 95% of its ordinary income are distributed to
shareholders in the form of dividends and that it complies with all REIT related
aspects of the Code. Over the last five years dividends paid per share have been
$1.03 for 1996, $.99 for 1995, $.92 for 1994, $.89 for 1993 and $.84 for 1992.
The indicated annualized dividend rate for 1997, based upon the March 31, 1997
dividend, is $1.04.
WRIT's geographic focus is based on two basic principles:
1. Real estate is a local business and is much more effectively selected
and managed by owners located and expert in the region.
2. Geographic markets deserving of focus must be amongst the nation's best
markets with a strong primary industry foundation, but be diversified
enough to withstand downturns in its primary industry.
WRIT considers markets to be local if they can be reached from Washington, D.C.
within two hours by car and have the demographics of a megalopolis. WRIT's ideal
geographic market reaches from Philadelphia, Pennsylvania on the north to
Richmond, Virginia on the south. While WRIT has historically focused most of its
investments in the Greater Washington-Baltimore Region, in order to maximize
acquisition opportunities, WRIT will consider investments within the two hour
radius described above.
All of WRIT's Trustees, Officers and employees live and work in the Greater
Washington-Baltimore region and WRIT's Officers average over 16 years of
experience in this region.
The Greater Washington-Baltimore region is the nation's fourth largest with a
population exceeding 6.9 million. Combining the Richmond to Philadelphia areas
with the Washington-Baltimore area, the total population is approximately 13.1
million people. The Washington-Baltimore region is ranked first in the U.S. in
median household income and percentage of population with education at the
undergraduate and postgraduate level.
While the Federal Government is the foundation of the region's economy, private
sector job growth has resulted in total non-farm employment in the Washington
area growing 53% from 1.6 million jobs in 1970, to 2.5 million jobs in 1996,
while the percentage of Federal Government employment in the region decreased
from 28.4% to 15.6%. Since January 1980, seasonally-adjusted unemployment in the
Washington area has averaged 4.1%, with December 1996 unemployment standing at
3.4%.
The Greater 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,
Lockheed-Martin and NASA all headquartered here in the region. The region has
the nation's second highest concentration of technology companies and the third
highest concentration of biotech companies.
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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 (Fannie Mae), Federal Home Loan Mortgage Corp.
(Freddie Mac) and the Student Loan Marketing Association (Sallie Mae).
Other major public companies headquartered in the region to name a few, include
Mobil Oil, MCI, USAir Group, Marriott International, McCormick Spice Co. and
Gannett Co. The region is also the second most popular tourist destination in
the world. Most importantly, this Mid-Atlantic region is known as a job center,
with solid educational opportunities, and easy access to leisure time
activities.
While this region has clearly diversified beyond the Federal Government town of
the past, the Federal Government is still the foundation of the region's
economy. Therefore, it is important to understand how Federal Government
"cutbacks" have impacted this region.
First, despite a 19% decrease in direct Federal employment from 1994 through
1996, the region's unemployment rate never rose above a seasonally adjusted 4.4%
and was at 3.4% in December 1996. This is partially due to the strength and
diversity of this local economy, and partially due to the fact that accompanying
these direct employment decreases were substantial local increases in Federal
procurement (purchases of goods and services).
While Federal procurement spending decreases nationally, it becomes more
concentrated and increases in the Greater Washington-Baltimore area because
Federal contractors move closer to their Federal clients in order to better
compete for this business. Federal procurement decreased by 5.4% nationally from
1991 to 1995, but increased in the Washington area by over 34%.
The Trust currently owns a diversified portfolio consisting of twelve shopping
centers, sixteen office buildings, seven high-rise apartment buildings and
fourteen industrial distribution centers, including Ammendale Technology Park I
and II acquired February 28, 1997. WRIT's principal objective is to invest in
high quality real estate in prime locations and to monitor closely the
management of these properties, including active leasing and ongoing capital
improvement programs. The percentage of total real estate rental revenue by
property group for 1996, 1995 and 1994 and the percent leased as of December 31,
1996 were as follows:
Real Estate Rental Revenue
Percent Leased --------------------------
December 31, 1996 1996 1995 1994
----------------- ---- ---- ----
93% Office buildings 44% 41% 39%
94% Shopping centers 23% 26% 26%
97% Apartment buildings 22% 22% 25%
98% Industrial distribution 11% 11% 10%
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100% 100% 100%
====================================
On a combined basis, WRIT's portfolio was 93% occupied in 1996 and 1995 and 95%
in 1994.
-4-
Total revenue was $65.5 million for 1996, $52.6 million for 1995, and $45.5
million for 1994. In 1994 through 1996, WRIT acquired six office buildings, two
shopping centers, two apartment buildings and four industrial distribution
centers. These acquisitions were the primary reason for the shifting of each
group's percentage of total revenue. No single tenant accounted for more than
2.39% of 1996 revenue, 2.05% of 1995 or 2.25% of 1994. Various agencies of the
U.S. Government are counted separately and include the Department of Commerce,
Immigration and Naturalization Service, U.S. Postal Service, Social Security
Administration and U.S. Patent Office. All federal government tenants in the
aggregate accounted for less than 3.50% of WRIT's 1996 total revenue. The larger
non-federal government tenants include T.J. Maxx, District of Columbia
Metropolitan Police Department, Pepsi Cola, Giant Food, Crestar Bank, CVS,
George Washington University, Lockheed-Martin, NationsBank, OAO, Montgomery
County and Prince George's County, Maryland and also the State of Maryland.
As of December 31, 1996, no single property accounted for more than 10% of total
assets or more than 10% of total revenues.
The actual day-to-day property management functions at the properties owned by
the Trust are carried out by an independent management company. WRIT closely
monitors the activities of this company to assure the highest quality of service
and cost effectiveness. No WRIT Trustee or officer is a director or officer of,
or owns any interest in the management company.
The Trust expects to continue investing in additional income producing property.
WRIT management invests only in properties which it believes will continue to
increase in income and value. WRIT's properties compete for tenants with other
properties throughout the respective areas in which they are located. All
properties compete for tenants on the basis of location, quality and rent
charged.
Historically WRIT has acquired 100% ownership in property. However, in 1995 WRIT
formed a subsidiary partnership in which WRIT currently owns substantially all
of the partnership interests. As of December 31, 1996, the WRIT partnership has
acquired eight properties for cash contributed or loaned by WRIT.
WRIT intends to use the WRIT 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 exchange transactions have
occurred. The terms of the partnership agreement provide that the partnership's
limited partnership units are entitled to distributions substantially
equivalent to the distributions on WRIT shares. A holder of limited partnership
units in the WRIT partnership will be entitled to demand that the partnership
redeem the holder's units upon 10 business days notice. Upon such demand, WRIT,
at its option, may redeem such units for cash or WRIT shares.
WRIT believes that the WRIT partnership will provide WRIT an opportunity to
acquire real estate assets which might not otherwise have been offered to it.
WRIT makes capital improvements on an ongoing basis to its properties for the
purpose of maintaining and increasing their value. Major improvements and/or
renovations to the properties in 1996 are discussed on page 8.
Further description of the property groups is contained in Item 2, Properties
and in Schedule III. Reference is also made to Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations.
The number of persons employed by the Trust was 32 as of March 5, 1997.
-5-
ITEM 2. PROPERTIES
The schedule on the following page lists the Trust's real estate investment
portfolio as of December 31, 1996. The total number of properties was
forty-seven (47) at that date.
As of December 31, 1996 the percent leased is the percentage of net rentable
space for which fully executed leases exist and may include signed leases for
space not yet occupied by the tenant.
Cost information is included in Schedule III of this Form 10-K Annual Report.
-6-
SCHEDULE OF PROPERTIES
Percent
Year Year Net Rentable * Leased
Properties Location Acquired Constructed Square Feet 12/31/96
- ---------------------------- ---------------------- ----------- ------------- ------------- -----------
Office Buildings
- ----------------
The WRIT Building Kensington, MD 1979 1965 65,000 93%
1901 Pennsylvania Avenue Washington, D.C. 1977 1960 97,000 86%
51 Monroe Street Rockville, MD 1979 1975 210,000 86%
444 N. Frederick Avenue Gaithersburg, MD 1989 1981 66,000 95%
7700 Leesburg Pike Falls Church, VA 1990 1976 145,000 83%
Arlington Financial Center Arlington, VA 1992 1963 51,000 100%
515 King Street Alexandria, VA 1992 1966 78,000 94%
The Lexington Building Rockville, MD 1993 1970 47,000 90%
The Saratoga Building Rockville, MD 1993 1977 59,000 100%
Brandywine Center Rockville, MD 1993 1969 35,000 100%
Tycon Plaza II Vienna, VA 1994 1981 131,000 97%
Tycon Plaza III Vienna, VA 1994 1978 152,000 92%
6110 Executive Boulevard Rockville, MD 1995 1971 199,000 95%
1220 19th Street Washington, D.C. 1995 1976 104,000 95%
Maryland Trade Center I Greenbelt, MD 1996 1981 191,000 99%
Maryland Trade Center II Greenbelt, MD 1996 1984 159,000 99%
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Subtotal 1,789,000 93%
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Shopping Centers
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Concord Centre Springfield, VA 1973 1960 76,000 84%
Bradlee Alexandria, VA 1984 1955 168,000 97%
Clairmont Salisbury, MD 1976 1965 40,000 68%
Dover Mart Dover, DE 1973 1960 44,000 68%
Chevy Chase Metro Plaza Washington, D.C. 1985 1975 51,000 98%
Prince William Plaza Woodbridge, VA 1968 1967 55,000 98%
Takoma Park Takoma Park, MD 1963 1962 59,000 100%
Westminster Westminster, MD 1972 1969 165,000 92%
Wheaton Park Wheaton, MD 1977 1967 47,000 100%
Montgomery Village Center Gaithersburg, MD 1992 1969 196,000 92%
Shoppes of Foxchase Alexandria, VA 1994 1960 128,000 99%
Frederick County Square Frederick, MD 1995 1973 233,000 100%
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Subtotal 1,262,000 94%
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Apartment Buildings/# units
- ---------------------------
Country Club Towers/227 Arlington, VA 1969 1965 276,000 95%
Munson Hill Towers/279 Falls Church, VA 1970 1963 340,000 95%
Park Adams/200 Arlington, VA 1969 1959 210,000 97%
Roosevelt Towers/191 Falls Church, VA 1965 1964 229,000 98%
3801 Connecticut Avenue/307 Washington, D.C. 1963 1951 242,000 100%
The Ashby at McLean/250 McLean, VA 1996 1982 349,000 99%
Walker House Apartments/196 Gaithersburg, VA 1996 1971 148,000 99%
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Subtotal (1,650 units) 1,794,000 97%
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Industrial Distribution Centers
- -------------------------------
Pepsi-Cola Distribution Center Forestville, MD 1987 1971 69,000 100%
Capitol Freeway Center Washington, D.C. 1974 1940 145,000 100%
Department of Commerce Springfield, VA 1971 1964 105,000 100%
Fullerton Business Center Springfield, VA 1985 1980 103,000 100%
Ravensworth Center Springfield, VA 1986 1965 29,000 62%
Shirley I-395 Business Center Arlington, VA 1961/1986 1960 113,000 100%
V Street Distribution Center Washington, D.C. 1973 1960 31,000 100%
Charleston Business Center Rockville, MD 1993 1973 85,000 95%
Tech 100 Industrial Park Elk Ridge, MD 1995 1990 167,000 98%
Crossroads Distribution Center Elk Ridge, MD 1995 1987 85,000 100%
The Alban Business Center Springfield, VA 1996 1981/1982 87,000 100%
The Earhart Building Chantilly, VA 1996 1987 92,000 100%
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Subtotal 1,111,000 98%
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TOTAL 5,956,000
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* Apartment buildings are presented in gross square feet
7
PROPERTY EXPANSIONS AND MAJOR RENOVATIONS
7700 Leesburg Pike
In December of 1996, WRIT completed the 20,000 square foot addition at 7700
Leesburg Pike. This addition was 100% preleased and fully occupied.
1901 Pennsylvania Avenue
This property underwent a major renovation beginning in 1995 and completed in
1996, with lease up steadily improving since the 3rd quarter of 1995.
Renovations to the main lobby, elevator cabs, hallways and restrooms were
complimented by modernizations of the elevator equipment and mechanical systems,
and the installation of a new roof and energy management system. As of March 5,
1997, the property is over 90% leased as compared to average occupancies of 75%
in 1996 and 57% in 1995.
51 Monroe Street
At 51 Monroe Street, formerly known as One Metro Square, WRIT replaced the
elevator controls and HVAC equipment during 1995 and installed an energy
management system in 1996. As a result of these improvements, the comfort of the
building's tenants is substantially improved while WRIT's operating costs have
been significantly reduced. To compliment these improvements, in 1996, WRIT
commenced renovations to the main lobby and common hallways which will be
completed in 1997. Occupancy levels in this property averaged 83% in 1996.
Leasing substantially escalated in the 4th quarter of 1996, and as of March 4,
1997, this property is 92% leased.
Wheaton Park Shopping Center
WRIT commenced construction of a 25,000 square foot addition to the Wheaton Park
Shopping Center in the 4th quarter of 1996. Currently this addition is 55%
preleased and projected to be completed in the 2nd quarter of 1997.
Bradlee Shopping Center
Bradlee Shopping Center has been one of WRIT's best earning properties for many
years and now needs updating to assure its continued performance. Accordingly,
during 1996, management commenced planning for the renovations of the facade.
This renovation coincides with the expiration of the lease term on a 26,000
square foot store currently occupied by G.C. Murphy. WRIT estimates Murphy's
rent to be at least 75% below market. WRIT anticipates seeking a new tenant for
this space. In addition to paying higher rents, a major new tenant to the G. C.
Murphy's space will attract additional tenants and shoppers to the Center
thereby enhancing overall sales from the center. Additionally, the new owners of
the existing Roy Rogers restaurant parcel are converting it to a McDonald's
which is also expected to contribute added value to the center.
-8-
PROPERTY GROUP PERFORMANCE
Office Buildings
On May 17, 1996, WRIT acquired Maryland Trade Center I and II, containing a
combined area of 350,000 net rentable square feet for an acquisition cost of
approximately $28.4 million.
Occupancy rates for the Office Building Group overall averaged 93% in 1994, and
89% in 1995 and 1996. The primary reason for the decreased Office Building Group
occupancy level from 1994 to 1995 and 1996 was the vacancy at 1901 Pennsylvania
Avenue caused by the major renovations during 1995 and 1996. Average occupancy
of 1901 Pennsylvania Avenue was 57% in 1995 and 75% in 1996.
However, as of March 5, 1997, this property is over 90% leased.
This substantial increase in occupancy at 1901 Pennsylvania Avenue was offset in
1996 by a decrease in occupancy at 51 Monroe Street (formerly known as One Metro
Square), as well as some smaller occupancy decreases throughout the group. 51
Monroe Street, which is undergoing a significant renovation commenced in 1995,
averaged 90% occupancy in 1995 and 83% occupancy in 1996. As of March 5, 1997,
51 Monroe Street is over 92% leased.
Rental rate increases of 1.3% for the group were the result of increases at
nearly all of the properties. WRIT's office building markets have improved to
the point where market rates exceed existing lease rates for nearly all of its
office building tenants.
Office building leases generally have a three to five year term. Most leases
have automatic annual increases based on changes in the Consumer Price Index or
agreed-upon percentages and additional pass through reimbursements for increases
in real estate taxes and operating expenses.
Shopping Centers
Occupancy rates for the Shopping Center Group averaged 97% in 1994, 94% in 1995
and 91% in 1996. The primary reasons for the decreased Shopping Center Group
occupancy level in 1995 and 1996 were vacancy increases at the Concord,
Clairmont and Montgomery Village Shopping Centers and the 1995 property
repositionings at Prince William Plaza and Chevy Chase Metro Plaza. Concord
Shopping Centre averaged 85% occupancy during 1996 vs. 92% in 1995 and 100% in
1994 due to lease expirations. Montgomery Village Center averaged 92% in 1996
vs. 93% in 1995 and 97% in 1994, primarily due to the bankruptcies of So Fro
Fabrics and Evans Jewelers & Distributors, which space remains unleased as of
March 5, 1997. Prince William Plaza and Chevy Chase Metro Plaza underwent
significant capital improvements and releasing during 1995 and are now each 98%
leased as of December 31,1996.
Most shopping center leases have automatic annual increases based on changes in
the Consumer Price Index or agreed-upon percentages. In addition, these leases
generally contain clauses for reimbursement for real estate taxes and common
area maintenance costs, and some leases provide for contingent rents based on a
percentage of the tenant's gross sales.
Apartments
WRIT acquired Walker House Apartments, consisting of 196 units, on March 13,
1996, for an acquisition price of approximately $10.8 million. On August 26,
1996, The Ashby at McLean, with 250 units and 27,000 square feet of commercial
space, was acquired for approximately $21.5 million.
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WRIT's seven high-rise apartment buildings are well located and have a combined
total of 1,650 units consisting of efficiency and one, two or three bedroom
apartments. Apartment leases are generally for periods of one year or less.
There is a continuous emphasis on the upgrading of the units, quality of
management and services to residents with the goal to increase resident
retention and to enhance market place acceptance.
Five of the apartment buildings are in northern Virginia with convenient
transportation routes to downtown Washington. 3801 Connecticut Avenue is in
Washington, D.C. and is subject to the rent control laws of the District of
Columbia. The laws provide landlords with annual rent increases tied to the rate
of inflation subject to an annual maximum of 10% and also afford landlords the
opportunity for additional rent increases as units are re-rented to new tenants
or when major repairs and replacements have been made.
Occupancy rates for the core group of apartments (excluding Walker House
Apartments and The Ashby at McLean acquired in 1996), averaged 96% in 1996 and
1995 and 97% in 1994. Rental rate increases of 2.3% were the result of
increases throughout the group. As of December 31, 1996, Walker House
Apartments and The Ashby at McLean were both 99% leased.
Industrial Distribution Centers
On October 31, 1996, WRIT acquired The Alban Business Center with net rentable
square feet of 87,000 for an acquisition price of approximately $4.2 million.
The Earhart building was acquired on December 19, 1996 for an acquisition price
of approximately $5.0 million with net rentable square feet of 92,000.
Occupancy rates for the Industrial Distribution Center group overall averaged
94% in 1994, 97% in 1995 and 98% in 1996.
Rental rate increases of 1.3% in 1996 for the group were the result of increases
throughout the group.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Trust's shares have been traded on the American Stock Exchange since 1971
and there are approximately 37,000 shareholders. The Trust's shares were split
3-for-1 in March, 1981, 3-for-2 in July, 1985, 3-for-2 in December, 1988, and
3-for-2 in May, 1992.
The high and low sales price for the Trust's shares for 1996 and 1995, by
quarter, and the amount of dividends paid by the Trust are as follows:
Quarterly Share Price Range
---------------------------
Dividends
Quarter Per Share High Low
---------------------------------------------------------
1996
4 $.26 $17 1/2 $15 1/2
3 .26 16 3/4 15 1/4
2 .26 16 3/4 15 1/4
1 .25 17 15 1/4
1995
4 $.25 $16 1/8 $14 1/2
3 .25 15 3/4 13 7/8
2 .25 16 1/4 14 1/4
1 .24 16 5/8 15
The Trust has historically paid dividends on a quarterly basis. Dividends are
normally paid based on the Trust's cash flow from operating activities. The 1997
indicated annual dividend rate is $1.04 based on an annualization of the March
31, 1997 dividend.
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Item 6. Selected Financial Data (In thousands, except per share data)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Real estate revenue $65,541 $52,597 $45,511 $39,375 $34,132
Income before gain on sale of real estate $27,964 $26,103 $23,122 $22,506 $20,429
Gain on sale of real estate - - - $741 -
Net income $27,964 $26,103 $23,122 $23,247 $20,429
Income before gain on sale of real estate per share $0.88 $0.88 $0.82 $0.80 $0.76
Net income per share $0.88 $0.88 $0.82 $0.82 $0.76
Total assets $318,488 $241,784 $178,806 $162,011 $185,673
Lines of credit payable/Short-term bank loan $5,000 $28,000 $18,000 - $21,000
Mortgage payable $7,590 $7,706 - - $1,115
Senior notes payable $100,000 - - - -
Shareholders' equity $195,623 $199,735 $154,659 $157,348 $159,027
Cash dividends paid $32,718 $29,712 $25,981 $24,380 $22,513
Distribution of gain on sale of real estate - - - $741 -
Cash dividends paid per share $1.03 $0.99 $0.92 $0.89 $0.84
-12-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REAL ESTATE RENTAL REVENUE: 1996 VERSUS 1995
Total revenues for 1996 increased $12.9 million to $65.5 million from $52.6
million in 1995. The percentage increase in real estate rental revenue from 1995
to 1996 by property type was as follows:
1995/1996
---------
Office Buildings 33%
Shopping Centers 10%
Apartments 28%
Industrial Distribution Centers 21%
During 1996, WRIT's Office Building revenues and operating income increased by
33% and 34%, respectively, over 1995. These increases were primarily due to 1995
acquisitions (6110 Executive Boulevard and 1220 19th Street) and 1996
acquisitions (Maryland Trade Centers I & II) combining with increased rental
rates overall for the group.
During 1996, WRIT's Shopping Center revenues and operating income increased by
10% and 6% respectively over 1995. These increases were primarily due to the
1995 acquisition of Frederick County Square combining with increased rental
rates overall for the group. These increases were partially offset by decreased
occupancy levels in Concord and Montgomery Village.
WRIT's Apartment revenues and operating income increased by 28% and 25%,
respectively, in 1996 over 1995. These increases were primarily due to increased
rental rates throughout the group combining with the 1996 acquisitions of Walker
House Apartments and The Ashby at McLean.
WRIT's Industrial Distribution Center revenues and operating income increased by
21% and 19%, respectively, over 1995. These increases were primarily due to
increased rental rates and occupancy levels overall for the group combining with
the 1995 acquisitions (Tech 100 Industrial Park and Crossroads Distribution
Center) and the 1996 acquisition of Alban Business Center. In December of 1996,
WRIT also acquired The Earhart Building, a 92,300 square foot flex property
which is 100% leased.
REAL ESTATE RENTAL REVENUE: 1995 VERSUS 1994
Total revenues for 1995 increased $7.1 million to $52.6 million from $45.5
million in 1994. The percentage increase in real estate rental revenue from 1994
to 1995 by property type was as follows:
1994/1995
---------
Office Buildings 22%
Shopping Centers 16%
Apartments 3%
Industrial Distribution Centers 20%
-13-
During 1995, WRIT's Office Building Group had increases of 22% in revenues and
17.4% in operating income due primarily to the acquisition of the Tycon II and
III office buildings in 1994 and the 6110 Executive Boulevard and 1220 19th
Street office buildings in 1995. The Tycon buildings were 71% occupied at
acquisition in June of 1994 but averaged 94% occupancy during 1995. 6110
Executive Boulevard was acquired by the Trust January 31,1995 and averaged 94%
occupancy during 1995. 1220 19th Street was acquired by the Trust in November,
1995. This property was 90% leased at December 31, 1995.
During 1995, WRIT's Shopping Center Group had increases of 16% in revenues and
operating income due primarily to the repositioning of Chevy Chase Metro Plaza,
as well as the acquisition of the Shoppes of Foxchase in 1994 and Frederick
County Square in 1995.
WRIT's Apartment Group had increases of 3% in revenues and 2% in operating
income during 1995. This increase was the result of a 3% increase in rents more
than offsetting a 3.3% increase in operating expenses and a 1% decrease in
occupancy to 96%. The major cause of the 3.3% increase in operating expenses was
the adoption of a more conservative capitalization policy regarding repairs,
replacements, and improvements.
During 1995, WRIT's Industrial Distribution Center Group had increases of 20% in
revenues and 23% in operating income. This was due primarily to significant
occupancy increases at Shirley - 395 and Fullerton, rental rate increases
averaging 3.1% throughout the group, and the 1995 acquisition of Tech 100
Industrial Park. In December 1995, WRIT acquired Crossroads Distribution Center,
a 100% leased property. Occupancy rates for the Industrial Distribution Center
group overall averaged 97% in 1995.
OPERATING EXPENSES AND OTHER RESULTS OF OPERATIONS
Real estate operating expenses as a percentage of revenue was 33% for 1996 as
compared to 32% for 1995 and 31% for 1994. This increase is attributable to an
increase in occupancy levels and rental rates in 1996 offset by an increase in
the office building segment of WRIT's portfolio. Operating expenses as a
percentage of revenues are higher for office building properties than the other
property types within the WRIT portfolio. WRIT's percentage of revenue from
office buildings within its entire real estate portfolio has increased from
being 39% at December 31, 1994 to 41% and 44% as of December 31, 1995 and 1996,
respectively. The increase over 1994 is attributable to the 1995 and 1996
office building acquisitions.
Other income (expense) remained relatively constant between 1996 and 1995. In
1995, other income (expense) increased from 1994 due to investment earnings in
1995 on the net proceeds of approximately $48.0 million from the sale of 3.5
million shares of beneficial interest. 1995 other income (expense) also
increased as a result of a 1994 charge of $800,000 to other income (expense) for
the sale of a marketable investment security. Also in 1994, there was a charge
to other income (expense) of $271,000 as the result of an audit assessment by
the State of Maryland unclaimed property division.
Interest expense increased $3.3 million in 1996 from 1995. This increase is
primarily attributed to the issuance of $100 million in debt securities in
August 1996. An additional increase is due to advances on lines of credit being
outstanding for longer periods in 1996 than in 1995. This increase in
outstanding advances is due to an increase in acquisitions in 1996. 1995
interest expense of $2.2 million increased $1.6 million over 1994 interest
expense due to an increase in line of credit advances for properties acquired.
In addition, interest expense was incurred on the mortgage note payable assumed
in August 1995 for the acquisition of Frederick County Square in 1995.
-14-
General and administrative expenses were $3.1 million for 1996 as compared to
$2.9 million for 1995 and 1994. General and administrative expenses remained
relatively constant between 1996 and 1995. The majority of the increase for 1995
as compared to 1994 is attributable to personnel additions since June of 1994
and continuing into 1995, partially offset by reduced pension costs and 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.
CAPITAL RESOURCES AND LIQUIDITY
WRIT has utilized the proceeds of share offerings, medium and long-term fixed
interest rate debt, bank lines of credit and cash flow from operations for its
capital needs. External sources of capital 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 medium or long-term notes. The funds raised would be used to
pay off any outstanding advances on our lines of credit and for new acquisitions
and capital improvements.
In August 1996, WRIT sold $50 million of 7.125% 7-year unsecured notes due
August 13, 2003, and $50 million of 7.25% unsecured 10-year notes due August 13,
2006. The 7-year notes were sold at 99.107% of par and the 10-year notes were
sold at 98.166% of par. On August 13, 1996, WRIT received $97.9 million from the
sale of senior unsecured notes. WRIT's underwriting expenses were $302,000 and
thus the net proceeds received by the trust from the sale of the senior
unsecured notes were $97.6 million. Approximately $67 million of the net
proceeds was used to repay all borrowings outstanding under WRIT's lines of
credit. Those borrowings were used for various 1995 and 1996 property
acquisitions. An additional $20.7 million was used for acquisitions of The Ashby
at McLean and The Alban Business Center, subsequent to August 13, 1996. The
balance of the net proceeds was used to renovate, expand or improve income
producing properties.
On July 25, 1995, WRIT received $48.9 million from the issuance and sale of 3.5
million shares. WRIT's other underwriting expenses were $233,000 resulting in
net proceeds received by the Trust of $48.6 million. Approximately $36.0 million
of the net proceeds were used to repay certain borrowings outstanding under the
Trust's lines of credit resulting from 1994 and 1995 property acquisitions. $7.0
million of the net proceeds in addition to financing was used to acquire
Frederick County Square and 1220 Nineteenth Street. The balance of the net
proceeds was used to renovate, expand or improve income producing properties.
As of December 31, 1996, WRIT has line of credit commitments in place from
commercial banks for up to $75.0 million. During 1996, WRIT acquired six
properties for total acquisition costs of $69.9 million and during 1995, WRIT
acquired five properties for total acquisition costs of $58.7 million. 1996
acquisitions were financed through additional advances on the lines of credit of
$39.0 million and were subsequently paid off with proceeds from the issuance of
the senior notes in 1996. In 1995, WRIT borrowed $44.0 million for acquisitions
under its lines of credit, assumed a mortgage for $7.8 million and used $7.0
million of proceeds from its July, 1995 public offering to complete property
acquisitions.
Cash flow from operating activities totaled $37.6 million, $31.0 million, and
$29.8 million for the years ended December 31, 1996, 1995, and 1994,
respectively, including net income of $28.0 million , $26.1 million and $23.1
million, respectively, and depreciation of $7.5 million, $5.1 million, and $3.9
million, respectively. The increase in cash flows from operating activities from
1995 to 1996 is attributable to the increase in depreciation resulting from 1995
and 1996 acquisitions, the interest accrued for debt service on the senior
notes, and the increase in net income. This increase was offset by a decrease in
cash attributable to the capitalization of issuance costs associated with senior
notes issued in August 1996.
-15-
In 1995, increases in rents and other receivables, prepaid real estate taxes and
insurance and increases in other liabilities and tenant security deposits due to
1995 properties acquired accounted for the decrease in cash flow from operating
activities between 1995 and 1994.
Rental revenue has been the principal source of funds to pay WRIT's operating
expenses, interest expense and dividends to shareholders. In 1996, 1995, and
1994, WRIT paid dividends totaling $32.7 million, $29.7 million, and $26.0
million, respectively.
Capital improvements of $12.0 million were completed in 1996, including tenant
improvements. Improvements to WRIT properties in 1995 and 1994 were
approximately $8.1 million and $5.8 million, respectively.
The components of WRIT's capital improvement costs for 1996 were as follows:
(In thousands)
Acquisition Related $2,335
Expansions and Major Renovations 4,039
Tenant Improvements 3,129
Other 2,469
-----
Total $11,972
Acquisition related costs are capital improvements made to properties acquired
during 1996, 1995, and 1994, which were planned during the investment
underwriting due diligence.
Management believes that it has the liquidity and the capital resources
necessary to meet all of its known obligations and to make additional property
acquisitions 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 December 31, 1996, WRIT
Limited Partnership has acquired eight properties for cash contributed or loaned
to the partnership 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
exchange 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed under Item 14(a) and
filed as part of this report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On October 17, 1996, WRIT filed a Current Report on Form 8-K reporting a change
in certifying accountant from Price Waterhouse LLP to Arthur Andersen LLP. See
Item 14 (a) for listing of Exhibits.
-16-
PART III
Certain information required by Part III is omitted from this Report in that the
Registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
Such incorporation does not include the Performance Graph included in the Proxy
Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is hereby incorporated herein by reference
to WRIT's 1997 Annual Meeting Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is hereby incorporated by reference to
WRIT's 1997 Annual Meeting Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is hereby incorporated by reference to
WRIT's 1997 Annual Meeting Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is hereby incorporated by reference to
WRIT's 1997 Annual Meeting Proxy Statement.
-17-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14(a) The following documents are filed as a part of this Report:
1. Financial Statements: The following Financial Statements of Washington
Real Estate Investment Trust and Report of Independent Accountants are
included in this report.
Report of Independent Accountants'.
Balance Sheets at December 31, 1996 and 1995.
Statements of Income for the years ended December 31, 1996, 1995 and
1994.
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994.
Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994.
Notes to Financial Statements.
2. Financial Statement Schedules: The following financial statement
schedules of Washington Real Estate Investment Trust for the periods
indicated are filed as part of this Report and should be read in
conjunction with the Financial Statements of Washington Real Estate
Investment Trust.
Schedule Page
- -------- ----
III Real Estate and Accumulated Depreciation 36
Supplementary Information: Quarterly Financial Results (unaudited) 38
Supplementary Income Statement Information (unaudited) 39
Schedules not listed above have been omitted because they are not applicable or
are not required or the information to be set forth therein is included in the
Financial Statements or Notes thereto.
-18-
3. Exhibits:
3. Declaration of Trust and Bylaws
(a) Declaration of Trust. Incorporated herein by reference to
Exhibit 3 to the Trust's registration statement on Form 8-B
dated July 10, 1996.
(b) Bylaws. Incorporated herein by reference to Exhibit 4 to the
Trust's registration statement on Form 8-B dated July 10, 1996.
4.
(a) Credit agreement dated March 1, 1995 between Washington Real
Estate Investment Trust, as borrower, The First National Bank
of Chicago, as Lender, and The First National Bank of Chicago
as Agent. Incorporated herein by reference to the Exhibit of
the same designation to the Trust's Form 10-K dated March 28,
1996.
(b) Credit agreement dated July 25, 1995, among Washington Real
Estate Investment Trust, as borrower, Crestar Bank, as lender,
Signet Bank/Virginia, as lender, and Crestar Bank, as agent.
Incorporated herein by reference to the Exhibit of the same
designation to the Trust's Form 8-K dated May 17, 1996
(c) Indenture dated as of August 1, 1996 between Washington Real
Estate Investment Trust and The First National Bank of
Chicago. *
(d) Officers' Certificate Establishing Terms of the Notes, dated
August 8, 1996. *
(e) Form of 2003 Notes. *
(f) Form of 2006 Notes. *
10. Management contracts, plans and arrangements
(a) Employment Agreement dated May 11, 1994 with Edmund B. Cronin,
Jr. **
(b) 1991 Incentive Stock Option Plan, As amended.
(c) Nonqualified Stock Option Agreement dated June 27, 1990 with B.
Franklin Kahn. **
(d) Nonqualified Stock Option Agreement dated December 14, 1994
with Edmund B. Cronin, Jr. **
(e) Nonqualified Stock Option Agreement dated December 19, 1995
with Edmund B. Cronin, Jr. Incorporated herein by reference to
the Exhibit of the same designation to the Trust's Form 10-K
dated March 28, 1996.
(f) Senior Management Compensation Plan.
-19-
16. Letter certifying change in accountant
On October 17, 1996, WRIT filed a Current Report on Form 8-K
reporting a change in certifying accountant from Price Waterhouse
LLP to Arthur Andersen LLP. See Reports on Form 8-K
21. Subsidiaries of registrant
In 1995, WRIT formed a subsidiary partnership, WRIT Limited
Partnership, a Maryland limited partnership, in which WRIT owns
99.9% of the partnership interest.
23. Consents
(a) Consent of Arthur Andersen LLP
(b) Consent of Arthur Andersen LLP
(c) Consent of Price Waterhouse LLP
27. Financial Data Schedule
ITEM 14(b)
Reports on Form 8-K: Forms 8-K was filed on October 17, 1996 with the
Securities and Exchange Commission, reporting pursuant to Item 4a, the change in
certifying accountants.
* Incorporated herein by reference to the Exhibit of the same designation to the
Trust's Form 8-K filed August 13, 1996.
** Incorporated herein by reference to the Exhibit of the same designation to
Amendment No. 2 to the Trust's Registration Statement on Form S-3 filed July 17,
1995.
-20-
SIGNATURES
Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WASHINGTON REAL ESTATE INVESTMENT TRUST
/ s / Edmund B. Cronin, Jr.
By :
-------------------------------------
Date: March 7, 1997,
Edmund B. Cronin, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Security and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------------------------------------------------------------------------------------------
/ s / Arthur A. Birney Chairman and Trustee March 7, 1997
- -------------------------
Arthur A. Birney
/ s / William N. Cafritz Trustee March 7, 1997
- -------------------------
William N. Cafritz
/s/ Benjamin H. Dorsey Secretary and Trustee March 7, 1997
- ----------------------
Benjamin H. Dorsey
/ s / David M. Osnos Trustee March 7, 1997
- --------------------
David M. Osnos
/ s / Stanley P. Snyder Trustee March 7, 1997
- -----------------------
Stanley P. Snyder
/ s / Larry E. Finger Senior Vice President, Finance
- --------------------- and Chief Financial Officer March 7, 1997
Larry E. Finger
/ s / B. Franklin Kahn Trustee March 7, 1997
- ----------------------
B. Franklin Kahn
/ s / Laura M. Franklin Vice President, Finance March 7, 1997
- ----------------------- and Chief Accounting Officer
Laura M. Franklin
-21-
Report of Independent Public Accountants
To the Shareholders of Washington Real Estate Investment Trust:
We have audited the accompanying consolidated balance sheet of Washington Real
Estate Investment Trust (a Maryland corporation) and subsidiary as of December
31, 1996, and the related statements of income, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Washington Real Estate
Investment Trust and subsidiary as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The financial statement schedule included on pages
36 through 37 of the Form 10-K is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 24, 1997
-22-
Report of Independent Accountants
To the Trustees and Shareholders of
Washington Real Estate Investment Trust
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) and (2) on page 18 present fairly, in all material respects, the
financial position of Washington Real Estate Investment Trust at December 31,
1995, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the financial statements of Washington Real Estate Investment Trust for
any period subsequent to December 31, 1995.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Washington, D.C.
March 27, 1996
-23-
WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1996 1995
--------------- --------------
Assets
Real estate at cost $ 352,579 $272,597
Accumulated depreciation (46,639) (41,022)
--------------- --------------
305,940 231,575
Mortgage note receivable 799 800
--------------- --------------
Total investment in real estate 306,739 232,375
Cash and temporary investments 1,676 3,532
Rents and other receivables, net of allowance for doubtful
accounts of $534 and $518, respectively 3,429 3,082
Prepaid expenses and other assets 6,644 2,795
--------------- --------------
$ 318,488 $241,784
=============== ==============
Liabilities
Accounts payable and other liabilities $ 5,954 $ 3,033
Tenant security deposits 2,523 1,828
Advance rents 1,798 1,482
Mortgage note payable 7,590 7,706
Line(s) of credit payable 5,000 28,000
Senior notes payable 100,000 -
--------------- --------------
122,865 42,049
--------------- --------------
Shareholders' Equity
Shares of beneficial interest, $.01 par value; 100,000
shares authorized: 31,803 shares issued and outstanding 318 -
Additional paid in capital 195,305 199,735
--------------- --------------
195,623 199,735
--------------- --------------
$ 318,488 $241,784
=============== ==============
See accompanying notes to consolidated financial statements
-24-
WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended December 31,
1996 1995 1994
----------------- ---------------- --------------
Real estate rental revenue $ 65,541 $ 52,597 $ 45,511
Real estate expenses (21,932) (17,038) (14,412)
----------------- ---------------- --------------
43,609 35,559 31,099
Depreciation and amortization (7,784) (5,084) (3,933)
----------------- ---------------- --------------
Income from real estate 35,825 30,475 27,166
Other income (expense) 708 715 (550)
Interest expense (5,474) (2,170) (614)
General and administrative (3,095) (2,917) (2,880)
----------------- ---------------- --------------
Net income $ 27,964 $ 26,103 $ 23,122
================= ================ ==============
Net income per share $ 0.88 $ 0.88 $ 0.82
================= ================ ==============
See accompanying notes to consolidated financial statements
-25-
WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Additional Shareholders'
Shares Par Value Paid in Capital Equity
--------------------- -------------------- --------------------- --------------------
Balance, December 31, 1993 28,228 $ - $157,348 $157,348
Net income 23,122 23,122
Dividends (25,981) (25,981)
Share options exercised 15 - 170 170
--------------------- -------------------- --------------------- --------------------
Balance, December 31, 1994 28,243 - 154,659 154,659
Net income 26,103 26,103
Net proceeds from sale of shares 3,500 - 48,610 48,610
Dividends (29,712) (29,712)
Share options exercised 9 - 75 75
--------------------- -------------------- --------------------- --------------------
Balance, December 31, 1995 31,752 - 199,735 199,735
Net income 27,964 27,964
Dividends (32,718) (32,718)
State of Maryland reorganization 318 (318) 0
Share options exercised 51 - 642 642
--------------------- -------------------- --------------------- --------------------
Balance, December 31, 1996 31,803 $ 318 $195,305 $195,623
===================== ==================== ===================== ====================
See accompanying notes to consolidated financial statements
-26-
WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1996 1995 1994
----------------- ----------------- ------------------
Cash Flow From Operating Activities
Net income $ 27,964 $ 26,103 $ 23,122
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,496 5,084 3,933
Changes in other assets (1,832) (395) 479
Changes in other liabilities 3,932 195 1,485
Loss on sale of marketable securities - - 800
----------------- ----------------- ------------------
Cash flow provided by operating activities 37,560 30,987 29,819
----------------- ----------------- ------------------
Cash Flow From Investing Activities
Improvements to real estate (11,972) (8,124) (5,787)
Real estate acquisitions, net * (69,888) (50,994) (30,729)
Maturities and sales of marketable securities - - 15,485
----------------- ----------------- ------------------
Net cash used in investing activities (81,860) (59,118) (21,031)
----------------- ----------------- ------------------
Cash Flow From Financing Activities
Dividends paid (32,718) (29,712) (25,981)
Draws on lines of credit 44,000 46,000 18,000
Repayments on lines of credit (67,000) (36,000) -
Mortgage principal payments (117) (46) -
Net proceeds from sale of shares - 48,610 -
Net proceeds from debt offering 97,637 - -
Share options exercised 642 75 170
----------------- ----------------- ------------------
Net cash flow provided by (used in) financing activities 42,444 28,927 (7,811)
----------------- ----------------- ------------------
Net (decrease) increase in cash and temporary investments (1,856) 796 977
Cash and temporary investments at beginning of year 3,532 2,736 1,759
----------------- ----------------- ------------------
Cash and temporary investments at end of year $ 1,676 $ 3,532 $ 2,736
================= ================= ==================
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 2,747 $ 2,111 $ 515
================= ================= ==================
*Supplemental schedule of non-cash investing and financing activities
On August 22, 1995 WRIT purchased Frederick Square Shopping Center for an
acquisition cost of $13.4 million. WRIT assumed a mortgage in the amount of
$7.8 million and paid the balance in cash. The $7.8 million is not included in
the $51 million amount shown as real estate acquisitions.
See accompanying notes to consolidated financial statements
-27-
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: NATURE OF BUSINESS
Washington Real Estate Investment Trust ("WRIT" or the "Trust") is a
self-administered qualified equity real estate investment trust successor to a
trust organized in 1960. The Trust's business consists of the ownership of
income-producing real estate properties in the Mid-Atlantic Region.
WRIT operates in a manner intended to enable it to qualify as a real estate
investment trust under the Internal Revenue Code (the "Code"). In accordance
with the Code, a trust which distributes its capital gains and at least 95% of
its taxable income to its shareholders each year, and which meets certain other
conditions, will not be taxed on that portion of its taxable income which is
distributed to its shareholders. Accordingly, no provision for Federal income
taxes is required.
In June 1996, WRIT changed its domicile from the District of Columbia to the
State of Maryland. Issued and outstanding shares were assigned a par value of
$.01 per share.
NOTE B: ACCOUNTING POLICIES
BASIS OF PRESENTATION
In 1995 WRIT formed a subsidiary partnership, WRIT Limited Partnership, a
Maryland limited partnership, in which WRIT currently owns 99.9% of the
partnership interest. WRIT Limited Partnership's financial statements are being
consolidated with WRIT's financial statements. All significant intercompany
balances and transactions have been eliminated. Minority Interests are included
in other income (expense) and accounts payable and other liabilities on the
accompanying consolidated statements.
REVENUE RECOGNITION
Residential properties are leased under operating leases with terms of generally
one year or less, and commercial properties are leased under operating leases
with average terms of three years. WRIT recognizes rental income from its
residential and commercial leases when earned and accounts for all rental
abatements on a straight-line basis.
DEFERRED FINANCING COSTS
Costs associated with the issuance of senior subordinated notes are capitalized
and being amortized using the effective interest rate method over the term of
the related notes.
REAL ESTATE AND DEPRECIATION
Buildings are depreciated on a straight-line basis over estimated useful lives
not exceeding 50 years. Effective January 1, 1995, WRIT revised its estimate of
useful lives for major capital improvements to real estate. All capital
improvement expenditures associated with replacements, improvements, or major
repairs to real property are depreciated using the straight-line method over
their estimated useful lives ranging from 3 to 30 years. All tenant improvements
are amortized using the straight-line method over 5 years or the term of the
lease if it differs significantly from 5 years. Capital improvements placed in
service prior to January 1, 1995 will continue to be depreciated on a
straight-line basis over their previously estimated useful lives not exceeding
30 years. Maintenance and repair costs are charged to expense as incurred.
Depreciation expense for Federal income tax purposes differs from that reported
for financial statement purposes by $2.8 million due to the use of different
lives and depreciation methods. Additionally, net
-28-
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets as reported in WRIT's financial statements exceed the net basis for
Federal Income Tax purposes by $14.6 million due to a lower basis of certain
real estate assets acquired by tax-free exchanges.
In March 1995, The Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the net undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted SFAS No. 121 in
the first quarter of 1996, which had no impact on the accompanying consolidated
financial statements.
CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments include investments readily convertible to known
amounts of cash with original maturities of 90 days or less.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
NOTE C: REAL ESTATE INVESTMENTS
WRIT's real estate investment portfolio, at cost, consists of properties located
in Maryland, Washington, D.C., Virginia and Delaware as follows:
December 31,
(In thousands)
1996 1995
-----------------------------
Office buildings $163,192 $128,222
Shopping centers 60,694 27,196
Apartment buildings 84,060 82,108
Industrial distribution centers 44,633 35,071
-----------------------------
$352,579 $272,597
=============================
WRIT's results of operations are dependent on the overall economic health of
their tenants and the specific segments in which WRIT holds properties, as well
as the overall economic health of the Washington, D.C. metropolitan region.
These segments include commercial, residential, retail, and industrial. Although
all sectors are affected by external factors, such as inflation, consumer
confidence, unemployment rates, and consumer tastes and preferences, the retail
segment is particularly sensitive to such factors. A decline in the retail
segment could reduce merchant sales, which could adversely affect the operating
results of WRIT. As of December 31, 1996, 1995 and 1994, no single tenant or
property accounted for more than 10% of total assets or total revenues.
-29-
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Properties acquired by WRIT during the year ending December 31, 1996 are as
follows:
Acquisition Rentable Acquisition Cost
Date Property Type Square Feet/Units (In thousands)
- --------------------------------------------------------------------------------------------------
3/13/96 Walker House Apartments Residential 148,000*/196 $10,797
5/17/96 Maryland Trade Center I Office 191,000 16,077
5/17/96 Maryland Trade Center II Office 159,000 12,313
8/26/96 The Ashby at McLean Residential 349,000*/250 21,481
10/31/96 The Alban Business Center Industrial 87,000 4,176
12/19/96 The Earhart Building Industrial 92,000 5,044
--------- -------
1,026,000/446 $69,888
============= =======
*Apartment buildings are presented in gross square feet
NOTE D: MORTGAGE NOTE PAYABLE
On August 22, 1995 WRIT assumed a $7.8 million mortgage note payable as partial
consideration for its acquisition of Frederick County Square. The mortgage bears
interest at 9%. Principal and interest are payable monthly until January 1, 2003
at which time all unpaid principal and interest are payable in full. Annual
maturities of principal as of December 31, 1996 are as follows:
(In thousands)
1997 $ 128
1998 140
1999 153
2000 167
2001 183
Thereafter 6,819
-----
$7,590
======
NOTE E: UNSECURED LINES OF CREDIT PAYABLE
On January 26, 1995 WRIT borrowed $16.0 million on a short-term bank loan at the
bank's then prime rate of 8.5%. Interest only was payable monthly on the unpaid
principal balance at the bank's corporate base rate. On March 8, 1995, the $16.0
million short-term loan was replaced with an unsecured credit commitment of
$25.0 million and the outstanding advance of $16.0 million was transferred to
this new commitment. The following advances have been made under this
commitment.
Advance Date Paid Amount 1996 1995
Date in Full (In thousands) Rate Rate
- -------------- ----------------- ------------- ----------- ------------
March 8, 1995 September 8, 1995 $16,000 - 6.80%
May 15, 1995 August 19, 1996 7,000 5.99% 5.99%-6.425%
June 28, 1995 July 31, 1995 2,000 - 6.42%
November 2, 1995 September 28, 1996 18,000 6.11%-5.74% 6.11%
September 26, 1996 - 4,000 6.83% -
Interest only is payable monthly, in arrears, on the unpaid principal balance.
All new advances and interest rate adjustments upon the expiration of WRIT's
interest lock-in dates will bear interest at LIBOR plus a spread based on WRIT's
credit rating on its publicly issued debt. All unpaid interest and principal
can be prepaid prior to the expiration of WRIT's interest rate lock-in periods
subject to a yield maintenance obligation and all unpaid principal and interest
are due January 31, 1999.
-30-
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This $25.0 million credit commitment requires WRIT to pay the lender an unused
commitment fee at the rate of 0.15% per annum in the first year, 0.20% per annum
until August 1996, and .175% thereafter, on the amount that the $25.0 million
commitment exceeds the balance of outstanding advances and term loans. At
December 31, 1996, $21.0 million of this commitment was unused and available for
subsequent acquisitions or capital improvements. This fee is payable monthly
beginning March, 1995 until January, 1999. This commitment also contains certain
financial covenants related to debt, net worth, and cash flow, and non-financial
covenants which WRIT has met as of December 31, 1996.
On July 27, 1995 WRIT renegotiated its other $25.0 million unsecured credit
commitment and replaced it with an unsecured credit commitment of $50.0 million
from the same bank and a participating bank for the express purpose of
purchasing income-producing property and to make capital improvements to real
property. The following advances have been made under this commitment.
Advance Date Paid Amount 1996 1995
Date in Full (In thousands) Rate Rate
- ---------------- --------------- -------------- ---------- ------------
December 21, 1995 August 13, 1996 $3,000 6.15%-6.06% 6.15%
March 13, 1996 August 13, 1996 11,000 5.78%-6.25% -
May 17, 1996 August 13, 1996 28,000 6.06% -
November 26, 1996 - 1,000 6.05% -
Interest only is payable monthly, in arrears, on the unpaid principal balance.
All unpaid interest and principal are due July 25, 1997, and can be prepaid
prior to this date without any prepayment fee or yield maintenance obligation.
Any new advances shall bear interest at LIBOR plus a spread based on WRIT's
interest coverage ratio.
This credit agreement provides WRIT the option to convert any advances or
portions thereof into a term loan at any time after January 27, 1996 and prior
to July 25, 1997. The principal amount of each term loan, if any, shall be
repaid on July 27, 1999. Such term loan(s) may be prepaid subject to a
prepayment fee.
The $50.0 million credit commitment requires WRIT to pay the lender an unused
commitment fee at the rate of 0.15% per annum on the amount by which $50.0
million exceeds the balance of outstanding advances and term loans. At December
31, 1996, $49.0 million of this commitment was unused. This fee is payable
quarterly in arrears beginning October 1995 until July 25, 1997. This commitment
also contains an interest coverage ratio covenant and certain other
non-financial covenants which WRIT has met as of December 31, 1996.
Information related to short term borrowings are as follows (in thousands).
1996 1995
------------- -------
Maximum Amount Outstanding $67,000 $43,000
Average Amount Outstanding 31,000 28,000
Weighted Average Interest Rate 6.18% 6.42%
-31-
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F: SENIOR NOTES PAYABLE
On August 8, 1996 WRIT entered into an underwriting agreement to sell $50
million of 7.125% 7-year unsecured notes due August 13, 2003, and $50 million of
7.25% unsecured 10-year notes due August 13, 2006. This transaction closed on
August 13, 1996. The 7-year notes were sold at 99.107% of par and the 10-year
notes were sold at 98.166% of par. Net proceeds to the Trust after deducting
underwriting expenses were $97.6 million. The 7-year notes bear an effective
interest rate of 7.46% and the 10 year notes bear an effective interest rate of
7.49% for a combined effective interest rate of 7.47%. WRIT used the proceeds of
these notes to pay down its lines of credit and to finance acquisitions and
capital improvements to its properties. These notes also contain certain
financial and non-financial covenants which WRIT has met as of December 31,
1996.
NOTE G: SHARES OF BENEFICIAL INTEREST AND DIVIDENDS
Net income per share is calculated by dividing net income by the weighted
average number of shares outstanding during the year. The weighted average
shares outstanding were 31.8 million, 29.8 million and 28.2 million in 1996,
1995, and 1994, respectively.
The following is a breakdown of the taxable percentage of WRIT's dividends for
1996, 1995 and 1994, respectively:
Ordinary Income Return of Capital
---------------------------------------------
1996 91% 9%
1995 89% 11%
1994 91% 9%
NOTE H: SHARE OPTIONS
WRIT maintains a Share Option Plan (the "Plan"), which includes qualified and
non-qualified options. As of December 31, 1996, 1.3 million shares may be
awarded to eligible employees. Under the Plan, options, which are issued at
market price on the date of grant, vest after not more than two years and expire
ten years following the date of grant. Options may be granted under the Plan at
any time prior to June 25, 2001. Activity under the plan is summarized below:
1996 1995 1994
------------------------ ----------------------- -----------------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
------------------------ ---------- ------------ ----------- -----------
Outstanding at January 1 320,000 $14.003 265,000 $13.983 237,000 $12.868
Granted 96,000 16.150 64,000 14.625 67,000 16.905
Exercised (51,000) 12.536 (9,000) 8.090 (15,000) 11.392
Expired - - - - (24,000) 16.891
Outstanding at December 31 364,000 14.776 320,000 14.003 265,000 13.983
Exercisable at December 31 216,000 14.449 201,000 13.760 161,000 13.229
Weighted average fair
value of options granted $ 4.600 $ 4.170
216,000 of the options outstanding at December 31, 1996 are exercisable at
prices between $11.710 and $20.625, with a weighted average exercise price of
$14.449 and a weighted average remaining contractual life of 5.72 years. The
remaining 148,000 options will be exercisable starting at exercise prices
between $12.410 and $16.1875, with a weighted average exercise price of $15.253
and a remaining contractual life of 8.63 years.
-32-
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996; risk-free interest rates of 6.34 percent
for the Plan options, expected dividend yields of 4.29 percent, expected lives
of 7 years, and expected volatility of 33 percent.
On June 27, 1990, the then Chairman and Chief Executive Officer was granted
non-qualified share options for 150,000 shares at $11.71, the per share market
price on that day. These shares were exercisable 20% at date of grant and 20%
upon each anniversary over a four year period. Share options of 60,000 in 1991
and 30,000 in 1992 were exercised leaving 60,000 remaining to be exercised. In
June 1995, 56,000 of qualified share options granted to WRIT's former Chairman,
B. Franklin Kahn became non-qualified share options, three months after his
retirement. These shares are exercisable 10% per year. As of December 31, 1996,
32,000 of these options are exercisable.
On December 19, 1995 the President and Chief Executive Officer of WRIT was
granted non-qualified share options for 13,000 shares at $14.625, the per share
market price that day. On December 14, 1994, non-qualified share options were
granted for 9,000 shares at the June 1, 1994 market price of $19.25. All shares
are 50% exercisable after the first anniversary date and 100% exercisable after
the second anniversary date. As of December 31, 1996, 10,000 shares are
exercisable.
WRIT accounts for shares granted pursuant to its Share Option Plan under APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for these plans been determined consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," WRIT's net income and earnings per
share would have been reduced to the following pro forma amounts (in thousands,
except per share data):
1996 1995
---------- ----------
Net Income: As Reported $27,964 $26,103
Pro Forma 27,522 25,833
Earnings Per Share: As Reported $0.88 $0.88
Pro Forma $0.87 $0.87
Because the method of accounting has not been applied to options granted prior
to January 1, 1995, the resulting pro forma compensation may not be
representative of that to be expected in future years.
WRIT has computed basic earnings per share. The calculation of primary and fully
diluted earnings per share is immaterial and therefore not presented.
NOTE I: PENSION PLAN AND OTHER BENEFIT PLANS
WRIT maintains a noncontributory defined benefit pension plan for all eligible
employees through December 31, 1995. At December 31, 1995, all benefit accruals
under the plan were frozen and thus the projected benefit obligation ("PBO") and
the accumulated benefit obligation ("ABO") became equal. WRIT anticipates
terminating the plan no later than December 31, 1999. Since there are no further
benefit accruals provided under the plan, WRIT has substantially reduced its
funding obligation and there will be no further increases in the ABO or PBO. In
addition, WRIT holds a Pension and Supplemental Deferred Compensation Plan for
its previous Chairman and Chief Executive Officer. Upon retirement, the Plan's
ABO and PBO become equal. Benefits under both plans were generally based on
years of service and final average pay.
-33-
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension costs are accrued and funded annually from plan entry date in the plan
to projected retirement date and includes the following components (in
thousands).
1996 1995 1994
--------------- ------------- ------------
Service cost $ 4 $ 17 $30
Interest cost on projected benefit obligation 122 180 270
Actual return on plan assets (83) (140) (105)
Net amortization and deferral 54 (30) (105)
--------------- ------------- ------------
Net pension expense $97 $ 27 $ 90
=============== ============= ============
The assumed long-term rate of return is 7.00% in 1996 and 8.00% in 1995 and
1994. Plan obligations in excess of amounts permitted under the Tax Equity and
Fiscal Responsibility Act of 1982 are accrued as a liability of WRIT and
included in total pension cost. The funded status of the plan is as follows (in
thousands):
1996 1995
----------------- ------------------
Actuarial present value of benefit obligation:
Accumulated benefit obligation-
Vested benefits $1,507 $1,625
Nonvested benefits 246 38
================= ==================
Total accumulated benefit obligation $1,753 $1,663
================= ==================
Projected benefit obligation for service rendered to date $1,753 $1,663
Plan assets at fair value 827 673
------------------
Projected benefit obligation in excess of plan assets 926 990
Unrealized net loss of projected benefit obligation (200) (60)
Unrealized net transition obligation accrued pension
liability (5) (11)
----------------- ------------------
Total accrued pension liability $ 721 $ 919
================= ==================
The plan assets are invested in various life insurance policies and money market
accounts.
The liabilities are calculated using an assumed discount rate of 7.00% and 8.00%
for December 31, 1996 and 1995, respectively, and an assumed compensation
increase of 5% for 1995.
In 1995, annuity contracts were purchased with plan assets for two participants
who retired during 1995, one being WRIT's former Chairman and Chief Executive
Officer B. Franklin Kahn. The cost of said annuities was $1,593,000 and the
reduction in the PBO was $1,632,000.
In 1997, WRIT implemented a Retirement Savings Plan (the "Savings Plan"). It was
established so that participants in the savings plan may elect to contribute a
portion of their earnings to the Savings Plan and WRIT may, at its discretion,
make a voluntary contribution to the Savings Plan.
-34-
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1996, management adopted an Incentive Compensation Plan ("the
Compensation Plan") for its senior personnel which will align their compensation
growth with shareholders' interests. Essentially, the Compensation Plan limits
future salary increases and provides cash bonus incentives and stock option
grants under the Share Option Plans based on performance. The financial
incentives to management are earned after WRIT has achieved a minimum prescribed
growth. This plan is effective for the 1996 and 1997 years and will be reviewed
by the Board of Trustees' Compensation Committee each year.
NOTE J: FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure about
the fair value of financial instruments. Based on the current interest rate
environment and management estimates, the carrying values of the mortgage note
payable, mortgage note receivable, and senior subordinated notes approximates
their fair values.
NOTE K: RENTALS UNDER OPERATING LEASES
Noncancelable commercial operating leases provide for minimum rental income
during each of the next five years of approximately $47.0 million, $39.0
million, $30.4 million, $20.1 million, $13.0 million, and $21.8 million
thereafter. Apartment leases are not included as they are generally for one
year. Most of these commercial rentals increase in future years based on changes
in the Consumer Price Index or agreed-upon percentages. Contingent rentals from
the shopping centers, based on a percentage of tenants' gross sales, were
$483,000, $496,000, and $428,000 in 1996, 1995 and 1994 respectively.
NOTE L: ENVIRONMENTAL MATTERS
During 1995, WRIT retained the services of an environmental consulting firm to
test for asbestos in 29 of its properties built before 1981, in accordance with
Occupational Safety and Health Administration standards. In the second quarter
of 1996, asbestos containing materials were identified for remediation at 11
properties for an estimated cost of $295,000. As of December 31, 1996 no costs
have been incurred on this matter. WRIT estimates these remediations will be
completed by the first quarter of 1997.
NOTE M: SUBSEQUENT EVENT
On February 28, 1997, WRIT acquired Ammendale Technology Park I and II, an
industrial center located in Beltsville, Maryland for an acquisition cost of
$13.5 million. WRIT borrowed $14.0 million from its line of credit for this
acquisition at a rate of 6.04% until May 29, 1997 at which time the rate will
adjust to LIBOR plus a spread. Interest only is payable monthly, in arrears, on
the unpaid principal balance.
-35-
WASHINGTON REAL ESTATE INVESTMENT TRUST SCHEDULE III
SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Gross Amounts at which carried at
Net December 31, 1996
Initial Cost (b) Improvements --------------------------------
Building (Retirements) Buildings
and since and
Properties Location Land Improvements Acquisition Land Improvements
- ----------------------------- ---------------- ------------ ------------ ----------- ----------- ------------
Office Buildings
The WRIT Building Maryland $222,000 $1,691,000 $3,080,000 $222,000 $4,771,000
1901 Pennsylvania Avenue Washington, D.C. 892,000 3,481,000 5,291,000 892,000 8,772,000
One Metro Square Maryland 840,000 10,869,000 6,321,000 840,000 17,190,000
444 North Frederick Avenue Maryland 813,000 3,818,000 1,338,000 813,000 5,156,000
7700 Leesburg Pike Virginia 3,669,000 4,000,000 4,312,000 3,669,000 8,312,000
Arlington Financial Center Virginia 3,000,000 3,293,000 202,000 3,000,000 3,495,000
515 King Street Virginia 4,102,000 3,931,000 732,000 4,102,000 4,663,000
The Lexington Building Maryland 1,180,000 1,263,000 389,000 1,180,000 1,652,000
The Saratoga Building Maryland 1,464,000 1,554,000 654,000 1,464,000 2,208,000
Brandywine Center Maryland 718,000 735,000 224,000 718,000 959,000
Tycon Plaza II Virginia 3,262,000 7,243,000 1,025,000 3,262,000 8,268,000
Tycon Plaza III Virginia 3,255,000 7,794,000 766,000 3,255,000 8,560,000
6110 Executive Boulevard Maryland 4,621,000 11,895,000 1,191,000 4,621,000 13,086,000
1220 19th Street Washington, D.C. 7,802,000 11,366,000 110,000 7,802,000 11,476,000
Maryland Trade Center I Maryland 3,330,000 12,747,000 298,000 3,330,000 13,045,000
Maryland Trade Center II Maryland 2,826,000 9,487,000 96,000 2,826,000 9,583,000
------------ ------------ ----------- ----------- ------------
41,996,000 95,167,000 26,029,000 41,996,000 121,196,000
------------ ------------ ----------- ----------- ------------
Shopping Centers
Concord Centre Virginia 413,000 850,000 2,667,000 413,000 3,517,000
Bradlee Virginia 4,152,000 5,428,000 3,540,000 4,152,000 8,968,000
Clairmont Maryland 155,000 892,000 672,000 155,000 1,564,000
Dover Mart Delaware 244,000 464,000 726,000 244,000 1,190,000
Chevy Chase Metro Plaza Washington, D.C. 1,549,000 4,304,000 2,852,000 1,549,000 7,156,000
Prince William Plaza Virginia 171,000 820,000 940,000 171,000 1,760,000
Takoma Park Maryland 415,000 1,085,000 1,000 415,000 1,086,000
Westminster Maryland 553,000 1,889,000 1,776,000 553,000 3,665,000
Wheaton Park Maryland 623,000 857,000 1,335,000 623,000 2,192,000
Montgomery Village Center Maryland 11,624,000 9,105,000 616,000 11,624,000 9,721,000
Shoppes of Foxchase Virginia 5,838,000 2,980,000 906,000 5,838,000 3,886,000
Frederick County Square (e) Maryland 6,561,000 6,830,000 227,000 6,561,000 7,057,000
------------ ------------ ----------- ----------- ------------
32,298,000 35,504,000 16,258,000 32,298,000 51,762,000
------------ ------------ ----------- ----------- ------------
Apartment Buildings
Country Club Towers Virginia 299,000 2,561,000 2,392,000 299,000 4,953,000
Munson Hill Towers Virginia (a) - 3,337,000 3,818,000 (a) - 7,155,000
Park Adams Virginia 287,000 1,654,000 2,798,000 287,000 4,452,000
Roosevelt Towers Virginia 336,000 1,996,000 1,693,000 336,000 3,689,000
3801 Connecticut Avenue Washington, D.C. 420,000 2,678,000 3,938,000 420,000 6,616,000
The Ashby at McLean Virginia 4,356,000 17,125,000 65,000 4,356,000 17,190,000
Walker House Apartments Virginia 2,851,000 7,946,000 144,000 2,851,000 8,090,000
------------ ------------ ----------- ----------- ------------
8,549,000 37,297,000 14,848,000 8,549,000 52,145,000
------------ ------------ ----------- ----------- ------------
Industrial Distribution Centers
Pepsi-Cola Maryland 760,000 1,792,000 1,560,000 760,000 3,352,000
Capitol Freeway Center Washington, D.C. 300,000 1,205,000 2,625,000 300,000 3,830,000
Department of Commerce Virginia 347,000 1,009,000 1,335,000 347,000 2,344,000
Fullerton Virginia 950,000 3,317,000 755,000 950,000 4,072,000
Ravensworth Center Virginia 392,000 1,059,000 355,000 392,000 1,414,000
Shirley I-395 Business Center Virginia 652,000 1,265,000 1,101,000 652,000 2,366,000
V Street Distribution Center Washington, D.C. 126,000 317,000 162,000 126,000 479,000
Charleston Business Center Maryland 2,045,000 2,091,000 130,000 2,045,000 2,221,000
Tech 100 Industrial Park Maryland 2,086,000 4,744,000 69,000 2,086,000 4,813,000
Crossroads Distribution Center Maryland 894,000 1,945,000 24,000 894,000 1,969,000
The Alban Business Center Virginia 878,000 3,298,000 0 878,000 3,298,000
The Earhart Building Virginia 916,000 4,128,000 1,000 916,000 4,129,000
------------ ------------ ----------- ----------- ------------
10,346,000 26,170,000 8,117,000 10,346,000 34,287,000
------------ ------------ ----------- ----------- ------------
Totals $93,189,000 $194,138,000 $65,252,000 $93,189,000 $259,390,000
============ ============ =========== =========== ============
Gross Amounts
at which
carried at Accumulated
December 31, Depreciation
1996 at
------------ December 31, Date of Date of Net Rentable Depreciation
Properties Total (d) 1996 Construction Acquisition Square Feet (f) Units Life (c)
- ----------------------------- ------------ ----------- ----------- ----------- ----------- --------- -----------
OFFICE BUILDINGS
The WRIT Building $4,993,000 $1,414,000 1965 August 1979 $65,000 31 Years
1901 Pennsylvania Avenue 9,664,000 2,872,000 1960 May 1977 97,000 28 Years
One Metro Square 18,030,000 5,824,000 1975 August 1979 210,000 41 Years
444 North Frederick Avenue 5,969,000 604,000 1981 October 1989 66,000 50 Years
7700 Leesburg Pike 11,981,000 583,000 1976 October 1990 145,000 50 Years
Arlington Financial Center 6,495,000 310,000 1963 June 1992 51,000 50 Years
515 King Street 8,765,000 383,000 1966 July 1992 78,000 50 Years
The Lexington Building 2,832,000 26,000 1970 November 1993 47,000 50 Years
The Saratoga Building 3,672,000 115,000 1977 November 1993 59,000 50 Years
Brandywine Center 1,677,000 27,000 1969 November 1993 35,000 50 Years
Tycon Plaza II 11,530,000 413,000 1981 June 1994 131,000 50 Years
Tycon Plaza III 11,815,000 381,000 1978 June 1994 152,000 50 Years
6110 Executive Boulevard 17,707,000 601,000 1971 January 1995 199,000 30 Years
1220 19th Street 19,278,000 426,000 1976 November 1995 104,000 30 Years
Maryland Trade Center I 16,375,000 297,000 1981 May 1996 191,000 30 Years
Maryland Trade Center II 12,409,000 206,000 1984 May 1996 159,000 30 Years
------------ ----------- -----------
163,192,000 14,482,000 1,789,000
------------ ----------- -----------
SHOPPING CENTERS
Concord Centre 3,930,000 1,018,000 1960 December 1973 76,000 33 Years
Bradlee 13,120,000 2,967,000 1955 December 1984 168,000 40 Years
Clairmont 1,719,000 703,000 1965 December 1976 40,000 39 Years
Dover Mart 1,434,000 447,000 1960 January 1973 44,000 40 Years
Chevy Chase Metro Plaza 8,705,000 1,212,000 1975 September 1985 51,000 50 Years
Prince William Plaza 1,931,000 686,000 1967 August 1968 55,000 50 Years
Takoma Park 1,501,000 753,000 1962 July 1963 59,000 50 Years
Westminster 4,218,000 1,848,000 1969 September 1972 165,000 37 Years
Wheaton Park 2,815,000 443,000 1967 September 1977 47,000 49 Years
Montgomery Village Center 21,345,000 725,000 1969 December 1992 196,000 50 Years
Shoppes of Foxchase 9,724,000 167,000 1960 June 1994 128,000 50 Years
Frederick County Square (e) 13,618,000 311,000 1973 August 1995 233,000 30 Years
------------ ----------- -----------
84,060,000 11,280,000 1,262,000
------------ ----------- -----------
APARTMENT BUILDINGS
Country Club Towers 5,252,000 2,584,000 1965 July 1969 276,000 227 35 Years
Munson Hill Towers 7,155,000 3,503,000 1963 January 1970 340,000 279 33 Years
Park Adams 4,739,000 1,958,000 1959 January 1969 210,000 200 35 Years
Roosevelt Towers 4,025,000 1,922,000 1964 May 1965 229,000 191 40 Years
3801 Connecticut Avenue 7,036,000 3,624,000 1951 January 1963 242,000 307 30 Years
The Ashby at McLean 21,546,000 205,000 1982 August 1996 349,000 250 30 Years
Walker House Apartments 10,941,000 221,000 1971 March 1996 148,000 196 30 Years
------------ ----------- ----------- --------
60,694,000 14,017,000 1,794,000 1,650
------------ ----------- ----------- --------
INDUSTRIAL DISTRIBUTION CENTER
Pepsi-Cola 4,112,000 559,000 1971 October 1987 69,000 40 Years
Capitol Freeway Center 4,130,000 1,596,000 1940 July 1974 145,000 25 Years
Department of Commerce 2,691,000 1,533,000 1964 December 1971 105,000 43 Years
Fullerton 5,022,000 888,000 1980 September 1985 103,000 50 Years
Ravensworth Center 1,806,000 307,000 1965 December 1986 29,000 40 Years
Shirley I-395 Business Center 3,018,000 1,296,000 1960 September 1961 113,000 40 Years
V Street Distribution Center 605,000 220,000 1960 October 1973 31,000 40 Years
Charleston Business Center 4,266,000 141,000 1973 November 1993 85,000 50 Years
Tech 100 Industrial Park 6,899,000 228,000 1990 May 1995 167,000 30 Years
Crossroads Distribution Center 2,863,000 68,000 1987 December 1995 85,000 30 Years
The Alban Business Center 4,176,000 19,000 1981 October 1996 87,000 30 Years
The Earhart Building 5,045,000 5,000 1987 December 1996 92,000 30 Years
------------ ----------- -----------
44,633,000 6,860,000 1,111,000
------------ ----------- -----------
Totals $352,579,000 $46,639,000 5,956,000 1,650
============ =========== =========== ========
Notes:
(a) The site of Munson Hill Towers is rented under a lease requiring annual
payments of $22,600 until the expiration of the lease in 2060.
(b) The purchase of real estate investments has been divided between land and
buildings and improvements on the basis of valuations by the Trust.
(c) The useful life shown is for the main structure. Buildings and
improvements are depreciated over various useful lives ranging from 3 to
50 years.
(d) At December 31, 1996 total land, buildings and improvements are carried
at $338,008,000 for federal income tax purposes.
(e) At December 31, 1996, the only mortgage encumbrance was the $7,590,000
mortgage note payable on Frederick County Square.
(f) Residential properties are presented in gross square feet
-36-
WASHINGTON REAL ESTATE INVESTMENT TRUST SCHEDULE III
SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
(In thousands)
Continued
The following is a reconciliation of real estate assets and accumulated
depreciation for the years ended December 31, 1996, 1995, and 1994:
Year Ended December 31,
1996 1995 1994
------------------ ------------------ ------------------
REAL ESTATE ASSETS
- ------------------
Balance, beginning of period $272,597 $206,378 $170,461
Additions - property acquisitions 69,888 58,746 30,729
- improvements 11,972 8,124 5,787
Deductions - write-off of fully depreciated assets (1,878) (651) (599)
------------------ ------------------ ------------------
Balance, end of period $352,579 $272,597 $206,378
================== ================== ==================
ACCUMULATED DEPRECIATION
- ------------------------
Balance, beginning of period $41,021 $36,588 $33,255
Additions - depreciation (a) 7,496 5,084 3,933
Deductions - write-off of fully depreciated assets (1,878) (651) (600)
------------------ ------------------ ------------------
Balance, end of period $46,639 $41,021 $36,588
================== ================== ==================
(a) Total depreciation charged to income in 1996, 1995, and 1994,
respectively, consists of the following:
1996 1995 1994
------------------ ------------------ ------------------
Depreciation on real estate investments $7,496 $5,084 $3,933
Depreciation on office furniture, fixtures and equipment
(included in general and administrative expenses) 66 48 45
------------------ ------------------ ------------------
$7,562 $5,132 $3,978
================== ================== ==================
-37-
SUPPLEMENTARY INFORMATION:
QUARTERLY FINANCIAL RESULTS (Unaudited)
(In thousands, except per share data)
- -----------------------------------------------------------
Quarter
1996 First Second Third Fourth
---- ----- ------ ----- ------
Real estate rental revenue $14,681 $15,830 $17,056 $17,974
Net income 6,952 7,083 6,848 7,080
Net income per share $0.22 $0.22 $0.22 $0.22
1995 First Second Third Fourth
---- ----- ------ ----- ------
Real estate rental revenue $12,464 $12,828 $13,273 $14,032
Net income 6,159 6,198 6,835 6,910
Net income per share $0.22 $0.22 $0.22 $0.22
1994
----
Real estate rental revenue $11,312 $10,759 $11,759 $11,681
Net income 5,805 5,828 5,847 5,643
Net income per share $0.21 $0.21 $0.21 $0.20
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WASHINGTON REAL ESTATE INVESTMENT TRUST
SUPPLEMENTARY INCOME STATEMENT INFORMATION (Unaudited)
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
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Year ended December 31, 1996
Repairs and maintenance $3,190
Real estate taxes 4,782
Utilities 5,194
Year ended December 31, 1995
Repairs and maintenance 2,607
Real estate taxes 3,683
Utilities 3,838
Year ended December 31, 1994
Repairs and maintenance 2,249
Real estate taxes 3,208
Utilities 3,251
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