SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K/A

 


 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported) JULY 29, 2005

 


 

WASHINGTON REAL ESTATE INVESTMENT TRUST

(Exact name of registrant as specified in its charter)

 


 

Maryland   1-6622   53-0261100

(State or other jurisdiction

of incorporation)

  (Commission File Number)  

IRS Employer

Identification Number)

 

6110 Executive Boulevard, Suite 800, Rockville, Maryland 20852

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code (301) 984- 9400

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS

 

The undersigned registrant, in order to provide the financial statements required to be included in the Current Report on Form 8-K dated July 29, 2005 in connection with the acquisition of certain assets and the borrowing under the line of credit to pay for the acquisition of Albemarle Point (“Albemarle”), hereby amends the following items, as set forth in the pages attached hereto.

 

Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS

 

  (a) Financial Statements of Businesses Acquired

 

  1. Albemarle Point - Audited Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 2004.

 

In acquiring Albemarle, Washington Real Estate Investment Trust (“WRIT”) evaluated among other things, sources of revenue (including but not limited to, competition in the rental market, comparative rents and occupancy rates) and expenses (including but not limited to, utility rates, ad valorem tax rates, maintenance expenses and anticipated capital expenditures). After reasonable inquiry, management is not aware of any material factors affecting Albemarle that would cause the reported financial information not to be indicative of Albemarle’s future operating results.

 

  (b) Pro Forma Financial Information

 

The following pro forma financial statements for the Albemarle acquisition (as defined in Regulation S-X) are filed as an exhibit hereto:

 

  1. WRIT Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2005.

 

  2. WRIT Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended December 31, 2004 and the six months ended June 30, 2005.

 

  (c) Exhibits

 

  23. Consent of Independent Auditors


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

WASHINGTON REAL ESTATE INVESTMENT TRUST


(Registrant)
By:  

/s/ Laura M. Franklin


(Signature)
    Laura M. Franklin
    Senior Vice President Accounting,
    Administration and Corporate Secretary

 

    October 14, 2005    


                (Date)


REPORT OF INDEPENDENT ACCOUNTANTS

 

To the Board of Trustees of

Washington Real Estate Investment Trust

 

We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Albemarle Point (“Historical Summary”) for the year ended December 31, 2004. This Historical Summary is the responsibility of the Property’s management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

 

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion.

 

The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 2, and is not intended to be a complete presentation of Albemarle Point’s revenues and expenses.

 

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Albemarle Point for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

 

ARGY, WILTSE & ROBINSON, P.C.

 

McLean, Virginia

 

August 10, 2005


ALBEMARLE POINT

 

HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES

 

YEAR ENDED DECEMBER 31, 2004 AND THE SIX MONTHS

ENDED JUNE 30, 2005 (UNAUDITED)

 

     2004

   2005
(Unaudited)


Gross income:

             

Base rents

   $ 4,233,209    $ 2,516,999

Expense recoveries

     470,036      314,327

Other

     28,790      28,340
    

  

Total gross income

   $ 4,732,035    $ 2,859,666
    

  

Direct operating expenses:

             

Real estate taxes

   $ 338,816    $ 247,383

Utilities

     313,654      178,288

Contract services

     347,163      144,987

Salaries

     63,435      11,495

Insurance

     33,573      22,815

Repairs, maintenance and supplies

     32,652      87,380

Other expenses

     44,393      28,801
    

  

Total direct operating expenses

   $ 1,173,686    $ 721,149
    

  

Gross income in excess of direct operating expenses

   $ 3,558,349    $ 2,138,517
    

  

 

The accompanying notes are an integral part of this historical summary.


ALBEMARLE POINT

 

NOTES TO THE HISTORICAL SUMMARY OF GROSS INCOME AND

DIRECT OPERATING EXPENSES

 

DECEMBER 31, 2004 AND THE SIX MONTHS

ENDED JUNE 30, 2005 (UNAUDITED)

 

NOTE 1 - NATURE OF BUSINESS

 

Albemarle Point is a 29-acre business park consisting of six buildings located in Chantilly, Virginia. The operations of Albemarle Point consist of leasing office and industrial/flex space to various tenants.

 

NOTE 2 - BASIS OF PRESENTATION

 

Washington Real Estate Investment Trust purchased Albemarle Point in July 2005. The Historical Summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission (“SEC”), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC. This Historical Summary includes the historical gross income and direct operating expenses of Albemarle Point, exclusive of the following expenses which may not be comparable to the proposed future operations:

 

  (a) Interest expense on existing mortgages and borrowings

 

  (b) Depreciation of property and equipment

 

  (c) Management and leasing fees

 

  (d) Certain corporate and administrative expenses

 

  (e) Provisions for income taxes

 

NOTE 3 - USE OF ESTIMATES

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions regarding revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results could differ from estimated amounts.

 

NOTE 4 - DESCRIPTION OF LEASING ARRANGEMENTS

 

All leases are classified as operating leases and expire at various dates through 2015. The following is a schedule by years of future minimum rents receivable on noncancelable operating leases in effect as of December 31, 2004:

 

2005

   $ 5,278,000

2006

     5,626,000

2007

     5,785,000

2008

     5,593,000

2009

     4,685,000

Thereafter

     15,750,000
    

     $ 42,717,000
    

 

During the year ended December 31, 2004, six tenants accounted for approximately 77% of the total base rents.

 

NOTE 5 - INTERIM UNAUDITED FINANCIAL INFORMATION

 

The Historical Summary for the six months ended June 30, 2005 is unaudited; however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.


WASHINGTON REAL ESTATE INVESTMENT TRUST

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AND

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

The pro forma balance sheet as of June 30, 2005 presents consolidated financial information as if the acquisition had taken place on June 30, 2005. The pro forma statements of operations for the year ended December 31, 2004, and the six months ended June 30, 2005, present the pro forma results of operations as if the acquisition had taken place as of the beginning of the respective reporting periods.

 

WRIT purchased Albemarle Point on July 29, 2005.

 

The unaudited consolidated pro forma financial information is not necessarily indicative of what WRIT’s actual results of operations or financial position would have been had this transaction been consummated on the dates indicated, nor does it purport to represent WRIT’s results of operations or financial position for any future period. The results of operations for the periods ended December 31, 2004 and June 30, 2005 are not necessarily indicative of the operating results for these periods.

 

The unaudited consolidated pro forma financial information should be read in conjunction with WRIT’s Form 8-K filed with the Securities and Exchange Commission (“SEC”) on August 4, 2005, announcing the acquisition of Albemarle Point; the consolidated financial statements and notes thereto included in WRIT’s Annual Report on Form 10-K for the year ended December 31, 2004; WRIT’s Quarterly Report on Form 10-Q for the six months ended June 30, 2005; and the Historical Summary of Gross Income and Direct Operating Expenses and Notes included elsewhere in this Form 8-K/A. In management’s opinion, all adjustments necessary to reflect this transaction have been made.


WASHINGTON REAL ESTATE INVESTMENT TRUST

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

JUNE 30, 2005

(In thousands, except per share amounts)

 

     Registrant

   

Pro

Forma

Adjustments


   

Pro

Forma


 

Assets

                        

Land

   $ 219,492     $ 7,485 (1)   $ 226,977  

Income producing property

     953,084       58,348 (1)     1,011,432  

Accumulated depreciation

     (220,607 )     —         (220,607 )
    


 


 


Net income producing property

     951,969       65,833       1,017,802  

Development in progress

     17,427       —         17,427  
    


 


 


Total investment in real estate, net

     969,396       65,833       1,035,229  

Cash and cash equivalents

     18,673       (1,909 )(2)     16,764  

Restricted cash

     4,261       —         4,261  

Rents and other receivables, net of allowance for doubtful accounts

     22,553       (47 )(2)     22,506  

Prepaid expenses and other assets

     34,165       2,522 (1)     35,588  
               (1,099 )(2)        
    


 


 


Total Assets

   $ 1,049,048     $ 65,300     $ 1,114,348  
    


 


 


Liabilities

                        

Notes payable

   $ 420,000     $ —       $ 420,000  

Mortgage notes payable

     196,960       —         196,960  

Lines of credit/short-term note payable

     —         63,000 (2)(3)     63,000  

Accounts payable and other liabilities

     30,140       1,411 (1)     31,588  
               37 (2)        

Advance rents

     5,179       26 (2)     5,205  

Tenant security deposits

     6,305       826 (2)     7,131  
    


 


 


       658,584       65,300       723,884  
    


 


 


Minority interest

     1,646       —         1,646  
    


 


 


Shareholders’ Equity

                        

Shares of beneficial interest; $.01 par value

     421       —         421  

Additional paid-in capital

     407,572       —         407,572  

Retained earnings (deficit)

     (15,878 )     —         (15,878 )

Deferred compensation on restricted shares

     (3,297 )     —         (3,297 )
    


 


 


Total Shareholders’ Equity

     388,818       —         388,818  
    


 


 


Total Liabilities and Shareholders’ Equity

   $ 1,049,048     $ 65,300     $ 1,114,348  
    


 


 


 

See accompanying notes to pro forma balance sheet.


WASHINGTON REAL ESTATE INVESTMENT TRUST

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

JUNE 30, 2005

(In thousands, except per share amounts)

 

NOTES TO PRO FORMA BALANCE SHEET

 

Note 1: WRIT accounted for the acquisition using the purchase method of accounting. WRIT allocated the purchase price to the related physical assets (land, building and tenant improvements) and in-place leases (tenant origination costs, leasing commissions, and net lease intangible assets/liabilities) based on their fair values, in accordance with SFAS No. 141, “Business Combinations.”

 

Contract purchase price

   $ 67,000  

Acquisition costs

     171  

Price adjustments

     (227 )
    


Total purchase price

   $ 66,944  
    


Amounts allocated to investment in real estate:

        

Amount allocated to building

   $ 55,920  

Amount allocated to land

     7,485  

Amount allocated to tenant origination costs

     2,428  
    


     $ 65,833  

Amounts allocated to other assets and liabilities:

        

Amount allocated to leasing commissions

   $ 1,310  

Amount allocated to net lease intangible asset

     1,212  

Amount allocated to net intangible lease liability

     (1,411 )
    


     $ 1,111  
    


Total

   $ 66,944  
    


 

Note 2: Adjustments to the Pro Forma Condensed Consolidated Balance Sheet represent draws on the line, cash paid and deposits applied at closing, and the assumption of certain assets and liabilities, including real estate and personal property taxes and security deposits.

 

Funding of purchase price:

        

Lines of credit

   $ (63,000 )

Cash and cash equivalents

     (1,909 )

Prepaid expenses and other assets

     (1,099 )
    


       (66,008 )

Other assets and liabilities assumed:

        

Accounts payable and other liabilities

   $ (37 )

Advance rents

     (26 )

Tenant security deposits

     (826 )

Rent and other receivables

     (47 )
    


     $ (936 )
    


Total

   $ (66,944 )
    


 

Note 3: On July 25, 2005, WRIT increased its unsecured term note under Credit Facility No. 2 from $50.0M to $70.0M. On July 28, 2005, WRIT borrowed $63.0 million under this increased facility to fund a portion of the purchase price. Borrowing under this facility require us to pay the lender an annual facility fee on the total commitment ranging from 0.15% to 0.25% per annum according to a sliding scale based on the credit rating on our publicly issued debt. These fees are payable quarterly. Advances under this agreement bear interest at LIBOR plus a spread based on the credit rating on our publicly issued debt. All outstanding advances are due and payable upon maturity in July 2008. Interest only payments are due and payable on a monthly basis. Funding for the remainder of the purchase price was provided by cash on hand.


WASHINGTON REAL ESTATE INVESTMENT TRUST

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2004

(In thousands, except per share amounts)

 

     REGISTRANT

   ALBEMARLE

   PRO FORMA
ADJUSTMENTS


    PRO
FORMA


Revenue

                            

Real estate rental revenue

   $ 172,067    $ 4,703    $ (89 )(1)   $ 176,958
                     277   (2)      

Other income

     327      29      —         356
    

  

  


 

       172,394      4,732      188       177,314

Expenses

                            

Real estate expenses

     51,394      1,174      122   (3)     53,000
                     310   (4)      

Interest expense

     34,500      —        1,321   (5)     35,821

Depreciation and amortization

     39,441      —        2,486   (6)     41,927

General and administrative

     6,194      —        —         6,194
    

  

  


 

       131,529      1,174      4,239       136,942

Income from continuing operations

     40,865      3,558      (4,051 )     40,372

Discontinued operations

                            

Income (loss) from operations of property disposed/held for sale

     3,670      —        —         3,670

Gain on disposal

     1,029      —        —         1,029
    

  

  


 

Net Income

   $ 45,564    $ 3,558    $ (4,051 )   $ 45,071
    

  

  


 

Per share information based on the weighted average of shares outstanding.

                            

Shares – basic

     41,642                     41,642

Shares – diluted

     41,863                     41,863

Income from continuing operations per share – basic

   $ 0.98                   $ 0.97

Income from continuing operations per share – diluted

   $ 0.98                   $ 0.96

Net income per share – basic and diluted

   $ 1.09                   $ 1.08

NOTES TO PRO FORMA STATEMENT OF OPERATIONS

 

(1) Represents amortization of the net intangible lease liability based on the average remaining life of the acquired leases.
(2) Represents straight-line revenue adjustment.
(3) To add Property Management Fees charged to properties by Registrant.
(4) To adjust real estate taxes based on the assumption that the assessment will increase as a result of the acquisition.
(5) Represents interest expense on the line of credit borrowings, totaling $63.0M, used to fund the acquisition.
(6) Represents depreciation over 30 years, based upon the portion of the purchase price allocated to building and improvements, plus amortization of tenant origination costs and FAS 141 leasing commissions over the average remaining life of the acquired leases.


WASHINGTON REAL ESTATE INVESTMENT TRUST

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2005

(In thousands, except per share amounts)

 

     REGISTRANT

   ALBEMARLE

   PRO FORMA
ADJUSTMENTS


    PRO
FORMA


Revenue

                            

Real estate rental revenue

   $ 91,996    $ 2,831    $ (44 )(1)   $ 95,124
                     341   (2)      

Other income

     321      28      —         349
    

  

  


 

       92,317      2,859      297       95,473

Expenses

                            

Real estate expenses

     28,192      721      79   (2)     29,069
                     77   (4)      

Interest expense

     17,870      —        1,092   (3)     18,962

Depreciation and amortization

     23,531      —        1,243   (4)     24,774

General and administrative

     4,325      —        —         4,325
    

  

  


 

       73,918      721      2,491       77,130

Income from property settlement

     504      —        —         504

Income from continuing operations

     18,903      2,138      (2,194 )     18,847

Discontinued operations

                            

Income (loss) from operations of property disposed/held for sale

     234      —        —         234

Gain on disposal

     33,973      —        —         33,973
    

  

  


 

Net Income

   $ 53,110    $ 2,138    $ (2,194 )   $ 53,054
    

  

  


 

Per share information based on the weighted average of shares outstanding.

                            

Shares – basic

     41,899                     41,899

Shares – diluted

     42,023                     42,023

Income from continuing operations per share – basic and diluted

   $ 0.45                   $ 0.45

Net income per share – basic

   $ 1.27                   $ 1.27

Net income per share – diluted

   $ 1.26                   $ 1.26

NOTES TO PRO FORMA STATEMENT OF OPERATIONS

 

(1) Represents amortization of the net intangible lease liability based on the average remaining life of the acquired leases.
(2) Represents straight-line revenue adjustment.
(3) To add Property Management Fees charged to properties by Registrant.
(4) To adjust real estate taxes based on the assumption that the assessment will increase as a result of the acquisition.
(5) Represents interest expense on the line of credit borrowings, totaling $63.0M, used to fund the acquisition.
(6) Represents depreciation over 30 years, based upon the portion of the purchase price allocated to building and improvements, plus amortization of tenant origination costs and FAS 141 leasing commissions over the average remaining life of the acquired leases.