<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR QUARTER ENDED March 31, 1995 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)
<TABLE>
<S> <C>
DISTRICT OF COLUMBIA 53-0261100
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
</TABLE>
10400 CONNECTICUT AVENUE, KENSINGTON, MARYLAND 20895
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(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code (301) 929-5900
--------------
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the close of the period covered by this report.
SHARES OF BENEFICIAL INTEREST 28,242,544
- -----------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such report) and (2) has been subject to such
filing requirements for the past ninety (90) days.
YES X NO
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1
<PAGE> 2
WASHINGTON REAL ESTATE INVESTMENT TRUST
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I: Financial Information
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Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Statement of Changes in Shareholders' Equity 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis 9
Part II: Other Information
-----------------
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
Part I
FINANCIAL INFORMATION
The information furnished in the accompanying Balance Sheets, Statements of
Operations, Statements of Cash Flows and Statement of Changes in Shareholders'
Equity reflect all adjustments, consisting of normal recurring items, which
are, in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and of cash flows for the interim
periods. The accompanying financial statements and notes thereto should be
read in conjunction with the financial statements and notes for the three years
ended December 31, 1994 included in the Trust's 1994 Form 10-K Report filed
with the Securities and Exchange Commission.
2
<PAGE> 3
PART I
ITEM I. FINANCIAL STATEMENTS
WASHINGTON REAL ESTATE INVESTMENT TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1995 1994
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<S> <C> <C>
Assets
Real estate at cost $225,584,857 $206,377,733
Accumulated depreciation (37,663,757) (36,588,540)
-------------- ---------------
187,921,100 169,789,193
Mortgage note receivable 800,000 800,000
-------------- ---------------
Total Investment in Real Estate 188,721,100 170,589,193
Cash and cash equivalents 957,998 1,301,393
Marketable investment securities 50,000 1,434,790
Rents and other receivables 2,372,049 2,207,069
Prepaid expenses and other assets 2,932,914 3,273,665
-------------- ---------------
$195,034,061 $178,806,110
============== ===============
Liabilities
Accounts payable and other liabilities $3,701,695 $2,975,691
Tenant security deposits 1,644,972 1,517,762
Advance rents 1,647,094 1,653,557
Lines of credit payable 34,000,000 18,000,000
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40,993,761 24,147,010
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Shareholders' Equity
Shares of beneficial interest,
unlimited authorization, without
par value 138,721,635 139,340,435
Undistributed gains on real estate
dispositions 15,318,665 15,318,665
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154,040,300 154,659,100
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$195,034,061 $178,806,110
============== ===============
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Mar. 31,
1995 1994
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<S> <C> <C>
Real estate rental revenue $12,463,950 $11,312,489
Real estate expenses (3,896,236) (3,280,084)
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8,567,714 8,032,405
Depreciation (1,075,217) (922,373)
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Income from real estate 7,492,497 7,110,032
Other income (expense) 101,928 (654,209)
Interest expense (531,625) -
General and administrative (903,389) (650,816)
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Net Income 6,159,411 5,805,007
============= ============
Per share information based on
the weighted average number
of shares outstanding
Shares 28,242,544 28,232,561
Net income $0.22 $0.21
============= ============
Dividends paid $0.24 $0.23
============= ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
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<S> <C> <C>
Cash Flow From Operating Activities
Net income $6,159,411 $5,805,007
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 1,075,217 922,373
Changes in other assets 175,773 (281,679)
Changes in other liabilities 846,752 954,355
Unrealized loss on marketable investment securities - 799,571
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Cash flow from operating activities 8,257,153 8,199,627
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Cash Flow From Investing Activities
Improvements to real estate (2,690,892) (2,076,049)
Real estate acquisitions (16,516,232) (173,484)
Maturities and sales of marketable investment securities 4,365,375 12,333,736
Purchases of marketable investment securities (2,980,588) (11,667,753)
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Net cash (used in) investing activities (17,822,337) (1,583,550)
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Cash Flow From Financing Activities
Dividends paid (6,778,211) (6,494,909)
Borrowings - Line of credit 16,000,000 -
Net proceeds from stock options exercised - 143,258
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Net cash flow provided by (used in) financing activities 9,221,789 (6,351,651)
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Net (decrease) increase in cash and cash equivalents (343,395) 264,426
Cash and cash equivalents at beginning of period 1,301,393 1,759,471
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Cash and cash equivalents at end of quarter $957,998 $2,023,897
============= =============
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid during the quarter for interest $587,955 $0
============= =============
Cash paid during the quarter for real estate taxes $229,126 $364,456
============= =============
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares of Beneficial
Interest Outstanding
Shares Amount
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<S> <C> <C>
Balance, December 31, 1994 28,242,544 $139,340,435
Net income 6,159,411
Dividends (6,778,211)
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Balance, March 31, 1995 28,242,544 $138,721,635
================ =============
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1995 (Unaudited)
NOTE A: ACCOUNTING POLICIES
Washington Real Estate Investment Trust (WRIT) operates in a manner intended to
enable it to qualify as a real estate investment trust under the Internal
Revenue Code (the "Code"). According to the code, a trust which distributes at
least 95% of its taxable income to its shareholders each year and which meets
certain other conditions, will not be taxed on that portion of its taxable
income which is distributed to its shareholders. Accordingly, no provision for
Federal income taxes is required.
Cash equivalents consist of investments readily convertible to known amounts of
cash generally with original maturities of 90 days or less.
Residential properties are leased under operating leases with terms of
generally one year or less, and commercial properties are leased under
operating leases with terms of generally three to five years. WRIT recognizes
rental income from its residential and commercial leases when earned, which is
not materially different than revenue recognition on a straight line basis.
Buildings are depreciated on a straight-line basis over estimated useful lives
not exceeding 50 years. Effective January 1, 1995, WRIT has revised its
estimate of depreciable 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 20
years. All tenant improvements are amortized using the straight-line method
over 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.
Cash equivalents, marketable investment securities, mortgage note receivable,
rents and other receivables, prepaid expenses and other assets, accounts
payable and other liabilities, tenant security deposits, advance rents and
lines of credit payable are carried at amounts which reasonably approximate
their fair values.
Disclosure about the fair value of financial instruments is based on pertinent
information available to WRIT as of March 31, 1995. Although WRIT is not aware
of any factors that would significantly affect the reasonable fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date, and current estimates of fair value
may differ significantly from the carrying amounts.
NOTE B: MARKETABLE INVESTMENT SECURITIES
Marketable investment securities are considered available for sale and at March
31, 1995, the carrying value approximates market. Marketable investment
securities consist of the following:
Federally insured certificates of deposit $ 50,000
=======
At March 31, 1995, one hundred percent (100%) of the portfolio matures in less
than one year.
7
<PAGE> 8
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1995 (Unaudited)
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:
<TABLE>
<CAPTION>
March, 31
1995
------------
<S> <C>
Office buildings $106,316,954
Apartment buildings 26,561,961
Shopping centers 67,531,667
Business centers 25,174,276
------------
$225,584,857
============
</TABLE>
On January 26, 1995 WRIT acquired an office building, 6110 Executive Boulevard,
with approximately 198,000 rentable square feet of office space plus a
three-story parking deck in Rockville, Maryland, for a contract purchase price
of $16,380,000.
NOTE D: LINES OF CREDIT PAYABLE
On January 26 , 1995 WRIT borrowed $16,000,000 on a short-term bank loan from a
bank 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 $16,000,000 short-term loan was replaced with an unsecured credit
commitment of $25,000,000 and the outstanding advance of $16,000,000 was
transferred to this new commitment. Borrowings of $16,000,000 as of March 31,
1995 bear interest at the rate of 6.8% until September 8, 1995. Interest only
is payable monthly, in arrears, on the unpaid principal balance. All unpaid
interest and principal are due January 31, 1999 and can be prepaid prior to
this date subject to a yield maintenance obligation. All new advances under
this commitment bear interest at LIBOR plus a spread based on WRIT's debt
service coverage ratio.
The $25,000,000 credit commitment requires WRIT to pay the lender an unused
commitment fee at the rate of 0.15% in the first year, and 0.20% per annum
thereafter, on the amount that the $25,000,000 exceeds the balance of
outstanding advances and term loans. This fee is payable monthly beginning
March, 1995 until January, 1999. This commitment also contains certain
financial and legal covenants which WRIT is required to meet periodically.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
WRIT's fundamental emphasis is on the growth of cash flow from operating
activities. Dividends to shareholders are based upon these cash flows. WRIT's
capital improvements, leasing and management, and acquisitions of additional
properties are the major contributors to sustained growth of cash flows.
Occupancy rates have a major impact on rental revenue. Other factors such as
new or renewal leases at market rates, CPI based annual rental rate increases,
increases in rentable area, new property acquisitions and certain other capital
expenditures also influence rental revenue.
Income from real estate in the first quarter of 1995 of $7,492,497 increased 5%
compared with $7,110,032 for the first quarter of 1994. This increase is
primarily attributable to the Tycon Plaza office buildings acquired June 1,
1994, the Shoppes of Foxchase acquired June 30, 1994 and the 6110 Executive
Boulevard office building acquired January 26, 1995.
Net Income for the three months ended March 31, 1995 in the amount of
$6,159,411 or $.22 per share increased 6% from $5,805,007 or $.21 per share
from the comparable quarter of 1994.
The average occupancy of 95% for the year 1994 decreased to 93% for the first
quarter of 1995. This decrease is due primarily to vacancies at one of WRIT's
office buildings, 1901 Pennsylvania Avenue and one shopping center, Chevy Chase
Metro Plaza. In 1994, WRIT commenced a major capital improvement program
at 1901 Pennsylvania Avenue in order to assure the expeditious lease-up of this
property. On March 23, 1995 T.J. Maxx, a national retailer, took possession
of 31,500 square feet of space at Chevy Chase Metro Plaza. This increases the
occupancy level from 39% as of March 22, 1995 to 90% on the date of possession.
The term of their lease is ten years.
Real estate operating expenses as a percentage of revenue was 31% for the three
months ended March 31, 1995 as compared to 29% for the comparable period of
1994. This increase is attributable to the decline in occupancy levels in the
first quarter of 1995 as compared to the first quarter of 1994 and to the fact
that operating expenses as a percentage of revenues are higher for office
building properties than all other property types within the WRIT portfolio.
WRIT's percentage of office buildings within its entire real estate portfolio
has increased from 39% at March 31, 1994 to 42% as of March 31, 1995 based on
revenues. This increase is primarily attributable to the acquisitions of Tycon
II and III office buildings in June, 1994 and 6110 Executive Boulevard in
January, 1995.
In the first quarter of 1994, a marketable investment security was written down
to its estimated realizable value, resulting in a charge of $799,571 to
operations. This amount is included in the $654,209 of other expense per the
statement of operations at March 31, 1994.
Investment income declined for the three months ended March 31, 1995 compared
to the same period of 1994 due to substantial funds previously invested in
marketable securities being utilized for property acquisitions.
Interest expense was $531,625 for the quarter ended March 31, 1995 as a result
of the $18,000,000 of outstanding advances on the line of credit obtained in
June 1994 and $16,000,000 of outstanding advances since the January 26, 1995
acquisition of 6110 Executive Boulevard office building.
General and administrative expenses increased $252,573 or 39% for the three
months ended March 31, 1995 as compared to the same period 1994. The majority
of this increase is the result of personnel additions since June of 1994 and
annual increases in officers' salaries effective January 1, 1995. These
personnel additions include WRIT's current president and chief executive
officer who joined WRIT in June 1994 as president and chief operating officer.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
WRIT has utilized equity share offerings, long-term fixed interest rate debt,
lines of credit and cash flow from operations for its capital needs. The WRIT
philosophy has been to acquire real estate with strong growth potential and to
improve its real estate holdings through carefully planned additions and
improvements to generate higher rental income, and to reduce operating expenses.
On January 26, 1995 WRIT acquired the 6110 Executive Boulevard office building
with approximately 198,000 rentable square feet of office space plus a three
story parking deck in Rockville, Maryland at a contract purchase price of
$16,380,000. Capital improvements of $2,690,892 were completed in the first
three months of 1995, including tenant improvements.
After the acquisition of 6110 Executive Boulevard in January, 1995 and capital
improvements in the first quarter of 1995, the remainder of cash and marketable
investment securities was approximately $1,007,998 at March 31, 1995.
External sources of capital are 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 issuance of debt.
Cash flow from operating activities has been more than adequate to meet
dividend requirements.
Management believes that it has the liquidity and the capital resources
necessary to meet all of its known obligations and to make additional property
acquisitions when appropriate. WRIT continues to pursue acquisition
opportunities and capital improvement projects to enhance long-term growth.
10
<PAGE> 11
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON REAL ESTATE INVESTMENT TRUST
//Larry E. Finger//
-----------------------------------
Larry E. Finger,
Vice President Finance and Chief
Financial Officer
//Laura M. Franklin//
-----------------------------------
Laura M. Franklin
Assistant Vice President-Finance
Date: May 12, 1995
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 957,998
<SECURITIES> 50,000
<RECEIVABLES> 3,970,775
<ALLOWANCES> 798,726
<INVENTORY> 0
<CURRENT-ASSETS> 4,180,047
<PP&E> 225,584,857
<DEPRECIATION> 37,663,757
<TOTAL-ASSETS> 195,034,061
<CURRENT-LIABILITIES> 5,348,789
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 154,040,300
<TOTAL-LIABILITY-AND-EQUITY> 195,034,061
<SALES> 12,612,320
<TOTAL-REVENUES> 12,612,320
<CGS> 4,971,453
<TOTAL-COSTS> 4,971,453
<OTHER-EXPENSES> 801,461
<LOSS-PROVISION> 148,370
<INTEREST-EXPENSE> 531,625
<INCOME-PRETAX> 6,159,411
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,159,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,159,411
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
