<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 September 30, 1996 COMMISSION FILE NO. 1-6622
----------------------- ------
WASHINGTON REAL ESTATE INVESTMENT TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 53-0261100
- -------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
10400 CONNECTICUT AVENUE, KENSINGTON, MARYLAND 20895
- --------------------------------------------------------------------------------
(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 31,751,734
- --------------------------------------------------------------------------------
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
----
<S> <C> <C>
Part I: Financial Information
---------------------
Item l. Financial Statements
Balance Sheets 3
Statements of Income 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 11
Part II: Other Information
-----------------
Item l. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
Part I
FINANCIAL INFORMATION
The information furnished in the accompanying Balance Sheets, Statements of
Income, 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, 1995 included in the Trust's 1995 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)
September 30 December 31,
(In Thousands) 1996 1995
------------- ------------
<S> <C> <C>
Assets
Real estate at cost $340,232 $272,597
Accumulated depreciation (46,247) (41,022)
------------- ------------
293,985 231,575
Mortgage note receivable 791 800
------------- ------------
Total investment in real estate 294,776 232,375
Cash and temporary investments 11,434 3,532
Rents and other receivables, net of allowance for doubtful
accounts of $881,813 and $517,934, respectively 2,329 2,308
Prepaid expenses and other assets 7,699 3,569
------------- ------------
$316,238 $241,784
============= ============
Liabilities
Accounts payable and other liabilities $4,474 $3,033
Tenant security deposits 2,483 1,828
Advance rents 1,492 1,482
Mortgage note payable 7,620 7,706
Line(s) of credit payable 4,000 28,000
Senior notes payable 100,000 -
------------- ------------
120,069 42,049
------------- ------------
Shareholders' Equity
Shares of beneficial interest, no par value - 184,416
Shares of beneficial interest; $.01 par value; 100,000,000
shares authorized: 31,751,734 shares issued and outstanding 318 -
Additional paid-in capital 180,532 -
Undistributed gains on real estate dispositions 15,319 15,319
------------- ------------
196,169 199,735
------------- ------------
$316,238 $241,784
============= ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands, except per share amounts) 1996 1995 1996 1995
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Real estate rental revenue $17,056 $13,273 $47,567 $38,565
Real estate expenses (6,137) (4,463) (16,278) (12,641)
---------- --------- ---------- ----------
10,919 8,810 31,289 25,924
Depreciation (1,964) (1,168) (5,226) (3,365)
---------- --------- ---------- ----------
Income from real estate 8,955 7,642 26,063 22,559
Other income 263 381 498 578
Interest expense (1,673) (502) (3,316) (1,676)
General and administrative (697) (686) (2,361) (2,268)
---------- --------- ---------- ----------
Net Income $6,848 $6,835 $20,884 $19,193
========== ========= ========== ==========
Per share information based on
the weighted average number
of shares outstanding
Shares 31,752 30,868 31,752 29,127
Net income $0.22 $0.22 $0.66 $0.66
========== ========= ========== ==========
Dividends paid $0.26 $0.25 $0.77 $0.74
========== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(In Thousands) 1996 1995
----------- ----------
<S> <C> <C>
Cash Flow From Operating Activities
Net income $20,884 $19,193
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 5,226 3,365
Changes in other assets (1,801) (744)
Changes in other liabilities 2,106 (98)
----------- ----------
Net cash provided by operating activities 26,415 21,716
----------- ----------
Cash Flow From Investing Activities
Capital improvements to real estate (6,968) (6,788)
*Real estate acquisitions, net (60,667) (28,986)
Principle payments - mortgage note receivable 9 -
Maturities and sales of marketable investment securities 55,225 68,004
Purchases of marketable investment securities (55,225) (68,004)
----------- ----------
Net cash used in investing activities (67,626) (35,774)
----------- ----------
Cash Flow From Financing Activities
Dividends paid (24,449) (21,774)
Borrowings - Line of credit 43,000 25,000
Repayments - Line(s) of credit (67,000) (36,000)
Principal payments - Mortgage note payable (87) (18)
Proceeds from underwriting 0 48,843
Costs of underwriting 0 (226)
Net proceeds from debt offering 97,648 -
----------- ----------
Net cash provided by financing activities 49,112 15,825
----------- ----------
Net increase in cash and temporary investments 7,902 1,767
Cash and temporary investments at beginning of year 3,532 2,736
----------- ----------
Cash and temporary investments at end of period $11,434 $4,503
=========== ==========
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid during the first nine months for interest $2,506 $1,734
=========== ==========
</TABLE>
*Supplemental disclosure of non-cash investing and financing activities:
On August 22, 1995, WRIT purchased Frederick County Square Shopping Center for
an acquisition cost of $13.4 million. WRIT assumed a mortgage in the amount
$7.8 million and paid the balance in cash; the $7.8 million mortgage is not
included in the $29 million amount shown as real estate acquisitions for the
nine months ending September 30, 1995.
See accompanying notes to financial statements
5
<PAGE> 6
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Undistributed
Shares of Beneficial Gains on
Interest Outstanding Real Estate
(In Thousands) Shares Amount Dispositions
-------------------- ------------- ---------------
<S> <C> <C> <C>
Balance, December 31, 1995 31,752 $184,416 $15,319
Net income 20,884 0
Dividends (24,449) 0
-------------------- ------------- ---------------
Balance, September 30, 1996 31,752 $180,851 $15,319
==================== ============= ===============
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 (Unaudited)
NOTE A: NATURE OF BUSINESS
Washington Real Estate Investment Trust (WRIT or the Trust) is a
self-administered qualified equity real estate investment trust. The Trust's
business consists of the ownership of income-producing real estate properties
principally in the Greater Washington-Baltimore Region.
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"). 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
The following unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations,
although the company believes that the disclosures made are adequate to make
the information presented not misleading.
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, which is not
materially different than revenue recognition on a straight-line basis.
Buildings are depreciated on a straight-line basis over their estimated useful
lives. Effective January 1, 1995, WRIT revised its estimate of useful lives
for 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 three to 20 years. All tenant improvements are amortized
using the straight-line method over five years or the term of the lease if it
differs significantly from five 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 and temporary investments include investments readily convertible to known
amounts of cash with original maturities of 90 days or less.
Certain general and administrative expenses for the quarter and nine months
ended September 30, 1995 have been reclassified as real estate expenses to
conform to the current period presentation.
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.
7
<PAGE> 8
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 (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>
September 30,1996
(in thousands)
-------------
<S> <C>
Office buildings $161,575
Apartment buildings 60,137
Shopping centers 83,130
Industrial distribution centers 35,390
-------------
$340,232
=============
</TABLE>
Properties acquired by WRIT during the first nine months of 1996 are as
follows:
<TABLE>
<CAPTION>
Acquisition Rentable Square Acquisition Cost
Date Property Type Feet / units (in thousands)
- ----------- ----------------------------- -------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
3/13/96 Walker House Apartments Apartments 225,000 / 196 $10,798
5/17/96 Maryland Trade Center I and II Office 349,800 $28,388
8/26/96 The Ashby Apartments 348,600 / 276 $21,481
</TABLE>
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 September 30, 1996 are
$125,000, $137,000, $149,000, $163,000, $179,000 and $6,866,000 thereafter.
NOTE E: LINES OF CREDIT PAYABLE
On December 21, 1995 WRIT borrowed $3 million under its $50 million unsecured
credit commitment for the acquisition of Crossroads Distribution Center. On
March 13, 1996 WRIT borrowed $11 million under this commitment for the
acquisition of Walker House Apartments and on May 17, 1996 WRIT borrowed $28
million under this commitment for the acquisition of Maryland Trade Center I
and II. The $3 million advance bore interest at the rate of 6.15% until July
18, 1996 at which time the rate expired and was adjusted to 6.06% effective
until September 20, 1996. The $11 million advance bore interest at the rate of
5.78% until July 11, 1996 at which time the rate expired and was adjusted to
6.25 % effective until November 8, 1996. The $28 million advance bore
interest at the rate of 6.06% effective until October 15, 1996. On August 13,
1996 all three outstanding advances totalling $42 million plus accrued
interest were paid in full (See Capital Resources and Liquidity). Any new
advances will bear interest at LIBOR plus a spread based on WRIT's
interest coverage ratio. Based on WRIT's current interest coverage ratio, this
spread is 50 basis points over LIBOR. 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.
8
<PAGE> 9
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 (Unaudited)
NOTE E: LINES OF CREDIT PAYABLE (continued)
The $50 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
million exceeds the balance of outstanding advances and term loans. This fee
is payable quarterly in arrears beginning October 1995 until July 25, 1997.
This commitment also contains certain covenants which WRIT is required to meet
periodically.
WRIT had two outstanding advances totalling $25 million from 1995 on its other
$25 million unsecured credit commitment. On July 29, 1996 the initial interest
rate of 6.11% expired for the $18 million outstanding advance . The new rate of
5.74% was effective until August 28, 1996 at which time the advance including
accrued interest was paid in full (See Capital Resources and Liquidity). On
August 12, 1996 the interest rate of 5.99% expired for the $7 million
outstanding advance but was extended until August 19, 1996 at which time the
advance including accrued interest was paid in full (See Capital Resources and
Liquidity). On September 26, 1996 WRIT borrowed $4 million for capital
improvements and major renovations. The $4 million advance bears interest at
the rate of 6.83% until September 25, 1997 at which time it will adjust as
described below. 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 public debt rating on the senior notes payable. Based
on WRIT's second amendment to the credit agreement, this spread is 70 basis
points over LIBOR (See Subsequent Events). 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.
This $25 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 the August 13, 1996 effective date of the second amendment (See
Subsequent Events), and .175% thereafter on the amount that the $25 million
commitment 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.
As of September 30, 1996 there was one advance outstanding on the above credit
facilities in the amount of $4 million at an interest rate of 6.83% until
September 25, 1997.
NOTE F: SENIOR NOTES PAYABLE
On August 8, 1996 WRIT entered into an underwriting agreement to sell $50
million in 7.125% 7-year unsecured notes due August 13, 2003, and $50 million
in 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 $97.7 million. The 7-year notes bear an
effective interest rate of 7.46% and the 10 year notes have an average interest
rate of 7.49% for a combined effective interest rate of 7.47%. The notes are
rated BBB+ by Standard & Poor's, and Baa1 by Moody's Investors Service. WRIT
used the proceeds of these notes to pay down its lines of credit and to finance
acquisitions and capital improvements to its properties.
9
<PAGE> 10
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 (Unaudited)
NOTE G: ENVIRONMENTAL MATTERS
In the second quarter of 1996, WRIT received
the results of tests for asbestos performed at 29 of its properties built
before 1981 which had no previous and/or current environmental studies
performed. Asbestos containing materials were identified for remediation at 11
properties for an estimated cost of $295,000. As of September 30, 1996 no costs
have been incurred on this matter. WRIT estimates these remediations will be
completed by the first quarter of 1997.
NOTE H: SUBSEQUENT EVENTS
On October 31, 1996 WRIT acquired a two building industrial distribution
center, Alban Business Center, containing approximately 86,500 square feet of
industrial distribution space in Springfield, Virginia for an acquisition cost
of $4.17 million.
On November 4, 1996 WRIT completed the second amendment of its $25 million
unsecured credit commitment. Per the amendment, the pricing structure and
financial covenants have been modified retroactive to August 13, 1996. 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 public
debt rating on the senior notes payable. Based on WRIT's current rating, this
spread is 70 basis points over LIBOR as compared to WRIT's spread prior to the
amendment of 30 basis points over LIBOR. WRIT is also required to continue to
pay the lender an unused commitment fee at the amended rate of 0.175% per
annum, as compared to the prior rate of .20% per annum, on the amount that the
$25 million commitment exceeds the balance of outstanding advances and term
loans.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATION - Nine Months Ended September 30, 1996 Compared to the
Nine Months Ended September 30, 1995
REAL ESTATE RENTAL REVENUE:
For the nine months ended September 30, 1996, revenues increased $9 million to
$47.6 million from $38.6 million in the first nine months of 1995.
For the first nine months of 1996, WRIT's office building group had increases
of 30% in revenues and 29.2% in operating income as compared to the first nine
months of 1995. These increases were due primarily to the acquisitions of the
1220 19th Street office building in November 1995 and the Maryland Trade Center
I and II office buildings in May 1996 and increases in occupancy at the 1901
Pennsylvania Avenue office building. Comparing those office buildings owned by
WRIT for the entire first nine months of 1995 to their results in the
first nine months of 1996, revenue and operating income remained unchanged.
For the first nine months of 1996, WRIT's apartment group had increases of
20.5% in revenues and 16.8% in operating income as compared to the first nine
months of 1995. These increases were due primarily to the acquisition of
Walker House Apartments in March 1996, the Ashby in August of 1996 and
increased rental rates at 3801 Connecticut Avenue and increased occupancy at
Country Club Towers partially offset by increased vacancy at Munson Hill Towers
and increases in utility and snow removal expense due to the unusually severe
weather in the first quarter of 1996. Comparing those apartment buildings
owned by WRIT for the entire first nine months of 1995 to their results in
the first nine months of 1996, revenue increased 1.8% and operating income
increased 1.9%. The increases in revenues and operating income were due to
increased rental rates at 3801 Connecticut Avenue and increased occupancy at
Country Club Towers partially offset by increased vacancy at Munson Hill Towers
and increases in utility and snow removal expense due to the unusually severe
weather in the first quarter of 1996.
For the first nine months of 1996, WRIT's shopping center group had increases
of 15.3% in revenues and 11.8% in operating income as compared to the first
nine months of 1995. These increases were due primarily to the 1995
repositioning of Chevy Chase Metro Plaza and the acquisition of Frederick
County Square in August 1995, offset partially by increased vacancies at
Montgomery Village Center and increased snow removal expense in the first
quarter of 1996. Comparing those shopping centers owned by WRIT for the entire
first nine months of 1995 to their results in the first nine months of
1996, revenue increased 3.4% and operating income increased 1.6%. The increase
in revenue is primarily attributable to the repositioning of Chevy Chase Metro
Plaza and the increase in operating income is primarily attributable to the
repositioning of Chevy Chase Metro Plaza, offset partially by increased snow
removal expense in the first quarter of 1996.
For the first nine months of 1996, WRIT's industrial distribution
center group had increases of 22.9% in revenues and 21.8% in operating income
as compared to the first nine months of 1995. This was due primarily to the
acquisition in May 1995 of Tech 100 Industrial Park, the acquisition in
December 1995 of Crossroads Distribution Center and increased rental rates and
occupancy levels throughout the group. Comparing those industrial distribution
centers owned by WRIT for the entire first nine months of 1995 to their same
results in the first nine months of 1996, revenue increased 6.9% and operating
income increased 6.5%. These increases are primarily due to increased rental
rates and occupancy levels throughout the group.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING EXPENSES AND OTHER RESULTS OF OPERATIONS
Real estate operating expenses as a percentage of revenue was 34.2% for the
first nine months of 1996 as compared to 32.8% for the first nine months of
1995. This increase is primarily attributable to the increase in snow removal
and utility expenses caused by the unusually severe weather in the first
quarter of 1996.
Other income decreased as compared to the first nine months of 1995 due to
decreased investment earnings. This decrease resulted from a lower average
balance of cash and temporary investments in the third quarter of 1996 as
compared to the third quarter of 1995 resulting from the timing of receipt and
use thereof of proceeds from the August 1996 Debt offering compared to the July
1995 Equity underwriting.
Total interest expense was $3.32 million for the first nine months of 1996 as
compared to $1.68 million for the first nine months of 1995. For the first
nine months of 1996, lines of credit interest expense was $1.83 million
attributable to advances for 1995 and 1996 acquisitions, mortgage interest
expense was $517,700 and senior notes payable interest expense was $963,800.
For the first nine months of 1995, lines of credit interest expense was $1.60
million attributable to advances for 1994 and 1995 acquisitions and mortgage
interest expense was $75,500.
General and administrative expenses increased $93,600 to $2.36 million as
compared to $2.27 million for the first nine months of 1995. The increase for
the first nine months of 1996 as compared to the first nine months of 1995 is
primarily attributable to the incentive compensation plan adopted in 1996 and
charged to operations in the second and third quarter of 1996 and personnel
additions in 1995 and 1996. This increase was partially offset by the net
decrease in personnel expenses due to the completion of severance pay in June,
1995 to WRIT's former Chairman and Chief Executive Officer, B. Franklin Kahn.
General and administrative expenses as a percentage of revenue decreased to
5.0% in the first nine months of 1996 from 5.9% in the first nine months of
1995.
CAPITAL RESOURCES AND LIQUIDITY
WRIT has utilized the proceeds of share offerings, long-term fixed interest
rate debt, bank lines of credit and cash flow from operations for its capital
needs. External sources of capital will continue to be available to WRIT from
its existing unsecured credit commitments and management believes that
additional sources of capital are available from selling additional shares
and/or the sale of additional long-term senior notes. The funds raised would
be used to pay off any outstanding advances on the lines of credit, and for new
acquisitions and capital improvements. On August 8, 1996 WRIT entered into an
underwriting agreement to sell $50 million in 7.125% 7-year unsecured notes due
August 13, 2003, and $50 million in 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 $98 million from
the sale of senior unsecured notes. WRIT's underwriting expenses were $301,600
and thus the net proceeds received by the trust from the sale of the senior
unsecured notes were $97.7 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 subsequent
to August 13, 1996 (See Notes C and H). The balance of the net proceeds may be
used to acquire and/or renovate, expand or improve income producing properties
or to repay other indebtedness drawn under the lines of credit.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY (continued)
Net cash provided by operating activities totalled $26.4 million for the first
nine months of 1996, as a result of net income of $20.9 million, depreciation
of $5.2 million, increases in other assets of $1.8 million and increases in
liabilities (other than mortgage note, senior notes and lines of credit
payable) of $2.1 million. The majority of these increases were due to a larger
property portfolio.
Net cash used in investing activities for the first nine months of 1996 was
$67.6 million including property acquisitions of $60.7 million and capital
improvements to real estate of $7 million
Net cash provided by financing activities for the first nine months of 1996 was
$49.1 million, including line of credit borrowings of $43 million and net
proceeds from senior note borrowings of $97.6 million, offset by lines of
credit repayments of $67 million and principal repayments of $87,000 on the
mortgage note payable and $24.4 million in dividends paid. Rental revenue has
been the principal source of funds to pay WRIT's operating expenses, interest
expense and dividends to shareholders.
WRIT has unsecured lines of credit with commercial banks for up to $75 million
which bear interest at an adjustable spread over LIBOR based on the Trust's
interest coverage ratio and public debt rating. As of September 30,1996, WRIT
had a $4 million advance outstanding under its lines of credit with an interest
rate of 6.83%, and $71 million available for future advances. The $4 million
advance was used for capital improvements and major renovations. The $4
million advance matures September 25, 1997, but WRIT has the option to extend
it to January 31, 1999.
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 September 30,
1996, WRIT Limited Partnership has acquired six 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 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.
13
<PAGE> 14
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
None
(27) Financial Data Schedule
(b) Reports on Form 8-K
WRIT filed a Current Report on Form 8-K dated October 17,
1996 reporting the change in certifying accountant.
14
<PAGE> 15
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,
Senior Vice President Finance
and Chief Financial Officer
//Laura M. Franklin//
------------------------------------------------
Laura M. Franklin,
Vice President Finance
and Chief Accounting Officer
Date: November 14, 1996
15
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
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0
0
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