<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 (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:
March 31, 1997
(In Thousands)
--------------
Office buildings $164,927
Shopping centers 85,657
Apartment buildings 61,108
Industrial distribution centers 58,568
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$370,260
--------
--------
Properties acquired by WRIT during the first quarter of 1997 are as follows:
<TABLE>
<CAPTION>
Acquisition Rentable Acquisition Cost
Date Property Type Square Feet (In Thousands)
- ----------- --------------------------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
2/28/97 Ammendale Technology Park I Industrial 167,000 $ 7,847
2/28/97 Ammendale Technology Park II Industrial 108,000 5,885
------- -------
275,000 $13,732
------- -------
------- -------
</TABLE>
NOTE D: UNSECURED LINES OF CREDIT PAYABLE
As of March 31, 1997, WRIT had an unsecured credit commitment of $25 million,
$4 million of which was outstanding with an interest rate of 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.
The $25.0 million credit commitment requires WRIT to pay the lender an
unused commitment fee at the rate of .175% per annum on the amount by which
$25.0 million exceeds the balance of outstanding advances and term loans. At
March 31, 1997, $21 million of this commitment was unused. This fee is
payable monthly. 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 March 31, 1997.
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.
As of March 31, 1997, $18 million was outstanding on the $50.0 million credit
commitment with rates ranging from 6.04% to 6.29%. 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING EXPENSES AND OTHER RESULTS OF OPERATIONS (continued)
Other income decreased as compared to the first three months of 1996 due to
decreased investment earnings. This decrease resulted from a lower average
balance of cash and temporary investments in the first quarter of 1997 as
compared to the first quarter of 1996.
Total interest expense was $2.2 million for the first three months of 1997 as
compared to $654,000 for the first three months of 1996. This increase is
primarily attributed to the issuance of $100 million in debt securities in
August 1996. For the first three months of 1997, senior notes payable
interest expense was $1.8 million, lines of credit interest expense was
$167,000 attributable to advances for 1996 and 1997 acquisitions and mortgage
interest expense was $171,000. For the first three months of 1996, lines of
credit interest expense was $481,000 attributable to advances for 1995 and
1996 acquisitions and mortgage interest expense was $173,000.
General and administrative expenses increased $202,000 to $957,000 as
compared to $755,000 for the first three months of 1996. The increase for
the first three months of 1997 as compared to the first three months of 1996
is primarily attributable to personnel additions in 1996 and incentive
compensation charged to operations in the first quarter of 1997 but not
charged to operations in the first quarter of 1996.
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.
On March 12, 1997, WRIT filed a shelf registration statement with the
Securities and Exchange Commission which registers up to $200 million of
securities for sale at WRIT's option. The securities to be sold may be any
combination of common shares, debt, preferred stock or common share warrants.
Any issuance of preferred shares would require the prior approval of the
Board of Trustees and a majority of the shareholders. The shelf registration
statement effectively pre-files a registration statement for securities
thereby shortening the time required to get to market when a decision to
raise capital is made. The registration statement is effective for an
unlimited period as long as WRIT continues to meet certain Securities and
Exchange Commission reporting requirements.
WRIT has line of credit commitments in place from commercial banks for up to
$75.0 million which bear interest at an adjustable spread over LIBOR based on
the Trust's interest coverage ratio and public debt rating. As of March
31,1997, WRIT had outstanding under its lines of credit $22 million in
advances with an average interest rate of 6.16%, and $53 million available
for future advances. These advances were used for the acquisition of the
Ammendale Technology Park I and II and capital improvements and major
renovations to WRIT's various properties. The $22 million in advances have
maturities ranging from May 25, 1997 until September 25, 1997. WRIT intends
to renew these advances at the then current market rate.
12
