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, 1998 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
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
--------------
(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 35,683,987
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
--- ---
1
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WASHINGTON REAL ESTATE INVESTMENT TRUST
INDEX
<TABLE>
<CAPTION>
Page
<S><C>
Part I: Financial Information
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statement of Changes in Shareholders' Equity 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis 12
Part II: Other Information
-----------------
Item l. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</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, 1997 included in the Trust's 1997 Form 10-K Report filed with the
Securities and Exchange Commission.
2
<PAGE>
Part I
Item I. Financial Statements
WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(In Thousands, except per share amounts)
(Unaudited)
March 31, December 31,
1998 1997
----------- ------------
Assets
Real estate at cost $504,466 $504,315
Accumulated depreciation (58,066) (56,015)
-------- --------
Total investment in real estate 446,400 448,300
Cash and temporary investments 22,535 7,908
Rents and other receivables, net of allowance
for doubtful accounts of $968 and $884,
respectively 4,279 4,035
Prepaid expenses and other assets 15,374 8,328
-------- --------
$488,588 $468,571
======== ========
Liabilities
Accounts payable and other liabilities $7,953 $8,068
Tenant security deposits 3,234 3,089
Advance rents 2,916 2,615
Mortgage note payable 7,438 7,461
Lines of credit payable -- 95,250
Notes payable 210,000 100,000
-------- --------
231,541 216,483
-------- --------
Shareholders' Equity
Shares of beneficial interest; $.01 par value;
100,000,000 shares authorized: 35,683,987 and
35,678,110 shares issued and outstanding at
March 31, 1998 and December 31, 1997,
respectively 357 357
Additional paid-in capital 256,690 251,731
-------- --------
257,047 252,088
-------- --------
$488,588 $468,571
======== ========
See accompanying notes to financial statements
3
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WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
---------- ----------
<S> <C>
Real estate rental revenue $24,501 $18,498
Real estate expenses (7,149) (5,947)
------- -------
17,352 12,551
Depreciation and amortization (3,641) (2,430)
------- -------
Income from real estate 13,711 10,121
Other income 230 70
Interest expense (3,778) (2,207)
General and administrative (1,527) (956)
------- -------
Income before gain on sale of real estate 8,636 7,028
------- -------
Gain on sale of real estate 5,863 -
------- -------
Net Income $14,499 $7,028
======= =======
Per share information based on the
weighted average number
of shares outstanding
Shares 35,683,987 31,821,687
Income before gain on sale of real estate per share--Basic $0.24 $0.22
========== =========
Net income per share--Basic $0.41 $0.22
========== =========
Dividends paid $0.27 $0.26
========== =========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended March 31,
1998 1997
------------ ------------
Cash Flow From Operating Activities
Net income $14,499 $7,028
Adjustments to reconcile net income to net cash
provided by operating activities
Gain on sale of real estate (5,863) -
Depreciation and amortization 3,641 2,430
Changes in other assets (177) (403)
Changes in other liabilities 425 (1,059)
------- ------
Net cash provided by operating activities 12,525 7,996
------- ------
Cash Flow From Investing Activities
Capital improvements to real estate (3,170) (3,948)
Non-real estate capital improvements (206) (16)
Real estate acquisitions - (13,732)
Cash received for sale of real estate 7,589 -
------- -------
Net cash provided by (used in) investing
activities 4,213 (17,696)
------- -------
Cash Flow From Financing Activities
Dividends paid (9,635) (8,275)
Net proceeds from debt offering 102,797 -
Borrowings - Lines of credit - 17,000
Repayments - Lines of credit (95,250) -
Principal payments - Mortgage note payable (23) (31)
Share options exercised - 372
------- -------
Net cash provided by (used in) financing
activities (2,111) 9,066
------- -------
Net increase (decrease) in cash and temporary
investments 14,627 (634)
Cash and temporary investments at beginning of year 7,908 1,676
------- -------
Cash and temporary investments at end of period $22,535 $1,042
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the first three months for interest $ 4,685 $3,876
======= =======
See accompanying notes to financial statements
5
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WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Additional Shareholders'
Shares Par Value Paid in Capital Equity
------- --------- --------------- ------------
<S><C>
Balance, December 31, 1997 35,678 $357 $251,731 $252,088
Net income 14,499 14,499
Dividends (9,635) (9,635)
Share Options Exercised 6 0 95 95
------- --------- --------------- ------------
Balance, March 31, 1998 35,684 $357 $256,690 $257,047
======= ========= =============== ============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 (Unaudited)
NOTE 1: 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 2: ACCOUNTING POLICIES
- ---------------------------
BASIS OF PRESENTATION
The accompanying 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
WRIT believes that the disclosures made are adequate to make the information
presented not misleading.
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
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.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, WRIT adopted the provisions of Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"). The
adoption of SFAS No. 130 did not have a material effect on WRIT's financial
statements.
In 1997, WRIT adopted the provisions of Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and other Related
Information" ("SFAS No. 131"). SFAS No. 131 requires public companies to report
financial information about operating segments. See Note 7 for WRIT's disclosure
of certain operating information for each of its four property types: Office
Buildings, Industrial Distribution Centers, Apartment Buildings and
Shopping Centers.
7
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WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 (Unaudited)
In February 1998, SFAS No. 132 "Employers' Disclosure about Pension and Other
Postretirement Benefits" ("SFAS No. 132") was issued. SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. It standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on the changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures previously required. SFAS
No. 132 is effective for fiscal years beginning after December 31, 1997, and is
not expected to have a material effect on WRIT's financial 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 to five 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 notes payable are capitalized and
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.
WRIT recognizes impairment losses 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. During the three months ended March 31, 1998, no such losses were
recorded.
CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments includes cash equivalents with original
maturities of 90 days or less.
8
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 (Unaudited)
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.
EARNINGS PER SHARE
WRIT has computed basic earnings per share. The difference between basic
earnings per share and diluted earnings per share is immaterial and therefore
not presented.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
NOTE 3: 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, 1998
(In Thousands)
--------------
Office buildings $270,973
Industrial distribution centers 64,845
Apartment buildings 80,476
Shopping centers 88,172
--------
$504,466
========
NOTE 4: UNSECURED LINES OF CREDIT PAYABLE
- ------------------------------------------
As of March 31, 1998, WRIT had two unsecured credit commitments in the amount of
$50 million and $25 million. Also, during the first quarter of 1998 WRIT also
had an unsecured bridge loan commitment which expired in February 1998. No
amounts were outstanding under the credit commitments or the bridge loan
commitment as of March 31, 1998. Under the terms of the credit commitments and
the bridge loan commitment, interest only is payable monthly, in arrears, on the
unpaid principal balance. Amounts outstanding under the credit commitments and
the bridge loan commitment during the three months ended March 31, 1998 bore
interest at rates ranging from 6.61% to 8.50% per annum. All new advances 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.
9
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WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 (Unaudited)
The credit commitments require WRIT to pay the lenders unused commitment fees at
the rate of 0.175% per annum on the amount by which the unused portion of the
commitment exceeds the balance of outstanding advances and term loans. These
fees are payable quarterly. At March 31, 1998, the entire amounts available
under the credit commitments were unused. The credit commitments also contain
certain financial covenants related to debt, net worth, and cash flow, and
non-financial covenants which WRIT has met as of March 31, 1998.
NOTE 5: NOTES PAYABLE
- ---------------------
On August 13, 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. 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 March 31, 1998.
On February 20, 1998, WRIT sold $50 million of 7.25% unsecured notes due
February 25, 2028 at 98.653% to yield approximately 7.36%. WRIT also sold $60
million in unsecured Mandatory Par Put Remarketed Securities ("MOPPRS") at an
effective borrowing rate through the remarketing date (February 2008) of
approximately 6.74 %. WRIT used the proceeds of these notes for general business
purposes, including repayment of outstanding advances under its lines of credit
and to finance acquisitions and capital improvements to its properties. WRIT's
costs of the borrowings, including the settlement of certain interest rate lock
agreements, of approximately $7.2 million will be amortized over the lives of
the notes using the effective interest method.
NOTE 6: SALE OF REAL ESTATE
- ---------------------------
On March 23, 1998, WRIT sold the Shirley-395 Business Center. The property was
sold for approximately $7.6 million resulting in a gain of approximately $5.9
million. WRIT intends to use the proceeds from the sale to invest in other real
estate.
NOTE 7: SEGMENT INFORMATION
- ---------------------------
WRIT has four reportable segments: Office Buildings, Industrial Distribution
Centers, Apartment Buildings and Shopping Centers. Office Buildings represent
50% of real estate rental revenue and provide office space for various types of
businesses. Industrial Distribution Centers represent 12% of real estate rental
revenue and are used for warehousing and distribution. Apartment Buildings
represent 21% of real estate rental revenue. These properties provide housing
for families throughout the Washington Metropolitan area. Shopping Centers
represent the remaining 17% of real estate rental revenue and are retail outlets
for a variety of stores.
The accounting policies of the segments are the same as those described in Note
2. WRIT evaluates performance based upon income from real estate from the
combined properties in each segment. WRIT's reportable segments are a
consolidation of related properties which offer different products. They are
managed separately because each segment requires different operating, pricing
and leasing strategies. All of these properties have been acquired separately
and are incorporated into the applicable segment.
10
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------
Office Industrial Apartment Shopping Corporate
Buildings Centers Buildings Centers and Other Consolidated
---------------- --------------- ---------------- -------------- -------------- ---------------
<S><C>
Real estate rental revenue $12,364 $2,860 $5,159 $4,118 $ - $24,501
Real estate expenses 3,905 557 1,896 791 - 7,149
Depreciation and amortization 2,049 459 637 496 - 3,641
---------------- --------------- ---------------- -------------- -------------- ---------------
Income from real estate 6,410 1,844 2,626 2,831 - 13,711
Other income 230 230
Interest expense (167) (3,611) (3,778)
General and administrative (1,527) (1,527)
---------------- --------------- ---------------- -------------- -------------- ---------------
Net income $6,410 $1,844 $2,626 $2,664 $(4,908) $8,636
================ =============== ================ ============== ============== ===============
Capital investments $1,996 $317 $303 $554 $206 $3,376
================ =============== ================ ============== ============== ===============
Total assets $253,817 $58,128 $64,834 $77,345 $34,464 $488,588
================ =============== ================ ============== ============== ===============
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
---------------------------------
Office Industrial Apartment Shopping Corporate
Buildings Centers Buildings Centers and Other Consolidated
---------------- --------------- ---------------- -------------- -------------- ----------------
<S><C>
Real estate rental revenue $8,060 $2,164 $4,339 $3,935 $ - $18,498
Real estate expenses 2,917 451 1,698 881 - 5,947
Depreciation and amortization 1,206 319 487 418 - 2,430
---------------- --------------- ---------------- -------------- -------------- ----------------
Income from real estate 3,937 1,394 2,154 2,636 - 10,121
Other income 70 70
Interest expense (171) (2,036) (2,207)
General and administrative (956) (956)
---------------- --------------- ---------------- -------------- -------------- ----------------
Net income $3,937 $1,394 $2,154 $2,465 $(2,922) $7,028
================ =============== ================ ============== ============== ================
Capital investments $1,735 $13,935 $414 $1,596 $ 16 $17,696
================ =============== ================ ============== ============== ================
Total assets $151,366 $52,484 $47,048 $76,662 $5,963 $333,523
================ =============== ================ ============== ============== ================
</TABLE>
11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATION
- --------------------
WRIT's Management's Discussion and Analysis of Financial Condition and Results
of Operations contains statements that may be considered forward looking.
Although the Trust believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Factors that could cause
actual results to differ materially from the Trust's current expectations
include general economic conditions, local real estate conditions, the
performance of properties that the Trust has acquired or may acquire and other
risks, detailed from time to time in the Trust's past and future SEC reports.
REAL ESTATE RENTAL REVENUE: Three Months Ended March 31, 1998 Compared to the
- -----------------------------------------------------------------------------
Three Months Ended March 31, 1997
- ---------------------------------
Total revenues for the first quarter of 1998 increased 32.5% ($6.0 million) to
$24.5 million from $18.5 million in the first quarter of 1997.
For the first quarter of 1998, WRIT's office buildings had increases of 53.4% in
revenues and 64.5% in operating income, over the first quarter of 1997. These
increases were due primarily to the acquisition of 1600 Wilson Boulevard office
building in October 1997 and 7900 Westpark Drive in November 1997. Comparing
those office buildings owned by WRIT for the entire first quarter of 1997 to
their results in the first quarter of 1998, revenue and operating income
increased 8.2% and 15.2% respectively, over the first quarter of 1997. The
increases in revenues and operating income were due to increases in rental rates
and occupancy across the sector and decreased operating expenses (primarily
utilities expense and snow removal) resulting from a milder winter season in
1998 as compared to 1997.
For the first quarter of 1998, WRIT's industrial distribution center revenues
and operating income increased 32.2% and 34.5% respectively, over the first
quarter of 1997. This was due primarily to the acquisitions of Ammendale
Technology Park I and II in February 1997 and Pickett Industrial Park in October
1997. Comparing those industrial distribution centers owned by WRIT for the
first quarter of 1997 to their same results in the first quarter of 1998,
revenue and operating income increased by 3.0% and 5.2% respectively, from the
first quarter of 1997. These increases are primarily due to increased rental
rates.
For the first quarter of 1998, WRIT's apartment revenues and operating income
increased 18.9% and 23.5% respectively, over the first quarter of 1997. These
increases were due primarily to the acquisition of the Bethesda Hill Apartments
in November 1997. Comparing those apartment buildings owned by WRIT for the
entire first quarter of 1997 to their results in the first quarter of 1998,
revenue and operating income increased 2.5% and 4.7% respectively, over the
first quarter of 1997. The increases in revenues and operating income were due
primarily to increased rental rates for the sector and decreased operating
expense.
For the first quarter of 1998, WRIT's shopping centers had increases of 4.7% in
revenues and 8.9% in operating income over the first quarter of 1997. These
increases were due primarily to rental rate and occupancy gains for the sector
and decreased common area maintenance expense (primarily snow removal) due to a
milder winter season in 1998 as compared to 1997. There were no property
additions in WRIT's shopping center portfolio in the first quarter of 1998
compared to the first quarter of 1997.
12
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING EXPENSES AND OTHER RESULTS OF OPERATIONS: Three Months Ended
- -----------------------------------------------------------------------
March 31, 1998 Compared to the Three Months Ended March 31, 1997
- ----------------------------------------------------------------
Depreciation and amortization expense increased $1.2 million or 49.9% to $3.6
million as compared to $2.4 million for the first quarter of 1997. This is
primarily due to 1997 acquisitions of $138.8 million and 1997 capital and tenant
improvement expenditures which totaled $13.9 million.
Real estate expenses increased $1.2 million or 20.2% to $7.1 million as compared
to $5.9 million for the first quarter of 1997. This increase is primarily due to
expenses relating to properties acquired in 1997, as well as decreased utility
expenses, operating services and snow removal costs resulting from a milder
winter season in 1998 as compared to 1997.
Other income increased as compared to the first quarter of 1997 due to increased
investment earnings. This increase resulted from a higher average balance of
cash and temporary investments in the first quarter of 1998 as compared to the
first quarter of 1997.
Total interest expense was $3.8 million for the first quarter of 1998 as
compared to $2.2 million for the first quarter of 1997. This increase is
primarily attributable to the issuance of $110 million in debt securities in
February 1998 and due to a higher average amount outstanding under WRIT's lines
of credit in the first quarter of 1998. For the first quarter of 1998, notes
payable interest expense was $2.6 million, lines of credit interest expense was
$1.0 million attributable to advances for 1997 acquisitions and mortgage
interest expense was $167,000. For the first quarter of 1997, notes payable
interest expense was $1.9 million, lines of credit interest expense was $167,000
and mortgage interest expense was $170,000.
General and administrative expenses increased $571,000 to $1.5 million as
compared to $956,000 for the first quarter of 1997. The increase is primarily
attributable to personnel additions in 1997 and 1998, increased incentive
compensation, and increased professional fees. For the first quarter of 1998,
general and administrative expenses as a percentage of revenue were 6.23% as
compared to 5.17% for the first quarter of 1997.
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 the Trust's lines of credit and for new
acquisitions and capital improvements.
13
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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,
1998, WRIT had no amounts outstanding under its lines of credit.
In March 1998, WRIT filed a shelf registration statement with the Securities and
Exchange Commission which registered up to 4,500,000 common shares for issuance
at WRIT's option. The shares may be issued in exchange for properties or
interests in certain property owning entities. The shelf registration may
facilitate the acquisition of properties in exchange for shares and will remain
effective for an indefinite period as long as WRIT continues to meet certain
Securities and Exchange Commission reporting requirements.
Cash flow from operating activities totaled $12.2 million for the first three
months of 1998, as a result of net income before gain on sale of real estate of
$8.6 million, depreciation and amortization of $3.6 million, increases in other
assets of $177,000 and increases in liabilities (other than mortgage note,
senior notes and lines of credit payable) of $425,000. The majority of the
increase in cash flow from operating activities was due to a larger property
portfolio and increased rental rates.
Net cash used in investing activities for the first three months of 1998 was
$4.4 million, including cash received for sale of real estate of $7.6 million
net of capital improvements to real estate of $3.2 million and non-real estate
capital improvements of $206,000.
Net cash used in financing activities for the first three months of 1998 was
$2.0 million, including line of credit repayments of $95.3 million, proceeds
from debt offering of $102.8 million, principal repayments of $23,000 on the
mortgage note payable and $9.6 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.
Management believes that WRIT 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 March 31, 1998, WRIT
Limited Partnership has acquired 14 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.
14
<PAGE>
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
15
<PAGE>
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
/s/ Larry E. Finger
________________________________________
Larry E. Finger,
Senior Vice President Finance
and Chief Financial Officer
/s/ Laura M. Franklin
________________________________________
Laura M. Franklin,
Vice President Finance
and Chief Accounting Officer
Date: May 15, 1998
16
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