SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL 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 THE FISCAL YEAR ENDED December 31, 1997 COMMISSION FILE NO. 1-6622
----------------- ------
WASHINGTON REAL ESTATE INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
MARYLAND 53-0261100
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<S><C>
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
</TABLE>
10400 CONNECTICUT AVENUE, KENSINGTON, MARYLAND 20895
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code (301) 929-5900
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of exchange on which registered
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Shares of Beneficial Interest American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
----
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
----
As of February 20, 1998, 35,683,987 Shares of Beneficial Interest were
outstanding and the aggregate market value of such shares held by non-affiliates
of the registrant was approximately $585,349,000 (based on the closing price of
the stock on February 20, 1998).
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the Trust's 1998
Notice of Annual Meeting and Proxy Statement.
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST
1997 FORM 10-K ANNUAL REPORT
INDEX
<TABLE>
<CAPTION>
PART I Page
----
<S><C>
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 18
Signatures 21
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
--------
Washington Real Estate Investment Trust ("WRIT" or the "Trust") is a
self-administered qualified equity real estate investment trust ("REIT"). The
Trust's business consists of the ownership of income-producing real estate
properties in the Mid-Atlantic Region. The Trust has a fundamental strategy of
regional focus, diversified property type ownership and conservative financial
management.
WRIT has elected to qualify as a REIT under the Internal Revenue Code ("the
Code"). Accordingly, WRIT is relieved of Federal income taxes provided that
capital gains and at least 95% of its ordinary income are distributed to
shareholders in the form of dividends and that it complies with all REIT related
aspects of the Code. Over the last five years dividends paid per share have been
$1.07 for 1997, $1.03 for 1996, $.99 for 1995, $.92 for 1994 and $.89 for 1993.
The indicated annualized dividend rate for 1998, based upon the March 31, 1998
dividend, is $1.08.
WRIT's geographic focus is based on two basic principles:
1. Real estate is a local business and is much more effectively selected
and managed by owners located and expert in the region.
2. Geographic markets deserving of focus must be amongst the nation's best
markets with a strong primary industry foundation but be diversified
enough to withstand downturns in its primary industry.
WRIT considers markets to be local if they can be reached from Washington, D.C.
within two hours by car and have the demographics of a megalopolis. WRIT's ideal
geographic market reaches from Philadelphia, Pennsylvania on the north to
Richmond, Virginia on the south. While WRIT has historically focused most of its
investments in the Greater Washington-Baltimore Region, in order to maximize
acquisition opportunities, WRIT will consider investments within the two hour
radius described above.
All of WRIT's Trustees, Officers and employees live and work in the Greater
Washington-Baltimore region and WRIT's Officers average over 17 years of
experience in this region.
The Greater Washington-Baltimore region is the nation's fourth largest with a
population exceeding 7.1 million. Combining the Richmond to Philadelphia areas
with the Washington-Baltimore area, the total population is approximately 13
million. The Washington-Baltimore region is ranked first in the U.S. in median
household income and percentage of population with education at the
undergraduate and postgraduate level.
While the Federal government is the foundation of the region's economy, private
sector job growth has resulted in total non-farm employment in the Washington
area growing 91% from 1.6 million jobs in 1970, to 13.1 million jobs in 1997,
while the percentage of Federal government civilian employment in the region
decreased from 21.2% to 11.4%. Since January 1980, seasonally-adjusted
unemployment in the Washington area has averaged 4.1% with December 1997
unemployment standing at 3.1%.
The Greater Washington-Baltimore region is a leader in the rapidly growing
technology/infocom and biotech/health care industries. It is the center of the
U.S. Space Commerce/Satellite Industry with Comsat, GTE Spacenet, Intelsat,
Lockheed-Martin and NASA all headquartered here in the region. The region has
the nation's second highest concentration of technology companies and the third
highest concentration of biotech companies.
This region is also the headquarters for several of the largest U.S. and
international financial institutions including the World Bank, International
Monetary Fund, Inter-American Development Bank, Export-
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<PAGE>
Import Bank, Federal National Mortgage Association (Fannie Mae), Federal Home
Loan Mortgage Corp. (Freddie Mac) and the Student Loan Marketing Association
(Sallie Mae).
Other major public companies headquartered in the region include Mobil Oil, MCI,
USAirways, Marriott International, Lockheed-Martin, McCormick Spice Co. and
Gannett Co. The region is also the second most popular tourist destination in
the world. Most importantly, the Mid-Atlantic region is known as a job center,
with solid educational opportunities and easy access to leisure time activities.
While the region has clearly diversified beyond the Federal government town of
the past, the Federal government is still the foundation of the region's
economy. Therefore, it is important to understand how government "cutbacks" have
impacted the region.
First, despite a 13.8% decrease in direct Federal civilian employment from 1994
through 1997, the region's unemployment rate never rose above a seasonally
adjusted 4.5% and was at 3.1% in December 1997. This is partially due to the
strength and diversity of this local economy, and partially due to the fact that
accompanying these direct employment decreases were substantial local increases
in Federal procurement (purchases of goods and services).
While Federal procurement spending decreased nationally, it became more
concentrated and increased in the Greater Washington-Baltimore area because
Federal contractors moved closer to their Federal clients in order to better
compete for this business. Federal procurement decreased by 3.5% nationally from
1991 to 1997, but increased in the Washington area by over 42.5%.
The Trust currently owns a diversified portfolio consisting of twelve shopping
centers, eighteen office buildings, eight apartment buildings and fifteen
industrial distribution centers. WRIT's principal objective is to invest in high
quality real estate in prime locations and to monitor closely the management of
these properties, including active leasing and ongoing capital improvement
programs. The percentage of total real estate rental revenue by property group
for 1997, 1996 and 1995, and the percent leased as of December 31, 1997 were as
follows:
Real Estate Rental Revenue
Percent Leased --------------------------
December 31, 1997 1997 1996 1995
----------------- ---- ---- ----
96% Office buildings 45% 44% 41%
95% Shopping centers 20% 23% 26%
97% Apartment buildings 23% 22% 22%
93% Industrial distribution 12% 11% 11%
--- --- ---
100% 100% 100%
=== === ===
On a combined basis, WRIT's portfolio was 95% occupied in 1997 and 93% occupied
in 1996 and 1995.
Total revenue was $79.4 million for 1997, $65.5 million for 1996 and $52.6
million for 1995. In 1995 through 1997, WRIT acquired six office buildings, one
shopping center, three apartment buildings and seven industrial distribution
centers for a total of seventeen properties. These acquisitions were the primary
reason for the shifting of each group's percentage of total revenue. No single
tenant accounted for more than 3.04% of revenue in 1997, 2.39% in 1996 and 2.05%
in 1995. Various agencies of the U.S. government are counted separately and
include the Department of Commerce, Immigration and Naturalization Service, U.S.
Postal Service, Social Security Administration and U.S. Patent Office. All
Federal government tenants in the aggregate accounted for approximately 5.13% of
WRIT's 1997 total revenue. The larger non-Federal government tenants include TJ
Maxx, District of Columbia Metropolitan Police Department, Pepsi Cola, Giant
Food, Crestar Bank, CVS, George Washington University, Lockheed-Martin,
NationsBank, OAO, Montgomery County and Prince George's County, Maryland and
also the State of Maryland.
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<PAGE>
As of December 31, 1997, 7900 Westpark Office building accounted for 16% of
total assets based upon book value. No other single property accounted for more
than 10% of total assets. No single property accounted for more than 10% of
total revenues.
The actual day-to-day property management functions at the properties owned by
the Trust are carried out by an independent management company whose only client
is WRIT. WRIT closely monitors the activities of this company to assure the
highest quality of service and cost effectiveness. No WRIT Trustee or Officer is
a director or owns any interest in the management company.
The Trust expects to continue investing in additional income producing property.
WRIT invests only in properties which management believes will continue to
increase in income and value. WRIT's properties compete for tenants with other
properties throughout the respective areas in which they are located. All
properties compete for tenants on the basis of location, quality and rental
rates.
Historically, WRIT has acquired 100% ownership in property. However, in 1995
WRIT formed a subsidiary partnership in which WRIT currently owns substantially
all of the partnership interests. As of December 31, 1997, the WRIT partnership
has acquired fourteen properties for cash contributed or loaned by WRIT.
WRIT intends to use the WRIT 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. The terms of the partnership agreement provide that the limited
partnership units are entitled to distributions substantially equivalent to the
distributions on WRIT shares. A holder of limited partnership units in the WRIT
partnership will be entitled to demand that the partnership redeem the holder's
units upon 10 business days notice. Upon such demand, WRIT, at its option, may
redeem such units for cash or WRIT shares.
WRIT believes that the WRIT partnership will provide WRIT an opportunity to
acquire real estate assets which might not otherwise have been offered to it.
WRIT makes capital improvements on an ongoing basis to its properties for the
purpose of maintaining and increasing their value. Major improvements and/or
renovations to the properties in 1997 are discussed on page 8.
Further description of the property groups is contained in Item 2, Properties
and in Schedule III. Reference is also made to Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations.
The number of persons employed by the Trust was 39 as of February 20, 1998.
ITEM 2. PROPERTIES
----------
The schedule on the following page lists the Trust's real estate investment
portfolio as of December 31, 1997. The total number of properties was
fifty-three (53) at that date.
As of December 31, 1997, the percent leased is the percentage of net rentable
space for which fully executed leases exist and may include signed leases for
space not yet occupied by the tenant.
Cost information is included in Schedule III to WRIT's financial statements
included in this Form 10-K Annual Report.
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<PAGE>
SCHEDULE OF PROPERTIES
----------------------
<TABLE>
<CAPTION>
Percent
Year Year Net Rentable* Leased
Properties Location Acquired Constructed Square Feet 12/31/97
---------- -------- -------- ----------- ------------- --------
<S><C>
Office Buildings
- ----------------
The WRIT Building Kensington, MD 1979 1965 65,000 100%
1901 Pennsylvania Avenue Washington, D.C. 1977 1960 97,000 91%
51 Monroe Street Rockville, MD 1979 1975 210,000 95%
444 N. Frederick Avenue Gaithersburg, MD 1989 1981 66,000 96%
7700 Leesburg Pike Falls Church, VA 1990 1976 145,000 93%
Arlington Financial Center Arlington, VA 1992 1963 51,000 100%
515 King Street Alexandria, VA 1992 1966 78,000 90%
The Lexington Building Rockville, MD 1993 1970 47,000 100%
The Saratoga Building Rockville, MD 1993 1977 59,000 96%
Brandywine Center Rockville, MD 1993 1969 35,000 100%
Tycon Plaza II Vienna, VA 1994 1981 131,000 99%
Tycon Plaza III Vienna, VA 1994 1978 152,000 97%
6110 Executive Boulevard Rockville, MD 1995 1971 199,000 90%
1220 19th Street Washington, D.C. 1995 1976 104,000 95%
Maryland Trade Center I Greenbelt, MD 1996 1981 191,000 98%
Maryland Trade Center II Greenbelt, MD 1996 1984 159,000 100%
1600 Wilson Boulevard Arlington, VA 1997 1973 167,000 96%
7900 Westpark Drive McLean, VA 1997 1972/1986 478,000 100%
--------- ---
Subtotal 2,434,000 96%
========= ===
Shopping Centers
- ----------------
Concord Centre Springfield, VA 1973 1960 76,000 93%
Bradlee Alexandria, VA 1984 1955 168,000 93%
Clairmont Salisbury, MD 1976 1965 40,000 87%
Dover Mart Dover, DE 1973 1960 44,000 68%
Chevy Chase Metro Plaza Washington, D.C. 1985 1975 51,000 100%
Prince William Plaza Woodbridge, VA 1968 1967 55,000 88%
Takoma Park Takoma Park, MD 1963 1962 59,000 100%
Westminster Westminster, MD 1972 1969 165,000 87%
Wheaton Park Wheaton, MD 1977 1967 71,000 98%
Montgomery Village Center Gaithersburg, MD 1992 1969 196,000 97%
Shoppes of Foxchase Alexandria, VA 1994 1960 128,000 99%
Frederick County Square Frederick, MD 1995 1973 233,000 99%
--------- ---
Subtotal 1,286,000 95%
========= ===
Apartment Buildings/# units
- ---------------------------
Country Club Towers/227 Arlington, VA 1969 1965 276,000 92%
Munson Hill Towers/279 Falls Church, VA 1970 1963 340,000 97%
Park Adams/200 Arlington, VA 1969 1959 210,000 97%
Roosevelt Towers/191 Falls Church, VA 1965 1964 229,000 97%
3801 Connecticut Avenue/307 Washington, D.C. 1963 1951 242,000 98%
The Ashby at McLean/250 McLean, VA 1996 1982 349,000 98%
Walker House Apartments/196 Gaithersburg, MD 1996 1971 148,000 97%
Bethesda Hills Apartments/195 Bethesda, MD 1997 1986 226,000 97%
--------- ---
Subtotal (1,845 units) 2,020,000 97%
========= ===
Industrial Distribution Centers
- -------------------------------
Pepsi-Cola Distribution Center Forestville, MD 1987 1971 69,000 100%
Capitol Freeway Center Washington, D.C. 1974 1940 145,000 100%
Department of Commence Springfield, VA 1971 1964 105,000 100%
Fullerton Business Center Springfield, VA 1985 1980 103,000 95%
Ravensworth Center Springfield, VA 1986 1965 29,000 62%
Shirley-I-395 Business Center Arlington, VA 1961/1986 1960 113,000 95%
V Street Distribution Center Washington, D.C. 1973 1960 31,000 100%
Charleston Business Center Rockville, MD 1993 1973 85,000 95%
Tech 100 Industrial Park Elk Ridge, MD 1995 1990 167,000 100%
Crossroads Distribution Center Elk Ridge, MD 1995 1987 85,000 71%
The Alban Business Center Springfield, VA 1996 1981/1982 87,000 100%
The Earhart Building Chantilly, VA 1996 1987 92,000 100%
Ammendale Technology Park I Beltsville, MD 1997 1985 167,000 91%
Ammendale Technology Park II Beltsville, MD 1997 1986 108,000 97%
Pickett Industrial Park Alexandria, VA 1997 1973 246,000 85%
--------- ---
Subtotal 1,632,000 93%
========= ===
TOTAL 7,372,000
=========
</TABLE>
*Apartment buildings are presented in gross square feet
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<PAGE>
OFFICE BUILDINGS
- ----------------
WRIT's office building sector was WRIT's strongest performer during 1997 with
operating income in the core group of office buildings (excluding 1996 and 1997
acquisitions) increasing 11%. This increase was a result of significant
occupancy gains and strong rental rate growth throughout the sector. WRIT's
office markets continue to tighten and while there is a substantial amount of
office development underway in the market, management anticipates that this
sector will continue to be the strong sector for WRIT in 1998.
During 1997, WRIT's office building revenues and operating income increased by
25% and 30% respectively over 1996. These increases were primarily due to 1996
acquisitions (Maryland Trade Centers I & II) and 1997 acquisitions (1600 Wilson
Boulevard & 7900 Westpark Drive) combining with the 11% core group operating
income increase described above.
Economic occupancy rates for the core group of office buildings averaged 93% in
1997 compared to 90% in 1996. 1901 Pennsylvania Avenue, which underwent a
significant renovation in 1996 and 1997, averaged 89% economic occupancy in 1997
compared to 75% in 1996 and 57% in 1995.
Rental rate increases of 4% for the sector were the result of increases at
nearly all of the properties. During 1997, WRIT executed office leases for
572,000 square feet of office space at an average face rent increase of 10% on a
non-straight line basis. The current average market rate for 357,000 square feet
of office space leases expiring during 1998 exceed the average expiring lease
rates by over 11% ($2.00 per square foot) on a non-straight line basis.
Further details about the performance of the office building sector in 1996 and
1997 are provided in Management's Discussion and Analysis commencing on page 12.
INDUSTRIAL DISTRIBUTION CENTERS
- -------------------------------
During 1997, WRIT's industrial distribution center revenues and operating income
both increased by 43% over 1996. These increases were primarily due to 1996
acquisitions (Alban Business Center and the Earhart Building) and 1997
acquisitions (Ammendale Technology Park I & II and the Pickett Industrial Park).
Operating income in WRIT's core group of industrial distribution centers
(excluding 1996 and 1997 acquisitions) decreased 5%. Occupancy rates for the
core group of industrial distribution centers averaged 95% in 1997 compared to
98% in 1996 and rental rates decreased 0.3% in 1997.
Further details about the performance of the industrial distribution center
sector in 1996 and 1997 are provided in Management's Discussion and Analysis
commencing on page 12.
SHOPPING CENTERS
- ----------------
During 1997, WRIT's shopping center revenues and operating income increased by
2% and 4%, respectively, over 1996. These increases were primarily due to
occupancy gains and rental rate growth throughout the sector, partially offset
by increased bad debts.
Economic occupancy rates for the shopping center sector averaged 93% in 1997
compared to 91% in 1996. This significant occupancy gain was primarily the
result of the 1997 releasing of the vacancies caused by the bankruptcies of
Evans Jewelers & Distributors, SoFro Fabrics and F&M Drugs.
Shopping center rental rates increased 4% in 1997 over 1996 as a result of WRIT
executing leases for 282,000 square feet of space at an average rental rate
increase of over 22%. This increase was the result of increases throughout the
sector, the most significant being the 9% rental rate increase at Frederick
County Square.
In 1996 and 1997, WRIT capitalized on three opportunities at Frederick County
Square. Through bankruptcies and aggressive negotiations, WRIT recaptured over
45,000 square feet of space which had
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<PAGE>
been subject to long term leases with little or no rental rate growth. These
leases were producing a total of approximately $219,000 in annual rent. After
recapture and reletting, these spaces now produce over $629,000 in annual rent.
This represents a 53% increase in rent on these spaces and a 14% annualized rent
increase at the center.
Further details about the performance of the Shopping Center Sector in 1996 and
1997 are provided in Management's Discussion and Analysis commencing on page 12.
APARTMENTS
- ----------
During 1997, WRIT's apartment revenues and operating income increased by 23% and
26% respectively over 1996. These increases were primarily due to increased
rental rates throughout the sector combining with the 1996 acquisitions of
Walker House Apartments and The Ashby at McLean and the 1997 acquisition of
Bethesda Hill Apartments.
WRIT's apartment sector continued its four year run of steady growth in core
group operating income (excluding Walker House Apartments and The Ashby at
McLean acquired in 1996 and Bethesda Hill Apartments acquired in 1997) with an
increase of 4%.
This increase was the result of continued high occupancy levels combined with 2%
rental rate increases throughout the group. Economic occupancy rates for the
core group of apartments (excluding Walker House Apartments and The Ashby at
McLean acquired in 1996 and Bethesda Hill Apartments acquired in 1997) averaged
96% in 1997 and 1996.
Further details about the performance of the Apartment Sector in 1996 and 1997
are provided in Management's Discussion and Analysis commencing on page 12.
PROPERTY EXPANSIONS & MAJOR RENOVATIONS
- ---------------------------------------
WHEATON PARK SHOPPING CENTER
- ----------------------------
In 1997, WRIT completed construction of a 26,000 square foot addition to this
Shopping Center. The addition was 98% leased at year end to tenants including
Hollywood Video and Crown Books.
51 MONROE STREET
- ----------------
This property underwent major renovations from 1995 through 1997 including new
elevator controls and HVAC equipment, new energy management, fire alarm and
sprinkler systems, as well as major renovations to the main lobby and common
areas. Economic occupancy of this property averaged 93% in 1997 as compared to
averages of 83% in 1996 and 85% in 1995.
BRADLEE SHOPPING CENTER
- -----------------------
This property is expected to undergo a major renovation commencing in 1998. This
renovation coincides with the expiration and expected releasing of the space
formerly occupied by GC Murphy and the conversion of the free standing Roy
Rogers restaurant to a newly constructed McDonalds. WRIT anticipates substantial
increases in rents from these two spaces and also believes that the result of
the renovation and these transactions will increase traffic and rents on
renewals and turnover.
7900 WESTPARK DRIVE
- -------------------
In 1998, WRIT expects to commence construction of a 49,000 square foot office
space addition to its recently acquired office building located at 7900 Westpark
Drive in McLean, Virginia. This addition will be constructed on the top of the
existing structured parking deck, similar to the Trust's 1996 addition at 7700
Leesburg Pike. Similar to the 7700 Leesburg Pike addition, the Westpark Drive
addition is likely to be 100% preleased.
-8-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
-----------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
---------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------
The Trust's shares have been traded on the American Stock Exchange since 1971,
and there are approximately 37,000 shareholders. The Trust's shares were split
3-for-1 in March 1981, 3-for-2 in July 1985, 3-for-2 in December 1988, and
3-for-2 in May 1992.
The high and low sales price for the Trust's shares for 1997 and 1996, by
quarter, and the amount of dividends paid by the Trust are as follows:
Quarterly Share Price Range
---------------------------
Dividends
Quarter Per Share High Low
------- --------- ---- ---
1997
4 $.27 $17 1/4 $15 1/2
3 .27 18 1/2 15 3/4
2 .27 18 5/8 16 1/4
1 .26 19 5/8 16 7/8
1996
4 $.26 $17 1/2 $15 1/2
3 .26 16 3/4 15 1/4
2 .26 16 3/4 15 1/4
1 .25 17 15 1/4
The Trust has historically paid dividends on a quarterly basis. Dividends are
normally paid based on the Trust's cash flow from operating activities. The 1998
indicated annual dividend rate is $1.08 based on the annualization of the March
31, 1998 dividend.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
<S><C>
Real estate rental revenue $79,429 $65,541 $52,597 $45,511 $39,375
Income before gain on sale of real estate 30,136 27,964 26,103 23,122 22,506
Gain on sale of real estate - - - - 741
Net income 30,136 27,964 26,103 23,122 23,247
Net income per share before gain on sale of 0.90 0.88 0.88 0.82 0.80
real estate
Basic earnings per share 0.90 0.88 0.88 0.82 0.82
Total assets 468,571 318,488 241,784 178,806 162,011
Lines of credit payable 95,250 5,000 28,000 18,000 -
Mortgage note payable 7,461 7,590 7,706 - -
Senior notes payable 100,000 100,000 - - -
Shareholders' equity 252,088 195,623 199,735 154,659 157,348
Cash dividends paid 36,108 32,718 29,712 25,981 24,380
Distribution of gain on sale of real estate - - - - 741
Cash dividends paid per share 1.07 1.03 0.99 0.92 0.89
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
- ----------------------
REAL ESTATE RENTAL REVENUE: 1997 VERSUS 1996
- --------------------------------------------
Total revenues for 1997 increased $13.9 million or 21% to $79.4 million from
$65.5 million in 1996. The percentage increase in real estate rental revenue
from 1996 to 1997 by property type was as follows:
Office Buildings 25%
Shopping Centers 2%
Apartments 23%
Industrial Distribution Centers 43%
During 1997, WRIT's office building revenues and operating income increased by
25% and 30%, respectively, over 1996. These increases were primarily due to 1996
acquisitions (Maryland Trade Centers I & II) and 1997 acquisitions (1600 Wilson
Boulevard and 7900 Westpark Drive) combining with increased occupancy levels and
rental rates overall for the sector.
During 1997, WRIT's shopping center revenues and operating income increased by
2% and 4%, respectively, over 1996. These increases were primarily due to
increased occupancy levels and rental rates overall for the sector partially
offset by increased bad debts.
WRIT's apartment revenues and operating income increased by 23% and 26%,
respectively, in 1997 over 1996. These increases were primarily due to increased
rental rates throughout the sector combining with the 1996 acquisitions of
Walker House Apartments and The Ashby at McLean and the 1997 acquisition of
Bethesda Hill Apartments.
WRIT's industrial distribution center revenues and operating income each
increased by 43% over 1996. These increases were primarily due to the 1996
acquisition of the Alban Business Center and Earhart Business Center and the
1997 acquisitions of Ammendale Technology Parks I & II and the Pickett
Industrial Park.
REAL ESTATE RENTAL REVENUE: 1996 VERSUS 1995
- --------------------------------------------
Total revenues for 1996 increased $12.9 million to $65.5 million from $52.6
million in 1995. The percentage increase in real estate rental revenue from 1995
to 1996 by property type was as follows:
Office Buildings 33%
Shopping Centers 10%
Apartments 28%
Industrial Distribution Centers 21%
During 1996, WRIT's office building revenues and operating income increased by
33% and 34%, respectively, over 1995. These increases were primarily due to 1995
acquisitions (6110 Executive Boulevard and 1220 19th Street) and 1996
acquisitions (Maryland Trade Centers I & II), combining with increased rental
rates overall for the group.
During 1996, WRIT's shopping center revenues and operating income increased by
10% and 6%, respectively, over 1995. These increases were primarily due to the
1995 acquisition of Frederick County
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<PAGE>
Square combining with increased rental rates overall for the group. These
increases were partially offset by decreased occupancy levels in Concord and
Montgomery Village.
WRIT's apartment revenues and operating income increased by 28% and 25%,
respectively, in 1996 over 1995. These increases were primarily due to increased
rental rates throughout the group combining with the 1996 acquisitions of Walker
House Apartments and The Ashby at McLean.
WRIT's industrial distribution center revenues and operating income increased by
21% and 19%, respectively, over 1995. These increases were primarily due to
increased rental rates and occupancy levels overall for the group, combining
with the 1995 acquisitions (Tech 100 Industrial Park and Crossroads Distribution
Center) and the 1996 acquisition of the Alban Business Center. In December of
1996, WRIT also acquired Earhart Building, a 92,300 square foot flex property
which is 100% leased.
OPERATING EXPENSES AND OTHER RESULTS OF OPERATIONS
- --------------------------------------------------
Real estate operating expenses as a percentage of revenue was 32% for 1997 as
compared to 33% for 1996 and 32% for 1995. This decrease is attributable to a
revenue increase in the office building segment of WRIT's portfolio of 25%
resulting from increases in occupancy levels and rental rates in 1997 combined
with only an 18% increase in the office building segment's operating expenses.
WRIT's percentage of revenue from office buildings within its entire real estate
portfolio has increased to 45% at December 31, 1997 from 44% at December 31,
1996 and 41% at December 31, 1995. The increase over 1995 is attributable to
1996 and 1997 office building acquisitions.
Interest expense increased $4.2 million in 1997 from 1996. This is attributable
to an increase in outstanding line of credit advances due to a greater amount of
acquisitions in 1997. Additionally, WRIT's $100 million debt securities, issued
in August 1996, were outstanding for the entire year in 1997. Interest expense
of $5.4 million in 1996 increased $3.3 million over 1995 interest expense. This
increase is primarily attributable to the issuance of $100 million in debt
securities in August 1996.
General and administrative expenses were $4.2 million for 1997 as compared to
$3.1 million for 1996 and $2.9 million for 1995. The increase in general and
administrative expenses in 1997, as compared to 1996, is attributable to
increased compensation and personnel additions. The majority of the increase in
1996, as compared to 1995, is attributable to personnel additions during 1996
and 1995, partially offset by reduced pension costs and the completion of
severance pay in June 1995 to WRIT's former Chairman and Chief Executive
Officer, B. Franklin Kahn, who retired in March 1995.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
WRIT has utilized the proceeds of share offerings, unsecured debt offerings,
medium and long-term fixed interest rate debt, bank lines of credit and cash
flow from operations for its capital needs. Management believes that external
sources of capital will continue to be available to WRIT from its existing
unsecured credit commitments and also believes that additional sources of
capital will be available from selling additional shares and/or the sale of
medium or long-term unsecured notes. The funds raised would be used to pay off
any outstanding advances on WRIT's lines of credit and for new acquisitions and
capital improvements.
In August 1997, WRIT received $61.1 million net of underwriting fees from the
issuance and sale of 3,750,000 shares. WRIT's underwriting expenses were
approximately $200,000 resulting in net proceeds received by the Trust of $60.9
million. Approximately $23.0 million of the net proceeds was used to repay
certain borrowings outstanding under the Trust's lines of credit resulting from
1997 property acquisitions. The balance of the net proceeds was used to acquire
income producing properties and for capital improvements.
In August 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. On August 13, 1996, WRIT received $97.9 million net of
underwriting fees from the sale of the notes. WRIT's other underwriting expenses
were $302,000 resulting in net
-13-
<PAGE>
proceeds received by the Trust from the sale of $97.6 million. Approximately $67
million of 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 $25.7 million was used for acquisitions for
The Ashby at McLean and the Alban Business Center, subsequent to August 13,
1996. The balance of the net proceeds was used to renovate, expand or improve
other Trust properties.
On July 25, 1995, WRIT received $48.9 million net of underwriting fees from the
issuance and sale of 3.5 million shares. WRIT's other underwriting expenses were
$233,000 resulting in net proceeds received by the Trust of $48.6 million.
Approximately $36.0 million of the net proceeds was used to repay certain
borrowings outstanding under the Trust's lines of credit resulting from 1994 and
1995 property acquisitions. $7.0 million of the net proceeds in addition to
financing was used to acquire Frederick County Square and 1220 19th Street. The
balance of the net proceeds was used to renovate, expand or improve other Trust
properties.
As of December 31, 1997, WRIT had line of credit commitments in place from
commercial banks for up to $75 million with an additional $20.25 million
bridge-loan facility. WRIT acquired six properties for total acquisition costs
of $138.8 million in 1997 and acquired six properties for total acquisition
costs of $69.9 million in 1996. The 1997 acquisitions were financed through line
of credit advances and through the issuance in August, 1997 of 3,750,000 shares.
The line of credit advances were subsequently repaid with proceeds from the
February 1998 issuance of $110 million of medium-term notes. 1996 acquisitions
were financed through additional advances on the lines of credit of $39.0
million and were subsequently repaid with proceeds from the issuance of the
notes in 1996.
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 of 6.898% 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 $95 million, of outstanding advances
under its lines of credit. WRIT intends to use the remainder of the proceeds to
finance acquisitions and capital improvements to its properties. WRIT had four
interest rate lock agreements related to this transaction which settled for $5.4
million and treated that settlement and the cost of a related interest rate cap
agreement as transaction costs of the borrowing. These costs will be amortized
over the life of the unsecured notes using the effective interest rate method.
Cash flow from operating activities totaled $42.5 million, $37.6 million, and
$31.0 million for the years ended December 31, 1997, 1996, and 1995,
respectively, including net income of $30.1 million, $28.0 million, and $26.1
million, respectively, and depreciation and amortization of $10.9 million, $7.8
million, and $5.1 million, respectively. The increase in cash flows from
operating activities for all years is primarily due to the increase in
acquisitions and the resultant increase in net income.
Rental revenue has been the principal source of funds to pay WRIT's operating
expenses, interest expense and dividends to shareholders. In 1997, 1996 and
1995, WRIT paid dividends totaling $36.1 million, $32.7 million and $29.7
million, respectively.
Capital improvements of $13.9 million were completed in 1997, including tenant
improvements. Capital improvements to WRIT properties in 1996 and 1995 were
approximately $12.0 million and $8.1 million, respectively.
The components of WRIT's capital improvement costs for 1997 were as follows:
(In thousands)
Acquisition Related $ 2,591
Expansions and Major Renovations 2,054
Tenant Improvements 3,714
Capital Expenditures 5,554
---------
Total $13,913
=========
-14-
<PAGE>
Acquisition related costs are capital improvements made to properties acquired
during 1997, 1996 and 1995, which were planned during the investment
underwriting due diligence process.
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 December 31, 1997, WRIT
Limited Partnership had acquired fourteen 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.
On March 23, 1998, WRIT sold the Shirley-I-395 Business Center. The property was
sold for approximately $8 million resulting in a gain of approximately $6
million. WRIT intends to use the proceeds from the sale to invest in other real
estate.
YEAR 2000
- ---------
WRIT has assessed and continues to assess the impact of the Year 2000 issue on
its reporting systems and operations. The Year 2000 issue exists because many
computer systems and applications and other systems using computer chips
currently use two-digit fields to designate a year. As the century date occurs,
date sensitive systems may recognize the year 2000 as 1900 or not at all. This
inability to recognize or properly treat the year 2000 may cause the systems to
process critical financial and operations information incorrectly.
WRIT has implemented a new reporting system. Implementation of the new system
was not done in response to Year 2000 issues but in order to improve reporting
processes. The new system is Year 2000 compliant. Management is reviewing the
remaining operating systems, including building operations, to determine if
there is any Year 2000 issues related to such systems.
FORWARD-LOOKING STATEMENTS
- --------------------------
This Annual Report on Form 10-K contains forward-looking statements which
involve risks and uncertainties. Such forward looking statements include (a)
WRIT's intention to invest in properties that it believes will continue to
increase in income and value; (b) WRIT's belief that the WRIT Partnership will
provide WRIT an opportunity to acquire real estate assets which might not
otherwise have been offered to it; (c) WRIT's belief that the office building
sector will continue to lead WRIT's growth in 1998; (d) WRIT's belief that
renovations and other changes at the Bradlees Shopping Center will increase
traffic and enable it to raise rents; (e) WRIT's belief that external sources of
capital will continue to be available and that additional sources of capital
will be available from the sale of shares or notes; (f) WRIT's belief that it
has the liquidity and capital resources necessary to meet its known obligations
and to make additional property acquisitions and capital improvements when
appropriate to enhance long-term growth; and (g) other statements preceded by,
followed by or that include the words "believes," "expects," "intends,"
"anticipates," "potential" and other similar expressions.
WRIT claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995 for the
foregoing statements. The following important factors, in addition to those
discussed elsewhere in this Annual Report, could affect WRIT's future results
and could cause those results to differ materially from those expressed in the
forward-looking statements: (a) the economic health of WRIT's tenants; (b) the
economic health of the Washington, D.C. metropolitan region; (c) inflation; (d)
consumer confidence; (e) unemployment rates; (f) consumer tastes and
preferences; (g) stock price and interest rate fluctuations; (h) WRIT's future
capital requirements; (i) competition; (j) compliance with applicable laws,
including those concerning the environment and access by persons with
disabilities; and (k) weather conditions.
RATIOS OF EARNINGS TO FIXED CHARGES
- -----------------------------------
The following table sets forth the Trust's ratios of earnings to fixed charges
for the periods shown:
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
4.08x 6.11x 12.95x
-15-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements and supplementary data listed under Item 14 (a) and
filed as part of this report on the pages indicated are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
-16-
<PAGE>
PART III
Certain information required by Part III is omitted from this Report in that the
Registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") no later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
Such incorporation does not include the Performance Graph included in the Proxy
Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this Item is hereby incorporated herein by reference
to WRIT's 1998 Annual Meeting Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item is hereby incorporated herein by reference
to WRIT's 1998 Annual Meeting Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this Item is hereby incorporated herein by reference
to WRIT's 1998 Annual Meeting Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this Item is hereby incorporated herein by reference
to WRIT's 1998 Annual Meeting Proxy Statement.
-17-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
-----------------------------------------------------------
8-K
---
ITEM 14 (a). The following documents are filed as part of this Report:
1. Financial Statements: The following Financial Statements of Washington
Real Estate Investment Trust and Reports of Independent Accountants are
included in this report:
Report of Arthur Andersen LLP.
Report of Price Waterhouse LLP.
Consolidated Balance Sheets at December 31, 1997 and 1996.
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules: The following financial statement
schedules of Washington Real Estate Investment Trust for the periods
indicated are filed as part of this Report and should be read in
conjunction with the Financial Statements of Washington Real Estate
Investment Trust.
Schedule Page
- -------- ----
III Real Estate and Accumulated Depreciation 42
Supplementary Information: Quarterly Financial Results (unaudited) 45
Schedules not listed above have been omitted because they are not applicable or
are not required or the information to be set forth therein is included in the
Financial Statements or Notes thereto.
3. Exhibits:
3. Declaration of Trust and Bylaws
(a) Declaration of Trust. Incorporated herein by reference to
Exhibit 3 to the Trust's registration statement on Form 8-B
dated July 10, 1996.
(b) Bylaws. Incorporated herein by reference to Exhibit 4 to the
Trust's registration statement on Form 8-B dated July 10,
1996.
4.
(a) Credit agreement dated March 1, 1995 between Washington Real
Estate Investment Trust, as borrower, The First National Bank
of Chicago, as lender, and The First National Bank of Chicago
as agent. Incorporated herein by reference to the Exhibit of
the same designation to the Trust's Form 10-K dated March 28,
1996.
-18-
<PAGE>
(b) Credit agreement dated July 25, 1997, among Washington Real
Estate Investment Trust, as borrower, Crestar Bank, as lender,
Signet Bank/Virginia, as lender, and Crestar Bank, as agent.
(c) Indenture dated as of August 1, 1996 between Washington Real
Estate Investment Trust and The First National Bank of
Chicago.*
(d) Officers' Certificate Establishing Terms of the Notes, dated
August 8, 1996.*
(e) Form of 2003 Notes.*
(f) Form of 2006 Notes.*
(g) Form of MOPPRS Notes.****
(h) Form of 30 year Notes.****
(i) Remarketing Agreement.****
(j) The Trust is a party to a number of other instruments defining
the rights of holders of long-term debt. No such instrument
authorizes an amount of securities in excess of 10 percent of
the total assets of the Trust and its Subsidiaries on a
consolidated basis. On request, the Trust agrees to furnish a
copy of each such instrument to the Commission.
10. Management contracts, plans and arrangements
(a) Employment Agreement dated May 11, 1994 with Edmund B. Cronin,
Jr.**
(b) 1991 Incentive Stock Option Plan, as amended.**
(c) Nonqualified Stock Option Agreement dated June 27, 1990 with
B. Franklin Kahn.**
(d) Nonqualified Stock Option Agreement dated December 14, 1994
with Edmund B. Cronin, Jr.**
(e) Nonqualified Stock Option Agreement dated December 19, 1995
with Edmund B. Cronin, Jr. Incorporated herein by reference to
Exhibit 10(e) to the 1995 Form 10-K.
(f) Share Grant Plan.***
(g) Share Option Plan for Trustees.***
21. Subsidiaries of Registrant
In 1995, WRIT formed a subsidiary partnership, WRIT Limited
Partnership, a Maryland limited partnership, in which WRIT
owns 99.9% of the partnership interest.
22. Consents
(a) Consent of Arthur Andersen LLP
27. Financial Data Schedules
(a) 1997 Financial Data Schedule
(b) 1996 Financial Data Schedule
(c) 1995 Financial Data Schedule
ITEM 14 (b). REPORTS ON FORM 8-K
(1) October 17, 1997- Report pursuant to Item 2 on the acquisition of 1600
Wilson Boulevard and financial statements of the acquired property pursuant
to Item 7.
* Incorporated herein by reference to the Exhibit of the same designation to
the Trust's Form 8-K filed August 13, 1996.
** Incorporated herein by reference to the Exhibit of the same designation to
Amendment No. 2 to the Trust's Registration Statement on Form S-3 filed
July 17, 1995.
*** Incorporated herein by reference to the Exhibit of the same designation to
the Trust's Registration Statement on Form S-8 filed October 25, 1995.
**** Incorporated herein by reference to the Exhibit of the same designation to
the Trust's Registration Statement on Form S-3 filed March 17, 1998.
-19-
<PAGE>
(2) November 12, 1997- Report pursuant to Item 2 on the acquisition of Bethesda
Hill and 7900 Westpark Drive and financial statements of
the acquired properties pursuant to Item 7.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WASHINGTON REAL ESTATE INVESTMENT TRUST
Date: March 30, 1998 By: /s/ Edmund B. Cronin, Jr.
________________________________
Edmund B. Cronin, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Arthur A. Birney
__________________________ Chairman and Trustee March 31, 1998
Arthur A. Birney
/s/ William N. Cafritz
__________________________ Trustee March 31, 1998
William N. Cafritz
/s/ John M. Derrick, Jr.
__________________________ Trustee March 31, 1998
John M. Derrick, Jr.
/s/ Benjamin H. Dorsey
__________________________ Secretary and Trustee March 31, 1998
Benjamin H. Dorsey
/s/ David M. Osnos
__________________________ Trustee March 31, 1998
David M. Osnos
/s/ Stanley P. Snyder
__________________________ Trustee March 31, 1998
Stanley P. Snyder
/s/ Larry E. Finger
__________________________ Senior Vice President and March 31, 1998
Larry E. Finger Chief Financial Officer
/s/ Laura M. Franklin
__________________________ Vice President and March 31, 1998
Laura M. Franklin Chief Accounting Officer
-21-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Washington Real Estate Investment Trust:
We have audited the accompanying consolidated balance sheets of Washington Real
Estate Investment Trust (the "Trust," a Maryland real estate investment trust)
and Subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Trust and Subsidiary as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule included
on pages 42 through 44 of the Form 10-K is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 20, 1998
-22-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
Washington Real Estate Investment Trust
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) and (2) on page 17 present fairly, in all material respects, the
results of operations and cash flows of Washington Real Estate Investment Trust
for the year ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
financial statements of Washington Real Estate Investment Trust for any period
subsequent to December 31, 1995.
PRICE WATERHOUSE LLP
Washington, D.C.
March 27, 1996
-23-
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1997 1996
---- ----
<S><C>
Real estate, at cost $504,315 $352,579
Accumulated depreciation and amortization (56,015) (46,639)
-------- --------
448,300 305,940
Mortgage note receivable - 799
-------- --------
Total investment in real estate, net 448,300 306,739
Cash and temporary investments 7,908 1,676
Rents and other receivables, net of allowance for doubtful accounts
of $884 and $534, respectively 4,035 3,429
Prepaid expenses and other assets 8,328 6,644
-------- --------
Total assets $468,571 $318,488
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities $ 8,068 $ 5,954
Advance rents 2,615 1,798
Tenant security deposits 3,089 2,523
Mortgage note payable 7,461 7,590
Lines of credit payable 95,250 5,000
Senior notes payable 100,000 100,000
-------- --------
Total liabilities 216,483 122,865
-------- --------
Shareholders' equity:
Shares of beneficial interest, $.01 par value; 100,000 shares
authorized: 35,678 and 31,803 shares issued and outstanding,
respectively 357 318
Additional paid in capital 251,731 195,305
-------- --------
Total shareholders' equity 252,088 195,623
-------- --------
Total liabilities and shareholders' equity $468,571 $318,488
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-24-
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S><C>
REAL ESTATE RENTAL REVENUE $79,429 $65,541 $52,597
REAL ESTATE EXPENSES:
Utilities 5,897 5,194 3,838
Real estate taxes 5,746 4,782 3,683
Repairs and maintenance 3,576 3,190 2,607
Other expenses 10,240 8,766 6,910
------- ------- -------
Total real estate expenses 25,459 21,932 17,038
Depreciation and amortization 10,911 7,784 5,084
------- ------- -------
INCOME FROM REAL ESTATE 43,059 35,825 30,475
OTHER INCOME 1,011 708 715
INTEREST EXPENSE (9,691) (5,474) (2,170)
GENERAL AND ADMINISTRATIVE EXPENSES (4,243) (3,095) (2,917)
------- ------- -------
Net income $30,136 $27,964 $26,103
======= ======= =======
Basic earnings per share $0.90 $0.88 $0.88
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-25-
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Shares of
Beneficial Additional
Interest at Paid in Shareholders'
Shares Par Value Capital Equity
------ ----------- ---------- -------------
<S><C>
BALANCE, December 31, 1994 28,243 $ - $154,659 $154,659
Net income - - 26,103 26,103
Net proceeds from sale of shares 3,500 - 48,610 48,610
Dividends - - (29,712) (29,712)
Share options exercised 9 - 75 75
------ ---- -------- --------
BALANCE, December 31, 1995 31,752 - 199,735 199,735
Net income - - 27,964 27,964
Dividends - - (32,718) (32,718)
State of Maryland reorganization - 318 (318) -
Share options exercised 51 - 642 642
------ ---- -------- --------
BALANCE, December 31, 1996 31,803 318 195,305 195,623
Net income - - 30,136 30,136
Net proceeds from sale of shares 3,750 38 60,825 60,863
Dividends - - (36,108) (36,108)
Share options exercised 125 1 1,573 1,574
------ ---- -------- --------
BALANCE, December 31, 1997 35,678 $357 $251,731 $252,088
====== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-26-
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S><C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,136 $ 27,964 $ 26,103
Adjustments to reconcile net income to cash provided by
operating activities-
Depreciation and amortization 10,911 7,784 5,084
Increases in other assets (2,047) (2,120) (395)
Increases in other liabilities 3,499 3,932 195
-------- -------- --------
Cash provided by operating activities 42,499 37,560 30,987
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions, net* (138,804) (69,888) (50,994)
Improvements to real estate (13,913) (11,972) (8,124)
-------- -------- --------
Cash used in investing activities (152,717) (81,860) (59,118)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (36,108) (32,718) (29,712)
Draws on lines of credit 113,250 44,000 46,000
Repayments of lines of credit (23,000) (67,000) (36,000)
Mortgage principal payments (129) (117) (46)
Net proceeds from sale of shares 60,863 - 48,610
Net proceeds from debt offering - 97,637 -
Share options exercised 1,574 642 75
-------- -------- --------
Cash provided by financing activities 116,450 42,444 28,927
-------- -------- --------
Net increase (decrease) in cash and temporary investments 6,232 (1,856) 796
Cash and temporary investments at beginning of year 1,676 3,532 2,736
-------- -------- --------
Cash and temporary investments at end of year $ 7,908 $ 1,676 $ 3,532
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 9,433 $ 2,747 $ 2,111
======== ======== ========
</TABLE>
*Supplemental schedule of non-cash investing and financing activities
- ---------------------------------------------------------------------
On August 22, 1995 WRIT purchased Frederick Square Shopping Center for an
acquisition cost of $13.4 million. WRIT assumed a mortgage in the amount of $7.8
million and paid the balance in cash. The $7.8 million is not included in the
$51 million amount shown as real estate acquisitions.
The accompanying notes are an integral part of these statements.
-27-
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 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
percent 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.
2. ACCOUNTING POLICIES:
BASIS OF PRESENTATION
In 1995 WRIT formed a subsidiary partnership, WRIT Limited Partnership, a
Maryland limited partnership, in which WRIT currently owns 99.9 percent 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 and accounts payable and other liabilities on the accompanying
consolidated 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 senior subordinated notes and draws on
lines of credit are capitalized and amortized using the effective interest rate
method over the term of the related notes.
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<PAGE>
REAL ESTATE AND DEPRECIATION
Real estate assets are recorded at cost. 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 expensed as incurred. Depreciation expense for Federal income
tax purposes differs from that reported for financial statement purposes by $2.5
million in 1997 and $2.8 million in 1996 due to the use of different lives and
depreciation methods. Additionally, net assets as reported in WRIT's financial
statements exceed the net basis for Federal income tax purposes by $17.1 million
in 1997 and $14.6 million in 1996 due to a lower basis of certain real estate
assets acquired by tax-free exchanges.
WRIT quarterly evaluates the carrying value of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." In cases where management is holding for sale particular
properties, the Company assesses impairment based on whether the net realizable
value (estimated sales price less costs of disposal) of each individual property
to be sold is less than the net book value. A property is considered to be held
for sale when the Company has made the decision to dispose of the property.
Otherwise, the Company assesses impairment of its real estate properties based
on whether it is probable that undiscounted future cash flows from each
individual property will be less than its net book value. If a property is
impaired, its basis is adjusted to its fair market value. There were no property
impairments recognized during the three year period ending December 31, 1997.
CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments include investments readily convertible to known
amounts of cash with original maturities of 90 days or less.
INTEREST RATE PROTECTION AGREEMENTS
WRIT has entered into a series of interest rate protection agreements to reduce
its exposure to interest rate risk on anticipated borrowings. The costs (if any)
of such agreements which qualify for hedge accounting are included in other
assets and are amortized over the interest rate agreement term. To qualify for
hedge accounting, the interest rate protection agreement must meet two criteria:
(i) the debt to be hedged exposes WRIT to interest rate risk and (ii) the
interest rate protection agreement reduces WRIT's exposure to interest rate
risk. In the event that interest rate protection agreements that qualify for
hedge accounting are terminated or are closed out, the associated gain or loss
is deferred and amortized over the term of the underlying hedged asset or
liability. Amounts to be paid or received under interest rate cap agreements are
accrued currently and are netted with interest expense for financial statement
presentation
-29-
<PAGE>
purposes. Additionally, in the event that interest rate protection agreements do
not qualify as hedges, such agreements are reclassified to be investments
accounted for at fair value, with any gain or loss included as a component of
income.
EARNINGS PER COMMON SHARE
In the fourth quarter of 1997, WRIT adopted SFAS No. 128, "Earnings per Share."
This statement requires the computation and reporting of both "basic" and
"diluted" earnings per share.
"Basic earnings per share" is computed as net income divided by the weighted
average common shares outstanding. "Diluted earnings per share" is computed as
net income divided by the total weighted average common shares outstanding and
the effect of dilutive common equivalent shares outstanding for the period.
Dilutive common equivalent shares reflect the assumed issuance of additional
common shares pursuant to certain of the Trust's share based compensation plans
(see Note 9) that could potentially reduce or "dilute" earnings per share, based
on the treasury stock method.
The weighted average number of shares outstanding for the year ended December
31, 1997, 1996 and 1995 was 33.4, 31.8 and 29.8 million shares, respectively.
The impact of dilution of common equivalent shares on the basic weighted
average shares outstanding is immaterial.
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.
NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
During 1997, WRIT adopted the provisions of SFAS No. 129, "Disclosure of
Information about Capital Structure." The adoption of SFAS No. 129 did not have
a material effect on WRIT's financial statements.
WRIT also adopted the provisions of SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that
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<PAGE>
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. See Note 14 for
WRIT's segment disclosures.
In February 1998, SFAS No. 132 "Employers' Disclosure about Pension and Other
Postretirement Benefits" was issued. This Statement 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 changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures previously required. This Statement
is effective for fiscal years beginning after December 15, 1997 and is not
expected to have a material effect on the financial statements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
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:
December 31,
-------------------
1997 1996
---- ----
(In thousands)
Office buildings $268,977 $163,192
Shopping centers 87,618 60,694
Apartment buildings 80,173 84,060
Industrial distribution centers 67,547 44,633
-------- --------
$504,315 $352,579
======== ========
WRIT's results of operations are dependent on the overall economic health of its
tenants and the specific segments in which WRIT holds properties, as well as the
overall economic health of the Washington, D.C. metropolitan region. These
segments include commercial, residential, retail, and industrial properties.
Although all sectors are affected by external factors, such as inflation,
consumer confidence, unemployment rates, and consumer tastes and preferences,
the retail segment is particularly sensitive to such factors. A decline in the
retail segment could reduce merchant sales, which could adversely affect the
operating results of WRIT. As of December 31, 1997, 7900 Westpark office
building accounted for 16% of total assets. No other single property accounted
for more than 10% of total assets. As of December 31, 1997, 1996 and 1995, no
single tenant or property accounted for more than 10 percent of total revenues.
-31-
<PAGE>
Properties acquired by WRIT during the year ending December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Acquisition Rentable Acquisition Cost
Date Property Type Square Feet/Units (In thousands)
----------- -------- ---- ----------------- ----------------
<S><C>
2/28/97 Ammendale Technology Park I Industrial 167,000 $ 7,827
2/28/97 Ammendale Technology Park II Industrial 108,000 5,878
10/17/97 1600 Wilson Boulevard Office 167,000 23,401
10/31/97 Pickett Industrial Center Industrial 246,000 8,199
11/12/97 Bethesda Hill Residential 226,000*/195 17,238
11/14/97 7900 Westpark Drive Office 478,000 76,261
------------- --------
1,392,000/195 $138,804
============= ========
</TABLE>
*Apartment buildings are presented in gross square feet.
WRIT accounted for each acquisition using the purchase method of accounting.
4. 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 percent. 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 December 31, 1997, are as follows:
(In thousands)
--------------
1998 $ 140
1999 153
2000 167
2001 183
2002 200
Thereafter 6,618
------
$7,461
======
5. UNSECURED LINES OF CREDIT PAYABLE:
WRIT currently maintains two unsecured lines of credit: a $25 million line of
credit ("Credit Facility No. 1") and a $50 million line of credit ("Credit
Facility No. 2"). Both lines of credit require monthly interest payments, in
arrears, on the unpaid principal balances.
CREDIT FACILITY NO. 1
WRIT had $25 million and $4 million outstanding as of December 31, 1997 and
1996, respectively, related to Credit Facility No. 1.
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<PAGE>
The following advances have been made under this commitment:
<TABLE>
<CAPTION>
Advance Date Paid Amount 1997 1996 1995
Date in Full (In thousands) Rate Rate Rate
------- --------- -------------- ---- ---- ----
<S><C>
May 15, 1995 August 19, 1996 $ 7,000 - 5.99% 5.99%-6.42%
November 2, 1995 September 28, 1996 18,000 - 6.11%-5.74% 6.11%
September 26, 1996 September 26, 1997 4,000 6.83% 6.83% -
November 14, 1997 February 25, 1998 25,000 6.40%-6.64% - -
</TABLE>
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. 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, .20% per annum
through August 1996, and .175% thereafter, on the amount that the $25 million
commitment exceeds the balance of outstanding advances and term loans. At
December 31, 1997 and 1996, $0 and $21.0 million, respectively, of this
commitment was unused and available for subsequent acquisitions or capital
improvements. This fee is paid quarterly beginning in March 1995 until January
1999. This commitment also contains certain financial and non-financial
covenants that WRIT has met as of December 31, 1997.
CREDIT FACILITY NO. 2
WRIT had $50 million and $1 million outstanding as of December 31, 1997 and
1996, respectively, related to Credit Facility No. 2.
The following advances have been made under this commitment:
<TABLE>
<CAPTION>
Advance Date Paid Amount 1997 1996 1995
Date in Full (In thousands) Rate Rate Rate
------- --------- -------------- ---- ---- ----
<S><C>
December 21, 1995 August 13, 1996 $ 3,000 - 6.06%-6.15% 6.15%
March 13, 1996 August 13, 1996 11,000 - 5.78%-6.25% -
May 17, 1996 August 13, 1996 28,000 - 6.06% -
November 26, 1996 August 1, 1997 1,000 6.29% 6.05% -
February 28, 1997 August 1, 1997 14,000 6.25% - -
March 27, 1997 August 1, 1997 3,000 6.25% - -
June 27, 1997 August 1, 1997 1,000 6.19% - -
November 12, 1997 February 25, 1998 17,000 6.36%-6.64% - -
November 14, 1997 February 25, 1998 33,000 6.40%-6.61% - -
</TABLE>
All unpaid interest and principal are due July 25, 1998 and can be prepaid prior
to this date without any prepayment fee or yield maintenance obligation. WRIT
has the option to extend this agreement until July 25, 1999. Any new advances
shall bear interest at LIBOR plus a spread based on WRIT's public debt rating.
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<PAGE>
Credit Facility No. 2 provides WRIT the option to convert any advances or
portions thereof into a term loan at any time after January 25, 1998, and prior
to July 25, 1998, or July 25, 1999, if extended. The principal amount of each
term loan, if any, shall be repaid on July 25, 2011. Such term loan(s) may be
prepaid subject to a prepayment fee.
This $50 million credit commitment requires WRIT to pay the lender an unused
commitment fee at the rate of 0.175% per annum on the amount that the $50
million commitment exceeds the balance of outstanding advances and term loans.
At December 31, 1997 and 1996, $0 and $49 million, respectively, of this
commitment was unused. This fee is paid quarterly in arrears. This commitment
also contains certain financial and non-financial covenants that WRIT has met as
of December 31, 1997.
BRIDGE LOAN
During 1997, WRIT temporarily expanded one of its lines of credit to provide up
to an additional $20.25 million through February 27, 1998, all of which was
outstanding at December 31, 1997. The bridge loan accrued interest at LIBOR plus
.70%. At December 31, 1997, the interest rate was 6.64%. WRIT was required to
pay a commitment fee equal to .10% of the commitment. The bridge loan also
requires WRIT to pay the lender an unused commitment fee at the rate of .175% on
the amount that the $20.25 million commitment exceeds the balance of outstanding
advances. This fee is paid quarterly in arrears. This commitment also contains
financial and non-financial covenants that WRIT has met as of December 31, 1997.
The bridge loan was repaid on February 27, 1998.
Information related to short-term borrowings are as follows (in thousands):
1997 1996
---- ----
Maximum Amount Outstanding $95,250 $67,000
Average Amount Outstanding 23,000 31,000
Weighted Average Interest Rate 6.51% 6.18%
6. SENIOR NOTES PAYABLE:
On August 8, 1996, WRIT entered into an underwriting agreement to sell $50
million in 7.125 percent 7-year unsecured notes due August 13, 2003, and $50
million in 7.25 percent unsecured 10-year notes due August 13, 2006. This
transaction closed on August 13, 1996. The 7-year notes were sold at 99.107
percent of par and the 10-year notes were sold at 98.166 percent 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 percent, and the
10-year notes bear an effective interest rate of 7.49 percent, for a combined
effective interest rate of 7.47 percent. In 1996, WRIT used the proceeds of
these notes to pay down its lines of credit and to finance acquisitions and
capital improvements to its properties. This commitment also contains certain
financial and non-financial covenants which WRIT has met as of December 31,
1997.
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<PAGE>
7. INTEREST RATE PROTECTION AGREEMENTS:
In the second and third quarter of 1997, WRIT entered into a series of interest
rate protection agreements to partially limit the adverse effects of rising
interest rates on its anticipated unsecured note offering (see Note 15).
Interest rate caps provide protection to WRIT to the extent interest rates,
based on a readily determinable interest rate index, increase above the stated
interest rate cap, in which case, WRIT would receive payments based on the
difference between the index and the cap. The cost to acquire the cap was
approximately $114,000. The cap expired in December 1997 but was replaced prior
to expiration by an interest rate lock agreement. Interest rate lock agreements
provide protection to WRIT to the extent interest rates rise above the specified
lock level based on a readily determinable interest rate index in which case
WRIT is paid the present value (based on the change in value of the Reference
Security for each one basis point change in the yield to maturity of such
Reference Security) of the increase in interest rates above that locked interest
rate times the notional value of the underlying agreement. If interest rates do
not rise above the locked interest rate WRIT is obligated to pay to the
counterparty the present value (based on the change in value of the Reference
Security for each one basis point change in the yield to maturity of such
Reference Security) of the difference in interest rates below the locked
interest rate times the notional value of the underlying agreement. None of
WRIT's caps or rate locks are held for trading purposes. At December 31, 1997,
WRIT held interest rate protection locks with a notional amount of $100 million.
<TABLE>
<CAPTION>
Locked
Notional Interest Reference
Amount Effective Date Maturity Date Rate Security
-------- -------------- ------------- -------- --------
<S><C>
$25,000,000 September 17, 1997 February 23, 1998 6.439 6.375% U.S. Treasury
Note maturing on
August 15, 2027
$25,000,000 October 24, 1997 February 23, 1998 6.384 6.375% U.S. Treasury
Note maturing on
August 15, 2027
$25,000,000 October 24, 1997 February 23, 1998 6.1475 6.125% U.S. Treasury
Note maturing on
August 15, 2007
$25,000,000 December 17, 1997 February 23, 1998 5.838 6.125% U.S. Treasury
Note maturing on
August 15, 2007
</TABLE>
WRIT is exposed to credit loss in the event of non-performance by the
counterparties to the interest rate protection agreements should interest rates
exceed the caps or the rate established in the rate lock agreement. However,
management does not anticipate non-
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<PAGE>
performance by any of the counterparties. All of the counterparties have
long-term debt ratings of A+ or above by Standard and Poor's and Al or above by
Moody's. Management believes that these caps are highly liquid. The caps and
rate locks could be sold or transferred with the consent of the counterparties.
Management does not believe that this consent would be withheld. Although none
of WRIT's caps and rate locks are exchange-traded, there are a number of
financial institutions which enter into these types of transactions as part of
their day-to-day activities.
8. SHARES OF BENEFICIAL INTEREST AND DIVIDENDS:
In August 1997, WRIT received $61.1 million from the issuance and sale of
3,750,000 shares. WRIT's underwriting expenses were approximately $200,000
resulting in net proceeds received by the Trust of $60.9 million. Approximately
$23.0 of the net proceeds was used to repay certain borrowings outstanding under
the Trust's lines of credit resulting from 1997 property acquisitions. The
balance of the net proceeds was used to acquire income producing properties and
for capital improvements.
The following is a breakdown of the taxable percentage of WRIT's dividends for
1997, 1996, and 1995, respectively:
Ordinary Income Return of Capital
--------------- -----------------
1997 93% 7%
1996 91% 9%
1995 89% 11%
9. SHARE OPTIONS:
WRIT maintains a Share Option Plan ("the Plan"), which includes qualified and
non-qualified options. As of December 31, 1997, 1.5 million shares may be
awarded to eligible employees. Under the Plan, options, which are issued at
market price on the date of grant, vest after not more than two years and expire
ten years following the date of grant. Options may be granted under the Plan at
any time prior to June 25, 2001. Activity under the Plan is summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- ---------------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
------ -------- ------ -------- ------ --------
<S><C>
Outstanding at January 1 365,000 $14.776 320,000 $14.003 265,000 $13.983
Granted 183,000 16.125 96,000 16.150 64,000 14.625
Exercised (125,000) 12.581 (51,000) 12.536 (9,000) 8.090
Expired (14,000) 18.333 _ _ _ _
Outstanding at December 31 409,000 15.933 365,000 14.776 320,000 14.003
Exercisable at December 31 173,000 15.839 216,000 14.449 201,000 13.760
Weighted average fair value of
options granted $ 4.060 $ 4.600 $ 4.170
</TABLE>
-36-
<PAGE>
173,000 of the options outstanding at December 31, 1997, have exercise prices
between $12.410 and $20.625, with a weighted average exercise price of $15.839
and a weighted average remaining contractual life of 7.29 years. All of these
options are exercisable. The remaining 236,000 options have exercise prices
between $15.50 and $16.1875, with a weighted average exercise price of $16.002
and a remaining contractual life of 9.53 years.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997; risk-free interest rates of 5.75 percent
for the Plan options, expected dividend yields of 4.60 percent, expected lives
of 7 years, and expected volatility of 31 percent.
On December 16, 1997, 101,000 non-qualified share options were granted at
$16.125, the per share market price that day. Of those share, 55,000 were
granted to Mr. Edmund B. Cronin, President and Chief Executive Officer, of WRIT.
The remainder of the options were granted to various other employees.
On December 17, 1996 and December 19, 1995 non-qualified share options were
granted to Mr. Cronin for 20,000 and 13,333 shares, respectively, at $16.1875
and $14.625, the per share market price that day. All options are 50 percent
exercisable after the first anniversary date and 100 percent exercisable after
the second anniversary date. As of December 31, 1997, 33,000 shares are
exercisable.
WRIT accounts for its Incentive Share Option Plan and the non-qualified share
options granted under APB Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for these plans been determined
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," WRIT's
net income and earnings per share would have been reduced to the following pro
forma amounts:
1997 1996
--------- -------
Net Income: As Reported $30,136 $27,964
Pro Forma 29,392 27,522
Basic Earnings Per Share: As Reported 0.90 0.88
Pro Forma 0.88 0.87
Because the method of accounting has not been applied to options granted prior
to January 1, 1995, the resulting pro forma compensation may not be
representative of that to be expected in future years.
WRIT has computed basic earnings per share. The calculation of diluted earnings
per share is immaterial and therefore not presented.
10. PENSION PLAN AND OTHER BENEFIT PLANS:
WRIT maintained a noncontributory defined benefit pension plan for all eligible
employees through December 31, 1995. At December 31, 1995, all benefit accruals
under the plan were frozen and thus the projected benefit obligation ("PBO") and
the accumulated benefit obligation
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<PAGE>
("ABO") became equal. WRIT anticipates terminating the plan no later than
December 31, 1999. Since there are no further benefit accruals provided under
the plan, WRIT has substantially reduced its funding obligation and there will
be no further increases in the ABO or PBO. Benefits under the plan were
generally based on years of service and final average pay. Pension costs are
accrued and funded annually from plan entry date in the plan to projected
retirement date and include service costs for benefits earned during the period
and interest costs on the projected benefit obligation less the return on plan
assets.
Pension costs are accrued and funded annually from plan entry date in the plan
to projected retirement date and includes the following components (in
thousands).
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S><C>
Service cost $ 8 $ 4 $ 17
Interest cost on projected benefit obligation 123 122 180
Actual return on plan assets (10) (83) (140)
Net amortization and deferral 8 54 (30)
---- ----- -----
Net pension expense $129 $ 97 $ 27
==== ===== =====
</TABLE>
The assumed long-term rate of return is 7.00 percent in 1997 and 1996 and 8.00
percent for 1995. Plan obligations in excess of amounts permitted under the Tax
Equity and Fiscal Responsibility Act of 1982 are accrued as a liability of WRIT
and included in total pension cost. The funded status of the plan is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S><C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation-
Vested benefits $1,426 $1,507
Nonvested benefits 280 246
------ ------
Total accumulated benefit obligation $1,706 $1,753
====== ======
Projected benefit obligation for service rendered to date $1,706 $1,753
Plan assets at fair value 1,022 827
------ ------
Projected benefit obligation in excess of plan assets 684 926
Unrecognized net loss (107) (200)
Unrecognized net transition obligation accrued pension liability (3) (5)
------ ------
Total accrued pension liability $ 574 $ 721
====== ======
</TABLE>
The plan assets are invested in bonds and certificates of deposit.
The liabilities are calculated using an assumed discount rate of 7.00 percent
for December 31, 1997 and 1996, and an assumed compensation increase of 5
percent for 1995.
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<PAGE>
In 1995, annuity contracts were purchased with plan assets for two participants
who retired during 1995, one being WRIT's former Chairman and Chief Executive
Officer B. Franklin Kahn. The cost of said annuities was $1,593,000 and the
reduction in the PBO was $1,632,000.
In 1997, WRIT implemented a Retirement Savings Plan (the "Savings Plan"). It was
established so that participants in the Savings Plan may elect to contribute a
portion of their earnings to the Savings Plan and WRIT may, at its discretion,
make a voluntary contribution to the Savings Plan.
During 1996, management adopted an Incentive Compensation Plan ("the
Compensation Plan") for its senior personnel which is intended to align their
compensation growth with shareholders' interests. Essentially, the Compensation
Plan limits future salary increases and provides cash bonus incentives and stock
option grants under the Incentive Share Option Plan based on performance. The
financial incentives to management are earned after WRIT has achieved a
prescribed growth. This plan is effective for the 1997 and 1996 years and will
be reviewed by the Board of Trustees' Compensation Committee each year.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires disclosure about
the fair value of financial instruments. Based on the current interest rate
environment and management estimates, the carrying values of the mortgage note
payable, lines of credit payable, mortgage note receivable and senior
subordinated notes approximates their fair values.
The fair value of WRIT's interest rate protection agreements are as follows:
Index Book Value Fair Value
----- ---------- ----------
5.838% $ - 0 - $ (182,000)
6.1475% $ - 0 - $ (758,000)
6.439% $ - 0 - $(1,732,000)
6.384% $ - 0 - $(1,536,000)
The fair value for the interest rate protection agreements represent the cost to
WRIT to cancel the agreements. As noted in Note 7, the above agreements matured
on February 23, 1998.
12. RENTALS UNDER OPERATING LEASES:
Noncancellable commercial operating leases provide for minimum rental income
during each of the next five years of approximately $68.2, $59.1, $48.4, $35.6,
$21.0 and $39.2 million thereafter. Apartment leases are not included as they
are generally for one year. Most of these commercial rentals increase in future
years are based on changes in the Consumer Price Index or agreed-upon
percentages. Contingent rentals from the shopping centers, based on a percentage
of tenants' gross sales, were $351,000, $483,000, and $496,000 in 1997, 1996 and
1995, respectively.
13. ENVIRONMENTAL MATTERS:
During 1995, WRIT retained the services of an environmental consulting firm to
test for asbestos in 29 of its properties built before 1981, in accordance with
Occupational Safety and Health
-39-
<PAGE>
Administration standards. In the second quarter of 1996, asbestos containing
materials were identified for remediation at 11 properties for an estimated cost
of $295,000. Of this amount, WRIT had incurred $261,000 relating to this matter
as of December 31, 1997.
14. SEGMENT INFORMATION:
WRIT has four reportable segments: Apartment Buildings, Office Buildings,
Shopping Centers and Industrial Distribution Centers. Apartment Buildings
represent 23 percent of real estate rental revenue. These properties provide
housing for families throughout the Washington Metropolitan area. Office
Buildings represent 45 percent and provide office space for various types of
businesses. Shopping Centers represent 20 percent and are retail outlets for a
variety of stores. Industrial Distribution Centers represent the remaining 12
percent and are used for warehousing and distribution.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. 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 the properties have
been acquired separately and are incorporated into the applicable segment.
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------------
Office Industrial Apartment Shopping Corporate
Buildings Centers Buildings Centers and Other Consolidated
--------- ---------- --------- -------- --------- ------------
<S><C>
Real estate rental revenue $ 35,972 $ 9,877 $18,040 $15,540 $ - $ 79,429
Real estate expenses 12,579 2,051 7,145 3,684 - 25,459
Depreciation and amortization 5,404 1,585 2,091 1,831 - 10,911
-------- ------- ------- ------- -------- --------
Income from real estate 17,989 6,241 8,804 10,025 - 43,059
Other income - - - - 1,011 1,011
Interest expense - - - (677) (9,014) (9,691)
General and administrative - - - - (4,243) (4,243)
-------- ------- ------- ------- -------- --------
Net income $ 17,989 $ 6,241 $ 8,804 $ 9,348 $(12,246) $ 30,136
======== ======= ======= ======= ======== ========
Capital investments $106,264 $22,919 $19,885 $ 3,649 $ - $152,717
======== ======= ======= ======= ======== ========
Total assets $253,233 $60,290 $65,087 $77,233 $ 12,728 $468,571
======== ======= ======= ======= ======== ========
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------------------------
Office Industrial Apartment Shopping Corporate
Buildings Centers Buildings Centers and Other Consolidated
--------- ---------- --------- -------- --------- ------------
<S><C>
Real estate rental revenue $ 28,708 $ 6,901 $14,709 $15,223 $ - $ 65,541
Real estate expenses 10,667 1,433 6,025 3,807 - 21,932
Depreciation and amortization 3,923 890 1,416 1,555 - 7,784
-------- ------- ------- ------- ------- --------
Income from real estate 14,118 4,578 7,268 9,861 - 38,825
Other income - - - - 708 708
Interest expense - - - 632 (4,842) 5,474
General and administrative - - - - (3,095) 3,095
-------- ------- ------- ------- ------- --------
Net income $ 14,118 $ 4,578 $ 7,268 $ 9,229 $(7,229) $ 27,964
======== ======= ======= ======= ======= ========
Capital investments $ 36,316 $ 9,623 $33,915 $ 2,006 $ - $ 81,860
======== ======= ======= ======= ======= ========
Total assets $150,452 $38,484 $47,044 $74,866 $ 7,642 $318,488
======== ======= ======= ======= ======= ========
</TABLE>
15. SUBSEQUENT EVENT:
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
settled the interest rate lock agreements for $5.4 million and treated that
settlement and the cost of the interest rate caps as a transaction cost of the
borrowing. These costs will be amortized over the life of the unsecured notes
using the effective interest rate method.
-41-
<PAGE>
SCHEDULE III
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY
SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Gross Amounts at which carried at
Initial Cost (b) Net December 31, 1997
----------------------- Improvements -----------------------------------
Building (Retirements) Buildings
and since and
Properties Location Land Improvements Acquisition Land Improvements Total (d)
---------- -------- ---- ------------ ----------- ---- ------------ ---------
<S><C>
OFFICE BUILDINGS
The WRIT Building Maryland $ 222,000 $ 1,691,000 $ 3,338,000 $ 222,000 $ 5,029,000 $ 5,251,000
1901 Pennsylvania Avenue Washington, D.C. 892,000 3,481,000 5,563,000 892,000 9,044,000 9,936,000
51 Monroe Street Maryland 840,000 10,869,000 7,415,000 840,000 18,284,000 19,124,000
444 North Frederick Avenue Maryland 813,000 3,818,000 1,601,000 813,000 5,419,000 6,232,000
7700 Leesburg Pike Virginia 3,669,000 4,000,000 5,047,000 3,669,000 9,047,000 12,716,000
Arlington Financial Center Virginia 3,000,000 3,293,000 215,000 3,000,000 3,508,000 6,508,000
515 King Street Virginia 4,102,000 3,931,000 861,000 4,102,000 4,792,000 8,894,000
The Lexington Building Maryland 1,180,000 1,263,000 508,000 1,180,000 1,771,000 2,951,000
The Saratoga Building Maryland 1,464,000 1,554,000 761,000 1,464,000 2,315,000 3,779,000
Brandywine Center Maryland 718,000 735,000 336,000 718,000 1,071,000 1,789,000
Tycon Plaza II Virginia 3,262,000 7,243,000 1,587,000 3,262,000 8,830,000 12,092,000
Tycon Plaza III Virginia 3,255,000 7,794,000 1,050,000 3,255,000 8,844,000 12,099,000
6110 Executive Boulevard Maryland 4,621,000 11,895,000 1,858,000 4,621,000 13,753,000 18,374,000
1220 19th Street Washington, D.C. 7,802,000 11,366,000 305,000 7,802,000 11,671,000 19,473,000
Maryland Trade Center I Maryland 3,330,000 12,747,000 974,000 3,330,000 13,721,000 17,051,000
Maryland Trade Center II Maryland 2,826,000 9,487,000 442,000 2,826,000 9,929,000 12,755,000
1600 Wilson Boulevard Virginia 6,661,000 16,740,000 291,000 6,661,000 17,031,000 23,692,000
7900 Westpark Drive Virginia 12,049,000 64,212,000 - 12,049,000 64,212,000 76,261,000
----------- ------------ ----------- ----------- ------------ ------------
60,706,000 176,119,000 32,152,000 60,706,000 208,271,000 268,977,000
----------- ------------ ----------- ----------- ------------ ------------
SHOPPING CENTERS
Concord Centre Virginia 413,000 850,000 2,792,000 413,000 3,642,000 4,055,000
Bradlee Virginia 4,152,000 5,428,000 3,773,000 4,152,000 9,201,000 13,353,000
Clairmont Maryland 155,000 892,000 683,000 155,000 1,575,000 1,730,000
Dover Mart Delaware 244,000 464,000 728,000 244,000 1,192,000 1,436,000
Chevy Chase Metro Plaza Washington, D.C. 1,549,000 4,304,000 3,006,000 1,549,000 7,310,000 8,859,000
Prince William Plaza Virginia 171,000 820,000 986,000 171,000 1,806,000 1,977,000
Takoma Park Maryland 415,000 1,085,000 1,000 415,000 1,086,000 1,501,000
Westminster Maryland 553,000 1,889,000 1,791,000 553,000 3,680,000 4,233,000
Wheaton Park Maryland 623,000 857,000 3,385,000 623,000 4,242,000 4,865,000
Montgomery Village Center Maryland 11,624,000 9,105,000 770,000 11,624,000 9,875,000 21,499,000
Shoppes of Foxchase Virginia 5,838,000 2,980,000 1,068,000 5,838,000 4,048,000 9,886,000
Frederick County Square (e) Maryland 6,561,000 6,830,000 833,000 6,561,000 7,663,000 14,224,000
----------- ------------ ----------- ----------- ------------ ------------
32,298,000 35,504,000 19,816,000 32,298,000 55,320,000 87,618,000
----------- ------------ ----------- ----------- ------------ ------------
APARTMENT BUILDINGS
Country Club Towers Virginia 299,000 2,561,000 2,553,000 299,000 5,114,000 5,413,000
Munson Hill Towers Virginia (a) - 3,337,000 3,957,000 (a) - 7,294,000 7,294,000
Park Adams Virginia 287,000 1,654,000 3,399,000 287,000 5,053,000 5,340,000
Roosevelt Towers Virginia 336,000 1,996,000 1,755,000 336,000 3,751,000 4,087,000
3801 Connecticut Avenue Washington, D.C. 420,000 2,678,000 4,232,000 420,000 6,910,000 7,330,000
The Ashby at McLean Virginia 4,356,000 17,125,000 815,000 4,356,000 17,940,000 22,296,000
Walker House Apartments Virginia 2,851,000 7,946,000 280,000 2,851,000 8,226,000 11,077,000
Bethesda Hill Maryland 3,900,000 13,338,000 98,000 3,900,000 13,436,000 17,336,000
----------- ------------ ----------- ----------- ------------ ------------
12,449,000 50,635,000 17,089,000 12,449,000 67,724,000 80,173,000
----------- ------------ ----------- ----------- ------------ ------------
<CAPTION>
Accumulated
Depreciation
at
December 31, Date of Date of Net Rentable Depreciation
1997 Construction Acquisition Square Feet (f) Units Life (c)
------------ ------------ ----------- --------------- ----- ------------
<S><C>
OFFICE BUILDINGS
The WRIT Building $ 1,562,000 1965 August 1979 65,000 31 Years
1901 Pennsylvania Avenue 3,252,000 1960 May 1977 97,000 28 Years
51 Monroe Street 6,434,000 1975 August 1979 210,000 41 Years
444 North Frederick Avenue 749,000 1981 October 1989 66,000 50 Years
7700 Leesburg Pike 789,000 1976 October 1990 145,000 50 Years
Arlington Financial Center 385,000 1963 June 1992 51,000 50 Years
515 King Street 511,000 1966 July 1992 78,000 50 Years
The Lexington Building 75,000 1970 November 1993 47,000 50 Years
The Saratoga Building 208,000 1977 November 1993 59,000 50 Years
Brandywine Center 56,000 1969 November 1993 35,000 50 Years
Tycon Plaza II 668,000 1981 June 1994 131,000 50 Years
Tycon Plaza III 632,000 1978 June 1994 152,000 50 Years
6110 Executive Boulevard 1,195,000 1971 January 1995 199,000 30 Years
1220 19th Street 845,000 1976 November 1995 104,000 30 Years
Maryland Trade Center I 800,000 1981 May 1996 191,000 30 Years
Maryland Trade Center II 555,000 1984 May 1996 159,000 30 Years
1600 Wilson Boulevard 116,000 1973 October 1997 167,000 30 Years
7900 Westpark Drive 290,000 1972/1986 November 1997 478,000 30 Years
----------- ---------
19,122,000 2,434,000
----------- ---------
SHOPPING CENTERS
Concord Centre 1,127,000 1960 December 1973 76,000 33 Years
Bradlee 3,220,000 1955 December 1984 168,000 40 Years
Clairmont 766,000 1965 December 1976 40,000 39 Years
Dover Mart 492,000 1960 January 1973 44,000 40 Years
Chevy Chase Metro Plaza 1,454,000 1975 September 1985 51,000 50 Years
Prince William Plaza 821,000 1967 August 1968 55,000 50 Years
Takoma Park 773,000 1962 July 1963 59,000 50 Years
Westminster 1,977,000 1969 September 1972 165,000 37 Years
Wheaton Park 554,000 1967 September 1977 71,000 49 Years
Montgomery Village Center 902,000 1969 December 1992 196,000 50 Years
Shoppes of Foxchase 286,000 1960 June 1994 128,000 50 Years
Frederick County Square (e) 579,000 1973 August 1995 233,000 30 Years
----------- ---------
12,951,000 1,286,000
----------- ---------
APARTMENT BUILDINGS
Country Club Towers 2,747,000 1965 July 1969 276,000 227 35 Years
Munson Hill Towers 3,686,000 1963 January 1970 340,000 279 33 Years
Park Adams 2,107,000 1959 January 1969 210,000 200 35 Years
Roosevelt Towers 2,004,000 1964 May 1965 229,000 191 40 Years
3801 Connecticut Avenue 3,719,000 1951 January 1963 242,000 307 30 Years
The Ashby at McLean 811,000 1982 August 1996 349,000 250 30 Years
Walker House Apartments 450,000 1971 March 1996 148,000 196 30 Years
Bethesda Hill 62,000 1986 November 1997 226,000 195 30 Years
----------- --------- -----
15,586,000 2,020,000 1,845
----------- --------- -----
</TABLE>
-42-
<PAGE>
SCHEDULE III
(Continued)
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY
SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Gross Amounts at which carried at
Initial Cost (b) Net December 31, 1997
-------------------- Improvements ----------------------------------
Building (Retirements) Buildings
and since and
Properties Location Land Improvements Acquisition Land Improvements Total (d)
---------- -------- ---- ------------ ----------- ---- ------------ ---------
<S><C>
INDUSTRIAL DISTRIBUTION CENTERS
Pepsi-Cola Maryland $ 760,000 $ 1,792,000 $ 1,560,000 $ 760,000 $ 3,352,000 $ 4,112,000
Capitol Freeway Center Washington, D.C. 300,000 1,205,000 2,627,000 300,000 3,832,000 4,132,000
Department of Commerce Virginia 347,000 1,009,000 1,358,000 347,000 2,367,000 2,714,000
Fullerton Virginia 950,000 3,317,000 836,000 950,000 4,153,000 5,103,000
Ravensworth Center Virginia 392,000 1,059,000 399,000 392,000 1,458,000 1,850,000
Shirley-I-395 Business Center Virginia 652,000 1,265,000 1,102,000 652,000 2,367,000 3,019,000
V Street Distribution Center Washington, D.C. 126,000 317,000 164,000 126,000 481,000 607,000
Charleston Business Center Maryland 2,045,000 2,091,000 211,000 2,045,000 2,302,000 4,347,000
Tech 100 Industrial Park Maryland 2,086,000 4,744,000 254,000 2,086,000 4,998,000 7,084,000
Crossroads Distribution Center Maryland 894,000 1,945,000 24,000 894,000 1,969,000 2,863,000
The Alban Business Center Virginia 878,000 3,298,000 332,000 878,000 3,630,000 4,508,000
The Earhart Building Virginia 916,000 4,128,000 40,000 916,000 4,168,000 5,084,000
Ammendale Technology Park I Maryland 1,335,000 6,492,000 144,000 1,335,000 6,636,000 7,971,000
Ammendale Technology Park II Maryland 862,000 5,016,000 51,000 862,000 5,067,000 5,929,000
Pickett Industrial Park Virginia 3,300,000 4,899,000 25,000 3,300,000 4,924,000 8,224,000
------------ ------------ ----------- ------------ ------------ ------------
15,843,000 42,577,000 9,127,000 15,843,000 51,704,000 67,547,000
------------ ------------ ----------- ------------ ------------ ------------
Totals $121,296,000 $304,835,000 $78,184,000 $121,296,000 $383,019,000 $504,315,000
============ ============ =========== ============ ============ ============
<CAPTION>
Accumulated
Depreciation
at
December 31, Date of Date of Net Rentable Depreciation
1997 Construction Acquisition Square Feet (f) Units Life (c)
------------ ------------ ----------- --------------- ----- ------------
<S><C>
INDUSTRIAL DISTRIBUTION CENTERS
Pepsi-Cola $ 648,000 1971 October 1987 69,000 40 Years
Capitol Freeway Center 1,721,000 1940 July 1974 145,000 25 Years
Department of Commerce 1,628,000 1964 December 1971 105,000 43 Years
Fullerton 1,009,000 1980 September 1985 103,000 50 Years
Ravensworth Center 340,000 1965 December 1986 29,000 40 Years
Shirley I-395 Business Center 1,389,000 1960 September 1961 113,000 40 Years
V Street Distribution Center 238,000 1960 October 1973 31,000 40 Years
Charleston Business Center 197,000 1973 November 1993 85,000 50 Years
Tech 100 Industrial Park 401,000 1990 May 1995 167,000 30 Years
Crossroads Distribution Center 135,000 1987 December 1995 85,000 30 Years
The Alban Business Center 145,000 1981 October 1996 87,000 30 Years
The Earhart Building 143,000 1987 December 1996 92,000 30 Years
Ammendale Technology Park I 192,000 1985 February 1997 167,000 30 Years
Ammendale Technology Park II 143,000 1986 February 1997 108,000 30 Years
Pickett Industrial Park 27,000 1973 October 1997 246,000 30 Years
----------- ---------
8,356,000 1,632,000
----------- --------- -----
Totals $56,015,000 7,372,000 1,845
=========== ========= =====
</TABLE>
Notes:
(a) The site of Munson Hill Towers is rented under a lease requiring annual
payments of $22,600 until the expiration of the lease in 2060.
(b) The purchase of real estate investments has been divided between land
and buildings and improvements on the basis of valuations by the Trust.
(c) The useful life shown is for the main structure. Buildings and
improvements are depreciated over various useful lives ranging from 3
to 50 years.
(d) At December 31, 1997 total land, buildings and improvements are carried
at $489,744,000 for federal income tax purposes.
(e) At December 31, 1997, the only mortgage encumbrance was the $7,461,000
mortgage note payable on Frederick County Square.
(f) Residential properties are presented in gross square feet.
-43-
<PAGE>
SCHEDULE III
(Continued)
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY
SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
The following is a reconciliation of real estate assets and accumulated
depreciation for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
<S><C>
REAL ESTATE ASSETS
Balance, beginning of period $352,579 $272,597 $206,378
Additions - property acquisitions 138,802 69,888 58,746
- improvements 13,915 11,972 8,124
Deductions - write-off of fully depreciated assets (981) (1,878) (651)
-------- -------- --------
Balance, end of period $504,315 $352,579 $272,597
======== ======== ========
ACCUMULATED DEPRECIATION
Balance, beginning of period $ 46,639 $ 41,021 $ 36,588
Additions - depreciation 10,357 7,496 5,084
Deductions - write-off of fully depreciated assets (981) (1,878) (651)
-------- -------- --------
Balance, end of period $ 56,015 $ 46,639 $ 41,021
======== ======== ========
</TABLE>
-44-
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY
SUPPLEMENTARY INFORMATION:
QUARTERLY FINANCIAL RESULTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarter
--------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S><C>
1997:
Real estate rental revenue $18,498 $19,104 $19,436 $22,391
Net income 7,028 7,140 7,664 8,304
Net income per share $0.22 $0.22 $0.23 $0.23
1996:
Real estate rental revenue $14,681 $15,830 $17,056 $17,974
Net income 6,952 7,083 6,848 7,081
Net income per share $0.22 $0.22 $0.22 $0.22
1995:
Real estate rental revenue $12,464 $12,828 $13,273 $14,032
Net income 6,159 6,198 6,835 6,911
Net income per share $0.22 $0.22 $0.22 $0.22
</TABLE>
-45-
CREDIT AGREEMEENT
THIS CREDIT AGREEMENT, dated as of July 25, 1997 (the "Agreement"), by and
between WASHINGTON REAL ESTATE INVESTMENT TRUST, a Maryland real estate
investment trust (the "Borrower"), CRESTAR BANK, a Virginia banking corporation,
SIGNET BANK, a Virginia banking corporation, and any other banks that are
parties to this Agreement at any time (the "Banks"), and CRESTAR BANK, a
Virginia banking corporation, in its capacity as agent for the Banks (the
"Agent"), recites and provides:
RECITALS
--------
The Borrower has requested that the Banks extend credit to the Borrower.
The Banks are willing to do so upon the terms and subject to the conditions set
forth below. Accordingly, the Borrower, the Banks and the Agent agree as
follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings, which shall be equally applicable to both the singular and plural
forms of the defined terms.
"Advances" has the meaning assigned to such term in Section 2.1.
"Agreement" means this Credit Agreement, as the same may be amended,
modified or supplemented from time to time.
"Business Day" means a day of the year on which banks are not required or
authorized to close in New York City, or Richmond, Virginia, and which dealings
are carried on in the London interbank market.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase any of the foregoing.
"Cash Flow to Debt Service Ratio" means, as of any date for any period,
the ratio calculated by dividing (a) actual EBITDA for such period, by (b)
Consolidated Debt Service for such period.
"Closing Date" has the meaning assigned to such term in Section 2.2(d).
"Commitment" has the meaning assigned to such term in Section 2.1.
<PAGE>
"Commitment Percentage" means, with respect to any Bank, the percentage of
the aggregate Commitments represented by such Bank's Commitment.
"Commitment Schedule" has the meaning assigned to such term in Section
2.1.
"Consolidated Debt Service" for any period means (a) Consolidated Interest
Expense for such period plus (b) the aggregate amount of scheduled principal
payments of Indebtedness (excluding optional prepayments and scheduled principal
payments in respect of any Indebtedness which is payable in a single installment
at final maturity) required to be made during such period by the Borrower or any
of its consolidated Subsidiaries.
"Consolidated Interest Expense" for any period means the amount of
interest expense of the Borrower and its Subsidiaries for such period on the
aggregate principal amount of their Indebtedness, determined on a consolidated
basis in accordance with GAAP plus any capitalized interest which accrued during
such period.
"Consolidated Secured Indebtedness, " as of any date of determination,
means the sum of (a) the aggregate principal amount of all Indebtedness of the
Borrower and its Subsidiaries outstanding at such date which does not constitute
Unsecured Indebtedness and (b) the excess, if any, of (i) the aggregate
principal amount of all Unsecured Indebtedness of the Subsidiaries of the
Borrower over (ii) $10,000,000, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Senior Unsecured Indebtedness," as of any date of
determination, means the sum of (a) the aggregate principal amount of all
Indebtedness of the Borrower and its Subsidiaries outstanding at such date which
constitutes Unsecured Indebtedness (excluding (i) Indebtedness which is
contractually subordinated to the Indebtedness of the Borrower and its
Subsidiaries under the Loan Documents on customary terms acceptable to the
Agent, (ii) Indebtedness of the Borrower and its Subsidiaries under the Loan
Documents and (iii) Indebtedness incurred pursuant to any commitment referred to
in clause (c) below), (b) the aggregate Commitments then in effect under this
Agreement, and (c) the aggregate commitments then in effect with respect to any
other unsecured committed line of credit extended to the Borrower or any of its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"Consolidated Tangible Net Worth," at any date of determination, means an
amount equal to (a) Total Capitalization Value as of such date minus (b)
Consolidated Total Indebtedness as of such date.
"Consolidated Total Indebtedness," as of any date of determination, means
all Indebtedness of the Borrower and its Subsidiaries outstanding at such date,
determined on a consolidated basis in accordance with GAAP.
"Defaulting Bank" has the meaning assigned to such term in Section 2.10.
2
<PAGE>
"EBITDA" means earnings before interest, taxes (other than real estate
taxes), depreciation and amortization expense, all as determined in accordance
with GAAP.
"ERISA" has the meaning assigned to such term in Section 5.1 (a).
"Event of Default" has the meaning assigned to such term in Section 6.1.
"Existing Credit Agreement" has the meaning assigned to such term in
Section 2.2(d).
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of Richmond, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are, in accordance with GAAP,
capitalized on a balance sheet of the lessee.
"First Chicago Agreement" means the Credit Agreement, dated as of March 1,
1995, between the Borrower and First National Bank of Chicago, as amended from
time to time.
"Funding Bank" has the meaning assigned to such term in Section 2.10.
"GAAP" means generally accepted accounting principles consistent with
those applied in the preparation of the Borrower's financial statements for the
fiscal year ended on December 31, 1996.
"Guarantee Obligation" means, as to any Person (the "guaranteeing
person"), any obligation (determined without duplication) of (a) the
guaranteeing person or (b) another Person (including, without limitation, any
bank under any letter of credit) to induce the creation of which the
guaranteeing person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
of any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefore,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise maintain the net worth or solvency of the primary
obligor, (iii) to purchase
3
<PAGE>
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold harmless
the owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the maximum stated amount of the primary obligation
relating to such Guarantee Obligation (or, if less, the maximum stated liability
set forth in the instrument embodying such Guarantee Obligation), provided, that
in the absence of any such stated amount or stated liability, the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in good
faith.
"Indebtedness" of any Person at any date means without duplication, (a)
all indebtedness of such Person for borrowed money (including liabilities
arising under Financing Leases), (b) all obligations of such Person for the
deferred purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), to the extent such obligations constitute
indebtedness for the purposes of GAAP, (c) any other indebtedness of such Person
which is evidenced by a note, bond, debenture or similar instrument, (d) all
obligations of such Person in respect of acceptances issued or created for the
account of such Person, (e) all Guarantee Obligations of such Person (excluding,
in the case of the Borrower, Guarantee Obligations of the Borrower in respect of
primary obligations of any Subsidiary), and (f) all liabilities secured by any
lien (other than liens for taxes not yet due and payable) on any property owned
by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof.
"Indemnified Liabilities" has the meaning assigned to such term in Section
8.5.
"Interest Period" means, for each Advance or Term Loan, the period
commencing on the date of such Advance or Term Loan and ending on the last day
of the period selected by the Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of the period selected by
the Borrower pursuant to the provisions below. When interest is based on the
Prime Rate, the duration of each such Interest Period may be any period of time
of up to 30 days selected by the Borrower. In all other cases, the duration of
each such Interest Period shall be one, two, three, six, nine or twelve months
for the Advances, or any period of more than 90 days for the Term Loans, as the
Borrower may select, upon notice given by the Agent not later than 11:00 A.M.
(Eastern time) on the third Business Day prior to the first day of such Interest
Period (prompt written notice of which shall be given by the Agent to the
Banks); provided, however, that (1) whenever the last day of any Interest Period
for an Advance would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on the next
succeeding Business Day, unless such extension would cause the last day of such
Interest Period to occur
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<PAGE>
in the next following calendar month, in which case the last day of such
Interest Period shall occur on the next preceding Business Day, (2) if no
Interest Period is selected by the Borrower, the Interest Period shall be one
month for Advances and 90 days for Term Loans, (3) no Interest Period for
Advances shall expire later than the Termination Date, and (4) no Interest
Period for Term Loans shall expire later than the Maturity Date.
"LIBOR" means, with respect to each day during each Interest Period
pertaining to an Advance, the rate of interest determined on the basis of the
rate for deposits in dollars for a period equal to such Interest Period
commencing on the first day of such Interest Period appearing on Page 3750 of
the Telerate Service as of 11:00 A.M., London time, two Business Days prior to
the beginning of such Interest Period. In the event that such rate does not
appear on Page 3750 of the Telerate Service (or otherwise on such service),
"LIBOR" shall be determined by reference to such other publicly available
service for displaying eurodollar rates as may be agreed upon by the Agent and
the Borrower or, in the absence of such agreement, "LIBOR" shall instead be the
rate per annum equal to the rate at which Crestar Bank is offered dollar
deposits at or about 10:00 A.M., New York City time, two (2) Business Days prior
to the beginning of such Interest Period in the interbank eurodollar market
where the eurodollar and foreign currency and exchange operations in respect of
its Advance are then being conducted for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its Advance to be outstanding during such Interest
Period.
"LIBOR Advances" means any Advance or portion thereof with respect to
which the interest rate is calculated by reference to LIBOR.
"LIBOR Spread" has the meaning assigned to such term in Section 2.4(c).
"Lien" has the meaning assigned to such term in Section 5.2(a).
"Loan Documents" means this Agreement, the Notes, each Subsidiary
Guaranty, and any guarantees, security agreements, notes, or any other document
now or hereafter executed or delivered in connection with the Loans, in evidence
thereof or as security therefor, as any of the same may be amended, modified or
supplemented from time to time.
"Loans" means the Advances and the Term Loans.
"Majority Banks" has the meaning assigned to such term in Section 2.1.
"Market Area" has the meaning assigned to such term in Section 2.1.
"Maturity Date" has the meaning assigned to such term in Section 2.3(b).
"Moody's" means Moody's Investors Service, Inc. and its successors.
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"Non-Usage Fee Rate" has the meaning assigned to such term in Section 2.7.
"Note" has the meaning assigned to such term in Section 2.8.
"Partial Loan" has the meaning assigned to such term in Section 2.10.
"Participant" has the meaning assigned to such term in Section 8.12.
"Permitted Liens" means those Liens which do not violate Section 5.2 (a)
hereof.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, trust or other entity or organization, or
any government or political subdivision or any agency, department or
instrumentality thereof.
"Prime Rate" means the rate established from time to time by the Agent as
its prime rate, which rate is recorded in the Agent's Central Credit
Administration Division and used as a reference for fixing the lending rate on
commercial loans. The Borrower acknowledges that the prime rate is not
necessarily the lowest rate of interest charged by the Bank. For purposes of
this Agreement, any change in the Prime Rate shall be effective on the date such
change in the Prime Rate is announced.
"Prime Rate Advance" means any Advance or portion thereof with respect to
which the interest rate is calculated by reference to the Prime Rate.
"Prime Rate Spread" has the meaning assigned to such term in Section
2.4(c).
"Pro Forma EBITDA" means, for any Person for any period, EBITDA calculated
as if the Property then owned by such Person had been owned by such Person for
the entire period.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"Recovery Bank" has the meaning assigned to such term in Section 2.11.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Subsidiary," as to any Person, means a corporation, partnership, limited
partnership, limited liability company or other entity of which shares of stock
or other ownership interests having ordinary voting power (other than stock or
such other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries,
or
6
<PAGE>
both, by such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary
or Subsidiaries of the Borrower.
"Subsidiary Guaranty " has the meaning assigned to such term in Section
5.1 (c).
"Termination Date" has the meaning assigned to such term in Section 2.1.
"Term Loans" has the meaning assigned to such term in Section 2.3(a).
"Total Capitalization Value" means for any Person for any quarter, the
product of (a) annualized EBITDA for such Person during such quarter (which
annualized EBITDA shall be calculated by annualizing Pro Forma EBITDA for the
most recently ended fiscal quarter), and (b) ten (10).
"Total Tangible Assets," of any Person on any date, means the current book
value of the total assets of such Person other than that portion of such
Person's assets that constitute intangible assets as determined in accordance
with GAAP plus accumulated depreciation on. the depreciable assets (excluding
intangible assets) from such Person's original book value of such assets which
is reflected in the current book value of such assets.
"Transferee Bank" has the meaning assigned to such term in Section 8.13.
"Treasury Rate" means, for any Interest Period, the rate per annum,
rounded upwards, if necessary, to the next higher 1/100th of 1%, which is the
average yield on United States Treasury Securities, adjusted to a constant
maturity corresponding to the length of the applicable Interest Period, as
reported for the most recent weekly reporting period covered in the weekly
statistical release (currently entitled "Weekly Summary of Banking and Credit
Measures") published by the Board of Governors of the Federal Reserve System for
the Friday immediately preceding the first day of such Interest Period (or as
reasonably established by the Agent for an Interest Period for which no such
yield is published).
"Treasury Rate Spread" has the meaning assigned to such term in Section
2.4(c).
"Unencumbered Asset," with respect to any asset, at any date of
determination, means the circumstance that such asset on such date (a) is not
subject to any Liens of any kind, other than Permitted Liens, (b) is not subject
to any agreement (including (i) any agreement governing Indebtedness incurred in
order to finance or refinance the acquisition of such asset, and (ii) if
applicable, the organizational documents of any Subsidiary) (other than the
First Chicago Agreement, the terms of which restrict the Borrower's and its
Subsidiaries' ability to encumber certain assets) which prohibits or limits the
ability of the Borrower or any of its Subsidiaries to create, incur, assume or
suffer to exist any Lien upon any assets or Capital Stock of the Borrower or any
of its Subsidiaries (excluding any agreement which limits generally the amount
of secured Indebtedness which may be incurred by the Borrower and its
Subsidiaries), and (c) is not subject to any agreement (including any agreement
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<PAGE>
governing Indebtedness incurred in order to finance or refinance the acquisition
of such asset, but excluding the terms of the First Chicago Agreement) which
entitles any Person to the benefit of any Lien (other than Permitted Liens) on
any assets or Capital Stock of the Borrower or any of its Subsidiaries, or would
entitle any Person to the benefit of any Lien (other than Permitted Liens) on
such assets or Capital Stock upon the occurrence of any contingency (including,
without limitation, pursuant to an "equal and ratable" clause). For the purposes
of this Agreement, any Property of a Subsidiary which is not a Wholly-Owned
Subsidiary shall not be deemed to be unencumbered unless both (i) such Property
and (ii) all Capital Stock of such Subsidiary held by, the Borrower is
unencumbered.
"Unsecured Indebtedness" means all Indebtedness of any Person that is not
secured by a Lien on any income, Capital Stock, Property or any other asset of
such Person.
"Value of Unencumbered Assets," as of any date, means the gross book
value, as determined in accordance with GAAP, of all Unencumbered Assets owned
by the Borrower or any of its Subsidiaries as of such date.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries
of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of
such Person, or (ii) any partnership, association, joint venture or similar
business organization 100% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled.
"WRIT LP" means WRIT Limited Partnership, a Delaware limited partnership.
ARTICLE 2
LOANS
SECTION 2.1 Advances. Subject to the terms and conditions and relying upon
the representations and warranties set forth in this Agreement, each Bank
severally agrees to make advances (the "Advances") to the Borrower, from time to
time on any Business Day (as defined below) during the period from the date
hereof until July 25, 1998 (the "Termination Date") in an aggregate amount not
to exceed at any time outstanding the commitment of such Bank (as to each Bank,
its "Commitment") as set forth on the Commitment schedule attached as Schedule
2.1 (as amended from time to time, the "Commitment Schedule"), provided that at
no time shall the outstanding Advances and Term Loans (as defined below) exceed
$50,000,000. If no Event of Default has occurred and is continuing on July 25,
1998, the Banks agree to extend, at the Borrower's option, the Termination Date
to July 25, 1999. The Advances made on any Business Day shall be in an amount
not less than $1,000,000 or an integral multiple thereof. The Advances shall be
used only for the purpose of refinancing existing Indebtedness of the Borrower
to the Banks and purchasing income producing real estate in the Market Area (as
defined below) and to make
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<PAGE>
capital improvements to real property owned by the Borrower and located in the
Market Area. "Market Area" means Washington D.C., Virginia, Maryland, Delaware
and southeastern Pennsylvania. Advances may not be used to prepay or refinance
outstanding Advances. (The Banks agree that establishing a new Interest Period
for an Advance at the expiration of the current Interest Period shall not
constitute a refinancing of an Advance.) Advances may be used to purchase income
producing real estate outside of the Market Area with the prior written consent
of the Majority Banks, which shall not be unreasonably withheld. "Majority
Banks" means, as of any date, Banks whose aggregate Commitments total at least
66 2/3% of all Commitments.
SECTION 2.2 Making Advances
(a) Advances shall be made on written request, given not later than 11:00
A.M. (Eastern time) at least three Business Days prior to the date of the
proposed Advances, from the Borrower to the Agent, identifying the real estate
to be purchased or the capital improvements to be made, specifying the date and
amount of the Advances and selecting the initial Interest Period for such
Advances. The Agent shall give prompt written notice of each borrowing request
to the Banks. Not later than 1:00 P.M. (Eastern time) on the date of such
Advances and upon fulfillment of the applicable conditions set forth in Article
Error! Reference source not found, each Bank will make its ratable share of such
Advances available to the Agent in same day funds in accordance with such Banks
Commitment Percentage. Upon the Agent's receipt of such funds, it shall credit
the proceeds to the Borrower's operating account with the Agent.
(b) Each written request from the Borrower to the Agent for Advances shall
be irrevocable and binding on the Borrower. The Borrower shall indemnify each
Bank against any loss, cost or expense incurred by such Bank as a result of any
failure to fulfill on or before the date specified in such request for such
Advances the applicable conditions set forth in Article Error! Reference source
not found, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to fund the
Advance when the Advance, as a result of such failure, is not made on such date.
(c) The Advances shall be repaid on the Termination Date, unless converted
into Term Loans as provided in Section Error! Reference source not found below.
(d) On the date of the closing of this Agreement (the "Closing Date"), all
indebtedness outstanding under the July 27, 1995 Credit Agreement between the
Borrower, Crestar Bank and Signet Bank/Virginia (the "Existing Credit
Agreement") shall be repaid with Advances under this Agreement and the Existing
Credit Agreement shall be terminated as of the Closing Date.
(e) Unless the Agent shall have received notice from a Bank prior to the
date of any Advances that such Bank will not make available to the Agent such
Bank's
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<PAGE>
ratable portion of such Advances, the Agent may assume that such Bank has made
such portion available to the Agent on the date of such Advances in accordance
with Section 2.2(a) and the Agent may, in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent that such Bank shall not have so made such ratable portion available to
the Agent, such Bank and the Borrower severally agree to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid to the Agent, at (1) in the case of the Borrower,
the interest rate applicable at the time to such Advances, and (2) in the case
of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Bank's Advance
for purposes of this Agreement.
(f) The failure of any Bank to make the Advances to be made by such Bank
shall not relieve the other Banks of their obligations, if any, hereunder to
make their Advances, but none of the Banks shall be responsible for the failure
of the other Banks to make Advances.
SECTION 2.3 Term Loans.
(a) The Borrower may convert the Advances or portions thereof into a term
loan (the "Term Loans") at any time after January 25, 1998 and prior to the
Termination Date, provided, however, that any such conversion must be made on
the last day of the current Interest Period for each Advance to be converted (as
defined below). Each election to convert Advances or portions thereof into Term
Loans shall be in an aggregate amount not less than $1,000,000 or an integral
multiple thereof and shall be made on written notice, given to the Agent not
later than 11:00 A.M. (Eastern time) three Business Days prior to the date of
the proposed conversion. The Agent shall give prompt written notice of each such
conversion request to the Banks. Not later than 1:00 P.M. (Eastern time) on the
date of such conversion and upon fulfillment of the applicable conditions set
forth in Article 2, the Term Loans will be deemed to be applied to the
prepayment of the Advances ratably in accordance with the Banks' respective
Commitment Percentages made by such Bank.
(b) The principal amount of each Term Loan shall be repaid on July 25,
2001 (the "Maturity Date"), or on such earlier date as may be selected by the
Borrower at its option. The term of any individual Term Loan shall not exceed
forty-two (42) months.
SECTION 2.4 Interest.
(a) The Borrower shall pay interest on the unpaid principal amount of each
Advance from the date of such Advance until such principal amount shall be paid
in full, monthly in arrears, on the first day of each calendar month, at the sum
of (1) in the case of an Interest Period of one month or more, LIBOR for the
applicable Interest Period
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plus the applicable LIBOR Spread, and (2) in the case of an Interest Period of
less than one month, the Prime Rate plus the applicable Prime Rate Spread,
adjusted daily when and as the Prime Rate is changed.
(b) The Borrower shall pay interest on the unpaid principal amount of
each Term Loan from the date on which such Term Loan is made until such
principal amount shall be paid in full, monthly in arrears, on the first day of
each calendar month, at the sum of (1) in the case of an Interest Period of one
month or more, the Treasury Rate for the applicable Interest Period plus the
applicable Treasury Rate Spread, and (2) in the case of an Interest Period of
less than one month, the Prime Rate plus the Prime Rate Spread, adjusted daily
when and as the Prime Rate is changed.
(c) Initially, the "LIBOR Spread" shall be 0.70%,the"Treasury Rate
Spread" shall be 1.30% and the "Prime Rate Spread" shall be 0%. Thereafter the
applicable LIBOR Spread, Treasury Rate Spread and Prime Rate Spread applicable
to the Advances and Term Loans shall be subject to change at any time as
determined based upon the lower (i.e. less desirable) of the Borrower's Moody's
debt rating, and the Borrower's S&P's debt rating, as the case may be. The
applicable Spreads shall be adjusted effective on the next Business Day
following any change in the Borrower's Moody's debt rating and/or S&P's debt
rating, as the case may be. The applicable debt ratings and corresponding LIBOR
Spreads, Treasury Rate Spreads and Prime Rate Spreads are as follows:
<TABLE>
<CAPTION>
Advances Term Loans Advances/
-------- ---------- ---------
Term Loans
----------
S&P Rating Moody's Rating LIBOR Treasury Rate Prime Rate
- ---------- -------------- ----- ------------- ----------
Spread Spread Spread
------ ------ ------
<S><C>
A or higher A2 or higher .50% 1.10% 0%
A- A3 .625% 1.225% 0%
BBB+ Baa1 .70% 1.30% 0%
BBB Baa2 1.00% 1.60% 0%
BBB- Baa3 1.25% 1.85% 0%
Less than BBB- Less than Baa3 2.25% 2.85% .50%
No Rating No Rating 2.25% 2.85% .50%
</TABLE>
(d) After maturity or upon the occurrence and during the continuance
of an Event of Default hereunder, the Prime Rate Spread shall be 2.50%, the
LIBOR Spread shall be 4.25% and the Treasury Rate Spread shall be 4.8%.
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SECTION 2.5 Prepayments. The Borrower shall have the right to prepay any
Advances or Term Loans at any time subject to the payment of the prepayment
penalty described below with respect to any Term Loan; provided, however, that
each partial prepayment shall be in an aggregate principal amount of not less
than $1,000,000 or an integral multiple thereof. No prepayment penalty will be
imposed with respect to the Advances. The prepayment penalty for a Term Loan
will be equal to the present value of the difference between the amount that
would have been realized by the Banks for the remaining term of the applicable
Interest Period, and any lesser amount that would have been realized by the
Banks by reinvesting the prepaid amount at the Treasury Rate with a maturity
most closely equal to, but not longer than, the remaining term of the applicable
Interest Period. To determine such present value, the foregoing difference shall
be discounted to its present value at a discount rate equal to the applicable
Treasury Rate. The Borrower shall give the Agent at least three Business Days'
prior written notice of prepayment (prompt written notice of which shall be
given to the Banks by the Agent) and in such notice specify the prepayment date
and the principal amount of each Advance or Term Loan to be prepaid. Such notice
of prepayment shall be irrevocable and shall commit the Borrower to prepay in
the amount stated therein. All prepayments under this Section shall be
accompanied by accrued interest on the principal amount being prepaid to the
date of prepayment. Amounts prepaid shall be available to be reborrowed from the
Banks hereunder in accordance with the terms of this Agreement.
SECTION 2.6 Funding Provisions.
(a) Increased Costs. If, due to either (1) the introduction of or any
change (other than any change by way of imposition or increase of reserve
requirements, referred to in subsection (b) below) in any law or regulation or
(2) the compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to a Bank of agreeing to make or making, funding or
maintaining the Advances or the Term Loans, then the Borrower shall from time to
time, within 20 Business Days after written demand by such Bank, pay to such
Bank additional amounts sufficient to compensate such Bank for such increased
cost. A certificate as to the amount of such increased cost shall be submitted
to the Borrower by such Bank with such demand, and such certificate shall be
presumed to be correct.
(b) Additional Interest. The Borrower shall pay to each Bank, so long
as such Bank shall be required under regulations of the Board of Governors of
the Federal Reserve System to maintain reserves with respect to liabilities or
assets consisting of or including Eurocurrency liabilities (as such term is
defined in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time), additional interest on the unpaid principal
amount of each Advance made by such Bank, from the date of such Advance until
such principal amount is paid in full, at an interest rate per annum equal at
all times to the remainder obtained by subtracting (1) LIBOR for the Interest
Period for such Advance from (2) the rate obtained by dividing such LIBOR by a
percentage equal to 100% minus the reserve percentage applicable during such
Interest Period (or if more than one such
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<PAGE>
percentage shall be so applicable, the daily average of such percentages for
those days in such Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency, supplemental
or other marginal reserve requirement) for such Bank with respect to liabilities
or assets consisting of or including Eurocurrency liabilities having a term
equal to such Interest Period, payable on each date on which interest is payable
on such Advance. Such additional interest shall be determined by such Bank and
notified to the Borrower. The Agent acknowledges that as of the date hereof,
banks are not required to maintain reserves with respect to Eurocurrency
liabilities.
(c) Increased Capital. If a Bank reasonably determines that
compliance with any law or regulation or any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) reasonably affects or would affect the amount of capital required or
expected to be maintained by such Bank or any corporation controlling such Bank
and that the amount of such capital is increased by or based upon the existence
of such Bank's commitment to lend hereunder and other commitments of this type,
then, within 20 Business Days after written demand by such Bank, the Borrower
shall pay to such Bank, from time to time as specified by such Bank, additional
amounts sufficient to compensate such Bank or such corporation in the light of
such circumstances, to the extent that such Bank reasonably determines such
increase in capital to be allocable to the existence of such Bank's commitment
to lend hereunder. A certificate as to such amounts shall be submitted to the
Borrower by such Bank with such demand, and such certificate shall be presumed
to be correct.
(d) Illegality. Notwithstanding any other provision of this
Agreement, if a Bank shall notify the Borrower that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other governmental authority asserts that it is unlawful,
for such Bank to perform its obligations hereunder to make, fund or maintain
Advances hereunder based on LIBOR, or if such Bank notifies the Borrower that
such Bank in good faith has determined that LIBOR will not adequately reflect
the cost to the Bank of making or maintaining Advances, such Bank shall provide
the Borrower with a comparable interest rate option for the Advances.
SECTION 2.7 Non-Usage Fee. The Borrower agrees to pay to the Banks a fee
on the daily Unused Amount from the date hereof until the Termination Date, as
extended from time to time, at the rate per annum set forth in the schedule
below (the "Non-Usage Fee Rate"), payable in arrears on the first Business Day
of each January, April, July and October, during the term of the Commitments of
the Banks, beginning on October 1, 1997, and on the Termination Date, as
extended from time to time. The "Unused Amount" means, on a daily basis, the
amount by which $50,000,000 exceeds the aggregate outstanding balances of
Advances and Term Loans. The Agent shall submit a quarterly statement for such
fee to the Borrower.
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<PAGE>
S&P Rating Moody's Rating Non-Usage Fee Rate
- ---------- -------------- ------------------
A or higher A2 or higher .15%
A- A3 .175%
BBB+ Baa1 .175%
BBB Baa2 .20%
BBB- Baa3 .20%
Less than BBB- Less than Baa3 .25%
No Rating No Rating .25%
The Non-Usage Fee Rate shall be determined in the same manner as the
determination of the LIBOR Spread pursuant to Section 2.4(c) hereof (e.g., if
the Borrower's Moody's debt rating is Baa 1 and its S&P debt rating is A, the
Applicable Percentage shall be based on the Moody's debt rating), with
adjustments becoming effective on the next Business Day following any change in
the applicable debt rating. As of the date hereof, the Non-Usage Fee Rate is
.175%.
SECTION 2.8 Note. The Borrower's obligation to repay the Advances and the
Term Loans made by a Bank, together with accrued interest thereon, shall be
evidenced by a single promissory note in the amount of such Bank's Commitment,
in the form of Exhibit A attached hereto, duly executed on behalf of the
Borrower and payable to such Bank (as amended from time to time, the "Notes").
SECTION 2.9 Payments and Computations.
(a) The Borrower shall make each payment hereunder and under the
Notes not later than 12:00 noon (Eastern time) on the day when due in U.S.
dollars to the Agent at its address at 8245 Boone Boulevard, 8th Floor, Vienna,
Virginia 22182, Attention: Michael E. Forry, in same day funds. The Agent will
promptly thereafter cause to be distributed in like funds relating to the
payment of principal, interest or fees ratably (other than amounts payable to a
particular Bank pursuant to Section 2.6) to the Banks in accordance with wire
transfer instructions provided to the Agent by the Banks from time to time.
(b) The Borrower shall establish an account with the Agent into which
the proceeds of the Advances will be deposited. The Borrower hereby authorizes
the Agent, if and to the extent payment is not made when due hereunder or under
the Notes, to charge from time to time against such account with the Agent any
amount so due.
(c) All computations of interest and non-usage fees shall be made by
the Agent on the basis of a year of 360 days, in each case for the actual number
of days
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<PAGE>
(including the first day but excluding the last day) occurring in the period for
which such interest or fee is payable. Each determination by the Agent of an
interest rate hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest and fees, as the case may be;
provided, however, if such extension would cause the payment of principal or
interest of the Advances bearing interest based on LIBOR to be made in the next
following calendar month, such payment should be made on the next preceding
Business Day.
SECTION 2.10 Sharing of Payments, etc. Except to the extent otherwise
expressly provided herein, (a) Advances and Term Loans shall be made by the
Banks PRO RATA IN accordance with their respective Commitment Percentages, and
(b) each payment of the principal of or interest on the Advances and Term Loans
or of fees shall be made for the account of the Banks PRO RATA in accordance
with their respective amounts thereof then due and payable. If any Bank shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the Advances made by it or on
account of its share of the Term Loans (other than pursuant to Sections 2.6 or
8.5(b)) in excess of its ratable share of payments on account of the Advances or
the Term Loans obtained by all the Banks, such Bank shall forthwith purchase
from the other Banks such participations in the Advances made by them or in the
Term Loans as shall be necessary to cause such purchasing Bank to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Bank, such purchase from each Bank shall be rescinded and such Bank shall repay
to the purchasing Bank the purchase price to the extent of such recovery
together with an amount equal to such Bank's ratable share (according to the
proportion of (1) the amount of such Bank's required repayment to (2) the total
amount so recovered from the purchasing Bank) of any interest or other amount
paid or payable by the purchasing Bank in respect of the total amount so
recovered. The Borrower agrees that any Bank so purchasing a participation from
another Bank pursuant to this Section 2.10 may, to the fullest extent permitted
by law, exercise all of its rights of payment (including the right of set-off)
with respect to such participation as fully as if such Bank were the direct
creditor of the Borrower in the amount of such participation. If a Bank shall
default in its obligation to fund any Advance or Term Loan hereunder (a
"Defaulting Bank"), then simultaneously with any funding by any of the remaining
Banks (each, a "Funding Bank"), of their respective Commitment Percentages of
such Advance or Term Loan (such an Advance or Term Loan is sometimes referred to
as a "Partial Loan"), the respective PRO RATA payments to be received by each
Funding Bank shall be adjusted to correspond to the aggregate percentage of all
then outstanding Advances and Term Loans (including all Partial Loans) made by
such Funding Bank. Following any adjustment of each Bank's PRO RATA share
pursuant to the preceding sentence, such Bank's PRO RATA share shall be
readjusted only upon the first to occur of (i) a Defaulting Bank subsequently
funding its Commitment Percentage of any such Partial Loan,
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or (ii) the repayment in full (including all interest thereon) to each Bank of
its Commitment Percentage of any such Partial Loan. Notwithstanding anything
contained herein to the contrary, in no event shall any Defaulting Bank be
entitled to receive any repayment of its Commitment Percentage of any Advances
or Term Loans (or any interest earned thereon) until such time as the Funding
Banks have received repayment in full of the amount of any Partial Loan,
together with all interest thereon. The Borrower shall have the right to replace
a Defaulting Bank in the manner set forth in Section 2.11 below, and upon the
replacement of any Defaulting Bank, such Defaulting Bank shall refund to the
Borrower the PRO RATA share of all commitment fees paid to such Defaulting Bank
which have not been earned by such Defaulting Bank as of the date of such
replacement, determined by multiplying the amount of all commitment fees paid by
the Borrower to or for the benefit of such Defaulting Bank by a fraction, the
numerator of which is the number of months (it being understood and agreed that
for purposes of this provision a portion of any month shall constitute a
complete "month") which have elapsed in the term of the Commitment, and the
denominator of which is 24.
SECTION 2.11 Replacement of Bank by Reason of Change in Circumstances. In
the event that any Bank (a "Recovery Bank") requires the Borrower to make any
payment to such Recovery Bank in accordance with the provisions of Section 2.6,
then upon written notice from the Borrower to Agent, the Borrower and the Agent
shall mutually use their respective best efforts to find another lender to
replace the Recovery Bank. If a replacement lender is found then the Borrower
shall pay to the Recovery Bank all amounts owed to such Recovery Bank under this
Agreement and the Note (including, without limitation, any amounts owed under
Section 2.6), such Recovery Bank shall no longer be a "Bank" hereunder, and
concurrently therewith the remaining parties hereto shall execute such
instruments as shall be necessary to have the replacement lender become a "Bank"
hereunder having a Commitment equal to that of the Recovery Bank.
ARTICLE 3
CONDITIONS OF LENDING
SECTION 3.1 Condition Precedent to Initial Advance. The obligation of the
Banks to make the initial Advance under this Agreement is subject to the
condition precedent that the Agent shall have received on or before the day of
such Advance the following, each dated such day, in form and substance
satisfactory to the Agent:
(a) The Notes and a Subsidiary Guaranty from each Subsidiary;
(b) Certified copies of the declaration of trust and bylaws of the
Borrower, together with resolutions of the Board of Trustees of the Borrower
approving this Agreement and the Notes, and of all documents evidencing other
necessary trust action and governmental approvals, if any, with respect to this
Agreement or the Notes;
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(c) Current good standing certificates as to the Borrower's existence
in the State of Maryland as a real estate investment trust and as to the
existence of each Subsidiary in the jurisdiction in which it is organized;
(d) A certificate of a duly authorized officer of the Borrower
certifying the incumbency names and true signatures of the officers of the
Borrower authorized to sign this Agreement, the Notes, and the other documents
to be delivered hereunder;
(e) Certified copies of the organizational documents and resolutions
of each Subsidiary authorizing the Subsidiary Guaranty, and a certificate of a
duly authorized representative of such Subsidiary certifying the incumbency,
names and true signatures of the representatives of such Subsidiary authorized
to sign the Subsidiary Guaranty; and
(f) A favorable opinion of Arent Fox Kintner Plotkin & Kahn, counsel
for the Borrower and the Subsidiaries, as to such matters as the Banks may
reasonably request.
SECTION 3.2 Conditions Precedent to All Advances and Term Loans. The
obligation of the Banks to make each Advance (including the initial Advance) and
each Term Loan shall be subject to the further conditions precedent that on the
date of such Advance or such Term Loan the following statements shall be true
(and each of the giving of the applicable notice requesting such Advance or Term
Loan and the acceptance by the Borrower of the proceeds of such Advance or Term
Loan shall constitute a representation and warranty by the Borrower that on the
date of such Advance or Term Loan such statements are true):
(a) The representations and warranties contained in Section 4.1 are
correct on and as of the date of such Loan, before and after giving effect to
such Loan and to the application of the proceeds therefrom, as though made on
and as of such date, except that the representation made in Section 4.1 (a)
shall be deemed to be made with respect to any Subsidiaries acquired or formed
in accordance with Section 5.1 (b) and the representations made in Section 4(e)
shall be deemed to be made with respect to the financial statements most
recently delivered in accordance with Section 5.1 (e); and
(b) No event has occurred and is continuing, or would result from
such Loan or from the application of the proceeds therefrom, which constitutes
an Event of Default or would constitute an Event of Default but for the
requirement that notice be given or time elapse or both.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
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(a) The Borrower is a real estate investment trust duly formed,
validly existing and in good standing under the laws of the State of Maryland,
and is qualified to do business in each jurisdiction where such qualification is
required. The only Subsidiary of the Borrower as of the date of this Agreement
is WRIT LP.
(b) The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's trust powers, have been duly
authorized by all necessary trust action, and do not contravene (1) the
Borrower's declaration of trust or bylaws or (2) law or any contractual
restriction binding on or affecting the Borrower.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Borrower of this Agreement or
the Notes.
(d) This Agreement and the Notes when delivered hereunder will be
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms.
(e) The consolidated balance sheet of the Borrower and its
Subsidiaries reported on SEC Form 10-Q for the fiscal quarter ended on March 31,
1997, and the related consolidated statements of income, equity and cash flows
of the Borrower and its Subsidiaries for the fiscal quarter then ended, copies
of which have been furnished to the Bank, fairly present the financial condition
of the Borrower and its Subsidiaries as of such date and the results of the
operations of the Borrower and its Subsidiaries for the period ended on such
date, all in accordance with generally accepted accounting principles
consistently applied, and since March 31, 1997, there has been no material
adverse change in such condition or operations.
(f) To the best of the Borrower's knowledge, there is no pending or
threatened action or proceeding affecting the Borrower before any court,
governmental agency or arbitrator, which may materially adversely affect the
financial condition or operations of the Borrower or which purports to affect
the legality, validity or enforceability of this Agreement or the Notes.
(g) No proceeds of any Loan will be used to acquire any equity
security of a class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
(h) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Loan will be used to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock.
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(i) The Borrower is not an "investment company" within the meaning
of, or is exempt from, the provisions of the Investment Company Act of 1940, as
amended.
(j) The Borrower is qualified as a real estate investment trust under
Sections 856 to 860 of the Internal Revenue Code.
ARTICLE 5
COVENANTS OF THE BORROWER
SECTION 5.1 Affirmative Covenants. So long as the Notes shall remain
unpaid or any Bank shall have any Commitment hereunder, the Borrower will,
unless the Majority Banks shall otherwise consent in writing:
(a) Compliance with Laws. Comply, and cause each Subsidiary to
comply, in all material respects with all applicable laws, rules, regulations
and orders, such compliance to include, without limitation, (1) paying before
the same become delinquent all taxes, assessments and governmental charges
imposed upon it or upon its property except to the extent contested in good
faith, (2) maintaining all employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") in conformity with
the provisions thereof, including the minimum funding requirements of ERISA, and
(3) the treatment, disposal, removal, storage and release of hazardous or toxic
substances in accordance with applicable environmental laws and regulations.
(b) Reporting Requirements. Furnish to each Bank:
(1) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of the Borrower,
the SEC Form 10-Q of the Borrower filed for such quarter;
(2) as soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower, a copy of the SEC Form 10-K of the
Borrower for such year for the Borrower, containing audited financial statements
for such year certified by independent public accountants reasonably acceptable
to the Banks, accompanied by an operating statement for such year for each real
estate project owned by the Borrower or a Subsidiary setting forth a breakdown
of revenues, expenses, net operating income and occupancy for each such project,
and an itemization of any lease of space of 10,000 square feet or more that will
expire within 12 months after the date of such operating statement. The
operating statements and the information contained therein shall be confidential
information and, unless required by applicable law, shall not be provided to any
person except each Bank's regulators and accountants;
(3) Within 45 days after the end of each fiscal quarter, a
certificate of the chief financial officer of the Borrower to the effect that no
Event of Default, and no event which, with the giving of notice or lapse of
time, or both, would constitute an Event of
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Default, occurred during the prior quarter and containing calculations of the
financial covenants set forth in Section 5.2(d); and
(4) as soon as possible and in any event within five days
after an officer of the Borrower has knowledge of the occurrence of each Event
of Default and each event which, with the giving of notice or lapse of time, or
both, would constitute an Event of Default, continuing on the date of such
statement, a statement of the chief financial officer of the Borrower setting
forth details of such Event of Default or event and the action which the
Borrower has taken and proposes to take with respect thereto;
(5) promptly after the sending or filing thereof, copies of
all other reports which the Borrower sends to any of its security holders or
regulators, and copies of all reports and registration statements which the
Borrower or any Subsidiary files with the Securities and Exchange Commission or
any national securities exchange; and
(6) such other information respecting the condition or
operations, financial or otherwise, of the Borrower, the Subsidiaries or any of
their Properties as the Banks may from time to time reasonably request.
(c) Delivery of Subsidiary Guaranties. Payment of all Indebtedness of
the Borrower arising under this Agreement and the Notes shall be guaranteed by
WRIT LP and each other Subsidiary of the Borrower formed or acquired after the
date of this Agreement. The Borrower shall promptly notify the Agent of any
planned formation or acquisition of any Subsidiary. Within 10 days after the
Borrower forms or acquires any Subsidiary, the Borrower shall cause such
Subsidiary to execute and deliver to the Banks a valid and enforceable guaranty
agreement (as "Subsidiary Guaranty") together with such other documents as the
Banks shall reasonably request. Each Subsidiary Guaranty and such other
documents each shall be in form and substance satisfactory to the Banks. Such
documents shall include, without limitation:
(1) an opinion of counsel to the Subsidiary, addressed to the Agent,
covering such matters as the Agent may reasonably request;
(2) copies of evidence of all actions taken by the Subsidiary to
authorize the execution, delivery and performance of the
Subsidiary Guaranty;
(3) certified copies of the organizational documents of the
Subsidiary;
(4) a certificate as to the authority, incumbency and signatures of
the representatives of the Subsidiary authorized to execute the
Subsidiary Guaranty; and
(5) a current certificate of good standing or formation (or similar
instrument) issued by the appropriate state official of the state
of organization of the Subsidiary.
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SECTION 5.2 Negative Covenants. So long as the Notes shall remain unpaid
or any Bank shall have any Commitment hereunder, the Borrower will not, without
the written consent of the Majority Banks:
(a) Liens. Create or permit to exist, or permit any of its
Subsidiaries to create or permit to exist, any lien, security interest or other
charge or encumbrance or any other type of preferential arrangement
(collectively, a "Lien"), upon or with respect to any of its Properties, whether
now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to
assign, any right to receive income, in each case to secure or provide for the
payment of any Indebtedness of any person or entity, other than (1) the lien for
real estate taxes and any similar assessments or charges which are not yet due
and payable (2) mechanics' liens and/or judgments which the Borrower will have
released or bonded off, or otherwise provide adequate security for, within 60
days, (3) liens or security interests existing on income producing Property at
the time of its acquisition by the Borrower, and any refinancings thereof that
do not increase the amount of such liens, and (4) liens in an aggregate amount
not to exceed $500,000 at any time outstanding. In case any Property is
subjected to a Lien in violation of this, Section 5.2(a), the Borrower and the
applicable Subsidiary will make or cause to be made provision whereby the Notes
will be secured equally and ratably with all other obligations secured thereby,
and in any case the Banks shall have the benefit, to the full extent that and
with such priority as the Banks may be entitled thereto under applicable law, of
an equitable lien on such property securing the Notes. Such violation shall
constitute an Event of Default hereunder, however, whether or not such provision
for an equal and ratable lien is made.
(b) Financial Covenants. Allow or permit to exist, or permit any of
its Subsidiaries to permit to exist, on a consolidated basis together with its
Subsidiaries: (1) a Cash Flow to Debt Service Ratio of less than 2.5, as
determined at the end of each fiscal quarter, based upon annualized results for
the preceding two fiscal quarters; (2) a Consolidated Tangible Net Worth of less
than $225,000,000; (3) Consolidated Total Indebtedness greater than forty-five
percent (45%) of Total Capitalization Value; (4) Consolidated Secured
Indebtedness greater than fifteen percent (15%) of Total Capitalization Value;
(5) the Value of Unencumbered Assets to be less than 2.25 times the Consolidated
Senior Unsecured Indebtedness; or (6) annualized EBITDA (determined by
multiplying by two (2) the sum of EBITDA for the two (2) most recently ended
fiscal quarters) to be less than twenty percent (20%) of Consolidated Total
Indebtedness.
(c) Mergers. Merge or consolidate with or into, or convey, transfer,
lease or otherwise dispose of (or permit any Subsidiary to do so), whether in
one transaction or in a series of transactions all or substantially all of its
assets (whether now owned or hereafter acquired) to, or acquire all or
substantially all of the assets of, any person or entity, except (1) for real
estate assets acquired in the ordinary course of business, (2) the Borrower may
form and acquire "qualified REIT subsidiaries" (as such term is defined in the
Internal Revenue Code) and may transfer assets to such Subsidiary, provided that
each such Subsidiary complies with the provisions of Section 5.1 (c), and (3)
that the Borrower may
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merge or consolidate with or into any other person or entity, provided that,
immediately after giving effect to such proposed transaction, no Event of
Default or event which, with the giving of notice or lapse of time, or both,
would constitute an Event of Default would exist and the Borrower is the
surviving entity.
(d) Acquisition of Non-Income Producing Property. Acquire, or permit
any Subsidiary to acquire, any undeveloped or unimproved real estate unless it
is contiguous to income producing real estate (1) already owned by the Borrower
or Subsidiary, or (2) being acquired by the Borrower or the Subsidiary
simultaneously with the acquisition of income producing real estate.
(e) Asset Sales. During any fiscal year sell assets that in the
aggregate generated 10% or more of consolidated EBITDA for the Borrower and its
Subsidiaries for the immediately preceding fiscal year.
ARTICLE 6
EVENTS OF DEFAULT
SECTION 6.1 Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing, the Agent shall, at the request of the
Majority Banks, be entitled to exercise the remedies provided for in Section
6.2:
(a) The Borrower shall fail to pay any principal of any Note when the
same becomes due and payable and such failure continues for a period of five
days after written notice to the Borrower from the Agent; or
(b) The Borrower shall fail to pay any interest on the Notes when the
same shall become due and payable and such failure continues for a period of ten
days after written notice from the Agent to the Borrower; or
(c) Any representation or warranty made by the Borrower or a
Subsidiary in any Loan Document or by the Borrower or any Subsidiary (or any of
its officers or representatives) in connection with this Agreement shall prove
to have been incorrect in any material respect when made; or
(d) The Borrower or a Subsidiary shall fail to perform or observe any
term, covenant or agreement contained in this Agreement or in the Subsidiary
Guaranty on its part to be performed or observed if such failure shall remain
unremedied for 30 days after written notice thereof shall have been given to the
Borrower or such Subsidiary, as applicable, by the Agent, provided that the
Borrower or such Subsidiary, as applicable, shall be entitled such additional
time, as may be reasonably approved by the Banks, but not more than 90 days, to
cure a default under Section 5.1 (a) which cannot reasonably be cured within 30
days so long as the Borrower or such Subsidiary, as applicable, commences such
cure promptly and proceeds diligently with such cure; or
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(e) The Borrower shall fail to pay any principal of or interest on
any Indebtedness which is outstanding in a principal amount of at least $100,000
in the aggregate (but excluding Indebtedness evidenced by the Notes) of the
Borrower (as the case may be), when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise,
provided that a demand instrument issued by the Borrower shall not be deemed to
be due and payable until demand is made by the holder thereof), and such failure
shall continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such Indebtedness; or any other event shall
occur or condition shall exist under any agreement or instrument relating to any
such Indebtedness and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness; or any such Indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Indebtedness shall be required to be made, in each case
prior to the stated maturity thereof; or
(f) The Borrower shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally,
or shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the Borrower seeking to adjudicate
it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), either such proceeding shall
remain undismissed or unstayed for a period of 60 days, or any of the actions
sought in such proceeding (including, without limitation, the entry of an order
for relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or for any substantial part of its property)
shall occur; or the Borrower shall take any action to authorize any of the
actions set forth above in this subsection (f); or
(g) The Borrower shall fail to qualify as a real estate investment
trust under Sections 856 to 860 of the Internal Revenue Code; or
(h) Any judgment or order for the payment of money in excess of
$1,000,000 shall be rendered against the Borrower and either (1) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (2) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(i) The occurrence of an event described in Sections 6.1(e) or (h)
shall occur with respect to any Subsidiary or the occurrence of an event
described in Section 6.1(f)
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with respect to a Subsidiary or Subsidiaries with aggregate Total Tangible
Assets of more than $10,000,000.
SECTION 6.2 REMEDIES. Upon the occurrence of any Event of Default, the
Agent shall, at the request of the Majority Banks:
(a) by notice to the Borrower, declare the obligation of each Bank to
make Loans to be terminated, whereupon the same shall forthwith terminate; and
(b) by notice to the Borrower, declare the Notes, all interest
thereon and all other amounts payable under this Agreement to be forthwith due
and payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest,
or further notice of any kind, all of which are hereby expressly waived by the
Borrower; provided, however, that in the event of an actual or deemed entry of
an order for relief with respect to the Borrower under the Federal Bankruptcy
Code, (1) the obligation of each Bank to make Loans shall automatically be
terminated and (2) the Loans, the Notes, all such interest and all such amounts
shall automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
ARTICLE 7
THE AGENT
SECTION 7.1 Authorization and Action. Each Bank hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the Notes), the Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Banks, and such
instructions shall be binding upon all Banks and all holders of Notes; provided,
however, that the Agent shall not be required to take any action that exposes
the Agent to personal liability or that is contrary to this Agreement, any Note
or applicable law. The Agent agrees to give to each Bank prompt notice of each
notice given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.2 Agent's Reliance, etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (1) may treat the
payee of any Note as the holder thereof, subject to the provisions of Section
8.13; (2) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such
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counsel, accountants or experts; (3) makes no warranty or representation to any
Bank and shall not be responsible to any Bank for any statements, warranties or
representations (whether written or oral) made by the Borrower or another Bank
in or in connection with this Agreement; (4) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement on the part of the Borrower or to
inspect the property (including the books and records) of the Borrower; (5)
shall not be responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any Note or
any other instrument or document furnished pursuant hereto; and (6) shall incur
no liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) reasonably believed by it to be genuine and signed or
sent by the proper party or parties.
SECTION 7.3 Agent and Affiliates. With respect to its Commitment, the
Loans made by it, the Note issued to it and the Indebtedness due to it, the
Agent shall have the same ri .ghts and powers under this Agreement as any other
Bank and may exercise the same as though it were not the Agent, and the term
"Bank" or "Banks" shall, unless otherwise expressly indicated, include Crestar
Bank in its individual capacity. Crestar Bank and its affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, the Borrower and any person or entity who
may do business with or own common stock of the Borrower, all as if Crestar Bank
were not the Agent and without any duty to account therefor to the Banks.
SECTION 7.4 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements referred to in Section 4. 1 (e) and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance upon the Agent or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under this Agreement.
SECTION 7.5 Indemnification. The Banks agree to indemnify the Agent (to
the extent not reimbursed by the Borrower), ratably according to their
respective Commitment Percentages, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Agent in any way relating to or arising
out of this Agreement or any action taken or omitted by the Agent under this
Agreement, provided that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Bank agrees to
reimburse the Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including counsel fees) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification,
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amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement, to the extent that the Agent is not reimbursed for such expenses
by the Borrower.
SECTION 7.6 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Borrower. Upon any such resignation,
the Banks shall have the right to appoint a successor Agent. If no successor
Agent shall have been so appointed by the Banks, and shall have accepted such
appointment, within 30 days after the retiring Agent's giving of notice of
resignation, then the retiring Agent, on behalf of the Banks, may appoint a
successor Agent, which shall be a commercial bank organized under the laws of
the United States of America or of any State thereof and having a combined
capital and surplus of at least $50,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article 7 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
SECTION 7.7 Borrower's Reliance. The Borrower shall be entitled to rely
upon written confirmation from the Agent as to the consent of the Banks to any
action by the Borrower for which such consent is required. Crestar Bank agrees
with the Borrower that it shall use good faith efforts to remain the Agent under
this Agreement.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Amendments. No amendment or waiver of any provision of this
Agreement or the Note, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Borrower, the Agent and the Majority Banks, or where unanimous consent is
required, by all Banks, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given. The
unanimous consent of all Banks will be required for any amendment, waiver or
consent, the effect of which is to (a) reduce any amount payable hereunder or
under the Note, or (b) extend the time of payment of any amount payable
hereunder or under the Note, (c) increase the amount of any Commitment, (d)
release the Borrower from any liabilities hereunder or under the Note, (e)
change the definition of Majority Banks, or (f) amend the provisions of this
Section 8.1.
SECTION 8.2 Notices. All notices and other communications provided for
hereunder shall be in writing and mailed, by certified mail, postage prepaid, or
delivered by reputable overnight courier service, if to the Borrower, at its
address at 10400 Connecticut Avenue, Kensington, Maryland 20895, Attention:
Larry E. Finger, with a copy of any notice of an Event of Default to David M.
Osnos, Esq., at Arent Fox Kintner Plotkin & Kahn at
26
<PAGE>
1050 Connecticut Avenue, N.W., Washington, D.C. 20036, if to the Agent, at its
address at 8245 Boone Boulevard, 8th Floor, Vienna, Virginia 22182, Attention:
Michael E. Forry; and if to the Banks, at their respective addresses set forth
on the Commitment Schedule attached hereto or any updates thereof; or, as to
each party, at such other address as shall be designated by such party in a
written notice to the other party. All such notices and communications shall be
effective upon receipt.
SECTION 8.3 No Waiver; Remedies. No failure on the part of the Agent or
the Banks to exercise, and no delay in exercising, any right hereunder or under
the Notes shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 8.4 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
SECTION 8.5 Costs, Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Agent on demand for all its costs and expenses incurred in
connection with the preparation, execution and delivery of, and any amendment,
supplement or modification to, this Agreement, the Notes and any other documents
prepared in connection herewith or therewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Agent; (b) to pay or
reimburse the Agent and each Bank for all of their respective costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the Notes and any such other documents, including, without
limitation, reasonable fees and disbursements of counsel to the Agent and each
Bank, except that the Borrower shall not be responsible for any costs or
expenses attributable to disputes among the Banks or among the Agent and any
Bank; (c) to pay, indemnify and hold each Bank and the Agent harmless from any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other taxes, if any,
that may be payable or determined to be payable in connection with the execution
and delivery or consummation of any of the transactions contemplated by, or any
amendment, supplement or modification to, or any waiver or consent under or in
respect of, this Agreement, the Notes and any such other documents; and (d) to
pay, indemnify and hold each Bank and the Agent harmless from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgements, suits, costs, expenses or disbursements of any kind or nature
whatsoever arising out of or relating to the making or maintaining of the Loans,
or the enforcement, performance and administration of this Agreement, the Notes
and any such other documents, or expenses or other liabilities arising out of
any bankruptcy or insolvency proceeding of the Borrower (all of the foregoing,
collectively, the "indemnified liabilities"), provided, that the Borrower shall
not have any obligations hereunder to the Agent or any Bank with respect to
indemnified liabilities arising from the gross negligence or willful misconduct
of the Agent or any such Bank. The agreements in this Section 8.5 shall survive
repayment of the Notes. The Borrower shall not be responsible for the fees and
expenses
27
<PAGE>
incurred by any Participant, any Transferee Bank (as such terms are defined
below), the Agent or any Bank in connection with any acquisition of any interest
in the Loans, other than the fees and expenses of counsel to the Agent in
connection with the execution and delivery of this Agreement.
SECTION 8.6 Survival of Agreements, Representations and Warranties. All
warranties, representations and covenants made by the Borrower herein or in any
certificate or other instrument delivered by it or on its behalf in connection
with this Agreement shall be considered to have been relied upon by the Agent
and the Banks and shall survive the making of the Loans herein contemplated and
the issuance and delivery to the Banks of the Notes regardless of any
investigation made by the Banks or on their behalf and shall continue in full
force and effect so long as any amount due or to become due hereunder is
outstanding and unpaid. All statements in any such certificate or other
instrument shall constitute representations and warranties by the Borrower
hereunder.
SECTION 8.7 Binding Effect. This Agreement and the Notes issued hereunder,
shall be binding upon and inure to the benefit of the Borrower, the Agent and
the Banks and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Banks.
SECTION 8.8 Entire Agreement. Except for the other loan documents
expressly referred to in this Agreement, this Agreement represents the entire
agreement between the Agent, the Banks and the Borrower and supersedes all prior
commitments.
SECTION 8.9 Severability. In case any one or more of the provisions
contained in this Agreement or the Notes shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
SECTION 8.10 Section Headings. The section headings used herein are for
convenience of reference only, are not part of this Agreement and are not to
affect the construction of or be taken into consideration in interpreting this
Agreement.
SECTION 8.11 No Assignment. The Borrower may not assign its rights or
obligations under this Agreement.
SECTION 8.12 Participations by Banks. Any Bank may at any time sell to
one or more financial institutions (each of such financial institutions being
herein called a "Participant") participating interests in any of the Loans held
by such Bank and its Commitment, provided, however, that:
28
<PAGE>
(a) No participation contemplated by this Section 8.12 shall relieve
such Bank from its obligations hereunder;
(b) Such Bank shall remain solely responsible for the performance of
such obligations; and
(c) The Borrower, the Agent, and the other Banks shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement.
SECTION 8.13 Assignments by Banks. Any Bank, with the prior written
consent of the Agent, may at any time agree to assign a portion of such Bank's
Commitment to another financial institution (a "Transferee Bank") provided that,
after giving effect to such assignment, such Bank must continue to hold a
Commitment of not less than $7,500,000 and unless the Borrower's written consent
is first obtained, there will not be more than five Banks at anytime. Crestar
Bank agrees that unless an Event of Default has occurred and is continuing, it
shall not hold a Commitment of less than $12,500,000. In such event the Bank and
the Transferee Bank shall so notify the Agent and the Borrower of the date on
which such assignment is to be effective. On such effective date:
(a) The Agent shall deliver to the Borrower and each of the Banks a
Commitment Schedule as of such effective date, reflecting the Commitments of the
Banks after giving effect to such assignment.
(b) The Agent, the assigning Bank and the Transferee Bank shall
execute and deliver an assignment agreement, in Form and substance acceptable to
the Agent, which shall constitute an amendment to this Agreement to the extent
necessary to reflect such transfer.
(c) Upon request by any Bank following an assignment made in
accordance with this Section 8.13, the Borrower shall issue, in exchange for the
existing Note held by such Bank, new Notes to the assignor and assignee
reflecting the assignment.
SECTION 8.14 Governing Law. This Agreement and the Notes shall be governed
by, and construed in accordance with, the laws of the Commonwealth of Virginia.
SECTION 8.15 No Officer, Etc., Liability. No trustee, officer or agent of
the trust shall be held to any personal liability whatsoever, in tort, contract
or otherwise, in connection with the transactions contemplated by this
Agreement.
[SIGNATURES ON FOLLOWING PAGE]
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
---------
WASHINGTON REAL ESTATE
INVESTMENT TRUST
By: /s/ Edmund B. Cronin, Jr.
__________________________________
Name: Edmund B. Cronin, Jr.
________________________________
Title: President
________________________________
AGENT:
------
CRESTAR BANK
By: /s/ Michael E. Forry
__________________________________
Michael E. Forry
Vice President
BANKS:
------
CRESTAR BANK
By: /s/ Michael E. Forry
__________________________________
Michael E. Forry
Vice President
SIGNET BANK
By: /s/ Eric A. Lawrence
__________________________________
Eric A. Lawrence
Senior Vice President
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated February 20, 1998 included in
Washington Real Estate Investment Trust's Form 10-K for the year ended December
31, 1997, into Washington Real Estate Investment Trust's previously filed
Registration Statements on Form S-8, File No. 33-63671, Form S-3, File No.
333-23157 and Form S-8, File No. 333-48081.
/s/ Arthur Andersen LLP
_________________________
Washington, D.C.
March 31, 1998
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