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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20543
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED June 30, 1994 COMMISSION FILE NO. 1-6622
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WASHINGTON REAL ESTATE INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
DISTRICT OF COLUMBIA 53-0261100
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
10400 CONNECTICUT AVENUE, KENSINGTON, MARYLAND 20895
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(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code (301) 929-5900
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the close of the period covered by this report.
SHARES OF BENEFICIAL INTEREST 28,238,735
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such report) and (2) has been subject to such
filing requirements for the past ninety (90) days.
YES X NO
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WASHINGTON REAL ESTATE INVESTMENT TRUST
INDEX
Page
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Part I: Financial Information
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Item l. Financial Statements (Unaudited)
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Statement of Changes in Shareholders' Equity 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis 9
Part II: Other Information
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Item l. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Part I
FINANCIAL INFORMATION
The information furnished in the accompanying Balance Sheets, Statements of
Operations, Statements of Cash Flows and Changes in Shareholders' Equity
reflect all adjustments which are, in the opinion of management, necessary for
a fair presentation of the financial position, results of operations and of
cash flows for the interim periods. The accompanying financial statements and
notes thereto should be read in conjunction with the financial statements and
notes for the three years ended December 31, 1993 included in the Trust's 1993
Form 10-K Report filed with the Securities and Exchange Commission.
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PART I
ITEM I. FINANCIAL STATEMENTS
WASHINGTON REAL ESTATE INVESTMENT TRUST
BALANCE SHEETS
(Unaudited)
June 30, December 31,
1994 1993
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Assets
Real estate at cost $204,567,095 $170,461,454
Accumulated depreciation (35,130,913) (33,255,332)
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169,436,182 137,206,122
Mortgage note receivable 800,000 800,000
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Total Investment in Real Estate 170,236,182 138,006,122
Cash and cash equivalents 1,522,720 1,759,471
Marketable investment securities 2,534,129 16,284,832
Rents and other receivables 2,467,178 2,473,024
Prepaid expenses and other assets 2,728,017 3,487,203
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$179,488,226 $162,010,652
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Liabilities
Accounts payable and other liabilities $2,334,059 $1,696,986
Tenant security deposits 1,464,504 1,318,464
Advance rents 1,555,424 1,647,146
Line of credit payable 18,000,000 -
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23,353,987 4,662,596
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Shareholders' Equity
Shares of beneficial interest, unlimited
authorization, without par value 140,815,574 142,029,391
Undistributed gains on real estate dispositions 15,318,665 15,318,665
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156,134,239 157,348,056
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$179,488,226 $162,010,652
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WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1994 1993 1994 1993
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Real estate rental revenue $10,758,614 $9,713,873 $22,071,103 $19,471,979
Real estate expenses (3,271,185) (2,838,278) (6,551,270) (5,737,695)
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7,487,429 6,875,595 15,519,833 13,734,284
Depreciation (964,896) (907,466) (1,897,335) (1,806,409)
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Income from real estate 6,522,533 5,968,129 13,622,498 11,927,875
Other income (expense) 164,407 343,959 (489,802) 864,791
Interest expense (41,506) - (41,506) (61,462)
General and administrative (817,697) (731,196) (1,458,447) (1,379,444)
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Income before gain on sale of real estate 5,827,737 5,580,892 11,632,743 11,351,760
Gain on sale of real estate - 741,217 - 741,217
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Net Income 5,827,737 6,322,109 11,632,743 12,092,977
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Per share information based on the weighted average
number of shares outstanding
Shares 28,238,735 28,225,485 28,237,802 28,219,923
Income before gain on sale of real estate $0.21 $0.20 $0.41 $0.40
============= ============ ============= =============
Net income $0.21 $0.22 $0.41 $0.43
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Dividends paid $0.23 $0.22 $0.46 $0.44
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WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1994 1993
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Cash Flow From Operating Activities
Net income $11,632,743 $12,092,977
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 1,897,335 1,806,409
Changes in other assets and liabilities 1,434,671 166,972
Gain on sale of property - (741,217)
Loss on sale of marketable investment securities 799,571 -
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Cash flow from operating activities 15,764,320 13,325,141
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Cash Flow From Investing Activities
Improvements to real estate (3,376,457) (2,581,604)
Proceeds from the sale of property - 176,000
Real estate acquisitions (30,729,184) -
Decrease in marketable investment securities 12,951,130 22,963,251
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Net cash (used in) provided by investing activities (21,154,511) 20,557,647
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Cash Flow From Financing Activities
Dividends paid (12,989,818) (12,419,286)
Mortgage principal retirements - (1,087,924)
Repayment of short-term bank loan - (21,000,000)
Mortgage principal payments - (27,269)
Borrowings - Line of credit 18,000,000 -
Net proceeds from stock options exercised 143,258 178,892
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Net cash flow provided by (used in) financing activities 5,153,440 (34,355,587)
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Net (decrease) in cash and cash equivalents (236,751) (472,799)
Cash and cash equivalents at beginning of period 1,759,471 1,804,488
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Cash and cash equivalents at end of period $1,522,720 $1,331,689
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WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994
(Unaudited)
Shares of Beneficial
Interest Outstanding
Shares Amount
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Balance, December 31, 1993 28,227,605 $142,029,391
Net income 11,632,743
Dividends (12,989,818)
Share options exercised 11,130 143,258
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Balance, June 30, 1994 28,238,735 $140,815,574
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WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
June 30, 1994
NOTE A: ACCOUNTING POLICIES
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Washington Real Estate Investment Trust (WRIT) has elected to qualify as a real
estate investment trust under the Internal Revenue Code. WRIT intends to
distribute at least 95% of its ordinary taxable income and, accordingly, no
income tax provisions are made on ordinary income.
Cash equivalents consist of investments readily convertible to known amounts of
cash generally with original maturities of 90 days or less.
Depreciation expense for Federal income tax purposes differs from that reported
for financial statement purposes due to the use of different lives and
depreciation methods and because certain properties were acquired by tax free
exchanges.
Buildings and improvements are depreciated on a straight-line basis over
estimated useful lives not exceeding 50 and 30 years, respectively.
NOTE B: MARKETABLE INVESTMENT SECURITIES
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Marketable investment securities are considered available for sale and at June
30, 1994, the carrying value approximates market. Marketable investment
securities, including accrued interest, consist of the following:
June 30, 1994
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U.S. Government and U.S. Government agency obligations $1,368,532
Federally insured certificates of deposit 50,000
Corporate notes and other 1,115,597
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$2,534,129
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Gross unrealized gains and losses at June 30, 1994 were not material. One
hundred percent (100%) of the portfolio matures in less than one year.
NOTE C: REAL ESTATE INVESTMENTS
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WRIT's real estate investment portfolio at June 30, 1994 at cost consists of
properties located in Maryland, Washington, D.C., Virginia and Delaware as
follows:
Office buildings $ 88,187,134
Apartment buildings 26,226,606
Shopping centers 65,133,889
Business centers 25,019,466
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$204,567,095
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On June 1, 1994 WRIT acquired Tycon Plaza, two (2) office buildings with
293,000 square feet in Vienna, Virginia at a contract purchase price of
$21,250,000. On June 30, 1994 WRIT acquired The Shoppes of Foxchase, a
shopping center located in Alexandria, Virginia at a contract purchase price of
$8,800,000. The center has 123,000 square feet of gross leasable
area. (See Note E).
NOTE D: SALE OF REAL ESTATE
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In June 1993, WRIT sold its headquarters building for $1,050,000 and recognized
a gain of $741,217. Proceeds received were $176,000 in cash and $874,000 in a
mortgage note receivable. The mortgage bears interest at 9% payable monthly
and matures in June 1996. Principal payments received in 1993 totalled
$74,000. Interest only from December 28, 1993 until final maturity in June
1996. The mortgage note is secured by a first deed of trust and security
agreement.
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NOTE E: LINE OF CREDIT PAYABLE
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On June 1, 1994 WRIT obtained an unsecured credit commitment from a bank in the
amount of $20,000,000 for the express purpose of purchasing income producing
property. On June 1, 1994, WRIT borrowed $9,000,000 on this credit facility
for the acquisition of Tycon Plaza and on June 30, 1994, WRIT borrowed an
additional $9,000,000 for the purchase of The Shoppes of Foxchase. Interest
only is payable monthly on the unpaid principal balance at the rate of Libor
plus 1.10%. At June 30, 1994 this rate was approximately 5.7%. All unpaid
principal and interest are due on June 30, 1995.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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WRIT's fundamental emphasis is on long-term growth of cash flow from operating
activities. Dividends to shareholders are based upon these cash flows. WRIT's
capital improvement program, strong leasing and management, and acquisitions of
additional properties are the major contributors to the sustained growth of
cash flows.
Occupancy rates have a major impact on rental revenue. Other factors such as
new or renewal leases at higher rates, CPI based annual rent increases,
increases in rentable space, tenant sales, new property acquisitions and
certain other capital expenditures also influence rental revenue.
Income from real estate in the second quarter of 1994 of $6,522,533 increased
9% compared with $5,968,129 for the second quarter of 1993. This increase is
primarily attributable to the Heritage Business Park acquired in November,
1993, the Tycon Plaza Office Buildings acquired June 1, 1994, and to continued
improvement in occupancy levels within the WRIT portfolio.
Income before Gain on Sale of Real Estate for the three months ended June 30,
1994 in the amount of $5,827,737 or $.21 per share increased 4.4% from
$5,580,892 or $.20 per share from the comparable quarter of 1993.
The average occupancy of 95% for the year 1993 increased to 96% for the first
six months of 1994. This is compared to 94% for the first six months of 1993.
Real estate operating expenses as a percentage of revenue was 29.7% for the
first six months of 1994 as compared to 29.5% for the first six months of 1993.
Operating expenses as a percentage of revenue have remained relatively stable.
At March 31, 1994, a marketable investment security was written down to its
estimated realizable value, resulting in a charge of $799,571 to operations in
the first quarter of 1994. This security was sold in May, 1994 for
approximately its March 31, 1994 net realizable value.
Interest expense was $41,506 for the second quarter of 1994 as a result of the
line of credit borrowing on June 1, 1994 for the acquisition of Tycon Plaza.
There was no interest expense in the second quarter of 1993 due to the
prepayment of WRIT's only remaining mortgage in April, 1993.
CAPITAL RESOURCES AND LIQUIDITY
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In recent years, WRIT has utilized equity stock offerings and cash flow from
operations for its capital needs. The WRIT philosophy has been to acquire real
estate with strong growth potential and to improve its real estate holdings
through carefully planned additions or enhancements to generate higher rental
income, to reduce operating expenses or both. Capital improvements of
$3,376,457 were completed in the first six months of 1994, including tenant
improvements and continuing enhancements.
In February 1994, WRIT purchased land adjacent to its Wheaton Park shopping
center for a total cost of $173,000. WRIT plans to add additional retail and
parking space to the center. On June 1, 1994 WRIT acquired Tycon Plaza in
Vienna, Virginia at a contract purchase price of $21,250,000. Tycon Plaza
consists of two (2) office buildings containing approximately 293,000 rentable
square feet. WRIT borrowed $9,000,000 and invested $12,800,000 of its own
funds for the purchase. On June 30, 1994 WRIT acquired The Shoppes of Foxchase
in Alexandria, Virginia at a contract purchase price of $8,800,000. The center
has 123,000 rentable square feet. WRIT borrowed $9,000,000 for this
acquisition.
After the acquisition of Tycon Plaza in June, 1994 the remainder of cash and
marketable investment securities was approximately $4,056,849 at June 30, 1994.
Management believes that it has the liquidity and the capital resources
necessary to meet all of its known obligations and to make additional property
acquisitions when appropriate. WRIT continues to pursue acquisition
opportunities and capital improvement projects to enhance long-term growth.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits required have been filed in previous reports and are herein incorporated by reference.
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON REAL ESTATE INVESTMENT TRUST
//Larry E. Finger//
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Larry E. Finger, Vice President-Finance
and Chief Financial Officer
//Laura M. Franklin//
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Laura M. Franklin
Assistant Vice President-Finance
Date: August 12, 1994
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