SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) NOVEMBER 12, 1997
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WASHINGTON REAL ESTATE INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
Maryland 1-6622 53-0261100
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(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification Number)
10400 Connecticut Avenue, Kensington, Maryland 20895
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 929-5900
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 12, 1997 WRIT Limited Partnership, a 99% owned subsidiary of
Washington Real Estate Investment Trust ("WRIT"), purchased Bethesda Hill
apartment building ("Bethesda Hill") containing 195 residential units in ten
four story buildings located in Bethesda, Maryland from an independent equity
fund of First National Bank of Chicago, for a contract purchase price of
$17,000,000. The contract purchase price was paid out of an advance from
WRIT's unsecured line of credit with Crestar Bank and its participant, Signet
Bank/Virginia ("Crestar"). On the date of acquisition, Bethesda Hill was 98%
leased.
On November 14, 1997 WRIT Limited Partnership purchased Space Center
Tysons office building ("Space Center Tysons") containing 478,000 rentable
square feet located in McLean, Virginia from Space Center Tysons, Inc., for a
contract purchase price of $76,000,000. The contract purchase price was paid
out of advances from WRIT's unsecured lines of credit with Crestar and the
First National Bank of Chicago, and out of an advance from WRIT's unsecured
bridge loan with the First National Bank of Chicago. WRIT's unsecured bridge
loan bears interest at the rate of LIBOR plus 70 basis points and matures on
February 28, 1998. Management believes that the term of this bridge loan
could be extended, or the loan could be repaid through the sale of long term
or medium term notes. On the date of acquisition, the Property was 100%
leased. Major tenants of the Property include Wang Federal, Xerox, Sun
Microsystems, Electronic Data Systems, Fleet Mortgage and Financial Dynamics.
As further discussed in WRIT's Form 8-K filed on October 31, 1997, WRIT
Limited Partnership purchased 1600 Wilson Boulevard office building ("1600
Wilson Boulevard") on October 17, 1997. Bethesda Hill, Space Center Tysons
and 1600 Wilson Boulevard are herein collectively referred to as the
"Properties."
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The acquisitions on November 12, 1997 of Bethesda Hill and on
November 14, 1997 of Space Center Tysons constitute the acquisition
of a "significant amount of assets" as defined in Regulation S-X.
The following financial statements for the assets acquired by WRIT
are filed as exhibits hereto:
1. Bethesda Hill - Audited Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1996.
2. Space Center Tysons - Audited Historical Summary of Gross
Income and Direct Operating Expenses for the year ended
December 31, 1996.
In acquiring Bethesda Hill and Space Center Tysons, WRIT evaluated
among other things, sources of revenue (including but not limited
to, competition in the rental market, comparative rents and
occupancy rates) and expenses (including but not limited to,
utility rates, ad valorem tax rates, maintenance expenses and
anticipated capital expenditures). The historical operating results
of Bethesda Hill and Space Center Tysons may not necessarily be
indicative of future operating results.
(b) Pro Forma Financial Information
The following pro forma financial statements for a substantial
majority of the assets acquired by WRIT in 1997 are filed as an
exhibit hereto:
1. WRIT Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1997 and the Condensed and Consolidated
Statements of Operations for the year ended December 31, 1996
and the nine months ended September 30, 1997.
(c) Exhibits
23. Consent of Auditors
SIGNATURES
Pursuant to the requirements 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
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(Registrant)
By: /s/ Laura M. Franklin
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(Signature)
Laura M. Franklin
Vice President &
Chief Accounting Officer
November 21, 1997
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(Date)
WASHINGTON REAL ESTATE INVESTMENT TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AND
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The pro forma balance sheet as of September 30, 1997 presents combined
financial information as if the acquisition of the Properties had taken place
on September 30, 1997. The pro forma statements of operations for the year
ended December 31, 1997 and for the nine months ended September 30, 1997
present combined financial information as if the acquisition of the
Properties had taken place as of January 1, 1996.
WRIT purchased Space Center Tysons on November 14, 1997, Bethesda Hill on
November 12, 1997 and 1600 Wilson Boulevard on October 17, 1997.
The pro forma statement of operations shows earnings in the amount of
$30,941 and $24,661 for the year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively, after giving effect to certain pro
forma adjustments required to reflect the operating results as if the
Properties had been acquired as January 1, 1996.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands, except per share data)
PRO
FORMA PRO
REGISTRANT ADJ'S FORMA
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Assets
Real estate at cost.................. $375,109 (1)$116,300 $491,409
Accumulated depreciation............. (53,850) -- (53,850)
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321,259 116,300 437,559
Mortgage note receivable............. 796 -- 796
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Total Investment in Real Estate.... 322,055 116,300 438,355
Cash and temporary investments,
receivables, prepaid expenses and
other assets....................... 47,412 (1) (23,300) 24,112
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$369,467 $ 93,000 $462,467
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---------------- ---------- ---------
Liabilities
Senior notes payable................. $100,000 $ -- $100,000
Mortgage note payable................ 7,494 -- 7,494
Lines of credit payable and bridge
loan payable....................... -- (1) 93,000 93,000
Accounts payable and other
liabilities........................ 6,893 -- 6,893
Tenant security deposits............. 2,788 -- 2,788
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117,175 93,000 210,175
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Shareholders' Equity
Shares of beneficial interest, $0.01
par value, 100,000,000 authorized,
35,577,844 issued and outstanding
at September 30, 1997.............. 356 -- 356
Additional paid-in capital........... 251,936 -- 251,936
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252,292 -- 252,292
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$369,467 $ 93,000 $462,467
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(1) Adjustment to reflect contract purchase prices of Bethesda Hill and Space
Center Tysons of $17,000 and $76,000, respectively, paid out of advances
from WRIT's lines of credit and bridge loan, and 1600 Wilson Boulevard of
$23,300 funded from the proceeds of the August 1, 1997 equity offering.
WASHINGTON REAL ESTATE INVESTMENT TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share amounts)
PRO
BETHESDA SPACE CENTER 1600 WILSON FORMA PRO
REGISTRANT HILL TYSONS BOULEVARD ADJ'S FORMA
------------- ----------- -------------- ------------- ---------- ---------
Real estate revenue.......... $ 65,541 $ 2,752 $ 8,309 $ 3,723 $ -- $ 80,325
Real estate expenses......... (21,932) (998) (2,692) (1,153) (1) (444) (27,219)
------------- ----------- -------------- ------------- ---------- ----------
43,609 1,754 5,617 2,570 (444) 53,106
Depreciation................. (7,784) -- -- -- (2) (2,714) (10,498)
------------- ----------- -------------- ------------- ---------- ----------
Income from real estate...... 35,825 1,754 5,617 2,570 (3,158) 42,608
Other income (expense)
Investment income.......... 708 -- -- -- (3) 2,105 2,813
Interest expense........... (5,474) -- -- -- (4) (5,911) (11,385)
General and administrative. (3,095) -- -- -- -- (3,095)
------------- ----------- -------------- ------------- ---------- ----------
Net income................... $ 27,964 $ 1,754 $ 5,617 $ 2,570 ($6,964) $ 30,941
------------- ----------- -------------- ------------- ---------- ----------
------------- ----------- -------------- ------------- ---------- ----------
Net income per share......... $ 0.88 $ 0.87
Weighted average number of
shares..................... 31,761,896 (5) 35,511,896
(1) Property management fees based on rate schedule paid by Registrant.
(2) Depreciation over 30 years, based upon the portion of the puchase price
allocated to building and improvements.
(3) Investment income generated from the investment of the proceeds of the
August 1, 1997 equity offering
(4) Interest expense of $5,911 based on Registrant's weighted average borrowing
rate of 6.356% on $93,000 borrowed for the acquisition of Bethesda Hill and
Space Center
(5) Represents the weighted average number of shares that would have been
outstanding if the August 1, 1997 equity offering had occurred on January 1,
1996
WASHINGTON REAL ESTATE INVESTMENT TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(in thousands, except per share amounts)
PRO
BETHESDA SPACE CENTER 1600 WILSON FORMA PRO
REGISTRANT HILL TYSONS BOULEVARD ADJ'S FORMA
------------- ----------- ---------------- ------------- --------- ----------
Real estate revenue.......... $ 57,037 $ 2,149 $ 7,021 $ 2,573 $ -- $ 68,780
Real estate expenses......... (18,563) (645) (1,995) (946) (1) (352) (22,501)
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38,474 1,504 5,026 1,627 (352) 46,279
Depreciation................. (7,626) -- -- -- (2) (2,035) (9,661)
------------- ----------- ---------------- ------ --------- ----------
Income from real estate...... 30,848 1,504 5,026 1,627 (2,387) 36,618
Other income (expense)
Investment income........... 717 -- -- -- (3) 1,130 1,847
Interest expense............ (6,789) -- -- -- (4) (4,070) (10,859)
General and administrative.. (2,945) -- -- -- -- (2,945)
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Net income................... $ 21,831 $ 1,504 $ 5,026 $ 1,627 ($ 5,327) $ 24,661
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Net income per share......... $ 0.67 $ 0.69
Weighted average number of
shares..................... 32,663,726 (5)35,580,393
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(1) Property management fees based on rate schedule paid by Registrant.
(2) Depreciation over 30 years, based upon the portion of the puchase price
allocated to building and improvements.
(3) Investment income generated from the investment of the proceeds of the
August 1, 1997 equity offering
(4) Interest expense of $4,433 based on Registrant's weighted average borrowing
rate of 6.356% on $93,000 borrowed for the acquisition of Bethesda Hill and
Space Center
(5) Reduction in interest expense of $363 that would have occurred had the funds
from the August 1, 1997 equity offering been available at the time of the
purchase of two properties in February 1997 that are immaterial individually
and in the aggregate to WRIT's financial statements.
(6) Represents the weighted average number of shares that would have been
outstanding if the August 1, 1997 equity offering had occurred on January 1,
1996
Independent Auditors' Report
To the Board of Trustees of
Washington Real Estate Investment Trust
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses of Bethesda Hill Apartments ("Historical Summary")
for the year ended December 31, 1996. This Historical Summary is the
responsibility of the Apartments' management. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the Historical Summary. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission as
described in Note 2, and is not intended to be a complete presentation of the
Apartments' revenue and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses
described in Note 2 of Bethesda Hill Apartments for the year ended December
31, 1996, in conformity with generally accepted accounting principles.
STOY, MALONE & COMPANY, P.C.
Bethesda, Maryland
November 12, 1997
F-1
BETHESDA HILL APARTMENTS
HISTORICAL SUMMARY OF GROSS INCOME AND
DIRECT OPERATING EXPENSES
Year Ended December 31, 1996
Gross income:
Base rents................................... $2,725,546
Other........................................ 26,415
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Total gross income...................... $2,751,961
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Direct operating expenses:
Repairs and maintenance...................... $ 364,852
Real estate taxes............................ 300,480
Administrative and marketing................. 142,422
Utilities.................................... 90,204
Insurance.................................... 59,595
Cleaning and trash removal................... 34,120
Taxes - other................................ 6,263
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Total direct operating expenses......... $ 997,936
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The Notes to Historical Summary of Gross Income and Direct Operating Expenses
are an integral part of this summary.
F-2
BETHESDA HILL APARTMENTS
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND
DIRECT OPERATING EXPENSES
NOTE 1 - NATURE OF BUSINESS:
Bethesda Hill Apartments ("Bethesda Hill") is an apartment complex located in
Bethesda, Maryland containing 195 rental units consisting of one and two
bedroom apartments and two bedroom townhomes.
The operations of Bethesda Hill consist of leasing residential space to
various tenants. Leases are generally for terms of one year or less. There
are no contingent rentals involved.
NOTE 2 - BASIS OF PRESENTATION:
Washington Real Estate Investment Trust purchased Bethesda Hill on November
12, 1997. The Historical Summary has been prepared for the purpose of
complying with Regulation S-X, Rule 3-14 of the Securities and Exchange
Commission ("SEC"), which requires certain information with respect to real
estate operations acquired to be included with certain filings with the SEC.
This Historical Summary includes the historical gross income and direct
operating expenses of Bethesda Hill Apartments, exclusive of the following
expenses which may not be comparable to the proposed future operations:
(a) Interest expense on existing mortgages and borrowings
(b) Depreciation of property and equipment
(c) Management and leasing fees
(d) Certain corporate expenses
(e) Provisions for income taxes
F-3
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees of
Washington Real Estate Investment Trust
We have audited the accompanying historical summary of gross income and
direct operating expenses of Space Center Tysons, Inc. ("Space Center Tysons")
("Historical Summary") for the year ended December 31, 1996. This historical
summary is the responsibility of Space Center Tysons' management. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission as described in Note 2, and is not intended to be a complete
presentation of the Company's revenue and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in Note 2 of Space Center Tysons, Inc. for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
Minneapolis, Minnesota
November 14, 1997
F-4
SPACE CENTER TYSONS, INC.
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1996
Gross income:
Building rent.................................................................. $8,246,604
Parking rent................................................................... 41,989
Other.......................................................................... 20,816
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Total gross income........................................................... $8,309,409
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Direct operating expenses:
Utilities...................................................................... $ 906,840
Repairs and maintenance........................................................ 519,515
Real estate taxes.............................................................. 479,730
Janitorial services............................................................ 450,683
Groundskeeping................................................................. 192,102
Insurance...................................................................... 90,987
Other.......................................................................... 51,956
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Total direct operating expenses.............................................. $2,691,813
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The Notes to Historical Summary of Gross Income and Direct Operating
Expenses are an integral part of this summary.
F-5
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
Note 1. Nature of Business and Summary of Significant Accounting Policies
Nature of business: Space Center Tysons, Inc. ("Space Center Tysons") is a
real estate company that owns and manages facilities on the Washington, D.C.,
beltway at 7900 Westpark Drive, McLean, Virginia. The facilities consist of
Space Center Tysons--Tower ("Tower") and Space Center Tysons--Atrium ("Atrium").
Tower is a 13-story, 250,000-square-foot office building, and Atrium is a
6-story, 225,000-square-foot office building. In addition, a 680,000-square-foot
parking ramp and a 6-story atrium connect the Tower and Atrium office buildings.
Revenue recognition: Revenue is accounted for by the operating method
whereby rent is recognized ratably over the term of the leases.
Future minimum rent revenues: Space Center Tysons leases space to tenants
under noncancelable lease agreements expiring at various dates through December
2006. Future minimum rent revenues to be received from leases in effect as of
December 31, 1996, are as follows:
Years ending December 31:
1997............................................................... $9,325,749
1998............................................................... 8,969,129
1999............................................................... 8,471,834
2000............................................................... 7,916,082
2001............................................................... 7,328,109
Thereafter......................................................... 10,155,474
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$52,166,377
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Space Center Tysons had two tenants which accounted for approximately 65
percent of gross income recognized in the historical summary for the year ended
December 31, 1996.
Note 2. Basis of Presentation
Washington Real Estate Investment Trust purchased Space Center Tysons, Inc.
on November 14, 1997. The historical summary has been prepared for the purpose
of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange
Commission (SEC), which requires certain information with respect to real estate
operations acquired to be included with certain filings with the SEC. This
historical summary includes the historical gross income and direct operating
expenses of Space Center Tysons, Inc., exclusive of the following expenses which
may not be comparable to the proposed future operations:
(a) Interest expense on existing mortgages and borrowings
(b) Depreciation of property and equipment
(c) Management and leasing fees
(d) Provisions for income taxes
F-6