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, 2000 COMMISSION FILE NO. 1-6622 ----------------- ------ WASHINGTON REAL ESTATE INVESTMENT TRUST - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MARYLAND 53-0261100 - ---------------------------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
6110 EXECUTIVE BOULEVARD, SUITE 800, ROCKVILLE, MARYLAND 20852 (Address of principal executive office) (Zip code) Registrant's telephone number, including area code (301) 984-9400 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of exchange on which registered - -------------------------------------------------------------------------------- Shares of Beneficial Interest New York 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 March 15, 2001, 35,780,869 Shares of Beneficial Interest were outstanding and the aggregate market value of such shares held by non-affiliates of the registrant was approximately $790,042,000 (based on the closing price of the stock on March 15, 2001). DOCUMENTS INCORPORATED BY REFERENCE Part III of this Form 10-K is incorporated by reference from the Trust's 2001 Notice of Annual Meeting and Proxy Statement. WASHINGTON REAL ESTATE INVESTMENT TRUST 2000 FORM 10-K ANNUAL REPORT INDEX
PART I Page ---- Item 1. Business 3 Item 2. Properties 8 Item 3. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 13 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 7A. Qualitative and Quantitative Disclosures About Market Risk 20 Item 8. Financial Statements and Supplementary Data 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 20 PART III Item 10. Directors and Executive Officers of the Registrant 21 Item 11. Executive Compensation 21 Item 12. Security Ownership of Certain Beneficial Owners and Management 21 Item 13. Certain Relationships and Related Transactions 21 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 22 Signatures 25
PART I ITEM 1. BUSINESS -------- The Trust Washington Real Estate Investment Trust ("WRIT" or the "Trust") is a self- administered, self-managed equity real estate investment trust ("REIT"). The Trust's business consists of the ownership and operation of income-producing real properties. The Trust has a fundamental strategy of regional focus, diversification by property type and conservative capital management. WRIT operates in a manner intended to enable it to qualify as a REIT 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. With regard to capital gains, the Trust has the option of (i) paying our capital gains to the shareholders with no tax to the Trust, (ii) paying a capital gains tax and retaining the gains on sales, (iii) treating the capital gains as having been distributed to the shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to the shareholders or (iv) reinvest the proceeds of a sale in other real estate properties and thereby deferring recognition of the gain. Over the last five years, dividends paid per share have been $1.23 for 2000, $1.16 for 1999, $1.11 for 1998, $1.07 for 1997, and $1.03 for 1996. The indicated annualized dividend rate for 2001, based upon the March 31, 2001 dividend, is $1.25. Gains on sale of real estate of $3.6 million in 2000 were tax deferred. The proceeds of these sales were used to acquire real estate assets and will not be distributed. WRIT generally incurs short-term floating rate debt in connection with the acquisition of real estate. WRIT replaces the floating rate debt with fixed-rate secured or unsecured terms loans or repays the debt with the proceeds of sales of equity securities as market conditions permit. WRIT also may, in appropriate circumstances, acquire one or more properties in exchange for WRIT's equity securities or operating partnership units which are convertible into WRIT shares. WRIT's geographic focus is based on two 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 among 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 the operations center within two hours by car. WRIT's Washington centered market reaches north to Philadelphia, Pennsylvania and south to Richmond, Virginia. 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. WRIT also will consider opportunities to duplicate its Washington focused approach in other geographic markets which meet the criteria 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 20 years of experience in this region. The Greater Washington Economy The Greater Washington, D.C. economy is a unique blend of "old economy" service companies and "new economy" high technology growth companies, anchored by the very significant Federal government presence. On the growth side: . Washington Dulles International Airport at 25.8% and Baltimore-Washington International Airport at 16.7% were ranked Nos. 1 and 2 in passenger growth in the U.S. in 1999, the most recent year for which data is available. . The Washington region ranks 1st in the U.S. in high-tech and bio-tech employment. -3- While growth is very important, from an investment perspective economic stability is equally important. In this context, no other region in the country can compete with the Greater Washington region. . According to George Mason University Center for Regional Analysis (GMU), approximately 38% of Washington area technology sales are to the Federal government. This compares to 5% in Silicon Valley. . Federal government spending accounts for 31% of the area's Gross Regional Product. . Federal spending in this region has increased every year for 20 consecutive years, even in years when federal spending nationally has decreased. . The GMU projects Federal spending in the region to grow by 3% in 2001. . As reflected below, Washington area technology firms are concentrated in more stable sub-sectors than other technology centered regions.
Washington Area Technology Firms San Francisco Technology Firms ------------------------------------------------------------------------------------------------------------- Internet portals, service providers and content Electronic designers: web pages, games, providers animation and entertainment Network applications Software designers Telecomm Hardware manufacturers Bio-med Dot.com retailers -------------------------------------------------------------------------------------------------------------
. The Greater Washington region is not exposed to new or old economy manufacturing fluctuations. . Greater Washington is home to 32 colleges and universities, several of which are recognized as highly distinguished at both the undergraduate and graduate levels. . GMU projects economic growth in the region of 4.1% in 2001, down from 4.8% in 2000, but still very strong and substantially higher than is projected for the U.S. as a whole. Greater Washington Real Estate Markets The combination of economic growth and stability in the Greater Washington region has translated into very strong real estate market performance in each of our sectors as reflected in the following data provided by Delta Associates / Transwestern Commercial Services (Delta). Office Sector . Net absorption totaled 15.6 million square feet, up from 11 million square feet in 1999 and the highest of any metro area in the U.S for the second straight year. . Direct vacancy was 3.6% (4.3% with sublet space included) at year end 2000, down from 5.0% at year end 1999 and 3.8% at the end of Q3 2000. -4- . Rents increased by an average of 11% in the region with some submarkets (Tysons/Dulles and Bethesda/I-270 Corridors) up 20%. . Of the 21.3 million square feet of space under construction at year end 2000, 53% was pre-leased. . The overall vacancy rate is projected to rise to the 7% to 8% range over the next two years due to new development and an anticipated slow down in economic growth. . Rents are projected to continue to rise over the next two years, but at a slower rate than in 2000. Multifamily Sector . The 0.7% vacancy rate at year end 2000 in Class B apartments (WRIT's market segment) was the lowest recorded since World War II. . Class B apartment rents rose over 15%. . While nearly 26,000 units are in the development pipeline for delivery by December, 2003, new demand for approximately 22,000 units is forecasted over that period. As a result Delta projects a vacancy rate of 4.7% at December, 2003 - still very low by historical standards. . Rents are projected to continue to rise at 5% to 10% per annum over the next two years. Grocery-Anchored Retail Centers Sector - The Washington Metro area market continues to be a strong retail market due to: . The highest per capita income of any major metro area in the U.S. . The high growth rate - 25,000 new households per year since 1993. . Demand for retail space outstripping new supply since the early 1990's. . The stability of the regional economy as discussed above. As a result of these factors: ----------------------------- . Overall market vacancy in grocery-anchored retail centers fell to 2.2% at year end 2000 from 2.7% at year end 1999. . Rents for in-line tenants increased by 6.3% in 2000. . Strong performance is expected to continue, as the development pipeline is inadequate to meet demand. Industrial Sector . Year 2000 net absorption of 9.8 million square feet was the highest since the mid-1980's. . Vacancy was 7.8% at year end 2000, the lowest since the early 1980's. . Average industrial rents rose 7.5% in the region while Northern Virginia Flex/R&D rents increased 20%. -5- . Of the 8.5 million square feet of industrial space under construction at year end 2000, 22% was pre-leased. . The regional industrial vacancy rate is projected to increase slightly to just over 8% by year-end 2001. WRIT PORTFOLIO As of December 31, 2000, WRIT owned a diversified portfolio consisting of 10 retail centers, 23 office buildings, 9 multifamily buildings and 15 industrial properties. WRIT's principal objective is to invest in high quality properties in prime locations, then proactively manage, lease, and develop ongoing capital improvement programs to improve their economic performance. The percentage of total real estate rental revenue by property group for 2000, 1999 and 1998 and the percent leased as of December 31, 2000 were as follows:
Real Estate Rental Revenue Percent Leased ------------------------------ December 31, 2000 2000 1999 1998 ----------------- ---- ---- ---- 99% Office buildings 53% 52% 50% 94% Retail centers 14 15 17 98% Multifamily 19 19 20 98% Industrial 14 14 13 ---- ---- ---- 100% 100% 100% ==== ==== ====
On a combined economic basis, WRIT's portfolio was 97% occupied in 2000, 96% occupied in 1999 and 96% occupied in 1998. Total revenue was $134.7 million for 2000, $119.0 million for 1999, and $103.6 million for 1998. During 1998, 1999 and 2000, WRIT acquired eight office buildings, one retail center, one multifamily building and five industrial properties. During 1998, 1999 and 2000, WRIT sold two office properties, four industrial properties and three retail centers. These acquisitions and dispositions were the primary reason for the shifting of each group's percentage of total revenue reflected above. No single tenant accounted for more than 3.64% of revenues in 2000, 3.81% of revenues in 1999 and 3.96% of revenue in 1998. All Federal government tenants in the aggregate accounted for approximately 2.6% of WRIT's 2000 total revenue. 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. WRIT's larger non-Federal government tenants include Suntrust Bank, District of Columbia Metropolitan Police Department, Giant Food, Main Control, Inc., OAO Corporation, Pepsi Cola, Sun Microsystems, Sunrise Assisted Living, Inc., The American Red Cross, Wang Laboratories and Xerox. As of December 31, 2000, and for the year then ended, the 7900 Westpark office building accounted for 12.7% of total assets based upon book value and 9.5% of total revenues. No other single property accounted for more than 10% of total assets or total revenues. During 1998 and prior, the actual day-to-day property management functions at the properties owned by the Trust were carried out by an independent management company whose only client was WRIT. No WRIT Trustee or officer was a director or owned any interest in the management company. Effective December 31, 1998, WRIT acquired substantially all of the operations of the management company and took over the property management functions of the properties. The Trust expects to continue investing in additional income producing properties. WRIT only invests in properties which management believes will increase in income and value. WRIT's properties compete for -6- tenants with other properties throughout the respective areas in which they are located on the basis of location, quality and rental rates. WRIT makes capital improvements on an ongoing basis to its properties for the purpose of maintaining and increasing their values and income. Major improvements and/or renovations to the properties in 2000 and 1999 are discussed on page 18. 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 263 as of January 31, 2001 including 178 persons engaged in property management functions and 85 persons engaged in corporate, financial, leasing, and asset management functions. ITEM 2. PROPERTIES ---------- The schedule on the following page lists the Trust's real estate investment portfolio as of December 31, 2000, which consisted of 57 properties. As of December 31, 2000, the percent leased is the percentage of net rentable area 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 Annual Report on Form 10-K. -7- SCHEDULE OF PROPERTIES ---------------------- Percent Year Year Net Rentable* Leased Properties Location Acquired Constructed Square Feet 12/31/00 - ----------------------------------------------------------- ----------------- -------- ----------- ------------- -------- Office Buildings - ---------------- 10400 Connecticut Avenue Kensington, MD 1979 1965 65,000 93% 1901 Pennsylvania Avenue Washington, D.C. 1977 1960 97,000 99% 51 Monroe Street Rockville, MD 1979 1975 210,000 98% 7700 Leesburg Pike Falls Church, VA 1990 1976 145,000 100% 515 King Street Alexandria, VA 1992 1966 78,000 93% The Lexington Building Rockville, MD 1993 1970 47,000 93% The Saratoga Building Rockville, MD 1993 1977 59,000 100% Brandywine Center Rockville, MD 1993 1969 35,000 100% Tycon Plaza II Vienna, VA 1994 1981 131,000 100% Tycon Plaza III Vienna, VA 1994 1978 152,000 100% 6110 Executive Boulevard Rockville, MD 1995 1971 199,000 99% 1220 19th Street Washington, D.C. 1995 1976 104,000 100% Maryland Trade Center I Greenbelt, MD 1996 1981 191,000 93% Maryland Trade Center II Greenbelt, MD 1996 1984 159,000 100% 1600 Wilson Boulevard Arlington, VA 1997 1973 167,000 100% 7900 Westpark Drive McLean, VA 1997 1972/1986/1999/1/ 527,000 100% 8230 Boone Boulevard Vienna, VA 1998 1981 58,000 100% Woodburn Medical Park I Annandale, VA 1998 1984 71,000 100% Woodburn Medical Park II Annandale, VA 1998 1988 96,000 100% 600 Jefferson Plaza Rockville, MD 1999 1985 115,000 99% 1700 Research Boulevard Rockville, MD 1999 1982 103,000 100% Parklawn Plaza Rockville, MD 1999 1986 40,000 95% Wayne Plaza Silver Spring, MD 2000 1970 91,000 99% Courthouse Square Arlington, VA 2000 1979 113,000 94% --------- ---- Subtotal 3,053,000 99% ========= ==== Retail Centers - -------------- Concord Centre Springfield, VA 1973 1960 76,000 99% Bradlee Alexandria, VA 1984 1955 168,000 100% Chevy Chase Metro Plaza Washington, D.C. 1985 1975 51,000 100% Takoma Park Takoma Park, MD 1963 1962 59,000 100% Westminster/2/ Westminster, MD 1972 1969 165,000 62% Wheaton Park Wheaton, MD 1977 1967 71,000 100% Montgomery Village Center Gaithersburg, MD 1992 1969 196,000 95% Shoppes of Foxchase Alexandria, VA 1994 1960 128,000 96% Frederick County Square Frederick, MD 1995 1973 233,000 100% 800 S. Washington Street Alexandria, VA 1998 1955/1959 51,000 100% --------- ---- Subtotal 1,198,000 94% ========= ==== Multifamily Buildings/# units - ----------------------------- Country Club Towers/227 Arlington, VA 1969 1965 276,000 97% Munson Hill Towers/279 Falls Church, VA 1970 1963 340,000 96% Park Adams/200 Arlington, VA 1969 1959 210,000 98% Roosevelt Towers/191 Falls Church, VA 1965 1964 229,000 98% 3801 Connecticut Avenue/307 Washington, D.C. 1963 1951 242,000 97% The Ashby at McLean/250 McLean, VA 1996 1982 349,000 98% Walker House Apartments/196 Gaithersburg, MD 1996 1971 148,000 92% Bethesda Hills Apartments/195 Bethesda, MD 1997 1986 226,000 95% Avondale/237 Laurel, MD 1999 1987 162,000 96% --------- ---- Subtotal (2,082 units) 2,182,000 98% ========= ====
/1/ A 49,000 square foot addition to 7900 Westpark Drive was completed in September 1999. /2/ Property is in the planning stages of redevelopment. * Multifamily buildings are presented in gross square feet. -8- SCHEDULE OF PROPERTIES (Cont.) ------------------------------ Percent Year Year Net Rentable* Leased Properties Location Acquired Constructed Square Feet 12/31/00 - --------------------------------------------- ---------------- -------- ----------- ------------- -------- Industrial Distribution/Flex Properties - --------------------------------------- Pepsi-Cola Distribution Center Forestville, MD 1987 1971 69,000 100% Capitol Freeway Center Washington, D.C. 1974 1940 145,000 100% Fullerton Business Center Springfield, VA 1985 1980 103,000 91% Charleston Business Center Rockville, MD 1993 1973 85,000 100% Tech 100 Industrial Park Elkridge, MD 1995 1990 167,000 100% Crossroads Distribution Center Elkridge, MD 1995 1987 85,000 100% 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 167,000 100% Ammendale Technology Park II Beltsville, MD 1997 1986 108,000 100% Pickett Industrial Park Alexandria, VA 1997 1973 246,000 100% Northern Virginia Industrial Park Lorton, VA 1998 1968/1991 790,000 96% 8900 Telegraph Road Lorton, VA 1998 1985 32,000 100% Dulles South IV Chantilly, VA 1999 1988 83,000 100% Sully Square Chantilly, VA 1999 1986 95,000 100% Amvax Beltsville, MD 1999 1986 31,000 100% --------- ---- Subtotal 2,385,000 98% ========= ==== TOTAL 8,818,000 =========
-9- OFFICE BUILDINGS - ---------------- Operating income in WRIT's core group of office buildings (excluding 2000 and 1999 acquisitions and dispositions) increased 10% from 1999 to 2000. This increase was a result of strong rental rate growth with some moderate occupancy gains throughout the sector. WRIT's office markets are strong and, while there is a significant amount of office development underway in several submarkets, management anticipates that this sector will continue to perform well in 2001. Economic occupancy rates for the core group of office buildings averaged 97% for 2000 and 1999. Rental rate increases of 7% for the core group of office buildings were the result of increases at nearly all of the properties. During 2000, WRIT executed new leases for 758,000 square feet of office space at an average face rent increase of 18% on a non-straight line basis. Further details about the performance of the office building sector in 2000 and 1999 are provided in Management's Discussion and Analysis commencing on page 15. INDUSTRIAL PROPERTIES - --------------------- Operating income in WRIT's core group of industrial properties (excluding 2000 and 1999 acquisitions and dispositions) increased 10% from 1999 to 2000. Economic occupancy rates for the core group of industrial properties averaged 96% in 2000 compared to 94% in 1999. Rental rate increases of 4% for the core group of industrial properties were the result of increases at the majority of the properties. During 2000, WRIT executed new leases for 1,083,000 square feet of industrial space at an average face rent increase of 19% on a non-straight line basis. Further details about the performance of the industrial properties sector in 2000 and 1999 are provided in Management's Discussion and Analysis commencing on page 15. RETAIL CENTERS - -------------- Operating income in WRIT's core retail centers (excluding 2000 and 1999 acquisitions and dispositions) increased 8% from 1999 to 2000. Retail center rental rates for this same group increased 5% in 2000 over 1999. Rental rate increases of 5% for the core group of retail centers were the result of increases at the majority of the properties. During 2000, WRIT executed new leases for 181,000 square feet of retail space at an average face rent increase of 15% on a non-straight line basis. Further details about the performance of the retail center sector in 2000 and 1999 are provided in Management's Discussion and Analysis commencing on page 15. -10- APARTMENT BUILDINGS - ------------------- WRIT's apartment sector core group operating income (excluding the Avondale Apartments acquired in 1999) increased 11%. This increase was the result of the 6% rental rate increase throughout the group. Economic occupancy rates for the core group of apartments averaged 97% in both 2000 and 1999. Further details about the performance of the apartment sector in 2000 and 1999 are provided in Management's Discussion and Analysis commencing on page 15. PROPERTY DISPOSITIONS - --------------------- During 2000, WRIT sold two retail centers: Prince William Plaza and Clairmont Center. A 0.725 acre out-parcel of the 12.02 acre Westminster retail center was also sold. The total gain on the sales of these properties and parcel was $3.6 million. Net proceeds from the sales of these properties of $5.7 million were used to invest in other real estate properties acquired by WRIT in 2000. -11- 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 2000. -12- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND ---------------------------------------------- RELATED STOCKHOLDER MATTERS --------------------------- Effective January 4, 1999, the Trust's shares began trading on the New York Stock Exchange. There are approximately 37,000 shareholders. From 1971 through December 31, 1998, the Trust's shares were traded on the American Stock Exchange. 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 2000 and 1999, by quarter, and the amount of dividends paid by the Trust are as follows:
Quarterly Share Price Range --------------------------- Dividends Quarter Per Share High Low ------------------ --------- --------- ------------ 2000 4 $.3125 $25 $18 3/4 3 .3125 20 15/16 17 3/8 2 .3125 17.8906 14 1/2 1 .2925 16 15/16 14 5/16 1999 4 $.2925 $15 15/16 $13 13/16 3 .2925 17 14 15/16 2 .2925 17 15/16 15 13/16 1 .2800 18 3/4 15 1/2
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 2001 indicated annual dividend rate is $1.25 based on the annualization of the March 31, 2001 dividend. -13- ITEM 6. SELECTED FINANCIAL DATA ----------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (in thousands, except per share data) Real estate rental revenue $134,732 $118,975 $103,597 $ 79,429 $ 65,541 Income before gain on sale of real estate $ 41,572 $ 36,392 $ 34,300 $ 30,136 $ 27,964 Gain on sale of real estate $ 3,567 $ 7,909 $ 6,764 $ -- $ -- Net income $ 45,139 $ 44,301 $ 41,064 $ 30,136 $ 27,964 Income per share before gain on sale of real estate $ 1.16 $ 1.02 $ 0.96 $ 0.90 $ 0.88 Basic and diluted earnings per share $ 1.26 $ 1.24 $ 1.15 $ 0.90 $ 0.88 Total assets $632,047 $608,480 $558,707 $168,571 $318,488 Lines of credit payable $ -- $ 33,000 $ 44,000 $ 95,250 $ 5,000 Mortgage notes payable $ 86,260 $ 87,038 $ 28,912 $ 7,461 $ 7,590 Notes payable $265,000 $210,000 $210,000 $100,000 $100,000 Shareholders' equity $258,656 $257,189 $253,733 $252,088 $195,623 Cash dividends paid $ 43,955 $ 41,341 $ 39,614 $ 36,108 $ 32,718 Cash dividends paid per share $ 1.23 $ 1.16 $ 1.11 $ 1.07 $ 1.03
-14- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- RESULTS OF OPERATIONS - --------------------- REAL ESTATE RENTAL REVENUE: 2000 VERSUS 1999 - -------------------------------------------- Total revenues for 2000 increased $15.8 million, or 13%, to $134.7 million from $119.0 million in 1999. The percentage increase in real estate rental revenue from 1999 to 2000 by property type was as follows: Office Buildings 15% Retail Centers 1% Multifamily 14% Industrial 19% During 2000, WRIT's office building revenues and operating income increased by 15% and 17%, respectively, over 1999. These increases were primarily due to increased rental rates for the sector, 2000 acquisitions of Wayne Plaza and Courthouse Square and 1999 acquisitions of 600 Jefferson Plaza, 1700 Research Boulevard and Parklawn Plaza, offset in part by the 1999 sales of Arlington Financial Center and 444 N. Frederick Road and a slight decline in occupancy rates. During 2000, WRIT's retail center revenues and operating income increased by 1% and 2%, respectively, over 1999. The increases were due to the 2000 acquisition of 833 S. Washington Street combined with increased rental rates and occupancy levels, offset by the 2000 sales of Prince William Plaza and Clairmont Center. WRIT's multifamily revenues and operating income increased by 14% and 19%, respectively, in 2000 over 1999. These increases were primarily due to the 1999 acquisition of Avondale Apartments, combined with increased rental rates and occupancy levels across the sector. WRIT's industrial revenues and operating income increased by 19% and 21%, respectively, in 2000 over 1999. These increases were primarily due to the 1999 acquisitions of Dulles South IV, Amvax and Sully Square, as well as increased rental rates and occupancy levels primarily at Northern Virginia Industrial Park, offset in part by the loss of revenues from the 1999 sales of the Department of Commerce Industrial Center and V Street Distribution Center. REAL ESTATE RENTAL REVENUE: 1999 VERSUS 1998 - -------------------------------------------- Total revenues for 1999 increased $15.4 million, or 15%, to $119.0 million from $103.6 million in 1998. The percentage increase in real estate rental revenue from 1998 to 1999 by property type was as follows: Office Buildings 20% Retail Centers 4% Multifamily 8% Industrial 20% During 1999, WRIT's office building revenues and operating income increased by 20% and 23%, respectively, over 1998. These increases were primarily due to 1999 acquisitions of 600 Jefferson Plaza and 1700 Research Boulevard and 1998 acquisitions of 8230 Boone Boulevard and Woodburn Medical Park I and II combined with increased rental rates and occupancy levels for the sector and offset in part by the 1999 sales of Arlington Financial Center and 444 N. Frederick Road. During 1999, WRIT's retail center revenues and operating income increased by 4% and 2%, respectively, over 1998. The change was primarily attributable to increased rental rates and tenant recovery income across the sector offset by the December 1998 sale of Dover Mart retail center. -15- WRIT's multifamily revenues and operating income increased by 8% and 9%, respectively, in 1999 over 1998. These increases were primarily due to the 1999 acquisition of Avondale Apartments, combined with increased rental rates and occupancy levels across the sector. WRIT's industrial revenues and operating income increased by 20% and 16%, respectively, in 1999 over 1998. These increases were primarily due to 1999 acquisitions of Dulles South IV and Amvax and 1998 acquisitions of Northern Virginia Industrial Park and 8900 Telegraph Road as well as increased rental rates across the sector, offset in part by the 1999 sales of the Department of Commerce Industrial Center and V Street Distribution Center. OPERATING EXPENSES AND OTHER RESULTS OF OPERATIONS - -------------------------------------------------- Real estate operating expenses as a percentage of revenue were 28% for 2000 as compared to 30% for 1999 and 1998. The decrease in 2000 compared to 1999 and 1998 is attributable to a 15% revenue increase in WRIT's office building segment resulting from 2000, 1999 and 1998 property acquisitions and increased rental rates, combined with only an 11% increase in the office building segment's operating expenses. WRIT's percentage of revenue from office buildings, including medical buildings, within its entire real estate portfolio has increased to 53% at December 31, 2000, from 52% December 31, 1999 and 50% at December 31, 1998. The increase is attributable to 2000, 1999 and 1998 office building acquisitions. 3.9% of the real estate portfolio revenues are attributable to WRIT's medical office buildings which WRIT considers to have less exposure to potential competition than typical office buildings. WRIT's percentage of revenue from industrial centers increased to 14.3% at December 31, 2000 from 13.6% at December 31, 1999 and 13.1% at December 31, 1998. The increase is attributable to 1999 and 1998 acquisitions. Generally, real estate operating expenses have increased to $38.3 million in 2000 from $35.3 million in 1999 and $31.1 million in 1998 due to the acquisition of three real estate properties in 2000, seven real estate properties in 1999 and six real estate properties in 1998. Interest expense increased $3.3 million in 2000 from 1999. The increase is primarily attributable to a higher average unsecured line of credit balance outstanding combined with higher variable interest rates, the issuance of $55.0 million in medium-term notes in November 2000 used to pay off WRIT's unsecured lines of credit and the assumption of an $8.7 million mortgage in September 1999 in connection with the acquisition of Avondale Apartments. Interest expense increased $5.2 million in 1999 from 1998 primarily due to the assumption of an $8.7 million mortgage in September 1999 in connection with the acquisition of Avondale Apartments, the issuance of $110.0 million medium-term notes in February 1998 and the assumption of $21.6 million in mortgages in November 1998 in connection with the acquisition of Woodburn Medical Park. In addition, WRIT closed on a $50.0 mortgage note in September 1999 at a 7.14% interest rate that was used to pay off WRIT's unsecured lines of credit at slightly lower interest rates. General and administrative expenses were $7.5 million for 2000 as compared to $6.2 million for 1999 and $6.6 million for 1998. The increase in general and administrative expenses in 2000 from 1999 was primarily attributable to increased compensation due to the increased portfolio and growth of the Trust. The decrease in general and administrative expenses in 1999, as compared to 1998, was primarily attributable to increased property management profits in 1999 that in turn reduced the administrative expenses of the Trust. CAPITAL RESOURCES AND LIQUIDITY - ------------------------------- WRIT has utilized the proceeds of share offerings, unsecured and secured debt issuance (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 bank line of credit commitments and from selling additional shares and/or the sale of medium or long-term secured or unsecured notes. The funds raised would be used for new acquisitions and capital improvements. 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. As of December 31, 2000, WRIT had line of credit commitments in place from commercial banks for up to $75.0 million, which bear interest at an adjustable spread over LIBOR based on the Trust's interest coverage ratio -16- and public debt ratings. WRIT acquired three improved properties and the land under Munson Hill Towers for a total acquisition cost of $26.6 million in 2000, and acquired seven properties for a total acquisition cost of $61.9 million in 1999. The 2000 acquisitions were financed by line of credit advances and the use of proceeds from property sales in February and August 2000. WRIT disposed of two properties in 2000 resulting in net proceeds of $5.7 million. The proceeds from these sales were used to partially fund 2000 acquisitions. On November 6, 2000, WRIT sold $55.0 million of 7.78% unsecured notes due November 2004. The notes bear an effective interest rate of 7.89%. Total proceeds to the Trust, net of underwriting fees, were $54.8 million. WRIT used the proceeds of these notes to repay advances on its lines of credit. The 1999 acquisitions were financed by line of credit advances, the use of proceeds from property sales in February 1999 and the assumption of a non- recourse mortgage payable of $8.7 million. WRIT disposed of six properties in 1999 resulting in net proceeds of $22.0 million. On September 27, 1999, WRIT closed on a $50.0 million mortgage note payable, the proceeds of which were used to pay down WRIT's unsecured lines of credit. The mortgage is secured by WRIT's five Virginia multifamily properties. The 1998 acquisitions were primarily financed through line of credit advances, from the February 1998 issuance of $110.0 million of medium-term notes (after repayment of amounts outstanding on line of credit borrowings of $95.0 million), the assumption of mortgages amounting to $21.6 million and from the reinvestment of the of $10.8 million proceeds of the sales of three properties in 1998. On February 20, 1998, WRIT sold $50.0 million of 7.25% unsecured notes due February 25, 2028 at 98.653% to yield approximately 7.36%. WRIT also sold $60.0 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 $95.3 million of outstanding advances under its lines of credit. WRIT used 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 are being amortized over the life of the unsecured notes using the effective interest rate method. Cash flow from operating activities totaled $62.0 million, $53.2 million and $53.6 million for the years ended December 31, 2000, 1999 and 1998, respectively, including net income of $45.1 million (net of $3.6 million gain on property sales), $44.3 million (net of $7.9 million gain on property sales) and $41.1 million (net of $6.8 million gain on property sales), respectively, and depreciation and amortization of $22.7 million, $19.6 million and $15.4 million, respectively. The increase in cash flows from operating activities in 2000 from 1999 was primarily due to real estate acquisitions, increased operating income from previously owned properties and the resultant increase in net income. The decrease in cash flows from operating activities in 1999 from 1998 was primarily due to the timing of payments for trade accounts payable. Cash flows used in investing activities totaled $37.4 million, $49.9 million and $68.9 million for the years ended December 31, 2000, 1999 and 1998, respectively. The decline in cash flows used in investing activities in 2000 from 1999 and in 1999 from 1998 is attributable to a reduction in real estate acquisitions. Cash flows used in financing activities were $22.9 million and $3.2 million for the years ended December 31, 2000 and 1999, respectively, compared to cash flows provided by financing activities of $12.0 million for the year ended December 31, 1998. Cash flows used in financing activities in 2000 compared to 1999 increased as a result of increased dividend payments in 2000, increased line of credit repayments in excess of advances, offset by net proceeds from the debt offering in 2000. Cash flows used in financing activities in 1999 declined from 1998 as a result of increased dividend payments in 1999, offset by decreased line of credit repayments in excess of advances and no debt issuance in 1999. Rental revenue has been the principal source of funds to pay WRIT's operating expenses, interest expense and dividends to shareholders. In 2000, 1999 and 1998, WRIT paid dividends totaling $44.0 million, $41.3 million and $39.6 million, respectively. -17- CAPITAL IMPROVEMENTS - -------------------- Capital improvements of $16.3 million were completed in 2000, including tenant improvements. Capital improvements to WRIT properties in 1999 and 1998 were approximately $18.4 million and $18.7 million, respectively. WRIT's capital improvement costs for 1998 - 2000 were as follows (in thousands):
Year Ended December 31, ------------------------------------------ 2000 1999 1998 ------- ------- ------- Accretive capital improvements: Acquisition related $ 1,640 $ 5,716 $ 4,943 Expansions and major renovations 892 5,929 2,856 Tenant improvements 6,342 2,342 5,653 ------- ------- ------- Total Accretive capital improvements 8,874 13,987 13,452 Other: 7,394 4,384 5,200 ------- ------- ------- Total $16,268 $18,371 $18,652 ======= ======= =======
Accretive Capital Improvements - ------------------------------ Acquisition Related - These are capital improvements to properties acquired during the current and preceding two years which were planned during WRIT's investment analysis. In 2000, the most significant of these improvements were made to Pickett Industrial Center, Northern Virginia Industrial Park, Earhart Building, South Washington Street Bethesda Hill Apartments and Munson Hill Towers. In 1999, the most significant of these improvements were made to 7900 Westpark Drive, Woodburn Medical Park, Bethesda Hill Apartments, Ammendale Technology Park II and Northern Virginia Industrial Park. In 1998, the most significant of these improvements were made to Maryland Trade Center, 7900 Westpark, The Ashby at McLean, Bethesda Hill Apartments, Pickett Industrial Center and Northern Virginia Industrial Park. Expansions and Major Renovations - Expansions and major renovations increase the rentable area of a property. During 1999, WRIT completed the 49,000 square foot expansion at 7900 Westpark Drive. Major renovations are improvements sufficient to increase the income otherwise achievable at a property. During 1999, WRIT completed the renovation of the Bradlee Shopping Center. Tenant Improvements - Tenant Improvements are costs associated with commercial lease transactions such as painting and carpeting. WRIT's average Tenant Improvement Costs for 1998 - 2000 per square foot of space leased were as follows:
Year Ended December 31, ----------------------------------------------------- 2000 1999 1998 ----- ----- ----- Office $4.71 $4.59 $5.05 Retail $1.81 $0.69 $1.30 Industrial $1.47 $0.55 $1.61
-18- The Retail and Industrial Tenant Improvement costs are substantially lower than Office Improvement costs because the tenant improvements required in these property types are substantially less extensive than in offices. WRIT's office tenant improvement costs are among the lowest in the industry for a number of reasons. Approximately 81% of our office tenants renew their leases with WRIT, and renewing tenants generally require minimal tenant improvements. In addition, lower tenant improvement costs is one of the many benefits of WRIT's focus on leasing to smaller office tenants. Smaller office suites have limited configuration alternatives. Therefore, WRIT is often able to lease an existing suite with tenant improvements being limited to new paint and carpet. Other Capital Improvements - -------------------------- Other Capital Improvements are those not included in the above categories. These are also referred to as recurring capital improvements. Over time these costs will be reincurred to maintain a property's income and value. In the Trust's residential properties, these include new appliances, flooring, cabinets, bathroom fixtures, and the like. These improvements are made as needed upon vacancy of an apartment and averaged $855 for the 768 apartments turned over in 2000. In 2000, WRIT also expensed an average of $350 per apartment turnover for items which do not have a long-term life and are, therefore, not capitalized. YEAR 2000 - --------- WRIT's Year 2000 Project completion resulted in no interruption or failure of normal business activities or operations. No material failures or significant interruptions were experienced that materially or adversely affected WRIT's results of operations, liquidity or financial condition. The total costs incurred to become Year 2000 compliant were not material to WRIT's financial position. Any future cost associated with Year 2000 compliancy is not expected to be material to WRIT's financial position. FORWARD-LOOKING STATEMENTS - -------------------------- This Annual Report 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 its real estate markets will continue to perform well; (c) 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; (d) 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 (e) 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 Greater Washington-Baltimore region, or other markets WRIT may enter, including the effects of changes in Federal government spending; (c) the supply of competing properties; (d) inflation; (e) consumer confidence; (f) unemployment rates; (g) consumer tastes and preferences; (h) stock price and interest rate fluctuations; (i) WRIT's future capital requirements; (j) competition; (k) compliance with applicable laws, including those concerning the environment and access by persons with disabilities; (l) weather conditions and (m) the effects of changes in capital availability to the technology and biotechnology sectors of the economy. RATIOS OF EARNINGS TO FIXED CHARGES AND DEBT SERVICE COVERAGE - ------------------------------------------------------------- The following table sets forth the Trust's ratios of earnings to fixed charges and debt service coverage for the periods shown: -19-
Year Ended December 31, --------------------------------------------- 2000 1999 1998 ---- ---- ---- Earnings to fixed charges 2.63x 2.61x 3.01x Debt service coverage 3.40x 3.42x 3.84x
We computed the ratios of earnings to fixed charges by dividing earnings by fixed charges. For this purpose, earnings consist of income from continuing operations plus fixed charges. Fixed charges consist of interest expense, including interest costs capitalized, and the amortized costs of debt issuance. We computed debt service coverage ratio by dividing earnings before interest income and expense, depreciation, amortization and gain on sale of real estate by interest expense and principal amortization. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The principal material financial market risk to which WRIT is exposed is interest-rate risk. WRIT's exposure to market risk for changes in interest rates relates primarily to refinancing long-term fixed rate obligations, the opportunity cost of fixed rate obligations in a falling interest rate environment and its variable rate lines of credit. WRIT primarily enters into debt obligations to support general corporate purposes including acquisition of real estate properties, capital improvements and working capital needs. In the past WRIT has used interest rate hedge agreements to hedge against rising interest rates in anticipation of imminent refinancing or new debt issuance. The table below presents principal, interest and related weighted average interest rates by year of maturity, with respect to debt outstanding on December 31, 2000.
------------------------------------------------------------------------- 2001 2002 2003 2004 2005 Thereafter Total Fair Value -------- -------- -------- -------- -------- ---------- --------- ---------- In thousands DEBT (all fixed rate except lines of credit) Unsecured debt Principal $ -- $ -- $50,000 $55,000 $ -- $160,000 $265,000 $258,513 Interest $19,230 $19,230 $18,043 $15,311 $11,389 $ 91,738 $174,941 Average interest rate 7.37% 7.37% 7.37% 7.35% 7.35% 7.20% 7.25% Mortgages Principal amortization $ 834 $ 903 $ 7,368 $ 820 $26,335 $ 50,000 $ 86,260 $ 87,493 (30 year schedule) Interest $ 6,436 $ 6,367 $ 5,705 $ 5,644 $ 5,064 $ 13,388 $ 42,604 Average interest rate 7.50% 7.50% 7.50% 7.36% 7.36% 7.36% 7.37%
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. -20- 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 2001 Annual Meeting Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION ---------------------- The information required by this Item is hereby incorporated herein by reference to WRIT's 2001 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 2001 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 2001 Annual Meeting Proxy Statement. -21- 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. Consolidated Balance Sheets at December 31, 2000 and 1999. Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998. Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998. Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998. 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 43 Schedules not listed above have been omitted because they are not applicable, 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. (c) Amendment to Declaration of Trust dated September 21, 1998. Incorporated herein by reference to Exhibit 3 to the Trust's Form 10-Q dated November 13, 1998. (d) Articles of Amendment to Declaration of Trust dated June 24, 1999 incorporated by reference to Exhibit 4c to Amendment No. 1 to the Trust's Form S-3 registration statement filed with the Securities and Exchange Commission as of July 14, 1999. -22- 4. (a) Amended and restated credit agreement dated March 17, 1999 between Washington Real Estate Investment Trust, as borrower, Bank One, as lender (successor by merger to First National Bank of Chicago), and Bank One as agent.(1) (b) Amended and restated credit agreement dated July 25, 1999, among Washington Real Estate Investment Trust, as borrower, Suntrust Bank (successor by merger to Crestar Bank), as lender, First Union National Bank (successor by merger to Signet Bank), as lender, and Suntrust Bank, as agent.(1) (c) Indenture dated as of August 1, 1996 between Washington Real Estate Investment Trust and The First National Bank of Chicago.(2) (d) Officers' Certificate Establishing Terms of the Notes, dated August 8, 1996. (2) (e) Form of 2003 Notes.(2) (f) Form of 2006 Notes.(2) (g) Form of MOPPRS Notes.(3) (h) Form of 30 year Notes.(3) (i) Remarketing Agreement.(3) (j) Form of 2004 fixed-rate notes.(4) (k) 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.(5) (b) 1991 Incentive Stock Option Plan, as amended.(5) (c) Nonqualified Stock Option Agreement dated December 14, 1994 with Edmund B. Cronin, Jr.(5) (d) 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.(5) (e) Share Grant Plan.(6) (f) Share Option Plan for Trustees.(6) (g) Deferred Compensation Plan for Executives dated January 1, 2000, attached hereto. (h) Split-Dollar Agreement dated April 1, 2000, attached hereto. 12. Computation of Ratios of Earnings to fixed charges and Preferred Dividends 21. Subsidiaries of Registrant -23- In 1995, WRIT formed a subsidiary partnership, WRIT Limited Partnership, a Maryland limited partnership, in which WRIT owns 100% of the partnership interest. In 1998, WRIT formed a subsidiary limited liability company, WRIT-NVIP, L.L.C., a Virginia limited liability company, in which WRIT owns 93% of the membership interest. The 7% minority ownership interest is discussed further in Note 2 to the financial statements. 23. Consents (a) Consent of Arthur Andersen LLP ITEM 14 (b). REPORTS ON FORM 8-K None /(1)/ Incorporated herein by reference to the Exhibits of the same designation to the Trust's Form 10-K filed March 24, 2000. /(2)/ Incorporated herein by reference to the Exhibit of the same designation to the Trust's Form 8-K filed August 13, 1996. /(3)/ Incorporated herein by reference to the Exhibit of the same designation to the Trust's Form 8-K filed February 25, 1998. /(4)/ Incorporated herein by reference to Exhibit 4(b) to the Trust's Form 8-K filed August 14, 2000. /(5)/ 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. /(6)/ Incorporated herein by reference to Exhibits 4(a) and 4(b), respectively, to the Trust's Registration Statement on Form S-8 filed on March 17, 1998. -24- 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 19, 2001 /s/ Edmund B. Cronin Jr. By: ____________________________ Edmund B. Cronin Jr. President, Chief Executive Officer, Chairman and Trustee 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/ John M. Derrick, Jr. Trustee March 19, 2001 ---------------------------- John M. Derrick, Jr. /s/ Clifford M. Kendall Trustee March 19, 2001 ---------------------------- Clifford M. Kendall /s/ John P. McDaniel Trustee March 19, 2001 ---------------------------- John P. McDaniel /s/ Charles T. Nason Trustee March 19, 2001 ---------------------------- Charles T. Nason /s/ David M. Osnos Trustee March 19, 2001 ---------------------------- David M. Osnos /s/ Susan J. Williams Trustee March 19, 2001 ---------------------------- Susan J. Williams /s/ Larry E. Finger Senior Vice President and March 19, 2001 ---------------------------- Larry E. Finger Chief Financial Officer /s/ Laura M. Franklin Vice President and March 19, 2001 ---------------------------- Laura M. Franklin Chief Accounting Officer
-25- 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 subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. 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 43 through 45 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, fairly states 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 Vienna, Virginia February 20, 2001 -26- WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999 (IN THOUSANDS)
2000 1999 ---------- ----------- Assets Real estate, at cost $ 698,513 $ 661,870 Accumulated depreciation (100,906) (83,574) --------- --------- Total investment in real estate, net 597,607 578,296 Cash and cash equivalents 6,426 4,716 Rents and other receivables, net of allowance for doubtful accounts of $1,743 and $799, respectively 8,427 6,572 Prepaid expenses and other assets 19,587 18,896 --------- --------- Total assets $ 632,047 $ 608,480 ========= ========= Liabilities and shareholders' equity Accounts payable and other liabilities $ 13,048 $ 11,421 Advance rents 1,901 3,304 Tenant security deposits 5,624 5,006 Mortgage notes payable 86,260 87,038 Lines of credit payable ---- 33,000 Notes payable 265,000 210,000 --------- --------- Total liabilities 371,833 349,769 --------- --------- Minority interest 1,558 1,522 --------- --------- Shareholders' equity Shares of beneficial interest, $.01 par value; 100,000 shares authorized: 35,740 and 35,721 shares issued and outstanding, respectively 357 357 Additional paid in capital 258,299 256,832 --------- --------- Total shareholders' equity 258,656 257,189 --------- --------- Total liabilities and shareholders' equity $ 632,047 $ 608,480 ========= =========
The accompanying notes are an integral part of these statements. -27- WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998 ---------- ---------- ----------- Real estate rental revenue $134,732 $118,975 $103,597 Real estate expenses Utilities 7,682 7,298 7,012 Real estate taxes 9,347 8,496 7,372 Repairs and maintenance 5,580 4,765 4,296 Administrative 2,753 2,520 2,130 Management fees 4,195 3,693 3,185 Operating services and supplies 5,459 4,856 4,569 Common area maintenance 1,961 1,850 1,573 Other expenses 1,339 1,803 977 -------- -------- -------- Total real estate expenses 38,316 35,281 31,114 -------- -------- -------- Operating income 96,416 83,694 72,483 Depreciation and amortization 22,723 19,590 15,399 -------- -------- -------- Income from real estate 73,693 64,104 57,084 Other income 943 732 880 Interest expense (25,531) (22,271) (17,106) General and administrative expenses (7,533) (6,173) (6,558) -------- -------- -------- Income before gain on sale of real estate 41,572 36,392 34,300 Gain on sale of real estate 3,567 7,909 6,764 -------- -------- -------- Net income $ 45,139 $ 44,301 $ 41,064 ======== ======== ======== Basic and diluted earnings per share $ 1.26 $ 1.24 $ 1.15 ======== ======== ======== Weighted Average Shares Outstanding - Basic 35,735 35,714 35,688 ======== ======== ======== Weighted Average Shares Outstanding - Diluted 35,872 35,723 35,714 ======== ======== ========
The accompanying notes are an integral part of these statements. -28- WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 2000, 1999 and 1998 (In thousands)
Shares of Beneficial Additional Interest at Paid in Shareholders' Shares Par Value Capital Equity ----------- -------------- -------------- ---------------- Balance, December 31, 1997 35,678 $357 $251,731 $252,088 Net income -- -- 41,064 41,064 Dividends -- -- (39,614) (39,614) Share options exercised and Share Grants 14 -- 195 195 -------- ------- -------- -------- Balance, December 31, 1998 35,692 357 253,376 253,733 Net income -- -- 44,301 44,301 Dividends -- -- (41,341) (41,341) Share options exercised and Share Grants 29 -- 496 496 -------- ------- -------- -------- Balance, December 31, 1999 35,721 357 256,832 257,189 Net income -- -- 45,139 45,139 Dividends -- -- (43,955) (43,955) Share options exercised and Share Grants 19 -- 283 283 -------- ------- -------- -------- Balance, December 31, 2000 $35,740 $357 $258,299 $258,656 ======== ======= ======== ========
The accompanying notes are an integral part of these statements. -29- WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (IN THOUSANDS)
2000 1999 1998 -------- -------- -------- Cash flows from operating activities Net income $ 45,139 $ 44,301 $ 41,064 Adjustments to reconcile net income to cash provided by operating activities: Gain on sale of real estate (3,567) (7,909) (6,764) Depreciation and amortization 22,723 19,590 15,399 Increases in other assets (3,382) (1,954) (2,895) Increases (decreases) in other liabilities 1,061 (808) 6,789 -------- -------- -------- Cash provided by operating activities 61,974 53,220 53,593 -------- -------- -------- Cash flows from investing activities Real estate acquisitions, net* (26,581) (53,197) (59,087) Improvements to real estate (16,268) (18,371) (18,652) Non-real estate capital improvements (267) (350) (1,967) Net proceeds from sale of real estate 5,732 22,033 10,844 -------- -------- -------- Cash used in investing activities (37,384) (49,885) (68,862) -------- -------- -------- Cash flows from financing activities Dividends paid (43,955) (41,341) (39,614) Line of credit advances 21,000 33,000 44,000 Repayments of lines of credit (54,000) (44,000) (95,250) Proceeds from mortgage note payable -- 49,225 -- Mortgage principal payments (778) (594) (172) Net proceeds from debt offering 54,753 -- 102,797 Net proceeds from the exercise of share options 100 496 195 -------- -------- -------- Cash (used in) provided by financing activities (22,880) (3,214) 11,956 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,710 121 (3,313) Cash and cash equivalents, beginning of year 4,716 4,595 7,908 -------- -------- -------- Cash and cash equivalents, end of year $ 6,426 $ 4,716 $ 4,595 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest $ 24,001 $ 18,968 $ 13,475 ======== ======== ========
Supplemental schedule of non-cash investing and financing activities - -------------------------------------------------------------------- *On September 20, 1999, WRIT purchased Avondale Apartments for an acquisition cost of $13.0 million. WRIT assumed a mortgage in the amount of $8.7 million and paid the balance in cash. The $8.7 million of assumed mortgage is not included in the $53.2 million amount shown as 1999 real estate acquisitions. On November 30, 1998, WRIT purchased Woodburn Medical Park I and II for an acquisition cost of $35.2 million. WRIT assumed two mortgages in the amount of $9.2 million and $12.4 million and paid the balance in cash. The $21.6 million of assumed mortgages is not included in the $59.1 million shown as 1998 real estate acquisitions. The accompanying notes are an integral part of these statements. -30- WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 ---------------------------------------------------- 1. Nature of Business: Washington Real Estate Investment Trust, a Maryland real estate investment trust ("WRIT" or the "Trust"), is a self-administered, self managed equity real estate investment trust, successor to a trust organized in 1960. The Trust's business consists of the ownership and operation of income-producing real estate properties in the greater Washington - Baltimore 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. 2. Accounting Policies: Basis of Presentation The accompanying consolidated financial statements include the accounts of the Trust and its majority owned subsidiaries, after eliminating all intercompany transactions. New Accounting Pronouncements In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued. This statement (as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133") establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure to a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign- currency-denominated forecasted transaction. This statement is effective for all fiscal quarters of fiscal years beginning after January 1, 2001. Although WRIT currently has no derivative instruments, this statement will affect the reporting of derivative instruments acquired by WRIT in future periods. WRIT has entered into 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 protection agreement term. 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 protection agreements are accrued currently and are netted with interest expense for financial statement presentation purposes. 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 and rental abatements from its residential and commercial leases when earned on the straight-line method in accordance with Statement of Financial Accounting Standards ("SFAS") No. 13. WRIT records an allowance for doubtful accounts equal to the estimated uncollectible amounts. This estimate is based on WRIT's historical experience and a review of the current status of its receivables. Contingent rents are recorded when cumulative sales -31- exceed the amount necessary for the contingent rents to equal minimum annual rent, and WRIT has been informed of cumulative sales data; thereafter, percentage rent is accrued based on subsequent sales. Minority Interest WRIT entered into an operating agreement with a member of the previous ownership entity of Northern Virginia Industrial Park in conjunction with the acquisition of this property in May 1998. This resulted in a minority ownership interest in this property based upon defined company ownership units at the date of purchase. WRIT accounts for this activity by allocating the percentage ownership interest of the net operating income of the property to minority interest. Quarterly distributions are made to the minority owner equal to the quarterly dividend per share for each ownership unit. Deferred Financing Costs Costs associated with the issuance of mortgage and other notes and draws on lines of credit are capitalized and amortized using the effective interest rate method over the term of the related notes and are included in interest expense on the accompanying statements of income. Real Estate and Depreciation Buildings are depreciated on a straight-line basis over estimated useful lives not exceeding 50 years. 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 over the shorter of the useful life or the term of the lease. Maintenance and repair costs are charged to expense as incurred. WRIT recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the net undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Impairment is generally assessed through comparison of amortized value to fair value. There were no property impairments recognized during the three- year period ending December 31, 2000. Cash and Cash Equivalents Cash and cash equivalents include investments readily convertible to known amounts of cash with original maturities of 90 days or less. Comprehensive Income WRIT has no items of comprehensive income that would require separate reporting in the accompanying consolidated statements of income. Earnings Per Common 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 plus 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 8) that could potentially reduce or "dilute" earnings per share, based on the treasury stock method. -32- The weighted-average number of shares outstanding for the years ended December 31, 2000, 1999 and 1998 were 35.7 million shares for each respective year and 35.9 million, 35.7 million and 35.7 million on a diluted basis for the years ended December 31, 2000, 1999 and 1998. Use of Estimates in the Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. 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. and Virginia as follows:
December 31, --------------------------- 2000 1999 ------------ ---------- (In thousands) Office buildings $383,530 $352,145 Retail centers 94,900 97,004 Multifamily 102,142 99,125 Industrial 117,941 113,596 -------- -------- $698,513 $661,870 ======== ========
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 markets in which it owns property. These segments include commercial office, multifamily, retail and industrial. 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 sector of the economy could reduce merchant sales, which could adversely affect the operating results of WRIT. As of December 31, 2000, 7900 Westpark office building accounted for 13 percent of total assets and 9 percent of total revenues. No other single property or tenant accounted for more than 10 percent of total assets or total revenues. -33- Properties acquired by WRIT during the years ending December 31, 2000, 1999 and 1998 are as follows:
Acquisition Rentable Acquisition Cost Date Property Type Square Feet (In thousands) - --------------- ------------------------------- -------------------- ---------------------- ---------------------- February 29, 2000 833 S. Washington Street Retail 6,000 $ 1,400 May 5, 2000 962 Wayne Plaza Office 91,000 7,800 August 9, 2000 Munson Hill Towers Land Lease Multifamily N/A 300 October 10, Courthouse Square Office 113,000 17,100 2000 510 and 526 King Street --------- ------- 210,000 $26,600 ========= ======= January 27, 1999 Dulles South IV Industrial 83,000 $ 6,909 April 16, 1999 Sully Square Industrial 95,000 7,557 May 21, 1999 600 Jefferson Plaza Office 115,000 14,472 May 21, 1999 1700 Research Boulevard Office 103,000 12,941 September 10, 1999 Amvax Industrial 32,000 2,231 September 20, 1999 Avondale Multifamily 162,000 12,908 November 30, 1999 Parklawn Plaza Office 40,000 4,764 --------- ------- 630,000 $61,782 ========= ======= May 22, 1998 Northern Virginia Industrial Industrial 790,000 $30,350 Park June 23, 1998 800 South Washington Street Retail 45,000 6,100 September 11, 1998 8900 Telegraph Road Industrial 32,000 1,810 September 30, 1998 8230 Boone Boulevard Office 58,000 8,100 November 30, Woodburn Medical Park I and Office 167,000 35,200 1998 II --------- ------- 1,092,000 $81,560 ========= =======
WRIT accounted for each acquisition using the purchase method of accounting. WRIT allocates the purchase price between land and building using an equity allocation approach. Properties sold by WRIT during the years ending December 31, 2000, 1999 and 1998 are as follows:
Disposition Rentable Sales Price Date Property Type Square Feet (In thousands) - --------------- ------------------------------- -------------------- ---------------------- ---------------------- February 29, 2000 Prince William Plaza Retail 55,000 $ 2,800 July 7, 2000 Westminster parcel Retail parcel 10,000 425 August 22, 2000 Clairmont Center Retail 40,000 3,000 ------- ------- 105,000 $ 6,225 ======= ======= February 5, 444 North Frederick Avenue Office 66,000 $ 5,671 1999 February 5, Arlington Financial Center Office 51,000 9,798 1999 February 5, Department of Commerce Industrial 105,000 7,031 1999 February 26, V Street Distribution Center Industrial 31,000 600 1999 ------- ------- 253,000 $23,100 ======= ======= March 23, 1998 Shirley I-395 Business Center Industrial 113,000 $ 7,815 May 7, 1998 Ravensworth Center Industrial 29,000 1,650 December 17, Dover Mart Retail 44,000 1,975 1998 ------- ------- 186,000 $11,440 ======= =======
-34- 4. Mortgage Notes Payable: On August 22, 1995, WRIT assumed a $7.8 million mortgage note payable as partial consideration for its acquisition of Frederick County Square retail center. 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. On November 30, 1998, WRIT assumed a $9.2 million mortgage note payable and a $12.4 million mortgage note payable as partial consideration for its acquisition of Woodburn Medical Park I and II. Both mortgages bear interest at 7.69 percent per annum. Principal and interest are payable monthly until September 15, 2005, at which time all unpaid principal and interest are payable in full. On September 20, 1999, WRIT assumed an $8.7 million mortgage note payable as partial consideration for its acquisition of the Avondale Apartments. The mortgage bears interest at 7.88 percent per annum. Principal and interest are payable monthly until November 1, 2005, at which time all unpaid principal and interest are payable in full. On September 27, 1999, WRIT executed a $50.0 million mortgage note payable secured by Munson Hill Towers, Country Club Towers, Roosevelt Towers, Park Adams Apartments, and the Ashby Apartments. The mortgage bears interest at 7.14 percent per annum and is payable monthly until October 1, 2009, at which time all unpaid principal and interest are payable in full. These funds were used to repay advances on its lines of credit. Annual payments of mortgage principal as of December 31, 2000 are as follows:
(In thousands) -------------- 2001 $ 834 2002 903 2003 7,368 2004 820 2005 26,335 Thereafter 50,000 ------- $86,260 =======
5. Unsecured Lines of Credit Payable: During 2000, WRIT maintained two unsecured lines of credit: a $25.0 million line of credit ("Credit Facility No. 1") and a $50.0 million line of credit ("Credit Facility No. 2"). Credit Facility No. 1 WRIT had $0 and $22.0 million outstanding as of December 31, 2000 and 1999, respectively, related to Credit Facility No. 1. The following advances have been made under this commitment:
Advance Date Paid Amount 2000 1999 1998 Date in Full (In thousands) Rate Rate Rate - ----------------- ---------------- -------------- ------- -------- --------- November 1997 February 1998 $25,000 -- -- 6.64%-8.50% May 1999 July 1999 12,000 -- 5.67% -- Mar. - Sept. 1999 Jan. - March 2000 22,000 6.33% 6.33% -- Jan. - March 2000 November 2000 $22,000 7.33% -- --
Prior to March 17, 1999, all new advances and interest rate adjustments, upon the expiration of WRIT's interest lock-in dates, bore interest at LIBOR plus a spread based on WRIT's public debt rating. All unpaid interest and principal could be prepaid prior to the expiration of WRIT's interest rate lock-in periods subject to a yield maintenance obligation. -35- On March 17, 1999, WRIT executed an amended and restated agreement extending the maturity date to March 17, 2002. Under the amended agreement, WRIT may choose either a Corporate Base Rate ("CBR") or a LIBOR advance. Both advances have interest rates based on the applicable rate plus a spread based on the most recent ratings from Moody's and/or S&P for WRIT's long-term unsecured debt. This $25.0 million credit commitment requires WRIT to pay the lender an unused commitment fee at the rate of 0.375 percent per annum on the amount by which the $25.0 million commitment exceeds the balance of outstanding advances and term loans. At December 31, 2000 and 1999, $25.0 million and $3.0 million, respectively, of this commitment was unused and available for subsequent acquisitions or capital improvements. This fee is paid quarterly. This commitment also contains certain financial and non-financial covenants including debt service coverage, net worth, and permitted indebtedness ratios, which WRIT has met as of December 31, 2000. In addition, this commitment requires approval to be obtained from the lender for purchases by the Trust over an agreed upon amount. Credit Facility No. 2 WRIT had $0 and $11.0 million outstanding as of December 31, 2000 and 1999, respectively, related to Credit Facility No. 2. The following advances have been made under this commitment:
Advance Date Paid Amount 2000 1999 1998 Date in Full (In thousands) Rate Rate Rate - ----------------- ----------------- ---------------- ---------- ---------- ------------- November 1997 February 1998 $17,000 -- -- 6.64% November 1997 February 1998 33,000 -- -- 6.61% May 1998 July 1999 13,000 -- 5.54% 5.54% -6.39% June 1998 June 1999 4,000 -- 6.02% 6.02% -6.39% Sept. - Nov. 1998 March -May 1999 27,000 -- 5.85% 5.85% Jan. - Sept. 1999 July - Sept. 1999 51,000 -- 5.90% -- Sept. - Nov. 1999 June - Aug. 2000 11,000 -- 6.72% -- March 2000 November 2000 2,000 7.45%-7.81% -- -- May 2000 November 2000 5,000 7.80%-7.81% -- -- June 2000 November 2000 7,000 6.64%-7.81% -- -- August 2000 November 2000 4,000 6.86%-7.51% -- -- October 2000 November 2000 $14,000 7.46% -- --
On July 25, 1999, WRIT executed an agreement to amend and restate the original Credit Facility No. 2 agreement. All unpaid interest and principal are due July 2002 and can be prepaid prior to this date without any prepayment fee or yield maintenance obligation. Any new advances shall bear interest at LIBOR plus a spread based on WRIT's public debt rating. Credit Facility No. 2 provides WRIT the option to convert any advances or portions thereof into a term loan at any time through July 2002. The principal amount of each term loan, if any, shall be repaid in July 2002. This $50.0 million credit commitment requires WRIT to pay the lender an unused commitment fee ranging from 0.15 to 0.25 percent per annum based on WRIT's public debt rating. The fee is paid on the amount by which the $50.0 million commitment exceeds the balance of outstanding advances and term loans. At December 31, 2000 and 1999, $50.0 million and $39.0 million, respectively, of this commitment was unused. This fee is paid quarterly in arrears. This commitment also contains certain financial covenants including cash flow to debt service, net worth, capitalization and permitted indebtedness ratios, which WRIT has met as of December 31, 2000. Information related to short-term borrowings are as follows (in thousands): 2000 1999 ---------- ----------- Maximum Amount Outstanding $54,000 $72,000 Average Amount Outstanding $33,734 $50,847 Weighted Average Interest Rate 7.22% 5.93%
-36- 6. Senior and Medium-Term Notes Payable: Senior Notes On August 13, 1996 WRIT sold $50.0 million of 7.125 percent 7-year unsecured notes due August 13, 2003, and $50.0 million of 7.25 percent unsecured 10-year notes due August 13, 2006. 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. WRIT used the proceeds of these notes to repay advances on its lines of credit and to finance acquisitions and capital improvements Medium-Term Notes On February 20, 1998, WRIT sold $50.0 million of 7.25 percent unsecured notes due February 25, 2028 at 98.653 percent to yield approximately 7.36 percent. WRIT also sold $60.0 million in unsecured Mandatory Par Put Remarketed Securities ("MOPPRS") at an effective borrowing rate through the remarketing date (February 2008) of approximately 6.74 percent. The net proceeds to WRIT after deducting loan origination fees was $102.8 million. WRIT used the proceeds of these notes for general business purposes, including repayment of outstanding advances under its lines of credit and to finance acquisitions and capital improvements to its properties. WRIT's costs of the borrowings and related closed hedge settlements of approximately $7.2 million will be amortized over the lives of the notes using the effective interest method. On November 6, 2000, WRIT sold $55.0 million of 7.78 percent unsecured notes due November 2004. The notes bear an effective interest rate of 7.89 percent. Total proceeds to the Trust, net of underwriting fees, were $54.8 million. WRIT used the proceeds of these notes to repay advances on its lines of credit. These notes contain certain financial and non-financial covenants, all of which WRIT has met as of December 31, 2000. 7. Dividends: The following is a breakdown of the taxable percentage of WRIT's dividends for 2000, 1999 and 1998, respectively:
Ordinary Income Return of Capital -------------------- --------------------- 2000 100% 0% 1999 100% 0% 1998 98% 2%
-37- 8. Share Options and Grants: WRIT maintains an Incentive Stock Option Plan (the "Plan"), which includes qualified and non-qualified options. As of December 31, 2000, 1.8 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:
2000 1999 1998 ------------------------- -------------------------- ------------------------- Wtd Avg Wtd Avg Wtd Avg Shares Ex Price Shares Ex Price Shares Ex Price -------- ------------ -------- ------------- --------- ----------- Outstanding at January 1 1,273,000 $15.87 806,000 $16.83 409,000 $15.93 Granted 376,000 21.34 513,000 14.47 430,000 17.59 Exercised (6,000) 15.21 (12,000) 15.89 (8,000) 12.41 Expired (22,000) 14.74 (34,000) 17.28 (25,000) 16.76 Outstanding at December 31 1,621,000 17.16 1,273,000 15.87 806,000 16.83 Exercisable at December 31 1,008,000 16.31 560,000 16.54 288,000 15.90
The 1,008,000 exercisable options outstanding at December 31, 2000 have exercise prices between $12.41 and $21.34, with a weighted-average exercise price of $16.31 and a weighted average remaining contractual life of 7.6 years. The remaining 613,000 options have exercise prices between $14.47 and $21.34, with a weighted average exercise price of $18.56 and a weighted average remaining contractual life of 9.6 years. WRIT accounts for the Plan under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for the Plan 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:
2000 1999 1998 -------------- ----------- ------------ Net Income: As Reported $45,139 $44,301 $41,064 Pro-Forma 44,214 43,419 40,240 Basic Earnings Per Share: As Reported 1.26 1.24 1.15 Pro-Forma 1.24 1.22 1.13 Weighted-average fair value of options granted 2.46 1.76 1.92 Weighted-average assumptions: Expected lives (years) 7 7 7 Risk free interest rate 5.49% 6.42% 5.09% Expected volatility 17.57% 21.05% 19.21% Expected dividend yield 5.85% 7.12% 6.27%
The assumptions used in the calculations of weighted average fair value of options granted are as prescribed under accounting principles generally accepted in the United States. Such assumptions may not be the same as those used by the financial community and others in determining the fair value of such options. WRIT has computed basic earnings per share. There was no impact of dilution of common equivalent shares on the basic weighted-average shares outstanding for the years ended December 31, 2000, 1999 and 1998. During 2000 and 1999, WRIT issued 36,417 and 12,299 share grants, respectively, to executives and trustees of the Trust. The respective compensation expense was recorded based upon the share price at the grant date. The Board of Trustees awards share grants subject to Compensation Committee recommendations. -38- 9. Benefit Plans: 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, share options under the Incentive Share Option Plan and share grants under the Share Grant Plan based on financial performance of the Trust. The financial incentives to management are earned after WRIT has achieved a prescribed level of growth. This plan is effective from 1996 forward and is reviewed by the Board of Trustees' Compensation Committee each year. The amounts charged to expense for the share grants were $629.1 thousand, $183.2 thousand and $222.5 thousand for the years ended December 31, 2000, 1999 and 1998, respectively. 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. 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 ("ABO") became equal. WRIT terminated the plan as of December 31, 1999, and final participant distributions were made in July 2000. The Trust adopted a split dollar life insurance plan for senior officers, excluding the President, Chief Executive Officer, in 2000. It is intended that the Trust will recover its costs from the life insurance policies at death prior to retirement, termination prior to retirement or at retirement age 65. It is intended that the cash values of the policy in excess of the Trust's interest can be used by the executive. The Trust has a security interest in the cash value and death benefit of each policy to the extent of the sum of premium payments made by the Trust. The Trust has adopted a non-qualified deferred compensation plan for the Chief Executive Officer. The plan allows for a deferral of a percentage of annual cash compensation. Compensation deferred will be credited with interest equal to the Trust's current cost of funds. As an incentive, if the Chief Executive Officer should remain employed by WRIT until age 70, the compensation deferred will be credited with an additional 2.5 percent per anum. In the event of death or retirement prior to age 70, the compensation plus interest can be paid in either a lump sum or in equal installments plus interest at the discretion of the plan participant. The plan is unfunded and payments are to be made from general assets of the Trust. 10. Fair Value of Financial Instruments: Statement of Financial Accounting Standards No. 107 requires disclosure of the fair value of financial instruments. Whenever possible the estimated fair value has been determined using quoted market information as of December 31, 2000. The estimated fair value information presented is not necessarily indicative of amounts the Trust could realize currently in a market sale since the Trust may be unable to sell such instruments due to contractual restrictions or the lack of an established market. The estimated market values have not been updated since December 31, 2000, therefore, current estimates of fair value may differ significantly from the amounts presented. Below is a summary of significant methodologies used in estimating fair values and a schedule of fair values at December 31, 2000. Cash and cash equivalents Includes cash and commercial paper with remaining maturities of less than 90 days, which are valued at the carrying value. Mortgage notes payable Mortgage notes payable consist of instruments in which certain of the Trust's real estate assets are used for collateral. The fair value of the mortgage notes payable is estimated based upon dealer quotes for instruments with similar terms and maturities. Lines of credit payable Lines of credit payable consist of bank facilities which the Trust uses for various purposes including working capital, acquisition funding or capital improvements. The lines of credit advances are priced at a specified rate plus -39- a spread. The carrying value of the lines of credit payable is estimated to be market value since the interest rate adjusts with the market. There were no outstanding balances due on the lines of credit at December 31, 2000. Notes payable Notes payable consists of $50 million, 7.125 %, 7 year unsecured notes due August 13, 2003, $50 million, 7.25%, 10 year unsecured notes due August 13, 2006, $50 million, 7.25%, 20 year unsecured notes due February 25, 2028, $60 million unsecured Mandatory Par Put Remarketed Securities with an effective yield of 6.74% and $55 million, 7.78%, 4 year unsecured notes due November 15, 2004. The fair value of these securities is estimated based on dealer quotes for securities with similar terms and characteristics.
- ----------------------------------------------------------------------------------------- (In Thousands) 2000 1999 - ----------------------------------------------------------------------------------------- Carrying Carrying Value Fair Value Value Fair Value ----- ---------- ----- ---------- - ----------------------------------------------------------------------------------------- Cash and cash equivalents $ 6,426 $ 6,426 $ 4,716 $ 4,716 - ----------------------------------------------------------------------------------------- Mortgage notes payable $ 86,260 $ 87,493 $ 87,037 $ 84,520 - ----------------------------------------------------------------------------------------- Lines of credit payable - - $ 33,000 $ 33,000 - ----------------------------------------------------------------------------------------- Notes payable $265,000 $258,513 $210,000 $192,420 - -----------------------------------------------------------------------------------------
11. Rentals Under Operating Leases: Noncancellable commercial operating leases provide for minimum rental income during each of the next five years of approximately $91.5 million, $72.0 million, $54.6 million, $40.5 million, $27.1 million and $60.8 million thereafter. Apartment leases are not included as they are generally for one year. Most of these commercial leases increase in future years 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 $217,000, $425,000 and $462,000 in 2000, 1999 and 1998, respectively. 12. Contingencies: In the normal course of business, WRIT is involved in various types of pending or unasserted claims. In the opinion of management, these claims will not have a material impact on the financial condition or future operations of the Trust. 13. Segment Information: WRIT has four reportable segments: Office Buildings, Industrial, Multifamily and Retail Centers. Office Buildings, including medical office buildings, represent 53 percent of real estate rental revenue and provide office space for various types of businesses. Industrial represents 14 percent of real estate rental revenue and are used for warehousing and distribution. Multifamily properties represent 19 percent of real estate rental revenue. These properties provide housing for families throughout the Washington Metropolitan area. Retail Centers represent the remaining 14 percent of real estate rental revenue and are typically neighborhood grocery store or drug store anchored retail centers. The accounting policies of the segments are the same as those described in Note 2. WRIT evaluates performance based upon operating income from the combined properties in each segment. WRIT's reportable segments are consolidations of similar properties. They are managed separately because each segment requires different operating, pricing and leasing strategies. All of these properties have been acquired separately and are incorporated into the applicable segment. -40-
2000 (in thousands) ---------------------------------------------------------------------------- Office Retail Corporate Buildings Industrial Multifamily Centers and Other Consolidated ----------- ---------- ----------- ------- --------- -------------- Real estate rental revenue $ 70,885 $ 19,249 $26,234 $18,364 $ -- $134,732 Real estate expenses 21,118 3,997 9,258 3,943 -- 38,316 -------- -------- ------- ------- -------- -------- Operating income 49,767 15,252 16,976 14,421 -- 96,416 Depreciation and amortization 13,050 3,765 3,486 2,422 -- 22,723 -------- -------- ------- ------- -------- -------- Income from real estate 36,717 11,487 13,490 11,999 -- 73,693 Other income -- -- -- -- 943 943 Interest expense (1,630) -- (4,329) (637) (18,935) (25,531) General and administrative -- -- -- -- (7,533) (7,533) -------- -------- ------- ------- -------- -------- Income before gain on sale of real estate 35,087 11,487 9,161 11,362 (25,525) 41,572 ======== ======== ======= ======= ======== ======== Gain on sale of real estate - - - 3,567 - 3,567 Net income $ 35,087 $ 11,487 $ 9,161 $14,929 $(25,525) $ 45,139 ======== ======== ======= ======= ======== ======== Capital investments $ 31,925 $ 4,525 $ 3,613 $ 2,787 $ 814 $ 43,664 ======== ======== ======= ======= ======== ======== Total assets $342,745 $107,811 $79,622 $82,435 $ 19,434 $632,047 ======== ======== ======= ======= ======== ========
1999 (in thousands) ---------------------------------------------------------------------------- Office Retail Corporate Buildings Industrial Multifamily Centers and Other Consolidated ----------- ---------- ----------- ------- --------- -------------- Real estate rental revenue $ 61,657 $ 16,196 $22,926 $18,196 $ -- $118,975 Real estate expenses 18,950 3,568 8,714 4,049 -- 35,281 -------- -------- ------- ------- -------- -------- Operating income 42,707 12,628 14,212 14,147 -- 83,694 Depreciation and amortization 10,979 3,301 2,915 2,395 -- 19,590 -------- -------- ------- ------- -------- -------- Income from real estate 31,728 9,327 11,297 11,752 -- 64,104 Other income -- -- -- -- 732 732 Interest expense (1,731) -- (1,145) (653) (18,742) (22,271) General and administrative -- -- -- -- (6,173) (6,173) -------- -------- ------- ------- -------- -------- Income before gain on sale of real estate 29,997 9,327 10,152 11,099 (24,183) 36,392 ======== ======== ======= ======= ======== ======== Gain on sale of real estate 2,044 5,865 - - - 7,909 ======== ======== ======= ======= ======== ======== Net income $ 32,041 $ 15,192 $10,152 $11,099 $(24,183) $ 44,301 ======== ======== ======= ======= ======== ======== Capital investments $ 37,691 $ 19,591 $20,324 $ 2,049 $ 1,216 $ 80,871 ======== ======== ======= ======= ======== ======== Total assets $321,741 $105,177 $79,548 $84,041 $ 17,973 $608,480 ======== ======== ======= ======= ======== ========
-41-
1998 (in thousands) -------------------------------------------------------------------------- Office Retail Corporate Buildings Industrial Multifamily Centers and Other Consolidated ----------- ---------- ----------- ------- --------- ------------- Real estate rental revenue $ 51,311 $13,547 $21,170 $17,569 $ -- $103,597 Real estate expenses 16,610 2,703 8,096 3,705 -- 31,114 -------- ------- ------- ------- -------- -------- Operating income 34,701 10,844 13,074 13,864 -- 72,483 Depreciation and amortization 8,447 2,330 2,581 2,041 -- 15,399 -------- ------- ------- ------- -------- -------- Income from real estate 26,254 8,514 10,493 11,823 -- 57,084 Other income -- -- -- -- 880 880 Interest expense (69) -- -- (665) (16,372) (17,106) General and administrative -- -- -- -- (6,558) (6,558) -------- ------- ------- ------- -------- -------- Income before gain on sale of real estate 26,185 8,514 10,493 11,158 (22,050) 34,300 -------- ------- ------- ------- -------- -------- Gain on sale of real estate -- 5,926 -- 838 -- 6,764 -------- ------- ------- ------- -------- -------- Net income $ 26,185 $14,440 $10,493 $11,996 $(22,050) $ 41,064 ======== ======= ======= ======= ======== ======== Capital investments $ 54,389 $34,706 $ 3,012 $ 8,755 $ 1,967 $102,829 ======== ======= ======= ======= ======== ======== Total assets $300,043 $90,077 $65,679 $84,198 $ 18,710 $558,707 ======== ======= ======= ======= ======== ========
14. Selected Quarterly Financial Data (in thousands, unaudited): The following table summarizes financial data by quarter for WRIT for 2000, 1999 and 1998.
Quarter ----------------------------------------------------------- First Second Third Fourth ---------- ---------- --------- ----------- 2000: Real estate rental revenue $31,935 $33,350 $34,230 $35,217 Net income 10,910 9,963 12,793 11,473 Net income per share* $ 0.31 $ 0.28 $ 0.36 $ 0.32 1999: Real estate rental revenue $27,654 $28,864 $29,566 $32,891 Net income 16,358 8,765 8,826 10,352 Net income per share* $ 0.46 $ 0.25 $ 0.25 $ 0.29 1998: Real estate rental revenue $24,501 $25,413 $26,243 $27,440 Net income 14,499 8,351 8,277 9,937 Net income per share* $ 0.41 $ 0.23 $ 0.23 $ 0.28
*Includes gain on the sale of real estate of $.04 and $.06 per share in the first and third quarters of 2000, $.22 per share in the first quarter of 1999 and $.16 and $.02 per share in share in the first and fourth quarters of 1998, respectively. 15. Subsequent Event (Unaudited): Subsequent to December 31, 2000, WRIT closed on the purchase of 1611 N. Clarendon Boulevard. On February 15, 2001, WRIT acquired this multifamily property for $1.5 million. -42- SCHEDULE III WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES -------------------------------------------------------- SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION ---------------------------------------------------------------
Initial Cost (b) Net -------------------------- Improvements Building (Retirements) and since Properties Location Land Improvements Acquisition - ------------------------------- ------------------ ------------- ----------------- -------------- OFFICE BUILDINGS 10400 Connecticut Avenue Maryland $ 222,000 $ 1,691,000 $ 3,701,000 1901 Pennsylvania Avenue Washington, D.C. 892,000 3,481,000 6,126,000 51 Monroe Street Maryland 840,000 10,869,000 10,213,000 7700 Leesburg Pike Virginia 3,670,000 4,000,000 6,544,000 515 King Street Virginia 4,102,000 3,931,000 1,380,000 The Lexington Building Maryland 1,180,000 1,263,000 845,000 The Saratoga Building Maryland 1,464,000 1,554,000 1,184,000 Brandywine Center Maryland 718,000 735,000 727,000 Tycon Plaza II Virginia 3,262,000 7,243,000 2,469,000 Tycon Plaza III Virginia 3,255,000 7,794,000 2,379,000 6110 Executive Boulevard Maryland 4,621,000 11,926,000 3,352,000 1220 19th Street Washington, D.C. 7,803,000 11,366,000 606,000 Maryland Trade Center I Maryland 3,330,000 12,747,000 2,876,000 Maryland Trade Center II Maryland 2,826,000 9,486,000 1,116,000 1600 Wilson Boulevard Virginia 6,661,000 16,765,000 1,110,000 7900 Westpark Drive Virginia 12,049,000 71,825,000 2,233,000 8230 Boone Boulevard Virginia 1,417,000 6,754,000 385,000 Woodburn Medical Park I (a) Virginia 2,563,000 12,530,000 530,000 Woodburn Medical Park II (a) Virginia 2,632,000 17,612,000 389,000 600 Jefferson Plaza Maryland 2,296,000 12,188,000 596,000 1700 Research Blvd. Maryland 1,847,000 11,106,000 171,000 Parklawn Plaza Maryland 714,000 4,053,000 264,000 Wayne Plaza Maryland 1,564,000 6,266,000 132,000 Courthouse Square Virginia -- 17,069,000 20,000 ---------- ----------- ---------- 69,928,000 264,254,000 49,348,000 ---------- ----------- ---------- RETAIL CENTERS Concord Centre Virginia 413,000 850,000 2,978,000 Bradlee Virginia 4,152,000 5,383,000 6,896,000 Chevy Chase Metro Plaza Washington, D.C. 1,549,000 4,304,000 3,209,000 Takoma Park Maryland 415,000 1,085,000 -- Westminster Maryland 519,000 1,775,000 1,668,000 Wheaton Park Maryland 796,000 857,000 3,253,000 Montgomery Village Center Maryland 11,625,000 9,105,000 1,076,000 Shoppes of Foxchase Virginia 5,838,000 2,980,000 1,409,000 Frederick County Square (a) Maryland 6,561,000 6,830,000 1,331,000 South Washington St. Virginia 2,904,000 4,626,000 513,000 ---------- ----------- ---------- 34,772,000 37,795,000 22,333,000 ---------- ----------- ----------
Gross Amounts at which carried at December 31, 2000 Accumulated -------------------------------------------- Depreciation Buildings at and December 31, Year of Date of Properties Land Improvements Total(c) 2000 Construction Acquisition - --------------------------- ------------- ------------ ------------ ------------ ------------ --------------- OFFICE BUILDINGS 10400 Connecticut Avenue $ 222,000 $ 5,392,000 $ 5,614,000 $ 2,239,000 1965 August 1979 1901 Pennsylvania Avenue 892,000 9,607,000 10,499,000 5,100,000 1960 May 1977 51 Monroe Street 840,000 21,082,000 21,922,000 8,733,000 1975 August 1979 7700 Leesburg Pike 3,670,000 10,544,000 14,214,000 2,199,000 1976 October 1990 515 King Street 4,102,000 5,311,000 9,413,000 999,000 1966 July 1992 The Lexington Building 1,180,000 2,108,000 3,288,000 416,000 1970 November 1993 The Saratoga Building 1,464,000 2,738,000 4,202,000 633,000 1977 November 1993 Brandywine Center 718,000 1,462,000 2,180,000 299,000 1969 November 1993 Tycon Plaza II 3,262,000 9,712,000 12,974,000 1,665,000 1981 June 1994 Tycon Plaza III 3,255,000 10,173,000 13,428,000 1,770,000 1978 June 1994 6110 Executive Boulevard 4,621,000 15,278,000 19,899,000 3,412,000 1971 January 1995 1220 19th Street 7,803,000 11,972,000 19,775,000 2,203,000 1976 November 1995 Maryland Trade Center I 3,330,000 15,623,000 18,953,000 2,653,000 1981 May 1996 Maryland Trade Center II 2,826,000 10,602,000 13,428,000 1,751,000 1984 May 1996 1600 Wilson Boulevard 6,661,000 17,875,000 24,536,000 2,019,000 1973 October 1997 7900 Westpark Drive 12,049,000 74,058,000 86,107,000 7,295,000 1972/1986/ November 1997 1999 8230 Boone Boulevard 1,417,000 7,139,000 8,556,000 546,000 1981 September 1998 Woodburn Medical Park I (a) 2,563,000 13,060,000 15,623,000 929,000 1984 November 1998 Woodburn Medical Park II (a) 2,632,000 18,001,000 20,633,000 1,312,000 1988 November 1998 600 Jefferson Plaza 2,296,000 12,784,000 15,080,000 718,000 1985 May 1999 1700 Research Blvd. 1,847,000 11,277,000 13,124,000 619,000 1982 May 1999 Parklawn Plaza 714,000 4,317,000 5,031,000 160,000 1986 November 1999 Wayne Plaza 1,564,000 6,398,000 7,962,000 132,000 1970 May 2000 Courthouse Square -- 17,089,000 17,089,000 119,000 1979 October 2000 ----------- ------------ ----------- ----------- 69,928,000 313,602,000 383,530,000 47,921,000 ----------- ------------ ----------- ----------- RETAIL CENTERS Concord Centre 413,000 3,828,000 4,241,000 1,542,000 1960 December 1973 Bradlee 4,152,000 12,279,000 16,431,000 3,806,000 1955 December 1984 Chevy Chase Metro Plaza 1,549,000 7,513,000 9,062,000 2,193,000 1975 September 1985 Takoma Park 415,000 1,085,000 1,500,000 832,000 1962 July 1963 Westminster 519,000 3,443,000 3,962,000 2,127,000 1969 September 1972 Wheaton Park 796,000 4,110,000 4,906,000 1,096,000 1967 September 1977 Montgomery Village Center 11,625,000 10,181,000 21,806,000 1,674,000 1969 December 1992 Shoppes of Foxchase 5,838,000 4,389,000 10,227,000 716,000 1960 June 1994 Frederick County Square (a) 6,561,000 8,161,000 14,722,000 1,585,000 1973 August 1995 South Washington St. 2,904,000 5,139,000 8,043,000 346,000 1959 June 1998 ----------- ------------ ----------- ----------- 34,772,000 60,128,000 94,900,000 15,917,000 ----------- ------------ ----------- -----------
Net Rentable Depreciation Properties Square Feet (e) Units Life(d) - -------------------------------- --------------- ------- ------------ OFFICE BUILDINGS 10400 Connecticut Avenue 65,000 31 Years 1901 Pennsylvania Avenue 97,000 28 Years 51 Monroe Street 210,000 41 Years 7700 Leesburg Pike 145,000 50 Years 515 King Street 78,000 50 Years The Lexington Building 47,000 50 Years The Saratoga Building 59,000 50 Years Brandywine Center 35,000 50 Years Tycon Plaza II 131,000 50 Years Tycon Plaza III 152,000 50 Years 6110 Executive Boulevard 199,000 30 Years 1220 19th Street 104,000 30 Years Maryland Trade Center I 191,000 30 Years Maryland Trade Center II 159,000 30 Years 1600 Wilson Boulevard 167,000 30 Years 7900 Westpark Drive 527,000 30 Years 8230 Boone Boulevard 58,000 30 Years Woodburn Medical Park I (a) 71,000 30 Years Woodburn Medical Park II (a) 96,000 30 Years 600 Jefferson Plaza 115,000 30 Years 1700 Research Blvd. 103,000 30 Years Parklawn Plaza 40,000 30 Years Wayne Plaza 91,000 30 Years Courthouse Square 113,000 30 Years --------- 3,053,000 --------- RETAIL CENTERS Concord Centre 76,000 33 Years Bradlee 168,000 40 Years Chevy Chase Metro Plaza 51,000 50 Years Takoma Park 59,000 50 Years Westminster 165,000 37 Years Wheaton Park 71,000 49 Years Montgomery Village Center 196,000 50 Years Shoppes of Foxchase 128,000 50 Years Frederick County Square (a) 233,000 30 Years South Washington St. 51,000 30 Years --------- 1,198,000 ---------
-43- SCHEDULE III (CONTINUED) WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES -------------------------------------------------------- SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION ---------------------------------------------------------------
Initial Cost (b) Net -------------------------- Improvements Building (Retirements) and since Properties Location Land Improvements Acquisition - ------------------------------- ------------------ ------------- ----------------- -------------- APARTMENT BUILDINGS Country Club Towers (a) Virginia $ 299,000 $ 2,562,000 $ 2,686,000 Munson Hill Towers (a) Virginia 322,000 3,337,000 5,414,000 Park Adams (a) Virginia 287,000 1,654,000 3,705,000 Roosevelt Towers (a) Virginia 336,000 1,996,000 2,124,000 3801 Connecticut Avenue Washington, D.C. 420,000 2,678,000 4,512,000 The Ashby at McLean (a) Virginia 4,356,000 17,102,000 2,782,000 Walker House Apartments Virginia 2,851,000 7,946,000 1,316,000 Bethesda Hill Maryland 3,900,000 13,412,000 2,691,000 Avondale (a) Maryland 3,460,000 9,244,000 750,000 ------------ ------------ ------------ 16,231,000 59,931,000 25,980,000 ------------ ------------ ------------ INDUSTRIAL PROPERTIES Pepsi-Cola Maryland 760,000 1,792,000 1,559,000 Capitol Freeway Center Washington, D.C. 300,000 1,205,000 2,543,000 Fullerton Virginia 950,000 3,317,000 806,000 Charleston Business Center Maryland 2,045,000 2,091,000 293,000 Tech 100 Industrial Park Maryland 2,086,000 4,744,000 526,000 Crossroads Distribution Center Maryland 894,000 1,946,000 140,000 The Alban Business Center Virginia 878,000 3,298,000 377,000 The Earhart Building Virginia 916,000 4,129,000 749,000 Ammendale Technology Park I Maryland 1,335,000 6,492,000 908,000 Ammendale Technology Park II Maryland 862,000 5,025,000 375,000 Pickett Industrial Park Virginia 3,300,000 4,920,000 1,515,000 Northern VA Industrial Park Virginia 4,971,000 25,670,000 5,370,000 8900 Telegraph Road Virginia 372,000 1,489,000 105,000 Dulles South IV Virginia 913,000 5,997,000 67,000 Sully Square Virginia 1,052,000 6,506,000 133,000 Amvax Virginia 246,000 1,974,000 -- ------------ ------------ ------------ 21,880,000 80,595,000 15,466,000 ------------ ------------ ------------ Totals $142,811,000 $442,575,000 $113,127,000 ============ ============ ============
Accumulated Gross Amounts at which carried at Depreciation December 31, 2000 at ------------------------------------------ December 31, Year of Date of Properties Land Improvements Total(c) 2000 Construction Acquisition - -------------------------------- ------------ ------------ ------------ ------------ ------------ ------------------- APARTMENT BUILDINGS Country Club Towers (a) $ 299,000 $ 5,248,000 $ 5,547,000 $ 3,320,000 1965 July 1969 Munson Hill Towers (a) 322,000 8,751,000 9,073,000 4,747,000 1963 January 1970 Park Adams (a) 287,000 5,359,000 5,646,000 2,695,000 1959 January 1969 Roosevelt Towers (a) 336,000 4,120,000 4,456,000 2,502,000 1964 May 1965 3801 Connecticut Avenue 420,000 7,190,000 7,610,000 4,227,000 1951 January 1963 The Ashby at McLean (a) 4,356,000 19,884,000 24,240,000 2,883,000 1982 August 1996 Walker House Apartments 2,851,000 9,262,000 12,113,000 1,384,000 1971 March 1996 Bethesda Hill 3,900,000 16,103,000 20,003,000 1,587,000 1986 November 1997 Avondale (a) 3,460,000 9,994,000 13,454,000 505,000 1987 September 1999 ----------- ------------ ------------ ------------ 16,231,000 85,911,000 102,142,000 23,850,000 ----------- ------------ ------------ ------------ INDUSTRIAL DISTRIBUTION PROPERTIES Pepsi-Cola 760,000 3,351,000 4,111,000 911,000 1971 October 1987 Capitol Freeway Center 300,000 3,748,000 4,048,000 1,961,000 1940 July 1974 Fullerton 950,000 4,123,000 5,073,000 1,393,000 1980 September 1985 Charleston Business Center 2,045,000 2,384,000 4,429,000 398,000 1973 November 1993 Tech 100 Industrial Park 2,086,000 5,270,000 7,356,000 1,096,000 1990 May 1995 Crossroads Distribution Center 894,000 2,086,000 2,980,000 383,000 1987 December 1995 The Alban Business Center 878,000 3,675,000 4,553,000 604,000 1981 October 1996 The Earhart Building 916,000 4,878,000 5,794,000 659,000 1987 December 1996 Ammendale Technology Park I 1,335,000 7,400,000 8,735,000 1,055,000 1985 February 1997 Ammendale Technology Park II 862,000 5,400,000 6,262,000 718,000 1986 February 1997 Pickett Industrial Park 3,300,000 6,435,000 9,735,000 571,000 1973 October 1997 Northern VA Industrial Park 4,971,000 31,040,000 36,011,000 2,460,000 1968/1991 May 1998 8900 Telegraph Road 372,000 1,594,000 1,966,000 154,000 1985 September 1998 Dulles South IV 913,000 6,064,000 6,977,000 395,000 1988 January 1988 Sully Square 1,052,000 6,639,000 7,691,000 375,000 1966 April 1999 Amvax 246,000 1,974,000 2,220,000 85,000 1966 September 1999 ------------ ------------ ------------ ------------ 21,880,000 96,061,000 117,941,000 13,218,000 ------------ ------------ ------------ ------------ Totals $142,811,000 $555,702,000 $698,513,000 $100,906,000 ============ ============ ============ ============
Net Rentable Depreciation Properties Square Feet (e) Units Life(d) - -------------------------------- --------------- ------- ------------ APARTMENT BUILDINGS Country Club Towers (a) 276,000 227 35 Years Munson Hill Towers (a) 340,000 279 33 Years Park Adams (a) 210,000 200 35 Years Roosevelt Towers (a) 229,000 191 40 Years 3801 Connecticut Avenue 242,000 307 30 Years The Ashby at McLean (a) 349,000 250 30 Years Walker House Apartments 148,000 196 30 Years Bethesda Hill 226,000 195 30 Years Avondale (a) 162,000 237 40 Years --------- ----- 2,182,000 2,082 --------- ----- INDUSTRIAL PROPERTIES Pepsi-Cola 69,000 40 Years Capitol Freeway Center 145,000 25 Years Fullerton 103,000 50 Years Charleston Business Center 85,000 50 Years Tech 100 Industrial Park 167,000 30 Years Crossroads Distribution Center 85,000 30 Years The Alban Business Center 87,000 30 Years The Earhart Building 92,000 30 Years Ammendale Technology Park I 167,000 30 Years Ammendale Technology Park II 108,000 30 Years Pickett Industrial Park 246,000 30 Years Northern VA Industrial Park 790,000 30 Years 8900 Telegraph Road 32,000 30 Years Dulles South IV 83,000 30 Years Sully Square 95,000 30 Years Amvax 31,000 30 Years --------- ------ 2,385,000 -- --------- ------ Totals 8,818,000 2,082 ========= ======
Notes: (a) At December 31, 2000, WRIT was obligated under the following mortgage encumbrances: $13,700,000 on the Ashby, $8,508,000 on Avondale, $7,755,000 on Country Club Towers, $6,993,000 on Frederick County Square, $10,560,000 on Munson Hill Towers, $9,625,000 on Park Adams, $8,360,000 on Roosevelt Towers, $8,870,000 on Woodburn Medical Park I and $11,889,000 on Woodburn Medical Park II. (b) The purchase cost of real estate investments has been divided between land and buildings and improvements on the basis of management's determination of the relative values. (c) At December 31, 2000, total land, buildings and improvements are carried at $587,000,000 for federal income tax purposes. (d) The useful life shown is for the main structure. Buildings and improvements are depreciated over various useful lives ranging from 3 to 50 years. (e) Residential properties are presented in gross square feet. -44- WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES 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, 2000, 1999 and 1998:
Years Ended December 31 2000 1999 1998 ---------- ---------- ---------- Real Estate Assets Balance, beginning of period $661,870 $598,874 $504,315 Additions - property acquisitions 26,581 56,837 82,210 - improvements 16,268 23,491 18,652 Deductions - write-off of fully depreciated assets (1,765) -- -- Deductions - property sales (4,441) (17,332) (6,303) -------- -------- -------- Balance, end of period $698,513 $661,870 $598,874 ======== ======== ======== Accumulated Depreciation Balance, beginning of period $ 83,574 $ 68,301 $ 56,015 Additions - depreciation 21,375 18,654 14,566 Deductions - write-off of fully depreciated assets (1,765) -- -- Deductions - property sales (2,278) (3,381) (2,280) -------- -------- -------- Balance, end of period $100,906 $ 83,574 $ 68,301 ======== ======== ========
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