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, 2001 COMMISSION FILE NO. 1-6622
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WASHINGTON REAL ESTATE INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
MARYLAND 53-0261100
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(State or other jurisdiction (IRS Employer
of incorporation or organization) 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
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of exchange on which registered
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Shares of Beneficial Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days. YES X NO
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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 27, 2002, 38,987,599 Shares of Beneficial Interest were outstanding
and the aggregate market value of such shares held by non-affiliates of the
registrant was approximately $1,105,298,432 (based on the closing price of the
stock on March 27, 2002).
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the Trust's 2002
Notice of Annual Meeting and Proxy Statement.
WASHINGTON REAL ESTATE INVESTMENT TRUST
2001 FORM 10-K ANNUAL REPORT
INDEX
PART I Page
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Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 7A. Qualitative and Quantitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management 27
Item 13. Certain Relationships and Related Transactions 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 28
Signatures 31
PART I
ITEM 1. BUSINESS
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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 out 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 $1.31 for 2001, $1.23 for 2000, $1.16
for 1999, $1.11 for 1998 and $1.07 for 1997. The gain on the sales of real
estate of $4.3 million in 2001 was 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 and 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.
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The Greater Washington, D.C. Economy
The Greater Washington, D.C. economy continues to expand, although at a slower
rate than a year ago. Continuing its reputation as recession-resistant, the
Washington region saw the Federal government, its contractors and professional
service firms continue to expand, adding jobs when the nation as a whole lost
jobs at a 0.6% annual rate.
Increased spending by the Federal government is likely to drive regional
economic growth in 2002. According to Delta Associates / Transwestern Commercial
Services (Delta):
o 12-month job growth through November 2001 was 1.5% for the region
compared to negative 0.6% nationwide.
o The Washington area unemployment rate reached 3.4% in October 2001, up
from 2.3% for the same period in 2000, but well below the national
rate of 5.7%
o Approximately 75,000 new jobs are projected for the region in 2002.
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.
The Federal government and Technology industries are two of the strongest core
industries in the Washington area economy. Washington D.C. area technology firms
are concentrated in more stable sub-sectors than other technology centered
regions.
Increased spending by the Federal government is likely to drive regional
economic growth in 2002. The Federal government's increased spending on defense
and technology projects is likely to spur significant growth in the region's
technology sector.
o The Washington area economy could grow by as much as 3.5% in 2002, due
largely to the stimulus of increased federal outlays.
o Federal government spending accounts for 31% of Gross Regional Product
o Technology outlays account for about 50% of all Federal procurement
spending in the Washington area.
o Technology spending by the Federal government is projected to increase
$2 billion in 2002.
o Technology spending as a percent of total federal procurement has been
49% in the area for the last 10 years.
Greater Washington Real Estate Markets
The combination of economic growth and stability in the Greater Washington
region has translated into real estate market performance in each of our four
sectors as reflected in the following data provided by Delta:
Office Sector
o Rents were stable for the region in 2001 as a whole. The District of
Colombia and Suburban Maryland rose 3% in 2001 while Northern Virginia
declined 7%.
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o Rents will likely hold firm in the District of Colombia and Suburban
submarkets, particularly as the Federal government seeks more close-in
space for federal agencies. Rents will likely continue to contract
over the next six months in the Dulles Corridor of Northern Virginia
where oversupply in the market is greatest.
o Direct vacancy was 6.2% (9.6% with sublet space included) at year-end
2001, up from 3.6% direct (8.4% with sublet space) at year-end 2000.
o Vacancy rates remain among the lowest of any major metro area and well
below the peak rates of the early 1990s.
o The overall vacancy rate is projected to remain in the 9% range over
the next two years.
o Net absorption totaled 5.8 million square feet, down from a high of
15.6 million square feet in 2000. This was only one-third of the
volume experienced in 2000 but is the highest of any region in the
U.S. in 2001.
o Of the 15.0 million square feet of space under construction at
year-end 2001, 56% was pre-leased.
Multifamily Sector
o Overall, Class B apartment (WRIT's market segment) rents rose 1.9% in
the Washington region in 2001. Suburban Maryland rents rose 6.8%, the
District submarkets increased 5.4% and Northern Virginia declined
1.1%.
o Rent growth is expected to continue its slow down with a very modest
rise in vacancies over the next 12 to 18 months.
o The 1.3% vacancy rate at year-end 2001 in Class B apartments was up
from 0.7% at year-end 2000, still very low by historical standards.
Grocery-Anchored Retail Centers Sector - The Washington Metro area market
continues to be a strong retail market due to:
o The highest per capita income of any major metro area in the U.S.
o The high growth rate - 25,000 new households per year since 1993;
prospects for continued growth of 25,000 to 35,000 per annum through
2005.
o Demand for retail space exceeding new development since the early
1990's.
o Overall market vacancy in grocery-anchored retail centers still
remains low at 3.3% at year end 2001, compared to 2.2% at year end
2000.
o Rents for in-line tenants declined 4.0% in 2001. Rent increases have
been just under 2% per annum since 1996.
Industrial Sector
o Average industrial rents were up 12.6% in Suburban Maryland and
declined 7.0% in Northern Virginia in 2001.
o Rents are projected to continue to soften in 2002 before stabilizing
in the second-half of the year.
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o Direct vacancy was 9.7% at year-end 2001 (11.0% with sublet space), up
from 7.2% at year-end 2000 (7.7% with sublet space).
o The regional industrial vacancy rate is projected to increase to the
mid-11% range by year-end 2002.
o Of the 3.9 million square feet of industrial space under construction
at year-end 2001, 18% was pre-leased, down from 8.5 million and 22%,
respectively, at year-end 2000.
WRIT PORTFOLIO
As of December 31, 2001, WRIT owned a diversified portfolio consisting of 10
retail centers, 23 office buildings, 9 multifamily buildings and 16 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 2001, 2000 and 1999 and
the percent leased as of December 31, 2001 were as follows:
Real Estate Rental Revenue
Percent Leased --------------------------
December 31, 2001 2001 2000 1999
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97% Office buildings 55% 53% 52%
94% Retail centers 13 14 15
95% Multifamily 18 19 19
100% Industrial 14 14 14
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100% 100% 100%
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On a combined basis, WRIT's portfolio was 97% occupied in 2001, 97% occupied in
2000 and 96% occupied in 1999.
Total revenue was $148.4 million for 2001, $134.7 million for 2000 and $119.0
million for 1999. During 1999, 2000 and 2001, WRIT acquired six office
buildings, one retail center, two multifamily buildings and four industrial
properties. During 1999, 2000 and 2001, WRIT sold three 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 3.3%
of revenue in 2001, 3.6% of revenue in 2000 and 3.8% of revenue in 1999. All
Federal government tenants in the aggregate accounted for approximately 2.1% of
WRIT's 2001 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, Xerox, OAO Corporation, Sun Microsystems, Lockheed Corporation,
INOVA Health Systems, United Communications Group, Sunrise Assisted Living, Inc.
and TRW, Inc.
WRIT's largest tenant in terms of total revenue in 2001 was Getronics (formerly
Wang Laboratories). Getronic's lease agreements with WRIT expired effective
December 31, 2001 and this tenant vacated 156,000 square feet (approximately
30%) at 7900 Westpark Drive effective January 1, 2002. WRIT anticipates the
releasing of this space to begin in the third and fourth-quarters of 2002 and
continuing into 2003.
As of December 31, 2001, and for the year then ended, the 7900 Westpark office
building accounted for 11% of total real estate assets based upon book value and
9% of total revenues. No other single property accounted for more than 10% of
total real estate assets or total revenues.
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
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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 2001, 2000 and 1999 are
discussed on page 19.
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 278 as of February 28, 2002
including 211 persons engaged in property management functions and 67 persons
engaged in corporate, financial, leasing, and asset management functions.
RISK FACTORS
Set forth below are the risks that we believe are material to our shareholders.
We refer to the shares of beneficial interest in Washington Real Estate
Investment Trust as our "shares," and the investors who own shares our
"shareholders." This section includes or refers to certain forward-looking
statements. You should refer to the explanation of the qualifications and
limitations on such forward-looking statements beginning on page 24.
Our performance and value are subject to risks associated with our real estate
assets and with the real estate industry.
Our economic performance and the value of our real estate assets, and
consequently the value of our shares, are subject to the risk that if our
office, industrial, multi-family and retail properties do not generate revenues
sufficient to meet our operating expenses, including debt service and capital
expenditures, our cash flow and ability to pay distributions to our shareholders
will be adversely affected. The following factors, among others, may adversely
affect the revenues generated by our office, industrial, multi-family and retail
properties:
o downturns in the national, regional and local economic climate;
o competition from other office, industrial, multi-family and retail
properties;
o local real estate market conditions, such as oversupply or reduction
in demand for office, industrial, multi-family or retail properties;
o changes in interest rates and availability of financing; o vacancies,
changes in market rental rates and the need to periodically repair,
renovate and relet space; o increased operating costs, including
insurance premiums, utilities and real estate taxes;
o civil disturbances, earthquakes and other natural disasters, or
terrorist acts or acts of war may result in uninsured or underinsured
losses;
o significant expenditures associated with each investment, such as debt
service payments, real estate taxes, insurance and maintenance costs,
are generally not reduced when circumstances cause a reduction in
revenues from a property; and
o ability to collect rents from tenants.
We are dependent upon the economic climate of the Greater Washington, D.C.
region.
All of WRIT's properties are located in the Greater Washington, D.C. region as
compared to a geographically diverse portfolio. General economic conditions and
local real estate conditions in this geographic region have a particularly
strong effect on the Trust.
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We face risks associated with property acquisitions.
We intend to continue to acquire properties that could continue to increase our
size and alter our capital structure. Our acquisition activities and their
success may be exposed to the following risks:
o we may be unable to acquire a desired property because of competition
from other real estate investors, including both publicly traded real
estate investment trusts and institutional investment funds;
o even if we enter into an acquisition agreement for a property, it is
usually subject to customary conditions to closing, including
completion of due diligence investigations to our satisfaction;
o even if we are able to acquire a desired property, competition from
other real estate investors may significantly increase the purchase
price;
o we may be unable to finance acquisitions on favorable terms;
o acquired properties may fail to perform as we expected in analyzing
our investments; and
o our estimates of the costs of repositioning or redeveloping acquired
properties may be inaccurate.
We may acquire properties subject to liabilities and without any recourse, or
with only limited recourse, with respect to unknown liabilities. As a result, if
liability were asserted against us based upon those properties, we might have to
pay substantial sums to settle it, which could adversely affect our cash flow.
Unknown liabilities with respect to properties acquired might include:
o liabilities for clean-up of undisclosed environmental contamination;
o claims by tenants, vendors or other persons dealing with the former
owners of the properties;
o liabilities incurred in the ordinary course of business; and
o claims for indemnification by general partners, directors, officers
and others indemnified by the former owners of the properties.
We face potential difficulties or delays renewing leases or re-leasing space.
We derive most of our income from rent received from our tenants. If a tenant
experiences a downturn in its business or other types of financial distress, it
may be unable to make timely rental payments. Also, when our tenants decide not
to renew their leases, we may not be able to relet the space. Even if tenants
decide to renew, the terms of renewals or new leases, including the cost of
required improvements or concessions to tenants, may be less favorable than
current lease terms. As a result, our cash flow could decrease and our ability
to make distributions to our shareholders could be adversely affected.
We face potential adverse effects from major tenants' bankruptcies or
insolvencies.
The bankruptcy or insolvency of a major tenant may adversely affect the income
produced by our properties. Although we have not experienced material losses
from tenant bankruptcies or insolvencies in the past, our tenants could file for
bankruptcy protection or become insolvent in the future. We cannot evict a
tenant solely because of its bankruptcy. On the other hand, a court might
authorize the tenant to reject and terminate its lease with us. In such case,
our claim against the bankrupt tenant for unpaid, future rent would be subject
to a statutory cap that might be substantially less than the remaining rent
actually owed under the lease, and, even so, our claim for unpaid rent would
likely not be paid in full. This shortfall could adversely affect our cash flow
and results from operations.
Our properties face significant competition.
We face significant competition from developers, owners and operators of office,
industrial, multi-family, retail and other commercial real estate. Substantially
all of our properties face competition from similar properties in the same
market. Such competition may effect our ability to attract and retain tenants
and may reduce the rents we are able to charge. These competing properties may
have vacancy rates higher than our properties, which may result in their owners
being willing to make space available at lower prices than the space in our
properties.
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Compliance or failure to comply with the Americans with Disabilities Act and
other laws could result in substantial costs.
The Americans with Disabilities Act generally requires that public buildings,
including office, industrial, retail and multi-family properties, be made
accessible to disabled persons. Noncompliance could result in imposition of
fines by the federal government or the award of damages to private litigants.
If, pursuant to the Americans with Disabilities Act, we are required to make
substantial alterations and capital expenditures in one or more of our
properties, including the removal of access barriers, it could adversely affect
our financial condition and results of operations, as well as the amount of cash
available for distribution to our shareholders. We may also incur significant
costs complying with other regulations. Our properties are subject to various
federal, state and local regulatory requirements, such as state and local fire
and life safety requirements. If we fail to comply with these requirements, we
could incur fines or private damage awards. We believe that our properties are
currently in material compliance with all of these regulatory requirements.
However, we do not know whether existing requirements will change or whether
compliance with future requirements will require significant unanticipated
expenditures that will affect our cash flow and results from operations.
Some potential losses are not covered by insurance.
We carry insurance coverage on our properties of types and in amounts that we
believe are in line with coverage customarily obtained by owners of similar
properties. We believe all of our properties are adequately insured. The
property insurance that we maintain for our properties has historically been on
an "all risk" basis, including losses caused by acts of terrorism. Following the
recent terrorist activity of September 11, 2001, and in light of the resulting
uncertainty in the insurance market, many insurance companies have indicated
that they will exclude insurance against acts of terrorism from their "all risk"
policies. Our "all risk" insurance coverage which is in full force and effect
until renewal in September 2002, has not been modified and includes coverage for
losses attributable to acts of terrorism. There are other types of losses, such
as from wars or catastrophic acts of nature, for which we cannot obtain
insurance at all or at a reasonable cost. In the event of an uninsured loss or a
loss in excess of our insurance limits, we could lose both the revenues
generated from the affected property and the capital we have invested in the
affected property; depending on the specific circumstances of the affected
property it is possible that we could be liable for any mortgage indebtedness or
other obligations related to the property. Any such loss could materially and
adversely affect our business and financial condition and results of operations.
Potential liability for environmental contamination could result in substantial
costs.
Under federal, state and local environmental laws, ordinances and regulations,
we may be required to investigate and clean up the effects of releases of
hazardous or toxic substances or petroleum products at our properties,
regardless of our knowledge or responsibility, simply because of our current or
past ownership or operation of the real estate. If unidentified environmental
problems arise, we may have to make substantial payments which could adversely
affect our cash flow and our ability to make distributions to our shareholders
because:
o as owner or operator we may have to pay for property damage and for
investigation and clean-up costs incurred in connection with the
contamination;
o the law typically imposes clean-up responsibility and liability
regardless of whether the owner or operator knew of or caused the
contamination;
o even if more than one person may be responsible for the contamination,
each person who shares legal liability under the environmental laws
may be held responsible for all of the clean-up costs; and
o governmental entities and third parties may sue the owner or operator
of a contaminated site for damages and costs.
We have a storage tank third party liability policy in place to cover potential
hazardous releases from underground storage tanks on our properties. This
insurance is in place to mitigate any potential remediation costs from the
effect of releases of hazardous or toxic substances from these storage tanks.
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These costs could be substantial and in extreme cases could exceed the value of
the contaminated property. The presence of hazardous or toxic substances or
petroleum products or the failure to properly remediate contamination may
materially and adversely affect our ability to borrow against, sell or rent an
affected property. In addition, applicable environmental laws create liens on
contaminated sites in favor of the government for damages and costs it incurs in
connection with a contamination.
Environmental laws also govern the presence, maintenance and removal of
asbestos. Such laws require that owners or operators of buildings containing
asbestos:
o properly manage and maintain the asbestos;
o notify and train those who may come into contact with asbestos; and
o undertake special precautions, including removal or other abatement,
if asbestos would be disturbed during renovation or demolition of a
building.
Such laws may impose fines and penalties on building owners or operators who
fail to comply with these requirements and may allow third parties to seek
recovery from owners or operators for personal injury associated with exposure
to asbestos fibers.
It is our policy to retain independent environmental consultants to conduct
Phase I environmental site assessments and asbestos surveys with respect to our
acquisition of properties. These assessments generally include a visual
inspection of the properties and the surrounding areas, an examination of
current and historical uses of the properties and the surrounding areas and a
review of relevant state, federal and historical documents, but do not involve
invasive techniques such as soil and ground water sampling. Where appropriate,
on a property-by-property basis, our practice is to have these consultants
conduct additional testing, including sampling for asbestos, for lead in
drinking water, for soil contamination where underground storage tanks are or
were located or where other past site usages create a potential environmental
problem, and for contamination in groundwater. Even though these environmental
assessments are conducted, there is still the risk that:
o the environmental assessments and updates did not identify all
potential environmental liabilities;
o a prior owner created a material environmental condition that is not
known to us or the independent consultants preparing the assessments;
o new environmental liabilities have developed since the environmental
assessments were conducted; and
o future uses or conditions such as changes in applicable environmental
laws and regulations could result in environmental liability for us.
We face risks associated with the use of debt to fund acquisitions and
developments, including refinancing risk.
We are subject to the risks normally associated with debt financing, including
the risk that our cash flow will be insufficient to meet required payments of
principal and interest. We anticipate that only a small portion of the principal
of our debt will be repaid prior to maturity. Therefore, we are likely to need
to refinance at least a portion of our outstanding debt as it matures. There is
a risk that we may not be able to refinance existing debt or that the terms of
any refinancing will not be as favorable as the terms of the existing debt. If
principal payments due at maturity cannot be refinanced, extended or repaid with
proceeds from other sources, such as new equity capital, our cash flow will not
be sufficient to repay all maturing debt in years when significant "balloon"
payments come due.
Rising interest rates would increase our interest costs.
We may incur more indebtedness that bears interest at variable rates.
Accordingly, if interest rates increase, so will our interest costs, which would
adversely affect our cash flow, our ability to service debt and our ability to
make distributions to our shareholders. As a protection against rising interest
rates, we may enter into agreements such as interest rate swaps, caps, floors
and other interest rate exchange contracts. These
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agreements, however, increase our risks as to other parties to the agreements
not performing or that the agreements could be unenforceable.
Covenants in our debt agreements could adversely affect our financial condition.
We rely on borrowings under our credit facilities to finance acquisitions and
development activities and for working capital, and if we are unable to borrow
under our credit facilities, or to refinance existing indebtedness, our
financial condition and results of operations would likely be adversely
affected.
Our credit facilities contain customary restrictions, requirements and other
limitations on our ability to incur indebtedness, including total debt to assets
ratios, secured debt to total asset ratios, debt service coverage ratios and
minimum ratios of unencumbered assets to unsecured debt which we must maintain.
Our ability to borrow under our credit facilities is subject to compliance with
our financial and other covenants.
Further issuances of equity securities may be dilutive to current shareholders.
The interests of our existing shareholders could be diluted if additional equity
securities are issued to finance future developments and acquisitions instead of
incurring additional debt. Our ability to execute our business strategy depends
on our access to an appropriate blend of debt financing, including unsecured
lines of credit and other forms of secured and unsecured debt, and equity
financing.
Failure to qualify as a REIT trust would cause us to be taxed as a corporation,
which would substantially reduce funds available for payment of dividends.
If we fail to qualify as a real estate investment trust for federal income tax
purposes, we will be taxed as a corporation. We believe that we are organized
and qualified as a REIT, and intend to operate in a manner that will allow us to
continue to qualify as a REIT.
If we fail to qualify as a REIT we will face serious tax consequences that will
substantially reduce the funds available for payment of dividends for each of
the years involved because:
o we would not be allowed a deduction for dividends paid to shareholders
in computing our taxable income and would be subject to federal income
tax at regular corporate rates;
o we also could be subject to the federal alternative minimum tax and
possibly increased state and local taxes;
o unless we are entitled to relief under statutory provisions, we could
not elect to be subject to tax as a REIT for four taxable years
following the year during which we were disqualified; and
o all dividends will be subject to tax as ordinary income to the extent
of our current and accumulated earnings and profits.
In addition, if we fail to qualify as a REIT, we will no longer be required to
pay dividends. As a result of all these factors, our failure to qualify as a
real estate investment trust could impair our ability to expand our business and
raise capital, and would adversely affect the value of our shares.
Changes in market conditions could adversely affect the market price of our
shares.
As with other publicly traded equity securities, the value of our shares depends
on various market conditions which may change from time to time. Among the
market conditions that may affect the value of our shares are the following:
o the extent of investor interest in us;
o the general reputation of real estate investment trusts and the
attractiveness of our equity securities in comparison to other equity
securities, including securities issued by other real estate-based
companies;
o our financial performance; and
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o general stock and bond market conditions.
ITEM 2. PROPERTIES
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The schedule on the following page lists the Trust's real estate investment
portfolio as of December 31, 2001, which consisted of 58 properties.
As of December 31, 2001, 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.
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SCHEDULE OF PROPERTIES
----------------------
Percent
Year Year Net Rentable* Leased
Properties Location Acquired Constructed Square Feet 12/31/01
-------------------------------- --------------------- -------- ----------- ------------- ----------
Office Buildings
----------------
1901 Pennsylvania Avenue Washington, D.C. 1977 1960 97,000 100%
51 Monroe Street Rockville, MD 1979 1975 210,000 97%
7700 Leesburg Pike Falls Church, VA 1990 1976 145,000 98%
515 King Street Alexandria, VA 1992 1966 78,000 95%
The Lexington Building Rockville, MD 1993 1970 47,000 98%
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 94%
Tycon Plaza III Vienna, VA 1994 1978 152,000 99%
6110 Executive Boulevard Rockville, MD 1995 1971 199,000 99%
1220 19th Street Washington, D.C. 1995 1976 104,000 92%
Maryland Trade Center I Greenbelt, MD 1996 1981 191,000 97%
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 72%
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 40,000 100%
Wayne Plaza Silver Spring, MD 2000 1970 91,000 95%
Courthouse Square Alexandria, VA 2000 1979 113,000 95%
One Central Plaza Rockville, MD 2001 1974 274,000 100%
--------- ----
Subtotal 3,262,000 97%
========= ====
Retail Centers
--------------
Concord Centre Springfield, VA 1973 1960 76,000 96%
Bradlee Alexandria, VA 1984 1955 168,000 100%
Chevy Chase Metro Plaza Washington, D.C. 1985 1975 51,000 94%
Takoma Park Takoma Park, MD 1963 1962 59,000 100%
Westminster Westminster, MD 1972 1969 165,000 80%
Wheaton Park Wheaton, MD 1977 1967 71,000 96%
Montgomery Village Center Gaithersburg, MD 1992 1969 196,000 94%
Shoppes of Foxchase Alexandria, VA 1994 1960 128,000 94%
Frederick County Square Frederick, MD 1995 1973 233,000 93%
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 157,000 97%
Munson Hill Towers/279 Falls Church, VA 1970 1963 258,000 94%
Park Adams/200 Arlington, VA 1969 1959 158,000 95%
Roosevelt Towers/190 Falls Church, VA 1965 1964 156,000 92%
3801 Connecticut Avenue/307 Washington, D.C. 1963 1951 166,000 96%
The Ashby at McLean/250 McLean, VA 1996 1982 349,000 96%
Walker House Apartments/196 Gaithersburg, MD 1996 1971 148,000 95%
Bethesda Hills Apartments/194 Bethesda, MD 1997 1986 226,000 95%
Avondale/236 Laurel, MD 1999 1987 162,000 98%
--------- ----
Subtotal (2,079 units) 1,780,000 95%
========= ====
-------------
/1/ A 49,000 square foot addition to 7900 Westpark Drive was completed in
September 1999.
* Multifamily buildings are presented in gross square feet.
-13-
SCHEDULE OF PROPERTIES (Cont.)
Percent
Year Year Net Rentable* Leased
Properties Location Acquired Constructed Square Feet 12/31/01
-------------------------------- --------------------- -------- ----------- ------------- ----------
Industrial Distribution/Flex Properties
---------------------------------------
Pepsi-Cola Distribution Center Forestville, MD 1987 1971 69,000 100%
Capitol Freeway Center3 Washington, D.C. 1974 1940 145,000 0%
Fullerton Business Center Springfield, VA 1985 1980 103,000 95%
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 99%
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%
Sullyfield Center Chantilly, VA 2001 1985 248,000 100%
--------- ----
Subtotal 2,633,000 100%/4/
========= ====
TOTAL 8,873,000
=========
------------
/3/ Property subsequently sold in February 2002.
/4/ Total Industrial percent leased at December 31, 2001 excludes Capitol
Freeway Center vacancy.
-14-
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 2001.
-15-
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 2001 and 2000, by
quarter, and the amount of dividends paid by the Trust are as follows:
Quarterly Share Price Range
---------------------------
Dividends
Quarter Per Share High Low
------- --------- ---- ---
2001
4 $ .3325 $25.52 $22.60
3 .3325 25.28 20.80
2 .3325 24.72 21.60
1 .3125 24.00 21.17
2000
4 $.3125 $25 $18 3/4
3 .3125 17 17 3/8
2 .3125 17 15/16 14 1/2
1 .2925 18 3/4 14 5/16
The Trust has historically paid dividends on a quarterly basis. Dividends are
normally paid based on the Trust's cash flow from operating activities.
-16-
ITEM 6. SELECTED FINANCIAL DATA
------------------------
2001 2000 1999 1998 1997
----------- ----------- ---------- ---------- ----------
(in thousands, except per share data)
Real estate rental revenue $148,424 $134,732 $118,975 $103,597 $ 79,429
Income before gain on sale of real estate $ 48,057 $41,572 $ 36,392 $ 34,300 $ 30,136
Gain on sale of real estate $ 4,296 $ 3,567 $ 7,909 $ 6,764 --
Net income $ 52,353 $45,139 $ 44,301 $ 41,064 $ 30,136
Income per share before gain on sale of real
estate - basic $1.28 $1.16 $1.02 $0.96 $0.90
Income per share before gain on sale of real $1.27 $1.16 $1.02 $0.96 $0.90
estate - diluted
Earnings per Share - basic $1.39 $1.26 $1.24 $1.15 $0.90
Earnings per Share - diluted $1.38 $1.26 $1.24 $1.15 $0.90
Total assets $707,935 $633,415 $608,480 $558,707 $468,571
Lines of credit payable -- -- $ 33,000 $ 44,000 $ 95,250
Mortgage notes payable $ 94,726 $ 86,260 $ 87,038 $ 28,912 $ 7,461
Notes payable $265,000 $265,000 $210,000 $210,000 $100,000
Shareholders' equity $323,607 $258,656 $257,189 $253,733 $252,088
Cash dividends paid $ 49,686 $ 43,955 $ 41,341 $ 39,614 $ 36,108
Cash dividends paid per share $1.31 $1.23 $1.16 $1.11 $1.07
-17-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
WRIT's discussion and analysis of the company's financial condition and results
of operations are based upon WRIT's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
WRIT to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an on-going basis, WRIT evaluates the
company's estimates, including those related to estimated useful lives of real
estate assets, cost reimbursement income, bad debts, contingencies and
litigation. WRIT bases the company's estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. There can be no assurance that actual results will not differ
from those estimates.
CRITICAL ACCOUNTING POLICIES
----------------------------
WRIT believes the following critical accounting policies affect the company's
more significant judgments and estimates used in the preparation of the
company's consolidated financial statements. WRIT's significant accounting
policies are described in Note 1 in the Notes to the Consolidated Financial
Statements in Item 8 of this Form 10-K.
Revenue Recognition
WRIT's revenue recognition policy is significant because revenue is a key
component of the company's results from operations. In addition, revenue
recognition determines the timing of certain expenses, such as leasing
commissions and bad debt. WRIT recognizes real estate rental revenue including
cost reimbursement income when earned in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 13, "Accounting for Leases". This requires
WRIT to recognize rental revenue on a straight-line basis over the term of the
company's leases. WRIT maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of the company's tenants to make
required payments.
Estimated Useful Lives of Real Estate Assets
Real estate assets 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.
Impairment Losses on Long-Lived Assets
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. If such carrying amount is in excess of the estimated projected
operating cash flows of the property, WRIT would recognize an impairment loss
equivalent to an amount required to adjust the carrying amount to the estimated
fair market value. There were no property impairments recognized during the
three-year period ending December 31, 2001.
RESULTS OF OPERATIONS
---------------------
-18-
REAL ESTATE RENTAL REVENUE: 2001 VERSUS 2000
--------------------------------------------
Total revenues for 2001 increased $13.7 million, or 10%, to $148.4 million from
$134.7 million in 2000. The percentage increase in real estate rental revenue
from 2000 to 2001 by property type was as follows:
Office Buildings 14%
Retail Centers 5%
Multifamily 5%
Industrial/Flex Properties 8%
During 2001, WRIT's office building revenues and operating income increased by
14% and 15%, respectively, over 2000. These increases were primarily due to the
2001 acquisition of One Central Plaza and 2000 acquisitions of Wayne Plaza and
Courthouse Square combined with increased rental rates for the sector, offset in
part by the 2001 sale of 10400 Connecticut Avenue. 3.5% of the real estate
portfolio revenues are attributable to WRIT's medical office buildings, which
WRIT considers to have less exposure to economic trends than typical office
buildings. Occupancy levels remained relatively unchanged.
Revenues and operating income in WRIT's core group of office buildings
(excluding 2001 and 2000 acquisitions and dispositions) increased 4% and 5%,
respectively, from 2000 to 2001. The increases in revenue and operating income
were the result of strong rental rate growth 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 2002. Economic occupancy rates for the
core group of office buildings averaged 98% for 2001 and 97% for 2000. Economic
occupancy is defined as gross rental revenue less vacancy losses.
Rental rate increases of 4% for the core group of office buildings were the
result of increases at nearly all of the properties. During 2001, WRIT executed
new leases for 515,000 square feet of office space at an average face rent
increase of 18% on a non-straight line basis.
During 2001, WRIT's retail center revenues and operating income increased by 5%
and 6%, respectively, over 2000. The change was primarily attributable to
increased rental rates across the sector offset in part by the 2000 sales of
Prince William Plaza and Clairmont retail center. Occupancy levels remained
relatively unchanged.
Retail center revenues and operating income in WRIT's core retail centers
(excluding 2001 and 2000 acquisitions and dispositions) increased 7% and 8%,
respectively, from 2000 to 2001, due primarily to the 8% growth in retail center
rental rates for this same group.
Rental rate increases of 8% for the core group of retail centers were the result
of increases at the majority of the properties. During 2001, WRIT executed new
leases for 188,000 square feet of retail space at an average face rent increase
of 64% on a non-straight line basis.
WRIT's multifamily revenues and operating income increased by 5% and 4%,
respectively, in 2001 over 2000. These increases were primarily due to increased
rental rates offset by declining occupancy levels across the sector.
WRIT's multifamily sector core group revenues and operating income increased 4%
and 6%, respectively. These increases were the result of the 7% rental rate
increase throughout the group. Economic occupancy rates for the core group of
multifamily averaged 95% in 2001 and 97% in 2000.
WRIT's industrial/flex revenues and operating income increased by 8% and 6%,
respectively, in 2001 over 2000. These increases were primarily due to the 2001
acquisitions of Sullyfield Commerce Center as well as increased rental rates and
occupancy levels across the sector.
Revenues and operating income in WRIT's core group of industrial/flex properties
(excluding 2001 and 2000 acquisitions and dispositions) increased 6% and 8%,
respectively, from 2000 to 2001 as a result of rental rate growth and higher
occupancy levels in 2001 compared to 2000. Rental rate increases of 6% for the
core group of industrial/flex properties were the result of increases at the
majority of the centers. During 2001, WRIT executed new leases for 451,000
square feet of industrial space leases at an average face rent increase of 9.3%
on a non-straight line basis. Economic occupancy rates for the core group of
industrial/flex properties averaged 98% in 2001 compared to 97% in 2000.
-19-
Rental rate increases of 6% for the core group of industrial/flex properties
were the result of increases at the majority of the centers. During 2001, WRIT
executed new leases for 451,000 square feet of industrial space leases at an
average face rent increase of 9.3% on a non-straight line basis.
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/Flex Properties 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, the 2000 acquisitions of Wayne Plaza and
Courthouse Square and the 1999 acquisitions of 600 Jefferson Plaza, 1700
Research Boulevard and Parklawn Plaza. These increases were offset in part by
the 1999 sales of Arlington Financial Center and 444 North Frederick Road and a
slight decline in occupancy rates.
Revenues and operating income in WRIT's core group of office buildings
(excluding 2000 and 1999 acquisitions and dispositions) increased 9% and 10%,
respectively, from 1999 to 2000. These increases were a result of strong rental
rate growth with some moderate occupancy gains throughout the sector. 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.
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.
Revenues and operating income in WRIT's core retail centers (excluding 2000 and
1999 acquisitions and dispositions) increased 4% and 8%, respectively, from 1999
to 2000 due to increased rental rate growth. 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.
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 multifamily sector core group revenues and operating income (excluding
the Avondale Apartments acquired in 1999) increased 7% and 11%, respectively.
These increases were the result of the 6% rental rate increase throughout the
group. Economic occupancy rates for the core group of multifamily averaged 97%
in both 2000 and 1999.
WRIT's industrial/flex property 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.
-20-
Revenues and operating income in WRIT's core group of industrial/flex properties
(excluding 2000 and 1999 acquisitions and dispositions) increased 17% and 10%,
respectively, from 1999 to 2000 due to increased rental rate growth and higher
occupancy levels. Economic occupancy rates for the core group of industrial/flex
properties averaged 96% in 2000 compared to 94% in 1999.
Rental rate increases of 4% for the core group of industrial/flex properties
were the result of increases at the majority of the centers. During 2000, WRIT
executed new leases for 1,083,000 square feet of industrial space leases at an
average face rent increase of 19% on a non-straight line basis.
OPERATING EXPENSES AND OTHER RESULTS OF OPERATIONS
--------------------------------------------------
Real estate operating expenses as a percentage of revenue were 28% for both 2001
and 2000 and 30% for 1999. Real estate operating expenses increased to $42.1
million in 2001 from $38.3 million in 2000 and $35.3 million in 1999 in general
due to the acquisition of three real estate properties in 2001, three real
estate properties in 2000 and seven real estate properties in 1999 as well as
higher real estate taxes due to increases in assessed value throughout much of
the portfolio. Core portfolio operating expenses increased 4 % in 2001 from 2000
and 5% from 2000 to 1999 due primarily to higher real estate taxes and property
management fees attributable to the increase in real estate revenue. It should
be noted, property management fees are passed through to tenants as part of the
full service rent or as a contractual pass through.
Depreciation and amortization expense increased $4.0 million in 2001 from 2000
due to total acquisitions of $67.8 million in 2001, $26.6 million of
acquisitions throughout 2000 and capital and tenant improvement expenditures, of
$14.0 million and $16.3 million for 2001 and 2000, respectively. Depreciation
and amortization expense increased $3.1 million in 2000 from 1999 due to $26.6
million of acquisitions in 2000, $61.8 million in acquisitions throughout 1999
and $16.3 million and $18.4 million, respectively, in 2001 and 2000 capital and
tenant improvement expenditures.
Interest expense increased $1.5 million in 2001 from 2000. The increase is
primarily attributable to 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 $8.5 million mortgage in November 2001 with the acquisition of
Sullyfield Commerce Center. 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 with the acquisition of Avondale Apartments.
General and administrative expenses were $6.1 million for 2001 as compared to
$7.5 million for 2000 and $6.2 million for 1999. The decrease in general and
administrative expenses in 2001 from 2000 was primarily attributable to
increased property management fees passed through to tenants in 2001 that in
turn reduced the administrative expenses of the Trust. General and
administrative expenses also declined in 2001 due to lower incentive
compensation as a result of a reduced rate of growth of the Trust. The increase
in general and administrative expenses in 2000 from 1999 was primarily
attributable to increased incentive compensation due to the high rate of growth
of the Trust.
Gain on sale of real estate was $4.3 million for the year ended December 31,
2001, resulting from the sale of 10400 Connecticut Avenue. Gain on sale of real
estate in 2000 was $3.6 million resulting from the sales of Prince William Plaza
and Clairmont Center. The $7.9 million gain on sale of real estate in 1999
resulted from the sales of Arlington Financial Center, 444 North Frederick
Avenue, Department of Commerce and V Street Distribution Center.
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
-21-
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.
WRIT has two line of credit commitments in place from commercial banks: a $25.0
million line of credit and a $50.0 million line of credit. Both bear interest at
an adjustable spread over LIBOR based on the Trust's interest coverage ratio and
public debt rating. As of December 31, 2001, WRIT had $0 outstanding under the
company's lines of credit. The $25.0 million line of credit matures March 2002,
and negotiations for renewal of this line of credit are under discussion.
The lines of credit and senior and medium-term notes payable contain certain
financial and non-financial covenants, all of which WRIT has met as of December
31, 2001. The covenants at present require insurance coverage for all perils or
special form types of insurance. The loan documents currently make no specific
reference to terrorism insurance. WRIT believes it is currently covered against
such acts under the insurance coverage in full force and effect until renewal in
September 2002. WRIT anticipates obtaining additional insurance coverage at
higher costs upon renewal; however, the Trust's financial condition and results
of operations are subject to the risks associated with acts of terrorism and the
potential for uninsured losses as the result of any such act.
WRIT acquired three properties in 2001 for total acquisition costs of $67.8
million. Acquisitions in 2000 included three improved properties and the land
under Munson Hill Towers at a cost of $26.6 million. Seven properties were
acquired in 1999 for a total acquisition cost of $61.8 million.
2001 acquisitions were funded through income from operations, line of credit
advances and proceeds from the public offering in April 2001 and a property sale
in September 2001. On April 24, 2001 WRIT completed a public offering of 2.3
million shares. The $53.1 million net proceeds were used to repay $43.0 million
in borrowings under the Trust's line of credit. WRIT disposed of one property in
2001 resulting in net proceeds of $ 8.1 million.
Line of credit advances and the use of proceeds from property sales financed the
2000 acquisitions 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.
Cash flow from operating activities totaled $74.7 million, $62.0 million and
$53.2 million for the years ended December 31, 2001, 2000 and 1999,
respectively, including net income of $52.4 million (net of $4.3 million gain on
property sales), $45.1 million (net of $3.6 million gain on property sales) and
$44.3 million (net of $7.9 million gain on property sales), respectively, and
depreciation and amortization of $26.7 million, $22.7 million and $19.6 million,
respectively. The increase in cash flows from operating activities in 2001 and
2000 was primarily due to real estate acquisitions, increased operating income
from previously owned properties and the resultant increase in net income.
Cash flows used in investing activities totaled $65.7 million, $37.4 million and
$49.9 million for the years ended December 31, 2001, 2000 and 1999,
respectively. The increase in cash flows used in investing activities in 2001
from 2000 is attributable to an increase in real estate acquisitions offset by
lower capital improvements and higher net proceeds for the property sale in
2001. The decline in cash flows used in investing activities in 2000 from 1999
is attributable to a reduction in real estate acquisitions and lower net
proceeds from the sale of real estate.
-22-
Cash flows provided by financing activities were $11.0 million for the year
ended December 31, 2001 compared to cash flows used in financing activities of
$22.9 million and $3.2 million for the years ended December 31, 2000 and
December 31, 1999, respectively. Cash flows provided by financing activities in
2001 compared to 2000 increased as a result of the $53.1 million proceeds from
the 2001 public offering and an increase in share options exercised offset by
increased dividend payments in 2001. 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.
Rental revenue has been the principal source of funds to pay WRIT's operating
expenses, interest expense and dividends to shareholders. In 2001, 2000 and
1999, WRIT paid dividends totaling $49.7 million, $44.0 million and $41.3
million, respectively.
CAPITAL IMPROVEMENTS
--------------------
Capital improvements of $14.0 million were completed in 2001, including tenant
improvements. Capital improvements to WRIT properties in 2000 and 1999 were
approximately $16.3 million and $18.4 million, respectively.
WRIT's capital improvement costs for 1999 - 2001 were as follows (in thousands):
Year Ended December 31,
----------------------------------
2001 2000 1999
---- ---- ----
Accretive capital improvements:
Acquisition related $3,528 $ 1,640 $ 5,716
Expansions and major renovations 794 892 5,929
Tenant improvements 4,096 6,342 2,342
------- -------- --------
Total Accretive capital
improvements 8,418 8,874 13,987
Other: 5,597 7,394 4,384
------- -------- --------
Total $14,015 $ 16,268 $ 18,371
======= ======== ========
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 2001 the most significant of these improvements were
made to Wayne Plaza, One Central Plaza, Courthouse Square and Avondale
Apartments. 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.
Expansions and Major Renovations - Expansions increase the rentable area of a
property. Major renovations are improvements sufficient to increase the income
otherwise achievable at a property. In February 2001, WRIT acquired an apartment
building at 1611 North Clarendon Boulevard adjacent to WRIT's 1600 Wilson
Boulevard office property with the intent of developing a high-rise apartment
building on that site utilizing the available density rights from both
properties. Expansion costs in 2001 include costs associated with this
development as well as a facade renovation of Westminster Shopping Center. 2000
expansion costs were related to the final costs associated with the expansion at
7900 Westpark Drive. During 1999, WRIT completed the 49,000 square foot
expansion at 7900 Westpark Drive. WRIT also completed the renovation of the
Bradlee Shopping Center during 1999.
Tenant Improvements - Tenant Improvements are costs associated with commercial
lease transactions such as painting, carpeting and other space build-out.
-23-
WRIT's average Tenant Improvement Costs for 1999 - 2001 per square foot of space
leased were as follows:
Year Ended December 31,
----------------------------------------
2001 2000 1999
---- ---- ----
Office Buildings $4.56 $4.71 $4.59
Retail Centers $2.65 $1.81 $0.69
Industrial/Flex Properties $0.17 $1.47 $0.55
The Retail and Industrial Tenant Improvement costs are substantially lower than
Office Improvement costs due to the tenant improvements required in these
property types being substantially less extensive than in offices. WRIT believes
its office tenant improvement costs are among the lowest in the industry for a
number of reasons. Approximately 69% of our office tenants renew their leases
with WRIT. Renewing tenants generally require minimal tenant improvements. In
addition, lower tenant improvement costs are 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 $958 for the 39% of apartments turned over
in 2001. In 2001, WRIT also expensed an average of $355 per apartment turnover
for items which do not have a long-term life and are, therefore, not
capitalized.
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 in 2002; (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,"
"projects," "will" 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; (m)
the effects of changes in capital availability to the technology and
biotechnology sectors of the economy, and (n) other factors discussed under the
caption "Risk Factors."
-24-
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:
Year Ended December 31,
-----------------------------------
2001 2000 1999
---- ---- ----
Earnings to fixed charges 2.78x 2.63x 2.61x
Debt service coverage 3.60x 3.40x 3.42x
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, 2001.
-------------------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
In thousands
DEBT (all fixed rate
except lines of credit)
Unsecured debt
Principal $ -- $50,000 $55,000 $ -- $50,000 $110,000 $265,000 $272,689
Interest $19,230 $18,043 $15,311 $11,389 $10,180 $81,558 $155,711
Average interest rate 7.37% 7.36% 7.33% 7.17% 7.11% 7.33% 7.32%
Mortgages
Principal amortization $1,177 $7,651 $1,113 $ 26,638 $ 302 $ 57,845 $ 94,726 $ 98,786
(30 year schedule)
Interest $7,129 $6,456 $6,383 $ 5,790 $4,282 $ 13,505 $ 43,545
Average interest rate 7.42% 7.30% 7.30% 7.30% 7.09% 7.01% 7.17%
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 are incorporated herein by reference.
-25-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
-26-
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 2002 Annual Meeting Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item is hereby incorporated herein by reference
to WRIT's 2002 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 2002 Annual Meeting Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-----------------------------------------------
The information required by this Item is hereby incorporated herein by reference
to WIT's 2002 Annual Meeting Proxy Statement.
-27-
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, 2001 and 2000.
Consolidated Statements of Income for the years ended December 31,
2001, 2000 and 1999.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999.
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 51
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.
(e) Amendment to Bylaws dated February 21, 2002, attached hereto.
-28-
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 The 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.
(e) Share Grant Plan. /(6)/
(f) Share Option Plan for Trustees. /(6)/
(g) Deferred Compensation Plan for Executives dated January 1,
2000, incorporated herein by reference to Exhibit 10(g) to the
2001 Form 10-K.
(h) Split-Dollar Agreement dated April 1, 2000, incorporated
herein by reference to Exhibit 10(h) to the 2001 Form 10-K.
-29-
(i) 2001 Stock Option Plan incorporated herein by reference to
Exhibit A to 2001 Proxy Statement dated March 29, 2001.
12. Computation of Ratios of Earnings to fixed charges and Preferred
Dividends
21. Subsidiaries of Registrant
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
99. Exhibits
(a) Letter regarding Arthur Andersen's representation to the Trust
in accordance with Temporary Note 3T to Article 3 of
Regulation S-X.
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.
-30-
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: April 1, 2002
By: /s/ Edmund B. Cronin, Jr.
-----------------------------------
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 capacitates and on the dates indicated.
Signature Title Date
--------- ------ ----
/s/ John M. Derrick, Jr. Trustee April 1, 2002
-----------------------------
John M. Derrick, Jr.
/s/ Clifford M. Kendall Trustee April 1, 2002
-----------------------------
Clifford M. Kendall
/s/ John P. McDaniel Trustee April 1, 2002
-----------------------------
John P. McDaniel
/s/ Charles T. Nason Trustee April 1, 2002
-----------------------------
Charles T. Nason
/s/ David M. Osnos Trustee April 1, 2002
-----------------------------
David M. Osnos
/s/ Susan J. Williams Trustee April 1, 2002
-----------------------------
Susan J. Williams
/s/ Laura M. Franklin Managing Director April 1, 2002
----------------------------- Accounting and Administration
Laura M. Franklin
-31-
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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001, 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 47 through 49 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
/s/ Arthur Andersen, LLP
Vienna, Virginia
February 20, 2002
-32-
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
(IN THOUSANDS)
2001 2000
-------- --------
Assets
Land $151,782 $142,811
Building 622,804 555,702
-------- --------
Total real estate, at cost 774,586 698,513
Accumulated depreciation (122,625) (100,906)
-------- --------
Total investment in real estate, net 651,961 597,607
Cash and cash equivalents 26,441 6,426
Rents and other receivables, net of allowance for doubtful
accounts of $1,993 and $1,743, respectively 10,523 9,795
Prepaid expenses and other assets 19,010 19,587
-------- --------
Total assets $707,935 $633,415
======== ========
Liabilities and shareholders' equity
Accounts payable and other liabilities $ 13,239 $ 13,048
Advance rents 3,604 3,269
Tenant security deposits 6,148 5,624
Mortgage notes payable 94,726 86,260
Notes payable 265,000 265,000
-------- --------
Total liabilities 382,717 373,201
-------- --------
Minority interest 1,611 1,558
-------- --------
Shareholders' equity
Shares of beneficial interest, $.01 par value; 100,000 shares authorized:
38,829 and 35,740 shares issued and outstanding, respectively 388 357
Additional paid in capital 323,257 261,004
Retained earnings (deficit) (38) (2,705)
-------- --------
Total shareholders' equity 323,607 258,656
-------- --------
Total liabilities and shareholders' equity $707,935 $633,415
======== ========
The accompanying notes are an integral part of these statements.
-33-
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2001 2000 1999
-------- -------- --------
Real estate rental revenue $148,424 $134,732 $118,975
Real estate expenses
Utilities 8,351 7,682 7,298
Real estate taxes 10,307 9,347 8,496
Repairs and maintenance 6,148 5,580 4,765
Administrative 3,068 2,753 2,520
Management fees 4,669 4,195 3,693
Operating services and supplies 5,864 5,459 4,856
Common area maintenance 2,074 1,961 1,850
Other expenses 1,666 1,339 1,803
-------- -------- --------
Total real estate expenses 42,147 38,316 35,281
-------- -------- --------
Operating income 106,277 96,416 83,694
Depreciation and amortization 26,735 22,723 19,590
-------- -------- --------
Income from real estate 79,542 73,693 64,104
Other income 1,686 943 732
Interest expense (27,071) (25,531) (22,271)
General and administrative expenses (6,100) (7,533) (6,173)
-------- -------- --------
Income before gain on sale of real estate 48,057 41,572 36,392
Gain on sale of real estate 4,296 3,567 7,909
-------- -------- --------
Net income $ 52,353 $ 45,139 $ 44,301
======== ========= =========
Basic earnings per share $ 1.39 $ 1.26 $ 1.24
======== ========= =========
Diluted earnings per share $ 1.38 $ 1.26 $ 1.24
======== ========= =========
Weighted Average Shares Outstanding - Basic 37,674 35,735 35,714
======== ========= =========
Weighted Average Shares Outstanding - Diluted 37,674 35,735 35,714
======== ========= =========
The accompanying notes are an integral part of these statements.
-34-
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
(IN THOUSANDS)
Shares of
Beneficial Additional Retained
Interest at Paid in Earnings
Shares Par Value Capital (Deficit) Equity
------- ----------- ---------- -------- --------
Balance, December 31, 1998 35,692 $357 $260,225 $ (6,849) $253,733
Net income -- -- -- 44,301 44,301
Dividends -- -- -- (41,341) (41,341)
Share options exercised 20 -- 286 -- 286
Share Grants 9 -- 210 -- 210
------- ---- -------- -------- --------
Balance, December 31, 1999 35,721 357 260,721 (3,889) 257,189
Net income -- -- -- 45,139 45,139
Dividends -- -- -- (43,955) (43,955)
Share options exercised 7 -- 100 -- 100
Share Grants 12 -- 183 -- 183
------- ---- -------- -------- --------
Balance, December 31, 2000 35,740 357 261,004 (2,705) 258,656
Net income -- -- -- 52,353 52,353
Dividends -- -- -- (49,686) (49,686)
Share options exercised 518 5 8,464 -- 8,469
Share Grants 36 1 706 -- 707
Share offering 2,535 25 53,083 -- 53,108
------- ---- -------- -------- --------
Balance, December 31, 2001 $38,829 $388 $323,257 $ (38) $323,607
======= ==== ======== ======== ========
The accompanying notes are an integral part of these statements.
- 35 -
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
(IN THOUSANDS)
2001 2000 1999
-------- -------- --------
Cash flows from operating activities
Net income $ 52,353 $ 45,139 $ 44,301
Adjustments to reconcile net income to cash provided by
operating activities:
Gain on sale of real estate (4,296) (3,567) (7,909)
Depreciation and amortization 26,736 22,723 19,590
Increases in other assets (1,949) (3,382) (1,954)
Increases (decreases) in other liabilities 1,609 834 (985)
Share Grants 219 227 177
-------- -------- --------
Cash provided by operating activities 74,672 61,974 53,220
-------- -------- --------
Cash flows from investing activities
Real estate acquisitions, net* (59,250) (26,581) (53,197)
Improvements to real estate (14,015) (16,268) (18,371)
Non-real estate capital improvements (538) (267) (350)
Net proceeds from sale of real estate 8,115 5,732 22,033
-------- -------- --------
Cash used in investing activities (65,688) (37,384) (49,885)
-------- -------- --------
Cash flows from financing activities
Net proceeds from share offering 53,083 -- --
Dividends paid (49,686) (43,955) (41,341)
Line of credit advances 43,000 21,000 33,000
Repayments of lines of credit (43,000) (54,000) (44,000)
Proceeds from mortgage notes payable -- -- 49,225
Mortgage principal payments (843) (778) (594)
Net proceeds from debt offering -- 54,753 --
Net proceeds from the exercise of share options 8,477 100 496
-------- -------- --------
Cash provided by (used in) financing activities 11,031 (22,880) (3,214)
-------- -------- --------
Net increase in cash and cash equivalents 20,015 1,710 121
Cash and cash equivalents, beginning of year 6,426 4,716 4,595
-------- -------- --------
Cash and cash equivalents, end of year $ 26,441 $ 6,426 $ 4,716
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 25,866 $ 24,001 $ 18,968
======== ======== ========
*Supplemental schedule of non-cash investing and financing activities
---------------------------------------------------------------------
On November 1, 2001, WRIT purchased Sullyfield Center for an acquisition cost of
$21.7 million. WRIT assumed a mortgage in the amount of $8.5 million and paid
the balance in cash. The $8.5 million of assumed mortgage is not included in the
$59.3 million amount shown as 2001 real estate acquisitions.
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.
The accompanying notes are an integral part of these statements.
- 36 -
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
1. Nature of Business:
Washington Real Estate Investment Trust, a Maryland real estate investment trust
("WRIT," the "company" 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 owns a
diversified portfolio of office buildings, industrial/flex properties,
multifamily buildings and retail centers.
Federal Income Taxes
WRIT operates in a manner intended to enable it to qualify as a real estate
investment trust (REIT) under the Internal Revenue Code (the "Code"). In
accordance with the Code, a trust which distributes its capital gains and at
least 90 percent of its taxable income to its shareholders each year (95% for
years prior to 2001), and which meets certain other conditions, will not be
taxed on that portion of its taxable income which is distributed to its
shareholders. WRIT believes it qualifies as a REIT and has distributed all of
its taxable income for the fiscal years through 2001 in accordance with the
provisions of the Code. 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
Impairment or Disposal of Long-Lived Assets
-------------------------------------------
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS No. 144 is effective for all quarters of fiscal years beginning after
December 15, 2001. At December 31, 2001, WRIT held one property under contract
for sale which sold subsequent to this date (see Note 15). WRIT recognized no
impairment on this property prior to or upon sale.
Derivative Instruments and Hedging Activities
---------------------------------------------
In June 1998, 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 SFAS 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. 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 in the past 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 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.
-37-
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 the company's residential and commercial leases when
earned in accordance with 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 the company's
receivables. Contingent rents are recorded when cumulative sales 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.
WRIT recognizes cost reimbursement income from pass-through expenses on an
accrual basis over the periods in which the expenses were incurred. Pass-through
expenses are comprised of real estate taxes, operating expenses and common area
maintenance costs which are reimbursed by tenants in accordance with specific
allowable costs per tenant lease agreements.
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.
The amortized debt costs included in interest expense totaled $1.1 million, $1.0
million and $1.0 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
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. If such carrying amount is in excess of the estimated projected
operating cash flows of the property, WRIT would recognize an impairment loss
equivalent to an amount required to adjust the carrying amount to the estimated
fair market value. There were no property impairments recognized during the
three-year period ending December 31, 2001. In accordance with SFAS No. 66,
"Accounting for Sales of Real Estate," sales are recognized at closing only when
sufficient down payments have been obtained, possession and other attributes of
ownership have been transferred to the buyer and the Trust has no significant
continuing involvement. The gain or loss resulting from the sale of properties
is included in net income at the time of sale.
-38-
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.
Stock Based Compensation
WRIT maintains Incentive Stock Option Plans as described in Note 8 which include
qualified and non-qualified options for eligible employees. Stock options are
accounted for in accordance with APB 25, whereby if options are priced at fair
market value or above at the date of grant, no compensation expense is
recognized.
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
The Trust calculates basic and diluted earnings per share in accordance with
SFAS No. 128, "Earnings Per Share." "Basic earnings per share" is computed as
net income divided by the weighted-average common shares outstanding. "Diluted
earnings per share" is computed as net income divided by the total
weighted-average common shares outstanding 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.
The weighted-average number of shares outstanding for the years ended December
31, 2001, 2000 and 1999 were 37.7 million, 35.7 million and 35.7 million,
respectively, and 38.0 million, 35.9 million and 35.7 million on a diluted basis
for the years ended December 31, 2001, 2000 and 1999, respectively.
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.
-39-
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,
2001 2000
--------- ---------
(In thousands)
Office buildings $431,213 $383,530
Retail centers 95,626 94,900
Multifamily 106,381 102,142
Industrial/Flex properties 141,366 117,941
--------- ---------
$774,586 $698,513
========= =========
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. WRIT's retail properties provided 13% of total
revenue and 23% of net income for the year ended December 31, 2001, 14% and 33%
of total revenue and net income, respectively, for the year ended December 31,
2000 and 15% of total revenue and 25% of net income for the year ended December
31, 1999.
As of December 31, 2001, 7900 Westpark office building accounted for 11 percent
of total real estate 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.
Properties acquired by WRIT during the years ending December 31, 2001, 2000 and
1999 are as follows:
Acquisition
Rentable Cost
Acquisition Date Property Type Square Feet (In thousands)
--------------------- ---------------------------- -------------- ----------------- -------------------
February 15, 2001 1611 North Clarendon Multifamily 11,000 $1,521
April 19, 2001 One Central Plaza Office 274,000 44,549
November 1, 2001 Sullyfield Commerce Center Industrial 248,000 21,742
-------------- -------------
Total 2001 533,000 $67,812
======= =======
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 Multifamily
Lease N/A 300
October 10, 2000 Courthouse Square Office 113,000 17,100
-------------- -------------
Total 2000 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 (236 units) Multifamily 162,000 12,908
November 30, 1999 Parklawn Plaza Office 40,000 4,764
-------------- -------------
Total 1999 630,000 $61,782
======= =======
WRIT accounted for each acquisition using the purchase method of accounting.
Properties sold by WRIT during the years ending December 31, 2001, 2000 and 1999
are as follows:
-40-
Sales
Rentable Price
Disposition Date Property Type Square Feet (In thousands)
--------------------- ---------------------------- -------------- ---------------- -------------------
September 28, 2001 10400 Connecticut Avenue Office 65,000 $8,400
====== ======
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
------------ -------------
Total 2000 105,000 $6,225
======= ======
February 5, 1999 444 North Frederick Avenue Office 66,000 $5,671
February 5, 1999 Arlington Financial Center Office 51,000 9,798
February 5, 1999 Department of Commerce Industrial 105,000 7,031
February 26, 1999 V Street Distribution Center Industrial 31,000 600
------------ -------------
Total 1999 253,000 $23,100
======= =======
The total revenues and net income for 10400 Connecticut Avenue in 2001 were $1.0
million and $0.4 million, respectively. The retail properties disposed in the
year ended December 31, 2000 resulted in total revenues and net income of $0.4
million and $0.2 million, respectively. The office and industrial properties
disposed in the year ended December 31, 1999 resulted in total revenues and net
income of $0.4 million and $0.3 million, respectively.
-41-
4. Mortgage Notes Payable:
On August 22, 1995, WRIT assumed a $7.8 million mortgage note payable as partial
consideration for WRIT's acquisition of Frederick County Square retail center.
The mortgage bears interest at 9.00 percent per annum. 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 WRIT's
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 WRIT's 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 WRIT's lines of credit.
On November 1, 2001, WRIT assumed an $8.5 million mortgage note payable, fair
valued at $9.3 million, as partial consideration for WRIT's acquisition of
Sullyfield Commerce Center. The mortgage bears interest at 9.00 percent per
annum. Principal and interest are payable monthly until February 1, 2007, at
which time all unpaid principal and interest are payable in full. In accordance
with the purchase method of accounting, the mortgage was fair valued at $9.3
million resulting in an adjustment to the basis of this property.
Scheduled principal payments during the five years subsequent to December 31,
2001 and thereafter are as follows:
(In thousands)
---------------------
2002 $ 1,177
2003 7,651
2004 1,113
2005 26,638
2006 302
Thereafter 57,845
----------
$94,726
==========
5. Unsecured Lines of Credit Payable:
During 2001, 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 outstanding as of December 31, 2001 and 2000 related to Credit
Facility No. 1.
The following advances have been made under this commitment:
Advance Date Paid Amount 2001 2000 1999
Date in Full (In thousands) Rate Rate Rate
----------------- ----------------- -------------- ----------- ----------- -----------
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% --
-42-
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.
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.
Negotiations for renewal of this line of credit are under discussion.
This $25.0 million credit commitment requires WRIT to pay quarterly to 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 both December 31, 2001 and 2000, $25.0 million of
this commitment was unused and available for subsequent acquisitions or capital
improvements. 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, 2001. 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 outstanding as of December 31, 2001 and 2000 related to Credit
Facility No. 2.
The following advances have been made under this commitment:
Advance Date Paid Amount 2001 2000 1999 1998
Date in Full (In thousands) Rate Rate Rate Rate
----------------- ----------------- -------------- ----------- ----------- ----------- -------------
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% -- --
April 19, 2001 April 27, 2001 $43,000 5.38% -- -- --
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. Negotiations for renewal of this line
of credit are under discussion.
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, 2001 and 2000, $50.0 million and $50.0 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, 2001.
-43-
Credit Facility No. 1 and No. 2 contain certain financial and non-financial
covenants, all of which WRIT has met as of December 31, 2001. The covenants at
present require insurance coverage for all perils or special form types of
insurance. The loan documents currently make no specific reference to terrorism
insurance. WRIT believes it is currently covered against such acts under the
insurance coverage in full force and effect until renewal in September 2002.
WRIT anticipates obtaining additional insurance coverage at higher costs upon
renewal; however, the Trust's financial condition and results of operations are
subject to the risks associated with acts of terrorism and the potential for
uninsured losses as the result of any such act.
Information related to short-term borrowings are as follows (in thousands):
2001 2000
----------- -----------
Maximum Amount Outstanding $43,000 $54,000
Average Amount Outstanding $43,000 $33,734
Weighted Average Interest Rate 5.38% 7.22%
The 2001 average balance was based on the individual borrowing outstanding for
eight days during this period, and the 2000 average balance represented multiple
borrowings outstanding from January through November 2000.
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 the
Trust's lines of credit and to finance acquisitions and capital improvements.
These notes do not require any principal payment and are due in full at
maturity.
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 the Trust's 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 are amortized
over the lives of the notes using the effective interest method. These notes do
not require any principal payment and are due in full at maturity.
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 WRIT's lines of credit.
These notes contain certain financial and non-financial covenants, all of which
WRIT has met as of December 31, 2001. The covenants at present require insurance
coverage for all perils or special form types of insurance. The loan documents
currently make no specific reference to terrorism insurance. WRIT believes it is
currently covered against such acts under the insurance coverage in full force
and effect until renewal in September 2002. WRIT anticipates obtaining
additional insurance coverage at higher costs upon renewal; however, the Trust's
financial condition and results of operations are subject to the risks
associated with acts of terrorism and the potential for uninsured losses as the
result of any such act.
-44-
7. Dividends:
The following is a breakdown of the taxable percentage of WRIT's dividends for
2001, 2000 and 1999, respectively:
Ordinary Income Return of Capital
----------------- -------------------
2001 100% 0%
2000 100% 0%
1999 100% 0%
8. Share Options and Grants:
WRIT maintains Incentive Stock Option Plans (the "Plans"), which include
qualified and non-qualified options. As of December 31, 2001, 1.8 million shares
may be awarded to eligible employees. Under the Plans, 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. WRIT adopted the Washington Real
Estate Investment Trust 2001 Stock Option Plan ("New Stock Option Plan") to
replace the 1991 Stock Option Plan ("Stock Option Plan") that expired on June
25, 2001. The New Stock Option Plan provides for the grant of incentive and
non-qualified stock options to the company's employees. WRIT's Board of Trustees
approved the New Stock Option Plan at a meeting held on May 22, 2001 by a
unanimous consent, and WRIT's shareholders approved the New Stock Option Plan at
WRIT's annual meeting of shareholders, held May 22, 2001. Activity under the
Plans is summarized below:
2001 2000 1999
---------------------- ---------------------- ------------------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
--------- -------- --------- -------- ---------- --------
Outstanding at January 1 1,621,000 $17.16 1,273,000 $15.87 806,000 $16.83
Granted 238,000 24.85 376,000 21.34 513,000 14.47
Exercised (517,000) 16.39 (6,000) 15.21 (12,000) 15.89
Expired (106,000) 18.11 (22,000) 14.74 (34,000) 17.28
Outstanding at December 31 1,236,000 18.88 1,621,000 17.16 1,273,000 15.87
Exercisable at December 31 856,000 16.87 1,008,000 16.31 560,000 16.54
The 856,000 exercisable options outstanding at December 31, 2001 have exercise
prices between $14.47 and $24.85, with a weighted-average exercise price of
$16.87 and a weighted average remaining contractual life of 7.4 years. The
remaining 380,000 options have exercise prices between $21.34 and $24.85, with a
weighted average exercise price of $23.28 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:
2001 2000 1999
----------- ------------ -----------
Net Income: As Reported $52,353 $45,139 $44,301
Pro-Forma 51,523 44,214 43,419
Basic Earnings Per Share: As Reported 1.39 1.26 1.24
Pro-Forma 1.37 1.24 1.22
Weighted-average fair value of options
granted 3.49 2.46 1.76
Weighted-average assumptions:
Expected lives (years) 7 7 7
Risk free interest rate 5.08% 5.49% 6.42%
Expected volatility 19.81% 17.57% 21.05%
Expected dividend yield 5.29% 5.85% 7.12%
-45-
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 and fully diluted earnings per share.
The dilutive impact on basic weighted-average shares outstanding for the year
ended December 31, 2001 resulted in a $0.01 reduction in net income 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, 2001, 2000
and 1999.
During 2001 and 2000, WRIT issued 7,209 and 36,417 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. The total
share grants vested were 41,020 at December 31, 2001 and 15,430 at December 31,
2000.
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 Stock 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.
The Stock Option Plan was adopted in 1991 and expired in June 2001. The New
Stock Option Plan was approved and adopted effective June 2001. The Share Grant
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 $0.2 million, $0.6 million and $0.2 million for the years ended
December 31, 2001, 2000 and 1999, 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 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 and members of the Board of Trustees. The plan allows for a
deferral of a percentage of annual cash compensation and trustee fees.
Compensation deferred will be credited with interest equal to the Trust's
current cost of borrowings. 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 annum. 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:
SFAS 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, 2001. 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,
2001; therefore, current estimates of fair value may differ significantly from
the amounts presented.
-46-
Below is a summary of significant methodologies used in estimating fair
values and a schedule of fair values at December 31, 2001.
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 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, 2001.
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% through the remarketing date of February 2008 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) 2001 2000 1999
-------------------------- --------------------------- ----------------------------- -----------------------------
Carrying Carrying Carrying
Value Fair Value Value Fair Value Value Fair Value
-------------------------- ------------ ------------- -------------- ------------- ------------- --------------
Cash and cash equivalents $ 26,441 $ 26,441 $ 6,426 $ 6,426 $ 4,716 $ 4,716
-------------------------- ------------ ------------- -------------- ------------- ------------- --------------
Mortgage notes payable $ 94,726 $ 98,786 $ 86,260 $ 87,493 $ 87,037 $ 84,520
-------------------------- ------------ ------------- -------------- ------------- ------------- --------------
Lines of credit payable - - - - $ 33,000 $ 33,000
-------------------------- ------------ ------------- -------------- ------------- ------------- --------------
Notes payable $265,000 $272,689 $265,000 $258,513 $210,000 $192,420
-------------------------- ------------ ------------- -------------- ------------- ------------- --------------
11. Rentals Under Operating Leases:
Noncancellable commercial operating leases provide for minimum rental income
before any reserve for uncollectible amounts during each of the next five years
of approximately $94.2 million, $76.5 million, $59.6 million, $41.7 million,
$28.8 million and $66.9 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 $412,000, $217,000 and $425,000 in 2001, 2000 and
1999, respectively. Real estate tax, operating expense and common area
maintenance reimbursement income was $8.4 million, $7.9 million and $6.4 million
for the years ended December 31, 2001, 2000 and 1999, respectively.
12. Contingencies:
In the normal course of business, the Trust is involved in various other
lawsuits and environmental matters arising in the normal course of business.
Management believes that such matters will not have a material effect on the
financial condition or results of operations of the Trust.
-47-
13. Segment Information:
WRIT has four reportable segments: Office Buildings, Industrial/flex Properties,
Multifamily and Retail Centers. Office Buildings, including medical office
buildings, represent 55 percent of 2001 real estate rental revenue and provide
office space for various types of businesses. Industrial/flex Properties
represents 14 percent of 2001 real estate rental revenue and are used for
flex-office, warehousing and distribution type facilities. Multifamily
properties represent 18 percent of 2001 real estate rental revenue. These
properties provide housing for families throughout the Washington Metropolitan
area. Retail Centers represent the remaining 13 percent of 2001 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.
2001
(in thousands)
------------------------------------------------------------------------------------
Industrial/
Office Flex Retail Corporate
Buildings Properties Multifamily Centers and Other Consolidated
---------- ----------- ----------- ------- --------- ------------
Real estate rental revenue $81,023 $ 20,702 $27,455 $19,244 $ -- $148,424
Real estate expenses 23,851 4,546 9,754 3,996 -- 42,147
-------- -------- ------- ------- -------- --------
Operating income 57,172 16,156 17,701 15,248 -- 106,277
Depreciation and amortization 15,195 4,173 3,836 2,339 1,192 26,735
-------- -------- ------- ------- -------- --------
Income from real estate 41,977 11,983 13,865 12,909 (1,192) 79,542
Other income 499 6 22 10 1,149 1,686
Interest expense (1,595) (104) (4,315) (635) (20,422) (27,071)
General and administrative -- -- -- -- (6,100) (6,100)
-------- -------- ------- ------- -------- --------
Income before gain on sale
of real estate 40,881 11,885 9,572 12,284 (26,565) 48,057
-------- -------- ------- ------- -------- --------
Gain on sale of real estate 4,296 - - - - 4,296
-------- -------- ------- ------- -------- --------
Net income $ 45,177 $ 11,885 $ 9,572 $12,284 $(26,565) $ 52,353
======== ======== ======= ======= ======== ========
Capital investments $ 53,449 $ 14,941 $ 3,981 $ 895 $ 538 $ 73,803
======== ======== ======= ======= ======== ========
Total assets $380,990 $126,842 $80,033 $81,090 $ 38,980 $707,935
======== ======== ======= ======= ======== ========
-48-
2000
(in thousands)
------------------------------------------------------------------------------------
Industrial/
Office Flex Retail Corporate
Buildings Properties 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 35,087 11,487 9,161 11,362 (25,525) 41,572
of real estate
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)
------------------------------------------------------------------------------------
Industrial/
Office Flex Retail Corporate
Buildings Properties 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
======== ======== ======= ======= ======== ========
14. Selected Quarterly Financial Data (in thousands, unaudited):
The following table summarizes financial data by quarter for WRIT for 2001, 2000
and 1999.
Quarter
---------------------------------------------------
First Second Third Fourth
------- -------- -------- --------
2001:
Real estate rental revenue $35,324 $37,418 $37,873 $37,809
Net income 10,728 12,394 16,824 12,407
Net income per share* $0.30 $0.33 $0.43 $0.32
-49-
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
* Includes gain on the sale of real estate of $0.11 per share in the third
quarter of 2001, $0.04 and $0.06 per share in the first and third quarters of
2000 and $0.22 per share in the first quarter of 1999, respectively.
15. Subsequent Event (Unaudited):
Subsequent to December 31, 2001, WRIT closed on the sale of 1501 South Capitol
Street. On February 28, 2002, WRIT sold this industrial property for $ 6.2
million, resulting in a gain of approximately $3.8 million.
-50-
SCHEDULE III
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Gross Amounts at which carried at
Initial Cost (b) Net December 31, 2001
---------------------- Improvements ---------------------------------------
Building (Retirements) Buildings
and since and
Properties Location Land Improvements Acquisition Land Improvements Total (c)
------------------------- -------- ---------- ------------ ------------ ---------- ------------ ------------
Office Buildings
1901 Pennsylvania Avenue Washington, D.C $ 892,000 $ 3,481,000 $ 7,852,000 $ 892,000 $ 11,333,000 $ 12,225,000
51 Monroe Street Maryland 840,000 10,869,000 10,299,000 840,000 21,168,000 22,008,000
7700 Leesburg Pike Virginia 3,670,000 4,000,000 6,723,000 3,670,000 10,723,000 14,393,000
515 King Street Virginia 4,102,000 3,931,000 1,690,000 4,102,000 5,621,000 9,723,000
The Lexington Building Maryland 1,180,000 1,263,000 971,000 1,180,000 2,234,000 3,414,000
The Saratoga Building Maryland 1,464,000 1,554,000 1,368,000 1,464,000 2,922,000 4,386,000
Brandywine Center Maryland 718,000 735,000 768,000 718,000 1,503,000 2,221,000
Tycon Plaza II Virginia 3,262,000 7,243,000 2,487,000 3,262,000 9,730,000 12,992,000
Tycon Plaza III Virginia 3,255,000 7,794,000 3,213,000 3,255,000 11,007,000 14,262,000
6110 Executivive Boulevard Maryland 4,621,000 11,926,000 3,805,000 4,621,000 15,731,000 20,352,000
1220 19th Street Washington, D.C. 7,803,000 11,366,000 893,000 7,803,000 12,259,000 20,062,000
Maryland Trade Center I Maryland 3,330,000 12,747,000 3,141,000 3,330,000 15,888,000 19,218,000
Maryland Trade Center II Maryland 2,826,000 9,486,000 1,262,000 2,826,000 10,748,000 13,574,000
1600 Wilson Boulevard Virginia 6,661,000 16,765,000 1,548,000 6,661,000 18,313,000 24,974,000
7900 Westpark Drive Virginia 12,049,000 71,825,000 3,151,000 12,049,000 74,976,000 87,025,000
8230 Boone Boulevard Virginia 1,417,000 6,754,000 393,000 1,417,000 7,147,000 8,564,000
Woodburn Medical Park I (a) Virginia 2,563,000 12,470,000 620,000 2,563,000 13,090,000 15,653,000
Woodburn Medical Park II (a) Virginia 2,632,000 17,574,000 239,000 2,632,000 17,813,000 20,445,000
600 Jefferson Plaza Maryland 2,296,000 12,188,000 896,000 2,296,000 13,084,000 15,380,000
1700 Research Blvd. Maryland 1,847,000 11,106,000 237,000 1,847,000 11,343,000 13,190,000
Parklawn Plaza Maryland 714,000 4,053,000 355,000 714,000 4,408,000 5,122,000
Wayne Plaza Maryland 1,564,000 6,283,000 1,220,000 1,564,000 7,503,000 9,067,000
Courthouse Square Virginia -- 17,096,000 435,000 -- 17,531,000 17,531,000
One Central Plaza Maryland 5,480,000 39,069,000 904,000 5,480,000 39,973,000 45,453,000
---------- ----------- ---------- ---------- ----------- -----------
75,186,000 301,578,000 54,470,000 75,186,000 356,048,000 431,234,000
---------- ----------- ---------- ---------- ----------- -----------
Retail Centers
Concord Centre Virginia 413,000 850,000 3,049,000 413,000 3,899,000 4,312,000
Bradlee Virginia 4,152,000 5,383,000 6,895,000 4,152,000 12,278,000 16,430,000
Chevy Chase Metro Plaza Washington, D.C 1,549,000 4,304,000 3,213,000 1,549,000 7,517,000 9,066,000
Takoma Park Maryland 415,000 1,085,000 5,000 415,000 1,090,000 1,505,000
Westminster Maryland 519,000 1,775,000 1,922,000 519,000 3,697,000 4,216,000
Wheaton Park Maryland 796,000 857,000 3,525,000 796,000 4,382,000 5,178,000
Montgomery Village Center Maryland 11,625,000 9,105,000 1,147,000 11,625,000 10,252,000 21,877,000
Shoppes of Foxchase Virginia 5,838,000 2,980,000 1,425,000 5,838,000 4,405,000 10,243,000
Frederick County Square (a) Maryland 6,561,000 6,830,000 1,344,000 6,561,000 8,174,000 14,735,000
South Washington St. Virginia 2,904,000 4,626,000 719,000 2,904,000 5,345,000 8,249,000
---------- ---------- ---------- ---------- ----------- -----------
34,772,000 37,795,000 23,244,000 34,772,000 61,039,000 95,811,000
---------- ---------- ---------- ---------- ----------- -----------
Accumulated
Depreciation Net
at Rentable
December 31, Year of Date of Square Depreciation
Properties Location 2000 Construction Acquisition Feet (e) Units Life (d)
------------------------- -------- ------------- ------------ --------------- -------- ----- -------------
Office Buildings
1901 Pennsylvania Avenue Washington, D.C $5,714,000 1960 May 1977 97,000 28 Years
51 Monroe Street Maryland 9,648,000 1975 August 1979 210,000 41 Years
7700 Leesburg Pike Virginia 2,803,000 1976 October 1990 145,000 50 Years
515 King Street Virginia 1,222,000 1966 July 1992 78,000 50 Years
The Lexington Building Maryland 562,000 1970 November 1993 47,000 50 Years
The Saratoga Building Maryland 817,000 1977 November 1993 59,000 50 Years
Brandywine Center Maryland 426,000 1969 November 1993 35,000 50 Years
Tycon Plaza II Virginia 2,039,000 1981 June 1994 131,000 50 Years
Tycon Plaza III Virginia 2,265,000 1978 June 1994 152,000 50 Years
6110 Executivive Boulevard Maryland 4,280,000 1971 January 1995 199,000 30 Years
1220 19th Street Washington, D.C. 2,665,000 1976 November 1995 104,000 30 Years
Maryland Trade Center I Maryland 3,378,000 1981 May 1996 191,000 30 Years
Maryland Trade Center II Maryland 2,226,000 1984 May 1996 159,000 30 Years
1600 Wilson Boulevard Virginia 2,756,000 1973 October 1997 167,000 30 Years
7900 Westpark Drive Virginia 9,986,000 1972/1986/ November 1997 527,000 30 Years
1999
8230 Boone Boulevard Virginia 915,000 1981 September 1998 58,000 30 Years
Woodburn Medical Park I (a) Virginia 1,394,000 1984 November 1998 71,000 30 Years
Woodburn Medical Park II (a) Virginia 1,950,000 1988 November 1998 96,000 30 Years
600 Jefferson Plaza Maryland 1,222,000 1985 May 1999 115,000 30 Years
1700 Research Blvd. Maryland 1,014,000 1982 May 1999 103,000 30 Years
Parklawn Plaza Maryland 329,000 1986 November 1999 40,000 30 Years
Wayne Plaza Maryland 401,000 1970 May 2000 91,000 30 Years
Courthouse Square Virginia 708,000 1979 October 2000 113,000 30 Years
One Central Plaza Maryland 928,000 1974 April 2001 274,000 30 Years
---------- ---------
59,648,000 3,262,000
---------- ---------
Retail Centers
Concord Centre Virginia 1,699,000 1960 December 1973 76,000 33 Years
Bradlee Virginia 4,255,000 1955 December 1984 168,000 40 Years
Chevy Chase Metro Plaza Washington, D.C 2,449,000 1975 September 1985 51,000 50 Years
Takoma Park Maryland 852,000 1962 July 1963 59,000 50 Years
Westminster Maryland 2,250,000 1969 September 1972 165,000 37 Years
Wheaton Park Maryland 1,294,000 1967 September 1977 71,000 49 Years
Montgomery Village Center Maryland 1,953,000 1969 December 1992 196,000 50 Years
Shoppes of Foxchase Virginia 884,000 1960 June 1994 128,000 50 Years
Frederick County Square (a) Maryland 1,942,000 1973 August 1995 233,000 30 Years
South Washington St. Virginia 547,000 1959 June 1998 51,000 30 Years
---------- ---------
18,125,000 1,198,000
---------- ---------
-51-
SCHEDULE III
(Continued)
WASHIINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Gross Amounts at which carried at
Initial Cost (b) Net December 31, 2001
-------------------------- Improvements ----------------------------------------
Building (Retirements) Buildings
and since and
Properties Location Land Improvements Acquisition Land Improvements Total (c)
------------------------- -------- ------------ ------------ ------------ ------------ ------------ ------------
Apartment Buildings
Country Club Towers (a) Virginia $ 299,000 $2,562,000 $2,873,000 $ 299,000 $ 5,435,000 $ 5,734,000
Munson Hill Towers (a) Virginia 322,000 3,337,000 5,822,000 322,000 9,159,000 9,481,000
Park Adams (a) Virginia 287,000 1,654,000 3,838,000 287,000 5,492,000 5,779,000
Roosevelt Towers (a) Virginia 336,000 1,996,000 2,292,000 336,000 4,288,000 4,624,000
3801 Connecticut Avenue Washington, D.C. 420,000 2,678,000 4,668,000 420,000 7,346,000 7,766,000
The Ashby at McLean (a) Virginia 4,356,000 17,102,000 2,982,000 4,356,000 20,084,000 24,440,000
Walker House Apartments Virginia 2,851,000 7,946,000 1,548,000 2,851,000 9,494,000 12,345,000
Bethesda Hill Maryland 3,900,000 13,412,000 2,847,000 3,900,000 16,259,000 20,159,000
Avondale (a) Maryland 3,460,000 9,244,000 1,316,000 3,460,000 10,560,000 14,020,000
1611 North Clarendon Blvd Virginia 910,000 596,000 317,000 910,000 913,000 1,823,000
---------- ---------- ---------- ---------- ---------- -----------
17,141,000 60,527,000 28,503,000 17,141,000 89,030,000 106,171,000
---------- ---------- ---------- ---------- ---------- -----------
Industrial Properties
Pepsi-Cola Maryland 760,000 1,792,000 1,659,000 760,000 3,451,000 4,211,000
Capitol Freeway Center Washington, D.C. 300,000 1,205,000 2,543,000 300,000 3,748,000 4,048,000
Fullerton Virginia 950,000 3,317,000 805,000 950,000 4,122,000 5,072,000
Charleston Business Center Maryland 2,045,000 2,091,000 293,000 2,045,000 2,384,000 4,429,000
Tech 100 Industrial Park Maryland 2,086,000 4,744,000 543,000 2,086,000 5,287,000 7,373,000
Crossroads Distribution Center Marylandter 894,000 1,946,000 140,000 894,000 2,086,000 2,980,000
The Alban Business Center Virginia 878,000 3,298,000 377,000 878,000 3,675,000 4,553,000
The Earhart Building Virginia 916,000 4,129,000 814,000 916,000 4,943,000 5,859,000
Ammendale Technology Park I Maryland 1,335,000 6,492,000 908,000 1,335,000 7,400,000 8,735,000
Ammendale Technology Park II MarylandI 862,000 5,025,000 393,000 862,000 5,418,000 6,280,000
Pickett Industrial Park Virginia 3,300,000 4,920,000 669,000 3,300,000 5,589,000 8,889,000
Northern VA Industrial Park Virginia 4,971,000 25,670,000 6,792,000 4,971,000 32,462,000 37,433,000
8900 Telegraph Road Virginia 372,000 1,489,000 119,000 372,000 1,608,000 1,980,000
Dulles South IV Virginia 913,000 5,997,000 150,000 913,000 6,147,000 7,060,000
Sully Square Virginia 1,052,000 6,506,000 168,000 1,052,000 6,674,000 7,726,000
Amvax Virginia 246,000 1,974,000 -- 246,000 1,974,000 2,220,000
Sullyfield Center (a) Virginia 2,803,000 19,710,000 9,000 2,803,000 19,719,000 22,522,000
------------ ------------ ------------ ------------ ------------ ------------
24,683,000 100,305,000 16,382,000 24,683,000 116,687,000 141,370,000
------------ ------------ ------------ ------------ ------------ ------------
Total $151,782,000 $500,205,000 $122,599,000 $151,782,000 $622,804,000 $774,586,000
============ ============ ============ ============ ============ ============
Accumulated
Depreciation Net
at Rentable
December 31, Year of Date of Square Depreciation
Properties Location 2000 Construction Acquisition Feet (e) Units Life (d)
------------------------- -------- ------------- ------------ -------------- -------- ----- -----------
Apartment Buildings
Country Club Towers (a) Virginia $ 3,562,000 1965 July 1969 276,000 227 35 Years
Munson Hill Towers (a) Virginia 5,218,000 1963 January 1970 340,000 279 33 Years
Park Adams (a) Virginia 2,977,000 1959 January 1969 210,000 200 35 Years
Roosevelt Towers (a) Virginia 2,716,000 1964 May 1965 229,000 191 40 Years
3801 Connecticut Avenue Washington, D.C. 4,525,000 1951 January 1963 242,000 307 30 Years
The Ashby at McLean (a) Virginia 3,690,000 1982 August 1996 349,000 250 30 Years
Walker House Apartments Virginia 1,757,000 1971 March 1996 148,000 196 30 Years
Bethesda Hill Maryland 2,268,000 1986 November 1997 226,000 195 30 Years
Avondale (a) Maryland 935,000 1987 September 1999 162,000 237 40 Years
1611 North Clarendon Blvd Virginia 6,000 1957 February 2001 11,000 14 30 Years
------------ --------- -----
27,654,000 2,193,000 2,096
------------ --------- -----
Industrial Properties
Pepsi-Cola Maryland 1,024,000 1971 October 1987 69,000 40 Years
Capitol Freeway Center Washington, D.C. 2,056,000 1940 July 1974 145,000 25 Years
Fullerton Virginia 1,523,000 1980 September 1985 103,000 50 Years
Charleston Business Center Maryland 475,000 1973 November 1993 85,000 50 Years
Tech 100 Industrial Park Maryland 1,364,000 1990 May 1995 167,000 30 Years
Crossroads Distribution Center Marylandter 477,000 1987 December 1995 85,000 30 Years
The Alban Business Center Virginia 760,000 1981 October 1996 87,000 30 Years
The Earhart Building Virginia 887,000 1987 December 1996 92,000 30 Years
Ammendale Technology Park I Maryland 1,413,000 1985 February 1997 167,000 30 Years
Ammendale Technology Park II MarylandI 949,000 1986 February 1997 108,000 30 Years
Pickett Industrial Park Virginia 773,000 1973 October 1997 246,000 30 Years
Northern VA Industrial Park Virginia 3,838,000 1968/1991 May 1998 790,000 30 Years
8900 Telegraph Road Virginia 225,000 1985 September 1998 32,000 30 Years
Dulles South IV Virginia 598,000 1988 January 1988 83,000 30 Years
Sully Square Virginia 603,000 1966 April 1999 95,000 30 Years
Virginia 151,000 1966 September 1999 31,000 30 Years
Amvax Virginia 82,000 1985 November 2001 248,000 30 Years
------------ --------- -----
Sullyfield Center (a) 17,198,000 2,633,000 --
------------ --------- -----
Total $122,625,000 9,351,000 2,096
============ ========= =====
-----------
Notes:
(a) At December 31, 2001, WRIT was obligated under the following mortgage
encumbrances: $9,625,000 on Park
Adams, $8,360,000 on Roosevelt Towers, $8,671,000 on Woodburn Medical
Park I, $11,622,000 on Woodburn Medical Park II and $9,299,000 on
Sullyfield Center.
(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, 2001, total land, buildings and improvements are
carried at $600,572,000 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.
-52-
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, 2001, 2000 and 1999:
Years Ended December 31
2001 2000 1999
---- ---- ----
Real Estate Assets
Balance, beginning of period $698,513 $661,870 $ 598,874
Additions - property acquisitions 68,584 26,581 56,837
- improvements 14,015 16,268 23,491
Deductions - write-off of fully depreciated assets (332) (1,765) --
Deductions - property sales (6,194) (4,441) (17,332)
-------- -------- ---------
Balance, end of period $774,586 $698,513 $ 661,870
======== ======== =========
Accumulated Depreciation
Balance, beginning of period $100,906 $ 83,574 $ 68,301
Additions - depreciation 24,492 21,375 18,654
Deductions - write-off of fully depreciated assets (332) (1,765) --
Deductions - property sales (2,441) (2,278) (3,381)
-------- -------- ---------
Balance, end of period $122,625 $100,906 $ 83,574
======== ======== =========
-53-