ITEM 1. BUSINESS, (continued)
WRIT's properties compete for tenants with other properties throughout the respective areas in which they are located. All properties compete for tenants on the basis of location, quality and rent charged. Generally, the Trust has experienced lower vacancy rates than those prevailing in the markets in which its properties are located.
The actual day-to-day management functions at the properties owned by the Trust are carried out by an independent management company. WRIT closely monitors the activities of this company to assure the highest quality of services and cost controls. No WRIT Trustee or officer is a director or officer, or owns any interest in the management company.
The Trust has purchased real estate primarily in the Washington Metropolitan Area because of management's familiarity with the area and the growth and stability of the Nation's Capital. The Trust believes that the stable employment base provided by the federal government, supplemented by continuing business growth in the region, makes the Washington, D.C. metropolitan area an attractive real estate market. Of the 37 properties owned by WRIT, 34 are in the immediate Washington Metropolitan Area. The three remaining are shopping centers located in Westminster and Salisbury, Maryland and Dover, Delaware.
The Trust also competes for the opportunity to invest in additional property. WRIT acquires property which management believes has strong growth potential in prime locations. WRIT typically is a cash buyer for 100% ownership of the property. Over the years, properties have also been acquired by trades involving tax-free exchanges.
Capital improvements are made by WRIT on an ongoing basis to its properties for the purpose of maintaining and increasing their value. Major improvements and/or renovations to the properties in 1994 and planned for 1995 are discussed by property category on pages 6-8.
Further description of the property groups is contained in Item 2, Properties and in Schedule III. Reference is also made to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
The Trust's shares have been traded on the American Stock Exchange since 1971. This provides the vehicle which allows shareholders to pool their funds to share in the ownership of a large, diversified portfolio of income-producing real estate while maintaining investment liquidity. 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 number of persons employed by the Trust was 25 as of December 31, 1994.
ITEM 2.
ITEM 2. PROPERTIES
The following schedule lists the Trust's real estate investment portfolio as of December 31, 1994. The Montgomery Village Center, listed as one property, consists of one shopping center and office/townhouse units named the Village Quarters. Therefore, the total number of properties is 37.
As of December 31, 1994 the percent leased is the percentage of net rentable space for which fully executed leases exist and may include signed leases for space not yet occupied by the tenant.
Cost information is included in Schedule III of this Form 10-K Annual Report.
SCHEDULE OF PROPERTIES
*Apartment buildings are presented in gross square feet
(1) Property square feet, reported in prior 10-K filings, was presented at gross. Gross square feet includes surface and garage parking, if applicable.
SHOPPING CENTERS In February 1994, WRIT purchased land adjacent to its Wheaton Park Shopping Center for a total contract purchase price of $173,000 and WRIT plans to add additional retail and parking space to the center. On June 30, 1994, WRIT purchased The Shoppes of Foxchase in Alexandria, Virginia at a contract purchase price of $8,800,000. The center has approximately 128,000 rentable square feet. WRIT borrowed $9,000,000 for this acquisition and planned capital improvements. In 1994, cosmetic improvements were made to the property and as of December 31, 1994, the property was 94% leased. Foxchase renovations planned for 1995 include re-paving of the rear alley and adding 54 parking spaces.
Major capital improvements completed during 1994 included:
- A new facade, landscaping, island additions and overall cosmetic improvements at Westminster Shopping Center - New roof at Concord Shopping Center - Conversion of the mezzanine to office use at Wheaton Park Shopping Center - Major roof and HVAC improvements at Montgomery Village Shopping Center
Major capital improvements planned in 1995 for shopping centers include the completion in spring 1995 of the underground space conversion at Jenifer One Mall into mezzanine level retail space, the majority of which is leased to a national retail tenant. An addition at Wheaton Park Shopping Center to increase rentable area by 20,000 square feet is planned to commence in late 1995 or early 1996.
In 1994, average shopping center occupancy, excluding Foxchase, was 96%. For all shopping centers, the consolidated average occupancy was 97% for 1994, 1993 and 1992.
Most shopping center leases have automatic annual increases based on changes in the Consumer Price Index. In addition, these leases contain clauses for reimbursement for real estate taxes, common area maintenance and contingent rentals for additional rents based on a percentage of a tenant's gross sales.
OFFICE BUILDINGS On June 1, 1994, WRIT acquired Tycon Plaza in Vienna, Virginia at a contract purchase price of $21,250,000. Tycon Plaza consists of two office buildings containing approximately 293,000 rentable square feet. WRIT borrowed $9,000,000 and invested $12,800,000 of its own funds for the purchase and planned capital improvements. The Tycon Buildings were 71% occupied on acquisition in June of 1994, and 90% occupied at December 31, 1994. In 1994, major capital improvements to Tycon II and III included HVAC repairs and replacements (continuing into 1995), landscaping and a new roof at Tycon III. 1995 planned improvements to the Tycon Plaza buildings include new signage, flagstone repairs and completion of major HVAC improvements that commenced in 1994.
Major capital improvements completed during 1994 included:
- New roof at 1901 Pennsylvania Avenue - Lighting retrofits at 444 N. Frederick Avenue - New glass storefront at 7700 Leesburg Pike - Installation of an energy management system, a new roof and the addition of windows to an area of the building previously unleasable at 515 King Street - HVAC repairs, signage, fire safety, new roof, and major parking deck repairs at the Heritage office buildings - New rooftop units, boilers/ chillers at 10400 Connecticut Avenue and One Metro Square - New antenna tower at One Metro Square
OFFICE BUILDINGS, (CONTINUED)
In 1995, WRIT has major capital improvement plans for three of its office buildings; 1901 Pennsylvania Avenue, One Metro Square, and 7700 Leesburg Pike. Improvement plans at 1901 Pennsylvania Avenue include renovations to the main lobby, common areas , elevator cabs, exterior cosmetic improvements and HVAC equipment replacements. At One Metro Square, WRIT plans to replace the roof, renovate the elevator cabs and repair and replace elevator equipment. At 7700 Leesburg Pike, WRIT plans to convert 20,000 square feet of existing upper-level (surface) parking space into 20,000 square feet of enclosed office space.
In 1994, average building occupancy, excluding the Tycon Plaza office buildings, was 95%. For all office buildings, the consolidated average occupancy was 89% for 1992, 94% for 1993 and 93% for 1994. WRIT expects that office building occupancy will continue to improve.
Office building leases generally have a three to five year term. Most leases have automatic annual increases based on changes in the Consumer Price Index.
APARTMENT BUILDINGS
WRIT's five high-rise apartment buildings are well located and have a combined total of approximately 1,200 units consisting of efficiency and one-two-or three bedroom apartments. Apartment leases are generally for periods of one year or less. There is a continuous emphasis on the upgrading of the quality of management and services to residents. Improvement programs during 1992, 1993 and 1994 have included remodeled lobbies, modernized kitchens and bathrooms, and improved security. These programs were designed to increase resident retention and to enhance the appeal in the market.
In 1995, for all apartment properties, WRIT intends to continue its modernization of kitchens and bathrooms for units not modernized in prior years, and to modify the elevators and public restrooms in accordance with the requirements of the Americans with Disabilities Act (ADA). Improvement plans at Country Club Towers and Wiltshire North include the installation of energy management systems. Wiltshire North improvement plans also include major repairs to the HVAC system. At Park Adams, major repairs to the swimming pool and deck, replacement of building windows and improvements to the parking lot lighting are planned. For all of the Virginia apartment buildings, WRIT plans to re-surface and re-stripe the parking lots in 1995.
Four of the apartment buildings are in nearby northern Virginia with convenient transportation routes to downtown Washington. Wiltshire North is on Connecticut Avenue in Washington, D.C. and these apartments are subject to the rent control laws of the District of Columbia. The laws provide landlords with annual rent increases tied to the rate of inflation subject to an annual maximum of 10% and also afford landlords the opportunity for additional rent increases as units are re-rented to new tenants. Occupancy rates for all apartments were 94% for 1992, 95% for 1993 and 97% for 1994.
BUSINESS CENTERS
WRIT's business centers provide warehousing, distribution, research and development and service business and office space to tenants as varied as the U.S. Postal Service, Washington Golf Center, the District of Columbia Metropolitan Police Department, Pepsi Cola and the U.S. Department of Commerce.
BUSINESS CENTERS, (CONTINUED)
Major capital improvements completed during 1994 included:
- HVAC and facia improvements at the Department of Commerce - New roofs at V Street Distribution Center and Charleston Business Center
As a group, business center occupancy averaged 93% for 1992, 89% for 1993 and 94% for 1994.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
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 1994.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Trust's Shares of Beneficial Interest are traded on the American Stock Exchange and there are approximately 32,000 shareholders.
The high and low sales price for the Trust's shares for 1994 and 1993, by quarter, and the amount of dividends paid by the Trust are as follows:
The Trust has historically paid dividends on a quarterly basis and there are currently no restrictions on the Trust's present or future ability to pay such dividends. Dividends are normally paid based on the Trust's cash flow from operating activities. The indicated annual dividend rate was $.96 as of March 1995.
Item 6.
Item 6. Selected Financial Data
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
WRIT's fundamental emphasis is on the growth of cash flow from operating activities. Dividends to shareholders are based upon these cash flows. WRIT's capital improvements, leasing and management, and acquisitions of additional properties are the major contributors to sustained growth of cash flows.
Occupancy rates have a major impact on rental revenue. Other factors such as new or renewal leases at market rates, CPI based annual rental rate increases, increases in rentable area, new property acquisitions and certain other capital expenditures also influence rental revenue.
The percentage increase (decrease) in real estate rental revenue from 1992 to 1993 and from 1993 to 1994 by property type was as follows:
During 1994, WRIT's office building group achieved increases of 34% in revenues and 36% in operating income, mostly due to the acquisitions of the three Heritage office buildings in November 1993 and the two Tycon Plaza office buildings in June of 1994.
The Tycon office buildings were 71% occupied upon acquisition in June of 1994, 90% occupied at December 31, 1994, and are 92% occupied as of February 28, 1995. The Heritage properties were acquired in November, 1993 and include three office buildings (the Lexington, Saratoga and Brandywine) and one business center (the Charleston). At December 31, 1993, and 1994, the Lexington and Brandywine office buildings were 100% leased and the Saratoga was 97% and 96% leased, respectively.
The income growth from office buildings owned all three years in 1992, 1993 and 1994, was due to increases in rental rates and improved occupancy levels at 7700 Leesburg Pike. This growth was partially offset by a substantial increase in vacancy during 1994 at the 1901 Pennsylvania Avenue property, which lost 3 major tenants resulting in an occupancy level of 52% at year end. The Trust commenced a major capital improvement program at 1901 Pennsylvania Avenue in 1994 in order to assure the expeditious lease-up of this property (refer to Item 2, Office Buildings).
The increase of 16% in real estate rental revenue from 1992 to 1993 for office buildings was primarily attributable to the June and July 1992 acquisitions of Arlington Financial Center and 515 King Street, respectively.
During 1994, WRIT's apartment group showed increases of 4% in revenues and 7% in operating income, due to the combination of a 2% increase in rental rates and an overall increase in occupancy to 97% in 1994 from 95% in 1993, combined with an increase in operating expenses of only 1%.
RESULTS OF OPERATIONS - (continued)
During 1994, WRIT's shopping center group showed an increase of 5% in revenues and 3% in operating income, due to the acquisition of the Shoppes at Foxchase in June of 1994.
Excluding the Shoppes at Foxchase, shopping center revenue was down 1% and operating income down 4%. Major elements of the decrease in operating income included a 10% increase in overall operating expenses and the vacancy at Jenifer Mall to accommodate renovations. (Refer to Item 2, Shopping Centers.) WRIT has a lease with a national retail discount chain for a majority of the Jenifer Mall vacancy. This lease is scheduled to commence in May, 1995.
The 40% increase in real estate rental revenue from 1992 to 1993 for shopping centers was due primarily to the acquisition of Montgomery Village Shopping Center on December 30, 1992. Operating income increased 37% from 1992 to 1993 as a result of that acquisition as well.
During 1994, WRIT's business center group showed increases of 17% in revenues and 15% in operating income, due to the acquisition of the Charleston business center in November of 1993 and major occupancy increases at the Fullerton and Port Royal properties, only slightly offset by a vacancy increase at the V Street property.
For 1994, excluding the Charleston business center, business center revenue was up 4% and operating income was up 3%. In 1994, rental rates for these business centers declined 1% from 1993, but overall occupancy increased to 94% in 1994 from 89% in 1993.
The 1% decrease in business center real estate rental revenue from 1992 to 1993 was the result of a decline in occupancy levels. Average occupancy in 1992 was 93% and this declined to 89% in 1993.
The average occupancy (for the entire real estate portfolio) of 95% for the year 1993 remained at 95% for 1994. This is compared to 93% for 1992.
Real estate operating expenses as a percentage of revenue was 31% for 1994 as compared to 30% for 1993 and 1992. This increase is primarily attributable to the fact that operating expenses as a percentage of revenues are higher for office building properties than all other property types within the portfolio. WRIT's percentage of office buildings within its portfolio has increased from 38% at December 31, 1993 to 43% of the portfolio as of December 31, 1994. This 13% increase is primarily attributable to the acquisition of Heritage Business Park (three office buildings) in November, 1993 and Tycon II and III office buildings in June, 1994.
Other income declined from 1992 to 1993 due to substantial funds previously invested in marketable securities being utilized for 1993 acquisitions and a reduction in market interest rates earned on WRIT's marketable investment securities.
RESULTS OF OPERATIONS - (continued)
In 1994, other income (expense) became an expense/charge to operations in 1994 as a result of the following:
a) A decline in interest income from 1993 to 1994 due to the use of these funds for properties acquired in 1994.
b) At March 31, 1994, a marketable investment security was written down to its estimated realizable value, resulting in a charge of $799,571 to operations in the first quarter of 1994. This security was sold in May, 1994 for its March 31, 1994 realizable value.
c) During 1994, WRIT was audited by a State Unclaimed Property Division resulting in an assessment to WRIT of $270,521. This amount was charged to operations in the fourth quarter of 1994.
Interest expense was $614,162 for the year of 1994 as a result of the $9,000,000 advance on the credit commitment on June 1, 1994 for the acquisitions of Tycon Plaza and an additional advance of $9,000,000 for the acquisition of The Shoppes of Foxchase on June 30, 1994. (See Note F). Interest expense for 1993 was $61,462. This declined significantly from interest expense of $454,382 for 1992. In 1992, WRIT prepaid four of its mortgages, and in April, 1993, WRIT prepaid its only remaining mortgage.
CAPITAL RESOURCES AND LIQUIDITY
WRIT has utilized equity share offerings, long-term fixed interest rate debt, lines of credit and cash flow from operations for its capital needs. The WRIT philosophy has been to acquire real estate with strong growth potential and to improve its real estate holdings through carefully planned additions or improvements to generate higher rental income, to reduce operating expenses or both.
In February 1994, WRIT purchased land adjacent to its Wheaton Park shopping center for a contract purchase price of $173,000. WRIT plans to add additional retail and parking space to the center. On June 1, 1994 WRIT acquired Tycon Plaza in Vienna, Virginia at a contract purchase price of $21,250,000. Tycon Plaza consists of two office buildings containing approximately 293,000 rentable square feet. WRIT borrowed $9,000,000 and invested $12,800,000 of its own funds for the purchase. On June 30, 1994 WRIT acquired The Shoppes at Foxchase in Alexandria, Virginia at a contract purchase price of $8,800,000. The center has approximately 128,000 rentable square feet. WRIT borrowed $9,000,000 for this acquisition.
Cash and marketable investment securities totaled approximately $2,736,000 at December 31, 1994. In addition to the 1994 acquisitions, 1994 capital improvements were approximately $5,787,000. Capital improvements to WRIT properties in 1993 and 1992 were approximately $4,712,000 and $3,410,000, respectively.
During 1993 and 1992, WRIT paid $1,088,000 and $9,715,000, respectively, in the retirement of its last five mortgages.
CAPITAL RESOURCES AND LIQUIDITY - (continued)
External sources of capital are available to WRIT from its existing unsecured credit commitments as described in Notes F and K to the financial statements and management believes that additional sources of capital are available from selling additional shares and/or the issuance of debt.
Cash flow from operating activities has been more than adequate to meet dividend requirements.
Management believes that it has the liquidity and the capital resources necessary to meet all of its known obligations and to make additional property acquisitions when appropriate. WRIT continues to pursue acquisition opportunities and capital improvement projects to enhance long-term growth.
WRIT is a qualified real estate investment trust (REIT), and is not required to pay income taxes since it distributes substantially all of its real estate trust taxable income to shareholders.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed under Item 14(a) and filed as part of this report on the pages indicated.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. 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") not 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.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is hereby incorporated herein by reference to WRIT's 1995 Annual Meeting Proxy Statement.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is hereby incorporated by reference to WRIT's 1995 Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is hereby incorporated by reference to WRIT's 1995 Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is hereby incorporated by reference to WRIT's 1995 Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements: The following Financial Statements of Washington Real Estate Investment Trust and Report of Independent Accountants are included in this Report:
Report of Independent Accountants.
Balance Sheets at December 31, 1994 and 1993.
Statements of Operations for the years ended December 31, 1994, 1993 and 1992.
Statements of Changes in Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992.
Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992.
Notes to Financial Statements.
2. Financial Statements: 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.
Schedules not listed above have been omitted because they are not applicable or are not required or the information to be set forth therein is included in the Financial Statements or Notes thereto.
3. Exhibits: The exhibits required by Item 601 of Regulation S-K have been filed with previous reports by the registrant and are herein incorporated by reference thereto.
The registrant's proxy statement is to be filed with the Commission on or about April 21, 1995.
(b) Reports on Form 8-K: Form 8-K was filed on June 30, 1994 with the Securities and Exchange Commission.
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
By / s / Edmund B. Cronin, Jr. -------------------------------------
Date: March 30, 1995 Edmund B. Cronin, Jr. President and Chief Executive Officer
Pursuant to the requirements of the Security and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Report of Independent Accountants
To the Trustees and Shareholders of Washington Real Estate Investment Trust
In our opinion, the financial statements listed in the index appearing under item 14(a)(1) and (2) on page 14 present fairly, in all material respects, the financial position of Washington Real Estate Investment Trust at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Trust's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Washington, D.C. February 22, 1995
WASHINGTON REAL ESTATE INVESTMENT TRUST
BALANCE SHEETS
See accompanying notes to financial statements
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
See accompanying notes to financial statements
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
See accompanying notes to financial statements
WASHINGTON REAL ESTATE INVESTMENT TRUST
STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements
WASHINGTON REAL ESTATE INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS
NOTE A: ACCOUNTING POLICIES Washington Real Estate Investment Trust (WRIT) operates in a manner intended to enable it to qualify as a real estate investment trust under the Internal Revenue Code (the "Code"). According to the Code, a trust which distributes at least 95% of its real estate trust taxable income to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. Accordingly, no provision for Federal income taxes is required.
Cash equivalents consist of investments readily convertible to known amounts of cash generally with original maturities of 90 days or less.
Residential properties are leased under operating leases with terms of generally one year or less, and commercial properties are leased under operating leases with terms of generally three to five years. WRIT recognizes rental income from its residential and commercial leases when earned, which is not materially different than revenue recognition on a straight line basis.
Buildings and improvements are depreciated on a straight-line basis over estimated useful lives not exceeding 50 and 30 years, respectively. Depreciation expense for Federal income tax purposes differs from that reported for financial statement purposes due to the use of different lives and depreciation methods. As of December 31, 1994 the net assets as reported in WRIT's financial statements exceeded the net basis for Federal Income Tax purposes by 14,571,577 due to a lower basis of certain real estate assets acquired by tax free exchanges.
Cash equivalents, marketable investment securities, mortgage note receivable, rents and other receivables, prepaid expenses and other assets, accounts payable and other liabilities, tenant security deposits, advance rents and line of credit payable are carried at amounts which reasonably approximate their fair values.
Disclosure about fair value of financial instruments are based on pertinent information available to WRIT as of December 31, 1994. Although WRIT is not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the carrying amounts.
NOTE B: MARKETABLE INVESTMENT SECURITIES Marketable investment securities are considered available for sale and at December 31, 1994 and 1993, the carrying value approximates market. Marketable investment securities, including accrued interest, consist of the following:
At December 31, 1994, one hundred percent (100%) of the portfolio matures in less than one year.
WASHINGTON REAL ESTATE INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS
NOTE C: REAL ESTATE INVESTMENTS WRIT's real estate investment portfolio, at cost, consists of properties located in Maryland, Washington, D.C., Virginia and Delaware as follows:
On June 1, 1994, WRIT acquired Tycon Plaza, two office buildings with approximately 293,000 square feet in Vienna, Virginia, at a contract purchase price of $21,250,000. On June 30, 1994 WRIT acquired The Shoppes of Foxchase, a shopping center located in Alexandria, Virginia at a contract purchase price of $8,800,000. The center has approximately 128,000 rentable square feet. In June 1993, WRIT sold its headquarters building for $1,050,000 and recognized a gain of $741,217. Proceeds received were $176,000 in cash and $874,000 in a mortgage note receivable. The mortgage bears interest at 9% and matures in June 1996. Principal payments received in 1993 totaled $74,000. Interest only is payable monthly from December 1993 until June, 1996. At that time, all accrued and unpaid interest and principal are due in full. At December 31, 1994, the fair value of the mortgage note receivable approximates its carrying amount.
NOTE D: MORTGAGES During 1993, WRIT paid in full its only remaining mortgage, which had a principal balance of $1,115,193 at December 31, 1992. The mortgage had an interest rate of 8.5%. Interest paid on mortgages during the years ended December 31, 1993 and 1992 was $61,462 and $454,382, respectively.
NOTE E: SHORT - TERM BANK LOAN WRIT borrowed $21,000,000 for the purchase of Montgomery Village Shopping Center on December 29, 1992. The loan was repaid on January 22, 1993 from the proceeds of the sale of certain marketable investment securities which had served collateral for the loan. The interest income and realized gain from the sale of the marketable investment securities exceeded the 4.6% fixed interest paid to the bank for the 25 days the loan was outstanding.
NOTE F: LINE OF CREDIT PAYABLE On June 1, 1994, WRIT obtained an unsecured interim credit commitment from a bank in the amount of $20,000,000 for the express purpose of purchasing income producing property. On June 1, 1994, WRIT borrowed $9,000,000 on this credit facility for the acquisition of Tycon Plaza and on June 30, 1994, WRIT borrowed an additional $9,000,000 for the purchase of The Shoppes of Foxchase. Interest only was payable monthly on the unpaid principal balance at the rate of LIBOR plus 1.10%. At June 30, 1994 this rate was approximately 5.7%. On August 26, 1994, the $20,000,000 interim credit commitment was replaced with an unsecured credit commitment of $25,000,000 and the outstanding advances of $18,000,000 were transferred to this new commitment. Borrowings of $18,000,000 as of December 31, 1994 bear interest at the rate of 6.3125% until May 25, 1995. Interest only is payable monthly, in arrears, on the unpaid principal balance. All unpaid interest and principal are due August 25, 1995 and can be prepaid prior to this date without any pre-payment fee. Any new advances shall bear interest at LIBOR plus a spread based on WRIT's interest coverage ratio.
WASHINGTON REAL ESTATE INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS
NOTE F: LINE OF CREDIT PAYABLE - (continued) This credit agreement provides the option to WRIT to convert any advances or portions thereof into a term loan at any time after February 26, 1995 and prior to August 25, 1995. The principal amount of each term loan, if any, shall be repaid on August 26, 1998. Such term loan(s) may be prepaid subject to a prepayment fee.
The $25,000,000 credit commitment, requires WRIT to pay the lender an unused commitment fee at the rate of 0.25% per annum, on the amount by which $25,000,000 exceeds the balance of outstanding advances and term loans. This fee is payable monthly beginning September, 1994 until August 25, 1995. This commitment also contains certain covenants which WRIT is required to meet periodically.
NOTE G: SHARES OF BENEFICIAL INTEREST AND DIVIDENDS Net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the year. The weighted average shares outstanding were 28,239,420, 28,223,307 and 26,910,046 in 1994, 1993 and 1992, respectively.
The following is a breakdown of the taxable percentage of WRIT's dividends for 1994, 1993 and 1992, respectively:
NOTE H: SHARE OPTIONS WRIT maintains an Incentive Share Option Plan under which up to 1,348,829 shares may be awarded to eligible employees. 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. Activity under the plan is summarized below:
WASHINGTON REAL ESTATE INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS
NOTE H: SHARE OPTIONS - (continued) On June 27, 1990, the then President/Chairman of the Trustees was granted non-qualified share options for 150,000 shares at $11.71, the per share market price on that day. These options are exercisable 20% at date of grant and 20% upon each anniversary over a four year period. Share options of 60,000 in 1991 and 30,000 in 1992 were exercised leaving 60,000 remaining to be exercised at December 31, 1994.
On December 14, 1994, the President/Chief Operating Officer of WRIT was granted non-qualified share options for 9,091 shares at the June 1, 1994 market price of $19.25. These shares are exercisable 50% after the first anniversary date of December 14, 1995 and 50% exercisable after the second anniversary date of December 14, 1996.
NOTE I: PENSION PLAN WRIT maintains a noncontributory defined benefit pension plan for all eligible employees. Benefits under the plan are generally based on years of service and final average pay. The pension assets include U.S. Government Agency obligations, U.S. Treasury money market fund and interest-bearing certificates of deposit. Pension costs are accrued and funded annually from entry date in the plan to projected retirement date and include service costs for benefits earned during the period and interest costs on the projected benefit obligation less the return on plan assets. Pension costs were $90,000, $164,000 and $293,000 in 1994, 1993 and 1992, respectively. The actual return (loss) on plan assets was $27,000, $(31,000) and $19,000 for 1994, 1993 and 1992 respectively. The assumed long-term rate of return is 8.00%. Plan obligations in excess of amounts permitted under the Tax Equity and Fiscal Responsibility Act of 1982 are accrued as a liability of WRIT and included in total pension cost. The funded status of the plan is:
The liabilities are calculated using an assumed rate of compensation increase of 5.00% and an assumed discount rate of 8.00% for December 31, 1994 and 1993.
NOTE J: RENTALS UNDER OPERATING LEASES Noncancelable commercial operating leases provide for minimum rental income during each of the next five years of approximately $26,555,361, $20,784,277, $15,003,482, $10,222,438, $7,790,060 and $13,832,568 thereafter. Apartment leases are not included as they are generally for one year. Many of these commercial rentals increase in future years based on changes in the Consumer Price Index. Contingent rentals from the shopping centers, based on a percentage of tenants' gross sales, were $428,000, $447,000 and $480,000 in 1994, 1993 and 1992 respectively.
WASHINGTON REAL ESTATE INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS
NOTE K: SUBSEQUENT EVENTS
On January 26, 1995, WRIT acquired an office building, 6110 Executive Boulevard, with 200,000 net rentable square feet of office plus a three-story parking deck in Rockville, Maryland, for a contract purchase price of $16,380,000. WRIT borrowed $16,000,000 on a short-term bank loan from a bank at the bank's then prime-rate of 8.50%. This loan matures 45 days from January 25, 1995 and is to be replaced by an unsecured line of credit from the same bank at an anticipated lower rate of interest.
WASHINGTON REAL ESTATE INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Notes:
(a) The site of Munson Hill Towers is rented under a lease requiring annual payments of $22,590 until the expiration of the lease in 2060.
(b) The purchase of real estate investments has been divided between land and buildings and improvements on the basis of valuations by the Trust.
(c) The useful life shown is for the main structure. Building improvements are depreciated over various useful lives ranging from 3 to 50 years.
(d) At December 31, 1994 total land, buildings and improvements are carried at $191,806,156 for federal income tax purposes.
(e) At December 31, 1994, there were no encumbrances on any of the properties.
(f) Residential properties are presented in gross square feet.
WASHINGTON REAL ESTATE INVESTMENT TRUST SCHEDULE III SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION Continued
The following is a reconciliation of real estate assets and accumulated depreciation for the years ended December 31, 1994, 1993, and 1992:
(a) Total depreciation charged to income in 1994, 1993, and 1992, respectively, consists of the following:
WASHINGTON REAL ESTATE INVESTMENT TRUST MORTGAGE NOTE RECEIVABLE SCHEDULE IV
(1) Reconciliation of Carrying Amount:
(2) Aggregate cost is equal to cost for Federal income tax purposes.
SUPPLEMENTARY INFORMATION: QUARTERLY FINANCIAL RESULTS (Unaudited)