WASHINGTON REAL ESTATE INVESTMENT TRUST
ANNUAL REPORT 2000
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Mission Statement Washington Real Estate
Investment Trust, founded in 1960 and
headquartered in Rockville, Maryland, invests in
a diversified range of income-producing property types.
Our purpose is to acquire and manage real estate
investments in markets we know well and protect our
assets from single property-type value fluctuations
through diversified holdings. Our goal is to continue to
safely increase earnings and shareholder value.
Performance This approach has resulted in
WRIT achieving 35 consecutive years
Table of Contents
Selected Financial and Operating Data ....... Inside Front Cover
Letter to Shareholders ............................................................. 1
Operating Performance ........................................................... 2
Greater Washington Economy and Real
Estate Markets .................................................................... 4
Funds From Operations .......................................................... 6
Acquisitions & Dispositions .................................................... 7
Expansions, Major Renovations & Capital Improvements ..... 8
WRIT Properties .................................................................... 10
of increased earnings per share, 30 consecutive years of
Management's Discussion and Analysis ................................ 12
increased dividends per share
Financial Section ................................................................... 16
and 28 consecutive years of increased
Report of Independent Accountants .................................... 28
funds from operations per share.
Share Performance ................................................................ 28
Selected Financial and Operating Data
(In millions, except per share amounts)
For the Year
Real Estate Revenue
Income before Gain on Sale of Real Estate
Net Income
Funds From Operations
Cash Dividends Paid
2000
$ 135
42
45
64
44
1999
$ 119
36
44
56
41
1998
$ 104
34
41
50
40
1997
$ 79
30
30
41
36
1996
$ 66
28
28
36
33
Average Shares Outstanding
36
36
36
33
32
Per Common Share
Income before Gain on Real Estate
Net Income
Funds From Operations
Cash Dividends Paid
At Year End
Total Assets
Total Debt
Shareholders’ Equity
$1.16
1.26
1.79
1.23
$ 632
351
259
$1.02
1.24
1.57
1.16
$ 608
330
257
$ .96
1.15
1.39
1.11
$ 559
283
254
$ .90
.90
1.23
1.07
$ 469
203
252
$ .88
.88
1.13
1.03
$ 318
113
196
On the Cover: The graph on the cover reflects the total return (dividends plus
price appreciation with all dividends reinvested) of WRIT, the NASDAQ Composite
Index, the Dow Jones Industrials Average, the S&P 500 and the Morgan Stanley
REIT Industry for the three years ended December 31, 2000.
0
0
0
2
-
6
9
9
1
e
r
a
h
S
r
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P
O
F
F
$1.80
$1.70
$1.60
$1.50
$1.40
$1.30
$1.20
$1.10
$1.00
$1.79
$1.57
$1.39
$1.23
$1.13
1996 1997 1998 1999 2000
To Our Shareholders
Dear Shareholder,
In my report last year I commented that sustained earnings growth is ultimately reflected in stock price performance. The REIT industry
along with others in 1999 received “no respect” for their operating performance, as they stood in the shadow of emerging technology
companies. We have now come full circle. REIT’s in general and WRIT in particular are being rewarded for their historical sustained earnings
growth as reflected by this year’s stock performance. In the meantime, for many operational and economic reasons technology stocks are
being hammered. Someday those companies which survive will also ultimately be measured by sustained earnings growth combined with
future potential, rather than hype.
WRIT’s year 2000 total return exceeded all published real estate indices, as well as the Dow Jones, NASDAQ and S&P 500. Looking back at the stock performance over the
last 30 years, it is clear to me that WRIT should be included in everyone’s balanced investment portfolio. With regard to this 30 year stock performance, be sure to look at the graph
on the back cover of this report. The real estate markets have been and continue to be strong. Never resting on our laurels, we subscribe to the “get better or get beat” axiom.
WRIT’s mission is stated on the inside cover of this report. It is achieved through our business plan. First and most
important is that the Trustees and Management understand and agree with the plan, and that the resources are available
to carry it out. The plan requires strategic use of capital, investing to maximize return on invested capital, limiting single
asset exposure through real estate asset allocation, attention to value added opportunities, rotation of mature assets,
hands on property management and leasing, attention to customer needs, attracting and retaining high quality personnel
supported by in place education programs, and state of the art technology. By adhering to the plan and carefully
observing changing market conditions, earnings, dividends and share value should all increase. The trick is to do it
every year, and do it better.
Total Returns for One Year
Ended December 31, 2000
100%100%
75%75%
68.1%
50%50%
25%25%
0%0%
-25%-25%
28.7%
-6.2%
-9.1%
At this time the national economy is slowing and this will undoubtedly impact the real estate industry. What
does that mean to WRIT in its market place? Based on most economic models a so-called soft landing, not a recession,
is expected. Historically the Greater Washington-Baltimore region has out performed the national economy in all
economic cycles. I see no reason today why history will not repeat itself. Greater Washington’s economic engines in
a softening economy as well as during growth periods are the Federal Government and the technology industry. The
latter has a risk profile substantially lower than many of those on the West Coast and in New England. One aspect of this
lower risk profile is that the Greater Washington-Baltimore technology sector achieves 38% of its sales to the federal
government, as compared to 5% in Silicon Valley. That, along with the fact that federal government spending will
continue to grow, provides a platform for a soft landing in this region.
During an economic slow down, industry as a whole, including real estate, is faced with capital market constraints.
These limitations include more restrictive credit underwriting, increased equity investment, and a reduction in speculation.
In an economic downturn, real estate vacancy rates escalate and rental rate growth moderates or declines. There is also
a high probability that property acquisition costs will stabilize rather than increase. Speculative development risk
increases in a soft or declining economy but this is not a significant part of WRIT’s business.
WRIT is well positioned in this market place. Our diversified portfolio will continue to provide us with stable
cash flows protecting us from the volatility associated with single property type portfolios. Additionally, our future
performance will enjoy continued success due to the strength of our locations, in place below-market rents, leases with
embedded rental escalations, stable markets and limited speculative development. Therefore, I fully expect we will
extend WRIT’s record of 35 consecutive years of increased earnings per share, 30 consecutive years of increased
dividends per share and 28 years of increased funds from operations per share.
On behalf of the shareholders and Trustees, I want to thank all of WRIT’s officers and employees for your
dedication and hard work. The following pages provide the financial and operating details for the year 2000 and an
insight to our value added projects for 2001 and 2002.
Your support is appreciated and I look forward to our continued success story.
-39.2%
Best Regards,
Edmund B. Cronin, Jr.
Chairman of the Board, President and Chief Executive Officer
1
Operating Performance
15%15%
WRITWRIT
14.6%
REIT Industry
REIT Industry
13.0%
13%13%
12.9%
11%11%
10.8%
9%9%
7%7%
9.0%
9.2%
7.8%
19981998
1999
1999
2000
2000
3 Year
3 Year
Average
Average
Source for REIT Industry data: SNL Securities
13.5%
WRIT vs. REIT Industry FFO per Share Growth
1998 - 2000
FFO Per Share growth is the most widely recognized earnings performance
measure in the REIT Industry. As reflected in the accompanying graph, WRIT
has out-performed industry average FFO per share growth by over 400 basis
points over the last three years. The extent of our out-performance has
increased in each of the last three years. WRIT’s average 13.5% FFO Per Share
growth over the last three years is one of the highest in the industry.
13%13%
12..1%
12%12%
11%11%
WRIT vs. REIT Industry
Average Return on Invested Capital by Sector
Q1 1997 - Q3 2000
10.3%
10%10%
10.0%
WRIT’s strong real estate markets combined with the effective deployment of capital
and our hands on management, leasing and value added focus, continue to result in industry
leading performance as measured by earnings growth and Return on Invested Capital
(ROIC). ROIC is an important measure of any company’s performance.
Credit Suisse First Boston has tracked REIT Industry Returns on Invested Capital over
15 quarters from Q1 1997 through Q3 2000, with the results reflected in the accompanying
graph. As shown, WRIT’s ROIC over the period has averaged approximately 200 basis
points higher than both the REIT Industry overall and each of the four REIT Industry
Sectors (in which WRIT invests). WRIT’s average 12.1% ROIC ranks 7th out of 122 companies
studied and has been achieved utilizing what we believe is the lowest risk operating
strategy in the industry.
9%9%
8%8%
9.7% 9.7%
9.5%
WRITWRIT REIT
REIT
Industry
Industry
Overall
Overall
OfficeOffice
Retail
Retail
Centers
Centers
Multi-
Multi-
Family
Family
Industrial
Industrial
REIT Industry Sector Averages
REIT Industry Sector Averages
2
Source: Credit Suisse First Boston
WRIT vs. REIT Industry Core Portfolio
Net Operating Income Growth 1998 - 2000
Another common REIT Industry performance measure is Core Portfolio Net
Operating Income (NOI) Growth or Same Store NOI growth. NOI represents real
estate portfolio income before interest expense, depreciation and corporate general
and administrative expenses.
10%
9.6%
WRITWRIT
REIT Industry
9.0%
8.5%
Core Portfolio NOI Growth excludes income attributable to new acquisitions and
developments, and is therefore a good measure of how a company’s existing portfolio
performed in the most recent period as compared to the prior period.
8%
WRIT’s Core Portfolio NOI growth is among the highest in the industry and
dramatically higher than the REIT Industry overall.
6.8%
39%39%
36%36%
6%
6.0%
5.5%
5.6%
5.3%
38.2%
37.4%
Operating Expenses and G&A as a
Percentage of Revenue
A measure of how well a company is managing its
expenses is its ratio of expenses to revenue. As reflected in
the accompanying graph, WRIT’s operating expenses plus
G & A, as a percentage of revenues, has declined significantly
over the last five years.
4%
1998
1999
2000
3 Year
Average
36.4%
34.9%
34.0%
2001 Operating Income by Sector
Retail - 15%
Medical Office - 4%
Industrial - 16%
33%33%
19961996 19971997 19981998 19991999 20002000
Multifamily - 17%
Commercial Office - 48%
3
Greater Washington Economy and Real Estate Markets
REGIONAL ECONOMY
The Greater Washington, D.C. economy is a unique blend of “old
economy” service companies and “new economy” high technology
growth companies, anchored by the very significant Federal
Government presence. On the growth side:
• Washington Dulles International Airport at 25.8% and Baltimore-
Washington International Airport at 16.7% were ranked Nos. 1 and
2 in passenger growth in the U.S. in 1999, the most recent year for
which data is available.
•
The Greater Washington region ranks 1st in the U.S. in high-tech
and bio-tech employment.
• George Mason University Center for Regional Analysis (GMU) projects
economic growth in the region of 4.1% in 2001, but still very strong
and substantially higher than is projected for the U.S. as a whole.
38% of Washington area
technology sales are to
the Federal Governement
While growth is very important, from an investment perspective,
economic stability is equally important. In this context, no other region
in the country can compete with the Greater Washington region:
• According to GMU, approximately 38% of Washington area
technology sales are to the Federal government. This compares
to 5% in Silicon Valley.
•
Federal government spending accounts for 31% of the area’s
Gross Regional Product
•
•
Federal spending in this region has increased every year for 20
consecutive years, even in years when federal spending has
decreased nationally.
The GMU projects Federal spending in the region to grow by 3%
in 2001.
Federal spending accounts
for 31% of the Washington area’s
Gross Regional Product
and has increased every year for 20
consecutive years
• As reflected in the box at the bottom of this page, Washington
area technology firms are concentrated in more stable sub-sectors
than other technology centered regions.
•
The Greater Washington region is not exposed to new or old
economy manufacturing fluctuations.
• Greater Washington is home to 32 colleges and universities, several
of which have world class reputations at both the undergraduate
and graduate levels.
Clearly in the Greater Washington region, high tech growth
combined with Federal government stability will continue to create
one of the most favorable economic environments in the U.S. This
will further enhance the value of WRIT’s portfolio and continue to
create future growth opportunities.
Washington Area Technology Firms
San Francisco Area Technology Firms
Internet portals, service providers and
content providers
Electronic designers: web pages, games,
animation and entertainment
Network applications
Software designers
Telecomm
Bio-med
Hardware manufacturers
Dot.com retailers
38% of sales are to the Federal Government
5% of sales are to the Federal Government
4
REAL ESTATE MARKETS
The combination of economic growth and stability in the Greater
Washington region translates into very strong real estate market
performance as reflected in the sector data provided by Delta Associates/
Transwestern Commercial Services (Delta) below.
Office Buildings - The Greater Washington Metro area year 2000
office market performance was the best ever recorded.
• Net absorption totaled 15.6 million square feet, up from 11 million
square feet in 1999 and the highest of any metro area in the U.S for
the second straight year.
15.6 million square feet of Washington
area office space was absorbed during 2000,
the most of any metro area in the
U.S. for the second straight year
•
The overall vacancy rate is projected to rise to between 7% and
8% over the next two years due to new development and an
anticipated slow down in economic growth.
• Rents are projected to continue to rise over the next two years,
albeit at a slower rate than in 2000.
Multifamily Properties - In 2000, the Washington Metro area
apartment market produced very strong rental rate growth as a result
of continued extraordinarily low vacancy rates.
The .7% vacancy rate at year end 2000 in
Washington area Class B apartments
was the lowest recorded since World War II
•
The .7% vacancy rate at year end 2000 in Class B apartments was
the lowest recorded since World War II.
• Class B apartment rents rose over 15%.
• Direct vacancy was 3.6% (4.3% with sublet space included) at
year end 2000 down from 5.0% at year end 1999 and 3.8% at the
end of Q3 2000.
• Rents increased by an average of 11% in the region with some
submarkets (Tysons/Dulles and Bethesda/I-270 Corridors) up 20%.
• While nearly 26,000 units are in the development pipeline for
delivery by December, 2003, new demand for approximately
22,000 units is projected over that period. As a result the vacancy
rate is projected to increase to 4.7% at December, 2003 – still
very low by historical standards.
• Of the 21.3 million square feet of space under construction at
• Rents are projected to continue to rise at 5% to 10% per annum
year end 2000, 53% was pre-leased.
over the next two years.
The Strength of the Washington Area Markets Has Contributed
to Record Occupancy Levels and Rent Increases for WRIT
WRIT Average Commercial Rent Increase
1998 - 2000
WRIT Overall Portfolio Occupancy Levels
1998 - 2000
17.8%
15.4%
18%18%
16%16%
14%14%
12%12%
10%10%
13.0%
97%97%
96%96%
95%95%
94%94%
96.8%
96.4%
95.5%
19981998
1999
1999
2000
2000
1998
1998
1999
1999
2000
2000
5
Greater Washington Economy and Real Estate Markets (cont’d)
Grocery-Anchored Retail Centers – The Greater Washington
metro area market continues to be a strong retail market due to:
•
•
The highest per capita income of any major metro area in
the U.S.
The high growth rate – 25,000 new households per year
since 1993.
• Demand outstripping new supply since the early 1990’s.
•
The stability of the regional economy.
As a result of these factors:
• Overall market vacancy in grocery-anchored retail centers fell to
2.2% at year end 2000 from 2.7% at year end 1999.
• Rents for in-line tenants increased by 6.3% in 2000.
•
Strong performance is expected to continue as the development
pipeline is inadequate to meet demand.
Industrial/Flex Properties – The Greater Washington-
Baltimore industrial market is experiencing its strongest conditions ever:
• Year 2000 net absorption of 9.8 million square feet was the highest
since the mid-1980’s.
Greater Washington Area Occupancy Rates
at December 31, 2000:
Office
Multi-Family
Retail
Industrial
95.7%
99.3%
97.8%
92.2%
• Vacancy was 7.8% at year end 2000, the lowest since the
early 1980’s.
• Average industrial rents rose 7.5% in the region while Northern
Virginia Flex/R&D rents increased 20%.
• Of the 8.5 million square feet of industrial space under
construction at year end 2000, 22% was pre-leased.
•
The regional industrial vacancy rate is projected to increase slightly
to just over 8% by year-end 2001.
Funds From Operations
In accordance with the National Association of Real Estate Investment Trusts’ definition of Funds From Operations (FFO), as clarified
in 1999, WRIT’s calculation of FFO for 1998 - 2000 is as follows:
(In thousands, except per share amounts)
Net Income per GAAP financial statements
$45,139
$44,301
$41,064
Gain on sale of real estate
(3,567)
(7,909)
(6,764)
2000
1999
1998
Losses (gains) on restructuring of debt,
or other extraordinary items
Subtotal
Plus:
Depreciation and amortization
of real estate assets
Funds From Operations
Funds From Operations Per Share (basic)
Funds From Operations Per Share (diluted)
-
-
-
41,572
36,392
34,300
22,723
$64,295
$ 1.80
$ 1.79
19,590
15,399
$55,982
$49,699
$ 1.57
$ 1.39
$ 1.57
$ 1.39
6
Acquisitions & Dispositions
ACQUISITIONS
Wayne Plaza, a nine–story office building containing 91,127 rentable
square feet and a two–level underground parking garage, was acquired for
$7.7 million. Wayne Plaza is projected to produce a 10.6% return on
investment in WRIT’s first year of ownership and at $85 per square foot, the
property was acquired at substantially below replacement cost.
unoccupied at date of acquisition, but WRIT has since leased the entire
building to Work Bench Furniture. WRIT’s holdings on the 800 South
Washington Street Block now total 42,326 square feet of retail space, 5,600
square feet of office space and 2,800 square feet of warehouse space. These
holdings are 100% leased to 15 tenants including Williams-Sonoma, Laura
Ashley, Storehouse Furniture and Next Day Blinds. Over 100,000 people,
with an average household income of over $86,000, live within a three–mile
radius of the property .
Wayne Plaza was 89.7% leased at acquisition and 98.5%
leased at December 31, 2000.
Wayne Plaza is located at 962 Wayne Avenue in Silver Spring, Maryland,
across from the world headquarters of Discovery Communications and the
Downtown Silver Spring Redevelopment Project, both of which are currently
under construction.
Wayne Plaza was 89.7% leased at acquisition and 98.5% leased at
December 31, 2000. The acquisition provides WRIT with an extraordinary
value–added opportunity. Despite its prime location, deferred maintenance
has kept rents below market. WRIT has already begun to invest approximately
$2,000,000 in the building to renovate and replace aging building systems
including HVAC equipment, elevators and building cosmetics. These capital
improvements and the major redevelopment of the area, combined with a
focused hands on property management and leasing program, have resulted
in increased occupancies and revenue earlier than projected.
833 South Washington Street, a mixed–use retail/office building
and an adjoining parking lot in Alexandria, Virginia was acquired for $1.35
million. With this acquisition, WRIT now owns 100% of the frontage of the
800 Block of South Washington Street and the adjoining off–street parking.
The 6,026 square foot building and .24 acres of land are strategically
located in historic Old Town Alexandria, Virginia. The building was
Over the first two years, leases for 31% of Courthouse Square’s
rentable area expire at rents currently 36% below market.
Courthouse Square, an office/retail complex in Old Town Alexandria,
Virginia, was acquired for $17 million. The 113,000 rentable square foot
building, with 139 parking spaces, was 98% leased at acquisition. At a purchase
price of $150 per square foot, the building was acquired at a substantial
discount to replacement cost.
WRIT expects this acquisition to produce a first year cash return on
investment of 10.5%. This initial return is expected to significantly increase
as leases for 31% of the building’s rentable area expire over the next two
years, at rents currently 36% below market.
Courthouse Square is located in the heart of historic Old Town Alexandria,
Virginia, adjacent to the City of Alexandria Courthouse and one block west
of the Alexandria City Hall. Leasing and operational synergies are anticipated
at Courthouse Square as it is located directly across from WRIT’s 515 King
Street property, a 78,140 square foot office building.
DISPOSITIONS
In 2000, WRIT sold the Prince William Plaza and Clairmont Shopping
Centers for a total of $5.8 million, resulting in a gain of approximately $3.1
million. Since the commencement of WRIT’s asset disposition program in
1998, WRIT has sold nine properties for a total of $39.6 million, yielding a
total gain of $18.2 million. In each case the sales proceeds were invested, on
a tax deferred basis, in properties which we believe will have substantially
stronger earnings growth more in line with WRIT’s long term objectives.
7
Expansions, Major Renovations & Capital Improvements
WRIT has developed a strong reputation for finding creative ways
to improve the performance and add value to newly acquired and
existing assets. xRecent such efforts have included:
•
•
•
•
70,000 square feet of office space built on top of the pre-existing
structured parking garages at 7700 Leesburg Pike and 7900
Westpark Drive
Bradlee Shopping Center renovation
20,000 square foot Wheaton Park Shopping Center expansion
conversion of the 12,000 square foot two story theater space at
Chevy Chase Metro Center to two floors of retail space containing
22,600 square feet, leased at double the per square foot rate.
WRIT invested $17.5 million in these
recent projects and earned an average cash
return on investment of over 16%.
In 2000, WRIT completed the renovation
of the 790,000 square foot Northern Virginia
Industrial Park (NVIP). NVIP was acquired
for $30.4 million with a projected initial
return on investment of 8.6%. The property
had been physically and operationally
neglected and the “Before Renovation”
photos on this pages provide a glimpse of
the condition of the property at acquisition.
Upon acquisition, NVIP was only 83%
occupied at rents that ranged from 15% to
25% below market. This provided WRIT a
unique opportunity.
The return on investment at Northern Virginia
Industrial Park is projected to grow from 8.6%
at acquisition in 1998 to 12% in 2001
After closing, WRIT commenced a $3 million renovation program
which included:
•
•
•
•
•
•
•
•
•
roof repairs and replacements
new site lighting throughout the property
repaving the entire site
sprinkler system improvements
new alarm systems
facade renovation
new tenant and property signage
new landscaping
construction of 90 additional truck/auto parking spaces
Northern Virginia Industrial Park
Average Rents
$6.00
$6.00
$5.00
$5.00
$4.00
$4.00
$3.00
$3.00
$5.59
$4.25
Average Rent
Average Rent
At Acquisition
At Acquisition
Average Rent
Average Rent
Since Acquisition
Since Acquisition
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A
A
NVIP Before Renovation
NVIP After Renovation
8
The physical results of the renovation program can be seen in the
accompanying “After Renovation” photo. The financial results of the
renovation program and our hands-on management and leasing
are even more dramatic. NVIP was 96% leased at December 31, 2000,
with the average rent on leases signed since acquisition being 31%
higher than the average NVIP rent in place upon acquisition. As a
result, we project that the return on our total investment at NVIP will
reach 12% in 2001.
Current value added projects in various stages of planning include:
•
facade renovation at 1901 Pennsylvania Avenue N.W. , Washington
D.C. , a 97,000 square foot office building
• Tyson’s Technology Center, a 131,000 square foot, five story office
building to be built on the existing parking lot adjoining Tycon III
• major renovation of the Westminster Shopping Center
•
conversion of the Walker House Apartments mechanical
equipment building into apartments
• major renovation of the Foxchase Shopping Center.
We anticipate these projects to begin producing earnings in 2002
and to ultimately be substantial contributors to our earnings.
Artist’s rendering of the new facade at
1901 Pennsylvania Avenue
Capital Improvements
During 2000, WRIT’s $16.3 million Capital Improvement costs were as follows (in millions):
Tenant Improvements
$6.4
Total Accretive Capital Improvements - $8.9
Other - $7.4
Total Non-Accretive Capital Improvements - $7.4
Acquisition
Related - $1.6
Expansions & Major
Renovations - $.9
9
WRIT Properties
10
RETAIL CENTERS
1. Takoma Park Shopping Center
Takoma Park, Maryland
2. Westminster Shopping Center
Westminster, Maryland
3. Concord Centre
Springfield, Virginia
4. Wheaton Park Shopping Center
Wheaton, Maryland
5. Bradlee Shopping Center
Alexandria, Virginia
6. Chevy Chase Metro Plaza
Washington, D.C.
7. Montgomery Village Center
Gaithersburg, Maryland
8. The Shoppes of Foxchase
Alexandria, Virginia
9. Frederick County Square
Frederick, Maryland
10. The 800 Block of South Washington Street
Alexandria, Virginia
INDUSTRIAL CENTERS
1. Capital Freeway Center
Washington, D.C.
2. Fullerton Industrial Park
Springfield, Virginia
3. Pepsi-Cola Distribution Center
Forestville, Maryland
4. Charleston Business Center
Rockville, Maryland
5. Tech 100 Industrial Park
Elkridge, Maryland
6. Crossroads Distribution Center
Elkridge, Maryland
7. Alban Business Center
Springfield, Virginia
8. The Earhart Building
Chantilly, Virginia
9. Ammendale Technology Park I
Beltsville, Maryland
10. Ammendale Technology Park II
Beltsville, Maryland
11. Pickett Industrial Park
Alexandria, Virginia
12. Northern Virginia Industrial Park
Lorton, Virginia
13. 8900 Telegraph Road
Lorton, Virginia
14. Dulles South IV
Chantilly, Virginia
15. Sully Square
Chantilly, Virginia
APARTMENT BUILDINGS
1. Roosevelt Towers
Falls Church, Virginia
2. Park Adams
Arlington, Virginia
3. Munson Hill Towers
Falls Church, Virginia
4. Country Club Towers
Arlington, Virginia
5. 3801 Connecticut Avenue
Washington, D.C.
6. Walker House Apartments
Gaithersburg, Maryland
7. The Ashby at McLean
McLean, Virginia
8. Bethesda Hill Apartments
Bethesda, Maryland
9. Avondale Apartments
Laurel, Maryland
OFFICE BUILDINGS
1. 1901 Pennsylvania Avenue, N.W.
Washington, D.C.
2. 10400 Connecticut Avenue
Kensington, Maryland
3. 51 Monroe Street
Rockville, Maryland
4. 7700 Leesburg Pike
Tysons Corner, Virginia
5. 515 King Street
Alexandria, Virginia
6. The Saratoga Building
Rockville, Maryland
7. The Lexington Building
Rockville, Maryland
8. Brandywine Center
Rockville, Maryland
9. Tycon II
Tysons Corner, Virginia
10. Tycon III
Tysons Corner, Virginia
11. 6110 Executive Boulevard
Rockville, Maryland
12 1220 19th Street, N.W.
Washington, D.C.
13. Maryland Trade Center I
Greenbelt, Maryland
14. Maryland Trade Center II
Greenbelt, Maryland
15. 1600 Wilson Boulevard
Arlington, Virginia
16. 7900 Westpark Drive
Tysons Corner, Virginia
17. Woodburn Medical Park I&II
Fairfax, Virginia
18. 8230 Boone Boulevard
Tysons Corner, Virginia
19. 600 Jefferson Plaza
Rockville, Maryland
20. 1700 Research Boulevard
Rockville, Maryland
21. 11821 Parklawn Dirve
Rockville, Maryland
22. Wayne Plaza
Silver Spring, Maryland
23. Courthouse Square
Alexandria, Virginia
11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REAL ESTATE RENTAL REVENUE: 2000 VERSUS 1999
Total revenues for 2000 increased $15.8␣ million, or 13%, to $134.7␣ million
from $119.0␣ million in 1999. The percentage increase in real estate rental
revenue from 1999 to 2000 by property type was as follows:
Office Buildings
Retail Centers
Multifamily
Industrial
15%
1%
14%
19%
During 2000, WRIT’s office building revenues and operating income
increased by 15% and 17%, respectively, over 1999. These increases were
primarily due to increased rental rates for the sector, 2000 acquisitions of
Wayne Plaza and Courthouse Square and 1999 acquisitions of 600 Jefferson
Plaza, 1700 Research Boulevard and Parklawn Plaza, offset in part by the
1999 sales of Arlington Financial Center and 444 N. Frederick Road and a
slight decline in occupancy rates.
During 2000, WRIT’s retail center revenues and operating income increased
by 1% and 2%, respectively, over 1999. The increases were due to the 2000
acquisition of 833 S. Washington Street combined with increased rental rates
and occupancy levels, offset by the 2000 sales of Prince William Plaza and
Clairmont Center.
WRIT’s multifamily revenues and operating income increased by 14% and
19%, respectively, in 2000 over 1999. These increases were primarily due to
the 1999 acquisition of Avondale Apartments, combined with increased rental
rates and occupancy levels across the sector.
WRIT’s industrial revenues and operating income increased by 19% and
21%, respectively, in 2000 over 1999. These increases were primarily due
to the 1999 acquisitions of Dulles South IV, Amvax and Sully Square, as
well as increased rental rates and occupancy levels primarily at Northern
Virginia Industrial Park, offset in part by the loss of revenues from the
1999 sales of the Department of Commerce Industrial Center and V Street
Distribution Center.
REAL ESTATE RENTAL REVENUE: 1999 VERSUS 1998
Total revenues for 1999 increased $15.4␣ million, or 15%, to $119.0␣ million
from $103.6␣ million in 1998. The percentage increase in real estate rental
revenue from 1998 to 1999 by property type was as follows:
Office Buildings
Retail Centers
Multifamily
Industrial
20%
4%
8%
20%
During 1999, WRIT’s office building revenues and operating income
increased by 20% and 23%, respectively, over 1998. These increases were
primarily due to 1999 acquisitions of 600 Jefferson Plaza and 1700 Research
12
Boulevard and 1998 acquisitions of 8230 Boone Boulevard and Woodburn
Medical Park I and II combined with increased rental rates and occupancy
levels for the sector and offset in part by the 1999 sales of Arlington Financial
Center and 444 N. Frederick Road.
During 1999, WRIT’s retail center revenues and operating income increased
by 4% and 2%, respectively, over 1998. The change was primarily attributable
to increased rental rates and tenant recovery income across the sector offset
by the December 1998 sale of Dover Mart retail center.
WRIT’s multifamily revenues and operating income increased by 8% and
9%, respectively, in 1999 over 1998. These increases were primarily due to
the 1999 acquisition of Avondale Apartments, combined with increased
rental rates and occupancy levels across the sector.
WRIT’s industrial revenues and operating income increased by 20% and
16%, respectively, in 1999 over 1998. These increases were primarily
due to 1999 acquisitions of Dulles South IV and Amvax and 1998
acquisitions of Northern Virginia Industrial Park and 8900 Telegraph Road
as well as increased rental rates across the sector, offset in part by the
1999 sales of the Department of Commerce Industrial Center and V Street
Distribution Center.
OPERATING EXPENSES AND OTHER RESULTS OF OPERATIONS
Real estate operating expenses as a percentage of revenue were 28% for
2000 as compared to 30% for 1999 and 1998. The decrease in 2000 compared
to 1999 and 1998 is attributable to a 15% revenue increase in WRIT’s office
building segment resulting from 2000, 1999 and 1998 property acquisitions
and increased rental rates, combined with only an 11% increase in the office
building segment’s operating expenses. WRIT’s percentage of revenue from
office buildings, including medical buildings, within its entire real estate
portfolio has increased to 53% at December 31, 2000, from 52% December
31, 1999 and 50% at December 31, 1998. The increase is attributable to
2000, 1999 and 1998 office building acquisitions. 3.9% of the real estate
portfolio revenues are attributable to WRIT’s medical office buildings which
WRIT considers to have less exposure to potential competition than typical
office buildings. WRIT’s percentage of revenue from industrial centers
increased to 14.3% at December 31, 2000 from 13.6% at December 31, 1999
and 13.1% at December 31, 1998. The increase is attributable to 1999 and
1998 acquisitions. Generally, real estate operating expenses have increased
to $38.3␣ million in 2000 from $35.3␣ million in 1999 and $31.1␣ million in
1998 due to the acquisition of three real estate properties in 2000, seven
real estate properties in 1999 and six real estate properties in 1998.
Interest expense increased $3.3 million in 2000 from 1999. The increase is
primarily attributable to a higher average unsecured line of credit balance
outstanding combined with higher variable interest rates, the issuance of
$55.0 million in medium-term notes in November 2000 used to pay off
WRIT’s unsecured lines of credit and the assumption of an $8.7 million
mortgage in September 1999 in connection with the acquisition of Avondale
Apartments. Interest expense increased $5.2␣ million in 1999 from 1998
primarily due to the assumption of an $8.7␣ million mortgage in September
1999 in connection with the acquisition of Avondale Apartments, the issuance
of $110.0␣ million medium-term notes in February 1998 and the assumption
of $21.6␣ million in mortgages in November 1998 in connection with the
acquisition of Woodburn Medical Park. In addition, WRIT closed on a $50.0
mortgage note in September 1999 at a 7.14% interest rate that was used to
pay off WRIT’s unsecured lines of credit at slightly lower interest rates.
General and administrative expenses were $7.5 million for 2000 as compared
to $6.2␣ million for 1999 and $6.6␣ million for 1998. The increase in general
and administrative expenses in 2000 from 1999 was primarily attributable
to increased compensation due to the increased portfolio and growth of
the Trust. The decrease in general and administrative expenses in 1999, as
compared to 1998, was primarily attributable to increased property
management profits in 1999 that in turn reduced the administrative expenses
of the Trust.
CAPITAL RESOURCES AND LIQUIDITY
WRIT has utilized the proceeds of share offerings, unsecured and secured
debt issuance (medium and long-term fixed interest rate debt), bank lines
of credit and cash flow from operations for its capital needs. Management
believes that external sources of capital will continue to be available to
WRIT from its existing unsecured bank line of credit commitments and
from selling additional shares and/or the sale of medium or long-term secured
or unsecured notes. The funds raised would be used for new acquisitions
and capital improvements.
Management believes that WRIT has the liquidity and the capital resources
necessary to meet all of its known obligations and to make additional
property acquisitions and capital improvements when appropriate to
enhance long-term growth.
As of December 31, 2000, WRIT had line of credit commitments in place from
commercial banks for up to $75.0␣ million, which bear interest at an adjustable
spread over LIBOR based on the Trust’s interest coverage ratio and public
debt ratings. WRIT acquired three improved properties and the land under
Munson Hill Towers for a total acquisition cost of $26.6 million in 2000, and
acquired seven properties for a total acquisition cost of $61.9␣ million in 1999.
The 2000 acquisitions were financed by line of credit advances and the use
of proceeds from property sales in February and August 2000. WRIT disposed
of two properties in 2000 resulting in net proceeds of $5.7 million. The
proceeds from these sales were used to partially fund 2000 acquisitions. On
November 6, 2000, WRIT sold $55.0 million of 7.78% unsecured notes due
November 2004. The notes bear an effective interest rate of 7.89%. Total
proceeds to the Trust, net of underwriting fees, were $54.8 million. WRIT
used the proceeds of these notes to repay advances on its lines of credit.
The 1999 acquisitions were financed by line of credit advances, the use of
proceeds from property sales in February 1999 and the assumption of a
non-recourse mortgage payable of $8.7␣ million. WRIT disposed of six
properties in 1999 resulting in net proceeds of $22.0 million. On
September␣ 27, 1999, WRIT closed on a $50.0␣ million mortgage note payable,
the proceeds of which were used to pay down WRIT’s unsecured lines of
credit. The mortgage is secured by WRIT’s five Virginia multifamily
properties.
The 1998 acquisitions were primarily financed through line of credit
advances, from the February 1998 issuance of $110.0 million of medium-
term notes (after repayment of amounts outstanding on line of credit
borrowings of $95.0 million), the assumption of mortgages amounting to
$21.6 million and from the reinvestment of the $10.8 million proceeds of
the sales of three properties in 1998.
On February 20, 1998, WRIT sold $50.0 million of 7.25% unsecured notes
due February 25, 2028 at 98.653% to yield approximately 7.36%. WRIT also
sold $60.0 million of 6.898% unsecured Mandatory Par Put Remarketed
Securities (“MOPPRS”) at an effective borrowing rate through the
remarketing date (February 2008) of approximately 6.74%. WRIT used the
proceeds of these notes for general business purposes, including repayment
of $95.3 million of outstanding advances under its lines of credit. WRIT
used the remainder of the proceeds to finance acquisitions and capital
improvements to its properties. WRIT had four interest rate lock agreements
related to this transaction which settled for $5.4 million and treated that
settlement and the cost of a related interest rate cap agreement as transaction
costs of the borrowing. These costs are being amortized over the life of the
unsecured notes using the effective interest rate method.
Cash flow from operating activities totaled $62.0 million, $53.2␣ million and
$53.6 million for the years ended December 31, 2000, 1999 and 1998,
respectively, including net income of $45.1 million (net of $3.6 million gain
on property sales), $44.3␣ million (net of $7.9␣ million gain on property sales)
and $41.1␣ million (net of $6.8 million gain on property sales), respectively,
and depreciation and amortization of $22.7 million, $19.6␣ million and $15.4
million, respectively. The increase in cash flows from operating activities in
2000 from 1999 was primarily due to real estate acquisitions, increased
operating income from previously owned properties and the resultant
increase in net income. The decrease in cash flows from operating activities
in 1999 from 1998 was primarily due to the timing of payments for trade
accounts payable.
Cash flows used in investing activities totaled $37.4 million, $49.9 million
and $68.9 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The decline in cash flows used in investing activities in 2000
from 1999 and in 1999 from 1998 is attributable to a reduction in real estate
acquisitions.
Cash flows used in financing activities were $22.9 million and $3.2 million
for the years ended December 31, 2000 and 1999, respectively, compared
to cash flows provided by financing activities of $12.0 million for the year
ended December 31, 1998. Cash flows used in financing activities in 2000
compared to 1999 increased as a result of increased dividend payments in
13
MANAGEMENT’S DISCUSSION (CONT’D)
2000, increased line of credit repayments in excess of advances, offset by
net proceeds from the debt offering in 2000. Cash flows used in financing
activities in 1999 declined from 1998 as a result of increased dividend
payments in 1999, offset by decreased line of credit repayments in excess
of advances and no debt issuance in 1999.
Rental revenue has been the principal source of funds to pay WRIT’s
operating expenses, interest expense and dividends to shareholders. In 2000,
1999 and 1998, WRIT paid dividends totaling $44.0 million, $41.3␣ million
and $39.6 million, respectively.
CAPITAL IMPROVEMENTS
Capital improvements of $16.3 million were completed in 2000, including
tenant improvements. Capital improvements to WRIT properties in 1999
and 1998 were approximately $18.4␣ million and $18.7␣ million, respectively.
WRIT’s capital improvement costs for 1998 - 2000 were as follows (in thousands):
Year Ended December 31,
1998
1999
2000
WRIT’s average Tenant Improvement Costs for 1998 - 2000 per square foot
of space leased were as follows:
Year Ended December 31, ␣
1999
$4.59
$0.69
$0.55
1998
$5.05
$1.30
$1.61
2000
$4.71
$1.81
$1.47
Office
Retail
Industrial
The Retail and Industrial Tenant Improvement costs are substantially lower
than Office Improvement costs because the tenant improvements required
in these property types are substantially less extensive than in offices. WRIT’s
office tenant improvement costs are among the lowest in the industry for a
number of reasons. Approximately 81% of our office tenants renew their
leases with WRIT, and renewing tenants generally require minimal tenant
improvements. In addition, lower tenant improvement costs is one of the
many benefits of WRIT’s focus on leasing to smaller office tenants. Smaller
office suites have limited configuration alternatives. Therefore, WRIT is often
able to lease an existing suite with tenant improvements being limited to
new paint and carpet.
Accretive capital improvements:
Other Capital Improvements
Acquisition related
Expansions and major renovations
Tenant improvements
$ 1,640
892
6,342
$ 5,716
5,929
2,342
$ 4,943
2,856
5,653
Total Accretive capital
improvements
Other:
Total
8,874
7,394
$16,268
13,987
4,384
$ 18,371
13,452
5,200
$18,652
Accretive Capital Improvements
Acquisition Related – These are capital improvements to properties acquired
during the current and preceding two years which were planned during WRIT’s
investment analysis. In 2000, the most significant of these improvements were
made to Pickett Industrial Center, Northern Virginia Industrial Park, Earhart
Building, South Washington Street Bethesda Hill Apartments and Munson Hill
Towers. In 1999, the most significant of these improvements were made to
7900 Westpark Drive, Woodburn Medical Park, Bethesda Hill Apartments,
Ammendale Technology Park II and Northern Virginia Industrial Park. In 1998,
the most significant of these improvements were made to Maryland Trade Center,
7900 Westpark, The Ashby at McLean, Bethesda Hill Apartments, Pickett Industrial
Center and Northern Virginia Industrial Park.
Expansions and Major Renovations – Expansions and major renovations
increase the rentable area of a property. During 1999, WRIT completed the
49,000 square foot expansion at 7900 Westpark Drive. Major renovations are
improvements sufficient to increase the income otherwise achievable at a
property. During 1999, WRIT completed the renovation of the Bradlee Shopping
Center.
Tenant Improvements – Tenant Improvements are costs associated with
commercial lease transactions such as painting and carpeting.
Other Capital Improvements are those not included in the above categories.
These are also referred to as recurring capital improvements. Over time
these costs will be reincurred to maintain a property’s income and value.
In the Trust’s residential properties, these include new appliances, flooring,
cabinets, bathroom fixtures, and the like. These improvements are made as
needed upon vacancy of an apartment and averaged $855 for the 768
apartments turned over in 2000. In 2000, WRIT also expensed an average
of $350 per apartment turnover for items which do not have a long-term
life and are, therefore, not capitalized.
YEAR 2000
WRIT’s Year 2000 Project completion resulted in no interruption or failure
of normal business activities or operations. No material failures or significant
interruptions were experienced that materially or adversely affected WRIT’s
results of operations, liquidity or financial condition. The total costs incurred
to become Year 2000 compliant were not material to WRIT’s financial
position. Any future cost associated with Year 2000 compliancy is not
expected to be material to WRIT’s financial position.
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements which involve risks
and uncertainties. Such forward-looking statements include (a) WRIT’s
intention to invest in properties that it believes will continue to increase in
income and value; (b) WRIT’s belief that its real estate markets will continue
to perform well; (c) WRIT’s belief that external sources of capital will
continue to be available and that additional sources of capital will be available
from the sale of shares or notes; (d) WRIT’s belief that it has the liquidity
14
and capital resources necessary to meet its known obligations and to make
additional property acquisitions and capital improvements when appropriate
to enhance long-term growth and (e) other statements preceded by, followed
by or that include the words “believes,” “expects,” “intends,” “anticipates,”
“potential” and other similar expressions.
WRIT claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995 for the
foregoing statements. The following important factors, in addition to those
discussed elsewhere in this Annual Report, could affect WRIT’s future results
and could cause those results to differ materially from those expressed in
the forward-looking statements: (a) the economic health of WRIT’s tenants;
(b) the economic health of the Greater Washington-Baltimore region, or
other markets WRIT may enter, including the effects of changes in Federal
government spending; (c) the supply of competing properties; (d) inflation;
(e) consumer confidence; (f) unemployment rates; (g) consumer tastes and
preferences; (h) stock price and interest rate fluctuations; (i) WRIT’s future
capital requirements; (j) competition; (k) compliance with applicable laws,
including those concerning the environment and access by persons with
disabilities; (l) weather conditions and (m) the effects of changes in capital
availability to the technology and biotechnology sectors of the economy.
RATIOS OF EARNINGS TO FIXED CHARGES AND DEBT SERVICE COVERAGE
The following table sets forth the Trust’s ratios of earnings to fixed charges
and debt service coverage for the periods shown:
Year Ended December 31, ␣
2000
Earnings to fixed charges 2.63x
3.40x
Debt service coverage
1999
2.61x
3.42x
1998
3.01x
3.84x
We computed the ratios of earnings to fixed charges by dividing earnings
by fixed charges. For this purpose, earnings consist of income from
continuing operations plus fixed charges. Fixed charges consist of interest
expense, including interest costs capitalized, and the amortized costs of
debt issuance.
We computed debt service coverage ratio by dividing earnings before interest
income and expense, depreciation, amortization and gain on sale of real
estate by interest expense and principal amortization.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The principal material financial market risk to which WRIT is exposed is interest-rate risk. WRIT’s exposure to market risk for changes in interest rates
relates primarily to refinancing long-term fixed rate obligations, the opportunity cost of fixed rate obligations in a falling interest rate environment and its
variable rate lines of credit. WRIT primarily enters into debt obligations to support general corporate purposes including acquisition of real estate
properties, capital improvements and working capital needs. In the past WRIT has used interest rate hedge agreements to hedge against rising interest
rates in anticipation of imminent refinancing or new debt issuance.
The table below presents principal, interest and related weighted average interest rates by year of maturity, with respect to debt outstanding on
December 31, 2000 .
2001
2002
2003
2004
2005
Thereafter
Total
Fair Value
In thousands
DEBT (all fixed rate except lines of credit)
Unsecured debt
Principal
Interest
Average interest rate
Mortgages
Principal amortization (30 year schedule)
Interest
Average interest rate
$ —
$19,230
7.37%
$ —
$19,230
7.37%
$50,000
$18,043
7.37%
$55,000
$15,311
7.35%
$ — $160,000
$ 91,738
$11,389
7.20%
7.35%
$265,000
$174,941
7.25%
$258,513
$ 834
$ 6,436
7.50%
$ 903
$ 6,367
7.50%
$ 7,368
$ 5,705
7.50%
$ 820
$ 5,644
7.36%
$26,335
$ 5,064
7.36%
$ 50,000
$ 13,388
7.36%
$ 86,260
$ 42,604
7.37%
$ 87,493
15
CONSOLIDATED BALANCE SHEETS
As of December 31, 2000 and 1999
(In thousands)
Assets
Real estate, at cost
Accumulated depreciation
Total investment in real estate, net
Cash and cash equivalents
Rents and other receivables, net of allowance for doubtful
accounts of $1,743 and $799, respectively
Prepaid expenses and other assets
2000
1999
$ 698,513
(100,906 )
597,607
6,426
8,427
19,587
$ 661,870
(83,574 )
578,296
4,716
6,572
18,896
Total assets
$ 632,047
$ 608,480
Liabilities and shareholders’ equity
Accounts payable and other liabilities
Advance rents
Tenant security deposits
Mortgage notes payable
Lines of credit payable
Notes payable
Total liabilities
Minority interest
Shareholders’ Equity
Shares of beneficial interest, $.01 par value; 100,000
shares authorized: 35,740 and 35,721 shares issued
and outstanding, respectively
Additional paid in capital
Total shareholders’ equity
$ 13,048
1,901
5,624
86,260
-
265,000
371,833
1,558
357
258,299
258,656
$ 11,421
3,304
5,006
87,038
33,000
210,000
349,769
1,522
357
256,832
257,189
Total liabilities and shareholders’ equity
$ 632,047
$ 608,480
The accompanying notes are an integral part of these statements.
16
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2000, 1999 and 1998
(In thousands, except per share data)
Real estate rental revenue
Real estate expenses:
Utilities
Real estate taxes
Repairs and maintenance
Administrative
Management fees
Operating services and supplies
Common area maintenance
Other expenses
Total real estate expenses
Operating income
Depreciation and amortization
Income from real estate
Other income
Interest expense
General and administrative expenses
Income before gain on sale of real estate
Gain on sale of real estate
Net income
Basic and diluted earnings per share
Weighted Average Shares Outstanding - Basic
Weighted Average Shares Outstanding - Diluted
2000
$134,732
1999
$ 118,975
1998
$103,597
7,682
9,347
5,580
2,753
4,195
5,459
1,961
1,339
38,316
96,416
22,723
73,693
943
(25,531)
(7,533 )
41,572
3,567
$ 45,139
$ 1.26
35,735
35,872
7,298
8,496
4,765
2,520
3,693
4,856
1,850
1,803
35,281
83,694
19,590
64,104
732
7,012
7,372
4,296
2,130
3,185
4,569
1,573
977
31,114
72,483
15,399
57,084
880
(22,271 )
(17,106 )
(6,173 )
(6,558 )
36,392
34,300
7,909
$ 44,301
$ 1.24
35,714
35,723
6,764
$ 41,064
$ 1.15
35,688
35,714
The accompanying notes are an integral part of these statements.
17
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
(In thousands, except share data)
Shares
Balance, December 31, 1997
Net income
Dividends
Share options exercised and Share Grants
Balance, December 31, 1998
Net income
Dividends
Share options exercised and Share Grants
Balance, December 31, 1999
Net income
Dividends
Share options exercised and Share Grants
35,678
-
-
14
35,692
-
-
29
35,721
-
-
19
Par Value
$ 357
-
-
-
357
-
-
-
357
-
-
-
Additional
Paid in Capital
$ 251,731
41,064
(39,614 )
195
Shareholders’
Equity
$ 252,088
41,064
(39,614 )
195
253,376
44,301
(41,341 )
496
256,832
45,139
(43,955 )
283
253,733
44,301
(41,341 )
496
257,189
45,139
(43,955 )
283
Balance, December 31, 2000
35,740
$ 357
$ 258,299
$ 258,656
The accompanying notes are an integral part of these statements.
18
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
(In thousands)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to cash
provided by operating activities:
Gain on sale of real estate
Depreciation and amortization
Increases in other assets
Increases (decreases) in other liabilities
Cash provided by operating activities
Cash Flows From Investing Activities
Real estate acquisitions, net*
Improvements to real estate
Non-real estate capital improvements
Net proceeds from sale of real estate
Cash used in investing activities
Cash Flows From Financing Activities
Dividends paid
Line of credit advances
Repayments of lines of credit
Proceeds from mortgage note payable
Mortgage principal payments
Net proceeds from debt offering
Net proceeds from the exercise of share options
Cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
2000
1999
1998
$ 45,139
$ 44,301
$ 41,064
(3,567)
22,723
(3,382)
1,061
61,974
(26,581)
(16,268)
(267)
5,732
(37,384)
(43,955)
21,000
(54,000)
-
(778)
54,753
100
(22,880)
1,710
4,716
(7,909 )
19,590
(1,954)
(808 )
53,220
(53,197 )
(18,371 )
(350 )
22,033
(49,885 )
(41,341 )
33,000
(44,000 )
49,225
(594 )
-
496
(3,214)
121
4,595
(6,764 )
15,399
(2,895 )
6,789
53,593
(59,087 )
(18,652 )
(1,967 )
10,844
(68,862 )
(39,614 )
44,000
(95,250 )
-
(172 )
102,797
195
11,956
(3,313 )
7,908
Cash and cash equivalents at end of year
$ 6,426
$ 4,716
$ 4,595
Supplemental disclosure of cash flow information
Cash paid for interest
$ 24,001
$ 18,968
$ 13,475
Supplemental schedule of non-cash investing and financing activities:
*On September 20, 1999, WRIT purchased Avondale Apartments for an acquisition cost of $13.0 million. WRIT assumed a mortgage
in the amount of $8.7 million and paid the balance in cash. The $8.7 million of assumed mortgage is not included in the $53.2 million
amount shown as 1999 real estate acquisitions.
On November 30, 1998, WRIT purchased Woodburn Medical Park I and II for an acquisition cost of $35.2 million. WRIT assumed two
mortgages in the amount of $9.2 million and $12.4 million and paid the balance in cash. The $21.6 million of assumed mortgages is
not included in the $59.1 million amount shown as 1998 real estate acquisitions.
The accompanying notes are an integral part of these statements.
19
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business:
Washington Real Estate Investment Trust (“WRIT” or the “Trust”, a Maryland
real estate investment trust) is a self-administered, self managed equity real
estate investment trust, successor to a trust organized in 1960. The Trust’s
business consists of the ownership and operation of income-producing real
estate properties in the greater Washington – Baltimore region.
WRIT operates in a manner intended to enable it to qualify as a real estate
investment trust under the Internal Revenue Code (the “Code”). In
accordance with the Code, a trust which distributes its capital gains and at
least 95␣ percent of its taxable income to its shareholders each year, and
which meets certain other conditions, will not be taxed on that portion of
its taxable income which is distributed to its shareholders. Accordingly, no
provision for federal income taxes is required.
2.
Accounting Policies:
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of the Trust and its majority owned subsidiaries, after eliminating all
intercompany transactions.
New Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards (“SFAS”) No. 133,
“Accounting for Derivative Instruments and Hedging Activities”, was issued.
This statement (as amended by SFAS No. 137, “Accounting for Derivative
Instruments and Hedging Activities—Deferral of the Effective Date of FASB
Statement No. 133) establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(b) a hedge of the exposure to variable cash flows of a forecasted transaction,
or (c) a hedge of the foreign currency exposure to a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted transaction. This
statement is effective for all fiscal quarters of fiscal years beginning after
January 1, 2001. Although WRIT currently has no derivative instruments,
this statement will affect the reporting of derivative instruments acquired
by WRIT in future periods. WRIT has entered into interest rate protection
agreements to reduce its exposure to interest rate risk on anticipated
borrowings. The costs (if any) of such agreements which qualify for hedge
accounting are included in other assets and are amortized over the interest
rate protection agreement term. In the event that interest rate protection
agreements that qualify for hedge accounting are terminated or are closed
out, the associated gain or loss is deferred and amortized over the term of
the underlying hedged asset or liability. Amounts to be paid or received
under interest rate protection agreements are accrued currently and are
netted with interest expense for financial statement presentation purposes.
Revenue Recognition
Residential properties are leased under operating leases with terms of
generally one year or less, and commercial properties are leased under
operating leases with average terms of three to five years. WRIT recognizes
rental income and rental abatements from its residential and commercial
leases when earned on the straight-line method in accordance with
Statement of Financial Accounting Standards (“SFAS”) No.␣ 13. WRIT records
an allowance for doubtful accounts equal to the estimated uncollectible
amounts. This estimate is based on WRIT’s historical experience and a review
of the current status of its receivables. Contingent rents are recorded when
cumulative sales exceed the amount necessary for the contingent rents to
equal minimum annual rent, and WRIT has been informed of cumulative
sales data; thereafter, percentage rent is accrued based on subsequent sales.
Minority Interest
WRIT entered into an operating agreement with a member of the previous
ownership entity of Northern Virginia Industrial Park in conjunction with
the acquisition of this property in May 1998. This resulted in a minority
ownership interest in this property based upon defined company ownership
units at the date of purchase. WRIT accounts for this activity by allocating
the percentage ownership interest of the net operating income of the property
to minority interest. Quarterly distributions are made to the minority owner
equal to the quarterly dividend per share for each ownership unit.
Deferred Financing Costs
Costs associated with the issuance of mortgage and other notes and draws
on lines of credit are capitalized and amortized using the effective interest
rate method over the term of the related notes and are included in interest
expense on the accompanying statements of income.
Real Estate and Depreciation
Buildings are depreciated on a straight-line basis over estimated useful lives
not exceeding 50 years. All capital improvement expenditures associated
with replacements, improvements, or major repairs to real property are
depreciated using the straight-line method over their estimated useful lives
ranging from 3 to 30 years. All tenant improvements are amortized over the
shorter of the useful life or the term of the lease. Maintenance and repair
costs are charged to expense as incurred.
WRIT recognizes impairment losses on long-lived assets used in operations
when indicators of impairment are present and the net undiscounted cash
flows estimated to be generated by those assets are less than the assets’
carrying amount. Impairment is generally assessed through comparison of
amortized value to fair value. There were no property impairments
recognized during the three-year period ending December 31, 2000.
20
Cash and Cash Equivalents
Cash and cash equivalents include investments readily convertible to known
amounts of cash with original maturities of 90 days or less.
Comprehensive Income
WRIT has no items of comprehensive income that would require separate
reporting in the accompanying consolidated statements of income.
Earnings Per Common Share
“Basic earnings per share” is computed as net income divided by the
weighted-average common shares outstanding. “Diluted earnings per share”
is computed as net income divided by the total weighted average common
shares outstanding plus the effect of dilutive common equivalent shares
outstanding for the period. Dilutive common equivalent shares reflect the
assumed issuance of additional common shares pursuant to certain of the
Trust’s share based compensation plans (see Note␣ 8) that could potentially
reduce or “dilute” earnings per share, based on the treasury stock method.
The weighted-average number of shares outstanding for the years ended
December␣ 31, 2000, 1999 and 1998 were 35.7 million shares for each
respective year and 35.9 million, 35.7 million and 35.7 million on a diluted
basis for the years ended December 31, 2000, 1999 and 1998.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make certain estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3.
Real Estate Investments:
WRIT’s real estate investment portfolio, at cost, consists of properties located
in Maryland, Washington,␣ D.C. and Virginia as follows:
(In␣ thousands)
Office buildings
Retail centers
Multifamily
Industrial distribution/flex properties
December␣ 31,
1999
2000
$383,542
94,893
102,142
117,936
$698,513
$352,145
97,004
99,125
113,596
$661,870
WRIT’s results of operations are dependent on the overall economic health
of its tenants and the specific segments in which WRIT holds properties, as
well as the overall economic health of the markets in which it owns property.
These segments include commercial office, multifamily, retail and industrial.
Although all sectors are affected by external factors, such as inflation,
consumer confidence, unemployment rates and consumer tastes and
preferences, the retail segment is particularly sensitive to such factors. A
decline in the retail sector of the economy could reduce merchant sales,
which could adversely affect the operating results of WRIT.
As of December␣ 31, 2000, 7900 Westpark office building accounted for
13␣ percent of total assets and 9␣ percent of total revenues. No other single
property or tenant accounted for more than 10␣ percent of total assets or
total revenues.
Properties acquired by WRIT during the years ending December␣ 31, 2000,
1999 and 1998 are as follows:
Acquisition
Date
Feb. 29, 2000
May 5, 2000
Aug. 9, 2000
Oct. 10, 2000
Rentable Acquisition Cost
(In thousands)
Square Feet
Property
$1,400
6,000
833 S. Washington Street
7,800
962 Wayne Plaza
91,000
Munson Hill Towers Land Lease Multifamily N/A
300
Courthouse Square
510 and 526 King Street
Type
Retail
Office
Office
113,000
210,000
17,100
$26,600
Jan. 27, 1999
Apr. 16, 1999
May 21, 1999
May 21, 1999
Sept. 10, 1999
Sept. 20, 1999
Nov. 30, 1999
Dulles South IV
Sully Square
600 Jefferson Plaza
1700 Research Boulevard
Amvax
Avondale
Parklawn Plaza
83,000
Industrial
95,000
Industrial
115,000
Office
103,000
Office
Industrial
32,000
Multifamily 162,000
40,000
Office
630,000
May 22, 1998
June 23, 1998
Sept. 11, 1998
Sept. 30, 1998
Nov. 30, 1998
Northern Virginia Industrial Park Industrial
Retail
800 South Washington Street
Industrial
8900 Telegraph Road
8230 Boone Boulevard
Office
Woodburn Medical Park I and II Office
790,000
45,000
32,000
58,000
167,000
1,092,000
$6,909
7,557
14,472
12,941
2,231
12,908
4,764
$61,782
$30,350
6,100
1,810
8,100
35,200
$81,560
WRIT accounted for each acquisition using the purchase method of
accounting. WRIT allocates the purchase price between land and building
using an equity allocation approach.
Properties sold by WRIT during the years ending December␣ 31, 2000, 1999
and 1998 are as follows:
21
NOTES TO FINANCIAL STATEMENTS
Disposition
Date
Feb. 29, 2000
July 7, 2000
Aug. 22, 2000
Property
Prince William Plaza
Westminster parcel
Clairmont Center
Rentable Acquisition Cost
(In thousands)
Square Feet
Type
$2,800
55,000
Retail
425
Retail parcel 10,000
3,000
40,000
Retail
$6,225
105,000
Feb. 5, 1999
Feb. 5, 1999
Feb. 5, 1999
Feb. 26, 1999
444 North Frederick Avenue
Arlington Financial Center
Department of Commerce
V Street Distribution Center
Office
Office
Industrial
Industrial
Mar. 23, 1998
May 7, 1998
Dec. 17, 1998
Shirley I-395 Business Center
Ravensworth Center
Dover Mart
Industrial
Industrial
Retail
66,000
51,000
105,000
31,000
253,000
113,000
29,000
44,000
186,000
$5,671
9,798
7,031
600
$23,100
$7,815
1,650
1,975
$11,440
4. Mortgage Notes Payable:
On August␣ 22, 1995, WRIT assumed a $7.8␣ million mortgage note payable as
partial consideration for its acquisition of Frederick County Square retail
center. The mortgage bears interest at 9␣ percent. Principal and interest
are payable monthly until January␣ 1, 2003, at which time all unpaid principal
and interest are payable in full.
On November␣ 30, 1998, WRIT assumed a $9.2␣ million mortgage note payable
and a $12.4␣ million mortgage note payable as partial consideration for its
acquisition of Woodburn Medical Park I and II. Both mortgages bear interest
at 7.69␣ percent per annum. Principal and interest are payable monthly until
September␣ 15, 2005, at which time all unpaid principal and interest are
payable in full.
On September 20, 1999, WRIT assumed an $8.7 million mortgage note
payable as partial consideration for its acquisition of the Avondale Apartments.
The mortgage bears interest at 7.88 percent per annum. Principal and
interest are payable monthly until November 1, 2005, at which time all unpaid
principal and interest are payable in full.
On September 27, 1999, WRIT executed a $50.0 million mortgage note
payable secured by Munson Hill Towers, Country Club Towers, Roosevelt
Towers, Park Adams Apartments, and the Ashby Apartments. The mortgage
bears interest at 7.14 percent per annum and is payable monthly until
October 1, 2009, at which time all unpaid principal and interest are payable
in full. These funds were used to repay advances on its lines of credit.
Annual payments of mortgage principal as of December 31, 2000 are as
follows:
22
2001
2002
2003
2004
2005
Thereafter
(In␣ thousands)
$ 834
903
7,368
820
26,335
50,000
$86,260
5.
Unsecured Lines of Credit Payable:
During 2000, WRIT maintained two unsecured lines of credit: a $25.0␣ million
line of credit (“Credit Facility No.␣ 1”) and a $50.0␣ million line of credit
(“Credit Facility No.␣ 2”).
Credit Facility No.␣ 1
WRIT had $0 and $22.0 million outstanding as of December␣ 31, 2000 and
1999, respectively, related to Credit Facility No.␣ 1.
The following advances have been made under this commitment:
Date Paid
in Full
Feb.1998
July 1999
Advance
Date
Nov.␣ 1997
May 1999
Mar. – Sept. 1999 Jan. – Mar. 2000
Jan. – Mar. 2000 Nov. 2000
Amount
(In thousands)
$25,000
12,000
22,000
$22,000
2000
Rate
—
—
6.33%
7.33%
1999
Rate
—
5.67%
6.33%
—
1998
Rate
6.64%-8.50%
—
—
—
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.
This $25.0␣ million credit commitment requires WRIT to pay the lender an
unused commitment fee at the rate of 0.375␣ percent per annum on the
amount by which the $25.0␣ million commitment exceeds the balance of
outstanding advances and term loans. At December␣ 31, 2000 and 1999,
$25.0␣ million and $3.0 million, respectively, of this commitment was unused
and available for subsequent acquisitions or capital improvements. This fee
is paid quarterly. This commitment also contains certain financial and non-
financial covenants including debt service coverage, net worth, and
permitted indebtedness ratios, which WRIT has met as of December␣ 31,
2000. In addition, this commitment requires approval to be obtained from
the lender for purchases by the Trust over an agreed upon amount.
6.
Senior and Medium-Term Notes Payable:
Senior Notes
Credit Facility No.␣ 2
WRIT had $0 and $11.0␣ million outstanding as of December␣ 31, 2000 and
1999, respectively, related to Credit Facility No.␣ 2.
The following advances have been made under this commitment:
Advance
Date
Nov.␣ 1997
Nov.␣ 1997
May 1998
June 1998
Sept. - Nov. 1998
Jan. – Sept. 1999
Sept. – Nov. 1999
Mar. 2000
May 2000
June 2000
Aug. 2000
Oct. 2000
Date Paid
in Full
Feb.␣ 1998
Feb. 1998
July 1999
June 1999
Mar. -May 1999
July – Sept. 1999
June – Aug. 2000
Nov. 2000
Nov. 2000
Nov. 2000
Nov. 2000
Nov. 2000
Amount
(In thousands)
$17,000
33,000
13,000
4,000
27,000
51,000
11,000
2,000
5,000
7,000
4,000
$14,000
2000
Rate
—
—
—
—
—
—
—
7.45%-7.81%
7.80%-7.81%
6.64%-7.81%
6.86%-7.51%
7.46%
1999
Rate
—
—
5.54%
6.02%
5.85%
5.90%
6.72%
—
—
—
—
—
1998
Rate
6.64%
6.61%
5.54% –6.39%
6.02% –6.39%
5.85%
—
—
—
—
—
—
—
On July 25, 1999, WRIT executed an agreement to amend and restate the
original Credit Facility No. 2 agreement. All unpaid interest and principal
are due July␣ 2002 and can be prepaid prior to this date without any
prepayment fee or yield maintenance obligation. Any new advances shall
bear interest at LIBOR plus a spread based on WRIT’s public debt rating.
Credit Facility No.␣ 2 provides WRIT the option to convert any advances or
portions thereof into a term loan at any time through July 2002. The principal
amount of each term loan, if any, shall be repaid in July␣ 2002.
This $50.0␣ million credit commitment requires WRIT to pay the lender an
unused commitment fee ranging from 0.15 to 0.25 percent per annum based
on WRIT’s public debt rating. The fee is paid on the amount by which the
$50.0␣ million commitment exceeds the balance of outstanding advances and
term loans. At December␣ 31, 2000 and 1999, $50.0␣ million and $39.0␣ million,
respectively, of this commitment was unused. This fee is paid quarterly in
arrears. This commitment also contains certain financial covenants including
cash flow to debt service, net worth, capitalization and permitted indebtedness
ratios, which WRIT has met as of December␣ 31, 2000.
Information related to short-term borrowings are as follows (in␣ thousands):
On August 13, 1996 WRIT sold $50.0␣ million of 7.125␣ percent 7-year
unsecured notes due August␣ 13, 2003, and $50.0␣ million of 7.25␣ percent
unsecured 10-year notes due August␣ 13, 2006. The 7-year notes were sold at
99.107␣ percent of par and the 10-year notes were sold at 98.166␣ percent of
par. Net proceeds to the Trust after deducting underwriting expenses were
$97.6␣ million. The 7-year notes bear an effective interest rate of 7.46␣ percent,
and the 10-year notes bear an effective interest rate of 7.49␣ percent, for a
combined effective interest rate of 7.47␣ percent. WRIT used the proceeds
of these notes to repay advances on its lines of credit and to finance
acquisitions and capital improvements
Medium-Term Notes
On February␣ 20, 1998, WRIT sold $50.0␣ million of 7.25␣ percent unsecured
notes due February␣ 25, 2028 at 98.653␣ percent to yield approximately
7.36␣ percent. WRIT also sold $60.0␣ million in unsecured Mandatory Par
Put Remarketed Securities (“MOPPRS”) at an effective borrowing rate
through the remarketing date (February␣ 2008) of approximately
6.74␣ percent. The net proceeds to WRIT after deducting loan origination
fees was $102.8 million. WRIT used the proceeds of these notes for general
business purposes, including repayment of outstanding advances under its
lines of credit and to finance acquisitions and capital improvements to its
properties. WRIT’s costs of the borrowings and related closed hedge
settlements of approximately $7.2 million will be amortized over the lives
of the notes using the effective interest method.
On November 6, 2000, WRIT sold $55.0 million of 7.78 percent unsecured
notes due November 2004. The notes bear an effective interest rate of 7.89
percent. Total proceeds to the Trust, net of underwriting fees, were $54.8
million. WRIT used the proceeds of these notes to repay advances on its
lines of credit.
These notes contain certain financial and non-financial covenants, all of
which WRIT has met as of December 31, 2000.
7. Dividends:
The following is a breakdown of the taxable␣ percentage of WRIT’s dividends
for 2000, 1999 and 1998, respectively:
2000
1999
1998
Ordinary Income
100%
100%
98%
Return of Capital
0%
0%
2%
Maximum Amount Outstanding
Average Amount Outstanding
Weighted Average Interest Rate
2000
$54,000
$33,734
7.22%
1999
$72,000
$50,847
5.93%
8.
Share Options and Grants:
WRIT maintains an Incentive Stock Option Plan (the “Plan”), which includes
qualified and non-qualified options. As of December␣ 31, 2000, 1.8␣ million
23
NOTES TO FINANCIAL STATEMENTS
shares may be awarded to eligible employees. Under the Plan, options, which
are issued at market price on the date of grant, vest after not more than two
years and expire ten years following the date of grant. Options may be
granted under the Plan at any time prior to June␣ 25, 2001. Activity under
the Plan is summarized below:
2000
1999
1998
Shares
Wtd Avg
Wtd Avg
Ex Price
Shares
Ex Price
806,000
$16.83
1,273,000 $15.87
513,000 14.47
376,000 21.34
(12,000) 15.89
(6,000) 15.21
(22,000) 14.74
(34,000) 17.28
1,621,000 17.16 1,273,000 15.87
560,000 16.54
1,008,000 16.31
Wtd Avg
Shares Ex Price
$15.93
409,000
17.59
430,000
12.41
(8,000)
16.76
(25,000)
16.83
806,000
15.90
288,000
Outstanding at January␣ 1
Granted
Exercised
Expired
Outstanding at Dec.␣ 31
Exercisable at Dec.␣ 31
The 1,008,000 exercisable options outstanding at December␣ 31, 2000 have
exercise prices between $12.41 and $21.34, with a weighted-average
exercise price of $16.31 and a weighted average remaining contractual life
of 7.6 years. The remaining 613,000 options have exercise prices between
$14.47 and $21.34, with a weighted average exercise price of $18.56 and a
weighted average remaining contractual life of 9.6 years.
WRIT accounts for the Plan under APB Opinion No.␣ 25, under which no
compensation cost has been recognized. Had compensation cost for the
Plan been determined consistent with SFAS No.␣ 123, “Accounting for Stock-
Based Compensation,” WRIT’s net income and earnings per share would
have been reduced to the following pro-forma amounts:
Net Income:
Basic Earnings Per Share:
As Reported
Pro-Forma
As Reported
Pro-Forma
2000
$45,139
44,214
1.26
1.24
1999
$44,301
43,419
1.24
1.22
1998
$41,064
40,240
1.15
1.13
Weighted-average fair value
of options granted
Weighted-average assumptions:
Expected lives (years)
Risk free interest rate
Expected volatility
Expected dividend yield
2.46
1.76
1.92
7
5.49%
17.57%
5.85%
7
6.42%
21.05%
7.12%
7
5.09%
19.21%
6.27%
The assumptions used in the calculations of weighted average fair value of
options granted are as prescribed under accounting principles generally
accepted in the United States. Such assumptions may not be the same as
those used by the financial community and others in determining the fair
value of such options.
24
WRIT has computed basic earnings per share. There was no impact of
dilution of common equivalent shares on the basic weighted-average shares
outstanding for the years ended December␣ 31, 2000, 1999 and 1998.
During 2000 and 1999, WRIT issued 36,417 and 12,299 share grants,
respectively, to executives and trustees of the Trust. The respective
compensation expense was recorded based upon the share price at the
grant date. The Board of Trustees awards share grants subject to
Compensation Committee recommendations.
9. Benefit Plans:
During 1996, management adopted an Incentive Compensation Plan (“the
Compensation Plan”) for its senior personnel which is intended to align
their compensation growth with shareholders’ interests. Essentially, the
Compensation Plan limits future salary increases and provides cash bonus
incentives, share options under the Incentive Share Option Plan and share
grants under the Share Grant Plan based on financial performance of the
Trust. The financial incentives to management are earned after WRIT has
achieved a prescribed level of growth. This plan is effective from 1996
forward and is reviewed by the Board of Trustees’ Compensation Committee
each year. The amounts charged to expense for the share grants were $629.1
thousand, $183.2 thousand and $222.5 thousand for the years ended
December 31, 2000, 1999 and 1998, respectively.
In 1997, WRIT implemented a Retirement Savings Plan (the “Savings Plan”).
It was established so that participants in the Savings Plan may elect to
contribute a portion of their earnings to the Savings Plan, and WRIT may, at
its discretion, make a voluntary contribution to the Savings Plan.
WRIT maintained a noncontributory defined benefit pension plan for all
eligible employees through December␣ 31, 1995. At December␣ 31, 1995, all
benefit accruals under the plan were frozen and thus the projected benefit
obligation (“PBO”) and the accumulated benefit obligation (“ABO”) became
equal. WRIT terminated the plan as of December␣ 31, 1999, and final
participant distributions were made in July 2000.
The Trust adopted a split dollar life insurance plan for senior officers,
excluding the President, Chief Executive Officer, in 2000. It is intended
that the Trust will recover its costs from the life insurance policies at death
prior to retirement, termination prior to retirement or at retirement age 65.
It is intended that the cash values of the policy in excess of the Trust’s
interest can be used by the executive. The Trust has a security interest in
the cash value and death benefit of each policy to the extent of the sum of
premium payments made by the Trust.
The Trust has adopted a non-qualified deferred compensation plan for the
Chief Executive Officer. The plan allows for a deferral of a percentage of
annual cash compensation. Compensation deferred will be credited with
interest equal to the Trust’s current cost of funds. As an incentive, if the
Chief Executive Officer should remain employed by WRIT until age 70, the
compensation deferred will be credited with an additional 2.5 percent per
anum. In the event of death or retirement prior to age 70, the compensation
plus interest can be paid in either a lump sum or in equal installments plus
interest at the discretion of the plan participant. The plan is unfunded and
payments are to be made from general assets of the Trust.
(In Thousands)
Cash and cash equivalents
Mortgage notes payable
Lines of credit payable
Notes payable
2000
Carrying Value Fair Value
$ 6,426
$ 87,493
-
$258,513
$ 6,426
$ 86,260
-
$265,000
1999
Carrying Value Fair Value
$ 4,716
$ 84,520
$ 33,000
$192,420
$ 4,716
$ 87,037
$ 33,000
$210,000
10. Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107 requires disclosure of
the fair value of financial instruments. Whenever possible the estimated
fair value has been determined using quoted market information as of
December 31, 2000. The estimated fair value information presented is not
necessarily indicative of amounts the Trust could realize currently in a market
sale since the Trust may be unable to sell such instruments due to contractual
restrictions or the lack of an established market. The estimated market values
have not been updated since December 31, 2000, therefore, current estimates
of fair value may differ significantly from the amounts presented.
Below is a summary of significant methodologies used in estimating fair
values and a schedule of fair values at December 31, 2000.
11. Rentals Under Operating Leases:
Noncancellable commercial operating leases provide for minimum rental
income during each of the next five years of approximately $91.5␣ million,
$72.0␣ million, $54.6␣ million, $40.5␣ million, $27.1␣ million and $60.8␣ million
thereafter. Apartment leases are not included as they are generally for one
year. Most of these commercial leases increase in future years based on
changes in the Consumer Price Index or agreed-upon␣ percentages.
Contingent rentals from the shopping centers, based on a␣ percentage of
tenants’ gross sales, were $217,000, $425,000 and $462,000 in 2000, 1999
and 1998, respectively.
Cash and cash equivalents
12. Contingencies:
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, 2000.
Notes payable
In the normal course of business, WRIT is involved in various types of
pending or unasserted claims. In the opinion of management, these claims
will not have a material impact on the financial condition or future operations
of the Trust.
13. Segment Information:
WRIT has four reportable segments: Office Buildings, Industrial, Multifamily
and Retail Centers. Office Buildings, including medical office buildings,
represent 53␣ percent of real estate rental revenue and provide office space
for various types of businesses. Industrial represents 14␣ percent of real
estate rental revenue and are used for warehousing and distribution.
Multifamily properties represent 19␣ percent of real estate rental revenue.
These properties provide housing for families throughout the Washington
Metropolitan area. Retail Centers represent the remaining 14␣ percent of
real estate rental revenue and are typically neighborhood grocery store or
drug store anchored retail centers.
Notes payable consists of $50 million, 7.125 %, 7 year unsecured notes due
August 13, 2003, $50 million, 7.25%, 10 year unsecured notes due August
13, 2006, $50 million, 7.25%, 20 year unsecured notes due February 25, 2028,
$60 million unsecured Mandatory Par Put Remarketed Securities with an
effective yield of 6.74% and $55 million, 7.78%, 4 year unsecured notes due
November 15, 2004. The fair value of these securities is estimated based on
dealer quotes for securities with similar terms and characteristics.
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.
25
NOTES TO FINANCIAL STATEMENTS
2000
(in␣ thousands)
Office
Buildings
Industrial
Multifamily
Retail
Centers
Corporate
and Other
Consolidated
Real estate rental revenue
$ 70,885
$ 19,249
$26,234
$18,364
$ —
$134,732
Real estate expenses
Operating income
Depreciation and amortization
Income from real estate
Other income
Interest expense
General and administrative
Income before gain on sale
of real estate
Gain on sale of real estate
Net income
21,118
49,767
13,050
36,717
—
(1,630)
—
35,087
-
3,997
15,252
3,765
11,487
—
—
—
11,487
-
9,258
16,976
3,486
13,490
—
(4,329)
—
9,161
-
$ 35,087
$ 11,487
$ 9,161
3,943
14,421
2,422
11,999
—
(637)
—
11,362
3,567
$14,929
—
—
—
—
943
(18,935)
(7,533)
(25,525)
-
38,316
96,416
22,723
73,693
943
(25,531)
(7,533)
41,572
3,567
$(25,525)
$ 45,139
Capital investments
$ 31,925
$ 4,525
Total assets
$342,745
$107,811
$ 3,613
$79,622
$ 2,787
$ 814
$ 43,664
$82,435
$19,434
$632,047
1999
(in␣ thousands)
Office
Buildings
Industrial
Multifamily
Retail
Centers
Corporate
and Other
Consolidated
Real estate rental revenue
$ 61,657
$ 16,196
$22,926
$18,196
$ —
$118,975
Real estate expenses
Operating income
Depreciation and amortization
Income from real estate
Other income
Interest expense
General and administrative
Income before gain on sale
of real estate
Gain on sale of real estate
Net income
18,950
42,707
10,979
31,728
—
(1,731)
—
29,997
2,044
3,568
12,628
3,301
9,327
—
—
—
9,327
5,865
8,714
14,212
2,915
11,297
—
(1,145)
—
10,152
-
4,049
14,147
2,395
11,752
—
(653)
—
—
—
—
—
732
(18,742)
(6,173)
11,099
(24,183)
-
-
35,281
83,694
19,590
64,104
732
(22,271)
(6,173)
36,392
7,909
$ 32,041
$ 15,192
$10,152
$11,099
$(24,183)
$ 44,301
Capital investments
$ 37,691
$ 19,591
Total assets
$321,741
$105,177
$20,324
$79,548
$ 2,049
$ 1,216
$ 80,871
$84,041
$ 17,973
$608,480
26
1998
(in␣ thousands)
Office
Buildings
Industrial
Multifamily
Retail
Centers
Corporate
and Other
Consolidated
Real estate rental revenue
$ 51,311
$13,547
$21,170
$17,569
$ —
$103,597
Real estate expenses
Operating income
Depreciation and amortization
Income from real estate
Other income
Interest expense
General and administrative
Income before gain on sale
of real estate
Gain on sale of real estate
Net income
Capital investments
Total assets
16,610
34,701
8,447
26,254
—
(69)
—
26,185
—
$ 26,185
$ 54,389
$300,043
2,703
10,844
2,330
8,514
—
—
—
8,514
5,926
$14,440
$34,706
$90,077
8,096
13,074
2,581
10,493
—
—
—
10,493
—
$10,493
$ 3,012
$65,679
3,705
13,864
2,041
11,823
—
(665)
—
11,158
838
$11,996
—
—
—
—
880
(16,372)
(6,558)
(22,050)
—
31,114
72,483
15,399
57,084
880
(17,106)
(6,558)
34,300
6,764
$(22,050)
$ 41,064
$ 8,755
$ 1,967
$102,829
$84,198
$ 18,710
$558,707
14. Selected Quarterly Financial Data (Unaudited, in thousands):
15. Subsequent Event (Unaudited):
Subsequent to December 31, 2000, WRIT closed on the purchase of 1611 N.
Clarendon Boulevard. On February 15, 2001, WRIT acquired this multifamily
property for $1.5 million.
The following table summarizes financial data by quarter for WRIT for 2000,
1999 and 1998.
2000:
Real estate rental revenue
Net income
Net income per share*
1999:
Real estate rental revenue
Net income
Net income per share*
1998:
Real estate rental revenue
Net income
Net income per share*
Quarter
First
Second
Third
Fourth
$31,935
10,910
$0.31
$33,350
9,963
$0.28
$34,230
12,793
$0.36
$35,217
11,473
$0.32
$27,654
16,358
$0.46
$28,864
8,765
$0.25
$29,566
8,826
$0.25
$32,891
10,352
$0.29
$24,501
14,499
$0.41
$25,413
8,351
$0.23
$26,243
8,277
$0.23
$27,440
9,937
$0.28
*Includes gain on the sale of real estate of $.04 and $.06 per share in the
first and third quarters of 2000, $.22 per share in the first quarter of 1999
and $.16 and $.02 per share in share in the first and fourth quarters of 1998,
respectively.
27
Report of Independent Public Accountants
To the Shareholders of
Washington Real Estate Investment Trust
We have audited the accompanying consolidated balance sheets of Washington Real Estate Investment
Trust (the “Trust,” a Maryland real estate investment trust) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of income, changes in shareholders’ equity and cash
flows for each of the three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Trust and subsidiaries as of December 31, 2000 and 1999, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Vienna, Virginia
February 20, 2001
QUARTERLY PERFORMANCE OF WRIT SHARES (unaudited)
Quarter
of 2000
Fourth
Third
Second
First
Dividends
Per Share
$.3125
$.3125
$.3125
$.2925
Quarterly Share Price Range
High
$25
$20 15/16
$17 57/64
$16 15/16
Low
$18 3/4
$16 1/2
$14 1/4
$14 5/16
Quarter
of 1999
Fourth
Third
Second
First
Dividends Quarterly Share Price Range
High
Per Share
$15 15/16
$.2925
$17
$.2925
$17 15/16
$.2925
$18 3/4
$.28
Low
$13 13/16
$14 15/16
$15 13/16
$15 1/2
Per share dividends paid for 1996 through 2000 have been $1.03, $1.07, $1.11, $1.16 and $1.23 respectively. The indicated annual dividend rate was $1.25
based on the annualization of the March 2001 dividend.
28
WRIT Trustees and Officers
TRUSTEES
Edmund B. Cronin, Jr.
Chairman, President and Chief Executive Officer
Director, John J. Kirlin Companies; Potomac Electric
Power Company
John M. Derrick, Jr.
Chairman and Chief Executive Officer, Potomac Electric
Power Company
Clifford M. Kendall
Director, Affiliated Computer Service, Inc.
John P. McDaniel
Chief Executive Officer, MedStar Health
Director, Lutheran Brotherhood
Charles T. Nason
Chairman, CEO, Acacia Life Insurance Company
David M. Osnos
Senior Partner, Arent Fox Kintner Plotkin & Kahn;
Director, EastGroup Properties and VSE Corporation
Susan J. Williams
Founding Partner and President, Bracy Williams & Company
OFFICERS
Edmund B. Cronin, Jr.
Chairman, President and Chief Executive Officer
Larry E. Finger
Senior Vice President, Chief Financial Officer
George F. McKenzie
Senior Vice President, Real Estate
Brian J. Fitzgerald
Vice President, Leasing
Laura M. Franklin
Vice President, Chief Accounting Officer, Corporate Secretary
Kenneth C. Reed
Vice President, Property Management
Thomas L. Regnell
Vice President, Acquisitions
OTHER
Counsel:
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5339
Independent Public Accountant:
Arthur Andersen LLP
1666 K Street N.W.
Washington, DC 20006-2873
Member:
National Association of Real Estate Investment Trusts®
1875 Eye Street, NW, Suite 600
Washington, DC 20006-5413
$10,000 Invested in WRIT Since 1971, With Dividends Reinvested,
Would Have Been Worth Over $1.6 Million as of 12/31/00
$1,750,000
$1,500,000
$1,250,000
$1,000,000
$750,000
$500,000
$250,000
Compound Annual Rates of Return:
WRIT
S&P 500
REIT Industry
NASDAQ
Dow Jones Ind.
18.5%
13.0%
12.6%
11.3%
8.9%
WRIT
S&P 500
REIT Industry
NASDAQ
Dow Jones Ind.
$1,750,000
$1,500,000
$1,250,000
$1,000,000
$750,000
$500,000
$250,000
$0
1970
1975
1980
1985
1990
1995
$0
2000
WRIT’s ANNUAL MEETING will be held on Tuesday, May 22, 2001 at
11:00 AM at the Hyatt Regency Hotel - Bethesda, One Bethesda Metro
Center, Bethesda, Maryland.
WRIT DIRECT:
WRIT’s dividend reinvestment and direct stock purchase plan permits cash
investment of up to $25,000 per month, plus dividends, with nominal fees
and is IRA eligible.
TRANSFER AGENT:
EquiServe Trust Company, N.A. • P.O. Box 2598 Jersey City, NJ 07303-2598
LISTED: New York Stock Exchange
NEWSPAPER LISTING: WRIT
TRADING SYMBOL: WRE
10-K NOTICE: A copy of the company’s Annual Report to the Securities and
Exchange Commission on Form 10-K may be obtained without charge.
Please direct your request to WRIT’s Investor Relations Department.
WASHINGTON REAL ESTATE INVESTMENT TRUST
6110 Executive Boulevard • Rockville, Maryland 20852-3927
(301) 984-9400
(800) 565-9748
Fax: (301) 984-9610
www.writ.com