wAshington ReAl estAte investment tRust
wAshington ReAl estAte investment tRust
AnnuAl RepoRt 2013
AR13
the
oppoRtunity
is now.
we operate in one of the top real estate markets in the world. that market is changing. today, we’re pursuing new investment opportunities to reshape our portfolio for the future — and build value for our shareholders.
we operate in one of the top real estate markets in the world. that market is changing. today, we’re pursuing new investment opportunities to reshape our portfolio for the future — and build value for our shareholders.
DeAR shAReholDeR 2013 was a year of significant change—and significant accomplishments—for our
company. We have new leadership in place, a new strategic direction and have embarked on a plan to
reshape our portfolio for the future. With the sale of our medical office portfolio, Washington Real Estate
Investment Trust (Washington REIT) has successfully narrowed its focus to three asset classes: office,
residential and retail. Today, we are redeploying the proceeds from that sale to aggressively pursue targeted
investment opportunities that we believe will significantly improve the quality of our portfolio. Our goal: to
position the company for growth and build value for our shareholders.
highlights of the yeAR
— In January 2014, a comprehensive strategic plan to move the
company forward approved by the Board.
— Charles T. “Tuck” Nason, a veteran of the Board, elected to
succeed John P. McDaniel as Chairman in May 2013.
— Paul T. McDermott appointed President and CEO of the company
in October 2013, following an extensive search.
— In January 2014, finalized the sale of the medical office portfolio in
four transactions to a single buyer, with proceeds of $500.8 million.
— Strengthened the balance sheet, paying off $54 million in mortgage
notes, $135 million on the line of credit and a total of $160 million
in unsecured notes (including $100 million unsecured note that
matured January 15, 2014).
— 2013 commercial leasing volume exceeded 1.7 million square feet
of new and renewal leases signed, the highest level since 2007.
— Washington, DC office portfolio 2013 net operating income
(NOI) grew approximately 8% and physical occupancy was up
300 basis points over the prior year.
ChARles t. nAson
Chairman
pAul t. mcDeRmott
President and Chief Executive Officer
2 WashIngTOn REIT
iDentifying oppoRtunities
As a critical first step in setting the course for the
future, in the latter part of 2013, we conducted a
rigorous analysis of the portfolio, our markets and
regional economic conditions, and took a hard look at
each individual property with an eye toward positioning
our company for growth. During this five-month process,
we identified the strongest market opportunities going
forward, and developed a detailed acquisition and
disposition plan within each of our three sectors. This
comprehensive exercise reaffirmed the company’s
commitment to focusing on three core sectors—office,
residential and retail—and reaffirmed our belief that
the Washington, DC market can support our desired
growth trajectory. The process enabled us to clearly
define our targets. As a result, we have established
a new strategic direction for the company and have
embarked on that strategy.
A foCuseD, tRAnsit stRAtegy
Our market is one of our greatest strengths. Washington
REIT has 53 years of experience owning and operating
real estate in and around Washington, DC, and we are
keenly aware of the changing demographics of our
region. Today, the city is undergoing a transformation
driven by a significant demographic shift. Young,
educated professionals are flocking to urban centers
that offer walkable neighborhoods, 24/7 amenities and
strong public transit systems. Our more transit and
urban focus reflects this fundamental shift.
Going forward, we are focusing on key submarkets in
the city and close-in suburbs where we have identified
growth opportunities, and will be actively recycling out
assets that do not fit with this strategic focus. In the
office and residential sectors, we are targeting quality
properties in thriving neighborhoods primarily near
Metro stations and closer to the urban core. Our two
most recent acquisitions exemplify our new approach
in the office and residential segments. These include
the February 2014 acquisition of Yale West, a
216-unit, Class A apartment building in the heart of
the vibrant Mount Vernon Triangle neighborhood; and
the March 2014 acquisition of 1627 Eye Street, NW,
located at the city’s commercial center on Farragut
Square—home of the Army-Navy Club of Washington
and 108,000 square feet of Class A office space.
Each property is served by two Metro stations and
situated in the city’s urban core.
In retail, we expect our footprint to expand into
submarkets that demonstrate strong, affluent and
growing populations. Our focus will remain on necessity-
based retail centers typically anchored by a supermar-
ket or drug store near major transportation arteries in
close-in suburban markets. In addition, across our
three sectors, we will continue to invest opportunisti-
cally in assets inside the Capital Beltway in vibrant
neighborhoods and business districts that meet our
demographic and growth criteria.
new leADeRship
In May 2013, John P. McDaniel retired as Chairman
of the Board. We want to thank him for his leadership
as Chairman and his continued service to the
company over the past 15 years. As your new
Chairman and a co-signer of this letter, I want to
speak to Paul McDermott’s appointment as President
and Chief Executive Officer. Early in 2013, the Board
of Trustees engaged a leading executive search firm
to find a suitable replacement for our retiring Chief
Executive Officer, George F. “Skip” McKenzie. We
would like to thank Mr. McKenzie for his loyal service
over his 16 years with Washington REIT and more
specifically as our CEO since 2007. During that
five-month process, we interviewed a number of
impressive candidates. Given the depth and scope of
his experience, and his outstanding 30-year track
record in the Washington, DC real estate industry,
Paul was the Board’s unanimous first choice. We
were very pleased to welcome him to Washington
REIT—and view the completion of a comprehensive
strategic planning process under his leadership as a
key milestone for our company. With the sale of our
medical office portfolio complete, we are poised to
grow our footprint in the Washington, DC area,
demonstrating positive momentum and creating
long-term value for our shareholders. We are
committed, focused and confident about the future
prospects of Washington REIT.
in Closing
Washington REIT is becoming a more urban company
with a focused strategy in one of the top 10 real estate
markets in the world. This strategy puts us where
people want to live, work and shop—and it is where
our future lies as a company. We believe this approach
will not only build value for our shareholders, but also
strengthen our organization by helping us to attract
and retain top talent that will take Washington REIT
into the future.
The year ahead promises to be a challenging one,
but also one of opportunity. From an operational
standpoint, we are seeing signs of improvement in
the regional economy that are reflected in 2013
occupancies and leasing, particularly in the office
sector. We have embarked on a plan designed to
grow our company into one of the preeminent owners
and operators of real estate in Washington, DC. That
involves change as we realign our organization to
execute an active asset recycling strategy and an
aggressive acquisition plan. Within Washington REIT,
we talk about the three “P’s”—the people, the portfolio
and the process. Our future success hinges on our
talent, the quality of our work and the quality of the
physical assets we invest in for our shareholders.
2014 promises to be another year of change, as we
endeavor to get better and better at what we do.
Above all, we are committed to creating value for you,
our shareholders. Together, we want to thank you for
your patience, support and continued investment
in our company. We are confident your trust will be
justified in the long run, as we evidence competitive
returns and growth in the value of your investment in
Washington REIT.
annual REpORT 2013 3
1776 G Street
DynAmiC
mARket
one of the top 10 real estate markets in the world, the washington, DC region is emerging
from the recession with an increasingly diverse economy, the most educated workforce in the
nation and a thriving urban core served by a strong public transportation network anchored
by the Metrorail system. The city is undergoing a significant revitalization, driven by changing
demographic and lifestyle trends. washington Reit is focused exclusively on the washington, DC
region—at the urban core. it all starts here.
4 WashIngTOn REIT
1901 PennSylvAniA Avenue
2445 M Street
2000 M Street
1227 25th Street
1220 19th Street
1140 ConneCtiCut Avenue
Washington, DC is a thriving market. Among major
U.S. metropolitan areas, the Washington metro
region has the highest median income and the
most highly educated workforce. And it ranks third
for lowest unemployment rates among major U.S.
metropolitan areas, with 4.6% unemployment as of
December 2013 compared to the national average
of 6.7%.
Walkability and mass transit have become key
drivers of urban growth—and Washington, DC
boasts one of the largest, most efficient and newest
Metrorail transit systems in the country. The city is
undergoing a dramatic transformation, as young,
urban professionals—and the businesses that
seek to attract them—flock to the city’s urban core.
Neighborhoods such as Columbia Heights, the
U Street Corridor and the East End have become
vibrant hubs of activity—day and night—as a new
generation makes the choice to live, work and
shop in the urban core. More than 42,000 people
moved to the Washington metropolitan area in
2012, putting it among the top five U.S. markets for
net in-migration.
This urban renaissance is taking place in the nation’s
capital, a fundamentally stable and resilient real
estate market. Historically supported by the federal
government’s presence, the regional economy has
grown increasingly diverse in recent years. Today,
while federal spending represents 40% of Gross
Regional Product (GRP), federal employment
represents only 13% of total employment. And,
while federal spending has declined to 2009 levels
over the past four years, research suggests that it
will rebound to peak levels by 2017. This is where
we want to be.
annual REpORT 2013 5
1220 19th Street, WAShinGton, DC
yAle WeSt APArtMentS, WAShinGton, DC
Washington REIT owns and operates 53 properties in three core sectors: office, residential and retail. That multi-sector focus gives
the portfolio balance and diversification. Our singular focus on the Washington, DC region gives it strength and resilience, and opens
up tremendous opportunities as the city continues to grow and change. At present, that growth is centered on the region’s urban core
around the metro stations that serve 45% of the city’s working population. that’s where washington Reit is focused for growth—with
an urban, transit strategy. And it starts now.
foCuseD
poRtfolio
The office portfolio encompasses 4.7 million square
feet and 24 properties. These are located predomi-
nantly near Metro stations in the city’s central
business district (CBD) and key urban submarkets
—so it aligns well with our geographic focus. To
improve the quality and competitiveness of the
portfolio, we are acquiring assets at Class A loca-
tions at the urban core, as well as properties located
inside the Capital Beltway in vibrant neighborhoods
and business districts. For example, in March 2014,
we acquired 1627 Eye Street, NW, located on
Farragut Square, a bustling commercial hub in the
CBD served by Farragut North and Farragut West
Metro stations. The first three floors of the 12-story
building are occupied by the prestigious Army-Navy
Club of Washington, with a 30-year lease. The upper
floors comprise 108,000-square-feet of Class A
office space.
acquired Yale West, a Class A, 216-unit, high-rise
apartment building at 443 New York Avenue, NW, in
the city’s East End submarket. Yale West is a newly
constructed, amenity-rich, luxury apartment building
located in the vibrant Mount Vernon Triangle
neighborhood near two Metro stations.
Our residential portfolio encompasses 13 properties
with 2,890 units in Washington, DC and close-in
suburbs. With the shift to a more urban focus, we
are acquiring Class A and B properties that fit with
our urban, transit strategy, as well as suburban
Class B assets in high-growth markets with strong
demographics. In February 2014, Washington REIT
Our 16 shopping centers are stable, solid perform-
ers. Comprising 2.4 million square feet of retail
space, they are well located along major arteries in
affluent communities, primarily in close-in suburban
markets and anchored by supermarkets and other
everyday retail.
annual REpORT 2013 7
effeCtive
stRAtegy
in 2013, we took a fresh look at all of our assets—and our market—to reshape our portfolio
for long-term performance. Today, Washington REIT is focused on high-growth neighborhoods
where people want to live, work and shop—at the city’s urban core and in key submarkets
along the transportation corridors. Today, we are recycling out assets that no longer fit with this
transit strategy and aggressively pursuing new investment opportunities. our goal: to improve
the quality of our portfolio and create value for our shareholders.
8 WashIngTOn REIT
In 2013, Washington REIT undertook a rigorous
analysis of the regional market, our portfolio and each
of our properties to identify growth opportunities.
A number of findings—and a clear strategic
direction—emerged.
The regional office market is undergoing a shift from
suburban to urban. While suburban markets have
provided our company with steady growth for the past
53 years, Washington REIT is making the transition
to the urban core because, demographically, that’s
where the growth opportunities are. In addition, we are
focusing primarily on Class A assets in the competitive
downtown market, because they outperform other
classes of assets in any economic environment.
As it relates to our residential portfolio, there is a
significant demographic shift to the urban core. That
includes revitalized neighborhoods within the city
and close-in suburban markets along the Metro
corridor, such as Arlington, VA, and Bethesda, MD. In
the residential sector, we are focused on two product
types: newly constructed Class A and well-located
Class B properties that can generate solid growth
through unit renovations and amenity upgrades.
Retail will be the one asset class where we expect
to expand our footprint beyond a transit focus. We
will continue to focus on necessity-based retail centers,
typically anchored by a supermarket or drug store—
and expand by acquiring high-quality assets in
Washington, DC submarkets that demonstrate strong,
affluent and growing populations.
Across all asset classes, we have established
benchmarks for quality, performance and growth.
Washington REIT employs an active asset manage-
ment model and an active asset recycling strategy.
We believe each asset must have a definitive life
cycle within our portfolio, including a long-term growth
profile that generates solid returns for our investors.
annual REpORT 2013 9
offiCeRs
tRustees
Paul T. McDermott
President and Chief Executive Officer
William T. Camp
Executive Vice President and Chief Financial Officer
Laura M. Franklin
Executive Vice President Accounting, Administration
and Corporate Secretary
James B. Cederdahl
Senior Vice President, Property Operations
Thomas C. Morey
Senior Vice President and General Counsel
Thomas L. Regnell
Senior Vice President and Managing Director,
Office Division
Charles T. Nason
Chairman, Washington REIT
Retired Chairman, President and Chief Executive Officer,
The Acacia Group
Paul T. McDermott
President and Chief Executive Officer, Washington REIT
William G. Byrnes
Chairman, CapitalSource, Inc.
Edward S. Civera
Retired Chairman, Catalyst Health Solutions, Inc.
John P. McDaniel
Retired Chief Executive Officer, MedStar Health
Thomas Edgie Russell, III
Retired President, Partners Realty Trust, Inc.
Wendelin A. White
Partner, Pillsbury Winthrop Shaw Pittman LLP
Vice Admiral Anthony L. Winns (RET.)
President, Middle East-Africa Region,
Corporate International Business Development,
Lockheed Martin Corporation
10 WashIngTOn REIT
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Washington, D.C. 20549
[√]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 2013
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
WASHINGTON REAL ESTATE INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
COMMISSION FILE NO. 1-6622
MARYLAND
(State of incorporation)
53-0261100
(IRS Employer Identification Number)
6110 EXECUTIVE BOULEVARD, SUITE 800, ROCKVILLE, MARYLAND 20852
(Address of principal executive office) (Zip code)
Registrant’s telephone number, including area code: (301) 984-9400
Securities registered pursuant to Section 12(b) of the Act:
SHARES OF BENEFICIAL INTEREST
NEW YORK STOCK EXCHANGE
Title of Each Class
Name of exchange on which registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. YES [√] NO [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES [ ] NO [√]
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the past
ninety (90) days. YES [√] NO [ ]
Indicate by checkmark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES [√] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge in definitive proxy or information statements incor-
porated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[√]
Accelerated filer
[ ]
Non-accelerated filer
[ ]
Smaller reporting company
[ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). YES [ ] NO [√]
As of June 28, 2013, the aggregate market value of such shares held by non-
affiliates of the registrant was $1,775,842,352 (based on the closing price of the
stock on June 28, 2013).
As of February 26, 2014, 66,598,192 common shares were outstanding.
Documents Incorporated By Reference
Portions of our definitive Proxy Statement relating to the 2014 Annual Meeting
of Shareholders, to be filed with the Securities and Exchange Commission, are
incorporated by reference in Part III, Items 10-14 of this Annual Report on Form
10-K as indicated herein.
11
Form 10-K
12
2013 AnnuAl RepoRt INDEX
PART I
Page
ITEM 1. Business 14
ITEM 1A. Risk Factors 17
ITEM 1B. Unresolved Staff Comments
27
ITEM 2. Properties 27
ITEM 3.
Legal Proceedings
ITEM 4. Mine Safety Disclosures
PART II
30
30
ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 30
ITEM 6. Selected Financial Data 31
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
ITEM 7A. Qualitative and Quantitative Disclosures About Market Risk 58
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
59
59
ITEM 9A. Controls and Procedures 59
ITEM 9B. Other Information 60
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 60
ITEM 11. Executive Compensation 60
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
60
61
ITEM 14. Principal Accountant Fees and Services 61
PART IV
ITEM 15. Exhibits and Financial Statement Schedules 62
Signatures 67
13
Form 10-K
PART I
ITEM 1. Business
WRIT Overview
Washington Real Estate Investment Trust (“we” or “WRIT”) is a self-adminis-
tered, self-managed, equity real estate investment trust (“REIT”) successor to a
trust organized in 1960. Our business consists of the ownership and operation
of income-producing real property in the greater Washington metro region. We
own a diversified portfolio of office buildings, multifamily buildings and retail
centers. During 2013 we implemented a plan to sell our entire medical office
segment, and completed the final phase of this plan early in 2014.
Our geographic focus is based on two principles:
1. Real estate is a local business and is more effectively selected and man-
aged by owners located, and with expertise, in the region.
2. Geographic markets deserving of focus must be among the nation’s best
markets with a strong primary industry foundation and diversified enough to
withstand downturns in their primary industry.
We consider markets to be local if they can be reached from Washington
within two hours by car. While we have historically focused most of our invest-
ments in the greater Washington metro region, in order to maximize acqui-
sition opportunities we will consider investments within the two-hour radius
described above. In the future, we also may consider opportunities to dupli-
cate our Washington-focused approach in other geographic markets that meet
the criteria described above.
Our current strategy is focused on properties inside the Washington metro
region’s Beltway, near major transportation nodes and in areas with strong
employment drivers and superior growth demographics. We will seek to con-
tinue to upgrade our portfolio as opportunities arise, funding acquisitions with
a combination of cash, equity, debt and proceeds from property sales.
All of our officers and employees live and work in the greater Washington
metro region and all but one of our officers have over 20 years of experience
in this region.
Washington Metro Region Economy
The Washington metro region experienced modest job growth during 2013, as
a decrease in federal government employment and procurement attributable
to continued fiscal austerity offset gains in other sectors. Current estimates by
Delta Associates/Transwestern Commercial Services (“Delta”), a national full
service real estate firm that provides market research and evaluation services for
commercial property, indicate that the Washington metro region gained 20,700
jobs during the 12 month period ending October 2013. The region’s unemploy-
ment rate was 5.9% at October 2013, up from 5.1% in the prior year. Though job
growth in 2013 lagged behind other large metro regions, the Washington metro
region’s unemployment rate remains one of the lowest in the nation.
Delta expects the Washington metro region’s economic growth to remain slug-
gish in 2014, with more robust growth in 2015 and 2016.
Washington Metro Region Real Estate Markets
The Washington metro region’s slow growth is reflected in the real estate
market performance in each of our segments. Market statistics and information
from Delta are set forth below:
Office Segment
• Average effective rents in the region decreased 2.9% in 2013 and in 2012.
• Overall vacancy was 13.4% at December 31, 2013 and 2012, slightly higher
than the national rate of 13.2%.
• Net absorption (defined as the change in occupied, standing inventory from
one period to the next) totaled 1.8 million square feet in 2013, compared to
negative net absorption of 2.9 million square feet in 2012. The 15-year aver-
age annual absorption for the region is 5.3 million square feet.
• Of the 6.4 million square feet of office space under construction at
December 31, 2013 (down from 8.0 million square feet at December 31,
2012), 53% is pre-leased, compared to 51% one year ago.
Retail Segment
• Rental rates at grocery-anchored centers in the region were up 2.2% in 2013,
compared to the 1.4% increase in 2012.
14
2013 AnnuAl RepoRt • Vacancy for grocery-anchored centers was 4.7% at December 31, 2013,
down from 4.9% at December 31, 2012.
The commercial lease expirations at properties classified as continuing opera-
tions for the next five years and thereafter are as follows:
Multifamily Segment
• Net effective rents for all investment grade apartments in the Washington metro
region decreased 1.8% in 2013, compared to a 1.7% increase in 2012. Class A
rents decreased by 3.0% in 2013, compared to an increase of 1.9% in 2012.
• The vacancy rate for all apartments was 4.9% at December 31, 2013,
compared to 4.3% at December 31, 2012. The national rate was 4.3% at
December 31, 2013. Class A vacancy increased to 4.7% at December 31,
2013 from 4.2% at December 31, 2012.
Our Portfolio
As of December 31, 2013, we owned a diversified portfolio of 56 properties,
totaling approximately 7.4 million square feet of commercial space and 2,674
residential units, and land held for development. These 56 properties consist
of 23 office properties, 5 medical office properties (which were subsequently
sold on January 21, 2014), 16 retail centers and 12 multifamily properties. Our
principal objective is to invest in high quality properties in prime locations, then
proactively manage, lease and direct ongoing capital improvement programs to
improve their economic performance. The percentage of total real estate rental
revenue by property group for 2013, 2012 and 2011, and the percent leased as
of December 31, 2013, were as follows:
PERcENT LEASED
DEcEMBER 31, 2013(2)
91%
94%
93%
Office
Retail
Multifamily
REAL ESTATE RENTAL REVENUE(1)
2013
58%
21%
21%
100%
2012
58%
21%
21%
100%
2011
57%
21%
22%
100%
(1) Data excludes discontinued operations—medical office and industrial segments.
(2) calculated as the percentage of physical net rentable area leased.
On a combined basis, our commercial portfolio (i.e., our office, medical office and
retail properties, but not our multifamily properties) was 92% leased at December 31,
2013, 88% leased at December 31, 2012, and 91% leased at December 31, 2011.
2014
2015
2016
2017
2018
2019 and thereafter
Total
# OF
LEASES
138
147
124
106
108
273
896
SqUARE
FEET
824,668
944,533
798,793
741,094
666,054
2,416,901
6,392,043
GROSS
ANNUAL RENT
(in thousands)
PERcENTAGE OF
TOTAL GROSS
ANNUAL RENT
$ 25,915
30,734
23,338
26,398
16,536
86,236
$209,157
12%
15%
11%
13%
8%
41%
100%
Total real estate rental revenue from continuing operations was $263.0 million
for 2013, $254.8 million for 2012 and $234.7 million for 2011. During the three-
year period ended December 31, 2013, we acquired seven office properties,
two retail properties and one multifamily property. During that same period,
we sold eleven office properties, thirteen medical office properties and our
entire industrial segment.
According to Delta, the professional/business services and government sec-
tors constituted over one third of payroll jobs in the Washington metro area at
the end of 2013. Due to our geographic concentration in the Washington metro
area, a significant amount of our tenants have historically been concentrated in
the professional/business services and government sectors, although the exact
amount will vary from time to time. As a result of this concentration, we are sus-
ceptible to business trends (both positive and negative) that affect the outlook
for these sectors. In particular, a significant reduction in federal government
spending would seriously impact these sectors.
No single tenant accounted for more than 5.0% of real estate rental reve-
nue in 2013, 2012 or 2011. All federal government tenants in the aggregate
accounted for approximately 1.0% of our 2013 real estate rental revenue.
Federal government tenants include the Department of Defense, Social
Security Administration, Federal Bureau of Investigation and Office of
Personnel Management.
15
Form 10-K Our ten largest tenants, in terms of real estate rental revenue, are as follows:
REIT Tax Status
1. World Bank
2. Advisory Board Company
3. Booz Allen Hamilton, Inc.
4. Patton Boggs LLP
5. Engility Corporation
6. Sunrise Assisted Living, Inc.
7. Epstein, Becker & Green, P.C.
8. General Dynamics
9. TJX Companies
10. General Services Administration
We expect to continue investing in additional income-producing properties
through acquisitions, development and redevelopment. We invest in properties
which we believe will increase in income and value. Our properties typically
compete for tenants with other properties throughout the respective areas in
which they are located on the basis of location, quality and rental rates.
We make capital improvements to our properties on an ongoing basis for the
purpose of maintaining and increasing their value and income. Major improve-
ments and/or renovations to the properties during the three years ended
December 31, 2013 are discussed in Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, under the heading
“Capital Improvements and Development Costs.”
Further description of the property groups is contained in Item 2, Properties,
Note 13, Segment Information and in Schedule III. Reference is also made
to Item 7, Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
On February 26, 2014, we had 263 employees including 180 persons engaged
in property management functions and 83 persons engaged in corporate,
financial, leasing, asset management and other functions.
16
We believe that we qualify as a REIT under Sections 856-860 of the Internal
Revenue Code and intend to continue to qualify as such. To maintain our status
as a REIT, we are required to distribute 90% of our ordinary taxable income to
our shareholders. When selling properties, we have the option of (a) reinvesting
the sales proceeds of properties sold, allowing for a deferral of income taxes
on the sale, (b) paying out capital gains to the shareholders with no tax to us
or (c) treating the capital gains as having been distributed to our shareholders,
paying the tax on the gain deemed distributed and allocating the tax paid as a
credit to our shareholders.
Tax Treatment of Recent Disposition Activity
We sold the following properties during the three years ended December 31, 2013:
PROPERTy
Atrium Building
Medical Office Portfolio
Transactions I & II(1)
Total 2013
RENTABLE
SqUARE FEET
cONTRAcT
SALES PRIcE
(in thousands)
GAIN ON SALE
(in thousands)
79,000
$ 15,750
$ 3,195
TyPE
Office
Medical Office/
Office
1,093,000
307,189
18,949
1,172,000
$322,939
$22,144
1700 Research Boulevard Office
101,000
$ 14,250
$ 3,724
Plumtree Medical Center Medical Office
33,000
8,750
1,400
Total 2012
134,000
$ 23,000
$ 5,124
Industrial Portfolio(2)
Industrial/Office 3,092,000
$350,900
$97,491
Dulles Station, Phase I
Office
180,000
58,800
—
Total 2011
3,272,000
$409,700
$97,491
(1) Transaction I and II of the Medical Office Portfolio purchase and sale agreement consisted of medical office
properties (2440 M Street, 15001 Shady Grove Road, 15005 Shady Grove Road, 19500 at Riverside Park (for-
merly Lansdowne Medical Office Building), 9707 Medical Center Drive, CentreMed I and II, 8301 Arlington
Boulevard, Sterling Medical Office Building, Shady Grove Medical Village II, Alexandria Professional Center,
Ashburn Farm Office Park I, Ashburn Farm Office Park II, Ashburn Farm Office Park III, Woodholme Medical
Office Building), two office properties (6565 Arlington Boulevard and Woodholme Center) and undeveloped
land (4661 Kenmore Ave). Subsequent to the end of 2013, we closed on Transactions III and IV, consisting of
Woodburn Medical Park I and II and Prosperity Medical center I, II and III.
(2) The Industrial Portfolio consisted of every property in our industrial segment and two office properties
(the crescent and Albemarle Point).
2013 AnnuAl RepoRt All disclosed gains on sale are calculated in accordance with U.S. generally
accepted accounting principles (“GAAP”). We have identified a portion of
the sold Medical Office Portfolio properties for tax deferred exchange under
Section 1031 of the Internal Revenue Code. Section 1031 requires that we
identify and close on the acquisition of replacement properties within limited
time periods. We may not be able to identify and acquire appropriate replace-
ment properties within the specified time periods. If we do not identify and
acquire the replacement properties within the specified time periods, we would
expect to recognize a taxable gain with respect to the sale of the Medical
Office Portfolio. The amount of this taxable gain would depend upon the timing
and size of the replacement property acquisitions and also our other results of
operations, and it could be a material amount. If we recognize this taxable gain,
we could be required to pay a significant portion of it as a special capital gain
dividend to our shareholders or alternatively be subject to income taxes on the
taxable gain.
We distributed all of our ordinary taxable income for the years ended
December 31, 2013, 2012 and 2011 to our shareholders.
Generally, and subject to our ongoing qualification as a REIT, no provisions for
income taxes are necessary except for taxes on undistributed REIT taxable
income and taxes on the income generated by our taxable REIT subsidiaries
(“TRS’s”). Our TRS’s are subject to corporate federal and state income tax on
their taxable income at regular statutory rates (see note 1 to the consolidated
financial statements for further disclosure).
Availability of Reports
Copies of this Annual Report on Form 10-K, as well as our Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and any amendments to such reports
are available, free of charge, on the Internet on our website www.writ.com. All
required reports are made available on the website as soon as reasonably
practicable after they are electronically filed with or furnished to the Securities
and Exchange Commission. The reference to our website address does not
constitute incorporation by reference of the information contained in the website
and such information should not be considered part of this document.
ITEM 1A. Risk Factors
Set forth below are the risks that we believe are material to our shareholders.
We refer to the shares of beneficial interest in WRIT as our “common shares,”
and the investors who own shares as our “shareholders.” This section includes
or refers to certain forward-looking statements. You should refer to the expla-
nation of the qualifications and limitations on such forward-looking statements
beginning on page 56.
Our performance and value are subject to risks associated with our real estate
assets and with the real estate industry.
Our financial performance and the value of our real estate assets are subject
to the risk that if our office, retail and multifamily properties do not generate
revenues sufficient to meet our operating expenses, debt service and capital
expenditures, our cash flow and ability to pay distributions to our shareholders
will be adversely affected. The following factors, among others, may adversely
affect the cash flow generated by our commercial and multifamily properties:
• downturns in the national, regional and local economic climate;
• the financial health of our tenants and the ability to collect rents;
• consumer confidence, unemployment rates and consumer tastes and
preferences;
• competition from similar asset type properties;
• local real estate market conditions, such as oversupply or reduction in
demand for office, retail and multifamily properties;
• changes in interest rates and availability of financing;
• vacancies, changes in market rental rates and the need to periodically repair,
renovate and re-let space;
• increased operating costs, including insurance premiums, utilities and real
estate taxes;
• inflation;
• civil disturbances, earthquakes and other natural disasters, terrorist acts or
acts of war; and
• decreases in the underlying value of our real estate.
17
Form 10-K We are dependent upon the economic climate of the Washington metropoli-
tan region.
We face risks associated with property development/redevelopment.
All of our properties are located in the Washington metro region, which may
expose us to a greater amount of market dependent risk than if we were
geographically diverse. General economic conditions and local real estate
conditions in the Washington metro region are dependent upon various indus-
tries that are predominant in our area (such as government and professional/
business services). A downturn in one or more of these industries may have
a particularly strong effect on the economic climate of our region. In the event
of negative economic changes in our region, we may experience a negative
impact to our profitability and may be limited in our ability to meet our financial
obligations when due and/or make distributions to our shareholders.
We may be adversely affected by any significant reductions in federal govern-
ment spending.
As a REIT operating exclusively in the Washington metro region, a significant
portion of our properties is occupied by United States Government tenants or
tenants that are directly or indirectly serving the United States Government as
federal contractors or otherwise. A significant reduction in federal government
spending, particularly a sudden decrease due to the sequestration process,
could adversely affect the ability of these tenants to fulfill lease obligations or
decrease the likelihood that they will renew their leases with us. Further, eco-
nomic conditions in the Washington metro region are significantly dependent
upon the level of federal government spending in the region. In the event of a
significant reduction in federal government spending, there could be negative
economic changes in our region which could adversely impact the ability of our
tenants to perform their financial obligations under our leases or the likelihood
of their lease renewal. As a result, if such a reduction in federal government
spending were to occur, we could experience an adverse effect on our financial
condition, results of operations, cash flows and ability to make distributions to
our shareholders.
We currently have an active development project to build a mid-rise apartment
building at 650 North Glebe Road in Arlington, Virginia, and an active redevel-
opment project to renovate 7900 Westpark Drive, an office building in McLean,
Virginia. We decided to delay commencement of construction of a high-rise
multifamily property at 1225 First Street in Alexandria, Virginia due to market
conditions and concerns of oversupply.
Developing or redeveloping properties presents a number of risks for us,
including risks that:
• if we are unable to obtain all necessary zoning and other required govern-
mental permits and authorizations or cease development of the project for
any other reason, the development opportunity may be abandoned after
expending significant resources, resulting in the loss of deposits or failure to
recover expenses already incurred;
• the development and construction costs of the project may exceed original
estimates due to increased interest rates and increased cost of materials,
labor, leasing or other expenditures, which could make the completion of the
project less profitable because market rents may not increase sufficiently to
compensate for the increase in construction costs;
• construction and/or permanent financing may not be available on favorable
terms or may not be available at all, which may cause the cost of the project
to increase and lower the expected return;
• the project may not be completed on schedule as a result of a variety of
factors, many of which are beyond our control, such as weather, labor condi-
tions and material shortages, which would result in increases in construction
costs and debt service expenses;
• the time between commencement of a development project and the stabiliza-
tion of the completed property exposes us to risks associated with fluctua-
tions in the Washington metro region’s economic conditions; and
• occupancy rates and rents at the completed property may not meet the
expected levels and could be insufficient to make the property profitable.
Properties developed or acquired for development may generate little or
no cash flow from the date of acquisition through the date of completion of
18
2013 AnnuAl RepoRt development. In addition, new development activities, regardless of whether or
not they are ultimately successful, may require a substantial portion of man-
agement’s time and attention.
These risks could result in substantial unanticipated delays or expenses
and, under certain circumstances, could prevent completion of development
activities once undertaken. Any of the foregoing could have an adverse effect
on our financial condition, results of operations or ability to satisfy our debt
service obligations.
We face risks associated with property acquisitions.
We intend to continue to acquire properties which would increase our size and
could alter our capital structure. Our acquisition activities and results may be
exposed to the following risks:
• we may be unable to finance acquisitions on favorable terms;
• the acquired properties may fail to perform as we expected in analyzing our
investments;
• the actual returns realized on acquired properties may not exceed our aver-
age cost of capital;
• even if we enter into an acquisition agreement for a property, we may be
unable to complete that acquisition after making a non-refundable deposit
and incurring certain other acquisition-related costs;
• we may be unable to quickly and efficiently integrate new acquisitions, par-
ticularly acquisitions of portfolios of properties, into our existing operations;
• competition from other real estate investors may significantly increase the
purchase price;
• our estimates of capital expenditures required for an acquired property,
including the costs of repositioning or redeveloping, may be inaccurate;
• we may be unable to acquire a desired property because of competition from
other real estate investors, including publicly traded real estate investment
trusts, institutional investment funds and private investors; and
• even if we enter into an acquisition agreement for a property, it is subject to
customary conditions to closing, including completion of due diligence inves-
tigations which may have findings that are unacceptable.
We may acquire properties subject to liabilities and without recourse, or with
limited recourse with respect to unknown liabilities. As a result, if liability were
asserted against us based upon the acquisition of a property, we may have to
pay substantial sums to settle it, which could adversely affect our cash flow.
Unknown liabilities with respect to properties acquired might include:
• liabilities for clean-up of undisclosed environmental contamination;
• claims by tenants, vendors or other persons dealing with the former owners
of the properties; and
• liabilities incurred in the ordinary course of business.
Real estate investments are illiquid, and we may not be able to sell our proper-
ties on a timely basis when we determine it is appropriate to do so.
Real estate investments can be difficult to sell and convert to cash quickly,
especially if market conditions are not favorable, and we may find that to be the
case under the current economic conditions due to limited credit availability
for potential buyers. Such illiquidity could limit our ability to quickly change our
portfolio of properties in response to changes in economic or other conditions.
Moreover, under certain circumstances, the Internal Revenue Code imposes
penalties on a REIT that sells property held for less than two years and/or
sells more than a specified number of properties in a given year. In addition,
for properties that we acquire by issuing units in an operating partnership, we
may be restricted by agreements with the sellers of the properties for a certain
period of time from entering into transactions (such as the sale or refinancing of
the acquired property) that will result in a taxable gain to the sellers without the
sellers’ consent. Due to these factors, we may be unable to sell a property at
an advantageous time.
We may not timely reinvest the proceeds of the sale of our medical office
portfolio in properties, which would adversely affect our results of operations
and net income.
During 2013, we implemented a plan to sell our entire medical office portfo-
lio and completed the final phase of this plan early in 2014. We may not be
successful in reinvesting some or all of the proceeds of the sale of the medical
office portfolio in the near term. If we do not successfully reinvest the sales
proceeds promptly in income-producing properties, the resulting decrease in
19
Form 10-K our net income attributable to the controlling interests will not be completely
offset by income from the temporary investment of the disposition proceeds.
This decrease in net income would have a negative impact on our earnings
to fixed charges and debt service coverage ratios and could have a negative
impact on our ability to pay dividends at their current level. Even if we promptly
reinvest some or all of the sales proceeds in income-producing properties, we
still expect some decrease in net income attributable to the controlling interests
in future quarters due to the cost of these acquisitions.
The sale of our medical office portfolio may require the payment of additional
dividends or result in a tax liability for the taxable gains on the sold properties.
We have identified a portion of the sold Medical Office Portfolio properties
for tax deferred exchange under Section 1031 of the Internal Revenue Code.
Section 1031 requires that we identify and close on the acquisition of replace-
ment properties within limited time periods. We may not be able to identify and
acquire appropriate replacement properties within the specified time periods.
If we do not identify and acquire the replacement properties within the speci-
fied time periods, we would expect to recognize a taxable gain with respect to
the sale of the Medical Office Portfolio. The amount of this taxable gain would
depend upon the timing and size of the replacement property acquisitions and
also our other results of operations, and it could be a material amount. If we
recognize this taxable gain, we could be required to pay a significant portion
of it as a special capital gain dividend to our shareholders or alternatively be
subject to income taxes on the taxable gain.
Funds used to pay capital gains to our shareholders or tax liabilities would
not be available for reinvestment in properties, potentially decreasing our net
income, negatively impacting our earnings to fixed charges and debt service
coverage ratios and negatively impacting our ability to pay future dividends at
their current level. Further, it is possible that the qualification of a transaction
as a Section 1031 exchange could be successfully challenged and determined
to be currently taxable. In this event, our taxable income would increase. This
could require us to pay additional dividends or, in lieu of that, income taxes,
possibly including interest and penalties.
We face potential difficulties or delays renewing leases or re-leasing space.
As of December 31, 2013, leases on our commercial properties classified as
continuing operations will expire as follows:
% OF LEASED SqUARE FOOTAGE
2014
2015
2016
2017
2018
2019 and thereafter
Total
12%
15%
11%
13%
8%
41%
100%
Multifamily properties are leased under operating leases with terms of gener-
ally one year or less. For the years ended December 31, 2013, 2012 and 2011,
the multifamily tenant retention rate was 43%, 61% and 56%, respectively.
We derive substantially all of our income from rent received from tenants. If
our tenants decide not to renew their leases, we may not be able to release
the space. If tenants decide to renew their leases, the terms of renewals,
including the cost of required improvements or concessions, may be less
favorable than current lease terms. As a result of the foregoing, our cash flow
could decrease and our ability to make distributions to our shareholders could
be adversely affected.
We face potential adverse effects from major tenants’ bankruptcies
or insolvencies.
The bankruptcy or insolvency of a major tenant may adversely affect the
income produced by a property. We cannot evict a tenant solely because of
its bankruptcy. On the other hand, a court might authorize the tenant to reject
and terminate its lease. In such case, our claim against the bankrupt tenant for
unpaid, future rent would be subject to a statutory cap that might be substan-
tially less than the remaining rent actually owed under the lease. As a result,
our claim for unpaid rent would likely not be paid in full. This shortfall could
20
2013 AnnuAl RepoRt adversely affect our cash flow and results from operations. If a tenant experi-
ences a downturn in its business or other types of financial distress, it may be
unable to make timely rental payments.
We may suffer economic harm as a result of the actions of our partners in real
estate joint ventures and other investments.
We invest in joint ventures in which we are not the exclusive investor or the only
decision maker. Investments in such entities may involve risks not present when
a third party is not involved, including the possibility that the other parties to these
investments might become bankrupt or fail to fund their share of required capital
contributions. Our partners in these entities may have economic, tax or other
business interests or goals which are inconsistent with our business interests or
goals, and may be in a position to take actions contrary to our policies or objec-
tives. Such investments may also lead to impasses, for example, as to whether
to sell a property, because neither we nor the other parties to these investments
may have full control over the entity. In addition, we may in certain circumstances
be liable for the actions of the other parties to these investments. Each of these
factors could have an adverse effect on our financial condition, results of oper-
ations, cash flows and ability to make distributions to our shareholders.
Our properties face significant competition.
We face significant competition from developers, owners and operators of
office, retail, multifamily and other commercial real estate. Substantially all of
our properties face competition from similar properties in the same market.
Such competition may affect our ability to attract and retain tenants and may
reduce the rents we are able to charge. These competing properties may have
vacancy rates higher than our properties, which may result in their owners being
willing to make space available at lower rents than the space in our properties.
We are dependent on key personnel.
The execution of our investment strategy, and management of our operations,
depend to a significant degree on our senior management team. If we are
unable to attract and retain skilled executives, our results of operations and
financial condition could be adversely affected.
We cannot assure you we will continue to pay dividends at current rates.
Cash flows from operations are an important factor in our ability to sustain our
dividend at its current rate. If our cash flows from operations were to decline
significantly, we may have to borrow on our lines of credit to sustain the divi-
dend rate or further reduce our dividend, as we did in the third quarter of 2012.
Our ability to continue to pay dividends on our common shares at its current
rate or to increase our common share dividend rate will depend on a number of
factors, including, among others, the following:
• our future financial condition and results of operations;
• real estate market conditions in the Washington metro region;
• the performance of lease terms by tenants;
• the terms of our loan covenants; and
• our ability to acquire, finance, develop or redevelop and lease additional
properties at attractive rates.
Our board of trustees considers, among other factors, trends in our levels of
funds from operations, together with associated recurring capital improve-
ments, tenant improvements, leasing commissions and incentives, and
adjustments to straight-line rents to reflect cash rents received. This level
has trended lower in recent years due to the recent economic downturn and
uncertainty with the business and leasing environment in the Washington
metro region. As noted above, we reduced our dividend rate, and if such trend
were to continue for a sustained period of time, our board of trustees could
determine to further reduce our dividend rate. If we do not maintain or increase
the dividend rate on our common shares in the future, it could have an adverse
effect on the market price of our common shares.
We face risks associated with the use of debt, including refinancing risk.
We rely on borrowings under our credit facilities and offerings of debt securities
to finance acquisitions and development activities and for general corporate
purposes. In the recent past, the commercial real estate debt markets have
experienced significant volatility due to a number of factors, including the
tightening of underwriting standards by lenders and credit rating agencies
and the reported significant inventory of unsold mortgage backed securities
21
Form 10-K in the market. The volatility resulted in investors decreasing the availability of
debt financing as well as increasing the cost of debt financing. We believe that
circumstances could again arise in which we may not be able to obtain debt
financing in the future on favorable terms, or at all. If we were unable to borrow
under our credit facilities or to refinance existing debt financing, our financial
condition and results of operations would likely be adversely affected.
We are subject to the risks normally associated with debt, including the risk
that our cash flow may be insufficient to meet required payments of principal
and interest. We anticipate that only a small portion of the principal of our
debt will be repaid prior to maturity. Therefore, we are likely to need to refi-
nance a significant portion of our outstanding debt as it matures. There is a
risk that we may not be able to refinance existing debt or that the terms of any
refinancing will not be as favorable as the terms of the existing debt. If princi-
pal payments due at maturity cannot be refinanced, extended or repaid with
proceeds from other sources, such as new equity capital, our cash flow may
not be sufficient to repay all maturing debt in years when significant “balloon”
payments come due.
Our degree of leverage could limit our ability to obtain additional financing or
affect the market price of our common shares or debt securities.
On February 26, 2014, our total consolidated debt was approximately $1.1 bil-
lion. Consolidated debt to consolidated market capitalization ratio, which mea-
sures total consolidated debt as a percentage of the aggregate of total con-
solidated debt plus the market value of outstanding equity securities, is often
used by analysts to assess leverage for equity REITs such as us. Our market
value is calculated using the price per share of our common shares. Using the
closing share price of $24.86 per share of our common shares on February 26,
2014, multiplied by the number of our common shares, our consolidated debt
to total consolidated market capitalization ratio was approximately 40% as of
February 26, 2014.
Our degree of leverage could affect our ability to obtain additional financing for
working capital, capital expenditures, acquisitions, development or other gen-
eral corporate purposes. Our senior unsecured debt is currently rated invest-
ment grade by two major rating agencies. However, there can be no assurance
that we will be able to maintain this rating, and in the event our senior debt
is downgraded from its current rating, we would likely incur higher borrowing
costs and/or difficulty in obtaining additional financing. Our degree of leverage
could also make us more vulnerable to a downturn in business or the economy
generally. There is a risk that changes in our debt to market capitalization ratio,
which is in part a function of our share price, or our ratio of indebtedness to
other measures of asset value used by financial analysts, may have an adverse
effect on the market price of our equity or debt securities.
Disruptions in the financial markets could affect our ability to obtain financing
or have other adverse effects on us or the market price of our common shares.
The United States and global equity and credit markets have experienced sig-
nificant price volatility and liquidity disruptions which caused the market prices
of stocks to fluctuate substantially and the spreads on prospective debt financ-
ings to widen considerably. These circumstances significantly and negatively
impacted liquidity in the financial markets, making terms for certain financings
less attractive or unavailable. Any disruption in the equity and credit markets
could negatively impact our ability to access additional financing at reasonable
terms or at all. If such disruption were to occur, in the event of a debt financ-
ing, our cost of borrowing in the future would likely be significantly higher than
historical levels. Additionally, in the case of a common equity financing, the
disruptions in the financial markets could have a material adverse effect on
the market value of our common shares, potentially requiring us to issue more
shares than we would otherwise have issued with a higher market value for our
common shares. Disruption in the financial markets also could negatively affect
our ability to make acquisitions, undertake new development projects and
refinance our debt. In addition, it could also make it more difficult for us to sell
properties and could adversely affect the price we receive for properties that
we do sell, as prospective buyers experience increased costs of financing and
difficulties in obtaining financing.
Disruptions in the financial markets also could adversely affect many of our
tenants and their businesses, including their ability to pay rents when due and
renew their leases at rates at least as favorable as their current rates. As well,
our ability to attract prospective new tenants in the future could be adversely
affected by disruption in the financial markets.
22
2013 AnnuAl RepoRt Rising interest rates would increase our interest costs.
We face risks associated with short-term liquid investments.
We may incur indebtedness that bears interest at variable rates. Accordingly, if
interest rates increase, so will our interest costs, which could adversely affect
our cash flow and our ability to service debt. As a protection against rising
interest rates, we may enter into agreements such as interest rate swaps, caps,
floors and other interest rate exchange contracts. These agreements, however,
increase our risks that other parties to the agreements may not perform or that
the agreements may be unenforceable.
We have significant cash balances periodically that we invest in a variety
of short-term investments that are intended to preserve principal value and
maintain a high degree of liquidity while providing current income. From time to
time, these investments may include (either directly or indirectly):
• direct obligations issued by the U.S. Treasury;
• obligations issued or guaranteed by the U.S. government or its agencies;
• taxable municipal securities;
Covenants in our debt agreements could adversely affect our financial condition.
• obligations (including certificates of deposit) of banks and thrifts;
Our credit facilities contain customary restrictions, requirements and other lim-
itations on our ability to incur indebtedness. We must maintain a minimum tan-
gible net worth and certain ratios, including a maximum of total liabilities to total
gross asset value, a maximum of secured indebtedness to gross asset value,
a minimum of quarterly EBITDA to fixed charges, a minimum of unencumbered
asset value to unsecured indebtedness, a minimum of net operating income
from unencumbered properties to unsecured interest expense and a maximum
of permitted investments to gross asset value. Our ability to borrow under our
credit facilities is subject to compliance with our financial and other covenants.
Failure to comply with any of the covenants under our unsecured credit facil-
ities or other debt instruments could result in a default under one or more of
our debt instruments. In particular, we could suffer a default under one of our
secured debt instruments that could exceed a cross default threshold under
our unsecured credit facilities, causing an event of default under the unsecured
credit facilities. Alternatively, even if a secured debt instrument is below the
cross default threshold for non-recourse secured debt under our unsecured
credit facilities, a default under such secured debt instrument may still cause a
cross default under our unsecured credit facilities because such secured debt
instrument may not qualify as “non-recourse” under the definition in our unse-
cured credit facilities. Another possible cross default could occur between our
unsecured credit facilities and our senior unsecured notes. Any of the foregoing
default or cross default events could cause our lenders to accelerate the timing of
payments and/or prohibit future borrowings, either of which would have a mate-
rial adverse effect on our business, operations, financial condition and liquidity.
• commercial paper and other instruments consisting of short-term U.S. dollar
denominated obligations issued by corporations and banks;
• repurchase agreements collateralized by corporate and asset-backed
obligations;
• registered and unregistered money market funds; and
• other highly rated short-term securities.
Investments in these securities and funds are not insured against loss of princi-
pal. Under certain circumstances, we may be required to redeem all or part of
our investment, and our right to redeem some or all of our investment may be
delayed or suspended. In addition, there is no guarantee that our investments in
these securities or funds will be redeemable at par value. A decline in the value
of our investment or a delay or suspension of our right to redeem may have a
material adverse effect on our results of operations or financial condition.
Further issuances of equity securities may be dilutive to current shareholders.
The interests of our existing shareholders could be diluted if additional equity
securities are issued, including to finance future developments and acquisi-
tions, instead of incurring additional debt. Our ability to execute our business
strategy depends on our access to an appropriate blend of debt financing,
including unsecured lines of credit and other forms of secured and unsecured
debt and equity financing.
23
Form 10-K compliance or failure to comply with the Americans with Disabilities Act and
other laws and regulations could result in substantial costs.
The Americans with Disabilities Act generally requires that public buildings,
including commercial and multifamily properties, be made accessible to dis-
abled persons. Noncompliance could result in imposition of fines by the federal
government or the award of damages to private litigants. If, pursuant to the
Americans with Disabilities Act, we are required to make substantial alter-
ations and capital expenditures in one or more of our properties, including the
removal of access barriers, it could adversely affect our results of operations.
We may also incur significant costs complying with other regulations. Our prop-
erties are subject to various federal, state and local regulatory requirements,
such as state and local fair housing, rent control and fire and life safety require-
ments. If we fail to comply with these requirements, we may incur fines or
private damage awards. We believe that our properties are currently in material
compliance with regulatory requirements. However, we do not know whether
existing requirements will change or whether compliance with future require-
ments will require significant unanticipated expenditures that will adversely
affect our results of operations.
Some potential losses are not covered by insurance.
We carry insurance coverage on our properties of types and in amounts that
we believe are in line with coverage customarily obtained by owners of sim-
ilar properties. We believe all of our properties are adequately insured. The
property insurance that we maintain for our properties has historically been on
an “all risk” basis, which is in full force and effect until renewal in August 2014.
There are other types of losses, such as from wars or catastrophic events, for
which we cannot obtain insurance at all or at a reasonable cost.
We have an insurance policy that has no terrorism exclusion, except for
non-certified nuclear, chemical and biological acts of terrorism. Our financial
condition and results of operations are subject to the risks associated with acts
of terrorism and the potential for uninsured losses as the result of any such
acts. Effective November 26, 2002, under this existing coverage, any losses
caused by certified acts of terrorism would be partially reimbursed by the
United States under a formula established by federal law. Under this formula,
the United States pays 85% of covered terrorism losses exceeding the statu-
torily established deductible paid by the insurance provider, and insurers pay
10% until aggregate insured losses from all insurers reach $100 billion in a
calendar year. If the aggregate amount of insured losses under this program
exceeds $100 billion during the applicable period for all insured and insurers
combined, then each insurance provider will not be liable for payment of any
amount which exceeds the aggregate amount of $100 billion. On December
26, 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007
was signed into law and extends the program through December 31, 2014. We
continue to monitor the state of the insurance market in general, and the scope
and costs of coverage for acts of terrorism in particular, but we cannot antic-
ipate what amount of coverage will be available on commercially reasonable
terms in future policy years.
In the event of an uninsured loss or a loss in excess of our insurance limits,
we could lose both the revenues generated from the affected property and the
capital we have invested in the affected property. Depending on the specific
circumstances of the affected property it is possible that we could be liable
for any mortgage indebtedness or other obligations related to the property.
Any such loss could adversely affect our business and financial condition and
results of operations.
In most cases, we have to renew our policies on an annual basis and negotiate
acceptable terms for coverage, exposing us to the volatility of the insurance
markets, including the possibility of rate increases. Any material increase in
insurance rates or decrease in available coverage in the future could adversely
affect our results of operations and financial condition.
Actual or threatened terrorist attacks may adversely affect our ability to gener-
ate revenues and the value of our properties.
All of our properties are located in or near Washington, D.C., a metropolitan
area that has been and may in the future be the target of actual or threat-
ened terrorism attacks. As a result, some tenants in our market may choose
to relocate their businesses to other markets. This could result in an overall
decrease in the demand for commercial space in this market generally, which
could increase vacancies in our properties or necessitate that we lease our
24
2013 AnnuAl RepoRt properties on less favorable terms, or both. In addition, future terrorist attacks
in or near Washington, D.C. could directly or indirectly damage our properties,
both physically and financially, or cause losses that materially exceed our insur-
ance coverage. As a result of the foregoing, our ability to generate revenues
and the value of our properties could decline materially.
Potential liability for environmental contamination could result in
substantial costs.
Under federal, state and local environmental laws, ordinances and regulations,
we may be required to investigate and clean up the effects of releases of haz-
ardous or toxic substances or petroleum products at our properties, regard-
less of our knowledge or responsibility, simply because of our current or past
ownership or operation of the real estate. In addition, the U.S. Environmental
Protection Agency, the U.S. Occupational Safety and Health Administration
and other state and local governmental authorities are increasingly involved in
indoor air quality standards, especially with respect to asbestos, mold, medical
waste and lead-based paint. The clean-up of any environmental contamination,
including asbestos and mold, can be costly. If environmental problems arise,
we may have to make substantial payments which could adversely affect our
financial condition and results of operations because:
• as owner or operator we may have to pay for property damage and for inves-
tigation and clean-up costs incurred in connection with the contamination;
• the law typically imposes clean-up responsibility and liability regardless of
whether the owner or operator knew of or caused the contamination;
• even if more than one person may be responsible for the contamination,
each person who shares legal liability under the environmental laws may be
held responsible for all of the clean-up costs; and
contaminated sites in favor of the government for damages and costs it incurs
in connection with a contamination.
Environmental laws also govern the presence, maintenance and removal
of asbestos. Such laws require that owners or operators of buildings contain-
ing asbestos:
• properly manage and maintain the asbestos;
• notify and train those who may come into contact with asbestos; and
• undertake special precautions, including removal or other abatement, if
asbestos would be disturbed during renovation or demolition of a building.
Such laws may impose fines and penalties on building owners or operators
who fail to comply with these requirements and may allow third parties to seek
recovery from owners or operators for personal injury associated with exposure
to asbestos fibers.
It is our policy to retain independent environmental consultants to conduct
Phase I environmental site assessments and asbestos surveys with respect
to our acquisition of properties. These assessments generally include a visual
inspection of the properties and the surrounding areas, an examination of
current and historical uses of the properties and the surrounding areas and a
review of relevant state, federal and historical documents. However, they do not
always involve invasive techniques such as soil and ground water sampling.
When appropriate, on a property-by-property basis, our general practice is to
have these consultants conduct additional testing. However, even though these
additional assessments may be conducted, there is still the risk that:
• the environmental assessments and updates did not identify all potential
environmental liabilities;
• governmental entities and third parties may sue the owner or operator of a
• a prior owner created a material environmental condition that is not known to
contaminated site for damages and costs.
us or the independent consultants preparing the assessments;
These costs could be substantial and, in extreme cases, could exceed the
value of the contaminated property. The presence of hazardous or toxic
substances or petroleum products or the failure to properly remediate con-
tamination may adversely affect our ability to borrow against, sell or rent an
affected property. In addition, applicable environmental laws create liens on
• new environmental liabilities have developed since the environmental
assessments were conducted; and
• future uses or conditions or changes in applicable environmental laws and
regulations could result in environmental liability to us.
25
Form 10-K Breaches of data security could materially harm our business and reputation.
In the normal course of business we collect and retain certain personal infor-
mation provided by our tenants and employees. While we employ a variety of
data security measures to protect the confidentiality of this information and
periodically review and improve our data security measures, we cannot assure
that we will be able to prevent unauthorized access to this personal informa-
tion. Any breach of our data security measures and loss of this personal infor-
mation may result in legal liability and costs (including damages and penalties),
as well as damage to our reputation, that could materially and adversely affect
our business and financial performance.
• unless we are entitled to relief under statutory provisions, we could not elect
to be subject to tax as a REIT for four taxable years following the year during
which we are disqualified; and
• all dividends would be subject to tax as ordinary income to the extent of our
current and accumulated earnings and profits potentially eligible as “qualified
dividends” subject to the applicable income tax rate.
In addition, if we fail to qualify as a REIT, we would no longer be required to pay
dividends. As a result of these factors, our failure to qualify as a REIT could
have a material adverse impact on our results of operations, financial condition
and liquidity.
Failure to qualify as a REIT would cause us to be taxed as a corporation, which
would substantially reduce funds available for payment of dividends.
The market value of our securities can be adversely affected by many factors.
If we fail to qualify as a REIT for federal income tax purposes, we would be
taxed as a corporation. We believe that we are organized and qualified as a
REIT and intend to operate in a manner that will allow us to continue to qualify
as a REIT. However, we cannot assure you that we are qualified as such, or
that we will remain qualified as such in the future. This is because qualification
as a REIT involves the application of highly technical and complex provisions
of the Internal Revenue Code as to which there are only limited judicial and
administrative interpretations and involves the determination of facts and
circumstances not entirely within our control. Future legislation, new regula-
tions, administrative interpretations or court decisions may significantly change
the tax laws or the application of the tax laws with respect to qualification as a
REIT for federal income tax purposes or the federal income tax consequences
of such qualification.
If we fail to qualify as a REIT, we could face serious tax consequences that
could substantially reduce our funds available for payment of dividends for
each of the years involved because:
• we would not be allowed a deduction for dividends paid to shareholders in
computing our taxable income and could be subject to federal income tax at
regular corporate rates;
• we also could be subject to the federal alternative minimum tax and possibly
increased state and local taxes;
26
As with any public company, a number of factors may adversely influence the
public market price of our common shares. These factors include:
• level of institutional interest in us;
• perceived attractiveness of investment in us, in comparison to other REITs;
• attractiveness of securities of REITs in comparison to other asset classes
taking into account, among other things, that a substantial portion of REITs’
dividends are taxed as ordinary income;
• our financial condition and performance;
• the market’s perception of our growth potential and potential future cash
dividends;
• government action or regulation, including changes in tax law;
• increases in market interest rates, which may lead investors to expect a
higher annual yield from our distributions in relation to the price of our shares;
• changes in federal tax laws;
• changes in our credit ratings; and
• any negative change in the level of our dividend or the partial payment
thereof in common shares.
2013 AnnuAl RepoRt Provisions of the Maryland General corporation Law may limit a change
in control.
ITEM 1B. Unresolved Staff comments
None.
There are several provisions of the Maryland General Corporation Law, or
the MGCL, that may limit the ability of a third party to undertake a change in
control, including:
• a provision where a corporation is not permitted to engage in any business
combination with any “interested stockholder,” defined as any holder or affil-
iate of any holder of 10% or more of the corporation’s stock, for a period of
five years after that holder becomes an “interested stockholder;” and
• a provision where the voting rights of “control shares” acquired in a “control
share acquisition,” as defined in the MGCL, may be restricted, such that
the “control shares” have no voting rights, except to the extent approved
by a vote of holders of two-thirds of the common shares entitled to vote on
the matter.
These provisions may delay, defer, or prevent a transaction or a change in con-
trol that may involve a premium price for holders of our shares or otherwise be
in their best interests. Our bylaws currently provide that the foregoing provision
regarding “control share acquisitions” will not apply to WRIT. However, our
board of trustees could, in the future, modify our bylaws such that the foregoing
provision regarding “control share acquisitions” would be applicable to WRIT.
ITEM 2. Properties
The schedule on the following pages lists our real estate investment portfolio
as of December 31, 2013, which consisted of 56 properties and land held for
development. On January 21, 2014, we sold the five remaining medical office
properties, Woodburn Medical Park I and II and Prosperity Medical Center I, II
and III.
As of December 31, 2013, the percent leased is the percentage of net rentable
area for which fully executed leases exist and may include signed leases for
space not yet occupied by the tenant.
Cost information is included in Schedule III to our financial statements included
in this Annual Report on Form 10-K.
27
Form 10-K Schedule of Properties
PROPERTIES
Office Buildings
LOcATION
yEAR
AcqUIRED
yEAR cONSTRUcTED/
RENOVATED
NET RENTABLE
SqUARE FEET(1)
PERcENT LEASED, AS OF
DEcEMBER 31, 2013
1901 Pennsylvania Avenue
Washington, D.C.
51 Monroe Street
515 King Street
6110 Executive Boulevard
1220 19th Street
1600 Wilson Boulevard
7900 Westpark Drive
600 Jefferson Plaza
Wayne Plaza
Courthouse Square
One Central Plaza
1776 G Street
West Gude Drive
Monument II
2000 M Street
2445 M Street
925 Corporate Drive
1000 Corporate Drive
1140 Connecticut Avenue
1227 25th Street
Braddock Metro Center
John Marshall II
Fairgate at Ballston
Subtotal
Medical Office Buildings
Woodburn Medical Park I
Woodburn Medical Park II
Prosperity Medical Center I
Prosperity Medical Center II
Prosperity Medical Center III
Subtotal
Rockville, MD
Alexandria, VA
Rockville, MD
Washington, D.C.
Arlington, VA
McLean, VA
Rockville, MD
Silver Spring, MD
Alexandria, VA
Rockville, MD
Washington, D.C.
Rockville, MD
Herndon, VA
Washington, D.C.
Washington, D.C.
Stafford, VA
Stafford, VA
Washington, D.C.
Washington, D.C.
Alexandria, VA
Tysons Corner, VA
Arlington, VA
Annandale, VA
Annandale, VA
Merrifield, VA
Merrifield, VA
Merrifield, VA
28
1977
1979
1992
1995
1995
1997
1997
1999
2000
2000
2001
2003
2006
2007
2007
2008
2010
2010
2011
2011
2011
2011
2012
1998
1998
2003
2003
2003
1960
1975
1966
1971
1976
1973
1972/1986/1999
1985
1970
1979
1974
1979
1984/1986/1988
2000
1971
1986
2007
2009
1966
1988
1985
1996/2010
1988
1984
1988
2000
2001
2002
101,000
222,000
75,000
203,000
104,000
168,000
530,000
113,000
96,000
115,000
267,000
263,000
277,000
207,000
230,000
290,000
134,000
136,000
184,000
132,000
345,000
223,000
142,000
4,557,000
77,000
97,000
91,000
87,000
75,000
427,000
92%
95%
96%
82%
90%
84%
80%
84%
87%
97%
93%
100%
83%
87%
100%
100%
93%
100%
93%
92%
96%
100%
74%
91%
96%
90%
76%
100%
84%
89%
2013 AnnuAl RepoRt PROPERTIES
Retail centers
Takoma Park
Westminster
Concord Centre
Wheaton Park
Bradlee Shopping Center
Chevy Chase Metro Plaza
Montgomery Village Center
Shoppes of Foxchase
Frederick County Square
800 S. Washington Street
Centre at Hagerstown
Frederick Crossing
Randolph Shopping Center
Montrose Shopping Center
Gateway Overlook
Olney Village Center
Subtotal
Multifamily Buildings / # of Units
LOcATION
Takoma Park, MD
Westminster, MD
Springfield, VA
Wheaton, MD
Alexandria, VA
Washington, D.C.
Gaithersburg, MD
Alexandria, VA
Frederick, MD
Alexandria, VA
Hagerstown, MD
Frederick, MD
Rockville, MD
Rockville, MD
Columbia, MD
Olney, MD
3801 Connecticut Avenue / 307
Washington, D.C.
Roosevelt Towers / 191
Falls Church, VA
Country Club Towers / 227
Park Adams / 200
Arlington, VA
Arlington, VA
Munson Hill Towers / 279
Falls Church, VA
The Ashby at McLean / 256
McLean, VA
Walker House Apartments / 212
Gaithersburg, MD
Bethesda Hill Apartments / 195
Bethesda, MD
Bennett Park / 224
Clayborne / 74
Kenmore / 374
The Paramount / 135
Subtotal / 2,674
TOTAL
Arlington, VA
Alexandria, VA
Washington, D.C.
Arlington, VA
(1) Multifamily buildings are presented in gross square feet.
yEAR
AcqUIRED
yEAR cONSTRUcTED/
RENOVATED
NET RENTABLE
SqUARE FEET(1)
PERcENT LEASED, AS OF
DEcEMBER 31, 2013
1963
1972
1973
1977
1984
1985
1992
1994
1995
1998/2003
2002
2005
2006
2006
2010
2011
1963
1965
1969
1969
1970
1996
1996
1997
2007
2008
2008
2013
1962
1969
1960
1967
1955
1975
1969
1960/2006
1973
1955/1959
2000
1999/2003
1972
1970
2007
1979/2003
1951
1964
1965
1959
1963
1982
1971/2003
1986
2007
2008
1948
1984
51,000
150,000
76,000
74,000
168,000
49,000
197,000
134,000
227,000
47,000
332,000
295,000
82,000
145,000
223,000
199,000
2,449,000
179,000
170,000
159,000
173,000
258,000
274,000
157,000
225,000
214,000
60,000
268,000
141,000
2,278,000
9,711,000
100%
97%
55%
98%
95%
100%
78%
94%
97%
98%
98%
99%
64%
94%
100%
98%
94%
86%
96%
96%
95%
96%
96%
97%
96%
94%
97%
88%
90%
93%
29
Form 10-K PART II
ITEM 5. Market for the Registrant’s common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our shares trade on the New York Stock Exchange. As of February 26, 2014,
there are 4,749 shareholders of record.
The high and low sales price for our shares for 2013 and 2012, by quarter, and
the amount of dividends we paid per share are as follows:
qUARTER
2013
Fourth
Third
Second
First
2012
Fourth
Third
Second
First
DIVIDENDS
PER SHARE
qUARTERLy SHARE PRIcE RANGE
HIGH
LOW
0.30000
0.30000
0.30000
0.30000
0.30000
0.30000
0.43375
0.43375
$27.20
$28.76
$30.58
$28.85
$27.19
$29.09
$30.50
$31.00
$22.48
$24.00
$25.05
$26.41
$24.28
$25.59
$26.87
$27.01
We have historically paid dividends on a quarterly basis.
During the period covered by this report, we did not sell equity securities with-
out registration under the Securities Act.
Neither we nor any affiliated purchaser (as that term is defined in Securities
Exchange Act Rule 10b-18(a) (3)) made any repurchases of our shares during
the fourth quarter of the fiscal year covered by this report.
ITEM 3. Legal Proceedings
None.
ITEM 4. Mine Safety Disclosures
N/A.
30
2013 AnnuAl RepoRt ITEM 6. Selected Financial Data
The following table sets forth our selected financial data on a historical basis,
which has been revised for properties disposed of or classified as held for sale
(see note 3 to the consolidated financial statements). The following data should
be read in conjunction with our financial statements and notes thereto and
Management’s Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-K.
(in thousands, except per share data)
Real estate rental revenue
2013
2012
2011
2010
2009
$ 263,024
$ 254,794
$ 234,733
$ 204,219
$ 201,889
(Loss) income from continuing operations
$ (193)
$ 7,768
$ (14,389)
$ (10,874)
$ (1,768)
Discontinued operations:
Income from operations of properties sold or held for sale
Gain on sale of real estate
Net income
Net income attributable to the controlling interests
Income (loss) from continuing operations attributable to the controlling
interests per share—diluted
Net income attributable to the controlling interests per share—diluted
Total assets
Lines of credit payable
Mortgage notes payable
Notes payable
Shareholders’ equity
Cash dividends paid
$ 15,395
$ 22,144
$ 37,346
$ 37,346
$ 10,816
$ 5,124
$ 23,708
$ 23,708
$ 23,414
$ 97,491
$ 105,378
$ 104,884
$ 26,834
$ 21,599
$ 37,559
$ 37,426
$ 29,368
$ 13,348
$ 40,948
$ 40,745
$ —
$ 0.55
$ 0.11
$ 0.35
$ (0.22)
$ (0.17)
$ (0.03)
$ 1.58
$ 0.60
$ 0.71
$1,975,493
$2,124,376
$2,120,758
$2,167,881
$2,045,225
$ —
$ —
$ 294,671
$ 846,703
$ 754,959
$ 319,025
$ 906,190
$ 792,057
$ 80,104
$ 97,734
$ 99,000
$ 342,989
$ 657,470
$ 859,044
$ 115,045
$ 100,000
$ 265,757
$ 753,587
$ 857,080
$ 108,949
$ 128,000
$ 266,225
$ 688,912
$ 745,255
$ 100,221
Cash dividends declared and paid per share
$ 1.20
$ 1.47
$ 1.74
$ 1.73
$ 1.73
ITEM 7. Management’s Discussion and Analysis of
Financial condition and Results of Operations
We provide Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) in addition to the accompanying consolidated
financial statements and notes to assist readers in understanding our results of
operations and financial condition. We organize MD&A as follows:
• Overview. Discussion of our business, operating results, investment activity
and capital requirements, and summary of our significant transactions to
provide context for the remainder of MD&A.
• Critical Accounting Policies and Estimates. Descriptions of accounting poli-
cies that reflect significant judgments and estimates used in the preparation
of our consolidated financial statements.
• Results of Operations. Discussion of our financial results comparing 2013 to
2012 and comparing 2012 to 2011.
• Liquidity and Capital Resources. Discussion of our financial condition and
analysis of changes in our capital structure and cash flows.
31
Form 10-K When evaluating our financial condition and operating performance, we focus
on the following financial and non-financial indicators:
• Net operating income (“NOI”), calculated as real estate rental revenue less
real estate expenses excluding depreciation and amortization and general
and administrative expenses. NOI is a non-GAAP supplemental measure to
net income.
• Funds From Operations (“FFO”), calculated as set forth below under the cap-
tion “Funds from Operations.” FFO is a non-GAAP supplemental measure to
net income.
• Occupancy, calculated as occupied square footage as a percentage of total
square footage as of the last day of that period.
• Leased percentage, calculated as the percentage of available physical net
rentable area leased for our commercial segments and percentage of apart-
ments leased for our multifamily segment.
• Rental rates.
• Leasing activity, including new leases, renewals and expirations.
For purposes of evaluating comparative operating performance, we categorize
our properties as “same-store”, “non-same-store” or discontinued operations.
A “same-store” property is one that was owned for the entirety of the periods
being evaluated and excludes properties under redevelopment or development
and properties purchased or sold at any time during the periods being com-
pared. A “non-same-store” property is one that was acquired, under redevel-
opment or development, or placed into service during either of the periods
being evaluated. We define redevelopment properties as those for which we
expect to spend significant development and construction costs on existing
or acquired buildings pursuant to a formal plan which has a current impact on
operating results, occupancy and the ability to lease space with the intended
result of a higher economic return on the property. Properties under redevel-
opment or development are included within the non-same-store properties
beginning in the period during which redevelopment or development activities
commence. Redevelopment and development properties are included in the
same-store pool upon completion of the redevelopment or development, and
the earlier of achieving 90% occupancy or two years after completion.
Overview
Business
Our revenues are derived primarily from the ownership and operation of
income-producing properties in the greater Washington metro region. As of
December 31, 2013, we owned a diversified portfolio of 56 properties, totaling
approximately 7.4 million square feet of commercial space and 2,674 multifam-
ily units, and land held for development. These 56 properties consisted of 23
office properties, 5 medical office properties (which were subsequently sold on
January 21, 2014), 16 retail centers and 12 multifamily properties.
We have a fundamental strategy of regional focus and diversification by prop-
erty type. In recent years, we have sought to upgrade our portfolio by selling
properties that do not fit our current strategy (as described above at “Item 1:
Business—WRIT Overview”), and acquiring or developing higher quality and
better-located properties that we believe are consistent with such strategy. We
will seek to continue to upgrade our portfolio as opportunities arise, funding
acquisitions with a combination of cash, equity, debt and proceeds from prop-
erty sales.
Operating Results
Real estate rental revenue, NOI, net income attributable to the controlling
interests and FFO for the years ended December 31, 2013 and 2012 were as
follows (in thousands):
Real estate rental revenue
NOI(1)
Net income attributable to
the controlling interests
FFO(2)
yEAR ENDED DEcEMBER 31,
2013
2012
$263,024
$169,731
$254,794
$168,249
cHANGE
$ 8,230
$ 1,482
$ 37,346
$113,103
$ 23,708
$122,518
$13,638
$ (9,415)
(1) See pages 42 and 47 of the MD&A for reconciliations of NOI to net income.
(2) See page 58 of the MD&A for reconciliations of FFO to net income.
32
2013 AnnuAl RepoRt NOI increased by $1.5 million primarily due to acquisitions. NOI from same-
store properties decreased by $0.1 million, as lower occupancy and higher
operating expenses were partially offset by higher rental rates. The lower occu-
pancy reflects continuing challenges in leasing vacant space.
The $9.4 million decrease in FFO primarily reflects higher interest expense,
general and administrative expenses (including $0.8 million related to the
officer three-year long-term incentive plan), acquisition costs and a $2.7 million
loss on extinguishment of debt related to the disposition of our medical office
segment. In addition, we incurred severance expenses related to the Medical
Office Portfolio sale and the retirement of our prior Chief Executive Officer.
We anticipate continued challenges in leasing vacant space during 2014. We
also anticipate circumstances where rents on new or renewal leases will be
lower than the existing portfolio rents, putting further downward pressure on
NOI from same-store properties.
The performance of our three operating segments and the market condi-
tions in our region are discussed in greater detail below (industry data is as
reported by Delta):
• The region’s office market was very challenging during 2013, as average
effective rents decreased by 2.9% in 2013, after also decreasing by 2.9% in
2012. Net absorption (defined as the change in occupied, standing inventory
from one year to the next) improved to a positive 1.8 million square feet in
2013 from a negative 2.9 million square feet in 2012, but remained well below
the 15-year average of 5.3 million square feet. Overall vacancy remained
steady at 13.4%. Vacancy in the submarkets was 15.8% for Northern
Virginia, 14.5% for Suburban Maryland and 9.3% in the District of Columbia.
Delta expects improvement in the region’s office occupancy and rental rates
to remain slow during 2014 due to fiscal austerity by the federal government
and densification of office space in the private sector. Our office segment
was 90.6% leased at December 31, 2013, an increase from 86.5% leased
at December 31, 2012, primarily due to improved leasing activity in the
District of Columbia. By submarket, our office segment was 88.6% leased in
Northern Virginia, 92.0% leased in Suburban Maryland and 96.8% leased in
the District of Columbia at December 31, 2013.
• The region’s retail market grew slowly in 2013, with rental rates at gro-
cery-anchored centers increasing by 2.2%, as compared to a 1.4% increase
in 2012. Vacancy rates decreased to 4.7% from 4.9% in 2012. Our retail
segment was 94.0% leased at December 31, 2013, up from 92.2% at
December 31, 2012.
• The region’s multifamily market showed the effects of increased supply, as
the Washington metro region had 62 Class A projects in active lease-up at
the end of 2013, as compared to 33 at the end of 2012. Net effective rents for
investment grade apartments in the region decreased 1.8% in 2013, com-
pared to a 1.7% increase in 2012. The region’s vacancy rate for investment
grade apartments increased to 4.9%, up from 4.3% one year ago. Our multi-
family segment was 93.3% leased at December 31, 2013, down from 95.7%
at December 31, 2012.
Investment Activity
In September 2013, we entered into four separate purchase and sale agree-
ments to effectuate the sale of the Medical Office Portfolio, which consisted
of our entire medical office segment (including land held for development at
4661 Kenmore Avenue) and two office buildings (Woodholme Center and
6565 Arlington Boulevard), for an aggregate purchase price of $500.8 million.
The dispositions consisted of four independent transactions, each of which
closed pursuant to a separate purchase and sale agreement. Purchase and
Sale Agreements #1 and #2 closed in November 2013 and Purchase and Sale
Agreements #3 and #4 closed in January 2014.
We may not be successful in reinvesting some or all of the proceeds of the sale
of the medical office portfolio in the near term. If we do not successfully rein-
vest the sales proceeds promptly in income producing properties, the resulting
decrease in our net income attributable to the controlling interests will not be
completely offset by income from the temporary investment of the disposition
proceeds. This decrease in net income attributable to the controlling inter-
ests would have a negative impact on our earnings to fixed charges and debt
service coverage ratios and could have a negative impact on our ability to pay
dividends at their current level. Even if we promptly reinvest some or all of the
sales proceeds in income producing properties, we still expect some decrease
in net income attributable to the controlling interests in future quarters due to
the cost of these acquisitions.
33
Form 10-K We have identified a portion of the sold Medical Office Portfolio properties
for tax deferred exchange under Section 1031 of the Internal Revenue Code.
Section 1031 requires that we identify and close on the acquisition of replace-
ment properties within limited time periods. We may not be able to identify and
acquire appropriate replacement properties within the specified time periods.
If we do not identify and acquire the replacement properties within the speci-
fied time periods, we would expect to recognize a taxable gain with respect to
the sale of the Medical Office Portfolio. The amount of this taxable gain would
depend upon the timing and size of the replacement property acquisitions and
also our other results of operations, and it could be a material amount. If we
recognize this taxable gain, we could be required to pay a significant portion
of it as a special capital gain dividend to our shareholders or alternatively be
subject to income taxes on the taxable gain.
We acquired one multifamily building in Arlington, Virginia. This transaction
was consistent with our current strategy of focusing on properties inside the
Washington metro region’s Beltway, near major transportation nodes and in
areas with strong employment drivers and superior growth demographics.
capital Requirements
With proceeds from the sale of our medical office segment, we extinguished
three mortgage notes secured by medical office properties and paid down
our unsecured lines of credit. In January 2014, we extinguished the remaining
$100.0 million of our 5.25% unsecured notes on their maturity date. We do not
have any remaining debt maturities in 2014.
Significant Transactions
We summarize below our significant transactions during the two years ended
December 31, 2013:
2013
• The acquisition of The Paramount, a multifamily property in Arlington,
Virginia with 135 units and 3,600 square feet of retail space, for a contract
purchase price of $48.2 million. We incurred $0.3 million in acquisition costs
related to this transaction.
• The execution of four separate contracts with a single buyer for the sale of the
entire medical office segment, consisting of 17 medical office assets, and two
office assets, 6565 Arlington Boulevard and Woodholme Center (both of which
have significant medical office tenancy), encompassing in total approximately
1.5 million square feet. The assets sold also included land held for development
at 4661 Kenmore Avenue. The sales prices under the four agreements aggre-
gated to $500.8 million. Purchase and Sale Agreement #1 ($303.4 million of the
aggregate sales price) and Purchase and Sale Agreement #2 ($3.8 million of
the aggregate sales price) closed in November 2013, resulting in a gain on sale
of real estate of $18.9 million. Purchase and Sale Agreement #3 ($79.0 million
of the aggregate sales price) and Purchase and Sale Agreement #4 ($114.6 mil-
lion of the aggregate sales price) closed in January 2014.
• The disposition of the Atrium Building, a 79,000 square foot office build-
ing, for a contract sales price of $15.8 million, resulting in a gain on sale of
$3.2 million.
• The execution of new leases for 1.6 million square feet of commercial space,
excluding leases at properties classified as sold or held for sale, with an
average rental rate increase of 10.2% over expiring leases.
2012
• The disposition of Plumtree Medical Center, a 33,000 square foot medical
office building, for a contract sales price of $8.8 million, generating a gain on
sale of $1.4 million.
• The issuance of $300.0 million of 3.95% unsecured notes due October 15,
2022, with net proceeds of $296.4 million. The notes bear an effective inter-
est rate of 4.018%.
• The disposition of 1700 Research Boulevard, a 101,000 square foot office
building, for a contract sales price of $14.3 million, generating a gain on sale
of $3.7 million.
• The acquisition of an office building, Fairgate at Ballston, for $52.3 million,
adding approximately 142,000 square feet. We incurred $0.2 million in acqui-
sition costs related to this transaction.
• The execution of an amended and restated credit agreement for our Credit
Facility No. 1 to expand the facility from $75.0 million to $100.0 million, with
an accordion feature that allows us to increase the facility to $200.0 million,
subject to additional lender commitments. The amended and restated facility
matures June 2015, with a one-year extension at WRIT’s option, and bears
interest at a rate of LIBOR plus a margin of 120 basis points.
34
2013 AnnuAl RepoRt • The execution of an amended and restated credit agreement for Credit
Facility No. 2, our $400.0 million unsecured line of credit, to extend the matu-
rity date of the facility to July 2016, with a one-year extension option, and
lower the interest rate to LIBOR plus a margin of 120 basis points.
• The execution of new leases for 0.7 million square feet of commercial space,
excluding properties classified as sold or held for sale, with an average rental
rate increase of 12.8% over expiring leases.
critical Accounting Policies and Estimates
We base the discussion and analysis of our financial condition and results
of operations upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. We evaluate these estimates on an on-
going basis, including those related to estimated useful lives of real estate
assets, estimated fair value of acquired leases, cost reimbursement income,
bad debts, contingencies and litigation. We base the estimates on historical
experience and on various other assumptions that we believe to be reason-
able under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. We cannot assure you that actual results will not
differ from those estimates.
We believe the following accounting estimates are the most critical to aid in
fully understanding our reported financial results, and they require our most
difficult, subjective or complex judgments, resulting from the need to make
estimates about the effect of matters that are inherently uncertain.
Allowance for Doubtful Accounts
We recognize rental income and rental abatements from our multifamily and
commercial leases when earned on a straight-line basis over the lease term.
We record a provision for losses on accounts receivable equal to the estimated
uncollectible amounts. We base this estimate on our historical experience and
a monthly review of the current status of our receivables. We consider factors
such as the age of the receivable, the payment history of our tenants and our
assessment of our tenants’ ability to perform under their lease obligations,
among other things. In addition to rents due currently, accounts receivable
include amounts representing minimum rental income accrued on a straight-
line basis to be paid by tenants over the remaining term of their respective
leases. Our estimate of uncollectible accounts is subject to revision as these
factors change and is sensitive to the impact of economic and market condi-
tions on tenants.
Accounting for Real Estate Acquisitions
We record acquired or assumed assets, including physical assets and in-place
leases, and liabilities, based on their fair values. We determine the estimated
fair values of the assets and liabilities in accordance with current GAAP fair
value provisions. We determine the fair values of acquired buildings on an
“as-if-vacant” basis considering a variety of factors, including the replacement
cost of the property, estimated rental and absorption rates, estimated future
cash flows and valuation assumptions consistent with current market condi-
tions. We determine the fair value of land acquired based on comparisons to
similar properties that have been recently marketed for sale or sold.
The fair value of in-place leases consists of the following components: (a) the
estimated cost to us to replace the leases, including foregone rents during the
period of finding a new tenant and foregone recovery of tenant pass-throughs
(referred to as “absorption cost”); (b) the estimated cost of tenant improve-
ments, and other direct costs associated with obtaining a new tenant (referred
to as “tenant origination cost”); (c) estimated leasing commissions associated
with obtaining a new tenant (referred to as “leasing commissions”); (d) the
above/at/below market cash flow of the leases, determined by comparing the
projected cash flows of the leases in place, including consideration of renewal
options, to projected cash flows of comparable market-rate leases (referred to
as “net lease intangible”); and (e) the value, if any, of customer relationships,
determined based on our evaluation of the specific characteristics of each
tenant’s lease and our overall relationship with the tenant (referred to as “cus-
tomer relationship value”).
We discount the amounts used to calculate net lease intangibles using an inter-
est rate which reflects the risks associated with the leases acquired. We include
tenant origination costs in income producing property on our balance sheet and
amortize the tenant origination costs as depreciation expense on a straight-line
35
Form 10-K basis over the useful life of the asset, which is typically the remaining life of the
underlying leases. We classify leasing commissions and absorption costs as
other assets and amortize leasing commissions and absorption costs as amor-
tization expense on a straight-line basis over the remaining life of the underlying
leases. We classify above market net lease intangible assets as other assets
and amortize them on a straight-line basis as a decrease to real estate rental
revenue over the remaining term of the underlying leases. We classify below
market net lease intangible liabilities as other liabilities and amortize them on a
straight-line basis as an increase to real estate rental revenue over the remain-
ing term of the underlying leases. If any of the fair value of below market lease
intangibles includes fair value associated with a renewal option, such amounts
are not amortized until the renewal option is executed, else the related value is
expensed at that time. Should a tenant terminate its lease, we accelerate the
amortization of the unamortized portion of the tenant origination cost (if it has no
future value), leasing commissions, absorption costs and net lease intangible
associated with that lease over its new shorter term.
capitalized Interest
We capitalize interest costs incurred on borrowing obligations while qualifying
assets are being readied for their intended use. We amortize capitalized inter-
est over the useful life of the related underlying assets upon those assets being
placed into service.
Real Estate Impairment
We recognize impairment losses on long-lived assets used in operations and
held for sale, development assets or land held for future development, if indica-
tors of impairment are present and the net undiscounted cash flows estimated
to be generated by those assets are less than the assets’ carrying amount and
estimated undiscounted cash flows associated with future development expen-
ditures. If such carrying amount is in excess of the estimated cash flows from
the operation and disposal of the property, we would recognize an impairment
loss equivalent to an amount required to adjust the carrying amount to the
estimated fair value.
Stock Based compensation
We recognize compensation expense for service-based share awards ratably
over the period from the service inception date through the vesting period
based on the fair market value of the shares on the date of grant. We initially
measure compensation expense for awards with performance conditions at
fair value at the service inception date based on probability of payout, and we
remeasure compensation expense at subsequent reporting dates until all of
the award’s key terms and conditions are known and the grant date is estab-
lished. We amortize awards with performance conditions over the perfor-
mance period using the graded expense method. We measure compensation
expense for awards with market conditions based on the grant date fair value,
as determined using a Monte Carlo simulation, and we amortize the expense
ratably over the requisite service period, regardless of whether the mar-
ket conditions are achieved and the awards ultimately vest. Compensation
expense for the trustee grants, which fully vest immediately, is fully recog-
nized upon issuance based upon the fair market value of the shares on the
date of grant.
Federal Income Taxes
Generally, and subject to our ongoing qualification as a REIT, no provisions for
income taxes are necessary except for taxes on undistributed REIT taxable
income and taxes on the income generated by our taxable REIT subsidiaries
(“TRS’s”). Our TRS’s are subject to corporate federal and state income tax
on their taxable income at regular statutory rates. During the fourth quarter
of 2011, we recognized a $14.5 million impairment charge at Dulles Station,
Phase II, a development property held by one of our TRS’s (see note 3 to the
consolidated financial statements). The impairment charge created a deferred
tax asset of $5.7 million at this TRS, and we have determined that it is more
likely than not that this deferred tax asset will not be realized, as we cannot
reliably project sufficient future taxable income in the TRS’s to realize all or part
of the deferred tax asset. We have therefore recorded a valuation allowance
for the full amount of the deferred tax asset related to the impairment charge at
Dulles Station, Phase II.
Results of Operations
The discussion that follows is based on our consolidated results of operations
for the years ended December 31, 2013, 2012 and 2011. The ability to compare
one period to another is significantly affected by acquisitions completed and
dispositions made during those years.
36
2013 AnnuAl RepoRt Properties we acquired during the three years ended December 31, 2013 were as follows:
AcqUISITION DATE
October 1, 2013
Total 2013
June 21, 2012
Total 2012
January 11, 2011
March 30, 2011
June 15, 2011
August 30, 2011
September 13, 2011
September 15, 2011
November 23, 2011
Total 2011
PROPERTy
The Paramount (135 units)
TyPE
Multifamily
Fairgate at Ballston
1140 Connecticut Ave
1127 25th Street
650 North Glebe Road
Olney Village
Braddock Metro
John Marshall II
1225 First Street
Office
Office
Office
Land
Retail
Office
Office
Land
RENTABLE SqUARE FEET
cONTRAcT PURcHASE PRIcE
(in thousands)
N/A
142,000
142,000
188,000
132,000
N/A
198,000
351,000
223,000
N/A
1,092,000
$ 48,200
$ 48,200
$ 52,250
$ 52,250
$ 80,250
47,000
11,800
58,000
101,000
73,500
13,850
$385,400
Properties we sold or classified as held for sale during the three years ended December 31, 2013 were as follows:
PROPERTy
Atrium Building
TyPE
Office
Medical Office Portfolio(1)
Medical Office/Office
1700 Research Boulevard
Plumtree Medical Center
Total 2012
Dulles Station, Phase I
Industrial Portfolio(2)
Total 2011
Office
Medical Office
Office
Industrial/Office
RENTABLE SqUARE FEET
cONTRAcT SALES PRIcE
(in thousands)
79,000
1,520,000
1,599,000
101,000
33,000
134,000
180,000
3,092,000
3,272,000
$ 15,750
500,750
$516,500
$ 14,250
8,750
$ 23,000
$ 58,800
350,900
$409,700
(1) The Medical Office Portfolio consists of every property in our medical office segment (including land held for development at 4661 Kenmore Avenue) and two office properties (Woodholme Center and 6565 Arlington Boulevard).
In November 2013, we closed on the sale of the two office properties (6565 Arlington Boulevard and Woodholme Center), 2440 M Street, Alexandria Professional Center, 8301 Arlington Boulevard, Ashburn Farm Office Park I, II and
III, CetreMed I and II, Sterling Medical Office Building, 19500 at Riverside Office Park, Shady Grove Medical Village II, 9707 Medical Center Drive, 15001 Shady Grove Road and 15005 Shady Grove Road, Woodholme Medical Office
Building and 4661 Kenmore Avenue. In January 2014, we closed on the sale of Woodburn Medical Park I and II and Prosperity Medical center I, II and III.
(2) The Industrial Portfolio consists of every property in our industrial segment and two office properties (the Crescent and Albemarle Point).
37
Form 10-K To provide more insight into our operating results, we divide our discussion into
two main sections:
• Net Operating Income (page 42). A detailed analysis of same-store versus
non-same-store NOI results by segment.
• Consolidated Results of Operations (page 38). An overview analysis of
results on a consolidated basis; and
NOI is a non-GAAP measure calculated as real estate rental revenue less real
estate expenses excluding depreciation and amortization and general and
administrative expenses.
consolidated Results of Operations
Real Estate Rental Revenue
Real estate rental revenue for properties classified as continuing operations for the three years ended December 31, 2013, was as follows (in thousands, except
percentage amounts):
Minimum base rent
Recoveries from tenants
Provision for doubtful accounts
Lease termination fees
Parking and other tenant charges
yEAR ENDED DEcEMBER 31,
2013
2012
2011
2013 vs 2012
% cHANGE
2012 vs 2011
% cHANGE
$226,839
$221,764
$206,545
26,822
(3,605)
643
12,325
25,528
(4,779)
680
11,601
21,877
(3,927)
367
9,871
$5,075
1,294
1,174
(37)
724
$263,024
$254,794
$234,733
$8,230
2.3%
5.1%
(24.6)%
(5.4)%
6.2%
3.2%
$15,219
3,651
(852)
313
1,730
$20,061
7.4%
16.7%
21.7%
85.3%
17.5%
8.5%
Real estate rental revenue is comprised of (a) minimum base rent, which
includes rental revenues recognized on a straight-line basis, (b) revenue from
the recovery of operating expenses from our tenants, (c) provisions for doubtful
accounts, which include provisions for straight-line receivables, (d) revenue
from the collection of lease termination fees and (e) parking and other tenant
charges such as percentage rents.
Minimum base rent increased by $15.2 million in 2012 primarily due to acquisi-
tions ($16.0 million). Minimum base rent from same-store properties decreased
by $0.8 million primarily due to lower occupancy ($3.0 million), lower amortiza-
tion of net lease intangible liabilities ($0.4 million) and higher rent abatements
($0.3 million), partially offset by higher rental rates ($3.2 million).
Minimum Base Rent: Minimum base rent increased by $5.1 million in 2013
primarily due to acquisitions ($3.0 million). Minimum base rent from same-
store properties increased by $2.4 million primarily due to higher rental rates
($5.8 million), partially offset by lower occupancy ($2.4 million), higher rent
abatements ($0.7 million) and higher amortization of deferred lease incentives
($0.2 million).
Recoveries from Tenants: Recoveries from tenants increased by $1.3 million
in 2013 primarily due to higher reimbursements for operating expenses from
same-store properties.
Recoveries from tenants increased by $3.7 million in 2012 primarily due to
acquisitions ($2.8 million), and higher real estate tax recoveries from same-
store properties ($0.9 million) due to higher property tax assessments across
the portfolio.
38
2013 AnnuAl RepoRt Provision for Doubtful Accounts: Provision for doubtful accounts decreased by
$1.2 million in 2013 primarily due to lower provisions in the retail segment.
Occupancy for properties classified as continuing operations by segment for
the three years ended December 31, 2013 was as follows:
Provision for doubtful accounts increased by $0.9 million in 2012 due to higher
provisions in the retail ($0.5 million) and office ($0.4 million) segments.
Lease Termination Fees: Lease termination fees slightly decreased in 2013
as higher fees from acquisitions ($0.1 million) were offset by lower fees from
same-store properties ($0.1 million).
SEGMENT
Office
Retail
Multifamily
Total
2013
85.7%
91.3%
92.1%
88.8%
DEcEMBER 31,
2012
85.2%
91.2%
94.1%
88.9%
2011
2013 vs 2012
2012 vs 2011
89.6%
93.3%
94.9%
91.9%
0.5%
0.1%
(2.0)%
(0.1)%
(4.4)%
(2.1)%
(0.8)%
(3.0)%
Lease termination fees increased by $0.3 million in 2012 primarily due to higher
fees in the office segment.
Parking and Other Tenant Charges: Parking and other tenant charges
increased by $0.7 million in 2013 primarily due to increases in parking income
from same-store properties ($0.5 million) and acquisitions ($0.3 million).
Occupancy represents occupied square footage indicated as a percentage of
total square footage as of the last day of that period.
Our overall occupancy decreased to 88.8% in 2013 from 88.9% in 2012, with
a decline in the multifamily segment partially offset by higher occupancy in the
office and retail segments.
Parking and other tenant charges increased by $1.7 million in 2012 primarily
due to acquisitions ($0.9 million), and increases in parking income ($0.3 million)
and short-term tenant rent ($0.3 million) from same-store properties.
Our overall occupancy decreased to 88.9% in 2012 from 91.9% in 2011, with
the largest declines in the office and retail segments.
A detailed discussion of occupancy by segment can be found in the Net
Operating Income section.
Real Estate Expenses
Real estate expenses for the three years ended December 31, 2013, were as follows (in thousands except percentage amounts):
Property operating expenses
Real estate taxes
yEAR ENDED DEcEMBER 31,
2013
$64,241
29,052
$93,293
2012
$59,481
27,064
$86,545
2011
$56,721
22,903
$79,624
2013 vs 2012
% cHANGE
2012 vs 2011
% cHANGE
$4,760
1,988
$6,748
8.0%
7.3%
7.8%
$2,760
4,161
$6,921
4.9%
18.2%
8.7%
Real estate expenses as a percentage of revenue were 35.5%, 34.0% and 33.9% for the three years ended December 31, 2013, 2012 and 2011, respectively.
39
Form 10-K Property Operating Expenses: Property operating expenses include utilities,
repairs and maintenance, property administration and management, operating
services, common area maintenance, property insurance, bad debt and other
operating expenses.
Property operating expenses increased by $2.8 million in 2012 primarily due to
acquisitions ($4.5 million), partially offset by property operating expenses from
same-store properties, which decreased by $1.7 million primarily due to lower
utilities expense ($1.1 million) caused by lower electricity and gas rates and to
higher recoveries of bad debt ($0.6 million).
Property operating expenses increased by $4.8 million in 2013 due to acquisi-
tions ($0.8 million) and property operating expenses from same-store proper-
ties, which increased by $3.8 million primarily due to lower recoveries of bad
debt ($0.9 million), and higher administrative ($0.8 million), repairs and mainte-
nance ($0.6 million), snow removal ($0.4 million), utilities ($0.3 million), custo-
dial ($0.2 million) and vacant space preparation ($0.2 million) expenses.
Real Estate Taxes: Real estate taxes increased by $2.0 million in 2013 due to
acquisitions ($0.4 million) and higher real estate taxes at same-store properties
($1.5 million) due to higher property assessments.
Real estate taxes increased by $4.2 million in 2012 due to acquisitions
($2.4 million) and higher real estate taxes at same-store properties ($1.8 mil-
lion) due to higher property assessments.
Other Operating Expenses
Other operating expenses for the three years ended December 31, 2013 were as follows (in thousands, except percentage amounts):
yEAR ENDED DEcEMBER 31,
2013
2012
2011
2013 vs 2012
% cHANGE
2012 vs 2011
% cHANGE
Depreciation and amortization
$ 85,740
$ 85,107
$ 74,403
Acquisition costs
Interest expense
General and administrative
1,265
63,573
17,535
234
60,627
15,488
3,607
61,402
15,728
$168,113
$161,456
$155,140
$ 633
1,031
2,946
2,047
$6,657
0.7%
440.6%
4.9%
13.2%
4.1%
$10,704
(3,373)
(775)
(240)
$ 6,316
14.4%
(93.5)%
(1.3)%
(1.5)%
4.1%
Depreciation and Amortization: Depreciation and amortization expense
increased by $0.6 million in 2013 primarily due to operating properties
acquired and placed into service of $48.2 million and $52.3 million in 2013
and 2012, respectively.
Depreciation and amortization expense increased by $10.7 million in 2012
primarily due to operating properties acquired and placed into service of
$52.3 million and $385.4 million in 2012 and 2011, respectively.
Acquisition Costs: Acquisition costs increased by $1.0 million in 2013 primar-
ily due to the acquisition of The Paramount in 2013 and expenses related to
potential acquisitions in 2014.
Acquisition costs decreased by $3.4 million in 2012 primarily due to a lower
volume of acquisitions in 2012 than in 2011.
40
2013 AnnuAl RepoRt Interest Expense: Interest expense by debt type for the three years ended December 31, 2013, was as follows (in thousands, except percentage amounts):
DEBT TyPE
Notes payable
Mortgage notes payable
Lines of credit
Capitalized interest
Total
yEAR ENDED DEcEMBER 31,
2013
$43,174
18,378
3,257
(1,236)
2012
$37,982
20,847
3,486
(1,688)
$63,573
$60,627
2011
2013 vs 2012
% cHANGE
2012 vs 2011
% cHANGE
$38,918
18,434
4,788
(738)
$61,402
$5,192
(2,469)
(229)
452
$2,946
13.7%
(11.8)%
(6.6)%
(26.8)%
4.9%
$ (936)
2,413
(1,302)
(950)
$ (775)
(2.4)%
13.1%
(27.2)%
128.7%
(1.3)%
The $5.2 million increase in notes payable interest during 2013 is due to the
issuance of our 3.95% senior notes in 2012, partially offset by the repayment
of our 5.05% senior notes during 2012. The $2.5 million decrease in mortgage
interest expense is due to the repayments of several mortgage notes during
2013. The $0.2 million decrease in interest expense on our unsecured lines
of credit during 2013 is attributable to lower average borrowings outstanding
during 2013. Capitalized interest decreased by $0.5 million during 2013 due to
placing the development project at 1225 First Street on hold.
The $0.9 million decrease in notes payable interest during 2012 is due to the
repayment of our 5.95% senior notes during 2011 and our 5.05% senior notes
during 2012, partially offset by the issuance of our 3.95% senior notes in 2012.
The $2.4 million increase in mortgage interest expense is due to the assump-
tion of mortgage notes with the acquisitions of Olney Village Center and John
Marshall II in 2011, partially offset by the repayments of several mortgage notes
during 2012. The $1.3 million decrease in interest expense on our unsecured
lines of credit is attributable to lower average borrowings outstanding during
2012. Capitalized interest increased by $1.0 million during 2012 due to expen-
ditures on our two multifamily development projects at 650 North Glebe Road
and 1225 First Street.
General and Administrative Expense: General and administrative expense
increased by $2.0 million in 2013 primarily due to higher incentive compensa-
tion expense related to the officer three-year long-term incentive plan.
General and administrative expense decreased by $0.2 million in 2012
primarily due to lower incentive compensation expense, partially offset by
severance costs.
Real Estate Impairment
Dulles Station, Phase II consists of undeveloped land in Herndon, Virginia
and a half interest in a parking garage that is adjacent to this land. The land is
zoned for development as an office building. In connection with the preparation
of financial statements for the 2011 Annual Report on Form 10-K, we reviewed
changes in market conditions, specifically higher vacancy and lower rental
rates in the Washington metro region office market and other circumstances
affecting the Herndon submarket, such as the increased uncertainty surround-
ing the timing of the completion of the second phase of the Dulles Metrorail
project, and reassessed the likelihood that we would follow through on these
development plans. Based upon the foregoing review and assessment, we
determined that the development of the land at Dulles Station, Phase II is not
probable under those market conditions. Due to this determination, we rec-
ognized a $14.5 million impairment charge during the fourth quarter of 2011
in order to reduce the carrying value of the land and garage at Dulles Station,
Phase II to its fair value of $12.1 million.
41
Form 10-K Discontinued Operations
Income from operations of properties sold or held for sale for the three years ended December 31, 2013, were as follows (in thousands, except for percentages):
Revenues
Property expenses
Real estate impairment
Depreciation and amortization
Interest expense
Total
yEAR ENDED DEcEMBER 31,
2012
2011
2013 vs 2012
% cHANGE
2012 vs 2011
% cHANGE
2013
$ 45,791
(17,039)
—
(12,161)
(1,196)
$ 54,344
$ 80,948
$(8,553)
(18,273)
(2,097)
(18,827)
(4,331)
(25,265)
(599)
(26,125)
(5,545)
1,234
2,097
6,666
3,135
(15.7)%
(6.8)%
(100.0)%
(35.4)%
(72.4)%
42.3%
$(26,604)
6,992
(1,498)
7,298
1,214
$(12,598)
(32.9)%
(27.7)%
250.1%
(27.9)%
(21.9)%
(53.8)%
$ 15,395
$ 10,816
$ 23,414
$ 4,579
order to provide results more closely related to a property’s results of opera-
tions. For example, interest expense is not necessarily linked to the operating
performance of a real estate asset. In addition, depreciation and amortization,
because of historical cost accounting and useful life estimates, may distort
operating performance at the property level. As a result of the foregoing, we
provide NOI as a supplement to net income or income from continuing opera-
tions, calculated in accordance with GAAP. NOI does not represent net income
or income from continuing operations, in either case calculated in accordance
with GAAP. As such, it should not be considered an alternative to these mea-
sures as an indication of our operating performance. NOI is calculated as real
estate rental revenue less real estate expenses excluding depreciation and
amortization and general and administrative expenses. A reconciliation of NOI
to net income follows.
Income from operations of properties sold or held for sale increased by
$4.6 million for the year ended December 31, 2013, primarily due to the Medical
Office Portfolio being accounted for as discontinued operations.
Income from operations of properties sold or held for sale decreased by
$12.6 million for the year ended December 31, 2012, primarily due to the sale of
the Industrial Portfolio during the fourth quarter of 2011.
We recognized a $2.1 million impairment charge for the land at 4661 Kenmore
Avenue during the fourth quarter of 2012 in order to reduce its carrying value to
its fair value of $3.8 million.
We recognized a $0.6 million impairment charge for Dulles Station, Phase I
during the first quarter of 2011 to reflect the property’s fair value less selling
costs based on its contract sales price.
Net Operating Income
NOI is the primary performance measure we use to assess the results of our
operations at the property level. We believe that NOI is useful as a perfor-
mance measure because, when compared across periods, NOI reflects the
impact on operations of trends in occupancy rates, rental rates and operating
costs on an unleveraged basis, providing perspective not immediately appar-
ent from net income. NOI excludes certain components from net income in
42
2013 AnnuAl RepoRt 2013 compared to 2012
The following tables of selected operating data reconcile NOI to net income attributable to the controlling interests and provide the basis for our discussion of NOI
in 2013 compared to 2012. All amounts are in thousands except percentage amounts.
Real Estate Rental Revenue
Same-store
Non-same-store(1)
Total real estate rental revenue
Real Estate Expenses
Same-store
Non-same-store(1)
Total real estate expenses
NOI
Same-store
Non-same-store(1)
Total NOI
Reconciliation to Net Income
NOI
Depreciation and amortization
General and administrative expenses
Acquisition costs
Interest expense
Other income
Loss on extinguishment of debt
Discontinued operations(2):
Income from properties sold or held for sale
Gain on sale of real estate
Net income
Less: Net income attributable to noncontrolling interests
yEAR ENDED DEcEMBER 31,
2013
2012
$ cHANGE
% cHANGE
$243,633
19,391
$263,024
$ 85,956
7,337
$ 93,293
$157,677
12,054
$169,731
$238,418
16,376
$254,794
$ 80,660
5,885
$ 86,545
$157,758
10,491
$168,249
$5,215
3,015
$8,230
$5,296
1,452
$6,748
$ (81)
1,563
$1,482
2.2%
18.4%
3.2%
6.6%
24.7%
7.8%
(0.1)%
14.9%
0.9%
$169,731
$168,249
(85,740)
(17,535)
(1,265)
(63,573)
926
(2,737)
15,395
22,144
37,346
—
(85,107)
(15,488)
(234)
(60,627)
975
—
10,816
5,124
23,708
—
Net income attributable to the controlling interests
$ 37,346
$ 23,708
(1) Non-same-store properties include: 2013 Multifamily acquisition—The Paramount; 2013 Office redevelopment property—7900 Westpark Drive; 2012 Office acquisition—Fairgate at Ballston.
(2) Discontinued operations include gain on disposals and income from operations for: 2013 held for sale and sold—Atrium Building and Medical Office Portfolio—medical office segment and two office buildings
(6565 Arlington Boulevard and Woodholme center); 2012 sold—Plumtree Medical center and 1700 Research Boulevard.
43
Form 10-K Real estate rental revenue from same-store properties increased by $5.2 mil-
lion in 2013 primarily due to higher rental rates ($5.8 million), lower reserves
for uncollectible revenue ($1.0 million), higher reimbursements for operating
expenses ($1.2 million) and higher parking income ($0.5 million), partially offset
by lower occupancy ($2.4 million) and higher rent abatements ($0.9 million).
Real estate expenses from same-store properties increased by $5.3 million
in 2013 primarily due to higher real estate taxes ($1.5 million) due to higher
assessments across the portfolio, lower recoveries of uncollectible receivables
($0.9 million), higher administrative expenses ($0.8 million), higher repairs and
maintenance expenses ($0.6 million), higher snow removal costs ($0.4 million),
higher usage of electricity ($0.3 million), higher custodial expenses ($0.2 mil-
lion) and higher vacant space preparation expenses ($0.2 million).
An analysis of NOI by segment follows.
Office Segment:
Real Estate Rental Revenue
Same-store
Non-same-store(1)
yEAR ENDED DEcEMBER 31,
2013
2012
$ cHANGE % cHANGE
$133,855
$131,025
$2,830
2.2%
18,484
16,376
2,108
12.9%
Total real estate rental revenue
$152,339
$147,401
$4,938
3.4%
Real Estate Expenses
Same-store
Non-same-store(1)
$ 50,387
$ 47,491
$2,896
6.1%
6,906
5,885
1,021
17.3%
DEcEMBER 31,
Total real estate expenses
$ 57,293
$ 53,376
$3,917
7.3%
OccUPANcy
Same-store
Non-same-store
Total
2013
89.7%
79.2%
88.8%
2012
89.2%
84.9%
88.9%
NOI
Same-store
Non-same-store(1)
Total NOI
$ 83,468
$ 83,534
$ (66)
(0.1)%
11,578
10,491
1,087
10.4%
$ 95,046
$ 94,025
$1,021
1.1%
Same-store occupancy increased to 89.7% in 2013, with the increases in
office and retail occupancy partially offset by lower multifamily occupancy.
Non-same-store occupancy decreased to 79.2% in 2013 from 84.9% in 2012,
driven by lower occupancy at Fairgate at Ballston and 7900 Westpark Drive.
During 2013, 78.4% of the commercial square footage expiring was renewed
as compared to 58.3% in 2012, excluding properties sold or classified as held
for sale. During 2013, we executed new leases (excluding properties classified
as sold or held for sale) for 1.6 million commercial square feet at an average
rental rate of $29.28 per square foot, an increase of 10.2%, with average tenant
improvements and leasing commissions and incentives (including free rent) of
$38.40 per square foot.
(1) Non-same-store properties include: 2013 redevelopment property—7900 Westpark Drive; 2012 acquisi-
tion—Fairgate at Ballston.
Real estate rental revenue from same-store properties increased by $2.8 mil-
lion in 2013 primarily due to higher rental rates ($2.5 million), reimbursements
for operating expenses ($0.9 million) and real estate taxes ($0.5 million), and
parking income ($0.4 million), partially offset by lower occupancy ($0.7 million)
and higher rent abatements ($0.6 million).
44
2013 AnnuAl RepoRt Real estate expenses from same-store properties increased by $2.9 million
in 2013 primarily due to higher real estate taxes ($0.7 million), administrative
expenses ($0.6 million), operating services ($0.5 million), repairs and main-
tenance expenses ($0.2 million), consumption of electricity ($0.3 million) and
lower recoveries of uncollectible receivables ($0.5 million).
OccUPANcy
Same-store
Non-same-store
Total
DEcEMBER 31,
2013
87.1%
77.9%
85.7%
2012
85.3%
84.9%
85.2%
Same-store occupancy increased to 87.1% in 2013 from 85.3% in 2012 primar-
ily due to higher occupancy at 2000 M Street and 6110 Executive Boulevard,
partially offset by lower occupancy at Braddock Metro Center. The decrease in
non-same-store occupancy is primarily due to lower occupancy at Fairgate at
Ballston and 7900 Westpark Drive, which went into redevelopment during the
fourth quarter of 2013. During 2013, 65.2% of the square footage that expired
was renewed compared to 50.4% in 2012, excluding properties sold or classi-
fied as held for sale. During 2013, we executed new leases (excluding proper-
ties classified as sold or held for sale) for 1.1 million square feet of office space
at an average rental rate of $34.27 per square foot, an increase of 8.4%, with
average tenant improvements and leasing commissions and incentives (includ-
ing free rent) of $51.67 per square foot.
Real estate expenses increased by $1.1 million in 2013 primarily due to higher
real estate taxes ($0.3 million), snow removal costs ($0.3 million) and bad debt
expense ($0.2 million).
Occupancy increased to 91.3% in 2013 from 91.2% in 2012 primarily due to
higher occupancy at the Centre at Hagerstown and Gateway Overlook, partially
offset by lower occupancy at Westminster and Bradlee Shopping Center.
During 2013, 92.9% of the square footage that expired was renewed compared
to 75.7% in 2012. During 2013, we executed new leases for 0.5 million square
feet of retail space at an average rental rate of $18.67, an increase of 17.9%,
with average tenant improvements and leasing commissions and incentives
(including free rent) of $9.96 per square foot.
Multifamily Segment:
yEAR ENDED DEcEMBER 31,
2013
2012
$ cHANGE % cHANGE
Real Estate Rental Revenue
Same-store
Non-same-store(1)
$53,589
$52,887
$ 702
907
—
907
Total real estate rental revenue
$54,496
$52,887
$1,609
Real Estate Expenses
Same-store
Non-same-store(1)
$21,801
$20,467
$1,334
431
—
431
1.3%
N/A
3.0%
6.5%
N/A
8.6%
Retail Segment:
Total real estate expenses
$22,232
$20,467
$1,765
yEAR ENDED DEcEMBER 31,
2013
2012
$ cHANGE % cHANGE
Real estate rental revenue
$56,189
$54,506
$1,683
Real estate expenses
13,768
12,702
1,066
NOI
$42,421
$41,804
$ 617
3.1%
8.4%
1.5%
Real estate rental revenue increased by $1.7 million in 2013 primarily due to
higher occupancy ($1.8 million) and lower reserves for uncollectible revenue
($1.2 million), partially offset by lower occupancy ($1.1 million).
NOI
Same-store
Non-same-store(1)
Total NOI
$31,788
$32,420
$ (632)
(1.9)%
476
—
476
N/A
$32,264
$32,420
$ (156)
(0.5)%
(1) Non-same-store properties include: 2013 acquisition—The Paramount.
Real estate rental revenue from same-store properties increased by $0.7 mil-
lion in 2013 primarily due to higher rental rates ($1.5 million), partially offset by
lower occupancy ($0.6 million) and higher rent abatements ($0.2 million).
45
Form 10-K Real estate expenses from same-store properties increased by $1.3 million in
2013 primarily due to higher real estate taxes ($0.5 million), repairs and mainte-
nance expenses ($0.4 million) and bad debt expense ($0.2 million).
OccUPANcy
Same-store
Non-same-store
Total
DEcEMBER 31,
2013
92.6%
85.4%
92.1%
2012
94.1%
N/A
94.1%
Same-store occupancy decreased to 92.6% in 2013 from 94.1% in 2012 due
primarily to lower occupancy at Roosevelt Towers, the Kenmore and Bethesda
Hill Apartments.
46
2013 AnnuAl RepoRt 2012 compared to 2011
The following tables of selected operating data reconcile NOI to net income attributable to the controlling interests and provide the basis for our discussion of NOI
in 2012 compared to 2011. All amounts are in thousands except percentage amounts.
yEAR ENDED DEcEMBER 31,
2012
2011
$ cHANGE
% cHANGE
Real Estate Rental Revenue
Same-store
Non-same-store(1)
Total real estate rental revenue
Real Estate Expenses
Same-store
Non-same-store(1)
Total real estate expenses
NOI
Same-store
Non-same-store(1)
Total NOI
Reconciliation to Net Income
NOI
Depreciation and amortization
General and administrative expenses
Real estate impairment
Acquisition costs
Interest expense
Other income
Loss on extinguishment of debt
Discontinued operations(2):
Income from properties sold or held for sale
Gain on sale of real estate
Income tax expense
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to the controlling interests
$ 138
19,923
$20,061
$ 87
6,834
$ 6,921
$ 51
13,089
$13,140
0.1%
106.1%
8.5%
0.1%
95.6%
8.7%
—%
112.6%
8.5%
$216,095
38,699
$254,794
$ 72,560
13,985
$ 86,545
$143,535
24,714
$168,249
$168,249
(85,107)
(15,488)
—
(234)
(60,627)
975
—
10,816
5,124
—
23,708
—
$ 23,708
$215,957
18,776
$234,733
$ 72,473
7,151
$ 79,624
$143,484
11,625
$155,109
$155,109
(74,403)
(15,728)
(14,526)
(3,607)
(61,402)
1,144
(976)
23,414
97,491
(1,138)
105,378
(494)
$104,884
(1) Non-same-store properties include: 2012 Office acquisition—Fairgate at Ballston; 2011 Office acquisitions—1140 Connecticut Avenue, 1227 25th Street, Braddock Metro Center and John Marshall II; 2011 Retail acquisi-
tion—Olney Village center.
(2) Discontinued operations include gain on disposals and income from operations for: 2013 held for sale and sold—Atrium Building and Medical Office Portfolio; 2012 dispositions—Plumtree Medical Center and 1700 Research
Boulevard; 2011 dispositions—Dulles Station, Phase I and the Industrial Portfolio.
47
Form 10-K Real estate rental revenue from same-store properties increased by $0.1 mil-
lion in 2012 primarily due to higher rental rates ($3.2 million) and reimburse-
ments for real estate taxes ($0.9 million), partially offset by lower occupancy
($3.0 million) and higher reserves for uncollectible revenue ($0.8 million).
Office Segment:
Real estate expenses from same-store properties increased by $0.1 million
in 2012 primarily due to higher real estate taxes ($1.8 million) due to higher
assessments across the portfolio, partially offset by lower utilities expenses
($1.1 million) caused by lower rates and usage and lower legal expenses
($0.5 million).
OccUPANcy
Same-store
Non-same-store
Total
DEcEMBER 31,
2012
89.6%
84.5%
88.9%
2011
91.8%
92.3%
91.9%
Same-store occupancy decreased to 89.6% in 2012 from 91.8% in 2011,
with the largest decrease in the office segment. Non-same-store occupancy
decreased to 84.5% in 2012 from 92.3% in 2011, driven by lower occupancy at
Braddock Metro Center and Olney Village Center. During 2012, 58.3% of the
commercial square footage expiring was renewed as compared to 58.5% in
2011, excluding properties sold or classified as held for sale. During 2012, we
executed new leases (excluding properties classified as sold or held for sale)
for 0.7 million commercial square feet at an average rental rate of $32.08 per
square foot, an increase of 12.8%, with average tenant improvements and leas-
ing commissions and incentives (including free rent) of $32.75 per square foot.
An analysis of NOI by segment follows.
48
yEAR ENDED DEcEMBER 31,
2012
2011
$ cHANGE % cHANGE
$113,892
$116,449
$ (2,557)
(2.2)%
33,509
16,884
16,625
Real Estate Rental Revenue
Same-store
Non-same-store(1)
98.5%
10.6%
4.1%
92.6%
17.0%
Total real estate rental revenue
$147,401
$133,333
$14,068
Real Estate Expenses
Same-store
Non-same-store(1)
$ 40,583
$ 38,991
$ 1,592
12,793
6,643
6,150
Total real estate expenses
$ 53,376
$ 45,634
$ 7,742
NOI
Same-store
Non-same-store(1)
Total NOI
$ 73,309
$ 77,458
$ (4,149)
(5.4)%
20,716
10,241
10,475
102.3%
$ 94,025
$ 87,699
$ 6,326
7.2%
(1) Non-same-store properties include: 2012 acquisition—Fairgate at Ballston; 2011 acquisitions—1140
connecticut Avenue, 1227 25th Street, Braddock Metro center and John Marshall II.
Real estate rental revenue from same-store properties decreased by $2.6 mil-
lion in 2012 primarily due to lower occupancy ($3.2 million), higher reserves
for uncollectible revenue ($0.4 million) and higher rent abatements ($0.3 mil-
lion), partially offset by higher rental rates ($1.0 million) and parking income
($0.4 million).
Real estate expenses from same-store properties increased by $1.6 million in
2012 primarily due to higher real estate taxes ($1.2 million) and lower recover-
ies of uncollectible receivables ($0.4 million).
OccUPANcy
Same-store
Non-same-store
Total
DEcEMBER 31,
2012
85.9%
82.7%
85.2%
2011
89.4%
90.5%
89.6%
2013 AnnuAl RepoRt Same-store occupancy decreased to 85.9% in 2012 from 89.4% in 2011,
primarily due to lower occupancy at 7900 Westpark Drive and 6110 Executive
Boulevard. During 2012, 50.4% of the square footage that expired was renewed
compared to 47.4% in 2011, excluding properties sold or classified as held for
sale. During 2012, we executed new leases (excluding properties classified as
sold or held for sale) for 0.5 million square feet of office space at an average
rental rate of $35.50 per square foot, an increase of 13.9%, with average tenant
improvements and leasing commissions and incentives (including free rent) of
$42.41 per square foot.
Real estate expenses from same-store properties decreased by $2.3 million in
2012 due to lower bad debt ($1.1 million), legal ($0.5 million) and snow removal
($0.3 million) expenses.
OccUPANcy
Same-store
Non-same-store
Total
DEcEMBER 31,
2012
91.0%
94.0%
91.2%
2011
92.7%
100.0%
93.3%
Retail Segment:
Real Estate Rental Revenue
Same-store
Non-same-store(1)
yEAR ENDED DEcEMBER 31,
2012
2011
$ cHANGE % cHANGE
$49,316
$48,529
$ 787
1.6%
5,190
1,892
3,298
174.3%
Total real estate rental revenue
$54,506
$50,421
$ 4,085
8.1%
Same-store occupancy decreased to 91.0% in 2012 from 92.7% in 2011,
driven by lower occupancy at Concord Centre and Randolph Shopping Center,
partially offset by higher occupancy at Frederick Crossing. Non-same-store
occupancy decreased to 94.0% from 100.0% due to lower occupancy at Olney
Village Center. During 2012, 75.7% of the square footage that expired was
renewed compared to 87.8% in 2011. During 2012, we executed new leases for
0.2 million square feet of retail space at an average rental rate of $23.99, an
increase of 8.9%, with average tenant improvements and leasing commissions
and incentives (including free rent) of $9.71 per square foot.
Total real estate expenses
$12,702
$14,273
$ (1,571)
(11.0)%
$11,510
$13,765
$(2,255)
(16.4)%
1,192
508
684
134.6%
Multifamily Segment:
$37,806
$34,764
$ 3,042
8.8%
3,998
1,384
2,614
188.9%
Real Estate Rental Revenue
$52,887
$50,979
$1,908
Real Estate Expenses
20,467
19,717
750
$41,804
$36,148
$ 5,656
15.6%
NOI
$32,420
$31,262
$1,158
3.7%
3.8%
3.7%
yEAR ENDED DEcEMBER 31,
2012
2011
$ cHANGE % cHANGE
Real Estate Expenses
Same-store
Non-same-store(1)
NOI
Same-store
Non-same-store(1)
Total NOI
(1) Non-same-store properties include: 2011 acquisition—Olney Village center.
Real estate rental revenue from same-store properties increased by $0.8 mil-
lion in 2012 primarily due to higher occupancy ($0.6 million) and higher recov-
eries from tenants ($0.5 million), partially offset by higher reserves for uncol-
lectible revenue ($0.4 million).
Real estate rental revenue increased by $1.9 million in 2012 primarily due to
higher rental rates.
Real estate expenses increased by $0.8 million in 2012 primarily due to higher
real estate taxes.
49
Form 10-K Occupancy decreased to 94.1% in 2012 from 94.9% in 2011, driven by lower
occupancy at 3801 Connecticut Avenue, Walker House Apartments and Munson
Hill Towers, partially offset by higher occupancy at Bethesda Hill Apartments.
will not be materially higher or lower than these expectations. As of February 26,
2014, we had cash and cash equivalents of approximately $80.2 million and
availability under our unsecured credit facilities of $500.0 million.
Liquidity and capital Resources
capital Structure
We manage our capital structure to reflect a long-term investment approach, gen-
erally seeking to match the cash flow of our assets with a mix of equity and various
debt instruments. We expect that our capital structure will allow us to obtain addi-
tional capital from diverse sources that could include additional equity offerings of
common shares, public and private secured and unsecured debt financings, and
asset dispositions. Our ability to raise funds through the sale of debt and equity
securities is dependent on, among other things, general economic conditions,
general market conditions for REITs, our operating performance, our debt rating
and the current trading price of our common shares. We analyze which source of
capital we believe to be most advantageous to us at any particular point in time.
However, the capital markets may not consistently be available on terms that we
consider attractive. As a result, there can be no assurance that we will be able to
access the public or private debt and equity markets at a given point in the future.
We currently expect that our potential sources of liquidity for acquisitions,
development, redevelopment, expansion and renovation of properties, and
operating and administrative expenses, may include:
• Cash flow from operations;
• Borrowings under our unsecured credit facilities or other short-term facilities;
• Issuances of our equity securities and/or common units in our operating
partnerships;
• Issuances of preferred stock;
• Proceeds from long-term secured or unsecured debt financings, to include
construction loans;
• Investment from joint venture partners; and
• Net proceeds from the sale of assets.
During 2014, we expect that we will have significant capital requirements, includ-
ing the following items. There can be no assurance that our capital requirements
• Funding dividends and distributions to our shareholders and unit holders (includ-
ing any capital gain dividend requirement arising from our sale of the Medical
Office Portfolio as described above under “Overview—Investment Activity.”);
• Approximately $70.0–$75.0 million to invest in our existing portfolio of oper-
ating assets, including approximately $38.0–$42.0 million to fund tenant-re-
lated capital requirements and leasing commissions;
• Approximately $50.0–$55.0 million to invest in our development and redevel-
opment projects; and
• Funding for potential property acquisitions throughout the remainder of 2014,
offset by proceeds from potential property dispositions.
We currently believe that we will generate sufficient cash flow from operations
and have access to the capital resources necessary to fund our requirements
in 2014. However, as a result of general market conditions in the greater
Washington metro region, economic conditions affecting the ability to attract
and retain tenants, unfavorable fluctuations in interest rates or our share price,
unfavorable changes in the supply of competing properties, or our properties
not performing as expected, we may not generate sufficient cash flow from
operations or otherwise have access to capital on favorable terms, or at all.
If we are unable to obtain capital from other sources, we may need to alter
capital spending needs which may limit growth. If capital were not available, we
may not be able to pay the dividend required to maintain our status as a REIT,
make required principal and interest payments, make strategic acquisitions or
make necessary routine capital improvements or undertake redevelopment
opportunities with respect to our existing portfolio of operating assets.
Debt Financing
We generally use secured or unsecured, corporate-level debt, including
mortgages, unsecured notes and our unsecured credit facilities, to meet our
borrowing needs. Long-term, we generally use fixed rate debt instruments in
order to match the returns from our real estate assets. We also utilize variable
rate debt for short-term financing purposes. At times, our mix of variable and
fixed rate debt may not suit our needs. At those times, we may use derivative
50
2013 AnnuAl RepoRt financial instruments including interest rate swaps and caps, forward interest
rate options or interest rate options in order to assist us in managing our debt
mix. We may either hedge our variable rate debt to give it an effective fixed
interest rate or hedge fixed rate debt to give it an effective variable interest rate.
In November 2013, we extinguished the remaining $1.9 million of principal on
the mortgage note secured by Ashburn Farm III Office Park with extinguish-
ment costs of $0.4 million.
At December 31, 2013, and 2012, our debt was as follows (in thousands):
In November 2013, we extinguished the remaining $19.3 million of principal on
the mortgage note secured by Woodholme Medical Office Center with extin-
guishment costs of $1.8 million.
DEcEMBER 31,
2013
2012
Unsecured credit Facilities
Mortgage notes payable
Unsecured credit facilities
Unsecured notes payable
$ 294,671
$ 342,970
—
846,703
$1,141,374
—
906,190
$1,249,160
If principal amounts due at maturity cannot be refinanced, extended or paid with
proceeds of other capital transactions, such as new equity capital, our cash
flow may be insufficient to repay all maturing debt. Prevailing interest rates or
other factors at the time of a refinancing, such as possible reluctance of lenders
to make commercial real estate loans, may result in higher interest rates and
increased interest expense or inhibit our ability to finance our obligations.
Mortgage Debt
At December 31, 2013, our $294.7 million in mortgage notes payable, which
includes $2.5 million in net unamortized discounts due to fair value adjust-
ments, bore an effective weighted average fair value interest rate of 6.1% and
had a weighted average maturity of 3.5 years. We may either initiate secured
mortgage debt or assume mortgage debt from time-to-time in conjunction with
property acquisitions.
In January 2013, we extinguished without penalty the remaining $30.0 million
of principal on the mortgage note secured by West Gude Drive.
In November 2013, we extinguished the remaining $2.2 million of principal on
the mortgage note secured by Ashburn Farm Office Park with extinguishment
costs of $0.5 million.
Our primary source of liquidity is our two revolving credit facilities. We can bor-
row up to $500.0 million under these lines, which bear interest at an adjustable
spread over LIBOR based on our public debt rating.
Credit Facility No. 1 is a four-year, $100.0 million unsecured credit facility
maturing in June 2015, and may be extended by one year at our option.
We had no borrowings outstanding and no letters of credit issued as of
December 31, 2013, related to Credit Facility No. 1. Borrowings under the
facility bear interest at LIBOR plus a spread based on the credit rating on our
publicly issued debt. The interest rate spread is currently 120 basis points. All
outstanding advances are due and payable upon maturity in June 2015, and
may be extended by one year at our option. Interest only payments are due and
payable generally on a monthly basis. In addition, we pay a facility fee based
on the credit rating of our publicly issued debt which currently equals 0.25%
per annum of the $100.0 million committed capacity, without regard to usage.
Rates and fees may be increased or decreased based on changes in our
senior unsecured credit ratings. These fees are payable quarterly.
Credit Facility No. 2 is a four-year $400.0 million unsecured credit facility
maturing in July 2016, and may be extended for one year at our option. We had
no borrowings outstanding and no letters of credit issued as of December 31,
2013, related to Credit Facility No. 2. Advances under this agreement bear
interest at LIBOR plus a spread based on the credit rating of our publicly
issued debt. The interest rate spread is currently 120 basis points. All out-
standing advances are due and payable upon maturity in July 2016, and may
be extended for one year at our option. Interest only payments are due and
payable generally on a monthly basis. In addition, we pay a facility fee based
on the credit rating of our publicly issued debt which currently equals 0.25%
51
Form 10-K per annum of the $400.0 million committed capacity, without regard to usage.
Rates and fees may be increased or decreased based on changes in our
senior unsecured credit ratings. These fees are payable quarterly.
Our unsecured credit facilities contain financial and other covenants with which
we must comply. Some of these covenants include:
• A minimum tangible net worth;
• A maximum ratio of total liabilities to gross asset value, calculated using an
estimate of fair market value of our assets;
• A maximum ratio of secured indebtedness to gross asset value, calculated
using an estimate of fair market value of our assets;
• A minimum ratio of quarterly EBITDA (earnings before interest, taxes, depre-
ciation, amortization and extraordinary and nonrecurring gains and losses) to
fixed charges, including interest expense;
• A minimum ratio of unencumbered asset value, calculated using a fair value
of our assets, to unsecured indebtedness;
• A minimum ratio of net operating income from our unencumbered properties
to unsecured interest expense; and
• A maximum ratio of permitted investments to gross asset value, calculated
using an estimate of fair market value of our assets.
Failure to comply with any of the covenants under our unsecured credit facil-
ities or other debt instruments could result in a default under one or more of
our debt instruments. This could cause our lenders to accelerate the timing of
payments and would therefore have a material adverse effect on our business,
operations, financial condition and liquidity. As of December 31, 2013, we were
in compliance with our loan covenants. In addition, our ability to draw on our
unsecured credit facilities or incur other unsecured debt in the future could be
restricted by the loan covenants.
We anticipate that in the near term we may rely to a greater extent upon our
unsecured credit facilities. To the extent that we maintain larger balances on
our unsecured credit facilities or maintain balances on our unsecured credit
facilities for longer periods, adverse fluctuations in interest rates could have a
material adverse effect on earnings.
Unsecured Notes
We generally issue unsecured notes to fund our real estate assets long-term.
In issuing future unsecured notes, we intend to ladder the maturities of our debt
to mitigate exposure to interest rate risk in future years.
Depending upon market conditions, opportunities to issue unsecured notes on
attractive terms may not be available. During periods in the recent past, debt
capital was essentially unavailable for extended periods of time. While debt
markets have improved, it is difficult to predict if the improvement is sustainable.
At December 31, 2013, our unsecured notes with maturities ranging from
January 2014 through February 2028, were as follows (in thousands):
5.25% notes due 2014
5.35% notes due 2015
4.95% notes due 2020
3.95% notes due 2022
7.25% notes due 2028
Total principal
Net unamortized discount
Total
$100,000
150,000
250,000
300,000
50,000
850,000
(3,297)
$846,703
Our unsecured notes contain covenants with which we must comply, including:
• Limits on our total indebtedness;
• Limits on our secured indebtedness;
• Limits on our required debt service payments; and
• Maintenance of a minimum level of unencumbered assets.
Failure to comply with any of the covenants under our unsecured notes could
result in a default under one or more of our debt instruments. This could cause
our debt holders to accelerate the timing of payments and would therefore have
a material adverse effect on our business, operations, financial condition and
liquidity. As of December 31, 2013, we were in compliance with our unsecured
notes covenants.
52
2013 AnnuAl RepoRt From time to time, we may seek to repurchase and cancel our outstanding
notes through open market purchases, privately negotiated transactions or
otherwise. Such repurchases, if any, will depend on prevailing market condi-
tions, our liquidity requirements, contractual restrictions and other factors. The
amounts involved may be material.
common Equity
We have authorized for issuance 100.0 million common shares, of which
66.5 million shares were outstanding at December 31, 2013.
We are party to a sales agency financing agreement with BNY Mellon Capital
Markets, LLC relating to the issuance and sale of up to $250.0 million of our
common shares from time to time over a period of no more than 36 months
from June 2012. Sales of our common shares are made at market prices pre-
vailing at the time of sale. We would use net proceeds from the sale of common
shares under this program for general corporate purposes. As of December 31,
2013, we have not issued any common shares under this program.
We have a dividend reinvestment program, whereby shareholders may use
their dividends and optional cash payments to purchase common shares.
The common shares sold under this program may either be common shares
issued by us or common shares purchased in the open market. We use the net
proceeds under this program for general corporate purposes. We did not issue
any shares under this program during 2013. During 2012, we issued 0.1 mil-
lion common shares at a weighted average price of $29.67 per share, raising
$1.3 million in net proceeds.
Preferred Equity
WRIT’s board of trustees can, at its discretion, authorize the issuance of up
to 10.0 million shares of preferred stock. The ability to issue preferred equity
provides WRIT an additional financing tool that may be used to raise capital for
future acquisitions or other business purposes. As of December 31, 2013, no
shares of preferred stock had been authorized or issued.
of Trustees in its discretion. These factors include our results of operations, the
availability of cash to make the necessary dividend payments and the effect
of REIT distribution requirements, which require at least 90% of our taxable
income to be distributed to shareholders. When setting the dividend level,
our Board looks in particular at trends in our level of funds from operations,
together with associated recurring capital improvements, tenant improvements,
leasing commissions and incentives, and adjustments to straight-line rents to
reflect cash rents received.
Our dividend and distribution payments for the three years ended
December 31, 2013, were as follows (in thousands):
Common dividends
Noncontrolling interest distributions
yEAR ENDED DEcEMBER 31,
2013
2012
2011
$80,104
—
$80,104
$97,734
—
$97,734
$115,045
2,488
$117,533
Dividends paid during 2013 decreased from 2012 primarily due to a decrease
in the quarterly dividend paid per share from $0.43375 to $0.30 during 2012.
Dividends paid during 2012 decreased from 2011 primarily due to a decrease
in the dividend paid per share offset by a small increase in shares outstanding
due to our dividend reinvestment program. The decrease in noncontrolling
interests distributions reflects the sale of Northern Virginia Industrial Park.
capital commitments
We will require capital for development and redevelopment projects currently
underway and in the future. As of December 31, 2013, we had under devel-
opment a mid-rise apartment property at 650 North Glebe Road in Arlington,
Virginia and the renovation of our office building at 7900 Westpark Drive in
McLean, Virginia.
Dividends
We currently pay dividends quarterly at a rate of $0.30 per share. The mainte-
nance of our dividend level is subject to various factors reviewed by the Board
Our total investment in 650 North Glebe Road is expected to be $49.9 mil-
lion, including land costs and our partner’s 10% share. We have secured debt
financing totaling $33.0 million. As of December 31, 2013, we had invested
$27.3 million in 650 North Glebe Road including land costs and we expect to
53
Form 10-K fund approximately $20.6 million in 2014 on this project. We currently expect to
complete this development project during the fourth quarter of 2014.
Our total investment in the renovation at 7900 Westpark Drive is expected to
be $35.0 million. As of December 31, 2013, we had invested $3.6 million in
the renovation at 7900 Westpark Drive and we expect to fund approximately
$29.7 million in 2014 on this project. We currently expect to complete this
development project during the first quarter of 2015.
As of December 31, 2013, we had invested $20.8 million (including land costs) in a
potential high-rise multifamily property at 1225 First Street in Alexandria, Virginia.
We have a 95% interest in this project. In the first quarter 2013, we decided to
delay commencement of construction due to market conditions and concerns
of oversupply. We will reassess this project on a periodic basis going forward.
There were no projects placed into service in the year ended December 31,
2013. As of December 31, 2013, we had no outstanding contractual commit-
ments related to our development and redevelopment projects, and expect to
fund approximately $51.4 million of total development/redevelopment spending
during 2014.
We anticipate funding several major renovation projects in our portfolios during
2014, as follows (in thousands):
Office
Retail
Multifamily
Total
$14,487
2,564
8,491
$25,542
These projects include HVAC system upgrades, common area and unit reno-
vations and hot water boilers at multifamily properties; HVAC upgrades, plaza
waterproofing, lobby renovations and roof replacements at office properties; and
façade renovations and roof repairs and replacements at retail properties. Not
all of the anticipated spending had been committed via executed construction
contracts at December 31, 2013. We expect to fund these projects using cash
generated by our real estate operations, through borrowings on our unsecured
credit facilities, or raising additional debt or equity capital in the public market.
54
contractual Obligations
As of December 31, 2013, certain contractual obligations will require significant
capital as follows (in thousands):
PAyMENTS DUE By PERIOD
TOTAL
LESS THAN
1 yEAR
1–3 yEARS 4–5 yEARS
AFTER
5 yEARS
Long-term debt(1)
$1,464,495
$159,567
$520,387
$95,360
$689,181
Purchase obligations(2)
Tenant-related capital(3)
Building capital(4)
Operating leases
11,354
17,784
11,494
14,847
3,782
17,784
11,494
318
7,572
—
—
814
—
—
—
—
—
—
520
13,195
(1) See notes 4, 5 and 6 of our consolidated financial statements. Amounts include principal, interest, unused
commitment fees and facility fees.
(2) Represents electricity sales agreements with terms through 2016 and natural gas purchase agreements
with terms through 2014.
(3) committed tenant-related capital based on executed leases as of December 31, 2013.
(4) committed building capital additions based on contracts in place as of December 31, 2013.
We have various standing or renewable contracts with vendors. The majority
of these contracts can be canceled with immaterial or no cancellation pen-
alties, with the exception of our elevator maintenance, electricity sales and
natural gas purchase agreements, which are included above on the purchase
obligations line. Contract terms on leases that can be canceled are generally
one year or less. We are currently committed to fund tenant-related capital
improvements as described in the table above for executed leases. However,
expected leasing levels could require additional tenant-related capital improve-
ments which are not currently committed. We expect that total tenant-related
capital improvements, including those already committed, will be approximately
$34.2 million in 2014. Due to the competitive office leasing market we expect
that tenant-related capital costs will continue at this level into 2015.
2013 AnnuAl RepoRt Historical cash Flows
Cash flows from operations are an important factor in our ability to sustain our dividend at its current rate. If our cash flows from operations were to decline signifi-
cantly, we may have to reduce our dividend. Consolidated cash flows for the three years ended December 31, 2013 were as follows (in thousands):
Cash provided by operating activities
Cash provided by (used in) investing activities
Cash used in financing activities
yEAR ENDED DEcEMBER 31,
VARIANcE
2013
$ 113,318
189,848
(191,928)
2012
$131,448
(88,796)
(35,998)
2011
$ 117,626
61,098
(244,955)
2013 vs 2012
$ (18,130)
278,644
(155,930)
2012 vs 2011
$ 13,822
(149,894)
208,957
The decrease in cash provided by operating activities in 2013 was primarily due
to the loss of income from properties sold as part of the Medical Office Portfolio
and higher interest payments. The increase in cash provided by operating activi-
ties in 2012 was primarily due to acquisitions made during 2011 and 2012.
capital Improvements and Development costs
Our capital improvement and development costs for the three years ended
December 31, 2013 were as follows (in thousands):
Net cash provided by investing activities increased in 2013 due to the closing
on Purchase and Sale Agreements I and II of the Medical Office Portfolio,
partially offset by higher development spending. Net cash used in investing
activities increased in 2012 due to the sale of the Industrial Portfolio in 2011,
partially offset by a higher volume of acquisition activity in 2011.
The increase in cash used by financing activities in 2013 reflects the repay-
ment of mortgage notes and our 5.125% unsecured notes. The decrease in
cash used by financing activities in 2012 was primarily due the issuance of the
3.95% unsecured notes and the decrease of our quarterly dividend, partially
offset by paying down the balances on our unsecured lines of credit. The
increase in cash used by financing activities in 2011 reflects higher dividends
and repayment of notes.
yEAR ENDED DEcEMBER 31,
2013
2012
2011
Accretive capital improvements:
Acquisition related
$ 1,369
$ 3,718
$ 2,549
Expansions and major renovations
Development/redevelopment
Tenant improvements (including first
generation leases)
Total accretive capital improvements(1)
Other capital improvements:
23,831
15,826
21,746
62,772
8,883
20,147
6,494
18,333
48,692
8,982
9,435
25,929
13,350
51,263
7,481
Total
$71,655
$57,674
$58,744
(1) We consider capital improvements to be accretive to revenue and not necessarily to net income.
Included in the capital improvement and development costs listed above are cap-
italized interest in the amount of $1.2 million, $1.7 million and $0.7 million for the
years ended December 31, 2013, 2012 and 2011, respectively, and capitalized
employee compensation in the amount of $1.7 million, $1.5 million and $0.8 mil-
lion for the years ended December 31, 2013, 2012 and 2011, respectively.
55
Form 10-K Accretive capital Improvements
Acquisition Related Improvements: Acquisition related improvements are
capital improvements to properties acquired during the preceding three years
which were anticipated at the time we acquired the properties. These types
of improvements were made in 2013 to Fairgate at Ballston, Braddock Metro
Center, 1227 25th Street and 1140 Connecticut Avenue.
Expansions and Major Renovations: Expansion projects increase the rentable
area of a property, while major renovation projects are improvements suffi-
cient to increase the income otherwise achievable at a property. Expansions
and major renovations during 2013 included upgrades to heating/AC units and
hallway renovations at The Kenmore; HVAC modifications, common area reno-
vations and fitness center at 1600 Willson Boulevard; common area and lobby
renovations at 6110 Executive Boulevard; façade renovations, elevator and
HVAC upgrades at 2000 M Street; conference room, corridor and restroom ren-
ovations at West Gude; HVAC modifications at 1140 Connecticut Avenue; and
unit renovations at Roosevelt Towers, Country Club and The Ashby at McLean.
Development/Redevelopment: Development costs represent expenditures for
ground up development of new operating properties. Redevelopment costs
represent expenditures for improvements intended to reposition properties
in their markets and increase income that would be otherwise achievable.
Development/Redevelopment costs in each of the years presented include
costs associated with the ground up development of 1225 First Street and 650
North Glebe Road and redevelopment at 7900 Westpark Drive. We have tem-
porarily suspended development at 1225 First Street.
Tenant Improvements: Tenant improvements are costs, such as space build-
out, associated with commercial lease transactions. Our average tenant
improvement costs per square foot of space leased, excluding first generation
leases, during the three years ended December 31, 2013 were as follows:
Office(1)
Retail
yEAR ENDED DEcEMBER 31,
2013
$29.90
$ 7.05
2012
$27.20
$ 7.85
2011
$13.00
$ 7.07
(1) Excludes properties sold or classified as held for sale.
56
The $2.70 increase in 2013 in tenant improvement costs per square foot
of office space leased was primarily due to leases executed in 2013 requir-
ing $5.9 million for tenant improvements at Braddock Metro Center for a
new tenant.
The $14.20 increase in 2012 in tenant improvement costs per square foot of
office space leased was primarily due to leases executed in 2012 requiring
$4.5 million in tenant improvements at 2000 M Street, Fairgate at Ballston and
1140 Connecticut Avenue.
The $0.80 decrease in 2013 and the $0.78 increase in 2012 in tenant improve-
ment costs per square foot of retail space leased was due to a lease executed
with a single tenant requiring $0.9 million in tenant improvements in 2012 at
Gateway Overlook.
Tenant improvement costs for retail tenants are substantially lower than for
office tenants because the improvements required for retail tenants tend to be
substantially less extensive than for office tenants.
Other capital Improvements
Other capital improvements, also referred to as recurring capital improvements,
are those not included in the above categories. Over time these costs will be
recurring in nature to maintain a property’s income and value. In our multifam-
ily properties, these include new appliances, flooring, cabinets and bathroom
fixtures. These improvements, which are made as needed upon vacancy of an
apartment, totaled $1.1 million in 2013, averaging $971 per apartment for the
43% of apartments turned over relative to our total portfolio of apartment units.
In our commercial properties and residential properties (aside from improve-
ments related to apartment turnover), improvements include installation of new
heating and air conditioning equipment, asphalt replacement, new signage,
permanent landscaping, window replacements, new lighting and new finishes.
In addition, we incurred repair and maintenance expense of $12.3 million
during 2013 to maintain the quality of our buildings.
Forward-Looking Statements
This Form 10-K contains forward-looking statements which involve risks and
uncertainties. Such forward looking statements include each of the statements
2013 AnnuAl RepoRt in “Item 1: Business” and “Item 7: Management’s Discussion and Analysis of
Financial Conditions and Results of Operations” concerning the Washington
metro region’s economy, gross regional product, unemployment and job growth
and real estate market performance. Such forward-looking statements also
include the following statements with respect to WRIT:
(a) our intention to invest in properties that we believe will increase in income
and value;
(b) our belief that external sources of capital will continue to be available and
that additional sources of capital will be available from the sale of common
shares or notes; and
(c) our belief that we have the liquidity and capital resources necessary to
meet our known obligations and to make additional property acquisitions
and capital improvements when appropriate to enhance long-term growth.
Forward-looking statements also include other statements in this report pre-
ceded by, followed by or that include the words “believe,” “expect,” “intend,”
“anticipate,” “potential,” “project,” “will” and other similar expressions.
We claim the protection of the safe harbor for forward-looking statements con-
tained 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 Form 10-K, could affect our future results and could cause those
results to differ materially from those expressed in the forward-looking statements:
(a)
the effect of credit and financial market conditions;
(b) the availability and cost of capital;
(c) fluctuations in interest rates;
(d) the economic health of our tenants;
(e)
the timing and pricing of lease transactions;
(f)
the economic health of the greater Washington metro region, or other mar-
kets we may enter;
(g) the effects of changes in Federal government spending;
(h) the supply of competing properties;
(i) consumer confidence;
(j) unemployment rates;
(k) consumer tastes and preferences;
(l) our future capital requirements;
(m) inflation;
(n) compliance with applicable laws, including those concerning the environ-
ment and access by persons with disabilities;
(o) governmental or regulatory actions and initiatives;
(p) changes in general economic and business conditions;
(q) terrorist attacks or actions;
(r) acts of war;
(s) weather conditions;
(t)
the effects of changes in capital available to the technology and biotech-
nology sectors of the economy; and
(u) other factors discussed under the caption “Risk Factors.”
We undertake no obligation to update our forward-looking statements or risk
factors to reflect new information, future events, or otherwise.
Ratios of Earnings to Fixed charges and Debt Service coverage
The following table sets forth our ratios of earnings to fixed charges and debt
service coverage for the periods shown:
Earnings to fixed charges(1)
Debt service coverage
yEAR ENDED DEcEMBER 31,
2013
0.98
2.7x
2012
1.10
2.7x
2011
0.75
2.7x
(1) Due to WRIT’s losses from continuing operations during 2013 and 2011, the earnings to fixed charges ratio
for each year was less than 1:1. WRIT must generate additional earnings of $1.4 million and $15.6 million
in 2013 and 2011, respectively, to achieve a ratio of 1:1.
We computed the ratio of earnings to fixed charges by dividing earnings by
fixed charges. For this purpose, earnings consist of income from continuing
operations attributable to the controlling interests plus fixed charges, less capi-
talized interest. Fixed charges consist of interest expense, including amortized
costs of debt issuance, and interest costs capitalized.
57
Form 10-K We computed the debt service coverage ratio by dividing EBITDA (which is
earnings before interest income and expense, taxes, depreciation, amortiza-
tion, real estate impairment and gain on sale of real estate) by interest expense
and principal amortization.
Funds From Operations
FFO is a widely used measure of operating performance for real estate
companies. We provide FFO as a supplemental measure to net income
calculated in accordance with GAAP. Although FFO is a widely used mea-
sure of operating performance for REITs, FFO does not represent net income
calculated in accordance with GAAP. As such, it should not be considered
an alternative to net income as an indication of our operating performance.
In addition, FFO does not represent cash generated from operating activi-
ties in accordance with GAAP, nor does it represent cash available to pay
distributions and should not be considered as an alternative to cash flow from
operating activities, determined in accordance with GAAP, as a measure of
our liquidity. The National Association of Real Estate Investment Trusts, Inc.
(“NAREIT”) defines FFO (April, 2002 White Paper) as net income (computed
in accordance with GAAP) excluding gains (or losses) from sales of property
and impairments of depreciable real estate, if any, plus real estate depre-
ciation and amortization. We consider FFO to be a standard supplemental
measure for REITs because it facilitates an understanding of the operating
performance of our properties without giving effect to real estate depre-
ciation and amortization, which historically assumes that the value of real
estate assets diminishes predictably over time. Since real estate values have
instead historically risen or fallen with market conditions, we believe that FFO
more accurately provides investors an indication of our ability to incur and
service debt, make capital expenditures and fund other needs. Our FFO may
not be comparable to FFO reported by other REITs. These other REITs may
not define the term in accordance with the current NAREIT definition or may
interpret the current NAREIT definition differently.
Our FFO and a reconciliation of FFO to net income for the three years ended
December 31, 2013 were as follows (in thousands):
Net income attributable to the
controlling interests
Adjustments:
yEAR ENDED DEcEMBER 31,
2013
2012
2011
$ 37,346
$ 23,708
$104,884
Depreciation and amortization
85,740
85,107
74,403
Discontinued operations, net of amounts
attributable to noncontrolling interests:
Depreciation and amortization
12,161
18,827
26,125
Gain on sale of real estate
Real estate impairment on
depreciable real estate
Income tax expense (benefit)
(22,144)
(5,124)
(97,091)
—
—
—
—
599
1,138
FFO, as defined by NAREIT
$113,103
$122,518
$110,058
ITEM 7A. quantitative and qualitative Disclosures
About Market Risk
The principal material financial market risk to which we are exposed is interest
rate risk. Our exposure to interest rate risk relates primarily to refinancing
long-term fixed rate obligations, the opportunity cost of fixed rate obligations
in a falling interest rate environment and our variable rate lines of credit. We
primarily enter into debt obligations to support general corporate purposes,
including acquisition of real estate properties, capital improvements and work-
ing capital needs. In the past we have used interest rate hedge agreements
to hedge against rising interest rates in anticipation of imminent refinancing or
new debt issuance.
58
2013 AnnuAl RepoRt The table below presents principal, interest and related weighted average fair value interest rates by year of maturity, with respect to debt outstanding on
December 31, 2013.
(In thousands)
2014
2015
2016
2017
2018
THEREAFTER
TOTAL
FAIR VALUE
Unsecured fixed rate debt
Principal
Interest payments
$100,000
$ 38,500
$150,000
$ 31,863
$ —
$ 27,850
$ —
$27,850
$ —
$27,850
$600,000
$106,588
$850,000
$260,501
$856,171
Interest rate on debt maturities
5.34%
5.45%
—%
—%
—%
4.73%
4.93%
Mortgages
Principal amortization(1)
(30 year schedule)
Interest payments(2)
Weighted average interest rate
$ 2,840
$ 16,805
$ 3,017
$ 16,626
$141,688
$ 12,058
$104,369
$ 3,163
$ 2,661
$ 2,513
$ 42,625
$ 2,305
$297,200
$ 53,470
$313,476
on principal amortization
5.26%
5.26%
5.55%
7.20%
5.07%
5.26%
6.08%
(1) Excludes net discounts of $2.5 million at December 31, 2013.
(2)
Interest payments on our construction loan is based on LIBOR in effect on our borrowings outstanding at December 31, 2013.
ITEM 8. Financial Statements and Supplementary Data
The financial statements and supplementary data appearing on pages 71 to
111 are incorporated herein by reference.
ITEM 9. changes in and Disagreements
With Accountants on Accounting
and Financial Disclosure
None.
ITEM 9A. controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Securities Exchange Act
reports is recorded, processed, summarized and reported within the time peri-
ods specified in the SEC’s rules and forms, and that such information is accu-
mulated and communicated to our management, including our Chief Executive
Officer, Chief Financial Officer and Executive Vice President—Accounting and
Administration, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving
the desired control objectives, and management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible con-
trols and procedures.
We carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer, Chief Financial
Officer and Executive Vice President—Accounting and Administration, of the
effectiveness of the design and operation of our disclosure controls and proce-
dures as of December 31, 2013. Based on the foregoing, our Chief Executive
Officer, Chief Financial Officer and Executive Vice President—Accounting and
Administration (Principal Accounting Officer) concluded that our disclosure
controls and procedures were effective at a reasonable assurance level.
Internal control over Financial Reporting
See the Report of Management in Item 8 of this Form 10-K.
59
Form 10-K See the Reports of Independent Registered Public Accounting Firm in Item 8 of
this Form 10-K.
During the three months ended December 31, 2013, there was no change in our
internal control over financial reporting that has materially affected, or is reason-
ably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
None.
PART III
Certain information required by Part III is omitted from this Form 10-K in that
we will file a definitive proxy statement pursuant to Regulation 14A with respect
to our 2014 Annual Meeting (the “Proxy Statement”) no later than 120 days
after the end of the fiscal year covered by this Form 10-K, and certain informa-
tion included therein is incorporated herein by reference. Only those sections
of the Proxy Statement which specifically address the items set forth herein are
incorporated by reference. In addition, we have adopted a code of ethics which
can be reviewed and printed from our website www.writ.com.
ITEM 10. Directors, Executive Officers
and corporate Governance
The information required by this Item is hereby incorporated herein by refer-
ence to the Proxy Statement.
ITEM 11. Executive compensation
The information required by this Item is hereby incorporated herein by refer-
ence to the Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
The information required under this Item by Item 403 of Regulation S-K is
hereby incorporated herein by reference to the Proxy Statement.
60
2013 AnnuAl RepoRt Equity compensation Plan Information
PLAN cATEGORy
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
NUMBER OF SEcURITIES TO
BE ISSUED UPON EXERcISE
OF OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
WEIGHTED-AVERAGE EXERcISE
PRIcE OF OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
NUMBER OF SEcURITIES REMAINING
AVAILABLE FOR FUTURE ISSUANcE
UNDER EqUITy cOMPENSATION
PLANS (EXcLUDING SEcURITIES
REFLEcTED IN cOLUMN (A))
(A)
—
10,000(1)
10,000
(B)
$ —
$33.09
$33.09
(c)
1,048,410
—
1,048,410
(1) We previously maintained a stock option plan for trustees which provided for the annual granting of 2,000 non-qualified stock options to trustees, the last of which were granted in 2004. This plan expired on December 15,
2007 and options may no longer be issued thereunder.
ITEM 13. certain Relationships and Related
Transactions, and Director Independence
The information required by this Item is hereby incorporated herein by refer-
ence to the Proxy Statement.
ITEM 14. Principal Accountant Fees and Services
The information required by this Item is hereby incorporated herein by refer-
ence to the Proxy Statement.
61
Form 10-K PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(A). The following documents are filed as part of this Form 10-K:
1. Financial Statements
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Income for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II—Valuation and Qualifying Accounts
Schedule III—Consolidated Real Estate and Accumulated Depreciation
All other schedules are omitted because they are either not required or the required information is shown in the financial statements or notes thereto.
Page
68
69
70
71
72
73
74
75
76
107
108
3. Exhibits:
EXHIBIT
NUMBER EXHIBIT DEScRIPTION
INcORPORATED By REFERENcE
FORM
FILE NUMBER
EXHIBIT
FILING DATE
FILED
HEREWITH
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
Articles of Amendment and Restatement, effective as of May 17, 2011
Amended and Restated Bylaws of Washington Real Estate
Investment Trust, as adopted on May 17, 2011
Indenture dated as of August 1, 1996 between WRIT and The First National Bank of Chicago
Form of 2028 Notes
Officers’ Certificate Establishing Terms of the 2014 Notes, dated December 8, 2003
Form of 2014 Notes
Form of 5.35% Senior Notes due May 1, 2015 dated April 26, 2005
Officers Certificate establishing the terms of the 2012 and 2015 Notes, dated April 20, 2005
DEF 14A
001-06622
8-K
001-06622
8-K
8-K
8-K
8-K
8-K
8-K
001-06622
001-06622
001-06622
001-06622
001-06622
001-06622
B
3.3
(c)
99.1
4(a)
4(b)
4.2
4.3
4/1/2011
5/23/2011
8/13/1996
2/25/1998
12/11/2003
12/11/2003
4/26/2005
4/26/2005
62
2013 AnnuAl RepoRt
EXHIBIT
NUMBER EXHIBIT DEScRIPTION
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
10.1*
10.2*
10.3*
Form of 5.35% Senior Notes due May 1, 2015 dated October 6, 2005
Officers Certificate establishing the terms of the 2015 Notes, dated October 3, 2005
Supplemental Indenture by and between WRIT and the Bank of
New York Trust Company, N.A. dated as of July 3, 2007
Credit agreement dated June 29, 2007 by and among WRIT, as borrower, the finan-
cial institutions party thereto as lenders, and SunTrust Bank as agent
Multifamily Note Agreement (Walker House Apartments) dated as of May 29,
2008, by and between WRIT and Wells Fargo Bank, National Association
Multifamily Note Agreement (3801 Connecticut Avenue) dated as of May 29,
2008, by and between WRIT and Wells Fargo Bank, National Association
Multifamily Note Agreement (Bethesda Hill Apartments) dated as of May 29,
2008, by and between WRIT and Wells Fargo Bank, National Association
Form of 4.95% Senior Notes due October 1, 2020
Officers’ Certificate establishing the terms of the 4.95% Senior Notes due October 1, 2020
Credit Agreement, dated as of July 1, 2011, by and among Washington Real Estate
Investment Trust, as borrower, the financial institutions party thereto as lenders, each
of The Bank of New York Mellon, Citibank, N.A. and Credit Suisse AG, Cayman Islands
Branch as a documentation agent, Wells Fargo Securities, LLC, as lead arranger and
bookrunner, and Wells Fargo Bank, National Association, as administrative agent
Second Amendment to Credit Agreement, dated as of December 23, 2011, with Suntrust Bank
Amended and Restated Credit Agreement, dated as of May 17, 2012, by and among Washington
Real Estate Investment Trust, as borrower, the financial institutions party thereto as lend-
ers, each of The Bank of New York Mellon, Citibank, N.A. and Credit Suisse AG, Cayman
Islands Branch as a documentation agent, Wells Fargo Securities, LLC, as lead arranger
and bookrunner, and Wells Fargo Bank, National Association, as administrative agent
Amended and Restated Credit Agreement, dated as of June 25, 2012, by and
among Washington Real Estate Investment Trust, as borrower, the financial insti-
tutions party thereto as lenders, SunTrust Robinson Humphrey, Inc., as sole lead
arranger and bookrunner, and SunTrust Bank, as administrative agent
Form of 3.95% Senior Notes due October 15, 2022
Officers’ Certificate establishing the terms of 3.95% Notes due October 15, 2022
2001 Stock Option Plan
Share Purchase Plan
Supplemental Executive Retirement Plan
INcORPORATED By REFERENcE
FORM
FILE NUMBER
EXHIBIT
FILING DATE
8-K
8-K
8-K
001-06622
001-06622
001-06622
4.1
4.2
4.1
10/6/2005
10/6/2005
7/5/2007
FILED
HEREWITH
8-K
001-06622
4.1
7/6/2007
10-Q
001-06622
4
8/8/2008
10-Q
001-06622
4.0
8/8/2008
10-Q
001-06622
4.0
8/8/2008
8-K
8-K
8-K
001-06622
001-06622
001-06622
4.1
4.2
4.1
9/30/2010
9/30/2010
7/6/2011
10-K
8-K
001-06622
001-06622
4.21
4.1
2/27/2012
5/18/2012
8-K
001-06622
4.1
6/27/2012
8-K
8-K
001-06622
001-06622
DEF 14A
001-06622
10-Q
10-Q
001-06622
001-06622
4.1
4.2
A
10(j)
10(k)
9/17/2012
9/17/2012
3/29/2001
11/14/2002
11/14/2002
63
Form 10-K EXHIBIT
NUMBER EXHIBIT DEScRIPTION
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
Description of WRIT Short-term and Long-term Incentive Plan
Description of WRIT Revised Trustee Compensation Plan
Supplemental Executive Retirement Plan
2007 Omnibus Long Term Incentive Plan
Deferred Compensation Plan for Officers dated January 1, 2007
Supplemental Executive Retirement Plan II dated May 23, 2007
10.10*
Amended Long Term Incentive Plan, effective January 1, 2008
10.11*
Form of Indemnification Agreement by and between WRIT and the indemnitee
10.12*
Long Term Incentive Plan, effective January 1, 2009
10.13*
Short Term Incentive Plan, effective January 1, 2009
10.14*
Executive Stock Ownership Policy, adopted October 27, 2010
10.15*
Amendment to Deferred Compensation Plan for Officers, adopted October 27, 2010
10.16*
Long Term Incentive Plan, effective January 1, 2011
10.17*
Short Term Incentive Plan, effective January 1, 2011
10.18*
10.19*
10.20*
10.21*
10.22*
Amended and restated change in control agreement dated
December 1, 2011 with William T. Camp
Amended and restated change in control agreement dated
December 1, 2011 with Laura M. Franklin
Amended and restated change in control agreement dated
December 1, 2011 with Thomas C. Morey
Amended and restated change in control agreement dated
December 1, 2011 with Thomas L. Regnell
Amended and restated change in control agreement dated
December 1, 2011 with James B. Cederdahl
10.23*
Short Term Incentive Plan, effective January 1, 2012
10.24*
10.25
Separation Agreement and General Release between Michael S. Paukstitus
and Washington Real Estate Investment Trust dated February 7, 2013
Sales Agency Financing Agreement, dated June 22, 2012 between
WRIT and BNY Mellon Capital Markets, LLC
10.26*
Amendment to Deferred Compensation Plan for Officers, adopted December 31, 2012
10.27*
Amended and restated change in control agreement dated
February 27, 2013 with George F. McKenzie
INcORPORATED By REFERENcE
FORM
10-K
10-K
10-K
FILE NUMBER
EXHIBIT
FILING DATE
001-06622
10(l)
3/16/2005
001-06622
10(m)
3/16/2005
001-06622
10(p)
3/16/2006
DEF 14A
001-06622
B
4/9/2007
FILED
HEREWITH
10-K
10-K
10-Q
8-K
10-K
10-K
8-K
8-K
10-Q
10-Q
10-K
001-06622
10(gg)
2/29/2008
001-06622
10(hh)
2/29/2008
001-06622
10(ii)
5/9/2008
001-06622
10(nn)
7/27/2009
001-06622
001-06622
001-06622
001-06622
001-06622
001-06622
001-06622
10.28
10.29
10.31
10.32
10.34
10.35
10.32
2/26/2010
2/26/2010
11/2/2010
11/2/2010
5/6/2011
5/6/2011
2/27/2012
10-K
001-06622
10.33
2/27/2012
10-K
001-06622
10.34
2/27/2012
10-K
001-06622
10.35
2/27/2012
10-K
001-06622
10.37
2/27/2012
10-Q
8-K
001-06622
10.38
5/7/2012
001-06622
10.1
2/13/2013
8-K
001-06622
1.1
6/22/2012
10-K
10-K
001-06622
001-06622
10.37
10.38
2/27/2013
2/27/2013
64
2013 AnnuAl RepoRt EXHIBIT
NUMBER EXHIBIT DEScRIPTION
10.28*
10.29*
10.30*
10.31*
10.32*
Amended and restated change in control agreement dated
February 27, 2013 with William T. Camp
Amended and restated change in control agreement dated
February 27, 2013 with Laura M. Franklin
Amended and restated change in control agreement dated
February 25, 2013 with Thomas C. Morey
Amended and restated change in control agreement dated
February 26, 2013 with Thomas L. Regnell
Amended and restated change in control agreement dated
February 26, 2013 with James B. Cederdahl
10.33* Change in control agreement dated February 26, 2013 with Paul S. Weinschenk
10.34*
Amendment to Deferred Compensation Plan for Officers, adopted February 13, 2013
10.35*
Amendment to Deferred Compensation Plan for Directors, adopted February 13, 2013
10.36*
Amendment to Short Term Incentive Plan, adopted as of January 22, 2013
10.37*
10.38
Separation Agreement and General Release between George F. McKenzie
and Washington Real Estate Investment Trust dated July 23, 2013
Purchase and Sale Agreement, dated as of September 27, 2013, for 2440 M Street, Alexandria
Professional Center, 8301 Arlington Boulevard, 6565 Arlington Boulevard, Ashburn Farm
Office Park I, II and III, CentreMed I and II, Sterling Medical Office Building, 19500 at
Riverside Office Park, Shady Grove Medical Village II, 9707 Medical Center Drive, 15001 and
15005 Shady Grove Road, Woodholme Center, and Woodholme Medical Office Building
10.39
Purchase and Sale Agreement, dated as of September 27, 2013, for 4661 Kenmore Avenue
10.40
10.41
Purchase and Sale Agreement, dated as of September 27, 2013, for Woodburn Medical
Park I and II
Purchase and Sale Agreement, dated as of September 27, 2013, for Prosperity Medical
Center I, II and III
10.42*
Amended and Restated Deferred Compensation Plan for Directors, effective October 22, 2013
10.43*
Employment Agreement dated August 19, 2013 with Paul T. McDermott
10.44* Change in control agreement dated October 1, 2013 with Paul T. McDermott
10.45*
Amendment to Deferred Compensation Plan for Officers, adopted February 18, 2014
10.46*
Amendment to Deferred Compensation Plan for Directors as
Amended and Restated, adopted February 18, 2014
12
21
Computation of Ratio of Earnings to Fixed Charges
Subsidiaries of Registrant
INcORPORATED By REFERENcE
FORM
10-K
FILE NUMBER
EXHIBIT
FILING DATE
001-06622
10.39
2/27/2013
FILED
HEREWITH
10-K
001-06622
10.40
2/27/2013
10-K
001-06622
10.41
2/27/2013
10-K
001-06622
10.42
2/27/2013
10-K
001-06622
10.43
2/27/2013
10-K
10-Q
10-Q
10-Q
10-Q
001-06622
001-06622
001-06622
001-06622
001-06622
10.44
10.45
10.46
10.47
10.48
2/27/2013
5/9/2013
5/9/2013
5/9/2013
7/31/2013
8-K
001-06622
10.49
10/3/2013
8-K
8-K
001-06622
001-06622
10.50
10.51
10/3/2013
10/3/2013
8-K
001-06622
10.52
10/3/2013
10-Q
10-Q
001-06622
001-06622
10.53
10.54
11/1/2013
11/1/2013
X
X
X
X
X
65
Form 10-K EXHIBIT
NUMBER EXHIBIT DEScRIPTION
23
24
31.1
31.2
31.3
32
101
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended (“the Exchange Act”)
Certification of the Executive Vice President—Accounting and
Administration pursuant to Rule 13a-14(a) of the Exchange Act
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
Certification of the Chief Executive Officer, Executive Vice President—Accounting
and Administration (Principal Accounting Officer) and Chief Financial Officer pur-
suant to Rule 13a-14(b) of the Exchange Act and 18U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following materials from our Annual Report on Form 10-K for the year ended
December 31, 2013 formatted in eXtensible Business Reporting Language
(“XBRL”): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements
of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the
Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements
of Cash Flows, and (vi) notes to these consolidated financial statements
INcORPORATED By REFERENcE
FORM
FILE NUMBER
EXHIBIT
FILING DATE
FILED
HEREWITH
X
X
X
X
X
X
X
*Management contracts or compensation plans or arrangements in which trustees or executive officers are eligible to participate.
In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, copies of certain instruments defining the rights of holders of long-term debt of WRIT or its subsidiaries are not filed herewith. Pursuant to this regulation, we hereby
agree to furnish a copy of any such instrument to the SEc upon request.
66
2013 AnnuAl RepoRt SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: March 3, 2014
WASHINGTON REAL ESTATE INVESTMENT TRUST
By:
/s/ Paul T. McDermott
Paul T. McDermott
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
SIGNATURE
/s/ Charles T. Nason*
Charles T. Nason
/s/ Paul T. McDermott
Paul T. McDermott
/s/ William G. Byrnes*
William G. Byrnes
/s/ Edward S. Civera*
Edward S. Civera
/s/ John P. McDaniel*
John P. McDaniel
/s/ Thomas Edgie Russell, III*
Thomas Edgie Russell, III
/s/ Wendelin A. White*
Wendelin A. White
/s/ Anthony L. Winns*
Anthony L. Winns
/s/ William T. Camp
William T. Camp
/s/ Laura M. Franklin
Laura M. Franklin
*By: /s/ Laura M. Franklin
through power of attorney
Laura M. Franklin
TITLE
Chairman, Trustee
President, Chief Executive Officer and Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
DATE
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
Executive Vice President Accounting, Administration and Corporate Secretary
March 3, 2014
(Principal Accounting Officer)
67
Form 10-K
MANAGEMENT’S REPORT ON INTERNAL cONTROL OVER FINANcIAL REPORTING
Management of Washington Real Estate Investment Trust (“WRIT”) is respon-
sible for establishing and maintaining adequate internal control over financial
reporting and for the assessment of the effectiveness of internal controls over
financial reporting. WRIT’s internal control system over financial reporting is
a process designed under the supervision of WRIT’s principal executive and
principal financial officers to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the consolidated financial
statements in accordance with U.S. generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limita-
tions. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation
and presentation. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because
of changes in conditions.
In connection with the preparation of WRIT’s annual consolidated financial
statements, management has undertaken an assessment of the effectiveness
of WRIT’s internal control over financial reporting as of December 31, 2013,
based on criteria established in Internal Control-Integrated Framework issued
in 1992 by the Committee of Sponsoring Organizations of the Treadway
Commission (the 1992 COSO Framework). Management’s assessment
included an evaluation of the design of WRIT’s internal control over financial
reporting and testing of the operational effectiveness of those controls.
Based on this assessment, management has concluded that as of
December 31, 2013, WRIT’s internal control over financial reporting was
effective at a reasonable assurance level regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles.
Ernst & Young LLP, the independent registered public accounting firm that
audited WRIT’s consolidated financial statements included in this report, have
issued an unqualified opinion on the effectiveness of WRIT’s internal control
over financial reporting, a copy of which appears on the next page of this
annual report.
68
2013 AnnuAl RepoRt REPORT OF INDEPENDENT REGISTERED PUBLIc AccOUNTING FIRM
The Board of Trustees and Shareholders of
Washington Real Estate Investment Trust
We have audited the accompanying consolidated balance sheets of
Washington Real Estate Investment Trust and Subsidiaries as of December 31,
2013 and 2012, and the related consolidated statements of income, compre-
hensive income, shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2013. Our audits also included the
financial statement schedules listed in the Index at Item 15(A). These financial
statements and schedules are the responsibility of the Company’s manage-
ment. Our responsibility is to express an opinion on these financial statements
and schedules based on our audits.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Washington Real
Estate Investment Trust and Subsidiaries at December 31, 2013 and 2012,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2013, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects the
information set forth therein.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (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 manage-
ment, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Washington Real Estate
Investment Trust and Subsidiaries’ internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 Framework) and our report dated March 3, 2014
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
March 3, 2014
69
Form 10-K REPORT OF INDEPENDENT REGISTERED PUBLIc AccOUNTING FIRM
The Board of Trustees and Shareholders of
Washington Real Estate Investment Trust
We have audited Washington Real Estate Investment Trust and Subsidiaries’
internal control over financial reporting as of December 31, 2013, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (1992
Framework) (the COSO criteria). Washington Real Estate Investment Trust’s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of inter-
nal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures
as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and direc-
tors of the company; and (3) provide reasonable assurance regarding preven-
tion or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, Washington Real Estate Investment Trust and Subsidiaries
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance
sheets of Washington Real Estate Investment Trust and Subsidiaries as of
December 31, 2013 and 2012, and the related consolidated statements of
income, comprehensive income, shareholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2013 of Washington Real
Estate Trust and Subsidiaries and our report dated March 3, 2014 expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
March 3, 2014
70
2013 AnnuAl RepoRt cONSOLIDATED BALANcE SHEETS
(in thousands, except per share data)
Assets
Land
Income producing property
Accumulated depreciation and amortization
Net income producing property
Properties under development or held for future development
Total real estate held for investment, net
Investment in real estate sold or held for sale, net
Cash and cash equivalents
Restricted cash
Rents and other receivables, net of allowance for doubtful accounts of $6,783 and $10,443, respectively
Prepaid expenses and other assets
Other assets related to properties sold or held for sale
Total assets
Liabilities
Notes payable
Mortgage notes payable
Lines of credit
Accounts payable and other liabilities
Advance rents
Tenant security deposits
Other liabilities related to properties sold or held for sale
Total liabilities
Equity
Shareholders’ equity
Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued or outstanding
Shares of beneficial interest; $0.01 par value; 100,000 shares authorized: 66,531 and 66,437 shares
issued and outstanding at December 31, 2013 and 2012, respectively
Additional paid in capital
Distributions in excess of net income
Total shareholders’ equity
Noncontrolling interests in subsidiaries
Total equity
Total liabilities and shareholders’ equity
See accompanying notes to the consolidated financial statements.
DEcEMBER 31,
2013
2012
$ 426,575
1,675,652
2,102,227
(565,342)
1,536,885
61,315
1,598,200
79,901
130,343
9,189
48,756
105,004
4,100
$ 418,008
1,587,375
2,005,383
(497,057)
1,508,326
45,270
1,553,596
364,999
19,105
13,423
46,904
107,303
19,046
$1,975,493
$2,124,376
$ 846,703
294,671
—
51,742
13,529
7,869
1,533
1,216,047
$ 906,190
319,025
—
50,094
12,925
7,642
32,357
1,328,233
—
—
665
1,151,174
(396,880)
754,959
4,487
759,446
664
1,145,515
(354,122)
792,057
4,086
796,143
$1,975,493
$2,124,376
71
Form 10-K cONSOLIDATED STATEMENTS OF INcOME
(in thousands, except per share data)
Revenue
Real estate rental revenue
Expenses
Utilities
Real estate taxes
Repairs and maintenance
Property administration
Property management
Operating services and common area maintenance
Other real estate expenses
Depreciation and amortization
Acquisition costs
Real estate impairment
General and administrative
Real estate operating income
Other income (expense)
Interest expense
Other income
Loss on extinguishment of debt
(Loss) income from continuing operations
Discontinued operations:
Income from operations of properties sold or held for sale
Gain on sale of real estate
Income tax expense
Net income
Less: Net income attributable to noncontrolling interests in subsidiaries
Net income attributable to the controlling interests
Basic net (loss) income attributable to the controlling interests per share
Continuing operations
Discontinued operations, including gain on sale of real estate
Net income attributable to the controlling interests per share
Diluted net (loss) income attributable to the controlling interests per share
Continuing operations
Discontinued operations, including gain on sale of real estate
Net income attributable to the controlling interests per share
Weighted average shares outstanding—basic
Weighted average shares outstanding—diluted
See accompanying notes to the consolidated financial statements.
72
yEAR ENDED DEcEMBER 31,
2013
2012
2011
$263,024
$254,794
$234,733
16,311
29,052
12,261
10,155
8,255
13,469
3,790
85,740
1,265
—
17,535
197,833
65,191
(63,573)
926
(2,737)
(65,384)
(193)
15,395
22,144
—
37,346
—
37,346
$ —
0.55
$ 0.55
$ —
0.55
$ 0.55
66,580
66,580
15,781
27,064
11,339
9,248
8,503
12,358
2,252
85,107
234
—
15,488
187,374
67,420
(60,627)
975
—
(59,652)
7,768
10,816
5,124
—
23,708
—
23,708
$ 0.11
0.24
$ 0.35
$ 0.11
0.24
$ 0.35
66,239
66,376
15,691
22,903
10,490
8,430
7,272
11,804
3,034
74,403
3,607
14,526
15,728
187,888
46,845
(61,402)
1,144
(976)
(61,234)
(14,389)
23,414
97,491
(1,138)
105,378
(494)
104,884
$ (0.22)
1.80
$ 1.58
$ (0.22)
1.80
$ 1.58
65,982
65,982
2013 AnnuAl RepoRt cONSOLIDATED STATEMENTS OF cOMPREHENSIVE INcOME
(in thousands)
Net income
Other comprehensive income:
Change in fair value of interest rate hedge
Comprehensive income
Less: Net income attributable to noncontrolling interests
Comprehensive income attributable to the controlling interests
See accompanying notes to the consolidated financial statements.
2013
$37,346
—
37,346
—
$37,346
yEAR ENDED DEcEMBER 31,
2012
$23,708
—
23,708
—
$23,708
2011
$105,378
1,469
106,847
(494)
$106,353
73
Form 10-K cONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EqUITy
(in thousands)
Balance, December 31, 2010
Net income attributable to the controlling interests
Net income attributable to noncontrolling interests
Change in fair value of interest rate hedge
Distributions to noncontrolling interests
Contributions from noncontrolling interest
Dividends
Shares issued under Dividend Reinvestment Program
Share options exercised
Share grants, net of share grant amortization and forfeitures
SHARES OF
BENEFIcIAL
INTEREST AT
PAR VALUE
ADDITIONAL
PAID IN
cAPITAL
SHARES
DISTRIBUTIONS
IN EXcESS OF
NET INcOME
ATTRIBUT-
ABLE TO THE
cONTROLLING
INTERESTS
AccUMU-
LATED OTHER
cOMPREHEN-
SIVE INcOME
TOTAL
SHARE-
HOLDERS’
EqUITy
NON-
cONTROLLING
INTERESTS IN
SUBSIDIARIES
TOTAL
EqUITy
65,870
$659
$1,127,825
$(269,935)
$(1,469)
$857,080
$ 3,778
$860,858
—
—
—
—
—
—
170
51
174
—
—
—
—
—
—
2
1
—
—
—
—
—
—
—
5,041
1,291
4,321
104,884
—
—
—
—
(115,045)
—
—
—
—
—
1,469
—
—
—
—
—
—
104,884
—
1,469
—
—
(115,045)
5,043
1,292
4,321
—
494
—
(2,488)
2,004
—
—
—
—
104,884
494
1,469
(2,488)
2,004
(115,045)
5,043
1,292
4,321
Balance, December 31, 2011
66,265
$662
$1,138,478
$(280,096)
$ —
$859,044
$ 3,788
$862,832
Net income attributable to the controlling interests
Contributions from noncontrolling interest
Dividends
Shares issued under Dividend Reinvestment Program
Share options exercised
Share grants, net of share grant amortization and forfeitures
—
—
—
55
45
72
—
—
—
1
—
1
—
—
—
1,315
1,153
4,569
23,708
—
(97,734)
—
—
—
—
—
—
—
—
—
23,708
—
(97,734)
1,316
1,153
4,570
—
298
—
—
—
—
23,708
298
(97,734)
1,316
1,153
4,570
Balance, December 31, 2012
66,437
$664
$1,145,515
$(354,122)
$ —
$792,057
$ 4,086
$796,143
Net income attributable to the controlling interests
Contributions from noncontrolling interest
Dividends
Share grants, net of share grant amortization and forfeitures
—
—
—
94
—
—
—
1
—
—
—
5,659
37,346
—
(80,104)
—
—
—
—
—
37,346
—
(80,104)
5,660
—
401
—
—
37,346
401
(80,104)
5,660
Balance, December 31, 2013
66,531
$665
$1,151,174
$(396,880)
$ —
$754,959
$ 4,487
$759,446
See accompanying notes to the consolidated financial statements.
74
2013 AnnuAl RepoRt cONSOLIDATED STATEMENTS OF cASH FLOWS
(in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of real estate
Depreciation and amortization, including amounts in discontinued operations
Provision for losses on accounts receivable
Real estate impairment, including amounts in discontinued operations
Share-based compensation expense
Amortization of debt premiums, discounts and related financing costs
Loss on extinguishment of debt, net
Changes in other assets
Changes in other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Real estate acquisitions, net(1)
Capital improvements to real estate
Development in progress
Net cash received from sale of real estate
Real estate deposits, net
Non-real estate capital improvements
Net cash provided by (used in) investing activities
Cash flows from financing activities
Line of credit borrowings (repayments), net
Dividends paid
Net contributions from (distributions to) noncontrolling interests
Proceeds from dividend reinvestment program
Borrowing under construction loan
Principal payments—mortgage notes payable, including penalties for early extinguishment
Net proceeds from debt offering
Payment of financing costs
Notes payable repayments, including penalties for early extinguishment
Net proceeds from exercise of share options
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest expense
Cash paid for income taxes
Increase in accrued capital improvements and development costs
yEAR ENDED DEcEMBER 31,
2013
2012
2011
$ 37,346
$ 23,708
$ 105,378
(22,144)
97,901
3,772
—
6,246
4,158
2,737
(10,591)
(6,107)
113,318
(48,200)
(55,829)
(15,826)
313,765
(3,900)
(162)
189,848
—
(80,104)
401
—
7,297
(58,679)
—
(843)
(60,000)
—
(191,928)
111,238
19,105
$ 130,343
$ 62,744
$ 54
$ (328)
(5,124)
103,934
3,847
2,097
5,856
3,867
—
(8,458)
1,721
131,448
(52,142)
(51,180)
(6,494)
21,825
(250)
(555)
(88,796)
(99,000)
(97,734)
298
1,316
—
(85,667)
298,314
(4,678)
(50,000)
1,153
(35,998)
6,654
12,451
$ 19,105
$ 58,282
$ 84
$ (2,128)
(97,491)
100,528
4,005
15,125
5,597
3,194
—
(16,416)
(2,294)
117,626
(281,701)
(32,815)
(25,929)
402,164
—
(621)
61,098
(1,000)
(115,045)
(2,488)
5,043
—
(32,331)
—
(3,905)
(96,521)
1,292
(244,955)
(66,231)
78,682
$ 12,451
$ 63,916
$ 725
$ (2,404)
(1) See note 3 to the consolidated financial statements for the supplemental disclosure of non-cash investing and financing activities, including the assumption of mortgage debt in conjunction with some of our real estate acquisitions.
See accompanying notes to the consolidated financial statements.
75
Form 10-K NOTES TO cONSOLIDATED FINANcIAL STATEMENTS
For the years Ended December 31, 2013, 2012 and 2011
NOTE 1. Nature of Business
Washington Real Estate Investment Trust (“WRIT”), a Maryland real estate
investment trust, is a self-administered, self-managed equity real estate invest-
ment trust, successor to a trust organized in 1960. Our business consists of
the ownership and operation of income-producing real estate properties in the
greater Washington metro region. We own a diversified portfolio of office build-
ings, medical office buildings, multifamily buildings and retail centers.
Federal Income Taxes
We believe that we qualify as a real estate investment trust (“REIT”) under
Sections 856-860 of the Internal Revenue Code and intend to continue to
qualify as such. To maintain our status as a REIT, we are required to distribute
90% of our ordinary taxable income to our shareholders. When selling proper-
ties, we have the option of (a) reinvesting the sale proceeds of properties sold,
allowing for a deferral of income taxes on the sale, (b) paying out capital gains
to the shareholders with no tax to WRIT or (c) treating the capital gains as
having been distributed to the shareholders, paying the tax on the gain deemed
distributed and allocating the tax paid as a credit to the shareholders. During
the three years ended December 31, 2013, we sold the following properties
(in thousands):
76
GAIN
ON SALE
$ 3,195
18,949
$22,144
$ 3,724
DISPOSITION DATE
PROPERTy
TyPE
Office
Atrium Building
Medical Office Portfolio
Transactions I & II(1)
Medical Office/
Office
March 19, 2013
November 2013
Total 2013
August 31, 2012
1700 Research Boulevard Office
December 20, 2012
Plumtree Medical Center Medical Office
1,400
Total 2012
April 5, 2011
Dulles Station, Phase I
Office
$ 5,124
$ —
October–November 2011
Industrial Portfolio(2)
Office/Industrial
97,491
Total 2011
$97,491
(1) 2440 M Street, 15001 Shady Grove Road, 15005 Shady Grove Road, 19500 at Riverside Park (formerly
Lansdowne Medical Office Building), 9707 Medical Center Drive, CentreMed I and II, 8301 Arlington
Boulevard, Sterling Medical Office Building, Shady Grove Medical Village II, Alexandria Professional
Center, Ashburn Farm Office Park I, Ashburn Farm Office Park II, Ashburn Farm Office Park III, Woodholme
Medical Office Building, two office properties (6565 Arlington Boulevard and Woodholme Center) and
undeveloped land at 4661 Kenmore Avenue. Subsequent to the end of 2013, we closed on Transaction III,
consisting of Woodburn Medical Park I and II, and Transaction IV, consisting of Prosperity Medical center
I, II and III (see note 17).
(2) The Industrial Portfolio consists of every property in our industrial segment and two office properties (the
crescent and Albemarle Point).
We have identified a portion of the sold Medical Office Portfolio properties
for tax deferred exchange under Section 1031 of the Internal Revenue Code.
Section 1031 requires that we identify and close on the acquisition of replace-
ment properties within limited time periods. We may not be able to identify and
acquire appropriate replacement properties within the specified time periods.
If we do not identify and acquire the replacement properties within the speci-
fied time periods, we would expect to recognize a taxable gain with respect to
the sale of the Medical Office Portfolio. The amount of this taxable gain would
depend upon the timing and size of the replacement property acquisitions and
also our other results of operations, and it could be a material amount. If we
recognize this taxable gain, we could be required to pay a significant portion
of it as a special capital gain dividend to our shareholders or alternatively be
subject to income taxes on the taxable gain.
2013 AnnuAl RepoRt Generally, and subject to our ongoing qualification as a REIT, no provisions
for income taxes are necessary except for taxes on undistributed REIT
taxable income and taxes on the income generated by our taxable REIT
subsidiaries (“TRS’s”). Our TRS’s are subject to corporate federal and state
income tax on their taxable income at regular statutory rates, or as calculated
under the alternative minimum tax, as appropriate. As of December 31, 2013,
our TRS’s had no net deferred tax assets and a net deferred tax liability of
$0.6 million. As of December 31, 2012, our TRS’s had no net deferred tax
assets and a net deferred tax liability of $0.6 million. These are primarily
related to temporary differences in the timing of the recognition of revenue,
amortization and depreciation.
During 2011, we settled on the sale of Dulles Station, Phase I, an office
property held by one of our TRS’s. After the application of available net oper-
ating loss carryforwards, we recognized $1.1 million in net federal and state
income tax liabilities during 2011 in connection with the sale and operations
of the entities.
Also during 2011, we recognized a $14.5 million impairment charge at Dulles
Station, Phase II, a development property held by one of our TRS’s (see note
3). The impairment charge created a deferred tax asset of $5.7 million at this
TRS, but we have determined that it is more likely than not that this deferred
tax asset will not be realized. We have therefore recorded a valuation allow-
ance for the full amount of the deferred tax asset related to the impairment
charge at Dulles Station, Phase II.
NOTE 2. Summary of Significant Accounting Policies
and Basis of Presentation
Principles of consolidation and Basis of Presentation
The accompanying audited consolidated financial statements include the
consolidated accounts of WRIT, our majority-owned subsidiaries and entities
in which WRIT has a controlling interest, including where WRIT has been
determined to be a primary beneficiary of a variable interest entity (“VIE”).
See note 3 for additional information on the properties for which there is a
noncontrolling interest. All intercompany balances and transactions have been
eliminated in consolidation.
We have prepared the accompanying audited consolidated financial state-
ments pursuant to the rules and regulations of the Securities and Exchange
Commission. In addition, in the opinion of management, all adjustments (con-
sisting of normal recurring accruals) considered necessary for a fair presenta-
tion of the results for the periods presented have been included.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles (“GAAP”) 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.
The following is a breakdown of the taxable percentage of our dividends for the
years ended December 31, 2013, 2012 and 2011, (unaudited):
Revenue Recognition
Ordinary income
Return of capital
Qualified dividends
Unrecaptured Section 1250 gain
Capital gain
2013
62%
38%
—%
—%
—%
2012
72%
26%
—%
2%
—%
2011
60%
17%
5%
13%
5%
We lease multifamily properties under operating leases with terms of generally
one year or less. We lease commercial properties (our office, medical office
and retail segments) under operating leases with average terms of three to five
years. We recognize rental income and rental abatements from our multifamily
and commercial leases when earned on a straight-line basis over the lease
term. Recognition of rental income commences when control of the facility has
been given to the tenant. We record a provision for losses on accounts receiv-
able equal to the estimated uncollectible amounts. We base this estimate on
our historical experience and a review of the current status of our receivables.
77
Form 10-K We recognize percentage rents, which represent additional rents based on
gross tenant sales, when tenants’ sales exceed specified thresholds.
We recognize sales of real estate at closing only when sufficient down payments
have been obtained, possession and other attributes of ownership have been
transferred to the buyer and we have no significant continuing involvement.
We recognize cost reimbursement income from pass-through expenses on an
accrual basis over the periods in which the expenses were incurred. Pass-
through expenses are comprised of real estate taxes, operating expenses and
common area maintenance costs which are reimbursed by tenants in accor-
dance with specific allowable costs per tenant lease agreements.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable primarily represents amounts accrued and unpaid from
tenants in accordance with the terms of the respective leases, subject to our
revenue recognition policy. We review receivables monthly and establish
reserves when, in the opinion of management, collection of the receivable is
doubtful. We establish reserves for tenants whose rent payment history or
financial condition casts doubt upon the tenants’ ability to perform under their
lease obligations. When we deem the collection of a receivable to be doubtful
in the same quarter that we established the receivable, then we recognize the
allowance for that receivable as an offset to real estate revenues. When we
deem a receivable that was initially established in a prior quarter to be doubtful,
then we recognize the allowance as an operating expense. In addition to rents
due currently, accounts receivable include amounts representing minimal rental
income accrued on a straight-line basis to be paid by tenants over the remain-
ing term of their respective leases.
Our accounts receivable balances include $6.2 million and $6.9 million of
notes receivable as of December 31, 2013 and 2012, respectively. Included
in these balances is a note receivable we acquired with the 2445 M Street
acquisition in 2008.
Deferred Financing costs
We capitalize and amortize external costs associated with the issuance or
assumption of mortgages, notes payable and fees associated with the lines
of credit using the effective interest rate method or the straight-line method
which approximates the effective interest rate method, over the estimated life
of the related debt. We record the amortization of deferred financing costs as
interest expense.
Deferred Leasing costs
We capitalize and amortize costs associated with the successful negotiation of
leases, both external commissions and internal direct costs, on a straight-line
basis over the terms of the respective leases. We record the amortization of
deferred leasing costs as amortization expense. If an applicable lease termi-
nates prior to the expiration of its initial lease term, we write off the carrying
amount of the costs to amortization expense.
We capitalize and amortize against revenue leasing incentives associated with
the successful negotiation of leases on a straight-line basis over the terms of
the respective leases. We record the amortization of deferred leasing incen-
tives as a reduction of revenue. If an applicable lease terminates prior to the
expiration of its initial lease term, we write off the carrying amount of the costs
as a reduction of revenue.
Real Estate and Depreciation
We depreciate buildings on a straight-line basis over estimated useful lives
ranging from 28 to 50 years. We capitalize all capital improvements associated
with replacements, improvements or major repairs to real property that extend
its useful life and depreciate them using the straight-line method over their esti-
mated useful lives ranging from 3 to 30 years. We also capitalize costs incurred
in connection with our development projects, including capitalizing interest
and other internal costs during periods in which qualifying expenditures have
been made and activities necessary to get the development projects ready for
their intended use are in progress. In addition, we capitalize tenant leasehold
improvements when certain criteria are met, including when we supervise
construction and will own the improvements. We depreciate all tenant improve-
ments over the shorter of the useful life of the improvements or the term of the
related tenant lease. Real estate depreciation expense from continuing oper-
ations was $63.4 million, $61.1 million, $55.1 million during the years ended
December 31, 2013, 2012, 2011, respectively.
78
2013 AnnuAl RepoRt We charge maintenance and repair costs that do not extend an asset’s life to
expense as incurred.
We capitalize interest costs incurred on borrowing obligations while qualifying
assets are being readied for their intended use. We amortize capitalized inter-
est over the useful life of the related underlying assets upon those assets being
placed into service. Interest expense from continuing operations and interest capi-
talized to real estate assets related to development and major renovation activities
for the three years ended December 31, 2013 were as follows (in thousands):
Total interest expense from
continuing operations
Capitalized interest
Interest expense, net of
capitalized interest
yEAR ENDED DEcEMBER 31,
2013
2012
2011
$64,809
1,236
$62,315
1,688
$62,140
738
$63,573
$60,627
$61,402
We recognize impairment losses on long-lived assets used in operations and
held for sale, development assets or land held for future development, if indica-
tors of impairment are present and the net undiscounted cash flows estimated
to be generated by those assets are less than the assets’ carrying amount
and estimated undiscounted cash flows associated with future development
expenditures. If such carrying amount is in excess of the estimated cash flows
from the operation and disposal of the property, we would recognize an impair-
ment loss equivalent to an amount required to adjust the carrying amount to
its estimated fair value, calculated in accordance with current GAAP fair value
provisions (see note 3).
We record acquired or assumed assets, including physical assets and in-place
leases, and liabilities, based on their fair values. We determine the fair values
of acquired buildings on an “as-if-vacant” basis considering a variety of factors,
including the replacement cost of the property, estimated rental and absorption
rates, estimated future cash flows and valuation assumptions consistent with
current market conditions. We determine the fair value of land acquired based
on comparisons to similar properties that have been recently marketed for sale
or sold.
The fair value of in-place leases consists of the following components—(a) the
estimated cost to us to replace the leases, including foregone rents during the
period of finding a new tenant and foregone recovery of tenant pass-throughs
(referred to as “absorption cost”); (b) the estimated cost of tenant improve-
ments, and other direct costs associated with obtaining a new tenant (referred
to as “tenant origination cost”); (c) estimated leasing commissions associated
with obtaining a new tenant (referred to as “leasing commissions”); (d) the
above/at/below market cash flow of the leases, determined by comparing the
projected cash flows of the leases in place, including consideration of renewal
options, to projected cash flows of comparable market-rate leases (referred to
as “net lease intangible”); and (e) the value, if any, of customer relationships,
determined based on our evaluation of the specific characteristics of each
tenant’s lease and our overall relationship with the tenant (referred to as “cus-
tomer relationship value”). We have attributed no value to customer relation-
ships as of December 31, 2013 and 2012.
We discount the amounts used to calculate net lease intangibles using an
interest rate which reflects the risks associated with the leases acquired. We
include tenant origination costs in income producing property on our balance
sheet and amortize the tenant origination costs as depreciation expense on a
straight-line basis over the remaining life of the underlying leases. We classify
leasing commissions and absorption costs as other assets and amortize leas-
ing commissions and absorption costs as amortization expense on a straight-
line basis over the remaining life of the underlying leases. We classify net lease
intangible assets as other assets and amortize them on a straight-line basis
as a decrease to real estate rental revenue over the remaining term of the
underlying leases. We classify net lease intangible liabilities as other liabilities
and amortize them on a straight-line basis as an increase to real estate rental
revenue over the remaining term of the underlying leases. We classify below
market net lease intangible liabilities as other liabilities and amortize them on a
straight-line basis as an increase to real estate rental revenue over the remain-
ing term of the underlying leases. If any of the fair value of below market lease
intangibles includes fair value associated with a renewal option, such amounts
are not amortized until the renewal option is executed, else the related value is
expensed at that time. Should a tenant terminate its lease, we accelerate the
amortization of the unamortized portion of the tenant origination cost, leasing
commissions, absorption costs and net lease intangible associated with that
lease, over its new, shorter term.
79
Form 10-K Balances, net of accumulated depreciation or amortization, as appropriate, of the components of the fair value of in-place leases at December 31, 2013 and 2012
were as follows (in thousands):
Tenant origination costs
Leasing commissions/absorption costs
Net lease intangible assets
Net lease intangible liabilities
Below-market ground lease intangible asset
DEcEMBER 31,
2013
2012
GROSS
cARRyING VALUE
AccUMULATED
AMORTIzATION
$47,697
$29,653
78,629
12,495
26,348
12,080
48,376
7,008
19,403
1,145
NET
$18,044
30,253
5,487
6,945
10,935
GROSS
cARRyING VALUE
AccUMULATED
AMORTIzATION
$48,172
$23,719
78,464
12,430
26,244
12,080
37,672
5,350
17,089
956
NET
$24,453
40,792
7,080
9,155
11,124
Amortization of these combined components from continuing operations for the
three years ended December 31, 2013 was as follows (in thousands):
Amortization
2013
$17,290
2012
$19,573
2011
$13,704
yEAR ENDED DEcEMBER 31,
Amortization of these combined components from continuing operations over
the next five years is projected to be as follows (in thousands):
2014
2015
2016
2017
2018
$14,675
11,886
8,957
5,830
3,333
Discontinued Operations
We classify properties as held for sale when they meet the necessary criteria,
which include: (a) senior management commits to and actively embarks upon a
plan to sell the assets, (b) the sale is expected to be completed within one year
under terms usual and customary for such sales and (c) actions required to
complete the plan indicate that it is unlikely that significant changes to the plan
80
will be made or that the plan will be withdrawn. We generally consider that a
property has met these criteria when a sale of the property has been approved
by the Board of Trustees, or a committee with authorization from the Board,
there are no known significant contingencies related to the sale and manage-
ment believes it is probable that the sale will be completed within one year.
Depreciation on these properties is discontinued at the time they are classi-
fied as held for sale, but operating revenues, operating expenses and interest
expense continue to be recognized until the date of sale.
Revenues and expenses of properties that are either sold or classified as held
for sale are presented as discontinued operations for all periods presented in
the consolidated statements of income. Interest on debt that can be identified
as specifically attributed to these properties is included in discontinued oper-
ations. We do not have significant continuing involvement in the operations of
any of our disposed properties.
Segments
We evaluate performance based upon operating income from the combined
properties in each segment. Our reportable operating segments are consolida-
tions of similar properties. GAAP requires that segment disclosures present the
measure(s) used by the chief operating decision maker for purposes of assess-
ing segments’ performance. Net operating income is a key measurement of
2013 AnnuAl RepoRt our segment profit and loss. Net operating income is defined as segment real
estate rental revenue less segment real estate expenses.
cash and cash Equivalents
Cash and cash equivalents include cash and commercial paper with original
maturities of 90 days or less. WRIT maintains cash deposits with financial
institutions that at times exceeds applicable insurance limits. WRIT reduces
this risk by maintaining such deposits with high quality financial institutions that
management believe are credit-worthy.
Restricted cash
Restricted cash includes funds escrowed for tenant security deposits, real
estate tax, insurance and mortgage escrows and escrow deposits required by
lenders on certain of our properties to be used for future building renovations
or tenant improvements.
Earnings Per common Share
We determine “Basic earnings per share” using the two-class method as
our unvested restricted share awards and units have non-forfeitable rights to
dividends, and are therefore considered participating securities. We compute
basic earnings per share by dividing net income attributable to the controlling
interest less the allocation of undistributed earnings to unvested restricted
share awards and units by the weighted-average number of common shares
outstanding for the period.
We also determine “Diluted earnings per share” under the two-class method
with respect to the unvested restricted share awards. We further evaluate
any other potentially dilutive securities at the end of the period and adjust the
basic earnings per share calculation for the impact of those securities that
are dilutive. Our dilutive earnings per share calculation includes the dilutive
impact of employee stock options based on the treasury stock method and our
performance share units under the contingently issuable method. The dilutive
earnings per share calculation also considers our operating partnership units.
Stock Based compensation
We currently maintain equity based compensation plans for trustees, officers
and employees and previously maintained option plans for trustees, officers
and employees.
We recognize compensation expense for service-based share awards ratably
over the period from the service inception date through the vesting period
based on the fair market value of the shares on the date of grant. We initially
measure compensation expense for awards with performance conditions at
fair value at the service inception date based on probability of payout, and we
remeasure compensation expense at subsequent reporting dates until all of the
award’s key terms and conditions are known and the grant date is established.
We amortize awards with performance conditions over the performance period
using the graded expense method. We measure compensation expense for
awards with market conditions based on the grant date fair value, as deter-
mined using a Monte Carlo simulation, and we amortize the expense ratably
over the requisite service period, regardless of whether the market conditions
are achieved and the awards ultimately vest. Compensation expense for the
trustee grants, which fully vest immediately, is fully recognized upon issuance
based upon the fair market value of the shares on the date of grant.
Accounting for Uncertainty in Income Taxes
We can recognize a tax benefit only if it is “more likely than not” that a particu-
lar tax position will be sustained upon examination or audit. To the extent that
the “more likely than not” standard has been satisfied, the benefit associated
with a tax position is measured as the largest amount that is greater than 50%
likely of being recognized upon settlement.
We are subject to U.S. federal income tax as well as income tax of the states
of Maryland and Virginia, and the District of Columbia. However, as a REIT,
we generally are not subject to income tax on our net income distributed as
dividends to our shareholders.
Tax returns filed for 2009 through 2013 tax years are subject to examination
by taxing authorities. We classify interest and penalties related to uncertain
tax positions, if any, in our financial statements as a component of general and
administrative expense.
81
Form 10-K Reclassifications
Certain prior year amounts have been reclassified from continuing operations
to discontinued operations to conform to the current year presentation (see
note 3). In addition, we reclassified $0.3 million of real estate deposits from
operating activities to investing activities in the consolidated statement of cash
flows for the year ended December 31, 2012.
NOTE 3. Real Estate
continuing Operations
As of December 31, 2013 and 2012, our real estate investment portfolio, at
cost, consists of properties as follows (in thousands):
As of December 31, 2013, no single property or tenant accounted for more than
10% of total assets or total real estate rental revenue.
We had properties under development or held for development as of
December 31, 2013. In the office segment, we had a redevelopment project to
renovate 7900 Westpark Drive and land held for development at Dulles Station,
Phase II. In the multifamily segment, we had land under development at 650
North Glebe Road and held for development at 1225 First Street.
The cost of our real estate portfolio under development or held for development
as of December 31, 2013 and 2012 is as follows (in thousands):
DEcEMBER 31,
2013
$12,175
495
48,645
$61,315
2012
$ 8,922
587
35,761
$45,270
Office
Retail
Multifamily
DEcEMBER 31,
2013
2012
$1,296,967
$1,261,534
415,899
389,361
411,948
331,901
$2,102,227
$2,005,383
Office
Retail
Multifamily
Our results of operations are dependent on the overall economic health of our
markets, tenants and the specific segments in which we own properties. These
segments include office, retail and multifamily. All segments are affected by
external economic factors, such as inflation, consumer confidence, unemploy-
ment rates, etc. as well as changing tenant and consumer requirements.
82
2013 AnnuAl RepoRt Acquisitions
Our current strategy is focused on properties inside the Washington metro region’s Beltway, near major transportation nodes and in areas with strong employment
drivers and superior growth demographics. We seek to upgrade our portfolio with acquisitions as opportunities arise. Properties and land for development acquired
during the years ending December 31, 2013, 2012 and 2011 were as follows:
AcqUISITION DATE
October 1, 2013
Total 2013
June 21, 2012
Total 2012
January 11, 2011
March 30, 2011
June 15, 2011
August 30, 2011
September 13, 2011
September 15, 2011
November 23, 2011
Total 2011
PROPERTy
The Paramount (135 units)
Fairgate at Ballston
1140 Connecticut Avenue
1227 25th Street
650 North Glebe Road(1)
Olney Village Center
Braddock Metro Center
John Marshall II
1225 First Street(1)
TyPE
Multifamily
Office
Office
Office
Mutifamily
Retail
Office
Office
Mutifamily
RENTABLE SqUARE FEET
(unaudited)
cONTRAcT PURcHASE PRIcE
(In thousands)
N/A
142,000
142,000
188,000
132,000
N/A
198,000
351,000
223,000
N/A
$ 48,200
$ 48,200
$ 52,250
$ 52,250
$ 80,250
47,000
11,800
58,000
101,000
73,500
13,850
1,092,000
$385,400
(1) Land for development. 650 North Glebe Road is currently under development and development has been suspended at 1225 First Street.
The results of operations from acquired operating properties are included in the
consolidated statements of income as of their acquisition dates.
The revenue and earnings of our acquisitions during their year of acquisition for
the three years ended December 31, 2013 are as follows (in thousands):
As discussed in note 2, we record the acquired physical assets (land, build-
ing and tenant improvements), in-place leases (absorption, tenant origination
costs, leasing commissions and net lease intangible assets/liabilities), and any
other liabilities at their fair values.
Real estate rental revenue
Net (loss) income
yEAR ENDED DEcEMBER 31,
2013
$ 907
(105)
2012
$3,358
325
2011
$20,944
484
83
Form 10-K We have recorded the total purchase price of the above acquisitions as follows
(in thousands):
Land
Buildings
Tenant origination costs
Leasing commissions/absorption costs
Net lease intangible assets
Net lease intangible liabilities
Fair value of assumed mortgage
Furniture, fixtures & equipment
2013
2012
2011
$ 8,568
$17,750
$ 90,896
37,930
26,893
219,613
32
943
102
(117)
—
742
3,100
4,172
508
(173)
—
—
15,667
29,719
6,805
(2,454)
(78,500)
—
Total
$48,200
$52,250
$281,746
The weighted remaining average life for the 2013 acquisition components
above, other than land and building, are 110 months for tenant origination
costs, 22 months for leasing commissions/absorption costs, 81 months for net
lease intangible assets and 88 months for net lease intangible liabilities.
The difference in the contract purchase price of $52.3 million for the 2012
acquisition and the cash paid for the acquisition per the consolidated state-
ments of cash flows of $52.1 million is primarily related to credits received at
settlement totaling $0.1 million.
The difference in the total contract price of $385.4 million for the 2011 acqui-
sitions and the acquisition cost per the consolidated statements of cash flows
of $281.7 million is primarily related to the two mortgage notes assumed
for $76.7 million relating to John Marshall II and Olney Village Center, cash
paid for the acquisition of land at 650 North Glebe Road for $11.8 million and
at 1225 First Street for $13.9 million included in development, and credits
received at settlement totaling $1.3 million.
Noncontrolling Interests in Subsidiaries
In August 2007, we acquired a 0.8 acre parcel of land located at 4661 Kenmore
Avenue, Alexandria, Virginia for future medical office development. The
acquisition was funded by issuing operating partnership units in an operating
partnership, which is a consolidated subsidiary of WRIT. This resulted in a
noncontrolling ownership interest in this property based upon defined com-
pany operating partnership units at the date of purchase. In November 2013,
4661 Kenmore Avenue was sold as part of the Medical Office Portfolio (see
“Discontinued Operations”).
Variable Interest Entities
In June 2011, we executed a joint venture operating agreement with a real
estate development company to develop a mid-rise multifamily property at
650 North Glebe Road in Arlington, Virginia. We estimate the total cost of the
project to be $49.9 million, and we secured third-party debt financing totaling
$33.0 million (see note 4). WRIT is the 90% owner of the joint venture, and will
have management and leasing responsibilities when the project is completed
and stabilized (defined as 90% of the residential units leased). The real estate
development company owns 10% of the joint venture and is responsible for
the development and construction of the property. The joint venture currently
expects to complete this development project during the fourth quarter of 2014.
In November 2011, we executed a joint venture operating agreement with a
real estate development company to develop a high-rise multifamily property
at 1225 First Street (formerly 1219 First Street) in Alexandria, Virginia. We esti-
mate the total cost of the project to be $95.3 million, with approximately 70%
of the project financed with debt. WRIT is the 95% owner of the joint venture
and will have management and leasing responsibilities when the project is
completed and stabilized. The real estate development company owns 5% of
the joint venture and is responsible for the development and construction of the
property. In the first quarter of 2013, we decided to delay commencement of
construction due to market conditions and concerns of oversupply. We con-
tinue to reassess this project on a periodic basis going forward.
We have determined that the 650 North Glebe Road and 1225 First Street joint
ventures are VIE’s primarily based on the fact that the equity investment at risk
is not sufficient to permit either entity to finance its activities without additional
financial support. We expect that 70% of the total development costs will be
financed through debt. We have also determined that WRIT is the primary ben-
eficiary of each VIE due to the fact that WRIT is providing 90% to 95% of the
equity contributions and will manage each property after stabilization.
84
2013 AnnuAl RepoRt We include the joint venture land acquisitions and related capitalized develop-
ment costs on our consolidated balance sheets in properties under develop-
ment or held for development, consistent with other development activity. As of
December 31, 2013 and 2012, the land and capitalized development costs were
as follows (in thousands):
650 North Glebe Road
1225 First Street
DEcEMBER 31,
2013
$27,343
20,788
2012
$15,646
19,807
In September 2013, we entered into four separate purchase and sale agree-
ments to effectuate the sale of our entire medical office segment (including
land held for development at 4661 Kenmore Avenue) and two office buildings
(Woodholme Center and 6565 Arlington Boulevard) for an aggregate pur-
chase price of $500.8 million. The sale was structured as four transactions.
Transactions I & II closed in November 2013. In January 2014, we closed on
the remaining two transactions.
The impact of the sale on our medical office segment on revenues and net
income is summarized as follows (in thousands, except per share data):
As of December 31, 2013 and 2012, the accounts payable and accrued liabili-
ties related to the joint ventures were as follows (in thousands):
Real estate revenues
DEcEMBER 31,
Net income
2013
$1,785
39
2012
$ 115
1,676
Basic net income per share
Diluted net income per share
650 North Glebe Road
1225 First Street
Discontinued Operations
2013
$41,012
14,044
0.21
0.21
DEcEMBER 31,
2012
$44,674
8,128
0.12
0.12
2011
$44,431
10,393
0.16
0.16
We dispose of assets that no longer meet our long-term strategy or return
objectives and where market conditions for sale are favorable. The proceeds
from the sales may be reinvested into other properties, used to fund devel-
opment operations or to support other corporate needs, or distributed to our
shareholders. Properties are considered held for sale when they meet speci-
fied criteria (see “Discontinued Operations” in note 2). Depreciation on these
properties is discontinued at that time, but operating revenues, other operating
expenses and interest continue to be recognized until the date of sale.
During 2011, we sold our industrial segment, the impact of the disposal on
revenues and net income for the three years ended December 31, 2013 were
as follows (in thousands, except per share data):
Real estate revenues
Net income
Basic net income per share
Diluted net income per share
yEAR ENDED DEcEMBER 31,
2013
$—
—
—
—
2012
$—
—
—
—
2011
$23,045
16,484
0.23
0.23
85
Form 10-K
We sold or classified as held for sale the following properties during the three years ended December 31, 2013:
PROPERTy
Atrium Building
TyPE
Office
Medical Office Portfolio Transactions I & II
Medical Office/Office
Medical Office Portfolio Transactions III & IV
Medical Office
Total 2013
1700 Research Boulevard
Plumtree Medical Center
Total 2012
Industrial Portfolio
Dulles Station, Phase I
Total 2011
Office
Medical Office
Industrial/Office
Office
RENTABLE SqUARE FEET
(unaudited)
cONTRAcT SALES PRIcE
(in thousands)
GAIN ON SALE
(in thousands)
79,000
1,093,000
427,000
1,599,000
101,000
33,000
134,000
3,092,000
180,000
3,272,000
$ 15,750
307,189
193,561
$516,500
$ 14,250
8,750
$ 23,000
$350,900
58,800
$409,700
$ 3,195
18,949
N/A
$22,144
$3,724
1,400
$ 5,124
$97,491
—
$97,491
As of December 31, 2013 and 2012, investment in real estate for properties
sold or held for sale were as follows (in thousands):
Income from operations of properties sold or held for sale for the three years
ended December 31, 2013 was as follows (in thousands):
DEcEMBER 31,
2013
2012
DEcEMBER 31,
2013
2012
2011
$ —
$ 71,605
Revenues
$ 45,791
$ 54,344
$ 80,948
125,967
406,874
Property expenses
$125,967
$ 478,479
Real estate impairment
(17,039)
—
(12,161)
(1,196)
(18,273)
(2,097)
(18,827)
(4,331)
(25,265)
(599)
(26,125)
(5,545)
$ 15,395
$ 10,816
$ 23,414
Office
Medical office
Total
Less accumulated depreciation
(46,066)
(113,480)
Depreciation and amortization
Investment in real estate sold or held for sale, net
$ 79,901
$ 364,999
Interest expense
As of December 31, 2013 and 2012, liabilities related to properties sold or held
for sale were as follows (in thousands):
Mortgage notes payable
Other liabilities
2013
$ —
1,533
Liabilities related to properties sold or held for sale
$1,533
2012
$23,945
8,412
$32,357
DEcEMBER 31,
86
2013 AnnuAl RepoRt Income from operations of properties sold or held for sale by property for the three years ended December 31, 2013 was as follows (in thousands):
PROPERTy
Dulles Station, Phase I
Industrial Portfolio
1700 Research Boulevard
Plumtree Medical Center
Atrium Building
Medical Office Portfolio
Real Estate Impairment
SEGMENT
Office
Industrial/Office
Office
Medical Office
Office
Medical/Office
2013
$ —
—
—
—
185
15,210
$15,395
yEAR ENDING DEcEMBER 31,
2012
$ —
—
225
197
1,063
9,331
$10,816
2011
$ (468)
10,621
651
67
1,052
11,491
$23,414
During the fourth quarter of 2012, we determined that the development of a
medical office building at 4661 Kenmore Avenue in Alexandria, Virginia was
no longer probable due to a change in corporate strategy. Due to this deter-
mination, we recognized in discontinued operations an impairment charge
of $2.1 million during the fourth quarter of 2012 in order to reduce the carry-
ing value of the land at 4661 Kenmore Avenue to its estimated fair value of
$3.8 million. 4661 Kenmore Avenue was sold during 2013.
During the fourth quarter of 2011, we reviewed changes in market conditions,
specifically higher vacancy and lower rental rates in the Washington metro
region office market and other circumstances affecting the Herndon submar-
ket, such as the increased uncertainty surrounding the timing of the comple-
tion of the second phase of the Dulles Metrorail project, and reassessed the
likelihood that we would follow through on these development plans. Based
upon the foregoing review and assessment, we determined that the devel-
opment of the land at Dulles Station, Phase II was not probable under those
market conditions. Due to this determination, we recognized in continuing
operations a $14.5 million impairment charge during the fourth quarter of 2011
in order to reduce the carrying value of the land and garage at Dulles Station,
Phase II to its fair value. In addition, we recognized in discontinued operations
an impairment charge of $0.6 million at Dulles Station, Phase I, which was
sold during 2011.
We used a combination of internal models and third-party valuation esti-
mates to determine the fair values of 4661 Kenmore Avenue and Dulles
Station, Phase II. These fair valuations incorporated both market and income
approaches, including recent comparable land sales and return on cost of
development metrics. The valuations are inherently subjective because there
are few observable market transactions for similar land, and therefore we,
through discussions with market participants, made certain significant assump-
tions with respect to appropriate comparable transactions to consider, cash
flow estimates and discount rates. Our estimate of the fair value of the land was
further corroborated by an independent third-party valuation specialist. These
fair valuations fall into Level 3 in the fair value hierarchy due to its reliance on
significant unobservable inputs.
87
Form 10-K NOTE 4. Mortgage Notes Payable
As of December 31, 2013 and 2012, we had outstanding mortgage notes payable, each collateralized by one or more buildings and related land from our portfolio,
as follows (in thousands):
PROPERTIES
650 North Glebe Road(3,4)
John Marshall II
Olney Village Center
Kenmore Apartments
2445 M Street(4)
3801 Connecticut Avenue, Walker House and Bethesda Hill(5)
Ashburn Farm Office Park(6)
Ashburn Farm III Office Park(7)
Woodholme Medical Office Center(8)
West Gude Drive(9)
ASSUMPTION/
ISSUANcE DATE(1)
EFFEcTIVE
INTEREST RATE(2)
2/21/2013
9/15/2011
8/30/2011
2/2/2009
12/2/2008
5/29/2008
6/1/2007
6/1/2007
6/1/2007
8/25/2006
2.31%
5.79%
4.94%
5.37%
7.25%
5.71%
5.56%
5.69%
5.29%
5.86%
DEcEMBER 31,
2013
$ 7,297
$ 52,563
20,743
34,937
98,102
81,029
—
—
—
—
2012
$ —
$ 53,274
22,343
35,535
96,848
81,029
2,313
2,024
19,608
29,996
$294,671
$342,970
PAyOFF DATE/
MATURITy DATE
2/21/2016
5/5/2016
10/1/2023
3/1/2019
1/6/2017
6/1/2016
11/21/2013
11/21/2013
11/22/2013
1/11/2013
(1) Each of these mortgages was assumed with the acquisition of the collateralized properties, except for the mortgage notes secured by 3801 connecticut Avenue, Walker House, Bethesda Hill, Kenmore Apartments, and the
construction loan secured by the development project at 650 North Glebe Road, which were originally executed by WRIT. We record mortgages assumed in an acquisition at fair value, and balances presented include any
recorded premiums or discounts.
(2) yield on the assumption/issuance date, including the effects of any premiums, discounts or fair value adjustments on the notes.
(3)
Interest rate on 650 North Glebe Road is variable, based on LIBOR plus 2.15%. The maturity date can be extended for up to two years, subject to fees and compliance with certain provisions in the loan agreement, until
February 20, 2018.
Interest only is payable monthly until the maturity date upon which all unpaid principal and interest are payable in full.
Interest only is payable monthly until the maturity date, which can be extended for one year upon which the interest rate is reset on June 1, 2016. At maturity on June 1, 2017, all unpaid principal and interest are payable
in full.
In November 2013, we extinguished the remaining $2.2 million of principal on the mortgage note secured by Ashburn Farm Office Park with extinguishment costs of $0.5 million.
In November 2013, we extinguished the remaining $1.9 million of principal on the mortgage note secured by Ashburn Farm III Office Park, with extinguishment costs of $0.4 million.
In November 2013, we extinguished the remaining $19.3 million of principal on the mortgage note secured by Woodholme Medical Office Center, with extinguishment costs of $1.8 million.
In January 2013, we extinguished without penalty the remaining $30.0 million of principal on the mortgage note secured by West Gude Drive.
(4)
(5)
(6)
(7)
(8)
(9)
The mortgage notes secured by Ashburn Farm Office Park I and II and
Woodholme Medical Office Building are included in “Other liabilities related
to properties sold or held for sale” on our consolidated balance sheets as of
December 31, 2012, as the properties were sold in 2013.
Except as noted above, principal and interest are payable monthly until the
maturity date, upon which all unpaid principal and interest are payable in full.
Total carrying amount of the above mortgaged properties was $433.7 million
and $510.0 million at December 31, 2013 and 2012, respectively.
88
2013 AnnuAl RepoRt Scheduled principal payments subsequent to December 31, 2013 are as fol-
lows (in thousands):
We executed borrowings and repayments on the unsecured lines of credit
during 2013 as follows (in thousands):
2014
2015
2016
2017
2018
Thereafter
Net discounts/premiums
Total
$ 2,840
3,017
141,688
104,369
2,661
42,625
297,200
(2,529)
$294,671
NOTE 5. Unsecured Lines of credit Payable
As of December 31, 2013, we maintained a $100.0 million unsecured line of
credit maturing in June 2015 (“Credit Facility No. 1”) and a $400.0 million unse-
cured line of credit maturing in July 2016 (“Credit Facility No. 2”). Credit Facility
No. 1 and No. 2 have accordion features that allow us to increase the facilities
to $200.0 million and $600.0 million, respectively, subject to additional lender
commitments. The amounts of these lines of credit unused and available at
December 31, 2013 were as follows (in thousands):
Committed capacity
Borrowings outstanding
Letters of credit issued
Unused and available
cREDIT FAcILITy NO. 1
cREDIT FAcILITy NO. 2
$100,000
$400,000
—
—
—
—
$100,000
$400,000
cREDIT FAcILITy NO. 1
cREDIT FAcILITy NO. 2
Balance at December 31, 2012
Borrowings
Repayments
Balance at December 31, 2013
$ —
100,000
(100,000)
$ —
$ —
60,000
(60,000)
$ —
We made borrowings to pay off the West Gude mortgage note and our 5.125%
unsecured notes, fund the acquisition of The Paramount and for general cor-
porate purposes. We made repayments during the year ended December 31,
2013 using proceeds from the sale of The Atrium Building, the sale of the
Medical Office Portfolio transactions I & II, and cash from operations.
Borrowings under Credit Facility No. 1 and No. 2 bear interest at LIBOR plus a
spread based on the credit rating on our publicly issued debt. The interest rate
spread is 120 basis points for each facility.
All outstanding advances for Credit Facility No. 1 and No. 2 are due and pay-
able upon maturity in June 2015 and July 2016, respectively. Credit Facility No.
1 and No. 2 may be extended for one year at our option. Interest only payments
are due and payable generally on a monthly basis. For the three years ended
December 31, 2013, we recognized interest expense (excluding facility fees) as
follows (in thousands):
Credit Facility No. 1
Credit Facility No. 2
yEAR ENDED DEcEMBER 31,
2013
$281
586
2012
$470
783
2011
$ 355
2,735
89
Form 10-K In addition, we pay a facility fee based on the credit rating of our publicly issued
debt which as of December 31, 2013 equals 0.25% per annum of the commit-
ted capacity of each facility, without regard to usage. Rates and fees may be
adjusted up or down based on changes in our senior unsecured credit ratings.
For the three years ended December 31, 2013, we incurred facility fees as
follows (in thousands):
Credit Facility No. 1
Credit Facility No. 2
yEAR ENDED DEcEMBER 31,
2013
$ 253
1,014
2012
$175
887
2011
$114
658
Credit Facility No. 1 and No. 2 contain certain financial and non-financial cov-
enants, all of which we have met as of December 31, 2013 and 2012. Included
in these covenants is the requirement to maintain a minimum level of net worth,
as well as limits on our total liabilities, secured indebtedness and required debt
service payments.
Information related to revolving credit facilities for the three years ended
December 31, 2013 as follows (in thousands, except percentage amounts):
yEAR ENDED DEcEMBER 31,
2013
2012
2011
NOTE 6. Notes Payable
Our unsecured notes outstanding as of December 31, 2013 were as follows
(in thousands):
10 Year Unsecured Notes
10 Year Unsecured Notes
10 Year Unsecured Notes
10 Year Unsecured Notes
10 Year Unsecured Notes
30 Year Unsecured Notes
Total principal
Net unamortized discount
Total
cOUPON/
STATED RATE
EFFEcTIVE
RATE(1)
PRINcIPAL
AMOUNT
MATURITy
DATE(2)
5.25%
5.35%
5.35%
4.95%
3.95%
7.25%
5.339%
$100,000
1/15/2014
5.359%
5.490%
5.053%
4.018%
7.360%
50,000
5/1/2015
100,000
5/1/2015
250,000
10/1/2020
300,000
10/15/2022
50,000
2/25/2028
850,000
(3,297)
$846,703
(1) yield on issuance date, including the effects of discounts on the notes.
(2) No principal amounts are due prior to maturity.
We extinguished the remaining $60.0 million of our 5.125% unsecured notes
on their due date of March 15, 2013, using borrowings on our unsecured line
of credit.
Total revolving credit facilities at
December 31
$500,000
$500,000
$475,000
After December 31, 2013, we extinguished the remaining $100.0 million of our
5.25% unsecured notes on its maturity date.
The required principal payments excluding the effects of note discounts or pre-
mium for the remaining years subsequent to December 31, 2013 are as follows
(in thousands):
Borrowings outstanding at
December 31
Weighted average daily borrowings
—
—
99,000
during the year
61,548
108,589
160,090
Maximum daily borrowings during
the year
135,000
242,000
281,000
Weighted average interest rate
during the year
1.41%
1.15%
1.90%
2014
2015
2016
2017
2018
N/A
N/A
0.90%
Thereafter
Weighted average interest rate
on borrowings outstanding at
December 31
90
$100,000
150,000
—
—
—
600,000
$850,000
2013 AnnuAl RepoRt Interest on these notes is payable semi-annually. These notes contain cer-
tain financial and non-financial covenants, all of which we have met as of
December 31, 2013. Included in these covenants is the requirement to maintain
a minimum level of unencumbered assets, as well as limits on our total indebt-
edness, secured indebtedness and required debt service payments.
The covenants under our line of credit agreements require us to insure our
properties against loss or damage in amounts customarily maintained by sim-
ilar businesses or as they may be required by applicable law. The covenants
for the notes require us to keep all of our insurable properties insured against
loss or damage at least equal to their then full insurable value. We have an
insurance policy which has no terrorism exclusion, except for non-certified
nuclear, chemical and biological acts of terrorism. Our financial condition and
results of operations are subject to the risks associated with acts of terrorism
and the potential for uninsured losses as the result of any such acts. Effective
November 26, 2002, under this existing coverage, any losses caused by certi-
fied acts of terrorism would be partially reimbursed by the United States under
a formula established by federal law. Under this formula the United States
pays 85% of covered terrorism losses exceeding the statutorily established
deductible paid by the insurance provider, and insurers pay 10% until aggre-
gate insured losses from all insurers reach $100 billion in a calendar year. If the
aggregate amount of insured losses under this program exceeds $100 billion
during the applicable period for all insured and insurers combined, then each
insurance provider will not be liable for payment of any amount which exceeds
the aggregate amount of $100 billion. On December 26, 2007, the Terrorism
Risk Insurance Program Reauthorization Act of 2007 was signed into law and
extends the program through December 31, 2014.
WRIT’s Compensation Committee conducted an extensive review of our exec-
utive compensation philosophy and a fundamental redesign of our short-term
and long-term incentive plans for our officers, resulting in new short-term incen-
tive (“STIP”) and new long-term incentive (“LTIP”) plans, which were approved
by the Compensation Committee and Board of Trustees on February 17, 2011
effective as of January 1, 2011. In addition, the Compensation Committee
approved a new long-term incentive plan for non-officer employees as of
January 1, 2011, with minimal changes from the prior long-term incentive plan
for non-officer employees.
Short-Term Incentive Plan
Under the STIP, officers earn awards, payable 50% in cash and 50% in
restricted shares, based on a percentage of salary and the achievement of var-
ious performance conditions within a one-year performance period (except for
15% of such restricted share awards which will be exclusively service-based).
With respect to the 50% of the STIP award payable in restricted shares, (i) the
restricted shares subject to performance conditions will vest over a three-year
period commencing on the January 1 following the end of the one-year perfor-
mance period, and (ii) the restricted shares subject only to a service condition
will vest over a three-year period commencing at the beginning of the one-year
performance period.
With respect to the 50% of the award payable in cash, the officer may elect to
defer up to 80% of the cash portion pursuant to WRIT’s deferred compensation
plan for officers. If the officer makes such election, the cash will be converted
to restricted share units and WRIT will match 25% of deferred amounts in
restricted share units.
NOTE 7. Stock Based compensation
WRIT maintains short-term and long-term incentive plans that allow for stock-
based awards to officers and non-officer employees. Stock based awards are
provided to officers and non-officer employees, as well as trustees, under the
Washington Real Estate Investment Trust 2007 Omnibus Long-Term Incentive
Plan which allows for awards in the form of restricted shares, restricted share units,
options, and other awards up to an aggregate of 2,000,000 shares over the ten
year period in which the plan will be in effect. Restricted share units are converted
into shares of our stock upon full vesting through the issuance of new shares.
For the service based awards, we recognize compensation expense based on
the grant date fair value, ratably over a three-year period commencing with the
start of the performance period. With respect to the restricted shares subject to
performance conditions expected to be awarded under the STIP at the end of
the one-year performance period, we recognize compensation expense based
on the current fair market value of the probable award until the performance
condition has been met, according to a graded vesting schedule over a four-
year period commencing with the date the performance targets were estab-
lished. Approximately 20% of the restricted shares subject to performance
91
Form 10-K conditions awarded by the Compensation Committee at the end of the one-
year performance period are based on subjective strategic acquisition and
disposition goal criteria, for which we recognize compensation expense when
the grant date occurs at the end of the one-year period through the three-year
vesting period.
Long-Term Incentive Plan
Under the LTIP, officers earn awards, payable 50% in unrestricted shares and
50% in restricted shares, based on a percentage of salary and the achieve-
ment of various market and performance conditions during a defined three-year
performance period (e.g., commencing on January 1, 2011 and concluding on
December 31, 2013).
LTIP performance is evaluated based on objective and subjective performance
goals and weightings. Of the officers’ total potential award, 40% is subject
to market conditions based on absolute total shareholder return (“TSR”) and
relative TSR. The remaining 60% of the award is based primarily on strategic
plan fulfillment, evaluated and determined by the Compensation Committee in
its discretion at the end of the three-year performance period.
The unrestricted shares vest immediately at the end of the three-year perfor-
mance period, and the restricted shares vest over a one year period commenc-
ing on the January 1 following the end of the three-year performance period.
With respect to the 40% of the LTIP subject to market conditions, we recog-
nize compensation expense ratably (over three years for the 50% unrestricted
shares and over four years for the 50% restricted shares) based on the grant
date fair value, as determined using a Monte Carlo simulation, and regardless
of whether the market conditions are achieved and the awards ultimately vest.
With respect to the 60% subjective portion of the LTIP, we recognized compen-
sation expense for the 50% unrestricted shares on December 31, 2013 as the
grant date occurred at the end of the three-year performance period. We will
recognize compensation expense for the 50% restricted shares over the one-
year vesting period commencing upon the grant date at the end of the three-
year performance period.
We use a binomial model which employs the Monte Carlo method as of the
grant date to determine the fair value of the 40% of the LTIP subject to market
conditions referenced above. The market condition performance measurement
is the cumulative three-year total shareholder return on both an absolute basis
(50% weighting) and relative to a defined population of 20 peer companies
(50% weighting). The model evaluates the awards for changing total share-
holder return over the term of the vesting, on an absolute basis and relative
to a peer companies, and uses random simulations that are based on past
stock characteristics as well as income growth and other factors for WRIT
and each of the peer companies. The assumptions used to value the 40% of
the LTIP subject to market conditions were an expected volatility of 58.1%, a
risk-free interest rate of 1.2% and an expected life of 3 and 4 years. We based
the expected volatility upon the historical volatility of our daily closing share
price. The price at the grant date, February 17, 2011, was $30.91. We based
the risk-free interest rate used on U.S. treasury constant maturity bonds on
the measurement date with a maturity equal to the market condition perfor-
mance period. We based the expected term on the market condition perfor-
mance period. The officers’ total award opportunity under the LTIP stated as
a percentage of base salary ranges from 65% to 150% at target level. The
calculated grant date fair value as a percentage of base salary for the officers
ranged from 79% to 185% for the 40% of the LTIP subject to market conditions.
Non-officer employees earn restricted share awards under the LTIP based
upon various percentages of their salaries and annual performance calcula-
tions. The restricted share awards vest ratably over three years from the grant
date based upon continued employment. We recognize compensation expense
for these awards according to a graded vesting schedule over four years from
the date the performance target was established.
Modification of Prior LTIP Awards
In connection with the January 1, 2011 adoption of the STIP and the LTIP,
the previous long-term incentive plan (“prior LTIP”) for officers was amended
such that awards subject to performance and market conditions through 2012
under the prior LTIP were converted when the new plans were adopted into
154,400 restricted share units as of February 17, 2011, of which 59,100 were
previously granted and unvested as of December 31, 2010. Such restricted
share units vested consistent with the periods in which they otherwise would
92
2013 AnnuAl RepoRt have vested under the terms of the prior LTIP (i.e., either December 31, 2011
or December 31, 2012). We accounted for the amendment of these awards as
a modification.
Prior LTIP
Other non-officer members of management earned restricted share units under
the prior LTIP (before January 1, 2011) based on one-year performance targets
that vest ratably over five years from the grant date based upon continued
employment. We recognize compensation expense for these awards according
to a graded vesting schedule over six years from the date the performance
target was established.
Officers earned restricted share units under the prior LTIP based on various
percentages of their salaries that vest ratably over five years from the grant
date based upon continued employment. We recognize compensation expense
for these awards ratably over five years from the grant date.
Trustee Awards
We award share based compensation to our trustees on an annual basis in the
form of restricted shares which vest immediately and are restricted from sale
for the period of the trustees’ service. The value of share-based compensation
for each trustee was $55,000 for each of the years ended December 31, 2013,
2012 and 2011.
Total compensation Expense
Total compensation expense recognized in the consolidated financial state-
ments for the three years ended December 31, 2013 for all share based
awards, was as follows (in thousands):
yEAR ENDED DEcEMBER 31,
2013
2012
2011
Stock-based compensation expense
$6,246
$5,856
$5,597
WRIT’s prior chief executive officer (“Prior CEO”) retired as of December 31,
2013. Under the terms of his separation agreement, all of the Prior CEO’s
unvested restricted shares and restricted share units under the STIP, LTIP,
Prior LTIP and deferred compensation plans vested on December 31, 2013.
The impact of this modification of the Prior CEO’s awards was $1.0 million for
the year ended December 31, 2013.
93
Form 10-K Restricted Share Awards
The activity for the three years ended December 31, 2013 related to our restricted share awards, excluding those subject to market conditions, was as follows:
Vested at January 1
Unvested at January 1
Granted
Vested during year
Forfeited
Unvested at December 31
Vested at December 31
yEAR ENDED DEcEMBER 31,
2013
2012
2011
SHARES
864,288
149,803
141,609
(158,657)
(2,940)
129,815
1,022,945
WTD AVG GRANT
FAIR VALUE
$29.65
27.37
26.30
26.66
27.80
27.06
29.19
SHARES
652,803
331,003
36,884
(211,485)
(6,599)
149,803
864,288
WTD AVG GRANT
FAIR VALUE
$30.06
28.39
26.40
28.39
27.61
27.37
29.65
SHARES
490,832
193,339
303,168
(161,971)
(3,533)
331,003
652,803
WTD AVG GRANT
FAIR VALUE
$30.20
27.71
29.48
29.80
28.10
28.39
30.06
The total fair value of share grants vested for the years ended December 31,
2013, 2012 and 2011 was $3.8 million, $5.6 million and $4.9 million, respectively.
The unamortized value of these awards with market conditions as of
December 31, 2013 and 2012 was as follows (in thousands):
As of December 31, 2013, the total compensation cost related to non-vested
share awards not yet recognized was $1.8 million, which we expect to recog-
nize over a weighted average period of 21 months.
Restricted and Unrestricted Shares with Market conditions
Stock based awards with market conditions under the LTIP were granted in
February 2011 with fair market values, as determined using a Monte Carlo
simulation, as follows (in thousands):
Relative TSR
Absolute TSR
Options
DEcEMBER 31,
2013
2012
RESTRIcTED
UNRESTRIcTED
RESTRIcTED
UNRESTRIcTED
$162
55
$—
—
$501
172
$338
116
Relative TSR
Absolute TSR
GRANT DATE FAIR VALUE
RESTRIcTED
UNRESTRIcTED
$1,066
365
$1,066
365
The previous option plans provided for the grant of qualified and non-qualified
options. The last option awards to officers were in 2002, to non-officer key
employees in 2003 and to trustees in 2004. Options granted under the plans
were granted with exercise prices equal to the market price on the date of
grant, vested 50% after year one and 50% after year two and expire ten years
following the date of grant. Options granted to trustees were granted with exer-
cise prices equal to the market price on the date of grant and were fully vested
on the grant date. We accounted for option awards in accordance with ASC
718, and we have recognized no compensation cost for stock options.
94
2013 AnnuAl RepoRt The previously issued and currently outstanding and exercisable stock options for the three years ended December 31, 2013 was as follows:
Outstanding at January 1
Granted
Exercised
Expired/Forfeited
Outstanding at December 31
Exercisable at December 31
2013
2012
2011
yEAR ENDED DEcEMBER 31,
SHARES
38,119
—
—
(28,119)
10,000
10,000
WTD AVG
EX PRIcE
$30.48
—
—
29.55
33.09
33.09
SHARES
89,106
—
(44,987)
(6,000)
38,119
38,119
WTD AVG
EX PRIcE
$27.69
—
25.61
25.61
30.48
30.48
SHARES
145,950
—
(51,081)
(5,763)
89,106
89,106
WTD AVG
EX PRIcE
$26.74
—
25.29
24.85
27.69
27.69
The options outstanding at December 31, 2013 are all exercisable, have an
exercise price of $33.09 and have a remaining contractual life of 1.0 years. The
outstanding exercisable options at December 31, 2013 had no aggregate intrin-
sic value. The aggregate intrinsic value of options exercised was $0.1 million
and $0.3 million in the years ended December 31, 2012 and 2011, respectively.
There were no options forfeited in the years ended December 31, 2013, 2012
and 2011.
NOTE 8. Other Benefit Plans
We have a Retirement Savings Plan (the “401(k) Plan”), which permits all
eligible employees to defer a portion of their compensation in accordance
with the Internal Revenue Code. Under the 401(k) Plan, we may make dis-
cretionary contributions on behalf of eligible employees. For the three years
ended December 31, 2013, we made contributions to the 401(k) plan as follows
(in thousands):
401(k) plan contributions
yEAR ENDED DEcEMBER 31,
2013
$428
2012
$467
2011
$529
We have adopted non-qualified deferred compensation plans for the officers
and members of the Board of Trustees. The plans allow for a deferral of a
percentage of annual cash compensation and trustee fees. The plans are
unfunded and payments are to be made out of the general assets of WRIT. The
deferred compensation liability at December 31, 2013 and 2012 was as follows
(in thousands):
Deferred compensation liability
DEcEMBER 31,
2013
$1,437
2012
$1,314
We established a Supplemental Executive Retirement Plan (“SERP”) effective
July 1, 2002 for the benefit of a former CEO. Under this plan, upon the former
CEO’s termination of employment from WRIT for any reason other than death,
permanent and total disability, or discharge for cause, he is entitled to receive
an annual benefit equal to his accrued benefit times his vested interest. We
accounted for this plan in accordance with ASC 715-30, whereby we accrued
benefit cost in an amount that resulted in an accrued balance at the end of the
former CEO’s employment in June 2007 which was not less than the present
95
Form 10-K value of the estimated benefit payments to be made. At December 31, 2013
and 2012, the accrued benefit liability was $1.3 million and $1.4 million, respec-
tively. For the three years ended December 31, 2013, we recognized current
service cost as follows (in thousands):
respectively. For the three years ended December 31, 2013, we recognized
current service cost as follows (in thousands):
yEAR ENDED DEcEMBER 31,
2013
$325
2012
$342
2011
$334
Former CEO SERP current service cost
yEAR ENDED DEcEMBER 31,
2013
$99
2012
$106
2011
$113
Officer SERP current service cost
NOTE 9. Fair Value Disclosures
We currently have an investment in corporate owned life insurance intended
to meet the SERP benefit liability since the former CEO’s retirement. Benefit
payments to the prior CEO began in 2008.
In November 2005, the Board of Trustees approved the establishment of
a SERP for the benefit of the officers, other than the former CEO. This is a
defined contribution plan under which, upon a participant’s termination of
employment from WRIT for any reason other than death, discharge for cause
or total and permanent disability, the participant will be entitled to receive
a benefit equal to the participant’s accrued benefit times the participant’s
vested interest. We account for this plan in accordance with ASC 710-10 and
ASC 320-10, whereby the investments are reported at fair value, and unre-
alized holding gains and losses are included in earnings. At December 31,
2013 and 2012, the accrued benefit liability was $3.3 million and $2.3 million,
Assets and Liabilities Measured at Fair Value
For assets and liabilities measured at fair value on a recurring basis, quantita-
tive disclosures about the fair value measurements are required to be dis-
closed separately for each major category of assets and liabilities, as follows:
Level 1: Quoted prices in active markets for identical assets
Level 2: Significant other observable inputs
Level 3: Significant unobservable inputs
The only assets or liabilities we had at December 31, 2013 and 2012 that are
recorded at fair value on a recurring basis are the assets held in the SERP. We
base the valuations related to these items on assumptions derived from signif-
icant other observable inputs and accordingly these valuations fall into Level
2 in the fair value hierarchy. The fair values of these assets at December 31,
2013 and 2012 were as follows (in thousands):
DEcEMBER 31, 2013
DEcEMBER 31, 2012
qUOTED PRIcES IN
AcTIVE MARKETS FOR
IDENTIcAL ASSETS
(LEVEL 1)
SIGNIFIcANT OTHER
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFIcANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
qUOTED PRIcES IN
AcTIVE MARKETS FOR
IDENTIcAL ASSETS
(LEVEL 1)
SIGNIFIcANT OTHER
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFIcANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
FAIR VALUE
FAIR VALUE
Assets:
SERP
$3,290
$—
$3,290
$—
$2,421
$—
$2,421
$—
Financial Assets and Liabilities Not Measured at Fair Value
The following disclosures of estimated fair value were determined by manage-
ment using available market information and established valuation methodolo-
gies, including discounted cash flow. Many of these estimates involve significant
judgment. The estimated fair value disclosed may not necessarily be indicative
of the amounts we could realize on disposition of the financial instruments. The
use of different market assumptions or estimation methodologies could have
an effect on the estimated fair value amounts. In addition, fair value estimates
96
2013 AnnuAl RepoRt are made at a point in time and thus, estimates of fair value subsequent to
December 31, 2013 may differ significantly from the amounts presented.
As of December 31, 2013 and 2012, the carrying values and estimated fair
values of our financial instruments were as follows (in thousands):
Below is a summary of significant methodologies used in estimating fair values
and a schedule of fair values at December 31, 2013.
cash and cash Equivalents and Restricted cash
Cash and cash equivalents and restricted cash include cash and commercial
paper with original maturities of less than 90 days, which are valued at the
carrying value, which approximates fair value due to the short maturity of these
instruments (Level 1 inputs).
Notes Receivable
We acquired a note receivable (“2445 M Street note”) in 2008 with the pur-
chase of 2445 M Street. We estimate the fair value of the 2445 M Street note
based on a discounted cash flow methodology using market discount rates
(Level 3 inputs).
Debt
Mortgage notes payable consist of instruments in which certain of our real
estate assets are used for collateral. We estimate the fair value of the mortgage
notes payable by discounting the contractual cash flows at a rate equal to the
relevant treasury rates (with respect to the timing of each cash flow) plus credit
spreads estimated through independent comparisons to real estate assets or
loans with similar characteristics. Lines of credit payable consist of bank facil-
ities which we use 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. We estimate the market value based on a compar-
ison of the spreads of the advances to market given the adjustable base rate.
We estimate the fair value of the notes payable by discounting the contractual
cash flows at a rate equal to the relevant treasury rates (with respect to the tim-
ing of each cash flow) plus credit spreads derived using the relevant securities’
market prices. We classify these fair value measurements as Level 3 as we use
significant unobservable inputs and management judgment due to the absence
of quoted market prices.
DEcEMBER 31,
2013
2012
cARRyING
VALUE
FAIR
VALUE
cARRyING
VALUE
FAIR
VALUE
Cash and cash equivalents(1)
$130,343
$130,343
$ 19,324
$ 19,324
Restricted cash(1)
2445 M Street note receivable
9,189
6,070
9,189
6,803
14,582
6,617
14,582
6,654
Mortgage notes payable(1)
294,671
313,476
342,970
374,591
Notes payable
846,703
856,171
906,190
968,040
(1)
Includes amounts that have been reclassified to “Other asset related to properties sold or held for sale” or
“Other liabilities related to properties sold or held for sale” on the consolidated balance sheets (see note 3).
NOTE 10. Earnings Per common Share
We determine “Basic earnings per share” using the two-class method as
our unvested restricted share awards and units have non-forfeitable rights to
dividends, and are therefore considered participating securities. We compute
basic earnings per share by dividing net income attributable to the controlling
interest less the allocation of undistributed earnings to unvested restricted
share awards and units by the weighted-average number of common shares
outstanding for the period.
We also determine “Diluted earnings per share” under the two-class method
with respect to the unvested restricted share awards. We further evaluate
any other potentially dilutive securities at the end of the period and adjust the
basic earnings per share calculation for the impact of those securities that
are dilutive. Our dilutive earnings per share calculation includes the dilutive
impact of employee stock options based on the treasury stock method and our
performance share units under the contingently issuable method. The dilutive
earnings per share calculation also considers our operating partnership units.
We have a loss from continuing operations for the years ended December 31,
2013 and 2011, and therefore diluted earnings per share is calculated in the
same manner as basic earnings per share for these years.
97
Form 10-K The computation of basic and diluted earnings per share for the three years ended December 31, 2013 was as follows (in thousands; except per share data):
Numerator:
(Loss) income from continuing operations
Allocation of undistributed earnings to unvested restricted share awards and units to continuing operations
Adjusted (loss) income from continuing operations attributable to the controlling interests
Income from discontinued operations, including gain on sale of real estate, net of taxes
Net income attributable to noncontrolling interests
Allocation of undistributed earnings to unvested restricted share awards and units to discontinued operations
Adjusted income from discontinued operations attributable to the controlling interests
Adjusted net income attributable to the controlling interests
Denominator:
Weighted average shares outstanding—basic
Effect of dilutive securities:
Employee stock options and restricted share awards
Weighted average shares outstanding—diluted
Earnings per common share, basic:
Continuing operations
Discontinued operations
Earnings per common share, diluted:
Continuing operations
Discontinued operations
yEAR ENDED DEcEMBER 31,
2013
2012
2011
$ (193)
$ 7,768
$ (14,389)
—
(193)
37,539
—
(415)
37,124
$36,931
(191)
7,577
15,940
—
(391)
15,549
$23,126
—
(14,389)
119,767
(494)
(712)
118,561
$104,172
66,580
66,239
65,982
—
66,580
137
66,376
—
65,982
$ —
$ 0.11
$ (0.22)
0.55
0.24
1.80
$ 0.55
$ 0.35
$ 1.58
$ —
$ 0.11
$ (0.22)
0.55
0.24
1.80
$ 0.55
$ 0.35
$ 1.58
98
2013 AnnuAl RepoRt NOTE 11. Rentals Under Operating Leases
NOTE 12. commitments and contingencies
As of December 31, 2013, non-cancelable commercial operating leases
provide for minimum rental income from continuing operations were as follows
(in thousands):
2014
2015
2016
2017
2018
Thereafter
$177,776
155,154
131,374
111,883
91,966
259,546
$927,699
Apartment leases are not included as the terms are generally for one year.
Most of these commercial leases increase in future years based on agreed-
upon percentages or in some instances, changes in the Consumer Price Index.
Percentage rents from retail centers, based on a percentage of tenants’
gross sales, for the three years ended December 31, 2013 were as follows
(in thousands):
Percentage rents
yEAR ENDED DEcEMBER 31,
2013
$123
2012
$150
2011
$193
Real estate tax, operating expense and common area maintenance reim-
bursement income from continuing operations for the three years ended
December 31, 2013 was as follows (in thousands):
Reimbursement income
$26,822
$25,528
$21,877
yEAR ENDED DEcEMBER 31,
2013
2012
2011
Development commitments
At December 31, 2013, we had no committed contracts outstanding with third
parties in connection with our development and redevelopment projects at
1225 First Street, 650 North Glebe Road and 7900 Westpark Drive.
Litigation
We are involved from time to time in various legal proceedings, lawsuits, exam-
inations by various tax authorities and claims that have arisen in the ordinary
course of business. Management believes that the resolution of any such
current matters will not have a material adverse effect on our financial condition
or results of operations.
Other
At December 31, 2013, we had no letters of credit issued under our line of
credit facility.
NOTE 13. Segment Information
We have four reportable segments: office, medical office, retail and multifam-
ily. Office buildings provide office space for various types of businesses and
professions. Retail centers are typically neighborhood grocery store or drug
store anchored retail centers. Multifamily properties provide rental housing for
families throughout the Washington metropolitan area. Medical office build-
ings provide offices and facilities for a variety of medical services. We have
executed purchase and sale agreements to effectuate the sale of our medical
office segment, and have classified this segment as discontinued operations
(see note 3).
99
Form 10-K Real estate rental revenue as a percentage of the total for each of the report-
able operating segments in continuing operations for the three years ended
December 31, 2013 was as follows:
The percentage of total income producing real estate assets, at cost, for
each of the reportable operating segments in continuing operations as of
December 31, 2013 and 2012 was as follows:
yEAR ENDED DEcEMBER 31,
yEAR ENDED DEcEMBER 31,
Office
Retail
Multifamily
2013
58%
21%
21%
2012
58%
21%
21%
2011
57%
21%
22%
Office
Retail
Multifamily
2013
62%
20%
18%
2012
63%
20%
17%
The accounting policies of each of the segments are the same as those
described in note 2.
100
2013 AnnuAl RepoRt The following tables present revenues, net operating income, capital expenditures and total assets for the three years ended December 31, 2013 from these seg-
ments, and reconciles net operating income of reportable segments to net income attributable to the controlling interests as reported (in thousands):
yEAR ENDED DEcEMBER 31, 2013
OFFIcE
MEDIcAL OFFIcE
RETAIL
MULTIFAMILy
cORPORATE
AND OTHER
cONSOLIDATED
$ 152,339
$ —
$ 56,189
$ 54,496
$ —
$ 263,024
57,293
—
13,768
22,232
—
93,293
$ 95,046
$ —
$ 42,421
$ 32,264
$ —
$ 169,731
Real estate rental revenue
Real estate expenses
Net operating income
Depreciation and amortization
General and administrative
Acquisition costs
Interest expense
Other income
Gain (loss) on extinguishment of debt
Discontinued operations:
Income from properties sold or held for sale
Gain on sale of real estate
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to the controlling interests
Capital expenditures
Total assets
$ 37,777
$1,073,302
$ 3,695
$84,001
$ 4,204
$344,207
$ 10,153
$309,117
$ 162
$164,866
(85,740)
(17,535)
(1,265)
(63,573)
926
(2,737)
15,395
22,144
37,346
—
$ 37,346
$ 55,991
$1,975,493
101
Form 10-K Real estate rental revenue
Real estate expenses
Net operating income
Depreciation and amortization
General and administrative
Acquisition costs
Interest expense
Other income
Discontinued operations:
Income from properties sold or held for sale
Gain on sale of real estate
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to the controlling interests
yEAR ENDED DEcEMBER 31, 2012
OFFIcE
MEDIcAL OFFIcE
RETAIL
MULTIFAMILy
cORPORATE
AND OTHER
cONSOLIDATED
$ 147,401
$ —
$ 54,506
$ 52,887
$ —
$ 254,794
53,376
—
12,702
20,467
—
86,545
$ 94,025
$ —
$ 41,804
$ 32,420
$ —
$ 168,249
(85,107)
(15,488)
(234)
(60,627)
975
10,816
5,124
23,708
—
$ 23,708
$ 51,735
$2,124,376
Capital expenditures
Total assets
$ 35,330
$1,140,046
$ 7,004
$327,573
$ 2,977
$355,585
$ 5,869
$249,503
$ 555
$51,669
102
2013 AnnuAl RepoRt yEAR ENDED DEcEMBER 31, 2011
OFFIcE
MEDIcAL OFFIcE
RETAIL
MULTIFAMILy
INDUSTRIAL/
FLEX
cORPORATE
AND OTHER
cONSOLIDATED
$ 133,333
$ —
$ 50,421
$ 50,979
45,634
—
14,273
19,717
$ 87,699
$ —
$ 36,148
$ 31,262
$ —
—
$ —
$ —
$ 234,733
—
79,624
$ —
$ 155,109
Real estate rental revenue
Real estate expenses
Net operating income
Depreciation and amortization
General and administrative
Real estate impairment
Acquisition costs
Interest expense
Other income
Loss on extinguishment of debt
Discontinued operations:
Income from properties sold or held for sale
Gain on sale of real estate
Income tax expense
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to the controlling interests
Capital expenditures
Total assets
$ 21,065
$1,118,074
$ 5,654
$347,735
$ 2,922
$365,164
$ 2,823
$247,170
$351
$ —
$ 621
$42,615
(74,403)
(15,728)
(14,526)
(3,607)
(61,402)
1,144
(976)
23,414
97,491
(1,138)
105,378
(494)
$ 104,884
$ 33,436
$2,120,758
103
Form 10-K NOTE 14. Selected quarterly Financial Data (Unaudited)
Unaudited financial data by quarter for each of the three months in the years ended December 31, 2013 and 2012 were as follows (in thousands, except for per
share data):
FIRST
SEcOND
THIRD
FOURTH
qUARTER(1,2)
2013
Real estate rental revenue
Income (loss) from continuing operations
Effect of disposal of medical office segment on net income
Net income
Net income attributable to the controlling interests
Income (loss) from continuing operations per share
Basic
Diluted
Net income per share
Basic
Diluted
2012
Real estate rental revenue
Income from continuing operations
Effect of disposal of medical office segment on net income
Net income
Net income attributable to the controlling interests
Income from continuing operations per share
Basic
Diluted
Net income per share
Basic
Diluted
$64,560
$ 857
$ 2,821
$ 7,335
$ 7,335
$ 0.01
$ 0.01
$ 0.11
$ 0.11
$62,590
$ 1,852
$ 2,623
$ 5,181
$ 5,181
$ 0.03
$ 0.03
$ 0.08
$ 0.08
$65,915
$ 1,538
$ 3,439
$ 5,263
$ 5,263
$ 0.02
$ 0.02
$ 0.08
$ 0.08
$63,073
$ 2,928
$ 2,370
$ 6,008
$ 6,008
$ 0.04
$ 0.04
$ 0.09
$ 0.09
$65,828
$ 1,709
$ 3,820
$ 5,840
$ 5,840
$ 0.03
$ 0.03
$ 0.09
$ 0.09
$64,471
$ 2,604
$ 2,462
$ 9,561
$ 9,561
$ 0.04
$ 0.04
$ 0.14
$ 0.14
$66,721
$ (4,297)
$ 3,964
$18,908
$18,908
$ (0.06)
$ (0.06)
$ 0.28
$ 0.28
$64,660
$ 384
$ 673
$ 2,958(3)
$ 2,958
$ 0.01
$ 0.01
$ 0.04
$ 0.04
(1) With regard to per share calculations, the sum of the quarterly results may not equal full year results due to rounding.
(2) The prior quarter results have been restated to conform to the current quarter presentation. Specifically, results related to properties sold or held for sale have been reclassified into discontinued operations.
(3) The three months ended December 31, 2012 includes the impact of real estate impairment of $2.1 million.
104
2013 AnnuAl RepoRt NOTE 15. Shareholders’ Equity
We are party to a sales agency financing agreement with BNY Mellon Capital
Markets, LLC relating to the issuance and sale of up to $250.0 million of our
common shares from time to time over a period of no more than 36 months from
June 2012. Sales of our common shares are made at market prices prevailing at
the time of sale. Net proceeds for the sale of common shares under this program
are used for general corporate purposes. As of December 31, 2013, we have not
issued any common shares under this sales agency financing agreement.
by us or common shares purchased in the open market. Net proceeds under
this program are used for general corporate purposes.
We executed issuances under this program for the three years ended
December 31, 2013 as follows (in thousands, except for weighted average
issue price):
We have a dividend reinvestment program, whereby shareholders may use
their dividends and optional cash payments to purchase common shares. The
common shares sold under this program may either be common shares issued
Common shares issued
Weighted average issue price
Net proceeds
yEAR ENDED DEcEMBER 31,
2013
—
$—
$—
2012
55
$29.67
$1,315
2011
170
$29.97
$5,041
105
Form 10-K NOTE 16. Deferred costs
As of December 31, 2013 and 2012 deferred costs were included in prepaid expenses and other assets as follows (in thousands):
Deferred financing costs
Deferred leasing costs
Deferred leasing incentives
2013
2012
DEcEMBER 31,
GROSS
cARRyING VALUE
AccUMULATED
AMORTIzATION
$17,842
39,642
7,143
$ 8,950
14,788
2,417
NET
$ 8,892
24,854
4,726
GROSS
cARRyING VALUE
AccUMULATED
AMORTIzATION
$18,761
31,872
5,847
$ 8,162
13,756
1,448
NET
$10,599
18,116
4,399
Amortization and write-offs of deferred financing, leasing and leasing incen-
tives costs from continuing operations for the three years ended December 31,
2013 were as follows (in thousands):
yEAR ENDED DEcEMBER 31,
Deferred financing costs amortization
Deferred leasing costs amortization
2013
$2,550
4,279
Deferred leasing incentives amortization
980
2012
$2,411
3,635
675
2011
$2,194
3,827
556
NOTE 17. Subsequent Events
On January 21, 2014, we closed on Transaction III (for the sale of Woodburn
Medical Park I and II) and Transaction IV (for the sale of Prosperity Medical
Center I and II and III) of the Medical Office Portfolio sale for an aggregate
sales price of $193.6 million (see note 3).
On February 21, 2014, we closed on the purchase of Yale West, a 216-unit
residential building in Washington, D.C., for $73.0 million. We assumed a
$48.2 million mortgage and funded the remainder of the purchase price
through proceeds from the Medical Office Portfolio sale.
106
2013 AnnuAl RepoRt ScHEDULE II
Valuation and qualifying Accounts for the years Ended December 31, 2013, 2012 and 2011
(in thousands)
Allowance for doubtful accounts
2013
2012
2011
Valuation allowance for deferred tax assets
2013
2012
2011
BALANcE AT
BEGINNING OF yEAR
ADDITIONS cHARGED
TO EXPENSES
NET DEDUcTIONS
(REcOVERIES)
BALANcE AT
END OF yEAR
$10,443
$ 8,049
$ 6,210
$ 5,773
$ 5,651
$ —
$3,531
$3,811
$3,687
$ —
$ 122
$5,651
$(7,191)
$(1,417)
$(1,848)
$ (32)
$ —
$ —
$ 6,783
$10,443
$ 8,049
$ 5,741
$ 5,773
$ 5,651
107
Form 10-K ScHEDULE III
PROPERTIES
LOcATION
LAND
Multifamily Properties
INITIAL cOST(b)
BUILDINGS AND
IMPROVEMENTS
NET
IMPROVEMENTS
(RETIREMENT)
SINcE AcqUISITION
GROSS AMOUNTS AT WHIcH cARRIED
AT DEcEMBER 31, 2013
LAND
BUILDINGS AND
IMPROVEMENTS
TOTAL(c)
AccUMULATED
DEPREcIATION
AT DEcEMBER 31,
2013
yEAR OF
cONSTRUcTION
DATE OF
AcqUISITION
NET RENTABLE
SqUARE FEET(e)
UNITS
DEPRE-
cIATION
LIFE(d)
3801 Connecticut Ave(a)
DC
$ 420,000 $ 2,678,000 $ 9,715,000 $ 420,000 $ 12,393,000 $ 12,813,000 $ 8,905,000
Roosevelt Towers
Country Club Towers
Park Adams
Munson Hill Towers
The Ashby at McLean
Walker House Apts(a)
Bethesda Hill Apts(a)
Bennett Park
The Clayborne
The Kenmore(a)
650 N. Glebe Rd(g)
1225 First St(g)
The Paramount
Office Buildings
1901 Pennsylvania Ave
51 Monroe St
515 King St
6110 Executive Blvd
1220 19th St
1600 Wilson Blvd
7900 Westpark Dr(f)
600 Jefferson Plaza
Wayne Plaza
Courthouse Sq
One Central Plaza
1776 G St
Dulles Station II(f)
West Gude
Monument II
2000 M St
VA
VA
VA
VA
VA
MD
MD
VA
VA
DC
VA
VA
VA
DC
MD
VA
MD
DC
VA
VA
MD
MD
VA
MD
DC
VA
MD
VA
DC
108
$ 336,000 $ 1,996,000 $ 10,995,000 $ 336,000 $ 12,991,000 $ 13,327,000 $ 7,719,000
$ 299,000 $ 2,562,000 $ 15,088,000 $ 299,000 $ 17,650,000 $ 17,949,000 $ 10,252,000
$ 287,000 $ 1,654,000 $ 9,808,000 $ 287,000 $ 11,462,000 $ 11,749,000 $ 7,856,000
$ 322,000 $ 3,337,000 $ 15,359,000 $ 322,000 $ 18,696,000 $ 19,018,000 $ 13,331,000
$ 4,356,000 $ 17,102,000 $ 16,156,000 $ 4,356,000 $ 33,258,000 $ 37,614,000 $ 19,402,000
$ 2,851,000 $ 7,946,000 $ 6,827,000 $ 2,851,000 $ 14,773,000 $ 17,624,000 $ 9,101,000
$ 3,900,000 $ 13,412,000 $ 12,116,000 $ 3,900,000 $ 25,528,000 $ 29,428,000 $ 14,758,000
$ 2,861,000 $ 917,000 $ 79,425,000 $ 4,774,000 $ 78,429,000 $ 83,203,000 $ 23,117,000
$ 269,000 $ — $ 30,527,000 $ 699,000 $ 30,097,000 $ 30,796,000 $ 10,245,000
$ 28,222,000 $ 33,955,000 $ 6,776,000 $ 28,222,000 $ 40,731,000 $ 68,953,000 $ 7,219,000
$ 12,787,000 $ — $ 14,556,000 $ 27,343,000 $ — $ 27,343,000 $ —
$ 14,046,000 $ — $ 6,742,000 $ 20,788,000 $ — $ 20,788,000 $ —
1951
1964
1965
1959
1963
1982
1971
1986
2007
2008
1948
N/A
N/A
Jan 1963
179,000
307 30 yrs
May 1965
170,000
191 40 yrs
Jul 1969
159,000
227 35 yrs
Jan 1969
173,000
200 35 yrs
Jan 1970
258,000
279 33 yrs
Aug 1996
274,000
256 30 yrs
Mar 1996
157,000
212 30 yrs
Nov 1997
225,000
195 30 yrs
Feb 2001
214,000
224 28 yrs
Jun 2003
60,000
74 26 yrs
Sep 2008
268,000
374 30 yrs
Jun 2011
Nov 2011
—
—
— N/A
— N/A
$ 8,568,000 $ 38,716,000 $ 119,000 $ 8,568,000 $ 38,835,000 $ 47,403,000 $ 366,000
1984
Oct 2013
141,000
135 30 yrs
$ 79,524,000 $ 124,275,000 $234,209,000 $103,165,000 $ 334,843,000 $ 438,008,000 $132,271,000
2,278,000
2,674
$ 892,000 $ 3,481,000 $ 15,955,000 $ 892,000 $ 19,436,000 $ 20,328,000 $ 14,068,000
$ 840,000 $ 10,869,000 $ 26,553,000 $ 840,000 $ 37,422,000 $ 38,262,000 $ 26,144,000
$ 4,102,000 $ 3,931,000 $ 5,494,000 $ 4,102,000 $ 9,425,000 $ 13,527,000 $ 4,989,000
$ 4,621,000 $ 11,926,000 $ 15,144,000 $ 4,621,000 $ 27,070,000 $ 31,691,000 $ 16,490,000
$ 7,803,000 $ 11,366,000 $ 10,612,000 $ 7,803,000 $ 21,978,000 $ 29,781,000 $ 11,233,000
$ 6,661,000 $ 16,742,000 $ 20,384,000 $ 6,661,000 $ 37,126,000 $ 43,787,000 $ 16,668,000
$ 12,049,000 $ 71,825,000 $ 40,805,000 $ 12,049,000 $ 112,630,000 $ 124,679,000 $ 60,969,000
$ 2,296,000 $ 12,188,000 $ 6,199,000 $ 2,296,000 $ 18,387,000 $ 20,683,000 $ 8,988,000
$ 1,564,000 $ 6,243,000 $ 8,431,000 $ 1,564,000 $ 14,674,000 $ 16,238,000 $ 7,281,000
$ — $ 17,096,000 $ 7,441,000 $ — $ 24,537,000 $ 24,537,000 $ 10,899,000
$ 5,480,000 $ 39,107,000 $ 16,750,000 $ 5,480,000 $ 55,857,000 $ 61,337,000 $ 26,059,000
$ 31,500,000 $ 54,327,000 $ 4,865,000 $ 31,500,000 $ 59,192,000 $ 90,692,000 $ 23,247,000
$ 15,001,000 $ 494,000 $ (3,425,000) $ 4,130,000 $ 7,940,000 $ 12,070,000 $ 291,000
$ 11,580,000 $ 43,240,000 $ 10,876,000 $ 11,580,000 $ 54,116,000 $ 65,696,000 $ 15,195,000
$ 10,244,000 $ 65,205,000 $ 4,733,000 $ 10,244,000 $ 69,938,000 $ 80,182,000 $ 17,810,000
$ — $ 61,101,000 $ 20,866,000 $ — $ 81,967,000 $ 81,967,000 $ 17,061,000
1960
1975
1966
1971
1976
1973
1972
1985
1970
1979
1974
1979
N/A
1984
2000
1971
May 1977
Aug 1979
Jul 1992
Jan 1995
Nov 1995
Oct 1997
Nov 1997
May 1999
May 2000
Oct 2000
Apr 2001
Aug 2003
Dec 2005
Aug 2006
Mar 2007
Dec 2007
101,000
222,000
75,000
203,000
104,000
168,000
530,000
113,000
96,000
115,000
267,000
263,000
—
277,000
207,000
230,000
28 yrs
41 yrs
50 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
N/A
30 yrs
30 yrs
30 yrs
2013 AnnuAl RepoRt INITIAL cOST(b)
LOcATION
LAND
BUILDINGS AND
IMPROVEMENTS
NET
IMPROVEMENTS
(RETIREMENT)
SINcE AcqUISITION
GROSS AMOUNTS AT WHIcH cARRIED
AT DEcEMBER 31, 2013
LAND
BUILDINGS AND
IMPROVEMENTS
TOTAL(c)
AccUMULATED
DEPREcIATION
AT DEcEMBER 31,
2013
yEAR OF
cONSTRUcTION
DATE OF
AcqUISITION
NET RENTABLE
SqUARE FEET(e)
UNITS
PROPERTIES
2445 M St(a)
925 Corporate Dr
1000 Corporate Dr
1140 Connecticut Ave
1227 25th St
Braddock Metro Ctr
John Marshall II(a)
Fairgate at Ballston
Medical Office
Woodburn Medical Park I
Woodburn Medical Park II
Prosperity Medical Ctr I
Prosperity Medical Ctr II
Prosperity Medical Ctr III
Retail centers
Takoma Park
Westminster
Concord Centre
Wheaton Park
Bradlee Shopping Ctr
Chevy Chase Metro Plaza
Montgomery Village Ctr
Shoppes of Foxchase
Frederick County Sq
800 S. Washington St
Centre at Hagerstown
Frederick Crossing
Randolph Shopping Ctr
Montrose Shopping Ctr
Gateway Overlook
Olney Village Ctr(a)
DC
VA
VA
DC
DC
VA
VA
VA
VA
VA
VA
VA
VA
MD
MD
VA
MD
VA
DC
MD
VA
MD
VA
MD
MD
MD
MD
MD
MD
$ 46,887,000 $ 106,743,000 $ 3,060,000 $ 46,887,000 $ 109,803,000 $ 156,690,000 $ 22,179,000
$ 4,518,000 $ 24,801,000 $ 428,000 $ 4,518,000 $ 25,229,000 $ 29,747,000 $ 5,100,000
$ 4,897,000 $ 25,376,000 $ (129,000) $ 4,897,000 $ 25,247,000 $ 30,144,000 $ 5,217,000
$ 25,226,000 $ 50,495,000 $ 8,124,000 $ 25,226,000 $ 58,619,000 $ 83,845,000 $ 7,425,000
$ 17,505,000 $ 21,319,000 $ 2,339,000 $ 17,505,000 $ 23,658,000 $ 41,163,000 $ 3,158,000
$ 18,817,000 $ 71,250,000 $ 5,564,000 $ 18,817,000 $ 76,814,000 $ 95,631,000 $ 8,542,000
$ 13,490,000 $ 53,024,000 $ 173,000 $ 13,490,000 $ 53,197,000 $ 66,687,000 $ 5,071,000
$ 17,750,000 $ 29,885,000 $ 2,137,000 $ 17,750,000 $ 32,022,000 $ 49,772,000 $ 2,524,000
$263,723,000 $ 812,034,000 $233,379,000 $252,852,000 $1,056,284,000 $1,309,136,000 $336,608,000
$ 2,563,000 $ 12,460,000 $ 4,393,000 $ 2,563,000 $ 16,853,000 $ 19,416,000 $ 8,620,000
$ 2,632,000 $ 17,574,000 $ 4,366,000 $ 2,632,000 $ 21,940,000 $ 24,572,000 $ 10,901,000
$ 2,071,000 $ 26,317,000 $ 1,335,000 $ 2,071,000 $ 27,652,000 $ 29,723,000 $ 9,733,000
$ 1,598,000 $ 25,850,000 $ 1,521,000 $ 1,598,000 $ 27,371,000 $ 28,969,000 $ 9,474,000
$ 2,819,000 $ 19,680,000 $ 788,000 $ 2,819,000 $ 20,468,000 $ 23,287,000 $ 7,338,000
$ 11,683,000 $ 101,881,000 $ 12,403,000 $ 11,683,000 $ 114,284,000 $ 125,967,000 $ 46,066,000
$ 415,000 $ 1,084,000 $ 238,000 $ 415,000 $ 1,322,000 $ 1,737,000 $ 1,184,000
$ 519,000 $ 1,775,000 $ 9,171,000 $ 519,000 $ 10,946,000 $ 11,465,000 $ 6,534,000
$ 413,000 $ 850,000 $ 3,511,000 $ 413,000 $ 4,361,000 $ 4,774,000 $ 2,966,000
$ 796,000 $ 857,000 $ 4,455,000 $ 796,000 $ 5,312,000 $ 6,108,000 $ 3,364,000
$ 4,152,000 $ 5,383,000 $ 8,261,000 $ 4,152,000 $ 13,644,000 $ 17,796,000 $ 9,639,000
$ 1,549,000 $ 4,304,000 $ 5,366,000 $ 1,549,000 $ 9,670,000 $ 11,219,000 $ 6,012,000
$ 11,625,000 $ 9,105,000 $ 3,252,000 $ 11,625,000 $ 12,357,000 $ 23,982,000 $ 5,502,000
$ 5,838,000 $ 2,979,000 $ 13,245,000 $ 5,838,000 $ 16,224,000 $ 22,062,000 $ 5,419,000
$ 6,561,000 $ 6,830,000 $ 4,105,000 $ 6,561,000 $ 10,935,000 $ 17,496,000 $ 6,381,000
$ 2,904,000 $ 5,489,000 $ 5,999,000 $ 2,904,000 $ 11,488,000 $ 14,392,000 $ 4,106,000
$ 13,029,000 $ 25,415,000 $ 2,306,000 $ 13,029,000 $ 27,721,000 $ 40,750,000 $ 10,836,000
$ 12,759,000 $ 35,477,000 $ 2,206,000 $ 12,759,000 $ 37,683,000 $ 50,442,000 $ 11,701,000
$ 4,928,000 $ 13,025,000 $ 727,000 $ 4,928,000 $ 13,752,000 $ 18,680,000 $ 3,848,000
$ 11,612,000 $ 22,410,000 $ 2,545,000 $ 11,612,000 $ 24,955,000 $ 36,567,000 $ 6,934,000
$ 28,816,000 $ 52,249,000 $ 1,240,000 $ 29,394,000 $ 52,911,000 $ 82,305,000 $ 8,328,000
$ 15,842,000 $ 39,133,000 $ 1,648,000 $ 15,842,000 $ 40,781,000 $ 56,623,000 $ 3,709,000
$121,758,000 $ 226,365,000 $ 68,275,000 $122,336,000 $ 294,062,000 $ 416,398,000 $ 96,463,000
1986
2007
2009
1966
1988
1985
1996
1988
1984
1988
2000
2001
2002
1962
1969
1960
1967
1955
1975
1969
1960
1973
1951
2000
1999
1972
1970
2007
1979
Dec 2008
Jun 2010
Jun 2010
Jan 2011
Mar 2011
Sep 2011
Sep 2011
Jun 2012
Nov 1998
Nov 1998
Oct 2003
Oct 2003
Oct 2003
290,000
134,000
136,000
184,000
132,000
345,000
223,000
142,000
4,557,000
77,000
97,000
91,000
87,000
75,000
427,000
Jul 1963
51,000
Sep 1972
150,000
Dec 1973
Sep 1977
76,000
74,000
Dec 1984
168,000
Sep 1985
Dec 1992
Jun 1994
Aug 1995
Jun 1998
Jun 2002
Mar 2005
May 2006
May 2006
Dec 2010
Aug 2011
49,000
197,000
134,000
227,000
47,000
332,000
295,000
82,000
145,000
223,000
199,000
Total
$476,688,000 $1,264,555,000 $548,266,000 $490,036,000 $1,799,473,000 $2,289,509,000 $611,408,000
DEPRE-
cIATION
LIFE(d)
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
50 yrs
37 yrs
33 yrs
50 yrs
40 yrs
50 yrs
50 yrs
50 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
30 yrs
2,449,000
9,711,000
2,674
109
Form 10-K a) At December 31, 2013, our properties were encumbered by non-recourse mortgage amounts as follows: $35.4 million on 3801 connecticut Avenue, $16.5 million on Walker House, $29.1 million on Bethesda Hill, $34.9 million
on The Kenmore, $98.1 million on 2445 M Street, $52.6 million on John Marshall II, and $20.7 million on Olney Village center.
b) The purchase cost of real estate investments has been divided between land and buildings and improvements on the basis of management’s determination of the fair values.
c) At December 31, 2013, total land, buildings and improvements are carried at $1,939.3 million for federal income tax purposes.
d) The useful life shown is for the main structure. Buildings and improvements are depreciated over various useful lives ranging from 3 to 50 years.
e) Residential properties are presented in gross square feet.
f) As of December 31, 2013, WRIT had under development an office project with 360,000 square feet of office space and a parking garage to be developed in Herndon, Virginia (Dulles Station, Phase II). The total land value not
yet placed in service of the development project at December 31, 2013 was $3.6 million. $0.5 million of Dulles Station, Phase II land was placed into service upon the completion of a portion of the parking garage structure.
Additionally, WRIT had investments in various smaller development or redevelopment projects, including 7900 Westpark Drive. The total value of this redevelopment not yet placed in service is $3.3 million at December 31, 2013.
g) As of December 31, 2013, WRIT had under development via joint venture arrangements, a mid-rise multifamily property in Arlington, Virginia (650 North Glebe) and a high-rise multifamily property in Alexandria, Virginia
(1225 First Street). The value not yet placed into service of these development projects via joint venture arrangements at December 31, 2013 was $48.1 million. 650 North Glebe was encumbered by a construction loan with a
$7.3 million balance at December 31, 2013.
110
2013 AnnuAl RepoRt SUMMARy OF REAL ESTATE INVESTMENTS AND AccUMULATED DEPREcIATION
The following is a reconciliation of real estate assets and accumulated depreciation for the three years ended December 31, 2013 (in thousands):
(in thousands)
Real estate assets
Balance, beginning of period
Additions:
Property acquisitions(1)
Improvements(1)
Deductions:
Impairment write-down
Write-off of disposed assets
Property sales
Balance, end of period
Accumulated depreciation
Balance, beginning of period
Additions:
Depreciation
Deductions:
Impairment write-down
Write-off of disposed assets
Property sales
Balance, end of period
(1)
Includes non-cash accruals for capital items and assumed mortgages.
yEAR ENDED DEcEMBER 31,
2013
2012
2011
$2,529,131
$2,449,872
$2,443,127
47,444
71,127
—
(2,017)
(356,176)
47,772
59,664
(2,097)
(1,450)
(24,630)
352,658
36,386
(16,416)
(1,648)
(364,235)
$2,289,509
$2,529,131
$2,449,872
$ 610,536
$ 535,732
$ 538,786
80,510
—
(1,404)
(78,234)
84,949
—
(1,124)
(9,021)
84,167
(1,291)
(1,648)
(84,282)
$ 611,408
$ 610,536
$ 535,732
111
Form 10-K Exhibit 31.1
cERTIFIcATION
I, Paul T. McDermott, certify that:
1.
I have reviewed this annual report on Form 10-K of Washington Real
Estate Investment Trust;
2. Based on my knowledge, this report does not contain any untrue state-
ment of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for estab-
lishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our super-
vision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report
is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial state-
ments for external purposes in accordance with generally accepted
accounting principles;
112
c. Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonable
likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reason-
able likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal con-
trol over financial reporting.
DATE: March 3, 2014
/s/ Paul T. McDermott
Paul T. McDermott
Chief Executive Officer
2013 AnnuAl RepoRt
Exhibit 31.2
cERTIFIcATION
I, Laura M. Franklin, certify that:
1.
I have reviewed this annual report on Form 10-K of Washington Real
Estate Investment Trust;
2. Based on my knowledge, this report does not contain any untrue state-
ment of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for estab-
lishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our super-
vision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report
is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial state-
ments for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonable
likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reason-
able likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal con-
trol over financial reporting.
DATE: March 3, 2014
/s/ Laura M. Franklin
Laura M. Franklin
Executive Vice President
Accounting, Administration
and Corporate Secretary
(Principal Accounting Officer)
113
Form 10-K
Exhibit 31.3
cERTIFIcATION
I, William T. Camp, certify that:
1.
I have reviewed this annual report on Form 10-K of Washington Real
Estate Investment Trust;
2. Based on my knowledge, this report does not contain any untrue state-
ment of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for estab-
lishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our super-
vision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report
is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial state-
ments for external purposes in accordance with generally accepted
accounting principles;
114
c. Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonable
likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reason-
able likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal con-
trol over financial reporting.
DATE: March 3, 2014
/s/ William T. Camp
William T. Camp
Chief Financial Officer
(Principal Financial Officer)
2013 AnnuAl RepoRt
Exhibit 32
WRITTEN STATEMENT OF cHIEF EXEcUTIVE OFFIcER AND cHIEF FINANcIAL OFFIcER
PURSUANT TO SEcTION 906 OF THE SARBANES-OXLEy AcT OF 2002
The undersigned, the President and Chief Executive Officer, the Executive Vice President Accounting, Administration and Corporate Secretary, and the Chief
Financial Officer of Washington Real Estate Investment Trust (“WRIT”), each hereby certifies on the date hereof, that:
(a)
the Annual Report on Form 10-K for the year ended December 31, 2013 filed on the date hereof with the Securities and Exchange Commission (the “Report”)
fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934; and
(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of WRIT.
Dated: March 3, 2014
/s/ Paul T. McDermott
Paul T. McDermott
Chief Executive Officer
Dated: March 3, 2014
/s/ Laura M. Franklin
Laura M. Franklin
Executive Vice President
Accounting, Administration
and Corporate Secretary
(Principal Accounting Officer)
Dated: March 3, 2014
/s/ William T. Camp
William T. Camp
Chief Financial Officer
(Principal Financial Officer)
115
Form 10-K
Performance Graph
Set forth below is a graph comparing the cumulative total shareholder return
(assumes reinvestment of dividends) on Washington REIT shares with the
cumulative total return of companies making up the Standard & Poor’s 500
Stock Index and the MSCI US REIT Index. The MSCI US REIT Index is a
total-return index representing approximately 85% of the US REIT universe.
comparison of Five year cumulative Total Return
2008
2009
2010
2011
2012
2013
Wash REIT
MSCI US REIT Index
S&P 500
$250
$200
$150
$100
$50
$0
116
2013 AnnuAl RepoRt CoRpoRAte
infoRmAtion
Corporate Headquarters
Washington Real Estate Investment Trust
6110 Executive Boulevard, Suite 800
Rockville, Maryland 20852-3927
301.984.9400
800.565.9748
301.984.9610 Fax
www.writ.com
WRIT Direct
Washington REIT’s dividend reinvestment
plan permits cash investment of up to the
amount specified in the plan, plus dividend,
and is IRA eligible.
Stock Information
Washington REIT is traded on the New York
Stock Exchange. The trading symbol is WRE.
Member
National Association of
Real Estate Investment Trusts®
1875 Eye Street, NW, Suite 600
Washington, DC 20006-5413
Annual CEO Certification
Washington REIT submitted the CEO Certification
required by the NYSE under Section 303A.
12(a) without qualifications.
Counsel
Arent Fox LLP
1717 K Street, NW
Washington, DC 20036-5342
Independent Registered
Public Accounting Firm
Ernst & Young LLP
8484 Westpark Drive
McLean, Virginia 22102
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 30170
College Station, Texas 77845-3170
Annual Meeting
Washington REIT will hold its annual meeting
of shareholders on May 15, 2014, at 8:30 a.m.
at the office of Arent Fox LLP at 1717 K Street,
NW, Washington, DC.
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10 WashIngTOn REIT
wAshington ReAl estAte investment tRust
6110 Executive Boulevard, suite 800, Rockville, Maryland 20852-3927 301.984.9400 800.565.9748 Fax 301.984.9610 www.writ.com