Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 8-K/A
 ___________________________________________________

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): May 20, 2016
 WASHINGTON REAL ESTATE
INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
MARYLAND
001-06622
53-0261100
(State of incorporation)
(Commission File Number)
(IRS Employer Identification Number)
1775 EYE STREET, NW, SUITE 1000, WASHINGTON, DC 20006
(Address of principal executive office) (Zip code)
Registrant’s telephone number, including area code: (202) 774-3200
___________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.01 Completion of Acquisition or Disposition of Assets.

Washington Real Estate Investment Trust (“Washington REIT”), in order to provide the financial statements required to be included in the Current Report on Form 8-K filed on May 23, 2016, hereby amends the following items, as set forth in the pages attached hereto.

Item 9.01 Financial Statements and Exhibits.

(a)
Financial Statements of Businesses Acquired

1.
Riverside Apartments - Audited Summary of Revenue and Certain Expenses for the year ended December 31, 2015 and unaudited Summary of Revenue and Certain Expenses for the quarter ended March 31, 2016.

In acquiring the property listed above, Washington REIT evaluated, among other things, sources of revenue (including but not limited to, competition in the rental market, comparative rents and occupancy rates) and expenses (including but not limited to, utility rates, ad valorem tax rates, maintenance expenses and anticipated capital expenditures). The results of the interim period are not necessarily indicative of the results to be obtained for the full fiscal year. However, after reasonable inquiry, management is not aware of any material factors affecting these properties that would cause the reported financial information not to be indicative of their future operating results.

(b)
Pro Forma Financial Information

The following pro forma financial statements reflecting the property acquisition listed above (as defined in Regulation S-X) are filed as an exhibit hereto:

1.
Washington REIT Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2016.

2.
Washington REIT Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended December 31, 2015 and the quarter ended March 31, 2016.

(c)
Exhibits

23 Consent of Ernst & Young LLP






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
WASHINGTON REAL ESTATE INVESTMENT TRUST
 
 
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
/s/ W. Drew Hammond
 
 
 
 
 
 
(Signature)
 
 
 
 
 
 
 
 
 
 
 
 
 
W. Drew Hammond
 
 
 
 
 
 
Vice President, Chief Accounting Officer
 
 
 
 
 
and Controller
 
 
 
 
 
 
 
 
 
July 26, 2016
 
 
 
 
 
 
(Date)
 
 
 
 
 





Exhibit Index

Exhibit No.
Description
 
 
23
Consent of Ernst & Young LLP





REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders of
Washington Real Estate Investment Trust

We have audited the accompanying Summary of Revenue and Certain Expenses (the Summary) of Riverside Apartments for the year ended December 31, 2015, and the related notes to the Summary
Management’s Responsibility for the Summary
Management is responsible for the preparation and fair presentation of the Summary in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Summary that is free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Summary is free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Summary. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Summary, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the Summary in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Summary.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Summary presents fairly, in all material respects, the revenue and certain operating expenses of Riverside Apartments, as described in Note 2 to the Summary, for the year ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.




Basis of Accounting
As described in Note 2 to the Summary, the Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, and is not intended to be a complete presentation of Riverside Apartments’ revenue and expenses. Our opinion is not modified with respect to this matter.



/s/ Ernst & Young LLP
Denver, Colorado
July 26, 2016





RIVERSIDE APARTMENTS

SUMMARIES OF REVENUE AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 2015 AND QUARTER ENDED MARCH 31, 2016 (UNAUDITED)
 
 
 
 
 
 
Year Ended
December 31, 2015
Quarter Ended
March 31, 2016
Revenue:
 
 
 
Rental revenue
 
$
18,477,830

$
4,674,360

Other revenue
 
3,039,927

808,960

 
 
 
 
Total revenue
 
21,517,757

5,483,320

 
 
 
 
Certain expenses:
 
 
 
Personnel expense
 
1,063,342

260,064

Utilities expense
 
1,877,610

539,208

Contract services expense
 
795,570

205,829

Turnover expense
 
242,836

56,845

Repairs and maintenance expense
 
427,518

120,499

Marketing expense
 
205,519

64,294

Administrative expense
 
436,286

82,753

Taxes and insurance expense
 
2,801,392

652,492

 
 
 
 
Total certain expenses
 
7,850,073

1,981,984

 
 
 
 
Total revenue less certain expenses
 
$
13,667,684

$
3,501,336

 
 
 
 
 
 
 
 
See Notes to the Summary.
 
 
 





RIVERSIDE APARTMENTS

NOTES TO THE SUMMARIES OF REVENUE AND
CERTAIN EXPENSES

YEAR ENDED DECEMBER 31, 2015 AND QUARTER ENDED MARCH 31, 2016 (UNAUDITED)


NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

On May 20, 2016, Washington Real Estate Investment Trust (the “REIT”) acquired a multifamily residential property in Washington D.C. known as Riverside Apartments (the “Property”). The aggregate purchase price of the Property was approximately $245 million, exclusive of closing costs.

Revenue recognition

The Property has operating leases with apartment residents with terms averaging 12 months. Rental income, net of any concessions, is recognized on a straight-line basis over the term of the lease. Rental payments received in advance are deferred until earned.

Advertising costs

The Property expenses advertising costs as incurred.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions regarding revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results could differ from estimated amounts.

NOTE 2 - BASIS OF PRESENTATION

The summaries of revenue and certain expenses have been prepared for the purpose of complying with Regulation S-X, Rule 3-14 as promulgated by the Securities and Exchange Commission, in connection with the REIT’s acquisition of the Property. The summaries of revenue and certain expenses are not representative of actual operations of the Property for the periods presented, nor indicative of future operations; however, the REIT is not aware of any material factors relating to the Property that would cause the reported financial information to not necessarily be indicative of future operating results. In addition, the summaries of revenues and certain expenses exclude items that may not be comparable to the proposed future operations of the Property such as:

(a) Interest expense on existing mortgages and borrowings
(b) Depreciation of property and equipment
(c) Asset management fees and property management fees
(d) Amortization of initial leasing fees
(e) Certain corporate and administrative expenses

NOTE 3 - COMMITMENTS AND CONTINGENCIES

Commitments and contingencies include the usual obligations of a real estate property in the normal course of business. In management’s opinion, these matters are not expected to have a material adverse effect on the Property’s future operating results.






NOTE 4 - SUBSEQUENT EVENTS

Management has evaluated the events and transactions that have occurred through July 26, 2016, the date on which the summaries of revenue and certain expenses were available to be issued and noted no items requiring adjustment to the summaries or additional disclosure.





WASHINGTON REAL ESTATE INVESTMENT TRUST
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

The unaudited consolidated pro forma financial information should be read in conjunction with Washington REIT's Form 8-K filed with the Securities and Exchange Commission (“SEC”) on May 23, 2016, announcing the acquisition of Riverside Apartments and amended hereby; the consolidated financial statements and notes thereto included in Washington REIT's Annual Report on Form 10-K for the year ended December 31, 2015 and Washington REIT's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016; and the Summaries of Revenues and Certain Expenses of Riverside Apartments included elsewhere in this Form 8-K/A. In management's opinion, all adjustments necessary to reflect these acquisitions and related transactions have been made.

The unaudited consolidated pro forma financial information is not necessarily indicative of what Washington REIT's actual results of operations would have been had the transaction been consummated on the dates indicated, nor does it purport to represent Washington REIT's results of operations or financial position for any future period. The pro forma results of operations for the periods ended December 31, 2015 and March 31, 2016 are not necessarily indicative of the operating results for these periods.

Washington REIT purchased Riverside Apartments, a 1,222-unit multifamily property in Alexandria, Virginia, on May 20, 2016. The pro forma balance sheet as of March 31, 2016 presents consolidated financial information as if the acquisition of Riverside Apartments had taken place on March 31, 2016. The pro forma statements of operations for the year ended December 31, 2015, and the three months ended March 31, 2016, present the pro forma results of operations as if the acquisition had taken place as of January 1, 2015. Explanations or details of the pro forma adjustments are in the notes to the financial statements.






WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2016
(IN THOUSANDS)
 
 
 
 
 
 
 
Washington REIT
 
Riverside Apartments
 
PRO FORMA
Assets
 
 
 
 
 
Land
$
561,256

 
$
38,923

(1 
) 
$
600,179

Income producing property
2,095,306

 
184,875

(1 
) 
2,280,181

 
2,656,562

 
223,798

 
2,880,360

Accumulated depreciation and amortization
(714,689
)
 
—

 
(714,689
)
Net income producing property
1,941,873

 
223,798

 
2,165,671

Properties under development or held for future development
27,313

 
15,968

(1 
) 
43,281

Total real estate held for investment, net
1,969,186

 
239,766

 
2,208,952

Cash and cash equivalents
23,575

 
(243,687
)
(1 
) 
(220,112
)
Restricted cash
9,889

 
—

 
9,889

Rents and other receivables, net of allowance for doubtful accounts
63,863

 
—

 
63,863

Prepaid expenses and other assets
118,790

 
4,972

(1 
) 
123,995

 
 
 
22

(1 
) 


 
 
 
211

(1 
) 
 
Total assets
$
2,185,303

 
$
1,284

 
$
2,186,587

Liabilities
 
 
 
 
 
Notes payable
$
743,475

 
$
—

 
$
743,475

Mortgage notes payable
333,853

 
—

 
333,853

Lines of credit
215,000

 
—

 
215,000

Accounts payable and other liabilities
56,348

 
942

(1 
) 
57,300

 
 
 
10

(1 
) 
 
Advance rents
11,589

 
710

(1 
) 
12,299

Tenant security deposits
9,604

 
562

(1 
) 
10,166

Total liabilities
1,369,869

 
2,224

 
1,372,093

Equity
 
 
 
 
 
Shareholders’ equity
 
 
 
 
 
Preferred shares; $0.01 par value
—

 
—

 
—

Shares of beneficial interest; $0.01 par value
683

 
—

 
683

Additional paid in capital
1,193,750

 
—

 
1,193,750

Distributions in excess of net income
(376,041
)
 
(940
)
(1 
) 
(376,981
)
Accumulated other comprehensive loss
(4,225
)
 
—

 
(4,225
)
Total shareholders’ equity
814,167

 
(940
)
 
813,227

Noncontrolling interests in subsidiaries
1,267

 
—

 
1,267

Total equity
815,434

 
(940
)
 
814,494

Total liabilities and equity
$
2,185,303

 
$
1,284

 
$
2,186,587






NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2016

(1)
Washington REIT records the acquired physical assets (land, building and tenant improvements), in-place leases (absorption, tenant origination costs, leasing commissions, and net lease intangible assets/liabilities), and any other assets or liabilities at their fair values.

Washington REIT has recorded the total purchase price of Riverside Apartments as follows (in thousands):
Land
$
38,923

Properties under development or held for future development
15,968

Buildings and improvements
184,875

Leasing commissions/absorption costs
4,972

Net intangible lease asset
22

Net intangible lease liability
(10
)
Total
$
244,750


The difference between cash paid ($243.7 million) and the contract purchase price ($244.8 million) is comprised of the following:
Credit to seller for prepaid expenses
(211
)
Credit to Washington REIT for assumed liabilities
942

Credit to Washington REIT for advance rent
710

Credit to Washington REIT for security deposits
562

Payment of Washington REIT's portion of closing costs
(940
)
 
$
1,063






WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2016
(IN THOUSANDS, EXCEPT PER SHARE DATA)
 
Washington REIT
 
Riverside Apartments
 
Pro Forma
Revenue
 
 
 
 
 
Real estate rental revenue
$
77,137

 
$
5,483

 
$
82,620

Expenses
 
 
 
 
 
Real estate expenses
28,734

 
1,982

 
30,821

 
 
 
105

(1), (4)


Depreciation and amortization
26,038

 
1,695

(2), (4)
27,733

Acquisition costs
154

 
(154
)
(3), (4)
—

General and administrative
5,511

 
—

 
5,511

 
60,437

 
3,628

 
64,065

Other income (expense)
 
 
 
 
 
Interest expense
(14,360
)
 
—

 
(14,360
)
Other income
39

 
—

 
39

 
(14,321
)
 
—

 
(14,321
)
Net income
2,379

 
1,855

 
4,234

Less: Net loss attributable to noncontrolling interests in subsidiaries
5

 
—

 
5

Net income attributable to the controlling interests
$
2,384

 
$
1,855

 
$
4,239

 
 
 
 
 
 
Basic net income attributable to the controlling interests per share
$
0.03

 
 
 
$
0.06

Diluted net income attributable to the controlling interests per share:
$
0.03

 
 
 
$
0.06

Weighted average shares outstanding - basic
68,301

 
 
 
68,301

Weighted average shares outstanding - diluted
68,488

 
 
 
68,488






NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2016

(1)
Represents property management costs incurred by the properties.

(2)
Represents depreciation over 30 years, based on the fair value of building and improvements, plus amortization of tenant origination costs, leasing commissions and absorption over the remaining life of the acquired leases.

(3)
Represents the acquisition costs related to Riverside Apartments incurred by Washington REIT during the first quarter of 2016. These acquisition costs are excluded from the pro forma statement of income because are non-recurring charges directly related to the transaction.

(4)
The table below illustrates the pro forma adjustments for each property (in thousands):
 
 
Riverside Apartments
(1)
Property management costs
105

(2)
Depreciation and amortization
1,695

(3)
Acquisition costs
(154
)







WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2015
(IN THOUSANDS, EXCEPT PER SHARE DATA)
 
Washington REIT
 
Riverside Apartments
 
Pro Forma
Revenue
 
 
 
 
 
Real estate rental revenue
$
306,427

 
$
21,518

 
$
327,945

Expenses
 
 
 
 
 
Real estate expenses
112,234

 
7,850

 
120,500

 
 
 
416

(1), (3)


Depreciation and amortization
108,935

 
11,719

(2), (3)
120,654

Acquisition costs
2,056

 
—

 
2,056

Real estate impairment
5,909

 
—

 
5,909

General and administrative
20,257

 
—

 
20,257

 
249,391

 
19,985

 
269,376

Other operating income
 
 
 
 
 
Gain on sale of real estate
91,107

 
—

 
91,107

Real estate operating income
148,143

 
1,533

 
149,676

Other income (expense)
 
 
 
 
 
Interest expense
(59,546
)
 
—

 
(59,546
)
Other income
709

 
—

 
709

Loss on extinguishment of debt
(119
)
 
—

 
(119
)
 
(58,956
)
 
—

 
(58,956
)
Net income
89,187

 
1,533

 
90,720

Less: Net loss attributable to noncontrolling interests in subsidiaries
553

 
—

 
553

Net income attributable to the controlling interests
$
89,740

 
$
1,533

 
$
91,273

 
 
 
 
 
 
Basic net income attributable to the controlling interests per share
$
1.31

 
 
 
$
1.33

Diluted net income attributable to the controlling interests per share:
$
1.31

 
 
 
$
1.33

Weighted average shares outstanding - basic
68,177

 
 
 
68,301

Weighted average shares outstanding - diluted
68,310

 
 
 
68,488






NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2015

(1)
Represents property management costs incurred by the properties.

(2)
Represents depreciation over 30 years, based on the fair value of building and improvements, plus amortization of tenant origination costs, leasing commissions and absorption over the remaining life of the acquired leases.

(3)
The table below illustrates the pro forma adjustments for each property (in thousands):
 
 
Riverside Apartments
(1)
Property management costs
105

(2)
Depreciation and amortization
1,695