Washington Real Estate Investment Trust Announces Second Quarter Financial And Operating Results

ROCKVILLE, Md., July 24, 2013 /PRNewswire/ --  Washington Real Estate Investment Trust ("WRIT" or the "Company") (NYSE: WRE), a leading owner and operator of diversified properties in the Washington, D.C. region, reported financial and operating results today for the quarter ended June 30, 2013:

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Second Quarter 2013 Highlights

  • Generated Core Funds from Operations (FFO) of $0.47 per diluted share for the quarter, a 5% increase over first quarter 2013
  • Improved same-store physical occupancy in the office portfolio 90 bps and retail portfolio 80 bps over first quarter 2013
  • Produced same-store net operating income growth of 1.8% over first quarter of 2013
  • Executed 70 new and renewal leases totaling 417,615 square feet at an average rental rate increase of 7.0% over in-place rents for new leases and average rental rate increase of 8.9% over in-place rents for renewal leases
  • Announced the renovation of largest asset in portfolio, 7900 Westpark Drive located in Tysons Corner, Virginia
  • Achieved LEED® EB on over one million square feet of office space and was the recipient of the 2013 Apartment and Office Building Association's (AOBA) TOBY (The Outstanding Building of the Year) Award in the Earth category for WRIT's 1220 19th Street office property

"Improving real estate fundamentals have continued into the second quarter of the year," said George F. "Skip" McKenzie, President and Chief Executive Officer of WRIT. "The capital expenditures and renovations made to our office portfolio in late 2012 and the first quarter of 2013 have resulted in steady improvement in leasing volume, rental rate growth, and increased occupancy."

Financial Highlights

Core Funds from Operations(1), defined as Funds from Operations(1) ("FFO") excluding acquisition expense, gains or losses on extinguishment of debt, severance expense and impairment, was $31.2 million, or $0.47 per diluted share for the quarter ended June 30, 2013, compared to $31.9 million, or $0.48 per diluted share for the prior year period. FFO for the quarter ended June 30, 2013 was $30.8 million, or $0.46 per diluted share, compared to $31.6 million, or $0.47 per diluted share, in the same period one year ago.

Net income attributable to the controlling interests for the quarter ended June 30, 2013 was $5.3 million, or $0.08 per diluted share, compared to $6.0 million, or $0.09 per diluted share, in the same period one year ago.   

Operating Results

The Company's overall portfolio Net Operating Income ("NOI")(2) was $50.8 million compared to $50.6 million in the same period one year ago and $49.8 million in the first quarter of 2013.  Overall portfolio physical occupancy for the second quarter was 89.1%, compared to 89.3% in the same period one year ago and 88.6% in the first quarter of 2013. 

Same-store(3) portfolio physical occupancy for the second quarter was 89.5%, compared to 89.9% in the same period one year ago.  Sequentially, same-store physical occupancy increased 30 basis points (bps) compared to the first quarter of 2013.  Same-store portfolio NOI for the second quarter decreased 1.2% and rental rate growth was 2.4% compared to the same period one year ago.

  • Office:  48.4% of Total NOI - Office properties' same-store NOI for the second quarter decreased 2.1% compared to the same period one year ago.  Rental rate growth was 1.7% while same-store physical occupancy increased 30 bps to 86.3%. Sequentially, same-store physical occupancy increased 90 bps compared to the first quarter of 2013. 
  • Retail:  21.0% of Total NOI - Retail properties' same-store NOI for the second quarter decreased 2.2% compared to the same period one year ago.  Rental rate growth was 4.1% while same-store physical occupancy decreased 10 bps to 93.2%.  Sequentially, same-store physical occupancy increased 80 bps compared to the first quarter of 2013. 
  • Multifamily:  15.5% of Total NOI - Multifamily properties' same-store NOI for the second quarter decreased 1.3% compared to the same period one year ago. Rental rate growth was 3.8% while same-store physical occupancy decreased 170 bps to 93.1%.  Sequentially, same-store physical occupancy decreased 70 bps compared to the first quarter of 2013.
  • Medical:  15.1% of Total NOI - Medical office properties' same-store NOI for the second quarter increased 3.3% compared to the same period one year ago. Rental rate growth was 1.4% while same-store physical occupancy decreased 190 bps to 87.8%.  Sequentially, same-store physical occupancy decreased 60 bps compared to the first quarter of 2013. 

Leasing Activity

During the second quarter, WRIT signed commercial leases totaling 417,615 square feet, including 103,513 square feet of new leases and 314,102 square feet of renewal leases, as follows (all dollar amounts are on a per square foot basis):

 


Square Feet

Weighted

Average Term

(in years)


Weighted

Average

Rental Rates

Weighted

Average

Rental Rate

% Increase


Tenant

Improvements


Leasing

Commissions

and

Incentives

New:










Office

94,191

7.8

$

30.34

7.3%

$

34.88

$

23.08

Retail

6,240

7.1


33.54

7.1%


19.20


11.50

Medical Office

3,082

5.4


30.97

(1.8)%


21.82


13.90

Total

103,513

7.6


30.55

7.0%


33.55


22.10











Renewal:










Office

92,245

3.5

$

32.51

5.8%

$

6.12

$

2.40

Retail

172,474

5.3


8.74

12.3%


0.38


0.48

Medical Office

49,383

10.4


35.23

11.5%


12.94


2.55

Total

314,102

5.6


19.88

8.9%


4.04


1.37

Renovation Activity

WRIT announced the renovation of 7900 Westpark Drive, a 528,000 square foot office complex located in Tysons Corner, Virginia at the corner of Westpark Drive and Jones Branch drive, immediately off the Capital Beltway (I-495) and Route 123. 7900 Westpark Drive is within four city blocks of the Tysons I & II Metro Station, scheduled to open in 2013, and has direct access to the new 495 Express Lanes. Construction is projected to commence in the fourth quarter 2013 and has a total project cost of $35 million.

Dividends

On June 28, 2013, WRIT paid a quarterly dividend of $0.30 per share.

Conference Call Information

The Conference Call for 2nd Quarter Earnings is scheduled for Thursday, July 25, 2013 at 11:00 A.M. Eastern time. Conference Call access information is as follows:

USA Toll Free Number:                                  

1-877-407-9205

International Toll Number:                              

1-201-689-8054

The instant replay of the Conference Call will be available until August 8, 2013 at 11:59 P.M. Eastern time. Instant replay access information is as follows:

USA Toll Free Number:                                  

1-877-660-6853

International Toll Number:                              

1-201-612-7415

Conference ID:                                                   

416546

The live on-demand webcast of the Conference Call will be available on the Investor section of WRIT's website at www.writ.com. On-line playback of the webcast will be available for two weeks following the Conference Call.

About WRIT

WRIT is a self-administered, self-managed, equity real estate investment trust investing in income-producing properties in the greater Washington metro region.  WRIT owns a diversified portfolio of 69 properties, totaling approximately 8 million square feet of commercial space and 2,540 multifamily units, and land held for development.  These 69 properties consist of 25 office properties, 17 medical office properties, 16 retail centers and 11 multifamily properties.  WRIT shares are publicly traded on the New York Stock Exchange (NYSE: WRE).

Note: WRIT's press releases and supplemental financial information are available on the company website at www.writ.com or by contacting Investor Relations at (301) 984-9400.

Certain statements in our earnings release and on our conference call are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include, but are not limited to, the potential for federal government budget reductions, changes in general and local economic and real estate market conditions, the timing and pricing of lease transactions, the availability and cost of capital, fluctuations in interest rates, tenants' financial conditions, levels of competition, the effect of government regulation, the impact of newly adopted accounting principles, and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2012 Form 10-K and First Quarter 2013 Form 10-Q.  We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

(1) Funds From Operations ("FFO") - The National Association of Real Estate Investment Trusts, Inc. ("NAREIT") defines FFO (April, 2002 White Paper) as net income (computed in accordance with generally accepted accounting principles ("GAAP")) excluding gains (or losses) associated with sales of property, impairment of depreciable real estate and real estate depreciation and amortization.  FFO is a non-GAAP measure and does not replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity.  We consider FFO to be a standard supplemental measure for equity real estate investment trusts ("REITs") because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation 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.

Core Funds From Operations ("Core FFO") is calculated by adjusting FFO for the following items (which we believe are not indicative of the performance of WRIT's operating portfolio and affect the comparative measurement of WRIT's operating performance over time): (1) gains or losses on extinguishment of debt, (2) costs related to the acquisition of properties, (3) severance expense related to corporate reorganization and related to the CEO's retirement and (4) property impairments not already excluded from FFO, as appropriate.  These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors.  We believe that by excluding these items, Core FFO serves as a useful, supplementary measure of WRIT's ability to incur and service debt and to distribute dividends to its shareholders.  Core FFO is a non-GAAP and non-standardized measure and may be calculated differently by other REITs.     

(2) Net Operating Income ("NOI"), defined as real estate rental revenue less real estate expenses, is a non-GAAP measure.  NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain on sale, if any), plus interest expense, depreciation and amortization, general and administrative expenses, acquisition costs and real estate impairment.  We provide NOI as a supplement to 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.  It is the primary performance measure we use to assess the results of our operations at the property level. 

(3) For purposes of evaluating comparative operating performance, we categorize our properties as "same-store" or "non-same-store".  A same-store property is one that was owned for the entirety of the periods being evaluated.  A non-same-store property is one that was acquired or placed into service during either of the periods being evaluated.

(4) Funds Available for Distribution ("FAD") is a non-GAAP measure.  It is calculated by subtracting from FFO (1) recurring expenditures, tenant improvements and leasing costs that are capitalized and amortized and are necessary to maintain our properties and revenue stream and (2) straight-line rents, then adding (3) non-real estate depreciation and amortization, (4) amortization of restricted share and unit compensation, and adding or subtracting amortization of lease intangibles, as appropriate.  We consider FAD to be a measure of a REIT's ability to incur and service debt and to distribute dividends to its shareholders.  FAD is a non-standardized measure and may be calculated differently by other REITs.

 

Physical Occupancy Levels by Same-Store Properties (i) and All Properties



Physical Occupancy



Same-Store Properties



All Properties



2nd QTR


2nd QTR


2nd QTR


2nd QTR

Segment

2013


2012


2013


2012

Multifamily

93.1

%


94.8

%


93.1

%


94.8

%

Office

86.3

%


86.0

%


86.3

%


85.8

%

Medical Office

87.8

%


89.7

%


84.8

%


86.4

%

Retail

93.2

%


93.3

%


93.2

%


93.3

%









Overall Portfolio

89.5

%


89.9

%


89.1

%


89.3

%

(i) Same-Store properties include all stabilized properties that were owned for the entirety of the current and prior year reporting periods.  We consider newly constructed properties to be stabilized when they achieve 90% occupancy.  For Q2 2013 and Q2 2012, same-store properties exclude:  

Multifamily Acquisitions: none;
Office Acquisition: Fairgate at Ballston;
Medical Office Acquisition:  19500 at Riverside Office Park (formerly Lansdowne Medical Office Building);
Retail Acquisition:  none.

Also excluded from Same-Store Properties in Q2 2013 and Q2 2012 are:
Held for Sale and Sold Properties: 1700 Research Boulevard, Plumtree Medical Center and the Atrium Building.

 


WASHINGTON REAL ESTATE INVESTMENT TRUST

FINANCIAL HIGHLIGHTS

(In thousands, except per share data)

(Unaudited)










Three Months Ended June 30,


Six Months Ended June 30,

OPERATING RESULTS

2013


2012


2013


2012

Revenue








Real estate rental revenue

$

78,272



$

75,590



$

155,196



$

150,804


Expenses








Real estate expenses

27,429



25,033



54,520



50,584


Depreciation and amortization

25,582



25,227



51,106



50,809


Acquisition costs

87



254



300



308


General and administrative

4,005



4,164



7,867



7,770



57,103



54,678



113,793



109,471


Real estate operating income

21,169



20,912



41,403



41,333


Other income (expense):








Interest expense

(16,152)



(15,470)



(32,670)



(31,301)


Other income

246



252



485



496



(15,906)



(15,218)



(32,185)



(30,805)










Income from continuing operations

5,263



5,694



9,218



10,528










Discontinued operations:








Income from operations of properties sold or held for sale



314



185



661


Gain on sale of real estate





3,195




Net income

5,263



6,008



12,598



11,189


Less: Net income attributable to noncontrolling interests in subsidiaries








Net income attributable to the controlling interests

$

5,263



$

6,008



$

12,598



$

11,189










Income from continuing operations

5,263



5,694



9,218



10,528


Continuing operations real estate depreciation and amortization

25,582



25,227



51,106



50,809


Funds from continuing operations(1)

$

30,845



$

30,921



$

60,324



$

61,337










Income from operations of properties sold or held for sale



314



185



661


Discontinued operations real estate depreciation and amortization



364





776


Funds from discontinued operations



678



185



1,437










Funds from operations(1)

$

30,845



$

31,599



$

60,509



$

62,774










Tenant improvements

(5,918)



(2,357)



(9,893)



(6,423)


External and internal leasing commissions capitalized

(2,342)



(2,122)



(4,948)



(4,679)


Recurring capital improvements

(2,311)



(2,992)



(3,032)



(4,531)


Straight-line rents, net

(483)



(688)



(826)



(1,680)


Non-cash fair value interest expense

255



229



509



457


Non real estate depreciation & amortization of debt costs

933



948



1,891



1,956


Amortization of lease intangibles, net

86



(3)



127



(3)


Amortization and expensing of restricted share and unit compensation

1,355



1,333



2,373



2,738


Funds available for distribution(4)

$

22,420



$

25,947



$

46,710



$

50,609










Note:  Certain prior period amounts have been reclassified to conform to the current presentation.

 



Three Months Ended June 30,


Six Months Ended June 30,

Per share data:


2013


2012


2013


2012

Income from continuing operations

(Basic)

$

0.08



$

0.08



$

0.14



$

0.15



(Diluted)

$

0.08



$

0.08



$

0.14



$

0.15


Net income

(Basic)

$

0.08



$

0.09



$

0.19



$

0.16



(Diluted)

$

0.08



$

0.09



$

0.19



$

0.16


Funds from continuing operations

(Basic)

$

0.46



$

0.46



$

0.91



$

0.92



(Diluted)

$

0.46



$

0.46



$

0.90



$

0.92


Funds from operations

(Basic)

$

0.46



$

0.47



$

0.91



$

0.94



(Diluted)

$

0.46



$

0.47



$

0.91



$

0.94











Dividends paid


$

0.3000



$

0.4338



$

0.6000



$

0.8676











Weighted average shares outstanding


66,405



66,241



66,399



66,218


Fully diluted weighted average shares outstanding


66,556



66,380



66,537



66,354


 


WASHINGTON REAL ESTATE INVESTMENT TRUST

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)










June 30, 2013

(unaudited)


December 31, 2012

Assets




Land

$

483,198



$

483,198


Income producing property

2,003,826



1,979,348



2,487,024



2,462,546


Accumulated depreciation and amortization

(646,993)



(604,614)


Net income producing property

1,840,031



1,857,932


Development in progress

55,262



49,135


Total real estate held for investment, net

1,895,293



1,907,067


Investment in real estate held for sale, net



11,528


Cash and cash equivalents

5,919



19,324


Restricted cash

10,839



14,582


Rents and other receivables, net of allowance for doubtful accounts of $9,585 and
      $10,958 respectively

60,100



57,076


Prepaid expenses and other assets

108,591



114,541


Other assets related to properties sold or held for sale



258


Total assets

$

2,080,742



$

2,124,376






Liabilities




Notes payable

$

846,450



$

906,190


Mortgage notes payable

312,211



342,970


Lines of credit

75,000




Accounts payable and other liabilities

51,715



52,823


Advance rents

14,239



16,096


Tenant security deposits

9,899



9,936


      Other liabilities related to properties sold or held for sale



218


Total liabilities

1,309,514



1,328,233






Equity




Shareholders' equity




Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued and outstanding




Shares of beneficial interest, $0.01 par value; 100,000 shares authorized; 66,500 and
            66,437 shares issued and outstanding, respectively

665



664


Additional paid-in capital

1,147,710



1,145,515


Distributions in excess of net income

(381,623)



(354,122)


Total shareholders' equity

766,752



792,057






Noncontrolling interests in subsidiaries

4,476



4,086


Total equity

771,228



796,143






Total liabilities and equity

$

2,080,742



$

2,124,376







 


The following tables contain reconciliations of net income to same-store net operating income for the periods presented (in thousands):











Quarter Ended June 30, 2013

Multifamily


Office


Medical Office


Retail


Total

Same-store net operating income(3)

$

7,893



$

23,708



$

7,490



$

10,698



$

49,789


Add: Net operating income from non-same-store properties(3)



850



204





1,054


Total net operating income(2)

$

7,893



$

24,558



$

7,694



$

10,698



$

50,843


Add/(deduct):










Other income









246


Acquisition costs









(87)


Interest expense









(16,152)


Depreciation and amortization









(25,582)


General and administrative expenses









(4,005)


Net income









5,263


Less: Net income attributable to noncontrolling interests in subsidiaries










Net income attributable to the controlling interests









$

5,263












Quarter Ended June 30, 2012

Multifamily


Office


Medical Office


Retail


Total

Same-store net operating income(3)

$

7,998



$

24,224



$

7,253



$

10,940



$

50,415


Add: Net operating income from non-same-store properties(3)



52



90





142


Total net operating income(2)

$

7,998



$

24,276



$

7,343



$

10,940



$

50,557


Add/(deduct):










Other income









252


Acquisition costs









(254)


Interest expense









(15,470)


Depreciation and amortization









(25,227)


General and administrative expenses









(4,164)


Income from operations of properties sold or held for sale









314


Net income









6,008


Less: Net income attributable to noncontrolling interests in subsidiaries










Net income attributable to the controlling interests









$

6,008


 


The following tables contain reconciliations of net income to same-store net operating income for the periods presented (in thousands):











Period Ended June 30, 2013

Multifamily


Office


Medical
Office


Retail


Total

Same-store net operating income(3)

$

15,836



$

47,528



$

14,354



$

20,967



$

98,685


Add: Net operating income from non-same-store properties(3)



1,681



310





1,991


Total net operating income(2)

$

15,836



$

49,209



$

14,664



$

20,967



$

100,676


Add/(deduct):










Other income









485


Acquisition costs









(300)


Interest expense









(32,670)


Depreciation and amortization









(51,106)


General and administrative expenses









(7,867)


Income from operations of properties sold or held for sale









185


Gain on sale of real estate









3,195


Net income









12,598


Less: Net income attributable to noncontrolling interests in subsidiaries










Net income attributable to the controlling interests









$

12,598












Period Ended June 30, 2012

Multifamily


Office


Medical
Office


Retail


Total

Same-store net operating income(3)

$

16,063



$

48,339



$

14,713



$

20,942



$

100,057


Add: Net operating income from non-same-store properties(3)



7



156





163


Total net operating income(2)

$

16,063



$

48,346



$

14,869



$

20,942



$

100,220


Add/(deduct):










Other income









496


Acquisition costs









(308)


Interest expense









(31,301)


Depreciation and amortization









(50,809)


General and administrative expenses









(7,770)


Income from operations of properties sold or held for sale









661


Net income









11,189


Less: Net income attributable to noncontrolling interests in subsidiaries










Net income attributable to the controlling interests









$

11,189


 


The following table contains a reconciliation of net income attributable to the controlling interests to core funds from operations for the periods presented (in thousands, except per share data):



Three Months Ended June 30,


Six Months Ended June 30,



2013


2012


2013


2012

Net income attributable to the controlling interests


$

5,263



$

6,008



$

12,598



$

11,189


Add/(deduct):









Real estate depreciation and amortization


25,582



25,227



51,106



50,809


Discontinued operations:









Gain on sale of real estate






(3,195)




Real estate depreciation and amortization




364





776


Funds from operations(1)


30,845



31,599



60,509



62,774


Add/(deduct):









Acquisition costs


87



254



300



308


Severance expense


266





83




Core funds from operations(1)


$

31,198



$

31,853



$

60,892



$

63,082













Three Months Ended June 30,


Six Months Ended June 30,

Per share data:


2013


2012


2013


2012

Funds from operations

(Basic)

$

0.46



$

0.47



$

0.91



$

0.94



(Diluted)

$

0.46



$

0.47



$

0.91



$

0.94


Core FFO

(Basic)

$

0.47



$

0.48



$

0.91



$

0.95



(Diluted)

$

0.47



$

0.48



$

0.91



$

0.95











Weighted average shares outstanding


66,405



66,241



66,399



66,218


Fully diluted weighted average shares outstanding


66,556



66,380



66,537



66,354


 

CONTACT:

William T. Camp

Executive Vice President and

Chief Financial Officer

Tel 301-984-9400

Fax 301-984-9610

E-Mail:  bcamp@writ.com

 

SOURCE Washington Real Estate Investment Trust