Washington Real Estate Investment Trust Announces Third Quarter Financial and Operating Results
ROCKVILLE, Md.--(BUSINESS WIRE)-- Washington Real Estate Investment Trust (WRIT) (NYSE: WRE) reported financial and operating results today for the quarter ended September 30, 2010:
-- Funds From Operations (FFO)(1) was $0.49 per diluted share compared to
$0.48 per diluted share in the same period one year ago.
-- Income from continuing operations was $0.10 per diluted share compared
to $0.07 per diluted share in the same period one year ago. Net income
was $0.10 per diluted share compared to $0.16 per diluted share in the
same period one year ago.
"As part of our strategic financial plan to reposition our balance sheet, we executed a $250 million 10-year senior notes offering with an annual coupon of 4.95%. This is the largest senior notes offering in our company's history. We had been monitoring the bond market for more than a year, assessing the appropriate time to refinance a significant portion of our 2011 maturities. Combining this senior notes offering with the completion of our tender offers significantly reduces our exposure to debt maturities in the next several years. By continuing to improve our balance sheet metrics, we are positioned for growth as we see more and more acquisition opportunities coming to market in the Washington, DC region," said George "Skip" McKenzie, President and Chief Executive Officer of WRIT.
Capital Structure
Since WRIT reported second quarter results, the company issued 1,576,940 shares at an average price of $31.13 per share through its Sales Agency Financing Agreement with BNY Mellon Capital Markets, generating approximately $49 million in proceeds. These proceeds were used to pay down a portion of the line of credit and for general corporate purposes. At the end of the third quarter, the outstanding balance on the line of credit was $100 million. Year to date, WRIT has issued 3,965,269 common shares through the Agreement with BNY Mellon for gross proceeds of approximately $120 million.
In the third quarter WRIT repurchased $7.6 million of its 3.875% convertible notes at an average price of 100.25% of par. WRIT also prepaid without penalty a $21.7 million 5.82% mortgage note on The Ridges and The Crescent office properties in Gaithersburg, Maryland on July 12, 2010.
Also in the third quarter WRIT completed an underwritten public offering of $250 million aggregate principal amount of senior unsecured notes due October 1, 2020 under its shelf registration statement filed with the Securities and Exchange Commission. The notes have an annual coupon rate of 4.95% and were priced at 99.199% of the principal amount. Subsequent to quarter end, as part of our strategic financial plan we finalized the previously announced tender offers for our 5.95% senior notes due June 15, 2011 and our 3.875% convertible notes due 2026 (which can be put back to WRIT at par on September 15, 2011). At completion of the tenders, WRIT repurchased $56.1 million of the $150 million outstanding principal amount of 5.95% senior notes and $122.8 million of the $125.5 million outstanding principal amount of 3.875% convertible notes. In the fourth quarter, WRIT paid a premium of $5.5 million for the repurchase of these securities and expects to take a charge of an additional $3.5 million of unamortized issuance costs associated with the repurchased debt. The remainder of the proceeds will be used for general corporate purposes.
On September 30, 2010, WRIT paid a quarterly dividend of $0.4325 per share for its 195th consecutive quarterly dividend at equal or increasing rates.
As of September 30, 2010, WRIT had a total market capitalization of $3.4 billion.(2)
Operating Results
Overall portfolio economic occupancy(6) for the third quarter was 90.3%, compared to 93.0% in the same period one year ago and 90.7% in the second quarter of 2010. Overall portfolio Net Operating Income (NOI)(3) was $51.1 million compared to $49.4 million in the same period one year ago and $51.0 million in the second quarter of 2010.
Core(4) portfolio economic occupancy for the third quarter was 90.7%, compared to 93.3% in the same period one year ago. Sequentially, core economic occupancy for properties included in the results for both the second quarter of 2010 and the third quarter of 2010 decreased 70 bps from the second quarter of 2010. Core portfolio NOI for the third quarter increased 0.4% and rental rate growth was 2.6% compared to the same period one year ago.
-- Multifamily: 14.9% of total NOI - Multifamily properties' core NOI for
the third quarter increased 11.2% compared to the same period one year
ago. The primary drivers of the NOI increase were occupancy gains at all
but two properties and rental rate increases at all but three
properties. Rental rate growth was 1.2% while core economic occupancy
for properties included in the results for both the third quarter of
2009 and 2010 increased 170 basis points (bps) to 95.6%. Sequentially,
core economic occupancy for properties included in the results for both
the second quarter of 2010 and the third quarter of 2010 increased 190
bps from the second quarter of 2010.
-- Office: 43.0% of total NOI - Office properties' core NOI for the third
quarter decreased 3.0% compared to the same period one year ago. Rental
rate growth was 2.6% while core economic occupancy for properties
included in the results for both the third quarter of 2009 and 2010
decreased 350 bps to 89.4%. Sequentially, core economic occupancy for
properties included in the results for both the second quarter of 2010
and the third quarter of 2010 decreased 210 bps from the second quarter
of 2010.
-- Medical Office: 14.4% of total NOI - Medical office properties' core NOI
for the third quarter increased 1.8% compared to the same period one
year ago. Rental rate growth was 3.6% while core economic occupancy for
properties included in the results for both the third quarter of 2009
and 2010 decreased 120 bps to 94.8%. Sequentially, core economic
occupancy for properties included in the results for both the second
quarter of 2010 and the third quarter of 2010 decreased 70 bps from the
second quarter of 2010.
-- Retail: 15.3% of total NOI - Retail properties' core NOI for the third
quarter increased 2.2% compared to the same period one year ago. Rental
rate growth was 1.4% while core economic occupancy for properties
included in the results for both the third quarter of 2009 and 2010
decreased 230 bps to 91.7%. Sequentially, core economic occupancy for
properties included in the results for both the second quarter of 2010
and the third quarter of 2010 decreased 30 bps from the second quarter
of 2010.
-- Industrial: 12.4% of total NOI - Industrial properties' core NOI for the
third quarter decreased 3.6% compared to the same period one year ago.
Rental rate growth was 4.7% while core economic occupancy for properties
included in the results for both the third quarter of 2009 and 2010
decreased 660 bps to 83.0%. Sequentially, core economic occupancy for
properties included in the results for both the second quarter of 2010
and the third quarter of 2010 increased 70 bps from the second quarter
of 2010.
Leasing Activity
During the third quarter, WRIT signed commercial leases for 330,000 square feet with an average rental rate increase of 6.8% over expiring lease rates, an average lease term of 4.4 years, tenant improvement costs of $6.91 per square foot and leasing costs of $4.51 per square foot.
-- Rental rates for new and renewed office leases increased 2.3% to $28.29
per square foot, with $12.54 per square foot in tenant improvement costs
and $7.56 per square foot in leasing costs.
-- Rental rates for new and renewed medical office leases increased 15.0%
to $34.94 per square foot, with $12.21 per square foot in tenant
improvement costs and $5.15 per square foot in leasing costs.
-- Rental rates for new and renewed retail leases increased 17.5% to $30.57
per square foot, with $0.43 per square foot in tenant improvement costs
and $2.30 per square foot in leasing costs.
-- Rental rates for new and renewed industrial/flex leases decreased 10.9%
to $9.23 per square foot, with $0.98 per square foot in tenant
improvement costs and $2.15 per square foot in leasing costs.
Conference Call Information
The Conference Call for 3rd Quarter Earnings is scheduled for Thursday, October 28, 2010 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 November 11, 2010 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 Account: 286 Conference ID: 357231
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 at http://www.writ.com 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 88 properties, totaling approximately 11 million square feet of commercial space and 2,540 residential units, and land for development. These 88 properties consist of 26 office properties, 19 industrial/flex properties, 18 medical office properties, 14 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 this press release 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 effect of the current credit and financial market conditions, the availability and cost of capital, fluctuations in interest rates, tenants' financial conditions, the timing and pricing of lease transactions, levels of competition, the effect of government regulation, the impact of newly adopted accounting principles, changes in general and local economic and real estate market conditions, and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2009 Form 10-K and second quarter 2010 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) from sales of property plus 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.
(2) Total market capitalization is calculated by multiplying the total outstanding common shares at period end times the closing share price on the last trading day of the period, and then adding the book value of the total outstanding debt at period end.
(3) Net Operating income ("NOI"), defined as real estate rental revenue less real estate expenses, is a non-GAAP measure. 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. 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 and general and administrative expenses.
(4) For purposes of evaluating comparative operating performance, we categorize our properties as "core" or "non-core". A core property is one that was owned for the entirety of the periods being evaluated. A non-core property is one that was acquired or placed into service during either of the periods being evaluated.
(5) 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.
(6) Economic occupancy is calculated by dividing the actual real estate rental revenue recognized for the period by the gross potential real estate rental revenue for that period. We determine gross potential real estate rental revenue by valuing occupied units or square footage at contract rates and vacant units or square footage at market rates for comparable properties. We do not consider percentage rents and expense reimbursements in computing economic occupancy percentages.
Economic Occupancy Levels by Core Properties(i)and All Properties
Core Properties All Properties
Segment 3rd QTR 3rd QTR 3rd QTR 3rd QTR
2010 2009 2010 2009
Residential 95.6 % 93.9 % 95.6 % 93.9 %
Office 89.4 % 92.9 % 90.1 % 92.3 %
Medical Office 94.8 % 96.0 % 90.3 % 96.0 %
Retail 91.7 % 94.0 % 91.7 % 94.0 %
Industrial 83.0 % 89.6 % 83.0 % 89.6 %
Overall Portfolio 90.7 % 93.3 % 90.3 % 93.0 %
i Core properties include all properties that were owned for the entirety of the current and prior year reporting periods. For Q3 2010 and Q3 2009, core properties exclude: Residential Acquisitions: none; Office Acquisitions: Quantico Corporate Center; Medical Office Acquisition: Lansdowne Medical Office Building; Retail Acquisitions: none; Industrial Acquisitions: none. Also excluded from Core Properties in Q3 2010 and Q3 2009 are: Sold Properties: Brandywine Center, Tech 100, Crossroads Distribution Center; Charleston Business Center, Parklawn Plaza, Lexington and Saratoga; Held for Sale Properties: None.
WASHINGTON REAL ESTATE INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
(Unaudited)
Three Months Ended September Nine Months Ended September 30,
30,
OPERATING 2010 2009 2010 2009
RESULTS
Revenue
Real estate $ 76,274 $ 74,987 $ 227,865 $ 227,163
rental revenue
Expenses
Real estate 25,152 25,573 76,710 77,547
expenses
Depreciation
and 24,278 23,484 71,459 69,620
amortization
General and 3,153 3,518 10,455 9,931
administrative
52,583 52,575 158,624 157,098
Real estate
operating 23,691 22,412 69,241 70,065
income
Other income
(expense):
Interest (17,100 ) (18,224 ) (51,178 ) (57,221 )
expense
Gain (loss) on
extinguishment (238 ) (133 ) (280 ) 6,931
of debt
Gain from
non-disposal 4 62 4 62
activities
Other income 301 (54 ) 423 120
(expense)
(17,033 ) (18,349 ) (51,031 ) (50,108 )
Income from
continuing 6,658 4,063 18,210 19,957
operations
Discontinued
operations:
Income from
operations of - 393 792 1,867
properties
held for sale
Gain on sale - 5,147 7,942 11,821
of real estate
Net income 6,658 9,603 26,944 33,645
Less: Net
income
attributable
to (33 ) (53 ) (109 ) (154 )
noncontrolling
interests in
subsidiaries
Net income
attributable
to the $ 6,625 $ 9,550 $ 26,835 $ 33,491
controlling
interests
Income from
continuing
operations
attributable $ 6,625 $ 4,010 $ 18,101 $ 19,803
to the
controlling
interests
Gain from
non-disposal (4 ) (62 ) (4 ) (62 )
activities
Continuing
operations
real estate 24,278 23,484 71,459 69,620
depreciation
and
amortization
Funds from
continuing $ 30,899 $ 27,432 $ 89,556 $ 89,361
operations
Income from
discontinued
operations - 393 792 1,867
before gain on
sale
Discontinued
operations
real estate - 205 96 879
depreciation
and
amortization
Funds from
discontinued - 598 888 2,746
operations
Funds from $ 30,899 $ 28,030 $ 90,444 $ 92,107
operations(1)
Non-cash
(gain) loss on 238 133 280 (6,931 )
extinguishment
of debt
Tenant (2,863 ) (2,272 ) (7,206 ) (8,065 )
improvements
External and
internal
leasing (3,387 ) (1,543 ) (7,422 ) (4,787 )
commissions
capitalized
Recurring
capital (1,377 ) (1,756 ) (4,240 ) (4,914 )
improvements
Straight-line (1,099 ) (576 ) (2,519 ) (1,852 )
rents, net
Non-cash fair
value interest 760 794 2,319 2,822
expense
Non real
estate
depreciation & 1,094 1,122 3,080 3,518
amortization
of debt costs
Amortization
of lease (413 ) (559 ) (1,380 ) (1,809 )
intangibles,
net
Amortization
and expensing
of restricted 1,311 1,136 4,299 2,640
share and unit
compensation
Funds
available for $ 25,163 $ 24,509 $ 77,655 $ 72,729
distribution
(5)
Note: Certain prior period amounts have been reclassified to conform to the
current presentation.
Three Months Ended Nine Months Ended September
September 30, 30,
Per share data
attributable
to the 2010 2009 2010 2009
controlling
interests:
Income from
continuing (Basic) $ 0.11 $ 0.07 $ 0.29 $ 0.35
operations
(Diluted) $ 0.10 $ 0.07 $ 0.29 $ 0.35
Net income (Basic) $ 0.11 $ 0.16 $ 0.43 $ 0.60
(Diluted) $ 0.10 $ 0.16 $ 0.43 $ 0.60
Funds from
continuing (Basic) $ 0.49 $ 0.47 $ 1.46 $ 1.60
operations
(Diluted) $ 0.49 $ 0.47 $ 1.46 $ 1.60
Funds from (Basic) $ 0.49 $ 0.48 $ 1.47 $ 1.65
operations
(Diluted) $ 0.49 $ 0.48 $ 1.47 $ 1.65
Dividends paid $ 0.4325 $ 0.4325 $ 1.2975 $ 1.2975
Weighted
average shares 62,894 58,556 61,332 55,936
outstanding
Fully diluted
weighted 63,055 58,571 61,460 55,940
average shares
outstanding
WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
September 30, December 31,
2010 2009
Assets
Land $ 418,195 $ 408,779
Income producing property 1,951,606 1,886,408
2,369,801 2,295,187
Accumulated depreciation and amortization (529,716 ) (468,291 )
Net income producing property 1,840,085 1,826,896
Development in progress 26,103 25,031
Total real estate held for investment, net 1,866,188 1,851,927
Investment in real estate sold or held for sale - 14,289
Cash and cash equivalents 262,413 11,203
Restricted cash 19,858 19,170
Rents and other receivables, net of allowance for
doubtful accounts of $7,977 and $6,433, 56,218 50,441
respectively
Prepaid expenses and other assets 106,302 97,605
Other assets related to property sold or held for - 590
sale
Total assets $ 2,310,979 $ 2,045,225
Liabilities
Notes payable $ 930,201 $ 688,912
Mortgage notes payable 381,109 405,451
Lines of credit 100,000 128,000
Accounts payable and other liabilities 54,137 52,580
Advance rents 10,969 11,103
Tenant security deposits 9,703 9,668
Other liabilities related to property sold or - 448
held for sale
Total liabilities $ 1,486,119 $ 1,296,162
Shareholders' equity
Shares of beneficial interest, $0.01 par value;
100,000
Shares authorized;64,093 and 59,811 shares issued 642 599
and outstanding, respectively
Additional paid-in capital 1,074,308 944,825
Distributions in excess of net income (251,964 ) (198,412 )
Accumulated other comprehensive income (1,906 ) (1,757 )
Total shareholders' equity 821,080 745,255
Noncontrolling interests in subsidiaries 3,780 3,808
Total equity 824,860 749,063
Total liabilities and equity $ 2,310,979 $ 2,045,225
Note: Certain prior year amounts have been reclassified to conform to the
current year presentation.
The following tables contain reconciliations of net income to core net operating income for the periods presented: Three months ended Multifamily Office Medical Retail Industrial Total September 30, Office 2010 Core net operating $ 7,636 $ 20,409 $ 7,480 $ 7,837 $ 6,327 $ 49,689 income(4) Add: Net operating income from - 1,555 (122 ) - - 1,433 non-core properties(4) Total net operating $ 7,636 $ 21,964 $ 7,358 $ 7,837 $ 6,327 $ 51,122 income(3) Add/(deduct): Other income 301 (expense) Gain from non-disposal 4 activities Interest (17,100 ) expense Gain (loss) on extinguishment (238 ) of debt Depreciation and (24,278 ) amortization General and administrative (3,153 ) expenses Income from operations of - properties held for sale Gain on sale - of real estate Net income 6,658 Less: Net income attributable to noncontrolling (33 ) interests in subsidiaries Net income attributable to the $ 6,625 controlling interests Three months ended Multifamily Office Medical Retail Industrial Total September 30, Office 2009 Core net operating $ 6,869 $ 21,051 $ 7,347 $ 7,665 $ 6,562 $ 49,494 income(4) Add: Net operating income from - - (80 ) - - (80 ) non-core properties(4) Total net operating $ 6,869 $ 21,051 $ 7,267 $ 7,665 $ 6,562 $ 49,414 income(3) Add/(deduct): Other income (54 ) (expense) Gain from non-disposal 62 activities Interest (18,224 ) expense Gain (loss) on extinguishment (133 ) of debt Depreciation and (23,484 ) amortization General and administrative (3,518 ) expenses Income from operations of 393 properties held for sale Gain on sale 5,147 of real estate Net income 9,603 Less: Net income attributable to noncontrolling (53 ) interests in subsidiaries Net income attributable to the $ 9,550 controlling interests
The following tables contain reconciliations of net income to core net operating income for the periods presented: Nine months ended Multifamily Office Medical Retail Industrial Total September 30, Office 2010 Core net operating $ 18,284 $ 61,559 $ 22,867 $ 22,689 $ 18,721 $ 144,120 income(4) Add: Net operating income from 3,483 3,914 (362 ) - - 7,035 non-core properties(4) Total net operating $ 21,767 $ 65,473 $ 22,505 $ 22,689 $ 18,721 $ 151,155 income(3) Add/(deduct): Other income 423 (expense) Gain from non-disposal 4 activities Interest (51,178 ) expense Gain (loss) on extinguishment (280 ) of debt Depreciation and (71,459 ) amortization General and administrative (10,455 ) expenses Income from operations of 792 properties held for sale Gain on sale 7,942 of real estate Net income 26,944 Less: Net income attributable to noncontrolling (109 ) interests in subsidiaries Net income attributable to the $ 26,835 controlling interests Nine months ended Multifamily Office Medical Retail Industrial Total September 30, Office 2009 Core net operating $ 17,743 $ 61,906 $ 22,366 $ 23,040 $ 20,481 $ 145,536 income(4) Add: Net operating income from 2,314 1,846 (80 ) - - 4,080 non-core properties(4) Total net operating $ 20,057 $ 63,752 $ 22,286 $ 23,040 $ 20,481 $ 149,616 income(3) Add/(deduct): Other income 120 (expense) Gain from non-disposal 62 activities Interest (57,221 ) expense Gain (loss) on extinguishment 6,931 of debt Depreciation and (69,620 ) amortization General and administrative (9,931 ) expenses Income from operations of 1,867 properties held for sale Gain on sale 11,821 of real estate Net income 33,645 Less: Net income attributable to noncontrolling (154 ) interests in subsidiaries Net income attributable to the $ 33,491 controlling interests
Source: Washington Real Estate Investment Trust
Released October 27, 2010