Washington Real Estate Investment Trust Announces Second 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 June 30, 2010:
-- Funds From Operations (FFO)(1) was $0.50 per diluted share compared to
$0.53 per diluted share in the same period one year ago. This difference
is primarily due to gains on extinguishment of debt in the second
quarter of 2009 and share dilution from our equity offerings in 2009 and
2010.
-- Net income was $0.24 per diluted share compared to $0.23 per diluted
share in the same period one year ago.
"Investment opportunities in the Washington, DC market are steadily increasing, and we are pleased to be returning to the fundamental real estate business of buying and selling buildings. Our recent Quantico acquisition and Parklawn disposition exemplify our stated plan of asset recycling to improve the overall quality of our portfolio. We continue to work to increase occupancy and closely manage expenses at our existing properties, and we believe that our solid second quarter results reflect the hard work of our employees and the strength and depth of the economy in the Washington region," said George "Skip" McKenzie, President and Chief Executive Officer of WRIT.
Capital Structure
Year to date, WRIT has issued 2,388,329 common shares through its Sales Agency Financing Agreement with BNY Mellon Capital Markets at an average offering price of $29.55 for gross proceeds of approximately $70.5 million. These proceeds were used to pay down a portion of a line of credit and for general corporate purposes. At the end of the quarter, the total outstanding balance on WRIT's lines of credit was $107 million.
In the second quarter, WRIT acquired 925 and 1000 Corporate Drive at Quantico Corporate Center in Stafford, Virginia for $68 million. The newly constructed Class A office properties total 271,000 square feet and are 100% leased to 14 tenants, primarily defense and government contractors serving Marine Corps Base Quantico including BAE Systems, General Dynamics, and MITRE Corporation. WRIT funded the acquisition using available cash and its line of credit and expects to achieve a first year unleveraged cash yield of 8.8%.
WRIT completed the sale of three office properties and one industrial property in Rockville, Maryland totaling 229,000 square feet for $23.4 million. The Lexington Building, the Saratoga Building, Parklawn Plaza and Charleston Business Center were identified as disposition candidates as part of WRIT's strategy of recycling capital into more modern assets inside the Beltway, near major transportation nodes, or with Base Realignment and Closure (BRAC) initiatives or other significant employment drivers in the greater metro area. Net book gain on the sale was $7.9 million.
On June 30, 2010, WRIT paid a quarterly dividend of $0.4325 per share for its 194th consecutive quarterly dividend at equal or increasing rates.
As of June 30, 2010, WRIT had a total market capitalization of $2.9 billion.(2)
Subsequent to quarter end, 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.
Operating Results
Overall portfolio economic occupancy(6) for the second quarter was 90.7%, compared to 92.9% in the same period one year ago and 91.2% in the first quarter of 2010. Overall portfolio Net Operating Income (NOI)(3) was $51.0 million compared to $50.5 million in the same period one year ago and $49.0 million in the first quarter of 2010.
Core(4) portfolio economic occupancy for the second quarter was 91.4%, compared to 93.7% in the same period one year ago and 91.4% in the first quarter of 2010. Core portfolio NOI for the second quarter decreased 0.6% and rental rates grew 1.5% compared to the same period one year ago.
-- Multifamily: 14.5% of total NOI - Multifamily properties' core NOI for
the second quarter increased 2.6% compared to the same period one year
ago. The primary driver of the NOI increase was occupancy gains at all
but two properties. Rental rates declined 1.1% while core economic
occupancy for properties included in the results for both the second
quarter of 2009 and 2010 increased 160 basis points (bps) to 94.0%.
Sequentially, core economic occupancy for properties included in the
results for both the first quarter of 2010 and the second quarter of
2010 decreased 40 bps from the first quarter of 2010.
-- Office: 43.5% of total NOI - Office properties' core NOI for the second
quarter increased 1.1% compared to the same period one year ago. Rental
rates grew 2.7% while core economic occupancy for properties included in
the results for both the second quarter of 2009 and 2010 decreased 230
bps to 91.5%. Sequentially, core economic occupancy for properties
included in the results for both the first quarter of 2010 and the
second quarter of 2010 decreased 60 bps from the first quarter of 2010.
-- Medical Office: 15.1% of total NOI - Medical office properties' core NOI
for the second quarter increased 4.2% compared to the same period one
year ago. Rental rates grew 2.7% while core economic occupancy for
properties included in the results for both the second quarter of 2009
and 2010 decreased 20 bps to 95.7%. Sequentially, core economic
occupancy for properties included in the results for both the first
quarter of 2010 and the second quarter of 2010 decreased 10 bps from the
first quarter of 2010.
-- Retail: 15.0% of total NOI - Retail properties' core NOI for the second
quarter decreased 0.4% compared to the same period one year ago. Rental
rates grew 1.1% while core economic occupancy for properties included in
the results for both the second quarter of 2009 and 2010 decreased 300
bps to 92.0%. Sequentially, core economic occupancy for properties
included in the results for both the first quarter of 2010 and the
second quarter of 2010 increased 70 bps from the first quarter of 2010.
-- Industrial: 11.9% of total NOI - Industrial properties' core NOI for the
second quarter decreased 13.8% compared to the same period one year ago.
Rental rates declined 0.4% while core economic occupancy for properties
included in the results for both the second quarter of 2009 and 2010
decreased 830 bps to 82.3%. Sequentially, core economic occupancy for
properties included in the results for both the first quarter of 2010
and the second quarter of 2010 decreased 320 bps from the first quarter
of 2010. The main driver of this occupancy decline is partially offset
by a 280 bps improvement in bad debt.
Leasing Activity
During the second quarter, WRIT signed commercial leases for 641,000 square feet with an average rental rate increase of 16.2% over expiring lease rates, an average lease term of 5.5 years, tenant improvement costs of $11.27 per square foot and leasing costs of $8.42 per square foot. Leasing costs include broker commissions and rent concessions.
-- Rental rates for new and renewed office leases increased 6.0% to $31.49
per square foot, with $30.23 per square foot in tenant improvement costs
and $22.21 per square foot in leasing costs.
-- Rental rates for new and renewed medical office leases increased 21.7%
to $39.30 per square foot, with $17.49 per square foot in tenant
improvement costs and $10.43 per square foot in leasing costs.
-- Rental rates for new and renewed retail leases increased 1.2% to $16.30
per square foot, with $5.16 per square foot in tenant improvement costs
and $1.71 per square foot in leasing costs.
-- Rental rates for new and renewed industrial/flex leases increased 35.6%
to $13.62 per square foot, with $1.80 per square foot in tenant
improvement costs and $3.23 per square foot in leasing costs.
Conference Call Information
The Conference Call for 2nd Quarter Earnings is scheduled for Friday, July 30, 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 August 13, 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: 352745
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. These 88 properties consist of 26 office properties, 19 industrial/flex properties, 18 medical office properties, 14 retail centers, 11 multifamily properties and land for development. 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 first quarter 2010 10-Q. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.
Footnotes
(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. A reconciliation of FFO to net income is provided on page 5 of this news release.
(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. A reconciliation of NOI to net income is provided on pages 8 and 9 of this news release.
(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. A reconciliation of FAD to net income is provided on page 5 of this news release.
(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 2nd QTR 2nd QTR 2nd QTR 2nd QTR
2010 2009 2010 2009
Residential 94.0% 92.4% 93.7% 90.6%
Office 91.5% 93.8% 91.3% 93.0%
Medical Office 95.7% 95.9% 91.0% 95.9%
Retail 92.0% 95.0% 92.0% 95.0%
Industrial 82.3% 90.6% 82.8% 90.2%
Overall Portfolio 91.4% 93.7% 90.7% 92.9%
(i) Core properties include all properties that were owned for the entirety of the current and prior year reporting periods. For Q2 2010 and Q2 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 Q2 2010 and Q2 2009 are: Sold Properties: Avondale, Brandywine Center, Tech 100, Crossroads Distribution Center; Charleston Business Center, Parklawn Plaza, Lexington and Saratoga; Held for Sale Properties: None; In Development Properties: Bennett Park, Clayborne Apartments, and Dulles Station.
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 2010 2009 2010 2009
Revenue
Real estate rental $ 75,145 $ 75,596 $ 151,591 $ 152,176
revenue
Expenses
Real estate expenses 24,157 25,078 51,558 51,974
Depreciation and 23,669 23,178 47,181 46,136
amortization
General and 3,519 3,375 7,302 6,413
administrative
51,345 51,631 106,041 104,523
Real estate operating 23,800 23,965 45,550 47,653
income
Other income (expense):
Interest expense (17,013 ) (19,316 ) (34,078 ) (38,997 )
Gain (loss) on - 1,219 (42 ) 7,064
extinguishment of debt
Other income (expense) (112 ) (2 ) 122 174
(17,125 ) (18,099 ) (33,998 ) (31,759 )
Income from continuing 6,675 5,866 11,552 15,894
operations
Discontinued operations:
Income from operations
of properties held for 404 602 792 1,474
sale
Gain on sale of real 7,942 6,674 7,942 6,674
estate
Net income 15,021 13,142 20,286 24,042
Less: Net income
attributable to (27 ) (52 ) (76 ) (101 )
noncontrolling interests
in subsidiaries
Net income attributable
to the controlling $ 14,994 $ 13,090 $ 20,210 $ 23,941
interests
Income from continuing
operations attributable $ 6,648 $ 5,814 $ 11,476 $ 15,793
to the controlling
interests
Continuing operations
real estate depreciation 23,669 23,178 47,181 46,136
and amortization
Funds from continuing $ 30,317 $ 28,992 $ 58,657 $ 61,929
operations
Income from discontinued
operations before gain 404 602 792 1,474
on sale
Discontinued operations
real estate depreciation - 330 96 674
and amortization
Funds from discontinued 404 932 888 2,148
operations
Funds from operations(1) $ 30,721 $ 29,924 $ 59,545 $ 64,077
Non-cash (gain) loss on - (1,219 ) 42 (7,064 )
extinguishment of debt
Tenant improvements (2,331 ) (4,727 ) (4,343 ) (5,793 )
External and internal
leasing commissions (1,767 ) (2,186 ) (4,035 ) (3,244 )
capitalized
Recurring capital (1,999 ) (1,984 ) (2,863 ) (3,158 )
improvements
Straight-line rents, net (812 ) (612 ) (1,420 ) (1,276 )
Non-cash fair value 783 900 1,559 2,028
interest expense
Non real estate
depreciation & 993 1,177 1,986 2,396
amortization of debt
costs
Amortization of lease (405 ) (654 ) (967 ) (1,251 )
intangibles, net
Amortization and
expensing of restricted 1,355 927 2,988 1,504
share and unit
compensation
Funds available for $ 26,538 $ 21,546 $ 52,492 $ 48,219
distribution(5)
Note: Certain prior period amounts have been reclassified to conform to the current presentation.
Three Months Ended June Six Months Ended June 30,
30,
Per share data
attributable
to the 2010 2009 2010 2009
controlling
interests:
Income from
continuing (Basic) $ 0.11 $ 0.10 $ 0.19 $ 0.29
operations
(Diluted) $ 0.11 $ 0.10 $ 0.19 $ 0.29
Net income (Basic) $ 0.24 $ 0.23 $ 0.33 $ 0.44
(Diluted) $ 0.24 $ 0.23 $ 0.33 $ 0.44
Funds from
continuing (Basic) $ 0.49 $ 0.51 $ 0.97 $ 1.13
operations
(Diluted) $ 0.49 $ 0.51 $ 0.97 $ 1.13
Funds from (Basic) $ 0.50 $ 0.53 $ 0.98 $ 1.17
operations
(Diluted) $ 0.50 $ 0.53 $ 0.98 $ 1.17
Dividends paid $ 0.4325 $ 0.4325 $ 0.8650 $ 0.8650
Weighted
average shares 61,171 56,276 60,538 54,604
outstanding
Fully diluted
weighted 61,287 56,277 60,649 54,605
average shares
outstanding
WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
June 30, December 31,
2010 2009
Assets
Land $ 418,177 $ 408,779
Income producing property 1,943,146 1,886,408
2,361,323 2,295,187
Accumulated depreciation and amortization (508,693 ) (468,291 )
Net income producing property 1,852,630 1,826,896
Development in progress 25,952 25,031
Total real estate held for investment, net 1,878,582 1,851,927
Investment in real estate sold or held for sale - 14,289
Cash and cash equivalents 13,338 11,203
Restricted cash 23,132 19,170
Rents and other receivables, net of allowance for
doubtful accounts of $7,254 and $6,433, 53,164 50,441
respectively
Prepaid expenses and other assets 98,624 97,605
Other assets related to property sold or held for - 590
sale
Total assets $ 2,066,840 $ 2,045,225
Liabilities
Notes payable $ 689,007 $ 688,912
Mortgage notes payable 403,612 405,451
Lines of credit 107,000 128,000
Accounts payable and other liabilities 54,901 52,580
Advance rents 10,460 11,103
Tenant security deposits 9,565 9,668
Other liabilities related to property sold or held - 448
for sale
Total liabilities $ 1,274,545 $ 1,296,162
Shareholders' equity
Shares of beneficial interest, $0.01 par value;
100,000
Shares authorized;62,380 and 59,811 shares issued 625 599
and outstanding, respectively
Additional paid-in capital 1,020,768 944,825
Distributions in excess of net income (230,942 ) (198,412 )
Accumulated other comprehensive income (1,949 ) (1,757 )
Total shareholders' equity 788,502 745,255
Noncontrolling interests in subsidiaries 3,793 3,808
Total equity 792,295 749,063
Total liabilities and equity $ 2,066,840 $ 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 Medical ended June 30, Multifamily Office Retail Industrial Total 2010 Office Core net operating $ 6,248 $ 21,030 $ 7,785 $ 7,634 $ 6,087 $ 48,784 income(4) Add: Net operating income from 1,143 1,161 (100 ) - - 2,204 non-core properties(4) Total net operating $ 7,391 $ 22,191 $ 7,685 $ 7,634 $ 6,087 $ 50,988 income(3) Add/(deduct): Other income (112 ) (expense) Interest (17,013 ) expense Gain (loss) on extinguishment - of debt Depreciation and (23,669 ) amortization General and administrative (3,519 ) expenses Income from operations of 404 properties held for sale Gain on sale 7,942 of real estate Net income 15,021 Less: Net income attributable to (27 ) noncontrolling interests in subsidiaries Net income attributable to the $ 14,994 controlling interests Three months Medical ended June 30, Multifamily Office Retail Industrial Total 2009 Office Core net operating $ 6,087 $ 20,808 $ 7,468 $ 7,668 $ 7,060 $ 49,091 income(4) Add: Net operating income from 821 606 - - - 1,427 non-core properties(4) Total net operating $ 6,908 $ 21,414 $ 7,468 $ 7,668 $ 7,060 $ 50,518 income(3) Add/(deduct): Other income (2 ) (expense) Interest (19,316 ) expense Gain (loss) on extinguishment 1,219 of debt Depreciation and (23,178 ) amortization General and administrative (3,375 ) expenses Income from operations of 602 properties held for sale Gain on sale 6,674 of real estate Net income 13,142 Less: Net income attributable to (52 ) noncontrolling interests in subsidiaries Net income attributable to the $ 13,090 controlling interests
The following tables contain reconciliations of net income to core net operating income for the periods presented: Six months Medical ended June 30, Multifamily Office Retail Industrial Total 2010 Office Core net operating $ 11,854 $ 41,809 $ 15,388 $ 14,851 $ 12,394 $ 96,296 income(4) Add: Net operating income from 2,276 1,700 (239 ) - - 3,737 non-core properties(4) Total net operating $ 14,130 $ 43,509 $ 15,149 $ 14,851 $ 12,394 $ 100,033 income(3) Add/(deduct): Other income 122 (expense) Gain from non-disposal - activities Interest (34,078 ) expense Gain (loss) on extinguishment (42 ) of debt Depreciation and (47,181 ) amortization General and administrative (7,302 ) expenses Income from operations of 792 properties held for sale Gain on sale 7,942 of real estate Net income 20,286 Less: Net income attributable to (76 ) noncontrolling interests in subsidiaries Net income attributable to the $ 20,210 controlling interests Six months Medical ended June 30, Multifamily Office Retail Industrial Total 2009 Office Core net operating $ 11,794 $ 41,424 $ 15,021 $ 15,374 $ 13,919 $ 97,532 income(4) Add: Net operating income from 1,394 1,276 - - - 2,670 non-core properties(4) Total net operating $ 13,188 $ 42,700 $ 15,021 $ 15,374 $ 13,919 $ 100,202 income(3) Add/(deduct): Other income 174 (expense) Interest (38,997 ) expense Gain (loss) on extinguishment 7,064 of debt Depreciation and (46,136 ) amortization General and administrative (6,413 ) expenses Income from operations of 1,474 properties held for sale Gain on sale 6,674 of real estate Net income 24,042 Less: Net income attributable to (101 ) noncontrolling interests in subsidiaries Net income attributable to the $ 23,941 controlling interests
Source: Washington Real Estate Investment Trust (WRIT)
Released July 29, 2010