Washington Real Estate Investment Trust Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Segment Information

Segment Information

12 Months Ended

Dec. 31, 2019

Segment Reporting Information, Revenue for Reportable Segment [Abstract]

SEGMENT INFORMATION

We evaluate real estate performance and allocate resources by property type and have two reportable segments: office and multifamily. Office properties provide office space for various types of businesses and professions. Multifamily properties provide rental housing for individuals and families throughout the Washington metro region. We previously had a retail segment consisting of grocery store-anchored neighborhood centers that include other small shop tenants and regional power centers with several junior box tenants. During 2019, we executed the sales of eight retail properties (see note 3). These properties met the criteria for classification as held for sale as of June 30, 2019 and are classified as discontinued operations. This strategic shift simplified our portfolio to two reportable segments (office and multifamily) and reduced our exposure to future retail lease expirations. The remaining retail properties do not meet the qualitative or quantitative criteria for a reportable segment, and are classified within “Corporate and other” on our segment disclosure tables. The dispositions of the eight retail properties are part of a strategic shift away from the retail sector.

Real estate rental revenue as a percentage of the total for each of the reportable operating segments for the three years ended December 31, 2019 was as follows:



	Year Ended December 31,
	2019		2018		2017
Multifamily	41	%	33	%	34	%
Office	53	%	61	%	60	%
Corporate and other	6	%	6	%	6	%

The percentage of income producing real estate assets classified as held and used, at cost, for each of the reportable operating segments as of December 31, 2019 and 2018 was as follows:



	December 31,
	2019		2018
Multifamily	50	%	36	%
Office	45	%	58	%
Corporate and other	5	%	6	%

The accounting policies of each of the segments are the same as those described in note 2.

We evaluate performance based upon net operating income from the combined properties in each segment. Our reportable operating segments are consolidations of similar properties. GAAP requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing segments’ performance. Net operating income is a key measurement of our segment profit and loss. Net operating income is defined as segment real estate rental revenue less segment real estate expenses.

The following tables present revenues, net operating income, capital expenditures and total assets for the three years ended December 31, 2019 from these segments, and reconciles net operating income of reportable segments to net income attributable to the controlling interests as reported (in thousands):



	Year Ended December 31, 2019
	Office		Multifamily		Corporate and Other ⁽¹⁾		Consolidated
Real estate rental revenue	$	164,059	$	126,131	$	18,990	$	309,180
Real estate expenses	60,923		49,135		5,522		115,580
Net operating income	$	103,136	$	76,996	$	13,468	$	193,600
Depreciation and amortization							(136,253		)
General and administrative							(24,370		)
Lease origination expenses							(1,698		)
Interest expense							(53,734		)
Real estate impairment							(8,374		)
Gain on sale of real estate							59,961
Discontinued operations:
Income from properties sold or held for sale							16,158
Gain on sale of real estate							339,024
Loss on extinguishment of debt							(764		)
Net income							383,550
Less: Net loss attributable to noncontrolling interests							—
Net income attributable to the controlling interests							$	383,550
Capital expenditures	$	38,634	$	25,779	$	4,534	$	68,947
Total assets	$	1,134,147	$	1,340,634	$	153,547	$	2,628,328



	Year Ended December 31, 2018
	Office		Multifamily		Corporate and Other ⁽¹⁾		Consolidated
Real estate rental revenue	$	178,474	$	95,194	$	18,062	$	291,730
Real estate expenses	63,321		37,235		5,036		105,592
Net operating income	$	115,153	$	57,959	$	13,026	$	186,138
Depreciation and amortization							(111,826		)
General and administrative							(22,089		)
Real estate impairment							(1,886		)
Interest expense							(50,501		)
Gain on sale of real estate							2,495
Loss on extinguishment of debt							(1,178		)
Discontinued operations:
Income from properties sold or held for sale							24,477
Net income							25,630
Less: Net loss attributable to noncontrolling interests							—
Net income attributable to the controlling interests							$	25,630
Capital expenditures	$	42,019	$	25,117	$	4,897	$	72,033
Total assets	$	1,248,673	$	792,170	$	376,261	$	2,417,104



	Year Ended December 31, 2017
	Office		Multifamily		Corporate and Other ⁽¹⁾		Consolidated
Real estate rental revenue	$	167,438	$	95,250	$	17,593	$	280,281
Real estate expenses	62,824		37,640		4,936		105,400
Net operating income	$	104,614	$	57,610	$	12,657	$	174,881
Depreciation and amortization							(101,430		)
General and administrative							(22,580		)
Casualty gain							(33,152		)
Interest expense							(46,793		)
Other income							507
Gain on sale of real estate							24,915
Income tax benefit							84
Discontinued operations:
Income from properties sold or held for sale							23,180
Net income							19,612
Less: Net loss attributable to noncontrolling interests							56
Net income attributable to the controlling interests							$	19,668
Capital expenditures	$	30,407	$	27,980	$	5,994	$	64,381
Total assets	$	1,203,187	$	767,279	$	388,960	$	2,359,426

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⁽¹⁾

Includes the retail properties not classified as discontinued operations: Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S. Washington Street, Randolph Shopping Center, Montrose Shopping Center and Spring Valley Village, and total assets and capital expenditures include all retail properties, including those classified as discontinued operations.