Quarterly report pursuant to Section 13 or 15(d)

Real Estate

v2.4.0.8
Real Estate
9 Months Ended
Sep. 30, 2013
Real Estate [Abstract]  
Real Estate
NOTE 3: REAL ESTATE

Variable Interest Entities
In June 2011, we executed a joint venture operating agreement with a real estate development company to develop a mid-rise multifamily property at 650 North Glebe Road in Arlington, Virginia. We estimate the total cost of the project to be $49.9 million. During the first quarter of 2013, we secured third-party debt financing for approximately 70% of the project's cost. WRIT is the 90% owner of the joint venture, and will have management and leasing responsibilities when the project is completed and stabilized (defined as 90% of the residential units leased). The real estate development company owns 10% of the joint venture and is responsible for the development and construction of the property. The joint venture currently expects to complete this development project during the fourth quarter of 2014.

In November 2011, we executed a joint venture operating agreement with a real estate development company to develop a high-rise multifamily property at 1225 First Street (formerly 1219 First Street) in Alexandria, Virginia. We estimate the total cost of the project to be $95.3 million, with approximately 70% of the project to be financed with debt. WRIT is the 95% owner of the joint venture and will have management and leasing responsibilities when the project is completed and stabilized. The real estate development company owns 5% of the joint venture and is responsible for the development and construction of the property. During the first quarter of 2013, we decided to delay commencement of construction, due to market conditions and concerns of oversupply, and stopped capitalizing interest costs on this project. We will reassess this project on a periodic basis going forward.

We have determined that the 650 North Glebe Road and 1225 First Street joint ventures are variable interest entities (“VIE's”) primarily based on the fact that the equity investment at risk is not sufficient to permit either entity to finance its activities without additional financial support. We expect that 70% of the total development costs will be financed through debt. We have also determined that WRIT is the primary beneficiary of each VIE due to the fact that WRIT is providing 90% to 95% of the equity contributions and will manage each property after stabilization.

We include the joint venture land acquisitions on our consolidated balance sheets in properties under development or held for future development. As of September 30, 2013 and December 31, 2012, the land and capitalized development costs are as follows (in thousands):
 
September 30, 2013
 
December 31, 2012
650 North Glebe
$
24,185

 
$
15,646

1225 First Street
21,409

 
19,807



As of September 30, 2013 and December 31, 2012, the accounts payable and accrued liabilities related to the joint ventures are as follows (in thousands):
 
September 30, 2013
 
December 31, 2012
650 North Glebe
$
2,584

 
$
115

1225 First Street
249

 
1,676



On February 21, 2013, WRIT, through its consolidated joint venture to develop a mid-rise multifamily property at 650 North Glebe Road, entered into a construction loan agreement with Citizens Bank for $33.0 million. The loan bears interest at LIBOR plus 2.15%, which decreases to LIBOR plus 2.0% upon completion of construction and the joint venture not being in default. The loan matures on February 21, 2016, with two one year extension options exercisable by the joint venture, subject to fees and compliance with certain provisions in the loan agreement. As of September 30, 2013, the consolidated joint venture had $3.0 million outstanding on this construction loan agreement.

Discontinued Operations

We dispose of assets that no longer meet our long-term strategy or return objectives and where market conditions for sale are favorable. The proceeds from the sales may be reinvested into other properties, used to fund development operations or to support other corporate needs, or distributed to our shareholders. Properties are considered held for sale when they meet the criteria specified (see "Discontinued Operations" in note 2 of the consolidated financial statements included in WRIT's Annual Report on Form 10-K for the year ended December 31, 2012). Depreciation on these properties is discontinued at that time, but operating revenues, other operating expenses and interest continue to be recognized until the date of sale.

In September 2013, we entered into four separate purchase and sale agreements to effectuate the sale of our entire medical office segment (including land held for development at 4661 Kenmore Avenue) and two office buildings (Woodholme Center and 6565 Arlington Boulevard) for an aggregate purchase price of $500.8 million. The sale will be structured as four transactions with projected closing dates in the fourth quarter 2013 and first quarter 2014.

The results of our medical office segment are summarized as follows (amounts in thousands, except per share data):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
Real estate revenues
$
10,889

 
$
11,282

 
$
32,928

 
$
33,580

Net income
$
3,820

 
$
2,463

 
$
10,080

 
$
7,456

Basic net income per share
$
0.06

 
$
0.04

 
$
0.15

 
$
0.11

Diluted net income per share
$
0.06

 
$
0.04

 
$
0.15

 
$
0.11


We classified as held for sale or sold the following properties in 2013 and 2012:
Disposition Date
 
Property Name
 
Segment
 
Rentable Square Feet
 
Contract
Purchase  Price
(In thousands)
March 19, 2013
 
Atrium Building
 
Office
 
79,000

 
$
15,750

N/A
 
Medical Office Portfolio (1)
 
Medical Office / Office
 
1,520,000

 
500,750

 
 
 
 
Total 2013
 
1,599,000

 
$
516,500

 
 
 
 
 
 
 
 
 
August 31, 2012
 
1700 Research Boulevard
 
Office
 
101,000

 
$
14,250

December 20, 2012
 
Plumtree Medical Center
 
Medical Office
 
33,000

 
8,750

 
 
 
 
Total 2012
 
134,000

 
$
23,000


(1) The Medical Office Portfolio consists of every property in our medical office segment (including land held for development at 4661 Kenmore Avenue) and two office buildings (6565 Arlington Boulevard and Woodholme Center).

As of September 30, 2013 and December 31, 2012, investment in real estate for properties sold or held for sale were as follows (in thousands):
 
September 30, 2013
 
December 31, 2012
Office
$
55,049

 
$
71,605

Medical office
409,486

 
406,873

Total
464,535

 
478,478

Less accumulated depreciation
(118,378
)
 
(113,479
)
Investment in real estate sold or held for sale, net
$
346,157

 
$
364,999


As of September 30, 2013 and December 31, 2012, liabilities related to properties sold or held for sale were as follows (in thousands):
 
September 30, 2013
 
December 31, 2012
Mortgage notes
$
23,467

 
$
23,945

Other liabilities
7,808

 
8,412

Liabilities related to properties sold or held for sale
$
31,275

 
$
32,357



Income from operations of properties sold or held for sale for the three and nine months ended September 30, 2013 and 2012 were as follows (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
Revenues
$
12,073

 
$
13,725

 
37,141

 
41,338

Property expenses
(4,398
)
 
(4,793
)
 
(12,856
)
 
(13,992
)
Depreciation and amortization
(3,215
)
 
(4,536
)
 
(12,161
)
 
(14,210
)
Interest expense
(329
)
 
(1,163
)
 
(985
)
 
(3,494
)
 
$
4,131

 
$
3,233

 
$
11,139

 
$
9,642



Income from operations of properties sold or held for sale by property for the three and nine months ended September 30, 2013 and 2012 were as follows (in thousands):
 
 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Property
 
Segment
 
2013
 
2012
 
2013
 
2012
1700 Research Boulevard
 
Office
 
$

 
$
106

 

 
225

Atrium Building
 
Office
 

 
320

 
185

 
833

Plumtree Medical Center
 
Medical Office
 

 
88

 

 
117

Medical Office Portfolio
 
Medical Office / Office
 
4,131

 
2,719

 
10,954

 
8,467

 
 
 
 
$
4,131

 
$
3,233

 
$
11,139

 
$
9,642