Washington Real Estate Investment Trust (WRIT) (NYSE:WRE) reported
financial and operating results today for the quarter ending March 31,
2008:
Adjusted funds from operations (FFO) per diluted share grew 2% to
$0.59 in first quarter 2008, excluding the impact of the $0.18 per
diluted share non-recurring charge related to extinguishment of debt,
from $0.58 in first quarter 2007.
FFO(1) per diluted share after non-recurring
charges was $0.41 and earnings per diluted share was $(0.03) for first
quarter 2008, compared to $0.58 and $0.24, respectively, for the same
period one year ago.
First quarter 2008 core net operating income increased 2.8% and core
occupancy increased 150 bps to 95.3% compared to the same period one
year ago.
Rent increases on lease rollovers in first quarter 2008 were 16.4%.
Residential rental rates increased 2.4% over the same period.
Guidance for 2008 FFO per diluted share remains unchanged at $2.11 to
$2.21, and $2.29 to $2.39 excluding non-recurring items.
Operating Results
Core Net Operating Income (NOI)(2) for first
quarter increased 2.8% and rental rate growth was 1.4% compared to the
same period last year. Core occupancy was 95.3% during the first quarter
of 2008, an increase of 150 bps from the same period in the prior year.
Industrial properties’ core NOI for the
first quarter increased 9.1% compared to the same period one year ago
primarily due to rental rate growth of 2.2%.
Multifamily properties’ core NOI for the
first quarter increased 5.3% compared to the same period one year ago.
Rental rate growth was 2.4% while economic occupancy increased 210 bps
to 92.7%.
Office properties’ core NOI for the first
quarter increased 3.0% compared to the same period one year ago.
Economic occupancy increased 280 bps to 95.4%, primarily due to
leasing at 7900 Westpark and West Gude office buildings. Rental rate
growth for the office sector was 1.1%.
Retail properties’ core NOI for the first
quarter decreased 0.7% compared to the same period one year ago.
Economic occupancy increased 70 bps to 95.3% due to occupancy gains at
Montrose Shopping Center, while straight-line revenue decreased and
bad debt reserves were increased.
Medical office properties’ core NOI for the
first quarter decreased 2.5% compared to the same period one year ago
due to decreased straight-line revenue. Rental rate growth was 1.8%
and economic occupancy remains high for the medical office sector at
98.4%.
Leasing Activity
During the first quarter, WRIT signed commercial leases for 270,000
square feet, with an average rental rate increase of 16.4% and tenant
improvement costs of $5.65 per square foot. Residential rental rates
increased 2.4% in the first quarter compared to the same period one year
ago.
Rental rates for new and renewed retail leases increased 22.4%, with
no tenant improvement costs.
Rental rates for new and renewed office leases increased 18.1%, with
$7.23 per square foot in tenant improvement costs.
Rental rates for new and renewed medical office leases increased
17.7%, with $8.48 per square foot in tenant improvement costs.
Rental rates for new and renewed industrial/flex leases increased
8.3%, with $3.68 per square foot in tenant improvement costs.
Acquisition Activity
On February 22, 2008, WRIT acquired 6100 Columbia Park Road, a 150,000
square foot industrial warehouse in Landover, Maryland for $11.2
million. The property is located inside the Capital Beltway adjacent to
Route 50, between Interstate 95/495 and the Baltimore-Washington
Parkway/MD 295. Upon acquisition, the property was 78% leased. With
lease stabilization, the second-year cash return is expected to be 8.2%.
The acquisition was funded with cash from operations and borrowings on
WRIT's line of credit.
On February 28, 2008, WRIT entered into an agreement to acquire
Lansdowne Medical Office Building, a five-story, 85,300 square foot
medical office development currently under construction, for $19.5
million. The project is located at the intersection of Riverside Parkway
and Lansdowne Boulevard in Loudoun County, Virginia, directly across
from Inova Loudoun Hospital. WRIT will purchase the property upon
completion of the base building, estimated to be in the first quarter of
2009.
Development Activity
This quarter WRIT began delivering units at The Clayborne Apartments.
The Clayborne is a ground-up development project in Alexandria, VA,
adjacent to our 800 South Washington retail property. The project
consists of a 74-unit Class A apartment building that will include
2,700 square feet of additional retail space. The property was 15%
leased at quarter-end.
In fourth quarter 2007, WRIT completed construction at Bennett Park.
Bennett Park is a ground-up development project in Arlington, VA
consisting of high-rise and mid-rise Class A apartment buildings with
a total of 224 units and 5,800 square feet of retail space. The
property was 39% leased at quarter-end.
In second quarter 2007, WRIT completed base construction on Dulles
Station, a 180,000 square foot development project of Class A office
and retail space located in Herndon, VA. The building, prominently
visible from the Dulles Toll Road, is part of a mixed-use development
which will include 1,095 multifamily units and 56,000 square feet of
retail and restaurant space.
Capital Structure
On January 28, 2008 WRIT exercised a portion of the accordion feature on
one of its unsecured revolving credit facilities. WRIT's total borrowing
capacity was increased to $337 million at a rate of LIBOR plus 0.425%.
In February, WRIT completed an extinguishment of debt on $60 million of
10-year Mandatory Par Put Remarketed Securities ("MOPPRS"), resulting in
an $8.4 million non-recurring charge. WRIT issued a $100 million 2-year
term loan, which was swapped for a fixed rate of 4.45% to refinance the
6.74% debt. The remaining proceeds were used to refinance a portion of
line outstandings. By extinguishing the debt, WRIT estimates it will
save approximately $5.6 million of interest expense in the first two
years alone.
On March 31, 2008, WRIT paid a quarterly dividend of $0.4225 per share
for its 185th consecutive quarterly dividend at
equal or increasing rates.
As of March 31, 2008 WRIT had a total capitalization of $2.9 billion.
Conference Call Information
The Conference Call for 1st Quarter Earnings is
scheduled for Tuesday, April 29, 2008 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
Leader:
Sara Grootwassink
The instant replay of the Conference Call will be available until May
29, 2008 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:
279401
The live on-demand webcast of the Conference Call will also be available
on 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's dividends have increased every year for 37
consecutive years. WRIT's FFO per share has increased every year for 35
consecutive years. WRIT owns a diversified portfolio of 91 properties
consisting of 14 retail centers, 26 office properties, 16 medical office
properties, 24 industrial/flex properties, 11 multi-family 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 and the supplemental
disclosures attached hereto 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,
fluctuations in interest rates, availability of raw materials and labor
costs, levels of competition, the effect of government regulation, the
availability of capital, weather conditions, the timing and pricing of
lease transactions and 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 2007 Form
10-K. 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. 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) For purposes of evaluating comparative
operating performance, we categorize our properties as "core”
or "non-core”.
Core Operating NOI is calculated as real estate rental revenue less real
estate operating expenses for those properties owned for the entirety of
the periods being evaluated. Core Operating NOI is a non-GAAP measure.
(3) Funds Available for Distribution ("FAD”)
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. FAD is included herein, because we consider
it 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-GAAP and non-standardized measure, and may be calculated
differently by other REITs.
Economic Occupancy Levels by
Core Portfolio (i)and All Properties
Core Portfolio
All Properties
Sector
1st QTR
1st QTR 1st QTR 1st QTR 2008 2007 2008 2007
Residential
92.7%
90.6%
79.6%
(ii)
90.6%
Office
95.4%
92.6%
95.5%
92.8%
Medical Office
98.4%
99.2%
97.9%
99.2%
Retail
95.3%
94.6%
95.3%
94.6%
Industrial
95.0%
95.1%
93.8%
94.2%
Overall Portfolio
95.3%
93.8%
93.0%
93.7%
(i) Core portfolio properties include all
properties that were owned for the entirety of the current and prior
year reporting periods. For Q1 2008 and Q1 2007, core portfolio
properties exclude:
Office Acquisitions: 2000 M
Street, Woodholme Center, and Monument II;
Medical Office Acquisitions:
CentreMed I & II, Ashburn Farm Park, Woodholme Medical Office Building,
2440 M Street;
Retail Acquisitions: none;
Industrial Acquisitions: 270
Technology Park, 6100 Columbia Pike Dr.
Also excluded from Core Properties in Q1 2008 and Q1 2007 are Sold
Properties: Maryland Trade Centers I & II; Held for Sale Properties:
Sullyfield Center and The Earhart Building; and In Development
Properties: Bennett Park, Clayborne Apartments, Dulles Station and 4661
Kenmore Ave.
(ii) Residential occupancy for all properties
decreased from 90.6% to 79.6%, primarily due to the completion of
Bennett Park and Clayborne Apartments. At 3/31/08, 78 of 224 units were
occupied at Bennett Park and 7 of 74 units were occupied at Clayborne
Apartments.
WASHINGTON REAL ESTATE INVESTMENT TRUST FINANCIAL HIGHLIGHTS (In thousands, except per share data) (Unaudited)
Three Months Ended March 31, OPERATING RESULTS
2008
2007
Revenue
Real estate rental revenue
$
70,278
$
59,852
Expenses
Real estate expenses
23,133
18,706
Depreciation and amortization
20,525
16,126
General and administrative
3,080
2,883
46,738
37,715
Other (expense) income:
Interest expense
(17,664
)
(14,384
)
Loss on Extinguishment of Debt
(8,449
)
-
Other income
238
618
Other income from life insurance proceeds
-
1,303
(25,875
)
(12,463
)
Income (loss) from continuing operations
(2,335
)
9,674
Discontinued operations:
Income from operations of properties held for sale
847
1,038
Gain on property disposed
-
-
Net Income (loss)
$
(1,488
)
$
10,712
Income (loss) from continuing operations
$
(2,335
)
$
9,674
Other income from life insurance proceeds
-
(1,303
)
Continuing operations real estate depreciation and amortization
20,525
16,126
Funds from continuing operations
$
18,190
$
24,497
Income from discontinued operations before gain on disposal
847
1,038
Discontinued operations real estate depreciation and amortization
-
649
Funds from discontinued operations
847
1,687
Funds from operations(1)
$
19,037
$
26,184
Tenant improvements
(2,110
)
(2,161
)
External and internal leasing commissions capitalized
(2,023
)
(2,068
)
Recurring capital improvements
(2,116
)
(1,936
)
Straight-line rents, net
(744
)
(1,171
)
Non real estate depreciation & amortization of debt costs
1,000
750
Amortization of lease intangibles, net
(506
)
(595
)
Amortization and expensing of restricted share and unit compensation
699
782
Funds Available for Distribution (3)
$
13,237
$
19,785
Certain prior year amounts have been reclassified to conform to the
current presentation.
Three Months Ended March 31, Per Share Data
2008
2007
Income (loss) from continuing operations
(Basic)
$
(0.05
)
$
0.22
(Diluted)
$
(0.05
)
$
0.21
Net income (loss)
(Basic)
$
(0.03
)
$
0.24
(Diluted)
$
(0.03
)
$
0.24
Funds from continuing operations
(Basic)
$
0.39
$
0.55
(Diluted)
$
0.39
$
0.54
Funds from operations
(Basic)
$
0.41
$
0.58
(Diluted)
$
0.41
$
0.58
Dividends paid
$
0.4225
$
0.4125
Weighted average shares outstanding
46,623
44,931
Fully diluted weighted average shares outstanding
46,819
45,153
WASHINGTON REAL ESTATE INVESTMENT TRUST CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (Unaudited)
March 31, December 31,
2008
2007
Assets
Land
$
336,710
$
328,951
Income producing property
1,674,319
1,635,169
2,011,029
1,964,120
Accumulated depreciation and amortization
(349,926
)
(331,991
)
Net income producing property
1,661,103
1,632,129
Development in progress (4)
58,784
98,321
Total real estate held for investment, net
1,719,887
1,730,450
Investment in real estate sold or held for sale
23,614
23,843
Cash and cash equivalents
12,858
21,488
Restricted cash
7,637
6,030
Rents and other receivables, net of allowance for doubtful
accounts of $4,754 and $4,227, respectively
39,008
36,595
Prepaid expenses and other assets
87,515
78,517
Other assets related to property sold or held for sale
1,679
1,403
Total Assets
$
1,892,198
$
1,898,326
Liabilities
Notes payable
$
918,783
$
879,123
Mortgage notes payable
251,539
252,484
Lines of credit
174,500
192,500
Accounts payable and other liabilities
57,590
63,543
Advance rents
9,383
9,552
Tenant security deposits
10,462
10,487
Other liabilities related to property sold or held for sale
417
317
Total Liabilities
1,422,674
1,408,006
Minority interest
3,786
3,776
Shareholders' Equity
Shares of beneficial interest, $0.01 par value; 100,000 shares
authorized: 46,716 and 46,682 shares issued and outstanding,
respectively
468
468
Additional paid-in capital
563,174
561,492
Distributions in excess of net income
(96,660
)
(75,416
)
Accumulated other comprehensive income (loss)
(1,244
)
-
Total Shareholders' Equity
465,738
486,544
Total Liabilities and Shareholders' Equity
$
1,892,198
$
1,898,326
Note: Certain prior year amounts have been reclassified to conform to
the current year presentation.
(4) Includes cost of land acquired for in
development properties.
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