Washington Real Estate Investment Trust Announces First 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 March 31, 2010:
-- Funds From Operations (FFO)(1) was $0.48 per diluted share compared to $0.64 per diluted share in the same period one year ago. This difference is primarily due to gains on extinguishment of debt in the first quarter of 2009, share dilution from our equity offerings in 2009 and 2010, and snow removal costs in the first quarter of 2010. -- Net income was $0.09 per diluted share compared to $0.20 per diluted share in the same period one year ago. The first quarter 2009 net income included a gain of $0.11 per diluted share related to the extinguishment of debt.
"We continue to see signs of a recovery in real estate fundamentals--leasing activity is up, delinquencies are declining and investment opportunities are increasing. While this recovery may not be a rapid one, we believe an upturn in market conditions has begun and the future looks bright for the Washington region. We are pleased with our first quarter results, which met our expectations, and look forward to potentially increasing performance in the quarters ahead," stated George "Skip" McKenzie, President and Chief Executive Officer, Washington Real Estate Investment Trust.
Year to date, WRIT has issued 732,646 common shares through its Sales Agency Financing Agreement with BNY Mellon Capital Markets at an average offering price of $30.18 for gross proceeds of approximately $22.1 million. These proceeds were used to repay a portion of WRIT's line of credit. As of today, the outstanding balance on the line of credit is $100 million. WRIT also repurchased a total of $1.2 million of its 3.875% convertible notes at an average discounted price of 99.3% of par.
On March 31, 2010, WRIT paid a quarterly dividend of $0.4325 per share for its 193rd consecutive quarterly dividend at equal or increasing rates.
As of March 31, 2010, WRIT had a total market capitalization of $3.1 billion.(2)
Overall portfolio economic occupancy for the first quarter was 91.2%, compared to 92.3% in the same period one year ago and 92.2% in the fourth quarter of 2009. Overall portfolio Net Operating Income (NOI)(3) was $49.0 million compared to $49.7 million in the same period one year ago and $51.4 million in the fourth quarter of 2009. This quarter's results include non-reimbursable snow removal expenses of $1.2 million.
Core(4) portfolio economic occupancy for the first quarter was 92.1%, compared to 93.5% in the same period one year ago and 92.5% in the fourth quarter of 2009. Core portfolio NOI for the first quarter decreased 1.9% and rental rate growth was 1.2% compared to the same period one year ago.
-- Multifamily properties' core NOI for the first quarter decreased 1.8% compared to the same period one year ago. The primary driver of NOI decline was snow removal costs in the first quarter of 2010, which offset gains in occupancy at all but one property. Rental rate growth was -2.0% while core economic occupancy for properties included in the results for both the first quarter of 2009 and 2010 increased 270 basis points (bps) to 94.2%. Sequentially, core economic occupancy for properties included in the results for both the fourth quarter of 2009 and the first quarter of 2010 remained unchanged at 94.1% from the fourth quarter of 2009. -- Office properties' core NOI for the first quarter increased 0.8% compared to the same period one year ago. Rental rate growth was 2.0% while core economic occupancy for properties included in the results for both the first quarter of 2009 and 2010 decreased 130 bps to 92.2%. Sequentially, core economic occupancy for properties included in the results for both the fourth quarter of 2009 and the first quarter of 2010 decreased 110 bps from the fourth quarter of 2009. -- Medical office properties' core NOI for the first quarter increased 0.7% compared to the same period one year ago. Rental rate growth was 2.8% while core economic occupancy for properties included in the results for both the first quarter of 2009 and 2010 decreased 60 bps to 95.9%. Sequentially, core economic occupancy for properties included in the results for both the fourth quarter of 2009 and the first quarter of 2010 remained unchanged at 91.1% from the fourth quarter of 2009. The difference in occupancy in the year over year comparison versus the sequential comparison is the effect of purchasing Lansdowne Medical Office Building in the third quarter of 2009. -- Retail properties' core NOI for the first quarter decreased 6.3% compared to the same period one year ago. Rental rate growth was 0.9% while core economic occupancy for properties included in the results for both the first quarter of 2009 and 2010 decreased 390 bps to 91.3%. Sequentially, core economic occupancy for properties included in the results for both the fourth quarter of 2009 and the first quarter of 2010 decreased 310 bps from the fourth quarter of 2009, primarily due to higher vacancy at our Frederick Crossing and Montgomery Village Centers. -- Industrial properties' core NOI for the first quarter decreased 8.0% compared to the same period one year ago. Rental rate growth was 0.2% while core economic occupancy for properties included in the results for both the first quarter of 2009 and 2010 decreased 540 bps to 85.5%. Sequentially, core economic occupancy for properties included in the results for both the fourth quarter of 2009 and the first quarter of 2010 decreased 160 bps from the fourth quarter of 2009, primarily due to the eviction of several non-paying tenants in the fourth quarter of 2009.
During the first quarter, WRIT signed commercial leases for 274,000 square feet with an average rental rate increase of 15.8% over expiring lease rates, an average lease term of 5.5 years, tenant improvement costs of $15.07 per square foot and leasing costs of $9.37 per square foot.
-- Rental rates for new and renewed office leases increased 15.3% to $30.97 per square foot, with $17.47 per square foot in tenant improvement costs and $10.38 per square foot in leasing costs. -- Rental rates for new and renewed medical office leases increased 25.5% to $40.38 per square foot, with $24.88 per square foot in tenant improvement costs and $16.73 per square foot in leasing costs. -- Rental rates for new and renewed retail leases increased 21.2% to $31.31 per square foot, with no tenant improvement costs and $1.35 per square foot in leasing costs. -- Rental rates for new and renewed industrial/flex leases increased 1.9% to $9.47 per square foot, with $1.41 per square foot in tenant improvement costs and $2.14 per square foot in leasing costs.
Conference Call Information
The Conference Call for 1st Quarter Earnings is scheduled for Friday, April 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 May 14, 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: 347642
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.
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 90 properties totaling approximately 11 million square feet of commercial space and 2,540 residential units. These 90 properties consist of 27 office properties, 20 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. 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.
Economic Occupancy Levels by Core Properties(i)and All Properties Core Properties All Properties Segment 1st QTR 1st QTR 1st QTR 1st QTR 2010 2009 2010 2009 Residential 94.2% 91.5% 94.1% (ii) 87.4% Office 92.2% 93.5% 91.6% 92.6% Medical Office 95.9% 96.5% 91.1% 96.5% Retail 91.3% 95.2% 91.3% 95.2% Industrial 85.5% 90.9% 85.7% 90.4% Overall Portfolio 92.1% 93.5% 91.2% 92.3%
(i) Core properties include all properties that were owned for the entirety of the current and prior year reporting periods. For Q1 2010 and Q1 2009, core properties exclude: Residential Acquisitions: none; Office Acquisitions: none; Medical Office Acquisition: Lansdowne Medical Office Building; Retail Acquisitions: none; Industrial Acquisitions: none. Also excluded from Core Properties in Q1 2010 and Q1 2009 are: Sold Properties: Avondale, Brandywine Center, Tech 100 and Crossroads Distribution Center; Held for Sale Properties: Charleston Business Center, Parklawn Plaza, Lexington and Saratoga; In Development Properties: Bennett Park, Clayborne Apartments, and Dulles Station. (ii) Residential occupancy for all properties reflects the completion of Bennett Park and Clayborne Apartments. At 3/31/10, 219 of 224 units were occupied at Bennett Park and 69 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 2010 2009 Revenue Real estate rental revenue $ 76,446 $ 76,580 Expenses Real estate expenses 27,401 26,896 Depreciation and amortization 23,512 22,958 General and administrative 3,838 3,182 54,751 53,036 Real estate operating income 21,695 23,544 Other income (expense): Interest expense (17,065 ) (19,681 ) Investment income 289 320 Gain (loss) on extinguishment of (42 ) 5,845 debt (16,818 ) (13,516 ) Income from continuing operations 4,877 10,028 Discontinued operations: Income from operations of properties held for 388 872 sale Net income 5,265 10,900 Less: Net income attributable to noncontrolling (49 ) (49 ) interests in subsidiaries Net income attributable to the controlling $ 5,216 $ 10,851 interests Income from continuing operations attributable to $ 4,828 $ 9,979 the controlling interests Continuing operations real estate depreciation 23,512 22,958 and amortization Funds from continuing operations $ 28,340 $ 32,937 Income from discontinued operations before gain 388 872 on sale Discontinued operations real estate depreciation 96 344 and amortization Funds from discontinued operations 484 1,216 Funds from operations(1) $ 28,824 $ 34,153 Non-cash (gain) loss on extinguishment of debt 42 (5,845 ) Tenant improvements (2,012 ) (1,066 ) External and internal leasing commissions (2,268 ) (1,058 ) capitalized Recurring capital improvements (864 ) (1,174 ) Straight-line rents, net (608 ) (664 ) Non-cash fair value interest expense 776 1,128 Non real estate depreciation & amortization of 993 1,219 debt costs Amortization of lease intangibles, (562 ) (597 ) net Amortization and expensing of restricted share 1,633 577 and unit compensation Funds available for distribution(5) $ 25,954 $ 26,673 Note: Certain prior period amounts have been reclassified to conform to the current presentation. Three Months Ended March 31, Per share data attributable to the 2010 2009 controlling interests: Income from continuing operations (Basic) $ 0.08 $ 0.19 (Diluted) $ 0.08 $ 0.19 Net income (Basic) $ 0.09 $ 0.20 (Diluted) $ 0.09 $ 0.20 Funds from continuing operations (Basic) $ 0.47 $ 0.62 (Diluted) $ 0.47 $ 0.62 Funds from operations (Basic) $ 0.48 $ 0.64 (Diluted) $ 0.48 $ 0.64 Dividends paid $ 0.4325 $ 0.4325 Weighted average shares outstanding 59,898 52,914 Fully diluted weighted average shares outstanding 60,001 52,915 WASHINGTON REAL ESTATE INVESTMENT TRUST CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (Unaudited) March 31, December 31, 2010 2009 Assets Land $ 408,779 $ 408,779 Income producing property 1,889,281 1,886,408 2,298,060 2,295,187 Accumulated depreciation and (488,387 ) (468,291 ) amortization Net income producing property 1,809,673 1,826,896 Development in progress 25,561 25,031 Total real estate held for 1,835,234 1,851,927 investment, net Investment in real estate sold or held for sale 14,212 14,289 Cash and cash equivalents 10,758 11,203 Restricted cash 20,465 19,170 Rents and other receivables, net of allowance for doubtful accounts of $7,155 and $6,433, 52,686 50,441 respectively Prepaid expenses and other assets 93,020 97,605 Other assets related to property sold or held for 601 590 sale Total assets $ 2,026,976 $ 2,045,225 Liabilities Notes payable $ 688,358 $ 688,912 Mortgage notes payable 404,518 405,451 Lines of credit 110,000 128,000 Accounts payable and other 53,628 52,580 liabilities Advance rents 9,963 11,103 Tenant security deposits 9,736 9,668 Other liabilities related to property sold or 502 448 held for sale Total liabilities $ 1,276,705 $ 1,296,162 Shareholders' equity Shares of beneficial interest, $0.01 par value; 100,000 Shares authorized; 60,545 and 59,811 607 599 shares issued and outstanding, respectively Additional paid-in capital 966,952 944,825 Distributions in excess of net (219,094 ) (198,412 ) income Accumulated other comprehensive (2,004 ) (1,757 ) income Total shareholders' equity 746,461 745,255 Noncontrolling interests in 3,810 3,808 subsidiaries Total equity 750,271 749,063 Total liabilities and equity $ 2,026,976 $ 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 March Multifamily Office Office Retail Industrial Total 31, 2010 Core net operating $ 5,606 $ 20,779 $ 7,603 $ 7,217 $ 6,307 $ 47,512 income(4) Add: Net operating income from 1,133 539 (139 ) - - 1,533 non-core properties(4) Total net operating $ 6,739 $ 21,318 $ 7,464 $ 7,217 $ 6,307 $ 49,045 income(3) Add/(deduct): Other income 289 Interest (17,065 ) expense Gain (loss) on extinguishment (42 ) of debt Depreciation and (23,512 ) amortization General and administrative (3,838 ) expenses Income from operations of 388 properties held for sale Net income 5,265 Less: Net income attributable to (49 ) noncontrolling interests in subsidiaries Net income attributable to the $ 5,216 controlling interests Three months Medical ended March Multifamily Office Office Retail Industrial Total 31, 2009 Core net operating $ 5,707 $ 20,616 $ 7,553 $ 7,706 $ 6,859 $ 48,441 income(4) Add: Net operating income from 573 670 - - - 1,243 non-core properties(4) Total net operating $ 6,280 $ 21,286 $ 7,553 $ 7,706 $ 6,859 $ 49,684 income(3) Add/(deduct): Other income 320 Interest (19,681 ) expense Gain (loss) on extinguishment 5,845 of debt Depreciation and (22,958 ) amortization General and administrative (3,182 ) expenses Income from operations of 872 properties held for sale Net income 10,900 Less: Net income attributable to (49 ) noncontrolling interests in subsidiaries Net income attributable to the $ 10,851 controlling interests
Source: Washington Real Estate Investment Trust
Released April 29, 2010