Washington Real Estate Investment Trust Announces Fourth Quarter and Year-End Operating Results for 2009
ROCKVILLE, Md.--(BUSINESS WIRE)-- Washington Real Estate Investment Trust (WRIT) (NYSE:WRE) reported financial and operating results today for the quarter and year ending December 31, 2009:
-- Net income attributable to the controlling interests for the year ending
December 31, 2009 was $40.7 million, or $0.71 per diluted share,
compared to $27.1 million, or $0.55 per diluted share, in 2008. Included
in 2009 net income per share is a $0.09 gain on extinguishment of debt.
Included in 2008 net income per share is an $0.11 loss related to the
extinguishment of debt. Also included in 2009 and 2008 full year net
income per share are respective charges of $0.13 and $0.12 per diluted
share from the adoption of an accounting pronouncement impacting the
accounting of our 3.875% convertible notes(1).
-- Net income attributable to the controlling interests for the quarter
ending December 31, 2009 was $7.3 million, or $0.12 per diluted share,
compared to $5.3 million, or $0.10 per diluted share, in the same period
one year ago. Included in the fourth quarter 2009 and fourth quarter
2008 net income are respective charges of $0.01 and $0.04 per diluted
share from the adoption of an accounting pronouncement impacting the
accounting of our 3.875% convertible notes(1).
-- Funds from Operations (FFO)(2) for the year ending December 31, 2009 was
$121.8 million, or $2.14 per diluted share, compared to $98.7 million,
or $2.00 per diluted share, in 2008. FFO for the quarter ending December
31, 2009 was $29.7 million, or $0.50 per diluted share, compared to
$28.9 million, or $0.55 per diluted share, in the same period one year
ago.
Capital Structure
In the fourth quarter, WRIT used capacity on its line of credit to prepay its $100 million unsecured term loan due in November 2011, incurring a one-time charge of $1.5 million. WRIT also repurchased $8.1 million of its 3.875% convertible notes at an average discounted price of 96.9% of par for approximately $7.8 million. Subsequent to the quarter end, WRIT repurchased an additional $1.2 million of its convertible notes at an average discounted price of 99.3% of par.
WRIT completed the sale of Crossroads Distribution Center, an 85,000 square foot industrial property in Elkridge, Maryland, for $4.4 million and a net book gain of $1.5 million.
On December 31, 2009, WRIT paid a quarterly dividend of $0.4325 per share for its 192nd consecutive quarterly dividend at equal or increasing rates.
As of December 31, 2009, WRIT had a total market capitalization of $2.9 billion.(3)
Operating Results
Overall portfolio economic occupancy for the fourth quarter was 92.4%, compared to 92.6% in the same period one year ago and 93.0% in the third quarter of 2009. Overall portfolio Net Operating Income (NOI)(4) was $51.7 million compared to $47.1 million in the same period one year ago and $49.7 million in the third quarter of 2009.
Core(5) portfolio economic occupancy for the fourth quarter was 92.7%, a decrease of 100 basis points (bps) from the same period one year ago. Compared to the third quarter, core portfolio economic occupancy decreased 10 bps. Core portfolio NOI for the fourth quarter increased 4.8% and rental rate growth was 1.9% compared to the same period one year ago.
-- Multifamily properties' core NOI for the fourth quarter increased 0.8%
compared to the same period one year ago. Rental rate growth was -1.8%
while core economic occupancy increased 170 bps to 94.5%. Sequentially,
core economic occupancy increased 20 bps from the third quarter of 2009.
The multifamily segment contributed 13.4% of our overall NOI for the
fourth quarter of 2009.
-- Office properties' core NOI for the fourth quarter increased 6.6%
compared to the same period one year ago. Rental rate growth was 5.5%
while core economic occupancy decreased 130 bps to 92.0%. Sequentially,
core economic occupancy increased 30 bps from the third quarter of 2009.
The office segment contributed 44.0% of our overall NOI for the fourth
quarter of 2009.
-- Medical office properties' core NOI for the fourth quarter increased
2.1% compared to the same period one year ago. Rental rate growth was
2.4% while core economic occupancy increased 70 bps to 95.9%.
Sequentially, core economic occupancy decreased 10 bps from the third
quarter of 2009. The medical office segment contributed 14.3% of our
overall NOI for the fourth quarter of 2009.
-- Retail properties' core NOI for the fourth quarter increased 16.3%
compared to the same period one year ago. Rental rate growth was -0.3%
while core economic occupancy decreased 40 bps to 94.4%. Sequentially,
core economic occupancy increased 40 bps from the third quarter of 2009.
The retail segment contributed 15.7% of our overall NOI for the fourth
quarter of 2009.
-- Industrial properties' core NOI for the fourth quarter decreased 5.2%
compared to the same period one year ago. Rental rate growth was -3.1%
while core economic occupancy decreased 590 bps to 87.1%. Sequentially,
core economic occupancy decreased 250 bps from the third quarter of
2009. The industrial segment contributed 12.6% of our overall NOI for
the fourth quarter of 2009.
Leasing Activity
During the fourth quarter, WRIT signed commercial leases for 308,019 square feet with an average rental rate increase of 4.2% over expiring lease rates, an average lease term of 5.4 years, tenant improvement costs of $9.60 per square foot and leasing costs of $9.63 per square foot.
-- Rental rates for new and renewed office leases increased 0.1% to $29.90
per square foot, with $10.71 per square foot in tenant improvement costs
and $12.83 per square foot in leasing costs.
-- Rental rates for new and renewed medical office leases increased 28.0%
to $38.88 per square foot, with $21.48 per square foot in tenant
improvement costs and $20.48 per square foot in leasing costs.
-- Rental rates for new and renewed retail leases decreased 0.2% to $13.67
per square foot, with $7.48 per square foot in tenant improvement costs
and $4.38 per square foot in leasing costs.
-- Rental rates for new and renewed industrial/flex leases decreased 3.3%
to $9.02 per square foot, with $1.45 per square foot in tenant
improvement costs and $2.69 per square foot in leasing costs.
Residential rental rates decreased 1.8% in the fourth quarter compared to the same period one year ago.
Earnings Guidance
For 2010, WRIT expects FFO per fully diluted share to be $1.86 - $2.00. The following assumptions are incorporated into this guidance:
-- Effective occupancy, which accounts for vacancy, bad debt and abatements
as a percentage of minimum rent, ended 2009 at 11.8% and is expected to
range between 11.5% and 12.5% throughout 2010. Every 100 basis point
change in effective occupancy equates to approximately $0.05 per fully
diluted share in FFO on an annual basis.
-- Net operating income is expected to decline by a range of $0.00 - $0.05,
including snow removal costs of $0.02 per fully diluted share after
reimbursements.
-- Dilution from the full year impact of issuing additional equity last
year to reduce overall leverage is expected to lower FFO per fully
diluted share by an additional $0.10 in 2010.
-- Straight-line rent impact of the lease signed at 1776 G Street in
mid-2009 is expected to add approximately $0.01 per fully diluted share
to FFO as compared to 2009 results.
-- Interest expense for 2010 is estimated to range between $0.02 - $0.05
per fully diluted share lower than reported 2009 results due to the
reduction in overall debt. This range includes a swap termination charge
of $0.02 - $0.04 per fully diluted share depending on interest rates at
the time of payment.
-- General and administrative expense is estimated to range between $0.00 -
$0.02 per fully diluted share lower than 2009 results.
-- Acquisition volume of $50 - $150 million will negatively impact FFO by
$0.00 - $0.03 per fully diluted share primarily due to the expensing of
acquisition costs.
-- Disposition volume of $25 - $75 million will negatively impact FFO by
$0.02 - $0.03 per fully diluted share.
Conference Call Information
The Conference Call for 4th Quarter Earnings is scheduled for Friday, February 19, 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 March 5, 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: 341356
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 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 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 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 our earnings release and on our conference call 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 2008 Form 10-K, our third quarter 2009 10-Q and our Form 8-K filed July 10, 2009. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.
(1) Financial Accounting Standards Board Staff Position APB14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) ("FSP 14-1"), requires the bifurcation of a component of our 3.875% convertible notes, classification of that component in shareholders' equity, and accretion of the resulting discount on the convertible notes to interest expense. As a result of the adoption of FSP 14-1, equity increased by $21.0 million as of December 31, 2009 and 2008. The principal balance of our 3.875% convertible notes was reduced by $4.3 million and $12.0 million as of December 31, 2009 and 2008, respectively, and the unamortized balance of the related loan origination costs was reduced by $2.1 million and $2.7 million, respectively. The decline in principal reflects the unamortized discount balance related to the adoption of FSP 14-1. Interest expense increased $3.6 million and $5.1 million in 2009 and 2008, respectively, as a result of the adoption. The gain (loss) on extinguishment of debt decreased $3.6 million and $0.6 million in 2009 and 2008, respectively, as a result of the adoption. Interest expense increased $0.7 million in the fourth quarter of 2009 and $1.3 million in the fourth quarter of 2008 as a result of the adoption. The gain (loss) on extinguishment of debt decreased $0.2 million in the fourth quarter of 2009 and $0.6 million in the fourth quarter of 2008 as a result of the adoption.
(2) 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.
(3) Total market capitalization is calculated by multiplying the total outstanding common shares at period end by 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.
(4) 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.
(5) 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.
(6) 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 4th QTR 4th QTR 4th QTR 4th QTR
2009 2008 2009 2008
Residential 94.5% 92.8% 94.1% (ii) 87.6%
Office 92.0% 93.3% 92.6% 93.2%
Medical Office 95.9% 95.2% 92.7% 95.2%
Retail 94.4% 94.8% 94.4% 94.8%
Industrial 87.1% 93.0% 87.3% 92.5%
Overall Portfolio 92.7% 93.7% 92.4% 92.6%
((i)) Core properties include all properties that were owned for the entirety of the current and prior year reporting periods. For Q4 2009 and Q4 2008, core properties exclude: Residential Acquisitions: none; Office Acquisition: 2445 M Street; Medical Office Acquisition: Lansdowne Medical Office Building; Retail Acquisitions: none; Industrial Acquisitions: none. Also excluded from Core Properties in Q4 2009 and Q4 2008 are: Sold Properties: Avondale, Brandywine Center, Tech 100 and Crossroads Distribution Center; Held for Sale Property: Charleston Business Center; 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 12/31/09, 218 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 December 31, Twelve Months Ended December
31,
OPERATING 2009 2008 2009 2008
RESULTS
Revenue
Real estate $ 77,866 $ 72,286 $ 306,929 $ 278,691
rental revenue
Expenses
Real estate 26,164 25,216 104,573 93,499
expenses
Depreciation
and 23,947 23,446 94,042 85,659
amortization
General and 3,174 3,297 13,906 12,110
administrative
53,285 51,959 212,521 191,268
Real estate
operating 24,581 20,327 94,408 87,423
income
Other income
(expense):
Interest (17,780 ) (18,854 ) (75,001 ) (75,041 )
expense(1)
Investment 284 277 1,205 1,073
income
Gain (loss) on
extinguishment (1,595 ) 2,866 5,336 (5,583 )
of debt(1)
Gain from
non-disposal 11 - 73 17
activities
(19,080 ) (15,711 ) (68,387 ) (79,534 )
Income from
continuing 5,501 4,616 26,021 7,889
operations
Discontinued
operations:
Income from
operations of 275 712 1,579 4,129
properties
held for sale
Gain on sale 1,527 - 13,348 15,275
of real estate
Net income 7,303 5,328 40,948 27,293
Less: Net
income
attributable
to (49 ) (53 ) (203 ) (211 )
noncontrolling
interests in
subsidiaries
Net income
attributable
to the $ 7,254 $ 5,275 $ 40,745 $ 27,082
controlling
interests
Income from
continuing
operations
attributable $ 5,452 $ 4,563 $ 25,818 $ 7,678
to the
controlling
interests
Gain from
non-disposal (11 ) - (73 ) (17 )
activities
Continuing
operations
real estate 23,947 23,446 94,042 85,659
depreciation
and
amortization
Funds from
continuing $ 29,388 $ 28,009 $ 119,787 $ 93,320
operations
Income from
discontinued
operations 275 712 1,579 4,129
before gain on
sale
Discontinued
operations
real estate 1 184 405 1,239
depreciation
and
amortization
Funds from
discontinued 276 896 1,984 5,368
operations
Funds from $ 29,664 $ 28,905 $ 121,771 $ 98,688
operations(2)
Non-cash
(gain) loss on 595 (2,866 ) (6,336 ) (2,866 )
extinguishment
of debt
Tenant (4,425 ) (2,759 ) (12,490 ) (11,350 )
improvements
External and
internal
leasing (1,058 ) (1,184 ) (5,845 ) (6,487 )
commissions
capitalized
Recurring
capital (1,442 ) (2,688 ) (6,356 ) (9,792 )
improvements
Straight-line (1,527 ) (517 ) (3,379 ) (2,752 )
rents, net
Non-cash fair
value interest 773 266 3,595 3,441
expense
Non real
estate
depreciation & 1,037 1,261 4,555 5,039
amortization
of debt costs
Amortization
of lease (777 ) (47 ) (2,587 ) (1,623 )
intangibles,
net
Amortization
and expensing
of restricted 820 417 3,460 2,538
share and unit
compensation
Funds
available for $ 23,660 $ 20,788 $ 96,388 $ 74,836
distribution
(6)
Note: Certain prior period amounts have been reclassified to conform to the
current presentation.
Three Months Ended December Twelve Months Ended
31, December 31,
Per share data
attributable to 2009 2008 2009 2008
the controlling
interests:
Income from
continuing (Basic) $ 0.09 $ 0.09 $ 0.45 $ 0.15
operations
(Diluted) $ 0.09 $ 0.09 $ 0.45 $ 0.15
Net income (Basic) $ 0.12 $ 0.10 $ 0.71 $ 0.55
(Diluted) $ 0.12 $ 0.10 $ 0.71 $ 0.55
Funds from
continuing (Basic) $ 0.49 $ 0.53 $ 2.10 $ 1.90
operations
(Diluted) $ 0.49 $ 0.53 $ 2.10 $ 1.89
Funds from (Basic) $ 0.50 $ 0.55 $ 2.14 $ 2.01
operations
(Diluted) $ 0.50 $ 0.55 $ 2.14 $ 2.00
Dividends paid $ 0.4325 $ 0.4325 $ 1.7300 $ 1.7200
Weighted
average shares 59,735 52,358 56,894 49,138
outstanding
Fully diluted
weighted 59,833 52,387 56,968 49,217
average shares
outstanding
WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
December 31, December 31,
2009 2008
Assets
Land $ 412,137 $ 410,833
Income producing property 1,899,378 1,854,008
2,311,515 2,264,841
Accumulated depreciation and amortization (474,171 ) (394,902 )
Net income producing property 1,837,344 1,869,939
Development in progress 25,031 23,732
Total real estate held for investment, net 1,862,375 1,893,671
Investment in real estate sold or held for sale 3,841 26,734
Cash and cash equivalents 11,203 11,874
Restricted cash 19,170 18,823
Rents and other receivables, net of allowance for
doubtful accounts of $6,455 and $6,122, 50,525 44,675
respectively
Prepaid expenses and other assets(1) 97,815 112,284
Other assets related to property sold or held for 296 1,346
sale
Total assets $ 2,045,225 $ 2,109,407
Liabilities
Notes payable(1) $ 688,912 $ 890,679
Mortgage notes payable 405,451 421,286
Lines of credit 128,000 67,000
Accounts payable and other liabilities 52,649 70,538
Advance rents 11,211 8,926
Tenant security deposits 9,854 10,084
Other liabilities related to property sold or held 85 469
for sale
Total liabilities $ 1,296,162 $ 1,468,982
Shareholders' equity
Shares of beneficial interest, $0.01 par value;
100,000
Shares authorized;59,811 and 52,434
shares issued and outstanding, respectively 599 526
Additional paid-in capital(1) 944,825 777,375
Distributions in excess of net income (198,412 ) (138,936 )
Accumulated other comprehensive income (1,757 ) (2,335 )
Total shareholders' equity 745,255 636,630
Noncontrolling interests in subsidiaries 3,808 3,795
Total equity 749,063 640,425
Total liabilities and equity $ 2,045,225 $ 2,109,407
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 December Multifamily Office Retail Industrial Total 31, 2009 Office Core net operating $ 5,877 $ 19,352 $ 7,492 $ 8,101 $ 6,507 $ 47,329 income(4) Add: Net operating income from 1,042 3,418 (87 ) - - 4,373 non-core properties(4) Total net operating $ 6,919 $ 22,770 $ 7,405 $ 8,101 $ 6,507 $ 51,702 income(3) Add/(deduct): Other income 284 Gain from non-disposal 11 activities Interest (17,780 ) expense Gain (loss) on extinguishment (1,595 ) of debt Depreciation and (23,947 ) amortization General and administrative (3,174 ) expenses Income from operations of 275 properties held for sale Gain on sale 1,527 of real estate Net income 7,303 Less: Net income attributable to (49 ) noncontrolling interests in subsidiaries Net income attributable to the $ 7,254 controlling interests Three months Medical ended December Multifamily Office Retail Industrial Total 31, 2008 Office Core net operating $ 5,832 $ 18,147 $ 7,339 $ 6,965 $ 6,862 $ 45,145 income(4) Add: Net operating income from 322 1,603 - - - 1,925 non-core properties(4) Total net operating $ 6,154 $ 19,750 $ 7,339 $ 6,965 $ 6,862 $ 47,070 income(3) Add/(deduct): Other income 277 Interest (18,854 ) expense Gain (loss) on extinguishment 2,866 of debt Depreciation and (23,446 ) amortization General and administrative (3,297 ) expenses Income from operations of 712 properties held for sale Net income 5,328 Less: Net income attributable to (53 ) noncontrolling interests in subsidiaries Net income attributable to the $ 5,275 controlling interests
The following tables contain reconciliations of net income to core net operating income for the periods presented: Twelve months Medical ended December Multifamily Office Retail Industrial Total 31, 2009 Office Core net operating $ 19,527 $ 73,482 $ 29,577 $ 31,141 $ 25,881 $ 179,608 income(4) Add: Net operating income from 7,449 14,077 116 - 1,106 22,748 non-core properties(4) Total net operating $ 26,976 $ 87,559 $ 29,693 $ 31,141 $ 26,987 $ 202,356 income(3) Add/(deduct): Other income 1,205 Gain from non-disposal 73 activities Interest (75,001 ) expense Gain (loss) on extinguishment 5,336 of debt Depreciation and (94,042 ) amortization General and administrative (13,906 ) expenses Income from operations of 1,579 properties held for sale Gain on sale 13,348 of real estate Net income 40,948 Less: Net income attributable to (203 ) noncontrolling interests in subsidiaries Net income attributable to the $ 40,745 controlling interests Twelve months Medical ended December Multifamily Office Retail Industrial Total 31, 2008 Office Core net operating $ 18,884 $ 74,729 $ 29,286 $ 31,340 $ 27,327 $ 181,566 income(4) Add: Net operating income from 1,538 1,137 131 - 820 3,626 non-core properties(4) Total net operating $ 20,422 $ 75,866 $ 29,417 $ 31,340 $ 28,147 $ 185,192 income(3) Add/(deduct): Other income 1,073 Gain from non-disposal 17 activities Interest (75,041 ) expense Gain (loss) on extinguishment (5,583 ) of debt Depreciation and (85,659 ) amortization General and administrative (12,110 ) expenses Income from operations of 4,129 properties held for sale Gain on sale 15,275 of real estate Net income 27,293 Less: Net income attributable to (211 ) noncontrolling interests in subsidiaries Net income attributable to the $ 27,082 controlling interests
Source: Washington Real Estate Investment Trust (WRIT)
Released February 18, 2010