Washington Real Estate Investment Trust Announces Fourth Quarter and Year-End Operating Results for 2008
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, 2008:
-- Net income for the year ending December 31, 2008 was $0.67 per diluted share, compared to $1.34 per diluted share in 2007. Net income for the quarter ending December 31, 2008 was $0.14 per diluted share, compared to $0.18 per diluted share in the same period one year ago. Included in the 2008 full year net income per share was a $0.17 non-recurring charge for the extinguishment of $60 million of 10-year Mandatory Par Put Remarketed Securities ("MOPPRS") and a $0.07 gain due to the repurchase of convertible debt. Additionally, 2008 full year net income per share declined $0.20 from 2007 due to higher gains from the sale of real estate in 2007. -- Funds from Operations (FFO)(1) for the year ending December 31, 2008 was $2.12 per diluted share compared to $2.31 per diluted share the prior year. FFO for the quarter ending December 31, 2008 was $0.59 per diluted share, compared to $0.59 per diluted share in the same period one year ago. Included in the 2008 full-year FFO per share was a $0.17 non-recurring charge for the extinguishment of $60 million of 10-year Mandatory Par Put Remarketed Securities ("MOPPRS") and a $0.07 gain due to the repurchase of convertible debt.
Core Net Operating Income (NOI)(2) for the year 2008 was $160.6 million compared to $161.8 million last year. Core rental rate growth was 1.9%.
Core NOI for the fourth quarter was $43.0 million compared to $45.8 million the same period one year ago. Core rental rate growth was 2.4%.
-- Office properties' core NOI for the fourth quarter decreased 3.9% compared to the same period one year ago. Rental rate growth for the office sector was 2.3% while core economic occupancy decreased 190 basis points to 93.5%. Sequentially, core economic occupancy increased from 92.5% in the third quarter of 2008. -- Retail properties' core NOI for the fourth quarter decreased 17.3% compared to the same period one year ago due in a large part to write-offs associated with the bankruptcy of Circuit City. Rental rate growth was 3.5% while core economic occupancy decreased 130 basis points to 94.8%. Sequentially, core economic occupancy increased from 94.4% in the third quarter of 2008. -- Industrial properties' core NOI for the fourth quarter decreased 8.5% compared to the same period one year ago. Rental rate growth was 2.7% while core economic occupancy decreased 340 basis points to 92.3%. Sequentially, core economic occupancy declined from 92.9% in the third quarter of 2008. -- Medical office properties' core NOI for the fourth quarter decreased 1.8% compared to the same period one year ago. Rental rate growth was 2.0% while core economic occupancy decreased 210 basis points to 96.0%. Sequentially, core economic occupancy remained relatively flat compared to 95.8% in the third quarter of 2008. -- Multifamily properties' core NOI for the fourth quarter increased 2.1% compared to the same period one year ago. Rental rate growth was 1.8% and core economic occupancy increased 200 basis points to 93.2%. Sequentially, core economic occupancy declined from 94.7% in the third quarter of 2008.
Overall core economic occupancy was 93.9% during the fourth quarter of 2008 compared to 95.4% the same period in the prior year. Sequentially, core economic occupancy increased from 93.6% in the third quarter of 2008.
During the fourth quarter, WRIT signed commercial leases for 307,000 square feet, with an average rental rate increase of 19.9% and tenant improvement costs of $15.33 per square foot. Residential rental rates increased 1.8% in the fourth quarter compared to the same period one year ago.
-- Rental rates for new and renewed office leases increased 15.9% to $29.65 per square foot, with $20.77 per square foot in tenant improvement costs. -- Rental rates for new and renewed retail leases increased 14.4% to $30.98 per square foot, with $2.14 per square foot in tenant improvement costs. -- Rental rates for new and renewed medical office leases increased 26.0% to $41.07 per square foot, with $27.56 per square foot in tenant improvement costs. -- Rental rates for new and renewed industrial/flex leases increased 26.3% to $12.18 per square foot, with $3.37 per square foot in tenant improvement costs.
For the full year, WRIT signed commercial leases for 1,508,000 square feet, with an average rental rate increase of 19.4% and tenant improvement costs of $8.44 per square foot.
On December 2, 2008, WRIT acquired 2445 M Street, NW, a 290,000 square foot Class A office building with a two-level parking garage in Washington, D.C. for $181.4 million. The property is 100% leased to two high-quality tenants under long-term leases. The Advisory Board Company occupies 180,000 square feet and Patton Boggs LLP occupies 110,000 square feet. WRIT expects to achieve a first-year, leveraged yield of 6.7% on a cash basis and 7.2% on a GAAP basis. At closing, WRIT assumed a $101.9 million loan with an interest rate of 5.619% per annum with the remaining balance funded with cash and borrowings from our lines of credit, which were subsequently paid down in part with proceeds from the sale of Sullyfield Center and The Earhart Building.
On October 1, 2008, WRIT closed a $60.4 million offering of 1.725 million common shares at an offering price of $35.00 per share. WRIT used the proceeds from the offering to repay borrowings under its lines of credit and for general corporate purposes. In December 2008, WRIT repurchased $16,000,000 of its 3.875% convertible notes. WRIT repurchased the notes at a discount price of 75% of par for $12,000,000. In conjunction with the repurchase, WRIT reported a gain of approximately $3,493,000 in the fourth quarter of 2008.
On December 31, 2008, WRIT paid a quarterly dividend of $0.4325 per share for its 188th consecutive quarterly dividend at equal or increasing rates.
As of December 31, 2008 WRIT had a total capitalization of $2.9 billion.
Management estimates that 2009 FFO per diluted share earnings should range from $1.95 - $2.15. This guidance takes into account approximately $0.10 per share interest expense adjustments related to the new convertible debt accounting rules and fair value accounting treatment for the loan on our 2445 M Street acquisition. Additionally, our guidance includes:
-- Increasing bad debt expense as a percentage of revenue earned in 2009 in anticipation of the potential future impact of continued deteriorating economic conditions in the real estate markets. -- Taking a more conservative projection for vacancy by assuming lower retention and longer lease up of vacant or expiring space. -- Assuming our overall cost of capital will rise throughout the year given rates on our lines of credit currently hover around 1%. -- Increasing cap rate assumptions on approximately $50 - $70 million of planned dispositions and a nominal level of acquisitions. -- Accounting for the full year impact of the additional shares we issued last year.
Conference Call Information
The Conference Call for 4th Quarter Earnings is scheduled for Friday, February 20, 2009 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 March 6, 2009 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: 308562
The live on-demand webcast of the Conference Call will also be available on the Investor section of WRIT's website at www.writ.com. On-line playback of the webcast will be available at 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 93 properties consisting of 28 office properties, 22 industrial/flex properties, 17 medical office properties, 14 retail centers, 12 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 2007 Form 10-K and our third-quarter 2008 10-Q. 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. FFO is a non-GAAP measure.
(2) Net Operating income ("NOI") is calculated as real estate rental revenue less real estate expenses. 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. 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 Properties(i)and All Properties Core Properties All Properties Sector 4th QTR 4th QTR 4th QTR 4th QTR 2008 2007 2008 2007 Residential 93.2% 91.2% 87.6% (ii) 84.9% Office 93.5% 95.4% 93.2% 95.5% Medical Office 96.0% 98.1% 95.2% 98.1% Retail 94.8% 96.1% 94.8% 96.1% Industrial 92.3% 95.7% 92.5% 95.5% Overall Portfolio 93.9% 95.4% 92.6% 94.3%
(i) Core properties include all properties that were owned for the entirety of the current and prior year reporting periods. For Q4 2008 and Q4 2007, core properties exclude: Residential Acquisition: The Kenmore Office Acquisition: 2445 M Street, 2000 M Street Medical Office Acquisitions: Sterling Medical Office Building Retail Acquisitions: none Industrial Acquisition: 6100 Columbia Pike Drive Also excluded from Core Properties in Q4 2008 and Q4 2007 are Sold Properties: Sullyfield Center and The Earhart Building; Held for Sale Property: Avondale; and In Development Properties: Bennett Park, Clayborne Apartments, Dulles Station, and 4661 Kenmore Ave. (ii) Residential occupancy for all properties reflects the completion of Bennett Park and Clayborne Apartments. At 12/31/08, 174 of 224 units were leased at Bennett Park and 47 of 74 units were leased 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 2008 2007 2008 2007 RESULTS Revenue Real estate $ 73,085 $ 66,802 $ 282,312 $ 252,732 rental revenue Expenses Real estate 25,471 20,897 94,573 78,414 expenses Depreciation and 23,630 18,826 86,429 69,136 amortization General and 3,350 3,675 12,321 15,099 administrative 52,451 43,398 193,323 162,649 Real estate operating 20,634 23,404 88,989 90,083 income Other income/ (expense): Interest (17,515 ) (16,400 ) (69,909 ) (61,906 ) expense Gain (loss) on extinguishment 3,493 - (4,956 ) - of debt Other income 277 480 1,073 1,875 Gain from non-disposal - - 17 1,303 activities (13,745 ) (15,920 ) (73,775 ) (58,728 ) Income from continuing 6,889 7,484 15,214 31,355 operations Discontinued operations: Income from operations of 353 958 2,352 5,504 properties held for sale Gain on sale - - 15,275 25,022 of real estate Net Income $ 7,242 $ 8,442 $ 32,841 $ 61,881 Income from continuing $ 6,889 $ 7,484 $ 15,214 $ 31,355 operations Gain from non-disposal - - (17 ) (1,303 ) activities Continuing operations real estate 23,630 18,826 86,429 69,136 depreciation and amortization Funds from continuing $ 30,519 $ 26,310 $ 101,626 $ 99,188 operations Income from discontinued operations 353 958 2,352 5,504 before gain on sale Discontinued operations real estate - 259 469 1,889 depreciation and amortization Funds from discontinued 353 1,217 2,821 7,393 operations Funds from $ 30,872 $ 27,527 $ 104,447 $ 106,581 Operations(1) Tenant (2,759 ) (5,026 ) (11,350 ) (16,587 ) improvements External and internal leasing (1,184 ) (1,613 ) (6,487 ) (6,005 ) commissions capitalized Recurring capital (2,688 ) (3,899 ) (9,792 ) (11,895 ) improvements Straight-line (517 ) (957 ) (2,752 ) (4,204 ) rents, net Non-cash fair value interest (827 ) - (827 ) - expense Non real estate depreciation & 988 1,011 3,971 3,572 amortization of debt costs Amortization of lease (47 ) (191 ) (1,623 ) (1,381 ) intangibles, net Amortization and expensing of restricted 417 850 2,538 4,088 share and unit compensation Other - - - 1,303 Funds Available for $ 24,255 $ 17,702 $ 78,125 $ 75,472 Distribution (3) 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 2008 2007 2008 2007 Income from continuing (Basic) $ 0.13 $ 0.16 $ 0.31 $ 0.68 operations (Diluted) $ 0.13 $ 0.16 $ 0.31 $ 0.68 Net income (Basic) $ 0.14 $ 0.18 $ 0.67 $ 1.35 (Diluted) $ 0.14 $ 0.18 $ 0.67 $ 1.34 Funds from continuing (Basic) $ 0.58 $ 0.56 $ 2.07 $ 2.16 operations (Diluted) $ 0.58 $ 0.56 $ 2.06 $ 2.15 Funds from (Basic) $ 0.59 $ 0.59 $ 2.13 $ 2.32 operations (Diluted) $ 0.59 $ 0.59 $ 2.12 $ 2.31 Dividends paid $ 0.4325 $ 0.4225 $ 1.7200 $ 1.6800 Weighted average shares 52,358 46,604 49,138 45,911 outstanding Fully diluted weighted 52,604 46,822 49,373 46,115 average shares outstanding
WASHINGTON REAL ESTATE INVESTMENT TRUST CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (Unaudited) December 31, December 31, 2008 2007 Assets Land $ 416,576 $ 325,490 Income producing property 1,868,500 1,621,679 2,285,076 1,947,169 Accumulated depreciation and amortization (401,539 ) (327,759 ) Net income producing property 1,883,537 1,619,410 Development in progress 23,630 98,321 Total real estate held for investment, net 1,907,167 1,717,731 Investment in real estate sold or held for sale 12,526 36,562 Cash and cash equivalents 11,874 21,485 Restricted cash 18,823 6,030 Rents and other receivables, net of allowance for 45,439 36,548 doubtful accounts of $6,308 and $4,196 Prepaid expenses and other assets 115,401 78,394 Other assets related to property sold or held for 161 1,576 sale Total assets $ 2,111,391 $ 1,898,326 Liabilities Notes payable $ 902,900 $ 879,123 Mortgage notes payable 421,286 252,484 Lines of credit 67,000 192,500 Accounts payable and other liabilities 70,575 63,327 Advance rents 9,016 9,537 Tenant security deposits 10,298 10,419 Other liabilities related to property sold or 128 616 held for sale Total liabilities 1,481,203 1,408,006 Minority interest 3,795 3,776 Shareholders' equity Shares of beneficial interest, $0.01 par value; 100,000 shares authorized; 52,434 and 46,682 526 468 shares issued and outstanding, respectively Additional paid-in capital 756,341 561,492 Distributions in excess of net income (128,139 ) (75,416 ) Accumulated other comprehensive income (2,335 ) - Total shareholders' equity 626,393 486,544 Total liabilities and shareholders' equity $ 2,111,391 $ 1,898,326 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 ended December Medical 31, 2008 Multifamily Office Office Retail Industrial Total Core net operating $ 4,766 $ 16,899 $ 7,307 $ 6,966 $ 7,075 $ 43,013 income Add: Net operating income from 1,388 2,921 32 - 260 4,601 non-core properties Total net operating $ 6,154 $ 19,820 $ 7,339 $ 6,966 $ 7,335 $ 47,614 income Add/(deduct): Other income 277 Interest (17,515 ) expense Gain (loss) on extinguishment 3,493 of debt Depreciation and (23,630 ) amortization expense General and administrative (3,350 ) expenses Income from operations of 353 properties held for sale Net income $ 7,242 Three months ended December Medical 31, 2007 Multifamily Office Office Retail Industrial Total Core net operating $ 4,668 $ 17,577 $ 7,444 $ 8,420 $ 7,731 $ 45,840 income Add: Net operating income (loss) (112 ) 177 - - - 65 from non-core properties Total net operating $ 4,556 $ 17,754 $ 7,444 $ 8,420 $ 7,731 $ 45,905 income Add/(deduct): Other income 480 Interest (16,400 ) expense Depreciation and (18,826 ) amortization expense General and administrative (3,675 ) expenses Income from operations of 958 properties held for sale Net income $ 8,442 Twelve months ended December Medical 31, 2008 Multifamily Office Office Retail Industrial Total Core net operating $ 18,884 $ 62,150 $ 20,613 $ 31,341 $ 27,611 $ 160,599 income Add: Net operating income from 1,538 14,039 8,804 - 2,759 27,140 non-core properties Total net operating $ 20,422 $ 76,189 $ 29,417 $ 31,341 $ 30,370 $ 187,739 income Add/(deduct): Other income 1,073 Gain from non-disposal 17 activities Interest (69,909 ) expense Gain (loss) on extinguishment (4,956 ) of debt Depreciation and (86,429 ) amortization expense General and administrative (12,321 ) expenses Income from operations of 2,352 properties held for sale Gain on sale 15,275 of real estate Net income $ 32,841 Twelve months ended December Medical 31, 2007 Multifamily Office Office Retail Industrial Total Core net operating $ 18,266 $ 62,229 $ 20,660 $ 32,591 $ 28,051 $ 161,797 income Add: Net operating income (loss) (364 ) 5,536 5,536 - 1,813 12,521 from non-core properties Total net operating $ 17,902 $ 67,765 $ 26,196 $ 32,591 $ 29,864 $ 174,318 income Add/(deduct): Other income 1,875 Gain from non-disposal 1,303 activities Interest (61,906 ) expense Depreciation and (69,136 ) amortization expense General and administrative (15,099 ) expenses Income from operations of 5,504 properties held for sale Gain on sale 25,022 of real estate Net income $ 61,881
Source: Washington Real Estate Investment Trust (WRIT)
Released February 19, 2009