Washington Real Estate Investment Trust
 
 
Third Quarter 2015
 
 
 
 
Supplemental Operating and Financial Data
 
 
Contact:
 
1775 Eye Street, NW
 
 
Tejal R. Engman
 
 Suite 1000
 
 
Director of Investor Relations
 
Washington, DC 20006
 
 
E-mail: tengman@washreit.com
 
(202) 774-3200
 
 
 
 
(301) 984-9610 fax
 
 
 
 
 
 
 
 



Company Background and Highlights
Third Quarter 2015


Washington Real Estate Investment Trust ("Washington REIT") is a self-administered equity real estate investment trust investing in income-producing properties in the greater Washington, DC region. Washington REIT has a diversified portfolio with investments in office, retail, and multifamily properties and land for development.

Third Quarter 2015 Highlights

•
Generated Core Funds from Operations (FFO) of $0.45 per fully diluted share for the third quarter, a $0.03 increase over second quarter of 2015 and a $0.02 increase over third quarter of 2014
•
Maintained same-store portfolio occupancy of 92.4%, while increasing overall portfolio occupancy by 70 basis points over second quarter 2015 to 90.7%
•
Executed new and renewal commercial leases totaling 412,000 square feet, the Company's strongest quarterly leasing performance this year, with new leases delivering an average rental rate increase of 28.5% over in-place rents
•
Acquired The Wellington, a 711-unit apartment community with the opportunity to renovate approximately 680 units and on-site density to develop approximately 360 additional units, for $167.0 million
•
Subsequent to quarter end, sold Munson Hill Towers, a 279 unit Class B apartment building located in Falls Church,VA, for $57.1 million
•
Tightened the 2015 Core FFO guidance range to $1.68 to $1.70 from $1.68 to $1.72 per fully diluted share, lowering the mid-point by one cent per share to $1.69

Washington REIT signed commercial leases totaling 412,000 square feet, including 167,000 square feet of new leases and 245,000 square feet of renewal leases. New leases had an average rental rate increase of 28.5% over expiring lease rates and a weighted average lease term of 8.3 years. Commercial tenant improvement costs were $59.68 per square foot and leasing commissions and incentives were $37.05 per square foot for new leases. Renewal leases had an average rental rate decrease of 7.0% from expiring lease rates and a weighted average lease term of 3.1 years. Commercial tenant improvement costs were $2.52 per square foot and leasing commissions and incentives were $3.53 per square foot for renewal leases.

On September 9, 2015, Washington REIT sold its interest in a parcel of land (1225 First Street) in Alexandria, Virginia, for $14.5 million.

On October 21, 2015, Washington REIT sold Munson Hill Towers, a 258,000 square foot Class B high-rise of 279 units located in Falls Church, Virginia, for $57.1 million, or approximately $204,480 per unit. The sale is structured as part of a reverse-1031 exchange in connection with the acquisition of The Wellington, which the Company acquired in the third quarter of 2015.

On September 15, 2015, Washington REIT entered into a five and a half year $150 million unsecured term loan maturing on March 15, 2021 by exercising a portion of the accordion feature under its existing unsecured credit facility. The term loan proceeds were used to repay amounts outstanding on the credit facility. Washington REIT entered into an interest rate swap to swap from a LIBOR plus 110 basis points floating interest rate to a 2.72% all-in fixed interest rate commencing October 15, 2015. The term loan fits well on Washington REIT's debt maturity ladder and provides the Company with greater flexibility to accelerate legacy asset sales.

As of September 30, 2015, Washington REIT owned a diversified portfolio of 56 properties, totaling approximately 7 million square feet of commercial space and 3,537 multifamily units, and land held for development. These 56 properties consist of 25 office properties, 17 retail centers and 14 multifamily properties. Washington REIT shares are publicly traded on the New York Stock Exchange (NYSE:WRE)



Company Background and Highlights
Third Quarter 2015

Net Operating Income Contribution by Sector - Third Quarter 2015



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. Forward-looking statements include statements in this earnings release preceded by, followed by or that include the words “believe,” “expect,” “intend,” “anticipate,” “potential,” “project,” “will” and other similar expressions. 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 potential for federal government budget reductions, changes in general and local economic and real estate market conditions, the timing and pricing of lease transactions, the availability and cost of capital, fluctuations in interest rates, tenants' financial conditions, levels of competition, the effect of government regulation, the impact of newly adopted accounting principles, and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2014 Form 10-K and subsequent Quarterly Reports on Form 10-Q. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.



Supplemental Financial and Operating Data

Table of Contents
September 30, 2015
 
 
 
Schedule
Page
Key Financial Data
 
 
 
 
 
 
Capital Analysis
 
 
 
 
 
Portfolio Analysis
 
 
 
 
 
 
Growth and Strategy
 
 
 
Tenant Analysis
 
 
 
 
 
 
Appendix
 
 
 




Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

 
 
Three Months Ended
OPERATING RESULTS
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Real estate rental revenue
$
78,243

 
$
74,226

 
$
74,856

 
$
74,359

 
$
73,413

Real estate expenses
(28,109
)
 
(27,229
)
 
(29,208
)
 
(25,911
)
 
(25,914
)
 
50,134

 
46,997

 
45,648

 
48,448

 
47,499

Real estate depreciation and amortization
(29,349
)
 
(25,503
)
 
(25,275
)
 
(24,503
)
 
(24,354
)
Income from real estate
20,785

 
21,494

 
20,373

 
23,945

 
23,145

Interest expense
(14,486
)
 
(14,700
)
 
(15,348
)
 
(15,183
)
 
(15,087
)
Other income
163

 
192

 
192

 
191

 
192

Acquisition costs
(929
)
 
(992
)
 
(16
)
 
(663
)
 
(69
)
Real estate impairment
—

 
(5,909
)
 
—

 
—

 
—

Gain on sale of real estate
—

 
1,454

 
30,277

 
—

 
—

Loss on extinguishment of debt
—

 
(119
)
 
—

 
—

 
—

General and administrative
(4,953
)
 
(4,306
)
 
(6,080
)
 
(5,981
)
 
(4,523
)
Income (loss) from continuing operations
580

 
(2,886
)
 
29,398

 
2,309

 
3,658

Discontinued operations:
 
 
 
 
 
 
 
 
 
Loss on sale of real estate
—

 
—

 
—

 
—

 
—

Loss from discontinued operations
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
Net income (loss)
580

 
(2,886
)
 
29,398

 
2,309

 
3,658

Less: Net loss from noncontrolling interests
67

 
340

 
108

 
21

 
10

Net income (loss) attributable to the controlling interests
$
647

 
$
(2,546
)
 
$
29,506

 
$
2,330

 
$
3,668

Per Share Data:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
0.01

 
$
(0.04
)
 
$
0.43

 
$
0.03

 
$
0.05

Fully diluted weighted average shares outstanding
68,305

 
68,176

 
68,191

 
67,065

 
66,790

Percentage of Revenues:
 
 
 
 
 
 
 
 
 
Real estate expenses
35.9
%
 
36.7
 %
 
39.0
%
 
34.8
%
 
35.3
%
General and administrative
6.3
%
 
5.8
 %
 
8.1
%
 
8.0
%
 
6.2
%
Ratios:
 
 
 
 
 
 
 
 
 
Adjusted EBITDA / Interest expense
3.2
x
 
3.0
x
 
2.7
x
 
3.0
x
 
2.9
x
Income from continuing operations/Total real estate revenue
0.7
%
 
(3.9
)%
 
39.3
%
 
3.1
%
 
5.0
%
Net income /Total real estate revenue
0.8
%
 
(3.4
)%
 
39.4
%
 
3.1
%
 
5.0
%

4



Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Assets
 
 
 
 
 
 
 
 
 
Land
$
572,880

 
$
542,654

 
$
543,247

 
$
543,546

 
$
519,859

Income producing property
2,074,425

 
1,966,612

 
1,932,908

 
1,927,407

 
1,867,752

 
2,647,305

 
2,509,266

 
2,476,155

 
2,470,953

 
2,387,611

Accumulated depreciation and amortization
(677,480
)
 
(670,103
)
 
(649,279
)
 
(640,434
)
 
(620,279
)
Net income producing property
1,969,825

 
1,839,163

 
1,826,876

 
1,830,519

 
1,767,332

Development in progress, including land held for development
35,256

 
35,314

 
65,656

 
76,235

 
99,500

Total real estate held for investment, net
2,005,081

 
1,874,477

 
1,892,532

 
1,906,754

 
1,866,832

 
 
 
 
 
 
 
 
 
 
Investment in real estate held for sale, net
5,010

 
—

 
—

 
—

 
—

Cash and cash equivalents
21,012

 
22,778

 
40,025

 
15,827

 
8,571

Restricted cash
12,544

 
13,705

 
13,095

 
10,299

 
9,496

Rents and other receivables, net of allowance for doubtful accounts
62,306

 
61,577

 
60,215

 
59,745

 
58,135

Prepaid expenses and other assets
122,629

 
117,657

 
117,367

 
121,082

 
116,345

Other assets related to properties sold or held for sale
278

 
—

 
—

 
—

 
—

Total assets
$
2,228,860

 
$
2,090,194

 
$
2,123,234

 
$
2,113,707

 
$
2,059,379

Liabilities
 
 
 
 
 
 
 
 
 
Notes payable
$
747,540

 
$
597,442

 
$
747,335

 
$
747,208

 
$
747,082

Mortgage notes payable
419,293

 
419,755

 
419,250

 
418,525

 
413,330

Lines of credit
195,000

 
185,000

 
30,000

 
50,000

 
5,000

Accounts payable and other liabilities
54,131

 
50,281

 
65,447

 
54,318

 
64,153

Advance rents
10,766

 
13,733

 
14,471

 
12,528

 
12,211

Tenant security deposits
9,225

 
9,053

 
8,892

 
8,899

 
8,625

Liabilities related to properties sold or held for sale
329

 
—

 
—

 
—

 
—

Total liabilities
1,436,284

 
1,275,264

 
1,285,395

 
1,291,478

 
1,250,401

Equity
 
 
 
 
 
 
 
 
 
Preferred shares; $0.01 par value; 10,000 shares authorized
—

 
—

 
—

 
—

 
—

Shares of beneficial interest, $0.01 par value; 100,000 shares authorized
682

 
682

 
681

 
678

 
667

Additional paid-in capital
1,192,202

 
1,191,594

 
1,191,123

 
1,184,395

 
1,153,344

Distributions in excess of net income
(399,421
)
 
(379,577
)
 
(356,531
)
 
(365,518
)
 
(347,724
)
Accumulated other comprehensive income (loss)
(2,288
)
 
—

 
—

 
—

 
—

Total shareholders' equity
791,175

 
812,699

 
835,273

 
819,555

 
806,287

Noncontrolling interests in subsidiaries
1,401

 
2,231

 
2,566

 
2,674

 
2,691

Total equity
792,576

 
814,930

 
837,839

 
822,229

 
808,978

Total liabilities and equity
$
2,228,860

 
$
2,090,194

 
$
2,123,234

 
$
2,113,707

 
$
2,059,379

Total Debt / Total Market Capitalization
0.44
:1
 
0.40
:1
 
0.39
:1
 
0.39
:1
 
0.41
:1

5



Funds from Operations
(In thousands, except per share data)
(Unaudited)

 
 
Three Months Ended
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Funds from operations(1)
 
 
 
 
 
 
 
 
 
Net (loss) income
$
580

 
$
(2,886
)
 
$
29,398

 
$
2,309

 
$
3,658

Real estate depreciation and amortization
29,349

 
25,503

 
25,275

 
24,503

 
24,354

Gain on sale of depreciable real estate
—

 
—

 
(30,277
)
 
—

 
—

NAREIT funds from operations (FFO)
29,929

 
22,617

 
24,396

 
26,812

 
28,012

Loss on extinguishment of debt
—

 
119

 
—

 
—

 
—

Real estate impairment
—

 
5,909

 
—

 
—

 
—

Loss (gain) on sale of real estate
50

 
(1,454
)
 
—

 
—

 
—

Severance expense
—

 
—

 
1,001

 
582

 
394

Relocation expense
—

 
26

 
64

 
764

 
—

Acquisition and structuring expenses
1,034

 
1,264

 
234

 
663

 
69

Core FFO (1)
$
31,013

 
$
28,481

 
$
25,695

 
$
28,821

 
$
28,475

 
 
 
 
 
 
 
 
 
 
Allocation to participating securities(2)
(47
)
 
(80
)
 
(108
)
 
(53
)
 
(44
)
 
 
 
 
 
 
 
 
 
 
NAREIT FFO per share - basic
$
0.44

 
$
0.33

 
$
0.36

 
$
0.40

 
$
0.42

NAREIT FFO per share - fully diluted
$
0.44

 
$
0.33

 
$
0.36

 
$
0.40

 
$
0.42

Core FFO per share - fully diluted
$
0.45

 
$
0.42

 
$
0.38

 
$
0.43

 
$
0.43

 
 
 
 
 
 
 
 
 
 
Common dividend per share
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
 
 
 
 
 
 
 
 
 
Average shares - basic
68,186

 
68,176

 
68,141

 
67,002

 
66,738

Average shares - fully diluted (for FFO and FAD)
68,305

 
68,375

 
68,191

 
67,065

 
66,790

(1)  See "Supplemental Definitions" on page 27 of this supplemental for the definitions of FFO and Core FFO.
(2)  Adjustment to the numerators for FFO and Core FFO per share calculations when applying the two-class method for calculating EPS.


6



Funds Available for Distribution
(In thousands, except per share data)
(Unaudited)

 
 
Three Months Ended
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Funds available for distribution(1)
 
 
 
 
 
 
 
 
 
NAREIT FFO
$
29,929

 
$
22,617

 
$
24,396

 
$
26,812

 
$
28,012

Non-cash loss on extinguishment of debt
—

 
119

 
—

 
—

 
—

Tenant improvements and incentives
(5,231
)
 
(3,417
)
 
(3,730
)
 
(7,103
)
 
(7,649
)
Leasing commissions
(1,714
)
 
(1,149
)
 
(1,606
)
 
(7,800
)
 
(1,323
)
Recurring capital improvements
(1,326
)
 
(737
)
 
(689
)
 
(1,811
)
 
(1,720
)
Straight-line rent, net
(680
)
 
(538
)
 
407

 
(1,087
)
 
(658
)
Non-cash fair value interest expense
38

 
36

 
35

 
33

 
32

Non-real estate depreciation and amortization
938

 
1,123

 
938

 
1,578

 
994

Amortization of lease intangibles, net
913

 
970

 
768

 
729

 
704

Amortization and expensing of restricted share and unit compensation
863

 
1,195

 
1,826

 
1,134

 
1,307

Funds available for distribution (FAD)
23,730

 
20,219

 
22,345

 
12,485

 
19,699

Gain on sale of real estate
50

 
(1,454
)
 
—

 
—

 
—

Non-share-based severance expense
—

 
—

 
196

 
546

 
313

Relocation expense
—

 
26

 
81

 
85

 
—

Acquisition and structuring expenses
1,034

 
1,264

 
234

 
663

 
69

Real estate impairment
—

 
5,909

 
—

 
—

 
—

Core FAD (1)
$
24,814

 
$
25,964

 
$
22,856

 
$
13,779

 
$
20,081

 
 
 
 
 
 
 
 
 
 
Allocation to participating securities(2)
(47
)
 
(80
)
 
(108
)
 
(53
)
 
(44
)
 
 
 
 
 
 
 
 
 
 
FAD per share - basic
$
0.35

 
$
0.30

 
$
0.33

 
$
0.19

 
$
0.29

FAD per share - fully diluted
$
0.35

 
$
0.29

 
$
0.33

 
$
0.19

 
$
0.29

Core FAD per share - fully diluted
$
0.36

 
$
0.38

 
$
0.33

 
$
0.20

 
$
0.30

 
 
 
 
 
 
 
 
 
 
Common dividend per share
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
 
 
 
 
 
 
 
 
 
Average shares - basic
68,186

 
68,176

 
68,141

 
67,002

 
66,738

Average shares - fully diluted (for FFO and FAD)
68,305

 
68,375

 
68,191

 
67,065

 
66,790

(1)  See "Supplemental Definitions" on page 30 of this supplemental for the definitions of FAD and Core FAD.
(2)  Adjustment to the numerators for FAD and Core FAD per share calculations when applying the two-class method for calculating EPS.

7



Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(In thousands)
(Unaudited)
 

 
Three Months Ended
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Adjusted EBITDA (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
580

 
$
(2,886
)
 
$
29,398

 
$
2,309

 
$
3,658

Add:
 
 
 
 
 
 
 
 
 
Interest expense, including discontinued operations
14,486

 
14,700

 
15,348

 
15,183

 
15,087

Real estate depreciation and amortization, including discontinued operations
29,349

 
25,503

 
25,275

 
24,503

 
24,354

Income tax expense
41

 
28

 
—

 
—

 
46

Real estate impairment
—

 
5,909

 
—

 
—

 
—

Non-real estate depreciation
168

 
178

 
103

 
793

 
113

Severance expense
—

 
—

 
1,001

 
582

 
394

Relocation expense
—

 
26

 
64

 
764

 
—

Acquisition and structuring expenses
1,034

 
1,264

 
234

 
663

 
69

Less:
 
 
 
 
 
 
 
 
 
    Net loss (gain) on sale of real estate
50

 
(1,454
)
 
(30,277
)
 
—

 
—

    Loss on extinguishment of debt
—

 
119

 
—

 
—

 
—

Adjusted EBITDA
$
45,708

 
$
43,387

 
$
41,146

 
$
44,797

 
$
43,721

 
 
 
 
 
 
 
 
 
 
(1) Adjusted EBITDA is earnings before interest expense, taxes, depreciation, amortization, gain on sale of real estate, real estate impairment, gain/loss on extinguishment of debt, severance expense, relocation expense, acquisition and structuring expenses, gain from non-disposal activities and allocations to noncontrolling interests. We consider Adjusted EBITDA to be an appropriate supplemental performance measure because it permits investors to view income from operations without the effect of depreciation, and the cost of debt or non-operating gains and losses. Adjusted EBITDA is a non-GAAP measure.



8



Long Term Debt Analysis
($'s in thousands)
 

 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Balances Outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
 
 
 
 
 
 
 
 
Conventional fixed rate
$
419,293

 
$
419,755

 
$
419,250

 
$
418,525

 
$
413,330

Unsecured
 
 
 
 
 
 
 
 
 
Fixed rate bonds
597,540

 
597,442

 
747,335

 
747,208

 
747,082

Term loans
150,000

 
—

 
—

 
—

 
—

Credit facility
195,000

 
185,000

 
30,000

 
50,000

 
5,000

Unsecured total
942,540

 
782,442

 
777,335

 
797,208

 
752,082

Total
$
1,361,833

 
$
1,202,197

 
$
1,196,585

 
$
1,215,733

 
$
1,165,412

 
 
 
 
 
 
 
 
 
 
Average Interest Rates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
 
 
 
 
 
 
 
 
Conventional fixed rate
5.2
%
 
5.2
%
 
5.2
%
 
5.2
%
 
5.3
%
Unsecured
 
 
 
 
 
 
 
 
 
Fixed rate bonds
4.7
%
 
4.7
%
 
4.9
%
 
4.9
%
 
4.9
%
Term loans (1)
2.7
%
 
—
%
 
—
%
 
—
%
 
—
%
Credit facility
1.2
%
 
1.2
%
 
1.4
%
 
1.4
%
 
1.4
%
Unsecured total
3.7
%
 
3.9
%
 
4.7
%
 
4.7
%
 
4.8
%
Average
4.2
%
 
4.4
%
 
4.9
%
 
4.9
%
 
5.0
%

(1) Washington REIT entered into an interest rate swap to swap from a LIBOR plus 110 basis points floating interest rate to a 2.72% all-in fixed interest rate commencing October 15, 2015.

Note: The current balances outstanding of the secured and unsecured fixed rate bonds and notes are shown net of discounts/premiums of $4.1 million and $2.5 million, respectively.


    

9


Long Term Debt Maturities
(in thousands, except average interest rates)
 
, except per share data)
 
Future Maturities of Debt
Year
Secured Debt
 
Unsecured Debt
 
Credit Facilities
 
Total Debt
 
Avg Interest Rate
2015
$
—

 
$
—

 
$
—

 
$
—

 
 
2016
163,472

 
—

 
—

 
163,472

 
5.1%
2017
150,903

 
—

 
—

 
150,903

 
5.9%
2018
—

 
—

 
—

 
—

 
 
2019
31,280

 
—

 
195,000

 
226,280

 
1.9%
2020
—

 
250,000

 
—

 
250,000

 
5.1%
2021
—

 
150,000

 
—

 
150,000

(1) 
2.7%
2022
44,517

 
300,000

 
—

 
344,517

 
4.0%
2023
—

 
—

 
—

 
—

 
 
2024
—

 
—

 
—

 
—

 
 
2025
—

 
—

 
—

 
—

 
 
Thereafter
—

 
50,000

 
—

 
50,000

 
7.4%
Scheduled principal payments
$
390,172

 
$
750,000

 
$
195,000

 
$
1,335,172

 
4.2%
Scheduled amortization payments
24,986

 
—

 
—

 
24,986

 
4.7%
Net discounts/premiums
4,135

 
(2,460
)
 
—

 
1,675

 
 
Total maturities
$
419,293

 
$
747,540

 
$
195,000

 
$
1,361,833

 
4.2%
Weighted average maturity =4.8 years

(1) Washington REIT entered into an interest rate swap to swap from a LIBOR plus 110 basis points floating interest rate to a 2.72% all-in fixed interest rate commencing October 15, 2015.

10



Debt Covenant Compliance
 
 
Unsecured Notes Payable
 
Unsecured Line of Credit
($600.0 million)
 
Quarter Ended September 30, 2015
 
Covenant
 
Quarter Ended September 30, 2015
 
Covenant
% of Total Indebtedness to Total Assets(1)
48.9
%
 
≤ 65.0%
 
 N/A

 
N/A
Ratio of Income Available for Debt Service to Annual Debt Service
3.1

 
            ≥ 1.5
 
 N/A

 
N/A
% of Secured Indebtedness to Total Assets(1)
14.9
%
 
≤ 40.0%
 
 N/A

 
N/A
Ratio of Total Unencumbered Assets(2) to Total Unsecured Indebtedness
2.3

 
            ≥ 1.5
 
 N/A

 
N/A
% of Net Consolidated Total Indebtedness to Consolidated Total Asset Value(3)
 N/A

 
 N/A
 
43.4
%
 
≤ 60.0%
Ratio of Consolidated Adjusted EBITDA(4) to Consolidated Fixed Charges(5)
 N/A

 
 N/A
 
3.03

 
             ≥ 1.50
% of Consolidated Secured Indebtedness to Consolidated Total Asset Value(3)
 N/A

 
 N/A
 
13.4
%
 
≤ 40.0%
% of Consolidated Unsecured Indebtedness to Unencumbered Pool Value(6)
 N/A

 
 N/A
 
36.4
%
 
≤ 60.0%
Ratio of Unencumbered Adjusted Net Operating Income to Consolidated Unsecured Interest Expense
 N/A

 
 N/A
 
4.16

 
             ≥ 1.75
 
 
 
 
 
 
 
 
(1) Total Assets is calculated by applying a capitalization rate of 7.50% to the EBITDA(4) from the last four consecutive quarters, excluding EBITDA from acquired, disposed, and non-stabilized development properties.
(2) Total Unencumbered Assets is calculated by applying a capitalization rate of 7.50% to the EBITDA(4) from unencumbered properties from the last four consecutive quarters, excluding EBITDA from acquired, disposed, and non-stabilized development properties.
(3) Consolidated Total Asset Value is the sum of unrestricted cash plus the quotient of applying a capitalization rate to the annualized NOI from the most recently ended quarter for each asset class, excluding NOI from disposed properties, acquisitions during the past 6 quarters, development, major redevelopment and low occupancy properties. To this amount, we add the purchase price of acquisitions during the past 6 quarters plus values for development, major redevelopment and low occupancy properties.
(4) Consolidated Adjusted EBITDA is defined as earnings before noncontrolling interests, depreciation, amortization, interest expense, income tax expense, acquisition costs, extraordinary, unusual or nonrecurring transactions including sale of assets, impairment, gains and losses on extinguishment of debt and other non-cash charges.
(5) Consolidated Fixed Charges consist of interest expense excluding capitalized interest and amortization of deferred financing costs, principal payments and preferred dividends, if any.
(6) Unencumbered Pool Value is the sum of unrestricted cash plus the quotient of applying a capitalization rate to the annualized NOI from unencumbered properties from the most recently ended quarter for each asset class excluding NOI from disposed properties, acquisitions during the past 6 quarters, development, major redevelopment and low occupancy properties. To this we add the purchase price of unencumbered acquisitions during the past 6 quarters and values for unencumbered development, major redevelopment and low occupancy properties.

11



Capital Analysis
(In thousands, except per share amounts)
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Market Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares Outstanding
$
68,180

 
$
68,162

 
$
68,126

 
$
67,819

 
$
66,663

Market Price per Share
24.93

 
25.95

 
27.63

 
27.66

 
25.38

Equity Market Capitalization
$
1,699,727

 
$
1,768,804

 
$
1,882,321

 
$
1,875,874

 
$
1,691,907

 
 
 
 
 
 
 
 
 
 
Total Debt
$
1,361,833

 
$
1,202,197

 
$
1,196,585

 
$
1,215,733

 
$
1,165,412

Total Market Capitalization
$
3,061,560

 
$
2,971,001

 
$
3,078,906

 
$
3,091,607

 
$
2,857,319

 
 
 
 
 
 
 
 
 
 
Total Debt to Market Capitalization
0.44
:1
 
0.40
:1
 
0.39
:1
 
0.39
:1
 
0.41
:1
 
 
 
 
 
 
 
 
 
 
Earnings to Fixed Charges(1)
1.0x

 
0.8x

 
2.9x

 
1.1x

 
1.2x

Debt Service Coverage Ratio(2)
2.9x

 
2.7x

 
2.5x

 
2.8x

 
2.7x

 
 
 
 
 
 
 
 
 
 
Dividend Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Dividends Paid
$
20,491

 
$
20,500

 
$
20,519

 
$
20,124

 
$
20,019

Common Dividend per Share
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

Payout Ratio (Core FFO per share basis)
66.7
%
 
71.4
%
 
78.9
%
 
69.8
%
 
69.8
%
Payout Ratio (Core FAD per share basis)
83.3
%
 
78.9
%
 
90.9
%
 
150.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
(1) The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, earnings consist of income from continuing operations attributable to the controlling interests plus fixed charges, less capitalized interest. Fixed charges consist of interest expense, including amortized costs of debt issuance, plus interest costs capitalized.
(2) Debt service coverage ratio is computed by dividing Adjusted EBITDA (see page 8) by interest expense and principal amortization.


12



Same-Store Portfolio Net Operating Income (NOI) Growth & Rental Growth
2015 vs. 2014
 

 
Three Months Ended September 30,
 
 
 
Rental Rate
 
2015
 
2014
 
% Change
 
Growth
Cash NOI:
 
 
 
 
 
 
 
Multifamily
$
8,775

 
$
8,878

 
(1.2
)%
 
(2.0
)%
Office
26,275

 
25,702

 
2.2
 %
 
1.9
 %
Retail
11,164

 
11,558

 
(3.4
)%
 
2.5
 %
Overall Same-Store Portfolio (1)
$
46,214

 
$
46,138

 
0.2
 %
 
1.1
 %
 
 
 
 
 
 
 
 
NOI:
 
 
 
 
 
 
 
Multifamily
$
8,770

 
$
8,886

 
(1.3
)%
 
(2.1
)%
Office
25,688

 
25,731

 
(0.2
)%
 
0.9
 %
Retail
11,336

 
11,621

 
(2.5
)%
 
3.2
 %
Overall Same-Store Portfolio (1)
$
45,794

 
$
46,238

 
(1.0
)%
 
0.6
 %

(1)  Non same-store properties were:
Acquisitions:
Multifamily - The Wellington
Retail - Spring Valley Retail Center
Development/Redevelopment:
Multifamily - The Maxwell
         Office - Silverline Center
Sold properties classified as continuing operations:
Multifamily - Country Club Towers


13



Same-Store Portfolio Net Operating Income (NOI) Detail
(In thousands)
 
 
Three Months Ended September 30, 2015
 
Multifamily
 
Office
 
Retail
 
Corporate and Other
 
Total
Real estate rental revenue
 
 
 
 
 
 
 
 
 
Same-store portfolio
$
14,897

 
$
41,221

 
$
14,783

 
$
—

 
$
70,901

Non same-store - acquired and in development (1)
4,046

 
2,395

 
901

 
—

 
7,342

Total
18,943

 
43,616

 
15,684

 
—

 
78,243

Real estate expenses
 
 
 
 
 
 
 
 
 
Same-store portfolio
6,127

 
15,533

 
3,447

 
—

 
25,107

Non same-store - acquired and in development (1)
1,721

 
1,079

 
202

 
—

 
3,002

Total
7,848

 
16,612

 
3,649

 
—

 
28,109

Net Operating Income (NOI)
 
 
 
 
 
 
 
 
 
Same-store portfolio
8,770

 
25,688

 
11,336

 
—

 
45,794

Non same-store - acquired and in development (1)
2,325

 
1,316

 
699

 
—

 
4,340

Total
$
11,095

 
$
27,004

 
$
12,035

 
$
—

 
$
50,134

 
 
 
 
 
 
 
 
 
 
Same-store portfolio NOI (from above)
$
8,770

 
$
25,688

 
$
11,336

 
$
—

 
$
45,794

Straight-line revenue, net for same-store properties
4

 
(329
)
 
(182
)
 
—

 
(507
)
FAS 141 Min Rent
1

 
402

 
(47
)
 
—

 
356

Amortization of lease intangibles for same-store properties
—

 
514

 
57

 
—

 
571

Same-store portfolio cash NOI
$
8,775

 
$
26,275

 
$
11,164

 
$
—

 
$
46,214

Reconciliation of NOI to net income
 
 
 
 
 
 
 
 
 
Total NOI
$
11,095

 
$
27,004

 
$
12,035

 
$
—

 
$
50,134

Depreciation and amortization
(7,905
)
 
(17,487
)
 
(3,708
)
 
(249
)
 
(29,349
)
General and administrative
—

 
—

 
—

 
(4,953
)
 
(4,953
)
Interest expense
(2,464
)
 
(3,003
)
 
(227
)
 
(8,792
)
 
(14,486
)
Other income
—

 
—

 
—

 
163

 
163

Acquisition costs
—

 
—

 
—

 
(929
)
 
(929
)
Net income
726

 
6,514

 
8,100

 
(14,760
)
 
580

Net loss attributable to noncontrolling interests
—

 
—

 
—

 
67

 
67

Net income attributable to the controlling interests
$
726

 
$
6,514

 
$
8,100

 
$
(14,693
)
 
$
647

(1)  For a list of non-same-store properties and held for sale and sold properties, see page 13 of this Supplemental.
 
 

14



Same-Store Net Operating Income (NOI) Detail
(In thousands)
 
 
Three Months Ended September 30, 2014
 
Multifamily
 
Office
 
Retail
 
Corporate and Other
 
Total
Real estate rental revenue
 
 
 
 
 
 
 
 
 
Same-store portfolio
$
14,953

 
$
40,566

 
$
14,825

 
$
—

 
$
70,344

Non same-store - acquired and in development (1)
1,007

 
2,062

 
—

 
—

 
3,069

                         Total
15,960

 
42,628

 
14,825

 
—

 
73,413

 
 
 
 
 
 
 
 
 
 
Real estate expenses
 
 
 
 
 
 
 
 
 
Same-store portfolio
6,067

 
14,835

 
3,204

 
—

 
24,106

Non same-store - acquired and in development (1)
577

 
1,231

 
—

 
—

 
1,808

                         Total
6,644

 
16,066

 
3,204

 
—

 
25,914

 
 
 
 
 
 
 
 
 
 
Net Operating Income (NOI)
 
 
 
 
 
 
 
 
 
Same-store portfolio
8,886

 
25,731

 
11,621

 
—

 
46,238

Non same-store - acquired and in development (1)
430

 
831

 
—

 
—

 
1,261

                          Total
$
9,316

 
$
26,562

 
$
11,621

 
$
—

 
$
47,499

 
 
 
 
 
 
 
 
 
 
Same-store portfolio NOI (from above)
$
8,886

 
$
25,731

 
$
11,621

 
$
—

 
$
46,238

Straight-line revenue, net for same-store properties
—

 
(568
)
 
(71
)
 
—

 
(639
)
FAS 141 Min Rent
(8
)
 
268

 
(57
)
 
—

 
203

Amortization of lease intangibles for same-store properties
—

 
271

 
65

 
—

 
336

Same-store portfolio cash NOI
$
8,878

 
$
25,702

 
$
11,558

 
$
—

 
$
46,138

 
 
 
 
 
 
 
 
 
 
Reconciliation of NOI to net income
 
 
 
 
 
 
 
 
 
Total NOI
$
9,316

 
$
26,562

 
$
11,621

 
$
—

 
$
47,499

Depreciation and amortization
(4,252
)
 
(16,655
)
 
(3,200
)
 
(247
)
 
(24,354
)
General and administrative
—

 
—

 
—

 
(4,523
)
 
(4,523
)
Interest expense
(2,492
)
 
(3,024
)
 
(247
)
 
(9,324
)
 
(15,087
)
Other income
—

 
—

 
—

 
192

 
192

Acquisition costs
—

 
—

 
—

 
(69
)
 
(69
)
Net income
2,572

 
6,883

 
8,174

 
(13,971
)
 
3,658

Net income attributable to noncontrolling interests
—

 
—

 
—

 
10

 
10

Net income attributable to the controlling interests
$
2,572

 
$
6,883

 
$
8,174

 
$
(13,961
)
 
$
3,668

(1)  For a list of non-same-store properties and held for sale and sold properties, see page 13 of this Supplemental.
 
 

15



Net Operating Income (NOI) by Region
 
 
 
 
 
 
 
 
 
Percentage of NOI
 
 
 
Q3 2015
 
YTD 2015
 
 
DC
 
 
 
 
 
Multifamily
5.2
%
 
5.5
%
 
 
Office
24.3
%
 
25.3
%
 
 
Retail
1.8
%
 
2.0
%
 
 
 
31.3
%
 
32.8
%
 
 
Maryland
 
 
 
 
 
Multifamily
2.5
%
 
2.5
%
 
 
Office
10.4
%
 
10.5
%
 
 
Retail
15.7
%
 
16.2
%
 
 
 
28.6
%
 
29.2
%
 
 
Virginia
 
 
 
 
 
Multifamily
14.4
%
 
12.0
%
 
 
Office
19.1
%
 
19.3
%
 
 
Retail
6.6
%
 
6.7
%
 
 
 
40.1
%
 
38.0
%
 
 
 
 
 
 
 
 
Total Portfolio
100.0
%
 
100.0
%
 



16



Same-Store and Overall Physical Occupancy Levels by Sector

 

 
 
Physical Occupancy - Same-Store Properties (1)
Sector
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Multifamily
 
93.4
%
 
94.5
%
 
94.0
%
 
93.8
%
 
94.2
%
Office
 
90.8
%
 
91.0
%
 
90.6
%
 
90.9
%
 
90.7
%
Retail
 
94.3
%
 
92.8
%
 
94.7
%
 
94.5
%
 
94.4
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
92.4
%
 
92.4
%
 
92.6
%
 
92.6
%
 
92.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Physical Occupancy - All Properties
Sector
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Multifamily
 
92.3
%
 
91.7
%
 
89.5
%
 
93.8
%
 
94.3
%
Office
 
87.8
%
 
87.6
%
 
86.7
%
 
86.9
%
 
87.1
%
Retail
 
94.4
%
 
92.9
%
 
94.7
%
 
94.4
%
 
94.4
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
90.7
%
 
90.0
%
 
89.5
%
 
90.5
%
 
90.7
%

(1)  Non same-store properties were:
Acquisitions:
Multifamily - The Wellington
Retail - Spring Valley Retail Center
Development/Redevelopment:
Multifamily - The Maxwell
         Office - Silverline Center
Sold properties classified as continuing operations:
Multifamily - Country Club Towers

17



Same-Store Portfolio and Overall Economic Occupancy Levels by Sector
 
 
 
Economic Occupancy - Same-Store Properties(1)
Sector
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Multifamily
 
95.0
%
 
95.7
%
 
94.9
%
 
94.2
%
 
94.0
%
Office
 
91.3
%
 
91.3
%
 
90.9
%
 
91.1
%
 
90.9
%
Retail
 
92.2
%
 
92.8
%
 
93.8
%
 
94.9
%
 
94.9
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
92.3
%
 
92.5
%
 
92.4
%
 
92.5
%
 
92.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Economic Occupancy - All Properties
Sector
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Multifamily
 
92.7
%
 
90.6
%
 
88.4
%
 
94.2
%
 
94.1
%
Office
 
87.7
%
 
87.2
%
 
86.5
%
 
86.8
%
 
87.0
%
Retail
 
92.3
%
 
92.9
%
 
93.5
%
 
94.5
%
 
94.9
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
89.8
%
 
89.0
%
 
88.2
%
 
89.8
%
 
90.0
%

(1)  Non same-store properties were:
Acquisitions:
Multifamily - The Wellington
Retail - Spring Valley Retail Center
Development/Redevelopment:
Multifamily - The Maxwell
         Office - Silverline Center
Sold properties classified as continuing operations:
Multifamily - Country Club Towers


18


Acquisition and Disposition Summary
 
2015
($ in thousands)
0,
Acquisition Summary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
Acquisition Date
 
Property Type
 
# of units
 
9/30/2015 Leased Percentage
 
Investment
The Wellington
 
Arlington, VA
 
July 1, 2015
 
Multifamily
 
711

 
95
%
 
$
167,000

012
Disposition Summary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
Disposition Date
 
Property Type
 
# of units
 
Contract Sales Price
 
GAAP Gain
Country Club Towers
 
Arlington, VA
 
March 20, 2015
 
Multifamily
 
227

 
$
37,800

 
$
30,277

Land interest at 1225 First Street
 
Alexandria, VA
 
September 9, 2015
 
Multifamily
 
N/A

 
14,500

 
—

 
 
 
 
 
 
 
 
227

 
$
52,300

 
$
30,277




19


Development/Re-Development Summary
 
September 30, 2015
($ in thousands)

Property and Location
Total Rentable Square Feet
or # of Units
Cost to Date
Draws on Construction Loan to Date
 Construction Completion Date
Leased %
Development Summary
 
 
 
 
 
The Maxwell, Arlington, VA
163 units & 2,200 square feet retail
$
47,323

$
31,707

fourth quarter 2014
81%
 
 
 
 
 
 
Re-Development Summary
 
 
 
 
 
Silverline Center,Tysons, VA
532,000 square feet
$
34,156

N/A

first quarter 2015
64%

20



Commercial Leasing Summary - New Leases
 
 
3rd Quarter 2015
 
2nd Quarter 2015
 
1st Quarter 2015
 
4th Quarter 2014
 
3rd Quarter 2014
Gross Leasing Square Footage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
93,389
 
 
57,693
 
 
61,141
 
 
92,349
 
 
37,852
 
      Retail Centers
74,102
 
 
35,095
 
 
10,853
 
 
10,965
 
 
10,408
 
Total
167,491
 

92,788
 

71,994
 
 
103,314
 
 
48,260
 
Weighted Average Term (yrs)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
6.8
 
 
6.8
 
 
7.5
 
 
8.5
 
 
7.4
 
      Retail Centers
10.2
 
 
9.6
 
 
11.0
 
 
9.2
 
 
9.8
 
Total
8.3
 
 
7.8
 
 
8.0
 
 
8.6
 
 
7.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental Rate Increases:
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
      Rate on expiring leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
27.72

 
$
28.67

 
$
36.35

 
$
38.06

 
$
31.43

 
$
33.14

 
$
30.37

 
$
31.66

 
$
31.50

 
$
32.62

            Retail Centers
22.32

 
22.77

 
23.77

 
25.30

 
41.57

 
41.85

 
34.95

 
35.52

 
36.96

 
37.29

Total
$
25.33

 
$
26.06

 
$
31.59

 
$
33.23

 
$
32.96

 
$
34.45

 
$
30.85

 
$
32.07

 
$
32.68

 
$
33.63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Rate on new leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
36.46

 
$
33.53

 
$
41.61

 
$
38.11

 
$
35.39

 
$
32.49

 
$
38.39

 
$
34.43

 
$
33.77

 
$
30.68

            Retail Centers
27.61

 
26.14

 
28.17

 
26.42

 
52.79

 
46.99

 
41.82

 
37.65

 
43.69

 
38.76

Total
$
32.55

 
$
30.26

 
$
36.53

 
$
33.69

 
$
38.01

 
$
34.68

 
$
38.75

 
$
34.77

 
$
35.91

 
$
32.43

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Percentage Increase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
31.6
%
 
17.0
%
 
14.5
%
 
0.2
%
 
12.6
%
 
(2.0
)%
 
26.4
%
 
8.8
%
 
7.2
%
 
(5.9
)%
            Retail Centers
23.7
%
 
14.8
%
 
18.5
%
 
4.4
%
 
27.0
%
 
12.3
 %
 
19.7
%
 
6.0
%
 
18.2
%
 
4.0
 %
Total
28.5
%
 
16.1
%
 
15.6
%
 
1.4
%
 
15.3
%
 
0.7
 %
 
25.6
%
 
8.4
%
 
9.9
%
 
(3.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
Tenant Improvements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
4,775,584

 
$
51.14

 
$
2,209,271

 
$
38.29

 
$
3,255,324

 
$
53.24

 
$
4,609,137

 
$
49.91

 
$
1,499,573

 
$
39.62

Retail Centers
5,220,923

 
70.46

 
592,351

 
16.88

 
353,335

 
32.56

 
120,600

 
11.00

 
162,180

 
15.58

Subtotal
$
9,996,507

 
$
59.68

 
$
2,801,622

 
$
30.19

 
$
3,608,659

 
$
50.12

 
$
4,729,737

 
$
45.78

 
$
1,661,753

 
$
34.43

Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
4,556,279

 
$
48.79

 
$
1,809,746

 
$
31.37

 
$
2,092,175

 
$
34.22

 
$
3,328,304

 
$
36.04

 
$
1,345,301

 
$
35.54

Retail Centers
1,649,704

 
22.26

 
592,483

 
16.88

 
754,661

 
69.53

 
275,428

 
25.12

 
291,731

 
28.03

Subtotal
$
6,205,983

 
$
37.05

 
$
2,402,229

 
$
25.89

 
$
2,846,836

 
$
39.54

 
$
3,603,732

 
$
34.88

 
$
1,637,032

 
$
33.92

Tenant Improvements and Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
9,331,863

 
$
99.93

 
$
4,019,017

 
$
69.66

 
$
5,347,499

 
$
87.46

 
$
7,937,441

 
$
85.95

 
$
2,844,874

 
$
75.16

Retail Centers
6,870,627

 
92.72

 
1,184,834

 
33.76

 
1,107,996

 
102.09

 
396,028

 
36.12

 
453,911

 
43.61

Total
$
16,202,490

 
$
96.73

 
$
5,203,851

 
$
56.08

 
$
6,455,495

 
$
89.66

 
$
8,333,469

 
$
80.66

 
$
3,298,785

 
$
68.35


21



Commercial Leasing Summary - Renewal Leases
 
 
3rd Quarter 2015
 
2nd Quarter 2015
 
1st Quarter 2015
 
4th Quarter 2014
 
3rd Quarter 2014
Gross Leasing Square Footage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
191,599
 
 
71,112
 
 
135,134
 
 
575,499
 
 
44,214
 
      Retail Centers
53,415
 
 
95,048
 
 
111,342
 
 
45,084
 
 
170,568
 
Total
245,014
 
 
166,160
 
 
246,476
 
 
620,583
 
 
214,782
 
Weighted Average Term (yrs)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
2.8
 
 
3.9
 
 
4.8
 
 
6.1
 
 
7.4
 
      Retail Centers
4.4
 
 
5.8
 
 
5.4
 
 
6.8
 
 
5.1
 
Total
3.1
 
 
4.9
 
 
5.1
 
 
6.1
 
 
5.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental Rate Increases:
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
      Rate on expiring leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
35.23

 
$
37.43

 
$
30.91

 
$
33.07

 
$
35.26

 
$
36.79

 
$
35.87

 
$
37.53

 
$
32.89

 
$
35.79

            Retail Centers
23.21

 
23.72

 
17.57

 
18.54

 
16.14

 
16.71

 
33.21

 
35.65

 
13.65

 
13.86

Total
$
32.61

 
$
34.44

 
$
23.28

 
$
24.76

 
$
26.63

 
$
27.72

 
$
35.67

 
$
37.39

 
$
17.61

 
$
18.37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Rate on new leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
31.37

 
$
30.29

 
$
32.43

 
$
31.37

 
$
37.98

 
$
35.99

 
$
37.25

 
$
35.44

 
$
44.95

 
$
41.11

            Retail Centers
26.63

 
26.10

 
22.49

 
21.25

 
17.06

 
16.64

 
40.26

 
37.30

 
14.67

 
14.47

Total
$
30.34

 
$
29.38

 
$
26.75

 
$
25.58

 
$
28.53

 
$
27.25

 
$
37.46

 
$
35.57

 
$
20.90

 
$
19.95

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Percentage Increase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
(11.0
)%
(1) 
(19.1
)%
(1) 
4.9
%
 
(5.1
)%
 
7.7
%
 
(2.2
)%
 
3.9
%
 
(5.6
)%
 
36.7
%
 
14.9
%
            Retail Centers
14.7
 %
 
10.0
 %
 
28.0
%
 
14.6
 %
 
5.7
%
 
(0.4
)%
 
21.2
%
 
4.6
 %
 
7.4
%
 
4.4
%
Total
(7.0
)%
 
(14.7
)%
 
14.9
%
 
3.3
 %
 
7.2
%
 
(1.7
)%
 
5.0
%
 
(4.9
)%
 
18.7
%
 
8.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
Tenant Improvements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
580,967

 
$
3.03

 
$
423,589

 
$
5.96

 
$
550,948

 
$
4.08

 
$
14,952,993

 
$
25.98

 
$
595,757

 
$
13.47

Retail Centers
36,540

 
0.68

 
39,183

 
0.41

 
152,391

 
1.37

 
33,370

 
0.74

 
—

 
—

Subtotal
$
617,507

 
$
2.52

 
$
462,772

 
$
2.79

 
$
703,339

 
$
2.85

 
$
14,986,363

 
$
24.15

 
$
595,757

 
$
2.77

Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
744,977

 
$
3.89

 
$
368,593

 
$
5.19

 
$
929,511

 
$
6.88

 
$
9,087,273

 
$
15.79

 
$
532,789

 
$
12.05

Retail Centers
119,946

 
2.25

 
199,976

 
2.10

 
243,602

 
2.19

 
192,343

 
4.27

 
51,270

 
0.30

Subtotal
$
864,923

 
$
3.53

 
$
568,569

 
$
3.43

 
$
1,173,113

 
$
4.76

 
$
9,279,616

 
$
14.96

 
$
584,059

 
$
2.72

Tenant Improvements and Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
1,325,944

 
$
6.92

 
$
792,182

 
$
11.15

 
$
1,480,459

 
$
10.96

 
$
24,040,266

 
$
41.77

 
$
1,128,546

 
$
25.52

Retail Centers
156,486

 
2.93

 
239,159

 
2.51

 
395,993

 
3.56

 
225,713

 
5.01

 
51,270

 
0.30

Total
$
1,482,430

 
$
6.05

 
$
1,031,341

 
$
6.22

 
$
1,876,452

 
$
7.61

 
$
24,265,979

 
$
39.11

 
$
1,179,816

 
$
5.49

(1) Office renewal spreads were significantly negatively impacted by one anomalous, short-term lease renewal, excluding which, average rental rates for office lease renewals increased by 1.4%.

22



10 Largest Tenants - Based on Annualized Commercial Income
 
September 30, 2015
Tenant
Number of Buildings
 
Weighted Average Remaining Lease Term in Months
 
 Percentage of Aggregate Portfolio Annualized Commercial Income
 
Aggregate Rentable Square Feet
 
Percentage of Aggregate Occupied Square Feet
World Bank
1
 
63

 
5.78
%
 
210,354

 
3.27
%
Advisory Board Company
2
 
44

 
3.72
%
 
199,762

 
3.10
%
Booz Allen Hamilton, Inc.
1
 
124

 
2.70
%
 
222,989

 
3.46
%
Engility Corporation
1
 
24

 
2.55
%
 
134,126

 
2.08
%
Squire Patton Boggs (USA) LLP (1)
1
 
19

 
2.41
%
 
110,566

 
1.72
%
Epstein, Becker & Green, P.C.
1
 
15

 
1.31
%
 
53,427

 
0.83
%
General Services Administration
3
 
38

 
1.23
%
 
52,282

 
0.81
%
Alexandria City School Board
1
 
164

 
1.18
%
 
84,693

 
1.32
%
Hughes Hubbard & Reed LLP
1
 
29

 
1.15
%
 
53,208

 
0.83
%
Cozen O'Connor
1
 
7

 
1.14
%
 
36,574

 
0.57
%
Total/Weighted Average
 
 
66

 
23.17
%
 
1,157,981

 
17.99
%

(1) Squire Patton Boggs (USA) LLP's space is currently subleased to Advisory Board Company, who will become the primary lessee on May 1, 2017.

23



Industry Diversification
 
September 30, 2015
Industry Classification (NAICS)
Annualized Base Rental Revenue
 
Percentage of Aggregate Annualized Rent
 
Aggregate Rentable Square Feet
 
Percentage of Aggregate Square Feet
Professional, Scientific, and Technical Services
$
76,825,756

 
38.40
%
 
2,227,459

 
34.51
%
Credit Intermediation and Related Activities
18,611,032

 
9.30
%
 
328,570

 
5.09
%
Religious, Grantmaking, Civic, Professional, and Similar Organizations
11,765,946

 
5.88
%
 
311,578

 
4.83
%
Food Services and Drinking Places
8,674,135

 
4.34
%
 
270,839

 
4.20
%
Food and Beverage Stores
6,710,904

 
3.35
%
 
335,018

 
5.19
%
Educational Services
6,635,524

 
3.32
%
 
225,375

 
3.49
%
Ambulatory Health Care Services
5,915,019

 
2.96
%
 
182,926

 
2.83
%
Executive, Legislative, and Other General Government Support
5,533,650

 
2.77
%
 
155,732

 
2.41
%
Furniture and Home Furnishings Stores
4,575,724

 
2.29
%
 
216,089

 
3.35
%
Health and Personal Care Stores
4,106,043

 
2.05
%
 
108,985

 
1.69
%
Personal and Laundry Services
4,005,881

 
2.00
%
 
123,400

 
1.91
%
Securities, Commodity Contracts, and Other Financial Investments and Related Activities
3,791,200

 
1.90
%
 
105,489

 
1.63
%
Electronics and Appliance Stores
3,400,239

 
1.70
%
 
176,455

 
2.73
%
Sporting Goods, Hobby, Book, and Music Stores
3,353,849

 
1.68
%
 
201,827

 
3.13
%
Administrative and Support Services
2,996,264

 
1.50
%
 
83,909

 
1.30
%
Broadcasting (except Internet)
2,994,065

 
1.50
%
 
70,672

 
1.10
%
Miscellaneous Store Retailers
2,895,040

 
1.45
%
 
150,420

 
2.33
%
Publishing Industries (except Internet)
2,830,837

 
1.41
%
 
79,659

 
1.23
%
General Merchandise Stores
2,333,709

 
1.17
%
 
265,366

 
4.11
%
Amusement, Gambling, and Recreation Industries
2,099,502

 
1.05
%
 
115,580

 
1.79
%
Clothing and Clothing Accessories Stores
1,985,855

 
0.99
%
 
103,610

 
1.61
%
Telecommunications
1,946,312

 
0.97
%
 
49,933

 
0.77
%
Nursing and Residential Care Facilities
1,888,051

 
0.94
%
 
66,810

 
1.04
%
Real Estate
1,643,406

 
0.82
%
 
46,172

 
0.72
%
Social Assistance
1,257,465

 
0.63
%
 
50,318

 
0.78
%
Building Material and Garden Equipment and Supplies Dealers
1,173,193

 
0.59
%
 
38,330

 
0.59
%


24



Industry Diversification (continued)
 
September 30, 2015
Industry Classification (NAICS)
Annualized Base Rental Revenue
 
Percentage of Aggregate Annualized Rent
 
Aggregate Rentable Square Feet
 
Percentage of Aggregate Square Feet
Chemical Manufacturing
936,612

 
0.47
%
 
20,036

 
0.31
%
Insurance Carriers and Related Activities
846,676

 
0.42
%
 
26,905

 
0.42
%
Merchant Wholesalers, Durable Goods
845,415

 
0.42
%
 
23,445

 
0.36
%
Motor Vehicle and Parts Dealers
783,501

 
0.39
%
 
43,672

 
0.68
%
Merchant Wholesalers, Nondurable Goods
771,297

 
0.39
%
 
48,208

 
0.75
%
Construction of Buildings
665,461

 
0.33
%
 
21,965

 
0.34
%
Transportation Equipment Manufacturing
558,973

 
0.28
%
 
20,641

 
0.32
%
Other
4,705,134

 
2.34
%
 
158,243

 
2.46
%
Total
$
200,061,670

 
100.00
%
 
$
6,453,636

 
100.00
%


25



Lease Expirations
 
September 30, 2015
Year
 
Number of Leases
 
Rentable Square Feet
 
Percent of Rentable Square Feet
 
Annualized Rent *
 
Average Rental Rate
 
Percent of Annualized Rent *
Office:
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
18

 
76,423

 
1.75
%
 
$
2,724,070

 
$
35.64

 
1.58
%
2016
 
109

 
471,774

 
10.79
%
 
18,386,646

 
38.97

 
10.63
%
2017
 
89

 
569,274

 
13.01
%
 
22,013,483

 
38.67

 
12.73
%
2018
 
89

 
450,452

 
10.30
%
 
16,835,841

 
37.38

 
9.73
%
2019
 
83

 
683,874

 
15.63
%
 
24,721,963

 
36.15

 
14.29
%
2020 and thereafter
 
260

 
2,122,262

 
48.52
%
 
88,281,609

 
41.60

 
51.04
%
 
 
648

 
4,374,059

 
100.00
%
 
$
172,963,612

 
39.54

 
100.00
%
Retail:
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
9

 
21,181

 
0.92
%
 
$
638,082

 
30.13

 
1.16
%
2016
 
29

 
115,238

 
5.01
%
 
3,351,240

 
29.08

 
6.08
%
2017
 
48

 
261,084

 
11.35
%
 
7,006,419

 
26.84

 
12.70
%
2018
 
44

 
370,592

 
16.11
%
 
5,465,405

 
14.75

 
9.91
%
2019
 
39

 
173,299

 
7.53
%
 
5,134,558

 
29.63

 
9.31
%
2020 and thereafter
 
156

 
1,359,548

 
59.08
%
 
33,552,889

 
24.68

 
60.84
%
 
 
325

 
2,300,942

 
100.00
%
 
$
55,148,593

 
23.97

 
100.00
%
Total:
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
27

 
97,604

 
1.46
%
 
3,362,152

 
34.45

 
1.47
%
2016
 
138

 
587,012

 
8.79
%
 
21,737,886

 
37.03

 
9.53
%
2017
 
137

 
830,358

 
12.44
%
 
29,019,902

 
34.95

 
12.72
%
2018
 
133

 
821,044

 
12.30
%
 
22,301,246

 
27.16

 
9.78
%
2019
 
122

 
857,173

 
12.84
%
 
29,856,521

 
34.83

 
13.09
%
2020 and thereafter
 
416

 
3,481,810

 
52.17
%
 
121,834,498

 
34.99

 
53.41
%
 
 
973

 
6,675,001

 
100.00
%
 
$
228,112,205

 
34.17

 
100.00
%
 
 
 
* Annualized Rent is equal to the rental rate effective at lease expiration (cash basis) multiplied by 12.
 
 

26



Schedule of Properties
 
September 30, 2015
 PROPERTIES
 
 LOCATION
 
 YEAR ACQUIRED
 
 YEAR CONSTRUCTED
 
 NET RENTABLE SQUARE FEET
Office Buildings
 
 
 
 
 
 
 
 
1901 Pennsylvania Avenue
 
Washington, DC
 
1977
 
1960
 
101,000

51 Monroe Street
 
Rockville, MD
 
1979
 
1975
 
223,000

515 King Street
 
Alexandria, VA
 
1992
 
1966
 
75,000

6110 Executive Boulevard
 
Rockville, MD
 
1995
 
1971
 
202,000

1220 19th Street
 
Washington, DC
 
1995
 
1976
 
104,000

1600 Wilson Boulevard
 
Arlington, VA
 
1997
 
1973
 
168,000

Silverline Center
 
Tysons, VA
 
1997
 
1972/1986/1999
 
532,000

600 Jefferson Plaza
 
Rockville, MD
 
1999
 
1985
 
113,000

Wayne Plaza
 
Silver Spring, MD
 
2000
 
1970
 
99,000

Courthouse Square
 
Alexandria, VA
 
2000
 
1979
 
115,000

One Central Plaza
 
Rockville, MD
 
2001
 
1974
 
267,000

1776 G Street
 
Washington, DC
 
2003
 
1979
 
263,000

West Gude Drive
 
Rockville, MD
 
2006
 
1984/1986/1988
 
277,000

Monument II
 
Herndon, VA
 
2007
 
2000
 
208,000

2000 M Street
 
Washington, DC
 
2007
 
1971
 
231,000

2445 M Street
 
Washington, DC
 
2008
 
1986
 
290,000

925 Corporate Drive
 
Stafford, VA
 
2010
 
2007
 
134,000

1000 Corporate Drive
 
Stafford, VA
 
2010
 
2009
 
136,000

1140 Connecticut Avenue
 
Washington, DC
 
2011
 
1966
 
183,000

1227 25th Street
 
Washington, DC
 
2011
 
1988
 
135,000

Braddock Metro Center
 
Alexandria, VA
 
2011
 
1985
 
350,000

John Marshall II
 
Tysons, VA
 
2011
 
1996/2010
 
223,000

Fairgate at Ballston
 
Arlington, VA
 
2012
 
1988
 
143,000

The Army Navy Club Building
 
Washington, DC
 
2014
 
1912/1987
 
108,000

1775 Eye Street, NW
 
Washington, DC
 
2014
 
1964
 
186,000

Subtotal
 
 
 
 
 
 
 
4,866,000


27



Schedule of Properties (continued)
 
September 30, 2015
 PROPERTIES
 
 LOCATION
 
 YEAR ACQUIRED
 
 YEAR CONSTRUCTED
 
 NET RENTABLE SQUARE FEET
Retail Centers
 
 
 
 
 
 
 
 
Takoma Park
 
Takoma Park, MD
 
1963
 
1962
 
51,000

Westminster
 
Westminster, MD
 
1972
 
1969
 
150,000

Concord Centre
 
Springfield, VA
 
1973
 
1960
 
76,000

Wheaton Park
 
Wheaton, MD
 
1977
 
1967
 
74,000

Bradlee Shopping Center
 
Alexandria, VA
 
1984
 
1955
 
171,000

Chevy Chase Metro Plaza
 
Washington, DC
 
1985
 
1975
 
49,000

Montgomery Village Center
 
Gaithersburg, MD
 
1992
 
1969
 
197,000

Shoppes of Foxchase
 
Alexandria, VA
 
1994
 
1960/2006
 
134,000

Frederick County Square
 
Frederick, MD
 
1995
 
1973
 
227,000

800 S. Washington Street
 
Alexandria, VA
 
1998/2003
 
1955/1959
 
46,000

Centre at Hagerstown
 
Hagerstown, MD
 
2002
 
2000
 
332,000

Frederick Crossing
 
Frederick, MD
 
2005
 
1999/2003
 
295,000

Randolph Shopping Center
 
Rockville, MD
 
2006
 
1972
 
82,000

Montrose Shopping Center
 
Rockville, MD
 
2006
 
1970
 
145,000

Gateway Overlook
 
Columbia, MD
 
2010
 
2007
 
220,000

Olney Village Center
 
Olney, MD
 
2011
 
1979/2003
 
199,000

Spring Valley Retail Center
 
Washington, DC
 
2014
 
1941/1950
 
75,000

Subtotal
 
 
 
 
 
 
 
2,523,000



28



Schedule of Properties (continued)
 
September 30, 2015
 PROPERTIES
 
 LOCATION
 
 YEAR ACQUIRED
 
 YEAR CONSTRUCTED
 
 NET RENTABLE SQUARE FEET (1)
Multifamily Buildings / # units
 
 
 
 
 
 
 
 
3801 Connecticut Avenue / 307
 
Washington, DC
 
1963
 
1951
 
178,000

Roosevelt Towers / 191
 
Falls Church, VA
 
1965
 
1964
 
170,000

Park Adams / 200
 
Arlington, VA
 
1969
 
1959
 
173,000

Munson Hill Towers / 279
 
Falls Church, VA
 
1970
 
1963
 
258,000

The Ashby at McLean / 256
 
McLean, VA
 
1996
 
1982
 
274,000

Walker House Apartments / 212
 
Gaithersburg, MD
 
1996
 
1971/2003
 
157,000

Bethesda Hill Apartments / 195
 
Bethesda, MD
 
1997
 
1986
 
226,000

Bennett Park / 224
 
Arlington, VA
 
2007
 
2007
 
214,000

Clayborne / 74
 
Alexandria, VA
 
2008
 
2008
 
60,000

Kenmore Apartments / 374
 
Washington, DC
 
2008
 
1948
 
268,000

The Paramount / 135
 
Arlington, VA
 
2013
 
1984
 
141,000

Yale West / 216
 
Washington, DC
 
2014
 
2011
 
173,000

The Maxwell / 163
 
Arlington, VA
 
2014
 
2014
 
139,000

The Wellington / 711
 
Arlington, VA
 
2015
 
1960
 
842,000

Subtotal (3,537 units)
 
 
 
 
 
 
 
3,273,000

TOTAL
 
 
 
 
 
 
 
10,662,000

(1) Multifamily buildings are presented in gross square feet.

29



Supplemental Definitions
 
September 30, 2015
Adjusted EBITDA (a non-GAAP measure) is earnings attributable to the controlling interest before interest expense, taxes, depreciation, amortization, real estate impairment, gain on sale of real estate, gain/loss on extinguishment of debt, severance expense, relocation expense, acquisition and structuring expenses and gain/loss from non-disposal activities.
Annualized base rent ("ABR") is calculated as monthly base rent (cash basis) per the lease, as of the reporting period, multiplied by 12.
Debt service coverage ratio is computed by dividing earnings attributable to the controlling interest before interest expense, taxes, depreciation, amortization, real estate impairment, gain on sale of real estate, gain/loss on extinguishment of debt, severance expense, relocation expense, acquisition and structuring expenses and gain/loss from non-disposal activities by interest expense (including interest expense from discontinued operations) and principal amortization.
Debt to total market capitalization is total debt divided by the sum of total debt plus the market value of shares outstanding at the end of the period.
Earnings to fixed charges ratio is computed by dividing earnings attributable to the controlling interest by fixed charges. For this purpose, earnings consist of income from continuing operations (or net income if there are no discontinued operations) plus fixed charges, less capitalized interest. Fixed charges consist of interest expense (excluding interest expense from discontinued operations), including amortized costs of debt issuance, plus interest costs capitalized.
Economic occupancy is calculated as actual real estate rental revenue recognized for the period indicated as a percentage of gross potential real estate rental revenue for that period. We determine gross potential real estate rental revenue by valuing occupied units or square footage at contract rates and vacant units or square footage at market rates for comparable properties. We do not consider percentage rents and expense reimbursements in computing economic occupancy percentages.
NAREIT Funds from operations ("NAREIT FFO") is defined by The National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) in an April, 2002 White Paper as net income (computed in accordance with generally accepted accounting principles (“GAAP”)) excluding gains (or losses) associated with sales of property and impairment of depreciable real estate, plus real estate depreciation and amortization. We consider NAREIT 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 NAREIT FFO more accurately provides investors an indication of our ability to incur and service debt, make capital expenditures and fund other needs. NAREIT FFO is a non-GAAP measure.
Core Funds From Operations ("Core FFO") is calculated by adjusting NAREIT FFO for the following items (which we believe are not indicative of the performance of Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s operating performance over time): (1) gains or losses on extinguishment of debt, (2) expenses related to acquisition and structuring activities, (3) executive transition costs and severance expense related to corporate reorganization and related to executive retirements or resignations, (4) property impairments and gains or losses on sale, not already excluded from NAREIT FFO, as appropriate, and (5) relocation expense. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, Core FFO serves as a useful, supplementary measure of Washington REIT’s ability to incur and service debt, and distribute dividends to its shareholders. Core FFO is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.
Funds Available for Distribution ("FAD") is calculated by subtracting from NAREIT FFO (1) recurring expenditures, tenant improvements and leasing costs, that are capitalized and amortized and are necessary to maintain our properties and revenue stream (excluding items contemplated prior to acquisition or associated with development / redevelopment of a property) and (2) straight line rents, then adding (3) non-real estate depreciation and amortization, (4) non-cash fair value interest expense and (5) amortization of restricted share compensation, then adding or subtracting the (6) amortization of lease intangibles, (7) real estate impairment and (8) non-cash gain/loss on extinguishment of debt, 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.
Core Funds Available for Distribution ("Core FAD") is calculated by adjusting FAD for the following items (which we believe are not indicative of the performance of Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s operating performance over time): (1) gains or losses on extinguishment of debt, (2) costs related to the acquisition of properties, (3) non-share-based severance expense related to corporate reorganization and related to executive retirements or resignations, (4) property impairments and gains or losses on sale, not already excluded from FAD, as appropriate, and (5) relocation expense. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, Core FAD serves as a useful, supplementary measure of Washington REIT’s ability to incur and service debt, and distribute dividends to its shareholders. Core FAD is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.
Net Operating Income (“NOI”) is a non-GAAP measure defined as real estate rental revenue less real estate expenses. 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, general and administrative expenses, acquisition costs, real estate impairment and gain or loss on extinguishment of debt. We also present NOI on a cash basis ("Cash NOI") which is calculated as NOI less the impact of straightlining of rent and amortization of market intangibles. 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.

30


Physical occupancy is calculated as occupied square footage as a percentage of total square footage as of the last day of that period.
Recurring capital expenditures represent non-accretive building improvements and leasing costs required to maintain current revenues. Recurring capital expenditures do not include acquisition capital that was taken into consideration when underwriting the purchase of a building or which are incurred to bring a building up to "operating standard."
Rent increases on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month after a term commencement date and the net ABR due the last month prior to the termination date of the former tenant's term.
Same-store portfolio properties include all stabilized properties that were owned for the entirety of the current and prior reporting periods, and exclude properties under redevelopment or development and properties purchased or sold at any time during the periods being compared. We define redevelopment properties as those for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan which has a current impact on operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. Redevelopment and development properties are included in the same-store pool upon completion of the redevelopment or development, and the earlier of achieving 90% occupancy or two years after completion.
Same-store portfolio net operating income (NOI) growth is the change in the NOI of the same-store portfolio properties from the prior reporting period to the current reporting period.

31