Washington Real Estate Investment Trust
 
 
Second Quarter 2016
 
 
 
 
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
Second Quarter 2016

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.

Second Quarter 2016 Highlights

•
Generated Net Income of $31.8 million or $0.44 per diluted share compared to a net loss of $(2.5) million or $(0.04) per diluted share in the second quarter of 2015
•
Generated NAREIT Funds from Operations (FFO) of $32.9 million, or $0.46 per diluted share, compared to $22.6 million, or $0.33 per diluted share in the second quarter of 2015
•
Generated Core FFO of $0.46 per fully diluted share for the second quarter, a 9.5% or $0.04 increase over second quarter of 2015. Approximately $0.01 of the increase was due to the recognition of a deferred tax benefit
•
Achieved same-store Net Operating Income (NOI) growth of 3.9%, with same-store rental growth of 1.9% over second quarter 2015
•
Achieved same-store NOI growth of 5.7% for the office portfolio and 5.9% for the multifamily portfolio over second quarter 2015
•
Improved overall portfolio physical occupancy to 91.1%,110 basis points higher than second quarter 2015 and 50 basis points higher than first quarter 2016. The overall portfolio was 94.1% leased at June 30, 2016
•
Tightened 2016 Core FFO guidance by 4 cents to a range of $1.74 to $1.77 per fully diluted share, raising the mid-point by 2 cents per fully diluted share

Of the 74,000 square feet of commercial leases signed, there were 34,000 square feet of new leases and 40,000 square feet of renewal leases. New leases had an average rental rate increase of 11.8% over expiring lease rates and a weighted average lease term of 6.5 years. Commercial tenant improvement costs were $42.61 per square foot and leasing commissions and incentives were $28.71 per square foot for new leases. Renewal leases had an average rental rate increase of 17.6% from expiring lease rates and a weighted average lease term of 5.0 years. Commercial tenant improvement costs were $3.85 per square foot and leasing commissions and incentives were $16.71 per square foot for renewal leases.

At the end of April 2016, Washington REIT issued 5.3 million shares through a public offering, which raised gross proceeds before expenses and underwriting costs of approximately $150.0 million. On May 20, 2016, the Company closed the previously announced acquisition of Riverside Apartments, an apartment community in Alexandria, VA, consisting of 1,222 units and potential onsite density to develop 550 additional units, for $244.8 million. On May 26, 2016, the Company sold a parcel of land at Dulles Station II in Herndon, Virginia for $12.1 million and on June 27, 2016, Washington REIT completed the first sale transaction of its suburban Maryland office portfolio comprising approximately 692,000 square feet for aggregate sales proceeds of $111.5 million.

Subsequent to quarter end, on July 22, 2016, Washington REIT entered into a seven year $150 million unsecured term loan maturing on July 21, 2023 with a deferred draw period of up to six months. The Company expects to draw on the term loan in the fourth quarter or early in January 2017 to refinance maturing secured debt. Washington REIT entered into a forward swap from floating interest rates to a 2.86% all-in fixed interest rate for $150 million commencing at the end of March 31, 2017. The term loan fits well on Washington REIT's debt maturity ladder and helps to strengthen its balance sheet. Capital One, National Association and U.S. Bank National Association served as joint lead arrangers and joint bookrunners and are the administrative agent and syndication agent, respectively. The Bank of New York Mellon and Branch Banking and Trust Company also participated.

As of June 30, 2016, Washington REIT owned a diversified portfolio of 51 properties, totaling approximately 6.5 million square feet of commercial space and 4,480 multifamily units, and land held for development. These 51 properties consist of 21 office properties, 16 retail centers and 14 multifamily properties. Washington REIT shares are publicly traded on the New York Stock Exchange (NYSE:WRE).



Company Background and Highlights
Second Quarter 2016

Net Operating Income Contribution by Sector - Second Quarter 2016




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 2015 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
June 30, 2016
 
 
 
Schedule
Page
Key Financial Data
 
 
 
 
 
 
Capital Analysis
 
 
Long Term Debt Analysis
 
 
 
Portfolio Analysis
 
 
 
 
 
 
Growth and Strategy
 
 
Acquisition and Disposition Summary
Tenant Analysis
 
 
 
 
 
 
Appendix
 
 
 




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

 
 
Three Months Ended
OPERATING RESULTS
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Real estate rental revenue
$
79,405

 
$
77,137

 
$
79,102

 
$
78,243

 
$
74,226

Real estate expenses
(28,175
)
 
(28,734
)
 
(27,688
)
 
(28,109
)
 
(27,229
)
 
51,230

 
48,403

 
51,414

 
50,134

 
46,997

Real estate depreciation and amortization
(25,161
)
 
(26,038
)
 
(28,808
)
 
(29,349
)
 
(25,503
)
Income from real estate
26,069

 
22,365

 
22,606

 
20,785

 
21,494

Interest expense
(13,820
)
 
(14,360
)
 
(15,012
)
 
(14,486
)
 
(14,700
)
Other income
83

 
39

 
162

 
163

 
192

Acquisition costs
(1,024
)
 
(154
)
 
(119
)
 
(929
)
 
(992
)
Casualty gain and real estate impairment (loss), net
676

 
—

 
—

 
—

 
(5,909
)
Gain on sale of real estate
24,112

 
—

 
59,376

 
—

 
1,454

Loss on extinguishment of debt
—

 
—

 
—

 
—

 
(119
)
General and administrative
(4,968
)
 
(5,511
)
 
(4,854
)
 
(4,911
)
 
(4,278
)
Income tax benefit (expense)
693

 
—

 
(64
)
 
(42
)
 
(28
)
Net income (loss)
31,821

 
2,379

 
62,095

 
580

 
(2,886
)
Less: Net loss from noncontrolling interests
15

 
5

 
38

 
67

 
340

Net income (loss) attributable to the controlling interests
$
31,836

 
$
2,384

 
$
62,133

 
$
647

 
$
(2,546
)
Per Share Data:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
0.44

 
$
0.03

 
$
0.91

 
$
0.01

 
$
(0.04
)
Fully diluted weighted average shares outstanding
71,912

 
68,488

 
68,371

 
68,305

 
68,176

Percentage of Revenues:
 
 
 
 
 
 
 
 
 
Real estate expenses
35.5
%
 
37.3
%
 
35.0
%
 
35.9
%
 
36.7
 %
General and administrative
6.3
%
 
7.1
%
 
6.1
%
 
6.3
%
 
5.8
 %
Ratios:
 
 
 
 
 
 
 
 
 
Adjusted EBITDA / Interest expense
3.4
x
 
3.0
x
 
3.1
x
 
3.2
x
 
3.0
x
Income from continuing operations/Total real estate revenue
40.1
%
 
3.1
%
 
78.5
%
 
0.7
%
 
(3.9
)%
Net income /Total real estate revenue
40.1
%
 
3.1
%
 
78.5
%
 
0.8
%
 
(3.4
)%

4



Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Assets
 
 
 
 
 
 
 
 
 
Land
$
573,315

 
$
561,256

 
$
561,256

 
$
572,880

 
$
542,654

Income producing property
2,072,166

 
2,095,306

 
2,076,541

 
2,074,425

 
1,966,612

 
2,645,481

 
2,656,562

 
2,637,797

 
2,647,305

 
2,509,266

Accumulated depreciation and amortization
(613,194
)
 
(714,689
)
 
(692,608
)
 
(677,480
)
 
(670,103
)
Net income producing property
2,032,287

 
1,941,873

 
1,945,189

 
1,969,825

 
1,839,163

Development in progress, including land held for development
35,760

 
27,313

 
36,094

 
35,256

 
35,314

Total real estate held for investment, net
2,068,047

 
1,969,186

 
1,981,283

 
2,005,081

 
1,874,477

Investment in real estate held for sale, net
41,704

 
—

 
—

 
5,010

 
—

Cash and cash equivalents
22,379

 
23,575

 
23,825

 
21,012

 
22,778

Restricted cash
11,054

 
9,889

 
13,383

 
12,544

 
13,705

Rents and other receivables, net of allowance for doubtful accounts
58,970

 
63,863

 
62,890

 
62,306

 
61,577

Prepaid expenses and other assets
99,150

 
118,790

 
109,787

 
117,167

 
112,852

Other assets related to properties sold or held for sale
5,147

 
—

 
—

 
278

 
—

Total assets
$
2,306,451

 
$
2,185,303

 
$
2,191,168

 
$
2,223,398

 
$
2,085,389

Liabilities
 
 
 
 
 
 
 
 
 
Notes payable
$
743,769

 
$
743,475

 
$
743,181

 
$
742,971

 
$
593,755

Mortgage notes payable
252,044

 
333,853

 
418,052

 
418,400

 
418,637

Lines of credit
269,000

 
215,000

 
105,000

 
195,000

 
185,000

Accounts payable and other liabilities
52,722

 
56,348

 
45,367

 
54,131

 
50,281

Dividend payable
—

 
—

 
20,434

 
—

 
—

Advance rents
10,178

 
11,589

 
12,744

 
10,766

 
13,733

Tenant security deposits
8,290

 
9,604

 
9,378

 
9,225

 
9,053

Liabilities related to properties sold or held for sale
2,338

 
—

 
—

 
329

 
—

Total liabilities
1,338,341

 
1,369,869

 
1,354,156

 
1,430,822

 
1,270,459

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

 
—

 
—

 
—

 
—

Shares of beneficial interest, $0.01 par value; 100,000 shares authorized
737

 
683

 
682

 
682

 
682

Additional paid-in capital
1,338,101

 
1,193,750

 
1,193,298

 
1,192,202

 
1,191,594

Distributions in excess of net income
(366,352
)
 
(376,041
)
 
(357,781
)
 
(399,421
)
 
(379,577
)
Accumulated other comprehensive loss
(5,609
)
 
(4,225
)
 
(550
)
 
(2,288
)
 
—

Total shareholders' equity
966,877

 
814,167

 
835,649

 
791,175

 
812,699

Noncontrolling interests in subsidiaries
1,233

 
1,267

 
1,363

 
1,401

 
2,231

Total equity
968,110

 
815,434

 
837,012

 
792,576

 
814,930

Total liabilities and equity
$
2,306,451

 
$
2,185,303

 
$
2,191,168

 
$
2,223,398

 
$
2,085,389

Total Debt / Total Market Capitalization
0.35
:1
 
0.39
:1
 
0.41
:1
 
0.44
:1
 
0.40
:1

5



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

 
 
Three Months Ended
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Funds from operations(1)
 
 
 
 
 
 
 
 
 
Net income (loss)
$
31,821

 
$
2,379

 
$
62,095

 
$
580

 
$
(2,886
)
Real estate depreciation and amortization
25,161

 
26,038

 
28,808

 
29,349

 
25,503

Gain on sale of depreciable real estate
(24,112
)
 
—

 
(59,376
)
 
—

 
—

NAREIT funds from operations (FFO)
32,870

 
28,417

 
31,527

 
29,929

 
22,617

Loss on extinguishment of debt
—

 
—

 
—

 
—

 
119

Casualty (gain) and real estate impairment loss, net
(676
)
 
—

 
—

 
—

 
5,909

Loss (gain) on sale of non depreciable real estate
—

 
—

 
—

 
50

 
(1,454
)
Severance expense
126

 
460

 
—

 
—

 
—

Relocation expense
—

 
—

 
—

 
—

 
26

Acquisition and structuring expenses
1,107

 
259

 
189

 
1,034

 
1,264

Core FFO (1)
$
33,427

 
$
29,136

 
$
31,716

 
$
31,013

 
$
28,481

 
 
 
 
 
 
 
 
 
 
Allocation to participating securities(2)
(99
)
 
(90
)
 
(180
)
 
(47
)
 
(80
)
 
 
 
 
 
 
 
 
 
 
NAREIT FFO per share - basic
$
0.46

 
$
0.41

 
$
0.46

 
$
0.44

 
$
0.33

NAREIT FFO per share - fully diluted
$
0.46

 
$
0.41

 
$
0.46

 
$
0.44

 
$
0.33

Core FFO per share - fully diluted
$
0.46

 
$
0.42

 
$
0.46

 
$
0.45

 
$
0.42

 
 
 
 
 
 
 
 
 
 
Common dividend per share
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
 
 
 
 
 
 
 
 
 
Average shares - basic
71,719

 
68,301

 
68,204

 
68,186

 
68,176

Average shares - fully diluted (for FFO and FAD)
71,912

 
68,488

 
68,371

 
68,305

 
68,375

(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
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Funds available for distribution(1)
 
 
 
 
 
 
 
 
 
NAREIT FFO
$
32,870

 
$
28,417

 
$
31,527

 
$
29,929

 
$
22,617

Non-cash loss on extinguishment of debt
—

 
—

 
—

 
—

 
119

Tenant improvements and incentives
(7,639
)
 
(1,543
)
 
(6,792
)
 
(5,231
)
 
(3,417
)
Leasing commissions
(3,350
)
 
(1,015
)
 
(2,426
)
 
(1,714
)
 
(1,149
)
Recurring capital improvements
(1,237
)
 
(908
)
 
(3,296
)
 
(1,326
)
 
(737
)
Straight-line rent, net
(880
)
 
(683
)
 
(533
)
 
(680
)
 
(538
)
Non-cash fair value interest expense
44

 
42

 
41

 
38

 
36

Non-real estate depreciation and amortization
876

 
950

 
980

 
938

 
1,123

Amortization of lease intangibles, net
853

 
943

 
925

 
913

 
970

Amortization and expensing of restricted share and unit compensation
850

 
1,519

 
1,123

 
863

 
1,195

Funds available for distribution (FAD)
22,387

 
27,722

 
21,549

 
23,730

 
20,219

Loss (gain) on sale of non depreciable real estate
—

 
—

 
—

 
50

 
(1,454
)
Non-share-based severance expense
126

 
39

 
—

 
—

 
—

Relocation expense
—

 
—

 
—

 
—

 
26

Acquisition and structuring expenses
1,107

 
259

 
189

 
1,034

 
1,264

Casualty (gain) and real estate impairment loss, net
(676
)
 
—

 
—

 
—

 
5,909

Core FAD (1)
$
22,944

 
$
28,020

 
$
21,738

 
$
24,814

 
$
25,964

 
 
 
 
 
 
 
 
 
 
Allocation to participating securities (2)
(99
)
 
(90
)
 
(180
)
 
(47
)
 
(80
)
 
 
 
 
 
 
 
 
 
 
FAD per share - basic
$
0.31

 
$
0.40

 
$
0.31

 
$
0.35

 
$
0.30

FAD per share - fully diluted
$
0.31

 
$
0.40

 
$
0.31

 
$
0.35

 
$
0.29

Core FAD per share - fully diluted
$
0.32

 
$
0.41

 
$
0.32

 
$
0.36

 
$
0.38

 
 
 
 
 
 
 
 
 
 
Common dividend per share
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
 
 
 
 
 
 
 
 
 
Average shares - basic
71,719

 
68,301

 
68,204

 
68,186

 
68,176

Average shares - fully diluted (for FFO and FAD)
71,912

 
68,488

 
68,371

 
68,305

 
68,375

(1) See "Supplemental Definitions" on page 28 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
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Adjusted EBITDA (1)
 
 
 
 
 
 
 
 
 
Net income (loss)
$
31,821

 
$
2,379

 
$
62,095

 
$
580

 
$
(2,886
)
Add:
 
 
 
 
 
 
 
 
 
Interest expense
13,820

 
14,360

 
15,012

 
14,486

 
14,700

Real estate depreciation and amortization
25,161

 
26,038

 
28,808

 
29,349

 
25,503

Income tax (benefit) expense
(693
)
 
—

 
65

 
41

 
28

Casualty (gain) and real estate impairment loss, net
(676
)
 
—

 
—

 
—

 
5,909

Non-real estate depreciation
152

 
152

 
149

 
168

 
178

Severance expense
126

 
460

 
—

 
—

 
—

Relocation expense
—

 
—

 
—

 
—

 
26

Acquisition and structuring expenses
1,107

 
259

 
189

 
1,034

 
1,264

Less:
 
 
 
 
 
 
 
 
 
    Net (gain) loss on sale of real estate
(24,112
)
 
—

 
(59,376
)
 
50

 
(1,454
)
    Loss on extinguishment of debt
—

 
—

 
—

 
—

 
119

Adjusted EBITDA
$
46,706

 
$
43,648

 
$
46,942

 
$
45,708

 
$
43,387

 
 
 
 
 
 
 
 
 
 
(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)
 

 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Balances Outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
 
 
 
 
 
 
 
 
Conventional fixed rate
$
252,044

 
$
333,853

 
$
418,052

 
$
418,400

 
$
418,637

Unsecured
 
 
 
 
 
 
 
 
 
Fixed rate bonds
594,658

 
594,411

 
594,164

 
594,002

 
593,755

Term loans
149,111

 
149,064

 
149,017

 
148,969

 
—

Credit facility
269,000

 
215,000

 
105,000

 
195,000

 
185,000

Unsecured total
1,012,769

 
958,475

 
848,181

 
937,971

 
778,755

Total
$
1,264,813

 
$
1,292,328

 
$
1,266,233

 
$
1,356,371

 
$
1,197,392

 
 
 
 
 
 
 
 
 
 
Weighted Average Interest Rates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
 
 
 
 
 
 
 
 
Conventional fixed rate
5.3
%
 
5.4
%
 
5.2
%
 
5.2
%
 
5.2
%
Unsecured
 
 
 
 
 
 
 
 
 
Fixed rate bonds
4.7
%
 
4.7
%
 
4.7
%
 
4.7
%
 
4.7
%
Term loans (1)
2.7
%
 
2.7
%
 
2.7
%
 
2.7
%
 
—
%
Credit facility
1.4
%
 
1.4
%
 
1.4
%
 
1.2
%
 
1.2
%
Unsecured total
3.6
%
 
3.7
%
 
4.0
%
 
3.7
%
 
3.9
%
Weighted Average
3.9
%
 
4.1
%
 
4.4
%
 
4.2
%
 
4.4
%
 
 
 
 
 
 
 
 
 
 
(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 debt balances outstanding are shown net of discounts, premiums and unamortized debt costs (see page 10 of this Supplemental).



    

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
2016
$
—

 
$
—

 
$
—

 
$
—

 
—%
2017
150,903

 
—

 
—

 
150,903

 
5.9%
2018
—

 
—

 
—

 
—

 
 
2019
31,280

 
—

 
269,000

(1) 
300,280

 
1.8%
2020
—

 
250,000

 
—

 
250,000

 
5.1%
2021
—

 
150,000

(2) 
—

 
150,000

 
2.7%
2022
44,517

 
300,000

 
—

 
344,517

 
4.0%
2023
—

 
—

 
—

 
—

 
 
2024
—

 
—

 
—

 
—

 
 
2025
—

 
—

 
—

 
—

 
 
2026
—

 
—

 
—

 
—

 
 
Thereafter
—

 
50,000

 
—

 
50,000

 
7.4%
Scheduled principal payments
$
226,700

 
$
750,000

 
$
269,000

 
$
1,245,700

 
3.9%
Scheduled amortization payments
21,630

 
—

 
—

 
21,630

 
4.7%
Net discounts/premiums
4,261

 
(2,167
)
 
—

 
2,094

 
 
Loan costs, net of amortization
(547
)
 
(4,064
)
 
—

 
(4,611
)
 
 
Total maturities
$
252,044

 
$
743,769

 
$
269,000

 
$
1,264,813

 
3.9%
Weighted average maturity =4.5 years
(1) Maturity date for credit facility may be extended for up to two additional 6-month periods at Washington REIT's option.
(2) 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 June 30, 2016
 
Covenant
 
Quarter Ended June 30, 2016
 
Covenant
% of Total Indebtedness to Total Assets(1)
43.1
%
 
≤ 65.0%
 
 N/A

 
N/A
Ratio of Income Available for Debt Service to Annual Debt Service
3.5

 
            ≥ 1.5
 
 N/A

 
N/A
% of Secured Indebtedness to Total Assets(1)
8.6
%
 
≤ 40.0%
 
 N/A

 
N/A
Ratio of Total Unencumbered Assets(2) to Total Unsecured Indebtedness
2.5

 
            ≥ 1.5
 
 N/A

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

 
 N/A
 
38.5
%
 
≤ 60.0%
Ratio of Consolidated Adjusted EBITDA(4) to Consolidated Fixed Charges(5)
 N/A

 
 N/A
 
3.25

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

 
 N/A
 
7.8
%
 
≤ 40.0%
% of Consolidated Unsecured Indebtedness to Unencumbered Pool Value(6)
 N/A

 
 N/A
 
35.6
%
 
≤ 60.0%
Ratio of Unencumbered Adjusted Net Operating Income to Consolidated Unsecured Interest Expense
 N/A

 
 N/A
 
4.58

 
             ≥ 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)
 
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Market Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares Outstanding
$
73,651

 
$
68,326

 
$
68,191

 
$
68,180

 
$
68,162

Market Price per Share
31.46

 
29.21

 
27.06

 
24.93

 
25.95

Equity Market Capitalization
$
2,317,060

 
$
1,995,802

 
$
1,845,248

 
$
1,699,727

 
$
1,768,804

 
 
 
 
 
 
 
 
 
 
Total Debt
$
1,264,813

 
$
1,292,328

 
$
1,266,233

 
$
1,356,371

 
$
1,197,392

Total Market Capitalization
$
3,581,873

 
$
3,288,130

 
$
3,111,481

 
$
3,056,098

 
$
2,966,196

 
 
 
 
 
 
 
 
 
 
Total Debt to Market Capitalization
0.35
:1
 
0.39
:1
 
0.41
:1
 
0.44
:1
 
0.40
:1
 
 
 
 
 
 
 
 
 
 
Earnings to Fixed Charges(1)
3.3x

 
1.2x

 
5.1x

 
1.0x

 
0.8x

Debt Service Coverage Ratio(2)
3.2x

 
2.8x

 
2.9x

 
2.9x

 
2.7x

 
 
 
 
 
 
 
 
 
 
Dividend Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Dividends Declared
$
22,147

 
$
20,644

 
$
20,493

 
$
20,491

 
$
20,500

Common Dividend Declared per Share
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

Payout Ratio (Core FFO per share basis)
65.2
%
 
71.4
%
 
65.0
%
 
66.7
%
 
71.4
%
Payout Ratio (Core FAD per share basis)
93.8
%
 
73.2
%
 
93.8
%
 
83.3
%
 
78.9
%
 
 
 
 
 
 
 
 
 
 
(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. The earnings to fixed charges ratios for the three months ended June 30, 2016, December 31, 2015 and June 30, 2015 include gains on the sale of real estate of $24.1 million, $59.4 million and $1.5 million, respectively.
(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 Rate Growth
2016 vs. 2015
 

 
Three Months Ended June 30,
 
 
 
Rental Rate
 
2016
 
2015
 
% Change
 
Growth
Cash Basis:
 
 
 
 
 
 
 
Multifamily
$
8,401

 
$
7,935

 
5.9
 %
 
0.2
%
Office
22,961

 
21,930

 
4.7
 %
 
1.5
%
Retail
11,056

 
11,323

 
(2.4
)%
 
3.6
%
Overall Same-Store Portfolio (1)
$
42,418

 
$
41,188

 
3.0
 %
 
1.7
%
 
 
 
 
 
 
 
 
GAAP Basis:
 
 
 
 
 
 
 
Multifamily
$
8,398

 
$
7,932

 
5.9
 %
 
0.2
%
Office
22,839

 
21,612

 
5.7
 %
 
2.1
%
Retail
11,396

 
11,497

 
(0.9
)%
 
3.2
%
Overall Same-Store Portfolio (1)
$
42,633

 
$
41,041

 
3.9
 %
 
1.9
%

(1)  Non same-store properties were:
Acquisitions:
Multifamily - The Wellington and Riverside Apartments
Development/Redevelopment:
Multifamily - The Maxwell
         Office - Silverline Center and The Army Navy Club Building
Sold properties classified as continuing operations:
Multifamily - Munson Hill Towers
Office - Dulles Station II, Wayne Plaza, 600 Jefferson Plaza, 6110 Executive Boulevard, West Gude
Retail - Montgomery Village Center


13



Same-Store Portfolio Net Operating Income (NOI) Detail
(In thousands)
 
 
Three Months Ended June 30, 2016
 
Multifamily
 
Office
 
Retail
 
Corporate and Other
 
Total
Real estate rental revenue
 
 
 
 
 
 
 
 
 
Same-store portfolio
$
13,803

 
$
35,590

 
$
15,080

 
$
—

 
$
64,473

Non same-store - acquired and in development (1)
6,785

 
8,147

 
—

 
—

 
14,932

Total
20,588

 
43,737

 
15,080

 
—

 
79,405

Real estate expenses
 
 
 
 
 
 
 
 
 
Same-store portfolio
5,405

 
12,751

 
3,684

 
—

 
21,840

Non same-store - acquired and in development (1)
2,492

 
3,843

 
—

 
—

 
6,335

Total
7,897

 
16,594

 
3,684

 
—

 
28,175

Net Operating Income (NOI)
 
 
 
 
 
 
 
 
 
Same-store portfolio
8,398

 
22,839

 
11,396

 
—

 
42,633

Non same-store - acquired and in development (1)
4,293

 
4,304

 
—

 
—

 
8,597

Total
$
12,691

 
$
27,143

 
$
11,396

 
$
—

 
$
51,230

 
 
 
 
 
 
 
 
 
 
Same-store portfolio NOI (from above)
$
8,398

 
$
22,839

 
$
11,396

 
$
—

 
$
42,633

Straight-line revenue, net for same-store properties
2

 
(619
)
 
(133
)
 
—

 
(750
)
FAS 141 Min Rent
1

 
224

 
(255
)
 
—

 
(30
)
Amortization of lease intangibles for same-store properties
—

 
517

 
48

 
—

 
565

Same-store portfolio cash NOI
$
8,401

 
$
22,961

 
$
11,056

 
$
—

 
$
42,418

Reconciliation of NOI to net income
 
 
 
 
 
 
 
 
 
Total NOI
$
12,691

 
$
27,143

 
$
11,396

 
$
—

 
$
51,230

Depreciation and amortization
(6,496
)
 
(14,770
)
 
(3,651
)
 
(244
)
 
(25,161
)
General and administrative
—

 
—

 
—

 
(4,968
)
 
(4,968
)
Interest expense
(1,808
)
 
(2,204
)
 
(211
)
 
(9,597
)
 
(13,820
)
Other income
—

 
—

 
—

 
83

 
83

Acquisition costs
—

 
—

 
—

 
(1,024
)
 
(1,024
)
    Gain on sale of real estate
—

 
—

 
—

 
24,112

 
24,112

Casualty gain and real estate impairment (loss), net
—

 
—

 
—

 
676

 
676

    Income tax benefit
—

 
—

 
—

 
693

 
693

Net income
4,387

 
10,169

 
7,534

 
9,731

 
31,821

Net loss attributable to noncontrolling interests
—

 
—

 
—

 
15

 
15

Net income attributable to the controlling interests
$
4,387

 
$
10,169

 
$
7,534

 
$
9,746

 
$
31,836

(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 June 30, 2015
 
Multifamily
 
Office
 
Retail
 
Corporate and Other
 
Total
Real estate rental revenue
 
 
 
 
 
 
 
 
 
Same-store portfolio
$
13,626

 
$
34,658

 
$
14,940

 
$
—

 
$
63,224

Non same-store - acquired and in development (1)
1,717

 
8,485

 
800

 
—

 
11,002

                         Total
15,343

 
43,143

 
15,740

 
—

 
74,226

 
 
 
 
 
 
 
 
 
 
Real estate expenses
 
 
 
 
 
 
 
 
 
Same-store portfolio
5,694

 
13,046

 
3,443

 
—

 
22,183

Non same-store - acquired and in development (1)
991

 
3,796

 
259

 
—

 
5,046

                         Total
6,685

 
16,842

 
3,702

 
—

 
27,229

 
 
 
 
 
 
 
 
 
 
Net Operating Income (NOI)
 
 
 
 
 
 
 
 
 
Same-store portfolio
7,932

 
21,612

 
11,497

 
—

 
41,041

Non same-store - acquired and in development (1)
726

 
4,689

 
541

 
—

 
5,956

                          Total
$
8,658

 
$
26,301

 
$
12,038

 
$
—

 
$
46,997

 
 
 
 
 
 
 
 
 
 
Same-store portfolio NOI (from above)
$
7,932

 
$
21,612

 
$
11,497

 
$
—

 
$
41,041

Straight-line revenue, net for same-store properties
2

 
(384
)
 
(1
)
 
—

 
(383
)
FAS 141 Min Rent
1

 
164

 
(237
)
 
—

 
(72
)
Amortization of lease intangibles for same-store properties
—

 
538

 
64

 
—

 
602

Same-store portfolio cash NOI
$
7,935

 
$
21,930

 
$
11,323

 
$
—

 
$
41,188

 
 
 
 
 
 
 
 
 
 
Reconciliation of NOI to net income
 
 
 
 
 
 
 
 
 
Total NOI
$
8,658

 
$
26,301

 
$
12,038

 
$
—

 
$
46,997

Depreciation and amortization
(4,425
)
 
(17,085
)
 
(3,741
)
 
(252
)
 
(25,503
)
General and administrative
—

 
—

 
—

 
(4,278
)
 
(4,278
)
Interest expense
(2,441
)
 
(2,984
)
 
(232
)
 
(9,043
)
 
(14,700
)
Other income
—

 
—

 
—

 
192

 
192

Acquisition costs
—

 
—

 
—

 
(992
)
 
(992
)
Gain on sale of real estate
—

 
—

 
—

 
1,454

 
1,454

Casualty gain and real estate impairment (loss), net
—

 
—

 
—

 
(5,909
)
 
(5,909
)
    Loss on extinguishment of debt
—

 
—

 
—

 
(119
)
 
(119
)
    Income tax benefit (expense)
—

 
—

 
—

 
(28
)
 
(28
)
Net income (loss)
1,792

 
6,232

 
8,065

 
(18,975
)
 
(2,886
)
Net income attributable to noncontrolling interests
—

 
—

 
—

 
340

 
340

Net income (loss) attributable to the controlling interests
$
1,792

 
$
6,232

 
$
8,065

 
$
(18,635
)
 
$
(2,546
)
(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
 
 
 
Q2 2016
 
YTD 2016
 
 
DC
 
 
 
 
 
Multifamily
5.5
%
 
5.6
%
 
 
Office
24.1
%
 
24.4
%
 
 
Retail
1.5
%
 
1.5
%
 
 
 
31.1
%
 
31.5
%
 
 
Maryland
 
 
 
 
 
Multifamily
2.4
%
 
2.5
%
 
 
Office
9.9
%
 
10.4
%
 
 
Retail
14.2
%
 
14.3
%
 
 
 
26.5
%
 
27.2
%
 
 
Virginia
 
 
 
 
 
Multifamily
16.8
%
 
15.4
%
 
 
Office
19.1
%
 
19.2
%
 
 
Retail
6.5
%
 
6.7
%
 
 
 
42.4
%
 
41.3
%
 
 
 
 
 
 
 
 
Total Portfolio
100.0
%
 
100.0
%
 



16



Same-Store Portfolio and Overall Physical Occupancy Levels by Sector

 
 
 
Physical Occupancy - Same-Store Properties (1), (2)
Sector
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Multifamily (calculated on a unit basis)
 
95.1
%
 
95.3
%
 
94.4
%
 
93.5
%
 
95.1
%
 
 
 
 
 
 
 
 
 
 
 
Multifamily
 
94.8
%
 
94.5
%
 
94.3
%
 
93.2
%
 
94.3
%
Office
 
91.8
%
 
91.5
%
 
91.2
%
 
91.3
%
 
92.2
%
Retail
 
92.1
%
 
91.2
%
 
91.5
%
 
95.4
%
 
94.1
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
92.7
%
 
92.2
%
 
92.1
%
 
93.0
%
 
93.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Physical Occupancy - All Properties (2)
Sector
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Multifamily (calculated on a unit basis)
 
94.7
%
 
95.2
%
 
93.9
%
 
92.6
%
 
92.3
%
 
 
 
 
 
 
 
 
 
 
 
Multifamily
 
94.4
%
 
94.5
%
 
93.4
%
 
92.3
%
 
91.7
%
Office
 
87.5
%
 
87.8
%
 
87.6
%
 
87.8
%
 
87.6
%
Retail
 
92.1
%
 
91.2
%
 
91.5
%
 
94.4
%
 
92.9
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
91.1
%
 
90.6
%
 
90.2
%
 
90.7
%
 
90.0
%
(1)  Non same-store properties were:
Acquisitions:
Multifamily - The Wellington and Riverside Apartments
Development/Redevelopment:
Multifamily - The Maxwell
         Office - Silverline Center and The Army Navy Club Building
Sold properties classified as continuing operations:
Multifamily - Munson Hill Towers
Office - Maryland Office Portfolio Transaction I: 6110 Executive Boulevard, 600 Jefferson Plaza, West Gude and Wayne Plaza
Retail - Montgomery Village Center
 
(2) Physical occupancy is calculated as occupied square footage as a percentage of total square footage as of the last day of that period, except for the rows labeled "Multifamily (calculated on a unit basis)," on which physical occupancy is calculated as occupied units as a percentage of total available units as of the last day of that period..

17



Same-Store Portfolio and Overall Economic Occupancy Levels by Sector
 
 
 
Economic Occupancy - Same-Store Properties(1)
Sector
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Multifamily
 
95.5
%
 
94.4
%
 
94.5
%
 
95.0
%
 
95.7
%
Office
 
91.3
%
 
90.5
%
 
91.9
%
 
91.8
%
 
91.8
%
Retail
 
89.3
%
 
89.7
%
 
92.0
%
 
93.5
%
 
94.0
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
91.8
%
 
91.2
%
 
92.5
%
 
92.9
%
 
93.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Economic Occupancy - All Properties
Sector
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
 
6/30/2015
Multifamily
 
95.3
%
 
93.9
%
 
93.2
%
 
92.7
%
 
90.6
%
Office
 
86.6
%
 
86.9
%
 
88.3
%
 
87.7
%
 
87.2
%
Retail
 
89.3
%
 
89.7
%
 
91.1
%
 
92.3
%
 
92.9
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
89.3
%
 
89.0
%
 
90.0
%
 
89.8
%
 
89.0
%

(1)  Non same-store properties were:
Acquisitions:
Multifamily - The Wellington and Riverside Apartments
Development/Redevelopment:
Multifamily - The Maxwell
         Office - Silverline Center and The Army Navy Club Building
Sold properties classified as continuing operations:
Multifamily - Munson Hill Towers
Office - Maryland Office Portfolio Transaction I: 6110 Executive Boulevard, 600 Jefferson Plaza, West Gude and Wayne Plaza
Retail - Montgomery Village Center


18



Acquisition and Disposition Summary
 

Acquisition Summary
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
Acquisition Date
 
Property type
 
# of units
 
6/30/2016 Leased Percentage
 
Investment
(in thousands)
Riverside Apartments
Alexandria, VA
 
May 20, 2016
 
Multifamily
 
1,222
 
95.9
%
 
$
244,750

 
 
 
 
 
 
 
 
 
 
 
 
Disposition Summary
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
Disposition Date
 
Property Type
 
 Square feet
 
Contract Sales Price
 
GAAP Gain
Maryland Office Portfolio, Transaction I
various
 
June 27, 2016
 
Office
 
692,000

 
$
111,500

 
$
23,585

Dulles Station, Phase II (1)
Herndon, VA
 
May 26, 2016
 
Office
 
N/A

 
12,100

 
527


(1) Land held for future development and an interest in a parking garage.

19



Commercial Leasing Summary - New Leases
 
 
2nd Quarter 2016
 
1st Quarter 2016
 
4th Quarter 2015
 
3rd Quarter 2015
 
2nd Quarter 2015
Gross Leasing Square Footage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
28,154
 
 
32,249
 
 
220,374
 
 
93,389
 
 
57,693
 
      Retail Centers
6,313
 
 
11,777
 
 
—
 
 
74,102
 
 
35,095
 
Total
34,467
 

44,026
 

220,374
 
 
167,491
 
 
92,788
 
Weighted Average Term (yrs)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
6.1
 
 
7.7
 
 
6.5
 
 
6.8
 
 
6.8
 
      Retail Centers
8.1
 
 
9.8
 
 
0.0
 
 
10.2
 
 
9.6
 
Total
6.5
 
 
8.3
 
 
6.5
 
 
8.3
 
 
7.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental Rate Increases:
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
      Rate on expiring leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
34.80

 
$
35.43

 
$
30.91

 
$
31.78

 
$
32.57

 
$
33.76

 
$
27.72

 
$
28.67

 
$
36.35

 
$
38.06

            Retail Centers
28.92

 
29.11

 
11.93

 
12.04

 
—

 
—

 
22.32

 
22.77

 
23.77

 
25.30

Total
$
33.73

 
$
34.27

 
$
25.83

 
$
26.50

 
$
32.57

 
$
33.76

 
$
25.33

 
$
26.06

 
$
31.59

 
$
33.23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Rate on new leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
39.83

 
$
37.09

 
$
40.60

 
$
36.84

 
$
39.45

 
$
36.62

 
$
36.46

 
$
33.53

 
$
41.61

 
$
38.11

            Retail Centers
28.13

 
26.45

 
16.22

 
14.45

 
—

 
—

 
27.61

 
26.14

 
28.17

 
26.42

Total
$
37.69

 
$
35.14

 
$
34.08

 
$
30.85

 
$
39.45

 
$
36.62

 
$
32.55

 
$
30.26

 
$
36.53

 
$
33.69

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Percentage Increase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
14.5
 %
 
4.7
 %
 
31.4
%
 
15.9
%
 
21.1
%
 
8.5
%
 
31.6
%
 
17.0
%
 
14.5
%
 
0.2
%
            Retail Centers
(2.7
)%
 
(9.1
)%
 
35.9
%
 
20.0
%
 
—
%
 
—
%
 
23.7
%
 
14.8
%
 
18.5
%
 
4.4
%
Total
11.8
 %
 
2.5
 %
 
31.9
%
 
16.4
%
 
21.1
%
 
8.5
%
 
28.5
%
 
16.1
%
 
15.6
%
 
1.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
1,356,810

 
$
48.19

 
$
1,571,632

 
$
48.73

 
$
13,946,572

 
$
63.29

 
$
4,775,584

 
$
51.14

 
$
2,209,271

 
$
38.29

Retail Centers
111,840

 
17.72

 
203,276

 
17.26

 
—

 
—

 
5,220,923

 
70.46

 
592,351

 
16.88

Subtotal
$
1,468,650

 
$
42.61

 
$
1,774,908

 
$
40.31

 
$
13,946,572

 
$
63.29

 
$
9,996,507

 
$
59.68

 
$
2,801,622

 
$
30.19

Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
892,150

 
$
31.69

 
$
1,250,549

 
$
38.78

 
$
7,960,650

 
$
36.12

 
$
4,556,279

 
$
48.79

 
$
1,809,746

 
$
31.37

Retail Centers
97,295

 
15.42

 
212,402

 
18.04

 
—

 
—

 
1,649,704

 
22.26

 
592,483

 
16.88

Subtotal
$
989,445

 
$
28.71

 
$
1,462,951

 
$
33.23

 
$
7,960,650

 
$
36.12

 
$
6,205,983

 
$
37.05

 
$
2,402,229

 
$
25.89

Tenant Improvements and Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
2,248,960

 
$
79.88

 
$
2,822,181

 
$
87.51

 
$
21,907,222

 
$
99.41

 
$
9,331,863

 
$
99.93

 
$
4,019,017

 
$
69.66

Retail Centers
209,135

 
33.14

 
415,678

 
35.30

 
—

 
—

 
6,870,627

 
92.72

 
1,184,834

 
33.76

Total
$
2,458,095

 
$
71.32

 
$
3,237,859

 
$
73.54

 
$
21,907,222

 
$
99.41

 
$
16,202,490

 
$
96.73

 
$
5,203,851

 
$
56.08


20



Commercial Leasing Summary - Renewal Leases
 
 
2nd Quarter 2016
 
1st Quarter 2016
 
4th Quarter 2015
 
3rd Quarter 2015
 
2nd Quarter 2015
Gross Leasing Square Footage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
30,787
 
 
193,275
 
 
42,033
 
 
191,599
 
 
71,112
 
      Retail Centers
9,076
 
 
27,243
 
 
32,594
 
 
53,415
 
 
95,048
 
Total
39,863
 
 
220,518
 
 
74,627
 
 
245,014
 
 
166,160
 
Weighted Average Term (yrs)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
4.6
 
 
7.1
 
 
6.6
 
 
2.8
 
 
3.9
 
      Retail Centers
6.3
 
 
11.6
 
 
3.3
 
 
4.4
 
 
5.8
 
Total
5.0
 
 
7.6
 
 
5.1
 
 
3.1
 
 
4.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental Rate Increases:
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
      Rate on expiring leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
30.13

 
$
31.53

 
$
36.53

 
$
38.93

 
$
35.61

 
$
37.12

 
$
35.23

 
$
37.43

 
$
30.91

 
$
33.07

            Retail Centers
32.56

 
47.14

 
24.53

 
26.67

 
21.30

 
22.56

 
23.21

 
23.72

 
17.57

 
18.54

Total
$
30.69

 
$
35.08

 
$
35.04

 
$
37.42

 
$
29.36

 
$
30.76

 
$
32.61

 
$
34.44

 
$
23.28

 
$
24.76

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Rate on new leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
34.42

 
$
32.44

 
$
40.55

 
$
37.12

 
$
37.01

 
$
34.12

 
$
31.37

 
$
30.29

 
$
32.43

 
$
31.37

            Retail Centers
41.78

 
46.62

 
41.49

 
35.39

 
25.08

 
23.50

 
26.63

 
26.10

 
22.49

 
21.25

Total
$
36.10

 
$
35.67

 
$
40.66

 
$
36.90

 
$
31.80

 
$
29.49

 
$
30.34

 
$
29.38

 
$
26.75

 
$
25.58

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Percentage Increase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
14.2
%
 
2.9
 %
 
11.0
%
 
(4.7
)%
 
3.9
%
 
(8.1
)%
 
(11.0
)%
 
(19.1
)%
 
4.9
%
 
(5.1
)%
            Retail Centers
28.3
%
 
(1.1
)%
 
69.2
%
 
32.7
 %
 
17.8
%
 
4.2
 %
 
14.7
 %
 
10.0
 %
 
28.0
%
 
14.6
 %
Total
17.6
%
 
1.7
 %
 
16.0
%
 
(1.4
)%
 
8.3
%
 
(4.1
)%
 
(7.0
)%
 
(14.7
)%
 
14.9
%
 
3.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
153,365

 
$
4.98

 
$
6,945,781

 
$
35.94

 
$
1,580,078

 
$
37.59

 
$
580,967

 
$
3.03

 
$
423,589

 
$
5.96

Retail Centers
—

 
—

 
626,200

 
22.99

 
—

 
—

 
36,540

 
0.68

 
39,183

 
0.41

Subtotal
$
153,365

 
$
3.85

 
$
7,571,981

 
$
34.34

 
$
1,580,078

 
$
21.17

 
$
617,507

 
$
2.52

 
$
462,772

 
$
2.79

Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
568,049

 
$
18.45

 
$
7,501,476

 
$
38.82

 
$
1,021,344

 
$
24.30

 
$
744,977

 
$
3.89

 
$
368,593

 
$
5.19

Retail Centers
97,897

 
10.78

 
802,685

 
29.47

 
59,302

 
1.82

 
119,946

 
2.25

 
199,976

 
2.10

Subtotal
$
665,946

 
$
16.71

 
$
8,304,161

 
$
37.65

 
$
1,080,646

 
$
14.48

 
$
864,923

 
$
3.53

 
$
568,569

 
$
3.43

Tenant Improvements and Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
721,414

 
$
23.43

 
$
14,447,257

 
$
74.76

 
$
2,601,422

 
$
61.89

 
$
1,325,944

 
$
6.92

 
$
792,182

 
$
11.15

Retail Centers
97,897

 
10.78

 
1,428,885

 
52.46

 
59,302

 
1.82

 
156,486

 
2.93

 
239,159

 
2.51

Total
$
819,311

 
$
20.56

 
$
15,876,142

 
$
71.99

 
$
2,660,724

 
$
35.65

 
$
1,482,430

 
$
6.05

 
$
1,031,341

 
$
6.22


21



10 Largest Tenants - Based on Annualized Commercial Income
 
June 30, 2016
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
 
54

 
5.96
%
 
210,354

 
3.66
%
Advisory Board Company
2
 
35

 
3.98
%
 
199,878

 
3.47
%
Engility Corporation
1
 
15

 
2.78
%
 
134,126

 
2.33
%
Squire Patton Boggs (USA) LLP (1)
1
 
10

 
2.69
%
 
110,566

 
1.92
%
Booz Allen Hamilton, Inc.
1
 
115

 
2.50
%
 
222,989

 
3.88
%
Epstein, Becker & Green, P.C.
1
 
150

 
1.49
%
 
55,318

 
0.96
%
Alexandria City School Board
1
 
155

 
1.32
%
 
84,693

 
1.47
%
Hughes Hubbard & Reed LLP
1
 
20

 
1.30
%
 
53,208

 
0.93
%
Morgan Stanley Smith Barney Financing
1
 
56

 
1.12
%
 
49,395

 
0.86
%
SunTrust Bank
3
 
99

 
1.06
%
 
34,286

 
0.60
%
Total/Weighted Average
 
 
66

 
24.20
%
 
1,154,813

 
20.08
%

(1) The spaced leased to Squire Patton Boggs (USA) LLP is currently subleased to Advisory Board Company, who has signed an extension to make the lease coterminous with the remaining Advisory Board Company leases expiring on May 31, 2019.

22


Industry Diversification
 
June 30, 2016

Industry Classification (NAICS)
Annualized Base Rental Revenue
 
Percentage of Aggregate Annualized Rent
 
Aggregate Rentable Square Feet
 
Percentage of Aggregate Square Feet
Office:
 
 
 
 
 
 
 
Professional, Scientific, and Technical Services
$
69,283,405

 
51.61
%
 
1,964,716

 
54.53
%
Finance and Insurance
17,042,198

 
12.70
%
 
351,894

 
9.77
%
Other Services (except Public Administration)
12,428,180

 
9.26
%
 
313,857

 
8.71
%
Information
8,133,552

 
6.06
%
 
201,143

 
5.58
%
Health Care and Social Assistance
6,299,093

 
4.69
%
 
195,193

 
5.42
%
Wholesale Trade
4,876,434

 
3.63
%
 
116,203

 
3.23
%
Educational Services
4,465,356

 
3.33
%
 
140,917

 
3.91
%
Public Administration
3,355,429

 
2.50
%
 
89,190

 
2.48
%
Administrative and Support and Waste Management and Remediation Services
2,445,951

 
1.82
%
 
61,188

 
1.70
%
Real Estate and Rental and Leasing
1,627,728

 
1.21
%
 
46,907

 
1.30
%
Accommodation and Food Services
1,451,191

 
1.08
%
 
36,017

 
1.00
%
Management of Companies and Enterprises
814,330

 
0.61
%
 
25,439

 
0.71
%
Other
2,013,237

 
1.50
%
 
59,736

 
1.66
%
Total
$
134,236,084

 
100.00
%
 
3,602,400

 
100.00
%
 
 
 
 
 
 
 
 
Retail:
 
 
 
 
 
 
 
Wholesale Trade
$
26,379,324

 
57.44
%
 
1,457,500

 
71.22
%
Accommodation and Food Services
6,842,590

 
14.90
%
 
217,461

 
10.62
%
Finance and Insurance
4,137,809

 
9.01
%
 
56,299

 
2.75
%
Other Services (except Public Administration/Government)
3,396,503

 
7.39
%
 
108,132

 
5.28
%
Arts, Entertainment, and Recreation
1,782,326

 
3.88
%
 
103,649

 
5.06
%
Health Care and Social Assistance
1,186,678

 
2.58
%
 
31,602

 
1.54
%
Manufacturing
631,179

 
1.37
%
 
25,598

 
1.25
%
Educational Services
533,904

 
1.16
%
 
17,547

 
0.86
%
Information (Broadcasting, Publishing, Telecommunications)
354,305

 
0.77
%
 
8,347

 
0.41
%
Other
688,898

 
1.50
%
 
20,740

 
1.01
%
Total
$
45,933,516

 
100.00
%
 
2,046,875

 
100.00
%
 
 
 
 
 
 
 
 

23



Lease Expirations
 
June 30, 2016
Year
 
Number of Leases
 
Rentable Square Feet
 
Percent of Rentable Square Feet
 
Annualized Rent *
 
Average Rental Rate
 
Percent of Annualized Rent *
Office:
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
36

 
89,918

 
2.30
%
 
$
3,213,244

 
$
35.74

 
1.96
%
2017
 
77

 
493,986

 
12.65
%
 
19,503,290

 
39.48

 
11.92
%
2018
 
66

 
343,006

 
8.78
%
 
13,609,798

 
39.68

 
8.32
%
2019
 
79

 
663,796

 
16.99
%
 
26,162,483

 
39.41

 
15.99
%
2020
 
68

 
476,791

 
12.21
%
 
21,774,594

 
45.67

 
13.31
%
2021 and thereafter
 
203

 
1,838,459

 
47.07
%
 
79,365,332

 
43.17

 
48.50
%
 
 
529

 
3,905,956

 
100.00
%
 
$
163,628,741

 
41.89

 
100.00
%
Retail:
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
10

 
30,255

 
1.40
%
 
$
1,084,542

 
$
35.85

 
2.07
%
2017
 
43

 
250,047

 
11.60
%
 
6,688,369

 
26.75

 
12.75
%
2018
 
37

 
334,849

 
15.53
%
 
4,882,226

 
14.58

 
9.31
%
2019
 
33

 
160,133

 
7.43
%
 
4,539,780

 
28.35

 
8.66
%
2020
 
37

 
407,969

 
18.92
%
 
7,363,213

 
18.05

 
14.04
%
2021 and thereafter
 
127

 
972,580

 
45.12
%
 
27,890,881

 
28.68

 
53.17
%
 
 
287

 
2,155,833

 
100.00
%
 
$
52,449,011

 
24.33

 
100.00
%
Total:
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
46

 
120,173

 
1.98
%
 
4,297,786

 
$
35.76

 
1.99
%
2017
 
120

 
744,033

 
12.27
%
 
26,191,659

 
35.20

 
12.12
%
2018
 
103

 
677,855

 
11.18
%
 
18,492,024

 
27.28

 
8.56
%
2019
 
112

 
823,929

 
13.59
%
 
30,702,263

 
37.26

 
14.21
%
2020
 
105

 
884,760

 
14.60
%
 
29,137,807

 
32.93

 
13.48
%
2021 and thereafter
 
330

 
2,811,039

 
46.38
%
 
107,256,213

 
38.16

 
49.64
%
 
 
816

 
6,061,789

 
100.00
%
 
$
216,077,752

 
35.65

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

24



Schedule of Properties
 
June 30, 2016
 PROPERTIES
 
 LOCATION
 
 YEAR ACQUIRED
 
 YEAR CONSTRUCTED
 
 NET RENTABLE SQUARE FEET
Office Buildings
 
 
 
 
 
 
 
 
515 King Street
 
Alexandria, VA
 
1992
 
1966
 
75,000

Courthouse Square
 
Alexandria, VA
 
2000
 
1979
 
118,000

Braddock Metro Center
 
Alexandria, VA
 
2011
 
1985
 
348,000

1600 Wilson Boulevard
 
Arlington, VA
 
1997
 
1973
 
169,000

Fairgate at Ballston
 
Arlington, VA
 
2012
 
1988
 
143,000

Monument II
 
Herndon, VA
 
2007
 
2000
 
207,000

925 Corporate Drive
 
Stafford, VA
 
2010
 
2007
 
134,000

1000 Corporate Drive
 
Stafford, VA
 
2010
 
2009
 
136,000

Silverline Center
 
Tysons, VA
 
1997
 
1972/1986/1999/2014
 
545,000

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

51 Monroe Street
 
Rockville, MD
 
1979
 
1975
 
223,000

One Central Plaza
 
Rockville, MD
 
2001
 
1974
 
268,000

1901 Pennsylvania Avenue
 
Washington, DC
 
1977
 
1960
 
102,000

1220 19th Street
 
Washington, DC
 
1995
 
1976
 
103,000

1776 G Street
 
Washington, DC
 
2003
 
1979
 
265,000

2000 M Street
 
Washington, DC
 
2007
 
1971
 
231,000

2445 M Street
 
Washington, DC
 
2008
 
1986
 
290,000

1140 Connecticut Avenue
 
Washington, DC
 
2011
 
1966
 
183,000

1227 25th Street
 
Washington, DC
 
2011
 
1988
 
137,000

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

1775 Eye Street
 
Washington, DC
 
2014
 
1964
 
186,000

Subtotal
 
 
 
 
 
 
 
4,194,000


25



Schedule of Properties (continued)
 
June 30, 2016
 PROPERTIES
 
 LOCATION
 
 YEAR ACQUIRED
 
 YEAR CONSTRUCTED
 
 NET RENTABLE SQUARE FEET
Retail Centers
 
 
 
 
 
 
 
 
Bradlee Shopping Center
 
Alexandria, VA
 
1984
 
1955
 
171,000

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

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

Concord Centre
 
Springfield, VA
 
1973
 
1960
 
76,000

Gateway Overlook
 
Columbia, MD
 
2010
 
2007
 
220,000

Frederick County Square
 
Frederick, MD
 
1995
 
1973
 
227,000

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

Centre at Hagerstown
 
Hagerstown, MD
 
2002
 
2000
 
332,000

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

Randolph Shopping Center
 
Rockville, MD
 
2006
 
1972
 
82,000

Montrose Shopping Center
 
Rockville, MD
 
2006
 
1970
 
145,000

Takoma Park
 
Takoma Park, MD
 
1963
 
1962
 
51,000

Westminster
 
Westminster, MD
 
1972
 
1969
 
150,000

Wheaton Park
 
Wheaton, MD
 
1977
 
1967
 
74,000

Chevy Chase Metro Plaza
 
Washington, DC
 
1985
 
1975
 
50,000

Spring Valley Retail Center
 
Washington, DC
 
2014
 
1941/1950
 
78,000

Subtotal
 
 
 
 
 
 
 
2,330,000



26



Schedule of Properties (continued)
 
June 30, 2016
 PROPERTIES
 
 LOCATION
 
 YEAR ACQUIRED
 
 YEAR CONSTRUCTED
 
 NET RENTABLE SQUARE FEET (1)
Multifamily Buildings / # units
 
 
 
 
 
 
 
 
Clayborne / 74
 
Alexandria, VA
 
2008
 
2008
 
60,000

Riverside Apartments / 1,222
 
Alexandria, VA
 
2016
 
1971
 
1,266,000

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

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

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

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

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

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

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

Bethesda Hill Apartments / 195
 
Bethesda, MD
 
1997
 
1986
 
225,000

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

3801 Connecticut Avenue / 307
 
Washington, DC
 
1963
 
1951
 
178,000

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

Yale West / 216
 
Washington, DC
 
2014
 
2011
 
238,000

Subtotal (4,480 units)
 
 
 
 
 
 
 
4,345,000

TOTAL
 
 
 
 
 
 
 
10,869,000

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

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Supplemental Definitions
 
June 30, 2016
Adjusted EBITDA (a non-GAAP measure) is earnings attributable to the controlling interest before interest expense, taxes, depreciation, amortization, real estate impairment, casualty gain, 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 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, impairment of depreciable real estate and 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, casualty gains and losses, 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, casualty gains and losses, 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, casualty gains and losses, 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.

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Physical occupancy is calculated as occupied square footage as a percentage of total square footage as of the last day of that period. Multifamily unit basis physical occupancy is calculated as occupied units as a percentage of total units 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.

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