washingtonreit300dpia16.jpg
 
 
Washington Real Estate Investment Trust
 
 
Third Quarter 2016
 
 
q316supplementalphotoa01.jpg
 
 
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 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.

Third Quarter 2016 Highlights

Reported net income attributable to the controlling interests of $79.7 million, or $1.07 per diluted share, compared to $0.6 million, or $0.01 per diluted share, in the third quarter of 2015
Reported NAREIT Funds from Operations (FFO) of $33.0 million, or $0.44 per diluted share, compared to $29.9 million, or $0.44 per diluted share in the third quarter of 2015
Reported Core FFO of $0.45 per diluted share for the third quarter 2016
Achieved same-store Net Operating Income (NOI) growth of 1.9%, with same-store rental growth of 1.5% over third quarter 2015
Achieved same-store NOI growth of 3.5% for the retail portfolio, 1.7% for the multifamily portfolio and 1.0% for the office portfolio over third quarter 2015
Improved overall portfolio physical occupancy to 93.2%, 250 basis points higher than third quarter 2015 and 210 basis points higher than second quarter 2016
Raised the bottom end and thereby tightened our 2016 Core FFO guidance by $0.01 to a range of $1.75 to $1.77 per fully diluted share
Completed the second sale transaction of the suburban Maryland office portfolio, comprising approximately 491,000 square feet for aggregate sale proceeds of $128.5 million
Issued 904,000 shares at an average price of $33.32 per share through the Company’s At-the-Market (ATM) program, raising gross proceeds of approximately $30.1 million to fund value-add opportunities, including development, in 2017

Of the 288,000 square feet of commercial leases signed, there were 62,000 square feet of new leases and 226,000 square feet of renewal leases. New leases had an average rental rate increase of 12.7% over expiring lease rates and a weighted average lease term of 6.4 years. Commercial tenant improvement costs were $43.36 per square foot and leasing commissions were $15.02 per square foot for new leases. Renewal leases had an average rental rate increase of 15.8% from expiring lease rates and a weighted average lease term of 4.0 years. Commercial tenant improvement costs were $9.92 per square foot and leasing commissions were $4.00 per square foot for renewal leases.

On September 22, 2016, Washington REIT completed the second of two separate transactions for its suburban Maryland office portfolio. The sale of 51 Monroe and One Central Plaza, comprising approximately 491,000 square feet for aggregate sales proceeds of $128.5 million was structured in a reverse-1031 exchange in conjunction with the acquisition of Riverside Apartments.
In July 2016, Washington REIT entered into a seven year $150.0 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 this year and the first quarter of 2017 to refinance pre-payable and maturing secured debt. Washington REIT entered into forward swaps from floating interest rates to a 2.86% all-in fixed interest rate for $150.0 million commencing on March 31, 2017.
During the quarter, Washington REIT issued 904,000 shares at an average price of $33.32 per share through the Company’s ATM program, raising gross proceeds of approximately $30.1 million. The proceeds are expected to be used to fund value-add opportunities, including development, in 2017. Subsequent to quarter end, the Company paid down approximately $102.0 million of secured debt, completing the targeted reduction of $266.0 million of secured debt in 2016.
As of September 30, 2016, Washington REIT owned a diversified portfolio of 49 properties, totaling approximately 6 million square feet of commercial space and 4,480 multifamily units, and land held for development. These 49 properties consist of 19 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
Third Quarter 2016

Net Operating Income Contribution by Sector - Third Quarter 2016

a3q2016supplementpiecharta01.jpg


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
September 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)

 
 
Nine Months Ended
 
Three Months Ended
OPERATING RESULTS
9/30/2016
 
9/30/2015
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Real estate rental revenue
$
236,312

 
$
227,325

 
$
79,770

 
$
79,405

 
$
77,137

 
$
79,102

 
$
78,243

Real estate expenses
(86,073
)
 
(84,546
)
 
(29,164
)
 
(28,175
)
 
(28,734
)
 
(27,688
)
 
(28,109
)
 
150,239

 
142,779

 
50,606

 
51,230

 
48,403

 
51,414

 
50,134

Real estate depreciation and amortization
(82,104
)
 
(80,127
)
 
(30,905
)
 
(25,161
)
 
(26,038
)
 
(28,808
)
 
(29,349
)
Income from real estate
68,135

 
62,652

 
19,701

 
26,069

 
22,365

 
22,606

 
20,785

Interest expense
(41,353
)
 
(44,534
)
 
(13,173
)
 
(13,820
)
 
(14,360
)
 
(15,012
)
 
(14,486
)
Other income
205

 
547

 
83

 
83

 
39

 
162

 
163

Acquisition costs
(1,178
)
 
(1,937
)
 

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

 
(5,909
)
 

 
676

 

 

 

Gain on sale of real estate
101,704

 
31,731

 
77,592

 
24,112

 

 
59,376

 

Loss on extinguishment of debt

 
(119
)
 

 

 

 

 

General and administrative
(15,018
)
 
(15,269
)
 
(4,539
)
 
(4,968
)
 
(5,511
)
 
(4,854
)
 
(4,911
)
Income tax benefit (expense)
691

 
(70
)
 
(2
)
 
693

 

 
(64
)
 
(42
)
Net income
113,862

 
27,092

 
79,662

 
31,821

 
2,379

 
62,095

 
580

Less: Net loss from noncontrolling interests
32

 
515

 
12

 
15

 
5

 
38

 
67

Net income attributable to the controlling interests
$
113,894

 
$
27,607

 
$
79,674

 
$
31,836

 
$
2,384

 
$
62,133

 
$
647

Per Share Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to the controlling interests
$
1.59

 
$
0.40

 
$
1.07

 
$
0.44

 
$
0.03

 
$
0.91

 
$
0.01

Fully diluted weighted average shares outstanding
71,520

 
68,290

 
74,133

 
71,912

 
68,488

 
68,371

 
68,305

Percentage of Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate expenses
36.4
%

37.2
%
 
36.6
%
 
35.5
%
 
37.3
%
 
35.0
%
 
35.9
%
General and administrative
6.4
%

6.7
%
 
5.7
%
 
6.3
%
 
7.1
%
 
6.1
%
 
6.3
%
Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA / Interest expense
3.3
x
 
2.9
x
 
3.5
x
 
3.4
x
 
3.0
x
 
3.1
x
 
3.2
x
Net income attributable to the controlling interests /
Real estate rental revenue
48.2
%

12.1
%
 
99.9
%
 
40.1
%
 
3.1
%
 
78.5
%
 
0.8
%

4




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

 
$
573,315

 
$
561,256

 
$
561,256

 
$
572,880

Income producing property
2,092,201

 
2,072,166

 
2,095,306

 
2,076,541

 
2,074,425

 
2,665,516

 
2,645,481

 
2,656,562

 
2,637,797

 
2,647,305

Accumulated depreciation and amortization
(634,945
)
 
(613,194
)
 
(714,689
)
 
(692,608
)
 
(677,480
)
Net income producing property
2,030,571

 
2,032,287

 
1,941,873

 
1,945,189

 
1,969,825

Development in progress, including land held for development
37,463

 
35,760

 
27,313

 
36,094

 
35,256

Total real estate held for investment, net
2,068,034

 
2,068,047

 
1,969,186

 
1,981,283

 
2,005,081

Investment in real estate held for sale, net

 
41,704

 

 

 
5,010

Cash and cash equivalents
8,588

 
22,379

 
23,575

 
23,825

 
21,012

Restricted cash
10,091

 
11,054

 
9,889

 
13,383

 
12,544

Rents and other receivables, net of allowance for doubtful accounts
62,989

 
58,970

 
63,863

 
62,890

 
62,306

Prepaid expenses and other assets
100,788

 
99,150

 
118,790

 
109,787

 
117,167

Other assets related to properties sold or held for sale

 
5,147

 

 

 
278

Total assets
$
2,250,490

 
$
2,306,451

 
$
2,185,303

 
$
2,191,168

 
$
2,223,398

Liabilities
 
 
 
 
 
 
 
 
 
Notes payable
$
744,063

 
$
743,769

 
$
743,475

 
$
743,181

 
$
742,971

Mortgage notes payable
251,232

 
252,044

 
333,853

 
418,052

 
418,400

Lines of credit
125,000

 
269,000

 
215,000

 
105,000

 
195,000

Accounts payable and other liabilities
54,629

 
52,722

 
56,348

 
45,367

 
54,131

Dividend payable

 

 

 
20,434

 

Advance rents
10,473

 
10,178

 
11,589

 
12,744

 
10,766

Tenant security deposits
8,634

 
8,290

 
9,604

 
9,378

 
9,225

Liabilities related to properties sold or held for sale

 
2,338

 

 

 
329

Total liabilities
1,194,031

 
1,338,341

 
1,369,869

 
1,354,156

 
1,430,822

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

 

 

 

 

Shares of beneficial interest, $0.01 par value; 100,000 shares authorized
745

 
737

 
683

 
682

 
682

Additional paid-in capital
1,368,438

 
1,338,101

 
1,193,750

 
1,193,298

 
1,192,202

Distributions in excess of net income
(309,042
)
 
(366,352
)
 
(376,041
)
 
(357,781
)
 
(399,421
)
Accumulated other comprehensive loss
(4,870
)
 
(5,609
)
 
(4,225
)
 
(550
)
 
(2,288
)
Total shareholders' equity
1,055,271

 
966,877

 
814,167

 
835,649

 
791,175

Noncontrolling interests in subsidiaries
1,188

 
1,233

 
1,267

 
1,363

 
1,401

Total equity
1,056,459

 
968,110

 
815,434

 
837,012

 
792,576

Total liabilities and equity
$
2,250,490

 
$
2,306,451

 
$
2,185,303

 
$
2,191,168

 
$
2,223,398


5




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

 
 
Nine Months Ended
 
Three Months Ended
 
9/30/2016
 
9/30/2015
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Funds from operations(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
113,862

 
$
27,092

 
$
79,662

 
$
31,821

 
$
2,379

 
$
62,095

 
$
580

Real estate depreciation and amortization
82,104

 
80,127

 
30,905

 
25,161

 
26,038

 
28,808

 
29,349

Gain on sale of depreciable real estate
(101,704
)
 
(30,277
)
 
(77,592
)
 
(24,112
)
 

 
(59,376
)
 

NAREIT funds from operations (FFO)
94,262


76,942

 
32,975

 
32,870

 
28,417

 
31,527

 
29,929

Loss on extinguishment of debt

 
119

 

 

 

 

 

Casualty (gain) and real estate impairment loss, net
(676
)
 
5,909

 

 
(676
)
 

 

 

(Gain) loss on sale of non depreciable real estate

 
(1,404
)
 

 

 

 

 
50

Severance expense
828

 
1,001

 
242

 
126

 
460

 

 

Relocation expense
16

 
90

 
16

 

 

 

 

Acquisition and structuring expenses
1,403

 
2,532

 
37

 
1,107

 
259

 
189

 
1,034

Core FFO (1)
$
95,833

 
$
85,189

 
$
33,270

 
$
33,427

 
$
29,136

 
$
31,716

 
$
31,013

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allocation to participating securities(2)
(329
)
 
(184
)
 
(200
)
 
(99
)
 
(90
)
 
(180
)
 
(47
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NAREIT FFO per share - basic
$
1.32

 
$
1.13

 
$
0.44

 
$
0.46

 
$
0.41

 
$
0.46

 
$
0.44

NAREIT FFO per share - fully diluted
$
1.31

 
$
1.12

 
$
0.44

 
$
0.46

 
$
0.41

 
$
0.46

 
$
0.44

Core FFO per share - fully diluted
$
1.34

 
$
1.24

 
$
0.45

 
$
0.46

 
$
0.42

 
$
0.46

 
$
0.45

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common dividend per share
$
0.90

 
$
0.90

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average shares - basic
71,348

 
68,168

 
73,994

 
71,719

 
68,301

 
68,204

 
68,186

Average shares - fully diluted (for FFO and FAD)
71,520

 
68,290

 
74,133

 
71,912

 
68,488

 
68,371

 
68,305

(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)

 
 
Nine Months Ended
 
Three Months Ended
 
9/30/2016
 
9/30/2015
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Funds available for distribution(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
NAREIT FFO
$
94,262

 
$
76,942

 
$
32,975

 
$
32,870

 
$
28,417

 
$
31,527

 
$
29,929

Non-cash loss on extinguishment of debt

 
119

 

 

 

 

 

Tenant improvements and incentives
(14,071
)
 
(12,378
)
 
(4,889
)
 
(7,639
)
 
(1,543
)
 
(6,792
)
 
(5,231
)
Leasing commissions
(5,616
)
 
(4,469
)
 
(1,251
)
 
(3,350
)
 
(1,015
)
 
(2,426
)
 
(1,714
)
Recurring capital improvements
(3,291
)
 
(2,752
)
 
(1,146
)
 
(1,237
)
 
(908
)
 
(3,296
)
 
(1,326
)
Straight-line rent, net
(2,245
)
 
(811
)
 
(682
)
 
(880
)
 
(683
)
 
(533
)
 
(680
)
Non-cash fair value interest expense
132

 
109

 
46

 
44

 
42

 
41

 
38

Non-real estate depreciation and amortization
2,672

 
2,999

 
846

 
876

 
950

 
980

 
938

Amortization of lease intangibles, net
2,694

 
2,651

 
898

 
853

 
943

 
925

 
913

Amortization and expensing of restricted share and unit compensation
2,661

 
3,884

 
292

 
850

 
1,519

 
1,123

 
863

Funds available for distribution (FAD)
77,198

 
66,294

 
27,089

 
22,387

 
27,722

 
21,549

 
23,730

(Loss) gain on sale of non depreciable real estate

 
(1,404
)
 

 

 

 

 
50

Non-share-based severance expense
407

 
196

 
242

 
126

 
39

 

 

Relocation expense
16

 
107

 
16

 

 

 

 

Acquisition and structuring expenses
1,403

 
2,532

 
37

 
1,107

 
259

 
189

 
1,034

Casualty (gain) and real estate impairment loss, net
(676
)
 
5,909

 

 
(676
)
 

 

 

Core FAD (1)
$
78,348

 
$
73,634

 
$
27,384

 
$
22,944

 
$
28,020

 
$
21,738

 
$
24,814

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) See "Supplemental Definitions" on page 29 of this supplemental for the definitions of FAD and Core FAD.

7




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

 
Nine Months Ended
 
Three Months Ended
 
9/30/2016
 
9/30/2015
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Adjusted EBITDA (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
113,862

 
$
27,092

 
$
79,662

 
$
31,821

 
$
2,379

 
$
62,095

 
$
580

Add:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
41,353

 
44,534

 
13,173

 
13,820

 
14,360

 
15,012

 
14,486

Real estate depreciation and amortization
82,104

 
80,127

 
30,905

 
25,161

 
26,038

 
28,808

 
29,349

Income tax (benefit) expense
(691
)
 
70

 
2

 
(693
)
 

 
65

 
42

Casualty (gain) and real estate impairment loss, net
(676
)
 
5,909

 

 
(676
)
 

 

 

Non-real estate depreciation
405

 
449

 
101

 
152

 
152

 
149

 
168

Severance expense
828

 
1,001

 
242

 
126

 
460

 

 

Relocation expense
16

 
90

 
16

 

 

 

 

Acquisition and structuring expenses
1,403

 
2,532

 
37

 
1,107

 
259

 
189

 
1,034

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
    Net (gain) loss on sale of real estate
(101,704
)
 
(31,681
)
 
(77,592
)
 
(24,112
)
 

 
(59,376
)
 
50

    Loss on extinguishment of debt

 
119

 

 

 

 

 

Adjusted EBITDA
$
136,900

 
$
130,242

 
$
46,546

 
$
46,706

 
$
43,648

 
$
46,942

 
$
45,709

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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)
 

 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Balances Outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
 
 
 
 
 
 
 
 
Conventional fixed rate
$
251,232

 
$
252,044

 
$
333,853

 
$
418,052

 
$
418,400

Unsecured
 
 
 
 
 
 
 
 
 
Fixed rate bonds
594,905

 
594,658

 
594,411

 
594,164

 
594,002

Term loans
149,158

 
149,111

 
149,064

 
149,017

 
148,969

Credit facility
125,000

 
269,000

 
215,000

 
105,000

 
195,000

Unsecured total
869,063

 
1,012,769

 
958,475

 
848,181

 
937,971

Total
$
1,120,295

 
$
1,264,813

 
$
1,292,328

 
$
1,266,233

 
$
1,356,371

 
 
 
 
 
 
 
 
 
 
Weighted Average Interest Rates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
 
 
 
 
 
 
 
 
Conventional fixed rate
5.3
%
 
5.3
%
 
5.4
%
 
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
%
 
2.7
%
Credit facility
1.5
%
 
1.4
%
 
1.4
%
 
1.4
%
 
1.2
%
Unsecured total
3.9
%
 
3.6
%
 
3.7
%
 
4.0
%
 
3.7
%
Weighted Average
4.2
%
 
3.9
%
 
4.1
%
 
4.4
%
 
4.2
%
 
 
 
 
 
 
 
 
 
 
(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)q32016suppl_chart-36838.jpg
 
Future Maturities of Debt
Year
Secured Debt
 
Unsecured Debt
 
Credit Facilities
 
Total Debt
 
Avg Interest Rate
2016
$
101,865

(1) 
$

 
$

 
$
101,865

 
7.3%
2017
49,038

 

 

 
49,038

 
3.2%
2018

 

 

 

 
 
2019
31,280

 

 
125,000

(2) 
156,280

 
2.3%
2020

 
250,000

 

 
250,000

 
5.1%
2021

 
150,000

(3) 

 
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

 
$
125,000

 
$
1,101,700

 
4.2%
Scheduled amortization payments
20,649

 

 

 
20,649

 
4.8%
Net discounts/premiums
4,307

 
(2,069
)
 

 
2,238

 
 
Loan costs, net of amortization
(424
)
 
(3,868
)
 

 
(4,292
)
 
 
Total maturities
$
251,232

 
$
744,063

 
$
125,000

 
$
1,120,295

 
4.2%
Weighted average maturity =4.4 years

(1) The maturity date of the $101.9 million mortgage note secured by 2445 M Street was January 6, 2017, but could be prepaid, without penalty, beginning on October 6, 2016. We prepaid the mortgage on October 6, 2016, after providing notice to the lender of our intention to prepay in September 2016. Therefore, this mortgage note is shown as a 2016 maturity in the above chart.
(2) Maturity date for credit facility may be extended for up to two additional 6-month periods at Washington REIT's option.
(3) 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
and Term Loans
 
Quarter Ended September 30, 2016
 
Covenant
 
Quarter Ended September 30, 2016
 
Covenant
% of Total Indebtedness to Total Assets(1)
39.9
%
 
≤ 65.0%
 
 N/A

 
N/A
Ratio of Income Available for Debt Service to Annual Debt Service
3.6

 
            ≥ 1.5
 
 N/A

 
N/A
% of Secured Indebtedness to Total Assets(1)
8.9
%
 
≤ 40.0%
 
 N/A

 
N/A
Ratio of Total Unencumbered Assets(2) to Total Unsecured Indebtedness
2.8

 
            ≥ 1.5
 
 N/A

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

 
 N/A
 
35.7
%
 
≤ 60.0%
Ratio of Consolidated Adjusted EBITDA(4) to Consolidated Fixed Charges(5)
 N/A

 
 N/A
 
3.39

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

 
 N/A
 
8.1
%
 
≤ 40.0%
% of Consolidated Unsecured Indebtedness to Unencumbered Pool Value(6)
 N/A

 
 N/A
 
32.1
%
 
≤ 60.0%
Ratio of Unencumbered Adjusted Net Operating Income to Consolidated Unsecured Interest Expense
 N/A

 
 N/A
 
4.49

 
             ≥ 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)
 
 
 
 
 
 
Three Months Ended
 
 
 
 
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Market Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares Outstanding
 
 
 
 
$
74,579

 
$
73,651

 
$
68,326

 
$
68,191

 
$
68,180

Market Price per Share
 
 
 
 
31.12

 
31.46

 
29.21

 
27.06

 
24.93

Equity Market Capitalization
 
 
 
 
$
2,320,898

 
$
2,317,060

 
$
1,995,802

 
$
1,845,248

 
$
1,699,727

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Debt
 
 
 
 
$
1,120,295

 
$
1,264,813

 
$
1,292,328

 
$
1,266,233

 
$
1,356,371

Total Market Capitalization
 
 
 
 
$
3,441,193

 
$
3,581,873

 
$
3,288,130

 
$
3,111,481

 
$
3,056,098

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Debt to Market Capitalization
 
 
 
 
0.33
:1
 
0.35
:1
 
0.39
:1
 
0.41
:1
 
0.44
:1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings to Fixed Charges(1)
 
 
 
 
6.9x

 
3.3x

 
1.2x

 
5.1x

 
1.0x

Debt Service Coverage Ratio(2)
 
 
 
 
3.3x

 
3.2x

 
2.8x

 
2.9x

 
2.9x

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividend Data
Nine Months Ended
 
Three Months Ended
 
9/30/2016
 
9/30/2015
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Total Dividends Declared
$
65,155

 
$
61,510

 
$
22,364

 
$
22,147

 
$
20,644

 
$
20,493

 
$
20,491

Common Dividend Declared per Share
$
0.90

 
$
0.90

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

Payout Ratio (Core FFO basis)
67.2
%
 
72.6
%
 
66.7
%
 
65.2
%
 
71.4
%
 
65.0
%
 
66.7
%
Payout Ratio (Core FAD basis)
82.6
%
 
83.3
%
 
81.1
%
 
93.8
%
 
73.2
%
 
93.8
%
 
83.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 September 30, 2016, June 30, 2016 and December 31, 2015 include gains on the sale of real estate of $77.6 million, $24.1 million and $59.4 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
 

 
Nine Months Ended September 30,
 
 
 
Rental Rate
 
Three Months Ended September 30,
 
 
 
Rental Rate
 
2016
 
2015
 
% Change
 
Growth
 
2016
 
2015
 
% Change
 
Growth
Cash Basis:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily
$
24,604

 
$
23,824

 
3.3
 %
 
0.2
%
 
$
8,184

 
$
8,045

 
1.7
%
 
0.5
%
Office
59,546

 
58,477

 
1.8
 %
 
1.1
%
 
19,969

 
19,719

 
1.3
%
 
0.8
%
Retail
33,173

 
33,214

 
(0.1
)%
 
3.1
%
 
11,463

 
11,044

 
3.8
%
 
2.5
%
Overall Same-Store Portfolio (1)
$
117,323

 
$
115,515

 
1.6
 %
 
1.4
%
 
$
39,616

 
$
38,808

 
2.1
%
 
1.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Basis:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily
$
24,584

 
$
23,812

 
3.2
 %
 
0.1
%
 
$
8,179

 
$
8,039

 
1.7
%
 
0.5
%
Office
58,792

 
57,423

 
2.4
 %
 
1.7
%
 
19,565

 
19,372

 
1.0
%
 
1.7
%
Retail
34,204

 
33,946

 
0.8
 %
 
2.8
%
 
11,834

 
11,438

 
3.5
%
 
2.0
%
Overall Same-Store Portfolio (1)
$
117,580

 
$
115,181

 
2.1
 %
 
1.6
%
 
$
39,578

 
$
38,849

 
1.9
%
 
1.5
%

(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:
Multifamily - Country Club Towers and Munson Hill Towers
Office - Dulles Station II, Wayne Plaza, 600 Jefferson Plaza, 6110 Executive Boulevard, West Gude, 51 Monroe Street and One Central Plaza
Retail - Montgomery Village Center


13





Same-Store Portfolio Net Operating Income (NOI) Detail
(In thousands)
 
 
Three Months Ended September 30, 2016
 
Multifamily
 
Office
 
Retail
 
Corporate and Other
 
Total
Real estate rental revenue
 
 
 
 
 
 
 
 
 
Same-store portfolio
$
13,936

 
$
31,900

 
$
15,404

 
$

 
$
61,240

Non same-store - acquired and in development (1)
9,784

 
8,746

 

 

 
18,530

Total
23,720

 
40,646

 
15,404

 

 
79,770

Real estate expenses
 
 
 
 
 
 
 
 
 
Same-store portfolio
5,757

 
12,335

 
3,570

 

 
21,662

Non same-store - acquired and in development (1)
3,998

 
3,504

 

 

 
7,502

Total
9,755

 
15,839

 
3,570

 

 
29,164

Net Operating Income (NOI)
 
 
 
 
 
 
 
 
 
Same-store portfolio
8,179

 
19,565

 
11,834

 

 
39,578

Non same-store - acquired and in development (1)
5,786

 
5,242

 

 

 
11,028

Total
$
13,965

 
$
24,807

 
$
11,834

 
$

 
$
50,606

 
 
 
 
 
 
 
 
 
 
Same-store portfolio NOI (from above)
$
8,179

 
$
19,565

 
$
11,834

 
$

 
$
39,578

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

 
(347
)
 
(188
)
 

 
(531
)
FAS 141 Min Rent
1

 
249

 
(233
)
 

 
17

Amortization of lease intangibles for same-store properties

 
502

 
50

 

 
552

Same-store portfolio cash NOI
$
8,184

 
$
19,969

 
$
11,463

 
$

 
$
39,616

Reconciliation of NOI to net income
 
 
 
 
 
 
 
 
 
Total NOI
$
13,965

 
$
24,807

 
$
11,834

 
$

 
$
50,606

Depreciation and amortization
(12,055
)
 
(14,971
)
 
(3,640
)
 
(239
)
 
(30,905
)
General and administrative

 

 

 
(4,539
)
 
(4,539
)
Interest expense
(996
)
 
(2,218
)
 
(205
)
 
(9,754
)
 
(13,173
)
Other income

 

 

 
83

 
83

    Gain on sale of real estate

 

 

 
77,592

 
77,592

    Income tax expense

 

 

 
(2
)
 
(2
)
Net income
914

 
7,618

 
7,989

 
63,141

 
79,662

Net loss attributable to noncontrolling interests

 

 

 
12

 
12

Net income attributable to the controlling interests
$
914

 
$
7,618

 
$
7,989

 
$
63,153

 
$
79,674

(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, 2015
 
Multifamily
 
Office
 
Retail
 
Corporate and Other
 
Total
Real estate rental revenue
 
 
 
 
 
 
 
 
 
Same-store portfolio
$
13,616

 
$
31,248

 
$
14,895

 
$

 
$
59,759

Non same-store - acquired and in development (1)
5,327

 
12,368

 
789

 

 
18,484

                         Total
18,943

 
43,616

 
15,684

 

 
78,243

 
 
 
 
 
 
 
 
 
 
Real estate expenses
 
 
 
 
 
 
 
 
 
Same-store portfolio
5,577

 
11,876

 
3,457

 

 
20,910

Non same-store - acquired and in development (1)
2,271

 
4,736

 
192

 

 
7,199

                         Total
7,848

 
16,612

 
3,649

 

 
28,109

 
 
 
 
 
 
 
 
 
 
Net Operating Income (NOI)
 
 
 
 
 
 
 
 
 
Same-store portfolio
8,039

 
19,372

 
11,438

 

 
38,849

Non same-store - acquired and in development (1)
3,056

 
7,632

 
597

 

 
11,285

                          Total
$
11,095

 
$
27,004

 
$
12,035

 
$

 
$
50,134

 
 
 
 
 
 
 
 
 
 
Same-store portfolio NOI (from above)
$
8,039

 
$
19,372

 
$
11,438

 
$

 
$
38,849

Straight-line revenue, net for same-store properties
5

 
(294
)
 
(198
)
 

 
(487
)
FAS 141 Min Rent
1

 
158

 
(250
)
 

 
(91
)
Amortization of lease intangibles for same-store properties

 
483

 
54

 

 
537

Same-store portfolio cash NOI
$
8,045

 
$
19,719

 
$
11,044

 
$

 
$
38,808

 
 
 
 
 
 
 
 
 
 
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

 

 

 
(4,911
)
 
(4,911
)
Interest expense
(2,464
)
 
(3,003
)
 
(227
)
 
(8,792
)
 
(14,486
)
Other income

 

 

 
163

 
163

Acquisition costs

 

 

 
(929
)
 
(929
)
    Income tax expense

 

 

 
(42
)
 
(42
)
Net income (loss)
726

 
6,514

 
8,100

 
(14,760
)
 
580

Net income attributable to noncontrolling interests

 

 

 
67

 
67

Net income (loss) 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.
 
 

15




Net Operating Income (NOI) by Region
 
 
 
 
 
 
 
 
 
Percentage of NOI
 
 
 
Q3 2016
 
YTD 2016
 
 
DC
 
 
 
 
 
Multifamily
5.6
%
 
5.6
%
 
 
Office
23.0
%
 
23.8
%
 
 
Retail
1.4
%
 
1.5
%
 
 
 
30.0
%
 
30.9
%
 
 
Maryland
 
 
 
 
 
Multifamily
2.3
%
 
2.4
%
 
 
Office
4.8
%
 
8.6
%
 
 
Retail
14.7
%
 
14.4
%
 
 
 
21.8
%
 
25.4
%
 
 
Virginia
 
 
 
 
 
Multifamily
19.7
%
 
16.9
%
 
 
Office
21.2
%
 
19.9
%
 
 
Retail
7.3
%
 
6.9
%
 
 
 
48.2
%
 
43.7
%
 
 
 
 
 
 
 
 
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
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Multifamily (calculated on a unit basis)
 
96.4
%
 
95.1
%
 
95.3
%
 
94.4
%
 
93.5
%
 
 
 
 
 
 
 
 
 
 
 
Multifamily
 
95.6
%
 
94.8
%
 
94.5
%
 
94.3
%
 
93.2
%
Office
 
92.3
%
 
91.7
%
 
91.2
%
 
91.0
%
 
90.8
%
Retail
 
95.6
%
 
92.1
%
 
91.2
%
 
91.5
%
 
95.4
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
94.2
%
 
92.7
%
 
92.1
%
 
92.1
%
 
92.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Physical Occupancy - All Properties (2)
Sector
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Multifamily (calculated on a unit basis)
 
94.5
%
 
94.7
%
 
95.2
%
 
93.9
%
 
92.6
%
 
 
 
 
 
 
 
 
 
 
 
Multifamily
 
94.2
%
 
94.4
%
 
94.5
%
 
93.4
%
 
92.3
%
Office
 
90.5
%
 
87.5
%
 
87.8
%
 
87.6
%
 
87.8
%
Retail
 
95.6
%
 
92.1
%
 
91.2
%
 
91.5
%
 
94.4
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
93.2
%
 
91.1
%
 
90.6
%
 
90.2
%
 
90.7
%
(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:
Multifamily - Munson Hill Towers
Office - Dulles Station II, Wayne Plaza, 600 Jefferson Plaza, 6110 Executive Boulevard, West Gude, 51 Monroe Street and One Central 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
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Multifamily
 
96.1
%
 
95.5
%
 
94.4
%
 
94.5
%
 
95.0
%
Office
 
92.1
%
 
91.1
%
 
90.0
%
 
91.6
%
 
91.4
%
Retail
 
91.8
%
 
89.3
%
 
89.7
%
 
92.0
%
 
93.5
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
93.0
%
 
91.7
%
 
90.9
%
 
92.4
%
 
92.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Economic Occupancy - All Properties
Sector
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
12/31/2015
 
9/30/2015
Multifamily
 
94.6
%
 
95.3
%
 
93.9
%
 
93.2
%
 
92.7
%
Office
 
89.5
%
 
86.6
%
 
86.9
%
 
88.3
%
 
87.7
%
Retail
 
91.8
%
 
89.3
%
 
89.7
%
 
91.1
%
 
92.3
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
91.5
%
 
89.3
%
 
89.0
%
 
90.0
%
 
89.8
%

(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, 51 Monroe Street and One Central Plaza
Retail - Montgomery Village Center


18




Acquisition and Disposition Summary
 

Acquisition Summary
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
Acquisition Date
 
Property type
 
# of units
 
9/30/2016 Leased Percentage
 
Investment
(in thousands)
Riverside Apartments
Alexandria, VA
 
May 20, 2016
 
Multifamily
 
1,222
 
95.7
%
 
$
244,750

 
 
 
 
 
 
 
 
 
 
 
 
Disposition Summary
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
Disposition Date
 
Property Type
 
 Square feet
 
Contract Sales Price
 
GAAP Gain
Maryland Office Portfolio, Transaction II
various
 
September 22, 2016
 
Office
 
491,000

 
$
128,500

 
$
77,592

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





Development/Re-development Summary
 

Property and Location
Total Rentable Square Feet or # of Units
Anticipated Total Cost (in thousands)
Cash Cost to Date
Anticipated Construction Completion Date
Leased %
Development Summary
 
 
 
 
 
The Trove, Arlington, VA
401 units
$
124,287

$
17,336

third quarter 2019
N/A
 
 
 
 
 
 
Re-development Summary
 
 
 
 
 
The Army Navy Club Building (1), Washington DC
108,000 square feet
$
4,045

$
595

first quarter 2017
50%
Spring Valley Village
7,200 additional square feet
$
6,000

$
913

fourth quarter 2017
N/A

(1) This re-development project primarily consists of adding amenities, to include a lounge and conference center with access to the rooftop and a renovated penthouse, and upgrading the building's lobby and other common areas.

20




Commercial Leasing Summary - New Leases
 
 
3rd Quarter 2016
 
2nd Quarter 2016
 
1st Quarter 2016
 
4th Quarter 2015
 
3rd Quarter 2015
Gross Leasing Square Footage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
60,538
 
 
28,154
 
 
32,249
 
 
220,374
 
 
93,389
 
      Retail Centers
1,342
 
 
6,313
 
 
11,777
 
 
 
 
74,102
 
Total
61,880
 

34,467
 

44,026
 
 
220,374
 
 
167,491
 
Weighted Average Term (years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
6.4
 
 
6.1
 
 
7.7
 
 
6.5
 
 
6.8
 
      Retail Centers
8.3
 
 
8.0
 
 
9.8
 
 
0.0
 
 
10.2
 
Total
6.4
 
 
6.5
 
 
8.3
 
 
6.5
 
 
8.3
 
Weighted Average Free Rent Period (months) (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
6.1
 
 
5.9
 
 
7.5
 
 
7.1
 
 
12.8
 
      Retail Centers
3.9
 
 
1.2
 
 
7.6
 
 
0.0
 
 
2.7
 
Total
6.1
 
 
5.3
 
 
7.5
 
 
7.1
 
 
9.0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental Rate Increases:
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
      Rate on expiring leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
39.31

 
$
39.01

 
$
34.80

 
$
35.43

 
$
30.91

 
$
31.78

 
$
32.57

 
$
33.76

 
$
27.72

 
$
28.67

            Retail Centers
43.67

 
46.15

 
28.92

 
29.11

 
11.93

 
12.04

 

 

 
22.32

 
22.77

Total
$
39.40

 
$
39.17

 
$
33.73

 
$
34.27

 
$
25.83

 
$
26.50

 
$
32.57

 
$
33.76

 
$
25.33

 
$
26.06

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Rate on new leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
44.06

 
$
40.80

 
$
39.83

 
$
37.09

 
$
40.60

 
$
36.84

 
$
39.45

 
$
36.62

 
$
36.46

 
$
33.53

            Retail Centers
60.89

 
55.00

 
28.13

 
26.45

 
16.22

 
14.45

 

 

 
27.61

 
26.14

Total
$
44.42

 
$
41.10

 
$
37.69

 
$
35.14

 
$
34.08

 
$
30.85

 
$
39.45

 
$
36.62

 
$
32.55

 
$
30.26

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Percentage Increase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
12.1
%
 
4.6
%
 
14.5
 %
 
4.7
 %
 
31.4
%
 
15.9
%
 
21.1
%
 
8.5
%
 
31.6
%
 
17.0
%
            Retail Centers
39.4
%
 
19.2
%
 
(2.7
)%
 
(9.1
)%
 
35.9
%
 
20.0
%
 
%
 
%
 
23.7
%
 
14.8
%
Total
12.7
%
 
4.9
%
 
11.8
 %
 
2.5
 %
 
31.9
%
 
16.4
%
 
21.1
%
 
8.5
%
 
28.5
%
 
16.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
2,682,882

 
$
44.32

 
$
1,356,810

 
$
48.19

 
$
1,571,632

 
$
48.73

 
$
13,946,572

 
$
63.29

 
$
4,775,584

 
$
51.14

Retail Centers

 

 
111,840

 
17.72

 
203,276

 
17.26

 

 

 
5,220,923

 
70.46

Subtotal
$
2,682,882

 
$
43.36

 
$
1,468,650

 
$
42.61

 
$
1,774,908

 
$
40.31

 
$
13,946,572

 
$
63.29

 
$
9,996,507

 
$
59.68

Leasing Commissions (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
890,195

 
$
14.70

 
$
375,882

 
$
13.35

 
$
505,349

 
$
15.67

 
$
3,165,371

 
$
14.36

 
$
1,173,511

 
$
12.57

Retail Centers
39,380

 
29.34

 
80,461

 
12.75

 
103,983

 
8.83

 

 

 
1,212,567

 
16.36

Subtotal
$
929,575

 
$
15.02

 
$
456,343

 
$
13.24

 
$
609,332

 
$
13.84

 
$
3,165,371

 
$
14.36

 
$
2,386,078

 
$
14.25

Tenant Improvements and Leasing Commissions
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
3,573,077

 
$
59.02

 
$
1,732,692

 
$
61.54

 
$
2,076,981

 
$
64.40

 
$
17,111,943

 
$
77.65

 
$
5,949,095

 
$
63.71

Retail Centers
39,380

 
29.34

 
192,301

 
30.47

 
307,259

 
26.09

 

 

 
6,433,490

 
86.82

Total
$
3,612,457

 
$
58.38

 
$
1,924,993

 
$
55.85

 
$
2,384,240

 
$
54.15

 
$
17,111,943

 
$
77.65

 
$
12,382,585

 
$
73.93

(1) In prior quarters we disclosed leasing commissions and incentives (i.e. free rent) in the aggregate. In the interest of providing more granular data regarding our leasing costs, we are disclosing leasing commissions and free rent separately. We continue to disclose leasing commissions in terms of both total dollars and costs per square foot. We are disclosing free rent costs in terms of weighted average months of free rent per lease. Prior quarters have been recasted to conform with the current quarter's presentation.

21




Commercial Leasing Summary - Renewal Leases
 
 
3rd Quarter 2016
 
2nd Quarter 2016
 
1st Quarter 2016
 
4th Quarter 2015
 
3rd Quarter 2015
Gross Leasing Square Footage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
151,722
 
 
30,787
 
 
193,275
 
 
42,033
 
 
191,599
 
      Retail Centers
74,535
 
 
9,076
 
 
27,243
 
 
32,594
 
 
53,415
 
Total
226,257
 
 
39,863
 
 
220,518
 
 
74,627
 
 
245,014
 
Weighted Average Term (years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
3.7
 
 
4.6
 
 
7.1
 
 
6.6
 
 
2.8
 
      Retail Centers
4.7
 
 
6.3
 
 
11.6
 
 
3.3
 
 
4.4
 
Total
4.0
 
 
5.0
 
 
7.6
 
 
5.1
 
 
3.1
 
Weighted Average Free Rent Period (months) (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
2.4
 
 
4.4
 
 
7.9
 
 
4.8
 
 
0.7
 
      Retail Centers
 
 
0.7
 
 
5.1
 
 
 
 
0.1
 
Total
1.8
 
 
3.3
 
 
7.5
 
 
3.2
 
 
0.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental Rate Increases:
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
      Rate on expiring leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
35.85

 
$
36.37

 
$
30.13

 
$
31.53

 
$
36.53

 
$
38.93

 
$
35.61

 
$
37.12

 
$
35.23

 
$
37.43

            Retail Centers
25.03

 
25.28

 
32.56

 
47.14

 
24.53

 
26.67

 
21.30

 
22.56

 
23.21

 
23.72

Total
$
32.28

 
$
32.72

 
$
30.69

 
$
35.08

 
$
35.04

 
$
37.42

 
$
29.36

 
$
30.76

 
$
32.61

 
$
34.44

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Rate on new leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
42.20

 
$
40.38

 
$
34.42

 
$
32.44

 
$
40.55

 
$
37.12

 
$
37.01

 
$
34.12

 
$
31.37

 
$
30.29

            Retail Centers
27.61

 
26.58

 
41.78

 
46.62

 
41.49

 
35.39

 
25.08

 
23.50

 
26.63

 
26.10

Total
$
37.39

 
$
35.84

 
$
36.10

 
$
35.67

 
$
40.66

 
$
36.90

 
$
31.80

 
$
29.49

 
$
30.34

 
$
29.38

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Percentage Increase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
17.7
%
 
11.0
%
 
14.2
%
 
2.9
 %
 
11.0
%
 
(4.7
)%
 
3.9
%
 
(8.1
)%
 
(11.0
)%
 
(19.1
)%
            Retail Centers
10.3
%
 
5.1
%
 
28.3
%
 
(1.1
)%
 
69.2
%
 
32.7
 %
 
17.8
%
 
4.2
 %
 
14.7
 %
 
10.0
 %
Total
15.8
%
 
9.5
%
 
17.6
%
 
1.7
 %
 
16.0
%
 
(1.4
)%
 
8.3
%
 
(4.1
)%
 
(7.0
)%
 
(14.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
2,243,523

 
$
14.79

 
$
153,365

 
$
4.98

 
$
6,945,781

 
$
35.94

 
$
1,580,078

 
$
37.59

 
$
580,967

 
$
3.03

Retail Centers

 

 

 

 
626,200

 
22.99

 

 

 
36,540

 
0.68

Subtotal
$
2,243,523

 
$
9.92

 
$
153,365

 
$
3.85

 
$
7,571,981

 
$
34.34

 
$
1,580,078

 
$
21.17

 
$
617,507

 
$
2.52

Leasing Commissions (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
780,080

 
$
5.14

 
$
198,223

 
$
6.44

 
$
2,801,717

 
$
14.50

 
$
443,229

 
$
10.54

 
$
464,150

 
$
2.41

Retail Centers
124,121

 
1.67

 
74,824

 
8.24

 
394,380

 
14.48

 
59,302

 
1.82

 
104,730

 
1.96

Subtotal
$
904,201

 
$
4.00

 
$
273,047

 
$
6.85

 
$
3,196,097

 
$
14.49

 
$
502,531

 
$
6.73

 
$
568,880

 
$
2.31

Tenant Improvements and Leasing Commissions
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
3,023,603

 
$
19.93

 
$
351,588

 
$
11.42

 
$
9,747,498

 
$
50.44

 
$
2,023,307

 
$
48.13

 
$
1,045,117

 
$
5.44

Retail Centers
124,121

 
1.67

 
74,824

 
8.24

 
1,020,580

 
37.47

 
59,302

 
1.82

 
141,270

 
2.64

Total
$
3,147,724

 
$
13.92

 
$
426,412

 
$
10.70

 
$
10,768,078

 
$
48.83

 
$
2,082,609

 
$
27.90

 
$
1,186,387

 
$
4.83

(1) In prior quarters we disclosed leasing commissions and incentives (i.e. free rent) in the aggregate. In the interest of providing more granular data regarding our leasing costs, we are disclosing leasing commissions and free rent separately. We continue to disclose leasing commissions in terms of both total dollars and costs per square foot. We are disclosing free rent costs in terms of weighted average months of free rent per lease. Prior quarters have been recasted to conform with the current quarter's presentation.

22




10 Largest Tenants - Based on Annualized Commercial Income
 
September 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
 
51

 
6.19
%
 
210,354

 
3.83
%
Advisory Board Company
2
 
32

 
4.13
%
 
199,878

 
3.64
%
Engility Corporation
1
 
12

 
2.95
%
 
134,126

 
2.44
%
Capital One
1
 
66

 
2.81
%
 
136,556

 
2.48
%
Squire Patton Boggs (USA) LLP (1)
1
 
7

 
2.78
%
 
110,566

 
2.01
%
Booz Allen Hamilton, Inc.
1
 
112

 
2.58
%
 
222,989

 
4.06
%
Epstein, Becker & Green, P.C.
1
 
147

 
1.54
%
 
55,318

 
1.01
%
Alexandria City School Board
1
 
152

 
1.36
%
 
84,693

 
1.54
%
Hughes Hubbard & Reed LLP
1
 
17

 
1.34
%
 
53,208

 
0.97
%
Morgan Stanley Smith Barney Financing
1
 
53

 
1.16
%
 
49,395

 
0.90
%
Total/Weighted Average
 
 
62

 
26.84
%
 
1,257,083

 
22.88
%

(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.

23



Industry Diversification
 
September 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
$
61,189,674

 
48.06
%
 
1,683,820

 
50.91
%
Finance and Insurance
21,944,430

 
17.23
%
 
481,340

 
14.55
%
Other Services (except Public Administration)
12,116,628

 
9.52
%
 
304,639

 
9.21
%
Information
7,878,273

 
6.19
%
 
191,434

 
5.79
%
Health Care and Social Assistance
5,040,861

 
3.96
%
 
149,949

 
4.53
%
Wholesale Trade
4,466,277

 
3.51
%
 
103,177

 
3.12
%
Educational Services
4,452,864

 
3.50
%
 
140,917

 
4.26
%
Administrative and Support and Waste Management and Remediation Services
2,123,473

 
1.67
%
 
48,891

 
1.48
%
Public Administration
2,069,409

 
1.63
%
 
41,968

 
1.27
%
Real Estate and Rental and Leasing
1,821,467

 
1.43
%
 
44,132

 
1.33
%
Accommodation and Food Services
1,480,061

 
1.16
%
 
34,771

 
1.05
%
Construction
871,891

 
0.68
%
 
27,363

 
0.83
%
Other
1,875,454

 
1.46
%
 
55,351

 
1.67
%
Total
$
127,330,762

 
100.00
%
 
3,307,752

 
100.00
%
 
 
 
 
 
 
 
 
Retail:
 
 
 
 
 
 
 
Wholesale Trade
$
28,446,715

 
58.96
%
 
1,541,393

 
71.69
%
Accommodation and Food Services
7,270,508

 
15.07
%
 
233,372

 
10.85
%
Finance and Insurance
4,116,897

 
8.53
%
 
54,899

 
2.55
%
Other Services (except Public Administration/Government)
3,294,766

 
6.83
%
 
100,966

 
4.70
%
Arts, Entertainment, and Recreation
1,960,747

 
4.06
%
 
115,586

 
5.38
%
Health Care and Social Assistance
1,190,234

 
2.47
%
 
31,602

 
1.47
%
Manufacturing
502,322

 
1.04
%
 
17,547

 
0.82
%
Educational Services
422,188

 
0.87
%
 
25,598

 
1.19
%
Information (Broadcasting, Publishing, Telecommunications)
354,305

 
0.73
%
 
8,347

 
0.39
%
Other
692,921

 
1.44
%
 
20,740

 
0.96
%
Total
$
48,251,603

 
100.00
%
 
2,150,050

 
100.00
%
 
 
 
 
 
 
 
 

24




Lease Expirations
 
September 30, 2016
Year
 
Number of Leases
 
Rentable Square Feet
 
Percent of Rentable Square Feet
 
Annualized Rent (1)
 
Average Rental Rate
 
Percent of Annualized Rent (1)
Office:
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
11

 
40,154

 
1.14
%
 
$
1,578,306

 
$
39.31

 
1.03
%
2017
 
51

 
432,843

 
12.25
%
 
17,571,662

 
40.60

 
11.47
%
2018
 
45

 
280,219

 
7.93
%
 
11,885,227

 
42.41

 
7.76
%
2019
 
57

 
592,344

 
16.76
%
 
23,475,382

 
39.63

 
15.32
%
2020
 
43

 
411,272

 
11.64
%
 
19,913,473

 
48.42

 
13.00
%
2021 and thereafter
 
200

 
1,776,877

 
50.28
%
 
78,802,207

 
44.35

 
51.42
%
 
 
407

 
3,533,709

 
100.00
%
 
$
153,226,257

 
43.36

 
100.00
%
Retail:
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
3

 
16,978

 
0.78
%
 
$
505,140

 
$
29.75

 
0.95
%
2017
 
41

 
228,432

 
10.49
%
 
6,540,380

 
28.63

 
12.29
%
2018
 
36

 
333,599

 
15.32
%
 
4,813,345

 
14.43

 
9.04
%
2019
 
33

 
160,133

 
7.35
%
 
4,539,780

 
28.35

 
8.53
%
2020
 
39

 
432,969

 
19.89
%
 
7,681,963

 
17.74

 
14.43
%
2021 and thereafter
 
136

 
1,005,089

 
46.17
%
 
29,138,612

 
28.99

 
54.76
%
 
 
288

 
2,177,200

 
100.00
%
 
$
53,219,220

 
24.44

 
100.00
%
Total:
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
14

 
57,132

 
1.00
%
 
$
2,083,446

 
$
36.47

 
1.01
%
2017
 
92

 
661,275

 
11.58
%
 
24,112,042

 
36.46

 
11.68
%
2018
 
81

 
613,818

 
10.75
%
 
16,698,572

 
27.20

 
8.09
%
2019
 
90

 
752,477

 
13.18
%
 
28,015,162

 
37.23

 
13.57
%
2020
 
82

 
844,241

 
14.78
%
 
27,595,436

 
32.69

 
13.37
%
2021 and thereafter
 
336

 
2,781,966

 
48.71
%
 
107,940,819

 
38.80

 
52.28
%
 
 
695

 
5,710,909

 
100.00
%
 
$
206,445,477

 
36.15

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

25




Schedule of Properties
 
September 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
 
208,000

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

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
 
136,000

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

1775 Eye Street
 
Washington, DC
 
2014
 
1964
 
186,000

Subtotal
 
 
 
 
 
 
 
3,703,000


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Schedule of Properties (continued)
 
September 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
 
331,000

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 Village
 
Washington, DC
 
2014
 
1941/1950
 
78,000

Subtotal
 
 
 
 
 
 
 
2,329,000



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Schedule of Properties (continued)
 
September 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
 
 
 
 
 
 
 
10,377,000

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

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Supplemental Definitions
 
September 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 performance 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 performance 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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