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Washington Real Estate Investment Trust Announces First Quarter Financial and Operating Results

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PR Newswire


WASHINGTON, April 27, 2016 /PRNewswire/ -- Washington Real Estate Investment Trust ("Washington REIT" or the "Company") (NYSE: WRE), a leading owner and operator of commercial and multifamily properties in the Washington, DC area, reported financial and operating results today for the quarter ended March 31, 2016:

First Quarter 2016 Highlights

  • Generated Core Funds from Operations (FFO) of $0.42 per fully diluted share for the first quarter, a 10.5% or  $0.04 increase over first quarter of 2015
  • Achieved same-store Net Operating Income (NOI) growth of 2.5%, with same-store rental growth of 2.7%, over first quarter 2015
  • Improved overall portfolio physical occupancy to 90.6%, 110 basis points higher than first quarter of 2015 and 40 basis points higher than fourth quarter 2015
  • Executed new and renewal commercial leases totaling 265,000 square feet at an average rental rate increase of 31.9% over in-place rents for new leases and an average rental rate increase of 16.0% over in-place rents for renewal leases
  • Subsequent to quarter-end, entered into contracts with an institutional buyer to sell all six of its suburban Maryland office assets for $240 million and has one suburban Maryland multifamily asset to be placed on the market later this year
  • Subsequent to quarter-end, went under contract to acquire Riverside Apartments, a 1,222 unit apartment community with potential to create value through the renovation of approximately 850 units and on-site density to develop approximately 550 additional units, for $244.75 million
  • Continues to plan to pay down approximately $100 million of net debt this year
  • Reaffirmed 2016 Core FFO guidance of $1.70 - $1.77 per fully diluted share and increased same-store NOI guidance to range from flat to 1%
Washington REIT

"After a robust close to 2015, we have delivered a solid operational performance in the first quarter of 2016 and made significant progress on our asset recycling plans, which will elevate the quality of our portfolio and optimize returns for our shareholders while continuing to strengthen the balance sheet," said Paul T. McDermott, President and Chief Executive Officer. "Our strong year-over-year NOI growth reflects the strength of our operational execution as well as the fundamental stability of the Washington Metro Region, which continues to deliver impressive job growth in 2016. Additionally, we are on track to deliver another year of well-executed, strategic milestones that will continue to  transform Washington REIT's portfolio and boost our ability to create value for our shareholders."

Financial Highlights

Core Funds from Operations(1) was $29.1 million, or $0.42 per diluted share, for the quarter ended March 31, 2016, compared to $25.7 million, or $0.38 per diluted share, for the corresponding prior year period. Further detail will be provided by management on the earnings call.

FFO for the quarter ended March 31, 2016 was $28.4 million, or $0.41 per diluted share, compared to $24.4 million, or $0.36 per diluted share, for the corresponding prior year period.


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Net income attributable to the controlling interests for the quarter ended March 31, 2016 was $2.4 million, or $0.03 per diluted share, compared to $29.5 million, or $0.43 per diluted share, for the corresponding prior year period, due primarily to the recognition of a $30.3 million gain from the sale of Country Club Towers.

Operating Results

The Company's overall portfolio NOI(2) was $48.4 million for the quarter ended March 31, 2016, compared to $45.6 million in the corresponding prior year period. Overall portfolio physical occupancy for the first quarter was at 90.6%, compared to 89.5% at the end of the first quarter last year and 90.2% at the end of the fourth quarter 2015.

Same-store(3) portfolio physical occupancy for the first quarter of 2016 was 91.7%, compared to 92.5% at March 31, 2015 and 91.6% at the end of the fourth quarter of 2015. Same-store portfolio NOI for the first quarter increased by 2.5%, compared to the corresponding prior year period.

  • Office: 55% of Total NOI - Office properties' same-store NOI increased by 4.0%, compared to the corresponding prior year period. Rental rate growth was 3.6% while same-store physical occupancy increased 10 basis points over last year to 90.6%.
  • Retail: 23% of Total NOI - Retail properties' same-store NOI decreased slightly by (0.3%), compared to the corresponding prior year period, primarily driven by another full-quarter impact of previously occupied space that has been re-leased with increased rents that are expected to commence in the second half of 2016. Rental rates increased 3.2% while same-store physical occupancy decreased 420 basis points over last year to 91.2%, due to the above-mentioned re-tenanted space that has not commenced yet. Retail was 94.0% leased as of March 31, 2016.
  • Multifamily: 22% of Total NOI - Multifamily properties' same-store NOI increased by 2.1% compared to the corresponding prior year period. Rental rates were essentially flat while same-store physical occupancy increased 90 basis points over last year to 94.5%.

Leasing Activity

During the first quarter, Washington REIT signed commercial leases totaling 265,000 square feet, including 44,000 square feet of new leases and 221,000 square feet of renewal leases, as follows (all dollar amounts are on a per square foot basis):


Square Feet

Weighted Average Term

(in years)

Weighted Average Rental Rates

Weighted Average Rental Rate % Increase

Tenant Improvements

Leasing Commissions and Incentives

New:







Office

32,000


7.7


$

40.60


31.4

%

$

48.73


$

38.78


Retail

12,000


9.8


16.22


35.9

%

17.26


18.04


Total

44,000


8.3


34.08


31.9

%

40.31


33.23









Renewal:







Office

194,000


7.1


$

40.55


11.0

%

$

35.94


$

38.82


Retail

27,000


11.6


41.49


69.2

%

22.99


29.47


Total

221,000


7.6


40.66


16.0

%

34.34


37.65


 

Disposition and Acquisition Activity

Washington REIT has announced that it has entered into two separate contracts with an institutional buyer to sell all six of its suburban Maryland office buildings totaling approximately 1.2 million square feet for $240 million dollars. Management expects the first transaction to close late in the second quarter of 2016 and the second transaction to close late in the third quarter of 2016. The Company is also under contract to sell a parcel of land at Dulles Station in Herndon, Virginia.

Washington REIT has one multifamily asset that it expects to place on the market later this year to complete its planned suburban Maryland asset sales. Additionally, it has one suburban office asset currently in the market to evaluate investor interest.

The Company has also signed a contract to acquire Riverside Apartments, an apartment community in Alexandria, Virginia consisting of 1,222 units and on-site density to develop approximately 550 additional units, for $244.75 million. This acquisition provides a value-add opportunity to renovate approximately 850 units to generate rental growth, and a further opportunity to develop additional density in a desirable submarket with strong employment drivers.

Riverside Apartments consists of three,15-story buildings over 28 acres of land located half a mile from Metro, near the intersection of Route 1 and the Capital Beltway and in the heart of the dynamic Huntington Metro corridor in Fairfax County, Virginia.

Expected Debt Repayment

Washington REIT currently plans to pay down approximately $100 million dollars of net debt in 2016.

Earnings Guidance

Management reaffirms 2016 Core FFO guidance of $1.70 to $1.77 per fully diluted share and has increased same store NOI guidance to range from flat to 1%.

Washington REIT's 2016 Core FFO guidance is based on a number of factors, many of which are outside its control and all of which are subject to change. Washington REIT may change its guidance during the year as actual and anticipated results vary from these assumptions.

2016 Guidance Reconciliation Table

A reconciliation of projected net income attributable to the controlling interests per diluted share to projected Core FFO per diluted share for the year ending December 31, 2016 is as follows:


Low

High

Net income attributable to the controlling interests per diluted share (a)

$

0.22


$

0.29


Real estate depreciation and amortization (b)

1.50

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