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Washington Real Estate Investment Trust Announces Fourth Quarter And Year-End Financial And Operating Results For 2015

Das Kapitol in Washington, D.C. © Tanarch / iStock / Getty Images Plus / Getty Images

PR Newswire

WASHINGTON, Feb. 18, 2016 /PRNewswire/ -- Washington REIT (Washington Real Estate Investment Trust  - NYSE: WRE), a leading owner and operator of diversified properties in the Washington, DC region, reported financial and operating results today for the quarter and year ended December 31, 2015:

Highlights for the Fourth Quarter and Recent Activity

  • Generated Core Funds from Operations (FFO) of $0.46 per diluted share for the quarter and $1.71 per diluted share for the year, which exceeded the top-end of our most recent guidance range
  • Executed new office leases totaling 220,000 square feet at an average rental rate increase of 21.1%
  • Completed the lease-up of key value-creating assets: Silverline Center, The Maxwell and 1775 Eye Street
  • Achieved same-store cash Net Operating Income (NOI) growth of 3.7% and NOI growth of 2.0% over fourth quarter 2014
  • Achieved same-store cash NOI growth for the office portfolio of 9.2% and NOI growth of 6.4% over fourth quarter 2014. Excluding lease termination fees, same-store cash NOI and NOI growth for the office portfolio was 6.7% and 3.9%, respectively
  • Sold Munson Hill Towers, a 279 unit Class B apartment building located in Falls Church, Virginia, for $57.1 million
  • Sold Montgomery Village Center, a 197,000 square foot, Class B community shopping center in Montgomery Village, Maryland, for $27.8 million
Washington REIT

"2015 was a year of value-creation through strong execution for Washington REIT as we overcame challenging market conditions to achieve significant leasing and asset recycling goals and deliver the value we outlined to our shareholders throughout the year," said Paul T. McDermott, President and Chief Executive Officer. "We successfully leased-up our three needle-movers, Silverline Center, The Maxwell and 1775 Eye Street and executed our planned legacy asset sales. Furthermore, we reinvested proceeds, through a 1031 exchange, into The Wellington, an asset that is expected to create ongoing value through an extensive unit renovation program as well as the on-site development of 400 additional multifamily units. Washington REIT is well-positioned to successfully execute the milestones delineated for 2016, with a commitment to improving our balance sheet while further improving the quality and performance of our portfolio as part of our overall effort to drive shareholder value."

Financial Results

Core Funds from Operations(1), was $1.71 per diluted share for the year and $0.46 per diluted share for the quarter ended December 31, 2015, as compared to $1.63 per diluted share and $0.43 per diluted share, respectively, for the corresponding periods in 2014. 

FFO as defined by NAREIT for the year ended December 31, 2015 was $108.5 million, or $1.58 per diluted share, compared to $101.1 million, or $1.51 per diluted share, in 2014. FFO for the quarter ended December 31, 2015 was $31.5 million, or $0.46 per diluted share, compared to $26.8 million, or $0.40 per diluted share, in the same period one year ago. 

Net income attributable to the controlling interests for the year ended December 31, 2015 was $89.7 million, or $1.31 per diluted share, compared to $111.6 million, or $1.67 per diluted share, in 2014.


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Net income attributable to the controlling interests for the quarter ended December 31, 2015 was $62.1 million, or $0.91 per diluted share, compared to $2.3 million, or $0.03 per diluted share, in the same period one year ago.

Operating Results

The Company's overall portfolio NOI(2) for the fourth quarter was $51.4 million, compared to $48.4 million in the same period one year ago and $50.1 million in the third quarter of 2015. Overall portfolio physical occupancy for the fourth quarter was 90.2%, compared to 90.5% in the same period one year ago.

Same-store(3) portfolio physical occupancy for the fourth quarter was 91.7%, compared to 92.7% in the same period one year ago. Same-store portfolio cash NOI for the fourth quarter increased by 3.7%, while NOI increased 2.0% compared to the same period one year ago. Same-store rental growth for the fourth quarter was 0.4%.

  • Office: 55% of Total NOI - Office properties' same-store cash NOI for the fourth quarter increased by 9.2%, and NOI increased by 6.4% compared to the same period one year ago due to annual rent increases at several properties, higher lease terminations fees, utility and snow removal cost savings and higher than expected levels of expense recoveries. Rental rate growth for the fourth quarter was flat. Same-store physical occupancy decreased 40 basis points to 90.5%.
  • Retail: 24% of Total NOI - Retail properties' same-store cash NOI for the fourth quarter decreased by 2.2% and NOI decreased by 2.5% compared to the same period one year ago, primarily driven by another full quarter impact of known tenant move outs that have been re-leased with increased rents and that are expected to commence in the second half of 2016. Rental rates increased 3.5% and lease termination fees were higher. Same-store physical occupancy decreased 350 basis points to 91.5% compared to the same period one year ago and 390 basis points compared to the third quarter of 2015, which included short-term seasonal rentals of space. Retail was 95% leased as of December 31, 2015.
  • Multifamily: 21% of Total NOI - Multifamily properties' same-store cash NOI for the fourth quarter decreased by 4.7% and NOI decreased by 4.8% compared to the same period one year ago due to lower effective rents and increased marketing expenses. Rental rates decreased 1.1% while same-store physical occupancy increased 70 basis points to 94.3% compared to the same period one year ago and 110 basis points compared to the third quarter of 2015.

Disposition Activity

On October 21, 2015, Washington REIT sold Munson Hill Towers, a 258,000 square foot Class B high-rise of 279 units located in Falls Church, Virginia, for $57.1 million, or approximately $204,480 per unit.

On December 14, 2015, Washington REIT sold Montgomery Village Center, a 197,000 square foot , Class B community shopping center in Montgomery Village, Maryland, for $27.8 million.

Both sales were structured as part of a reverse-1031 exchange in connection with the acquisition of The Wellington, which the Company acquired in the third quarter of 2015.

Leasing Activity

New leases signed during the year totaled approximately 553,000 square feet and renewal leases totaled approximately 732,000 square feet. The majority of this leasing occurred within the office portfolio which signed 433,000 square feet of new leases and 440,000 square feet of renewal leases.

During the fourth quarter, Washington REIT signed commercial leases totaling approximately 295,000 square feet, including approximately 220,000 square feet of new leases and approximately 75,000 square feet of renewal leases. The commercial leases breakdown 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

220,000


6.5


$

39.45


21.1

%

$

63.29


$

36.12


Renewal:







Office

42,000


6.6


$

37.01


3.9

%

$

37.59


$

24.30


Retail

33,000


3.3


25.08


17.8

%


1.82


Total

75,000


5.1


$

31.80


8.3

%

$

21.17


$

14.48


 

The mix of retail renewals was unusually skewed towards short-term extensions. Excluding all short-term extensions, the weighted average retail renewal term would have been 7.8 years.

Earnings Guidance

2016 Core FFO per fully diluted share is projected to be $1.70 - $1.77. The following assumptions are incorporated into this guidance:

  • Same-store NOI growth is projected to be flat
  • Same-store office NOI growth is also projected to be flat largely due to the impact of re-tenanting expected tenant move-outs
  • Same-store multifamily NOI growth is projected to range from 1% to 2%
  • Same-store retail NOI growth is projected to range from (0.5)% to flat as the long-term leases that the Company signed this year commence in the second half of 2016
  • Silverline Center is expected to contribute NOI of $0.11 per share
  • The Maxwell development is expected to contribute NOI of $0.04 per share
  • The Company has placed a portfolio of suburban assets on the market and currently plans to use approximately 50% of the proceeds to pay down secured debt and further strengthen the balance sheet and reinvest the balance to improve the portfolio through a reverse 1031 exchange
  • General and administrative expense is projected to be approximately $20 million excluding any severance expense
  • Interest expense is projected to be approximately $56 to $57 million

Non same-store properties in 2016 are The Wellington and The Maxwell in multifamily and the Silverline Center and The Army Navy Club Building in office.

Washington REIT's 2016 guidance is also based on a number of other 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


1.50


All other core adjustments

(0.02)


(0.02)


Core FFO per diluted share

$

1.70


$

1.77



(a) Gains and losses from sales have not been included.

(b) Does not include any impact from acquisitions and dispositions during the year.

 

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