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Washington Real Estate Investment Trust Announces Third Quarter Financial And Operating Results

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PR Newswire


WASHINGTON, Oct. 22, 2015 /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 September 30, 2015:

Third Quarter 2015 Highlights

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

"We are pleased with the strength of our leasing performance this quarter, particularly in office, where leasing increased by more than 120% over the second quarter and by almost 250% year over year. Moreover, we have generated strong leasing momentum at the three assets in our portfolio with the greatest lease-up potential, Silverline Center, The Maxwell and 1775 Eye Street," said Paul T. McDermott, President and Chief Executive Officer. "We believe our increased leasing velocity will further drive our occupancy, which continues to outperform in most of our sub-markets. We are further encouraged by the strength we are seeing in office-using job growth in our region and by the increased prospects for a recovery in the Washington Metro Area."

Financial Highlights

Core Funds from Operations(1) was $31.0 million, or $0.45 per diluted share, for the quarter ended September 30, 2015, compared to $28.5 million, or $0.43 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 September 30, 2015 was $29.9 million, or $0.44 per diluted share, compared to $28.0 million, or $0.42 per diluted share, for the corresponding prior year period.


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Net income attributable to the controlling interests for the quarter ended September 30, 2015 was $0.6 million, or $0.01 per diluted share, compared to $3.7 million, or $0.05 per diluted share, for the corresponding prior year period.

Operating Results

The Company's overall portfolio NOI(2) was $50.1 million for the quarter ended September 30, 2015, compared to $47.5 million in the corresponding prior year period. Overall portfolio physical occupancy for the third quarter was at 90.7%, compared to 90.7% at the end of the third quarter last year and 90.0% at the end of the second quarter 2015.

Same-store(3) portfolio physical occupancy for the third quarter of 2015 was 92.4%, compared to 92.6% at September 30, 2014 and 92.4% at the end of the second quarter 2015. Same-store portfolio cash NOI for the third quarter increased by 0.2% while NOI declined by 1.0%, compared to the corresponding prior year period.

  • Office: 54% of Total NOI - Office properties' same-store cash NOI increased by $573,000 or 2.2%, and NOI decreased by $43,000 or (0.2%), compared to the corresponding prior year period. Rental rate growth was 0.9% while same-store physical occupancy increased 10 basis points over last year to 90.8%.
  • Retail: 24% of Total NOI - Retail properties' same-store cash NOI decreased by $394,000 or (3.4%) and NOI decreased by $285,000 or (2.5%), compared to the corresponding prior year period, primarily driven by a full-quarter impact of known tenant move-outs that have been re-leased with rents expected to commence in mid-2016. Rental rates increased 3.2% while same-store physical occupancy decreased 10 basis points over last year to 94.3%, which included short-term seasonal rentals of space. Retail was 94.2% leased as of September 30, 2015.
  • Multifamily: 22% of Total NOI - Multifamily properties' same-store cash NOI decreased by $103,000 or (1.2%) and NOI decreased by $116,000 or (1.3%) respectively, compared to the corresponding prior year period. Rental rates declined (2.1%) while same-store physical occupancy decreased 80 basis points over last year to 93.4%. Multifamily deliveries in the region, despite record-setting absorption, continue to create a highly competitive market landscape.

Leasing Activity

During the third quarter, Washington REIT signed commercial leases totaling 412,000 square feet, including 167,000 square feet of new leases and 245,000 square feet of renewal leases, 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

93,000


6.8


$

36.46


31.6

%

$

51.14


$

48.79


Retail

74,000


10.1


27.61


23.7

%

70.46


22.26


Total

167,000


8.2


32.55


28.5

%

59.68


37.05









Renewal:







Office

192,000


2.7


$

31.37


(11.0)

%

$

3.03


$

3.89


Retail

53,000


4.4


26.63


14.7

%

0.68


2.25


Total

245,000


3.1


30.34


(7.0)

%

2.52


3.53


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

Dispositions

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

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

Earnings Guidance

Management is tightening the 2015 Core FFO guidance range to $1.68 to $1.70 from $1.68 to $1.72 per fully diluted share, lowering the mid-point by one cent per share to $1.69. The following assumptions are incorporated into the tightened guidance range:

  • Same-store NOI growth is projected to range from 0% to 1%
  • Same-store office NOI growth is projected to range from 1% to 1.5%, excluding the redevelopment project at Silverline Center
  • Silverline Center is expected to contribute NOI of $0.06 to $0.07 per share in the current year and to stabilize in 2016
  • Same-store multifamily NOI growth is projected to range from a little over (1)% at the bottom end to 0%
  • The Maxwell development is expected to contribute NOI of $0.01 in 2015. The Maxwell is expected to stabilize by the end of 2015
  • Same-store retail NOI growth is projected to range from (2)% to (1)% primarily due to adverse weather-related expenses at the beginning of the year, and second quarter move-outs that have now been re-leased with commencements expected by mid-2016
  • Following the acquisition of The Wellington, our guidance does not anticipate closing any additional acquisitions in 2015 although we will continue to underwrite value-add acquisition opportunities
  • Dispositions for 2015 are expected to total approximately $140 million. One parcel of land that was scheduled for sale this year is now expected to close in the second quarter of 2016. We continue to prepare additional legacy assets for potential sale over the next 15 months
  • General and administrative expense remains projected to range from $19 to $20 million excluding acquisition costs, severance and relocation expense
  • Interest expense is projected to be approximately $60 million

Washington REIT's 2015 Core FFO 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.

Capital Update

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

Dividends

On September 30, 2015, Washington REIT paid a quarterly dividend of $0.30 per share.

Washington REIT announced today that its Board of Trustees has declared a quarterly dividend of $0.30 per share to be paid on January 5, 2016 to shareholders of record on December 22, 2015. The Company has typically paid its fourth quarter dividend during the month of December. Going forward the Company expects the payment date of its fourth quarter dividend to occur in early January of the following year.

Conference Call Information

The Conference Call for Third Quarter Earnings is scheduled for Friday, October 23, 2015 at 11:00 A.M. Eastern time. Conference Call access information is as follows:

USA Toll Free Number:                

1-877-407-9205

International Toll Number:             

1-201-689-8054

The instant replay of the Conference Call will be available until November 6, 2015 at 11:59 P.M. Eastern time. Instant replay access information is as follows:

USA Toll Free Number:                  

1-877-660-6853

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