Washington Real Estate Investment Trust Announces Fourth Quarter And Year-End Financial And Operating Results For 2013

ROCKVILLE, Md., Feb. 20, 2014 /PRNewswire/ -- Washington Real Estate Investment Trust ("WRIT" or the "Company") (NYSE: WRE), a leading owner and operator of diversified properties in the Washington, D.C. region, reported financial and operating results today for the quarter and year ended December 31, 2013:

Highlights for the Quarter and Recent Activity

• Generated Core Funds from Operations (FFO) of $0.42 per diluted share for the quarter and $1.79 per diluted share for the year
• Recorded the highest annual amount of commercial leasing volume since 2007 with over 1.7 million square feet of new and renewal leases signed
• Increased same-store physical occupancy to 89.4%, 30 basis points higher than fourth quarter 2012 with the office portfolio leading the way with a 140 basis point improvement
• Achieved Net Operating Income (NOI) growth of approximately 8% in the Washington, D.C. office portfolio and increased physical occupancy over 300 basis points over the prior year
• Executed 69 new and renewal leases totaling 423,000 square feet at an average rental rate increase of 7.8% over in-place rents for new leases and an average rental rate increase of 15.5% for renewal leases during the quarter
• Executed four separate contracts to sell the medical office portfolio and two office assets for an aggregate sales price of $500.8 million, generating an estimated total gain on sale of approximately $125 million

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"We see signs of improving real estate market conditions in the commercial segment of our business. We have achieved an impressive volume of signed leases in 2013 and expect that leasing momentum to carry into 2014. Additionally, we completed the successful sale of the Medical Office Portfolio providing an excellent source of capital to continue to acquire higher quality assets in each of our core business lines," said Paul T. McDermott, President and Chief Executive Officer of WRIT.

Financial Results

Core Funds from Operations⁽¹⁾ was $1.79 per diluted share for the year and $0.42 per diluted share for the quarter ended December 31, 2013, respectively, as compared to $1.90 per diluted share and $0.47 per diluted share for the corresponding periods in 2012. 

FFO for the year ended December 31, 2013 was $113.1 million, or $1.69 per diluted share, compared to $122.5 million, or $1.84 per diluted share, in 2012. FFO for the quarter ended December 31, 2013 was $22.4 million, or $0.34 per diluted share, compared to $27.7 million, or $0.42 per diluted share, in the same period one year ago. 

Net income attributable to the controlling interests for the year ended December 31, 2013 was $37.3 million, or $0.55 per diluted share, compared to $23.7 million, or $0.35 per diluted share, in 2012.

Net income attributable to the controlling interests for the quarter ended December 31, 2013 was $18.9 million, or $0.28 per diluted share, compared to $3.0 million, or $0.04 per diluted share, in the same period one year ago.

Operating Results

The Company's overall portfolio Net Operating Income ("NOI")⁽²⁾ for the fourth quarter was $42.9 million, compared to $42.9 million in the same period one year ago and $42.6 million in the third quarter of 2013. Overall portfolio physical occupancy for the fourth quarter was 88.8%, compared to 88.1% in the same period one year ago and 88.7% in the third quarter of 2013. 

Same-store⁽³⁾ portfolio physical occupancy for the fourth quarter was 89.4%, compared to 89.1% in the same period one year ago. Sequentially, same-store physical occupancy decreased 40 basis points compared to the third quarter of 2013. Same-store portfolio NOI for the fourth quarter decreased 0.4% and rental rate growth was 2.2% compared to the same period one year ago.

• Office: 56% of Total NOI - Office properties' same-store NOI for the fourth quarter decreased 0.2% compared to the same period one year ago. Rental rate growth was 2.2% while same-store physical occupancy increased 140 bps to 86.6%. Sequentially, same-store physical occupancy was flat compared to the third quarter of 2013.
• Retail: 25% of Total NOI - Retail properties' same-store NOI for the fourth quarter increased 3.9% compared to the same period one year ago. Rental rate growth was 3.6% while same-store physical occupancy increased 10 bps to 91.3%. Sequentially, same-store physical occupancy decreased 10 bps compared to the third quarter of 2013.
• Multifamily: 19% of Total NOI - Multifamily properties' same-store NOI for the fourth quarter decreased 6.1% compared to the same period one year ago. Rental rate growth was 1.2% while same-store physical occupancy decreased 150 bps to 92.6%. Sequentially, same-store physical occupancy decreased 150 bps compared to the third quarter of 2013.

Acquisitions

In the fourth quarter, WRIT acquired The Paramount, a 135 unit apartment building located in Arlington, Virginia, and built in 1984, for $48.2 million in an all cash transaction. The Paramount is a well-located apartment building within walking distance to both the Crystal City and Pentagon City Metro Stations (Blue and Yellow lines). The acquisition was initially funded with available capacity on WRIT's line of credit.

Dispositions

In the fourth quarter, WRIT completed Transactions I and II of the Medical Office Portfolio sale comprising approximately 1,093,000 square feet for a total of $307.2 million in sales proceeds, generating a gain of approximately $18.9 million. Subsequent to quarter end, WRIT completed Transactions III and IV of the Medical Office Portfolio sale comprising approximately 427,000 square feet for a total of $193.6 million, or $453 per square foot. The aggregate sale proceeds for the entire Medical Office Portfolio were $500.8 million.

Financing Activity

WRIT prepaid three mortgage notes associated with the Medical Office Portfolio sale for a total of $26.1 million. During the fourth quarter, WRIT paid down $135 million on its line of credit balance using Medical Office Portfolio sale proceeds. Subsequent to quarter end, WRIT repaid its $100 million, 5.25% unsecured note using additional sale proceeds from its Medical Office Portfolio.

Leasing Activity

New leases signed during the year totaled approximately 604,000 square feet and renewal leases totaled approximately 1,105,000 square feet. The majority of this leasing occurred within our office portfolio which signed 452,000 square feet of new leases and 627,000 square feet of renewal leases. Prior to 2013, total leasing volume within this business line had not exceeded 930,000 square feet.

During the fourth quarter, WRIT signed commercial leases totaling approximately 423,000 square feet, including 171,000 square feet of new leases and 252,000 square feet of renewal leases, as follows (all dollar amounts are on a per square foot basis):

Earnings Guidance

2014 Core FFO per fully diluted share is projected to be $1.56-$1.64. The following assumptions are incorporated into this guidance:

• Same-store NOI growth is projected to range from 1% to 3%, with same-store occupancy improving modestly
• Same-store office NOI growth is projected to range from 2% to 4% excluding the redevelopment project at 7900 Westpark and -1% to 2% overall including the redevelopment project
• Same-store multifamily NOI growth is projected to range from -3% to 0%
• Same-store retail NOI growth is projected to range from 0% to 1%
• Acquisition volume is projected to be $250 to $350 million with volume and timing of the transactions having a significant impact to projected results
• General and administrative expense is projected to range from $18 to $19 million
• Interest expense is projected to be approximately $60 million

Dividends

On December 31, 2013, WRIT paid a quarterly dividend of $0.30 per share.

Conference Call Information

The Conference Call for 4^th Quarter Earnings is scheduled for Friday, February 21, 2014 at 11:00 A.M. Eastern time. Conference Call access information is as follows:

The instant replay of the Conference Call will be available until March 7, 2014 at 11:59 P.M. Eastern time. Instant replay access information is as follows:

The live on-demand webcast of the Conference Call will be available on the Investor section of WRIT's website at www.writ.com. On-line playback of the webcast will be available for two weeks following the Conference Call.

About WRIT

WRIT is a self-administered, self-managed, equity real estate investment trust investing in income-producing properties in the greater Washington metro region.  WRIT owns a diversified portfolio of 51 properties, totaling approximately 7 million square feet of commercial space and 2,674 residential units, and land held for development.  These 51 properties consist of 23 office properties, 16 retail centers and 12 multifamily properties.  WRIT shares are publicly traded on the New York Stock Exchange (NYSE: WRE).

Note: WRIT's press releases and supplemental financial information are available on the company website at www.writ.com or by contacting Investor Relations at (301) 984-9400.

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. 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 2012 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.

⁽¹⁾ Funds From Operations ("FFO") - The National Association of Real Estate Investment Trusts, Inc. ("NAREIT") defines FFO (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.  FFO is a non-GAAP measure and does not replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity.  We consider 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 FFO more accurately provides investors an indication of our ability to incur and service debt, make capital expenditures and fund other needs.

Core Funds From Operations ("Core FFO") is calculated by adjusting FFO for the following items (which we believe are not indicative of the performance of WRIT's operating portfolio and affect the comparative measurement of WRIT's operating performance over time): (1) gains or losses on extinguishment of debt, (2) costs related to the acquisition of properties, (3) severance expense related to corporate reorganization and related to the CEO's retirement and (4) property impairments not already excluded from FFO, as appropriate.  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 WRIT's ability to incur and service debt and to distribute dividends to its shareholders.  Core FFO is a non-GAAP and non-standardized measure and may be calculated differently by other REITs.

⁽²⁾ Net Operating Income ("NOI"), defined as real estate rental revenue less real estate expenses, is a non-GAAP measure.  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 and real estate impairment.  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.

⁽³⁾ For purposes of evaluating comparative operating performance, we categorize our properties as "same-store" or "non-same-store".  A same-store property is one that was owned for the entirety of the periods being evaluated and excludes properties under redevelopment or development and properties purchased or sold at any time during the periods being compared.  A non-same-store property is one that was acquired, under redevelopment or development, or placed into service during either of the periods being evaluated. 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. Properties under redevelopment or development are included within the non-same-store properties beginning in the period during which redevelopment or development activities commence. 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.

⁽⁴⁾ Funds Available for Distribution ("FAD") is a non-GAAP measure.  It is calculated by subtracting from FFO (1) recurring expenditures, tenant improvements and leasing costs that are capitalized and amortized and are necessary to maintain our properties and revenue stream and (2) straight-line rents, then adding (3) non-real estate depreciation and amortization, (4) amortization of restricted share and unit compensation, and adding or subtracting amortization of lease intangibles, as appropriate.  We consider FAD to be a measure of a REIT's ability to incur and service debt and to distribute dividends to its shareholders.  FAD is a non-standardized measure and may be calculated differently by other REITs.

(i) Same-Store 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. For Q4 2013 and Q4 2012, same-store properties exclude:  

Multifamily Acquisition: The Paramount;
Office Acquisitions: none;
Office Redevelopment: 7900 Westpark Drive;
Retail Acquisitions: none.

Also excluded from Same-Store Properties in Q4 2013 and Q4 2012 are:

Sold Properties: The Atrium Building, and Transactions I and II of the Medical Office Portfolio sale (Woodholme Center, 6565 Arlington Boulevard, 2440 M Street, 15001 Shady Grove Road, 15505 Shady Grove Road, 19500 at Riverside Park (formerly Lansdowne Medical Office Building), 9707 Medical Center Drive, CentreMed I and II, 8301 Arlington Boulevard, Sterling Medical Office Building, Shady Grove Medical Village II, Alexandria Professional Center, Ashburn Farm Office Park I, II and III, Woodholme Medical Office Building);

Held for Sale Properties: Transactions III and IV of the Medical Office Portfolio sale (Woodburn Medical Park I and II, and Prosperity Medical Center I, II and III.)

SOURCE Washington Real Estate Investment Trust