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Washington Real Estate Investment Trust Announces Third Quarter Financial and Operating Results and Quarterly Dividend

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WASHINGTON, Oct. 24, 2019 (GLOBE NEWSWIRE) -- Washington Real Estate Investment Trust ("WashREIT" 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, 2019:

Third Quarter 2019 Financial Results

  • Net income attributable to controlling interests was $332.8 million, or $4.14 per diluted share, including net gains on the sale of real estate of $339 million
  • NAREIT FFO(1) was $31.1 million, or $0.39 per diluted share
  • Core FFO(1) was  $0.41 per diluted share

Operational Highlights

  • Net Operating Income (NOI)(2) was $49.6 million
  • Same-store(3) NOI declined 1.6% and cash NOI declined 0.7% over third quarter 2018. The decline was primarily due to a same-store office NOI decline of 5.2% over third quarter 2018, driven largely by expected office lease expirations, the majority of which have been re-leased
  • Same-store multifamily NOI and cash NOI increased by 3.0% over the prior year period, or 4.6% excluding  the net impact of favorable tax appeal settlements, the majority of which impacted the third quarter of 2018
  • Same-store multifamily new lease rate growth was 4.2% and renewal lease rate growth was 4.4% (4)
  • Same-store other(5) NOI increased by 1.8% and cash NOI increased by 2.4% over third quarter 2018

Transaction Activity

  • Completed the acquisition of Cascade at Landmark, a 277 unit value-add multifamily asset in Alexandria, VA for approximately $70 million
  • Completed the sale of eight retail assets for gross proceeds of approximately $562 million and recognized net gains of approximately $339 million

"We delivered solid third quarter performance and successfully executed our 2019 Strategic Capital Allocation Plan, which recycled capital out of higher-risk commercial assets into value-oriented multifamily assets," said Paul T. McDermott, President and CEO of WashREIT. "Our multifamily portfolio is positioned to drive growth in several phases with a newly expanded renovation pipeline, strong lease rate growth, and the lease-up of the Trove development in 2020, which will strengthen and further stabilize our NOI growth trajectory."

Operating Results

The Company's overall portfolio NOI from continuing operations was $49.6 million for the quarter ended September 30, 2019 compared to $45.0 million in the corresponding prior year quarter. The increase was primarily driven by the Assembly portfolio acquisition, offset in part, by the sale of Quantico in the second quarter of 2019.

Same-store portfolio by sector:

  • Office: 53% of Same-Store NOI - Same-store NOI decreased by 5.2% and cash NOI decreased by 3.7% compared to the corresponding prior year period, primarily due to the termination of a prior lease at Watergate 600 that has largely been re-leased with rent commencement expected in the first quarter 2020. Same-store average occupancy(6) declined 320 basis points year-over-year and 90 basis points sequentially, primarily due to the aforementioned lease termination that enabled the re-leasing of the majority of the space. The same-store office portfolio was 90.6% occupied and 94.5% leased at quarter end.(7)
     
  • Multifamily: 39% of Same-Store NOI - Same-store NOI and cash NOI increased by 3.0% compared to the corresponding prior year period.  Excluding the net impact of favorable tax appeal settlements, which were higher than usual in the third quarter of 2018, same-store NOI increased 4.6% compared to the prior year quarter. The Company achieved 290 basis points of year-over-year rental rate growth, 440 basis points of renewal trade-outs and 420 basis points of new lease trade-outs in the third quarter. At quarter end, the same-store multifamily portfolio was 95.1% occupied on a unit basis and 97.0% leased.
     
  • Other: 8% of Same-Store NOI - Same-store NOI increased by 1.8% and cash NOI increased by 2.4% compared to the prior year period despite a 140 basis point decline in year-over-year average occupancy due to lease commencements with high rental values at Spring Valley Village, as well as higher recoveries of previously reserved bad debts. The same-store other portfolio was 89.0% occupied and 91.9% leased at quarter end.

Leasing Activity

During the third quarter, WashREIT signed commercial leases totaling 67,000 square feet, including 40,000 square feet of new leases and 27,000 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 Free
Rent Period
(in months)
Weighted
Average
Rental Rates
Weighted
Average
Rental Rate
% Increase
Tenant
Improvements
Leasing
Commissions
New: (a)              
Office 35,000   9.0   9.4   $ 52.20   22.3 % $ 71.99   $ 26.70  
  Retail 5,000   3.8   3.0   40.59   %   6.76  
Total 40,000   9.2   8.8   50.86   19.8 % 63.66   24.39  
               
Renewal: (a)              
Office 16,000   3.9   1.5   $ 51.27   15.5 % $ 1.50   $ 6.35  
Retail 11,000   7.8     42.24   35.0 %   3.11  
Total 27,000   5.5   0.9   47.55   21.9 % 0.88   5.01  

(a) Excludes approximately 43,000 square feet of commercial leases negotiated during the quarter but signed after quarter-end

Tenant improvements per square foot for office renewal leases were low in the third quarter due to the impact of several early renewals for short-term, traditional leases signed during the quarter for smaller tenants.

Transaction Activity

During the quarter, WashREIT closed on the acquisition of the Cascade at Landmark Apartments in Alexandria, VA, a 277 unit, urban infill, value-add multifamily asset for approximately $70 million.

Additionally, the Company closed on the sales of the following eight retail assets, totaling approximately 1,652,000 square feet for $562 million and recognized net gains of approximately $339 million:

  1. Gateway Overlook, Columbia, MD
  2. Wheaton Park, Wheaton, MD
  3. Olney Village Center, Olney, MD
  4. Bradlee Shopping Center, Alexandria, VA
  5. Shoppes of Foxchase, Alexandria, VA
  6. Frederick Crossing, Frederick, MD
  7. Frederick County Square, Frederick, MD
  8. Centre at Hagerstown, Hagerstown, MD

Earnings Guidance

Management is reiterating the midpoint and narrowing its 2019 Core FFO guidance range to $1.70 to $1.72 from $1.69 to $1.73 per fully diluted share. The following assumptions and related explanatory notes are included in this guidance:

  • Same-store multifamily NOI growth is projected to range from 4.25% to 4.75%
  • Same-store office NOI decline remains projected to range from -5.25% to -4.50% primarily due to the impact of large lease expirations and renewals in 2019, the majority of which have been backfilled or renewed with rents commencing throughout 2020
  • Same-store other NOI growth for the remainder of the retail portfolio is projected to range from $13.25 to $13.50  million
  • Same-store NOI change is projected to range from -1.25% to -0.50%
  • The Company expects to complete an additional $125 to $150 million of yet to be announced commercial (office) asset sales close to year end and there are no additional acquisitions assumed in guidance
  • Development expenditures are projected to range from $45.0 to $50.0 million from a prior range of $47.5 to $52.5 million
  • The annual impact of the adoption of the new lease accounting standard ASC 842 as of January 1, 2019 is projected to be approximately $1.75 million from a prior range of $1.25 to $1.75 million
  • After considering Core FFO adjustments, general and administrative expense is now projected to range from $20.75 to $21.25 million from a prior range of $20.25 to $21.25 million
  • Interest expense is projected to range from approximately $54.5 to $55.0 million from a prior range of $55.0 to $55.5 million
  • Capitalized interest is expected to range from $2.75 to $3.25 million
  • Non same-store NOI and income from discontinued operations is projected to range from $57.0 to $57.5 million from a prior range of $56.5 to $57.75 million, which now includes $34.0 to $34.5 million from the office and multifamily properties the Company intends to hold, from a prior range of $34.0 to $34.75 million

The non same-store office pool in 2019 consists of Arlington Tower, which was acquired in 2018 and Quantico Corporate Center (925 and 1000 Corporate Drive), which has been sold.

The non same-store multifamily pool consists of the seven Assembly assets and Cascade at Landmark.

Discontinued operations consist of the following eight retail assets: Gateway Overlook, Wheaton Park, Olney Village Center, Bradlee Shopping Center, Shoppes of Foxchase, Centre at Hagerstown, Frederick Crossing and Frederick County Square.

WashREIT's 2019 Core FFO guidance is based on a number of factors, many of which are outside the Company's control and all of which are subject to change. WashREIT may change the guidance provided during the year, as actual and anticipated results vary from these assumptions, but WashREIT undertakes no obligation to do so.

2019 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, 2019 is as follows:

  Low   High  
Net income attributable to the controlling interests per diluted share (a) $ 4.05   $ 4.07  
Real estate impairment 0.10   0.10  
Loss on sale of depreciable real estate (a) 0.01   0.01  
Real estate depreciation and amortization (b) 1.66   1.66  
Discontinued operations:    
  Gain on sale of real estate (a) (4.22 ) (4.22 )
  Real estate depreciation and amortization (b) 0.06   0.06  
NAREIT FFO per diluted share 1.66  
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