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TheStreet Open House

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

Stocks in this article: WRE

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 ended June 30, 2012:

  • Core Funds from Operations (1), defined as Funds from Operations (1) (“FFO”) excluding acquisition expense, gains or losses on extinguishment of debt and impairment, was $31.9 million, or $0.48 per diluted share for the quarter ended June 30, 2012, compared to $33.5 million, or $0.51 per diluted share for the prior year period. FFO for the quarter ended June 30, 2012 was $31.6 million, or $0.47 per share, compared to $33.2 million, or $0.50 per share, in the same period one year ago.
  • Net income attributable to the controlling interests for the quarter ended June 30, 2012 was $6.0 million, or $0.09 per diluted share, compared to $6.5 million, or $0.10 per diluted share, in the same period one year ago.

Acquisitions

In the second quarter WRIT acquired Fairgate at Ballston, a 147,000 square foot office building in Arlington, Virginia, for $52.25 million in an all cash transaction. Fairgate at Ballston is an eight-story office building with a three-level underground parking garage, located at 1005 N. Glebe Road, in close proximity to U.S. Route 66 and three blocks from the Ballston Metro Station (Orange Line). The property was built in 1988 and is 82% leased to a diverse mix of office tenants. WRIT funded the acquisition with available capacity on its line of credit.

Operating Results

The Company's overall portfolio Net Operating Income (“NOI”) (2) was $51.3 million compared to $47.9 million in the same period one year ago and $50.5 million in the first quarter of 2012. Overall portfolio physical occupancy for the second quarter was 89.3%, compared to 87.7% in the same period one year ago and 89.7% in the first quarter of 2012.

Same-store (3) portfolio physical occupancy for the second quarter was 89.3%, compared to 91.1% in the same period one year ago. Sequentially, same-store physical occupancy decreased 30 basis points (bps) compared to the first quarter of 2012. Same-store portfolio NOI for the second quarter decreased 1.7% and rental rate growth was 1.6% compared to the same period one year ago.

  • Multifamily: 15.6% of Total NOI - Multifamily properties' same-store NOI for the second quarter increased 1.9% compared to the same period one year ago. Rental rate growth was 4.1% while same-store physical occupancy decreased 80 bps to 94.8%. Sequentially, same-store physical occupancy decreased 40 bps compared to the first quarter of 2012.
  • Office: 48.5% of Total NOI - Office properties' same-store NOI for the second quarter decreased 6.9% compared to the same period one year ago. Rental rate growth was 0.9% while same-store physical occupancy decreased 350 bps to 84.7%, primarily due to previously announced expirations and move-outs at 1140 Connecticut Avenue, 2000 M Street, 7900 Westpark and 6110 Executive Boulevard. Sequentially, same-store physical occupancy decreased 50 bps compared to the first quarter of 2012.
  • Medical: 14.6% of Total NOI - Medical office properties' same-store NOI for the second quarter decreased 8.6% compared to the same period one year ago. Rental rate growth was 2.0% while same-store physical occupancy decreased 180 bps to 89.9%. Sequentially, same-store physical occupancy decreased 80 bps compared to the first quarter of 2012.
  • Retail: 21.3% of Total NOI - Retail properties' same-store NOI for the second quarter increased 15.7% compared to the same period one year ago. Rental rate growth was 0.9% while same-store physical occupancy increased 70 bps to 92.7%. Sequentially, same-store physical occupancy increased 40 bps compared to the first quarter of 2012.

Leasing Activity

During the second quarter, WRIT signed commercial leases for 247,439 square feet with an average rental rate increase of 14.3% over expiring lease rates on a GAAP basis, an average lease term of 6.7 years, tenant improvement costs of $26.40 per square foot and leasing commissions and incentives of $13.51 per square foot.

  • Rental rates for new and renewed office leases increased 19.5% to $38.88 per square foot, with $36.17 per square foot in tenant improvement costs and $24.13 per square foot in leasing commissions and incentives. Weighted average term for new and renewed leases was 6.5 years.
  • Rental rates for new and renewed medical office leases increased 9.1% to $38.61 per square foot, with $24.63 per square foot in tenant improvement costs and $7.30 per square foot in leasing commissions and incentives. Weighted average term for new and renewed leases was 5.8 years.
  • Rental rates for new and renewed retail leases increased 7.1% to $22.21 per square foot, with $15.09 per square foot in tenant improvement costs and $2.64 per square foot in leasing commissions and incentives. Weighted average term for new and renewed leases was 7.2 years.

Financing Activity

WRIT amended and extended both of its unsecured credit facilities in the second quarter. The $400 million Wells Fargo facility matures July 1, 2016 (previously July 1, 2014), with a one-year extension option and is priced at a rate of LIBOR plus a margin of 107.5 basis points (previously 122.5 basis points) based on WRIT’s current credit rating. The amendment also eliminates the requirement for guarantees from WRIT’s subsidiaries under certain circumstances.

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