Washington Real Estate Investment Trust (WRE)

Q2 2012 Earnings Call

July 27, 2012 11:00 am ET


Kelly Shiflett – Director of Finance

George F. McKenzie – President and Chief Executive Officer

William T. Camp – Executive Vice President and Chief Financial Officer

Michael S. Paukstitus – Senior Vice President of Real Estate


Blaine Heck - Wells Fargo Advisors LLC

John Guinee – Stifel Nicolaus & Company Inc.

Anthony Paolone – JPMorgan Securities LLC



Welcome to the Washington Real Estate Investment Trust Second Quarter 2012 Earnings Conference Call. As a reminder today’s call is being recorded. Before turning over the call to the company’s President and Chief Executive Officer, Skip McKenzie; Kelly Shiflett, Director of Finance will provide some introductory information.

Ms. Shiflett, please go ahead.

Kelly Shiflett

Thank you and good morning, everyone. After the market closed yesterday, we issued our earnings press release. If there is anyone on the call who would like a copy of the release, please contact me at 301-984-9400 or you may access the document from our website at www.writ.com. Our second quarter supplementary financial information is also available on our website.

Our conference call today will contain financial measures such as core FFO and NOI that are non-GAAP measures, and in accordance with Reg G, we have provided reconciliation to those measures in the supplemental. The per share information being discussed on today’s call is reported on a fully diluted share basis.

Please bear in mind that certain statements during this 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.

We provide a detailed discussion of these risks from time to time in our filings with the SEC. Please refer to pages 8 through 15 of our Form 10-K for our complete risk factor disclosures.

Participating in today’s call with me will be Skip McKenzie, President and Chief Executive Officer; Bill Camp, Executive Vice President and Chief Financial Officer; Laura Franklin, Executive Vice President and Chief Accounting and Administrative Officer; and Mike Paukstitus, Senior Vice President, Real Estate.

Now, I’d like to turn the call over to Skip.

George F. McKenzie

Thanks Kelly, first and foremost as we announced last night, we set a new quarterly dividend rate of $0.30 per share on annual run rate of $1.20. This was a very difficult decision made by our board after extensive deliberation and analysis. We estimate that this new rate will provide an additional investment capital of approximately $35 million per year, which we plan to use to invest in new acquisitions, development and re-development projects or debt reductions. Ultimately, given our long term commitment to fiscal discipline of financial strength, we felt that it was in our shareholders best interest to retain this capital in order to enhance our ability to grow earnings as well as take advantage of opportunistic investments that we expect will emerge in the years ahead.

The world we are facing today presents a future with many uncertainties and we want to make sure we are optimally positioned to take advantage of these opportunities as we continue to execute our strategic plan.

In other news this quarter, we acquired Fairgate at Ballston, a strategically located office building in Arlington, Virginia. We focused on taking measures to strengthen our balance sheet and we made progress leasing some of our most challenging spaces, particularly in the District of Columbia. In the Washington metro real estate market, office fundamentals are soft and we expect them to remain so through the November election.

Second quarter net absorption region wide was positive, but not enough to offset the negative absorption caused in the first quarter by BRAC relocations, primarily in Northern Virginia. In general, office markets continue to be adversely affected by business owners and managers, who push off decision-making due to continued talk of the so-called fiscal cliff, sequestration and other macro economic trends. Bottom line, this result is a little motivation to execute leases or expend business.

Despite this gridlock, our own portfolio performed reasonably well with same-store occupancy improving sequentially. As we mentioned last quarter, we’ve had good activity in our downtown vacancies in particular, including 56,000 square feet of new leasing, which would positively affect our numbers by early 2013.

On the good news side, overall, our multifamily, retail and medical office sectors are performing well. In multifamily, occupancy remains in the mid-90s with modest rental rate growth. Retail occupancy is up from the first quarter with strong NOI growth and good potential for continued increases for the rest of the year. The medical office sector faltered a bit this quarter with some occupancy loss and higher expenses weighing on the NOI growth.

On the acquisition front, we acquired Fairgate at Ballston, a value add 147,000 square foot office building in Arlington, Virginia for $52.25 million in an all cash transaction. This property is excellently located just a few blocks from the Ballston Metro stop and it’s 82% leased. We’ve had early strong interest in the vacant space and are pleased to add to our investments in this historically strong submarket.

As an update to our disposition plan, we currently have a 33,000 square foot medical office building in Bel Air, Maryland under firm contract, we expect the closing in December, as well as two Maryland office properties actively being marketed that we expect to close by year end.

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