Washington Real Estate Investment Trust reports Q1 2011 FFO of US$29.9M compared with US$28.8M a year ago, driven by acquisitions, portfolio upgrades

Michelle Rivera

ROCKVILLE, Maryland , April 29, 2011 (press release) – Washington Real Estate Investment Trust (“WRIT” or the “Company”) (NYSE: WRE), a leading owner and operator of diversified properties in the Washington, DC region, reported financial and operating results today for the quarter ended March 31, 2011:

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 $32.2 million, or $0.49 per diluted share for the quarter ended March 31, 2011, compared to $28.9 million, or $0.48 per diluted share for the prior year period. FFO for the quarter ended March 31, 2011 was $29.9 million, or $0.45 per share, compared to $28.8 million, or $0.48 per share, in the same period one year ago.

Net income attributable to the controlling interests for the quarter ended March 31, 2011 was $4.7 million, or $0.07 per diluted share, compared to $5.2 million, or $0.09 per diluted share, in the same period one year ago included in first quarter 2011 net income per share are acquisition costs of $0.03.

Acquisitions and Dispositions
WRIT recently entered into a contract to purchase John Marshall II, a 223,000 square foot office building located at 8283 Greensboro Drive in Tysons Corner, Virginia, for $73.5 million. The purchase is subject to the assumption of a $54.3 million 5.79% loan. The property is 100% leased to Booz Allen Hamilton Inc. and serves as their worldwide headquarters. The Dulles Corridor Metrorail, currently under construction, will include four metro stations serving Tysons Corner. One of these four stations, Tysons Central 7, will be located 500 feet from John Marshall II upon its anticipated completion in 2013.

In the first quarter, WRIT continued to execute its stated strategy of upgrading the quality of its diversified property portfolio by investing in high quality assets in superior locations, completing the acquisitions of two downtown Washington, DC office properties.

WRIT acquired 1140 Connecticut Avenue, NW, a twelve story, 184,000 square foot office building with a three level parking garage in Washington, DC, for $80.25 million. The property is 99% leased to 25 office tenants and four retail tenants and is located near the intersection of Connecticut Avenue and M Street in the heart of Washington’s “Golden Triangle” Central Business District. WRIT funded this acquisition using available cash and its line of credit. The projected first year unleveraged yield is 6.0% on a cash basis.

In addition, WRIT acquired 1227 25th Street, NW, an eight story, 130,000 square foot office building with a two level parking garage in Washington, DC, for $47.0 million. The property is 72% leased to the GSA and law firms. It is located near the corner of 25th and M Streets in Washington’s West End submarket, immediately adjacent to the Company’s 2445 M Street office building. WRIT funded this acquisition using available cash and its line of credit and projects a stabilized yield of 8.7% on a cash basis.

Subsequent to quarter end, WRIT completed the sale of Dulles Station West Phase I, a 180,000 square foot office building in Herndon, Virginia, recording a $0.6 million impairment charge in first quarter 2011 based on the contract sales price of $58.8 million. WRIT originally acquired the land for Dulles Station West Phases I and II in 2005 and completed construction of Phase I in 2007. Phase II, which was not included in the transaction, is zoned for future development of a 340,000 square foot office building.

Operating Results
The Company’s overall portfolio physical occupancy for the first quarter was 88.4%, compared to 89.0% in the same period one year ago and 88.3% in the fourth quarter of 2010. Overall portfolio Net Operating Income (“NOI”)(2) was $52.1 million compared to $47.4 million in the same period one year ago and $50.6 million in the fourth quarter of 2010.

Same-store(3) portfolio physical occupancy for the first quarter was 88.7%, compared to 90.0% in the same period one year ago. Sequentially, same-store physical occupancy increased 20 basis points (bps) compared to the fourth quarter of 2010. Same-store portfolio NOI for the first quarter increased 1.1% and rental rate growth was 2.4% compared to the same period one year ago.

Multifamily: 14.7% of Total NOI – Multifamily properties’ same-store NOI for the first quarter increased 13.7% compared to the same period one year ago. Rental rate growth was 3.3% while same-store physical occupancy for the first quarter of 2011 compared to 2010 increased 90 bps to 95.3%. Sequentially, samestore physical occupancy decreased 40 bps compared to the fourth quarter of 2010.

Office: 43.5% of Total NOI – Office properties’ same-store NOI for the first quarter decreased 1.5% compared to the same period one year ago. Rental rates increased 1.9% while same-store physical occupancy decreased 190 bps to 88.3%. Sequentially, same-store physical occupancy decreased by 10 bps compared to the fourth quarter of 2010.

Medical: 14.3% of Total NOI – Medical office properties’ same-store NOI for the first quarter decreased 1.3% compared to the same period one year ago. Rental rate growth was 3.7% while same-store physical occupancy decreased 30 bps to 93.5%. Sequentially, same-store physical occupancy decreased 30 bps compared to the fourth quarter of 2010.

Retail: 16.5% of Total NOI – Retail properties’ same-store NOI for the first quarter increased 0.5% compared to the same period one year ago. Rental rate growth was 0.9% while same-store physical occupancy decreased 100 bps to 92.2%. Sequentially, same-store physical occupancy decreased 30 bps compared to the fourth quarter of 2010.

Industrial: 11.0% of Total NOI – Industrial properties’ same-store NOI for the fourth quarter decreased 0.8% compared to the same period one year ago. Rental rate growth was 2.8% while same-store physical occupancy decreased 280 bps to 80.2%. Sequentially, same-store physical occupancy increased 160 bps compared to the fourth quarter of 2010.

Leasing Activity
During the first quarter, WRIT signed commercial leases for 416,241 square feet with an average rental rate decrease of 0.6% over expiring lease rates, an average lease term of 4.5 years, tenant improvement costs of $3.09 per square foot and leasing costs of $3.56 per square foot.

Rental rates for new and renewed office leases decreased 1.4% to $30.97 per square foot, with $3.88 per square foot in tenant improvement costs and $4.17 per square foot in leasing costs.

Rental rates for new and renewed medical office leases increased 13.1% to $37.24 per square foot, with $8.86 per square foot in tenant improvement costs and $12.24 per square foot in leasing costs.

Rental rates for new and renewed retail leases increased 5.4% to $16.48 per square foot, with no tenant improvement costs and $1.07 per square foot in leasing costs.

Rental rates for new and renewed industrial/flex leases decreased 15.3% to $8.70 per square foot, with $2.35 per square foot in tenant improvement costs and $1.86 per square foot in leasing costs.

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