Washington Real Estate Investment Trust : REIT Announces Second Quarter Financial and Operating Results and Quarterly Dividend

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Washington Real Estate Investment Trust ("Washington REIT" 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 June 30, 2017:

Net income attributable to controlling interests was $7.9 million, or $0.10 per diluted share, compared to $31.8 million, or $0.44 per diluted share in the second quarter of 2016, which included the recognition of a $24.1 million gain from the first sale transaction of the suburban Maryland office portfolio. NAREIT Funds from Operations (FFO) was $37.1 million, or $0.48 per diluted share, compared to $32.9 million, or $0.46 per diluted share, in second quarter 2016. Additional highlights are as below:

• Reported Core FFO of $0.48 per diluted share, compared to $0.46 per diluted share in second quarter 2016

• Grew same-store Net Operating Income (NOI) by 8.8% year-over-year

• Grew same-store NOI by 14.8% for the office, 4.6% for the retail and 2.6% for the multifamily portfolios year- over-year

• Increased same-store economic occupancy by 470 basis points year-over-year to 93.7%

• Raised the mid-point of 2017 Core FFO guidance by two cents per fully diluted share and tightened 2017 Core FFO guidance to a range of $1.80 to $1.84 from $1.76 to $1.84 per fully diluted share

• Raised 2017 same-store NOI growth assumption to range from 5.75% to 6.25% year-over-year, driven by increased office, retail and multifamily same-store NOI year-over-year growth assumptions

• Signed a 131,000 square foot, 15-year lease with the United States Department of Agriculture (USDA) at Braddock Metro Center in Alexandria, VA

• Completed the acquisition of Watergate 600, a 289,000 square foot office building in Washington, DC for

  $135.0 million

  "Washington REIT has delivered strong second-quarter and first half 2017 results. We achieved 9.6% year-over-year same-store NOI growth in the first half of the year, raised our 2017 same-store NOI growth assumptions across all three asset classes, raised our 2017 Core FFO guidance for the second time this year, acquired an iconic DC office asset with strong NAV growth potential, and signed a significant new office lease, thereby addressing all our large, near-term office lease expirations," said Paul T. McDermott, President and Chief Executive Officer. "Our positive momentum is driven by our research-based capital allocation, which has strategically positioned us to capitalize on attractive value-add growth opportunities in the Washington metro region and to generate strong risk-adjusted returns for our shareholders."

  Operating Results

  The Company's overall portfolio NOI(2)was $54.8 million for the quarter ended June 30, 2017, compared to $51.2 million in the corresponding prior year period. Overall portfolio ending occupancy(5)for the second quarter was at 93.4%, compared to 91.1% at the end of the second quarter last year and 93.5% at the end of first quarter 2017.

  Same-store(3)portfolio ending occupancy for the second quarter of 2017 was 93.3%, compared to 90.8% at June 30, 2016 and 93.7% at the end of first quarter 2017. Same-store portfolio NOI for the second quarter increased by 8.8%, compared to the corresponding prior year period.

  • Office: 51% of Total NOI - Same-store NOI increased by 14.8% compared to the corresponding prior year period, primarily due to 870 basis points of economic occupancy(6)gains driven by lease commencements, of which approximately 60% occurred at the recently redeveloped Silverline Center with the rest spread across the same-store office portfolio. Periodic settlements of tenant recoveries were also higher.Same-store ending occupancy increased by 610 basis points year-over-year and declined by 10 basis points sequentially to 93.0% primarily due to a tenant move-out that has been re-leased to a cyber security tenant expected to commence in the third quarter. The office portfolio was 94% leased at the end of the second quarter.

  • Retail: 22% of Total NOI - Same-store NOI increased 4.6% compared to the corresponding prior year period, primarily due to 110 basis points of economic occupancy gains driven by lease commencements, as well as lower bad debt expense and lower utilities due to milder weather. Same-store ending occupancy decreased by 70 basis points year-over-year to 91.4%, and by 240 basis points sequentially, primarily due to the previously announced HHGregg bankruptcy as well as the move-out of a large commodity retailer, which has been backfilled by a supermarket chain whose lease commenced in the third quarter. The retail portfolio was 93% leased at the end of the second quarter.
  • Multifamily: 27% of Total NOI - Same-store NOI increased by 2.6% compared to the corresponding prior year period, driven by 180 basis points of rental growth. Same-store effective new lease rent trade-outs increased by 5.6% and same store effective renewal rent trade-outs increased by 3.3% year-over-year. Same- store ending occupancy on a unit basis increased by 80 basis points year-over-year and 60 basis points sequentially to 95.4%. The multifamily portfolio was 98% leased at the end of the second quarter.
  Leasing Activity

  During the second quarter, Washington REIT signed commercial leases totaling 367,000 square feet, including 228,000 square feet of new leases and 139,000 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:
  Office	192,000	11.7	12.5	$ 31.14	(14.2)%	$ 61.00	$ 16.96
  Retail	36,000	11.6	6.9	36.28	66.4 %	54.06	17.44
  Total	228,000	11.7	11.6	31.92	(6.5)%	59.91	17.04
  Renewal:
  Office	22,000	6.5	3.0	$ 58.15	14.8 %	$ 12.71	$ 8.94
  Retail	117,000	5.0	-	23.43	11.1 %	0.20	0.51
  Total	139,000	5.3	0.9	28.94	12.2 %	2.18	1.85

  Included in the new office leasing during the quarter, is a 131,000 square foot, 15-year lease with the USDA to backfill the space being vacated by Engility at Braddock Metro Center in Alexandria, VA, an asset that is being redeveloped.

  Subsequent to quarter-end, the recently redeveloped Army Navy Building in Washington, DC, leased approximately 17,000 square feet and is now 71% leased.

  Acquisition Activity

  On April 4, 2017, Washington REIT completed the acquisition of Watergate 600, a 289,000 square foot iconic office building on the Potomac riverfront in Washington, DC for $135.0 million in a transaction that was structured to include the issuance of operating partnership units for a portion of the purchase price.

  Capital Update

  Year-to-date, the Company issued 2,070,000 shares at an average price of $31.44 per share through the Company's At-the-Market (ATM) program, raising gross proceeds of $65.1 million to maintain balance sheet strength.

  Earnings Guidance

  Management is raising the mid-point of 2017 Core FFO guidance by two cents per fully diluted share and tightening 2017 Core FFO guidance to a range of $1.80 to $1.84 from $1.76 to $1.84 per fully diluted share. The following assumptions are incorporated into the tightened guidance range:

• Same-store NOI growth is raised to a projected range of 5.75% to 6.25%, from a previous range of 4.75% to 5.25%

• Same-store office NOI growth is raised to a projected range of 9.0% to 9.5%, from a previous range of 7.25% to 7.75%

• Same-store retail NOI growth is raised to a projected range of 2.5% to 3.0%, from a previous range of 2.0% to 2.5%

• Same-store multifamily NOI growth is raised to a projected range of 3.0% to 3.5%, from a previous range of 2.5% to 3.0%

• The Company's acquisition assumptions currently reflect Watergate 600, although it continues to seek further value-add opportunities