Business Context and Reporting Period
Company: Washington Real Estate Investment Trust (WRIT), a Maryland REIT owning income-producing properties in the Washington-Baltimore region.
Reporting Period: Quarter ended March 31, 2002 (Form 10-Q).
Portfolio Composition: Office buildings (52% of revenue), Multi-family (19%), Retail centers (15%), and Industrial/Flex centers (14%).
Key Financial Metrics
| Metric | Q1 2002 | Q1 2001 |
|---|---|---|
| Real Estate Rental Revenue | $38.0 million | $35.0 million |
| Operating Income | $27.5 million | $24.7 million |
| Net Income | $16.3 million | $10.7 million |
| Diluted EPS | $0.42 | $0.30 |
| Cash Flow from Operations | $17.0 million | $13.7 million |
| Total Debt (Mortgage + Notes) | $359.4 million | $359.7 million |
| Cash and Equivalents | $30.5 million | $5.1 million |
| Dividends Paid per Share | $0.3325 | $0.3125 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 8.8% ($3.1 million) driven by acquisitions in 2001 and 2002 and increased rental rates, partially offset by property dispositions.
- Net Income Surge: Net income increased 52% ($5.6 million). This was significantly boosted by a $3.8 million gain from the sale of the 1501 South Capitol Street industrial/flex center.
- Occupancy Trends: Overall occupancy rates declined slightly across segments. Office occupancy dropped to 89.5% (from 98.3%) due to 156,000 sq. ft. of vacant space at 7900 Westpark Drive. Retail and Multi-family occupancy also saw minor decreases.
- Expense Management: General and administrative expenses decreased 17.3% to $1.2 million due to reduced incentive compensation. Real estate expenses rose 2.7% due to the larger portfolio and higher taxes.
Outlook, Risks, and Unusual Items
- Unusual Item: The sale of 1501 South Capitol Street generated a $3.8 million gain. Proceeds are intended for a tax-deferred exchange to reinvest in other real property.
- Liquidity: The company holds $30.5 million in cash and has $75.0 million in available unsecured credit lines with $0 outstanding. Management believes capital resources are sufficient for obligations and growth.
- Terrorism Risk: Loan covenants require insurance for all perils. Current coverage extends to September 2002. Management anticipates higher costs upon renewal and notes that financial results are subject to risks of uninsured losses from acts of terrorism.
- Interest Rate Risk: All outstanding debt is fixed-rate; no floating rate debt exists. The company has no current derivative instruments but has used interest rate protection agreements in the past.
Investor Verification Checklist
- Verify the status of the tax-deferred exchange for the $6.2 million sale of 1501 South Capitol Street.
- Monitor the renewal of terrorism insurance coverage in September 2002 and potential cost increases.
- Track leasing activity at 7900 Westpark Drive to assess the impact of the 156,000 sq. ft. vacancy on future office revenue.
- Confirm the renewal status of the $25.0 million credit commitment which expired in March 2002.
- Review the composition of the $3.8 million gain to ensure it is correctly classified as a discontinued operation/non-recurring item for valuation models.