Business Context and Reporting Period
Company: Washington Real Estate Investment Trust (WRIT), a Maryland REIT focused on income-producing real estate in the Washington/Baltimore metropolitan region. The portfolio includes office buildings, industrial/flex centers, multifamily properties, and retail centers.
Reporting Period: Quarterly Report (Form 10-Q) for the period ended September 30, 2003.
Shares Outstanding: 39,354,055 shares of beneficial interest as of October 31, 2003.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2003 | Nine Months Ended Sep 30, 2003 |
|---|---|---|
| Total Revenue | $41.2 million | $119.9 million |
| Net Income | $11.0 million | $33.5 million |
| Diluted EPS | $0.28 | $0.85 |
| Operating Cash Flow | N/A | $50.3 million |
| Dividends Paid Per Share | $0.3725 | $1.0975 |
| Total Assets | $847.1 million | N/A |
| Total Debt (Mortgage + Notes + Lines of Credit) | $500.4 million | N/A |
| Cash and Equivalents | $6.0 million | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 7.3% ($2.8 million) for the quarter and 5.0% ($5.6 million) for the nine-month period compared to 2002, driven primarily by acquisitions (1776 G Street, Fullerton Industrial Center) and increased rental rates.
- Net Income Decline: Net income decreased 5.6% for the quarter and 16.8% for the nine-month period. The nine-month decline was significantly impacted by a $3.8 million gain on property disposal in 2002 which did not recur in 2003.
- Expense Increases:
- Depreciation: Increased 24.6% (quarter) and 19.3% (nine months) due to new acquisitions and capital improvements.
- Interest Expense: Increased 4.7% (quarter) and 5.7% (nine months) due to new debt issuances and assumed mortgages, partially offset by the payoff of $50 million in senior notes.
- Real Estate Expenses: Increased 8.5% (quarter) and 7.6% (nine months) due to acquired properties and higher utility/snow removal costs.
- Occupancy Trends:
- Office: Increased slightly to 87.8% (quarter) but decreased year-to-date to 88.2%.
- Industrial: Decreased to 88.4% (quarter) and 87.9% (nine months) due to vacancy at Virginia properties.
- Multifamily: Decreased to 91.9% (quarter) and 91.3% (nine months) due to units taken off-market for renovation at Ashby at McLean.
- Retail: Increased to 95.8% (quarter) and 95.9% (nine months).
Guidance, Outlook, and Risks
- Capital Resources: Management believes liquidity is sufficient for obligations and future acquisitions. The company has $132.5 million outstanding on lines of credit (total capacity $135 million) and recently issued $60 million in unsecured notes.
- Subsequent Event: On October 9, 2003, WRIT acquired Prosperity Medical Center for $78.0 million, funded by a $27 million draw on an expanded credit facility and the assumption of $49.8 million in mortgages.
- Risks:
- Market Risk: Exposure to interest rate fluctuations on variable-rate lines of credit and refinancing risks on fixed-rate debt.
- Economic Sensitivity: Performance is dependent on the economic health of the Washington/Baltimore region, government spending, and tenant stability.
- Terrorism/Insurance: While policies include terrorism coverage, the company notes potential risks of uninsured losses.
- REIT Status: WRIT intends to maintain REIT status, requiring the distribution of 90% of ordinary taxable income.
Investor Verification Checklist
- Debt Maturities: Verify the impact of $55 million in notes maturing in 2004 and $50 million in 2006 on future refinancing needs.
- Occupancy Pressures: Monitor the trend of declining occupancy in the Industrial and Multifamily segments, specifically at the Virginia industrial properties and Ashby at McLean.
- Acquisition Integration: Assess the performance of the August 2003 acquisition of 1776 G Street and the October 2003 acquisition of Prosperity Medical Center.
- Dividend Coverage: Confirm that operating cash flow continues to support the dividend payout rate of $1.0975 per share for the nine-month period.
- Interest Rate Exposure: Evaluate the cost of the $132.5 million in variable-rate debt (lines of credit/short-term notes) relative to current LIBOR rates.