Business Context and Reporting Period
Company: Washington Real Estate Investment Trust (WRIT), a Maryland REIT owning income-producing real estate in the Washington-Baltimore region (office, industrial, multi-family, retail).
Reporting Period: Quarter and nine months ended September 30, 2002.
Shares Outstanding: 39,146,220 shares of beneficial interest.
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 2002 | 9 Months Ended Sep 30, 2001 | 3 Months Ended Sep 30, 2002 | 3 Months Ended Sep 30, 2001 |
|---|---|---|---|---|
| Total Revenue | $114.5 million | $110.8 million | $38.5 million | $37.8 million |
| Net Income | $39.8 million | $39.9 million | $11.6 million | $16.8 million |
| EPS (Diluted) | $1.01 | $1.06 | $0.30 | $0.43 |
| Operating Cash Flow | $50.9 million | $51.5 million | N/A | N/A |
| Real Estate Assets (Net) | $708.4 million | $652.0 million (Dec 31, 2001) | N/A | N/A |
| Total Debt | $405.9 million | $359.7 million (Dec 31, 2001) | N/A | N/A |
| Cash & Equivalents | $15.8 million | $26.4 million (Dec 31, 2001) | N/A | N/A |
| Dividends Paid (9M) | $1.0375 per share | $0.9775 per share | $0.3525 per share | $0.3325 per share |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 4.0% year-over-year for the nine-month period, driven by acquisitions (Centre at Hagerstown, The Atrium Building) and rental rate increases in retail and multi-family sectors.
- Office Sector Decline: Office building revenue and operating income decreased 2.0% and 3.2% respectively for the nine months, primarily due to increased vacancy (occupancy dropped from 97.8% to 89.0%) and the prior year sale of 10400 Connecticut Avenue.
- Industrial Sector Growth: Industrial/Flex revenue and operating income increased 12.1% and 11.7% due to the acquisition of Sullyfield Commerce Center, though core portfolio occupancy declined.
- Discontinued Operations: The company sold 1501 South Capitol Street in February 2002 for $6.2 million, recognizing a $3.8 million gain. This property is reported as discontinued operations.
- Expense Trends: General and administrative expenses decreased 20.6% for the quarter and 22.2% for the nine months, largely due to reduced incentive compensation. Real estate expenses increased due to new acquisitions and higher insurance premiums (up 31%).
Guidance, Outlook, and Risks
- Outlook: Management anticipates it will take several additional quarters to absorb 149,500 square feet of vacant space at 7900 Westpark Drive due to a "very soft" Northern Virginia market.
- Liquidity: The company maintains $75.0 million in unsecured lines of credit, with $53.8 million outstanding as of September 30, 2002. Management believes existing capital resources are sufficient for obligations and future acquisitions.
- Debt Structure: Significant debt maturities are scheduled for 2005 ($26.6 million) and thereafter ($57.8 million). The company prepaid a $6.7 million mortgage in September 2002 using line of credit funds.
- Risks:
- Terrorism: Renewed property insurance policies do not specifically exclude terrorism, but the company notes exposure to potential uninsured losses from such acts.
- Executive Compensation: The company is awaiting SEC guidance on whether its split-dollar life insurance plans comply with the Sarbanes-Oxley Act of 2002.
- Market Conditions: Results are sensitive to economic health in the Washington-Baltimore region, interest rate fluctuations, and vacancy rates.
Investor Verification Checklist
- Office Vacancy: Verify the absorption timeline for the 149,500 sq. ft. vacancy at 7900 Westpark Drive and its impact on future cash flows.
- Debt Maturities: Review the $26.6 million mortgage principal due in 2005 and the company's refinancing strategy.
- Insurance Coverage: Confirm the extent of terrorism coverage in the renewed property insurance policies and potential exposure to uninsured losses.
- Regulatory Compliance: Monitor SEC guidance regarding the Sarbanes-Oxley Act's impact on the company's executive split-dollar life insurance plans.
- Acquisition Integration: Assess the performance of the Centre at Hagerstown (acquired June 2002) and The Atrium Building (acquired July 2002) in upcoming quarters.