SEC Filing Summary: Washington Real Estate Investment Trust (WRIT)
Business Context and Reporting Period
Company: Washington Real Estate Investment Trust (WRIT), a Maryland REIT focused on the Washington metro region.
Filing Type: Form 10-Q (Unaudited Quarterly Report)
Period Ended: September 30, 2009
Business Overview: WRIT owns and develops a diversified portfolio of 91 properties, including office, medical office, retail, multifamily, and industrial/flex centers. The company operates as a self-administered, self-managed equity REIT.
Key Financial Metrics (Nine Months Ended Sept 30, 2009)
| Metric | 2009 (9 Months) | 2008 (9 Months) |
|---|---|---|
| Real Estate Rental Revenue | $229.1 million | $206.4 million |
| Net Operating Income (NOI) | $150.7 million | $138.1 million |
| Net Income (Controlling Interest) | $33.5 million | $21.8 million |
| Funds From Operations (FFO) | $92.1 million | $69.8 million |
| Total Assets | $2.06 billion | $2.11 billion |
| Total Debt | $1.21 billion | $1.38 billion |
| Cash & Cash Equivalents | $7.1 million | $11.9 million |
| Dividends Declared (Per Share) | $1.30 | $1.29 |
Material Changes vs. Prior Period
- Revenue Growth: Rental revenue increased 11.0% year-over-year, driven primarily by non-core properties (acquisitions and developments) contributing $24.0 million. Core property revenue declined slightly (0.6%) due to higher vacancy and bad debt.
- Profitability: Net income attributable to controlling interests increased 53.6% to $33.5 million. This was significantly aided by a $6.9 million gain on the extinguishment of debt (repurchasing convertible notes) and $11.8 million in gains from the sale of real estate.
- Debt Reduction: Total debt decreased by approximately $172 million. WRIT repurchased $101.6 million of its 3.875% convertible notes and prepaid a $50 million mortgage note.
- Occupancy: Overall economic occupancy improved to 92.8% from 92.2%. Multifamily occupancy rose significantly (90.6% vs 81.3%) due to lease-ups of development properties, while commercial segments (Office, Industrial) saw declines in core occupancy.
- Accounting Change: Adoption of FSP 14-1 regarding convertible debt accounting increased interest expense and reduced reported net income compared to prior calculations, though the reported figures reflect this new standard.
Outlook, Risks, and Management Commentary
- Market Conditions: Management notes sluggish market conditions in the Washington metro region, characterized by higher vacancy rates, declining rental rates, and increased tenant concessions due to the national economic recession.
- Liquidity: WRIT maintains $337 million in unsecured credit facilities, with $327.7 million available. The company expects to fund operations and modest capital requirements through cash flow, credit facilities, and potential equity offerings.
- Capital Strategy: The company continues to repurchase convertible notes when market conditions are favorable. It also executed a public equity offering in Q2 2009 raising $107.5 million.
- Risks: Key risks include the availability and cost of capital, fluctuations in interest rates, the economic health of tenants, and the potential for uninsured losses from acts of terrorism. The company relies on interest rate swaps to hedge variable rate debt exposure.
- Discontinued Operations: Three properties were sold in 2009 (Avondale, Tech 100, Brandywine Center), and two industrial properties are currently held for sale.
Investor Verification Checklist
- Debt Maturities: Verify the schedule of debt maturities, specifically the $392 million of unsecured notes due in 2011 and the refinancing strategy for the $100 million term loan maturing in November 2011.
- Core vs. Non-Core Performance: Analyze the divergence between core property performance (declining occupancy/revenue) and non-core performance (driven by recent acquisitions/developments) to assess organic growth trends.
- Convertible Note Repurchases: Review the impact of the $101.6 million convertible note repurchase on future interest expense and the remaining balance of $142.4 million.
- Bad Debt Provisions: Monitor the increasing provisions for doubtful accounts ($4.5 million for the 9-month period), which reflects the economic downturn's impact on tenant solvency.
- Dividend Coverage: Confirm that FFO ($92.1 million) continues to provide adequate coverage for quarterly dividend payments ($74.2 million for the period) to maintain REIT status.