0000104894-14-000100.txt : 20141023 0000104894-14-000100.hdr.sgml : 20141023 20141023171414 ACCESSION NUMBER: 0000104894-14-000100 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20141023 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20141023 DATE AS OF CHANGE: 20141023 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASHINGTON REAL ESTATE INVESTMENT TRUST CENTRAL INDEX KEY: 0000104894 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 530261100 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06622 FILM NUMBER: 141170550 BUSINESS ADDRESS: STREET 1: 6110 EXECUTIVE BOULEVARD STREET 2: SUITE 800 CITY: ROCKVILLE STATE: MD ZIP: 20852 BUSINESS PHONE: 3019295900 MAIL ADDRESS: STREET 1: 6110 EXECUTIVE BOULEVARD STREET 2: SUITE 800 CITY: ROCKVILLE STATE: MD ZIP: 20852 8-K 1 q32014earningsrelease8-k.htm 8-K Q3 2014 Earnings Release 8-K


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 8-K
 ___________________________________________________

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) October 23, 2014
 WASHINGTON REAL ESTATE
INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
MARYLAND
1-6622
53-0261100
(State of incorporation)
(Commission File Number)
(IRS Employer Identification Number)
6110 EXECUTIVE BOULEVARD, SUITE 800, ROCKVILLE, MARYLAND 20852
(Address of principal executive office) (Zip code)
Registrant’s telephone number, including area code: (301) 984-9400
___________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))









Item 2.02 Results of Operations and Financial Condition

and

Item 7.01 Regulation FD Disclosure

A press release issued by the Registrant on October 23, 2014 regarding earnings for the three and nine months ended September 30, 2014, is attached as Exhibit 99.1. Also, certain supplemental information not included in the press release is attached as Exhibit 99.2. This information is being furnished pursuant to Item 7.01 and Item 2.02 of Form 8-K. This information is not deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934 and is not incorporated by reference into any Securities Act registration statements.

Item 9.01 Financial Statements and Exhibits

(c) Exhibits
Exhibit Number
 
Description
 
 
 
99.1
 
Press release issued October 23, 2014 regarding earnings for the three and nine months ended
September 30, 2014
99.2
 
Certain supplemental information not included in the press release







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
 
WASHINGTON REAL ESTATE INVESTMENT TRUST
 
 
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
/s/ Laura M. Franklin
 
 
 
 
 
 
(Signature)
 
 
 
 
 
 
 
 
 
 
 
 
 
Laura M. Franklin
 
 
 
 
 
 
Executive Vice President
 
 
 
 
 
Accounting and Administration
 
 
 
 
 
 
 
 
 
October 23, 2014
 
 
 
 
 
 
(Date)
 
 
 
 
 







EXHIBIT INDEX

Exhibit Number
 
Description
 
 
 
99.1
 
Press release issued October 23, 2014 regarding earnings for the three and nine months ended
September 30, 2014
99.2
 
Certain supplemental information not included in the press release




EX-99.1 2 q32014earningsrelease.htm EXHIBIT Q3 2014 Earnings Release
WASHINGTON REAL ESTATE
INVESTMENT TRUST
NEWS RELEASE
CONTACT:
 
6110 Executive Blvd., Suite 800
William T. Camp
Rockville, Maryland 20852
Executive Vice President and
Tel 301-984-9400
Chief Financial Officer
Fax 301-984-9610
E-Mail: bcamp@writ.com
www.washingtonreit.com
 
 
 
 
October 23, 2014
 
 
 
WASHINGTON REAL ESTATE INVESTMENT TRUST ANNOUNCES
THIRD QUARTER FINANCIAL AND OPERATING RESULTS

Company Posts Significant Same-Store NOI Growth and Occupancy Gains
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 September 30, 2014:

Third Quarter 2014 Highlights

Generated Core Funds from Operations (FFO) of $0.43 per fully diluted share for the quarter, a $0.02 increase over second quarter 2014
Achieved same-store Net Operating Income (NOI) growth of 7.1% over third quarter 2013
Improved overall same-store physical occupancy to 93.2% from 92.6% in the second quarter 2014 and 89.4% at the beginning of the year
Executed 43 new and renewal commercial leases totaling 263,000 square feet at an average rental rate increase of 9.9% over in-place rents for new leases and an average rental rate increase of 18.7% over in-place rents for renewal leases
Narrowed 2014 Core FFO guidance to $1.60 - $1.63 from $1.56 - $1.64

"We are pleased with the strong momentum in same-store NOI growth and occupancy gains seen in the third quarter - which accelerated from last quarter - as a result of the continued lease-up of vacancies, improving tenant retention and progress from the operational enhancements made over the past several quarters," said Paul T. McDermott, President and Chief Executive Officer. "These solid results reflect the continued progress we have made in executing our strategy to improve the overall quality of our portfolio. In addition, our recent off-market acquisition of Spring Valley Retail Center in the affluent northwest Washington, DC submarket also demonstrates our commitment to and execution of our stated strategy focusing on higher quality, urban infill properties in areas with strong demographics. We remain confident in the actions we are taking to transform Washington REIT into a best-in-class operator of commercial real estate in the Washington, DC metro area and to position our company for long-term growth."

Financial Highlights

Core Funds from Operations(1), defined as Funds from Operations(1) (FFO) excluding acquisition expense, gains or losses on extinguishment of debt, severance expense and impairment, was $28.5 million, or $0.43 per diluted share, for the quarter ended September 30, 2014, compared to $30.6 million, or $0.46 per diluted share, for the prior year period. FFO for the quarter ended September 30, 2014 was $28.0 million, or $0.42 per diluted share, compared to $30.2 million, or $0.45 per diluted share, in the same period one year ago. Core FFO and FFO were impacted by the sale of the Medical Office Portfolio and the subsequent reinvestment of the sale proceeds.

Net income attributable to the controlling interests for the quarter ended September 30, 2014 was $3.7 million, or $0.05 per diluted share, compared to $5.8 million, or $0.09 per diluted share, in the same period one year ago.



Washington Real Estate Investment Trust
Page 2 of 11

Operating Results

The Company's overall portfolio Net Operating Income (NOI)(2) was $47.5 million for the quarter ended September 30, 2014, compared to $42.6 million in the same period one year ago and $46.7 million in the second quarter of 2014. Overall portfolio physical occupancy for the third quarter was 90.7%, compared to 88.7% in the same period one year ago and 90.1% in the second quarter of 2014.

Same-store(3) portfolio physical occupancy for the third quarter was 93.2%, compared to 89.8% in the same period one year ago and 92.6% in the second quarter of 2014. Same-store portfolio NOI for the third quarter increased 7.1% compared to the same period one year ago and rental rate growth was 0.9%.
 
Office: 55.9% of Total NOI - Same-store NOI for the third quarter increased 9.2% compared to the same period one year ago. Rental rate growth was 1.6% while same-store physical occupancy increased 520 bps to 91.8%. Sequentially, same-store physical occupancy increased 120 bps compared to the second quarter of 2014.
Retail: 24.5% of Total NOI - Same-store NOI for the second quarter increased 8.1% compared to the same period one year ago. Rental rate growth was 0.8% while same-store physical occupancy increased 300 bps to 94.4%. Sequentially, same-store physical occupancy increased 20 bps compared to the second quarter of 2014.
Multifamily: 19.6% of Total NOI - Same-store NOI for the second quarter decreased 0.1% compared to the same period one year ago. Rental rates decreased 0.8% while same-store physical occupancy increased 40 bps to 94.5%. Sequentially, same-store physical occupancy increased 20 bps compared to the second quarter of 2014.

Leasing Activity

During the third quarter, Washington REIT signed commercial leases totaling 263,000 square feet, including 48,000 square feet of new leases and 215,000 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 Rental Rates
Weighted Average Rental Rate % Increase
Tenant Improvements
Leasing Commissions and Incentives
New:
 
 
 
 
 
 
Office
37,852

7.4

$
33.77

7.2
%
$
39.62

$
35.54

Retail
10,408

9.8

43.69

18.2
%
15.58

28.03

Total
48,260

7.9

35.91

9.9
%
34.43

33.92

 
 
 
 
 
 
 
Renewal:
 
 
 
 
 
 
Office
44,214

7.4

$
44.95

36.7
%
$
13.47

$
12.05

Retail
170,568

5.1

14.67

7.4
%

0.30

Total
214,782

5.6

20.90

18.7
%
2.77

2.72


Acquisition Activity

On October 1, 2014, Washington REIT acquired Spring Valley Retail Center, a 75,000 square foot retail shopping center located in northwest Washington, DC for $40.5 million. Spring Valley is Washington REIT’s fourth acquisition in 2014, representing a total cumulative investment value of approximately $300 million. The 96% leased Spring Valley Retail Center consists of five separate buildings of multi-level retail space in the 4800 block of Massachusetts Avenue located in the affluent Spring Valley neighborhood of northwest Washington, DC. The property has red brick construction and Colonial Revival style architecture, and is part of the local neighborhood retail hub located along Massachusetts Avenue.







Washington Real Estate Investment Trust
Page 3 of 11

Relocation of Corporate Headquarters to Washington, DC

On October 20, 2014, Washington REIT announced plans to relocate its corporate headquarters from Rockville, MD, to the Central Business District of Washington, DC at 1775 Eye Street. The move will commence in the fourth quarter and is expected to be completed by January 2015. Acquired by Washington REIT earlier this year, 1775 Eye Street, is an eleven-story office building with a two-level parking garage, located at the intersection of 18th and Eye Street, in northwest DC. Following the move, Washington REIT will continue to maintain a presence at its current office located at 6110 Executive Boulevard in Rockville, MD.

Earnings Guidance

Management is narrowing its 2014 Core FFO guidance from $1.56 - $1.64 to $1.60 - $1.63. The improvement in range reflects stronger than expected same-store NOI growth in the office and retail divisions.

Dividends

On September 30, 2014, Washington REIT paid a quarterly dividend of $0.30 per share.

Conference Call Information

The Conference Call for Third Quarter Earnings is scheduled for Friday, October 24, 2014 at 11:00 A.M. Eastern time. Conference Call access information is as follows:

USA Toll Free Number:            1-877-407-9205
International Toll Number:        1-201-689-8054

The instant replay of the Conference Call will be available until November 7, 2014 at 11:59 P.M. Eastern time. Instant replay access information is as follows:

USA Toll Free Number:            1-877-660-6853
International Toll Number:        1-201-612-7415
Conference ID:                13591510

The live on-demand webcast of the Conference Call will be available on the Investor section of Washington REIT's website at www.washingtonreit.com. On-line playback of the webcast will be available for two weeks following the Conference Call.

About Washington REIT

Washington REIT is a self-administered, self-managed, equity real estate investment trust investing in income-producing properties in the greater Washington metro region. Washington REIT owns a diversified portfolio of 55 properties, totaling approximately 7 million square feet of commercial space and 2,890 multifamily units, and land held for development. These 55 properties consist of 25 office properties, 17 retail centers and 13 multifamily properties. Washington REIT shares are publicly traded on the New York Stock Exchange (NYSE:WRE).
Note: Washington REIT's press releases and supplemental financial information are available on the company website at www.washingtonreit.com or by contacting Investor Relations at (301) 984-9400.
Certain statements in our earnings release and on our conference call are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements in this earnings release preceded by, followed by or that include the words “believe,” “expect,” “intend,” “anticipate,” “potential,” “project,” “will” and other similar expressions. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include, but are not limited to, the potential for federal government budget reductions, changes in general and local economic and real estate market conditions, the timing and pricing of lease transactions, the availability and cost of capital, fluctuations in interest rates, tenants' financial conditions, levels of competition, the effect of government regulation, the impact of newly adopted accounting principles, and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2013 Form 10-K and subsequent Quarterly Reports on Form 10-Q. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.




Washington Real Estate Investment Trust
Page 4 of 11

(1) Funds From Operations (“FFO”) - The National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) defines FFO (April, 2002 White Paper) as net income (computed in accordance with generally accepted accounting principles (“GAAP”)) excluding gains (or losses) associated with sales of property, impairment of depreciable real estate and real estate depreciation and amortization. FFO is a non-GAAP measure and does not replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity. We consider FFO to be a standard supplemental measure for equity real estate investment trusts (“REITs”) because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which historically assumes that the value of real estate assets diminishes predictably over time. Since real estate values have instead historically risen or fallen with market conditions, we believe that FFO more accurately provides investors an indication of our ability to incur and service debt, make capital expenditures and fund other needs.

Core Funds From Operations (“Core FFO”) is calculated by adjusting FFO for the following items (which we believe are not indicative of the performance of Washington REIT's operating portfolio and affect the comparative measurement of Washington REIT's operating performance over time): (1) gains or losses on extinguishment of debt, (2) costs related to the acquisition of properties, (3) severance expense related to corporate reorganization and related to executive retirements or resignations and (4) property impairments not already excluded from FFO, as appropriate. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, Core FFO serves as a useful, supplementary measure of Washington REIT's ability to incur and service debt and to distribute dividends to its shareholders. Core FFO is a non-GAAP and non-standardized measure and may be calculated differently by other REITs.

(2) Net Operating Income (“NOI”), defined as real estate rental revenue less real estate expenses, is a non-GAAP measure. NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain on sale, if any), plus interest expense, depreciation and amortization, general and administrative expenses, acquisition costs and real estate impairment. We provide NOI as a supplement to net income calculated in accordance with GAAP. As such, it should not be considered an alternative to net income as an indication of our operating performance. It is the primary performance measure we use to assess the results of our operations at the property level.

(3) For purposes of evaluating comparative operating performance, we categorize our properties as “same-store” or “non-same-store”. A same-store property is one that was owned for the entirety of the periods being evaluated and excludes properties under redevelopment or development and properties purchased or sold at any time during the periods being compared. A non-same-store property is one that was acquired, under redevelopment or development, or placed into service during either of the periods being evaluated. We define redevelopment properties as those for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan which has a current impact on operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. Properties under redevelopment or development are included within the non-same-store properties beginning in the period during which redevelopment or development activities commence. Redevelopment and development properties are included in the same-store pool upon completion of the redevelopment or development, and the earlier of achieving 90% occupancy or two years after completion.

(4) Funds Available for Distribution (“FAD”) is a non-GAAP measure. It is calculated by subtracting from FFO (1) recurring expenditures, tenant improvements and leasing costs, that are capitalized and amortized and are necessary to maintain our properties and revenue stream and (2) straight line rents, then adding (3) non-real estate depreciation and amortization, (4) non-cash fair value interest expense and (5) amortization of restricted share compensation, then adding or subtracting the (6) amortization of lease intangibles, (7) real estate impairment and (8) non-cash gain/loss on extinguishment of debt, as appropriate. FAD is included herein, because we consider it to be a measure of a REIT’s ability to incur and service debt and to distribute dividends to its shareholders. FAD is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.



Washington Real Estate Investment Trust
Page 5 of 11

Physical Occupancy Levels by Same-Store Properties (i) and All Properties
 
Physical Occupancy
 
Same-Store Properties
 
All Properties
 
3rd QTR
 
3rd QTR
 
3rd QTR
 
3rd QTR
Segment
2014
 
2013
 
2014
 
2013
Multifamily
94.5
%
 
94.1
%
 
94.3
%
 
94.1
%
Office
91.8
%
 
86.6
%
 
87.1
%
 
86.1
%
Medical Office
%
 
%
 
%
 
84.6
%
Retail
94.4
%
 
91.4
%
 
94.4
%
 
91.4
%
 
 
 
 
 
 
 
 
Overall Portfolio
93.2
%
 
89.8
%
 
90.7
%
 
88.7
%

(i) Same-store properties include all stabilized properties that were owned for the entirety of the current and prior reporting periods, and exclude properties under redevelopment or development and properties purchased or sold at any time during the periods being compared. We define redevelopment properties as those for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan which has a current impact on operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. Redevelopment and development properties are included in the same-store pool upon completion of the redevelopment or development, and the earlier of achieving 90% occupancy or two years after completion. For Q3 2014 and Q3 2013, same-store properties exclude:

Multifamily Acquisitions: The Paramount and Yale West;
Office Acquisitions: The Army Navy Club Building and 1775 Eye Street;
Office Redevelopment: 7900 Westpark Drive;
Retail Acquisitions: none.

Also excluded from same-store properties in Q3 2014 and Q3 2013 are:

Sold Properties: The Medical Office Portfolio (Woodholme Center, 6565 Arlington Boulevard, 2440 M Street, 15001 Shady Grove Road, 15005 Shady Grove Road, 19500 at Riverside Park (formerly Lansdowne Medical Office Building), 9707 Medical Center Drive, CentreMed I and II, 8301 Arlington Boulevard, Sterling Medical Office Building, Shady Grove Medical Village II, Alexandria Professional Center, Ashburn Farm Office Park I, II and III, Woodholme Medical Office Building, Woodburn Medical Park I and II, and Prosperity Medical Center I, II and III).
Retail sold property: 5740 Columbia Road (parcel of land at Gateway Overlook).




Washington Real Estate Investment Trust
Page 6 of 11

 WASHINGTON REAL ESTATE INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
OPERATING RESULTS
2014
 
2013
 
2014
 
2013
Revenue
 
 
 
 
 
 
 
Real estate rental revenue
$
73,413

 
$
65,828

 
$
214,278

 
$
196,303

Expenses
 
 
 
 
 
 
 
Real estate expenses
25,914

 
23,243

 
77,784

 
69,467

Depreciation and amortization
24,354

 
21,168

 
71,508

 
63,328

Acquisition costs
69

 
148

 
5,047

 
448

General and administrative
4,523

 
3,850

 
13,780

 
11,717

 
54,860

 
48,409

 
168,119

 
144,960

Other operating income
 
 
 
 
 
 
 
     Gain on sale of real estate

 

 
570

 

Real estate operating income
18,553

 
17,419

 
46,729

 
51,343

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(15,087
)
 
(15,930
)
 
(44,602
)
 
(47,944
)
Other income
192

 
220

 
634

 
705

 
(14,895
)
 
(15,710
)
 
(43,968
)
 
(47,239
)
 
 
 
 
 
 
 
 
Income from continuing operations
3,658

 
1,709

 
2,761

 
4,104

 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
Income from operations of properties sold or held for sale

 
4,131

 
546

 
11,139

Gain on sale of real estate

 

 
105,985

 
3,195

Income from discontinued operations

 
4,131

 
106,531

 
14,334

Net income
3,658

 
5,840

 
109,292

 
18,438

Less: Net loss attributable to noncontrolling interests in subsidiaries
10

 

 
17

 

Net income attributable to the controlling interests
$
3,668

 
$
5,840

 
$
109,309

 
$
18,438

 
 
 
 
 
 
 
 
Income from continuing operations attributable to the controlling interests
3,668

 
1,709

 
2,778

 
4,104

Continuing operations real estate depreciation and amortization
24,354

 
21,168

 
71,508

 
63,328

Gain on sale of real estate (classified as continuing operations)

 

 
(570
)
 

Funds from continuing operations(1)
$
28,022

 
$
22,877

 
$
73,716

 
$
67,432

 
 
 
 
 
 
 
 
Income from operations of properties sold or held for sale

 
4,131

 
546

 
11,139

Discontinued operations real estate depreciation and amortization

 
3,215

 

 
12,161

Funds from discontinued operations

 
7,346

 
546

 
23,300

 
 
 
 
 
 
 
 
Funds from operations(1)
$
28,022

 
$
30,223

 
$
74,262

 
$
90,732

 
 
 
 
 
 
 
 
Tenant improvements
(4,882
)
 
(3,957
)
 
(17,751
)
 
(13,850
)
External and internal leasing commissions capitalized
(4,090
)
 
(3,746
)
 
(9,093
)
 
(8,694
)
Recurring capital improvements
(1,720
)
 
(1,917
)
 
(4,218
)
 
(4,949
)
Straight-line rents, net
(658
)
 
(578
)
 
(1,734
)
 
(1,404
)
Non-cash fair value interest expense
32

 
255

 
257

 
764

Non real estate depreciation & amortization of debt costs
994

 
939

 
2,770

 
2,830

Amortization of lease intangibles, net
704

 
129

 
1,620

 
256

Amortization and expensing of restricted share and unit compensation
1,307

 
1,215

 
3,777

 
3,588

Funds available for distribution(4)
$
19,709

 
$
22,563

 
$
49,890

 
$
69,273




Washington Real Estate Investment Trust
Page 7 of 11


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Per share data:
 
2014
 
2013
 
2014
 
2013
 Income from continuing operations
(Basic)
$
0.05

 
$
0.03

 
$
0.04

 
$
0.06

 
(Diluted)
$
0.05

 
$
0.03

 
$
0.04

 
$
0.06

Net income
(Basic)
$
0.05

 
$
0.09

 
$
1.63

 
$
0.27

 
(Diluted)
$
0.05

 
$
0.09

 
$
1.63

 
$
0.27

Funds from continuing operations
(Basic)
$
0.42

 
$
0.34

 
$
1.11

 
$
1.01

 
(Diluted)
$
0.42

 
$
0.34

 
$
1.11

 
$
1.01

Funds from operations
(Basic)
$
0.42

 
$
0.45

 
$
1.11

 
$
1.36

 
(Diluted)
$
0.42

 
$
0.45

 
$
1.11

 
$
1.36

 
 
 
 
 
 
 
 
 
Dividends paid
 
$
0.3000

 
$
0.3000

 
$
0.9000

 
$
0.9000

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
66,738

 
66,410

 
66,725

 
66,403

Fully diluted weighted average shares outstanding
 
66,790

 
66,561

 
66,760

 
66,545





Washington Real Estate Investment Trust
Page 8 of 11

WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
 
 
 
 
September 30, 2014
 
 
 
(unaudited)
 
December 31, 2013
Assets
 
 
 
Land
$
519,859

 
$
426,575

Income producing property
1,867,752

 
1,675,652

 
2,387,611

 
2,102,227

Accumulated depreciation and amortization
(620,279
)
 
(565,342
)
Net income producing property
1,767,332

 
1,536,885

Properties under development or held for future development
99,500

 
61,315

Total real estate held for investment, net
1,866,832

 
1,598,200

Investment in real estate held for sale, net

 
79,901

Cash and cash equivalents
8,571

 
130,343

Restricted cash
9,496

 
9,189

Rents and other receivables, net of allowance for doubtful accounts of $5,519 and $6,783, respectively
58,135

 
48,756

Prepaid expenses and other assets
116,345

 
105,004

Other assets related to properties sold or held for sale

 
4,100

Total assets
$
2,059,379

 
$
1,975,493

 
 
 
 
Liabilities
 
 
 
Notes payable
$
747,082

 
$
846,703

Mortgage notes payable
413,330

 
294,671

Lines of credit
5,000

 

Accounts payable and other liabilities
64,153

 
51,742

Advance rents
12,211

 
13,529

Tenant security deposits
8,625

 
7,869

Liabilities related to properties sold or held for sale

 
1,533

Total liabilities
1,250,401

 
1,216,047

 
 
 
 
Equity
 
 
 
Shareholders' equity
 
 
 
Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued and outstanding

 

Shares of beneficial interest, $0.01 par value; 100,000 shares authorized; 66,663 and 66,531 shares issued and outstanding, respectively
667

 
665

Additional paid-in capital
1,153,344

 
1,151,174

Distributions in excess of net income
(347,724
)
 
(396,880
)
Total shareholders' equity
806,287

 
754,959

 
 
 
 
Noncontrolling interests in subsidiaries
2,691

 
4,487

Total equity
808,978

 
759,446

 
 
 
 
Total liabilities and equity
$
2,059,379

 
$
1,975,493






Washington Real Estate Investment Trust
Page 9 of 11

The following tables contain reconciliations of net income to same-store net operating income for the periods presented (in thousands):
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2014
Multifamily
 
Office
 
Retail
 
Total
Same-store net operating income(3)
$
8,090

 
$
23,665

 
$
11,621

 
$
43,376

Add: Net operating income from non-same-store properties(3)
1,226

 
2,897

 

 
4,123

Total net operating income(2)
$
9,316

 
$
26,562

 
$
11,621

 
$
47,499

Add/(deduct):
 
 
 
 
 
 
 
Other income
 
 
 
 
 
 
192

Acquisition costs
 
 
 
 
 
 
(69
)
Interest expense
 
 
 
 
 
 
(15,087
)
Depreciation and amortization
 
 
 
 
 
 
(24,354
)
General and administrative expenses
 
 
 
 
 
 
(4,523
)
Net income
 
 
 
 
 
 
3,658

Less: Net loss attributable to noncontrolling interests in subsidiaries
 
 
 
 
 
 
10

Net income attributable to the controlling interests
 
 
 
 
 
 
$
3,668

 
 
 
 
 
 
 
 
Three Months Ended September 30, 2013
Multifamily
 
Office
 
Retail
 
Total
Same-store net operating income(3)
$
8,098

 
$
21,662

 
$
10,754

 
$
40,514

Add: Net operating income from non-same-store properties(3)

 
2,042

 
29

 
2,071

Total net operating income(2)
$
8,098

 
$
23,704

 
$
10,783

 
$
42,585

Add/(deduct):
 
 
 
 
 
 
 
Other income
 
 
 
 
 
 
220

Acquisition costs
 
 
 
 
 
 
(148
)
Interest expense
 
 
 
 
 
 
(15,930
)
Depreciation and amortization
 
 
 
 
 
 
(21,168
)
General and administrative expenses
 
 
 
 
 
 
(3,850
)
Discontinued operations:
 
 
 
 
 
 
 
Income from operations of properties sold or held for sale
 
 
 
 
 
 
4,131

Net income
 
 
 
 
 
 
5,840

Less: Net income attributable to noncontrolling interests in subsidiaries
 
 
 
 
 
 

Net income attributable to the controlling interests
 
 
 
 
 
 
$
5,840







Washington Real Estate Investment Trust
Page 10 of 11

The following tables contain reconciliations of net income to same-store net operating income for the periods presented (in thousands):
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
Multifamily
 
Office
 
Retail
 
Total
Same-store net operating income(3)
$
23,467

 
$
68,714

 
$
33,511

 
$
125,692

Add: Net operating income from non-same-store properties(3)
3,501

 
7,275

 
26

 
10,802

Total net operating income(2)
$
26,968

 
$
75,989

 
$
33,537

 
$
136,494

Add/(deduct):
 
 
 
 
 
 
 
Other income
 
 
 
 
 
 
634

Acquisition costs
 
 
 
 
 
 
(5,047
)
Interest expense
 
 
 
 
 
 
(44,602
)
Depreciation and amortization
 
 
 
 
 
 
(71,508
)
General and administrative expenses
 
 
 
 
 
 
(13,780
)
Gain on sale of real estate (classified as continuing operations)
 
 
 
 
 
 
570

Discontinued operations:
 
 
 
 
 
 
 
Income from operations of properties sold or held for sale
 
 
 
 
 
 
546

Gain on sale of real estate
 
 
 
 
 
 
105,985

Net income
 
 
 
 
 
 
109,292

Less: Net loss attributable to noncontrolling interests in subsidiaries
 
 
 
 
 
 
17

Net income attributable to the controlling interests
 
 
 
 
 
 
$
109,309

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2013
Multifamily
 
Office
 
Retail
 
Total
Same-store net operating income(3)
$
23,934

 
$
64,939

 
$
31,665

 
$
120,538

Add: Net operating income from non-same-store properties(3)

 
6,213

 
85

 
6,298

Total net operating income(2)
$
23,934

 
$
71,152

 
$
31,750

 
$
126,836

Add/(deduct):
 
 
 
 
 
 
 
Other income
 
 
 
 
 
 
705

Acquisition costs
 
 
 
 
 
 
(448
)
Interest expense
 
 
 
 
 
 
(47,944
)
Depreciation and amortization
 
 
 
 
 
 
(63,328
)
General and administrative expenses
 
 
 
 
 
 
(11,717
)
Discontinued operations:
 
 
 
 
 
 
 
Income from operations of properties sold or held for sale
 
 
 
 
 
 
11,139

Gain on sale of real estate
 
 
 
 
 
 
3,195

Net income
 
 
 
 
 
 
18,438

Less: Net income attributable to noncontrolling interests in subsidiaries
 
 
 
 
 
 

Net income attributable to the controlling interests
 
 
 
 
 
 
$
18,438





Washington Real Estate Investment Trust
Page 11 of 11

The following table contains a reconciliation of net income attributable to the controlling interests to core funds from operations for the periods presented (in thousands, except per share data):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Net income attributable to the controlling interests
 
$
3,668

 
$
5,840

 
$
109,309

 
$
18,438

Add/(deduct):
 
 
 
 
 
 
 
 
Real estate depreciation and amortization
 
24,354

 
21,168

 
71,508

 
63,328

Gain on sale of real estate (classified as continuing operations)
 

 

 
(570
)
 

Discontinued operations:
 
 
 
 
 
 
 
 
Gain on sale of real estate
 

 

 
(105,985
)
 
(3,195
)
Real estate depreciation and amortization
 

 
3,215

 

 
12,161

Funds from operations(1)
 
28,022

 
30,223

 
74,262

 
90,732

Add/(deduct):
 
 
 
 
 
 
 
 
Acquisition costs
 
69

 
148

 
5,047

 
448

Severance expense
 
394

 
250

 
1,018

 
333

Core funds from operations(1)
 
$
28,485

 
$
30,621

 
$
80,327

 
$
91,513

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Per share data:
 
2014
 
2013
 
2014
 
2013
Funds from operations
(Basic)
$
0.42

 
$
0.45

 
$
1.11

 
$
1.36

 
(Diluted)
$
0.42

 
$
0.45

 
$
1.11

 
$
1.36

Core FFO
(Basic)
$
0.43

 
$
0.46

 
$
1.20

 
$
1.37

 
(Diluted)
$
0.43

 
$
0.46

 
$
1.20

 
$
1.37

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
66,738

 
66,410

 
66,725

 
66,403

Fully diluted weighted average shares outstanding
 
66,790

 
66,561

 
66,760

 
66,545





EX-99.2 3 q32014supplemental.htm EXHIBIT Q3 2014 Supplemental


 
 
 
 
Washington Real Estate Investment Trust
 
 
Third Quarter 2014
 
 
 
 
Supplemental Operating and Financial Data
 
 
Contact:
 
6110 Executive Boulevard
 
 
William T. Camp
 
 Suite 800
 
 
Executive Vice President and
 
Rockville, MD 20852
 
 
Chief Financial Officer
 
 (301) 984-9400
 
 
E-mail: bcamp@writ.com
 
(301) 984-9610 fax
 
 
 
 
 
 
 
 




Company Background and Highlights
Third Quarter 2014


Washington Real Estate Investment Trust ("Washington REIT") is a self-administered, self-managed, equity real estate investment trust investing in income-producing properties in the greater Washington, DC region. Washington REIT has a diversified portfolio with investments in office, retail, and multifamily properties and land for development.

Third Quarter 2014 highlights include:

Generated Core Funds from Operations (FFO) of $0.43 per fully diluted share for the quarter, a $0.02 increase over second quarter 2014
Achieved same-store Net Operating Income (NOI) growth of 7.1% over third quarter 2013
Improved overall same-store physical occupancy to 93.2% from 92.6% in the second quarter 2014 and 89.4% at the beginning of the year
Executed 43 new and renewal commercial leases totaling 263,042 square feet at an average rental rate increase of 9.9% over in-place rents for new leases and an average rental rate increase of 18.7% over in-place rents for renewal leases
Narrowed 2014 Core FFO guidance to $1.60 - $1.63 from $1.56 - $1.64

Washington REIT signed commercial leases totaling 263,042 square feet, including 48,260 square feet of new leases and 214,782 square feet of renewal leases. New leases had an average rental rate increase of 9.9% over expiring lease rates on a GAAP basis and an average lease term of 7.9 years. Commercial tenant improvement costs were $34.43 per square foot and leasing commissions and incentives were $33.92 per square foot for new leases. Renewal leases had an average rental rate increase of 18.7% over expiring lease rates on a GAAP basis and an average lease term of 5.6 years. Commercial tenant improvement costs were $2.77 per square foot and leasing commissions and incentives were $2.72 per square foot for renewal leases.

Subsequent to the third quarter, on October 1, 2014, Washington REIT announced its off-market acquisition of Spring Valley Retail Center, a 75,265 square foot retail shopping center located in northwest Washington, DC for $40.5 million. Spring Valley is Washington REIT’s fourth acquisition in 2014, representing a total cumulative investment value of approximately $300 million. The 96% leased Spring Valley Retail Center consists of five separate buildings of multi-level retail space in the 4800 block of Massachusetts Avenue located in the affluent Spring Valley neighborhood of northwest Washington, DC. The property boasts red brick construction and Colonial Revival style architecture, and is part of the local neighborhood retail hub located along Massachusetts Avenue.

As of September 30, 2014, Washington REIT owned a diversified portfolio of 54 properties totaling approximately 7 million square feet of commercial space and 2,890 residential units, and land held for development. These 54 properties consist of 25 office properties, 16 retail centers and 13 multifamily properties. Washington REIT shares are publicly traded on the New York Stock Exchange (NYSE: WRE).










Company Background and Highlights
Third Quarter 2014

Net Operating Income Contribution by Sector - Third Quarter 2014

Certain statements in our earnings release and on our conference call are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include, but are not limited to, the potential for federal government budget reductions, changes in general and local economic and real estate market conditions, the timing and pricing of lease transactions, the availability and cost of capital, fluctuations in interest rates, tenants' financial conditions, levels of competition, the effect of government regulation, the impact of newly adopted accounting principles, and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2013 Form 10-K and subsequent Quarterly Reports on Form 10-Q. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.






Supplemental Financial and Operating Data

Table of Contents
September 30, 2014
 
 
 
Schedule
Page
Key Financial Data
 
 
 
 
 
 
 
Capital Analysis
 
 
 
 
 
Portfolio Analysis
 
 
 
 
 
 
Growth and Strategy
 
 
Acquisition and Disposition Summary
 
Tenant Analysis
 
 
 
 
 
 
Appendix
 
 
 





Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

 
 
Three Months Ended
OPERATING RESULTS
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Real estate rental revenue
$
73,413

 
$
72,254

 
$
68,611

 
$
66,721

 
$
65,828

Real estate expenses
(25,914
)
 
(25,528
)
 
(26,342
)
 
(23,826
)
 
(23,243
)
 
47,499

 
46,726

 
42,269

 
42,895

 
42,585

Real estate depreciation and amortization
(24,354
)
 
(24,401
)
 
(22,753
)
 
(22,412
)
 
(21,168
)
Income from real estate
23,145

 
22,325

 
19,516

 
20,483

 
21,417

Interest expense
(15,087
)
 
(14,985
)
 
(14,530
)
 
(15,629
)
 
(15,930
)
Other income
192

 
219

 
223

 
221

 
220

Acquisition costs
(69
)
 
(1,933
)
 
(3,045
)
 
(817
)
 
(148
)
Gain on sale of real estate

 
570

 

 

 

Loss on extinguishment of debt

 

 

 
(2,737
)
 

General and administrative
(4,523
)
 
(4,828
)
 
(4,429
)
 
(5,818
)
 
(3,850
)
Income (loss) from continuing operations
3,658

 
1,368

 
(2,265
)
 
(4,297
)
 
1,709

Discontinued operations:
 
 
 
 
 
 
 
 
 
Income from operations of properties sold or held for sale

 

 
546

 
4,256

 
4,131

(Loss) gain on sale of real estate

 
(288
)
 
106,273

 
18,949

 

(Loss) income from discontinued operations

 
(288
)
 
106,819

 
23,205

 
4,131

 
 
 
 
 
 
 
 
 
 
Net income
3,658

 
1,080

 
104,554

 
18,908

 
5,840

Less: Net loss from noncontrolling interests
10

 
7

 

 

 

Net income attributable to the controlling interests
$
3,668

 
$
1,087

 
$
104,554

 
$
18,908

 
$
5,840

Per Share Data:
 
 
 
 
 
 
 
 
 
Net income
$
0.05

 
$
0.02

 
$
1.56

 
$
0.28

 
$
0.09

Fully diluted weighted average shares outstanding
66,790

 
66,761

 
66,701

 
66,591

 
66,561

Percentage of Revenues:
 
 
 
 
 
 
 
 
 
Real estate expenses
35.3
%
 
35.3
%
 
38.4
 %
 
35.7
 %
 
35.3
%
General and administrative
6.2
%
 
6.7
%
 
6.5
 %
 
8.7
 %
 
5.8
%
Ratios:
 
 
 
 
 
 
 
 
 
Adjusted EBITDA / Interest expense
2.9
x
 
2.7
x
 
2.5
x
 
2.6
x
 
2.9
x
Income from continuing operations/Total real estate revenue
5.0
%
 
1.9
%
 
(3.3
)%
 
(6.4
)%
 
2.6
%
Net income /Total real estate revenue
5.0
%
 
1.5
%
 
152.4
 %
 
28.3
 %
 
8.9
%

4




Medical Office Portfolio
(In thousands)
(Unaudited)

 
 
Three Months Ended
Income from Medical Office Portfolio (1):
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Real estate rental revenue
$

 
$

 
$
892

 
$
8,651

 
$
12,073

Real estate expenses

 

 
(346
)
 
(4,184
)
 
(4,398
)
 

 

 
546

 
4,467

 
7,675

Real estate depreciation and amortization

 

 

 

 
(3,215
)
Interest expense

 

 

 
(211
)
 
(329
)
Income from operations of Medical Office Portfolio (1)

 

 
546

 
4,256

 
4,131

(Loss) gain on sale of real estate

 
(288
)
 
106,273

 
18,949

 

Income from discontinued operations
$

 
$
(288
)
 
$
106,819

 
$
23,205

 
$
4,131

 
 
 
 
 
 
 
 
 
 
 
As of
Investment in Medical Office Portfolio (1):
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Office
$

 
$

 
$

 
$

 
$
55,049

Medical Office

 

 

 
125,967

 
409,486

Total

 

 

 
125,967

 
464,535

Less accumulated depreciation

 

 

 
(46,066
)
 
(118,378
)
Investment in real estate sold or held for sale, net
$

 
$

 
$

 
$
79,901

 
$
346,157

 
 
 
 
 
 
 
 
 
 
Mortgage notes payable secured by Medical Office Portfolio (1)
$

 
$

 
$

 
$

 
$
23,467

(1) Medical Office Portfolio:
Office - Woodholme Center and 6565 Arlington Boulevard
Medical Office - 2440 M Street, 15001 Shady Grove Road, 15505 Shady Grove Road, 19500 at Riverside Park (formerly Lansdowne Medical Office Building), 9707 Medical Center Drive, CentreMed I and II, 8301 Arlington Boulevard, Sterling Medical Office Building, Shady Grove Medical Village II, Alexandria Professional Center, Ashburn Farm Office Park I, II and III, Woodholme Medical Office Building, Woodburn Medical Park I and II, and Prosperity Medical Center I, II and III
 
Washington REIT entered into four separate contracts with a single buyer to sell all of the held for sale properties (collectively, the "Medical Office Portfolio") for a combined sales price of $500.8 million. The first two separate sale transactions of its medical office portfolio closed on November 21 and November 22, 2013 for an aggregate sales price of $307.2 million. The second two sales transactions closed on January 21, 2014 for an aggregate sales price of $193.6 million.

5




Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Assets
 
 
 
 
 
 
 
 
 
Land
$
519,859

 
$
519,859

 
$
472,056

 
$
426,575

 
$
418,008

Income producing property
1,867,752

 
1,853,982

 
1,784,850

 
1,675,652

 
1,624,617

 
2,387,611

 
2,373,841

 
2,256,906

 
2,102,227

 
2,042,625

Accumulated depreciation and amortization
(620,279
)
 
(600,171
)
 
(581,644
)
 
(565,342
)
 
(548,549
)
Net income producing property
1,767,332

 
1,773,670

 
1,675,262

 
1,536,885

 
1,494,076

Development in progress, including land held for development
99,500

 
83,970

 
68,963

 
61,315

 
55,580

Total real estate held for investment, net
1,866,832

 
1,857,640

 
1,744,225

 
1,598,200

 
1,549,656

Investment in real estate held for sale, net

 

 

 
79,901

 
346,157

Cash and cash equivalents
8,571

 
23,009

 
62,080

 
130,343

 
7,923

Restricted cash
9,496

 
11,369

 
107,039

 
9,189

 
7,547

Rents and other receivables, net of allowance for doubtful accounts
58,135

 
55,583

 
52,736

 
48,756

 
48,619

Prepaid expenses and other assets
116,345

 
112,548

 
109,092

 
105,004

 
110,116

Other assets related to properties sold or held for sale

 

 

 
4,100

 
18,337

Total assets
$
2,059,379

 
$
2,060,149

 
$
2,075,172

 
$
1,975,493

 
$
2,088,355

Liabilities
 
 
 
 
 
 
 
 
 
Notes payable
$
747,082

 
$
746,956

 
$
746,830

 
$
846,703

 
$
846,576

Mortgage notes payable
413,330

 
406,975

 
404,359

 
294,671

 
290,838

Lines of credit
5,000

 

 

 

 
85,000

Accounts payable and other liabilities
64,153

 
59,719

 
56,804

 
51,742

 
57,116

Advance rents
12,211

 
13,172

 
14,688

 
13,529

 
11,749

Tenant security deposits
8,625

 
8,686

 
8,402

 
7,869

 
7,639

Liabilities related to properties sold or held for sale

 

 

 
1,533

 
31,275

Total liabilities
1,250,401

 
1,235,508

 
1,231,083

 
1,216,047

 
1,330,193

Equity
 
 
 
 
 
 
 
 
 
Preferred shares; $0.01 par value; 10,000 shares authorized

 

 

 

 

Shares of beneficial interest, $0.01 par value; 100,000 shares authorized
667

 
666

 
666

 
665

 
665

Additional paid-in capital
1,153,344

 
1,152,647

 
1,151,353

 
1,151,174

 
1,148,837

Distributions in excess of net income
(347,724
)
 
(331,373
)
 
(312,417
)
 
(396,880
)
 
(395,816
)
Total shareholders' equity
806,287

 
821,940

 
839,602

 
754,959

 
753,686

Noncontrolling interests in subsidiaries
2,691

 
2,701

 
4,487

 
4,487

 
4,476

Total equity
808,978

 
824,641

 
844,089

 
759,446

 
758,162

Total liabilities and equity
$
2,059,379

 
$
2,060,149

 
$
2,075,172

 
$
1,975,493

 
$
2,088,355

Total Debt / Total Market Capitalization
0.41
:1
 
0.40
:1
 
0.42
:1
 
0.42
:1
 
0.43
:1

6




Funds from Operations
(In thousands, except per share data)
(Unaudited)

 
 
Three Months Ended
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Funds from operations(1)
 
 
 
 
 
 
 
 
 
Net income
$
3,668

 
$
1,087

 
$
104,554

 
$
18,908

 
$
5,840

Real estate depreciation and amortization
24,354

 
24,401

 
22,753

 
22,412

 
21,168

Gain on sale of real estate (classified as continuing operations)

 
(570
)
 

 

 

Discontinued operations:
 
 
 
 
 
 
 
 
 
Loss (gain) on sale of real estate

 
288

 
(106,273
)
 
(18,949
)
 

Real estate depreciation and amortization

 

 

 

 
3,215

Funds from operations (FFO)
28,022

 
25,206

 
21,034

 
22,371

 
30,223

Loss on extinguishment of debt

 

 

 
2,737

 

Real estate impairment

 

 

 
92

 

Severance expense
394

 
576

 
48

 
2,157

 
250

Acquisition costs
69

 
1,933

 
3,045

 
817

 
148

Core FFO (1)
$
28,485

 
$
27,715

 
$
24,127

 
$
28,174

 
$
30,621

 
 
 
 
 
 
 
 
 
 
Allocation to participating securities(2)
(44
)
 
(17
)
 
(295
)
 
(44
)
 
(109
)
 
 
 
 
 
 
 
 
 
 
FFO per share - basic
$
0.42

 
$
0.38

 
$
0.31

 
$
0.34

 
$
0.45

FFO per share - fully diluted
$
0.42

 
$
0.38

 
$
0.31

 
$
0.34

 
$
0.45

Core FFO per share - fully diluted
$
0.43

 
$
0.41

 
$
0.36

 
$
0.42

 
$
0.46

 
 
 
 
 
 
 
 
 
 
Common dividend per share
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
 
 
 
 
 
 
 
 
 
Average shares - basic
66,738

 
66,732

 
66,701

 
66,591

 
66,410

Average shares - fully diluted (for FFO and FAD)
66,790

 
66,761

 
66,750

 
66,634

 
66,561

(1)  See "Supplemental Definitions" on page 31 of this supplemental for the definitions of FFO and Core FFO.
(2)  Adjustment to the numerators for FFO and Core FFO per share calculations when applying the two-class method for calculating EPS.


7




Funds Available for Distribution
(In thousands, except per share data)
(Unaudited)

 
 
Three Months Ended
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Funds available for distribution(1)
 
 
 
 
 
 
 
 
 
FFO
$
28,022

 
$
25,206

 
$
21,034

 
$
22,371

 
$
30,223

Non-cash loss on extinguishment of debt

 

 

 
88

 

Tenant improvements
(4,882
)
 
(7,970
)
 
(4,899
)
 
(7,717
)
 
(3,957
)
Leasing commissions and incentives
(4,090
)
 
(3,363
)
 
(1,640
)
 
(6,083
)
 
(3,746
)
Recurring capital improvements
(1,720
)
 
(1,610
)
 
(888
)
 
(1,953
)
 
(1,917
)
Straight-line rent, net
(658
)
 
(723
)
 
(353
)
 
(353
)
 
(578
)
Non-cash fair value interest expense
32

 
30

 
195

 
256

 
255

Non-real estate depreciation and amortization
994

 
904

 
872

 
906

 
939

Amortization of lease intangibles, net
704

 
677

 
239

 
219

 
129

Amortization and expensing of restricted share and unit compensation
1,307

 
1,429

 
1,041

 
2,623

 
1,215

Real estate impairment

 

 

 
92

 

Funds available for distribution (FAD)
19,709

 
14,580

 
15,601

 
10,449

 
22,563

Cash loss on extinguishment of debt

 

 

 
2,649

 

Non-share-based severance expense
313

 
517

 
48

 
1,537

 

Acquisition costs
69

 
1,933

 
3,045

 
817

 
148

Core FAD (1)
$
20,091

 
$
17,030

 
$
18,694

 
$
15,452

 
$
22,711

 
 
 
 
 
 
 
 
 
 
Allocation to participating securities(2)
(44
)
 
(17
)
 
(295
)
 
(44
)
 
(109
)
 
 
 
 
 
 
 
 
 
 
FAD per share - basic
$
0.29

 
$
0.22

 
$
0.23

 
$
0.16

 
$
0.34

FAD per share - fully diluted
$
0.29

 
$
0.22

 
$
0.23

 
$
0.16

 
$
0.34

Core FAD per share - fully diluted
$
0.30

 
$
0.25

 
$
0.28

 
$
0.23

 
$
0.34

 
 
 
 
 
 
 
 
 
 
Common dividend per share
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
 
 
 
 
 
 
 
 
 
Average shares - basic
66,738

 
66,732

 
66,701

 
66,591

 
66,410

Average shares - fully diluted (for FFO and FAD)
66,790

 
66,761

 
66,750

 
66,634

 
66,561

(1)  See "Supplemental Definitions" on page 31 of this supplemental for the definitions of FAD and Core FAD.
(2)  Adjustment to the numerators for FAD and Core FAD per share calculations when applying the two-class method for calculating EPS.


8




Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(In thousands)
(Unaudited)
 

 
Three Months Ended
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Adjusted EBITDA (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
3,668

 
$
1,087

 
$
104,554

 
$
18,908

 
$
5,840

Add:
 
 
 
 
 
 
 
 
 
Interest expense, including discontinued operations
15,087

 
14,985

 
14,530

 
15,840

 
16,259

Real estate depreciation and amortization, including discontinued operations
24,354

 
24,401

 
22,753

 
22,412

 
24,383

Income tax expense
46

 
71

 

 
(25
)
 
6

Real estate impairment

 

 

 
92

 

Non-real estate depreciation
113

 
180

 
193

 
196

 
203

Less:
 
 
 
 
 
 
 
 
 
    Net gain on sale of real estate

 
(282
)
 
(106,273
)
 
(18,949
)
 

    Loss on extinguishment of debt

 

 

 
2,737

 

Adjusted EBITDA
$
43,268

 
$
40,442

 
$
35,757

 
$
41,211

 
$
46,691

 
 
 
 
 
 
 
 
 
 
(1) Adjusted EBITDA is earnings before interest expense, taxes, depreciation, amortization, gain on sale of real estate, real estate impairment, gain/loss on extinguishment of debt and gain from non-disposal activities. We consider Adjusted EBITDA to be an appropriate supplemental performance measure because it permits investors to view income from operations without the effect of depreciation, and the cost of debt or non-operating gains and losses. Adjusted EBITDA is a non-GAAP measure.



9




Long Term Debt Analysis
($'s in thousands)
 

 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Balances Outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured (1)
 
 
 
 
 
 
 
 
 
Conventional fixed rate
$
413,330

 
$
406,975

 
$
404,359

 
$
294,671

 
$
314,305

Unsecured
 
 
 
 
 
 
 
 
 
Fixed rate bonds and notes
747,082

 
746,956

 
746,830

 
846,703

 
846,576

Credit facility
5,000

 

 

 

 
85,000

Unsecured total
752,082

 
746,956

 
746,830

 
846,703

 
931,576

Total
$
1,165,412

 
$
1,153,931

 
$
1,151,189

 
$
1,141,374

 
$
1,245,881

 
 
 
 
 
 
 
 
 
 
Average Interest Rates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
 
 
 
 
 
 
 
 
Conventional fixed rate
5.3
%
 
5.3
%
 
5.4
%
 
6.1
%
 
6.1
%
Unsecured
 
 
 
 
 
 
 
 
 
Fixed rate bonds
4.9
%
 
4.9
%
 
4.9
%
 
4.9
%
 
4.9
%
Credit facilities
1.4
%
 
%
 
%
 
%
 
1.4
%
Unsecured total
4.8
%
 
4.9
%
 
4.9
%
 
4.9
%
 
4.6
%
Average
5.0
%
 
5.0
%
 
5.0
%
 
5.2
%
 
5.0
%

Note: The current balances outstanding of the secured and unsecured fixed rate bonds and notes are shown net of discounts/premiums in the amount of $4.0 million and $2.9 million, respectively.

(1) For September 30, 2013, the secured balances outstanding include mortgage notes payable which have been reclassified to 'Liabilities related to properties sold or held for sale' on the consolidated balance sheets. These mortgage notes payable, secured by Woodholme Medical Center, Ashburn Farm Office Park I, Ashburn Farm Office Park III, were repaid in November 2013. See Medical Office Portfolio Supplemental page 5 for detail by quarter.


    

10



Long Term Debt Maturities
(in thousands, except average interest rates)
 
, except per share data)
 
Future Maturities of Debt
Year
Secured Debt
 
Unsecured Debt
 
Credit Facilities
 
Total Debt
 
Avg Interest Rate
2014
$

 
$

 
$

 
$

 

2015

 
150,000

 
5,000

 
155,000

 
5.3%
2016
153,200

 

 

 
153,200

 
5.3%
2017
150,903

 

 

 
150,903

 
5.9%
2018

 

 

 

 

2019
31,280

 

 

 
31,280

 
5.4%
2020

 
250,000

 

 
250,000

 
5.1%
2021

 

 

 

 

2022
44,517

 
300,000

 

 
344,517

 
4.0%
2023

 

 

 

 

2024

 

 

 

 
 
Thereafter

 
50,000

 

 
50,000

 
7.4%
Scheduled principal payments
$
379,900

 
$
750,000

 
$
5,000

 
$
1,134,900

 
5.0%
Scheduled amortization payments
29,438

 

 

 
29,438

 
4.7%
Net discounts/premiums
3,992

 
(2,918
)
 

 
1,074

 
 
Total maturities
$
413,330

 
$
747,082

 
$
5,000

 
$
1,165,412

 
5.0%
Weighted average maturity =5.2 years

11




Debt Covenant Compliance
 

 
Unsecured Notes Payable
 
Unsecured Line of Credit #1
($100.0 million)
 
Unsecured Line of Credit #2
($400.0 million)
 
Quarter Ended September 30, 2014
 
Covenant
 
Quarter Ended September 30, 2014
 
Covenant
 
Quarter Ended September 30, 2014
 
Covenant
% of Total Indebtedness to Total Assets(1)
42.4
%
 
≤ 65.0%
 
 N/A

 
N/A
 
 N/A

 
N/A
Ratio of Income Available for Debt Service to Annual Debt Service
2.9

 
            ≥ 1.5
 
 N/A

 
N/A
 
 N/A

 
N/A
% of Secured Indebtedness to Total Assets(1)
15.0
%
 
≤ 40.0%
 
 N/A

 
N/A
 
 N/A

 
N/A
Ratio of Total Unencumbered Assets(2) to Total Unsecured Indebtedness
2.8

 
            ≥ 1.5
 
 N/A

 
N/A
 
 N/A

 
N/A
Tangible Net Worth(3)
 N/A

 
N/A
 
$872.4 million

 
≥ $673.4 million
 
$873.7 million

 
≥ $671.9 million
% of Total Liabilities to Gross Asset Value(5)
 N/A

 
N/A
 
52
%
 
≤ 60.0%
 
52
%
 
≤ 60.0%
% of Secured Indebtedness to Gross Asset Value(5)
 N/A

 
N/A
 
16.7
%
 
≤ 35.0%
 
16.7
%
 
≤ 35.0%
Ratio of EBITDA(4) to Fixed Charges(6)
 N/A

 
N/A
 
2.58

 
             ≥ 1.50
 
2.58

 
             ≥ 1.50
Ratio of Unencumbered Pool Value(7) to Unsecured Indebtedness
 N/A

 
N/A
 
2.51

 
             ≥ 1.67
 
2.51

 
             ≥ 1.67
Ratio of Unencumbered Net Operating Income to Unsecured Interest Expense
 N/A

 
N/A
 
3.57

 
             ≥ 2.00
 
3.57

 
             ≥ 2.00
Ratio of Investments(8) to Gross Asset Value(5)
 N/A

 
N/A
 
5.1
%
 
≤ 15.0%
 
5.1
%
 
≤ 15.0%
 
 
 
 
 
 
 
 
 
 
 
 
(1) Total Assets is calculated by applying a capitalization rate of 7.50% to the EBITDA(4) from the last four consecutive quarters, excluding EBITDA from acquired, disposed, and non-stabilized development properties.
(2) Total Unencumbered Assets is calculated by applying a capitalization rate of 7.50% to the EBITDA(4) from unencumbered properties from the last four consecutive quarters, excluding EBITDA from acquired, disposed, and non-stabilized development properties.
(3) Tangible Net Worth is defined as shareholders equity less accumulated depreciation at the commitment start date plus current accumulated depreciation.
(4) EBITDA is defined in our debt covenants as earnings before minority interests, depreciation, amortization, interest expense, income tax expense, and extraordinary and nonrecurring gains and losses.
(5) Gross Asset Value is calculated by applying a capitalization rate to the annualized EBITDA(4) from the most recently ended quarter, excluding EBITDA from disposed properties and current quarter acquisitions. To this amount, the purchase price of current quarter acquisitions, cash and cash equivalents and development in progress is added.
(6) Fixed Charges consist of interest expense, principal payments, ground lease payments and replacement reserve payments.
(7) Unencumbered Pool Value is calculated by applying a capitalization rate of 7.50% to the net operating income from unencumbered properties owned for the entire quarter. To this we add the purchase price of unencumbered acquisitions during the current quarter.
(8) Investments is defined as development in progress, including land held for development, plus budgeted development costs upon commencement of construction, if any.

12



        

Capital Analysis
(In thousands, except per share amounts)
 
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Market Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares Outstanding
66,663

 
66,636

 
66,630

 
66,531

 
66,500

Market Price per Share
$
25.38

 
$
25.98

 
$
23.88

 
$
23.36

 
$
25.27

Equity Market Capitalization
$
1,691,907

 
$
1,731,203

 
$
1,591,124

 
$
1,554,164

 
$
1,680,455

 
 
 
 
 
 
 
 
 
 
Total Debt
$
1,165,412

 
$
1,153,931

 
$
1,151,189

 
$
1,141,374

 
$
1,245,881

Total Market Capitalization
$
2,857,319

 
$
2,885,134

 
$
2,742,313

 
$
2,695,538

 
$
2,926,336

 
 
 
 
 
 
 
 
 
 
Total Debt to Market Capitalization
0.41
:1
 
0.40
:1
 
0.42
:1
 
0.42
:1
 
0.43
:1
 
 
 
 
 
 
 
 
 
 
Earnings to Fixed Charges(1)
1.2x

 
1.1x

 
0.8x

 
0.7x

 
1.1x

Debt Service Coverage Ratio(2)
2.7x

 
2.5x

 
2.3x

 
2.5x

 
2.7x

 
 
 
 
 
 
 
 
 
 
Dividend Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Dividends Paid
$
20,019

 
$
20,042

 
$
20,092

 
$
19,972

 
$
20,033

Common Dividend per Share
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

 
$
0.30

Payout Ratio (Core FFO per share basis)
69.8
%
 
73.2
%
 
83.3
%
 
71.4
%
 
65.2
%
Payout Ratio (Core FAD per share basis)
100.0
%
 
120.0
%
 
107.1
%
 
130.4
%
 
88.2
%
Payout Ratio (FAD per share basis)
103.4
%
 
136.4
%
 
130.4
%
 
187.5
%
 
88.2
%
 
 
 
 
 
 
 
 
 
 
(1) The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, earnings consist of income from continuing operations attributable to the controlling interests plus fixed charges, less capitalized interest. Fixed charges consist of interest expense, including amortized costs of debt issuance, plus interest costs capitalized.
(2) Debt service coverage ratio is computed by dividing Adjusted EBITDA (see page 9) by interest expense and principal amortization.


13




Same-Store Portfolio Net Operating Income (NOI) Growth & Rental Growth
2014 vs. 2013
 

 
Three Months Ended September 30,
 
 
 
 
 
2014
 
2013
 
% Change
 
Rental Rate Growth
Cash Basis:
 
 
 
 
 
 
 
Multifamily
$
8,084

 
$
7,975

 
1.4
 %
 
(0.8
)%
Office
23,517

 
21,441

 
9.7
 %
 
1.2
 %
Retail
11,558

 
10,655

 
8.5
 %
 
0.7
 %
Overall Same-Store Portfolio (1)
$
43,159

 
$
40,071

 
7.7
 %
 
0.7
 %
 
 
 
 
 
 
 
 
GAAP Basis:
 
 
 
 
 
 
 
Multifamily
$
8,090

 
$
8,098

 
(0.1
)%
 
(0.8
)%
Office
23,665

 
21,662

 
9.2
 %
 
1.6
 %
Retail
11,621

 
10,754

 
8.1
 %
 
0.8
 %
Overall Same-Store Portfolio (1)
$
43,376

 
$
40,514

 
7.1
 %
 
0.9
 %

(1)  Non same-store properties were:
Acquisitions:
Multifamily - The Paramount and Yale West
Office - The Army Navy Club Building and 1775 Eye Street
Redevelopment:
         Office - 7900 Westpark Drive
Sold properties classified as continuing operations:
Retail - 5740 Columbia Road (parcel of land at Gateway Overlook)
Sold properties classified as discontinued operations:
Medical Office/Office - The Medical Office Portfolio (see Supplemental Definitions on page 31 for list of properties included in the Medical Office Portfolio)


14




Same-Store Portfolio Net Operating Income (NOI) Detail
(In thousands)
 
 
Three Months Ended September 30, 2014
 
Multifamily
 
Office
 
Retail
 
Corporate and Other
 
Total
Real estate rental revenue
 
 
 
 
 
 
 
 
 
Same-store portfolio
$
13,618

 
$
36,917

 
$
14,825

 
$

 
$
65,360

Non same-store - acquired and in development (1)
2,342

 
5,711

 

 

 
8,053

Total
15,960

 
42,628

 
14,825

 

 
73,413

Real estate expenses
 
 
 
 
 
 
 
 
 
Same-store portfolio
5,528

 
13,252

 
3,204

 

 
21,984

Non same-store - acquired and in development (1)
1,116

 
2,814

 

 

 
3,930

Total
6,644

 
16,066

 
3,204

 

 
25,914

Net Operating Income (NOI)
 
 
 
 
 
 
 
 
 
Same-store portfolio
8,090

 
23,665

 
11,621

 

 
43,376

Non same-store - acquired and in development (1)
1,226

 
2,897

 

 

 
4,123

Total
$
9,316

 
$
26,562

 
$
11,621

 
$

 
$
47,499

 
 
 
 
 
 
 
 
 
 
Same-store portfolio NOI GAAP basis (from above)
$
8,090

 
$
23,665

 
$
11,621

 
$

 
$
43,376

Straight-line revenue, net for same-store properties
3

 
(423
)
 
(71
)
 

 
(491
)
FAS 141 Min Rent
(9
)
 
4

 
(57
)
 

 
(62
)
Amortization of lease intangibles for same-store properties

 
271

 
65

 

 
336

Same-store portfolio NOI, cash basis
$
8,084

 
$
23,517

 
$
11,558

 
$

 
$
43,159

Reconciliation of NOI to net income
 
 
 
 
 
 
 
 
 
Total NOI
$
9,316

 
$
26,562

 
$
11,621

 
$

 
$
47,499

Depreciation and amortization
(4,252
)
 
(16,655
)
 
(3,200
)
 
(247
)
 
(24,354
)
General and administrative

 

 

 
(4,523
)
 
(4,523
)
Interest expense
(2,492
)
 
(3,024
)
 
(247
)
 
(9,324
)
 
(15,087
)
Other income

 

 

 
192

 
192

Acquisition costs

 

 

 
(69
)
 
(69
)
    Gain on sale of real estate

 

 

 

 

Discontinued operations:
 
 
 
 
 
 
 
 
 
Loss on sale of real estate (1)

 

 

 

 

Net income (loss)
2,572

 
6,883

 
8,174

 
(13,971
)
 
3,658

Net loss attributable to noncontrolling interests

 

 

 
10

 
10

Net income (loss) attributable to the controlling interests
$
2,572

 
$
6,883

 
$
8,174

 
$
(13,961
)
 
$
3,668

(1)  For a list of non-same-store properties and held for sale and sold properties, see page 14 of this Supplemental.
 
 

15




Same-Store Net Operating Income (NOI) Detail
(In thousands)
 
 
Three Months Ended September 30, 2013
 
Multifamily
 
Office
 
Medical Office
 
Retail
 
Corporate and Other
 
Total
Real estate rental revenue
 
 
 
 
 
 
 
 
 
 
 
Same-store portfolio
$
13,617

 
$
34,903

 
$

 
$
13,957

 
$

 
$
62,477

Non same-store - acquired and in development (1)

 
3,318

 

 
33

 

 
3,351

                         Total
13,617

 
38,221

 

 
13,990

 

 
65,828

 
 
 
 
 
 
 
 
 
 
 
 
Real estate expenses
 
 
 
 
 
 
 
 
 
 
 
Same-store portfolio
5,519

 
13,241

 

 
3,203

 

 
21,963

Non same-store - acquired and in development (1)

 
1,276

 

 
4

 

 
1,280

                         Total
5,519

 
14,517

 

 
3,207

 

 
23,243

 
 
 
 
 
 
 
 
 
 
 
 
Net Operating Income (NOI)
 
 
 
 
 
 
 
 
 
 
 
Same-store portfolio
8,098

 
21,662

 

 
10,754

 

 
40,514

Non same-store - acquired and in development (1)

 
2,042

 

 
29

 

 
2,071

                          Total
$
8,098

 
$
23,704

 
$

 
$
10,783

 
$

 
$
42,585

 
 
 
 
 
 
 
 
 
 
 
 
Same-store portfolio NOI GAAP basis (from above)
$
8,098

 
$
21,662

 
$

 
$
10,754

 
$

 
$
40,514

Straight-line revenue, net for same-store properties
(2
)
 
(422
)
 

 
(96
)
 

 
(520
)
FAS 141 Min Rent
(121
)
 
56

 

 
(68
)
 

 
(133
)
Amortization of lease intangibles for same-store properties

 
145

 

 
65

 

 
210

Same-store portfolio NOI, cash basis
$
7,975

 
$
21,441

 
$

 
$
10,655

 
$

 
$
40,071

 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of NOI to net income
 
 
 
 
 
 
 
 
 
 
 
Total NOI
$
8,098

 
$
23,704

 
$

 
$
10,783

 
$

 
$
42,585

Depreciation and amortization
(2,987
)
 
(14,556
)
 

 
(3,352
)
 
(273
)
 
(21,168
)
General and administrative

 

 

 

 
(3,850
)
 
(3,850
)
Interest expense
(1,703
)
 
(2,582
)
 

 
(266
)
 
(11,379
)
 
(15,930
)
Other income

 

 

 

 
220

 
220

Acquisition costs

 

 

 

 
(148
)
 
(148
)
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Income from operations of properties sold or held for sale (1)

 
311

 
3,820

 

 

 
4,131

Net income (loss)
3,408

 
6,877

 
3,820

 
7,165

 
(15,430
)
 
5,840

Net income attributable to noncontrolling interests

 

 

 

 

 

Net income (loss) attributable to the controlling interests
$
3,408

 
$
6,877

 
$
3,820

 
$
7,165

 
$
(15,430
)
 
$
5,840

(1)  For a list of non-same-store properties and held for sale and sold properties, see page 14 of this Supplemental.
 
 

16




Net Operating Income (NOI) by Region
 
 
 
 
 
 
 
 
Washington REIT Portfolio
 
Washington REIT Portfolio
Maryland/Virginia/DC
 
Inside & Outside the Beltway
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of GAAP NOI
 
 
Percentage of GAAP NOI
 
Q3 2014
 
YTD 2014
 
 
Q3 2014
 
YTD 2014
DC
 
 
 
 
Inside the Beltway
 
 
Multifamily
5.5
%
 
5.2
%
 
Multifamily
18.6
%
 
18.8
%
Office
25.8
%
 
24.7
%
 
Office
36.3
%
 
35.6
%
Retail
0.9
%
 
0.8
%
 
Retail
7.5
%
 
7.6
%
 
32.2
%
 
30.7
%
 
 
62.4
%
 
62.0
%
Maryland
 
 
 
 
Outside the Beltway
 
 
Multifamily
2.7
%
 
2.7
%
 
Multifamily
1.0
%
 
1.0
%
Office
11.1
%
 
10.7
%
 
Office
19.6
%
 
20.1
%
Retail
16.9
%
 
17.0
%
 
Retail
17.0
%
 
16.9
%
 
30.7
%
 
30.4
%
 
 
37.6
%
 
38.0
%
Virginia
 
 
 
 
 


 


Multifamily
11.4
%
 
11.9
%
 
Total Portfolio
100.0
%
 
100.0
%
Office
19.0
%
 
20.2
%
 
 
 
 
 
Retail
6.7
%
 
6.8
%
 
 
 
 
 
 
37.1
%
 
38.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Portfolio
100.0
%
 
100.0
%
 
 
 
 
 



17




Same-Store and Overall Physical Occupancy Levels by Sector

 

 
 
Physical Occupancy - Same-Store Properties (1)
Sector
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Multifamily
 
94.5
%
 
94.3
%
 
92.7
%
 
92.6
%
 
94.1
%
Office
 
91.8
%
 
90.6
%
 
86.9
%
 
86.6
%
 
86.6
%
Retail
 
94.4
%
 
94.2
%
 
93.6
%
 
91.3
%
 
91.4
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
93.2
%
 
92.6
%
 
90.2
%
 
89.4
%
 
89.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Physical Occupancy - All Properties
Sector
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Multifamily
 
94.3
%
 
93.7
%
 
92.2
%
 
92.1
%
 
94.1
%
Office
 
87.1
%
 
86.2
%
 
83.7
%
 
85.7
%
 
86.1
%
Medical Office
 
%
 
%
 
%
 
89.0
%
 
84.6
%
Retail
 
94.4
%
 
94.2
%
 
93.6
%
 
91.3
%
 
91.4
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
90.7
%
 
90.1
%
 
88.4
%
 
88.8
%
 
88.7
%

(1)  Non same-store properties were:
Acquisitions:
Multifamily - The Paramount and Yale West
    Office - The Army Navy Club Building and 1775 Eye Street
Redevelopment:
     Office - 7900 Westpark Drive
Sold properties classified as continuing operations:
Retail - 5740 Columbia Road (parcel of land at Gateway Overlook)
Sold properties classified as discontinued operations:
Medical Office/Office - The Medical Office Portfolio (see Supplemental Definitions on page 31 for list of properties included in the Medical Office Portfolio)

18




Same-Store Portfolio and Overall Economic Occupancy Levels by Sector
 
 
 
Economic Occupancy - Same-Store Properties(1)
Sector
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Multifamily
 
94.7
%
 
93.4
%
 
91.9
%
 
92.4
%
 
93.5
%
Office
 
92.5
%
 
90.4
%
 
88.2
%
 
87.3
%
 
87.5
%
Retail
 
94.9
%
 
93.9
%
 
92.9
%
 
91.9
%
 
91.5
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
93.5
%
 
91.8
%
 
90.0
%
 
89.4
%
 
89.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Economic Occupancy - All Properties
Sector
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Multifamily
 
94.1
%
 
92.6
%
 
91.6
%
 
92.2
%
 
93.5
%
Office
 
87.0
%
 
86.0
%
 
85.4
%
 
86.0
%
 
86.7
%
Medical Office
 
%
 
%
 
87.4
%
 
89.4
%
 
87.1
%
Retail
 
94.9
%
 
93.9
%
 
92.9
%
 
92.0
%
 
91.5
%
 
 
 
 
 
 
 
 
 
 
 
Overall Portfolio
 
90.0
%
 
88.9
%
 
88.2
%
 
88.6
%
 
88.7
%

(1)  Non same-store properties were:
Acquisitions:
    Multifamily - The Paramount and Yale West
    Office - The Army Navy Club Building and 1775 Eye Street
Redevelopment:
     Office - 7900 Westpark Drive
Sold properties classified as continuing operations:
Retail - 5740 Columbia Road (parcel of land at Gateway Overlook)
Sold properties classified as discontinued operations:
Medical Office/Office - The Medical Office Portfolio (see Supplemental Definitions on page 31 for list of properties included in the Medical Office Portfolio)


19



Acquisition and Disposition Summary
 
September 30, 2014
($ in thousands)
0,
Acquisition Summary
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition Date
 
# of Units

Square Feet

 
9/30/2014 Leased Percentage
 
Investment

 
Mortgage Assumed

Yale West
Washington, DC
February 21, 2014
 
216

 
 
94
%
 
$
73,000

 
$
48,221

The Army Navy Club Building
Washington, DC
March 26, 2014
 
 
108,000

 
100
%
 
79,000

 
52,640

1775 Eye Street, NW
Washington, DC
May 1, 2014
 
 
185,000

 
71
%
 
104,500

 
N/A

 
 
 
 
 
293,000

 
 
 
$
256,500

 
$
100,861

2012
Disposition Summary
 
 
 
 
 
 
 
 
 
 
 
 
Disposition Date
 
Property Type
 
Square Feet
 
Contract Sales Price
 
GAAP Gain
Medical Office Portfolio Transactions III & IV
 
January 21, 2014
 
Medical Office
 
427,011

 
$
193,561

 
$
105,985

5740 Columbia Road *
 
May 2, 2014
 
Retail
 
3,000

 
1,600

 
570

 
 
 
 
 
 
430,011

 
$
195,161

 
$
106,555


* 5740 Columbia Road is a parcel of land with a 7-11 store that had been part of our Gateway Overlook retail property in Columbia, Maryland.


20



Development/Re-Development Summary
 
September 30, 2014
($ in thousands)

Property and Location
Total Rentable Square Feet
or # of Units
Anticipated Total Cost
Cost to Date
Draws on Construction Loan to Date
Anticipated Construction Completion Date
Leased %
Development Summary
 
 
 
 
 
 
The Maxwell Apartments, Arlington, VA (formerly 650 N. Glebe Road)
163 units & 2,200 square feet retail
$
49,904

$
40,981

$
21,434

fourth quarter 2014
N/A
 
 
 
 
 
 
 
Re-Development Summary
 
 
 
 
 
 
7900 Westpark Drive, McLean, VA
527,000 square feet
$
35,000

$
16,347

N/A

first quarter 2015
58.5%


21




Commercial Leasing Summary - New Leases
 
 
3rd Quarter 2014
 
2nd Quarter 2014
 
1st Quarter 2014
 
4th Quarter 2013
 
3rd Quarter 2013
Gross Leasing Square Footage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
37,852
 
 
69,367
 
 
43,243
 
 
144,675
 
 
147,194
 
      Medical Office Buildings
 
 
 
 
 
 
3,826
 
 
5,804
 
      Retail Centers
10,408
 
 
32,191
 
 
29,527
 
 
22,631
 
 
49,396
 
Total
48,260
 

101,558
 

72,770
 
 
171,132
 
 
202,394
 
Weighted Average Term (yrs)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
7.4
 
 
5.8
 
 
7.3
 
 
7.2
 
 
11.1
 
      Medical Office Buildings
0.0
 
 
0.0
 
 
0.0
 
 
10.3
 
 
5.2
 
      Retail Centers
9.8
 
 
10.2
 
 
9.6
 
 
7.8
 
 
9.8
 
Total
7.9
 
 
7.1
 
 
8.2
 
 
7.3
 
 
10.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental Rate Increases:
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
      Rate on expiring leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
31.50

 
$
32.62

 
$
31.14

 
$
32.00

 
$
28.65

 
$
30.53

 
$
31.31

 
$
32.29

 
$
32.66

 
$
33.28

            Medical Office Buildings

 

 

 

 

 

 
29.56

 
31.13

 
39.59

 
41.07

            Retail Centers
36.96

 
37.29

 
22.59

 
23.39

 
25.27

 
25.96

 
26.23

 
26.91

 
19.86

 
20.06

Total
$
32.68

 
$
33.63

 
$
28.24

 
$
29.08

 
$
27.28

 
$
28.68

 
$
30.42

 
$
31.35

 
$
29.73

 
$
30.28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Rate on new leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
33.77

 
$
30.68

 
$
35.71

 
$
33.40

 
$
32.53

 
$
29.86

 
$
33.78

 
$
31.31

 
$
33.06

 
$
28.74

            Medical Office Buildings

 

 

 

 

 

 
34.78

 
30.43

 
40.01

 
37.73

            Retail Centers
43.69

 
38.76

 
22.07

 
21.36

 
30.77

 
27.66

 
27.74

 
26.04

 
23.45

 
22.02

Total
$
35.91

 
$
32.43

 
$
30.79

 
$
29.04

 
$
31.81

 
$
28.97

 
$
32.78

 
$
30.39

 
$
30.91

 
$
27.36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Percentage Increase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
7.2
%
 
(5.9
)%
 
14.7
 %
 
4.4
 %
 
13.6
%
 
(2.2
)%
 
7.9
%
 
(3.0
)%
 
1.2
%
 
(13.7
)%
            Medical Office Buildings
%
 
 %
 
 %
 
 %
 
%
 
 %
 
17.7
%
 
(2.3
)%
 
1.1
%
 
(8.1
)%
            Retail Centers
18.2
%
 
4.0
 %
 
(2.3
)%
 
(8.7
)%
 
21.7
%
 
6.5
 %
 
5.8
%
 
(3.2
)%
 
18.1
%
 
9.8
 %
Total
9.9
%
 
(3.6
)%
 
9.0
 %
 
(0.1
)%
 
16.6
%
 
1.0
 %
 
7.8
%
 
(3.1
)%
 
4.0
%
 
(9.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
Tenant Improvements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
1,499,573

 
$
39.62

 
$
2,330,006

 
$
33.59

 
$
1,955,769

 
$
45.23

 
$
6,189,544

 
$
42.78

 
$
8,230,229

 
$
55.91

Medical Office Buildings

 

 

 

 

 

 
63,587

 
16.62

 
101,630

 
17.51

Retail Centers
162,180

 
15.58

 
1,616,068

 
50.20

 
38,923

 
1.32

 
215,340

 
9.52

 
751,184

 
15.21

Subtotal
$
1,661,753

 
$
34.43

 
$
3,946,074

 
$
38.86

 
$
1,994,692

 
$
27.41

 
$
6,468,471

 
$
37.80

 
$
9,083,043

 
$
44.88

Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
1,345,301

 
$
35.54

 
$
1,512,211

 
$
21.80

 
$
1,207,798

 
$
27.93

 
$
4,353,688

 
$
30.09

 
$
6,781,162

 
$
46.07

Medical Office Buildings

 

 

 

 

 

 
91,665

 
23.96

 
99,930

 
17.22

Retail Centers
291,731

 
28.03

 
300,287

 
9.33

 
388,220

 
13.15

 
180,197

 
7.96

 
517,974

 
10.49

Subtotal
$
1,637,032

 
$
33.92

 
$
1,812,498

 
$
17.84

 
$
1,596,018

 
$
21.93

 
$
4,625,550

 
$
27.03

 
$
7,399,066

 
$
36.56

Tenant Improvements and Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
2,844,874

 
$
75.16

 
$
3,842,217

 
$
55.39

 
$
3,163,567

 
$
73.16

 
$
10,543,232

 
$
72.87

 
$
15,011,391

 
$
101.98

Medical Office Buildings

 

 

 

 

 

 
155,252

 
40.58

 
201,560

 
34.73

Retail Centers
453,911

 
43.61

 
1,916,355

 
59.53

 
427,143

 
14.47

 
395,537

 
17.48

 
1,269,158

 
25.70

Total
$
3,298,785

 
$
68.35

 
$
5,758,572

 
$
56.70

 
$
3,590,710

 
$
49.34

 
$
11,094,021

 
$
64.83

 
$
16,482,109

 
$
81.44


22




Commercial Leasing Summary - Renewal Leases
 
 
3rd Quarter 2014
 
2nd Quarter 2014
 
1st Quarter 2014
 
4th Quarter 2013
 
3rd Quarter 2013
Gross Leasing Square Footage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
44,214
 
 
109,686
 
 
60,108
 
 
201,109
 
 
140,894
 
      Medical Office Buildings
 
 
 
 
 
 
12,232
 
 
24,471
 
      Retail Centers
170,568
 
 
10,645
 
 
27,100
 
 
38,995
 
 
112,736
 
Total
214,782
 
 
120,331
 
 
87,208
 
 
252,336
 
 
278,101
 
Weighted Average Term (yrs)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Office Buildings
7.4
 
 
4.8
 
 
7.0
 
 
5.8
 
 
6.6
 
      Medical Office Buildings
0.0
 
 
0.0
 
 
0.0
 
 
7.8
 
 
3.0
 
      Retail Centers
5.1
 
 
4.3
 
 
3.3
 
 
4.0
 
 
7.3
 
Total
5.6
 
 
4.8
 
 
5.8
 
 
5.7
 
 
6.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental Rate Increases:
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
 
GAAP
 
CASH
      Rate on expiring leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
32.89

 
$
35.79

 
$
33.89

 
$
35.42

 
$
32.71

 
$
35.31

 
$
30.12

 
$
33.00

 
$
38.86

 
$
40.53

            Medical Office Buildings

 

 

 

 

 

 
32.36

 
34.47

 
27.49

 
29.14

            Retail Centers
13.65

 
13.86

 
45.12

 
47.17

 
27.54

 
30.66

 
17.51

 
18.22

 
20.07

 
20.74

Total
$
17.61

 
$
18.37

 
$
34.89

 
$
36.46

 
$
31.26

 
$
34.05

 
$
28.28

 
$
30.79

 
$
30.25

 
$
31.50

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Rate on new leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
$
44.95

 
$
41.11

 
$
36.12

 
$
34.39

 
$
37.02

 
$
34.06

 
$
35.30

 
$
32.88

 
$
42.04

 
$
39.42

            Medical Office Buildings

 

 

 

 

 

 
36.28

 
33.16

 
29.48

 
28.82

            Retail Centers
14.67

 
14.47

 
50.91

 
48.51

 
30.92

 
30.08

 
17.91

 
17.62

 
24.43

 
22.89

Total
$
20.90

 
$
19.95

 
$
37.42

 
$
35.64

 
$
35.36

 
$
33.03

 
$
32.66

 
$
30.53

 
$
33.80

 
$
31.79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Percentage Increase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            Office Buildings
36.7
%
 
14.9
%
 
6.6
%
 
(2.9
)%
 
13.2
%
 
(3.6
)%
 
17.2
%
 
(0.4
)%
 
8.2
%
 
(2.7
)%
            Medical Office Buildings
%
 
%
 
%
 
 %
 
%
 
 %
 
12.1
%
 
(3.8
)%
 
7.2
%
 
(1.1
)%
            Retail Centers
7.4
%
 
4.4
%
 
12.8
%
 
2.8
 %
 
12.3
%
 
(1.9
)%
 
2.3
%
 
(3.3
)%
 
21.7
%
 
10.4
 %
Total
18.7
%
 
8.6
%
 
7.3
%
 
(2.3
)%
 
13.1
%
 
(3.0
)%
 
15.5
%
 
(0.8
)%
 
11.7
%
 
0.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
 
Total Dollars
 
$ per Sq Ft
Tenant Improvements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
595,757

 
$
13.47

 
$
1,897,016

 
$
17.29

 
$
896,712

 
$
14.92

 
$
7,573,493

 
$
37.66

 
$
2,788,460

 
$
19.79

Medical Office Buildings

 

 

 

 

 

 
183,219

 
14.98

 
114,252

 
4.67

Retail Centers

 

 

 

 

 

 

 

 
28,600

 
0.25

Subtotal
$
595,757

 
$
2.77

 
$
1,897,016

 
$
15.76

 
$
896,712

 
$
10.28

 
$
7,756,712

 
$
30.74

 
$
2,931,312

 
$
10.54

Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
532,789

 
$
12.05

 
$
1,517,271

 
$
13.83

 
$
1,318,800

 
$
21.94

 
$
4,065,164

 
$
20.21

 
$
2,747,403

 
$
19.50

Medical Office Buildings

 

 

 

 

 

 
143,190

 
11.71

 
68,973

 
2.82

Retail Centers
51,270

 
0.30

 
27,278

 
2.56

 
32,300

 
1.19

 
32,725

 
0.84

 
176,809

 
1.57

Subtotal
$
584,059

 
$
2.72

 
$
1,544,549

 
$
12.84

 
$
1,351,100

 
$
15.49

 
$
4,241,079

 
$
16.80

 
$
2,993,185

 
$
10.77

Tenant Improvements and Leasing Commissions and Incentives
 
 
 
 
 
 
 
 
 
 
Office Buildings
$
1,128,546

 
$
25.52

 
$
3,414,287

 
$
31.12

 
$
2,215,512

 
$
36.86

 
$
11,638,657

 
$
57.87

 
$
5,535,863

 
$
39.29

Medical Office Buildings

 

 

 

 

 

 
326,409

 
26.69

 
183,225

 
7.49

Retail Centers
51,270

 
0.30

 
27,278

 
2.56

 
32,300

 
1.19

 
32,725

 
0.84

 
205,409

 
1.82

Total
$
1,179,816

 
$
5.49

 
$
3,441,565

 
$
28.60

 
$
2,247,812

 
$
25.77

 
$
11,997,791

 
$
47.54

 
$
5,924,497

 
$
21.31


23




10 Largest Tenants - Based on Annualized Commercial Income
 
September 30, 2014
Tenant
Number of Buildings
 
Weighted Average Remaining Lease Term in Months
 
 Percentage of Aggregate Portfolio Annualized Commercial Income
 
Aggregate Rentable Square Feet
 
Percentage of Aggregate Occupied Square Feet
World Bank
1
 
27

 
5.86
%
 
210,354

 
3.33
%
Advisory Board Company
2
 
56

 
3.80
%
 
199,762

 
3.17
%
Booz Allen Hamilton, Inc.
1
 
16

 
2.73
%
 
222,989

 
3.53
%
Engility Corporation
1
 
36

 
2.56
%
 
134,126

 
2.13
%
Squire Patton Boggs (USA) LLP
1
 
31

 
2.43
%
 
110,566

 
1.75
%
Epstein, Becker & Green, P.C.
1
 
27

 
1.32
%
 
53,427

 
0.85
%
General Services Administration
3
 
50

 
1.28
%
 
52,282

 
0.83
%
ManTech International Corporation
2
 
4

 
1.28
%
 
68,846

 
1.09
%
George Washington University
2
 
23

 
1.26
%
 
69,775

 
1.11
%
Alexandria City School Board
1
 
176

 
1.19
%
 
87,883

 
1.39
%
Total/Weighted Average
 
 
42

 
23.71
%
 
1,210,010

 
19.18
%



24




Industry Diversification
 
September 30, 2014
Industry Classification (NAICS)
Annualized Base Rental Revenue
 
Percentage of Aggregate Annualized Rent
 
Aggregate Rentable Square Feet
 
Percentage of Aggregate Square Feet
Professional, Scientific, and Technical Services
$
73,481,207

 
38.35
%
 
2,166,004

 
34.50
%
Credit Intermediation and Related Activities
17,726,575

 
9.25
%
 
329,708

 
5.25
%
Religious, Grantmaking, Civic, Professional, and Similar Organizations
11,867,200

 
6.19
%
 
323,559

 
5.15
%
Food Services and Drinking Places
8,613,122

 
4.49
%
 
280,253

 
4.46
%
Educational Services
8,159,897

 
4.26
%
 
270,371

 
4.31
%
Food and Beverage Stores
6,607,170

 
3.45
%
 
337,197

 
5.37
%
Executive, Legislative, and Other General Government Support
5,120,019

 
2.67
%
 
140,038

 
2.23
%
Ambulatory Health Care Services
4,715,160

 
2.46
%
 
153,659

 
2.45
%
Health and Personal Care Stores
3,775,163

 
1.97
%
 
105,325

 
1.68
%
Broadcasting (except Internet)
3,585,870

 
1.87
%
 
90,810

 
1.45
%
Personal and Laundry Services
3,538,018

 
1.85
%
 
113,077

 
1.80
%
Securities, Commodity Contracts, and Other Financial Investments and Related Activities
3,371,384

 
1.76
%
 
90,875

 
1.45
%
Sporting Goods, Hobby, Book, and Music Stores
3,316,339

 
1.73
%
 
201,827

 
3.21
%
Furniture and Home Furnishings Stores
3,210,790

 
1.68
%
 
162,075

 
2.58
%
Electronics and Appliance Stores
3,064,042

 
1.60
%
 
169,094

 
2.69
%
Miscellaneous Store Retailers
3,054,143

 
1.59
%
 
166,012

 
2.64
%
Publishing Industries (except Internet)
2,757,725

 
1.44
%
 
79,659

 
1.27
%
Administrative and Support Services
2,727,105

 
1.42
%
 
72,770

 
1.16
%
Clothing and Clothing Accessories Stores
2,696,091

 
1.41
%
 
136,426

 
2.17
%
Amusement, Gambling, and Recreation Industries
2,315,421

 
1.21
%
 
123,998

 
1.98
%
General Merchandise Stores
1,875,727

 
0.98
%
 
221,502

 
3.53
%
Nursing and Residential Care Facilities
1,837,275

 
0.96
%
 
66,810

 
1.06
%
Telecommunications
1,572,136

 
0.82
%
 
41,334

 
0.66
%
Real Estate
1,519,469

 
0.79
%
 
46,519

 
0.74
%
Merchant Wholesalers, Durable Goods
1,076,948

 
0.56
%
 
32,539

 
0.52
%
Social Assistance
957,882

 
0.50
%
 
40,408

 
0.64
%


25




Industry Diversification (continued)
 
September 30, 2014
Industry Classification (NAICS)
Annualized Base Rental Revenue
 
Percentage of Aggregate Annualized Rent
 
Aggregate Rentable Square Feet
 
Percentage of Aggregate Square Feet
Chemical Manufacturing
918,560

 
0.48
%
 
20,036

 
0.32
%
Building Material and Garden Equipment and Supplies Dealers
912,397

 
0.48
%
 
29,470

 
0.47
%
Insurance Carriers and Related Activities
799,607

 
0.42
%
 
25,182

 
0.40
%
Construction of Buildings
634,840

 
0.33
%
 
21,127

 
0.34
%
Motor Vehicle and Parts Dealers
601,815

 
0.31
%
 
36,832

 
0.59
%
Transportation Equipment Manufacturing
542,685

 
0.28
%
 
19,864

 
0.32
%
Repair and Maintenance
510,500

 
0.27
%
 
22,449

 
0.36
%
Other
4,158,947

 
2.17
%
 
141,256

 
2.25
%
Total
$
191,621,229

 
100.00
%
 
$
6,278,065

 
100.00
%


26




Lease Expirations
 
September 30, 2014
Year
 
Number of Leases
 
Rentable Square Feet
 
Percent of Rentable Square Feet
 
Annualized Rent *
 
Average Rental Rate
 
Percent of Annualized Rent *
Office:
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
18

 
109,625

 
2.62
%
 
$
3,839,822

 
$
35.03

 
2.32
%
2015
 
99

 
600,898

 
14.37
%
 
24,150,255

 
40.19

 
14.61
%
2016
 
106

 
641,172

 
15.34
%
 
21,624,977

 
33.73

 
13.08
%
2017
 
82

 
518,609

 
12.41
%
 
20,377,458

 
39.29

 
12.33
%
2018
 
74

 
361,418

 
8.65
%
 
13,943,350

 
38.58

 
8.43
%
2019 and thereafter
 
245

 
1,948,580

 
46.61
%
 
81,390,656

 
41.77

 
49.23
%
 
 
624

 
4,180,302

 
100.00
%
 
$
165,326,518

 
39.55

 
100.00
%
Retail:
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
7

 
19,459

 
0.86
%
 
$
522,609

 
26.86

 
0.99
%
2015
 
52

 
237,702

 
10.49
%
 
5,765,978

 
24.26

 
10.96
%
2016
 
29

 
211,131

 
9.32
%
 
4,567,236

 
21.63

 
8.68
%
2017
 
48

 
260,028

 
11.48
%
 
7,112,938

 
27.35

 
13.52
%
2018
 
41

 
366,907

 
16.20
%
 
5,569,710

 
15.18

 
10.59
%
2019 and thereafter
 
133

 
1,170,208

 
51.65
%
 
29,075,831

 
24.85

 
55.26
%
 
 
310

 
2,265,435

 
100.00
%
 
$
52,614,302

 
23.22

 
100.00
%
Total:
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
25

 
129,084

 
2.00
%
 
4,362,431

 
33.80

 
2.00
%
2015
 
151

 
838,600

 
13.01
%
 
29,916,233

 
35.67

 
13.73
%
2016
 
135

 
852,303

 
13.22
%
 
26,192,213

 
30.73

 
12.02
%
2017
 
130

 
778,637

 
12.08
%
 
27,490,396

 
35.31

 
12.61
%
2018
 
115

 
728,325

 
11.30
%
 
19,513,060

 
26.79

 
8.95
%
2019 and thereafter
 
378

 
3,118,788

 
48.39
%
 
110,466,487

 
35.42

 
50.69
%
 
 
934

 
6,445,737

 
100.00
%
 
$
217,940,820

 
33.81

 
100.00
%
 
 
 
* Annualized Rent is equal to the rental rate effective at lease expiration (cash basis) multiplied by 12.
 
 

27




Schedule of Properties
 
September 30, 2014
 PROPERTIES
 
 LOCATION
 
 YEAR ACQUIRED
 
 YEAR CONSTRUCTED
 
 NET RENTABLE SQUARE FEET
Office Buildings
 
 
 
 
 
 
 
 
1901 Pennsylvania Avenue
 
Washington, DC
 
1977
 
1960
 
101,000

51 Monroe Street
 
Rockville, MD
 
1979
 
1975
 
221,000

515 King Street
 
Alexandria, VA
 
1992
 
1966
 
75,000

6110 Executive Boulevard
 
Rockville, MD
 
1995
 
1971
 
201,000

1220 19th Street
 
Washington, DC
 
1995
 
1976
 
104,000

1600 Wilson Boulevard
 
Arlington, VA
 
1997
 
1973
 
166,000

7900 Westpark Drive
 
McLean, VA
 
1997
 
1972/1986/1999
 
527,000

600 Jefferson Plaza
 
Rockville, MD
 
1999
 
1985
 
113,000

Wayne Plaza
 
Silver Spring, MD
 
2000
 
1970
 
97,000

Courthouse Square
 
Alexandria, VA
 
2000
 
1979
 
115,000

One Central Plaza
 
Rockville, MD
 
2001
 
1974
 
267,000

1776 G Street
 
Washington, DC
 
2003
 
1979
 
263,000

West Gude Drive
 
Rockville, MD
 
2006
 
1984/1986/1988
 
275,000

Monument II
 
Herndon, VA
 
2007
 
2000
 
208,000

2000 M Street
 
Washington, DC
 
2007
 
1971
 
230,000

2445 M Street
 
Washington, DC
 
2008
 
1986
 
290,000

925 Corporate Drive
 
Stafford, VA
 
2010
 
2007
 
133,000

1000 Corporate Drive
 
Stafford, VA
 
2010
 
2009
 
136,000

1140 Connecticut Avenue
 
Washington, DC
 
2011
 
1966
 
183,000

1227 25th Street
 
Washington, DC
 
2011
 
1988
 
135,000

Braddock Metro Center
 
Alexandria, VA
 
2011
 
1985
 
349,000

John Marshall II
 
Tysons Corner, VA
 
2011
 
1996/2010
 
223,000

Fairgate at Ballston
 
Arlington, VA
 
2012
 
1988
 
142,000

The Army Navy Club Building
 
Washington, DC
 
2014
 
1912/1987
 
108,000

1775 Eye Street, NW
 
Washington, DC
 
2014
 
1964
 
185,000

Subtotal
 
 
 
 
 
 
 
4,847,000


28




Schedule of Properties (continued)
 
September 30, 2014
 PROPERTIES
 
 LOCATION
 
 YEAR ACQUIRED
 
 YEAR CONSTRUCTED
 
 NET RENTABLE SQUARE FEET
Retail Centers
 
 
 
 
 
 
 
 
Takoma Park
 
Takoma Park, MD
 
1963
 
1962
 
51,000

Westminster
 
Westminster, MD
 
1972
 
1969
 
150,000

Concord Centre
 
Springfield, VA
 
1973
 
1960
 
76,000

Wheaton Park
 
Wheaton, MD
 
1977
 
1967
 
74,000

Bradlee Shopping Center
 
Alexandria, VA
 
1984
 
1955
 
171,000

Chevy Chase Metro Plaza
 
Washington, DC
 
1985
 
1975
 
49,000

Montgomery Village Center
 
Gaithersburg, MD
 
1992
 
1969
 
197,000

Shoppes of Foxchase
 
Alexandria, VA
 
1994
 
1960/2006
 
134,000

Frederick County Square
 
Frederick, MD
 
1995
 
1973
 
227,000

800 S. Washington Street
 
Alexandria, VA
 
1998/2003
 
1955/1959
 
47,000

Centre at Hagerstown
 
Hagerstown, MD
 
2002
 
2000
 
332,000

Frederick Crossing
 
Frederick, MD
 
2005
 
1999/2003
 
295,000

Randolph Shopping Center
 
Rockville, MD
 
2006
 
1972
 
82,000

Montrose Shopping Center
 
Rockville, MD
 
2006
 
1970
 
145,000

Gateway Overlook
 
Columbia, MD
 
2010
 
2007
 
220,000

Olney Village Center
 
Olney, MD
 
2011
 
1979/2003
 
199,000

Subtotal
 
 
 
 
 
 
 
2,449,000



29




Schedule of Properties (continued)
 
September 30, 2014
 PROPERTIES
 
 LOCATION
 
 YEAR ACQUIRED
 
 YEAR CONSTRUCTED
 
 NET RENTABLE SQUARE FEET (1)
Multifamily Buildings / # units
 
 
 
 
 
 
 
 
3801 Connecticut Avenue / 307
 
Washington, DC
 
1963
 
1951
 
179,000

Roosevelt Towers / 191
 
Falls Church, VA
 
1965
 
1964
 
170,000

Country Club Towers / 227
 
Arlington, VA
 
1969
 
1965
 
159,000

Park Adams / 200
 
Arlington, VA
 
1969
 
1959
 
173,000

Munson Hill Towers / 279
 
Falls Church, VA
 
1970
 
1963
 
258,000

The Ashby at McLean / 256
 
McLean, VA
 
1996
 
1982
 
274,000

Walker House Apartments / 212
 
Gaithersburg, MD
 
1996
 
1971/2003
 
157,000

Bethesda Hill Apartments / 195
 
Bethesda, MD
 
1997
 
1986
 
225,000

Bennett Park / 224
 
Arlington, VA
 
2007
 
2007
 
214,000

Clayborne / 74
 
Alexandria, VA
 
2008
 
2008
 
60,000

Kenmore Apartments / 374
 
Washington, DC
 
2008
 
1948
 
268,000

The Paramount / 135
 
Arlington, VA
 
2013
 
1984
 
141,000

Yale West / 216
 
Washington, DC
 
2014
 
2011
 
173,000

Subtotal (2,890 units)
 
 
 
 
 
 
 
2,451,000

TOTAL
 
 
 
 
 
 
 
9,747,000

(1) Multifamily buildings are presented in gross square feet.

30




Supplemental Definitions
 
September 30, 2014
Adjusted EBITDA (a non-GAAP measure) is earnings attributable to the controlling interest before interest expense, taxes, depreciation, amortization, real estate impairment, gain on sale of real estate, gain/loss on extinguishment of debt and gain/loss from non-disposal activities.
Annualized base rent ("ABR") is calculated as monthly base rent (cash basis) per the lease, as of the reporting period, multiplied by 12.
Debt service coverage ratio is computed by dividing earnings attributable to the controlling interest before interest expense, taxes, depreciation, amortization, real estate impairment, gain on sale of real estate, gain/loss on extinguishment of debt and gain/loss from non-disposal activities by interest expense (including interest expense from discontinued operations) and principal amortization.
Debt to total market capitalization is total debt divided by the sum of total debt plus the market value of shares outstanding at the end of the period.
Earnings to fixed charges ratio is computed by dividing earnings attributable to the controlling interest by fixed charges. For this purpose, earnings consist of income from continuing operations (or net income if there are no discontinued operations) plus fixed charges, less capitalized interest. Fixed charges consist of interest expense (excluding interest expense from discontinued operations), including amortized costs of debt issuance, plus interest costs capitalized.
Economic occupancy is calculated as actual real estate rental revenue recognized for the period indicated as a percentage of gross potential real estate rental revenue for that period. We determine gross potential real estate rental revenue by valuing occupied units or square footage at contract rates and vacant units or square footage at market rates for comparable properties. We do not consider percentage rents and expense reimbursements in computing economic occupancy percentages.
Funds from operations ("FFO") is defined by The National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) in an April, 2002 White Paper as net income (computed in accordance with generally accepted accounting principles (“GAAP”)) excluding gains (or losses) associated with sales of property and impairment of depreciable real estate, plus real estate depreciation and amortization. We consider FFO to be a standard supplemental measure for equity real estate investment trusts (“REITs”) because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which historically assumes that the value of real estate assets diminishes predictably over time. Since real estate values have instead historically risen or fallen with market conditions, we believe that FFO more accurately provides investors an indication of our ability to incur and service debt, make capital expenditures and fund other needs. FFO is a non-GAAP measure.
Core Funds From Operations ("Core FFO") is calculated by adjusting FFO for the following items (which we believe are not indicative of the performance of Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s operating performance over time): (1) gains or losses on extinguishment of debt, (2) costs related to the acquisition of properties, (3) severance expense related to corporate reorganization and related to executive retirements or resignations and (4) property impairments not already excluded from FFO, as appropriate. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, Core FFO serves as a useful, supplementary measure of Washington REIT’s ability to incur and service debt, and distribute dividends to its shareholders. Core FFO is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.
Funds Available for Distribution ("FAD") is calculated by subtracting from FFO (1) recurring expenditures, tenant improvements and leasing costs, that are capitalized and amortized and are necessary to maintain our properties and revenue stream and (2) straight line rents, then adding (3) non-real estate depreciation and amortization, (4) non-cash fair value interest expense and (5) amortization of restricted share compensation, then adding or subtracting the (6) amortization of lease intangibles , (7) real estate impairment and (8) non-cash gain/loss on extinguishment of debt, as appropriate. FAD is included herein, because we consider it to be a measure of a REIT’s ability to incur and service debt and to distribute dividends to its shareholders. FAD is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.
Core Funds Available for Distribution ("Core FAD") is calculated by adjusting FAD for the following items (which we believe are not indicative of the performance of Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s operating performance over time): (1) gains or losses on extinguishment of debt, (2) costs related to the acquisition of properties, (3) non-share-based severance expense related to corporate reorganization and related to executive retirements or resignations and (4) property impairments not already excluded from FAD, as appropriate. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, Core FAD serves as a useful, supplementary measure of Washington REIT’s ability to incur and service debt, and distribute dividends to its shareholders. Core FAD is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.
The Medical Office Portfolio consists of every medical property, as well as undeveloped land, 4661 Kenmore Ave, and two office properties, Woodholme Center and 6565 Arlington Boulevard. We entered into four separate purchase and sale agreements. Transaction I of the Medical Office Portfolio sale and purchase agreement consists of medical office properties (2440 M Street, 15001 Shady Grove Road, 15505 Shady Grove Road, 19500 at Riverside Park formerly Lansdowne Medical Office Building, 9707 Medical Center Drive, CentreMed I and II, 8301 Arlington Boulevard, Sterling Medical Office Building, Shady Grove Medical Village II, Alexandria Professional Center, Ashburn Farm Office Park I, Ashburn Farm Office Park II, Ashburn Farm Office Park III and Woodholme Medical Office Building) and two office properties (6565 Arlington Boulevard and Woodholme Center). Transaction II of the Medical Office Portfolio purchase and sale agreement consist of undeveloped land (4661 Kenmore Ave). Transaction III of the Medical Office Portfolio purchase and sale agreement consists of medical office properties (Woodburn Medical Park I and Woodburn Medical Park II). Transaction IV of the Medical Office Portfolio purchase and sale agreement consists of a medical office properties (Prosperity Medical Center I and II, and Prosperity Medical Center III).
Physical occupancy is calculated as occupied square footage as a percentage of total square footage as of the last day of that period.

31



Recurring capital expenditures represent non-accretive building improvements and leasing costs required to maintain current revenues. Recurring capital expenditures do not include acquisition capital that was taken into consideration when underwriting the purchase of a building or which are incurred to bring a building up to "operating standard."
Rent increases on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month after a term commencement date and the net ABR due the last month prior to the termination date of the former tenant's term.
Same-store portfolio properties include all stabilized properties that were owned for the entirety of the current and prior reporting periods, and exclude properties under redevelopment or development and properties purchased or sold at any time during the periods being compared. We define redevelopment properties as those for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan which has a current impact on operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. Redevelopment and development properties are included in the same-store pool upon completion of the redevelopment or development, and the earlier of achieving 90% occupancy or two years after completion.
Same-store portfolio net operating income (NOI) growth is the change in the NOI of the same-store portfolio properties from the prior reporting period to the current reporting period.

32
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