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Washington Real Estate Investment Trust Announces Fourth Quarter and Year-End Operating Results for 2019

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WASHINGTON, Feb. 13, 2020 (GLOBE NEWSWIRE) — Washington Real Estate Investment Trust (“WashREIT” 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 and year ended December 31, 2019:

Full-Year 2019 Financial Results

  • Net income attributable to controlling interests was $383.6 million, or $4.75 per diluted share, including net gains on the sale of real estate of $399.0 million
  • NAREIT FFO(1) was $1.66 per diluted share
  • Core FFO(1) was $1.71 per diluted share

Fourth Quarter 2019 Financial Results

  • Net income attributable to controlling interests was $54.2 million, or $0.66 per diluted share
  • NAREIT FFO was $0.39 per diluted share
  • Core FFO was $0.40 per diluted share

2019 Operational Highlights

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  • Same-store(2) Net Operating Income (NOI)(3) decreased by 0.2% and cash NOI increased by 0.5% from 2018
  • Same-store Office NOI decreased by 4.6% and cash NOI decreased by 3.6% compared to 2018
  • Same-store Multifamily NOI and cash NOI increased by 4.6% for the year
  • Same-store Other NOI increased by 3.4% and cash NOI increased by 4.9% for the year
  • Ended the year with a net debt to adjusted EBITDA(4) ratio of 5.6x

2019 Transaction Activity

  • Acquired the Assembly Portfolio, a 2,113 unit multifamily portfolio for approximately $461.2 million
  • Acquired Cascade at Landmark, a 277 unit multifamily asset in Alexandria, VA for approximately $69.8 million
  • Sold Quantico Corporate Center for approximately $33.0 million
  • Sold eight retail assets for approximately $562.0 million
  • Sold 1776 G Street for approximately $129.5 million
  • Entered into a contract to sell John Marshall II for approximately $63.4 million. The transaction is expected to close on March 26, 2020 and would eliminate the Company’s remaining exposure to single tenant assets.

“2019 was a pivotal year for WashREIT on multiple fronts. We executed $1.3 billion of strategic transactions– a company record– to streamline and de-risk our portfolio and improve our ability to drive value creation,” said Paul T. McDermott, President and CEO of WashREIT. “In addition to our transformative capital allocation, we exceeded our commercial leasing targets for 2019 and addressed the vast majority of our 2020 expirations. Looking ahead, we expect key lease commencements and multifamily value-creation to drive strong growth in the second half of 2020 and strong year-over-year growth in 2021.”

Operating Results

The Company’s overall portfolio NOI for the fourth quarter was $50.1 million, compared to $46.1 million in the same period one year ago and $49.6 million in the third quarter of 2019. Same-store portfolio NOI decreased by 0.2% for the full year and 2.0% for the fourth quarter on a year-over-year basis.  The Company’s overall portfolio ending occupancy (5) was 92.8%, compared to 93.1% at year-end 2018. Same-store portfolio ending occupancy (6) was 92.1% compared to 93.9% at year-end 2018.

Same-store portfolio by sector:

  • Office: 48% of Q4 2019 Same-Store NOI – Same-store NOI decreased by 4.6% and cash NOI decreased by 3.6% for the full year. Same-store NOI decreased by 6.9% and cash NOI decreased by 6.1% for the fourth quarter compared to the same period a year ago. The full-year decrease was primarily driven by the termination of a prior lease at Watergate 600 that has largely been re-leased and occupied. The fourth quarter decrease was largely driven by the aforementioned lease termination as well as the previously anticipated vacancy at 1220 19th Street, the majority of which has been re-leased.  Same-store ending occupancy decreased by 510 basis points year-over-year and 40 basis points sequentially to 88.5% primarily due to the aforementioned lease termination that enabled the re-leasing of the majority of the space. The overall office portfolio was 89.6% occupied and 91.9% leased at year-end.
  • Multifamily: 43% of Q4 2019 Same-Store NOI – Same-store NOI and cash NOI increased by 4.6% for the full year. Same-store NOI increased by 4.6% and cash NOI increased by 4.8% for the fourth quarter on a year-over-year basis. The Company achieved 340 basis points of blended year-over-year lease rate growth(7) comprised of 430 basis points of renewal rate growth and 220 basis points of new lease rate growth reflecting strong demand for our value-oriented assets and the success of our daily pricing strategy which allows us to optimize rental income growth. Same-store ending occupancy increased by 20 basis points year over year and decreased by 10 basis points sequentially to 95.0%.  The overall multifamily portfolio was 94.9% occupied and 96.4% leased at year-end.
  • Other: 9% of Q4 2019 Same-Store NOI – Same-store NOI increased by 3.4% and cash NOI increased by 4.9% for the full year. Same-store NOI decreased by 3.6% and cash NOI decreased by 0.1% year-over-year in the fourth quarter due to one-time benefits that impacted the fourth quarter of 2018. Same-store ending occupancy increased by 100 basis points year-over-year and 190 basis points sequentially to 90.9% and was 92.8% leased at year-end.

Leasing Activity

During 2019, WashREIT signed new and renewal commercial leases as follows (all dollar amounts are on a per square foot basis):

Square Feet Weighted
Average Term

(in years)
Weighted
Average Free
Rent Period

(in months)
Weighted
Average
Rental Rates
Weighted
Average
Rental Rate

% Increase
Tenant
Improvements
Leasing
Commissions
New:
Office (a) 200,000 10.5 4.3 $ 58.38 25.2 % $ 106.02 $ 31.52
Other 68,000 7.6 4.0 19.28 16.8 % 31.14 8.85
Total (b) 268,000 9.7 4.2 48.41 23.1 % 86.91 25.74
Renewal:
Office 207,000 9.6 8.9 $ 44.69 9.7 % $ 30.81 $ 12.77
Other 50,000 4.6 0.2 31.67 21.8 % 3.03
Total (b) 257,000 8.6 7.2 42.15 12.0 % 24.79 10.86

(a) Office tenant improvements per foot per year of term for new leases were approximately $10.10 driven by the 51,000 square foot lease signed at Watergate 600 in Q1 that had no free rent associated with it
(b) Excludes leasing activity at properties sold during the year

During the fourth quarter, WashREIT signed commercial leases totaling 120,000 square feet, including 55,000 square feet of new leases and 65,000 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 Free
Rent Period

(in months)
Weighted
Average
Rental Rates
Weighted
Average
Rental Rate

% Increase
Tenant
Improvements
Leasing
Commissions
New:
Office 46,000 7.8 6.9 $ 57.63 33.7 % $ 69.88 $ 25.34
Other (a) 9,000 14.9 6.4 61.86 1.8 % 127.02 42.59
Total 55,000 8.9 6.8 58.28 27.2 % 78.71 28.01
Renewal:
Office (b) 57,000 8.7 6.5 $ 47.03 26.7 % $ 36.99 $ 20.15
Other 8,000 5.0 1.1 39.33 8.9 % 2.45
Total 65,000 8.2 5.8 46.06 24.5 % 32.33 17.92

(a) Tenant improvements per square foot for Other new leases were high in the fourth quarter due to a 16-year lease signed at Spring Valley Village to a high-quality credit tenant
(b) Excludes leasing activity at properties sold during the quarter

2020 Guidance

Full Year 2020
Core FFO per diluted share (a) $1.53 – $1.59
Same-Store NOI Growth 1.0% – 2.0%
Multifamily 3.25% – 4.25%
Office (1.0%) – 1.0%
Other NOI $13.25 million – $13.75 million
Non Same-Store Multifamily NOI $28.25 million – $29.25 million
Transactions
Acquisitions $0
Dispositions (b) $63.4 million
Corporate Expenses
G&A and Leasing Expenses $22.25 million – $23.25 million
Interest Expense $42.25 million – $43.25 million
Development Expenditures $42.5 million – $47.5 million

(a) Subsequent to the third quarter earnings call, the Company issued approximately 1.4 million shares through its at-the-market (ATM) program at an average price of $30.77 for gross proceeds of $43.7 million. On a combined basis, the ATM issuance and expected sale of John Marshall II reduced our 2020 Core FFO guidance by approximately $0.035 per share.
(b) Represents the sale of John Marshall II, which will reduce NOI by approximately $1.1 million per quarter

The non same-store multifamily properties in 2020 consist of the Assembly Portfolio, Cascade at Landmark, and the Trove multifamily development. John Marshall II is the only non same-store office property in 2020.

WashREIT’s 2020 Core FFO guidance is based on a number of factors, many of which are outside the Company’s control and all of which are subject to change. WashREIT may change the guidance provided during the year as actual and anticipated results vary from these assumptions, but WashREIT undertakes no obligation to do so.

2020 Guidance Reconciliation Table

A reconciliation of projected net loss attributable to the controlling interests per diluted share to projected Core FFO per diluted share for the year ending December 31, 2020, reflecting the dispositions assumptions above, is as follows:

Low High
Net income attributable to the controlling interests per diluted share(a) $ 0.08 $ 0.14
Real estate depreciation and amortization(b) 1.45 1.45
NAREIT FFO per diluted share 1.53 1.59
Core adjustments
Core FFO per diluted share $ 1.53 $ 1.59

(a) Excludes gains or losses on sale of real estate
(b) Includes impact from planned disposition during the year

Dividends

On January 6, 2020, WashREIT paid a quarterly dividend of $0.30 per share.

WashREIT announced today that its Board of Trustees has declared a quarterly dividend of $0.30 per share to be paid on March 31, 2020 to shareholders of record on March 17, 2020.

Conference Call Information

The Conference Call for Full Year and Fourth Quarter 2019 Earnings is scheduled for Friday, February 14, 2020 at 11:00 am ET. 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 Friday, February 28, 2020 at 11:00 pm ET.

USA Toll Free Number: 1-877-481-4010
International Toll Number: 1-919-882-2331
Conference ID: 56869

The live on-demand webcast of the Conference Call will be available on the Investor section of WashREIT’s website at www.washreit.com.

About WashREIT

WashREIT owns and operates uniquely positioned real estate assets in the Washington D.C. metro area. Backed by decades of experience, expertise and ambition, we create value by transforming insights into strategy and strategy into action.  The Company’s portfolio of 46 properties includes approximately 3.9 million square feet of commercial space and 6,861 multifamily apartment units. These 46 properties consist of 22 multifamily properties, 16 office properties, and 8 retail centers. Our shares trade on the NYSE and our company currently has an enterprise value of more than $3.5 billion. With a track record of driving returns and delivering satisfaction, we are a trusted authority in one of the nation’s most competitive real estate markets.

Note: WashREIT’s press releases and supplemental financial information are available on the Company website at www.washreit.com or by contacting Investor Relations at (202) 774-3200.

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 relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to the risks associated with the ownership of real estate in general and our real estate assets in particular; the risk that any of the assumptions on which our updated 2020 earnings guidance is based are incorrect, the risk of failure to enter into and/or complete contemplated dispositions, at all, within the price ranges anticipated and on the terms and timing anticipated; the economic health of the greater Washington Metro region; changes in the composition of our portfolio; fluctuations in interest rates; reductions in or actual or threatened changes to the timing of federal government spending; the risks related to use of third-party providers and joint venture partners; the ability to control our operating expenses; the economic health of our tenants; the supply of competing properties; shifts away from brick and mortar stores to ecommerce; the availability and terms of financing and capital and the general volatility of securities markets; compliance with applicable laws, including those concerning the environment and access by persons with disabilities; terrorist attacks or actions and/or cyber attacks; weather conditions and natural disasters; ability to maintain key personnel; failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs; and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2018 Form 10-K and subsequent Quarterly Reports on Form 10-Q. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to update our forward-looking statements or risk factors to reflect new information, future events, or otherwise.

This Earnings Release also includes certain forward-looking non-GAAP information. Due to the high variability and difficulty in making accurate forecasts and projections of some of the information excluded from these estimates, together with some of the excluded information not being ascertainable or accessible, the Company is unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measures without unreasonable efforts

(1) NAREIT Funds From Operations (“FFO”) is a non-GAAP measure. It is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) in its NAREIT FFO White Paper – 2018 Restatement as net income (computed in accordance with GAAP) excluding gains (or losses) associated with sales of properties, impairments of depreciable real estate, and real estate depreciation and amortization. We consider NAREIT 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 NAREIT FFO more accurately provides investors an indication of our ability to incur and service debt, make capital expenditures and fund other needs. Our NAREIT FFO may not be comparable to FFO reported by other REITs. These other REITs may not define the term in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently.

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 WashREIT’s operating portfolio and affect the comparative measurement of WashREIT’s operating performance over time): (1) gains or losses on extinguishment of debt, (2) expenses related to acquisition and structuring activities, (3) executive transition costs,  severance expenses and other expenses related to corporate restructuring and related to executive retirements or resignations, (4) property impairments, casualty gains, and gains or losses on sale not already excluded from FFO, as appropriate, and (5) relocation expense. 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 WashREIT’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) For purposes of evaluating comparative operating performance, we categorize our properties as “same-store”, “non-same-store” or “other.” Same-store properties include properties that were owned for the entirety of the year being compared, and exclude properties under redevelopment or development and properties acquired, sold or classified as held for sale during the year being compared. We define development properties as those for which we have planned or ongoing major construction activities on existing or acquired land pursuant to an authorized development plan. We consider a property’s development activities to be complete when the property is ready for its intended use. The property is categorized as same-store when it has been ready for its intended use for the entirety of the year being compared. We define redevelopment properties as those for which have planned or ongoing significant development and construction activities on existing or acquired buildings pursuant to an authorized plan, which has an impact on current operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. We categorize a redevelopment property as same-store when redevelopment activities have been complete for the majority of each year being compared.

(3) 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 or loss on sale, if any), plus interest expense, depreciation and amortization, lease origination expenses, general and administrative expenses, real estate impairment and gain or loss on extinguishment of debt. We also present NOI on a cash basis (“cash NOI”) which is calculated as NOI less the impact of straight-lining of rent and amortization of market intangibles. We believe that NOI and cash NOI are useful performance measures because, when compared across periods, they reflect the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income. NOI and cash NOI excludes certain components from net income in order to provide results more closely related to a property’s results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. As a result of the foregoing, we provide each of NOI and cash NOI as a supplement to net income, calculated in accordance with GAAP. Neither represents net income or income from continuing operations, in either case calculated in accordance with GAAP. As such, NOI and cash NOI should not be considered alternatives to these measures as an indication of our operating performance.

(4) Net Debt to Adjusted EBITDA represents net debt as of period end divided by adjusted EBITDA for the period, as annualized (i.e. three months periods are multiplied by four) or on a trailing 12 month basis. We define net debt as the total outstanding debt reported as per our consolidated balance sheets less cash and cash equivalents at the end of the period. Adjusted EBITDA is earnings before interest expense, taxes, depreciation, amortization, gain/loss on sale of real estate, casualty gain/loss, real estate impairment, gain/loss on extinguishment of debt, severance expense, relocation expense, acquisition and structuring expense and gain from non-disposal activities. We consider Adjusted EBITDA to be an appropriate 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 and Net Debt to Adjusted EBITDA are a non-GAAP measures.

(5) Average Occupancy is based on monthly occupied net rentable square footage or monthly occupied multifamily units as a percentage of total net rentable square footage or total multifamily units, respectively.

(6) Ending Occupancy is calculated as occupied square footage or multifamily units as a percentage of total square footage or multifamily units, respectively, as of the last day of that period.

(7) Lease rate growth, which we sometimes refer to as “trade-out”, is defined as the average percentage change in effective rent (net of concessions) for a new or renewed lease compared to the prior lease based on the move-in date.

Ending Occupancy Levels by Same-Store Properties (i) and All Properties
Ending Occupancy
Same-Store Properties All Properties
December 31, December 31,
2019 2018 2019 2018
Multifamily (calculated on a unit basis) 95.0 % 94.8 % 94.9 % 94.8 %
Multifamily 94.9 % 94.8 % 94.8 % 94.8 %
Office 88.5 % 93.6 % 89.6 % 92.3 %
Other (ii) 90.9 % 89.9 % 90.9 % 91.9 %
Overall Portfolio 92.1 % 93.9 % 92.8 % 93.1 %

(i) Same-store properties include properties that were owned for the entirety of the years being compared, and exclude properties under redevelopment or development and properties acquired, sold or classified as held for sale during the years being compared. We define development properties as those for which we have planned or ongoing major construction activities on existing or acquired land pursuant to an authorized development plan. We consider a property’s development activities to be complete when the property is ready for its intended use. The property is categorized as same-store when it has been ready for its intended use for the entirety of the years being compared. We define redevelopment properties as those for which we have planned or ongoing significant development and construction activities on existing or acquired buildings pursuant to an authorized plan, which has an impact on current operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. We categorize a redevelopment property as same-store when redevelopment activities have been complete for the majority of each year being compared. Same-store properties exclude:

Acquisitions:

Multifamily – Assembly Alexandria, Assembly Manassas, Assembly Dulles, Assembly Leesburg, Assembly Herndon, Assembly Germantown, Assembly Watkins Mill and Cascade at Landmark
Office – Arlington Tower

Held for sale:

Office – John Marshall II

Sold properties (classified as continuing operations):

Office – 1776 G Street, Quantico Corporate Center, Braddock Metro Center and 2445 M Street

Discontinued operations:

Wheaton Park, Bradlee Shopping Center, Shoppes at Foxchase, Gateway Overlook, Olney Village Center, Frederick County Square, Centre at Hagerstown and Frederick Crossing

(ii) Same-Store Other consists of retail properties not classified as discontinued operations: Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S. Washington Street, Randolph Shopping Center, Montrose Shopping Center and Spring Valley Village.  “Other” properties include discontinued operations.

 WASHINGTON REAL ESTATE INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
(Unaudited)
Quarter Ended

December 31,

Year Ended

December 31,

OPERATING RESULTS 2019 2018 2019 2018
Revenue
Real estate rental revenue $ 80,667 $ 71,740 $ 309,180 $ 291,730
Expenses
Real estate expenses 30,611 25,654 115,580 105,592
Depreciation and amortization 38,812 28,692 136,253 111,826
Real estate impairment 8,374 1,886
General and administrative expenses 5,853 5,352 24,370 22,089
Lease origination expenses 412 1,698
75,688 59,698 286,275 241,393
Other operating income
Gain on sale of real estate 61,007 59,961 2,495
Real estate operating income 65,986 12,042 82,866 52,832
Other expense
Interest expense (11,788 ) (12,346 ) (53,734 ) (50,501 )
Loss on extinguishment of debt (1,178 )
(11,788 ) (12,346 ) (53,734 ) (51,679 )
Income (loss) from continuing operations 54,198 (304 ) 29,132 1,153
Discontinued operations
Income from operations of properties sold or held for sale 5,992 16,158 24,477
Gain on sale of real estate 339,024
Loss on extinguishment of debt (764 )
Income from discontinued operations 5,992 354,418 24,477
Net income 54,198 5,688 383,550 25,630
Less: Net income attributable to noncontrolling interests in subsidiaries
Net income attributable to the controlling interests $ 54,198 $ 5,688 $ 383,550 $ 25,630
Income (loss) from continuing operations $ 54,198 $ (304 ) $ 29,132 $ 1,153
Depreciation and amortization 38,812 28,692 136,253 111,826
Real estate impairment 8,374 1,886
Gain on sale of depreciable real estate, net (61,007 ) (59,961 ) (2,495 )
Funds from continuing operations (1) 32,003 28,388 113,798 112,370
Income from discontinued operations 5,992 354,418 24,477
Discontinued operations real estate depreciation and amortization 2,417 4,926 9,402
Gain on sale of real estate (339,024 )
Funds from discontinued operations 8,409 20,320 33,879
NAREIT funds from operations(1) $ 32,003 $ 36,797 $ 134,118 $ 146,249
Non-cash loss (gain) on extinguishment of debt (244 ) 1,178
Tenant improvements and leasing incentives (6,857 ) (10,730 ) (15,898 ) (23,535 )
External and internal leasing commissions capitalized (2,700 ) (3,556 ) (6,371 ) (5,856 )
Recurring capital improvements (4,345 ) (2,110 ) (6,746 ) (3,954 )
Straight-line rents, net (763 ) (959 ) (3,266 ) (4,343 )
Non-cash fair value interest expense (178 ) (214 ) (778 ) (865 )
Non-real estate depreciation & amortization of debt costs 1,030 989 5,005 3,887
Amortization of lease intangibles, net 504 372 2,183 1,842
Amortization and expensing of restricted share and unit compensation 1,479 1,682 7,743 6,746
Funds available for distribution(4) $ 20,173 $ 22,271 $ 115,746 $ 121,349
Quarter Ended

December 31,

Year Ended

December 31,

Per share data: 2019 2018 2019 2018
Income from continuing operations (Basic) $ 0.66 $ $ 0.36 $ 0.01
(Diluted) $ 0.66 $ $ 0.36 $ 0.01
Net income attributable to the controlling interests (Basic) $ 0.66 $ 0.07 $ 4.75 $ 0.32
(Diluted) $ 0.66 $ 0.07 $ 4.75 $ 0.32
NAREIT funds from operations (Basic) $ 0.39 $ 0.46 $ 1.67 $ 1.85
(Diluted) $ 0.39 $ 0.46 $ 1.66 $ 1.84
Dividends declared $ 0.30 $ 0.30 $ 1.20 $ 1.20
Weighted average shares outstanding – basic 81,220 79,748 80,257 78,960
Weighted average shares outstanding – diluted 81,313 79,748 80,335 79,042
WASHINGTON REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
December 31,
2019 2018
Assets
Land $ 566,807 $ 526,572
Income producing property 2,392,415 2,055,349
2,959,222 2,581,921
Accumulated depreciation and amortization (693,610 ) (669,281 )
Net income producing property 2,265,612 1,912,640
Properties under development or held for future development 124,193 87,231
Total real estate held for investment, net 2,389,805 1,999,871
Investment in real estate sold or held for sale, net 57,028 203,410
Cash and cash equivalents 12,939 6,016
Restricted cash 1,812 1,624
Rents and other receivables 65,259 63,962
Prepaid expenses and other assets 95,149 123,670
Other assets related to properties sold or held for sale 6,336 18,551
Total assets $ 2,628,328 $ 2,417,104
Liabilities
Notes payable, net 996,722 $ 995,397
Mortgage notes payable, net 47,074 48,277
Line of credit 56,000 188,000
Accounts payable and other liabilities 71,136 57,946
Dividend payable 24,668 24,022
Advance rents 9,353 9,965
Tenant security deposits 10,595 9,501
Liabilities related to properties sold or held for sale 718 15,518
Total liabilities 1,216,266 1,348,626
Equity
Shareholders’ equity
Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued or outstanding
Shares of beneficial interest, $0.01 par value; 100,000 shares authorized; 82,099 and 79,910 shares issued and outstanding, as of December 31, 2019 and December 31, 2018 respectively 821 799
Additional paid-in capital 1,592,487 1,526,574
Distributions in excess of net income (183,405 ) (469,085 )
Accumulated other comprehensive income 1,823 9,839
Total shareholders’ equity 1,411,726 1,068,127
Noncontrolling interests in subsidiaries 336 351
Total equity 1,412,062 1,068,478
Total liabilities and equity $ 2,628,328 $ 2,417,104
The following tables contain reconciliations of same-store net operating income to net income attributable to the controlling interests for the periods presented (in thousands):
Quarter Ended December 31, 2019 Multifamily Office Other Total
Same-store net operating income(3) $ 15,485 $ 17,611 $ 3,235 $ 36,331
Add: Net operating income from non-same-store properties(3) 6,427 7,298 13,725
Total net operating income(2) $ 21,912 $ 24,909 $ 3,235 $ 50,056
Add/(deduct):
Interest expense (11,788 )
Depreciation and amortization (38,812 )
General and administrative expenses (5,853 )
Lease origination expenses (412 )
Gain on sale of real estate 61,007
Income from continuing operations 54,198
Discontinued operations:
Income from operations of properties sold or held for sale
Net income 54,198
Less: Net income attributable to noncontrolling interests in subsidiaries
Net income attributable to the controlling interests $ 54,198
Quarter Ended December 31, 2018 Multifamily Office Other Total
Same-store net operating income(3) $ 14,803 $ 18,910 3,357 $ 37,070
Add: Net operating income from non-same-store properties(3) 9,016 9,016
Total net operating income(2) $ 14,803 $ 27,926 $ 3,357 $ 46,086
Add/(deduct):
Interest expense (12,346 )
Depreciation and amortization (28,692 )
General and administrative expenses (5,352 )
Loss from continuing operations (304 )
Discontinued operations:
Income from operations of properties sold or held for sale 5,992
Net income 5,688
Less: Net income attributable to noncontrolling interests in subsidiaries
Net income attributable to the controlling interests $ 5,688
The following tables contain reconciliations of same-store net operating income to net income attributable to the controlling interests for the periods presented (in thousands):
Year Ended December 31, 2019 Multifamily Office Other Total
Same-store net operating income(3) $ 60,638 $ 71,387 $ 13,468 $ 145,493
Add: Net operating income from non-same-store properties(3) 16,358 31,749 48,107
Total net operating income(2) $ 76,996 $ 103,136 $ 13,468 $ 193,600
Add/(deduct):
Interest expense (53,734 )
Depreciation and amortization (136,253 )
General and administrative expenses (24,370 )
Lease origination expenses (1,698 )
Real estate impairment (8,374 )
Gain on sale of real estate 59,961
Income from continuing operations 29,132
Discontinued operations:
Income from operations of properties sold or held for sale 16,158
Gain on sale of real estate 339,024
Loss on extinguishment of debt (764 )
Net income 383,550
Less: Net income attributable to noncontrolling interests in subsidiaries
Net income attributable to the controlling interests $ 383,550
Year Ended December 31, 2018 Multifamily Office Other Total
Same-store net operating income(3) $ 57,980 $ 74,799 $ 13,026 $ 145,805
Add: Net operating (loss) income from non-same-store properties(3) (21 ) 40,354 40,333
Total net operating income(2) $ 57,959 $ 115,153 $ 13,026 $ 186,138
Add/(deduct):
Interest expense (50,501 )
Depreciation and amortization (111,826 )
General and administrative expenses (22,089 )
Gain on sale of real estate 2,495
Loss on extinguishment of debt (1,178 )
Real estate impairment (1,886 )
Income from continuing operations 1,153
Discontinued operations:
Income from operations of properties sold or held for sale 24,477
Net income 25,630
Less: Net loss attributable to noncontrolling interests in subsidiaries
Net income attributable to the controlling interests $ 25,630
The following table contains a reconciliation of net income to core funds from operations for the periods presented (in thousands, except per share amounts):
Quarter Ended

December 31,

Year Ended

December 31,

2019 2018 2019 2018
Net income $ 54,198 $ 5,688 $ 383,550 $ 25,630
Add/(deduct):
Real estate depreciation and amortization 38,812 28,692 136,253 111,826
Gain on sale of depreciable real estate (61,007 ) (59,961 ) (2,495 )
Real estate impairment 8,374 1,886
Discontinued operations:
Gain on sale of real estate (339,024 )
Real estate depreciation and amortization 2,417 4,926 9,402
NAREIT funds from operations(1) 32,003 36,797 134,118 146,249
Add:
Loss on extinguishment of debt 764 1,178
Restructuring expenses 270 3,019
Core funds from operations(1) $ 32,273 $ 36,797 $ 137,901 $ 147,427
Quarter Ended

December 31,

Year Ended

December 31,

Per share data: 2019 2018 2019 2018
NAREIT FFO (Basic) $ 0.39 $ 0.46 $ 1.67 $ 1.85
(Diluted) $ 0.39 $ 0.46 $ 1.66 $ 1.84
Core FFO (Basic) $ 0.40 $ 0.46 $ 1.71 $ 1.86
(Diluted) $ 0.40 $ 0.46 $ 1.71 $ 1.86
Weighted average shares outstanding – basic 81,220 79,748 80,257 78,960
Weighted average shares outstanding – diluted 81,313 79,760 80,335 79,042
CONTACT:
Amy Hopkins
Vice President, Investor Relations
E-Mail: ahopkins@washreit.com

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Housing Statistics in Canada Residential real estate investors and investment properties in 2020

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Overview

For the first time, the Canadian Housing Statistics Program (CHSP) is publishing data on investors. This article presents a profile of these owners and the residential properties they owned in the provinces of Nova Scotia, New Brunswick, Ontario, Manitoba and British Columbia in 2020.

Key findings

  • The proportion of investors among owners varied from 20.2% in Ontario to 31.5% in Nova Scotia.
  • Among houses and condominium apartments, just under one in five properties was used as an investment in British Columbia, Manitoba, Ontario, New Brunswick and Nova Scotia combined.
  • Condominium apartments were used as an investment more often than houses (single-detached houses, semi-detached houses, row houses, and mobile homes). Ontario topped the list with the highest rate of condominium apartments used as an investment, at 41.9%.
  • Houses used as an investment were mainly owned by individuals living in the same province as the property.

Introduction

Residential properties can be owned for several reasons: for use as a primary place of residence, but also for occasional use as a secondary residence, to generate income or other investment purposes. When properties are owned by investors, they can contribute to the rental housing supply—and therefore meet the population’s need for rental housing—but that can also limit the number of properties available to buyers who intend to use it as a primary place of residence. Data from the 2021 Census showed that the proportion of Canadian households who owned their home fell from 69.0% in 2011 to 66.5% in 2021. This article distinguishes between investors and other types of owners to better understand the profile of investors, what they own, and the role they play in the market.

This topic is especially important since, in the United States, the study by Haughwout et al. (2011) showed an increase in the proportion of investors among buyers from 2000 to 2007, when a housing bubble emerged. These borrowers then contributed considerably to the rise in delinquency rates during the 2007/2008 housing crisis. Analyzing the subsequent period in the United States (2009 to 2013), the study by Allen et al. (2018) also found that an increase in the percentage of houses purchased by investors in a given area led to higher prices in that market.

North of the border, the Bank of Canada (2022) analyzed the importance of investors—defined as buyers who own multiple mortgaged properties—and found an increase in the proportion of purchases by investors in Canada in the first half of 2021. Teranet (2022) made a similar observation in an analysis of transactions carried out by owners of multiple properties in Ontario. The Canada Mortgage and Housing Corporation (2016) also investigated investors — defined as households who own a primary residence and at least one secondary condominium unit — using a survey of condominium owner households in Toronto and Vancouver. They found that 48.4% of investors in 2015 stated that their secondary unit was rented out while 42.0% stated that they or a family member were using the unit.

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In this release, the CHSP follows a different approach by identifying properties owned by investors among the entire stock of residential properties in Nova Scotia, New Brunswick, Ontario, Manitoba and British Columbia for the reference year 2020.Note The findings provide a snapshot of the situation in these provinces before the COVID-19 pandemic and can therefore be used as a point of comparison to determine the effects of the public health crisis when examining subsequent years.

What is an investor?

In this analysis, owners are divided into three categories: investors, investor-occupants, and non-investors.

An investor is defined as an owner who owns at least one residential property that is not used as their primary place of residence. Individual owners who own a single property in the same province as where they reside are not considered investors, so long as it is not a property with multiple units.

Specifically, the following owners are considered to be investors:

  • A business or government that owns at least one residential property, excluding Canadian non-profit organizations.Note Given the predominance of businesses in this category, they will simply be referred to as “business” in what follows.
  • An individual owner who is not resident in Canada, referred to as a “non-resident investor” below.
  • An individual owner who lives outside the province where they own residential property, referred to as an “out-of-province investor” in the province of the non-principal residence.
  • An individual owner who lives in the province and owns two or more residential properties, or owns a property with multiple residential units who does not occupy that property. These individuals will be referred to as “in-province investors”.

The investor category thus can include, among others, secondary residence owners, landlords, short-term rental owners, developers, for-profit businesses and speculators.

An owner is classified as an investor-occupant if they own a single property with multiple residential units, one of which is their primary place of residence. For example, this category includes owners of a house with a laneway unit or basement suite and owners of a duplex who live in one of the units. In all cases, at least one of the units must be occupied by one of the owners.

An owner is classified as a non-investor when they are not an investor or an investor-occupant. This category primarily includes owners who live in the province where the property is located, who own a single property, and this property does not have multiple residential units. Canadian non-profit businesses are also included in this category.Note

More than one in five owners is an investor

For British Columbia, Manitoba, Ontario, New Brunswick and Nova Scotia combined, CHSP data show that a total of 21.9% of owners were investors in 2020. The proportion of investors was higher in Nova Scotia (31.5%) and New Brunswick (29.0%) than in British Columbia (23.3%), Manitoba (20.4%), and Ontario (20.2%).

Chart 1: Distribution of owners, by investor status

Data table for Chart 1

This difference is largely due to a higher proportion of vacant land in the two Atlantic provinces, which is a type of property often owned in addition to the primary place of residence. The proportion of investors who live in the province and own one or two pieces of vacant land in addition to their primary place of residence was 6.7% in Nova Scotia and 7.7% in New Brunswick. If we remove this type of investor, the rate of investors falls to 24.8% in Nova Scotia and 21.3% in New Brunswick. The proportions of investors are then more comparable to those of the other provinces.

Given that the stock of vacant land is proportionally lower and more expensive in British Columbia and Ontario, less than 2% of owners in these provinces were in-province investors who owned one or two pieces of vacant land in addition to their primary place of residence. In Manitoba, the proportion of homeowners in this situation was also low, at 2.5%.

Investor-occupants are more common in British Columbia, where they made up 9.6% of owners. This higher proportion is mostly due to the composition of the housing stock. In this province, properties with multiple residential units represented 11.7% of the stock, a higher proportion than in the other provinces, where it varied from 2.9% in Ontario to 5.7% in Nova Scotia. This higher percentage in British Columbia was mostly attributable to many residences with a laneway unit or a basement suite among properties with multiple residential units. These kinds of properties were more likely to be occupied by the owner when compared to apartment buildings in British Columbia and elsewhere.

How is the investment status of the property defined?

An analysis of properties used as an investment helps clarify the role that investors play in the housing market. The investment status of the property is determined by analyzing the investor status of the owner and the use of the property. Properties are divided into one of the following three categories: an investment property, an owner-occupied investment property, and a non-investment property.Note

An investment property is defined as a property owned by at least one investor that is not the primary place of residence of any of the owners. This can include, for example, a rented property with one or more units, a cottage or a property owned for speculative purposes.

If the property is not included in the previous category, it can be considered an owner-occupied investment property if it is a property with multiple residential units where at least one of the owners occupies a unit.Note

Finally, the non-investment property category includes properties owned only by non-investors or those used as a primary place of residence by at least one of the owners.

The proportion of investment properties varies greatly by the type of property analyzed. Vacant land and properties with multiple residential units are used more for investment than single-detached houses, semi-detached houses, row houses, and mobile homes — which we refer to as “houses” in this article — and condominium apartments.

In all the provinces analyzed in this study combined, more than 9 in 10 vacant lots were investment properties or were owned by a non-profit organization. The remainder were owned by individuals residing in the province where they owned a single vacant lot. Similarly, for all these provinces, 96.7% of properties with multiple residential units were either investment properties (45.6%) or owner-occupied investment properties (51.1%), while the rest were owned by non-profit organizations. However, these proportions varied from one province to another. In British Columbia, 73.0% of properties with multiple dwellings were owner-occupied investment properties. By contrast, in the other provinces, the majority of properties with multiple dwellings were investment properties, with the proportion reaching 72.0% in Manitoba.

As a result, provinces with a large stock of vacant land, such as New Brunswick and Nova Scotia, and those with a high proportion of properties with multiple residential units, such as British Columbia, had high rates of investors or investor-occupants. The portrait shifts when the focus is on houses and condominium apartments, which are more likely to be owner-occupied, and therefore not used for investment purposes. In the following sections, the analysis of properties focuses exclusively on houses and condominium apartments, and excludes properties with multiple dwellings and vacant land.

In Nova Scotia, more than 1 in 20 houses is used as an investment by a person living outside the province or the country

The analysis by property type found that investors were drawn more to condominium apartments than houses. The share of houses used as an investment varied from 14.3% in New Brunswick to 20.1% in Nova Scotia, with an overall average of 15.6% for all five provinces. By comparison, this same statistic for condominium apartments was 39.4%. For the five provinces, a total of 918,695 houses were used as an investment, 584,615 of which were in Ontario. A regional analysis found that the proportion of houses used as an investment was generally higher in more touristic regions, where there may be more cottages.

In-province investors owned, as investment properties, between 8.7% of the houses in New Brunswick and 12.4% in Nova Scotia, and, as such, they owned more houses used as an investment than all the other types of investors combined.

Chart 2: Proportions of houses used as an investment, by investor type

Data table for Chart 2

Out-of-province investors owned proportionally fewer houses used as an investment in Ontario (0.3%) than out-of-province investors in the other provinces, which is likely partly due to higher real estate prices in Ontario than most of the provinces. Nova Scotia, New Brunswick and British Columbia seemed more popular with out-of-province investors, who owned, as investments, 2.3%, 1.6% and 1.7% of houses, respectively. New Brunswick and Nova Scotia may have attracted residents from other provinces with lower average housing prices than in other provinces. As for British Columbia, the number of out-of-province investors was particularly high in the areas near the Alberta border. In British Columbia, non-residents and out-of-province investors owned 43,890 houses used as an investment.

Condominium apartments are more popular with investors than houses

The share of condominium apartments used as an investment was higher than for houses, varying from 22.6% in New Brunswick to 41.9% in Ontario and totalling 39.4% for all five provinces. Although this share was higher in Ontario and British Columbia (36.2%) than in Manitoba (29.2%) and New Brunswick, this does not appear to be attributable to the large census metropolitan areas (CMAs) in those provinces. In fact, the rate of condominium apartments used as investment was lower in the CMAs of Toronto (36.2%) and Vancouver (34.0%) than the rate in the rest of their respective provinces.

Chart 1: Proportion of condominium apartments used as an investment, by investor type

Data table for Chart 3

There was a higher rate of business-owned investment properties among the condominium apartment stock than in the stock of houses. In Ontario, businesses owned 74,485 condominium apartments for investment purposes, or 13.4% of all properties of this type, which is the highest share among the provinces analyzed. Nevertheless, most condominium apartments used as an investment in both Ontario and Manitoba were owned by in-province investors. In the other jurisdictions, this was not the case.

The proportion of condominium apartments owned for investment purposes by non-resident investors was the highest in British Columbia (7.0%), followed by Ontario (5.6%).

More investment properties outside CMAs and census agglomerations (CAs) seem to be used as a secondary residence

While some investors rent out their investment property, others may use it as a secondary residence. Properties located outside CMAs and CAs are more likely to be used as secondary or recreational properties, such as cottages, when the owners are residents of the province and only own one additional property outside the region of their primary residence.Note These properties may or may not be rented.

Outside the major centres, this type of investment made up between 3.2% of houses and condominium apartments in New Brunswick and 11.1% in Ontario. In the latter, this amounted to 70,610 properties, or 1.6% of all houses and condominium apartments in the province. Of these, more than 99% were houses, while condominium apartments, which are less common outside major centres, represented less than 1% of the investment properties of this type.

In British Columbia and, to a lesser extent, Nova Scotia, the share of potential secondary residences owned by out-of-province investors was higher than in the other jurisdictions. In British Columbia, investment properties owned by out-of-province residents represented 6.3% of the houses and condominium apartments outside CMAs and CAs, while the figure for Nova Scotia was 3.5%.

Chart 4: Proportion of investment properties outside CMAs and CAs among condominium apartments and houses

Data table for Chart 4

Although a secondary residence could also be a pied-à-terre in the city, this seemed less common. In large urban centres, the proportion of houses and condominium apartments used as an investment owned by residents from outside the region or the province was lower than in areas outside CMAs or CAs. This proportion was highest in the CAs and CMAs in Nova Scotia (2.2%) and British Columbia (2.2%). In CMAs and CAs of the five provinces, the second property of in-province investors living in a different region was more often a condominium (23.0% of cases) than was the case outside major centres.

Chart 5: Proportion of investment properties among condominium apartments and houses, CMAs and CAs

Data table for Chart 5

In the Toronto and Vancouver CMAs, investment properties were concentrated in the downtown core

In both Toronto and Vancouver CMAs, there was a higher proportion of investment properties in the core census subdivisions (CSDs). In the Vancouver CMA, the Greater Vancouver ANote CSD was the one exception, with a higher proportion of houses and condominium apartments used as an investment (42.1%) than in the other CSDs in the region. This is consistent with other trends observed for Greater Vancouver A. According to the 2021 Census, this CSD had a higher proportion of renters (57.3% of households) than in the rest of the CMA. This difference is partially due to the students who attend the University of British Columbia, which is located in this area. Students are more likely to be renters, but they could also be owners, or they could live in a second property owned by a family member. In addition, this CSD had the highest non-resident ownership rate (14.9%) in the CMA in 2020.

In the City of Vancouver, which is the core CSD, the proportion of houses and condominium apartments used as an investment was 32.5%, the second highest proportion in the Vancouver CMA, which had an overall rate of 21.3%. The higher share of investment properties in the core CSD is partly due to a greater concentration of condominium apartments, which are more often used as an investment. However, even considering condominium apartments and single detached houses separately, both had a higher rate of properties used as an investment in the Vancouver CSD than in the rest of the CMA.

Map 1: Proportion of houses and condominium apartments used as an investment by census subdivision. Toronto and Vancouver census metropolitan areas, 2020

Description for Map 1

The finding was similar in Toronto, where the proportion of investment properties was higher in the core CSD of the City of Toronto (21.7%) than in the CMA as a whole (16.3%). For the CSD, this amounts to 112,220 condominium apartments and 52,935 houses used as an investment.

Note to readers

The Canadian Housing Statistics Program (CHSP) is an innovative data project that leverages existing data sources and transforms them into new and timely indicators on Canadian housing.

The data in this study are compiled from the CHSP for the reference year 2020. Complete information about the reference years of the property stock, by province and territory, are available here.

Methodology

Investor status and investment status of the residential property take into consideration the type of property as obtained by our data providers. Certain properties may have secondary units that are not known to the authorities. As a result, we cannot account for them. The counts and distribution of properties are calculated based on the property classifications established by the CHSP. These may differ from the ones used by local authorities.

Once the property is categorized as an investment property, a subcategory is created to determine the type of investment property. This is based on the type of investor who owns it. The order of priority is as follows:

  1. Investment property owned by at least one business or one government;
  2. Investment property owned by at least one non-resident individual;
  3. Investment property owned by at least one out-of-province individual;
  4. Investment property owned by an individual living in the province.

Properties cannot be included in more than one investment property category. If the property has multiple owners with various profiles, once an owner fits in one of the categories, by order of priority, then the property is included in that category.

Geographical boundaries

In CHSP releases, data are based on the geographical boundaries from the Standard Geographical Classification 2016.

The CHSP database does not contain information about residential properties on Indian reserves.

Definitions

property owner refers to an individual or an entity included in the classification of ‘business and government’ (such as corporations, governments, sole proprietorships and partnerships, and other legal types) that has property title transferred to, recorded in, registered in, or otherwise carried in their name.

A property may have more than one owner or an owner may have more than one property, therefore the count of owners and properties can differ.

An individual is considered a non-resident if their primary dwelling is outside the economic territory of Canada.

The core of a geographic area, for the purposes of this release, refers to the census subdivision (CSD) within a census metropolitan area (CMA) with the highest number of residential properties.

An investor is defined as an owner who owns at least one residential property that is not used as their primary place of residence, excluding Canadian non-profit organizations. An individual owner who owns a single property in the same province as where they reside is not considered an investor, so long as it is not a property with multiple residential units. This category excludes investor-occupants.

An investor-occupant is defined as an owner who possesses a single property with multiple residential units and who occupies that property.

non-investor is defined as an owner who is not an investor or an investor-occupant. An owner who lives in the same province as where the property is owned and owns a single property is included in this category, so long as it is not a property with multiple residential units.

An investment property refers to a residential property owned by at least one investor and is not used as a primary place of residence by any of the owners. This category excludes owner-occupied investment properties.

An owner-occupied investment property refers to a property with multiple residential units where at least one of the owners occupies a unit.

non-investment property refers to a property held solely by non-investors or a property being used as a primary place of residence by at least one of the owners and that is not an owner-occupied investment property.

The term unspecified investment property status refers to properties whose owner is unknown, and therefore the investment status of the property cannot be determined.

property with multiple residential units refers to a property containing more than one set of living quarters owned by the same owner(s), as is the case for an apartment building or a duplex or a property with two houses on the same lot.

condominium apartment refers to a set of living quarters that is owned individually, while land and common elements are held in joint ownership with others.

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