Company Quick10K Filing
Washington REIT
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 80 $2,196
10-Q 2019-10-29 Quarter: 2019-09-30
10-Q 2019-07-30 Quarter: 2019-06-30
10-Q 2019-04-29 Quarter: 2019-03-31
10-K 2019-02-19 Annual: 2018-12-31
10-Q 2018-10-29 Quarter: 2018-09-30
10-Q 2018-07-30 Quarter: 2018-06-30
10-Q 2018-05-01 Quarter: 2018-03-31
10-K 2018-02-20 Annual: 2017-12-31
10-Q 2017-10-31 Quarter: 2017-09-30
10-Q 2017-07-31 Quarter: 2017-06-30
10-Q 2017-04-28 Quarter: 2017-03-31
10-K 2017-02-21 Annual: 2016-12-31
10-Q 2016-11-02 Quarter: 2016-09-30
10-Q 2016-08-01 Quarter: 2016-06-30
10-Q 2016-04-28 Quarter: 2016-03-31
10-K 2016-02-26 Annual: 2015-12-31
10-Q 2015-11-04 Quarter: 2015-09-30
10-Q 2015-08-05 Quarter: 2015-06-30
10-Q 2015-05-05 Quarter: 2015-03-31
10-K 2015-03-02 Annual: 2014-12-31
10-Q 2014-10-31 Quarter: 2014-09-30
10-Q 2014-08-05 Quarter: 2014-06-30
10-Q 2014-05-08 Quarter: 2014-03-31
10-K 2014-03-03 Annual: 2013-12-31
10-Q 2013-11-01 Quarter: 2013-09-30
10-Q 2013-07-31 Quarter: 2013-06-30
10-Q 2013-05-09 Quarter: 2013-03-31
10-K 2013-02-27 Annual: 2012-12-31
10-Q 2012-11-07 Quarter: 2012-09-30
10-Q 2012-08-08 Quarter: 2012-06-30
10-Q 2012-05-07 Quarter: 2012-03-31
10-Q 2011-11-08 Quarter: 2011-09-30
10-Q 2011-08-08 Quarter: 2011-06-30
10-Q 2011-05-06 Quarter: 2011-03-31
10-K 2011-02-25 Annual: 2010-12-31
10-Q 2010-11-04 Quarter: 2010-09-30
10-Q 2010-08-06 Quarter: 2010-06-30
10-Q 2010-05-05 Quarter: 2010-03-31
10-K 2010-02-26 Annual: 2009-12-31
8-K 2019-10-24 Earnings, Regulation FD, Exhibits
8-K 2019-07-25 Earnings, Regulation FD, Exhibits
8-K 2019-07-23 M&A, Exhibits
8-K 2019-06-27 M&A, Regulation FD, Exhibits
8-K 2019-06-26 Enter Agreement, Regulation FD, Exhibits
8-K 2019-05-30 Officers, Shareholder Vote, Regulation FD, Exhibits
8-K 2019-04-30 Enter Agreement, M&A, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2019-04-24 Earnings, Regulation FD, Exhibits
8-K 2019-04-02 Enter Agreement, Regulation FD, Exhibits
8-K 2019-03-18 Officers
8-K 2019-03-01 Other Events, Exhibits
8-K 2019-02-14 Earnings, Regulation FD, Exhibits
8-K 2019-02-11 Officers
8-K 2019-02-05 Officers
8-K 2018-11-26 Regulation FD
8-K 2018-10-25 Earnings, Regulation FD, Exhibits
8-K 2018-07-26 Earnings, Regulation FD, Exhibits
8-K 2018-05-31 Shareholder Vote
8-K 2018-05-04 Other Events, Exhibits
8-K 2018-04-25 Earnings, Regulation FD, Exhibits
8-K 2018-03-29 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-20 Other Events, Exhibits
8-K 2018-02-15 Earnings, Regulation FD, Exhibits
8-K 2018-01-18 M&A, Regulation FD, Exhibits
8-K 2017-12-29 Enter Agreement, Regulation FD, Exhibits
WRE 2019-09-30
Part I
Item 1: Financial Statements
Note 1: Nature of Business
Note 2: Summary of Significant Accounting Policies and Basis of Presentations
Note 3: Real Estate
Note 4: Lease Accounting
Note 5: Unsecured Line of Credit Payable
Note 6: Notes Payable
Note 7: Derivative Instruments
Note 8: Fair Value Disclosures
Note 9: Stock Based Compensation
Note 10: Earnings per Common Share
Note 11: Segment Information
Note 12: Shareholders' Equity
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part II
Item 1: Legal Proceedings
Item 1A: Risk Factors
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Item 3: Defaults Upon Senior Securities
Item 4: Mine Safety Disclosures
Item 5: Other Information
Item 6: Exhibits
EX-31.1 wre-09302019exhibit311.htm
EX-31.2 wre-09302019exhibit312.htm
EX-31.3 wre-09302019xexhibit313.htm
EX-32 wre-09302019exhibit32.htm

Washington REIT Earnings 2019-09-30

WRE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
FMHI 2,762 1 0 0 0 -1 -1 2,761 40% -2,988.4 -172%
ACV 2,587 2,050 528 1,663 866 173 248 2,275 52% 9.2 8%
LXP 2,283 2,997 1,653 349 0 299 523 2,222 0% 4.2 10%
WRE 2,196 2,818 1,807 325 211 8 185 2,188 65% 11.8 0%
CNTF 2,064 349 61 0 0 0 0 2,149 0%
NMRK 1,819 3,507 2,464 2,053 0 189 416 2,237 0% 5.4 5%
ACT 1,672 1 0 0 0 -1 -1 1,672 0% -2,226.7 -153%
CSA 1,667 692 530 139 0 -31 11 1,650 0% 152.9 -5%
WSC 1,561 2,796 2,112 1,179 392 -65 95 3,267 33% 34.6 -2%
FTAI 1,310 3,089 2,050 523 0 20 254 2,788 0% 11.0 1%

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-Q
 ___________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
COMMISSION FILE NO. 1-6622
WASHINGTON REAL ESTATE INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
Maryland
 
53-0261100
(State of incorporation)
 
(IRS Employer Identification Number)
1775 EYE STREET, NW, SUITE 1000, WASHINGTON, DC 20006
(Address of principal executive office) (Zip code)
Registrant’s telephone number, including area code: (202774-3200
___________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Shares of Beneficial Interest
WRE
NYSE
Securities registered pursuant to Section 12(g) of the Act: None
 ___________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
 
 
Emerging Growth Company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No   
As of October 24, 2019, 80,594,744 common shares were outstanding.
 



WASHINGTON REAL ESTATE INVESTMENT TRUST
INDEX
 
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

3


PART I
FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

The information furnished in the accompanying unaudited Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income, Consolidated Statements of Equity and Consolidated Statements of Cash Flows reflects all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes for the three years ended December 31, 2018 included in Washington Real Estate Investment Trust’s 2018 Annual Report on Form 10-K.

4


WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
 
 
September 30, 2019
 
December 31, 2018
 
(Unaudited)
 
Assets
 
 
 
Land
$
611,797

 
$
526,572

Income producing property
2,486,966

 
2,055,349

 
3,098,763

 
2,581,921

Accumulated depreciation and amortization
(724,433
)
 
(669,281
)
Net income producing property
2,374,330

 
1,912,640

Properties under development or held for future development
110,572

 
87,231

Total real estate held for investment, net
2,484,902

 
1,999,871

Investment in real estate held for sale, net

 
203,410

Cash and cash equivalents
12,931

 
6,016

Restricted cash
1,578

 
1,624

Rents and other receivables
69,414

 
63,962

Prepaid expenses and other assets
106,251

 
123,670

Other assets related to properties held for sale

 
18,551

Total assets
$
2,675,076

 
$
2,417,104

Liabilities
 
 
 
Notes payable, net
$
996,455

 
$
995,397

Mortgage notes payable, net
47,319

 
48,277

Line of credit
211,000

 
188,000

Accounts payable and other liabilities
75,735

 
57,946

Dividend payable

 
24,022

Advance rents
9,475

 
9,965

Tenant security deposits
10,849

 
9,501

Other liabilities related to properties held for sale

 
15,518

Total liabilities
1,350,833

 
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; 80,292 and 79,910 shares issued and outstanding, as of September 30, 2019 and December 31, 2018, respectively
803

 
799

Additional paid in capital
1,539,734

 
1,526,574

Distributions in excess of net income
(212,978
)
 
(469,085
)
Accumulated other comprehensive (loss) income
(3,659
)
 
9,839

Total shareholders’ equity
1,323,900

 
1,068,127

Noncontrolling interests in subsidiaries
343

 
351

Total equity
1,324,243

 
1,068,478

Total liabilities and equity
$
2,675,076

 
$
2,417,104

 

See accompanying notes to the consolidated financial statements.

5


WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED) 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
Real estate rental revenue
$
80,259

 
$
71,001

 
$
228,513

 
$
219,990

Expenses
 
 
 
 
 
 
 
Real estate expenses
30,692

 
25,988

 
84,969

 
79,938

Depreciation and amortization
37,340

 
27,951

 
97,441

 
83,134

General and administrative expenses
6,045

 
5,267

 
18,517

 
16,737

Lease origination expenses
416

 

 
1,286

 

Real estate impairment

 

 
8,374

 
1,886

 
74,493

 
59,206

 
210,587

 
181,695

(Loss) gain on sale of real estate

 

 
(1,046
)
 
2,495

Real estate operating income
5,766

 
11,795

 
16,880

 
40,790

Other expense
 
 
 
 
 
 
 
Interest expense
(14,198
)
 
(12,342
)
 
(41,946
)
 
(38,155
)
Loss on extinguishment of debt

 

 

 
(1,178
)
 
(14,198
)
 
(12,342
)
 
(41,946
)
 
(39,333
)
(Loss) income from continuing operations
(8,432
)
 
(547
)
 
(25,066
)
 
1,457

Discontinued operations:
 
 
 
 
 
 
 
Income from operations of properties sold or held for sale
2,942

 
6,440

 
16,158

 
18,485

Gain on sale of real estate
339,024

 

 
339,024

 

Loss on extinguishment of debt
(764
)
 

 
(764
)
 

       Income from discontinued operations
341,202

 
6,440

 
354,418

 
18,485

Net income
332,770

 
5,893

 
329,352

 
19,942

Less: Net income attributable to noncontrolling interests in subsidiaries

 

 

 

Net income attributable to the controlling interests
$
332,770

 
$
5,893

 
$
329,352

 
$
19,942

 
 
 
 
 
 
 
 
Basic net (loss) income attributable to the controlling interests per share:
 
 
 
 
 
 
 
Continuing operations
$
(0.10
)
 
$
(0.01
)
 
$
(0.31
)
 
$
0.01

Discontinued operations
4.24

 
0.08

 
4.41

 
0.23

Net income attributable to the controlling interests per share (1)
$
4.14

 
$
0.07

 
$
4.10

 
$
0.25

 
 
 
 
 
 
 
 
Diluted net (loss) income attributable to the controlling interests per share:
 
 
 
 
 
 
 
Continuing operations
$
(0.10
)
 
$
(0.01
)
 
$
(0.31
)
 
$
0.01

Discontinued operations
4.24

 
0.08

 
4.41

 
0.23

Net income attributable to the controlling interests per share (1)
$
4.14

 
$
0.07

 
$
4.10

 
$
0.25

Weighted average shares outstanding – basic
79,981

 
79,076

 
79,933

 
78,695

Weighted average shares outstanding – diluted
79,981

 
79,076

 
79,933

 
78,802

(1) Earnings per share may not sum due to rounding

See accompanying notes to the consolidated financial statements.

6


WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
332,770

 
$
5,893

 
$
329,352

 
$
19,942

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Unrealized (loss) gain on interest rate hedges
(2,387
)
 
1,474

 
(13,498
)
 
7,762

Comprehensive income
330,383

 
7,367

 
315,854

 
27,704

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

Comprehensive income attributable to the controlling interests
$
330,383

 
$
7,367

 
$
315,854

 
$
27,704


See accompanying notes to the consolidated financial statements.


7


WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS)
(UNAUDITED)
 
 
Shares Issued and Out-standing
 
Shares of Beneficial Interest at Par Value
 
Additional Paid in Capital
 
Distributions in Excess of
Net Income
 
Accumulated Other Comprehensive Income (Loss)
 
Total Shareholders’ Equity
 
Noncontrolling Interests in Subsidiaries
 
Total Equity
Balance, December 31, 2018
79,910

 
$
799

 
$
1,526,574

 
$
(469,085
)
 
$
9,839

 
$
1,068,127

 
$
351

 
$
1,068,478

Cumulative effect of change in accounting principle (see note 4)

 

 

 
(906
)
 

 
(906
)
 

 
(906
)
Net income attributable to the controlling interests

 

 

 
329,352

 

 
329,352

 

 
329,352

Unrealized loss on interest rate hedges

 

 

 

 
(13,498
)
 
(13,498
)
 

 
(13,498
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(8
)
 
(8
)
Dividends

 

 

 
(72,339
)
 

 
(72,339
)
 

 
(72,339
)
Equity issuances, net of issuance costs
145

 
2

 
3,679

 

 

 
3,681

 

 
3,681

Shares issued under dividend reinvestment program
128

 
1

 
3,429

 

 

 
3,430

 

 
3,430

Share grants, net of forfeitures and tax withholdings
109

 
1

 
6,052

 

 

 
6,053

 

 
6,053

Balance, September 30, 2019
80,292

 
$
803

 
$
1,539,734

 
$
(212,978
)
 
$
(3,659
)
 
$
1,323,900

 
$
343

 
$
1,324,243



 
Shares Issued and Out-standing
 
Shares of Beneficial Interest at Par Value
 
Additional Paid in Capital
 
Distributions in Excess of
Net Income
 
Accumulated Other Comprehensive Income
 
Total Shareholders’ Equity
 
Noncontrolling Interests in Subsidiaries
 
Total Equity
Balance, December 31, 2017
78,510

 
$
785

 
$
1,483,980

 
$
(399,213
)
 
$
9,419

 
$
1,094,971

 
$
365

 
$
1,095,336

Net income attributable to the controlling interests

 

 

 
19,942

 

 
19,942

 

 
19,942

Unrealized gain on interest rate hedges

 

 

 

 
7,762

 
7,762

 

 
7,762

Distributions to noncontrolling interests

 

 

 

 

 

 
(11
)
 
(11
)
Dividends

 

 

 
(71,478
)
 

 
(71,478
)
 

 
(71,478
)
Equity issuances, net of issuance costs
1,165

 
11

 
35,461

 

 

 
35,472

 

 
35,472

Shares issued under dividend reinvestment program
74

 
1

 
1,810

 

 

 
1,811

 

 
1,811

Share grants, net of forfeitures and tax withholdings
95

 
1

 
4,874

 

 

 
4,875

 

 
4,875

Balance, September 30, 2018
79,844

 
$
798

 
$
1,526,125

 
$
(450,749
)
 
$
17,181

 
$
1,093,355

 
$
354

 
$
1,093,709


See accompanying notes to the consolidated financial statements.





8


WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS)
(UNAUDITED)

 
Shares Issued and Out-standing
 
Shares of Beneficial Interest at Par Value
 
Additional Paid in Capital
 
Distributions in Excess of
Net Income
 
Accumulated Other Comprehensive Loss
 
Total Shareholders’ Equity
 
Noncontrolling Interests in Subsidiaries
 
Total Equity
Balance, June 30, 2019
80,082

 
$
801

 
$
1,532,497

 
$
(521,661
)
 
$
(1,272
)
 
$
1,010,365

 
$
343

 
$
1,010,708

Net income attributable to the controlling interests

 

 

 
332,770

 

 
332,770

 

 
332,770

Unrealized loss on interest rate hedges

 

 

 

 
(2,387
)
 
(2,387
)
 

 
(2,387
)
Dividends

 

 

 
(24,087
)
 

 
(24,087
)
 

 
(24,087
)
Equity offerings, net of issuance costs
145

 
2

 
3,679

 

 

 
3,681

 

 
3,681

Shares issued under Dividend Reinvestment Program
64

 

 
1,757

 

 

 
1,757

 

 
1,757

Share grants, net of share grant amortization and forfeitures
1

 

 
1,801

 

 

 
1,801

 

 
1,801

Balance, September 30, 2019
80,292

 
$
803

 
$
1,539,734

 
$
(212,978
)
 
$
(3,659
)
 
$
1,323,900

 
$
343

 
$
1,324,243



 
Shares Issued and Out-standing
 
Shares of Beneficial Interest at Par Value
 
Additional Paid in Capital
 
Distributions in Excess of
Net Income
 
Accumulated Other Comprehensive Income
 
Total Shareholders’ Equity
 
Noncontrolling Interests in Subsidiaries
 
Total Equity
Balance, June 30, 2018
78,661

 
$
787

 
$
1,488,366

 
$
(432,585
)
 
$
15,707

 
$
1,072,275

 
$
358

 
$
1,072,633

Net income attributable to the controlling interests

 

 

 
5,893

 

 
5,893

 

 
5,893

Unrealized gain on interest rate hedges

 

 

 

 
1,474

 
1,474

 

 
1,474

Distributions to noncontrolling interests

 

 

 

 

 

 
(4
)
 
(4
)
Dividends

 

 

 
(24,057
)
 

 
(24,057
)
 

 
(24,057
)
Equity issuances, net of issuance costs
1,165

 
11

 
35,461

 

 

 
35,472

 

 
35,472

Shares issued under dividend reinvestment program
18

 

 
565

 

 

 
565

 

 
565

Share grants, net of forfeitures and tax withholdings

 

 
1,733

 

 

 
1,733

 

 
1,733

Balance, September 30, 2018
79,844

 
$
798

 
$
1,526,125

 
$
(450,749
)
 
$
17,181

 
$
1,093,355

 
$
354

 
$
1,093,709



See accompanying notes to the consolidated financial statements.

9



WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
 
 
 
 
 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
329,352

 
$
19,942

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
102,367

 
90,119

Credit (recoveries) losses on lease related receivables
(45
)
 
1,077

Real estate impairment
8,374

 
1,886

Gain on sale of real estate
(337,978
)
 
(2,495
)
Share-based compensation expense
6,265

 
5,064

Amortization of debt premiums, discounts and related financing costs
2,632

 
1,565

Loss on extinguishment of debt
764

 
1,178

Changes in operating other assets
(12,353
)
 
(9,233
)
Changes in operating other liabilities
(8,098
)
 
(8,229
)
Net cash provided by operating activities
91,280

 
100,874

Cash flows from investing activities
 
 
 
Real estate acquisitions, net
(528,588
)
 
(106,400
)
Net cash received for sale of real estate
582,551

 
174,297

Capital improvements to real estate
(30,588
)
 
(33,437
)
Development in progress
(26,884
)
 
(25,036
)
Non-real estate capital improvements
(317
)
 
(626
)
Net cash (used in) provided by investing activities
(3,826
)
 
8,798

Cash flows from financing activities
 
 
 
Line of credit borrowings, net
23,000

 
17,000

Dividends paid
(96,361
)
 
(95,059
)
Principal payments – mortgage notes payable
(12,596
)
 
(169,480
)
Repayments of unsecured term loan debt
(450,000
)
 
(150,000
)
Proceeds from term loan
450,000

 
250,000

Payment of financing costs
(1,219
)
 
(5,565
)
Distributions to noncontrolling interests
(8
)
 
(11
)
Proceeds from dividend reinvestment program
3,430

 
1,811

Net proceeds from equity issuances
3,681

 
35,472

Payment of tax withholdings for restricted share awards
(512
)
 
(301
)
Net cash used in financing activities
(80,585
)
 
(116,133
)
Net increase (decrease) in cash, cash equivalents and restricted cash
6,869

 
(6,461
)
Cash, cash equivalents and restricted cash at beginning of period
7,640

 
12,623

Cash, cash equivalents and restricted cash at end of period
$
14,509

 
$
6,162

 
 
 
 

10


WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
 
 
 
 
 
Nine Months Ended September 30,
 
2019
 
2018
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amounts capitalized
$
34,481

 
$
32,021

Change in accrued capital improvements and development costs
13,638

 
6,352

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
Cash and cash equivalents
$
12,931

 
$
4,810

Restricted cash
1,578

 
1,352

Cash, cash equivalents and restricted cash
$
14,509

 
$
6,162


See accompanying notes to the consolidated financial statements.

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WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)

NOTE 1: NATURE OF BUSINESS

Washington Real Estate Investment Trust (“WashREIT”), a Maryland real estate investment trust, is a self-administered equity real estate investment trust, successor to a trust organized in 1960. Our business consists of the ownership and operation of income producing real estate properties in the greater Washington metro region. We own a diversified portfolio of commercial and multifamily buildings. During the 2019 Quarter (as defined below), we sold eight retail properties (see note 3). These properties met the criteria for classification as discontinued operations. The remaining retail properties do not meet the qualitative or quantitative criteria for a reportable segment (see note 11). The acquisitions of multifamily properties and dispositions of retail properties are part of a strategic shift away from the retail sector to the multifamily sector. This strategic shift simplifies our portfolio to two reportable segments (office and multifamily) and reduces our exposure to future retail lease expirations.

Federal Income Taxes

We believe that we qualify as a real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), and intend to continue to qualify as such. To maintain our status as a REIT, we are, among other things, required to distribute 90% of our REIT taxable income (which is, generally, our ordinary taxable income, with certain modifications), excluding any net capital gains and any deductions for dividends paid to our shareholders on an annual basis. When selling a property, we generally have the option of (a) reinvesting the sales proceeds of property sold, in a way that allows us to defer recognition of some or all taxable gain realized on the sale, (b) distributing gains to the shareholders with no tax to us or (c) treating net long-term capital gains as having been distributed to our shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to our shareholders.

Seven of the eight retail properties sold during the 2019 Quarter were identified for deferred exchanges under Section 1031 of the Code (see note 3). We acquired eight multifamily replacement properties (see note 3) during the 2019 Period (as defined below).

Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRSs”). Our TRSs are subject to corporate federal and state income tax on their taxable income at regular statutory rates, or as calculated under the alternative minimum tax, as appropriate. As of both September 30, 2019 and December 31, 2018, our TRSs had a deferred tax asset of $1.4 million that was fully reserved. As of both September 30, 2019 and December 31, 2018, we had deferred state and local tax liabilities of $0.6 million. These deferred tax liabilities are primarily related to temporary differences in the timing of the recognition of revenue, depreciation and amortization.

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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS

Significant Accounting Policies

We have prepared our consolidated financial statements using the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018, except as noted in note 4 related to our adoption of ASU 2016-02, Leases (Topic 842) as of January 1, 2019.

Pronouncements Adopted
Standard/Description
Effective Date and Adoption Considerations
Effect on Financial Statements or Other significant Matters
ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). This standard amends existing lease accounting standards for both lessees and lessors.

Lessees

Lessees must classify most leases as either finance or operating leases. For lease contracts, or contracts with an embedded lease, with a duration of more than one year in which we are the lessee, the present value of future lease payments are recognized on our consolidated balance sheets as a right-of-use asset and a corresponding lease liability.

Lessors

Lease contracts currently classified as operating leases are accounted for similarly as under existing guidance. However, lessors are required to account for each lease and non-lease component, such as common area maintenance or tenant service revenues, of a contract separately. In July 2018, the Financial Accounting Standards Board (“FASB”) issued 2018-11,
Leases (Topic 842) - Targeted Improvements (“ASU 2018-11”), which provides lessors optional transition relief from implementing this aspect of ASU 2016-02 if the following criteria are met: (1) both components have the same timing and pattern of revenue and (2) if accounted for separately, both components would be classified as an operating lease.

Also under ASU 2016-02, only incremental costs or initial direct costs of executing a lease contract qualify for capitalization, while prior accounting standards allowed for the capitalization of indirect leasing costs.
We adopted the new standard as of January 1, 2019.
We adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective approach and by applying the transitional practical expedients noted below. Under the modified retrospective approach, we recognized a cumulative effect adjustment of $0.9 million to retained earnings as of January 1, 2019 (see note 4 for further discussion of the impact of adoption on our consolidated financial statements). We did not elect the hindsight expedient, which would have allowed us to reevaluate lease terms in calculating lease liabilities as part of adoption.

Under ASU 2018-11, the FASB offered optional transition relief, if elected as a package, and applied consistently by an entity to all of its leases. Accordingly, upon adoption we elected, as a package, the practical expedients for all leases as follows: (1) we will not reassess whether any expired or existing contracts are or contain leases, (2) we will not reassess the lease classification for any expired or existing leases, and (3) we will not reassess initial direct costs for any existing leases.




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Pronouncements Not Yet Adopted
Standard/Description
Effective Date and Adoption Considerations
Effect on Financial Statements or Other significant Matters
ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires financial assets measured at an amortized cost basis, including trade receivables, to be presented at the net amount expected to be collected.
The new standard is effective for public entities for fiscal years beginning after December 15, 2019 and for interim periods therein, with adoption one year earlier permitted.
We are currently evaluating the impact the new standard may have on our consolidated financial statements.
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software. This standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets.
The standard is effective for public entities for fiscal years beginning after December 31, 2019 and for interim periods therein, with early adoption permitted.
We are currently evaluating the impact the new standard may have on our consolidated financial statements.


Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements include the consolidated accounts of WashREIT, our majority-owned subsidiaries and entities in which WashREIT has a controlling interest. All intercompany balances and transactions have been eliminated in consolidation.

We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. In addition, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the periods presented have been included. These unaudited financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.

Within these notes to the financial statements, we refer to the three months ended September 30, 2019 and September 30, 2018 as the “2019 Quarter” and the “2018 Quarter,” respectively, and the nine months ended September 30, 2019 and September 30, 2018 as the “2019 Period” and the “2018 Period,” respectively.

Discontinued Operations

We classify properties as held for sale when they meet the necessary criteria, which include: (a) senior management commits to a plan to sell the assets, (b) the assets are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of such assets, (c) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated, (d) the sale of the assets is probable, and transfer of the assets is expected to qualify for recognition as a completed sale, within one year, (e) the assets are being actively marketed for sale at a price that is reasonable in relation to its current fair value and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Depreciation on these properties is discontinued at the time they are classified as held for sale, but operating revenues, operating expenses and interest expense continue to be recognized until the date of sale.

Revenues and expenses of properties that are either sold or classified as held for sale are presented as discontinued operations for all periods presented in the consolidated statements of operations if the dispositions represent a strategic shift that has (or will have) a major effect on our operations and financial results. Interest on debt that can be identified as specifically attributed to these properties is included in discontinued operations. If the dispositions do not represent a strategic shift that has (or will have) a major effect on our operations and financial results, then the revenues and expenses of the properties that are classified as sold or held for sale are presented as continuing operations in the consolidated statements of operations for all periods presented.


14


Restricted Cash

Restricted cash includes funds escrowed for tenant security deposits, real estate tax, insurance and mortgage escrows and escrow deposits required by lenders on certain of our properties to be used for future building renovations or tenant improvements.

Use of Estimates in the Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 3: REAL ESTATE

Acquisitions

We acquired the following properties during the 2019 Period:
Acquisition Date
 
Property
 
Type
 
# of units (unaudited)
 
Contract
Purchase  Price
(in thousands)
April 30, 2019
 
Assembly Portfolio - Virginia (1)
 
Multifamily
 
1,685

 
$
379,100

June 27, 2019
 
Assembly Portfolio - Maryland (2)
 
Multifamily
 
428

 
82,070

July 23, 2019
 
Cascade at Landmark
 
Multifamily
 
277

 
69,750

 
 
 
 
 
 
2,390

 
$
530,920


(1) Consists of Assembly Alexandria, Assembly Manassas, Assembly Dulles, Assembly Leesburg, and Assembly Herndon.
(2) Consists of Assembly Germantown and Assembly Watkins Mill. The Assembly Portfolio - Virginia and Assembly Portfolio - Maryland properties are collectively the “Assembly Portfolio.”

The purchases of the Assembly Portfolio and Cascade at Landmark were structured as exchanges under Section 1031 of the Code in a manner such that legal title was held by an Exchange Accommodator until certain identified properties were sold and the deferred exchanges were completed. We retained all of the legal and economic benefits and obligations related to the Assembly Portfolio and Cascade at Landmark. As such, the Assembly Portfolio and Cascade at Landmark were considered to be variable interest entities until legal title was transferred to us upon completion of the 1031 exchanges, which occurred during the 2019 Quarter. We consolidated the assets and liabilities of the Assembly Portfolio and Cascade at Landmark because we determined that WashREIT was the primary beneficiary of the Assembly Portfolio and Cascade at Landmark.

The results of operations from the 2019 acquisitions are included in the consolidated statements of operations as of their acquisition dates and are as follows:
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Real estate rental revenue
$
11,013

 
$
16,467

Net loss
(4,698
)
 
(8,179
)


We accounted for the 2019 acquisitions as asset acquisitions. Accordingly, we capitalized $2.9 million of costs directly associated with the acquisitions. We measured the value of the acquired physical assets (land and building) and in-place leases (absorption costs) by allocating the total cost of the acquisitions on a relative fair value basis.


15


The total cost of the 2019 acquisitions was as follows (in thousands):
 
Assembly Portfolio
 
Cascade at Landmark
 
Total
Contract purchase price
$
461,170

 
$
69,750

 
$
530,920

Credit to buyer
(2,252
)
 

 
(2,252
)
Capitalized acquisition costs
2,362

 
498

 
2,860

Total
$
461,280

 
$
70,248

 
$
531,528



We have recorded the total cost of the 2019 acquisitions as follows (in thousands):
Land
$
92,391

Building
423,663

Absorption costs
15,474

Total
$
531,528


The weighted remaining average life for the absorption costs is two months.

The difference in the total cost of the acquisitions of $531.5 million and the acquisition cost per the consolidated statements of cash flows of $528.6 million is primarily due to credits received at settlement totaling $2.9 million.

Development/Redevelopment

We have properties under development/redevelopment and held for current or future development as of September 30, 2019.

In the multifamily segment, we have The Trove, a multifamily development adjacent to The Wellington, and own land held for future multifamily development adjacent to Riverside Apartments. As of September 30, 2019, we had invested $95.7 million and $24.2 million, including the costs of acquiring the land, in The Trove and the development adjacent to Riverside Apartments, respectively. We substantially completed major construction activities for The Trove garage levels 1-5 during the 2019 Quarter and placed into service assets totaling $12.0 million.

We also had a redevelopment project to add rentable space at Spring Valley Village, a retail center in Washington, DC. As of September 30, 2019, we had invested $6.5 million in the redevelopment. We substantially completed major construction activities on this project during the fourth quarter of 2018 and placed into service assets totaling $4.2 million.

Properties Sold and Held for Sale

We intend to hold our properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning our properties, and to make occasional sales of the properties that no longer meet our long-term strategy or return objectives and where market conditions for sale are favorable. The proceeds from the sales may be reinvested into other properties, used to fund development operations or to support other corporate needs, or distributed to our shareholders.


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We sold the following properties during 2019 and 2018:
Disposition Date
 
Property Name
 
Property Type
 
Rentable Square Feet
 
Contract Sales Price
(in thousands)
 
(Loss) Gain on Sale
(in thousands)
June 26, 2019
 
Quantico Corporate Center (1)
 
Office
 
272,000
 
$
33,000

 
$
(1,046
)
July 23, 2019
 
Shopping Center Portfolio (2)
 
Retail
 
800,000