Real Estate | 6 Months Ended |
Jun. 30, 2014 |
Real Estate [Abstract] | ' |
Real Estate | ' |
NOTE 3: REAL ESTATE |
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Acquisitions |
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Washington REIT acquired the following properties during the 2014 Period: |
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Purchase Price | | | | | | | |
Acquisition Date | | Property Name | | Type | | Square Feet | | (in thousands) | | | | | | | |
February 21, 2014 | | Yale West (216 units) | | Multifamily | | N/A | | | $ | 73,000 | | | | | | | | |
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March 26, 2014 | | The Army Navy Club Building | | Office | | 108,000 | | | 79,000 | | | | | | | | |
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May 1, 2014 | | 1775 Eye Street, NW | | Office | | 185,000 | | | 104,500 | | | | | | | | |
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| | | | | | 293,000 | | | $ | 256,500 | | | | | | | | |
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The results of operations from the acquired operating properties are included in the consolidated statements of income as of their acquisition dates. |
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The revenue and earnings of our 2014 acquisitions are as follows (amounts in thousands): |
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| Three Months Ended June 30, 2014 | | Six Months Ended June 30, 2014 | | | | | | | | | | | |
Real estate rental revenue | $ | 4,598 | | | $ | 5,355 | | | | | | | | | | | | |
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Net loss | (1,297 | ) | | (2,112 | ) | | | | | | | | | | | |
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We record the acquired physical assets (land, building and tenant improvements), and in-place leases (absorption, tenant origination costs, leasing commissions, and net lease intangible assets/liabilities), and any other assets or liabilities at their fair values. |
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We have recorded the total purchase price of the above acquisitions as follows (in thousands): |
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Land | $ | 93,567 | | | | | | | | | | | | | | | | |
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Buildings | 141,456 | | | | | | | | | | | | | | | | |
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Tenant origination costs | 8,354 | | | | | | | | | | | | | | | | |
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Leasing commissions/absorption costs | 12,847 | | | | | | | | | | | | | | | | |
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Net lease intangible assets | 7,331 | | | | | | | | | | | | | | | | |
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Net lease intangible liabilities | (2,122 | ) | | | | | | | | | | | | | | | |
Fair value of assumed mortgages | (107,125 | ) | | | | | | | | | | | | | | | |
Furniture fixtures and equipment | 932 | | | | | | | | | | | | | | | | |
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Total | $ | 155,240 | | | | | | | | | | | | | | | | |
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The weighted remaining average life for the 2014 acquisition components above, other than land and building, are 74 months for tenant origination costs, 57 months for leasing commissions/absorption costs, 75 months for net lease intangible assets and 85 months for net lease intangible liabilities. |
The difference in the total contract purchase price of $256.5 million for the 2014 acquisitions and the acquisition cost per the consolidated statement of cash flows of $154.1 million is primarily due to the assumption of two mortgage notes secured by Yale West and The Army Navy Club Building for an aggregate $100.9 million and the payment of a $3.6 million deposit for Yale West in 2013, partially offset by a credit to the seller for building renovations at 1775 Eye Street, NW for $1.9 million. |
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The following unaudited pro-forma combined condensed statements of operations are for the 2014 and 2013 Quarters and Periods as if the above described acquisitions had occurred at the beginning of the period of acquisition and the same period in the year prior to acquisition. The unaudited pro-forma information does not purport to be indicative of the results that actually would have occurred if the acquisitions had been in effect for the 2014 and 2013 Quarters and Periods. The unaudited data presented is in thousands, except per share data. |
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| Three Months Ended June 30, | | Six Months Ended June 30, | | | |
| 2014 | | 2013 | | 2014 | | 2013 | | | |
Real estate rental revenue | $ | 72,863 | | | $ | 71,122 | | | $ | 145,867 | | | $ | 140,833 | | | | |
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Income (loss) from continuing operations | 1,335 | | | (108 | ) | | (1,967 | ) | | (879 | ) | | | |
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Net income | 1,047 | | | 3,617 | | | 104,564 | | | 9,324 | | | | |
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Diluted earnings per share | 0.02 | | | 0.05 | | | 1.57 | | | 0.14 | | | | |
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Redevelopment |
In the office segment, we have an active redevelopment project to renovate 7900 Westpark Drive. Our total investment in the renovation at 7900 Westpark Drive is expected to be $35.0 million. As of June 30, 2014 and December 31, 2013, we had invested $15.2 million and $3.6 million, respectively, in the renovation. We anticipate completion during the first quarter of 2015. |
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Variable Interest Entities |
In June 2011, we executed a joint venture operating agreement with a real estate development company to develop The Maxwell, a mid-rise multifamily property at 650 North Glebe Road in Arlington, Virginia. We estimate the total cost of the project to be $49.9 million. During the first quarter of 2013, we secured third-party debt financing for approximately 70% of the project's cost. Washington REIT is the 90% owner of the joint venture and will have management and leasing responsibilities when the project is completed and stabilized (defined as 90% of the residential units leased). The real estate development company owns 10% of the joint venture and is responsible for the development and construction of the property. The joint venture currently expects to complete this development project during the fourth quarter of 2014. |
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In November 2011, we executed a joint venture operating agreement with a real estate development company to develop a high-rise multifamily property at 1225 First Street (formerly 1219 First Street) in Alexandria, Virginia. We estimate the total cost of the project to be $95.3 million, with approximately 70% of the project financed with debt. Washington REIT is the 95% owner of the joint venture and will have management and leasing responsibilities if the project is completed and stabilized. The real estate development company owns 5% of the joint venture and is responsible for the development and construction of the property. In the first quarter of 2013, we decided to delay commencement of construction due to market conditions and concerns of oversupply. We continue to reassess this project on a periodic basis going forward. |
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We have determined that The Maxwell and 1225 First Street joint ventures are VIE's primarily based on the fact that the equity investment at risk is not sufficient to permit either entity to finance its activities without additional financial support. We expect that 70% of the total development costs for each project would be financed through debt. We have also determined that Washington REIT is the primary beneficiary of each VIE due to the fact that Washington REIT is providing 90% to 95% of the equity contributions and will manage each property after stabilization. |
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We include the joint venture land acquisitions on our consolidated balance sheets in properties under development or held for future development. As of June 30, 2014 and December 31, 2013, the land and capitalized development costs are as follows (in thousands): |
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| June 30, 2014 | | December 31, 2013 | | | | | | | | | | | |
The Maxwell (formerly 650 North Glebe Road) | $ | 38,423 | | | $ | 27,343 | | | | | | | | | | | | |
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1225 First Street | 20,797 | | | 20,788 | | | | | | | | | | | | |
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As of June 30, 2014 and December 31, 2013, the accounts payable and accrued liabilities related to the joint ventures are as follows (in thousands): |
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| June 30, 2014 | | December 31, 2013 | | | | | | | | | | | |
The Maxwell | $ | 5,195 | | | $ | 1,785 | | | | | | | | | | | | |
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1225 First Street | 18 | | | 39 | | | | | | | | | | | | |
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On February 21, 2013, Washington REIT, through its consolidated joint venture to develop The Maxwell, entered into a construction loan agreement with Citizens Bank for $33.0 million. The loan bears interest at LIBOR plus 2.15%, which decreases to LIBOR plus 2.0% upon completion of construction and the joint venture not being in default. The loan matures on February 21, 2016, with two one year extension options exercisable by the joint venture, subject to fees and compliance with certain provisions in the loan agreement. As of June 30, 2014 and December 31, 2013, the consolidated joint venture had $14.0 million and $7.3 million, respectively, outstanding on this construction loan agreement. |
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Discontinued Operations |
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We dispose of assets 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. Properties are considered held for sale when they meet the criteria specified (see "Discontinued Operations" in note 2 of the consolidated financial statements included in Washington REIT's Annual Report on Form 10-K for the year ended December 31, 2013). Depreciation on these properties is discontinued at that time, but operating revenues, other operating expenses and interest continue to be recognized until the date of sale. |
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In September 2013, we entered into four separate purchase and sale agreements to effectuate the sale of our entire medical office segment (including land held for development at 4661 Kenmore Avenue) and two office buildings (Woodholme Center and 6565 Arlington Boulevard) for an aggregate purchase price of $500.8 million. The sale was structured as four transactions. Transactions I and II closed in November 2013 and Transactions III and IV closed in January 2014. |
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The results of our medical office segment are summarized as follows (amounts in thousands, except per share data): |
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| Three Months Ended June 30, | | Six Months Ended June 30, | | | |
| 2014 | | 2013 | | 2014 | | 2013 | | | |
Real estate rental revenue | $ | — | | | $ | 11,010 | | | $ | 892 | | | $ | 22,039 | | | | |
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Net income | — | | | 3,439 | | | 546 | | | 6,260 | | | | |
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Basic net income per share | — | | | 0.05 | | | 0.01 | | | 0.09 | | | | |
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Diluted net income per share | — | | | 0.05 | | | 0.01 | | | 0.09 | | | | |
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We sold the following properties in 2014 and 2013: |
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Property Name | | Segment | | Rentable Square Feet | | Contract | | Gain on Sale | | | | | |
Purchase Price | (in thousands) | | | | | |
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Medical Office Portfolio Transactions III & IV (1) | | Medical Office | | 427,000 | | | $ | 193,561 | | | $ | 105,985 | | | | | | |
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5740 Columbia Road (2) | | Retail | | 3,000 | | | 1,600 | | | 570 | | | | | | |
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| | Total 2014 | | 430,000 | | | $ | 195,161 | | | $ | 106,555 | | | | | | |
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Atrium Building | | Office | | 79,000 | | | $ | 15,750 | | | $ | 3,195 | | | | | | |
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Medical Office Portfolio Transactions I & II (3) | | Medical Office / Office | | 1,093,000 | | | 307,189 | | | 18,949 | | | | | | |
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| | Total 2013 | | 1,172,000 | | | $ | 322,939 | | | $ | 22,144 | | | | | | |
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(1) | Woodburn Medical Park I and II and Prosperity Medical Center I, II and III. | | | | | | | | | | | | | | | | | |
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(2) This property is classified as continuing operations in accordance with ASU No. 2014-08 (see note 2). |
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(3) | 2440 M Street, 15001 Shady Grove Road, 15505 Shady Grove Road, 19500 at Riverside Park (formerly Lansdowne Medical Office Building), 9707 Medical Center Drive, CentreMed I and II, 8301 Arlington Boulevard, Sterling Medical Office Building, Shady Grove Medical Village II, Alexandria Professional Center, Ashburn Farm Office Park I, Ashburn Farm Office Park II, Ashburn Farm Office Park III, Woodholme Medical Office Building, two office properties (6565 Arlington Boulevard and Woodholme Center) and undeveloped land at 4661 Kenmore Avenue. | | | | | | | | | | | | | | | | | |
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As of June 30, 2014 and December 31, 2013, investment in real estate for properties sold or held for sale, all of which were in the medical office segment, was as follows (in thousands): |
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| 30-Jun-14 | | December 31, 2013 | | | | | | | | | | | |
Investment in real estate sold or held for sale | $ | — | | | $ | 125,967 | | | | | | | | | | | | |
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Less accumulated depreciation | — | | | (46,066 | ) | | | | | | | | | | | |
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Investment in real estate sold or held for sale, net | $ | — | | | $ | 79,901 | | | | | | | | | | | | |
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Income from operations of properties sold or held for sale for the three and six months ended June 30, 2014 and 2013 was as follows (in thousands): |
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| Three Months Ended June 30, | | Six Months Ended June 30, | | | |
| 2014 | | 2013 | | 2014 | | 2013 | | | |
Real estate rental revenue | $ | — | | | $ | 12,357 | | | $ | 892 | | | $ | 25,068 | | | | |
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Real estate expenses | — | | | (3,759 | ) | | (346 | ) | | (8,457 | ) | | | |
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Depreciation and amortization | — | | | (4,545 | ) | | — | | | (8,947 | ) | | | |
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Interest expense | — | | | (328 | ) | | — | | | (656 | ) | | | |
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Income from operations of properties sold or held for sale | $ | — | | | $ | 3,725 | | | $ | 546 | | | $ | 7,008 | | | | |
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Income from operations of properties sold or held for sale by property for the three and six months ended June 30, 2014 and 2013 was as follows (in thousands): |
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Property | | Segment | | 2014 | | 2013 | | 2014 | | 2013 |
Atrium Building | | Office | | $ | — | | | $ | — | | | $ | — | | | $ | 185 | |
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Medical Office Portfolio | | Medical Office / Office | | — | | | 3,725 | | | 546 | | | 6,823 | |
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| | | | $ | — | | | $ | 3,725 | | | $ | 546 | | | $ | 7,008 | |
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