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Washington REIT (WRE) Tops Q1 EPS by 11c; Withdraws Previous FY20 Guidance

April 22, 2020 4:34 PM

Washington REIT (NYSE: WRE) reported Q1 EPS of $0.02, $0.11 better than the analyst estimate of ($0.09).

"After an excellent first quarter highlighted by our 6.8% multifamily same-store NOI growth, we entered this period of economic uncertainty in a solid position, having de-risked the company in accordance with our 2019 Strategic Capital Allocation Plan by reducing our retail assets and single tenant office assets and investing in multifamily assets in strong submarkets,” said Paul T. McDermott, President and CEO of WashREIT. “We finished the quarter at the low end of prior debt to EBITDA expectations and have a strong balance sheet and strong liquidity with no major capital requirements for the balance of the year. While these are difficult times, we believe WashREIT is well positioned to manage through the economic disruption caused by this global pandemic.”

2020 Outlook

Our prior guidance was provided before the COVID-19 pandemic began to have an impact on the U.S. generally, and the Washington region in particular. Given the uncertainty surrounding the social and economic impact from COVID-19, including the duration and extent of the pandemic and associated mitigation efforts, it is difficult to predict the impact on our tenants and our ability to collect rental revenue for the remainder of 2020, as well as the cumulative impact on our future financial results. As such, the Company is withdrawing its previously issued full-year 2020 Outlook which was included in its February 13, 2020 Earnings Release and is not providing updated guidance for 2020 at this time.

On its earnings call, in addition to discussing its first quarter results, WashREIT will further discuss how it is currently assessing and managing the economic impact of COVID-19, as well as how the economic disruption has impacted its operations post quarter-end, to the extent that the Company is able to assess such impact. The Company will also discuss current expectations for some of its key business drivers, including:

Approximately 1.3% of the Company’s previous revenue expectations for 2020 included speculative office lease commencements that could be impacted by the current economic disruption. While the degree and duration of impact remain uncertain, approximately 70% of that leasing was expected to occur in high-quality space across Class A buildings and Space+, where leasing momentum had been the strongest.
Assuming social isolation restrictions continue through the summer months, parking income is expected to decline by approximately $2 million in 2020. However this amount does not take into account any potential increases in parking income that may occur during the second half of the year in the event that a shift in tenant transportation preferences result in higher than normal demand for parking.
The Company currently expects multifamily operating expense saving initiatives to substantially offset the reduction to multifamily rental income due to lower new and renewal lease rate growth in 2020. While move-in and other fee income is likely to be impacted by lower turnover, it is too early to determine the duration and extent of that impact.
The Trove, WashREIT's recently delivered multifamily development, began leasing up in the first quarter prior to the COVID-19 economic disruptions and is currently signing leases through virtual tour technology. We expect continued disruption in lease-up activities at the Trove to delay the break-even point of lease-up to the fourth quarter of 2020. Although, the uncertainties around the extent and duration of the COVID-19 impacts make it difficult to predict lease-up rates at this time. If the break-even point of the lease-up were to occur in the fourth quarter 2020, we currently expect a loss in 2020 attributable to such delay in the range of $0.6 to $0.7 million.
Having substantially collected rents due through April, it is difficult to predict the impact of COVID-19 on residents' and tenants' ability to pay rent for the remainder of 2020, therefore, the Company is not providing guidance for potential future bad debt expenses.
The Company plans to provide details regarding expected decreases in capital spending for the balance of 2020 on its earnings call.

These expectations are based on a number of factors, many of which are outside the Company’s control and all of which are subject to change. In particular, uncertainty regarding the scope, severity and duration of disruptions caused by the COVID-19 pandemic make it difficult to assess future impacts with any degree of certainty. The Company may provide updates to these expectations during the year as actual anticipated results vary from these expectations, but undertakes no obligation to do so.

For earnings history and earnings-related data on Washington REIT (WRE) click here.

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