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WashREIT Posts Q3 Loss But Sees Signs For Growth In D.C. Market

WashREIT, the owner of dozens of commercial and multifamily properties in the D.C. area, continues to face headwinds from the coronavirus pandemic, but it sees D.C. as a resilient market with opportunities for growth in the coming months.

WashREIT CEO Paul McDermott and Boston Properties' Senior Executive Vice President Ray Ritchey at Bisnow's 2018 D.C. State of the Market

The D.C.-based REIT, in its its Q3 earnings release Thursday evening, reported a quarterly net loss of $1M. This comes after it reported a $5.4M loss in Q2. 

Its same-store net operating income declined 4.9% from the third quarter of 2019. WashREIT attributed the decrease to lower commercial parking income and expected move-outs in its office portfolio, and to lower average apartment occupancy and lost apartment fees caused by the pandemic. 

WashREIT CEO Paul McDermott said on the earnings call Thursday morning its results were in line with expectations. 

"Our portfolio continues to demonstrate strong, stable credit performance as we absorb the near-term economic impact of the pandemic," McDermott said. "While uncertainty remains regarding how protracted this economic downturn will be, we remain well-positioned to bolster our long-term strategic growth plans once the operating environment improves."

The REIT said it has collected 99% of rent from multifamily tenants, 97% of rent from office tenants and 88% from retail tenants. It has deferred $60K in multifamily rents, $1.4M in office rents and $1M in retail rents.

The apartment market in the D.C. suburbs has been stronger than it has been downtown, WashREIT said. Its effective rents in the suburbs increased 0.2% last quarter, while urban rents declined 4.6%. 

Last year, WashREIT acquired a portfolio of 2,000 apartments in the Northern Virginia and Maryland suburbs, and it sold eight retail centers totaling over 1.6M SF, a shift it said has helped keep its portfolio stable this year. 

"Our suburban multifamily portfolio, which we acquired last year, has performed very well as the preference for extra space, value and access to high-quality schools offered in our suburban markets, combined with a reduction in the perceived benefit of city living during the pandemic, has the rare opportunity to continue to grow rents in our suburban assets despite challenging market conditions," McDermott said. 

The Trove apartment building at 1201 South Ross St. in Arlington.

In the first quarter of this year, WashREIT delivered a 401-unit apartment building in Arlington. The building, branded as Trove, has leased up slower than expected because the pandemic brought in-person touring to a halt.

The REIT pushed its expectation for the building's stabilization from Q4 2021 to Q1 2022. It said it expects to incur a loss of $400K to $500K this year from the asset. 

WashREIT said it expects the D.C.-area economy to remain stable during the pandemic because it has many sectors that have not been hit hard by the crisis. It said 56% of its office tenants are in professional and business services, government or information sector jobs, and 45% of its multifamily residents work in those sectors.

"Our portfolio and economy continue to show resilience," McDermott said. "We attribute our strong collection performance to the fact that the composition of our office tenants, and the employers of our multifamily residents, are concentrated in industry sectors that have experienced the lowest job losses."

WashREIT said it sees an opportunity for new growth in the region's office market if Tuesday's election results in alignment between the White House and Congress

Former Vice President Joe Biden has maintained a lead in national and swing-state polling, and the Democrats are more likely to win the Senate and take control of both congressional chambers, according to FiveThirtyEight.

The D.C. office market remains heavily impacted by the federal government and related industries such as contractors, lobbyists and law firms, and research has shown same-party control leads to more leasing activity from those sectors. McDermott said he would expect more office absorption if the same party takes control of the White House and Congress. 

"Washington has a potential catalyst if the results bring alignment between the executive and legislative branches of government," McDermott said. "While we're not relying on this result, it would represent a unique catalyst to the D.C. office market among all other gateway markets." 

Related Topics: Paul McDermott, WashREIT