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Washington REIT (WRE) Purchases Watergate 600 for $135M

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Washington REIT recently declared the acquisition of an iconic office building within the Watergate Complex in Washington, DC, for around $135 million. The move comes as part of the company’s strategy to enhance its portfolio with high-quality, urban, metro-centric assets in premium sites of the region.

The 12-story office building, commonly known as Watergate 600, is situated at 600 New Hampshire Avenue, NW, comprising 309,000 square feet of space. The property is located 0.3 miles from Metro’s Foggy Bottom station, with close access to Interstate 66 and Rock Creek Parkway. The asset enjoys robust demand on the back of these factors and is 97% leased, at present. Moreover, Watergate 600 offers solid opportunity to create value through repositioning and leasing. These, in turn, make the asset a strategic buy for the company.

The property was first delivered in 1972 and an extensive renovation took place in 1997. Currently, the asset is going through a second round of refurbishment and Washington REIT will have the scope to lease up around 90,000 square feet of space, whose lease term is set to expire at year-end 2018.

The property also serves as the headquarters of The Atlantic Media Company, a nationally renowned media conglomerate, which occupies 140,000 square feet of space. The lease runs through Oct 2027.

The acquisition deal of Washington REIT has been structured in a way that it involves issuance of units for part of the purchase price. Also, at closing, the debt of the prior owner on the asset was reimbursed.

Notably, office real estates have been experiencing decent demand, of late. In fact, the overall U.S. office vacancy rate declined 10 basis points (bps) to 12.9% in fourth-quarter 2016, marking the lowest level since first-quarter 2008, per a report from CBRE Group. In addition, in 2016, gross asking rent growth touched 6.0%, which denoted the fastest annual rate since 2007. Going forward, with economic improvement and recovery in the job market, demand for office space is expected to shoot higher.

Currently, Washington REIT carries a Zacks Rank #3 (Hold).

Notably, shares of Washington REIT outperformed the Zacks categorized REIT and Equity Trust – Other industry in the past six months. Over this time frame, Washington REIT’s shares ascended 7.1%, while the industry climbed 3.5%.  



Stocks to Consider

Better-ranked stocks in the REIT space include CoreSite Realty Corporation (COR - Free Report) , Piedmont Office Realty Trust, Inc. (PDM - Free Report) and Urban Edge Properties (UE - Free Report) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CoreSite Realty currently has a long-term growth rate of 19.1%.

Piedmont Office Realty’s estimates for 2017 moved north by nearly 0.6% to $1.73, over the past 60 days.

The Zacks Consensus Estimate for Urban Edge Properties’ funds from operations (FFO) per share for 2017 of $1.37 reflects 7.9% year-over-year growth.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
 
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