EDMUND B. CRONIN, JR. - WASHINGTON REAL ESTATE INVESTMENT TRUST - WRE
CEO Interview - published 06/26/00

DOCUMENT # KAB615

Edmund B. Cronin, Jr., Trustee, President and Chief Executive Officer of Washington Real Estate Investment Trust. From 1976 to 1994, he served as Chairman and Chief Executive Officer of the H.G. Smithy Companies and its various operating subsidiaries trading as Smithy Braedon, a full service commercial real estate firm providing brokerage, asset management, finance, advisory and development services. Mr. Cronin is a Director of Potomac Electric Power Company; the John J. Kirlin Companies; a member of the American Society of Real Estate Counselors; past Chairman of the Greater Washington Board of Trade and the Washington/Baltimore Regional Association. Mr. Cronin holds trusteeships in the Federal City Council, the Greater Washington Research Center and the Meridian House International.

Sector: REITS

TWST: Could you begin by giving us a profile, overview, history and description of Washington Real Estate Investment Trust?

Mr. Cronin: Washington Real Estate Investment Trust was founded in 1960 and we are headquartered in Rockville, MD. WRIT invests in a diversified range of income-producing property types. Our purpose is to acquire and manage real estate investments in markets we know well and protect our assets from single property-type value fluctuations through diversified holdings. Our goal is to continue to safely increase earnings and shareholder value. This approach has resulted in WRIT achieving 34 consecutive years of increased earnings per share, 29 consecutive years of increased dividends per share and 27 years of increased funds from operation per share. Our mission statement fully describes our company and its focus today.

TWST: What’s on the agenda? When you look out over the next 12-24 months, what accomplishments make that period a success?

Mr. Cronin: Essentially looking out two years, we plan to do what we’ve done historically, but better, and as in the past respond to change. We will continue to acquire well located assets, particularly those we find to be poorly managed and needing new mechanical systems, cosmetics and so on permitting us to reposition the property in its marketplace, raise rents and reduce operating costs. Our agenda includes a couple projects, which will take us over the next couple of years to complete. We have identified and acquired properties giving us a major position in urban areas that are 100% developed with no room for ground up development. We plan to reposition those properties by taking them through rezoning with prospects of developing a mixed use more in keeping with the current area needs.

TWST: When you look at acquisitions, are you looking at portfolios, or are you looking at other corporations?

Mr. Cronin: The acquisitions primarily are one off. It might include more than one building but at the moment, we’re not trying to buy entities. We are acquiring assets that complement our business plan.

TWST: Are there any limitations on cash or capital as you look at opportunities today?

Mr. Cronin: No, we’ll pay all cash. If we need to borrow money we will. Incidentally, we’re unique in that we are one of only five publicly held real estate companies with an S&P (A-) rating and (BAA-1) from Moody’s. So we have access to capital. But it is used expeditiously.

TWST: What is the status of your leverage today and how do you employ that for shareholder value?

Mr. Cronin: DSC is 3.4-1 and debt to total capital is approximately 35%. We want to appeal to the shareholder who is looking for safety in earnings and dividend growth. We don’t focus on debt to total capital, though ours is one of the lowest in the industry. The important issue here is debt management. Consequently, our focus is on debt service coverage.

TWST: Give us a frank assessment of your top management team — the bench strength, the skill sets and then any changes or additions that are anticipated.

Mr. Cronin: As far as the management team itself, it’s very strong. My associates have been here for about four or five years. The company has, unlike most REITS, transitioned from the 1960 founders. Though the strategic concepts are similar, new management has introduced the necessary changes to meet today’s competition. The average age of our professionals is around 40, but the average amount of time that they’ve been in the business is 17 years. So as you can imagine, we are very knowledgeable.

TWST: At this point, how could the investment community better understand WRIT? What are the misperceptions that you encounter as you speak with analysts and potential investors?

Mr. Cronin: We did not get into momentum buying in the mid-90s. We kept our vision and strategy clear that we were acquiring assets and growing the company slowly and soundly rather than seeing how fast and how much we could acquire. I believe that there was a misconception that real estate is a growth industry. In reality it’s a long-term investment opportunity. So that’s one fact that now is being recognized to a degree by analysts. The other is — and we’re unique in this fashion — WRIT is 85% retail held. That’s distinct from being institutionally held. The nature of our shareholder is very interested in the health and the welfare of the dividend and the ability to continue to increase the dividend every year. Obviously, you have to do that through earnings growth, whereas the institutional players are less interested in the dividend and more interested in the growth, which requires continuous capital replenishment. For a REIT, a virtual impossibility since we must dividend out most of our earnings rather than retain meaningful earnings to preserve its tax-exempt status. Over the last two years REIT stock prices have not only dropped, but most of the larger REITs have lost substantial portions of their value. That did not happen to Washington REIT. Our stock price did not escalate as much; consequently, our percentage decline is substantially less. In general the misunderstanding of WRIT, and others in the industry, is that REITs are total return companies. They are particularly suitable investments for income-seeking investors and those looking for a safe investment alternative to a fixed rate instrument. As utilities and other historically total return vehicles reduce their dividends from what were historic levels, I believe we will see more individuals invest in the REIT industry.

TWST: What’s the summary statement today for investors? If they were in front of you, what would be that drum roll at the end of the road show that would compel or convince them to buy in?

Mr. Cronin: For the investor to whom we should appeal, the Washington REIT is ideally suited for a tax-deferred thrift retirement plan such as the 401k and the value of the cumulative dividends it provides. It is also ideally suitable for a taxable individual who has or is planning to retire and is seeking to supplement their income. Real estate is also a good inflation hedge. Though we’re not seeing much inflation today such as in the ’80s, property costs continue to increase, rents increase, leading to value increases at rates in excess of current inflation. Additionally, growing no-growth attitudes in our region tends to limit new construction, which also leads to increasing the value of existing properties. Last but not least is that if you are interested in a history of increased earnings and dividends over an extended period of time, Washington Real Estate Investment Trust has an enviable and incredible performance record. Of approximately 16,000 publicly held companies, only 13, including Washington Real Estate Investment Trust, can demonstrate a record of over 29 consecutive years of increased dividends per share and 27 years of increased funds from operations per share.

TWST: What are the key hurdles or the key barriers ahead in the REIT industry? Or, narrowing it down specifically for WRIT, what will you have to focus on over the next 12 months?

Mr. Cronin: For WRIT over the next 12 months and beyond, continuing to increase our internal growth is key, and people. We have excellent incentive plans in place to ensure that WRIT’s officers and employees are well compensated and that we continue to be both compensation competitive and a place of choice to work. The real estate markets are very strong. Therefore, we must be more diligent in finding assets which are undervalued enabling us to reposition the asset to create added value. Being a diversified owner by property type helps us look at many more property-type opportunities.

TWST: What have I overlooked? Are there thoughts or issues you would normally address or focus on that we’ve not covered?

Mr. Cronin: Probable, significant change in the real estate markets over the next several years. What impact will the Internet have on our business and what are we doing to adapt to it? Those are two of the major issues that are on the plate today. When you think about it, e-commerce is changing every industries landscape, not just real estate. We are very focused on the changing times. What will our tenants want in the future? In the meantime, what do they want today? In order to properly respond, we must retrofit the buildings to provide all the bells and whistles you need to attract and retain tenants regardless of size.

TWST: Do you see those as learning and growth experiences from within the company, or are you looking and outsourcing the expertise in those areas?

Mr. Cronin: We are doing both. Currently we’re nearing completion with a consultant on developing an e-business strategy for the company. I am sure it will then require us to employ people who are specialists in those areas that we are not. Essentially it’s, as I said before, doing business as we have historically, but changing and trying to get better as we go forward to meet current needs. Internally, we do a very good job of leasing what we call rooftops for various wire and wireless companies. So I see us having to take alternative income opportunities to another level, which will require different skill sets.

TWST: Thank you.

EDMUND B. CRONIN, JR.
President & CEO
Washington Real Estate Investment Trust
6110 Executive Boulevard
Suite 800
Rockville, MD 20852
(301) 984-9400
(301) 984-9610 - FAX

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