Business context and reporting period
Washington Real Estate Investment Trust (Washington REIT) filed this unaudited Form 10-Q for the quarter ended March 31, 2015. Its portfolio in the greater Washington, D.C. region comprised 55 properties: 25 office properties, 17 retail centers and 13 multifamily properties, totaling about 7.4 million square feet and 2,826 apartments, plus development land. The request identifies Elme Communities, but the filing itself is for Washington REIT; verify the intended issuer.
Financial results and position
| Metric | Q1 2015 | Q1 2014 or comparison |
|---|---|---|
| Rental revenue | $74.9 million | $68.6 million; up 9.1% |
| Net operating income (NOI) | $45.6 million | $42.3 million; up 8.0% |
| Net income attributable to controlling interests | $29.5 million | $104.6 million |
| FFO, as defined by NAREIT | $24.4 million | $21.0 million; up 16.0% |
| Operating cash flow | $35.7 million | $22.5 million |
| Cash and cash equivalents | $40.0 million at March 31 | $15.8 million at December 31, 2014 |
| Total debt | $1.197 billion at March 31 | $1.216 billion at December 31, 2014 |
| Total assets / total equity | $2.123 billion / $837.8 million | At March 31 |
| Dividends declared per share | $0.30 | $0.30 |
Real estate expenses were 39.0% of revenue versus 38.4% a year earlier. Interest expense rose 5.6% to $15.3 million. Investing activities provided $23.5 million, while financing activities used $35.0 million. At March 31, revolving facilities had $454.5 million of unused availability, including $15.5 million reserved for a letter of credit.
Material changes versus prior period
- Revenue and NOI growth reflected 2014 acquisitions and improved same-store performance. Same-store NOI increased 3.1%; same-store occupancy rose to 92.9% from 90.2%.
- Net income fell sharply because Q1 2014 included a $106.3 million gain on sale of medical-office properties. Q1 2015 included a $30.3 million gain from the sale of Country Club Towers, a 227-unit multifamily property, for $37.8 million.
- FFO increased primarily due to acquisitions. Q1 2014 also included $3.0 million of acquisition costs, versus $16,000 in Q1 2015.
- Multifamily total occupancy declined to 89.5% from 92.2%, chiefly because The Maxwell was in lease-up and was 15.6% occupied at quarter-end. The Maxwell became available for occupancy by quarter-end.
Outlook, management commentary and risks
- Management estimated 2015 capital needs of $65–$70 million for existing operating properties, including $35–$40 million for tenant-related costs and leasing commissions, plus $15–$20 million for development and redevelopment. Potential acquisitions and dispositions could also affect funding needs.
- On May 1, 2015, after quarter-end, the company repaid $150.0 million of 5.35% unsecured notes at maturity using its unsecured credit lines. It reported combined line borrowing capacity of $304.5 million as of that date.
- During Q1, it signed new and renewal leases for 0.3 million commercial square feet at an average rental-rate increase of 9.3% over expiring leases. The quarterly dividend was $0.30 per share; management said its maintenance depends on operating results, available cash and REIT distribution requirements.
- Silverline Center redevelopment investment was $35.1 million at March 31; major construction activities were substantially completed in April. The 1225 First Street multifamily project remained delayed pending reassessment of market conditions and oversupply concerns.
- Principal stated risks include financing availability and cost, interest rates, tenant and regional economic conditions, leasing, competing supply, government spending, regulation, and maintaining REIT status. The company reported compliance with debt covenants at March 31. It reported no legal proceedings, defaults or changes materially affecting internal control; management concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm issuer identity: the supplied metadata names Elme Communities, while the filing identifies Washington Real Estate Investment Trust.
- Review the May 1 repayment and resulting borrowing levels, facility availability, maturities and covenant headroom after the $150.0 million notes were refinanced with credit lines.
- Assess whether The Maxwell’s lease-up, Silverline Center’s completed redevelopment and the deferred 1225 First Street project meet operating and investment expectations.
- Distinguish recurring operating performance from property-sale gains when evaluating reported earnings; FFO is a supplemental non-GAAP measure and is not cash available for dividends.
- Monitor same-store occupancy, multifamily performance, projected capital spending, tenant leasing costs and the sustainability of the $0.30 quarterly dividend.