Elme Communities (historical filing: Washington Real Estate Investment Trust) — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. The filing identifies the registrant as Washington Real Estate Investment Trust (WRIT). Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Business context and key financial metrics
WRIT owned 71 properties in the greater Washington, D.C. region: office, medical office, retail and multifamily properties, plus land held for development. Its portfolio comprised approximately 8.6 million square feet of commercial space and 2,540 multifamily units.
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Rental revenue | $76.5 | $69.2 | +10.5% |
| Net operating income (NOI) | $50.5 | $46.0 | +9.9% |
| Net income attributable to controlling interests | $5.2 | $4.7 | +11.1% |
| Diluted earnings per share | $0.08 | $0.07 | +$0.01 |
| Funds from operations (FFO) | $31.2 | $30.5 | +2.2% |
| Cash from operating activities | $35.6 | $32.6 | +$3.0 |
| Dividends declared per share | $0.4338 | $0.4338 | No change |
NOI margin was approximately 66.0%, versus 66.4% a year earlier. Real estate expenses were 34.0% of revenue, up from 33.6%. At March 31, total debt was $1,193.0 million, versus $1,184.2 million at year-end 2011. Cash and cash equivalents were $17.8 million; restricted cash was $21.9 million. The company reported $365.2 million of remaining borrowing capacity on its unsecured facilities, including letters of credit.
Material changes and operating performance
- Revenue and total NOI growth primarily reflected properties acquired in 2011. Same-store NOI declined 1.1% to $44.4 million, as same-store revenue edged down and expenses rose.
- Occupancy across the continuing portfolio fell to 89.7% from 91.0%. Office occupancy declined to 86.3% from 89.1%, and medical office occupancy to 87.1% from 88.3%; retail was 92.9% and multifamily 95.2%.
- Same-store office NOI fell 6.4%; retail same-store NOI rose 4.1%, medical office rose 1.5%, and multifamily NOI increased 5.2%.
- Interest expense declined 5.9% to $15.9 million, while depreciation and amortization increased 18.7% to $26.0 million, primarily reflecting acquisitions. Acquisition costs fell to $0.1 million from $1.6 million in Q1 2011.
- Operating cash flow was $35.6 million. Investing activities used $11.4 million, including $10.5 million in real-estate capital improvements; financing activities used $19.1 million. Dividends paid were $28.9 million.
Outlook, liquidity, risks and unusual items
- Management expected challenging Washington-area real estate conditions to continue through 2012, citing federal budget uncertainty, tenant hesitancy and difficulty leasing vacant commercial space. The filing provides no numerical earnings or FFO guidance.
- A $75 million unsecured credit facility was due to mature in June 2012. Management expected to negotiate a replacement facility of similar or greater size and anticipated higher interest and facility fees.
- After quarter-end, WRIT repaid $50 million of 5.05% notes at maturity on May 1, 2012 using credit-facility borrowings. It also reported $21.6 million of mortgage maturities remaining in 2012, expected to be funded through some combination of new debt, property sales and equity issuance.
- Management estimated 2012 capital needs of $45–$60 million for existing operating properties, approximately $12.9 million for development projects, and additional amounts for debt refinancing, dividends, leasing and possible acquisitions. It noted that cash flow could decline and that borrowing or a dividend reduction might then be needed to maintain the dividend.
- Two multifamily developments were consolidated as variable interest entities: 650 North Glebe Road (estimated total project cost $45.0 million; WRIT ownership 90%) and 1219 First Street ($95.3 million; ownership 95%). Each was expected to use debt for approximately 70% of project costs.
- WRIT reported compliance with debt covenants at March 31. It identified interest-rate exposure, refinancing needs, tenant and market conditions, federal spending, capital availability and development execution among relevant risks. No legal proceedings or material changes to reported risk factors were noted in this filing.
Important facts for investors to verify
- Whether same-store occupancy and NOI stabilized or continued to weaken, particularly in office and medical office.
- Completion and terms of the June 2012 credit-facility replacement, subsequent borrowing levels and refinancing of remaining 2012 maturities.
- Whether operating cash flow, after capital spending and leasing costs, supports the dividend without sustained additional borrowing.
- Leasing progress, renewal rates, tenant-improvement costs and occupancy at the acquired and development properties.
- Actual development spending, project financing and exposure associated with the two consolidated joint ventures.