Elme Communities (Washington Real Estate Investment Trust) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The filing is issued under the registrant name Washington Real Estate Investment Trust (WashREIT), not Elme Communities. WashREIT described a strategic shift from commercial properties toward residential apartments.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Rental revenue | $47.8 million | $40.6 million | Up 17.7%; includes residential growth and the remaining office property. |
| Net loss | $7.7 million | $1.1 million | Prior-year results included $6.1 million of income from properties later sold. |
| NOI | $30.7 million | $25.6 million | Up 19.7%; residential NOI rose 22.8%, including same-store NOI growth of 7.9%. |
| NAREIT FFO | $14.5 million | $28.5 million | Down 49.2%, largely reflecting the absence of income from the sold portfolios. |
| Operating cash flow | $8.7 million | $37.2 million | Down $28.6 million, attributed primarily to the 2021 portfolio sales and timing of liability payments. |
| Interest expense | $5.7 million | $10.1 million | Down $4.5 million, mainly after debt prepayments in 2021. |
Residential same-store average occupancy was 95.8% at March 31, 2022, versus 94.3% a year earlier. Residential expenses were 36.7% of residential revenue, compared with 38.2%. The company reported basic and diluted loss per share of $0.09 in Q1 2022, versus a loss of $0.02 in Q1 2021. The declared quarterly dividend was $0.17 per share, versus $0.30 a year earlier.
Balance sheet, liquidity and capital
- At March 31, 2022, cash and cash equivalents were $139.7 million; total assets were $1.877 billion; and total liabilities were $551.5 million.
- Notes payable, net, were $497.1 million, representing $500 million of scheduled principal before discounts and financing costs. Debt had a 7.0-year weighted average maturity and a 4.1% weighted average interest rate. Scheduled maturities include $100 million in 2023 and $400 million thereafter.
- The $700 million revolving credit facility was undrawn at quarter-end. As of April 26, 2022, the company reported $132 million in cash and full revolver availability, or total liquidity of $832 million.
- Q1 investing cash outflow was $114.5 million, primarily for the $105.6 million acquisition of Carlyle of Sandy Springs, a 389-home Georgia community. Financing cash inflow was $12.0 million, including $26.9 million of net ATM equity proceeds.
- Q1 equity issuance increased outstanding shares; 87.4 million shares were outstanding at March 31, 2022. The company paid $14.6 million in dividends during the quarter.
Changes, outlook and risks
- Rental revenue and NOI increased with acquisitions, Trove’s lease-up, higher same-store rents and occupancy. The Carlyle acquisition contributed from February 1, 2022.
- GAAP net loss worsened year over year largely because the prior-year quarter included results from the office and retail portfolios sold in 2021. Higher depreciation, general and administrative expense, and $2.2 million of transformation costs also weighed on results; lower interest expense and higher NOI partly offset these items.
- Management anticipated a further $8.8–$10.8 million of transformation costs in 2022 and expected the operating-model redesign, including insourcing property-level management, to be implemented in 2023.
- For 2022, management estimated $35–$40 million of investment in operating assets and $7.5–$12.5 million for development and redevelopment, in addition to dividends and potential acquisitions. It stated that it expected adequate liquidity to meet requirements, while noting estimates could differ materially.
- Management intended to continue dividends at or about current levels, subject to quarterly board review and factors including FFO and capital needs. It cautioned that reduced operating cash flow could require a dividend reduction.
- Risks discussed include real estate and regional economic conditions, execution and performance of acquisitions and the residential strategy, interest rates and refinancing, tenant demand, capital availability, COVID-19 effects, and REIT qualification. The company reported covenant compliance, no material change to previously disclosed risk factors, no material off-balance-sheet arrangements, and no legal proceedings.
Key facts for investors to verify
- Confirm the issuer identity and corporate-name continuity: this filing is by Washington Real Estate Investment Trust, although the request identifies Elme Communities.
- Review the reconciliation and definitions of non-GAAP NOI and NAREIT FFO, especially the effect of 2021 portfolio dispositions on comparisons.
- Track same-store occupancy, rent growth, credit losses, and the contribution and performance of recent Georgia acquisitions and Trove.
- Assess cash generation against planned capital spending, the $0.17 quarterly dividend, and expected transformation costs.
- Monitor the $100 million 2023 maturity, refinancing conditions, interest-rate exposure, covenant headroom, and access to the revolver.