Washington Real Estate Investment Trust (WRIT) — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011. The filing is by Washington Real Estate Investment Trust, identified in the request as Elme Communities. WRIT owned 87 properties in the greater Washington, D.C. region, comprising commercial space and 2,540 multifamily units.
Financial performance and position
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Rental revenue | $78.2 million | $73.6 million; up 6.3% |
| Net operating income (NOI) | $52.1 million | $47.4 million; up 9.9% |
| NOI margin | 66.6% | 64.4%, calculated as NOI divided by rental revenue |
| Net income attributable to controlling interests | $4.7 million; $0.07 per share | $5.2 million; $0.09 per share |
| Funds from operations (FFO) | $29.9 million | $28.8 million; up 3.8% |
| Operating cash flow | $32.6 million | $29.0 million |
| Cash and cash equivalents at quarter-end | $12.5 million | $78.8 million at December 31, 2010 |
| Total debt | $1.293 billion | $1.234 billion at December 31, 2010 |
| Quarterly dividend declared and paid | $0.4338 per share | $0.4325 per share |
Debt comprised $753.7 million of unsecured notes, $379.3 million of fixed-rate mortgages, and $160.0 million drawn on unsecured credit facilities. The facilities had $177.0 million of gross unused capacity; after outstanding letters of credit, $175.3 million was available. Total assets were $2.216 billion and total liabilities were $1.376 billion at quarter-end. Restricted cash was $24.3 million.
Material changes and operating trends
- WRIT acquired two Washington, D.C. office buildings for a combined contract price of $127.3 million: 1140 Connecticut Avenue and 1227 25th Street, adding approximately 314,000 square feet. Acquisition costs were $1.6 million.
- Revenue growth reflected acquisitions and better multifamily occupancy and rental rates. Same-store rental revenue declined 2.0%, while same-store NOI increased 1.1%; overall occupancy fell to 88.4% from 89.4%.
- Multifamily NOI rose 13.7% and retail NOI rose 19.2%, with retail growth largely reflecting the prior-year Gateway Overlook acquisition. Office NOI increased 12.0% including acquisitions, but same-store office occupancy declined. Industrial occupancy fell to 80.2% from 83.0%, and new industrial leases had a 15.3% average rental-rate decrease from expiring leases.
- Net income attributable to controlling interests decreased 10.6%, despite higher revenue and NOI, due mainly to acquisition costs and a $0.6 million impairment charge for Dulles Station, Phase I. Discontinued operations recorded a $0.5 million loss versus $0.9 million income in Q1 2010.
- Investing activities used $130.8 million, mainly for acquisitions. Financing activities provided $31.9 million, including net line-of-credit borrowings; cash declined by $66.3 million during the quarter.
Outlook, risks and unusual items
- After quarter-end, WRIT sold Dulles Station, Phase I, for a contract price of $58.8 million; the related $0.6 million impairment was recognized in Q1.
- Management expected to arrange a replacement for the $262 million credit facility maturing in November 2011 and anticipated that replacement pricing could be higher. A $75 million facility was extended to June 2012 after quarter-end.
- WRIT had $105.7 million of unsecured and mortgage debt maturities remaining in 2011. Management expected to fund maturities through a combination of new debt, asset sales and equity issuance. It also estimated $35–$45 million for investment in existing properties and $1–$5 million for development projects during 2011.
- Management said it believed operating cash flow and capital access would be sufficient for requirements, but warned that market conditions, government spending reductions, tenant demand, interest rates, refinancing availability and property competition could constrain liquidity, growth, debt repayment or dividends. The filing provides no earnings or FFO guidance.
- The board’s revised executive incentive plans took effect January 1, 2011. The filing reported compliance with debt covenants and effective disclosure controls; it listed no legal proceedings or new risk factors.
Investor verification points
- Confirm completion and net proceeds of the Dulles Station sale, including final transaction costs and use of proceeds.
- Track refinancing of the November 2011 $262 million facility and the $105.7 million of other 2011 maturities, including resulting rates and covenant headroom.
- Assess whether weakening same-store occupancy and leasing rates, particularly in office and industrial properties, persist or improve.
- Evaluate dividend coverage against recurring operating cash flow, capital requirements and debt maturities; quarterly dividends paid exceeded reported net income.
- Review acquisition returns and integration for the two office properties, and compare ongoing NOI and occupancy with the acquisition-related costs and financing.