Business context and reporting period
Washington Real Estate Investment Trust (WashREIT), identified in the request as Elme Communities, filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The company was shifting its portfolio from commercial real estate toward residential communities. At quarter-end it reported approximately 8,900 apartment homes, primarily in the Washington, D.C. and Southeastern regions, and one remaining office property.
In the first half, WashREIT acquired three Georgia apartment communities with 1,079 homes for a combined contract price of $283.2 million. Prior-year comparisons are affected by the 2021 sales of its office and retail portfolios, reported as discontinued operations.
Financial performance and position
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Rental revenue | 51.4 | 41.3 | 99.2 | 81.9 |
| Net loss | (8.9) | (7.0) | (16.6) | (8.1) |
| Net loss per share | (0.10) | (0.08) | (0.19) | (0.10) |
| NOI, non-GAAP | 32.8 | 26.6 | 63.4 | 52.2 |
| NAREIT FFO, non-GAAP | 15.2 | 20.6 | 29.6 | 49.1 |
| Cash from operating activities | Not presented for quarter | 34.0 | 64.6 |
- Q2 NOI increased 23.5%; six-month NOI rose 21.6%, reflecting acquisitions, higher same-store rents and occupancy, and lease-up at Trove. Same-store residential NOI increased 5.1% in Q2 and 6.5% for the six-month period.
- Residential same-store occupancy was 95.8% at June 30, 2022, versus 95.1% a year earlier. Residential real estate expenses were 37.1% of residential revenue in Q2 versus 36.5%; for the first half, the ratio improved to 36.9% from 37.4%.
- Q2 net loss widened despite higher NOI, primarily because the prior-year quarter included $9.7 million of discontinued-operation income. Six-month net loss also reflected the absence of $15.9 million of such income in 2021, alongside increased depreciation and amortization and corporate costs. NAREIT FFO declined as the prior-year period included income from the sold portfolios.
- Cash from operations declined 47.4% year over year in the first half, primarily due to the portfolio sales and timing of liability payments. Investing cash outflow was $217.1 million, largely reflecting acquisitions.
- At June 30, cash and cash equivalents were $44.8 million, down from $233.6 million at year-end 2021; restricted cash was $2.0 million. Total assets were $1.935 billion and total equity was $1.304 billion.
- Debt carrying value was $568.7 million: $497.1 million of notes payable and $71.6 million of mortgage notes. The company had no revolver borrowings and $700 million of availability at June 30. At July 25 it reported $31.4 million cash and total liquidity of $731.4 million, including the undrawn revolver.
- Debt maturities included $100 million in 2023 and $76.6 million of assumed mortgages due in 2030; weighted-average debt maturity was 6.9 years. The remaining $100 million term loan was effectively fixed at 2.31% through July 2023. The company was in compliance with debt covenants.
- Dividends declared were $0.17 per share for Q2 and $0.34 for the first half, versus $0.30 and $0.60 in the comparable 2021 periods. The filing reports $29.5 million of dividends paid in the first half.
Changes, outlook, and risks
The 2021 office and retail divestitures and the 2022 Georgia acquisitions materially changed the portfolio and comparability of results. First-half share issuances under the at-the-market program raised $26.9 million net. The company recognized $4.2 million of transformation costs in the first half and expected another $6.3–$7.3 million during 2022 as it redesigned operations, including insourcing property-level management; implementation was expected to finish in 2023.
Management stated it expected adequate liquidity to meet obligations over the next 12 months and beyond 2022, and intended to continue dividends at or about current levels while reviewing them quarterly. Expected full-year 2022 capital needs included $32.5–$37.5 million for the existing portfolio and $0.8–$1.0 million for development and redevelopment, in addition to dividends and potential acquisitions. These are estimates, not earnings guidance. Development at the Riverside-adjacent residential project was paused during Q2 amid macroeconomic uncertainty; the company had invested $30.4 million there.
Risks highlighted include interest-rate and refinancing exposure, inflation and potential economic slowdown, regional property and resident demand, access to capital, execution of the residential strategy and operating-model redesign, and the possibility that acquisitions or dispositions may not occur on expected terms. No impairment charge was recorded in the first half, but future changes in assumptions or property conditions could require one. No legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- How much of rental and NOI growth reflects same-store performance versus acquisitions, development lease-up, or discontinued-property comparisons.
- Whether occupancy, rent growth, credit losses, and property expense trends continue, particularly as economic conditions and inflation evolve.
- Actual transformation costs, implementation timing, and realized operating benefits compared with management’s estimates.
- Liquidity, refinancing plans and interest costs as the 2023 term-loan maturity approaches and interest rates change.
- Dividend sustainability relative to operating cash flow, capital requirements, and NAREIT FFO.