Elme Communities — Q1 2023 Form 10-Q
Business and period. Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. Elme is a REIT focused on apartment communities in the Washington, D.C. metro and Sunbelt regions; it also owns the Watergate 600 office property. At quarter-end, it owned approximately 8,900 apartment homes and about 300,000 square feet of commercial space.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Rental revenue | $55.8 million | $47.8 million; up $8.0 million |
| Net loss | $3.6 million; $0.04 per share | $7.7 million; $0.09 per share |
| Net operating income (NOI, non-GAAP) | $36.3 million | $30.7 million; up 18.4% |
| NAREIT FFO (non-GAAP) | $17.9 million | $14.5 million; up 23.6% |
| Operating cash flow | $16.3 million | $8.7 million |
| Investing cash flow | Used $5.8 million | Used $114.5 million |
| Financing cash flow | Used $11.8 million | Provided $12.0 million |
| Real estate expense / residential revenue | 35.6% | 36.7% |
Net loss improved by $4.1 million, primarily on higher NOI and lower depreciation and amortization, partly offset by higher interest and transformation costs and lower other income. Same-store residential revenue increased 9.0% and same-store NOI increased 10.7%, primarily reflecting higher rents. Residential same-store occupancy was 95.5%, versus 95.6% a year earlier. Acquisitions completed in 2022 also contributed to growth.
At March 31, cash and cash equivalents were $7.0 million, restricted cash was $1.5 million, and total liabilities were $608.7 million. Debt principal was $560.0 million, including $525.0 million of unsecured debt and $35.0 million drawn on the revolving facility; the balance-sheet carrying amount was $556.8 million. The $700 million revolver had $665 million unused and available at quarter-end. Separately, as of April 25, the company reported $12.3 million of cash and $654 million of revolver availability, or total liquidity of $666.3 million.
Material changes, financing and outlook
- In January, Elme entered a $125 million unsecured term loan, used proceeds to repay a $100 million term loan and reduce revolver borrowings. The new loan matures in January 2025, with two one-year extension options. Interest is floating-rate SOFR plus a margin; swaps are intended to fix the loan’s rate through maturity. The revolver matures in August 2025, with two six-month extension options.
- Elme transitioned 13 of its 27 residential communities to in-house management by quarter-end and expected to complete the transition by the end of Q3 2023. It reported $2.9 million of Q1 transformation costs and expected an additional $5–$6 million during 2023.
- Management expected 2023 portfolio investment of $47–$52 million, including $30–$35 million of major capital expenditures, and less than $1 million for development and redevelopment. Development beside Riverside Apartments remained paused amid macroeconomic uncertainty.
- Management stated it expected adequate liquidity for the next 12 months and intended to continue dividends at or around current levels, subject to quarterly board review. The Q1 dividend declared was $0.18 per share. No debt maturities were scheduled before 2025; $160 million was scheduled for 2025.
Risks, contingencies and controls
Key disclosed risks include interest-rate changes and refinancing availability, inflation and economic slowdown, conditions in the D.C. and Sunbelt markets, tenant demand and property performance, execution of the management transition and broader portfolio strategy, and maintaining REIT qualification. Covenant noncompliance could restrict borrowing or accelerate repayment; Elme reported compliance at quarter-end. It reported no material off-balance-sheet arrangements, no legal proceedings, and no material change to previously disclosed risk factors. Management concluded disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether rent growth and occupancy trends persist, particularly as same-store occupancy edged lower year over year.
- Whether the management transition is completed on schedule and delivers expected operating benefits; confirm total transformation costs against the estimate.
- How floating-rate borrowing costs and the SOFR hedges affect interest expense after the existing swap expires in July 2023.
- Whether operating cash flow and available financing cover planned capital spending, dividends, and debt obligations on acceptable terms.
- Reconcile the quarter-end liquidity figures with the later April 25 figures when assessing current liquidity.
NOI and NAREIT FFO are non-GAAP measures; the filing notes that FFO may not be comparable with similarly named measures reported by other REITs.