Business context and reporting period
The supplied filing is Washington Real Estate Investment Trust’s (WashREIT) Form 10-K for the fiscal year ended December 31, 2021, not a filing under the name Elme Communities. It reports a year of portfolio transformation: WashREIT sold most of its office and retail assets and refocused on apartments. At year-end it owned 7,789 apartment homes, primarily in the Washington, DC region, plus the Watergate 600 office building.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Continuing-operations real estate rental revenue | $169.2 million | $176.0 million |
| Net operating income (NOI, non-GAAP) | $108.4 million | $113.0 million |
| NAREIT FFO (non-GAAP) | $65.5 million | $119.4 million |
| Loss from continuing operations | $53.1 million | $40.3 million |
| Consolidated net income (loss) | $16.4 million | $(15.7) million |
| Cash provided by operating activities | $89.2 million | $113.0 million |
| Cash and cash equivalents at year-end | $233.6 million | $7.7 million |
| Notes payable, net | $496.9 million | $945.4 million |
Same-store residential average occupancy improved to 95.3% from 94.5%. Residential real estate expenses were 36.8% of residential revenue, versus 36.4%. The declared dividend was $0.94 per share in 2021, down from $1.20 in 2020.
Material changes versus the prior comparable period
- Revenue decreased 3.9% and NOI decreased 4.1%; NAREIT FFO fell 45.1%. Lower NOI and reduced income from sold properties, transformation costs, derivative losses and debt-extinguishment charges weighed on FFO.
- Consolidated net income improved from a loss to profit largely because 2021 included a net $46.4 million gain on sales reported in discontinued operations. Continuing operations remained loss-making.
- Sales of 12 office properties for $766.0 million and eight retail properties for $168.3 million generated $897.8 million of net cash proceeds. The office sale produced an $11.2 million loss; the retail sale a $57.7 million gain.
- WashREIT acquired two Atlanta-area apartment communities for a combined contract price of $154.0 million, adding 730 homes. A further 389-unit Atlanta acquisition closed in February 2022 for $105.6 million.
- Debt reduction included redeeming $300.0 million of notes and repaying $150.0 million of the term loan. The company also issued 1.6 million shares through its at-the-market program for $40.5 million net proceeds.
Outlook, commentary, risks and unusual items
- Management expected continued rent growth and strong occupancy in 2022 as regional markets recovered; it noted that Atlanta growth was expected to moderate from 2021’s exceptional levels. These are expectations, not guarantees.
- Management anticipated $11–13 million of transformation costs in 2022 and completion of the operating-model redesign in 2023, including insourcing property management currently performed by third parties.
- Planned 2022 spending included $35–40 million for existing operating assets and $10–15 million for development and redevelopment, plus potential acquisitions. Management intended to maintain dividends at about current levels but reviews distributions quarterly and the board retains discretion.
- At February 16, 2022, WashREIT reported $151.6 million of cash and $700 million available on its revolving facility. Year-end cash was $233.6 million; these figures are at different dates. The facility matures in 2025, with extension options. Scheduled debt principal included $100 million due in 2023 and $400 million thereafter; no 2022 maturity was scheduled.
- Material risks include continued concentration in the DC region (91% of apartment homes at year-end), execution and integration risks in Southeast expansion and property-management insourcing, rent regulation, inflation and operating costs, climate-related requirements, COVID-19 effects, interest-rate and LIBOR transition exposure, debt covenants and refinancing, and the possibility of dividend changes.
- Unusual 2021 items included $12.7 million of debt-extinguishment losses, $5.9 million of derivative losses, $6.6 million of transformation costs and $4.1 million of other income, which included a legal settlement and tax refund. No impairment charge was recorded in 2021; management cautioned that future changes in assumptions could require impairment. The filing reports no material off-balance-sheet arrangements and no material pending legal proceedings.
Most important facts for investors to verify
- Reconcile 2021 consolidated profit with the $53.1 million continuing-operations loss and the discontinued-operation sale gains; assess recurring earnings after the commercial dispositions.
- Review the composition and sustainability of NOI and FFO, including same-store results and the impact of reduced commercial-property contributions.
- Verify the timing and economics of planned Southeast acquisitions, development spending and the expected benefits and costs of management insourcing.
- Confirm current liquidity, debt terms, covenant headroom, refinancing exposure and interest-rate protections; distinguish December 31, 2021 balances from February 2022 updates.
- Assess dividend coverage and the implications of the reduction from $1.20 to $0.94 per share, alongside future capital requirements.
- Consider the filing’s market, regulatory, climate, pandemic and REIT-qualification risks. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.