Elme Communities (issuer named Washington Real Estate Investment Trust in this filing) — Q1 2021 Form 10-Q
Business context and reporting period. This unaudited filing covers the three months ended March 31, 2021, compared with Q1 2020. The issuer operated 43 properties in the greater Washington, D.C. region: 22 multifamily properties, 13 office properties and 8 retail centers. It reported 7,059 multifamily units and approximately 3.4 million square feet of commercial space.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Rental revenue | $69.6 million | $76.8 million | Down 9.3% |
| Net loss (income) | $(1.1) million | $1.7 million | Decline of $2.9 million |
| Net operating income (NOI; non-GAAP) | $42.9 million | $48.2 million | Down 10.8% |
| NAREIT FFO (non-GAAP) | $28.5 million | $31.4 million | Down 9.4% |
| Operating cash flow | $37.2 million | $28.9 million | Up 29.0% |
| Cash used in investing | $8.2 million | $20.3 million | Lower outflow |
| Cash used in financing | $33.7 million | $2.0 million | Higher outflow |
NOI margin was approximately 61.7% of rental revenue, versus 62.7% a year earlier; real estate expenses rose to 38.3% of revenue from 37.3%. Cash, cash equivalents and restricted cash totaled $3.6 million at quarter-end. Notes payable, net, were $945.6 million and revolving-credit borrowings were $33.0 million; total debt on the scheduled-principal basis was $983.0 million. The reported weighted-average debt maturity was 5.0 years, and the average interest rate was 3.8%. The $700 million revolver had $667 million unused at March 31. The filing reports $978.6 million total debt including the revolver after net debt adjustments.
Material changes and management commentary
- Same-store NOI fell 6.5%, with lower same-store rental revenue (down 4.8%) the principal driver. The filing attributes pressure to pandemic-related conditions, including lower multifamily rents, higher rent abatements and credit losses, and reduced office parking income.
- Same-store ending occupancy declined to 90.9% from 92.4%. Office occupancy was 83.3% versus 86.8%; multifamily occupancy was 94.9% versus 95.1%. Portfolio average occupancy also declined by about 160 basis points, excluding Trove.
- New gross leasing square footage for commercial space declined 53% year over year. At March 31, approximately 490,000 square feet of commercial space was vacant and approximately 200,000 square feet of commercial leases were due to expire during 2021.
- As of April 23, the company reported collecting 99% of office, 97% of retail and 98% of multifamily cash rent for the quarter, excluding contractual deferrals. Deferred rent outstanding, net of repayments, was $0.7 million for office, $0.9 million for retail and less than $0.1 million for multifamily.
- Net income included $1.3 million of other income from a legal settlement. Q1 2020 included a $0.5 million gain on extinguishment of debt. Lower interest and general and administrative expenses partly offset lower NOI.
- The quarterly dividend was $0.30 per common share in both periods. No properties were sold or classified as held for sale in Q1 2021; the company placed the remainder of Trove development costs into service.
Outlook, liquidity and risks
Management expected COVID-19 and its economic effects to continue affecting rental revenue, credit losses and leasing activity during 2021; it said the impact was difficult to estimate. It expected limited ability to increase multifamily rents until economic disruption subsided and described cost-saving initiatives. Management stated it believed liquidity was adequate for operations and major capital needs through the remainder of 2021, citing revolver capacity and no scheduled debt maturity until Q4 2022. The debt schedule, however, lists $300 million of unsecured debt maturing in 2022. The filing gives no earnings or FFO guidance.
Estimated 2021 capital needs included $42.5–$47.5 million for the existing portfolio, including $10–$15 million for tenant-related costs and leasing commissions, and $5–$7.5 million for development and redevelopment, in addition to dividends and potential acquisitions. Management cautioned that funding access and cash generation could be adversely affected by the pandemic, regional economic conditions, tenant demand, share-price declines and property performance. The company reported compliance with debt covenants and no material off-balance-sheet arrangements. Interest-rate exposure, refinancing risk, tenant credit and the concentration of properties in the Washington region remain relevant risks.
Important facts for investors to verify
- Confirm issuer identity and continuity: the request names Elme Communities, but this 2021 filing identifies the registrant as Washington Real Estate Investment Trust (WashREIT).
- Reconcile the filing’s liquidity disclosures: it reports $667 million unused on the revolver at March 31, but $629 million borrowing capacity as of April 26.
- Review the $300 million 2022 debt maturity against management’s statement that there were no maturities until Q4 2022, and assess refinancing plans and covenant headroom.
- Track occupancy, commercial leasing, rent collections and deferred balances, particularly as pandemic effects and 2021 lease expirations evolve.
- Assess whether operating cash flow can support the dividend and stated capital program; Q1 cash flow benefited partly from timing differences in liability payments.