Business context and reporting period
Washington Real Estate Investment Trust (WashREIT; now Elme Communities) reported unaudited results for the quarter and six months ended June 30, 2021. At quarter-end, it owned 22 multifamily properties, 13 office properties and eight retail centers. The filing reflects a strategic shift away from commercial real estate toward multifamily and reports the office and retail portfolios as discontinued operations.
Financial and operating results
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Rental revenue, continuing operations | $41.3 | $43.8 | $81.9 | $89.5 |
| Net operating income (NOI) | $25.1 | $27.2 | $49.2 | $55.5 |
| Net loss | $(7.0) | $(5.4) | $(8.1) | $(3.7) |
| NAREIT FFO | $20.6 | $31.7 | $49.1 | $63.2 |
| Net loss per share | $(0.08) | $(0.07) | $(0.10) | $(0.05) |
- Q2 NOI fell 7.7% and NAREIT FFO fell 35.2% year over year. Management reported multifamily same-store occupancy of 95.1% at June 30, up 0.6 percentage points year over year; same-store rental revenue declined 0.9% in Q2.
- Income from discontinued operations was $9.7 million in Q2 and $15.9 million for the six-month period, versus $6.6 million and $14.0 million in the comparable periods.
- Q2 interest expense was $10.2 million, up from $8.8 million. A $5.8 million derivative loss and $3.8 million of transformation costs were significant Q2 items. Other income included a $1.5 million real-estate tax refund.
- Six-month operating cash flow was $64.6 million, compared with $51.2 million. Investing cash use was $18.2 million; financing cash use was $48.7 million. Cash, cash equivalents and restricted cash totaled $6.0 million at June 30.
- At June 30, notes payable, net were $945.9 million and revolving-credit borrowings were $43.0 million. The company reported $657.0 million of unused revolver capacity. Total liabilities were $1.092 billion and total equity was $1.276 billion.
Material changes, outlook and risks
- WashREIT agreed to sell 12 office properties for $766.0 million; the sale closed July 26, 2021. After quarter-end, it agreed to sell its eight retail properties for $168.3 million, with closing expected in Q3 and subject to customary conditions; completion was not assured.
- Management planned to use sale proceeds for multifamily acquisitions in Southeastern markets and debt reduction, including planned repayment of $300 million of notes due 2022 and $150 million of the 2018 term loan. As of July 28, it reported approximately $665 million of cash and no revolver borrowings, with the full $700 million facility available.
- Management said it expected to increase rental rates during the rest of 2021 as market conditions improved. It reported collecting 99% of Q2 cash rent as of July 28. The filing provides no quantified earnings or FFO guidance.
- The board declared a $0.30-per-share Q2 dividend; a $0.17-per-share dividend for Q3 was announced July 29. Future dividends remain subject to board discretion and cash-flow and capital needs.
- COVID-19, potential changes in rent, credit losses and leasing activity, execution of property sales and new-market acquisitions, financing availability, interest rates, and real-estate market conditions were identified risks. The company reported compliance with debt covenants and effective disclosure controls; it reported no material change in internal control over financial reporting and no legal proceedings.
Important facts for investors to verify
- Whether the retail portfolio sale closed on the expected terms and schedule, and the realized net proceeds from both portfolio dispositions.
- Completion and funding of the planned $300 million note redemption and $150 million term-loan repayment, including the related interest-rate swap termination and effects on interest expense.
- Progress on Southeast multifamily acquisitions, leverage reduction and the company’s post-transformation portfolio and operating results.
- Trends in multifamily rent growth, occupancy, concessions, credit losses and cash collections, alongside the effect of COVID-19 and market conditions.
- Cash available for dividends and capital investment after dispositions, debt repayments and planned acquisition spending.