Elme Communities 10-Q for FY2020 Q1

Elme Communities (ELMES)

10-Q 2020-04-27 For: 2020-03-31

Added on April 08, 2026

About this 10-Q

Elme Communities filed this 10-Q on April 27, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $76.79M; up 7.5% from $71.43M a year earlier
Net income: $1.72M; compared with a net loss of $4.41M a year earlier
Diluted EPS: $0.02; compared with -$0.06 a year earlier

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Maryland		53-0261100
(State of incorporation)		(IRS Employer Identification Number)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Shares of Beneficial Interest	WRE	NYSE



Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐



		Page
Part I: Financial Information

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Loss	7
	Consolidated Statements of Equity	8
	Consolidated Statements of Cash Flows	9
	Notes to Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	37

Part II: Other Information

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

	Signatures	42



	March 31, 2020			December 31, 2019
	(Unaudited)			December 31, 2019
Assets
Land	$	574,025		$	566,807
Income producing property	2,444,525			2,392,415
	3,018,550			2,959,222
Accumulated depreciation and amortization	(719,446		)	(693,610		)
Net income producing property	2,299,104			2,265,612
Properties under development or held for future development	89,791			124,193
Total real estate held for investment, net	2,388,895			2,389,805
Investment in real estate held for sale, net	57,028			57,028
Cash and cash equivalents	20,601			12,939
Restricted cash	634			1,812
Rents and other receivables	64,617			65,259
Prepaid expenses and other assets	84,722			95,149
Other assets related to properties held for sale	6,123			6,336
Total assets	$	2,622,620		$	2,628,328
Liabilities
Notes payable, net	$	997,075		$	996,722
Mortgage notes payable, net	—			47,074
Line of credit	148,000			56,000
Accounts payable and other liabilities	98,966			71,136
Dividend payable	—			24,668
Advance rents	8,681			9,353
Tenant security deposits	10,875			10,595
Other liabilities related to properties held for sale	875			718
Total liabilities	1,264,472			1,216,266
Equity
Shareholders’ equity
Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued or outstanding	—			—
Shares of beneficial interest, $0.01 par value; 100,000 shares authorized; 82,315 and 82,099 shares issued and outstanding, as of March 31, 2020 and December 31, 2019, respectively	823			821
Additional paid in capital	1,596,242			1,592,487
Distributions in excess of net income	(206,506		)	(183,405		)
Accumulated other comprehensive (loss) income	(32,744		)	1,823
Total shareholders’ equity	1,357,815			1,411,726
Noncontrolling interests in subsidiaries	333			336
Total equity	1,358,148			1,412,062
Total liabilities and equity	$	2,622,620		$	2,628,328



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



	Three Months Ended March 31,
	2020			2019
Revenue
Real estate rental revenue	$	76,792		$	71,434
Expenses
Real estate expenses	28,639			26,143
Depreciation and amortization	29,720			27,057
General and administrative expenses	6,337			7,807
Real estate impairment	—			8,374
	64,696			69,381
Real estate operating income	12,096			2,053
Other expense
Interest expense	(10,845		)	(12,496		)
Gain on extinguishment of debt	468			—
	(10,377		)	(12,496		)
Income (loss) from continuing operations	1,719			(10,443		)
Discontinued operations:
Income from operations of properties sold or held for sale	—			6,038
Net income (loss)	1,719			(4,405		)
Less: Net income attributable to noncontrolling interests in subsidiaries	—			—
Net income (loss) attributable to the controlling interests	$	1,719		$	(4,405	)

Basic net income (loss) attributable to the controlling interests per share:
Continuing operations	$	0.02		$	(0.13	)
Discontinued operations	—			0.08
Net income (loss) attributable to the controlling interests per share ⁽¹⁾	$	0.02		$	(0.06	)

Diluted net income (loss) attributable to the controlling interests per share:
Continuing operations	$	0.02		$	(0.13	)
Discontinued operations	—			0.08
Net income (loss) attributable to the controlling interests per share ⁽¹⁾	$	0.02		$	(0.06	)
Weighted average shares outstanding – basic	82,086			79,881
Weighted average shares outstanding – diluted	82,287			79,881



	Shares Issued and Out-standing	Shares of Beneficial Interest at Par Value		Additional Paid in Capital		Distributions in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity			Noncontrolling Interests in Subsidiaries			Total Equity
Balance, December 31, 2019	82,099	$	821	$	1,592,487	$	(183,405	)	$	1,823		$	1,411,726		$	336		$	1,412,062
Net income attributable to the controlling interests	—	—		—		1,719			—			1,719			—			1,719
Unrealized loss on interest rate hedges	—	—		—		—			(34,567		)	(34,567		)	—			(34,567		)
Distributions to noncontrolling interests	—	—		—		—			—			—			(3		)	(3		)
Dividends	—	—		—		(24,820		)	—			(24,820		)	—			(24,820		)
Equity issuances, net of issuance costs	46	1		1,241		—			—			1,242			—			1,242
Shares issued under dividend reinvestment program	35	—		921		—			—			921			—			921
Share grants, net of forfeitures and tax withholdings	135	1		1,593		—			—			1,594			—			1,594
Balance, March 31, 2020	82,315	$	823	$	1,596,242	$	(206,506	)	$	(32,744	)	$	1,357,815		$	333		$	1,358,148



WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities
Net income (loss)	$	1,719		$	(4,405	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	29,720			29,547
Credit losses on lease related receivables	923			—
Real estate impairment	—			8,374
Share-based compensation expense	1,778			2,826
Amortization of debt premiums, discounts and related financing costs	645			536
Loss on extinguishment of debt	(468		)	—
Changes in operating other assets	895			(2,035		)
Changes in operating other liabilities	(6,352		)	(7,265		)
Net cash provided by operating activities	28,860			27,578
Cash flows from investing activities
Capital improvements to real estate	(10,846		)	(7,281		)
Development in progress	(9,402		)	(6,091		)
Non-real estate capital improvements	(94		)	(67		)
Net cash used in investing activities	(20,342		)	(13,439		)
Cash flows from financing activities
Line of credit borrowings, net	92,000			40,000
Dividends paid	(49,485		)	(48,165		)
Principal payments – mortgage notes payable	(46,567		)	(610		)
Payment of financing costs	—			(252		)
Distributions to noncontrolling interests	(3		)	(4		)
Proceeds from dividend reinvestment program	921			1,097
Net proceeds from equity issuances	1,241			—
Payment of tax withholdings for restricted share awards	(141		)	(452		)
Net cash used in financing activities	(2,034		)	(8,386		)
Net increase in cash, cash equivalents and restricted cash	6,484			5,753
Cash, cash equivalents and restricted cash at beginning of period	14,751			7,640
Cash, cash equivalents and restricted cash at end of period	$	21,235		$	13,393



Standard/Description	Effective Date and Adoption Considerations	Effect on Financial Statements or Other significant Matters
ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires financial assets measured on an amortized cost basis, including trade receivables, to be presented at the net amount expected to be collected.	We adopted the new standard as of January 1, 2020.	The adoption of the new standard did not have a material effect on our consolidated financial statements.
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software. This standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets.	We adopted the new standard as of January 1, 2020.	The adoption of the new standard did not have a material effect on our consolidated financial statements.



Disposition Date	Property Name	Property Type	Rentable Square Feet	Contract Sales Price (in thousands)		(Loss) Gain on Sale (in thousands)
April 21, 2020	John Marshall II ⁽¹⁾	Office	223,000	$	57,000	N/A
		Total 2020	223,000	$	57,000	N/A

June 26, 2019	Quantico Corporate Center ⁽²⁾	Office	272,000	$	33,000	$	(1,046	)
July 23, 2019	Shopping Center Portfolio ⁽³⁾	Retail	800,000	485,250		333,023
August 21, 2019	Frederick Crossing and Frederick County Square	Retail	520,000	57,500		9,507
August 27, 2019	Centre at Hagerstown	Retail	330,000	23,500		(3,506		)
December 19, 2019	1776 G Street	Office	262,000	129,500		61,007
		Total 2019	2,184,000	$	728,750	$	398,985


⁽³⁾	Consists of five retail properties: Gateway Overlook, Wheaton Park, Olney Village Center, Bradlee Shopping Center and Shoppes of Foxchase.



	Three Months Ended March 31, 2019
Real estate rental revenue	$	11,740
Real estate expenses	(3,067		)
Depreciation and amortization	(2,490		)
Interest expense	(145		)
Income from discontinued operations	$	6,038

Basic net income per share	$	0.08
Diluted net income per share	$	0.08

Capital expenditures	$	406



2020	$	106,177
2021	137,244
2022	124,684
2023	107,647
2024	94,677
Thereafter	316,221
	$	886,650


⁽¹⁾	Earnings per share may not sum due to rounding



Standard/Description	Effective Date and Adoption Considerations	Effect on Financial Statements or Other significant Matters
ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard contains optional practical expedients and exceptions for applying Generally Accepted Accounting Principles (“GAAP”) to contracts, hedging relations, and other transactions affected by reference rate reform if certain criteria are met.	We elected certain optional practical expedients as of January 1, 2020.	The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. As of January 1, 2020, we have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.



2020	$	195
2021	260
2022	260
2023	260
2024	260
Thereafter	11,830
	13,065
Imputed interest	(9,156		)
Lease liability	$	3,909



Committed capacity	$	700,000
Borrowings outstanding	(148,000		)
Unused and available	$	552,000



Balance, December 31, 2019	$	56,000
Borrowings	115,000
Repayments	(23,000		)
Balance, March 31, 2020	$	148,000



					Fair Value
					Derivative Assets (Liabilities)
Derivative Instrument	Aggregate Notional Amount		Effective Date	Maturity Date	March 31, 2020			December 31, 2019
Interest rate swaps	$	150,000	October 15, 2015	March 15, 2021	$	(1,851	)	$	(62	)
Interest rate swaps	150,000		March 31, 2017	July 21, 2023	(4,316		)	1,825
Interest rate swaps	100,000		June 29, 2018	July 21, 2023	(7,448		)	(3,664		)
Interest rate swaps	200,000		April 1, 2020	April 1, 2030	(19,129		)	3,724
	$	600,000			$	(32,744	)	$	1,823



	March 31, 2020										December 31, 2019
	Fair Value			Level 1		Level 2			Level 3		Fair Value			Level 1		Level 2			Level 3
Assets:
SERP	$	1,561		$	—	$	1,561		$	—	$	1,792		$	—	$	1,792		$	—
Interest rate swaps	—			—		—			—		5,549			—		5,549			—
Liabilities:
Interest rate swaps	$	(32,744	)	$	—	$	(32,744	)	$	—	$	(3,726	)	$	—	$	(3,726	)	$	—



	March 31, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and cash equivalents	$	20,601	$	20,601	$	12,939	$	12,939
Restricted cash	634		634		1,812		1,812
Mortgage notes payable, net	—		—		47,074		47,899
Line of credit	148,000		148,000		56,000		56,000
Notes payable, net	997,075		995,875		996,722		1,022,937



	Threshold	Target	High
President and Chief Executive Officer	198%	275%	440%
Executive Vice President	143%	200%	295%
Senior Vice President	100%	143%	207%



	Three Months Ended March 31, 2020
	Office		Multifamily		Corporate and Other ⁽¹⁾		Consolidated
Real estate rental revenue	$	35,670	$	36,578	$	4,544	$	76,792
Real estate expenses	13,317		13,985		1,337		28,639
Net operating income	$	22,353	$	22,593	$	3,207	$	48,153
Depreciation and amortization							(29,720		)
General and administrative expenses							(6,337		)
Interest expense							(10,845		)
Gain on extinguishment of debt							468
Net income							1,719
Less: Net income attributable to noncontrolling interests in subsidiaries							—
Net income attributable to the controlling interests							$	1,719
Capital expenditures	$	7,088	$	3,469	$	383	$	10,940
Total assets	$	1,130,013	$	1,339,925	$	152,682	$	2,622,620


⁽¹⁾	Corporate and Other is comprised of eight retail properties that do not meet the qualitative or quantitative criteria for a reportable segment and are classified as “Corporate and other” in our segment disclosure tables.


⁽²⁾	Net operating income includes the retail properties not classified as discontinued operations: Takoma Park, Westminster, Concord Center, Chevy Chase Metro Plaza, 800 S. Washington Street, Randolph Shopping Center, Montrose Shopping Center and Spring Valley Village, and total assets and capital expenditures include all retail properties, including those classified as discontinued operations.


•	Overview. Discussion of our business outlook, operating results, investment activity, financing activity and capital requirements to provide context for the remainder of MD&A.


•	Results of Operations. Discussion of our financial results comparing the 2020 Quarter to the 2019 Quarter.


•	Liquidity and Capital Resources. Discussion of our financial condition and analysis of changes in our capital structure and cash flows.


•	Funds From Operations. Calculation of NAREIT Funds From Operations (“NAREIT FFO”), a non-GAAP supplemental measure to net income.


•	Critical Accounting Policies and Estimates. Descriptions of accounting policies that reflect significant judgments and estimates used in the preparation of our consolidated financial statements.


•	Net operating income (“NOI”), calculated as set forth below under the caption "Results of Operations - Net Operating Income." NOI is a non-GAAP supplemental measure to net income.


•	Funds From Operations (“NAREIT FFO”), calculated as set forth below under the caption “Funds from Operations.” NAREIT FFO is a non-GAAP supplemental measure to net income.


•	Ending occupancy, calculated as occupied square footage as a percentage of total square footage as of the last day of that period, except Multifamily, on which ending occupancy is calculated as occupied units as a percentage of total available units as of the last day of that period.


•	Leased percentage, calculated as the percentage of available physical net rentable area leased for our commercial properties and percentage of apartments leased for our multifamily properties.


•	Leasing activity, including new leases, renewals and expirations.


•	the elimination of the taxable income limit for net operating losses (“NOLs”) for all taxable years beginning before January 1, 2021, thereby permitting corporate taxpayers to use NOLs to fully offset taxable income (although as a REIT, WashREIT will continue to only be able to use NOLs against taxable income remaining after taking into account any dividends-paid deduction);


•	the ability for our TRSs to carry back NOLs arising in 2018, 2019, and 2020 to the five taxable years preceding the taxable year of the loss;