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EC

Elme Communities (ELME)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered solid operating performance: real estate rental revenue rose to $61.493M (+3.3% YoY), total NOI increased 4.5% YoY, and Core FFO/share was $0.24 (+$0.01 YoY) as same‑store multifamily NOI grew 5.5% on stronger DMV rent growth and favorable property tax appeals in Atlanta .
  • Versus consensus, revenue modestly beat ($61.493M vs $61.310M*), Core FFO/share beat ($0.24 vs $0.23*), while GAAP EPS missed (−$0.05 vs −$0.0369*) due to non‑cash depreciation and $3.0M strategic review/legal costs included in GAAP .
  • Guidance was reiterated: 2025 Core FFO/share $0.91–$0.97, same‑store revenue growth 2.1%–3.6%, NOI growth 1.5%–3.5%, Watergate 600 NOI $11.5–$12.25M, and interest expense $37.35–$38.35M; dividend maintained at $0.18/share .
  • Near-term catalysts: managed Wi‑Fi ramp faster than expected, improving Atlanta bad debt, and an ongoing Board‑led strategic alternatives review that could re-rate shares if outcomes crystallize .

Note: Values with * retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Same‑store multifamily NOI +5.5% YoY driven by stronger rent growth and property tax appeals; average occupancy rose 50 bps to 94.8% .
  • Fee income initiatives tracked ahead: managed Wi‑Fi rollout ramping faster than anticipated, expected to add $0.6–$0.8M NOI in 2025 and $1.5–$2.0M annually by mid‑2026 once Phases 1–2 are integrated .
  • Management emphasized portfolio resilience in DMV: mid‑market rents historically outperform Class A during government austerity; Northern Virginia private‑sector job growth 2.5x broader DMV over four years, supporting demand .

What Went Wrong

  • GAAP net loss widened to −$4.675M (−$0.05/share) largely on depreciation and $3.041M of advisory/legal costs tied to the strategic review/cooperation agreement (non‑operating) .
  • Watergate 600 (Other same‑store) NOI fell 5.5% YoY on lower occupancy; building ended Q1 at 82.3% leased, pressuring Other NOI .
  • Georgia pressures remain: avg effective rent per home fell 4.4% YoY; while occupancy improved YoY, Atlanta markets still face elevated supply, though bad debt trends are improving .

Financial Results

Consolidated Financials vs prior period and consensus

MetricQ1 2024Q4 2024Q1 2025Q1 2025 Consensus
Real estate rental revenue ($USD)$59,513,000 $61,264,000 $61,493,000 $61,310,000*
Net loss per diluted share ($)$(0.04) $(0.03) $(0.05) $(0.03691)*
Core FFO per diluted share ($)$0.23 $0.24 $0.24 $0.23*
Total NOI ($USD)$37,794,000 $38,522,000 $39,499,000 N/A

Note: Values with * retrieved from S&P Global.

Multifamily Same-Store Segment Breakdown (Q1 2025 vs Q1 2024)

RegionRental & Other Revenue ($)Property Operating Expenses ($)NOI ($)Avg Occupancy (%)Avg Effective Monthly Rent ($)
Virginia$37,144,000 $12,176,000 $24,968,000 96.5% $2,059
DC / Maryland$9,299,000 $3,376,000 $5,923,000 94.9% $1,992
Georgia$10,564,000 $4,994,000 $5,570,000 90.6% $1,489
Total$57,007,000 $20,546,000 $36,461,000 94.8% $1,908

YoY deltas: Virginia revenue +4.5%, NOI +6.5%; DC/MD revenue +2.0%, NOI +1.9%; Georgia revenue +3.6%, NOI +4.6%; avg effective rent Georgia −4.4% YoY .

KPIs and Operating Metrics

KPIQ1 2024Q4 2024Q1 2025
Same-store avg occupancy (%)94.3% 95.0% 94.8%
Retention (%)65% 68% 62%
New lease rate growth (effective, %)−2.3% −3.6% −2.0%
Renewal lease rate growth (effective, %)6.3% 5.1% 5.0%
Blended lease rate growth (effective, %)2.3% 1.3% 1.9%
Same-store operating margin (%)63% 63% 64%

Other Portfolio: Watergate 600 leased/occupied 82.3% and represented ~8% of total portfolio NOI in Q1 2025 .

Non-GAAP Adjustments and Balance Sheet

  • Core FFO reconciliation: GAAP net loss (−$4.675M) + D&A ($23.239M) + other non‑operating expenses ($3.041M) → Core FFO $21.605M; diluted Core FFO/share $0.24 .
  • Adjusted EBITDA: $31.264M in Q1 2025 (+6.0% YoY), debt service coverage 3.3x; annualized net debt/Adj EBITDA 5.6x; liquidity $324M (revolver + cash) .

Guidance Changes

MetricPeriodPrevious Guidance (Feb 13, 2025)Current Guidance (May 1, 2025)Change
Core FFO/shareFY 2025$0.91–$0.97 $0.91–$0.97 Maintained
Same‑store multifamily revenue growthFY 20252.1%–3.6% 2.1%–3.6% Maintained
Same‑store multifamily expense growthFY 20252.75%–4.25% 2.75%–4.25% Maintained
Same‑store multifamily NOI growthFY 20251.5%–3.5% 1.5%–3.5% Maintained
Other same‑store NOI (Watergate 600)FY 2025$11.5M–$12.25M $11.5M–$12.25M Maintained
Property management expenseFY 2025$8.75M–$9.25M $8.75M–$9.25M Maintained
G&A (net of core adjustments)FY 2025$25.25M–$26.25M $25.25M–$26.25M Maintained
Interest expenseFY 2025$37.35M–$38.35M $37.35M–$38.35M Maintained
Net loss/share (recon to Core FFO)FY 2025−$0.16 to −$0.10 −$0.17 to −$0.11 Slightly lower (more negative)
Dividend/shareQ2–Q3 2025$0.18 (paid Apr 3) $0.18 declared for Jul 3 Maintained

Earnings Call Themes & Trends

TopicQ-2 (Q3 2024)Q-1 (Q4 2024)Current (Q1 2025)Trend
Managed Wi‑Fi & tech initiativesInitiatives underway; transformation benefits highlighted Phase 1 ramp in 2025 expected $0.3–$0.6M NOI; platform efficiency gains Ramp ahead of plan; $0.6–$0.8M 2025 NOI; $1.5–$2.0M annually by mid‑2026 Strengthening
Macro: federal workforce changes (DMV)DMV resilient; mid‑market focus Limited exposure; non‑DoD federal jobs ~6.2% of DMV residents; strong private sector Mid‑market positioning and Northern VA strength emphasized; low contractor exposure (~5%) Stable/constructive
Regional supply/demandAtlanta elevated supply; DMV steady DMV net inventory ~1.7%; Atlanta gradual improvement expected DMV supply peak Q1 2025 then declines; starts down >70%; Atlanta improving bad debt Improving
Bad debt/evictions (Atlanta)Slower than expected improvement Q3 Improvement expected in 2H’25; insurance proceeds supported Q4 Declining new delinquencies; HB1203 aiding process; bigger 2025 contribution than planned Improving
Strategic reviewNot active Board initiated review to maximize value Ongoing; no further details; costs reflected in Q1 Ongoing

Management Commentary

  • CEO: “Mid‑market rent levels are widely recognized for offering relative resilience during periods of economic volatility... nearly 75% of Elme’s Washington Metro homes are located in Northern Virginia... private sector job growth was 2.5x... according to BLS data.”
  • COO: “Managed WiFi program is ramping up more quickly than anticipated... we now expect to capture $600,000 to $800,000 of additional NOI in 2025... and $1.5 million to $2 million per year by mid‑2026.”
  • CFO: “Same‑store revenue growth of 3.9% and NOI growth of 5.5% year‑over‑year... driven primarily by stronger rent growth across our Washington Metro portfolio and 2 favorable real estate tax appeals in Atlanta.”
  • CEO (strategic review): “There can be no assurance that this process will result in Elme pursuing a transaction... we do not intend to provide further details... today.”

Q&A Highlights

  • DC multifamily transactions: Core buyers more competitive; cap rates ~4.25%–5.0% (levered IRR 9%–11%), core‑plus 4.75%–5.25% (11%–13%), value‑add low‑mid 5s (13%–15%); discount‑to‑replacement cost shrinking in stronger submarkets .
  • Board refresh: addition of Ron aligns with ongoing strategic review; emphasis on maximizing shareholder value .
  • Managed Wi‑Fi: faster install timing into peak leasing season accelerates revenue; associated expenses will rise but to a lesser extent than income .
  • Guidance stance: unchanged due to upcoming busy leasing season; potential update at Q2 call as visibility improves .
  • Watergate 600 (from prior quarter’s Q&A): active renewals and tenant discussions; opportunistic monetization remains a consideration amid improving market/CMBS liquidity .

Estimates Context

  • Revenue: Beat — Actual $61.493M vs consensus $61.310M*; benefit from DMV rent strength and tax appeals .
  • Core FFO/share: Beat — $0.24 vs $0.23*; supported by NOI growth and fee income ramp .
  • GAAP EPS: Miss — −$0.05 vs −$0.0369*; driven by depreciation and $3.041M non‑operating advisory/legal costs tied to the strategic review .

Note: Values with * retrieved from S&P Global.

Key Takeaways for Investors

  • Resilient DMV engine: Mid‑market positioning and Northern Virginia exposure continue to drive rent and occupancy resilience; supply declines should support price power into 2026 .
  • Self‑help levers: Managed Wi‑Fi and targeted renovations are accretive, with Wi‑Fi now ramping faster than plan; expect incremental NOI contributions through 2026 .
  • Atlanta improving: Bad debt trends and eviction processing are normalizing; management expects larger revenue contribution from bad debt improvement in 2025 than initially planned .
  • Balance sheet flexibility: 5.6x annualized net debt/Adj EBITDA, >60% undrawn revolver capacity, no secured debt, limited maturities before 2028 — supports optionality during strategic review .
  • Guidance intact: Reiteration of 2025 Core FFO/share $0.91–$0.97 with clear building blocks implies confidence; watch Q2 for potential update as peak leasing visibility improves .
  • Tactical setup: Modest beat on revenue and FFO/share, improving leading indicators, and an active strategic review create a constructive near‑term narrative; monitor Watergate 600 occupancy and DMV macro headlines for sentiment drivers .