Elme Communities (ELME)·Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 results were operationally stable but headline EPS was heavily impacted by a non-cash $111.7M real estate impairment tied to properties excluded from the Cortland portfolio sale, driving GAAP EPS to $(1.40); revenue was essentially in line with consensus and flat sequentially . Revenue beat S&P Global consensus by ~$0.02M while GAAP EPS missed materially due to the impairment (see Estimates Context) . Primary EPS and revenue consensus from S&P Global: see starred values below (S&P Global)*
• Same-store multifamily NOI declined 1.8% YoY on higher controllable operating costs; occupancy softened seasonally to 94.4% and blended lease rate growth slowed to 0.7% (new leases -4.7%, renewals +4.3%) .
• Strategic plan execution advanced: shareholders approved the $1.6B Cortland sale (closed Nov 12) and the Plan of Sale and Liquidation; the Board signaled an initial special liquidating distribution of $14.50–$14.82 per share expected to be declared later in 2025 and paid in Jan 2026, with additional liquidating distributions as asset sales close .
• Liquidity and leverage remained manageable pre-closing ($321M liquidity at 9/30; YTD Net Debt/Adjusted EBITDA 5.7x). Management reiterated focus on “maximizing value for shareholders” as it markets nine remaining multifamily assets and Watergate 600, aiming to complete all remaining sales by June 2026 .

What Went Well and What Went Wrong

What Went Well

• Strategic catalyst: Shareholders approved and company completed the $1.6B sale of 19 communities to Cortland, enabling a large near-term capital return and setting the path for liquidation; initial special distribution guided to $14.50–$14.82 per share in Jan 2026, with more to follow as sales complete .
• Portfolio stability in core markets: “Our third-quarter operational performance aligned with our expectations and was consistent with typical seasonal patterns across our portfolio,” said CEO Paul McDermott, highlighting portfolio stability despite macro noise .
• Balance sheet/liquidity: Available liquidity of $321M at quarter-end; limited maturities pre-2028 ($125M), and no secured debt. Debt covenant compliance remained solid with public unsecured note covenants showing ample headroom .

What Went Wrong

• Large non-cash impairment: $111.7M impairment on select properties not in the portfolio sale drove GAAP net loss to $(123.5)M and GAAP EPS to $(1.40), overwhelming otherwise stable operations .
• Cost pressure and seasonal softening: Same-store multifamily NOI fell 1.8% YoY as controllable Opex rose ~20% YoY; occupancy dipped 80 bps to 94.4% and blended lease rate growth slowed to 0.7% (new leases -4.7%) .
• Office (Watergate 600) headwind persisted: “Other same-store NOI” (Watergate 600) fell 6.5% YoY with occupancy at 82.3% and leased 82.3%, continuing to weigh on consolidated NOI .

Financial Results

Margins (S&P Global)*

Segment/KPI snapshot

Vs Wall Street estimates (S&P Global)*

Note: Values marked with * were retrieved from S&P Global; EPS consensus is “Primary EPS” (GAAP) and not FFO.

Guidance Changes

Earnings Call Themes & Trends

Note: No Q3 2025 call transcript was available as of this report. Trends reflect Q1 and Q2 calls plus the Q3 press release.

Management Commentary

• “Our third-quarter operational performance aligned with our expectations and was consistent with typical seasonal patterns across our portfolio… [and] highlights not only the overall stability and quality of our portfolio but also the results of executing our operational platform initiatives…” — Paul T. McDermott, President & CEO .
• “Following the closing of the [Cortland] transaction… we estimate that the amount of [the] initial special distribution will be between $14.5 and $14.82 per share… [and] the aggregate amount of distributions is expected to be between $17.58 and $18.5 per share.” — CFO Steven Freishtat (Aug 6 call) .
• “With the completion of the portfolio sale… our focus is on monetizing the Company’s remaining assets… We… are aiming to complete all remaining sales by June 2026.” — Paul T. McDermott (Nov 12 PR) .

Q&A Highlights

• Distribution mechanics and proceeds build-up: CFO emphasized estimates include transaction costs, liabilities, and reserves; more detail to be provided in the proxy .
• Asset sale specifics: Questions on Watergate 600 and Riverside (potential conversion interest, cap rates, density value); management expects a broad buyer pool and will optimize value asset-by-asset .
• Policy and process risks: Maryland rent control and DC TOPA process timing addressed; company plans early launches and engagement to manage timelines realistically within the broader sale program .
• Market liquidity and process: Board contacted 80+ counterparties; entity-level bids less attractive than combination of portfolio sale plus individual asset sales; portfolio route maximizes shareholder value per Board .
• Timing and cadence: Liquidating distributions likely paid as transactions close; operating expenses expected to scale down as the company shrinks .

Estimates Context

• Revenue modestly beat S&P Global consensus ($62.10M actual vs $62.08M consensus), while Primary EPS materially missed given the $111.7M impairment ($(1.40) actual vs $(0.034) consensus) .
• Impairment-related GAAP miss is non-cash and tied to revised holding periods for properties excluded from the portfolio sale, not a deterioration in core operations; sell-side models likely to shift focus from GAAP EPS/FFO to liquidation timing and proceeds per share .
• With formal guidance withdrawn (since Q2) and liquidation underway, near-term estimate dispersion may increase around the size and timing of liquidating distributions rather than operating metrics .

Note: Starred values were retrieved from S&P Global.

Key Takeaways for Investors

• Liquidation catalyst now driving the story: Following the $1.6B sale close, an initial $14.50–$14.82 special distribution is expected in Jan 2026, with additional distributions as remaining sales complete; total proceeds estimated at $17.58–$18.50 per share (management) .
• Near-term stock reaction likely tied to: (1) the Board’s final approval and announcement of the exact initial distribution amount (expected later in Nov), (2) pace/pricing of remaining asset sales, and (3) any updates on Watergate 600 leasing/valuation .
• Q3 operational softness was expected seasonality and higher controllable Opex; blended lease growth slowed and occupancy ticked down, but portfolio revenue remained stable; core earnings power largely intact ex-impairment .
• GAAP EPS miss is non-cash and driven by real estate impairment on non-sale properties; focus should shift to cash distributions and net proceeds versus GAAP earnings .
• Balance sheet/financing: Post-sale, company added a $520M senior secured term loan (maturity Nov 2026, extendable) to bridge remaining sales; repayment expected from secured property sale proceeds .
• Execution risks: Timing of DC TOPA/MD processes, office market liquidity for Watergate 600, and macro/financing conditions may affect timeline and proceeds; management targets completing all remaining sales by June 2026 .
• Trading setup: Shares should trade toward expected cumulative distributions, with updates on the initial special distribution and early asset sales as key near-term catalysts; variance to the guided ranges could drive outsized moves .

Appendix: Additional Data and Context

Real estate impairment detail (Q3): “The Company recognized an aggregate impairment charge of $111.7 million related to several properties not included as part of the Portfolio Sale Transaction… primarily due to a revision of their estimated holding periods.”

Controllable operating expenses (Q3 same-store): Up 19.8% YoY; total same-store Opex up 9.1% YoY, led by controllable Opex and insurance .

Watergate 600: 300k sf, 82.3% leased and occupied in Q3; Other same-store NOI -6.5% YoY on lower occupancy; contributes ~8% of portfolio NOI YTD .

Dividend policy: Paid $0.18 on Oct 3; company does not intend to declare future regular quarterly dividends if the Plan is approved .

Liquidity and covenants: $321M liquidity at 9/30; unsecured covenant ratios show ample headroom (e.g., Total Indebtedness/Total Assets 35.2% vs ≤65%) .