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EC

Elme Communities (ELME)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered stable operational performance: real estate rental revenue rose 4.1% YoY to $61.3M while same‑store multifamily NOI increased 1.7% YoY; Core FFO per diluted share was $0.24 and net loss per diluted share was $(0.03) .
  • Occupancy and retention strengthened: same‑store average occupancy reached 95.0% (+10 bps YoY, +20 bps QoQ) and retention improved to 68%; blended lease rate growth was 1.3% (new: −3.6%, renewal: +5.1%) .
  • 2025 guidance launched: Core FFO of $0.91–$0.97 per diluted share; same‑store revenue growth 2.1%–3.6%; expense growth 2.75%–4.25%; multifamily NOI growth 1.5%–3.5%; Watergate 600 NOI $11.5–$12.25M; quarterly dividend maintained at $0.18/share .
  • Board initiated a formal strategic review to maximize shareholder value, engaging Goldman Sachs and JLL as financial advisors—an explicit potential stock catalyst; no assurance of outcome and limited disclosures until appropriate .
  • Estimates context: S&P Global consensus estimates were unavailable due to data limits; formal beat/miss versus Street cannot be assessed this quarter.

What Went Well and What Went Wrong

What Went Well

  • Washington Metro resilience and share gains: “Strong demand trends in our Washington Metro portfolio” supported higher‑than‑expected same‑store revenue growth in Q4; CFO flagged business interruption insurance proceeds as an additional tailwind .
  • Operating platform execution: Launch of Elme Resident Services centralizing account management, collections, renewals; Phase 1 managed Wi‑Fi rolling out, targeting $300K–$600K incremental NOI in 2025 and $1.0–$1.5M when fully adopted by mid‑2026 .
  • Portfolio KPIs: Retention of 68% (+300 bps YoY), average occupancy of 95.0% (+10 bps YoY), and effective blended lease rate growth of 1.3% despite market headwinds .

What Went Wrong

  • Atlanta headwinds persist: Elevated supply and slower‑than‑expected improvement in bad debt pressured performance; Q4 blended lease rate growth was negative for new leases in Atlanta, with management prioritizing occupancy over rate .
  • Non‑controllable cost pressure and timing: Higher Q4 D.C./MD property operating expenses included utility true‑ups; CFO cited tax timing (appeals expected to benefit 2025) and higher utility expenses at Watergate 600 .
  • Bad debt normalization delayed: Despite process changes and House Bill 1203 implementation, management now expects Atlanta bad debt improvement to be more meaningful in 2025 rather than Q4 2024 .

Financial Results

Summary Performance vs prior periods and estimates

MetricQ4 2023Q3 2024Q4 2024Vs. PYVs. PQVs. Estimates
Real estate rental revenue ($USD Millions)$58.9 $61.1 $61.3 +$2.4 (+4.1%)+$0.2 (+0.3%)N/A
Net loss per diluted share ($)$(0.04) $(0.03) $(0.03) +$0.01—N/A
NAREIT FFO per diluted share ($)$0.24 $0.23 $0.23 −$0.01—N/A
Core FFO per diluted share ($)$0.24 $0.23 $0.24 —+$0.01N/A
Total NOI ($USD Millions)$38.6 $38.8 $38.5 −$0.1 (−0.3%)−$0.3 (−0.7%)N/A

Note: Estimates unavailable from S&P Global due to data limits; formal beat/miss not assessed.

Segment NOI breakdown

NOI ($USD Millions)Q4 2023Q3 2024Q4 2024
Same‑store multifamily$33.7 $34.4 $34.3
Acquisitions$1.6 $1.3 $1.4
Development$(0.1) $(0.1) $(0.1)
Other NOI (Watergate 600)$3.3 $3.2 $2.9
Total NOI$38.6 $38.8 $38.5

Same‑store KPIs

KPIQ4 2023Q3 2024Q4 2024
Average Occupancy (%)94.9% 95.2% 95.0%
Retention (%)65% 66% 68%
Avg Effective Monthly Rent per Home ($)$1,884 $1,916 $1,920
Blended lease rate growth (%)1.8% 2.1% 1.3%
New lease rate growth (%)−3.6% −1.5% −3.6%
Renewal lease rate growth (%)5.9% 4.5% 5.1%
Operating margin (same‑store) (%)65% 64% 63%

Regional same‑store quarterly comparison (selected)

RegionRental & Other Revenue ($M)Property OpEx ($M)NOI ($M)Avg Occupancy (%)Avg Effective Rent ($)
Virginia (Q4 2023)$35.0 $11.4 $23.6 96.0% $1,976
Virginia (Q3 2024)$37.0 $11.9 $25.1 96.7% $2,035
Virginia (Q4 2024)$36.8 $12.1 $24.7 96.3% $2,046
DC/Maryland (Q4 2023)$8.85 $2.95 $5.90 96.1% $1,951
DC/Maryland (Q3 2024)$9.26 $3.32 $5.94 96.0% $1,986
DC/Maryland (Q4 2024)$9.34 $3.46 $5.88 96.0% $1,991
Georgia (Q4 2023)$7.78 $3.62 $4.16 90.5% $1,544
Georgia (Q3 2024)$7.72 $4.34 $3.39 90.1% $1,493
Georgia (Q4 2024)$8.20 $4.50 $3.71 90.0% $1,472

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core FFO per diluted shareFY 2024 (as of Q2)$0.91–$0.95 ——
Core FFO per diluted shareFY 2024 (as of Q3)$0.92–$0.94 —Tightened range; midpoint maintained
Same‑store multifamily NOI growthFY 2024 (as of Q2)0.75%–1.75% ——
Same‑store multifamily NOI growthFY 2024 (as of Q3)1.0%–1.5% —Tightened, midpoint raised
Interest expenseFY 2024 (as of Q2)$37.5–$38.25M ——
Interest expenseFY 2024 (as of Q3)$37.5–$38.0M —Slightly lower midpoint
Core FFO per diluted shareFY 2025—$0.91–$0.97 Initiated
Same‑store multifamily revenue growthFY 2025—2.1%–3.6% Initiated
Same‑store multifamily expense growthFY 2025—2.75%–4.25% Initiated
Same‑store multifamily NOI growthFY 2025—1.5%–3.5% Initiated
Watergate 600 NOIFY 2025—$11.5–$12.25M Initiated
Property management expenseFY 2025—$8.75–$9.25M Initiated
G&A (net of core adj.)FY 2025—$25.25–$26.25M Initiated
Interest expenseFY 2025—$37.35–$38.35M Initiated
Dividend per shareQ1/Q2 2025—$0.18 declared; payable Apr 3, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Strategic alternativesNot discussed in Q2/Q3 releases; focus on operations and guidance Formal strategic review announced; advisors engaged New, potential corporate action catalyst
Washington Metro demandStrong demand and occupancy above target; net inventory ratios low “Strong demand trends” driving Q4 revenue and occupancy Stable to improving
Atlanta supply/bad debtElevated supply; process changes; HB 1203 evictions enabling progress Gradual improvement expected in 2H’25; occupancy prioritized over rate Improving but slower than planned
Managed Wi‑Fi & tech initiativesPhase 1 rollout starting Q4; AI comms automation; flexible payments Phase 1 across 7 communities; $300K–$600K NOI in 2025; $1.0–$1.5M run‑rate mid‑2026 Scaling and monetizing
Watergate 600Q3: occupancy 86%, plan to opportunistically monetize 2025 NOI guided down on occupancy/utilities; end‑year occupancy 81–82% expected Modest near‑term pressure; optionality retained
Macro/government exposureDC resilient; limited federal job exposure; alignment matters post‑election Non‑DoD federal job exposure ~6.2%; agency‑level <1%; demand normal Stable; limited direct risk

Management Commentary

  • CEO on strategic review: “The Board has unanimously determined to undertake a formal strategic review… We remain confident in the long‑term growth potential of our portfolio… while also advancing our process to determine the best path forward for Elme.”
  • CFO on Q4 drivers: “Strong demand trends in our Washington Metro portfolio and business interruption insurance proceeds drove higher‑than‑expected same‑store multifamily revenue growth… offset in part, by higher taxes due to the timing of potential tax appeals, which will now be recognized as a benefit in 2025.”
  • COO on leasing trends: “Same‑store blended lease rate growth averaged 1.3% in the fourth quarter and 1.8% in January for our 2025 same‑store pool… Same‑store occupancy averaged 95% during the fourth quarter.”
  • CFO on 2025 build: “Drivers of our 2025 core FFO per share at the midpoint include $0.04 of growth from our same‑store multifamily portfolio, offset in part by a $0.01 decline from Watergate 600, $0.01 decline from higher G&A, and a $0.05 decline from other items.”

Q&A Highlights

  • Macro/government shifts: Management emphasized low direct exposure to non‑DoD federal jobs (~6.2%) and agency‑level exposures typically sub‑1%; DC demand “normal” with strong Class B resilience .
  • Capital markets and cap rates: For value‑add assets, buyers target 13–15% IRRs; cap rates ~5.0%–5.5%+, core at ~4.5%–5.0%; liquidity available via GSEs, bridge, life companies .
  • Atlanta occupancy and concessions: Occupancy prioritized over rate; Q4 concessions more prevalent in Atlanta (≈58% of new leases; ≈12 days), DC area remained largely non‑concessionary .
  • Watergate dynamics: In‑place renewals/expansions executed; management remains opportunistic on monetization; 2025 occupancy guided lower with utility cost pressure .
  • Expense clarity: DC/MD Q4 operating expense uptick due to utility true‑ups; tax appeal timing to benefit 2025 .

Estimates Context

  • S&P Global consensus estimates for Q4 2024 (Primary EPS Consensus Mean, Revenue Consensus Mean, and estimate counts) were unavailable due to system limits; as a result, formal beat/miss versus Street could not be assessed this quarter. Values would normally be retrieved from S&P Global.

Key Takeaways for Investors

  • Strategic review introduces optionality and a potential rerating catalyst; with advisors engaged, the process could surface asset sales, recapitalizations, or corporate transactions; timing and outcome remain uncertain .
  • Core portfolio momentum continues: Washington Metro fundamentals (limited competing supply, strong demand) support occupancy and renewal‑driven rent growth into 2025; consider positioning for steady FFO contribution .
  • Atlanta is inflecting gradually: Expect 2025 improvements driven by occupancy and bad debt normalization rather than price; near‑term rate concessions likely persist regionally; monitor HB 1203 operational execution .
  • 2025 guidance is conservative but credible: Core FFO $0.91–$0.97 embeds modest rent growth, fee income +70 bps, ~25 bps bad debt improvement, and ~20 bps occupancy uplift; Watergate headwinds are sized and offset by multifamily strength .
  • Balance sheet provides flexibility: Only $125M matures before 2028; ~$330M liquidity at year‑end; net debt/Adj. EBITDA 5.7x; sustained dividend at $0.18/share underpins investor return while strategic options are evaluated .
  • Operating initiatives are compounding: Managed Wi‑Fi Phase 1 adds $300K–$600K NOI in 2025, scaling to $1.0–$1.5M mid‑2026; further phases offer upside; centralization and technology underpin margin resilience .
  • Watch near‑term catalysts: Any update on strategic review, Watergate 600 monetization, Atlanta bad debt trends, and Phase 1 Wi‑Fi adoption should move sentiment; estimates re‑establishment next quarter would sharpen beat/miss assessments .