Elme Communities Q3 FY2023 earnings call

• Acquired a 500-home apartment complex in the inner suburbs of Atlanta for $108 million on September 29. The acquisition fits the Class B value-add strategy, is in an affluent area with a growing job base, has outperformed rent growth in the submarket and broader Atlanta market, is an expansive property with long-term redevelopment options, and is at a deep discount to replacement costs. • Same-store multifamily NOI is expected to grow in the high single digits. During the quarter, effective blended lease rate growth was 3%, renewal rates were strong, same-store occupancy increased 20 basis points year-over-year, and same-store multifamily average effective rent per home rose 4.9% year-over-year. • Year-to-date, the average renovation ROI was approximately 14%, and the company is on pace to complete over 300 renovations this year with a pipeline of ~3,300 homes. • Completed transition of community-level operations, retaining 93% of community teams, achieved interest expense savings, identified new fee income opportunities, revised vendor payment process, and is 75% through the smart home technology rollout, expecting $4.25 million to $4.75 million of FFO from initiatives above baseline through 2025.

For the multifamily segment, same-store multifamily NOI growth remains expected in the high single digits. During the third quarter, same-store occupancy averaged 95.6%, up 20 basis points compared to the prior year. Same-store multifamily average effective rent per home increased 4.9% year-over-year. Year-to-date, the average renovation ROI was approximately 14%, and the pipeline of renovations stood at approximately 3,300 homes. The rent-to-income ratio for new residents remained in line with historical average, with the average rent-to-income ratio for new leases signed in the third quarter being 24%.

• Tightened the core FFO guidance range to $0.97 to $0.99 per fully diluted share. • Reiterated the same-store NOI guidance range of 8% to 9%. • Non-same-store multifamily NOI is expected to range from $13 million to $13.75 million. • No longer expects to recognize transformation costs going forward. • The core AFFO payout ratio is expected to be at or below the mid-70s target.

• Market supply risk could lead to rent compression between Class A and B communities. • Interest rate changes may impact financing costs for potential debt issuances or line of credit utilization.

Q: Jamie Feldman inquired about the Atlanta market's supply impact and rent trends.

A: Grant Montgomery stated that in their submarkets, there's a 30% gap between Class A and B rents, and they only compete against approximately 13% of new product priced below their threshold; Amy Hopkins mentioned renewals expected in the 3%-5% range and effective new lease rates varying by market.

Q: Alan Peterson asked about the Atlanta portfolio occupancy and the acquisition yield.

A: Tiffany Butcher responded that they are working through the addiction pipeline, using new lease incentives and revised credit screening; Steve Freishtat said the 6% yield is for the year-one internal return, and Paul McDermott discussed renovation upside and densification potential at the acquired property.