Elme Communities Q4 FY2023 earnings call

• Apartment Fundamentals: Washington Metro is in a favorable position with healthy demand and rent growth above average; Atlanta has strong long-term potential but pricing pressure from supply and post-pandemic normalization.
• Lease Rate Growth: Same-store portfolio had 2.5% effective blended lease rate growth in Q4, with renewal growth 6.2% and new lease rate decline 2.4%; year-to-date blended growth over 2.5%.
• Occupancy: Maintained 95.5% same-store occupancy in Q4, with Washington Metro stable and Atlanta facing pressure from evictions and new supply.
• Renovations: Completed over 300 full and 77 partial renovations in 2023, cost $5M, ROI ~15%; 2024 plans include over 400 full and 100 partial renovations, targeting sub-markets with best value proposition.
• Operational Initiatives: Captured 20% of $4.25M-$4.75M FFO growth target in 2023 from new fee income, staffing efficiencies, smart home tech, cash management; expect remaining upside split in 2024-2025, with managed Wi-Fi rollout planned.

The Washington Metro drives over 80% of Elme Communities' multifamily NOI. It is well-positioned with healthy demand trends and rent growth above the U.S. average for a second year. Northern Virginia, a large part of the Washington Metro footprint, has strong job growth. In contrast, Atlanta has a strong long-term outlook for population, household, and job growth, but is experiencing pricing pressure due to post-pandemic rent growth normalization and elevated deliveries. Washington Metro has no exposure to high-supplied sub-markets in D.C., and rent levels there don't compete directly with new supply. Atlanta's employment is projected to grow 1.2% in 2024, driven by sectors like education, health, leisure, hospitality, and finance, but faces pricing pressure from supply impacts more widespread than in Washington Metro.

• Same-store multifamily NOI growth: Expected to range from 0.25% to 2% in 2024, driven by Washington Metro rent growth and improving bad debts in Atlanta, partially offset by 8% increase in non-controllable expenses.
• Core FFO per share: Range $0.90 to $0.96, midpoint down 4% from 2023, impacted by higher interest expense, Watergate 600 decline, etc.
• Balance Sheet: Annualized adjusted net debt to EBITDA 5.5x, liquidity strong with $550M available on line of credit.

• Atlanta Market Pressures: Pricing pressure from supply normalization and elevated deliveries, potential multiyear impact on occupancy and rents.
• Non-controllable Expenses: Taxes on two Atlanta assets on three-year cycle, increased insurance costs.
• Macro Uncertainty: Capital markets environment and real estate transaction volumes may impact valuations and opportunities.

Q: Anthony Paolone asks about bad debts in Atlanta vs D.C. and occupancy slippage.

A: Steven Freishtat and Tiffany Butcher respond about bad debt improvement and occupancy drivers.

Q: Jamie Feldman inquires about new and renewal rate growth in markets.

A: Tiffany Butcher discusses renewal rates above 6% in March-April and expected growth trends.

Q: John Pawlowski asks about Atlanta market fraud and eviction risks.

A: Grant Montgomery and Tiffany Butcher address market demand and risk mitigation.

Q: Michael Lewis asks about new lease spreads and scaling/diversifying.

A: Steven Freishtat talks about embedded growth in portfolio and plans for scaling.