Elme Communities Announces Second Quarter 2023 Results

WASHINGTON, July 31, 2023 (GLOBE NEWSWIRE) -- Elme Communities (the “Company”) (: ELME), a multifamily REIT with communities in the Washington DC metro area and the Sunbelt, reported financial and operating results today for the quarter ended June 30, 2023:

Financial Results

• Net loss was $2.6 million, or $0.03 per diluted share
• NAREIT FFO was $18.8 million, or $0.21 per diluted share
• Core FFO was $21.4 million, or $0.24 per diluted share, up 14% from the prior year period driven by rental rate growth
• Net Operating Income (NOI) was $36.3 million, up 11% from the prior year period driven by rental rate growth

Operational Highlights

• Same-store multifamily NOI increased by 10.9% compared to the prior year period
• Effective blended Lease Rate Growth was 3.7% during the quarter for our same-store portfolio, comprised of effective new Lease Rate Growth of 0.4% and effective renewal Lease Rate Growth of 6.4%
• Average effective monthly rent per home increased 8.1% compared to the prior year period
• Same-store retention was 63% while achieving strong renewal lease rate growth
• Same-store multifamily Average Occupancy was 95.6% during the quarter, up 10 basis points from the prior quarter
• Same-store multifamily Ending Occupancy was 95.9% as of June 30, 2023

Liquidity Position

• Available liquidity was more than $680 million as of June 30, 2023, consisting of availability under the Company's revolving credit facility and cash on hand
• Annualized second quarter net debt to EBITDA was 4.8x
• The Company has no debt maturities until 2025, no secured debt, and minimal floating rate debt

Transformation Update

• Completed the successful transition of community-level operations to Elme management for our entire multifamily portfolio
• Retained 93% of our community-level team members during the internalization process
• Completed the installation of smart home packages, which consist of smart locks, smart thermostats, leak detectors and smart plugs at 30% of our multifamily communities as of July 28, 2023.
• Subsequent to quarter end, Tiffany Butcher joined the Company as Executive Vice President and Chief Operating Officer. As COO, she will guide the Company’s operating strategy, advance and implement operational improvements with an initial focus on implementing and advancing operational initiatives to maximize NOI.

"We are pleased to announce that we completed the full transition of community-level operations at our multifamily communities. The execution risk related to the onboarding process is behind us, and we can now shift our focus to realizing the full benefits of our new multifamily platform," said Paul T. McDermott, President and CEO. "Trading at an implied cap rate that does not reflect the underlying value of our portfolio, we believe our value proposition is compelling and we expect to earn a lower implied cap rate as we deliver operational upside through 2025."

Second Quarter Operating Results

• Multifamily same-store NOI - Same-store NOI increased 10.9% compared to the corresponding prior year period driven primarily by higher base rent. Average occupancy for the quarter decreased 10 basis points from the prior year period to 95.6%.
• Other same-store NOI - The Other same-store portfolio is comprised of one asset, Watergate 600. Other same-store NOI decreased by 4.8% compared to the corresponding prior year period due to lower occupancy. Watergate 600 was 87.8% occupied and leased at quarter end and we expect occupancy to remain flat through year end.

2023 Guidance

"Our focus on occupancy continues to deliver solid results and we have driven occupancy gains across our entire portfolio since the end of last year. Our strong occupancy trend and very strong renewal rates drove 9.6% revenue growth in the second quarter," said Steven Freishtat, Executive Vice President and CFO. "While new lease rates fell short of our expectations during the second quarter, we have seen a sequential improvement in new lease rates in July, and are seeing a favorable trend into August. Given our year-to-date growth achieved and the trends we are seeing heading into the fall, we feel good about our ability to achieve high single digit same-store NOI growth for the year."

Management is lowering the top end of its 2023 Core FFO guidance to $1.00 per fully diluted share. Core FFO for 2023 is now expected to range from $0.96 to $1.00 per fully diluted share. The following assumptions are included in the Core FFO guidance for 2023:

Full Year 2023 Outlook on Key Assumptions and Metrics

• Same-store multifamily NOI growth is now expected to range from 8.0% to 9.0% due to lower-than-expected new lease rate growth driven by lower-than-expected rent growth in our markets and a greater-than-expected impact from rebranding and transition activities on lead generation, which temporarily impacted the ability to push rental rates. We have seen a rebound in the ability to drive performance as communities have restabilized under Elme management.
• Non-same-store multifamily NOI is now expected to range from $12.0 million to $12.75 million due to the same factors that impacted our same-store new lease rate growth
• G&A, net of core adjustments, is now expected to range from $24.5 million to $25.5 million due to lower than expected compensation expense
• Interest expense is now expected to range from $28.0 million to $28.75 million
• No acquisitions are assumed in 2023. The Company has acquisition capacity and will update guidance if an acquisition is identified.

Elme Communities' 2023 Core FFO guidance and outlook are based on a number of factors, many of which are outside the Company's control and all of which are subject to change. Elme Communities may change the guidance provided during the year as actual and anticipated results vary from these assumptions, but Elme Communities undertakes no obligation to do so.

2023 Guidance Reconciliation Table

A reconciliation of projected net loss per diluted share to projected Core FFO per diluted share for the full year ending December 31, 2023 is as follows:

Dividends

On July 6, 2023, Elme Communities paid a quarterly dividend of $0.18 per share.

Elme Communities announced today that its Board of Trustees has declared a quarterly dividend of $0.18 per share to be paid on October 4, 2023 to shareholders of record on September 20, 2023.

Presentation Webcast and Conference Call Information

The Second Quarter 2023 Earnings Call is scheduled for Tuesday, August 1, 2023 at 10:00 A.M. Eastern Time. Conference Call access information is as follows:

The instant replay of the Earnings Call will be available until Tuesday, August 15, 2023. Instant replay access information is as follows:

The live on-demand webcast of the Conference Call with presentation slides will be available on the Investor section of Elme Communities' website at www.elmecommunities.com. Online playback of the webcast and presentation slides will be available following the Conference Call.

About Elme Communities
Elme Communities (formerly known as Washington Real Estate Investment Trust or WashREIT) is committed to elevating what home can be for middle-income renters by providing a higher level of quality, service, and experience. The company is a multifamily real estate investment trust that owns and operates approximately 8,900 apartment homes in the Washington, DC metro and the Sunbelt, and owns approximately 300,000 square feet of commercial space. Focused on providing quality, affordable homes to a deep, solid, and underserved base of mid-market demand, Elme Communities is building long-term value for shareholders.

Note: Elme Communities' press releases and supplemental financial information are available on the Company website at www.elmecommunities.com or by contacting Investor Relations at (202) 774-3200.

Forward Looking Statements
Certain statements in our earnings release and on our conference call are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Elme Communities to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Additional factors which may cause the actual results, performance, or achievements of Elme Communities to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to: risks associated with our ability to execute on our strategies, including new strategies with respect to our operations and our portfolio, including the acquisition of apartment homes in the Sunbelt markets and our ability to realize any anticipated operational benefits from our internalization of community management functions; the risks associated with ownership of real estate in general and our real estate assets in particular; the economic health of the areas in which our properties are located, particularly with respect to greater Washington, DC metro region and the larger Sunbelt region; the risk of failure to enter into and/or complete contemplated acquisitions and dispositions, within the price ranges anticipated and on the terms and timing anticipated, or at all; changes in the composition of our portfolio; risks related to changes in interest rates, including the future of the reference rate used in our existing floating rate debt instruments; reductions in or actual or threatened changes to the timing of federal government spending; the risks related to use of third-party providers; the economic health of our residents; the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdown or a recession and geopolitical conflicts); compliance with applicable laws and corporate social responsibility goals, including those concerning the environment and access by persons with disabilities; the risks related to not having adequate insurance to cover potential losses; changes in the market value of securities; terrorist attacks or actions and/or cyber-attacks; whether we will succeed in the day-to-day property management and leasing activities that we have previously outsourced; the availability and terms of financing and capital and the general volatility of securities markets; the risks related to our organizational structure and limitations of share ownership; failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs; whether our estimated transformation costs for 2023 will be correct; whether we will achieve the expected operational upside of our transformation; whether we will be able to lower our implied cap rate; and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2022 Form 10-K filed on February 17, 2023. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to update our forward-looking statements or risk factors to reflect new information, future events, or otherwise.

This Earnings Release also includes certain forward-looking non-GAAP information. Due to the high variability and difficulty in making accurate forecasts and projections of some of the information excluded from these estimates, together with some of the excluded information not being ascertainable or accessible, the Company is unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measures without unreasonable efforts.