Elme Communities (NYSE:ELME) Q3 2023 Results Conference Call October 27, 2023 10:00 AM ET Company Participants Amy Hopkins - Vice President Investor Relations Paul McDermott - Chairman of Board, President and CEO Tiffany Butcher - Executive VP and COO Steven Freishtat - Executive VP and CFO Grant Montgomery - Vice President of Research Conference Call Participants Jamie Feldman - Wells Fargo Alan Peterson - Green Street Operator Hello, and welcome to the Elme Communities Third Quarter 2023 Earnings Conferen ...

[Part I: Financial Information](index=4&type=section&id=Part%20I%3A%20Financial%20Information) [Item 1. Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited consolidated financial statements for the three and nine months ended September 30, 2023, highlighting a significant net loss primarily due to a real estate impairment charge [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total real estate held for investment, net | $1,850,557 | $1,820,678 | | **Total assets** | **$1,910,273** | **$1,872,606** | | Notes payable, net | $522,150 | $497,359 | | Line of credit | $149,000 | $55,000 | | **Total liabilities** | **$737,220** | **$608,820** | | **Total equity** | **$1,173,053** | **$1,263,786** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) - A real estate impairment charge of **$41.9 million** in Q3 2023 was the primary driver of the significant increase in net loss compared to the prior year[13](index=13&type=chunk) Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Real estate rental revenue | $56,651 | $54,603 | $169,059 | $153,787 | | Real estate impairment | $41,860 | $0 | $41,860 | $0 | | **Net loss** | **$(43,618)** | **$(10,739)** | **$(49,872)** | **$(27,337)** | | Diluted net loss per common share | $(0.50) | $(0.12) | $(0.57) | $(0.32) | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $61,816 | $51,456 | | Net cash used in investing activities | $(130,283) | $(223,248) | | Net cash provided by (used in) financing activities | $68,798 | $(52,555) | - Cash from operations increased year-over-year, while cash used in investing decreased due to lower acquisition activity in 2023 compared to 2022. Financing activities provided cash in 2023, driven by net proceeds from a new term loan and line of credit borrowings, contrasting with a use of cash in 2022[23](index=23&type=chunk) [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - The company acquired Elme Druid Hills, a 500-unit residential community, for a contract purchase price of **$108.0 million** on September 29, 2023[41](index=41&type=chunk) - A significant impairment charge of **$41.9 million** was recognized on the Watergate 600 office property during Q3 2023, reducing its carrying value to its estimated fair value due to declining market conditions[47](index=47&type=chunk) - In Q1 2023, the company entered into a new **$125.0 million** unsecured term loan (2023 Term Loan) and used the proceeds to prepay the **$100.0 million** 2018 Term Loan and a portion of its revolving credit facility[52](index=52&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, noting a 5.2% increase in Q3 2023 NOI but a widened net loss due to a $41.9 million impairment charge, while maintaining strong liquidity [Overview](index=25&type=section&id=Overview) - As of September 30, 2023, the company owned approximately **9,400** residential apartment homes in the Washington, DC metro and Sunbelt regions[88](index=88&type=chunk) - The company is undergoing a strategic transformation, shifting away from the commercial sector to focus on residential properties. This includes insourcing property-level management, with all residential communities transitioned to Elme management as of September 30, 2023[89](index=89&type=chunk) - Transformation costs of **$1.0 million** and **$6.3 million** were recognized in the third quarter and first nine months of 2023, respectively. The company does not anticipate incurring additional transformation costs in the future[89](index=89&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Key Performance Indicators - Q3 2023 vs Q3 2022 (in thousands) | Metric | Q3 2023 | Q3 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(43,618) | $(10,739) | $(32,879) | 306.2% | | NOI | $36,854 | $35,042 | $1,812 | 5.2% | | NAREIT FFO | $20,146 | $12,893 | $7,253 | 56.3% | - Residential same-store NOI increased by **7.3%** in Q3 2023 compared to Q3 2022, driven by a **4.2%** increase in revenue from higher rental rates, while expenses decreased by **1.2%**[101](index=101&type=chunk)[103](index=103&type=chunk)[107](index=107&type=chunk) - For the nine months ended September 30, 2023, same-store residential NOI grew **9.6%** year-over-year, with revenue up **7.5%** and expenses up **3.9%**[116](index=116&type=chunk)[118](index=118&type=chunk)[122](index=122&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) - The company believes it has adequate liquidity for the next twelve months, with no debt maturities until **2025**[133](index=133&type=chunk)[134](index=134&type=chunk) - As of October 24, 2023, total liquidity was **$542.0 million**, consisting of **$3.0 million** in cash and **$539.0 million** available on its Revolving Credit Facility[134](index=134&type=chunk) - Full-year 2023 capital requirements are estimated at **$35.0 - $40.0 million** for investments in the existing portfolio, including major capital expenditures[136](index=136&type=chunk)[138](index=138&type=chunk) [Funds From Operations (FFO)](index=38&type=section&id=Funds%20From%20Operations) NAREIT FFO Reconciliation (in thousands) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(43,618) | $(10,739) | $(49,872) | $(27,337) | | Depreciation and amortization | $21,904 | $23,632 | $64,855 | $69,871 | | Real estate impairment | $41,860 | $0 | $41,860 | $0 | | **NAREIT FFO** | **$20,146** | **$12,893** | **$56,843** | **$42,534** | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate risk on debt, managed through fixed and variable rate debt and interest rate swaps - The principal material financial market risk is identified as interest rate risk, affecting the refinancing of long-term debt and variable rate borrowings[160](index=160&type=chunk) - The company uses interest rate swap arrangements to hedge against variability in cash flows from changes in interest rates. As of September 30, 2023, swaps with a notional amount of **$125.0 million** were in place to effectively fix the interest rate on its 2023 Term Loan[162](index=162&type=chunk)[163](index=163&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls were effective with no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period[166](index=166&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[167](index=167&type=chunk) [Part II: Other Information](index=41&type=section&id=Part%20II%3A%20Other%20Information) [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings during the period - None[170](index=170&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes from the risk factors previously disclosed in the company's 2022 Form 10-K[171](index=171&type=chunk) [Other Information](index=41&type=section&id=Item%205.%20Other%20Information) This section discloses no Rule 10b5-1 trading plan changes and announces a new $50 million share repurchase program authorized by the Board - On October 26, 2023, the Board authorized a share repurchase program of up to **$50 million** of the company's common shares over a two-year period[176](index=176&type=chunk) - During the third quarter of 2023, no trustee or officer adopted or terminated a Rule 10b5-1 trading arrangement[175](index=175&type=chunk) [Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including certifications from the CEO, CFO, and CAO, and Inline XBRL documents - The report includes certifications from the CEO (31.1), CFO (31.2), and CAO (31.3) as required by the Securities Exchange Act of 1934[178](index=178&type=chunk)

Financial Data and Key Metrics Changes - The company reported same-store multifamily NOI growth of 10.9% and core FFO per share growth of 14.3% year-over-year [96] - The company lowered the top end of its core FFO guidance range to $0.96 to $1 per fully diluted share due to lower-than-expected new lease rate growth [9][34] - The annualized second quarter net debt-to-EBITDA was 4.8x, with over $680 million of availability on the line of credit [34] Business Line Data and Key Metrics Changes - Same-store multifamily revenue increased by 9.6% in the second quarter compared to the prior year, with 9.5% growth from the DC Metro portfolio and over 12% growth from the Atlanta portfolio [5] - Effective blended lease rate growth was 3.7% during the quarter, driven by renewal lease rate growth of 6.4% and new lease rate growth of 0.4% [30] - The company completed over 141 renovations year-to-date at an average ROI of approximately 14% [31] Market Data and Key Metrics Changes - Same-store occupancy averaged 95.6% during the quarter, up 10 basis points compared to the prior quarter, and ending occupancy was 95.9%, up 30 basis points year-over-year [98] - The rent-to-income ratio for new leases signed in the second quarter was in the mid-20s, with average income for those leases increasing nearly 9% year-over-year [6] - Recent deliveries in the market are priced 28% to 32% more than the company's rents, indicating a favorable position for the company [74] Company Strategy and Development Direction - The company is focusing on operational improvements and leveraging new technology to increase profitability following the transition to Elme management [101] - The company plans to evaluate acquisition opportunities in target markets as owners adjust to a higher interest rate environment [102] - The company aims to drive operational upside through initiatives such as smart home technology and centralized management processes [8][90] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving high single-digit same-store multifamily NOI growth for the year despite challenges during the onboarding process [72] - The affordability outlook is improving as middle-class wages grew faster than inflation, although owning a home remains unaffordable for mid-market renters [74] - Management noted that the transition to Elme management has resulted in strong resident retention and renewal rate growth [33] Other Important Information - The company has no debt maturities until 2025 and options to extend its 2025 term loan maturity by another two years [34] - The company expects to complete 300 to 350 renovations this year, adjusting the pace based on revenue maximization opportunities [99] - The company has seen a slight uptick in the concessionary environment, with concessions on about 11% of leases year-to-date [47] Q&A Session Summary Question: Can you discuss the guidance cuts and the process behind them? - Management explained that the initial guidance was based on expected demand in the spring leasing season, which did not materialize as anticipated, leading to adjustments [106] Question: How much of the change is due to bad information versus fundamentals? - Management indicated that both market growth and onboarding friction contributed to the changes, with the revised guidance reflecting more modest expectations for new lease rates [108] Question: What are the assumptions on rent growth for the upcoming quarters? - Management noted that renewals are expected to trend down to low single digits by the end of the year, following a pattern of high single digits at the beginning of the year [109] Question: How does the G&A cut impact growth potential? - Management clarified that the G&A cut is primarily related to 2023 and does not affect the company's long-term growth strategy [84] Question: What is the current state of the transaction market? - Management observed that the transaction market is seeing more activity, particularly for larger deals, but emphasized the need to find the right opportunities that fit their investment criteria [121]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________________________________ FORM 10-Q ___________________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. COMMISSION FILE NO. 1-6622 ELME COMMUNITIES (Exact name of registrant as specified in its charter) M ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________________________________ For quarterly period ended March 31, 2023 FORM 10-Q ___________________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR (Exact name of registrant as specified in its charter) ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Maryland 53-0261100 (State of incorporation) ...

Elme Communities (NYSE:ELME) Q4 2022 Earnings Conference Call February 17, 2023 10:00 AM ET Company Participants Amy Hopkins - Vice President, Investor Relations Paul McDermott - President and Chief Executive Officer Steve Riffee - Executive Vice President and Chief Financial Officer Steven Freishtat - Vice President, Finance Grant Montgomery - Vice President and Head, Research Drew Hammond - Vice President, Chief Accounting Officer and Treasurer Conference Call Participants Michael Lewis - Truist Securitie ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________________________________ FORM 10-K ___________________________________________________ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 001-06622 ___________________________________________________ ELME COMMUNITIES (Exact ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________________________________ FORM 10-Q ___________________________________________________ Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECU ...

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________________________________ FORM 10-Q ___________________________________________________ Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIE ...