Earnings call transcript Q2 2023

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Operator

Welcome to the Elme Communities Second Quarter 2023 Earnings Conference Call.

As a reminder, today’s call is being recorded.

At this time, I would like to turn the call over to Amy Hopkins, Vice President, Investor Relations. Amy, please go ahead.

Amy Hopkins

Good morning, and thank you for joining our second quarter earnings call. webcast webcast Investors slide and section be on being available that will is available the on of our event with presentation the is also Today’s replay. our website

unfold. no remarks, as results Before we that refer conference in and to We uncertainties and differ contains call which would actual known undertake to statements involve risks SEC remind materially, this our that of I duty forward-looking unknown certain begin them these everyone like may events to prepared update our and to cause we actual risks filings.

the and financial was page available which press website. GAAP the of of call recent and this release discussed distributed are yesterday Reconciliations our our earnings Investors most non-GAAP on measures and supplement, on can financial in found be

to that, turn call over Paul with CEO, I’d the to McDermott. our And like

Paul McDermott

very with per core We second of Amy. multifamily Thanks, growth and share strong a XX.X% growth FFO NOI delivered of year-over-year. quarter same-store XX.X%

we the pleased to I to community-level officially management. transition have share am Elme operations of very that completed

I welcome this team they’ve off and and thank throughout team also thank kicked the for that shown of to strategy that the to operating and to community work this I contributed all new model. hours our to hard service like members customer to all in implementing our countless transition. designing dedication newest want XXXX, would We them members and

existing to We and launched our our high residents community new disruption minimal retention. with very team platform

transition for operating forward turning attention to have our We look are our thrilled behind us this we and to initiatives. full

experience on executive with Butcher new to participation drive to earnings that the welcomed Tiffany Officer ability and for forward in leadership growth our note, extensive future operating enhance our our I goals multifamily look July. in well platform. expect operations to our On NOI that her aligns brings to team Operating her calls. we Chief

leasing We reduction. address the like turn upswing guidance multifamily a more pronounced in seasons see we operating seasonal our trends, our NOI had experienced to our and expected I’d than I into summer to to Before spring markets.

activities and generate transition during months rebranding had leads we anticipated. rents impact than our the on Additionally, ability a summer had and to our push greater

in impacts second achieved lower growth lower-than-expected in growth during new resulted third to expectations. lease the lease two assumed quarter our new rate the and quarter compared These original rate

rent have As been level closely Elme restabilized community in and communities communities under have rebound performance a we management. drive transitioned, have growth monitoring have our ability seen as to

with expectations. renewal executing business good core Additionally, significant systems. period growth our line our trends strong performance feel high same-store changes we when internal Therefore, a during single-digit about which in our we outlook this rates our remain for our for NOI and occupancy year, represents to were multifamily

behind to process the are focus our the With now us, our shifting related full onboarding the realizing risk to multifamily benefits platform. of execution we new

trends. effective new of of of blended generated portfolio growth during comprised renewal growth same-store operating to lease the quarter X.X% Turning We X.X%. our X.X% for rate and growth of rate lease lease rate

and months, moderation of the for over rates renewal signed very in in we our and X% Renewal rates course lease with of year. offers continued average for summer August remained line strong the expectations the throughout July expirations renewal on

transition to to historical on to mid-XX% lower our throughout Retention up during the last XX the strong entire basis to the year-over-year. compared XX% XX averaged maintaining prior to range driven average the own and continues remains our XXX year Our points retention was focus the the focus basis up XX.X%, XX.X% due at across points move-outs compared and portfolio since quarter, gains our occupancy on quarter strong the during to above Elme and portfolio year. occupancy deliver ending up Same-store basis quarter, results we of have occupancy occupancy good prior in end management. and points

to Our geographic to focus our results very prior good portfolio. from quarter, and are of quarter far XXX NOI grew year, year thus entire Occupancy same-store Metro period averaged DC and strategy average points growth. in to during over contributing due the basis market above multifamily comprised compared X.X% Atlanta the driving from revenue Revenue XX%. increased our communities growth our and X.X% Atlanta Atlanta approximately XX% has solid for our XX.X% second growth our Atlanta year-to-date Same-store occupancy. the on portfolio yielded increased portfolio prior XX% portfolio expansion second compared for our the

year-over-year rental to translate levels growth rate achieve our X.X% to guidance. need XX% rent of growth approximately of represents the of current which Our we the rental midpoint

points the our at monthly premiums provide which new mid-teens. in to the dollars hundred Class to renovations, A to several of opportunity interiors apartments, us costs like offer price the Turning generate renovation allows cash-on-cash below

not We have achieved. that we XX%. average completed rent over market return at This does include approximately the renovations XXX year-to-date ROI an growth of

renovations have executing opportunity to or we By flexibility revenue on of pull pace the the maximization as back turn, increase shift. renovations

we therefore, pace strong renovations as less of very down keeping we turnover have homes slowed renewal renovate. rates are available low the are strategically the become seeing, Given and to have,

year. now this to XXX While to pipeline value our has renovations and we complete not creation opportunity total expect changed, XXX

for rent our historical those consistent second the enough next With leases rent-to-income mid-XXs we years. average growth runway value with increased income over income with is that creation as to for the to see pipeline X% nearly in signed pace was up markets. leases several continue and have year-over-year quarter keeping the growth our average the of than we drive in in a X,XXX-unit new ratio The more renovation-led the

more XX% communities our in mid-market apartment our $XXX than improving first or nationwide the owning improving than rate as and XX% wages time faster are for since in to outlook June. XXXX, grew the is middle-class remains markets. renters inflation a May early to Near deliveries affordability, For home communities, living $XXX unaffordable our of in cost of affordability recently built the the rents. Despite recent priced or

The cost levels. higher owning home is a even to our differential mid-market compared of rent

of are of located in In not by the our the next to communities points, addition insulation path new relative year. price supply provided our most

While market will over and expected submarkets the level, of communities peak is XXXX, year. XX% located for at where supply Elme’s supply this peak Atlanta in to Washington, XQ in are D.C. annual

the as wage section Overall, rent and for we see price favorable demand of look levels versus towards XXXX financial supported our the improving for inflation residents beyond, for the and of dynamics of market. [runner] our by our we outlook points, the and deepest affordability growth health

management transition turn to updates. over to balance call like Freishtat, to to our and guidance and sheet I’d Elme that, Steve CFO, the discuss With our

Steve Freishtat

end how Thanks, achieved July. reiterating the of Paul. start having to we us by have full behind transition I’ll are by of the pleased our operations of community goal

Our as as throughout the to onboarding focus growth seamless process. supported on this transition residents, strong very possible rate renewal our resident and making retention

building Elme, residents extensive and planning, by which XX% relationship for our the provided of continuity teams, to Thanks of during staff the amount transition. our transition level done community our to to chose

to the to operational teams have profitability. behind our improvements technology driving transition us, our capacity With new now leveraging significantly our focus and increase more on

adjustments and manage days initiatives expense Phase management, smart operational resident rents reducing multiyear home reduce that centralizing process by fee occupancy to expenses, and our and income X accounts initiatives our more policy These initiative. and centralization higher levels include which upside implementing of will vacant cash drive management represents effectively, scheduling, revised packages operating opportunities,

more We that Furthermore, between have initiatives and through from million. expect above estimate $X.XX million we to XXXX upside XXXX what be the would detail additional to generated additional drive we to FFO opportunity negotiations, our and $X.XX generate plan. we from by these otherwise to the progress we have as leasing continue and maintenance, we to centralizing forward make providing on renewal centralization look

balance Moving on to our sheet.

to well XXXX to with another XXXX debt with exposure limited years. options term rates loan interest and no maturities positioned X We extend maturity our are until

we was have line second on annualized of of $XXX credit over availability quarter of net our Our end. million debt-to-EBITDA quarter and as X.Xx

running targeted investment million $XXX level are capacity. about below $XXX We of our leverage million to with

to rate in will ongoing acquisitions environment owners to with create target the they further continue shareholders. and markets opportunities reality pursue will value evaluate We our an for as interest acquisition additional higher of come when terms

the for FFO of share. core We diluted per $X.XX turning $X to the to fully our lowered of end to our outlook range Now balance top guidance year. the

multifamily growth expectations rate the As same-store guidance in mentioned, reduction lease of the our non-same-store growth ranges NOI year. are and Paul for new the lower-than-expected result

have in a We improvement seeing new and a seen sequential lease in are August. rates favorable in July trend

we year-to-date the year. growth our feel good seeing into we and NOI single-digit achieve ability for the fall, same-store the our high about to are Given growth heading trends achieved

XXX. $XXX,XXX guidance expense We at G&A approximately lowered interest XX% $XXX,XXX Watergate Watergate midpoint, our our the at guidance the occupied. by by midpoint and is reiterated for for

and limited year We lease the have few roll remaining this years. next expirations no lease over

are year payout growth to over to ratio flexibility core to below mid-XXs expect our provide and dividend time. continue be or this at should the we an to profile managing our additional us that with We grow AFFO AFFO for target,

And with back Paul. that, now will the I call to turn

Paul McDermott

the remain despite complete conclude, related our transitioning friction behind on this achieve to systems risk growth related onboarding very and our Thank some process track we now To onboarding execution process. to is you, community us. Steve. year to strong The is

teams next to all doing to But transitioned our from we since of to take team and third pricing time, managers in-house the our management and been have the XX% have level. platform our Elme. community place We in for the first asset XXXX. party technology our

our have extensive residential Our COO regional years of managers experience asset with and have a we background markets in new over XX an management. in

value compelling, operational cap and we opportunity are deliver our to we as and embedded our set in upside lower we us, where the a is today the we proposition rate platform. ahead Given believe expect of implied earn

for like questions. it to operator, open now And up I’d

Operator

At first this coming question Wells Instructions] is [Operator opening Your Jamie floor time, Fargo. the from Feldman are for from we questions.

Jamie Feldman

guidance to and cut if could first get I deeper. have just maybe one, on -- guidance talk your will you of some your that through this revision in little on guidance, learned, terms the last Can happen? initial cut, we guess gave I the what it clarity the a Just process again? but time the you just us dig information what this what is the so process this you was color know and made some you we was

Steve Freishtat

we now, out beginning than compared the in in to back this of September, spoke more would guidance, did. season spring lease new get guidance. demand we drive that April, rates kind spring rental growth on us early allowing our When we season, to leasing didn’t end of of the the I’ll Yes, kick in more -- the leasing see going that in to our a of about. we we the And we us Jamie, got -- of year, initial guidance And with February. initial Steve. to back where reiterated came saw And are is to kind top

And that. so our transparent, in be adjusted to guidance April we to reflect

seeing what Now the or seeing -- and that we’re said as guidance. we’re what market. we’ve sitting to lease in seen for able order adjust and remarks, new According in not rates here July better still in able needed push according hit to we’re it demand on our trends not we had is we’ve it be seen up were scripted lease felt trending rates to to to initial to compared our X, which, what appropriate the our August do to been we how but in August, we we what

see even this having in as the what we’re of seeing we’re some -- kind revised guidance guidance, information to and through reflects seeing So market, early getting lease there well. what August September updated

as the see mentioned locked guidance, and now I in the at that being rental about behind we how August mentioned our also onboarding of we is the to process and remarks lease complete growth rate the in end June. feel us. of rates through now prepared is able far As XX% September,

risks on quickly. us onboardings, most the us should in bit that. leasing, we’ll little recent a here impact QX that to behind see We’ve So have with very the but related of the that put behind and that

year. us side, we that at pretty pretty for expense the expenses in stable that’s time point for constant this see the On been

our about good this ability pretty are feel where revised guidance. we we So to in meet

Jamie Feldman

fundamentals. to the due confirm from information of It just much because mostly pre-internalization just And how it’s is confirm, how that. kind want like purely answer. and much sounds I fundamentals of Okay. your to to is of bad change it

Steve Freishtat

I into Yes. is which the it. hard growth quantify, it of we’ve from of the market kind It’s to versus looked friction mean onboarding.

-- at during certainly impact spring it’s both the happened season. So during both. same We of the time felt the leasing

expectations our With revised throughout our the said, kind for the us, transition more new to year. And of I we’re with poised guidance rest behind drive the as lease now modest trending management. reflects everything own growth the of under rates

Jamie Feldman

on fourth rent your Okay. quarter? what and the third quarter are then growth in And assumptions

Steve Freishtat

Yes.

far So digits stayed And year we talk pattern. down of into with new and at that as we looking that the it’s the the that’s of when really mid-single coming single really growth, digits renewals have them as towards about single at to lease renewals our rate the saw the high the beginning line of year renewals, lower how trending the the the year. middle and by end really digits following been year, in

far the as rate towards bit X% lease and down from got year we’ve July new As the to above kind rate flat. seen just X.X%. coming growth, finishing the a has But of growth new of end and we’ve year been it tick lease now the where up August around then

Jamie Feldman

has supply that an on you think And impact moderation? do

Grant Montgomery

This is Grant.

that’s seen the impact XX%. increased when still in that’s share even submarkets XXXX, year is think we a properties, looking to product blunting remained that of the around below while, But But there’s put around and gap. we deploying lease-up immediately the that or most supply the from effect market we’ve delivered you and significant in performance. overall of we that’s messaged So is really has for supply. XX% we’ve of X% below our our think market really we at out, new median direct threshold that have look to on this that surrounding have as stay having on do capital so, definitely a XX% the since rents capital disciplined But

or So XXX for that’s versus Atlanta, Class XX% Washington, XX%. And in XXX or gap is A around that product. around

our product a don’t within resident our So we base. really B see cross lot on of Class shopping

Jamie Feldman

just then And me. one Okay. more for

without ability platform? past, your cut guidance. the You grow more I lower the think that can that that you impact XX% G&A. in expand said G&A Does adding How to does you your by number?

Steve Freishtat

the unit movement G&A ability here impactful really still to guidance the the same, that our not No, the company in double guidance XXXX that. for to this -- Jamie, hasn’t this said G&A we’ve quarter and on that what about that keep I we’re think still count materially just is nearly growing more of ongoing the and applies still focused material and still company adjustment changed before

Jamie Feldman

Okay.

up a So G&A in can I if assume it’s ramps just from cut? ‘XX, it your answer back XX% that

Steve Freishtat

for impact like giving that but We adjusted for ‘XX primarily is are related now, not guidance G&A right to we just I said, just quarter this the ‘XX.

Jamie Feldman

the What exactly is cut?

Steve Freishtat

compensation It’s just a adjustment for ‘XX.

Operator

from Our next question is coming from Alan Street. Green Peterson

Alan Peterson

on to that to the appreciate NOI you comments you’re within the quarter, range to expense Or any Is Steve, guidance this last expecting idiosyncratic intact? I year or that expense there still X% is X.X% the headwinds tailwinds is change, repeat? that expenses. not shared growth

Steve Freishtat

to slight end But still X.X% That’s the think to X% X.X% there’s where X% Maybe No. some still Alan, year. expenses we’re that applies. line some out I finish the to forecasting items. those overall, movements the of of within applies.

Alan Peterson

the August. of as are on renewals being July September out are us guys in give Can October where setting then appreciate and X% maybe and today, Understood. a renewals I renewals comments out renewal within sense And you you negotiations? sent

Steve Freishtat

we’re out X%, sending Yes, them at still X%.

some We are negotiating. seeing

year the trending progressed So that still at. seeing renewals and expected low I from down down come digits really of said, seeing year. like what as it it we’re by number the again, with could we trending line the what out in sending But the end still to we’re single

Alan Peterson

specific offering of are specific you any you concessions communities? or Understood. floor any properties round your plans across then out here, leasing And guys summer season any the as guys on

Steve Freishtat

Yes, Alan.

low. overall concessions remain So

our our in in to some on to concessions of that uptick However, slight we order trend. needing But in seeing that we’re occupancy of about we’re XX% do maintain the favorable concessionary are submarkets, environment a year-to-date, seeing leases.

all across than less new week. you concession look that half is When leases, a

Alan Peterson

better in that’s But Watergate to understand double-digit we double-digit some today it And now me, scenario cap being know Street low better I today. market cap for where a at right Eye that a if could I see be now being be and were nominal marketed a an could rate. reported for on nominal [XXX] has Watergate WALT Paul. one marketed versus appreciate inside rate that. on last marketed the maybe occupancy [XXX] outlets asset I that media office XX%? there’s a at

Paul McDermott

being back The credit different bank-led Washington, And at I also, which by I Alan, a think our I superior auctions is a lot probably put structure. quite different asset, a amount that auctions WALT continue that, we’ve know rates in the is And that auction, been really we in have to significant and that. I quality say asset and we would really ours do CapEx an would fact about location. you here as to driven with frankly, and add has apples only say comparison the a profile D.C. of should those building terms into oranges of pattern That cap note discounts. see. bank note highlighted,

will comparison this is that, number Obviously, rate. think that the But the don’t Alan. it’s you’re to we’ll have I even a and there probably and market, asset clears Street really the cap that Number the if asset Eye beyond that one, we on point, interpolate Watergate take wait information just two, at referencing. and speculation between and see.

Operator

Your Paolone is coming next from question Tony JPMorgan. from

Unidentified Analyst

firstly, Tony for [indiscernible] I joining congratulations morning. Tiffany to COO. Elme the as have guess, on this You team

you to guys operations you if on focus curious will the as could any have Just speak near-term front.

Unidentified Company Representative

Sure. to to I’d be that. happy than speak more

and from excited. rent obviously an in finishing that on a occupancy our and the year operations on focusing our from standpoint things outlined forward both and we’re very strong going be that slides, we’ll the we remarks think on were focused of we’re focusing but and lot prepared I in were

have we to that upside. in able Elme the start driving to our operational Now place be management

day So ways our focusing to move-outs, very policies which we’re procedures and we bring move really as help XXXX. occupancy into to through be and to we our average will a changes on be going strong addressing think down we’re how

detectors our are technology the We’re rolling that expense will which some of rollout. and also the smart thermostats home on help side focusing smart some the also that that out, leak of revenue with of on part obviously drive other help and

managed testing also is our a opportunity. one We’re income of WiFi which at communities, fee

right operational $X.XX in of about. lots on $X.XX very remarks. So Steve there’s working we’re that of million to talked million that is upside part that that It excited now his we’re about

Unidentified Analyst

just Got more it. transaction guess Maybe the And one I for market. me. on

then You been of paused year, guess, I’m but Washington, guys from market? cap guidance for the break have acquisitions seeing in like I guys kind the curious with you been terms to the the area in rest -- down and of has Maybe if it Atlanta. could are you of rates what D.C. like for be just

Paul McDermott

lot Sure, Paul. Nam. This is of Not a movement.

haven’t our that would end Atlanta, of and and the We the tremendous of the even some we’re since year. the that in D.C. remarks towards product the first screened in movement seen say, operators we brokers amount going and in both believe see a in I however, we’ve quarter. more of September to of

their XX over had had of Two the activity brokers commented days. the doubled BOV that last

to the As that range. Class on XX of kind terms other Class in seen to value go that. rates, bps B, just kind A think trade X.X% in of of the Class in top others low I XX we’ve -- would I X.XX% and Xs, cap add, of

kind we we’ve the going-in by stayed by we that’s have again, We -- to lower we’re because growth at there. When rate the submarket have game. trends those or every folks going submarket The vary the in outside look But now that’s seeing said, out as cap fairly consistent, but yields been markets. deal track vintage. where and of higher

observation be institutional. sellers the sellers Our of those would that probably XX% are

queue. We’re fund a in seeing trying closed-end their fund and business, funding to more of or more particular, activity part redemption folks another

the we family over and say XX% private to be to worth that, of to mean side, of sand candidly up premium right million, of of that made $XXX private would the million is the of the And offices, $XX appears are a $XXX XXXX. private, opportunity spot cash now, $XXX sweet looks really financing really as marketplace would net I’d now, high just that kind deal, kind kind seen observe observe line those I kind in right it we’ve buy be also the syndicators, commanding maybe of seems million as contingencies. but of we million $XX million, in is. And million and the where that On that to like all even scarcity high $XX or that’s with be

and lender being that’s more syndicate that mean emphasizing of getting quick aspects to affordable lenders really the we’ve a and beating And those definitely rate to X% execution step seeing because we’re X-year And that buyer. Freddie more people contingency, X.XX% and to those cannot expect offering components. cash now. proceeds higher the really the XX% a equity I they’re of But no really flows of pushing into current down adjusting debt scrubbing syndicators range. interestingly, up get folks the mission-driven really little seeing number turn And market, trying in as to for were Fannie a big deals But private to we cash and we’re bit financing component XX. would them seen insurance. right aggressive, one, not taxes are lot at large either quickly seeing deals quality enough. LTV. market X% for certainty with funds that really The are higher or buying XX IRRs, really

Operator

BTIG. is coming Michael from Gorman Your next from question

Michael Gorman

see movement the to the get the obviously things of we it Maybe back if like potential is you’re a few some on synthesize could positive side, as which Paul, you transaction half kind just of year. a sounds different here. into starting

on found think a the you equity stock from cost proceeds have some more market. think you maybe out transaction as How of transactions challenged of versus about a about of the think out you balance the funding. of But the you selling balance especially that, even sheet How that you in where potential As larger where side. if do value do some current sale about capacity versus you you there’s of a a competitive the Watergate? potentially equity Obviously, needed the Watergate some advantage. the

Paul McDermott

that can then Well, about cap and maybe potentially what funding Steve rate, entering terms let me equity. talk we start look entering off or with at would sources in sources other of just of

I to long rates, our exposure always just benefit cap first going first productivity like we’ve from think where job but thing a And in months quickly growth. to mid-X% and to -- been what X at in targeting you into up -- above where is months. you’re X%, just a XX X% the last and the say in underserved might seen look rate several to the in don’t is high going cap will has and the we industries in the be that Michael, the some most we’re investing renter term, deepest for we cohorts strategy have markets

there’s think talked at quarter-by-quarter basis. as just fruit. we about month, as I as are there’s if not creation that of see underwriting assets feel the knew pricing the and go NAREIT, over fear even daily and -- the we we we looked we the kind months. where a not a at on investors as did if Those our process that company we an And could opportunity above But cap first have some see with move running low-hanging I rate through asset opportunity recent model X X we mean to we’re that. accelerate value some actually bear a last in an of

about talked long-term in are our create it transaction because appears value and to have herd And buyers on, could million, the capacity observations over lenders. that just thinned you from our $XXX and... we an we but would when we capitalize here. maybe I deals like Steve, And think shareholders market that find fits But for we the those right is sources do and the It’s to transaction that we trying have opportunity about that to the talk box. out, really both

Steve Freishtat

the sheet Yes, from. kind balance I’ll of about we sources where get talk and

sheet, leverage the So is level. first below targeted our as you our balance mentioned, we’re running

can, of on we on $XXX availability draw our course, So million line. that

can we go there. So certainly

equity Obviously, while. have You a the been for mentioned markets capital disrupted the markets.

us the Our focus, in of upside be to rate and able to in for the to be the it equity out, advantage to as able pointed maybe get to right to, where that bring and have ‘XX be taking Tiffany take our to executing down out, -- out. implied plan but is might cap we doesn’t able on -- get of front something now, pencil pencil it future,

but You as we’ll maybe assets growth makes look into in some that the mentioned Watergate, that sense. and capital always each we a opportunity, we that other multifamily sources the of could we one not as of area, could opportunities look we our going growth that’s lower as assets to where maybe said well for find need be to use out D.C. CapEx right Sunbelt. these that we higher going pick change have go capital of also each that have assets forward the the in look are a discussed, source or recycle of. to We’ve to and Paul And

Operator

to have the the management over We reached of appear comments. end to like session. closing any floor back Q&A for I’d the turn our now to

Paul McDermott

thank to Thank the everyone forward the several to of enjoy Please like your and you would next speaking your time I Again, of and summer. over we weeks. for you. rest you. look today, Thank with many interest

Operator

very today’s This does Thank conclude you call. much.

Elme Communities (ELME) 1 Aug 232023 Q2 Earnings call transcript