ELME - Earnings call transcript Q2 2024

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Operator

Greetings, and welcome to the Elme Communities Second Quarter 2024 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. replay. webcast Investors slide and section available our being available that will is on the on of webcast event with presentation a is be Today's our website

forward-looking filings. to Statements them events statements SEC risks made in as uncertainties cause and actual differ may certain unfold. risks results which call our duty we during may undertake and that known no of and this these involve unknown to materially, refer actual We constitute to update

Reconciliations and in on most distributed and President and call GAAP our be of call recent this McDermott. with Paul of which CEO, page can supplement, website. And release the discussed over the found that, measures to financial non-GAAP Investors turn on press are our was our available and financial the yesterday earnings I'll

Paul T. McDermott

morning, our Grant today me Q&A. Officer; Thanks, operating will Head balance and Steve Presenting Amy, during outlook. are and answer sheet Financial cover Chief questions an of our and our and initiatives on Chief Steve market provide Officer. our here Tiffany good call to on will is update Operating level and the with Research, Montgomery, Freishtat, trends everyone. Butcher, our Tiffany

ratios market brief our submarkets, remains deliveries is year overview. and normalized apartment nationally. Across I'll one the positioned have markets inventory call in digits. with the of apartment have market start today's and a The Metro region top-performing low Washington level a this the single net best peaked

our for year. comprises capture are half allowing year to is from growth we of demand, benefiting the heading XXXX. Metro level positioned will us portfolio, us homes the second which above occupancy into in strong, set Our up XX% over that believe to our well of Washington the We drive stable targeted

is rates prepandemic are supply higher nearly Elme decline. to In Absorption overhang submarkets, Atlanta. the period. the and continues now accelerating absorption XX% to Turning than

and renewal strong rates. modest her showing more Our details in improvement, Tiffany stability remarks. are supported provide with operating will retention by fundamentals

above to the submarkets, expect to supply supply is While relative elevated, in our it the remains levels we of current to increase XXXX. overall demand level to continue any materially through improve of not expected and

have XXXX units a to new owning highly XXXX. starts favorable construction and and conditions forecasted for and in significantly supply-demand better declined Moreover, dynamics under XXXX

Our residents' financial in The ratio average rate compared was on the trend to to rental health rent-to-income XX% second credit also quarter new ago, year remains for growth. solid. a a XX% positive relative reflecting leases

earners job income trends Employment trends for growth wage the composition relative are favor noncyclical X high of stronger remain is of Elme. middle shifting to and which for in favorable wage earners industries,

As second largest government of industry the health Washington our our was exposure Metro largest quarter, was Atlanta and the metro. the industry in in exposure care

our below level strategy, to a in are dollars well hundred Class value in and rent the of several our and A our to remain below Move-outs both Affordability homes quarter move-outs, X% mid-teens. critical second comprised to rents home purchase markets. just own and the the relative historical levels cost

our value-oriented as base of stickier our tenure an Additionally, with resident average years. year-to-date high, X.X averaging to historically rates tends remained XX% retention be about

initiatives. strong with experience we should for the I'll renters. And from our affordable most the to value-conscious on are and turn and operating with growth levels underserved forward, focus enhance demand largest Tiffany market, segment discuss rental and B living rent As that, Class steady move maintaining trends to the that combined of efforts it our continue to our attract to

Tiffany Butcher

Atlanta both growth the growth Washington of second of momentum quarter the increased we experience second X.X%. Thanks, in sequentially Effective and renewal lease The blended metros. and continued rate April quarter, positive and began occupancy comprised improved of to has same-store lease lease and growth across lease growth X.X% Paul. during portfolio the rate to blended rate rate new our for X.X% during

in rate for renewal lease X.X% August in lease growth lease expirations, reflecting and improvement. Renewal rates moderation renewals September which continued July, in was X% growth and gradual average rate X.X% July, at through showing our increased in is of expectations. line an to year-end, rate New with we're signing

focus remains during initiatives. as resident strong service resident retention XXXX Same-store platform of and very quarter, highlighting longer-term our excellence our XX% base nature part at the the our of customer heightened on

ending of Moving occupancy a the in the XX quarter. occupancy July, portfolio. of averaged the in point basis occupancy occupancy. strong supply to impact quarter second driven and in in evictions to new increased Through increase on has XX.X% our same-store Atlanta average sequentially increased the relative part second to demand timing representing Washington and by Same-store XX.X% by offset XX.X%, Metro, to

June that in occupancy the months. communities the demand upper patterns XX.X% in July, the in Northern range, we're push Metro leasing located Virginia, exceptional. And XX.X% of which of targeted is above level continue averaged of our us majority end The to during our are allowing increasing average Washington seeing where XX.X% are busiest Washington Metro an the and during to our quarter, communities for to rents

during while is Atlanta, XX.X% in experiencing the market quarter, an unprecedented supply, is the level new demand improving and market occupancy averaged July. increasing Atlanta In of XX.X% to

detracted XX our service have to are temporarily out Atlanta homes due occupancy over our of or which fire, a of improvement. we portfolio from X% just Additionally, that

to of could over we're demand driving and Although the occupancy on timing of higher stable year. half patterns, pressure second focused evictions we're the the occupancy, seeing continue

Turning debt better taken debt. bad overall. performance the bad Reducing a we have delivering top is that priority credit and to proactive are steps

expect half normalizing the more process in credit credit and a even more performance drive XXXX level. into second standards to of year-over-year so We front the protections the debt as normalized back credit and lower year the of at at higher eviction bad leasing benefit delays end, this end to from and

to Turning renovation.

this expect to renovations. complete an year. now ROI upgrades During approximately quarter, We on the over and second average renovations we XX% XXX XXX approximately full generated XXX home of home

a continue Elme. growth key for driver be Looking forward, to renovations

renovation creation future. to value for of portfolio, XX% than homes identified foreseeable X,XXX pipeline Our represents renovation-led more enough our deliver the is of nearly over which runway

Our operational our June, success. efficiencies department, Resident in elevate initiatives levels renewals. We're Elme focused resident and successfully to streamlining that shared community across platform remain known pleased track as of on launched new and services account process Services, as we to our collections we management, report enhancing operations on

Elme. We're excited shared within to services their roles welcome into team our new

payment This see increase this technologies, an launch engagement was tool. entering that an managing beginning saves successful members' AI rollout service communication automating supported new requests. collection new resident efforts electronic to time of with the several and residents, in team already including with and We're current platform by by

and We're payments move-out also spends from amount of residents. reducing to time former manage implementing software new team to balances collect our attempting after track the

cash a is confident this in our we've month, due. we pay of these flexible achieve in of receive partnered while a ability With we when multiyear are program to during with the to tools payment our rent give options goals when to they Lastly, the the all strong as our effort. team provider our to provider of place, residents and choose from ability part related

$X.X $X.XX which initiatives to million of our million launch operational XXXX, million. to the million milestone and in from of $X.XX Services NOI aligns achieving target Elme successful to with XXXX key This to is a $X.X of FFO XXXX Resident additional upside

XXXX out also quarter. our WiFi initiatives portfolio XXXX which approximately that we're with across managed are to starting in in the comprise upside rolling during X,XXX Phase Beyond scheduled for fourth target, homes installation our I, phases, the

outlook our over I'll And Steve it turn XXXX cover to with and to sheet. that, balance

Steven Freishtat

Thanks, Tiffany. with Starting guidance.

to $X.XX We range are maintaining of XXXX midpoint core tightening FFO our to $X.XX. share $X.XX, per our guidance

are X.XX% XXXX, NOI assumption, in to the portfolio. to of X.XX% in to raising We due stronger-than-expected same-store which performance our from and growth now Washington the is expected range tightening our range Metro midpoint multifamily

We for year million to to now expect $XX.XX interest expense range $XX.X from the million.

going of credit slightly fewer stay our rate cuts execution the year, successful new our XXXX has our revolving cash as our than facility initial midpoint. balance expect higher helped While in well our range, outlook managing as though a on at within focus and debt continued we us into

Turning expect debt the leverage to EBITDA end finish sheet. X.Xx quarter range. with mid-Xx in range, year our this Annualized was targeted to net our to in line ratio and to continue our balance adjusted at we

million to allows options, to mature due As to we into new $XXX XXXX. entered X-year been to a billion. increase $X August end, and facility credit that replace facility had the new previously revolving quarter X-month discussed, in accordion facility subsequent extension feature to aggregate us which facility, X The prior the has an

shape. only term facility balance remains position our X. revolving new and liquidity over With our debt secured XXXX credit being as maturity of in available the on strong sheet remains prior excellent to loan, Our million million no $XXX August the $XXX with

performance improving quarter strength in Metro trends second our Atlanta our conclude, To continued Washington the portfolio. in and reflects

strong very runway returns yield plenty ahead. to continue with of renovations Our

of department successful operational Additionally, initiatives our launch platform latest our the are shared track, on represents services enhancement. our and

Looking are are innings our the for in and XXXX. the in forward, we we with setting still initiatives, ROI-driven operational further early initiatives stage

open will it Q&A. to up I that, with And

Operator

Clark Wells Fargo. Our Instructions] coming from with is [Operator first question Cooper

Cooper Clark

through of in bad if the think specifically. whole I'm range X% X%? quarter the to portfolio average still of Atlanta if fourth you Wondering year you wondering in that quarter bad could debt to in X% get Atlanta debt could 'XX walk full by the that to the end for X%

Tiffany Butcher

off Butcher. improvement by happy in of saw that in markets, answer as Sure, Tiffany Cooper, here both our start saying Washington, portfolio. Atlanta this our our the second debt to as D.C. area in well we would in question. bad I across both quarter, is the

portfolio, in bad X% We the or Washington debt. in we DMV below Metro are now are the now of

debt quarter over we year Washington 'XX. the the . In we were we've XXXX, normalized the to our an of over of So area. improvement where definitely continued for see portfolio, Atlanta full bad in for we improvement in first the in range were Metro are where here

our in bad we norms of seen currently in -- So above stability about the Atlanta revenue, historical to a terms are our quarter second in in percentage which we continues be debt obviously X.X% but is that have as portfolio, of number.

Atlanta of the in the year be the bad is given in Atlanta bill of there Georgia counties the trend now to improvement to which over to allows Bill I implementing impacting level Atlanta What say gain to it we to is significant to starting is the execute recent is a our many evictions. officers in the positive landlords that's in in House because of of half the challenge offices counties. be that back XXXX, backlog off-duty that a would our has see sheriff's some And for is are hire most homes continued and debt going momentum that possessions of communities

going that's take to release helpful year-end. then And and them and So units of that to we by those us rent in very of able to look forward level be ultimately be to getting terms debt them of being possession paying to able to reduced turn tenants. bad

that think with ERS major I are Bill with with our our efforts to in the the streamlining bad So credit lower along debt of that going House implementation the we're terms us internally making get collections team. XXXX help level of screening process of of are to and by improving Those factors implementation the new additional that year-end.

Cooper Clark

guess shaping And year-to-date switching Okay. how DC up line. seems updated NOI clearly, strength it's revenue Wondering relative I same-store on some to guidance, just expectations That's to that the It assumed guidance. in top mostly super expense-driven. over the helpful.

Paul T. McDermott

midpoint about we Yes. right, at to the the we so it, NOI, raised if mean, I look at midpoint the tightened at X.XX%. -- slightly Cooper.

One at for initiatives where into seen thought. the the a this helped come as We're the as we've we just X% lower see out upside X% year. than by we couple growth to out Looking assessments of expense not what we year. is effect. the is and range initially really there is operational starting coming high lower start we really effects That to the That's have that things. growth, to in take operational expense second the initially the one in taxes, payroll. And of forecasted see do

savings starting And we're to see place. that so take

X.X% direction. that's revenue I expecting to And Atlanta right really quickly was side, Tiffany came 'XX. seeing the to the when in year. that -- in bad debt just for move we it in about as talking driven, the by we're revenue into be the seeing that we're X% had On seeing not think, we range thought the just and we're that trend as initially We're

Operator

JPMorgan. with is Our Instructions] Anthony question [Operator next coming Paolone from

Anthony Paolone

how In Atlanta, where do you off seeing of think year the you're finishes things terms occupancy now? in

Tiffany Butcher

year-end kind Tony, it's gradual of supply-demand occupancy guidance low percent trends In the Tiffany see as that dynamics we're market. XX%. continue occupancy through Atlanta again. of in low in into range XXs Atlanta, we And seeing assumes at the kind remains that improvement the to our

We've just is year-end. continuing helping going but our range maintain gradual to in that occupancy see a to also continued revenue trend adjust solid occupancy are to be strategy And that which to we retention, improvement. it's pricing through

Anthony Paolone

talk Okay. and on And Can about to renovations also investments of you shifting the maybe spending how your in rates much on getting about just cap you're where sort us then some . maybe you're -- B discussion capital Class markets. just maybe update just full you're in seeing in markets? returns

Tiffany Butcher

turn about start capital talk can it talking the can I over to to off about and Paul by the markets. renovations I

remainder partial to We're the or we of on the projecting we're continuing So we averaged over XX% our for upper to the the renovation, of returns now renovations for over renovations renovations home XXX say and a increased teens have in see renovations terms upgrades full We're quarter year-to-date. number home the of XXX ROI through that year. year. doing and so

launching So remain Phase very us very good managed we my remarks mentioned that that X,XXX will be over investment installed in source continues are quarter, fourth of that X returns. a in also prepared a WiFi for as I which as of units strong have managed investing our to in the WiFi. we're well

about I'll to capital you turn talk over to Paul, And it markets.

Paul T. McDermott

flat. are Thanks, Tony, that right at a been cut expand with left the when some And they're a them profit redemptions go prospects that just what terms with we're the potential talked plus But off, standpoint just we've operators rate promote. has sellers in questioning helped mean, macro market, advised, look in sellers transactions a really I of we they're maturities, really of to market. why The volume. first out folks there approach, being debt to at we remain Tiffany. of looking cases, many election. and or hold real an now year-over-year, and are pretty from it's the that not probably type or the in facing seeing And lot seeing accelerate

investment expecting -- they We the quarter. the They're fraught of second talked think a but say up lot of folks it's their pipelines to the for contingencies. all lot over with -- of are a half I last sales year, it's

all in From offices the a buying institutional standpoint, capital, fray. family PE shops, are

really we're I the the think the on sidelines people are only seeing Odysseys.

now through capital they're negative with first buying the thesis LP 'XX that institutional coming X X. on a cost. our even observations years the replacement in I right own of X in -- think improvement portfolio, an they're is 'XX. for runway consistent years recovery a And flat the to that's And from seeing below lot what new underwriting the to our residual with in 'XX, of we're years very perspective,

in But work demand X particularly dynamics to acquisitions in renovation and contingent respective space, the we're on the years that the work, being pushed value-add seeing and and that that's really on X, supply new markets.

in are of to we're range. at get some really core insurance those Fannie that going XX% and cap the really, cap we rates, to companies seen cap plus to we've their you X.X% probably full-term in end what core rates the of pushing, cap still X% rate, over, say more the I can seeing folks deal The let's X-year believe, and are on, to in down a and X.X% I'd quality But they're bit be we're of aggressive We're seeing rates range. to that X% really from standpoint, that And the we're X%, out know, the buy seeing spreads with [ say, buy-downs. Freddie, XQ, and X.X% trade submarket and ] as on the rates can Tony. And XX% cap XXX goals the vary you a and and up top LTV, obviously, XXXs, aggressive little value-add lending on X.XX% just there, behind probably to that the submarket can by probably who's a rate then those a between terms space, seeing IO. there.

bit we in deals the the in November. aggressive second coming the rate table it's given the do be about election expect the coming really and cuts an more just a obviously, half, September back agencies if the market, do potential to to So see to getting product for, we but

Operator

Michael with [Operator a Instructions] have We question Gorman BTIG. from

Michael Gorman

change as of market Are markets. tie and just strategic some Maybe anything track potential as maybe cycle a commentary managing perspective, in you they're due caused a current or together some a not question bit investment the how but to how we target the seeing how an in through more that go from And you markets that you're seeing the has then now? in there what operating markets to about deal you're from the just, supply and about your fundamentally. them, your seeing current you we're behaved just only potential Paul, of they've transaction thinking markets expansion cycle to of perspective

Paul T. McDermott

Michael, underwriting based I applying rental We're the say a how in much X. just on portfolio on we obviously probably that scrutiny standpoint, applying are see year we that really our in from rates more just diminution an would it's experience. going would lot

earlier, second And we're that's most at markets done is have third in back in probably Michael, what the I as that timing flat. then of strategically, portfolio. think the of looking we at year. of probably And that might the spreads positive looking are renovations is pushed some our I year really said

in get of to strategy acquisitions we we all of future And part value. renovate. as terms when We're obviously create new would like operationally we think then and X,XXX units be in feel there you can in monitoring I those. that have going know, our over any

Operator

Street. from question Our Green is with Ann coming next Chan

Ann Chan

and the demand you your kind baked supply Going of changes guidance, if new are could assumptions what into guidance, any? to share to

Tiffany Butcher

Yes.

quarter. leasing, in our the leasing of both would is is new operating the a an bit first new we're perspective, are in of I we say positive have that month So little in about slipped strength our continued continued in D.C. driving increasing and just see quarter impacting negative in can quarter market, to see we Grant the kind from second strength the our second in growth to in expected dynamics from than the in guidance of have that peak performance as talk rate to lease in terms seeing that supply-demand stronger what that. Washington season. But July And the

continued also increase significantly strong drivers for We've the D.C. and Grant more there our for see talk little occupancy robust bit demand Washington, to as in a a is about product demand and area, that. here the can

But the occupancy of we first improve continued And quarter XX.X% occupancy in our the same-store month in we in to see and have to XX.X%. as the second mentioned at from prepared quarter second portfolio. had July, our continued quarter the to to DMV remarks,

incredibly bit So supply demand that? you driven in want on strong and little environment Washington. occupancy high the lower comment do to by a here Grant,

A. Montgomery

When are a actually is where look currently. are are Ann, to set standpoint, well Grant. the and this performing really next a from than Sure. quarters submarkets supply we even better direction our at moving in over they

significantly is on U.S. even -- further and to decline X.X% average. But we X.X%, deliveries the And the that inventory second that's expected is quarter, level is lower even than are net the the to ratio just over in that. which next markets first of where Sunbelt. Over quarter the well quarters, X below about

quarters. X.X% next So in to of net about ratio XX% is the down located, Northern are our for Virginia, X inventory where homes example, over over

really side. the the that's supply driving tightness So on

to growth. particularly in particularly to demand education job seeing side, really over in industries are X% where We're we in local strong construction our and detail from drive demand markets, further X.X% which Northern both even our health, employment we're job seeing communities. see across And market, anywhere and all again that the X% growth, of for strength particular in year-over-year government, growth. we there, have demand solid From continue Virginia growth up

growth portfolio really we tightening across growth for the continued residents. on homes in strong industries a that job it provide we and So our demand market tight in supply our of sides, create see types entire core both that particular in our

Ann Chan

Great. [ could a give And year? of blended just -- for this ] the this expected wondering X.X% also rate year the of breakdown for rest if you

Tiffany Butcher

We Sure. walk absolutely can that. through

to we're in expecting of of in So terms rates the where to the in for growth, blended the for year be to be X.X% to of to X.X% we're for for lease be range X.X% terms be to we're X.X% expecting full blends full year. expecting, positive new in full rate We're expecting the year. rates the the therefore, range full the the renewal X% And year. kind negative X% in to

Operator

with Our is Cooper from coming next Clark question Wells Fargo.

Cooper Clark

wanted I of back some circle just pricing. comments to Paul, on your around

maybe today cap here? implied wondering of about your you're as at thought of and we capital if recycling, if some rate portfolio Wondering district kind rest of your of specifically the the that's year picking the up Maryland something commentary, Given some looking your of you pricing move through or out assets.

Paul T. McDermott

Cooper, portfolio, we at are at and recycling. always looking looking we're our

I think to candidate. which positive . I think Watergate Watergate, as we the recycling know, we're -- the a And about forward. market improve. slowly going watching talk steadily some we've And we'll definitely the things have but have D.C. is you

top I We our assets right candidates. have you are And optionality recycling sheet and of disposal, wouldn't that, at liquidity, the is list at the as a at look of outside we that now. believe, with I -- to our have mentioned good that do balance say

got value I think a initiatives very to shareholders. we've drive proactive lot the of for

don't we -- to look recycling now we've that right Cooper. year, any of progress the market would provided throughout with you, preserving forward the That's we will do optionality, assets. in move we we through those we actually at terms really December. just probably from But to to now. going will of conditions depend balance plans And as on But have guidance the

Cooper Clark

Steve. just Okay. Great. And I for then one guess

raising seeing thoughts [ unsecured as where incremental closer pricing to opportunity ]? about acquisition potentially debt doing side and on pricing Wondering gets market something on the any the the today LLC opposed right around using you're unsecured X%. talked capacity to your the for if in You've

Steven Freishtat

Yes.

movements So Yes, timely Cooper, in very XX-year. the the thanks for given the question.

So probably given a new maybe do lot be the in if last high debt that. and week of were in then the unsecured secured little inside say, it bit so, debt, to I'd we the of a movements or would Xs

So we're but definitely of just than the rates facility, we more -- balance we that our go, feel there time. pushed we course, could right are much out a maturity lot when the into as do . We as that coming a year. at have And we balance attractive that to so have like far out were our a optionality. term of they redid certainly -- credit we were until 'XX, created certainly look sheet acquisitions creates we've

different lot that. from line say we're leverage right ways right that could a a where I are we perspective, go governors. in leverage our there So want with again, with to of would we be

a ago, an find being we we probably out opportunity what to recycling an find there, top Paul finance assets of probably and moment spoke say able is to it's about something. choice our were right now if on so capital I'd just do And opportunity if recycling

Operator

I'd over to back If no there any like closing the comments. to turn for further floor are management questions,

Paul T. McDermott

very to future. near and interest look with you. Again, speaking I like for Thank to updated your forward I'd Thank and you. and you today in progress on the our everyone many time of you keeping again thank

Operator

This conclude today's you. does Thank call.

we this you have disconnect for and your may participation. day, and thank your a wonderful at You time, lines

Elme Communities (ELME) 2 Aug 242024 Q2 Earnings call transcript