Yahoo Finance Elme Communities (ELME) Q1 2024 Earnings Call Transcript Highlights: Navigating Market ...
Same-store NOI Growth: Expected to range from 0.25% to 2% in 2024.
Interest Expense Guidance: Ranges from $37.25 million to $38.25 million for the year.
Net Debt to EBITDA Ratio: Annualized adjusted net debt to EBITDA was 5.7 times at quarter-end.
Liquidity Position: Approximately $540 million available on the line of credit, about 80% of total capacity.
Debt Maturities: No debt maturities until 2025, with options to extend the 2025 term loan maturity by another two years.
Renovation ROI: Average ROI of approximately 17% on 120 home renovations in Q1.
Occupancy Rate: Average same-store occupancy was 94.4%, with a year-over-year increase in Washington Metro to 96%.
Lease Rate Growth: Effective blended lease rate growth of 2.3% in the same-store portfolio.
Resident Retention Rate: Same-store resident retention was 65% during the quarter.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Elme Communities reported solid effective blended lease rate growth of 2.3% for its same-store portfolio, with renewal lease rate growth at 6.2%.
The company has a strong liquidity position with about $540 million or approximately 80% of the total capacity available on its line of credit, with no secured debt and no debt maturities until 2025.
Elme Communities is seeing positive momentum in the Washington Metro area, which comprises roughly 85% of their multifamily NOI, showing strong demand and stable performance.
The company has implemented successful marketing initiatives and operational efficiencies that are expected to generate between $1.7 million and $1.9 million of additional NOI and FFO in 2024.
Elme Communities is experiencing strong absorption rates in its markets, particularly in Atlanta, where annual absorption increased almost three times in Q1 2024 compared to the prior year period.
Negative Points
In Atlanta, elevated supply and the timing of evictions have led to a slight decline in occupancy rates, although improvements are expected as the year progresses.
The company faces occupancy pressure due to an unprecedented level of supply in Atlanta, although this is being mitigated by strong market-level absorption.
Elme Communities reported an average new lease rate decline of 2.1% during the first quarter.
Bad debt in the Atlanta portfolio remains a challenge, although it is showing month-over-month improvement.
Interest rate expectations have shifted, putting some upward pressure on interest expenses, although the company believes its current guidance range remains appropriate.
Q & A Highlights
Q: Can you provide more details on the Atlanta market, specifically the current status of occupancy related to cash payments versus bad debts, and expectations for real cash paying occupancy and delinquency resolution throughout the year? A: Tiffany Butcher, Elme Communities - Chief Operating Officer, Executive Vice President: In the first quarter, bad debt in Atlanta was reduced to 7.5% and is trending down month-over-month. By the end of the year, it is expected to be between 3% to 4%. Delinquencies are improving due to policy changes and enhancements in credit screening and approval processes. The company is working through eviction backlogs, which should further reduce bad debt and delinquencies.
Q: What are the projected trends for new leases and blended spreads over the course of the year? A: Tiffany Butcher, Elme Communities - Chief Operating Officer, Executive Vice President: Renewal rates for May and June are around 4.5%, and it is expected that renewal rates will moderate through the year, averaging between 3.5% to 4.5%. Blended spreads ended the first quarter at 2.3% and are expected to improve sequentially in the following quarters, with an annual projection of 1.5% to 2.5%.
Q: How are cap rates for Class B type assets currently positioned in the market? A: Paul McDermott, Elme Communities - Chairman of the Board of Trustee, President, Chief Executive Officer: The market is seeing a shift with more institutional buyers. Cap rates for Class B assets with a value-add component range from 5.25% to 5.75%. The market dynamics are influenced by short-term supply issues, and institutional buyers are underwriting a recovery expecting a discount to replacement costs.
Q: Given the changes in interest rate expectations, how is this affecting your interest expense outlook and any potential impact from capitalized interest? A: Steven Freishtat, Elme Communities - Chief Financial Officer, Executive Vice President: The guidance for interest expense remains appropriate despite fewer anticipated rate cuts. There are no significant projects that would materially impact capitalized interest, ensuring a clean interest expense outlook for the year.
Q: Can you discuss the strategy and timeline for potentially selling the Watergate complex? A: Paul McDermott, Elme Communities - Chairman of the Board of Trustee, President, Chief Executive Officer: Discussions are ongoing to extend leases to create more value. The goal is to monetize the asset within the next 12 to 15 months, with interest from both foreign and domestic investors. The lending community's current view of the office sector as a viable asset class affects the transaction environment.
Q: How does the current level of bad debt in Atlanta compare to last year, and what are the expectations for the end of the year? A: Tiffany Butcher, Elme Communities - Chief Operating Officer, Executive Vice President: Bad debt in Atlanta was 10% at the end of 2023 and has improved to 7.5% in Q1 2024. It is expected to decrease to 3% to 4% by the end of 2024, with an average likely around 5% to 6% for the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
