Elme Communities (the “Company”) (NYSE: ELME), a multifamily REIT
with properties in the Washington DC metro area and the Sunbelt,
reported financial and operating results today for the quarter
ended March 31, 2023:
Financial Results
- Net loss was
$3.6 million, or $0.04 per diluted share
- NAREIT FFO was
$17.9 million, or $0.20 per diluted share
- Core FFO was
$21.5 million, or $0.24 per diluted share, up 20% from the prior
year period driven by rental rate growth and the full deployment of
our commercial sale proceeds
- Net Operating
Income (NOI) was $36.3 million up 18% from the prior year period
due primarily to the same factors as Core FFO growth
Operational Highlights
- Same-store
multifamily NOI increased by 10.7% compared to the prior year
period
- Effective
blended Lease Rate Growth was 4.5% during the quarter for our
same-store portfolio, comprised of Effective new Lease Rate Growth
of 0.7% and Effective renewal Lease Rate Growth of 8.0%
- Average
Effective Monthly Rent per Home increased 9.7% compared to the
prior year period
- Same-store
retention was 64% while achieving strong renewal lease rate
growth
- Same-store
multifamily Average Occupancy was 95.5% during the quarter, up 50
basis points from the prior quarter
Liquidity Position
-
Available liquidity was more than $670 million as of March 31,
2023, consisting of availability under the Company's revolving
credit facility and cash on hand
-
Annualized first quarter net debt to EBITDA was 4.8x
-
The Company has no maturities until 2025 and no secured debt
-
In March, the Company executed swaps that will convert the interest
rate on its $125 million term loan to a fixed 4.73% rate starting
in July 2023 through maturity in January 2025. $100 million of the
$125 million term loan is currently hedged through July.
"We delivered a strong first quarter and we remain on track to
generate double-digit Core FFO growth this year," said Paul T.
McDermott, President and CEO. "We expect very strong NOI growth
from our multifamily portfolio and we are well positioned with a
geographic mix that provides relative insulation from job losses
and mid-market price points that provide meaningful differentiation
from new supply. Beyond 2023, we expect to generate operational
upside enabled by our infrastructure transformation and technology
investments, which we look forward to discussing in detail on our
earnings call."
Transformation Update
-
Transitioned community-level operations to Elme management for
approximately 70% of our portfolio. We are on track to complete the
transition by the end of July 2023.
- As a result of our transformed internal infrastructure and
smart home investment, we expect to generate incremental FFO from
2023 through 2025 of $4.25 to $4.75 million. This expectation is
based on current assumptions, which may differ materially from
actual results. The FFO impact includes the NOI impact plus
approximately $0.3 million of annual interest savings from
internalizing community-level cash management, which allows us to
maintain a lower average balance on our line of credit.
First Quarter Operating
Results
-
Multifamily same-store NOI - Same-store NOI
increased 10.7% compared to the corresponding prior year period
driven primarily by higher base rent and lower concessions. Average
occupancy for the quarter decreased 10 basis points from the prior
year period to 95.5%.
-
Other same-store NOI - The Other same-store
portfolio is comprised of one asset, Watergate 600. Other
same-store NOI increased by 6.9% compared to the corresponding
prior year period due to higher rental income. Watergate 600 was
92.8% occupied and leased at quarter end.
2023 Guidance
"We are tightening and slightly reducing the midpoint of our
Core FFO guidance range, which represents 13% Core FFO growth at
the midpoint," said Steven Freishtat, Executive Vice President and
CFO. "Although we are lowering the top end of our same-store and
non-same store NOI guidance ranges given increased visibility into
the spring leasing season, we see good momentum in April as new
lease rates are trending up and renewal rates remain very strong
into May. With over 5.2% of rental rate growth already captured, we
feel good about our ability to deliver robust growth this
year."
Management is tightening the range of its 2023 Core FFO guidance
to $0.96 to $1.02 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 9.0% to
10.5%
- Non-same-store
multifamily NOI is now expected to range from $12.75 million to
$13.5 million
-
Other same-store NOI, which consists solely of Watergate 600, is
now expected to range from $12.5 million to $13.25 million due to
higher-than-expected operating expenses
-
G&A, net of core adjustments, is now expected to range from
$25.25 million to $26.25 million, reflecting a $0.6 million decline
compared to our prior guidance range driven by our focus on cost
saving initiatives and higher allocation of internal time to
transition activities including community-level training, expansion
of our resident experience technology offerings, and community
recruiting efforts
-
Interest expense is now expected to range from $28.5 million to
$29.25 million, which represents a $0.6 million decline at the
midpoint as it incorporates our term loan swap execution, which
fixes our term loan interest rate to 4.73% for the second half of
2023
-
No acquisitions are assumed in 2023. The Company has acquisition
capacity and will update guidance if an acquisition is
identified.
-
Transformation costs are now expected to range from $5.0 to $6.0
million due to higher allocation of internal time to transformation
activities, higher transition expenses, and higher consulting and
marketing expenses related to our rebranding
Full Year 2023 |
Prior |
Current |
Core FFO per diluted share |
$0.96 - $1.04 |
$0.96 - $1.02 |
Net Operating Income
Assumptions |
|
|
Same-store multifamily NOI
growth |
9.0% - 11% |
9.0% - 10.5% |
Non-same-store multifamily NOI
(a) |
$12.75 million - $13.75 million |
$12.75 million - $13.5 million |
Non-residential NOI (b) |
~$0.75 million |
~$0.8 million |
Other same-store NOI (c) |
$13.0 million - $13.75 million |
$12.5 million - $13.25 million |
Expense Assumptions |
|
|
Property management
expense |
$8.0 million - $8.5 million |
$8.0 million - $8.5 million |
G&A, net of core
adjustments |
$25.75 million - $27.0 million |
$25.25 million - $26.25 million |
Interest expense |
$29.0 million - $30.0 million |
$28.5 million - $29.25 million |
Transformation Costs (d) |
$3.0 million - $4.0 million |
$5.0 million - $6.0 million |
(a) Includes Carlyle of Sandy Springs, Alder Park, Marietta
Crossing, and Riverside Development. Guidance does not contemplate
any additional acquisitions or dispositions. |
(b) Includes revenues and expenses from retail operations at
multifamily communities |
(c) Consists of Watergate 600 |
(d) Represents the expected final costs in 2023 related to the
internalization of community-level operations |
|
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:
|
Low |
|
High |
Net loss per diluted share |
$ |
(0.09 |
) |
|
$ |
(0.04 |
) |
Real
estate depreciation and amortization |
|
0.98 |
|
|
|
0.98 |
|
NAREIT FFO per diluted share |
|
0.89 |
|
|
|
0.94 |
|
Core
adjustments |
|
0.07 |
|
|
|
0.08 |
|
Core
FFO per diluted share |
$ |
0.96 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
Dividends
On April 5, 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 July 6, 2023 to shareholders of record on June 22,
2023.
Presentation Webcast and Conference Call
Information
The First Quarter 2023 Earnings Call is
scheduled for Friday, April 28, 2023 at 10:00 A.M. Eastern
Time. Conference Call access information is as follows:
USA Toll Free Number:International Toll Number:Conference
ID: |
|
1-888-506-00621-973-528-0011704378 |
The instant replay of the Earnings Call will be
available until Friday, May 12, 2023. Instant replay access
information is as follows:
USA Toll Free Number:International Toll Number:Conference
ID: |
|
1-877-481-40101-919-882-233147833 |
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 CommunitiesElme
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
StatementsCertain 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: the
incremental FFO generated by our transformed internal
infrastructure and smart home investment in 2023, 2024 and 2025 and
related assumptions; 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;
whether actual Core FFO, Core FFO Growth and NOI growth will be
consistent with expectations; 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 insulation of our properties from competition from new supply;
the risk of failure to enter into and/or complete contemplated
acquisitions and dispositions, or at all, within the price ranges
anticipated and on the terms and timing anticipated; 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 ultimate duration of the COVID-19
global pandemic, including any mutations thereof, the actions taken
to contain the pandemic or mitigate its impact, and the direct and
indirect economic effects of the pandemic and containment measures,
the effectiveness and willingness of people to take COVID-19
vaccines, and the duration of associated immunity and efficacy of
the vaccines against emerging variants of COVID-19; 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; 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.
ELME COMMUNITIES AND SUBSIDIARIES |
FINANCIAL HIGHLIGHTS |
(In thousands, except per share data) |
(Unaudited) |
|
|
|
|
|
Three Months Ended March 31, |
OPERATING RESULTS |
|
2023 |
|
|
|
2022 |
|
Revenue |
|
|
|
Real estate rental revenue |
$ |
55,809 |
|
|
$ |
47,804 |
|
Expenses |
|
|
|
Property operating and maintenance |
|
12,399 |
|
|
|
10,565 |
|
Real estate taxes and insurance |
|
7,122 |
|
|
|
6,587 |
|
Property management |
|
1,769 |
|
|
|
1,750 |
|
General and administrative |
|
6,841 |
|
|
|
6,939 |
|
Transformation costs |
|
2,900 |
|
|
|
2,223 |
|
Depreciation and amortization |
|
21,536 |
|
|
|
22,200 |
|
|
|
52,567 |
|
|
|
50,264 |
|
Real estate operating income
(loss) |
|
3,242 |
|
|
|
(2,460 |
) |
Other income (expense) |
|
|
|
Interest expense |
|
(6,831 |
) |
|
|
(5,650 |
) |
Loss on extinguishment of debt |
|
(54 |
) |
|
|
— |
|
Other income |
|
— |
|
|
|
386 |
|
|
|
(6,885 |
) |
|
|
(5,264 |
) |
Net loss |
$ |
(3,643 |
) |
|
$ |
(7,724 |
) |
|
|
|
|
Net loss |
$ |
(3,643 |
) |
|
$ |
(7,724 |
) |
Depreciation and
amortization |
|
21,536 |
|
|
|
22,200 |
|
NAREIT funds from
operations |
$ |
17,893 |
|
|
$ |
14,476 |
|
|
|
|
|
Non-cash loss on
extinguishment of debt |
$ |
54 |
|
|
$ |
— |
|
Tenant improvements and
incentives, net of reimbursements |
|
(10 |
) |
|
|
(549 |
) |
Leasing commissions
capitalized |
|
(56 |
) |
|
|
— |
|
Recurring capital
improvements |
|
(2,004 |
) |
|
|
(1,238 |
) |
Straight-line rents, net |
|
(29 |
) |
|
|
(190 |
) |
Non-real estate depreciation
& amortization of debt costs |
|
1,267 |
|
|
|
1,208 |
|
Amortization of lease
intangibles, net |
|
(237 |
) |
|
|
(172 |
) |
Amortization and expensing of
restricted share and unit compensation |
|
1,188 |
|
|
|
2,081 |
|
Adjusted funds from
operations |
$ |
18,066 |
|
|
$ |
15,616 |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
Per share data: |
|
|
2023 |
|
|
|
2022 |
|
Net loss |
(Basic) |
$ |
(0.04 |
) |
|
$ |
(0.09 |
) |
|
(Diluted) |
$ |
(0.04 |
) |
|
$ |
(0.09 |
) |
NAREIT FFO |
(Basic) |
$ |
0.20 |
|
|
$ |
0.17 |
|
|
(Diluted) |
$ |
0.20 |
|
|
$ |
0.17 |
|
|
|
|
|
|
Dividends paid |
|
$ |
0.18 |
|
|
$ |
0.17 |
|
|
|
|
|
|
Weighted average shares
outstanding - basic |
|
|
87,649 |
|
|
|
87,214 |
|
Weighted average shares
outstanding - diluted |
|
|
87,649 |
|
|
|
87,214 |
|
Weighted average
shares outstanding - diluted (for NAREIT FFO) |
|
87,840 |
|
|
|
87,253 |
|
|
|
|
|
|
|
|
|
ELME COMMUNITIES AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
(In thousands, except per share data) |
(Unaudited) |
|
|
|
|
|
March 31, 2023 |
|
December 31, 2022 |
Assets |
|
|
|
Land |
$ |
373,171 |
|
|
$ |
373,171 |
|
Income producing property |
|
1,903,648 |
|
|
|
1,897,835 |
|
|
|
2,276,819 |
|
|
|
2,271,006 |
|
Accumulated depreciation and amortization |
|
(502,104 |
) |
|
|
(481,588 |
) |
Net income producing property |
|
1,774,715 |
|
|
|
1,789,418 |
|
Properties under development or held for future development |
|
31,260 |
|
|
|
31,260 |
|
Total real estate held for investment, net |
|
1,805,975 |
|
|
|
1,820,678 |
|
Cash and cash equivalents |
|
7,044 |
|
|
|
8,389 |
|
Restricted cash |
|
1,487 |
|
|
|
1,463 |
|
Rents and other receivables |
|
16,095 |
|
|
|
16,346 |
|
Prepaid expenses and other assets |
|
24,398 |
|
|
|
25,730 |
|
Total assets |
$ |
1,854,999 |
|
|
$ |
1,872,606 |
|
|
|
|
|
Liabilities |
|
|
|
Notes payable, net |
$ |
521,761 |
|
|
$ |
497,359 |
|
Line of credit |
|
35,000 |
|
|
|
55,000 |
|
Accounts payable and other liabilities |
|
28,583 |
|
|
|
34,386 |
|
Dividend payable |
|
15,869 |
|
|
|
14,934 |
|
Advance rents |
|
1,800 |
|
|
|
1,578 |
|
Tenant security deposits |
|
5,671 |
|
|
|
5,563 |
|
Total liabilities |
|
608,684 |
|
|
|
608,820 |
|
|
|
|
|
Equity |
|
|
|
Shareholders' equity |
|
|
|
Preferred shares; $0.01 par value; 10,000 shares authorized; no
shares issued or outstanding |
|
— |
|
|
|
— |
|
Shares of beneficial interest, $0.01 par value; 150,000 shares
authorized: 87,709 and 87,534 shares issued and
outstanding, as of March 31, 2023 and December 31, 2022,
respectively |
|
877 |
|
|
|
875 |
|
Additional paid in capital |
|
1,731,701 |
|
|
|
1,729,854 |
|
Distributions in excess of net income |
|
(472,503 |
) |
|
|
(453,008 |
) |
Accumulated other comprehensive loss |
|
(14,056 |
) |
|
|
(14,233 |
) |
Total shareholders' equity |
|
1,246,019 |
|
|
|
1,263,488 |
|
|
|
|
|
Noncontrolling interests in subsidiaries |
|
296 |
|
|
|
298 |
|
Total equity |
|
1,246,315 |
|
|
|
1,263,786 |
|
|
|
|
|
Total liabilities and equity |
$ |
1,854,999 |
|
|
$ |
1,872,606 |
|
|
|
|
|
|
|
|
|
The following tables contain reconciliations of net loss to NOI
for the periods presented (in thousands):
|
|
Three Months Ended March 31, |
|
|
2023 |
|
|
|
2022 |
|
Net loss |
$ |
(3,643 |
) |
|
$ |
(7,724 |
) |
Adjustments: |
|
|
|
Property management expense |
|
1,769 |
|
|
|
1,750 |
|
General and administrative expense |
|
6,841 |
|
|
|
6,939 |
|
Transformation costs |
|
2,900 |
|
|
|
2,223 |
|
Real estate depreciation and amortization |
|
21,536 |
|
|
|
22,200 |
|
Interest expense |
|
6,831 |
|
|
|
5,650 |
|
Loss on extinguishment of debt, net |
|
54 |
|
|
|
— |
|
Other income |
|
— |
|
|
|
(386 |
) |
Total Net Operating Income
(NOI) |
$ |
36,288 |
|
|
$ |
30,652 |
|
|
|
|
|
Multifamily NOI: |
|
|
|
Same-store portfolio |
$ |
29,546 |
|
|
$ |
26,687 |
|
Acquisitions |
|
3,131 |
|
|
|
576 |
|
Development |
|
(58 |
) |
|
|
— |
|
Non-residential |
|
228 |
|
|
|
170 |
|
Total |
|
32,847 |
|
|
|
27,433 |
|
|
|
|
|
Other NOI (Watergate 600) |
|
3,441 |
|
|
|
3,219 |
|
Total NOI |
$ |
36,288 |
|
|
$ |
30,652 |
|
|
|
|
|
The following table contains a reconciliation of net loss to
core funds from operations for the periods presented (in thousands,
except per share data):
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
|
2022 |
|
Net loss |
|
$ |
(3,643 |
) |
|
$ |
(7,724 |
) |
Add: |
|
|
|
|
Real estate depreciation and amortization |
|
|
21,536 |
|
|
|
22,200 |
|
NAREIT funds from
operations |
|
|
17,893 |
|
|
|
14,476 |
|
Add: |
|
|
|
|
Structuring expenses |
|
|
60 |
|
|
|
— |
|
Loss on extinguishment of debt, net |
|
|
54 |
|
|
|
— |
|
Severance expense |
|
|
394 |
|
|
|
474 |
|
Transformation costs |
|
|
2,900 |
|
|
|
2,223 |
|
Write-off of pursuit costs |
|
|
40 |
|
|
|
— |
|
Relocation expense |
|
|
186 |
|
|
|
— |
|
Core funds from
operations |
|
$ |
21,527 |
|
|
$ |
17,173 |
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
Per share
data: |
|
|
2023 |
|
|
|
2022 |
|
NAREIT FFO |
(Basic) |
$ |
0.20 |
|
|
$ |
0.17 |
|
|
(Diluted) |
$ |
0.20 |
|
|
$ |
0.17 |
|
Core FFO |
(Basic) |
$ |
0.24 |
|
|
$ |
0.20 |
|
|
(Diluted) |
$ |
0.24 |
|
|
$ |
0.20 |
|
|
|
|
|
|
Weighted average shares
outstanding - basic |
|
|
87,649 |
|
|
|
87,214 |
|
Weighted average shares
outstanding - diluted (for NAREIT and Core FFO) |
|
|
87,840 |
|
|
|
87,253 |
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures
Adjusted EBITDA is earnings
before interest expense, taxes, depreciation, amortization,
gain/loss on sale of real estate, casualty gain/loss, real estate
impairment, gain/loss on extinguishment of debt, gain/loss on
interest rate derivatives, severance expense, acquisition expenses
and gain from non-disposal activities and transformation costs.
Adjusted EBITDA is included herein because we believe it helps
investors and lenders understand our ability to incur and service
debt and to make capital expenditures. Adjusted EBITDA is a
non-GAAP and non-standardized measure and may be calculated
differently by other REITs.
Adjusted Funds From Operations
(“AFFO”) is a non-GAAP measure. It is calculated by
subtracting from FFO (1) recurring improvements, tenant
improvements and leasing costs, that are capitalized and amortized
and are necessary to maintain our properties and revenue stream
(excluding items contemplated prior to acquisition or associated
with development / redevelopment of a property) and (2) straight
line rents, then adding (3) non-real estate depreciation and
amortization, (4) non-cash fair value interest expense and (5)
amortization of restricted share compensation, then adding or
subtracting the (6) amortization of lease intangibles, (7) real
estate impairment and (8) non-cash gain/loss on extinguishment of
debt, as appropriate. AFFO is included herein, because we consider
it to be a performance measure of a REIT’s ability to incur and
service debt and to distribute dividends to its shareholders. AFFO
is a non-GAAP and non-standardized measure, and may be calculated
differently by other REITs.
Core Adjusted Funds From Operations
("Core AFFO") is calculated by adjusting AFFO for the
following items (which we believe are not indicative of the
performance of Elme Communities' operating portfolio and affect the
comparative measurement of Elme Communities' operating performance
over time): (1) gains or losses on extinguishment of debt and gains
or losses on interest rate derivatives, (2) expenses related to
acquisition and structuring activities, (3) non-share-based
executive transition costs, severance expenses and other expenses
related to corporate restructuring and executive retirements or
resignations, (4) property impairments, casualty gains and losses,
and gains or losses on sale not already excluded from Core AFFO, as
appropriate, (5) relocation expense, (6) transformation costs and
(7) write-off of pursuit costs. These items can vary greatly from
period to period, depending upon the volume of our acquisition
activity and debt retirements, among other factors. We believe that
by excluding these items, Core AFFO serves as a useful,
supplementary performance measure of Elme Communities' ability to
incur and service debt, and distribute dividends to its
shareholders. Core AFFO is a non-GAAP and non-standardized measure,
and may be calculated differently by other REITs.
Core Funds From Operations (“Core
FFO”) is calculated by adjusting NAREIT FFO for the
following items (which we believe are not indicative of the
performance of Elme Communities' operating portfolio and affect the
comparative measurement of Elme Communities' operating performance
over time): (1) gains or losses on extinguishment of debt and gains
or losses on interest rate derivatives, (2) expenses related to
acquisition and structuring activities, (3) executive transition
costs, severance expenses and other expenses related to corporate
restructuring and executive retirements or resignations, (4)
property impairments, casualty gains and losses, and gains or
losses on sale not already excluded from NAREIT FFO, as
appropriate, (5) relocation expense, (6) transformation costs and
(7) write-off of pursuit costs. These items can vary greatly from
period to period, depending upon the volume of our acquisition
activity and debt retirements, among other factors. We believe that
by excluding these items, Core FFO serves as a useful,
supplementary measure of Elme Communities' ability to incur and
service debt, and distribute dividends to its shareholders. Core
FFO is a non-GAAP and non-standardized measure, and may be
calculated differently by other REITs.
NAREIT Funds From Operations
(“FFO”) is defined by 2018 National Association of Real
Estate Investment Trusts, Inc. (“NAREIT”) FFO White Paper
Restatement, as net income (computed in accordance with generally
accepted accounting principles (“GAAP”)) excluding gains (or
losses) associated with sales of properties, impairments of
depreciable real estate and real estate depreciation and
amortization. We consider NAREIT FFO to be a standard supplemental
measure for equity real estate investment trusts (“REITs”) because
it facilitates an understanding of the operating performance of our
properties without giving effect to real estate depreciation and
amortization, which historically assumes that the value of real
estate assets diminishes predictably over time. Since real estate
values have instead historically risen or fallen with market
conditions, we believe that NAREIT FFO more accurately provides
investors an indication of our ability to incur and service debt,
make capital expenditures and fund other needs. Our FFO may not be
comparable to FFO reported by other real estate investment trusts.
These other REITs may not define the term in accordance with the
current NAREIT definition or may interpret the current NAREIT
definition differently. NAREIT FFO is a non-GAAP measure.
Net Operating Income (“NOI”), defined as real
estate rental revenue less direct real estate operating expenses,
is a non-GAAP measure. NOI is calculated as net income, less
non-real estate revenue and the results of discontinued operations
(including the gain or loss on sale, if any), plus interest
expense, depreciation and amortization, lease origination expenses,
general and administrative expenses, acquisition costs, real estate
impairment, casualty gain and losses and gain or loss on
extinguishment of debt. NOI does not include management expenses,
which consist of corporate property management costs and property
management fees paid to third parties. NOI is the primary
performance measure we use to assess the results of our operations
at the property level. We believe that NOI is a useful performance
measure because, when compared across periods, it reflects the
impact on operations of trends in occupancy rates, rental rates and
operating costs on an unleveraged basis, providing perspective not
immediately apparent from net income. NOI excludes certain
components from net income in order to provide results more closely
related to a property’s results of operations. For example,
interest expense is not necessarily linked to the operating
performance of a real estate asset. In addition, depreciation and
amortization, because of historical cost accounting and useful life
estimates, may distort operating performance at the property level.
As a result of the foregoing, we provide NOI as a supplement to net
income, calculated in accordance with GAAP. NOI does not represent
net income or income from continuing operations calculated in
accordance with GAAP. As such, NOI should not be considered an
alternative to these measures as an indication of our operating
performance.
Other Definitions
Average Effective Monthly Rent Per Home
represents the average of effective rent (net of concessions) for
in-place leases plus the market rent for vacant homes, divided by
the total number of homes. We believe Average Effective Monthly
Rent Per Home is a useful metric in evaluating the average pricing
of our homes. It is a component of Residential Revenue, which is
used to calculate our NOI. It does not represent actual rental
revenue collected per unit.
Average Occupancy is based on
average daily occupied apartment homes as a percentage of total
apartment homes.
Current Strategy represents the
class of each community in our portfolio based on a set of
criteria. Our strategies consist of the following subcategories:
Class A, Class A-, Class B Value-Add and Class B. A community's
class is dependent on a variety of factors, including its vintage,
site location, amenities and services, rent growth drivers and rent
relative to the market.
- Class A communities are
recently-developed, well-located, have competitive amenities and
services and command average rental rates well above market median
rents.
- Class A- communities have been
developed within the past 20 years and feature operational
improvements and unit upgrades and command rents at or above median
market rents.
- Class B Value-Add communities are
over 20 years old but feature operational improvements and strong
potential for unit renovations. These communities command average
rental rates below median market rents for units that have not been
renovated.
- Class B
communities are over 20 years old, feature operational improvements
and command average rental rates below median market rents.
Debt Service Coverage Ratio is
computed by dividing earnings attributable to the controlling
interest before interest expense, taxes, depreciation,
amortization, real estate impairment, gain on sale of real estate,
gain/loss on extinguishment of debt, severance expense, relocation
expense, acquisition and structuring expenses and gain/loss from
non-disposal activities by interest expense (including interest
expense from discontinued operations) and principal
amortization.
Debt to Total Market
Capitalization is total debt divided by the sum of total
debt plus the market value of shares outstanding at the end of the
period.
Earnings to Fixed Charges Ratio
is computed by dividing earnings attributable to the controlling
interest by fixed charges. For this purpose, earnings consist of
income from continuing operations (or net income if there are no
discontinued operations) plus fixed charges, less capitalized
interest. Fixed charges consist of interest expense (excluding
interest expense from discontinued operations), including amortized
costs of debt issuance, plus interest costs capitalized.
Ending Occupancy is calculated
as occupied homes as a percentage of total homes as of the last day
of that period.
Lease Rate Growth is defined as
the average percentage change in either gross (excluding the impact
of concessions) or effective rent (net of concessions) for a new or
renewed multifamily lease compared to the prior lease based on the
move-in date. The "blended" rate represents the weighted average of
new and renewal lease rate growth achieved.
Recurring Capital Improvements
represent non-accretive building improvements required to maintain
a property's income and value. Recurring capital improvements do
not include acquisition capital that was taken into consideration
when underwriting the purchase of a building or which are incurred
to bring a building up to "operating standard". This category
includes improvements made as needed upon vacancy of an apartment.
Aside from improvements related to apartment turnover, these
improvements include facade repairs, installation of new heating
and air conditioning equipment, asphalt replacement, permanent
landscaping, new lighting and new finishes.
Retention represents the
percentage of multifamily leases renewed that were set to expire in
the period presented.
Relocation expenses represent
costs associated with the relocation of the corporate headquarters
to a new location in the DC metro region.
Same-store Portfolio Properties
include properties that were owned for the entirety of the years
being compared, and exclude properties under redevelopment or
development and properties acquired, sold or classified as held for
sale during the years being compared. We categorize our properties
as "same-store" or "non-same-store" for purposes of evaluating
comparative operating performance. We define development properties
as those for which we have planned or ongoing major construction
activities on existing or acquired land pursuant to an authorized
development plan. Development properties are categorized as
same-store when they have reached stabilized occupancy (90%) before
the start of the prior year. We define redevelopment properties as
those for which we have planned or ongoing significant development
and construction activities on existing or acquired buildings
pursuant to an authorized plan, which has an impact on current
operating results, occupancy and the ability to lease space with
the intended result of a higher economic return on the property. We
categorize a redevelopment property as same-store when
redevelopment activities have been complete for the majority of
each year being compared. We currently have two same-store
portfolios: "Same-store multifamily" which is comprised of our
same-store apartment communities and "Other same-store" which is
comprised of our Watergate 600 commercial property.
Transformation Costs include
costs related to the strategic shift away from the commercial
sector to the residential sector, including the allocation of
internal costs, consulting, advisory and termination benefits.
CONTACT:Amy HopkinsVice
President, Investor RelationsE-Mail:
ahopkins@elmecommunities.com
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