Elme Communities Q4 2024 Earnings Report

Elme Communities EPS Results

• Actual EPS: $0.23
• Consensus EPS: -$0.03
• Beat/Miss: Beat by +$0.26
• One Year Ago EPS: N/A

Elme Communities Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $60.50 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Elme Communities Announcement Details

• Quarter: Q4 2024
• Date: 2/13/2025
• Time: After Market Closes
• Conference Call Date: Friday, February 14, 2025
• Conference Call Time: 10:00AM ET

Elme Communities (NYSE:ELME) 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 9,400 apartment homes in the Washington, DC metro and the Atlanta metro regions, 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.

Elme Communities Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, and welcome to the Elm Communities Fourth Quarter twenty twenty four Earnings Conference Call. As a reminder, today's call is being recorded. And at this time, I would like to turn the call over to your host, Amy Hopkins, Vice President, Investor Relations. Amy, please go ahead.

[Amy Hopkins, Vice President, Investor Relations at Elme Communities]

Good morning, and thank you for joining our fourth quarter earnings call. Today's event is being webcast with a slide presentation that is available on the Investors section of our website and will be available on our webcast replay. Statements made during this call may constitute forward looking statements that involve known and unknown risks and uncertainties, which may cause actual results to differ materially, and we undertake no duty to update them as actual events unfold.

[Amy Hopkins, Vice President, Investor Relations at Elme Communities]

We refer to certain

[Amy Hopkins, Vice President, Investor Relations at Elme Communities]

of these risks in our SEC filings. Reconciliations of the GAAP and non GAAP financial measures discussed on this call are available in our most recent earnings press release and financial supplement, which was distributed yesterday and can be found on the Investors page of our website. Presenting on the call today will be Paul McDermott, our CEO Tiffany Butcher, our COO and Steve Freistat, our CFO. And with that, I will turn the call over to Paul.

[Paul McDermott, President and CEO at Elme Communities]

Thanks, Amy. Welcome, everyone, and thank you for joining us this morning. I'll start by addressing the announcement we made in conjunction with our earnings release. I will also cover our 2024 achievements and the impact of the new administration's focus on government efficiency. Tiffany will discuss our operating trends and platform initiatives, and Steve will discuss our 2025 outlook.

[Paul McDermott, President and CEO at Elme Communities]

Yesterday, we announced that the Elm Board of Trustees has launched a review to evaluate strategic alternatives. This decision is consistent with our commitment to act in the best interest of the company and our shareholders and to focus on maximizing shareholder value. We remain very confident about the long term prospects of our portfolio and the continued success of our value add, renovation pipeline and platform initiatives. However, shares of Elm continues to trade at a discount to our estimate of the company's private market value. While we regularly evaluate credible alternative opportunities to maximize value on behalf of our shareholders, after extensive board led strategic planning, the board has decided that a formal proactive process is appropriate at this time.

[Paul McDermott, President and CEO at Elme Communities]

As such, the Elm Board of Trustees has initiated this formal review and retained financial and legal advisors. As is always the case with this type of process, there is no guarantee the review will result in any transaction or specific outcome, and we don't intend to disclose developments unless and until the company determines that disclosure is appropriate or required. While there isn't more we can say about the process at this time, we are confident we are taking the right steps to maximize value for shareholders. For the rest of the call, we will focus on our financial results, other business initiatives and outlook. Turning to 2024 highlights.

[Paul McDermott, President and CEO at Elme Communities]

Operationally, it was a significant year as we advanced our multi year platform initiatives. We reached a key milestone with the successful launch of our shared services department, Elm Resident Services, which streamlined our resident account management, collections and renewal processes and improved our operating efficiency. We also launched Phase one of our managed Wi Fi initiative and the related NOI growth will be ramping up throughout 2025. I'm proud of the transformation efforts put in by our teams last year and look forward to continuing to progress our initiatives and platform efficiency this year. Turning to the priorities of the new administration, there has been plenty of speculation, so we'll stick to the facts and what's happening on the ground.

[Paul McDermott, President and CEO at Elme Communities]

The Washington Metro is widely recognized for its diverse and growing private sector economy. Approximately 97% of job growth over the last twelve months has been driven by industries other than the federal government. Federal jobs only represent about 11% of regional employment as over 80% of the 2,100,000 civilian positions in the federal government across the country are located outside the DMV. Elm's direct exposure to federal jobs is limited. Of the two thirds of our Washington Metro resident base for whom we have detailed job level data, only 6.2% work at non Department of Defense federal government agencies in the Washington Metro area and 4% work at federal contractors.

[Paul McDermott, President and CEO at Elme Communities]

For community level exposure, Slide 11 of our latest investor presentation maps the departments and agencies where we have the highest exposure and provides the concentrations at proximate communities. Overall, our highest direct exposure to non DoD federal government jobs at the community level is in the low double digits. In terms of what we are seeing on the ground, our demand trends across the Washington Metro remain solid and in line with our expectations and seasonal norms. The Washington Metro Area was a top performing market in 2024 and we believe it is positioned for another strong year in 2025. Net inventory ratios remain low and the high cost of housing creates sustained demand for value oriented rental options.

[Paul McDermott, President and CEO at Elme Communities]

The region is positioned to continue to thrive, offering a highly skilled workforce, advanced technology infrastructure, an entrepreneurial atmosphere and unmatched global connections. We are confident in the growth prospects of our Washington Metro portfolio and look forward to gaining more clarity soon and keeping you updated during future calls. And with that, I'll turn it over to Tiffany.

[Tiffany Butcher, Executive VP & COO at Elme Communities]

Thanks, Paul. Starting with supplydemand dynamics in our markets. Overall, we are well positioned as we believe Elm submarkets will face less supply pressure than The U. S. And Sunbelt markets generally with projected average annual net inventory growth of 2.2% over the next four quarters, while The U.

[Tiffany Butcher, Executive VP & COO at Elme Communities]

S. And Sunbelt are expected to see 2.84.6% growth respectively. Our DMV portfolio remains very well insulated from new supply with quarterly net inventory ratios averaging 1.7% in Elm submarkets this year below the regional average of 2% based on current expectations. On the demand side, the trends are healthy and stable supported by the limited availability of high quality housing that is affordable to middle income residents. We anticipate another year of favorable supplydemand dynamics in the DMV.

[Tiffany Butcher, Executive VP & COO at Elme Communities]

In Atlanta, we expect to see gradual improvement in the supply dynamics with a more significant improvement in 2026. The weighted average net inventory ratio peaked at 4.3% in the first half of twenty twenty four across our Atlanta submarkets and is expected to remain relatively flat in 2025 compared to the 3.8% in the fourth quarter of twenty twenty four. On a positive note, annual absorption has been very strong and is expected to be nearly 40% higher in 2025 compared to 2024 in Elm submarkets, which should help to balance the impact of new deliveries as the year progresses. Turning to operating trends, same store blended lease rate growth averaged 1.3% in the fourth quarter and 1.8% in January for our 2025 same store pool. Same store occupancy averaged 95% during the fourth quarter, up 20 basis points sequentially.

[Tiffany Butcher, Executive VP & COO at Elme Communities]

Retention rates remain above historical levels and our move outs to own remained very low during the fourth quarter at 8.5% as there is limited existing inventory and home ownership remains unaffordable for many middle income renters. On a year to date basis, same store occupancy has trended up slightly, averaging 95.1. We are targeting an average occupancy range of 95% to 95.5% for the year, which reflects a more normalized year in the DMV compared to strong occupancy gains in 2024. We are expecting an improvement in our Atlanta portfolio in the second half of the year as delinquency related occupancy pressure subsides and the supply demand dynamic and imbalance improves. Turning to renovations.

[Tiffany Butcher, Executive VP & COO at Elme Communities]

We completed about 500 full renovations in 2024 at an average cost of $17,000 per unit, achieving an average renovation ROI of approximately 17%. In 2025, we expect to complete another 500 full renovations at similar costs per unit, yielding a targeted 17% ROI. For our renovation program, we are targeting communities that have the greatest potential for outsized rent growth and maintain flexibility to adjust the pace of renovations as market demand shifts. Lastly, I'll speak to our operating initiatives. In 2024, we captured approximately $1,800,000 of additional NOI growth from these initiatives, which is in line with expectations that we communicated at the start of the year.

[Tiffany Butcher, Executive VP & COO at Elme Communities]

In 2025, we expect to capture $1,800,000 of additional cumulative growth, which will mark the achievement of our three year target of $4,250,000 to $4,750,000 announced in early twenty twenty three. Beyond our three year target, we are in the process of rolling out managed Wi Fi and expect to capture $300,000 to $600,000 of additional NOI in 2025 from Phase one of our initiative, which includes seven communities. Looking forward, once Phase one of our managed Wi Fi initiative has been fully integrated into our lease role, which we expect to occur in mid-twenty twenty six, we expect to capture approximately 1,000,000 to 1,500,000.0 of additional NOI per year with further upside from future phases. And with that, I'll turn it over to Steve to cover our 2025 outlook.

[Steven Freishtat, Executive VP & CFO at Elme Communities]

Thanks, Tiffany. Turning to our 2025 guidance and related assumptions. We expect same store multifamily revenue growth to range from 2.1% to 3.6% in 2025. Embedded revenue growth or the growth that has already been captured based on 2024 leasing was about 70 basis points at the start of the year and 80 basis points at the January. The building blocks that add up to the midpoint of our guidance range include approximately 1% of rent growth, driven primarily by our Washington Metro portfolio, 0.7% of growth in fee income from our operational initiatives, approximately 25 basis points of bad debt improvement and approximately 20 basis points of occupancy growth.

[Steven Freishtat, Executive VP & CFO at Elme Communities]

Moving on to expenses. Same store operating expenses are projected to range from 2.75% to 4.25% for the year. Non controllable expenses are projected to grow 2% to 3% and controllable expenses are projected to grow between 45%, which includes technology expenses related to our managed Wi Fi and other ROI initiatives. Watergate six hundred NOI is expected to range from $11,500,000 to $12,250,000 representing a decline of approximately 6% at the midpoint due to an anticipated decline in occupancy over the course of the year and higher utility expenses. We expect occupancy to end the year between 8182%, representing a decline of approximately 3% compared to current occupancy of 84.7%.

[Steven Freishtat, Executive VP & CFO at Elme Communities]

While the sale of Watergate 600 is not included in our guidance, we continue to look to opportunistically monetize the property. Interest expense is expected to range from $37,350,000 to $38,350,000 for the year. In December, we executed the first of two one year extension options on our January term loan, which is now set to expire in January 2026, and we have no other debt maturing before 2028. Our balance sheet remains in very good shape with annualized adjusted net debt to EBITDA of 5.7 times during the fourth quarter, over 60% of our total capacity available on our line of credit and no secured debt. Turning to core FFO, the drivers of our 2025 core FFO per share at the midpoint include $0.04 of growth from our same store multifamily portfolio offset in part by $0.01 decline from Watergate six hundred, zero point zero one dollars decline from higher G and A and $0.05 decline from other items.

[Steven Freishtat, Executive VP & CFO at Elme Communities]

And with that, I'll turn it back to Paul.

[Paul McDermott, President and CEO at Elme Communities]

To wrap it up, our twenty twenty five outlook reflects another good year of performance from our Washington Metro portfolio and improving trends in Atlanta. Across Elm submarkets in the DMV, strong supplydemand dynamics and limited value oriented housing options create a favorable leasing environment. In Atlanta, we anticipate a gradual improvement in market dynamics paving the way for a strong 2026. Before turning to Q and A, we'd like to reiterate that we do not have any additional information or updates to provide at this time regarding the strategic review beyond the information we've already provided. Therefore, we request that you focus your questions on our results, business initiatives and outlook.

[Paul McDermott, President and CEO at Elme Communities]

We appreciate your cooperation. And now operator, I'd like to open it up for questions.

[Operator]

Thank you. At this time, we'll be conducting our question and answer session. You. Thank you. Our first question is coming from Anthony Paolone with JPMorgan.

[Operator]

Your line is live.

[Anthony Paolone, Executive Director at J.P. Morgan]

Great. Thank you. Good morning. I guess my first question revolves around just the potential impact of what's happening with the new administration in your market. You all have been effectively a pure play in that market for a long, long time.

[Anthony Paolone, Executive Director at J.P. Morgan]

And there have been sort of changes in different agencies moving people and doing things of that nature. Like what's been the experience in the past when there is, say, a big change in the government near a property? Like is there a way to put some brackets around how that has affected leasing or rents? Any anecdotes there would be helpful.

[Paul McDermott, President and CEO at Elme Communities]

Tony, it's Paul. Let's go back to and just in terms of regional impacts, I think the last event we probably would have had would have been sequestration and that had a tremendous impact on the industry just in terms of really kind of paralyzing some of the progress, some of the leasing, some of the growth, but I would say we're in a different time now. The federal government probably back then really was probably the central engine that drove our economy. I think now technology has really taken over and we really are seeing still tremendous amount of growth, especially in the Northern Virginia, where the bulk of our residential portfolio in the DMV is located. I think what is what's obviously different about this time is there doesn't there appears to be a macro strategy of addressing government expenses, but it seems a little fractured right now moving forward.

[Paul McDermott, President and CEO at Elme Communities]

So in terms of we look back as I said in my remarks, we look back at the growth in the private sector. We look where the growth is coming from and it's not coming from the federal government and it really hasn't been coming from the federal government for the last decade. So we're very comfortable and Grant can talk about our resident composition, some of the demographics associated with that. But we feel very comfortable about the businesses that are growing here in the private sector and its respective impact on our residential base. Grant, do you want to add any more color to that?

[Grant Montgomery, Vice President - Research at Elme Communities]

Sure. Just speaking generally, just to reiterate what was in the script and is in Slide 11 that we referred to is that, if you look at non DoD federal jobs in the Washington region, our exposure is about 6.2%. And if you drill down to any single agency, we're sub 1% for any single agency. And so these were many times we're talking one, two, three, four, five people, sort of the typical exposure to any single agency, once you get outside the

[Anthony Paolone, Executive Director at J.P. Morgan]

Okay. Thank you for that. And then just my follow-up question, can you give us any update or thoughts on where market cap rates might be for the types of assets typically in your buy box?

[Paul McDermott, President and CEO at Elme Communities]

Tony, again, it's Paul. Just start off and kind of give you some macro observations on what we're seeing in the capital markets. For core deals, we're really seeing buyers today's buyer kind of looking for that 9% to 11% IRR and that's translating into a 4.5% to a 5% cap. For core plus deals, we're seeing ranging in that 4.75% to 5.25%. Again, depending on the type of leverage folks shooting for an 11% to a 13% IRR.

[Paul McDermott, President and CEO at Elme Communities]

And then value add, it more in that 5% to 5.5 space, we've seen it go up to a six or even a touch higher depending on the vintage of the product with those buyers looking for leverage 13 to 15. For our type of product, we think we're in that value add space. And so we feel very comfortable about the strength of our portfolio moving forward. When we look around at the markets right now and the reason why we're optimistic about this year, there's just a tremendous amount of liquidity in the debt markets. The GSEs, both Fannie and Freddie both have $73,000,000,000 in allocations for a total of $146,000,000,000 Definitely seeing a pickup in the bridge market, especially on lease up deals and life companies are back and they're being pretty aggressive on those 50% to 55% LTV deals.

[Paul McDermott, President and CEO at Elme Communities]

A lot of seller, a lot of private equity sales coming to the market. We're seeing a tremendous amount of BOVs being conducted in this region, some merchant builders, but I think the larger PE firms that are looking at maybe opportunistically redeploying other capital and other asset classes and geographies. The other thing I'd note Tony is we're definitely seeing bigger deals are coming back now. I think late $22,000,000 20 3 million dollars and last year particularly a lot of in that $40,000,000 to $75,000,000 space. Even the deals we've seen come out since January 1, a couple of deals over $100,000,000 So people are definitely moving to the aisle and a number of the originators that we talk to really a term they use just about getting out and getting in front of the market.

[Paul McDermott, President and CEO at Elme Communities]

The buying, we've just seen buyers all across the spectrum. And I think our big macro takeaway from this is we're continuing to see a tremendous amount of capital flow into the living sector in general. And so we think that I think the numbers I saw 2024, we saw about 137,000,000,000 being done in transaction volume. This year, I think the numbers people are forecasting are more towards like $150,000,000,000 So another big year ahead. We think there are going to be a lot of recaps coming before some of these liquidations.

[Paul McDermott, President and CEO at Elme Communities]

But I would tell you even going back to our what we feel was a good acquisition of Druid Hills, the discount to replacement costs are shrinking. And that was a key element for us and we think they're going to continue to decline as the year progresses.

[Anthony Paolone, Executive Director at J.P. Morgan]

Okay. Great context. Thank you.

[Operator]

Thank you. Our next question is coming from Jamie Feldman with Wells Fargo. Your line is live.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

Great. Thank you and good morning. Just a couple of follow ups with some of the comments you made on the call. I guess to start, you mentioned your lease rates through the year. Can you talk about your view on seasonality?

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

I mean, it just seems like there's a lot of moving pieces in the DC market this year. Do you think you'll see acceleration into 2Q, 3Q and then drop off? Are you thinking things get better into 4Q? So can you maybe talk through your outlook for new leases and blends?

[Tiffany Butcher, Executive VP & COO at Elme Communities]

Yes, Jamie. Absolutely, Jamie. This is Tiffany Butcher. Happy to walk through that. I would say, if you are looking at just the Washington D.

[Tiffany Butcher, Executive VP & COO at Elme Communities]

C. Portfolio, we are expecting another normal year of seasonal growth in the Washington D. C. Area with obviously peak leasing occurring during our spring and summer leasing season. In Atlanta, we expect to see gradual improvement throughout the year as we continue to see improvement in the supply demand dynamics in that market.

[Tiffany Butcher, Executive VP & COO at Elme Communities]

If you want to look at the portfolio as a whole, we're projecting our newbie straight growth to be between a decline of 2% and a positive 0.5% for the full year. We expect renewal lease rate growth of between 3% to 5.25%. Renewal lease rate growth continues to be a strong driver of growth for us. And then blended lease rate growth, we're projecting between 1.253% for the portfolio overall.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

Okay. Thank you for that. And then I guess just thinking about your outlook for the year, I mean, are you on hold now trying to sell assets, move into other markets, Watergate, is that on hold? Or are you guys just going to kind of continue with the plan you have and just the strategic review is more of a sideshow?

[Paul McDermott, President and CEO at Elme Communities]

Well, Jamie, I mean, we put out our 2025 guidance, so all of the underlying assumptions are in there. And then as far as our operations go, we are in terms of you mentioned expansion markets, I think what we are most focused on is being is getting the best performance we can out of the assets that we currently own right now. And Tiffany and her team are doing an outstanding job in terms of the new initiatives, the renovations, other capital allocations that we think are going to be accretive for our shareholders, as we we want to keep our eye on the ball day to day, and all of the operations that we have throughout the company as we undergo this strategic review process.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

Okay. And then I guess thinking specifically about Watergate, I think we're getting a little more optimistic you get some leasing done there. I think the Kennedy Center was out there as a potential option. Obviously, a lot of change going on there. Can you update us on conversations around the Kennedy Center specifically or just your leasing prospects there?

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

And then I know you include a $0.01 drag in guidance for operating that for the full year. If you were to sell it, do you think that takes your numbers up or down further?

[Paul McDermott, President and CEO at Elme Communities]

Well, I think just right now, I mean, we have good wealth on the property, and I think there's a

[Paul McDermott, President and CEO at Elme Communities]

lot

[Paul McDermott, President and CEO at Elme Communities]

of good activity. We've had in place renewals that took place in 2024. As I mentioned, I believe on the last call, we are in discussions with our largest tenant that is a '27 exploration and we feel good about the prospects there. And we're also in discussions with some of the smaller tenants for renewal in place and obviously better for us, better from a TI standpoint, from a free rent standpoint. So collectively, I think overall, we're feeling good.

[Paul McDermott, President and CEO at Elme Communities]

Concurrently though, Tony, I mean, excuse me, Jamie, as we've said in the past, we will be opportunistic as we look at the capital markets. I would say not only has the DC market improved in terms of the type of activity that we're seeing in the marketplace from a leasing standpoint with tenants, the thaw seemed to take place in 2024. And so we're definitely seeing more activity now. I think even more, another arrow in the quiver for a buyer is the liquidity in the debt markets and we're actually seeing CMBS deals done on office product downtown. So we feel like the environment is coming towards us.

[Paul McDermott, President and CEO at Elme Communities]

We feel like we have some headwinds now instead of some tailwinds instead of headwinds. And so we're going to try to be opportunistic, but we've got a job to do at Watergate and that is to get it to the highest leasing percentage we can get and we're going to continue on that path.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

Okay. But I guess, so if you were to sell it, you think that's accretive or dilutive to earnings?

[Paul McDermott, President and CEO at Elme Communities]

I'm not going to speculate on the type of pricing that we're going to get, Jamie. Right now, we haven't really tested the market. So, we'll both move forward and hopefully we can have something positive to say in future calls.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

Okay. And then I mean I know you said not to talk about the strategic review, but I guess this would have been a question even before you announced this. Can you talk about the frictional costs if you were to sell the company, whether there's taxes that people need to factor into NAVs or comp or just any other pieces because I think the market naturally goes to like here's the NAV, but then there's always a drag on that. Can you just talk through some of those moving pieces?

[Paul McDermott, President and CEO at Elme Communities]

Jamie, what I can say first off, thank you for the thoughtful question. What I can say is the Board and the management team are committed to acting in the best interest of the company and its shareholders. There's no timetable or deadline set for the completion of this board led strategic review. We'll provide an update if and when appropriate, but beyond the information in our release, we don't have any information to share or updates beyond that to provide at this time.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

Okay. So you can't get into the frictional costs?

[Paul McDermott, President and CEO at Elme Communities]

That's correct, Jamie.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

Got it. Okay. And then just final question then. You talked about your composition of jobs in the portfolio. I think you said for two thirds.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

If you were to just take a guess at the remaining one third, would the numbers be pretty similar? Or is there something different we should be thinking about in terms of the employers?

[Grant Montgomery, Vice President - Research at Elme Communities]

Jamie, this is Grant. I think you could extrapolate that out and say the composition would be similar.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

Okay. All right, great. Thanks and good luck with everything.

[Paul McDermott, President and CEO at Elme Communities]

Thank you, Jamie.

[Operator]

Thank you. Our next question is coming from John Pawlowski with Green Street. Your line is live.

[John Pawlowski, Managing Director at Green Street Advisors, LLC]

Good morning. Thanks for the time. Just a question with Tiffany. I mean, your points are well taken on why you see more insulated from potential shocks of federal employment. I'm just curious like on the ground and the considerable uncertainty, forget job losses and potential job losses, but the uncertainty swirling around the tenant base.

[John Pawlowski, Managing Director at Green Street Advisors, LLC]

Pick your favorite leading indicator of foot traffic, closing rates on tours. Are you seeing any kind of leading indicators to suggest that the uncertainty around employment is leading to a pause in leasing decisions and tenants in the market?

[Tiffany Butcher, Executive VP & COO at Elme Communities]

John, thanks for the question. Year to date, we are seeing very normal seasonal leasing trends. We have not seen any atypical impacts on traffic or leasing across any of our key metrics. The outlook overall for the DMV in terms of supply demand dynamics remains incredibly strong. And we think that our mid market rent positions us well as Class B demand trends tend to be more consistent relative to other asset classes.

[Tiffany Butcher, Executive VP & COO at Elme Communities]

We'll obviously, we continue to monitor all of the new developments very closely. We'll have to see how it plays out over the next few months. But based on what we're seeing on the ground today and our Class B position, we think we are positioned well to have another good year in the DMV.

[John Pawlowski, Managing Director at Green Street Advisors, LLC]

Okay. And then last one for me. The Atlanta same store, the sequential growth rate was quite high. I know a few properties can really move the needle, but was this a function of bad debt improvement and volatility and bad debt? I think there was about 6% sequential growth in Atlanta this quarter.

[John Pawlowski, Managing Director at Green Street Advisors, LLC]

Any color there would be helpful.

[Steven Freishtat, Executive VP & CFO at Elme Communities]

Yes, John, this is Steve. And you're right for about half of it. So we had 6% sequentially

[Steven Freishtat, Executive VP & CFO at Elme Communities]

and about half of it was an improvement in bad debt that we saw in the quarter in Atlanta. The other portion of it was a business interruption insurance proceeds from a property down there that had a fire earlier in 2024.

[John Pawlowski, Managing Director at Green Street Advisors, LLC]

Okay. Thank you for the time.

[Operator]

Thank

[Operator]

you. Our next question is coming from Cole Bardo with Wolfe Research. Your line is live.

[Cole Bardawill, Equity Research Senior Associate at Wolfe Research, LLC]

Hey guys, thank you very much for the time. I just had one question on occupancy in D. C. You mentioned it was going to be more of a normalized year. Are you expecting any occupancy erosion this year in 2025?

[Cole Bardawill, Equity Research Senior Associate at Wolfe Research, LLC]

Or are you kind of expecting it to hold relatively flat?

[Tiffany Butcher, Executive VP & COO at Elme Communities]

Yes. Obviously, we had a very strong year of occupancy in the D and V last year being in the 96% range and we expect the D and V to remain in that 96% range next year. And then we obviously are expecting a gradual improvement in occupancy in Atlanta.

[Cole Bardawill, Equity Research Senior Associate at Wolfe Research, LLC]

Okay, got it. And then just one more, because I noticed in DC, Maryland, you had some pretty high property operating expenses this quarter. I was just curious, are there any big drivers for that?

[Steven Freishtat, Executive VP & CFO at Elme Communities]

Yes. So, Cole, in DC in the fourth quarter, so

[Steven Freishtat, Executive VP & CFO at Elme Communities]

on the property for non controllables that we saw in D. C. And it's on the utility side is we saw a couple of true ups at some properties that hit in the fourth quarter and really drove that in the DMV.

[Cole Bardawill, Equity Research Senior Associate at Wolfe Research, LLC]

Okay, awesome. Thank you.

[Operator]

Thank you. As we have no further questions in line at this time, I will hand the call back over to Mr. McDermott for any closing remarks.

[Paul McDermott, President and CEO at Elme Communities]

Yes. We'd like to thank everyone for their time today and we're looking forward to seeing many of you and talking to you in person over the coming weeks. Thank you everyone.

[Operator]

Thank you. This does conclude today's conference and you may disconnect your lines at this time and we thank you for your participation.

Participants

Executives

• Amy Hopkins, Vice President, Investor Relations
• Paul McDermott, President and CEO
• Tiffany Butcher, Executive VP & COO
• Steven Freishtat, Executive VP & CFO
• Grant Montgomery, Vice President - Research

Analysts

• Anthony Paolone, Executive Director at J.P. Morgan
• Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo
• John Pawlowski, Managing Director at Green Street Advisors, LLC
• Cole Bardawill, Equity Research Senior Associate at Wolfe Research, LLC