Elme Communities

Greetings. Welcome to Elm Community's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Amy Hopkins, Vice President of Investor Relations. You may begin.

Good morning, and thank you for joining our first 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 also be available on our webcast replay. Before we begin our prepared remarks, I would like to remind everyone that this conference call contains 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. We refer to certain 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 investor's page of our website. And with that, I'll turn the call over to our President and CEO, Paul McDermott.

Thanks, Amy, and good morning, everyone. I'm joined today by Tiffany Butcher, our Chief Operating Officer, Steve Freistadt, our Chief Financial Officer, and Grant Montgomery, our head of research. Tiffany will speak to our operating trends and initiatives, and Steve will cover our balance sheet and guidance points. Grant is here to answer market-level questions during Q&A. I'll start with a high-level overview of the trends we are seeing across our portfolio. Our Washington Metro portfolio is positioned very well heading into our busiest leasing months. On the demand side, We see solid trends, and our communities are delivering the stable performance that we would expect from our mid-market strategy. We have seen the expected uptick in activity into the spring leasing season, and market rents for the Washington metro area continue to trend above the U.S. on average. This is shaping up to be a very good year for the Washington metro, which comprised roughly 85% of our multifamily NOI in the first quarter and our significant presence in Northern Virginia, the growth engine for the region, further enhances our positive outlook. In Atlanta, while absorption is improving, our fundamentals reflect the impact of elevated supply. We knew that we were going to experience occupancy pressure in the first quarter, and we are pleased to see positive momentum in April. As we enter the spring and summer leasing seasons, We believe that we have the tools in place to drive demand and improve our profitability, which Tiffany will discuss in more detail during her prepared remarks. We continue to monitor the supply and demand dynamics within our markets and submarkets, and our research points to positive trends in both the Washington Metro and Atlanta. In the Washington Metro, where supply has been more moderate and demand has been solid, Our submarkets overall are at a supply-demand equilibrium with our net inventory ratio at 2%, in line with the long-term average. Subsequently, the region, our submarkets, and our portfolio are experiencing solid rent growth, and the Washington metro market is currently one of the best-positioned markets in terms of supply-demand balance nationally, according to RealPage. While Atlanta has had an unprecedented level of supply, market demand is improving. Annual absorption increased by almost three times in Q1 2024 compared to the prior year period, limiting the accumulation of supply coming to the market. In fact, the supply overhang is in a better position as of Q1 2024 versus Q1 2023 due to market level absorption being 25% higher, and Elm's submarket level absorption being 60% higher than pre-pandemic period. Furthermore, over 50% of Elm's Atlanta homes are in submarkets that should reach peak annual supply by mid-year, and 80% should reach the peak by Q3 of 2024. While additional completions are scheduled in our operating markets this year, units under construction and new starts have declined significantly, pointing to better conditions in late 24 and into 2025. Units under construction are down 20% in the Washington metro since reaching their peak and nearly 20% in Atlanta. Annual unit starts are down even more significantly declining by almost 50% in both Atlanta and the Washington Metro over the past year. Starts in Atlanta are back to their 10-year average, while in Washington Metro, starts are nearly 40% below the 10-year average. Overall, market-level data indicates that Washington Metro is very well positioned from a supply perspective, and while Atlanta remains out of supply-demand equilibrium, absorption remains strong, especially in Elm submarkets, and the supply overhang is improving. As we progress through 2024, we anticipate job growth and continued in-migration to drive strong performance in the Washington metro and a gradual normalization of conditions in Atlanta. Turning to resident credit, Employment growth is strong in the sectors that drive demand for our communities and our residents' financial status remains solid. The median rent-to-income ratio across our portfolio for new leases was 24 percent, reaffirming our belief that our rental rates remain affordable for our new residents. And with that, I'll turn it over to Tiffany to discuss our operating trends and growth initiatives.