Bethesda-Based REIT Exploring Potential Sale
Elme Communities, the company formerly known as WashREIT, is looking into a potential sale as its shares have traded below what executives believe the company is worth.
The Bethesda-based REIT, which owns about 9,400 units in the D.C. area and Atlanta, sold most of its office portfolio in 2021 as it shifted to become a multifamily-focused firm. It rebranded to Elme Communities in October 2022.
The company revealed in its Thursday evening earnings release it has initiated a “formal evaluation of strategic alternatives” to maximize shareholder value. Elme has retained Goldman Sachs and JLL as financial advisors and legal counsel.
“Shares of Elme continue 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,” Elme President and CEO Paul McDermott said on its earnings call Friday.
The company incurred a net loss of $13.1M in 2024, much lower than the $53M loss in 2023. In the fourth quarter, it reported a net loss of $3M, down slightly from its $3.1M loss during the same period in 2023.
Its average occupancy was 95% in the fourth quarter, up 0.1% year-over-year.
The REIT’s one remaining office property is 600 Watergate. The 300K SF property next to the Kennedy Center is 84.7% leased, and that is expected to fall to between 81% and 82% by the end of the year.
Its largest tenant’s lease expires in 2027, but McDermott said the company “feel[s] good about the prospects there.”
“While the sale of 600 Watergate is not included in our guidance, we continue to look to opportunistically monetize the property,” Elme Communities Chief Financial Officer Steve Price said on the call.
Elme’s stock price was up 11% as of 1 p.m. EST Friday to just over $17 per share.
A report from JPMorgan analysts released after the earnings call said it calculates the underlying value of Elme Communities' assets is in the $19 to $21 per share range, depending on the sale price it could get for the Watergate property. This difference between the share price and its asset value makes it an attractive candidate for a take-private sale.
“Keep in mind that ELME’s debt stack is also simple and should be relatively easy to be recast in a go-private,” the report said. “This is the basic analysis we have done in the past to conclude that ELME should be considered to have high event expectancy.”
The JPMorgan analysts highlighted one potential concern that could arise in a sale process: the impact of President Donald Trump's cuts to the federal workforce on apartment demand in Elme's D.C.-area portfolio.
“This could create some uncertainty around demand and pricing power, resulting in some natural buyers pausing,” the report said.
Elme executives disclosed the REIT's potential exposure to federal cuts on the earnings call. They said 75% of their assets are in the D.C. metro area, and 6.2% of those residents have non-Department of Defense federal agency jobs, while another 4% are federal contractors.
But McDermott said the REIT hasn't yet seen an impact to its portfolio from the cuts, and the private sector has provided the bulk of multifamily demand growth in the region for years.
“We feel very comfortable about the businesses that are growing here in the private sector, and its respective impact on our residential base,” he said.
