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A month after Denver-based REIT Aimco announced it was exploring a potential sale, Bethesda, Maryland-based REIT Elme Communities has “initiated a formal evaluation of strategic alternatives to maximize shareholder value,” according to its fourth-quarter earning release earlier this month.
Elme’s board of trustees is working with independent financial and legal advisors to assess all options. However, there is no assurance that the process will result in the REIT pursuing a transaction or any other strategic outcome.
Over the past several years, Elme, which was known as WashREIT until 2022, has expanded its presence outside the Washington, D.C., metro area by adding Atlanta properties.
“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,” Elme President and CEO Paul T. McDermott said during the REIT’s Q4 earnings call earlier this month.
Despite Elme’s moves to improve its portfolio, its stock continues to trade at a discount to values in the private market, which is forcing the REIT to look at alternatives, according to McDermott.
Analyst reaction
In January, Michael Lewis, an analyst for Truist, identified Elme as one of the most likely merger-and-acquisition candidates in the apartment industry. “We agree with management’s statement that it has transformed the company over the past several years and yet the stock continues to trade at a material discount to private market values,” he wrote.
Lewis estimated that Eme’s 7.2% implied cap rate is well below private market values, where cap rates would be below 6%. Others agree.
“We have for some time highlighted the idea that Elme’s stock trades at a meaningful discount to underlying asset value, especially for a small cap name in a segment of CRE that has significant private market liquidity,” wrote Anthony Paolone, executive director at JPMorgan, in a research note shared with Multifamily Dive.
With a simple debt stack, Elme should be relatively easy to recast as a private company, giving it a high sale event probability, according to Paolone. However, there is one hurdle.
“What has given us some pause of late is the Trump administration and its efforts to reform the government/DOGE,” Paolone wrote. “This could create some uncertainty around demand and pricing power, resulting in some natural buyers pausing.”