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Item 1. Financial Statements

2022-10-28 compared with 2022-07-29 · 122 added, 91 removed, 458 unchanged (32% of the section changed)

1 unchanged sentence

The information furnished in the accompanying unaudited Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Equity and Consolidated Statements of Cash Flows reflects all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods.

The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes for the three years ended December 31, 2021 included in Washington Real Estate Investment Trust’s 2021 Annual Report on Form 10-K filed on February 18, 2022.

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes for the three years ended December 31, 2021 included in our 2021 Annual Report on Form 10-K filed on February 18, 2022.

ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE DATA )

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Land $ 373,171 $ 322,623

11 unchanged sentences

Notes payable, net $ 497,247 $ 496,946

Mortgage notes payable, net 71,576 —

Line of credit 43,000 —

Accounts payable and other liabilities 36,219 40,585

10 unchanged sentences

150,000 and 100,000 shares authorized;

87,392 and 86,261 shares issued and outstanding, as of June 30, 2022 and December 31, 2021, respectively

87,504 and 86,261 shares issued and outstanding, as of September 30, 2022 and December 31, 2021, respectively

Additional paid in capital 1,728,840 1,697,477

6 unchanged sentences

See accompanying notes to the consolidated financial statements.

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

ELME COMMUNITIES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

7 unchanged sentences

53,911 44,121 158,273 126,804

Real estate operating loss ( 2,718 ) ( 2,341 ) ( 5,178 ) ( 779 )

Real estate operating gain (loss) 692 ( 1,622 ) ( 4,486 ) ( 2,401 )

Other income (expense)

1 unchanged sentence

Loss on interest rate derivatives — ( 106 ) — ( 5,866 )

Loss on extinguishment of debt ( 4,917 ) ( 12,727 ) ( 4,917 ) ( 12,727 )

Other income 68 231 454 3,037

3 unchanged sentences

Income from operations of properties sold or held for sale — 7,208 — 23,083

Gain on sale of real estate, net — 46,441 — 46,441

Income from discontinued operations — 53,649 — 69,524

Net loss $ ( 8,874 ) $ ( 6,992 ) $ ( 16,598 ) $ ( 8,139 )

Net (loss) income $ ( 10,739 ) $ 31,319 $ ( 27,337 ) $ 23,180

Basic net (loss) income per common share:

1 unchanged sentence

Discontinued operations — 0.63 — 0.82

Basic net loss per common share $ ( 0.10 ) $ ( 0.08 ) $ ( 0.19 ) $ ( 0.10 )

Basic net (loss) income per common share $ ( 0.12 ) $ 0.37 $ ( 0.32 ) $ 0.27

Diluted net (loss) income per common share:

1 unchanged sentence

Discontinued operations — 0.63 — 0.82

Diluted net loss per common share $ ( 0.10 ) $ ( 0.08 ) $ ( 0.19 ) $ ( 0.10 )

Diluted net (loss) income per common share $ ( 0.12 ) $ 0.37 $ ( 0.32 ) $ 0.27

Weighted average shares outstanding – basic 87,453 84,496 87,354 84,457

1 unchanged sentence

See accompanying notes to the consolidated financial statements.

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

ELME COMMUNITIES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Net loss $ ( 8,874 ) $ ( 6,992 ) $ ( 16,598 ) $ ( 8,139 )

Net (loss) income $ ( 10,739 ) $ 31,319 $ ( 27,337 ) $ 23,180

Other comprehensive income:

3 unchanged sentences

See accompanying notes to the consolidated financial statements.

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

4 unchanged sentences

Net loss — — — ( 27,337 ) — ( 27,337 ) — ( 27,337 )

Unrealized loss on interest rate hedges — — — — 2,842 2,842 — 2,842

Unrealized gain on interest rate hedges — — — — 3,284 3,284 — 3,284

Amortization of swap settlements — — — — 1,529 1,529 — 1,529

5 unchanged sentences

Share grants, net of forfeitures and tax withholdings 179 2 3,745 — — 3,747 — 3,747

Balance, June 30, 2022 87,392 $ 874 $ 1,727,031 $ ( 408,882 ) $ ( 15,229 ) $ 1,303,794 $ 302 $ 1,304,096

Balance, September 30, 2022 87,504 $ 875 $ 1,728,840 $ ( 434,539 ) $ ( 14,278 ) $ 1,280,898 $ 301 $ 1,281,199

Shares Issued and Out-standing Shares of Beneficial Interest at Par Value Additional Paid in Capital Distributions in Excess of

1 unchanged sentence

Balance, December 31, 2020 84,409 $ 844 $ 1,649,366 $ ( 298,860 ) $ ( 30,563 ) $ 1,320,787 $ 322 $ 1,321,109

Net loss — — — ( 8,139 ) — ( 8,139 ) — ( 8,139 )

Unrealized loss on interest rate hedges — — — — 2,584 2,584 — 2,584

Net income — — — 23,180 — 23,180 — 23,180

Unrealized gain on interest rate hedges — — — — 2,805 2,805 — 2,805

Loss on interest rate derivatives — — — — 5,760 5,760 — 5,760

6 unchanged sentences

Share grants, net of forfeitures and tax withholdings 130 2 5,520 — — 5,522 — 5,522

Balance, June 30, 2021 84,590 $ 846 $ 1,654,409 $ ( 357,934 ) $ ( 21,200 ) $ 1,276,121 $ 314 $ 1,276,435

Balance, September 30, 2021 84,628 $ 846 $ 1,656,821 $ ( 341,052 ) $ ( 20,468 ) $ 1,296,147 $ 309 $ 1,296,456

See accompanying notes to the consolidated financial statements.

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

2 unchanged sentences

Net Income Accumulated Other Comprehensive Loss Total Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity

Balance, March 31, 2022 87,414 $ 874 $ 1,725,828 $ ( 385,108 ) $ ( 16,656 ) $ 1,324,938 $ 305 $ 1,325,243

Balance, June 30, 2022 87,392 $ 874 $ 1,727,031 $ ( 408,882 ) $ ( 15,229 ) $ 1,303,794 $ 302 $ 1,304,096

Net loss — — — ( 10,739 ) — ( 10,739 ) — ( 10,739 )

Unrealized loss on interest rate hedges — — — — 917 917 — 917

Unrealized gain on interest rate hedges — — — — 442 442 — 442

Amortization of swap settlements — — — — 509 509 — 509

4 unchanged sentences

Share grants, net of share grant amortization and forfeitures 100 1 1,550 — — 1,551 — 1,551

Balance, June 30, 2022 87,392 $ 874 $ 1,727,031 $ ( 408,882 ) $ ( 15,229 ) $ 1,303,794 $ 302 $ 1,304,096

Balance, September 30, 2022 87,504 $ 875 $ 1,728,840 $ ( 434,539 ) $ ( 14,278 ) $ 1,280,898 $ 301 $ 1,281,199

Shares Issued and Out-standing Shares of Beneficial Interest at Par Value Additional Paid in Capital Distributions in Excess of

Net Income Accumulated Other Comprehensive Loss Total Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity

Balance, March 31, 2021 84,564 $ 846 $ 1,651,680 $ ( 325,469 ) $ ( 28,473 ) $ 1,298,584 $ 318 $ 1,298,902

Net loss — — — ( 6,992 ) — ( 6,992 ) — ( 6,992 )

Unrealized loss on interest rate hedges — — — — 1,004 1,004 — 1,004

Loss on interest rate derivatives — — — — 5,760 5,760 — 5,760

Balance, June 30, 2021 84,590 $ 846 $ 1,654,409 $ ( 357,934 ) $ ( 21,200 ) $ 1,276,121 $ 314 $ 1,276,435

Net income — — — 31,319 — 31,319 — 31,319

Unrealized gain on interest rate hedges — — — — 221 221 — 221

Amortization of swap settlements — — — — 511 511 — 511

4 unchanged sentences

Share grants, net of forfeitures and tax withholdings 18 — 1,953 — — 1,953 — 1,953

Balance, June 30, 2021 84,590 $ 846 $ 1,654,409 $ ( 357,934 ) $ ( 21,200 ) $ 1,276,121 $ 314 $ 1,276,435

Balance, September 30, 2021 84,628 $ 846 $ 1,656,821 $ ( 341,052 ) $ ( 20,468 ) $ 1,296,147 $ 309 $ 1,296,456

See accompanying notes to the consolidated financial statements.

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

3 unchanged sentences

Credit losses on lease related receivables 1,816 1,631

(Gain) loss on sale of real estate, net — ( 46,441 )

Share-based compensation expense 6,157 6,478

1 unchanged sentence

Loss on interest rate derivatives — 5,866

Loss (gain) on extinguishment of debt 4,917 12,727

Changes in operating other assets ( 952 ) ( 4,720 )

3 unchanged sentences

Real estate acquisitions, net ( 204,433 ) ( 47,757 )

Net cash received for sale of real estate — 897,783

Capital improvements to real estate ( 19,046 ) ( 18,649 )

Development in progress ( 671 ) ( 8,099 )

Insurance proceeds 2,224 —

Non-real estate capital improvements ( 1,322 ) ( 37 )

Net cash used in investing activities ( 217,129 ) ( 18,195 )

Net cash (used in) provided by investing activities ( 223,248 ) 823,241

Cash flows from financing activities

1 unchanged sentence

Dividends paid ( 44,440 ) ( 76,292 )

Repayments of mortgage notes payable ( 76,598 ) —

Repayments of unsecured notes payable, including penalties for early extinguishment — ( 311,894 )

Repayments of unsecured term loan debt — ( 150,000 )

Settlement of interest rate derivatives — ( 5,866 )

Payment of financing costs ( 39 ) ( 4,828 )

7 unchanged sentences

Cash, cash equivalents and restricted cash at end of period $ 9,873 $ 308,402

ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Nine Months Ended September 30,

Supplemental disclosure of cash flow information:

2 unchanged sentences

Dividend payable 14,919 14,440

Mortgage notes payable assumed in connection with the acquisition of real estate 76,554 —

Reconciliation of cash, cash equivalents and restricted cash:

3 unchanged sentences

See accompanying notes to the consolidated financial statements.

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

ELME COMMUNITIES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

September 30, 2022

NATURE OF BUSINESS

Washington Real Estate Investment Trust (“WashREIT”), a Maryland real estate investment trust, is a self-administered equity real estate investment trust, successor to a trust organized in 1960.

Our business primarily consists of the ownership of apartment communities in the greater Washington, DC metro and Southeastern regions.

Within these notes to the financial statements, we refer to the three months ended June 30, 2022 and June 30, 2021 as the “2022 Quarter” and the “2021 Quarter,” respectively, and the six months ended June 30, 2022 and June 30, 2021 as the “2022 Period” and the “2021 Period,” respectively.

Elme Communities, a Maryland real estate investment trust, is a self-administered equity real estate investment trust, successor to a trust organized in 1960.

In October 2022, the Company changed its name from Washington Real Estate Investment Trust to Elme Communities to reflect the Company’s continued transition into a focused multifamily company, and subsequent geographic expansion into Sunbelt markets.

On October 20, 2022, the Company’s ticker symbol on the New York Stock Exchange changed from “WRE” to “ELME.” Our business primarily consists of the ownership of apartment communities in the greater Washington, DC metro and Sunbelt regions.

Within these notes to the financial statements, we refer to the three months ended September 30, 2022 and September 30, 2021 as the “2022 Quarter” and the “2021 Quarter,” respectively, and the nine months ended September 30, 2022 and September 30, 2021 as the “2022 Period” and the “2021 Period,” respectively.

Federal Income Taxes

4 unchanged sentences

Our TRS is subject to corporate federal and state income tax on its taxable income at regular statutory rates.

As of both June 30, 2022 and December 31, 2021, our TRS had a deferred tax asset of $ 1.4 million that was fully reserved.

As of both September 30, 2022 and December 31, 2021, our TRS had a deferred tax asset of $ 1.4 million that was fully reserved.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS

2 unchanged sentences

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements include the consolidated accounts of WashREIT, our majority-owned subsidiaries and entities in which WashREIT has a controlling interest.

The accompanying unaudited consolidated financial statements include the consolidated accounts of Elme Communities, our majority-owned subsidiaries and entities in which Elme Communities has a controlling interest.

All intercompany balances and transactions have been eliminated in consolidation.

18 unchanged sentences

Our borrowing rate is computed based on observable borrowing rates taking into consideration our credit quality and adjusting to a secured borrowing rate for similar assets and term.

As of June 30, 2022, our balance sheet included $ 3.4 million in right-of-use assets and liabilities, net of amortization.

As of September 30, 2022, our balance sheet included $ 1.1 million in a right-of-use asset and liability, net of amortization.

During the 2022 Quarter, we remeasured the the right-of-use asset and liability due to a decrease in the estimated term of our corporate office operating lease, resulting in a $ 2.0 million decrease in both the asset and the liability.

Lease expense for the operating lease is recognized on a straight-line basis over the expected lease term and is included in General and administrative expense on the consolidated statements of operations.

15 unchanged sentences

______________________________

(1) As of June 30, 2022.

(1) As of September 30, 2022.

The results of operations from the acquired operating properties are included in the condensed consolidated statements of operations as of their acquisition date and were as follows (in thousands):

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

Real estate rental revenue $ 4,897 $ 9,623

14 unchanged sentences

Total carrying amounts recorded $ 207,160

The weighted remaining average life for the absorption costs is four months .

The weighted remaining average life for the absorption costs is two months .

The difference in the total acquisition cost of $ 283.7 million for the 2022 acquisitions and the cash paid for the acquisitions per the consolidated statements of cash flows of $ 204.4 million is due to the assumption of two mortgage notes secured by Marietta Crossing and Alder Park for an aggregate outstanding balance of $ 76.6 million and credits received at settlement totaling $ 2.8 million.

In September 2022, we extinguished the liabilities associated with the two mortgage notes though defeasance arrangements.

Development/Redevelopment

We have properties under development/redevelopment and held for current or future development.

As of June 30, 2022, we have invested $ 30.4 million, including the cost of acquired land, in a residential development adjacent to Riverside Apartments.

During the 2022 Quarter, we paused development activities at the aforementioned property and ceased associated capitalization of interest on spending and real estate taxes.

However, we continue to capitalize qualifying costs on several other projects with minor development activity necessary to ready each project for its intended use.

As of September 30, 2022, we have invested $ 30.4 million, including the cost of acquired land, in a residential development adjacent to Riverside Apartments.

During the second quarter of 2022, we paused development activities at the aforementioned property and ceased associated capitalization of interest on spending and real estate taxes.

However, we continue to capitalize qualifying costs on

several other projects with minor development activity necessary to ready each project for its intended use.

Properties Sold and Held for Sale

18 unchanged sentences

The dispositions of the Office Portfolio and the Retail Portfolio represent a strategic shift that had a major effect on our financial results and we have accordingly reported the Office Portfolio and Retail Portfolio as discontinued operations.

As of June 30, 2022, we assessed our properties, including assets held for development, for impairment and did no t recognize any impairment charges during the 2022 Period.

We applied reasonable estimates and judgments in evaluating each of the properties as of June 30, 2022.

As of September 30, 2022, we assessed our properties, including assets held for development, for impairment and did no t recognize any impairment charges during the 2022 Period.

We applied reasonable estimates and judgments in evaluating each of the properties as of September 30, 2022.

Should external or internal circumstances change requiring the need to shorten holding periods or adjust future estimated cash flows from our properties, we could be required to record impairment charges in the future.

1 unchanged sentence

The results of the Office Portfolio and Retail Portfolio are classified as discontinued operations and are summarized as follows (amounts in thousands, except for share data):

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Real estate rental revenue $ 10,932 $ 70,519

3 unchanged sentences

Depreciation and amortization — ( 22,904 )

Gain on sale of real estate, net 46,441 46,441

Income from discontinued operations $ 53,649 $ 69,524

7 unchanged sentences

The Credit Agreement has an accordion feature that allows us to increase the aggregate facility to $ 1.5 billion, subject to the lenders’ agreement to provide additional revolving loan commitments or term loans.

The Revolving Credit Facility bears interest at a rate of either one month LIBOR plus a margin ranging from 0.70 % to 1.40 % or the base rate plus a margin ranging from 0.0 % to 0.40 % (in each case depending upon WashREIT’s credit rating).

The base rate is the highest of the administrative agent’s prime rate, the federal funds rate plus 0.50 % and the LIBOR market index rate plus 1.0 %.

In addition, the Revolving Credit Facility requires the payment of a facility fee ranging from 0.10 % to 0.30 % (depending on WashREIT’s credit rating) on the $ 700.0 million committed revolving loan capacity, without regard to usage.

As of June 30, 2022, the interest rate on the Revolving Credit Facility is one month LIBOR plus 1.79 %, the one month LIBOR is 0.85 % and the facility fee is 0.20 %.

In addition, the Revolving Credit Facility requires the payment of a facility fee ranging from 0.10 % to 0.30 % (depending on Elme Communities’ credit rating) on the $ 700.0 million committed revolving loan capacity, without regard to usage.

As of September 30, 2022, the interest rate on the Revolving Credit Facility is one month LIBOR plus 0.85 %, the one month LIBOR is 3.14 % and the facility fee is 0.20 %.

All outstanding advances for the Revolving Credit Facility are due and payable upon maturity in August 2025, unless extended pursuant to one or both of the two six-month extension options.

1 unchanged sentence

The 2018 Term Loan increased and replaced the $ 150.0 million unsecured term loan, initially entered into on July 22, 2016 (“2016 Term Loan”), that was scheduled to mature in July 2023.

The 2018 Term Loan is scheduled to mature in July 2023 and bears interest at a rate of either one month LIBOR plus a margin ranging from 0.85 % to 1.75 % or the base rate plus a margin ranging from 0.0 % to 0.75 % (in each case depending upon WashREIT’s credit rating).

We used the $ 100.0 million of additional proceeds from the 2018 Term Loan primarily to repay outstanding borrowings on the Revolving Credit Facility.

1 unchanged sentence

We currently expect to hold the remaining $ 100.0 million portion of the 2018 Term Loan until maturity.

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at June 30, 2022 was as follows (in thousands):

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at September 30, 2022 was as follows (in thousands):

Committed capacity $ 700,000

1 unchanged sentence

Unused and available $ 657,000

There were no borrowings or repayments on the Revolving Credit Facility during the 2022 Period.

In the first and second quarters of 2022, there were no borrowings or repayments on the Revolving Credit Facility.

We executed borrowings and repayments on the Revolving Credit Facility during the 2022 Quarter as follows (in thousands):

Balance at June 30, 2022 $ —

Borrowings 65,000

Repayments ( 22,000 )

Balance at September 30, 2022 $ 43,000

MORTGAGE NOTES PAYABLE

9 unchanged sentences

Principal and interest are payable monthly until May 1, 2030, at which time all unpaid principal and interest are payable in full.

In September 2022, we extinguished the liabilities associated with both of the mortgage notes through defeasance arrangements, recognizing aggregate losses on extinguishment of debt of $ 4.9 million.

DERIVATIVE INSTRUMENTS

5 unchanged sentences

Hedge ineffectiveness of our cash flow hedges is recorded in earnings.

The fair values of the interest rate swap as of June 30, 2022 and December 31, 2021, were as follows (in thousands):

The fair values of the interest rate swap as of September 30, 2022 and December 31, 2021, were as follows (in thousands):

Derivative Assets (Liabilities)

Derivative Instrument Aggregate Notional Amount Effective Date Maturity Date June 30, 2022 December 31, 2021

Derivative Instrument Aggregate Notional Amount Effective Date Maturity Date September 30, 2022 December 31, 2021

Interest rate swap $ 100,000 March 31, 2017 July 21, 2023 $ 2,463 $ ( 821 )

1 unchanged sentence

The net unrealized gains or losses on the effective swaps were recognized in Other comprehensive income (loss), as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

1 unchanged sentence

Amounts reported in Accumulated other comprehensive loss related to effective cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate debt.

The gains or losses reclassified from Accumulated other comprehensive loss into interest expense for the three and six months ended June 30, 2022 and 2021, were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

The gains or losses reclassified from Accumulated other comprehensive loss into interest expense for the three and nine months ended September 30, 2022 and 2021, were as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

2 unchanged sentences

We have agreements with each of our derivative counterparties that contain a provision whereby we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness.

As of June 30, 2022, the fair value of derivative assets, including accrued interest, was $ 2.0 million and we did no t have any derivatives in a liability position.

As of June 30, 2022, we have not posted any collateral related to these agreements.

As of September 30, 2022, the fair value of derivative assets, including accrued interest, was $ 2.5 million and we did no t have any derivatives in a liability position.

As of September 30, 2022, we have not posted any collateral related to these agreements.

Derivative instruments expose us to credit risk in the event of non-performance by the counterparty under the terms of the interest rate hedge agreements.

7 unchanged sentences

Significant unobservable inputs

The only assets or liabilities we had at June 30, 2022 and December 31, 2021 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan (“SERP”), which primarily consist of investments in mutual funds, and the interest rate derivatives (see note 6).

The only assets or liabilities we had at September 30, 2022 and December 31, 2021 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan (“SERP”), which primarily consist of investments in mutual funds, and the interest rate derivatives (see note 6).

We base the valuations related to the SERP on assumptions derived from significant other observable inputs and accordingly these valuations fall into Level 2 in the fair value hierarchy.

7 unchanged sentences

The valuation of interest rate derivatives fall into Level 2 in the fair value hierarchy.

The fair values of these assets and liabilities at June 30, 2022 and December 31, 2021 were as follows (in thousands):

June 30, 2022 December 31, 2021

The fair values of these assets and liabilities at September 30, 2022 and December 31, 2021 were as follows (in thousands):

September 30, 2022 December 31, 2021

Value Level 1 Level 2 Level 3 Fair

8 unchanged sentences

The use of different market assumptions or estimation methodologies could have an effect on the estimated fair value amounts.

In addition, fair value estimates are made at a point in time and thus, estimates of fair value subsequent to June 30, 2022 may differ significantly from the amounts presented.

In addition, fair value estimates are made at a point in time and thus, estimates of fair value subsequent to September 30, 2022 may differ significantly from the amounts presented.

The valuations of cash and cash equivalents and restricted cash fall into Level 1 in the fair value hierarchy and the valuations of debt instruments fall into Level 3 in the fair value hierarchy.

As of June 30, 2022 and December 31, 2021, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):

June 30, 2022 December 31, 2021

As of September 30, 2022 and December 31, 2021, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):

September 30, 2022 December 31, 2021

Carrying Value Fair Value Carrying Value Fair Value

1 unchanged sentence

Restricted cash 1,437 1,437 620 620

Mortgage notes payable, net 71,576 68,079 — —

Line of credit 43,000 43,000 — —

Notes payable, net 497,247 459,725 496,946 515,341

STOCK BASED COMPENSATION

WashREIT maintains short-term (“STIP”) and long-term (“LTIP”) incentive plans that allow for stock based awards to officers and non-officer employees.

Elme Communities maintains short-term (“STIP”) and long-term (“LTIP”) incentive plans that allow for stock-based awards to officers and non-officer employees.

Stock based awards are provided to officers and non-officer employees, as well as trustees, under the Washington Real Estate Investment Trust 2016 Omnibus Incentive Plan which allows for awards in the form of restricted shares, restricted share units, options and other awards up to an aggregate of 2,400,000 shares over the ten-year period in which the plan will be in effect.

4 unchanged sentences

The total fair values of restricted share awards vested was $ 4.8 million and $ 1.6 million for the 2022 Period and 2021 Period, respectively.

The total unvested restricted share awards at June 30, 2022 was 301,211 shares, which had a weighted average grant date fair value of $ 25.60 per share.

As of June 30, 2022, the total compensation cost related to unvested restricted share awards was $ 5.2 million, which we expect to recognize over a weighted average period of 22 months.

The total unvested restricted share awards at September 30, 2022 was 401,416 shares, which had a weighted average grant date fair value of $ 23.51 per share.

As of September 30, 2022, the total compensation cost related to unvested restricted share awards was $ 5.8 million, which we expect to recognize over a weighted average period of 32 months.

EARNINGS PER COMMON SHARE

4 unchanged sentences

Our dilutive earnings per share calculation includes the dilutive impact of operating partnership units under the if-converted method and our share based awards with performance conditions prior to the grant date and all market condition awards under the contingently issuable method.

The computations of basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands, except per share data):

Three Months Ended June 30, Six Months Ended June 30,

The computations of basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands, except per share data):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

3 unchanged sentences

Income from discontinued operations — 53,649 — 69,524

Adjusted net loss $ ( 8,925 ) $ ( 7,129 ) $ ( 16,721 ) $ ( 8,415 )

Allocation of earnings from discontinued operations to unvested restricted share awards — ( 283 ) — —

Adjusted income from discontinuing operations — 53,366 — 69,524

Adjusted net (loss) income $ ( 10,807 ) $ 31,157 $ ( 27,528 ) $ 22,831

Weighted average shares outstanding – basic and diluted 87,453 84,496 87,354 84,457

2 unchanged sentences

Discontinued operations — 0.63 — 0.82

Basic net loss per common share $ ( 0.10 ) $ ( 0.08 ) $ ( 0.19 ) $ ( 0.10 )

Basic net (loss) income per common share $ ( 0.12 ) $ 0.37 $ ( 0.32 ) $ 0.27

Earnings per common share, diluted:

1 unchanged sentence

Discontinued operations — 0.63 — 0.82

Diluted net loss per common share $ ( 0.10 ) $ ( 0.08 ) $ ( 0.19 ) $ ( 0.10 )

Diluted net( loss) income per common share $ ( 0.12 ) $ 0.37 $ ( 0.32 ) $ 0.27

Dividends declared per common share $ 0.17 $ 0.17 $ 0.51 $ 0.77

1 unchanged sentence

We operate in a single reportable segment which includes the ownership, development, redevelopment and acquisition of apartment communities.

Each of our operating properties, including our remaining office property, do not meet the criteria to be considered separate operating segments on a stand-alone basis.

We do not distinguish or group our consolidated operations based on size, type or geography.

All but five communities are within the Washington, DC metro region and one community, Riverside Apartments, comprises more than 10% of consolidated revenues.

None of our operating properties meet the criteria to be considered separate operating segments on a stand-alone basis.

Within the residential segment, we do not distinguish or group our consolidated operations based on size (only one community, Riverside Apartments, comprises more than 10% of consolidated revenues), type (all assets in the segment are residential) or geography (all but five communities are within the Washington, DC metro region).

Further, our apartment communities have similar long-term economic characteristics and provide similar products and services to our residents.

7 unchanged sentences

NOI is a key measurement of our segment profit and loss and is defined as real estate rental revenue less real estate expenses.

The following tables present revenues, NOI, capital expenditures and total assets for the three and six months ended June 30, 2022 and 2021 from our Residential segment as well as Other, and reconcile NOI to net income (loss) as reported (in thousands):

Three Months Ended June 30, 2022

The following tables present revenues, NOI, capital expenditures and total assets for the three and nine months ended September 30, 2022 and 2021 from our Residential segment as well as Other, and reconcile NOI to net income (loss) as reported (in thousands):

Three Months Ended September 30, 2022

Residential Other (1)

8 unchanged sentences

Interest expense ( 6,582 )

Loss on extinguishment of debt ( 4,917 )

Other income 68

Net loss $ ( 10,739 )

1 unchanged sentence

Total assets $ 1,694,750 $ 184,784 $ 1,879,534

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Residential Other (1), (2)

9 unchanged sentences

Loss on interest rate derivatives ( 106 )

Loss on extinguishment of debt ( 12,727 )

Other income 231

1 unchanged sentence

Income from operations of properties sold or held for sale 7,208

Net loss $ ( 6,992 )

Gain on sale of real estate 46,441

Net income $ 31,319

Capital expenditures $ 7,283 $ 1,002 $ 8,285

3 unchanged sentences

(2) Total assets and capital expenditures include office and retail properties classified as discontinued operations.

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Residential Other (1)

8 unchanged sentences

Interest expense ( 18,388 )

Loss on extinguishment of debt ( 4,917 )

Other income 454

1 unchanged sentence

Capital expenditures $ 17,623 $ 2,745 $ 20,368

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Residential Other (1), (2)

9 unchanged sentences

Other income 3,037

Loss on extinguishment of debt ( 12,727 )

Loss on interest rate derivatives ( 5,866 )

1 unchanged sentence

Income from operations of properties sold or held for sale 23,083

Net loss $ ( 8,139 )

Gain on sale of real estate 46,441

Net income $ 23,180

Capital expenditures $ 15,082 $ 3,604 $ 18,686

14 unchanged sentences

Our issuances and net proceeds on the Equity Distribution Agreements for the 2022 Period and 2021 Period were as follows ($ in thousands, except per share data):

Six Months Ended June 30,

Nine Months Ended September 30,

Issuance of common shares 1,032 24

4 unchanged sentences

Net proceeds under this program are used for general corporate purposes.

Our issuances and net proceeds on the dividend reinvestment program for the three and six months ended June 30, 2022 and 2021 were as follows ($ in thousands, except per share data):

Three Months Ended June 30, Six Months Ended June 30,

Our issuances and net proceeds on the dividend reinvestment program for the three and nine months ended September 30, 2022 and 2021 were as follows ($ in thousands, except per share data):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements