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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-18 · 151 added, 320 removed, 315 unchanged (60% of the section changed)

4 unchanged sentences

• Results of Operations.

Discussion of our financial results comparing 2021 to 2020 and 2020 to 2019.

Discussion of our financial results comparing 2022 to 2021.

• Liquidity and Capital Resources.

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We categorize a redevelopment property as same-store when redevelopment activities have been complete for the majority of each year being compared.

During the third quarter of 2021, we completed the sale of twelve office properties (the “Office Portfolio”) (see note 3 to the consolidated financial statements) for a contract sale price of $766.0 million.

Also during the third quarter of 2021, we completed the sale of eight retail properties (the “Retail Portfolio”) (see note 3 to the consolidated financial statements) for a contract sale price of $168.3 million.

Both the Office Portfolio and Retail Portfolio are classified as discontinued operations in our consolidated financial statements.

The remaining office property, Watergate 600, does not meet the qualitative or quantitative criteria for a reportable segment (see note 13 to the consolidated financial statements).

During the third quarter of 2021, we sold twelve office properties (the “Office Portfolio”) and eight retail properties (the “Retail Portfolio”) (see note 3 to the consolidated financial statements) for contract sale prices of $766.0 million and $168.3 million, respectively.

Both the Office Portfolio and Retail Portfolio meet the criteria for classification as discontinued operations in our consolidated financial statements.

Our remaining office property, Watergate 600, does not meet the qualitative or quantitative criteria for a reportable segment (see note 14 to the consolidated financial statements).

The dispositions of our office and retail properties are part of a strategic shift away from the commercial sector to the residential sector, which simplifies our portfolio to one reportable segment (residential) (the “strategic transformation”).

We have used and plan to continue using the net proceeds from the sales to fund the expansion of our residential platform through acquisitions in Southeastern markets and reduce our leverage by repaying outstanding debt.

During the third and fourth quarters of 2021, we completed the acquisitions of two apartment communities in Georgia for contract purchase prices of $48.0 million and $106.0 million, respectively.

The apartment communities have a combined total of 730 apartment homes.

We used the net proceeds from the sales to fund the expansion of our residential platform through acquisitions in Sunbelt markets and to reduce our leverage by repaying outstanding debt.

During the third and fourth quarters of 2021, we completed the acquisitions of two apartment communities in Georgia with a combined total of 730 apartment homes for a total contract purchase prices of $154.0 million.

During 2022, we completed acquisitions of three apartment communities in Georgia with a combined total of 1,079 apartment homes for a total contract purchase price of $283.2 million.

We believe the successful execution of this research-driven strategic shift will lead to greater, more sustainable growth.

In connection with this strategic transformation, we are redesigning our operating model for purposes of more efficiently and effectively supporting residential operations.

This operating model redesign includes insourcing the property-level management

activities currently performed by third-party management companies.

This operating model redesign includes the internalization of community management

services currently performed by third-party management companies.

Costs related to the strategic transformation, including the allocation of internal costs, consulting, advisory and termination benefits, are included in Transformation costs on our consolidated statements of operations.

We anticipate incurring approximately $11.0 - $13.0 million of transformation costs during 2022.

We recognized $9.7 million and $6.6 million of transformation costs, net of amounts capitalized, on the consolidated statements of operations during 2022 and 2021, respectively, and anticipate incurring approximately $3.0 - $4.0 million of additional transformation costs during 2023.

Community onboarding commenced in October 2022 and is expected to be completed in phases in 2023.

We expect to realize significant operational benefits from this operating model redesign and complete its implementation in 2023.

On March 11, 2020, the World Health Organization declared COVID-19, a respiratory illness caused by a novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency concerning COVID-19.

The COVID-19 pandemic caused state and local governments within the Washington, DC metro and Southeast regions to institute quarantines, shelter-in-place rules and restrictions on travel, the types of business that may continue to operate and/or the types of construction projects that may continue.

While the COVID-19 pandemic impacted our operating results for the years ended December 31, 2021 and 2020, we experienced strong cash collections throughout the pandemic at our apartment communities.

As of February 16, 2022, we collected 98% of cash rent at same-store communities during the fourth quarter of 2021.

We saw an inflection point during the third quarter of 2021, as indicated by the improvement in blended effective lease rate growth, which increased 8.4% in the fourth quarter of 2021 compared to a decrease of 6.4% in the fourth quarter of 2020.

Same-store average occupancy increased approximately 190 basis points during the fourth quarter of 2021 compared to the fourth quarter of 2020.

We expect continued increases in rental rates and strong occupancy during 2022 as the market recovery continues.

New legislation was enacted to provide relief to businesses in response to the COVID-19 pandemic.

We have evaluated and will continue to evaluate the relief options available, or that become available in the future, such as the Coronavirus Aid, Relief, and Economic Securities Act (“CARES Act”), or other emergency relief initiatives and stimulus packages instituted by the federal government.

A number of the available relief options contain restrictions on future business activities that require careful evaluation and consideration, including the ability to repurchase shares and pay dividends.

We will continue to assess these options and any subsequent legislation or other relief packages, including the accompanying restrictions on our business, as the pandemic continues to evolve.

The legislation did not have a material impact on our results of operations for 2021 and 2020.

Selected Financial Data

The following table sets forth our selected financial data on a historical basis.

The following data should be read in conjunction with our financial statements and notes thereto included elsewhere in this Form 10-K and this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

2021 2020 2019 2018 2017

(in thousands, except per share data)

Real estate rental revenue $ 169,151 $ 176,004 $ 176,748 $ 163,154 $ 178,568

Loss from continuing operations $ (53,140) $ (40,318) $ (4,253) $ (30,808) $ (29,567)

Discontinued operations:

Income from operations of properties sold or held for sale $ 23,083 $ 24,638 $ 49,543 $ 56,438 $ 48,102

Gain on sale of real estate $ 46,441 $ — $ 339,024 $ — $ —

Net income (loss) $ 16,384 $ (15,680) $ 383,550 $ 25,630 $ 18,535

Net income (loss) attributable to the controlling interests $ 16,384 $ (15,680) $ 383,550 $ 25,630 $ 18,591

Loss from continuing operations attributable to the controlling interests per share – diluted $ (0.63) $ (0.50) $ (0.05) $ (0.40) $ (0.39)

Net income (loss) attributable to the controlling interests per share – diluted $ 0.19 $ (0.20) $ 4.75 $ 0.32 $ 0.25

Total assets $ 1,875,994 $ 2,409,818 $ 2,628,328 $ 2,417,104 $ 2,359,426

Amounts outstanding on line of credit $ — $ 42,000 $ 56,000 $ 188,000 $ 166,000

Mortgage notes payable, net $ — $ — $ 47,074 $ 48,277 $ 81,624

Notes payable, net $ 496,946 $ 945,370 $ 996,722 $ 995,397 $ 894,358

Shareholders’ equity $ 1,316,755 $ 1,320,787 $ 1,411,726 $ 1,068,127 $ 1,094,971

Cash dividends declared $ 80,018 $ 99,775 $ 96,964 $ 95,502 $ 92,834

Cash dividends declared per share $ 0.94 $ 1.20 $ 1.20 $ 1.20 $ 1.20

In October 2022, the Company changed its name from Washington Real Estate Investment Trust to Elme Communities reflecting 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.”

Operating Results

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The ability to compare one period to another is significantly affected

by the strategic transformation in 2021 and other acquisitions completed and dispositions made during those years (see note 3 to the

consolidated financial statements).

Net income (loss), NOI and NAREIT FFO for the years ended December 31, 2021 and 2020 were as follows (in thousands, except percentage amounts):

by the strategic transformation in 2021 and other acquisitions completed and dispositions made during 2021 and 2022 (see note 3 to the consolidated financial statements).

Net (loss) income, NOI and NAREIT FFO for the years ended December 31, 2022 and 2021 were as follows (in thousands, except percentage amounts):

Year Ended December 31,

2022 2021 Change % Change

Net income (loss)

Net (loss) income

$ (30,868) $ 16,384 $ (47,252) (288.4) %

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(1) See page 29 of the MD&A for reconciliations of NOI to net income.

(2) See page 44 of the MD&A for reconciliations of NAREIT FFO to net income.

The increase in net income is primarily due to the change in net gain on sale of real estate ($61.5 million), higher other income ($4.1 million) and lower interest expense ($3.2 million), partially offset by higher loss on extinguishment of debt ($12.7 million), higher transformation costs ($6.6 million), higher loss on interest rate derivatives ($5.3 million), lower NOI ($4.7 million), higher general and administrative expenses ($3.6 million), higher depreciation and amortization expenses ($2.3 million) and lower income from discontinued operations ($1.6 million).

The lower NOI is primarily due to the sales of Monument II ($3.7 million), 1227 25th Street ($2.8 million) and John Marshall II ($1.4 million) during 2020 and lower same-store NOI ($1.7 million), partially offset by placing Trove, a residential development, into service starting in 2020 ($3.3 million) and the acquisitions of The Oxford ($0.8 million) and Assembly Eagles Landing ($0.6 million) in 2021.

Residential same-store average occupancy for our portfolio increased to 95.3% in 2021 from 94.5% in 2020 as occupancy increased across the portfolio due to recovery from the impact of the COVID-19 pandemic.

The lower NAREIT FFO is primarily due to lower income from discontinued operations, net of depreciation and amortization ($28.3 million), higher loss on extinguishment of debt ($12.7 million), higher transformation expenses ($6.6 million), higher loss on interest rate derivatives ($5.3 million), lower NOI ($4.7 million) and higher general and administrative expenses ($3.6 million).

These were partially offset by higher other income ($4.1 million) and lower interest expense ($3.2 million).

(1) See page 29 of the MD&A for reconciliations of NOI to net (loss) income.

(2) See page 39 of the MD&A for reconciliations of NAREIT FFO to net (loss) income.

The increase in net loss is primarily due to gains on sale of real estate ($46.4 million) in 2021 and lower income from discontinued operations in 2022 ($23.1 million) due to the sales of the Office Portfolio and Retail Portfolio during 2021, higher depreciation and amortization expenses ($19.1 million), lower other income ($3.4 million), higher transformation costs, net of amounts capitalized, ($3.1 million), higher property management expenses ($1.3 million) and higher general and administrative expenses ($0.7 million).

These were partially offset by higher NOI ($27.0 million), lower interest expense ($9.1 million), lower loss on extinguishment of debt ($7.8 million) and lower loss on interest rate derivatives ($5.9 million).

The higher NOI is primarily due to the acquisitions of Assembly Eagles Landing ($4.2 million) and The Oxford ($1.1 million) in 2021 and Carlyle of Sandy Spring ($4.0 million), Marietta Crossing ($3.2 million) and Alder Park ($2.2 million) in 2022, higher NOI from same-store properties ($7.9 million), higher NOI from Trove ($3.7 million), which achieved stabilization in the fourth quarter of 2021, and higher NOI at Watergate 600 ($0.7 million).

The higher same-store NOI was primarily due to higher rental rates.

Residential same-store average occupancy for our portfolio increased to 95.6% as of December 31, 2022 from 95.3% as of December 31, 2021.

The lower NAREIT FFO is primarily due to lower income from discontinued operations, net of depreciation and amortization ($46.0 million), lower other income ($3.4 million), higher transformation costs, net of amounts capitalized, ($3.1 million), higher property management expenses ($1.3 million) and higher general and administrative expenses ($0.7 million).

Investment Activity

Significant investment transactions during 2022 included the following:

• The disposition of the Office Portfolio for a contract sales price of $766.0 million.

As a result of the transaction, we recognized a loss on sale of real estate of $11.2 million.

• The disposition of the Retail Portfolio for a contract sales price of $168.3 million.

As a result of the transaction, we recognized a gain on sale of real estate of $57.7 million.

• The acquisition of The Oxford, a 240-unit apartment community in Conyers, Georgia, for a contract purchase price of $48.0 million.

• The acquisition of Assembly Eagles Landing, a 490-unit apartment community in Stockbridge, Georgia, for a contract purchase price of $106.0 million.

• Acquisition of Carlyle of Sandy Springs, a 389-unit apartment community in Sandy Springs, Georgia for a contract purchase price of $105.6 million during the first quarter of 2022.

• Acquisition of Marietta Crossing, a 420-unit apartment community in Marietta, Georgia for a contract purchase price of $107.9 million during the second quarter of 2022.

We assumed a $42.8 million mortgage with this acquisition.

• Acquisition of Alder Park, a 270-unit apartment community in Smyrna, Georgia for a contract purchase price of $69.8 million during the second quarter of 2022.

We assumed a $33.7 million mortgage with this acquisition.

Financing Activity

Significant financing transactions during 2022 included the following:

• We redeemed $300.0 million of our Senior Notes due 2022 and repaid $150.0 million of borrowings outstanding under the 2018 Term Loan.

In conjunction with these repayments, we terminated five interest rate swaps (see note 7 to the consolidated financial statements).

• We entered into an amended and restated credit agreement which provides for a $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”).

The Revolving Credit Facility has a four-year term ending in August 2025, with two six-month extension options.

We recognized a $0.2 million non-cash loss on extinguishment of debt related to the write-off of unamortized loan origination costs.

• We issued 1.0 million common shares at a weighted average price per share of $26.27 for net proceeds of $26.8 million through our at-the-market program.

Subsequent to December 31, 2021, we issued an additional 1.0 million shares at a weighted average price per share of $26.27 for net proceeds of $26.9 million.

• In September 2022, we extinguished the aggregate $76.5 million of mortgages secured by Marietta Crossing and Alder Park through defeasance arrangements, recognizing an aggregate loss on extinguishment of debt of $4.9 million.

We partially funded the defeasances with a $65.0 million draw on our unsecured revolving credit facility.

Subsequent to the end of 2022, we entered into a $125.0 million unsecured term loan ("2023 Term Loan") with an interest rate of SOFR (subject to a credit spread adjustment of 10 basis points) plus a margin of 95 basis points.

The 2023 Term Loan has a two-year term ending in January 2025, with two one-year extension options.

We used the proceeds to prepay the $100.0 million 2018 Term Loan in full and a portion of our borrowings under our unsecured credit facility.

As of December 31, 2022, the interest rate on the $700.0 million unsecured revolving credit facility was one month LIBOR plus 0.85% and the facility fee was 0.20%.

The LIBOR was 4.39% as of that date.

As of February 16, 2022, we had no outstanding balance and a full borrowing capacity of $700.0 million on our Revolving Credit Facility and $151.6 million of cash on hand, primarily due to the proceeds from the Office Portfolio and Retail Portfolio sales.

Subsequent to the end of 2022, we executed an amendment to our revolving credit facility to convert the benchmark interest rate from LIBOR to an adjusted SOFR, with no change in the applicable interest rate margins.

As of February 14, 2023, our Revolving Credit Facility has a borrowing capacity of $657.0 million.

Capital Requirements

We do not have any debt maturities scheduled during 2022.

We do not currently have any debt maturities scheduled for 2023.

We expect to have additional capital requirements as set forth on page 37 (Liquidity and Capital Resources - Capital Requirements).

Results of Operations

The discussion that follows is based on our consolidated results of operations for the three years ended December 31, 2021.

The discussion that follows is based on our consolidated results of operations for the two years ended December 31, 2022.

The ability to compare one period to another is significantly affected by the strategic transformation in 2021, including the resulting classification of certain assets as discontinued operations, and other acquisitions completed and dispositions made during those years (see note 3 to the consolidated financial statements).

Our Results of Operations for 2020 Compared to 2019 have also been reclassified to reflect the strategic transformation in 2021, including the resulting classification of certain assets as discontinued operations, and other acquisitions completed and dispositions made during those years.

Net Operating Income

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NOI does not include management expenses, which consist of corporate property management costs and property management fees paid to third parties.

NOI is the primary performance measure we use to assess the results of our operations at the property level.

We believe that NOI is a useful performance measure because, when compared across periods, it reflects the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income.

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2022 Compared to 2021

The following tables reconcile NOI to net income and provide the basis for our discussion of our consolidated results of operations and NOI in 2021 compared to 2020.

The following tables reconcile net income to NOI and provide the basis for our discussion of our consolidated results of operations and NOI in 2022 compared to 2021.

All amounts are in thousands except percentage amounts.

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2022 2021 $ Change % Change

Net (loss) income $ (30,868) $ 16,384 $ (47,252) (288.4) %

Property management expense 7,436 6,133 1,303 21.2 %

General and administrative expense 28,258 27,538 720 2.6 %

Transformation costs 9,686 6,635 3,051 46.0 %

Real estate depreciation and amortization 91,722 72,656 19,066 26.2 %

Interest expense 24,940 34,063 (9,123) (26.8) %

Loss on interest rate derivatives — 5,866 (5,866) (100.0) %

Loss on extinguishment of debt, net 4,917 12,727 (7,810) (61.4) %

Other income (712) (4,109) 3,397 (82.7) %

Discontinued operations:

Income from operations of properties sold or held for sale — (23,083) 23,083 (100.0) %

Gain on sale of real estate, net — (46,441) 46,441 (100.0) %

Total net operating income (NOI) $ 135,379 $ 108,369 $ 27,010 24.9 %

Residential revenue:

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Total NOI $ 135,379 $ 108,369 $ 27,010 24.9 %

Reconciliation to net income (loss):

Property management expenses (6,133) (6,145) 12 0.2 %

General and administrative expenses (27,538) (23,951) (3,587) (15.0) %

Transformation costs (6,635) — (6,635) — %

Depreciation and amortization (72,656) (70,336) (2,320) (3.3) %

Loss on sale of real estate, net — (15,009) 15,009 100.0 %

Interest expense (34,063) (37,305) 3,242 8.7 %

Loss on interest rate derivatives (5,866) (560) (5,306) (947.5) %

Loss on extinguishment of debt (12,727) (34) (12,693) (37332.4) %

Other income 4,109 — 4,109 — %

Discontinued operations (6) :

Income from operations of properties sold or held for sale 23,083 24,638 (1,555) (6.3) %

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

Net income (loss) $ 16,384 $ (15,680) $ 32,064 204.5 %

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(1) Acquisitions:

The Oxford, Assembly at Eagles Landing

The Oxford and Assembly Eagles Landing

Carlyle of Sandy Springs, Alder Park, Marietta Crossing

(2) Development/redevelopment:

Trove, Riverside Development (multifamily development adjacent to Riverside Apartments)

(3) Non-residential:

Includes revenues and expenses from retail operations at residential properties.

(4) Sold (classified as continuing operations):

2020 Office - John Marshall II, Monument II and 1227 25th Street

(4) Other (classified as continuing operations):

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Real estate rental revenue from our apartment communities is comprised of (a) rent from operating leases of residential apartments with terms of approximately one year or less, recognized on a straight-line basis, (b) revenue from the recovery of operating expenses from our residents, (c) credit losses on lease related receivables, (d) revenue from leases of retail space at our apartment communities and (e) parking and other tenant charges.

Real estate rental revenue from same-store residential properties decreased $1.6 million, or 1.1%, to $141.3 million for 2021, compared to $142.9 million for 2020, primarily due to higher rent abatements ($1.3 million), lower rental income ($1.1 million) and higher credit losses ($0.3 million), partially offset by higher recoveries ($0.5 million), lower waived one-time fees ($0.3 million) due to COVID-19 concessions, higher move-in charges ($0.2 million) and higher parking income ($0.1 million).

Real estate rental revenue from acquisitions increased due to the acquisition of The Oxford ($1.4 million) during the third quarter of 2021 and Assembly Eagles Landing ($0.9 million) during the fourth quarter of 2021.

Real estate rental revenue from same-store residential properties increased $10.2 million, or 7.3%, to $151.5 million for 2022, compared to $141.3 million for 2021, primarily due to higher rental income ($8.2 million), lower rent abatements ($1.6 million) and higher fee income ($0.4 million).

Real estate rental revenue from acquisitions increased $25.1 million due to the acquisition of Carlyle of Sandy Springs ($6.6 million) during the first quarter of 2022, Marietta Crossing ($4.9 million) and Alder Park ($3.4 million) during the second quarter of 2022, Assembly Eagles Landing ($7.6 million) during the fourth quarter of 2021 and The Oxford ($2.6 million) during the third quarter of 2021.

Real estate rental revenue from development properties increased due to the continued lease-up of the Trove development ($4.1 million).

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95.6 % 94.5 % 95.3 % 95.3 % 71.0 % 93.4 % 0.3 % 23.5 % 1.9 %

The increase in same-store average occupancy was primarily due to higher average occupancy at The Paramount, 3801 Connecticut Avenue, Kenmore Apartments, The Maxwell, The Wellington, Park Adams, and Ashby at McLean.

The increase in non-same-store average was primarily due to the lease-up of Trove, which was placed into service during the first quarter of 2020.

The increase in same-store average occupancy was primarily due to higher average occupancy at The Kenmore, 3801 Connecticut Avenue, Assembly Germantown and Assembly Herndon, partially offset by lower average occupancy at Roosevelt Towers and Clayborne Apartments.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for 2022 and 2021 were 36.1% and 36.8%, respectively.

Real estate expenses from same-store residential properties increased $0.1 million, or 0.2%, to $51.1 million for 2021, compared to $51.0 million for 2020, primarily due to higher expenses related to contract maintenance and supplies ($0.5 million), utilities ($0.4 million) and insurance ($0.4 million) expenses, partially offset by lower real estate tax expenses ($0.8 million), repairs and maintenance ($0.2 million) and administrative ($0.2 million) expenses.

Real estate expenses from development properties increased $1.7 million due to the continued lease-up of the Trove development.

Other NOI classified as continuing operations decreased due to the sales of Monument II ($3.7 million) and 1227 25th Street ($2.8 million) during the fourth quarter of 2020 and the sale of John Marshall II ($1.4 million) during the second quarter of 2020, partially offset by higher NOI at Watergate 600 ($0.1 million).

Real estate expenses from same-store residential properties increased $2.3 million, or 4.6%, to $53.4 million for 2022, compared to $51.1 million for 2021, primarily due to higher administrative ($0.7 million), real estate tax ($0.6 million), utilities ($0.5 million), insurance ($0.3 million) and contract maintenance and supplies ($0.2 million) expenses.

Real estate expenses from acquisitions increased $10.4 million due to the acquisitions of Carlyle of Sandy Springs ($2.6 million) during the first quarter of 2022, Marietta Crossing ($1.7 million) and Alder Park ($1.2 million) during the second quarter of 2022, Assembly Eagles Landing ($3.4 million) during the fourth quarter of 2021, and The Oxford ($1.5 million) during the third quarter of 2021.

Other NOI classified as continuing operations increased due to higher NOI at Watergate 600 ($0.7 million).

Other Income and Expenses

Property management expenses:

These expenses include costs directly related to the third-party management of property operations and corporate management and other costs.

Increase of $1.3 million primarily due to the acquisitions of The Oxford and Assembly Eagles Landing during the third and fourth quarters of 2021, the acquisitions of Carlyle of Sandy Springs, Marietta Crossing and Alder Park in 2022 and Trove reaching stabilization during the fourth quarter of 2021.

General and administrative expenses :

Increase primarily due to a higher short-term incentive compensation expense ($2.5 million), higher deferred tax expense ($0.5 million), higher office rent ($0.5 million), higher share-based compensation expense ($0.4 million) and higher corporate insurance expense ($0.3 million), partially offset by lower legal fees ($0.6 million).

Increase of $0.7 million primarily due to corporate overhead no longer being allocated to

office management due to the sales of the Office and Retail Portfolios in 2021 ($1.9 million), higher legal fees ($0.9 million), higher office rent ($0.6 million) from the commencement of the corporate office lease during the third quarter of 2021 and higher shareholder expenses ($0.3 million) in 2022.

These increases were partially offset by lower short-term incentive compensation expense ($1.8 million), lower leasing expenses ($0.7 million) and lower deferred tax expense ($0.5 million) in 2022.

Transformation costs:

During 2021 we incurred $6.6 million of costs related to the strategic transformation, including the allocation of internal costs, consulting, advisory and termination benefits.

Increase of $3.1 million primarily due to higher employee time allocations ($1.5 million) related to the strategic transformation, higher consulting costs ($1.1 million), higher software depreciation ($0.9 million) and higher software costs ($0.8 million), partially offset by lower severance expenses ($1.6 million).

Depreciation and amortization :

Increase primarily due to placing into service the remainder of the Trove development ($3.7 million), the acquisitions of The Oxford ($1.8 million) and Assembly Eagles Landing ($1.4 million) and higher depreciation and amortization at same store properties ($0.4 million) and Watergate 600 ($0.2 million).

These increases were partially offset by the dispositions of Monument II ($3.5 million) and 1227 25th Street ($1.7 million) in the fourth quarter of 2020.

Loss on sale of real estate, net:

The loss during 2020 was primarily due to losses on the sales of John Marshall II ($6.9 million) and Monument II ($8.6 million), partially offset by a gain on the sale of 1227 25th Street ($1.1 million).

Increase of $19.1 million primarily due to the acquisitions of Assembly Eagles Landing ($5.3 million), Carlyle of Sandy Springs ($5.8 million), Marietta Crossing ($5.2 million), Alder Park ($3.1 million) and The Oxford ($0.3 million) and higher depreciation and amortization at Watergate 600 ($0.9 million).

These increases were partially offset by lower depreciation and amortization at same-store residential properties ($1.4 million) and Trove ($0.1 million).

Interest Expense :

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Total $ 24,940 $ 34,063 $ (9,123) (26.8) %

• Interest expense for notes payable :

Decrease primarily due to lower interest payments resulting from the prepayment during 2021 of $300.0 million of unsecured notes originally scheduled to mature in October 2022, the prepayment of our $150.0 million 2015 Term Loan in December 2020, the $150.0 million 2020 Term Loan executed in May 2020 and prepaid in November 2020 and the prepayment of a $150.0 million portion of the 2018 Term Loan during 2021.

These were partially offset by the $350.0 million Green Bonds executed in December 2020.

• Interest expense for mortgage notes payable :

Decrease due to repayment of the mortgage note secured by Yale West Apartments in January 2020.

• Interest expense for line of credit :

Decrease primarily due to lower weighted average borrowings of $34.8 million and a lower weighted average interest rate of 1.1% during 2021, as compared to $204.8 million and 1.5%, respectively, during 2020.

• Notes payable :

Decrease primarily due to the prepayment of $300.0 million of unsecured notes during the third quarter of 2021 that had been scheduled to mature in October 2022 and the prepayment of a $150.0 million portion of the 2018 Term Loan during the third quarter of 2021.

• Mortgage notes payable :

Increase due to the mortgages of $42.8 million and $33.7 million assumed in the acquisitions of Marietta Crossing and Alder Park, respectively, in the second quarter of 2022.

In September 2022, we extinguished the liabilities associated with these mortgages though defeasance arrangements.

• Line of credit :

Increase primarily due to a weighted average interest rate of 4.2% and weighted average borrowings of $21.6 million in 2022, as compared to a weighted average interest rate of 1.1% and weighted average borrowings of $34.8 million in 2021.

• Capitalized interest :

Decrease primarily due to placing into service assets at Trove.

Decrease primarily due to ceasing capitalization of interest on spending related to the multifamily development adjacent to Riverside Apartments due to a pause in development activities.

Loss on interest rate derivatives :

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Loss on extinguishment of debt:

During 2022, we extinguished the liabilities associated with mortgage notes payable for Marietta Crossing and Alder Park through defeasance arrangements, recognizing aggregate losses on extinguishment of debt of $4.9 million.

During the third quarter of 2021 we recognized a $12.3 million loss on extinguishment of debt related to the prepayment of the $300.0 million of unsecured notes that were originally scheduled to mature in October 2022, a $0.2 million loss on extinguishment of debt related to the prepayment of a $150.0 million portion of the $250.0 million 2018 Term Loan and a $0.2 million loss on extinguishment of debt related to the renewal of our Revolving Credit Facility, all of which were repaid in connection with our strategic transformation, using the proceeds from the sales of the Office Portfolio and Retail Portfolio.

During the fourth quarter of 2020, we recognized a loss on extinguishment of debt of $0.3 million related to the prepayments of the $150.0 million 2020 Term Loan originally scheduled to mature in May 2021 and the $150.0 million 2015 Term Loan originally scheduled to mature in March 2021.

During the second quarter of 2020, we recognized a loss of $0.2 million related to the prepayment of all $250.0 million of our 4.95% Senior Notes originally scheduled to mature in October 2020.

These losses were partially offset by a gain of $0.5 million on the prepayment of the mortgage note secured by Yale West Apartments during the first quarter of 2020.

Other income :

Income during 2022 relates to real estate tax refunds ($0.7 million) received on previously sold commercial properties.

Other income in 2021 primarily consists of a legal settlement ($1.3 million), a real estate tax refund for an office property sold in 2018 ($1.3 million), a gain on life insurance ($1.0 million) and a construction easement at a retail property ($0.4 million).

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Income from properties sold or held for sale:

The decrease during 2021 is primarily due to lower real estate rental revenue ($47.6 million) as a result of the sale of the Office Portfolio and the sale of the Retail Portfolio during the third quarter of 2021.

This was partially offset by lower depreciation and amortization ($26.8 million), lower real estate expenses ($17.7 million) and lower management fees ($1.6 million).

Decrease due to the sale of the Office Portfolio and the Retail Portfolio during 2021.

Gain on sale of real estate, net:

The net gain during 2021 is due to the gain on sale of the Retail Portfolio ($57.7 million), partially offset by the loss on sale of the Office Portfolio ($11.2 million).

2020 Compared to 2019

The following tables reconcile NOI to net income and provide the basis for our discussion of our consolidated results of operations and NOI in 2020 compared to 2019.

These results of operations have also been reclassified to reflect the strategic transformation in 2021, including the resulting classification of certain assets as discontinued operations, and other acquisitions completed and dispositions made during the applicable years.

All amounts are in thousands except percentage amounts.

Year Ended December 31,

2020 2019 $ Change % Change

Residential revenue:

Same-store portfolio $ 97,102 $ 97,584 $ (482) (0.5) %

Acquisitions (1)

45,757 27,641 18,116 65.5 %

Development (2)

1,394 35 1,359 3882.9 %

Non-residential (3)

885 937 (52) (5.5) %

Total 145,138 126,197 18,941 15.0 %

Residential expenses:

Same-store portfolio 34,019 33,880 139 0.4 %

Acquisitions 16,976 10,306 6,670 64.7 %

Development 1,579 66 1,513 2292.4 %

Non-residential 278 285 (7) (2.5) %

Total 52,852 44,537 8,315 18.7 %

Residential NOI:

Same-store portfolio 63,083 63,704 (621) (1.0) %

Acquisitions 28,781 17,335 11,446 66.0 %

Development (185) (31) (154) (496.8) %

Non-residential 607 652 (45) (6.9) %

Total 92,286 81,660 10,626 13.0 %

Other NOI (4), (5)

20,736 31,762 (11,026) (34.7) %

Total NOI 113,022 113,422 (400) (0.4) %

Reconciliation to net income (loss):

Property management expenses (6,145) (6,098) (47) (0.8) %

General and administrative expenses (23,951) (26,068) 2,117 8.1 %

Depreciation and amortization (70,336) (83,362) 13,026 15.6 %

Real estate impairment — (8,374) 8,374 100.0 %

(Loss) gain on sale of real estate, net (15,009) 59,961 (74,970) (125.0) %

Interest expense (37,305) (53,734) 16,429 30.6 %

Loss on interest rate derivatives (560) — (560) — %

Loss on extinguishment of debt (34) — (34) — %

Discontinued operations (6) :

Income from operations of properties sold or held for sale 24,638 49,543 (24,905) (50.3) %

Gain on sale of real estate, net — 339,024 (339,024) (100.0) %

Loss on extinguishment of debt — (764) 764 100.0 %

Net (loss) income $ (15,680) $ 383,550 $ (399,230) (104.1) %

______________________________

(1) Acquisitions:

Assembly Alexandria, Assembly Manassas, Assembly Dulles, Assembly Leesburg, Assembly Herndon, Assembly Germantown and Assembly Watkins Mill (collectively, the “Assembly Portfolio”) and Cascade at Landmark

(2) Development/redevelopment:

Trove and land adjacent to Riverside Apartments

(3) Non-residential:

Includes revenues and expenses from retail operations at residential properties.

(4) Sold (classified as continuing operations):

2020 Office - John Marshall II, Monument II and 1227 25th Street

2019 Office – Quantico Corporate Center and 1776 G Street

(5) Other (classified as continuing operations)

Watergate 600

(6) Discontinued operations:

2021 Office - 1901 Pennsylvania Avenue, 515 King Street, 1220 19th Street, 1600 Wilson Boulevard, Silverline Center, Courthouse Square, 2000 M Street, 1140 Connecticut Avenue, Army Navy Club, 1775 Eye Street, Fairgate at Ballston and Arlington Tower

2021 Retail - Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S.

Washington Street, Randolph Shopping Center, Montrose Shopping Center and Spring Valley Village

2019 Retail - Wheaton Park, Bradlee Shopping Center, Shoppes of Foxchase, Gateway Overlook, Olney Village Center, Frederick County Square, Centre at Hagerstown and Frederick Crossing

Real Estate Rental Revenue

Real estate rental revenue from same-store residential properties decreased $0.5 million, or 0.5%, to $97.1 million for 2020, compared to $97.6 million for 2019, primarily due to higher rent abatements ($0.5 million), lower move-in charges ($0.5 million) and higher credit losses related to the COVID-19 pandemic ($0.2 million).

These were partially offset by higher termination fees ($0.3 million), rental rates ($0.2 million), parking income ($0.1 million) and late fees ($0.1 million).

Real estate rental revenue from acquisitions increased due to the inclusion of a full year of operations at the Assembly Portfolio ($14.6 million) and Cascade at Landmark ($3.6 million), which were acquired in 2019.

Real estate rental revenue from development properties increased due to placing 374 units in service at the Trove development ($1.4 million) during 2020.

Average occupancy for residential properties for 2020 and 2019 was as follows:

December 31, 2020 December 31, 2019 Increase

Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total

94.1 % 83.4 % 89.9 % 95.2 % 68.6 % 87.7 % (1.1) % 14.8 % 2.2 %

The decrease in same-store average occupancy was primarily due to lower average occupancy at The Paramount, The Maxwell, 3801 Connecticut Avenue, The Ashby at McLean, and Yale West.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for 2020 and 2019 were 36.4% and 35.3%, respectively.

Real estate expenses from same-store residential properties increased $0.1 million, or 0.4%, to $34.0 million for 2020, compared to $33.9 million for 2019, primarily due to higher real estate tax ($0.5 million) and insurance ($0.2 million) expenses, partially offset by lower utilities ($0.3 million), repairs and maintenance ($0.2 million) and administrative ($0.1 million) expenses.

Other NOI decreased due to the sales of 1776 G Street ($9.0 million) and Quantico Shopping Center ($1.9 million) during 2019 and the sales of John Marshall II ($3.4 million), 1227 25th Street ($0.5 million) and Monument II ($0.4 million) during 2020.

These decreases were partially offset by higher NOI at Watergate 600 ($4.1 million).

Other Income and Expenses

Depreciation and Amortization :

Decrease primarily due to higher amortization of intangible lease assets at the Assembly Portfolio ($6.6 million) and Cascade at Landmark ($0.3 million) in 2019, lower depreciation and amortization at same-store properties ($3.4 million) and the dispositions of 1776 G Street ($2.7 million) and Quantico Corporate Center ($0.8 million) in 2019 and John

Marshall II ($2.8 million) and Monument II ($0.4 million) in 2020.

These decreases were partially offset by placing the Trove development ($3.1 million) into service during 2020 and higher depreciation and amortization at Watergate 600 ($0.9 million).

General and administrative expenses :

Decrease primarily due to lower short term incentive compensation ($2.0 million) and severance ($1.1 million) expenses in 2020, partially offset by the reversal of a transfer tax liability in 2019 ($0.7 million).

Real estate impairment:

The real estate impairment charge of $8.4 million during the first quarter of 2019 reduced the carrying value of Quantico Corporate Center to its then-estimated fair value (see note 3 to the consolidated financial statements).

Loss on sale of real estate:

The loss during 2020 is primarily due to losses on the sales of John Marshall II ($6.9 million) and Monument II ($8.6 million), partially offset by a gain on the sale of 1227 25th Street ($1.1 million).

The gain during 2019 is due to the sale of 1776 G Street ($61.0 million), partially offset by a loss on the sale of Quantico Corporate Center ($1.0 million).

Loss on extinguishment of debt:

During the second quarter of 2020, we recognized a loss of $0.2 million related to the prepayment of all $250.0 million of our 4.95% Senior Notes originally scheduled to mature in October 2020.

These losses were partially offset by a gain of $0.5 million on the prepayment of the mortgage note secured by Yale West Apartments during the first quarter of 2020.

Loss on interest rate derivatives :

In December 2020, in connection with the prepayment of our 2015 Term Loan, we terminated interest rate swap agreements with notional amounts in the aggregate of $150.0 million.

As a result of the termination, the accumulated fair value of the interest rate swaps of $0.6 million was reclassified from Accumulated other comprehensive loss to Loss on interest rate derivatives on our consolidated income statements.

Interest Expense :

Interest expense by debt type for the twelve months ended December 31, 2020 and 2019 was as follows (in thousands):

Year Ended December 31,

Debt Type 2020 2019 $ Change % Change

Notes payable $ 33,569 $ 45,595 $ (12,026) (26.4) %

Mortgage notes payable 172 2,074 (1,902) (91.7) %

Line of credit 5,783 9,279 (3,496) (37.7) %

Capitalized interest (2,219) (3,214) 995 31.0 %

Total $ 37,305 $ 53,734 $ (16,429) (30.6) %

• Interest expense for notes payable :

Decrease primarily due to lower interest paid resulting from the prepayment of all $250.0 million of our 4.95% Senior Notes in April 2020 and the execution of a six-month $450.0 million 2019 Term Loan in April 2019 to fund the Assembly Portfolio acquisition that was repaid in the third quarter of 2019, partially offset by the new $150.0 million 2020 Term Loan executed in May 2020 and prepaid in November 2020, and the issuance of the $350.0 million Green Bonds in December 2020.

• Interest expense for mortgage notes payable :

Decrease due to repayment of the mortgage note secured by Yale West Apartments in January 2020.

• Interest expense for line of credit :

Decrease primarily due to a lower weighted average interest rate of 1.5% during 2020, as compared to 3.3% during 2019, partially offset by higher weighted average borrowings of $204.8 million during 2020, as compared to $196.1 million during 2019.

• Capitalized interest :

Decrease primarily due to placing into service assets at Trove.

Discontinued operations:

Income from properties sold or held for sale:

Decrease primarily due to lower real estate rental revenue ($42.5 million) due to the sale of eight retail properties in 2019, partially offset by lower depreciation and amortization ($8.1 million), lower real estate expenses ($8.1 million), lower management fees ($1.1 million) and interest expense ($0.3 million) in 2019.

Gain on sale of real estate:

The net gain during 2019 is due to gains on the sales of a portfolio of five retail properties ($333.0 million) and Frederick Crossing and Frederick County Square ($9.5 million), partially offset by a loss on the sale of Centre at

Hagerstown ($3.5 million) during 2019.

Loss on extinguishment of debt:

We recognized a $0.8 million loss on extinguishment of debt during 2019 related to the prepayment of the mortgage note secured by Olney Village Center prior to that property’s disposition as part of the sale of a portfolio of five retail properties.

Liquidity and Capital Resources

We believe we will have adequate liquidity over the next twelve months to operate our business and to meet our cash requirements, which include meeting our debt obligations, capital commitments and contractual obligations, as well as the payment of dividends, and funding possible growth opportunities.

Through our Office Portfolio and Retail Portfolio sales, which had a combined sale price of approximately $934.3 million, we executed strategic transactions that allowed us and will continue to allow us to expand in Southeastern markets, meet our debt obligations for the next twelve months, complete redemption of all $300.0 million of unsecured notes originally due to mature in 2022 during the third quarter of 2021, and pay a dividend on a quarterly basis.

Through our Office Portfolio and Retail Portfolio sales, which had a combined sale price of approximately $934.3 million, we executed strategic transactions that allowed us to expand into the Sunbelt regions.

In connection with our strategic transformation, we are redesigning our operating model for purposes of more efficiently and effectively supporting residential operations.

We anticipate incurring approximately $11.0 - $13.0 million of transformation costs during 2022.

We expect to realize significant operational benefits from this operating model redesign and complete its implementation in 2023.

We also believe we have adequate liquidity beyond 2022, with only $100.0 million of scheduled debt maturities within the next five years.

We recognized $9.7 million and $6.6 million of transformation costs, net of amounts capitalized, on the consolidated statements of operations during 2022 and 2021, respectively.

Upon completion of the implementation in 2023, w e expect to realize significant operational benefits from this operating model redesign.

We also believe we have adequate liquidity beyond 2023, with only $155.0 million of scheduled debt maturities prior to 2027.

We will continue to assess the payment of our dividends on a quarterly basis.

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We expect that our capital structure will allow us to obtain additional capital from diverse sources that could include additional equity offerings of common shares, public and private secured and unsecured debt financings, asset dispositions, operating units and joint venture equity.

Our ability to raise funds through the incurrence of debt and issuance of equity securities is dependent on, among other things, general economic conditions including the impacts of the COVID-19 pandemic, general market conditions for REITs, our operating performance, our debt rating, the current trading price of our common shares and other capital market conditions.

Our ability to raise funds through the incurrence of debt and issuance of equity securities is dependent on, among other things, general economic conditions including general market conditions for REITs, our operating performance, our debt rating, the current trading price of our common shares and other capital market conditions.

We analyze which source of capital we believe to be most advantageous to us at any particular point in time.

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• Net proceeds from the sale of assets.

During 2022, we expect that we will have significant capital requirements, including the following items:

During 2023, we expect that we will have significant capital requirements, including the following:

• Funding dividends and distributions to our shareholders (which we intend to continue to pay at or about current levels);

• Approximately $15.0 - $20.0 million to invest in our existing portfolio of operating assets;

• Approximately $10.0 - $15.0 million to invest in our development and redevelopment projects;

• Less than $1.0 million to invest in our development and redevelopment projects;

• Funding for potential property acquisitions throughout 2023, offset by proceeds from potential property dispositions.

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We currently believe that we will have enough cash on hand and/or will generate sufficient cash flow from operations and potential property sales and have access to the capital resources necessary to fund our requirements in 2023.

However, as a result of the uncertainty of the future impacts of the COVID-19 pandemic, general market conditions in the greater Washington, DC metro and Southeast regions, economic conditions affecting the ability to attract and retain tenants, declines in our share price, unfavorable changes in the supply of competing properties, or our properties not performing as expected, we may not generate sufficient cash flow from operations and property sales or otherwise have access to capital on favorable terms, or at all.

However, as a result of general market conditions in the greater Washington, DC metro and Sunbelt regions, economic conditions affecting the ability to attract and retain residents and tenants or achieve anticipated rental rates, declines in our share price, unfavorable changes in the supply of competing properties, or our properties not performing as expected, we may not generate sufficient cash flow from operations and property sales or otherwise have access to capital on favorable terms, or at all.

If we are unable to obtain capital from other sources, we may need to alter capital spending to be materially different than what is stated in the prior paragraph.

If capital were not available, we may be unable to satisfy the distribution requirement applicable

to REITs, make required principal and interest payments, make strategic acquisitions or make necessary and/or routine capital improvements or undertake improvement/redevelopment opportunities with respect to our existing portfolio of operating assets.

If capital were not available, we may be unable to satisfy the distribution requirement applicable to REITs, make required principal and interest payments, make strategic acquisitions or make necessary and/or routine capital improvements or

undertake improvement/redevelopment opportunities with respect to our existing portfolio of operating assets.

Debt Financing

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______________________________

(1) WashREIT entered into an interest rate swap to effectively fix a LIBOR plus 110 basis points floating interest rate to a 2.31% all-in fixed rate for the remaining $100.0 million portion of the 2018 Term Loan.

The interest rates are fixed through the term loan maturity of July 2023.

The weighted average maturity for our debt is 7.2 years.

If principal amounts due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow may be insufficient to repay all maturing debt.

Prevailing interest rates or other factors at the time of a refinancing, such as possible reluctance of lenders to

make commercial real estate loans, may result in higher interest rates and increased interest expense or inhibit our ability to finance our obligations.

(1) Elme Communities entered into an interest rate swap to effectively fix a LIBOR plus 110 basis points floating interest rate to a 2.31% all-in fixed rate for the remaining $100.0 million portion of the 2018 Term Loan.

The interest rates were fixed through the term loan maturity of July 2023.

Subsequent to the end of 2022, we prepaid the 2018 Term Loan with proceeds from a $125.0 million unsecured term loan which matures in 2025 ("2023 Term Loan").

The 2023 Term Loan has an interest rate of SOFR (subject to a credit spread adjustment of 10 basis points) plus a margin of 95 basis points.

The interest rate swap effectively fixes a $100.0 million potion of the 2023 Term Loan at 2.16% through the interest rate swap's expiration date of July 21, 2023.

The weighted average maturity for our debt was 5.9 years as of December 31, 2022.

If principal amounts due at maturity cannot

be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow may be insufficient to repay all maturing debt.

Prevailing interest rates or other factors at the time of a refinancing, such as possible reluctance of lenders to make commercial real estate loans, may result in higher interest rates and increased interest expense or inhibit our ability to finance our obligations.

From time to time, we may seek to repurchase and cancel our outstanding unsecured notes and term loans through open market purchases, privately negotiated transactions or otherwise.

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Debt Covenants

Pursuant to the terms of our Revolving Credit Facility, 2018 Term Loan and unsecured notes, we are subject to customary operating covenants and maintenance of various financial ratios.

Failure to comply with any of the covenants under our Revolving Credit Facility, 2018 Term Loan, unsecured notes or other debt instruments could result in a default under one or more of our debt instruments.

Pursuant to the terms of our Revolving Credit Facility, our term loans and unsecured notes, we are subject to customary operating covenants and maintenance of various financial ratios.

Failure to comply with any of the covenants under our Revolving Credit Facility, our term loans, unsecured notes or other debt instruments could result in a default under one or more of our debt instruments.

This could cause our lenders to accelerate the timing of payments and could therefore have a material adverse effect on our business, operations, financial condition and liquidity.

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We may use net proceeds from the issuance of common shares under this program for general business purposes, including, without limitation, working capital, the acquisition, renovation, expansion, improvement, development or redevelopment of income producing properties or the repayment of debt.

Our issuances and net proceeds on the Equity Distribution Agreements in 2021 and 2020 and the Original Equity Distribution Agreements in 2020 and 2019, respectively, were as follows (in thousands, except per share data):

Our issuances and net proceeds on the Equity Distribution Agreements in 2022 and 2021 and the Original Equity Distribution Agreements in 2020, respectively, were as follows (in thousands, except per share data):

Year Ended December 31,

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Net proceeds $ 26,849 40,462 $ 48,355

Subsequent to December 31, 2021, we issued an additional 1.0 million shares at a weighted average price per share of $26.27 for net proceeds of $26.9 million.

We have a dividend reinvestment program, whereby shareholders may use their dividends and optional cash payments to purchase common shares.

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Our board of trustees can, at its discretion, authorize the issuance of up to 10.0 million preferred shares.

The ability to issue preferred equity provides WashREIT an additional financing tool that may be used to raise capital for future acquisitions or other business purposes.

The ability to issue preferred equity provides Elme Communities an additional financing tool that may be used to raise capital for future acquisitions or other business purposes.

As of December 31, 2022, no preferred shares are issued and outstanding.

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We will require capital for development and redevelopment projects currently underway and in the future.

We are currently engaged in development activities on land adjacent to The Wellington and predevelopment activities for the ground-up development of a residential property on land adjacent to Riverside Apartments.

As of December 31, 2021, we had no outstanding contractual commitments related to our development and redevelopment projects, and expect to fund approximately $10.0 - $15.0 million of total development and redevelopment spending during 2022.

In addition to our development and redevelopment projects, we anticipate funding approximately $25.0 million on several major renovation projects at our residential properties during 2022.

We are currently engaged in predevelopment activities for the ground-up development of a residential property on land adjacent to Riverside Apartments.

As of December 31, 2022, we had no outstanding contractual commitments related to our development and redevelopment projects and expect to fund less than $1.0 million of total development and redevelopment spending during 2023.

In addition to our development and redevelopment projects, we anticipate funding approximately $30.0 - $35.0 million on several major renovation projects at our residential communities during 2023.

These projects include unit renovations, property technology initiatives, common area and mechanical upgrades, pool deck renovations, facade and retaining wall restorations and fire system and roof replacements.

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$ 694,269 $ 120,740 $ 111,318 $ 84,150 $ 378,061

Purchase obligations (2)

______________________________

Tenant-related capital (3)

1,813 1,813 — — —

Building capital (4)

1,769 1,769 — — —

Operating leases 4,378 1,148 3,230 — —

______________________________

(1) See notes 6 and 7 of the consolidated financial statements.

Amounts include principal, interest and facility fees.

(2) Represents electricity and gas purchase agreements with terms through 2024.

(3) Committed tenant-related capital based on executed leases as of December 31, 2021.

(4) Committed building capital additions based on contracts in place as of December 31, 2021.

We have various standing or renewable contracts with vendors.

The majority of these contracts can be canceled with immaterial or no cancellation penalties, with the exception of our elevator maintenance agreements and our electricity and gas purchase agreements, which are included above on the purchase obligations line.

In addition to our long-term debt, we have committed building capital expenditures of $4.9 million in 2023 based on contracts in place as of December 31, 2022, along with other various standing or renewable contracts with vendors.

Contract terms on leases that can be canceled are generally one year or less.

We are currently committed to fund tenant-related capital improvements as described in the table above for executed leases.

However, expected leasing levels could require additional tenant-related capital improvements which are not currently committed.

Historical Cash Flows

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Cash provided by operating activities $ 73,211 $ 89,156 $ 112,978 $ (15,945) $ (23,822)

Cash provided by investing activities 702,170 65,760 61,036 636,410 4,724

Cash (used in) provided by investing activities (241,163) 702,170 65,760 (943,333) 636,410

Cash used in financing activities (56,416) (565,396) (185,199) 508,980 (380,197)

Net cash provided by operating activities decreased in 2021 as compared to 2020 primarily due to the sales of the Office Portfolio and the Retail Portfolio during 2021 (see note 3 to the consolidated financial statements) and costs associated with our strategic transformation.

Net cash provided by operating activities decreased in 2020 as compared to 2019 primarily due to the sales of the 8 retail properties and 1776 G Street during 2019 and John Marshall II in 2020 (see note 3 to the consolidated financial statements).

Net cash provided by investing activities increased in 2021 as compared to 2020 primarily due to the sales of the Office Portfolio and the Retail Portfolio partially offset by the acquisitions of The Oxford and Assembly Eagles Landing during 2021.

Net cash provided by investing activities increased in 2020 as compared to 2019 primarily due to lower development expenditures during 2020.

Net cash provided by operating activities decreased in 2022 as compared to 2021 and in 2021 as compared to 2020 primarily due to the sales of the Office Portfolio and the Retail Portfolio during 2021 (see note 3 to the consolidated financial statements) and costs associated with our strategic transformation.

Net cash (used in) provided by investing activities decreased in 2022 as compared to 2021 and increased in 2021 as compared to 2020 primarily due to the sales of the Office Portfolio and the Retail Portfolio during 2021.

These were partially offset by the acquisitions of The Oxford and Assembly Eagles Landing during 2021 and acquisitions of Marietta Crossing, Alder Park and Carlyle of Sandy Springs during 2022.

Net cash used in financing activities decreased in 2022 as compared to 2021 primarily due to a higher volume of debt repayments during 2021 and higher net proceeds from equity issuances and lower dividends paid in 2022.

Net cash used in financing activities increased in 2021 as compared to 2020 primarily due to the repayment of $300.0 million of unsecured notes and higher net repayments on the Revolving Credit Facility during 2021.

Net cash used in financing activities increased in 2020 as compared to 2019 primarily due to higher repayments of notes payable and term loans, the repayment of the mortgage note and the settlement of certain interest rate swaps (see note 7 to the consolidated financial statements), partially offset by lower net repayments on the Revolving Credit Facility.

Capital Improvements and Development Costs

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Accretive capital improvements and development costs:

Acquisition related $ 7,218 $ 10,487 $ 9,158

Acquisition related improvements $ 5,236 $ 7,218 $ 10,487

Expansions and major renovations 21,476 17,096 16,561

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Acquisition related improvements are capital improvements to properties acquired during the preceding three years which were anticipated at the time we acquired the properties.

These types of improvements were made in 2021 to the Assembly Portfolio and Cascade at Landmark.

These types of improvements were made in 2022 to the Carlyle of Sandy Springs, Assembly Eagles Landing and The Oxford.

Expansions and Major Renovations:

Expansion projects increase the rentable area of a property, while major renovation projects are improvements sufficient to increase the income otherwise achievable at a property.

Expansions and major renovations during 2021 included common area, lobby, unit and facade renovations at Riverside Apartments;

heating system replacement, unit renovations and solar panel installations at 3801 Connecticut Avenue;

plaza restoration and elevator modernization at The Ashby and common area and unit renovations at the Assembly Portfolio.

Expansions and major renovations during 2022 included unit, hallway, retaining walls renovations and SmartRent and wifi installations at Assembly Alexandria;

retail space conversion into additional units and plaza restoration at The Ashby;

unit renovations, roof and heating system replacement at Assembly Dulles;

unit and facade renovations and fire alarm system replacement at Riverside Apartments;

unit renovations and SmartRent installations at Assembly Manassas and unit renovations, roof awnings and

heating system replacement at The Wellington.

Development/Redevelopment:

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Redevelopment costs represent expenditures for improvements intended to reposition properties in their markets and generate more income than would be otherwise achievable.

Development/redevelopment costs in 2021 primarily include development costs for Trove, which was placed into service in the first quarter of 2021, and predevelopment costs for a future residential development adjacent to Riverside Apartments.

Development/redevelopment costs in 2022 include predevelopment costs for a future residential development adjacent to Riverside Apartments.

Other Capital Improvements

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In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters.

Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Additional factors include, but are not limited to:

Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Elme Communities to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Additional factors which may cause the actual results, performance or achievements of Elme Communities to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to:

(a) the risks associated with ownership of real estate in general and our real estate assets in particular;

(b) the economic health of the greater Washington, DC metro and Southeast region;

(c) the risk of failure to enter into and/or complete contemplated acquisitions and dispositions, at all, within the price ranges anticipated and on the terms and timing anticipated;

(d) changes in the composition of our portfolio;

(e) fluctuations in interest rates;

(f) reductions in or actual or threatened changes to the timing of federal government spending;

(g) the risks related to use of third-party providers;

(h) the economic health of our residents;

(i) the ultimate duration of the COVID-19 global pandemic, including any mutations thereof, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment

measures, the effectiveness and willingness of people to take COVID-19 vaccines, and the duration of associated immunity and efficacy of the vaccines against emerging variants of COVID-19;

(j) compliance with applicable laws and corporate social responsibility goals, including those concerning the environment and access by persons with disabilities;

(k) the risks related to not having adequate insurance to cover potential losses;

(l) changes in the market value of securities;

(m) terrorist attacks or actions and/or cyber-attacks;

(n) whether we will succeed in the day-to-day property management and leasing activities that we have previously outsourced;

(o) the availability and terms of financing and capital and the general volatility of securities markets;

(p) risks related to changes in interest rates, including the future of the reference rate used in our existing floating rate debt instruments;

(q) the risks related to our organizational structure and limitations of stock ownership;

(r) failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs;

(s) other factors discussed under the caption “Risk Factors.”

(b) the economic health of the areas in which our properties are located, particularly with respect to greater Washington, DC metro and Sunbelt region;

(c) risks associated with our ability to execute on our strategies, including new strategies with respect to our operations and our portfolio, including our ability to realize any anticipated operational benefits from our internalization of community management functions;

(d) the risk of failure to enter into and/or complete contemplated acquisitions and dispositions, or at all, within the price ranges anticipated and on the terms and timing anticipated;

(e) changes in the composition of our portfolio, including the acquisition of apartment homes in the Sunbelt markets;

(f) risks related to changes in interest rates, including the future of the reference rate used in our existing floating rate debt instruments;

(g) reductions in or actual or threatened changes to the timing of federal government spending;

(h) the risks related to use of third-party providers;

(i) the economic health of our residents;

(j) the ultimate duration of the COVID-19 global pandemic, including any mutations thereof, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, the effectiveness and willingness of people to take COVID-19 vaccines, and the duration of associated immunity and efficacy of the vaccines against emerging variants of COVID-19;

(k) the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdown or a recession and geopolitical conflicts);

(l) compliance with applicable laws and corporate social responsibility goals, including those concerning the environment

and access by persons with disabilities;

(m) the risks related to not having adequate insurance to cover potential losses;

(n) changes in the market value of securities;

(o) terrorist attacks or actions and/or cyber-attacks;

(p) whether we will succeed in the day-to-day property management and leasing activities that we have previously outsourced;

(q) the availability and terms of financing and capital and the general volatility of securities markets;

(r) the risks related to our organizational structure and limitations of share ownership;

(s) failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs;

(t) other factors discussed under the caption “Risk Factors.”

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance.

12 unchanged sentences

2022 2021 2020

Net income (loss) $ 16,384 $ (15,680) $ 383,550

Net (loss) income $ (30,868) $ 16,384 $ (15,680)

Depreciation and amortization 91,722 72,656 70,336

Real estate impairment — — 8,374

Loss (gain) on sale of depreciable real estate, net — 15,009 (59,961)

Loss on sale of depreciable real estate, net — — 15,009

Discontinued operations:

8 unchanged sentences

We cannot assure you that actual results will not differ from those estimates.

We believe the following accounting estimates are the most critical to aid in fully understanding our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

We believe the following accounting estimates are the most critical to aid in fully understanding our reported financial results,

and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

Accounting for Asset Acquisitions

3 unchanged sentences

We determine the fair value of land acquired based on comparisons to similar properties that have been recently marketed for sale or sold.

The fair value of in-place leases are based upon our evaluation of the specific characteristics of the leases.

The fair value of in-place leases is based upon our evaluation of the specific characteristics of the leases.

Factors considered in the fair value analysis include the estimated cost to replace the leases, including foregone rents and expense reimbursements during hypothetical expected lease-up periods (referred to as “absorption cost”), consideration of current market conditions and costs to execute similar leases.

5 unchanged sentences

When determining if a property has indicators of impairment, we evaluate the property's occupancy, our expected holding period for the property, strategic decisions regarding the property's future operations or development and other market factors.

If such carrying amount is in excess of the estimated undiscounted cash flows from the operation and disposal of the property, we would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated fair value, calculated in

accordance with current GAAP fair value provisions.

Assets held for sale are recorded at the lower of cost or fair value less costs to sell.

Federal Income Taxes

Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiaries.

Our taxable REIT subsidiaries are subject to corporate U.S.

federal and state income tax on their taxable income at regular statutory rates, or as calculated under the alternative minimum tax, as appropriate.

As of both December 31, 2021 and 2020, our TRSs had a deferred tax asset of $1.4 million that was fully reserved.

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-K

Item 7. Management’s Discussion and Analysis