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Item 1. Financial Statements

2023-04-28 compared with 2022-10-28 · 102 added, 286 removed, 294 unchanged (57% of the section changed)

5 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE DATA )

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Land $ 373,171 $ 373,171

23 unchanged sentences

Shares of beneficial interest, $ 0.01 par value;

150,000 and 100,000 shares authorized;

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

150,000 shares authorized;

87,709 and 87,534 shares issued and outstanding, as of March 31, 2023 and December 31, 2022, respectively

Additional paid in capital 1,731,701 1,729,854

9 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Real estate rental revenue $ 55,809 $ 47,804

9 unchanged sentences

Interest expense ( 6,831 ) ( 5,650 )

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

Loss on extinguishment of debt ( 54 ) —

1 unchanged sentence

( 6,885 ) ( 5,264 )

Loss from continuing operations ( 10,739 ) ( 22,330 ) ( 27,337 ) ( 46,344 )

Discontinued operations:

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

Basic net (loss) income per common share:

Continuing operations $ ( 0.12 ) $ ( 0.26 ) $ ( 0.32 ) $ ( 0.55 )

Discontinued operations — 0.63 — 0.82

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

Diluted net (loss) income per common share:

Continuing operations $ ( 0.12 ) $ ( 0.26 ) $ ( 0.32 ) $ ( 0.55 )

Discontinued operations — 0.63 — 0.82

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

Net loss $ ( 3,643 ) $ ( 7,724 )

Basic net loss per common share $ ( 0.04 ) $ ( 0.09 )

Diluted net loss per common share $ ( 0.04 ) $ ( 0.09 )

Weighted average shares outstanding – basic 87,649 87,214

4 unchanged sentences

(IN THOUSANDS)

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

2022 2021 2022 2021

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

Other comprehensive income:

Unrealized gain on interest rate hedges 442 221 3,284 2,805

Three Months Ended March 31,

Net loss $ ( 3,643 ) $ ( 7,724 )

Other comprehensive (loss) income:

Unrealized (loss) gain on interest rate hedges ( 333 ) 1,925

Reclassification of unrealized loss on interest rate derivatives to earnings 510 510

Comprehensive (loss) income $ ( 9,788 ) $ 32,051 $ ( 22,524 ) $ 33,275

Comprehensive loss $ ( 3,466 ) $ ( 5,289 )

See accompanying notes to the consolidated financial statements.

6 unchanged sentences

Net loss — — — ( 3,643 ) — ( 3,643 ) — ( 3,643 )

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

Unrealized loss on interest rate hedges — — — — ( 333 ) ( 333 ) — ( 333 )

Amortization of swap settlements — — — — 510 510 — 510

2 unchanged sentences

— — — ( 15,852 ) — ( 15,852 ) — ( 15,852 )

Equity issuances, net of issuance costs 1,032 10 26,841 — — 26,851 — 26,851

Shares issued under Dividend Reinvestment Program 14 — 248 — — 248 — 248

Share grants, net of forfeitures and tax withholdings 161 2 1,599 — — 1,601 — 1,601

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

Balance, March 31, 2023 87,709 $ 877 $ 1,731,701 $ ( 472,503 ) $ ( 14,056 ) $ 1,246,019 $ 296 $ 1,246,315

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, 2021 86,261 $ 863 $ 1,697,477 $ ( 362,494 ) $ ( 19,091 ) $ 1,316,755 $ 307 $ 1,317,062

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

Amortization of swap settlements — — — — 1,530 1,530 — 1,530

Distributions to noncontrolling interests — — — — — — ( 13 ) ( 13 )

Dividends ($ 0.77 per common share)

— — — ( 65,372 ) — ( 65,372 ) — ( 65,372 )

Equity issuances, net of issuance costs 24 — 467 — — 467 — 467

Shares issued under Dividend Reinvestment Program 65 — 1,468 — — 1,468 — 1,468

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

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.

ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(IN THOUSANDS)

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

Net loss — — — ( 7,724 ) — ( 7,724 ) — ( 7,724 )

4 unchanged sentences

— — — ( 14,890 ) — ( 14,890 ) — ( 14,890 )

Shares issued under Dividend Reinvestment Program 12 — 259 — — 259 — 259

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

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, 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

Distributions to noncontrolling interests — — — — — — ( 5 ) ( 5 )

Dividends ($ 0.17 per common share)

— — — ( 14,437 ) — ( 14,437 ) — ( 14,437 )

Equity issuances, net of issuance costs 1,032 10 26,841 — — 26,851 — 26,851

Shares issued under Dividend Reinvestment Program 10 — 264 — — 264 — 264

Share grants, net of forfeitures and tax withholdings 111 1 1,246 — — 1,247 — 1,247

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

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

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(IN THOUSANDS)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

3 unchanged sentences

Credit losses on lease related receivables 703 410

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

Share-based compensation expense 1,188 2,082

Net amortization of debt premiums, discounts and related financing costs 1,048 1,001

Loss on interest rate derivatives — 5,866

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

Loss on extinguishment of debt 54 —

Changes in operating other assets ( 872 ) ( 735 )

3 unchanged sentences

Real estate acquisitions, net — ( 104,572 )

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

Capital improvements to real estate ( 5,569 ) ( 4,004 )

Development in progress — ( 595 )

Insurance proceeds 2,224 —

Real estate deposits, net — ( 5,330 )

Non-real estate capital improvements ( 222 ) ( 32 )

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

Net cash used in investing activities ( 5,791 ) ( 114,533 )

Cash flows from financing activities

1 unchanged sentence

Dividends paid ( 14,917 ) ( 14,615 )

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 ( 100,000 ) —

Settlement of interest rate derivatives — ( 5,866 )

Proceeds from term loan 125,000 —

Payment of financing costs ( 844 ) ( 39 )

3 unchanged sentences

Payment of tax withholdings for restricted share awards ( 1,304 ) ( 451 )

Net cash used in financing activities ( 52,555 ) ( 589,512 )

Net cash (used in) provided by financing activities ( 11,819 ) 12,009

Net decrease in cash, cash equivalents and restricted cash ( 1,321 ) ( 93,873 )

4 unchanged sentences

(IN THOUSANDS)

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental disclosure of cash flow information:

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

March 31, 2023

NATURE OF BUSINESS

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.

Elme Communities, a Maryland real estate investment trust, is a self-administered equity real estate investment trust (“REIT”), and successor to a trust organized in 1960.

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 March 31, 2023 and March 31, 2022 as the “2023 Quarter” and the “2022 Quarter,” respectively.

Federal Income Taxes

We believe that we qualify as a real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”), and intend to continue to qualify as such.

We believe that we qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”), and intend to continue to qualify as such.

To maintain our status as a REIT, we are, among other things, required to distribute 90% of our REIT taxable income (determined before the deduction for dividends paid and excluding net capital gains to our shareholders) on an annual basis.

2 unchanged sentences

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

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.

As of both March 31, 2023 and December 31, 2022, our TRS had a deferred tax asset of $ 1.4 million that was fully reserved.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS

1 unchanged sentence

We have prepared our consolidated financial statements using the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform ("Topic 848"), which was amended in December 2022 by ASU 2022-06, Reference Rate Reform (Topic 848).

Topic 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in Topic 848 is optional and may be elected through December 31, 2024 as reference rate reform activities occur.

During the 2023 Quarter, we executed an amendment to the $ 700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) to convert the benchmark interest rate from LIBOR to an adjusted SOFR ("Secured Overnight Financing Rate").

We elected to apply the optional expedients in Topic 848 to (i) assert that the hedged interest payments remain probable regardless of any expected modification in terms related to reference rate reform, and (ii) continue the method of assessing effectiveness as documented in the original hedge documentation so that the reference rate on the hypothetical derivative matches the reference rate on the hedging instrument.

Application of these expedients preserves the presentation of derivatives consistent with past presentation.

The impact of this guidance did not have a material impact on our consolidated financial statements.

Principles of Consolidation and Basis of Presentation

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.

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

All intercompany balances and transactions have been eliminated in consolidation.

We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Certain information and note disclosures normally included in annual financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading.

those rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading.

In addition, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the periods presented have been included.

These unaudited financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Held for Sale and Discontinued Operations

We classify properties as held for sale when they meet the necessary criteria, which include:

(a) senior management commits to a plan to sell the assets;

(b) the assets are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of such assets;

(c) an active program to locate a buyer and other actions required to complete the plan to sell the assets has been initiated;

(d) the sale of the assets is probable and transfer of the assets is expected to qualify for recognition as a completed sale within one year;

(e) the assets are being actively marketed for sale at a price that is reasonable in relation to its current fair value;

and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Depreciation on these properties is discontinued at the time they are classified as held for sale, but operating revenues, operating expenses and interest expense continue to be recognized until the date of sale.

Revenues and expenses of properties that are either sold or classified as held for sale are presented as discontinued operations for all periods presented in the consolidated statements of operations if the dispositions represent a strategic shift that has (or will have) a major effect on our operations and financial results.

If the dispositions do not represent a strategic shift that has (or will have) a major effect on our operations and financial results, then the revenues and expenses of the properties that are classified as sold or held for sale are presented as continuing operations in the consolidated statements of operations for all periods presented.

Lessee Accounting

2 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 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.

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.”

Restricted Cash

Restricted cash includes funds held in escrow for tenant security deposits and mortgage escrows.

Restricted cash includes funds held in escrow for tenant security deposits.

Transformation Costs

3 unchanged sentences

Actual results could differ from those estimates.

We acquired the following properties during the 2022 Period:

Acquisition Date Property Type # of homes Ending Occupancy (1)

Purchase Price

(in thousands)

February 1, 2022 Carlyle of Sandy Springs Residential 389 93.1 % $ 105,586

May 5, 2022 Marietta Crossing Residential 420 94.5 % 107,900

May 5, 2022 Alder Park Residential 270 95.2 % 69,750

1,079 $ 283,236

______________________________

(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 September 30, 2022 Nine Months Ended September 30, 2022

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

Net loss ( 7,427 ) ( 11,034 )

We accounted for the 2022 acquisitions as asset acquisitions.

We measured the value of the acquired physical assets (land and building), in-place leases (absorption costs) and mortgage notes by allocating the total cost of the acquisition on a relative fair value basis .

The total cost of the 2022 acquisitions was as follows (in thousands):

Contract purchase price $ 283,236

Capitalized acquisition costs 478

Total $ 283,714

We have recorded the 2022 acquisitions as follows (in thousands):

Land $ 50,547

Building 220,825

Absorption costs 7,300

Aggregate discount on assumed mortgages 5,042

Total acquisition cost 283,714

Outstanding balance on assumed mortgages ( 76,554 )

Total carrying amounts recorded $ 207,160

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

As of March 31, 2023, 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.

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

2 unchanged sentences

We did not sell or classify any properties as held for sale during the 2022 Period.

We sold the following properties during 2021 ($ in thousands):

Disposition Date Property Name Property Type Rentable Square Feet Contract Sales Price (Loss) Gain on Sale

July 26, 2021 Office Portfolio (1)

Office 2,370,000 $ 766,000 $ ( 11,220 )

September 22, 2021 Retail Portfolio (2)

Retail 693,000 168,314 57,661

Total 2021 3,063,000 $ 934,314 $ 46,441

______________________________

(1) Consists of twelve office properties:

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.

(2) Consists of eight retail properties:

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

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

We have fully transferred control of the assets sold in 2021 and do not have continuing involvement in their operations.

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 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.

We did not sell or classify any properties as held for sale during the 2023 Quarter or in 2022.

As of March 31, 2023, we assessed our properties, including assets held for development, for impairment and did no t recognize any impairment charges during the 2023 Quarter.

We applied reasonable estimates and judgments in evaluating each of the properties as of March 31, 2023.

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.

Discontinued Operations

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 September 30, 2021 Nine Months Ended September 30, 2021

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

Property operating and maintenance ( 1,870 ) ( 11,201 )

Real estate taxes and insurance ( 1,476 ) ( 11,136 )

Property management ( 378 ) ( 2,195 )

Depreciation and amortization — ( 22,904 )

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

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

Basic net income per share $ 0.63 $ 0.82

Diluted net income per share $ 0.63 $ 0.82

Capital expenditures $ 833 $ 3,316

All assets and liabilities related to the Office Portfolio and Retail Portfolio were sold as of December 31, 2021.

UNSECURED LINE OF CREDIT PAYABLE

During the third quarter of 2021, we entered into an amended and restated credit agreement (“Credit Agreement”) which provides for a $ 700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) and the continuation of an existing $ 250.0 million unsecured term loan (“2018 Term Loan”).

During the third quarter of 2021, we entered into an amended and restated credit agreement (“Credit Agreement”) which provides for the Revolving Credit Facility and the continuation of an existing $ 250.0 million unsecured term loan (“2018 Term Loan”).

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

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 Elme Communities’ 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 %.

During the 2023 Quarter, we executed an amendment to the Revolving Credit Facility to convert the benchmark interest rate from LIBOR to an adjusted SOFR ("Secured Overnight Financing Rate"), with no change in the applicable interest rate margins.

The Revolving Credit Facility bears interest at a rate of daily SOFR plus 0.10 % plus a margin ranging from 0.70 % to 1.40 %.

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 %.

As of March 31, 2023, the interest rate on the Revolving Credit Facility is adjusted SOFR (inclusive of the 0.10 % credit spread adjustment) plus 0.85 %, the daily SOFR is 4.87% 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.

Interest only payments are due and payable generally on a monthly basis.

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 Elme Communities’ 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.

On September 27, 2021, we prepaid a $ 150.0 million portion of the 2018 Term Loan using proceeds from the sale of the Office Portfolio and Retail Portfolio (see note 3).

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 September 30, 2022 was as follows (in thousands):

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at March 31, 2023 was as follows (in thousands):

Committed capacity $ 700,000

1 unchanged sentence

Unused and available $ 665,000

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 2023 Quarter as follows (in thousands):

Balance at June 30, 2022 $ —

Balance, December 31, 2022 $ 55,000

Borrowings 125,000

Repayments ( 145,000 )

Balance at September 30, 2022 $ 43,000

MORTGAGE NOTES PAYABLE

In May 2022, we assumed a $ 42.8 million mortgage note in connection with the acquisition of Marietta Crossing.

This mortgage note bears interest at 3.36 % per annum.

The effective interest rate on this mortgage note is 4.50 % based on quotes obtained for similar loans.

We recorded the mortgage note at its estimated fair value of $ 40.0 million.

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

In May 2022, we assumed a $ 33.7 million mortgage note in connection with the acquisition of Alder Park.

This mortgage note bears interest at 2.93 % per annum.

The effective interest rate on this mortgage note is 4.00 % based on quotes obtained for similar loans.

We recorded the mortgage note at its estimated fair value of $ 31.5 million.

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.

Balance, March 31, 2023 $ 35,000

NOTES PAYABLE

During the 2023 Quarter, 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 (subject to adjustment depending on Elme Communities’ credit rating).

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.

DERIVATIVE INSTRUMENTS

We have one interest rate swap arrangement with a notional amount of $ 100.0 million that effectively fixes the remaining $ 100.0 million portion of the 2018 Term Loan.

The interest rate swap arrangement is recorded at fair value in accordance with GAAP, based on discounted cash flow methodologies and observable inputs.

We record the effective portion of changes in fair value of the cash flow hedge in Other comprehensive income (loss).

We have an interest rate swap arrangement with a notional amount of $ 100.0 million that had effectively fixed the remaining $ 100.0 million portion of the 2018 Term Loan prior to the prepayment.

During the 2023 Quarter, we prepaid the 2018 Term Loan using proceeds from the $ 125.0 million 2023 Term Loan (see note 5).

Subsequent to this transaction, the interest swap arrangement effectively fixes the interest rate on a $ 100.0 million portion of the 2023 Term Loan through the interest rate swap arrangement’s expiration date of July 21, 2023.

In March 2023, we entered into two interest rate swap arrangements with an aggregate notional amount of $ 125.0 million that will effectively fix the interest of the 2023 Term Loan beginning on July 21, 2023 through the 2023 Term Loan’s maturity date of January 10, 2025.

The interest rate swap arrangements are recorded at fair value in accordance with GAAP, based on discounted cash flow methodologies and observable inputs.

We record the effective portion of changes in fair value of the cash flow hedges in Other comprehensive income (loss).

We assess the effectiveness of a cash flow hedge both at inception and on an ongoing basis.

1 unchanged sentence

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

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

The fair values of the interest rate swaps as of March 31, 2023 and December 31, 2022, were as follows (in thousands):

Derivative Assets (Liabilities)

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

Derivative Instrument Aggregate Notional Amount Effective Date Maturity Date March 31, 2023 December 31, 2022

Interest rate swap $ 100,000 March 31, 2017 July 21, 2023 $ 1,148 $ 1,998

Interest rate swap 75,000 July 21, 2023 January 10, 2025 310 —

Interest rate swap 50,000 July 21, 2023 January 10, 2025 207 —

$ 1,665 $ 1,998

We record interest rate swaps on our consolidated balance sheets within Prepaid expenses and other assets when in a net asset position and within Accounts payable and other liabilities when in a net liability position.

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

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

2022 2021 2022 2021

Unrealized gain on interest rate hedges $ 442 $ 221 $ 3,284 $ 2,805

Three Months Ended March 31,

Unrealized (loss) gain on interest rate hedges $ ( 333 ) $ 1,925

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 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

The gains or losses reclassified from Accumulated other comprehensive loss into interest expense for the three months ended March 31, 2023 and 2022, were as follows (in thousands):

Three Months Ended March 31,

Loss reclassified from accumulated other comprehensive loss into interest expense $ 510 $ 510

1 unchanged sentence

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 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.

As of March 31, 2023, the fair value of derivative assets, including accrued interest, was $ 1.7 million and we did no t have any derivatives in a liability position.

As of March 31, 2023, 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.

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Significant unobservable inputs

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).

The only assets or liabilities we had at March 31, 2023 and December 31, 2022 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.

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

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

The fair values of these assets at March 31, 2023 and December 31, 2022 were as follows (in thousands):

March 31, 2023 December 31, 2022

Value Level 1 Level 2 Level 3 Fair

2 unchanged sentences

Interest rate derivatives 1,665 — 1,665 — 1,998 — 1,998 —

Interest rate derivatives $ — $ — $ — $ — $ ( 821 ) $ — $ ( 821 ) $ —

Financial Assets and Liabilities Not Measured at Fair Value

3 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 September 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 March 31, 2023 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 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

As of March 31, 2023 and December 31, 2022, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):

March 31, 2023 December 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

3 unchanged sentences

Notes payable, net 521,761 476,468 497,359 454,564

STOCK BASED COMPENSATION

SHARE-BASED COMPENSATION

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

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Total Compensation Expense

Total compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $ 1.9 million and $ 2.7 million for the 2022 Quarter and 2021 Quarter, respectively and $ 6.2 million and $ 6.5 million for the 2022 and 2021 Period, respectively.

Total compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $ 1.2 million and $ 2.1 million for the 2023 Quarter and 2022 Quarter, respectively.

Restricted Share Awards

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 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.

The total fair values of restricted share awards vested was $ 3.4 million and $ 1.2 million for the 2023 Quarter and 2022 Quarter, respectively.

The total unvested restricted share awards at March 31, 2023 was 388,984 shares, which had a weighted average grant date fair value of $ 20.16 per share.

As of March 31, 2023, the total compensation cost related to unvested restricted share awards was $ 7.0 million, which we expect to recognize over a weighted average period of 30 months.

EARNINGS PER COMMON SHARE

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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 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

Loss from continuing operations $ ( 10,739 ) $ ( 22,330 ) $ ( 27,337 ) $ ( 46,344 )

The computations of basic and diluted earnings per share for the three months ended March 31, 2023 and 2022 were as follows (in thousands, except per share data):

Three Months Ended March 31,

Net loss $ ( 3,643 ) $ ( 7,724 )

Allocation of earnings to unvested restricted share awards ( 70 ) ( 72 )

Adjusted net loss from continuing operations ( 10,807 ) ( 22,209 ) ( 27,528 ) ( 46,693 )

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

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

Adjusted net loss $ ( 3,713 ) $ ( 7,796 )

Weighted average shares outstanding – basic and diluted 87,649 87,214

Earnings per common share, basic:

Continuing operations $ ( 0.12 ) $ ( 0.26 ) $ ( 0.32 ) $ ( 0.55 )

Discontinued operations — 0.63 — 0.82

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

Earnings per common share, diluted:

Continuing operations $ ( 0.12 ) $ ( 0.26 ) $ ( 0.32 ) $ ( 0.55 )

Discontinued operations — 0.63 — 0.82

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

Basic net loss per common share $ ( 0.04 ) $ ( 0.09 )

Diluted net loss per common share $ ( 0.04 ) $ ( 0.09 )

Dividends declared per common share $ 0.18 $ 0.17

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As a result, our operating properties are aggregated into a single reportable segment:

Prior to the end of the second quarter of 2021, we had two reportable segments:

office and residential.

During the third quarter of 2021, we closed on the sales of the Office Portfolio and the Retail Portfolio (see note 3), and following such sales, we have one remaining office property, Watergate 600, which does not meet the criteria for a reportable segment, and has been classified within “Other” on our segment disclosure tables.

We have one remaining office property, Watergate 600, which does not meet the criteria for a reportable segment, and has been classified within “Other” on our segment disclosure tables.

We evaluate performance based upon net operating income (“NOI”) of the combined properties in the segment.

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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 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

The following tables present revenues, NOI, capital expenditures and total assets for the three months ended March 31, 2023 and 2022 from our Residential segment as well as Other, and reconcile NOI to net loss as reported (in thousands):

Three Months Ended March 31, 2023

Residential Other (1)

9 unchanged sentences

Loss on extinguishment of debt ( 54 )

Other income 68

Net loss $ ( 3,643 )

1 unchanged sentence

Total assets $ 1,676,596 $ 178,403 $ 1,854,999

Three Months Ended September 30, 2021

Residential Other (1), (2)

Real estate rental revenue 38,046 4,453 $ 42,499

Real estate expenses 14,146 1,299 15,445

Net operating income $ 23,900 $ 3,154 $ 27,054

Other income (expense):

Property management expenses ( 1,499 )

General and administrative expenses ( 7,909 )

Transformation costs ( 1,016 )

Depreciation and amortization ( 18,252 )

Interest expense ( 8,106 )

Loss on interest rate derivatives ( 106 )

Loss on extinguishment of debt ( 12,727 )

Other income 231

Discontinued operations:

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

Gain on sale of real estate 46,441

Net income $ 31,319

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

Total assets $ 1,355,893 $ 496,917 $ 1,852,810

______________________________

(1) Other represents Watergate 600, an office property that does not meet the qualitative or quantitative criteria for a reportable segment.

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

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2022

Residential Other (1)

8 unchanged sentences

Interest expense ( 5,650 )

Loss on extinguishment of debt ( 4,917 )

Other income 386

1 unchanged sentence

Capital expenditures $ 3,430 $ 596 $ 4,026

Nine Months Ended September 30, 2021

Residential Other (1), (2)

Real estate rental revenue 111,075 13,328 $ 124,403

Real estate expenses 41,440 3,740 45,180

Net operating income $ 69,635 $ 9,588 $ 79,223

Other income (expense):

Property management expenses ( 4,448 )

General and administrative expenses ( 19,838 )

Transformation costs ( 4,796 )

Depreciation and amortization ( 52,542 )

Interest expense ( 28,387 )

Other income 3,037

Loss on extinguishment of debt ( 12,727 )

Loss on interest rate derivatives ( 5,866 )

Discontinued operations:

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

Gain on sale of real estate 46,441

Net income $ 23,180

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

Total assets $ 1,545,731 $ 330,993 $ 1,876,724

______________________________

(1) Other represents Watergate 600, an office property that does not meet the qualitative or quantitative criteria for a reportable segment.

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

SHAREHOLDERS' EQUITY

8 unchanged sentences

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.

We did not issue common shares under the Equity Distribution Agreements during the 2022 Quarter or 2021 Quarter.

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):

Nine Months Ended September 30,

We did not issue common shares under the Equity Distribution Agreements during the 2023 Quarter.

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

Three Months Ended March 31,

Issuance of common shares 1,032

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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 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

Our issuances and net proceeds on the dividend reinvestment program for the three months ended March 31, 2023 and 2022 were as follows ($ in thousands, except per share data):

Three Months Ended March 31,

Issuance of common shares 14 10

2 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