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Item 2. Management’s Discussion and Analysis

2023-08-01 compared with 2023-04-28 · 163 added, 66 removed, 242 unchanged (49% of the section changed)

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The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing in Item 1 of this report and the more detailed information contained in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on February 17, 2023.

We refer to the three months ended March 31, 2023 and March 31, 2022 as the “2023 Quarter” and the “2022 Quarter,” respectively.

We refer to the three months ended June 30, 2023 and June 30, 2022 as the “2023 Quarter” and the “2022 Quarter,” respectively, and the six months ended June 30, 2023 and June 30, 2022 as the “2023 Period” and “2022 Period,” respectively.

Forward-Looking Statements

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

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;

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

changes in the composition of our portfolio;

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the economic health of our residents;

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;

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

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• Results of Operations.

Discussion of our financial results comparing the 2023 Quarter to the 2022 Quarter.

Discussion of our financial results comparing the 2023 Quarter to the 2022 Quarter and the 2023 Period to the 2022 Period.

• 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.

Our revenues are derived primarily from the ownership and operation of income producing properties.

As of March 31, 2023, we owned approximately 8,900 residential apartment homes in the Washington, DC metro and Sunbelt regions.

Our revenues are derived primarily from the ownership and operation of income producing property.

As of June 30, 2023, we owned approximately 8,900 residential apartment homes in the Washington, DC metro and Sunbelt regions.

We also own and operate approximately 300,000 square feet of commercial space in the Washington, DC metro region.

In connection with our strategic transformation, the shift away from the commercial sector to the residential sector, 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 insourcing the property-level management activities previously 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 recognized $2.9 million and $2.2 million of transformation costs, net of amounts capitalized, on the condensed consolidated statements of operations during the 2023 Quarter and 2022 Quarter, respectively, and anticipate incurring approximately $5.0 - $6.0 million of additional transformation costs during 2023.

We recognized transformation costs, net of amounts capitalized, on the condensed consolidated statements of operations of $2.5 million and $2.0 million during the 2023 Quarter and 2022 Quarter, respectively, and $5.4 million and $4.2 million during the 2023 Period and 2022 Period, respectively.

We anticipate incurring approximately $0.6 million of additional transformation costs during 2023.

We expect to realize significant operational benefits from this operating model redesign.

Community onboarding began in October 2022, and we have transitioned 13 of our 27 residential communities to Elme management as of March 31, 2023, and expect to complete the implementation by the end of the third quarter.

Community onboarding began in October 2022, and we have transitioned 24 of our 27 residential communities to Elme management as of June 30, 2023, and the remaining communities were onboarded subsequent to quarter end.

Operating Results

Net loss, NOI and NAREIT FFO for the three months ended March 31, 2023 and 2022 were as follows (in thousands):

Three Months Ended March 31,

Net loss, NOI and NAREIT FFO for the three months ended June 30, 2023 and 2022 were as follows (in thousands):

Three Months Ended June 30,

2023 2022 $ Change % Change

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(2) See page 37 of the MD&A for a reconciliation of NAREIT FFO to net income.

The decrease in net loss is primarily due to higher NOI ($5.6 million) and lower depreciation and amortization expenses ($0.7 million).

These were partially offset by higher interest expense ($1.2 million), higher transformation expenses ($0.7 million), and lower other income ($0.4 million).

The higher NOI is primarily due to the acquisitions of Marietta Crossing ($1.3 million), Alder Park ($0.9 million) and Carlyle of Sandy Springs ($0.4 million) in 2022, higher NOI from same-store properties ($2.9 million), and higher NOI at Watergate 600 ($0.2 million).

The decrease in net loss is primarily due to higher NOI ($3.5 million), lower depreciation and amortization expenses ($2.6 million), lower general and administrative ($1.0 million) expenses and higher other income ($0.6 million).

These were partially offset by higher interest expense ($0.6 million), higher transformation expenses ($0.4 million) and higher property management expenses ($0.4 million).

The higher NOI is primarily due to higher NOI from same-store properties $3.0 million, and the acquisitions of Marietta Crossing ($0.4 million), Alder Park ($0.3 million) and Carlyle of Sandy Springs ($0.1 million) in 2022, partially offset by lower NOI at Watergate 600 ($0.2 million).

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

Residential same-store average occupancy for our portfolio decreased to 95.5% as of March 31, 2023 from 95.6% as of March 31, 2022.

The higher NAREIT FFO is primarily due to higher NOI ($5.6 million), partially offset by higher interest expense ($1.2 million), higher transformation expenses ($0.7 million), and lower other income ($0.4 million).

Residential same-store average occupancy for our portfolio decreased to 95.6% as of June 30, 2023 from 95.7% as of June 30, 2022.

The higher NAREIT FFO is primarily due to higher NOI ($3.5 million) and higher other income ($0.6 million), partially offset by higher interest expense ($0.6 million).

Investment Activity

There were no significant investment transactions during the 2023 Quarter.

There were no significant investment transactions during the 2023 Period.

Financing Activity

Significant financing transactions during the 2023 Quarter included the following:

Significant financing transactions during the 2023 Period included the following:

• 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.

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

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%.

As of April 25, 2023, our Revolving Credit Facility has a borrowing capacity of $654.0 million.

As of June 30, 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 5.09% and the facility fee is 0.20%.

As of July 27, 2023, our Revolving Credit Facility has a borrowing capacity of $657.0 million.

Capital Requirements

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Results of Operations

The discussion that follows is based on our consolidated results of operations for the 2023 Quarter and 2022 Quarter.

The discussion that follows is based on our consolidated results of operations for the 2023 Quarter and 2022 Quarter and the 2023 Period and the 2022 Period.

Net Operating Income

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As such, NOI should not be considered an alternative to these measures as an indication of our operating performance.

A reconciliation of NOI to net loss follows.

A reconciliation of net loss to NOI follows.

2023 Quarter Compared to 2022 Quarter

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All amounts are in thousands, except percentage amounts.

Three Months Ended March 31,

Three Months Ended June 30,

2023 2022 $ Change % Change

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Interest expense 6,794 6,156 638 10.4 %

Loss on extinguishment of debt, net 54 — 54 — %

Other income (569) — (569) 100.0 %

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Real estate rental revenue from our apartment communities is comprised of (a) rent from operating leases of multifamily 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 increased $3.8 million, or 9.0%, to $45.8 million for the 2023 Quarter, compared to $42.0 million for the 2022 Quarter, primarily due to higher rental income ($3.4 million), lower rent abatements ($0.3 million), and higher recoveries ($0.1 million).

Real estate rental revenue from acquisitions increased $3.9 million due to the acquisitions of Marietta Crossing ($1.9 million) and Alder Park ($1.2 million) during the second quarter of 2022, and Carlyle of Sandy Springs ($0.8 million) during the 2022 Quarter.

Real estate rental revenue from same-store residential properties increased $4.1 million, or 9.6%, to $46.8 million for the 2023 Quarter, compared to $42.7 million for the 2022 Quarter, primarily due to higher rental income ($3.0 million), higher recoveries ($0.5 million), lower credit losses ($0.3 million) and lower rent abatements ($0.2 million).

Real estate rental revenue from acquisitions increased $1.4 million due to the acquisitions of Marietta Crossing ($0.8 million) and Alder Park ($0.5 million) during the 2022 Quarter, and Carlyle of Sandy Springs ($0.1 million) during the first quarter of 2022.

Average occupancy for residential properties for the 2023 Quarter and 2022 Quarter was as follows:

March 31, 2023 March 31, 2022 % Change

June 30, 2023 June 30, 2022 % Change

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

95.6 % 94.4 % 95.4 % 95.7 % 93.8 % 95.5 % (0.1) % 0.6 % (0.1) %

The decrease in same-store average occupancy was primarily due to lower average occupancy at Bennett Park, Assembly Leesburg, Elme Watkins Mill, Elme Alexandria, and Cascade at Landmark, partially offset by higher average occupancy at Park Adams, Trove and The Ashby at McLean.

The decrease in same-store average occupancy was primarily due to lower average occupancy at Elme Manassas, Bennett Park, Elme Watkins Mill, Yale West, Elme Eagles Landing and Elme Alexandria, partially offset by higher average occupancy at Roosevelt Towers, The Maxwell, Riverside Apartments and Clayborne Apartments.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for the 2023 Quarter and the 2022 Quarter were 36.6% and 37.1%, respectively.

Real estate expenses from same-store residential properties increased $0.9 million, or 6.0%, to $16.2 million for the 2023 Quarter, compared to $15.3 million for the 2022 Quarter, primarily due to higher utilities ($0.5 million) and administrative ($0.4 million) expenses.

Real estate expenses from acquisitions increased $1.3 million due to the acquisitions of Marietta Crossing ($0.6 million) and Alder Park ($0.4 million) during the second quarter of 2022, and Carlyle of Sandy Springs ($0.3 million) during the 2022 Quarter.

Other NOI increased due to higher NOI at Watergate 600 ($0.2 million).

Real estate expenses from same-store residential properties increased $1.1 million, or 7.3%, to $16.8 million for the 2023 Quarter, compared to $15.6 million for the 2022 Quarter, primarily due to higher repairs and maintenance ($0.6 million), higher administrative ($0.4 million) and utilities ($0.2 million) expenses.

Real estate expenses from acquisitions increased $0.6 million due to the acquisitions of Marietta Crossing ($0.4 million) and Alder Park ($0.1 million) during 2022 Quarter, and Carlyle of Sandy Springs ($0.1 million) during the first quarter of 2022.

Other NOI decreased due to lower revenue at Watergate 600 ($0.2 million).

Other Income and Expenses

Property management expenses:

Increase of $0.4 million primarily due to higher management fee expenses at same-store properties.

General and administrative expenses:

Decrease of $0.1 million primarily due to lower share-based compensation expense ($0.9 million), partially offset by higher severance ($0.2 million), professional services ($0.2 million), shareholder ($0.1 million) and computer software ($0.1 million) expenses.

Decrease of $1.0 million primarily due to lower share-based compensation ($0.6 million) and professional services ($0.4 million) expenses.

Transformation costs:

Increase of $0.7 million during the 2023 Quarter primarily due to signing bonuses for new employees ($0.4 million), higher employee time allocations ($0.3 million) related to the strategic transformation and transition fees paid to third party managers ($0.2 million).

Increase of $0.4 million during the 2023 Quarter primarily due to higher signing bonuses for new community employees ($0.4 million) and higher consulting fees ($0.2 million).

The increase is partially offset by lower accelerated software depreciation ($0.3 million).

Real estate depreciation and amortization :

Decrease of $0.7 million primarily due to lower depreciation and amortization at same-store residential properties ($2.6 million) and at Carlyle of Sandy Springs ($0.2 million).

The decrease was partially offset by the acquisitions of Marietta Crossing ($0.9 million) and Alder Park ($0.9 million), and higher depreciation and amortization at Watergate 600 ($0.3 million).

Decrease of $2.6 million primarily due to lower depreciation and amortization at Carlyle of Sandy Springs ($1.4 million), Marietta Crossing ($0.4 million) and at same-store residential properties

($0.9 million).

These decreases were partially offset by higher depreciation and amortization at Watergate 600 ($0.1 million).

Interest expense :

Interest expense by debt type for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Three Months Ended March 31,

Interest expense by debt type for the three months ended June 30, 2023 and 2022 was as follows (in thousands):

Three Months Ended June 30,

Debt Type 2023 2022 $ Change % Change

Notes payable $ 5,545 5,055 $ 490 9.7 %

Mortgage notes payable — 490 (490) (100.0) %

Line of credit 1,249 701 548 78.2 %

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• Notes payable :

Increase primarily due to new $125.0 million 2023 Term Loan executed in January 2023, partially offset by prepayment of a $100.0 million portion of the 2018 Term Loan in January 2023.

Increase primarily due to the $125.0 million 2023 Term Loan executed in January 2023, partially offset by prepayment of a $100.0 million portion of the 2018 Term Loan in January 2023.

• Mortgage notes payable :

Decrease due to assumed mortgages of $42.8 million and $33.7 million in the acquisitions of Marietta Crossing and Alder Park, respectively, during the 2022 Quarter.

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

• Line of credit :

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Other income :

Income during 2022 Quarter relates to real estate tax refunds ($0.4 million) received on previously sold properties.

Income of $0.6 million during the 2023 Quarter consists of tax refunds received for office properties sold in prior years.

2023 Period Compared to 2022 Period

The following tables reconcile net loss to NOI and provide the basis for our discussion of our consolidated results of operations and NOI in the 2023 Period compared to the 2022 Period.

All amounts are in thousands, except percentage amounts.

Six Months Ended June 30,

2023 2022 $ Change % Change

Net loss $ (6,254) $ (16,598) 10,344 (62.3) %

Property management expense 3,947 3,546 401 11.3 %

General and administrative expense 13,521 14,595 (1,074) (7.4) %

Transformation costs 5,354 4,246 1,108 26.1 %

Real estate depreciation and amortization 42,951 46,239 (3,288) (7.1) %

Interest expense 13,625 11,806 1,819 15.4 %

Loss on extinguishment of debt, net 54 — 54 100.0 %

Other income (569) (386) (183) 47.4 %

Total net operating income (NOI) $ 72,629 $ 63,448 $ 9,181 14.5 %

Residential revenue:

Same-store portfolio $ 92,572 $ 84,705 $ 7,867 9.3 %

Acquisitions (1)

10,036 4,725 5,311 112.4 %

Non-residential (2)

483 550 (67) (12.2) %

Total 103,091 89,980 13,111 14.6 %

Residential expenses:

Same-store portfolio 33,005 30,957 2,048 6.6 %

Acquisitions 4,029 2,092 1,937 92.6 %

Development 112 19 93 489.5 %

Non-residential 52 145 (93) (64.1) %

Total 37,198 33,213 3,985 12.0 %

Residential NOI:

Same-store portfolio 59,567 53,748 5,819 10.8 %

Acquisitions 6,007 2,633 3,374 128.1 %

Development (112) (19) (93) 489.5 %

Non-residential 431 405 26 6.4 %

Total 65,893 56,767 9,126 16.1 %

Other NOI (3)

6,736 6,681 55 0.8 %

Total NOI $ 72,629 $ 63,448 $ 9,181 14.5 %

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(1) Acquisitions:

Carlyle of Sandy Springs, Alder Park, Marietta Crossing

(2) Non-residential:

Includes revenues and expenses from retail operations at residential properties.

Watergate 600

Real Estate Rental Revenue

Real estate rental revenue from same-store residential properties increased $7.9 million, or 9.3%, to $92.6 million for the 2023 Period, compared to $84.7 million for the 2022 Period, primarily due to higher rental income ($6.4 million), lower rent abatements ($0.6 million), higher recoveries ($0.6 million) and lower credit losses ($0.2 million).

Real estate rental revenue from acquisitions increased $5.3 million due to the acquisitions of Marietta Crossing ($2.7 million) and Alder Park ($1.7 million) during the 2022 Quarter, and Carlyle of Sandy Springs ($0.9 million) during the first quarter of 2022.

Average occupancy for residential properties for the 2023 Period and 2022 Period was as follows:

June 30, 2023 June 30, 2022 % Change

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

95.6 % 94.0 % 95.4 % 95.7 % 94.0 % 95.5 % (0.1) % — % (0.1) %

The decrease in same-store average occupancy was primarily due to lower average occupancy at Bennett Park, Elme Watkins Mill, Elme Leesburg, Elme Alexandria and Elme Manassas, partially offset by higher average occupancy at The Maxwell and Clayborne Apartments.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for the 2023 Period and 2022 Period were 36.1% and 36.9%, respectively.

Real estate expenses from same-store residential properties increased by $2.0 million, or 6.6%, to $33.0 million for the 2023 Period, compared to $31.0 million for the six months ended June 30, 2022, primarily due to higher administrative ($0.8 million), repairs and maintenance ($0.7 million) and utilities ($0.7 million) expenses.

The increase is partially offset by lower contract maintenance and supplies ($0.2 million) expenses.

Real estate expenses from acquisitions increased $1.9 million due to the acquisitions of Marietta Crossing ($1.0 million) and Alder Park ($0.5 million) during the 2022 Quarter, and Carlyle of Sandy Springs ($0.4 million) during the first quarter of 2022.

Other NOI increased due to higher revenue at Watergate 600 ($0.1 million).

Other Income and Expenses

Property management expenses:

Increase of $0.4 million primarily due to higher management fee expenses at same-store properties.

General and administrative expenses :

Decrease of $1.1 million primarily due to lower share-based compensation ($1.4 million) and lower professional fees ($0.2 million).

The decrease was partially offset by higher computer software ($0.3 million) and moving ($0.3 million) expenses.

Transformation costs:

Increase of $1.1 million primarily due to higher signing bonuses for new employees ($0.8 million), higher employee time allocations ($0.5 million) related to the strategic transformation and higher branding expenses ($0.2 million).

The increase is partially offset by lower accelerated software depreciation ($0.6 million).

Depreciation and amortization :

Decrease of $3.3 million primarily due to lower depreciation and amortization at same-store residential properties ($3.4 million) and at Carlyle of Sandy Springs ($1.7 million).

The decrease was partially offset by higher depreciation and amortization at Alder Park ($0.9 million), Marietta Crossing ($0.5 million) and Watergate 600 ($0.4 million).

Interest expense :

Interest expense by debt type for the six months ended June 30, 2023 and 2022 was as follows (in thousands):

Six Months Ended June 30,

Debt Type 2023 2022 $ Change % Change

Notes payable $ 10,999 $ 10,204 $ 795 7.8 %

Mortgage notes payable — 490 (490) 100.0 %

Line of credit 2,626 1,395 1,231 88.2 %

Capitalized interest — (283) 283 (100.0) %

Total $ 13,625 $ 11,806 $ 1,819 15.4 %

• Notes payable :

Increase primarily due to the $125.0 million 2023 Term Loan executed in January 2023, partially offset by prepayment of a $100.0 million portion of the 2018 Term Loan in January 2023.

• Mortgage notes payable :

Decrease due to the assumed mortgages of $42.8 million and $33.7 million in the acquisitions of Marietta Crossing and Alder Park, respectively, during the 2022 Period.

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

• Line of credit :

Increase primarily due to higher weighted average borrowings of $40.7 million and a weighted average interest rate of 6.0% in the 2023 Period, as compared to no borrowings in the 2022 Period.

• Capitalized interest :

Decrease primarily due to ceased capitalization of interest on spending related to the multifamily development adjacent to Riverside Apartments due to a pause in development activities resulting from macroeconomic uncertainty.

Other income :

Increase of $0.2 million is due to higher tax refunds received for office properties sold in prior years.

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, including meeting our debt obligations, capital commitments and contractual obligations, as well as the payment of dividends, on-going transformational costs and funding possible growth opportunities.

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

W e executed strategic transactions that will allow us to continue pursuing residential expansion in Sunbelt markets, meet our debt obligations for the next twelve months, and pay a dividend on a quarterly basis.

We also believe we have adequate liquidity beyond 2023, with o nly $160.0 million of scheduled debt maturities prior to 2028.

As of April 25, 2023, we had cash and cash equivalents totaling $12.3 million and a borrowing capacity of $654.0 million on our Revolving Credit Facility, resulting in a total liquidity position of $666.3 million.

We also believe we have adequate liquidity beyond 2023, with only $149.0 million of scheduled debt maturities prior to 2028.

As of July 27, 2023, we had cash and cash equivalents totaling $4.4 million and a borrowing capacity of $657.0 million on our Revolving Credit Facility, resulting in a total liquidity position of $661.4 million.

While we currently intend to continue to pay dividends at or about current levels , we will continue to assess the payment of our dividends on a quarterly basis.

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Capital Requirements

As of the end of the 2023 Quarter, our full-year 2023 capital requirements are summarized below:

As of the end of the 2023 Period, our full-year 2023 capital requirements are summarized below:

• Funding dividends and distributions to our shareholders;

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We may either hedge our variable rate debt to give it an effective fixed interest rate or hedge fixed rate debt to give it an effective variable interest rate.

As of March 31, 2023, our future debt principal payments are scheduled as follows (in thousands):

As of June 30, 2023, our future debt principal payments are scheduled as follows (in thousands):

Future Maturities of Debt

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______________________________

(1) During the 2023 Quarter, we entered into the $125.0 million 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).

(1) During the first quarter of 2023, we entered into the $125.0 million 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.

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In addition, our ability to draw on our Revolving Credit Facility or incur other unsecured debt in the future could be restricted by the debt covenants.

As of March 31, 2023, we were in compliance with the covenants related to our Revolving Credit Facility, 2023 Term Loan, and unsecured notes.

As of June 30, 2023, we were in compliance with the covenants related to our Revolving Credit Facility, 2023 Term Loan, and unsecured notes.

Common Equity

We have authorized for issuance 150.0 million common shares, of which 87.7 million shares were outstanding at March 31, 2023.

We have authorized for issuance 150.0 million common shares, of which 87.8 million shares were outstanding at June 30, 2023.

On February 17, 2021, we entered into separate amendments to each of our existing equity distribution agreements (“Original Equity Distribution Agreements”) with each of Wells Fargo Securities, LLC, BNY Mellon Capital Markets, LLC, Capital One Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co.

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Issuances of our common shares are made at market prices prevailing at the time of issuance.

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 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,

We did not issue common shares under the Equity Distribution Agreements during the 2023 Period and 2022 Quarter.

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

Six Months Ended June 30,

Issuance of common shares 1,032

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The common shares sold under this program may either be common shares issued by us or common shares purchased in the open market.

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,

Our issuances and net proceeds on the dividend reinvestment program for the three and six months ended June 30, 2023 and 2022 were as follows ($ in thousands, except per share data):

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

2023 2022 2023 2022

Issuance of common shares 14 10 28 20

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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 March 31, 2023, no preferred shares were issued and outstanding.

As of June 30, 2023, no preferred shares were issued and outstanding.

Historical Cash Flows

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Consolidated cash flow information is summarized as follows (in thousands):

Three Months Ended March 31, Change

Six Months Ended June 30, Change

2023 2022 $ %

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Net cash used in investing activities (10,183) (217,129) 206,946 (95.3) %

Net cash (used in) provided by financing activities (11,819) 12,009 (23,828) (198.4) %

Net cash provided by operating activities increased primarily due to the acquisitions of Carlyle of Sandy Springs, Marietta Crossing and Alder Park during 2022.

Net cash used in investing activities decreased primarily due to the acquisition of Carlyle of Sandy Springs during the 2022 Quarter.

Net cash (used in) provided by financing activities decreased primarily due to the repayment of the $100.0 million 2018 Term Loan and net repayments on the Revolving Credit Facility during the 2023 Quarter and proceeds from equity issuances during the 2022 Quarter.

These were partially offset by executing the $125.0 million 2023 Term Loan during the 2023 Quarter.

Net cash used in financing activities (38,478) (4,299) (34,179) 795.0 %

Net cash provided by operating activities increased primarily due to higher rental revenue from same-store communities and the acquisitions of Carlyle of Sandy Springs, Marietta Crossing and Alder Park during the 2022 Period.

Net cash used in investing activities decreased primarily due to the acquisition of Carlyle of Sandy Springs, Marietta Crossing and Alder Park during the 2022 Period.

Net cash used in financing activities increased primarily due to the repayment of the $100.0 million 2018 Term Loan, net repayments on the Revolving Credit Facility, during the 2023 Period and proceeds from equity issuances during the 2022 Period.

These were partially offset by executing the $125.0 million 2023 Term Loan during the 2023 Period.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of March 31, 2023 that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We have no off-balance sheet arrangements as of June 30, 2023 that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Funds From Operations

NAREIT FFO is a widely used measure of operating performance for real estate companies.

In its 2018 NAREIT FFO Whitepaper Restatement, NAREIT defined NAREIT FFO as net income (computed in accordance with GAAP) excluding gains (or losses) associated with sales of properties;

NAREIT FFO is defined by the 2018 National Association of Real Estate Investment Trusts, Inc.

(“NAREIT”) FFO White Paper Restatement, as net income (computed in accordance with GAAP) excluding gains (or losses) associated with sales of properties;

impairments of depreciable real estate, and real estate depreciation and amortization.

4 unchanged sentences

NAREIT FFO is a non-GAAP measure.

The following table provides the calculation of our NAREIT FFO and a reconciliation of net loss to NAREIT FFO for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

The following table provides the calculation of our NAREIT FFO and a reconciliation of net loss to NAREIT FFO for the three and six months ended June 30, 2023 and 2022 (in thousands):

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

2023 2022 2023 2022

Net loss $ (2,611) $ (8,874) $ (6,254) $ (16,598)

4 unchanged sentences

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

There were no changes made by management to the critical accounting policies in the three months ended March 31, 2023.

There were no changes made by management to the critical accounting policies in the three and six months ended June 30, 2023.

We discuss the most critical estimates in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 17, 2023.

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 2. Management’s Discussion and Analysis