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Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-08-01 · 92 added, 87 removed, 318 unchanged (36% of the section changed)

1 unchanged sentence

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 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.

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

Forward-Looking Statements

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changes in the composition of our portfolio;

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

risks related to changes in interest rates;

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

36 unchanged sentences

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.

As of September 30, 2023, we owned approximately 9,400 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 previously performed by third-party management companies.

In connection with our strategic transformation, the shift away from the commercial sector to the residential sector, we have redesigned our operating model for purposes of more efficiently and effectively supporting residential operations.

This operating model redesign included insourcing the property-level management activities at our multifamily properties 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 transformation costs, net of amounts capitalized, on the condensed consolidated statements of operations of $1.0 million and $2.4 million during the 2023 Quarter and 2022 Quarter, respectively, and $6.3 million and $6.6 million during the 2023 Period and 2022 Period, respectively.

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

We do not anticipate incurring additional transformation costs in the future.

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

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.

Community onboarding began in October 2022, and we have transitioned all of our residential communities to Elme management as of September 30, 2023.

Operating Results

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,

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

Three Months Ended September 30,

2023 2022 $ Change % Change

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(2) See page 38 of the MD&A for a reconciliation of NAREIT FFO to net income.

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 increase in net loss is primarily due to a real estate impairment ($41.9 million) and higher interest expense ($0.8 million) in the 2023 Quarter.

These were partially offset by loss on extinguishment of debt ($4.9 million) in the 2022 Quarter, higher NOI ($1.8 million), lower depreciation and amortization expenses ($1.7 million) and lower transformation costs ($1.4 million).

The higher NOI is primarily due to higher NOI from same-store properties ($2.1 million) and the acquisition of Elme Marietta ($0.2 million) in 2022, partially offset by lower NOI at Elme Sandy Springs ($0.4 million) and Watergate 600 ($0.1 million).

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

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).

Residential same-store average occupancy for our portfolio increased to 95.6% as of September 30, 2023 from 95.4% as of September 30, 2022.

The higher NAREIT FFO is primarily due to lower loss on extinguishment of debt ($4.9 million), higher NOI ($1.8 million) and lower transformation costs ($1.4 million), partially offset by higher interest expense ($0.8 million).

Investment Activity

There were no significant investment transactions during the 2023 Period.

Significant investment activity during the 2023 Period included the acquisition of Elme Druid Hills, a 500-unit apartment community in Atlanta, Georgia for a contract purchase price of $108.0 million during the 2023 Quarter.

The acquisition was funded through cash and borrowings under the Revolving Credit Facility.

Financing Activity

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.

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.

Significant financing activity during the 2023 Period included entering 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.

We used the proceeds to prepay the $100.0 million 2018 Term Loan in full and a portion of our borrowings under our Revolving Credit Facility.

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

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.

As of September 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 5.31% and the facility fee is 0.20%.

As of October 24, 2023, our Revolving Credit Facility has a borrowing capacity of $539.0 million.

Capital Requirements

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All amounts are in thousands, except percentage amounts.

Three Months Ended June 30,

Three Months Ended September 30,

2023 2022 $ Change % Change

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Real estate depreciation and amortization 21,904 23,632 (1,728) (7.3) %

Real estate impairment 41,860 — 41,860 100.0 %

Interest expense 7,418 6,582 836 12.7 %

Loss on extinguishment of debt, net — 4,917 (4,917) (100.0) %

Other income — (68) 68 (100.0) %

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(1) Acquisitions:

Carlyle of Sandy Springs, Alder Park, Marietta Crossing

Elme Druid Hills

Elme Sandy Springs, Elme Cumberland, Elme Marietta

(2) Non-residential:

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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 $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.

Real estate rental revenue from same-store residential properties increased $1.9 million, or 4.2%, to $46.6 million for the 2023 Quarter, compared to $44.7 million for the 2022 Quarter, primarily due to higher rental income ($2.3 million), higher recoveries ($0.2 million) and higher one-time fees ($0.2 million), partially offset by higher credit losses ($0.7 million) and higher rent abatements ($0.1 million).

Real estate rental revenue from acquisitions increased $0.3 million due to the acquisitions of Elme Marietta ($0.2 million) and Elme Cumberland ($0.1 million) during the second quarter of 2022.

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

June 30, 2023 June 30, 2022 % Change

September 30, 2023 September 30, 2022 % Change

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

95.6 % 93.5 % 95.3 % 95.4 % 94.2 % 95.3 % 0.2 % (0.7) % — %

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.

The increase in same-store average occupancy was primarily due to higher average occupancy at The Paramount, Elme Bethesda, Roosevelt Towers, Riverside Apartments and Trove, partially offset by lower average occupancy at Elme Conyers, Elme Eagles Landing and The Kenmore.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for the 2023 Quarter and the 2022 Quarter were 35.4% and 36.5%, respectively.

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.

Real estate expenses from same-store residential properties decreased $0.2 million, or 1.2%, to $16.3 million for the 2023 Quarter, compared to $16.5 million for the 2022 Quarter, primarily due to lower contract maintenance ($0.5 million) and lower repairs and maintenance ($0.2 million), partially offset by higher utilities ($0.2 million), real estate taxes ($0.1 million), insurance ($0.1 million) and administrative ($0.1 million) expenses.

Real estate expenses from acquisitions increased $0.5 million due to the acquisitions of Elme Sandy Springs ($0.4 million) during the first quarter of 2022 and Elme Cumberland ($0.1 million) during the second quarter of 2022.

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

Transformation costs:

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).

Decrease of $1.4 million during the 2023 Quarter primarily due to lower consulting fees ($0.4 million), lower employee time allocations ($0.4 million) related to the strategic transformation, lower software costs ($0.2 million), lower transition fees ($0.2 million), lower branding expenses ($0.1 million) and lower accelerated software depreciation ($0.1 million) each due to the completion of community onboarding.

Real estate depreciation and amortization :

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).

Decrease of $1.7 million primarily due to lower depreciation and amortization at Elme Marietta ($1.7 million), Elme Cumberland ($0.6 million), Elme Sandy Springs ($0.2 million) and Watergate 600 ($0.1 million).

These decreases were partially offset by higher depreciation and amortization at same-store residential properties ($0.5 million) and at Elme Druid Hills ($0.4 million).

Interest expense :

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,

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

Three Months Ended September 30,

Debt Type 2023 2022 $ Change % Change

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Line of credit 1,395 931 464 49.8 %

Capitalized interest — (90) 90 (100.0) %

Total $ 7,418 $ 6,582 $ 836 12.7 %

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• 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.

Decrease due to assumed mortgages of $42.8 million and $33.7 million in the acquisitions of Elme Marietta and Elme Cumberland, respectively, during the second quarter of 2022.

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

• Line of credit :

Increase primarily due to weighted average borrowings of $36.6 million and a weighted average interest rate of 5.9% in the 2023 Quarter, as compared to no borrowings during the 2022 Quarter.

• Capitalized interest :

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 resulting from macroeconomic uncertainty.

Other income :

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

Increase primarily due to higher weighted average borrowings of $41.1 million and a weighted average interest rate of 6.2% in the 2023 Quarter, as compared to weighted average borrowings of $22.4 million and a weighted average interest rate of 3.3% in the 2022 Quarter.

Loss on extinguishment of debt :

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

Real estate impairment :

The real estate impairment charge of $41.9 million during 2023 Quarter reduced the carrying value of Watergate 600 to its estimated fair value (see note 3 to consolidated financial statements).

2023 Period Compared to 2022 Period

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All amounts are in thousands, except percentage amounts.

Six Months Ended June 30,

Nine Months Ended September 30,

2023 2022 $ Change % Change

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Real estate depreciation and amortization 64,855 69,871 (5,016) (7.2) %

Real estate impairment 41,860 — 41,860 100.0 %

Interest expense 21,043 18,388 2,655 14.4 %

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(1) Acquisitions:

Carlyle of Sandy Springs, Alder Park, Marietta Crossing

Elme Druid Hills

Elme Sandy Springs, Elme Cumberland, Elme Marietta

(2) Non-residential:

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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.

Real estate rental revenue from same-store residential properties increased $9.7 million, or 7.5%, to $139.2 million for the 2023 Period, compared to $129.4 million for the 2022 Period, primarily due to higher rental income ($8.7 million), higher recoveries ($0.8 million), lower rent abatements ($0.5 million) and higher fee income ($0.2 million), partially offset by higher credit losses ($0.5 million).

Real estate rental revenue from acquisitions increased $5.6 million, or 58.7%, to $15.3 million for the 2023 Period, compared to $9.6 million for the 2022 Period, primarily due to the acquisitions of Elme Marietta ($2.8 million) and Elme Cumberland ($1.8 million) during the second quarter of 2022 and Elme Sandy Springs ($1.0 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

September 30, 2023 September 30, 2022 % Change

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

95.6 % 93.8 % 95.4 % 95.6 % 94.1 % 95.5 % — % (0.3) % (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.

Same-store average occupancy remained consistent at 95.6% in the 2023 Period and the 2022 Period.

Higher average occupancy at Roosevelt Towers, Riverside Apartments and The Trove was partially offset by lower average occupancy at Bennett Park, Elme Watkins Mill and Elme Eagles Landing.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for the 2023 Period and 2022 Period were 35.9% and 36.8%, 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.

Real estate expenses from same-store residential properties increased by $1.9 million, or 3.9%, to $49.3 million for the 2023 Period, compared to $47.4 million for the nine months ended September 30, 2022, primarily due to higher utilities ($1.0 million), administrative ($0.8 million), repairs and maintenance ($0.4 million), real estate taxes ($0.2 million) and insurance ($0.1 million) expenses.

The increase is partially offset by lower contract maintenance and supplies ($0.7 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).

Real estate expenses from acquisitions increased $2.4 million due to the acquisitions of Elme Marietta ($0.9 million) and Elme Cumberland ($0.6 million) during the second quarter of 2022, and Elme Sandy Springs ($0.9 million) during the first quarter of 2022.

Other NOI decreased due to higher operating expenses at Watergate 600 ($0.1 million).

Other Income and Expenses

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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.

Decrease of $1.1 million primarily due to lower incentive compensation ($1.9 million) and lower legal fees ($0.6 million).

These were partially offset by higher computer software ($0.7 million) and corporate office moving ($0.6 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).

Decrease of $0.3 million primarily due to lower accelerated software depreciation ($0.7 million), lower consulting fees ($0.5 million) and lower software costs ($0.3 million).

The decrease is partially offset by higher signing bonuses for new employees ($0.9 million), higher placement fee ($0.2 million), and higher branding expenses ($0.1 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).

Decrease of $5.0 million primarily due to lower depreciation and amortization at same-store residential properties ($3.0 million), Elme Sandy Springs ($1.8 million) and Elme Marietta ($1.2 million).

The decrease was partially offset by higher depreciation and amortization at Elme Druid Hills ($0.4 million), Elme Cumberland ($0.3 million), and Watergate 600 ($0.3 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,

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

Nine Months Ended September 30,

Debt Type 2023 2022 $ Change % Change

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• 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.

Decrease due to the assumed mortgages of $42.8 million and $33.7 million in the acquisitions of Elme Marietta and Elme Cumberland, 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.

Increase primarily due to higher weighted average borrowings of $40.8 million and a weighted average interest rate of 6.1% in the 2023 Period, as compared to weighted average borrowings of $7.5 million and a weighted average interest rate of 3.3% 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.

Loss on extinguishment of debt:

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

Other income :

Increase of $0.1 million is due to higher tax refunds received for office properties sold in prior years.

Real Estate Impairment :

The real estate impairment charge of $41.9 million during 2023 Period reduced the carrying value of Watergate 600 to its estimated fair value (see note 3 to consolidated financial statements).

Liquidity and Capital Resources

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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 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.

We also believe we have adequate liquidity beyond 2023, with no debt maturities until 2025 and only $274.0 million of scheduled debt maturities prior to 2028, based on current amounts outstanding under our Revolving Credit Facility.

As of October 24, 2023, we had cash and cash equivalents totaling $3.0 million and a borrowing capacity of $539.0 million on our Revolving Credit Facility, resulting in a total liquidity position of $542.0 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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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 June 30, 2023, our future debt principal payments are scheduled as follows (in thousands):

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

Future Maturities of Debt

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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.

We used the proceeds to prepay the $100.0 million 2018 Term Loan in full and a portion of our borrowings under our Revolving Credit Facility.

Elme Communities had previously entered into an interest rate swap to effectively fix the interest rate for the remaining $100.0 million portion of the 2018 Term Loan.

Following the prepayment of the 2018 Term Loan, the interest rate swap effectively fixes a $100.0 million portion of the 2023 Term Loan at 2.16% through the interest rate swap'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 2023 Term Loan’s interest rate at 4.73% beginning on July 21, 2023 through the 2023 Term Loan’s maturity date of January 10, 2025.

Following the prepayment of the 2018 Term Loan, the interest rate swap effectively fixed a $100.0 million portion of the 2023 Term Loan at 2.16% through the interest rate swap'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 effectively fixed the 2023 Term Loan’s interest rate at 4.73% beginning on July 21, 2023 through the 2023 Term Loan’s maturity date of January 10, 2025.

(2) The credit facility's term ends in August 2025, with two six-month 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 June 30, 2023, we were in compliance with the covenants related to our Revolving Credit Facility, 2023 Term Loan, and unsecured notes.

As of September 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 87.8 million shares were outstanding at June 30, 2023.

We have authorized for issuance 150.0 million common shares, of which 87.8 million shares were outstanding at September 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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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,

Nine Months Ended September 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 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,

We did not issue common shares under the dividend reinvestment program during the 2023 Quarter.

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

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

2023 2022 2023 2022

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

As of September 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):

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2023 2022 $ %

1 unchanged sentence

Net cash used in investing activities (130,283) (223,248) 92,965 (41.6) %

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.

Net cash provided by (used in) financing activities 68,798 (52,555) 121,353 (230.9) %

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

Net cash used in investing activities decreased primarily due to the acquisitions of Elme Sandy Springs, Elme Marietta and Elme Cumberland during the 2022 Period, partially offset by the acquisition of Druid Hills during the 2023 Period.

Net cash provided by (used in) financing activities increased primarily due to executing the $125.0 million 2023 Term Loan and net borrowings on the Revolving Credit Facility during the 2023 Period and the repayment of mortgage notes during the 2022 Period.

These were partially offset by the repayment of the $100.0 million 2018 Term Loan during the 2023 Period and proceeds from equity issuances during the 2022 Period.

Off-Balance Sheet Arrangements

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.

We have no off-balance sheet arrangements as of September 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

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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 and six months ended June 30, 2023 and 2022 (in thousands):

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

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

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

2023 2022 2023 2022

1 unchanged sentence

Depreciation and amortization 21,904 23,632 64,855 69,871

Real estate impairment 41,860 — 41,860 —

NAREIT FFO $ 20,146 $ 12,893 $ 56,843 $ 42,534

2 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 and six months ended June 30, 2023.

There were no changes made by management to the critical accounting policies in the three and nine months ended September 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