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Item 1. Financial Statements

2024-05-02 compared with 2023-10-27 · 81 added, 190 removed, 306 unchanged (47% of the section changed)

5 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE DATA )

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Land $ 383,808 $ 384,097

24 unchanged sentences

150,000 shares authorized;

87,832 and 87,534 shares issued and outstanding, as of September 30, 2023 and December 31, 2022, respectively

88,003 and 87,867 shares issued and outstanding, as of March 31, 2024 and December 31, 2023, respectively

Additional paid in capital 1,736,524 1,735,530

9 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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

2023 2022 2023 2022

Three Months Ended March 31,

Real estate rental revenue $ 59,513 $ 55,809

5 unchanged sentences

Depreciation and amortization 24,943 21,536

Real estate impairment 41,860 — 41,860 —

55,076 52,567

Real estate operating (loss) income ( 36,200 ) 692 ( 29,344 ) ( 4,486 )

Real estate operating income 4,437 3,242

Other income (expense)

12 unchanged sentences

(IN THOUSANDS)

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

2023 2022 2023 2022

Three Months Ended March 31,

Net loss $ ( 3,647 ) $ ( 3,643 )

Other comprehensive income:

Unrealized (loss) gain on interest rate hedges ( 149 ) 442 372 3,284

Unrealized gain (loss) on interest rate hedges 83 ( 333 )

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

13 unchanged sentences

— — — ( 15,885 ) — ( 15,885 ) — ( 15,885 )

Shares issued under Dividend Reinvestment Program 28 — 497 — — 497 — 497

Share grants, net of forfeitures and tax withholdings 136 1 994 — — 995 — 995

Balance, September 30, 2023 87,832 $ 878 $ 1,734,657 $ ( 550,442 ) $ ( 12,332 ) $ 1,172,761 $ 292 $ 1,173,053

Balance, March 31, 2024 88,003 $ 880 $ 1,736,524 $ ( 588,923 ) $ ( 12,365 ) $ 1,136,116 $ 288 $ 1,136,404

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

2 unchanged sentences

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

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

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

Distributions to noncontrolling interests — — — — — — ( 6 ) ( 6 )

Dividends ($ 0.51 per common share)

— — — ( 44,708 ) — ( 44,708 ) — ( 44,708 )

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

Shares issued under Dividend Reinvestment Program 32 — 777 — — 777 — 777

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

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

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, 2023 87,809 $ 878 $ 1,733,388 $ ( 490,939 ) $ ( 12,693 ) $ 1,230,634 $ 294 $ 1,230,928

Net loss — — — ( 43,618 ) — ( 43,618 ) — ( 43,618 )

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

3 unchanged sentences

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

Share grants, net of share grant amortization and forfeitures 23 — 1,269 — — 1,269 — 1,269

Balance, September 30, 2023 87,832 $ 878 $ 1,734,657 $ ( 550,442 ) $ ( 12,332 ) $ 1,172,761 $ 292 $ 1,173,053

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 — — — ( 10,739 ) — ( 10,739 ) — ( 10,739 )

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

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

Distributions to noncontrolling interests — — — — — — ( 1 ) ( 1 )

Dividends ($ 0.17 per common share)

— — — ( 14,918 ) — ( 14,918 ) — ( 14,918 )

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

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 1,451 703

Real estate impairment 41,860 —

Share-based compensation expense 1,090 1,188

1 unchanged sentence

Loss on extinguishment of debt — 54

Gain on land easements ( 1,410 ) —

Changes in operating other assets ( 941 ) ( 872 )

2 unchanged sentences

Cash flows from investing activities

Real estate acquisitions, net ( 107,595 ) ( 204,433 )

Capital improvements to real estate ( 13,617 ) ( 5,569 )

Development in progress — ( 671 )

Insurance proceeds — 2,224

Non-real estate capital improvements ( 5 ) ( 222 )

Payments received for land easements 3,862 —

Net cash used in investing activities ( 9,760 ) ( 5,791 )

Cash flows from financing activities

Line of credit repayments, net 94,000 43,000

Line of credit borrowings (repayments), net 3,000 ( 20,000 )

Dividends paid ( 15,911 ) ( 14,917 )

Repayments of mortgage notes payable — ( 76,598 )

Repayments of unsecured term loan debt — ( 100,000 )

3 unchanged sentences

Proceeds from dividend reinvestment program — 248

Net proceeds from equity issuances — 26,851

Payment of tax withholdings for restricted share awards ( 178 ) ( 1,304 )

Net cash provided by (used in) financing activities 68,798 ( 52,555 )

Net cash used in financing activities ( 13,091 ) ( 11,819 )

Net decrease in cash, cash equivalents and restricted cash ( 1,635 ) ( 1,321 )

1 unchanged sentence

Cash, cash equivalents and restricted cash at end of period $ 6,903 $ 8,531

ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Nine Months Ended September 30,

Supplemental disclosure of cash flow information:

2 unchanged sentences

Dividend payable 15,888 15,869

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

Reconciliation of cash, cash equivalents and restricted cash:

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

March 31, 2024

NATURE OF BUSINESS

1 unchanged sentence

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, 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 the “2022 Period,” respectively.

Within these notes to the financial statements, we refer to the three months ended March 31, 2024 and March 31, 2023 as the “2024 Quarter” and the “2023 Quarter,” respectively.

Federal Income Taxes

4 unchanged sentences

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

As of both September 30, 2023 and December 31, 2022, our TRS had a deferred tax asset of $ 1.4 million that was fully reserved.

As of both March 31, 2024 and December 31, 2023, our TRS had a deferred tax asset of $ 1.4 million that was fully reserved.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS

5 unchanged sentences

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

During the first quarter of 2023, 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").

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.

1 unchanged sentence

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

In November 2023, the FASB issued an amendment to the segment reporting standards which requires disclosure for each reportable segment, on an interim and annual basis, the significant expense categories and amounts that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or loss.

Additionally, it requires a disclosure of the title and position of the individual or the name of the group or committee identified as the chief operating decision maker.

The new standard will be effective for annual periods beginning on January 1, 2024 and interim periods beginning on January 1, 2025 on a retrospective basis.

We are currently evaluating the impact of adopting the standard on our consolidated financial statements.

In March 2024, the Securities and Exchange Commission (“SEC”) issued its final rule that requires registrants to provide climate disclosures in their annual reports and registration statements, beginning with annual reports for the year ending December 31, 2025.

On April 4, 2024, the SEC voluntarily stayed the final rule pending the completion of judicial review of cases pending in the Eighth Circuit.

We are continuing to evaluate the disclosure impact of the final rule.

Principles of Consolidation and Basis of Presentation

1 unchanged sentence

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.

We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the 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.

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.

12 unchanged sentences

Actual results could differ from those estimates.

We acquired the following community during the 2023 Quarter (the “2023 Acquisition”):

Acquisition Date Community Type Number of Homes Ending Occupancy as of September 30, 2023 Contract Purchase Price (In thousands)

September 29, 2023 Elme Druid Hills Residential 500 93.4 % $ 108,000

The results of operations from the acquired operating property for our period of ownership is included in the condensed consolidated statements of operations as of its acquisition date and was as follows (in thousands):

Three and Nine Months Ended September 30, 2023

Real estate rental revenue $ 53

Net loss ( 403 )

We accounted for the 2023 Acquisition as an asset acquisition.

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

The total cost of the 2023 Acquisition was as follows (in thousands):

Contract purchase price $ 108,000

Capitalized acquisition costs 190

Total $ 108,190

We have recorded the 2023 Acquisition as follows (in thousands):

Land $ 25,249

Building 79,281

Absorption costs 3,660

Total carrying amount recorded $ 108,190

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

The difference in the total acquisition cost of $ 108.2 million for the 2023 Acquisition and the cash paid for the acquisition per the consolidated statements of cash flows of $ 107.6 million is due to net credits received at settlement totaling $ 0.6 million.

Development/Redevelopment

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

As of September 30, 2023, we have invested $ 30.4 million, including the cost of acquired land, in a residential development adjacent to Riverside Apartments.

As of March 31, 2024, we have invested $ 30.4 million, including the cost of acquired land, in a residential development adjacent to Riverside Apartments.

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

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

Properties Sold and Held for Sale

2 unchanged sentences

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.

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

Real Estate Impairment

During the 2023 Quarter, we recognized an impairment charge of $ 41.9 million on Watergate 600 in order to reduce its carrying value to its estimated fair value, which declined due to changes in market conditions in the Washington DC metro region office market.

The estimated fair value is inherently subjective because there are few observable market transactions for similar office properties.

This fair valuation fell into Level 3 in the fair value hierarchy due to its reliance on significant unobservable inputs (see note 7).

In accordance with ASC 820, we estimated the fair value using a discounted cash flow model which required certain significant assumptions, including a discounted cash flow term of 5 years, an average economic occupancy of 80.5 %, and a terminal capitalization rate of 7.5 %.

No other properties, including assets held for development, had any recognized impairment charges during the 2023 Quarter.

We did not sell or classify any properties as held for sale during the 2024 Quarter or in 2023.

As of March 31, 2024, we assessed our properties, including assets held for development, for impairment and did no t recognize any impairment charges during the 2024 Quarter.

We applied reasonable estimates and judgments in evaluating each of the properties as of March 31, 2024.

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.

3 unchanged sentences

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

During the first quarter of 2023, we executed an amendment to the Revolving Credit Facility to convert the benchmark interest rate from LIBOR to an adjusted SOFR, 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, 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 %.

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, with no change in the applicable interest rate margins.

The Revolving Credit Facility bears interest at a rate of adjusted 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 % (in each case, depending on Elme Communities’ credit rating) on the $ 700.0 million committed revolving loan capacity, without regard to usage.

As of March 31, 2024, the interest rate on the Revolving Credit Facility is based on an adjusted daily SOFR (inclusive of the 0.10 % credit spread adjustment) plus 0.85 % applicable margin, the daily SOFR is 5.34% 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 amount of the Revolving Credit Facility’s unsecured line of credit unused and available at September 30, 2023 was as follows (in thousands):

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at March 31, 2024 was as follows (in thousands):

Committed capacity $ 700,000

1 unchanged sentence

Unused and available $ 540,000

We executed borrowings and repayments on the Revolving Credit Facility during the 2023 Period as follows (in thousands):

We executed borrowings and repayments on the Revolving Credit Facility during the 2024 Quarter as follows (in thousands):

Balance, December 31, 2023 $ 157,000

1 unchanged sentence

Repayments ( 34,000 )

Balance, September 30, 2023 $ 149,000

Balance, March 31, 2024 $ 160,000

NOTES PAYABLE

During the first quarter of 2023, 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).

During the 2023 Quarter, we entered into a $ 125.0 million unsecured term loan (“2023 Term Loan”) with an interest rate of adjusted 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.

1 unchanged sentence

DERIVATIVE INSTRUMENTS

We had 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 first quarter of 2023, 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 fixed 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.

During the first quarter of 2023, we entered into two interest rate swap arrangements with an aggregate notional amount of $ 125.0 million that effectively fixed the interest at 4.73 % for the 2023 Term Loan beginning on July 21, 2023 through the 2023 Term Loan’s maturity date of January 10, 2025.

During the 2023 Quarter, we entered into two interest rate swap arrangements with an aggregate notional amount of $ 125.0 million that effectively fixed the interest at 4.73 % for the 2023 Term Loan beginning on July 21, 2023 through the 2023 Term Loan’s maturity date of January 10, 2025.

Subsequent to the end of the 2024 Quarter, we entered into two forward interest rate swap arrangements with an aggregate notional amount of $ 150.0 million beginning on January 10, 2025 through January 10, 2026.

These forward interest rate swap arrangements will effectively fix a portion of our variable rate debt based on an adjusted daily SOFR at 4.72 % (subject to applicable interest rate margins).

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

3 unchanged sentences

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

The fair values of the interest rate swaps as of September 30, 2023 and December 31, 2022, were as follows (in thousands):

The fair values of the interest rate swaps as of March 31, 2024 and December 31, 2023, were as follows (in thousands):

Derivative Assets

Derivative Instrument Aggregate Notional Amount Effective Date Maturity Date September 30, 2023 December 31, 2022

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

Derivative Instrument Aggregate Notional Amount Effective Date Maturity Date March 31, 2024 December 31, 2023

Interest rate swap 75,000 July 21, 2023 January 10, 2025 $ 790 $ 740

3 unchanged sentences

The net unrealized gains and 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,

2023 2022 2023 2022

Unrealized (loss) gain on interest rate hedges $ ( 149 ) $ 442 $ 372 $ 3,284

Three Months Ended March 31,

Unrealized gain (loss) on interest rate hedges $ 83 $ ( 333 )

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.

During the next twelve months, we estimate that an additional $ 1.3 million related to our two outstanding interest rate swap arrangements will be reclassified as a decrease to interest expense.

The losses reclassified from Accumulated other comprehensive loss into interest expense for the three and nine months ended September 30, 2023 and 2022, were as follows (in thousands):

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

2023 2022 2023 2022

The losses reclassified from Accumulated other comprehensive loss into interest expense for the three months ended March 31, 2024 and 2023, 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, 2023, the fair value of derivative assets, including accrued interest, was $ 2.4 million and we did no t have any derivatives in a liability position.

As of September 30, 2023, we have not posted any collateral related to these agreements.

As of March 31, 2024, the fair value of derivative assets, including accrued interest, was $ 1.3 million and we did no t have any derivatives in a liability position.

As of March 31, 2024, we have not posted any collateral related to these agreements.

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

7 unchanged sentences

Significant unobservable inputs

The only assets or liabilities we had at September 30, 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.

The only assets or liabilities we had at March 31, 2024 and December 31, 2023 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 quoted prices in active markets and accordingly these valuations fall into Level 1 in the fair value hierarchy.

The valuation of the interest rate derivatives is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each interest rate derivative.

1 unchanged sentence

The fair values of interest rate derivatives are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments).

The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The variable cash payments (or receipts) are based on an expectation of future interest rates (forward

curves) derived from observable market interest rate curves.

To comply with the provisions of ASC 820, Fair Value Measurement , we incorporate credit valuation adjustments in the fair value measurements to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.

2 unchanged sentences

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

The fair values of these assets at September 30, 2023 and December 31, 2022 were as follows (in thousands):

September 30, 2023 December 31, 2022

The fair values of these assets as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

March 31, 2024 December 31, 2023

Value Level 1 Level 2 Level 3 Fair

4 unchanged sentences

Certain assets not measured at fair value on an ongoing basis but subject to fair value adjustments only in certain circumstances, such as when there is evidence of impairment, are measured at fair value on a nonrecurring basis.

In the 2023 Quarter, we measured the fair value of Watergate 600 as there was evidence of impairment (see note 3).

In the 2024 Quarter, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis.

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, 2023 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, 2024 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, 2023 and December 31, 2022, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):

September 30, 2023 December 31, 2022

As of March 31, 2024 and December 31, 2023, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):

March 31, 2024 December 31, 2023

Carrying Value Fair Value Carrying Value Fair Value

5 unchanged sentences

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

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

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

Restricted share units are converted into shares of our stock upon full vesting through the issuance of new shares.

Total Compensation Expense

Total compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $ 1.4 million and $ 1.9 million for the 2023 Quarter and 2022 Quarter, respectively, and $ 4.0 million and $ 6.2 million for the 2023 and 2022 Period, respectively.

Total compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $ 1.1 million and $ 1.2 million for the 2024 Quarter and 2023 Quarter, respectively.

Restricted Share Awards

The total fair values of restricted share awards vested was $ 4.0 million and $ 4.8 million for the 2023 Period and 2022 Period, respectively.

The total unvested restricted share awards at September 30, 2023 was 391,777 shares, which had a weighted average grant date fair value of $ 19.78 per share.

As of September 30, 2023, the total compensation cost related to unvested restricted share awards was $ 5.3 million, which we expect to recognize over a weighted average period of 26 months.

The total fair values of restricted share awards vested was $ 0.6 million and $ 3.4 million for the 2024 Quarter and 2023 Quarter, respectively.

The total unvested restricted share awards at March 31, 2024 was 443,439 shares, which had a weighted average grant date fair value of $ 16.96 per share.

As of March 31, 2024, the total compensation cost related to unvested restricted share awards was $ 6.2 million, which we expect to recognize over a weighted average period of 27 months.

EARNINGS PER COMMON SHARE

4 unchanged sentences

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

The computations of basic and diluted earnings per share for the three and 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

The computations of basic and diluted earnings per share for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except per share data):

Three Months Ended March 31,

Net loss $ ( 3,647 ) $ ( 3,643 )

16 unchanged sentences

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

The following tables present revenues, NOI, capital expenditures and total assets for the three and nine months ended September 30, 2023 and 2022 from our Residential segment as well as Other, and reconcile NOI to net loss as reported (in thousands):

Three Months Ended September 30, 2023

Residential Other (1)

Real estate rental revenue $ 52,065 $ 4,586 $ 56,651

Real estate expenses 18,431 1,366 19,797

Net operating income $ 33,634 $ 3,220 $ 36,854

Other income (expense):

Property management expenses ( 1,935 )

General and administrative expenses ( 6,370 )

Transformation costs ( 985 )

Depreciation and amortization ( 21,904 )

Interest expense ( 7,418 )

Real estate impairment ( 41,860 )

Net loss $ ( 43,618 )

Net income attributable to noncontrolling interests in subsidiaries —

Net loss attributable to the controlling interests $ ( 43,618 )

Capital expenditures $ 11,900 $ 605 $ 12,505

Total assets $ 1,770,921 $ 139,352 $ 1,910,273

Three Months Ended September 30, 2022

The following tables present revenues, NOI, capital expenditures and total assets for the three months ended March 31, 2024 and 2023 from our Residential segment as well as Other, and reconcile NOI to net loss as reported (in thousands):

Three Months Ended March 31, 2024

Residential Other (1)

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General and administrative expenses ( 6,196 )

Transformation costs ( 2,399 )

Depreciation and amortization ( 24,943 )

Interest expense ( 9,494 )

Loss on extinguishment of debt ( 4,917 )

Other income 1,410

2 unchanged sentences

Total assets $ 1,751,228 $ 125,311 $ 1,876,539

Nine Months Ended September 30, 2023

Residential Other (1)

Real estate rental revenue $ 155,156 13,903 $ 169,059

Real estate expenses 55,629 3,947 59,576

Net operating income $ 99,527 $ 9,956 $ 109,483

Other income (expense):

Property management expenses ( 5,882 )

General and administrative expenses ( 19,891 )

Transformation costs ( 6,339 )

Depreciation and amortization ( 64,855 )

Interest expense ( 21,043 )

Loss on extinguishment of debt ( 54 )

Other income 569

Real estate impairment ( 41,860 )

Net loss $ ( 49,872 )

Capital expenditures $ 21,447 $ 1,241 $ 22,688

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Residential Other (1)

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Net operating income $ 32,847 $ 3,441 $ 36,288

Other income (expense):

Other expense:

Property management expenses ( 1,769 )

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Loss on extinguishment of debt ( 54 )

Other income 454

Net loss $ ( 3,643 )

Capital expenditures $ 5,417 $ 374 $ 5,791

______________________________

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

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

SHAREHOLDERS' EQUITY

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.

Morgan Securities LLC, KeyBanc Capital Markets Inc.

and Truist Securities, Inc.

(f/k/a SunTrust Robinson Humphrey, Inc.), each dated May 4, 2018 (collectively, as amended, the “Equity Distribution Agreements”) for our at-the-market program.

Also on February 17, 2021, we entered into a separate equity distribution agreement with BTIG, LLC on the same terms as the Amended Equity Distribution Agreements (the “BTIG Equity Distribution Agreement”).

On September 22, 2021, BTIG, LLC notified us that it was terminating the BTIG Equity Distribution Agreement, effective as of September 27, 2021.

Pursuant to the Equity Distribution Agreements, we may sell, from time to time, up to an aggregate price of $ 550.0 million of our common shares of beneficial interest, $ 0.01 par value per share.

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 property or the repayment of debt.

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):

Nine Months Ended September 30,

Issuance of common shares 1,032

Weighted average price per share $ 26.27

Net proceeds $ 26,851

On February 20, 2024, we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Wells Fargo Securities, LLC, BNY Mellon Capital Markets, LLC, Citigroup Global Markets Inc., Goldman Sachs & Co.

LLC, KeyBanc Capital Markets Inc., TD Securities (USA) LLC and Truist Securities, Inc.

as agents and forward sellers, as applicable, (collectively, the “Agents” or “Forward Sellers”, as applicable), and Wells Fargo Bank, National Association, The Bank of New York Mellon, Citibank, N.A., Goldman Sachs & Co.

LLC, KeyBanc Capital Markets Inc., The Toronto-Dominion Bank and Truist Bank as forward purchasers pursuant to which up to an aggregate gross sales price of $ 350,000,000 of Elme’s common shares of beneficial interest, $ 0.01 par value per share, may be offered and sold from time to time through the Agents, acting as the Company’s sales agents or, if applicable, the Forward Sellers, or directly to the Agents as principals for their own accounts.

In connection with entry into the Equity Distribution Agreement, we terminated our prior at-the-market offering program.

At the time of such termination, approximately $ 340.0 million remained unsold under such prior program.

We did not issue common shares under the Equity Distribution Agreement or any prior equity distribution agreements during the 2024 Quarter or 2023 Quarter.

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

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

We did no t 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 months ended September 30, 2022 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,

2022 2023 2022

We did not issue common shares under the dividend reinvestment program during the 2024 Quarter.

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

Three Months Ended March 31,

Issuance of common shares 14

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