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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-02 · 154 added, 69 removed, 214 unchanged (51% 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, 2023 filed with the Securities and Exchange Commission (“SEC”) on February 16, 2024.

We refer to the three months ended March 31, 2024 and March 31, 2023 as the “2024 Quarter” and the “2023 Quarter,” respectively.

We refer to the three months ended June 30, 2024 and June 30, 2023 as the “2024 Quarter” and the “2023 Quarter,” respectively and the six months ended June 30, 2024 and June 30, 2023 as the “2024 Period” and “2023 Period,” respectively.

Forward-Looking Statements

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• Results of Operations.

Discussion of our financial results comparing the 2024 Quarter to the 2023 Quarter.

Discussion of our financial results comparing the 2024 Quarter to the 2023 Quarter and the 2024 Period to the 2023 Period.

• Liquidity and Capital Resources.

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

As of March 31, 2024, we owned approximately 9,400 residential apartment homes in the Washington, DC metro and Sunbelt regions.

As of June 30, 2024, 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 June 2024, as part of our previously announced centralization initiatives, we launched our shared services department, known as Elme Resident Services, which focuses on providing elevated customer service to our residents and onsite teams by streamlining community operations across our multifamily portfolio and enhancing process efficiencies across resident account management, collections and renewals.

Operating Results

Net loss, NOI and NAREIT FFO for the three months ended March 31, 2024 and 2023 were as follows (in thousands):

Three Months Ended March 31,

Net loss, NOI and NAREIT FFO for the three months ended June 30, 2024 and 2023 were as follows (in thousands):

Three Months Ended June 30,

2024 2023 $ Change % Change

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(2) See page 34 of the MD&A for a reconciliation of NAREIT FFO to net income.

The increase in net loss is primarily due to higher depreciation and amortization expenses ($3.4 million), interest expense ($2.7 million) and property management expense ($0.4 million) in the 2024 Quarter.

These were partially offset by lower transformation costs (as described in Note 2 to the consolidated financial statements) ($2.9 million), higher NOI ($1.5 million), higher other income ($1.4 million) and lower general and administrative expenses ($0.6 million).

The increase in NOI is primarily due to the acquisition of Elme Druid Hills ($1.6 million) in the third quarter of 2023 and higher NOI from same-store properties ($0.1 million), partially offset by lower NOI at Watergate 600 ($0.2 million).

The increase in net loss is primarily due to higher interest expense ($2.6 million), higher depreciation and amortization expenses ($2.5 million), and lower other income ($0.6 million) in the 2024 Quarter.

These were partially offset by lower transformation costs (as described in Note 2 to the consolidated financial statements) ($2.5 million), higher NOI ($1.8 million) and lower general and administrative expenses ($0.5 million).

The increase in NOI is primarily due to the acquisition of Elme Druid Hills ($1.4 million) in the third quarter of 2023 and higher NOI from same-store properties ($0.4 million).

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

Residential same-store average occupancy for our portfolio decreased to 94.4% as of March 31, 2024 from 95.3% as of March 31, 2023.

The higher NAREIT FFO is primarily due to lower transformation costs ($2.9 million), higher NOI ($1.5 million), higher other income ($1.4 million) and lower general and administrative expenses ($0.6 million).

These were partially offset by higher interest ($2.7 million) and higher property management ($0.4 million) expenses.

Residential same-store average occupancy for our portfolio decreased to 94.6% as of June 30, 2024 from 95.4% as of June 30, 2023.

The higher NAREIT FFO is primarily due to lower transformation costs ($2.5 million), higher NOI ($1.8 million) and lower general and administrative expenses ($0.5 million).

These were partially offset by higher interest expense ($2.6 million) and lower other income ($0.6 million).

Investment Activity

There were no significant investment transactions during the 2024 Quarter.

There were no significant investment transactions during the 2024 Period.

Financing Activity

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%.

As of April 29, 2024, our Revolving Credit Facility has a borrowing capacity of $532.0 million.

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.

As of June 30, 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 5.33% and the facility fee is 0.20%.

During 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).

Subsequent to the 2024 Quarter, we entered into a third amended and restated credit agreement (the “Amended Credit Agreement”) which provides for aggregate revolving loan commitments of $500.0 million (the “Amended and Restated Revolving Credit Facility”) with an accordion feature that allows us to increase the aggregate revolving loan commitments or add term loans of up to $1.0 billion, subject to the lenders’ agreement to provide additional revolving commitments or term loans.

The Amended and Restated Revolving Credit Facility has a four-year term ending in July 2028, with two six-month extension options.

Borrowings under the Amended and Restated Revolving Credit Facility will bear interest, at Elme Communities’ option, at a rate of either (a)(i) daily SOFR plus 0.10% (the “Adjusted Daily Simple SOFR”) or (ii) term SOFR plus 0.10%, plus, in each case, a margin ranging from 0.70% to 1.40% (depending on Elme Communities’ credit rating) or (b) the base rate plus a margin ranging from 0.00% to 0.40% (based upon Elme Communities’ credit rating).

The base rate is the highest of the administrative agent’s prime rate, the federal funds rate plus 0.50% and Adjusted Daily Simple SOFR plus 1.0%.

In addition, the Amended Credit Agreement requires the payment of a facility fee equal to 0.10% to 0.30% (depending on Elme Communities’ credit rating) on the $500 million committed capacity in respect of the Amended and Restated Revolving Credit Facility, without regard to usage.

The initial interest rate is based on Adjusted Daily Simple SOFR plus a margin of 0.85% and the initial facility fee equals 0.20%.

As of July 29, 2024, our Amended and Restated Revolving Credit Facility has a borrowing capacity of $323.0 million.

Capital Requirements

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Results of Operations

The discussion that follows is based on our consolidated results of operations for the 2024 Quarter and 2023 Quarter.

The discussion that follows is based on our consolidated results of operations for the 2024 Quarter and 2023 Quarter and the 2024 Period and 2023 Period.

Net Operating Income

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All amounts are in thousands, except percentage amounts.

Three Months Ended March 31,

Three Months Ended June 30,

2024 2023 $ Change % Change

Net loss $ (3,471) $ (2,611) $ (860) 32.9 %

Property management expense 2,218 1,769 449 25.4 %

General and administrative expense 6,196 6,841 (645) (9.4) %

Property management expenses 2,175 2,178 (3) (0.1) %

General and administrative expenses 6,138 6,680 (542) (8.1) %

Transformation costs — 2,454 (2,454) (100.0) %

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Interest expense 9,384 6,794 2,590 38.1 %

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

Other income — (569) 569 (100.0) %

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Same-store portfolio $ 53,021 $ 52,100 $ 921 1.8 %

Acquisitions (1)

Acquisition (1)

2,471 — 2,471 100.0 %

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Same-store portfolio 19,505 19,000 505 2.7 %

Acquisitions 947 — 947 100.0 %

Acquisition 1,060 — 1,060 100.0 %

Development 57 54 3 5.6 %

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Same-store portfolio 33,516 33,100 416 1.3 %

Acquisitions 1,550 — 1,550 100.0 %

Acquisition 1,411 — 1,411 100.0 %

Development (57) (54) (3) 5.6 %

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______________________________

(1) Acquisitions:

(1) Acquisition:

Elme Druid Hills

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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 $1.4 million, or 2.7%, to $52.4 million for the 2024 Quarter, compared to $51.0 million for the 2023 Quarter, primarily due to higher rental income ($1.6 million), higher recoveries ($0.7 million) and higher other rental and fee income ($0.3 million), partially offset by higher credit losses ($0.7 million) and higher vacancy loss ($0.4 million).

Real estate rental revenue from acquisitions increased $2.5 million due to the acquisition of Elme Druid Hills during the third quarter of 2023.

Real estate rental revenue from same-store residential properties increased $0.9 million, or 1.8%, to $53.0 million for the 2024 Quarter, compared to $52.1 million for the 2023 Quarter, primarily due to higher rental income ($1.5 million), partially offset by higher vacancy loss ($0.4 million) and higher credit losses ($0.2 million).

Real estate rental revenue from acquisition increased $2.5 million due to the acquisition of Elme Druid Hills during the third quarter of 2023.

Average occupancy for residential properties for the 2024 Quarter and 2023 Quarter was as follows:

March 31, 2024 March 31, 2023 % Change

June 30, 2024 June 30, 2023 % Change

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

94.6 % 92.4 % 94.5 % 95.4 % N/A 95.4 % (0.8) % N/A (0.9) %

The decrease in same-store average occupancy was primarily due to lower average occupancy at Elme Eagles Landing, Elme Sandy Springs, Elme Marietta, Elme Cumberland, and The Kenmore, partially offset by higher average occupancy at Roosevelt Towers, Bennett Park, Elme Bethesda and Elme Leesburg.

The decrease in same-store average occupancy was primarily due to lower average occupancy at Elme Marietta, Elme Eagles Landing, Elme Sandy Springs, Elme Cumberland, and Roosevelt Towers, partially offset by higher average occupancy at Elme Manassas and Elme Leesburg.

Residential Expenses

Residential real estate expenses as a percentage of residential revenue for the 2024 Quarter and the 2023 Quarter were 37.2% and 36.6%, respectively.

Real estate expenses from same-store residential properties increased $1.3 million, or 7.0%, to $19.4 million for the 2024 Quarter, compared to $18.1 million for the 2023 Quarter, primarily due to higher contract maintenance ($0.3 million), higher real estate taxes ($0.3 million), higher insurance ($0.3 million), higher utilities ($0.2 million), and higher administrative ($0.2 million) expenses.

Real estate expenses from acquisitions increased $0.9 million due to the acquisition of Elme Druid Hills during the third quarter of 2023.

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

Real estate expenses from same-store residential properties increased $0.5 million, or 2.7%, to $19.5 million for the 2024 Quarter, compared to $19.0 million for the 2023 Quarter, primarily due to higher utilities ($0.3 million), higher administrative ($0.3 million), higher insurance ($0.3 million) and higher real estate tax ($0.2 million) expenses.

The increase is partially offset by lower turnover ($0.2 million), lower contract maintenance ($0.2 million) and lower personnel ($0.1 million) expenses.

Real estate expenses from acquisition increased $1.1 million due to the acquisition of Elme Druid Hills during the third quarter of 2023.

Other Income and Expenses

General and administrative expense :

Decrease of $0.6 million primarily due to higher management fee offset ($1.4 million), lower severance ($0.4 million), corporate office moving expenses in the 2023 Quarter ($0.2 million) and lower rent ($0.2 million) expenses.

These were partially offset by higher payroll ($0.6 million), higher professional services ($0.4 million), higher incentive compensation ($0.2 million), higher computer software ($0.2 million) and higher employee benefits ($0.2 million) expenses.

General and administrative expenses :

Decrease of $0.5 million primarily due to higher internal management fee offset ($0.6 million), lower incentive compensation ($0.3 million) and lower professional ($0.2 million) expenses.

These were partially offset by higher payroll ($0.4 million) and higher employee benefits ($0.2 million) expenses.

Transformation costs:

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Real estate depreciation and amortization :

Increase of $3.4 million primarily due to higher depreciation and amortization at Elme Druid Hills ($2.9 million) and same-store residential properties ($1.4 million).

Increase of $2.5 million primarily due to higher depreciation and amortization at same-store residential properties ($1.8 million) and Elme Druid Hills ($1.4 million).

These increases were partially offset by lower depreciation and amortization at Watergate 600 ($0.7 million).

Interest expense :

Interest expense by debt type for the three months ended March 31, 2024 and 2023 was as follows (in thousands):

Three Months Ended March 31,

Interest expense by debt type for the three months ended June 30, 2024 and 2023 was as follows (in thousands):

Three Months Ended June 30,

Debt Type 2024 2023 $ Change % Change

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• 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.

Increase primarily due to a higher effective interest rate on the $125.0 million 2023 Term Loan executed in January 2023.

• Line of credit :

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Other income :

Other income during the 2024 Quarter consists of additional payments received with respect to easements previously conveyed at The Wellington and Takoma Park, a previously owned retail property.

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

2024 Period Compared to 2023 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 2024 Period compared to the 2023 Period.

All amounts are in thousands, except percentage amounts.

Six Months Ended June 30,

2024 2023 $ Change % Change

Net loss $ (7,118) $ (6,254) $ (864) 13.8 %

Property management expenses 4,393 3,947 446 11.3 %

General and administrative expenses 12,334 13,521 (1,187) (8.8) %

Transformation costs — 5,354 (5,354) (100.0) %

Real estate depreciation and amortization 48,838 42,951 5,887 13.7 %

Interest expense 18,878 13,625 5,253 38.6 %

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

Other income (1,410) (569) (841) 147.8 %

Total net operating income (NOI) $ 75,915 $ 72,629 $ 3,286 4.5 %

Residential revenue:

Same-store portfolio $ 105,395 $ 103,091 $ 2,304 2.2 %

Acquisition (1)

4,968 — 4,968 100.0 %

Total 110,363 103,091 7,272 7.1 %

Residential expenses:

Same-store portfolio 38,859 37,086 1,773 4.8 %

Acquisition 2,007 — 2,007 100.0 %

Development 114 112 2 1.8 %

Total 40,980 37,198 3,782 10.2 %

Residential NOI:

Same-store portfolio 66,536 66,005 531 0.8 %

Acquisition 2,961 — 2,961 100.0 %

Development (114) (112) (2) 1.8 %

Total 69,383 65,893 3,490 5.3 %

Other NOI (2)

6,532 6,736 (204) (3.0) %

Total NOI $ 75,915 $ 72,629 $ 3,286 4.5 %

______________________________

(1) Acquisition:

Elme Druid Hills

Watergate 600

Real Estate Rental Revenue

Real estate rental revenue from same-store residential properties increased $2.3 million, or 2.2%, to $105.4 million for the 2024 Period, compared to $103.1 million for the 2023 Period, primarily due to higher rental income ($3.2 million) and higher recoveries ($0.8 million), partially offset by higher credit losses ($0.9 million) and higher vacancy loss ($0.9 million).

Real estate rental revenue from acquisition increased $5.0 million due to the acquisition of Elme Druid Hills during the third quarter of 2023.

Average occupancy for residential properties for the 2024 Period and 2023 Period was as follows:

June 30, 2024 June 30, 2023 % Change

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

94.5 % 92.4 % 94.4 % 95.4 % NA 95.4 % (0.9) % NA (1.0) %

The decrease in same-store average occupancy was primarily due to lower average occupancy at Elme Eagles Landing, Elme Marietta, Elme Sandy Springs and Elme Cumberland, partially offset by higher average occupancy at Elme Leesburg.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for the 2024 Period and 2023 Period were 37.1% and 36.1%, respectively.

Real estate expenses from same-store residential properties increased by $1.8 million, or 4.8%, to $38.9 million for the 2024 Period, compared to $37.1 million for the six months ended June 30, 2023, primarily due to higher insurance ($0.6 million), higher real estate taxes ($0.5 million), higher utilities ($0.5 million), higher administrative ($0.5 million) and higher contract maintenance ($0.2 million) expenses.

The increase is partially offset by lower personnel ($0.5 million) expenses.

Real estate expenses from acquisitions increased $2.0 million due to the acquisition of Elme Druid Hills during the third quarter of 2023.

Other NOI decreased ($0.2 million) due to higher operating expenses at Watergate 600.

Other Income and Expenses

Property management expenses:

Increase of $0.4 million primarily due to higher internal management fee expenses at same-store properties ($0.2 million) and the acquisition of Elme Druid Hills during the third quarter of 2023 ($0.2 million).

General and administrative expenses :

Decrease of $1.2 million primarily due to higher internal management fee offset ($2.0 million), lower rent for our corporate office ($0.4 million), lower severance ($0.3 million) and corporate office moving ($0.3 million) expenses.

These were partially offset by higher payroll ($1.1 million), higher employee benefits ($0.4 million) and higher software expenses ($0.3 million).

Transformation costs:

Decrease of $5.4 million due to completion of strategic transformation in 2023.

Real estate depreciation and amortization :

Increase of $5.9 million primarily due to higher depreciation and amortization at Elme Druid Hills ($4.3 million) and at same-store residential properties ($3.2 million).

The increase was partially offset by lower depreciation and amortization at Watergate 600 ($1.6 million).

Interest expense :

Interest expense by debt type for the six months ended June 30, 2024 and 2023 was as follows (in thousands):

Six Months Ended June 30,

Debt Type 2024 2023 $ Change % Change

Notes payable $ 12,238 $ 10,999 $ 1,239 11.3 %

Line of credit 6,640 2,626 4,014 152.9 %

Total $ 18,878 $ 13,625 $ 5,253 38.6 %

• 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.

• Line of credit :

Increase primarily due to higher weighted average borrowings of $164.9 million and a weighted average interest rate of 6.3% in the 2024 Period, as compared to weighted average borrowings of $40.7 million and a weighted average interest rate of 6.0% in the 2023 Period.

Other Income :

Other income during the 2024 Period consists of additional payments received with respect to easements previously conveyed at The Wellington and Takoma Park, a previously owned retail property.

Income of $0.6 million during the 2023 Period consists of 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, 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 2024, with no debt maturities until 2025 and only $285.0 million of scheduled debt maturities prior to 2028, based on current amounts outstanding under our Revolving Credit Facility.

As of April 29, 2024, we had cash and cash equivalents totaling $2.9 million and a borrowing capacity of $532.0 million on our Revolving Credit Facility, resulting in a total liquidity position of $534.9 million.

We also believe we have adequate liquidity beyond 2024, with no debt maturities until 2025 and only $281.0 million of scheduled debt maturities prior to 2028, based on current amounts outstanding under our Revolving Credit Facility as of June 30, 2024.

Following the execution of the Amended and Restated Revolving Credit Facility, we had only $125.0 million of scheduled debt maturities prior to 2028.

As of July 29, 2024, we had cash and cash equivalents totaling $5.1 million and a borrowing capacity of $323.0 million on our Amended and Restated Revolving Credit Facility, resulting in a total liquidity position of $328.1 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 2024 Quarter, our full-year 2024 capital requirements are summarized below:

As of the end of the 2024 Period, our full-year 2024 capital requirements are summarized below:

• Funding dividends and distributions to our shareholders;

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Debt Financing

We generally use secured or unsecured, corporate-level debt, including unsecured notes, our Revolving Credit Facility, bank term loans and mortgages to meet our borrowing needs.

We generally use secured or unsecured, corporate-level debt, including unsecured notes, our Amended and Restated Revolving Credit Facility, bank term loans and mortgages to meet our borrowing needs.

Long-term, we generally use fixed rate debt instruments in order to match the returns from our real estate assets.

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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, 2024, our future debt principal payments are scheduled as follows (in thousands):

As of June 30, 2024, our future debt principal payments are scheduled as follows (in thousands), before giving effect to the Amended Credit Agreement entered into in July 2024:

Future Maturities of Debt

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Scheduled principal payments $ 525,000 $ 156,000 $ 681,000 4.9%

Net premiums/discounts (88) — (88)

Net discounts/premiums (82) — (82)

Loan costs, net of amortization (2,184) — (2,184)

Total $ 522,539 $ 160,000 $ 682,539 5.0%

Total maturities $ 522,734 $ 156,000 $ 678,734 4.9%

______________________________

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

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

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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.

The weighted average maturity for our debt is 4.3 years.

(2) As of June 30, 2024, the credit facility had an August 2025 maturity date, with two six-month extension options.

On July 10, 2024, we executed the Amended Credit Agreement that provides for a revolving credit facility of $500.0 million that matures in July 2028, with two six-month extension options.

As of June 30, 2024, the weighted average maturity for our debt is 4.0 years.

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

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Debt Covenants

Pursuant to the terms of our Revolving Credit Facility, 2023 Term Loan and unsecured notes, we are subject to customary operating covenants and maintenance of various financial ratios.

Failure to comply with any of the covenants under our Revolving Credit Facility, 2023 Term Loan, unsecured notes or other debt instruments could result in a default under one or more of our debt instruments.

Pursuant to the terms of our 2021 Credit Agreement and, subsequent to June 30, 2024, the Amended Credit Agreement, 2023 Term Loan and unsecured notes, we are subject to customary operating covenants and maintenance of various financial ratios.

Failure to comply with any of the covenants under our 2021 Credit Agreement, and, subsequent to June 30, 2024, the Amended Credit Agreement, 2023 Term Loan, unsecured notes or other debt instruments could result in a default under one or more of our debt instruments.

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

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, 2024, we were in compliance with the covenants related to our Revolving Credit Facility, 2023 Term Loan, and unsecured notes.

As of June 30, 2024, we were in compliance with the covenants related to our 2021 Credit Agreement, 2023 Term Loan, and unsecured notes.

Common Equity

We have authorized for issuance 150.0 million common shares, of which 88.0 million shares were outstanding at March 31, 2024.

We have authorized for issuance 150.0 million common shares, of which 88.0 million shares were outstanding at June 30, 2024.

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.

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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.

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

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

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

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,

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

We intend to use the proceeds of the sale of any newly issued common shares issued under this program, if any, for general corporate purposes.

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

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

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

Issuance of common shares 14 28

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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, 2024, no preferred shares were issued and outstanding.

As of June 30, 2024, 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

2024 2023 $ %

3 unchanged sentences

Net cash provided by operating activities increased primarily due to higher rental revenue from the acquisition of Elme Druid Hills during the third quarter of 2023 and from same-store communities.

Net cash used in investing activities increased primarily due to higher expenditures on capital improvements to our communities during the 2024 Quarter.

Net cash used in financing activities increased primarily due to executing the $125.0 million 2023 Term Loan during the 2023 Quarter.

This was partially offset by the repayment of the $100.0 million 2018 Term Loan during the 2023 Quarter and higher net borrowings on the Revolving Credit Facility during the 2024 Quarter.

Net cash used in investing activities increased primarily due to higher expenditures on capital improvements to our communities during the 2024 Period.

Net cash used in financing activities decreased primarily due to lower net repayments on the 2021 Credit Agreement during the 2024 Period and the repayment of the $100.0 million 2018 Term Loan during the 2023 Period, 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, 2024 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, 2024 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

7 unchanged sentences

These other REITs may not define the term in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently.

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, 2024 and 2023 (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, 2024 and 2023 (in thousands):

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

2024 2023 2024 2023

Net loss $ (3,471) $ (2,611) $ (7,118) $ (6,254)

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, 2024.

There were no changes made by management to the critical accounting policies in the three and six months ended June 30, 2024.

We discuss the most critical estimates in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 16, 2024.

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