What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-08-02 · 84 added, 71 removed, 297 unchanged (34% 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 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.

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

Forward-Looking Statements

47 unchanged sentences

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

As of June 30, 2024, we owned approximately 9,400 residential apartment homes in the Washington, DC metro and Sunbelt regions.

As of September 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.

In the second quarter of 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 June 30, 2024 and 2023 were as follows (in thousands):

Three Months Ended June 30,

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

Three Months Ended September 30,

2024 2023 $ Change % Change

6 unchanged sentences

(2) See page 35 of the MD&A for a reconciliation of NAREIT FFO to net income.

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 decrease in net loss is primarily due to real estate impairment ($41.9 million) and transformation costs ($1.0 million) (as described in Note 2 to the consolidated financial statements) in the 2023 Quarter and higher NOI ($1.9 million) in the 2024 Quarter.

These were partially offset by higher interest expense ($2.1 million), higher depreciation and amortization expenses ($1.6 million), higher property management expenses ($0.3 million) and loss on extinguishment of debt ($0.1 million) in the 2024 Quarter.

The increase in NOI is primarily due to the acquisition of Elme Druid Hills ($1.2 million) in the 2023 Quarter and higher NOI from same-store properties ($0.8 million).

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

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).

Residential same-store average occupancy for our portfolio decreased to 95.2% as of September 30, 2024 from 95.4% as of September 30, 2023.

The higher NAREIT FFO is primarily due to higher NOI ($1.9 million) and lower transformation costs ($1.0 million).

These were partially offset by higher interest expense ($2.1 million), higher property management expenses ($0.3 million) and higher loss on extinguishment of debt ($0.1 million).

Investment Activity

1 unchanged sentence

Financing Activity

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.

During 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).

Borrowings under the Amended and Restated Revolving Credit Facility will bear interest, at our 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 our credit rating) or (b) the base rate plus a margin ranging from 0.00% to 0.40% (based upon our 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.

In addition, the Amended Credit Agreement requires the payment of a facility fee equal to 0.10% to 0.30% (depending on our credit rating) on the $500.0 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.

As of November 1, 2024, our Amended and Restated Revolving Credit Facility has a borrowing capacity of $313.0 million.

As of September 30, 2024, the interest rate on the Amended and Restated Revolving Credit Facility is based on the Adjusted Daily Simple SOFR (inclusive of the 0.10% credit spread adjustment) plus 0.85% applicable margin, the daily SOFR is 4.96% and the facility fee is 0.20%.

During the second quarter of 2024, 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).

Capital Requirements

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All amounts are in thousands, except percentage amounts.

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 $ Change % Change

4 unchanged sentences

Real estate depreciation and amortization 23,474 21,904 1,570 7.2 %

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

Interest expense 9,557 7,418 2,139 28.8 %

Other income — (569) 569 (100.0) %

Loss on extinguishment of debt, net 147 — 147 100.0 %

Total net operating income (NOI) $ 38,797 $ 36,854 $ 1,943 5.3 %

23 unchanged sentences

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 $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.

Real estate rental revenue from same-store residential properties increased $1.9 million, or 3.7%, to $53.9 million for the 2024 Quarter, compared to $52.0 million for the 2023 Quarter, primarily due to higher rental income ($1.5 million), higher recoveries ($0.4 million) and higher ancillary income ($0.2 million), partially offset by higher concessions ($0.2 million).

Real estate rental revenue from acquisition increased $2.4 million due to the acquisition of Elme Druid Hills during the 2023 Quarter.

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

June 30, 2024 June 30, 2023 % Change

September 30, 2024 September 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 Marietta, Elme Eagles Landing, Elme Sandy Springs, Elme Cumberland, and Roosevelt Towers, partially offset by higher average occupancy at Elme Manassas and Elme Leesburg.

95.2 % 93.9 % 95.2 % 95.4 % 93.4 % 95.3 % (0.2) % 0.5 % (0.1) %

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

The increase in non-same-store average occupancy is due to higher average occupancy during the 2024 Quarter as compared to the ending occupancy as of the 2023 Quarter at Elme Druid Hills.

As we acquired Elme Druid Hills on September 29, 2023 and it is the only non-same-store property during the 2023 Quarter, the stated 2023 Quarter occupancy percentage is the ending occupancy as of September 30, 2023.

Residential Expenses

Residential real estate expenses as a percentage of residential revenue for the 2024 Quarter and the 2023 Quarter were 36.9% and 35.4%, respectively.

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.

Real estate expenses from same-store residential properties increased $1.2 million, or 6.4%, to $19.5 million for the 2024 Quarter, compared to $18.4 million for the 2023 Quarter, primarily due to higher administrative ($0.4 million), higher utilities ($0.4 million), higher real estate tax ($0.3 million), higher contract maintenance ($0.3 million) and higher insurance ($0.2 million) expenses.

The increase is partially offset by lower personnel ($0.4 million) expenses.

Real estate expenses from acquisition increased $1.2 million due to the acquisition of Elme Druid Hills during the 2023 Quarter.

Other Income and 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.

Small decrease reflects a higher internal management fee offset ($0.3 million), lower corporate office moving expenses ($0.3 million) and lower rent for our corporate office ($0.2 million).

These were offset by higher incentive compensation ($0.6 million) and higher software ($0.1 million) expenses.

Transformation costs:

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Interest expense :

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,

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

Three Months Ended September 30,

Debt Type 2024 2023 $ Change % Change

6 unchanged sentences

Increase primarily due to higher weighted average borrowings of $168.8 million and a weighted average interest rate of 6.3% in the 2024 Quarter, as compared to weighted average borrowings of $41.1 million and a weighted average interest rate of 6.2% in the 2023 Quarter.

Other income :

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

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.

Loss on Extinguishment of Debt:

Loss during the 2024 Quarter was due to a write-off of capitalized debt origination costs in association with the execution of our Amended and Restated Revolving Credit Facility in July 2024.

2024 Period Compared to 2023 Period

1 unchanged sentence

All amounts are in thousands, except percentage amounts.

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 $ Change % Change

4 unchanged sentences

Real estate depreciation and amortization 72,312 64,855 7,457 11.5 %

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

Interest expense 28,435 21,043 7,392 35.1 %

26 unchanged sentences

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.

Real estate rental revenue from same-store residential properties increased $4.2 million, or 2.7%, to $159.3 million for the 2024 Period, compared to $155.1 million for the 2023 Period, primarily due to higher rental income ($4.6 million), higher recoveries ($1.2 million), higher other rental and fee income ($0.6 million) and higher ancillary income ($0.3 million), partially offset by higher credit losses ($1.0 million), higher vacancy loss ($0.9 million) and higher concessions ($0.5 million).

Real estate rental revenue from acquisition increased $7.4 million due to the acquisition of Elme Druid Hills during the 2023 Quarter.

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

June 30, 2024 June 30, 2023 % Change

September 30, 2024 September 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.

94.7 % 92.9 % 94.6 % 95.4 % 93.4 % 95.4 % (0.7) % (0.5) % (0.8) %

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

The decrease in non-same-store average occupancy is due to lower average occupancy during the first six months of the 2024 Period as compared to the ending occupancy as of the 2023 Period at Elme Druid Hills.

This decrease is partially offset by higher average occupancy during 2024 Quarter.

As we acquired Elme Druid Hills on September 29, 2023 and it is the only non-same-store property during the 2023 Period, the stated 2023 Period occupancy percentage is the ending occupancy as of September 30, 2023.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for the 2024 Period and 2023 Period were 37.1% and 35.9%, 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.

Real estate expenses from same-store residential properties increased by $3.0 million, or 5.3%, to $58.4 million for the 2024 Period, compared to $55.4 million for the nine months ended September 30, 2023, primarily due to higher utilities ($0.9 million), higher administrative ($0.9 million), higher real estate taxes ($0.8 million), higher insurance ($0.8 million) and higher maintenance ($0.6 million) expenses.

The increase is partially offset by lower personnel ($0.8 million) and turnover ($0.1 million) expenses.

Real estate expenses from acquisitions increased $3.2 million due to the acquisition of Elme Druid Hills during the 2023 Quarter.

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

1 unchanged sentence

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).

Increase of $0.7 million primarily due to higher internal management fee expenses at same-store properties ($0.4 million) and the acquisition of Elme Druid Hills during the 2023 Quarter ($0.3 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).

Decrease of $1.2 million primarily due to higher internal management fee offset ($2.2 million), corporate office moving expenses ($0.6 million) in the 2023 Period and lower rent for our corporate office ($0.6 million).

These were partially offset by higher payroll ($1.2 million), higher incentive compensation ($0.4 million), higher software ($0.4 million) and higher consulting ($0.2 million) expenses.

Transformation costs:

4 unchanged sentences

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,

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

Nine Months Ended September 30,

Debt Type 2024 2023 $ Change % Change

6 unchanged sentences

Increase primarily due to higher weighted average borrowings of $166.2 million and a weighted average interest rate of 6.3% in the 2024 Period, as compared to weighted average borrowings of $40.8 million and a weighted average interest rate of 6.1% in the 2023 Period.

Loss on Extinguishment of Debt:

Loss during the 2024 Quarter was due to a write-off of capitalized debt origination costs in association with the execution of our Amended and Restated Revolving Credit Facility in July 2024.

Other Income :

1 unchanged sentence

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

Real Estate Impairment :

The real estate impairment charge of $41.9 million during the 2023 Period reduced the carrying value of Watergate 600 to its estimated fair value.

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 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.

We also believe we have adequate liquidity beyond 2024, with only $125.0 million of scheduled debt maturities in 2025 and no additional scheduled debt maturities prior to 2028.

As of November 1, 2024, we had cash and cash equivalents totaling $3.9 million and a borrowing capacity of $313.0 million on our Amended and Restated Revolving Credit Facility, resulting in a total liquidity position of $316.9 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.

19 unchanged sentences

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, 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:

As of September 30, 2024, our future debt principal payments are scheduled as follows (in thousands):

Future Maturities of Debt

5 unchanged sentences

2027 — — — —%

2028 50,000 168,000 (2)

Thereafter 350,000 — 350,000 4.1%

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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) 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.

(2) During the 2024 Quarter, 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 September 30, 2024, the weighted average maturity for our debt is 4.4 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.

4 unchanged sentences

Debt Covenants

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.

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

As of September 30, 2024, we were in compliance with the covenants related to our Amended 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 June 30, 2024.

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

9 unchanged sentences

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,

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

Nine Months Ended September 30,

Issuance of common shares 28

4 unchanged sentences

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, 2024, no preferred shares were issued and outstanding.

As of September 30, 2024, no preferred shares were issued and outstanding.

Historical Cash Flows

2 unchanged sentences

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

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2024 2023 $ %

1 unchanged sentence

Net cash used in investing activities (29,622) (130,283) 100,661 (77.3) %

Net cash used in financing activities (33,035) (38,478) 5,443 (14.1) %

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 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.

Net cash (used in) provided by financing activities (42,457) 68,798 (111,255) (161.7) %

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

Net cash used in investing activities decreased primarily due to the acquisition of Elme Druid Hills during the 2023 Quarter.

Net cash used in financing activities increased primarily due to executing the $125.0 million 2023 Term Loan during the 2023 Period and lower net borrowings on the Amended and Restated Revolving Credit Facility during the 2024 Period, partially offset by prepayment of a $100.0 million portion of the 2018 Term Loan during the 2023 Period.

Off-Balance Sheet Arrangements

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.

We have no off-balance sheet arrangements as of September 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 and six months ended June 30, 2024 and 2023 (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, 2024 and 2023 (in thousands):

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

2024 2023 2024 2023

1 unchanged sentence

Depreciation and amortization 23,474 21,904 72,312 64,855

Real estate impairment — 41,860 — 41,860

NAREIT FFO $ 20,504 $ 20,146 $ 62,224 $ 56,843

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, 2024.

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