What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-14 compared with 2024-02-16 · 127 added, 140 removed, 299 unchanged (47% of the section changed)

24 unchanged sentences

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

During 2022, we completed acquisitions of three apartment communities in Georgia with a combined total of 1,079 apartment homes for a total contract purchase price of $283.2 million.

During 2023, we completed the acquisition of Elme Druid Hills, a 500-unit apartment community in Atlanta, Georgia for a contract purchase price of $108.0 million.

3 unchanged sentences

Costs related to the strategic transformation, including the allocation of internal costs, consulting, advisory and termination benefits, are included in transformation costs on our consolidated statements of operations.

We recognized $6.3 million and $9.7 million of transformation costs, net of amounts capitalized, on the consolidated statements of operations during 2023 and 2022, respectively.

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

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

We recognized $6.3 million of transformation costs, net of amounts capitalized, on the consolidated statements of operations during 2023.

We did not incur transformation costs in 2024 and do not anticipate incurring any additional transformation costs in the future.

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

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.

On February 13, 2025, the Company announced that its Board has initiated a formal review to evaluate strategic alternatives for the Company in an effort to maximize shareholder value.

There is no deadline or definitive timetable set for completion of this review and there can be no assurance that this process will result in the Company pursuing a transaction or any other strategic outcome.

Operating Results

The discussion that follows is based on our Operating Results.

The ability to compare one period to another is significantly affected

by the acquisitions completed 2023 and 2022 (see note 3 to the consolidated financial statements).

The ability to compare one period to another is affected by the acquisition completed in 2023 (see note 3 to the consolidated financial statements).

Net loss, NOI and NAREIT FFO for the years ended December 31, 2024 and 2023 were as follows (in thousands, except percentage amounts):

6 unchanged sentences

______________________________

(1) See page 33 of the MD&A for reconciliations of NOI to net (loss) income.

(2) See page 43 of the MD&A for reconciliations of NAREIT FFO to net (loss) income.

The increase in net loss is primarily due to a real estate impairment in our office property ($41.9 million), higher interest expense ($5.5 million) and higher property management expenses ($0.7 million) in 2023.

These were partially offset by higher NOI ($12.7 million), lower loss on extinguishment of debt ($4.9 million), lower transformation costs ($3.3 million), lower depreciation and amortization expenses ($2.8 million), and lower general and administrative expenses ($2.4 million).

The higher NOI is primarily due to higher NOI from same-store properties ($9.2 million) and the acquisitions of Elme Marietta ($1.7 million) and Elme Cumberland ($1.0 million) in 2022 and Elme Druid Hills ($1.7 million) in 2023, partially offset by lower NOI at Watergate 600 ($0.3 million) and Elme Sandy Springs ($0.4 million).

(1) See page 33 of the MD&A for reconciliations of NOI to net loss.

(2) See page 43 of the MD&A for reconciliations of NAREIT FFO to net loss.

The decrease in net loss is primarily due to real estate impairment in our office property ($41.9 million) and transformation costs ($6.3 million) during 2023, and higher NOI ($5.2 million) and lower general and administrative expenses ($0.9 million) during 2024.

These were partially offset by higher interest expense ($7.4 million) and higher depreciation and amortization expenses ($7.0 million).

The increase in NOI is primarily due to the acquisition of Elme Druid Hills ($3.9 million) in 2023 and higher NOI from same-store properties ($1.9 million), partially offset by lower NOI at Watergate 600 ($0.6 million).

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

Residential same-store average occupancy for our portfolio increased to 95.6% as of December 31, 2023 from 95.4% as of December 31, 2022.

The higher NAREIT FFO is primarily due to higher NOI ($12.7 million), lower loss on extinguishment of debt ($4.9 million), lower transformation costs ($3.3 million) and lower general and administrative expenses ($2.4 million).

These were partially offset by higher interest expense ($5.5 million) and higher property management expenses ($0.7 million).

Residential same-store average occupancy for our portfolio decreased to 94.8% as of December 31, 2024 from 95.2% as of December 31, 2023.

The higher NAREIT FFO is primarily due to higher NOI ($5.2 million), lower transformation costs ($6.3 million) and lower general and administrative expenses ($0.9 million).

These were partially offset by higher interest expense ($7.4 million).

Investment Activity

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

The acquisition was funded through cash and borrowings under the Company's $700 million unsecured revolving credit facility (“Revolving Credit Facility”).

There were no significant investment transactions during 2024.

Financing Activity

Significant financing activity during 2023 included entering into a $125.0 million unsecured term loan (“2023 Term Loan”) with an interest rate of SOFR (subject to a credit spread adjustment of 10 basis points) plus a margin of 95 basis points (subject to adjustment depending on Elme Communities' credit rating).

We used the proceeds from the 2023 Term Loan to prepay the $100.0 million 2018 Term Loan in full and a portion of our borrowings under our Revolving Credit Facility.

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

During 2023, we executed an amendment to our Revolving Credit Facility to convert the benchmark interest rate from LIBOR to an adjusted SOFR, with no change in the applicable interest rate margins.

As of December 31, 2023, 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 5.38% and the facility fee is 0.20%.

As of February 13, 2024, our Revolving Credit Facility has a borrowing capacity of $535.0 million.

In July 2024, 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 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 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 February 11, 2025, our Amended and Restated Revolving Credit Facility has a borrowing capacity of $320.0 million.

As of December 31, 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 4.49% and the facility fee is 0.20%.

During 2024, we entered into a first amendment (the “Term Loan Amendment”) to our $125.0 million unsecured term executed in 2023 (“2023 Term Loan”).

The 2023 Term Loan has 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 our credit rating).

The Term Loan Amendment implements various covenant and technical amendments to make the 2023 Term Loan consistent with corresponding provisions in the Amended Credit Agreement.

The Term Loan Amendment does not change the maturity or any of the pricing terms of the term loan outstanding under the 2023 Term Loan.

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).

In the fourth quarter of 2024, we exercised one of two one-year extension options on the 2023 Term Loan (as defined below) to extend the maturity of the loan to January 10, 2026.

Capital Requirements

We do not currently have any debt maturities scheduled for 2024.

We exercised one of two one-year extension options on the 2023 Term Loan which results in no current debt maturities scheduled for 2025.

We expect to have additional capital requirements as set forth on page 37 (Liquidity and Capital Resources - Capital Requirements).

1 unchanged sentence

The discussion that follows is based on our consolidated results of operations for the two years ended December 31, 2024.

The ability to compare one period to another is significantly affected by the acquisitions completed during those years (see note 3 to the consolidated financial statements).

The ability to compare one period to another is affected by the acquisition completed during 2023 (see note 3 to the consolidated financial statements).

Net Operating Income

31 unchanged sentences

Development — — — — %

Non-residential (2)

924 1,073 (149) (13.9) %

Total 223,638 209,311 14,327 6.8 %

3 unchanged sentences

Development 233 224 9 4.0 %

Non-residential 248 281 (33) (11.7) %

Total 83,066 74,535 8,531 11.4 %

3 unchanged sentences

Development (233) (224) (9) 4.0 %

Non-residential 676 792 (116) (14.6) %

Total 140,572 134,776 5,796 4.3 %

3 unchanged sentences

______________________________

(1) Acquisitions:

Elme Sandy Springs, Elme Cumberland, Elme Marietta

(1) 2023 Acquisition:

Elme Druid Hills

(2) Non-residential:

Includes revenues and expenses from retail operations at residential properties.

(3) Other (classified as continuing operations):

Watergate 600

Real Estate Rental Revenue

Real estate rental revenue from our apartment communities is comprised of (a) rent from operating leases of 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 $11.5 million, or 6.6%, to $186.0 million for 2023, compared to $174.5 million for 2022, primarily due to higher rental income ($10.4 million), higher recoveries ($1.1 million), lower rent abatements ($0.5 million) and higher fee and ancillary income ($0.8 million).

The increase is partially offset by higher credit losses ($1.3 million).

Real estate rental revenue from acquisitions increased $7.5 million or 50.2% to $22.4 million for 2023, compared to $14.9 million for 2022, primarily due to the acquisitions of Elme Druid Hills ($2.6 million) during the third quarter of 2023, Elme Marietta ($2.6 million) and Elme Cumberland ($1.7 million) during the second quarter of 2022, and Elme Sandy Springs ($0.6 million) during the first quarter of 2022.

Real estate rental revenue from same-store residential properties increased $6.9 million, or 3.3%, to $213.7 million for 2024, compared to $206.8 million for 2023, primarily due to higher rental income ($5.8 million), higher recoveries ($1.6 million), higher ancillary income ($0.6 million) and higher other rental and fee income ($0.5 million), partially offset by higher concessions ($0.7 million), higher vacancy loss ($0.7 million) and higher credit losses ($0.2 million).

Real estate rental revenue from acquisitions increased $7.4 million or 291.1% to $10.0 million for 2024, compared to $2.5 million for 2023, primarily due to the acquisition of Elme Druid Hills during the third quarter of 2023.

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

2 unchanged sentences

94.8 % 93.4 % 94.7 % 95.2 % 93.4 % 95.2 % (0.4) % — % (0.5) %

The increase in same-store average occupancy was primarily due to higher average occupancy at Elme Bethesda, The Paramount, Roosevelt Towers, Riverside Apartments and The Maxwell.

The increase is partially offset by lower average occupancy at Elme Eagles Landing, Elme Manassas and Elme Conyers.

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

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for 2024 and 2023 were 37.1% and 35.6%, respectively.

Real estate expenses from same-store residential properties increased $2.2 million, or 3.6%, to $65.1 million for 2023, compared to $62.8 million for 2022, primarily due to higher utilities ($0.9 million), contract services ($0.5 million), real estate taxes ($0.5 million), marketing ($0.4 million) and insurance ($0.4 million) expenses.

The increase is partially offset by lower administrative ($0.3 million) and repairs and maintenance ($0.2 million) expenses.

Real estate expenses from acquisitions increased $3.5 million in 2023 due to the acquisitions of Elme Druid Hills ($0.9 million) during the third quarter of 2023, Elme Sandy Springs ($1.0 million) during the first quarter of 2022 and Elme Marietta ($0.9 million) and Elme Cumberland ($0.7 million) during the second quarter of 2022.

Other NOI decreased due to lower net operating income at Watergate 600 ($0.3 million).

Real estate expenses from same-store residential properties increased $5.0 million, or 6.9%, to $78.5 million for 2024, compared to $73.4 million for 2023, primarily due to higher utilities ($1.4 million), higher administrative ($1.2 million), higher real estate taxes ($1.1 million), higher maintenance ($1.1 million) and higher insurance ($0.8 million) expenses.

The increase was partially offset by lower personnel ($0.7 million) expenses.

Real estate expenses from acquisitions increased $3.5 million in 2024 due to the acquisition of Elme Druid Hills during the third quarter of 2023.

Other NOI decreased primarily due to lower operating income ($0.3 million) and higher repairs and maintenance expense ($0.3 million) at Watergate 600.

Other Income and Expenses

Property management expenses:

Increase of $0.7 million primarily due to higher management fee expenses at same-store properties ($0.4 million) and due to the acquisitions of Elme Druid Hills ($0.1 million) during the third quarter of 2023 and Elme Marietta ($0.1 million) and Elme Cumberland ($0.1 million) during the second quarter of 2022.

Increase of $0.8 million primarily due to higher internal management fee expenses at same-store properties ($0.5 million) and the acquisition of Elme Druid Hills during the 2023 Quarter ($0.3 million).

General and administrative expenses :

Decrease of $2.4 million primarily due to higher management fee offset ($4.7 million), lower incentive compensation ($2.4 million) and an adjustment to deferred taxes ($0.5 million) in 2023.

The decrease is partially offset by higher payroll ($2.0 million), computer software ($0.9 million), professional services fees ($0.7 million), employee benefits ($0.5 million), severance ($0.5 million), corporate office moving ($0.5 million), and other ($0.2 million) expenses.

Decrease of $0.9 million primarily due to higher internal management fee offset ($2.3 million), corporate office moving expenses ($0.6 million) in 2023, lower rent for our corporate office ($0.6 million) and lower severance ($0.6 million) expenses in 2024.

These were partially offset by higher payroll ($1.3 million), higher software ($0.8 million), higher incentive compensation ($0.6 million) expenses and an adjustment to deferred taxes ($0.5 million) in 2023.

Transformation costs:

Decrease of $3.3 million primarily due to lower consulting ($1.9 million), lower accelerated depreciation ($0.9 million), lower salary, benefit, and incentive compensation ($0.6 million), lower software implementation ($0.5 million), and lower third-party management transition ($0.3 million) costs.

The decrease is partially offset by higher signing bonuses for new employees ($0.9 million).

Decrease of $6.3 million due to completion of strategic transformation in 2023.

Depreciation and amortization :

Decrease of $2.8 million primarily due to lower depreciation and amortization at same-store residential properties ($2.0 million), the acquisitions of Elme Sandy Springs ($1.7 million), Elme Marietta ($1.5 million) and Elme Cumberland ($0.3 million) and lower depreciation and amortization at Watergate 600 ($0.4 million).

The decrease is partially offset by higher depreciation and amortization at Elme Druid Hills ($3.1 million).

Increase of $7.0 million primarily due to higher depreciation and amortization at same-store residential properties ($5.7 million) and at Elme Druid Hills ($3.5 million).

The increase was partially offset by lower depreciation and amortization at Watergate 600 ($2.3 million).

Interest Expense :

3 unchanged sentences

Notes payable $ 24,497 $ 23,152 $ 1,345 5.8 %

Mortgage notes payable — 1,014 (1,014) 100.0 %

Line of credit 13,338 7,277 6,061 83.3 %

Capitalized interest — (283) 283 100.0 %

Total $ 37,835 $ 30,429 $ 7,406 24.3 %

• Notes payable :

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

• Mortgage notes payable :

Decrease due to the mortgages of $42.8 million and $33.7 million assumed in the acquisitions of Elme Marietta and Elme Cumberland, respectively, in the second quarter of 2022 and the extinguishment, in September 2022, of the liabilities associated with these mortgages though defeasance arrangements.

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 a $250.0 million unsecured term loan (the “2018 Term Loan”) in January 2023.

• Line of credit :

Increase primarily due to a weighted average interest rate of 6.2% and weighted average borrowings of $70.6 million in 2023, as compared to a weighted average interest rate of 4.2% and weighted average borrowings of $21.6 million in 2022.

• Capitalized interest :

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

Increase primarily due to higher weighted average borrowings of $169.3 million and a weighted average interest rate of 6.1% in 2024, as compared to a weighted average borrowings of $70.6 million and weighted average interest rate of 6.2% in 2023.

Loss on extinguishment of debt:

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

Loss during 2024 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 :

Decrease of $0.1 million is due to lower tax refunds received in 2023 for office properties sold in prior years.

Other income during 2024 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 2023 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 reduced the carrying value of Watergate 600 to its estimated fair value (see note 3 to consolidated financial statements).

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

2023 Compared to 2022

3 unchanged sentences

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 and contractual obligations, as well as the payment of dividends, and funding possible growth opportunities.

In connection with our strategic transformation, we redesigned our operating model for purposes of more efficiently and effectively supporting residential operations.

We recognized $6.3 million and $9.7 million and $6.6 million of transformation costs, net of amounts capitalized, on the consolidated statements of operations during 2023, 2022 and 2021, respectively.

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

We also believe we have adequate liquidity beyond 2023, with no debt maturities until 2025 and only $282.0 million of scheduled debt maturities prior to 2028, based on current amounts outstanding under our Revolving Credit Facility.

We also believe we have adequate liquidity beyond 2024 and we have no debt maturities until 2026 and only $351 million of scheduled debt maturities prior to 2029, based on current amounts outstanding under our Amended and Restated Revolving Credit Facility.

We will continue to assess the payment of our dividends on a quarterly basis.

5 unchanged sentences

We analyze which source of capital we believe to be most advantageous to us at any particular point in time.

As of February 13, 2024, we had cash and cash equivalents of approximately $5.8 million and availability under our Revolving Credit Facility of $535.0 million.

As of February 11, 2025, we had cash and cash equivalents of approximately $5.9 million and availability under our Amended and Restated Revolving Credit Facility of $320.0 million.

We currently expect that our potential sources of liquidity for acquisitions, development, redevelopment, expansion and renovation of properties, and operating and administrative expenses, may include:

• Cash flow from operations;

• Borrowings under our Revolving Credit Facility or other new short-term facilities;

• Borrowings under our Amended and Restated Revolving Credit Facility or other new short-term facilities;

• Issuances of our equity securities and/or common units in operating partnerships;

11 unchanged sentences

If we are unable to obtain capital from other sources, we may need to alter capital spending to be materially different than what is stated above.

If capital were not available, we may be unable to satisfy the distribution requirement applicable to REITs, make required principal and interest payments, make strategic acquisitions or make necessary and/or routine capital improvements or undertake improvement/redevelopment

opportunities with respect to our existing portfolio of operating assets.

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.

5 unchanged sentences

As of December 31, 2024, our future debt principal payments are scheduled as follows (in thousands):

Year Unsecured Notes Payable/Term Loans Revolving Credit Facility Total Debt Average Interest Rate

Year Unsecured Notes Payable/Term Loans Amended and Restated Revolving Credit Facility

Total Debt Average Interest Rate

2025 — — $ — — %

9 unchanged sentences

______________________________

(1) During the first quarter of 2023, we entered into the $125.0 million 2023 Term Loan with an interest rate of SOFR (subject to a credit spread adjustment of 10 basis points) plus a margin of 95 basis points (subject to adjustment depending on Elme Communities’ credit rating).

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

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

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

Following the prepayment of the 2018 Term Loan, the interest rate swap effectively fixed a $100.0 million portion of the 2023 Term Loan at 2.16% through the interest rate swap's expiration date of July 21, 2023.

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

(2) The credit facility's term ends in August 2025, with two six-month extension options.

(1) During 2023, we entered into the 2023 Term Loan, which has an initial two-year term ending in January 2025, and provided for two one-year extension options.

In the fourth quarter of 2024, we exercised one of two one-year extension options on the 2023 Term Loan to extend the maturity of the loan to January 10, 2026.

In 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 2023 Term Loan’s interest rate at 4.73% beginning on July 21, 2023 through the 2023 Term Loan’s initial maturity date of January 10, 2025.

In 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 the loan maturity date of January 10, 2026.

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

(2) During the third quarter of 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.

The weighted average maturity for our debt was 4.4 years as of December 31, 2024.

5 unchanged sentences

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

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

As of December 31, 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 approximately 88.0 million shares were outstanding at December 31, 2024.

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 in 2023.

Our issuances and net proceeds on the Equity Distribution Agreements in 2022 and 2021 and the Original Equity Distribution Agreements in 2021, were as follows (in thousands, except per share data):

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 $350.0 million 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 in 2024 or 2023.

Our issuances and net proceeds on the prior equity distribution agreement in 2022, were as follows (in thousands, except per share data):

Year Ended December 31,

5 unchanged sentences

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

Our issuances and net proceeds on the dividend reinvestment program for the three years ended December 31, 2023 were as follows (in thousands;

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

Our issuances and net proceeds on the dividend reinvestment program for 2023 and 2022 were as follows (in thousands;

except per share data):

4 unchanged sentences

Net proceeds $ — $ 497 $ 1,030

On October 26, 2023, the Board authorized and approved a share repurchase program of up to $50.0 million of the Company’s common shares of beneficial interest over a period of two years, subject to any applicable limitations or restrictions set forth in our existing credit facility and other debt agreements.

our existing credit facility and other debt agreements.

The share repurchase program is scheduled to expire on October 25, 2025, unless extended by the Board.

8 unchanged sentences

We anticipate funding approximately $27.0 - $32.0 million on several major renovation projects at our residential communities during 2025.

These projects include unit renovations, property technology initiatives, common area and mechanical upgrades, facade and retaining wall restorations and fire system upgrades.

These projects include unit renovations, property technology initiatives, common area and mechanical upgrades, facade restorations and roof replacements.

Not all of the anticipated spending had been committed via executed construction contracts at December 31, 2024.

We expect to fund these projects using cash generated by our real estate operations, through borrowings on our Revolving Credit Facility, or raising additional debt or equity capital in the public market.

We expect to fund these projects using cash generated by our real estate operations, through borrowings on our Amended and Restated Revolving Credit Facility, or raising additional debt or equity capital in the public market.

Contractual Obligations

19 unchanged sentences

Cash provided by operating activities $ 95,243 $ 84,669 $ 73,211 $ 10,574 $ 11,458

Cash (used in) provided by investing activities (146,221) (241,163) 702,170 94,942 (943,333)

Cash provided by (used in) financing activities 60,238 (56,416) (565,396) 116,654 508,980

Net cash provided by operating activities increased in 2023 as compared to 2022 primarily due to higher rental revenue from the acquisitions of Elme Druid Hills in 2023 and Elme Sandy Springs, Elme Marietta and Elme Cumberland during 2022.

Net cash provided by operating activities decreased in 2022 as compared to 2021 primarily due to the sales of twelve office properties (the "Office Portfolio") and eight retail properties (the "Retail Portfolio") during 2021 (see note 3 to the consolidated financial statements) and costs associated with our strategic transformation.

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

Net cash (used in) provided by investing activities decreased in 2022 as compared to 2021 primarily due to the sales of the Office Portfolio and the Retail Portfolio during 2021.

These were partially offset by the acquisitions of Elme Conyers and Elme Eagles Landing during 2021 and acquisitions of Elme Marietta, Elme Cumberland and Elme Sandy Springs during 2022.

Cash used in investing activities

(43,740) (146,221) (241,163) 102,481 94,942

Cash (used in) provided by financing activities

(51,432) 60,238 (56,416) (111,670) 116,654

Net cash provided by operating activities increased in 2024 as compared to 2023 primarily due to higher rental revenue from the acquisition of Elme Druid Hills in 2023 and from same-store communities.

Net cash provided by operating activities increased in 2023 as compared to 2022 primarily due to the acquisitions of Elme Sandy Springs, Elme Marietta and Elme Cumberland in 2022.

Net cash used in investing activities decreased in 2024 as compared to 2023 primarily due to the acquisition of Elme Druid Hills during 2023.

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

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

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

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

Net cash (used in) provided by financing activities decreased in 2022 as compared to 2021 primarily due to a higher volume of debt repayments during 2021 and higher net proceeds from equity issuances and lower dividends paid in 2022.

Capital Improvements and Development Costs

14 unchanged sentences

(1) We consider these capital improvements to be accretive to revenue and not necessarily to net income.

Included in the capital improvement and development costs listed above are capitalized employee compensation in the amount of $2.3 million, $1.1 million and $1.6 million for the three years ended December 31, 2023, respectively, and while none for the year ended December 31, 2023, capitalized interest in the amount of $0.3 million and $0.8 million for the two years ended December 31, 2022, respectively.

Included in the capital improvement and development costs listed above are capitalized employee compensation in the amount of $2.0 million, $2.3 million and $1.1 million for the three years ended December 31, 2024, respectively, and while none for the two years ended December 31, 2024, capitalized interest in the amount of $0.3 million for the year ended December 31, 2022.

Accretive Capital Improvements

1 unchanged sentence

Acquisition related improvements are capital improvements to properties acquired during the preceding three years which were anticipated at the time we acquired the properties.

These types of improvements were made in 2023 to the Elme Cumberland, Elme Marietta, Elme Sandy Springs, Elme Eagles Landing and Elme Conyers.

These types of improvements were made in 2024 to Elme Druid Hills, Elme Cumberland, Elme Marietta and Elme Sandy Springs.

Expansions and Major Renovations:

Expansion projects increase the rentable area of a property, while major renovation projects are improvements sufficient to increase the income otherwise achievable at a property.

Expansions and major renovations during 2023 included facade and unit renovations and fire alarm system and flooring replacement at Riverside Apartments;

unit and hallway renovations at Elme Alexandria;

retail space conversion into additional units at The Ashby;

unit renovations and SmartRent installations at Elme Dulles;

roof replacement and unit renovations at Park Adams and unit and facade renovations at Elme Manassas.

Expansions and major renovations during 2024 included managed Wi-Fi deployments at Cascade at Landmark, Elme Cumberland, Elme Druid Hills, Elme Leesburg, Elme Manassas, The Maxwell and The Wellington;

smart home technology at Elme Druid Hills;

access control modernization at Elme Dulles, Elme Herndon, Elme Leesburg and Elme Manassas;

the completion of a multi-phase fire alarm system modernization at Riverside Apartments;

and over four hundred fifty unit renovations across twenty communities.

Development/Redevelopment:

1 unchanged sentence

Redevelopment costs represent expenditures for improvements intended to reposition properties in their markets and generate more income than would be otherwise achievable.

Development/redevelopment costs in 2022 and 2021 included predevelopment costs for a future residential development adjacent to Riverside Apartments, which is currently on hold.

Development/redevelopment costs in 2022 included predevelopment costs for a future residential development adjacent to Riverside Apartments, which is currently on hold.

Other Capital Improvements

13 unchanged sentences

Additional factors which may cause the actual results, performance or achievements of Elme Communities to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to:

(a) the risks associated with ownership of real estate in general and our real estate assets in particular;

(b) the economic health of the areas in which our properties are located, particularly with respect to the greater Washington, DC metro and Sunbelt regions;

(c) risks associated with our ability to execute on our strategies, including new strategies with respect to our operations and our portfolio, including the acquisition of apartment homes in the Sunbelt markets and our ability to realize any anticipated operational benefits from our internalization of community management functions;

(d) the risk of failure to enter into and/or complete acquisitions and dispositions;

(e) changes in the composition of our portfolio;

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

(g) the economic health of our residents;

(h) the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdowns or recessions and geopolitical conflicts);

(i) risks related to our ability to control our expenses if revenues decrease;

(j) compliance with applicable laws and corporate social responsibility goals, including those concerning the environment and access by persons with disabilities;

(k) risks related to not having adequate insurance to cover potential losses;

(l) changes in the market value of securities;

(m) terrorist attacks or actions and/or cyber-attacks;

(n) whether we will succeed in the day-to-day property management and leasing activities that we have previously outsourced;

(o) the availability and terms of financing and capital and the general volatility of securities markets;

(p) the risks related to our organizational structure and limitations of share ownership;

(q) failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs;

(r) other factors discussed under the caption “Risk Factors.”

(a) the risks associated with the outcome, objectives and timing of the strategic alternatives review, including the incurrence of costs and expenses and diversion of management’s time in connection with such review;

(b) the risks associated with ownership of real estate in general and our real estate assets in particular;

(c) the economic health of the areas in which our properties are located, particularly with respect to the greater Washington, DC metro and Sunbelt regions;

(d) risks associated with our ability to execute on our strategies, including new strategies with respect to our operations and our portfolio, including the acquisition of apartment homes in the Sunbelt markets and our ability to realize any anticipated operational benefits from our internalization of community management functions;

(e) the risk of failure to enter into and/or complete acquisitions and dispositions;

(f) changes in the composition of our portfolio;

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

(h) the economic health of our residents;

(i) the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdowns or recessions and geopolitical conflicts);

(j) risks related to our ability to control our expenses if revenues decrease;

(k) compliance with applicable laws and corporate social responsibility goals, including those concerning the environment and access by persons with disabilities;

(l) risks related to legal proceedings;

(m) risks related to not having adequate insurance to cover potential losses;

(n) changes in the market value of securities;

(o) terrorist attacks or actions and/or cyber-attacks;

(p) whether we will succeed in the day-to-day property management and leasing activities that we have previously outsourced;

(q) the availability and terms of financing and capital and the general volatility of securities markets;

(r) the risks related to our organizational structure and limitations of share ownership;

(s) failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs;

(t) other factors discussed under the caption “Risk Factors.”

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance.

9 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 NAREIT FFO to net income for the three years ended December 31, 2023 (in thousands):

The following table provides the calculation of our NAREIT FFO and a reconciliation of NAREIT FFO to net loss for the three years ended December 31, 2024 (in thousands):

Year Ended December 31,

2024 2023 2022

Net (loss) income $ (52,977) $ (30,868) $ 16,384

$ (13,103) $ (52,977) $ (30,868)

Depreciation and amortization 95,935 88,950 91,722

Real estate impairment — 41,860 —

Discontinued operations:

Depreciation and amortization — — 22,904

Gain on sale of depreciable real estate, net — — (46,441)

NAREIT FFO $ 82,832 $ 77,833 $ 60,854

10 unchanged sentences

We determine the fair values of acquired buildings on an “as-if-vacant” basis considering a variety of factors, including the replacement cost of the property, estimated rental and absorption rates, estimated future cash flows and valuation assumptions consistent with current market conditions.

We determine the fair value of land

acquired based on comparisons to similar properties that have been recently marketed for sale or sold.

We determine the fair value of land acquired based on comparisons to similar properties that have been recently marketed for sale or sold.

The fair value of in-place leases is based upon our evaluation of the specific characteristics of the leases.

Factors considered in the fair value analysis include the estimated cost to replace the leases, including foregone rents and expense reimbursements during hypothetical expected lease-up periods (referred to as “absorption cost”), consideration of current market conditions and costs to execute similar leases.

costs to execute similar leases.

We classify absorption costs as other assets and amortize absorption costs as amortization expense on a straight-line basis over the remaining life of the underlying leases.

7 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-K

Item 7. Management’s Discussion and Analysis