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Item 2. Management’s Discussion and Analysis

2025-05-02 compared with 2024-11-05 · 70 added, 187 removed, 194 unchanged (57% 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, 2024 filed with the Securities and Exchange Commission (“SEC”) on February 14, 2025.

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.

We refer to the three months ended March 31, 2025 and March 31, 2024 as the “2025 Quarter” and the “2024 Quarter,” respectively.

Forward-Looking Statements

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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:

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;

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

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the economic health of our residents;

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

the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdowns or recessions, tariffs and trade barriers, supply chain disruptions and geopolitical conflicts);

risks related to our ability to control our expenses if revenues decrease;

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

risks related to legal proceedings;

risks related to not having adequate insurance to cover potential losses;

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• Results of Operations.

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

Discussion of our financial results comparing the 2025 Quarter to the 2024 Quarter.

• Liquidity and Capital Resources.

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

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

As of March 31, 2025, we owned approximately 9,400 residential apartment homes in the Washington, DC and Atlanta metro regions.

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

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.

During the 2025 Quarter, we announced that our board of trustees had initiated a formal review to evaluate strategic alternatives for Elme Communities in an effort to maximize shareholder value.

This review remains ongoing and 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 Elme Communities pursuing a transaction or any other strategic outcome.

Operating Results

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,

Net loss, NOI and NAREIT FFO for the three months ended March 31, 2025 and 2024 were as follows (in thousands):

Three Months Ended March 31,

2025 2024 $ Change % Change

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(2) See page 29 of the MD&A for a reconciliation of NAREIT FFO to net income.

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 increase in net loss is primarily due to higher professional fees ($2.9 million) in the 2025 Quarter in connection with the previously disclosed cooperation agreement entered into on March 19, 2025 (the “Cooperation Agreement”) and activities related to the board of trustee’s ongoing strategic alternatives review and higher other income ($1.4 million) in the 2024 Quarter.

These were partially offset by lower depreciation and amortization expenses ($1.7 million) and higher NOI ($1.7 million) in the 2025 Quarter.

The increase in NOI is primarily due to higher NOI from same-store properties ($1.9 million), partially offset by lower NOI at Watergate ($0.2 million).

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

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).

Residential same-store average occupancy for our portfolio increased to 94.8% as of March 31, 2025 from 94.3% as of March 31, 2024.

The decrease in NAREIT FFO is primarily due to higher general and administrative expenses ($3.0 million) and higher other income ($1.4 million) in the 2024 Quarter, partially offset by higher NOI ($1.7 million).

Investment Activity

There were no significant investment transactions during the 2024 Period.

There were no significant investment transactions during the 2025 Quarter.

Financing Activity

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 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 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).

As of April 29, 2025, our Amended and Restated Revolving Credit Facility has a borrowing capacity of $314.0 million.

As of March 31, 2025, the interest rate on the Amended and Restated Revolving Credit Facility was based on the Adjusted Daily Simple SOFR (inclusive of the 0.10% credit spread adjustment) plus 0.85% applicable margin, the daily SOFR was 4.41% and the facility fee was 0.20%.

Capital Requirements

We have no debt maturities scheduled until the first quarter of 2025.

We have no debt maturities scheduled until 2026.

We expect to have additional capital requirements as set forth on page 25 (Liquidity and Capital Resources – Capital Requirements).

Results of Operations

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.

The discussion that follows is based on our consolidated results of operations for the 2025 Quarter and the 2024 Quarter.

Net Operating Income

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All amounts are in thousands, except percentage amounts.

Three Months Ended September 30,

Three Months Ended March 31,

2025 2024 $ Change % Change

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General and administrative expenses 9,229 6,196 3,033 49.0 %

Transformation costs — 985 (985) (100.0) %

Real estate depreciation and amortization 23,239 24,943 (1,704) (6.8) %

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

Interest expense 9,460 9,494 (34) (0.4) %

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

Other income — (1,410) 1,410 (100.0) %

Total net operating income (NOI) $ 39,499 $ 37,794 $ 1,705 4.5 %

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Same-store portfolio $ 57,007 $ 54,871 $ 2,136 3.9 %

Acquisition (1)

2,478 54 2,424 4,488.9 %

Total 57,007 54,871 2,136 3.9 %

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Same-store portfolio 20,546 20,301 245 1.2 %

Acquisition 1,224 18 1,206 6,700.0 %

Development 63 57 6 10.5 %

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Same-store portfolio 36,461 34,570 1,891 5.5 %

Acquisition 1,254 36 1,218 3,383.3 %

Development (63) (57) (6) 10.5 %

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______________________________

(1) Acquisition:

Elme Druid Hills

Watergate 600

Residential Revenue

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 $1.9 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.

Residential revenue 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.

Residential revenue from same-store residential properties increased $2.1 million, or 3.9%, to $57.0 million for the 2025 Quarter, compared to $54.9 million for the 2024 Quarter, primarily due to higher rental income ($1.0 million), lower credit losses ($0.5 million), lower vacancy loss ($0.4 million) and higher ancillary income ($0.2 million).

Average occupancy for residential properties for the 2025 Quarter and 2024 Quarter was as follows:

September 30, 2024 September 30, 2023 % Change

March 31, 2025 March 31, 2024 % Change

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

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 $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 :

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:

Decrease of $1.0 million during the 2024 Quarter due to completion of strategic transformation in 2023.

Real estate depreciation and amortization :

Increase of $1.6 million primarily due to higher depreciation and amortization at same-store residential properties ($1.5 million) and Elme Druid Hills ($0.7 million).

These increases were partially offset by lower depreciation and amortization at Watergate 600 ($0.6 million).

Interest expense :

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

Notes payable $ 6,130 $ 6,023 $ 107 1.8 %

Line of credit 3,427 1,395 2,032 145.7 %

Total $ 9,557 $ 7,418 $ 2,139 28.8 %

• Notes payable :

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

• Line of credit :

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.

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

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.

Nine Months Ended September 30,

2024 2023 $ Change % Change

Net loss $ (10,088) $ (49,872) $ 39,784 (79.8) %

Property management expenses 6,628 5,882 746 12.7 %

General and administrative expenses 18,688 19,891 (1,203) (6.0) %

Transformation costs — 6,339 (6,339) (100.0) %

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 %

Loss on extinguishment of debt, net 147 54 93 172.2 %

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

Total net operating income (NOI) $ 114,712 $ 109,483 $ 5,229 4.8 %

Residential revenue:

Same-store portfolio $ 159,344 $ 155,102 $ 4,242 2.7 %

Acquisition (1)

7,446 54 7,392 13,688.9 %

Total 166,790 155,156 11,634 7.5 %

94.8 % NA 94.8 % 94.3 % NA 94.3 % 0.5 % NA 0.5 %

The increase in same-store average occupancy was primarily due to higher average occupancy at Elme Cumberland, Elme Eagles Landing, The Ashby at McLean, Elme Manassas, Elme Herndon and Elme Druid Hills, partially offset by lower average occupancy at Elme Conyers, The Clayborne and Yale West.

Residential Expenses

Same-store portfolio 58,394 55,443 2,951 5.3 %

Acquisition 3,231 18 3,213 17,850.0 %

Development 175 168 7 4.2 %

Total 61,800 55,629 6,171 11.1 %

Residential NOI:

Same-store portfolio 100,950 99,659 1,291 1.3 %

Acquisition 4,215 36 4,179 11,608.3 %

Development (175) (168) (7) 4.2 %

Total 104,990 99,527 5,463 5.5 %

Other NOI (2)

9,722 9,956 (234) (2.4) %

Total NOI $ 114,712 $ 109,483 $ 5,229 4.8 %

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(1) Acquisition:

Elme Druid Hills

Watergate 600

Real Estate Rental Revenue

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:

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

94.7 % 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 $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.

Residential expenses as a percentage of residential revenue for the 2025 Quarter and the 2024 Quarter were 36.2% and 37.1%, respectively.

Residential expenses from same-store residential properties increased $0.2 million, or 1.2%, to $20.5 million for the 2025 Quarter, compared to $20.3 million for the 2024 Quarter, primarily due to higher administrative ($0.3 million), higher repairs and maintenance ($0.3 million) and higher utilities ($0.2 million) expenses.

The increase is partially offset by lower real estate tax ($0.5 million) and lower turnover ($0.1 million) expenses.

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

Other Income and Expenses

Property management expenses:

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 ($2.2 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:

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

Increase of $3.0 million primarily due to higher professional fees ($2.9 million) in connection with the Cooperation Agreement and activities related to the board of trustee’s ongoing strategic alternatives review.

Real estate depreciation and amortization :

Increase of $7.5 million primarily due to higher depreciation and amortization at Elme Druid Hills ($5.0 million) and at same-store residential properties ($4.6 million).

The increase was partially offset by lower depreciation and amortization at Watergate 600 ($2.1 million).

Decrease of $1.7 million primarily due to lower depreciation and amortization at Elme Druid Hills due to in-place leases amortization in the 2024 Quarter ($1.8 million).

Interest expense :

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,

Interest expense by debt type for the three months ended March 31, 2025 and 2024 was as follows (in thousands):

Three Months Ended March 31,

Debt Type 2025 2024 $ 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 in the 2025 Quarter driven by the interest rate swap arrangements that became effective on January 10, 2025.

• Line of credit :

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.

Decrease primarily due to a lower weighted average interest rate of 5.3% in the 2025 Quarter, as compared to a weighted average interest rate of 6.3% in the 2024 Quarter, partially offset by a higher weighted average borrowings of $183.6 million in the 2025 Quarter, as compared to weighted average borrowings of $168.3 million in the 2024 Quarter.

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.

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.

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.

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 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 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.

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.

We also believe we have adequate liquidity beyond 2025 and we have no debt maturities until 2026 and only $357.0 million of scheduled debt maturities prior to 2029, based on current amounts outstanding under our Amended and Restated Revolving Credit Facility.

As of April 29, 2025, we had cash and cash equivalents totaling $2.7 million and a borrowing capacity of $314.0 million on our Amended and Restated Revolving Credit Facility, resulting in a total liquidity position of $316.7 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 Period, our full-year 2024 capital requirements are summarized below:

• Funding dividends and distributions to our shareholders;

As of the end of the 2025 Quarter, our full-year 2025 capital requirements are summarized below:

• Funding dividends and distributions to our shareholders (which we intend to continue to pay at or about current levels);

• Approximately $41.0 - $46.0 million to invest in our existing portfolio of operating assets, inclusive of $26.0 - $31.0 million of major capital expenditures;

• Less than $1.0 million to invest in our development and redevelopment projects;

• Funding for potential property acquisitions throughout 2025, offset by proceeds from potential property dispositions.

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We currently believe that we will generate sufficient cash flow from operations and potential property sales and have access to the capital resources necessary to fund our requirements for the remainder of 2025 .

However, as a result of the uncertainty of the general market conditions in the greater Washington, DC metro and Sunbelt regions, economic conditions affecting the ability to attract and retain residents and tenants, declines in our share price, unfavorable changes in the supply of competing properties, or our properties not performing as expected, we may not generate sufficient cash flow from operations and property sales or otherwise have access to capital on favorable terms, or at all.

However, as a result of the uncertainty of the general market conditions in the greater Washington, DC metro and Sunbelt regions, economic conditions affecting the ability to attract and retain residents and tenants or achieve anticipated rental rates, declines in our share price, unfavorable changes in the supply of competing properties, or our properties not performing as expected, we may not generate sufficient cash flow from operations and property sales or otherwise have access to capital on favorable terms, or at all.

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.

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

As of March 31, 2025, our future debt principal payments are scheduled as follows (in thousands):

Future Maturities of Debt

Year Unsecured Debt Revolving Credit Facility Total Debt Average Interest Rate

Year Unsecured Debt Amended and Restated Revolving Credit Facility Total Debt Average Interest Rate

2025 $ — $ — $ — —%

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______________________________

(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.

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) 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.

(1) During 2023, we entered into the 2023 Term Loan, which had 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 (i) a portion of our variable rate debt based on an adjusted daily SOFR at 4.72% (subject to applicable interest rate margins) and (ii) the 2023 Term Loan’s interest rate at 5.77% beginning on January 10, 2025 through the loan maturity date of January 10, 2026.

(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.

As of March 31, 2025, the weighted average maturity for our debt is 4.1 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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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 September 30, 2024, we were in compliance with the covenants related to our Amended Credit Agreement, 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 March 31, 2025, 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 September 30, 2024.

We have authorized for issuance 150.0 million common shares, of which 88.2 million shares were outstanding at March 31, 2025.

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 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.

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 during the 2024 Period or 2023 Period.

We did not issue common shares under the Equity Distribution Agreement or any prior equity distribution agreements during the 2025 Quarter or 2024 Quarter.

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

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

The common 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 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

Weighted average price per share $ 17.64

Net proceeds $ 497

We did not issue common shares under the dividend reinvestment program during the 2025 Quarter or 2024 Quarter.

Preferred Equity

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

As of March 31, 2025, no preferred shares were issued and outstanding.

Historical Cash Flows

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

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2025 2024 $ %

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Net cash used in investing activities (5,698) (9,760) 4,062 (41.6) %

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.

Net cash used in financing activities (10,134) (13,091) 2,957 (22.6) %

Net cash provided by operating activities decreased primarily due to higher net loss due to higher general and administrative expenses.

Net cash used in investing activities decreased primarily due to lower expenditure on capital improvements during the 2025 Quarter, partially offset by the cash provided by the land easements in the 2024 Quarter.

Net cash used in financing activities decreased primarily due to higher net borrowings on the Amended and Restated Revolving Credit Facility during the 2025 Quarter.

Off-Balance Sheet Arrangements

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.

We have no off-balance sheet arrangements as of March 31, 2025 that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Funds From Operations

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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 nine months ended September 30, 2024 and 2023 (in thousands):

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

2024 2023 2024 2023

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, 2025 and 2024 (in thousands):

Three Months Ended March 31,

Net loss $ (4,675) $ (3,647)

Depreciation and amortization 23,239 24,943

Real estate impairment — 41,860 — 41,860

NAREIT FFO $ 18,564 $ 21,296

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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 nine months ended September 30, 2024.

There were no changes made by management to the critical accounting policies in the three months ended March 31, 2025.

We discuss the most critical estimates in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 14, 2025.

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