Elme Communities 10-Q

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 March 31, 2025 and March 31, 2024 as the “2025 Quarter” and the “2024 Quarter,” respectively. Forward-Looking Statements This Form 10-Q contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Such statements involve known and unknown risks, uncertainties, and other 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. 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; the economic health of the areas in which our properties are located, particularly with respect to the greater Washington, DC metro and Sunbelt regions; 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; the risk of failure to enter into and/or complete acquisitions and dispositions; changes in the composition of our portfolio; reductions in or actual or threatened changes to the timing of federal government spending; the economic health of our residents; 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; changes in the market value of securities; terrorist attacks or actions and/or cyber-attacks; whether we will succeed in the day-to-day property management and leasing activities that we have previously outsourced; the availability and terms of financing and capital and the general volatility of securities markets; the risks related to our organizational structure and limitations of share ownership; failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs; and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2024 Form 10-K filed on February 14, 2025. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to update our forward-looking statements or risk factors to reflect new information, future events, or otherwise. General Introductory Matters We provide our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations and financial condition. We organize the MD&A as follows: • Overview. Discussion of our business outlook, operating results, investment and financing activity and capital requirements to provide context for the remainder of MD&A. • Results of Operations. Discussion of our financial results comparing the 2025 Quarter to the 2024 Quarter. • Liquidity and Capital Resources. Discussion of our financial condition and analysis of changes in our capital structure and cash flows. • Funds From Operations . Calculation of NAREIT Funds From Operations (“NAREIT FFO”), a non-GAAP supplemental measure to net income. 19 • Critical Accounting Estimates. Descriptions of accounting policies that reflect significant judgments and estimates used in the preparation of our consolidated financial statements. When evaluating our financial condition and operating performance, we focus on the following financial and non-financial indicators: • Net operating income (“NOI”) , calculated as set forth below under the caption “ Results of Operations - Net Operating Income. ” NOI is a non-GAAP supplemental measure to net income. • Funds From Operations (“NAREIT FFO”) , calculated as set forth below under the caption “Funds from Operations.” NAREIT FFO is a non-GAAP supplemental measure to net income. • Average occupancy , calculated as average daily occupied apartment homes as a percentage of total apartment homes. For purposes of evaluating comparative operating performance, we categorize our properties as “same-store” or “non-same-store.” Same-store portfolio properties include properties that were owned for the entirety of the years being compared, and exclude properties under redevelopment or development and properties acquired, sold or classified as held for sale during the years being compared. We define development properties as those for which we have planned or ongoing major construction activities on existing or acquired land pursuant to an authorized development plan. Development properties are categorized as same-store when they have reached stabilized occupancy (90%) before the start of the prior year. We define redevelopment properties as those for which we have planned or ongoing significant development and construction activities on existing or acquired buildings pursuant to an authorized plan, which has an impact on current operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. We categorize a redevelopment property as same-store when redevelopment activities have been complete for the majority of each year being compared. Overview Our revenues are derived primarily from the ownership and operation of income producing property. 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. 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 March 31, 2025 and 2024 were as follows (in thousands): Three Months Ended March 31, 2025 2024 $ Change % Change Net loss $ (4,675) $ (3,647) $ (1,028) 28.2 % NOI (1) $ 39,499 $ 37,794 $ 1,705 4.5 % NAREIT FFO (2) $ 18,564 $ 21,296 $ (2,732) (12.8) % ______________________________ (1) See page 22 of the MD&A for a reconciliation of NOI to net income. (2) See page 29 of the MD&A for a reconciliation of NAREIT FFO to net income. 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 increased to 94.8% as of March 31, 2025 from 94.3% as of March 31, 2024. 20 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 2025 Quarter. Financing Activity 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 2026. We expect to have additional capital requirements as set forth on page 25 (Liquidity and Capital Resources – Capital Requirements). 21 Results of Operations The discussion that follows is based on our consolidated results of operations for the 2025 Quarter and the 2024 Quarter. Net Operating Income NOI, defined as real estate rental revenue less direct real estate operating expenses, is a non-GAAP measure. NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain or loss on sale, if any), plus interest expense, depreciation and amortization, lease origination expenses, general and administrative expenses, acquisition costs, real estate impairment, casualty gain and losses and gain or loss on extinguishment of debt. NOI does not include management expenses, which consist of corporate property management costs and property management fees paid to third parties. NOI is the primary performance measure we use to assess the results of our operations at the property level. We believe that NOI is a useful performance measure because, when compared across periods, it reflects the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income. NOI excludes certain components from net income in order to provide results more closely related to a property’s results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. As a result of the foregoing, we provide NOI as a supplement to net income, calculated in accordance with GAAP. NOI does not represent net income or income from continuing operations calculated in accordance with GAAP. As such, NOI should not be considered an alternative to these measures as an indication of our operating performance. A reconciliation of net loss to NOI follows. 2025 Quarter Compared to 2024 Quarter The following table reconciles net loss to NOI and provides the basis for our discussion of our consolidated results of operations and NOI in the 2025 Quarter compared to the 2024 Quarter. All amounts are in thousands, except percentage amounts. Three Months Ended March 31, 2025 2024 $ Change % Change Net loss $ (4,675) $ (3,647) $ (1,028) 28.2 % Adjustments: Property management expenses 2,246 2,218 28 1.3 % General and administrative expenses 9,229 6,196 3,033 49.0 % Real estate depreciation and amortization 23,239 24,943 (1,704) (6.8) % Interest expense 9,460 9,494 (34) (0.4) % Other income — (1,410) 1,410 (100.0) % Total net operating income (NOI) $ 39,499 $ 37,794 $ 1,705 4.5 % Residential revenue: Same-store portfolio $ 57,007 $ 54,871 $ 2,136 3.9 % Total 57,007 54,871 2,136 3.9 % Residential expenses: Same-store portfolio 20,546 20,301 245 1.2 % Development 63 57 6 10.5 % Total 20,609 20,358 251 1.2 % Residential NOI: Same-store portfolio 36,461 34,570 1,891 5.5 % Development (63) (57) (6) 10.5 % Total 36,398 34,513 1,885 5.5 % Other NOI (1) 3,101 3,281 (180) (5.5) % Total NOI $ 39,499 $ 37,794 $ 1,705 4.5 % ______________________________ (1) Other: Watergate 600 22 Residential Revenue 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: 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 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 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 Other NOI decreased ($0.2 million) due to lower rental revenue at Watergate 600. Other Income and Expenses General and administrative expenses : 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 : 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 three months ended March 31, 2025 and 2024 was as follows (in thousands): Three Months Ended March 31, Debt Type 2025 2024 $ Change % Change Notes payable $ 6,333 $ 6,120 $ 213 3.5 % Line of credit 3,127 3,374 (247) (7.3) % Total $ 9,460 $ 9,494 $ (34) (0.4) % • Notes payable : 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. 23 • Line of credit : 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 Quarter consists of additional payments received with respect to easements previously conveyed at The Wellington and Takoma Park, a previously owned retail property. 24 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 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. Future determinations regarding the declaration and payment of dividends, if any, will be at the discretion of our board of trustees which considers, among other factors, trends in our levels of NAREIT FFO and ongoing capital requirements to achieve a targeted payout ratio. Capital Requirements 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; and • Funding for potential property acquisitions throughout 2025, offset by proceeds from potential property dispositions. There can be no assurance that our capital requirements will not be materially higher or lower than the above expectations. 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 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. 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 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. If we issue unsecured debt in the future, we will seek to “ladder” the maturities of our debt to mitigate exposure to interest rate risk in any particular future year. We also utilize variable rate debt for short-term financing purposes. At times, our mix of variable and fixed rate debt may not suit our needs. At those times, we may use derivative financial instruments including interest rate swaps and caps, forward interest rate options or interest rate options in order to assist us in managing our debt mix. 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. 25 As of March 31, 2025, our future debt principal payments are scheduled as follows (in thousands): Future Maturities of Debt Year Unsecured Debt Amended and Restated Revolving Credit Facility Total Debt Average Interest Rate 2025 $ — $ — $ — —% 2026 125,000 (1) — 125,000 5.8% 2027 — — — —% 2028 50,000 182,000 (2) 232,000 5.8% 2029 — — — —% Thereafter 350,000 — 350,000 4.1% Scheduled principal payments $ 525,000 $ 182,000 $ 707,000 4.9% Net discounts/premiums (65) — (65) Loan costs, net of amortization (1,874) — (1,874) Total maturities $ 523,061 $ 182,000 $ 705,061 4.9% ______________________________ (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. Prevailing interest rates or other factors at the time of a refinancing, such as possible reluctance of lenders to make commercial real estate loans, may result in higher interest rates and increased interest expense or inhibit our ability to finance our obligations. From time to time, we may seek to repurchase and cancel our outstanding unsecured notes and term loans through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. 26 Debt Covenants 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 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 88.2 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. 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 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 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 2025 Quarter or 2024 Quarter. Preferred Equity Elme Communities’ board of trustees can, at its discretion, authorize the issuance of up to 10.0 million preferred shares. The ability to issue preferred equity provides Elme Communities an additional financing tool that may be used to raise capital for future acquisitions or other business purposes. As of March 31, 2025, no preferred shares were issued and outstanding. Historical Cash Flows Cash flows from operations are an important factor in our ability to sustain our dividend at its current rate. If our cash flows from operations were to decline significantly from current levels, we may have to reduce our dividend. Consolidated cash flow information is summarized as follows (in thousands): Three Months Ended March 31, Change 2025 2024 $ % Net cash provided by operating activities $ 16,175 $ 21,216 $ (5,041) (23.8) % Net cash used in investing activities (5,698) (9,760) 4,062 (41.6) % Net cash used in financing activities (10,134) (13,091) 2,957 (22.6) % 27 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 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. 28 Funds From Operations NAREIT FFO is a widely used measure of operating performance for real estate companies. In its 2018 NAREIT FFO White Paper Restatement, the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) defines NAREIT FFO as net income (computed in accordance with GAAP) excluding gains (or losses) associated with sales of properties; impairments of depreciable real estate, and real estate depreciation and amortization. We consider NAREIT FFO to be a standard supplemental measure for REITs, and believe it is a useful metric because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which historically assumes that the value of real estate assets diminishes predictably over time. Since real estate values have instead historically risen or fallen with market conditions, we believe that NAREIT FFO more accurately provides investors an indication of our ability to incur and service debt, make capital expenditures and fund other needs. Our NAREIT FFO may not be comparable to FFO reported by other REITs. These other REITs may not define the term in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently. The following table provides the calculation of our NAREIT FFO and a reconciliation of net loss to NAREIT FFO for the three months ended March 31, 2025 and 2024 (in thousands): Three Months Ended March 31, 2025 2024 Net loss $ (4,675) $ (3,647) Adjustment: Depreciation and amortization 23,239 24,943 NAREIT FFO $ 18,564 $ 21,296 Critical Accounting Estimates We base the discussion and analysis of our financial condition and results of operations upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There were no changes made by management to the critical accounting policies in the three months ended March 31, 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. 29