Elme Communities

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

The increase in net loss is primarily due to higher interest expense ($2.6 million), higher depreciation and amortization expenses ($2.5 million), and lower other income ($0.6 million) in the 2024 Quarter. These were partially offset by lower transformation costs (as described in Note 2 to the consolidated financial statements) ($2.5 million), higher NOI ($1.8 million) and lower general and administrative expenses ($0.5 million).

Current wording

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.

Previous wording

The increase in NOI is primarily due to the acquisition of Elme Druid Hills ($1.4 million) in the third quarter of 2023 and higher NOI from same-store properties ($0.4 million). The higher same-store NOI was primarily due to higher rental rates. Residential same-store average occupancy for our portfolio decreased to 94.6% as of June 30, 2024 from 95.4% as of June 30, 2023.

Current wording

The increase in NOI is primarily due to the acquisition of Elme Druid Hills ($1.2 million) in the 2023 Quarter and higher NOI from same-store properties ($0.8 million). The higher same-store NOI was primarily due to higher rental rates. Residential same-store average occupancy for our portfolio decreased to 95.2% as of September 30, 2024 from 95.4% as of September 30, 2023.

Previous wording

The higher NAREIT FFO is primarily due to lower transformation costs ($2.5 million), higher NOI ($1.8 million) and lower general and administrative expenses ($0.5 million). These were partially offset by higher interest expense ($2.6 million) and lower other income ($0.6 million).

Current wording

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).

Previous wording

Subsequent to the 2024 Quarter, we entered into a third amended and restated credit agreement (the “Amended Credit Agreement”) which provides for aggregate revolving loan commitments of $500.0 million (the “Amended and Restated Revolving Credit Facility”) with an accordion feature that allows us to increase the aggregate revolving loan commitments or add term loans of up to $1.0 billion, subject to the lenders’ agreement to provide additional revolving commitments or term loans. The Amended and Restated Revolving Credit Facility has a four-year term ending in July 2028, with two six-month extension options. Borrowings under the Amended and Restated Revolving Credit Facility will bear interest, at Elme Communities’ option, at a rate of either (a)(i) daily SOFR plus 0.10% (the “Adjusted Daily Simple SOFR”) or (ii) term SOFR plus 0.10%, plus, in each case, a margin ranging from 0.70% to 1.40% (depending on Elme Communities’ credit rating) or (b) the base rate plus a margin ranging from 0.00% to 0.40% (based upon Elme Communities’ credit rating). The base rate is the highest of the administrative agent’s prime rate, the federal funds rate plus 0.50% and Adjusted Daily Simple SOFR plus 1.0%. In addition, the Amended Credit Agreement requires the payment of a facility fee equal to 0.10% to 0.30% (depending on Elme Communities’ credit rating) on the $500 million committed capacity in respect of the Amended and Restated Revolving Credit Facility, without regard to usage. The initial interest rate is based on Adjusted Daily Simple SOFR plus a margin of 0.85% and the initial facility fee equals 0.20%. As of July 29, 2024, our Amended and Restated Revolving Credit Facility has a borrowing capacity of $323.0 million.

Current wording

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.

Previous wording

As of June 30, 2024, the interest rate on the Revolving Credit Facility is based on an adjusted daily SOFR (inclusive of the 0.10% credit spread adjustment) plus 0.85% applicable margin, the daily SOFR is 5.33% and the facility fee is 0.20%.

Current wording

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%.

Previous wording

During the 2024 Quarter, we entered into two forward interest rate swap arrangements with an aggregate notional amount of $150.0 million beginning on January 10, 2025 through January 10, 2026. These forward interest rate swap arrangements will effectively fix a portion of our variable rate debt based on an adjusted daily SOFR at 4.72% (subject to applicable interest rate margins).

Current wording

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).

Previous wording

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

Current wording

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).

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

Real estate expenses from same-store residential properties increased $0.5 million, or 2.7%, to $19.5 million for the 2024 Quarter, compared to $19.0 million for the 2023 Quarter, primarily due to higher utilities ($0.3 million), higher administrative ($0.3 million), higher insurance ($0.3 million) and higher real estate tax ($0.2 million) expenses. The increase is partially offset by lower turnover ($0.2 million), lower contract maintenance ($0.2 million) and lower personnel ($0.1 million) expenses.

Current wording

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.

Previous wording

Transformation costs: Decrease of $2.5 million during the 2024 Quarter due to completion of strategic transformation in 2023.

Current wording

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

Previous wording

Real estate depreciation and amortization: Increase of $2.5 million primarily due to higher depreciation and amortization at same-store residential properties ($1.8 million) and Elme Druid Hills ($1.4 million). These increases were partially offset by lower depreciation and amortization at Watergate 600 ($0.7 million).

Current wording

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).

Previous wording

•Line of credit: Increase primarily due to higher weighted average borrowings of $161.5 million and a weighted average interest rate of 6.3% in the 2024 Quarter, as compared to weighted average borrowings of $36.6 million and a weighted average interest rate of 5.9% in the 2023 Quarter.

Current wording

•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.

Previous wording

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

Current wording

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).

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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).

Previous wording

General and administrative expenses: Decrease of $1.2 million primarily due to higher internal management fee offset ($2.0 million), lower rent for our corporate office ($0.4 million), lower severance ($0.3 million) and corporate office moving ($0.3 million) expenses. These were partially offset by higher payroll ($1.1 million), higher employee benefits ($0.4 million) and higher software expenses ($0.3 million).

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Real estate depreciation and amortization: Increase of $5.9 million primarily due to higher depreciation and amortization at Elme Druid Hills ($4.3 million) and at same-store residential properties ($3.2 million). The increase was partially offset by lower depreciation and amortization at Watergate 600 ($1.6 million).

Current wording

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).

Previous wording

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

Current wording

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

Previous wording

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

Current wording

•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.

Previous wording

We also believe we have adequate liquidity beyond 2024, with no debt maturities until 2025 and only $281.0 million of scheduled debt maturities prior to 2028, based on current amounts outstanding under our Revolving Credit Facility as of June 30, 2024. Following the execution of the Amended and Restated Revolving Credit Facility, we had only $125.0 million of scheduled debt maturities prior to 2028. As of July 29, 2024, we had cash and cash equivalents totaling $5.1 million and a borrowing capacity of $323.0 million on our Amended and Restated Revolving Credit Facility, resulting in a total liquidity position of $328.1 million.

Current wording

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.

Previous wording

•Approximately $41.0 - $46.0 million to invest in our existing portfolio of operating assets, inclusive of $28.0 - $32.0 million of major capital expenditures;

Current wording

•Approximately $40.0 - $45.0 million to invest in our existing portfolio of operating assets, inclusive of $25.0 - $30.0 million of major capital expenditures;

Previous wording

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

Current wording

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

Previous wording

(2) As of June 30, 2024, the credit facility had an August 2025 maturity date, with two six-month extension options. On July 10, 2024, we executed the Amended Credit Agreement that provides for a revolving credit facility of $500.0 million that matures in July 2028, with two six-month extension options.

Current wording

(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.

Previous wording

As of June 30, 2024, the weighted average maturity for our debt is 4.0 years. If principal amounts due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow may be insufficient to repay all maturing debt. 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.

Current wording

As of September 30, 2024, the weighted average maturity for our debt is 4.4 years. If principal amounts due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow may be insufficient to repay all maturing debt. 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.

Previous wording

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

Current wording

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.

Previous wording

Failure to comply with any of the covenants under our 2021 Credit Agreement, and, subsequent to June 30, 2024, the Amended Credit Agreement, 2023 Term Loan, unsecured notes or other debt instruments could result in a default under one or more of our debt instruments. This could cause our lenders to accelerate the timing of payments and could therefore have a material adverse effect on our business, operations, financial condition and liquidity. In addition, our ability to draw on our Revolving Credit Facility or incur other unsecured debt in the future could be restricted by the debt covenants.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

We did not issue common shares under the dividend reinvestment program during the 2024 Period. Our issuances and net proceeds on the dividend reinvestment program for the three and six months ended June 30, 2023 were as follows ($ in thousands, except per share data):

Current wording

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):

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Net cash used in financing activities decreased primarily due to lower net repayments on the 2021 Credit Agreement during the 2024 Period and the repayment of the $100.0 million 2018 Term Loan during the 2023 Period, partially offset by executing the $125.0 million 2023 Term Loan during the 2023 Period.

Current wording

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.

Previous wording

The following table provides the calculation of our NAREIT FFO and a reconciliation of net loss to NAREIT FFO for the three and six months ended June 30, 2024 and 2023 (in thousands):

Current wording

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):

Previous wording

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 and six months ended June 30, 2024. We discuss the most critical estimates in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 16, 2024.

Current wording

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 and nine months ended September 30, 2024. We discuss the most critical estimates in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 16, 2024.