Elme Communities (NYSE:ELME) Q1 2024 Earnings Conference Call May 2, 2024 9:00 AM ET Company Participants Amy Hopkins - Vice President, Investor Relations Paul McDermott - President and Chief Executive Officer Tiffany Butcher - Chief Operating Officer Steven Freishtat - Chief Financial Officer Conference Call Participants Anthony Paolone - JPMorgan Jamie Feldman - Wells Fargo Operator Greetings and welcome to Elme Communities First Quarter 2024 Earnings Conference Call. At this time, all participants are in ...

Part I [Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) Unaudited Q1 2024 consolidated financial statements show slight asset decrease, consistent net loss, and increased operating cash flow [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Q1 2024 balance sheet reflects slight decreases in total assets to **$1.877 billion**, liabilities to **$740.1 million**, and equity to **$1.136 billion** compared to year-end 2023 Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total real estate held for investment, net | $1,830,779 | $1,847,073 | | Cash and cash equivalents | $4,199 | $5,984 | | **Total assets** | **$1,876,539** | **$1,900,028** | | Notes payable, net | $522,539 | $522,345 | | Line of credit | $160,000 | $157,000 | | **Total liabilities** | **$740,135** | **$745,678** | | **Total equity** | **$1,136,404** | **$1,154,350** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2024 operations show stable **$3.6 million** net loss, with rental revenue growth offset by increased expenses Q1 2024 vs Q1 2023 Operating Results (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Real estate rental revenue | $59,513 | $55,809 | | Total expenses | $55,076 | $52,567 | | Real estate operating income | $4,437 | $3,242 | | Interest expense | ($9,494) | ($6,831) | | **Net loss** | **($3,647)** | **($3,643)** | | **Diluted net loss per common share** | **($0.04)** | **($0.04)** | - Transformation costs, which amounted to **$2.9 million** in Q1 2023, were zero in Q1 2024[13](index=13&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Q1 2024 comprehensive loss improved to **$3.054 million**, driven by an unrealized gain on interest rate hedges Comprehensive Loss Summary (in thousands) | Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | ($3,647) | ($3,643) | | Other comprehensive income (loss) | $593 | ($177) | | **Comprehensive loss** | **($3,054)** | **($3,466)** | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 2024 cash flow shows increased operating cash to **$21.2 million**, offset by higher investing and financing outflows Cash Flow Summary (in thousands) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,216 | $16,289 | | Net cash used in investing activities | ($9,760) | ($5,791) | | Net cash used in financing activities | ($13,091) | ($11,819) | | **Net decrease in cash** | **($1,635)** | **($1,321)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the company's REIT business, paused development, debt, hedging, single segment, and new ATM equity program - The company's business primarily consists of owning apartment communities in the greater Washington, DC metro and Sunbelt regions[23](index=23&type=chunk) - Development activities at a residential project adjacent to Riverside Apartments, with a **$30.4 million** investment, remain paused[37](index=37&type=chunk) - In February 2024, the company established a new equity distribution agreement to sell up to **$350 million** in common shares, with no shares issued under this or prior agreements in Q1 2024[79](index=79&type=chunk)[80](index=80&type=chunk) - The company operates in a single reportable segment: residential, with its one remaining office property, Watergate 600, classified under "Other"[71](index=71&type=chunk)[72](index=72&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses stable net loss, increased NOI and FFO, adequate liquidity, and 2024 capital requirements Key Performance Indicators (in thousands) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net loss | ($3,647) | ($3,643) | 0.1% | | NOI | $37,794 | $36,288 | 4.2% | | NAREIT FFO | $21,296 | $17,893 | 19.0% | - The increase in NAREIT FFO was primarily due to the absence of **$2.9 million** in transformation costs incurred in Q1 2023, along with higher NOI (**$1.5 million**) and other income (**$1.4 million**)[90](index=90&type=chunk) - Residential same-store average occupancy for the portfolio decreased to **94.4%** as of March 31, 2024, from **95.3%** a year earlier[89](index=89&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Total NOI increased **4.2%** to **$37.8 million**, driven by acquisitions and same-store revenue, offset by higher expenses Residential NOI Breakdown (in thousands) | Category | Q1 2024 | Q1 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Same-store portfolio NOI | $33,020 | $32,905 | $115 | 0.3% | | Acquisitions NOI | $1,550 | $— | $1,550 | 100.0% | | **Total Residential NOI** | **$34,513** | **$32,847** | **$1,666** | **5.1%** | - Same-store residential revenue increased by **$1.4 million (2.7%)** due to higher rental income, while same-store expenses rose by **$1.3 million (7.0%)** due to higher maintenance, taxes, and insurance costs[101](index=101&type=chunk)[105](index=105&type=chunk) - Interest expense increased by **$2.7 million (39.0%)** YoY, driven by higher borrowings on the line of credit and the impact of the **$125.0 million** 2023 Term Loan[99](index=99&type=chunk)[110](index=110&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains **$534.9 million** in liquidity, with no debt maturities until 2025, and outlines 2024 capital requirements - As of April 29, 2024, total liquidity was **$534.9 million**, consisting of **$2.9 million** in cash and **$532.0 million** available on the Revolving Credit Facility[114](index=114&type=chunk) - Estimated capital requirements for 2024 include **$41.0 - $46.0 million** for investing in the existing operating asset portfolio[118](index=118&type=chunk) Scheduled Debt Principal Payments (in thousands) | Year | Total Debt | | :--- | :--- | | 2024 | $— | | 2025 | $285,000 | | 2026 | $— | | 2027 | $— | | 2028 | $50,000 | | Thereafter | $350,000 | | **Total** | **$685,000** | [Funds From Operations (FFO)](index=32&type=section&id=Funds%20From%20Operations) NAREIT FFO for Q1 2024 significantly increased to **$21.3 million** from **$17.9 million** in Q1 2023 NAREIT FFO Reconciliation (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | ($3,647) | ($3,643) | | Depreciation and amortization | $24,943 | $21,536 | | **NAREIT FFO** | **$21,296** | **$17,893** | - The company defines NAREIT FFO according to the National Association of Real Estate Investment Trusts' definition, which excludes gains/losses from property sales, impairment charges, and real estate depreciation and amortization from net income[137](index=137&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Primary market risk is interest rate risk, managed through swaps on variable-rate debt and fixed-rate obligations - The principal material financial market risk is interest rate risk, affecting both variable-rate debt and future refinancing of fixed-rate debt[141](index=141&type=chunk) - The company uses interest rate swap arrangements to hedge cash flow variability from changes in interest rates, with swaps having a notional value of **$125 million** and a positive fair value of **$1.3 million** as of March 31, 2024[143](index=143&type=chunk)[144](index=144&type=chunk) [Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation, the CEO, CFO, and Chief Administrative Officer concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[147](index=147&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[148](index=148&type=chunk) Part II [Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings during the period - None[151](index=151&type=chunk) [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors from the 2023 Form 10-K - No material changes from the risk factors disclosed in the 2023 Form 10-K[152](index=152&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Q1 2024 saw repurchase of **12,522** shares for tax withholding, not part of the **$50.0 million** authorized program Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2024 | — | $— | | Feb 2024 | 12,522 | $14.21 | | Mar 2024 | — | $— | | **Total** | **12,522** | **$14.21** | - The repurchased shares represent restricted shares surrendered by employees to satisfy tax withholding obligations and were not part of the public share repurchase program[153](index=153&type=chunk) - A share repurchase program of up to **$50.0 million** is authorized until October 25, 2025[154](index=154&type=chunk) [Other Information](index=34&type=section&id=Item%205.%20Other%20Information) No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by officers in Q1 2024 - During Q1 2024, no trustee or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement[157](index=157&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including certifications and Inline XBRL documents

[Executive Summary & Q1 2024 Highlights](index=2&type=section&id=Executive%20Summary%20%26%20Q1%202024%20Highlights) This section overviews Elme Communities' Q1 2024 financial and operational performance, management commentary, and full-year guidance [Financial Results Overview](index=2&type=page&id=Financial%20Results%20Overview) Elme Communities reported a **net loss of $3.6 million** in Q1 2024, with **NAREIT FFO up 20%** and **Core FFO down 4%** year-over-year Financial Results Overview | Metric | Q1 2024 | Q1 2023 | YoY Change | YoY Change (%) | | :-------------------------- | :------ | :------ | :--------- | :------------- | | Net loss (in millions) | $(3.6) | $(3.6) | $0.0 | 0% | | Net loss per diluted share | $(0.04) | $(0.04) | $0.00 | 0% | | NAREIT FFO (in millions) | $21.3 | $17.8 | +$3.5 | +20% | | NAREIT FFO per diluted share| $0.24 | $0.20 | +$0.04 | +20% | | Core FFO (in millions) | $19.9 | $20.7 | -$0.8 | -4% | | Core FFO per diluted share | $0.23 | $0.24 | -$0.01 | -4% | | NOI (in millions) | $37.8 | $36.3 | +$1.5 | +4% | | Same-store multifamily NOI | +0.3% | N/A | N/A | +0.3% | [Operational Highlights](index=2&type=page&id=Operational%20Highlights) Same-Store Portfolio achieved **2.3% blended lease rate growth** and **3.1% average effective monthly rent increase**, despite a **0.9% occupancy decline** - Effective blended Lease Rate Growth for the Same-Store Portfolio was **2.3%** during the quarter, composed of effective new Lease Rate Growth of **(2.1)%** and effective renewal Lease Rate Growth of **6.2%**[4](index=4&type=chunk) - Average Effective Monthly Rent Per Home for the Same-Store Portfolio increased **3.1%** compared to the prior year period[4](index=4&type=chunk) - Same-store multifamily Average Occupancy was **94.4%** during the quarter, down **0.9%** compared to the prior year period and down **0.5%** compared to the prior quarter, mainly due to eviction timing in Atlanta and supply impact[4](index=4&type=chunk) [Liquidity and Debt Position](index=2&type=page&id=Liquidity%20and%20Debt%20Position) The company maintained **$545 million in liquidity** as of Q1 2024, with **no debt maturities until 2025** and **no secured debt** - Available liquidity was approximately **$545 million** as of March 31, 2024, comprising availability under the revolving credit facility and cash on hand[4](index=4&type=chunk) - The Company has no debt maturities until 2025 and no secured debt[4](index=4&type=chunk) - The annualized first quarter Net Debt to Adjusted EBITDA ratio was **5.7x**[4](index=4&type=chunk) [Management Commentary](index=2&type=page&id=Management%20Commentary) Management confirmed Q1 results met expectations, highlighting strong Washington Metro fundamentals and anticipated H2 2024 NOI growth - Paul T. McDermott, President and CEO, stated that Q1 results were in line with expectations and the portfolio is well-positioned for the busiest leasing months, focusing on maximizing revenue, progressing operational initiatives, and executing renovations[3](index=3&type=chunk) - Steven Freishtat, Executive Vice President and CFO, expressed satisfaction with strong fundamentals in the Washington Metro portfolio (**85% of Q1 multifamily NOI**) and expects improving bad debt trends in Atlanta and rent growth in Washington Metro to drive higher NOI growth in H2 2024[5](index=5&type=chunk) [Full Year 2024 Guidance](index=3&type=page&id=Full%20Year%202024%20Guidance) Elme reiterated **full-year 2024 Core FFO guidance of $0.90-$0.96** per diluted share, with **same-store multifamily NOI growth of 0.25%-2.0%** - Elme is reiterating its guidance for 2024, expecting Core FFO for 2024 to range from **$0.90 to $0.96** per fully diluted share[5](index=5&type=chunk) Full Year 2024 Outlook on Key Assumptions and Metrics | Metric | Full Year 2024 Range | | :-------------------------------- | :------------------- | | Core FFO per diluted share | $0.90 - $0.96 | | Same-store multifamily NOI growth | 0.25% - 2.0% | | Non-same-store multifamily NOI | $5.25 million - $6.25 million | | Other same-store NOI | $12.0 million - $13.0 million | | Property management expense | $8.5 million - $9.0 million | | G&A, net of core adjustments | $24.25 million - $25.25 million | | Interest expense | $37.25 million - $38.25 million | 2024 Guidance Reconciliation Table (per diluted share) | Metric | Low | High | | :----------------------------- | :---- | :--- | | Net loss per diluted share | $(0.17) | $(0.11) | | Real estate depreciation and amortization | 1.09 | 1.09 | | NAREIT FFO per diluted share | 0.92 | 0.98 | | Core adjustments | (0.02) | (0.02) | | Core FFO per diluted share | $0.90 | $0.96 | [Dividends](index=4&type=page&id=Dividends) Elme Communities maintained a consistent **quarterly dividend of $0.18 per share** for Q1 and Q2 2024 - On April 3, 2024, Elme Communities paid a quarterly dividend of **$0.18 per share**[13](index=13&type=chunk) - The Board of Trustees declared a quarterly dividend of **$0.18 per share** to be paid on July 3, 2024, to shareholders of record on June 20, 2024[13](index=13&type=chunk) [Company Information](index=4&type=section&id=Company%20Information) This section provides an overview of Elme Communities, including its business focus, cautionary statements regarding forward-looking information, and an introduction to non-GAAP financial measures [About Elme Communities](index=4&type=page&id=About%20Elme%20Communities) Elme Communities is a multifamily REIT owning **9,400 apartment homes** and **300,000 sq ft commercial space** in DC and Atlanta metros - Elme Communities is a multifamily real estate investment trust that owns and operates approximately **9,400 apartment homes** in the Washington, DC metro and Atlanta metro regions[15](index=15&type=chunk) - The Company also owns approximately **300,000 square feet of commercial space**[15](index=15&type=chunk) - Elme Communities is committed to elevating home experiences for middle-income renters and building long-term value for shareholders[15](index=15&type=chunk) [Forward-Looking Statements](index=5&type=page&id=Forward-Looking%20Statements) Forward-looking statements involve inherent risks and uncertainties, and actual results may differ materially from projections - 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[18](index=18&type=chunk) - 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[18](index=18&type=chunk) - The company undertakes no obligation to update its forward-looking statements or risk factors to reflect new information, future events, or otherwise[18](index=18&type=chunk) [Non-GAAP Financial Measures Introduction](index=5&type=page&id=Non-GAAP%20Financial%20Measures%20Introduction) This release includes forward-looking non-GAAP financial measures, supplementary to GAAP net income (loss) for performance assessment - This Earnings Release includes certain forward-looking non-GAAP information[19](index=19&type=chunk) - These non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss) as a measure of our operating performance[19](index=19&type=chunk) [Key Financial Data](index=6&type=section&id=Key%20Financial%20Data) This section presents Elme Communities' key financial statements, including consolidated statements of operations, balance sheets, and detailed FFO/AFFO reconciliations for Q1 2024 [Consolidated Statements of Operations](index=6&type=page&id=Consolidated%20Statements%20of%20Operations) Q1 2024 saw a **net loss of $3.6 million**, with **real estate rental revenue up 6.6%** and a significant increase in interest expense Consolidated Statements of Operations (in thousands) | Metric | Q1 2024 | Q1 2023 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Real estate rental revenue | $59,513 | $55,809 | +$3,704 | | Total Expenses | $55,076 | $52,567 | +$2,509 | | Real estate operating income (loss) | $4,437 | $3,242 | +$1,195 | | Interest expense | $(9,494) | $(6,831) | -$2,663 | | Other income | $1,410

Elme Communities (NYSE:ELME) Q4 2023 Earnings Conference Call February 16, 2024 10:00 AM ET Company Participants Amy Hopkins - VP of IR Paul McDermott - CEO Tiffany Butcher - COO Steven Freishtat - CFO Grant Montgomery - VP, Research Conference Call Participants Anthony Paolone - JPMorgan Jamie Feldman - Wells Fargo John Pawlowski - Green Street Michael Lewis - Truist Securities Operator Good day and welcome to the Elme Communities Fourth Quarter 2024 (sic) [2023] Earnings Conference call. As a reminder, to ...

Elme (ELME) came out with quarterly funds from operations (FFO) of $0.24 per share, missing the Zacks Consensus Estimate of $0.25 per share. This compares to FFO of $0.24 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an FFO surprise of -4%. A quarter ago, it was expected that this real estate investment trust would post FFO of $0.24 per share when it actually produced FFO of $0.24, delivering no surprise.Over the last four quarters, the company has ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________________________________ FORM 10-K ___________________________________________________ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 001-06622 ___________________________________________________ ELME COMMUNITIES (Exact ...

Elme Communities (NYSE:ELME) Q3 2023 Results Conference Call October 27, 2023 10:00 AM ET Company Participants Amy Hopkins - Vice President Investor Relations Paul McDermott - Chairman of Board, President and CEO Tiffany Butcher - Executive VP and COO Steven Freishtat - Executive VP and CFO Grant Montgomery - Vice President of Research Conference Call Participants Jamie Feldman - Wells Fargo Alan Peterson - Green Street Operator Hello, and welcome to the Elme Communities Third Quarter 2023 Earnings Conferen ...

[Part I: Financial Information](index=4&type=section&id=Part%20I%3A%20Financial%20Information) [Item 1. Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited consolidated financial statements for the three and nine months ended September 30, 2023, highlighting a significant net loss primarily due to a real estate impairment charge [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total real estate held for investment, net | $1,850,557 | $1,820,678 | | **Total assets** | **$1,910,273** | **$1,872,606** | | Notes payable, net | $522,150 | $497,359 | | Line of credit | $149,000 | $55,000 | | **Total liabilities** | **$737,220** | **$608,820** | | **Total equity** | **$1,173,053** | **$1,263,786** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) - A real estate impairment charge of **$41.9 million** in Q3 2023 was the primary driver of the significant increase in net loss compared to the prior year[13](index=13&type=chunk) Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Real estate rental revenue | $56,651 | $54,603 | $169,059 | $153,787 | | Real estate impairment | $41,860 | $0 | $41,860 | $0 | | **Net loss** | **$(43,618)** | **$(10,739)** | **$(49,872)** | **$(27,337)** | | Diluted net loss per common share | $(0.50) | $(0.12) | $(0.57) | $(0.32) | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $61,816 | $51,456 | | Net cash used in investing activities | $(130,283) | $(223,248) | | Net cash provided by (used in) financing activities | $68,798 | $(52,555) | - Cash from operations increased year-over-year, while cash used in investing decreased due to lower acquisition activity in 2023 compared to 2022. Financing activities provided cash in 2023, driven by net proceeds from a new term loan and line of credit borrowings, contrasting with a use of cash in 2022[23](index=23&type=chunk) [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - The company acquired Elme Druid Hills, a 500-unit residential community, for a contract purchase price of **$108.0 million** on September 29, 2023[41](index=41&type=chunk) - A significant impairment charge of **$41.9 million** was recognized on the Watergate 600 office property during Q3 2023, reducing its carrying value to its estimated fair value due to declining market conditions[47](index=47&type=chunk) - In Q1 2023, the company entered into a new **$125.0 million** unsecured term loan (2023 Term Loan) and used the proceeds to prepay the **$100.0 million** 2018 Term Loan and a portion of its revolving credit facility[52](index=52&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, noting a 5.2% increase in Q3 2023 NOI but a widened net loss due to a $41.9 million impairment charge, while maintaining strong liquidity [Overview](index=25&type=section&id=Overview) - As of September 30, 2023, the company owned approximately **9,400** residential apartment homes in the Washington, DC metro and Sunbelt regions[88](index=88&type=chunk) - The company is undergoing a strategic transformation, shifting away from the commercial sector to focus on residential properties. This includes insourcing property-level management, with all residential communities transitioned to Elme management as of September 30, 2023[89](index=89&type=chunk) - Transformation costs of **$1.0 million** and **$6.3 million** were recognized in the third quarter and first nine months of 2023, respectively. The company does not anticipate incurring additional transformation costs in the future[89](index=89&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Key Performance Indicators - Q3 2023 vs Q3 2022 (in thousands) | Metric | Q3 2023 | Q3 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(43,618) | $(10,739) | $(32,879) | 306.2% | | NOI | $36,854 | $35,042 | $1,812 | 5.2% | | NAREIT FFO | $20,146 | $12,893 | $7,253 | 56.3% | - Residential same-store NOI increased by **7.3%** in Q3 2023 compared to Q3 2022, driven by a **4.2%** increase in revenue from higher rental rates, while expenses decreased by **1.2%**[101](index=101&type=chunk)[103](index=103&type=chunk)[107](index=107&type=chunk) - For the nine months ended September 30, 2023, same-store residential NOI grew **9.6%** year-over-year, with revenue up **7.5%** and expenses up **3.9%**[116](index=116&type=chunk)[118](index=118&type=chunk)[122](index=122&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) - The company believes it has adequate liquidity for the next twelve months, with no debt maturities until **2025**[133](index=133&type=chunk)[134](index=134&type=chunk) - As of October 24, 2023, total liquidity was **$542.0 million**, consisting of **$3.0 million** in cash and **$539.0 million** available on its Revolving Credit Facility[134](index=134&type=chunk) - Full-year 2023 capital requirements are estimated at **$35.0 - $40.0 million** for investments in the existing portfolio, including major capital expenditures[136](index=136&type=chunk)[138](index=138&type=chunk) [Funds From Operations (FFO)](index=38&type=section&id=Funds%20From%20Operations) NAREIT FFO Reconciliation (in thousands) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(43,618) | $(10,739) | $(49,872) | $(27,337) | | Depreciation and amortization | $21,904 | $23,632 | $64,855 | $69,871 | | Real estate impairment | $41,860 | $0 | $41,860 | $0 | | **NAREIT FFO** | **$20,146** | **$12,893** | **$56,843** | **$42,534** | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate risk on debt, managed through fixed and variable rate debt and interest rate swaps - The principal material financial market risk is identified as interest rate risk, affecting the refinancing of long-term debt and variable rate borrowings[160](index=160&type=chunk) - The company uses interest rate swap arrangements to hedge against variability in cash flows from changes in interest rates. As of September 30, 2023, swaps with a notional amount of **$125.0 million** were in place to effectively fix the interest rate on its 2023 Term Loan[162](index=162&type=chunk)[163](index=163&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls were effective with no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period[166](index=166&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[167](index=167&type=chunk) [Part II: Other Information](index=41&type=section&id=Part%20II%3A%20Other%20Information) [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings during the period - None[170](index=170&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes from the risk factors previously disclosed in the company's 2022 Form 10-K[171](index=171&type=chunk) [Other Information](index=41&type=section&id=Item%205.%20Other%20Information) This section discloses no Rule 10b5-1 trading plan changes and announces a new $50 million share repurchase program authorized by the Board - On October 26, 2023, the Board authorized a share repurchase program of up to **$50 million** of the company's common shares over a two-year period[176](index=176&type=chunk) - During the third quarter of 2023, no trustee or officer adopted or terminated a Rule 10b5-1 trading arrangement[175](index=175&type=chunk) [Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including certifications from the CEO, CFO, and CAO, and Inline XBRL documents - The report includes certifications from the CEO (31.1), CFO (31.2), and CAO (31.3) as required by the Securities Exchange Act of 1934[178](index=178&type=chunk)

Financial Data and Key Metrics Changes - The company reported same-store multifamily NOI growth of 10.9% and core FFO per share growth of 14.3% year-over-year [96] - The company lowered the top end of its core FFO guidance range to $0.96 to $1 per fully diluted share due to lower-than-expected new lease rate growth [9][34] - The annualized second quarter net debt-to-EBITDA was 4.8x, with over $680 million of availability on the line of credit [34] Business Line Data and Key Metrics Changes - Same-store multifamily revenue increased by 9.6% in the second quarter compared to the prior year, with 9.5% growth from the DC Metro portfolio and over 12% growth from the Atlanta portfolio [5] - Effective blended lease rate growth was 3.7% during the quarter, driven by renewal lease rate growth of 6.4% and new lease rate growth of 0.4% [30] - The company completed over 141 renovations year-to-date at an average ROI of approximately 14% [31] Market Data and Key Metrics Changes - Same-store occupancy averaged 95.6% during the quarter, up 10 basis points compared to the prior quarter, and ending occupancy was 95.9%, up 30 basis points year-over-year [98] - The rent-to-income ratio for new leases signed in the second quarter was in the mid-20s, with average income for those leases increasing nearly 9% year-over-year [6] - Recent deliveries in the market are priced 28% to 32% more than the company's rents, indicating a favorable position for the company [74] Company Strategy and Development Direction - The company is focusing on operational improvements and leveraging new technology to increase profitability following the transition to Elme management [101] - The company plans to evaluate acquisition opportunities in target markets as owners adjust to a higher interest rate environment [102] - The company aims to drive operational upside through initiatives such as smart home technology and centralized management processes [8][90] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving high single-digit same-store multifamily NOI growth for the year despite challenges during the onboarding process [72] - The affordability outlook is improving as middle-class wages grew faster than inflation, although owning a home remains unaffordable for mid-market renters [74] - Management noted that the transition to Elme management has resulted in strong resident retention and renewal rate growth [33] Other Important Information - The company has no debt maturities until 2025 and options to extend its 2025 term loan maturity by another two years [34] - The company expects to complete 300 to 350 renovations this year, adjusting the pace based on revenue maximization opportunities [99] - The company has seen a slight uptick in the concessionary environment, with concessions on about 11% of leases year-to-date [47] Q&A Session Summary Question: Can you discuss the guidance cuts and the process behind them? - Management explained that the initial guidance was based on expected demand in the spring leasing season, which did not materialize as anticipated, leading to adjustments [106] Question: How much of the change is due to bad information versus fundamentals? - Management indicated that both market growth and onboarding friction contributed to the changes, with the revised guidance reflecting more modest expectations for new lease rates [108] Question: What are the assumptions on rent growth for the upcoming quarters? - Management noted that renewals are expected to trend down to low single digits by the end of the year, following a pattern of high single digits at the beginning of the year [109] Question: How does the G&A cut impact growth potential? - Management clarified that the G&A cut is primarily related to 2023 and does not affect the company's long-term growth strategy [84] Question: What is the current state of the transaction market? - Management observed that the transaction market is seeing more activity, particularly for larger deals, but emphasized the need to find the right opportunities that fit their investment criteria [121]

Part I: Financial Information [Item 1. Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) Elme Communities' unaudited consolidated financial statements for Q2 2023 report reduced net loss and improved comprehensive loss [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Total Assets | $1,838,499 | $1,872,606 | $(34,107) | (1.8%) | | Net Income Producing Property | $1,761,341 | $1,789,418 | $(28,077) | (1.6%) | | Cash and Cash Equivalents | $5,554 | $8,389 | $(2,835) | (33.8%) | | Total Liabilities | $607,571 | $608,820 | $(1,249) | (0.2%) | | Total Equity | $1,230,928 | $1,263,786 | $(32,858) | (2.6%) | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | :------- | | Real Estate Rental Revenue | $56,599 | $51,380 | $5,219 | 10.2% | | Net Loss | $(2,611) | $(8,874) | $6,263 | (70.6%) | | Basic Net Loss Per Share | $(0.03) | $(0.10) | $0.07 | (70.0%) | | Diluted Net Loss Per Share | $(0.03) | $(0.10) | $0.07 | (70.0%) | | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | :------- | | Real Estate Rental Revenue | $112,408 | $99,184 | $13,224 | 13.3% | | Net Loss | $(6,254) | $(16,598) | $10,344 | (62.3%) | | Basic Net Loss Per Share | $(0.07) | $(0.19) | $0.12 | (63.2%) | | Diluted Net Loss Per Share | $(0.07) | $(0.19) | $0.12 | (63.2%) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Net Loss | $(2,611) | $(8,874) | $6,263 | | Unrealized gain on interest rate hedges | $854 | $917 | $(63) | | Comprehensive Loss | $(1,248) | $(7,447) | $6,199 | | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Change (in thousands) | | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Net Loss | $(6,254) | $(16,598) | $10,344 | | Unrealized gain on interest rate hedges | $521 | $2,842 | $(2,321) | | Comprehensive Loss | $(4,714) | $(12,736) | $8,022 | [Consolidated Statements of Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Equity) | Metric | Balance, December 31, 2022 (in thousands) | Balance, June 30, 2023 (in thousands) | Change (in thousands) | | :-------------------------------------- | :---------------------------------------- | :------------------------------------ | :-------------------- | | Total Shareholders' Equity | $1,263,488 | $1,230,634 | $(32,854) | | Total Equity | $1,263,786 | $1,230,928 | $(32,858) | | Equity Activity (Six Months Ended June 30, 2023) | Amount (in thousands) | | :--------------------------------------- | :-------------------- | | Net loss | $(6,254) | | Unrealized gain on interest rate hedges | $521 | | Amortization of swap settlements | $1,019 | | Dividends ($0.36 per common share) | $(31,677) | | Shares issued under Dividend Reinvestment Program | $497 | | Share grants, net | $3,040 | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (Six Months Ended June 30) | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Net cash provided by operating activities | $46,250 | $33,979 | $12,271 | 36.1% | | Net cash used in investing activities | $(10,183) | $(217,129) | $206,946 | (95.3%) | | Net cash used in financing activities | $(38,478) | $(4,299) | $(34,179) | 795.0% | | Net decrease in cash, cash equivalents and restricted cash | $(2,411) | $(187,449) | $185,038 | (98.7%) | | Cash, cash equivalents and restricted cash at end of period | $7,441 | $46,771 | $(39,330) | (84.1%) | - Net cash used in investing activities decreased significantly primarily due to the absence of large real estate acquisitions in 2023, compared to **$204.4 million** in acquisitions during the 2022 Period[22](index=22&type=chunk)[149](index=149&type=chunk) - Net cash used in financing activities increased substantially due to the repayment of the **$100.0 million** 2018 Term Loan and net repayments on the Revolving Credit Facility in 2023, partially offset by proceeds from the **$125.0 million** 2023 Term Loan[22](index=22&type=chunk)[149](index=149&type=chunk) [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [NOTE 1: NATURE OF BUSINESS](index=12&type=section&id=NOTE%201:%20NATURE%20OF%20BUSINESS) - Elme Communities operates as a Maryland real estate investment trust (REIT), primarily owning apartment communities in the greater Washington, DC metro and Sunbelt regions[27](index=27&type=chunk) - To maintain its REIT status, the company is required to distribute **90%** of its REIT taxable income annually[28](index=28&type=chunk) - The company's taxable REIT subsidiary (TRS) had a fully reserved deferred tax asset of **$1.4 million** as of June 30, 2023, and December 31, 2022[29](index=29&type=chunk) [NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS](index=12&type=section&id=NOTE%202:%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES%20AND%20BASIS%20OF%20PRESENTATIONS) - The consolidated financial statements are prepared in accordance with GAAP, with certain information condensed or omitted for interim reporting[33](index=33&type=chunk)[34](index=34&type=chunk) - In Q1 2023, the company adopted ASU 2020-04 (Reference Rate Reform) to convert the benchmark interest rate of its **$700.0 million** unsecured revolving credit facility from LIBOR to an adjusted SOFR, which had no material impact on the financial statements[31](index=31&type=chunk) - Transformation costs are defined as expenses related to the strategic shift