Elme munities(ELME) - 2024 Q1 - Quarterly Report

Part I Consolidated Financial Statements (Unaudited) Unaudited Q1 2024 consolidated financial statements show slight asset decrease, consistent net loss, and increased operating cash flow Consolidated Balance Sheets 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 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] Condensed Consolidated Statements of Comprehensive Income (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 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 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] - Development activities at a residential project adjacent to Riverside Apartments, with a $30.4 million investment, remain paused[37] - 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][80] - The company operates in a single reportable segment: residential, with its one remaining office property, Watergate 600, classified under "Other"[71][72] Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - Residential same-store average occupancy for the portfolio decreased to 94.4% as of March 31, 2024, from 95.3% a year earlier[89] Results of Operations 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][105] - 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][110] Liquidity and Capital Resources 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] - Estimated capital requirements for 2024 include $41.0 - $46.0 million for investing in the existing operating asset portfolio[118] 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) 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] Quantitative and Qualitative Disclosures about Market Risk 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] - 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][144] Controls and Procedures 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] - 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] Part II Legal Proceedings The company reported no legal proceedings during the period - None[151] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - A share repurchase program of up to $50.0 million is authorized until October 25, 2025[154] Other Information 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] Exhibits This section lists exhibits filed with Form 10-Q, including certifications and Inline XBRL documents