UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

___________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended ~~June~~September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

COMMISSION FILE NO. 1-6622


~~WASHINGTON REAL ESTATE INVESTMENT TRUST~~ELME COMMUNITIES
(Exact name of registrant as specified in its charter)


Maryland						53-0261100
(State of incorporation)						(IRS Employer Identification Number)

1775 EYE STREET, NW, SUITE 1000, WASHINGTON, DC 20006

(Address of principal executive office) (Zip code)

Registrant’s telephone number, including area code: (202) 774-3200

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Shares of Beneficial Interest	~~WRE~~ELME	NYSE

___________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 25,~~October 24, 2022, ~~87,402,385~~87,517,479 common shares were outstanding.

~~WASHINGTON REAL ESTATE INVESTMENT TRUST~~ELME COMMUNITIES

INDEX


		Page
Part I: Financial Information

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Income (Loss)	7
	Consolidated Statements of Equity	8
	Consolidated Statements of Cash Flows	10
	Notes to Consolidated Financial Statements	1112

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2325

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3842

Item 4.	Controls and Procedures	3842

Part II: Other Information

Item 1.	Legal Proceedings	4044

Item 1A.	Risk Factors	4044

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4044

Item 3.	Defaults upon Senior Securities	4044

Item 4.	Mine Safety Disclosures	4044

Item 5.	Other Information	4044

Item 6.	Exhibits	4145

	Signatures	4246

PART I

FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

The information furnished in the accompanying unaudited Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Equity and Consolidated Statements of Cash Flows reflects all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes for the three years ended December 31, 2021 included in ~~Washington Real Estate Investment Trust’s~~our 2021 Annual Report on Form 10-K filed on February 18, 2022.

~~WASHINGTON REAL ESTATE INVESTMENT TRUST~~ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE DATA)


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Land	Land	$	373,171	$	322,623	Land	$	373,171	$	322,623
Income producing property	Income producing property	1,875,307		1,642,147		Income producing property	1,882,235		1,642,147
		2,248,478		1,964,770			2,255,406		1,964,770
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(441,105)		(402,560)		Accumulated depreciation and amortization	(461,293)		(402,560)
Net income producing property	Net income producing property	1,807,373		1,562,210		Net income producing property	1,794,113		1,562,210
Properties under development or held for future development	Properties under development or held for future development	31,220		30,631		Properties under development or held for future development	31,232		30,631
Total real estate held for investment, net	Total real estate held for investment, net	1,838,593		1,592,841		Total real estate held for investment, net	1,825,345		1,592,841

Cash and cash equivalents	Cash and cash equivalents	44,787		233,600		Cash and cash equivalents	8,436		233,600
Restricted cash	Restricted cash	1,984		620		Restricted cash	1,437		620
Rents and other receivables	Rents and other receivables	16,644		15,067		Rents and other receivables	16,088		15,067
Prepaid expenses and other assets	Prepaid expenses and other assets	32,865		33,866		Prepaid expenses and other assets	28,228		33,866

Total assets	Total assets	$	1,934,873	$	1,875,994	Total assets	$	1,879,534	$	1,875,994
Liabilities	Liabilities					Liabilities
Notes payable, net	Notes payable, net	$	497,135	$	496,946	Notes payable, net	$	497,247	$	496,946
Mortgage notes payable, net		71,576		—

Line of credit						Line of credit	43,000		—
Accounts payable and other liabilities	Accounts payable and other liabilities	39,890		40,585		Accounts payable and other liabilities	36,219		40,585
Dividend payable	Dividend payable	14,916		14,650		Dividend payable	14,919		14,650
Advance rents	Advance rents	1,821		2,082		Advance rents	1,489		2,082
Tenant security deposits	Tenant security deposits	5,439		4,669		Tenant security deposits	5,461		4,669

Total liabilities	Total liabilities	630,777		558,932		Total liabilities	598,335		558,932
Equity	Equity					Equity
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued or outstanding	Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued or outstanding	—		—		Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued or outstanding	—		—
Shares of beneficial interest, $0.01 par value; 150,000 and 100,000 shares authorized; 87,392 and 86,261 shares issued and outstanding, as of June 30, 2022 and December 31, 2021, respectively		874		863
Shares of beneficial interest, $0.01 par value; 150,000 and 100,000 shares authorized; 87,504 and 86,261 shares issued and outstanding, as of September 30, 2022 and December 31, 2021, respectively						Shares of beneficial interest, $0.01 par value; 150,000 and 100,000 shares authorized; 87,504 and 86,261 shares issued and outstanding, as of September 30, 2022 and December 31, 2021, respectively	875		863
Additional paid in capital	Additional paid in capital	1,727,031		1,697,477		Additional paid in capital	1,728,840		1,697,477
Distributions in excess of net income	Distributions in excess of net income	(408,882)		(362,494)		Distributions in excess of net income	(434,539)		(362,494)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(15,229)		(19,091)		Accumulated other comprehensive loss	(14,278)		(19,091)
Total shareholders’ equity	Total shareholders’ equity	1,303,794		1,316,755		Total shareholders’ equity	1,280,898		1,316,755
Noncontrolling interests in subsidiaries	Noncontrolling interests in subsidiaries	302		307		Noncontrolling interests in subsidiaries	301		307
Total equity	Total equity	1,304,096		1,317,062		Total equity	1,281,199		1,317,062
Total liabilities and equity	Total liabilities and equity	$	1,934,873	$	1,875,994	Total liabilities and equity	$	1,879,534	$	1,875,994

See accompanying notes to the consolidated financial statements.

~~WASHINGTON REAL ESTATE INVESTMENT TRUST~~ELME COMMUNITIES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenue	Revenue									Revenue
Real estate rental revenue	Real estate rental revenue	$	51,380	$	41,297	$	99,184	$	81,904	Real estate rental revenue	$	54,603	$	42,499	$	153,787	$	124,403
Expenses	Expenses									Expenses
Property operating and maintenance	Property operating and maintenance	11,747		9,359		22,312		18,754		Property operating and maintenance	13,092		9,901		35,404		28,655
Real estate taxes and insurance	Real estate taxes and insurance	6,837		5,385		13,424		10,981		Real estate taxes and insurance	6,469		5,544		19,893		16,525
Property management	Property management	1,796		1,486		3,546		2,949		Property management	1,916		1,499		5,462		4,448
General and administrative	General and administrative	7,656		6,325		14,595		11,929		General and administrative	6,403		7,909		20,998		19,838
Transformation costs	Transformation costs	2,023		3,780		4,246		3,780		Transformation costs	2,399		1,016		6,645		4,796
Depreciation and amortization	Depreciation and amortization	24,039		17,303		46,239		34,290		Depreciation and amortization	23,632		18,252		69,871		52,542

		54,098		43,638		104,362		82,683			53,911		44,121		158,273		126,804

Real estate operating loss		(2,718)		(2,341)		(5,178)		(779)
Real estate operating gain (loss)										Real estate operating gain (loss)	692		(1,622)		(4,486)		(2,401)
Other income (expense)	Other income (expense)									Other income (expense)
Interest expense	Interest expense	(6,156)		(10,158)		(11,806)		(20,281)		Interest expense	(6,582)		(8,106)		(18,388)		(28,387)
Loss on interest rate derivatives	Loss on interest rate derivatives	—		(5,760)		—		(5,760)		Loss on interest rate derivatives	—		(106)		—		(5,866)

Loss on extinguishment of debt										Loss on extinguishment of debt	(4,917)		(12,727)		(4,917)		(12,727)
Other income	Other income	—		1,522		386		2,806		Other income	68		231		454		3,037

		(6,156)		(14,396)		(11,420)		(23,235)			(11,431)		(20,708)		(22,851)		(43,943)
Loss from continuing operations	Loss from continuing operations	(8,874)		(16,737)		(16,598)		(24,014)		Loss from continuing operations	(10,739)		(22,330)		(27,337)		(46,344)
Discontinued operations:	Discontinued operations:									Discontinued operations:
Income from operations of properties sold or held for sale	Income from operations of properties sold or held for sale	—		9,745		—		15,875		Income from operations of properties sold or held for sale	—		7,208		—		23,083

Gain on sale of real estate, net										Gain on sale of real estate, net	—		46,441		—		46,441

Income from discontinued operations	Income from discontinued operations	—		9,745		—		15,875		Income from discontinued operations	—		53,649		—		69,524
Net loss		$	(8,874)	$	(6,992)	$	(16,598)	$	(8,139)
Net (loss) income										Net (loss) income	$	(10,739)	$	31,319	$	(27,337)	$	23,180

Basic net (loss) income per common share:	Basic net (loss) income per common share:									Basic net (loss) income per common share:
Continuing operations	Continuing operations	$	(0.10)	$	(0.20)	$	(0.19)	$	(0.29)	Continuing operations	$	(0.12)	$	(0.26)	$	(0.32)	$	(0.55)
Discontinued operations	Discontinued operations	—		0.12		—		0.19		Discontinued operations	—		0.63		—		0.82
Basic net loss per common share		$	(0.10)	$	(0.08)	$	(0.19)	$	(0.10)
Basic net (loss) income per common share										Basic net (loss) income per common share	$	(0.12)	$	0.37	$	(0.32)	$	0.27

Diluted net (loss) income per common share:	Diluted net (loss) income per common share:									Diluted net (loss) income per common share:
Continuing operations	Continuing operations	$	(0.10)	$	(0.20)	$	(0.19)	$	(0.29)	Continuing operations	$	(0.12)	$	(0.26)	$	(0.32)	$	(0.55)
Discontinued operations	Discontinued operations	—		0.12		—		0.19		Discontinued operations	—		0.63		—		0.82
Diluted net loss per common share		$	(0.10)	$	(0.08)	$	(0.19)	$	(0.10)
Diluted net (loss) income per common share										Diluted net (loss) income per common share	$	(0.12)	$	0.37	$	(0.32)	$	0.27

Weighted average shares outstanding – basic	Weighted average shares outstanding – basic	87,392		84,461		87,303		84,437		Weighted average shares outstanding – basic	87,453		84,496		87,354		84,457
Weighted average shares outstanding – diluted	Weighted average shares outstanding – diluted	87,392		84,461		87,303		84,437		Weighted average shares outstanding – diluted	87,453		84,496		87,354		84,457

See accompanying notes to the consolidated financial statements.

~~WASHINGTON REAL ESTATE INVESTMENT TRUST~~ELME COMMUNITIES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS)

(UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net loss		$	(8,874)	$	(6,992)	$	(16,598)	$	(8,139)
Net (loss) income										Net (loss) income	$	(10,739)	$	31,319	$	(27,337)	$	23,180
Other comprehensive income:	Other comprehensive income:									Other comprehensive income:
Unrealized gain on interest rate hedges	Unrealized gain on interest rate hedges	917		1,004		2,842		2,584		Unrealized gain on interest rate hedges	442		221		3,284		2,805
Reclassification of unrealized loss on interest rate derivatives to earnings	Reclassification of unrealized loss on interest rate derivatives to earnings	510		6,269		1,020		6,779		Reclassification of unrealized loss on interest rate derivatives to earnings	509		511		1,529		7,290
Comprehensive (loss) income	Comprehensive (loss) income	$	(7,447)	$	281	$	(12,736)	$	1,224	Comprehensive (loss) income	$	(9,788)	$	32,051	$	(22,524)	$	33,275

See accompanying notes to the consolidated financial statements.

~~WASHINGTON REAL ESTATE INVESTMENT TRUST~~ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(IN THOUSANDS)

(UNAUDITED)


		Shares Issued and Out-standing	Shares of Beneficial Interest at Par Value		Additional Paid in Capital		Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests in Subsidiaries		Total Equity			Shares Issued and Out-standing	Shares of Beneficial Interest at Par Value		Additional Paid in Capital		Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests in Subsidiaries		Total Equity
Balance, December 31, 2021	Balance, December 31, 2021	86,261	$	863	$	1,697,477	$	(362,494)	$	(19,091)	$	1,316,755	$	307	$	1,317,062	Balance, December 31, 2021	86,261	$	863	$	1,697,477	$	(362,494)	$	(19,091)	$	1,316,755	$	307	$	1,317,062

Net loss	Net loss	—	—		—		(16,598)		—		(16,598)		—		(16,598)		Net loss	—	—		—		(27,337)		—		(27,337)		—		(27,337)
Unrealized loss on interest rate hedges		—	—		—		—		2,842		2,842		—		2,842
Unrealized gain on interest rate hedges																	Unrealized gain on interest rate hedges	—	—		—		—		3,284		3,284		—		3,284

Amortization of swap settlements	Amortization of swap settlements	—	—		—		—		1,020		1,020		—		1,020		Amortization of swap settlements	—	—		—		—		1,529		1,529		—		1,529
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—	—		—		—		—		—		(5)		(5)		Distributions to noncontrolling interests	—	—		—		—		—		—		(6)		(6)

Dividends ($0.34 per common share)		—	—		—		(29,790)		—		(29,790)		—		(29,790)
Dividends ($0.51 per common share)																	Dividends ($0.51 per common share)	—	—		—		(44,708)		—		(44,708)		—		(44,708)
Equity issuances, net of issuance costs	Equity issuances, net of issuance costs	1,032	10		26,841		—		—		26,851		—		26,851		Equity issuances, net of issuance costs	1,032	10		26,841		—		—		26,851		—		26,851
Shares issued under Dividend Reinvestment Program	Shares issued under Dividend Reinvestment Program	20	—		518		—		—		518		—		518		Shares issued under Dividend Reinvestment Program	32	—		777		—		—		777		—		777
Share grants, net of forfeitures and tax withholdings	Share grants, net of forfeitures and tax withholdings	79	1		2,195		—		—		2,196		—		2,196		Share grants, net of forfeitures and tax withholdings	179	2		3,745		—		—		3,747		—		3,747
Balance, June 30, 2022		87,392	$	874	$	1,727,031	$	(408,882)	$	(15,229)	$	1,303,794	$	302	$	1,304,096
Balance, September 30, 2022																	Balance, September 30, 2022	87,504	$	875	$	1,728,840	$	(434,539)	$	(14,278)	$	1,280,898	$	301	$	1,281,199


		Shares Issued and Out-standing	Shares of Beneficial Interest at Par Value		Additional Paid in Capital		Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests in Subsidiaries		Total Equity			Shares Issued and Out-standing	Shares of Beneficial Interest at Par Value		Additional Paid in Capital		Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests in Subsidiaries		Total Equity
Balance, December 31, 2020	Balance, December 31, 2020	84,409	$	844	$	1,649,366	$	(298,860)	$	(30,563)	$	1,320,787	$	322	$	1,321,109	Balance, December 31, 2020	84,409	$	844	$	1,649,366	$	(298,860)	$	(30,563)	$	1,320,787	$	322	$	1,321,109

Net loss		—	—		—		(8,139)		—		(8,139)		—		(8,139)
Unrealized loss on interest rate hedges		—	—		—		—		2,584		2,584		—		2,584
Net income																	Net income	—	—		—		23,180		—		23,180		—		23,180
Unrealized gain on interest rate hedges																	Unrealized gain on interest rate hedges	—	—		—		—		2,805		2,805		—		2,805
Loss on interest rate derivatives	Loss on interest rate derivatives	—	—		—		—		5,760		5,760		—		5,760		Loss on interest rate derivatives	—	—		—		—		5,760		5,760		—		5,760
Amortization of swap settlements	Amortization of swap settlements	—	—		—		—		1,019		1,019		—		1,019		Amortization of swap settlements	—	—		—		—		1,530		1,530		—		1,530
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—	—		—		—		—		—		(8)		(8)		Distributions to noncontrolling interests	—	—		—		—		—		—		(13)		(13)
Dividends ($0.60 per common share)		—	—		—		(50,935)		—		(50,935)		—		(50,935)
Dividends ($0.77 per common share)																	Dividends ($0.77 per common share)	—	—		—		(65,372)		—		(65,372)		—		(65,372)
Equity issuances, net of issuance costs	Equity issuances, net of issuance costs	24	—		467		—		—		467		—		467		Equity issuances, net of issuance costs	24	—		467		—		—		467		—		467
Shares issued under Dividend Reinvestment Program	Shares issued under Dividend Reinvestment Program	45	—		1,009		—		—		1,009		—		1,009		Shares issued under Dividend Reinvestment Program	65	—		1,468		—		—		1,468		—		1,468
Share grants, net of forfeitures and tax withholdings	Share grants, net of forfeitures and tax withholdings	112	2		3,567		—		—		3,569		—		3,569		Share grants, net of forfeitures and tax withholdings	130	2		5,520		—		—		5,522		—		5,522
Balance, June 30, 2021		84,590	$	846	$	1,654,409	$	(357,934)	$	(21,200)	$	1,276,121	$	314	$	1,276,435
Balance, September 30, 2021																	Balance, September 30, 2021	84,628	$	846	$	1,656,821	$	(341,052)	$	(20,468)	$	1,296,147	$	309	$	1,296,456

See accompanying notes to the consolidated financial statements.

~~WASHINGTON REAL ESTATE INVESTMENT TRUST~~ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(IN THOUSANDS)

(UNAUDITED)


		Shares Issued and Out-standing	Shares of Beneficial Interest at Par Value		Additional Paid in Capital		Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests in Subsidiaries		Total Equity			Shares Issued and Out-standing	Shares of Beneficial Interest at Par Value		Additional Paid in Capital		Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests in Subsidiaries		Total Equity
Balance, March 31, 2022		87,414	$	874	$	1,725,828	$	(385,108)	$	(16,656)	$	1,324,938	$	305	$	1,325,243
Balance, June 30, 2022																	Balance, June 30, 2022	87,392	$	874	$	1,727,031	$	(408,882)	$	(15,229)	$	1,303,794	$	302	$	1,304,096

Net loss	Net loss	—	—		—		(8,874)		—		(8,874)		—		(8,874)		Net loss	—	—		—		(10,739)		—		(10,739)		—		(10,739)
Unrealized loss on interest rate hedges		—	—		—		—		917		917		—		917
Unrealized gain on interest rate hedges																	Unrealized gain on interest rate hedges	—	—		—		—		442		442		—		442

Amortization of swap settlements	Amortization of swap settlements	—	—		—		—		510		510		—		510		Amortization of swap settlements	—	—		—		—		509		509		—		509
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—	—		—		—		—		—		(3)		(3)		Distributions to noncontrolling interests	—	—		—		—		—		—		(1)		(1)

Dividends ($0.17 per common share)	Dividends ($0.17 per common share)	—	—		—		(14,900)		—		(14,900)		—		(14,900)		Dividends ($0.17 per common share)	—	—		—		(14,918)		—		(14,918)		—		(14,918)

Shares issued under Dividend Reinvestment Program	Shares issued under Dividend Reinvestment Program	10	—		254		—		—		254		—		254		Shares issued under Dividend Reinvestment Program	12	—		259		—		—		259		—		259
Share grants, net of share grant amortization and forfeitures	Share grants, net of share grant amortization and forfeitures	(32)	—		949		—		—		949		—		949		Share grants, net of share grant amortization and forfeitures	100	1		1,550		—		—		1,551		—		1,551
Balance, June 30, 2022		87,392	$	874	$	1,727,031	$	(408,882)	$	(15,229)	$	1,303,794	$	302	$	1,304,096
Balance, September 30, 2022																	Balance, September 30, 2022	87,504	$	875	$	1,728,840	$	(434,539)	$	(14,278)	$	1,280,898	$	301	$	1,281,199


		Shares Issued and Out-standing	Shares of Beneficial Interest at Par Value		Additional Paid in Capital		Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests in Subsidiaries		Total Equity			Shares Issued and Out-standing	Shares of Beneficial Interest at Par Value		Additional Paid in Capital		Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests in Subsidiaries		Total Equity
Balance, March 31, 2021		84,564	$	846	$	1,651,680	$	(325,469)	$	(28,473)	$	1,298,584	$	318	$	1,298,902
Net loss		—	—		—		(6,992)		—		(6,992)		—		(6,992)
Unrealized loss on interest rate hedges		—	—		—		—		1,004		1,004		—		1,004
Loss on interest rate derivatives		—	—		—		—		5,760		5,760		—		5,760
Balance, June 30, 2021																	Balance, June 30, 2021	84,590	$	846	$	1,654,409	$	(357,934)	$	(21,200)	$	1,276,121	$	314	$	1,276,435
Net income																	Net income	—	—		—		31,319		—		31,319		—		31,319
Unrealized gain on interest rate hedges																	Unrealized gain on interest rate hedges	—	—		—		—		221		221		—		221

Amortization of swap settlements	Amortization of swap settlements	—	—		—		—		509		509		—		509		Amortization of swap settlements	—	—		—		—		511		511		—		511
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—	—		—		—		—		—		(4)		(4)		Distributions to noncontrolling interests	—	—		—		—		—		—		(5)		(5)
Dividends ($0.30 per common share)		—	—		—		(25,473)		—		(25,473)		—		(25,473)
Dividends ($0.17 per common share)																	Dividends ($0.17 per common share)	—	—		—		(14,437)		—		(14,437)		—		(14,437)

Shares issued under Dividend Reinvestment Program	Shares issued under Dividend Reinvestment Program	22	—		489		—		—		489		—		489		Shares issued under Dividend Reinvestment Program	20	—		459		—		—		459		—		459
Share grants, net of forfeitures and tax withholdings	Share grants, net of forfeitures and tax withholdings	4	—		2,240		—		—		2,240		—		2,240		Share grants, net of forfeitures and tax withholdings	18	—		1,953		—		—		1,953		—		1,953
Balance, June 30, 2021		84,590	$	846	$	1,654,409	$	(357,934)	$	(21,200)	$	1,276,121	$	314	$	1,276,435
Balance, September 30, 2021																	Balance, September 30, 2021	84,628	$	846	$	1,656,821	$	(341,052)	$	(20,468)	$	1,296,147	$	309	$	1,296,456

See accompanying notes to the consolidated financial statements.


WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
ELME COMMUNITIES AND SUBSIDIARIES						ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS	CONSOLIDATED STATEMENTS OF CASH FLOWS					CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)	(IN THOUSANDS)					(IN THOUSANDS)
(UNAUDITED)	(UNAUDITED)					(UNAUDITED)

		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net loss	Net loss	$	(16,598)	$	(8,139)	Net loss	$	(27,337)	$	23,180
Adjustments to reconcile net loss to net cash provided by operating activities:	Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	46,239		57,194		Depreciation and amortization	69,871		75,446
Credit losses on lease related receivables	Credit losses on lease related receivables	1,344		1,337		Credit losses on lease related receivables	1,816		1,631

(Gain) loss on sale of real estate, net						(Gain) loss on sale of real estate, net	—		(46,441)
Share-based compensation expense	Share-based compensation expense	4,240		3,750		Share-based compensation expense	6,157		6,478

Net amortization of debt premiums, discounts and related financing costs	Net amortization of debt premiums, discounts and related financing costs	2,006		2,227		Net amortization of debt premiums, discounts and related financing costs	3,084		3,322
Loss on interest rate derivatives	Loss on interest rate derivatives	—		5,760		Loss on interest rate derivatives	—		5,866

Loss (gain) on extinguishment of debt						Loss (gain) on extinguishment of debt	4,917		12,727
Changes in operating other assets	Changes in operating other assets	(2,469)		(6,071)		Changes in operating other assets	(952)		(4,720)
Changes in operating other liabilities	Changes in operating other liabilities	(783)		8,564		Changes in operating other liabilities	(6,100)		(11,106)
Net cash provided by operating activities	Net cash provided by operating activities	33,979		64,622		Net cash provided by operating activities	51,456		66,383
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Real estate acquisitions, net	Real estate acquisitions, net	(204,433)		—		Real estate acquisitions, net	(204,433)		(47,757)

Net cash received for sale of real estate						Net cash received for sale of real estate	—		897,783

Capital improvements to real estate	Capital improvements to real estate	(11,395)		(10,370)		Capital improvements to real estate	(19,046)		(18,649)
Development in progress	Development in progress	(659)		(7,794)		Development in progress	(671)		(8,099)

Insurance proceeds						Insurance proceeds	2,224		—
Non-real estate capital improvements	Non-real estate capital improvements	(642)		(31)		Non-real estate capital improvements	(1,322)		(37)
Net cash used in investing activities		(217,129)		(18,195)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(223,248)		823,241
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Line of credit repayments, net	Line of credit repayments, net	—		1,000		Line of credit repayments, net	43,000		(42,000)
Dividends paid	Dividends paid	(29,524)		(50,821)		Dividends paid	(44,440)		(76,292)
Repayments of mortgage notes payable						Repayments of mortgage notes payable	(76,598)		—

Repayments of unsecured notes payable, including penalties for early extinguishment						Repayments of unsecured notes payable, including penalties for early extinguishment	—		(311,894)
Repayments of unsecured term loan debt						Repayments of unsecured term loan debt	—		(150,000)

Settlement of interest rate derivatives						Settlement of interest rate derivatives	—		(5,866)
Payment of financing costs	Payment of financing costs	(39)		—		Payment of financing costs	(39)		(4,828)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	(5)		(7)		Distributions to noncontrolling interests	(6)		(13)
Proceeds from dividend reinvestment program	Proceeds from dividend reinvestment program	518		1,009		Proceeds from dividend reinvestment program	777		1,468
Net proceeds from equity issuances	Net proceeds from equity issuances	26,851		467		Net proceeds from equity issuances	26,851		467
Payment of tax withholdings for restricted share awards	Payment of tax withholdings for restricted share awards	(2,100)		(335)		Payment of tax withholdings for restricted share awards	(2,100)		(554)

Net cash used in financing activities	Net cash used in financing activities	(4,299)		(48,687)		Net cash used in financing activities	(52,555)		(589,512)
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(187,449)		(2,260)		Net decrease in cash, cash equivalents and restricted cash	(224,347)		300,112
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	234,220		8,290		Cash, cash equivalents and restricted cash at beginning of period	234,220		8,290
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	46,771	$	6,030	Cash, cash equivalents and restricted cash at end of period	$	9,873	$	308,402

Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized		$	9,597	$	12,038
Change in accrued capital improvements and development costs		1,209		(4,697)
Dividend payable		14,916		25,474
Mortgage notes payable assumed in connection with the acquisition of real estate		76,554		—

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents		$	44,787	$	5,435
Restricted cash		1,984		595
Cash, cash equivalents and restricted cash		$	46,771	$	6,030


ELME COMMUNITIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

	Nine Months Ended September 30,
	2022		2021

Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized	$	18,386	$	26,409
Change in accrued capital improvements and development costs	2,510		(4,885)
Dividend payable	14,919		14,440


Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	8,436	$	307,797
Restricted cash	1,437		605
Cash, cash equivalents and restricted cash	$	9,873	$	308,402

See accompanying notes to the consolidated financial statements.

1011

~~WASHINGTON REAL ESTATE INVESTMENT TRUST~~ELME COMMUNITIES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~June~~September 30, 2022

(UNAUDITED)

NOTE 1: NATURE OF BUSINESS

~~Washington Real Estate Investment Trust (“WashREIT”),~~Elme Communities, a Maryland real estate investment trust, is a self-administered equity real estate investment trust, successor to a trust organized in 1960. In October 2022, the Company changed its name from Washington Real Estate Investment Trust to Elme Communities to reflect the Company’s continued transition into a focused multifamily company, and subsequent geographic expansion into Sunbelt markets. On October 20, 2022, the Company’s ticker symbol on the New York Stock Exchange changed from “WRE” to “ELME.” Our business primarily consists of the ownership of apartment communities in the greater Washington, DC metro and ~~Southeastern~~Sunbelt regions. Within these notes to the financial statements, we refer to the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 as the “2022 Quarter” and the “2021 Quarter,” respectively, and the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 as the “2022 Period” and the “2021 Period,” respectively.

Federal Income Taxes

We believe that we qualify as a real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”), and intend to continue to qualify as such. To maintain our status as a REIT, we are, among other things, required to distribute 90% of our REIT taxable income (determined before the deduction for dividends paid and excluding net capital gains to our shareholders) on an annual basis. When selling a property, we generally have the option of (a) reinvesting the sales proceeds of property sold in a way that allows us to defer recognition of some or all taxable gain realized on the sale, (b) distributing gains to the shareholders with no tax to us or (c) treating net long-term capital gains as having been distributed to our shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to our shareholders.

Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiary (“TRS”). Our TRS is subject to corporate federal and state income tax on its taxable income at regular statutory rates. As of both ~~June~~September 30, 2022 and December 31, 2021, our TRS had a deferred tax asset of $1.4 million that was fully reserved.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS

Significant Accounting Policies

We have prepared our consolidated financial statements using the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2021.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements include the consolidated accounts of ~~WashREIT,~~Elme Communities, our majority-owned subsidiaries and entities in which ~~WashREIT~~Elme Communities has a controlling interest. All intercompany balances and transactions have been eliminated in consolidation.

We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. In addition, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the periods presented have been included. These unaudited financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.

1112

Held for Sale and Discontinued Operations

We classify properties as held for sale when they meet the necessary criteria, which include: (a) senior management commits to a plan to sell the assets; (b) the assets are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of such assets; (c) an active program to locate a buyer and other actions required to complete the plan to sell the assets has been initiated; (d) the sale of the assets is probable and transfer of the assets is expected to qualify for recognition as a completed sale within one year; (e) the assets are being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Depreciation on these properties is discontinued at the time they are classified as held for sale, but operating revenues, operating expenses and interest expense continue to be recognized until the date of sale.

Revenues and expenses of properties that are either sold or classified as held for sale are presented as discontinued operations for all periods presented in the consolidated statements of operations if the dispositions represent a strategic shift that has (or will have) a major effect on our operations and financial results. If the dispositions do not represent a strategic shift that has (or will have) a major effect on our operations and financial results, then the revenues and expenses of the properties that are classified as sold or held for sale are presented as continuing operations in the consolidated statements of operations for all periods presented.

Lessee Accounting

For leases where we are the lessee, primarily our corporate office operating lease, we recognize a right-of-use asset and a lease liability in accordance with Accounting Standards Codification (“ASC”) Topic 842. The right-of-use asset and associated liability is equal to the present value of the minimum lease payments, applying our incremental borrowing rate. Our borrowing rate is computed based on observable borrowing rates taking into consideration our credit quality and adjusting to a secured borrowing rate for similar assets and term. As of ~~June~~September 30, 2022, our balance sheet included ~~$3.4~~$1.1 million in a right-of-use ~~assets~~asset and ~~liabilities,~~liability, net of amortization. During the 2022 Quarter, we remeasured the the right-of-use asset and liability due to a decrease in the estimated term of our corporate office operating lease, resulting in a $2.0 million decrease in both the asset and the liability.

Lease expense for the operating lease is recognized on a straight-line basis over the expected lease term and is included in General and administrative expense on the consolidated statements of operations.

Restricted Cash

Restricted cash includes funds held in escrow for tenant security deposits and mortgage escrows.

Transformation Costs

Transformation costs include costs related to the strategic shift away from the commercial sector to the residential sector, including the allocation of internal costs, consulting, advisory and termination benefits.

Use of Estimates in the Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

1213

NOTE 3: REAL ESTATE

Acquisitions

We acquired the following properties during the 2022 Period:


Acquisition Date	Acquisition Date	Property	Type	# of homes	Ending Occupancy (1)	Contract Purchase Price (in thousands)		Acquisition Date	Property	Type	# of homes	Ending Occupancy (1)	Contract Purchase Price (in thousands)
February 1, 2022	February 1, 2022	Carlyle of Sandy Springs	Residential	389	94.3%	$	105,586	February 1, 2022	Carlyle of Sandy Springs	Residential	389	93.1%	$	105,586
May 5, 2022	May 5, 2022	Marietta Crossing	Residential	420	91.2%	107,900		May 5, 2022	Marietta Crossing	Residential	420	94.5%	107,900
May 5, 2022	May 5, 2022	Alder Park	Residential	270	95.9%	69,750		May 5, 2022	Alder Park	Residential	270	95.2%	69,750
				1,079		$	283,236				1,079		$	283,236

(1) As of ~~June~~September 30, 2022.

The results of operations from the acquired operating properties are included in the condensed consolidated statements of operations as of their acquisition date and were as follows (in thousands):


		Three Months Ended June 30, 2022		Six Months Ended June 30, 2022			Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Real estate rental revenue	Real estate rental revenue	$	3,651	$	4,726	Real estate rental revenue	$	4,897	$	9,623
Net loss	Net loss	(2,943)		(3,607)		Net loss	(7,427)		(11,034)

We accounted for the 2022 acquisitions as asset acquisitions. We measured the value of the acquired physical assets (land and building), in-place leases (absorption costs) and mortgage notes by allocating the total cost of the acquisition on a relative fair value basis.

The total cost of the 2022 acquisitions was as follows (in thousands):


Contract purchase price	$	283,236

Capitalized acquisition costs	478
Total	$	283,714

We have recorded the 2022 acquisitions as follows (in thousands):


Land	$	50,547
Building	220,825
Absorption costs	7,300
Aggregate discount on assumed mortgages	5,042
Total acquisition cost	283,714
Outstanding balance on assumed mortgages	(76,554)
Total carrying amounts recorded	$	207,160

The weighted remaining average life for the absorption costs is ~~four~~two months.

The difference in the total acquisition cost of $283.7 million for the 2022 acquisitions and the cash paid for the acquisitions per the consolidated statements of cash flows of $204.4 million is due to the assumption of two mortgage notes secured by Marietta Crossing and Alder Park for an aggregate outstanding balance of $76.6 million and credits received at settlement totaling $2.8 million. In September 2022, we extinguished the liabilities associated with the two mortgage notes though defeasance arrangements.

Development/Redevelopment

We have properties under development/redevelopment and held for current or future development. As of ~~June~~September 30, 2022, we have invested $30.4 million, including the cost of acquired land, in a residential development adjacent to Riverside Apartments. During the second quarter of 2022, ~~Quarter,~~ we paused development activities at the aforementioned property and ceased associated capitalization of interest on spending and real estate taxes. However, we continue to capitalize qualifying costs on

several other projects with minor development activity necessary to ready each project for its intended use.

Properties Sold and Held for Sale

We intend to hold our properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning our properties and to make occasional sales of properties that no longer meet our long-term strategy or return objectives and where market conditions for sale are favorable. The proceeds from the sales may be reinvested into other properties, used to fund development operations or to support other corporate needs or distributed to our shareholders. Depreciation on these properties is discontinued at the time they are classified as held for sale, but operating revenues, operating expenses and interest expense continue to be recognized until the date of sale.

We did not sell or classify any properties as held for sale during the 2022 Period. We sold the following properties during 2021 ($ in thousands):


Disposition Date	Property Name	Property Type	Rentable Square Feet	Contract Sales Price		(Loss) Gain on Sale
July 26, 2021	Office Portfolio (1)	Office	2,370,000	$	766,000	$	(11,220)
September 22, 2021	Retail Portfolio (2)	Retail	693,000	168,314		57,661
		Total 2021	3,063,000	$	934,314	$	46,441

(1) Consists of 12twelve office properties: 1901 Pennsylvania Avenue, 515 King Street, 1220 19th Street, 1600 Wilson Boulevard, Silverline Center, Courthouse Square, 2000 M Street, 1140 Connecticut Avenue, Army Navy Club, 1775 Eye Street, Fairgate at Ballston and Arlington Tower.

(2) Consists of 8eight retail properties: Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S. Washington Street, Randolph Shopping Center, Montrose Shopping Center and Spring Valley Village.

We have fully transferred control of the assets sold in 2021 and do not have continuing involvement in their operations.

The dispositions of the Office Portfolio and the Retail Portfolio represent a strategic shift that had a major effect on our financial results and we have accordingly reported the Office Portfolio and Retail Portfolio as discontinued operations.

As of ~~June~~September 30, 2022, we assessed our properties, including assets held for development, for impairment and did not recognize any impairment charges during the 2022 Period. We applied reasonable estimates and judgments in evaluating each of the properties as of ~~June~~September 30, 2022. Should external or internal circumstances change requiring the need to shorten holding periods or adjust future estimated cash flows from our properties, we could be required to record impairment charges in the future.

Discontinued Operations

The results of the Office Portfolio and Retail Portfolio are classified as discontinued operations and are summarized as follows (amounts in thousands, except for share data):

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
Real estate rental revenue $ 30,561 $ 59,587
Expenses
Property operating and maintenance (4,855) (9,331)
Real estate taxes and insurance (4,783) (9,660)
Property management (930) (1,817)
Depreciation and amortization (10,248) (22,904)
Income from discontinued operations $ 9,745 $ 15,875
Basic net income per share $ 0.12 $ 0.19
Diluted net income per share $ 0.12 $ 0.19
Capital expenditures $ 2,109 $ 2,483


	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Real estate rental revenue	$	10,932	$	70,519
Expenses
Property operating and maintenance	(1,870)		(11,201)
Real estate taxes and insurance	(1,476)		(11,136)
Property management	(378)		(2,195)
Depreciation and amortization	—		(22,904)


Gain on sale of real estate, net	46,441		46,441
Income from discontinued operations	$	53,649	$	69,524

Basic net income per share	$	0.63	$	0.82
Diluted net income per share	$	0.63	$	0.82

Capital expenditures	$	833	$	3,316

All assets and liabilities related to the Office Portfolio and Retail Portfolio were sold as of December 31, 2021.

NOTE 4: UNSECURED LINE OF CREDIT PAYABLE

During the third quarter of 2021, we entered into an amended and restated credit agreement (“Credit Agreement”) which provides for a $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) and the continuation of an existing $250.0 million unsecured term loan (“2018 Term Loan”). The Revolving Credit Facility has a four-year term ending in August 2025, with 2two six-month extension options. The Credit Agreement has an accordion feature that allows us to increase the aggregate facility to $1.5 billion, subject to the lenders’ agreement to provide additional revolving loan commitments or term loans.

The Revolving Credit Facility bears interest at a rate of either one month LIBOR plus a margin ranging from 0.70% to 1.40% or the base rate plus a margin ranging from 0.0% to 0.40% (in each case depending upon ~~WashREIT’s~~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 the LIBOR market index rate plus 1.0%. In addition, the Revolving Credit Facility requires the payment of a facility fee ranging from 0.10% to 0.30% (depending on ~~WashREIT’s~~Elme Communities’ credit rating) on the $700.0 million committed revolving loan capacity, without regard to usage. As of ~~June~~September 30, 2022, the interest rate on the Revolving Credit Facility is one month LIBOR plus ~~1.79%~~0.85%, the one month LIBOR is ~~0.85%~~3.14% and the facility fee is 0.20%.

All outstanding advances for the Revolving Credit Facility are due and payable upon maturity in August 2025, unless extended pursuant to one or both of the 2two six-month extension options. Interest only payments are due and payable generally on a monthly basis.

The 2018 Term Loan increased and replaced the $150.0 million unsecured term loan, initially entered into on July 22, 2016 (“2016 Term Loan”), that was scheduled to mature in July 2023. The 2018 Term Loan is scheduled to mature in July 2023 and bears interest at a rate of either one month LIBOR plus a margin ranging from 0.85% to 1.75% or the base rate plus a margin ranging from 0.0% to 0.75% (in each case depending upon ~~WashREIT’s~~Elme Communities’ credit rating). We used the $100.0 million of additional proceeds from the 2018 Term Loan primarily to repay outstanding borrowings on the Revolving Credit Facility.

On September 27, 2021, we prepaid a $150.0 million portion of the 2018 Term Loan using proceeds from the sale of the Office Portfolio and Retail Portfolio (see note 3). We currently expect to hold the remaining $100.0 million portion of the 2018 Term Loan until maturity.

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at ~~June~~September 30, 2022 was as follows (in thousands):


Committed capacity	$	700,000
Borrowings outstanding	— (43,000)

Unused and available	$	~~700,000~~657,000

~~There~~In the first and second quarters of 2022, there were no borrowings or repayments on the Revolving Credit Facility. We executed borrowings and repayments on the Revolving Credit Facility during the 2022 ~~Period.~~Quarter as follows (in thousands):


Balance at June 30, 2022	$	—
Borrowings	65,000
Repayments	(22,000)
Balance at September 30, 2022	$	43,000

NOTE 5: MORTGAGE NOTES PAYABLE

In May 2022, we assumed a $42.8 million mortgage note in connection with the acquisition of Marietta Crossing. This mortgage note bears interest at 3.36% per annum. The effective interest rate on this mortgage note is 4.50% based on quotes obtained for similar loans. We recorded the mortgage note at its estimated fair value of $40.0 million. Principal and interest are payable monthly until May 1, 2030, at which time all unpaid principal and interest are payable in full.

In May 2022, we assumed a $33.7 million mortgage note in connection with the acquisition of Alder Park. This mortgage note bears interest at 2.93% per annum. The effective interest rate on this mortgage note is 4.00% based on quotes obtained for similar loans. We recorded the mortgage note at its estimated fair value of $31.5 million. Principal and interest are payable monthly until May 1, 2030, at which time all unpaid principal and interest are payable in full.

In September 2022, we extinguished the liabilities associated with both of the mortgage notes through defeasance arrangements, recognizing aggregate losses on extinguishment of debt of $4.9 million.

NOTE 6: DERIVATIVE INSTRUMENTS

We have 1one interest rate swap arrangement with a notional amount of $100.0 million that effectively fixes the remaining $100.0 million portion of the 2018 Term Loan. The interest rate swap arrangement is recorded at fair value in accordance with GAAP, based on discounted cash flow methodologies and observable inputs. We record the effective portion of changes in fair value of the cash flow hedge in Other comprehensive income (loss). We assess the effectiveness of a cash flow hedge both at inception and on an ongoing basis. If a cash flow hedge is no longer expected to be effective, hedge accounting is discontinued. Hedge ineffectiveness of our cash flow hedges is recorded in earnings.

The fair values of the interest rate swap as of ~~June~~September 30, 2022 and December 31, 2021, were as follows (in thousands):

Fair Value

Derivative Assets (Liabilities)

Derivative Instrument

Aggregate Notional Amount

Effective Date

Maturity Date

June 30, 2022

December 31, 2021

Derivative Instrument

Aggregate Notional Amount

Effective Date

Maturity Date

September 30, 2022

December 31, 2021

Interest rate swap

100,000

March 31, 2017

July 21, 2023

2,021

(821)

Interest rate swap

100,000

March 31, 2017

July 21, 2023

2,463

(821)

We record interest rate swaps on our consolidated balance sheets within Prepaid expenses and other assets when in a net asset position and within Accounts payable and other liabilities when in a net liability position. The net unrealized gains or losses on the effective swaps were recognized in Other comprehensive income (loss), as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Unrealized gain on interest rate hedges $ 917 $ 1,004 $ 2,842 $ 2,584


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Unrealized gain on interest rate hedges	$	442	$	221	$	3,284	$	2,805

Amounts reported in Accumulated other comprehensive loss related to effective cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate debt. The gains or losses reclassified from Accumulated other comprehensive loss into interest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Loss reclassified from accumulated other comprehensive loss into interest expense $ 510 $ 509 $ 1,020 $ 1,019


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Loss reclassified from accumulated other comprehensive loss into interest expense	$	509	$	511	$	1,529	$	1,530

During the next twelve months, we estimate that an additional ~~$1.9~~$2.5 million will be reclassified as a decrease to interest expense.

We have agreements with each of our derivative counterparties that contain a provision whereby we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. As of ~~June~~September 30, 2022, the fair value of derivative assets, including accrued interest, was ~~$2.0~~$2.5 million and we did not have any derivatives in a liability position. As of ~~June~~September 30, 2022, we have not posted any collateral related to these agreements.

Derivative instruments expose us to credit risk in the event of non-performance by the counterparty under the terms of the interest rate hedge agreements. We believe that we minimize our credit risk on these transactions by dealing with major, creditworthy financial institutions. We monitor the credit ratings of counterparties and our exposure to any single entity, thus minimizing our credit risk concentration.

NOTE 7: FAIR VALUE DISCLOSURES

Assets and Liabilities Measured at Fair Value

For assets and liabilities measured at fair value on a recurring basis, quantitative disclosures about the fair value measurements are required to be disclosed separately for each major category of assets and liabilities, as follows:

Level 1: Quoted prices in active markets for identical assets

Level 2: Significant other observable inputs

Level 3: Significant unobservable inputs

The only assets or liabilities we had at ~~June~~September 30, 2022 and December 31, 2021 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan (“SERP”), which primarily consist of investments in mutual funds, and the interest rate derivatives (see note 6).

We base the valuations related to the SERP on assumptions derived from significant other observable inputs and accordingly these valuations fall into Level 2 in the fair value hierarchy.

The valuation of the interest rate derivatives is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each interest rate derivative. This analysis reflects the contractual terms of the interest rate derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate derivatives are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of ASC 820, Fair Value Measurement, we incorporate credit valuation adjustments in the fair value measurements to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk. These credit valuation adjustments were concluded to not be significant inputs for the fair value calculations for the periods presented. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as the posting of collateral, thresholds, mutual puts and guarantees. The valuation of interest rate derivatives fall into Level 2 in the fair value hierarchy.

The fair values of these assets and liabilities at ~~June~~September 30, 2022 and December 31, 2021 were as follows (in thousands):


		June 30, 2022								December 31, 2021									September 30, 2022								December 31, 2021
		Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3			Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Assets:	Assets:																	Assets:
SERP	SERP	$	1,896	$	—	$	1,896	$	—	$	2,566	$	—	$	2,566	$	—	SERP	$	1,969	$	—	$	1,969	$	—	$	2,566	$	—	$	2,566	$	—
Interest rate derivatives	Interest rate derivatives	2,021		—		2,021		—		—		—		—		—		Interest rate derivatives	2,463		—		2,463		—		—		—		—		—
Liabilities:	Liabilities:																	Liabilities:
Interest rate derivatives	Interest rate derivatives	$	—	$	—	$	—	$	—	$	(821)	$	—	$	(821)	$	—	Interest rate derivatives	$	—	$	—	$	—	$	—	$	(821)	$	—	$	(821)	$	—

Financial Assets and Liabilities Not Measured at Fair Value

The following disclosures of estimated fair value were determined by management using available market information and established valuation methodologies, including discounted cash flow models. Many of these estimates involve significant judgment. The estimated fair value disclosed may not necessarily be indicative of the amounts we could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have an effect on the estimated fair value amounts. In addition, fair value estimates are made at a point in time and thus, estimates of fair value subsequent to ~~June~~September 30, 2022 may differ significantly from the amounts presented. The valuations of cash and cash equivalents and restricted cash fall into Level 1 in the fair value hierarchy and the valuations of debt instruments fall into Level 3 in the fair value hierarchy.

As of ~~June~~September 30, 2022 and December 31, 2021, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and cash equivalents	Cash and cash equivalents	$	44,787	$	44,787	$	233,600	$	233,600	Cash and cash equivalents	$	8,436	$	8,436	$	233,600	$	233,600
Restricted cash	Restricted cash	1,984		1,984		620		620		Restricted cash	1,437		1,437		620		620
Mortgage notes payable, net		71,576		68,079		—		—

Line of credit										Line of credit	43,000		43,000		—		—
Notes payable, net	Notes payable, net	497,135		471,730		496,946		515,341		Notes payable, net	497,247		459,725		496,946		515,341

NOTE 8: STOCK BASED COMPENSATION

~~WashREIT~~Elme Communities maintains short-term (“STIP”) and long-term (“LTIP”) incentive plans that allow for ~~stock based~~stock-based awards to officers and non-officer employees. Stock based awards are provided to officers and non-officer employees, as well as trustees, under the Washington Real Estate Investment Trust 2016 Omnibus Incentive Plan which allows for awards in the form of restricted shares, restricted share units, options and other awards up to an aggregate of 2,400,000 shares over the ten-year period in which the plan will be in effect. Restricted share units are converted into shares of our stock upon full vesting through the issuance of new shares.

Total Compensation Expense

Total compensation expense recognized in the consolidated financial statements for all outstanding ~~share based~~share-based awards was ~~$2.1~~$1.9 million and ~~$2.2~~$2.7 million for the 2022 Quarter and 2021 Quarter, respectively and ~~$4.2~~$6.2 million and ~~$3.8~~$6.5 million for the 2022 and 2021 Period, respectively.

Restricted Share Awards

The total fair values of restricted share awards vested was $4.8 million and ~~$2.0~~$1.6 million for the 2022 Period and 2021 Period, respectively.

The total unvested restricted share awards at ~~June~~September 30, 2022 was ~~301,211~~401,416 shares, which had a weighted average grant date fair value of ~~$25.60~~$23.51 per share. As of ~~June~~September 30, 2022, the total compensation cost related to unvested restricted share awards was ~~$5.2~~$5.8 million, which we expect to recognize over a weighted average period of 2232 months.

NOTE 9: EARNINGS PER COMMON SHARE

We determine “Basic earnings per share” using the two-class method as our unvested restricted share awards and units have non-forfeitable rights to dividends, and are therefore considered participating securities. We compute basic earnings per share by dividing net income less the allocation of undistributed earnings to unvested restricted share awards and units by the weighted-average number of common shares outstanding for the period.

We also determine “Diluted earnings per share” as the more dilutive of the two-class method or the treasury stock method with respect to the unvested restricted share awards. We further evaluate any other potentially dilutive securities at the end of the period and adjust the basic earnings per share calculation for the impact of those securities that are dilutive. Our dilutive earnings per share calculation includes the dilutive impact of operating partnership units under the if-converted method and our share based awards with performance conditions prior to the grant date and all market condition awards under the contingently issuable method.

The computations of basic and diluted earnings per share for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 were as follows (in thousands, except per share data):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Loss from continuing operations	Loss from continuing operations	$	(8,874)	$	(16,737)	$	(16,598)	$	(24,014)	Loss from continuing operations	$	(10,739)	$	(22,330)	$	(27,337)	$	(46,344)

Allocation of earnings to unvested restricted share awards	Allocation of earnings to unvested restricted share awards	(51)		(137)		(123)		(276)		Allocation of earnings to unvested restricted share awards	(68)		121		(191)		(349)
Adjusted net loss from continuing operations	Adjusted net loss from continuing operations	(8,925)		(16,874)		(16,721)		(24,290)		Adjusted net loss from continuing operations	(10,807)		(22,209)		(27,528)		(46,693)
Income from discontinued operations	Income from discontinued operations	—		9,745		—		15,875		Income from discontinued operations	—		53,649		—		69,524

Adjusted net loss		$	(8,925)	$	(7,129)	$	(16,721)	$	(8,415)
Allocation of earnings from discontinued operations to unvested restricted share awards										Allocation of earnings from discontinued operations to unvested restricted share awards	—		(283)		—		—
Adjusted income from discontinuing operations										Adjusted income from discontinuing operations	—		53,366		—		69,524
Adjusted net (loss) income										Adjusted net (loss) income	$	(10,807)	$	31,157	$	(27,528)	$	22,831
Denominator:	Denominator:									Denominator:
Weighted average shares outstanding – basic and diluted	Weighted average shares outstanding – basic and diluted	87,392		84,461		87,303		84,437		Weighted average shares outstanding – basic and diluted	87,453		84,496		87,354		84,457

Earnings per common share, basic:	Earnings per common share, basic:									Earnings per common share, basic:
Continuing operations	Continuing operations	$	(0.10)	$	(0.20)	$	(0.19)	$	(0.29)	Continuing operations	$	(0.12)	$	(0.26)	$	(0.32)	$	(0.55)
Discontinued operations	Discontinued operations	—		0.12		—		0.19		Discontinued operations	—		0.63		—		0.82
Basic net loss per common share		$	(0.10)	$	(0.08)	$	(0.19)	$	(0.10)
Basic net (loss) income per common share										Basic net (loss) income per common share	$	(0.12)	$	0.37	$	(0.32)	$	0.27
Earnings per common share, diluted:	Earnings per common share, diluted:									Earnings per common share, diluted:
Continuing operations	Continuing operations	$	(0.10)	$	(0.20)	$	(0.19)	$	(0.29)	Continuing operations	$	(0.12)	$	(0.26)	$	(0.32)	$	(0.55)
Discontinued operations	Discontinued operations	—		0.12		—		0.19		Discontinued operations	—		0.63		—		0.82
Diluted net loss per common share		$	(0.10)	$	(0.08)	$	(0.19)	$	(0.10)
Diluted net( loss) income per common share										Diluted net( loss) income per common share	$	(0.12)	$	0.37	$	(0.32)	$	0.27

Dividends declared per common share	Dividends declared per common share	$	0.17	$	0.30	$	0.34	$	0.60	Dividends declared per common share	$	0.17	$	0.17	$	0.51	$	0.77

NOTE 10: SEGMENT INFORMATION

We operate in a single reportable segment which includes the ownership, development, redevelopment and acquisition of apartment communities. ~~Each~~None of our operating properties ~~including our remaining office property, do not~~ meet the criteria to be considered separate operating segments on a stand-alone basis. WeWithin the residential segment, we do not distinguish or group our consolidated operations based on size ~~type or geography. All but five communities are within the Washington, DC metro region and~~(only one community, Riverside Apartments, comprises more than 10% of consolidated ~~revenues.~~revenues), type (all assets in the segment are residential) or geography (all but five communities are within the Washington, DC metro region). Further, our apartment communities have similar long-term economic characteristics and provide similar products and services to our residents. As a result, our operating properties are aggregated into a single reportable segment: residential.

Prior to the end of the second quarter of 2021, we had 2two reportable segments: office and residential. During the third quarter of 2021, we closed on the sales of the Office Portfolio and the Retail Portfolio (see note 3), and following such sales, we have 1one remaining office property, Watergate 600, which does not meet the criteria for a reportable segment, and has been classified within “Other” on our segment disclosure tables.

We evaluate performance based upon net operating income (“NOI”) of the combined properties in the segment. Our reportable operating segment consolidates similar properties. GAAP requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing each segment’s performance. NOI is a key measurement of our segment profit and loss and is defined as real estate rental revenue less real estate expenses.

1921

The following tables present revenues, NOI, capital expenditures and total assets for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 from our Residential segment as well as Other, and reconcile NOI to net income (loss) as reported (in thousands):


		Three Months Ended June 30, 2022							Three Months Ended September 30, 2022
		Residential		Other (1)		Consolidated			Residential		Other (1)		Consolidated
Real estate rental revenue	Real estate rental revenue	46,646		4,734		$	51,380	Real estate rental revenue	49,889		4,714		$	54,603
Real estate expenses	Real estate expenses	17,312		1,272		18,584		Real estate expenses	18,198		1,363		19,561
Net operating income	Net operating income	$	29,334	$	3,462	$	32,796	Net operating income	$	31,691	$	3,351	$	35,042
Other income (expense):	Other income (expense):							Other income (expense):
Property management expenses	Property management expenses					(1,796)		Property management expenses					(1,916)
General and administrative expenses	General and administrative expenses					(7,656)		General and administrative expenses					(6,403)
Transformation costs	Transformation costs					(2,023)		Transformation costs					(2,399)
Depreciation and amortization	Depreciation and amortization					(24,039)		Depreciation and amortization					(23,632)

Interest expense	Interest expense					(6,156)		Interest expense					(6,582)

Loss on extinguishment of debt								Loss on extinguishment of debt					(4,917)
Other income								Other income					68

Net loss	Net loss					$	(8,874)	Net loss					$	(10,739)

Capital expenditures	Capital expenditures	$	6,429	$	1,582	$	8,011	Capital expenditures	$	7,764	$	567	$	8,331
Total assets	Total assets	$	1,706,088	$	228,785	$	1,934,873	Total assets	$	1,694,750	$	184,784	$	1,879,534


		Three Months Ended June 30, 2021							Three Months Ended September 30, 2021
		Residential		Other (1), (2)		Consolidated			Residential		Other (1), (2)		Consolidated
Real estate rental revenue	Real estate rental revenue	36,862		4,435		$	41,297	Real estate rental revenue	38,046		4,453		$	42,499
Real estate expenses	Real estate expenses	13,468		1,276		14,744		Real estate expenses	14,146		1,299		15,445
Net operating income	Net operating income	$	23,394	$	3,159	$	26,553	Net operating income	$	23,900	$	3,154	$	27,054
Other income (expense):	Other income (expense):							Other income (expense):
Property management expenses	Property management expenses					(1,486)		Property management expenses					(1,499)
General and administrative expenses	General and administrative expenses					(6,325)		General and administrative expenses					(7,909)
Transformation costs	Transformation costs					(3,780)		Transformation costs					(1,016)
Depreciation and amortization	Depreciation and amortization					(17,303)		Depreciation and amortization					(18,252)

Interest expense	Interest expense					(10,158)		Interest expense					(8,106)
Loss on interest rate derivatives	Loss on interest rate derivatives					(5,760)		Loss on interest rate derivatives					(106)

Loss on extinguishment of debt								Loss on extinguishment of debt					(12,727)
Other income	Other income					1,522		Other income					231

Discontinued operations:	Discontinued operations:							Discontinued operations:
Income from operations of properties sold or held for sale	Income from operations of properties sold or held for sale					9,745		Income from operations of properties sold or held for sale					7,208
Gain on sale of real estate								Gain on sale of real estate					46,441

Net loss						$	(6,992)
Net income								Net income					$	31,319

Capital expenditures	Capital expenditures	$	4,062	$	2,300	$	6,362	Capital expenditures	$	7,283	$	1,002	$	8,285
Total assets	Total assets	$	1,315,640	$	1,052,765	$	2,368,405	Total assets	$	1,355,893	$	496,917	$	1,852,810

(1) Other represents Watergate 600, an office property that does not meet the qualitative or quantitative criteria for a reportable segment.

(2) Total assets and capital expenditures include office and retail properties classified as discontinued operations.

2022


		Six Months Ended June 30, 2022							Nine Months Ended September 30, 2022
		Residential		Other (1)		Consolidated			Residential		Other (1)		Consolidated
Real estate rental revenue	Real estate rental revenue	$	89,980	9,204		$	99,184	Real estate rental revenue	$	139,869	13,918		$	153,787
Real estate expenses	Real estate expenses	33,213		2,523		35,736		Real estate expenses	51,411		3,886		55,297
Net operating income	Net operating income	$	56,767	$	6,681	$	63,448	Net operating income	$	88,458	$	10,032	$	98,490
Other income (expense):	Other income (expense):							Other income (expense):
Property management expenses	Property management expenses					(3,546)		Property management expenses					(5,462)
General and administrative expenses	General and administrative expenses					(14,595)		General and administrative expenses					(20,998)
Transformation costs	Transformation costs					(4,246)		Transformation costs					(6,645)
Depreciation and amortization	Depreciation and amortization					(46,239)		Depreciation and amortization					(69,871)

Interest expense	Interest expense					(11,806)		Interest expense					(18,388)

Loss on extinguishment of debt								Loss on extinguishment of debt					(4,917)
Other income	Other income					386		Other income					454

Net loss	Net loss					$	(16,598)	Net loss					$	(27,337)

Capital expenditures	Capital expenditures	$	9,859	$	2,178	$	12,037	Capital expenditures	$	17,623	$	2,745	$	20,368


		Six Months Ended June 30, 2021							Nine Months Ended September 30, 2021
		Residential		Other (1), (2)		Consolidated			Residential		Other (1), (2)		Consolidated
Real estate rental revenue	Real estate rental revenue	73,029		8,875		$	81,904	Real estate rental revenue	111,075		13,328		$	124,403
Real estate expenses	Real estate expenses	27,294		2,441		29,735		Real estate expenses	41,440		3,740		45,180
Net operating income	Net operating income	$	45,735	$	6,434	$	52,169	Net operating income	$	69,635	$	9,588	$	79,223
Other income (expense):	Other income (expense):							Other income (expense):
Property management expenses	Property management expenses					(2,949)		Property management expenses					(4,448)
General and administrative expenses	General and administrative expenses					(11,929)		General and administrative expenses					(19,838)
Transformation costs	Transformation costs					(3,780)		Transformation costs					(4,796)
Depreciation and amortization	Depreciation and amortization					(34,290)		Depreciation and amortization					(52,542)

Interest expense	Interest expense					(20,281)		Interest expense					(28,387)
Other income	Other income					2,806		Other income					3,037

Loss on extinguishment of debt								Loss on extinguishment of debt					(12,727)
Loss on interest rate derivatives	Loss on interest rate derivatives					(5,760)		Loss on interest rate derivatives					(5,866)

Discontinued operations:	Discontinued operations:							Discontinued operations:

Income from operations of properties sold or held for sale	Income from operations of properties sold or held for sale					15,875		Income from operations of properties sold or held for sale					23,083

Net loss						$	(8,139)
Gain on sale of real estate								Gain on sale of real estate					46,441
Net income								Net income					$	23,180

Capital expenditures	Capital expenditures	$	7,799	$	2,602	$	10,401	Capital expenditures	$	15,082	$	3,604	$	18,686

(1) Other represents Watergate 600, an office property that does not meet the qualitative or quantitative criteria for a reportable segment.

(2) Total assets and capital expenditures include office and retail properties classified as discontinued operations.

2123

NOTE 11: SHAREHOLDERS' EQUITY

On February 17, 2021, we entered into separate amendments to each of our existing equity distribution agreements (“Original Equity Distribution Agreements”) with each of Wells Fargo Securities, LLC, BNY Mellon Capital Markets, LLC, Capital One Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, KeyBanc Capital Markets Inc. and Truist Securities, Inc. (f/k/a SunTrust Robinson Humphrey, Inc.), each dated May 4, 2018 (collectively, as amended, the “Equity Distribution Agreements”) for our at-the-market program. Also on February 17, 2021, we entered into a separate equity distribution agreement with BTIG, LLC on the same terms as the Amended Equity Distribution Agreements (the “BTIG Equity Distribution Agreement”). On September 22, 2021, BTIG, LLC notified us that it was terminating the BTIG Equity Distribution Agreement, effective as of September 27, 2021. Pursuant to the Equity Distribution Agreements, we may sell, from time to time, up to an aggregate price of $550.0 million of our common shares of beneficial interest, $0.01 par value per share. Issuances of our common shares are made at market prices prevailing at the time of issuance. We may use net proceeds from the issuance of common shares under this program for general business purposes, including, without limitation, working capital, the acquisition, renovation, expansion, improvement, development or redevelopment of income producing properties or the repayment of debt. We did not issue common shares under the Equity Distribution Agreements during the 2022 Quarter or 2021 Quarter. Our issuances and net proceeds on the Equity Distribution Agreements for the 2022 Period and 2021 Period were as follows ($ in thousands, except per share data):


		Six Months Ended June 30,						Nine Months Ended September 30,
			2022		2021				2022		2021
Issuance of common shares	Issuance of common shares		1,032		24		Issuance of common shares		1,032		24
Weighted average price per share	Weighted average price per share		$	26.27	$	22.06	Weighted average price per share		$	26.27	$	22.06
Net proceeds	Net proceeds		$	26,851	$	467	Net proceeds		$	26,851	$	467

We have a dividend reinvestment program whereby shareholders may use their dividends and optional cash payments to purchase common shares. The shares sold under this program may either be common shares issued by us or common shares purchased in the open market. Net proceeds under this program are used for general corporate purposes.

Our issuances and net proceeds on the dividend reinvestment program for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 were as follows ($ in thousands, except per share data):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Issuance of common shares	Issuance of common shares	10		22		20		45		Issuance of common shares	12		19		32		65
Weighted average price per share	Weighted average price per share	$	24.82	$	23.21	$	25.44	$	22.63	Weighted average price per share	$	21.15	$	23.73	$	24.01	$	22.97
Net proceeds	Net proceeds	$	254	$	489	$	518	$	1,009	Net proceeds	$	259	$	459	$	777	$	1,468

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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, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 18, 2022.

We refer to the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 as the “2022 Quarter” and the “2021 Quarter,” respectively, and the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 as the “2022 Period” and “2021 Period,” respectively.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements which involve risks and uncertainties. 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 ~~WashREIT~~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 ~~WashREIT~~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: 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 ~~residential properties~~apartment homes in the ~~Southeastern~~Sunbelt markets, on the terms anticipated, or at all, the operational benefits from our operating model redesign on the timing contemplated or at all, and to realize any anticipated returns and benefits, including the performance of any acquired residential properties at the levels anticipated; 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 greater Washington, DC metro region and the larger ~~Southeastern~~Sunbelt region; the risk of failure to enter into and/or complete contemplated acquisitions and dispositions, at all, within the price ranges anticipated and on the terms and timing anticipated; changes in the composition of our portfolio; fluctuations in interest rates and other risks related to changes in interest rates; reductions in or actual or threatened changes to the timing of federal government spending; the risks related to use of third-party providers; the economic health of our residents; the ultimate duration of the COVID-19 global pandemic, including any mutations thereof, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, the effectiveness and willingness of people to take COVID-19 vaccines, and the duration of associated immunity and efficacy of the vaccines against emerging variants of COVID-19; the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdown or a recession and geopolitical conflicts; compliance with applicable laws and corporate social responsibility goals, including those concerning the environment and access by persons with disabilities; the 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 stock ownership; failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs; whether our estimated transformation costs for 2022 will be correct; ~~whether we will realize significant operation benefits from our operating model redesign on the timing contemplated or at all;~~ and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2021 Form 10-K filed on February 18, 2022. 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 2022 Quarter to the 2021 Quarter and the 2022 Period to the 2021 Period.

2325

•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 National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) Funds From Operations (“NAREIT FFO”), a non-GAAP supplemental measure to net income.

•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.

•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”.~~“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 properties. As of ~~June~~September 30, 2022, we owned approximately 8,900 residential apartment homes in the Washington, DC metro and ~~Southeastern~~Sunbelt regions. We also own and operate approximately 300,000 square feet of commercial space in the Washington, DC metro region.

During the third quarter of 2021, we sold twelve office properties (the “Office Portfolio”) and eight retail properties (the “Retail Portfolio”) (see note 3 to the condensed consolidated financial statements) for contract sale prices of $766.0 million and $168.3 million, respectively. Both the Office Portfolio and Retail Portfolio meet the criteria for classification as discontinued operations in our condensed consolidated financial statements. Our remaining office property, Watergate 600, does not meet the qualitative or quantitative criteria for a reportable segment (see note 10 to the condensed consolidated financial statements).

The dispositions of the Office Portfolio and Retail Portfolio are part of a strategic shift away from the commercial sector to the residential sector, which simplified our portfolio to one reportable segment (residential) (the “strategic transformation”). We used the net proceeds from the sales to fund the expansion of our residential platform through acquisitions in ~~Southeastern~~Sunbelt markets and to reduce our leverage by repaying outstanding debt. During the third and fourth quarters of 2021, we completed the acquisitions of two apartment communities in Georgia for contract purchase prices of $48.0 million and $106.0 million, respectively. The apartment communities have a combined total of 730 apartment homes. During the 2022 Period, we completed acquisitions of three apartment communities in Georgia with a combined total of 1,079 apartment homes for a total contract purchase price of $283.2 million. We believe the successful execution of this research-driven strategic shift will lead to greater, more sustainable growth.

In connection with this strategic transformation, we are redesigning our operating model for purposes of more efficiently and effectively supporting residential operations. This operating model redesign includes insourcing the property-level management activities currently performed by third-party management companies. Costs related to the strategic transformation, including the allocation of internal costs, consulting, advisory and termination benefits, are included in Transformation costs on our consolidated statements of operations. We recognized ~~$2.0~~$2.4 million and ~~$4.2~~$6.6 million of transformation costs, net of amounts capitalized, on the condensed consolidated statements of operations during the 2022 Quarter and 2022 Period, respectively, and anticipate incurring approximately ~~$6.3~~$3.0 - ~~$7.3~~$4.0 million of additional transformation costs during 2022. Community onboarding is expected to be completed in phases starting in October 2022. We expect to realize significant operational benefits from this operating model redesign and complete its implementation in 2023.

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In October 2022, the Company changed its name from Washington Real Estate Investment Trust to Elme Communities reflecting the Company’s continued transition into a focused multifamily company, and subsequent geographic expansion into Sunbelt markets. On October 20, 2022, the Company’s ticker symbol on the New York Stock Exchange changed from “WRE” to “ELME.”

Operating Results

Net loss, NOI and NAREIT FFO for the three months ended ~~June~~September 30, 2022 and 2021 were as follows (in thousands):


		Three Months Ended June 30,									Three Months Ended September 30,
		2022		2021		$ Change		% Change			2022		2021		$ Change		% Change
Net loss		$	(8,874)	$	(6,992)	$	(1,882)	26.9	%
Net (loss) income										Net (loss) income	$	(10,739)	$	31,319	$	(42,058)	(134.3)	%
NOI (1)	NOI (1)	$	32,796	$	26,553	$	6,243	23.5	%	NOI (1)	$	35,042	$	27,054	$	7,988	29.5	%
NAREIT FFO (2)	NAREIT FFO (2)	$	15,165	$	20,559	$	(5,394)	(26.2)	%	NAREIT FFO (2)	$	12,893	$	3,130	$	9,763	311.9	%
______________________________	______________________________									______________________________
(1) See page 27 of the MD&A for a reconciliation of NOI to net income.
(2) See page 37 of the MD&A for a reconciliation of NAREIT FFO to net income.
(1) See page 30 of the MD&A for a reconciliation of NOI to net income.										(1) See page 30 of the MD&A for a reconciliation of NOI to net income.
(2) See page 41 of the MD&A for a reconciliation of NAREIT FFO to net income.										(2) See page 41 of the MD&A for a reconciliation of NAREIT FFO to net income.

The increase in net loss is primarily due to gains on sale of real estate ($46.4 million) in 2021 and lower income from discontinued operations ($~~9.7~~7.2 million) due to the sales of the Office Portfolio and Retail Portfolio during 2021, higher depreciation and amortization expenses ($~~6.7~~5.4 million), higher ~~general and administrative~~transformation expenses ($1.4 ~~million), lower other income ($1.5~~ million) and higher property management expenses ($~~0.3~~0.4 million). These were partially offset by higher NOI ($~~6.2~~8.0 million), ~~the~~lower loss on ~~interest rate derivatives in 2021~~extinguishment of debt ($~~5.8~~7.8 million), lower general and administrative expenses ($1.5 million) and lower interest expense ($~~4.0 million) and lower transformation expenses ($1.8~~1.5 million).

The higher NOI is primarily due to the acquisitions of Assembly Eagles Landing ($1.2 million) and The Oxford ($~~0.3~~0.2 million) in 2021 and Carlyle of Sandy Spring ($~~0.8~~1.4 million), Marietta Crossing ($~~0.8~~1.1 million) and Alder Park ($~~0.5~~0.8 million) in 2022, higher NOI from same-store properties ($~~1.2~~2.3 million) and higher NOI from Trove ($~~1.1~~0.8 million), which achieved stabilization in the fourth quarter of 2021, and higher NOI at Watergate 600 ($~~0.3~~0.2 million). The higher same-store NOI was primarily due to higher rental ~~rates and occupancy.~~rates. Residential same-store average occupancy for our portfolio ~~increased~~decreased to 95.6% as of September 30, 2022 from 95.8% as of ~~June~~September 30, ~~2022 from 95.1% as of June 30, 2021, due to higher occupancy across the portfolio as the portfolio recovers from the COVID-19 pandemic.~~2021.

The ~~lower~~higher NAREIT FFO is primarily due to higher NOI ($8.0 million), lower loss on extinguishment of debt ($7.8 million), lower general and administrative expenses ($1.5 million) and lower interest expense ($1.5 million), partially offset by lower income from discontinued operations ~~net of depreciation and amortization~~ ($~~20.0 million), lower other income ($1.5~~7.2 million), higher ~~general and administrative~~transformation expenses ($1.4 million) and higher property management expenses ($0.3 million). These were partially offset by higher NOI ($6.2 million), the loss on interest rate derivatives in 2021 ($5.8 million), lower interest expense ($4.0 million) and lower transformation expenses ($1.80.4 million).

Investment Activity

Significant investment transactions during the 2022 Period included the following:

•Acquisition of Carlyle of Sandy Springs, a 389-unit apartment community in Sandy Springs, Georgia for a contract purchase price of $105.6 million during the first quarter of 2022.

•Acquisition of Marietta Crossing, a 420-unit apartment community in Marietta, Georgia for a contract purchase price of $107.9 million during the 2022 Quarter. We assumed a $42.8 million mortgage with this acquisition.

•Acquisition of Alder Park, a 270-unit apartment community in Smyrna, Georgia for a contract purchase price of $69.8 million during the 2022 Quarter. We assumed a $33.7 million mortgage with this acquisition.

Financing Activity

Significant financing transactions during the 2022 Period included the following:

•Issuance of 1.0 million common shares at a weighted average price per share of $26.27 for net proceeds of $26.9 million through our at-the-market program.

•In September 2022, we extinguished the aggregate $76.5 million of mortgages secured by Marietta Crossing and Alder Park through defeasance arrangements, recognizing an aggregate loss on extinguishment of debt of $4.9 million. We partially funded the defeasances with a $65.0 million draw on our unsecured revolving credit facility.

As of ~~June~~September 30, 2022, the interest rate on the $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) was one month LIBOR plus ~~1.79%~~0.85% and the facility fee was 0.20%. As of ~~July 25,~~October 24, 2022, ~~we had no outstanding balance and a full borrowing capacity of $700.0 million on~~ our Revolving Credit Facility ~~and $31.4 million~~has a borrowing capacity of ~~cash on hand.~~$634.0 million.

Capital Requirements

We have no debt maturities scheduled until the third quarter of 2023. We expect to have additional capital requirements as set forth on page 3 333 (Liquidity and Capital Resources -– Capital Requirements).

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Results of Operations

The discussion that follows is based on our consolidated results of operations for the 2022 Quarter and 2021 Quarter. The ability to compare one period to another is significantly affected by acquisitions and dispositions made during 2022 and 2021 (see note 3 to the consolidated financial statements).

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. 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 NOI to net loss follows.

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2022 Quarter Compared to 2021 Quarter

The following table reconciles NOI to net loss and provides the basis for our discussion of our consolidated results of operations and NOI in the 2022 Quarter compared to the 2021 Quarter. All amounts are in thousands, except percentage amounts.


		Three Months Ended June 30,									Three Months Ended September 30,
		2022		2021		$ Change		% Change			2022		2021		$ Change		% Change
Residential revenue:	Residential revenue:									Residential revenue:
Same-store portfolio	Same-store portfolio	$	37,198	$	35,321	$	1,877	5.3	%	Same-store portfolio	$	38,771	$	35,408	$	3,363	9.5	%
Acquisitions (1)	Acquisitions (1)	6,643		—		6,643		100.0	%	Acquisitions (1)	8,150		488		7,662		1,570.1	%
Development (2)	Development (2)	2,500		1,330		1,170		88.0	%	Development (2)	2,711		1,846		865		46.9	%
Non-residential (3)	Non-residential (3)	305		211		94		44.5	%	Non-residential (3)	257		304		(47)		(15.5)	%
Total	Total	46,646		36,862		9,784		26.5	%	Total	49,889		38,046		11,843		31.1	%
Residential expenses:	Residential expenses:									Residential expenses:
Same-store portfolio	Same-store portfolio	13,259		12,550		709		5.6	%	Same-store portfolio	14,031		13,003		1,028		7.9	%
Acquisitions	Acquisitions	3,049		—		3,049		100.0	%	Acquisitions	3,157		212		2,945		1,389.2	%
Development	Development	934		853		81		9.5	%	Development	941		846		95		11.2	%
Non-residential	Non-residential	70		65		5		7.7	%	Non-residential	69		85		(16)		(18.8)	%
Total	Total	17,312		13,468		3,844		28.5	%	Total	18,198		14,146		4,052		28.6	%
Residential NOI:	Residential NOI:									Residential NOI:
Same-store portfolio	Same-store portfolio	23,939		22,771		1,168		5.1	%	Same-store portfolio	24,740		22,405		2,335		10.4	%
Acquisitions	Acquisitions	3,594		—		3,594		100.0	%	Acquisitions	4,993		276		4,717		1,709.1	%
Development	Development	1,566		477		1,089		228.3	%	Development	1,770		1,000		770		77.0	%
Non-residential	Non-residential	235		146		89		61.0	%	Non-residential	188		219		(31)		(14.2)	%
Total	Total	29,334		23,394		5,940		25.4	%	Total	31,691		23,900		7,791		32.6	%
Other NOI (4)	Other NOI (4)	3,462		3,159		303		9.6	%	Other NOI (4)	3,351		3,154		197		6.2	%
Total NOI	Total NOI	32,796		26,553		6,243		23.5	%	Total NOI	35,042		27,054		7,988		29.5	%
Reconciliation to net loss:
Reconciliation to net (loss) income:										Reconciliation to net (loss) income:
Property management expenses	Property management expenses	(1,796)		(1,486)		(310)		20.9	%	Property management expenses	(1,916)		(1,499)		(417)		27.8	%
General and administrative expenses	General and administrative expenses	(7,656)		(6,325)		(1,331)		21.0	%	General and administrative expenses	(6,403)		(7,909)		1,506		(19.0)	%
Transformation costs	Transformation costs	(2,023)		(3,780)		1,757		(46.5)	%	Transformation costs	(2,399)		(1,016)		(1,383)		136.1	%
Depreciation and amortization	Depreciation and amortization	(24,039)		(17,303)		(6,736)		38.9	%	Depreciation and amortization	(23,632)		(18,252)		(5,380)		29.5	%

Interest expense	Interest expense	(6,156)		(10,158)		4,002		(39.4)	%	Interest expense	(6,582)		(8,106)		1,524		(18.8)	%
Loss on interest rate derivatives	Loss on interest rate derivatives	—		(5,760)		5,760		(100.0)	%	Loss on interest rate derivatives	—		(106)		106		(100.0)	%

Loss on extinguishment of debt										Loss on extinguishment of debt	(4,917)		(12,727)		7,810		(61.4)	%
Other income	Other income	—		1,522		(1,522)		(100.0)	%	Other income	68		231		(163)		(70.6)	%
Discontinued operations (5):	Discontinued operations (5):									Discontinued operations (5):
Income from operations of properties sold or held for sale	Income from operations of properties sold or held for sale	—		9,745		(9,745)		(100.0)	%	Income from operations of properties sold or held for sale	—		7,208		(7,208)		(100.0)	%

Net loss		$	(8,874)	$	(6,992)	$	(1,882)	26.9	%
Gain on sale of real estate, net										Gain on sale of real estate, net	—		46,441		(46,441)		(100.0)	%
Net (loss) income										Net (loss) income	$	(10,739)	$	31,319	$	(42,058)	(134.3)	%

______________________________

(1)Acquisitions:

2021: The Oxford and Assembly Eagles Landing

2022: Carlyle of Sandy Springs, Alder Park, Marietta Crossing

(2)Development/redevelopment: Trove, Riverside Development (multifamily development adjacent to Riverside Apartments)

(3)Non-residential: Includes revenues and expenses from retail operations at residential properties.

(4)Other (classified as continuing operations): Watergate 600

(5)Discontinued operations:

2021 Office - 1901 Pennsylvania Avenue, 515 King Street, 1220 19th Street, 1600 Wilson Boulevard, Silverline Center, Courthouse Square, 2000 M Street, 1140 Connecticut Avenue, Army Navy Club, 1775 Eye Street, Fairgate at Ballston and Arlington Tower

2021 Retail - Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S. Washington Street, Randolph Shopping Center, Montrose Shopping Center and Spring Valley Village

Real Estate Rental Revenue

recovery of operating expenses from our residents, (c) credit losses on lease related receivables, (d) revenue from leases of retail space at our apartment communities and (e) parking and other tenant charges.

Real estate rental revenue from same-store residential properties increased ~~$1.9~~$3.4 million, or ~~5.3%~~9.5%, to ~~$37.2~~$38.8 million for the 2022 Quarter, compared to ~~$35.3~~$35.4 million for the 2021 Quarter, primarily due to higher rental income ($~~1.9~~2.4 million), lower rent abatements ($~~0.5~~0.7 million) ~~and~~, higher move-in charges ($0.1 million)~~, partially offset by higher~~ and lower credit losses ($~~0.6~~0.1 million).

Real estate rental revenue from acquisitions increased ~~$6.6~~$7.7 million due to the acquisitions of Carlyle of Sandy Springs ($~~1.7~~1.8 million) during the first quarter of 2022, Marietta Crossing ($~~1.1~~1.8 million) and Alder Park ($~~0.8~~1.3 million) during the second quarter of 2022, ~~Quarter,~~ Assembly Eagles Landing ($~~2.1~~2.2 million) during the fourth quarter of 2021, and The Oxford ($~~0.9~~0.6 million) during the third quarter of 2021.

Real estate rental revenue from development properties increased ~~$1.2~~$0.9 million due to the continued lease-up of Trove, which reached stabilization in the fourth quarter of 2021.

Average occupancy for residential properties for the 2022 Quarter and 2021 Quarter was as follows:

June 30, 2022 June 30, 2021 % Change
Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total
95.8 % 94.4 % 95.5 % 95.1 % 49.9 % 92.5 % 0.7 % 44.5 % 3.0 %


September 30, 2022						September 30, 2021						% Change
Same-Store		Non-Same-Store		Total		Same-Store		Non-Same-Store		Total		Same-Store		Non-Same-Store		Total
95.6	%	94.3	%	95.3	%	95.8	%	82.0	%	94.7	%	(0.2)	%	12.3	%	0.6	%

The ~~increase~~decrease in same-store average occupancy was primarily due to lower average occupancy at Roosevelt Towers, Assembly Leesburg, The Paramount and Assembly Alexandria, partially offset by higher average occupancy at The Kenmore, ~~Park Adams, 3801 Connecticut Avenue, Assembly Germantown and Assembly Herndon, partially offset by lower average occupancy at The Ashby at McLean~~Clayborne Apartments and Maxwell.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for the 2022 Quarter and the 2021 Quarter were ~~37.1%~~36.5% and ~~36.5%~~37.2%, respectively.

Real estate expenses from same-store residential properties increased ~~$0.7~~$1.0 million, or ~~5.6%~~7.9%, to ~~$13.3~~$14.0 million for the 2022 Quarter, compared to ~~$12.6~~$13.0 million for the 2021 Quarter, primarily due to higher ~~real estate taxes~~repairs and maintenance ($0.3 million), ~~higher utilities~~administrative ($0.3 million), contract maintenance and supplies ($0.2 million) and ~~higher insurance~~real estate tax ($~~0.1~~0.2 million) expenses.

Real estate expenses from acquisitions increased ~~$3.0~~$2.9 million due to the acquisitions of Carlyle of Sandy Springs ($~~0.9~~0.4 million) during the first quarter of 2022, Marietta Crossing ($~~0.4~~0.7 million) and Alder Park ($~~0.3~~0.4 million) during the 2022 Quarter, Assembly Eagles Landing ($~~0.8~~1.0 million) during the fourth quarter of 2021, and The Oxford ($~~0.6~~0.4 million) during the third quarter of 2021.

Other NOI

Other NOI classified as continuing operations increased due to ~~lower~~higher NOI at Watergate 600 ($~~0.3~~0.2 million).

Other Income and Expenses

Property management expenses: ~~These expenses include costs directly related~~Increase of $0.4 million primarily due to ~~the third-party management of property operations and corporate management and other costs.~~acquisitions.

General and administrative expenses: ~~Increase~~Decrease of $1.5 million primarily due to corporate overhead no longer being allocated to office management due to the sales of the Office and Retail Portfolios in 2021 ($0.9 million), higher legal fees ($0.8 million) and higher office rent ($0.3 million) from the commencement of the corporate office lease during the third quarter of 2021. The increase was partially offset by lower short term incentive compensation expense ($~~0.7~~0.9 million) and lower share based compensation expense ($0.4 million) during the 2022 Quarter.

Transformation costs: ~~Decrease~~Increase of ~~$1.8~~$1.4 million during the 2022 Quarter primarily due to ~~lower~~higher consulting and professional fees ($~~2.1~~0.7 million) and ~~lower severance expense ($0.8 million), partially offset by higher software depreciation ($0.5 million),~~ higher employee time allocations ($~~0.3 million) and higher software costs ($0.2~~0.6 million).

Depreciation and amortization: Increase of $5.4 million primarily due to the acquisitions of Marietta Crossing ($~~1.3~~2.7 million), Alder Park ($~~0.6~~1.3 million), Carlyle of Sandy Springs ($~~2.4~~1.1 million), Assembly Eagles Landing ($~~1.9~~1.0 million) and ~~The Oxford ($0.5 million) and~~ higher

depreciation and amortization at Watergate 600 ($~~0.2~~0.3 million). The increase was partially offset by lower depreciation and amortization at same-store residential properties ($~~0.1~~0.9 million) and ~~Trove~~The Oxford ($0.1 million).

Interest Expense: Interest expense by debt type for the three months ended ~~June~~September 30, 2022 and 2021 was as follows (in thousands):


		Three Months Ended June 30,									Three Months Ended September 30,
Debt Type	Debt Type	2022		2021		$ Change		% Change		Debt Type	2022		2021		$ Change		% Change
Notes payable	Notes payable	$	5,055	$	9,475	$	(4,420)	(46.6)	%	Notes payable	$	5,127	7,523		$	(2,396)	(31.8)	%
Mortgage notes payable	Mortgage notes payable	490		—		490		100.0	%	Mortgage notes payable	524		—		524		100.0	%
Line of credit	Line of credit	701		854		(153)		(17.9)	%	Line of credit	931		765		166		21.7	%
Capitalized interest	Capitalized interest	(90)		(171)		81		(47.4)	%	Capitalized interest	—		(182)		182		(100.0)	%
Total	Total	$	6,156	$	10,158	$	(4,002)	(39.4)	%	Total	$	6,582	$	8,106	$	(1,524)	(18.8)	%

•Notes payable: Decrease primarily due to the prepayment of $300.0 million of unsecured notes during the third quarter of 2021 that had been scheduled to mature in October 2022 and the prepayment of a $150.0 million portion of the 2018 Term Loan during the third quarter of 2021.

•Mortgage notes payable: Increase due to assumed mortgages of $42.8 million and $33.7 million in the acquisitions of Marietta Crossing and Alder Park, respectively, during the second quarter of 2022. In September 2022, ~~Quarter.~~we extinguished the liabilities associated with these mortgages though defeasance arrangements.

•Line of credit: ~~Decrease~~Increase primarily due to nohigher weighted average borrowings of $22.4 million and a weighted average interest rate of 3.34% in the 2022 Quarter, as compared to weighted average borrowings of ~~$60.9~~$20.9 million and a weighted average interest rate of 1.1% during the 2021 Quarter.

•Capitalized interest: Decrease primarily due to ceasing capitalization of interest on spending related to the multifamily development adjacent to Riverside Apartments due to a pause in development activities resulting from macroeconomic uncertainty.

~~Other income~~Loss on extinguishment of debt: During the 2022 Quarter, we extinguished the liabilities associated with mortgage notes payable for Marietta Crossing and Alder Park through defeasance arrangements, recognizing aggregate losses on extinguishment of debt of $4.9 million. During the 2021 Quarter, we recognized ~~$1.5 million in other income related to~~ a ~~tax refund for an office property sold in 2018.~~

~~Loss on interest rate derivatives: We terminated five interest rate swap arrangements with an aggregate notional value of $150.0 million and recognized a $5.8~~$12.3 million loss on ~~interest rate derivatives during the 2021 Quarter (see note 6~~extinguishment of debt related to the ~~consolidated financial statements).~~prepayment of the $300.0 million of unsecured notes that were originally scheduled to mature in October 2022, a $0.2 million loss on extinguishment of debt related to the prepayment of a $150.0 million portion of the $250.0 million 2018 Term Loan and a $0.2 million loss on extinguishment of debt related to the renewal of our Revolving Credit Facility.

Discontinued operations

Income from operations of properties sold or held for sale: Decrease due to the sale of the Office Portfolio and the Retail Portfolio during the ~~third quarter~~2021 Quarter.

Gain on sale of ~~2021.~~real estate, net: The net gain during 2021 is due to the gain on sale of the Retail Portfolio ($57.7 million), partially offset by the loss on sale of the Office Portfolio ($11.2 million).

2932

2022 Period Compared to 2021 Period

The following tables reconcile NOI to net income (loss) and provide the basis for our discussion of our consolidated results of operations and NOI in the 2022 Period compared to the 2021 Period. All amounts are in thousands, except percentage amounts.


		Six Months Ended June 30,									Nine Months Ended September 30,
		2022		2021		$ Change		% Change			2022		2021		$ Change		% Change
Residential revenue:	Residential revenue:									Residential revenue:
Same-store portfolio	Same-store portfolio	$	73,931	$	70,233	$	3,698	5.3	%	Same-store portfolio	$	112,702	$	105,641	$	7,061	6.7	%
Acquisitions (1)	Acquisitions (1)	10,568		—		10,568		100.0	%	Acquisitions (1)	18,718		488		18,230		3,735.7	%
Development (2)	Development (2)	4,931		2,306		2,625		113.8	%	Development (2)	7,642		4,152		3,490		84.1	%
Non-residential (3)	Non-residential (3)	550		490		60		12.2	%	Non-residential (3)	807		794		13		1.6	%
Total	Total	89,980		73,029		16,951		23.2	%	Total	139,869		111,075		28,794		25.9	%
Residential expenses:	Residential expenses:									Residential expenses:
Same-store portfolio	Same-store portfolio	26,397		25,586		811		3.2	%	Same-store portfolio	40,428		38,589		1,839		4.8	%
Acquisitions	Acquisitions	4,892		—		4,892		100.0	%	Acquisitions	8,049		212		7,837		3,696.7	%
Development	Development	1,779		1,574		205		13.0	%	Development	2,720		2,420		300		12.4	%
Non-residential	Non-residential	145		134		11		8.2	%	Non-residential	214		219		(5)		(2.3)	%
Total	Total	33,213		27,294		5,919		21.7	%	Total	51,411		41,440		9,971		24.1	%
Residential NOI:	Residential NOI:									Residential NOI:
Same-store portfolio	Same-store portfolio	47,534		44,647		2,887		6.5	%	Same-store portfolio	72,274		67,052		5,222		7.8	%
Acquisitions	Acquisitions	5,676		—		5,676		100.0	%	Acquisitions	10,669		276		10,393		3,765.6	%
Development	Development	3,152		732		2,420		(330.6)	%	Development	4,922		1,732		3,190		184.2	%
Non-residential	Non-residential	405		356		49		13.8	%	Non-residential	593		575		18		3.1	%
Total	Total	56,767		45,735		11,032		24.1	%	Total	88,458		69,635		18,823		27.0	%
Other NOI (4)	Other NOI (4)	6,681		6,434		247		3.8	%	Other NOI (4)	10,032		9,588		444		4.6	%
Total NOI	Total NOI	63,448		52,169		11,279		21.6	%	Total NOI	98,490		79,223		19,267		24.3	%
Reconciliation to net loss:	Reconciliation to net loss:									Reconciliation to net loss:
Property management expenses	Property management expenses	(3,546)		(2,949)		(597)		(20.2)	%	Property management expenses	(5,462)		(4,448)		(1,014)		22.8	%
General and administrative expenses	General and administrative expenses	(14,595)		(11,929)		(2,666)		(22.3)	%	General and administrative expenses	(20,998)		(19,838)		(1,160)		5.8	%
Transformation costs	Transformation costs	(4,246)		(3,780)		(466)		(12.3)	%	Transformation costs	(6,645)		(4,796)		(1,849)		38.6	%
Depreciation and amortization	Depreciation and amortization	(46,239)		(34,290)		(11,949)		(34.8)	%	Depreciation and amortization	(69,871)		(52,542)		(17,329)		33.0	%

Interest expense	Interest expense	(11,806)		(20,281)		8,475		41.8	%	Interest expense	(18,388)		(28,387)		9,999		(35.2)	%
Loss on interest rate derivatives	Loss on interest rate derivatives	—		(5,760)		5,760		100.0	%	Loss on interest rate derivatives	—		(5,866)		5,866		(100.0)	%

Loss on extinguishment of debt										Loss on extinguishment of debt	(4,917)		(12,727)		7,810		(61.4)	%
Other income	Other income	386		2,806		(2,420)		86.2	%	Other income	454		3,037		(2,583)		(85.1)	%
Discontinued operations (5):	Discontinued operations (5):									Discontinued operations (5):
Income from operations of properties sold or held for sale	Income from operations of properties sold or held for sale	—		15,875		(15,875)		(100.0)	%	Income from operations of properties sold or held for sale	—		23,083		(23,083)		(100.0)	%

Net loss		$	(16,598)	$	(8,139)	$	(8,459)	(103.9)	%
Gain on sale of real estate, net										Gain on sale of real estate, net	—		46,441		(46,441)		(100.0)	%
Net (loss) income										Net (loss) income	$	(27,337)	$	23,180	$	(50,517)	(217.9)	%

______________________________

(1)Acquisitions:

2021: The Oxford and Assembly Eagles Landing

2022: Carlyle of Sandy Springs, Alder Park, Marietta Crossing

(2)Development/redevelopment:

Trove, Riverside Development (multifamily development adjacent to Riverside Apartments)

(3)Non-residential:

Includes revenues and expenses from retail operations at residential properties.

(4)Other (classified as continuing operations)

Watergate 600

(5)Discontinued operations:

2021 Retail - Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S. Washington Street, Randolph Shopping Center, Montrose Shopping Center and Spring Valley Village

Real Estate Rental Revenue

Real estate rental revenue from our apartment communities is comprised of (a) rent from operating leases of multifamily residential apartments with terms of approximately one year or less, recognized on a straight-line basis, (b) revenue from the recovery of operating expenses from our residents, (c) credit losses on lease related receivables, (d) revenue from leases of retail space at our apartment communities and (e) parking and other tenant charges.

Real estate rental revenue from same-store residential properties increased ~~$3.7~~$7.1 million, or ~~5.3%~~6.7%, to ~~$73.9~~$112.7 million for the 2022 Period, compared to ~~$70.2~~$105.6 million for the 2021 Period, primarily due to higher rental income ($~~3.2~~5.6 million), lower rent abatements ($~~0.6~~1.3 million) and higher ~~recoveries~~one time fees ($~~0.2~~0.4 million), partially offset by higher credit losses ($~~0.3~~0.2 million).

Real estate rental revenue from acquisitions increased ~~$10.6~~$18.2 million due to the acquisitions of Carlyle of Sandy Springs ($~~2.8~~4.6 million) during the first quarter of 2022, Marietta Crossing ($~~1.1~~2.9 million) and Alder Park ($~~0.8~~2.1 million) during the 2022 Quarter, Assembly Eagles Landing ($~~4.0~~6.1 million) during the fourth quarter of 2021 and The Oxford ($~~1.9~~2.5 million) during the third quarter of 2021.

Real estate rental revenue from development properties increased ~~$2.6~~$3.5 million due to the continued lease-up of the Trove development, which reached stabilization in the fourth quarter of 2021.

Average occupancy for residential properties for the 2022 Period and 2021 Period was as follows:

June 30, 2022 June 30, 2021 % Change
Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total
95.8 % 94.5 % 95.5 % 94.7 % 40.6 % 91.6 % 1.1 % 53.9 % 3.9 %


September 30, 2022						September 30, 2021						% Change
Same-Store		Non-Same-Store		Total		Same-Store		Non-Same-Store		Total		Same-Store		Non-Same-Store		Total
95.7	%	94.4	%	95.4	%	95.1	%	57.6	%	92.7	%	0.6	%	36.8	%	2.7	%

The increase in same-store average occupancy was primarily due to higher average occupancy at The Kenmore, 3801 Connecticut Avenue, Assembly Germantown, Assembly Herndon and Park Adams, ~~Assembly Germantown and Assembly Herndon.~~partially offset by lower average occupancy at The Ashby at McLean.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for the 2022 Period and 2021 Period were ~~36.9%~~36.8% and ~~37.4%~~37.3%, respectively.

Real estate expenses from same-store residential properties increased ~~$0.8~~$1.8 million, or ~~3.2%~~4.8%, to ~~$26.4~~$40.4 million for the 2022 Period, compared to ~~$25.6~~$38.6 million for the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to higher administrative ($0.5 million), real estate tax ($~~0.3~~0.5 million), utilities ($~~0.2~~0.3 million), insurance ($~~0.2~~0.3 million) and contract maintenance and supplies ($~~0.1~~0.2 million) expenses.

Real estate expenses from acquisitions increased ~~$4.9~~$7.8 million due to the acquisitions of Carlyle of Sandy Springs ($~~1.4~~1.9 million) during the first quarter of 2022, Marietta Crossing ($~~0.4~~1.1 million) and Alder Park ($~~0.3~~0.7 million) during the 2022 Quarter, Assembly Eagles Landing ($~~1.8~~2.7 million) during the fourth quarter of 2021, and The Oxford ($~~1.0~~1.4 million) during the ~~third quarter of 2021.~~2021 Quarter.

Other NOI

Other NOI classified as continuing operations increased due to higher NOI at Watergate 600 ($~~0.2~~0.4 million).

Other Income and Expenses

Property management expenses: ~~These expenses include costs directly related to the third-party management~~Increase of ~~property operations and corporate management and other costs, respectively. Increase~~$1.0 million primarily due to the acquisitions of The Oxford and Assembly Eagles Landing during the third and fourth quarters of 2021, the acquisitions of Carlyle of Sandy Springs, Marietta Crossing and Alder Park during the 2022 Period and Trove reaching stabilization during the fourth quarter of 2021.

General and administrative expenses: Increase of $1.2 million primarily due to corporate overhead no longer being allocated to office management due to the sales of the Office and Retail Portfolios in 2021 ($~~1.7~~2.0 million), higher legal fees ($~~0.8~~0.9 million), higher

office rent ($0.6 million) from the commencement of the corporate office lease during the third quarter of 2021 ~~higher accounting fees ($0.4 million)~~ and higher recruitment fees ($~~0.1~~0.2 million). The increase was partially offset by lower short term incentive compensation expense ($~~0.9~~1.8 million) and lower leasing expenses ($0.7 million) during the 2022 ~~Quarter.~~Period.

Transformation costs: Increase of ~~$0.5~~$1.8 million primarily due to higher ~~software depreciation ($1.0 million), higher~~ employee time allocations ($~~0.6~~1.2 million) related to the strategic transformation, higher software ~~costs~~depreciation ($~~0.3~~1.2 million) and higher ~~rebranding expenses~~software costs ($~~0.1~~0.6 million), partially offset by lower ~~consulting~~severance expenses ($~~1.0~~1.3 million) ~~and severance ($0.6 million) expenses.~~.

Depreciation and amortization: Increase of $17.3 million primarily due to the acquisitions of ~~Marietta Crossing~~Assembly Eagles Landing ($~~1.3 million), Alder Park ($0.6~~5.7 million), Carlyle of Sandy Springs ($~~3.6~~4.8 million), ~~Assembly Eagles Landing~~Marietta Crossing ($~~4.7~~4.0 million), Alder Park ($1.9 million) and The Oxford ($~~1.1~~1.0 million) and higher depreciation and amortization at Watergate 600 ($0.6 million). These increases were partially offset by lower depreciation and amortization at same-store residential properties ($~~0.3~~0.6 million) and ~~at Watergate 600~~Trove ($~~0.3~~0.1 million).

Interest Expense: Interest expense by debt type for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was as follows (in thousands):


		Six Months Ended June 30,									Nine Months Ended September 30,
Debt Type	Debt Type	2022		2021		$ Change		% Change		Debt Type	2022		2021		$ Change		% Change
Notes payable	Notes payable	$	10,204	$	18,961	$	(8,757)	(46.2)	%	Notes payable	$	15,331	$	26,484	$	(11,153)	(42.1)	%
Mortgage notes payable	Mortgage notes payable	490		—		490		100.0	%	Mortgage notes payable	1,014		—		1,014		100.0	%
Line of credit	Line of credit	1,395		1,699		(304)		(17.9)	%	Line of credit	2,326		2,464		(138)		(5.6)	%
Capitalized interest	Capitalized interest	(283)		(379)		96		(25.3)	%	Capitalized interest	(283)		(561)		278		(49.6)	%
Total	Total	$	11,806	$	20,281	$	(8,475)	(41.8)	%	Total	$	18,388	$	28,387	$	(9,999)	(35.2)	%

•Mortgage notes payable: Increase due to the assumed mortgages of $42.8 million and $33.7 million in the acquisitions of Marietta Crossing and Alder Park, respectively, during the 2022 Period. In September 2022, we extinguished the liabilities associated with these mortgages though defeasance arrangements.

•Line of credit: Decrease primarily due to nolower weighted average borrowings of $7.5 million and a weighted average interest rate of 3.34% in the 2022 Period, as compared to weighted average borrowings of ~~$59.5~~$46.5 million and weighted average interest rate of 1.1% during the 2021 Period.

•Capitalized interest: Decrease primarily due to ceased capitalization of interest on spending related to the multifamily development adjacent to Riverside Apartments due to a pause in development activities.

Loss on interest rate derivatives: We terminated five interest rate swap arrangements with an aggregate notional value of $150.0 million and recognized a ~~$5.8~~$5.9 million loss on interest rate derivatives during the 2021 Period (see note 6 to the consolidated financial statements).

Loss on extinguishment of debt: During the 2022 Period, we extinguished the liabilities associated with mortgage notes payable for Marietta Crossing and Alder Park through defeasance arrangements, recognizing aggregate losses on extinguishment of debt of $4.9 million. During the 2021 Period we recognized a $12.3 million loss on extinguishment of debt related to the prepayment of the $300.0 million of unsecured notes that were originally scheduled to mature in October 2022, a $0.2 million loss on extinguishment of debt related to the prepayment of a $150.0 million portion of the $250.0 million 2018 Term Loan and a $0.2 million loss on extinguishment of debt related to the renewal of our Revolving Credit Facility.

Other income: Income during the 2022 Period relates to real estate tax refunds ($0.4 million) received in Q1the first quarter of 2022 on previously sold properties. During the 2021 Period, we recognized $1.3 million in other income related to a legal settlement, ~~and $1.5~~$1.3 million related to a real estate tax refund for an office property sold in 2018 and $0.4 million related to a construction easement at a retail property during the 2021 Period.

Discontinued operations

Income from properties sold or held for sale: Decrease due to the sale of the Office Portfolio and the Retail Portfolio during the ~~third quarter of 2021.~~2021 Quarter.

3235

Gain on sale of real estate, net: The net gain during 2021 is due to the gain on sale of the Retail Portfolio ($57.7 million), partially offset by the loss on sale of the Office Portfolio ($11.2 million).

Liquidity and Capital Resources

We believe we will have adequate liquidity over the next twelve months to operate our business and to meet our cash requirements, including meeting our debt obligations, capital commitments and contractual obligations, as well as the payment of dividends, on-going transformational costs and funding possible growth opportunities. Through our Office Portfolio and Retail Portfolio sales in 2021, which had a combined contract sales price of approximately $934.3 million, we executed strategic transactions that will allow us to pursue residential expansion in ~~Southeastern~~Sunbelt markets, meet our debt obligations for the next twelve months, and pay a dividend on a quarterly basis. In connection with our strategic transformation, we are designing our operating model for purposes of more efficiently and effectively supporting residential operations. We recognized ~~$2.0~~$2.4 million and ~~$4.2~~$6.6 million of transformation costs, net of amounts capitalized, on the condensed consolidated statements of operations during the 2022 Quarter and 2022 Period, respectively, and anticipate incurring approximately ~~$6.3~~$3.0 - ~~$7.3~~$4.0 million of additional transformation costs during 2022. We expect to realize significant operational benefits from this operating model redesign and complete its implementation in 2023.

We also believe we have adequate liquidity beyond October 2022, with only ~~$100.0~~$143.0 million of scheduled debt maturities ~~within the next five years.~~prior to 2027. As of ~~July 25,~~October 24, 2022, we had cash and cash equivalents totaling ~~$31.4~~$19.7 million and ~~no outstanding balance and~~ a ~~full~~ borrowing capacity of ~~$700.0~~$634.0 million on our Revolving Credit Facility, resulting in a total liquidity position of ~~$731.4~~$653.7 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 2022 Quarter, our full-year 2022 capital requirements are summarized below:

•Funding dividends and distributions to our shareholders;

•Approximately ~~$32.5~~$25.0 - ~~$37.5~~$30.0 million to invest in our existing portfolio of operating assets;

•Approximately ~~$0.8~~$0.7 - $1.0 million to invest in our development and redevelopment projects; and

•Funding for potential property acquisitions throughout 2022, 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 2022. However, as a result of the uncertainty of the general market conditions in the greater Washington, DC metro and ~~Southeastern~~Sunbelt regions, economic conditions affecting the ability to attract and retain tenants, declines in our share price, unfavorable changes in the supply of competing properties, or our properties not performing as expected, we may not generate sufficient cash flow from operations and property sales or otherwise have access to capital on favorable terms, or at all. 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 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.

3337

As of ~~June~~September 30, 2022, our future debt principal payments are scheduled as follows (in thousands):


		Future Maturities of Debt												Future Maturities of Debt
Year	Year	Secured Debt			Unsecured Debt			Revolving Credit Facility		Total Debt		Average Interest Rate	Year	Unsecured Debt			Revolving Credit Facility		Total Debt		Average Interest Rate
2022	2022	—			$	—		$	—	$	—	—%	2022	$	—		$	—	$	—	—%
2023	2023	—			100,000		(2)	—		100,000		2.3%	2023	100,000		(1)	—		100,000		2.3%
2024	2024	—			—			—		—		—%	2024	—			—		—		—%
2025	2025	—			—			—		—		—%	2025	—			43,000		43,000		4.0%
2026	2026	—			—			—		—		—%	2026	—			—		—		—%

Thereafter	Thereafter	76,554		(1)	400,000			—		476,554		4.5%	Thereafter	400,000			—		400,000		4.5%
Scheduled principal payments	Scheduled principal payments	$	76,554		$	500,000		$	—	$	576,554	4.1%	Scheduled principal payments	$	500,000		$	43,000	$	543,000	4.1%

Net premiums/discounts	Net premiums/discounts	(4,936)			(127)			—		(5,063)			Net premiums/discounts	(122)			—		(122)
Loan costs, net of amortization	Loan costs, net of amortization	(42)			(2,738)			—		(2,780)			Loan costs, net of amortization	(2,631)			—		(2,631)
Total	Total	$	71,576		$	497,135		$	—	$	568,711	4.1%	Total	$	497,247		$	43,000	$	540,247	4.1%

______________________________

(1) ~~WashREIT assumed mortgages of $42.8 million and $33.7 million in the acquisitions of Marietta Crossing and Alder Park, respectively, during the 2022 Quarter. The mortgages mature on May 1, 2030.~~

~~(2)WashREIT~~Elme Communities entered into an interest rate swap to effectively fix a LIBOR plus 110 basis points floating interest rate to a 2.31% all-in fixed rate for the remaining $100.0 million portion of the 2018 Term Loan. The interest rates are fixed through the term loan maturity of July 2023.

The weighted average maturity for our debt is ~~6.9~~6.3 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 secured and 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.

Debt Covenants

Pursuant to the terms of our Revolving Credit Facility, 2018 Term Loan and secured 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 our Revolving Credit Facility, 2018 Term Loan, secured and 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.

As of ~~June~~September 30, 2022, we were in compliance with the covenants related to our Revolving Credit Facility, 2018 Term Loan, and unsecured notes.

Common Equity

We have authorized for issuance 150.0 million common shares, of which ~~87.4~~87.5 million shares were outstanding at ~~June~~September 30, 2022.


		Six Months Ended June 30,						Nine Months Ended September 30,
			2022		2020				2022		2021
Issuance of common shares	Issuance of common shares		1,032		24		Issuance of common shares		1,032		24
Weighted average price per share	Weighted average price per share		$	26.27	$	22.06	Weighted average price per share		$	26.27	$	22.06
Net proceeds	Net proceeds		$	26,851	$	467	Net proceeds		$	26,851	$	467

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.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Issuance of common shares	Issuance of common shares	10		22		20		45		Issuance of common shares	12		19		32		65
Weighted average price per share	Weighted average price per share	$	24.82	$	23.21	$	25.44	$	22.63	Weighted average price per share	$	21.15	$	23.73	$	24.01	$	22.97
Net proceeds	Net proceeds	$	254	$	489	$	518	$	1,009	Net proceeds	$	259	$	459	$	777	$	1,468

Preferred Equity

~~WashREIT’s~~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 ~~WashREIT~~Elme Communities an additional financing tool that may be used to raise capital for future acquisitions or other business purposes. As of ~~June~~September 30, 2022, no preferred shares were issued and outstanding.

3539

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):


		Six Months Ended June 30,				Change					Nine Months Ended September 30,				Change
		2022		2021		$		%			2022		2021		$		%
Net cash provided by operating activities	Net cash provided by operating activities	$	33,979	$	64,622	$	(30,643)	(47.4)	%	Net cash provided by operating activities	$	51,456	$	66,383	$	(14,927)	(22.5)	%
Net cash used in investing activities		(217,129)		(18,195)		(198,934)		1,093.3	%
Net cash (used in) provided by investing activities										Net cash (used in) provided by investing activities	(223,248)		823,241		(1,046,489)		(127.1)	%
Net cash used in financing activities	Net cash used in financing activities	(4,299)		(48,687)		44,388		(91.2)	%	Net cash used in financing activities	(52,555)		(589,512)		536,957		(91.1)	%

Net cash provided by operating activities decreased primarily due to the sales of the Office Portfolio and Retail Portfolio in 2021 (see note 3 to the consolidated financial statements) ~~and timing differences on the payment of certain liabilities.~~.

Net cash ~~used in~~(used in) provided by investing activities increased primarily due to the ~~acquisition~~sales of the Office and Retail portfolios during the 2021 Period and the acquisitions of Marietta Crossing, Alder Park and Carlyle of Sandy Springs during the 2022 Period.

Net cash used in financing activities decreased primarily due to a higher volume of debt repayments during the 2021 Period and higher net proceeds from equity issuances and lower dividends paid in the 2022 Period.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of ~~June~~September 30, 2022 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.

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Funds From Operations

NAREIT FFO is a widely used measure of operating performance for real estate companies. In its 2018 NAREIT FFO Whitepaper Restatement, NAREIT defined 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 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. NAREIT FFO is a non-GAAP measure.

The following table provides the calculation of our NAREIT FFO and a reconciliation of NAREIT FFO to net loss for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net loss		$	(8,874)	$	(6,992)	$	(16,598)	$	(8,139)
Net (loss) income										Net (loss) income	$	(10,739)	$	31,319	$	(27,337)	$	23,180
Adjustments:	Adjustments:									Adjustments:
Depreciation and amortization	Depreciation and amortization	24,039		17,303		46,239		34,290		Depreciation and amortization	23,632		18,252		69,871		52,542

Discontinued operations:	Discontinued operations:									Discontinued operations:
Depreciation and amortization	Depreciation and amortization	—		10,248		—		22,904		Depreciation and amortization	—		—		—		22,904

Gain on sale of depreciable real estate										Gain on sale of depreciable real estate	—		(46,441)		—		(46,441)

NAREIT FFO	NAREIT FFO	$	15,165	$	20,559	$	29,641	$	49,055	NAREIT FFO	$	12,893	$	3,130	$	42,534	$	52,185

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 and ~~six~~nine months ended ~~June~~September 30, 2022. We discuss the most critical estimates in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 18, 2022.

3741

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal material financial market risk to which we are exposed is interest rate risk. Our exposure to market risk for changes in interest rates relates primarily to refinancing long-term fixed rate obligations, the opportunity cost of fixed rate obligations in a falling interest rate environment and our variable rate line of credit.

The table below presents principal, interest and related weighted average interest rates by year of maturity, with respect to debt outstanding on ~~June~~September 30, 2022 (in thousands):


		2022			2023				2024			2025			2026			Thereafter			Total			Fair Value			2022			2023				2024			2025			2026			Thereafter			Total			Fair Value
Unsecured fixed rate debt	Unsecured fixed rate debt																									Unsecured fixed rate debt
Principal	Principal	$	—		$	100,000		(1)	$	—		$	—		$	—		$	400,000		$	500,000		$	471,730	Principal	$	—		$	100,000		(1)	$	—		$	—		$	—		$	400,000		$	500,000		$	459,725
Interest payments	Interest payments	$	10,150		$	19,340			$	17,995		$	17,995		$	17,995		$	69,369		$	152,844				Interest payments	$	576		$	19,340			$	17,995		$	17,995		$	17,995		$	69,369		$	143,270
Interest rate on debt maturities	Interest rate on debt maturities	—		%	2.3		%		—		%	—		%	—		%	4.5		%	4.1		%			Interest rate on debt maturities	—		%	2.3		%		—		%	—		%	—		%	4.5		%	4.1		%
Secured fixed rate debt
Principal (2)		$	—		$	—			$	—		$	—		$	—		$	76,554		$	76,554		$	76,554
Interest payments		$	1,609		$	2,397			$	2,404		$	2,397		$	2,397		$	7,986		$	19,190
Interest rate on debt maturities		—		%	—		%		—		%	—		%	—		%	3.2		%	3.2		%

Unsecured variable rate debt																										Unsecured variable rate debt
Principal																										Principal	$	—		$	—			$	—		$	43,000		$	—		$	—		$	43,000		$	43,000
Variable interest rate on debt maturities																										Variable interest rate on debt maturities											4.0		%							4.0		%

(1) Represents a $100.0 million term loan with a floating interest rate. The interest rate on the $100.0 million term loan is effectively fixed by interest rate swap arrangements at 2.31%.

~~(2) Excludes net discounts of $4.9 million as of June 30, 2022.~~

We enter into interest rate swap arrangements designated and qualifying as cash flow hedges to reduce our exposure to the variability in future cash flows attributable to changes in interest rates. Derivative instruments expose us to credit risk in the event of non-performance by the counterparty under the terms of the interest rate hedge agreement. We believe that we minimize our credit risk on these transactions by dealing with major, creditworthy financial institutions. As part of our ongoing control procedures, we monitor the credit ratings of counterparties and our exposure to any single entity, thus minimizing our credit risk concentration.

The following table sets forth information pertaining to interest rate swap contracts in place as of ~~June~~September 30, 2022 and December 31, 2021 and their respective fair values (in thousands):

Notional Amount

Floating Index Rate

Fair Value as of:

Notional Amount

Floating Index Rate

Fair Value as of:

Fixed Rate

Effective Date

Expiration Date

June 30, 2022

December 31, 2021

Fixed Rate

Effective Date

Expiration Date

September 30, 2022

December 31, 2021

100,000

1.205%

One-Month USD-LIBOR

3/31/2017

7/21/2023

2,021

(821)

100,000

1.205%

One-Month USD-LIBOR

3/31/2017

7/21/2023

2,463

(821)

We enter into debt obligations primarily to support general corporate purposes including acquisition of real estate properties, capital improvements and working capital needs.

As the majority of our outstanding debt is long-term, fixed rate debt, our interest rate risk has not changed significantly from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 18, 2022. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Debt Financing.”

3842

ITEM 4: CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There have not been any changes in ~~WashREIT’s~~Elme Communities’ internal control over financial reporting (as defined by Rule 13a-15(f)) that occurred during the period covered by the report that have materially affected, or are reasonably likely to materially affect, ~~WashREIT’s~~Elme Communities’ internal control over financial reporting.

3943

PART II

OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

None.

ITEM 1A: RISK FACTORS

There have been no material changes from the risk factors previously disclosed in response to “Part I - Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 18, 2022.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~A summary of our repurchases of shares of our common stock for the three months ended June 30, 2022 was as follows:~~
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased (1)
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased
April 1 - April 30, 2022 — $ — N/A N/A
May 1 - May 31, 2022 — — N/A N/A
June 1 - June 30, 2022 48,300 24.00 N/A N/A
Total 48,300 $ 24.00 N/A N/A
~~______________________________~~None.

~~(1)~~ Represents restricted shares surrendered by employees to WashREIT to satisfy such employees' applicable statutory minimum tax withholding obligations in connection with the vesting of restricted shares.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: MINE SAFETY DISCLOSURES

None.

ITEM 5: OTHER INFORMATION

None.

4044

ITEM 6: EXHIBITS

Incorporated by Reference
Exhibit
Number Exhibit Description Form File
Number Exhibit Filing Date Filed
Herewith
3.1
Articles of Amendment and Restatement of Declaration of Trust of the Company, as amended
10-K 001-06622 3.1 2/16/2021
3.2
Amended and Restate d Bylaws of Washington Real Estate Investment Trust, as adopted on February 8, 2017
10-Q 001-06622 3.2 7/31/2017
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (“the Exchange Act”)
X
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
X
31.3
Certification of the Chief Accounting Officer pursuant to Rule 13a-14(a) of the Exchange Act
X
32
Certification of the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X
101.SCH Inline XBRL Taxonomy Extension Schema Document X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X
104 Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File
Number

Exhibit

Filing Date

Filed
Herewith

3.1

Articles of Amendment and Restatement of Declaration of Trust of the Company, as amended

10-K

001-06622

3.1

2/16/2021

3.2

Articles of Amendment to the Articles of Amendment and Restatement, effective as of October 17, 2022

8-K

001-06622

3.1

10/17/2022

3.3

Amended and Restated Bylaws of Elme Communities, as amended

8-K

001-06622

3.2

10/17/2022

31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (“the Exchange Act”)

31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act

31.3

Certification of the Chief Accounting Officer pursuant to Rule 13a-14(a) of the Exchange Act

Certification of the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

4145

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


~~WASHINGTON REAL ESTATE INVESTMENT TRUST~~ELME COMMUNITIES

						/s/ Paul T. McDermott
						Paul T. McDermott
						President and Chief Executive Officer

						/s/ Stephen E. Riffee
						Stephen E. Riffee
						Executive Vice President and Chief Financial Officer (Principal Financial Officer)

						/s/ W. Drew Hammond
						W. Drew Hammond
						Vice President, Chief Accounting Officer and Treasurer (Principal Accounting Officer)

DATE: ~~July 29,~~October 28, 2022

4246


June 30, 2022						June 30, 2021						% Change
Same-Store		Non-Same-Store		Total		Same-Store		Non-Same-Store		Total		Same-Store		Non-Same-Store		Total
95.8	%	94.4	%	95.5	%	95.1	%	49.9	%	92.5	%	0.7	%	44.5	%	3.0	%