ELME Elme Communities

Elme Communities (the “Company”) (NYSE: ELME), a multifamily REIT with communities in the Washington, DC metro area and the Atlanta metro area, reported financial and operating results today for the quarter ended September 30, 2024:

Financial Results

• Net loss was $3.0 million, or $0.03 per diluted share
• NAREIT FFO was $20.5 million, or $0.23 per diluted share
• Core FFO was $20.7 million, or $0.23 per diluted share
• Net Operating Income (NOI) was $38.8 million

Operational Highlights

• Same-store multifamily NOI increased by 2.3% compared to the prior year quarter
• Effective blended Lease Rate Growth was 2.1% for our Same-Store Portfolio during the quarter, comprised of effective new Lease Rate Growth of (1.5)% and effective renewal Lease Rate Growth of 4.5%
• Average Effective Monthly Rent Per Home increased 2.4% compared to the prior year quarter for our Same-Store Portfolio
• Same-store Retention was 66%, up 5% compared to the prior year quarter
• Same-store multifamily Average Occupancy was 95.2% during the quarter, down 0.2% compared to the prior year quarter and up 0.6% compared to the prior quarter.
• Same-store multifamily Ending Occupancy was 94.8%, down 0.4% compared to the prior year quarter and down 0.7% compared to the prior quarter.

Liquidity Position

• Available liquidity was approximately $337 million as of September 30, 2024, consisting of availability under the Company's revolving credit facility and cash on hand
• Annualized third quarter Net Debt to Adjusted EBITDA ratio was 5.6x
• The Company has a strong balance sheet with only $125 million of debt maturing before 2028 and no secured debt

“We continue to experience solid demand across our Washington Metro portfolio, resulting in a 0.6% sequential improvement in same-store occupancy,” said Paul T. McDermott, President and CEO. “In Atlanta, while we are achieving strong retention and renewal rates, our third quarter performance reflects the combined impacts of elevated supply and slower than expected improvement in bad debt. Looking ahead to 2025, we expect to deliver meaningful improvement in our Atlanta performance due to lower bad debt and we anticipate increasingly favorable supply/demand dynamics thereafter."

Third Quarter Operating Results

• Multifamily same-store NOI - Same-store NOI increased 2.3% compared to the corresponding prior year period driven primarily by higher base rent. Average Occupancy for the quarter decreased 20 basis points from the prior year period to 95.2%.
• Other same-store NOI - The Other same-store portfolio is comprised of one asset, Watergate 600. Other same-store NOI decreased by 0.9% compared to the corresponding prior year period due to higher operating expenses. Watergate 600 was 86.0% occupied and leased at quarter end.

Guidance

“We are pleased with the strong performance from our Washington Metro portfolio and how our teams have effectively managed operating expenses,” said Steven Freishtat, Executive Vice President and CFO. “However, progress on reducing bad debt across our Atlanta portfolio was slower than anticipated for the quarter. As a result, we are tightening our guidance range while reiterating the midpoint of Core FFO guidance.”

The Company is tightening its Core FFO guidance range for 2024 to $0.92 to $0.94 per fully diluted share. The following assumptions are included in the Core FFO guidance for 2024:

Full Year 2024 Outlook on Key Assumptions and Metrics

• Same-store multifamily NOI growth is now expected to range from 1.0% to 1.5%
• Non-same-store multifamily NOI is now expected to range from $5.35 million to $5.75 million
• Other same-store NOI, which consists solely of Watergate 600, is now expected to range from $12.5 million to $12.75 million
• Property management expense is expected to range from $8.5 million to $9.0 million
• G&A, net of core adjustments, is now expected to range from $24.4 million to $25.1 million
• Interest expense is now expected to range from $37.5 million to $38.0 million
• Does not consider any potential future acquisitions or dispositions in 2024

Full Year 2024
Core FFO per diluted share	$0.92 - $0.94
Net Operating Income Assumptions
Same-store multifamily NOI growth (a)	1.0% - 1.5%
Non-same-store multifamily NOI (b)	$5.35 million - $5.75 million
Other same-store NOI (c)	$12.5 million - $12.75 million
Expense Assumptions
Property management expense	$8.5 million - $9.0 million
G&A, net of core adjustments	$24.4 million - $25.1 million
Interest expense	$37.5 million - $38.0 million
(a) Includes revenue and expenses from retail operations at multifamily communities
(b) Includes Elme Druid Hills and Riverside Development
(c) Consists of Watergate 600

Elme Communities' 2024 Core FFO guidance and outlook are based on a number of factors, many of which are outside the Company's control, including economic factors such as inflation and interest rate changes, and all of which are subject to change. Elme Communities may change the guidance provided during the year as actual and anticipated results vary from these assumptions, but Elme Communities undertakes no obligation to do so.

2024 Guidance Reconciliation Table

A reconciliation of projected net loss per diluted share to projected Core FFO per diluted share for the full year ending December 31, 2024 is as follows:

	Low			High
Net loss per diluted share		$(0.16)			$(0.14)
Real estate depreciation and amortization		1.09			1.09
NAREIT FFO per diluted share		0.93			0.95
Core adjustments		(0.01)			(0.01)
Core FFO per diluted share		$0.92			$0.94

Dividends

On October 3, 2024, Elme Communities paid a quarterly dividend of $0.18 per share.

Elme Communities announced today that its Board of Trustees has declared a quarterly dividend of $0.18 per share to be paid on January 6, 2025 to shareholders of record on December 19, 2024.

Presentation Webcast and Conference Call Information

The Third Quarter 2024 Earnings Call is scheduled for Tuesday, November 5, 2024 at 10:00 A.M. Eastern Time. There will also be a webcast presentation with slides. Conference Call access information is as follows:

USA Toll Free Number:	1-888-506-0062
International Toll Number:	1-973-528-0011
Conference ID:	848746

The instant replay of the Earnings Call will be available until Tuesday, November 19, 2024. Instant replay access information is as follows:

USA Toll Free Number:	1-877-481-4010
International Toll Number:	1-919-882-2331
Conference ID:	51315

The live on-demand webcast of the Conference Call with presentation slides will be available on the Investor section of Elme Communities' website at www.elmecommunities.com. Online playback of the webcast and presentation slides will be available following the Conference Call.

About Elme Communities

Elme Communities is committed to elevating what home can be for middle-income renters by providing a higher level of quality, service, and experience. The Company is a multifamily real estate investment trust that owns and operates approximately 9,400 apartment homes in the Washington, DC metro and the Atlanta metro regions, and owns approximately 300,000 square feet of commercial space. Focused on providing quality, affordable homes to a deep, solid, and underserved base of mid-market demand, Elme Communities is building long-term value for shareholders.

Note: Elme Communities' press releases and supplemental financial information are available on the Company website at www.elmecommunities.com or by contacting Investor Relations at (202) 774-3200.

Forward Looking Statements

Certain statements in our earnings release and on our conference call are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and 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 Elme Communities to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Additional factors which may cause the actual results, performance, or achievements of Elme Communities to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to: the risks associated with ownership of real estate in general and our real estate assets in particular; our ability to work through elevated eviction backlogs; our ability to benefit from core growth drivers across our Washington Metro communities and end the year in a strong position; our ability to ramp up renovations over the course of this year; our ability to achieve above market growth after 2024 driven by renovations; the economic health of the areas in which our properties are located, particularly with respect to the greater Washington, DC metro and Sunbelt regions; risks associated with our ability to execute on our strategies, including new strategies with respect to our operations and our portfolio, including the acquisition of apartment homes in the Sunbelt markets and our ability to realize any anticipated operational benefits from our internalization of community management functions; the risk of failure to enter into and/or complete acquisitions and dispositions; changes in the composition of our portfolio; reductions in or actual or threatened changes to the timing of federal government spending; the economic health of our residents; the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdowns or recessions and geopolitical conflicts); risks related to our ability to control our expenses if revenues decrease; compliance with applicable laws and corporate social responsibility goals, including those concerning the environment and access by persons with disabilities; risks related to 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; our ability to capture the impacts from normalizing bad debt; the risks related to our organizational structure and limitations of share ownership; failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs; and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2023 Form 10-K filed on February 16, 2024. 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.

This Earnings Release also includes certain forward-looking non-GAAP information. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss) as a measure of our operating performance. Please see the following pages for the corresponding definitions and reconciliations of such non-GAAP financial measures.

ELME COMMUNITIES AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
(Unaudited)
	Three Months Ended September 30,								Nine Months Ended September 30,
OPERATING RESULTS		2024				2023				2024				2023
Revenue
Real estate rental revenue	$	61,055			$	56,651			$	180,671			$	169,059
Expenses
Property operating and maintenance (1)		14,095				12,696				41,555				38,360
Real estate taxes and insurance (1)		8,163				7,101				24,404				21,216
Property management		2,235				1,935				6,628				5,882
General and administrative		6,354				6,370				18,688				19,891
Transformation costs		—				985				—				6,339
Depreciation and amortization		23,474				21,904				72,312				64,855
Real estate impairment		—				41,860				—				41,860
		54,321				92,851				163,587				198,403
Real estate operating income (loss)		6,734				(36,200	)			17,084				(29,344	)
Other income (expense)
Interest expense		(9,557	)			(7,418	)			(28,435	)			(21,043	)
Loss on extinguishment of debt		(147	)			—				(147	)			(54	)
Other income		—				—				1,410				569
		(9,704	)			(7,418	)			(27,172	)			(20,528	)
Net loss	$	(2,970	)		$	(43,618	)		$	(10,088	)		$	(49,872	)
Net loss	$	(2,970	)		$	(43,618	)		$	(10,088	)		$	(49,872	)
Depreciation and amortization		23,474				21,904				72,312				64,855
Real estate impairment		—				41,860				—				41,860
NAREIT funds from operations	$	20,504			$	20,146			$	62,224			$	56,843
Non-cash loss on extinguishment of debt	$	147			$	—			$	147			$	54
Tenant improvements and incentives, net of reimbursements		—				—				—				(10	)
Leasing commissions capitalized		(30	)			—				(30	)			(56	)
Recurring capital improvements		(2,284	)			(1,490	)			(7,199	)			(5,950	)
Straight-line rents, net		26				(74	)			66				(160	)
Non-real estate depreciation & amortization of debt costs		1,326				1,348				3,755				3,891
Amortization of lease intangibles, net		(201	)			(155	)			(526	)			(570	)
Amortization and expensing of restricted share and unit compensation		1,578				1,432				3,713				3,966
Adjusted funds from operations	$	21,066			$	21,207			$	62,150			$	58,008
______________________________
(1) Certain immaterial amounts in prior periods have been reclassified to conform with the current period presentation.

		Three Months Ended September 30,								Nine Months Ended September 30,
Per share data:			2024				2023				2024				2023
Net loss	(Basic)	$	(0.03	)		$	(0.50	)		$	(0.12	)		$	(0.57	)
	(Diluted)	$	(0.03	)		$	(0.50	)		$	(0.12	)		$	(0.57	)
NAREIT FFO	(Basic)	$	0.23			$	0.23			$	0.71			$	0.65
	(Diluted)	$	0.23			$	0.23			$	0.70			$	0.64
Dividends paid		$	0.18			$	0.18			$	0.54			$	0.54
Weighted average shares outstanding - basic			87,930				87,759				87,909				87,717
Weighted average shares outstanding - diluted			87,930				87,759				87,909				87,717
Weighted average shares outstanding - diluted (for NAREIT FFO)			87,994				87,799				87,956				87,809

ELME COMMUNITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
	September 30, 2024				December 31, 2023
Assets
Land	$	383,808			$	384,097
Income producing property		1,986,596				1,960,020
		2,370,404				2,344,117
Accumulated depreciation and amortization		(595,533	)			(528,024	)
Net income producing property		1,774,871				1,816,093
Properties under development or held for future development		30,980				30,980
Total real estate held for investment, net		1,805,851				1,847,073
Cash and cash equivalents		4,840				5,984
Restricted cash		2,358				2,554
Rents and other receivables		12,676				17,642
Prepaid expenses and other assets		27,434				26,775
Total assets	$	1,853,159			$	1,900,028
Liabilities
Notes payable, net	$	522,914			$	522,345
Line of credit		168,000				157,000
Accounts payable and other liabilities		36,295				38,997
Dividend payable		15,906				15,863
Advance rents		4,801				5,248
Tenant security deposits		6,270				6,225
Total liabilities		754,186				745,678
Equity
Shareholders' equity
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 shares authorized: 88,010 and 87,867 shares issued and outstanding, as of September 30, 2024 and December 31, 2023, respectively		880				879
Additional paid in capital		1,739,319				1,735,530
Distributions in excess of net income		(627,186	)			(569,391	)
Accumulated other comprehensive loss		(14,323	)			(12,958	)
Total shareholders' equity		1,098,690				1,154,060
Noncontrolling interests in subsidiaries		283				290
Total equity		1,098,973				1,154,350
Total liabilities and equity	$	1,853,159			$	1,900,028

The following tables contain reconciliations of net loss to NOI and same-store NOI for the periods presented (in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
		2024				2023				2024				2023
Net loss	$	(2,970	)		$	(43,618	)		$	(10,088	)		$	(49,872	)
Adjustments:
Property management expense		2,235				1,935				6,628				5,882
General and administrative expense		6,354				6,370				18,688				19,891
Transformation costs		—				985				—				6,339
Real estate depreciation and amortization		23,474				21,904				72,312				64,855
Real estate impairment		—				41,860				—				41,860
Interest expense		9,557				7,418				28,435				21,043
Loss on extinguishment of debt		147				—				147				54
Other income		—				—				(1,410	)			(569	)
Total Net Operating Income (NOI)	$	38,797			$	36,854			$	114,712			$	109,483
Multifamily NOI:
Same-store Portfolio	$	34,414			$	33,654			$	100,950			$	99,659
Acquisitions		1,254				36				4,215				36
Development		(61	)			(56	)			(175	)			(168	)
Total		35,607				33,634				104,990				99,527
Other NOI (Watergate 600)		3,190				3,220				9,722				9,956
Total NOI	$	38,797			$	36,854			$	114,712			$	109,483

The following table contains a reconciliation of net loss to core funds from operations for the periods presented (in thousands, except per share data):

		Three Months Ended September 30,								Nine Months Ended September 30,
			2024				2023				2024				2023
Net loss		$	(2,970	)		$	(43,618	)		$	(10,088	)		$	(49,872	)
Add:
Real estate depreciation and amortization			23,474				21,904				72,312				64,855
Real estate impairment			—				41,860				—				41,860
NAREIT funds from operations			20,504				20,146				62,224				56,843
Add:
Structuring expenses			—				—				60				60
Loss on extinguishment of debt			147				—				147				54
Severance expense			13				—				77				394
Transformation costs			—				985				—				6,339
Write-off of pursuit costs			—				—				—				49
Relocation expense			—				306				—				626
Gain on land easements			—				—				(1,410	)			—
Core funds from operations		$	20,664			$	21,437			$	61,098			$	64,365
		Three Months Ended September 30,								Nine Months Ended September 30,
Per share data:			2024				2023				2024				2023
NAREIT FFO	(Basic)	$	0.23			$	0.23			$	0.71			$	0.65
	(Diluted)	$	0.23			$	0.23			$	0.70			$	0.64
Core FFO	(Basic)	$	0.23			$	0.24			$	0.69			$	0.73
	(Diluted)	$	0.23			$	0.24			$	0.69			$	0.73
Weighted average shares outstanding - basic			87,930				87,759				87,909				87,717
Weighted average shares outstanding - diluted (for NAREIT and Core FFO)			87,994				87,799				87,956				87,809

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
		2024				2023				2024				2023
Net loss	$	(2,970	)		$	(43,618	)		$	(10,088	)		$	(49,872	)
Add/(deduct):
Interest expense		9,557				7,418				28,435				21,043
Real estate depreciation and amortization		23,474				21,904				72,312				64,855
Real estate impairment		—				41,860				—				41,860
Non-real estate depreciation		160				291				468				728
Severance expense		13				—				77				394
Transformation costs		—				985				—				6,339
Relocation expense		—				306				—				626
Structuring expenses		—				—				60				60
Loss on extinguishment of debt		147				—				147				54
Write-off of pursuit costs		—				—				—				49
Gain on land easements		—				—				(1,410	)			—
Adjusted EBITDA	$	30,381			$	29,146			$	90,001			$	86,136

Non-GAAP Financial Measures

Adjusted EBITDA is earnings before interest expense, taxes, depreciation, amortization, gain/loss on sale of real estate, casualty gain/loss, real estate impairment, gain/loss on extinguishment of debt, gain/loss on interest rate derivatives, severance expense, acquisition expenses, gain from non-disposal activities, adjustment to deferred taxes, write-off of pursuit costs, Transformation Costs and gain on land easements. Adjusted EBITDA is included herein because we believe it helps investors and lenders understand our ability to incur and service debt and to make capital expenditures. Adjusted EBITDA is a non-GAAP and non-standardized measure and may be calculated differently by other REITs.

Adjusted Funds From Operations (“AFFO”) is a non-GAAP measure. It is calculated by subtracting from FFO (1) recurring improvements, tenant improvements and leasing costs, that are capitalized and amortized and are necessary to maintain our properties and revenue stream (excluding items contemplated prior to acquisition or associated with development / redevelopment of a property) and (2) straight line rents, then adding (3) non-real estate depreciation and amortization, (4) non-cash fair value interest expense and (5) amortization of restricted share compensation, then adding or subtracting the (6) amortization of lease intangibles, (7) real estate impairment and (8) non-cash gain/loss on extinguishment of debt, as appropriate. AFFO is included herein, because we consider it to be a performance measure of a REIT’s ability to incur and service debt and to distribute dividends to its shareholders. AFFO is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.

Core Adjusted Funds From Operations (“Core AFFO”) is calculated by adjusting AFFO for the following items (which we believe are not indicative of the performance of Elme Communities' operating portfolio and affect the comparative measurement of Elme Communities' operating performance over time): (1) gains or losses on extinguishment of debt and gains or losses on interest rate derivatives, (2) expenses related to acquisition and structuring activities, (3) non-share-based executive transition costs, severance expenses and other expenses related to corporate restructuring and executive retirements or resignations, (4) property impairments, casualty gains and losses, and gains or losses on sale not already excluded from Core AFFO, as appropriate, (5) relocation expense, (6) Transformation Costs, (7) write-off of pursuit costs, (8) adjustment to deferred taxes and (9) gain on land easements. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, Core AFFO serves as a useful, supplementary performance measure of Elme Communities' ability to incur and service debt, and distribute dividends to its shareholders. Core AFFO is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.

Core Funds From Operations (“Core FFO”) is calculated by adjusting NAREIT FFO for the following items (which we believe are not indicative of the performance of Elme Communities' operating portfolio and affect the comparative measurement of Elme Communities' operating performance over time): (1) gains or losses on extinguishment of debt and gains or losses on interest rate derivatives, (2) expenses related to acquisition and structuring activities, (3) executive transition costs, severance expenses and other expenses related to corporate restructuring and executive retirements or resignations, (4) property impairments, casualty gains and losses, and gains or losses on sale not already excluded from NAREIT FFO, as appropriate, (5) relocation expense, (6) Transformation Costs, (7) write-off of pursuit costs, (8) adjustment to deferred taxes and (9) gain on land easements. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, Core FFO serves as a useful, supplementary measure of Elme Communities' ability to incur and service debt, and distribute dividends to its shareholders. Core FFO is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.

NAREIT Funds From Operations (“FFO”) is defined by the 2018 National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) FFO White Paper Restatement, as net income (computed in accordance with generally accepted accounting principles (“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 real estate investment trusts (“REITs”), and believe it is a useful measure 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.

Net Debt to Adjusted EBITDA represents net debt as of period end divided by adjusted EBITDA for the period, as annualized (i.e. three months periods are multiplied by four) or on a trailing 12 month basis. We define net debt as the total outstanding debt reported as per our consolidated balance sheets less cash and cash equivalents at the end of the period.

Net Operating Income (“NOI”), defined as real estate rental revenue less direct real estate operating expenses, is a non-GAAP measure. NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain or loss on sale, if any), plus interest expense, depreciation and amortization, lease origination expenses, general and administrative expenses, acquisition costs, real estate impairment, casualty gain and losses and gain or loss on extinguishment of debt. NOI does not include management expenses, which consist of corporate property management costs and property management fees paid to third parties. NOI is the primary performance measure we use to assess the results of our operations at the property level. We believe that NOI is a useful performance measure because, when compared across periods, it reflects the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income. NOI excludes certain components from net income in order to provide results more closely related to a property’s results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. As a result of the foregoing, we provide NOI as a supplement to net income, calculated in accordance with GAAP. NOI does not represent net income or income from continuing operations calculated in accordance with GAAP. As such, NOI should not be considered an alternative to these measures as an indication of our operating performance.

Other Definitions

Average Effective Monthly Rent Per Home represents the average of effective rent (net of concessions) for in-place leases plus the market rent for vacant homes, divided by the total number of homes. We believe Average Effective Monthly Rent Per Home is a useful metric in evaluating the average pricing of our homes. It is a component of Residential Revenue, which is used to calculate our NOI. It does not represent actual rental revenue collected per unit.

Average Occupancy is based on average daily occupied apartment homes as a percentage of total apartment homes.

Current Strategy represents the class of each community in our portfolio based on a set of criteria. Our strategies consist of the following subcategories: Class A, Class A-, Class B Value-Add and Class B. A community's class is dependent on a variety of factors, including its vintage, site location, amenities and services, rent growth drivers and rent relative to the market.

• Class A communities are recently-developed, well-located, have competitive amenities and services and command average rental rates well above market median rents.
• Class A- communities have been developed within the past 20 years and feature operational improvements and unit upgrades and command rents at or above median market rents.
• Class B Value-Add communities are over 20 years old but feature operational improvements and strong potential for unit renovations. These communities command average rental rates below median market rents for units that have not been renovated.
• Class B communities are over 20 years old, feature operational improvements and command average rental rates below median market rents.

Debt Service Coverage Ratio is computed by dividing earnings attributable to the controlling interest before interest expense, taxes, depreciation, amortization, real estate impairment, gain on sale of real estate, gain/loss on extinguishment of debt, severance expense, relocation expense, acquisition and structuring expenses, gain/loss from non-disposal activities and gain on land easements by interest expense (including interest expense from discontinued operations) and principal amortization.

Debt to Total Market Capitalization is total debt divided by the sum of total debt plus the market value of shares outstanding at the end of the period.

Earnings to Fixed Charges Ratio is computed by dividing earnings attributable to the controlling interest by fixed charges. For this purpose, earnings consist of income from continuing operations (or net income if there are no discontinued operations) plus fixed charges, less capitalized interest. Fixed charges consist of interest expense (excluding interest expense from discontinued operations), including amortized costs of debt issuance, plus interest costs capitalized.

Ending Occupancy is calculated as occupied homes as a percentage of total homes as of the last day of that period.

Lease Rate Growth is defined as the average percentage change in either gross (excluding the impact of concessions) or effective rent (net of concessions) for a new or renewed multifamily lease compared to the prior lease based on the move-in date. The “blended” rate represents the weighted average of new and renewal lease rate growth achieved.

Recurring Capital Improvements represent non-accretive building improvements required to maintain a property's income and value. Recurring capital improvements do not include acquisition capital that was taken into consideration when underwriting the purchase of a building or which are incurred to bring a building up to “operating standard”. This category includes improvements made as needed upon vacancy of an apartment. Aside from improvements related to apartment turnover, these improvements include facade repairs, installation of new heating and air conditioning equipment, asphalt replacement, permanent landscaping, new lighting and new finishes.

Retention represents the percentage of multifamily leases renewed that were set to expire in the period presented.

Relocation expenses represent costs associated with the relocation of the corporate headquarters to a new location in the Washington metro region.

Same-store Portfolio includes 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 categorize our properties as “same-store” or “non-same-store” for purposes of evaluating comparative operating performance. 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. We currently have two same-store portfolios: “Same-store multifamily” which is comprised of our same-store apartment communities and “Other same-store” which is comprised of our Watergate 600 commercial property.

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.

CONTACT:Amy HopkinsVice President, Investor RelationsE-Mail: ahopkins@elmecommunities.com