ELME Elme Communities

Elme Communities (the “Company”) (NYSE: ELME), a multifamily REIT with properties in the Washington metro area and the Sunbelt, reported financial and operating results today for the quarter ended September 30, 2022:

Financial Results

• Net loss was $10.7 million, or $0.12 per diluted share
• NAREIT FFO was $12.9 million, or $0.15 per diluted share
• Core FFO was $20.5 million, or $0.23 per diluted share
• Net Operating Income (NOI) was $35.0 million

Operational Highlights

• Same-store multifamily NOI increased by 10.4% compared to the prior year period and continues to accelerate into the fourth quarter
• Effective new Lease Rate Growth was 10.5%, effective renewal Lease Rate Growth was 10.1%, and effective blended Lease Rate Growth was 10.3% during the quarter for our same-store portfolio
• Effective new Lease Rate Growth was 13.8%, effective renewal Lease Rate Growth was 18.4%, and effective blended Lease Rate Growth was 16.3% during the quarter for our non-same store portfolio
• Post quarter end, to date we have achieved effective blended Lease Rate Growth of 9.7% for our non-same store portfolio and 7.1% for our same-store portfolio
• Same-store retention was 60%, unchanged compared to the prior year period, and above the historical average while achieving very strong double-digit renewal lease rate growth
• Same-store multifamily Average Occupancy decreased 20 basis points from the third quarter of 2021 to 95.6%, in line with the targeted range
• Same-store multifamily occupancy increased post quarter-end to 95.7% as of October 27, 2022

Transformation Update

• Rebranded as Elme Communities to reflect our ongoing commitment to elevating the value-living experience for our residents. The name change follows our transformation into a focused multifamily company, and geographic expansion into Sunbelt markets.
• Began onboarding multifamily community-level operations from third party property managers. Two communities have been successfully onboarded onto our redesigned, technology-forward operating model. The Company expects to transition the remaining 25 multifamily communities in phases through mid-2023 and for the full transition to yield revenue and cost benefits.
• The Company is actively evaluating opportunities that will create additional value for shareholders and has the capacity to acquire approximately $125 million while remaining within our targeted leverage range. Subsequent to quarter end, the Company re-evaluated its yield requirements and determined, given shifting market conditions, that it no longer anticipates it will complete additional acquisitions this year.

Liquidity Position

• Available liquidity was more than $650 million as of September 30, 2022, consisting of availability under the Company's revolving credit facility and cash on hand
• Following the extinguishment of approximately $77 million secured debt via a defeasance process, as of September 1, 2022, the Company has no secured debt
• The Company has no scheduled debt maturities until July 2023

"Becoming Elme Communities represents the culmination of our multifamily portfolio transformation, geographic expansion, and technology-forward infrastructure revamp," said Paul T. McDermott, President and CEO. "It's the start of a new trajectory, positioning us to capitalize on the opportunity to be a differentiated provider of multifamily homes. Our transformation is already delivering positive results, and we have begun the process of successfully transitioning our community level operations to internal management. We look forward to discussing how this and the other changes that we've made set us up to deliver better revenue generation, expense base optimization and profitable growth on our earnings call."

Third Quarter Operating Results

• Same-store Multifamily NOI - Same-store NOI increased 10.4% compared to the corresponding prior year period driven primarily by higher base rent and lower concessions. Average occupancy for the quarter decreased 20 basis points from the prior year period to 95.6%.
• Other same-store NOI - Our Other same-store portfolio is comprised of one asset, Watergate 600. Other same-store NOI increased by 6.2% compared to the corresponding prior year period due to higher rental and parking income. Watergate 600 was 92.4% occupied and 92.4% leased at quarter end.

"Our strong third quarter financial performance further positions us to deliver historical growth in 2023," said Stephen E. Riffee, Executive Vice President and CFO. "We are on track to deliver Core FFO growth of approximately 14% in 2023 based on the midpoint of our guidance range, our strongest in 20 years. While the capital markets continue to show disruption, we are well-positioned until we can resume scaling our portfolio. We believe that our focus on value-oriented price points and presence in historically stable economies provides relative strength across economic cycles, and we have a well-positioned balance sheet with low leverage and strong liquidity. Furthermore, we have the opportunity to deliver better overall operating performance once our community onboarding process is complete."

2022 Guidance

With only one quarter remaining, management is maintaining the midpoint of its 2022 Core FFO guidance and tightening the range by $0.02 per fully diluted share to $0.87 to $0.89 per fully diluted share. The following assumptions are included in the Core FFO guidance for 2022:

Full Year 2022 Outlook on Key Assumptions and Metrics

• Same-store multifamily NOI growth is now expected to range between 8.75% to 9.25%, which represents a tightened range and continues to represent 9.0% at the midpoint
• Same-store multifamily and Trove NOI, which was fully delivered and invested by the start of 2021, is now expected to grow between 12.5% and 13.0%, which represents a tightened range and continues to represent 12.75% at the midpoint
• Non-same-store multifamily NOI is now expected to range from $22.25 million to $22.75 million in 2022, which represents a tightened range and continues to represent $22.5 million at the midpoint
• Other same-store NOI, which consists solely of Watergate 600, is expected to range from $13.25 million to $13.75 million
• Property management expense is now expected to be approximately $7.5 million, which reflects a $0.25 million decline at the midpoint
• G&A, net of core adjustments, is now expected to range from $26.0 million to $26.5 million, which reflects an increase of $0.25 million at the midpoint
• Interest expense is now expected to range from $24.5 million to $25.0 million, which reflects a lower midpoint of $24.75 million following the determination that the Company will not complete additional acquisitions in this year
• Transformation costs are now expected to be approximately $10.0 million, which reflects a decrease of $1.0 million compared to prior guidance
• No additional acquisitions are assumed in 2022 due to changing market conditions
• Core AFFO payout ratio is expected to be in the mid-70% range

	Full Year 2022
Core FFO per diluted share	$0.87 - $0.89
Net Operating Income
Same-store multifamily NOI growth	8.75% - 9.25%
Same-store multifamily and Trove NOI growth	12.5% - 13.0%
Non-same-store multifamily NOI(a)	$22.25 million - $22.75 million
Non-residential NOI(b)	~$0.775 million
Other same-store NOI(c)	$13.25 million - $13.75 million
Expenses
Property management expense	~$7.5 million
G&A, net of core adjustments	$26.0 million - $26.5 million
Interest expense	$24.5 million - $25.0 million
Capitalized interest(d)	~$0.3 million
Transformation costs	~$10 million

(a) Includes Trove, The Oxford, Assembly Eagles Landing, Carlyle of Sandy Springs, Alder Park, Marietta Crossing, and Riverside Development. Guidance does not contemplate any additional acquisitions or dispositions.(b) Includes revenues and expenses from retail operations at multifamily communities(c) Consists of Watergate 600(d) Capitalized interest was $0.3 million year-to-date and is expected to be the same amount for the full year 2022 due to the suspension of development activities at Riverside.

2023 Guidance

Management is reaffirming its 2023 Core FFO, which is expected to range from $0.96 to $1.04 per fully diluted share. The following assumptions are included in the Core FFO guidance for 2023:

Full Year 2023 Outlook on Key Assumptions and Metrics

• Same-store multifamily NOI growth is expected to range from 9.0% to 11.0%, which reflects year-over-year growth of 10% at the midpoint further building on the double-digit NOI growth expected in the second half of 2022.
• Non-same-store multifamily NOI is now expected to range from $12.75 million to $13.75 million following the determination that the Company will not complete additional acquisitions in 2022
• Other same-store NOI, which consists solely of Watergate 600, is expected to range from $13.0 million to $13.75 million
• Property management expense is now expected to range from $8.0 million to $8.5 million, which reflects a decrease at the midpoint compared to our prior guidance following the determination that the Company will not complete additional acquisitions in 2022
• G&A, net of core adjustments, is expected to range from $26.25 million to $27.25 million
• Interest expense is now expected to range from $27.5 million to $28.5 million following the determination that the Company will not complete additional acquisitions in 2022
• No acquisitions are assumed in 2023. The Company has acquisition capacity and will update guidance if an acquisition is identified.

	Full Year 2023
Core FFO per diluted share	$0.96 - $1.04
Net Operating Income
Same-store multifamily NOI growth	9.0% - 11.0%
Non-same-store multifamily NOI(a)	$12.75 million - $13.75 million
Non-residential NOI(b)	~$0.75 million
Other same-store NOI(c)	$13.0 million - $13.75 million
Expenses
Property management expense	$8.0 million - $8.5 million
G&A, net of core adjustments	$26.25 million - $27.25 million
Interest expense	$27.5 million - $28.5 million
Transformation Costs(d)	$2.5 million - $3.5 million

(a) Includes Carlyle of Sandy Springs, Alder Park, Marietta Crossing, and Riverside Development. Guidance does not contemplate any additional acquisitions or dispositions.(b) Includes revenues and expenses from retail operations at multifamily communities(c) Consists of Watergate 600(d) Represents the final costs related to the internalization of community-level operations

Elme Communities' 2022 and 2023 Core FFO guidance and outlook are based on a number of factors, many of which are outside the Company's control 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.

2022 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, 2022 is as follows:

	Low	High
Net loss per diluted share	$(0.38)	$(0.36)
Real estate depreciation and amortization	1.06	1.06
NAREIT FFO per diluted share	0.68	0.70
Core adjustments	0.19	0.19
Core FFO per diluted share	$0.87	$0.89

2023 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, 2023 is as follows:

	Low	High
Net loss per diluted share	$(0.16)	$(0.09)
Real estate depreciation and amortization	1.09	1.09
NAREIT FFO per diluted share	0.93	1.00
Core adjustments	0.03	0.04
Core FFO per diluted share	$0.96	$1.04

Dividends

On October 5, 2022, Elme Communities paid a quarterly dividend of $0.17 per share.

Elme Communities announced today that its Board of Trustees has declared a quarterly dividend of $0.17 per share to be paid on January 5, 2023 to shareholders of record on December 22, 2022.

Presentation Webcast and Conference Call Information

The Third Quarter 2022 Earnings Call is scheduled for Friday, October 28, 2022 at 10:00 A.M. Eastern Time. Conference Call access information is as follows:

USA Toll Free Number:	1-888-506-0062
International Toll Number:	1-973-528-0011
Conference ID:	163450

The instant replay of the Earnings Call will be available until Friday, November 11, 2022. Instant replay access information is as follows:

USA Toll Free Number:	1-877-481-4010
International Toll Number:	1-919-882-2331
Conference ID:	46576

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 CommunitiesElme Communities (formerly known as Washington Real Estate Investment Trust or WashREIT) 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 8,900 apartment homes in the Washington, DC metro and the Sunbelt, 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 StatementsCertain 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: 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 in the Southeastern 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; whether actual Core FFO will be consistent with expectations; 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 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, 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; 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.

This Earnings Release also includes certain forward-looking non-GAAP information. Due to the high variability and difficulty in making accurate forecasts and projections of some of the information excluded from these estimates, together with some of the excluded information not being ascertainable or accessible, the Company is unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measures without unreasonable efforts.

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	2022				2021				2022				2021
Revenue
Real estate rental revenue	$	54,603			$	42,499			$	153,787			$	124,403
Expenses
Property operating and maintenance		13,092				9,901				35,404				28,655
Real estate taxes and insurance		6,469				5,544				19,893				16,525
Property management		1,916				1,499				5,462				4,448
General and administrative		6,403				7,909				20,998				19,838
Transformation costs		2,399				1,016				6,645				4,796
Depreciation and amortization		23,632				18,252				69,871				52,542
		53,911				44,121				158,273				126,804
Real estate operating income (loss)		692				(1,622	)			(4,486	)			(2,401	)
Other income (expense)
Interest expense		(6,582	)			(8,106	)			(18,388	)			(28,387	)
Loss on interest rate derivatives		—				(106	)			—				(5,866	)
Loss on extinguishment of debt		(4,917	)			(12,727	)			(4,917	)			(12,727	)
Other income		68				231				454				3,037
		(11,431	)			(20,708	)			(22,851	)			(43,943	)
Loss from continuing operations		(10,739	)			(22,330	)			(27,337	)			(46,344	)
Discontinued operations:
Income from operations of properties sold or held for sale		—				7,208				—				23,083
Gain on sale of real estate, net		—				46,441				—				46,441
Income from discontinued operations		—				53,649				—				69,524
Net (loss) income	$	(10,739	)		$	31,319			$	(27,337	)		$	23,180
Loss from continuing operations	$	(10,739	)		$	(22,330	)		$	(27,337	)		$	(46,344	)
Depreciation and amortization		23,632				18,252				69,871				52,542
Funds from continuing operations		12,893				(4,078	)			42,534				6,198
Income from discontinued operations		—				53,649				—				69,524
Discontinued operations real estate depreciation and amortization		—				—				—				22,904
Gain on sale of real estate, net		—				(46,441	)			—				(46,441	)
Funds from discontinued operations		—				7,208				—				45,987
NAREIT funds from operations	$	12,893			$	3,130			$	42,534			$	52,185
Non-cash loss on extinguishment of debt	$	4,873			$	833			$	4,873			$	833
Tenant improvements and incentives, net of reimbursements		—				(331	)			(1,025	)			(904	)
Leasing commissions capitalized		—				(378	)			—				(2,784	)
Recurring capital improvements		(2,404	)			(1,485	)			(5,026	)			(3,508	)
Straight-line rents, net		(112	)			(347	)			(437	)			(1,520	)
Non-cash fair value interest expense		105				—				210				—
Non-real estate depreciation & amortization of debt costs		1,158				1,330				3,517				4,024
Amortization of lease intangibles, net		(227	)			(32	)			(608	)			540
Amortization and expensing of restricted share and unit compensation		1,917				2,651				6,157				6,478
Adjusted funds from operations	$	18,203			$	5,371			$	50,195			$	55,344

		Three Months Ended September 30,								Nine Months Ended September 30,
Per share data:		2022				2021				2022				2021
Loss from continuing operations	(Basic)	$	(0.12	)		$	(0.26	)		$	(0.32	)		$	(0.55	)
	(Diluted)	$	(0.12	)		$	(0.26	)		$	(0.32	)		$	(0.55	)
Net (loss) income	(Basic)	$	(0.12	)		$	0.37			$	(0.32	)		$	0.27
	(Diluted)	$	(0.12	)		$	0.37			$	(0.32	)		$	0.27
NAREIT FFO	(Basic)	$	0.15			$	0.04			$	0.48			$	0.61
	(Diluted)	$	0.15			$	0.04			$	0.48			$	0.61
Dividends paid		$	0.17			$	0.17			$	0.51			$	0.77
Weighted average shares outstanding - basic			87,453				84,496				87,354				84,457
Weighted average shares outstanding - diluted			87,453				84,496				87,354				84,457
Weighted average shares outstanding - diluted (for NAREIT FFO)			87,564				84,586				87,447				84,534

ELME COMMUNITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
	September 30, 2022				December 31, 2021
Assets
Land	$	373,171			$	322,623
Income producing property		1,882,235				1,642,147
		2,255,406				1,964,770
Accumulated depreciation and amortization		(461,293	)			(402,560	)
Net income producing property		1,794,113				1,562,210
Properties under development or held for future development		31,232				30,631
Total real estate held for investment, net		1,825,345				1,592,841
Cash and cash equivalents		8,436				233,600
Restricted cash		1,437				620
Rents and other receivables		16,088				15,067
Prepaid expenses and other assets		28,228				33,866
Total assets	$	1,879,534			$	1,875,994
Liabilities
Notes payable, net	$	497,247			$	496,946
Line of credit		43,000				—
Accounts payable and other liabilities		36,219				40,585
Dividend payable		14,919				14,650
Advance rents		1,489				2,082
Tenant security deposits		5,461				4,669
Total liabilities		598,335				558,932
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 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		1,728,840				1,697,477
Distributions in excess of net income		(434,539	)			(362,494	)
Accumulated other comprehensive loss		(14,278	)			(19,091	)
Total shareholders' equity		1,280,898				1,316,755
Noncontrolling interests in subsidiaries		301				307
Total equity		1,281,199				1,317,062
Total liabilities and equity	$	1,879,534			$	1,875,994

The following tables contain reconciliations of net loss to NOI for the periods presented (in thousands):
	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
Net (loss) income	$	(10,739	)		$	31,319			$	(27,337	)		$	23,180
Adjustments:
Property management expense		1,916				1,499				5,462				4,448
General and administrative expense		6,403				7,909				20,998				19,838
Transformation costs		2,399				1,016				6,645				4,796
Real estate depreciation and amortization		23,632				18,252				69,871				52,542
Interest expense		6,582				8,106				18,388				28,387
Loss on interest rate derivatives		—				106				—				5,866
Loss on extinguishment of debt, net		4,917				12,727				4,917				12,727
Other income		(68	)			(231	)			(454	)			(3,037	)
Discontinued operations:
Income from operations of properties sold or held for sale		—				(7,208	)			—				(23,083	)
Gain on sale of real estate, net		—				(46,441	)			—				(46,441	)
Total Net Operating Income (NOI)	$	35,042			$	27,054			$	98,490			$	79,223
Multifamily NOI:
Same-store portfolio	$	24,740			$	22,405			$	72,274			$	67,052
Acquisitions		4,993				276				10,669				276
Development		1,770				1,000				4,922				1,732
Non-residential		188				219				593				575
Total		31,691				23,900				88,458				69,635
Other NOI (Watergate 600)		3,351				3,154				10,032				9,588
Total NOI	$	35,042			$	27,054			$	98,490			$	79,223

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,
		2022				2021				2022				2021
Net (loss) income		$	(10,739	)		$	31,319			$	(27,337	)		$	23,180
Add:
Real estate depreciation and amortization			23,632				18,252				69,871				52,542
Discontinued operations:
Gain on sale of real estate, net			—				(46,441	)			—				(46,441	)
Real estate depreciation and amortization			—				—				—				22,904
NAREIT funds from operations			12,893				3,130				42,534				52,185
Add:
Structuring expenses			121				—				1,101				—
Loss on extinguishment of debt, net			4,917				12,727				4,917				12,727
Loss on interest rate derivatives			—				106				—				5,866
Severance expense			—				—				474				173
Transformation costs			2,399				1,016				6,645				4,796
Write-off of pursuit costs			174				—				174				—
Core funds from operations		$	20,504			$	16,979			$	55,845			$	75,747
		Three Months Ended September 30,								Nine Months Ended September 30,
Per share data:		2022				2021				2022				2021
NAREIT FFO	(Basic)	$	0.15			$	0.04			$	0.48			$	0.61
	(Diluted)	$	0.15			$	0.04			$	0.48			$	0.61
Core FFO	(Basic)	$	0.23			$	0.20			$	0.64			$	0.89
	(Diluted)	$	0.23			$	0.20			$	0.64			$	0.89
Weighted average shares outstanding - basic			87,453				84,496				87,354				84,457
Weighted average shares outstanding - diluted(for NAREIT and Core FFO)			87,564				84,586				87,447				84,534

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 and gain from non-disposal activities and transformation costs. 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 expenditures, 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 Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s 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 FAD, as appropriate, (5) relocation expense, (6) transformation costs and (7) write-off of pursuit costs. 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 Washington REIT’s 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 Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s 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 and (7) write-off of pursuit costs. 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 Washington REIT’s 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 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 equity real estate investment trusts (“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 FFO may not be comparable to FFO reported by other real estate investment trusts. 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 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. They are the primary performance measures we use to assess the results of our operations at the property level. We also present NOI on a cash basis ("Cash NOI") which is calculated as NOI less the impact of straight-lining apartment rent concessions. We believe that each of NOI and Cash NOI is a useful performance measure because, when compared across periods, they reflect 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 and Cash NOI exclude 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 each NOI and Cash NOI as a supplement to net income, calculated in accordance with GAAP. NOI and Cash NOI do not represent net income or income from continuing operations calculated in accordance with GAAP. As such, neither should 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 and the market rent for vacant homes.

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 and gain/loss from non-disposal activities 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 Expenditures represent non-accretive building improvements required to maintain current revenues. Recurring capital expenditures 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".

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

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 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 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 Hopkins

Vice President, Investor Relations

E-Mail: ahopkins@elmecommunities.com