REAL ESTATE

9 Months Ended

Sep. 30, 2023

REAL ESTATE

Acquisitions

We acquired the following community during the 2023 Quarter (the “2023 Acquisition”):

Acquisition Date

Community

Type

Number of Homes

Ending Occupancy as of September 30, 2023

Contract Purchase Price (In thousands)

September 29, 2023

Elme Druid Hills

Residential

500

93.4

108,000

The results of operations from the acquired operating property for our period of ownership is included in the condensed consolidated statements of operations as of its acquisition date and was as follows (in thousands):


	Three and Nine Months Ended September 30, 2023
Real estate rental revenue	$	53
Net loss	(403)

We accounted for the 2023 Acquisition as an asset acquisition. We measured the value of the acquired physical assets (land and building) and in-place leases (absorption costs) by allocating the total cost of the acquisition on a relative fair value basis.

The total cost of the 2023 Acquisition was as follows (in thousands):


Contract purchase price	$	108,000
Capitalized acquisition costs	190
Total	$	108,190

We have recorded the 2023 Acquisition as follows (in thousands):


Land	$	25,249
Building	79,281
Absorption costs	3,660
Total carrying amount recorded	$	108,190

The weighted remaining average life for the absorption costs is seven months.

The difference in the total acquisition cost of $108.2 million for the 2023 Acquisition and the cash paid for the acquisition per the consolidated statements of cash flows of $107.6 million is due to net credits received at settlement totaling $0.6 million.

Development/Redevelopment

We have properties under development/redevelopment and held for current or future development. As of September 30, 2023, 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, 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 2023 Period or in 2022.

Real Estate Impairment

During the 2023 Quarter, we recognized an impairment charge of $41.9 million on Watergate 600 in order to reduce its carrying value to its estimated fair value, which declined due to changes in market conditions in the Washington DC metro region office market. The estimated fair value is inherently subjective because there are few observable market transactions for similar office properties. This fair valuation fell into Level 3 in the fair value hierarchy due to its reliance on significant unobservable inputs (see note 7). In accordance with ASC 820, we estimated the fair value using a discounted cash flow model which required certain significant assumptions, including a discounted cash flow term of 5 years, an average economic occupancy of 80.5%, and a terminal capitalization rate of 7.5%.

No other properties, including assets held for development, had any recognized impairment charges during the 2023 Quarter. 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.