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Item 1A. Risk Factors

2023-02-17 compared with 2022-02-18 · 108 added, 121 removed, 280 unchanged (45% of the section changed)

Set forth below are the risks that we believe are material to our shareholders.

We refer to the shares of beneficial interest in WashREIT as our “common shares,” and the investors who own shares as our “shareholders.” This section includes or refers to certain forward-looking statements.

We refer to the shares of beneficial interest in Elme Communities as our “common shares,” and the investors who own shares as our “shareholders.” This section includes or refers to certain forward-looking statements.

You should refer to the explanation of the qualifications and limitations on such forward-looking statements beginning on page 38 .

Risks Related to our Business and Operations

We may be unable to successfully expand our operations into new markets and submarkets, which could have a material adverse effect on us, the trading price of our stock and our ability to make distributions to our shareholders.

In connection with our strategic transformation, we intend to expand our residential platform through acquisitions in Southeastern markets.

Our current targeted expansion markets include Atlanta, Georgia, Raleigh/Durham, North Carolina, and Charlotte, North Carolina.

During 2021, we acquired two apartment communities in the Atlanta metro region and plan to continue to invest in the Southeast region in 2022 and beyond.

We may be unable to successfully expand our operations into new markets and submarkets, which could have a material adverse effect on us, the trading price of our shares and our ability to make distributions to our shareholders.

In connection with our strategic transformation, which began in 2021, we intend to further expand our residential platform through acquisitions in Sunbelt markets.

Our current targeted expansion markets include Atlanta, Georgia, Raleigh/Durham, North Carolina, Charlotte, North Carolina and Dallas-Fort Worth, Texas.

During 2021 and 2022, we acquired five apartment communities in the Atlanta metro region and plan to continue to invest in the Sunbelt region in 2023 and beyond.

However, our historic operations have been concentrated in the Washington DC, metro region, where we have expertise in acquiring and operating assets.

The risks applicable to our ability to acquire, integrate and operate apartment communities in the Washington DC, metro region are also applicable to our ability to acquire, integrate and operate apartment communities in new markets.

In addition to these risks, we will not possess the same level of familiarity with the dynamics and market conditions of any new markets that we may enter, which could adversely affect our ability to expand and success in expanding into those markets.

In addition to these risks, we will not possess the same level of familiarity with the dynamics and market conditions of any new markets that we have entered in connection with our strategic transformation or that we may enter, which could adversely affect our ability to expand and success in expanding into those markets.

Furthermore, we may be unable to build a significant market share or achieve a desired return on our investments in new markets.

The occurrence of any of the foregoing risks could have a material adverse effect on us, the trading price of our stock and our ability to make distributions to our shareholders.

The occurrence of any of the foregoing risks could have a material adverse effect on us, the trading price of our shares and our ability to make distributions to our shareholders.

Our performance and value are subject to risks associated with our apartment communities and with the real estate industry, which could adversely affect our cash flow and ability to make distributions to our shareholders.

Furthermore, substantially all of our investments are concentrated in the multifamily asset class.

Our financial performance and the value of our apartment communities are subject to the risk that they do not generate revenues sufficient to meet our operating expenses, debt service and capital expenditures, which could cause our cash flow and ability to make distributions to our shareholders to be adversely affected.

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• competition with other housing alternatives, including owner occupied single and residential apartment homes;

• the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers;

• declines in the financial condition of our tenants;

• a return of the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers;

• declines in the financial condition of our residents;

• significant job losses in the regions in which we operate;

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• political conditions, civil disturbances, earthquakes and other natural disasters, terrorist acts or acts of war and actual or anticipated geopolitical instability.

Each of these factors could possibly limit our ability to retain our current residents, attract new ones or increase or maintain rents, which could lower the value of our properties and adversely affect our results of operations and our financial condition.

Additionally, complying with the REIT requirements may cause us to forgo and/or liquidate otherwise attractive investments.

Additionally, as of December 31, 2022, substantially all of our investments are concentrated in the multifamily industry, and we are subject to risks inherent in investments in a single type of property.

A downturn or slowdown in the demand for multifamily housing may have more pronounced effects on our results of operations or on the value of our assets than when we had investments in more than one asset class.

The multifamily industry is also highly competitive.

We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities.

Many of these entities have significant

financial and other resources, including operating experience, allowing them to compete effectively with us.

Competitors with substantially greater financial resources than us may be able to accept more risk than we can effectively manage.

In addition, those competitors that are not REITs may be at an advantage to the extent they can use working capital to finance projects, while we (and our competitors that are REITs) may have to forgo and/or liquidate otherwise attractive investments as we must comply with REIT requirements.

These actions could have the effect of reducing our income and amount available for distribution to shareholders.

Thus, compliance with the REIT requirements may hinder our ability to make, or, in certain cases, maintain ownership of, certain attractive investments.

Lastly, in addition, a significant economic downturn over a period of time could result in an event or change in circumstances that results in an impairment in the value of our properties.

An impairment loss is recognized if the carrying amount of the asset is not recoverable over its expected holding period and exceeds its fair value.

Thus, compliance with REIT requirements may hinder our ability to make, or, in certain cases, maintain ownership of, certain attractive investments.

Competition may also result in overbuilding of multifamily properties, causing an increase in the number of multifamily units available which could potentially decrease occupancy and multifamily rental rates at our properties.

We may also be required to expend substantial sums to attract new residents.

These factors may cause resale value of the property to be diminished because the market value of a particular property will depend principally upon the net revenues generated by the property.

Further, costs associated with real estate investment generally are not reduced when circumstances, such as the ongoing pandemic, cause a reduction in income from the investment.

Macroeconomic trends, including inflation and rising interest rates, may adversely affect our financial condition and results of operations.

Macroeconomic trends, including increases in inflation and rising interest rates, may adversely impact our business, financial condition and results of operations.

Recently, inflation in the United States has risen to levels not experienced in recent decades, including rising energy prices, prices for consumer goods, interest rates and wages.

These increases and any interventions, fiscal or otherwise, by the U.S.

government in reaction to such events could negatively impact our business by increasing our operating costs and borrowing costs as well as decreasing the cash available to our residents and tenants and prospective residents and tenants who wish to rent in our communities.

Although we expect to be able to increase rent to combat the effects of inflation, the cost to operate and maintain communities could increase faster or at a rate greater than our ability to increase rents that residents and tenants would be willing to pay, which could adversely affect our results of operations.

Additionally, a decline in the market value of real estate in the regions in which we operate may result in the carrying value of certain real estate assets exceeding their fair value, which may require us to recognize an impairment to those assets.

We are currently dependent upon the economic and regulatory climate of the Washington, DC metro region, which may impact our profitability and may limit our ability to meet our financial obligations when due and/or make distributions to our shareholders.

While we are implementing a strategy of expanding into markets in the Southeast region, as of December 31, 2021, 91% of our residential apartment homes were located in the Washington, DC metro region and such concentration may expose us to a greater amount of market dependent risk than if we were more geographically diverse.

General economic conditions and local real estate conditions in the Washington, DC metro region are dependent upon various industries that are predominant in our area (such as government and professional/business services).

As of December 31, 2022, 80% of our residential apartment homes were located in the Washington, DC metro region and 20% of our residential apartment homes were located in the Atlanta, Georgia metro region.

While we are implementing a strategy of continued expansion into the Sunbelt region, our current concentration in just two geographic markets may expose us to a greater amount of market dependent risk than if we were more geographically diverse.

Our performance could be adversely affected by the economic conditions in, and other factors relating to, these two geographic areas, including zoning and other regulatory conditions, competition for residents and supply and demand for apartment in these regions, as well as unemployment and job growth.

Additionally, in the Washington, DC metro region, general economic conditions and local real estate conditions are dependent upon various industries that are predominant in the area (such as government and professional/business services).

A downturn in one or more of these industries may have a particularly strong effect on the economic climate of the region.

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regulatory environment, such as increases in real estate and other taxes, the costs of complying with governmental regulations or increased regulations and actual or threatened reductions in federal government spending and/or changes to the timing of government spending, as has occurred during federal government shutdowns.

In general, our properties are concentrated in dense urban and suburban submarkets, and to the extent that these markets become less desirable to operate in, including changes in residential housing supply and demand, our results of operations could be more negatively impacted than if we were more diversified within our markets.

To the extent that these markets become less desirable to operate in, our results of operations could be more negatively impacted than if we were more diversified within our markets.

In the event of negative economic and/or regulatory changes in the regions in which we operate, we may experience a negative impact to our profitability and may be limited in our ability to meet our financial obligations when due and/or make distributions to our shareholders.

Short-term leases expose us to the effects of declining market rents, which could adversely affect our cash flow, results of operations and financial condition.

Short-term leases expose us to the effects of declining market rents sooner than long-term leases, which could adversely affect our cash flow, results of operations and financial condition.

Substantially all of our apartment leases are for a term of one year or less.

Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our apartment leases were for longer terms.

Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents sooner than if our apartment leases were for longer terms.

Additionally, if the terms of a renewal or reletting are less favorable than current terms, then our results of operations and financial condition could be negatively affected.

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Gross rental revenue provided by leased commercial space in our portfolio represented 9% of our real estate rental revenue from continuing operations in 2022.

The long term nature of our commercial leases and characteristics of many of our tenants (small, local businesses) may subject us to certain risks, such as difficulties or delays in reletting this commercial space and in achieving desired rental rates, the cost of allowances and concessions to tenants, which may be less favorable than current terms, a failure rate of small, local business that may be higher than average and competition with other commercial spaces, which may affect our ability to lease space and the level of rents we can obtain.

The long term nature of our commercial leases and characteristics of many of our tenants (generally small, local businesses) may subject us to certain risks, such as difficulties or delays in reletting this commercial space and in achieving desired rental rates, the cost of allowances and concessions to tenants, which may be less favorable than current terms, a failure rate of small, local business that may be higher than average and competition with other commercial spaces, which may affect our ability to lease space and the level of rents we can obtain.

Additionally, if our commercial tenants experience financial distress or bankruptcy, they may fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations.

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Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our residents.

Jurisdictions in the Washington, DC metro region have adopted laws and regulations imposing restrictions on the timing or amount of rent increases or have imposed regulations relating to low- and moderate-income housing.

Such laws and regulations limit our ability to charge market rents, increase rents or evict residents at our apartment communities and could make it more

difficult for us to dispose of properties in certain circumstances.

Jurisdictions in which we own property have adopted, or may in the future adopt, laws and regulations imposing restrictions on the timing or amount of rent increases or have imposed regulations relating to low- and moderate-income housing.

Such laws and regulations limit our ability to charge market rents, increase rents or evict residents at our apartment communities and could make it more difficult for us to dispose of properties in certain circumstances.

Similarly, compliance procedures associated with rent control statutes and low- and moderate-income housing regulations could have a negative impact on our operating costs, and any failure to comply with low- and moderate-income housing regulations could result in the loss of certain tax benefits and the forfeiture of rent payments.

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In addition, we may fail to provide quality housing and continuous access to amenities, including government mandated closures due to health concerns, mechanical failure, power outage, human error, vandalism, physical or electronic security breaches, war, terrorism and similar events.

Additionally, residents may choose not to use such facilities or amenities as a result of social distancing recommendations during the COVID-19 pandemic or for other reasons, which may cause our communities to become less appealing to such residents.

Such service interruptions, closures, mechanical failures or other events may also expose us to additional liability claims and damage our reputation and brand and could cause current residents to terminate or not renew their leases, and prospective residents to seek housing elsewhere.

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Developing or redeveloping properties presents a number of risks for us, including risks relating to necessary permitting, risks relating to development and construction costs and/or permanent financing, environmental remediation, timeline disruptions and demand for the completed property.

Properties developed or acquired for development may generate little or no cash flow from the date of acquisition through the date of completion of development.

Properties developed or acquired for development may generate little or no cash flow from the date of acquisition through the date of completion of development and commencement of leasing activity.

In addition, new development activities, regardless of whether or not they are ultimately successful, may require a substantial portion of management’s time and attention.

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The materialization of any of the foregoing risks could have an adverse effect on our financial condition, results of operations or ability to satisfy our debt service obligations.

Corporate social responsibility, specifically related to Environmental, Social and Governance (“ESG”), may constrain our business operations, impose additional costs and expose us to new risks that could adversely impact our results of operations and financial condition and the price of our securities.

Sustainability, social and governance matters have become increasingly important to investors and other stakeholders.

Corporate social responsibility, specifically related to Environmental, Social and Governance, may constrain our business operations, impose additional costs and expose us to new risks that could adversely impact our results of operations and financial condition and the price of our securities.

Environmental, social and governance matters have become increasingly important to investors and other stakeholders.

Certain organizations that provide corporate risk and corporate governance advisory services to investors have developed scores and ratings to evaluate companies based upon ESG metrics.

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Additionally, if our corporate responsibility procedures or standards do not meet the standards set by various constituencies, we may face reputational damage.

While we have generally scored highly in these metrics to date, there can be no assurance that we will continue to do so in the future, particularly since the criteria by which companies are rated for their ESG efforts may change, which could cause us to receive lower scores than in previous years.

A low ESG score could result in a negative perception of the Company, exclusion of our securities from consideration by certain investors and/or cause investors

to reallocate their capital away from the Company, each of which could have an adverse impact on the price of our securities.

There can be no assurance of how we will score on the ESG metrics used by such advisory organizations in the future, particularly since the criteria by which companies are rated for their ESG efforts may change.

A low ESG score could result in a negative perception of the Company, exclusion of our securities from consideration by certain investors and/or cause investors to reallocate their capital away from the Company, each of which could have an adverse impact on the price of our securities.

We face risks associated with property acquisitions.

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We face risks associated with third-party service providers, which could negatively impact our profitability.

We enter into arrangements from time to time with various service providers which conduct day-to-day property management and/or leasing activities at our apartment communities.

Currently, all of our apartment communities are managed by third-party service providers.

We enter into arrangements from time to time with various service providers which conduct day-to-day community management and/or leasing activities at many of our apartment communities.

As of December 31, 2022, our office property and 95% of our apartment homes are managed by third-party service providers.

Failure of such service providers to adequately perform their contracted services could negatively impact our ability to retain residents or lease vacant space.

As a result, any such failure could negatively impact our profitability.

We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments which may adversely affect our operations.

Our strategic transformation could place a significant strain on our management team and personnel and requires us to increase the size of our workforce.

Furthermore, we depend on our key personnel, and we can provide no assurances that we will be successful in attracting and retaining such personnel.

We expect the total number of our employees to increase as we internalize our community management operations , which could place significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions .

Properly managing this internalization will also require us to increase the size of our workforce as we hire, train, and manage qualified employees and staff.

If our new hires perform poorly, if we are unsuccessful in hiring, training, managing, and integrating new employees and staff, or if we are not successful in retaining our existing employees and staff, our business may be harmed.

Additionally, if any of our key personnel were to terminate their employment with us, our operating results could suffer, and since c ompetition for such personnel is intense, we cannot assure you that we will be successful in attracting and retaining such personnel or that we will not need to incur additional expense to attract and retain such personnel.

Moreover, if we must implement any reductions in workforce or restructurings, we may be subject to unintended consequences and costs, such as attrition beyond the intended reduction in workforce, the distraction of employees, or reduced employee morale which could adversely affect our reputation as an employer, make it more difficult for us to hire new employees in the future or increase the risk that we may not achieve the anticipated benefits from the reduction in workforce.

A failure to properly manage the size of our workforce could have an adverse effect on our financial condition and results of operations.

We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments which may adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.

While we currently have no interests in joint ventures, we may from time to time invest in joint ventures in which we are not the exclusive investor or the only decision maker.

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These conflicts may include compliance with the REIT requirements, and our REIT status could be jeopardized if any of our joint ventures do not operate in compliance with the REIT requirements.

To the extent our joint venture partners do not meet their obligations to us or they take action inconsistent with our interests in the joint venture, we may be adversely affected.

Climate change and regulation regarding climate change in the regions in which we operate, particularly in the Washington, DC metro region currently, may adversely affect our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders.

All of our properties are located on the East Coast.

Climate change (including rising sea levels, flooding, extreme weather, and changes in precipitation and temperature), may result in physical damage to, a decrease in demand for and/or a decrease in rent from and value of our properties located in the areas affected by these conditions.

To the extent our joint venture partners do not meet their obligations to us or they act inconsistent with our interests in the joint venture, we may be adversely affected.

Climate change and regulation regarding climate change in the regions in which we operate may adversely affect our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders.

Additionally, our insurance premiums may increase as a result of the threat of climate change or the effects of climate change may not be covered by our insurance policies.

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federal and state legislation and regulations on climate change could result in utility expenses and/or capital expenditures to improve the energy efficiency of our existing properties or other related aspects of our properties in order to comply with such regulations or otherwise adapt to climate change.

Specifically, the District of Columbia, Arlington County, Virginia, Fairfax County, Virginia, and Montgomery County, Maryland have made formal public commitments to carbon reduction.

To enforce this commitment in Washington, D.C., the Washington, D.C.

City Council passed the DC Clean Energy Omnibus Amendment Act of 2018.

The bill requires that all electricity purchased in Washington, D.C.

be renewable by 2032 and sets a building energy performance standard requiring certain buildings to meet certain minimum energy efficiency standards.

Under Washington D.C.’s Building Energy Performance Standards, all existing buildings over 50,000 square feet were required to reach minimum levels of energy efficiency or deliver savings by 2027, with progressively smaller buildings phasing into compliance over the following years.

This regulation may require unplanned capital improvements, and increased engagement to manage occupant energy use, which is a large driver of building performance.

If our properties cannot meet performance standards, they risk fines for non-compliance, as well as a decrease in demand and a decline in value.

As a result of these and other regulations in the Washington, DC metro region and the markets into which we intend to expand pursuant to the strategic transformation, our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.

Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties.

The majority of the properties in our portfolio are located in or near Washington, D.C., a metropolitan area that has been and may in the future be the target of actual or threatened terrorism attacks.

As a result, some residents in our market may choose to relocate to other markets.

This could result in an overall decrease in the demand for this market generally, which could increase vacancies or impact rental rates in our properties.

In addition, future terrorist attacks in or near Washington, D.C.

could directly or indirectly damage such properties, both physically and financially, or cause losses that materially exceed our insurance coverage.

government and various state agencies have introduced or are contemplating regulatory changes in response to the potential impact of climate change, including legislation regarding green-house gas emissions and renewable energy targets.

Any such regulation regarding climate change may require unplanned capital improvements and increased engagement by our employees.

Any adopted future climate change regulations could negatively impact our ability to compete with companies not subject to such regulations.

From a medium and long-term perspective, as a result of these regulatory initiatives, we may see an increase in costs relating to any owned or future properties and failure to meet certain performance standards could result in fines for non-compliance, a decrease in demand and a decline in the value of our properties.

As a result of these and other regulations, our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.

Actual or threatened acts of violence, including terrorist attacks, may adversely affect our ability to generate revenues and the value of our properties.

Actual or threatened acts of violence, including terrorist attacks, could occur in the localities in which we conduct business.

As a result, some residents in our markets may choose to relocate to other markets.

This could result in an overall decrease in the demand for such markets generally, which could increase vacancies or impact rental rates in our properties.

In addition, future acts of violence or terrorist attacks could directly or indirectly damage our properties, both physically and financially, or cause losses that materially exceed our insurance coverage.

As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially which would negatively affect our results of operations.

Some potential losses are not covered by insurance, which could adversely affect our financial condition or cash flow.

We carry insurance coverage on our properties of types and in amounts that we believe are in line with coverage customarily obtained by owners of similar properties.

We believe all of our properties are adequately insured.

The property insurance that we maintain for our properties has historically been on an “all risk” basis, which is in full force and effect until renewal in March 2023 or August 2023, depending on the property.

There are other types of losses, such as from wars or catastrophic events, for which we cannot obtain insurance at all or at a reasonable cost.

We carry insurance policies on terms and in amounts we consider commercially reasonable.

However, it does not cover terrorist related activities except certain non-certified nuclear, chemical and biological acts of terrorism.

Our insurance does not cover terrorist related activities except certain non-certified nuclear, chemical and biological acts of terrorism.

Our financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts.

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In the event of an uninsured loss or a loss in excess of our insurance limits, we could lose both the revenues generated from the affected property and the capital we have invested in the affected property.

Depending on the specific circumstances of the affected property, it is possible that we could be liable for any mortgage indebtedness or other obligations related to the

Depending on the specific circumstances of the affected property, it is possible that we could be liable for any mortgage indebtedness or other obligations related to the property.

Any such loss could adversely affect our business and financial condition and results of operations.

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From time to time, we may be required to remediate such substances or remove, abate or manage asbestos, mold, radon gas, lead or other hazardous conditions at our properties.

The presence or release of such toxic or hazardous substances or petroleum products at our currently owned or leased properties could result in limitations on or interruptions to our operations, and releases at our currently or formerly owned or leased properties could result in in third-party claims for bodily injury, property or natural resource damages, or other losses, including liens in favor of the government for costs the government incurs in cleaning up contamination.

The presence or release of such toxic or

hazardous substances or petroleum products at our currently owned or leased properties could result in limitations on or interruptions to our operations, and releases at our currently or formerly owned or leased properties could result in in third-party claims for bodily injury, property or natural resource damages, or other losses, including liens in favor of the government for costs the government incurs in cleaning up contamination.

In addition, we may be liable for the costs of investigating or remediating contamination at off-site waste disposal facilities to which we have arranged for the disposal, or treatment of hazardous substances without regard to whether we complied with environmental laws in doing so.

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The risk of a security breach, disruption, or cyber-attack, including by computer hackers, nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks around the world have increased.

These incidents may result in disruption of our operations, material harm to our financial condition, cash flows and the market price of our common shares, misappropriation of assets, compromise or corruption of confidential information collected in the course of conducting our business, liability for stolen information or assets, increased cybersecurity protection and insurance costs, regulatory enforcement, litigation and damage to our stakeholder relationships.

Any such incident may result in disruption of our operations, material harm to our financial condition, cash flows and the market price of our common shares, misappropriation of assets, compromise or corruption of confidential information collected in the course of conducting our business, liability for stolen information or assets, increased cybersecurity protection and insurance costs, regulatory enforcement, litigation and damage to our stakeholder relationships.

These risks require increasing resources from us to analyze and mitigate, and there is no assurance that our efforts will be effective.

Additionally, we rely on third-party service providers in our conduct of our business and we can provide no assurance that the security measures of those providers will be effective.

Additionally, as a result of the internalization of community management services for our properties, which began in late 2022, we collect and retain greater amounts of personal information, both from employees and current and potential residents, which increases the risks and potential effects of such an incident.

We also rely on third-party service providers in our conduct of our business, and we can provide no assurance that the security measures of those providers will be effective.

In the normal course of business, we and our service providers collect and retain certain personal information provided by our residents, employees and vendors.

Although we make efforts to maintain the security and integrity of our information, we can

provide no assurance that our data security measures will be able to prevent unauthorized access to this personal information.

Although we make efforts to maintain the security and integrity of our information, we can provide no assurance that our data security measures will be able to prevent unauthorized access to this personal information.

In addition to the risks discussed above related to a breach of confidential information, a breach of personal information may result in regulatory fines and orders, obligations to notify individuals or litigation risks.

Risks Related to the novel coronavirus (COVID-19)

The current outbreak of COVID-19, and the resulting volatility it has created, has disrupted our business and we expect that the COVID-19 pandemic will significantly and adversely impact our business, financial condition and results of operations going forward, and other potential pandemics or outbreaks could materially adversely affect our business, financial condition, results of operations and cash flows in the future.

Further, the spread of the COVID-19 outbreak has caused severe disruptions in the U.S.

and global economy and financial markets and could potentially create widespread business continuity issues of an unknown magnitude and duration.

The COVID-19 pandemic has had, and COVID-19, any mutation or variant thereof, and any future pandemic will continue to have repercussions across regional and global economies and financial markets.

The global impact of the outbreak has been rapidly evolving, and many countries, including the United States (specifically the states and cities that comprise the Washington, DC metro region, where we own the majority of our properties and have development sites and the Southeast regions, into which we intend to expand pursuant to the strategic transformation), have at times also instituted quarantines, shelter-in-place rules, and restrictions on travel, the types of business that may continue to operate, and/or the types of construction projects that may continue.

As a result, the COVID-19 pandemic is directly and indirectly negatively impacting most industries both inside and outside the markets in which we currently operate and intend to expand into.

Jurisdictions in the Washington, DC metro and Southeast regions have implemented or may implement rent freezes or other similar restrictions.

The full extent of the impact on our business is largely uncertain and dependent on a number of factors beyond our control, including a potential increase in the number of cases in the Washington, DC metro and Southeast regions, as a result of this year's flu season or otherwise.

The COVID-19 outbreak has caused and continues to cause severe disruptions in the U.S.

and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration, including supply chain disruptions and increased inflation.

COVID-19 has disrupted our business and is expected to continue to have a significant adverse effect on our business, financial performance and condition, operating results and cash flows due to, among other factors:

• a decrease in real estate rental revenue (our primary source of operating cash flow), as a result of temporary rent increase freezes impacting new and renewal rental rates on residential properties;

• the inability of our third-party service providers to adequately perform their property management and/or leasing activities at our properties due to decreased on-site staff or other COVID-19-related challenges;

• the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of debt agreements;

• a decline in the market value of real estate in the regions in which we operate may result in the carrying value of certain real estate assets exceeding their fair value, which may require us to recognize an impairment to those assets;

• future delays in the supply of products, services or liquidity may negatively impact our ability to complete the development, redevelopment, renovations and lease-up of our properties on schedule or for their original estimated cost;

• increased inflation, which may increase labor or other costs to maintain our properties, and increased sanitation and hygiene requirements;

• a general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow or diversify our residential portfolio;

• unanticipated costs and operating expenses and decreased anticipated and actual revenue related to compliance with regulations, such as additional expenses related to staff working remotely, requirements to provide employees with additional mandatory paid time off and increased expenses related to sanitation measures performed at each of our properties, as well as additional expenses incurred to protect the welfare of our employees, such as expanded access to health services;

• shifts in consumer housing demand based on geography, affordability, housing type (e.g.

multi-family vs.

single-family) and unit type (e.g.

multi-bedroom), mainly resulting from the paradigm shift of work culture, the decentralization of corporate headquarters and the success of “work from home” models;

• the potential for our employees, particularly our key personnel and property management teams, to become sick with COVID-19 which could adversely affect our business;

• complying with REIT requirements during a period of reduced cash flow could cause us to liquidate otherwise

attractive investments or borrow funds on unfavorable conditions.

The significance, extent and duration of the impact of COVID-19 remains largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as a potential increase in cases in the Washington, DC metro and Southeast regions, the continued severity, duration, transmission rate and geographic spread of COVID-19, the extent and effectiveness of the containment measures taken, the timing, effectiveness and availability of vaccines and the willingness of people to take the vaccines and the response of the overall economy, the financial markets and the population, once the current containment measures are lifted.

The ongoing volatility of this situation may limit our ability to make predictions as to the ultimate adverse impact of COVID-19 on us.

As a result, we cannot provide an estimate of the overall impact of the COVID-19 pandemic on our business or when, or if, we will be able to resume normal operations.

Nevertheless, COVID-19 presents material uncertainty and risk with respect to our business, financial performance and condition, operating results and cash flows.

A pandemic, including the outbreak of COVID-19, and measures intended to prevent its spread, could have a material adverse effect on our business, results of operations, cash flows and financial condition.

A pandemic and emergence of new variants could (as the current outbreak of COVID-19 has) negatively impact the global economy, disrupt financial markets and international trade, and result in varying unemployment levels, all of which could negatively impact the multifamily industry and our business.

Pandemic o utbreaks could lead (and the current outbreak of COVID-19 has led) governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to mitigate its spread, including restrictions on freedom of movement and business operations such as issuing guidelines, travel bans, border closings, business closures, quarantine orders, and orders not allowing the collection of rents, rent increases, or eviction of non-paying residents and tenants.

The impact of an ongoing pandemic and measures to prevent its spread could (and the current outbreak of COVID-19 has)

negatively impact and could continue to negatively impact our businesses in a number of ways, including shifts in consumer housing demand, our residents’ ability or willingness to pay rents and the demand for multifamily communities within the markets we operate.

In the event of a decline in business activity and demand for real estate transactions, our ability or desire to grow or diversify our residential portfolio could (and has been) be affected.

Additionally, local and national authorities could continue to expand and extend certain measures imposing restrictions on our ability to enforce contractual rental obligations upon our residents and tenants.

Unanticipated costs and operating expenses and decreased anticipated and actual revenue related to compliance with regulations, could negatively impact our future compliance with financial covenants of debt agreements and our ability to satisfy certain REIT-related requirements.

The full extent of the impact of a pandemic on our business is largely uncertain and dependent on a number of factors beyond our control, and we are not able to estimate with any degree of certainty the effect a pandemic or measures intended to curb its spread could have on our business, results of operations, financial condition, and cash flows .

Moreover, many of the other risk factors described herein could be more likely to impact us as a result of a pandemic or measures intended to curb its spread.

Risks Related to Financing

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Should we desire to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our obligation under the hedging agreement.

The future of the reference rate used in our existing floating rate debt instruments and hedging arrangements is uncertain, which could hinder our ability to maintain effective hedges and could adversely impact our business operations and financial results.

Our floating-rate debt and certain hedging transactions determine the applicable interest rate or payment amount by reference to a benchmark rate, such as the London Interbank Offered Rate (“LIBOR”) as calculated for the U.S.

dollar (“USD-LIBOR”), or to another financial metric.

As of December 31, 2021, we had approximately $100.0 million of debt outstanding that was indexed to LIBOR.

In July 2017, the United Kingdom regulator that oversees LIBOR announced its intention to phase out LIBOR rates by the end of 2021, indicating that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021.

In April 2018, the New York Federal Reserve commenced publishing an alternative reference rate to LIBOR, as calculated for the U.S.

dollar (“USD-LIBOR”), the Secured Overnight Financing Rate (“SOFR”), proposed by a group of major market participants convened by the U.S.

Federal Reserve with participation by SEC Staff and other regulators.

On November 30, 2020, the United Kingdom regulator announced its intentions, subject to confirmation following an early December consultation, to cease the publication of the one week and two month USD-LIBOR immediately following the December 31, 2021 publications, and the remaining USD-LIBOR tenors immediately following the June 30, 2023 publications.

Despite progress made to date by regulators and industry participants to prepare for the anticipated discontinuation of LIBOR, significant uncertainties still remain.

Such uncertainties relate to, for example, whether LIBOR will continue to be viewed as an acceptable market benchmark rate, what rate or rates may become accepted alternatives to LIBOR (for example, various characteristics of SOFR make it uncertain whether it would be viewed by market participants as an appropriate alternative to USD-LIBOR for certain purposes), how any replacement would be implemented across the industry, and the effect any changes in industry views or movement to alternative benchmarks would have on the markets for LIBOR-linked financial instruments.

We can provide no assurance regarding the future of LIBOR and when our current floating rate debt instruments and hedging arrangements that refer to LIBOR will transition from LIBOR as a reference rate to SOFR or another reference rate.

The discontinuation of a benchmark rate or other financial metric, changes in a benchmark rate or other financial metric, or changes in market perceptions of the acceptability of a benchmark rate or other financial metric, including LIBOR, could, among other things result in increased interest payments, changes to our risk exposures, or require renegotiation of previous transactions.

In addition, any such discontinuation or changes, whether actual or anticipated, could result in market volatility, adverse tax or accounting effects, increased compliance, legal and operational costs, and risks associated with contract negotiations.

In addition, confusion related to the transition from USD-LIBOR to SOFR or another replacement reference rate for our floating debt and hedging instruments could have an uncertain economic effect on these instruments, hinder our ability to establish effective hedges and result in a different economic value over time for these instruments than they otherwise would have had under USD-LIBOR.

Loans under our credit facility may bear interest based on SOFR, but experience with SOFR based loans is limited.

Our credit facility requires the applicable interest rate or payment amount by reference to SOFR ("Secured Overnight Financing Rate").

The use of SOFR based rates may result in interest rates and/or payments that are higher or lower than the rates and payments that we previously experienced under USD-LIBOR.

In addition, confusion related to the transition from USD-LIBOR to SOFR could have an uncertain economic effect on these instruments, hinder our ability to establish effective hedges and result in a different economic value over time for these instruments than they otherwise would have had under USD-LIBOR.

Furthermore, the use of SOFR based rates is relatively new, and there could be unanticipated difficulties or disruptions with the calculation and publication of SOFR based rates.

In particular, if the agent under our credit facility determines that SOFR based rates cannot be determined or the agent or the lenders determine that SOFR based rates do not adequately reflect the cost of funding, outstanding SOFR based loans may be converted into base rate loans, which could result in increased borrowing costs.

Covenants in our debt agreements could adversely affect our financial condition.

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Risks Related to Our Organizational Structure

Our charter and Maryland law contain provisions that may delay, defer or prevent a change in control of WashREIT, even if such a change in control may be in the best interest of our shareholders, and as a result may depress the market price of our common shares.

Our charter and Maryland law contain provisions that may delay, defer or prevent a change in control of Elme Communities, even if such a change in control may be in the best interest of our shareholders, and as a result may depress the market price of our common shares.

Provisions of the Maryland General Corporation Law ("MGCL") may limit a change in control which could prevent holders of our common shares from profiting as a result of such change in control.

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• a provision where the voting rights of “control shares” acquired in a “control share acquisition,” as defined in the MGCL, may be restricted, such that the “control shares” have no voting rights, except to the extent approved by a vote of holders of two-thirds of the common shares entitled to vote on the matter.

Our bylaws currently provide that the foregoing provision regarding "control share acquisitions" will not apply to any acquisition by any person of shares of beneficial interest of WashREIT.

However, our board of trustees could, in the future, modify our bylaws such that the foregoing provision regarding "control share acquisitions" would be applicable to WashREIT.

Our bylaws currently provide that the foregoing provision regarding "control share acquisitions" will not apply to any acquisition by any person of shares of beneficial interest of Elme Communities.

There can be no assurance that this provision will not be amended or eliminated at any time in the future by our board of trustees and may be amended or eliminated with retroactive effect.

Additionally, Title 8, Subtitle 3 of the MGCL permits our board of trustees, without shareholder approval and regardless of what is currently provided in our declaration of trust or bylaws, to implement certain takeover defenses.

These provisions may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then current market price.

The stock ownership limits imposed by the Code for REITs and imposed by our charter may restrict our business combination opportunities that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.

The share ownership limits imposed by the Code for REITs and imposed by our charter may restrict our business combination opportunities that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.

The ownership of our shares must be restricted in several ways in order for us to maintain our qualification as a REIT under the Code.

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Our board of trustees may, in its sole discretion, grant exemptions to the share ownership limits, subject to such conditions and the receipt by our board of trustees of certain representations and undertakings to ensure that our REIT qualification is not adversely affected.

year) or that would otherwise cause us to fail to qualify as a REIT, or (b) transferring equity shares if such transfer would result in our equity shares being owned by fewer than 100 persons.

In addition to 9.8% (or any lower future percentage) share ownership limits, our charter also prohibits any person from (a) beneficially or constructively owning, as determined by applying certain attribution rules of the Code, our equity shares that would result in us being “closely held” under Section 856(h) of the Code (regardless of whether the interest is held during the last half of a taxable year) or that would otherwise cause us to fail to qualify as a REIT, or (b) transferring equity shares if such transfer would result in our equity shares being owned by fewer than 100 persons.

The share ownership limits contained in our charter are based on the ownership at any time by any “person,” which term includes entities and certain groups.

The share ownership limitations in our charter are common in REIT charters and are intended to provide added assurance of compliance with the tax law requirements.

However, the share ownership limits on our shares and our enforcement of them might delay, defer, prevent, or otherwise inhibit a transaction or a change in control of WashREIT, including a transaction that might involve a premium price for our common shares or that might otherwise be in the best interest of our shareholders.

However, the share ownership limits on our shares and our enforcement of them might delay, defer, prevent, or otherwise inhibit a transaction or a change in control of Elme Communities, including a transaction that might involve a premium price for our common shares or that might otherwise be in the best interest of our shareholders.

Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit your recourse in the event of actions that you do not believe are in your best interests.

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As a result, we and our shareholders may have more limited rights against our trustees and officers than might otherwise exist.

Accordingly, in the event that actions taken in good faith by any of our trustees or officers impede the performance of WashREIT, your ability to recover damages from such trustees or officers will be limited with respect to trustees and may be limited with respect to officers.

Accordingly, in the event that actions taken in good faith by any of our trustees or officers impede the performance of Elme Communities, your ability to recover

damages from such trustees or officers will be limited with respect to trustees and may be limited with respect to officers.

In addition, we will be obligated to advance the defense costs incurred by our trustees and our executive officers, and may, in the discretion of our board of trustees, advance the defense costs incurred by our officers, our employees and other agents, in connection with legal proceedings.

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• perceived attractiveness of investment in us, in comparison to other REITs;

• perceived attractiveness of the Washington, DC metro and Southeastern regions;

• perceived attractiveness of the Washington, DC metro and Sunbelt regions;

• attractiveness of securities of REITs in comparison to other asset classes taking into account, among other things, that a substantial portion of REITs’ dividends may be taxed as ordinary income;

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In addition, we will be subject to U.S.

federal income tax at the regular corporate rate (currently 21%) to the extent that we distribute less than 100% of our net taxable income (including net capital gains) and will be subject to a 4% nondeductible excise tax on the amount by which our distributions in any calendar year are less than a minimum amount specified under U.S.

amount by which our distributions in any calendar year are less than a minimum amount specified under U.S.

federal income tax laws.

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Any of these taxes would decrease cash available for the payment of our debt obligations and distributions to shareholders.

Our taxable REIT subsidiaries (and any taxable REIT subsidiaries formed in the future) generally will be subject to U.S.

Our taxable REIT subsidiary (and any taxable REIT subsidiary formed in the future) generally will be subject to U.S.

federal, state and local corporate income tax on their taxable income.

Moreover, while we will attempt to ensure that our dealings with our taxable REIT subsidiaries (and any taxable REIT subsidiaries formed in the future) do not adversely affect our REIT qualification, we cannot provide assurances that we will successfully achieve that result.

Moreover, while we will attempt to ensure that our dealings with our taxable REIT subsidiary (and any taxable REIT subsidiary formed in the future) do not adversely affect our REIT qualification, we cannot provide assurances that we will successfully achieve that result.

Partnership tax audit rules could have a material adverse effect on us.

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Most recently, numerous legislative, judicial and administrative changes have been made to the U.S.

federal income tax laws in connection with the passage of the Tax Cuts and Jobs Act of 2017 and the Coronavirus Aid, Relief and Economic Security Act.

federal income tax laws in connection with the passage of the Tax Cuts and Jobs Act of 2017, the Coronavirus Aid, Relief and Economic Security Act and the Inflation Reduction Act of 2022.

We cannot predict whether, when or to what extent new U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors