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Item 1. Business

2025-02-14 compared with 2024-02-16 · 44 added, 45 removed, 144 unchanged (38% of the section changed)

Elme Communities Overview

Elme Communities, a Maryland real estate investment trust, formerly known as Washington Real Estate Investment Trust (the "Company"), is a self-administered equity real estate investment trust ("REIT") and successor to a trust organized in 1960.

Elme Communities, a Maryland real estate investment trust, formerly known as Washington Real Estate Investment Trust (the “Company”), is a self-administered equity real estate investment trust (“REIT”) within the meaning of Sections 856-860 of the

Internal Revenue Code of 1986, as amended (the “Code”) and successor to a trust organized in 1960.

Our business primarily consists of the ownership of apartment communities in the greater Washington, DC metro and Sunbelt regions.

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As of December 31, 2024, we have acquired six apartment communities in the Atlanta metro region and we remain optimistic about the near and longer-term demand drivers in the Atlanta metro region.

Looking forward, we plan to continue to expand our footprint outside of the Washington, DC metro region.

We intend to target markets with skilled labor development and in-migration, diverse economies with innovative industries, strong productivity and wage growth for middle income residents, and demand for affordable mid-market housing.

We believe our portfolio's allocation in the Atlanta and Washington, DC metro regions, and our focus on value-oriented price points, will help enable our future growth, while also providing relative insulation during economic downturns.

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Washington, DC metro region (22 apartment communities)

In the fourth quarter of 2023, the Washington, DC metro region absorbed 1,600 units (the third highest 4th quarter performance on record for the Washington, DC metro region), as 4,000 units delivered concurrently.

The rebound in demand in 2023 brought annual demand to 10,800 units, a top five performance nationwide.

Despite healthy absorption, supply and demand remained imbalanced.

As a result, occupancy ticked down 40 basis points over the year to 94.7%.

Effective asking rents declined 0.4% in the fourth quarter of 2023 compared to the third quarter of 2023, averaging $2,110 per month, or $2.39 per square foot, pushing annual rent growth down to 2.5%.

Annual rent change, as of the fourth quarter of 2023, was highest among Class B multifamily properties at 3.7% with Class A multifamily properties trailing behind at 2.4%.

Generally, rents grew most in low supply submarkets, whereas rent cuts were most common in higher supply areas.

In the fourth quarter of 2024, the Washington, DC metro region absorbed 8,200 units (the fifth highest rate nationally), as 4,300 units delivered concurrently.

Strong demand in 2024 brought annual demand to 22,000 units, the sixth highest demand performance nationwide.

Due to this healthy absorption and restrained supply, occupancy ticked up 130 basis points year-over-year to 96.0%.

Effective asking rents declined 0.6% in the fourth quarter of 2024 compared to the third quarter of 2024, averaging $2,206 per month, or $2.49 per square foot, while annual rent growth reached 3.4%.

Annual rent change, as of the fourth quarter of 2024, was highest among Class A multifamily properties at 4.2% with Class B multifamily properties trailing behind at 3.8%.

Generally, rents grew more in low supply submarkets, whereas more modest rent growth occurred in higher supply areas.

Occupancy remained strongest in Class B multifamily properties at 96.4%.

The Washington, DC metro economy is considered to be recession-resistant due to a high concentration of government and government-affiliated jobs.

Annual job growth for the Washington, DC metro region, as reported by the U.S.

Bureau of Labor Statistics was 1.1%, or 36,600 jobs as of November 2024, year-over-year.

The RealPage Market Analytics apartment market outlook points to a heavy construction pipeline with 29,400 units currently under construction, of which 18,200 are planned for delivery over the next year.

The RealPage Market Analytics apartment market outlook points to a moderate construction pipeline with 19,000 units currently under construction, of which 13,600 are planned for delivery over the next year.

Given the projected pipeline, rent and occupancy performance are expected to vary across submarkets, with market-level readings that roughly match the national average in the coming two to three-year window.

Atlanta metro region (6 apartment communities)

In the fourth quarter of 2023, the Atlanta metro region absorbed 2,900 units (the fourth highest 4th quarter performance on record for the Atlanta metro region), as 5,400 units delivered concurrently.

Quarterly occupancy in the market contracted 40 basis points year-over-year to about 92.3%.

Annual demand rose to 9,700 units, a significant improvement from the annual net move-outs of 7,000 units recorded in the first quarter of 2023.

In the fourth quarter of 2024, the Atlanta metro region absorbed 7,600 units (the sixth highest rate nationally), as 5,100 units delivered concurrently.

Occupancy in the market expanded 50 basis points year-over-year to 92.8%.

Annual demand accelerated to 24,600 units, while 24,100 units delivered, ranking Atlanta fifth in completion volume nationally.

The Atlanta metro region recorded an annual rent cut of 4.1%, with effective asking rents averaging $1,577 per month, or $1.55 per square foot.

Class C multifamily properties saw the steepest rent decline of 6.6% on average, followed by Class B multifamily properties with rent cuts of 4.3% on average, and Class A multifamily properties with rent cuts of 3.6% on average.

All but one of Atlanta’s 39 submarkets posted rent cuts on an annual basis.

Class C multifamily properties saw the steepest rent decline of 6.2% on average, followed by Class B and Class A multifamily properties with rent cuts of 3.5% and 3.0%, respectively.

All but two of Atlanta’s 39 submarkets posted rent cuts on an annual basis, ranging from rent growth of 2.7% in West Marietta to the steepest rent cut of 6.9% in the Sandy Springs and Far East Atlanta submarkets.

Annual job growth for the Atlanta metro region as reported by the U.S.

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The RealPage Market Analytics apartment market outlook has 24,350 units currently under construction, of which 17,600 are planned for delivery over the next year.

In the short term, rent change and occupancy are expected to remain muted and are expected to move closer to national norms in 2025, once the current supply wave moderates.

In the short term, rent change and occupancy are expected to remain muted, as the market continues to work its way through the large but shrinking delivery pipeline, and are expected to move closer to national norms in late 2025 into 2026, once the current supply wave moderates.

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We also owned approximately 300,000 square feet of commercial space in the Washington, DC metro region.

The percentage of total real estate rental revenue from continuing operations by property type for the three years ended December 31, 2023, and the average occupancy for the year ended December 31, 2023, were as follows:

The percentage of total real estate rental revenue by property type for the three years ended December 31, 2024, and the average occupancy for the year ended December 31, 2024, were as follows:

Average Occupancy, year ended December 31, 2024

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100 % 100 % 100 %

Total real estate rental revenue from continuing operations for each of the three years ended December 31, 2023, was $227.9 million, $209.4 million and $169.2 million, respectively.

During the three years ended December 31, 2023, we acquired six residential properties and placed one residential development project into service.

During that same period, we sold twelve office properties and eight retail properties.

Total real estate rental revenue for each of the three years ended December 31, 2024, was $241.9 million, $227.9 million and $209.4 million, respectively.

During the three years ended December 31, 2024, we acquired four residential properties.

See note 14 to the consolidated financial statements for further discussion of our operating results by segment.

No single tenant accounted for more than 5% of real estate rental revenue from continuing operations in any of the three years ended December 31, 2023.

No single tenant accounted for more than 5% of real estate rental revenue in any of the three years ended December 31, 2024.

In October 2022, we began a process to internalize our management operations, and this process was completed in July 2023.

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Although they varied by community, on average, the fees charged by Bozzuto/Greystar under each agreement were approximately 3% of revenues at each residential community.

As of December 31, 2023, we have transitioned all of our residential communities to Elme management.

Stream Realty Partners ("Stream") provides property management and leasing services at our sole office property, Watergate 600.

All of our residential communities are currently under Elme management and Stream Realty Partners (“Stream”) provides property management and leasing services at our sole office property, Watergate 600.

We make capital improvements to our properties on an ongoing basis for the purpose of maintaining and increasing their value and income.

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Environmental

In 2021, we announced our commitment to net zero carbon operation in alignment with the Urban Land Institute’s Greenprint Net Zero by 2050 Goal.

In 2023, we joined the U.S.

Department of Energy (DOE) Better Climate Challenge, further aligning greenhouse gas emission reduction with industry leaders.

Meeting this goal requires that we fully integrate a focus on carbon reductions into our strategic approach and at all levels of our organization throughout our portfolio.

We implement sustainable policies and practices at all of our properties, for purposes of ensuring occupants and residents work and live in efficient, healthy spaces.

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We apply industry standard rating systems such as the Leadership in Energy and Environmental Design (“LEED”) and Building Research Establishment Environmental Assessment Method (“BREEAM”) to establish sustainable practices for building design, construction, operations, and maintenance.

In 2024, we completed recertification of eight properties using the BREEAM In-Use Assessment.

During unit renovations, we replace end-of-life appliances with ENERGY STAR rated equipment;

heating, ventilation, and air conditioning systems with more efficient models;

as well as update water fixtures to low-flow options.

Additionally, we continue to expand our electric vehicle charging stations across our portfolio to support the transition of our residents to electric transportation.

heating, ventilation, and air conditioning systems with more efficient models and water fixtures to low-flow options.

Additionally, we continue to expand our electric vehicle charging stations across our portfolio to support the transition of our residents to electric

transportation.

We are committed to assessing and evaluating climate-related risks and opportunities that may affect our assets and overall business.

Climate risk management is integrated into our annual Enterprise Risk Management (“ERM”) process, which seeks to identify and prioritize responses to potential risks to our company, people and financial performance.

In 2021, we announced our commitment to net zero carbon operation in alignment with the Urban Land Institute’s Greenprint Net Zero by 2050 Goal.

In 2023, we joined the U.S.

Department of Energy Better Climate Challenge, further aligning greenhouse gas emission reduction goals with industry leaders.

Meeting these goals require that we fully integrate a focus on carbon reductions into our strategic approach, at all levels of our organization and throughout our portfolio.

Among our social initiatives is a commitment to financial inclusion, pursuant to which we aim to increase the availability and equality of financial service opportunities, remove barriers to the financial sector, and enable individuals to improve their financial wellbeing.

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In addition to financial wellness, we support our residents physical and mental health and wellness through on-site amenities such as gymnasiums, pools, playgrounds, and community rooms, as well as close access to bike lanes, walking/running paths, parks, and other outdoor amenities.

In 2023, we certified our first five communities to Fitwel Health and Wellness.

Five of our communities are certified to Fitwel Health and Wellness.

The certification is awarded to buildings that promote occupant health and well-being by incorporating a number of evidence-based design and operations strategies that support the physical, mental, and social health of occupants.

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In 2020, our Board formalized the oversight of ESG initiatives, recognizing that environmental and social matters—together with strong corporate governance—play a critical role in the execution of our ESG strategy.

Some of our ESG policies, including our Human Rights Policy, Vendor Code of Conduct, and Environmental Sustainability Policy, can be found on our website at elmecommunities.com/esg/governance/.

Some of our ESG policies, including our Human Rights Statement, Code of Business Conduct and Ethics, Vendor Code of Conduct, and Environmental Policy, can be found on our website at elmecommunities.com/esg/governance/.

We are made up of growth-oriented, hardworking individuals dedicated to transforming creative ideas into decisive action.

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Health, Safety and Well-being

We support our employees with a robust and competitive employee benefits program, including a flexible vacation policy, parental leave, 401(k) matching, tuition reimbursement, an Employee Assistance Program, and other programs.

Additionally, we have a wellness program that provides fun, engaging challenges to encourage employees to continuously improve their physical, mental, and financial well-being.

In our corporate office, we offer two wellness rooms for employees to take a break to decompress.

We support our employees with a robust and competitive employee benefits program, including flexible paid leave policies, parental leave, 401(k) matching, tuition reimbursement, an Employee Assistance Program, and other programs.

Additionally, we have a wellness program that provides fun and engaging challenges to encourage employees to continuously improve their physical, mental, and financial well-being.

We also partner with our 401(k) administrator to host financial wellness seminars.

In our corporate office, we offer two wellness rooms for employee use.

Our technological capabilities allow our corporate-level employees the flexibility to work from anywhere at any time.

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Diversity, Equity, Inclusion and Accessibility

Our Diversity, Equity, Inclusion, and Accessibility Initiative ("DEIA") is a long-term commitment to promoting an environment where each individual feels comfortable being their most authentic selves.

Our Diversity, Equity, Inclusion, and Accessibility Initiative (“DEIA”) is a long-term commitment to promoting an environment where everyone feels comfortable being their most authentic selves.

We believe diversity of backgrounds, experiences, cultures, ethnicities, and interests leads to new ways of thinking and drives engagement and organizational success.

Our diverse Cultural Advisory Board ("CAB") is overseen by our senior leadership team and our Board.

The CAB tracks and monitors our diversity metrics and facilitates learning and training opportunities, including a diversity speaker series, targeted recruitment and relationship development with diverse industry groups for internships and employment opportunities and partnering with community-based non-profits for volunteer activities.

Our Cultural Advisory Board (“CAB”) is a byproduct of the DEIA initiative.

Sponsored by our senior leadership team, the CAB has responsibilities that include finding new initiatives to increase employee engagement, developing community service opportunities to engage with our communities, listening to the concerns of our team members, and supporting key initiatives like diversity, equity, inclusion, and accessibility.

Community Engagement

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REIT Tax Status

We believe that we qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), and intend to continue to qualify as such.

We believe that we qualify as a REIT under the Code, and intend to continue to qualify as such.

To maintain our status as a REIT, we are, among other things, required to distribute 90% of our REIT taxable income (determined before the deduction for dividends paid and excluding net capital gains), to our shareholders on an annual basis.

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These liabilities for remediation could be substantial and the cost of any required remediation, fines, or other costs could exceed the value of the property and/or our aggregate assets.

In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or bodily injury or property damage or materially adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral.

In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or bodily injury or property damage or materially adversely affect our ability to sell, lease, operate or develop our properties or to borrow using the properties as collateral.

In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination.

Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property may be used or

businesses may be operated, and these restrictions may require substantial expenditures.

Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property

may be used or businesses may be operated, and these restrictions may require substantial expenditures.

Availability of Reports

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The reference to our website address does not constitute incorporation by reference of the information contained in the website and such information should not be considered part of this document.

The Securities and Exchange Commission maintains a website ( http://www.sec.gov ) that contains reports, proxy statements, information statements, and other information regarding issuers that file electronically with Securities and Exchange Commission.

The Securities and Exchange Commission maintains a website ( https://www.sec.gov ) that contains reports, proxy statements, information statements, and other information regarding issuers that file electronically with Securities and Exchange Commission.

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 1. Business