What changed in this filing

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Item 1A. Risk Factors

2025-02-14 compared with 2024-02-16 · 81 added, 73 removed, 332 unchanged (32% of the section changed)

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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 shares and our ability to make distributions to our shareholders.

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.

Between 2021 and 2023, we acquired six apartment communities in the Atlanta metro region and plan to continue to invest in the Sunbelt region in 2024 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 have entered or that we may enter as we do with the Washington, DC market, 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 presence or achieve a desired return on our investments in communities in new markets.

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.

We cannot assure you that our evaluation of strategic alternatives will result in any particular outcome, and the process of reviewing strategic alternatives or the conclusion of the process could adversely affect our business and our stockholders.

On February 13, 2025, we announced that the Board has initiated a formal review to evaluate strategic alternatives for the Company .

Our Board has not set a deadline or definitive timetable for the completion of this strategic review process, nor have any decisions been made relating to any strategic alternatives at this time.

There can be no assurance that this process will result in the Company pursuing a transaction or any other strategic outcome.

Any potential transaction may be dependent on a number of factors that are beyond our control, for example, market conditions, industry trends, the interest of third parties in a potential transaction with us and the availability of any necessary financing on reasonable terms.

The process of exploring strategic alternatives could adversely impact our business, financial condition and results of operations.

We could incur substantial expenses associated with identifying, evaluating and negotiating potential strategic alternatives, including those related to equity compensation, severance pay and legal, accounting and financial advisory fees.

In addition, the process may be time consuming and disruptive to our business operations, could divert the attention of management and the Board from our business, could negatively impact our ability to attract, retain and motivate key employees, and could expose us to potential litigation in connection with this process or any resulting transaction.

Further, speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.

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.

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.

Any of the following factors, among others, may adversely affect the cash flow generated by our apartment communities and ability to make distributions to our shareholders:

• a decrease in demand for rental properties over home ownership resulting from, among other reasons, resident preferences, decreases in housing prices and mortgage interest rates, and government programs to promote home ownership or subsidize rental housing, slow or negative employment growth and household formation;

Any of the following factors, among others, may adversely affect the cash flow generated by our apartment communities and our ability to make distributions to our shareholders:

• a decrease in demand for rental properties over home ownership resulting from, among other reasons, resident preferences, decreases in housing prices and mortgage interest rates, government programs to promote home ownership or subsidize rental housing, employment growth and household formation;

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

• 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;

• declines in the financial condition of our residents and their ability to pay rent;

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

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• the effects of government regulation in the real estate industry;

• our ability to integrate new technological innovations into our properties to attract residents;

• our ability to integrate new technological innovations (including artificial intelligence) into our marketing and properties to attract residents;

• our ability to attract and retain qualified personnel with knowledge of the market;

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As of December 31, 2024, 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.

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.

Additionally, the multifamily industry is also highly competitive.

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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.

Macroeconomic trends, including inflation and rising interest rates, may adversely affect our cash flow, 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.

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 common shares and our ability to make distributions to our shareholders.

We intend to look for additional opportunities to expand our residential platform through acquisitions in Sunbelt markets, to the extent they meet our investment criteria and are consistent with our growth strategy.

Between 2021 and 2023, we acquired six apartment communities in the Atlanta metro region and plan to continue to invest in the Sunbelt region in 2025 and beyond.

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

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

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

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

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

In recent years, 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.

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For example, we recognized an impairment in the third quarter of 2023 on our sole remaining office property, Watergate 600.

Also, if prevailing interest rates or other factors, such as the reluctance of lenders to make commercial real estate loans or the loss of the benefits of hedging arrangements, results in higher interest rates on our indebtedness, the increased interest expenses would adversely affect our cash flow, financial condition, and results of operation.

We are currently dependent upon the economic and regulatory climate of the Washington, DC and Atlanta metro regions, which may impact financial condition and results of operations.

As of December 31, 2023, 75% of our residential apartment homes were located in the Washington, DC metro region and 25% of our residential apartment homes were located in the Atlanta, Georgia metro region.

While we intend to continue expansion of our platform in the Sunbelt region, our current concentration in just two geographic metro regions may expose us to a greater amount of market-dependent risk than if we were more geographically diverse.

As of December 31, 2024, approximately 75% of our residential apartment homes were located in the Washington, DC metro region and 25% of our residential apartment homes were located in the Atlanta, Georgia metro region.

While we intend to

continue expansion of our platform in the Sunbelt region, our current concentration in just two geographic metro regions 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.

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

We are also susceptible to adverse developments in the regulatory environment of any of the markets in which we operate, particularly Washington, D.C., such as increases in real estate and other taxes, the costs of complying with governmental regulations or increased regulations, including zoning and tax laws, and actual or threatened reductions in government spending and/or changes to the timing of government spending, as has occurred during federal government shutdowns.

We are also susceptible to adverse developments in the regulatory environment of any of the markets in which we operate, particularly Washington, D.C., such as increases in real estate and other taxes, the costs of complying with governmental regulations or increased regulations, including zoning and tax laws, and actual or threatened reductions in government operations and/or spending potentially driven by actions, decisions or initiatives of the federal government (including the advisory committee, Department of Government Efficiency) and/or changes to the timing of government spending, as has occurred during federal government shutdowns.

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 geographically diversified.

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The expense of owning and operating a property is not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property or an increase in operating costs.

As a result, if revenues drop, we may not be able to reduce our expenses accordingly.

As a result, if revenues decline, we may not be able to reduce our expenses accordingly.

Loan payments are an example of a cost that will not be reduced if our revenues decrease.

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Although we are primarily in the residential rental business, we also own ancillary commercial space, primarily within our apartment communities, and own one office building that we lease to third parties.

Gross rental revenue provided by leased commercial space in our portfolio represented 8% of our real estate rental revenue from continuing operations in 2023.

Gross rental revenue provided by leased commercial space in our portfolio represented 8% of our real estate rental revenue in 2024.

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.

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Due to these factors, we may be unable to sell a property at an advantageous time or on the terms anticipated which could negatively impact our profitability.

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.

Rent control, rent stabilization legislation and other regulatory restrictions may impact the manner in which we make rent decisions, including our ability to increase rents and pass through new or increased operating costs to our residents.

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.

In addition, some jurisdictions in the United States where we do not currently have communities have recently adopted regulations restricting the use of algorithmic devices or systems when making decisions regarding rents or occupancy, and other jurisdictions where we have properties could adopt similar regulations in the future.

Laws and regulations that restrict the timing and amount of rent increases 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.

In addition, such low- and moderate-income housing regulations often require us to rent a certain number of homes at below-market rents, which has a negative impact on our ability to increase cash flows from our residential properties subject to such regulations.

Furthermore, such regulations may negatively impact our ability to attract higher-paying residents to such properties.

As of December 31, 2023, four of our residential properties, each located within the Washington, DC metro region, were subject to such regulations.

Furthermore, such rent control and rent stabilization regulations may negatively impact our ability to attract higher-paying residents to such properties.

As of December 31, 2024, four of our residential properties, each located within the Washington, DC metro region, were subject to such rent control or rent stabilization regulations.

Our business and reputation depend on our ability to continue to provide high quality housing and consistent operation of our communities, the failure of which could adversely affect our business, financial condition and results of operations.

Our business and reputation depend on providing our residents with quality housing including a wide variety of amenities such

as covered parking, swimming pools, fitness facilities and similar features, highly reliable services, including water and electric power and the consistent operation of our communities.

Our business and reputation depend on providing our residents with quality housing including a wide variety of amenities such as covered parking, swimming pools, fitness facilities and similar features, highly reliable services, including water and electric power and the consistent operation of our communities.

The delayed delivery or any material reduction or prolonged interruption of these services may cause residents to terminate their leases or may result in a reduction of rents and/or increase in our costs or other issues.

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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.

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

Many investors focus on ESG-related business practices and scores when choosing where to allocate their investments and may consider a company’s score as a factor in making an investment decision.

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As a result, if liability were asserted against us based upon the acquisition of a property, we may have to pay substantial sums to settle it, which could adversely affect our cash flow.

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.

We may from time to time invest in joint ventures in which we are not the exclusive investor or the only decision maker.

Investments in such entities may involve risks not present when a third party is not involved, including the possibility that the other parties to these investments may have business interest or goals that are inconsistent with our own, including for example, whether to sell or retain joint venture properties or interests, become bankrupt or fail to fund their share of required capital contributions.

In some instances, joint venture partners may have competing interests that could create conflicts of interest, including compliance with the REIT requirements, and our REIT status could be jeopardized if any of our future 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 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.

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Changes in U.S.

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.

comply with such regulations or otherwise adapt to climate change.

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.

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Liability under these laws may be joint and several, meaning that we could be required to bear 100% of the liability even if other parties are also liable.

From time to time, we may be required to investigate and clean-up hazardous substances or petroleum products or remove, abate or manage asbestos, mold, radon gas, lead or other hazardous conditions at our properties, and the costs of those effort may be substantial and could exceed the value of the property and/or our aggregate assets.

our properties, and the costs of those effort may be substantial and could exceed the value of the property and/or our aggregate assets.

The presence or release of such hazardous substances or petroleum products at our currently owned or leased properties could result in limitations on or interruptions to our operations, or may adversely affect our ability to sell or rent such properties or borrow using such properties as collateral.

Releases of hazardous substances or petroleum products at our currently or formerly owned or leased properties could result 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.

Releases of hazardous substances or petroleum products at our currently or formerly owned or leased properties could result in tort claims by tenants, occupational health and safety violations or workers compensation claims by our employees, or other 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 i n doing so.

It is our policy to retain independent environmental consultants to conduct Phase I environmental site assessments and asbestos surveys prior to our acquisition of properties.

However, there is a risk that these

assessments will not identify all potential environmental issues at a given property.

However, there is a risk that these assessments will not identify all potential environmental issues at a given property.

Moreover, environmental, health and safety requirements have become increasingly stringent, and our costs may increase as a result.

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We may also incur significant costs complying with other regulations.

In addition, failure of our properties to comply with the ADA could result in injunctive relief, fines, an award of damages to private litigants or mandated capital expenditures to remedy such noncompliance.

Any imposition of injunctive relief, fines, damage awards or capital expenditures could adversely impact our business or results of operations.

Our properties are subject to various other federal, state and local regulatory requirements, such as state and local fair housing, rent control and fire and life safety requirements.

If we fail to comply with the requirements of the ADA or other federal, state and local regulations, we could be subject to fines, penalties, injunctive action, reputational harm and other business effects which could materially and negatively affect our performance and results of operations.

In addition, existing laws could be interpreted in a manner that restricts our ability to use systems that we currently use in our operations and we may face litigation or regulatory risk in connection with such laws.

Future compliance with new laws of general applicability, laws applicable to companies in our industry, or laws applicable to public companies generally could increase our costs and could have an adverse effect on our financial performance.

Our properties are subject to various federal, state and local regulatory requirements, such as the ADA, state and local fair housing, rent control and fire and life safety requirements.

If we fail to comply with the requirements of the ADA or other federal, state and local regulations, we could be subject to fines, penalties, injunctive action, damages to private litigations, reputational harm and other business effects, such as mandated capital expenditures to remedy noncompliance, which could materially and negatively affect our performance and results of operations.

Litigation risk could affect our business.

We are involved and may continue to be involved in legal proceedings and claims in the ordinary course of business and may also be involved in class actions, inquiries and governmental investigations.

These legal proceedings may include, but are not limited to, proceedings related to consumer, shareholder, securities, antitrust, employment, environmental, development, condominium conversion, tort, eviction and commercial legal issues.

Litigation can be lengthy and expensive, and it can divert management's attention and resources.

Results cannot be predicted with certainty, and an unfavorable outcome in litigation could result in liability material to our financial condition or results of operations.

In addition, other multifamily apartment owners could become involved in legal proceedings, the outcome of which could affect their business as well as the way we conduct our business.

For example, one of our vendors, RealPage, is currently involved in lawsuits alleging that RealPage and others conspired to artificially inflate the prices of multifamily residential real estate above competitive levels.

We face cybersecurity risks which have the potential to disrupt our operations, cause material harm to our financial condition, result in misappropriation of assets, compromise confidential information and/or damage our business relationships and we can provide no assurance that the steps we and our service providers take in response to these risks will be effective.

We are dependent on our information technology networks and systems to access, as well as those of third parties, to process, transmit and store proprietary and confidential information, including personal information of residents, employees, and vendors.

We are dependent on our information technology networks and systems, as well as those of third parties, to access, process, transmit and store proprietary and confidential information, including personal information of residents, employees, and vendors.

We face cybersecurity threats, including system, network or internet failures, cyber-attacks, ransomware and other malware, social engineering, phishing schemes and workforce member error, negligence, or fraud.

The risk of a 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.

Any such cybersecurity incident, including those impacting personal information, 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 impacted information or assets, increased cybersecurity protection and insurance costs, regulatory scrutiny or enforcement, litigation and damage to our stakeholder relationships.

The risk of a cyber-attack, including by 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.

Any such cybersecurity incident, including those impacting personal information, 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 (including personal information) collected in the course of conducting our business, liability for impacted information or assets, increased cybersecurity protection and insurance costs, regulatory scrutiny or enforcement, litigation and damage to our stakeholder relationships.

A cybersecurity incident could also interfere with our ability to comply with financial reporting requirements.

Additionally, future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and threats, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies.

Additionally, future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and threats, as our systems or business activities could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies.

Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program.

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Additionally, as a result of the internalization of community management services for our properties, which was completed in 2023, 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 a cybersecurity incident.

We have identified and expect to continue to identify cyberattacks and cybersecurity incidents on our systems and those of third parties, but none of the cyberattacks and incidents we have identified to date has had a material impact on our business or operations.

We have identified and expect to continue to identify cyber-attacks and cybersecurity incidents affecting our systems and those of third parties, but none of the cyber-attacks and incidents we have identified to date has had a material impact on our business or operations.

While we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any incurred losses.

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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.

We currently, and may from time to time in the future, invest in joint ventures in which we are not the exclusive investor or the only decision maker.

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.

Risks Related to Financing

Rising interest rates would increase our interest costs and negatively impact our cash flow.

High interest rates would increase our interest costs and negatively impact our cash flow.

We have and may continue to incur indebtedness that bears interest at variable rates.

As a result, an increase in interest rates will increase our interest expense, which could adversely affect our cash flow and our ability to service debt.

As a protection against rising interest rates, we may enter into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts.

As a result, high interest rates will increase our interest expense, which could adversely affect our cash flow and our ability to service debt.

As a protection against high interest rates, we may enter into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts.

These agreements, however, increase our risks, including other parties to the agreements not performing or that the agreements may be unenforceable.

The Federal Reserve cut its benchmark rate in the third quarter of 2024 for the first time since March 2020 and continued with two more benchmark rate cuts in the fourth quarter of 2024, but future reductions to benchmark rates are not certain.

Also, if prevailing interest rates or other factors, such as the reluctance of lenders to make commercial real

estate loans or the loss of the benefits of hedging arrangements, result in higher interest rates on our indebtedness, the increased interest expenses would adversely affect our cash flow, financial condition, and results of operation.

We face risks associated with the use of debt, including refinancing risk.

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This volatility resulted in investors decreasing the availability of debt financing as well as increasing the cost of debt financing.

These conditions, which increase the cost and reduce availability of debt, may continue to worsen in the future.

These conditions, which increase the cost and reduce availability of debt, may worsen in the future.

Circumstances could again arise in which we may not be able to obtain debt financing in the future on favorable terms, or at all.

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Our senior unsecured debt is currently rated investment grade by two major rating agencies.

However, there can be no assurance that we will be able to maintain this rating, and in the event our senior debt is downgraded from its current rating, we would likely incur higher borrowing costs and/or difficulty in obtaining additional financing.

However, there can be no assurance that we will be able to maintain these ratings, and in the event our senior debt is downgraded from its current rating, we would likely incur higher borrowing costs and/or difficulty in obtaining additional financing.

Our degree of leverage could also make us more vulnerable to a downturn in business or the economy generally.

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Failure to hedge effectively against interest rate changes could materially adversely affect our financial condition, results of operations, cash flow, per share trading price of our common shares and ability to make distributions to our shareholders.

While such agreements are intended to lessen the impact of rising interest rates on us, they could also expose us to the risk that the other parties to the agreements would not perform, and that the hedging arrangements may not be effective in reducing our exposure to interest rate changes.

Additionally, while such agreements are intended to lessen the impact of rising interest rates on us, they could also expose us to the risk that the other parties to the agreements would not perform, and that the hedging arrangements may not be effective in reducing our exposure to interest rate changes.

In addition, the REIT provisions of the Code may limit use of certain hedging techniques that might otherwise be advantageous or push us to implement those hedges through a taxable REIT subsidiary, which would increase the cost of our hedging activities.

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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.

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

Our credit facility and term loan agreement 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, 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 that could 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.

In particular, if the agent under our credit facility or under our term loan agreement determines that SOFR based rates cannot be determined or the applicable agent or 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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The share ownership limitations in our declaration of trust 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 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.

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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Cash flows from operations are an important factor in our ability to sustain our dividend at its current rate.

If our cash flows from operations were to decline significantly, we may have to borrow on our lines of credit to sustain the dividend rate or reduce our dividend.

If our cash flows from operations were to decline significantly, we may have to borrow on our lines of credit to sustain the dividend rate or

reduce our dividend.

Our ability to continue to pay dividends on our common shares at their current rate or to increase our common share dividend rate will depend on a number of factors, including, among others, our future financial condition and results of operations and the terms of our debt covenants.

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If we do not maintain or increase the dividend rate on our common shares in the future, it could have an adverse effect on the market price of our common shares.

Additionally, the market value of our securities can be adversely affected by many factors, including certain factors related to our REIT status.

The market value of our securities can be adversely affected by many factors.

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If we fail to qualify as a REIT, we could face serious tax consequences that could substantially reduce our funds available for payment of dividends for each of the years involved because:

(i) we would be subject to U.S.

• we would be subject to U.S.

federal income tax at the regular corporate rate, without any deduction for dividends paid to shareholders in computing our taxable income, and possibly increased state and local taxes;

(ii) unless we are entitled to relief under statutory provisions, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost.

• unless we are entitled to relief under statutory provisions, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost.

This treatment would reduce net earnings available for investment or distribution to shareholders because of the additional tax liability for the year (or years) involved.

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shareholders that are individuals, trusts or estates generally is 20% (excluding the 3.8% net investment income tax).

Dividends payable by REITs, however, generally are not eligible for the maximum 20% reduced rate and are taxed at applicable ordinary income tax rates, except to the extent that certain holding requirements have been met and a REIT’s dividends are attributable to dividends received by a REIT from taxable corporations (such as a taxable REIT subsidiary), to income that was subject to tax at the REIT/corporate level, or to dividends properly designated by the REIT as “capital gain dividends.” For taxable years beginning before January 1, 2026, U.S.

Dividends payable by REITs, however, generally are not eligible for the maximum 20% reduced rate and are taxed at applicable ordinary income tax rates, except to the extent that certain holding requirements have been met and a REIT’s dividends are attributable to (i) dividends received by a REIT from taxable corporations (such as a taxable REIT subsidiary), (ii) income that was subject to tax at the REIT/corporate level, or (iii) dividends properly designated by the REIT as “capital gain dividends.” For taxable years beginning before January 1, 2026, U.S.

shareholders that are individuals, trusts or estates may deduct 20% of their dividends from REITs (excluding qualified dividend income and capital gains dividends).

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federal income tax rate applicable to non-REIT C corporations is 36.8% (excluding the 3.8% net investment income tax)).

investments in REITs to be relatively less attractive than investments in the shares of non-REIT C corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common shares.

Although the reduced rates applicable to dividend income from non-REIT C corporations do not adversely affect the taxation of REITs or dividends payable by REITs, these reduced rates could cause investors who are non-corporate taxpayers to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT C corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common shares.

The REIT distribution requirements could require us to borrow funds during unfavorable market conditions or subject us to tax, which would reduce the cash available for distribution to our shareholders.

16 unchanged sentences

We may enter into forward sale agreements from time to time and, subject to certain conditions, we have the right to elect physical, cash or net share settlement under these agreements at any time and from time to time, in part or in full.

In the event that we elect to settle a forward sale agreement for cash and the settlement price is below the forward sale price, we would be entitled to receive a cash payment from the applicable forward purchaser(s).

In the event that we elect to settle a forward sale agreement for cash and the settlement price is below the forward sale price, we would be

entitled to receive a cash payment from the applicable forward purchaser(s).

Under Section 1032 of the Code, generally, no gains and losses are recognized by a corporation in dealing in its own shares, including pursuant to a “securities futures contract,” as defined in the Code by reference to the Securities Exchange Act of 1934.

21 unchanged sentences

federal income tax legislation, regulations and other guidance.

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, the Coronavirus Aid, Relief and Economic Security Act and the Inflation Reduction Act of 2022.

In addition, according to publicly released statements, a top legislative priority of the Trump administration and Congress may be significant reform of the Code, including significant changes to taxation of business entities.

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

4 unchanged sentences

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