Item 1. Business
ITEM 1: BUSINESS
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”) 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. As of December 31, 2024, we owned 28 apartment communities and one office property.
Business and Investment Strategy
Our mission is to elevate the value living experience and create a place our residents are proud to call home by continuously focusing on service, efficiency, and innovation. We are focused on creating shareholder value by providing quality, affordably priced housing to a deep, solid, and growing base of mid-market demand. Our research indicates that affordability is a pressing rental issue at multiple price points across the mid-market rent spectrum. We believe that rents can be consistently grown if a portfolio’s price point does not compete directly with new product price points and wages for mid-market renters are growing. Furthermore, as the cost of homeownership continues to rise above affordable levels for median income earners, we expect to benefit from sustained demand for quality, affordably priced rental housing.
We acquire, develop, and renovate apartment communities that align with our research-led investment strategy, which is focused on the following:
• targeting markets that have economies with diverse, innovative industries that drive outsized job creation, wage growth and in-migration, which we believe will benefit from these trends in the years to come;
• targeting middle-income renters who make up the largest share of apartment demand in each of our current and target markets but for whom new apartment supply and the cost of owning a home is unaffordable;
• executing value-add renovations that are tailored to each submarket, target renter group and individual community to provide an improved yet affordable living experience while enhancing shareholder value; and
• targeting investment opportunities that provide the potential for significant appreciation in value and that have operating upside through community management strategies.
Our research-focused approach enables us to craft optimal strategies to provide the best combination of value, quality, and resident experience in our apartment communities. We categorize our apartment communities among broader asset classes, as determined by a variety of factors, including the age of our buildings, rent growth drivers and rent relative to the market:
Class A
– Class A communities are recently developed and command rental rates above market median rents.
– Class A- communities have been developed within the past twenty years and feature operational improvements and unit upgrades and command rents at or above median market rents.
Class B
– Class B Value-Add communities feature operational improvements and strong potential for unit renovations. These communities, which are generally over twenty years old, command average rental rates below median market rents for units that have not been renovated.
– Class B communities feature operational improvements and command average rental rates below median market rents. Near-term rent growth is driven by operational improvements and market rent growth without unit renovations. These communities are over twenty years old and can become Class B Value-Add depending on future market rents and renovation opportunities.
4
Regional Real Estate Markets (1)
While we have historically focused our investments in the greater Washington, DC metro region, we expanded our footprint to the Atlanta metro region in 2021. Atlanta offers a range of diverse, innovative industries which we believe are poised to benefit from substantial job creation, rising wages, and continued migration in the coming years. 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.
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. Over the past five and 10-year periods, Class B rent growth has outperformed Class A in both of our operating markets. Additionally, our mid-market price points generally do not compete with new supply, as our average monthly rent is generally several hundred dollars below the asking rent for new deliveries. Moreover, the national cost of owning a home compared to renting a single-family starter home is the highest it’s been in over 20 years. As housing remains undersupplied, interest rates remain high and the cost of homeownership remains unaffordable for many median-income households, we expect to benefit from sustained demand for quality, affordable rental options.
Washington, DC metro region (22 apartment communities)
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%.
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 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 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 6.2% 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. Bureau of Labor Statistics was 0.4%, or 12,900 jobs added as of November 2024, year-over-year. 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, 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.
______________________________
(1) The source of all regional market numerical data in this section is RealPage Market Analytics.
5
Our Portfolio
As of December 31, 2024, we owned approximately 9,400 residential apartment homes in the Washington, DC metro and Sunbelt regions. 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 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
% of Total Real Estate Rental Revenue
2024 2023 2022
95% Residential 92 % 92 % 91 %
87% Other 8 % 8 % 9 %
100 % 100 % 100 %
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 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. Prior to the completion of our management internalization, Bozzuto Management Company (“Bozzuto”) and Greystar Real Estate Partners (“Greystar”) provided community management and leasing services at the majority of our residential communities. Bozzuto and Greystar provided such services under individual community management agreements for each residential community, each of which was separately terminable by us or Bozzuto/Greystar, as applicable. 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. 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. Major improvements and/or renovations to the properties during the three years ended December 31, 2024 are discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Capital Improvements and Development Costs.”
Further description of the properties is contained in Item 2, Properties, and note 14 to the consolidated financial statements, Segment Information, and in Schedule III. Reference is also made to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Environmental, Social and Governance
At Elme Communities, our Environmental, Social and Governance (“ESG”) strategy is to operate and grow in a sustainable, responsible manner that contributes to positive economic, social, and environmental outcomes for shareholders, employees, and the communities in which we serve. We intend to continue providing an annual ESG report that includes disclosures aligned with Global Reporting Initiative Standards 2021, the United Nations Sustainable Development Goals, the Sustainability Accounting Standards Board and the Task Force on Climate-Related Financial Disclosures. This report can be found online at https://www.elmecommunities.com/esg/. 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.
Environmental
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. We track annual asset-level performance of energy use, greenhouse gas emissions, and water consumption, utilizing ENERGY STAR Portfolio Manager as well as Measurabl ESG software. 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 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
6
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.
Social
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. Beyond credit history, life-altering events can interrupt a resident’s ability to pay rent, including job loss, medical emergencies, domestic violence, and other hardships. This can lead to delinquencies, increased interest rate debt, potential eviction, and situational unhousing.
In 2022, we announced a partnership with a financial technology company to dismantle barriers to housing for working families. Through this partnership, on-time rent payments are reported monthly to all three credit bureaus, providing an opportunity for residents to build their credit. This no-cost amenity is available to 100% of our community residents. This initiative follows a “do no harm” mindset. Therefore, only on-time payments—not delinquencies—are reported.
In addition to credit reporting, our technology partner's platform offers housing stability loans for residents experiencing financial hardship. These interest-free loans provide up to three months of rent relief, enabling residents to remain housed during difficult times. Residents can then work with our technology partner to set up a 12-month repayment plan for the loan. These programs support the short- and long-term financial well-being of our residents.
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. 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.
Governance
At Elme, we hold ourselves, our suppliers, and the Board of Trustees (the “Board”) to high ethical standards as we seek to increase shareholder value and foster a collaborative, innovative corporate culture. Our team is required to read and certify their knowledge on our Code of Ethics, in addition to receiving ethics training throughout the year. Our Board is responsible for corporate policy and management oversight to enhance long-term shareholder value. 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 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. Our flat organizational structure facilitates frequent, meaningful interactions with Company executives, and our commitment to teamwork and entrepreneurial spirit enables employees at every level to conceptualize ideas and make them happen. We create an environment designed to encourage people to do what they do best, all while learning, growing, and contributing in meaningful ways to build a better company. We trust, encourage, and support one another, driving our pursuit of excellence.
7
Human Capital
Employees, Training and Development
On February 11, 2025, we had 255 employees, including 188 persons engaged in community management functions who were hired in connection with the internalization of our community management functions, and 67 persons engaged in corporate, financial, asset management and other functions. Of the 188 persons engaged in community management functions, 49 are employed in the Atlanta metro region at six different communities, with the remainder in the Washington, DC metro region. All of our officers and substantially all of our corporate-level employees live and work in or near the greater Washington, DC metro region, and our community management employees live and work in or near their respective communities.
Our human capital resources objectives include identifying, recruiting, retaining, incentivizing and integrating our new and existing employees. At Elme Communities, we place great value on employee growth through goals, feedback and professional and leadership development offerings. Our human resources team provides ongoing training and development opportunities to all employees. We financially support employees pursuing industry-specific training and certification programs and we encourage employees to join professional organizations that offer technical, soft skill and leadership development workshops.
Additionally, our compensation programs are designed to attract, retain and reward our workforce, with the goal of motivating employees to perform to the best of their abilities and achieve our objectives, including increasing shareholder value.
Health, Safety and Well-being
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. This allows us to easily meet our residents’ needs as well as those of our employees.
Diversity, Equity, Inclusion and Accessibility
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 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
As a REIT, investing is at the core of what we do, but the most valuable investments we make are not in our buildings but in our people and our community. We are passionate about making a difference in the regions we call home.
We are committed to improving the lives of those in need, and our employees participate in a wide variety of philanthropic activities throughout the year. Whether volunteering at a food bank, running a toy drive, walking for a cause, or participating in our company-wide community service day, we are proud to foster a culture of giving back.
8
Regulation
REIT Tax Status
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. When selling a property, we generally have the option of (a) reinvesting the sales proceeds of property sold, in a way that allows us to defer recognition of some or all of the taxable gain realized on the sale, (b) distributing gains to the shareholders with no tax to us or (c) treating net long-term capital gains as having been distributed to our shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to our shareholders.
Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiary. Our taxable REIT subsidiary is subject to corporate U.S. federal, state and local income tax on its taxable income at regular statutory rates (see note 1 to the consolidated financial statements for further disclosure).
Americans with Disabilities Act (“ADA”)
The properties in our portfolio must comply with Title III of the ADA, to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in an imposition of fines or an award of damages to private litigants. The obligation to make readily accessible accommodations is an ongoing one, and we will continue to assess our properties and make alterations as appropriate in this respect.
Fair Housing Act (“FHA”)
The FHA, its state law counterparts and the regulations promulgated by the U.S. Department of Housing and Urban Development and various state agencies, prohibit discrimination in housing on the basis of race or color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women and people securing custody of children under 18) or handicap (disability) and, in some states, financial capability or other bases. A failure to comply with these laws in our operations could result in litigation, fines, penalties or other adverse claims, or could result in limitations or restrictions on our ability to operate, any of which could materially and adversely affect us. We believe that we operate our properties in substantial compliance with the FHA.
Environmental Matters
We are subject to numerous federal, state and local environmental, health, safety and zoning laws and regulations that govern our operations, including with respect to air emissions, wastewater, and the use, storage and disposal of hazardous and toxic substances and petroleum products. The cost to comply with such laws and regulations may be significant, and such laws may become more stringent over time. If we fail to comply with such laws, including if we fail to obtain any required permits or licenses, we could face substantial fines or possible revocation of our authority to conduct some of our operations.
In addition, under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under, or migrating from such property, including costs to investigate and remediate such contamination and liability for natural resources damage. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. In addition, we also may be liable for the costs of 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. 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, 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
9
may be used or businesses may be operated, and these restrictions may require substantial expenditures.
Availability of Reports
Copies of this Annual Report on Form 10-K, as well as our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports are available, free of charge, on our website www.elmecommunities.com. All required reports are made available on the website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission. 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 ( https://www.sec.gov ) that contains reports, proxy statements, information statements, and other information regarding issuers that file electronically with Securities and Exchange Commission.
10