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Item 1A. Risk Factors

2026-02-27 compared with 2025-02-14 · 222 added, 357 removed, 56 unchanged (91% of the section changed)

2 unchanged sentences

You should refer to the explanation of the qualifications and limitations on such forward-looking statements beginning on page 30 .

Risks Related to the Plan of Sale and Liquidation

The pendency of the Plan of Sale and Liquidation, including the proposed sale of the Company’s remaining properties, presents certain risks to our ongoing business and operations.

On October 30, 2025, the Company’s shareholders approved the Plan of Sale and Liquidation.

Pursuant to such Plan of Sale and Liquidation, the Company intends to complete the sales of the Company’s remaining properties, including the Properties Under Contract and the Other Remaining Properties, by mid-year 2026, wind down the Company’s business and affairs and terminate the Company’s existence.

Because the sales of these remaining properties are subject to, among other things, completion of the marketing and sale process and negotiation of sale terms and completion of the sales, as applicable, the exact timing of completing the Plan of Sale and Liquidation cannot be determined at this time.

The wind-down of the Company’s business and affairs and termination of the Company’s existence in accordance with the Plan of Sale and Liquidation, including the sales of the Company’s remaining properties, present certain risks to our business and operations, which could materially and adversely affect our business, financial results, and the amount of any additional liquidating distributions, including, among other things, that:

• we may have difficulty completing the sales of our remaining properties for the prices and on the terms anticipated, or at all;

• we expect to incur substantial expenses related to the sale of the remaining properties and the implementation of the Plan of Sale and Liquidation;

• our business and operations could be adversely affected, including by diverting significant focus of management, employees and other resources, by impacting our ability to retain our employees and our relationships with residents, tenants, vendors and other third parties, and as a result of limitations on our conduct under purchase agreements for the Remaining Company Properties during the pendency of sales;

• additional liabilities and obligations could arise during the liquidation process, including obligations and liabilities which may be retained by us following the closing of the sales of the Remaining Company Properties;

• we may be unable to find buyers for our remaining properties on a timely basis or at our expected sales prices, which may reduce or delay our liquidating distributions;

• our ability to implement the Plan of Sale and Liquidation depends upon the participation of key personnel who may not remain in place;

• we may require additional capital or financing to complete the wind-down of the Company’s business and affairs, dissolution and termination of the Company’s existence under the Plan of Sale and Liquidation, which may reduce the amount available for distribution to shareholders;

• shareholders may be liable to our creditors, up to the amounts received from us pursuant to the Plan of Sale and Liquidation, if our reserve fund or the assets transferred to a liquidating entity are inadequate;

• costs and expenses of continuing to operate the Company, including as a public company, such as the need for additional retention costs, particularly if the liquidation takes longer than expected, may be higher than estimated;

• we anticipate that our common shares will be delisted from the NYSE at a future date to be determined by the Board.

Additionally, prior to completing the sales of all of the Remaining Company Properties, we will remain subject to all of the risks of operating our properties, including the risk that the cash flow and net working capital generated from the Company’s operations prior to completing the wind-down of the Company’s business and affairs and termination of the Company’s existence may be lower than we anticipate, and the risks and the costs associated with remaining a public company.

We cannot determine at this time the amount or timing of the remaining liquidating distributions, if any, to our shareholders in connection with the Plan of Sale and Liquidation because there are many factors that could affect the amount or timing

of such liquidating distributions, if any, some of which are not within our control .

Although we provided an updated estimated range of remaining liquidating distributions to shareholders of between $2.35 and $2.80 per share on January 23, 2026 (after giving effect to the initial liquidating distribution of $14.67 per share paid in January 2026), there can be no assurances regarding the amounts of the remaining liquidating distributions, if any, or the timing thereof.

The remaining amounts, if any, that may ultimately be available for distribution to our shareholders are not yet fully known, and there are many factors that may affect the amounts available for distribution to our shareholders, including, among other things, our results of operations, the operating costs and amounts to be set aside for claims, liabilities and other obligations prior to and during the liquidation and winding-up process, and the time required to complete our liquidation and winding up.

The estimated range of remaining liquidating distributions disclosed in our January 23, 2026 press release was estimated as of January 23, 2026 and did not take into account, among other things, interest rate, market volatility or other changes since that time or in the future and was derived, in part, from the estimated range of gross asset sales for the properties, which reflected actual contract pricing for the Remaining Company Properties then under contract and other gross asset value estimate adjustments discussed in the press release issued by the Company on January 23, 2026, less estimates for transaction costs, (including updates to reflect actual transaction costs associated with closing the Portfolio Sale Transaction and finalizing the Secured Term Loan), debt service costs, debt repayment amounts for the Secured Term Loan and establishment of reserves to satisfy known liabilities and estimated, unascertained or contingent liabilities and expenses, estimated operating costs to run the Company until completion of the wind-down of the Company’s business and affairs and dissolution of the Company, capital expenditure requirements and REIT compliance costs, but adjusted upwards for estimated cash flow/net working capital to be generated from the Company’s property operations prior to completing sales of the Remaining Company Properties.

These estimates may overstate the proceeds from asset sales or understate the actual expenses, which means actual remaining liquidating distributions may be significantly less or more than the estimated range.

Other uncertainties that could cause the aggregate amount of remaining liquidating distributions to be less than our estimate, or the timing of distributions to be delayed, in addition to other risks described elsewhere in this section, include the following:

• the price that potential buyers of our properties may be willing to pay for our remaining company properties may change due to a number of factors beyond our control, including changes in general economic or local conditions, changes in interest rates, availability of mortgage funds, supply and demand dynamics, changes in tax, real estate, environmental and zoning laws and regulations, occupancy percentages, lease rates, competition, operating performance and the perceived quality and dependability of income flows from tenancies, potential major repairs or other contingent liabilities associated with the properties, and a number of other factors, both local and national;

• delays in our ability to find suitable buyers, complete the asset sales on the terms we currently expect and the wind-down of our business and affairs and termination of our existence could require us to incur expenses for a longer period than anticipated;

• our ability to comply with the covenants and other terms of the Secured Term Loan which could impact our ability to make, or the timing of, additional liquidating distributions;

• the costs and expenses of executing the Plan of Sale and Liquidation may differ from our estimates;

• the current market conditions in the DC area, which have continued to soften throughout our marketing and sale process for the Remaining Company Properties, could continue to soften;

• the estimated amount of cash flow/net working capital to be generated from our property operations prior to completing the wind-down of our business and affairs and termination of our existence pursuant to the Plan of Sale and Liquidation may be lower than we anticipate;

• unanticipated or emergency capital expenditures may result in the need to incur additional debt financing or other costs and expenses that are not included in our estimates and which we cannot reasonably estimate at this time;

• unknown or additional costs or liabilities that arise in the future, including future litigation, which we cannot reasonably estimate at this time, could delay completion of our liquidation and cause us to incur additional costs and expenses;

• costs incurred to maintain our REIT status may be higher than estimated;

• the number of issued and outstanding shares used to calculate the estimated range of the additional liquidating distributions could change;

• the reserve amounts we may establish to satisfy known liabilities and liquidating expenses and estimated, unascertained or contingent liabilities and expenses may be insufficient.

Any of these uncertainties could impact the amount and timing of the estimated remaining liquidating distributions.

For further information regarding the uncertainties and assumptions used in the estimated range of remaining liquidating distributions, please see the Company’s Form 8-K filed on January 23, 2026.

Additionally, there can be no assurances regarding the amount of your potential total return from receiving all liquidating distributions.

Your total return will depend on the amount you paid for your common shares and the date on which you purchased such common shares.

The Plan of Sale and Liquidation may not be completed.

Pursuant to the Plan of Sale and Liquidation, we are authorized to engage in the wind-down of our business and affairs, discharge, pay or set aside reserves for our liabilities, including contingent liabilities, dispose of our assets and distribute our remaining assets available for distribution to our shareholders (as determined by the Board in its discretion), and establish one or more reserve funds to satisfy known liabilities and liquidating expenses and estimated, unascertained or contingent liabilities and expenses.

As of February 27, 2026, the Properties Under Contract are expected to close in the first or second quarter of 2026, subject to satisfaction of customary closing conditions, including, in the case of Elme Watkins Mill, regulatory requirements related to the sale of multifamily properties in Montgomery County, Maryland.

The Company continues to target completion of the sales of all Remaining Company Properties by mid-year 2026.

In addition, the Board may amend or terminate the Plan of Sale and Liquidation without shareholder approval at the Board’s discretion, at any time prior to the filing of a notice of termination with the Maryland Department of Assessments and Taxation, if it determines that doing so is in the best interest of the Company and our shareholders.

Thus, the Board could decide to conduct our liquidation and termination of the Company’s existence differently than as currently planned, or not at all.

If the Board amends, modifies or terminates the Plan of Sale and Liquidation, it may impact the timing and amount of the liquidating distributions to our shareholders, our share price, our results of operations and our on-going business.

If we are unable to find buyers for all of our remaining properties on a timely basis or at our expected sales prices, our liquidating distributions may be delayed or reduced.

As of February 27, 2026, we have sold two of the Remaining Company Properties and also entered into purchase and sale agreements, which are no longer subject to ongoing inspection periods, pursuant to which we expect to sell three of the Remaining Company Properties.

In estimating the range of remaining liquidating distributions disclosed in our January 23, 2026 press release, we reflected actual contract pricing for those Remaining Company Properties then under contract and assumed that we will be able to find buyers for all of our other assets at amounts based on our estimated range of gross real estate sales prices for the other remaining assets.

However, actual sales prices ultimately achieved for these assets may differ from current estimated sales prices.

For example, we may decide to sell groups of properties together, at a price that could be lower than the price we could get over a longer period of time if we sold each asset separately, in order to complete sales more quickly and reduce the risk of a lengthy liquidation process, or we could be required to lower our asking prices below the low end of our current estimate of one or more assets’ market value in order to find buyers in a timely manner.

Additionally, our public announcement of our intent to liquidate the Company may adversely impact the prices we will ultimately be able to obtain for our remaining properties, which could result in lower sale proceeds.

Furthermore, investments in real properties are relatively illiquid and real estate sales prices are regularly changing and fluctuate with changes in general economic or local conditions, changes in interest rates or availability of mortgage funds that may render the sale of a property difficult or unattractive, supply and demand dynamics for similar or competing properties in an area, changes in tax, real estate, environmental and zoning laws and regulations, occupancy percentages, lease rates, competition, the availability of suitable buyers, operating performance and the perceived quality and dependability of income flows from tenancies, potential major repairs or other contingent liabilities associated with the assets and a number of other factors, both local and national.

If we are not able to find buyers for these assets in a timely manner or at all, or incur expenses for a longer period than anticipated, or if the sales prices we will receive differ from our current estimates, our liquidating distributions to our shareholders could be delayed or reduced accordingly and the liquidating distributions may ultimately be lower than the prevailing market or trading price of our common shares prior to the sales of all of the Remaining Company Properties pursuant to the Plan of Sale and Liquidation.

Defaults under future sales agreements may delay or reduce liquidating distributions.

The closing of the transactions contemplated by the Plan of Sale and Liquidation will be subject to our entering into and consummating sales agreements covering the sales of the remaining properties.

If any of the transactions contemplated by these sales agreements do not close because of a buyer default, failure of a closing condition or for any other reason, including failure to find a buyer, we may not be able to enter into a new agreement on a timely basis or on terms that are as favorable as the original sales agreement.

Any delay in the completion of asset sales could delay our payment of additional liquidating distributions to our shareholders.

We will also incur additional costs involved in locating a new buyer and negotiating a new

sales agreement for the asset.

Our ability to implement the Plan of Sale and Liquidation depends upon the participation of key personnel and there is no assurance such key personnel will remain in place.

Our ability to implement the Plan of Sale and Liquidation will depend to a significant degree upon the contributions of key personnel to continue to maintain corporate and property-level operations while we complete the sales of our remaining properties and wind-down of our business and affairs, including maintaining financing arrangements and accounting services, preparing and filing all reports required to be filed by it with the SEC, the IRS and other regulatory agencies, maintaining our REIT status (to the extent applicable) and maintaining our compliance with the Sarbanes-Oxley Act.

The Company has begun and plans to continue, as appropriate, downsizing with a focus on retaining an appropriate level of personnel with the necessary skill set commensurate with the reduced size of the Company, including those executive officers and other key personnel necessary for the continued operation of our remaining properties until they are sold and completion of the wind-down activities, which downsizing is expected to affect both officers and other employees.

There can be no assurance that we will be able to retain or replace key personnel needed to successfully maintain operations while we implement the Plan of Sale and Liquidation.

The loss of, or inability to retain or replace, key personnel could adversely impact our business and our ability to successfully implement the Plan of Sale and Liquidation and could result in delays.

Additional liabilities and obligations could arise during the liquidation process.

Following the sales of the Remaining Company Properties, we will retain liabilities that must be satisfied prior to any final distribution to our shareholders, and some of those liabilities are uncertain or unknown at this time.

Significant time could be required to resolve some of these liabilities, including as a result of factors beyond our control, which could impact both the timing and the amount of any final distribution to our shareholders.

Also, some liabilities may involve third party disputes.

If we have underestimated our existing obligations and liabilities, such as future litigation, or if unanticipated or contingent liabilities arise, the amount of distributions to our shareholders could be less than the amounts we have estimated or the timing could be delayed.

For the foregoing reasons, among others, there can be no assurance as to the timing and amount of any final distributions to our shareholders.

We may require additional capital or financing to complete the wind-down of the Company’s business and affairs, dissolution and termination of the Company’s existence under the Plan of Sale and Liquidation, which may reduce the amount available for distribution to shareholders.

The Company has set aside cash for operations during the wind-down of the Company’s business and affairs and sales of our remaining properties.

However, there can be no assurance this amount, together with funds from operations of our remaining properties until they are sold, and proceeds from the sales of the Remaining Company Properties will be sufficient for all required purposes.

If such funds are insufficient, we may require additional capital to fund our other capital needs, including funds that will be needed to implement the Plan of Sale and Liquidation effectively.

For example, we have been and may in the future be required to invest capital to correct defects or to make improvements before a property can be sold.

We cannot assure you that we will have funds available to correct these defects or to make these improvements or be able to raise such additional capital, if needed.

Reductions in the amounts that we receive when we sell our assets, or our failure to comply with the covenants in the Secured Term Loan, our failure to meet our capital needs with the cash on hand, or other financing that is on favorable terms, could reduce, eliminate or delay the liquidating distributions we make to our shareholders, or otherwise adversely affect our financial condition.

If our transaction costs, liquidation costs or unpaid liabilities are greater than we expect, our liquidating distributions may be delayed or reduced.

Before making a final liquidating distributions, if any, to our shareholders, we will need to pay or arrange for the payment of all of our transaction costs in the liquidation, all other costs and all valid claims of our creditors.

The Board may also decide to establish a reserve fund to pay these contingent claims or incur additional expenses to acquire one or more insurance policies covering unknown or contingent claims against us, or both.

The total amounts of the transaction costs relating to the liquidation are not yet final, so we have used estimates of these costs, as applicable.

To the extent that we have underestimated these costs in calculating our estimated range of remaining liquidating distributions or we incur unforeseen additional costs, our actual liquidating distributions may be lower than our estimated range.

In addition, if the claims of our creditors are greater than we have anticipated or we decide to acquire one or more insurance policies covering unknown or contingent claims against us, our liquidating distributions may be delayed or reduced.

Further, if a reserve fund is established, payment of liquidating distributions, if any, to our shareholders may be delayed or reduced.

Shareholders may be liable to our creditors, up to the amounts received from us pursuant to the Plan of Sale and Liquidation if our reserve fund or the assets transferred to a liquidating entity are inadequate.

We intend to dispose of our assets, discharge, pay or set aside reserves for our liabilities, including contingent liabilities, and

distribute to our shareholders any remaining assets pursuant to the Plan of Sale and Liquidation as soon as practicable.

In the event that it should not be feasible, in the opinion of the Board, for the Company to pay, or adequately provide for, all of our debts and liabilities, or if the Board shall determine it is advisable, the Board may establish a liquidating entity to which the Company could distribute in kind its unsold assets.

Any reserve fund or assets transferred to a liquidating entity established by us may not be adequate to cover any contingent expenses and liabilities.

Under Maryland law, if we make distributions and fail to maintain an adequate reserve fund or fail to transfer adequate assets in a liquidating entity for payment of our contingent expenses and liabilities, each shareholder could be held liable for payment to our creditors of such amounts owed to creditors which we fail to pay.

The liability of any shareholder would be limited to the amount of such liquidating distributions previously received by such shareholder from us or the liquidating entity.

Accordingly, in such event, a shareholder could be required to return all such distributions received from the Company or the liquidating entity.

If a shareholder has paid taxes on liquidating distributions previously received, a repayment of all or a portion of such amount could result in a shareholder incurring a net tax cost if the shareholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable.

If we decide to establish a reserve fund or transfer assets to a liquidating entity to provide for any unknown or outstanding liabilities and expenses, it may delay or reduce distributions our shareholders would otherwise receive.

The Company will likely continue to incur the expenses of complying with public company reporting requirements during the wind-down process.

We intend to, and may be required to, continue to comply with the applicable reporting requirements of the Exchange Act, even if compliance with these reporting requirements is economically burdensome.

To the extent such compliance is required, in order to curtail expenses, we may seek relief from the SEC from certain of the reporting requirements under the Exchange Act.

We anticipate that, if such relief is granted, we would continue to file annual reports on Form 10-K and current reports on Form 8-K to disclose material events relating to our liquidation, along with any other reports that might be required by the SEC.

Although the financial statements contained in such reports will be prepared in accordance with GAAP and will be reviewed by our independent registered public accounting firm, it is not contemplated that the financial statements will be audited by independent registered public accountants.

We anticipate that, if such relief is granted, we would not prepare or distribute quarterly financial statements.

We anticipate that our common shares will be delisted from the NYSE at a future date to be determined by the Board.

In connection with the Plan of Sale and Liquidation, at a future date as the Board determines, we anticipate that we will voluntarily delist our common shares from the NYSE, subject to the rules of the NYSE and our declaration of trust, in order to reduce our operating expenses and maximize our liquidating distributions.

In addition, the NYSE may commence delisting proceedings against us if (i) the average closing price of our common shares over a 30-day consecutive trading period falls below $1.00 per common share, (ii) our average market capitalization over a 30-day consecutive trading period falls below $15 million or (iii) we lose our REIT qualification.

If our common shares are delisted, you may have difficulty trading your common shares on the secondary market.

In addition, if the Board determines, in its sole discretion, to transfer our remaining assets and liabilities to a liquidating entity, our liquidating entity will likely provide for a prohibition on the transfer of trust interests, subject to certain limited exceptions.

As a result of the Plan of Sale and Liquidation, certain institutional shareholders may be required to sell their common shares if the common shares fail to meet the requirements to be on certain indexes.

Since we have approved the Plan of Sale and Liquidation, the governing documents of certain of our institutional investors may prohibit them from holding our common shares and they may be forced to divest their ownership for our common shares.

If our common shares are dropped from certain indexes, as they were from the Russell 2000 or the SmallCap 600 in January 2026, investors who invest in stocks included on such indexes may be forced to divest their ownership for our common shares.

If either or both of these were to be the case, it would create downward pressure on the trading price of our common shares.

If this were to occur, shareholders who sell common shares prior to our completion of the liquidation may receive less than shareholders who receive all liquidating distributions ultimately made.

The Portfolio Sale Transaction and the Plan of Sale and Liquidation, and the actions and transactions contemplated thereby, may lead to shareholder litigation which could result in substantial costs and distract management.

Historically, extraordinary corporate actions such as the Portfolio Sale Transaction and Plan of Sale and Liquidation, and the actions and transactions contemplated thereby, sometimes lead to securities class action lawsuits being filed against the company taking such actions, which can delay or prevent altogether the completion of such actions.

We may become involved in this type of litigation as a result of the shareholder votes on the Portfolio Sale Transaction and/or the Plan of Sale and Liquidation.

In October 2025, two purported holders of the Company’s common shares filed substantially similar complaints against the Company and its members of the Board in the Supreme Court of the State of New York, County of New York,

alleging that the proxy statement negligently misrepresented or omitted material information in violation of New York common law and seeking, among other things, to enjoin or rescind the Portfolio Sale Transaction and the Plan of Sale and Liquidation, an award of damages if the Portfolio Sale Transaction and the Plan of Sale and Liquidation were consummated and an award of expenses and attorneys’ fees.

With respect to any lawsuits filed against us, the litigation costs may be expensive, and, even if we ultimately prevail, the process will divert our attention from the wind-down of the Company’s business and affairs and termination of the Company’s existence.

If we were not to prevail in such a lawsuit, we cannot predict the amount of any damages for which we may be obligated and if any plaintiffs are successful in obtaining an injunction, it may prohibit us from conducting the wind-down and termination of the Company’s existence under the Plan of Sale and Liquidation.

If applicable, any such damages may be significant, may have a material adverse effect on our financial condition and may reduce, eliminate or delay the amounts available for distribution to our shareholders.

Risks Related to our Business and Operations

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 our ability to make distributions to our shareholders:

Our operating performance and value are subject to risks associated with our apartment communities and with the real estate industry, which could adversely affect the value at which we are able to sell our apartment communities.

Any of the following factors, among others, may adversely affect the operating performance of our remaining properties prior to their sale and therefore the value at which we are able to sell them and could reduce the amounts ultimately available for distribution 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;

• our ability to provide high quality housing and consistent operation of our communities;

• 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 and their ability to pay rent;

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

• changes in interest rates and availability of financing;

• economic and market conditions including:

migration to areas outside of major metropolitan areas where our portfolio is concentrated, new construction and excess inventory of residential and owned housing/condominiums, increasing portions of owned housing/condominium stock being converted to rental use;

• economic and market conditions, including significant job losses in the regions in which we operate, migration to areas outside of the major metropolitan areas where our properties are located, changes in immigration policy and enforcement, new construction, excess inventory of residential and owned housing/condominiums, and increasing portions of owned housing/condominium stock being converted to rental use;

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

• 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;

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

Substantially all of our investments are concentrated in the multifamily asset class, which make us more vulnerable to a downturn in that asset class and could adversely affect our results of operations.

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.

Additionally, the multifamily industry is also highly competitive.

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

Many of these entities have significant financial and other resources, including operating experience, allowing them to compete effectively with us.

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

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

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

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

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

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

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

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

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.

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.

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 our 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 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.

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

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

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

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

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

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, 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.

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

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

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.

In the event of negative economic and/or regulatory changes in the regions in which we operate, we may experience a negative impact to our financial condition and results of operations.

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

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

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

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

For each of the three years ended December 31, 2024, the same-store residential resident retention rate for each year's respective same-store community portfolio, was 66%, 63%, and 63%, respectively.

Expenses may increase or remain constant even if our revenues decrease.

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 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.

If a property is mortgaged and we are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take the property, resulting in a further reduction in revenues.

The risks related to our commercial operations could adversely impact our results of operations and financial condition.

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 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.

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

Each of these factors could adversely impact our results of operations and financial condition.

Real estate investments are illiquid, and we may not be able to sell our properties on a timely basis when we determine it is appropriate to do so, which could negatively impact our profitability.

Real estate investments can be difficult to sell and convert to cash quickly, especially if market conditions are not favorable.

Such illiquidity could limit our ability to quickly change our portfolio of properties in response to changes in economic or other conditions.

Moreover, the REIT tax laws require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer property sales that otherwise would be in our best interest.

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, 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.

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 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.

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.

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

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

Any such failures could impair our ability to continue providing quality housing and consistent operation of our communities, which could adversely affect our business, financial condition and results of operations.

We face risks associated with property development/redevelopment, which could have an adverse effect on our financial condition, results of operations or ability to satisfy our debt service obligations.

We may, from time to time, engage in development and redevelopment activities, some of which may be significant.

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

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

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

These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken.

Some of these development/redevelopment risks may be heightened given uncertain and potentially volatile market conditions.

If market volatility causes economic conditions to remain unpredictable or to trend downwards, we may not achieve our expected returns on properties we develop and we could lose some or all of our investments in those properties.

In addition, the lead time required to develop, construct, and lease-up a development property may increase, which could adversely impact our projected returns or result in a termination of the development project.

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

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

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

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.

The focus and activism related to ESG and related matters may constrain our business operations or increase expenses.

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

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

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

As we continue to invest and focus on ESG efforts and initiatives that we believe are appropriate for the Company and our shareholders, we could also be criticized by ESG detractors for the scope or nature of our ESG initiatives or goals.

We could also be subjected to negative responses by governmental actors (such as anti-ESG legislation or retaliatory legislative treatment), tenants and residents, that could adversely affect our reputation, financial condition and results of operations.

We face risks associated with property acquisitions.

We may acquire properties and expand into new markets which would increase our size and geographic diversity and could alter our capital structure.

In addition, our acquisition activities and results may be exposed to the following risks:

• we may have difficulty finding properties that are consistent with our strategies and meet our standards;

• we may be unable to finance acquisitions on favorable terms or at all;

• the occupancy levels, lease-up timing and rental rates of acquired properties may not meet our expectations;

• even if we enter into an acquisition agreement for a property, we may be unable to complete that acquisition after making a non-refundable deposit and incurring certain other acquisition-related costs;

• we may be unable to acquire a desired property at all or at the desired purchase price because of competition from other real estate investors, including publicly traded real estate investment trusts, institutional investment funds and private investors;

• the timing of property acquisitions may lag the timing of property dispositions, leading to periods of time where projects’ proceeds are not invested as profitably as we desire;

• we may fail to secure required zoning, occupancy or other governmental permits and authorizations or applicable zoning and land use laws may change;

• we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;

• new acquisitions and developments may fail to perform as expected or we may underestimate costs necessary to bring an acquired property up to our standards;

• we may assume liabilities for undisclosed environmental contamination;

• our estimates of capital expenditures required for an acquired property, including the costs of repositioning or redeveloping, may be inaccurate and the acquired properties may fail to perform as we expected in analyzing our investments;

• we could experience a decline in value of the acquired assets after acquisition.

In addition, our financing of an acquisition could negatively impact our cash flows and liquidity, require us to incur substantial debt or involve the issuance of new equity, which would be dilutive to existing stockholders.

We may also acquire properties subject to liabilities and without recourse, or with limited recourse with respect to unknown liabilities.

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.

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.

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

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

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

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

• the concentration of almost all of our assets in the multifamily asset class;

• macroeconomic trends, including inflation, high interest rates and a decline in the market values of real estate in the regions in which we operate;

• our dependence upon the economic and regulatory climate of the Washington, DC metro region and to a lesser extent the Atlanta metro region, including the impact of zoning, taxes, unemployment and job growth;

• short-term leases expose us to the effects of declining market rents sooner than long-term leases;

• expenses, including any payments required under the Secured Term Loan, may increase or remain constant even if our revenues decrease;

• risks related to our commercial operations, including difficulties in reletting the commercial space and in achieving desired rental rates and the risk of tenant bankruptcies;

• rent control, rent stabilization legislation and other regulatory restrictions may impact the manner in which we make rent decisions, including restrictions on the use of algorithmic devices or systems, our ability to increase rents and pass through new or increased operating costs to our residents and to evict residents;

• corporate social responsibility, including those risks related to negative responses to our ESG efforts, may constrain our business operations, impose additional costs and expose us to new risks;

• 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.

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

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

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

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

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

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

Actual or threatened acts of violence, including terrorist attacks and increased crime rates, resulting in more safety and security incidents, could occur in the localities in which we conduct business.

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

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

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

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

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

The property insurance that we maintain for our properties has historically been on an “all risk” basis, which is in full force and effect until renewal in August 2025.

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

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

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

Property ownership also involves potential liability to third parties for such matters as personal injuries occurring on the property.

Such losses may not be fully insured.

Furthermore, losses related to other types of risk, such as cybersecurity incidents or climate change may not be fully insured.

In addition to uninsured losses, various government authorities may condemn all or parts of operating properties.

Such condemnations could adversely affect the viability of such projects.

Any such uninsured loss could adversely affect our financial condition or cash flow.

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

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

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

Additionally, any material increase in insurance rates or decrease in available coverage in the future could adversely affect our results of operations and financial condition.

Compliance with certain federal, state and local laws and regulations could adversely affect our results of operation, and may cause us to incur substantial costs or subject us to potential liabilities.

We are subject to certain compliance costs and potential liabilities under various U.S.

federal, state and local environmental, employment, health, safety and zoning laws and regulations that govern our and our tenants’ operations.

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.

Some of our current or former properties have had tenants that used hazardous substances or petroleum in the course of their businesses.

Various environmental laws impose liability on a current or former owner or operator of real property for investigation or cleanup of hazardous substances or petroleum products at, on, under or migrating from our currently or formerly owned or leased real property, regardless of whether or not we knew of, or caused, the presence or release of such substances or products.

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.

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 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.

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

New or revised laws and regulations or new interpretations of existing laws and regulations, such as those related to climate change, could affect the operation of our properties or result in significant additional expense and operating restrictions on our properties or adversely affect our ability to sell properties or to use properties as collateral.

We may also incur significant costs complying with other regulations.

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.

federal administration and trade policy, including tariffs;

• climate change and regulation regarding climate change in the regions in which we operate;

• the fact that some potential losses are not covered by insurance;

• compliance with and liabilities arising under certain federal, state and local laws and regulations, including environmental and ADA, state and local fair housing, rent control and fire and life safety laws, regulations and

requirements;

• litigation risk, including legal proceedings and claims in the ordinary course of business and class actions, inquiries and governmental investigations;

• a pandemic and measures intended to prevent its spread, including the effect on international trade and varying unemployment levels;

• risks related to the actions of our partners in real estate joint ventures and other investments.

Litigation risk could affect our business and the amount of our liquidating distributions.

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.

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

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

Results of such legal proceedings cannot be predicted with certainty, and resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our ability to pay our liquidating distributions.

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.

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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.

We have made and may continue to make public statements regarding our intentions to liquidate and sell our remaining properties, which may increase the risk that we are targeted in a cyber-attack by a malicious third party, and operations linked to any such sales or related efforts might increase the chances or magnitude of a cybersecurity incident.

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 our ability to sell our remaining properties, reduce the amount or delay the timing of distributions, 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 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.

In addition, increased regulation of data collection, use and retention practices, including self-regulation and industry standards, changes in existing laws and regulations, enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of laws, could increase our cost of compliance and operation, limit our ability to grow our business or otherwise harm the Company.

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

While we may be entitled to damages if our third-party service providers fail to satisfy their security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.

Although we and our third-party service providers make efforts to maintain the security and integrity of our information, including the implementation of security measures, required employee awareness training and the existence of a disaster recovery plan, we can provide no assurance that our data security measures will be able to detect or prevent all cybersecurity incidents.

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

Although we and our third-party service providers make efforts to maintain the security and integrity of our information, including the implementation of security measures on our remaining properties, required employee awareness training and the existence of a disaster recovery plan, we can provide no assurance that our data security measures will be able to detect or prevent all cybersecurity incidents.

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

Further, adoption of artificial intelligence (“AI”) tools by us or by third parties may pose new cybersecurity challenges.

Threat actors may use AI tools to automate and enhance cybersecurity attacks against us, and such threats could become more sophisticated and harder to detect and counteract, which may pose significant risks to our data security and systems.

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.

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Moreover, as cyber-attacks increase in frequency and magnitude, we may be unable to obtain cybersecurity insurance in amounts and on terms we view as adequate for our operations.

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

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

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

The impact of an ongoing pandemic and measures to prevent its spread could (and the outbreak of COVID-19 did) negatively impact our businesses in a number of ways, including shifts in consumer housing demand, our residents’ ability or willingness to pay rents and the demand for multifamily communities within the markets we operate.

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 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 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.

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.

The market price and trading volume of our common shares may be volatile and may decline regardless of our operating performance, and shareholders may lose all or part of their investment.

Our share price and trading volume have experienced significant volatility in the past, particularly following the payment of the initial special liquidating distribution, which was paid on January 7, 2026 to shareholders of record at the close of business on December 22, 2025, and may continue to do so in the future.

A variety of factors may cause significant price and volume variations, including the factors discussed in this “Risk Factors” section of this Annual Report on Form 10-K.

Additionally, broader fluctuations in equity markets or loss of investor confidence in a particular sector or geographic area could also affect the market for our securities, regardless of our actual operating performance.

As a result of these fluctuations, investors in our shares may experience a decrease in the value of their shares.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price.

This type of litigation could result in substantial costs and divert our management’s attention and resources.

Risks Related to Financing

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.

High interest rates would increase our interest costs.

We have incurred indebtedness that bears interest at a variable rate.

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.

As a protection against high interest rates, we are required under the Secured Term Loan to enter, and have entered, into agreements such as interest rate caps.

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.

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, results of operation and amount of liquidating distributions.

Delay in sales of our remaining properties will increase our expenses and funding costs.

Under the terms of the Secured Term Loan, the net proceeds from the sales of our remaining properties are to be applied to repay the amounts that remain outstanding on the Secured Term Loan.

In the event the Secured Term Loan is not prepaid in part or in full by certain dates, certain mandatory prepayment events arise and the increased interest rates and fees will apply.

Any delay in the sales of our remaining properties may prohibit us from complying with the terms of the Secured Term Loan, including repayment provisions, and will increase the costs of such indebtedness, which could adversely affect our ability to service debt, our cash flow, financial conditions, results of operation and amount of liquidating distributions.

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

We rely on borrowings under our credit facility, term loan, mortgage notes, and debt securities to finance acquisitions and development activities and for general corporate purposes.

In the past, the commercial real estate debt markets have experienced significant volatility due to a number of factors, including the tightening of underwriting standards by lenders and credit rating agencies and the diminished market sentiment and prices with respect to certain asset classes.

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 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.

If we are unable to borrow under our credit facility, obtain new debt financing or to refinance existing debt, our financial condition and results of operations would likely be adversely affected.

Similarly, global equity markets have experienced significant price volatility and liquidity disruptions in recent years, and similar circumstances could significantly and negatively impact liquidity in the financial market in the future.

Any disruption could negatively impact our ability to access additional financing at reasonable terms or at all.

We anticipate that only a small portion of the principal of our currently outstanding debt, if any, will be repaid prior to maturity.

Therefore, we are likely to need to refinance a significant portion of our outstanding debt as it matures.

There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt.

If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as new equity capital, our cash flow may not be sufficient to repay all maturing debt in years when significant “balloon” payments come due.

In addition, we may rely on debt to fund a portion of our new investments such as our acquisition and development activity.

There is a risk that we may be unable to finance these activities on favorable terms or at all.

If we are unable to complete the sales of all of our remaining properties in a timely manner, we are likely to need to refinance a significant portion of our outstanding debt as it matures.

There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the Secured Term Loan.

The materialization of any of the foregoing risks would adversely affect our financial condition and results of operations.

Our degree of leverage could limit our ability to obtain additional financing , affect the market price of our common shares or debt securities or otherwise adversely affect our financial condition.

On February 11, 2025, our total consolidated debt was approximately $0.7 billion.

Using the closing share price of $15.51 per share of our common shares on February 11, 2025, multiplied by the number of our common shares, our consolidated debt to total consolidated market capitalization ratio was approximately 34% as of February 11, 2025.

Our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes.

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 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.

There is a risk that changes in our debt to market capitalization ratio, which is in part a function of our share price, or our ratio of indebtedness to other measures of asset value used by financial analysts, may have an adverse effect on the market price of our equity or debt securities.

Additionally, payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, fully implement our capital expenditure, acquisition and redevelopment activities, or meet the REIT distribution requirements imposed by the Code.

Failure to effectively hedge against interest rate changes may adversely affect our financial condition, results of operations, cash flow, per share market price of our common shares and ability to make distributions to our shareholders and agreements we enter into to protect us from rising interest rates expose us to counterparty risk.

We have entered into, and may in the future enter into, hedging transactions to protect ourselves from the effects of interest rate fluctuations on variable rate debt.

Our hedging transactions have included, and may in the future include, entering into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts.

These agreements involve risks, such as the risk that such arrangements would not be effective in reducing our exposure to interest rate changes or that a court could rule that such an agreement is not legally enforceable.

In addition, interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates.

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.

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.

Moreover, there can be no assurance that our hedging arrangements will qualify as highly effective cash flow hedges under Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging , or that our hedging activities will have the desired beneficial impact on our results of operations.

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.

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

Our credit facility and other debt instruments contain customary restrictions, requirements and other limitations on our ability to incur indebtedness.

We must maintain certain ratios, including a maximum of total indebtedness to total asset value, a maximum of secured indebtedness to total asset value, a minimum of quarterly adjusted EBITDA to fixed charges and a maximum of unsecured indebtedness to unencumbered pool value.

Our ability to borrow under our credit facility is subject to compliance with our financial and other covenants.

Failure to comply with any of the covenants under our unsecured credit facility or other debt instruments (including our indenture, term loan agreement and our notes purchase agreement) could result in a default under one or more of our debt instruments.

If we fail to comply with the covenants in our unsecured credit facility or other debt instruments, other sources of capital may not be available to us or be available only on unattractive terms.

In addition, if we breach covenants in our debt agreements, the lenders can declare a default and, if the debt is secured, take possession of the property securing the defaulted loan.

Any default or cross-default events could cause our lenders to accelerate the timing of payments and/or prohibit future borrowings, either of which would have a material adverse effect on our business, operations, financial condition and liquidity.

The Secured Term Loan contains customary restrictions, requirements and other limitations on our ability to incur indebtedness, encumber properties, transfer properties and other customary restrictions and covenants.

Failure to comply with any of the

covenants under the Secured Term Loan could permit the lender to declare a default and, since the debt is secured, take possession of the property securing the defaulted loan, which would have a material adverse effect on our business, operations, financial condition and liquidity, including the ability to complete the Plan of Sale and Liquidation.

Risks Related to Our Organizational Structure

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

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

These provisions include:

• a provision where a corporation is not permitted to engage in any business combination with any “interested stockholder,” defined as any holder or affiliate of any holder of 10% or more of the corporation’s stock, for a period of five years after that holder becomes an “interested stockholder,” and

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

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

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

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

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

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

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

Our declaration of trust provides that no person (other than an excepted holder, as defined in our declaration of trust) may actually or constructively own more than 9.8% of the aggregate of our outstanding common shares by value or by number of shares, whichever is more restrictive, or 9.8% of the aggregate of the equity shares by value.

Our Board has the authority under our declaration of trust to reduce these share ownership limits.

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

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

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

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.

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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In addition, we have agreed to obligations to advance the defense costs incurred by our trustees and our executive officers, and may, in the discretion of our Board, advance the defense costs incurred by our officers, our employees and other agents, in connection with legal proceedings.

Risks Related to Our Common Shares

We cannot assure you we will continue to pay dividends at current rates and the failure to do so could have an adverse effect on the market price of our common shares.

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.

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.

Our Board considers, among other factors, trends in our levels of funds from operations, together with associated recurring capital improvements, tenant improvements, leasing commissions and incentives, and adjustments to straight-line rents to reflect cash rents received to achieve a targeted payout ratio.

If some or all of these factors were to trend downward for a sustained period of time, our Board could determine to reduce our dividend rate.

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.

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

As with any public company, a number of factors may adversely influence the public market price of our common shares.

These factors include:

• level of institutional interest in us;

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

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

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

• our financial condition and performance;

• the market’s perception of our growth potential and potential future cash dividends;

• investor confidence in the stock and bond markets generally;

• national economic conditions and general stock and bond market conditions;

• government uncertainty, action or regulation;

• increases in market interest rates, which may lead investors to expect a higher annual yield from our distributions in relation to the price of our shares;

• uncertainty around and changes in U.S.

federal tax laws;

• changes in our credit ratings;

• any negative change in the level of our dividend or the partial payment thereof in common shares.

Additionally, a ny future offerings of our shares may dilute the holdings of our existing shareholders, reduce the market price of our shares, or both.

Holders of our shares are not entitled to preemptive rights or other protections against dilution.

Risks Related to Taxes and our Status as a REIT

The loss of our tax status as a REIT would have significant adverse consequences to us and the value of our common shares.

We believe that we qualify as a REIT, and we intend to continue to operate in a manner that will allow us to continue to qualify as a REIT.

However, our declaration of trust provides that our Board may revoke or otherwise terminate our REIT election, without the approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT.

Furthermore, we cannot assure you that we are qualified as a REIT, or that we will remain qualified as a REIT in the future.

This is because qualification as a REIT involves the application of highly technical and complex provisions of the Code which include maintaining ownership of specified minimum levels of real estate-related assets, generating specified minimum levels of real estate-related income, maintaining certain diversity of ownership requirements with respect to our shares and distributing at least 90% of our “REIT taxable income” (determined before the deduction for dividends paid and excluding net capital gains) on an annual basis.

Moreover, the complexity of these provisions and of applicable treasury regulations is greater in the case of a REIT that, like us, holds some of its assets through entities treated as partnerships for U.S.

federal income tax purposes.

Only limited judicial and administrative interpretations of the REIT rules exist.

In addition, qualification as a REIT involves the determination of various factual matters and circumstances not entirely within our control.

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:

• 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;

• 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.

To the extent that distributions to shareholders had been made based on the assumption of our qualification as a REIT, we might be required to borrow funds or to liquidate certain of our investments to pay the applicable tax.

As a result of these factors, our failure to qualify as a REIT could have a material adverse impact on our results of operations, financial condition and liquidity.

If we fail to qualify as a REIT but are eligible for certain relief provisions, then we may retain our status as a REIT but may be required to pay a penalty tax, which could be substantial.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

The maximum tax rate applicable to income from “qualified dividends” payable by non-REIT C corporations to U.S.

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 (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).

For those U.S.

shareholders in the top marginal tax bracket of 37%, the deduction for REIT dividends yields an effective income tax rate of 29.6% (excluding the net investment income tax) on REIT dividends, which is higher than the 20% tax rate on qualified dividend income paid by non-REIT C corporations (although the maximum effective rate applicable to such dividends, after taking into account the 21% U.S.

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

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.

In order to qualify as a REIT, we generally must distribute to our shareholders, on an annual basis, at least 90% of our “REIT taxable income,” determined without regard to the deduction for dividends paid and excluding net capital gains.

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

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

federal income tax laws.

We intend to continue to distribute our net income to our shareholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid U.S.

federal income tax and the 4% nondeductible excise tax.

In addition, from time to time our taxable income may exceed our net income as determined by GAAP.

This may occur, for instance, because realized capital losses are deducted in determining our GAAP net income but may not be deductible in computing our taxable income.

In addition, we may incur nondeductible capital expenditures or be required to make debt or amortization payments.

As a result of the foregoing, we may generate less cash flow than taxable income in a particular year and we may incur U.S.

federal income tax and the 4% nondeductible excise tax on that income if we do not distribute such income to shareholders in that year.

In that event, we may be required to (i) use cash reserves, (ii) incur debt at rates or times that we regard as unfavorable, (iii) sell assets in adverse market conditions, (iv) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, or (v) make a taxable distribution of our shares as part of a distribution in which shareholders may elect to receive our shares or (subject to a limit measured as a percentage of the total distribution) cash in order to satisfy the REIT 90% distribution requirement and to avoid U.S.

federal income tax and the 4% nondeductible excise tax in that year.

These alternatives could increase our costs or reduce or dilute our equity.

Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect our business, financial condition and results of operations.

federal income tax treatment of the cash that we might receive from cash settlement of a forward sale agreement is unclear and could jeopardize our ability to meet the REIT qualification requirements.

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).

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.

Although we believe that any amount received by us in exchange for our common shares would qualify for the exemption under Section 1032 of the Code, because it is not entirely clear whether a forward sale agreement qualifies as a “securities futures contract,” the U.S.

federal income tax treatment of any cash settlement payment we receive is uncertain.

In the event that we recognize a significant gain from the cash settlement of a forward sale agreement, we might not be able to satisfy the gross income requirements applicable to REITs under the Code.

If we were to fail to satisfy one or both of the gross income tests for any taxable year, we may nevertheless qualify as a REIT for such year if we were entitled to relief under certain provisions of the Code.

If these relief provisions were inapplicable, we would not qualify to be taxed as a REIT.

Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flow.

Even if we qualify for taxation as a REIT, we may be subject to certain U.S.

federal, state and local taxes on our income, property or net worth, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes.

Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax.

The need to avoid prohibited transactions could cause us to forego or defer sales of properties that might otherwise be in our best interest to sell.

In addition, we could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our qualification as a REIT.

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

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

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

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

We may fail to continue to qualify as a REIT, which would reduce the amount of any potential distributions.

So long as we qualify as a REIT and distribute all of our REIT taxable income each year, we generally will not be subject to federal income tax.

While the Board does not presently intend to terminate our REIT status prior to the final liquidating distribution of our assets and our termination by voluntary dissolution, pursuant to the Plan of Sale and Liquidation, the Board may take actions that would result in such a loss of REIT status.

To qualify as a REIT, we must satisfy various ongoing requirements relating to the nature of our gross assets and income, the timing and amount of distributions and the composition of our shareholders.

There can be no assurance that we will be able to maintain our REIT qualification.

We may encounter difficulties satisfying these requirements as part of the liquidation process.

If we lose our REIT status and take no action to convert into a liquidating entity, we would be taxable as a corporation for federal income tax purposes and would be liable for federal income taxes, including any applicable alternative minimum tax, at the corporate rate with respect to our entire income from operations and from liquidating sales of our assets for the taxable year in which our qualification as a REIT terminates and in any subsequent years, and we would not be entitled to a tax deduction for distributions that we make.

We would also be subject to increased state and local taxes.

As a result of these consequences, our failure to qualify as a REIT could substantially reduce the funds available for distribution to our shareholders.

The sale of properties may cause us to incur penalty taxes, or own and sell properties through taxable REIT subsidiaries (“TRS”), each of which would reduce the amount available for distribution to our shareholders.

The sale of one or more of our properties may be considered a prohibited transaction under the Code.

Any “inventory-like” sales or dealer sales could be considered such a prohibited transaction.

If we are deemed to have engaged in a “prohibited transaction” (i.e., sale of a property held by us primarily for sale in the ordinary course of our trade or business), all net gain that we derive from such sale would be subject to a 100% penalty tax.

The Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% penalty tax.

The sale of our properties in anticipation of or in connection with the Plan of Sale and Liquidation may not satisfy the prohibited transaction safe harbor, depending on the circumstances in which such sales are completed.

If we desire to sell a property pursuant to a transaction that does not satisfy the safe harbor, we may be able to avoid the prohibited transaction tax if, among other alternatives, we hold and sell the property through a TRS.

In that case, any gain would be taxable to the TRS at regular corporate income tax rates.

As a result of the foregoing circumstances, the amount available for distribution to our shareholders could be significantly reduced.

Distributing interests in a liquidating trust (or other liquidating entity) may cause you to recognize gain prior to the receipt of cash.

The REIT provisions of the Code generally require that each year we distribute as dividends to our shareholders at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding any net capital gains).

Our liquidating distributions generally will not qualify as deductible dividends for this purpose unless, among other things, we make such distributions within 24 months after the adoption of the Plan of Sale and Liquidation.

Conditions may arise which cause us not to be able to liquidate within such 24-month period or otherwise maintain our REIT status.

In such event, rather than retain our assets and risk losing our status as a REIT, we may elect, for tax purposes, to transfer our remaining assets and liabilities to a liquidating trust or convert the Company to a liquidating entity that is a limited liability company, partnership or a trust.

In addition, the Board may cause the Company to transfer its remaining assets and liabilities to a liquidating trust or to convert the Company to another form of liquidating entity if the Board determines, in its discretion, that it is advantageous or appropriate to do so.

Such a transfer or conversion would be treated as a distribution of our remaining assets to our shareholders, together with a contribution of the assets to the liquidating trust or other liquidating entity.

As a result, you would recognize gain to the extent that your share of the cash and the net fair market value of any assets (less liabilities assumed) received or initially held by the liquidating trust or other liquidating entity was greater than your basis in your Company common shares, regardless of whether you contemporaneously receive a distribution of cash with which to satisfy any resulting tax liability, and the Company may have withholding tax obligations with respect to foreign shareholders.

In addition, it is possible that the fair market value of the assets received or initially held by the liquidating trust or other liquidating entity, as estimated for purposes of determining the extent of your gain at the time at which interests in the liquidating trust or other liquidating entity are distributed to the shareholders, will exceed the cash or fair market value of property received by the liquidating trust or other liquidating entity on a later sale of the assets.

In this case, you could recognize a loss in a taxable year subsequent to the taxable year in which the gain was recognized, the deductibility of which may be limited under the Code.

The distribution to shareholders of interests in a liquidating trust or the conversion of the Company to a liquidating entity may also cause ongoing adverse tax consequences (particularly to tax-exempt and foreign shareholders, which may be required to file U.S.

tax returns with respect to their share of income generated by the liquidating trust or other liquidating entity).

Because liquidating distributions will be made in multiple tax years, if we were to abandon the Plan of Sale and Liquidation in a tax year subsequent to one in which we already made liquidating distributions, the timing and character of your taxation with respect to liquidating distributions made to you in the prior tax year could change, which may subject you to tax liability (which tax liability could be at ordinary income rates, subject to the Code section 199A deduction, if available, rather than capital gains rates) in the prior tax year that you would not otherwise have been subject to and we could lose our REIT status as of the beginning of such prior tax year.

federal income tax consequences of abandoning a plan of liquidation are not entirely clear once we have begun making liquidating distributions, in particular because liquidating distributions could be made in multiple tax years during the 24 months we have for U.S.

federal income tax purposes to complete our liquidation after the Plan of Sale and Liquidation has been adopted by our shareholders.

In general, distributions to you under the Plan of Sale and Liquidation, including your pro rata share of the fair market value of any assets that are transferred to a liquidating trust or other liquidating entity, should not be taxable to you for U.S.

federal income tax purposes until the aggregate amount of liquidating distributions to you exceeds your adjusted tax basis in your common shares, and then should be taxable to you as capital gain (assuming you hold your shares as a capital asset).

However, if we abandon the Plan of Sale and Liquidation, the U.S.

federal income tax treatment of any liquidating distributions already made pursuant to the Plan of Sale and Liquidation would change because they would no longer be treated as having been made as part of our complete liquidation.

Instead, any such distributions would be treated as either a distribution made with respect to the shares you hold, subject to the normal rules of U.S.

federal income tax the distributions you currently receive are subject to, or as payment to you for the sale or exchange of your shares in partial redemption of them.

Whether sale or distribution treatment would apply to you depends on your particular circumstances and we cannot predict which would apply;

however, regardless of which treatment would apply, each distribution likely would be at least partially taxable to you.

Accordingly, if we made liquidating distributions in the tax year we adopted the Plan of Sale and Liquidation which did not exceed your tax basis in your shares (and therefore were not taxable to you), and we abandoned the Plan of Sale and Liquidation in the subsequent tax year, you may now have a tax liability with respect to the distributions made to you in the prior tax year, and, if they are treated as distributions rather than a sale or exchange, whether you are taxed at ordinary (subject to the Code section 199A deduction, if available), or capital gains rates, may depend on whether we had declared any portion of such distributions as capital gain dividends.

In addition, liquidating distributions we make pursuant to the Plan of Sale and Liquidation qualify for the dividends paid deduction (which helps us ensure we meet our annual distribution requirement during our liquidation process), provided that they are made within 24 months of the adoption of such plan (within the meaning of the Code (which was effective upon

approval by the shareholders of the Plan of Sale and Liquidation));

however, if such distributions were no longer made pursuant to our complete liquidation within 24 months of such adoption of our Plan of Sale and Liquidation whether any part of such distributions qualify for the dividends paid deduction will depend on different criteria.

If we made some liquidating distributions in one tax year and we abandoned the Plan of Sale and Liquidation in a subsequent tax year, it is possible that we may not have made sufficient distributions in that first tax year to satisfy our annual distribution requirement for that tax year which, if we are unable to cure such failure, could result in the loss of our REIT status effective as of the beginning of that first tax year.

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

Under current federal partnership tax audit rules, subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and a partner’s allocable share thereof) is determined, and taxes, interest, and penalties attributable thereto are assessed and collected, at the partnership level.

With respect to any partnership in which we invest, unless such partnership makes an election or takes certain steps to require the partners to pay their tax on their allocable shares of the adjustment, it is possible that such partnership would be required to pay additional taxes, interest, and penalties as a result of an audit adjustment.

With respect to any partnership in which we currently invest (or in recent years had invested, but no longer invest), unless such partnership makes an election or takes certain steps to require the partners to pay their tax on their allocable shares of the adjustment, it is possible that such partnership would be required to pay additional taxes, interest, and penalties as a result of an audit adjustment.

We could be required to bear the economic burden of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate‑level taxes had we owned the assets of the partnership directly.

There is a risk of changes in the tax laws which may adversely affect our taxation as a REIT and taxation of our shareholders.

The IRS, the United States Treasury Department and Congress frequently review U.S.

The Internal Revenue Service, the United States Treasury Department and Congress frequently review U.S.

federal income tax legislation, regulations and other guidance.

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.

In addition, according to publicly released statements, a top legislative priority of the current 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.

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Item 1A. Risk Factors