7 unchanged sentences
See the Reports of Independent Registered Public Accounting Firm in Item 8 of this Form 10-K.
−Removed: During the three months ended December 31, 2024, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
+Added: While there have been changes in our internal control over financial reporting during the three months ended December 31, 2025, including the addition of controls related to the liquidation basis accounting for our consolidated financial statements and disclosures, we do not believe these changes materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
OTHER INFORMATION
During the three months ended December 31, 2025, no trustee or officer of Elme Communities adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
−Removed: Material U.S.
−Removed: Federal Income Tax Considerations
−Removed: The following is a summary of certain material U.S.
−Removed: federal income tax considerations relating to our qualification and taxation as a real estate investment trust, a “REIT,” and the acquisition, holding, and disposition of (i) our common shares, preferred shares and depositary shares (together with common shares and preferred shares, the “shares”) as well as our warrants and rights, and (ii) certain debt securities that we may offer (together with the shares, the “securities”).
−Removed: For purposes of this discussion, references to “our Company,” “we” and “us” mean only Elme Communities and not its subsidiaries or affiliates.
−Removed: This summary is based upon the Internal Revenue Code of 1986, as amended, (the “Code”), the Treasury Regulations, rulings and other administrative interpretations and practices of the Internal Revenue Service (“IRS”) (including administrative interpretations and practices expressed in private letter rulings, which are binding on the IRS only with respect to the particular taxpayers who requested and received those rulings), and judicial decisions, all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect.
−Removed: No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.
−Removed: We have not sought and will not seek an advance ruling from the IRS regarding any matter discussed in this section.
−Removed: The summary is also based upon the assumption that we will operate the Company and its subsidiaries and affiliated entities in accordance with their applicable organizational documents.
−Removed: This summary is for general information only, and does not purport to discuss all aspects
−Removed: federal income taxation that may be important to a particular investor in light of its investment or tax circumstances, or to investors subject to special tax rules, including:
−Removed: • tax-exempt organizations, except to the extent discussed below in “—Taxation of U.S.
−Removed: Shareholders—Taxation of Tax-Exempt Shareholders” and “Taxation of Holders of Debt Securities-Tax-Exempt Holders of Debt Securities,”
−Removed: • broker-dealers,
−Removed: corporations, non-U.S.
−Removed: partnerships, non-U.S.
−Removed: trusts, non-U.S.
−Removed: estates, or individuals who are not taxed as citizens or residents of the United States, all of which may be referred to collectively as “non-U.S.
−Removed: persons,” except to the extent discussed below in “—Taxation of Non-U.S.
−Removed: Shareholders” and “—Taxation of Holders of Debt Securities—Non-U.S.
−Removed: Holders of Debt Securities,”
−Removed: • trusts and estates,
−Removed: • regulated investment companies (“RICs”),
−Removed: • financial institutions,
−Removed: • insurance companies,
−Removed: • subchapter S corporations,
−Removed: • foreign (non-U.S.) governments,
−Removed: • persons subject to the alternative minimum tax provisions of the Code,
−Removed: • persons holding the shares as part of a “hedge,” “straddle,” “conversion,” “synthetic security” or other integrated investment,
−Removed: • persons holding the shares through a partnership or similar pass-through entity,
−Removed: • persons with a “functional currency” other than the U.S.
−Removed: • persons holding 10% or more (by vote or value) of the beneficial interest in us, except to the extent discussed below,
−Removed: • persons who do not hold the shares as a “capital asset,” within the meaning of Section 1221 of the Code,
−Removed: • corporations subject to the provisions of Section 7874 of the Code,
−Removed: • persons required for U.S.
−Removed: federal income tax purposes to accelerate the recognition of any item of gross income as a result of such income being recognized on an applicable financial statement, or
−Removed: • persons otherwise subject to special tax treatment under the Code.
−Removed: This summary does not address state, local or non-U.S.
−Removed: tax considerations.
−Removed: This summary also does not consider tax considerations that may be relevant with respect to securities we may issue, or selling security holders may sell, other than our shares and certain debt instruments described below.
−Removed: Each time we or selling security holders sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that sale and may add to, modify or update the discussion below, as appropriate.
−Removed: Each prospective investor is advised to consult his or her tax advisor to determine the impact of his or her personal tax situation on the anticipated tax consequences of the acquisition, ownership and sale of our shares, warrants, rights and/or debt securities.
−Removed: This includes the U.S.
−Removed: federal, state, local, foreign and other tax considerations of the ownership and sale of our shares, warrants, rights and/or debt securities, and the potential changes in applicable tax laws.
−Removed: Taxation of the Company as a REIT
−Removed: We elected to be taxed as a REIT, commencing with our first taxable year ended December 31, 1960.
−Removed: A REIT generally is not subject to U.S.
−Removed: federal income tax on the “REIT taxable income” (generally, taxable income of the REIT subject to specified adjustments, including a deduction for dividends paid and excluding net capital gain) that it distributes to shareholders, provided that the REIT meets the annual REIT distribution requirement and the other requirements for qualification as a REIT under the Code.
−Removed: We believe that we are organized and have operated, and we intend to continue to operate, in a manner so as to qualify for taxation as a REIT under the Code.
−Removed: However, qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including (through our actual annual (or in some cases quarterly) operating results) requirements relating to income, asset ownership, distribution levels and diversity of share ownership.
−Removed: Given the complex nature of the REIT qualification requirements, the ongoing importance of factual determinations and the possibility of future changes in our circumstances, we cannot provide any assurances that we will be organized or operated in a manner so as to satisfy the requirements for qualification and taxation as a REIT under the Code, or that we will meet such requirements in the future.
−Removed: See “—Failure to Qualify as a REIT.”
−Removed: The sections of the Code that relate to our qualification and taxation as a REIT are highly technical and complex.
−Removed: This discussion sets forth the material aspects of the Code sections that govern the U.S.
−Removed: federal income tax treatment of a REIT and its shareholders.
−Removed: This summary is qualified in its entirety by the applicable Code provisions, relevant rules and Treasury Regulations, and related administrative and judicial interpretations.
−Removed: Taxation of REITs in General
−Removed: For each taxable year in which we qualify for taxation as a REIT, we generally will not be subject to U.S.
−Removed: federal corporate income tax on our “REIT taxable income” (generally, taxable income subject to specified adjustments, including a deduction for dividends paid and excluding our net capital gain) that is distributed annually to our shareholders.
−Removed: This treatment substantially eliminates the “double taxation” at the corporate and shareholder levels that generally results from an investment in a non-REIT C corporation.
−Removed: A non-REIT C corporation is a corporation that generally is required to pay tax at the corporate level.
−Removed: Double taxation means taxation once at the corporate level when income is earned and once again at the shareholder level when the income is distributed.
−Removed: In general, the income that we generate is taxed only at the shareholder level upon a distribution of dividends to our shareholders.
−Removed: shareholders generally will be subject to taxation on dividends distributed by us (other than designated capital gain dividends and “qualified dividend income”) at rates applicable to ordinary income, instead of at lower capital gain rates.
−Removed: For taxable years beginning before January 1, 2026, generally, U.S.
−Removed: shareholders that are individuals, trusts or estates may deduct 20% of the aggregate amount of ordinary dividends distributed by us, subject to certain limitations.
−Removed: Capital gain dividends and qualified dividend income will continue to be subject to a maximum 20% rate (excluding the 3.8% tax on “net investment income”).
−Removed: Any net operating losses, foreign tax credits and other tax attributes of a REIT generally do not pass through to our shareholders, subject to special rules for certain items such as the net capital gain that we recognize.
−Removed: Even if we qualify for taxation as a REIT, we will be subject to U.S.
−Removed: federal income tax in the following circumstances:
−Removed: We will be taxed at regular corporate rates on any undistributed “REIT taxable income,” including any undistributed net capital gain.
−Removed: REIT taxable income is the taxable income of the REIT subject to specified adjustments, including a deduction for dividends paid.
−Removed: If we have (1) net income from the sale or other disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business, or (2) other non-qualifying income from foreclosure property, such income will be subject to tax at the highest corporate rate.
−Removed: Our net income from “prohibited transactions” will be subject to a 100% penalty tax.
−Removed: In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than foreclosure property.
−Removed: If we fail to satisfy either the 75% gross income test or the 95% gross income test, as discussed below, but our failure is due to reasonable cause and not due to willful neglect and we nonetheless maintain our qualification as a REIT because we satisfy specified cure provisions, we will be subject to a 100% tax on an amount equal to (a) the greater of (1) the amount by which we fail the 75% gross income test or (2) the amount by which we fail the 95% gross income
−Removed: test, as the case may be, multiplied by (b) a fraction intended to reflect our profitability.
−Removed: We will be subject to a 4% nondeductible excise tax on the excess of the required calendar year distribution over the sum of the amounts actually distributed, excess distributions from the preceding tax year and amounts retained for which U.S.
−Removed: federal income tax was paid.
−Removed: The required distribution for each calendar year is equal to the sum of:
−Removed: • 85% of our REIT ordinary income for the year;
−Removed: • 95% of our REIT capital gain net income for the year, other than capital gains we elect to retain and pay tax on as described below;
−Removed: • any undistributed taxable income from prior taxable years.
−Removed: We will be subject to a 100% penalty tax on certain rental income we receive when a taxable REIT subsidiary provides services to our tenants, on certain expenses deducted by a taxable REIT subsidiary on payments made to us and on income for services rendered to us by a taxable REIT subsidiary, if the arrangements among us, our tenants, and our taxable REIT subsidiary do not reflect arm’s-length terms.
−Removed: If we acquire any assets from a non-REIT C corporation in a carry-over basis transaction, we would be liable for corporate income tax, at the highest applicable corporate rate, on the “built-in gain” inherent in those assets if we disposed of those assets within five years after they were acquired.
−Removed: To the extent that assets are transferred to us in a carry-over basis transaction by a partnership in which a non-REIT C corporation owns an interest, we will be subject to this tax in proportion to the non-REIT C corporation’s interest in the partnership.
−Removed: Built-in gain is the amount by which an asset’s fair market value exceeds its adjusted tax basis at the time we acquire the asset.
−Removed: The results described in this paragraph assume that the non-REIT C corporation or partnership transferor will not elect, in lieu of this treatment, to be subject to an immediate tax when the asset is acquired by us.
−Removed: We may elect to retain and pay U.S.
−Removed: federal income tax on our net long-term capital gain.
−Removed: In that case, a U.S.
−Removed: shareholder would include its proportionate share of our undistributed long-term capital gain (to the extent that we make a timely designation of such gain to the shareholder) in its income, would be deemed to have paid the tax we paid on such gain, and would be allowed a credit for its proportionate share of the tax deemed to have been paid, and an adjustment would be made to increase the basis of the U.S.
−Removed: shareholder in our common shares.
−Removed: If we violate an asset test (other than certain de minimis violations) or other requirements applicable to REITs, as described below, but our failure is due to reasonable cause and not due to willful neglect and we nevertheless maintain our REIT qualification because we satisfy specified cure provisions, we will be subject to a tax equal to the greater of $50,000 or the amount determined by multiplying the net income generated by such non-qualifying assets by the highest rate of tax applicable to non-REIT C corporations during periods when owning such assets would have caused us to fail the relevant asset test.
−Removed: If we fail to satisfy a requirement under the Code and the failure would result in the loss of our REIT qualification, other than a failure to satisfy a gross income test or an asset test, as described above, but nonetheless maintain our qualification as a REIT because the requirements of certain relief provisions are satisfied, we will be subject to a penalty of $50,000 for each such failure.
−Removed: If we fail to comply with the requirement to send annual letters to our shareholders requesting information regarding the actual ownership of our shares and the failure was not due to reasonable cause or was due to willful neglect, we will be subject to a $25,000 penalty or, if the failure is intentional, a $50,000 penalty.
−Removed: The earnings of any subsidiaries that are non-REIT C corporations, including any taxable REIT subsidiaries, are subject to U.S.
−Removed: federal corporate income tax.
−Removed: Notwithstanding our qualification as a REIT, we and our subsidiaries may be subject to a variety of taxes, including payroll taxes and state, local, and foreign income, property and other taxes on our assets, operations and/or net worth.
−Removed: We could also be subject to tax in situations and on transactions not presently contemplated.
−Removed: Requirements for Qualification as a REIT
−Removed: The Code defines a “REIT” as a corporation, trust or association:
−Removed: (1) that is managed by one or more trustees or directors;
−Removed: (2) that issues transferable shares or transferable certificates to evidence its beneficial ownership;
−Removed: (3) that would be taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
−Removed: (4) that is neither a financial institution nor an insurance company within the meaning of certain provisions of the Code;
−Removed: (5) that is beneficially owned by 100 or more persons;
−Removed: (6) not more than 50% in value of the outstanding shares or other beneficial interest of which is owned, actually or constructively, by five or fewer individuals (as defined in the Code to include certain entities and as determined by applying certain attribution rules) during the last half of each taxable year;
−Removed: (7) that makes an election to be a REIT for the current taxable year, or has made such an election for a previous taxable year that has not been revoked or terminated, and that satisfies all relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT status;
−Removed: (8) that uses a calendar year for U.S.
−Removed: federal income tax purposes;
−Removed: (9) that meets other applicable tests, described below, regarding the nature of its income and assets and the amount of its distributions;
−Removed: (10) that has no earnings and profits from any non-REIT taxable year at the close of any taxable year.
−Removed: The Code provides that conditions (1), (2), (3) and (4) above must be met during the entire taxable year and condition (5) above must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months.
−Removed: Conditions (5) and (6) do not apply until after the first taxable year for which an election is made to be taxed as a REIT.
−Removed: Condition (6) must be met during the last half of each taxable year.
−Removed: For purposes of determining share ownership under condition (6) above, a supplemental unemployment compensation benefits plan, a private foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes generally is considered an individual.
−Removed: However, a trust that is a qualified trust under Code Section 401(a) generally is not considered an individual, and beneficiaries of a qualified trust are treated as holding shares of a REIT in proportion to their actuarial interests in the trust for purposes of condition (6) above.
−Removed: We believe that we have been organized, have operated and have issued sufficient shares of beneficial interest with sufficient diversity of ownership to allow us to satisfy the above conditions.
−Removed: In addition, our declaration of trust contains restrictions regarding the transfer of shares of beneficial interest that are intended to assist us in continuing to satisfy the share ownership requirements described in conditions (5) and (6) above.
−Removed: If we fail to satisfy these share ownership requirements, we will fail to qualify as a REIT unless we qualify for certain relief provisions described below under “—Requirements for Qualification as a REIT-Relief from Violations;
−Removed: Reasonable Cause.”
−Removed: To monitor our compliance with condition (6) above, we are generally required to maintain records regarding the actual ownership of our shares.
−Removed: To do so, we must demand written statements each year from the record holders of specified percentages of our shares pursuant to which the record holders must disclose the actual owners of the shares (i.e., the persons required to include in gross income the dividends paid by us).
−Removed: We must maintain a list of those persons failing or refusing to comply with this demand as part of our records.
−Removed: We could be subject to monetary penalties if we fail to comply with these record-keeping requirements.
−Removed: A shareholder that fails or refuses to comply with the demand is required by Treasury Regulations to submit a statement with its tax return disclosing the actual ownership of our shares and other information.
−Removed: If we comply with the record-keeping requirement and we do not know or, exercising reasonable diligence, would not have known of our failure to meet condition (6) above, then we will be treated as having met condition (6) above.
−Removed: To qualify as a REIT, we cannot have at the end of any taxable year any undistributed earnings and profits that are attributable to a non-REIT taxable year.
−Removed: We elected to be taxed as a REIT beginning with our first taxable year in 1960 and we have not succeeded to any earnings and profits of a regular corporation.
−Removed: Therefore, we do not believe we have had any undistributed non-REIT earnings and profits.
−Removed: Relief from Violations;
−Removed: Reasonable Cause
−Removed: The Code provides relief from violations of the REIT gross income requirements, as described below under “—Requirements for Qualification as a REIT—Gross Income Tests,” in cases where a violation is due to reasonable cause and not to willful
−Removed: neglect, and other requirements are met, including the payment of a penalty tax that is based upon the magnitude of the violation.
−Removed: In addition, certain provisions of the Code extend similar relief in the case of certain violations of the REIT asset requirements (see “—Requirements for Qualification as a REIT—Asset Tests” below) and other REIT requirements, again provided that the violation is due to reasonable cause and not willful neglect, and other conditions are met, including the payment of a penalty tax.
−Removed: If we did not have reasonable cause for a failure, we would fail to qualify as a REIT.
−Removed: Whether we would have reasonable cause for any such failure cannot be known with certainty, because the determination of whether reasonable cause exists depends on the facts and circumstances at the time and we cannot provide any assurance that we in fact would have reasonable cause for a particular failure or that the IRS would not successfully challenge our view that a failure was due to reasonable cause.
−Removed: Moreover, we may be unable to actually rectify a failure and restore asset test compliance within the required timeframe due to the inability to transfer or otherwise dispose of assets, including as a result of restrictions on transfer imposed by our lenders or undertakings with our co-investors and/or the inability to acquire additional qualifying assets due to transaction risks, access to additional capital or other considerations.
−Removed: If we fail to satisfy any of the various REIT requirements, there can be no assurance that these relief provisions would be available to enable us to maintain our qualification as a REIT, and, if such relief provisions are available, the amount of any resultant penalty tax could be substantial.
−Removed: Effect of Subsidiary Entities
−Removed: Ownership of Partnership Interests .
−Removed: In the case of a REIT that is a partner in an entity that is treated as a partnership for U.S.
−Removed: federal income tax purposes, Treasury Regulations provide that the REIT is deemed to own its proportionate share of the partnership’s assets, and to earn its proportionate share of the partnership’s income, for purposes of the asset and gross income tests applicable to REITs, as described below.
−Removed: A REIT’s proportionate share of a partnership’s assets and income is based on the REIT’s pro rata share of the capital interests in the partnership.
−Removed: The Company’s capital interest in a partnership is calculated based on either the Company’s percentage ownership of the capital of the partnership or based on the allocations provided in the applicable partnership or limited liability company operating agreement, using the more conservative calculation.
−Removed: However, solely for purposes of the 10% value test, described below, the determination of a REIT’s interest in the partnership’s assets is based on the REIT’s proportionate interest in the equity and certain debt securities issued by the partnership.
−Removed: In addition, the assets and gross income of the partnership are deemed to retain the same character in the hands of the REIT.
−Removed: Thus, our proportionate share of the assets and items of income of any of our subsidiary partnerships, which include the assets, liabilities, and items of income of any partnership in which our subsidiary partnership holds an interest, are treated as our assets and items of income for purposes of applying the REIT requirements.
−Removed: Any investment in partnerships involves special tax considerations, including the possibility of a challenge by the IRS of the status of any subsidiary partnership as a partnership, as opposed to an association taxable as a corporation, for U.S.
−Removed: federal income tax purposes.
−Removed: If any of these entities were treated as an association for U.S.
−Removed: federal income tax purposes, it would be taxable as a corporation and therefore could be subject to an entity-level tax on its income.
−Removed: In such a situation, the character of our assets and items of gross income would change and could preclude us from satisfying the REIT asset tests or the gross income tests as discussed in “—Requirements for Qualification as a REIT—Asset Tests” and “—Requirements for Qualification as a REIT—Gross Income Tests,” and in turn could prevent us from qualifying as a REIT, unless we are eligible for relief from the violation pursuant to relief provisions.
−Removed: See “—Requirements for Qualification as a REIT—Relief from Violations;
−Removed: Reasonable Cause” above, and “—Requirements for Qualification as a REIT—Gross Income Tests,” “—Requirements for Qualification as a REIT—Asset Tests” and “—Requirements for Qualification as a REIT— Failure to Qualify as a REIT,” below, for discussion of the effect of failure to satisfy the REIT tests for a taxable year, and of the relief provisions.
−Removed: In addition, any change in the status of any subsidiary partnership for tax purposes might be treated as a taxable event, in which case we could have taxable income that is subject to the REIT distribution requirements without receiving any cash.
−Removed: Under the Bipartisan Budget Act of 2015, liability is imposed on the partnership (rather than its partners) for adjustments to reported partnership taxable income resulting from audits or other tax proceedings.
−Removed: The liability can include an imputed underpayment of tax, calculated by using the highest marginal U.S.
−Removed: federal income tax rate, as well as interest and penalties on such imputed underpayment of tax.
−Removed: Using certain rules, partnerships may be able to transfer these liabilities to their partners.
−Removed: the event any adjustments are imposed by the IRS on the taxable income reported by any subsidiary partnerships, we intend to utilize certain rules to the extent possible to allow us to transfer any liability with respect to such adjustments to the partners of the subsidiary partnerships who should properly bear such liability.
−Removed: However, there is no assurance that we will qualify under those rules or that we will have the authority to use those rules under the operating agreements for certain of our subsidiary partnerships.
−Removed: We may from time to time be a limited partner or non-managing member in some of our partnerships and limited liability companies.
−Removed: If a partnership or limited liability company in which we own an interest takes or expects to take actions that could jeopardize our status as a REIT or requires us to pay tax, we may be forced to dispose of our interest in such entity.
−Removed: In addition, it is possible that a partnership or limited liability company could take an action which could cause us to fail a gross income or
−Removed: asset test, and that we would not become aware of such action in time to dispose of our interest in the partnership or limited liability company or take other corrective action on a timely basis.
−Removed: In that case, we could fail to qualify as a REIT unless we were entitled to relief, as described below.
−Removed: Ownership of Disregarded Subsidiaries .
−Removed: If a REIT owns a corporate subsidiary that is a “qualified REIT subsidiary,” or QRS, that subsidiary is generally disregarded for U.S.
−Removed: federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of the subsidiary are treated as assets, liabilities and items of income, deduction and credit of the REIT itself, including for purposes of the gross income and asset tests applicable to REITs, as described below.
−Removed: A QRS is any corporation, other than a taxable REIT subsidiary, that is directly or indirectly wholly owned by a REIT.
−Removed: Other entities that are wholly owned by us, including single member limited liability companies that have not elected to be taxed as corporations for U.S.
−Removed: federal income tax purposes, are also generally disregarded as separate entities for U.S.
−Removed: federal income tax purposes, including for purposes of the REIT income and asset tests.
−Removed: Disregarded subsidiaries, along with any partnerships in which we hold an equity interest, are sometimes referred to herein as “pass-through subsidiaries.”
−Removed: In the event that a disregarded subsidiary ceases to be wholly owned by us (for example, if any equity interest in the subsidiary is acquired by a person other than us or another disregarded subsidiary of ours) the subsidiary’s separate existence would no longer be disregarded for U.S.
−Removed: federal income tax purposes.
−Removed: Instead, the subsidiary would have multiple owners and would be treated as either a partnership or a taxable corporation.
−Removed: Such an event could, depending on the circumstances, adversely affect our ability to satisfy the various asset and gross income requirements applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the securities of another corporation unless it is a taxable REIT subsidiary or a QRS.
−Removed: See “—Requirements for Qualification as a REIT—Gross Income Tests” and “—Requirements for Qualification as a REIT—Asset Tests.”
−Removed: Ownership of Interests in Taxable REIT Subsidiaries .
−Removed: Our taxable REIT subsidiary (and any taxable REIT subsidiary we may form in the future) is a corporation other than a REIT in which we directly or indirectly hold stock, and that has made a joint election with us to be treated as a taxable REIT subsidiary under Section 856(l) of the Code.
−Removed: A taxable REIT subsidiary also includes any corporation other than a REIT in which a taxable REIT subsidiary of ours owns, directly or indirectly, securities (other than certain “straight debt” securities), which represent more than 35% of the total voting power or value of the outstanding securities of such corporation.
−Removed: Other than some activities relating to lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services to our tenants without causing us to receive impermissible tenant service income under the REIT gross income tests.
−Removed: A taxable REIT subsidiary is required to pay regular U.S.
−Removed: federal income tax, and state and local income tax where applicable, as a regular corporation.
−Removed: In addition, a taxable REIT subsidiary may be prevented from deducting interest on debt, including debt funded directly or indirectly by us, if certain tests are not satisfied.
−Removed: If dividends are paid to us by our taxable REIT subsidiary, then a portion of the dividends we distribute to shareholders who are taxed at individual rates will generally be eligible for taxation at lower capital gains rates, rather than at ordinary income rates.
−Removed: See “—Taxation of U.S.
−Removed: Shareholders—Taxation of Taxable U.S.
−Removed: Shareholders-Qualified Dividend Income.”
−Removed: Generally, a taxable REIT subsidiary can perform impermissible tenant services without causing us to receive impermissible tenant services income under the REIT income tests.
−Removed: However, several provisions applicable to the arrangements between us and our taxable REIT subsidiary ensure that such taxable REIT subsidiary will be subject to an appropriate level of U.S.
−Removed: federal income taxation.
−Removed: For example, taxable REIT subsidiaries are limited in their ability to deduct interest payments in excess of a certain amount, including interest payments made directly or indirectly to us, as described below in “—Annual Distribution Requirements.” In addition, we will be obligated to pay a 100% penalty tax on some payments we receive or on certain expenses deducted by our taxable REIT subsidiary, and on income earned by our taxable REIT subsidiary for services provided to, or on behalf of, us, if the economic arrangements between us, our tenants and such taxable REIT subsidiary are not comparable to similar arrangements among unrelated parties.
−Removed: Our taxable REIT subsidiary, and any future taxable REIT subsidiaries acquired by us, may make interest and other payments to us and to third parties in connection with activities related to our properties.
−Removed: There can be no assurance that our taxable REIT subsidiary will not be limited in its ability to deduct interest payments made to us.
−Removed: In addition, there can be no assurance that the IRS might not seek to impose the 100% excise tax on a portion of payments received by us from, or expenses deducted by, or service income imputed to, our taxable REIT subsidiary.
−Removed: We currently own one subsidiary that has elected to be treated as taxable REIT subsidiaries for U.S.
−Removed: federal income tax purposes.
−Removed: Our taxable REIT subsidiary is taxable as a regular corporation and has elected, together with us, to be treated as our taxable REIT subsidiary.
−Removed: We may elect, together with other corporations in which we may own directly or indirectly stock, for those corporations to be treated as our taxable REIT subsidiaries.
−Removed: Gross Income Tests
−Removed: To qualify as a REIT, we must satisfy two gross income tests that are applied on an annual basis.
−Removed: First, in each taxable year, at least 75% of our gross income (excluding gross income from prohibited transactions, certain hedging transactions, as described below, and certain foreign currency transactions) must be derived from investments relating to real property or mortgages on real property, generally including:
−Removed: • “rents from real property”;
−Removed: • dividends or other distributions on, and gain from the sale of, shares in other REITs;
−Removed: • gain from the sale of real property or mortgages on real property, in either case, not held for sale to customers;
−Removed: • interest income derived from mortgage loans secured by real property;
−Removed: • income attributable to temporary investments of new capital in stocks and debt instruments during the one-year period following our receipt of new capital that we raise through equity offerings or issuance of debt obligations with at least a five-year term.
−Removed: Second, at least 95% of our gross income in each taxable year (excluding gross income from prohibited transactions, certain hedging transactions, as described below, and certain foreign currency transactions) must be derived from some combination of income that qualifies under the 75% gross income test described above, as well as other income sources generally including (a) other dividends, (b) interest (including interest income from debt instruments issued by publicly offered REITs), and (c) gain from the sale or disposition of stock or securities (including gain from the sale or other disposition of debt instruments issued by publicly offered REITs), in either case, not held for sale to customers.
−Removed: Gross income from certain hedging transactions is excluded from gross income for purposes of the 95% gross income requirement.
−Removed: Similarly, gross income from certain hedging transactions is excluded from gross income for purposes of the 75% gross income test.
−Removed: Income from, and gain from the termination of, certain hedging transactions, where the property or indebtedness that was the subject of the prior hedging transaction was extinguished or disposed of, also will be excluded from gross income for purposes of either the 75% gross income test or the 95% gross income test.
−Removed: See “—Requirements for Qualification as a REIT—Gross Income Tests—Income from Hedging Transactions.”
−Removed: Rents from Real Property .
−Removed: Rents we receive will qualify as “rents from real property” for the purpose of satisfying the gross income requirements for a REIT described above only if several conditions are met.
−Removed: These conditions relate to the identity of the tenant, the computation of the rent payable, and the nature of the property lease.
−Removed: • First, the amount of rent must not be based in whole or in part on the income or profits of any person.
−Removed: However, an amount we receive or accrue generally will not be excluded from the term “rents from real property” solely by reason of being based on a fixed percentage or percentages of receipts or sales;
−Removed: • Second, we, or an actual or constructive owner of 10% or more of our shares, must not actually or constructively own 10% or more of the interests in the tenant, or, if the tenant is a corporation, 10% or more of the voting power or value of all classes of stock of the tenant.
−Removed: Rents received from such tenant that is a taxable REIT subsidiary, however, will not be excluded from the definition of “rents from real property” as a result of this condition if either (i) at least 90% of the space at the property to which the rents relate is leased to third parties, and the rents paid by the taxable REIT subsidiary are comparable to rents paid by our other tenants for comparable space or (ii) the property is a qualified lodging facility or a qualified health care property and such property is operated on behalf of the taxable REIT subsidiary by a person who is an “eligible independent contractor” (as described below) and certain other requirements are met;
−Removed: • Third, rent attributable to personal property, leased in connection with a lease of real property, must not be greater than 15% of the total rent received under the lease.
−Removed: If this requirement is not met, then the portion of rent attributable to personal property will not qualify as “rents from real property”;
−Removed: • Fourth, for rents to qualify as rents from real property for the purpose of satisfying the gross income tests, we generally must not operate or manage the property or furnish or render services to the tenants of such property, other than through an “independent contractor” who is adequately compensated and from whom we derive no revenue or through a taxable REIT subsidiary.
−Removed: To the extent that impermissible services are provided by an independent contractor, the
−Removed: cost of the services generally must be borne by the independent contractor.
−Removed: We anticipate that any services we provide directly to tenants will be “usually or customarily rendered” in connection with the rental of space for occupancy only and not otherwise considered to be provided for the tenants’ convenience.
−Removed: We may provide a minimal amount of “non-customary” services to tenants of our properties, other than through an independent contractor or a taxable REIT subsidiary, but we intend that our income from these services will not exceed 1% of our total gross income from the property.
−Removed: If the impermissible tenant services income exceeds 1% of our total income from a property, then all of the income from that property will fail to qualify as rents from real property.
−Removed: If the total amount of impermissible tenant services income does not exceed 1% of our total income from the property, the services will not “taint” the other income from the property (that is, it will not cause the rent paid by tenants of that property to fail to qualify as rents from real property), but the impermissible tenant services income will not qualify as rents from real property.
−Removed: We will be deemed to have received income from the provision of impermissible services in an amount equal to at least 150% of our direct cost of providing the service.
−Removed: We monitor (and intend to continue to monitor) the activities provided at, and the non-qualifying income arising from, our properties and believe that we have not provided services at levels that will cause us to fail to meet the income tests.
−Removed: We provide services and may provide access to third-party service providers at some or all of our properties.
−Removed: Based upon our experience in the markets where the properties are located, we believe that all access to service providers and services provided to tenants by us (other than through a qualified independent contractor or a taxable REIT subsidiary) either are usually or customarily rendered in connection with the rental of real property and not otherwise considered rendered to the occupant, or, if considered impermissible services, will not result in an amount of impermissible tenant service income that will cause us to fail to meet the income test requirements.
−Removed: However, we cannot provide any assurance that the IRS will agree with these positions.
−Removed: Income we receive that is attributable to the rental of parking spaces at the properties will constitute rents from real property for purposes of the REIT gross income tests if the services provided with respect to the parking facilities are performed by independent contractors from whom we derive no income, either directly or indirectly, or by a taxable REIT subsidiary.
−Removed: We believe that the income we receive that is attributable to parking facilities will meet these tests and, accordingly, will constitute rents from real property for purposes of the REIT gross income tests.
−Removed: Interest Income .
−Removed: “Interest” generally will be non-qualifying income for purposes of the 75% or 95% gross income tests if it depends in whole or in part on the income or profits of any person.
−Removed: However, interest based on a fixed percentage or percentages of receipts or sales may still qualify under the gross income tests.
−Removed: We do not expect to derive significant amounts of interest that will not qualify under the 75% and 95% gross income tests.
−Removed: Dividend Income .
−Removed: Our share of any dividends received from any taxable REIT subsidiaries will qualify for purposes of the 95% gross income test but not for purposes of the 75% gross income test.
−Removed: We do not anticipate that we will receive sufficient dividends from any taxable REIT subsidiaries to cause us to exceed the limit on non-qualifying income under the 75% gross income test.
−Removed: Dividends that we receive from other qualifying REITs will qualify for purposes of both REIT income tests.
−Removed: Income from Hedging Transactions .
−Removed: From time to time we may enter into hedging transactions with respect to one or more of our assets or liabilities.
−Removed: Any such hedging transactions could take a variety of forms, including the use of derivative instruments such as interest rate swap or cap agreements, option agreements, and futures or forward contracts.
−Removed: Income of a REIT, including income from a pass-through subsidiary, arising from “clearly identified” hedging transactions that are entered into to manage the risk of interest rate or price changes with respect to borrowings, including gain from the disposition of such hedging transactions, to the extent the hedging transactions hedge indebtedness incurred, or to be incurred, by the REIT to acquire or carry real estate assets (each such hedge, a “Borrowings Hedge”), will not be treated as gross income for purposes of either the 95% gross income test or the 75% gross income test.
−Removed: Income of a REIT arising from hedging transactions that are entered into to manage the risk of currency fluctuations with respect to our investments (each such hedge, a “Currency Hedge”) will not be treated as gross income for purposes of either the 95% gross income test or the 75% gross income test provided that the transaction is “clearly identified.” This exclusion from the 95% and 75% gross income tests also will apply if we previously entered into a Borrowings Hedge or a Currency Hedge, a portion of the hedged indebtedness or property is disposed of, and in connection with such extinguishment or disposition we enter into a new “clearly identified” hedging transaction to offset the prior hedging position.
−Removed: In general, for a hedging transaction to be “clearly identified,” (1) it must be identified as a hedging transaction before the end of the day on which it is acquired, originated, or entered into;
−Removed: and (2) the items of risks being hedged must be identified “substantially contemporaneously” with entering into the hedging transaction (generally not more than 35 days after entering into the hedging transaction).
−Removed: To the extent that we hedge with other types of financial instruments or in other situations, the resultant income will be treated as income that does not qualify under the 95% or 75% gross income tests unless the hedge meets certain requirements, and we elect to integrate it with a specified asset and to treat the integrated position as a synthetic debt instrument.
−Removed: We intend to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT, but there can be no assurance we will be successful in this regard.
−Removed: Income from Forward Sale Agreements .
−Removed: 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.
−Removed: 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).
−Removed: 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.
−Removed: 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.
−Removed: federal income tax treatment of any cash settlement payment we receive is uncertain.
−Removed: 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.
−Removed: 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, as described below.
−Removed: If these relief provisions were inapplicable, we would not qualify to be taxed as a REIT.
−Removed: Income from Prohibited Transactions .
−Removed: Any gain that we realize on the sale of any property held as inventory or otherwise held primarily for sale to customers in the ordinary course of business, either directly or through pass-through subsidiaries, will be treated as income from a prohibited transaction that is subject to a 100% penalty tax.
−Removed: Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding the particular transaction.
−Removed: However, we will not be treated as a dealer in real property for purposes of the 100% tax with respect to a real estate asset that we sell if (i) we have held the property for at least two years for the production of rental income prior to the sale, (ii) capitalized expenditures on the property in the two years preceding the sale are less than 30% of the net selling price of the property, and (iii) we either (a) have seven or fewer sales of property (excluding certain property obtained through foreclosure) for the year of sale;
−Removed: or (b) the aggregate adjusted basis of property sold during the year is 10% or less of the aggregate adjusted basis of all of our assets as of the beginning of the taxable year;
−Removed: or (c) the fair market value of property sold during the year is 10% or less of the aggregate fair market value of all of our assets as of the beginning of the taxable year;
−Removed: or (d) the aggregate adjusted basis of property sold during the year is 20% or less of the aggregate adjusted basis of all of our assets as of the beginning of the taxable year and the aggregate adjusted basis of property sold during the 3-year period ending with the year of sale is 10% or less of the aggregate tax basis of all of our assets as of the beginning of each of the 3 taxable years ending with the year of sale;
−Removed: or (e) the fair market value of property sold during the year is 20% or less of the aggregate fair market value of all of our assets as of the beginning of the taxable year and the fair market value of property sold during the 3-year period ending with the year of sale is 10% or less of the aggregate fair market value of all of our assets as of the beginning of each of the 3 taxable years ending with the year of sale.
−Removed: If we rely on clauses (b), (c), (d), or (e) in the preceding sentence, substantially all of the marketing and development expenditures with respect to the property sold must be made through an independent contractor from whom we derive no income or, a taxable REIT subsidiary.
−Removed: The sale of more than one property to one buyer as part of one transaction constitutes one sale for purposes of this “safe harbor.” We intend to hold our properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning our properties and to make occasional sales of the properties as are consistent with our investment objectives.
−Removed: However, the IRS may successfully contend that some or all of the sales made by us or subsidiary partnerships or limited liability companies are prohibited transactions.
−Removed: In that case, we would be required to pay the 100% penalty tax on our allocable share of the gains resulting from any such sales.
−Removed: Income from Foreclosure Property .
−Removed: We generally will be subject to tax at the maximum corporate rate (currently 21%) on any net income from foreclosure property, including any gain from the disposition of the foreclosure property, other than income that constitutes qualifying income for purposes of the 75% gross income test.
−Removed: Foreclosure property is real property and any personal property incident to such real property (1) that we acquire as the result of having bid on the property at foreclosure, or having otherwise reduced the property to ownership or possession by agreement or process of law, after a default (or upon imminent default) on a lease of the property or a mortgage loan held by us and secured by the property, (2) for which we acquired the related loan or lease at a time when default was not imminent or anticipated, and (3) with respect to which we made a proper election to treat the property as foreclosure property.
−Removed: Any gain from the sale of property for which a foreclosure property election has been made and remains in place generally will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise constitute inventory or dealer property.
−Removed: To the extent that we receive any income from foreclosure property that does not qualify for purposes of the 75% gross income test, we intend to make an election to treat the related property as foreclosure property if the election is available (which may not be the case with respect to any acquired “distressed loans”).
−Removed: Failure to Satisfy the Gross Income Tests .
−Removed: If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for that year if we are entitled to relief under the Code.
−Removed: These relief provisions will be generally available if (1) our failure to meet these tests was due to reasonable cause and not due to willful neglect and (2)
−Removed: following our identification of the failure to meet the 75% and/or 95% gross income tests for any taxable year, we file a schedule with the IRS setting forth a description of each item of our gross income that satisfies the gross income tests for purposes of the 75% or 95% gross income test for such taxable year in accordance with Treasury Regulations.
−Removed: It is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions.
−Removed: If these relief provisions are inapplicable to a particular set of circumstances, we will fail to qualify as a REIT.
−Removed: As discussed above, under “—Taxation of the Company as a REIT—General,” even if these relief provisions apply, a tax would be imposed based on the amount of non-qualifying income.
−Removed: We intend to take advantage of any and all relief provisions that are available to us to cure any violation of the income tests applicable to REITs.
−Removed: Redetermined Amounts.
−Removed: Any redetermined rents, redetermined deductions, excess interest, or redetermined taxable REIT subsidiary service income we generate will be subject to a 100% penalty tax.
−Removed: In general, redetermined rents are rents from real property that are overstated as a result of services furnished by one of our taxable REIT subsidiaries to any of our tenants, redetermined deductions and excess interest represent amounts that are deducted by a taxable REIT subsidiary for amounts paid to us that are in excess of the amounts that would have been deducted based on arm’s-length negotiations, and redetermined taxable REIT subsidiary service income is gross income (less deductions allocable thereto) of a taxable REIT subsidiary attributable to services provided to, or on behalf of, us that is less than the amounts that would have been paid by us to the taxable REIT subsidiary if based on arm’s-length negotiations.
−Removed: Rents we receive will not constitute redetermined rents if they qualify for the safe harbor provisions contained in the Code.
−Removed: Safe harbor provisions are provided where:
−Removed: • amounts are excluded from the definition of impermissible tenant service income as a result of satisfying the 1% de minimis exception;
−Removed: • a taxable REIT subsidiary renders a significant amount of similar services to unrelated parties and the charges for such services are substantially comparable;
−Removed: • rents paid to us by tenants leasing at least 25% of the net leasable space of the REIT’s property who are not receiving services from the taxable REIT subsidiary are substantially comparable to the rents paid by the REIT’s tenants leasing comparable space who are receiving such services from the taxable REIT subsidiary and the charge for the service is separately stated;
−Removed: • the taxable REIT subsidiary’s gross income from the service is not less than 150% of the taxable REIT subsidiary’s direct cost of furnishing the service.
−Removed: While we anticipate that any fees paid to a taxable REIT subsidiary for tenant services will reflect arm’s-length rates, a taxable REIT subsidiary may under certain circumstances provide tenant services which do not satisfy any of the safe-harbor provisions described above.
−Removed: Nevertheless, these determinations are inherently factual, and the IRS has broad discretion to assert that amounts paid between related parties should be reallocated to clearly reflect their respective incomes.
−Removed: If the IRS successfully made such an assertion, we would be required to pay a 100% penalty tax on the redetermined rent, redetermined deductions or excess interest, as applicable.
−Removed: At the close of each calendar quarter, we must satisfy the following tests relating to the nature and diversification of our assets.
−Removed: For purposes of the asset tests, a REIT is not treated as owning the stock of a qualified REIT subsidiary or an equity interest in any entity treated as a partnership otherwise disregarded for U.S.
−Removed: federal income tax purposes.
−Removed: Instead, a REIT is treated as owning its proportionate share of the assets held by such entity.
−Removed: • At least 75% of the value of our total assets must be represented by some combination of “real estate assets,” cash, cash items, and U.S.
−Removed: government securities.
−Removed: For purposes of this test, real estate assets include interests in real property, such as land and buildings, leasehold interests in real property, stock of other corporations that qualify as REITs and debt instruments issued by publicly offered REITs, some types of mortgage-backed securities, mortgage loans, personal property leased in connection with real property to the extent that rents attributable to such personal property are treated as “rents from real property”, and stock or debt instruments held for less than one year purchased with an offering of our shares or long term debt.
−Removed: Assets that do not qualify for purposes of the 75% asset test are subject to the additional asset tests described below.
−Removed: • Not more than 25% of our total assets may be represented by securities other than those described in the first bullet above.
−Removed: • Except for securities described in the first bullet above and the last bullet below and securities in qualified REIT subsidiaries and taxable REIT subsidiaries, the value of any one issuer’s securities owned by us may not exceed 5% of the value of our total assets.
−Removed: • Except for securities described in the first bullet above and the last bullet below and securities in qualified REIT subsidiaries and taxable REIT subsidiaries, we may not own more than 10% of any one issuer’s outstanding voting securities.
−Removed: • Except for securities described in the first bullet above and the last bullet below and securities in qualified REIT subsidiaries and taxable REIT subsidiaries, and certain types of indebtedness that are not treated as securities for purposes of this test, as discussed below, we may not own more than 10% of the total value of the outstanding securities of any one issuer.
−Removed: • Not more than 20% of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries.
−Removed: • Not more than 25% of our total assets may be represented by debt instruments issued by publicly offered REITs that are “nonqualified” debt instruments (e.g., not secured by real property or interests in real property).
−Removed: The 10% value test does not apply to certain “straight debt” and other excluded securities, as described in the Code, including (1) loans to individuals or estates;
−Removed: (2) obligations to pay rent from real property;
−Removed: (3) rental agreements described in Section 467 of the Code;
−Removed: (4) any security issued by other REITs;
−Removed: (5) certain securities issued by a state, the District of Columbia, a foreign government, or a political subdivision of any of the foregoing, or the Commonwealth of Puerto Rico;
−Removed: and (6) any other arrangement as determined by the IRS.
−Removed: In addition, (1) a REIT’s interest as a partner in a partnership is not considered a security for purposes of the 10% value test;
−Removed: (2) any debt instrument issued by a partnership (other than straight debt or other excluded security) will not be considered a security issued by the partnership if at least 75% of the partnership’s gross income is derived from sources that would qualify for the 75% REIT gross income test;
−Removed: and (3) any debt instrument issued by a partnership (other than straight debt or other excluded security) will not be considered a security issued by a partnership to the extent of the REIT’s interest as a partner in the partnership.
−Removed: For purposes of the 10% value test, debt will meet the “straight debt” safe harbor if (1) neither us, nor any of our controlled taxable REIT subsidiaries (i.e., taxable REIT subsidiaries more than 50% of the vote or value of the outstanding stock of which is directly or indirectly owned by us), own any securities not described in the preceding paragraph that have an aggregate value greater than 1% of the issuer’s outstanding securities, as calculated under the Code, (2) the debt is a written unconditional promise to pay on demand or on a specified date a sum certain in money, (3) the debt is not convertible, directly or indirectly, into stock, and (4) the interest rate and the interest payment dates of the debt are not contingent on the profits, the borrower’s discretion or similar factors.
−Removed: However, contingencies regarding time of payment and interest are permissible for purposes of qualifying as a straight debt security if either (1) such contingency does not have the effect of changing the effective yield of maturity, as determined under the Code, other than a change in the annual yield to maturity that does not exceed the greater of (i) 5% of the annual yield to maturity or (ii) 0.25%, or (2) neither the aggregate issue price nor the aggregate face amount of the issuer’s debt instruments held by the REIT exceeds $1,000,000 and not more than 12 months of unaccrued interest can be required to be prepaid thereunder.
−Removed: In addition, debt will not be disqualified from being treated as “straight debt” solely because the time or amount of payment is subject to a contingency upon a default or the exercise of a prepayment right by the issuer of the debt, provided that such contingency is consistent with customary commercial practice.
−Removed: We own one subsidiary that has elected to be treated as a taxable REIT subsidiary for U.S.
−Removed: federal income tax purposes.
−Removed: Our taxable REIT subsidiary is taxable as a non-REIT C corporation and has elected, together with us, to be treated as our taxable REIT subsidiary.
−Removed: So long as our taxable REIT subsidiary qualifies as such, we will not be subject to the 5% asset test, 10% voting securities limitation or 10% value limitation with respect to our ownership interest in the taxable REIT subsidiary.
−Removed: We may acquire securities in other taxable REIT subsidiaries in the future.
−Removed: We believe that the aggregate value of our interests in our taxable REIT subsidiary does not exceed, and believe that in the future it will not exceed, 20% of the aggregate value of our gross assets.
−Removed: To the extent that we own an interest in an issuer that does not qualify as a REIT, a qualified REIT subsidiary, or a taxable REIT subsidiary, we believe that our pro rata share of the value of the securities, including debt, of any such issuer does not exceed 5% of the total value of our assets.
−Removed: Moreover, with respect to each issuer in which we own an interest that does not qualify as a qualified REIT subsidiary or a taxable REIT subsidiary, we believe that our ownership of the securities of any such issuer complies with the 10% voting securities limitation and 10% value limitation.
−Removed: No independent appraisals have been obtained to support these conclusions.
−Removed: In this regard, however, we cannot provide any assurance that the IRS will agree with our determinations.
−Removed: Failure to Satisfy the Asset Tests .
−Removed: The asset tests must be satisfied not only on the last day of the calendar quarter in which we, directly or through pass-through subsidiaries, acquire securities in the applicable issuer, but also on the last day of the calendar quarter in which we increase our ownership of securities of such issuer, including as a result of increasing our interest in pass-through subsidiaries.
−Removed: After initially meeting the asset tests at the close of any quarter, we will not lose our status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in the relative values of our assets (including a discrepancy caused solely by the change in the foreign currency exchange rate used to value a foreign asset).
−Removed: If failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, we can cure this failure by disposing of sufficient non-qualifying assets within 30 days after the close of that quarter.
−Removed: We intend to continue to maintain adequate records of the value of our assets to ensure compliance with the asset tests and to take any available action within 30 days after the close of any quarter as may be required to cure any noncompliance with the asset tests.
−Removed: Although we plan to take steps to ensure that we satisfy such tests for any quarter with respect to which testing is to occur, there can be no assurance that such steps will always be successful.
−Removed: If we fail to timely cure any noncompliance with the asset tests, we will cease to qualify as a REIT, unless we satisfy certain relief provisions.
−Removed: The failure to satisfy the 5% asset test, or the 10% vote or value asset tests can be remedied even after the 30-day cure period under certain circumstances.
−Removed: Specifically, if we fail these asset tests at the end of any quarter and such failure is not cured within 30 days thereafter, we may dispose of sufficient assets (generally within six months after the last day of the quarter in which our identification of the failure to satisfy these asset tests occurred) to cure such a violation that does not exceed the lesser of 1% of our assets at the end of the relevant quarter or $10,000,000.
−Removed: If we fail any of the other asset tests or our failure of the 5% and 10% asset tests is in excess of the de minimis amount described above, as long as such failure was due to reasonable cause and not willful neglect, we are permitted to avoid disqualification as a REIT, after the 30-day cure period, by taking steps including the disposing of sufficient assets to meet the asset test (generally within six months after the last day of the quarter in which our identification of the failure to satisfy the REIT asset test occurred), paying a tax equal to the greater of $50,000 or the highest corporate income tax rate of the net income generated by the non-qualifying assets during the period in which we failed to satisfy the asset test, and filing in accordance with applicable Treasury Regulations a schedule with the IRS that describes the assets that caused us to fail to satisfy the asset test(s).
−Removed: We intend to take advantage of any and all relief provisions that are available to us to cure any violation of the asset tests applicable to REITs.
−Removed: In certain circumstances, utilization of such provisions could result in us being required to pay an excise or penalty tax, which could be significant in amount.
−Removed: Annual Distribution Requirements
−Removed: To qualify as a REIT, we are required to distribute dividends, other than capital gain dividends, to our shareholders each year in an amount at least equal to:
−Removed: • the sum of:
−Removed: (1) 90% of our “REIT taxable income,” computed without regard to the dividends paid deduction and our net capital gain;
−Removed: and (2) 90% of our after tax net income, if any, from foreclosure property;
−Removed: • the excess of the sum of specified items of non-cash income over 5% of our REIT taxable income, computed without regard to our net capital gain and the deduction for dividends paid.
−Removed: For purposes of this test, non-cash income means income attributable to leveled stepped rents, original issue discount included in our taxable income without the receipt of a corresponding payment, cancellation of indebtedness or income attributable to a like-kind exchange that is later determined to be taxable.
−Removed: We generally must make dividend distributions in the taxable year to which they relate.
−Removed: Dividend distributions may be made in the following year in two circumstances.
−Removed: First, if we declare a dividend in October, November, or December of any year with a record date in one of these months and pay the dividend on or before January 31 of the following year.
−Removed: Such distributions are treated as both paid by us and received by each shareholder on December 31 of the year in which they are declared.
−Removed: Second, distributions may be made in the following year if they are declared before we timely file our tax return for the year and if made with or before the first regular dividend payment after such declaration.
−Removed: These distributions are taxable to our shareholders in the year in which paid, even though the distributions relate to our prior taxable year for purposes of the 90% distribution requirement.
−Removed: To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be required to pay tax on that amount at regular corporate tax rates.
−Removed: We intend to make timely distributions sufficient to satisfy these annual distribution requirements.
−Removed: In certain circumstances we may elect to retain, rather than distribute, our net long-term capital gains and pay tax on such gains.
−Removed: In this case, we could elect for our shareholders to include their proportionate share of such undistributed long-term capital gains in income, and to receive a corresponding
−Removed: credit for their share of the tax that we paid.
−Removed: Our shareholders would then increase their adjusted basis of their stock by the difference between (1) the amounts of capital gain dividends that we designated and that they included in their taxable income, minus (2) the tax that we paid on their behalf with respect to that income.
−Removed: To the extent that in the future we may have available net operating losses carried forward from prior tax years, such losses may reduce the amount of distributions that we must make in order to comply with the REIT distribution requirements.
−Removed: Our deduction for any net operating loss carryforwards arising from losses we sustain in taxable years beginning after December 31, 2017 is limited to 80% of our REIT taxable income (determined without regard to the deduction for dividends paid), and any unused portion of such losses may be carried forward indefinitely.
−Removed: If we fail to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT capital gain net income for such year, and (c) any undistributed taxable income from prior periods, we would be subject to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (x) the amounts actually distributed, and (y) the amounts of income we retained and on which we paid corporate income tax.
−Removed: We expect that our REIT taxable income (determined before our deduction for dividends paid) will be less than our cash flow because of depreciation and other non-cash charges included in computing REIT taxable income.
−Removed: Accordingly, we anticipate that we will generally have sufficient cash or liquid assets to enable us to satisfy the distribution requirements described above.
−Removed: However, from time to time, we may not have sufficient cash or other liquid assets to meet these distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible expenses, and the inclusion of income and deduction of expenses in arriving at our taxable income.
−Removed: The Code limits the deductibility of net interest expense paid or accrued on debt properly allocable to a trade or business to 30% of “adjusted taxable income,” subject to certain exceptions.
−Removed: Any deduction in excess of the limitation is carried forward and may be used in a subsequent year, subject to the 30% limitation.
−Removed: Adjusted taxable income is determined without regard to certain deductions, including those for net interest expense and net operating loss.
−Removed: However, for the 2021 taxable year, we made a timely election (which is irrevocable), such that the 30% limitation does not apply.
−Removed: This election is available for a trade or business involving real property development, redevelopment, construction, reconstruction, rental, operation, acquisition, conversion, disposition, management, leasing or brokerage, within the meaning of Section 469(c)(7)(C) of the Code.
−Removed: As a result of this election, depreciable real property (including certain improvements) held by the relevant trade or business must be depreciated under the alternative depreciation system under the Code, which is generally less favorable than the generally applicable system of depreciation under the Code.
−Removed: If it was subsequently determined that this election was not in fact available with respect to all or certain of our business activities, this interest deduction limitation could result in us having more REIT taxable income and thus increase the amount of distributions we must make to comply with the REIT requirements and avoid incurring corporate level tax.
−Removed: Similarly, the limitation could cause our taxable REIT subsidiary (or any taxable REIT subsidiary we have in the future) to have greater taxable income and thus potentially greater corporate tax liability.
−Removed: Furthermore, under Section 451 of the Code, subject to certain exceptions, we must accrue income for U.S.
−Removed: federal income tax purposes no later than when such income is taken into account as revenue in our financial statements, which could create additional differences between REIT taxable income and the receipt of cash attributable to such income.
−Removed: In addition, Section 162(m) of the Code places a per-employee limit of $1 million on the amount of compensation that a publicly held corporation may deduct in any one year with respect to its chief executive officer and certain other highly compensated executive officers.
−Removed: If these timing differences occur, we may need to arrange for short-term, or possibly long-term, borrowings or need to pay dividends in the form of taxable stock dividends in order to meet the distribution requirements.
−Removed: We may be able to rectify a failure to meet the distribution requirement for a year by paying “deficiency dividends” to our shareholders in a later year, which may be included in our deduction for dividends paid for the earlier year.
−Removed: Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends.
−Removed: However, we will be required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends.
−Removed: Record-Keeping Requirements
−Removed: We are required to comply with applicable record-keeping requirements.
−Removed: Failure to comply could result in monetary fines.
−Removed: Failure to Qualify as a REIT
−Removed: If we fail to satisfy one or more requirements for REIT qualification other than gross income and asset tests that have the specific savings clauses, we can avoid termination of our REIT qualification by paying a penalty of $50,000 for each such failure, provided that our noncompliance was due to reasonable cause and not willful neglect.
−Removed: If we fail to qualify for taxation as a REIT in any taxable year and the relief provisions do not apply, we will be subject to tax on our taxable income at regular corporate rates.
−Removed: If we fail to qualify for taxation as a REIT, we will not be required to make any distributions to shareholders, and any distributions that are made to shareholders will not be deductible by us.
−Removed: As a result, our failure to qualify for taxation as a REIT would significantly reduce the cash available for distributions by us to our shareholders.
−Removed: In addition, if we fail to qualify for taxation as a REIT, all distributions to shareholders, to the extent of our current and accumulated earnings and profits, will be taxable as regular corporate dividends.
−Removed: For taxable years before January 1, 2026, generally, U.S.
−Removed: shareholders that are individuals, trusts or estates may deduct 20% of the aggregate amount of ordinary dividends distributed by us, subject to certain limitations.
−Removed: Alternatively, such dividends paid to U.S.
−Removed: shareholders that are individuals, trusts and estates may be taxable at the preferential income tax rates (i.e., the 20% maximum U.S.
−Removed: federal rate (excluding the 3.8% tax on “net investment income”)) for qualified dividends.
−Removed: In addition, subject to the limitations of the Code, corporate distributees may be eligible for the dividends-received deduction.
−Removed: Unless entitled to relief under specific statutory provisions, we also will be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost.
−Removed: In addition, if we merge with another REIT and we are the “successor” to the other REIT, the other REIT’s disqualification from taxation as a REIT would prevent us from being taxed as a REIT for the four taxable years following the year during which the other REIT’s qualification was lost.
−Removed: There can be no assurance that we would be entitled to any statutory relief.
−Removed: We intend to take advantage of any and all relief provisions that are available to us to cure any violation of the requirements applicable to REITs.
−Removed: Taxation of U.S.
−Removed: Taxation of Taxable U.S.
−Removed: This section summarizes the taxation of U.S.
−Removed: shareholders that are not tax-exempt organizations.
−Removed: For these purposes, the term “U.S.
−Removed: shareholder” is a beneficial owner of our shares that is, for U.S.
−Removed: federal income tax purposes:
−Removed: • a citizen or resident of the United States;
−Removed: • a corporation (including an entity treated as a corporation for U.S.
−Removed: federal income tax purposes) created or organized in or under the laws of the United States or of a political subdivision thereof (including the District of Columbia);
−Removed: • an estate the income of which is subject to U.S.
−Removed: federal income taxation regardless of its source;
−Removed: • any trust if a U.S.
−Removed: court is able to exercise primary supervision over the administration of such trust and one or more U.S.
−Removed: persons have the authority to control all substantial decisions of the trust.
−Removed: If an entity or arrangement treated as a partnership for U.S.
−Removed: federal income tax purposes holds our shares, the U.S.
−Removed: federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership.
−Removed: A partner of a partnership holding our shares should consult its own tax advisor regarding the U.S.
−Removed: federal income tax consequences to the partner of the acquisition, ownership and disposition of our shares by the partnership.
−Removed: Distributions Generally .
−Removed: So long as we qualify as a REIT, distributions out of our current or accumulated earnings and profits that are not designated as capital gains dividends or “qualified dividend income” will be taxable to our taxable U.S.
−Removed: shareholders as ordinary income and will not be eligible for the dividends-received deduction in the case of U.S.
−Removed: shareholders that are corporations.
−Removed: However, for tax years prior to 2026, generally U.S.
−Removed: shareholders that are individuals, trusts or estates may deduct 20% of the aggregate amount of ordinary dividends distributed by us, subject to certain limitations.
−Removed: For purposes of determining whether distributions to holders of shares are out of current or accumulated earnings and profits, our earnings and profits will be allocated first to any outstanding preferred shares and then to our outstanding common shares.
−Removed: Dividends received from REITs are generally not eligible to be taxed at the preferential qualified dividend income rates currently available to individual U.S.
−Removed: shareholders who receive dividends from taxable subchapter “C” corporations.
−Removed: Capital Gain Dividends .
−Removed: We may elect to designate distributions of our net capital gain as “capital gain dividends.” Distributions that we properly designate as “capital gain dividends” will be taxable to our taxable U.S.
−Removed: shareholders as long-term capital gains without regard to the period for which the U.S.
−Removed: shareholder that receives such distribution has held its shares.
−Removed: Designations made by us will only be effective to the extent that they comply with Revenue Ruling 89-81, which requires that distributions made to different classes of shares be composed proportionately of dividends of a particular type.
−Removed: If we designate any portion of a dividend as a capital gain dividend, a U.S.
−Removed: shareholder will receive an IRS Form 1099-DIV indicating the amount that will be taxable to the shareholder as capital gain.
−Removed: Corporate shareholders, however, may be required to treat up to
−Removed: 20% of some capital gain dividends as ordinary income.
−Removed: Recipients of capital gain dividends from us that are taxed at corporate income tax rates will be taxed at the normal corporate income tax rates on these dividends.
−Removed: We may elect to retain and pay taxes on some or all of our net long-term capital gains, in which case U.S.
−Removed: shareholders will be treated as having received, solely for U.S.
−Removed: federal income tax purposes, our undistributed capital gains as well as a corresponding credit or refund, as the case may be, for taxes that we paid on such undistributed capital gains.
−Removed: shareholder will increase the basis in its shares by the difference between the amount of capital gain included in its income and the amount of tax it is deemed to have paid.
−Removed: shareholder that is a corporation will appropriately adjust its earnings and profits for the retained capital gain in accordance with Treasury Regulations to be prescribed by the IRS.
−Removed: Our earnings and profits will be adjusted appropriately.
−Removed: We will classify portions of any designated capital gain dividend or undistributed capital gain as either:
−Removed: • a long-term capital gain distribution, which would be taxable to non-corporate U.S.
−Removed: shareholders at a maximum rate of 20% (excluding the 3.8% tax on “net investment income”), and taxable to U.S.
−Removed: shareholders that are corporations at a maximum rate of 21%;
−Removed: • an “unrecaptured Section 1250 gain” distribution, which would be taxable to non-corporate U.S.
−Removed: shareholders at a maximum rate of 25%, to the extent of previously claimed depreciation deductions.
−Removed: Distributions from us in excess of our current and accumulated earnings and profits will not be taxable to a U.S.
−Removed: shareholder to the extent that they do not exceed the adjusted basis of the U.S.
−Removed: shareholder’s shares in respect of which the distributions were made.
−Removed: Rather, the distribution will reduce the adjusted basis of these shares.
−Removed: To the extent that such distributions exceed the adjusted basis of a U.S.
−Removed: shareholder’s shares of our shares, the U.S.
−Removed: shareholder generally must include such distributions in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less.
−Removed: In addition, any dividend that we declare in October, November or December of any year and that is payable to a shareholder of record on a specified date in any such month will be treated as both paid by us and received by the shareholder on December 31 of such year, provided that we actually pay the dividend before the end of January of the following calendar year.
−Removed: To the extent that we have available net operating losses and capital losses carried forward from prior tax years, such losses may reduce the amount of distributions that we must make in order to comply with the REIT distribution requirements.
−Removed: See “—Taxation of the Company as a REIT” and “—Requirements for Qualification as a REIT—Annual Distribution Requirements.” Such losses, however, are not passed through to U.S.
−Removed: shareholders and do not offset income of U.S.
−Removed: shareholders from other sources, nor would such losses affect the character of any distributions that we make, which are generally subject to tax in the hands of U.S.
−Removed: shareholders to the extent that we have current or accumulated earnings and profits.
−Removed: The maximum amount of dividends that we may designate as capital gain and as “qualified dividend income” (discussed below) with respect to any taxable year may not exceed the dividends actually paid by us with respect to such year, including dividends paid by us in the succeeding tax year that relate back to the prior tax year for purposes of determining our dividends paid deduction.
−Removed: Qualified Dividend Income .
−Removed: We may elect to designate a portion of our distributions paid to shareholders as “qualified dividend income.” A portion of a distribution that is properly designated as qualified dividend income is taxable to non-corporate U.S.
−Removed: shareholders as capital gain, provided that the shareholder has held the shares with respect to which the distribution is made for more than 60 days during the 121-day period beginning on the date that is 60 days before the date on which such shares become ex-dividend with respect to the relevant distribution.
−Removed: The maximum amount of our distributions eligible to be designated as qualified dividend income for a taxable year is equal to the sum of:
−Removed: • the qualified dividend income received by us during such taxable year from non-REIT corporations (including our taxable REIT subsidiaries);
−Removed: • the excess of any “undistributed” REIT taxable income recognized during the immediately preceding year over the U.S.
−Removed: federal income tax paid by us with respect to such undistributed REIT taxable income;
−Removed: • the excess of (i) any income recognized during the immediately preceding year attributable to the sale of a built-in-gain asset that was acquired in a carry-over basis transaction from a “C” corporation with respect to which the Company is required to pay U.S.
−Removed: federal income tax, over (ii) the U.S.
−Removed: federal income tax paid by us with respect to such built-in gain.
−Removed: Generally, dividends that we receive will be treated as qualified dividend income for purposes of the first bullet above if (A) the dividends are received from (i) a U.S.
−Removed: corporation (other than a REIT or a RIC), (ii) any of our taxable REIT subsidiaries, or (iii) a “qualifying foreign corporation,” and (B) specified holding period requirements and other requirements are met.
−Removed: A foreign corporation (other than a “foreign personal holding company,” a “foreign investment company,” or “passive foreign investment company”) will be a qualifying foreign corporation if it is incorporated in a possession of the United States, the corporation is eligible for benefits of an income tax treaty with the United States that the Secretary of Treasury determines is satisfactory, or the stock of the foreign corporation on which the dividend is paid is readily tradable on an established securities market in the United States.
−Removed: We generally expect that an insignificant portion, if any, of our distributions from us will consist of qualified dividend income.
−Removed: If we designate any portion of a dividend as qualified dividend income, a U.S.
−Removed: shareholder will receive an IRS Form 1099-DIV indicating the amount that will be taxable to the shareholder as qualified dividend income.
−Removed: Passive Activity Losses and Investment Interest Limitations .
−Removed: Distributions we make and gain arising from the sale or exchange by a U.S.
−Removed: shareholder of our shares will not be treated as passive activity income.
−Removed: As a result, U.S.
−Removed: shareholders generally will not be able to apply any “passive losses” against this income or gain.
−Removed: Distributions we make, to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.
−Removed: shareholder may elect, depending on its particular situation, to treat capital gain dividends, capital gains from the disposition of shares and income designated as qualified dividend income as investment income for purposes of the investment interest limitation, in which case the applicable capital gains will be taxed at ordinary income rates.
−Removed: We will notify shareholders regarding the portions of our distributions for each year that constitute ordinary income, return of capital and qualified dividend income.
−Removed: Distributions to Holders of Depositary Shares .
−Removed: Owners of depositary shares will be treated for U.S.
−Removed: federal income tax purposes as if they were owners of the underlying preferred shares represented by such depositary shares.
−Removed: Accordingly, such owners will be entitled to take into account, for U.S.
−Removed: federal income tax purposes, income and deductions to which they would be entitled if they were direct holders of underlying preferred shares.
−Removed: In addition, (i) no gain or loss will be recognized for U.S.
−Removed: federal income tax purposes upon the withdrawal of certificates evidencing the underlying preferred shares in exchange for depositary receipts, (ii) the tax basis of each share of the underlying preferred shares to an exchanging owner of depositary shares will, upon such exchange, be the same as the aggregate tax basis of the depositary shares exchanged therefor, and (iii) the holding period for the underlying preferred shares in the hands of an exchanging owner of depositary shares will include the period during which such person owned such depositary shares.
−Removed: Dispositions of Our Shares .
−Removed: shareholder sells, redeems or otherwise disposes of its shares in a taxable transaction, it will recognize gain or loss for U.S.
−Removed: federal income tax purposes in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale or other disposition and the holder’s adjusted basis in the shares for tax purposes.
−Removed: In general, a U.S.
−Removed: shareholder’s adjusted basis will equal the U.S.
−Removed: shareholder’s acquisition cost, increased by the excess for net capital gains deemed distributed to the U.S.
−Removed: shareholder (discussed above) less tax deemed paid on it and reduced by returns on capital.
−Removed: In general, capital gains recognized by individuals and other non-corporate U.S.
−Removed: shareholders upon the sale or disposition of our shares will be subject to a maximum U.S.
−Removed: federal income tax rate of 20% (excluding the 3.8% tax on “net investment income”), if our shares are held for more than one year and will be taxed at ordinary income rates of up to 37% if the stock is held for one year or less.
−Removed: Gains recognized by U.S.
−Removed: shareholders that are corporations are subject to U.S.
−Removed: federal income tax at a maximum rate of 21%, whether or not such gains are classified as long-term capital gains.
−Removed: The IRS has the authority to prescribe, but has not yet prescribed, Treasury Regulations that would apply a capital gain tax rate of 25% (which is higher than the long-term capital gain tax rates for non-corporate U.S.
−Removed: shareholders) to a portion of capital gain realized by a non-corporate U.S.
−Removed: shareholder on the sale of the Company’s shares that would correspond to the REIT’s “unrecaptured Section 1250 gain.” U.S.
−Removed: shareholders should consult with their own tax advisors with respect to their capital gain tax liability.
−Removed: Capital losses recognized by a U.S.
−Removed: shareholder upon the disposition of our shares that were held for more than one year at the time of disposition will be considered long-term capital losses and are generally available only to offset capital gain income of the shareholder but not ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year).
−Removed: In addition, any loss upon a sale or exchange of our shares by a U.S.
−Removed: shareholder who has held the shares for six months or less, after applying holding period rules, will be treated as a long-term capital loss to the extent of distributions that we make that are required to be treated by the U.S.
−Removed: shareholder as long-term capital gain.
−Removed: If a shareholder recognizes a loss upon a subsequent disposition of our shares in an amount that exceeds a prescribed threshold, it is possible that the provisions of Treasury Regulations involving “reportable transactions” could apply, with a resulting requirement to separately disclose the loss-generating transaction to the IRS.
−Removed: These regulations, though directed towards “tax shelters,” are broadly written, and apply to transactions that would not typically be considered tax shelters.
−Removed: The Code imposes
−Removed: significant penalties for failure to comply with these requirements.
−Removed: shareholders should consult their tax advisors concerning any possible disclosure obligation with respect to the receipt or disposition of our shares, or transactions that we might undertake directly or indirectly.
−Removed: Redemption of Preferred Shares and Depositary Shares .
−Removed: Whenever we redeem any preferred shares held by the depositary, the depositary will redeem as of the same redemption date the number of depositary shares representing the preferred shares so redeemed.
−Removed: The treatment accorded to any redemption by us for cash (as distinguished from a sale, exchange or other disposition) of our preferred shares to a holder of such preferred shares can only be determined on the basis of the particular facts as to each holder at the time of redemption.
−Removed: In general, a holder of our preferred shares will recognize capital gain or loss measured by the difference between the amount received by the holder of such shares upon the redemption and such holder’s adjusted tax basis in the preferred shares redeemed (provided the preferred shares are held as a capital asset) if such redemption (i) is ‘‘not essentially equivalent to a dividend’’ with respect to the holder of the preferred shares under Section 302(b)(1) of the Code, (ii) is a “substantially disproportionate” redemption with respect to the shareholder under Section 302(b)(2) of the Code, or (iii) results in a ‘‘complete termination’’ of the holder’s interest in all classes of our shares under Section 302(b)(3) of the Code.
−Removed: In applying these tests, there must be taken into account not only any series or class of the preferred shares being redeemed, but also such holder’s ownership of other classes of our shares and any options (including stock purchase rights) to acquire any of the foregoing.
−Removed: The holder of our preferred shares also must take into account any such securities (including options) which are considered to be owned by such holder by reason of the constructive ownership rules set forth in Sections 318 and 302(c) of the Code.
−Removed: If the holder of preferred shares owns (actually or constructively) none of our voting shares, or owns an insubstantial amount of our voting shares, based upon current law, it is probable that the redemption of preferred shares from such a holder would be considered to be ‘‘not essentially equivalent to a dividend.’’ However, whether a distribution is ‘‘not essentially equivalent to a dividend’’ depends on all of the facts and circumstances, and a holder of our preferred shares intending to rely on any of these tests at the time of redemption should consult its tax advisor to determine their application to its particular situation.
−Removed: Satisfaction of the “substantially disproportionate” and “complete termination” exceptions is dependent upon compliance with the respective objective tests set forth in Section 302(b)(2) and Section 302(b)(3) of the Code.
−Removed: A distribution to a holder of preferred shares will be “substantially disproportionate” if the percentage of our outstanding voting shares actually and constructively owned by the shareholder immediately following the redemption of preferred shares (treating preferred shares redeemed as not outstanding) is less than 80% of the percentage of our outstanding voting shares actually and constructively owned by the shareholder immediately before the redemption, and immediately following the redemption the shareholder actually and constructively owns less than 50% of the total combined voting power of the Company.
−Removed: Because the Company’s preferred shares are nonvoting shares, a shareholder would have to reduce such holder’s holdings (if any) in our classes of voting shares to satisfy this test.
−Removed: If the redemption does not meet any of the tests under Section 302 of the Code, then the redemption proceeds received from our preferred shares will be treated as a distribution on our shares as described under ‘‘—Taxation of U.S.
−Removed: Shareholders—Taxation of Taxable U.S.
−Removed: Shareholders-Distributions Generally,’’ and ‘‘—Taxation of Non-U.S.
−Removed: Shareholders-Distributions Generally.’’ If the redemption of a holder’s preferred shares is taxed as a dividend, the adjusted basis of such holder’s redeemed preferred shares will be transferred to any other shares held by the holder.
−Removed: If the holder owns no other shares, under certain circumstances, such basis may be transferred to a related person, or it may be lost entirely.
−Removed: With respect to a redemption of our preferred shares that is treated as a distribution with respect to our shares, which is not otherwise taxable as a dividend, the IRS had proposed Treasury Regulations that would require any basis reduction associated with such a redemption to be applied on a share-by-share basis which could result in taxable gain with respect to some shares, even though the holder’s aggregate basis for the shares would be sufficient to absorb the entire amount of the redemption distribution (in excess of any amount of such distribution treated as a dividend).
−Removed: Additionally, these proposed Treasury Regulations did not permit the transfer of basis in the redeemed shares of the preferred shares to the remaining shares held (directly or indirectly) by the redeemed holder.
−Removed: Instead, the unrecovered basis in our preferred shares would be treated as a deferred loss to be recognized when certain conditions are satisfied.
−Removed: These proposed Treasury Regulations have been withdrawn and, although the IRS has reaffirmed its support for a share-by-share basis recovery approach, there is no indication as to whether regulations or other guidance on this issue will be promulgated in the future.
−Removed: Net Investment Income Tax .
−Removed: In certain circumstances, certain U.S.
−Removed: shareholders that are individuals, estates or trusts are subject to a 3.8% tax on “net investment income,” which includes, among other things, dividends on and gains from the sale or other disposition of REIT shares.
−Removed: shareholders should consult their own tax advisors regarding this legislation.
−Removed: Expansion of Medicare Tax .
−Removed: The temporary 20% deduction allowed by Section 199A of the Code with respect to ordinary REIT
−Removed: dividends received by non-corporate taxpayers is allowed only for purposes of Chapter 1 of the Code and thus is apparently not allowed as a deduction allocable to such dividends for purposes of determining the amount of net investment income, described above, subject to the 3.8% Medicare tax, which is imposed under Chapter 2A of the Code.
−Removed: Prospective investors should consult their own tax advisors regarding this legislation.
−Removed: Taxation of Tax-Exempt Shareholders
−Removed: tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from U.S.
−Removed: federal income taxation.
−Removed: Such entities, however, may be subject to taxation on their unrelated business taxable income, or UBTI.
−Removed: While some investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a tax-exempt entity generally do not constitute UBTI.
−Removed: Based on that ruling, and provided that (1) a tax-exempt shareholder has not held our shares as “debt financed property” within the meaning of the Code (i.e., where the acquisition or holding of our shares is financed through a borrowing by the U.S.
−Removed: tax-exempt shareholder), (2) our shares are not otherwise used in an unrelated trade or business of a U.S.
−Removed: tax-exempt shareholder, and (3) we do not hold an asset that gives rise to “excess inclusion income,” distributions that we make and income from the sale of our shares generally should not give rise to UBTI to a U.S.
−Removed: tax-exempt shareholder.
−Removed: Tax-exempt shareholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, or qualified group legal services plans exempt from U.S.
−Removed: federal income taxation under Sections 501(c)(7), (c)(9) or (c)(17) of the Code, respectively, or single parent title-holding corporations exempt under Section 501(c)(2) and whose income is payable to any of the aforementioned tax-exempt organizations, are subject to different UBTI rules, which generally require such shareholders to characterize distributions from us as UBTI unless the organization is able to properly claim a deduction for amounts set aside or placed in reserve for certain purposes so as to offset the income generated by its investment in our shares.
−Removed: These shareholders should consult with their tax advisors concerning these set aside and reserve requirements.
−Removed: In certain circumstances, a pension trust (1) that is described in Section 401(a) of the Code, (2) is tax exempt under Section 501(a) of the Code, and (3) that owns more than 10% of the value of our shares could be required to treat a percentage of the dividends as UBTI, if we are a “pension-held REIT.” We will not be a pension-held REIT unless:
−Removed: • either (1) one pension trust owns more than 25% of the value of our stock, or (2) one or more pension trusts, each individually holding more than 10% of the value of our shares, collectively own more than 50% of the value of our shares;
−Removed: • we would not have qualified as a REIT but for the fact that Section 856(h)(3) of the Code provides that shares owned by such trusts shall be treated, for purposes of the requirement that not more than 50% of the value of the outstanding shares of a REIT is owned, directly or indirectly, by five or fewer “individuals” (as defined in the Code to include certain entities), as owned by the beneficiaries of such trusts.
−Removed: The percentage of any REIT dividend from a “pension-held REIT” that is treated as UBTI is equal to the ratio of the UBTI earned by the REIT, treating the REIT as if it were a pension trust and therefore subject to tax on UBTI, to the total gross income of the REIT.
−Removed: An exception applies where the percentage is less than 5% for any year, in which case none of the dividends would be treated as UBTI.
−Removed: The provisions requiring pension trusts to treat a portion of REIT distributions as UBTI will not apply if the REIT is able to satisfy the “not closely held requirement” without relying upon the “look-through” exception with respect to pension trusts.
−Removed: As a result of certain limitations on the transfer and ownership of our common and preferred shares contained in our declaration of trust, we do not expect to be classified as a “pension-held REIT,” and accordingly, the tax treatment described above with respect to pension-held REITs should be inapplicable to our tax-exempt shareholders.
−Removed: Taxation of Non-U.S.
−Removed: The following discussion addresses the rules governing U.S.
−Removed: federal income taxation of non-U.S.
−Removed: shareholders.
−Removed: For purposes of this summary, “non-U.S.
−Removed: shareholder” is a beneficial owner of our shares that is not a U.S.
−Removed: shareholder (as defined above under “—Taxation of U.S.
−Removed: Shareholders—Taxation of Taxable U.S.
−Removed: Shareholders”).
−Removed: These rules are complex, and no attempt is made herein to provide more than a brief summary of such rules.
−Removed: Accordingly, the discussion does not address all aspects of U.S.
−Removed: federal income taxation and does not address state local or foreign tax consequences that may be relevant to a non-U.S.
−Removed: shareholder in light of its particular circumstances.
−Removed: Prospective non-U.S.
−Removed: shareholders are urged to consult their tax advisors to determine the impact of U.S.
−Removed: federal, state, local and foreign income tax laws on their ownership of our common shares or preferred shares, including any reporting requirements.
−Removed: Distributions Generally .
−Removed: As described in the discussion below, distributions paid by us with respect to our common shares, our preferred shares and depositary shares will be treated for U.S.
−Removed: federal income tax purposes as either:
−Removed: • ordinary income dividends;
−Removed: • long-term capital gain;
−Removed: • return of capital distributions.
−Removed: This discussion assumes that our shares will continue to be considered regularly traded on an established securities market for purposes of the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, provisions described below.
−Removed: If our shares are no longer regularly traded on an established securities market, the tax considerations described below would materially differ.
−Removed: Ordinary Income Dividends .
−Removed: A distribution paid by us to a non-U.S.
−Removed: shareholder will be treated as an ordinary income dividend if the distribution is payable out of our earnings and profits and:
−Removed: • not attributable to our net capital gain;
−Removed: • the distribution is attributable to our net capital gain from the sale of U.S.
−Removed: Real Property Interests (“USRPIs”), and the non-U.S.
−Removed: shareholder owns 10% or less of the value of our common shares at all times during the one-year period ending on the date of the distribution.
−Removed: In general, non-U.S.
−Removed: shareholders will not be considered to be engaged in a U.S.
−Removed: trade or business solely as a result of their ownership of our shares.
−Removed: In cases where the dividend income from a non-U.S.
−Removed: shareholder’s investment in our shares is, or is treated as, effectively connected with the non-U.S.
−Removed: shareholder’s conduct of a U.S.
−Removed: trade or business, the non-U.S.
−Removed: shareholder generally will be subject to U.S.
−Removed: federal income tax at graduated rates, in the same manner as U.S.
−Removed: shareholders are taxed with respect to such dividends.
−Removed: Such income must generally be reported on a U.S.
−Removed: income tax return filed by or on behalf of the non-U.S.
−Removed: The income may also be subject to the 30% branch profits tax in the case of a non-U.S.
−Removed: shareholder that is a corporation.
−Removed: Generally, we will withhold and remit to the IRS 30% (or lower applicable treaty rate) of dividend distributions (including distributions that may later be determined to have been made in excess of current and accumulated earnings and profits) that could not be treated as capital gain distributions with respect to the non-U.S.
−Removed: shareholder (and that are not deemed to be capital gain dividends for purposes of the FIRPTA withholding rules described below) unless:
−Removed: • a lower treaty rate applies and the non-U.S.
−Removed: shareholder files an IRS Form W-8BEN or Form W-8BEN-E, as applicable, evidencing eligibility for that reduced treaty rate with us;
−Removed: • the non-U.S.
−Removed: shareholder files an IRS Form W-8ECI with us claiming that the distribution is income effectively connected with the non-U.S.
−Removed: shareholder’s trade or business;
−Removed: • the non-U.S.
−Removed: shareholder is a foreign sovereign or controlled entity of a foreign sovereign and also provides an IRS Form W-8EXP claiming an exemption from withholding under section 892 of the Code.
−Removed: Return of Capital Distributions .
−Removed: Unless (A) our shares constitute a USRPI, as described in “—Dispositions of Our Shares” below, or (B) either (1) the non-U.S.
−Removed: shareholder’s investment in our shares is effectively connected with a U.S.
−Removed: trade or business conducted by such non-U.S.
−Removed: shareholder (in which case the non-U.S.
−Removed: shareholder will be subject to the same treatment as U.S.
−Removed: shareholders with respect to such gain) or (2) the non-U.S.
−Removed: shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States (in which case the non-U.S.
−Removed: shareholder will be subject to a 30% tax on the individual’s net capital gain for the year), distributions that we make which are not dividends out of our earnings and profits will not be subject to U.S.
−Removed: federal income tax.
−Removed: If we cannot determine at the time a distribution is made whether or not the distribution will exceed current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends.
−Removed: shareholder may seek a refund from the IRS of any amounts withheld if it subsequently is determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits.
−Removed: If our shares constitute a USRPI, as described below, distributions that we make in excess of the sum of (1) the non-U.S.
−Removed: shareholder’s proportionate share of our earnings and profits, and (2) the non-U.S.
−Removed: shareholder’s basis in its shares, will be taxed under FIRPTA at the rate of tax, including any applicable capital gains rates, that would apply to a U.S.
−Removed: shareholder of the same type (e.g., an individual or a corporation, as the case may be), and the collection of the tax will be enforced by a refundable withholding tax at a rate of 15% of the amount by which the distribution exceeds the
−Removed: shareholder’s share of our earnings and profits.
−Removed: Capital Gain Dividends .
−Removed: A distribution paid by us to a non-U.S.
−Removed: shareholder will be treated as long-term capital gain if the distribution is paid out of our current or accumulated earnings and profits and:
−Removed: • the distribution is attributable to our net capital gain (other than from the sale of USRPIs) and we timely designate the distribution as a capital gain dividend;
−Removed: • the distribution is attributable to our net capital gain from the sale of USRPIs and the non-U.S.
−Removed: common shareholder owns more than 10% of the value of common shares at any point during the one-year period ending on the date on which the distribution is paid.
−Removed: Long-term capital gain that a non-U.S.
−Removed: shareholder is deemed to receive from a capital gain dividend that is not attributable to the sale of USRPIs generally will not be subject to U.S.
−Removed: federal income tax in the hands of the non-U.S.
−Removed: shareholder unless:
−Removed: • the non-U.S.
−Removed: shareholder’s investment in our shares is effectively connected with a U.S.
−Removed: trade or business of the non-U.S.
−Removed: shareholder, in which case the non-U.S.
−Removed: shareholder will be subject to the same treatment as U.S.
−Removed: shareholders with respect to any gain, except that a non-U.S.
−Removed: shareholder that is a corporation also may be subject to the 30% (or lower applicable treaty rate) branch profits tax;
−Removed: • the non-U.S.
−Removed: shareholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States in which case the nonresident alien individual will be subject to a 30% tax on his capital gains.
−Removed: Under FIRPTA, distributions that are attributable to net capital gain from the sale by us of USRPIs and paid to a non-U.S.
−Removed: shareholder that owns more than 10% of the value of our shares at any time during the one-year period ending on the date on which the distribution is paid will be subject to U.S.
−Removed: tax as income effectively connected with a U.S.
−Removed: trade or business.
−Removed: The FIRPTA tax will apply to these distributions whether or not the distribution is designated as a capital gain dividend, and, in the case of a non-U.S.
−Removed: shareholder that is a corporation, such distributions also may be subject to the 30% (or lower applicable treaty rate) branch profits tax.
−Removed: Any distribution paid by us that is treated as a capital gain dividend or that could be treated as a capital gain dividend with respect to a particular non-U.S.
−Removed: shareholder will be subject to special withholding rules under FIRPTA.
−Removed: We will withhold and remit to the IRS 21% (or, to the extent provided in Treasury Regulations, 20%) of any distribution that could be treated as a capital gain dividend with respect to the non-U.S.
−Removed: shareholder, whether or not the distribution is attributable to the sale by us of USRPIs.
−Removed: The amount withheld is creditable against the non-U.S.
−Removed: shareholder’s U.S.
−Removed: federal income tax liability or refundable when the non-U.S.
−Removed: shareholder properly and timely files a tax return with the IRS.
−Removed: Certain non-U.S.
−Removed: pension funds that are “qualified foreign pension funds” as defined by Section 897(l) of the Code and certain non-U.S.
−Removed: publicly traded entities that are “qualified shareholders” as defined by Section 897(k) of the Code may be entitled to exceptions to the FIRPTA tax with respect to distributions we pay.
−Removed: shareholders should consult with their tax advisors regarding the application of these exceptions.
−Removed: Undistributed Capital Gain .
−Removed: Although the law is not entirely clear on the matter, it appears that amounts designated by us as undistributed capital gains in respect of our shares held by non-U.S.
−Removed: shareholders generally should be treated in the same manner as actual distributions by us of capital gain dividends.
−Removed: Under this approach, the non-U.S.
−Removed: shareholder would be able to offset as a credit against their U.S.
−Removed: federal income tax liability resulting therefrom their proportionate share of the tax paid by us on the undistributed capital gains treated as long-term capital gains to the non-U.S.
−Removed: shareholder, and generally receive from the IRS a refund to the extent their proportionate share of the tax paid by us were to exceed the non-U.S.
−Removed: shareholder’s actual U.S.
−Removed: federal income tax liability on such long-term capital gain.
−Removed: If we were to designate any portion of our net capital gain as undistributed capital gain, a non-U.S.
−Removed: shareholder should consult its tax advisors regarding taxation of such undistributed capital gain.
−Removed: Dispositions of Our Shares .
−Removed: Unless our shares constitute a USRPI, a sale of our shares by a non-U.S.
−Removed: shareholder generally will not be subject to U.S.
−Removed: federal income taxation under FIRPTA.
−Removed: Generally, subject to the discussion below regarding dispositions by “qualified shareholders” and “qualified foreign pension funds,” with respect to any particular shareholder, our shares will constitute a USRPI only if each of the following three statements is true:
−Removed: • 50% or more of our assets on any of certain testing dates during a prescribed testing period consist of interests in real
−Removed: property located within the United States, excluding for this purpose, interests in real property solely in a capacity as creditor;
−Removed: • We are not a “domestically-controlled qualified investment entity.” A domestically-controlled qualified investment entity includes a REIT, less than 50% of value of which is held directly or indirectly by non-U.S.
−Removed: shareholders at all times during a specified testing period.
−Removed: Although we believe that we are and will remain a domestically-controlled REIT, because our shares are publicly traded, we cannot guarantee that we are or will remain a domestically-controlled qualified investment entity;
−Removed: • Either (a) our shares are not “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market;
−Removed: or (b) our shares are “regularly traded” on an established securities market and the selling non-U.S.
−Removed: shareholder has held over 10% of our outstanding common shares any time during the five-year period ending on the date of the sale.
−Removed: Certain non-U.S.
−Removed: pension funds that are “qualified foreign pension funds” as defined by Section 897(l) of the Code and certain non-U.S.
−Removed: publicly traded entities that are “qualified shareholders” as defined by Section 897(k) of the Code may be entitled to exceptions to the FIRPTA tax with respect to the sale of our shares.
−Removed: shareholders should consult with their tax advisors regarding the application of these exceptions.
−Removed: Specific wash sales rules applicable to sales of shares in a domestically-controlled qualified investment entity could result in gain recognition, taxable under FIRPTA, upon the sale of our shares even if we are a domestically-controlled qualified investment entity.
−Removed: These rules would apply if a non-U.S.
−Removed: shareholder (1) disposes of our shares within a 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been taxable to such non-U.S.
−Removed: shareholder as gain from the sale or exchange of a USRPI, (2) acquires, or enters into a contract or option to acquire, other shares of our shares during the 61-day period that begins 30 days prior to such ex-dividend date, and (3) if our shares are “regularly traded” on an established securities market in the United States, such non-US stockholder has owned more than 10% of our outstanding shares at any time during the one-year period ending on the date of such distribution.
−Removed: If gain on the sale of our shares were subject to taxation under FIRPTA, the non-U.S.
−Removed: shareholder would be required to file a U.S.
−Removed: federal income tax return and would be subject to the same treatment as a U.S.
−Removed: shareholder with respect to such gain, subject to the applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals, and, if our common shares were not “regularly traded” on an established securities market, the purchaser of the shares generally would be required to withhold 15% of the purchase price and remit such amount to the IRS.
−Removed: Gain from the sale of our shares that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a non-U.S.
−Removed: shareholder as follows:
−Removed: (1) if the non-U.S.
−Removed: shareholder’s investment in our shares is effectively connected with a U.S.
−Removed: trade or business conducted by such non-U.S.
−Removed: shareholder, the non-U.S.
−Removed: shareholder will be subject to the same treatment as a U.S.
−Removed: shareholder with respect to such gain, or (2) if the non-U.S.
−Removed: shareholder is a nonresident alien individual who was present in the U.S.
−Removed: for 183 days or more during the taxable year and has a “tax home” in the United States, the nonresident alien individual will be subject to a 30% tax on the individual’s capital gain.
−Removed: Taxation of Holders of Our Warrants and Rights
−Removed: Holders of our warrants will not generally recognize gain or loss upon the exercise of a warrant.
−Removed: A holder’s basis in the preferred shares, depositary shares representing preferred shares or common shares, as the case may be, received upon the exercise of the warrant will be equal to the sum of the holder’s adjusted tax basis in the warrant and the exercise price paid.
−Removed: A holder’s holding period in the preferred shares, depositary shares representing preferred shares or common shares, as the case may be, received upon the exercise of the warrant will not include the period during which the warrant was held by the holder.
−Removed: Upon the expiration of a warrant, the holder will recognize a capital loss in an amount equal to the holder’s adjusted tax basis in the warrant.
−Removed: Upon the sale or exchange of a warrant to a person other than us, a holder will recognize gain or loss in an amount equal to the difference between the amount realized on the sale or exchange and the holder’s adjusted tax basis in the warrant.
−Removed: Such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the warrant was held for more than one year.
−Removed: Upon the sale of the warrant to us, the IRS may argue that the holder should recognize ordinary income on the sale.
−Removed: Prospective holders of our warrants should consult their own tax advisors as to the consequences of a sale of a warrant to us.
−Removed: In the event of a rights offering, the tax consequences of the receipt, expiration, and exercise of the rights we issue will be addressed in detail in a prospectus supplement.
−Removed: Prospective holders of our rights should review the applicable prospectus supplement in connection with the ownership of any rights and consult their own tax advisors as to the consequences of investing in the rights.
−Removed: Dividend Reinvestment and Share Purchase Plan
−Removed: We offer shareholders and prospective shareholders the opportunity to participate in our Dividend Reinvestment and Share Purchase Plan, which is referred to herein as the “DRIP.”
−Removed: Although we do not currently offer any discount in connection with the DRIP, nor do we plan to offer such a discount at present, we reserve the right to offer in the future a discount on shares purchased, not to exceed 5%, with reinvested dividends or cash distributions and shares purchased through the optional cash investment feature.
−Removed: This discussion assumes that we do not offer a discount in connection with the DRIP.
−Removed: If we were to offer a discount in connection with the DRIP, the tax considerations described below would materially differ.
−Removed: In the event that we offer a discount in connection with the DRIP, shareholders are urged to consult with their tax advisors regarding the tax treatment to them of receiving a discount.
−Removed: Amounts Treated as a Distribution
−Removed: Generally, a DRIP participant will be treated as having received a distribution with respect to our shares for U.S.
−Removed: federal income tax purposes in an amount determined as described below.
−Removed: • A shareholder who participates in the dividend reinvestment feature of the DRIP and whose dividends are reinvested in our shares purchased from us will be treated for U.S.
−Removed: federal income tax purposes as having received a distribution from us with respect to our shares equal to the fair market value of our shares credited to the shareholder’s DRIP account on the date the dividends are reinvested.
−Removed: The amount of the distribution deemed received will be reported on the Form 1099-DIV received by the shareholder.
−Removed: • A shareholder who participates in the dividend reinvestment feature of the DRIP and whose dividends are reinvested in our shares purchased in the open market, will be treated for U.S.
−Removed: federal income tax purposes as having received (and will receive a Form 1099-DIV reporting) a distribution from us with respect to its shares equal to the fair market value of our shares credited to the shareholder’s DRIP account (plus any brokerage fees and any other expenses deducted from the amount of the distribution reinvested) on the date the dividends are reinvested.
−Removed: • A shareholder who participates in the optional cash purchase through the DRIP (or a newly enrolled participant not currently our shareholder making their initial investment in our common shares through the DRIP’s optional cash purchase feature) will not be treated as receiving a distribution from us.
−Removed: We will pay the annual maintenance cost for each shareholder’s DRIP account.
−Removed: Consistent with the conclusion reached by the IRS in a private letter ruling issued to another REIT, we intend to take the position that the administrative costs do not constitute a distribution which is either taxable to a shareholder or which would reduce the shareholder’s basis in their common shares.
−Removed: However, because the private letter ruling was not issued to us, we have no legal right to rely on its conclusions.
−Removed: Thus, it is possible that the IRS might view the shareholder’s share of the administrative costs as constituting a taxable distribution to them and/or a distribution which reduces the basis in their shares.
−Removed: For this and other reasons, we may in the future take a different position with respect to these costs.
−Removed: In the situations described above, a shareholder will be treated as receiving a distribution from us even though no cash distribution is actually received.
−Removed: These distributions will be taxable in the same manner as all other distributions paid by us, as described above under “—Taxation of U.S.
−Removed: Shareholders—Taxation of Taxable U.S.
−Removed: Shareholders,” “—Taxation of U.S.
−Removed: Shareholders—Taxation of Tax-Exempt Shareholders,” or “—Taxation of Non-U.S.
−Removed: Shareholders,” as applicable.
−Removed: Basis and Holding Period in Shares Acquired Pursuant to the DRIP.
−Removed: The tax basis for our shares acquired by reinvesting cash distributions through the DRIP generally will equal the fair market value of our shares on the date of distribution (plus the amount of any brokerage fees paid by the shareholder).
−Removed: The holding period for our shares acquired by reinvesting cash distributions will begin on the day following the date of distribution.
−Removed: The tax basis in our shares acquired through an optional cash investment generally will equal the cost paid by the participant in acquiring our shares, including any brokerage fees paid by the shareholder.
−Removed: The holding period for our shares purchased through the optional cash investment feature of the DRIP generally will begin on the day our shares are purchased for the participant’s account.
−Removed: Withdrawal of Shares from the DRIP .
−Removed: When a participant withdraws stock from the DRIP and receives whole shares, the participant will not realize any taxable income.
−Removed: However, if the participant receives cash for a fractional share, the participant will be required to recognize gain or loss with respect to that fractional share.
−Removed: Effect of Withholding Requirements .
−Removed: Withholding requirements generally applicable to distributions from us will apply to all amounts treated as distributions pursuant to the DRIP.
−Removed: See “—Information Reporting and Backup Withholding Tax Applicable to Shareholders—U.S.
−Removed: Shareholders-Generally” and “—Information Reporting and Backup Withholding Tax Applicable to Shareholders—Non-U.S.
−Removed: Shareholders—Generally” for discussion of the withholding requirements that apply to other distributions that we pay.
−Removed: All withholding amounts will be withheld from distributions before the distributions are reinvested under the DRIP.
−Removed: Therefore, if a U.S.
−Removed: shareholder is subject to withholding, distributions which would otherwise be available for reinvestment under the DRIP will be reduced by the withholding amount.
−Removed: Information Reporting and Backup Withholding Tax Applicable to Shareholders
−Removed: Shareholders—Generally
−Removed: In general, information-reporting requirements will apply to payments of distributions on our shares and payments of the proceeds of the sale of our shares to some U.S.
−Removed: shareholders, unless an exception applies.
−Removed: Further, the payer will be required to withhold backup withholding tax on such payments if:
−Removed: (1) the payee fails to furnish a taxpayer identification number (“TIN”) to the payer or to establish an exemption from backup withholding;
−Removed: (2) the IRS notifies the payer that the TIN furnished by the payee is incorrect;
−Removed: (3) there has been a notified payee under-reporting with respect to interest, dividends or original issue discount described in Section 3406(c) of the Code;
−Removed: (4) there has been a failure of the payee to certify under the penalty of perjury that the payee is not subject to backup withholding under the Code.
−Removed: Some shareholders may be exempt from backup withholding.
−Removed: Any amounts withheld under the backup withholding rules from a payment to a shareholder will be allowed as a credit against the shareholder’s U.S.
−Removed: federal income tax liability and may entitle the shareholder to a refund, provided that the required information is furnished to the IRS.
−Removed: Shareholders—Withholding on Payments in Respect of Certain Foreign Accounts.
−Removed: As described below, certain future payments made to “foreign financial institutions” and “non-financial foreign entities” may be subject to withholding at a rate of 30%.
−Removed: shareholders should consult their tax advisors regarding the effect, if any, of this withholding provision on their ownership and disposition of our common stock.
−Removed: See “—Non-U.S.
−Removed: Shareholders—Withholding on Payments to Certain Foreign Entities” below.
−Removed: Shareholders—Generally
−Removed: Generally, information reporting will apply to payments or distributions on our shares, and backup withholding described above for a U.S.
−Removed: shareholder will apply, unless the payee certifies that it is not a U.S.
−Removed: person or otherwise establishes an exemption.
−Removed: The payment of the proceeds from the disposition of our shares to or through the U.S.
−Removed: office of a U.S.
−Removed: or foreign broker will be subject to information reporting and, possibly, backup withholding as described above for U.S.
−Removed: shareholders, or the withholding tax for non-U.S.
−Removed: shareholders, as applicable, unless the non-U.S.
−Removed: shareholder certifies as to its non-U.S.
−Removed: status or otherwise establishes an exemption, provided that the broker does not have actual knowledge that the shareholder is a U.S.
−Removed: person or that the conditions of any other exemption are not, in fact, satisfied.
−Removed: The proceeds of the disposition by a non-U.S.
−Removed: shareholder of our shares to or through a foreign office of a broker generally will not be subject to information reporting or backup withholding.
−Removed: However, if the broker is a U.S.
−Removed: person, a controlled foreign corporation for U.S.
−Removed: federal income tax purposes, or a foreign person 50% or more of whose gross income from all sources for specified periods is from activities that are effectively connected with a U.S.
−Removed: trade or business, a foreign partnership 50% or more of whose interests are held by partners who are U.S.
−Removed: persons, or a foreign partnership that is engaged in the conduct of a trade or business in the United States, then information reporting generally will apply as though the payment was made through a U.S.
−Removed: office of a U.S.
−Removed: or foreign broker unless the broker has documentary evidence as to the non-U.S.
−Removed: shareholder’s foreign status and has no actual knowledge to the contrary.
−Removed: Applicable Treasury Regulations provide presumptions regarding the status of shareholders when payments to the shareholders cannot be reliably associated with appropriate documentation provided to the payor.
−Removed: If a non-U.S.
−Removed: shareholder fails to comply with the information reporting requirement, payments to such person may be subject to the full withholding tax even if such person might have been eligible for a reduced rate of withholding or no withholding under an applicable income tax treaty.
−Removed: Because the application of these Treasury Regulations varies depending on the non-U.S.
−Removed: shareholder’s particular circumstances, non-U.S.
−Removed: shareholders are urged to consult their tax advisor regarding the information reporting requirements applicable to them.
−Removed: Backup withholding is not an additional tax.
−Removed: Any amounts that we withhold under the backup withholding rules will be refunded or credited against the non-U.S.
−Removed: shareholder’s U.S.
−Removed: federal income tax liability if certain required information is furnished to the IRS.
−Removed: shareholders should consult their own tax advisors regarding application of backup withholding in their particular circumstances and the availability of and procedure for obtaining an exemption from backup withholding under current Treasury Regulations.
−Removed: Shareholders—Withholding on Payments to Certain Foreign Entities
−Removed: The Foreign Account Tax Compliance Act (“FATCA”) imposes a 30% withholding tax on certain types of payments made to “foreign financial institutions” and certain other non-U.S.
−Removed: entities unless certain due diligence, reporting, withholding, and certification obligations requirements are satisfied.
−Removed: As a general matter, FATCA imposes a 30% withholding tax on dividends in respect of our shares if paid to a foreign entity unless either (i) the foreign entity is a “foreign financial institution” that undertakes certain due diligence, reporting, withholding, and certification obligations, or in the case of a foreign financial institution that is a resident in a jurisdiction that has entered into an intergovernmental agreement to implement FATCA, the entity complies with the diligence and reporting requirements of such agreement, (ii) the foreign entity is not a “foreign financial institution” and identifies certain of its U.S.
−Removed: investors, or (iii) the foreign entity otherwise is exempted under FATCA.
−Removed: While withholding under FATCA would have applied to payments of gross proceeds from the sale or other disposition of our shares received after December 31, 2018, proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely.
−Removed: Taxpayers may generally rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
−Removed: If withholding is required under FATCA on a payment related to our shares, investors that otherwise would not be subject to withholding (or that otherwise would be entitled to a reduced rate of withholding) generally will be required to seek a refund or credit from the IRS to obtain the benefit of such exemption or reduction (provided that such benefit is available).
−Removed: Prospective investors should consult their tax advisors regarding the effect of FATCA in their particular circumstances.
−Removed: Taxation of Holders of Debt Securities
−Removed: The following discussion summarizes certain U.S.
−Removed: federal income tax considerations relating to the purchase, ownership and disposition of certain debt securities that we may offer.
−Removed: This summary assumes the debt securities will be issued with no more than a de minimis amount of original issue discount for U.S.
−Removed: federal income tax purposes.
−Removed: This summary only applies to investors that will hold their debt securities as “capital assets” (within the meaning of Section 1221 of the Code) and purchase their debt securities in the initial offering at their offering price.
−Removed: If such debt securities are purchased at a price other than the offering price, the amortizable bond premium or market discount rules may apply which are not described herein.
−Removed: Prospective holders should consult their own tax advisors regarding these possibilities.
−Removed: This section also does not apply to any debt securities treated as “equity,” rather than debt, for U.S.
−Removed: federal income tax purposes.
−Removed: The tax consequences of owning any notes issued with more than de minimis original issue discount, floating rate debt securities, convertible or exchangeable notes, indexed notes or other debt securities not covered by this discussion that we offer will be discussed in the applicable prospectus supplement.
−Removed: Holders of Debt Securities
−Removed: This section summarizes the taxation of U.S.
−Removed: Holders of debt securities that are not tax-exempt organizations.
−Removed: For these purposes, the term “U.S.
−Removed: Holder” is a beneficial owner of our debt securities that is, for U.S.
−Removed: federal income tax purposes:
−Removed: • a citizen or resident of the United States;
−Removed: • a corporation (including an entity treated as a corporation for U.S.
−Removed: federal income tax purposes) created or organized in or under the laws of the United States or of a political subdivision thereof (including the District of Columbia);
−Removed: • an estate the income of which is subject to U.S.
−Removed: federal income taxation regardless of its source;
−Removed: • any trust if a U.S.
−Removed: court is able to exercise primary supervision over the administration of such trust and one or more U.S.
−Removed: persons have the authority to control all substantial decisions of the trust.
−Removed: If an entity or arrangement treated as a partnership for U.S.
−Removed: federal income tax purposes holds our debt securities, the U.S.
−Removed: federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership.
−Removed: A partner of a partnership holding our debt securities should consult its own tax advisor regarding the U.S.
−Removed: federal income tax consequences to the partner of the acquisition, ownership and disposition of our debt securities by the partnership.
−Removed: Payments of Interest .
−Removed: Interest on a note will generally be taxable to a U.S.
−Removed: Holder as ordinary interest income at the time it is received or accrued, in accordance with the U.S.
−Removed: Holder’s regular method of tax accounting for U.S.
−Removed: federal income tax purposes.
−Removed: Sale, Exchange, Retirement, Redemption or Other Taxable Disposition of the Debt Securities .
−Removed: Upon a sale, exchange, retirement, redemption or other taxable disposition of debt securities, a U.S.
−Removed: Holder generally will recognize taxable gain or loss in an amount equal to the difference, if any, between the “amount realized” on the disposition and the U.S.
−Removed: Holder’s adjusted tax basis in such debt securities.
−Removed: The amount realized will include the amount of any cash and the fair market value of any property received for the debt securities (other than any amount attributable to accrued but unpaid interest, which will be taxable as ordinary income (as described above under “—Taxation of Holders of Debt Securities—U.S.
−Removed: Holders of Debt Securities—Payments of Interest”) to the extent not previously included in income).
−Removed: Holder’s adjusted tax basis in a note generally will be equal to the cost of the note to such U.S.
−Removed: Holder decreased by any payments received on the note other than stated interest.
−Removed: Any such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if the U.S.
−Removed: Holder’s holding period for the note is more than one year at the time of disposition.
−Removed: For non-corporate U.S.
−Removed: Holders, long-term capital gain generally will be subject to reduced rates of taxation.
−Removed: The deductibility of capital losses against ordinary income is subject to certain limitations.
−Removed: Information Reporting and Backup Withholding .
−Removed: Payments of interest on, or the proceeds of the sale, exchange or other taxable disposition (including a retirement or redemption) of, a note are generally subject to information reporting unless the U.S.
−Removed: Holder is an exempt recipient (such as a corporation).
−Removed: Such payments may also be subject to U.S.
−Removed: federal backup withholding unless (1) the U.S.
−Removed: Holder is an exempt recipient (such as a corporation), or (2) prior to payment, the U.S.
−Removed: Holder provides a taxpayer identification number and certifies as required on a duly completed and executed IRS Form W-9 (or permitted substitute or successor form), and otherwise complies with the requirements of the backup withholding rules.
−Removed: Backup withholding is not an additional tax.
−Removed: Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against that U.S.
−Removed: Holder’s U.S.
−Removed: federal income tax liability provided the required information is timely furnished to the IRS.
−Removed: Net Investment Income .
−Removed: In certain circumstances, certain U.S.
−Removed: Holders that are individuals, estates, or trusts are subject to a 3.8% tax on “net investment income,” which includes, among other things, interest income and net gains from the sale, exchange or other taxable disposition (including a retirement or redemption) of the debt securities, unless such interest payments or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive activities or securities or commodities trading activities).
−Removed: Investors in debt securities should consult their own tax advisors regarding the applicability of this tax to their income and gain in respect of their investment in the debt securities.
−Removed: Tax-Exempt Holders of Debt Securities
−Removed: In general, a tax-exempt organization is exempt from U.S.
−Removed: federal income tax on its income, except to the extent of its UBTI (as defined above under “—Taxation of U.S.
−Removed: Shareholders-Taxation of U.S.
−Removed: Tax-Exempt Shareholders”).
−Removed: Interest income accrued on the debt securities and gain recognized in connection with dispositions of the debt securities generally will not constitute UBTI unless the tax-exempt organization holds the debt securities as debt-financed property (e.g., the tax-exempt organization has incurred “acquisition indebtedness” with respect to such debt securities).
−Removed: Before making an investment in the debt securities, a tax-exempt investor should consult its tax advisors with regard to UBTI and the suitability of the investment in the debt securities.
−Removed: Holders of Debt Securities
−Removed: The following discussion addresses the rules governing U.S.
−Removed: federal income taxation of Non-U.S.
−Removed: Holders of debt securities.
−Removed: For purposes of this summary, “Non-U.S.
−Removed: Holder” is a beneficial owner of our debt securities that is not (i) a U.S.
−Removed: Holder (as defined above under “—U.S.
−Removed: Holders of Debt Securities”) or (ii) an entity treated as a partnership for U.S.
−Removed: federal income tax purposes.
−Removed: Payments of Interest .
−Removed: Subject to the discussions below concerning backup withholding and FATCA (as defined below), all payments of interest on the debt securities made to a Non-U.S.
−Removed: Holder will not be subject to U.S.
−Removed: federal income or withholding taxes under the “portfolio interest” exception of the Code, provided that the Non-U.S.
−Removed: • does not own, actually or constructively, 10% or more of the total combined voting power of all classes of our stock that are entitled to vote,
−Removed: • is not a controlled foreign corporation with respect to which we are a “related person” (within the meaning of Section 864(d)(4) of the Code),
−Removed: • is not a bank whose receipt of interest on a note is described in Section 881(c)(3)(A) of the Code, and
−Removed: • provides its name and address on an IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable form) and certifies, under penalties of perjury, that it is not a U.S.
−Removed: The applicable Treasury Regulations provide alternative methods for satisfying the certification requirement described in this section.
−Removed: In addition, under these Treasury Regulations, special rules apply to pass-through entities and this certification requirement may also apply to beneficial owners of pass-through entities.
−Removed: If a Non-U.S.
−Removed: Holder cannot satisfy the requirements described above, payments of interest will generally be subject to the 30% U.S.
−Removed: federal withholding tax, unless the Non-U.S.
−Removed: Holder provides the applicable withholding agent with a properly executed (1) IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable form) claiming an exemption from or reduction in withholding under an applicable income tax treaty or (2) IRS Form W-8ECI (or other applicable form) stating that interest paid on the debt securities is not subject to U.S.
−Removed: federal withholding tax because it is effectively connected with the conduct by such Non-U.S.
−Removed: Holder of a trade or business in the United States (as discussed below under “—Non-U.S.
−Removed: Holders of Debt Securities—Income Effectively Connected with a U.S.
−Removed: Trade or Business”).
−Removed: Sale, Exchange, Retirement, Redemption or Other Taxable Disposition of the Debt Securities .
−Removed: Subject to the discussions below concerning backup withholding and FATCA and except with respect to accrued but unpaid interest, which generally will be taxable as interest and may be subject to the rules described above under “—Non-U.S.
−Removed: Holders of Debt Securities—Payments of Interest,” a Non-U.S.
−Removed: Holder generally will not be subject to U.S.
−Removed: federal income or withholding tax on the receipt of payments of principal on a note, or on any gain recognized upon the sale, exchange, retirement, redemption or other taxable disposition of a note, unless:
−Removed: • such gain is effectively connected with the conduct by such Non-U.S.
−Removed: Holder of a trade or business within the United States, in which case such gain will be taxed as described below under “—Non-U.S.
−Removed: Holders of Debt Securities—Income Effectively Connected with a U.S.
−Removed: Trade or Business,” or
−Removed: • such Non-U.S.
−Removed: Holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition, and certain other conditions are met, in which case such Non-U.S.
−Removed: Holder will be subject to tax at 30% (or, if applicable, a lower treaty rate) on the gain derived from such disposition, which may be offset by U.S.
−Removed: source capital losses.
−Removed: Income Effectively Connected with a U.S.
−Removed: Trade or Business .
−Removed: If a Non-U.S.
−Removed: Holder is engaged in a trade or business in the United States, and if interest on the debt securities or gain realized on the sale, exchange or other taxable disposition (including a retirement or redemption) of the debt securities is effectively connected with the conduct of such trade or business, the Non-U.S.
−Removed: Holder generally will be subject to regular U.S.
−Removed: federal income tax on such income or gain in the same manner as if the Non-U.S.
−Removed: Holder were a U.S.
−Removed: If the Non-U.S.
−Removed: Holder is eligible for the benefits of an income tax treaty between the United States and the Non-U.S.
−Removed: Holder’s country of residence, any “effectively connected” income or gain generally will be subject to U.S.
−Removed: federal income tax only if it is also attributable to a permanent establishment or fixed base maintained by the Non-U.S.
−Removed: Holder in the United States.
−Removed: In addition, if such a Non-U.S.
−Removed: Holder is a foreign corporation, such holder may also be subject to a branch profits tax equal to 30% (or such lower rate provided by an applicable income tax treaty) of its effectively connected earnings and profits, subject to certain adjustments.
−Removed: Payments of interest that are effectively connected with a U.S.
−Removed: trade or business will not be subject to the 30% U.S.
−Removed: federal withholding tax provided that the Non-U.S.
−Removed: Holder claims exemption from withholding.
−Removed: To claim exemption from withholding, the Non-U.S.
−Removed: Holder must certify its qualification, which generally can be done by providing the applicable withholding agent with a properly executed IRS Form W-8ECI (or other
−Removed: applicable form).
−Removed: Information Reporting and Backup Withholding .
−Removed: Generally, we must report annually to the IRS and to Non-U.S.
−Removed: Holders the amount of interest paid to Non-U.S.
−Removed: Holders and the amount of tax, if any, withheld with respect to those payments.
−Removed: Copies of these information returns reporting such interest and withholding may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S.
−Removed: Holder resides.
−Removed: In general, a Non-U.S.
−Removed: Holder will not be subject to backup withholding or additional information reporting requirements with respect to payments of interest that we make, provided that the statement described above in last bullet point under “—Non-U.S.
−Removed: Holders of Debt Securities—Interest” has been received and we do not have actual knowledge or reason to know that the holder is a U.S.
−Removed: person, as defined under the Code, that is not an exempt recipient.
−Removed: In addition, proceeds from a sale or other disposition of a note by a Non-U.S.
−Removed: Holder generally will be subject to information reporting and, depending on the circumstances, backup withholding with respect to payments of the proceeds of the sale or disposition (including a retirement or redemption) of a note within the United States or conducted through certain U.S.
−Removed: or U.S.-related financial intermediaries, unless the statement described above has been received and we do not have actual knowledge or reason to know that the holder is a U.S.
−Removed: Backup withholding is not an additional tax.
−Removed: Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a non-U.S.
−Removed: holder’s U.S.
−Removed: federal income tax liability if the required information is furnished in a timely manner to the IRS.
−Removed: Additional Withholding Requirements .
−Removed: As discussed above under “—Information Reporting and Backup Withholding Tax Applicable to Shareholders—Non-U.S.
−Removed: Shareholders—Withholding on Payments to Certain Foreign Entities,” FATCA imposes a 30% withholding tax on certain types of payments made to “foreign financial institutions” and certain other non-U.S.
−Removed: entities unless certain due diligence, reporting, withholding, and certification obligations requirements are satisfied.
−Removed: As a general matter, payments to Non-U.S.
−Removed: Holders that are foreign entities (whether as beneficial owner or intermediary) of interest on a debt obligation of a U.S.
−Removed: issuer will be subject to a withholding tax (separate and apart from, but without duplication of, the withholding tax described above) at a rate of 30%, unless various U.S.
−Removed: information reporting and due diligence requirements (generally relating to ownership by U.S.
−Removed: persons of interests in or accounts with those entities) have been satisfied.
−Removed: While withholding under FATCA would have applied to payments of gross proceeds from the sale or other disposition of, a debt obligation of a U.S.
−Removed: issuer received after December 31, 2018, proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely.
−Removed: Taxpayers may generally rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
−Removed: If withholding is required under FATCA on a payment related to the debt securities, Non-U.S.
−Removed: Holders that otherwise would not be subject to withholding (or that otherwise would be entitled to a reduced rate of withholding) generally will be required to seek a refund or credit from the IRS to obtain the benefit of such exemption or reduction (provided that such benefit is available).
−Removed: Prospective investors should consult their tax advisors regarding the effect of FATCA in their particular circumstances.
−Removed: Other Tax Considerations
−Removed: State, Local and Foreign Taxes
−Removed: We may be required to pay tax in various state or local jurisdictions, including those in which we transact business, and our shareholders may be required to pay tax in various state or local jurisdictions, including those in which they reside.
−Removed: Our state and local tax treatment may not conform to the U.S.
−Removed: federal income tax consequences discussed above.
−Removed: In addition, a shareholder’s state and local tax treatment may not conform to the U.S.
−Removed: federal income tax consequences discussed above.
−Removed: Consequently, prospective investors should consult with their tax advisors regarding the effect of state and local tax laws on an investment in our shares and depositary shares.
−Removed: A portion of our income is earned through our taxable REIT subsidiary.
−Removed: A taxable REIT subsidiary is generally subject to U.S.
−Removed: federal, state and local income tax at the full applicable corporate rates.
−Removed: In addition, a taxable REIT subsidiary will be limited in its ability to deduct interest payments in excess of a certain amount made directly or indirectly to us.
−Removed: To the extent that we and/or our taxable REIT subsidiary is required to pay U.S.
−Removed: federal, state or local taxes, we will have less cash available for distribution to shareholders.
−Removed: Tax Shelter Reporting
−Removed: If a holder recognizes a loss as a result of a transaction with respect to our shares of at least (i) for a holder that is an individual, S corporation, trust or a partnership with at least one non-corporate partner, $2 million or more in a single taxable year or $4 million or more in a combination of taxable years, or (ii) for a holder that is either a corporation or a partnership with only
−Removed: corporate partners, $10 million or more in a single taxable year or $20 million or more in a combination of taxable years, such holder may be required to file a disclosure statement with the IRS on Form 8886.
−Removed: Direct shareholders of portfolio securities are in many cases exempt from this reporting requirement, but shareholders of a REIT currently are not excepted.
−Removed: The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper.
−Removed: Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
−Removed: Legislative or Other Actions Affecting REITs
−Removed: The rules dealing with U.S.
−Removed: federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.
−Removed: Treasury Department.
−Removed: We cannot give you any assurances as to whether, or in what form, any proposals affecting REITs or their shareholders will be enacted.
−Removed: Changes to the U.S.
−Removed: federal tax laws and interpretations thereof could adversely affect an investment in our shares.
−Removed: Shareholders should consult their tax advisors regarding the effect of potential changes to the U.S.
−Removed: federal tax laws and on an investment in our shares.
+Added: Trustee Matters
+Added: As previously disclosed, on January 21, 2026, Ellen M.
+Added: Goitia and Ron D.
+Added: Sturzenegger each notified Paul McDermott, the Chairman of the Board and President and Chief Executive Officer of Elme, that they intended to resign from the Board, effective as of the end of the first business day after the date of filing of the Form 10-K for the fiscal year ended December 31, 2025 with the Securities and Exchange Commission.
+Added: Goitia’s and Mr.
+Added: Sturzenegger’s resignations will be effective on March 2, 2026.
+Added: Chief Financial Officer Matters
+Added: As previously disclosed, on January 21, 2026, Mr.
+Added: Freishtat and the Company agreed that Mr.
+Added: Freishtat would step down from his role as Chief Financial Officer and as an employee of the Company effective as of the end of the first business day after the date of filing of the Form 10-K for the fiscal year ended December 31, 2025.
+Added: Also on January 21, 2026, the Board approved the appointment of W.
+Added: Drew Hammond to serve as Executive Vice President and Chief Financial Officer, in addition to his roles as Chief Administrative Officer, Treasurer and Secretary, subject to and effective at the beginning of the first day immediately
+Added: following the effective date of Mr.
+Added: Freishtat’s departure (the “Appointment Date”), subject to Mr.
+Added: Hammond’s continued employment through the Appointment Date.
+Added: Freishtat will step down on March 2, 2026, and Mr.
+Added: Hammond will assume the role of Executive Vice President and Chief Financial Officer, in addition to his existing roles, effective March 3, 2026.
+Added: As a condition to Mr.
+Added: Freishtat receiving his previously disclosed payment pursuant to his Retention Agreement, dated January 21, 2026, Mr.
+Added: Freishtat will execute an agreement and release of claims (“Release Agreement”), pursuant to which Mr.
+Added: Freishtat will agree to a general release of claims and other customary provisions, including confidentiality, cooperation in transition, and the return of Company property.
+Added: The description of the Release Agreement set forth above is qualified in its entirety by the full text of the Release Agreement filed herewith as Exhibit 10.19 to this Annual Report on Form 10-K and incorporated by reference herein.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
−Removed: Certain information required by Part III has been omitted pursuant to General Instruction G(3) to Form 10-K.
−Removed: We will file a definitive proxy statement pursuant to Regulation 14A with respect to our 2025 Annual Meeting (the “Proxy Statement”) no later than 120 days after the end of the fiscal year covered by this Form 10-K, and certain information included therein is incorporated herein by reference.
−Removed: Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference.
−Removed: In addition, we have adopted a code of ethics that applies to all of our trustees, officers and employees, which can be reviewed and printed from our website www.elmecommunities.com.
−Removed: The reference to our website address does not constitute incorporation by reference of the information contained in the website and such information should not be considered part of this document.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
−Removed: The information required by this Item is hereby incorporated herein by reference to our Proxy Statement.
+Added: The information required by this Item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A.
EXECUTIVE COMPENSATION
−Removed: The information required by this Item is hereby incorporated herein by reference to our Proxy Statement.
+Added: The information required by this Item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
−Removed: The information required by this Item is hereby incorporated herein by reference to our Proxy Statement.
+Added: The information required by this Item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
−Removed: The information required by this Item is hereby incorporated herein by reference to our Proxy Statement.
+Added: The information required by this Item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
−Removed: The information required by this Item is hereby incorporated herein by reference to our Proxy Statement.
+Added: The information required by this Item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
4 unchanged sentences
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 43
−Removed: Consolidated Balance Sheets as of December 31, 2024 and 2023
−Removed: Consolidated Statements of Operations for the Years Ended December 31, 2024, 2023 and 2022
−Removed: Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2024, 2023 and 2022
−Removed: Consolidated Statements of Equity for the Years Ended December 31, 2024, 2023 and 2022
−Removed: Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022
+Added: Consolidated Statement of Net Assets (Liquidation Basis) as of December 31, 2025 44
+Added: Consolidated Balance Sheet (Going Concern Basis) as of December 31, 2024 45
+Added: Consolidated Statement of Changes in Net Assets (Liquidation Basis) for the Period from November 1, 2025 through December 31, 2025 46
+Added: Consolidated Statements of Operations (Going Concern Basis) for the Ten Months Ended October 31, 2025 and Years Ended December 31, 2024 and 2023 47
+Added: Consolidated Statements of Comprehensive Income (Loss) (Going Concern Basis) for the Ten Months Ended October 31, 2025 and Years Ended December 31, 2024 and 2023 48
+Added: Consolidated Statements of Equity (Going Concern Basis) for the Ten Months Ended October 31, 2025 and Years Ended December 31, 2024 and 2023 49
+Added: Consolidated Statements of Cash Flows (Going Concern Basis) for the Ten Months Ended October 31, 2025 and Years Ended December 31, 2024 and 2023 50
Notes to Consolidated Financial Statements 52
6 unchanged sentences
Number Exhibit Filing Date Filed
−Removed: 3.1 Articles of Amendment and Restatement of Declaration of Trust of the Company, as amended
+Added: 2.1 Purchase and Sale Agreement, dated August 1, 2025, by and among Elme Communities, WashREIT OP LLC, Echo Sub LLC, CEVF VI Capital Holdings, LLC and CEVF VI Co-Invest I Venture, LLC
8-K 001-06622 2.1 8/4/2025
−Removed: 3.2 Amended and Restated Bylaws of Elme Communities, as amended
+Added: 2.2 Plan of Sale and Liquidation
8-K 001-06622 2.2 8/4/2025
−Removed: 4.1 Indenture dated as of August 1, 1996 between Washington REIT and The First National Bank of Chicago
−Removed: 8-K 001-06622 (c) 8/13/1996
−Removed: 4.2 Form of 2028 Notes
+Added: 3.1 Articles of Amendment and Restatement of Declaration of Trust of the Company, as amended
10-K 001-06622 3.1 2/17/2023
−Removed: 4.3 Supplemental Indenture by and between Washington REIT and the Bank of New York Trust Company, N.A.
−Removed: dated as of July 3, 2007
+Added: 3.2 Articles Supplementary of Elme Communities
8-K 001-06622 3.1 3/20/2025
−Removed: 4.4 Description of Registrant's Securities
+Added: 3.3 Amended and Restated Bylaws of Elme Communities, as amended
8-K 001-06622 3.1 9/20/2023
+Added: 4.1 Description of Registrant's Securities
10.1* Supplemental Executive Retirement Plan II dated January 1, 2008
12 unchanged sentences
10-Q 001-06622 10.61 11/4/2015
−Removed: 2016 Omnibus Incentive Plan
−Removed: DEF 14A 001-06622 Annex A 3/23/2016
−Removed: 10.9* Long Term Incentive Plan (effective January 1, 2014)
−Removed: 10-Q 001-06622 10.50 8/5/2014
−Removed: 10.10* Amendment to Long Term Incentive Plan
−Removed: 10-Q 001-06622 10.60 11/4/2015
−Removed: 10.11* Amendment Number Two to Washington Real Estate Investment Trust 2014 Long-Term Incentive Plan (effective January 1, 2018)
−Removed: 10-Q 001-06622 10.54 4/30/2018
+Added: 10.8* Amendment to Amended and Restated Trustee Deferred Compensation Plan
Incorporated by Reference
1 unchanged sentence
Number Exhibit Filing Date Filed
−Removed: 10.12* Washington Real Estate Investment Trust Amended and Restated Executive Short-Term Incentive Plan, effective January 1, 2020
+Added: 10.9* Elme Communities 2016 Omnibus Incentive Plan (as amended and restated effective as of May 30, 2024)
8-K 001-06622 10.1 6/4/2024
−Removed: 10.13* Washington Real Estate Investment Trust Amended and Restated Executive Long-Term Incentive Plan, effective January 1, 2020
+Added: 10.10 Cooperation Agreement, dated March 19, 2025, by and among Elme Communities, Argosy-Lionbridge Real Estate Securities, L.P.
+Added: and the Related Persons on Schedule A thereto
8-K 001-06622 10.1 3/20/2025
−Removed: 10.14* Note Purchase Agreement, dated as of September 30, 2020, by and among Washington Real Estate Investment Trust and other parties named therein as Purchasers
−Removed: 10-Q 001-06622 10.1 10/30/2020
−Removed: 10.15* Employment Agreement dated August 19, 2013 with Paul T.
−Removed: 10-Q 001-06622 10.54 11/1/2013
−Removed: 10.16* Change in control agreement dated October 1, 2013 with Paul T.
+Added: 10.11* Retention Agreement between Paul McDermott and Elme Communities
8-K 001-06622 10.1 1/23/2026
−Removed: 10.17* Amendment No.
−Removed: 1 To Change in Control Agreement with Paul T.
+Added: 10.12* Retention Agreement between Tiffany Butcher and Elme Communities
8-K 001-06622 10.2 1/23/2026
−Removed: 10.18* Executive Officer Severance Pay Plan, adopted August 4, 2014
−Removed: 10-Q 001-06622 10.54 10/30/2014
−Removed: 10.19* Change in control agreement dated February 2, 2022 with Susan L.
−Removed: 10-Q 001-06622 10.1 4/28/2022
−Removed: Amendment No.
−Removed: 1 To Change in Control Agreement with Susan L.
+Added: 10.13* Retention Agreement between W.
+Added: Drew Hammond and Elme Communities
8-K 001-06622 10.3 1/23/2026
−Removed: Form of Change in Control Agreement
+Added: 10.14* Retention Agreement between Steven Freishtat and Elme Communities
8-K 001-06622 10.4 1/23/2026
−Removed: Amendment Number One to Washington Real Estate Investment Trust Amended and Restated Executive Officer Long-Term Incentive Plan
+Added: 10.15* Executive Officer Short-Term Incentive Plan for the performance period beginning November 13 , 2025
8-K 001-06622 10.5 1/23/2026
−Removed: Amendment Number One to Washington Real Estate Investment Trust Amended and Restated Executive Officer Short-Term Incentive Plan
+Added: 10.16* Separation Agreement and Release of Claims (Susan L.
8-K 001-06622 10.1 11/14/2025
−Removed: 10.24 Second Amended and Restated Credit Agreement, dated August 26, 2021, by and among Washington Real Estate Investment Trust, as borrower, the financial institutions party thereto as lenders, and Wells Fargo Bank, National Association, as administrative agent
−Removed: 10-Q 001-06622 10.2 10/29/2021
−Removed: 10.25 First Amendment to Second Amended and Restated Credit Agreement, dated January 10, 2023, by and among Elme Communities, as borrower, the financial institutions party thereto as lenders, and Wells Fargo Bank, National Association, as administrative agent
+Added: 10.17 Loan Agreement, dated as of November 12, 2025
8-K 001-06622 10.1 11/13/2025
−Removed: Offer Letter to Tiffany Butcher
−Removed: 10-Q 001-06622 10.1 8/1/2023
−Removed: 10.27 Third Amended and Restated Credit Agreement, dated July 10, 2024, by and among Elme Communities, as borrower, the financial institutions party thereto as lenders, and Wells Fargo Bank, National Association, as administrative agent
−Removed: 10-Q 001-06622 10.1 8/2/2024
−Removed: 10.28 Elme Communities 2016 Omnibus Incentive Plan (as amended and restated effective as of May 30, 2024)
−Removed: 001-06622 10.1 6/4/2024
−Removed: 10.29 Elme Communities Compensation Recovery Policy
−Removed: 001-06622 97 2/16/2024
+Added: 10.18 Form of Agreement and Release of Claims
19 Elme Communities Policy on Inside Information and Insider Trading
+Added: 10-K 001-06622 19 2/14/2025
21 Subsidiaries of Registrant
6 unchanged sentences
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
+Added: 97 Elme Communities Compensation Recovery Policy
+Added: 10-K 001-06622 97 2/16/2024
101 INS-XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
7 unchanged sentences
In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, copies of certain instruments defining the rights of holders of long-term debt of Elme Communities or its subsidiaries are not filed herewith.
−Removed: Pursuant to this regulation, we hereby agree to furnish a copy of any such instrument to the SEC upon
+Added: Pursuant to this regulation, we hereby agree to furnish a copy of any such instrument to the SEC upon request.
FORM 10-K SUMMARY
16 unchanged sentences
Nolan, Jr.* Trustee February 27, 2026
+Added: Sturzenegger* Trustee February 27, 2026
/s/ Anthony L.
23 unchanged sentences
Opinion on the Financial Statements
−Removed: We have audited the accompanying consolidated balance sheets of Elme Communities and Subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).
−Removed: In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S.
−Removed: generally accepted accounting principles.
+Added: We have audited the accompanying consolidated balance sheet of Elme Communities and Subsidiaries (the Company) as of December 31, 2024, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for the period from January 1, 2025 to October 31, 2025 and for the years ended December 31, 2024 and 2023, the consolidated statement of net assets in liquidation as of December 31, 2025, the related consolidated statement of changes in net assets in liquidation for the period from November 1, 2025 to December 31, 2025, and the related notes and financial statement schedules listed in the Index at Item 15(A) (collectively referred to as the "consolidated financial statements").
+Added: In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, the results of its operations and its cash flows for the years ended December 31, 2024 and 2023 and for the period from January 1, 2025 to October 31, 2025, its net assets in liquidation as of December 31, 2025, and the changes in its net assets in liquidation for the period from November 1, 2025 to December 31, 2025, in conformity with U.S.
+Added: generally accepted accounting principles applied on the basis described below.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2026 expressed an unqualified opinion thereon.
+Added: Adoption of Liquidation Basis of Accounting
+Added: As described in Note 1 to the financial statements, the shareholders of the Company approved a plan of liquidation on October 30, 2025, and the Company commenced liquidation shortly thereafter.
+Added: As a result, the Company has changed its basis of accounting for periods subsequent to October 31, 2025 from the going concern basis to a liquidation basis.
Basis for Opinion
13 unchanged sentences
The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
−Removed: Impairment of income producing property
−Removed: Description of the Matter
−Removed: At December 31, 2024, the Company’s income producing property, net of accumulated depreciation, totaled $1.8 billion.
−Removed: As discussed in Note 2 of the financial statements, the Company reviews long-lived assets for impairment.
−Removed: Real estate is evaluated for recoverability based on estimated cash flows if there are indicators of potential impairment.
−Removed: The Company did not identify any assets that were impaired as of December 31, 2024.
−Removed: Auditing management’s assessment of impairment is challenging due to the high degree of auditor judgment necessary in evaluating management’s identification of indicators of potential impairment and the related uncertainty around the Company’s estimated cash flows used in the impairment assessment.
−Removed: Estimated future cash flows are based on assumptions, that are forward looking and could be affected by future economic and market conditions, including capitalization rates, the projected annual cash flows associated with each property, and the estimated holding period for individual properties.
−Removed: How We Addressed the Matter in Our Audit
−Removed: We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for assessing impairment of income producing properties.
−Removed: For example, we tested controls over management’s review of qualitative and quantitative indicators of impairment and properties’ expected future cash flows used in the recoverability evaluation, if applicable, and we tested management’s review of the significant assumptions used in their impairment assessment.
−Removed: Our testing of the Company’s impairment assessment included, among other procedures, evaluating the significant assumptions and testing the completeness and accuracy of the underlying data used by the Company to develop its estimated future cash flows for individual income producing properties.
−Removed: We held discussions with management about the current status of potential transactions and about management’s judgments to understand the probability of future events that could affect the holding period and other cash flow assumptions for the properties.
−Removed: We also compared the significant assumptions to current industry, market and economic trends and to the historical results of the properties.
+Added: Valuation of Income Producing Properties
+Added: Description of the Matter As of December 31, 2025, the Company reported income producing property of $776.4 million on the consolidated statement of net assets (liquidation basis).
+Added: As described in Note 3 to the consolidated financial statements as a result of the adoption of the liquidation basis of accounting, the Company’s real estate was adjusted to its estimated net realizable value, or liquidation value, which represents the estimated amount of cash or other consideration that the Company expected to realize through the disposal of its assets.
+Added: Prior to the adoption of the liquidation basis of accounting and as described in Note 6 to the consolidated financial statements, during the ten months ended October 31, 2025, the Company recognized impairment charges of $111.7 million on certain income producing properties included in the consolidated statement of operations.
+Added: If a property is determined to be impaired, the Company recognizes an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated fair value.
+Added: Management’s valuation of income producing properties at net realizable value under the liquidation basis of accounting or at fair value when an asset’s carrying amount is in excess of its undiscounted cash flows under the going concern basis of accounting was determined using various valuation methodologies, as well as consideration of purchase offers or contractual sales agreements and comparable market transactions.
+Added: Auditing the Company’s valuation of income producing properties was complex and involved a high degree of subjectivity in evaluating management’s use of assumptions and estimates inherent in the determination of the estimated fair value when an asset’s carrying value is not deemed recoverable or liquidation value of the properties.
+Added: In particular, management’s assumptions and estimates included estimated future operating results and capitalization rates, which were sensitive to expectations about market or economic conditions, as well as the use of comparable sales values.
+Added: How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s real estate valuation process.
+Added: We tested controls over management’s process for evaluating the assumptions used to determine fair value when the asset’s carrying value is not deemed recoverable or liquidation value subsequent to adoption of the liquidation basis of accounting.
+Added: To test the Company's valuation of income producing properties, we performed audit procedures that included, among others, evaluating the methodologies applied and tested the significant assumptions in the valuation analyses.
+Added: We involved our valuation specialists to assist in performing these procedures.
+Added: For example, we evaluated the significant assumptions used to estimate future cash flows and comparable sales values for reasonableness by comparing them to the Company’s historical accounting records or to available market data.
/s/ Ernst & Young LLP
28 unchanged sentences
ELME COMMUNITIES AND SUBSIDIARIES
+Added: CONSOLIDATED STATEMENT OF NET ASSETS
+Added: (LIQUIDATION BASIS)
+Added: (IN THOUSANDS)
+Added: Income producing property $ 776,425
+Added: Cash, cash equivalents and restricted cash 1,331,882
+Added: Rents and other receivables 5,974
+Added: Total assets $ 2,114,281
+Added: Liabilities for estimated costs in excess of estimated receipts during liquidation 43,599
+Added: Debt payable 520,000
+Added: Accounts payable and accrued expenses 8,044
+Added: Liquidating distribution payable 1,303,723
+Added: Total liabilities $ 1,875,366
+Added: Net assets in liquidation $ 238,915
+Added: See accompanying notes to the consolidated financial statements.
+Added: ELME COMMUNITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
+Added: (GOING CONCERN BASIS)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1 unchanged sentence
Income producing property 1,999,525
−Removed: 2,383,333 2,344,117
Accumulated depreciation and amortization ( 618,299 )
21 unchanged sentences
150,000 shares authorized:
−Removed: 88,029 and 87,867 shares issued and outstanding, as of December 31, 2024 and 2023, respectively
+Added: 88,029 shares issued and outstanding as of December 31, 2024
Additional paid in capital 1,740,078
7 unchanged sentences
ELME COMMUNITIES AND SUBSIDIARIES
+Added: CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
+Added: (LIQUIDATION BASIS)
+Added: (IN THOUSANDS)
+Added: For the Period from November 1, 2025 to December 31, 2025
+Added: Net assets in liquidation, beginning of period $ 1,589,456
+Added: Changes in net assets in liquidation
+Added: Liquidation value of income producing property ( 46,375 )
+Added: Remeasurement of assets and liabilities, net ( 443 )
+Added: Net decrease in liquidation value ( 46,818 )
+Added: Liquidating distributions payable ( 1,303,723 )
+Added: Changes in net assets in liquidation ( 1,350,541 )
+Added: Net assets in liquidation, end of period $ 238,915
+Added: See accompanying notes to the consolidated financial statements.
+Added: ELME COMMUNITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
+Added: (GOING CONCERN BASIS)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
−Removed: Year Ended December 31,
+Added: Ten Months Ended October 31, Year Ended December 31,
2025 2024 2023
10 unchanged sentences
328,568 218,466 250,974
−Removed: Real estate operating income (loss)
−Removed: 23,469 ( 23,063 ) ( 1,723 )
+Added: Real estate operating (loss) income ( 122,208 ) 23,469 ( 23,063 )
Other income (expense)
14 unchanged sentences
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
+Added: (GOING CONCERN BASIS)
(IN THOUSANDS)
−Removed: Year Ended December 31,
+Added: Ten Months Ended October 31, Year Ended December 31,
2025 2024 2023
1 unchanged sentence
Other comprehensive loss:
−Removed: Unrealized (loss) gain on interest rate derivatives
−Removed: ( 2,147 ) ( 764 ) 2,819
+Added: Unrealized gain (loss) on interest rate derivatives 598 ( 2,147 ) ( 764 )
Reclassification of unrealized loss on interest rate derivatives to earnings 1,698 2,039 2,039
4 unchanged sentences
CONSOLIDATED STATEMENTS OF EQUITY
+Added: (GOING CONCERN BASIS)
(IN THOUSANDS)
10 unchanged sentences
— — — ( 52,977 ) — ( 52,977 ) — ( 52,977 )
−Removed: Unrealized gain on interest rate hedges — — — — 2,819 2,819 — 2,819
+Added: Unrealized loss on interest rate hedges — — — — ( 764 ) ( 764 ) — ( 764 )
Amortization of swap settlements — — — — 2,039 2,039 — 2,039
2 unchanged sentences
— — — ( 63,406 ) — ( 63,406 ) — ( 63,406 )
−Removed: Equity offerings, net of issuance costs 1,032 10 26,839 — — 26,849 — 26,849
Shares issued under Dividend Reinvestment Program 28 — 497 — — 497 — 497
8 unchanged sentences
— — — ( 63,601 ) — ( 63,601 ) — ( 63,601 )
−Removed: Shares issued under Dividend Reinvestment Program 28 — 497 — — 497 — 497
Share grants, net of forfeitures and tax withholdings 162 1 4,548 — — 4,549 — 4,549
1 unchanged sentence
Net loss — — — ( 154,162 ) — ( 154,162 ) — ( 154,162 )
−Removed: Unrealized loss on interest rate hedges
−Removed: — — — — ( 2,147 ) ( 2,147 ) — ( 2,147 )
+Added: Unrealized gain on interest rate hedges — — — — 598 598 — 598
Amortization of swap settlements — — — — 1,698 1,698 — 1,698
3 unchanged sentences
Share grants, net of forfeitures and tax withholdings 132 2 5,089 — — 5,091 — 5,091
−Removed: Balance, December 31, 2024 88,029 $ 880 $ 1,740,078 $ ( 646,095 ) $ ( 13,066 ) $ 1,081,797 $ 281 $ 1,082,078
+Added: Balance, October 31, 2025 88,161 $ 882 $ 1,745,167 $ ( 848,066 ) $ ( 10,770 ) $ 887,213 $ 274 $ 887,487
See accompanying notes to the consolidated financial statements.
1 unchanged sentence
CONSOLIDATED STATEMENTS OF CASH FLOWS
+Added: (GOING CONCERN BASIS)
(IN THOUSANDS)
−Removed: Year Ended December 31,
+Added: Ten Months Ended October 31, Year Ended December 31,
2025 2024 2023
15 unchanged sentences
Capital improvements to real estate ( 26,925 ) ( 47,390 ) ( 38,218 )
−Removed: Development in progress — — ( 698 )
Non-real estate capital improvements ( 61 ) ( 212 ) ( 408 )
−Removed: Insurance proceeds — — 2,224
Payments received for land easements — 3,862 —
5 unchanged sentences
Dividends paid ( 63,707 ) ( 63,636 ) ( 64,335 )
−Removed: Principal payments – mortgage notes payable — — ( 76,598 )
Repayments of unsecured term loan debt — — ( 100,000 )
3 unchanged sentences
Proceeds from dividend reinvestment program — — 497
−Removed: Net proceeds from equity issuances — — 26,849
Payment of tax withholdings for restricted share awards ( 229 ) ( 1,111 ) ( 2,072 )
3 unchanged sentences
288 71 ( 1,314 )
−Removed: Cash, cash equivalents and restricted cash at beginning of year 8,538 9,852 234,220
−Removed: Cash, cash equivalents and restricted cash at end of year $ 8,609 $ 8,538 $ 9,852
+Added: Cash, cash equivalents and restricted cash at beginning of period 8,609 8,538 9,852
+Added: Cash, cash equivalents and restricted cash at end of period $ 8,897 $ 8,609 $ 8,538
Supplemental disclosure of cash flow information:
4 unchanged sentences
CONSOLIDATED STATEMENTS OF CASH FLOWS
+Added: (GOING CONCERN BASIS)
(IN THOUSANDS)
−Removed: Year Ended December 31,
+Added: Ten Months Ended October 31, Year Ended December 31,
2025 2024 2023
6 unchanged sentences
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: FOR THE YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022
NATURE OF BUSINESS
−Removed: Elme Communities, a Maryland real estate investment trust, formerly known as Washington Real Estate Investment Trust, is a self-administered equity real estate investment trust, successor to a trust organized in 1960.
−Removed: Our business primarily consists of the ownership and operation of apartment communities in the greater Washington, DC metro and Sunbelt regions.
+Added: Elme Communities, a Maryland real estate investment trust, formerly known as Washington Real Estate Investment Trust (“Elme” or the “Company”), is a self-administered equity real estate investment trust (“REIT”) within the meaning of Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”) and successor to a trust organized in 1960.
+Added: Our business primarily consists of the ownership of apartment communities in the greater Washington, DC metro and Sunbelt regions.
+Added: As of December 31, 2025, we owned nine apartment communities, six in the Washington, DC metro region and three in the Atlanta metro region, and one office property.
+Added: Subsequent to December 31, 2025, we completed the sale of two of the Remaining Company Properties, Elme Sandy Springs and Elme Marietta, which comprise approximately 800 residential apartment homes.
+Added: Plan of Liquidation
+Added: On February 13, 2025, the Company announced that its Board of Trustees (the “Board”) had initiated a formal review to evaluate strategic alternatives.
+Added: On August 4, 2025, the Company announced that its Board had completed its review, that Elme had entered into a Purchase and Sale Agreement, dated as of August 1, 2025, for the sale of 19 multifamily properties from Elme for approximately $ 1.6 billion in cash, subject to certain adjustments and prorations (the “Portfolio Sale Transaction”), and that the Board had also approved a plan of sale and liquidation (the “Plan of Sale and Liquidation”), which contemplates the sale or disposition of all the Company’s assets, the wind-down of the Company’s business and affairs and the termination of the Company’s existence by voluntary dissolution.
+Added: The Plan of Sale and Liquidation includes a plan of liquidation that provides for the Company’s complete liquidation and dissolution in accordance with Section 331, Section 336 and Section 346(a) of the Code.
+Added: On October 30, 2025, our shareholders approved the Portfolio Sale Transaction and the Plan of Sale and Liquidation, and on November 12, 2025, Elme completed the Portfolio Sale Transaction.
+Added: Also on November 12, 2025, certain indirect subsidiaries of the Company, as borrowers (collectively, the “Borrowers”), and Goldman Sachs Bank USA, as lender (the “Lender”), entered into that certain Loan Agreement (the “Loan Agreement”) pursuant to which the Lender has made a senior secured term loan of $ 520.0 million (the “Secured Term Loan”) to the Borrowers.
+Added: Pursuant to the Loan Agreement, the Secured Term Loan was secured by first priority mortgages and security interests on all ten properties that remained under the Company following the closing of the Portfolio Sale Transaction (which are directly owned by the Borrowers) and included:
+Added: Riverside Apartments, Elme Bethesda, Elme Germantown, Elme Watkins Mill, 3801 Connecticut Avenue, Kenmore Apartments, Elme Conyers, Elme Marietta, Elme Sandy Springs, and Watergate 600 (the “Remaining Company Properties” and “Loan Collateral”).
+Added: In addition, the Secured Term Loan was secured by pledges of all equity interests in the Borrowers, along with all other personal property of the Borrowers.
+Added: Subsequent to December 31, 2025, we completed the sale of two of the Remaining Company Properties, Elme Sandy Springs and Elme Marietta, which comprise approximately 800 residential apartment homes – for gross proceeds of approximately $ 112.75 million, a portion of which was used to partially repay the Secured Term Loan, and those properties were released from the mortgages securing the Secured Term Loan.
+Added: As of February 27, 2026, we have 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:
+Added: Elme Watkins Mill, Elme Conyers and Watergate 600, to various buyers for aggregate gross proceeds of approximately $ 128.78 million, which 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.
+Added: The marketing and sale process with respect to the other five Remaining Company Properties remains ongoing.
+Added: In January 2026, we began a formal marketing process for Riverside Apartments and continued the marketing and sale process with respect to Kenmore, 3801 Connecticut, Elme Bethesda and Elme Germantown.
+Added: The Company currently expects to finalize the sale of Elme Germantown in the second quarter of 2026 and the sale of Elme Bethesda by mid-year 2026.
+Added: The Company also expects to continue the marketing process for the DC and Virginia properties with a goal to have these three properties under contract by mid-May.
+Added: The Company continues to target completion of the sale of all Remaining Company Properties by mid-year 2026.
+Added: In accordance with the Plan of Sale and Liquidation, our objectives are to pursue an orderly liquidation of our Company by selling or otherwise disposing of our remaining assets, paying or otherwise settling our debts and our known liabilities, providing for the payment of unknown or contingent liabilities, when appropriate and in the Board’s discretion, distributing the net proceeds from liquidation to our shareholders, subject to the creation of necessary reserves for, and the payment or other satisfaction of, the Company’s expenses and other liabilities and obligations, and winding up our operations and dissolving our
+Added: We do not intend to continue or to engage in the conduct of a trade or business, except as necessary for the orderly liquidation of our assets.
+Added: Elme is not required to obtain any further shareholder approval with respect to its liquidation and dissolution.
+Added: Under the Plan of Sale and Liquidation, the Board may modify, amend or terminate the Plan of Sale and Liquidation (and authorize us to seek to dispose of all our assets through a merger, business combination or similar transaction) without approval by the shareholders if it determines that such action would be advisable and in the best interests of Elme.
+Added: Elme has no present plans or intentions to modify, amend or abandon the Plan of Sale and Liquidation.
+Added: As a result of the approval of the Plan of Sale and Liquidation by our shareholders in October 2025, we adopted the liquidation basis of accounting on November 1, 2025, as described further in note 3 to the consolidated financial statements.
+Added: Initial Liquidating Distribution
+Added: In accordance with the Plan of Sale and Liquidation, following completion of the Portfolio Sale Transaction in November 2025, the Board approved a special liquidating distribution of $ 14.67 per share to our shareholders of record as of the close of business on December 22, 2025.
+Added: The special liquidating distribution was paid on January 7, 2026.
Federal Income Taxes
−Removed: We believe that we qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”), and intend to continue to qualify as such.
+Added: We believe that we qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”).
+Added: We expect to remain qualified as a REIT until the end of our final REIT tax year in accordance with the Plan of Sale and Liquidation, which we anticipate, but cannot be certain, will occur after most of the remaining assets have been sold.
To maintain our status as a REIT, we are, among other things, required to distribute 90% of our REIT taxable income (which is generally our ordinary taxable income, with certain modifications), excluding any net capital gains and any deductions for dividends paid to our shareholders on an annual basis.
−Removed: When selling a property, we generally have the option of (a) reinvesting the sales proceeds of property sold in a way that allows us to defer recognition of some or all taxable gain realized on the sale, (b) distributing gains to the shareholders with no tax to us or (c) treating net long-term capital gains as having been distributed to our shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to our shareholders.
−Removed: We sold no properties in 2024, 2023 or 2022.
−Removed: Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRSs”).
−Removed: Our TRSs are subject to corporate federal and state income tax on their taxable income at regular statutory rates.
−Removed: As of December 31, 2024, 2023 and 2022 our TRSs had a deferred tax asset of $ 1.4 million that was fully reserved.
+Added: Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiary (“TRS”).
+Added: Our TRS is subject to corporate federal and state income tax on its taxable income at regular statutory rates.
+Added: As of December 31, 2024 and 2023 our TRS had a deferred tax asset of $ 1.4 million that was fully reserved.
Beginning in 2018, ordinary taxable income per share is equal to the Section 199A dividend that was created by the Tax Cuts and Jobs Act.
2 unchanged sentences
Ordinary income/Section 199A dividends 20 % 11 % 33 %
−Removed: Return of capital 79 % 67 % 80 %
+Added: Non-dividend distributions 80 % 79 % 67 %
Qualified dividends — % — % — %
1 unchanged sentence
Capital gain — % 10 % — %
+Added: PLAN OF SALE AND LIQUIDATION
+Added: In accordance with the Plan of Sale and Liquidation, our objectives are to pursue an orderly liquidation of our Company by selling or otherwise disposing of our remaining assets, paying or otherwise settling our debts and our known liabilities, providing for the payment of unknown or contingent liabilities, when appropriate and in the Board’s discretion, distributing the net proceeds from liquidation to our shareholders, subject to the creation of necessary reserves for, and the payment or other satisfaction of, the Company’s expenses and other liabilities and obligations, and winding up our operations and dissolving our Company.
+Added: In connection with the Plan of Sale and Liquidation, the Company paid a special liquidating distribution on January 7, 2026 to shareholders of record at the close of business on December 22, 2025.
+Added: The Plan of Sale and Liquidation enables the Company to sell any and all of its assets without further approval of its shareholders and provides that the amounts and timing of liquidating distributions will be determined by the Board in its discretion.
+Added: Pursuant to applicable REIT rules, liquidating distributions the Company pays pursuant to the Plan of Sale and Liquidation will qualify for the dividends paid deduction, provided that they are paid within 24 months of the October 30, 2025 approval of the Plan of Sale and Liquidation by the Company’s shareholders.
+Added: However, if the Company cannot sell its
+Added: properties and pay its debts within such time period, or if the Board determines that it is otherwise advisable to do so, the Company may transfer and assign its remaining assets to a liquidating trust or other liquidating entity.
+Added: Upon such transfer and assignment, the Company’s shareholders would receive beneficial interests in the liquidating trust or other liquidating entity.
+Added: The liquidating trust or other liquidating entity would pay or provide for all of the Company’s liabilities and distribute any remaining net proceeds from liquidation to the holders of beneficial interests in the liquidating trust or other liquidating entity.
+Added: If the Company is not able to sell its properties and pay its debt within the 24-month period and the remaining assets are not transferred to a liquidating trust or other liquidating entity, any distributions made during the 24 months may not qualify for the dividends paid deduction and may increase the Company’s tax liability.
+Added: No assurance can be given that any liquidating distributions the Company pays to its shareholders will equal or exceed the estimate of net assets in liquidation presented on the Consolidated Statement of Net Assets as of December 31, 2025.
+Added: For a discussion of risks related to the Plan of Sale and Liquidation, see Item 1A—Risk Factors.
+Added: The Company expects to comply with the requirements necessary to continue to qualify as a REIT through the completion of the liquidation process, or until such time as the Company terminates its status as a REIT and/or any remaining assets are transferred into a liquidating trust or other liquidating entity.
+Added: The Board shall use commercially reasonable efforts to continue to cause the Company to maintain its REIT status;
+Added: provided, however, that the Board may elect to terminate the Company’s status as a REIT if it determines that such termination would be in the best interest of the shareholders.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Recent Accounting Pronouncements
−Removed: In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting - Improvements to Reportable Segments Disclosures”, which enhances disclosures of significant segment expenses and other segment items regularly provided to the chief operating decision maker (“CODM”).
−Removed: The new standard is effective in fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.
−Removed: We adopted the new standard on our consolidated financial statements and related disclosures for the year ended December 31, 2024.
−Removed: In November 2024, the Financial Accounting Standards Board issued ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”), which will require additional disclosure of the nature of expenses included in the income statement in response to longstanding requests from investors for more information about an entity’s expenses.
+Added: In November 2024, the Financial Accounting Standards Board (“FASB”) issued ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”), which will require additional disclosure of the nature of expenses included in the income statement in response to longstanding requests from investors for more information about an entity’s expenses.
The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses.
6 unchanged sentences
All intercompany balances and transactions have been eliminated in consolidation.
−Removed: Certain immaterial amounts in prior periods have been reclassified to conform with the current period presentation.
−Removed: The primary changes to the consolidated statements of operations are reclassifications between property operating and maintenance expense and real estate taxes and insurance expense .
−Removed: We have prepared the accompanying audited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission.
+Added: As a result of the change to the liquidation basis of accounting, the Company no longer presents a consolidated balance sheet, a consolidated statement of operations, a consolidated statement of equity or a consolidated statement of cash flows subsequent to October 31, 2025.
+Added: These statements are only presented for prior year periods to the extent required.
+Added: We have prepared the accompanying audited consolidated financial statements in accordance with GAAP, as contained within the FASB’s ASC, including Subtopic 205-30, “Liquidation Basis of Accounting,” as indicated, and pursuant to the rules and regulations of the Securities and Exchange Commission.
+Added: Pursuant to the Company’s shareholders’ approval of the Plan of Sale and Liquidation on October 30, 2025, the Company adopted the liquidation basis of accounting as of and for the periods subsequent to November 1, 2025 (as the approval of the Plan of Sale and Liquidation by the Company’s shareholders became imminent in late October 2025 based on the results of the Company’s solicitation of proxies from its shareholders for their approval of the Plan of Sale and Liquidation).
+Added: Accordingly, on November 1, 2025, assets were adjusted to their estimated net realizable value, also referred to as liquidation value, which represents the estimated amount of cash or other consideration that the Company expected to realize through the disposal of assets.
+Added: The liquidation values of the Company’s real estate properties are presented on a net realizable value basis at December 31, 2025.
+Added: Liabilities are carried at their contractual amounts due or estimated settlement amounts.
+Added: The Company accrues costs and revenues that it expects to incur and earn as it carries out its liquidation activities through the end of the projected liquidation period to the extent it has a reasonable basis for estimation.
+Added: Estimated costs expected to be incurred through the end of the liquidation period included budgeted property expenses and corporate overhead, costs to dispose of its real estate property, costs associated with satisfying known and contingent liabilities, including repayment of the Secured
+Added: Term Loan, and other costs associated with the winding down and dissolution of the Company.
+Added: These amounts are classified as a liability for estimated costs in excess of estimated receipts during liquidation on the consolidated statement of net assets.
+Added: Actual costs and income may differ from amounts reflected in the financial statements because of the inherent uncertainty in estimating future events.
+Added: These differences may be material.
+Added: See Note 2, “Plan of Sale and Liquidation” and Note 4, “Liabilities for Estimated Costs in Excess of Estimated Receipts During Liquidation” for further discussion.
+Added: Revenues are based on in place leases and forecasted operations at properties prior to their sale.
+Added: Actual costs incurred but unpaid prior to the Company’s adoption of the liquidation basis of accounting on November 1, 2025, are included in accounts payable and accrued expenses at December 31, 2025 on the consolidated statement of net assets.
+Added: All our liabilities under either the going concern basis of accounting or the liquidation basis of accounting are derecognized when we pay the obligation or when we are legally released from being the primary obligor under the liability.
+Added: Net assets in liquidation at December 31, 2025 represents the remaining estimated liquidation value available to shareholders upon liquidation.
+Added: Due to the uncertainty in the estimated cash flows from operations and the time required to complete the Plan of Sale and Liquidation, actual liquidation costs and sale proceeds may differ materially from the amounts estimated.
+Added: All financial results and disclosure through October 31, 2025, prior to the adoption of the liquidation basis of accounting, are presented on a going concern basis.
+Added: As a result, the balance sheet as of December 31, 2024, the statements of operations, the statements of comprehensive income, the statements of equity and the statements of cash flow for the ten months ended October 31, 2025 and the years ended December 31, 2024 and 2023 are presented using the going concern basis of accounting.
Use of Estimates in the Financial Statements
−Removed: The preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
−Removed: Actual results could differ from those estimates.
+Added: The preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make certain estimates and assumptions that affect the reported amounts in these financial statements and related notes.
+Added: The Company is required to estimate all costs and revenue it expects to incur and earn through the end of liquidation.
+Added: All of the estimates and evaluations are susceptible to change and actual results could differ from these estimates.
Revenue Recognition
+Added: Liquidation Basis of Accounting
+Added: The Company accrues all income that it expects to earn through the completion of its liquidation to the extent it has a reasonable basis for estimation.
+Added: Rental and other revenue are estimated based on projected multifamily operations and contractual in-place leases at Watergate 600 through the anticipated disposition date of the properties as of December 31, 2025.
+Added: These amounts are presented net of estimated expenses and other liquidation costs and are classified in liabilities for estimated costs in excess of estimated receipts during liquidation on the consolidated statement of net assets.
+Added: Going Concern Basis
We primarily lease residential properties under operating leases with terms of generally one year or less.
8 unchanged sentences
Rents and Other Receivables
+Added: Liquidation Basis of Accounting
+Added: Rents and other receivables are adjusted to their net realizable value.
+Added: The Company evaluates the collectability of lease receivables and any changes in collectability are reflected as a change to the Company’s net assets in liquidation.
+Added: Going Concern Basis
Lease related receivables, which include contractual amounts accrued and unpaid from residents and accrued straight-line rents receivable, are reduced for credit losses.
4 unchanged sentences
Debt Issuance Costs
+Added: Liquidation Basis of Accounting
+Added: We record debt issuance costs at their gross amount expected to be incurred as a liability.
+Added: Going Concern Basis
We amortize external debt issuance costs using the effective interest rate method or the straight-line method, which approximates the effective interest rate method over the estimated life of the related debt.
3 unchanged sentences
Real Estate and Depreciation
+Added: Liquidation Basis of Accounting
+Added: The Company’s real estate was adjusted to its estimated net realizable value, or liquidation value, to reflect the change to the liquidation basis of accounting.
+Added: The liquidation value represents the estimated amount of cash or other consideration that the Company expects to realize through the disposal of its assets.
+Added: The liquidation value of the Company’s real estate is presented on an undiscounted basis and real estate is no longer depreciated.
+Added: Subsequent to November 1, 2025, all changes in the estimated liquidation value of the real estate are reflected as a change to the Company’s net assets in liquidation.
+Added: Costs to sell the property are included in Liabilities for estimated costs in excess of estimated receipts during liquidation as of December 31, 2025.
+Added: Going Concern Basis
We depreciate buildings on a straight-line basis over an estimated useful life of 26 to 40 years.
−Removed: We capitalize all capital
−Removed: improvements associated with replacements, improvements or major repairs to real property that extend its useful life and depreciate them using the straight-line method over their estimated useful lives ranging from 3 to 40 years.
+Added: We capitalize all capital improvements associated with replacements, improvements or major repairs to real property that extend its useful life and depreciate them using the straight-line method over their estimated useful lives ranging from 3 to 40 years.
We also capitalize costs incurred in connection with our development projects, including interest incurred on borrowing obligations and other internal costs during periods in which qualifying expenditures have been made and activities necessary to get the development projects ready for their intended use are in progress.
Capitalization of these costs begins when the activities and related expenditures commence and ceases when the project is substantially complete and ready for its intended use, at which time the project is placed into service and depreciation commences.
−Removed: Real estate depreciation expense was $ 89.7 million, $ 82.7 million and $ 77.2 million during the years ended December 31, 2024, 2023 and 2022, respectively.
+Added: Real estate depreciation expense was $ 74.9 million, $ 89.7 million and $ 82.7 million during the ten months ended October 31, 2025 and years ended December 31, 2024 and 2023, respectively.
We charge maintenance and repair costs that do not extend an asset’s useful life to expense as incurred.
−Removed: Interest expense and interest capitalized to real estate assets related to development and major renovation activities for the three years ended December 31, 2024 were as follows (in thousands):
−Removed: Year Ended December 31,
−Removed: 2024 2023 2022
−Removed: Total interest incurred $ 37,835 $ 30,429 $ 25,223
−Removed: Capitalized interest — — ( 283 )
−Removed: Interest expense, net of capitalized interest $ 37,835 $ 30,429 $ 24,940
−Removed: We recognize impairment losses on long-lived assets used in operations, development assets or land held for future development if indicators of impairment are present and the net undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount.
+Added: We recognize impairment losses on long-lived assets used in operations, development assets or land held for future development if indicators of impairment are present and the net undiscounted cash flows estimated to be generated by those
+Added: assets are less than the assets' carrying amount.
Estimates of undiscounted cash flows are based on forward-looking assumptions, including annual and residual cash flows and our estimated holding period for each property.
4 unchanged sentences
Asset Acquisitions
+Added: Going Concern Basis
The properties we acquire typically are not businesses as defined by ASC 805 (“Topic 805”) - Clarifying the Definition of a Business.
8 unchanged sentences
Software Developed for Internal Use
+Added: Liquidation Basis of Accounting
+Added: The Company’s software developed for internal use was written-off under the assumption that no cash or consideration is expected to be collected for these assets.
+Added: Going Concern Basis
The costs of software developed for internal use that qualify for capitalization are included with Prepaid expenses and other assets on our consolidated balance sheets.
−Removed: These capitalized costs include external direct costs utilized in developing or
−Removed: obtaining the applications and expenses for employees who are directly associated with the development of the applications.
+Added: These capitalized costs include external direct costs utilized in developing or obtaining the applications and expenses for employees who are directly associated with the development of the applications.
Capitalization of such costs begins when the preliminary project stage is complete and continues until the project is substantially complete and is ready for its intended purpose.
1 unchanged sentence
Held for Sale and Discontinued Operations
+Added: Going Concern Basis
We classify properties as held for sale when they meet the necessary criteria, which include:
19 unchanged sentences
Restricted cash includes funds escrowed for tenant security deposits.
−Removed: Transformation Costs
−Removed: Transformation costs include costs related to the strategic shift away from the commercial sector to residential sector, including the allocation of internal costs, consulting, advisory and termination benefits.
Earnings Per Common Share
+Added: Going Concern Basis
We determine “Basic earnings per share” using the two-class method as our unvested restricted share awards and units have non-forfeitable rights to dividends and are therefore considered participating securities.
4 unchanged sentences
Share-Based Compensation
−Removed: We currently maintain equity based compensation plans for trustees, officers and employees.
+Added: Going Concern Basis
+Added: We maintained equity based compensation plans for trustees, officers and employees.
+Added: The closing of the Portfolio Sale Transaction constituted a change of control under such equity plans and, as a result, the vesting of outstanding unvested shares awards was accelerated.
We recognize compensation expense for service-based share awards ratably over the period from the service inception date through the vesting period based on the fair market value of the shares on the date of grant.
13 unchanged sentences
We classify interest and penalties related to uncertain tax positions, if any, in our financial statements as a component of general and administrative expenses.
−Removed: We borrow funds at a combination of fixed and variable rates.
−Removed: Borrowings under our revolving credit facility and term loans bear interest at variable rates.
+Added: We have borrowed funds at a combination of fixed and variable rates.
+Added: Borrowings under our prior revolving credit facility and term loans and under our current Secured Term Loan bear interest at variable rates.
Our interest rate risk management objectives are to minimize interest rate fluctuation on long-term indebtedness and limit the impact of interest rate changes on earnings and cash flows.
3 unchanged sentences
We assess the effectiveness of our cash flow hedges both at inception and on an ongoing basis.
−Removed: The effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in Accumulated other comprehensive income (loss).
+Added: Under the liquidation basis, the effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in changes in estimated cash flow during liquidation on the consolidated statement of net assets.
+Added: Under the going concern basis, the effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in Accumulated other comprehensive income (loss) on the consolidated balance sheet.
Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument, such as notional amounts, settlement dates, reset dates, calculation period and SOFR do not perfectly match.
In addition, we evaluate the default risk of the counterparty by monitoring its creditworthiness.
−Removed: When ineffectiveness of a cash flow hedge exists, the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected.
−Removed: As of December 31, 2024 and 2023, our real estate investment portfolio classified as income producing property that is held and used, at cost, consists of properties valued as follows (in thousands):
−Removed: Residential $ 2,289,044 $ 2,249,833
+Added: When ineffectiveness of a cash flow hedge exists, the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in liabilities for estimated costs in excess of estimated receipts during liquidation on the consolidated statement of net assets (liquidation basis) or in earnings on the consolidated statement of operations (going concern basis) in the period affected.
+Added: LIABILITIES FOR ESTIMATED COSTS IN EXCESS OF ESTIMATED RECEIPTS DURING LIQUIDATION
+Added: The liquidation basis of accounting requires the Company to estimate net cash flows from operations and to accrue all costs associated with implementing and completing the Plan of Sale and Liquidation.
+Added: As of December 31, 2025, the Company estimated that it will have costs in excess of estimated receipts during the liquidation process.
+Added: These amounts can vary significantly due to, among other things, the timing and estimates for executing and renewing leases, estimates of tenant improvement costs and capital expenditures, the timing and value of property sales, estimates of direct costs incurred to complete the sales, the timing and estimated amounts associated with discharging known and contingent liabilities and the estimated costs associated with the winding up of operations.
+Added: These costs are estimated and are anticipated to be paid out over the liquidation period which is estimated to be complete 24 months from October 30, 2025, the date on which the Company received shareholder approval of the Plan of Sale and Liquidation;
+Added: however, no assurances can be provided that this date will be met.
+Added: Upon transition to the liquidation basis of accounting on November 1, 2025, the Company accrued the following revenues and expenses expected to be incurred during liquidation (amounts in thousands):
+Added: As of November 1, 2025
+Added: Real estate rental revenue $ 59,552
+Added: Interest income 6,646
+Added: Property management ( 18,825 )
+Added: General and administrative expenses ( 17,395 )
+Added: Capital expenditures ( 5,673 )
+Added: Interest expense ( 13,741 )
+Added: Liquidation transaction costs ( 94,065 )
+Added: Debt repayment and origination costs, net ( 19,996 )
+Added: Liabilities for estimated costs in excess of estimated receipts during liquidation $ ( 103,497 )
+Added: The change in the liabilities for estimated costs in excess of estimated receipts during liquidation as of December 31, 2025 is as follows (in thousands):
+Added: As of November 1, 2025 Cash Payments (Receipts) Remeasurements of Assets and Liabilities As of December 31, 2025
+Added: Estimated net inflows from income producing property $ 40,727 $ ( 19,374 ) $ ( 3,262 ) $ 18,091
+Added: Estimated net inflows from interest income 6,646 ( 4,772 ) — 1,874
47,373 ( 24,146 ) ( 3,262 ) 19,965
+Added: Liquidation transaction costs (1)
( 94,065 ) 58,231 2,388 ( 33,446 )
+Added: General and administrative expenses ( 17,395 ) 1,468 ( 93 ) ( 16,020 )
+Added: Capital expenditures ( 5,673 ) 2,808 ( 20 ) ( 2,885 )
+Added: Interest expense ( 13,741 ) 2,960 396 ( 10,385 )
+Added: Debt repayment and origination costs, net ( 19,996 ) 19,020 148 ( 828 )
( 150,870 ) 84,487 2,819 ( 63,564 )
−Removed: (1) Consists of Watergate 600
−Removed: Our results of operations are dependent on the overall economic health of our markets and residents which are affected by external economic factors, such as inflation, consumer confidence and unemployment rates, as well as changing residents and consumer requirements.
−Removed: As of December 31, 2024, one property, Riverside Apartments, accounted for more than approximately 10 % of total assets and more than approximately 10 % of real estate rental revenue.
−Removed: From time to time, we have properties under development/redevelopment and held for current or future development.
−Removed: The cost of our real estate portfolio under development or held for future development as of each of December 31, 2024 and 2023 was $ 31.0 million.
−Removed: As of December 31, 2024, we have invested $ 30.4 million, including the cost of acquired land, in a residential development adjacent to Riverside Apartments.
−Removed: In 2022, we paused development activities at the aforementioned property and ceased associated capitalization of interest on spending and real estate taxes, though we still consider the future completion of this development to be probable.
−Removed: We also continue to capitalize qualifying costs on several other projects with minor development activity necessary to ready each project for its intended use.
−Removed: There were no acquisitions during 2024.
−Removed: Properties acquired during the two years ended December 31, 2023 were as follows:
+Added: Liabilities for estimated costs in excess of estimated receipts during liquidation $ ( 103,497 ) $ 60,341 $ ( 443 ) $ ( 43,599 )
+Added: (1) Liquidation transaction costs primarily include disposal costs and severance expenses.
+Added: NET ASSETS IN LIQUIDATION
+Added: The increase from total equity under the going concern basis of accounting as of October 31, 2025 to net assets in liquidation under the liquidation basis of accounting as of November 1, 2025 is primarily due to the increase in estimated net realizable value of the income producing property, partially offset by an increase in the liability for estimated costs in excess of estimated receipts during liquidation (see note 4) and the write-off of assets and liabilities.
+Added: The net assets in liquidation as of December 31, 2025 were $ 238.9 million.
+Added: Net assets in liquidation include projections of costs and expenses to be incurred during the estimated period required to complete the Plan of Sale and Liquidation.
+Added: There is inherent uncertainty with these estimates and projections, and they could change materially based on the timing of the disposition and value received in the sale of the Company’s remaining real estate properties, the performance of the Company’s remaining assets and any changes in the underlying assumptions of the projected cash flows from such properties.
+Added: Cumulative liquidating distributions paid to shareholders will include the $ 14.67 per share distribution paid on January 7, 2026 to our shareholders of record as of the close of business on December 22, 2025 plus any future distribution of our net assets in liquidation.
+Added: As of December 31, 2025 the Company’s portfolio was composed of nine multifamily properties and one office property with a liquidation value of real estate of $ 776.4 million.
+Added: There were no acquisitions during 2025 or 2024.
+Added: We acquired one property during the year ended December 31, 2023 as follows:
Acquisition Date Property Type # of Homes (unaudited) Ending Occupancy Contract
2 unchanged sentences
September 29, 2023 Elme Druid Hills Residential 500 96.0 % $ 108,000
−Removed: 500 $ 108,000
−Removed: February 1, 2022 Elme Sandy Springs Residential 389 90.7 % $ 105,586
−Removed: May 5, 2022 Elme Marietta Residential 420 90.2 % 107,900
−Removed: May 5, 2022 Elme Cumberland Residential 270 95.9 % 69,750
−Removed: 1,079 $ 283,236
The results of operations from acquired operating properties are included in the consolidated statements of operations as of their acquisition dates.
−Removed: The revenue and earnings of our acquisitions during their year of acquisition for the two years ended December 31, 2023 are as follows (in thousands):
+Added: The revenue and earnings of our acquisition during its year of acquisition for the year ended December 31, 2023 is as follows (in thousands):
Year Ended December 31,
2 unchanged sentences
As discussed in note 3, we record the acquired physical assets (land and building) and in-place leases (absorption costs) and any other assumed liabilities by allocating the total cost of the acquisitions on a relative fair value basis.
−Removed: We recorded the total cost of the above acquisitions as follows (in thousands):
+Added: We recorded the total cost of the above acquisition as follows (in thousands):
Land $ 25,249
1 unchanged sentence
Absorption costs 3,660
−Removed: Aggregate discount on assumed mortgages — 5,042
−Removed: Total acquisition cost 108,190 283,714
−Removed: Outstanding balance on assumed mortgages — ( 76,554 )
−Removed: Total carrying amounts recorded $ 108,190 $ 207,160
+Added: Total acquisition cost and carrying amounts recorded $ 108,190
The difference in the total acquisition cost of $ 108.2 million for the 2023 acquisition and the cash paid for the 2023 acquisition per the consolidated statements of cash flows of $ 107.6 million is due to net credits received at settlement totaling $ 0.6 million.
−Removed: The difference in the total cost of the 2022 acquisitions of $ 283.7 million for the 2022 acquisitions and the cash paid for the acquisitions per the consolidated statements of cash flows of $ 204.4 million is due to the assumption of two mortgage notes secured by Elme Marietta and Elme Cumberland for an aggregate outstanding balance of $ 76.6 million and credits received at settlement totaling $ 2.8 million.
−Removed: In September 2022, we extinguished the liabilities associated with the two mortgage notes though defeasance arrangements.
Fair Value of In-place Leases
−Removed: Balances, net of accumulated depreciation or amortization, as appropriate, of the components of the fair value of in-place leases at December 31, 2024 and 2023 were as follows (in thousands):
−Removed: Gross Carrying Value Accumulated Amortization Net Gross Carrying Value Accumulated Amortization Net
+Added: Balances, net of accumulated depreciation or amortization, as appropriate, of the components of the fair value of in-place leases at December 31, 2024 were as follows (in thousands):
+Added: Gross Carrying Value Accumulated Amortization Net
Tenant origination costs $ 2,230 $ 804 $ 1,426
1 unchanged sentence
Net lease intangible liabilities 13,055 11,208 1,847
−Removed: Amortization of these combined components during the three years ended December 31, 2024, was as follows (in thousands):
−Removed: Year Ended December 31,
+Added: Amortization of these combined components during the ten months ended October 31, 2025 and two years ended December 31, 2024, was as follows (in thousands):
+Added: Ten Months Ended October 31, Year Ended December 31,
2025 2024 2023
2 unchanged sentences
$ 543 $ 3,128 $ 3,724
−Removed: Amortization of these combined components over the next five years is projected to be as follows (in thousands):
−Removed: Depreciation and amortization expense Real estate rental revenue, net increase Total
−Removed: 2025 $ 2,020 $ ( 709 ) $ 1,311
−Removed: 2026 1,922 ( 662 ) 1,260
−Removed: 2027 1,020 ( 476 ) 544
Properties Sold and Held for Sale
−Removed: We intend to hold our properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning our properties, and to make occasional sales of the properties that no longer meet our long-term strategy or return objectives and where market conditions for sale are favorable.
−Removed: The proceeds from the sales may be reinvested into other properties, used to fund development operations or to support other corporate needs or distributed to our shareholders.
−Removed: Depreciation on these properties is discontinued when classified as held for sale, but operating revenues, other operating expenses and interest continue to be recognized through the date of sale.
+Added: Under the going concern basis, when we classify properties as held for sale, we discontinue the recording of depreciation expense and estimate their fair value less costs to sell.
+Added: If we determine that the carrying value for these properties exceed their estimated fair value less costs to sell, we record a loss on asset impairment.
+Added: We sold our interests in the following properties in the Portfolio Sale Transaction, which closed on November 12, 2025.
We sold no properties in 2024 or 2023.
+Added: Property Number of Units (unaudited)
+Added: Cascade at Landmark 277
+Added: Elme Alexandria 532
+Added: Bennett Park 224
+Added: Park Adams 200
+Added: The Maxwell 163
+Added: The Paramount 135
+Added: The Wellington 710
+Added: Roosevelt Towers 191
+Added: Elme Dulles 328
+Added: Elme Herndon 283
+Added: Elme Leesburg 134
+Added: Elme Manassas 408
+Added: The Ashby at McLean 268
+Added: Yale West 216
+Added: Elme Druid Hills 500
+Added: Elme Cumberland 270
+Added: Elme Eagles Landing 490
+Added: We have fully transferred control of the assets associated with these disposed properties and do not have continuing involvement in the operations of these properties.
Real Estate Impairment
−Removed: No properties, including assets held for development, had any recognized impairment charges during 2024.
−Removed: Should external or internal circumstances change requiring the need to shorten holding periods or adjust future estimated cash flows from our properties, we could be required to record additional impairment charges in the future.
−Removed: During 2023, we recognized an impairment charge of $ 41.9 million on Watergate 600 in order to reduce its carrying value to its estimated fair value, which declined due to changes in market conditions in the Washington, DC metro region office market.
−Removed: The estimated fair value is inherently subjective because there are few observable market transactions for similar office properties.
−Removed: This fair valuation fell into Level 3 in the fair value hierarchy due to its reliance on significant unobservable inputs (see note 9).
−Removed: In accordance with ASC 820, we estimated the fair value using a discounted cash flow model which required certain significant assumptions, including a discounted cash flow term of 5 years, an average economic occupancy of 80.5 %, and a terminal capitalization rate of 7.5 %.
−Removed: LEASE ACCOUNTING
−Removed: Leasing as a Lessee
−Removed: For leases where we are the lessee, primarily in our corporate office operating lease, we recognize a right-of-use asset and a lease liability in accordance with ASC Topic 842.
−Removed: The right-of-use asset and associated liability is equal to the present value of the minimum lease payments, applying our incremental borrowing rate.
−Removed: Our borrowing rate is computed based on observable borrowing rates taking into consideration our credit quality and adjusting to a secured borrowing rate for similar assets and term.
−Removed: Our right-of-use asset and lease liability are recorded within Prepaid expenses and other assets and Accounts payable and other liabilities on our consolidated balance sheets, respectively.
−Removed: Lease expense for the operating lease is recognized on a straight-line basis over the expected lease term and is included in “General and administrative expense.”
−Removed: Leasing as a Lessor
−Removed: Future Minimum Rental Income
−Removed: As of December 31, 2024, non-cancelable commercial operating leases provide for future minimum rental income as follows (in thousands):
−Removed: 2025 $ 15,677
−Removed: Thereafter 36,160
−Removed: Apartment leases are not included as the terms are generally for one year or less.
−Removed: Rental income under most of these commercial leases increase in future years based on agreed-upon percentages or in some instances, changes in the Consumer Price Index.
−Removed: MORTGAGE NOTE PAYABLE
−Removed: In May 2022, we assumed a $ 42.8 million mortgage note in connection with the acquisition of Elme Marietta.
−Removed: This mortgage note bore interest at 3.36 % per annum.
−Removed: The effective interest rate on this mortgage note was 4.50 % based on quotes obtained for similar loans.
−Removed: We recorded the mortgage note at its estimated fair value of $ 40.0 million.
−Removed: Principal and interest were payable monthly until May 1, 2030, at which time all unpaid principal and interest would have been payable in full.
−Removed: In May 2022, we assumed a $ 33.7 million mortgage note in connection with the acquisition of Elme Cumberland.
−Removed: This mortgage note bore interest at 2.93 % per annum.
−Removed: The effective interest rate on this mortgage note was 4.00 % based on quotes obtained for similar loans.
−Removed: We recorded the mortgage note at its estimated fair value of $ 31.5 million.
−Removed: Principal and interest were payable monthly until May 1, 2030, at which time all unpaid principal and interest would have been payable in full.
−Removed: In September 2022, we extinguished the liabilities associated with both of the mortgage notes through defeasance arrangements, recognizing aggregate losses on extinguishment of debt of $ 4.9 million.
+Added: During the ten months-ended October 31, 2025, the Company recognized an aggregate impairment charge of $ 111.7 million related to several properties not included as part of the Portfolio Sale Transaction.
+Added: The estimated cash flows for those certain properties were less than their respective carrying values primarily due to a revision of their estimated holding periods.
+Added: We recognized an impairment charge of $ 81.4 million and $ 30.3 million, respectively, within our Residential segment and Other, defined in note 16 and primarily consisting of Watergate 600.
+Added: For all impairment charges recognized, the fair value of the assets fell into Level 3 in the fair value hierarchy due to the reliance on significant unobservable inputs (see note 11).
+Added: In accordance with ASC 820, we estimated the Watergate 600 fair value using a discounted cash flow model which required certain significant assumptions, including a discounted cash flow term of 5 years, an average economic occupancy of 66.1 %, and a terminal capitalization rate of 10.5 %.
+Added: We estimated the residential properties fair value using a model which required certain significant assumptions, including cash flow projections over a term of 5 years, a range of market rent per square foot of $ 114 to $ 159 , and a range of in-place capitalization rates ranging from 4.75 % to 5.77 % for each property.
+Added: No other properties, including assets held for development, had any recognized impairment charges during the ten months ended October 31, 2025.
+Added: Subsequent to November 1, 2025, all changes in the estimated liquidation value of the real estate are reflected as a change to the Company’s net assets in liquidation.
+Added: SECURED TERM LOAN PAYABLE
+Added: On November 12, 2025, the Borrowers and the Lender entered into that certain Loan Agreement pursuant to which the Lender has made the Secured Term Loan to the Borrowers.
+Added: Pursuant to the Loan Agreement, the Secured Term Loan was secured by
+Added: first priority mortgages and security interests on all ten properties that remained under the Company following the closing of the Portfolio Sale Transaction (which are directly owned by the Borrowers) and included:
+Added: Riverside Apartments, Elme Bethesda, Elme Germantown, Elme Watkins Mill, 3801 Connecticut Avenue, Kenmore Apartments, Elme Conyers, Elme Marietta, Elme Sandy Springs, and Watergate 600.
+Added: In addition, the Secured Term Loan was secured by pledges of all equity interests in the Borrowers, along with all other personal property of the Borrowers.
+Added: The Company has provided a customary non-recourse carveout guaranty.
+Added: The Loan Agreement contains certain affirmative and negative covenants with which Borrowers must comply, including maintenance of insurance, single-purpose bankruptcy, remote entity requirements, reporting requirements and restrictions on property and equity transfers and the granting of liens.
+Added: Customary events of default are included in the Loan Agreement, including nonpayment of principal and other amounts when due, nonperformance of covenants, breach of representations and warranties, certain bankruptcy or insolvency events and changes in control, the occurrence of which give Lender the right to accelerate repayment of the Secured Term Loan .
+Added: The Secured Term Loan matures on November 9, 2026, subject to a one-year Borrowers’ extension option, which is subject to satisfaction of certain specified conditions, including the payment of an extension fee equal to 0.25 % of the then outstanding principal amount of the Secured Term Loan and the requirement that no more than $ 312 million of the Secured Term Loan may be outstanding on the first day of the extended term.
+Added: The Secured Term Loan bears interest at a per annum rate equal to the one-month term SOFR (subject to a term SOFR floor of 3.00 %) plus the spread.
+Added: The spread is 2.25 % and will increase in June 2026 to 2.75 % and further increase to 4.00 % in June 2027 (if extended).
+Added: The Company has purchased an interest rate cap that effectively caps term SOFR at 5.00 % per annum.
+Added: On February 9, 2026, a duration fee equal to 0.20 % of the then outstanding principal amount of the Secured Term Loan was paid to the Lender.
+Added: The Secured Term Loan requires that the Company enter into cash management arrangements set forth in the certain cash management agreements pursuant to which the Company will maintain a restricted account into which all revenue from the Loan Collateral will be deposited during the term of the Secured Term Loan.
+Added: Amounts on deposit in the restricted account will be transferred:
+Added: weekly to an account under the sole control of the lender, and provided an event of default is not continuing under the Secured Term Loan, funds deposited in the account controlled by the lender will be applied to pay items such as real estate taxes, insurance premiums, debt service obligations, the lender required reserves for budgeted capital expenditures and operating expenses, with excess funds deposited available to pay general and administrative expenses subject to certain limitations.
+Added: Excess cash remaining after the sale of Loan Collateral and the payment of a release price paid to the lender to release the lien of its mortgages shall be deposited with the Lender as additional cash collateral unless certain conditions, including a minimum balance of $ 10 million in the shortfall account, certain debt yield requirements, and no events of default, are met, in which case such excess cash may be disbursed to the Company for distribution.
+Added: The cash management agreement contains provisions for the cure of certain of these events.
+Added: The cash management arrangements could limit or restrict the Company from paying dividends or other distributions during the term of the Secured Term Loan.
+Added: The Secured Term Loan is intended to be repaid with the net proceeds from one or more sales of the properties securing the Secured Term Loan, and such properties shall be released from the mortgages securing the Secured Term Loan as they are sold, upon satisfaction of certain conditions and payment of a minimum release price applied to the prepayment of the Secured Term Loan.
+Added: An exit fee equal to 0.50 % of the principal amount of the Secured Term Loan repaid is payable with any prepayment or repayment of the Secured Term Loan, including at maturity, provided, that no exit fee is payable (i) if the Secured Term Loan is refinanced by the lender or its affiliates or (ii) if the Secured Term Loan is repaid with the proceeds of an arm’s length sale of one or more of the properties securing the Secured Term Loan.
+Added: As of December 31, 2025, the interest rate on the Secured Term Loan is based on the one-month term SOFR plus 2.25 % applicable margin and the one-month term SOFR is 3.79%.
+Added: Subsequent to December 31, 2025, we completed the sale of two of the Remaining Company Properties, Elme Sandy Springs and Elme Marietta, for gross proceeds of approximately $ 112.75 million, a portion of which was used to partially repay the Secured Term Loan, and those properties were released from the mortgages securing the Secured Term Loan.
UNSECURED LINES OF CREDIT PAYABLE
−Removed: During 2023, we prepaid the remaining $ 100.0 million portion of an existing $ 250.0 million unsecured term loan (the “2018 Term Loan”) and executed an amendment to the Revolving Credit Facility to convert the benchmark interest rate from LIBOR to an adjusted SOFR, with no change in the applicable interest rate margins.
−Removed: The Revolving Credit Facility bore interest at a rate of daily SOFR plus 0.10 % plus a margin ranging from 0.70 % to 1.40 %.
−Removed: In addition, the Revolving Credit Facility required the payment of a facility fee ranging from 0.10 % to 0.30 % (in each case, depending on Elme Communities’ credit rating) on the $ 700.0 million committed revolving loan capacity, without regard to usage.
During 2024, we entered into a third amended and restated credit agreement (the “Amended Credit Agreement”) which provides for aggregate revolving loan commitments of $ 500.0 million (the “Amended and Restated Revolving Credit Facility”) with an accordion feature that allows us to increase the aggregate revolving loan commitments or add term loans of up to $ 1.0 billion, subject to the lenders’ agreement to provide additional revolving commitments or term loans.
−Removed: The Amended and Restated Revolving Credit Facility has a four-year term ending in July 2028, with two six-month extension options.
−Removed: Borrowings under the Amended and Restated Revolving Credit Facility will bear interest, at our option, at a rate of either (a)(i) daily SOFR plus 0.10 % (the “Adjusted Daily Simple SOFR”) or (ii) term SOFR plus 0.10 %, plus, in each case, a margin ranging from 0.70 % to 1.40 % (depending on our credit rating) or (b) the base rate plus a margin ranging from 0.00 % to 0.40 % (based upon our credit rating).
−Removed: The base rate is the highest of the administrative agent’s prime rate, the federal funds rate plus 0.50 % and Adjusted Daily Simple SOFR plus 1.0 %.
−Removed: In addition, the Amended Credit Agreement requires the payment of a facility fee equal to 0.10 % to 0.30 % (depending on our credit rating) on the $ 500.0 million committed capacity in respect of the Amended and Restated Revolving Credit Facility, without regard to usage.
+Added: The Amended and
+Added: Restated Revolving Credit Facility had a four-year term ending in July 2028, with two six-month extension options.
+Added: Borrowings under the Amended and Restated Revolving Credit Facility bore interest, at our option, at a rate of either (a)(i) daily SOFR plus 0.10 % (the “Adjusted Daily Simple SOFR”) or (ii) term SOFR plus 0.10 %, plus, in each case, a margin ranging from 0.70 % to 1.40 % (depending on our credit rating) or (b) the base rate plus a margin ranging from 0.00 % to 0.40 % (based upon our credit rating).
+Added: The base rate was the highest of the administrative agent’s prime rate, the federal funds rate plus 0.50 % and Adjusted Daily Simple SOFR plus 1.0 %.
+Added: In addition, the Amended Credit Agreement required the payment of a facility fee equal to 0.10 % to 0.30 % (depending on our credit rating) on the $ 500.0 million committed capacity in respect of the Amended and Restated Revolving Credit Facility, without regard to usage.
The initial interest rate is based on Adjusted Daily Simple SOFR plus a margin of 0.85 % and the initial facility fee equals 0.20 %.
−Removed: As of December 31, 2024, the interest rate on the Amended and Restated Revolving Credit Facility is based on an adjusted daily SOFR (inclusive of the 0.10 % credit spread adjustment) plus 0.85 % applicable margin, the daily SOFR is 4.49% and the facility fee is 0.20 %.
−Removed: The amount of the Amended and Restated Revolving Credit Facility unused and available at December 31, 2024 was as follows (in thousands):
−Removed: Committed capacity $ 500,000
−Removed: Borrowings outstanding ( 176,000 )
−Removed: Unused and available $ 324,000
−Removed: We executed borrowings and repayments on the Revolving Credit Facility and Amended and Restated Revolving Credit Facility during 2024 as follows (in thousands):
−Removed: Balance, December 31, 2023 $ 157,000
−Removed: Borrowings 158,000
−Removed: Repayments ( 139,000 )
−Removed: Balance, December 31, 2024 $ 176,000
−Removed: All outstanding advances for the Amended and Restated Revolving Credit Facility are due and payable upon maturity in July 2028, unless extended pursuant to one or both of the two six-month extension options.
−Removed: Interest only payments are due and payable generally on a monthly basis.
−Removed: For the three years ended December 31, 2024, we recognized interest expense (excluding facility fees) and facility fees as follows (in thousands):
−Removed: Year Ended December 31,
+Added: Interest only payments were due and payable generally on a monthly basis.
+Added: On November 12, 2025, in connection with the closing of the Portfolio Sale Transaction, the Company caused the repayment in full of all indebtedness, liabilities and other obligations under, and terminated the Amended and Restated Revolving Credit Facility.
+Added: For the ten months ended October 31, 2025 and two years ended December 31, 2024, we recognized interest expense (excluding facility fees) and facility fees as follows (in thousands):
+Added: Ten Months Ended October 31, Year Ended December 31,
2025 2024 2023
1 unchanged sentence
Facility fees 846 1,229 1,454
−Removed: The Amended and Restated Revolving Credit Facility contains and the prior unsecured credit facility that it replaced contained certain financial and non-financial covenants, all of which we have met as of December 31, 2024 and 2023.
−Removed: Included in these covenants are limits on our total indebtedness, secured and unsecured indebtedness and required debt service payments.
−Removed: Information related to revolving credit facilities for the three years ended December 31, 2024 as follows (in thousands, except percentage amounts):
+Added: Information related to revolving credit facilities for the two years ended December 31, 2024 as follows (in thousands, except percentage amounts):
Year Ended December 31,
−Removed: 2024 2023 2022
Total revolving credit facilities at December 31 $ 500,000 $ 700,000
4 unchanged sentences
Weighted average interest rate on borrowings outstanding at December 31 5.26 % 6.26 %
−Removed: The covenants under our Amended Credit Agreement require us to insure our properties against loss or damage in amounts customarily maintained by similar businesses or as they may be required by applicable law.
−Removed: The covenants for the notes require us to keep all of our insurable properties insured against loss or damage at least equal to their then full insurable value.
−Removed: We have an insurance policy that has no terrorism exclusion, except for non-certified nuclear, chemical and biological acts of terrorism.
−Removed: 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.
−Removed: Effective November 26, 2002, under this existing coverage, any losses caused by certified acts of terrorism would be partially reimbursed by the United States under a formula established by federal law.
−Removed: Under this formula, the United States pays 85 % of covered terrorism losses exceeding the statutorily established deductible paid by the insurance provider, and insurers pay 10 % until aggregate insured losses from all insurers reach $ 100 billion in a calendar year.
−Removed: If the aggregate amount of insured losses under this program exceeds $ 100 billion during the applicable period for all insured and insurers combined, then each insurance provider will not be liable for payment of any amount which exceeds the aggregate amount of $ 100 billion.
−Removed: On December 20, 2019, The Terrorism Risk Insurance Program Reauthorization Act of 2019 was signed into law, extending the program through December 31, 2027.
NOTES PAYABLE
−Removed: Our unsecured notes and term loans outstanding as of December 31, 2024 and 2023 are as follows (in thousands):
+Added: Our unsecured notes and term loans outstanding as of December 31, 2024 are as follows (in thousands):
Effective December 31, Payoff Date/
13 unchanged sentences
(2) No principal amounts are due prior to maturity.
−Removed: In the fourth quarter of 2024, we exercised one of two one-year extension options on the 2023 Term Loan to extend the maturity of the loan to January 10, 2026.
+Added: On November 12, 2025, in connection with the closing of the Portfolio Sale Transaction, the Company caused the repayment in full of all indebtedness, liabilities and other obligations under, and terminated, each of the 2023 Term Loan and the Green Bonds.
+Added: The Company also provided notice to the holders of 30-year unsecured notes (the “Senior Notes”) of its intention to redeem on December 12, 2025 all of the outstanding $ 50 million aggregate principal amount of Senior Notes.
+Added: In connection with the redemption of the Senior Notes, on November 12, 2025, the Company caused funds sufficient to pay and discharge the entire indebtedness on the Senior Notes and all other sums payable
+Added: by the Company under the applicable indenture to be irrevocably deposited with the trustee and, accordingly, the indenture with respect to the Senior Notes was satisfied and discharged, except with respect to those obligations under the indenture that expressly survive satisfaction and discharge.
+Added: The Senior Notes were redeemed on December 12, 2025.
During 2023, we executed a $ 125.0 million unsecured term loan (“2023 Term Loan”) with an interest rate of SOFR (subject to a credit spread adjustment of 10 basis points) plus a margin of 95 basis points (subject to adjustment depending on Elme Communities’ credit rating).
The 2023 Term Loan had a two-year term ending in January 2025, with two one year extension options.
−Removed: We used the proceeds to prepay the remaining $ 100.0 million portion of the 2018 Term Loan in full and a portion of our borrowings under our Revolving Credit Facility.
+Added: We used the proceeds to prepay the remaining $ 100.0 million portion of an existing $ 250.0 million unsecured term loan in full and a portion of our borrowings under our Revolving Credit Facility.
During 2024, we entered into a first amendment of the 2023 Term Loan (the “Term Loan Amendment”).
8 unchanged sentences
The proceeds of the sale of the Green Bonds were used to finance or refinance recently completed and future green building and energy efficiency, sustainable water and wastewater management and renewable energy projects.
−Removed: The note purchase agreement contains customary financial covenants, including a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, and a maximum unencumbered leverage ratio.
−Removed: The note purchase agreement also contains restrictive covenants that, among other things, restrict the ability of Elme Communities and its subsidiaries to enter into transactions with affiliates, consolidate or merge or transfer or lease all or substantially all of its assets, create liens, make dividends and distributions if an event of default exists, or substantially change the general nature of our business.
−Removed: Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in our Amended Credit Agreement.
−Removed: The note purchase agreement also contains customary events of default, including payment defaults, cross defaults with certain other indebtedness, breaches of certain covenants and bankruptcy events.
−Removed: In the case of an event of default, we will generally be prohibited from paying any dividends, subject to certain exceptions including payment of dividends necessary to maintain REIT status, and the Purchasers may, among other remedies, accelerate the payment of all obligations.
−Removed: In the event of a change in control of Elme Communities, we must offer to prepay the Green Bonds at par.
−Removed: The required principal payments on the unsecured notes and term loans as of December 31, 2024 are as follows (in thousands):
−Removed: Thereafter 350,000
−Removed: Interest on these notes is payable semi-annually, except for the term loan, for which interest is payable monthly.
−Removed: These notes contain certain financial and non-financial covenants, all of which we have met as of December 31, 2024.
−Removed: Included in these covenants is the requirement to maintain a minimum level of unencumbered assets, as well as limits on our total indebtedness, secured indebtedness and required debt service payments.
+Added: On November 12, 2025, in connection with the closing of the Portfolio Sale Transaction, the Company caused the repayment in full of all indebtedness, liabilities and other obligations under, and terminated, each of the 2023 Term Loan and the Green Bonds.
+Added: The Company did not incur any material early termination penalties as a result of such terminations.
+Added: The Company also provided notice to the holders of the Senior Notes of its intention to redeem on December 12, 2025 all of the outstanding $ 50 million aggregate principal amount of Senior Notes at the applicable redemption price and on the terms set forth in the indenture, dated as of August 1, 1996 (as amended or supplemented as of the date hereof, the “Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as successor to The First National Bank of Chicago, as trustee.
+Added: In connection with the redemption of the Senior Notes, on November 12, 2025, the Company caused funds sufficient to pay and discharge the entire indebtedness on the Senior Notes and all other sums payable by the Company under the Indenture to be irrevocably deposited with the trustee and, accordingly, the Indenture with respect to the Senior Notes was satisfied and discharged, except with respect to those obligations under the Indenture that expressly survive satisfaction and discharge.
DERIVATIVE INSTRUMENTS
During the first quarter of 2023, we entered into two interest rate swap arrangements with an aggregate notional amount of $ 125.0 million that effectively fixed the interest at 4.73 % for the 2023 Term Loan beginning on July 21, 2023 through the 2023 Term Loan’s initial maturity date of January 10, 2025.
+Added: These two interest rate swap arrangements matured on January 25, 2025.
During the second quarter of 2024, we entered into two forward interest rate swap arrangements for the 2023 Term Loan with an aggregate notional amount of $ 150.0 million beginning on January 10, 2025 through January 10, 2026.
−Removed: These forward interest rate swap arrangements effectively fix a portion of our variable rate debt based on an adjusted daily SOFR at 4.72 % (subject to applicable interest rate margins).
−Removed: The interest rate swap arrangement is recorded at fair value in accordance with GAAP, based on discounted cash flow methodologies and observable inputs.
−Removed: We record the effective portion of changes in fair value of the cash flow hedge in Other comprehensive income (loss).
−Removed: We assess the effectiveness of a cash flow hedge both at inception and on an ongoing basis.
+Added: These forward interest rate swap arrangements effectively fixed a portion of our variable rate debt based on an adjusted daily SOFR at 4.72 % (subject to applicable interest rate margins).
+Added: These two interest rate swap arrangements were terminated on November 12, 2025 in connection with the prepayment of the Company’s unsecured debt, as described in note 9.
+Added: The interest rate swap arrangements were recorded at fair value in accordance with GAAP, based on discounted cash flow methodologies and observable inputs.
+Added: We recorded the effective portion of changes in fair value of the cash flow hedge in Other comprehensive income (loss).
+Added: We assessed the effectiveness of a cash flow hedge both at inception and on an ongoing basis.
If a cash flow hedge is no longer expected to be effective, hedge accounting is discontinued.
Hedge ineffectiveness of our cash flow hedges is recorded in earnings.
−Removed: The fair values of the interest rate swap as of December 31, 2024 and 2023, were as follows (in thousands):
+Added: The fair values of the interest rate swap as of December, 31 2024, were as follows (in thousands).
+Added: There were no interest rate swap contracts in place as of December 31, 2025:
Amount Effective Date Fair Value
3 unchanged sentences
Interest rate swap 50,000 July 21, 2023 January 10, 2025 9
−Removed: Interest rate swap 100,000 January 10, 2025 January 10, 2026 ( 624 ) —
−Removed: Interest rate swap 50,000 January 10, 2025 January 10, 2026 ( 312 ) —
−Removed: $ ( 913 ) $ 1,234
+Added: Interest rate swap 100,000 January 10, 2025 November 12, 2025 ( 624 )
+Added: Interest rate swap 50,000 January 10, 2025 November 12, 2025 ( 312 )
We record interest rate swaps on our consolidated balance sheets with prepaid expenses and other assets when in a net asset position, and with accounts payable and other liabilities when in a net liability position.
The current interest rate swaps have been effective since inception.
−Removed: The gains or losses on the effective swaps are recognized in other comprehensive income, as follows (in thousands):
−Removed: Year Ending December 31,
−Removed: 2024 2023 2022
−Removed: Unrealized (loss) gain on interest rate hedges
+Added: The losses on the effective swaps are recognized in other comprehensive income, as follows (in thousands):
+Added: Ten Months Ended October 31, Year Ended December 31,
2025 2024 2023
−Removed: Amounts reported in Accumulated other comprehensive loss related to effective cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate debt.
−Removed: During the next twelve months, we estimate that an additional
−Removed: $ 0.9 million related to our four outstanding interest rate swap arrangements will be reclassified as a decrease to interest expense.
−Removed: The losses reclassified from Accumulated other comprehensive income into interest expense for the three years ended December 31, 2024, were as follows (in thousands):
−Removed: Year Ending December 31,
+Added: Unrealized gain (loss) on interest rate hedges $ 598 $ ( 2,147 ) $ ( 764 )
+Added: The losses reclassified from Accumulated other comprehensive income into interest expense for the ten months ended October 31, 2025 and two years ended December 31, 2024, were as follows (in thousands):
+Added: Ten Months Ended October 31, Year Ended December 31,
2025 2024 2023
Loss reclassified from accumulated other comprehensive income (loss) into interest expense $ 1,698 $ 2,039 $ 2,039
−Removed: During the next twelve months, we estimate that an additional $ 2.0 million related to the previously settled interest rate swap arrangements will be reclassified as an increase to interest expense.
−Removed: We have agreements with each of our derivative counterparties that contain a provision whereby we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness.
−Removed: As of December 31, 2024, the fair value of derivative assets, including accrued interest, was $ 23,000 and the fair value of the derivative liabilities, including accrued interest, was $ 0.9 million.
−Removed: As of December 31, 2024, we have not posted any collateral related to these agreements.
−Removed: Derivative instruments expose us to credit risk in the event of non-performance by the counterparty under the terms of the interest rate hedge agreement.
−Removed: We believe that we minimize our credit risk on these transactions by dealing with major, creditworthy financial institutions.
−Removed: We monitor the credit ratings of counterparties and our exposure to any single entity, thus minimizing our credit risk concentration.
FAIR VALUE DISCLOSURES
−Removed: Assets and Liabilities Measured at Fair Value
+Added: Assets and Liabilities Measured at Fair Value (Going Concern Basis)
For assets and liabilities measured at fair value on a recurring basis, quantitative disclosures about the fair value measurements are required to be disclosed separately for each major category of assets and liabilities, as follows:
2 unchanged sentences
Significant unobservable inputs
−Removed: The only assets or liabilities we had at December 31, 2024 and 2023 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan ("SERP"), which primarily consists of investments in mutual funds, and the interest rate swaps (see note 8).
+Added: The only assets or liabilities we had at December 31, 2024 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan ("SERP"), which primarily consists of investments in mutual funds, and the interest rate swaps (see note 10).
We base the valuations related to the SERP on quoted prices in active markets and accordingly these valuations fall into Level 1 in the fair value hierarchy.
3 unchanged sentences
The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
−Removed: To comply with the provisions of ASC 820, we incorporate credit valuation adjustments in the fair value measurements to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.
+Added: To comply with the provisions of ASC 820, we incorporate credit valuation adjustments in the fair value measurements to appropriately reflect both our own nonperformance risk and the respective counterparty’s
+Added: nonperformance risk.
These credit valuation adjustments were concluded to not be significant inputs for the fair value calculations for the periods presented.
1 unchanged sentence
The valuation of interest rate swaps falls into Level 2 in the fair value hierarchy.
−Removed: The fair values of these assets and liabilities at December 31, 2024 and 2023 were as follows (in thousands):
−Removed: December 31, 2024 December 31, 2023
−Removed: Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs
−Removed: (Level 2) Significant Unobservable Inputs
−Removed: (Level 3) Fair Value Quoted Prices in Active Markets for Identical Assets
+Added: The fair values of these assets and liabilities at December 31, 2024 were as follows (in thousands):
+Added: December 31, 2024
+Added: Fair Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
3 unchanged sentences
Interest rate swaps ( 936 ) — ( 936 ) —
−Removed: Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
+Added: Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis (Going Concern Basis)
Certain assets not measured at fair value on an ongoing basis but subject to fair value adjustments only in certain circumstances, such as when there is evidence of impairment, are measured at fair value on a nonrecurring basis.
−Removed: The Company did no t have any assets or liabilities measured at fair value on a nonrecurring basis in 2024.
−Removed: In the third quarter of 2023, we measured the fair value of Watergate 600 using Level 3 inputs as there was evidence of impairment (see note 3).
−Removed: Financial Assets and Liabilities Not Measured at Fair Value
+Added: In the third quarter of 2025, we measured the fair value of several residential communities and other properties as there was evidence of impairment (see note 6).
+Added: Financial Assets and Liabilities Not Measured at Fair Value (Going Concern Basis)
The following disclosures of estimated fair value were determined by management using available market information and established valuation methodologies, including discounted cash flow models.
4 unchanged sentences
Below is a summary of significant methodologies used in estimating fair values and a schedule of fair values at December 31, 2024.
−Removed: Cash and Cash Equivalents and Restricted Cash
+Added: Cash and Cash Equivalents and Restricted Cash (Going Concern Basis)
Cash and cash equivalents and restricted cash include cash and commercial paper with original maturities of less than 90 days, which are valued at the carrying value, which approximates fair value due to the short maturity of these instruments (Level 1 inputs).
−Removed: Mortgage notes payable consist of instruments in which certain of our real estate assets are used for collateral.
+Added: Mortgage notes payable consisted of instruments in which certain of our real estate assets are used for collateral.
We estimate the fair value of the mortgage notes payable by discounting the contractual cash flows at a rate equal to the relevant treasury rates (with respect to the timing of each cash flow) plus credit spreads estimated through independent comparisons to real estate assets or loans with similar characteristics.
4 unchanged sentences
We classify these fair value measurements as Level 3 as we use significant unobservable inputs and management judgment due to the absence of quoted market prices.
−Removed: As of December 31, 2024 and 2023, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):
−Removed: Value Fair Value Carrying
+Added: As of December 31, 2024, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):
Value Fair Value
4 unchanged sentences
SHARE-BASED COMPENSATION
−Removed: Elme Communities maintains short-term (“STIP”) and long-term (“LTIP”) incentive plans that allow for share-based awards to officers (“Officer STIP” and “Officer LTIP”) and non-officer employees.
−Removed: Share-based awards are provided to officers and non-officer employees, as well as trustees, under the Elme Communities 2016 Omnibus Incentive Plan, as amended and restated effective May 30, 2024 (the “Omnibus Incentive Plan”).
−Removed: An amendment and restatement of the Omnibus Incentive Plan was approved by our board of trustees (the “Board”) in April 2024 and approved by our shareholders in May 2024 to, among other changes, increase the number of shares available to be issued by 2,900,000 , from 2,400,000 shares to 5,300,000 shares (including shares issued pursuant to awards made under the Omnibus Incentive Plan prior to its amendment).
−Removed: The Omnibus Incentive Plan, as amended, allows for awards in the form of restricted shares, restricted share units, options and other awards up to an aggregate of 5,300,000 shares over the ten-year period in which the plan is in effect.
+Added: Elme Communities maintained short-term and long-term incentive plans, each effective January 1, 2020, as amended, that allowed for cash and share-based awards to officers (“Prior Officer STIP” and “Officer LTIP”), respectively, and short-term and long-term incentive plans, that allowed for cash and share-based awards, respectively, to non-officer employees.
+Added: Share-based awards were provided to officers and non-officer employees, as well as trustees, under the Elme Communities 2016 Omnibus Incentive Plan, as amended and restated effective May 30, 2024 (the “Omnibus Incentive Plan”).
+Added: An amendment and restatement of the Omnibus Incentive Plan was approved by our Board in April 2024 and approved by our shareholders in May 2024 to, among other changes, increase the number of shares available to be issued by 2,900,000 , from 2,400,000 shares to 5,300,000 shares (including shares issued pursuant to awards made under the Omnibus Incentive Plan prior to its amendment).
+Added: The Omnibus Incentive Plan, as amended, allowed for awards in the form of restricted shares, restricted share units, options and other awards up to an aggregate of 5,300,000 shares over the ten-year period in which the plan is in effect.
Restricted share units are converted into shares of our stock upon full vesting through the issuance of new shares.
There were no options issued or outstanding as of December 31, 2025 and 2024.
−Removed: Under the Officer STIP all named executive officers will have the opportunity to receive an annual cash bonus based on the achievement of certain performance measures that will be established for each performance period.
−Removed: Each year, the Compensation Committee will establish the threshold, target and high performance goals for each performance measure, as well as the weighting attributable to each such performance measure, with the aggregate weighting for all such performance measures to total 100 %.
−Removed: Such performance measures will consist of one or more financial performance measures and, if determined by the Compensation Committee, individual performance measures.
−Removed: Upon or following completion of a performance period, the degree of achievement of each performance measure will be determined by the Compensation Committee.
−Removed: The degree of achievement of any individual financial performance measures will be determined by the Compensation Committee in its discretion with respect to the Chief Executive Officer, and by the Chief Executive Officer or other immediate supervisor in his or her discretion with respect to all other participants (subject to final approval by the Compensation Committee), and the Compensation Committee will evaluate the degree of achievement of the individual performance measures on a scale of below 1 (below threshold), 1 (threshold), 2 (target) or 3 (high) or any fractional number between 1 and 3.
−Removed: Each participant’s total award under the Officer STIP with respect to a performance period will be stated as a percentage of the participant’s annual base salary determined as of the first day of that performance period, which percentage will depend upon the participant’s position and the degree of achievement of threshold, target, and high performance goals for the performance period.
+Added: Prior Officer STIP and Non-Officer STIP
+Added: Under the Prior Officer STIP all named executive officers had the opportunity to receive an annual cash bonus based on the achievement of certain performance measures that were established for each performance period.
+Added: Each year, the Compensation Committee established the threshold, target and high performance goals for each performance measure, as well as the weighting attributable to each such performance measure, with the aggregate weighting for all such performance measures to total 100 %.
+Added: Such performance measures consisted of one or more financial performance measures and, if determined by the Compensation Committee, individual performance measures.
+Added: Upon or following completion of a performance period, the degree of achievement of each performance measure was determined by the Compensation Committee.
+Added: The degree of achievement of any individual financial performance measures were determined by the Compensation Committee in its discretion with respect to the Chief Executive Officer, and by the Chief Executive Officer or other immediate supervisor in his or her discretion with respect to all other participants (subject to final approval by the Compensation Committee), and the Compensation Committee evaluated the degree of achievement of the individual performance measures on a scale of below 1 (below threshold), 1 (threshold), 2 (target) or 3 (high) or any fractional number between 1 and 3.
+Added: Each participant’s total award under the Prior Officer STIP with respect to a performance period was stated as a percentage of the participant’s annual base salary determined as of the first day of that performance period, which percentage depended upon the participant’s position and the degree of achievement of threshold, target, and high performance goals for the performance period.
The percentages for the performance period beginning January 1, 2025 are as set forth in the table below:
7 unchanged sentences
30 % 60 % 105 %
−Removed: If a Change in Control (as defined in the Officer STIP) occurs during a performance period while the participant is employed, the participant will receive a prorated award under the Officer STIP calculated based on the actual levels of achievement of the prorated performance goals as of the date of the Change in Control.
−Removed: Bonuses payable under the short-term incentive plans for non-executive officers and staff are payable 100 % in cash.
−Removed: Under the Officer LTIP all named executive officers will have the opportunity to receive awards based on (i) the achievement of performance measures, which will be established for each performance period, and (ii) continued employment with the Company.
−Removed: The aggregate weighting for the performance measures and the time-based measures, as determined by the Compensation Committee, will total 100 %.
−Removed: The performance measures will consist of one or more shareholder return measures and one or more strategic measures.
−Removed: The awards earned under the Officer LTIP, if any, are payable in our common shares of beneficial interest.
−Removed: Each participant’s total award under the Officer LTIP with respect to a performance period will be stated as a percentage of the participant’s annual base salary determined as of the beginning of that performance period.
+Added: Because the Portfolio Sale Transaction completed on November 12, 2025 met the criteria for a Change in Control event as defined in the Prior Officer STIP and under the Amended and Restated Short-Term Incentive Plans (for Non-Executive Officers
+Added: and Staff), the participants received prorated awards calculated based on the actual levels of achievement of the prorated performance goals as of the date of the Change in Control.
+Added: Due to the Plan of Sale and Liquidation, the Prior Officer STIP has been terminated.
+Added: New Officer STIP
+Added: On January 21, 2026, the Board approved the Elme Communities Executive Officer Short-Term Incentive Plan, effective as of November 13, 2025 (the “New Officer STIP”), which provides for an award opportunity based on achievement of three metrics:
+Added: (i) the value of the additional liquidating distributions to Elme’s shareholders, which will be 40 % of the award opportunity, (ii) the timing of completion of the sales of Elme’s remaining assets, which will be 40 % of the award opportunity, and (iii) performance measures in furtherance of implementing the Plan of Sale and Liquidation, consisting of efficient operation of Elme’s remaining assets, employee retention and successfully implementing the Plan of Sale and Liquidation, which will be 20 % of the award opportunity.
+Added: The performance period under the New Officer STIP runs from November 13, 2025 through the earlier of (i) November 13, 2026 and (ii) the date on which the actual levels of achievement of the additional liquidating distributions and timing metrics discussed above are otherwise determined by the Compensation Committee of the Board.
+Added: Each executive officer’s total award under the New Officer STIP with respect to the performance period is stated as a percentage of the executive officer’s annual base salary (subject to adjustment if the executive officer is promoted during the performance period, in which case the annual base salary shall be prorated for the portion of the performance period such executive officer had each base salary).
+Added: The percentages of base salary by position are as set forth below:
+Added: Threshold Target High
+Added: President and Chief Executive Officer 45 % 90 % 135 %
+Added: Executive Vice President 37 % 75 % 120 %
+Added: Senior Vice President 30 % 60 % 105 %
+Added: Under the Officer LTIP all named executive officers had the opportunity to receive awards based on (i) the achievement of performance measures, which were established for each performance period, and (ii) continued employment with the Company.
+Added: The aggregate weighting for the performance measures and the time-based measures, as determined by the Compensation Committee, totaled 100 %.
+Added: The performance measures consisted of one or more shareholder return measures and one or more strategic measures.
+Added: The awards earned under the Officer LTIP, if any, were payable in our common shares of beneficial interest.
+Added: Each participant’s total award under the Officer LTIP with respect to a performance period was stated as a percentage of the participant’s annual base salary determined as of the beginning of that performance period.
The percentages for the performance period beginning January 1, 2025 are as set forth in the table below:
7 unchanged sentences
70 % 100 % 145 %
−Removed: Any time-based awards under the Officer LTIP will be subject to a three-year vesting schedule, with any award vesting in one-third increments on December 15 of each year of the applicable performance period if the participant remains employed by the Company on each of such dates.
−Removed: The Officer LTIP provides that following a performance period, 100 % of any performance-based award will vest immediately upon grant.
−Removed: Each year, the Compensation Committee will establish the threshold, target and high performance goals for each performance measure.
−Removed: Upon or following completion of a performance period, the degree of achievement of each performance measure will be determined by the Compensation Committee in its discretion.
−Removed: If a Change in Control (as defined in the Officer LTIP) occurs during a performance period while the participant is employed, the Officer LTIP provides that all time-based awards which are unvested will become vested, and the participant will receive a pro-rated portion of the shareholder return measure-based awards and the strategic measure-based awards will be calculated at target.
−Removed: We use a binomial model which employs the Monte Carlo method as of the grant date to determine the fair value of the Officer LTIP awards.
−Removed: For three-year performance periods commencing on or after January 1, 2024, the market performance condition is based on total shareholder return relative to the FTSE Nareit Residential Index ( 60 % weighting) and a defined population of peer companies ( 40 % weighting).
−Removed: For three-year performance period commencing on January 1, 2023, the market performance condition is based on total shareholder return relative to the FTSE Nareit Residential Index ( 60 % weighting) and a defined population of peer companies ( 40 % weighting).
−Removed: For three-year performance period commencing on January 1, 2022, the market condition performance measurement is based on total shareholder return relative to a defined population of peer companies ( 100 % weighting).
−Removed: The model evaluates the awards for changing total shareholder return over the term of the vesting, relative to the peer companies and relative to the FTSE indexes, and uses random simulations that are based on past stock characteristics as well as dividend growth and other factors for Elme Communities and each of the peer companies.
+Added: Any time-based awards under the Officer LTIP were subject to a three-year vesting schedule, with any award vesting in one-third increments on December 15 of each year of the applicable performance period if the participant remains employed by the Company on each of such dates.
+Added: The Officer LTIP provided that following a performance period, 100 % of any performance-based award will vest immediately upon grant.
+Added: Each year, the Compensation Committee established the threshold, target and high performance goals for each performance measure.
+Added: Upon or following completion of a performance period, the degree of achievement of each performance measure was determined by the Compensation Committee in its discretion.
+Added: Because the Portfolio Sale Transaction completed on November 12, 2025 met the criteria for a Change in Control event as defined in the Officer LTIP, the participants received the shareholder return measure-based awards calculated based on the actual levels of achievement as of the date of the Change in Control.
+Added: Due to the Plan of Sale and Liquidation, the Officer LTIP has been terminated.
+Added: We used a binomial model which employs the Monte Carlo method as of the grant date to determine the fair value of the Officer LTIP awards.
+Added: For three-year performance periods commencing on or after January 1, 2025, on or after January 1, 2024, and on or after January 1, 2023, the market performance condition is based on total shareholder return relative to the FTSE Nareit Residential Index ( 60 % weighting) and a defined population of peer companies ( 40 % weighting).
The assumptions used to value the TSR portion of the officer LTIP awards were as follows:
12 unchanged sentences
The calculated grant date fair value as a percentage of base salary for the officers for the three-year performance period that commenced in 2024 ranged from approximately 51 % to 155 % for the 60 % of the LTIP based on TSR relative to the FTSE Nareit Residential Index and from approximately 64 % to 195 % for the 40 % of the LTIP based on TSR relative to a defined population of peer companies.
−Removed: The calculated grant date fair value as a percentage of base salary for the officers for the three-year performance period that commenced in 2022 ranged from approximately 32 % to 248 % for the 100 % of the LTIP based on TSR relative to a defined population of peer companies.
+Added: The calculated grant date fair value as a percentage of base salary for the officers for the three-year performance period that commenced in 2023 ranged from approximately 27 % to 137 % for the 60 % of the LTIP based on TSR relative to the FTSE Nareit Residential Index and from approximately 32 % to 159 % for the 40 % of the LTIP based on TSR relative to a defined population of peer companies.
During 2022, our chief executive officer was granted a one-time equity award of 100,000 restricted shares.
−Removed: None of the restricted shares vest until the earlier of the fifth anniversary of the grant date or when our chief executive officer become retirement-eligible, at which time 100 % of the restricted shares will vest, subject to Mr.
+Added: None of the restricted shares were scheduled to vest until the earlier of the fifth anniversary of the grant date or when our chief executive officer become retirement-eligible, at which time 100 % of the restricted shares would vest, subject to Mr.
McDermott's continued employment with Elme Communities until such vesting date.
−Removed: Our non-executive officers and other employees earn restricted share unit awards under a long-term incentive plan for non-executive officers and staff based upon various percentages of their salaries and annual performance calculations.
−Removed: The restricted share unit awards vest ratably over three years beginning on the December 15 following the grant date based upon continued employment.
−Removed: We recognize compensation expense for these awards according to a graded vesting schedule over the three-year requisite service period.
−Removed: Restricted share awards made to retirement-eligible employees fully vest on the grant date.
−Removed: Employees are considered retirement-eligible when they are both over the age of 55 and have been employed by Elme Communities for at least 20 years, or over the age of 65 .
−Removed: We fully recognize compensation expense for such awards as of the grant date.
+Added: This share award vested as of November 12, 2025 due to the Change in Control (as defined in the Officer LTIP).
+Added: Non-Officer LTIP
+Added: Our non-executive officers and other employees earned restricted share unit awards under a long-term incentive plan for non-executive officers and staff based upon various percentages of their salaries and annual performance calculations.
+Added: The restricted share unit awards vested ratably over three years beginning on the December 15 following the grant date based upon continued employment.
+Added: We recognized compensation expense for these awards according to a graded vesting schedule over the three-year requisite service period.
+Added: Because the Portfolio Sale Transaction completed on November 12, 2025 met the criteria for a Change in Control event as defined in the Amended and Restated Long-Term Incentive Plan (for Non-Executive Officers and Staff), participants received the share awards under such plan effective November 12, 2025.
+Added: Restricted share awards made to retirement-eligible employees fully vested on the grant date.
+Added: Employees were considered retirement-eligible when they were both over the age of 55 and had been employed by Elme Communities for at least 20 years, or over the age of 65 .
+Added: We fully recognized compensation expense for such awards as of the grant date.
Trustee Awards
−Removed: We award share-based compensation to our trustees in the form of restricted shares which vest immediately.
+Added: We awarded share-based compensation to our trustees in the form of restricted shares which vested immediately.
The value of share-based compensation for each trustee was $ 100,000 for each of the three years ended December 31, 2025.
−Removed: While a trustee serves on the board, until a trustee owns an aggregate number of common shares the value of which must equal at least five times the annual cash retainer at the time of their election to the board, the common shares received by trustees as compensation are restricted in transfer.
+Added: While a trustee
+Added: serves on the Board, until a trustee owns an aggregate number of common shares the value of which must equal at least five times the annual cash retainer at the time of their election to the Board, the common shares received by trustees as compensation are restricted in transfer.
Total Compensation Expense
−Removed: Total compensation expense recognized in the consolidated financial statements for each of the three years ended December 31, 2024 for all share-based awards was $ 5.2 million, $ 5.5 million and $ 8.0 million, respectively, net of capitalized share-based compensation expense of $ 0.1 million, $ 0.1 million and $ 0.2 million, respectively.
+Added: Total compensation expense recognized in the consolidated financial statements for each of the ten months ended October 31, 2025 and two years ended December 31, 2024 for all share-based awards was $ 5.4 million, $ 5.2 million and $ 5.5 million, respectively, net of capitalized share-based compensation expense of $ 0.1 million, $ 0.1 million and $ 0.1 million, respectively.
Restricted Share Awards with Performance and Service Conditions
17 unchanged sentences
Unvested at December 31, 2025
−Removed: 280,487 16.27
−Removed: The total fair value of share grants vested for each of the three years ended December 31, 2024 was $ 4.1 million, $ 7.3 million and $ 11.1 million, respectively.
−Removed: As of December 31, 2024, the total compensation cost related to non-vested share awards not yet recognized was $ 3.5 million, which we expect to recognize over a weighted average period of 20 months.
−Removed: Unrestricted Shares with Market Conditions
−Removed: Share-based awards with market conditions under the LTIP were awarded in 2024, 2023 and 2022 with fair market values, as determined using a Monte Carlo simulation, as follows (in thousands):
−Removed: 2024 Awards (1)
−Removed: 2023 Awards (1)
−Removed: 2022 Awards (1)
−Removed: Relative Peer TSR $ 1,101 $ 831 $ 1,480
−Removed: Absolute/Index TSR (2)
−Removed: 1,313 1,048 N/A
−Removed: The unamortized value of these awards with market conditions as of December 31, 2024 was as follows (in thousands):
−Removed: 2024 Awards (1)
−Removed: 2023 Awards (1)
−Removed: 2022 Awards (1)
−Removed: Relative Peer TSR $ 853 $ 294 $ —
−Removed: Absolute/Index TSR (2)
−Removed: 1,016 376 N/A
−Removed: ______________________________
−Removed: (1) The 2024, 2023 and 2022 Awards were granted under the Officer LTIP, whereby all of the shares vest immediately at the end of the 3-year performance period.
−Removed: (2) The performance conditions for the 2024 and 2023 awards were evaluated based on 60 % on TSR relative to the FTSE Nareit Residential Index and 40 % based on TSR relative to a defined populations of peer companies.
−Removed: The performance conditions for the 2022 awards were evaluated based on 100 % on TSR relative to a defined population of peer companies.
+Added: The total fair value of share grants vested for each of the ten months ended October 31, 2025 and two years ended December 31, 2025 was $ 1.2 million, $ 4.1 million and $ 7.3 million, respectively.
OTHER BENEFIT PLANS
1 unchanged sentence
Under the 401(k) Plan, we may make discretionary contributions on behalf of eligible employees.
−Removed: For each of the three years ended December 31, 2024, we made contributions to the 401(k) plan of $ 0.7 million, $ 0.6 million and $ 0.3 million, respectively.
−Removed: We have adopted non-qualified deferred compensation plans for the officers and members of the Board.
−Removed: The plans allow for a deferral of a percentage of annual cash compensation and trustee fees.
−Removed: The plans are unfunded, and payments are to be made out of the general assets of Elme Communities.
−Removed: The deferred compensation liability was $ 0.1 million at each of December 31, 2024 and 2023.
+Added: For each of the ten months ended October 31, 2025 and two years ended December 31, 2024, we made contributions to the 401(k) plan of $ 0.4 million, $ 0.7 million and $ 0.6 million, respectively.
+Added: We have adopted non-qualified deferred compensation plans for the officers.
+Added: The plan allows for a deferral of a percentage of annual cash compensation.
+Added: The plan is unfunded, and payments are to be made out of the general assets of Elme Communities.
+Added: The deferred compensation liability was $ 0.1 million as of December 31, 2024.
+Added: We had also previously adopted a non-qualified deferred compensation plans for our trustees.
+Added: The plan allowed for a deferral of a percentage of annual cash compensation and trustee fees.
+Added: The deferred compensation plan for trustees was terminated effective as of January 8, 2026.
In November 2005, the Board approved the establishment of a SERP for the benefit of officers.
This is a defined contribution plan under which, upon a participant's termination of employment from Elme Communities for any reason other than discharge for cause, the participant will be entitled to receive a benefit equal to the participant's accrued benefit times the participant's vested interest.
+Added: Because the Portfolio Sale Transaction completed on November 12, 2025 met the criteria for a Change in Control event as defined in the SERP, the accrued benefit for each participant became fully vested as of the date of the Change in Control.
We account for this plan in accordance with ASC 710-10 and ASC 320-10, whereby the investments are reported at fair value, and unrealized holding gains and losses are included in earnings.
−Removed: At December 31, 2024 and 2023, the accrued benefit liability was $ 2.6 million and $ 2.0 million, respectively.
−Removed: For each of the three years ended December 31, 2024, we recognized current service cost of $ 0.3 million, $ 0.3 million and $ 0.2 million, respectively.
+Added: At December 31, 2024, the accrued benefit liability
+Added: was $ 2.6 million.
+Added: For each of the ten months ended October 31, 2025 and two years ended December 31, 2024, we recognized current service cost of $ 0.3 million, $ 0.3 million and $ 0.3 million, respectively.
EARNINGS PER COMMON SHARE
4 unchanged sentences
Our dilutive earnings per share calculation includes the dilutive impact of operating partnership units under the if-converted method and our share-based awards with performance conditions prior to the grant date and all market condition awards under the contingently issuable method.
−Removed: The computation of basic and diluted earnings per share for the three years ended December 31, 2024 was as follows (in thousands, except per share data):
−Removed: Year Ended December 31,
+Added: The computation of basic and diluted earnings per share for the ten months ended October 31, 2025 and two years ended December 31, 2024 was as follows (in thousands, except per share data):
+Added: Ten Months Ended October 31, Year Ended December 31,
2025 2024 2023
14 unchanged sentences
Management believes that the resolution of any such current matters will not have a material adverse effect on our financial condition or results of operations.
+Added: Matters that arise out of allegations of bodily injury, property damage and employment practices are generally covered by insurance.
SEGMENT INFORMATION
We operate in a single reportable segment which includes the ownership, development, redevelopment and acquisition of apartment communities.
−Removed: Within the Residential segment, we do not distinguish or group our consolidated operations based on size (only one community, Riverside Apartments, comprises more than 10 % of consolidated revenues), type (all assets in the segment are residential) or geography (all but six communities are within the Washington, DC metro region).
+Added: Within the Residential segment, we do not distinguish or group our consolidated operations based on size (only one community, Riverside Apartments, comprises more than 10 % of consolidated revenues), type (all assets in the segment are residential) or geography (as of October 31, 2025, all but six communities were within the Washington, DC metro region).
Further, our apartment communities have similar long-term economic characteristics and provide similar products and services to our residents.
2 unchanged sentences
The CODM uses net operating income (“NOI”), defined as real estate rental revenue less real estate expenses (the significant segment expense), as the key basis of measurement for the reported segment profit or loss.
−Removed: Real estate rental revenue as a percentage of the total for the Residential reportable segment and Other for the three years ended December 31, 2024 was as follows:
−Removed: Year Ended December 31,
+Added: Real estate rental revenue as a percentage of the total for the Residential reportable segment and Other for the ten months ended October 31, 2025 and for the years ended December 31, 2024 and 2023, respectively, was as follows:
+Added: Ten Months Ended October 31, Year Ended December 31,
2025 2024 2023
1 unchanged sentence
Other 7 % 8 % 8 %
−Removed: The percentage of income producing real estate assets classified as held and used, at cost, for the Residential reportable segment and Other as of December 31, 2024 and 2023 was as follows:
−Removed: Other 4 % 4 %
−Removed: The following tables present revenues, net operating income, capital expenditures and total assets for the three years ended December 31, 2024 from the Residential reportable segment and Other, and reconciles the consolidated net operating income to net loss as reported (in thousands):
−Removed: Twelve Months Ended December 31, 2024
+Added: The percentage of income producing real estate assets classified as held and used, at cost, for the Residential reportable segment and Other as of December 31, 2024 was as follows:
+Added: The following tables present revenues, net operating income, capital expenditures and total assets for the ten months ended October 31, 2025 and years ended December 31, 2024 and 2023 from the Residential reportable segment and Other, and reconciles the consolidated net operating income to net loss as reported (in thousands):
+Added: Ten Months Ended October 31, 2025
Residential Other
6 unchanged sentences
Interest expense ( 31,954 )
−Removed: Loss on extinguishment of debt ( 147 )
−Removed: Other income 1,410
+Added: Real estate impairment ( 111,719 )
Net loss $ ( 154,162 )
Capital expenditures $ 26,904 $ 82 $ 26,986
−Removed: $ 47,054 $ 548 $ 47,602
−Removed: Total assets $ 1,719,087 $ 126,675 $ 1,845,762
Twelve Months Ended December 31, 2024
5 unchanged sentences
General and administrative expenses ( 24,969 )
−Removed: Transformation costs ( 6,339 )
Depreciation and amortization ( 95,935 )
2 unchanged sentences
Other income 1,410
−Removed: Real estate impairment ( 41,860 )
Net loss $ ( 13,103 )
10 unchanged sentences
Depreciation and amortization ( 88,950 )
+Added: Real estate impairment ( 41,860 )
Interest expense ( 30,429 )
4 unchanged sentences
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
−Removed: Unaudited financial data by quarter in each of the years ended December 31, 2024 and 2023 were as follows (in thousands, except for per share data):
+Added: Unaudited financial data by quarter for the period ended October 31, 2025 and the year ended December 31, 2024 were as follows (in thousands, except for per share data):
First Second Third Fourth (2)
4 unchanged sentences
Diluted $ ( 0.05 ) $ ( 0.04 ) $ ( 1.40 ) $ ( 0.25 )
+Added: First Second Third Fourth
Real estate rental revenue $ 59,513 $ 60,103 $ 61,055 $ 61,264
5 unchanged sentences
(1) With regard to per share calculations, the sum of the quarterly results may not equal full year results due to rounding.
+Added: (2) The Fourth Quarter only includes unaudited financial data for the month of October 2025.
SHAREHOLDERS' EQUITY
On October 26, 2023, the Board authorized and approved a share repurchase program of up to $ 50.0 million of the Company’s common shares of beneficial interest over a period of two years , subject to any applicable limitations or restrictions set forth in our existing credit facility and other debt agreements.
−Removed: The share repurchase program is scheduled to expire on October 25, 2025, unless extended by the Board.
+Added: The share repurchase program expired on October 25, 2025.
On February 20, 2024, we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Wells Fargo Securities, LLC, BNY Mellon Capital Markets, LLC, Citigroup Global Markets Inc., Goldman Sachs & Co.
4 unchanged sentences
At the time of such termination, approximately $ 340.0 million remained unsold under such prior program.
−Removed: We did no t issue common shares under the Equity Distribution Agreement or any prior equity distribution agreements in 2024 or 2023.
−Removed: Our issuances and net proceeds on the prior equity distribution agreement in 2022, were as follows (in thousands, except per share data):
−Removed: Year Ended December 31,
−Removed: 2024 2023 2022
−Removed: Issuance of common shares — — 1,032
−Removed: Weighted average price per share $ — $ — $ 26.27
−Removed: Net proceeds $ — $ — $ 26,849
−Removed: We have a dividend reinvestment program, whereby shareholders may use their dividends and optional cash payments to purchase common shares.
−Removed: The common shares sold under this program may either be common shares issued by us or common shares purchased in the open market.
−Removed: Net proceeds under this program are used for general corporate purposes.
−Removed: We did no t issue common shares under the dividend reinvestment program during 2024.
−Removed: Our issuances and net proceeds on the dividend reinvestment program for 2023 and 2022 were as follows (in thousands;
+Added: We did no t issue common shares under the Equity Distribution Agreement or any prior equity distribution agreements in 2025, 2024 or 2023, and subsequent to year-end, we terminated the Equity Distribution Agreement.
+Added: We have a dividend reinvestment program, whereby shareholders were able to use their dividends and optional cash payments to purchase common shares.
+Added: The common shares sold under this program were either be common shares issued by us or common shares purchased in the open market.
+Added: In September 2025, the Company suspended its dividend reinvestment program.
+Added: During the suspension period, dividend payments are not automatically reinvested in additional shares of our common shares of beneficial interest and participants in the dividend reinvestment program are not able to purchase shares of our common shares of beneficial interest through optional cash investments under the dividend reinvestment program.
+Added: We do not intend to restart the dividend reinvestment program.
+Added: We did no t issue common shares under the dividend reinvestment program during 2025 or 2024.
+Added: Our issuances and net proceeds on the dividend reinvestment program for 2023 were as follows (in thousands;
except per share data):
5 unchanged sentences
DEFERRED COSTS
−Removed: As of December 31, 2024 and 2023, deferred leasing costs and deferred leasing incentives were included in prepaid expenses and other assets as follows (in thousands):
+Added: As of December 31, 2024, deferred leasing costs and deferred leasing incentives were included in prepaid expenses and other assets as follows (in thousands):
Gross Carrying
Value Accumulated
−Removed: Amortization Net Gross Carrying
−Removed: Value Accumulated
Amortization Net
Deferred leasing costs $ 9,256 $ 5,902 $ 3,354
−Removed: Amortization, including write-offs, of deferred leasing costs and deferred leasing incentives for the three years ended December 31, 2024 were as follows (in thousands):
−Removed: Year Ended December 31,
−Removed: 2024 2023 2022
+Added: Amortization, including write-offs, of deferred leasing costs and deferred leasing incentives for the two years ended December 31, 2024 were as follows (in thousands):
Deferred leasing costs amortization $ 539 $ 351
6 unchanged sentences
2023 $ 1,399 $ — $ — $ 1,399
−Removed: 2022 $ 1,392 $ 7 $ — $ 1,399
−Removed: Initial Cost (a) Net Improvements (Retirement) since Acquisition Gross Amounts at Which Carried at December 31, 2024
−Removed: Accumulated Depreciation at December 31, 2024
−Removed: Properties Location Land Buildings and Improvements Land Buildings and Improvements Total (c) Year of Construction Date of Acquisition
+Added: Initial Cost (a) Net Improvements (Retirement) since Acquisition Gross Amounts at Which Carried at December 31, 2025 Accumulated Depreciation at December 31, 2025
+Added: Properties (f) Location Land Buildings and Improvements Land Buildings and Improvements Total (c) Net Liquidation Adjustment Year of Construction Date of Acquisition
Depreciation Life (d)
1 unchanged sentence
3801 Connecticut Avenue Washington, DC $ 420,000 $ 2,678,000 $ 24,047,000 $ 420,000 $ 26,725,000 $ 27,145,000 $ 20,127,000 $ 59,082,000 1951 Jan 1963 30 years
−Removed: Roosevelt Towers Virginia 336,000 1,996,000 15,779,000 336,000 17,775,000 18,111,000 14,539,000 1964 May 1965 40 years
−Removed: Park Adams Virginia 287,000 1,654,000 18,458,000 287,000 20,112,000 20,399,000 14,327,000 1959 Jan 1969 35 years
−Removed: The Ashby at McLean (f) Virginia 4,356,000 17,102,000 36,436,000 4,356,000 53,538,000 57,894,000 39,538,000 1982 Aug 1996 30 years
−Removed: Bethesda Hill Apartments Maryland 3,900,000 13,412,000 18,668,000 3,900,000 32,080,000 35,980,000 26,066,000 1986 Nov 1997 30 years
−Removed: Bennett Park Virginia 2,861,000 917,000 83,946,000 4,774,000 82,950,000 87,724,000 55,126,000 2007 Feb 2001 28 years
−Removed: The Clayborne Virginia 269,000 — 32,363,000 699,000 31,933,000 32,632,000 21,766,000 2008 Jun 2003 26 years
+Added: Elme Bethesda Maryland 3,900,000 13,412,000 19,058,000 3,900,000 32,470,000 36,370,000 26,975,000 51,105,000 1986 Nov 1997 30 years
Kenmore Apartments Washington, DC 28,222,000 33,955,000 24,124,000 28,222,000 58,079,000 86,301,000 31,047,000 9,546,000 1948 Sep 2008 30 years
−Removed: The Maxwell Virginia 12,787,000 — 39,354,000 12,850,000 39,291,000 52,141,000 18,715,000 2014 Jun 2011 30 years
−Removed: Yale West Washington, DC 14,684,000 62,069,000 2,705,000 14,684,000 64,774,000 79,458,000 24,738,000 2011 Feb 2014 30 years
−Removed: The Paramount (f) Virginia 8,568,000 38,716,000 4,722,000 8,568,000 43,438,000 52,006,000 19,137,000 1984 Oct 2013 30 years
−Removed: The Wellington Virginia 30,548,000 116,563,000 28,346,000 30,259,000 145,198,000 175,457,000 50,239,000 1960 Jul 2015 30 years
−Removed: Trove Virginia 15,000,000 — 119,069,000 15,000,000 119,069,000 134,069,000 30,163,000 2020 Jul 2015 30 years
Riverside Apartments Virginia 38,924,000 184,854,000 62,533,000 38,864,000 247,447,000 286,311,000 90,282,000 88,471,000 1971 May 2016 30 years
Riverside Apartments land parcel (e) Virginia 15,968,000 — 14,419,000 — 30,387,000 30,387,000 — ( 25,387,000 ) n/a May 2016 n/a
−Removed: Elme Alexandria Virginia 23,942,000 93,672,000 23,148,000 23,942,000 116,820,000 140,762,000 25,204,000 1990 Jun 2019 30 years
−Removed: Elme Manassas Virginia 13,586,000 68,802,000 10,600,000 13,586,000 79,402,000 92,988,000 17,884,000 1986 Jun 2019 30 years
−Removed: Elme Dulles Virginia 12,476,000 66,852,000 11,927,000 12,476,000 78,779,000 91,255,000 17,734,000 2000 Jun 2019 30 years
−Removed: Elme Leesburg Virginia 4,113,000 21,286,000 2,532,000 4,113,000 23,818,000 27,931,000 6,003,000 1986 Jun 2019 30 years
−Removed: Elme Herndon Virginia 11,225,000 51,534,000 9,729,000 11,225,000 61,263,000 72,488,000 14,077,000 1991 Jun 2019 30 years
Elme Germantown Maryland 7,609,000 34,431,000 5,560,000 7,609,000 39,991,000 47,600,000 10,764,000 17,164,000 1990 Jun 2019 30 years
Elme Watkins Mill Maryland 7,151,000 30,851,000 3,726,000 7,151,000 34,577,000 41,728,000 9,629,000 10,426,000 1975 Jun 2019 30 years
−Removed: Cascade at Landmark Virginia 12,289,000 56,235,000 6,355,000 12,289,000 62,590,000 74,879,000 13,472,000 1988 Jul 2019 30 years
−Removed: Elme Conyers Georgia 4,798,000 42,122,000 4,861,000 4,798,000 46,983,000 51,781,000 7,181,000 1999 Aug 2021 30 years
−Removed: Elme Eagles Landing Georgia 16,117,000 86,460,000 8,227,000 16,117,000 94,687,000 110,804,000 13,486,000 2000 Nov 2021 30 years
−Removed: Elme Sandy Springs Georgia 17,423,000 85,817,000 8,900,000 17,423,000 94,717,000 112,140,000 11,966,000 1972 Feb 2022 30 years
−Removed: Elme Marietta Georgia 19,019,000 83,319,000 3,314,000 19,019,000 86,633,000 105,652,000 9,965,000 1975 May 2022 30 years
−Removed: Elme Cumberland Georgia 14,106,000 51,689,000 5,624,000 14,106,000 57,313,000 71,419,000 6,997,000 1982 May 2022 30 years
−Removed: Elme Druid Hills Georgia 25,249,000 79,281,000 3,912,000 25,249,000 83,193,000 108,442,000 5,572,000 1987 Sep 2023 30 years
+Added: Elme Conyers (b) Georgia 4,798,000 42,122,000 ( 10,538,000 ) 4,001,000 32,381,000 36,382,000 222,000 ( 2,410,000 ) 1999 Aug 2021 30 years
+Added: Elme Sandy Springs (b) Georgia 17,423,000 85,817,000 ( 44,915,000 ) 10,435,000 47,890,000 58,325,000 135,000 ( 3,690,000 ) 1972 Feb 2022 30 years
+Added: Elme Marietta (b) Georgia 19,019,000 83,319,000 ( 41,271,000 ) 11,967,000 49,100,000 61,067,000 226,000 ( 2,591,000 ) 1975 May 2022 30 years
$ 143,434,000 $ 511,439,000 $ 56,743,000 $ 112,569,000 $ 599,047,000 $ 711,616,000 $ 189,407,000 $ 201,716,000
4 unchanged sentences
a) The purchase cost of real estate investments has been divided between land and buildings and improvements on the basis of management’s determination of the fair values.
−Removed: b) During 2023, we recognized an impairment charge of $ 41.9 million on Watergate 600 in order to reduce its carrying value to its estimated fair value, which declined due to changes in market conditions in the Washington, DC metro region office market.
+Added: b) During 2025, we recognized an aggregate impairment charge of $ 81.4 million and $ 28.6 million, respectively, within our Residential segment in Atlanta metro region and Watergate 600 in order to reduce its carrying values to its estimated fair values, primarily due to a revision of their estimated holding periods.
c) At December 31, 2025, total land, buildings and improvements are carried at $ 0.7 billion for federal income tax purposes.
3 unchanged sentences
The value not yet placed into service at December 31, 2025 was $ 30.4 million.
−Removed: f) As of December 31, 2024, Elme Communities had investments in various development, redevelopment and renovation projects, including The Ashby at McLean and The Paramount.
−Removed: The total value of these projects, which has not yet been placed in service, is $ 0.6 million at December 31, 2024.
+Added: f) As of December 31, 2025, all of the properties are encumbered by the Secured Term Loan.
ELME COMMUNITIES AND SUBSIDIARIES
SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
+Added: (LIQUIDATION BASIS)
(IN THOUSANDS)
−Removed: The following is a reconciliation of real estate assets and accumulated depreciation for the three years ended December 31, 2024 (in thousands):
−Removed: Year Ended December 31,
−Removed: 2024 2023 2022
−Removed: Real estate assets
−Removed: Balance, beginning of period $ 2,375,097 $ 2,299,712 $ 1,990,810
+Added: Analysis of the carrying amount of real estate properties and accumulated depreciation:
+Added: Real Estate Properties
+Added: Balance at January 1, 2023 (Going Concern Basis) $ 2,299,712
Property acquisitions (1)
−Removed: — 104,530 271,373
Improvements (1)
−Removed: 39,216 48,075 37,539
Impairment write-down ( 77,220 )
−Removed: Write-off of disposed assets — — ( 10 )
−Removed: Balance, end of period $ 2,414,313 $ 2,375,097 $ 2,299,712
+Added: Balance at December 31, 2023 (Going Concern Basis) 2,375,097
+Added: Improvements (1)
+Added: Balance at December 31, 2024 (Going Concern Basis) 2,414,313
+Added: Improvements (1)
+Added: Disposals ( 1,521,150 )
+Added: Impairment write-down ( 154,461 )
+Added: Net liquidation adjustment 7,338
+Added: Balance at December 31, 2025 (Liquidation Basis) $ 776,425
Accumulated Depreciation
−Removed: Balance, beginning of period $ 528,024 $ 479,846 $ 401,926
+Added: Balance at January 1, 2023 (Going Concern Basis) $ 479,846
Depreciation 83,538
Impairment write-down ( 35,360 )
−Removed: Write-off of disposed assets — — ( 347 )
−Removed: Balance, end of period $ 618,299 $ 528,024 $ 479,846
+Added: Balance at December 31, 2023 (Going Concern Basis) 528,024
+Added: Depreciation 90,275
+Added: Balance at December 31, 2024 (Going Concern Basis) 618,299
+Added: Depreciation (2)
+Added: Disposals ( 457,201 )
+Added: Impairment write-down ( 44,480 )
+Added: Net liquidation adjustment ( 190,311 )
+Added: Balance at December 31, 2025 (Liquidation Basis) $ —
______________________________
(1) Includes non-cash accruals for capital items.
+Added: (2) Depreciation expense was not recorded subsequent to October 31, 2025 as a result of the adoption of the Plan of Sale and Liquidation.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.