Item 7. Management’s Discussion and Analysis
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We provide Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations and financial condition.
Prior to adoption of the Plan of Sale and Liquidation, for purposes of evaluating comparative operating performance, we categorized our properties as “same-store” or “non-same-store.” Same-store portfolio properties included properties that were owned for the entirety of the years being compared and excluded properties under redevelopment or development and properties acquired, sold or classified as held for sale during the years being compared. Following our adoption of a liquidation basis of accounting, our properties are no longer categorized in this manner and therefore we have not provided operating metrics on a same-store/non same-store basis.
Overview
On February 13, 2025, the Company announced that its Board had initiated a formal review to evaluate strategic alternatives. 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 Portfolio Sale Transaction, and that the Board had also approved 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. 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.
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. Also on November 12, 2025, certain indirect subsidiaries of the Company, as Borrowers, and Goldman Sachs Bank USA, as Lender, entered into the Loan Agreement pursuant to which the Lender has made the Secured Term Loan of $520.0 million to the Borrowers. Pursuant to the Loan Agreement, as of on November 12, 2025, the Secured Term Loan was secured by first priority mortgages and security interests on the ten Remaining Company Properties (which are directly owned by the Borrowers) and included: Riverside Apartments, Elme Bethesda, Elme Germantown, Elme Watkins Mill, 3801 Connecticut Avenue, Kenmore Apartments, Elme Conyers, Elme Marietta, Elme Sandy Springs, and Watergate 600. 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. 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.
Given the Plan of Sale and Liquidation, our efforts are focused on selling the remaining properties, winding down the Company’s affairs and, when appropriate and in the Board’s discretion, distributing the net proceeds to our shareholders subject to the creation of necessary reserves for, and payment or other satisfaction of, the Company’s expenses and other liabilities and obligations.
Elme is aiming to complete the sales of the Remaining Company Properties by mid-year 2026. Because the sales of our remaining properties are subject to, among other things, completion of the marketing and sale process and the negotiation of terms and completion of the sales, as applicable, the exact timing of completing the remaining property sales cannot be determined at this time and the Company cannot predict how long it will take to sell all of its remaining properties.
If we have not sold all of our remaining properties and paid all of our liabilities within 24 months after shareholder approval of the Plan of Sale and Liquidation, which was received on October 30, 2025, or if the Board otherwise determines that it is advantageous to do so earlier, we may transfer our remaining assets and liabilities to a liquidating trust and distribute interests in the liquidating trust to our shareholders or otherwise convert Elme to a liquidating limited liability company, partnership, or trust. We cannot predict the exact amount to be distributed or the timing of the completion of the liquidation and termination of the Elme’s existence.
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As of December 31, 2025, our portfolio consisted of the following assets, seven of which are located in the Washington, DC metro region and three of which are located in the Atlanta metro region.
Properties Location
Residential Communities
Riverside Apartments (1)
Alexandria, VA
3801 Connecticut Avenue Washington, DC
Kenmore Apartments Washington, DC
Elme Bethesda Bethesda, MD
Elme Watkins Mill Gaithersburg, MD
Elme Germantown Germantown, MD
Elme Conyers Conyers, GA
Elme Marietta (2)
Marietta, GA
Elme Sandy Springs (2)
Sandy Springs, GA
Office Building
Watergate 600 Washington, DC
(1) Includes an undeveloped land parcel held for development adjacent to the Riverside Apartments.
(2) Sold subsequent to year end.
Washington, DC metro region (6 apartment communities)
Per research by CBRE, a global leader in commercial real estate services and investment, macroeconomic conditions in the Washington, DC metro region, where the majority of our remaining assets are located, will continue to be impacted in 2026, with federal government employment expected to decrease by 6,000 jobs, following a decrease of over 22,000 jobs in 2025. For our remaining multifamily assets in the in the Washington, DC metro region, we experienced lower occupancy and lower new lease rates caused by a reduction in demand during the fourth quarter of 2025. We believe this market softness is primarily due to the effects of the federal government shutdown during the fourth quarter of 2025, together with federal government and other workforce reductions in the region. While we anticipate the softness in the Washington, DC metro region area to continue during the first half of 2026, we expect seasonal improvement in leasing fundamentals during the spring and summer season.
Initial Liquidating Distribution
In accordance with the Plan of Sale and Liquidation, the Board approved a special liquidating distribution of $14.67 per share to its shareholders of record as of the close of business on December 22, 2025. The special liquidating distribution was paid on January 7, 2026.
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Investment Activity
On November 12, 2025, we sold a portfolio of 19 multifamily communities for $1.6 billion. The communities included in the portfolio are as follows:
Cascade at Landmark The Wellington Elme Manassas
Clayborne Trove The Ashby at McLean
Elme Alexandria Roosevelt Towers Yale West
Bennett Park Elme Dulles Elme Druid Hills
Park Adams Elme Herndon Elme Cumberland
The Maxwell Elme Leesburg Elme Eagles Landing
The Paramount
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. 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: 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. The marketing and sale process with respect to the other five Remaining Company Properties remains ongoing. 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. 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. 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. The Company continues to target completion of the sales of all Remaining Company Properties by mid-year 2026.
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Financing Activity
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 (i) the Third Amended and Restated Credit Agreement, dated July 10, 2024, by and among the Company, as borrower, the financial institutions party thereto as lenders, and Wells Fargo Bank, National Association, as administrative agent, (ii) the Term Loan Agreement, dated January 10, 2023, with Truist Bank, as administrative agent, and the lenders party thereto, as amended, and (iii) the Note Purchase Agreement, dated September 29, 2020, by and among the Company and other parties named therein as purchasers. The Company did not incur any material early termination penalties as a result of such terminations.
On November 12, 2025, in connection with the Portfolio Sale Transaction, the Company provided notice to the holders of its 7.25% senior notes due 2028 (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. 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. The Senior Notes were redeemed on December 12, 2025.
On November 12, 2025, the Borrowers and Lender entered into the Loan Agreement pursuant to which the Lender has made the Secured Term Loan to the Borrowers as described above. The Company has provided a customary non-recourse carveout guaranty. 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. 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.
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. 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. 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). The Company has purchased an interest rate cap that effectively caps term SOFR at 5.00% per annum. 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.
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 maintains a restricted account into which all revenue from the Loan Collateral is deposited during the term of the Secured Term Loan. Amounts on deposit in the restricted account will be transferred: 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.
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. The cash management agreement contains provisions for the cure of certain of these events.
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 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. 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
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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.
As of December 31, 2025, the interest rate on the Secured Term Loan is 6.00%, which is based on the one-month term SOFR plus 2.25% applicable margin. As of February 27, 2026, after giving effect to the sales of Elme Sandy Springs and Elme Marietta and corresponding partial paydown of the Secured Term Loan, $415.2 million of the principal under the Secured Term Loan remains outstanding at the current interest rate of 5.91%.
Results of Operations
As of December 31, 2025, we owned approximately 3,570 residential apartment homes in the Washington, DC and Atlanta metro regions compared to 9,400 residential apartment homes in the Washington, DC and Atlanta metro regions as of December 31, 2024. We also owned and operated approximately 300,000 square feet of commercial space in the Washington, DC metro region as of both December 31, 2025 and 2024. Subsequent to December 31, 2025, we completed the sale of two of the Remaining Company Properties, Elme Sandy Springs and Elme Marietta. As of February 27, 2026, we owned approximately 2,500 residential apartment homes and approximately 300,000 square feet of commercial space in the Washington, DC metro region and approximately 200 residential apartment homes in the Atlanta metro region.
Our revenues are derived primarily from the ownership and operation of income producing property. While we discuss certain financial metrics below, in light of the approval of the Plan of Sale and Liquidation on October 30, 2025 and the adoption of the liquidation basis of accounting as of November 1, 2025 and sale of 19 assets in the Portfolio Sale Transaction, the results of operations for the current year are not comparable to the prior year. The information provided below compares the ten months ended October 31, 2025 to the year ended December 31, 2024.
Ten Months Ended October 31,
Year Ended December 31,
2025
2024
Real estate rental revenue
$ 206,360 $ 241,935
Real estate operating (loss) income
(122,208) 23,469
Net loss
(154,162) (13,103)
Real estate operating loss for the ten months ended October 31, 2025 is primarily due to real estate impairment and an increase in general and administrative expenses. During the third quarter of 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. 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. The increase in general and administrative expenses primarily includes accrued severance and professional fees incurred in association with our Plan of Sale and Liquidation and the Portfolio Sale Transaction.
Operating Metrics
Average Occupancy and Ending Occupancy for our nine remaining residential properties for the year ended December 31, 2025 was 93.2% and 91.8%, respectively, compared to 94.0% and 94.4%, respectively, for the same nine properties for the year ended December 31, 2024. Watergate 600 was 81.6% leased and had an ending occupancy of 81.6% for the year ended December 31, 2025, compared to 84.7% and 84.7%, respectively, for the year ended December 31, 2024.
2024 Compared to 2023
For a discussion comparing the Company’s financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023, refer to subsection “Results of Operations - 2024 Compared to 2023” of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2024.
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Liquidity and Capital Resources
As described in the “Overview” section, our Board and our shareholders approved the Plan of Sale and Liquidation. 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 to our shareholders, subject to the creation of necessary reserves for, and payment or other satisfaction of, the Company’s expenses and other liabilities and obligations and winding up our operations and dissolving our company. On November 25, 2025, we announced a special liquidating distribution of $14.67 per share which was paid on January 7, 2026 to shareholders of record at the close of business on December 22, 2025. We may pay one or more additional liquidating distribution(s) to our shareholders during the remainder of the liquidation process. We expect to pay the final liquidating distribution after we sell all of our assets, pay or provide for all of our known liabilities and obligations and provide for unknown liabilities and obligations. We expect to complete these activities within 24 months of October 30, 2025, the day we received shareholder approval of the Plan of Sale and Liquidation. A final liquidating distribution to our shareholders may not be paid until all of our liabilities have been satisfied.
Our expectations about the amount of liquidating distributions that we will pay and when we will pay them are based on many estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of the remaining liquidating distributions we pay to our shareholders may be more or less than we estimate and the remaining liquidating distributions may be paid later than we predict. We intend to maintain adequate cash reserves for liquidity, debt repayments and other future capital needs.
We expect our principle demands for funds during the liquidation period are and will be for the payment of operating expenses, principal and interest payments on our Secured Term Loan, general and administrative expenses, including expenses in connection with the Plan of Sale and Liquidation, transaction costs related to asset sales and payments of distributions to shareholders pursuant to the Plan of Sale and Liquidation. We expect to use our cash on hand and net sales proceeds from the sale of our assets as our primary source of liquidity. To the extent available, we also intend to use cash flow generated by our real estate assets; however, asset sales will further reduce cash flow from these sources.
As of December 31, 2025, our cash and cash equivalents were approximately $1.3 billion and we had $17.3 million of restricted cash (funds held by the Lender in lender-controlled reserve accounts under the Secured Term Loan, including reserves for property taxes and insurance premiums, capital expenditures and certain other approved operating expenses and capital items). The cash and cash equivalents included approximately $1.3 billion paid as the special liquidating distribution on January 7, 2026.
Liquidating Distributions
On January 23, 2026, the Company announced that its current estimate of the total amount of remaining liquidating distributions to be funded from the net proceeds of sales of the Remaining Company Properties was estimated to be between $2.35 and $2.80 per share. Based on this updated estimate, the total amount of liquidating distributions (including the initial $14.67 per share liquidating distribution paid in January 2026) was estimated to be between $17.02 and $17.47 per share. The Company’s estimate of the ranges of liquidating distributions were derived from a number of assumptions and estimates, including the estimated range of gross asset sales proceeds for the Remaining Company Properties, many of which are outside the Company’s control and may not prove to be accurate, which could cause actual liquidating distributions, to be less or more than the estimated ranges. For more information regarding the estimates and assumptions, and various risks associated with such estimates and assumptions, see the risk factor titled “We cannot determine at this time the amount or timing of the remaining liquidating distributions, if any, to our shareholders in connection with the Plan of Sale and Liquidation because there are many factors that could affect the amount or timing of any such liquidating distributions, if any, some of which are not within our control”.
Debt Financing
Aside from the Secured Term Loan described in the “Overview” section, the Company does not have any other outstanding debt obligations as of December 31, 2025.
Debt Covenants
As of December 31, 2025, we were in compliance with the covenants related to the Secured Term Loan, including those
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covenants with respect to maintenance of insurance, single-purpose bankruptcy, remote entity requirements, reporting requirements and restrictions on property and equity transfers and the granting of liens.
Common Equity
We have authorized for issuance 150.0 million common shares, of which approximately 88.6 million shares were outstanding at December 31, 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. LLC, KeyBanc Capital Markets Inc., TD Securities (USA) LLC and Truist Securities, Inc. as agents and forward sellers, as applicable, (collectively, the “Agents” or “Forward Sellers”, as applicable), and Wells Fargo Bank, National Association, The Bank of New York Mellon, Citibank, N.A., Goldman Sachs & Co. LLC, KeyBanc Capital Markets Inc., The Toronto-Dominion Bank and Truist Bank as forward purchasers pursuant to which up to an aggregate gross sales price of $350.0 million of Elme Communities’ common shares of beneficial interest, $0.01 par value per share, may be offered and sold from time to time through the Agents, acting as the Company’s sales agents or, if applicable, the Forward Sellers, or directly to the Agents as principals for their own accounts. In connection with entry into the Equity Distribution Agreement, we terminated our prior at-the-market offering program. At the time of such termination, approximately $340.0 million remained unsold under such prior program. No common shares have been issued under the Equity Distribution Agreement, and subsequent to year-end, we terminated the Equity Distribution Agreement.
We have a dividend reinvestment program, whereby shareholders were able to use their dividends and optional cash payments to purchase common shares. The common shares sold under this program were either be common shares issued by us or common shares purchased in the open market. In September 2025, the Company suspended its dividend reinvestment program. 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. We do not intend to restart the dividend reinvestment program.
We did not issue common shares under the dividend reinvestment program during 2025 or 2024. In 2023 we issued approximately 28,000 shares at a weighted average price per share of $17.64 for net proceeds of $0.5 million.
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. The share repurchase program expired on October 25, 2025.
Preferred Equity
Our Board can, at its discretion, authorize the issuance of up to 10.0 million preferred shares. The ability to issue preferred equity provides Elme Communities an additional financing tool that may be used to raise capital for business purposes. As of December 31, 2025, no preferred shares were issued and outstanding.
Contractual Obligations
As of December 31, 2025, we owed $520.0 million on our Secured Term Loan. Subsequent to December 31, 2025, and after giving effect to the sales of Elme Sandy Springs and Elme Marietta and corresponding partial paydown of the Secured Term Loan, $415.2 million of the principal amount remains outstanding under our Secured Term Loan.
We currently lease and occupy office space for our corporate headquarters. The corporate office lease has an expiration date of September 30, 2033 and we would expect to incur approximately $3.2 million in prepayment penalties if we terminate the lease during 2026. We are actively exploring alternatives to reduce the total cost of our corporate headquarters.
We have and will continue to incur severance, retention and benefit obligations in association with our Plan of Sale and Liquidation. We estimate that payments related to such obligations in 2026 will total approximately $17.3 million.
In addition to our Secured Term Loan, office lease and severance obligations, we have various standing or renewable contracts with vendors. The majority of these contracts can be canceled with immaterial or no cancellation penalties, with the exception of our elevator maintenance agreements and our electricity and gas purchase agreements. Contract terms on leases that can be canceled are generally one year or less.
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Historical Cash Flows
Cash provided by operating activities was $62.2 million for the ten months ended October 31, 2025.
Cash used in investing activities was $27.0 million for the ten months ended October 31, 2025, primarily due to capital improvement expenditures at our residential communities.
Cash used in financing activities was $35.0 million for the ten months ended October 31, 2025, primarily due to the payment of quarterly dividends partially offset by net borrowings on the Amended and Restated Revolving Credit Facility.
Consolidated cash flows for the two years ended December 31, 2024 are summarized as follows (in thousands):
2024 2023 2024 vs. 2023
Cash provided by operating activities $ 95,243 $ 84,669 $ 10,574
Cash used in investing activities
(43,740) (146,221) 102,481
Cash (used in) provided by financing activities
(51,432) 60,238 (111,670)
Net cash provided by operating activities increased in 2024 as compared to 2023 was primarily due to higher rental revenue from the acquisition of Elme Druid Hills in 2023 and from same-store communities. Net cash used in investing activities decreased in 2024 as compared to 2023 primarily due to the acquisition of Elme Druid Hills during 2023. Net cash used in financing activities increased in 2024 primarily due to executing the $125.0 million 2023 Term Loan during 2023, partially offset by the prepayment of a $100.0 million portion of an existing $250.0 million unsecured term loan during 2023 and higher net borrowings on the Amended and Restated Revolving Credit Facility during 2024.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements as of December 31, 2025 that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Forward-Looking Statements
Some of the statements contained in this Form 10-K constitute forward-looking statements within the meaning of federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Elme Communities to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Additional factors which may cause the actual results, performance or achievements of Elme Communities to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to:
(a) changes in the amount and timing of the additional liquidating distributions, including as a result of unexpected levels of transaction costs, delayed or terminated closings, liquidation costs or unpaid or additional liabilities and obligations;
(b) the possibility of converting to a liquidating trust or other liquidating entity;
(c) the ability of our Board to terminate the Plan of Sale and Liquidation;
(d) the response of our residents, tenants and business partners to the Plan of Sale and Liquidation;
(e) potential difficulties in employee retention as a result of the on-going Plan of Sale and Liquidation;
(f) the outcome of legal proceedings, including any that may be instituted against Elme, its trustees and others related to Elme’s recently completed 19-property multifamily portfolio, future property sales and the Plan of Sale and Liquidation;
(g) the risk that disruptions caused by or relating to the Plan of Sale and Liquidation will harm Elme’s business, including current plans and operations;
(h) risks relating to the market value of Elme’s common shares;
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(i) risks associated with third party contracts containing consent and/or other provisions that may be triggered by the Plan of Sale and Liquidation;
(j) general risks affecting the real estate industry and local real estate markets (including, without limitation, the market value of Elme’s properties and potential illiquidity of Elme’s remaining real estate investments);
(k) whether or not the sale of one or more of Elme’s properties may be considered a prohibited transaction under the Internal Revenue Code of 1986, as amended;
(l) Elme’s ability to maintain its status as a real estate investment trust for U.S. federal income tax purposes;
(m) the occurrence of any event, change or other circumstances that could give rise to the termination of the Plan of Sale and Liquidation;
(n) the risks associated with ownership of real estate in general and our real estate assets in particular;
(o) general economic and market developments and conditions;
(p) volatility and uncertainty in the financial markets; and
(q) other factors discussed under the caption “Risk Factors.”
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors.” We undertake no obligation to update our forward-looking statements or risk factors to reflect new information, future events, or otherwise.
Non-GAAP Measures
Due to the adoption of the Plan of Sale and Liquidation, we are no longer reporting NAREIT Funds From Operations, Net Operating Income or other non-GAAP measures, as we no longer consider these to be key performance measures.
Critical Accounting Estimates
We base the discussion and analysis of our financial condition and results of operations upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate these estimates on an on-going basis, including those related to estimated useful lives of real estate assets, estimated fair value of acquired leases, cost reimbursement income, bad debts, contingencies and litigation. We base the estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We cannot assure you that actual results will not differ from those estimates.
We believe the following accounting estimates are the most critical to aid in fully understanding our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Liquidation Basis
Income Producing Property
As of November 1, 2025, our investments in real estate were adjusted to their estimated net realizable value, or liquidation value, to reflect the change to the liquidation basis of accounting. The liquidation value represents the estimated amount of cash that we expect to receive through the disposal of our assets as we carry out the Plan of Sale and Liquidation. We estimated the liquidation value of our real estate investments generally based on either contractual purchase prices or offers received on the properties or, if no contracts or offers had been received yet, on management’s estimate of a property’s liquidation value, taking into account information obtained during the marketing and sale process for the properties, including with respect to levels of interest and valuation levels received. The liquidation values of our investments in real estate are presented on an undiscounted basis and investments in real estate are no longer depreciated. Subsequent to November 1, 2025, all changes in the estimated liquidation value of the investments in real estate are reflected as a change to our net assets in liquidation.
Accrued Liquidation Costs
We accrue for certain estimated liquidation costs to the extent we have a reasonable basis for estimation. These costs include transaction costs, debt service costs, debt repayment amounts, capital expenditures for repair and maintenance, costs to run the Company until completion of the wind-down, including retention and severance costs, other compensation-related expenses, known financial obligations, other general and administrative costs, estimate REIT compliance costs and, other dissolution
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costs, including legal costs, final audit/tax costs, insurance, and transfer agent related costs.
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Going Concern Basis
Real Estate Impairment
We recognize impairment losses on long-lived assets used in operations 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. 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. Such assumptions involve a high degree of judgment and could be affected by future economic and market conditions. When determining if a property has indicators of impairment, we evaluate the property's occupancy, our expected holding period for the property, strategic decisions regarding the property's future operations or development and other market factors. If such carrying amount is in excess of the estimated undiscounted cash flows from the operation and disposal of the property, we would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated fair value, calculated in accordance with current GAAP fair value provisions. Assets held for sale are recorded at the lower of cost or fair value less costs to sell.
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