Elme Communities
For the period ended Dec 31, 2025. Filed Feb 27, 2026.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2025 · Filed Feb 27, 2026
ELME$1.77+0.6%Stored close · as of Oct 22, 2026
What changed in Risk Factors?
Read the current filingPrevious report: 10-K
Period ended 2024-12-31; filed 2025-02-14.
0000104894-25-000020
Item 1A. RISK FACTORSCurrent report: 10-K
Period ended 2025-12-31; filed 2026-02-27.
0000104894-26-000011
Item 1A. RISK FACTORSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 154 previous paragraphs and 126 current paragraphs.
18 unchanged; 24 reworded; 83 added; 111 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 0 previous and 0 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (83)
Current report
Risks Related to the Plan of Sale and Liquidation
Current report
The pendency of the Plan of Sale and Liquidation, including the proposed sale of the Company’s remaining properties, presents certain risks to our ongoing business and operations.
Current report
On October 30, 2025, the Company’s shareholders approved the Plan of Sale and Liquidation. Pursuant to such Plan of Sale and Liquidation, the Company intends to complete the sales of the Company’s remaining properties, including the Properties Under Contract and the Other Remaining Properties, by mid-year 2026, wind down the Company’s business and affairs and terminate the Company’s existence. Because the sales of these remaining properties are subject to, among other things, completion of the marketing and sale process and negotiation of sale terms and completion of the sales, as applicable, the exact timing of completing the Plan of Sale and Liquidation cannot be determined at this time.
Current report
The wind-down of the Company’s business and affairs and termination of the Company’s existence in accordance with the Plan of Sale and Liquidation, including the sales of the Company’s remaining properties, present certain risks to our business and operations, which could materially and adversely affect our business, financial results, and the amount of any additional liquidating distributions, including, among other things, that:
Current report
•we may have difficulty completing the sales of our remaining properties for the prices and on the terms anticipated, or at all;
Current report
•we expect to incur substantial expenses related to the sale of the remaining properties and the implementation of the Plan of Sale and Liquidation;
Current report
•our business and operations could be adversely affected, including by diverting significant focus of management, employees and other resources, by impacting our ability to retain our employees and our relationships with residents, tenants, vendors and other third parties, and as a result of limitations on our conduct under purchase agreements for the Remaining Company Properties during the pendency of sales;
Current report
•additional liabilities and obligations could arise during the liquidation process, including obligations and liabilities which may be retained by us following the closing of the sales of the Remaining Company Properties;
Current report
•we may be unable to find buyers for our remaining properties on a timely basis or at our expected sales prices, which may reduce or delay our liquidating distributions;
Current report
•our ability to implement the Plan of Sale and Liquidation depends upon the participation of key personnel who may not remain in place;
Current report
•we may require additional capital or financing to complete the wind-down of the Company’s business and affairs, dissolution and termination of the Company’s existence under the Plan of Sale and Liquidation, which may reduce the amount available for distribution to shareholders;
Current report
•shareholders may be liable to our creditors, up to the amounts received from us pursuant to the Plan of Sale and Liquidation, if our reserve fund or the assets transferred to a liquidating entity are inadequate;
Current report
•costs and expenses of continuing to operate the Company, including as a public company, such as the need for additional retention costs, particularly if the liquidation takes longer than expected, may be higher than estimated; and
Current report
•we anticipate that our common shares will be delisted from the NYSE at a future date to be determined by the Board.
Current report
Additionally, prior to completing the sales of all of the Remaining Company Properties, we will remain subject to all of the risks of operating our properties, including the risk that the cash flow and net working capital generated from the Company’s operations prior to completing the wind-down of the Company’s business and affairs and termination of the Company’s existence may be lower than we anticipate, and the risks and the costs associated with remaining a public company.
Current report
We cannot determine at this time the amount or timing of the remaining liquidating distributions, if any, to our shareholders in connection with the Plan of Sale and Liquidation because there are many factors that could affect the amount or timing of such liquidating distributions, if any, some of which are not within our control.
Current report
Although we provided an updated estimated range of remaining liquidating distributions to shareholders of between $2.35 and $2.80 per share on January 23, 2026 (after giving effect to the initial liquidating distribution of $14.67 per share paid in January 2026), there can be no assurances regarding the amounts of the remaining liquidating distributions, if any, or the timing thereof. The remaining amounts, if any, that may ultimately be available for distribution to our shareholders are not yet fully known, and there are many factors that may affect the amounts available for distribution to our shareholders, including, among other things, our results of operations, the operating costs and amounts to be set aside for claims, liabilities and other obligations prior to and during the liquidation and winding-up process, and the time required to complete our liquidation and winding up.
Current report
The estimated range of remaining liquidating distributions disclosed in our January 23, 2026 press release was estimated as of January 23, 2026 and did not take into account, among other things, interest rate, market volatility or other changes since that time or in the future and was derived, in part, from the estimated range of gross asset sales for the properties, which reflected actual contract pricing for the Remaining Company Properties then under contract and other gross asset value estimate adjustments discussed in the press release issued by the Company on January 23, 2026, less estimates for transaction costs, (including updates to reflect actual transaction costs associated with closing the Portfolio Sale Transaction and finalizing the Secured Term Loan), debt service costs, debt repayment amounts for the Secured Term Loan and establishment of reserves to satisfy known liabilities and estimated, unascertained or contingent liabilities and expenses, estimated operating costs to run the Company until completion of the wind-down of the Company’s business and affairs and dissolution of the Company, capital expenditure requirements and REIT compliance costs, but adjusted upwards for estimated cash flow/net working capital to be generated from the Company’s property operations prior to completing sales of the Remaining Company Properties. These estimates may overstate the proceeds from asset sales or understate the actual expenses, which means actual remaining liquidating distributions may be significantly less or more than the estimated range.
Current report
Other uncertainties that could cause the aggregate amount of remaining liquidating distributions to be less than our estimate, or the timing of distributions to be delayed, in addition to other risks described elsewhere in this section, include the following:
Current report
•the price that potential buyers of our properties may be willing to pay for our remaining company properties may change due to a number of factors beyond our control, including changes in general economic or local conditions, changes in interest rates, availability of mortgage funds, supply and demand dynamics, changes in tax, real estate, environmental and zoning laws and regulations, occupancy percentages, lease rates, competition, operating performance and the perceived quality and dependability of income flows from tenancies, potential major repairs or other contingent liabilities associated with the properties, and a number of other factors, both local and national;
Current report
•delays in our ability to find suitable buyers, complete the asset sales on the terms we currently expect and the wind-down of our business and affairs and termination of our existence could require us to incur expenses for a longer period than anticipated;
Current report
•our ability to comply with the covenants and other terms of the Secured Term Loan which could impact our ability to make, or the timing of, additional liquidating distributions;
Current report
•the costs and expenses of executing the Plan of Sale and Liquidation may differ from our estimates;
Current report
•the current market conditions in the DC area, which have continued to soften throughout our marketing and sale process for the Remaining Company Properties, could continue to soften;
Current report
•the estimated amount of cash flow/net working capital to be generated from our property operations prior to completing the wind-down of our business and affairs and termination of our existence pursuant to the Plan of Sale and Liquidation may be lower than we anticipate;
Current report
•costs and expenses of continuing to operate the Company, including as a public company, such as the need for additional retention costs, particularly if the liquidation takes longer than expected, may be higher than estimated;
Current report
•unanticipated or emergency capital expenditures may result in the need to incur additional debt financing or other costs and expenses that are not included in our estimates and which we cannot reasonably estimate at this time;
Current report
•unknown or additional costs or liabilities that arise in the future, including future litigation, which we cannot reasonably estimate at this time, could delay completion of our liquidation and cause us to incur additional costs and expenses;
Current report
•costs incurred to maintain our REIT status may be higher than estimated;
Current report
•the number of issued and outstanding shares used to calculate the estimated range of the additional liquidating distributions could change; and
Current report
•the reserve amounts we may establish to satisfy known liabilities and liquidating expenses and estimated, unascertained or contingent liabilities and expenses may be insufficient.
Current report
Any of these uncertainties could impact the amount and timing of the estimated remaining liquidating distributions. For further information regarding the uncertainties and assumptions used in the estimated range of remaining liquidating distributions, please see the Company’s Form 8-K filed on January 23, 2026.
Current report
Additionally, there can be no assurances regarding the amount of your potential total return from receiving all liquidating distributions. Your total return will depend on the amount you paid for your common shares and the date on which you purchased such common shares.
Current report
The Plan of Sale and Liquidation may not be completed.
Current report
Pursuant to the Plan of Sale and Liquidation, we are authorized to engage in the wind-down of our business and affairs, discharge, pay or set aside reserves for our liabilities, including contingent liabilities, dispose of our assets and distribute our remaining assets available for distribution to our shareholders (as determined by the Board in its discretion), and establish one or more reserve funds to satisfy known liabilities and liquidating expenses and estimated, unascertained or contingent liabilities and expenses. As of February 27, 2026, the Properties Under Contract are expected to close in the first or second quarter of 2026, subject to satisfaction of customary closing conditions, including, in the case of Elme Watkins Mill, regulatory requirements related to the sale of multifamily properties in Montgomery County, Maryland. The Company continues to target completion of the sales of all Remaining Company Properties by mid-year 2026.
Current report
In addition, the Board may amend or terminate the Plan of Sale and Liquidation without shareholder approval at the Board’s discretion, at any time prior to the filing of a notice of termination with the Maryland Department of Assessments and Taxation, if it determines that doing so is in the best interest of the Company and our shareholders. Thus, the Board could decide to conduct our liquidation and termination of the Company’s existence differently than as currently planned, or not at all. If the Board amends, modifies or terminates the Plan of Sale and Liquidation, it may impact the timing and amount of the liquidating distributions to our shareholders, our share price, our results of operations and our on-going business.
Current report
If we are unable to find buyers for all of our remaining properties on a timely basis or at our expected sales prices, our liquidating distributions may be delayed or reduced.
Current report
As of February 27, 2026, we have sold two of the Remaining Company Properties and also entered into purchase and sale agreements, which are no longer subject to ongoing inspection periods, pursuant to which we expect to sell three of the Remaining Company Properties. In estimating the range of remaining liquidating distributions disclosed in our January 23, 2026 press release, we reflected actual contract pricing for those Remaining Company Properties then under contract and assumed that we will be able to find buyers for all of our other assets at amounts based on our estimated range of gross real estate sales prices for the other remaining assets. However, actual sales prices ultimately achieved for these assets may differ from current estimated sales prices. For example, we may decide to sell groups of properties together, at a price that could be lower than the price we could get over a longer period of time if we sold each asset separately, in order to complete sales more quickly and reduce the risk of a lengthy liquidation process, or we could be required to lower our asking prices below the low end of our current estimate of one or more assets’ market value in order to find buyers in a timely manner. Additionally, our public announcement of our intent to liquidate the Company may adversely impact the prices we will ultimately be able to obtain for our remaining properties, which could result in lower sale proceeds.
Current report
Furthermore, investments in real properties are relatively illiquid and real estate sales prices are regularly changing and fluctuate with changes in general economic or local conditions, changes in interest rates or availability of mortgage funds that may render the sale of a property difficult or unattractive, supply and demand dynamics for similar or competing properties in an area, changes in tax, real estate, environmental and zoning laws and regulations, occupancy percentages, lease rates, competition, the availability of suitable buyers, operating performance and the perceived quality and dependability of income flows from tenancies, potential major repairs or other contingent liabilities associated with the assets and a number of other factors, both local and national. If we are not able to find buyers for these assets in a timely manner or at all, or incur expenses for a longer period than anticipated, or if the sales prices we will receive differ from our current estimates, our liquidating distributions to our shareholders could be delayed or reduced accordingly and the liquidating distributions may ultimately be lower than the prevailing market or trading price of our common shares prior to the sales of all of the Remaining Company Properties pursuant to the Plan of Sale and Liquidation.
Current report
Defaults under future sales agreements may delay or reduce liquidating distributions.
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Removed paragraphs (111)
Previous report
We cannot assure you that our evaluation of strategic alternatives will result in any particular outcome, and the process of reviewing strategic alternatives or the conclusion of the process could adversely affect our business and our stockholders.
Previous report
On February 13, 2025, we announced that the Boardhas initiated a formal reviewto evaluate strategic alternatives for the Company. Our Board has not set a deadline or definitive timetable for the completion of this strategic review process, nor have any decisions been made relating to any strategic alternatives at this time. There can be no assurance that this process will result in the Company pursuing a transaction or any other strategic outcome. Any potential transaction may be dependent on a number of factors that are beyond our control, for example, market conditions, industry trends, the interest of third parties in a potential transaction with us and the availability of any necessary financing on reasonable terms. The process of exploring strategic alternatives could adversely impact our business, financial condition and results of operations. We could incur substantial expenses associated with identifying, evaluating and negotiating potential strategic alternatives, including those related to equity compensation, severance pay and legal, accounting and financial advisory fees. In addition, the process may be time consuming and disruptive to our business operations, could divert the attention of management and the Board from our business, could negatively impact our ability to attract, retain and motivate key employees, and could expose us to potential litigation in connection with this process or any resulting transaction. Further, speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.
Previous report
Our financial performance and the value of our apartment communities are subject to the risk that they do not generate revenues sufficient to meet our operating expenses, debt service and capital expenditures, which could cause our cash flow and ability to make distributions to our shareholders to be adversely affected. Any of the following factors, among others, may adversely affect the cash flow generated by our apartment communities and our ability to make distributions to our shareholders:
Previous report
•a return of the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers;
Previous report
•our ability to integrate new technological innovations (including artificial intelligence) into our marketing and properties to attract residents;
Previous report
Substantially all of our investments are concentrated in the multifamily asset class, which make us more vulnerable to a downturn in that asset class and could adversely affect our results of operations.
Previous report
As of December 31, 2024, substantially all of our investments are concentrated in the multifamily industry, and we are subject to risks inherent in investments in a single type of property. A downturn or slowdown in the demand for multifamily housing may have more pronounced effects on our results of operations or on the value of our assets than when we had investments in more than one asset class.
Previous report
Additionally, the multifamily industry is also highly competitive. We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities. Many of these entities have significant financial and other resources, including operating experience, allowing them to compete effectively with us. Competitors with substantially greater financial resources than us may be able to accept more risk than we can effectively manage. In addition, those competitors that are not REITs may be at an advantage to the extent they can use working capital to finance projects, while we (and our competitors that are REITs) may have to forgo and/or liquidate otherwise attractive investments as we must comply with REIT requirements. These actions could have the effect of reducing our income and amount available for distribution to shareholders. Thus, compliance with REIT requirements may hinder our ability to make, or, in certain cases, maintain ownership of, certain attractive investments.
Previous report
Competition may also result in overbuilding of multifamily properties, causing an increase in the number of multifamily units available which could potentially decrease occupancy and multifamily rental rates at our properties. We may also be required to expend substantial sums to attract new residents. These factors may cause the resale value of properties to be diminished because the market value of a particular property will depend principally upon the net revenues generated by the property. Further, costs associated with real estate investment generally are not reduced when circumstances, such as a pandemic, cause a reduction in income from the investment.
Previous report
Each of these factors could possibly limit our ability to retain our current residents, attract new ones or increase or maintain rents, which could lower the value of our properties and adversely affect our results of operations and our financial condition.
Previous report
We may be unable to successfully expand our operations into new markets and submarkets, which could have a material adverse effect on us, the trading price of our common shares and our ability to make distributions to our shareholders.
Previous report
We intend to look for additional opportunities to expand our residential platform through acquisitions in Sunbelt markets, to the extent they meet our investment criteria and are consistent with our growth strategy. Between 2021 and 2023, we acquired six apartment communities in the Atlanta metro region and plan to continue to invest in the Sunbelt region in 2025 and beyond. However, our historic operations have been concentrated in the Washington DC, metro region, where we have expertise in acquiring and operating assets. The risks applicable to our ability to acquire, integrate and operate apartment communities in the Washington DC, metro region are also applicable to our ability to acquire, integrate and operate apartment communities in new markets. In addition to these risks, we will not possess the same level of familiarity with the dynamics and market conditions of any new markets that we have entered or that we may enter as we do with the Washington, DC market, which could adversely affect our ability to expand and our success in expanding into those markets. Furthermore, we may be unable to build a significant market presence or achieve a desired return on our investments in communities in new markets. The occurrence of any of the foregoing risks could have a material adverse effect on us, the trading price of our common shares and our ability to make distributions to our shareholders.
Previous report
Macroeconomic trends, including inflation and high interest rates, may adversely affect our cash flow, financial condition and results of operations.
Previous report
We are currently dependent upon the economic and regulatory climate of the Washington, DC and Atlanta metro regions, which may impact financial condition and results of operations.
Previous report
As of December 31, 2024, approximately 75% of our residential apartment homes were located in the Washington, DC metro region and 25% of our residential apartment homes were located in the Atlanta, Georgia metro region. While we intend to continue expansion of our platform in the Sunbelt region, our current concentration in just two geographic metro regions may expose us to a greater amount of market-dependent risk than if we were more geographically diverse. Our performance could be adversely affected by the economic conditions in, and other factors relating to, these two geographic areas, including zoning and other regulatory conditions, competition for residents and supply and demand for apartment in these regions, as well as unemployment and job growth. Additionally, in the Washington, DC and Atlanta metro regions, general economic conditions and local real estate conditions are dependent upon various industries that are predominant in the area (such as, in Washington, D.C., government and professional/business services). A downturn in one or more of these industries may have a particularly strong effect on the economic climate of the region. We are also susceptible to adverse developments in the regulatory environment of any of the markets in which we operate, particularly Washington, D.C., such as increases in real estate and other taxes, the costs of complying with governmental regulations or increased regulations, including zoning and tax laws, and actual or threatened reductions in government operations and/or spending potentially driven by actions, decisions or initiatives of the federal government (including the advisory committee, Department of Government Efficiency) and/or changes to the timing of government spending, as has occurred during federal government shutdowns. To the extent that these markets become less desirable to operate in, our results of operations could be more negatively impacted than if we were more geographically diversified. In the event of negative economic and/or regulatory changes in the regions in which we operate, we may experience a negative impact to our financial condition and results of operations.
Previous report
Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents sooner than if our apartment leases were for longer terms. Additionally, if the terms of a renewal or reletting are less favorable than current terms, then our results of operations and financial condition could be negatively affected. For each of the three years ended December 31, 2024, the same-store residential resident retention rate for each year's respective same-store community portfolio, was 66%, 63%, and 63%, respectively.
Previous report
The expense of owning and operating a property is not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property or an increase in operating costs. As a result, if revenues decline, we may not be able to reduce our expenses accordingly. Loan payments are an example of a cost that will not be reduced if our revenues decrease. If a property is mortgaged and we are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take the property, resulting in a further reduction in revenues.
Previous report
The risks related to our commercial operations could adversely impact our results of operations and financial condition.
Previous report
Although we are primarily in the residential rental business, we also own ancillary commercial space, primarily within our apartment communities, and own one office building that we lease to third parties. Gross rental revenue provided by leased commercial space in our portfolio represented 8% of our real estate rental revenue in 2024. The long term nature of our commercial leases and characteristics of many of our tenants (generally small, local businesses) may subject us to certain risks, such as difficulties or delays in reletting this commercial space and in achieving desired rental rates, the cost of allowances and concessions to tenants, which may be less favorable than current terms, a failure rate of small, local business that may be higher than average and competition with other commercial spaces, which may affect our ability to lease space and the level of rents we can obtain. Additionally, if our commercial tenants experience financial distress or bankruptcy, they may fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations. Each of these factors could adversely impact our results of operations and financial condition.
Previous report
Real estate investments are illiquid, and we may not be able to sell our properties on a timely basis when we determine it is appropriate to do so, which could negatively impact our profitability.
Previous report
Real estate investments can be difficult to sell and convert to cash quickly, especially if market conditions are not favorable. Such illiquidity could limit our ability to quickly change our portfolio of properties in response to changes in economic or other conditions. Moreover, the REIT tax laws require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer property sales that otherwise would be in our best interest. Due to these factors, we may be unable to sell a property at an advantageous time or on the terms anticipated which could negatively impact our profitability.
Previous report
Jurisdictions in which we own property have adopted, or may in the future adopt, laws and regulations imposing restrictions on the timing or amount of rent increases or have imposed regulations relating to low- and moderate-income housing. In addition, some jurisdictions in the United States where we do not currently have communities have recently adopted regulations restricting the use of algorithmic devices or systems when making decisions regarding rents or occupancy, and other jurisdictions where we have properties could adopt similar regulations in the future. Laws and regulations that restrict the timing and amount of rent increases limit our ability to charge market rents, increase rents or evict residents at our apartment communities and could make it more difficult for us to dispose of properties in certain circumstances. Similarly, compliance procedures associated with rent control statutes and low- and moderate-income housing regulations could have a negative impact on our operating costs, and any failure to comply with low- and moderate-income housing regulations could result in the loss of certain tax benefits and the forfeiture of rent payments. In addition, such low- and moderate-income housing regulations often require us to rent a certain number of homes at below-market rents, which has a negative impact on our ability to increase cash flows from our residential properties subject to such regulations. Furthermore, such rent control and rent stabilization regulations may negatively impact our ability to attract higher-paying residents to such properties. As of December 31, 2024, four of our residential properties, each located within the Washington, DC metro region, were subject to such rent control or rent stabilization regulations.
Previous report
Our business and reputation depend on providing our residents with quality housing including a wide variety of amenities such as covered parking, swimming pools, fitness facilities and similar features, highly reliable services, including water and electric power and the consistent operation of our communities. The delayed delivery or any material reduction or prolonged interruption of these services may cause residents to terminate their leases or may result in a reduction of rents and/or increase in our costs or other issues. In addition, we may fail to provide quality housing and continuous access to amenities, including as a result of government mandated closures due to health concerns, mechanical failure, power outage, human error, vandalism, physical or electronic security breaches, war, terrorism and similar events. Such service interruptions, closures, mechanical failures or other events may also expose us to additional liability claims and damage our reputation and brand and could cause current residents to terminate or not renew their leases, and prospective residents to seek housing elsewhere. Any such failures could impair our ability to continue providing quality housing and consistent operation of our communities, which could adversely affect our business, financial condition and results of operations.
Previous report
We face risks associated with property development/redevelopment, which could have an adverse effect on our financial condition, results of operations or ability to satisfy our debt service obligations.
Previous report
We may, from time to time, engage in development and redevelopment activities, some of which may be significant. Developing or redeveloping properties presents a number of risks for us, including risks relating to necessary permitting, risks relating to development and construction costs and/or permanent financing, environmental remediation, timeline disruptions and demand for the completed property.
Previous report
Properties developed or acquired for development may generate little or no cash flow from the date of acquisition through the date of completion of development and commencement of leasing activity. In addition, new development activities, regardless of whether or not they are ultimately successful, may require a substantial portion of management’s time and attention.
Previous report
These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken. Some of these development/redevelopment risks may be heightened given uncertain and potentially volatile market conditions. If market volatility causes economic conditions to remain unpredictable or to trend downwards, we may not achieve our expected returns on properties we develop and we could lose some or all of our investments in those properties. In addition, the lead time required to develop, construct, and lease-up a development property may increase, which could adversely impact our projected returns or result in a termination of the development project. The materialization of any of the foregoing risks could have an adverse effect on our financial condition, results of operations or ability to satisfy our debt service obligations.
Previous report
Environmental, social and governance matters have become increasingly important to investors and other stakeholders. Certain organizations that provide corporate risk and corporate governance advisory services to investors have developed scores and ratings to evaluate companies based upon ESG metrics. Many investors focus on ESG-related business practices and scores when choosing where to allocate their investments and may consider a company’s score as a factor in making an investment decision. The focus and activism related to ESG and related matters may constrain our business operations or increase expenses. Additionally, if our corporate responsibility procedures or standards do not meet the standards set by various constituencies, we may face reputational damage. There can be no assurance of how we will score on the ESG metrics used by such advisory organizations in the future, particularly since the criteria by which companies are rated for their ESG efforts may change. A low ESG score could result in a negative perception of the Company, exclusion of our securities from consideration by certain investors and/or cause investors to reallocate their capital away from the Company, each of which could have an adverse impact on the price of our securities.
Previous report
As we continue to invest and focus on ESG efforts and initiatives that we believe are appropriate for the Company and our shareholders, we could also be criticized by ESG detractors for the scope or nature of our ESG initiatives or goals. We could also be subjected to negative responses by governmental actors (such as anti-ESG legislation or retaliatory legislative treatment), tenants and residents, that could adversely affect our reputation, financial condition and results of operations.
Previous report
We face risks associated with property acquisitions.
Previous report
We may acquire properties and expand into new markets which would increase our size and geographic diversity and could alter our capital structure. In addition, our acquisition activities and results may be exposed to the following risks:
Previous report
•we may have difficulty finding properties that are consistent with our strategies and meet our standards;
Previous report
•we may be unable to finance acquisitions on favorable terms or at all;
Previous report
•the occupancy levels, lease-up timing and rental rates of acquired properties may not meet our expectations;
Previous report
•even if we enter into an acquisition agreement for a property, we may be unable to complete that acquisition after making a non-refundable deposit and incurring certain other acquisition-related costs;
Previous report
•we may be unable to acquire a desired property at all or at the desired purchase price because of competition from other real estate investors, including publicly traded real estate investment trusts, institutional investment funds and private investors;
Previous report
•the timing of property acquisitions may lag the timing of property dispositions, leading to periods of time where projects’ proceeds are not invested as profitably as we desire;
Previous report
•we may fail to secure required zoning, occupancy or other governmental permits and authorizations or applicable zoning and land use laws may change;
Previous report
•new acquisitions and developments may fail to perform as expected or we may underestimate costs necessary to bring an acquired property up to our standards;
Previous report
•we may assume liabilities for undisclosed environmental contamination;
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Reworded paragraphs (24)
Previous wording
Our performance and value are subject to risks associated with our apartment communities and with the real estate industry, which could adversely affect our cash flow and ability to make distributions to our shareholders.
Current wording
Our operating performance and value are subject to risks associated with our apartment communities and with the real estate industry, which could adversely affect the value at which we are able to sell our apartment communities.
Previous wording
Our business and reputation depend on our ability to continue to provide high quality housing and consistent operation of our communities, the failure of which could adversely affect our business, financial condition and results of operations.
Current wording
•our ability to provide high quality housing and consistent operation of our communities;
Previous wording
•economic and market conditions including: migration to areas outside of major metropolitan areas where our portfolio is concentrated, new construction and excess inventory of residential and owned housing/condominiums, increasing portions of owned housing/condominium stock being converted to rental use;
Current wording
•economic and market conditions, including significant job losses in the regions in which we operate, migration to areas outside of the major metropolitan areas where our properties are located, changes in immigration policy and enforcement, new construction, excess inventory of residential and owned housing/condominiums, and increasing portions of owned housing/condominium stock being converted to rental use;
Previous wording
•our ability to attract and retain qualified personnel with knowledge of the market; and
Current wording
•our ability to retain qualified personnel with knowledge of the market;
Previous wording
•political conditions, civil disturbances, earthquakes and other natural disasters, terrorist acts or acts of war and actual or anticipated geopolitical instability.
Current wording
•political conditions, civil disturbances, earthquakes and other natural disasters, actual or threatened acts of violence, including terrorist acts or acts of war and actual or anticipated geopolitical instability;
Previous wording
Macroeconomic trends, including increases in inflation and high interest rates, may adversely impact our business, financial condition and results of operations. In recent years, inflation in the United States has risen to levels not experienced in recent decades, including rising energy prices, prices for consumer goods, interest rates and wages. These increases and any interventions, fiscal or otherwise, by the U.S. government in reaction to such events could negatively impact our business by increasing our operating costs and borrowing costs as well as decreasing the cash available to our residents and tenants and prospective residents and tenants who wish to rent in our communities. Although we expect to be able to increase rent to combat the effects of inflation, the cost to operate and maintain communities could increase faster or at a rate greater than our ability to increase rents that residents and tenants would be willing to pay, which could adversely affect our results of operations. Additionally, a decline in the market value of real estate in the regions in which we operate may result in the carrying value of certain real estate assets exceeding their fair value, which has recently and in the future may require us to recognize an impairment to those assets. For example, we recognized an impairment in the third quarter of 2023 on our sole remaining office property, Watergate 600.
Current wording
•macroeconomic trends, including inflation, high interest rates and a decline in the market values of real estate in the regions in which we operate;
Previous wording
Short-term leases expose us to the effects of declining market rents sooner than long-term leases, which could adversely affect our cash flow, results of operations and financial condition.
Current wording
•short-term leases expose us to the effects of declining market rents sooner than long-term leases;
Previous wording
Expenses may increase or remain constant even if our revenues decrease.
Current wording
•expenses, including any payments required under the Secured Term Loan, may increase or remain constant even if our revenues decrease;
Previous wording
Rent control, rent stabilization legislation and other regulatory restrictions may impact the manner in which we make rent decisions, including our ability to increase rents and pass through new or increased operating costs to our residents.
Current wording
•rent control, rent stabilization legislation and other regulatory restrictions may impact the manner in which we make rent decisions, including restrictions on the use of algorithmic devices or systems, our ability to increase rents and pass through new or increased operating costs to our residents and to evict residents;
Previous wording
Corporate social responsibility, specifically related to ESG matters, may constrain our business operations, impose additional costs and expose us to new risks that could adversely impact our results of operations and financial condition and the price of our securities.
Current wording
•corporate social responsibility, including those risks related to negative responses to our ESG efforts, may constrain our business operations, impose additional costs and expose us to new risks;
Previous wording
Climate change and regulation regarding climate change in the regions in which we operate may adversely affect our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders.
Current wording
•climate change and regulation regarding climate change in the regions in which we operate;
Previous wording
Some potential losses are not covered by insurance, which could adversely affect our financial condition or cash flow.
Current wording
•the fact that some potential losses are not covered by insurance;
Previous wording
A pandemic and measures intended to prevent its spread, could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Current wording
•a pandemic and measures intended to prevent its spread, including the effect on international trade and varying unemployment levels; and
Previous wording
We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments which may adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.
Current wording
•risks related to the actions of our partners in real estate joint ventures and other investments.
Current wording
Litigation risk could affect our business and the amount of our liquidating distributions.
Previous wording
We are involved and may continue to be involved in legal proceedings and claims in the ordinary course of business and may also be involved in class actions, inquiries and governmental investigations. These legal proceedings may include, but are not limited to, proceedings related to consumer, shareholder, securities, antitrust, employment, environmental, development, condominium conversion, tort, eviction and commercial legal issues. Litigation can be lengthy and expensive, and it can divert management's attention and resources. Results cannot be predicted with certainty, and an unfavorable outcome in litigation could result in liability material to our financial condition or results of operations. In addition, other multifamily apartment owners could become involved in legal proceedings, the outcome of which could affect their business as well as the way we conduct our business. For example, one of our vendors, RealPage, is currently involved in lawsuits alleging that RealPage and others conspired to artificially inflate the prices of multifamily residential real estate above competitive levels.
Current wording
We are involved and may continue to be involved in legal proceedings and claims in the ordinary course of business and may also be involved in class actions, inquiries and governmental investigations. These legal proceedings may include, but are not limited to, proceedings related to consumer, shareholder, securities, antitrust, employment, environmental, development, condominium conversion, tort, eviction and commercial legal issues. In addition, other multifamily apartment owners could become involved in legal proceedings, the outcome of which could affect their business as well as the way we conduct our business. For example, one of our vendors, RealPage, has been involved in lawsuits alleging that RealPage and others conspired to artificially inflate the prices of multifamily residential real estate above competitive levels. Litigation can be lengthy and expensive, and it can divert management's attention and resources. Results of such legal proceedings cannot be predicted with certainty, and resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our ability to pay our liquidating distributions.
Previous wording
We are dependent on our information technology networks and systems, as well as those of third parties, to access, process, transmit and store proprietary and confidential information, including personal information of residents, employees, and vendors. We face cybersecurity threats, including system, network or internet failures, cyber-attacks, ransomware and other malware, social engineering, phishing schemes and workforce member error, negligence, or fraud. The risk of a cyber-attack, including by hackers, nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks around the world have increased. Any such cybersecurity incident, including those impacting personal information, may result in disruption of our operations, material harm to our financial condition, cash flows and the market price of our common shares, misappropriation of assets, compromise or corruption of confidential information (including personal information) collected in the course of conducting our business, liability for impacted information or assets, increased cybersecurity protection and insurance costs, regulatory scrutiny or enforcement, litigation and damage to our stakeholder relationships. A cybersecurity incident could also interfere with our ability to comply with financial reporting requirements. Additionally, future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and threats, as our systems or business activities could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program. In addition, increased regulation of data collection, use and retention practices, including self-regulation and industry standards, changes in existing laws and regulations, enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of laws, could increase our cost of compliance and operation, limit our ability to grow our business or otherwise harm the Company.
Current wording
We are dependent on our information technology networks and systems, as well as those of third parties, to access, process, transmit and store proprietary and confidential information, including personal information of residents, employees, and vendors. We face cybersecurity threats, including system, network or internet failures, cyber-attacks, ransomware and other malware, social engineering, phishing schemes and workforce member error, negligence, or fraud. The risk of a cyber-attack, including by hackers, nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks around the world have increased. We have made and may continue to make public statements regarding our intentions to liquidate and sell our remaining properties, which may increase the risk that we are targeted in a cyber-attack by a malicious third party, and operations linked to any such sales or related efforts might increase the chances or magnitude of a cybersecurity incident. Any such cybersecurity incident, including those impacting personal information, may result in disruption of our operations, material harm to our financial condition, cash flows and our ability to sell our remaining properties, reduce the amount or delay the timing of distributions, misappropriation of assets, compromise or corruption of confidential information (including personal information) collected in the course of conducting our business, liability for impacted information or assets, increased cybersecurity protection and insurance costs, regulatory scrutiny or enforcement, litigation and damage to our stakeholder relationships. A cybersecurity incident could also interfere with our ability to comply with financial reporting requirements. In addition, increased regulation of data collection, use and retention practices, including self-regulation and industry standards, changes in existing laws and regulations, enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of laws, could increase our cost of compliance and operation or otherwise harm the Company.
Previous wording
Although we and our third-party service providers make efforts to maintain the security and integrity of our information, including the implementation of security measures, required employee awareness training and the existence of a disaster recovery plan, we can provide no assurance that our data security measures will be able to detect or prevent all cybersecurity incidents. These risks require increasing resources from us to analyze and mitigate, and there is no assurance that our efforts will be effective. Additionally, as a result of the internalization of community management services for our properties, which was completed in 2023, we collect and retain greater amounts of personal information, both from employees and current and potential residents, which increases the risks and potential effects of such a cybersecurity incident.
Current wording
Although we and our third-party service providers make efforts to maintain the security and integrity of our information, including the implementation of security measures on our remaining properties, required employee awareness training and the existence of a disaster recovery plan, we can provide no assurance that our data security measures will be able to detect or prevent all cybersecurity incidents. These risks require significant resources from us to analyze and mitigate, and there is no assurance that our efforts will be effective. Further, adoption of artificial intelligence (“AI”) tools by us or by third parties may pose new cybersecurity challenges. Threat actors may use AI tools to automate and enhance cybersecurity attacks against us, and such threats could become more sophisticated and harder to detect and counteract, which may pose significant risks to our data security and systems. Additionally, as a result of the internalization of community management services for our properties, which was completed in 2023, we collect and retain greater amounts of personal information, both from employees and current and potential residents, which increases the risks and potential effects of such a cybersecurity incident.
Previous wording
We have identified and expect to continue to identify cyber-attacks and cybersecurity incidents affecting our systems and those of third parties, but none of the cyber-attacks and incidents we have identified to date has had a material impact on our business or operations.
Current wording
We have identified and expect to continue to identify cyber-attacks and cybersecurity incidents affecting our systems and those of third parties, but none of the cyber-attacks and incidents we have identified to date has had a material impact on our business or operations. While we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any incurred losses. Moreover, as cyber-attacks increase in frequency and magnitude, we may be unable to obtain cybersecurity insurance in amounts and on terms we view as adequate for our operations.
Previous wording
High interest rates would increase our interest costs and negatively impact our cash flow.
Current wording
High interest rates would increase our interest costs.
Previous wording
We have and may continue to incur indebtedness that bears interest at variable rates. As a result, high interest rates will increase our interest expense, which could adversely affect our cash flow and our ability to service debt. As a protection against high interest rates, we may enter into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts. These agreements, however, increase our risks, including other parties to the agreements not performing or that the agreements may be unenforceable. The Federal Reserve cut its benchmark rate in the third quarter of 2024 for the first time since March 2020 and continued with two more benchmark rate cuts in the fourth quarter of 2024, but future reductions to benchmark rates are not certain. Also, if prevailing interest rates or other factors, such as the reluctance of lenders to make commercial real estate loans or the loss of the benefits of hedging arrangements, result in higher interest rates on our indebtedness, the increased interest expenses would adversely affect our cash flow, financial condition, and results of operation.
Current wording
We have incurred indebtedness that bears interest at a variable rate. As a result, high interest rates will increase our interest expense, which could adversely affect our cash flow and our ability to service debt. As a protection against high interest rates, we are required under the Secured Term Loan to enter, and have entered, into agreements such as interest rate caps. These agreements, however, increase our risks, including other parties to the agreements not performing or that the agreements may be unenforceable. Also, if prevailing interest rates or other factors, such as the reluctance of lenders to make commercial real estate loans or the loss of the benefits of hedging arrangements, result in higher interest rates on our indebtedness, the increased interest expenses would adversely affect our cash flow, financial condition, results of operation and amount of liquidating distributions.
Previous wording
We rely on borrowings under our credit facility, term loan, mortgage notes, and debt securities to finance acquisitions and development activities and for general corporate purposes. In the past, the commercial real estate debt markets have experienced significant volatility due to a number of factors, including the tightening of underwriting standards by lenders and credit rating agencies and the diminished market sentiment and prices with respect to certain asset classes. This volatility resulted in investors decreasing the availability of debt financing as well as increasing the cost of debt financing. These conditions, which increase the cost and reduce availability of debt, may worsen in the future. Circumstances could again arise in which we may not be able to obtain debt financing in the future on favorable terms, or at all. If we are unable to borrow under our credit facility, obtain new debt financing or to refinance existing debt, our financial condition and results of operations would likely be adversely affected. Similarly, global equity markets have experienced significant price volatility and liquidity disruptions in recent years, and similar circumstances could significantly and negatively impact liquidity in the financial market in the future. Any disruption could negatively impact our ability to access additional financing at reasonable terms or at all.
Current wording
In the past, the commercial real estate debt markets have experienced significant volatility due to a number of factors, including the tightening of underwriting standards by lenders and credit rating agencies and the diminished market sentiment and prices with respect to certain asset classes. These conditions, which increase the cost and reduce availability of debt, may worsen in the future. Circumstances could again arise in which we may not be able to obtain debt financing in the future on favorable terms, or at all. Similarly, global equity markets have experienced significant price volatility and liquidity disruptions in recent years, and similar circumstances could significantly and negatively impact liquidity in the financial market in the future. Any disruption could negatively impact our ability to access additional financing at reasonable terms or at all. If we are unable to complete the sales of all of our remaining properties in a timely manner, we are likely to need to refinance a significant portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the Secured Term Loan. The materialization of any of the foregoing risks would adversely affect our financial condition and results of operations.
Previous wording
Under current federal partnership tax audit rules, subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and a partner’s allocable share thereof) is determined, and taxes, interest, and penalties attributable thereto are assessed and collected, at the partnership level. With respect to any partnership in which we invest, unless such partnership makes an election or takes certain steps to require the partners to pay their tax on their allocable shares of the adjustment, it is possible that such partnership would be required to pay additional taxes, interest, and penalties as a result of an audit adjustment. We could be required to bear the economic burden of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate‑level taxes had we owned the assets of the partnership directly.
Current wording
Under current federal partnership tax audit rules, subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and a partner’s allocable share thereof) is determined, and taxes, interest, and penalties attributable thereto are assessed and collected, at the partnership level. With respect to any partnership in which we currently invest (or in recent years had invested, but no longer invest), unless such partnership makes an election or takes certain steps to require the partners to pay their tax on their allocable shares of the adjustment, it is possible that such partnership would be required to pay additional taxes, interest, and penalties as a result of an audit adjustment. We could be required to bear the economic burden of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate‑level taxes had we owned the assets of the partnership directly.
Previous wording
The IRS, the United States Treasury Department and Congress frequently review U.S. federal income tax legislation, regulations and other guidance. In addition, according to publicly released statements, a top legislative priority of the Trump administration and Congress may be significant reform of the Code, including significant changes to taxation of business entities. We cannot predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be adopted. Further, from time to time, changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. Any legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect our taxation or taxation of our shareholders. We urge you to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our common shares.
Current wording
The Internal Revenue Service, the United States Treasury Department and Congress frequently review U.S. federal income tax legislation, regulations and other guidance. In addition, according to publicly released statements, a top legislative priority of the current Trump administration and Congress may be significant reform of the Code, including significant changes to taxation of business entities. We cannot predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be adopted. Further, from time to time, changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. Any legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect our taxation or taxation of our shareholders. We urge you to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our common shares.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
•litigation risk, including legal proceedings and claims in the ordinary course of business and class actions, inquiries and governmental investigations;
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
•significant job losses in the regions in which we operate;