ELME

The Company expects to comply with the requirements necessary to continue to qualify as a REIT through the completion of the liquidation process, or until such time as the Company terminates its status as a REIT and/or any remaining assets are transferred into a liquidating trust or other liquidating entity.
The Board shall use commercially reasonable efforts to continue to cause the Company to maintain its REIT status; provided, however, that the Board may elect to terminate the Company’s status as a REIT if it determines that such termination would be in the best interest of the shareholders.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION Recent Accounting Pronouncements In November 2024, the Financial Accounting Standards Board (“FASB”) issued ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”), which will require additional disclosure of the nature of expenses included in the income statement in response to longstanding requests from investors for more information about an entity’s expenses.
The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses.
The new standard will be effective for public companies for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.
The requirements will be applied prospectively with the option for retrospective application.
The Company is currently evaluating the impact of this accounting standard update on our consolidated financial statements.
Principles of Consolidation and Basis of Presentation The accompanying audited consolidated financial statements include the consolidated accounts of Elme Communities and our subsidiaries and entities in which Elme Communities has a controlling financial interest.
All intercompany balances and transactions have been eliminated in consolidation.
As a result of the change to the liquidation basis of accounting, the Company no longer presents a consolidated balance sheet, a consolidated statement of operations, a consolidated statement of equity or a consolidated statement of cash flows subsequent to October 31, 2025.
These statements are only presented for prior year periods to the extent required.
We have prepared the accompanying audited consolidated financial statements in accordance with GAAP, as contained within the FASB’s ASC, including Subtopic 205-30, “Liquidation Basis of Accounting,” as indicated, and pursuant to the rules and regulations of the Securities and Exchange Commission.
Pursuant to the Company’s shareholders’ approval of the Plan of Sale and Liquidation on October 30, 2025, the Company adopted the liquidation basis of accounting as of and for the periods subsequent to November 1, 2025 (as the approval of the Plan of Sale and Liquidation by the Company’s shareholders became imminent in late October 2025 based on the results of the Company’s solicitation of proxies from its shareholders for their approval of the Plan of Sale and Liquidation).
Accordingly, on November 1, 2025, assets were adjusted to their estimated net realizable value, also referred to as liquidation value, which represents the estimated amount of cash or other consideration that the Company expected to realize through the disposal of assets.
The liquidation values of the Company’s real estate properties are presented on a net realizable value basis at December 31, 2025.
Liabilities are carried at their contractual amounts due or estimated settlement amounts.
The Company accrues costs and revenues that it expects to incur and earn as it carries out its liquidation activities through the end of the projected liquidation period to the extent it has a reasonable basis for estimation.
Estimated costs expected to be incurred through the end of the liquidation period included budgeted property expenses and corporate overhead, costs to dispose of its real estate property, costs associated with satisfying known and contingent liabilities, including repayment of the Secured Term Loan, and other costs associated with the winding down and dissolution of the Company.
These amounts are classified as a liability for estimated costs in excess of estimated receipts during liquidation on the consolidated statement of net assets.
Actual costs and income may differ from amounts reflected in the financial statements because of the inherent uncertainty in estimating future events.
See Note 2, “Plan of Sale and Liquidation” and Note 4, “Liabilities for Estimated Costs in Excess of Estimated Receipts During Liquidation” for further discussion.
Revenues are based on in place leases and forecasted operations at properties prior to their sale.
Actual costs incurred but unpaid prior to the Company’s adoption of the liquidation basis of accounting on November 1, 2025, are included in accounts payable and accrued expenses at December 31, 2025 on the consolidated statement of net assets.
All our liabilities under either the going concern basis of accounting or the liquidation basis of accounting are derecognized when we pay the obligation or when we are legally released from being the primary obligor under the liability.
Net assets in liquidation at December 31, 2025 represents the remaining estimated liquidation value available to shareholders upon liquidation.
Due to the uncertainty in the estimated cash flows from operations and the time required to complete the Plan of Sale and Liquidation, actual liquidation costs and sale proceeds may differ materially from the amounts estimated.
All financial results and disclosure through October 31, 2025, prior to the adoption of the liquidation basis of accounting, are presented on a going concern basis.
As a result, the balance sheet as of December 31, 2024, the statements of operations, the statements of comprehensive income, the statements of equity and the statements of cash flow for the ten months ended October 31, 2025 and the years ended December 31, 2024 and 2023 are presented using the going concern basis of accounting.
Use of Estimates in the Financial Statements The preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make certain estimates and assumptions that affect the reported amounts in these financial statements and related notes.
The Company is required to estimate all costs and revenue it expects to incur and earn through the end of liquidation.
All of the estimates and evaluations are susceptible to change and actual results could differ from these estimates.
Revenue Recognition Liquidation Basis of Accounting The Company accrues all income that it expects to earn through the completion of its liquidation to the extent it has a reasonable basis for estimation.
Rental and other revenue are estimated based on projected multifamily operations and contractual in-place leases at Watergate 600 through the anticipated disposition date of the properties as of December 31, 2025.
These amounts are presented net of estimated expenses and other liquidation costs and are classified in liabilities for estimated costs in excess of estimated receipts during liquidation on the consolidated statement of net assets.
Going Concern Basis We primarily lease residential properties under operating leases with terms of generally one year or less.
Rental revenues are recognized in accordance with ASC Topic 842, Leases , using a method that represents straight-line basis over the term of the leases.
In circumstances where a lease concession is provided to the resident, primarily in lease-up, we recognize a reduction of rental revenues on a straight-line basis.
We also generate other property-related revenue associated with the leasing of apartment homes, including parking income, move-in charges, pet rent and other miscellaneous revenue.
Similar to rental income, such revenues are recorded when due from residents and recognized monthly as they are earned.
We recognize cost reimbursement income at our residential properties from pass-through expenses on an accrual basis over the periods in which the expenses were incurred.

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Gone since FY2024

ITEM 1A: RISK FACTORS Set forth below are the risks that we believe are material to our shareholders.
We refer to the shares of beneficial interest in Elme Communities as our “common shares,” and the investors who own shares as our “shareholders.” This section includes or refers to certain forward-looking statements.
You should refer to the explanation of the qualifications and limitations on such forward-looking statements beginning on page 42 .
Risks Related to our Business and Operations We cannot assure you that our evaluation of strategic alternatives will result in any particular outcome, and the process of reviewing strategic alternatives or the conclusion of the process could adversely affect our business and our stockholders.
On February 13, 2025, we announced that the Board has initiated a formal review to evaluate strategic alternatives for the Company .
Our Board has not set a deadline or definitive timetable for the completion of this strategic review process, nor have any decisions been made relating to any strategic alternatives at this time.
There can be no assurance that this process will result in the Company pursuing a transaction or any other strategic outcome.
Any potential transaction may be dependent on a number of factors that are beyond our control, for example, market conditions, industry trends, the interest of third parties in a potential transaction with us and the availability of any necessary financing on reasonable terms.
The process of exploring strategic alternatives could adversely impact our business, financial condition and results of operations.
We could incur substantial expenses associated with identifying, evaluating and negotiating potential strategic alternatives, including those related to equity compensation, severance pay and legal, accounting and financial advisory fees.
In addition, the process may be time consuming and disruptive to our business operations, could divert the attention of management and the Board from our business, could negatively impact our ability to attract, retain and motivate key employees, and could expose us to potential litigation in connection with this process or any resulting transaction.
Further, speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.
Our performance and value are subject to risks associated with our apartment communities and with the real estate industry, which could adversely affect our cash flow and ability to make distributions to our shareholders.
Our financial performance and the value of our apartment communities are subject to the risk that they do not generate revenues sufficient to meet our operating expenses, debt service and capital expenditures, which could cause our cash flow and ability to make distributions to our shareholders to be adversely affected.
Any of the following factors, among others, may adversely affect the cash flow generated by our apartment communities and our ability to make distributions to our shareholders: • a decrease in demand for rental properties over home ownership resulting from, among other reasons, resident preferences, decreases in housing prices and mortgage interest rates, government programs to promote home ownership or subsidize rental housing, employment growth and household formation; • competition with other housing alternatives, including owner occupied single and residential apartment homes; • a return of the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers; • declines in the financial condition of our residents and their ability to pay rent; • significant job losses in the regions in which we operate; • changes in interest rates and availability of financing; • economic and market conditions including: migration to areas outside of major metropolitan areas where our portfolio is concentrated, new construction and excess inventory of residential and owned housing/condominiums, increasing portions of owned housing/condominium stock being converted to rental use; • the effects of government regulation in the real estate industry; • our ability to integrate new technological innovations (including artificial intelligence) into our marketing and properties to attract residents; • our ability to attract and retain qualified personnel with knowledge of the market; and • political conditions, civil disturbances, earthquakes and other natural disasters, terrorist acts or acts of war and actual or anticipated geopolitical instability.
Substantially all of our investments are concentrated in the multifamily asset class, which make us more vulnerable to a downturn in that asset class and could adversely affect our results of operations.
As of December 31, 2024, substantially all of our investments are concentrated in the multifamily industry, and we are subject to risks inherent in investments in a single type of property.
A downturn or slowdown in the demand for multifamily housing may have more pronounced effects on our results of operations or on the value of our assets than when we had investments in more than one asset class.
Additionally, the multifamily industry is also highly competitive.
We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities.
Many of these entities have significant financial and other resources, including operating experience, allowing them to compete effectively with us.
Competitors with substantially greater financial resources than us may be able to accept more risk than we can effectively manage.
In addition, those competitors that are not REITs may be at an advantage to the extent they can use working capital to finance projects, while we (and our competitors that are REITs) may have to forgo and/or liquidate otherwise attractive investments as we must comply with REIT requirements.
These actions could have the effect of reducing our income and amount available for distribution to shareholders.
Thus, compliance with REIT requirements may hinder our ability to make, or, in certain cases, maintain ownership of, certain attractive investments.
Competition may also result in overbuilding of multifamily properties, causing an increase in the number of multifamily units available which could potentially decrease occupancy and multifamily rental rates at our properties.
We may also be required to expend substantial sums to attract new residents.
These factors may cause the resale value of properties to be diminished because the market value of a particular property will depend principally upon the net revenues generated by the property.
Further, costs associated with real estate investment generally are not reduced when circumstances, such as a pandemic, cause a reduction in income from the investment.
Each of these factors could possibly limit our ability to retain our current residents, attract new ones or increase or maintain rents, which could lower the value of our properties and adversely affect our results of operations and our financial condition.
We may be unable to successfully expand our operations into new markets and submarkets, which could have a material adverse effect on us, the trading price of our common shares and our ability to make distributions to our shareholders.
We intend to look for additional opportunities to expand our residential platform through acquisitions in Sunbelt markets, to the extent they meet our investment criteria and are consistent with our growth strategy.
Between 2021 and 2023, we acquired six apartment communities in the Atlanta metro region and plan to continue to invest in the Sunbelt region in 2025 and beyond.
However, our historic operations have been concentrated in the Washington DC, metro region, where we have expertise in acquiring and operating assets.
The risks applicable to our ability to acquire, integrate and operate apartment communities in the Washington DC, metro region are also applicable to our ability to acquire, integrate and operate apartment communities in new markets.
In addition to these risks, we will not possess the same level of familiarity with the dynamics and market conditions of any new markets that we have entered or that we may enter as we do with the Washington, DC market, which could adversely affect our ability to expand and our success in expanding into those markets.
Furthermore, we may be unable to build a significant market presence or achieve a desired return on our investments in communities in new markets.
The occurrence of any of the foregoing risks could have a material adverse effect on us, the trading price of our common shares and our ability to make distributions to our shareholders.
Macroeconomic trends, including inflation and high interest rates, may adversely affect our cash flow, financial condition and results of operations.
Macroeconomic trends, including increases in inflation and high interest rates, may adversely impact our business, financial condition and results of operations.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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