Elme Communities (ELMES) Risk Analysis

Historically, extraordinary corporate actions such as the Portfolio Sale Transaction and Plan of Sale and Liquidation, and the actions and transactions contemplated thereby, sometimes lead to securities class action lawsuits being filed against the company taking such actions, which can delay or prevent altogether the completion of such actions. We may become involved in this type of litigation as a result of the shareholder votes on the Portfolio Sale Transaction and/or the Plan of Sale and Liquidation. In October 2025, two purported holders of the Company's common shares filed substantially similar complaints against the Company and its members of the Board in the Supreme Court of the State of New York, County of New York,alleging that the proxy statement negligently misrepresented or omitted material information in violation of New York common law and seeking, among other things, to enjoin or rescind the Portfolio Sale Transaction and the Plan of Sale and Liquidation, an award of damages if the Portfolio Sale Transaction and the Plan of Sale and Liquidation were consummated and an award of expenses and attorneys' fees. With respect to any lawsuits filed against us, the litigation costs may be expensive, and, even if we ultimately prevail, the process will divert our attention from the wind-down of the Company's business and affairs and termination of the Company's existence. If we were not to prevail in such a lawsuit, we cannot predict the amount of any damages for which we may be obligated and if any plaintiffs are successful in obtaining an injunction, it may prohibit us from conducting the wind-down and termination of the Company's existence under the Plan of Sale and Liquidation. If applicable, any such damages may be significant, may have a material adverse effect on our financial condition and may reduce, eliminate or delay the amounts available for distribution to our shareholders.

Since we have approved the Plan of Sale and Liquidation, the governing documents of certain of our institutional investors may prohibit them from holding our common shares and they may be forced to divest their ownership for our common shares. If our common shares are dropped from certain indexes, as they were from the Russell 2000 or the SmallCap 600 in January 2026, investors who invest in stocks included on such indexes may be forced to divest their ownership for our common shares. If either or both of these were to be the case, it would create downward pressure on the trading price of our common shares. If this were to occur, shareholders who sell common shares prior to our completion of the liquidation may receive less than shareholders who receive all liquidating distributions ultimately made.

In connection with the Plan of Sale and Liquidation, at a future date as the Board determines, we anticipate that we will voluntarily delist our common shares from the NYSE, subject to the rules of the NYSE and our declaration of trust, in order to reduce our operating expenses and maximize our liquidating distributions. In addition, the NYSE may commence delisting proceedings against us if (i) the average closing price of our common shares over a 30-day consecutive trading period falls below $1.00 per common share, (ii) our average market capitalization over a 30-day consecutive trading period falls below $15 million or (iii) we lose our REIT qualification. If our common shares are delisted, you may have difficulty trading your common shares on the secondary market. In addition, if the Board determines, in its sole discretion, to transfer our remaining assets and liabilities to a liquidating entity, our liquidating entity will likely provide for a prohibition on the transfer of trust interests, subject to certain limited exceptions.

We intend to dispose of our assets, discharge, pay or set aside reserves for our liabilities, including contingent liabilities, and distribute to our shareholders any remaining assets pursuant to the Plan of Sale and Liquidation as soon as practicable. In the event that it should not be feasible, in the opinion of the Board, for the Company to pay, or adequately provide for, all of our debts and liabilities, or if the Board shall determine it is advisable, the Board may establish a liquidating entity to which the Company could distribute in kind its unsold assets. Any reserve fund or assets transferred to a liquidating entity established by us may not be adequate to cover any contingent expenses and liabilities. Under Maryland law, if we make distributions and fail to maintain an adequate reserve fund or fail to transfer adequate assets in a liquidating entity for payment of our contingent expenses and liabilities, each shareholder could be held liable for payment to our creditors of such amounts owed to creditors which we fail to pay. The liability of any shareholder would be limited to the amount of such liquidating distributions previously received by such shareholder from us or the liquidating entity. Accordingly, in such event, a shareholder could be required to return all such distributions received from the Company or the liquidating entity. If a shareholder has paid taxes on liquidating distributions previously received, a repayment of all or a portion of such amount could result in a shareholder incurring a net tax cost if the shareholder's repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. If we decide to establish a reserve fund or transfer assets to a liquidating entity to provide for any unknown or outstanding liabilities and expenses, it may delay or reduce distributions our shareholders would otherwise receive.

We intend to, and may be required to, continue to comply with the applicable reporting requirements of the Exchange Act, even if compliance with these reporting requirements is economically burdensome. To the extent such compliance is required, in order to curtail expenses, we may seek relief from the SEC from certain of the reporting requirements under the Exchange Act. We anticipate that, if such relief is granted, we would continue to file annual reports on Form 10-K and current reports on Form 8-K to disclose material events relating to our liquidation, along with any other reports that might be required by the SEC. Although the financial statements contained in such reports will be prepared in accordance with GAAP and will be reviewed by our independent registered public accounting firm, it is not contemplated that the financial statements will be audited by independent registered public accountants. We anticipate that, if such relief is granted, we would not prepare or distribute quarterly financial statements.

The REIT provisions of the Code generally require that each year we distribute as dividends to our shareholders at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding any net capital gains). Our liquidating distributions generally will not qualify as deductible dividends for this purpose unless, among other things, we make such distributions within 24 months after the adoption of the Plan of Sale and Liquidation. Conditions may arise which cause us not to be able to liquidate within such 24-month period or otherwise maintain our REIT status. In such event, rather than retain our assets and risk losing our status as a REIT, we may elect, for tax purposes, to transfer our remaining assets and liabilities to a liquidating trust or convert the Company to a liquidating entity that is a limited liability company, partnership or a trust. In addition, the Board may cause the Company to transfer its remaining assets and liabilities to a liquidating trust or to convert the Company to another form of liquidating entity if the Board determines, in its discretion, that it is advantageous or appropriate to do so. Such a transfer or conversion would be treated as a distribution of our remaining assets to our shareholders, together with a contribution of the assets to the liquidating trust or other liquidating entity. As a result, you would recognize gain to the extent that your share of the cash and the net fair market value of any assets (less liabilities assumed) received or initially held by the liquidating trust or other liquidating entity was greater than your basis in your Company common shares, regardless of whether you contemporaneously receive a distribution of cash with which to satisfy any resulting tax liability, and the Company may have withholding tax obligations with respect to foreign shareholders. In addition, it is possible that the fair market value of the assets received or initially held by the liquidating trust or other liquidating entity, as estimated for purposes of determining the extent of your gain at the time at which interests in the liquidating trust or other liquidating entity are distributed to the shareholders, will exceed the cash or fair market value of property received by the liquidating trust or other liquidating entity on a later sale of the assets. In this case, you could recognize a loss in a taxable year subsequent to the taxable year in which the gain was recognized, the deductibility of which may be limited under the Code. The distribution to shareholders of interests in a liquidating trust or the conversion of the Company to a liquidating entity may also cause ongoing adverse tax consequences (particularly to tax-exempt and foreign shareholders, which may be required to file U.S. tax returns with respect to their share of income generated by the liquidating trust or other liquidating entity).

The Company has set aside cash for operations during the wind-down of the Company's business and affairs and sales of our remaining properties. However, there can be no assurance this amount, together with funds from operations of our remaining properties until they are sold, and proceeds from the sales of the Remaining Company Properties will be sufficient for all required purposes. If such funds are insufficient, we may require additional capital to fund our other capital needs, including funds that will be needed to implement the Plan of Sale and Liquidation effectively. For example, we have been and may in the future be required to invest capital to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct these defects or to make these improvements or be able to raise such additional capital, if needed. Reductions in the amounts that we receive when we sell our assets, or our failure to comply with the covenants in the Secured Term Loan, our failure to meet our capital needs with the cash on hand, or other financing that is on favorable terms, could reduce, eliminate or delay the liquidating distributions we make to our shareholders, or otherwise adversely affect our financial condition.

Following the sales of the Remaining Company Properties, we will retain liabilities that must be satisfied prior to any final distribution to our shareholders, and some of those liabilities are uncertain or unknown at this time. Significant time could be required to resolve some of these liabilities, including as a result of factors beyond our control, which could impact both the timing and the amount of any final distribution to our shareholders. Also, some liabilities may involve third party disputes. If we have underestimated our existing obligations and liabilities, such as future litigation, or if unanticipated or contingent liabilities arise, the amount of distributions to our shareholders could be less than the amounts we have estimated or the timing could be delayed. For the foregoing reasons, among others, there can be no assurance as to the timing and amount of any final distributions to our shareholders.

Although we provided an updated estimated range of remaining liquidating distributions to shareholders of between $2.35 and $2.80 per share on January 23, 2026 (after giving effect to the initial liquidating distribution of $14.67 per share paid in January 2026), there can be no assurances regarding the amounts of the remaining liquidating distributions, if any, or the timing thereof. The remaining amounts, if any, that may ultimately be available for distribution to our shareholders are not yet fully known, and there are many factors that may affect the amounts available for distribution to our shareholders, including, among other things, our results of operations, the operating costs and amounts to be set aside for claims, liabilities and other obligations prior to and during the liquidation and winding-up process, and the time required to complete our liquidation and winding up. The estimated range of remaining liquidating distributions disclosed in our January 23, 2026 press release was estimated as of January 23, 2026 and did not take into account, among other things, interest rate, market volatility or other changes since that time or in the future and was derived, in part, from the estimated range of gross asset sales for the properties, which reflected actual contract pricing for the Remaining Company Properties then under contract and other gross asset value estimate adjustments discussed in the press release issued by the Company on January 23, 2026, less estimates for transaction costs, (including updates to reflect actual transaction costs associated with closing the Portfolio Sale Transaction and finalizing the Secured Term Loan), debt service costs, debt repayment amounts for the Secured Term Loan and establishment of reserves to satisfy known liabilities and estimated, unascertained or contingent liabilities and expenses, estimated operating costs to run the Company until completion of the wind-down of the Company's business and affairs and dissolution of the Company, capital expenditure requirements and REIT compliance costs, but adjusted upwards for estimated cash flow/net working capital to be generated from the Company's property operations prior to completing sales of the Remaining Company Properties. These estimates may overstate the proceeds from asset sales or understate the actual expenses, which means actual remaining liquidating distributions may be significantly less or more than the estimated range. Other uncertainties that could cause the aggregate amount of remaining liquidating distributions to be less than our estimate, or the timing of distributions to be delayed, in addition to other risks described elsewhere in this section, include the following: - the price that potential buyers of our properties may be willing to pay for our remaining company properties may change due to a number of factors beyond our control, including changes in general economic or local conditions, changes in interest rates, availability of mortgage funds, supply and demand dynamics, changes in tax, real estate, environmental and zoning laws and regulations, occupancy percentages, lease rates, competition, operating performance and the perceived quality and dependability of income flows from tenancies, potential major repairs or other contingent liabilities associated with the properties, and a number of other factors, both local and national;- delays in our ability to find suitable buyers, complete the asset sales on the terms we currently expect and the wind-down of our business and affairs and termination of our existence could require us to incur expenses for a longer period than anticipated;- our ability to comply with the covenants and other terms of the Secured Term Loan which could impact our ability to make, or the timing of, additional liquidating distributions;- the costs and expenses of executing the Plan of Sale and Liquidation may differ from our estimates;- the current market conditions in the DC area, which have continued to soften throughout our marketing and sale process for the Remaining Company Properties, could continue to soften;- the estimated amount of cash flow/net working capital to be generated from our property operations prior to completing the wind-down of our business and affairs and termination of our existence pursuant to the Plan of Sale and Liquidation may be lower than we anticipate;- 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;- unanticipated or emergency capital expenditures may result in the need to incur additional debt financing or other costs and expenses that are not included in our estimates and which we cannot reasonably estimate at this time;- unknown or additional costs or liabilities that arise in the future, including future litigation, which we cannot reasonably estimate at this time, could delay completion of our liquidation and cause us to incur additional costs and expenses;- costs incurred to maintain our REIT status may be higher than estimated;- the number of issued and outstanding shares used to calculate the estimated range of the additional liquidating distributions could change; and - the reserve amounts we may establish to satisfy known liabilities and liquidating expenses and estimated, unascertained or contingent liabilities and expenses may be insufficient. Any of these uncertainties could impact the amount and timing of the estimated remaining liquidating distributions. For further information regarding the uncertainties and assumptions used in the estimated range of remaining liquidating distributions, please see the Company's Form 8-K filed on January 23, 2026. Additionally, there can be no assurances regarding the amount of your potential total return from receiving all liquidating distributions. Your total return will depend on the amount you paid for your common shares and the date on which you purchased such common shares.

On October 30, 2025, the Company's shareholders approved the Plan of Sale and Liquidation. Pursuant to such Plan of Sale and Liquidation, the Company intends to complete the sales of the Company's remaining properties, including the Properties Under Contract and the Other Remaining Properties, by mid-year 2026, wind down the Company's business and affairs and terminate the Company's existence. Because the sales of these remaining properties are subject to, among other things, completion of the marketing and sale process and negotiation of sale terms and completion of the sales, as applicable, the exact timing of completing the Plan of Sale and Liquidation cannot be determined at this time. The wind-down of the Company's business and affairs and termination of the Company's existence in accordance with the Plan of Sale and Liquidation, including the sales of the Company's remaining properties, present certain risks to our business and operations, which could materially and adversely affect our business, financial results, and the amount of any additional liquidating distributions, including, among other things, that: - we may have difficulty completing the sales of our remaining properties for the prices and on the terms anticipated, or at all;- we expect to incur substantial expenses related to the sale of the remaining properties and the implementation of the Plan of Sale and Liquidation;- our business and operations could be adversely affected, including by diverting significant focus of management, employees and other resources, by impacting our ability to retain our employees and our relationships with residents, tenants, vendors and other third parties, and as a result of limitations on our conduct under purchase agreements for the Remaining Company Properties during the pendency of sales;- additional liabilities and obligations could arise during the liquidation process, including obligations and liabilities which may be retained by us following the closing of the sales of the Remaining Company Properties;- we may be unable to find buyers for our remaining properties on a timely basis or at our expected sales prices, which may reduce or delay our liquidating distributions;- our ability to implement the Plan of Sale and Liquidation depends upon the participation of key personnel who may not remain in place;- we may require additional capital or financing to complete the wind-down of the Company's business and affairs, dissolution and termination of the Company's existence under the Plan of Sale and Liquidation, which may reduce the amount available for distribution to shareholders;- shareholders may be liable to our creditors, up to the amounts received from us pursuant to the Plan of Sale and Liquidation, if our reserve fund or the assets transferred to a liquidating entity are inadequate;- costs and expenses of continuing to operate the Company, including as a public company, such as the need for additional retention costs, particularly if the liquidation takes longer than expected, may be higher than estimated; and - we anticipate that our common shares will be delisted from the NYSE at a future date to be determined by the Board. Additionally, prior to completing the sales of all of the Remaining Company Properties, we will remain subject to all of the risks of operating our properties, including the risk that the cash flow and net working capital generated from the Company's operations prior to completing the wind-down of the Company's business and affairs and termination of the Company's existence may be lower than we anticipate, and the risks and the costs associated with remaining a public company.