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Share-Based Compensation

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement, Noncash Expense [Abstract]

NOTE 10: SHARE-BASED COMPENSATION

Elme Communities maintains short-term and long-term incentive plans that allow for share-based awards to officers and non-officer employees. Share-based awards are provided to officers and non-officer employees, as well as trustees, under the Washington Real Estate Investment Trust 2016 Omnibus Incentive Plan which allows for awards in the form of restricted shares, restricted share units, options, and other awards up to an aggregate of 2,400,000 shares over the ten-year period in which the plan will be in effect. Restricted share units are converted into shares of our stock upon full vesting through the issuance of new shares. There were no options issued or outstanding as of December 31, 2023 and 2022.

On February 14, 2020, the board of trustees adopted an Amended and Restated Executive Officer Short-Term Incentive Plan (the “Officer STIP”) and an Amended and Restated Executive Officer Long-Term Incentive Plan (the “Officer LTIP”). Upon adoption by the board of trustees, both plans became effective for the performance periods beginning January 1, 2020.

Officer STIP

Under the Officer STIP, as revised, all named executive officers will have the opportunity to receive an annual cash bonus based on the achievement of certain performance measures that will be established for each performance period. Each year, the Compensation Committee will establish the threshold, target and high performance goals for each performance measure, as well as the weighting attributable to each such performance measure, with the aggregate weighting for all such performance measures to total 100%. Such performance measures will consist of one or more financial performance measures and, if determined by the Compensation Committee, individual performance measures.

Upon or following completion of a performance period, the degree of achievement of each performance measure will be determined by the Compensation Committee. The degree of achievement of any individual financial performance measures will be determined by the Compensation Committee in its discretion with respect to the Chief Executive Officer, and by the Chief Executive Officer or other immediate supervisor in his or her discretion with respect to all other participants (subject to final approval by the Compensation Committee), and the Compensation Committee will evaluate the degree of achievement of the individual performance measures on a scale of below 1 (below threshold), 1 (threshold), 2 (target) or 3 (high) or any fractional number between 1 and 3.

Each participant’s total award under the Officer STIP with respect to a performance period will be stated as a percentage of the participant’s annual base salary determined as of the first day of that performance period, which percentage will depend upon the participant’s position and the degree of achievement of threshold, target, and high performance goals for the performance period. The percentages for the performance period beginning January 1, 2023 are as set forth in the table below:


	Threshold	Target	High
President and Chief Executive Officer	63%	125%	188%
Chief Financial Officer	41%	75%	133%
Chief Operating Officer (1)	23%	45%	76%
Chief Information Officer	35%	65%	115%
Chief Administrative Officer (1)	28%	54%	96%

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(1) For both the Chief Operating Officer and the Chief Administrative Officer, the percentages include the effects of prorations for the amount of time in 2023 that they were in their respective positions.

If a Change in Control (as defined in the Officer STIP) occurs during a performance period while the participant is employed, the participant will receive a prorated award under the Officer STIP calculated based on the actual levels of achievement of the prorated performance goals as of the date of the Change in Control.

Bonuses payable under the short-term incentive plans for non-executive officers and staff are payable 100% in cash.

Officer LTIP

Under the Officer LTIP, as revised, all named executive officers will have the opportunity to receive awards based on (i) the achievement of performance measures, which will be established for each performance period, and (ii) continued employment with the Company. The aggregate weighting for the performance measures and the time-based measures, as determined by the Compensation Committee, will total 100%. The performance measures will consist of one or more shareholder return measures and one or more strategic measures. The awards earned under the Officer LTIP, if any, are payable in our common shares of beneficial interest. Each participant’s total award under the Officer LTIP with respect to a performance period will be stated as a percentage of the participant’s annual base salary determined as of the beginning of that performance period. The percentages for the performance period beginning January 1, 2023 are as set forth in the table below:


	Threshold	Target	High
President and Chief Executive Officer	198%	275%	440%
Chief Financial Officer	95%	135%	196%
Chief Operating Officer (1)	110%	157%	231%
Chief Information Officer	100%	143%	207%
Chief Administrative Officer (1)	65%	92%	134%

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Any time-based awards under the Officer LTIP will be subject to a three-year vesting schedule, with any award vesting in one-third increments on December 15 of each year of the applicable performance period if the participant remains employed by the Company on each of such dates. The Officer LTIP provides that following a performance period, 100% of any performance-based award will vest immediately upon grant.

Each year, the Compensation Committee will establish the threshold, target and high performance goals for each performance measure. Upon or following completion of a performance period, the degree of achievement of each performance measure will be determined by the Compensation Committee in its discretion.

If a Change in Control (as defined in the Officer LTIP) occurs during a performance period while the participant is employed, the Officer LTIP provides that all time-based awards which are unvested will become vested, and the participant will receive a pro-rated portion of the shareholder return measure-based awards and the strategic measure-based awards will be calculated at target.

We use a binomial model which employs the Monte Carlo method as of the grant date to determine the fair value of the Officer LTIP awards. For three-year performance periods commencing on or after January 1, 2023, the market performance condition is based on total shareholder return relative to the FTSE Nareit Residential Index (60% weighting) and a defined population of peer companies (40% weighting). For three-year performance period commencing on January 1, 2022, the market condition performance measurement is based on total shareholder return relative to a defined population of peer companies (100% weighting). For three-year performance period commencing on January 1, 2021, the market condition performance measurement is based on total shareholder return relative to a defined population of peer companies (50% weighting), relative to the FTSE Nareit Residential Index (42.5% weighting) and the FTSE Office Index (7.5% weighting). The model evaluates the awards for changing total shareholder return over the term of the vesting, relative to the peer companies and relative to the FTSE indexes, and uses random simulations that are based on past stock characteristics as well as dividend growth and other factors for Elme Communities and each of the peer companies.

The assumptions used to value the TSR portion of the officer LTIP awards were as follows:


	2023 Awards		2022 Awards		2021 Awards
Expected volatility (1)	32.3	%	35.2	%	35.5		%
Risk-free interest rate (2)	4.2	%	1.7	%	0.3		%
Expected term (3)	3 years		3 years		3 years
Share price at grant date	$19.04		$24.54		$	23.20

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(1) Expected volatility based upon historical volatility of our daily closing share price.

(2) Risk-free interest rate based on U.S. treasury constant maturity bonds on the measurement date with a maturity equal to the market condition performance period.

(3) Expected term based on the market condition performance period.

The calculated grant date fair value as a percentage of base salary for the officers for the three-year performance period that commenced in 2023 ranged from approximately 27% to 137% for the 60% of the LTIP based on TSR relative to the FTSE Nareit Residential Index and from approximately 32% to 159% for the 40% of the LTIP based on TSR relative to a defined population of peer companies.

The calculated grant date fair value as a percentage of base salary for the officers for the three-year performance period that commenced in 2022 ranged from approximately 32% to 248% for the 100% of the LTIP based on TSR relative to a defined population of peer companies.

The calculated grant date fair value as a percentage of base salary for the officers for the three-year performance period that commenced in 2021 ranged from approximately 37% to 78% for the 50% of the LTIP based on TSR relative to a defined population of peer companies and from 38% to 80% for the 50% of the LTIP based on TSR relative to the FTSE Nareit Diversified Index.

During 2022, our chief executive officer was granted a one-time equity award of 100,000 restricted shares. None of the restricted shares vest until the earlier of the fifth anniversary of the grant date or when our chief executive officer become retirement-eligible, at which time 100% of the restricted shares will vest, subject to Mr. McDermott's continued employment with Elme Communities until such vesting date.

Our non-executive officers and other employees earn restricted share unit awards under a long-term incentive plan for non-executive officers and staff based upon various percentages of their salaries and annual performance calculations. The restricted share unit awards vest ratably over three years beginning on the December 15 following the grant date based upon continued employment. We recognize compensation expense for these awards according to a graded vesting schedule over the three-year requisite service period.

Restricted share awards made to retirement-eligible employees fully vest on the grant date. Employees are considered retirement-eligible when they are both over the age of 55 and have been employed by Elme Communities for at least 20 years, or over the age of 65. We fully recognize compensation expense for such awards as of the grant date.

Trustee Awards

We award share based compensation to our trustees in the form of restricted shares which vest immediately and are restricted from sale for the period of the trustees' service. The value of share-based compensation for each trustee was $100,000 for each of three years ended December 31, 2023.

Total Compensation Expense

Total compensation expense recognized in the consolidated financial statements for each of the three years ended December 31, 2023 for all share based awards was $5.5 million, $8.0 million and $8.6 million, respectively, net of capitalized share-based compensation expense of $0.1 million, $0.2 million and $0.3 million, respectively.

Restricted Share Awards with Performance and Service Conditions

The activity for the three years ended December 31, 2023 related to our restricted share awards, excluding those subject to market conditions, was as follows:


	Shares	Weighted Average Grant Fair Value
Unvested at December 31, 2020	306,995	$	30.96
Granted	238,134	23.53
Vested during year	(277,967)	26.39
Forfeited	(7,467)	26.73
Unvested at December 31, 2021	259,695	29.16
Granted	408,606	22.33
Vested during year	(408,118)	27.13
Forfeited	(17,814)	25.31
Unvested at December 31, 2022	242,369	21.35
Granted	410,928	18.40
Vested during year	(367,109)	19.79
Forfeited	(28,453)	20.85
Unvested at December 31, 2023	257,735	18.89

The total fair value of share grants vested for each of the three years ended December 31, 2023 was $7.3 million, $11.1 million and $7.6 million, respectively.

As of December 31, 2023, the total compensation cost related to non-vested share awards not yet recognized was $4.2 million, which we expect to recognize over a weighted average period of 25 months.

Unrestricted Shares with Market Conditions

Share-based awards with market conditions under the LTIP were awarded in 2023, 2022 and 2021 with fair market values, as determined using a Monte Carlo simulation, as follows (in thousands):


	2023 Awards (1)		2022 Awards (1)		2021 Awards (1)
Relative Peer TSR	$	831	$	1,480	$	951
Absolute/Index TSR (2)	1,048		N/A		971

The unamortized value of these awards with market conditions as of December 31, 2023 was as follows (in thousands):


	2023 Awards (1)		2022 Awards (1)		2021 Awards (1)
Relative Peer TSR	$	592	$	385	$	—
Absolute/Index TSR (2)	743		N/A		—

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(1) The 2023, 2022 and 2021 Awards were granted under the Officer LTIP, whereby all of the shares vest immediately at the end of the three-year performance period.

(2) The performance conditions for the 2023 awards were evaluated based on 60% on TSR relative to the FTSE Nareit Residential Index and 40% based on TSR relative to a defined populations of peer companies. The performance conditions for the 2022 awards were evaluated based on 100% on TSR relative to a defined population of peer companies. The performance conditions for the 2021 awards were evaluated based on 50% on TSR relative to a defined population of peer companies and 50% on TSR relative to the FTSE Multifamily and Office indexes.