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Item 1. Financial Statements

2020-10-30 compared with 2020-07-29 · 132 added, 103 removed, 516 unchanged (31% of the section changed)

FINANCIAL STATEMENTS

The information furnished in the accompanying unaudited Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, Consolidated Statements of Equity and Consolidated Statements of Cash Flows reflects all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods.

The information furnished in the accompanying unaudited Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Equity and Consolidated Statements of Cash Flows reflects all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods.

The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes for the three years ended December 31, 2019 included in Washington Real Estate Investment Trust’s 2019 Annual Report on Form 10-K, as amended by Amendment No.

3 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE DATA )

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Land $ 574,025 $ 566,807

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100,000 shares authorized;

82,327 and 82,099 shares issued and outstanding, as of June 30, 2020 and December 31, 2019, respectively

82,351 and 82,099 shares issued and outstanding, as of September 30, 2020 and December 31, 2019, respectively

Additional paid in capital 1,601,160 1,592,487

9 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

7 unchanged sentences

Real estate operating income 7,755 5,766 23,402 16,880

Other expense

Other income (expense)

Interest expense ( 8,711 ) ( 14,198 ) ( 28,307 ) ( 41,946 )

(Loss) gain on extinguishment of debt ( 206 ) — 262 —

Gain on extinguishment of debt — — 262 —

( 8,711 ) ( 14,198 ) ( 28,045 ) ( 41,946 )

2 unchanged sentences

Income from operations of properties sold or held for sale — 2,942 — 16,158

Gain on sale of real estate — 339,024 — 339,024

Loss on extinguishment of debt — ( 764 ) — ( 764 )

Income from discontinued operations — 341,202 — 354,418

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WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net (loss) income $ ( 956 ) $ 332,770 $ ( 4,643 ) $ 329,352

Other comprehensive loss:

Unrealized loss on interest rate hedges ( 1,789 ) ( 6,942 ) ( 36,356 ) ( 11,111 )

Comprehensive loss ( 7,195 ) ( 5,955 ) ( 40,043 ) ( 14,529 )

Other comprehensive income (loss):

Unrealized gain (loss) on interest rate hedges 1,774 ( 2,387 ) ( 34,582 ) ( 13,498 )

Comprehensive income (loss) 818 330,383 ( 39,225 ) 315,854

Comprehensive income attributable to noncontrolling interests — — — —

Comprehensive loss attributable to the controlling interests $ ( 7,195 ) $ ( 5,955 ) $ ( 40,043 ) $ ( 14,529 )

Comprehensive income (loss) attributable to the controlling interests $ 818 $ 330,383 $ ( 39,225 ) $ 315,854

See accompanying notes to the consolidated financial statements.

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Share grants, net of forfeitures and tax withholdings 142 1 5,852 — — 5,853 — 5,853

Balance, June 30, 2020 82,327 $ 823 $ 1,598,620 $ ( 236,673 ) $ ( 34,533 ) $ 1,328,237 $ 329 $ 1,328,566

Balance, September 30, 2020 82,351 $ 824 $ 1,601,160 $ ( 262,435 ) $ ( 32,759 ) $ 1,306,790 $ 325 $ 1,307,115

Shares Issued and Out-standing Shares of Beneficial Interest at Par Value Additional Paid in Capital Distributions in Excess of

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Cumulative effect of change in accounting principle — — — ( 906 ) — ( 906 ) — ( 906 )

Net loss attributable to the controlling interests — — — ( 3,418 ) — ( 3,418 ) — ( 3,418 )

Net income attributable to the controlling interests — — — 329,352 — 329,352 — 329,352

Unrealized loss on interest rate hedges — — — — ( 13,498 ) ( 13,498 ) — ( 13,498 )

1 unchanged sentence

Dividends — — — ( 72,339 ) — ( 72,339 ) — ( 72,339 )

Equity issuances, net of issuance costs 145 2 3,679 — — 3,681 — 3,681

Shares issued under Dividend Reinvestment Program 128 1 3,429 — — 3,430 — 3,430

Share grants, net of forfeitures and tax withholdings 109 1 6,052 — — 6,053 — 6,053

Balance, June 30, 2019 80,082 $ 801 $ 1,532,497 $ ( 521,661 ) $ ( 1,272 ) $ 1,010,365 $ 343 $ 1,010,708

Balance, September 30, 2019 80,292 $ 803 $ 1,539,734 $ ( 212,978 ) $ ( 3,659 ) $ 1,323,900 $ 343 $ 1,324,243

See accompanying notes to the consolidated financial statements.

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Shares Issued and Out-standing Shares of Beneficial Interest at Par Value Additional Paid in Capital Distributions in Excess of

Net Income Accumulated Other Comprehensive Loss Total Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity

Balance, March 31, 2020 82,315 $ 823 $ 1,596,242 $ ( 206,506 ) $ ( 32,744 ) $ 1,357,815 $ 333 $ 1,358,148

Net Income Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity

Balance, June 30, 2020 82,327 $ 823 $ 1,598,620 $ ( 236,673 ) $ ( 34,533 ) $ 1,328,237 $ 329 $ 1,328,566

Net loss attributable to the controlling interests — — — ( 956 ) — ( 956 ) — ( 956 )

Unrealized loss on interest rate hedges — — — — ( 1,789 ) ( 1,789 ) — ( 1,789 )

Unrealized gain on interest rate hedges — — — — 1,774 1,774 — 1,774

Distributions to noncontrolling interests — — — — — — ( 4 ) ( 4 )

Dividends — — — ( 24,806 ) — ( 24,806 ) — ( 24,806 )

Equity offerings, net of issuance costs — — — — — — — —

Shares issued under Dividend Reinvestment Program 23 1 515 — — 516 — 516

Share grants, net of forfeitures and tax withholdings 1 — 2,025 — — 2,025 — 2,025

Balance, June 30, 2020 82,327 $ 823 $ 1,598,620 $ ( 236,673 ) $ ( 34,533 ) $ 1,328,237 $ 329 $ 1,328,566

Balance, September 30, 2020 82,351 $ 824 $ 1,601,160 $ ( 262,435 ) $ ( 32,759 ) $ 1,306,790 $ 325 $ 1,307,115

Shares Issued and Out-standing Shares of Beneficial Interest at Par Value Additional Paid in Capital Distributions in Excess of

Net Income Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity

Balance, March 31, 2019 80,029 $ 800 $ 1,529,916 $ ( 498,537 ) $ 5,670 $ 1,037,849 $ 347 $ 1,038,196

Net Income Accumulated Other Comprehensive Loss Total Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity

Balance, June 30, 2019 80,082 $ 801 $ 1,532,497 $ ( 521,661 ) $ ( 1,272 ) $ 1,010,365 $ 343 $ 1,010,708

Net income attributable to the controlling interests — — — 332,770 — 332,770 — 332,770

Unrealized loss on interest rate hedges — — — — ( 2,387 ) ( 2,387 ) — ( 2,387 )

Distributions to noncontrolling interests — — — — — — ( 4 ) ( 4 )

Dividends — — — ( 24,087 ) — ( 24,087 ) — ( 24,087 )

Equity issuances, net of issuance costs 145 2 3,679 — — 3,681 — 3,681

Shares issued under Dividend Reinvestment Program 64 — 1,757 — — 1,757 — 1,757

Share grants, net of forfeitures and tax withholdings 1 — 1,801 — — 1,801 — 1,801

Balance, June 30, 2019 80,082 $ 801 $ 1,532,497 $ ( 521,661 ) $ ( 1,272 ) $ 1,010,365 $ 343 $ 1,010,708

Balance, September 30, 2019 80,292 $ 803 $ 1,539,734 $ ( 212,978 ) $ ( 3,659 ) $ 1,323,900 $ 343 $ 1,324,243

See accompanying notes to the consolidated financial statements.

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(IN THOUSANDS)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

Net loss $ ( 3,687 ) $ ( 3,418 )

Adjustments to reconcile net income to net cash provided by operating activities:

Net (loss) income $ ( 4,643 ) $ 329,352

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 89,789 102,367

1 unchanged sentence

Real estate impairment — 8,374

Loss on sale of real estate 7,539 1,046

Loss (gain) on sale of real estate 7,539 ( 337,978 )

Share-based compensation expense 5,901 6,265

Amortization of debt premiums, discounts and related financing costs 2,036 2,632

Gain on extinguishment of debt ( 262 ) —

(Gain) loss on extinguishment of debt ( 262 ) 764

Changes in operating other assets ( 11,566 ) ( 12,353 )

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Development in progress ( 23,454 ) ( 26,884 )

Real estate deposits, net — ( 1,744 )

Non-real estate capital improvements ( 196 ) ( 317 )

Net cash provided by (used in) investing activities 12,131 ( 467,214 )

Net cash used in investing activities ( 5,787 ) ( 3,826 )

Cash flows from financing activities

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Proceeds from dividend reinvestment program 1,581 3,430

Net proceeds from equity issuances 1,240 3,681

Payment of tax withholdings for restricted share awards ( 150 ) ( 512 )

Net proceeds from exercise of share options 1,241 —

Net cash (used in) provided by financing activities ( 69,463 ) 406,437

Net decrease in cash, cash equivalents and restricted cash ( 6,150 ) ( 234 )

Net cash used in financing activities ( 88,759 ) ( 80,585 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 10,322 ) 6,869

Cash, cash equivalents and restricted cash at beginning of period 14,751 7,640

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(IN THOUSANDS)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental disclosure of cash flow information:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

September 30, 2020

NATURE OF BUSINESS

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Our TRSs are subject to corporate federal and state income tax on their taxable income at regular statutory rates, or as calculated under the alternative minimum tax, as appropriate.

As of both June 30, 2020 and December 31, 2019, our TRSs had a deferred tax asset of $ 1.4 million that was fully reserved.

As of both June 30, 2020 and December 31, 2019, we had deferred state and local tax liabilities of $ 0.6 million.

As of both September 30, 2020 and December 31, 2019, our TRSs had a deferred tax asset of $ 1.4 million that was fully reserved.

As of both September 30, 2020 and December 31, 2019, we had deferred state and local tax liabilities of $ 0.6 million.

These deferred tax liabilities are recorded in Accounts payable and other liabilities on our consolidated balance sheets and are primarily related to temporary differences in the timing of the recognition of revenue, depreciation and amortization.

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We have elected to utilize the relief provided by the FASB staff.

This election did not have a material impact on our consolidated financial statements as of June 30, 2020, and we do not expect material impacts in future periods.

This election did not have a material impact on our consolidated financial statements as of September 30, 2020, and we do not expect material impacts in future periods.

Principles of Consolidation and Basis of Presentation

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1 to the Annual Report on Form 10-K, filed on March 6, 2020.

Within these notes to the financial statements, we refer to the three months ended June 30, 2020 and June 30, 2019 as the “2020 Quarter” and the “2019 Quarter,” respectively, and the six months ended June 30, 2020 and June 30, 2019 as the “2020 Period” and the “2019 Period,” respectively.

Within these notes to the financial statements, we refer to the three months ended September 30, 2020 and September 30, 2019 as the “2020 Quarter” and the “2019 Quarter,” respectively, and the nine months ended September 30, 2020 and September 30, 2019 as the “2020 Period” and the “2019 Period,” respectively.

Discontinued Operations

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Actual results could differ from those estimates.

We acquired the following properties (collectively, the “Assembly Portfolio”) during the 2019 Period:

We acquired the following properties during the 2019 Period:

Acquisition Date Property Name Property Type # of Units (unaudited) Contract Purchase Price (in thousands)

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Multifamily 428 82,070

July 23, 2019 Cascade at Landmark Multifamily 277 69,750

Total 2019 2,390 $ 530,920

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(2) Consists of Assembly Germantown and Assembly Watkins Mill.

The Assembly Portfolio - Virginia and Assembly Portfolio - Maryland properties are collectively the “Assembly Portfolio.”

Development/Redevelopment

We have properties under development/redevelopment and held for current or future development.

As of June 30, 2020, we have invested $ 126.5 million, including the cost of acquired land, in The Trove, a 401 -unit multifamily development adjacent to The Wellington.

During the 2020 Period, we substantially completed major construction activities for The Trove’s base building and garage and delivered 131 units.

As of June 30, 2020, we have placed into service assets totaling $ 67.1 million.

As of September 30, 2020, we have invested $ 130.9 million, including the cost of acquired land, in Trove, a 401 -unit multifamily development adjacent to The Wellington.

During the 2020 Period, we substantially completed major construction activities for Trove’s base building and garage and delivered 205 units.

As of September 30, 2020, we have placed into service assets totaling $ 83.6 million.

We have also invested $ 28.2 million, including the cost of acquired land, in a multifamily development adjacent to Riverside Apartments.

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The disposition of the Retail Portfolio represented a strategic shift that had a major effect on our financial results and we accordingly reported the Retail Portfolio as discontinued operations.

The Retail Portfolio represented a majority of our retail assets and following its sale, we determined that our retail line of business was no longer a reportable segment.

The Retail Portfolio represented a majority of our retail assets by net operating income and following its sale, we determined that our retail line of business was no longer a reportable segment.

In October 2019, we renewed and extended our lease with the World Bank at 1776 G Street NW, an office property in Washington, DC, through December 31, 2025.

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Upon execution of the purchase and sale agreement, the property met the criteria for classification as held for sale.

During the 2020 Quarter, we executed an amendment to the purchase and sale agreement which decreased the contract sale price to $ 57.0 million and closed on the sale on April 21, 2020, recognizing a loss on sale of real estate of $ 6.9 million.

As of June 30, 2020, we assessed certain properties for impairment and did not recognize any impairment charges during the 2020 Quarter.

We applied reasonable estimates and judgments in evaluating each of the properties as of June 30, 2020.

In April 2020, we executed an amendment to the purchase and sale agreement which decreased the contract sale price to $ 57.0 million and closed on the sale on April 21, 2020, recognizing a loss on sale of real estate of $ 6.9 million.

As of September 30, 2020, we assessed certain properties for impairment and did not recognize any impairment charges during the 2020 Quarter.

We applied reasonable estimates and judgments in evaluating each of the properties as of September 30, 2020.

Should external or internal circumstances change requiring the need to shorten holding periods or adjust future estimated cash flows from our properties, we could be required to record impairment charges in the future.

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The results of the Retail Portfolio are classified as discontinued operations and are summarized as follows (amounts in thousands, except for share data):

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019

Real estate rental revenue $ 4,126 $ 28,200

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Interest expense ( 30 ) ( 313 )

Loss on extinguishment of debt ( 764 ) ( 764 )

Gain on sale of real estate 339,024 339,024

Income from discontinued operations $ 341,202 $ 354,418

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Future Minimum Rental Income

As of June 30, 2020, non-cancelable commercial operating leases provide for future minimum rental income from continuing operations as follows (in thousands).

As of September 30, 2020, non-cancelable commercial operating leases provide for future minimum rental income from continuing operations as follows (in thousands).

Apartment leases are not included as the terms are generally for one year or less.

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We recognized straight-line rental expense of $ 0.1 million during each of the 2020 Quarter and 2019 Quarter and $ 0.2 million for each of the 2020 Period and 2019 Period, respectively.

We recognized variable rental payments of $ 0.2 million during each of the 2020 Quarter and 2019 Quarter and $ 0.4 million and $ 0.5 million during each of the 2020 Period and 2019 Period, respectively.

We recognized variable rental payments of $ 0.2 million during each of the 2020 Quarter and 2019 Quarter and $ 0.7 million during each of the 2020 Period and 2019 Period, respectively.

We recognized a right of use asset (included in Income producing property) and lease liability (included in Accounts payable and other liabilities) of $ 4.2 million.

We used a discount rate of approximately 5.9 %, which was derived from our assessment of securitized rates for similar assets and credit quality.

We used a discount rate of approximately 5.9 %, which was derived from our assessment of

securitized rates for similar assets and credit quality.

We recognized $ 0.1 million of right-of-use and lease liability amortization during each of the 2020 Quarter and 2019 Quarter and $ 0.2 million for each of the 2020 Period and 2019 Period, respectively.

The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments on our operating ground lease as of June 30, 2020 and a reconciliation of those cash flows to the operating lease liability as of June 30, 2020 (in thousands):

The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments on our operating ground lease as of September 30, 2020 and a reconciliation of those cash flows to the operating lease liability as of September 30, 2020 (in thousands):

Thereafter 11,895

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As a result of the transaction, we recognized a gain on extinguishment of debt of $ 0.5 million related to the write-off of an unamortized mortgage premium of $ 1.4 million, partially offset by a prepayment penalty of $ 0.9 million.

Following this repayment, we have no outstanding mortgage notes.

UNSECURED LINE OF CREDIT PAYABLE

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In addition, the Revolving Credit Facility requires the payment of a facility fee ranging from 0.10 % to 0.30 % (depending on WashREIT’s credit rating) on the $ 700.0 million committed revolving loan capacity, without regard to usage.

As of June 30, 2020, the interest rate on the Revolving Credit Facility is one month LIBOR plus 1.00 %, the one month LIBOR is 0.16 % and the facility fee is 0.20 %.

As of September 30, 2020, the interest rate on the Revolving Credit Facility is one month LIBOR plus 1.00 %, the one month LIBOR is 0.15 % and the facility fee is 0.20 %.

All outstanding advances for the Revolving Credit Facility are due and payable upon maturity in March 2022, unless extended pursuant to one or both of the two six-month extension options.

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The 2018 Term Loan has an all-in fixed interest rate of 2.87 %.

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at June 30, 2020 is as follows (in thousands):

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at September 30, 2020 is as follows (in thousands):

Committed capacity $ 700,000

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We executed borrowings and repayments on the Revolving Credit Facility during the 2020 Period as follows (in thousands):

Balance, December 31, 2019 $ 56,000

Balance at December 31, 2019 $ 56,000

Borrowings 399,000

Repayments ( 269,000 )

Balance, June 30, 2020 $ 181,000

Balance at September 30, 2020 $ 186,000

NOTES PAYABLE

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We used the proceeds to repay borrowings under our Revolving Credit Facility.

On September 29, 2020, we entered into a note purchase agreement to issue $ 350.0 million aggregate principal amount of 3.44 % senior unsecured 10 -year notes payable (the “Green Bonds”).

The effective interest rate under the Green Bonds, including amortization of the associated interest rate swaps (see note 8), is 4.09 %.

The closing and funding of the Green Bonds is expected to occur no later than December 29, 2020, with the ability for such closing and funding to occur earlier upon our election, in each case, subject to the satisfaction of standard closing conditions.

We incurred $ 2.5 million of debt issuance costs associated with the Green Bonds which are recorded within Prepaid expenses and other assets on our consolidated balance sheets.

Subsequent to the closing and funding of the Green Bonds, the debt issuance costs will be reported on our consolidated balance sheets as an offset to their related debt.

The Green Bonds will be senior unsecured obligations of WashREIT and will rank equal in right to payment with all other senior unsecured indebtedness of WashREIT.

We intend to use the proceeds of the sale of the Green Bonds to finance or refinance recently completed and future green building and energy efficiency, sustainable water and wastewater management and renewable energy projects (“Eligible Green Projects”) and, pending allocation to such Eligible Green Projects, such net proceeds may be used to repay borrowings outstanding on the Revolving Credit Facility or term loans and may be held in Cash and cash equivalents on our consolidated balance sheets.

The note purchase agreement contains customary financial covenants, including a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a minimum unencumbered interest coverage ratio, and a maximum unencumbered leverage ratio.

The note purchase agreement also contains restrictive covenants that, among other things, restrict the ability of WashREIT and its subsidiaries to enter into transactions with affiliates, consolidate or merge or transfer or lease all or substantially all of its assets, create liens, make dividends and distributions if an event of default exists, or substantially change the general nature of our business.

Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in our amended and restated credit agreement and 2020 Term Loan.

The note purchase agreement also contains customary events of default, including payment defaults, cross defaults with certain other indebtedness, breaches of certain covenants and bankruptcy events.

In the case of an event of default, we will generally be prohibited from paying any dividends, subject to certain exceptions including payment of dividends necessary to maintain REIT status, and the Purchasers may, among other remedies, accelerate the payment of all obligations.

In the event of a change in control of WashREIT, we must offer to prepay the Green Bonds at par.

DERIVATIVE INSTRUMENTS

On September 15, 2015, we entered into two interest rate swap arrangements with a total notional amount of $ 150.0 million to swap the floating interest rate under the $ 150.0 million 2015 Term Loan to an all-in fixed interest rate of 2.72 % starting on October 15, 2015 and extending until the maturity of the 2015 Term Loan on March 15, 2021.

On September 15, 2015, we entered into two forward interest rate swap arrangements with a total notional amount of $ 150.0 million to swap the floating interest rate under the $ 150.0 million 2015 Term Loan to an all-in fixed interest rate of 2.72 % starting on October 15, 2015 and extending until the maturity of the 2015 Term Loan on March 15, 2021.

On July 22, 2016, we entered into two forward interest rate swap arrangements with a total notional amount of $ 150.0 million to swap the floating interest rate under the $ 150.0 million 2016 Term Loan to an all-in fixed interest rate of 2.86 % starting on March 31, 2017 and extending until the maturity of the 2016 Term Loan on July 21, 2023.

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The $ 250.0 million 2018 Term Loan has an all-in fixed interest rate of 2.87 %.

In November 2019, we entered into four interest rate swap arrangements with a total notional amount of $ 200.0 million to reduce our exposure to adverse fluctuations in interest rates on future fixed-rate debt (the “hedged debt transaction”) to replace our $ 250.0 million of 4.95 % 10 -year unsecured notes that were scheduled to mature in October 2020.

In April 2020, we used borrowings from our Revolving Credit Facility to prepay the $ 250.0 million of 4.95 % 10 -year unsecured notes ( “2020 Senior Notes”) without penalty.

We still intend to execute fixed-rate debt in 2020 and have determined that the hedged debt transaction remains probable as of June 30, 2020.

In November 2019, we entered into four forward interest rate swap arrangements, each effective as of April 1, 2020 (“Forward Swaps”) with a total notional amount of $ 200.0 million to reduce our exposure to adverse fluctuations in interest rates on future fixed-rate debt to replace all $ 250.0 million of our 4.95 % 10 -year unsecured notes that were scheduled to mature in October 2020.

In April 2020, we used borrowings from our Revolving Credit Facility to prepay all $ 250.0 million of our 4.95 % 10 -year unsecured notes without penalty.

In September 2020, in conjunction with the entry into the note purchase agreement to issue the Green Bonds (see note 7), we terminated the Forward Swaps.

At the time of termination, the Forward Swaps had a liability fair value of $ 20.4 million, which will be amortized as interest expense over the 10 -year term of the Green Bonds.

On October 2, 2020, we paid the $ 20.4 million liability associated with the termination of the Forward Swaps.

The interest rate swaps qualify as cash flow hedges and are recorded at fair value in accordance with GAAP, based on discounted cash flow methodologies and observable inputs.

We record the total change in fair value of the interest rate swap arrangements associated with our cash flow hedges in other comprehensive loss.

The resulting unrealized loss on interest rate hedges was the only activity in other comprehensive loss during the periods presented in our consolidated financial statements.

We record the total change in fair value of the interest rate swap arrangements associated with our cash flow hedges in other comprehensive income (loss).

The resulting unrealized gain or loss on interest rate hedges was the only activity in other comprehensive income (loss) during the periods presented in our consolidated financial statements.

We assess the effectiveness of our cash flow hedges both at inception and on an ongoing basis.

The cash flow hedges were highly effective for all periods presented.

The fair values of the interest rate swaps as of June 30, 2020 and December 31, 2019, are as follows (in thousands):

The fair values of the interest rate swaps as of September 30, 2020 and December 31, 2019, are as follows (in thousands):

Derivative Assets (Liabilities)

Derivative Instrument Aggregate Notional Amount Effective Date Maturity Date June 30, 2020 December 31, 2019

Derivative Instrument Aggregate Notional Amount Effective Date Maturity Date September 30, 2020 December 31, 2019

Interest rate swaps $ 150,000 October 15, 2015 March 15, 2021 $ ( 1,005 ) $ ( 62 )

6 unchanged sentences

The net unrealized gains or losses on the effective swaps are recognized in Other comprehensive loss, as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Unrealized loss on interest rate hedges $ ( 1,789 ) $ ( 6,942 ) $ ( 36,356 ) $ ( 11,111 )

Unrealized gain (loss) on interest rate hedges 1,774 ( 2,387 ) ( 34,582 ) ( 13,498 )

Amounts reported in Accumulated other comprehensive (loss) income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt.

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We have agreements with each of our derivative counterparties that contain a provision whereby we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness.

As of June 30, 2020, we did not have any derivatives in an asset position and the fair value of the derivative liabilities, including accrued interest, was $ 34.5 million.

As of June 30, 2020, we have not posted any collateral related to these agreements.

As of September 30, 2020, we did not have any derivatives in an asset position and the fair value of the derivative liabilities, including accrued interest, was $ 12.4 million.

As of September 30, 2020, we have not posted any collateral related to these agreements.

Derivative instruments expose us to credit risk in the event of non-performance by the counterparty under the terms of the interest rate hedge agreements.

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Significant unobservable inputs

The only assets or liabilities we had at June 30, 2020 and December 31, 2019 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan (“SERP”), which primarily consist of investments in mutual funds, and the interest rate swaps (see note 8).

The only assets or liabilities we had at September 30, 2020 and December 31, 2019 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan (“SERP”), which primarily consist of investments in mutual funds, and the interest rate swaps (see note 8).

We base the valuations related to the SERP on assumptions derived from significant other observable inputs and accordingly these valuations fall into Level 2 in the fair value hierarchy.

The valuation of the interest rate swaps is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each interest rate swap.

This analysis reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied

volatilities.

This analysis reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments).

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The valuation of interest rate swaps fall into Level 2 in the fair value hierarchy.

The fair values of these assets and liabilities at June 30, 2020 and December 31, 2019 were as follows (in thousands):

June 30, 2020 December 31, 2019

The fair values of these assets and liabilities at September 30, 2020 and December 31, 2019 were as follows (in thousands):

September 30, 2020 December 31, 2019

Value Level 1 Level 2 Level 3 Fair

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The use of different market assumptions or estimation methodologies could have an effect on the estimated fair value amounts.

In addition, fair value estimates are made at a point in time and thus, estimates of fair value subsequent to June 30, 2020 may differ significantly from the amounts presented.

The valuations of cash and cash equivalents and restricted cash fall into Level 1 in the fair value hierarchy and the valuations of debt instruments fall into Level 3 in the fair value hierarchy.

As of June 30, 2020 and December 31, 2019, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):

June 30, 2020 December 31, 2019

In addition, fair value estimates are made at a point in time and thus, estimates of fair value subsequent to September 30, 2020 may differ significantly from the amounts presented.

The valuations of cash and cash

equivalents and restricted cash fall into Level 1 in the fair value hierarchy and the valuations of debt instruments fall into Level 3 in the fair value hierarchy.

As of September 30, 2020 and December 31, 2019, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):

September 30, 2020 December 31, 2019

Carrying Value Fair Value Carrying Value Fair Value

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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.

pro-rated portion of the shareholder return measure-based awards and the strategic measure-based awards will be calculated at target.

Total Compensation Expense

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The total fair values of restricted share awards vested was $ 0.8 million and $ 1.7 million for the 2020 Period and 2019 Period, respectively.

The total unvested restricted share awards at June 30, 2020 was 502,500 shares, which had a weighted average grant date fair value of $ 29.99 per share.

As of June 30, 2020, the total compensation cost related to unvested restricted share awards was $ 10.3 million, which we expect to recognize over a weighted average period of 25 months.

The total unvested restricted share awards at September 30, 2020 was 502,300 shares, which had a weighted average grant date fair value of $ 29.99 per share.

As of September 30, 2020, the total compensation cost related to unvested restricted share awards was $ 8.7 million, which we expect to recognize over a weighted average period of 23 months.

EARNINGS PER COMMON SHARE

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We also determine “Diluted earnings per share” as the more dilutive of the two-class method or the treasury stock method with respect to the unvested restricted share awards.

We further evaluate any other potentially dilutive securities at the end of the period and adjust the basic earnings per share calculation for the impact of those securities that are dilutive.

Our dilutive earnings per share calculation includes the dilutive impact of operating partnership units under the if-converted method and our

share based awards with performance conditions prior to the grant date and all market condition awards under the contingently issuable method.

The computations of basic and diluted earnings per share for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except per share data):

Three Months Ended June 30, Six Months Ended June 30, 2019

We further evaluate any other potentially dilutive securities at the end of the period and adjust the basic earnings per share calculation for the impact of those securities.

Our dilutive earnings per share calculation includes the dilutive impact of operating partnership units under the if-converted method and our share based awards with performance conditions prior to the grant date and all market condition awards under the contingently issuable method.

The computations of basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except per share data):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Adjusted loss from continuing operations attributable to the controlling interests ( 1,107 ) ( 8,385 ) ( 5,096 ) ( 24,948 )

Adjusted income from discontinued operations — 7,178 — 13,216

Income from discontinued operations — 341,202 — 354,418

Allocation of earnings to unvested restricted share awards to discontinued operations — ( 1,841 ) — ( 1,870 )

Adjusted income from discontinuing operations — 339,361 — 352,548

Adjusted net (loss) income attributable to the controlling interests $ ( 1,107 ) $ 330,976 $ ( 5,096 ) $ 327,600

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SEGMENT INFORMATION

We evaluate real estate performance and allocate resources by property type and have two reportable segments:

We evaluate real estate performance and allocate resources by property type through two reportable segments:

office and multifamily.

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We have eight retail properties that do not meet the qualitative or quantitative criteria for a reportable segment and are classified as “Corporate and other” in our segment disclosure tables.

We evaluate performance based upon net operating income from the combined properties in each segment.

We evaluate performance based upon net operating income of the combined properties in each segment.

Our reportable operating segments are consolidations of similar properties.

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Net operating income is a key measurement of our segment profit and loss and is defined as real estate rental revenue less real estate expenses.

The following tables present revenues, net operating income, capital expenditures and total assets for the three and six months ended June 30, 2020 and 2019 from these segments, and reconcile net operating income of reportable segments to net (loss) income attributable to the controlling interests as reported (in thousands):

Three Months Ended June 30, 2020

The following tables present revenues, net operating income, capital expenditures and total assets for the three and nine months ended September 30, 2020 and 2019 from these segments, and reconcile net operating income of our reportable segments to net (loss) income attributable to the controlling interests as reported (in thousands):

Three Months Ended September 30, 2020

Office Multifamily Corporate and Other Consolidated

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Interest expense ( 8,711 )

Loss on sale of real estate ( 7,539 )

Loss on extinguishment of debt ( 206 )

Net loss ( 956 )

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Total assets $ 1,056,074 $ 1,338,812 $ 137,386 $ 2,532,272

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Office Multifamily Corporate and Other (1)

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Interest expense ( 14,198 )

Loss on sale of real estate ( 1,046 )

Discontinued operations:

Income from operations of properties sold or held for sale 2,942

Gain on sale of real estate 339,024

Loss on extinguishment of debt ( 764 )

Net income 332,770

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(1) Total assets and capital expenditures include all retail properties, including those classified as discontinued operations.

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Office Multifamily Corporate and Other Consolidated

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Capital expenditures $ 21,120 $ 15,477 $ 2,089 $ 38,686

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Office Multifamily Corporate and Other (1)

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Income from operations of properties sold or held for sale 16,158

Net loss ( 3,418 )

Gain on sale of real estate 339,024

Loss on extinguishment of debt ( 764 )

Net income 329,352

Net income attributable to noncontrolling interests in subsidiaries —

Net loss attributable to the controlling interests $ ( 3,418 )

Net income attributable to the controlling interests $ 329,352

Capital expenditures $ 16,347 $ 12,841 $ 1,717 $ 30,905

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During the first quarter of 2020, we issued 46,500 shares under this program at a weighted average price of $ 31.07 for net proceeds of $ 1.2 million.

We did no t issue common shares under the Equity Distribution Agreements during the 2020 Quarter or 2019 Period.

We did no t issue common shares under the Equity Distribution Agreements during the 2020 Quarter or during the second quarter of 2020.

During the 2019 Quarter and Period, we issued 0.1 million common shares at a weighted average price of $ 27.52 for net proceeds of $ 3.7 million.

We have a dividend reinvestment program whereby shareholders may use their dividends and optional cash payments to purchase common shares.

The common shares sold under this program may either be common shares issued by us or common shares purchased in the open market.

Net proceeds under this program were used for general corporate purposes.

Our issuances and net proceeds on the dividend reinvestment program for the three and six months ended June 30, 2020 and 2019 are as follows:

Three Months Ended June 30, Six Months Ended June 30,

The shares sold under this program may either be common shares issued by us or common shares purchased in the open market.

Net proceeds under this program are used for general corporate purposes.

Our issuances and net proceeds on the dividend reinvestment program for the three and nine months ended September 30, 2020 and 2019 are as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements