Elme Communities 10-Q

ITEM 1: FINANCIAL STATEMENTS 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. 1 to the Annual Report on Form 10-K, filed on March 6, 2020. 4 WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA ) September 30, 2020 December 31, 2019 (Unaudited) Assets Land $ 574,025 $ 566,807 Income producing property 2,497,017 2,392,415 3,071,042 2,959,222 Accumulated depreciation and amortization ( 772,482 ) ( 693,610 ) Net income producing property 2,298,560 2,265,612 Properties under development or held for future development 77,481 124,193 Total real estate held for investment, net 2,376,041 2,389,805 Investment in real estate held for sale, net — 57,028 Cash and cash equivalents 3,814 12,939 Restricted cash 615 1,812 Rents and other receivables 67,628 65,259 Prepaid expenses and other assets 84,174 95,149 Other assets related to properties held for sale — 6,336 Total assets $ 2,532,272 $ 2,628,328 Liabilities Notes payable, net $ 897,443 $ 996,722 Mortgage notes payable, net — 47,074 Line of credit 186,000 56,000 Accounts payable and other liabilities 99,388 71,136 Dividend payable 24,767 24,668 Advance rents 6,979 9,353 Tenant security deposits 10,580 10,595 Other liabilities related to properties held for sale — 718 Total liabilities 1,225,157 1,216,266 Equity Shareholders’ equity Preferred shares; $ 0.01 par value; 10,000 shares authorized; no shares issued or outstanding — — Shares of beneficial interest, $ 0.01 par value; 100,000 shares authorized; 82,351 and 82,099 shares issued and outstanding, as of September 30, 2020 and December 31, 2019, respectively 824 821 Additional paid in capital 1,601,160 1,592,487 Distributions in excess of net income ( 262,435 ) ( 183,405 ) Accumulated other comprehensive (loss) income ( 32,759 ) 1,823 Total shareholders’ equity 1,306,790 1,411,726 Noncontrolling interests in subsidiaries 325 336 Total equity 1,307,115 1,412,062 Total liabilities and equity $ 2,532,272 $ 2,628,328 See accompanying notes to the consolidated financial statements. 5 WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue Real estate rental revenue $ 73,227 $ 80,259 $ 222,889 $ 228,513 Expenses Real estate expenses 28,672 30,692 84,196 84,969 Depreciation and amortization 30,470 37,340 89,789 97,441 General and administrative expenses 6,330 6,461 17,963 19,803 Real estate impairment — — — 8,374 65,472 74,493 191,948 210,587 Loss on sale of real estate — — ( 7,539 ) ( 1,046 ) Real estate operating income 7,755 5,766 23,402 16,880 Other income (expense) Interest expense ( 8,711 ) ( 14,198 ) ( 28,307 ) ( 41,946 ) Gain on extinguishment of debt — — 262 — ( 8,711 ) ( 14,198 ) ( 28,045 ) ( 41,946 ) Loss from continuing operations ( 956 ) ( 8,432 ) ( 4,643 ) ( 25,066 ) Discontinued operations: 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 Net (loss) income ( 956 ) 332,770 ( 4,643 ) 329,352 Less: Net income attributable to noncontrolling interests in subsidiaries — — — — Net (loss) income attributable to the controlling interests $ ( 956 ) $ 332,770 $ ( 4,643 ) $ 329,352 Basic net (loss) income attributable to the controlling interests per share: Continuing operations $ ( 0.01 ) $ ( 0.10 ) $ ( 0.06 ) $ ( 0.31 ) Discontinued operations — 4.24 — 4.41 Net (loss) income attributable to the controlling interests per share (1) $ ( 0.01 ) $ 4.14 $ ( 0.06 ) $ 4.10 Diluted net (loss) income attributable to the controlling interests per share: Continuing operations $ ( 0.01 ) $ ( 0.10 ) $ ( 0.06 ) $ ( 0.31 ) Discontinued operations — 4.24 — 4.41 Net (loss) income attributable to the controlling interests per share (1) $ ( 0.01 ) $ 4.14 $ ( 0.06 ) $ 4.10 Weighted average shares outstanding – basic 82,186 79,981 82,142 79,933 Weighted average shares outstanding – diluted 82,186 79,981 82,142 79,933 Dividends declared per share $ 0.30 $ 0.30 $ 0.90 $ 0.90 ______________________________ (1) Earnings per share may not sum due to rounding See accompanying notes to the consolidated financial statements. 6 WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (UNAUDITED) 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 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 Less: Comprehensive income attributable to noncontrolling interests — — — — Comprehensive income (loss) attributable to the controlling interests $ 818 $ 330,383 $ ( 39,225 ) $ 315,854 See accompanying notes to the consolidated financial statements. 7 WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (IN THOUSANDS) (UNAUDITED) 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, December 31, 2019 82,099 $ 821 $ 1,592,487 $ ( 183,405 ) $ 1,823 $ 1,411,726 $ 336 $ 1,412,062 Net loss attributable to the controlling interests — — — ( 4,643 ) — ( 4,643 ) — ( 4,643 ) Unrealized loss on interest rate hedges — — — — ( 34,582 ) ( 34,582 ) — ( 34,582 ) Distributions to noncontrolling interests — — — — — — ( 11 ) ( 11 ) Dividends — — — ( 74,387 ) — ( 74,387 ) — ( 74,387 ) Equity issuances, net of issuance costs 46 1 1,241 — — 1,242 — 1,242 Shares issued under Dividend Reinvestment Program 64 1 1,580 — — 1,581 — 1,581 Share grants, net of forfeitures and tax withholdings 142 1 5,852 — — 5,853 — 5,853 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, December 31, 2018 79,910 $ 799 $ 1,526,574 $ ( 469,085 ) $ 9,839 $ 1,068,127 $ 351 $ 1,068,478 Cumulative effect of change in accounting principle — — — ( 906 ) — ( 906 ) — ( 906 ) 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 ) Distributions to noncontrolling interests — — — — — — ( 8 ) ( 8 ) 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, 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. 8 WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (IN THOUSANDS) (UNAUDITED) 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, 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 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, 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 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 ) 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, 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. 9 WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) Nine Months Ended September 30, 2020 2019 Cash flows from 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 Credit losses (gains) on lease related receivables 3,271 ( 45 ) Real estate impairment — 8,374 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) loss on extinguishment of debt ( 262 ) 764 Changes in operating other assets ( 11,566 ) ( 12,353 ) Changes in operating other liabilities ( 7,841 ) ( 8,098 ) Net cash provided by operating activities 84,224 91,280 Cash flows from investing activities Real estate acquisitions, net — ( 528,588 ) Net cash received for sale of real estate 56,353 582,551 Capital improvements to real estate ( 38,490 ) ( 30,588 ) Development in progress ( 23,454 ) ( 26,884 ) Non-real estate capital improvements ( 196 ) ( 317 ) Net cash used in investing activities ( 5,787 ) ( 3,826 ) Cash flows from financing activities Line of credit borrowings, net 130,000 23,000 Dividends paid ( 74,285 ) ( 96,361 ) Principal payments – mortgage notes payable ( 46,567 ) ( 12,596 ) Repayments of unsecured notes payable ( 250,000 ) ( 450,000 ) Proceeds from term loan 150,000 450,000 Payment of financing costs ( 567 ) ( 1,219 ) Distributions to noncontrolling interests ( 11 ) ( 8 ) 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 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 Cash, cash equivalents and restricted cash at end of period $ 4,429 $ 14,509 10 WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) Nine Months Ended September 30, 2020 2019 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $ 27,386 $ 34,481 Change in accrued capital improvements and development costs 4,147 13,638 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 3,814 $ 12,931 Restricted cash 615 1,578 Cash, cash equivalents and restricted cash $ 4,429 $ 14,509 See accompanying notes to the consolidated financial statements. 11 WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 (UNAUDITED) NOTE 1: NATURE OF BUSINESS Washington Real Estate Investment Trust (“WashREIT”), a Maryland real estate investment trust, is a self-administered equity real estate investment trust, successor to a trust organized in 1960. Our business consists of the ownership and operation of income producing real estate properties in the greater Washington metro region. We own a portfolio of multifamily and commercial (office and retail) properties. Federal Income Taxes We believe that we qualify as a real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), and intend to continue to qualify as such. To maintain our status as a REIT, we are, among other things, required to distribute 90% of our REIT taxable income (which is, generally, our ordinary taxable income, with certain modifications), excluding any net capital gains and any deductions for dividends paid to our shareholders on an annual basis. When selling a property, we generally have the option of (a) reinvesting the sales proceeds of property sold, in a way that allows us to defer recognition of some or all taxable gain realized on the sale, (b) distributing gains to the shareholders with no tax to us or (c) treating net long-term capital gains as having been distributed to our shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to our shareholders. Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRSs”). 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 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. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS Significant Accounting Policies We have prepared our consolidated financial statements using the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2019, as amended by Amendment No. 1 to the Annual Report on Form 10-K, filed on March 6, 2020. Pronouncements Adopted Standard/Description Effective Date and Adoption Considerations Effect on Financial Statements or Other significant Matters ASU 2016-13, Measurement of Credit Losses on Financial Instruments . This standard requires financial assets measured on an amortized cost basis, including trade receivables, to be presented at the net amount expected to be collected. We adopted the new standard as of January 1, 2020. The adoption of the new standard did not have a material effect on our consolidated financial statements. ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software . This standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets. We adopted the new standard as of January 1, 2020. The adoption of the new standard did not have a material effect on our consolidated financial statements. 12 Standard/Description Effective Date and Adoption Considerations Effect on Financial Statements or Other significant Matters ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This standard contains optional practical expedients and exceptions for applying Generally Accepted Accounting Principles (“GAAP”) to contracts, hedging relations, and other transactions affected by reference rate reform if certain criteria are met. We elected certain optional practical expedients as of January 1, 2020. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. As of January 1, 2020, we have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. COVID-19 Lease Modification Accounting Relief In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question-and-answer document (“Q&A”) that addresses their belief that the guidance on lease modifications in GAAP does not contemplate concessions being executed as rapidly as they were executed as a result of the major financial crisis arising from the COVID-19 pandemic. Under ASC 842, Leases , we evaluate, on a lease by lease basis, if a lease concession is the result of a new arrangement reached with the tenant, which could result in lease modification accounting, or if a lease concession is contemplated in the existing lease agreement, which is precluded from lease modification accounting. In the Q&A, the staff stated that entities may elect to not evaluate whether a concession provided by a lessor to a lessee in response to the COVID-19 pandemic is a lease modification. This election must be applied consistently to leases with similar characteristics and circumstances. The election permits entities, if certain criteria are met, to account for concessions as if they were contemplated in the existing contract (and accounted for as a negative variable rental revenue) or evaluate the lease concessions for lease modification accounting. 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 September 30, 2020, and we do not expect material impacts in future periods. Principles of Consolidation and Basis of Presentation The accompanying unaudited consolidated financial statements include the consolidated accounts of WashREIT, our majority-owned subsidiaries and entities in which WashREIT has a controlling interest. All intercompany balances and transactions have been eliminated in consolidation. We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. In addition, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the periods presented have been included. These unaudited financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019, as amended by Amendment No. 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 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 We classify properties as held for sale when they meet the necessary criteria, which include: (a) senior management commits to a plan to sell the assets, (b) the assets are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of such assets, (c) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated, (d) the sale of the assets is probable, and transfer of the assets is expected to qualify for recognition as a completed sale, within one year, (e) the assets are being actively marketed for sale at a price that is reasonable in relation to its current fair value and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Depreciation on these properties is discontinued at the time they are classified as held for sale, but operating revenues, operating expenses and interest expense continue to be recognized until the date of sale. 13 Revenues and expenses of properties that are either sold or classified as held for sale are presented as discontinued operations for all periods presented in the consolidated statements of operations if the dispositions represent a strategic shift that has (or will have) a major effect on our operations and financial results. Interest on debt that can be identified as specifically attributed to these properties is included in discontinued operations. If the dispositions do not represent a strategic shift that has (or will have) a major effect on our operations and financial results, then the revenues and expenses of the properties that are classified as sold or held for sale are presented as continuing operations in the consolidated statements of operations for all periods presented. Restricted Cash Restricted cash includes funds escrowed for tenant security deposits, real estate tax, insurance and mortgage escrows and escrow deposits required by lenders on certain of our properties to be used for future building renovations or tenant improvements. Use of Estimates in the Financial Statements The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3: REAL ESTATE Acquisitions We acquired the following properties during the 2019 Period: Acquisition Date Property Name Property Type # of Units (unaudited) Contract Purchase Price (in thousands) April 30, 2019 Assembly Portfolio - Virginia (1) Multifamily 1,685 $ 379,100 June 27, 2019 Assembly Portfolio - Maryland (2) Multifamily 428 82,070 July 23, 2019 Cascade at Landmark Multifamily 277 69,750 Total 2019 2,390 $ 530,920 ______________________________ (1) Consists of Assembly Alexandria, Assembly Manassas, Assembly Dulles, Assembly Leesburg and Assembly Herndon. (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 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. In addition, in our multifamily and office segments, we continue to capitalize qualifying costs on several other projects with minor development activity necessary to get each project ready for its intended use. Properties Sold and Held for Sale We intend to hold our properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning our properties, and to make occasional sales of properties that no longer meet our long-term strategy or return objectives and where market conditions for sale are favorable. The proceeds from the sales may be reinvested into other properties, used to fund development operations or to support other corporate needs, or distributed to our shareholders. 14 We sold our interests in the following properties during 2020 and 2019: Disposition Date Property Name Property Type Rentable Square Feet Contract Sales Price (in thousands) (Loss) Gain on Sale (in thousands) April 21, 2020 John Marshall II Office 223,000 $ 57,000 $ ( 6,855 ) Total 2020 223,000 $ 57,000 $ ( 6,855 ) June 26, 2019 Quantico Corporate Center (1) Office 272,000 $ 33,000 $ ( 1,046 ) July 23, 2019 Shopping Center Portfolio (2) Retail 800,000 485,250 333,023 August 21, 2019 Frederick Crossing and Frederick County Square Retail 520,000 57,500 9,507 August 27, 2019 Centre at Hagerstown Retail 330,000 23,500 ( 3,506 ) December 19, 2019 1776 G Street Office 262,000 129,500 61,007 Total 2019 2,184,000 $ 728,750 $ 398,985 ______________________________ (1) Consists of 925 and 1000 Corporate Drive. (2) Consists of five retail properties: Gateway Overlook, Wheaton Park, Olney Village Center, Bradlee Shopping Center and Shoppes of Foxchase. During the second quarter of 2019, we sold Quantico Corporate Center, an office property in Stafford, Virginia, consisting of two office buildings totaling 272,000 square feet, for a contract sale price of $ 33.0 million, recognizing a loss on sale of real estate of $ 1.0 million. Prior to the sale, due to the negotiations to sell the property, we evaluated Quantico Corporate Center for impairment and recognized an $ 8.4 million impairment charge during the first quarter of 2019 in order to reduce the carrying value of the property to its estimated fair value. In June 2019, we entered into two separate purchase and sale agreements with two separate buyers to sell the Shopping Center Portfolio (Gateway Overlook, Wheaton Park, Olney Village Center, Bradlee Shopping Center and Shoppes of Foxchase) and the Power Center Portfolio (Frederick Crossing, Frederick County Square and Centre at Hagerstown). As of June 30, 2019, the properties in the Retail Portfolio (as defined below) met the criteria for classification as held for sale. We closed on the Shopping Center Portfolio sale transaction on July 23, 2019, recognizing a gain on sale of real estate of $ 333.0 million. Prior to closing on the disposition of the Shopping Center Portfolio, we prepaid the mortgage note secured by Olney Village Center, incurring a loss on extinguishment of debt of approximately $ 0.8 million, which we recognized in the third quarter of 2019. In the third quarter of 2019, the purchase and sale agreement to sell the Power Center Portfolio was amended to include only Frederick Crossing and Frederick County Square. We closed on the sale of these assets on August 21, 2019, recognizing a gain on sale of real estate of $ 9.5 million. Following the amendment to the purchase and sale agreement to sell the Power Center Portfolio, we marketed Centre at Hagerstown for sale and identified a separate buyer. We closed on the sale of this asset on August 27, 2019, recognizing a loss on sale of real estate of $ 3.5 million. References to the “Retail Portfolio” include the Shopping Center Portfolio, Frederick Crossing, Frederick County Square and Centre at Hagerstown. 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 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. In December 2019, we sold the property to the World Bank for a contract sale price of $ 129.5 million, recognizing a gain on sale of real estate of $ 61.0 million. In December 2019, we executed a purchase and sale agreement to sell John Marshall II for a contract sale price of $ 63.4 million. Upon execution of the purchase and sale agreement, the property met the criteria for classification as held for sale. 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. 15 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. Discontinued Operations 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 September 30, 2019 Nine Months Ended September 30, 2019 Real estate rental revenue $ 4,126 $ 28,200 Real estate expenses ( 1,095 ) ( 6,803 ) Depreciation and amortization ( 59 ) ( 4,926 ) 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 Basic net income per share $ 4.24 $ 4.41 Diluted net income per share $ 4.24 $ 4.41 Capital expenditures $ — $ 809 NOTE 4: LEASE ACCOUNTING Leasing as a Lessor Future Minimum Rental Income 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. 2020 $ 34,386 2021 135,462 2022 122,421 2023 105,347 2024 92,120 Thereafter 327,560 $ 817,296 Leasing as a Lessee 2000 M Street, an office property in Washington, DC, is subject to an operating ground lease with a remaining term of 51 years. Rental payments under this lease are subject to percentage rent variable payments, which are not included as part of our measurement of straight-line rental expense. 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 $ 0.7 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 16 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 September 30, 2020 and a reconciliation of those cash flows to the operating lease liability as of September 30, 2020 (in thousands): 2020 $ 65 2021 260 2022 260 2023 260 2024 260 Thereafter 11,895 13,000 Imputed interest ( 9,210 ) Lease liability $ 3,790 NOTE 5: MORTGAGE NOTES PAYABLE In January 2020, we prepaid the $ 45.6 million mortgage note secured by Yale West, which was scheduled to mature in 2052. 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. NOTE 6: UNSECURED LINE OF CREDIT PAYABLE During the first quarter of 2018, we entered into an amended and restated credit agreement (“Credit Agreement”) which provides for a $ 700.0 million unsecured revolving credit facility (“Revolving Credit Facility”), the continuation of an existing $ 150.0 million unsecured term loan (“2015 Term Loan”) and an additional $ 250.0 million unsecured term loan (“2018 Term Loan”). The Revolving Credit Facility has a four-year term ending in March 2022, with two six-month extension options. The Credit Agreement has an accordion feature that allows us to increase the aggregate facility to $ 1.5 billion, subject to the lenders’ agreement to provide additional revolving loan commitments or term loans. The Revolving Credit Facility bears interest at a rate of either one month LIBOR plus a margin ranging from 0.775 % to 1.55 % or the base rate plus a margin ranging from 0.0 % to 0.55 % (in each case depending upon WashREIT’s credit rating). The base rate is the highest of the administrative agent’s prime rate, the federal funds rate plus 0.50 % and the LIBOR market index rate plus 1.0 %. 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 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. Interest only payments are due and payable generally on a monthly basis. The 2018 Term Loan increases and replaces the $ 150.0 million unsecured term loan, initially entered into on July 22, 2016 (“2016 Term Loan”), that was scheduled to mature in July 2023. The 2018 Term Loan is scheduled to mature in July 2023 and bears interest at a rate of either one month LIBOR plus a margin ranging from 0.85 % to 1.75 % or the base rate plus a margin ranging from 0.0 % to 0.75 % (in each case depending upon WashREIT’s credit rating). We used the $ 100.0 million of additional proceeds from the 2018 Term Loan primarily to repay outstanding borrowings on the Revolving Credit Facility. We had previously used interest rate derivatives to effectively fix the interest rate of the 2016 Term Loan. These interest rate derivatives now effectively fix the interest rate on a $ 150.0 million portion of the 2018 Term Loan at 2.31 %. In March 2018, we entered into interest rate derivatives that commenced on June 29, 2018 to effectively fix the interest rate on the remaining $ 100.0 million of the 2018 Term Loan at 3.71 %. The 2018 Term Loan has an all-in fixed interest rate of 2.87 %. 17 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 Borrowings outstanding ( 186,000 ) Unused and available $ 514,000 We executed borrowings and repayments on the Revolving Credit Facility during the 2020 Period as follows (in thousands): Balance at December 31, 2019 $ 56,000 Borrowings 399,000 Repayments ( 269,000 ) Balance at September 30, 2020 $ 186,000 NOTE 7: NOTES PAYABLE On May 5, 2020, we entered into a one-year , $ 150.0 million unsecured term loan facility (“2020 Term Loan”), maturing on May 5, 2021 with a one-year extension option. The 2020 Term Loan bears interest at LIBOR + 1.50 %, which margin is subject to change based on our credit ratings, with a 0.50 % floor for the LIBOR rate. 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. NOTE 8: DERIVATIVE INSTRUMENTS 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. 18 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. On March 29, 2018, we entered into the $ 250.0 million 2018 Term Loan maturing on July 21, 2023, which increased and replaced the 2016 Term Loan. The interest rate swap arrangements that had effectively fixed the 2016 Term Loan now effectively fix the interest rate on a $ 150.0 million portion of the 2018 Term Loan at 2.31 %. On March 29, 2018, we entered into four interest rate swap arrangements with a total notional amount of $ 100.0 million to effectively fix the interest rate on the remaining $ 100.0 million of the 2018 Term Loan at 3.71 %, that commenced on June 29, 2018 and extending until the maturity of the 2018 Term Loan on July 21, 2023. The $ 250.0 million 2018 Term Loan has an all-in fixed interest rate of 2.87 %. 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 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 September 30, 2020 and December 31, 2019, are as follows (in thousands): Fair Value Derivative Assets (Liabilities) 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 ) Interest rate swaps 150,000 March 31, 2017 July 21, 2023 ( 4,471 ) 1,825 Interest rate swaps 100,000 June 29, 2018 July 21, 2023 ( 6,896 ) ( 3,664 ) Interest rate swaps 200,000 April 1, 2020 April 1, 2030 — 3,724 $ ( 12,372 ) $ 1,823 We record interest rate swaps on our consolidated balance sheets within Prepaid expenses and other assets when in a net asset position and within Accounts payable and other liabilities when in a net liability position. The interest rate swaps have been effective since inception. The net unrealized gains or losses on the effective swaps are recognized in Other comprehensive loss, as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 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. During the next twelve months, we estimate that an additional $ 6.7 million will be reclassified as an increase to interest expense. 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 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. 19 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. We believe that we minimize our credit risk on these transactions by dealing with major, creditworthy financial institutions. We monitor the credit ratings of counterparties and our exposure to any single entity, thus minimizing our credit risk concentration. NOTE 9: FAIR VALUE DISCLOSURES Assets and Liabilities Measured at Fair Value For assets and liabilities measured at fair value on a recurring basis, quantitative disclosures about the fair value measurements are required to be disclosed separately for each major category of assets and liabilities, as follows: Level 1: Quoted prices in active markets for identical assets Level 2: Significant other observable inputs Level 3: Significant unobservable inputs 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. 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). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of ASC 820, Fair Value Measurement , we incorporate credit valuation adjustments in the fair value measurements to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk. These credit valuation adjustments were concluded to not be significant inputs for the fair value calculations for the periods presented. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as the posting of collateral, thresholds, mutual puts and guarantees. The valuation of interest rate swaps fall into Level 2 in the fair value hierarchy. 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 Fair Value Level 1 Level 2 Level 3 Fair Value Level 1 Level 2 Level 3 Assets: SERP $ 2,126 $ — $ 2,126 $ — $ 1,792 $ — $ 1,792 $ — Interest rate swaps — — — — 5,549 — 5,549 — Liabilities: Interest rate swaps $ ( 12,372 ) $ — $ ( 12,372 ) $ — $ ( 3,726 ) $ — $ ( 3,726 ) $ — Financial Assets and Liabilities Not Measured at Fair Value The following disclosures of estimated fair value were determined by management using available market information and established valuation methodologies, including discounted cash flow models. Many of these estimates involve significant judgment. The estimated fair value disclosed may not necessarily be indicative of the amounts we could realize on disposition of the financial instruments. 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 September 30, 2020 may differ significantly from the amounts presented. The valuations of cash and cash 20 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 Cash and cash equivalents $ 3,814 $ 3,814 $ 12,939 $ 12,939 Restricted cash 615 615 1,812 1,812 Mortgage notes payable, net — — 47,074 47,899 Line of credit 186,000 186,000 56,000 56,000 Notes payable, net 897,443 921,394 996,722 1,022,937 NOTE 10: STOCK BASED COMPENSATION WashREIT maintains short-term (“STIP”) and long-term (“LTIP”) incentive plans that allow for stock based awards to officers and non-officer employees. Stock 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. 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 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 percentage will depend upon the participant’s position and the degree of achievement of threshold, target, and high performance goals for the performance period which, except as otherwise determined by the Compensation Committee, will be as set forth in the table below: Threshold Target High President and Chief Executive Officer 198 % 275 % 440 % Executive Vice President 143 % 200 % 295 % Senior Vice President 100 % 143 % 207 % 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 measures. 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 21 pro-rated portion of the shareholder return measure-based awards and the strategic measure-based awards will be calculated at target. Total Compensation Expense Total compensation expense recognized in the consolidated financial statements for all outstanding share based awards was $ 2.1 million and $ 1.7 million for the 2020 Quarter and 2019 Quarter, respectively, and $ 5.9 million and $ 6.3 million for the 2020 Period and 2019 Period, respectively. Restricted Share Awards 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 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. NOTE 11: EARNINGS PER COMMON SHARE We determine “Basic earnings per share” using the two-class method as our unvested restricted share awards and units have non-forfeitable rights to dividends, and are therefore considered participating securities. We compute basic earnings per share by dividing net income attributable to the controlling interest less the allocation of undistributed earnings to unvested restricted share awards and units by the weighted-average number of common shares outstanding for the period. 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. 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. 22 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 Numerator: Loss from continuing operations $ ( 956 ) $ ( 8,432 ) $ ( 4,643 ) $ ( 25,066 ) Allocation of earnings to unvested restricted share awards to continuing operations ( 151 ) 47 ( 453 ) 118 Adjusted loss from continuing operations attributable to the controlling interests ( 1,107 ) ( 8,385 ) ( 5,096 ) ( 24,948 ) 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 Denominator: Weighted average shares outstanding – basic 82,186 79,981 82,142 79,933 Effect of dilutive securities: Employee restricted share awards — — — — Operating partnership units — — — — Weighted average shares outstanding – diluted 82,186 79,981 82,142 79,933 Earnings per common share, basic: Continuing operations $ ( 0.01 ) $ ( 0.10 ) $ ( 0.06 ) $ ( 0.31 ) Discontinued operations — 4.24 — 4.41 Basic net (loss) income attributable to the controlling interests per common share (1) $ ( 0.01 ) $ 4.14 $ ( 0.06 ) $ 4.10 Earnings per common share, diluted: Continuing operations $ ( 0.01 ) $ ( 0.10 ) $ ( 0.06 ) $ ( 0.31 ) Discontinued operations — 4.24 — 4.41 Diluted net (loss) income attributable to the controlling interests per common share (1) $ ( 0.01 ) $ 4.14 $ ( 0.06 ) $ 4.10 Dividends declared per common share $ 0.30 $ 0.30 $ 0.90 $ 0.90 ______________________________ (1) Earnings per share may not sum due to rounding. NOTE 12: SEGMENT INFORMATION We evaluate real estate performance and allocate resources by property type through two reportable segments: office and multifamily. Office properties provide office space for various types of businesses and professions. Multifamily properties provide rental housing for individuals and families throughout the Washington metro region. 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 of the combined properties in each segment. Our reportable operating segments are consolidations of similar properties. GAAP requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing each segment’s performance. 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. 23 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 Real estate rental revenue $ 32,579 $ 36,266 $ 4,382 $ 73,227 Real estate expenses 12,342 14,988 1,342 28,672 Net operating income $ 20,237 $ 21,278 $ 3,040 $ 44,555 Depreciation and amortization ( 30,470 ) General and administrative expenses ( 6,330 ) Interest expense ( 8,711 ) Net loss ( 956 ) Less: Net income attributable to noncontrolling interests in subsidiaries — Net loss attributable to the controlling interests $ ( 956 ) Capital expenditures $ 6,201 $ 6,520 $ 389 $ 13,110 Total assets $ 1,056,074 $ 1,338,812 $ 137,386 $ 2,532,272 Three Months Ended September 30, 2019 Office Multifamily Corporate and Other (1) Consolidated Real estate rental revenue $ 39,810 $ 35,790 $ 4,659 $ 80,259 Real estate expenses 15,148 14,232 1,312 30,692 Net operating income $ 24,662 $ 21,558 $ 3,347 $ 49,567 Depreciation and amortization ( 37,340 ) General and administrative expenses ( 6,461 ) Interest expense ( 14,198 ) 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 Less: Net income attributable to noncontrolling interests in subsidiaries — Net income attributable to the controlling interests $ 332,770 Capital expenditures $ 6,039 $ 5,742 $ 369 $ 12,150 Total assets $ 1,191,838 $ 1,333,146 $ 150,092 $ 2,675,076 ______________________________ (1) Total assets and capital expenditures include all retail properties, including those classified as discontinued operations. 24 Nine Months Ended September 30, 2020 Office Multifamily Corporate and Other Consolidated Real estate rental revenue $ 101,163 $ 108,882 $ 12,844 $ 222,889 Real estate expenses 37,176 43,083 3,937 84,196 Net operating income $ 63,987 $ 65,799 $ 8,907 $ 138,693 Depreciation and amortization ( 89,789 ) General and administrative ( 17,963 ) Interest expense ( 28,307 ) Loss on sale of real estate ( 7,539 ) Gain on extinguishment of debt 262 Net loss ( 4,643 ) Less: Net income attributable to noncontrolling interests in subsidiaries — Net loss attributable to the controlling interests $ ( 4,643 ) Capital expenditures $ 21,120 $ 15,477 $ 2,089 $ 38,686 Nine Months Ended September 30, 2019 Office Multifamily Corporate and Other (1) Consolidated Real estate rental revenue $ 124,164 $ 90,012 $ 14,337 $ 228,513 Real estate expenses 45,937 34,928 4,104 84,969 Net operating income $ 78,227 $ 55,084 $ 10,233 $ 143,544 Depreciation and amortization ( 97,441 ) General and administrative ( 19,803 ) Interest expense ( 41,946 ) Loss on sale of real estate ( 1,046 ) Real estate impairment ( 8,374 ) Discontinued operations: Income from operations of properties sold or held for sale 16,158 Gain on sale of real estate 339,024 Loss on extinguishment of debt ( 764 ) Net income 329,352 Less: Net income attributable to noncontrolling interests in subsidiaries — Net income attributable to the controlling interests $ 329,352 Capital expenditures $ 16,347 $ 12,841 $ 1,717 $ 30,905 ______________________________ (1) Total assets and capital expenditures include all retail properties, including those classified as discontinued operations. NOTE 13: SHAREHOLDERS' EQUITY On May 4, 2018, we entered into eight separate equity distribution agreements (collectively, the “Equity Distribution Agreements”) with Wells Fargo Securities, LLC, BNY Mellon Capital Markets, LLC, Capital One Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, KeyBanc Capital Markets Inc. and SunTrust Robinson Humphrey, Inc. relating to the issuance of up to $ 250.0 million of our common shares from time to time. Issuances of our common shares are made at market prices prevailing at the time of issuance. We may use net proceeds from the issuance of common shares under this program for general corporate purposes, including, without limitation, working capital, the acquisition, renovation, expansion, improvement, development or redevelopment of income producing properties or the repayment of debt. 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 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. 25 We have a dividend reinvestment program whereby shareholders may use their dividends and optional cash payments to purchase common shares. 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 Issuance of common shares 23 64 64 128 Weighted average price per share $ 22.51 $ 27.67 $ 25.12 $ 26.97 Net proceeds $ 516 $ 1,757 $ 1,581 $ 3,430 26