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You should refer to the explanation of the qualifications and limitations on such forward-looking statements beginning on page 43 .
+Added: Risks Related to the novel coronavirus (COVID-19)
+Added: The current outbreak of COVID-19, and the resulting volatility it has created, has disrupted our business and we expect that the COVID-19 pandemic, will significantly and adversely impact our business, financial condition and results of operations going forward, and that other potential pandemics or outbreaks, could materially adversely affect our business, financial condition, results of operations and cash flows in the future.
+Added: Further, the spread of the COVID-19 outbreak has caused severe disruptions in the U.S.
+Added: and global economy and financial markets and could potentially create widespread business continuity issues of an unknown magnitude and duration.
+Added: Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States.
+Added: On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
+Added: The COVID-19 pandemic has had, and COVID-19, any mutation thereof, and any future pandemic will continue to have repercussions across regional and global economies and financial markets.
+Added: The global impact of the outbreak has been rapidly evolving and many countries, including the United States (including the states and cities that comprise the Washington metro region, where we own properties and have development sites), have at times also instituted quarantines, shelter-in-place rules, and restrictions on travel, the types of business that may continue to operate, and/or the types of construction projects that may continue.
+Added: As a result, the COVID-19 pandemic is negatively impacting most industries, both inside and outside the Washington metro region, directly or indirectly.
+Added: Since the beginning of the pandemic, a number of our commercial tenants have announced temporary closures of their offices or stores and requested rent deferral or rent abatement.
+Added: In addition, jurisdictions in the Washington metro region have implemented or may implement rent freezes or other similar restrictions.
+Added: The full extent of the impact on our business is largely uncertain and dependent on a number of factors beyond our control, including a potential increase in the number of cases in the Washington metro region, as a result of this year's flu season or otherwise.
+Added: The COVID-19 outbreak has caused and continues to cause severe disruptions in the U.S.
+Added: and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.
+Added: COVID-19 has disrupted our business and is expected to continue to have a significant adverse effect on our business, financial performance and condition, operating results and cash flows due to, among other factors:
+Added: • a decrease in real estate rental revenue (our primary source of operating cash flow), as a result of temporary rent increase freezes impacting new and renewal rental rates on multifamily properties, longer lease-up periods for both anticipated and unanticipated vacancies, including as a result of a shift from physical to virtual tours, lower revenue recognized as a result of the waiver of late fees and a reduction in parking revenue, as well as our tenants’ ability and willingness to pay rent, increased credit losses, and our ability to continue to collect rents, on a timely basis or at all (for example, 1% of contractual cash rents in our office portfolio, 3% of contractual cash rents in our retail portfolio and 1% of contractual cash rents in our multifamily portfolio were uncollected for the fourth quarter of 2020, as of January 31, 2021);
+Added: • a complete or partial closure of one or more of our properties resulting from government or tenant action (as of February 11, 2021, all of our commercial properties are operating on a limited basis pursuant to local government orders, except for essential businesses);
+Added: • reductions in demand for commercial space in the Washington metro region and the inability to provide physical tours of either our commercial and multifamily spaces may result in our inability to renew leases, re-lease space as leases expire, or lease vacant space, particularly without concessions, or a decline in rental rates on new leases, particularly at our retail assets;
+Added: • the inability of one or more major tenants or a significant number of smaller tenants to pay rent, or the bankruptcy or insolvency of one or more major tenants or a significant number of smaller tenants, due to a downturn in their businesses or a weakening of financial condition related to the pandemic;
+Added: • the inability to decrease certain fixed expenses at our properties despite decreased operations at such properties;
+Added: • the inability of our third-party service providers to adequately perform their property management and/or leasing activities at our properties due to decreased on-site staff or other COVID-19-related challenges;
+Added: • difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deterioration in credit and financing conditions, which may affect our access to capital and our commercial tenants' ability to fund their business operations and meet their obligations to us;
+Added: • the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of debt agreements;
+Added: • a decline in the market value of real estate in the Washington metro region may result in the carrying value of certain real estate assets exceeding their fair value, which may require us to recognize an impairment to those assets;
+Added: • future delays in the supply of products, services or liquidity may negatively impact our ability to complete the development, redevelopment, renovations and lease-up of our properties on schedule or for their original estimated cost;
+Added: • loss of cash balances that we periodically invest in a variety of short-term investments in order to preserve principal and maintain a high degree of liquidity while providing current income could result in a lower level of liquidity ;
+Added: • a general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow or change the complexion of our portfolio of properties;
+Added: • our insurance may not cover loss of revenue or other expenses resulting from the pandemic and related shelter-in-place rules;
+Added: • unanticipated costs and operating expenses and decreased anticipated and actual revenue related to compliance with regulations, such as additional expenses related to staff working remotely, requirements to provide employees with additional mandatory paid time off and increased expenses related to sanitation measures performed at each of our properties, as well as additional expenses incurred to protect the welfare of our employees, such as expanded access to health services;
+Added: • the potential for our employees, particularly our key personnel and property management teams, to become sick with COVID-19 which could adversely affect our business;
+Added: • the increased vulnerability to cyber-attacks or cyber intrusions while employees are working remotely has the potential to disrupt our operations or cause material harm to our financial condition;
+Added: • complying with REIT requirements during a period of reduced cash flow could cause us to liquidate otherwise attractive investments or borrow funds on unfavorable conditions.
+Added: The significance, extent and duration of the impact of COVID-19 remains largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as a potential increase in cases in the Washington metro region, the continued severity, duration, transmission rate and geographic spread of COVID-19, the extent and effectiveness of the containment measures taken, the timing, effectiveness and availability of vaccines, and the response of the overall economy, the financial markets and the population, particularly in the Washington metro region, once the current containment measures are lifted.
+Added: The ongoing volatility of this situation may limit our ability to make predictions as to the ultimate adverse impact of COVID-19 on us.
+Added: As a result, we cannot provide an estimate of the overall impact of the COVID-19 pandemic on our business or when, or if, we will be able to resume normal operations.
+Added: Nevertheless, COVID-19 presents material uncertainty and risk with respect to our business, financial performance and condition, operating results and cash flows.
Risks Related to our Business and Operations
−Removed: Our performance and value are subject to risks associated with our real estate assets and with the real estate industry, which could adversely affect our cash flow and ability to pay distributions to our shareholders.
−Removed: Our financial performance and the value of our real estate assets are subject to the risk that our properties do not generate revenues sufficient to meet our operating expenses, debt service and capital expenditures, which could cause our cash flow and ability to pay distributions to our shareholders to be adversely affected.
+Added: Our performance and value are subject to risks associated with our real estate assets and with the real estate industry, which could adversely affect our cash flow and ability to make distributions to our shareholders.
+Added: Our financial performance and the value of our real estate assets are subject to the risk that our properties do not generate revenues sufficient to meet our operating expenses, debt service and capital expenditures, which could cause our cash flow and ability to make distributions to our shareholders to be adversely affected.
The following factors, among others, may adversely affect the cash flow generated by our multifamily and commercial properties:
−Removed: downturns in the national, regional and local economic climate;
• declines in the financial condition of our tenants;
−Removed: declines in consumer confidence, unemployment rates and consumer tastes and preferences;
• significant job losses in the professional/business services industries or government;
• competition from similar asset class properties;
−Removed: the inability or unwillingness of our tenants to pay rent increases;
−Removed: changes in market rental rates and related concessions granted to tenants including, but not limited to, free rent and tenant improvement allowances;
• local real estate market conditions, such as oversupply or reduction in demand for multifamily and commercial properties;
−Removed: changes in interest rates and availability of financing;
−Removed: increased operating costs, including insurance premiums, utilities and real estate taxes;
−Removed: vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;
• civil disturbances, earthquakes and other natural disasters, terrorist acts or acts of war.
−Removed: decreases in the underlying value of our real estate.
−Removed: We are dependent upon the economic and regulatory climate of the Washington metropolitan region, which may impact our profitability and may limit our ability to meet our financial obligations when due and/or make distributions to our shareholders.
+Added: Additionally, complying with the REIT requirements may cause us to forgo and/or liquidate otherwise attractive investments.
+Added: These actions could have the effect of reducing our income and amount available for distribution to shareholders.
+Added: Thus, compliance with the REIT requirements may hinder our ability to make, or, in certain cases, maintain ownership of, certain attractive investments.
+Added: We may also face potential adverse effects from bankruptcies or insolvencies of major tenants and could face potential difficulties in leasing or re-leasing such tenants' associated space.
+Added: Lastly, in addition, a significant economic downturn over a period of time could result in an event or change in circumstances that results in an impairment in the value of our properties.
+Added: An impairment loss is recognized if the carrying amount of the asset is not recoverable over its expected holding period and exceeds its fair value.
+Added: Any of these events could affect our cash flow and ability to make distributions to our shareholders.
+Added: We are dependent upon the economic and regulatory climate of the Washington metro region, which may impact our profitability and may limit our ability to meet our financial obligations when due and/or make distributions to our shareholders.
All of the properties in our portfolio are located in the Washington metro region and such concentration may expose us to a greater amount of market dependent risk than if we were geographically diverse.
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Additionally, we are susceptible to adverse developments in the Washington, D.C.
−Removed: regulatory environment, such as increases in real estate and other taxes, the costs of complying with governmental regulations or increased regulations and actual or threatened reductions in federal government spending and/or changes to the timing of government spending, as has occurred during recent federal government shutdowns.
+Added: regulatory environment, such as increases in real estate and other taxes, the costs of complying with governmental regulations or increased regulations and actual or threatened reductions in federal government spending and/or changes to the timing of government spending, as has occurred during federal government shutdowns.
In the event of negative economic and/or regulatory changes in our region, we may experience a negative impact to our profitability and may be limited in our ability to meet our financial obligations when due and/or make distributions to our shareholders.
−Removed: We face potential difficulties or delays renewing leases or re-leasing space, and as a result, our financial condition, results of operations, cash flow and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.
−Removed: As of December 31, 2019, the percentage of leased square footage of our commercial properties will expire as set forth in the lease expiration tables on page 6.
−Removed: Multifamily properties are leased under operating leases with terms of generally one year or less.
−Removed: For each the three years ended December 31, 2019, 2018 and 2017, the multifamily tenant retention rate was 56%, 55%, and 59%, respectively.
−Removed: Difficulties or delays renewing leases or releasing space could impact our financial condition and ability to make distributions.
−Removed: We derive substantially all of our income from rent received from tenants.
−Removed: If our tenants decide not to renew their leases, we may face delays or difficulties re-leasing the space.
−Removed: If tenants decide to renew their leases, the terms of renewals, including the cost of required improvement allowances or concessions, may be less favorable to WashREIT than current lease terms.
−Removed: If the rental rates of our properties decrease, our existing tenants do not renew their leases (refer to the list of our ten largest tenants as of December 31, 2019 on page 7) or we do not re-lease a significant portion of our available and soon-to-be-available space, our financial condition, results of operations, cash flow and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.
−Removed: Real estate investments are illiquid, and we may not be able to sell our properties on a timely basis when we determine it is appropriate to do so, which could negatively impact our profitability.
−Removed: Real estate investments can be difficult to sell and convert to cash quickly, especially if market conditions are not favorable.
−Removed: Such illiquidity could limit our ability to quickly change our portfolio of properties in response to changes in economic or other conditions.
−Removed: Moreover, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer property sales that otherwise would be in our best interest.
−Removed: Due to these factors, we may be unable to sell a property at an advantageous time or on the terms anticipated which could negatively impact our profitability.
The composition of our portfolio by asset class may change over time, which could expose us to different asset class risks than if our portfolio composition remained static.
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If we are successful in executing the strategic capital allocation plan, then we will become more exposed to the risks of the multifamily and office markets, any of which could have a material adverse effect on us.
−Removed: We may not be able to control our operating expenses or our operating expenses may remain constant or increase, even if our revenues do not increase, causing our financial condition, results of operations, cash flows, per share trading price of our common shares and ability to make distributions to our shareholders to be adversely affected.
−Removed: Operating expenses associated with owning a property include real estate taxes, insurance, loan payments, maintenance, repair and renovation costs, the cost of compliance with governmental regulation (including zoning) and the potential for liability under applicable laws.
−Removed: If our operating expenses increase, our results of operations may be adversely affected.
−Removed: Moreover, operating expenses are not necessarily reduced when circumstances such as market factors, competition or reduced occupancy cause a reduction in revenues from the property.
−Removed: As a result, if revenues decline, we may not be able to reduce our operating expenses associated with the property.
−Removed: If we are unable to control or adjust our operating expenses accordingly, our financial condition, results of operations, cash flow, per share trading price of our common shares and ability to make distributions to our shareholders may be adversely affected.
We may be adversely affected by any significant reductions in federal government spending or actual or threatened changes to the timing of federal government spending, which could have an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.
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Government as federal contractors or otherwise.
−Removed: A significant reduction in federal government spending, particularly a sudden decrease due to a sequestration process, such as occurred in recent years, or due to extended uncertainty in the political climate in a way that affects the federal appropriations process by decreasing, delaying or making uncertain the results, stability and timing of federal appropriations, could adversely affect the ability of these tenants to fulfill lease obligations or
−Removed: decrease the likelihood that they will renew their leases with us.
+Added: A significant reduction in federal government spending, particularly a sudden decrease due to a sequestration process or due to extended uncertainty in the political climate in a way that affects the federal appropriations process by decreasing, delaying or making uncertain the results, stability and timing of federal appropriations, could adversely affect the ability of these tenants to fulfill lease obligations or decrease the likelihood that they will renew their leases with us.
Further, economic conditions in the Washington metro region are significantly dependent upon the level of federal government spending in the region as a whole.
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As a result, if such a reduction in federal government spending or actual or threatened change to the timing of federal government spending were to occur or be anticipated for an extended period, we could experience an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.
+Added: We face potential difficulties or delays renewing leases or re-leasing space, and as a result, our financial condition, results of operations, cash flow and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.
+Added: As of December 31, 2020, the percentage of leased square footage of our commercial properties scheduled to expire is as set forth in the lease expiration tables on page 8, with a total of 26% and 27% of our office and retail leases scheduled to expire in the two years following December 31, 2020.
+Added: Multifamily properties are leased under operating leases with terms of generally one year or less.
+Added: For each the three years ended December 31, 2020, 2019 and 2018, the multifamily tenant retention rate was 54%, 55%, and 55%, respectively.
+Added: Difficulties or delays renewing leases or releasing space, including as a result of our inability to provide physical tours of either our commercial and multifamily spaces as a result of COVID-19, could impact our financial condition and ability to make distributions to our shareholders.
+Added: We derive substantially all of our income from rent received from tenants.
+Added: If our tenants decide not to renew their leases, we may face delays or difficulties re-leasing the space.
+Added: If tenants decide to renew their leases, the terms of renewals, including the cost of required improvement allowances or concessions, may be less favorable to WashREIT than current lease terms.
+Added: If the rental rates of our properties decrease, our existing tenants do not renew their leases (refer to the list of our ten largest tenants as of December 31, 2020 in "Part I - Item 1.
+Added: Business", which collectively represented 12% of our revenue for the year ended December 31, 2020) or we do not re-lease a significant portion of our available and soon-to-be-available space, our financial condition, results of operations, cash flow and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.
+Added: Occupancy levels and market rents at our multifamily properties could be negatively affected by competition with other housing alternatives and various political, economic and market conditions, which could adversely affect our results of operations and our financial condition.
+Added: Our multifamily properties compete with numerous housing alternatives in attracting residents, including owner occupied single and multifamily homes.
+Added: Occupancy levels and market rents may be adversely affected by national and local political, economic and market conditions including, without limitation, migration to areas outside of major metropolitan areas like the Washington metro region, where our portfolio is concentrated, new construction and excess inventory of multifamily and owned housing/condominiums, increasing portions of owned housing/condominium stock being converted to rental use, rental housing subsidized by the government, other government programs that favor single family rental housing or owner occupied housing over multifamily rental housing, governmental regulations, slow or negative employment growth and household formation, the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers, changes in social preferences and the potential for geopolitical instability, all of which are beyond our control.
+Added: Finally, the federal government’s policies, many of which may encourage home ownership, can increase competition and could possibly limit our ability to raise rents in our markets and therefore lower the value of our properties.
+Added: Competitive housing in a particular area and increased affordability of owner occupied single and multifamily homes could adversely affect our ability to retain our current residents, attract new ones or increase or maintain rents, which could adversely affect our results of operations and our financial condition.
+Added: Real estate investments are illiquid, and we may not be able to sell our properties on a timely basis when we determine it is appropriate to do so, which could negatively impact our profitability.
+Added: Real estate investments can be difficult to sell and convert to cash quickly, especially if market conditions are not favorable.
+Added: Such illiquidity could limit our ability to quickly change our portfolio of properties in response to changes in economic or other conditions.
+Added: Moreover, the REIT tax laws require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer property sales that otherwise would be in our best interest.
+Added: Due to these factors, we may be unable to sell a property at an advantageous time or on the terms anticipated which could negatively impact our profitability.
+Added: Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants.
+Added: Certain states and municipalities, including Washington, D.C., have adopted laws and regulations imposing restrictions on the timing or amount of rent increases or have imposed regulations relating to low- and moderate-income housing.
+Added: Such laws and regulations limit our ability to charge market rents, increase rents, evict tenants or recover increases in our operating expenses at our residential properties and could make it more difficult for us to dispose of properties in certain circumstances.
+Added: Similarly, compliance procedures associated with rent control statutes and low- and moderate-income housing regulations could have a negative impact on our operating costs, and any failure to comply with low- and moderate-income housing regulations could
+Added: result in the loss of certain tax benefits and the forfeiture of rent payments.
+Added: In addition, such low- and moderate-income housing regulations often require us to rent a certain number of units at below-market rents, which has a negative impact on our ability to increase cash flows from our residential properties subject to such regulations.
+Added: Furthermore, such regulations may negatively impact our ability to attract higher-paying tenants to such properties.
+Added: As of December 31, 2020, two of our residential properties were subject to such regulations.
We face risks associated with property development/redevelopment, which could have an adverse effect on our financial condition, results of operations or ability to satisfy our debt service obligations.
We may, from time to time, engage in development and redevelopment activities, some of which may be significant.
−Removed: Developing or redeveloping properties presents a number of risks for us, including risks that:
−Removed: if we are unable to obtain all necessary zoning and other required governmental permits and authorizations or cease development of the project for any other reason, the development opportunity may be abandoned or postponed after expending significant resources, resulting in the loss of deposits or failure to recover expenses already incurred;
−Removed: the development and construction costs of the project may exceed original estimates due to increased interest rates and increased cost of materials, labor, leasing or other expenditures, which could make the completion of the project less profitable because market rents may not increase sufficiently to compensate for the increase in construction costs;
−Removed: construction and/or permanent financing may not be available on favorable terms or may not be available at all, which may cause the cost of the project to increase and lower the expected return;
−Removed: the project may not be completed on schedule, or at all, as a result of a variety of factors, many of which are beyond our control, such as weather, labor conditions and material shortages, which would result in increases in construction costs and debt service expenses;
−Removed: the time between commencement of a development project and the stabilization of the completed property exposes us to risks associated with fluctuations in local and regional economic conditions;
−Removed: occupancy rates and rents at the completed property may not meet the expected levels and could be insufficient to make the property profitable;
−Removed: there may not be sufficient development opportunities available.
+Added: Developing or redeveloping properties presents a number of risks for us, including risks relating to necessary permitting, risks relating to development and construction costs and/or permanent financing, risks relating to completing the project on schedule, or at all, and risks related to occupancy rates at the completed property.
Properties developed or acquired for development may generate little or no cash flow from the date of acquisition through the date of completion of development.
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These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken.
−Removed: Any of the foregoing could have an adverse effect on our financial condition, results of operations or ability to satisfy our debt service obligations.
−Removed: We face potential adverse effects from major tenants' bankruptcies or insolvencies, which could adversely affect our cash flow and results of operations.
−Removed: The bankruptcy or insolvency of a major tenant may adversely affect the income produced by a property.
−Removed: We cannot evict a tenant solely because of its bankruptcy.
−Removed: On the other hand, a court might authorize the tenant to reject and terminate its lease.
−Removed: In such case, our claim against the bankrupt tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease.
−Removed: As a result, our claim for unpaid rent would likely not be paid in full.
−Removed: This shortfall could adversely affect our cash flow and results of operations.
−Removed: If a tenant experiences a downturn in its business or other types of financial distress, it may be unable to make timely rental payments.
−Removed: Competition for tenants of our multifamily properties, including as a result of increased affordability of residential homes, could affect occupancy levels and market rents at our multifamily properties, which could adversely affect our results of operations and our financial condition.
−Removed: Our multifamily properties compete with numerous housing alternatives in attracting residents, including owner occupied single and multifamily homes.
−Removed: Occupancy levels and market rents may be adversely affected by national and local political, economic and market conditions including, without limitation, new construction and excess inventory of multifamily and owned housing/condominiums, increasing portions of owned housing/condominium stock being converted to rental use, rental housing subsidized by the government, other government programs that favor single family rental housing or owner occupied housing over multifamily
−Removed: rental housing, governmental regulations, slow or negative employment growth and household formation, the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers, changes in social preferences and the potential for geopolitical instability, all of which are beyond our control.
−Removed: Finally, the federal government’s policies, many of which may encourage home ownership, can increase competition and could possibly limit our ability to raise rents in our markets and therefore lower the value of our properties.
−Removed: Competitive housing in a particular area and increased affordability of owner occupied single and multifamily homes could adversely affect our ability to retain our current residents, attract new ones or increase or maintain rents, which could adversely affect our results of operations and our financial condition.
+Added: The materialization of any of the foregoing risks could have an adverse effect on our financial condition, results of operations or ability to satisfy our debt service obligations.
We face risks associated with property acquisitions.
We may acquire properties which would increase our size and could alter our capital structure.
−Removed: Our acquisition activities and results may be exposed to the following risks:
+Added: In addition, our acquisition activities and results may be exposed to the following risks:
• we may have difficulty finding properties that are consistent with our strategies and that meet our standards;
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• we may be unable to finance acquisitions on favorable terms or at all;
−Removed: the occupancy levels, lease-up timing and rental rates may not meet our expectations;
+Added: • the occupancy levels, lease-up timing and rental rates of acquired properties may not meet our expectations;
• even if we enter into an acquisition agreement for a property, we may be unable to complete that acquisition after making a non-refundable deposit and incurring certain other acquisition-related costs;
−Removed: competition from other real estate investors may significantly increase the purchase price;
−Removed: we may be unable to acquire a desired property because of competition from other real estate investors, including publicly traded real estate investment trusts, institutional investment funds and private investors;
−Removed: even if we enter into an acquisition agreement for a property, it would typically be subject to customary conditions to closing, including completion of due diligence investigations, which may have findings that are unacceptable;
+Added: • we may be unable to acquire a desired property at all or at the desired purchase price because of competition from other real estate investors, including publicly traded real estate investment trusts, institutional investment funds and private investors;
• the timing of property acquisitions may lag the timing of property dispositions, leading to periods of time where projects' proceeds are not invested as profitably as we desire;
−Removed: the acquired properties may fail to perform as we expected in analyzing our investments;
−Removed: the actual returns realized on acquired properties may not exceed our cost of capital;
• we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;
−Removed: our estimates of capital expenditures required for an acquired property, including the costs of repositioning or redeveloping, may be inaccurate;
+Added: • we may assume liabilities for undisclosed environmental contamination;
+Added: • our estimates of capital expenditures required for an acquired property, including the costs of repositioning or redeveloping, may be inaccurate and the acquired properties may fail to perform as we expected in analyzing our investments;
• we could experience a decline in value of the acquired assets after acquisition.
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As a result, if liability were asserted against us based upon the acquisition of a property, we may have to pay substantial sums to settle it, which could adversely affect our cash flow.
−Removed: Unknown liabilities with respect to properties acquired might include:
−Removed: liabilities for clean-up of undisclosed environmental contamination;
−Removed: claims by tenants, vendors or other persons dealing with the former owners of the properties;
−Removed: liabilities incurred in the ordinary course of business;
−Removed: claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
We face risks associated with third-party service providers, which could negatively impact our profitability.
We enter into arrangements from time to time by which various service providers conduct day-to-day property management and/or leasing activities at our properties.
+Added: Currently, all of our multifamily properties are managed by third-party service providers.
Failure of such service providers to adequately perform their contracted services could negatively impact our ability to retain tenants or lease vacant space.
As a result, any such failure could negatively impact our profitability.
−Removed: We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments which may adversely affect our operations.
−Removed: While we have no interests in joint ventures following our purchase of the remaining 10% interest in The Maxwell during the fourth quarter of 2017, we may from time to time invest in joint ventures in which we are not the exclusive investor or the only decision maker.
−Removed: Investments in such entities may involve risks not present when a third party is not involved, including the possibility that the other parties to these investments might become bankrupt or fail to fund their share of required capital contributions, and we may be forced to make contributions to maintain the value of the property.
−Removed: Our partners in these entities
−Removed: may have economic, tax or other business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives.
−Removed: Such investments may also lead to impasses, for example, as to whether to sell a property, because neither we nor the other parties to these investments may have full control over the entity.
−Removed: In addition, we may in certain circumstances be liable for the actions of the other parties to these investments.
−Removed: Each of these factors could have an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.
−Removed: In some instances, joint venture partners may have competing interests that could create conflicts of interest.
−Removed: These conflicts may include compliance with the REIT requirements, and our REIT status could be jeopardized if any of our joint ventures do not operate in compliance with the REIT requirements.
−Removed: To the extent our joint venture partners do not meet their obligations to us or they take action inconsistent with our interests in the joint venture, we may be adversely affected.
−Removed: Our real estate taxes could increase due to property tax rate changes or reassessment, which could impact our cash flows our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.
−Removed: Even though we qualify as a REIT for U.S.
−Removed: federal income tax purposes, we are required to pay state and local taxes on our properties.
−Removed: The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities.
−Removed: Therefore, the amount of property taxes we pay in the future may increase substantially from what we have paid in the past.
−Removed: If the property taxes we pay increase, our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.
−Removed: Our properties face significant competition which could adversely affect our ability to lease our properties and result in lower cash flows.
−Removed: We face significant competition from developers, owners and operators of multifamily, office and other real estate.
−Removed: Substantially all of our properties face competition from similar properties in the same market.
−Removed: Such competition may affect our ability to attract and retain tenants and may reduce the rents we are able to charge.
−Removed: These competing properties may have vacancy rates higher than our properties, which may result in their owners being willing to make space available at lower rents than the space in our properties.
−Removed: As a result, it may be more difficult for us to lease our space, which would result in lower cash flows.
−Removed: We face risks associated with short-term liquid investments, which could adversely affect our results of operations or financial condition.
−Removed: We periodically may have cash balances that we invest in a variety of short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income.
−Removed: From time to time, these investments may include (either directly or indirectly):
−Removed: direct obligations issued by the U.S.
−Removed: obligations issued or guaranteed by the U.S.
−Removed: government or its agencies;
−Removed: taxable municipal securities;
−Removed: obligations (including certificates of deposit) of banks and thrifts;
−Removed: commercial paper and other instruments consisting of short-term U.S.
−Removed: dollar denominated obligations issued by corporations and banks;
−Removed: repurchase agreements collateralized by corporate and asset-backed obligations;
−Removed: registered and unregistered money market funds;
−Removed: other highly-rated short-term securities.
−Removed: Investments in these securities and funds are not insured against loss of principal.
−Removed: Under certain circumstances, we may be required to redeem all or part of our investment, and our right to redeem some or all of our investment may be delayed or suspended.
−Removed: In addition, there is no guarantee that our investments in these securities or funds will be redeemable at par value.
−Removed: A decline in the value of our investment or a delay or suspension of our right to redeem may have a material adverse effect on our results of operations or financial condition.
−Removed: Compliance or failure to comply with the Americans with Disabilities Act and other laws and regulations could result in substantial costs and adversely affect our results of operations.
−Removed: The Americans with Disabilities Act (“ADA”) generally requires that public buildings, including multifamily and commercial properties, be made accessible to disabled persons.
−Removed: Noncompliance could result in imposition of fines by the federal government or the award of damages to private litigants.
−Removed: If, pursuant to the ADA, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our results of operations.
−Removed: We may also incur significant costs complying with other regulations.
−Removed: Our properties are subject to various federal, state and local regulatory requirements, such as state and local fair housing, rent control and fire and life safety requirements.
−Removed: If we fail to comply with these requirements, we may incur fines or private damage awards.
−Removed: We believe that our properties are currently in material compliance with regulatory requirements.
−Removed: However, we do not know whether existing requirements will change in the future or whether compliance with future requirements will require significant unanticipated expenditures that will adversely affect our results of operations.
Climate change and regulation regarding climate change in the Washington metro region may adversely affect our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders.
3 unchanged sentences
The District of Columbia, Arlington County, Virginia, Fairfax County, Virginia, and Montgomery County, Maryland, each have made formal public commitments to carbon reduction.
−Removed: To enforce this commitment, the Washington DC City Council passed the DC Clean Energy Omnibus bill.
−Removed: The bill requires that all electricity purchased in the District be renewable by 2032 and sets a building energy performance standard (BEPS) requiring certain buildings to meet certain minimum energy efficiency standards.
−Removed: Under the District of Columbia’s Building Energy Performance Standards (“BEPS”), all existing buildings over 50,000 square feet will be required to reach minimum levels of energy efficiency or deliver savings by 2026, with progressively smaller buildings phasing into compliance over the following years.
+Added: To enforce this commitment, the Washington, D.C.
+Added: City Council passed the DC Clean Energy Omnibus bill.
+Added: The bill requires that all electricity purchased in the District be renewable by 2032 and sets a building energy performance standard requiring certain buildings to meet certain minimum energy efficiency standards.
+Added: Under the District of Columbia’s Building Energy Performance Standards, all existing buildings over 50,000 square feet will be required to reach minimum levels of energy efficiency or deliver savings by 2026, with progressively smaller buildings phasing into compliance over the following years.
This regulation may require unplanned capital improvements, and increased engagement to manage occupant energy use, which is a large driver of building performance.
4 unchanged sentences
We believe all of our properties are adequately insured.
−Removed: The property insurance that we maintain for our properties has historically been on an “all risk” basis, which is in full force and effect until renewal in August 2020.
+Added: The property insurance that we maintain for our properties has historically been on an “all risk” basis, which is in full force and effect until renewal in March 2021 for our Assembly portfolio and August 2021 for all other properties.
There are other types of losses, such as from wars or catastrophic events, for which we cannot obtain insurance at all or at a reasonable cost.
1 unchanged sentence
Our financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts.
−Removed: Effective November 26, 2002, under this existing coverage, any losses caused by certified acts of terrorism would be partially reimbursed by the United States under a formula established by federal law.
−Removed: Under this formula, the United States pays 85% of covered terrorism losses exceeding the statutorily established deductible paid by the insurance provider, and insurers pay 10% until aggregate insured losses from all insurers reach $100 billion in a calendar year.
−Removed: If the aggregate amount of insured losses under this program exceeds $100 billion during the applicable period for all insured and insurers combined, then each insurance provider will not be liable for payment of any amount which exceeds the aggregate amount of $100 billion.
−Removed: On December 20, 2019, The Terrorism Risk Insurance Program Reauthorization Act of 2019 was signed into law, extending the program through December 31, 2027.
−Removed: We continue to monitor the state of the insurance market in general, and the
−Removed: scope and costs of coverage for acts of terrorism in particular, but we cannot anticipate what amount of coverage will be available on commercially reasonable terms in future policy years.
−Removed: In the event of an uninsured loss or a loss in excess of our insurance limits, we could lose both the revenues generated from the affected property and the capital we have invested in the affected property.
−Removed: Depending on the specific circumstances of the affected property it is possible that we could be liable for any mortgage indebtedness or other obligations related to the property.
−Removed: Any such loss could adversely affect our business and financial condition and results of operations.
−Removed: In most cases, we have to renew our policies on an annual basis and negotiate acceptable terms for coverage, exposing us to the volatility of the insurance markets, including the possibility of rate increases.
−Removed: Any material increase in insurance rates or decrease in available coverage in the future could adversely affect our results of operations and financial condition.
Property ownership also involves potential liability to third parties for such matters as personal injuries occurring on the property.
3 unchanged sentences
Any such uninsured loss could adversely affect our financial condition or cash flow.
+Added: In the event of an uninsured loss or a loss in excess of our insurance limits, we could lose both the revenues generated from the affected property and the capital we have invested in the affected property.
+Added: Depending on the specific circumstances of the affected property it is possible that we could be liable for any mortgage indebtedness or other obligations related to the property.
+Added: Any such loss could adversely affect our business and financial condition and results of operations.
+Added: Additionally, any material increase in insurance rates or decrease in available coverage in the future could adversely affect our results of operations and financial condition.
Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties.
−Removed: All of the properties in our portfolio are located in or near Washington, DC, a metropolitan area that has been and may in the future be the target of actual or threatened terrorism attacks.
+Added: All of the properties in our portfolio are located in or near Washington, D.C., a metropolitan area that has been and may in the future be the target of actual or threatened terrorism attacks.
As a result, some tenants in our market may choose to relocate their businesses to other markets.
This could result in an overall decrease in the demand for commercial space in this market generally, which could increase vacancies in our properties or necessitate that we lease our properties on less favorable terms, or both.
−Removed: In addition, future terrorist attacks in or near Washington, DC could directly or indirectly damage such properties, both physically and financially, or cause losses that materially exceed our insurance coverage.
+Added: In addition, future terrorist attacks in or near Washington, D.C.
+Added: could directly or indirectly damage such properties, both physically and financially, or cause losses that materially exceed our insurance coverage.
As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially which would negatively affect our results of operations.
−Removed: Litigation could have a material adverse effect on our financial condition or results from operations.
−Removed: From time to time, we are involved in legal proceedings and other claims.
−Removed: We may also be named as defendants in lawsuits allegedly arising out of our actions or out of those of our vendors, contractors, tenants or other parties which have agreed to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective businesses and/or added as an additional insured under certain insurance policies.
−Removed: An unfavorable resolution of any legal proceeding could have a material adverse effect on our financial condition or results from operations.
−Removed: Regardless of its outcome, legal proceedings may result in substantial costs and expenses and significantly divert the attention of our management.
−Removed: With respect to any legal proceeding, there can be no assurance that we will be able to prevail, or achieve a favorable settlement or outcome, or that our insurance or the insurance and/or any contractual indemnities of our vendors, contractors, tenants or other parties will be enough to cover all of our defense costs or any resulting liabilities.
−Removed: Any such litigation could have a material adverse effect on our financial condition or results from operations.
−Removed: Potential liability for environmental matters could result in substantial costs, which could have an adverse effect on our financial condition and results of operations.
−Removed: federal, state and local environmental laws, ordinances and regulations, we may be liable for costs and damages resulting from the presence or release of hazardous or toxic substances, wastes or petroleum products at our properties, including investigation or cleanup costs, bodily injury or property damage, natural resource damages, or we may be required to pay for such costs and damages incurred by a government entity or third party regardless of our knowledge or responsibility, simply because of our current or past ownership or operation of the real estate.
−Removed: If environmental contamination issues arise, we may have to make substantial payments, which could adversely affect our cash flow and our ability to make distributions to our shareholders, because (1) as a current or former owner or operator of real property we may have to pay for property damage and for investigation and clean-up costs incurred in connection with the contamination;
−Removed: (2) the law typically imposes clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination;
−Removed: (3) even if more than one person may be responsible for the contamination, each person who shares legal liability under such environmental laws may be held responsible for all of the clean-up costs;
−Removed: and (4) governmental entities and third parties may sue the owner or operator of a contaminated site for damages and costs.
−Removed: We also may be liable for the costs of removal or remediation of hazardous substances or waste at disposal or treatment facilities if we arranged for disposal or treatment of hazardous substances to such facilities, whether or not we own such facility.
−Removed: In addition, certain federal, state and local governmental authorities, such as the U.S.
−Removed: Environmental Protection Agency and the U.S.
−Removed: Occupational Safety and Health Administration, may require the clean up or abatement of asbestos, mold, and lead-based paint, which can be costly.
−Removed: Laws applicable to buildings containing certain asbestos-containing materials (“ACM”) impose multiple requirements, including:
−Removed: properly managing and maintaining the ACM;
−Removed: notifying and training those who may come into contact with the ACM;
−Removed: undertaking special precautions, including removal or other abatement, if the ACM would be disturbed during renovation or demolition of a building.
−Removed: Such laws may impose fines and penalties on building owners, operators or employers who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury or property damage associated with exposure to asbestos fibers.
−Removed: As building owners or operators we are also subject to inquiries about indoor air quality.
−Removed: These inquiries may necessitate special investigation and, depending on the results, remediation beyond our regular indoor air quality testing and maintenance programs.
−Removed: Indoor air quality issues can stem from building materials, inadequate ventilation, chemical contaminants from indoor or outdoor sources, and biological contaminants such as molds, pollen, viruses and bacteria.
−Removed: Indoor exposure to chemical or biological contaminants above certain levels can be alleged to be connected to allergic reactions or other health effects and symptoms in susceptible individuals.
−Removed: If these conditions were to occur at one of our properties, we may be subject to third-party claims for personal injury, or may need to undertake a targeted remediation program, including without limitation, steps to increase indoor ventilation rates and eliminate sources of contaminants.
−Removed: Such remediation programs could be costly, necessitate the temporary relocation of some or all of the property’s tenants or require rehabilitation of the affected property.
−Removed: The costs associated with these issues could be substantial and, in extreme cases, could exceed the value of the contaminated property.
−Removed: The presence of hazardous or toxic substances or petroleum products or the failure to properly remediate contamination may adversely affect our ability to borrow against, sell or rent an affected property.
−Removed: In addition, applicable environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs in connection with a contamination.
−Removed: Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may result in substantial expenditures or liabilities.
−Removed: It is our policy to retain independent environmental consultants to conduct Phase I environmental site assessments and asbestos surveys with respect to our acquisition of properties.
−Removed: These assessments generally include a visual inspection of the properties and the surrounding areas, an examination of current and historical uses of the properties and the surrounding areas and a review of relevant state, federal and historical documents.
−Removed: Our evaluation of environmental conditions does not always involve invasive techniques such as soil and ground water sampling.
−Removed: When appropriate, on a property-by-property basis, our practice is to have these consultants conduct additional testing.
−Removed: However, even though these additional assessments may be conducted, there is still the risk that:
−Removed: the environmental assessments and updates did not identify all potential environmental liabilities;
−Removed: a prior owner created a material environmental condition that is not known to us or the independent consultants preparing the assessments;
−Removed: new environmental liabilities have developed since the environmental assessments were conducted;
−Removed: future uses or conditions or changes in applicable environmental laws and regulations could result in environmental liability to us.
−Removed: In addition, our properties are subject to various U.S.
−Removed: federal, state, and local environmental, health and safety regulatory requirements that address a wide variety of issues.
−Removed: Noncompliance with these environmental and health and safety laws and regulations could subject us or our tenants to liability, including significant fines or penalties.
−Removed: These liabilities could affect a tenant’s ability to make rental payments to us.
−Removed: Moreover, changes in laws could increase the potential costs of compliance with such laws and regulations or increase liability for noncompliance.
−Removed: This may result in significant unanticipated expenditures or may otherwise adversely affect our operations, or those of our tenants, which could in turn have an adverse effect on us.
−Removed: We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to make distributions to our shareholders or that such costs, liabilities or other remedial measures will not have an adverse effect on our financial condition and results of operations.
−Removed: We face cybersecurity risks and risks associated with security breaches which have the potential to disrupt our operations, cause material harm to our financial condition, result in misappropriation of assets, compromise confidential information and/or damage our business relationships and can provide no assurance that the steps we and our service providers take in response to these risks will be effective.
−Removed: We face cybersecurity risks and risks associated with security breaches or disruptions, such as through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, social engineering and phishing schemes or persons inside our organization.
−Removed: The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
+Added: Certain federal, state and local laws and regulations may cause us to incur substantial costs or subject us to potential liabilities.
+Added: We are subject to certain compliance costs and potential liabilities under various U.S.
+Added: federal, state and local environmental, health, safety and zoning laws and regulations.
+Added: These laws and regulations govern our and our tenants’ operations including with respect to air emissions, wastewater disposal, and the use, storage and disposal of hazardous and toxic substances and petroleum products, including in storage tanks that power emergency generators.
+Added: If we fail to comply with such laws, including if we fail to obtain any required permits or licenses, we could face substantial fines or possible revocation of our authority to conduct some of our operations.
+Added: In addition, various environmental laws impose liability on a current or former owner or operator of real property for investigation, removal or remediation of hazardous or toxic substances or petroleum products at our currently or formerly owned or leased real property, regardless of whether or not we knew of, or caused, the presence or release of such substances.
+Added: Liability under these laws may be joint and several, meaning that we could be required to bear 100% of the liability even if other parties are also liable.
+Added: From time to time, we may be required to remediate such substances or remove, abate or manage asbestos, mold, radon gas, lead or other hazardous conditions at our properties.
+Added: The presence or release of such toxic or hazardous substances or petroleum products at our currently owned or leased properties could result in limitations on or interruptions to our operations, and releases at our currently or formerly owned or leased properties could result in in third-party claims for bodily injury, property or natural resource damages, or other losses, including liens in favor of the government for costs the government incurs in cleaning up contamination.
+Added: In addition, we also may be liable for the costs of remediating contamination at off-site waste disposal facilities to which we have arranged for the disposal, or treatment of hazardous substances without regard to whether we complied with environmental laws in doing so.
+Added: It is our policy to retain independent environmental consultants to conduct Phase I environmental site assessments and asbestos surveys prior to our acquisition of properties.
+Added: However, there is a risk that these assessments will not identify all potential environmental issues at a given property.
+Added: Moreover, environmental, health and safety requirements have become increasingly stringent, and our costs may increase as a result.
+Added: New or revised laws and regulations or new interpretations of existing laws and regulations, such as those related to climate change, could affect the operation of our properties or result in significant additional expense and operating restrictions on our properties or adversely affect our ability to sell properties or to use properties as collateral.
+Added: We may also incur significant costs complying with other regulations.
+Added: In addition, failure of our properties to comply with the Americans with Disabilities Act (“ADA”) could result in injunctive relief, fines, an award of damages to private litigants or mandated capital expenditures to remedy such noncompliance.
+Added: Any imposition of injunctive relief, fines, damage awards or capital expenditures could adversely impact our business or results of operations.
+Added: Our properties are subject to various other federal, state and local regulatory requirements, such as state and local fair housing, rent control and fire and life safety requirements.
+Added: If we fail to comply with the requirements of the ADA or other federal, state and local regulations, we could be subject to fines, penalties, injunctive action, reputational harm and other business effects which could materially and negatively affect our performance and results of operations.
+Added: We face cybersecurity risks which have the potential to disrupt our operations, cause material harm to our financial condition, result in misappropriation of assets, compromise confidential information and/or damage our business relationships and can provide no assurance that the steps we and our service providers take in response to these risks will be effective.
+Added: We face cybersecurity risks, such as cyber-attacks, malware, social engineering, phishing schemes or bad actors inside our organization.
+Added: The risk of a security breach or disruption, or another cyber-attack, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks around the world have increased.
These incidents may result in disruption of our operations, material harm to our financial condition, cash flows and the market price of our common shares, misappropriation of assets, compromise or corruption of confidential information collected in the course of conducting our business, liability for stolen information or assets, increased cybersecurity protection and insurance costs, regulatory enforcement, litigation and damage to our stakeholder relationships.
−Removed: These risks require continuous and likely increasing attention and other resources from us to, among other actions, identify and quantify these risks, upgrade and expand our technologies, systems and processes to adequately address them and provide periodic training for our employees to assist them in detecting phishing, malware and other schemes.
−Removed: Such attention diverts time and other resources from other activities and there is no assurance that our efforts will be effective.
−Removed: Additionally, we rely on third-party service providers in our conduct of day-to-day property management, leasing and other activities at our properties and we can provide no assurance that the networks and systems that our third-party vendors have established or used will be effective.
−Removed: In the normal course of business, we and our service providers (including service providers engaged in providing property management, leasing, accounting and/or payroll services) collect and retain certain personal information provided by our tenants, employees and vendors.
−Removed: We also rely extensively on computer systems to process transactions and manage our business.
−Removed: We can provide no assurance that the data security measures designed to protect confidential information on our systems established by us and our service providers will be able to prevent unauthorized access to this personal information.
−Removed: There can be no assurance that our efforts to maintain the security and integrity of the information we and our service providers collect and our and their computer systems will be effective or that attempted security breaches or disruptions would not be successful or damaging with the potential for disruption in our operations, material harm to our financial condition, cash flows and the market price of our common shares, increased cybersecurity protection and insurance costs, regulatory enforcement, litigation and damage to our stakeholder relationships.
−Removed: We are subject to risks from natural disasters and severe weather which could increase our operating costs and reduce our cash flow.
−Removed: Natural disasters and severe weather such as earthquakes, hurricanes, floods or blizzards may result in significant damage to our properties.
−Removed: The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area.
−Removed: Because the properties in our portfolio are concentrated in a single region, a single catastrophe or destructive weather event may have a significant negative effect on our financial condition and results of operations.
−Removed: As a result, our operating and financial results may vary significantly from one period to the next.
−Removed: We are also exposed to risks associated with inclement winter weather, including increased need for maintenance and repair of our buildings.
−Removed: In addition, climate change, to the extent it causes changes in weather patterns, could have effects on our business by increasing the cost of property insurance, energy and/or snow removal at our properties.
−Removed: As a result, the consequences of natural disasters, severe weather and climate change could increase our costs and reduce our cash flow.
−Removed: We may experience a decline in the fair value of our assets, which may have a material impact on our financial condition, liquidity and results of operations and adversely impact the market value of our securities.
−Removed: A decline in the fair market value of our assets may require us to recognize an other-than-temporary impairment against such assets under Generally Accepted Accounting Principles ("GAAP") if we were to determine that we do not have the ability and intent to hold any assets in unrealized loss positions to maturity or for a period of time sufficient to allow for recovery to the amortized cost of such assets.
−Removed: In such event, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be other-than-temporarily impaired.
−Removed: Such impairment charges reflect non-cash losses at the time of recognition.
−Removed: Subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale, which may adversely affect our financial condition, liquidity and results of operations.
−Removed: In addition, a significant economic downturn over a period of time could result in an event or change in circumstances that results in an impairment in the value of our properties or our investments in joint ventures.
−Removed: An impairment loss is recognized if the carrying amount of the asset is not recoverable over its expected holding period and exceeds its fair value.
−Removed: There can be no assurance that we will not take charges in the future related to the impairment of our assets or investments.
−Removed: Any future impairment could have a material adverse effect on our financial condition, liquidity or results of operations.
−Removed: Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants.
−Removed: Certain states and municipalities, including Washington, DC, have adopted laws and regulations imposing restrictions on the timing or amount of rent increases or have imposed regulations relating to low- and moderate-income housing.
−Removed: Such laws and regulations limit our ability to charge market rents, increase rents, evict tenants or recover increases in our operating expenses and could make it more difficult for us to dispose of properties in certain circumstances.
−Removed: Similarly, compliance procedures associated with rent control statutes and low- and moderate-income housing regulations could have a negative impact on our operating costs, and any failure to comply with low- and moderate-income housing regulations could result in the loss of certain tax benefits and the forfeiture of rent payments.
−Removed: In addition, such low- and moderate-income housing regulations often require us to rent a certain number of units at below-market rents, which has a negative impact on our ability to increase cash flows from our properties subject to such regulations.
−Removed: Furthermore, such regulations may negatively impact our ability to attract higher-paying tenants to such properties.
−Removed: We are dependent on key personnel and the loss of such personnel could adversely affect our results of operations and financial condition.
−Removed: The execution of our investment strategy and management of our operations depend to a significant degree on our senior management team.
−Removed: If we are unable to attract and retain skilled executives, our results of operations and financial condition could be adversely affected.
+Added: These risks require increasing resources from us to analyze and mitigate, and there is no assurance that our efforts will be effective.
+Added: Additionally, we rely on third-party service providers in our conduct of our business and we can provide no assurance that the security measures of those providers will be effective.
+Added: In the normal course of business, we and our service providers collect and retain certain personal information provided by our tenants, employees and vendors.
+Added: We can provide no assurance that our data security measures will be able to prevent unauthorized access to this personal information.
+Added: In addition to the risks discussed above related to a breach of confidential information, a breach of personal information may result in regulatory fines and orders, obligations to notify individuals or litigation risks.
Risks Related to Financing
We face risks associated with the use of debt, including refinancing risk.
−Removed: We rely on borrowings under our credit facility, mortgage notes, and may rely on offerings of debt securities to finance acquisitions and development activities and for general corporate purposes.
+Added: We rely on borrowings under our credit facility, mortgage notes, and debt securities to finance acquisitions and development activities and for general corporate purposes.
In the past, the commercial real estate debt markets have experienced significant volatility due to a number of factors, including the tightening of underwriting standards by lenders and credit rating agencies and the reported significant inventory of unsold mortgage-backed securities in the market.
The volatility resulted in investors decreasing the availability of debt financing as well as increasing the cost of debt financing.
+Added: These conditions, which increase the cost and reduce availability of debt, may continue to worsen in the future.
Circumstances could again arise in which we may not be able to obtain debt financing in the future on favorable terms, or at all.
If we were unable to borrow under our credit facility or to refinance existing debt financing, our financial condition and results of operations would likely be adversely affected.
−Removed: We are subject to the risks normally associated with debt, including the risk that our cash flow may be insufficient to meet required payments of principal and interest.
+Added: Similarly, global equity markets have experienced significant price volatility and liquidity disruptions in recent years, and similar circumstances could significantly and negatively impact liquidity in the financial market in the future.
+Added: Any disruption could negatively impact our ability to access additional financing at reasonable terms or at all.
We anticipate that only a small portion of the principal of our debt will be repaid prior to maturity.
4 unchanged sentences
There is a risk that we may be unable to finance these activities on favorable terms or at all.
−Removed: These conditions, which increase the cost and reduce the availability of debt, may continue or worsen in the future.
−Removed: If any of these risks were to happen, it would adversely affect our financial condition and results of operations.
+Added: The materialization of any of the foregoing risks would adversely affect our financial condition and results of operations.
Our degree of leverage could limit our ability to obtain additional financing , affect the market price of our common shares or debt securities or otherwise adversely affect our financial condition.
On February 11, 2021, our total consolidated debt was approximately $1.0 billion.
−Removed: Consolidated debt to consolidated market capitalization ratio, which measures total consolidated debt as a percentage of the aggregate of total consolidated debt plus the market value of outstanding equity securities, is often used by analysts to assess leverage for equity REITs such as us.
−Removed: Our market value is calculated using the price per share of our common shares.
Using the closing share price of $23.53 per share of our common shares on February 11, 2021, multiplied by the number of our common shares, our consolidated debt to total consolidated market capitalization ratio was approximately 34% as of February 11, 2021.
4 unchanged sentences
There is a risk that changes in our debt to market capitalization ratio, which is in part a function of our share price, or our ratio of indebtedness to other measures of asset value used by financial analysts, may have an adverse effect on the market price of our equity or debt securities.
−Removed: Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, fully implement our capital expenditure, acquisition and redevelopment activities, or meet the REIT distribution requirements imposed by the Code.
−Removed: Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:
−Removed: require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on, indebtedness, thereby reducing the funds available for other purposes;
−Removed: make it more difficult for us to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to meet operational needs;
−Removed: restrict us from making strategic acquisitions, developing properties or exploiting business opportunities;
−Removed: force us to dispose of one or more of our properties, possibly on unfavorable terms (including the possible application of the 100% tax on income from prohibited transactions or in violation of certain covenants to which we may be subject);
−Removed: subject us to increased sensitivity to interest rate increases;
−Removed: make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events;
−Removed: limit our ability to withstand competitive pressures;
−Removed: limit our ability to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
−Removed: reduce our flexibility in planning for or responding to changing business, industry and economic conditions;
−Removed: place us at a competitive disadvantage to competitors that have relatively less debt than we have.
−Removed: If any one of these events were to occur, our financial condition, results of operations, cash flow and market price of our common shares could be adversely affected.
−Removed: Rising interest rates would increase our interest costs which could adversely affect our cash flow and ability to pay distributions.
−Removed: We incur indebtedness that bears interest at variable rates.
−Removed: Accordingly, if interest rates increase, so will our interest costs, which could adversely affect our cash flow and our ability to service debt.
−Removed: As a protection against rising interest rates, we may enter into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts.
−Removed: These agreements, however, increase our risks that other parties to the agreements may not perform or that the agreements may be unenforceable.
−Removed: In addition, an increase in interest rates could decrease the amounts third-parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions.
−Removed: Failure to effectively hedge against interest rate changes may adversely affect our financial condition, results of operations, cash flow, per share market price of our common shares and ability to make distributions to our shareholders and the future of the reference rate used in our existing hedging arrangements is uncertain, which could hinder our ability to maintain effective hedges.
+Added: Additionally, payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, fully implement our capital expenditure, acquisition and redevelopment activities, or meet the REIT distribution requirements imposed by the Code.
+Added: Failure to effectively hedge against interest rate changes may adversely affect our financial condition, results of operations, cash flow, per share market price of our common shares and ability to make distributions to our shareholders and agreements we enter into to protect us from rising interest rates expose us to counterparty risk.
We enter into hedging transactions to protect ourselves from the effects of interest rate fluctuations on variable rate debt.
−Removed: Our hedging transactions include entering into interest rate cap agreements or interest rate swap agreements.
+Added: Our hedging transactions include entering into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts.
These agreements involve risks, such as the risk that such arrangements would not be effective in reducing our exposure to interest rate changes or that a court could rule that such an agreement is not legally enforceable.
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Failure to hedge effectively against interest rate changes could materially adversely affect our financial condition, results of operations, cash flow, per share trading price of our common shares and ability to make distributions to our shareholders.
−Removed: In addition, while such agreements would be intended to lessen the impact of rising interest rates on us, they could also expose us to the risk that the other parties to the agreements would not perform, and that the hedging arrangements may not be effective in reducing our exposure to interest rate changes.
−Removed: In addition, the REIT provisions of the Code impose certain restrictions on our ability to utilize hedges, swaps and other types of derivatives to hedge our liabilities.
−Removed: Moreover, there can be no assurance that our hedging arrangements will qualify as highly effective cash flow hedges under Financial
−Removed: Accounting Standards Board ("FASB"), Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging , or that our hedging activities will have the desired beneficial impact on our results of operations.
+Added: While such agreements are intended to lessen the impact of rising interest rates on us, they could also expose us to the risk that the other parties to the agreements would not perform, and that the hedging arrangements may not be effective in reducing our exposure to interest rate changes.
+Added: In addition, the REIT provisions of the Code may limit use of certain hedging techniques that might otherwise be advantageous or
+Added: push us to implement those hedges through a TRS, which would increase the cost of our hedging activities.
+Added: Moreover, there can be no assurance that our hedging arrangements will qualify as highly effective cash flow hedges under Financial Accounting Standards Board ("FASB"), Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging , or that our hedging activities will have the desired beneficial impact on our results of operations.
Should we desire to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our obligation under the hedging agreement.
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dollar (“USD-LIBOR”).
−Removed: As of December 31, 2019, we had approximately $0.5 billion of debt outstanding that was indexed to LIBOR.
−Removed: In the event any such benchmark rate or other referenced financial metric is significantly changed, replaced or discontinued, or ceases to be recognized as an acceptable market benchmark rate or financial metric, there may be uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing instrument, and there may be significant work required to transition to any new benchmark rate or other financial metric.
−Removed: In July 2017, the United Kingdom regulator that regulates LIBOR announced its intention to phase out LIBOR rates by the end of 2021.
−Removed: This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021.
−Removed: In response to concerns regarding the reliability and robustness of commonly used reference rates, in particular LIBOR, the Financial Stability Oversight Council and Financial Stability Board called for the development of alternative interest rate benchmarks.
+Added: As of December 31, 2020, we had approximately $250.0 million of debt outstanding that was indexed to LIBOR.
+Added: In July 2017, the United Kingdom regulator that oversees LIBOR announced its intention to phase out LIBOR rates by the end of 2021, indicating that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021.
In April 2018, the New York Federal Reserve commenced publishing an alternative reference rate to LIBOR, as calculated for the U.S.
dollar (“USD-LIBOR”), the Secured Overnight Financing Rate (“SOFR”), proposed by a group of major market participants convened by the U.S.
−Removed: Federal Reserve with participation by SEC Staff and other regulators, the Alternative Reference Rates Committee ("ARRC").
−Removed: SOFR is based on transactions in the more robust U.S.
−Removed: Treasury repurchase market and has been proposed as the alternative to USD-LIBOR for use in derivatives and other financial contracts that currently rely on USD-LIBOR as a reference rate.
−Removed: ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry-wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR.
−Removed: At this time, no consensus exists as to what rate or rates may become accepted alternatives to USD-LIBOR, and it is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere.
−Removed: Furthermore, the transition from LIBOR to one or more replacement rates could cause uncertainty in what reference rates apply to existing arrangements.
−Removed: The transition from USD-LIBOR to SOFR or any other replacement rate adopted is likely to cause uncertainty related to interest rate costs.
−Removed: Additionally, there is some possibility that LIBOR continues to be published, but that the quantity of loans used to calculate LIBOR diminishes significantly enough to reduce the appropriateness of the rate as a reference rate.
−Removed: If a published USD-LIBOR is unavailable after 2021, the interest rates for our debt instruments that are indexed to USD-LIBOR will be determined using various alternative methods, any of which may result in interest obligations that are more than or do not otherwise correlate over time with the payments that would have been made on such debt if USD-LIBOR remained available.
+Added: Federal Reserve with participation by SEC Staff and other regulators.
+Added: In October 2020, after a number of industry consultations, the International Swaps and Derivatives Association published a LIBOR transition protocol.
We can provide no assurance regarding the future of LIBOR, whether our current hedging arrangements will continue to use USD-LIBOR as a reference rate or whether any reliance on such rate will be appropriate.
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Despite progress made to date by regulators and industry participants to prepare for the anticipated discontinuation of LIBOR, significant uncertainties still remain.
−Removed: Such uncertainties relate to, for example, whether LIBOR will continue to be viewed as an acceptable market benchmark rate, what rate or rates may become accepted alternatives to LIBOR (various characteristics of SOFR make it uncertain whether it would be viewed by market participants as an appropriate alternative to USD-LIBOR for certain purposes), how any replacement would be implemented across the industry, and the effect of any changes in industry views or movement to alternative benchmarks would have on the markets for LIBOR-linked financial instruments.
+Added: Such uncertainties relate to, for example, whether LIBOR will continue to be viewed as an acceptable market benchmark rate, what rate or rates may become accepted alternatives to LIBOR (various characteristics of SOFR make it uncertain whether it would be viewed by market participants as an appropriate alternative to USD-LIBOR for certain purposes), how any replacement would be implemented across the industry, and the effect any changes in industry views or movement to alternative benchmarks would have on the markets for LIBOR-linked financial instruments.
We can provide no assurance regarding the future of LIBOR and when our current floating rate debt instruments and hedging arrangements will transition from LIBOR as a reference rate to SOFR (in the case of our floating rate debt instruments and hedging arrangements that determine the applicable interest rate or payment amount by reference to LIBOR-USD as a reference rate) or another reference rate.
−Removed: The discontinuation of a benchmark rate or other financial metric, changes in a benchmark rate or other financial metric, or changes in market perceptions of the acceptability of a benchmark rate or other financial metric, including
−Removed: LIBOR, could, among other things result in increased interest payments, changes to our risk exposures, or require renegotiation of previous transactions.
+Added: The discontinuation of a benchmark rate or other financial metric, changes in a benchmark rate or other financial metric, or changes in market perceptions of the acceptability of a benchmark rate or other financial metric, including LIBOR, could, among other things result in increased interest payments, changes to our risk exposures, or require renegotiation of previous transactions.
In addition, any such discontinuation or changes, whether actual or anticipated, could result in market volatility, adverse tax or accounting effects, increased compliance, legal and operational costs, and risks associated with contract negotiations.
In addition, confusion related to the transition from USD-LIBOR to SOFR or another replacement reference rate for our floating debt and hedging instruments could have an uncertain economic effect on these instruments, hinder our ability to establish effective hedges and result in a different economic value over time for these instruments than they otherwise would have had under USD-LIBOR.
−Removed: Disruptions in the financial markets could affect our ability to obtain financing or have other adverse effects on us or the market price of our common shares.
−Removed: In recent years, the United States and global equity and credit markets have experienced significant price volatility and liquidity disruptions which caused the market prices of shares to fluctuate substantially and the spreads on prospective debt financings to widen considerably.
−Removed: These circumstances significantly and negatively impacted liquidity in the financial markets, making terms for certain financings less attractive or unavailable.
−Removed: Any disruption in the equity and credit markets could negatively impact our ability to access additional financing at reasonable terms or at all.
−Removed: If such disruption were to occur, in the event of a debt financing, our cost of borrowing in the future would likely be significantly higher than historical levels.
−Removed: Additionally, in the case of a common equity financing, the disruptions in the financial markets could have a material adverse effect on the market value of our common shares, potentially requiring us to issue more shares than we would otherwise have issued with a higher market value for our common shares.
−Removed: Disruption in the financial markets also could negatively affect our ability to make acquisitions, undertake new development projects and refinance our debt.
−Removed: In addition, it could also make it more difficult for us to sell properties and could adversely affect the price we receive for properties that we do sell, as prospective buyers experience increased costs of financing and difficulties in obtaining financing.
−Removed: If economic conditions deteriorate, the ability of lenders to fulfill their obligations under working capital or other credit facilities that we may have in the future may be adversely impacted.
−Removed: Disruptions in the financial markets also could adversely affect many of our tenants and their businesses, including their ability to pay rents when due and renew their leases at rates at least as favorable as their current rates.
−Removed: As well, our ability to attract prospective new tenants in the future could be adversely affected by disruption in the financial markets.
−Removed: Each of these disruptions could have adverse effects on us or the market price of our common shares.
−Removed: Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt.
−Removed: Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default.
−Removed: Any foreclosure on a mortgaged property or group of properties could adversely affect the overall value of our portfolio of properties (or portions thereof).
−Removed: For tax purposes, a foreclosure of any of our properties that is subject to a nonrecourse mortgage loan generally would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage.
−Removed: If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our ability to satisfy the distribution requirements applicable to REITs under the Code.
Covenants in our debt agreements could adversely affect our financial condition.
−Removed: Our credit facility contains customary restrictions, requirements and other limitations on our ability to incur indebtedness.
−Removed: We must maintain certain ratios, including a maximum of total indebtedness to total asset value, a maximum of secured indebtedness to total asset value, a minimum of quarterly adjusted EBITDA to fixed charges, a minimum net operating income from unencumbered properties to unsecured interest expense and a maximum of unsecured indebtedness to unencumbered asset value.
+Added: Our credit facility and other debt instruments contains customary restrictions, requirements and other limitations on our ability to incur indebtedness.
+Added: We must maintain certain ratios, including a maximum of total indebtedness to total asset value, a maximum of secured indebtedness to total asset value, a minimum of quarterly adjusted EBITDA to fixed charges, a minimum net operating income from unencumbered properties to unsecured interest expense, a maximum of unsecured indebtedness to unencumbered asset value and a minimum of total unencumbered assets to total unsecured indebtedness.
Our ability to borrow under our credit facility is subject to compliance with our financial and other covenants.
−Removed: Failure to comply with any of the covenants under our unsecured credit facility or other debt instruments could result in a default under one or more of our debt instruments.
−Removed: In particular, we could suffer a default under our secured debt instrument that could exceed a cross-default threshold under our unsecured credit facility, causing an event of default under the unsecured credit facility.
−Removed: Under those circumstances, other sources of capital may not be available to us or be available only on unattractive terms.
+Added: Failure to comply with any of the covenants under our unsecured credit facility or other debt instruments (including our indenture and our notes purchase agreement) could result in a default under one or more of our debt instruments.
+Added: If we fail to comply with the covenants in our unsecured credit facility or other debt instruments, other sources of capital may not be
+Added: available to us or be available only on unattractive terms.
In addition, if we breach covenants in our debt agreements, the lenders can declare a default and, if the debt is secured, take possession of the property securing the defaulted loan.
−Removed: Alternatively, even if a secured debt instrument is below the cross-default threshold for non-recourse secured debt under our unsecured credit facility, a default under such secured debt instrument may still cause a cross default under our unsecured credit
−Removed: facility because such secured debt instrument may not qualify as “non-recourse” under the definition in our unsecured credit facility.
−Removed: Another possible cross default could occur between our unsecured credit facility and any senior unsecured notes that we issue.
−Removed: Any of the foregoing default or cross-default events could cause our lenders to accelerate the timing of payments and/or prohibit future borrowings, either of which would have a material adverse effect on our business, operations, financial condition and liquidity.
+Added: Any default or cross-default events could cause our lenders to accelerate the timing of payments and/or prohibit future borrowings, either of which would have a material adverse effect on our business, operations, financial condition and liquidity.
Risks Related to Our Organizational Structure
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The stock ownership limits imposed by the Code for REITs and imposed by our charter may restrict our business combination opportunities that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.
−Removed: In order for us to maintain our qualification as a REIT under the Code, not more than 50% of the value of the outstanding shares of all classes and series ("equity shares") may be owned, directly or indirectly, by five or fewer individuals (defined in the Code to include certain entities) at any time during the last half of each taxable year following our first year.
−Removed: Our charter authorizes our board of trustees to take the actions that are necessary or appropriate to preserve our qualification as a REIT.
+Added: The ownership of our shares must be restricted in several ways in order for us to maintain our qualification as a REIT under the Code.
Our charter provides that no person (other than an excepted holder, as defined in our charter) may actually or constructively own more than 9.8% of the aggregate of our outstanding common shares by value or by number of shares, whichever is more restrictive, or 9.8% of the aggregate of the equity shares by value.
−Removed: Our board of trustees may, in its sole discretion, grant exemptions to the share ownership limits, subject to such conditions and the receipt by our board of trustees of certain representations and undertakings.
−Removed: In addition, our board of trustees has the authority under our charter to reduce these share ownership limits.
−Removed: In addition to the share ownership limits discussed above, our charter also prohibits any person from (a) beneficially or constructively owning, as determined by applying certain attribution rules of the Code, our equity shares that would result in us being “closely held” under Section 856(h) of the Code (regardless of whether the interest is held during the last half of a taxable year) or that would otherwise cause us to fail to qualify as a REIT, or (b) transferring equity shares if such transfer would result in our equity shares being owned by fewer than 100 persons.
+Added: Our board of trustees has the authority under our charter to reduce these share ownership limits.
+Added: Our board of trustees may, in its sole discretion, grant exemptions to the share ownership limits, subject to such conditions and the receipt by our board of trustees of certain representations and undertakings to ensure that our REIT qualification is not adversely affected.
+Added: In addition to 9.8% (or any lower future percentage) share ownership limits, our charter also prohibits any person from (a) beneficially or constructively owning, as determined by applying certain attribution rules of the Code, our equity shares that would result in us being “closely held” under Section 856(h) of the Code (regardless of whether the interest is held during the last half of a taxable year) or that would otherwise cause us to fail to qualify as a REIT, or (b) transferring equity shares if such transfer would result in our equity shares being owned by fewer than 100 persons.
The share ownership limits contained in our charter are based on the ownership at any time by any “person,” which term includes entities and certain groups.
−Removed: The share ownership limitations in our charter are common in REIT charters and are intended to provide added assurance of compliance with the tax law requirements, and to minimize administrative burdens.
−Removed: However, the share ownership limits on our shares also might delay, defer, prevent, or otherwise inhibit a transaction or a change in control of WashREIT that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.
+Added: The share ownership limitations in our charter are common in REIT charters and are intended to provide added assurance of compliance with the tax law requirements.
+Added: However, the share ownership limits on our shares and our enforcement of them might delay, defer, prevent, or otherwise inhibit a transaction or a change in control of WashREIT, including a transaction that might involve a premium price for our common shares or that might otherwise be in the best interest of our shareholders.
Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit your recourse in the event of actions that you do not believe are in your best interests.
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Risks Related to Our Common Shares
−Removed: We cannot assure you we will continue to pay dividends at current rates.
+Added: We cannot assure you we will continue to pay dividends at current rates and the failure to do so could have an adverse effect on the market price of our common shares.
Cash flows from operations are an important factor in our ability to sustain our dividend at its current rate.
If our cash flows from operations were to decline significantly, we may have to borrow on our lines of credit to sustain the dividend rate or reduce our dividend.
−Removed: Our ability to continue to pay dividends on our common shares at their current rate or to increase our common share dividend rate will depend on a number of factors, including, among others, the following:
−Removed: our future financial condition and results of operations;
−Removed: real estate market conditions in the Washington metro region;
−Removed: the performance of lease terms by tenants;
−Removed: the terms of our loan covenants;
−Removed: our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates.
+Added: Our ability to continue to pay dividends on our common shares at their current rate or to increase our common share dividend rate will depend on a number of factors, including, among others, our future financial condition and results of operations and the terms of our debt covenants.
Our board of trustees considers, among other factors, trends in our levels of funds from operations, together with associated recurring capital improvements, tenant improvements, leasing commissions and incentives, and adjustments to straight-line rents to reflect cash rents received.
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If we do not maintain or increase the dividend rate on our common shares in the future, it could have an adverse effect on the market price of our common shares.
+Added: Additionally, the market value of our securities can be adversely affected by many factors, including certain factors related to our REIT status.
The market value of our securities can be adversely affected by many factors.
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• national economic conditions and general stock and bond market conditions;
−Removed: government uncertainty, action or regulation, including changes in tax law;
+Added: • government uncertainty, action or regulation;
• increases in market interest rates, which may lead investors to expect a higher annual yield from our distributions in relation to the price of our shares;
−Removed: changes in U.S.
+Added: • uncertainty around and changes in U.S.
federal tax laws;
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We believe that we qualify as a REIT and intend to continue to operate in a manner that will allow us to continue to qualify as a REIT.
−Removed: However, we cannot assure you that we are qualified as such, or that we will remain qualified as such in the future.
+Added: However, our charter provides that our board of trustees may revoke or otherwise terminate our REIT election, without the approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT.
+Added: Furthermore, we cannot assure you that we are qualified as a REIT, or that we will remain qualified as a REIT in the future.
This is because qualification as a REIT involves the application of highly technical and complex provisions of the Code which include:
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• distributing at least 90% of our "REIT taxable income" (determined before the deduction for dividends paid and excluding net capital gains) on an annual basis.
−Removed: The distribution requirement noted above could adversely affect our ability to use earnings for improvements or acquisitions because funds distributed to shareholders will not be available for capital improvements to existing properties or for acquiring additional properties.
Only limited judicial and administrative interpretations of the REIT rules exist.
In addition, qualification as a REIT involves the determination of various factual matters and circumstances not entirely within our control.
−Removed: Future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for U.S.
−Removed: federal income tax purposes or the U.S.
−Removed: federal income tax consequences of such qualification.
−Removed: For example, the Tax Cuts and Jobs Act (the “TCJA”), which was signed into law on December 22, 2017 and which generally took effect for taxable years beginning on or after January 1, 2018, made fundamental changes to the U.S.
−Removed: federal income tax laws applicable to businesses and their owners, including REITs and their shareholders.
If we fail to qualify as a REIT, we could face serious tax consequences that could substantially reduce our funds available for payment of dividends for each of the years involved because:
• we would be subject to U.S.
−Removed: federal income tax at the regular corporate rate (currently 21%), without any deduction for dividends paid to shareholders in computing our taxable income, and possibly increased state and local taxes;
+Added: federal income tax at the regular corporate rate, without any deduction for dividends paid to shareholders in computing our taxable income, and possibly increased state and local taxes;
• unless we are entitled to relief under statutory provisions, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost.
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If we fail to qualify as a REIT but are eligible for certain relief provisions, then we may retain our status as a REIT but may be required to pay a penalty tax, which could be substantial.
−Removed: Complying with the REIT requirements may cause us to forego and/or liquidate otherwise attractive investments.
−Removed: To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually.
−Removed: In addition, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our total assets consists of cash, cash items, government securities and qualifying real estate assets, including certain mortgage loans (the "75% asset test").
−Removed: The remainder of our investment in securities (other than government securities, securities treated as real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.
−Removed: In addition, in general, no more than 5% of the value of our assets (other than government securities, securities treated as real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than 20% of the value of our total securities can be represented by securities of one or more TRSs.
−Removed: We can treat debt instruments issued by publicly offered REITs, to the extent not secured by real property or interests in real property, as "real estate assets" for purposes of the 75% test (and, thus, not subject to the 10% and 5% asset tests), but the total value of such debt instruments cannot
−Removed: exceed 25% of the value of our total assets.
−Removed: If we fail to comply with these asset requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.
−Removed: To meet these tests, we may be required to take or forgo taking actions that we would otherwise consider advantageous.
−Removed: For example, in order to satisfy the gross income or asset tests applicable to REITs under the Code, we may be required to forego investments that we otherwise would make.
−Removed: Furthermore, we may be required to liquidate from our portfolio (or to contribute to a TRS) otherwise attractive investments.
−Removed: In addition, we may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution.
−Removed: These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.
−Removed: Thus, compliance with the REIT requirements may hinder our ability to make, or, in certain cases, maintain ownership of, certain attractive investments.
−Removed: The requirements necessary to maintain our REIT status limit our ability to earn fee income at the REIT level, which causes us to conduct certain fee-generating activities through TRSs.
−Removed: The REIT provisions of the Code limit our ability to earn fee income from joint ventures and third parties.
−Removed: Our aggregate gross income from fees and certain other non-qualifying sources cannot exceed 5% of our annual gross income.
−Removed: As a result, our ability to increase the amount of fee income we earn at the REIT level is limited and, therefore, we conduct certain fee-generating activities through a TRS.
−Removed: Any fee income we earn through TRSs is subject to U.S.
−Removed: federal, state, and local income tax at the regular corporate rates (currently 21% for federal), which reduces our cash available for distribution to shareholders.
−Removed: Our ability to own stock and securities of TRSs is limited and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm's-length terms.
−Removed: A REIT may own up to 100% of the stock of one or more TRSs.
−Removed: A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT.
−Removed: Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS.
−Removed: A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS.
−Removed: Overall, no more than 20% of the value of a REIT's assets may consist of stock or securities of one or more TRSs.
−Removed: In addition, the rules applicable to TRSs limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation.
−Removed: The rules also impose a 100% excise tax on the parent REIT with respect to certain transactions involving a TRS that are not conducted on an arm's-length basis.
−Removed: Our TRSs will pay U.S.
−Removed: federal, state and local income tax on their taxable income.
−Removed: The after-tax net income of our TRSs will be available for distribution to us but generally is not required to be distributed.
−Removed: We believe that the aggregate value of the stock and securities of our TRSs is less than 20% of the value of our total assets (including the stock and securities of our TRSs).
−Removed: Furthermore, we monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with the ownership limitations applicable to TRSs.
−Removed: We scrutinize all of our transactions involving our TRSs to ensure that they are entered into on arm's-length terms to avoid incurring the 100% excise tax described above.
−Removed: There can be no assurance, however, that we will be able to comply with the 20% limitation discussed above or avoid application of the 100% excise tax discussed above.
−Removed: Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
−Removed: The REIT provisions of the Code may limit our ability to hedge our assets and operations.
−Removed: Any income from a hedging transaction that we enter into to manage the risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets, or manage the risk of certain currency fluctuations, does not constitute "gross income" for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met.
−Removed: As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a TRS.
−Removed: This could increase the cost of our hedging activities because a TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.
−Removed: In addition, losses in our TRS will generally not provide any current tax benefit, except to the extent that they may be carried back to prior years or forward to future years and offset against taxable income in the TRSs, provided, however, losses in TRSs arising in taxable years beginning after December 31, 2017, may only be carried forward and may only be deducted against 80% of future taxable income in the TRSs.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
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shareholders that are individuals, trusts or estates generally is 20% (excluding the 3.8% net investment income tax).
−Removed: Dividends payable by REITs, however, generally are not eligible for the maximum 20% reduced rate and are taxed at applicable ordinary income tax
−Removed: rates, except to the extent that certain holding requirements have been met and a REIT's dividends are attributable to dividends received by a REIT from taxable corporations (such as a TRS), to income that was subject to tax at the REIT/corporate level, or to dividends properly designated by the REIT as “capital gain dividends.” Effective for taxable years beginning after December 31, 2017 and before January 1, 2026, those U.S.
+Added: Dividends payable by REITs, however, generally are not eligible for the maximum 20% reduced rate and are taxed at applicable ordinary income tax rates, except to the extent that certain holding requirements have been met and a REIT's dividends are attributable to dividends received by a REIT from taxable corporations (such as a TRS), to income that was subject to tax at the REIT/corporate level, or to dividends properly designated by the REIT as “capital gain dividends.” For taxable years beginning before January 1, 2026, U.S.
shareholders that are individuals, trusts or estates may deduct 20% of their dividends from REITs (excluding qualified dividend income and capital gains dividends).
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Although the reduced rates applicable to dividend income from non-REIT C corporations do not adversely affect the taxation of REITs or dividends payable by REITs, these reduced rates could cause investors who are non-corporate taxpayers to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT C corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common shares.
−Removed: Gains from sales of properties are potentially subject to the "prohibited transactions" tax or corporate-level income tax and could require us to make additional distributions to our shareholders that would reduce our capital available for investment in other properties or require us to obtain additional funds to pay such taxes or make such distributions.
−Removed: A REIT's net income from prohibited transactions is subject to a 100% penalty tax.
−Removed: In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
−Removed: Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee can be given that the Internal Revenue Service ("IRS") would agree with our characterization of our properties or that we will be able to make use of the otherwise available safe harbors.
−Removed: In addition, the sale of properties may generate gains for tax purposes which, if not adequately deferred through “like-kind exchanges” under Section 1031 of the Code ("Section 1031 Exchanges"), could require us to pay more taxes or make additional distributions to our shareholders, thus reducing our capital available for investment in other properties, or if the proceeds of such sales are already invested in other properties, require us to obtain additional funds to pay such taxes or make such distributions.
−Removed: From time to time , we dispose of properties in transactions intended to qualify as Section 1031 Exchanges.
−Removed: Intermediary agents of Section 1031 Exchanges typically handle large sums of money in trust.
−Removed: It is possible that the qualification of a transaction as a Section 1031 Exchange could be successfully challenged and determined to be currently taxable.
−Removed: In such case, our taxable income and earnings and profits would increase.
−Removed: This could increase the dividend income to our shareholders by reducing any return of capital they received.
−Removed: In some circumstances, we may be required to pay additional dividends or, in lieu of that, corporate income tax, possibly including interest and penalties.
−Removed: As a result, we may be required to borrow funds in order to pay additional dividends or taxes, and the payment of such taxes could cause us to have less cash available to distribute to our shareholders.
−Removed: In addition, if a Section 1031 Exchange were later to be determined to be taxable, we may be required to amend our tax returns for the applicable year in question, including any information reports we sent our shareholders.
−Removed: Moreover, it is possible that legislation could be enacted that could modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult or not possible for us to dispose of properties on a tax deferred basis.
The REIT distribution requirements could require us to borrow funds during unfavorable market conditions or subject us to tax, which would reduce the cash available for distribution to our shareholders.
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federal income tax and the 4% nondeductible excise tax on that income if we do not distribute such income to shareholders in that year.
−Removed: In that event, we may be required to (i) use cash reserves, (ii) incur debt at rates or times that we regard as unfavorable, (iii) sell assets in adverse market conditions, (iv) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, or (v) make a taxable distribution of our shares as part of a distribution in which shareholders
−Removed: may elect to receive our shares or (subject to a limit measured as a percentage of the total distribution) cash in order to satisfy the REIT 90% distribution requirement and to avoid U.S.
+Added: In that event, we may be required to (i) use cash reserves, (ii) incur debt at rates or times that we regard as unfavorable, (iii) sell assets in adverse market conditions, (iv) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, or (v) make a taxable distribution of our shares as part of a distribution in which shareholders may elect to receive our shares or (subject to a limit measured as a percentage of the total distribution) cash in order to satisfy the REIT 90% distribution requirement and to avoid U.S.
federal income tax and the 4% nondeductible excise tax in that year.
1 unchanged sentence
Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect our business, financial condition and results of operations.
−Removed: The ability of our board of trustees to revoke our REIT qualification without shareholder approval may cause adverse consequences to our shareholders.
−Removed: Our charter provides that our board of trustees may revoke or otherwise terminate our REIT election, without the approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT.
−Removed: If we cease to be a REIT, we will not be allowed a deduction for dividends paid to shareholders in computing our taxable income, will be subject to U.S.
−Removed: federal, state and local income tax at the regular corporate rates (currently 21% for federal), and generally would no longer be required to distribute any of our net taxable income to our shareholders, which may have adverse consequences on our total return to our shareholders.
Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flow.
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federal, state and local corporate income tax on their net taxable income.
−Removed: Legislative changes to our ability to deduct for tax purposes compensation paid to our executives could require us to increase our distributions to stockholders in order to maintain REIT status or to avoid entity-level taxes.
−Removed: Section 162(m) of the Code prohibits publicly held corporations from taking a tax deduction for annual compensation in excess of $1 million paid to any of the corporation’s “covered employees.” Prior to the enactment of the TCJA, a publicly held corporation’s covered employees included its chief executive officer and the three other most highly compensated executive officers (other than the chief financial officer), and certain “performance-based compensation” was excluded from the $1 million cap.
−Removed: The TCJA made certain changes to Section 162(m), effective for taxable years beginning after December 31, 2017.
−Removed: These changes included, among others, expanding the definition of “covered employee” to include the chief financial officer and repealing the performance-based compensation exception to the $1 million cap, subject to a transition rule for remuneration provided pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after that date.
−Removed: Since we qualify as a REIT under the Code and we are generally not subject to U.S.
−Removed: federal income taxes, if compensation did not qualify for deduction under Section 162(m), the payment of compensation that fails to satisfy the requirements of Section 162(m) would not have a material adverse consequence to us, provided we continue to distribute 100% of our taxable income.
−Removed: Based on our current taxable income and distributions, we do not believe that we will be required to increase our rate of distributions in order to maintain our status as a REIT (or to avoid paying corporate or excise taxes at the entity level) if a portion of our payment of compensation fails to satisfy the requirements of Section 162(m).
−Removed: However, in that case, a larger portion of shareholder distributions that would otherwise have been treated as a return of capital will be subject to U.S.
−Removed: federal income tax as dividend income.
−Removed: In the future, if we make compensation payments subject to Section 162(m) limitations on deductibility, we may be required to make additional distributions to shareholders to comply with REIT distribution requirements and eliminate U.S.
−Removed: federal income tax liability at the entity level.
−Removed: Any such compensation allocated to our TRSs whose income is subject to U.S.
−Removed: federal income tax would result in an increase in income taxes due to the inability to deduct such compensation.
There is a risk of changes in the tax law applicable to REITs which may adversely affect our taxation as a REIT and taxation of our shareholders.
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Any legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect our taxation or taxation of our shareholders.
−Removed: We urge you to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our
−Removed: Although REITs generally receive certain tax advantages compared to entities taxed as C corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S.
−Removed: federal income tax purposes as a C corporation.
+Added: We urge you to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our common shares.
UNRESOLVED STAFF COMMENTS
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.