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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-30 · 124 added, 316 removed, 212 unchanged (67% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing in Item 1 of this report and the more detailed information contained in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on February 19, 2020, as amended by Amendment No.

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

We refer to the three months ended September 30, 2020 and September 30, 2019 as the “2020 Quarter” and the “2019 Quarter,” respectively, and the nine months ended September 30, 2020 and September 30, 2019 as the “2020 Period” and the “2019 Period”, respectively.

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing in Item 1 of this report and the more detailed information contained in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on February 16, 2021.

We refer to the three months ended March 31, 2021 and March 31, 2020 as the “2021 Quarter” and the “2020 Quarter,” respectively.

Forward-Looking Statements

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Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Currently, one of the most significant factors is the adverse effect of the COVID-19 virus and ensuing economic turmoil on the financial condition, results of operations, cash flows and performance of WashREIT, particularly the impact of our ability to collect rent on schedule or at all and the percentage of rent collected, our ability to lease or re-lease our commercial spaces, and increased credit losses, on the performance of our tenants generally, and on the global economy and financial markets.

The extent to which COVID-19 impacts WashREIT and its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in this 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019, as amended by Amendment No.

1 to the Annual Report on Form 10-K, filed on March 6, 2020, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.

Additional factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to the risks associated with the closing and funding of our recent notes offering, the ownership of real estate in general and our real estate assets in particular;

Currently, one of the most significant factors continues to be the adverse effect of the COVID-19 virus, including any variants and mutations thereof, the actions taken to contain the pandemic or mitigate the impact of COVID-19, and the direct and indirect economic effects of the pandemic and containment measures.

The extent to which COVID-19 continues to impact WashREIT and its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, the continued speed and success of the vaccine rollout, effectiveness and willingness of people to take COVID-19 vaccines, and the duration of associated immunity and their efficacy against emerging variants of COVID-19, among others.

Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2020 filed on February 16, 2021, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.

Additional factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to the risks associated with ownership of real estate in general and our real estate assets in particular;

the economic health of the greater Washington metro region;

the risk of failure to enter into/and or complete contemplated acquisitions and dispositions at all, within the price ranges anticipated and on the terms and timing anticipated;

the risk of failure to enter into and/or complete potential acquisitions and dispositions, at all, within the price ranges anticipated and on the terms and timing anticipated;

changes in the composition of our portfolio;

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reductions in or actual or threatened changes to the timing of federal government spending;

the risks related to use of third-party providers and joint venture partners;

the ability to control our operating expenses;

the risks related to use of third-party providers;

the economic health of our tenants;

the supply of competing properties;

shifts away from brick and mortar stores to e-commerce;

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compliance with applicable laws, including those concerning the environment and access by persons with disabilities;

the risks related to not having adequate insurance to cover potential losses;

the risks related to our organizational structure and limitations of stock ownership;

changes in the market value of securities;

terrorist attacks or actions and/or cyber-attacks;

weather conditions, natural disasters and pandemics;

ability to maintain key personnel;

failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs;

and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2019 Form 10-K, as amended by Amendment No.

1 to the Annual Report on Form 10-K, filed on March 6, 2020, and subsequent Quarterly Reports on Form 10-Q.

and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2020 Form 10-K filed on February 16, 2021.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance.

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• Results of Operations.

Discussion of our financial results comparing the 2020 Quarter to the 2019 Quarter and the 2020 Period to 2019 Period.

Discussion of our financial results comparing the 2021 Quarter to the 2020 Quarter.

• Liquidity and Capital Resources.

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• Ending occupancy , calculated as occupied square footage or multifamily units as a percentage of total square footage or multifamily units, respectively, as of the last day of that period.

• Leased percentage , calculated as the percentage of available physical net rentable area leased for our commercial properties and percentage of apartments leased for our multifamily properties.

• Leased percentage , calculated as the percentage of apartments leased for our multifamily properties and percentage of available physical net rentable area leased for our commercial properties.

• Leasing activity , including new leases, renewals and expirations.

For purposes of evaluating comparative operating performance, we categorize our properties as “same-store”, “non-same-store” or discontinued operations.

For purposes of evaluating comparative operating performance, we categorize our properties as “same-store” or “non-same-store”.

Same-store properties include properties that were owned for the entirety of the years being compared, and exclude properties under redevelopment or development and properties acquired, sold or classified as held for sale during the years being compared.

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Our revenues are derived primarily from the ownership and operation of income producing properties in the greater Washington metro region.

As of September 30, 2020 we owned a diversified portfolio of 45 properties, totaling approximately 3.7 million square feet of commercial space and 6,863 multifamily units, and land held for development.

These 45 properties consisted of 15 office properties, 8 retail centers and 22 multifamily properties.

On March 11, 2020 the World Health Organization declared COVID-19, a respiratory illness caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.

As of March 31, 2021 we owned a diversified portfolio of 43 properties, totaling approximately 3.4 million square feet of commercial space and 7,059 multifamily units, and land held for development.

These 43 properties consisted of 22 multifamily properties, 13 office properties and 8 retail centers.

On March 11, 2020, the World Health Organization declared COVID-19, a respiratory illness caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency concerning COVID-19.

The COVID-19 pandemic caused state and local governments within the Washington metro region to institute 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.

These actions resulted in modifications to our normal operations, including requiring our employees to work remotely with the exception of essential building personnel.

In June 2020, shelter-in-place orders began to phase out in the Washington metro region.

As many of our commercial tenants have begun returning to their leased space, we have implemented robust plans to reduce the risk of exposure and further spread of the virus in our properties and continue to follow the mandates of public health officials and government agencies.

We are adhering to occupancy restrictions at our properties where required.

The effects of the COVID-19 pandemic had a significant impact on our operating results for the 2020 Period.

Beginning late in the first quarter of 2020 and continuing into the second quarter of 2020, many of our commercial tenants were closed or were

operating at significantly reduced capacity.

Starting in April 2020, we began working with our commercial tenants on a case-by-case basis to the extent they demonstrated hardship as a result of the pandemic and financial ability to work through a satisfactory arrangement on a variety of relief options, generally involving negotiated deferral payment plans, early blend-and-extend renewals or abatement of rent.

By mid-June, most of our retail tenants had reopened.

As of October 20, 2020, we collected 97% and 88% of office and retail cash rent for the 2020 Quarter, respectively, excluding the impact of contractual rent deferral agreements.

The effects of COVID-19 on our commercial tenants have been reflected in an increase in credit losses of $1.3 million for the 2020 Period compared to the 2019 Period.

At our multifamily properties we temporarily froze rents on full-year lease renewals, waived late fees and offered a payment deferral plan to residents who have been adversely financially impacted by COVID-19.

As of October 20, 2020, we have collected 99% of multifamily cash rent during the 2020 Quarter excluding rent that has been deferred and have deferred $1.4 million, $1.0 million, and $0.1 million of rent due from office, retail, and multifamily tenants, net, respectively.

We had a decline in average occupancy of approximately 120 basis points for the 2020 Quarter compared to the 2019 Quarter, excluding Trove which began lease-up in the first quarter of 2020.

While the COVID-19 pandemic had a significant impact on the 2021 Quarter, as of April 23, 2021, we collected 99% and 97% of office and retail cash rent, respectively, during the 2021 Quarter, excluding the impact of contractual rent deferral agreements.

The effects of COVID-19 on our commercial tenants did not result in an increase in credit losses for the 2021 Quarter compared to the 2020 Quarter.

As of April 23, 2021, we have $0.7 million and $0.9 million of deferred rent outstanding, net of repayments, from our office segment and retail properties, respectively.

We continue to monitor and communicate with our commercial tenants to assess their needs and ability to pay rent.

The effects of the COVID-19 pandemic have also impacted our ability to lease up available commercial space as physical touring stopped during shelter in place orders and lease decisions have been slower for prospective tenants than in previous years as they re-evaluate re-entry and space plans.

New gross leasing square footage declined by 46% for office space and increased by 28% for retail space for the 2020 Quarter compared to the 2019 Quarter.

As of September 30, 2020, we had approximately 440,000 square feet of vacant commercial space and approximately 70,000 square feet of commercial lease expirations scheduled for the remainder of 2020.

For our multifamily properties, we expect the economic disruptions caused by the COVID-19 pandemic to limit our ability to increase rental rates until the economic disruption of the pandemic subsides.

At our multifamily properties, as of April 23, 2021, we collected 98% of cash rent during the 2021 Quarter, excluding rent that has been deferred.

Deferred rent outstanding, net of repayments, from our multifamily tenants is less than $0.1 million.

The effects of COVID-19 on our multifamily tenants have been reflected in an increase in credit losses of $0.3 million and led to a decline in rental rates during the 2021 Quarter compared to the 2020 Quarter.

We expect our ability to increase rental rates to be limited until the economic disruption of the pandemic subsides.

We had a decline in average occupancy of approximately 160 basis points during the 2021 Quarter compared to the 2020 Quarter, excluding Trove, which began lease-up in the first quarter of 2020.

The effects of the COVID-19 pandemic have also impacted our ability to lease up available commercial space as lease decisions have been slower for prospective tenants than in previous years as they re-evaluate re-entry and space plans.

New gross leasing square footage declined by 53% for commercial space during the 2021 Quarter compared to the 2020 Quarter.

As of March 31, 2021, we had approximately 490,000 square feet of vacant commercial space and approximately 200,000 square feet of commercial lease expirations scheduled for 2021.

We expect the COVID-19 outbreak, including any variants and mutations thereof, to continue to affect our financial condition and results of operations during 2021, including but not limited to real estate rental revenues, credit losses and leasing activity.

Given our concentration in the Washington metro region, our entire existing portfolio could be impacted at the same time by quarantines, shelter-in-place rules and various other restrictions imposed or re-imposed in response to a surge in COVID-19 cases.

To help mitigate the impact on our operating results of the COVID-19 pandemic, we have initiated various operational cost-saving initiatives across our portfolio.

We expect the COVID-19 outbreak will continue to affect our financial condition and results of operations going forward, including but not limited to, real estate rental revenues, credit losses and leasing activity.

Given our sole concentration in the Washington metro region, our entire portfolio could be impacted for the foreseeable future by quarantines, "shelter-in-place" rules and various other restrictions imposed or re-imposed in response to a surge in COVID-19 cases.

Due to the uncertainty of the future impacts of the COVID-19 pandemic, including the unknown effects of the upcoming flu season, the extent of the financial impact cannot be reasonably estimated at this time.

For more information, see Part II - Item 1A.

Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.

New legislation was enacted during the 2020 Period to provide relief to businesses in response to the COVID-19 pandemic.

We continue to evaluate the relief options available, such as the Coronavirus Aid, Relief, and Economic Securities Act (“CARES Act”), as well as other emergency relief initiatives and stimulus packages instituted by the federal government.

A number of the relief options contain restrictions on future business activities, including ability to repurchase shares and pay dividends that require careful evaluation and consideration.

Due to the uncertainty of the future impacts of the COVID-19 pandemic and the speed of the vaccine rollout in the Washington metro region, the extent of the financial impact remains difficult to reasonably estimate.

New legislation was enacted to provide relief to businesses in response to the COVID-19 pandemic.

We have evaluated and will continue to evaluate the relief options available, or that become available in the future, such as the Coronavirus Aid, Relief, and Economic Securities Act (“CARES Act”), or other emergency relief initiatives and stimulus packages instituted by the federal government.

A number of the available relief options contain restrictions on future business activities that require careful evaluation and consideration, including the ability to repurchase shares and pay dividends.

We will continue to assess these options and any subsequent legislation or other relief packages, including the accompanying restrictions on our business, as the pandemic continues to evolve.

The legislation did not have a material impact on our results of operations for the 2020 Quarter or 2020 Period.

The legislation did not have a material impact on our results of operations for the 2021 and 2020 Quarters.

Operating Results

Net (loss) income attributable to the controlling interests, NOI and NAREIT FFO for the three months ended September 30, 2020 and 2019 were as follows (in thousands):

Three Months Ended September 30,

Net (loss) income, NOI and NAREIT FFO for the three months ended March 31, 2021 and 2020 were as follows (in thousands):

Three Months Ended March 31,

2021 2020 $ Change % Change

Net (loss) income attributable to the controlling interests $ (956) $ 332,770 $ (333,726) (100.3) %

Net (loss) income $ (1,147) $ 1,719 $ (2,866) (166.7) %

$ 42,939 $ 48,153 $ (5,214) (10.8) %

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(2) See page 30 of the MD&A for a reconciliation of NAREIT FFO to net income.

The decrease in net income attributable to the controlling interests is primarily due to a gain on sale of real estate from discontinued operations ($339.0 million) in the 2019 Quarter and lower NOI ($5.0 million) and lower income from discontinued operations ($2.9 million) in the 2020 Quarter, partially offset by lower interest expense ($5.5 million) and

depreciation and amortization ($6.9 million) in the 2020 Quarter and a loss on extinguishment of debt from discontinued operations ($0.8 million) in the 2019 Quarter.

The lower NOI is primarily due to the sales of 1776 G Street ($2.3 million) during 2019 and John Marshall II ($1.1 million) during the second quarter of 2020 and lower NOI from same-store properties ($1.9 million), partially offset by the acquisitions of seven suburban Class B apartment communities in northern Virginia and Montgomery County, Maryland (“Assembly Portfolio”) and Cascade at Landmark ($0.3 million) during 2019.

The decrease in net income is primarily due to lower NOI ($5.2 million) in the 2021 Quarter and a gain on extinguishment of debt ($0.5 million) in the 2020 Quarter, partially offset by a gain on the settlement of litigation ($1.3 million), lower interest expense ($0.7 million) and lower general and administrative expenses ($0.7 million) in the 2021 Quarter.

The lower NOI is primarily due to lower NOI from same-store properties ($3.0 million) during 2021 and the sales of John Marshall II ($1.1 million), Monument II ($0.9 million) and 1227 25th Street ($0.7 million) during 2020, partially offset by placing Trove, a multifamily development, into service during 2020 ($0.4 million).

The lower same-store NOI is explained in further detail beginning on page 23 (Results of Operations - 2021 Quarter Compared to 2020 Quarter).

Same-store ending occupancy decreased to 90.3% as of September 30, 2020 from 91.9% as of September 30, 2019, due to lower occupancy across the portfolio resulting from the COVID-19 pandemic.

The lower NAREIT FFO is primarily due to to lower income from discontinued operations net of depreciation and amortization ($3.0 million) and lower NOI ($5.0 million), partially offset by lower interest expense ($5.5 million) and loss on extinguishment of debt from discontinued operations ($0.8 million) in the 2019 quarter.

Same-store ending occupancy for our portfolio decreased to 90.9% as of March 31, 2021 from 92.4% as of March 31, 2020, due to lower occupancy across the portfolio resulting from the COVID-19 pandemic.

The lower NAREIT FFO is primarily due to lower NOI ($5.2 million) in the 2021 Quarter and a gain on extinguishment of debt ($0.5 million) in the 2020 Quarter, partially offset by a gain on the settlement of litigation ($1.3 million), lower interest expense ($0.7 million) and lower general and administrative expenses ($0.7 million) in the 2021 Quarter.

Investment and Financing Activity

Significant investment and financing transactions during the 2020 Period included the following:

• The prepayment of the $45.6 million mortgage note secured by Yale West, which was scheduled to mature in 2052.

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

• The disposition of John Marshall II, a 223,000 square foot office property in Tysons, Virginia, for a contract sales price of $57.0 million.

As a result of this transaction, we recognized a loss on sale of real estate of $6.9 million.

• The prepayment of all $250.0 million of our 4.95% Senior Notes without penalty using borrowings from our Revolving Credit Facility.

• The execution of the one-year, $150.0 million 2020 Term Loan, maturing on May 5, 2021 with a one-year extension option.

The 2020 Term Loan bears interest at LIBOR + 1.50%, which margin is subject to change based on our credit ratings, with a 0.50% floor for the LIBOR rate.

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

• The entry into a note purchase agreement to issue $350.0 million aggregate principal amount of 3.44% senior unsecured 10-year notes payable (the “Green Bonds”).

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

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

• In conjunction with the entry into the note purchase agreement to issue the Green Bonds, we terminated $200.0 million of four forward interest rate swap arrangements designated as cash flow hedges.

Subsequent to the 2020 Quarter, we paid the $20.4 million liability associated with the termination of the forward swaps.

As of September 30, 2020, the interest rate on the $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) was one month LIBOR plus 1.00% and the facility fee was 0.20%.

As of October 28, 2020, our Revolving Credit Facility has a borrowing capacity of $450.0 million.

As of March 31, 2021, the interest rate on the $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) was one month LIBOR plus 1.00% and the facility fee was 0.20%.

As of April 26, 2021, our Revolving Credit Facility has a borrowing capacity of $629.0 million.

Capital Requirements

As described in the preceding section, during the 2020 Period we prepaid the mortgage note payable secured by Yale West.

Following this prepayment, we have no mortgage notes.

We have no remaining debt maturities in 2020.

We have no debt maturities until the fourth quarter of 2022.

We expect to have additional capital requirements as set forth on page 31 (Liquidity and Capital Resources - Capital Requirements).

Results of Operations

The discussion that follows is based on our consolidated results of operations for the 2020 Quarter and 2020 Period and the 2019 Quarter and 2019 Period.

The ability to compare one period to another is significantly affected by acquisitions completed and dispositions made during 2020 and 2019 (see note 3 to the consolidated financial statements).

Additionally, the COVID-19

pandemic adversely impacted our operating results for the 2020 Quarter, and we expect that the COVID-19 outbreak will continue to adversely affect our business, financial condition, results of operations and cash flows going forward, including but not limited to, real estate rental revenues, credit losses, and leasing activity, in ways that may vary widely depending on the duration and magnitude of the COVID-19 pandemic and ensuing economic turmoil, as well as numerous other factors, many of which are outside of our control, as discussed under “Risk Factors.”

The discussion that follows is based on our consolidated results of operations for the 2021 Quarter and 2020 Quarter.

The ability to compare one period to another is significantly affected by acquisitions completed and dispositions made during 2020 (see note 3 to the consolidated financial statements).

Additionally, the COVID-19 pandemic adversely impacted our operating results for the 2021 Quarter, and we expect that the COVID-19 outbreak will continue to adversely affect our business, financial condition, results of operations and cash flows going forward, including but not limited to, real estate rental revenues, credit losses, and leasing activity, in ways that may vary widely depending on the duration and magnitude of the COVID-19 pandemic and ensuing economic turmoil, as well as numerous other factors, many of which are outside of our control, as discussed under “Part I - Item 1A.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 filed on February 16, 2021.

Net Operating Income

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2021 Quarter Compared to 2020 Quarter

The following table reconciles NOI to net (loss) income attributable to the controlling interests and provides the basis for our discussion of our consolidated results of operations and NOI in the 2020 Quarter compared to the 2019 Quarter.

The following table reconciles NOI to net (loss) income and provides the basis for our discussion of our consolidated results of operations and NOI in the 2021 Quarter compared to the 2020 Quarter.

All amounts are in thousands, except percentage amounts.

Non-Same-Store

Same-Store Acquisitions (1)

Same-Store Development/

Re-development (1)

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NOI $ 42,730 $ 45,700 $ (2,970) (6.5) % $ 209 $ (210) $ — $ 2,663 $ 42,939 $ 48,153 $ (5,214) (10.8) %

Reconciliation to net (loss) income attributable to the controlling interests:

Reconciliation to net (loss) income:

Depreciation and amortization (29,643) (29,720) 77 (0.3) %

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Interest expense (10,123) (10,845) 722 (6.7) %

Discontinued operations (4) :

Income from properties sold or held for sale — 2,942 (2,942) (100.0) %

Gain on sale of real estate — 339,024 (339,024) (100.0) %

Loss on extinguishment of debt — (764) 764 (100.0) %

Other income 1,284 — 1,284

Gain on extinguishment of debt — 468 (468) (100.0) %

Net (loss) income $ (1,147) $ 1,719 $ (2,866) (166.7) %

Net income attributable to noncontrolling interests — — — — %

Net (loss) income attributable to the controlling interests $ (956) $ 332,770 $ (333,726) (100.3) %

______________________________

(1) Acquisitions:

2019 Multifamily - Assembly Portfolio and Cascade at Landmark

Development/redevelopment:

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Sold (classified as continuing operations):

2020 Office - John Marshall II

2019 Office - Quantico Corporate Center and 1776 G Street

(4) Discontinued operations:

2019 Retail - Wheaton Park, Bradlee Shopping Center, Shoppes of Foxchase, Gateway Overlook, Olney Village Center, Frederick County Square, Centre at Hagerstown and Frederick Crossing

2020 Office - John Marshall II, Monument II and 1227 25th Street

Real Estate Rental Revenue

Real estate rental revenue is comprised of (a) minimum base rent, which includes rental revenues recognized on a straight-line basis, (b) revenue from the recovery of operating expenses from our tenants, (c) credit losses on lease related receivables, (d) revenue from the collection of lease termination fees and (e) parking and other tenant charges such as percentage rents.

Real estate rental revenue from same-store properties by segment was as follows (in thousands):

Three Months Ended September 30,

Real estate rental revenue from same-store properties for the three months ended March 31, 2021 and 2020 by segment was as follows (in thousands):

Three Months Ended March 31,

2021 2020 $ Change % Change

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• Multifamily :

Decrease primarily due to higher rent abatements ($0.2 million), lower rental revenue ($0.2 million), lower move-in charges ($0.1 million), waived fees ($0.1 million) and higher credit losses ($0.1 million) related to the COVID-19 pandemic.

These were partially offset by higher termination fees ($0.1 million) and higher recoveries ($0.1 million).

Decrease primarily due to lower parking income ($0.7 million), lower termination fees ($0.6 million), higher credit losses ($0.4 million) and lower recoveries ($0.2 million).

Decrease primarily due to lower rental revenue ($1.0 million), higher rent abatements ($0.4 million) and higher credit losses ($0.3 million).

These were partially offset by higher recoveries ($0.2 million) and termination fees ($0.1 million).

Decrease primarily due to lower parking income ($0.8 million), lower termination fees ($0.6 million), higher credit losses ($0.4 million), lower rental revenue ($0.3 million), lower reimbursements ($0.1 million) and lower specialty leasing ($0.1 million).

The lower parking income and higher credit losses were primarily due to the COVID-19 pandemic.

Real estate rental revenue from acquisitions increased due to the acquisitions of Cascade at Landmark ($0.4 million) during the third quarter of 2019 and Assembly Portfolio ($0.2 million) during the second quarter of 2019.

Real estate rental revenue from held for sale and sold properties classified as continuing operations decreased due to the sale of 1776 G Street ($3.6 million) during the fourth quarter of 2019 and John Marshall II ($1.8 million) during the second quarter of 2020.

Real estate rental revenue from development properties increased due to placing into service the Trove development ($0.9 million).

We placed the remainder of the Trove development costs into service during the 2021 Quarter.

Real estate rental revenue from held for sale and sold properties classified as continuing operations decreased due to the sale of John Marshall II ($1.8 million) during the second quarter of 2020 and sales of Monument II ($1.5 million) and 1227 25th Street ($1.4 million) during the fourth quarter of 2020.

Ending occupancy for properties classified as continuing operations by segment for the 2021 Quarter and 2020 Quarter was as follows:

September 30, 2020 September 30, 2019 (Decrease) increase

March 31, 2021 March 31, 2020 (Decrease) increase

Segment Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total

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• Multifamily :

Decrease in same-store ending occupancy was primarily due to lower ending occupancy at The Kenmore, Riverside Apartments and The Wellington.

Decrease in same-store ending occupancy was primarily due to lower ending occupancy at Silverline Center, 1901 Pennsylvania Avenue, 1775 Eye Street and 2000 M Street, partially offset by higher ending occupancy at 1220 19th Street and Watergate 600.

Decrease in same-store ending occupancy was primarily due to lower ending occupancy at our DC rent-controlled properties (3801 Connecticut Avenue and The Kenmore), partially offset by higher ending occupancy at The Maxwell and Park Adams.

Decrease in same-store ending occupancy was primarily due to lower ending occupancy at 2000 M Street, Silverline Center, 515 King Street, 1901 Pennsylvania Avenue and 1140 Connecticut Avenue, partially offset by higher ending occupancy at 1220 19th Street.

During the 2021 Quarter, we executed new and renewal leases in our office segment as follows:

(in thousands) Average Rental Rate

(per square foot) % Rental Rate Increase (Decrease) Leasing Costs (1)

(per square foot) % Rental Rate Increase Leasing Costs (1)

(per square foot)

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Real estate expenses as a percentage of revenue for the 2021 Quarter and 2020 Quarter were 38.3% and 37.3%, respectively.

Real estate expenses from same-store properties by segment were as follows (in thousands):

Three Months Ended September 30,

Real estate expenses from same-store properties for the three months ended March 31, 2021 and 2020 by segment were as follows (in thousands):

Three Months Ended March 31,

2021 2020 $ Change % Change

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• Multifamily :

Increase primarily due to higher real estate tax ($0.1 million) and utilities ($0.1 million) expenses, partially offset by lower repairs and maintenance ($0.2 million) expenses.

Decrease primarily due to lower utilities ($0.4 million), lower contract maintenance ($0.3 million) and lower administrative ($0.2 million) expenses, partially offset by higher real estate taxes ($0.1 million).

Increase primarily due to higher contract maintenance ($0.2 million), utilities ($0.2 million), repairs and maintenance ($0.1 million) and insurance ($0.1 million) expenses.

Decrease primarily due to lower administrative ($0.5 million), utilities ($0.4 million) and repairs and maintenance ($0.3 million) expenses.

Other Income and Expenses

Depreciation and Amortization :

Decrease primarily due to the amortization of intangible lease assets at the Assembly Portfolio ($5.7 million) and Cascade at Landmark ($0.8 million) in 2019 and the dispositions of John Marshall II ($0.8 million) in the second quarter of 2020 and 1776 G Street ($0.7 million) in the fourth quarter of 2019.

These decreases were partially offset by placing into

service a portion of Trove development ($0.9 million) and by higher depreciation and amortization at same-store properties ($0.2 million).

Decrease primarily due to the dispositions of Monument II ($1.0 million) and 1227 25th Street ($0.4 million) in the fourth quarter of 2020 and lower depreciation and amortization at same-store properties ($0.1 million).

These decreases were partially offset by placing into service a portion of the Trove development ($1.4 million).

General and administrative expenses:

Decrease primarily due to lower short term incentive compensation ($0.5 million) in the 2020 Quarter and higher severance expenses ($0.3 million) in the 2019 Quarter, partially offset by higher legal fees ($0.4 million) and higher share based compensation ($0.2 million) during the 2020 Quarter.

Decrease primarily due to lower professional fees ($0.5 million) and lower recruitment expense ($0.1 million) during the 2021 Quarter.

Interest Expense :

Interest expense by debt type for the three months ended September 30, 2020 and 2019 was as follows (in thousands):

Three Months Ended September 30,

Interest expense by debt type for the three months ended March 31, 2021 and 2020 was as follows (in thousands):

Three Months Ended March 31,

Debt Type 2021 2020 $ Change % Change

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• Notes payable :

Decrease primarily due to prepayment of all $250.0 million of our 4.95% Senior Notes in April 2020 and executing a six-month $450.0 million 2019 Term Loan in April 2019 which was repaid in the third quarter of 2019, partially offset by a new $150.0 million 2020 Term Loan executed in May 2020.

Decrease primarily due to prepayment of all $250.0 million of our 4.95% Senior Notes in April 2020 and prepayment of our $150.0 million 2015 Term Loan in December 2020, partially offset by the $350.0 million Green Bonds executed in December 2020.

• Mortgage notes payable:

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• Capitalized interest :

Decrease primarily due to placing into service assets at Trove, the multifamily development adjacent to The Wellington.

Discontinued operations:

Income from properties sold or held for sale:

Decrease primarily due to the sale of the properties classified as discontinued operations during the third quarter of 2019.

Gain on sale of real estate:

Decrease due to gains on the sales of the Shopping Center Portfolio ($333.0 million) and Frederick Crossing and Frederick County Square ($9.5 million), partially offset by a loss on the sale of Centre at Hagerstown ($3.5 million) in the 2019 Quarter.

Loss on Extinguishment of debt:

We recognized a $0.8 million loss on extinguishment of debt during the 2019 Quarter related to the prepayment of the mortgage note secured by Olney Village Center prior to that property’s disposition as part of the Shopping Center Portfolio.

2020 Period Compared to 2019 Period

The following tables reconcile NOI to net (loss) income attributable to the controlling interests and provide the basis for our discussion of our consolidated results of operations and NOI in the 2020 Period compared to the 2019 Period.

All amounts are in thousands, except percentage amounts.

Non-Same-Store

Same-Store Acquisitions (1)

Development/Redevelopment (2)

Held for Sale or Sold (3)

All Properties

Change 2020 2019 2020 2019 2020 2019 2020 2019 $

Real estate rental revenue $ 185,728 $ 193,057 $ (7,329) (3.8) % $ 34,294 $ 16,468 $ 696 $ 12 $ 2,171 $ 18,976 $ 222,889 $ 228,513 $ (5,624) (2.5) %

Real estate expenses

68,461 71,387 (2,926) (4.1) % 13,889 6,526 1,007 23 839 7,033 84,196 84,969 (773) (0.9) %

NOI $ 117,267 $ 121,670 $ (4,403) (3.6) % $ 20,405 $ 9,942 $ (311) $ (11) $ 1,332 $ 11,943 $ 138,693 $ 143,544 $ (4,851) (3.4) %

Reconciliation to net (loss) income attributable to the controlling interests:

Depreciation and amortization (89,789) (97,441) 7,652 (7.9) %

General and administrative expenses (17,963) (19,803) 1,840 (9.3) %

Real estate impairment — (8,374) 8,374 (100.0) %

Loss on sale of real estate (7,539) (1,046) (6,493) 620.7 %

Interest expense (28,307) (41,946) 13,639 (32.5) %

Gain on extinguishment of debt 262 — 262 — %

Loss from continuing operations (4,643) (25,066) 20,423 (81.5) %

Discontinued operations (4) :

Income from properties sold or held for sale — 16,158 (16,158) (100.0) %

Gain on sale of real estate — 339,024 (339,024) (100.0) %

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

Net (loss) income (4,643) 329,352 (333,995) (101.4) %

Net income attributable to noncontrolling interests — — — — %

Net (loss) income attributable to the controlling interests $ (4,643) $ 329,352 $ (333,995) (101.4) %

(1) Acquisitions:

2019 Multifamily - Assembly Portfolio and Cascade at Landmark

(2) Development/redevelopment:

Multifamily – Trove

(3) Sold (classified as continuing operations):

2020 Office - John Marshall II

2019 Office - Quantico Corporate Center and 1776 G Street

(4) Discontinued operations:

2019 Retail - Wheaton Park, Bradlee Shopping Center, Shoppes of Foxchase, Gateway Overlook, Olney Village Center, Frederick County Square, Centre at Hagerstown and Frederick Crossing

Real Estate Rental Revenue

Real estate rental revenue from same-store properties by segment was as follows (in thousands):

Nine Months Ended September 30,

2020 2019 $ Change % Change

$ 73,892 $ 73,532 $ 360 0.5 %

Office 98,992 105,188 (6,196) (5.9) %

12,844 14,337 (1,493) (10.4) %

Total same-store real estate rental revenue $ 185,728 $ 193,057 $ (7,329) (3.8) %

• Multifamily :

Increase primarily due to higher rental rates ($0.9 million), higher termination fees ($0.1 million), higher parking income ($0.1 million) and higher late fees ($0.1 million), partially offset by higher rent abatements ($0.3 million), waived fees ($0.2 million), lower move-in charges ($0.2 million) and higher credit losses ($0.2 million) related to the COVID-19 pandemic.

Decrease primarily due to lower lease termination fees ($1.8 million), lower parking income ($1.5 million), higher credit losses ($1.3 million), lower recoveries ($1.0 million) and lower rental income ($1.0 million).

The lower parking income and higher credit losses are primarily due to the COVID-19 pandemic.

These decreases were partially offset by higher specialty leasing ($0.4 million).

Real estate rental revenue from acquisitions increased due to the acquisitions of the Assembly Portfolio ($14.2 million) during the second quarter of 2019 and Cascade at Landmark ($3.6 million) during the 2019 Quarter.

Real estate rental revenue from sold properties classified as continuing operations decreased due to the sale of 1776 G Street ($10.5 million) during the fourth quarter of 2019, John Marshall II ($3.4 million) during the second quarter of 2020 and Quantico Corporate Center ($2.8 million) during the second quarter of 2019.

During the 2020 Period, we executed new and renewal leases in our office segment as follows:

(in thousands) Average Rental Rate

(per square foot) % Rental Rate Increase Leasing Costs (1)

(per square foot)

Free Rent (weighted average months)

Office 183 $ 46.44 13.8 % $ 29.69 3.9

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(1) Consists of tenant improvements and leasing commissions.

Real Estate Expenses

Real estate expenses as a percentage of revenue for the 2020 Period and 2019 Period were 37.8% and 37.2%, respectively.

Real estate expenses from same-store properties by segment were as follows (in thousands):

Nine Months Ended September 30,

2020 2019 $ Change % Change

$ 28,187 $ 28,379 (192) (0.7) %

Office 36,337 38,904 (2,567) (6.6) %

3,937 4,104 (167) (4.1) %

Total same-store real estate expenses $ 68,461 $ 71,387 $ (2,926) (4.1) %

• Multifamily :

Decrease primarily due to lower repairs and maintenance ($0.3 million) and lower utilities ($0.2 million) expenses, partially offset by higher real estate tax expenses ($0.3 million).

Decrease primarily due to lower utilities ($1.3 million), contract maintenance ($0.8 million) and administrative ($0.6 million) expenses.

Other Income and Expenses

Depreciation and Amortization :

Decrease primarily due to the amortization of intangible lease assets at the Assembly Portfolio ($3.8 million) in 2019, dispositions of John Marshall II ($2.3 million), 1776 G Street ($2.1 million) and Quantico Corporate Center ($0.8 million) and lower depreciation and amortization at same-store properties ($1.0 million).

These decreases were partially offset by placing into service a portion of the Trove development ($1.9 million) during the 2020 Period and the acquisition of Cascade at Landmark ($0.5 million) in the 2019 Quarter.

General and administrative expenses :

Decrease primarily due to lower severance expenses ($1.0 million) and lower payroll ($0.6 million) due to a corporate restructuring in the 2019 Period and lower short term incentive compensation ($1.2 million) in the 2020 Period, partially offset by the reversal of a transfer tax liability related to a prior year acquisition ($0.7 million) and higher legal fees ($0.3 million).

Real estate impairment:

The real estate impairment charge of $8.4 million during the first quarter of 2019 reduced the carrying value of Quantico Corporate Center to its estimated fair value (see note 3 to the consolidated financial statements).

Loss on sale of real estate:

The loss during 2020 Period is due to the sale of John Marshall II.

The loss during the 2019 Period is due to the sale of Quantico Corporate Center.

Decrease primarily due to placing into service assets at Trove.

Gain on extinguishment of debt :

We recognized a gain on extinguishment of debt $0.5 million during the first quarter of 2020 related to the prepayment of the mortgage note secured by Yale West Apartments.

This was partially offset by a loss on extinguishment of debt of $0.2 million during the second quarter of 2020 related to the prepayment of all $250.0 million of our 4.95% Senior Notes that were scheduled to mature in October 2020.

Interest Expense :

Interest expense by debt type for the nine months ended September 30, 2020 and 2019 was as follows (in thousands):

Nine Months Ended September 30,

Debt Type 2020 2019 $ Change % Change

Notes payable $ 25,623 $ 35,394 $ (9,771) (27.6) %

Mortgage notes payable 172 1,558 (1,386) (89.0) %

Line of credit 4,404 7,281 (2,877) (39.5) %

Capitalized interest (1,892) (2,287) 395 (17.3) %

Total $ 28,307 $ 41,946 $ (13,639) (32.5) %

• Notes payable :

Decrease primarily due to prepayment of all $250.0 million of our 4.95% Senior Notes in April 2020 and the execution of a six-month $450.0 million 2019 Term Loan in April 2019 that was repaid in the third quarter of 2019, partially offset by the new $150.0 million 2020 Term Loan executed in May 2020.

• Mortgage notes payable :

Decrease due to repayment of the mortgage note secured by Yale West Apartments in January 2020.

• Line of credit :

Decrease primarily due to a lower weighted average interest rate of 1.6% and lower weighted average borrowings of $193.2 million during the 2020 Period, as compared to 3.4% and $201.4 million, respectively, during the 2019 Period.

• Capitalized interest :

Decrease primarily due to placing into service assets at Trove, the multifamily development adjacent to The Wellington.

Discontinued operations:

Income from properties sold or held for sale:

Decrease primarily due to the sale of the properties classified as discontinued operations during third quarter of 2019.

Gain on sale of real estate:

Loss on Extinguishment of debt:

We recognized a $0.5 million gain on extinguishment of debt during 2020 Quarter related to the prepayment of the mortgage note secured by Yale West Apartments.

Other income :

We recognized $1.3 million in other income related to a legal settlement during the 2021 Quarter.

Liquidity and Capital Resources

As the local and global economies have weakened as a result of COVID-19, ensuring adequate liquidity is critical.

In light of local and global economic uncertainty as a result of COVID-19, ensuring adequate liquidity is critical.

We believe we have access to adequate resources to meet the needs of our existing operations, mandatory capital expenditures, dividend payments and working capital, to the extent not funded by cash provided by operating activities.

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Such adverse impacts include the inability of some of our tenants to pay their rent on time or at all, longer lease-up periods for both anticipated and unanticipated vacancies, temporary rental rate freezes and contractual rent deferral arrangements.

In April 2020, we prepaid without penalty all $250.0 million of our 4.95% unsecured notes using borrowings on our Revolving Credit Facility.

Following that prepayment, we have no remaining debt maturities in 2020 and $150 million of debt maturities in 2021.

In April 2020, we executed an amendment to the John Marshall II purchase and sale agreement, decreasing the contract sale price to $57.0 million, and closed on the sale on April 21, 2020.

In May 2020, the Company closed on a one-year unsecured term loan, with a one-year extension option, in a principal amount of $150.0 million.

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

As of October 28, 2020, we had $250.0 million of borrowings outstanding on our Revolving Credit Facility, leaving $450.0 million of borrowing capacity.

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

The closing and funding of the Green Bonds is expected to occur no later than December 29, 2020.

Following the closing and funding of the Green Bonds, and pending allocation to such Eligible Green Projects, we expect to repay $300 million of existing term loans maturing in 2021 and 2022 and to use the balance to pay down amounts due under the Revolving Credit Facility.

Following the closing and funding of the Green Bonds and repayment of the term loans, we will have no debt maturing until the fourth quarter of 2022.

Due to our remaining borrowing capacity on our Revolving Credit Facility and the fact that we do not have any debt maturities for the remainder of 2020, we believe we have adequate liquidity to meet any major capital needs and commitments for the remainder of 2020.

We believe we have the ability to raise capital through the equity, debt and credit markets, market conditions permitting.

However, disruptions in these markets may negatively impact our ability to access capital.

These events may also make it more difficult or costly for us to raise capital through the issuance of our securities or through private financings, and may require us to adjust our planned expenditures for the year accordingly.

In addition, we believe we have the ability to access Agency debt, such as Fannie Mae or Freddie Mac secured loans, using a part of our unencumbered multifamily portfolio, if necessary.

However, there can be no assurances that such loans would be available or that they would be available on reasonable terms.

Due to our remaining borrowing capacity on our Revolving Credit Facility and the fact that we do not have any debt maturing until the fourth quarter of 2022, we believe we have adequate liquidity to meet any major capital needs and commitments for the remainder of 2021.

Capital Requirements

In response to the COVID-19 pandemic, we have significantly reduced our estimated capital requirements as compared to the estimates we disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

We have reduced 2020 assumed capital expenditures by approximately $40 million by deferring non-essential building restorations, certain tenant improvements and leasing costs for speculative leasing, decreasing multifamily renovation capital expenditures, and lowering our anticipated development spending as we no longer expect to break ground on the new Riverside development this year.

As of the end of the 2020 Quarter, our full-year 2020 capital requirements are currently expected to consist of the following:

As of the end of the 2021 Quarter, we summarize our full-year 2021 capital requirements as follows:

• Funding dividends and distributions to our shareholders;

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• Approximately $5.0 - $7.5 million to invest in our development and redevelopment projects;

• Funding for potential property acquisitions during 2020, offset by proceeds from potential property dispositions.

• Funding for potential property acquisitions throughout 2021, offset by proceeds from potential property dispositions.

There can be no assurance that our capital requirements will not be materially higher or lower than the above expectations.

We currently believe that we will generate sufficient cash flow from operations and potential property sales and have access to the capital resources necessary to fund our requirements for the remainder of 2021.

However, as a result of the uncertainty of the future impacts of the COVID-19 pandemic, general market conditions in the greater Washington metro region, economic conditions affecting the ability to attract and retain tenants, declines in our share price, unfavorable changes in the supply of competing properties, or our properties not performing as expected, we may not generate sufficient cash flow from operations and property sales or otherwise have access to capital on favorable terms, or at all.

If we are unable to obtain capital from other sources, we may need to alter capital spending to be materially different than what is stated above.

If capital were not available, we may be unable to satisfy the distribution requirement applicable to REITs, make required principal and interest payments, make strategic acquisitions or make necessary and/or routine capital improvements or undertake improvement/redevelopment opportunities with respect to our existing portfolio of operating assets.

Debt Financing

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At those times, we may use derivative financial instruments including interest rate swaps and caps, forward interest rate options or interest rate options in order to assist us in managing our debt mix.

We may hedge our variable rate debt to give it an effective fixed interest rate and hedge fixed rate debt to give it an effective variable interest rate.

In January 2020, we prepaid the $45.6 million mortgage note payable secured by Yale West, recognizing a gain on extinguishment of debt of $0.5 million using borrowings on our Revolving Credit Facility.

Following the repayment of this mortgage note, we have no mortgage notes outstanding.

We may either hedge our variable rate debt to give it an effective fixed interest rate or hedge fixed rate debt to give it an effective variable interest rate.

Our future debt principal payments are scheduled as follows (in thousands):

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2026 — — — —%

2024 — — — —%

2025 — — — —%

Thereafter 400,000 (3)

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______________________________

(1) WashREIT entered into interest rate swaps to effectively fix a LIBOR plus 110 basis points floating interest rate to a 2.72% all-in fixed interest rate through the term loan maturity of March 2021.

(2) Maturity date for the $150.0 million term loan of May 2022 assumes election of option for an additional one-year period.

(1) WashREIT entered into interest rate swaps to effectively fix a LIBOR plus 110 basis points floating interest rate to a 2.31% all-in fixed interest rate for $150.0 million portion of the term loan.

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(2) Maturity date for credit facility of March 2023 assumes election of option for two additional 6-month periods.

(5) The Green Bonds are not included in this table as the closing and funding of the Green Bonds has not yet occurred.

It is expected to occur no later than December 29, 2020.

Following the closing and funding of the Green Bonds, and pending allocation to such Eligible Green Projects, WashREIT expects to repay $300 million of existing term loans maturing in 2021 and 2022 and to use the balance to pay down amounts due under the revolving credit facility and will have no debt maturing until the fourth quarter of 2022.

(3) The closing and full funding of the $350.0 million 10-year 3.44% Green Bonds occurred on December 17, 2020.

The Green Bonds have an all-in fixed interest rate of 4.09%.

The weighted average maturity for our debt is 5.0 years.

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Debt Covenants

Our Revolving Credit Facility contains financial and other covenants with which we must comply.

Some of these covenants include:

• ratio of total debt to total asset value of not more than 0.60 to 1.00 (subject to a higher level following material acquisitions);

• ratio of adjusted EBITDA (earnings before noncontrolling interests, interest expense, income tax expense, depreciation, amortization, acquisition costs, and extraordinary, unusual or nonrecurring gains and losses) to fixed charges of not less than 1.50 to 1.00;

• ratio of secured indebtedness to total asset value of not more than 0.40 to 1.00;

• ratio of adjusted net operating income from unencumbered properties satisfying certain criteria specified in the amended and restated credit agreement (“Credit Agreement”) to interest expense on unsecured indebtedness of not less than 1.75 to 1.00;

• ratio of unsecured indebtedness to the unencumbered pool value of properties satisfying certain criteria specified in, and valued per the terms of, the Credit Agreement of not more than 0.60 to 1.00 (subject to a higher level following material acquisitions).

Our outstanding unsecured notes contain covenants with which we must comply, including:

• A maximum ratio of 65.0% of total indebtedness to total assets;

• A maximum ratio of 40.0% of secured indebtedness to total assets;

• A minimum ratio of 1.50 of our income available for debt service payments to required debt service payments;

• A minimum ratio of 1.50 of total unencumbered assets to total unsecured indebtedness.

Failure to comply with any of the covenants under our Revolving Credit Facility, unsecured notes or other debt instruments could result in a default under one or more of our debt covenants.

Pursuant to the terms of our Revolving Credit Facility, 2018 Term Loan and unsecured notes, we are subject to customary operating covenants and maintenance of various financial ratios.

Failure to comply with any of the covenants under our Revolving Credit Facility, 2018 Term Loan, unsecured notes or other debt instruments could result in a default under one or more of our debt instruments.

This could cause our lenders to accelerate the timing of payments and could therefore have a material adverse effect on our business, operations, financial condition and liquidity.

In addition, our ability to draw on our Revolving Credit Facility or incur other unsecured debt in the future could be restricted by the debt covenants.

As of September 30, 2020, we were in compliance with the covenants related to our Revolving Credit Facility and unsecured notes.

We expect to be able to continue to comply with these ratios and covenants for the remainder of 2020, but no assurance can be given that we will be able to maintain compliance with these ratios and other debt covenants, particularly if conditions worsen.

As of March 31, 2021, we were in compliance with the covenants related to our Revolving Credit Facility, 2018 Term Loan, and unsecured notes.

Common Equity

We have authorized for issuance 100.0 million common shares, of which 82.4 million shares were outstanding at September 30, 2020.

On May 4, 2018, we entered into eight separate equity distribution agreements (collectively, the “Equity Distribution Agreements”) with each of Wells Fargo Securities, LLC, BNY Mellon Capital Markets, LLC, Capital One Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co.

We have authorized for issuance 150.0 million common shares, of which 84.6 million shares were outstanding at March 31, 2021.

On February 17, 2021, we entered into separate amendments to each of our existing equity distribution agreements (“Original Equity Distribution Agreements”) with each of Wells Fargo Securities, LLC, BNY Mellon Capital Markets, LLC, Capital One Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co.

Morgan Securities LLC, KeyBanc Capital Markets Inc.

and SunTrust Robinson Humphrey, Inc.

relating to the issuance of up to $250.0 million of our common shares from time to time.

and Truist Securities, Inc.

(f/k/a SunTrust Robinson Humphrey, Inc.), each dated May 4, 2018 (collectively, as amended, the “Amended Equity Distribution Agreements”).

Also on February 17, 2021, we entered into a separate equity distribution agreement with BTIG, LLC on the same terms as the Amended Equity Distribution Agreements (the “BTIG Equity Distribution Agreement,” together with the Amended Equity Distribution Agreements, the “Equity Distribution Agreements”).

Pursuant to the Equity Distribution Agreements, we may sell, from time to time, up to an aggregate price of $550.0 million of our common shares of beneficial interest, $0.01 par value per share.

Issuances of our common shares are made at market prices prevailing at the time of issuance.

We may use net proceeds from the issuance of common shares under this program for general corporate purposes, including, without limitation, working capital, the acquisition, renovation, expansion, improvement, development or redevelopment of income producing properties and the repayment of debt.

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

We did not issue common shares under the Equity Distribution Agreements during the 2020 Quarter or in the second quarter of 2020.

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

We may use net proceeds from the issuance of common shares under this program for general business purposes, including, without limitation, working capital, the acquisition, renovation, expansion, improvement, development or redevelopment of income producing properties or the repayment of debt.

Our issuances and net proceeds on the Equity Distribution Agreements and the Original Equity Distribution Agreements, respectively, for the three months ended March 31, 2021 and 2020 are as follows:

Three Months Ended March 31,

Issuance of common shares 24 47

Weighted average price per share $ 22.06 $ 31.07

Net proceeds $ 467 $ 1,241

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

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

Our issuances and net proceeds on the dividend reinvestment program for the 2020 Quarter and 2019 Quarter and 2020 Period and 2019 Period were as follows (in thousands, except per share data):

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

2020 2019 2020 2019

Our issuances and net proceeds on the dividend reinvestment program for the 2021 Quarter and 2020 Quarter were as follows (in thousands, except per share data):

Three Months Ended March 31,

Issuance of common shares 23 35

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The ability to issue preferred equity provides WashREIT an additional financing tool that may be used to raise capital for future acquisitions or other business purposes.

As of September 30, 2020, no preferred shares were issued or outstanding.

As of March 31, 2021, no preferred shares were issued or outstanding.

Historical Cash Flows

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Consolidated cash flow information is summarized as follows (in thousands):

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2021 2020 $ %

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Net cash used in financing activities (33,749) (2,034) (31,715) 1,559.2 %

Net cash provided by operating activities decreased primarily due to the sales of John Marshall II in the second quarter of 2020 and the Retail Portfolio, Quantico Corporate Center and 1776 G Street during the 2019 Period.

Net cash used in investing activities increased primarily due to higher expenditures on capital improvements to real estate during the 2020 Period.

Net cash used in financing activities increased primarily due to the prepayment of the $250.0 million of the 4.95% 10-year unsecured notes during the 2020 Period, partially offset by higher net borrowings on the Revolving Credit Facility and proceeds from the $150.0 million unsecured term loan in the 2020 Period.

Net cash provided by operating activities increased primarily due to timing differences on the payment of certain liabilities and lower interest payments in the 2021 Quarter.

Net cash used in investing activities decreased primarily due to lower expenditures on capital improvements to real estate and lower expenditures on development during the 2021 Quarter.

Net cash used in financing activities increased primarily due to lower net borrowings on the Revolving Credit Facility in the 2021 Quarter, partially offset by the prepayment of the mortgage note secured by Yale West during the 2020 Quarter.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of September 30, 2020 that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We have no off-balance sheet arrangements as of March 31, 2021 that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Funds From Operations

NAREIT FFO is a widely used measure of operating performance for real estate companies.

We provide NAREIT FFO as a supplemental measure to net income calculated in accordance with GAAP.

Although NAREIT FFO is a widely used measure of operating performance for REITs, NAREIT FFO does not represent net income calculated in accordance with GAAP.

As such, it should not be considered an alternative to net income as an indication of our operating performance.

In addition, NAREIT FFO does not represent cash generated from operating activities in accordance with GAAP, nor does it represent cash available to pay distributions and should not be considered as an alternative to cash flow from operating activities, determined in accordance with GAAP, as a measure of our liquidity.

NAREIT FFO is defined by the National Association of Real Estate Investment Trusts, Inc.

(“NAREIT”) in its NAREIT FFO White Paper - 2018 Restatement as net income (computed in accordance with GAAP) excluding gains (or losses) associated with sales of properties;

In its 2018 NAREIT FFO Whitepaper Restatement, the National Association of Real Estate Investment Trusts, Inc.

(“NAREIT”) defined NAREIT FFO as net income (computed in accordance with GAAP) excluding gains (or losses) associated with sales of properties;

impairments of depreciable real estate, and real estate depreciation and amortization.

We consider NAREIT FFO to be a standard supplemental measure for equity real estate investment trusts (REITs) because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which historically assumes that the value of real estate assets diminishes predictably over time.

We consider NAREIT FFO to be a standard supplemental measure for equity REITs because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which historically assumes that the value of real estate assets diminishes predictably over time.

Since real estate values have instead historically risen or fallen with market conditions, we believe that NAREIT FFO more accurately provides investors an indication of our ability to incur and service debt, make capital expenditures and fund other needs.

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These other REITs may not define the term in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently.

The following table provides the calculation of our NAREIT FFO and a reconciliation of NAREIT FFO to net (loss) income for the three and nine months ended September 30, 2020 and 2019 (in thousands):

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

2020 2019 2020 2019

The following table provides the calculation of our NAREIT FFO and a reconciliation of NAREIT FFO to net (loss) income for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

Net (loss) income $ (1,147) $ 1,719

Depreciation and amortization 29,643 29,720

Real estate impairment — — — 8,374

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

Discontinued operations:

Depreciation and amortization — 59 — 4,926

Gain on sale of depreciable real estate — (339,024) — (339,024)

NAREIT FFO $ 28,496 $ 31,439

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The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

There were no changes made by management to the critical accounting policies in the three months ended September 30, 2020.

We discuss the most critical estimates in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 19, 2020, as amended by Amendment No.

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

There were no changes made by management to the critical accounting policies in the three months ended March 31, 2021.

We discuss the most critical estimates in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 16, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis