What changed in this filing

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Item 1. Financial Statements

2021-08-03 compared with 2021-04-29 · 273 added, 88 removed, 295 unchanged (55% of the section changed)

5 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE DATA )

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Land $ 301,709 $ 301,709

5 unchanged sentences

Total real estate held for investment, net 1,455,230 1,476,532

Investment in real estate held for sale, net 779,121 795,687

Cash and cash equivalents 5,435 7,697

2 unchanged sentences

Prepaid expenses and other assets 28,297 29,587

Other assets related to properties held for sale 86,811 89,997

Total assets $ 2,368,405 $ 2,409,818

5 unchanged sentences

Tenant security deposits 4,374 4,221

Other liabilities related to properties held for sale 23,748 25,229

Total liabilities 1,091,970 1,088,709

6 unchanged sentences

150,000 and 100,000 shares authorized;

84,564 and 84,409 shares issued and outstanding, as of March 31, 2021 and December 31, 2020, respectively

84,590 and 84,409 shares issued and outstanding, as of June 30, 2021 and December 31, 2020, respectively

Additional paid in capital 1,654,409 1,649,366

9 unchanged sentences

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

Three Months Ended March 31,

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

2021 2020 2021 2020

Real estate rental revenue $ 41,297 $ 43,757 $ 81,904 $ 89,500

2 unchanged sentences

General and administrative expenses 6,325 5,296 11,929 11,633

Transformation costs 3,780 — 3,780 —

43,638 39,256 82,683 80,298

Loss on sale of real estate — ( 7,539 ) — ( 7,539 )

Real estate operating income ( 2,341 ) ( 3,038 ) ( 779 ) 1,663

1 unchanged sentence

Interest expense ( 10,158 ) ( 8,751 ) ( 20,281 ) ( 19,596 )

Gain on extinguishment of debt — 468

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

Loss on interest rate derivatives ( 5,760 ) — ( 5,760 ) —

Other income 1,522 — 2,806 —

( 14,396 ) ( 8,957 ) ( 23,235 ) ( 19,334 )

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

Basic net (loss) income per common share:

$ ( 0.02 ) $ 0.02

Diluted net (loss) income per common share:

$ ( 0.02 ) $ 0.02

Loss from continuing operations ( 16,737 ) ( 11,995 ) ( 24,014 ) ( 17,671 )

Discontinued operations:

Income from operations of properties sold or held for sale 9,745 6,589 15,875 13,984

Net loss $ ( 6,992 ) $ ( 5,406 ) $ ( 8,139 ) $ ( 3,687 )

Basic net (loss) income per share:

Continuing operations $ ( 0.20 ) $ ( 0.15 ) $ ( 0.29 ) $ ( 0.22 )

Discontinued operations 0.12 0.08 0.19 0.17

Basic net loss per common share $ ( 0.08 ) $ ( 0.07 ) $ ( 0.10 ) $ ( 0.05 )

Diluted net (loss) income per share:

Continuing operations $ ( 0.20 ) $ ( 0.15 ) $ ( 0.29 ) $ ( 0.22 )

Discontinued operations 0.12 0.08 0.19 0.17

Diluted net loss per common share $ ( 0.08 ) $ ( 0.07 ) $ ( 0.10 ) $ ( 0.05 )

Weighted average shares outstanding – basic 84,461 82,153 84,437 82,120

4 unchanged sentences

(IN THOUSANDS)

Three Months Ended March 31,

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

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

2021 2020 2021 2020

Net loss $ ( 6,992 ) $ ( 5,406 ) $ ( 8,139 ) $ ( 3,687 )

Other comprehensive income (loss):

11 unchanged sentences

Unrealized gain on interest rate hedges — — — — 2,584 2,584 — 2,584

Loss on interest rate derivatives — — — — 5,760 5,760 — 5,760

Amortization of swap settlements — — — — 1,019 1,019 — 1,019

5 unchanged sentences

Share grants, net of forfeitures and tax withholdings 112 2 3,567 — — 3,569 — 3,569

Balance, March 31, 2021 84,564 $ 846 $ 1,651,680 $ ( 325,469 ) $ ( 28,473 ) $ 1,298,584 $ 318 $ 1,298,902

Balance, June 30, 2021 84,590 $ 846 $ 1,654,409 $ ( 357,934 ) $ ( 21,200 ) $ 1,276,121 $ 314 $ 1,276,435

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

1 unchanged sentence

Balance, December 31, 2019 82,099 $ 821 $ 1,592,487 $ ( 183,405 ) $ 1,823 $ 1,411,726 $ 336 $ 1,412,062

Net income — — — 1,719 — 1,719 — 1,719

Net loss — — — ( 3,687 ) — ( 3,687 ) — ( 3,687 )

Unrealized loss on interest rate hedges — — — — ( 36,356 ) ( 36,356 ) — ( 36,356 )

5 unchanged sentences

Share grants, net of forfeitures and tax withholdings 141 1 3,827 — — 3,828 — 3,828

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

See accompanying notes to the consolidated financial statements.

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(IN THOUSANDS)

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

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

Balance, March 31, 2021 84,564 $ 846 $ 1,651,680 $ ( 325,469 ) $ ( 28,473 ) $ 1,298,584 $ 318 $ 1,298,902

Net loss — — — ( 6,992 ) — ( 6,992 ) — ( 6,992 )

Unrealized loss on interest rate hedges — — — — 1,004 1,004 — 1,004

Loss on interest rate derivatives — — — — 5,760 5,760 — 5,760

Amortization of swap settlements — — — — 509 509 — 509

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

Dividends ($ 0.30 per common share)

— — — ( 25,473 ) — ( 25,473 ) — ( 25,473 )

Shares issued under Dividend Reinvestment Program 22 — 489 — — 489 — 489

Share grants, net of share grant amortization and forfeitures 4 — 2,240 — — 2,240 — 2,240

Balance, June 30, 2021 84,590 $ 846 $ 1,654,409 $ ( 357,934 ) $ ( 21,200 ) $ 1,276,121 $ 314 $ 1,276,435

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

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

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

Net loss — — — ( 5,406 ) — ( 5,406 ) — ( 5,406 )

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

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

Dividends ($ 0.30 per common share)

— — — ( 24,761 ) — ( 24,761 ) — ( 24,761 )

Shares issued under dividend reinvestment program 6 — 144 — — 144 — 144

Share grants, net of forfeitures and tax withholdings 6 — 2,234 — — 2,234 — 2,234

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

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(IN THOUSANDS)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities

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

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

Net loss $ ( 8,139 ) $ ( 3,687 )

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

Depreciation and amortization 57,194 59,319

Credit losses on lease related receivables 1,337 2,271

Loss on sale of real estate — 7,539

Share-based compensation expense 3,750 3,783

Net amortization of debt premiums, discounts and related financing costs 2,227 1,314

Loss on interest rate derivatives 5,760 —

Gain on extinguishment of debt — ( 262 )

3 unchanged sentences

Cash flows from investing activities

Net cash received for sale of real estate — 56,353

Capital improvements to real estate ( 10,370 ) ( 25,452 )

1 unchanged sentence

Non-real estate capital improvements ( 31 ) ( 124 )

Net cash used in investing activities ( 8,200 ) ( 20,342 )

Net cash (used in) provided by investing activities ( 18,195 ) 12,131

Cash flows from financing activities

2 unchanged sentences

Principal payments – mortgage notes payable — ( 46,567 )

Repayments of unsecured notes payable — ( 250,000 )

Proceeds from term loan — 150,000

Payment of financing costs — ( 560 )

Distributions to noncontrolling interests ( 7 ) ( 7 )

3 unchanged sentences

Net cash used in financing activities ( 48,687 ) ( 69,463 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 4,710 ) 6,484

Net decrease in cash, cash equivalents and restricted cash ( 2,260 ) ( 6,150 )

Cash, cash equivalents and restricted cash at beginning of period 8,290 14,751

Cash, cash equivalents and restricted cash at end of period $ 6,030 $ 8,601

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Six Months Ended June 30,

Supplemental disclosure of cash flow information:

1 unchanged sentence

Change in accrued capital improvements and development costs ( 4,697 ) 3,687

Dividend payable 25,474 24,760

Reconciliation of cash, cash equivalents and restricted cash:

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

NATURE OF BUSINESS

Washington Real Estate Investment Trust (“WashREIT”), a Maryland real estate investment trust, is a self-administered equity real estate investment trust, successor to a trust organized in 1960.

Our business consists of the ownership and operation of income producing real estate properties in the greater Washington metro region.

Our business consists of the ownership and operation of income producing real estate properties in the greater Washington, DC metro region.

We own a portfolio of multifamily and commercial (office and retail) properties.

Within these notes to the financial statements, we refer to the three months ended June 30, 2021 and June 30, 2020 as the “2021 Quarter” and the “2020 Quarter,” respectively, and the six months ended June 30, 2021 and June 30, 2020 as the “2021 Period” and the “2020 Period,” respectively.

During the 2021 Quarter, we executed a purchase and sale agreement for the sale of twelve office properties (see note 3).

Subsequent to the 2021 Quarter, we executed a purchase and sale agreement for the sale of all of our remaining eight retail properties (see note 3).

Both these office and retail properties met the criteria for classification as held for sale as of June 30, 2021 and are classified as discontinued operations.

The remaining office property, Watergate 600, does not meet the qualitative or quantitative criteria for a reportable segment (see note 9).

The retail properties have not been a reportable segment since 2019.

The dispositions of office and retail properties are part of a strategic shift away from the commercial sector to the multifamily sector which simplifies our portfolio to one reportable segment (multifamily) (the “strategic transformation”).

Federal Income Taxes

4 unchanged sentences

Our TRSs are subject to corporate federal and state income tax on their taxable income at regular statutory rates.

As of both March 31, 2021 and December 31, 2020, our TRSs had a deferred tax asset of $ 1.4 million that was fully reserved.

As of both June 30, 2021 and December 31, 2020, our TRSs had a deferred tax asset of $ 1.4 million that was fully reserved.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS

8 unchanged sentences

These unaudited financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Within these notes to the financial statements, we refer to the three months ended March 31, 2021 and March 31, 2020 as the “2021 Quarter” and the “2020 Quarter,” respectively.

Held for Sale and Discontinued Operations

We classify properties as held for sale when they meet the necessary criteria, which include:

(a) senior management commits to a plan to sell the assets;

(b) the assets are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of such assets;

(c) an active program to locate a buyer and other actions required to complete the plan to sell the assets has been initiated;

(d) the sale of the assets is probable and transfer of the assets is expected to qualify for recognition as a completed sale within one year;

(e) the assets are being actively marketed for sale at a price that is reasonable in relation to its current fair value;

and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Depreciation on these properties is discontinued at the time they are classified as held for sale, but operating revenues, operating expenses and interest expense continue to be recognized until the date of sale.

Revenues and expenses of properties that are either sold or classified as held for sale are presented as discontinued operations for all periods presented in the consolidated statements of operations if the dispositions represent a strategic shift that has (or will have) a major effect on our operations and financial results.

If the dispositions do not represent a strategic shift that has (or will have) a major effect on our operations and financial results, then the revenues and expenses of the properties that are classified as sold or held for sale are presented as continuing operations in the consolidated statements of operations for all periods presented.

Restricted Cash

Restricted cash includes funds held in escrow for tenant security deposits.

Transformation Costs

Transformation costs include costs related to the strategic transformation, including consulting, advisory and termination benefits.

As of June 30, 2021, $ 3.4 million is accrued and included in Accounts payable and other liabilities on the Consolidated Balance Sheets.

Use of Estimates in the Financial Statements

3 unchanged sentences

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

As of March 31, 2021, we have invested $ 28.9 million, including the cost of acquired land, in a multifamily development adjacent to Riverside Apartments.

In addition, in our multifamily and office segments, we continue to capitalize qualifying costs on several other projects with minor development activity necessary to ready each project for its intended use.

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

As of June 30, 2021, we have invested $ 29.1 million, including the cost of acquired land, in a multifamily development adjacent to Riverside Apartments.

In addition, in our multifamily segment, we continue to capitalize qualifying costs on several other projects with minor development activity necessary to ready each project for its intended use.

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

Properties Sold and Held for Sale

2 unchanged sentences

We did not sell or classify any properties as held for sale during the 2021 Quarter.

We sold our interests in the following properties during 2020:

We classified as held for sale or sold the following properties during 2021 and 2020:

Disposition Date Property Name Property Type Rentable Square Feet Contract Sales Price

1 unchanged sentence

(in thousands) (1)

July 26, 2021 Office Portfolio (2)

Office 2,370,000 $ 766,000

Retail Portfolio (4)

Retail 693,000 168,314

Total 2021 3,063,000 $ 934,314

April 21, 2020 John Marshall II Office 223,000 $ 57,000 $ ( 6,855 )

2 unchanged sentences

Total 2020 565,000 $ 163,500 $ ( 14,325 )

We have fully transferred control of the assets associated with these disposed properties and do not have continuing involvement in their operations.

As of March 31, 2021, we assessed certain properties for impairment and did not recognize any impairment charges during the 2021 Quarter.

We applied reasonable estimates and judgments in evaluating each of the properties as of March 31, 2021.

______________________________

(1) Amount determined and disclosed in the quarter of disposition.

(2) Consists of twelve office properties:

1901 Pennsylvania Avenue, 515 King Street, 1220 19th Street, 1600 Wilson Boulevard, Silverline Center, Courthouse Square, 2000 M Street, 1140 Connecticut Avenue, Army Navy Club, 1775 Eye Street, Fairgate at Ballston and Arlington Tower.

(3) Disposition of the Retail Portfolio is expected to occur in the third quarter of 2021.

(4) Consists of eight retail properties:

Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S.

Washington Street, Randolph Shopping Center, Montrose Shopping Center and Spring Valley Village .

We have fully transferred control of the assets associated with assets sold in 2020 and do not have continuing involvement in their operations.

In June 2021, we entered into a purchase and sale agreement with a single buyer to sell the Office Portfolio for a purchase price of $ 766.0 million.

As of June 30, 2021, the properties in the Office Portfolio met the criteria for classification as held for sale.

We closed on the sale of the Office Portfolio on July 26, 2021.

In June 2021, we executed a letter of intent to sell the Retail Portfolio.

As of June 30, 2021, we expected to enter into a purchase and sale agreement and receive a non-refundable deposit from the potential buyer of the Retail Portfolio in July 2021.

As of June 30, 2021, the Retail Portfolio met the criteria for classification as held for sale.

Subsequent to the 2021 Quarter, we executed a purchase and sale agreement for the sale of our remaining eight retail properties for a purchase price of $ 168.3 million and received a non-refundable deposit of $ 6.7 million from the potential buyer.

The closing of the Retail Portfolio is subject to customary closing conditions, however no assurance can be given that the sale will be completed.

The disposition of the Office Portfolio and expected disposition of the Retail Portfolio represent a strategic shift that will have a major effect on our financial results and we have accordingly reported the Office Portfolio and Retail Portfolio as discontinued operations.

The remaining office property, Watergate 600, does not meet the criteria for office to be a reportable segment (see note 9).

As of June 30, 2021, we anticipate the disposition of certain properties prior to the end of their useful lives.

We assessed these properties for impairment as of June 30, 2021 and did no t recognize any impairment charges during the 2021 Quarter.

We applied reasonable estimates and judgments in evaluating each of the properties as of June 30, 2021.

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

Discontinued Operations

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

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Real estate rental revenue $ 30,561 $ 29,113 $ 59,587 $ 60,163

Real estate expenses ( 10,568 ) ( 10,297 ) ( 20,808 ) ( 21,479 )

Depreciation and amortization ( 10,248 ) ( 12,227 ) ( 22,904 ) ( 24,700 )

Income from discontinued operations $ 9,745 $ 6,589 $ 15,875 $ 13,984

Basic net income per share $ 0.12 $ 0.08 $ 0.19 $ 0.17

Diluted net income per share $ 0.12 $ 0.08 $ 0.19 $ 0.17

Capital expenditures $ 2,109 $ 5,346 $ 2,483 $ 7,586

As of June 30, 2021 and December 31, 2020, assets and liabilities related to the Office Portfolio and Retail Portfolio were as follows (in thousands):

June 30, 2021 December 31, 2020

Land $ 249,869 $ 249,869

Income producing property 961,359 958,704

1,211,228 1,208,573

Accumulated depreciation and amortization ( 433,229 ) ( 414,008 )

Income producing property, net 777,999 794,565

Development in progress and land held for development 1,122 1,122

Investment in real estate, net $ 779,121 $ 795,687

Cash and cash equivalents 3 3

Restricted cash 10 10

Rents and other receivables 48,563 48,532

Prepaid expenses and other assets 38,235 41,452

Total assets $ 865,932 $ 885,684

Accounts payable and other liabilities $ 12,738 $ 14,706

Advance rents 4,977 4,754

Tenant security deposits 6,033 5,769

Liabilities related to properties sold or held for sale $ 23,748 $ 25,229

UNSECURED LINE OF CREDIT PAYABLE

6 unchanged sentences

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

As of March 31, 2021, the interest rate on the Revolving Credit Facility is one month LIBOR plus 1.00 %, the one month LIBOR is 0.11 % and the facility fee is 0.20 %.

As of June 30, 2021, the interest rate on the Revolving Credit Facility is one month LIBOR plus 1.00 %, the one month LIBOR is 0.10 % and the facility fee is 0.20 %.

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

Interest only payments are due and payable generally on a monthly basis.

The 2018 Term Loan increases and replaces the $ 150.0 million unsecured term loan, initially entered into on July 22, 2016 (“2016 Term Loan”), that was scheduled to mature in July 2023.

The 2018 Term Loan increased and replaced the $ 150.0 million unsecured term loan, initially entered into on July 22, 2016 (“2016 Term Loan”), that was scheduled to mature in July 2023.

The 2018 Term Loan is scheduled to mature in July 2023 and bears interest at a rate of either one month LIBOR plus a margin ranging from 0.85 % to 1.75 % or the base rate plus a margin ranging from 0.0 % to 0.75 % (in each case depending upon WashREIT’s credit rating).

4 unchanged sentences

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

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at March 31, 2021 is as follows (in thousands):

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at June 30, 2021 is as follows (in thousands):

Committed capacity $ 700,000

1 unchanged sentence

Unused and available $ 657,000

We executed borrowings and repayments on the Revolving Credit Facility during the 2021 Quarter as follows (in thousands):

We executed borrowings and repayments on the Revolving Credit Facility during the 2021 Period as follows (in thousands):

Balance at December 31, 2020 $ 42,000

1 unchanged sentence

Repayments ( 71,000 )

Balance at March 31, 2021 $ 33,000

Balance at June 30, 2021 $ 43,000

DERIVATIVE INSTRUMENTS

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

On July 22, 2016, we entered into two forward interest rate swap arrangements with notional amounts of $ 100.0 million and $ 50.0 million, respectively, to swap the floating interest rate under the $ 150.0 million 2016 Term Loan to an all-in fixed interest rate of 2.86 % starting on March 31, 2017 and extending until the scheduled maturity of the 2016 Term Loan on July 21, 2023.

On March 29, 2018, we entered into the $ 250.0 million 2018 Term Loan maturing on July 21, 2023, which increased and replaced the 2016 Term Loan.

2 unchanged sentences

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

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

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

In September 2020, in conjunction with the entry into the note purchase agreement to issue $ 350.0 million aggregate principal amount of 3.44 % senior unsecured 10 -year notes payable (the “Green Bonds”), we terminated the 2020 Forward Swaps.

At the time of termination, the 2020 Forward Swaps had a liability fair value of $ 20.4 million, which will be amortized as interest expense over the 10 -year term of the Green Bonds.

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

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

The interest rate swaps are recorded at fair value in accordance with Generally Accepted Accounting Principles (“GAAP”), based on discounted cash flow methodologies and observable inputs.

We record the effective portion of changes in fair value of the cash flow hedges in other comprehensive income.

The resulting unrealized loss on the effective portions of the cash flow hedges was the only activity in other comprehensive income (loss) during the periods presented in our consolidated financial statements.

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

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

The fair values of the interest rate swaps as of March 31, 2021 and December 31, 2020, are as follows (in thousands):

If a cash flow hedge is no longer expected to be effective, hedge accounting is discontinued.

Hedge ineffectiveness of our cash flow hedges is recorded in earnings.

We currently expect to use a portion of the proceeds from the sale of the Office and potential sale of the Retail Portfolios (see note 3) to prepay a $ 150.0 million portion of the 2018 Term Loan during the third quarter of 2021.

We expect to hold the remaining $ 100.0 million portion of the 2018 Term Loan until maturity.

Due to this intention to prepay a $ 150.0 million portion of the 2018 Term Loan, we have determined that the hedged transactions for the five interest rate swap arrangements with an

aggregate notional value of $ 150.0 million are probable not to occur and that these interest swap arrangements are no longer effective cash flow hedges as of June 30, 2021.

As a result, we recognized a loss of $ 5.8 million for the 2021 Quarter, which was recorded to Loss on interest rate derivatives on our condensed consolidated statements of operations.

The interest rate swap arrangement with a notional value of $ 100.0 million related to the remaining portion of the 2018 Term Loan that we intend to hold to maturity is an effective cash flow hedge as of June 30, 2021.

The fair values of the interest rate swaps as of June 30, 2021 and December 31, 2020, are as follows (in thousands):

Derivative Liabilities

Derivative Instrument Aggregate Notional Amount Effective Date Maturity Date March 31, 2021 December 31, 2020

Derivative Instrument Aggregate Notional Amount Effective Date Maturity Date June 30, 2021 December 31, 2020

Interest rate swaps $ 150,000 March 31, 2017 July 21, 2023 $ ( 2,869 ) $ ( 4,009 )

2 unchanged sentences

We record interest rate swaps on our consolidated balance sheets within Prepaid expenses and other assets when in a net asset position and within Accounts payable and other liabilities when in a net liability position.

The interest rate swaps have been effective since inception.

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

Three Months Ended March 31,

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

2021 2020 2021 2020

Unrealized gain (loss) on interest rate hedges $ 1,004 $ ( 1,789 ) $ 2,584 $ ( 36,356 )

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

The gains or losses reclassified from Accumulated other comprehensive loss into interest expense for the three months ended March 31, 2021 and 2020, were as follows (in thousands):

Three Months Ended March 31,

Amounts reported in Accumulated other comprehensive loss related to effective cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate debt.

The gains or losses reclassified from Accumulated other comprehensive loss into interest expense for the three and six months ended June 30, 2021 and 2020, were as follows (in thousands):

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

2021 2020 2021 2020

Loss reclassified from Accumulated other comprehensive loss into interest expense $ 509 $ — $ 1,019 $ —

1 unchanged sentence

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

As of March 31, 2021, we did no t have any derivatives in an asset position and the fair value of the derivative liabilities, including accrued interest, was $ 8.7 million.

As of March 31, 2021, we have not posted any collateral related to these agreements.

As of June 30, 2021, we did no t have any derivatives in an asset position and the fair value of the derivative liabilities, including accrued interest, was $ 7.7 million.

As of June 30, 2021, we have not posted any collateral related to these agreements.

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

7 unchanged sentences

Significant unobservable inputs

The only assets or liabilities we had at March 31, 2021 and December 31, 2020 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan (“SERP”), which primarily consist of investments in mutual funds, and the interest rate swaps (see note 5).

The only assets or liabilities we had at June 30, 2021 and December 31, 2020 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan (“SERP”), which primarily consist of investments in mutual funds, and the interest rate derivatives (see note 5).

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

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

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

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

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

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

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

The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

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In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as the posting of collateral, thresholds, mutual puts and guarantees.

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

The fair values of these assets and liabilities at March 31, 2021 and December 31, 2020 were as follows (in thousands):

March 31, 2021 December 31, 2020

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

The fair values of these assets and liabilities at June 30, 2021 and December 31, 2020 were as follows (in thousands):

June 30, 2021 December 31, 2020

Value Level 1 Level 2 Level 3 Fair

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SERP $ 2,386 $ — $ 2,386 $ — $ 2,433 $ — $ 2,433 $ —

Interest rate swaps $ ( 8,674 ) $ — $ ( 8,674 ) $ — $ ( 10,255 ) $ — $ ( 10,255 ) $ —

Interest rate derivatives $ ( 7,671 ) $ — $ ( 7,671 ) $ — $ ( 10,255 ) $ — $ ( 10,255 ) $ —

Financial Assets and Liabilities Not Measured at Fair Value

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

In addition, fair value estimates are made at a point in time and thus, estimates of fair value subsequent to March 31, 2021 may differ significantly from the amounts presented.

In addition, fair value estimates are made at a point in time and thus, estimates of fair value subsequent to June 30, 2021 may differ significantly from the amounts presented.

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

As of March 31, 2021 and December 31, 2020, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):

March 31, 2021 December 31, 2020

As of June 30, 2021 and December 31, 2020, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):

June 30, 2021 December 31, 2020

Carrying Value Fair Value Carrying Value Fair Value

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Total Compensation Expense

Total compensation expense recognized in the consolidated financial statements for all outstanding share based awards was $ 1.7 million and $ 1.8 million for the 2021 Quarter and 2020 Quarter, respectively.

Total compensation expense recognized in the consolidated financial statements for all outstanding share based awards was $ 2.2 million and $ 2.0 million for the 2021 Quarter and 2020 Quarter, respectively, and $ 3.8 million and $ 3.8 million for the 2021 Period and 2020 Period, respectively.

Restricted Share Awards

The total fair values of restricted share awards vested was $ 1.0 million and $ 0.4 million for the 2021 Quarter and 2020 Quarter, respectively.

The total unvested restricted share awards at March 31, 2021 was 463,100 shares, which had a weighted average grant date fair value of $ 28.36 per share.

As of March 31, 2021, the total compensation cost related to unvested restricted share awards was $ 9.2 million, which we expect to recognize over a weighted average period of 23 months.

The total fair values of restricted share awards vested was $ 2.0 million and $ 0.8 million for the 2021 Period and 2020 Period, respectively.

The total unvested restricted share awards at June 30, 2021 was 456,326 shares, which had a weighted average grant date fair value of $ 28.38 per share.

As of June 30, 2021, the total compensation cost related to unvested restricted share awards was $ 7.4 million, which we expect to recognize over a weighted average period of 20 months.

EARNINGS PER COMMON SHARE

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

The computations of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020 were as follows (in thousands, except per share data):

Three Months Ended March 31,

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

The computations of basic and diluted earnings per share for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands, except per share data):

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

2021 2020 2021 2020

Loss from continuing operations $ ( 16,737 ) $ ( 11,995 ) $ ( 24,014 ) $ ( 17,671 )

Allocation of distributed earnings to unvested restricted share awards ( 137 ) ( 151 ) ( 276 ) ( 302 )

Adjusted net (loss) income $ ( 1,286 ) $ 1,568

Adjusted net loss from continuing operations ( 16,874 ) ( 12,146 ) ( 24,290 ) ( 17,973 )

Income from discontinued operations 9,745 6,589 15,875 13,984

Adjusted net loss $ ( 7,129 ) $ ( 5,557 ) $ ( 8,415 ) $ ( 3,989 )

Weighted average shares outstanding – basic 84,461 82,153 84,437 82,120

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Weighted average shares outstanding – diluted 84,461 82,153 84,437 82,120

Basic net (loss) income per common share $ ( 0.02 ) $ 0.02

Diluted net (loss) income per common share $ ( 0.02 ) $ 0.02

Earnings per common share, basic:

Continuing operations $ ( 0.20 ) $ ( 0.15 ) $ ( 0.29 ) $ ( 0.22 )

Discontinued operations 0.12 0.08 0.19 0.17

Basic net loss per common share $ ( 0.08 ) $ ( 0.07 ) $ ( 0.10 ) $ ( 0.05 )

Earnings per common share, diluted:

Continuing operations $ ( 0.20 ) $ ( 0.15 ) $ ( 0.29 ) $ ( 0.22 )

Discontinued operations 0.12 0.08 0.19 0.17

Diluted net loss per common share $ ( 0.08 ) $ ( 0.07 ) $ ( 0.10 ) $ ( 0.05 )

Dividends declared per common share $ 0.30 $ 0.30 $ 0.60 $ 0.60

On July 29, 2021, we announced that the Board of Trustees declared a quarterly dividend of $ 0.17 per share for the three months ended September 30, 2021.

SEGMENT INFORMATION

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

We previously had two reportable segments:

office and multifamily.

Office properties provide office space for various types of businesses and professions.

Multifamily properties provide rental housing for individuals and families throughout the Washington metro region.

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

Multifamily properties provide rental housing for individuals and families throughout the Washington, DC metro region.

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

During the 2021 Quarter, we executed a purchase and sale agreement for the sale of twelve office properties (see note 3).

Subsequent to the 2021 Quarter, we executed a purchase and sale agreement for the sale of eight retail properties (see note 3).

Both the office and retail properties met the criteria for classification as held for sale as of June 30, 2021 and are classified as discontinued operations.

We closed on the sale of the Office Portfolio on July 26, 2021 and expect to close on the Retail Portfolio in the third quarter of 2021.

We have one remaining office property, Watergate 600, which does not meet the criteria for a reportable segment, has been classified within “Corporate and other” on our segment disclosure tables.

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

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

The following tables present revenues, net operating income, capital expenditures and total assets for the three months ended March 31, 2021 and 2020 from these segments, and reconcile net operating income of our reportable segments to net (loss) income as reported (in thousands):

Three Months Ended March 31, 2021

Multifamily Office Corporate and Other Consolidated

The following tables present revenues, net operating income, capital expenditures and total assets for the three and six months ended June 30, 2021 and 2020 from our Multifamily segment as well as Corporate and Other, and reconcile net operating income of our reportable segments to net loss as reported (in thousands):

Three Months Ended June 30, 2021

Multifamily Corporate and Other (1), (2)

Real estate rental revenue $ 36,862 $ 4,435 $ 41,297

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General and administrative expenses ( 6,325 )

Transformation costs ( 3,780 )

Interest expense ( 10,158 )

Other income 1,522

Loss on interest rate derivatives ( 5,760 )

Discontinued operations:

Income from operations of properties sold or held for sale 9,745

Net loss $ ( 6,992 )

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Total assets $ 1,315,640 $ 1,052,765 $ 2,368,405

Three Months Ended March 31, 2020

Multifamily Office Corporate and Other Consolidated

Three Months Ended June 30, 2020

Multifamily Corporate and Other (1), (2)

Real estate rental revenue $ 36,066 $ 7,691 $ 43,757

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Interest expense ( 8,751 )

Gain on extinguishment of debt 468

Net income $ 1,719

Loss on sale of real estate ( 7,539 )

Loss on extinguishment of debt ( 206 )

Discontinued operations:

Income from operations of properties sold or held for sale 6,589

Net loss $ ( 5,406 )

Capital expenditures $ 5,488 $ 9,118 $ 14,606

Total assets $ 1,337,731 $ 1,204,991 $ 2,542,722

Six Months Ended June 30, 2021

Multifamily Corporate and Other (1), (2)

Real estate rental revenue $ 73,029 $ 8,875 $ 81,904

Real estate expenses 30,004 2,680 32,684

Net operating income $ 43,025 $ 6,195 $ 49,220

Depreciation and amortization ( 34,290 )

General and administrative ( 11,929 )

Transformation costs ( 3,780 )

Interest expense ( 20,281 )

Other income 2,806

Loss on interest rate derivatives ( 5,760 )

Discontinued operations:

Income from operations of properties sold or held for sale 15,875

Net loss $ ( 8,139 )

Capital expenditures $ 7,799 $ 2,602 $ 10,401

Six Months Ended June 30, 2020

Multifamily Corporate and Other (1), (2)

Real estate rental revenue $ 72,651 $ 16,849 $ 89,500

Real estate expenses 28,095 5,951 34,046

Net operating income $ 44,556 $ 10,898 $ 55,454

Depreciation and amortization ( 34,619 )

General and administrative ( 11,633 )

Interest expense ( 19,596 )

Loss on sale of real estate ( 7,539 )

Gain on extinguishment of debt 262

Discontinued operations:

Income from operations of properties sold or held for sale 13,984

Net loss $ ( 3,687 )

Capital expenditures $ 8,957 $ 16,619 $ 25,576

______________________________

(1) Corporate and Other represents Watergate 600, an office property that does not meet the qualitative or quantitative criteria for a reportable segment.

(2) Total assets and capital expenditures include office and retail properties classified as discontinued operations.

SHAREHOLDERS' EQUITY

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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,

We did not issue common shares under the Equity Distribution Agreements during the 2021 Quarter or 2020 Quarter.

Our issuances and net proceeds on the Equity Distribution Agreements and the Original Equity Distribution Agreements, respectively, for the 2021 Period and 2020 Period are as follows ($ in thousands, except per share data):

Six Months Ended June 30,

Issuance of common shares 24 47

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

Our issuances and net proceeds on the dividend reinvestment program for the three months ended March 31, 2021 and 2020 are as follows:

Three Months Ended March 31,

Our issuances and net proceeds on the dividend reinvestment program for the three and six months ended June 30, 2021 and 2020 are as follows ($ in thousands, except per share data):

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

2021 2020 2021 2020

Issuance of common shares 22 6 45 41

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

What changed 10-Q

Item 1. Financial Statements