What changed in this filing

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Item 1. Financial Statements

2021-10-29 compared with 2021-08-03 · 211 added, 161 removed, 407 unchanged (48% of the section changed)

5 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE DATA )

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Land $ 306,507 $ 301,709

10 unchanged sentences

Prepaid expenses and other assets 33,109 29,587

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

Other assets related to properties sold or held for sale — 89,997

Total assets $ 1,852,810 $ 2,409,818

5 unchanged sentences

Tenant security deposits 4,480 4,221

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

Other liabilities related to properties sold or held for sale — 25,229

Total liabilities 556,354 1,088,709

6 unchanged sentences

150,000 and 100,000 shares authorized;

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

84,628 and 84,409 shares issued and outstanding, as of September 30, 2021 and December 31, 2020, respectively

Additional paid in capital 1,656,821 1,649,366

9 unchanged sentences

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

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

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

2021 2020 2021 2020

Real estate rental revenue $ 42,499 $ 43,716 $ 124,403 $ 133,216

Real estate expenses 16,230 16,588 32,684 34,046

Depreciation and amortization 17,303 17,372 34,290 34,619

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

Property operating and maintenance 9,901 10,372 28,655 29,598

Real estate taxes and insurance 5,544 5,741 16,525 17,420

Property management 1,499 1,541 4,448 4,682

General and administrative 7,909 6,330 19,838 17,963

Transformation costs 1,016 — 4,796 —

Depreciation and amortization 18,252 18,064 52,542 52,683

44,121 42,048 126,804 122,346

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

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

Real estate operating (loss) income ( 1,622 ) 1,668 ( 2,401 ) 3,331

Other income (expense)

Interest expense ( 8,106 ) ( 8,711 ) ( 28,387 ) ( 28,307 )

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

Loss on interest rate derivatives ( 106 ) — ( 5,866 ) —

(Loss) gain on extinguishment of debt ( 12,727 ) — ( 12,727 ) 262

Other income 231 — 3,037 —

3 unchanged sentences

Income from operations of properties sold or held for sale 7,208 6,087 23,083 20,071

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

Basic net (loss) income per share:

Gain on sale of real estate, net 46,441 — 46,441 —

Income from discontinued operations 53,649 6,087 69,524 20,071

Net income (loss) $ 31,319 $ ( 956 ) $ 23,180 $ ( 4,643 )

Basic net (loss) income per common share:

Continuing operations $ ( 0.26 ) $ ( 0.09 ) $ ( 0.55 ) $ ( 0.31 )

Discontinued operations 0.63 0.07 0.82 0.24

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

Diluted net (loss) income per share:

Basic net income (loss) per common share (1)

$ 0.37 $ ( 0.01 ) $ 0.27 $ ( 0.06 )

Diluted net (loss) income per common share:

Continuing operations $ ( 0.26 ) $ ( 0.09 ) $ ( 0.55 ) $ ( 0.31 )

Discontinued operations 0.63 0.07 0.82 0.24

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

Diluted net income (loss) per common share (1)

$ 0.37 $ ( 0.01 ) $ 0.27 $ ( 0.06 )

Weighted average shares outstanding – basic 84,496 82,186 84,457 82,142

Weighted average shares outstanding – diluted 84,496 82,186 84,457 82,142

______________

(1) Earnings per share may not sum due to rounding

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(IN THOUSANDS)

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

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

2021 2020 2021 2020

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

Net income (loss) $ 31,319 $ ( 956 ) $ 23,180 $ ( 4,643 )

Other comprehensive income (loss):

9 unchanged sentences

Balance, December 31, 2020 84,409 $ 844 $ 1,649,366 $ ( 298,860 ) $ ( 30,563 ) $ 1,320,787 $ 322 $ 1,321,109

Net loss — — — ( 8,139 ) — ( 8,139 ) — ( 8,139 )

Net income — — — 23,180 — 23,180 — 23,180

Unrealized gain on interest rate hedges — — — — 2,805 2,805 — 2,805

7 unchanged sentences

Share grants, net of forfeitures and tax withholdings 130 2 5,520 — — 5,522 — 5,522

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

Balance, September 30, 2021 84,628 $ 846 $ 1,656,821 $ ( 341,052 ) $ ( 20,468 ) $ 1,296,147 $ 309 $ 1,296,456

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

9 unchanged sentences

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

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

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

See accompanying notes to the consolidated financial statements.

4 unchanged sentences

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

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

Net income — — — 31,319 — 31,319 — 31,319

Unrealized gain on interest rate hedges — — — — 221 221 — 221

Amortization of swap settlements — — — — 511 511 — 511

4 unchanged sentences

Share grants, net of share grant amortization and forfeitures 18 — 1,953 — — 1,953 — 1,953

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

Balance, September 30, 2021 84,628 $ 846 $ 1,656,821 $ ( 341,052 ) $ ( 20,468 ) $ 1,296,147 $ 309 $ 1,296,456

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

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

Net loss — — — ( 956 ) — ( 956 ) — ( 956 )

5 unchanged sentences

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

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

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

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(IN THOUSANDS)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

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

Net income (loss) $ 23,180 $ ( 4,643 )

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

1 unchanged sentence

Credit losses on lease related receivables 1,631 3,271

Loss on sale of real estate — 7,539

(Gain) loss on sale of real estate, net ( 46,441 ) 7,539

Share-based compensation expense 6,478 5,901

1 unchanged sentence

Loss on interest rate derivatives 5,866 —

Gain on extinguishment of debt — ( 262 )

Loss (gain) on extinguishment of debt 12,727 ( 262 )

Changes in operating other assets ( 4,720 ) ( 11,566 )

2 unchanged sentences

Cash flows from investing activities

Real estate acquisitions, net ( 47,757 ) —

Net cash received for sale of real estate 897,783 56,353

2 unchanged sentences

Non-real estate capital improvements ( 37 ) ( 196 )

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

Net cash provided by (used in) investing activities 823,241 ( 5,787 )

Cash flows from financing activities

Line of credit borrowings, net 1,000 125,000

Line of credit (repayments) borrowings, net ( 42,000 ) 130,000

Dividends paid ( 76,292 ) ( 74,285 )

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

Repayments of unsecured notes payable — ( 250,000 )

Repayments of unsecured notes payable, including penalties for early extinguishment ( 311,894 ) —

Repayments of unsecured term loan debt ( 150,000 ) ( 250,000 )

Proceeds from term loan — 150,000

Settlement of interest rate derivatives ( 5,866 ) —

Payment of financing costs ( 4,828 ) ( 567 )

10 unchanged sentences

(IN THOUSANDS)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental disclosure of cash flow information:

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

September 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, 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”).

Our business primarily consists of the ownership of apartment communities in the greater Washington, DC metro and Southeastern regions.

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

During the 2021 Period, we executed the sale of twelve office properties and the sale of eight retail properties in two separate transactions (see note 3).

The sold office and retail properties are classified as discontinued operations.

We have one remaining office property, Watergate 600, that does not meet the qualitative or quantitative criteria for a reportable segment (see note 10).

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

Federal Income Taxes

2 unchanged sentences

When selling a property, we generally have the option of (a) reinvesting the sales proceeds of property sold in a way that allows us to defer recognition of some or all taxable gain realized on the sale, (b) distributing gains to the shareholders with no tax to us or (c) treating net long-term capital gains as having been distributed to our shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to our shareholders.

The net taxable gains on the sales of our office and retail properties were distributed to shareholders through quarterly dividends in 2021.

Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRSs”).

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

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.

As of both September 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

19 unchanged sentences

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.

Lessee Accounting

For leases where we are the lessee, primarily our corporate office operating lease, we recognize a right-of-use asset and a lease liability in accordance with Accounting Standards Codification (“ASC”) Topic 842.

The right-of-use asset and associated liability is equal to the present value of the minimum lease payments, applying our incremental borrowing rate.

Our borrowing rate is computed based on observable borrowing rates taking into consideration our credit quality and adjusting to a secured borrowing rate for similar assets and term.

As of September 30, 2021, our balance sheet included $ 4.6 million in right-of-use assets and liabilities.

Lease expense for the operating lease is recognized on a straight-line basis over the expected lease term and is included in “General and administrative expense.”

Restricted Cash

2 unchanged sentences

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

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

We acquired the following property during the 2021 Period (the “2021 acquisition”):

Acquisition Date Property Type # of homes (unaudited) Average Occupancy

(unaudited) Contract

Purchase Price

(in thousands)

August 10, 2021 The Oxford Residential 240 93.5 % $ 48,000

______________________________

The results of operations from the acquired operating property are included in the consolidated statements of operations as of its acquisition date and are as follows (in thousands):

Three and Nine Months Ended September 30, 2021

Real estate rental revenue $ 488

Net loss ( 349 )

We accounted for the 2021 acquisition as an asset acquisition.

We measured the value of the acquired physical assets (land and building) and in-place leases (absorption costs) by allocating the total cost of the acquisition on a relative fair value basis .

The total cost of the 2021 acquisition was as follows (in thousands):

Contract purchase price $ 48,000

Capitalized acquisition costs 52

Total $ 48,052

We have recorded the total cost of the 2021 acquisition as follows (in thousands):

Building 42,079

Absorption costs 1,175

Total $ 48,052

The weighted remaining average life for the absorption costs is 4 months.

Development/Redevelopment

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

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.

As of September 30, 2021, we have invested $ 29.4 million, including the cost of acquired land, in a residential development adjacent to Riverside Apartments.

In addition, in our residential 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.

3 unchanged sentences

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.

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

We sold the following properties during 2021 and 2020:

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

3 unchanged sentences

Office 2,370,000 $ 766,000 $ ( 11,220 )

Retail Portfolio (4)

September 22, 2021 Retail Portfolio (2)

Retail 693,000 168,314 57,661

5 unchanged sentences

______________________________

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

(1) 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.

(2) Consists of eight retail properties:

1 unchanged sentence

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.

We have fully transferred control of the assets sold in 2020 and 2021 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.

Upon execution of the purchase and sale agreement, 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, recognizing a loss on sale of real estate of $ 11.2 million.

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.

During 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 closed on the sale on September 22, 2021, recognizing a gain on real estate of $ 57.7 million.

The dispositions of the Office Portfolio and 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.

As of September 30, 2021, we assessed our properties for impairment 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 September 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.

1 unchanged sentence

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,

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

Real estate rental revenue $ 10,932 $ 29,511 $ 70,519 $ 89,673

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

Property operating and maintenance ( 1,870 ) ( 5,232 ) ( 11,201 ) ( 15,433 )

Real estate taxes and insurance ( 1,476 ) ( 4,839 ) ( 11,136 ) ( 14,233 )

Property management ( 378 ) ( 947 ) ( 2,195 ) ( 2,830 )

Depreciation and amortization — ( 12,406 ) ( 22,904 ) ( 37,106 )

Gain on sale of real estate, net 46,441 — 46,441 —

Income from discontinued operations $ 53,649 $ 6,087 $ 69,524 $ 20,071

2 unchanged sentences

Capital expenditures $ 833 $ 4,239 $ 3,316 $ 11,825

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

All assets and liabilities related to the Office Portfolio and Retail Portfolio were sold as of September 30, 2021.

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

December 31, 2020

Land $ 249,869

Income producing property 958,704

1,211,228 1,208,573

Accumulated depreciation and amortization ( 414,008 )

12 unchanged sentences

UNSECURED LINE OF CREDIT PAYABLE

During the first quarter of 2018, we entered into an amended and restated credit agreement (“Credit Agreement”) which provides for a $ 700.0 million unsecured revolving credit facility (“Revolving Credit Facility”), the continuation of an existing $ 150.0 million unsecured term loan (“2015 Term Loan”) and an additional $ 250.0 million unsecured term loan (“2018 Term Loan”).

In the fourth quarter of 2020, we repaid all $ 150.0 million of borrowings on the 2015 Term Loan.

The Revolving Credit Facility has a four-year term ending in March 2022, with two six-month extension options.

During the 2021 Quarter, we entered into an amended and restated credit agreement (“Credit Agreement”) which provides for a $ 700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) and the continuation of an existing $ 250.0 million unsecured term loan (“2018 Term Loan”).

The Revolving Credit Facility has a four-year term ending in August 2025, with two six-month extension options.

The Credit Agreement has an accordion feature that allows us to increase the aggregate facility to $ 1.5 billion, subject to the lenders’ agreement to provide additional revolving loan commitments or term loans.

As a result of the transaction, we recognized a loss on extinguishment of debt of $ 0.2 million related to the write-off of unamortized loan origination costs.

We incurred $ 4.8 million of additional loan origination costs which will be amortized as interest expense over the term of the Revolving Credit Facility.

The Revolving Credit Facility bears interest at a rate of either one month LIBOR plus a margin ranging from 0.70 % to 1.40 % or the base rate plus a margin ranging from 0.0 % to 0.40 % (in each case depending upon WashREIT’s credit rating).

The base rate is the highest of the administrative agent’s prime rate, the federal funds rate plus 0.50 % and the LIBOR market index rate

The base rate is the highest of the administrative agent’s prime rate, the federal funds rate plus 0.50 % and the LIBOR market index rate plus 1.0 %.

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

As of 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.

As of September 30, 2021, the interest rate on the Revolving Credit Facility is one month LIBOR plus 0.85 %, the one month LIBOR is 0.08 % and the facility fee is 0.20 %.

All outstanding advances for the Revolving Credit Facility are due and payable upon maturity in August 2025, 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.

2 unchanged sentences

We used the $ 100.0 million of additional proceeds from the 2018 Term Loan primarily to repay outstanding borrowings on the Revolving Credit Facility.

We had previously used interest rate derivatives to effectively fix the interest rate of the 2016 Term Loan.

These interest rate derivatives now effectively fix the interest rate on a $ 150.0 million portion of the 2018 Term Loan at 2.31 %.

In March 2018, we entered into interest rate derivatives that commenced on June 29, 2018 to effectively fix the interest rate on the remaining $ 100.0 million of the 2018 Term Loan at 3.71 %.

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

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

On September 27, 2021, we prepaid a $ 150.0 million portion of the 2018 Term Loan using proceeds from the sale of the Office Portfolio and Retail Portfolio (see note 3).

As a result of the prepayment, we recognized a loss on extinguishment of debt of $ 0.3 million related to the write-off of unamortized loan origination costs.

Simultaneous with the prepayment, we terminated five interest rate swap arrangements (see note 6).

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

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

Committed capacity $ 700,000

5 unchanged sentences

Repayments ( 150,000 )

Balance at June 30, 2021 $ 43,000

Balance at September 30, 2021 $ —

NOTES PAYABLE

In August 2021, we redeemed $ 300.0 million of our existing unsecured notes that were scheduled to mature in 2022.

As a result of the prepayment, we recognized a loss on extinguishment of debt of $ 12.3 million comprised of a prepayment penalty of $ 11.9 million and the write-off of unamortized loan origination costs of $ 0.4 million.

DERIVATIVE INSTRUMENTS

1 unchanged sentence

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

The interest rate swap arrangements that had effectively fixed the 2016 Term Loan then effectively fix the interest rate on a $ 150.0 million portion of the 2018 Term Loan at 2.31 %.

The interest rate swap arrangements that had effectively fixed the 2016 Term Loan then effectively fixed the interest rate on a $ 150.0 million portion of the 2018 Term Loan at 2.31 %.

On March 29, 2018, we entered into four interest rate swap arrangements with a total notional amount of $ 100.0 million to effectively fix the interest rate on the remaining $ 100.0 million of the 2018 Term Loan at 3.71 %, that commenced on June 29, 2018 and extending until the maturity of the 2018 Term Loan on July 21, 2023.

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

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.

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

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

In the second quarter of 2021 we determined that the hedged transactions for five interest rate swap arrangements with an aggregate notional value of $ 150.0 million were probable not to occur and that these interest swap arrangements were no longer effective cash flow hedges as of June 30, 2021 due to our intention to prepay a $ 150.0 million portion of the 2018 Term Loan.

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

On September 27, 2021, we prepaid the $ 150.0 million portion of the 2018 Term Loan (see note 4).

In connection with the prepayment, we terminated the five interest rate swap arrangements with an aggregate notional value of $ 150.0 million.

Our remaining interest rate swap arrangement with a notional amount of $ 100.0 million is recorded at fair value in accordance with GAAP, based on discounted cash flow methodologies and observable inputs.

We record the effective portion of changes in fair value of the cash flow hedge in Other comprehensive income (loss).

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

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):

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

Derivative Liabilities

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

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

Interest rate swaps $ 100,000 March 31, 2017 July 21, 2023 $ ( 1,689 ) $ ( 2,671 )

Interest rate swaps 50,000 March 31, 2017 July 21, 2023 — ( 1,338 )

Interest rate swaps 100,000 June 29, 2018 July 21, 2023 — ( 6,246 )

1 unchanged sentence

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

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

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

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

2021 2020 2021 2020

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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,

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

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

2021 2020 2021 2020

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

As of June 30, 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.

As of September 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 $ 1.7 million.

As of September 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.

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Significant unobservable inputs

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).

The only assets or liabilities we had at September 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 6).

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.

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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

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

September 30, 2021 December 31, 2020

Value Level 1 Level 2 Level 3 Fair

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

In addition, fair value estimates are made at a point in time and thus, estimates of fair value subsequent to June 30, 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 September 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 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

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

September 30, 2021 December 31, 2020

Carrying Value Fair Value Carrying Value Fair Value

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The total fair values of restricted share awards vested was $ 1.6 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.

The total unvested restricted share awards at September 30, 2021 was 430,993 shares, which had a weighted average grant date fair value of $ 28.46 per share.

As of September 30, 2021, the total compensation cost related to unvested restricted share awards was $ 5.7 million, which we expect to recognize over a weighted average period of 18 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 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,

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

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

2021 2020 2021 2020

Loss from continuing operations $ ( 22,330 ) $ ( 7,043 ) $ ( 46,344 ) $ ( 24,714 )

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

Allocation of earnings to unvested restricted share awards 121 ( 151 ) ( 349 ) ( 453 )

Adjusted net loss from continuing operations ( 22,209 ) ( 7,194 ) ( 46,693 ) ( 25,167 )

Income from discontinued operations 53,649 6,087 69,524 20,071

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

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

Effect of dilutive securities:

Employee restricted share awards — — — —

Operating partnership units — — — —

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

Allocation of earnings to unvested restricted share awards to discontinued operations ( 283 ) — — —

Adjusted income from discontinuing operations 53,366 6,087 69,524 20,071

Adjusted net income (loss) $ 31,157 $ ( 1,107 ) $ 22,831 $ ( 5,096 )

Weighted average shares outstanding – basic and diluted 84,496 82,186 84,457 82,142

Earnings per common share, basic:

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Discontinued operations 0.63 0.07 0.82 0.24

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

Basic net income (loss) per common share (1)

$ 0.37 $ ( 0.01 ) $ 0.27 $ ( 0.06 )

Earnings per common share, diluted:

1 unchanged sentence

Discontinued operations 0.63 0.07 0.82 0.24

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

Diluted net income (loss) per common share (1)

$ 0.37 $ ( 0.01 ) $ 0.27 $ ( 0.06 )

Dividends declared per common share $ 0.17 $ 0.30 $ 0.77 $ 0.90

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.

______________

(1) Earnings per share may not sum due to rounding

SEGMENT INFORMATION

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, 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.

Our reportable operating segments are consolidations of similar properties.

We operate in a single reportable segment which includes the ownership, development, redevelopment and acquisition of apartment communities.

Each of our operating properties, including our remaining office property, do not meet the criteria to be considered separate operating segments on a stand-alone basis.

We do not distinguish or group our consolidated operations based on size, type or geography.

All but one community is within the Washington, DC metro region and no community comprises more than 10% of consolidated revenues.

Further, our apartment communities have similar long-term economic characteristics and provide similar products and services to our residents.

As a result, our operating properties are aggregated into a single reportable segment:

Prior to the second quarter of 2021, we had two reportable segments:

office and residential.

During the 2021 Quarter, we closed on the sales of the Office Portfolio and the Retail Portfolio (see note 3), and following such sales, we have one remaining office property, Watergate 600, which does not meet the criteria for a reportable segment, and has been classified within “Other” on our segment disclosure tables.

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

Our reportable operating segment consolidates similar properties.

GAAP requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing each segment’s performance.

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

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)

The following tables present revenues, net operating income, capital expenditures and total assets for the three and nine months ended September 30, 2021 and 2020 from our Residential segment as well as Other, and reconcile net operating income to net income (loss) as reported (in thousands):

Three Months Ended September 30, 2021

Residential Other (1), (3)

Real estate rental revenue 38,046 4,453 $ 42,499

1 unchanged sentence

Net operating income $ 23,900 $ 3,154 $ 27,054

Depreciation and amortization ( 17,303 )

Other income (expense):

Property management expenses ( 1,499 )

General and administrative expenses ( 7,909 )

Transformation costs ( 1,016 )

Depreciation and amortization ( 18,252 )

Interest expense ( 8,106 )

Other income 1,522

Loss on interest rate derivatives ( 106 )

Loss on extinguishment of debt ( 12,727 )

Other income 231

Discontinued operations:

Income from operations of properties sold or held for sale 7,208

Net loss $ ( 6,992 )

Gain on sale of real estate, net 46,441

Net income $ 31,319

Capital expenditures $ 7,283 $ 1,002 $ 8,285

Total assets $ 1,355,893 $ 496,917 $ 1,852,810

Three Months Ended June 30, 2020

Multifamily Corporate and Other (1), (2)

Three Months Ended September 30, 2020

Residential Other (2), (3)

Real estate rental revenue 36,292 7,424 $ 43,716

1 unchanged sentence

Net operating income $ 22,632 $ 4,971 $ 27,603

Depreciation and amortization ( 17,372 )

Other income (expense):

Property management expenses ( 1,541 )

General and administrative expenses ( 6,330 )

Depreciation and amortization ( 18,064 )

Interest expense ( 8,711 )

Loss on sale of real estate ( 7,539 )

Loss on extinguishment of debt ( 206 )

Discontinued operations:

3 unchanged sentences

Total assets $ 1,338,812 $ 1,193,460 $ 2,532,272

Six Months Ended June 30, 2021

Multifamily Corporate and Other (1), (2)

Nine Months Ended September 30, 2021

Residential Other (1), (3)

Real estate rental revenue $ 111,075 $ 13,328 $ 124,403

1 unchanged sentence

Net operating income $ 69,635 $ 9,588 $ 79,223

Depreciation and amortization ( 34,290 )

General and administrative ( 11,929 )

Other income (expense):

Property management expenses ( 4,448 )

General and administrative expenses ( 19,838 )

Transformation costs ( 4,796 )

Depreciation and amortization ( 52,542 )

Interest expense ( 28,387 )

Other income 2,806

Loss on interest rate derivatives ( 5,866 )

Loss on extinguishment of debt ( 12,727 )

Other income 3,037

Discontinued operations:

Income from operations of properties sold or held for sale 23,083

Net loss $ ( 8,139 )

Gain on sale of real estate, net 46,441

Net income $ 23,180

Capital expenditures $ 15,082 $ 3,604 $ 18,686

Six Months Ended June 30, 2020

Multifamily Corporate and Other (1), (2)

Nine Months Ended September 30, 2020

Residential Other (2), (3)

Real estate rental revenue $ 108,942 $ 24,274 $ 133,216

1 unchanged sentence

Net operating income $ 69,842 $ 16,356 $ 86,198

Other income (expense):

Property management expenses ( 4,682 )

General and administrative expenses ( 17,963 )

Depreciation and amortization ( 52,683 )

General and administrative ( 11,633 )

Interest expense ( 19,596 )

Loss on sale of real estate ( 7,539 )

Interest expense ( 28,307 )

Gain on extinguishment of debt 262

4 unchanged sentences

______________________________

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

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

(2) Other represents Watergate 600, an office property that does not meet the qualitative or quantitative criteria for a reportable segment and office properties sold during 2020:

John Marshall II, Monument II and 1227 25th Street.

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

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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”).

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

On September 22, 2021, BTIG, LLC notified us that it was terminating the BTIG Equity Distribution Agreement, effective as of September 27, 2021.

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.

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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,

Nine Months Ended September 30,

Issuance of common shares 24 46

4 unchanged sentences

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

Our issuances and net proceeds on the dividend reinvestment program for the three and 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,

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

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

2021 2020 2021 2020

2 unchanged sentences

Net proceeds $ 459 $ 516 $ 1,468 $ 1,581

SUBSEQUENT EVENTS

Subsequent to the end of the 2021 Quarter, we executed a purchase and sale agreement for the acquisition of two apartment communities in Henry County, Georgia, for a contract purchase price of $ 106.0 million.

The apartment communities have a combined total of 490 apartment units and we currently anticipate closing on the transaction during the fourth quarter of 2021, subject to customary closing conditions.

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