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Item 2. Management’s Discussion and Analysis

2021-10-29 compared with 2021-08-03 · 229 added, 181 removed, 249 unchanged (62% of the section changed)

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

We refer to the three months ended 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.

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.

Forward-Looking Statements

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

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

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

Additional factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to the risks associated with the failure to enter into and/or complete contemplated acquisitions or dispositions (including the expected retail asset sales) within the price ranges anticipated and on the terms and timing anticipated, or at all;

our ability to execute on our strategies, including new strategies with respect to our operations and our portfolio, including the acquisition of multifamily properties in the Southeastern markets and the repayment of debt, on the terms anticipated, or at all, and to realize any anticipated benefits, including the performance of any acquired multifamily properties at the levels anticipated;

our ability to lease up Trove on the timing anticipated;

our ability to reduce actual net leverage to levels consistent with our targeted net leverage range, the risks associated with ownership of real estate in general and our real estate assets in particular;

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

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

Additional factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to the risks associated with the failure to enter into and/or complete contemplated acquisitions or dispositions within the price ranges anticipated and on the terms and timing anticipated, or at all;

our ability to execute on our strategies, including new strategies with respect to our operations and our portfolio, including the acquisition of residential properties in the Southeastern markets, on the terms anticipated, or at all, and to realize any anticipated benefits, including the performance of any acquired residential properties at the levels anticipated;

our ability to reduce actual net leverage to levels consistent with our targeted net leverage range;

the risks associated with ownership of real estate in general and our real estate assets in particular;

the economic health of the greater Washington, DC metro region and the larger Southeastern region;

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the risks related to use of third-party providers;

the economic health of our tenants;

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

the economic health of our residents and tenants;

the availability and terms of financing and capital and the general volatility of securities markets;

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

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

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

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

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• Funds From Operations (“NAREIT FFO”) , calculated as set forth below under the caption “Funds from Operations.” NAREIT FFO is a non-GAAP supplemental measure to net income.

• Average occupancy , calculated as average monthly occupied multifamily units as a percentage of total multifamily units.

• Average occupancy , calculated as average daily occupied homes as a percentage of total homes.

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

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We define development properties as those for which we have planned or ongoing major construction activities on existing or acquired land pursuant to an authorized development plan.

We consider a property's development activities to be complete when the property is ready for its intended use.

The property is categorized as same-store when it has been ready for its intended use for the entirety of the years being compared.

Development properties are categorized as same-store when they have reached stabilized occupancy (90%) before the start of the prior year.

We define redevelopment properties as those for which we have planned or ongoing significant development and construction activities on existing or acquired buildings pursuant to an authorized plan, which has an impact on current operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property.

We categorize a redevelopment property as same-store when redevelopment activities have been complete for the majority of each year being compared.

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

As of June 30, 2021 we owned a diversified portfolio of 43 properties, totaling approximately 3.4 million square feet of commercial space and 7,059 multifamily units, and land held for development.

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

During the 2021 Quarter, we executed a purchase and sale agreement for the sale of twelve office properties (the “Office Portfolio”) (see note 3 to the condensed consolidated financial statements) for a purchase price of $766.0 million.

Subsequent to the 2021 Quarter, we executed a purchase and sale agreement for the sale of eight retail properties (the “Retail Portfolio”) (see note 3 to the condensed consolidated financial statements) for a purchase price of $168.3 million.

Both the Office Portfolio and Retail Portfolio met the criteria for classification as held for sale as of June 30, 2021 and are classified as discontinued operations in our condensed consolidated financial statements.

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.

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

Our revenues are derived primarily from the ownership and operation of income producing properties.

As of September 30, 2021, we owned approximately 7,300 residential apartment homes in the Washington, DC metro and Southeast regions.

We also own and operate approximately 300,000 square feet of commercial space in the Washington, DC metro region.

During the second quarter of 2021, we executed a purchase and sale agreement for the sale of twelve office properties (the “Office Portfolio”) (see note 3 to the condensed consolidated financial statements) for a purchase price of $766.0 million.

During the 2021 Quarter, we executed a purchase and sale agreement for the sale of eight retail properties (the “Retail Portfolio”) (see note 3 to the condensed consolidated financial statements) for a purchase price of $168.3 million.

We closed on the sale of the Office Portfolio on July 26, 2021 and on the sale of the Retail Portfolio on September 22, 2021.

Both the Office Portfolio and Retail Portfolio are classified as discontinued operations in our condensed consolidated financial statements.

The remaining office property, Watergate 600, does not meet the qualitative or quantitative criteria for a reportable segment (see note 10 to the condensed consolidated financial statements).

The properties in the Office Portfolio and Retail Portfolio met the criteria for classification as held for sale as of June 30, 2021 and are classified as discontinued operations.

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”).

We plan to use the net proceeds from the sales to fund the expansion of our multifamily platform through acquisitions in Southeastern markets and to reduce our leverage by repaying outstanding debt.

The planned acquisitions of multifamily

properties and dispositions of office and retail properties are part of a strategic shift away from the commercial sector to the multifamily sector (the “strategic transformation”).

This strategic shift simplifies our portfolio to one reportable segment (multifamily).

The dispositions of 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”).

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.

We plan to use the net proceeds from the sales to fund the expansion of our residential platform through acquisitions in Southeastern markets and to reduce our leverage by repaying outstanding debt.

The planned acquisitions of residential properties and dispositions of office and retail properties are part of a strategic shift away from the commercial sector to the residential sector.

This strategic shift simplifies our portfolio to one reportable segment (residential).

We believe the successful execution of this research-driven strategic shift will lead to greater, more sustainable growth.

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The COVID-19 pandemic caused state and local governments within the Washington, DC metro region to institute quarantines, shelter-in-place rules and restrictions on travel, the types of business that may continue to operate and/or the types of construction projects that may continue.

While the COVID-19 pandemic impacted the 2021 Quarter, as of July 28, 2021, we collected 99% of cash rent during the 2021 Quarter.

While the COVID-19 pandemic impacted the 2021 Quarter, as of October 26, 2021, we collected 99% of cash rent at same-store communities during the 2021 Quarter.

We saw a decrease in credit losses of $0.3 million during the 2021 Quarter compared to the 2020 Quarter.

The effects of COVID-19 on our multifamily tenants led to a decline in rental rates during the 2021 Quarter compared to the 2020 Quarter.

The effects of COVID-19 on our residential tenants led to a decline in rental rates during the 2021 Quarter compared to the 2020 Quarter.

However, we expect to be able to increase rental rates in the remainder of 2021 as market conditions have begun to improve.

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

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

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

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

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Operating Results

Net loss, NOI and NAREIT FFO for the three months ended June 30, 2021 and 2020 were as follows (in thousands):

Three Months Ended June 30,

Net loss, NOI and NAREIT FFO for the three months ended September 30, 2021 and 2020 were as follows (in thousands):

Three Months Ended September 30,

2021 2020 $ Change % Change

Net loss $ (6,992) $ (5,406) $ (1,586) 29.3 %

Net income (loss) $ 31,319 $ (956) $ 32,275 (3,376.0) %

$ 27,054 $ 27,603 $ (549) (2.0) %

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(2) See page 40 of the MD&A for a reconciliation of NAREIT FFO to net income.

The increase in net loss is primarily due to the loss on interest rate derivatives ($5.8 million), transformation costs ($3.8 million), lower NOI ($2.1 million), higher interest expense ($1.4 million) and higher general and administrative expenses ($1.0 million) in the 2021 Quarter, partially offset by the loss on sale of real estate ($7.5 million) and a loss on extinguishment of debt ($0.2 million) in the 2020 Quarter and higher income from discontinued operations ($3.2 million) and a real estate tax refund ($1.5 million) in the 2021 Quarter.

The lower NOI is primarily due to the sales of Monument II ($1.1 million), 1227 25th Street ($0.7 million) and John Marshall II ($0.2 million) during 2020 and lower same-store NOI ($0.6 million), partially offset by placing Trove, a multifamily development, into service starting in 2020 ($0.5 million).

Multifamily same-store average occupancy for our portfolio increased to 95.1% as of June 30, 2021 from 94.5% as of June 30, 2020, due to higher occupancy across the portfolio as the portfolio recovers from the COVID-19 pandemic.

The lower NAREIT FFO is primarily due to loss on interest rate derivatives ($5.8 million), transformation costs ($3.8 million), lower NOI ($2.1 million), higher interest expense ($1.4 million) and higher general and administrative expenses ($1.0 million).

These were partially offset by a real estate tax refund ($1.5 million) and higher income from discontinued operations, net of depreciation and amortization ($1.2 million) in the 2021 Quarter and loss on extinguishment of debt ($0.2 million) in 2020 Quarter.

Investment and Financing Activity

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

Subsequent to the 2021 Quarter, we closed on the Office Portfolio sale transaction on July 26, 2021.

Subsequent to the end of the 2021 Quarter, we entered into a purchase and sale agreement with a single buyer to sell the Retail Portfolio for a contract sales price of $168.3 million.

We expect to close on the sale of the Retail Portfolio in the third quarter of 2021.

We plan to use the net proceeds from the sales to fund the expansion of our multifamily platform through acquisitions in Southeastern markets and to reduce our leverage by repaying outstanding debt.

We expect to redeem $300.0 million of our Senior Notes due 2022 and repay $150.0 million of borrowings outstanding under the 2018 Term Loan, respectively.

In conjunction with these repayments, we expect to terminate five interest rate swaps (see note 5 to the consolidated financial statements).

As of June 30, 2021, the interest rate on the $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) was one month LIBOR plus 1.00% and the facility fee was 0.20%.

As of July 28, 2021, we had no outstanding balance and a full borrowing capacity of $700.0 million on our Revolving Credit Facility and approximately $665.0 million of cash on hand, primarily due to the proceeds from the Office Portfolio sale.

The increase in net income is primarily due to the net gain on sale of real estate ($46.4 million), higher income from discontinued operations ($1.1 million) and lower interest expense ($0.6 million), partially offset by loss on extinguishment of debt ($12.7 million), higher general and administrative expenses ($1.6 million), higher transformation expenses ($1.0 million), lower NOI ($0.5 million) and higher depreciation and amortization expenses ($0.2 million).

The lower NOI is primarily due to the sales of Monument II ($0.9 million) and 1227 25th Street ($0.8 million) during 2020, partially offset by placing Trove, a residential development, into service starting in 2020 ($1.0 million) and the acquisition of The Oxford ($0.3 million) in the 2021 Quarter.

Residential same-store average occupancy for our portfolio increased to 95.8% as of September 30, 2021 from 94.3% as of September 30, 2020, due to higher occupancy across the portfolio as the portfolio recovers from the COVID-19 pandemic.

The lower NAREIT FFO is primarily due to the loss on extinguishment of debt ($12.7 million), lower income from discontinued operations, net of depreciation and amortization ($11.3 million), higher general and administrative expenses ($1.6 million) and transformation expenses ($1.0 million) and lower NOI ($0.5 million).

These were partially offset by lower interest expense ($0.6 million).

Investment Activity

Significant investment transactions during the 2021 Period included the following:

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

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

• During the 2021 Quarter, we entered into a purchase and sale agreement with a single buyer to sell the Retail Portfolio for a contract sales price of $168.3 million.

We closed on the sale of the Retail Portfolio on September 22, 2021.

• During the 2021 Quarter, we acquired The Oxford, a 240-unit apartment community in Conyers, Georgia for a contract purchase price of $48.0 million.

Financing Activity

Significant financing transactions during the 2021 Period included the following:

• We redeemed $300.0 million of our Senior Notes due 2022 and repaid $150.0 million of borrowings outstanding under the 2018 Term Loan.

In conjunction with these repayments, we terminated five interest rate swaps (see note 6 to the consolidated financial statements).

• During the 2021 Quarter, we entered into an amended and restated credit agreement which provides for a $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”).

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

We recognized a $0.2 million non-cash loss on extinguishment of debt related to the write-off of unamortized loan origination costs.

As of September 30, 2021, the interest rate on the $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) was one month LIBOR plus 0.85% and the facility fee was 0.20%.

As of October 26, 2021, we had no outstanding balance and a full borrowing capacity of $700.0 million on our Revolving Credit Facility and $297.1 million of cash on hand, primarily due to the proceeds from the Office Portfolio and Retail Portfolio sales.

Capital Requirements

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

As discussed above, we plan to use a portion of the net proceeds from the sales of the Office Portfolio and Retail Portfolio to redeem $300.0 million of our Senior Notes scheduled to mature in 2022.

If such redemption is completed, we will have no debt maturities until 2023.

With the redemption of the $300.0 million of Senior Notes scheduled to mature in 2022, as discussed above, we have no debt maturities until 2023.

We expect to have additional capital requirements as set forth on page 36 (Liquidity and Capital Resources - Capital Requirements).

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Additionally, the COVID-19 pandemic adversely impacted our operating results for the 2021 Quarter, 2020 Quarter, 2021 Period and 2020 Period, and we expect that the COVID-19 outbreak will continue to adversely affect our business, financial condition, results of operations and cash flows going forward, including but not limited to, real estate rental revenues, credit losses, and leasing activity, in ways that may vary widely depending on the duration and magnitude of the COVID-19 pandemic and ensuing economic turmoil, as well as numerous other factors, many of which are outside of our control, as discussed under “Part I - Item 1A.

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

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

Net Operating Income

NOI, defined as real estate rental revenue less real estate expenses, is a non-GAAP measure.

NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain or loss on sale, if any), plus interest expense, depreciation and amortization, lease origination expenses, general and administrative expenses, acquisition costs, real estate impairment, casualty gains and losses and gain or loss on extinguishment of debt.

We believe that NOI is useful as a performance measure because, when compared across periods, NOI reflects the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income.

NOI, defined as real estate rental revenue less direct real estate operating expenses, is a non-GAAP measure.

NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain or loss on sale, if any), plus interest expense, depreciation and amortization, lease origination expenses, general and administrative expenses, acquisition costs, real estate impairment, casualty gain and losses and gain or loss on extinguishment of debt.

NOI does not include management expenses, which consist of corporate property management costs and property management fees paid to third parties.

We believe that NOI is a useful performance measures because, when compared across periods, it reflects the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income.

NOI excludes certain components from net income in order to provide results more closely related to a property’s results of operations.

For example, interest expense is not necessarily linked to the operating performance of a real estate asset.

In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating

performance at the property level.

For example, interest expense is not necessarily linked to the

operating performance of a real estate asset.

In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level.

As a result of the foregoing, we provide NOI as a supplement to net income, calculated in accordance with GAAP.

NOI does not represent net income or income from continuing operations, in either case calculated in accordance with GAAP.

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

A reconciliation of NOI to net income follows.

NOI does not represent net income or income from continuing operations calculated in accordance with GAAP.

As such, NOI should not be considered an alternative to these measures as an indication of our operating performance.

A reconciliation of NOI to net income (loss) follows.

2021 Quarter Compared to 2020 Quarter

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All amounts are in thousands, except percentage amounts.

Non-Same-Store

Same-Store Development/

Re-development (1)

Held for Sale or Sold (2)

Change 2021 2020 2021 2020 2021 2020 $

Real estate rental revenue $ 39,967 $ 40,217 $ (250) (0.6) % $ 1,330 $ 214 $ — $ 3,326 $ 41,297 $ 43,757 $ (2,460) (5.6) %

Real estate expenses

Three Months Ended September 30,

2021 2020 $ Change % Change

Residential revenue:

Same-store portfolio $ 35,408 $ 35,674 $ (266) (0.7) %

Acquisitions (1)

488 — 488 — %

NOI $ 24,644 $ 25,230 $ (586) (2.3) % $ 423 $ (90) $ — $ 2,029 $ 25,067 $ 27,169 $ (2,102) (7.7) %

Reconciliation to net loss:

Depreciation and amortization (17,303) (17,372) 69 (0.4) %

Development (2)

1,846 445 1,401 314.8 %

Non-residential (3)

304 173 131 75.7 %

Total 38,046 36,292 1,754 4.8 %

Residential expenses:

Same-store portfolio 13,003 13,180 (177) (1.3) %

Acquisitions 212 — 212 — %

Development 846 411 435 105.8 %

Non-residential 85 69 16 23.2 %

Total 14,146 13,660 486 3.6 %

Residential NOI:

Same-store portfolio 22,405 22,494 (89) (0.4) %

Acquisitions 276 — 276 — %

Development 1,000 34 966 2841.2 %

Non-residential 219 104 115 110.6 %

Total 23,900 22,632 1,268 5.6 %

Other NOI (4), (5)

3,154 4,971 (1,817) (36.6) %

Total NOI 27,054 27,603 (549) (2.0) %

Reconciliation to net income (loss):

Property management expenses (1,499) (1,541) 42 (2.7) %

General and administrative expenses (7,909) (6,330) (1,579) 24.9 %

Transformation costs (1,016) — (1,016) — %

Loss on sale of real estate — (7,539) 7,539 (100.0) %

Depreciation and amortization (18,252) (18,064) (188) 1.0 %

Interest expense (8,106) (8,711) 605 (6.9) %

Other income 1,522 — 1,522 — %

Loss on interest rate derivatives (106) — (106) — %

Loss on extinguishment of debt (12,727) — (12,727) — %

Other income 231 — 231 — %

Discontinued operations (6) :

Income from operations of properties sold or held for sale 7,208 6,087 1,121 18.4 %

Net loss $ (6,992) $ (5,406) $ (1,586) 29.3 %

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

Net income (loss) $ 31,319 $ (956) $ 32,275 (3376.0) %

______________________________

(1) Acquisitions:

(2) Development/redevelopment:

Multifamily - Trove

(3) Non-residential:

Includes revenues and expenses from retail and public parking garage operations at residential properties.

(4) Sold (classified as continuing operations):

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

(5) Other (classified as continuing operations)

Watergate 600

(6) Discontinued operations:

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Real Estate Rental Revenue

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

Real estate rental revenue from same-store multifamily properties decreased $0.3 million, or 0.9%, to $35.5 million for the 2021 Quarter, compared to $35.9 million for the 2020 Quarter, primarily due to lower rental revenue ($0.7 million) and higher rent abatements ($0.5 million).

These were partially offset by lower credit losses ($0.4 million), lower waived fees ($0.2 million), higher recoveries ($0.2 million) and higher termination fees ($0.1 million).

Real estate rental revenue from our apartment communities is comprised of (a) rent from operating leases of multifamily residential apartments with terms of approximately one year or less, recognized on a straight-line basis, (b) revenue from the recovery of operating expenses from our residents, (c) credit losses on lease related receivables, (d) revenue from leases of retail space at our apartment communities and (e) parking and other tenant charges.

Real estate rental revenue from same-store residential properties decreased $0.3 million, or 0.7%, to $35.4 million for the 2021 Quarter, compared to $35.7 million for the 2020 Quarter, primarily due to higher rent abatements ($0.4 million), partially offset by higher move-in charges ($0.1 million).

Real estate rental revenue from acquisitions increased due to the acquisition of The Oxford ($0.5 million) during the 2021 Quarter.

Real estate rental revenue from development properties increased due to continued lease-up of Trove ($1.4 million).

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

Real estate rental revenue from held for sale and sold properties classified as continuing operations decreased due to sales of Monument II ($1.7 million) and 1227 25th Street ($1.3 million) during the fourth quarter of 2020 and the sale of John Marshall II ($0.4 million) during the second quarter of 2020.

Average occupancy for multifamily properties classified as continuing operations for the 2021 Quarter and 2020 Quarter was as follows:

June 30, 2021 June 30, 2020 Increase

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

Multifamily 95.1 % 49.9 % 92.5 % 94.5 % 7.5 % 89.5 % 0.6 % 42.4 % 3.0 %

The increase in same-store average occupancy was primarily due to higher average occupancy at The Paramount, The Maxwell and The Ashby at McLean, partially offset by lower average occupancy at Clayborne Apartments and Park Adams.

Real estate rental revenue from non-residential activity increased due to lower credit losses ($0.1 million).

Average occupancy for residential properties for the 2021 Quarter and 2020 Quarter was as follows:

September 30, 2021 September 30, 2020 Increase

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

95.8 % 82.0 % 94.7 % 94.3 % 17.1 % 89.9 % 1.5 % 64.9 % 4.8 %

The increase in same-store average occupancy was primarily due to higher average occupancy at 3801 Connecticut Avenue, The Paramount, The Kenmore and Yale West.

Real Estate Expenses

Real estate expenses as a percentage of revenue for the 2021 Quarter and 2020 Quarter were 39.3% and 37.9%, respectively.

Real estate expenses from same-store multifamily properties increased $0.1 million, or 0.9%, to $13.9 million for the 2021 Quarter, compared to $13.8 million for the 2020 Quarter, primarily due to higher contract maintenance ($0.2 million), utilities ($0.1 million) and insurance ($0.1 million) expenses, partially offset by lower real estate taxes ($0.3 million).

Residential real estate expenses as a percentage of residential revenue for the 2021 Quarter and 2020 Quarter were 37.2% and 37.6%, respectively.

Real estate expenses from same-store residential properties decreased $0.2 million, or 1.3%, to $13.0 million for the 2021 Quarter, compared to $13.2 million for the 2020 Quarter, primarily due to lower repairs and maintenance ($0.2 million) expenses and lower real estate taxes ($0.2 million), partially offset by higher utilities ($0.1 million) and insurance ($0.1 million) expenses.

Other NOI classified as continuing operations decreased due to the sales of Monument II ($0.9 million) and 1227 25th Street ($0.8 million) during the fourth quarter of 2020 and lower NOI at Watergate 600 ($0.2 million).

Other Income and Expenses

Depreciation and Amortization :

Decrease primarily due to the dispositions of Monument II ($1.0 million) and 1227 25th Street ($0.4 million) in the fourth quarter of 2020.

These decreases were partially offset by placing into service a portion of the Trove development ($1.1 million) and higher depreciation and amortization at same-store properties ($0.2 million).

Property management expenses:

These expenses include costs directly related to the third-party management of property operations and corporate management and other costs.

General and administrative expenses:

Increase primarily due to a higher estimate of short-term incentive compensation ($0.9 million) during the 2021 Quarter.

Increase primarily due to higher short-term incentive compensation expense ($1.0 million), higher office rent ($0.2 million) due to the commencement of the corporate office lease during the 2021 Quarter, higher accounting fees ($0.2 million) and higher insurance expense ($0.1 million).

Transformation costs:

During the 2021 Quarter we incurred $1.0 million of costs related to the strategic transformation, including consulting, advisory and termination benefits.

Depreciation and amortization :

Increase primarily due to placing into service the remainder of the Trove development ($0.8 million), the acquisition of The Oxford ($0.6 million) and higher depreciation and amortization at same-store properties ($0.3 million).

These increases were partially offset by the dispositions of Monument II ($0.9 million) and 1227 25th Street ($0.5 million) in the fourth quarter of 2020.

Interest Expense :

Interest expense by debt type for the three months ended June 30, 2021 and 2020 was as follows (in thousands):

Three Months Ended June 30,

Interest expense by debt type for the three months ended September 30, 2021 and 2020 was as follows (in thousands):

Three Months Ended September 30,

Debt Type 2021 2020 $ Change % Change

4 unchanged sentences

• Notes payable :

Increase primarily due to $350.0 million Green Bonds executed in December 2020, partially offset by prepayment of our $150.0 million 2015 Term Loan in December 2020 and by the new $150.0 million 2020 Term Loan executed in May 2020 and prepaid in November 2020.

Decrease primarily due to the prepayment during the 2021 Quarter of $300.0 million of unsecured notes originally scheduled to mature in October 2022, the prepayment of our $150.0 million 2015 Term Loan in December 2020, the $150.0 million 2020 Term Loan executed in May 2020 and prepaid in November 2020 and the prepayment of a $150.0 million portion of the 2018 Term Loan during the 2021 Quarter.

These were partially offset by the $350.0 million Green Bonds executed in December 2020.

• Line of credit :

Decrease primarily due to lower weighted average interest rate of 1.1% and lower weighted average borrowings of $60.9 million in 2021 Quarter, as compared to 1.5% and $269.1 million during the 2020 Quarter.

Decrease primarily due to lower weighted average borrowings of $20.9 million and a weighted average interest rate of 1.1% in the 2021 Quarter, as compared to $202.2 million and 1.2%, respectively, during the 2020 Quarter.

• Capitalized interest :

1 unchanged sentence

Loss on extinguishment of debt :

We recognized a $0.2 million loss on extinguishment of debt during 2020 Quarter related to the prepayment of the $250 million of 4.95% Senior Notes that were scheduled to mature in October 2020.

Other income :

During the 2021 Quarter we recognized $1.5 million in other income related to a tax refund for an office property sold in 2018.

Loss on interest rate derivatives :

We currently expect to prepay a $150.0 million portion of the 2018 Term Loan during the third quarter of 2021.

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 of the ineffectiveness, the accumulated fair value of the five interest rate swap

arrangements of $5.8 million was reclassified from Accumulated other comprehensive loss to Loss on interest rate derivatives on our condensed consolidated financial statements.

Income from discontinued operations:

Increase primarily due to lower depreciation and amortization ($2.0 million), higher recoveries ($0.7 million) and lower credit losses ($0.7 million) from retail and office properties classified as discontinued operations.

These increases were partially offset by higher utilities ($0.2 million) expenses.

During the 2021 Quarter, we recognized a $12.3 million loss on extinguishment of debt related to the prepayment of the $300.0 million of unsecured notes that were originally scheduled to mature in October 2022, a $0.2 million loss on extinguishment of debt related to the prepayment of a $150.0 million portion of the $250.0 million 2018 Term Loan and a $0.2 million loss on extinguishment of debt related to the renewal of our Revolving Credit Facility.

Discontinued operations:

Income from operations of properties sold or held for sale:

Increase primarily due to lower depreciation and amortization ($12.4 million), lower real estate expenses ($6.7 million) and lower management fees ($0.6 million), partially offset by lower operating income ($18.6 million) due to the sale of the Office Portfolio and the Retail Portfolio during the 2021 Quarter.

Gain on sale of real estate:

The net gain during 2021 Quarter is due to the sales of the Office Portfolio and Retail Portfolio.

2021 Period Compared to 2020 Period

The following tables reconcile NOI to net (loss) income and provide the basis for our discussion of our consolidated results of operations and NOI in the 2021 Period compared to the 2020 Period.

The following tables reconcile NOI to net income (loss) and provide the basis for our discussion of our consolidated results of operations and NOI in the 2021 Period compared to the 2020 Period.

All amounts are in thousands, except percentage amounts.

Non-Same-Store

Same-Store Development/Redevelopment (1)

Held for Sale or Sold (2)

All Properties

Change 2021 2020 2021 2020 2021 2020 $

Real estate rental revenue $ 79,598 $ 81,267 $ (1,669) (2.1) % $ 2,306 $ 251 $ — $ 7,982 $ 81,904 $ 89,500 $ (7,596) (8.5) %

Real estate expenses

Nine Months Ended September 30,

2021 2020 $ Change % Change

Residential revenue:

Same-store portfolio $ 105,641 $ 107,651 $ (2,010) (1.9) %

Acquisitions (1)

488 — 488 — %

NOI $ 48,588 $ 51,062 $ (2,474) (4.8) % $ 632 $ (300) $ — $ 4,692 $ 49,220 $ 55,454 $ (6,234) (11.2) %

Reconciliation to net loss:

Depreciation and amortization (34,290) (34,619) 329 (1.0) %

Development (2)

4,152 696 3,456 496.6 %

Non-residential (3)

794 595 199 33.4 %

Total 111,075 108,942 2,133 2.0 %

Residential expenses:

Same-store portfolio 38,589 37,997 592 1.6 %

Acquisitions 212 — 212 — %

Development 2,420 895 1,525 170.4 %

Non-residential 219 208 11 5.3 %

Total 41,440 39,100 2,340 6.0 %

Residential NOI:

Same-store portfolio 67,052 69,654 (2,602) (3.7) %

Acquisitions 276 — 276 — %

Development 1,732 (199) 1,931 (970.4) %

Non-residential 575 387 188 48.6 %

Total 69,635 69,842 (207) (0.3) %

Other NOI (4), (5)

9,588 16,356 (6,768) (41.4) %

Total NOI 79,223 86,198 (6,975) (8.1) %

Reconciliation to net income (loss):

Property management expenses (4,448) (4,682) 234 (5.0) %

General and administrative expenses (19,838) (17,963) (1,875) 10.4 %

Transformation costs (4,796) — (4,796) — %

Depreciation and amortization (52,542) (52,683) 141 (0.3) %

Loss on sale of real estate — (7,539) 7,539 (100.0) %

Interest expense (28,387) (28,307) (80) 0.3 %

Other income 2,806 — 2,806 — %

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

Gain on extinguishment of debt — 262 (262) (100.0) %

(Loss) gain on extinguishment of debt (12,727) 262 (12,989) (4957.6) %

Other income 3,037 — 3,037 — %

Discontinued operations (6) :

Income from operations of properties sold or held for sale 23,083 20,071 3,012 15.0 %

Net loss (8,139) (3,687) (4,452) 120.7 %

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

Net income (loss) $ 23,180 $ (4,643) $ 27,823 (599.2) %

______________________________

(1) Acquisitions:

(2) Development/redevelopment:

Multifamily - Trove

(3) Non-residential:

Includes revenues and expenses from retail and public parking garage operations at residential properties.

(4) Sold (classified as continuing operations):

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

(5) Other (classified as continuing operations)

Watergate 600

(6) Discontinued operations:

3 unchanged sentences

Real Estate Rental Revenue

Real estate rental revenue from same-store multifamily properties decreased $1.7 million, or 2.3%, to $70.7 million for the 2021 Period, compared to $72.4 million for the 2020 Period, primarily due to lower rental revenue ($1.7 million) and higher rent abatements ($0.9 million), partially offset by higher recoveries ($0.4 million), lower waived fees ($0.1 million), higher termination fees ($0.1 million) and lower credit losses ($0.1 million).

Real estate rental revenue from same-store residential properties decreased $2.1 million, or 1.9%, to $105.6 million for the 2021 Period, compared to $107.7 million for the 2020 Period, primarily due to lower rental rates ($1.8 million), higher rent abatements ($1.3 million) and lower late fees ($0.1 million), partially offset by higher recoveries ($0.5 million), lower waived fees ($0.2 million), higher termination fees ($0.1 million), higher move-in charges ($0.1 million), lower credit losses ($0.1 million) and higher parking income ($0.1 million).

Real estate rental revenue from acquisitions increased due to the acquisition of The Oxford ($0.5 million) during the 2021 Quarter.

Real estate rental revenue from development properties increased due to the continued lease-up of the Trove development ($3.5 million).

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

Real estate rental revenue from sold properties classified as continuing operations decreased due to sales of Monument II ($3.1 million) and 1227 25th Street ($2.7 million) during the fourth quarter of 2020, and due to the sale of John Marshall II ($2.2 million) during the second quarter of 2020.

Average occupancy for multifamily properties classified as continuing operations for the 2021 Period and 2020 Period was as follows:

June 30, 2021 June 30, 2020 Increase

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

Multifamily 94.7 % 40.6 % 91.6 % 94.9 % 4.0 % 89.8 % (0.2) % 36.6 % 1.8 %

The decrease in same-store average occupancy was primarily due to lower average occupancy at 3801 Connecticut Avenue, The Kenmore and Cascade at Landmark, partially offset by higher average occupancy at The Paramount and Assembly Leesburg.

Real estate rental revenue from non-residential activity increased due to lower credit losses ($0.1 million) and higher rental revenue ($0.1 million).

Average occupancy for residential properties for the 2021 Period and 2020 Period was as follows:

September 30, 2021 September 30, 2020 Increase

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

95.1 % 57.6 % 92.7 % 94.7 % 8.4 % 89.8 % 0.4 % 49.2 % 2.9 %

The increase in same-store average occupancy was primarily due to higher average occupancy at The Paramount, The Ashby, The Maxwell and Assembly Leesburg, partially offset by lower average occupancy at Cascade at Landmark.

Real Estate Expenses

Real estate expenses as a percentage of revenue for the 2021 Period and 2020 Period were 39.9% and 38.0%, respectively.

Real estate expenses from same-store multifamily properties increased $0.8 million, or 2.9%, to $28.3 million for the six months ended June 30, 2021, compared to $27.5 million for the six months ended June 30, 2020, primarily due to higher contract maintenance and supplies ($0.4 million), utilities ($0.3 million) and repairs and maintenance ($0.2 million) expenses, partially offset by lower real estate tax expenses ($0.2 million).

Residential real estate expenses as a percentage of residential revenue for the 2021 Period and 2020 Period were 37.3% and 35.9%, respectively.

Real estate expenses from same-store residential properties increased $0.6 million, or 1.6%, to $38.6 million for the 2021 Period, compared to $38.0 million for the nine months ended September 30, 2020, primarily due to higher expenses related to contract maintenance and supplies ($0.4 million), utilities ($0.4 million) and insurance ($0.3 million), partially offset by lower real estate tax expenses ($0.4 million) and administrative expenses ($0.1 million).

Other NOI classified as continuing operations decreased due to the sales of Monument II ($3.0 million) and 1227 25th Street ($2.2 million) during the fourth quarter of 2020, the sale of John Marshall II ($1.4 million) during the second quarter of 2020 and lower NOI at Watergate 600 ($0.2 million).

Other Income and Expenses

Depreciation and Amortization :

Decrease primarily due to the dispositions of Monument II ($1.9 million) and 1227 25th Street ($0.8 million) in the fourth quarter of 2020 and lower depreciation and amortization at same-store properties ($0.1 million).

These decreases were partially offset by placing into service a portion of the Trove development ($2.5 million).

Property management expenses:

These expenses include costs directly related to the third-party management of property operations and corporate management and other costs.

General and administrative expenses :

Increase primarily due to a higher estimate of short term incentive compensation ($1.0 million), partially offset by lower professional fees ($0.3 million), recruitment fees ($0.1 million) and information technology expenses ($0.1 million).

Increase primarily due to a higher short-term incentive compensation expense ($2.0 million) and higher share-based compensation expense ($0.3 million), partially offset by lower legal fees ($0.4 million).

Transformation costs:

During the 2021 Period we incurred $4.8 million of costs related to the strategic transformation, including consulting, advisory and termination benefits.

Depreciation and amortization :

Increase primarily due to placing into service the remainder of the Trove development ($3.2 million), the acquisition of The Oxford ($0.6 million) and higher depreciation and amortization at Watergate 600 ($0.2 million).

These increases were partially offset by the dispositions of Monument II ($2.9 million) and 1227 25th Street ($1.3 million) in the fourth quarter of 2020.

Loss on sale of real estate:

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

Gain on extinguishment of debt:

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

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

Interest Expense :

Interest expense by debt type for the six months ended June 30, 2021 and 2020 was as follows (in thousands):

Six Months Ended June 30,

Interest expense by debt type for the nine months ended September 30, 2021 and 2020 was as follows (in thousands):

Nine Months Ended September 30,

Debt Type 2021 2020 $ Change % Change

5 unchanged sentences

• Notes payable :

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

Increase primarily due to the $350.0 million Green Bonds executed in December 2020, partially offset by the prepayment of all $250.0 million of our 4.95% Senior Notes in April 2020, prepayment of our $150.0 million 2015 Term Loan in December 2020, prepayment of the $150.0 million 2020 Term Loan in November 2020 and the prepayment during the 2021 Quarter of the $300.0 million of unsecured notes originally scheduled to mature in October 2022.

• Mortgage notes payable :

1 unchanged sentence

• Line of credit :

Decrease primarily due to a lower weighted average interest rate of 1.1% and lower weighted average borrowings of $59.5 million during the 2021 Period, as compared to 1.8% and $188.6 million, respectively, during the 2020 Period.

Decrease primarily due to lower weighted average borrowings of $46.5 million and a lower weighted average interest rate of 1.1% during the 2021 Period, as compared to $193.2 million and 1.6%, respectively, during the 2020 Period.

• Capitalized interest :

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

Other income :

We recognized $1.3 million in other income related to a legal settlement and $1.5 million related to a real estate tax refund for an office property sold in 2018 during 2021 Period.

Decrease primarily due to placing into service assets at Trove.

Loss on interest rate derivatives :

We currently expect to prepay a $150.0 million portion of the 2018 Term Loan during the third quarter of 2021.

We have determined that the hedged transactions for 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 of the ineffectiveness, the accumulated fair value of the five interest rate swap arrangements of $5.8 million was reclassified from Accumulated other comprehensive loss to Loss on interest rate derivatives on our condensed consolidated financial statements.

Income from discontinued operations:

Increase primarily due to lower depreciation and amortization ($1.8 million) from retail and office properties classified as discontinued operations.

We terminated five interest rate swap arrangements with an aggregate notional value of $150.0 million and recognized a $5.9 million loss on interest rate derivatives during the 2021 Period (see note 6 to the consolidated financial statements).

(Loss) gain on extinguishment of debt:

During the 2021 Period we recognized a $12.3 million loss on extinguishment of debt related to the prepayment of the $300.0 million of unsecured notes that were originally scheduled to mature in October 2022, a $0.2 million loss on extinguishment of debt related to the prepayment of a $150.0 million portion of the $250.0 million 2018 Term Loan and a $0.2 million loss on extinguishment of debt related to the renewal of our Revolving Credit Facility.

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

Other income :

We recognized $1.3 million in other income related to a legal settlement, $1.3 million related to a real estate tax refund for an office property sold in 2018 and $0.4 million related to a construction easement at a retail property during the 2021 Period.

Discontinued operations:

Income from properties sold or held for sale:

Increase primarily due to lower depreciation and amortization ($14.2 million), lower real estate expenses ($7.3 million) and lower management fees ($0.6 million), partially offset by lower operating income ($19.1 million) due to the sale of the Office Portfolio and the sale of the Retail Portfolio during the 2021 Period.

Gain on sale of real estate:

The net gain during the 2021 Period is due to the sales of the Office Portfolio and the Retail Portfolio.

Liquidity and Capital Resources

We believe we will have adequate liquidity over the next 12 months to operate our business and to meet our cash requirements.

As of July 26, 2021, we had cash and cash equivalents totaling approxim ately $665.0 million and n o outstanding balance and a full borrowing capacity of $700.0 million on our Revolving Credit Facility, resulting in a total liquidity position of approximatel y $1.4 billion.

Through our Office Portfolio sale and expected Retail Portfolio sale, we executed strategic transactions that will allow us to pursue multifamily expansion in Southeastern markets, meet our debt obligations for the next twelve months, including our plans to redeem all $300.0 million of Senior Notes due 2022 in the third quarter of 2021, and pay a dividend on a quarterly basis.

When the redemption of the Senior Notes due in 2022 is completed, we will have no debt maturities until 2023.

As of October 26, 2021, we had cash and cash equivalents totaling $297.1 million and no outstanding balance and a full borrowing capacity of $700.0 million on our Revolving Credit Facility, resulting in a total liquidity position of $997.1 million.

Through our Office Portfolio and Retail Portfolio sales, we executed strategic transactions that will allow us to pursue residential expansion in Southeastern markets, meet our debt obligations for the next twelve months, including our completed redemption of all $300.0 million of unsecured notes originally due to mature in 2022 during the 2021 Quarter, and pay a dividend on a quarterly basis.

We have no debt maturities until 2023.

We will continue to assess the payment of our dividends on a quarterly basis.

Future determinations regarding the declaration and payment of dividends, if any, will be at the discretion of our Board of Trustees who considers, among other factors, trends in our levels of funds from operations and ongoing capital requirements to achieve a targeted payout ratio.

Future determinations regarding the declaration and payment of dividends, if any, will be at the discretion of our Board of Trustees which considers, among other factors, trends in our levels of funds from operations and ongoing capital requirements to achieve a targeted payout ratio.

Capital Requirements

6 unchanged sentences

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

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

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

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

17 unchanged sentences

2025 — — — —%

2026 — — — —%

Thereafter 400,000 — 400,000 4.5%

4 unchanged sentences

______________________________

(1) Subsequent to the end of the 2021 Quarter, WashREIT provided notice to the holders of its $300.0 million of Senior Notes due in 2022 that it plans to redeem all $300.0 million of Senior Notes due in 2022 in the third quarter of 2021, which it intends to fund using cash available following the sale of the Office Portfolio.

The Senior Notes are scheduled to mature in October 2022.

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

For the remaining $100.0 million portion of the term loan, WashREIT entered into interest rate swaps to effectively fix a LIBOR plus 100 basis points floating interest rate to a 3.71% all-in fixed rate.

(1) WashREIT entered into interest rate swaps to effectively fix a LIBOR plus 100 basis points floating interest rate to a 2.31% all-in fixed rate for the remaining $100.0 million portion of the 2018 Term Loan.

The interest rates are fixed through the term loan maturity of July 2023.

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

WashREIT expects to repay $150.0 million of the 2018 Term Loan using sales proceeds from the Office Portfolio and the Retail Portfolio in the third quarter of 2021.

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

The weighted average maturity for our debt is 7.5 years.

7 unchanged sentences

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

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

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

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

As of June 30, 2021, we were in compliance with the covenants related to our Revolving Credit Facility, 2018 Term Loan, and unsecured notes.

As of September 30, 2021, we were in compliance with the covenants related to our Revolving Credit Facility, 2018 Term Loan, and unsecured notes.

Common Equity

We have authorized for issuance 150.0 million common shares, of which 84.6 million shares were outstanding at June 30, 2021.

We have authorized for issuance 150.0 million common shares, of which 84.6 million shares were outstanding at September 30, 2021.

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

1 unchanged sentence

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.

3 unchanged sentences

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

3 unchanged sentences

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

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

5 unchanged sentences

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

As of June 30, 2021, no preferred shares were issued or outstanding.

As of September 30, 2021, no preferred shares were issued or outstanding.

Historical Cash Flows

2 unchanged sentences

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

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2021 2020 $ %

Net cash provided by operating activities $ 66,383 $ 84,224 $ (17,841) (21.2) %

Net cash (used in) provided by investing activities (18,195) 12,131 (30,326) (250.0) %

Net cash provided by (used in) investing activities 823,241 (5,787) 829,028 (14,325.7) %

Net cash used in financing activities (589,512) (88,759) (500,753) 564.2 %

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

Net cash used in investing activities increased primarily due to the sale of John Marshall II during the 2020 Period, partially offset by lower expenditures on capital improvements to real estate and development during the 2021 Period.

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

Net cash provided by operating activities decreased primarily due to the sales of the Office Portfolio and the Retail Portfolio during the 2021 Quarter and costs associated with our strategic transformation .

Net cash provided by investing activities increased primarily due to the sales of the Office Portfolio and the Retail Portfolio during the 2021 Quarter partially offset by the acquisition of The Oxford during the 2021 Quarter.

Net cash used in financing activities increased primarily due to the repayment of $300.0 million of unsecured notes in the 2021 Quarter and higher net repayments on the Revolving Credit Facility during the 2021 Period.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of June 30, 2021 that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We have no off-balance sheet arrangements as of September 30, 2021 that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Funds From Operations

8 unchanged sentences

NAREIT FFO is a non-GAAP measure.

The following table provides the calculation of our NAREIT FFO and a reconciliation of NAREIT FFO to net loss for the three and six months ended June 30, 2021 and 2020 (in thousands):

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

The following table provides the calculation of our NAREIT FFO and a reconciliation of NAREIT FFO to net income (loss) for the three and nine months ended September 30, 2021 and 2020 (in thousands):

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)

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

2 unchanged sentences

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

Gain on sale of depreciable real estate (46,441) — (46,441) —

NAREIT FFO $ 3,130 $ 29,514 $ 52,185 $ 92,685

2 unchanged sentences

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

There were no changes made by management to the critical accounting policies in the three and six months ended June 30, 2021.

There were no changes made by management to the critical accounting policies in the three and nine months ended September 30, 2021.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis