What changed in this filing

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Item 1A. Risk Factors

2022-02-18 compared with 2021-02-16 · 181 added, 153 removed, 220 unchanged (60% of the section changed)

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You should refer to the explanation of the qualifications and limitations on such forward-looking statements beginning on page 43 .

Risks Related to the novel coronavirus (COVID-19)

The current outbreak of COVID-19, and the resulting volatility it has created, has disrupted our business and we expect that the COVID-19 pandemic, will significantly and adversely impact our business, financial condition and results of operations going forward, and that other potential pandemics or outbreaks, could materially adversely affect our business, financial condition, results of operations and cash flows in the future.

Further, the spread of the COVID-19 outbreak has caused severe disruptions in the U.S.

and global economy and financial markets and could potentially create widespread business continuity issues of an unknown magnitude and duration.

Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States.

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

The COVID-19 pandemic has had, and COVID-19, any mutation thereof, and any future pandemic will continue to have repercussions across regional and global economies and financial markets.

The global impact of the outbreak has been rapidly evolving and many countries, including the United States (including the states and cities that comprise the Washington metro region, where we own properties and have development sites), have at times also instituted quarantines, shelter-in-place rules, and restrictions on travel, the types of business that may continue to operate, and/or the types of construction projects that may continue.

As a result, the COVID-19 pandemic is negatively impacting most industries, both inside and outside the Washington metro region, directly or indirectly.

Since the beginning of the pandemic, a number of our commercial tenants have announced temporary closures of their offices or stores and requested rent deferral or rent abatement.

In addition, jurisdictions in the Washington metro region have implemented or may implement rent freezes or other similar restrictions.

The full extent of the impact on our business is largely uncertain and dependent on a number of factors beyond our control, including a potential increase in the number of cases in the Washington metro region, as a result of this year's flu season or otherwise.

The COVID-19 outbreak has caused and continues to cause severe disruptions in the U.S.

and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.

COVID-19 has disrupted our business and is expected to continue to have a significant adverse effect on our business, financial performance and condition, operating results and cash flows due to, among other factors:

• a decrease in real estate rental revenue (our primary source of operating cash flow), as a result of temporary rent increase freezes impacting new and renewal rental rates on multifamily properties, longer lease-up periods for both anticipated and unanticipated vacancies, including as a result of a shift from physical to virtual tours, lower revenue recognized as a result of the waiver of late fees and a reduction in parking revenue, as well as our tenants’ ability and willingness to pay rent, increased credit losses, and our ability to continue to collect rents, on a timely basis or at all (for example, 1% of contractual cash rents in our office portfolio, 3% of contractual cash rents in our retail portfolio and 1% of contractual cash rents in our multifamily portfolio were uncollected for the fourth quarter of 2020, as of January 31, 2021);

• a complete or partial closure of one or more of our properties resulting from government or tenant action (as of February 11, 2021, all of our commercial properties are operating on a limited basis pursuant to local government orders, except for essential businesses);

• reductions in demand for commercial space in the Washington metro region and the inability to provide physical tours of either our commercial and multifamily spaces may result in our inability to renew leases, re-lease space as leases expire, or lease vacant space, particularly without concessions, or a decline in rental rates on new leases, particularly at our retail assets;

• the inability of one or more major tenants or a significant number of smaller tenants to pay rent, or the bankruptcy or insolvency of one or more major tenants or a significant number of smaller tenants, due to a downturn in their businesses or a weakening of financial condition related to the pandemic;

• the inability to decrease certain fixed expenses at our properties despite decreased operations at such properties;

• the inability of our third-party service providers to adequately perform their property management and/or leasing activities at our properties due to decreased on-site staff or other COVID-19-related challenges;

• difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deterioration in credit and financing conditions, which may affect our access to capital and our commercial tenants' ability to fund their business operations and meet their obligations to us;

• the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of debt agreements;

• a decline in the market value of real estate in the Washington metro region may result in the carrying value of certain real estate assets exceeding their fair value, which may require us to recognize an impairment to those assets;

• future delays in the supply of products, services or liquidity may negatively impact our ability to complete the development, redevelopment, renovations and lease-up of our properties on schedule or for their original estimated cost;

• loss of cash balances that we periodically invest in a variety of short-term investments in order to preserve principal and maintain a high degree of liquidity while providing current income could result in a lower level of liquidity ;

• a general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow or change the complexion of our portfolio of properties;

• our insurance may not cover loss of revenue or other expenses resulting from the pandemic and related shelter-in-place rules;

• unanticipated costs and operating expenses and decreased anticipated and actual revenue related to compliance with regulations, such as additional expenses related to staff working remotely, requirements to provide employees with additional mandatory paid time off and increased expenses related to sanitation measures performed at each of our properties, as well as additional expenses incurred to protect the welfare of our employees, such as expanded access to health services;

• the potential for our employees, particularly our key personnel and property management teams, to become sick with COVID-19 which could adversely affect our business;

• the increased vulnerability to cyber-attacks or cyber intrusions while employees are working remotely has the potential to disrupt our operations or cause material harm to our financial condition;

• complying with REIT requirements during a period of reduced cash flow could cause us to liquidate otherwise attractive investments or borrow funds on unfavorable conditions.

The significance, extent and duration of the impact of COVID-19 remains largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as a potential increase in cases in the Washington metro region, the continued severity, duration, transmission rate and geographic spread of COVID-19, the extent and effectiveness of the containment measures taken, the timing, effectiveness and availability of vaccines, and the response of the overall economy, the financial markets and the population, particularly in the Washington metro region, once the current containment measures are lifted.

The ongoing volatility of this situation may limit our ability to make predictions as to the ultimate adverse impact of COVID-19 on us.

As a result, we cannot provide an estimate of the overall impact of the COVID-19 pandemic on our business or when, or if, we will be able to resume normal operations.

Nevertheless, COVID-19 presents material uncertainty and risk with respect to our business, financial performance and condition, operating results and cash flows.

Risks Related to our Business and Operations

Our performance and value are subject to risks associated with our real estate assets and with the real estate industry, which could adversely affect our cash flow and ability to make distributions to our shareholders.

Our financial performance and the value of our real estate assets are subject to the risk that our properties do not generate revenues sufficient to meet our operating expenses, debt service and capital expenditures, which could cause our cash flow and ability to make distributions to our shareholders to be adversely affected.

The following factors, among others, may adversely affect the cash flow generated by our multifamily and commercial properties:

We may be unable to successfully expand our operations into new markets and submarkets, which could have a material adverse effect on us, the trading price of our stock and our ability to make distributions to our shareholders.

In connection with our strategic transformation, we intend to expand our residential platform through acquisitions in Southeastern markets.

Our current targeted expansion markets include Atlanta, Georgia, Raleigh/Durham, North Carolina, and Charlotte, North Carolina.

During 2021, we acquired two apartment communities in the Atlanta metro region and plan to continue to invest in the Southeast region in 2022 and beyond.

However, our historic operations have been concentrated in the Washington DC, metro region, where we have expertise in acquiring and operating assets.

The risks applicable to our ability to acquire, integrate and operate apartment communities in the Washington DC, metro region are also applicable to our ability to acquire, integrate and operate apartment communities in new markets.

In addition to these risks, we will not possess the same level of familiarity with the dynamics and market conditions of any new markets that we may enter, which could adversely affect our ability to expand and success in expanding into those markets.

Furthermore, we may be unable to build a significant market share or achieve a desired return on our investments in new markets.

The occurrence of any of the foregoing risks could have a material adverse effect on us, the trading price of our stock and our ability to make distributions to our shareholders.

Our performance and value are subject to risks associated with our apartment communities and with the real estate industry, which could adversely affect our cash flow and ability to make distributions to our shareholders.

Our financial performance and the value of our apartment communities are subject to the risk that they do not generate revenues sufficient to meet our operating expenses, debt service and capital expenditures, which could cause our cash flow and ability to make distributions to our shareholders to be adversely affected.

Any of the following factors, among others, may adversely affect the cash flow generated by our apartment communities and ability to make distributions to our shareholders:

• a decrease in demand for rental properties over home ownership resulting from, among other reasons, resident preferences, decreases in housing prices and mortgage interest rates, and government programs to promote home ownership or subsidize rental housing, slow or negative employment growth and household formation;

• competition with other housing alternatives, including owner occupied single and residential apartment homes;

• the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers;

• declines in the financial condition of our tenants;

• significant job losses in the professional/business services industries or government;

• competition from similar asset class properties;

• local real estate market conditions, such as oversupply or reduction in demand for multifamily and commercial properties;

• civil disturbances, earthquakes and other natural disasters, terrorist acts or acts of war.

• significant job losses in the regions in which we operate;

• economic and market conditions including:

migration to areas outside of major metropolitan areas where our portfolio is concentrated, new construction and excess inventory of residential and owned housing/condominiums, increasing portions of owned housing/condominium stock being converted to rental use;

• our ability to integrate new technological innovations into our properties to attract residents;

• political conditions, civil disturbances, earthquakes and other natural disasters, terrorist acts or acts of war and actual or anticipated geopolitical instability.

Each of these factors could possibly limit our ability to retain our current residents, attract new ones or increase or maintain rents, which could lower the value of our properties and adversely affect our results of operations and our financial condition.

Additionally, complying with the REIT requirements may cause us to forgo and/or liquidate otherwise attractive investments.

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Thus, compliance with the REIT requirements may hinder our ability to make, or, in certain cases, maintain ownership of, certain attractive investments.

We may also face potential adverse effects from bankruptcies or insolvencies of major tenants and could face potential difficulties in leasing or re-leasing such tenants' associated space.

Lastly, in addition, a significant economic downturn over a period of time could result in an event or change in circumstances that results in an impairment in the value of our properties.

An impairment loss is recognized if the carrying amount of the asset is not recoverable over its expected holding period and exceeds its fair value.

Any of these events could affect our cash flow and ability to make distributions to our shareholders.

We are dependent upon the economic and regulatory climate of the Washington metro region, which may impact our profitability and may limit our ability to meet our financial obligations when due and/or make distributions to our shareholders.

All of the properties in our portfolio are located in the Washington metro region and such concentration may expose us to a greater amount of market dependent risk than if we were geographically diverse.

General economic conditions and local real estate conditions in the Washington metro region are dependent upon various industries that are predominant in our area (such as government and professional/business services).

A downturn in one or more of these industries may have a particularly strong effect on the economic climate of our region.

We are currently dependent upon the economic and regulatory climate of the Washington, DC metro region, which may impact our profitability and may limit our ability to meet our financial obligations when due and/or make distributions to our shareholders.

While we are implementing a strategy of expanding into markets in the Southeast region, as of December 31, 2021, 91% of our residential apartment homes were located in the Washington, DC metro region and such concentration may expose us to a greater amount of market dependent risk than if we were more geographically diverse.

General economic conditions and local real estate conditions in the Washington, DC metro region are dependent upon various industries that are predominant in our area (such as government and professional/business services).

A downturn in one or more of these industries may have a particularly strong effect on the economic climate of the region.

Additionally, we are susceptible to adverse developments in the Washington, D.C.

regulatory environment, such as increases in real estate and other taxes, the costs of complying with governmental regulations or increased regulations and actual or threatened reductions in federal government spending and/or changes to the timing of government spending, as has occurred during federal government shutdowns.

In the event of negative economic and/or regulatory changes in our region, we may experience a negative impact to our profitability and may be limited in our ability to meet our financial obligations when due and/or make distributions to our shareholders.

The composition of our portfolio by asset class may change over time, which could expose us to different asset class risks than if our portfolio composition remained static.

We own multifamily and commercial assets, with multifamily and office representing approximately 94% of our net operating income for the year ended December 31, 2020, and approximately 93% of our portfolio based on square footage as of December 31, 2020.

If the composition of our portfolio changes, then we would become more exposed to the risks and markets of other asset classes.

If we are successful in executing the strategic capital allocation plan, then we will become more exposed to the risks of the multifamily and office markets, any of which could have a material adverse effect on us.

We may be adversely affected by any significant reductions in federal government spending or actual or threatened changes to the timing of federal government spending, which could have an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.

As a REIT focused on the Washington metro region, a significant portion of our properties is occupied by tenants that directly or indirectly serve the U.

Government as federal contractors or otherwise.

A significant reduction in federal government spending, particularly a sudden decrease due to a sequestration process or due to extended uncertainty in the political climate in a way that affects the federal appropriations process by decreasing, delaying or making uncertain the results, stability and timing of federal appropriations, could adversely affect the ability of these tenants to fulfill lease obligations or decrease the likelihood that they will renew their leases with us.

Further, economic conditions in the Washington metro region are significantly dependent upon the level of federal government spending in the region as a whole.

In the event of an actual or anticipated significant reduction in federal government spending or change in the timing of federal government spending, there could be negative economic changes in our region, which could adversely impact the ability of our tenants to meet their financial obligations under our leases or the likelihood of their lease renewals.

As a result, if such a reduction in federal government spending or actual or threatened change to the timing of federal government spending were to occur or be anticipated for an extended period, we could experience an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.

We face potential difficulties or delays renewing leases or re-leasing space, and as a result, our financial condition, results of operations, cash flow and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.

As of December 31, 2020, the percentage of leased square footage of our commercial properties scheduled to expire is as set forth in the lease expiration tables on page 8, with a total of 26% and 27% of our office and retail leases scheduled to expire in the two years following December 31, 2020.

Multifamily properties are leased under operating leases with terms of generally one year or less.

For each the three years ended December 31, 2020, 2019 and 2018, the multifamily tenant retention rate was 54%, 55%, and 55%, respectively.

Difficulties or delays renewing leases or releasing space, including as a result of our inability to provide physical tours of either our commercial and multifamily spaces as a result of COVID-19, could impact our financial condition and ability to make distributions to our shareholders.

We derive substantially all of our income from rent received from tenants.

If our tenants decide not to renew their leases, we may face delays or difficulties re-leasing the space.

If tenants decide to renew their leases, the terms of renewals, including the cost of required improvement allowances or concessions, may be less favorable to WashREIT than current lease terms.

If the rental rates of our properties decrease, our existing tenants do not renew their leases (refer to the list of our ten largest tenants as of December 31, 2020 in "Part I - Item 1.

Business", which collectively represented 12% of our revenue for the year ended December 31, 2020) or we do not re-lease a significant portion of our available and soon-to-be-available space, our financial condition, results of operations, cash flow and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.

Occupancy levels and market rents at our multifamily properties could be negatively affected by competition with other housing alternatives and various political, economic and market conditions, which could adversely affect our results of operations and our financial condition.

Our multifamily properties compete with numerous housing alternatives in attracting residents, including owner occupied single and multifamily homes.

Occupancy levels and market rents may be adversely affected by national and local political, economic and market conditions including, without limitation, migration to areas outside of major metropolitan areas like the Washington metro region, where our portfolio is concentrated, new construction and excess inventory of multifamily and owned housing/condominiums, increasing portions of owned housing/condominium stock being converted to rental use, rental housing subsidized by the government, other government programs that favor single family rental housing or owner occupied housing over multifamily rental housing, governmental regulations, slow or negative employment growth and household formation, the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers, changes in social preferences and the potential for geopolitical instability, all of which are beyond our control.

Finally, the federal government’s policies, many of which may encourage home ownership, can increase competition and could possibly limit our ability to raise rents in our markets and therefore lower the value of our properties.

Competitive housing in a particular area and increased affordability of owner occupied single and multifamily homes could adversely affect our ability to retain our current residents, attract new ones or increase or maintain rents, which could adversely affect our results of operations and our financial condition.

In general, our properties are concentrated in dense urban and suburban submarkets, and to the extent that these markets become less desirable to operate in, including changes in residential housing supply and demand, our results of operations could be more negatively impacted than if we were more diversified within our markets.

In the event of negative economic and/or regulatory changes in the regions in which we operate, we may experience a negative impact to our profitability and may be limited in our ability to meet our financial obligations when due and/or make distributions to our shareholders.

Short-term leases expose us to the effects of declining market rents, which could adversely affect our cash flow, results of operations and financial condition.

Substantially all of our apartment leases are for a term of one year or less.

Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our apartment leases were for longer terms.

Additionally, if the terms of a renewal or reletting are less favorable than current terms, then our results of operations and financial condition could be negatively affected.

For each the three years ended December 31, 2021, the same store residential resident retention rate was 60%, 57%, and 55%, respectively.

The risks related to our commercial operations could adversely impact our results of operations and financial condition.

Although we are primarily in the residential rental business, we also own ancillary commercial space, primarily within our apartment communities, and own one office building that we lease to third parties.

Gross rental revenue provided by leased commercial space in our portfolio represented 11% of our real estate rental revenue from continuing operations in 2021.

The long term nature of our commercial leases and characteristics of many of our tenants (small, local businesses) may subject us to certain risks, such as difficulties or delays in reletting this commercial space and in achieving desired rental rates, the cost of allowances and concessions to tenants, which may be less favorable than current terms, a failure rate of small, local business that may be higher than average and competition with other commercial spaces, which may affect our ability to lease space and the level of rents we can obtain.

Additionally, if our commercial tenants experience financial distress or bankruptcy, they may fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations.

Each of these factors could adversely impact our results of operations and financial condition.

Real estate investments are illiquid, and we may not be able to sell our properties on a timely basis when we determine it is appropriate to do so, which could negatively impact our profitability.

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Due to these factors, we may be unable to sell a property at an advantageous time or on the terms anticipated which could negatively impact our profitability.

Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants.

Certain states and municipalities, including Washington, D.C., have adopted laws and regulations imposing restrictions on the timing or amount of rent increases or have imposed regulations relating to low- and moderate-income housing.

Such laws and regulations limit our ability to charge market rents, increase rents, evict tenants or recover increases in our operating expenses at our residential properties and could make it more difficult for us to dispose of properties in certain circumstances.

Similarly, compliance procedures associated with rent control statutes and low- and moderate-income housing regulations could have a negative impact on our operating costs, and any failure to comply with low- and moderate-income housing regulations could

result in the loss of certain tax benefits and the forfeiture of rent payments.

In addition, such low- and moderate-income housing regulations often require us to rent a certain number of units at below-market rents, which has a negative impact on our ability to increase cash flows from our residential properties subject to such regulations.

Furthermore, such regulations may negatively impact our ability to attract higher-paying tenants to such properties.

As of December 31, 2020, two of our residential properties were subject to such regulations.

Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our residents.

Jurisdictions in the Washington, DC metro region have adopted laws and regulations imposing restrictions on the timing or amount of rent increases or have imposed regulations relating to low- and moderate-income housing.

Such laws and regulations limit our ability to charge market rents, increase rents or evict residents at our apartment communities and could make it more

difficult for us to dispose of properties in certain circumstances.

In addition, such low- and moderate-income housing regulations often require us to rent a certain number of homes at below-market rents, which has a negative impact on our ability to increase cash flows from our residential properties subject to such regulations.

Furthermore, such regulations may negatively impact our ability to attract higher-paying residents to such properties.

As of December 31, 2021, four of our residential properties, each located within the Washington, DC metro region, were subject to such regulations.

Our business and reputation depend on our ability to continue to provide high quality housing and consistent operation of our communities, the failure of which could adversely affect our business, financial condition and results of operations.

Our business and reputation depend on providing our residents with quality housing including a wide variety of amenities such as covered parking, swimming pools, fitness facilities and similar features, highly reliable services, including water and electric power and the consistent operation of our communities.

The delayed delivery or any material reduction or prolonged interruption of these services may cause residents to terminate their leases or may result in a reduction of rents and/or increase in our costs or other issues.

In addition, we may fail to provide quality housing and continuous access to amenities, including government mandated closures due to health concerns, mechanical failure, power outage, human error, vandalism, physical or electronic security breaches, war, terrorism and similar events.

Additionally, residents may choose not to use such facilities or amenities as a result of social distancing recommendations during the COVID-19 pandemic or for other reasons, which may cause our communities to become less appealing to such residents.

Such service interruptions, closures, mechanical failures or other events may also expose us to additional liability claims and damage our reputation and brand and could cause current residents to terminate or not renew their leases, and prospective residents to seek housing elsewhere.

Any such failures could impair our ability to continue providing quality housing and consistent operation of our communities, which could adversely affect our business, financial condition and results of operations.

We face risks associated with property development/redevelopment, which could have an adverse effect on our financial condition, results of operations or ability to satisfy our debt service obligations.

We may, from time to time, engage in development and redevelopment activities, some of which may be significant.

Developing or redeveloping properties presents a number of risks for us, including risks relating to necessary permitting, risks relating to development and construction costs and/or permanent financing, risks relating to completing the project on schedule, or at all, and risks related to occupancy rates at the completed property.

Developing or redeveloping properties presents a number of risks for us, including risks relating to necessary permitting, risks relating to development and construction costs and/or permanent financing, environmental remediation, timeline disruptions and demand for the completed property.

Properties developed or acquired for development may generate little or no cash flow from the date of acquisition through the date of completion of development.

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These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken.

Some of these development/redevelopment risks may be heightened given current uncertain and potentially volatile market conditions.

If market volatility causes economic conditions to remain unpredictable or to trend downwards, we may not achieve our expected returns on properties under development and we could lose some or all of our investments in those properties.

In addition, the lead time required to develop, construct, and lease-up a development property may increase, which could adversely impact our projected returns or result in a termination of the development project.

The materialization of any of the foregoing risks could have an adverse effect on our financial condition, results of operations or ability to satisfy our debt service obligations.

Corporate social responsibility, specifically related to Environmental, Social and Governance (“ESG”), may constrain our business operations, impose additional costs and expose us to new risks that could adversely impact our results of operations and financial condition and the price of our securities.

Sustainability, social and governance matters have become increasingly important to investors and other stakeholders.

Certain organizations that provide corporate risk and corporate governance advisory services to investors have developed scores and ratings to evaluate companies based upon ESG metrics.

Many investors focus on ESG-related business practices and scores when choosing where to allocate their investments and may consider a company's score as a factor in making an investment decision.

The focus and activism related to ESG and related matters may constrain our business operations or increase expenses.

Additionally, if our corporate responsibility procedures or standards do not meet the standards set by various constituencies, we may face reputational damage.

While we have generally scored highly in these metrics to date, there can be no assurance that we will continue to do so in the future, particularly since the criteria by which companies are rated for their ESG efforts may change, which could cause us to receive lower scores than in previous years.

A low ESG score could result in a negative perception of the Company, exclusion of our securities from consideration by certain investors and/or cause investors

to reallocate their capital away from the Company, each of which could have an adverse impact on the price of our securities.

We face risks associated with property acquisitions.

We may acquire properties which would increase our size and could alter our capital structure.

We may acquire properties and expand into new markets which would increase our size and geographic diversity and could alter our capital structure.

In addition, our acquisition activities and results may be exposed to the following risks:

• we may have difficulty finding properties that are consistent with our strategies and that meet our standards;

• we may have difficulty negotiating with new or existing tenants;

• we may have difficulty finding properties that are consistent with our strategies and meet our standards;

• we may be unable to finance acquisitions on favorable terms or at all;

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• we could experience a decline in value of the acquired assets after acquisition.

We may acquire properties subject to liabilities and without recourse, or with limited recourse with respect to unknown liabilities.

We may also acquire properties subject to liabilities and without recourse, or with limited recourse with respect to unknown liabilities.

As a result, if liability were asserted against us based upon the acquisition of a property, we may have to pay substantial sums to settle it, which could adversely affect our cash flow.

We face risks associated with third-party service providers, which could negatively impact our profitability.

We enter into arrangements from time to time by which various service providers conduct day-to-day property management and/or leasing activities at our properties.

Currently, all of our multifamily properties are managed by third-party service providers.

Failure of such service providers to adequately perform their contracted services could negatively impact our ability to retain tenants or lease vacant space.

We enter into arrangements from time to time with various service providers which conduct day-to-day property management and/or leasing activities at our apartment communities.

Currently, all of our apartment communities are managed by third-party service providers.

Failure of such service providers to adequately perform their contracted services could negatively impact our ability to retain residents or lease vacant space.

As a result, any such failure could negatively impact our profitability.

Climate change and regulation regarding climate change in the Washington metro region may adversely affect our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders.

We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments which may adversely affect our operations.

While we currently have no interests in joint ventures, we may from time to time invest in joint ventures in which we are not the exclusive investor or the only decision maker.

Investments in such entities may involve risks not present when a third party is not involved, including the possibility that the other parties to these investments might become bankrupt or fail to fund their share of required capital contributions, and we may be forced to make contributions to maintain the value of the property.

Our partners in these entities may have economic, tax or other business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives.

Such investments may also lead to impasses, for example, as to whether to sell a property, because neither we nor the other parties to these investments may have full control over the entity.

In addition, we may in certain circumstances be liable for the actions of the other parties to these investments.

Each of these factors could have an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.

In some instances, joint venture partners may have competing interests that could create conflicts of interest.

These conflicts may include compliance with the REIT requirements, and our REIT status could be jeopardized if any of our joint ventures do not operate in compliance with the REIT requirements.

To the extent our joint venture partners do not meet their obligations to us or they take action inconsistent with our interests in the joint venture, we may be adversely affected.

Climate change and regulation regarding climate change in the regions in which we operate, particularly in the Washington, DC metro region currently, may adversely affect our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders.

All of our properties are located on the East Coast.

Climate change (including rising sea levels, flooding, extreme weather, and changes in precipitation and temperature), may result in physical damage to, a decrease in demand for and/or a decrease in rent from and value of our properties located in the areas affected by these conditions.

Additionally, our insurance premiums may increase as a result of the threat of climate change or the effects of climate change may not be covered by our insurance policies.

Changes in federal and state legislation and regulations on climate change could result in utility expenses and/or capital expenditures to improve the energy efficiency of our existing properties or other related aspects of our properties in order to comply with such regulations or otherwise adapt to climate change.

The District of Columbia, Arlington County, Virginia, Fairfax County, Virginia, and Montgomery County, Maryland, each have made formal public commitments to carbon reduction.

To enforce this commitment, the Washington, D.C.

City Council passed the DC Clean Energy Omnibus bill.

The bill requires that all electricity purchased in the District be renewable by 2032 and sets a building energy performance standard requiring certain buildings to meet certain minimum energy efficiency standards.

Under the District of Columbia’s Building Energy Performance Standards, all existing buildings over 50,000 square feet will be required to reach minimum levels of energy efficiency or deliver savings by 2026, with progressively smaller buildings phasing into compliance over the following years.

Changes in U.S.

federal and state legislation and regulations on climate change could result in utility expenses and/or capital expenditures to improve the energy efficiency of our existing properties or other related aspects of our properties in order to comply with such regulations or otherwise adapt to climate change.

Specifically, the District of Columbia, Arlington County, Virginia, Fairfax County, Virginia, and Montgomery County, Maryland have made formal public commitments to carbon reduction.

To enforce this commitment in Washington, D.C., the Washington, D.C.

City Council passed the DC Clean Energy Omnibus Amendment Act of 2018.

The bill requires that all electricity purchased in Washington, D.C.

be renewable by 2032 and sets a building energy performance standard requiring certain buildings to meet certain minimum energy efficiency standards.

Under Washington D.C.’s Building Energy Performance Standards, all existing buildings over 50,000 square feet were required to reach minimum levels of energy efficiency or deliver savings by 2027, with progressively smaller buildings phasing into compliance over the following years.

This regulation may require unplanned capital improvements, and increased engagement to manage occupant energy use, which is a large driver of building performance.

If our properties cannot meet performance standards, they risk fines for non-compliance, as well as a decrease in demand and a decline in value.

As a result, our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.

As a result of these and other regulations in the Washington, DC metro region and the markets into which we intend to expand pursuant to the strategic transformation, our financial condition, results of operations, cash flows, per share market price of our common shares and our ability to satisfy our principal and interest obligations and to make distributions to our shareholders could be adversely affected.

Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties.

The majority of the properties in our portfolio are located in or near Washington, D.C., a metropolitan area that has been and may in the future be the target of actual or threatened terrorism attacks.

As a result, some residents in our market may choose to relocate to other markets.

This could result in an overall decrease in the demand for this market generally, which could increase vacancies or impact rental rates in our properties.

In addition, future terrorist attacks in or near Washington, D.C.

could directly or indirectly damage such properties, both physically and financially, or cause losses that materially exceed our insurance coverage.

As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially which would negatively affect our results of operations.

Some potential losses are not covered by insurance, which could adversely affect our financial condition or cash flow.

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We believe all of our properties are adequately insured.

The property insurance that we maintain for our properties has historically been on an “all risk” basis, which is in full force and effect until renewal in March 2021 for our Assembly portfolio and August 2021 for all other properties.

The property insurance that we maintain for our properties has historically been on an “all risk” basis, which is in full force and effect until renewal in March 2022 or August 2022, depending on the property.

There are other types of losses, such as from wars or catastrophic events, for which we cannot obtain insurance at all or at a reasonable cost.

We have an insurance policy that has no terrorism exclusion, except for non-certified nuclear, chemical and biological acts of terrorism.

We carry insurance policies on terms and in amounts we consider commercially reasonable.

However, it does not cover terrorist related activities except certain non-certified nuclear, chemical and biological acts of terrorism.

Our financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts.

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In the event of an uninsured loss or a loss in excess of our insurance limits, we could lose both the revenues generated from the affected property and the capital we have invested in the affected property.

Depending on the specific circumstances of the affected property it is possible that we could be liable for any mortgage indebtedness or other obligations related to the property.

Depending on the specific circumstances of the affected property, it is possible that we could be liable for any mortgage indebtedness or other obligations related to the

Any such loss could adversely affect our business and financial condition and results of operations.

Additionally, any material increase in insurance rates or decrease in available coverage in the future could adversely affect our results of operations and financial condition.

Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties.

All of the properties in our portfolio are located in or near Washington, D.C., a metropolitan area that has been and may in the future be the target of actual or threatened terrorism attacks.

As a result, some tenants in our market may choose to relocate their businesses to other markets.

This could result in an overall decrease in the demand for commercial space in this market generally, which could increase vacancies in our properties or necessitate that we lease our properties on less favorable terms, or both.

In addition, future terrorist attacks in or near Washington, D.C.

could directly or indirectly damage such properties, both physically and financially, or cause losses that materially exceed our insurance coverage.

As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially which would negatively affect our results of operations.

Certain federal, state and local laws and regulations may cause us to incur substantial costs or subject us to potential liabilities.

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The presence or release of such toxic or hazardous substances or petroleum products at our currently owned or leased properties could result in limitations on or interruptions to our operations, and releases at our currently or formerly owned or leased properties could result in in third-party claims for bodily injury, property or natural resource damages, or other losses, including liens in favor of the government for costs the government incurs in cleaning up contamination.

In addition, we also may be liable for the costs of remediating contamination at off-site waste disposal facilities to which we have arranged for the disposal, or treatment of hazardous substances without regard to whether we complied with environmental laws in doing so.

In addition, we may be liable for the costs of investigating or remediating contamination at off-site waste disposal facilities to which we have arranged for the disposal, or treatment of hazardous substances without regard to whether we complied with environmental laws in doing so.

It is our policy to retain independent environmental consultants to conduct Phase I environmental site assessments and asbestos surveys prior to our acquisition of properties.

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We face cybersecurity risks which have the potential to disrupt our operations, cause material harm to our financial condition, result in misappropriation of assets, compromise confidential information and/or damage our business relationships and can provide no assurance that the steps we and our service providers take in response to these risks will be effective.

We face cybersecurity risks, such as cyber-attacks, malware, social engineering, phishing schemes or bad actors inside our organization.

The risk of a security breach or disruption, or another cyber-attack, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks around the world have increased.

Despite system redundancy, the implementation of security measures, required employee awareness training and the existence of a disaster recovery plan, we face cybersecurity risks, such as cyber-attacks, ransomware and other malware, social engineering, phishing schemes or bad actors inside our organization.

The risk of a security breach, disruption, or cyber-attack, including by computer hackers, nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks around the world have increased.

These incidents may result in disruption of our operations, material harm to our financial condition, cash flows and the market price of our common shares, misappropriation of assets, compromise or corruption of confidential information collected in the course of conducting our business, liability for stolen information or assets, increased cybersecurity protection and insurance costs, regulatory enforcement, litigation and damage to our stakeholder relationships.

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Additionally, we rely on third-party service providers in our conduct of our business and we can provide no assurance that the security measures of those providers will be effective.

In the normal course of business, we and our service providers collect and retain certain personal information provided by our tenants, employees and vendors.

We can provide no assurance that our data security measures will be able to prevent unauthorized access to this personal information.

In the normal course of business, we and our service providers collect and retain certain personal information provided by our residents, employees and vendors.

Although we make efforts to maintain the security and integrity of our information, we can

provide no assurance that our data security measures will be able to prevent unauthorized access to this personal information.

In addition to the risks discussed above related to a breach of confidential information, a breach of personal information may result in regulatory fines and orders, obligations to notify individuals or litigation risks.

Risks Related to the novel coronavirus (COVID-19)

The current outbreak of COVID-19, and the resulting volatility it has created, has disrupted our business and we expect that the COVID-19 pandemic will significantly and adversely impact our business, financial condition and results of operations going forward, and other potential pandemics or outbreaks could materially adversely affect our business, financial condition, results of operations and cash flows in the future.

Further, the spread of the COVID-19 outbreak has caused severe disruptions in the U.S.

and global economy and financial markets and could potentially create widespread business continuity issues of an unknown magnitude and duration.

The COVID-19 pandemic has had, and COVID-19, any mutation or variant thereof, and any future pandemic will continue to have repercussions across regional and global economies and financial markets.

The global impact of the outbreak has been rapidly evolving, and many countries, including the United States (specifically the states and cities that comprise the Washington, DC metro region, where we own the majority of our properties and have development sites and the Southeast regions, into which we intend to expand pursuant to the strategic transformation), have at times also instituted quarantines, shelter-in-place rules, and restrictions on travel, the types of business that may continue to operate, and/or the types of construction projects that may continue.

As a result, the COVID-19 pandemic is directly and indirectly negatively impacting most industries both inside and outside the markets in which we currently operate and intend to expand into.

Jurisdictions in the Washington, DC metro and Southeast regions have implemented or may implement rent freezes or other similar restrictions.

The full extent of the impact on our business is largely uncertain and dependent on a number of factors beyond our control, including a potential increase in the number of cases in the Washington, DC metro and Southeast regions, as a result of this year's flu season or otherwise.

The COVID-19 outbreak has caused and continues to cause severe disruptions in the U.S.

and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration, including supply chain disruptions and increased inflation.

• a decrease in real estate rental revenue (our primary source of operating cash flow), as a result of temporary rent increase freezes impacting new and renewal rental rates on residential properties;

• the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of debt agreements;

• a decline in the market value of real estate in the regions in which we operate may result in the carrying value of certain real estate assets exceeding their fair value, which may require us to recognize an impairment to those assets;

• increased inflation, which may increase labor or other costs to maintain our properties, and increased sanitation and hygiene requirements;

• a general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow or diversify our residential portfolio;

• shifts in consumer housing demand based on geography, affordability, housing type (e.g.

multi-family vs.

single-family) and unit type (e.g.

multi-bedroom), mainly resulting from the paradigm shift of work culture, the decentralization of corporate headquarters and the success of “work from home” models;

• the potential for our employees, particularly our key personnel and property management teams, to become sick with COVID-19 which could adversely affect our business;

• complying with REIT requirements during a period of reduced cash flow could cause us to liquidate otherwise

attractive investments or borrow funds on unfavorable conditions.

The significance, extent and duration of the impact of COVID-19 remains largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as a potential increase in cases in the Washington, DC metro and Southeast regions, the continued severity, duration, transmission rate and geographic spread of COVID-19, the extent and effectiveness of the containment measures taken, the timing, effectiveness and availability of vaccines and the willingness of people to take the vaccines and the response of the overall economy, the financial markets and the population, once the current containment measures are lifted.

The ongoing volatility of this situation may limit our ability to make predictions as to the ultimate adverse impact of COVID-19 on us.

As a result, we cannot provide an estimate of the overall impact of the COVID-19 pandemic on our business or when, or if, we will be able to resume normal operations.

Nevertheless, COVID-19 presents material uncertainty and risk with respect to our business, financial performance and condition, operating results and cash flows.

Risks Related to Financing

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In the past, the commercial real estate debt markets have experienced significant volatility due to a number of factors, including the tightening of underwriting standards by lenders and credit rating agencies and the reported significant inventory of unsold mortgage-backed securities in the market.

The volatility resulted in investors decreasing the availability of debt financing as well as increasing the cost of debt financing.

This volatility resulted in investors decreasing the availability of debt financing as well as increasing the cost of debt financing.

These conditions, which increase the cost and reduce availability of debt, may continue to worsen in the future.

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Any disruption could negatively impact our ability to access additional financing at reasonable terms or at all.

We anticipate that only a small portion of the principal of our debt will be repaid prior to maturity.

We anticipate that only a small portion of the principal of our currently outstanding debt will be repaid prior to maturity.

Therefore, we are likely to need to refinance a significant portion of our outstanding debt as it matures.

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Failure to effectively hedge against interest rate changes may adversely affect our financial condition, results of operations, cash flow, per share market price of our common shares and ability to make distributions to our shareholders and agreements we enter into to protect us from rising interest rates expose us to counterparty risk.

We enter into hedging transactions to protect ourselves from the effects of interest rate fluctuations on variable rate debt.

Our hedging transactions include entering into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts.

We have entered into, and may in the future enter into, hedging transactions to protect ourselves from the effects of interest rate fluctuations on variable rate debt.

Our hedging transactions have included, and may in the future include, entering into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts.

These agreements involve risks, such as the risk that such arrangements would not be effective in reducing our exposure to interest rate changes or that a court could rule that such an agreement is not legally enforceable.

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While such agreements are intended to lessen the impact of rising interest rates on us, they could also expose us to the risk that the other parties to the agreements would not perform, and that the hedging arrangements may not be effective in reducing our exposure to interest rate changes.

In addition, the REIT provisions of the Code may limit use of certain hedging techniques that might otherwise be advantageous or

push us to implement those hedges through a TRS, which would increase the cost of our hedging activities.

In addition, the REIT provisions of the Code may limit use of certain hedging techniques that might otherwise be advantageous or push us to implement those hedges through a taxable REIT subsidiary, which would increase the cost of our hedging activities.

Moreover, there can be no assurance that our hedging arrangements will qualify as highly effective cash flow hedges under Financial Accounting Standards Board (“FASB”), Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging , or that our hedging activities will have the desired beneficial impact on our results of operations.

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The future of the reference rate used in our existing floating rate debt instruments and hedging arrangements is uncertain, which could hinder our ability to maintain effective hedges and could adversely impact our business operations and financial results.

Our floating-rate debt and certain hedging transactions determine the applicable interest rate or payment amount by reference to a benchmark rate, such as the London Interbank Offered Rate (“LIBOR”), or to another financial metric.

Our existing hedging arrangements currently use LIBOR as a reference rate, as calculated for U.S.

dollar (“USD-LIBOR”).

dollar (“USD-LIBOR”), or to another financial metric.

As of December 31, 2021, we had approximately $100.0 million of debt outstanding that was indexed to LIBOR.

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Federal Reserve with participation by SEC Staff and other regulators.

In October 2020, after a number of industry consultations, the International Swaps and Derivatives Association published a LIBOR transition protocol.

We can provide no assurance regarding the future of LIBOR, whether our current hedging arrangements will continue to use USD-LIBOR as a reference rate or whether any reliance on such rate will be appropriate.

Confusion as to the relevant benchmark reference rate for our hedging instruments could hinder our ability to establish effective hedges.

On November 30, 2020, the United Kingdom regulator announced its intentions, subject to confirmation following an early December consultation, to cease the publication of the one week and two month USD-LIBOR immediately following the December 31, 2021 publications, and the remaining USD-LIBOR tenors immediately following the June 30, 2023 publications.

Despite progress made to date by regulators and industry participants to prepare for the anticipated discontinuation of LIBOR, significant uncertainties still remain.

Such uncertainties relate to, for example, whether LIBOR will continue to be viewed as an acceptable market benchmark rate, what rate or rates may become accepted alternatives to LIBOR (various characteristics of SOFR make it uncertain whether it would be viewed by market participants as an appropriate alternative to USD-LIBOR for certain purposes), how any replacement would be implemented across the industry, and the effect any changes in industry views or movement to alternative benchmarks would have on the markets for LIBOR-linked financial instruments.

We can provide no assurance regarding the future of LIBOR and when our current floating rate debt instruments and hedging arrangements will transition from LIBOR as a reference rate to SOFR (in the case of our floating rate debt instruments and hedging arrangements that determine the applicable interest rate or payment amount by reference to LIBOR-USD as a reference rate) or another reference rate.

Such uncertainties relate to, for example, whether LIBOR will continue to be viewed as an acceptable market benchmark rate, what rate or rates may become accepted alternatives to LIBOR (for example, various characteristics of SOFR make it uncertain whether it would be viewed by market participants as an appropriate alternative to USD-LIBOR for certain purposes), how any replacement would be implemented across the industry, and the effect any changes in industry views or movement to alternative benchmarks would have on the markets for LIBOR-linked financial instruments.

We can provide no assurance regarding the future of LIBOR and when our current floating rate debt instruments and hedging arrangements that refer to LIBOR will transition from LIBOR as a reference rate to SOFR or another reference rate.

The discontinuation of a benchmark rate or other financial metric, changes in a benchmark rate or other financial metric, or changes in market perceptions of the acceptability of a benchmark rate or other financial metric, including LIBOR, could, among other things result in increased interest payments, changes to our risk exposures, or require renegotiation of previous transactions.

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Covenants in our debt agreements could adversely affect our financial condition.

Our credit facility and other debt instruments contains customary restrictions, requirements and other limitations on our ability to incur indebtedness.

We must maintain certain ratios, including a maximum of total indebtedness to total asset value, a maximum of secured indebtedness to total asset value, a minimum of quarterly adjusted EBITDA to fixed charges, a minimum net operating income from unencumbered properties to unsecured interest expense, a maximum of unsecured indebtedness to unencumbered asset value and a minimum of total unencumbered assets to total unsecured indebtedness.

Our credit facility and other debt instruments contain customary restrictions, requirements and other limitations on our ability to incur indebtedness.

Our ability to borrow under our credit facility is subject to compliance with our financial and other covenants.

Failure to comply with any of the covenants under our unsecured credit facility or other debt instruments (including our indenture and our notes purchase agreement) could result in a default under one or more of our debt instruments.

If we fail to comply with the covenants in our unsecured credit facility or other debt instruments, other sources of capital may not be

available to us or be available only on unattractive terms.

If we fail to comply with the covenants in our unsecured credit facility or other debt instruments, other sources of capital may not be available to us or be available only on unattractive terms.

In addition, if we breach covenants in our debt agreements, the lenders can declare a default and, if the debt is secured, take possession of the property securing the defaulted loan.

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• a provision where the voting rights of “control shares” acquired in a “control share acquisition,” as defined in the MGCL, may be restricted, such that the “control shares” have no voting rights, except to the extent approved by a vote of holders of two-thirds of the common shares entitled to vote on the matter.

Our bylaws currently provide that the foregoing provision regarding "control share acquisitions" will not apply to WashREIT.

Our bylaws currently provide that the foregoing provision regarding "control share acquisitions" will not apply to any acquisition by any person of shares of beneficial interest of WashREIT.

However, our board of trustees could, in the future, modify our bylaws such that the foregoing provision regarding "control share acquisitions" would be applicable to WashREIT.

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Our board of trustees may, in its sole discretion, grant exemptions to the share ownership limits, subject to such conditions and the receipt by our board of trustees of certain representations and undertakings to ensure that our REIT qualification is not adversely affected.

In addition to 9.8% (or any lower future percentage) share ownership limits, our charter also prohibits any person from (a) beneficially or constructively owning, as determined by applying certain attribution rules of the Code, our equity shares that would result in us being “closely held” under Section 856(h) of the Code (regardless of whether the interest is held during the last half of a taxable year) or that would otherwise cause us to fail to qualify as a REIT, or (b) transferring equity shares if such transfer would result in our equity shares being owned by fewer than 100 persons.

year) or that would otherwise cause us to fail to qualify as a REIT, or (b) transferring equity shares if such transfer would result in our equity shares being owned by fewer than 100 persons.

The share ownership limits contained in our charter are based on the ownership at any time by any “person,” which term includes entities and certain groups.

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In addition, our charter authorizes and our bylaws require us to indemnify our trustees for actions taken by them in those capacities to the maximum extent permitted by Maryland law.

Our bylaws also authorize us to indemnify our officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law.

Our bylaws also require us to indemnify our officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law.

As a result, we and our shareholders may have more limited rights against our trustees and officers than might otherwise exist.

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Our ability to continue to pay dividends on our common shares at their current rate or to increase our common share dividend rate will depend on a number of factors, including, among others, our future financial condition and results of operations and the terms of our debt covenants.

Our board of trustees considers, among other factors, trends in our levels of funds from operations, together with associated recurring capital improvements, tenant improvements, leasing commissions and incentives, and adjustments to straight-line rents to reflect cash rents received.

If some or all of these factors were to trend downward for a sustained period of time, our board of trustees could determine to reduce our dividend rate.

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• perceived attractiveness of investment in us, in comparison to other REITs;

• perceived attractiveness of the Washington metro region, particularly if investors have a negative sentiment about the impact of election results on the region's economy;

• perceived attractiveness of the Washington, DC metro and Southeastern regions;

• attractiveness of securities of REITs in comparison to other asset classes taking into account, among other things, that a substantial portion of REITs’ dividends may be taxed as ordinary income;

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• any negative change in the level of our dividend or the partial payment thereof in common shares.

Risks Related to our Status as a REIT

Risks Related to Taxes and our Status as a REIT

The loss of our tax status as a REIT would have significant adverse consequences to us and the value of our common shares.

We believe that we qualify as a REIT and intend to continue to operate in a manner that will allow us to continue to qualify as a REIT.

We believe that we qualify as a REIT, and we intend to continue to operate in a manner that will allow us to continue to qualify as a REIT.

However, our charter provides that our board of trustees may revoke or otherwise terminate our REIT election, without the approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT.

Furthermore, we cannot assure you that we are qualified as a REIT, or that we will remain qualified as a REIT in the future.

This is because qualification as a REIT involves the application of highly technical and complex provisions of the Code which include:

• maintaining ownership of specified minimum levels of real estate-related assets;

• generating specified minimum levels of real estate-related income;

• maintaining certain diversity of ownership requirements with respect to our shares;

• distributing at least 90% of our "REIT taxable income" (determined before the deduction for dividends paid and excluding net capital gains) on an annual basis.

This is because qualification as a REIT involves the application of highly technical and complex provisions of the Code which include maintaining ownership of specified minimum levels of real estate-related assets, generating specified minimum levels of real estate-related income, maintaining certain diversity of ownership requirements with respect to our shares and distributing at least 90% of our "REIT taxable income" (determined before the deduction for dividends paid and excluding net capital gains) on an annual basis.

Moreover, the complexity of these provisions and of applicable treasury regulations is greater in the case of a REIT that, like us, holds some of its assets through entities treated as partnerships for U.S.

federal income tax purposes.

Only limited judicial and administrative interpretations of the REIT rules exist.

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If we fail to qualify as a REIT, we could face serious tax consequences that could substantially reduce our funds available for payment of dividends for each of the years involved because:

• we would be subject to U.S.

(i) we would be subject to U.S.

federal income tax at the regular corporate rate, without any deduction for dividends paid to shareholders in computing our taxable income, and possibly increased state and local taxes;

• unless we are entitled to relief under statutory provisions, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost.

(ii) unless we are entitled to relief under statutory provisions, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost.

This treatment would reduce net earnings available for investment or distribution to shareholders because of the additional tax liability for the year (or years) involved.

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shareholders that are individuals, trusts or estates generally is 20% (excluding the 3.8% net investment income tax).

Dividends payable by REITs, however, generally are not eligible for the maximum 20% reduced rate and are taxed at applicable ordinary income tax rates, except to the extent that certain holding requirements have been met and a REIT's dividends are attributable to dividends received by a REIT from taxable corporations (such as a TRS), to income that was subject to tax at the REIT/corporate level, or to dividends properly designated by the REIT as “capital gain dividends.” For taxable years beginning before January 1, 2026, U.S.

Dividends payable by REITs, however, generally are not eligible for the maximum 20% reduced rate and are taxed at applicable ordinary income tax rates, except to the extent that certain holding requirements have been met and a REIT's dividends are attributable to dividends received by a REIT from taxable corporations (such as a taxable REIT subsidiary), to income that was subject to tax at the REIT/corporate level, or to dividends properly designated by the REIT as “capital gain dividends.” For taxable years beginning before January 1, 2026, U.S.

shareholders that are individuals, trusts or estates may deduct 20% of their dividends from REITs (excluding qualified dividend income and capital gains dividends).

For those U.S.

shareholders in the top marginal tax bracket of 37%, the deduction for REIT dividends yields an effective income tax rate of 29.6% (exclusive of the net investment income tax) on REIT dividends, which is higher than the 20% tax rate on qualified dividend income paid by non-REIT C corporations (although the maximum effective rate applicable to such dividends, after taking into account the 21% U.S.

federal income tax rate applicable to non-REIT C corporations is 36.8% (exclusive of the 3.8% net investment income tax)).

shareholders in the top marginal tax bracket of 37%, the deduction for REIT dividends yields an effective income tax rate of 29.6% (excluding the net investment income tax) on REIT dividends, which is higher than the 20% tax rate on qualified dividend income paid by non-REIT C corporations (although the maximum effective rate applicable to such dividends, after taking into account the 21% U.S.

federal income tax rate applicable to non-REIT C corporations is 36.8% (excluding the 3.8% net investment income tax)).

Although the reduced rates applicable to dividend income from non-REIT C corporations do not adversely affect the taxation of REITs or dividends payable by REITs, these reduced rates could cause investors who are non-corporate taxpayers to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT C corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common shares.

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Any of these taxes would decrease cash available for the payment of our debt obligations and distributions to shareholders.

Our TRSs generally will be subject to U.S.

federal, state and local corporate income tax on their net taxable income.

There is a risk of changes in the tax law applicable to REITs which may adversely affect our taxation as a REIT and taxation of our shareholders.

Our taxable REIT subsidiaries (and any taxable REIT subsidiaries formed in the future) generally will be subject to U.S.

federal, state and local corporate income tax on their taxable income.

Moreover, while we will attempt to ensure that our dealings with our taxable REIT subsidiaries (and any taxable REIT subsidiaries formed in the future) do not adversely affect our REIT qualification, we cannot provide assurances that we will successfully achieve that result.

Partnership tax audit rules could have a material adverse effect on us.

Under current federal partnership tax audit rules, subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and a partner’s allocable share thereof) is determined, and taxes, interest, and penalties attributable thereto are assessed and collected, at the partnership level.

With respect to any partnership in which we invest, unless such partnership makes an election or takes certain steps to require the partners to pay their tax on their allocable shares of the adjustment, it is possible that such partnership would be required to pay additional taxes, interest, and penalties as a result of an audit adjustment.

We could be required to bear the economic burden of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate‑level taxes had we owned the assets of the partnership directly.

There is a risk of changes in the tax laws which may adversely affect our taxation as a REIT and taxation of our shareholders.

The IRS, the United States Treasury Department and Congress frequently review U.S.

federal income tax legislation, regulations and other guidance.

Most recently, numerous legislative, judicial and administrative changes have been made to the U.S.

federal income tax laws in connection with the passage of the Tax Cuts and Jobs Act of 2017 and the Coronavirus Aid, Relief and Economic Security Act.

We cannot predict whether, when or to what extent new U.S.

federal tax laws, regulations, interpretations or rulings will be adopted.

Further, from time to time, changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability.

Any legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect our taxation or taxation of our shareholders.

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

What changed 10-K

Item 1A. Risk Factors