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Item 7. Management’s Discussion and Analysis

2022-02-18 compared with 2021-02-16 · 348 added, 264 removed, 287 unchanged (68% of the section changed)

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

For the discussion and analysis of our 2018 financial condition and results of operations compared to 2019, refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019.

We provide Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations and financial condition.

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• Results of Operations.

Discussion of our financial results comparing 2020 to 2019.

Discussion of our financial results comparing 2021 to 2020 and 2020 to 2019.

• Liquidity and Capital Resources.

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Calculation of NAREIT Funds From Operations (“NAREIT FFO”), a non-GAAP supplemental measure to net income.

• Critical Accounting Policies and Estimates.

• Critical Accounting Estimates.

Descriptions of accounting policies that reflect significant judgments and estimates used in the preparation of our consolidated financial statements.

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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.

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

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

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

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

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

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

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

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

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.

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

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

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

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

We have developed and implemented

robust plans for commercial tenants returning to their leased space to reduce the risk of exposure and further spread of the virus at our properties and continue to follow the mandates of public health officials and government agencies.

We continue to adhere to occupancy restrictions at our properties where required.

The effects of the COVID-19 pandemic had a significant impact on our operating results for the year ended December 31, 2020.

Beginning late in the first quarter of 2020 and continuing into the second quarter of 2020, many of our retail commercial tenants were closed or were operating at significantly reduced capacity as a result of restrictions on non-essential businesses.

The majority of our commercial office tenants have experienced limited disruption to their businesses due to social distancing and lockdown measures taken in response to the COVID-19 pandemic.

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

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

As of January 31, 2021, we collected 99% and 97% of office and retail cash rent during the fourth quarter of 2020, respectively, excluding the impact of contractual rent deferral agreements.

The effects of COVID-19 on our commercial tenants have been reflected in an increase in credit losses of $4.5 million during 2020 compared to 2019.

We have $1.0 million of deferred rent outstanding, net of repayments, from each of our office and retail segments.

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

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

As of January 31, 2021, we collected 99% of multifamily cash rent during the fourth quarter of 2020, excluding rent that has been deferred.

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

The effects of COVID-19 on our multifamily tenants have been reflected in an increase in credit losses of $0.9 million during 2020 compared to 2019.

We expect the economic disruptions caused by the COVID-19 pandemic to limit our ability to increase rental rates until the economic disruption of the pandemic subsides.

We had a decline in average occupancy of approximately 150 basis points during the fourth quarter of 2020 compared to the fourth quarter of 2019, excluding Trove which began lease-up in the first quarter of 2020.

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

New gross leasing square footage declined by 54% and 77% for office and retail space during 2020 compared 2019, respectively.

The decline in new gross leasing was due to several factors, including the effects of the COVID-19 pandemic, the execution of some large tenant leases in 2019 and the sale of several office and retail properties during 2019 and 2020.

As of December 31, 2020, we had approximately 430,000 square feet of vacant commercial space and approximately 276,000 square feet of commercial lease expirations scheduled for 2021.

For our multifamily properties, the economic disruptions caused by the COVID-19 pandemic have limited our ability to maintain or increase rental rates.

We expect this to continue until the economic disruption of the pandemic subsides.

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

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

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

Due to the uncertainty of the future impacts of the COVID-19 pandemic, the extent of the financial impact cannot be reasonably estimated at this time.

For more information, see "Part I - Item 1A.

Risk Factors" included elsewhere in this Annual Report on Form 10-K.

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

During the third quarter of 2021, we completed the sale of twelve office properties (the “Office Portfolio”) (see note 3 to the consolidated financial statements) for a contract sale price of $766.0 million.

Also during the third quarter of 2021, we completed the sale of eight retail properties (the “Retail Portfolio”) (see note 3 to the consolidated financial statements) for a contract sale price of $168.3 million.

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

The remaining office property, Watergate 600, does not meet the qualitative or quantitative criteria for a reportable segment (see note 13 to the consolidated financial statements).

The dispositions of our 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”).

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

During the third and fourth quarters of 2021, we completed the acquisitions of two apartment communities in Georgia for contract purchase prices of $48.0 million and $106.0 million, respectively.

The apartment communities have a combined total of 730 apartment homes.

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

In connection with this strategic transformation, we are redesigning our operating model for purposes of more efficiently and effectively supporting residential operations.

This operating model redesign includes insourcing the property-level management

activities currently performed by third-party management companies.

Costs related to the strategic transformation, including the allocation of internal costs, consulting, advisory and termination benefits, are included in Transformation costs on our consolidated statements of operations.

We anticipate incurring approximately $11.0 - $13.0 million of transformation costs during 2022.

We expect to realize significant operational benefits from this operating model redesign and complete its implementation in 2023.

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

The COVID-19 pandemic caused state and local governments within the Washington, DC metro and Southeast regions 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 our operating results for the years ended December 31, 2021 and 2020, we experienced strong cash collections throughout the pandemic at our apartment communities.

As of February 16, 2022, we collected 98% of cash rent at same-store communities during the fourth quarter of 2021.

We saw an inflection point during the third quarter of 2021, as indicated by the improvement in blended effective lease rate growth, which increased 8.4% in the fourth quarter of 2021 compared to a decrease of 6.4% in the fourth quarter of 2020.

Same-store average occupancy increased approximately 190 basis points during the fourth quarter of 2021 compared to the fourth quarter of 2020.

We expect continued increases in rental rates and strong occupancy during 2022 as the market recovery continues.

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

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

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

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

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

The legislation enacted in 2020 did not have a material impact on our results of operations for the year ended December 31, 2020.

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

Selected Financial Data

The following table sets forth our selected financial data on a historical basis.

The following data should be read in conjunction with our financial statements and notes thereto included elsewhere in this Form 10-K and this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

2021 2020 2019 2018 2017

(in thousands, except per share data)

Real estate rental revenue $ 169,151 $ 176,004 $ 176,748 $ 163,154 $ 178,568

Loss from continuing operations $ (53,140) $ (40,318) $ (4,253) $ (30,808) $ (29,567)

Discontinued operations:

Income from operations of properties sold or held for sale $ 23,083 $ 24,638 $ 49,543 $ 56,438 $ 48,102

Gain on sale of real estate $ 46,441 $ — $ 339,024 $ — $ —

Net income (loss) $ 16,384 $ (15,680) $ 383,550 $ 25,630 $ 18,535

Net income (loss) attributable to the controlling interests $ 16,384 $ (15,680) $ 383,550 $ 25,630 $ 18,591

Loss from continuing operations attributable to the controlling interests per share – diluted $ (0.63) $ (0.50) $ (0.05) $ (0.40) $ (0.39)

Net income (loss) attributable to the controlling interests per share – diluted $ 0.19 $ (0.20) $ 4.75 $ 0.32 $ 0.25

Total assets $ 1,875,994 $ 2,409,818 $ 2,628,328 $ 2,417,104 $ 2,359,426

Amounts outstanding on line of credit $ — $ 42,000 $ 56,000 $ 188,000 $ 166,000

Mortgage notes payable, net $ — $ — $ 47,074 $ 48,277 $ 81,624

Notes payable, net $ 496,946 $ 945,370 $ 996,722 $ 995,397 $ 894,358

Shareholders’ equity $ 1,316,755 $ 1,320,787 $ 1,411,726 $ 1,068,127 $ 1,094,971

Cash dividends declared $ 80,018 $ 99,775 $ 96,964 $ 95,502 $ 92,834

Cash dividends declared per share $ 0.94 $ 1.20 $ 1.20 $ 1.20 $ 1.20

Operating Results

Net (loss) income, NOI and NAREIT FFO for the years ended December 31, 2020 and 2019 were as follows (in thousands, except percentage amounts):

The discussion that follows is based on our Operating Results.

The ability to compare one period to another is significantly affected

by the strategic transformation in 2021 and other acquisitions completed and dispositions made during those years (see note 3 to the

consolidated financial statements).

Net income (loss), NOI and NAREIT FFO for the years ended December 31, 2021 and 2020 were as follows (in thousands, except percentage amounts):

Year Ended December 31,

2021 2020 Change % Change

Net (loss) income

Net income (loss)

$ 16,384 $ (15,680) $ 32,064 204.5 %

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(2) See page 44 of the MD&A for reconciliations of NAREIT FFO to net income.

The decrease in net income is primarily due to lower gains on sale of real estate ($414.0 million), lower income from discontinued operations ($16.2 million) and lower NOI ($12.4 million), partially offset by lower depreciation and amortization expense ($16.2 million), lower interest expense ($16.4 million), lower real estate impairment charges ($8.4 million) and lower general and administrative expenses ($2.1 million).

The lower NOI is primarily due to the sales of 1776 G Street ($8.5 million) and Quantico Corporate Center ($1.8 million) in 2019 and John Marshall II ($3.2 million), 1227 25th Street ($0.5 million) and Monument II ($0.4 million) in 2020, lower same-store NOI ($8.4 million) and a net operating loss from Trove ($0.3 million).

These were partially offset by income from the multifamily acquisitions ($10.8 million) in 2019.

The lower same-store NOI is explained in further detail beginning on page 34 (Results of Operations - 2020 Compared to 2019).

The decrease in NAREIT FFO primarily reflects lower income from discontinued operations, net of depreciation and amortization ($21.1 million) and lower NOI ($12.4 million), partially offset by lower interest expense ($16.4 million) and lower general and administrative expenses ($2.1 million).

Investment and Financing Activity

Significant investment and financing transactions during 2020 included the following:

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

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

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

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

• The prepayment of all $250.0 million of our 4.95% Senior Notes originally scheduled to mature in October 2020 without penalty using borrowings from our Revolving Credit Facility.

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

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

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

We subsequently prepaid the 2020 Term Loan on November 30, 2020.

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

The closing and full funding of the Green Bonds occurred on December 17, 2020.

The proceeds of the sale of the Green Bonds were and will be used to finance or refinance recently completed and future green building and energy efficiency, sustainable water and wastewater management and renewable energy projects (“Eligible Green Projects”).

• The prepayment of the $150.0 million of borrowings outstanding on the 2015 Term Loan.

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

At the time of termination, the forward swaps had a liability fair value of $20.4 million, which is amortized as interest expense over the 10-year term of the Green Bonds.

• In conjunction with the prepayment of the 2015 Term Loan, we terminated interest rate swap agreements with notional amounts in the aggregate of $150.0 million.

As a result of the termination, the accumulated liability fair value of the interest rate swaps of $0.6 million was reclassified from Accumulated other comprehensive loss to Loss on interest rate

swaps on our consolidated income statements.

As of February 11, 2021, our $700.0 million Revolving Credit Facility has an incremental borrowing capacity of $658.0 million.

As of December 31, 2020, the interest rate on the facility was LIBOR plus 1.00% and LIBOR was 0.14% as of that date.

The increase in net income is primarily due to the change in net gain on sale of real estate ($61.5 million), higher other income ($4.1 million) and lower interest expense ($3.2 million), partially offset by higher loss on extinguishment of debt ($12.7 million), higher transformation costs ($6.6 million), higher loss on interest rate derivatives ($5.3 million), lower NOI ($4.7 million), higher general and administrative expenses ($3.6 million), higher depreciation and amortization expenses ($2.3 million) and lower income from discontinued operations ($1.6 million).

The lower NOI is primarily due to the sales of Monument II ($3.7 million), 1227 25th Street ($2.8 million) and John Marshall II ($1.4 million) during 2020 and lower same-store NOI ($1.7 million), partially offset by placing Trove, a residential development, into service starting in 2020 ($3.3 million) and the acquisitions of The Oxford ($0.8 million) and Assembly Eagles Landing ($0.6 million) in 2021.

Residential same-store average occupancy for our portfolio increased to 95.3% in 2021 from 94.5% in 2020 as occupancy increased across the portfolio due to recovery from the impact of the COVID-19 pandemic.

The lower NAREIT FFO is primarily due to lower income from discontinued operations, net of depreciation and amortization ($28.3 million), higher loss on extinguishment of debt ($12.7 million), higher transformation expenses ($6.6 million), higher loss on interest rate derivatives ($5.3 million), lower NOI ($4.7 million) and higher general and administrative expenses ($3.6 million).

These were partially offset by higher other income ($4.1 million) and lower interest expense ($3.2 million).

Investment Activity

Significant investment transactions during 2021 included the following:

• The disposition of the Office Portfolio for a contract sales price of $766.0 million.

As a result of the transaction, we recognized a loss on sale of real estate of $11.2 million.

• The disposition of the Retail Portfolio for a contract sales price of $168.3 million.

As a result of the transaction, we recognized a gain on sale of real estate of $57.7 million.

• The acquisition of The Oxford, a 240-unit apartment community in Conyers, Georgia, for a contract purchase price of $48.0 million.

• The acquisition of Assembly Eagles Landing, a 490-unit apartment community in Stockbridge, Georgia, for a contract purchase price of $106.0 million.

Financing Activity

Significant financing transactions during 2021 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 7 to the consolidated financial statements).

• 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.

• We issued 1.6 million common shares at a weighted average price per share of $25.44 for net proceeds of $40.5 million through our at-the-market program.

Subsequent to December 31, 2021, we issued an additional 1.0 million shares at a weighted average price per share of $26.27 for net proceeds of $26.9 million.

As of December 31, 2021, the interest rate on the $700.0 million unsecured revolving credit facility was one-month LIBOR plus 0.85% and the facility fee was 0.20%.

The LIBOR was 0.10% as of that date.

As of February 16, 2022, we had no outstanding balance and a full borrowing capacity of $700.0 million on our Revolving Credit Facility and $151.6 million of cash on hand, primarily due to the proceeds from the Office Portfolio and Retail Portfolio sales.

Capital Requirements

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The discussion that follows is based on our consolidated results of operations for the three years ended December 31, 2021.

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

The ability to compare one period to another is significantly affected by the strategic transformation in 2021, including the resulting classification of certain assets as discontinued operations, and other acquisitions completed and dispositions made during those years (see note 3 to the consolidated financial statements).

Our Results of Operations for 2020 Compared to 2019 have also been reclassified to reflect the strategic transformation in 2021, including the resulting classification of certain assets as discontinued operations, and other acquisitions completed and dispositions made during those years.

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 on sale, if any), plus interest expense, depreciation and amortization, lease origination expenses, general and administrative expenses, real estate impairment 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 measure 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.

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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.

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 follows.

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All amounts are in thousands except percentage amounts.

Non-Same-Store

Same-Store Acquisitions (1)

Year Ended December 31,

2021 2020 $ Change % Change

Residential revenue:

Same-store portfolio $ 141,301 $ 142,856 $ (1,555) (1.1) %

Acquisitions (1)

2,262 — 2,262 — %

Development (2)

6,375 1,394 4,981 357.3 %

Non-residential (3)

1,027 888 139 15.7 %

Total 150,965 145,138 5,827 4.0 %

Residential expenses:

Same-store portfolio 51,112 50,993 119 0.2 %

Acquisitions 865 — 865 — %

Development 3,258 1,579 1,679 106.3 %

Non-residential 292 280 12 4.3 %

Total 55,527 52,852 2,675 5.1 %

Residential NOI:

Same-store portfolio 90,189 91,863 (1,674) (1.8) %

Acquisitions 1,397 — 1,397 — %

Development 3,117 (185) 3,302 1784.9 %

Non-residential 735 608 127 20.9 %

Total 95,438 92,286 3,152 3.4 %

Other NOI (4), (5)

12,931 20,736 (7,805) (37.6) %

Total NOI 108,369 113,022 (4,653) (4.1) %

Reconciliation to net income (loss):

Property management expenses (6,133) (6,145) 12 0.2 %

General and administrative expenses (27,538) (23,951) (3,587) (15.0) %

Transformation costs (6,635) — (6,635) — %

Depreciation and amortization (72,656) (70,336) (2,320) (3.3) %

Loss on sale of real estate, net — (15,009) 15,009 100.0 %

Interest expense (34,063) (37,305) 3,242 8.7 %

Loss on interest rate derivatives (5,866) (560) (5,306) (947.5) %

Loss on extinguishment of debt (12,727) (34) (12,693) (37332.4) %

Other income 4,109 — 4,109 — %

Discontinued operations (6) :

Income from operations of properties sold or held for sale 23,083 24,638 (1,555) (6.3) %

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

Net income (loss) $ 16,384 $ (15,680) $ 32,064 204.5 %

______________________________

(1) Acquisitions:

The Oxford, Assembly at Eagles Landing

(2) Development/redevelopment:

Held for Sale or Sold (3)

All Properties

Change 2020 2019 2020 2019 2020 2019 2020 2019 $

(3) Non-residential:

Includes revenues and expenses from retail 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:

2021 Office - 1901 Pennsylvania Avenue, 515 King Street, 1220 19th Street, 1600 Wilson Boulevard, Silverline Center, Courthouse Square, 2000 M Street, 1140 Connecticut Avenue, Army Navy Club, 1775 Eye Street, Fairgate at Ballston and Arlington Tower

2021 Retail - Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S.

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

Real Estate Rental Revenue

Real estate expenses

Real estate rental revenue from our apartment communities is comprised of (a) rent from operating leases of 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 $1.6 million, or 1.1%, to $141.3 million for 2021, compared to $142.9 million for 2020, primarily due to higher rent abatements ($1.3 million), lower rental income ($1.1 million) and higher credit losses ($0.3 million), partially offset by higher recoveries ($0.5 million), lower waived one-time fees ($0.3 million) due to COVID-19 concessions, higher move-in charges ($0.2 million) and higher parking income ($0.1 million).

Real estate rental revenue from acquisitions increased due to the acquisition of The Oxford ($1.4 million) during the third quarter of 2021 and Assembly Eagles Landing ($0.9 million) during the fourth quarter of 2021.

Real estate rental revenue from development properties increased due to the continued lease-up of the Trove development ($5.0 million).

We placed the remainder of the Trove development costs into service during the first quarter of 2021 and achieved stabilization during the fourth quarter of 2021.

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

December 31, 2021 December 31, 2020 Increase

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

95.3 % 71.0 % 93.4 % 94.5 % 13.0 % 89.9 % 0.8 % 58.0 % 3.5 %

NOI $ 146,891 $ 155,311 $ (8,420) (5.4) % $ 27,193 $ 16,399 $ (341) $ (41) $ 7,466 $ 21,931 $ 181,209 $ 193,600 $ (12,391) (6.4) %

Reconciliation to net income:

The increase in same-store average occupancy was primarily due to higher average occupancy at The Paramount, 3801 Connecticut Avenue, Kenmore Apartments, The Maxwell, The Wellington, Park Adams, and Ashby at McLean.

The increase in non-same-store average was primarily due to the lease-up of Trove, which was placed into service during the first quarter of 2020.

Real Estate Expenses

Residential real estate expenses as a percentage of residential revenue for 2021 and 2020 were 36.8% and 36.4%, respectively.

Real estate expenses from same-store residential properties increased $0.1 million, or 0.2%, to $51.1 million for 2021, compared to $51.0 million for 2020, primarily due to higher expenses related to contract maintenance and supplies ($0.5 million), utilities ($0.4 million) and insurance ($0.4 million) expenses, partially offset by lower real estate tax expenses ($0.8 million), repairs and maintenance ($0.2 million) and administrative ($0.2 million) expenses.

Real estate expenses from development properties increased $1.7 million due to the continued lease-up of the Trove development.

Other NOI classified as continuing operations decreased due to the sales of Monument II ($3.7 million) and 1227 25th Street ($2.8 million) during the fourth quarter of 2020 and the sale of John Marshall II ($1.4 million) during the second quarter of 2020, partially offset by higher NOI at Watergate 600 ($0.1 million).

Other Income and Expenses

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 short-term incentive compensation expense ($2.5 million), higher deferred tax expense ($0.5 million), higher office rent ($0.5 million), higher share-based compensation expense ($0.4 million) and higher corporate insurance expense ($0.3 million), partially offset by lower legal fees ($0.6 million).

Transformation costs:

During 2021 we incurred $6.6 million of costs related to the strategic transformation, including the allocation of internal costs, consulting, advisory and termination benefits.

Depreciation and amortization :

Increase primarily due to placing into service the remainder of the Trove development ($3.7 million), the acquisitions of The Oxford ($1.8 million) and Assembly Eagles Landing ($1.4 million) and higher depreciation and amortization at same store properties ($0.4 million) and Watergate 600 ($0.2 million).

These increases were partially offset by the dispositions of Monument II ($3.5 million) and 1227 25th Street ($1.7 million) in the fourth quarter of 2020.

Loss on sale of real estate, net:

The loss during 2020 was primarily due to losses on the sales of John Marshall II ($6.9 million) and Monument II ($8.6 million), partially offset by a gain on the sale of 1227 25th Street ($1.1 million).

Interest Expense :

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

Year Ended December 31,

Debt Type 2021 2020 $ Change % Change

Notes payable $ 31,652 $ 33,569 $ (1,917) (5.7) %

Mortgage notes payable — 172 (172) (100.0) %

Line of credit 3,161 5,783 (2,622) (45.3) %

Capitalized interest (750) (2,219) 1,469 66.2 %

Total $ 34,063 $ 37,305 $ (3,242) (8.7) %

• Interest expense for notes payable :

Decrease primarily due to lower interest payments resulting from the prepayment during 2021 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 2021.

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

• Interest expense for mortgage notes payable :

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

• Interest expense for line of credit :

Decrease primarily due to lower weighted average borrowings of $34.8 million and a lower weighted average interest rate of 1.1% during 2021, as compared to $204.8 million and 1.5%, respectively, during 2020.

• Capitalized interest :

Decrease primarily due to placing into service assets at Trove.

Loss on interest rate derivatives :

We terminated five interest rate swap arrangements with an aggregate notional value of $150.0 million and recognized a $5.8 million loss on interest rate derivatives during 2021 (see note 7 to the consolidated financial statements).

Loss on extinguishment of debt:

During the third quarter of 2021 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, all of which were repaid in connection with our strategic transformation, using the proceeds from the sales of the Office Portfolio and Retail Portfolio.

During the fourth quarter of 2020, we recognized a loss on extinguishment of debt of $0.3 million related to the prepayments of the $150.0 million 2020 Term Loan originally scheduled to mature in May 2021 and the $150.0 million 2015 Term Loan originally scheduled to mature in March 2021.

During the second quarter of 2020, we recognized a loss of $0.2 million related to the prepayment of all $250.0 million of our 4.95% Senior Notes originally scheduled to mature in October 2020.

These losses were partially offset by a gain of $0.5 million on the prepayment of the mortgage note secured by Yale West Apartments during the first quarter of 2020.

Other income :

Other income in 2021 primarily consists of a legal settlement ($1.3 million), a real estate tax refund for an office property sold in 2018 ($1.3 million), a gain on life insurance ($1.0 million) and a construction easement at a retail property ($0.4 million).

Discontinued operations:

Income from properties sold or held for sale:

The decrease during 2021 is primarily due to lower real estate rental revenue ($47.6 million) as a result of the sale of the Office Portfolio and the sale of the Retail Portfolio during the third quarter of 2021.

This was partially offset by lower depreciation and amortization ($26.8 million), lower real estate expenses ($17.7 million) and lower management fees ($1.6 million).

Gain on sale of real estate, net:

The net gain during 2021 is due to the gain on sale of the Retail Portfolio ($57.7 million), partially offset by the loss on sale of the Office Portfolio ($11.2 million).

2020 Compared to 2019

The following tables reconcile NOI to net income and provide the basis for our discussion of our consolidated results of operations and NOI in 2020 compared to 2019.

These results of operations have also been reclassified to reflect the strategic transformation in 2021, including the resulting classification of certain assets as discontinued operations, and other acquisitions completed and dispositions made during the applicable years.

All amounts are in thousands except percentage amounts.

Year Ended December 31,

2020 2019 $ Change % Change

Residential revenue:

Same-store portfolio $ 97,102 $ 97,584 $ (482) (0.5) %

Acquisitions (1)

45,757 27,641 18,116 65.5 %

Development (2)

1,394 35 1,359 3882.9 %

Non-residential (3)

885 937 (52) (5.5) %

Total 145,138 126,197 18,941 15.0 %

Residential expenses:

Same-store portfolio 34,019 33,880 139 0.4 %

Acquisitions 16,976 10,306 6,670 64.7 %

Development 1,579 66 1,513 2292.4 %

Non-residential 278 285 (7) (2.5) %

Total 52,852 44,537 8,315 18.7 %

Residential NOI:

Same-store portfolio 63,083 63,704 (621) (1.0) %

Acquisitions 28,781 17,335 11,446 66.0 %

Development (185) (31) (154) (496.8) %

Non-residential 607 652 (45) (6.9) %

Total 92,286 81,660 10,626 13.0 %

Other NOI (4), (5)

20,736 31,762 (11,026) (34.7) %

Total NOI 113,022 113,422 (400) (0.4) %

Reconciliation to net income (loss):

Property management expenses (6,145) (6,098) (47) (0.8) %

General and administrative expenses (23,951) (26,068) 2,117 8.1 %

Depreciation and amortization (70,336) (83,362) 13,026 15.6 %

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

(Loss) gain on sale of real estate (15,009) 59,961 (74,970) (125.0) %

(Loss) gain on sale of real estate, net (15,009) 59,961 (74,970) (125.0) %

Interest expense (37,305) (53,734) 16,429 30.6 %

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Discontinued operations (6) :

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

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

Income from operations of properties sold or held for sale 24,638 49,543 (24,905) (50.3) %

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

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

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(1) Acquisitions:

2019 Multifamily – Assembly Alexandria, Assembly Manassas, Assembly Dulles, Assembly Leesburg, Assembly Herndon, Assembly Germantown and Assembly Watkins Mill (collectively, the “Assembly Portfolio”) and Cascade at Landmark

(2) Development/redevelopment properties:

Multifamily development property – Trove and land adjacent to Riverside Apartments

Assembly Alexandria, Assembly Manassas, Assembly Dulles, Assembly Leesburg, Assembly Herndon, Assembly Germantown and Assembly Watkins Mill (collectively, the “Assembly Portfolio”) and Cascade at Landmark

(2) Development/redevelopment:

Trove and land adjacent to Riverside Apartments

(3) Non-residential:

Includes revenues and expenses from retail operations at residential properties.

(4) Sold (classified as continuing operations):

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2019 Office – Quantico Corporate Center and 1776 G Street

(5) Other (classified as continuing operations)

Watergate 600

(6) Discontinued operations:

2021 Retail - Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S.

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

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

Real Estate Rental Revenue

Real estate rental revenue 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 recognized from lease termination fees and (e) parking and other tenant charges such as percentage rents.

Real estate rental revenue from same-store properties for the two years ended December 31, 2020 was as follows (in thousands, except percentage amounts):

Year Ended December 31,

2020 2019 $ Change % Change

$ 97,894 $ 98,455 $ (561) (0.6) %

Office 119,264 127,996 (8,732) (6.8) %

16,746 18,990 (2,244) (11.8) %

Total same-store real estate rental revenue $ 233,904 $ 245,441 $ (11,537) (4.7) %

• Multifamily :

Decrease primarily due to higher rent abatements ($0.5 million), lower move-in charges ($0.5 million) and higher credit losses ($0.4 million) related to the COVID-19 pandemic.

These were partially offset by higher termination

fees ($0.3 million), rental rates ($0.2 million) and parking income ($0.1 million).

Decrease primarily due to lower lease termination fees ($3.7 million), lower parking income ($2.2 million), higher credit losses ($2.1 million) and lower reimbursements ($0.8 million).

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

Real estate rental revenue from acquisitions increased due to the completion of a full year of operations at the Assembly Portfolio ($14.6 million) and Cascade at Landmark ($3.6 million) which were acquired in 2019.

Real estate rental revenue from sold properties classified as continuing operations decreased due to the sale of 1776 G Street ($13.7 million) during the fourth quarter of 2019, John Marshall II ($5.3 million) during the second quarter of 2020, Quantico Corporate Center ($2.8 million) during the second quarter of 2019, and 1227 25th Street ($0.6 million) and Monument II ($0.6 million) during the fourth quarter of 2020.

Ending occupancy for properties classified as continuing operations for the two years ended December 31, 2020 was as follows:

December 31, 2020 December 31, 2019 Decrease

Real estate rental revenue from same-store residential properties decreased $0.5 million, or 0.5%, to $97.1 million for 2020, compared to $97.6 million for 2019, primarily due to higher rent abatements ($0.5 million), lower move-in charges ($0.5 million) and higher credit losses related to the COVID-19 pandemic ($0.2 million).

These were partially offset by higher termination fees ($0.3 million), rental rates ($0.2 million), parking income ($0.1 million) and late fees ($0.1 million).

Real estate rental revenue from acquisitions increased due to the inclusion of a full year of operations at the Assembly Portfolio ($14.6 million) and Cascade at Landmark ($3.6 million), which were acquired in 2019.

Real estate rental revenue from development properties increased due to placing 374 units in service at the Trove development ($1.4 million) during 2020.

Average occupancy for residential properties for 2020 and 2019 was as follows:

December 31, 2020 December 31, 2019 Increase

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

Multifamily (1)

94.1 % 83.4 % 89.9 % 95.2 % 68.6 % 87.7 % (1.1) % 14.8 % 2.2 %

Office 85.7 % N/A 85.7 % 88.4 % 94.9 % 89.6 % (2.7) % N/A (3.9) %

Other 86.5 % N/A 86.5 % 90.9 % N/A 90.9 % (4.4) % N/A (4.4) %

90.1 % 86.7 % 89.7 % 92.0 % 94.7 % 92.8 % (1.9) % (8.0) % (3.1) %

(1) Ending occupancy includes the addition of the total rentable units at Trove, which began to lease-up in the first quarter of 2020.

Excluding Trove, total multifamily ending occupancy was 94.3% and total portfolio ending occupancy was 91.4% as of December 31, 2020.

• Multifamily :

Decrease in same-store ending occupancy was primarily due to lower ending occupancy at 3801 Connecticut Avenue, The Kenmore, Yale West and The Maxwell, partially offset by higher ending occupancy at Bethesda Hill Apartments.

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

During the year ended December 31, 2020, we executed new and renewed leases in our office segment as follows:

(in thousands) Average Rental Rate

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

(per square foot)

Free Rent (weighted average months)

Office 214 $ 47.37 14.4 % $ 32.34 4.4

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(1) Consist of tenant improvements and leasing commissions.

The decrease in same-store average occupancy was primarily due to lower average occupancy at The Paramount, The Maxwell, 3801 Connecticut Avenue, The Ashby at McLean, and Yale West.

Real Estate Expenses

Real estate expenses as a percentage of revenue for the two years ended December 31, 2020 were 38.4% and 37.4%, respectively.

Real estate expenses from same-store properties for the two years ended December 31, 2020 were as follows (in thousands, except percentage amounts):

Year Ended December 31,

2020 2019 $ Change % Change

$ 37,816 $ 37,817 $ (1) — %

Office 43,855 46,791 (2,936) (6.3) %

5,342 5,522 (180) (3.3) %

Total same-store real estate expenses $ 87,013 $ 90,130 $ (3,117) (3.5) %

• Multifamily :

Higher real estate tax ($0.5 million) and insurance ($0.2 million) expenses were offset by lower utilities ($0.3 million), repairs and maintenance ($0.2 million) and administrative ($0.2 million) expenses.

Decrease primarily due to lower utilities ($1.7 million), contract maintenance ($1.0 million) and administrative ($0.8 million) expenses, partially offset by higher real estate tax ($0.3 million) and insurance ($0.2 million) expenses.

Residential real estate expenses as a percentage of residential revenue for 2020 and 2019 were 36.4% and 35.3%, respectively.

Real estate expenses from same-store residential properties increased $0.1 million, or 0.4%, to $34.0 million for 2020, compared to $33.9 million for 2019, primarily due to higher real estate tax ($0.5 million) and insurance ($0.2 million) expenses, partially offset by lower utilities ($0.3 million), repairs and maintenance ($0.2 million) and administrative ($0.1 million) expenses.

Other NOI decreased due to the sales of 1776 G Street ($9.0 million) and Quantico Shopping Center ($1.9 million) during 2019 and the sales of John Marshall II ($3.4 million), 1227 25th Street ($0.5 million) and Monument II ($0.4 million) during 2020.

These decreases were partially offset by higher NOI at Watergate 600 ($4.1 million).

Other Income and Expenses

Depreciation and Amortization :

Decrease primarily due to the higher amortization of intangible lease assets at the Assembly Portfolio ($6.6 million) and Cascade at Landmark ($0.3 million) in 2019, lower depreciation and amortization at same-store properties ($5.7 million) and the dispositions of 1776 G Street ($2.7 million) and Quantico Corporate Center ($0.8 million) in 2019 and John Marshall II ($2.8 million) and Monument II ($0.4 million) in 2020.

These decreases were partially offset by placing the Trove development ($3.1 million) into service during 2020.

Decrease primarily due to higher amortization of intangible lease assets at the Assembly Portfolio ($6.6 million) and Cascade at Landmark ($0.3 million) in 2019, lower depreciation and amortization at same-store properties ($3.4 million) and the dispositions of 1776 G Street ($2.7 million) and Quantico Corporate Center ($0.8 million) in 2019 and John

Marshall II ($2.8 million) and Monument II ($0.4 million) in 2020.

These decreases were partially offset by placing the Trove development ($3.1 million) into service during 2020 and higher depreciation and amortization at Watergate 600 ($0.9 million).

General and administrative expenses :

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Real estate impairment:

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

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

Loss on sale of real estate:

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Interest Expense :

Interest expense by debt type for the two years ended December 31, 2020 was as follows (in thousands, except percentage amounts):

Interest expense by debt type for the twelve months ended December 31, 2020 and 2019 was as follows (in thousands):

Year Ended December 31,

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Total $ 37,305 $ 53,734 $ (16,429) (30.6) %

• Notes payable :

Decrease primarily due to prepayment of all $250.0 million of our 4.95% Senior Notes in April 2020 and the execution of a six-month $450.0 million 2019 Term Loan in April 2019 to fund the Assembly Portfolio acquisition that was repaid in the third quarter of 2019, partially offset by the new $150.0 million 2020 Term Loan executed in May 2020 and prepaid in November 2020, and the issuance of the $350.0 million Green Bonds in December 2020.

• Mortgage notes payable :

• Interest expense for notes payable :

Decrease primarily due to lower interest paid resulting from the prepayment of all $250.0 million of our 4.95% Senior Notes in April 2020 and the execution of a six-month $450.0 million 2019 Term Loan in April 2019 to fund the Assembly Portfolio acquisition that was repaid in the third quarter of 2019, partially offset by the new $150.0 million 2020 Term Loan executed in May 2020 and prepaid in November 2020, and the issuance of the $350.0 million Green Bonds in December 2020.

• Interest expense for mortgage notes payable :

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

• Line of credit :

• Interest expense for line of credit :

Decrease primarily due to a lower weighted average interest rate of 1.5% during 2020, as compared to 3.3% during 2019, partially offset by higher weighted average borrowings of $204.8 million during 2020, as compared to $196.1 million during 2019.

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Income from properties sold or held for sale:

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

Decrease primarily due to lower real estate rental revenue ($42.5 million) due to the sale of eight retail properties in 2019, partially offset by lower depreciation and amortization ($8.1 million), lower real estate expenses ($8.1 million), lower management fees ($1.1 million) and interest expense ($0.3 million) in 2019.

Gain on sale of real estate:

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

The net gain during 2019 is due to gains on the sales of a portfolio of five retail properties ($333.0 million) and Frederick Crossing and Frederick County Square ($9.5 million), partially offset by a loss on the sale of Centre at

Hagerstown ($3.5 million) during 2019.

Loss on extinguishment of debt:

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

Liquidity and Capital Resources

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

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

However, we expect the COVID-19 pandemic to continue to adversely impact our future operating cash flows.

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

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

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

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

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

The term loan was subsequently repaid in full on November 30, 2020.

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

The closing and full funding of the Green Bonds occurred on December 17, 2020.

In the fourth quarter of 2020, we repaid $300.0 million of existing term loans (including the $150.0 million term loan incurred in May 2020) maturing in 2021 and 2022.

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

We believe we will have adequate liquidity over the next twelve months to operate our business and to meet our cash requirements, which include meeting our debt obligations, capital commitments and contractual obligations, as well as the payment of dividends, and funding possible growth opportunities.

Through our Office Portfolio and Retail Portfolio sales, which had a combined sale price of approximately $934.3 million, we executed strategic transactions that allowed us and will continue to allow us to expand in Southeastern markets, meet our debt obligations for the next twelve months, complete redemption of all $300.0 million of unsecured notes originally due to mature in 2022 during the third quarter of 2021, and pay a dividend on a quarterly basis.

In connection with our strategic transformation, we are redesigning our operating model for purposes of more efficiently and effectively supporting residential operations.

We anticipate incurring approximately $11.0 - $13.0 million of transformation costs during 2022.

We expect to realize significant operational benefits from this operating model redesign and complete its implementation in 2023.

We also believe we have adequate liquidity beyond 2022, with only $100.0 million of scheduled debt maturities within the next five years.

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 which considers, among other factors, trends in our levels of funds from operations and ongoing capital requirements to achieve a targeted payout ratio.

Capital Structure

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• Net proceeds from the sale of assets.

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

We reduced our expected 2020 capital expenditures by approximately $40 million by deferring non-essential building restorations, not incurring certain tenant improvements and leasing costs for speculative leasing, decreasing multifamily renovation capital expenditures, and lowering our anticipated development spending as we did not break ground on the new Riverside development this year.

During 2021, we expect that we will have significant capital requirements, which will continue to be impacted by the COVID-19 pandemic, including the following items:

During 2022, we expect that we will have significant capital requirements, including the following items:

• Funding dividends and distributions to our shareholders (which we intend to continue to pay at or about current levels);

• Approximately $45.0 - $50.0 million to invest in our existing portfolio of operating assets, including approximately $10.0 - $15.0 million to fund tenant-related capital requirements and leasing commissions;

• Approximately $35.0 - $40.0 million to invest in our existing portfolio of operating assets;

• Approximately $10.0 - $15.0 million to invest in our development and redevelopment projects;

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

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

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

We currently believe that we will have enough cash on hand and/or will generate sufficient cash flow from operations and potential property sales and have access to the capital resources necessary to fund our requirements in 2022.

However, as a result of the uncertainty of the future impacts of the COVID-19 pandemic, 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 in the prior paragraph.

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

If capital were not available, we may be unable to satisfy the distribution requirement applicable

to REITs, make required principal and interest payments, make strategic acquisitions or make necessary and/or routine capital improvements or undertake improvement/redevelopment opportunities with respect to our existing portfolio of operating assets.

Debt Financing

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Long-term, we generally use fixed rate debt instruments in order to match the returns from our real estate assets.

If we issue unsecured debt in the future, we would seek to ladder the maturities of our debt to mitigate exposure to interest rate risk in any particular future year.

If we issue unsecured debt in the future, we will seek to ladder the maturities of our debt to mitigate exposure to interest rate risk in any particular future year.

We also utilize variable rate debt for short-term financing purposes.

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______________________________

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

(1) WashREIT entered into an interest rate swap to effectively fix a LIBOR plus 110 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%.

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

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

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

The weighted average maturity for our debt is 7.2 years.

If principal amounts due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow may be insufficient to repay all maturing debt.

Prevailing interest rates or other factors at the time of a refinancing, such as possible reluctance of lenders to make commercial real estate loans, may result in higher interest rates and increased interest expense or inhibit our ability to finance our obligations.

Prevailing interest rates or other factors at the time of a refinancing, such as possible reluctance of lenders to

make commercial real estate loans, may result in higher interest rates and increased interest expense or inhibit our ability to finance our obligations.

From time to time, we may seek to repurchase and cancel our outstanding unsecured notes and term loans through open market purchases, privately negotiated transactions or otherwise.

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We have authorized for issuance 150.0 million common shares, of which approximately 86.3 million shares were outstanding at December 31, 2021.

On May 4, 2018, we entered into eight separate equity distribution agreements (collectively, the “2018 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.

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

Morgan Securities LLC, KeyBanc Capital Markets Inc.

and Truist Securities, Inc.

(f/k/a SunTrust Robinson Humphrey, Inc.) relating to the issuance of up to $250.0 million of our common shares from time to time.

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

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”).

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.

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

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

Our issuances and net proceeds on the 2018 Equity Distribution Agreements for the three years ended December 31, 2020 were as follows (in thousands, except per share data):

Our issuances and net proceeds on the Equity Distribution Agreements in 2021 and 2020 and the Original Equity Distribution Agreements in 2020 and 2019, respectively, were as follows (in thousands, except per share data):

Year Ended December 31,

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Net proceeds $ 40,462 $ 48,355 $ 54,916

Subsequent to December 31, 2021, we issued an additional 1.0 million shares at a weighted average price per share of $26.27 for net proceeds of $26.9 million.

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

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We will require capital for development and redevelopment projects currently underway and in the future.

We are currently engaged in development activities for the ground-up development of a multifamily property (Trove) on land adjacent to The Wellington and predevelopment activities for the ground-up development of a multifamily property on land adjacent to Riverside Apartments.

We are currently engaged in development activities on land adjacent to The Wellington and predevelopment activities for the ground-up development of a residential property on land adjacent to Riverside Apartments.

As of December 31, 2021, we had no outstanding contractual commitments related to our development and redevelopment projects, and expect to fund approximately $10.0 - $15.0 million of total development and redevelopment spending during 2022.

In addition to our development and redevelopment projects, we anticipate funding several major renovation projects in our portfolios during 2021, as follows (in thousands):

Multifamily $ 15,500

Total $ 19,600

These projects include unit, common area, lobby and pool deck renovations, elevator modernizations, mechanical upgrades, facade restorations and roof replacements at multifamily properties;

HVAC replacements, common area renovations and new conference space buildout at office properties;

and garage repairs at retail properties.

In addition to our development and redevelopment projects, we anticipate funding approximately $25.0 million on several major renovation projects at our residential properties during 2022.

These projects include unit renovations, property technology initiatives, common area and mechanical upgrades, pool deck renovations, facade and retaining wall restorations and fire system and roof replacements.

Not all of the anticipated spending had been committed via executed construction contracts at December 31, 2021.

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However, expected leasing levels could require additional tenant-related capital improvements which are not currently committed.

We expect that total tenant-related capital improvements, including those already committed, will be approximately $10.0 - $15.0 million in 2021.

Historical Cash Flows

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Cash provided by operating activities $ 89,156 $ 112,978 $ 130,923 $ (23,822) $ (17,945)

Cash provided by (used in) investing activities 65,760 61,036 (38,942) 4,724 99,978

Cash provided by investing activities 702,170 65,760 61,036 636,410 4,724

Cash used in financing activities (565,396) (185,199) (184,848) (380,197) (351)

Net cash provided by operating activities decreased in 2020 as compared to 2019 primarily due to the sales of the Retail Portfolio and 1776 G Street during 2019 and John Marshall II in 2020 (see note 3 to the consolidated financial statements).

Net cash provided by operating activities decreased in 2019 as compared to 2018 primarily due to the sales of the Retail Portfolio during 2019 (see note 3 to the consolidated financial statements) and 2445 M Street in 2018, partially offset by the acquisition of the Assembly Portfolio and Cascade at Landmark during 2019.

Net cash provided by operating activities decreased in 2021 as compared to 2020 primarily due to the sales of the Office Portfolio and the Retail Portfolio during 2021 (see note 3 to the consolidated financial statements) and costs associated with our strategic transformation.

Net cash provided by operating activities decreased in 2020 as compared to 2019 primarily due to the sales of the 8 retail properties and 1776 G Street during 2019 and John Marshall II in 2020 (see note 3 to the consolidated financial statements).

Net cash provided by investing activities increased in 2021 as compared to 2020 primarily due to the sales of the Office Portfolio and the Retail Portfolio partially offset by the acquisitions of The Oxford and Assembly Eagles Landing during 2021.

Net cash provided by investing activities increased in 2020 as compared to 2019 primarily due to lower development expenditures during 2020.

Net cash provided by investing activities increased in 2019 as compared to 2018 primarily due to a higher volume of disposition activity during 2019, partially offset by a higher volume of acquisition activity and higher development expenditures during 2019.

Net cash used in financing activities increased in 2020 as compared to 2019 primarily due to higher repayments of notes payable and term loans, the repayment of the mortgage note and the settlement of interest rate swaps (see note 8 to the consolidated financial statements), partially offset by lower net repayments on the Revolving Credit Facility.

Net cash used in financing activities increased in 2019 as compared to 2018 primarily due to higher net repayments on the Revolving Credit Facility, partially offset by lower mortgage note repayments and higher proceeds from equity issuances.

Net cash used in financing activities increased in 2021 as compared to 2020 primarily due to the repayment of $300.0 million of unsecured notes and higher net repayments on the Revolving Credit Facility during 2021.

Net cash used in financing activities increased in 2020 as compared to 2019 primarily due to higher repayments of notes payable and term loans, the repayment of the mortgage note and the settlement of certain interest rate swaps (see note 7 to the consolidated financial statements), partially offset by lower net repayments on the Revolving Credit Facility.

Capital Improvements and Development Costs

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Expansions and major renovations during 2021 included common area, lobby, unit and facade renovations at Riverside Apartments;

retail space renovations at 1775 Eye Street;

heating system replacement, roof replacement and unit renovations at The Kenmore;

heating system replacement and elevator modernization at The Ashby and roof replacement and unit renovations at 3801 Connecticut Avenue.

heating system replacement, unit renovations and solar panel installations at 3801 Connecticut Avenue;

plaza restoration and elevator modernization at The Ashby and common area and unit renovations at the Assembly Portfolio.

Development/Redevelopment:

Development costs represent expenditures for ground up development of new operating properties.

Redevelopment costs represent expenditures for improvements intended to reposition properties in their markets and increase income than would be otherwise achievable.

Development/redevelopment costs in 2020 primarily include development costs for Trove, a multifamily development adjacent to The Wellington and predevelopment costs for a future multifamily development adjacent to Riverside Apartments.

Tenant Improvements:

Tenant improvements are costs, such as space build-outs, associated with commercial lease transactions.

Our average tenant improvement costs per square foot of space leased during the three years ended December 31, 2020 were as follows:

Year Ended December 31,

2020 2019 2018

Office $ 23.03 $ 69.99 $ 33.51

The $46.96 decrease in 2020 and the $36.48 increase in 2019 in tenant improvement costs per square foot of office space leased was primarily due to new leases at Watergate 600 and Monument II executed in 2019.

Redevelopment costs represent expenditures for improvements intended to reposition properties in their markets and generate more income than would be otherwise achievable.

Development/redevelopment costs in 2021 primarily include development costs for Trove, which was placed into service in the first quarter of 2021, and predevelopment costs for a future residential development adjacent to Riverside Apartments.

Other Capital Improvements

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Over time these costs will be recurring in nature to maintain a property's income and value.

In our multifamily properties, this category includes improvements made as needed upon vacancy of an apartment.

Such improvements totaled $3.6 million in 2020, averaging approximately $1,284 per apartment for the 42% of apartments which turned over relative to our total portfolio of apartment units.

In our commercial properties and multifamily properties (aside from improvements related to apartment turnover), improvements include facade repairs, installation of new heating and air conditioning equipment, asphalt replacement, permanent landscaping, new lighting and new finishes.

This category includes improvements made as needed upon vacancy of an apartment.

Such improvements totaled $3.9 million in 2021, averaging approximately $1,206 per unit for the 41% of units which turned over relative to our total portfolio of apartment homes.

Aside from improvements related to apartment turnover, these improvements include facade repairs, installation of new heating and air conditioning equipment, asphalt replacement, permanent landscaping, new lighting and new finishes.

In addition, we incurred repair and maintenance expense of $3.8 million during 2021 to maintain the quality of our buildings.

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Additional factors include, but are not limited to:

(a) the ultimate duration of the COVID-19 global pandemic, including any mutations thereof, 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 speed of the vaccine rollout, the effectiveness and willingness of people to take COVID-19 vaccines, and the duration of associated immunity and efficacy of the vaccines against emerging variants of COVID-19;

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

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

(e) changes in the composition of our portfolio;

(f) fluctuations in interest rates;

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

(h) the risks related to use of third-party providers;

(i) the economic health of our tenants;

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

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

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

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

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

(o) changes in the market value of securities;

(p) terrorist attacks or actions and/or cyber-attacks;

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

(r) other factors discussed under the caption “Risk Factors.”

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

(b) the economic health of the greater Washington, DC metro and Southeast region;

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

(d) changes in the composition of our portfolio;

(e) fluctuations in interest rates;

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

(g) the risks related to use of third-party providers;

(h) the economic health of our residents;

(i) the ultimate duration of the COVID-19 global pandemic, including any mutations thereof, 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 effectiveness and willingness of people to take COVID-19 vaccines, and the duration of associated immunity and efficacy of the vaccines against emerging variants of COVID-19;

(j) compliance with applicable laws and corporate social responsibility goals, including those concerning the environment and access by persons with disabilities;

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

(l) changes in the market value of securities;

(m) terrorist attacks or actions and/or cyber-attacks;

(n) whether we will succeed in the day-to-day property management and leasing activities that we have previously outsourced;

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

(p) risks related to changes in interest rates, including the future of the reference rate used in our existing floating rate debt instruments;

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

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

(s) other factors discussed under the caption “Risk Factors.”

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

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2021 2020 2019

Net (loss) income $ (15,680) $ 383,550 $ 25,630

Net income (loss) $ 16,384 $ (15,680) $ 383,550

Depreciation and amortization 72,656 70,336 83,362

Real estate impairment — — 8,374

Loss (gain) on sale of depreciable real estate 15,009 (59,961) (2,495)

Loss (gain) on sale of depreciable real estate, net — 15,009 (59,961)

Discontinued operations:

Depreciation and amortization 22,904 49,694 57,817

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

Gain on sale of depreciable real estate, net (46,441) — (339,024)

NAREIT FFO $ 65,503 $ 119,359 $ 134,118

Critical Accounting Policies and Estimates

Critical Accounting Estimates

We base the discussion and analysis of our financial condition and results of operations upon our consolidated financial statements, which have been prepared in accordance with GAAP.

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We believe the following accounting estimates are the most critical to aid in fully understanding our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

Accounting for Real Estate Acquisitions

We record acquired assets, including physical assets and in-place leases, and assumed liabilities, based on their fair values.

Accounting for Asset Acquisitions

We allocate the purchase price, including transaction costs, of acquired assets, including physical assets and in-place leases, and assumed liabilities, based on their fair values.

We determine the estimated fair values of the assets and liabilities in accordance with current GAAP fair value provisions.

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We determine the fair value of land acquired based on comparisons to similar properties that have been recently marketed for sale or sold.

The fair value of in-place leases consists of the following components:

(a) the estimated cost to us to replace the leases, including foregone rents during the period of finding a new tenant and foregone recovery of tenant pass-throughs (referred to as “absorption cost”);

(b) the estimated cost of tenant improvements, and other direct costs associated with obtaining a new tenant (referred to as “tenant origination cost”);

(d) the above/at/below market cash flow of the leases, determined by comparing the projected cash flows of the leases in place, including consideration of renewal options, to projected cash flows of comparable market-rate leases (referred to as “net lease intangible”);

and (e) the value, if any, of customer relationships, determined based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the tenant (referred to as “customer relationship value”).

We discount the amounts used to calculate net lease intangibles using an interest rate which reflects the risks associated with the leases acquired.

We include tenant origination costs in income producing property on our balance sheet and amortize the tenant origination costs as depreciation expense on a straight-line basis over the useful life of the asset, which is typically the remaining life of the underlying leases.

We classify leasing commissions and absorption costs as other assets and amortize leasing commissions and absorption costs as amortization expense on a straight-line basis over the remaining life of the underlying leases.

We classify above market net lease intangible assets as other assets and amortize them on a straight-line basis as a decrease to real estate rental revenue over the remaining term of the underlying leases.

We classify below market net lease intangible liabilities as other liabilities and amortize them on a straight-line basis as an increase to real estate rental revenue over the remaining term of the underlying leases.

If any of the fair value of below market lease intangibles

includes fair value associated with a renewal option, such amounts are not amortized until the renewal option is executed.

If the renewal option is not executed, the related value is expensed at that time.

Should a tenant terminate its lease prior to the expiration date, we accelerate the amortization of the unamortized portion of the tenant origination cost (if it has no future value), leasing commissions, absorption costs and net lease intangible associated with that lease over its new shorter term.

Credit Losses on Lease Related Receivables

Lease related receivables, which include contractual amounts accrued and unpaid from tenants and accrued straight-line rents receivable, are reduced for credit losses.

Such amounts are recognized as a reduction to real estate rental revenues.

We evaluate the collectability of lease receivables monthly using several factors including a lessee’s creditworthiness.

We recognize the credit loss on lease related receivables when, in the opinion of management, collection of substantially all lease payments is not probable.

When collectability is determined not probable, any lease income recognized subsequent to recognizing the credit loss is limited to the lesser of the lease income reflected on a straight-line basis or cash collected.

The fair value of in-place leases are based upon our evaluation of the specific characteristics of the leases.

Factors considered in the fair value analysis include the estimated cost to replace the leases, including foregone rents and expense reimbursements during hypothetical expected lease-up periods (referred to as “absorption cost”), consideration of current market conditions and costs to execute similar leases.

We classify absorption costs as other assets and amortize absorption costs as amortization expense on a straight-line basis over the remaining life of the underlying leases.

Real Estate Impairment

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When determining if a property has indicators of impairment, we evaluate the property's occupancy, our expected holding period for the property, strategic decisions regarding the property's future operations or development and other market factors.

If such carrying amount is in excess of the estimated undiscounted cash flows from the operation and disposal of the property, we would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated fair value, calculated in accordance with current GAAP fair value provisions.

accordance with current GAAP fair value provisions.

Assets held for sale are recorded at the lower of cost or fair value less costs to sell.

Federal Income Taxes

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

Our TRSs are subject to corporate U.S.

Our taxable REIT subsidiaries are subject to corporate U.S.

federal and state income tax on their taxable income at regular statutory rates, or as calculated under the alternative minimum tax, as appropriate.

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

As of December 31, 2019, we had deferred state and local tax liabilities of $0.6 million.

These deferred tax liabilities were primarily related to temporary differences in the timing of the recognition of revenue, amortization and depreciation.

We did not have deferred state or local tax liabilities as of December 31, 2020.

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 7. Management’s Discussion and Analysis