What changed in this filing

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Item 1. Financial Statements

2022-04-28 compared with 2021-10-29 · 98 added, 258 removed, 360 unchanged (50% of the section changed)

5 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE DATA )

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Land $ 340,046 $ 322,623

5 unchanged sentences

Total real estate held for investment, net 1,682,866 1,592,841

Investment in real estate held for sale, net — 795,687

Cash and cash equivalents 139,711 233,600

2 unchanged sentences

Prepaid expenses and other assets 37,391 33,866

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

Total assets $ 1,876,724 $ 1,875,994

Notes payable, net $ 497,093 $ 496,946

Line of credit — 42,000

Accounts payable and other liabilities 33,184 40,585

2 unchanged sentences

Tenant security deposits 4,817 4,669

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

Total liabilities 551,481 558,932

6 unchanged sentences

150,000 and 100,000 shares authorized;

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

87,414 and 86,261 shares issued and outstanding, as of March 31, 2022 and December 31, 2021, respectively

Additional paid in capital 1,725,828 1,697,477

9 unchanged sentences

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Real estate rental revenue $ 47,804 $ 40,607

6 unchanged sentences

50,264 39,045

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

Real estate operating (loss) income ( 2,460 ) 1,562

1 unchanged sentence

Interest expense ( 5,650 ) ( 10,123 )

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

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

Other income 386 1,284

3 unchanged sentences

Income from operations of properties sold or held for sale — 6,130

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

Income from discontinued operations — 6,130

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

Net loss $ ( 7,724 ) $ ( 1,147 )

Basic net (loss) income per common share:

1 unchanged sentence

Discontinued operations — 0.07

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

Basic net loss per common share (1)

$ ( 0.09 ) $ ( 0.02 )

2 unchanged sentences

Discontinued operations — 0.07

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

Diluted net loss per common share (1)

$ ( 0.09 ) $ ( 0.02 )

1 unchanged sentence

Weighted average shares outstanding – diluted 87,214 84,413

______________

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

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(IN THOUSANDS)

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

2021 2020 2021 2020

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

Other comprehensive income (loss):

Unrealized gain (loss) on interest rate hedges 221 1,774 2,805 ( 34,582 )

Three Months Ended March 31,

Net loss $ ( 7,724 ) $ ( 1,147 )

Other comprehensive income:

Unrealized gain on interest rate hedges 1,925 1,580

Reclassification of unrealized loss on interest rate derivatives to earnings 510 510

Comprehensive income (loss) $ 32,051 $ 818 $ 33,275 $ ( 39,225 )

Comprehensive (loss) income $ ( 5,289 ) $ 943

See accompanying notes to the consolidated financial statements.

5 unchanged sentences

Balance, December 31, 2021 86,261 $ 863 $ 1,697,477 $ ( 362,494 ) $ ( 19,091 ) $ 1,316,755 $ 307 $ 1,317,062

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

Net loss — — — ( 7,724 ) — ( 7,724 ) — ( 7,724 )

Unrealized gain on interest rate hedges — — — — 1,925 1,925 — 1,925

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

Amortization of swap settlements — — — — 510 510 — 510

5 unchanged sentences

Share grants, net of forfeitures and tax withholdings 111 1 1,246 — — 1,247 — 1,247

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

Balance, March 31, 2022 87,414 $ 874 $ 1,725,828 $ ( 385,108 ) $ ( 16,656 ) $ 1,324,938 $ 305 $ 1,325,243

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

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

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

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

1 unchanged sentence

Unrealized loss on interest rate hedges — — — — 1,580 1,580 — 1,580

Distributions to noncontrolling interests — — — — — — ( 11 ) ( 11 )

Dividends ($ 0.90 per common share)

— — — ( 74,387 ) — ( 74,387 ) — ( 74,387 )

Equity issuances, net of issuance costs 46 1 1,241 — — 1,242 — 1,242

Shares issued under Dividend Reinvestment Program 64 1 1,580 — — 1,581 — 1,581

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

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

See accompanying notes to the consolidated financial statements.

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(IN THOUSANDS)

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

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

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

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

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

Amortization of swap settlements — — — — 510 510 — 510

2 unchanged sentences

— — — ( 25,462 ) — ( 25,462 ) — ( 25,462 )

Shares issued under Dividend Reinvestment Program 20 — 459 — — 459 — 459

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

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

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

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

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

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

Unrealized gain on interest rate hedges — — — — 1,774 1,774 — 1,774

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

Dividends ($ 0.30 per common share)

— — — ( 24,806 ) — ( 24,806 ) — ( 24,806 )

Equity issuances, net of issuance costs 24 467 — — 467 — 467

Shares issued under Dividend Reinvestment Program 23 520 — — 520 — 520

Share grants, net of forfeitures and tax withholdings 108 2 1,327 — — 1,329 — 1,329

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

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

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(IN THOUSANDS)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

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

Net loss $ ( 7,724 ) $ ( 1,147 )

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

1 unchanged sentence

Credit losses on lease related receivables 410 1,043

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

Share-based compensation expense 2,082 1,664

Net amortization of debt premiums, discounts and related financing costs 1,001 1,112

Loss on interest rate derivatives 5,866 —

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

Changes in operating other assets ( 735 ) ( 1,619 )

3 unchanged sentences

Real estate acquisitions, net ( 104,572 ) —

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

Capital improvements to real estate ( 4,004 ) ( 4,032 )

Development in progress ( 595 ) ( 4,161 )

Real estate deposits, net ( 5,330 ) —

Non-real estate capital improvements ( 32 ) ( 7 )

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

Net cash used in investing activities ( 114,533 ) ( 8,200 )

Cash flows from financing activities

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

Line of credit repayments, net — ( 9,000 )

Dividends paid ( 14,615 ) ( 25,398 )

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

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

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

Proceeds from term loan — 150,000

Settlement of interest rate derivatives ( 5,866 ) —

Payment of financing costs ( 39 ) —

3 unchanged sentences

Payment of tax withholdings for restricted share awards ( 451 ) ( 334 )

Net cash used in financing activities ( 589,512 ) ( 88,759 )

Net cash provided by (used in) financing activities 12,009 ( 33,749 )

Net decrease in cash, cash equivalents and restricted cash ( 93,873 ) ( 4,710 )

1 unchanged sentence

Cash, cash equivalents and restricted cash at end of period $ 140,347 $ 3,593

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Nine Months Ended September 30,

Supplemental disclosure of cash flow information:

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

March 31, 2022

NATURE OF BUSINESS

1 unchanged sentence

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

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

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

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

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

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

Within these notes to the financial statements, we refer to the three months ended March 31, 2022 and March 31, 2021 as the “2022 Quarter” and the “2021 Quarter,” respectively.

Federal Income Taxes

2 unchanged sentences

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

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

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

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

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

Our TRS is subject to corporate federal and state income tax on its taxable income at regular statutory rates.

As of both March 31, 2022 and December 31, 2021, our TRS had a deferred tax asset of $ 1.4 million that was fully reserved.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS

5 unchanged sentences

We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading.

Certain information and note disclosures normally included in annual financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading.

In addition, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the periods presented have been included.

15 unchanged sentences

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

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

As of March 31, 2022, our balance sheet included $ 3.7 million in right-of-use assets and liabilities, net of amortization.

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

2 unchanged sentences

Transformation Costs

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

Transformation costs include costs related to the strategic shift away from the commercial sector to the residential sector, including the allocation of internal costs, consulting, advisory and termination benefits.

Use of Estimates in the Financial Statements

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

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

Actual results could differ from those estimates.

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

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

(unaudited) Contract

We acquired the following property during the 2022 Quarter (the “2022 acquisition”):

Acquisition Date Property Type # of homes Average Occupancy Contract

Purchase Price

(in thousands)

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

______________________________

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

Three and Nine Months Ended September 30, 2021

February 1, 2022 Carlyle of Sandy Springs Residential 389 94.4 % $ 105,586

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

Three Months Ended March 31, 2022

Real estate rental revenue $ 1,075

7 unchanged sentences

We have recorded the total cost of the 2022 acquisition as follows (in thousands):

Land $ 17,423

Building 85,783

1 unchanged sentence

Total $ 105,720

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

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

Development/Redevelopment

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

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

As of March 31, 2022, we have invested $ 30.3 million, including the cost of acquired land, in a residential development adjacent to Riverside Apartments.

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

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

Properties Sold and Held for Sale

2 unchanged sentences

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

We sold the following properties during 2021 and 2020:

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

(in thousands) (Loss) Gain on Sale

(in thousands)

We sold the following properties during 2021 ($ in thousands):

Disposition Date Property Name Property Type Rentable Square Feet Contract Sales Price (Loss) Gain on Sale

July 26, 2021 Office Portfolio (1)

3 unchanged sentences

Total 2021 3,063,000 $ 934,314 $ 46,441

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

December 2, 2020 Monument II Office 207,000 53,000 ( 8,595 )

December 17, 2020 1227 25th Street NW Office 135,000 53,500 1,125

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

______________________________

4 unchanged sentences

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

We have fully transferred control of the assets sold in 2020 and 2021 and do not have continuing involvement in their operations.

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

Upon execution of the purchase and sale agreement, the properties in the Office Portfolio met the criteria for classification as held for sale.

We closed on the sale of the Office Portfolio on July 26, 2021, recognizing a loss on sale of real estate of $ 11.2 million.

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

During the 2021 Quarter, we executed a purchase and sale agreement for the sale of our remaining eight retail properties for a purchase price of $ 168.3 million and closed on the sale on September 22, 2021, recognizing a gain on real estate of $ 57.7 million.

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

As of September 30, 2021, we assessed our properties for impairment and did no t recognize any impairment charges during the 2021 Quarter.

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

We have fully transferred control of the assets sold in 2021 and do not have continuing involvement in their operations.

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

As of March 31, 2022, we assessed our properties for impairment and did no t recognize any impairment charges during the 2022 Quarter.

We applied reasonable estimates and judgments in evaluating each of the properties as of March 31, 2022.

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

1 unchanged sentence

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

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

2021 2020 2021 2020

Three Months Ended March 31, 2021

Real estate rental revenue $ 29,026

3 unchanged sentences

Depreciation and amortization ( 12,656 )

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

Income from discontinued operations $ 6,130

2 unchanged sentences

Capital expenditures $ 374

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

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

December 31, 2020

Land $ 249,869

Income producing property 958,704

Accumulated depreciation and amortization ( 414,008 )

Income producing property, net 794,565

Development in progress and land held for development 1,122

Investment in real estate, net $ 795,687

Cash and cash equivalents 3

Restricted cash 10

Rents and other receivables 48,532

Prepaid expenses and other assets 41,452

Total assets $ 885,684

Accounts payable and other liabilities $ 14,706

Advance rents 4,754

Tenant security deposits 5,769

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

All assets and liabilities related to the Office Portfolio and Retail Portfolio were sold as of December 31, 2021.

UNSECURED LINE OF CREDIT PAYABLE

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

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

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

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

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

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

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

1 unchanged sentence

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

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

As of March 31, 2022, the interest rate on the Revolving Credit Facility is one month LIBOR plus 0.85 %, the one month LIBOR is 0.45 % and the facility fee is 0.20 %.

All outstanding advances for the Revolving Credit Facility are due and payable upon maturity in August 2025, unless extended pursuant to one or both of the two six-month extension options.

1 unchanged sentence

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

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

The 2018 Term Loan is scheduled to mature in July 2023 and bears interest at a rate of either one month LIBOR plus a margin ranging from 0.85 % to 1.75 % or the base rate plus a margin

ranging from 0.0 % to 0.75 % (in each case depending upon WashREIT’s credit rating).

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

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

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

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

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

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

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at March 31, 2022 was as follows (in thousands):

Committed capacity $ 700,000

1 unchanged sentence

Unused and available $ 700,000

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

Balance at December 31, 2020 $ 42,000

Borrowings 108,000

Repayments ( 150,000 )

Balance at September 30, 2021 $ —

NOTES PAYABLE

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

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

There were no borrowings or repayments on the Revolving Credit Facility during the 2022 Quarter.

DERIVATIVE INSTRUMENTS

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

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

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

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

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

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

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

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

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

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

We have one interest rate swap arrangement with a notional amount of $ 100.0 million that effectively fixes the remaining $ 100.0 million portion of the 2018 Term Loan.

The interest rate swap arrangement is recorded at fair value in accordance with GAAP, based on discounted cash flow methodologies and observable inputs.

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

2 unchanged sentences

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

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

Derivative Liabilities

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

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

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

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

$ ( 1,689 ) $ ( 10,255 )

The fair values of the interest rate swap as of March 31, 2022 and December 31, 2021, were as follows (in thousands):

Derivative Assets (Liabilities)

Derivative Instrument Aggregate Notional Amount Effective Date Maturity Date March 31, 2022 December 31, 2021

Interest rate swap $ 100,000 March 31, 2017 July 21, 2023 $ 1,104 $ ( 821 )

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

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

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

2021 2020 2021 2020

Unrealized gain (loss) on interest rate hedges $ 221 $ 1,774 $ 2,805 $ ( 34,582 )

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

Three Months Ended March 31,

Unrealized gain on interest rate hedges $ 1,925 $ 1,580

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

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

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

2021 2020 2021 2020

The gains or losses reclassified from Accumulated other comprehensive loss into interest expense for the three months ended March 31, 2022 and 2021, were as follows (in thousands):

Three Months Ended March 31,

Loss reclassified from accumulated other comprehensive loss into interest expense $ 510 $ 510

1 unchanged sentence

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

As of September 30, 2021, we did no t have any derivatives in an asset position and the fair value of the derivative liabilities, including accrued interest, was $ 1.7 million.

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

As of March 31, 2022, the fair value of derivative assets, including accrued interest, was $ 1.1 million and

we did no t have any derivatives in a liability position.

As of March 31, 2022, we have not posted any collateral related to these agreements.

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

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Significant unobservable inputs

The only assets or liabilities we had at September 30, 2021 and December 31, 2020 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan (“SERP”), which primarily consist of investments in mutual funds, and the interest rate derivatives (see note 6).

The only assets or liabilities we had at March 31, 2022 and December 31, 2021 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan (“SERP”), which primarily consist of investments in mutual funds, and the interest rate derivatives (see note 5).

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

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

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

September 30, 2021 December 31, 2020

The fair values of these assets and liabilities at March 31, 2022 and December 31, 2021 were as follows (in thousands):

March 31, 2022 December 31, 2021

Value Level 1 Level 2 Level 3 Fair

2 unchanged sentences

Interest rate derivatives 1,104 — 1,104 — — — — —

Interest rate derivatives $ — $ — $ — $ — $ ( 821 ) $ — $ ( 821 ) $ —

Financial Assets and Liabilities Not Measured at Fair Value

3 unchanged sentences

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

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

In addition, fair value estimates are made at a point in time and thus, estimates of fair value

subsequent to March 31, 2022 may differ significantly from the amounts presented.

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

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

September 30, 2021 December 31, 2020

As of March 31, 2022 and December 31, 2021, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):

March 31, 2022 December 31, 2021

Carrying Value Fair Value Carrying Value Fair Value

1 unchanged sentence

Restricted cash 636 636 620 620

Line of credit — — 42,000 42,000

Notes payable, net 497,093 494,553 496,946 515,341

4 unchanged sentences

Total Compensation Expense

Total compensation expense recognized in the consolidated financial statements for all outstanding share based awards was $ 2.7 million and $ 2.1 million for the 2021 Quarter and 2020 Quarter, respectively, and $ 6.5 million and $ 5.9 million for the 2021 Period and 2020 Period, respectively.

Total compensation expense recognized in the consolidated financial statements for all outstanding share based awards was $ 2.1 million and $ 1.7 million for the 2022 Quarter and 2021 Quarter, respectively.

Restricted Share Awards

The total fair values of restricted share awards vested was $ 1.6 million and $ 0.8 million for the 2021 Period and 2020 Period, respectively.

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

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

The total fair values of restricted share awards vested was $ 1.2 million and $ 1.0 million for the 2022 Quarter and 2021 Quarter, respectively.

The total unvested restricted share awards at March 31, 2022 was 421,017 shares, which had a weighted average grant date fair value of $ 27.26 per share.

As of March 31, 2022, the total compensation cost related to unvested restricted share awards was $ 6.9 million, which we expect to recognize over a weighted average period of 23 months.

EARNINGS PER COMMON SHARE

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

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

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

2021 2020 2021 2020

The computations of basic and diluted earnings per share for the three months ended March 31, 2022 and 2021 were as follows (in thousands, except per share data):

Three Months Ended March 31,

Loss from continuing operations $ ( 7,724 ) $ ( 7,277 )

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Income from discontinued operations — 6,130

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

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

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

Adjusted net loss $ ( 7,796 ) $ ( 1,286 )

Weighted average shares outstanding – basic and diluted 87,214 84,413

2 unchanged sentences

Discontinued operations — 0.07

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

Basic net loss per common share (1)

$ ( 0.09 ) $ ( 0.02 )

2 unchanged sentences

Discontinued operations — 0.07

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

Diluted net loss per common share (1)

$ ( 0.09 ) $ ( 0.02 )

Dividends declared per common share $ 0.17 $ 0.30

______________

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

SEGMENT INFORMATION

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

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

All but three communities are within the Washington, DC metro region and one community, Riverside Apartments, comprises more than 10% of consolidated revenues.

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

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

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

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

office and residential.

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

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

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

We evaluate performance based upon net operating income (“NOI”) of the combined properties in the segment.

Our reportable operating segment consolidates similar properties.

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

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

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

Three Months Ended September 30, 2021

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

The following tables present revenues, NOI, capital expenditures and total assets for the three months ended March 31, 2022 and 2021 from our Residential segment as well as Other, and reconcile NOI to net income (loss) as reported (in thousands):

Three Months Ended March 31, 2022

Residential Other (1)

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Interest expense ( 5,650 )

Loss on interest rate derivatives ( 106 )

Loss on extinguishment of debt ( 12,727 )

Other income 386

Discontinued operations:

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

Gain on sale of real estate, net 46,441

Net income $ 31,319

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

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

Three Months Ended September 30, 2020

Residential Other (2), (3)

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

Real estate expenses 13,660 2,453 16,113

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

Other income (expense):

Property management expenses ( 1,541 )

General and administrative expenses ( 6,330 )

Depreciation and amortization ( 18,064 )

Interest expense ( 8,711 )

Discontinued operations:

Income from operations of properties sold or held for sale 6,087

Net loss $ ( 7,724 )

1 unchanged sentence

Total assets $ 1,545,731 $ 330,993 $ 1,876,724

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2021

Residential Other (1), (2)

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General and administrative expenses ( 5,604 )

Transformation costs ( 4,796 )

Depreciation and amortization ( 16,987 )

Interest expense ( 10,123 )

Loss on interest rate derivatives ( 5,866 )

Loss on extinguishment of debt ( 12,727 )

Other income 1,284

1 unchanged sentence

Income from operations of properties sold or held for sale 6,130

Gain on sale of real estate, net 46,441

Net income $ 23,180

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

Nine Months Ended September 30, 2020

Residential Other (2), (3)

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

Real estate expenses 39,100 7,918 47,018

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

Other income (expense):

Property management expenses ( 4,682 )

General and administrative expenses ( 17,963 )

Depreciation and amortization ( 52,683 )

Loss on sale of real estate ( 7,539 )

Interest expense ( 28,307 )

Gain on extinguishment of debt 262

Discontinued operations:

Income from operations of properties sold or held for sale 20,071

Net loss $ ( 1,147 )

Capital expenditures $ 3,737 $ 302 $ 4,039

Total assets $ 1,322,831 $ 1,057,205 $ 2,380,036

______________________________

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

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

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

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

3 unchanged sentences

and Truist Securities, Inc.

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

(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”).

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

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

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

Nine Months Ended September 30,

Our issuances and net proceeds on the Equity Distribution Agreements for the 2022 Quarter and 2021 Quarter were as follows ($ in thousands, except per share data):

Three Months Ended March 31,

Issuance of common shares 1,032 24

4 unchanged sentences

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

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

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

2021 2020 2021 2020

Our issuances and net proceeds on the dividend reinvestment program for the three months ended March 31, 2022 and 2021 were as follows ($ in thousands, except per share data):

Three Months Ended March 31,

Issuance of common shares 10 23

1 unchanged sentence

Net proceeds $ 264 $ 520

SUBSEQUENT EVENTS

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

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

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

What changed 10-Q

Item 1. Financial Statements