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Item 7. Management’s Discussion and Analysis

2022-02-22 compared with 2021-02-23 · 252 added, 384 removed, 300 unchanged (68% of the section changed)

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

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in Item 8 - Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

The following discussion is intended to provide material information relevant to our financial condition and results of operations, including cash flows, and should be read in conjunction with the consolidated financial statements and notes thereto appearing in Item 8 - Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Organization and Basis of Presentation

JBG SMITH, a Maryland REIT, owns and operates a portfolio of high-growth commercial and multifamily assets amenitized with ancillary retail.

JBG SMITH, a Maryland REIT, owns and operates a portfolio of commercial and multifamily assets amenitized with ancillary retail.

Our portfolio reflects our longstanding strategy of owning and operating assets within Metro-served submarkets in the Washington, D.C.

metropolitan area that have high barriers to entry and vibrant urban amenities.

Over half of our portfolio is in National Landing, where we serve as the exclusive developer for Amazon's new headquarters, and where Virginia Tech's new $1 billion Innovation Campus will be located.

In addition, our third-party asset management and real estate services business provides fee-based real estate services to the WHI, Amazon, the JBG Legacy Funds and other third parties.

metropolitan area with high barriers to entry and vibrant urban amenities.

Over half of our portfolio is in National Landing, where we serve as the developer for Amazon's new over five million square foot headquarters, and where Virginia Tech's $1 billion Innovation Campus is under construction.

In addition, our third-party asset management and real estate services business provides fee-based real estate services to Amazon, the WHI Impact Pool, the JBG Legacy Funds and other third parties.

Substantially all our assets are held by, and our operations are conducted through, JBG SMITH LP.

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On July 18, 2017, we acquired the management business and certain assets and liabilities of JBG.

References to the financial statements refer to our consolidated financial statements as of December 31, 2020 and 2019, and for each of the three years in the period ended December 31, 2020.

References to our balance sheets refer to our consolidated balance sheets as of December 31, 2020 and 2019.

References to our statements of operations refer to our consolidated statements of operations for each of the three years in the period ended December 31, 2020.

References to our statements of cash flows refer to our consolidated statements of cash flows for each of the three years in the period ended December 31, 2020.

The accompanying financial statements are prepared in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

The accompanying consolidated financial statements are prepared in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.

Actual results could differ from these estimates.

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Under those sections, a REIT which distributes at least 90% of its REIT taxable income as dividends to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders.

We intend to adhere to these requirements and maintain our REIT status in future periods.

We currently adhere and intend to continue to adhere to these requirements and to maintain our REIT status in future periods.

As a REIT, we can reduce our taxable income by distributing all or a portion of such taxable income to shareholders.

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Income taxes attributable to our TRSs are accounted for under the asset and liability method.

Under the asset and liability method, deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.

Under the asset and liability method, deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future.

We aggregate our operating segments into three reportable segments (commercial, multifamily, and third-party asset management and real estate services) based on the economic characteristics and nature of our assets and services.

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Additionally, we have:

(i) two under-construction assets comprising one wholly owned commercial asset totaling 274,000 square feet and one multifamily asset totaling 322 units (161 units at our share);

(ii) 10 wholly owned near-term development pipeline assets totaling 5.6 million square feet of estimated potential development density;

(i) one under-construction asset with 808 units (808 units at our share);

(ii) 11 near-term development pipeline assets totaling 5.3 million square feet (5.0 million square feet at our share) of estimated potential development density;

and (iii) 25 future development pipeline assets totaling 14.3 million square feet (11.6 million square feet at our share) of estimated potential development density.

We continue to focus on our comprehensive plan to reposition our holdings in National Landing in Northern Virginia by executing a broad array of Placemaking strategies.

Our Placemaking strategies include the delivery of new multifamily and office developments, locally sourced amenity retail, and thoughtful improvements to the streetscape, sidewalks, parks

and other outdoor gathering spaces.

Our Placemaking includes the delivery of new multifamily and office developments, locally sourced amenity retail, and thoughtful improvements to the streetscape, sidewalks, parks and other outdoor gathering spaces.

In keeping with our dedication to Placemaking, each new project is intended to contribute to authentic and distinct neighborhoods by creating a vibrant street environment with robust retail offerings and other amenities, including improved public spaces.

We have also invested in CBRS wireless spectrum in National Landing as part of our efforts to make National Landing among the first 5G-operable submarkets in the nation.

In November 2018, Amazon announced it had selected sites that we own in National Landing as the location of its new headquarters.

We currently have leases with Amazon totaling approximately 857,000 square feet at five office buildings in National Landing.

In March 2019, we executed purchase and sale agreements with Amazon for two of our National Landing development sites, Metropolitan Park and Pen Place, which will serve as the initial phase of construction associated with Amazon's new headquarters at National Landing.

In January 2020, we sold Metropolitan Park to Amazon for $155.0 million and began constructing two new office buildings thereon, totaling 2.1 million square feet, inclusive of over 50,000 square feet of street-level retail with new shops and restaurants.

The sale of Pen Place to Amazon for approximately $149.9 million is expected to close, subject to customary closing conditions, in 2021.

Additionally, the cutting-edge digital infrastructure investments we are making in National Landing, including the purchase of CBRS wireless spectrum and an agreement with AT&T, are advancing our efforts as we strive to make National Landing among the first 5G-operable submarkets in the nation.

In November 2018, Amazon announced it had selected sites in National Landing as the location of its new headquarters.

We currently have leases with Amazon totaling 1.0 million square feet at six office buildings in National Landing.

March 2019, we executed purchase and sale agreements with Amazon for two of our National Landing development sites, Metropolitan Park and Pen Place, on which Amazon is constructing its new headquarters.

We are currently constructing two new office buildings for Amazon on Metropolitan Park, totaling 2.1 million square feet, inclusive of over 50,000 square feet of street-level retail with new shops and restaurants.

The sale of Pen Place to Amazon is expected to close, subject to customary closing conditions, during the second quarter of 2022, and we expect Amazon to begin construction of four new buildings (three office towers and The Helix) in 2022.

In December 2021, we finalized the agreement for the sale of Pen Place to Amazon for $198.0 million, which represents a $48.1 million increase over the previously estimated contract value.

We are the developer, property manager and retail leasing agent for Amazon's new headquarters at National Landing.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and recommended containment and mitigation measures worldwide.

On March 13, 2020, a National Emergency was declared in the United States in response to COVID-19.

The efforts made by federal, state and local governments to mitigate the spread of COVID-19 included orders requiring the temporary closure of or imposed limitations on the operations of certain non-essential businesses, which have adversely affected many tenants, especially tenants in the retail industry.

While it is difficult to determine the long-term impact of COVID-19 on our business, it has adversely impacted our operations in 2020, and we expect it to continue to negatively impact our operations in 2021.

The key areas that have been, and likely will continue to be, negatively impacted include:

● significantly decreased retail revenue from rent deferral accommodations offered to certain tenants unable to pay rent while stores are closed or not operating at full capacity, resulting in increased credit losses and write-offs against both billed and deferred (straight-line) rent receivables, as discussed below;

● an increase in multifamily rental defaults as certain tenants fail to pay their rent;

● a decline in parking revenue as employees of office tenants work from home and transient parking declines (for the year ended December 31, 2020, parking revenue declined by $10.1 million, or 31.7%, compared to 2019);

● depressed near-term leasing activity in our commercial and multifamily portfolios, including delays in the lease-up of our recently delivered multifamily assets, resulting in higher concessions and lower rents in our multifamily assets;

● distress among co-working tenants, which comprised approximately 2.2% of our total square feet on a consolidated basis and 3.0% at our share as of December 31, 2020 and the failure on their part to pay rent;

● increased COVID-19-related cleaning costs at some of our commercial and multifamily assets, partially offset by an overall decrease in operating expenses in our commercial buildings as many tenants' employees work from home;

● decreased income from the Crystal City Marriott hotel in National Landing due to its temporary closure and lower occupancy.

The hotel closed in late-March 2020 and reopened in mid-June 2020.

NOI from this asset decreased $3.8 million for the year ended December 31, 2020 compared to 2019;

● increased interest expense from borrowings to provide additional liquidity and financial flexibility.

While we are always focused on the long term, we are providing the following data to provide additional information regarding the impact of the pandemic on rent collections for the three months ended December 31, 2020.

We make no assurances that our experience to date will be indicative of future performance.

In the future, we plan to return to providing only our customary metrics, and we undertake no obligation to continue to provide such information going forward.

● rent collections for our commercial office tenants were 98.5% (1) on a consolidated basis and 98.6% at our share (2019 annual average rate was 99.7%);

● rent collections for our multifamily tenants were 98.6% on a consolidated basis and 98.7% at our share (2019 annual average rate was 99.9%);

● rent collections for our commercial retail tenants were 74.3% (1) on a consolidated basis and 72.6% at our share (2019 annual average rate was 98.4%).

(1) Excludes $546,000 of deferred and abated rents, consisting of $100,000 for commercial office tenants and $452,000 for retail tenants.

Including these deferred and abated rents, our rent collections for the fourth quarter of 2020 on a consolidated basis would have been 98.4% for commercial office tenants and 70.2% for retail tenants.

Our rent collections for January 2021 kept pace with our fourth quarter of 2020 rent collections.

During the year ended December 31, 2020, we recorded $11.2 million of credit losses against billed rent receivables and $19.6 million against deferred (straight-line) rent receivables.

These losses are due to the effects of COVID-19, primarily on co-working and retail tenants, that are unable to pay rent while businesses are closed, not operating at full capacity or while employees continue to work from home.

During 2020, we recorded $8.2 million of income associated with certain lease guarantees.

Additionally, during the second quarter of 2020, we determined that our investment in the unconsolidated real estate venture that owns The Marriott Wardman Park hotel was impaired due to a decline in the fair value of the underlying asset and recorded an impairment loss of $6.5 million.

On October 1, 2020, we transferred our interest in this venture to our former venture partner.

During 2020, we put all co-working tenants and all retailers except for grocers, pharmacies, essential businesses and certain national credit tenants on the cash basis of accounting.

Although we are experiencing supply chain and labor delays as a result of new job site procedures due to the effects of COVID-19, as of December 31, 2020, all of our construction projects are active and on schedule with the exception of 7900 Wisconsin Avenue, for which we revised the delivery date earlier this year to the first quarter of 2021, a delay of two quarters from the originally estimated completion date.

We are not aware of any material impact on the construction timeline for Amazon's new headquarters.

We obtained entitlements associated with approximately 820,000 square feet in National Landing immediately prior to Virginia's stay-at-home order in March 2020.

These entitlements added approximately 65,000 square feet of potential development density to our future development pipeline.

We anticipate COVID-19 will significantly impact the real estate industry for years to come.

Over the short term, uncertainty surrounding the pandemic has and will likely continue to suppress net new demand for office space and bias multifamily leasing to renewals.

Retail failures are likely to accelerate, and an already competitive marketplace will favor tenants for years to come.

Over the longer term, however, the story is likely to be more nuanced.

We believe the maturation of teleworking and the continuing trend to workplace flexibility are here to stay and will likely be felt through an increase in office workers served per square foot of space.

We believe this will be a headwind for office rent growth, much as densification served as a headwind over the past decade.

While the unfolding economic downturn continues to be significant, the Washington D.C.

metropolitan area has historically proven to be more resilient than other gateway markets.

Our concentration in this market, where a high percentage of demand for our businesses is driven by the federal government, government contractors and Amazon-related activity, should soften the anticipated impact of a recession on our business, and has the potential to translate into countercyclical growth.

We expect our heavy concentration in Amazon's path of growth at a time like this to bear fruit on multiple fronts.

First and foremost, Amazon has historically increased its hiring pace during economic downturns.

Recent announcements from Amazon suggest that it intends to accelerate hiring for its new headquarters in National Landing in the years ahead, and that the organization remains fully committed to its planned occupancies in National Landing.

In addition, especially if the pandemic were to worsen, the potential for construction cost reductions, an expected decline in the supply pipeline and limited disruptions to permitting and construction, should facilitate pursuit of our multifamily growth plans, especially those related to new development in National Landing.

Finally, we expect increased government spending in response to the pandemic to drive more agency and contractor spending locally, which should mitigate the effects of the downturn on our markets and could also provide stimulus for future growth.

Though we remain cautious on the short-and medium-term outlook for our business, as the impact of COVID-19 is difficult to predict, we see the potential for strong demand and growth in our markets over the long term.

The significance, extent and duration of the impact of COVID-19 on our business remains largely uncertain and dependent on future developments that cannot be accurately predicted at this time.

These developments include:

the continued severity, duration, transmission rate and geographic spread of COVID-19 in the United States, the speed of the vaccine roll-out, the effectiveness and willingness of people to take COVID-19 vaccines, the duration of associated immunity and

their efficacy against emerging variants of COVID-19, the extent and effectiveness of other containment measures taken, and the response of the overall economy, the financial markets and the population, particularly in areas in which we operate, once the current containment measures are lifted, and whether the residential market in the Washington, D.C.

region and any of our properties will be materially impacted by the moratoriums on residential evictions, among others.

These uncertainties make it difficult to predict operating results for our business for 2021.

Therefore, there can be no assurances that we will not experience material declines in revenue, net income, NOI or FFO.

For additional information, see "Part II – Item 1A.

Risk Factors"

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

A fundamental component of our strategy to maximize long-term NAV per share is active capital allocation.

We evaluate development, acquisition, disposition, share repurchase and other investment decisions based on how they may impact long-term NAV per share.

Since 2017, we have completed the sale, recapitalization and/or ground lease of $1.7 billion of primarily office assets.

We intend to continue to opportunistically sell non-core office assets outside of National Landing as well as land sites where a ground lease or joint venture execution may represent the most attractive path to maximizing value.

Successful execution of our capital allocation strategy will enable us to source capital at NAV from the disposition of assets generating low cash yields and invest those proceeds in new acquisitions with higher cash yields and growth, as well as in development projects with significant yield spreads and profit potential.

We view this strategy as a key tool to source capital and intend to continue disposing of assets where the disparity in public and private market valuations are the greatest.

Consequently, at any given time, we expect to be in various stages of discussions and negotiations with potential buyers, real estate venture partners, ground lessors and other counterparties with respect to sales, joint ventures and/or ground leases for certain of our assets, including portfolios thereof.

These discussions and negotiations may or may not lead to definitive documentation or closed transactions.

Redeploying the proceeds from these sales will not only help fund our planned growth, but will also further advance the strategic shift of our portfolio to majority multifamily.

While the pandemic appears to be abating, and we are optimistic about the future, new leasing has been slow to recover and will likely continue to lag due to delayed return-to-the office plans and decision making related to future office utilization.

We expect this lag to continue to impact our occupancy levels through 2022.

Occupancy of our commercial portfolio declined by 480 basis points from December 31, 2020, the majority of which was related to pre-pandemic decision making, although we had two civilian agency GSA tenants that reduced their leased square footage due to a planned shift toward working from home.

Parking revenue in our commercial portfolio was approximately 65% of pre-pandemic levels of approximately $30 million annually due to delayed return-to-the-office plans for many of our office tenants.

Our multifamily portfolio has seen an improvement in percentage occupied and leased as residents continue to return to urban environments, offices reinstate in-person mandates, and cities repopulate.

Although asking rents in our portfolio ended the year above pre-pandemic levels, average in-place rents ended the year approximately 9% below asking rents.

We expect in-place rents to increase as leases roll, resulting in incremental NOI growth.

In 2021 and 2020, we recorded $1.1 million and $11.2 million of credit losses against billed rent receivables, and $19.6 million against deferred (straight-line) rent receivables in 2020.

These losses were due to the effects of COVID-19, primarily from co-working and retail tenants, that were unable to pay rent while businesses were closed, not operating at full capacity or while employees continue to work from home.

During 2020, we began recognizing revenue from substantially all co-working tenants and retailers except for grocers, pharmacies, essential businesses and certain national credit tenants on the cash basis of accounting.

We provided rent deferrals that had been contractually due during 2020 and 2021 totaling $10.1 million, of which $4.0 million was subsequently abated and $1.2 million was collected.

During 2021, revenue for the majority of these tenants continued to be recognized on the cash basis of accounting.

While we have seen some improvement in performance and cash collections, our retailers and co-working tenants are still experiencing some impact from the effects of COVID-19 and may continue to experience such impact.

During the fourth quarter of 2021, we received $4.5 million of business interruption insurance proceeds for COVID-19 related losses, which were included in "Interest and other income (loss), net"

in our consolidated statement of operations.

Operating Results

Key highlights of operating results for the year ended December 31, 2020 included:

● net loss attributable to common shareholders of $62.3 million, or $0.49 per diluted common share, for the year ended December 31, 2020 as compared to net income attributable to common shareholders of $65.6 million, or $0.48 per diluted common share, for the year ended December 31, 2019.

Net income (loss) attributable to common shareholders for the years ended December 31, 2020 and 2019 included gains on the sale of real estate of $59.5 million and $105.0 million;

● third-party real estate services revenue, including reimbursements, of $113.9 million for the year ended December 31, 2020 as compared to $120.9 million for the year ended December 31, 2019;

Highlights of operating results for the year ended December 31, 2021 included:

● net loss attributable to common shareholders of $79.3 million, or $0.63 per diluted common share, for 2021 as compared to $62.3 million, or $0.49 per diluted common share, for 2020;

● third-party real estate services revenue, including reimbursements, of $114.0 million for 2021 as compared to $113.9 million for 2020;

● operating commercial portfolio leased and occupied percentages at our share of 84.9% and 82.9% as of December 31, 2021 compared to 88.1% and 87.7% as of December 31, 2020;

● operating multifamily portfolio leased and occupied percentages (1) at our share of 93.6% and 91.8% as of December 31, 2021 and 87.3% and 81.7% as of December 31, 2020.

The decreases are due in part to the movement of The Wren, 901 W Street and 900 W Street into our recently delivered operating assets during 2020.

The in-service operating multifamily portfolio was 95.4% leased and 93.4% occupied as of December 31, 2021 as compared to 91.0% leased and 87.3% occupied as of December 31, 2020;

● the leasing of approximately 897,000 square feet, or 812,000 square feet at our share, at an initial rent (1) of $46.04 per square foot and a GAAP-basis weighted average rent per square foot (2) of $46.05 for the year ended December 31, 2020;

● a decrease in same store (3) NOI of 4.3% to $287.9 million for the year ended December 31, 2020 as compared to $300.9 million for the year ended December 31, 2019.

● the leasing of 1.7 million square feet at our share, at an initial rent (2) of $45.58 per square foot and a GAAP-basis weighted average rent per square foot (3) of $44.58 for 2021;

● a decrease in same store (4) NOI of 0.9% to $299.7 million for 2021 as compared to $302.3 million for 2020.

Clark Street - Residential and 900 W Street are excluded from leased and occupied percentages as they are operated as short-term rental properties.

(2) Represents the cash basis weighted average starting rent per square foot at our share, which excludes free rent and fixed escalations.

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Additionally, investing and financing activity during the year ended December 31, 2021 included:

● the acquisition of the Americana Portfolio for an aggregate total of $65.0 million.

$47.3 million was allocated to the former Americana Hotel site, of which $20.0 million has been deferred until the earlier of the approval of certain entitlements or January 1, 2023, and $17.7 million was allocated to the other three parcels.

The former Americana Hotel site has the potential to accommodate up to approximately 550,000 square feet of new development density and is located directly across the street from Amazon’s future headquarters;

● the sale of Metropolitan Park to Amazon for $155.0 million;

● the sale of Woodglen, commercial and future development assets located in Rockville, Maryland, by our unconsolidated real estate venture for $17.8 million.

We recognized our proportionate share of the loss from the sale of $3.0 million;

● the sale of Pickett Industrial Park, a commercial asset located in Alexandria, Virginia, by our unconsolidated real estate venture for $46.3 million.

We recognized our proportionate share of the gain from the sale of $800,000;

● borrowings of $500.0 million under our revolving credit facility, which were repaid in July 2020;

● the amendment of our $1.4 billion credit facility to extend the maturity date of the revolving credit facility to January 2025;

● a $100.0 million draw under our unsecured term loan;

● the closing of four separate mortgage loans with an aggregate principal balance of $560.0 million, collateralized by 4747 Bethesda Avenue, The Bartlett, 1221 Van Street and 220 20 th Street;

● the refinancing of the mortgage loan collateralized by RTC-West, increasing the principal balance by $20.2 million;

● the repayment of the mortgage loan collateralized by WestEnd25 with a principal balance of $94.7 million;

● a mortgage loan entered into by our real estate venture with Canadian Pension Plan Investment Board with a maximum principal balance of $160.0 million collateralized by 1900 N Street.

The venture initially received proceeds of $134.5 million ($74.0 million at our share) from the mortgage loan, with an additional $25.5 million available in the future.

We received a $70.8 million distribution from the venture;

● the acquisition of The Batley, a 432-unit multifamily asset in the Union Market submarket of Washington, D.C., for $205.3 million, exclusive of $3.1 million of transaction costs that were capitalized as part of the acquisition, which we intend to use as a replacement property in a like-kind exchange for the sale of Pen Place to Amazon.

See Note 3 to the consolidated financial statements for additional information;

● the lease of the land underlying 1900 Crystal Drive located in National Landing to a lessee, which plans to construct an 808-unit multifamily asset comprising two towers with ground floor retail.

The ground lessee has engaged us to be the development manager for the construction of 1900 Crystal Drive, and separately, we are the lessee in a master lease of the asset.

See Note 6 to the consolidated financial statements for additional information;

● the lease of the land underlying 2000/2001 South Bell Street located in National Landing to a lessee, which plans to construct a 775-unit multifamily asset comprising two towers with ground floor retail.

The ground lessee has engaged us to be the development manager for the construction of 2000/2001 South Bell Street, and separately, we are the lessee in a master lease of the asset.

See Note 6 to the consolidated financial statements for additional information;

● an investment in two real estate ventures, in which we have 50% ownership interests, to design, develop, manage and own 2.0 million square feet of new mixed-use development located in Potomac Yard, the southern portion of National Landing.

We recognized an $11.3 million gain on the land contributed to one of the real estate ventures based on the cash received and the remeasurement of our retained interest in the asset.

See Note 5 to the consolidated financial statements for additional information;

● recognition of an aggregate gain of $28.3 million from the sale of various assets by our unconsolidated real estate ventures.

See Note 5 to the consolidated financial statements for additional information;

● execution of two separate mortgage loans with a principal balance of $190.0 million, collateralized by 1225 S.

Clark Street and 1215 S.

Clark Street;

● borrowings of $300.0 million under our revolving credit facility;

● the payment of dividends totaling $118.1 million and distributions to our noncontrolling interests of $17.8 million;

● the repurchase and retirement of 3.8 million of our common shares for $104.8 million, an average purchase price of $27.72 per share;

● the repurchase and retirement of 5.4 million of our common shares for $157.7 million, a weighted average purchase price per share of $29.34;

● the investment of $173.2 million in development, construction in progress and real estate additions.

● the investment of $25.3 million to acquire between 30 and 40 megahertz of 5G CBRS wireless spectrum licenses across National Landing.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP, requires management to make estimates and assumptions that in certain circumstances may significantly impact our financial results.

Activity subsequent to December 31, 2021 included:

● a definitive agreement with affiliates of Fortress Investment Group LLC, entered into on February 11, 2022, to form a real estate venture in which we will have a noncontrolling interest.

The unconsolidated real estate venture will acquire a 1.6 million square foot portfolio of four wholly owned commercial assets from us.

The assets include 7200 Wisconsin Avenue, 1730 M Street, RTC-West and Courthouse Plaza 1 and 2.

The transaction is expected to close in the first half of 2022, subject to financing and customary closing conditions;

● the amendment of the Tranche A-1 Term Loan to extend the maturity date to January 2025 with two one-year extension options, and to amend the interest rate to SOFR plus 1.05% to SOFR plus 1.65%, in each case including a credit spread adjustment;

● the sale by one of our unconsolidated real estate ventures of The Alaire, The Terano and 12511 Parklawn Drive, multifamily and future development assets located in Rockville, Maryland, for $137.5 million.

Our ownership in these assets ranged from 1.8% to 18.0%.

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that in certain circumstances may significantly impact our financial results.

These estimates are prepared using management's best judgment, after considering past and current events and economic conditions.

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We consider an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition.

Our significant accounting policies are more fully described in Note 2 to the financial statements;

however, the most critical accounting policies, which involve the use of estimates and assumptions as to future uncertainties and, therefore, may result in actual amounts that differ from estimates, are as follows:

Asset Acquisitions and Business Combinations

We account for asset acquisitions, which includes the consolidation of previously unconsolidated real estate ventures, at cost, including transaction costs, plus the fair value of any assumed debt.

We estimate the fair values of acquired tangible assets (consisting of real estate, cash and cash equivalents, tenant and other receivables, investments in unconsolidated real estate ventures and other assets, as applicable), identified intangible assets and liabilities (consisting of in-place leases, above- and below-market leases, options to enter into ground leases and management contracts, as applicable), assumed debt and other liabilities, and noncontrolling interests, as applicable, based on our evaluation of information and estimates available at the date of acquisition.

Our significant accounting policies are fully described in Note 2 to the consolidated financial statements;

however, the most critical accounting estimates, which involve the use of judgments as to future uncertainties and, therefore, may result in actual amounts that differ from estimates, are as follows:

Asset Acquisitions

We account for asset acquisitions at cost, which includes the consolidation of previously unconsolidated real estate ventures, including transaction costs, plus the fair value of any assumed debt.

We estimate the fair values of acquired assets and liabilities assumed based on our evaluation of information and estimates available at the date of acquisition.

Based on these estimates, we allocate the purchase price, including all transaction costs related to the acquisition and any contingent consideration, to the identified assets acquired and liabilities assumed based on their relative fair value.

We similarly account for business combinations by estimating the fair values of acquired tangible assets, identified intangible assets and liabilities, assumed debt and other liabilities, and noncontrolling interests, as applicable, based on our evaluation of information and estimates.

Any excess of the purchase price over the estimated fair value of the net assets

acquired is recorded as goodwill, and any excess of the fair value of assets acquired over the purchase price is recorded as a gain on bargain purchase.

If, up to one year from the acquisition date, information regarding the fair value of the assets acquired and liabilities assumed is received and the estimates are refined, appropriate adjustments are made on a prospective basis to the purchase price allocation, which may include adjustments to identified assets, assumed liabilities, and goodwill or the gain on bargain purchase, as applicable.

Transaction costs are expensed as incurred and included in "Transaction and other costs"

in our statements of operations.

For both asset acquisitions and business combinations, the results of operations of acquisitions are prospectively included in our financial statements beginning with the date of the acquisition.

Judgments and Uncertainties:

Asset acquisitions primarily consist of buildings and land.

The fair values of buildings are determined using the "as-if vacant"

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We assess the fair value of land based on market comparisons and development projects using an income approach of cost plus a margin.

The fair values of identified intangible assets are determined based on the following:

● The value allocable to the above- or below-market component of an acquired in-place lease is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired lease) of the difference between:

(i) the contractual amounts to be received pursuant to the lease over its remaining term and (ii) management's estimate of the amounts that would be received using market rates over the remaining term of the lease.

Amounts allocated to above- market leases are recorded as lease intangible assets in "Other assets, net"

in our balance sheets, and amounts allocated to below-market leases are recorded as lease intangible liabilities in "Other liabilities, net"

in our balance sheets.

These intangibles are amortized to "Property rental revenue"

in our statements of operations over the remaining terms of the respective leases;

● Factors considered in determining the value allocable to in-place leases during hypothetical lease-up periods related to space that is leased at the time of acquisition include:

(i) lost rent and operating cost recoveries during the hypothetical lease-up period and (ii) theoretical leasing commissions required to execute similar leases.

These intangible assets are recorded as lease intangible assets in "Other assets, net"

in our balance sheets and are amortized to "Depreciation and amortization expense"

in our statements of operations over the remaining term of the existing lease;

● The fair value of the in-place property management, leasing, asset management, and development and construction management contracts is based on revenue and expense projections over the estimated life of each contract discounted using a market discount rate.

These management contract intangibles are amortized to "Depreciation and amortization expense"

in our statements of operations over the weighted average life of the management contracts.

The fair value of investments in unconsolidated real estate ventures and redeemable noncontrolling interests is based on the estimated fair values of the identified assets acquired and liabilities assumed of each venture, including future expected cash flows from promote interests.

The fair value of the mortgages payable assumed is determined using current market interest rates for comparable debt financings.

The fair values of the interest rate swaps and caps are based on the estimated amounts we would receive or pay to terminate the contract at the acquisition date and are determined using interest rate pricing models and observable inputs.

The carrying value of cash, restricted cash, working capital balances, leasehold improvements and equipment, and other assets acquired and liabilities assumed approximates fair value.

Sensitivity of Estimate to Change:

While our methodology did not change in 2021, if the estimates and assumptions in our discounted cash flow models used to value our buildings or our projections of land value change based on market conditions or other factors, our evaluation of fair values may be different and such differences could be material to our consolidated financial statements.

Real estate is carried at cost, net of accumulated depreciation and amortization.

Maintenance and repairs are expensed as incurred and are included in "Property operating expenses"

in our statements of operations.

As real estate is undergoing redevelopment activities, all property operating expenses directly associated with and attributable to the redevelopment,

including interest expense, are capitalized to the extent that we believe such costs are recoverable through the value of the property.

The capitalization period ends when the asset is ready for its intended use, but no later than one year from substantial completion of major construction activities.

General and administrative costs are expensed as incurred.

Depreciation and amortization require an estimate of the useful life of each property and improvement as well as an allocation of the costs associated with a property to its various components.

Depreciation and amortization are recognized on a straight-line basis over estimated useful lives, which range from three to 40 years.

Tenant improvements are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the tenant improvements.

When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income (loss) for the period.

Construction in progress, including land, is carried at cost, and no depreciation is recorded.

Real estate undergoing significant renovations and improvements is considered to be under development.

All direct and indirect costs related to development activities are capitalized into "Construction in progress, including land"

on our balance sheets, except for certain demolition costs, which are expensed as incurred.

Direct development costs incurred include:

pre-development expenditures directly related to a specific project, development and construction costs, interest, insurance and real estate taxes.

Indirect development costs include:

employee salaries and benefits, travel and other related costs that are directly associated with the development.

Our method of calculating capitalized interest expense is based upon applying our weighted average borrowing rate to the actual accumulated expenditures if the property does not have property specific debt.

If the property is encumbered by specific debt, we will capitalize both the interest incurred applicable to that debt and additional interest expense using our weighted average borrowing rate for any accumulated expenditures in excess of the principal balance of the debt encumbering the property.

The capitalization of such expenses ceases when the real estate is ready for its intended use, but no later than one-year from substantial completion of major construction activities.

Our assets and related intangible assets are reviewed for impairment whenever there are changes in circumstances or indicators that the carrying amount of the assets may not be recoverable.

These indicators may include operating performance, intended holding periods, costs in excess of budgets for under-construction assets, and adverse changes in circumstances.

As real estate is undergoing redevelopment activities, all property operating expenses directly associated with and attributable to the redevelopment, including interest expense, are capitalized to the extent that we believe such costs are recoverable through the value of the property.

Judgments and Uncertainties:

Our real estate and related intangible assets are reviewed for impairment whenever there are changes in circumstances or indicators that the carrying amount of the assets may not be recoverable.

These indicators may include operating performance, shortened anticipated holding periods, costs in excess of budgets for under-construction assets and adverse changes in circumstances.

An impairment exists when the carrying amount of an asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

Estimates of future cash flows are based on our current plans, intended holding periods and available market information at the time the analyses are prepared.

Estimates of future cash flows are based on our current plans, anticipated holding periods and available market information at the time the analyses are prepared.

An impairment loss is recognized if the carrying amount of the asset is not recoverable and is measured based on the excess of the property's carrying amount over its estimated fair value.

If our estimates of future cash flows, anticipated holding periods, or fair values change, based on market conditions or otherwise, our evaluation of impairment losses may be different and such differences could be material to our financial statements.

Estimated fair values are calculated based on the following information in order of preference, dependent upon availability:

(i) pending or executed agreements, (ii) market prices for comparable properties or (iii) the sum of discounted cash flows.

Sensitivity of Estimate to Change:

While our methodology did not change in 2021, if our estimates of future cash flows, anticipated holding periods, or fair values change, based on market conditions, anticipated selling prices or other factors, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.

Estimates of future cash flows are subjective and are based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results.

Longer anticipated holding periods for real estate assets directly reduce the likelihood of recording an impairment loss.

If there is a change in the strategy for an asset or if market conditions dictate an earlier sale date, an impairment loss may be recognized, and such loss could be material.

In connection with the preparation and review of our 2021 annual consolidated financial statements, we recorded impairment losses totaling $25.1 million related to 7200 Wisconsin Avenue, RTC-West and a future development parcel, which are non-core assets that were written down to their estimated fair value due to shortened anticipated holding periods, based on contracts under negotiation as of December 31, 2021.

Investments in Real Estate Ventures

We analyze each real estate venture to determine whether the entity should be consolidated.

If it is determined that an entity is a VIE in which we have a variable interest, we assess whether we are the primary beneficiary of the VIE to determine whether it should be consolidated.

We are not the primary beneficiary of an entity when we do not have voting control, lack the power to direct the activities that most significantly impact the entity's economic performance, or the limited partners (or non-managing members) have substantive participatory rights.

If it is determined that the entity is not a VIE, then the determination as to whether we consolidate is based on whether we have a controlling financial interest in the entity, which is based on our voting interests and the degree of influence we have over the entity.

Management uses its judgment when determining if we are the primary beneficiary of, or have a controlling financial interest in, an entity in which we have a variable interest.

Factors considered in determining whether we have the power to direct the activities that most significantly impact the entity's economic performance include voting rights, involvement in day-to-day capital and operating decisions, and the extent of our involvement in the entity.

We use the equity method of accounting for investments in unconsolidated real estate ventures when we have significant influence, but do not have a controlling financial interest.

Significant influence is typically indicated through ownership of 20% or more of the voting interests.

Under the equity method, we record our investments in these entities in "Investments in unconsolidated real estate ventures"

on our balance sheets, and our proportionate share of earnings or

losses earned by the real estate venture is recognized in "Income (loss) from unconsolidated real estate ventures, net"

in the accompanying statements of operations.

We earn revenue from the management services we provide to unconsolidated real estate ventures.

These fees are determined in accordance with the terms specific to each arrangement and may include property and asset management fees, or transactional fees for leasing, acquisition, development and construction, financing and legal services provided.

We account for this revenue gross of our ownership interest in each respective real estate venture and recognize such revenue in "Third-party real estate services, including reimbursements"

in our statements of operations when earned.

Our proportionate share of related expenses is recognized in "Income (loss) from unconsolidated real estate ventures, net"

in our statements of operations.

We may also earn incremental promote distributions if certain financial return benchmarks are achieved upon ultimate disposition of the underlying properties.

Promote fees are recognized when certain earnings events have occurred, and the amount is determinable and collectible.

Any promote fees are reflected in "Income (loss) from unconsolidated real estate ventures, net"

in our statements of operations.

With regard to distributions from unconsolidated real estate ventures, we use the information that is available to us to determine the nature of the underlying activity that generated the distributions.

Using the nature of distribution approach, cash flows generated from the operations of an unconsolidated real estate venture are classified as a return on investment (cash inflow from operating activities) and cash flows from property sales, debt refinancing or sales of our investments are classified as a return of investment (cash inflow from investing activities).

Judgments and Uncertainties:

On a periodic basis, we evaluate our investments in unconsolidated real estate ventures for impairment.

We assess whether there are any indicators, including underlying property operating performance and general market conditions, that the value of our investments in unconsolidated real estate ventures may be impaired.

An investment in a real estate venture is considered impaired if we determine that its fair value is less than the net carrying value of the investment in that real estate venture on an other-than-temporary basis.

Cash flow projections for the investments consider property level factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors.

Cash flow projections for the investments consider property level factors such as expected future operating income, trends and prospects, anticipated holding periods, as well as the effects of demand, competition and other factors.

We consider various qualitative factors to determine if a decrease in the value of our investment is other-than-temporary.

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If our analysis indicates that there is an other-than temporary impairment related to the investment in a particular real estate venture, the carrying value of the venture will be adjusted to an amount that reflects the estimated fair value of the investment.

Sensitivity of Estimate to Change:

While our methodology did not change in 2021, if our cash flow projections or our evaluation of qualitative factors change, based on market conditions or other factors, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.

Cash flow projections are subjective and are based, in part, on assumptions regarding expected future operating income, trends and prospects, anticipated holding periods, as well as the effects of demand, competition and other factors that could differ materially from actual results.

If our assessment that an impairment is other-than-temporary changes, it could result in an impairment loss that could be material to our consolidated financial statements.

Revenue Recognition

We have leases with various tenants across our portfolio of properties, which generate rental income and operating cash flows for our benefit.

Through these leases, we provide tenants with the right to control the use of our real estate, which tenants agree to use and control.

The right to control our real estate conveys to our tenants substantially all of the economic benefits and the right to direct how and for what purpose the real estate is used throughout the period of use, thereby meeting the definition of a lease.

Leases will be classified as either operating, sales-type or direct finance leases based on whether the lease is structured in effect as a financed purchase.

Property rental revenue includes base rent each tenant pays in accordance with the terms of its respective lease and is reported on a straight-line basis over the non-cancellable term of the lease, which includes the effects of periodic step-ups in rent and rent abatements under the lease.

When a renewal option is included within the lease, we assess whether the option is reasonably certain of being exercised against relevant economic factors to determine whether the option period should be included as part of the lease term.

Further, property rental revenue includes tenant reimbursement revenue from the recovery of all or a portion of the operating expenses and real estate taxes of the respective assets.

Tenant reimbursements, which vary each period, are non-lease components that are not the predominant activity within the contract.

We have elected the practical expedient that allows us to combine certain lease and non-lease components of our operating leases.

Non-lease components are recognized together with fixed base rent in "Property rental revenue", as variable lease income in the same periods as the related expenses are incurred.

Certain commercial leases may also provide for the payment by the lessee of additional rents based on a percentage of sales, which are recorded as variable lease income in the period the additional rents are earned.

We commence rental revenue recognition when the tenant takes possession of the leased space or controls the physical use of the leased space and when the leased space is substantially ready for its intended use.

In circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of property rental revenue on a straight-line basis over the term of the lease commencing when the tenant takes possession of the space.

Differences between rental revenue recognized and amounts due under the respective lease agreements are recorded as an increase or decrease to "Deferred rent receivable, net"

on our balance sheets.

Property rental revenue also includes the amortization or accretion of acquired above-and below-market leases.

Judgments and Uncertainties:

We periodically evaluate the collectability of amounts due from tenants and recognize an adjustment to property rental revenue for accounts receivable and deferred rent receivable if we conclude it is not probable we will collect the remaining lease payments under the lease agreements.

Any changes to the provision for lease revenue determined to be not probable of collection are included in "Property rental revenue"

in our statements of operations.

We exercise judgment in assessing the probability of collection and consider payment history and current credit status in making this determination.

Third-party real estate services revenue, including reimbursements, includes property and asset management fees, and transactional fees for leasing, acquisition, development and construction, financing, and legal services.

These fees are determined in accordance with the terms specific to each arrangement and are recognized as the related services are performed.

Development fees are earned from providing services to third-party property owners and our unconsolidated real estate ventures.

The performance obligations associated with our development services contracts are satisfied over time and we recognize our development fee revenue using a time-based measure of progress over the course of the development project due to the stand-ready nature of the promised services.

The transaction prices for our performance obligations that are expected to be completed in greater than twelve months are variable based on the costs ultimately incurred to develop the underlying assets.

Judgments impacting the timing and amount of revenue recognized from our development services contracts include the determination of the nature and number of performance obligations within a contract, estimates of total development project costs, from which the fees are typically derived, and estimates of the period of time over which the development services are expected to be performed, which is the period over which the revenue is recognized.

We recognize development fees earned from unconsolidated joint venture projects to the extent of the third-party partners' ownership interest.

Share-Based Compensation

The fair value of share-based compensation awards granted to our trustees, management or employees is determined, depending on the type of award, using the Monte Carlo or Black-Scholes methods, which is intended to estimate the fair value of the awards at the grant date using dividend yields, expected volatilities that are primarily based on available implied data and peer group companies' historical data and post-vesting restriction periods.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant.

The shortcut method is used for determining the expected life used in the valuation method.

Compensation expense is based on the fair value of our common shares at the date of the grant and is recognized ratably over the vesting period using a graded vesting attribution model.

We account for forfeitures as they occur.

Distributions paid on unvested OP Units, LTIP Units, Time-Based LTIP Units and Performance-Based LTIP Units are recorded to "Redeemable noncontrolling interests"

in our balance sheets.

Sensitivity of Estimate to Change:

If the probability of collection changes, due to tenant creditworthiness, changes to tenant payment patterns or economic trends, including the impact of COVID-19, our evaluation of collectability may be different and such differences could be material to our consolidated financial statements.

Due to the impact of COVID-19, during 2020, we began recognizing revenue from substantially all co-working tenants and retailers except for grocers, pharmacies, essential businesses and certain national credit tenants on the cash basis of accounting.

During 2021, revenue for the majority of these tenants continued to be recognized on the cash basis of accounting.

Recent Accounting Pronouncements

See Note 2 to the financial statements for a description of recent accounting pronouncements.

See Note 2 to the consolidated financial statements for a description of recent accounting pronouncements.

Results of Operations

This following discusses certain line items from our 2020 and 2019 statements of operations and the year-to-year comparisons between 2020 and 2019.

The following section discusses certain line items from our 2021 and 2020 consolidated statements of operations and the year-to-year comparisons between 2021 and 2020.

Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations"

in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 25, 2020, which is incorporated herein by reference.

During 2019 and 2020, we sold the Disposed Properties.

In December 2020, we acquired the Americana Portfolio, which did not have a material impact on our statement of operations for the year ended December 31, 2020.

In December 2019, we acquired F1RST Residences.

in Part II, Item 7 of Annual Report on Form 10-K for the year ended December 31, 2020 , filed with the SEC on February 23, 2021, which is incorporated herein by reference.

In April 2021, we contributed Potomac Yard Landbay G to an unconsolidated real estate venture.

In November 2021, we acquired The Batley.

In January 2020, we sold Metropolitan Park.

In December 2020, we acquired the Americana Portfolio.

Comparison of the Year Ended December 31, 2021 to 2020

The following summarizes certain line items from our statements of operations that we believe are important in understanding our operations and/or those items which significantly changed in the year ended December 31, 2020 as compared to the same period in 2019:

The following summarizes certain line items from our consolidated statements of operations that we believe are important in understanding our operations and/or those items which significantly changed in the year ended December 31, 2021 as compared to the same period in 2020:

Year Ended December 31,

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Loss from unconsolidated real estate ventures, net

Interest and other income (loss), net

Interest expense

Gain on sale of real estate

Loss on extinguishment of debt

Impairment loss

* Not meaningful.

Property rental revenue, decreased by $34.3 million, or 7.0%, to $459.0 million in 2020 from $493.3 million in 2019.

The decrease was primarily due to a $35.1 million decrease related to the Disposed Properties, a $23.7 million decrease from the deferral of rent and the write-off of deferred rent receivable for tenants that were placed on the cash basis of accounting and an increase in uncollectable operating lease receivables attributable to COVID-19, a $6.8 million decrease related to 2100 Crystal Drive, which is currently vacant until Amazon takes occupancy of the entire building in 2021, and a $9.1 million decrease in our same-store multifamily assets due to lower occupancy and lower rents attributable to COVID-19.

The decrease in property rental revenue was partially offset by a $14.4 million increase related to 4747 Bethesda Avenue and West Half, both of which were placed into service during the second half of 2019, a $13.3 million increase related to the commencement of leases with Amazon at 1800 South Bell Street, 241 18th Street South and 2200 Crystal Drive, an $8.1 million increase related to F1RST Residences, which was acquired in December 2019 and a $3.2 million increase at 1901 South Bell Street due to higher tenant reimbursements for construction services.

Third-party real estate services revenue, including reimbursements, decreased by $6.9 million, or 5.7%, to $113.9 million in 2020 from $120.9 million in 2019.

The decrease was primarily due to a $4.3 million decrease in asset management fees and a $2.3 million decrease in property management fees due to the sale of assets within the JBG Legacy Funds, a $4.2 million decrease in development fee income primarily related to the timing of development projects and a $1.8 million decrease in leasing fees from lower leasing volume due to the impact of COVID-19.

The decrease in third-party real estate services revenue was partially offset by a $3.0 million increase in other service revenue, a $1.3 million increase in construction management fees and a $1.2 million increase in reimbursements revenue.

Property rental revenue increased by $40.6 million, or 8.9%, to $499.6 million in 2021 from $459.0 million in 2020.

The increase was primarily due to (i) a $25.0 million increase due to the deferral of rent and the write-off of deferred rent receivable for tenants that were placed on the cash basis of accounting in 2020 and a decrease in uncollectable operating lease receivables attributable to COVID-19 in 2021, (ii) an $18.6 million increase related to 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, (iii) an $8.7 million increase related to 1770 Crystal Drive, which was placed into service in the fourth quarter of 2020, (iv) a $4.4 million increase related to the commencement of a lease with Amazon at 2100 Crystal Drive and (v) a $3.7 million increase related to 1225 S.

Clark Street due to the commencement of a lease.

The increase in property rental revenue was partially offset by (i) an $11.3 million decrease related to lower occupancy at the Universal Buildings, 2011 Crystal Drive, 2101 L Street and RTC-West, (ii) a $4.8 million decrease related to 1901 South Bell Street due to tenant reimbursements for construction services in 2020 and (iii) a $3.0 million decrease related to RiverHouse Apartments and The Bartlett due to increased rent concessions and lower market rents.

Third-party real estate services revenue, including reimbursements, increased by $64,000, or 0.1%, to $114.0 million in 2021 from $113.9 million in 2020.

The increase was primarily due to a $14.0 million increase in development fees related to the timing of development projects.

The increase in third-party real estate services revenue was partially offset by a $8.5 million decrease in reimbursements revenue and a $2.5 million decrease in construction management fees due to the timing of construction projects and a $2.1 million decrease in property and asset management fees due to the sale of assets within the JBG Legacy Funds.

Depreciation and amortization expense increased by $14.5 million, or 6.6%, to $236.3 million in 2021 from $221.8 million in 2020.

The increase was primarily due to an $18.6 million increase related to 4747 Bethesda Avenue, West Half, The Wren and 901 W Street, which were placed into service in the second half of 2019 and during 2020, a $14.1 million increase related to 2000 South Bell Street and 2001 South Bell Street due to the shortening of the existing buildings' useful lives, a $5.9 million increase related to tenant improvements being placed into service related to leases with Amazon and

a $4.9 million increase related to F1RST Residences.

The increase in depreciation and amortization expense was partially offset by a $13.9 million decrease related to the Disposed Properties.

The increase was primarily due to (i) an $8.6 million increase related to 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, (ii) a $6.5 million increase related to the Universal Buildings due to the write-off of certain tenant improvements, (iii) a $6.2 million increase related to 2345 Crystal Drive due to an increase in tenant improvements, (iv) a $3.0 million increase due to 1770 Crystal Drive being placed into service, (v) a $2.3 million increase related to Crystal Drive Retail due to the acceleration of depreciation of certain assets, (vi) a $2.1 million increase related to The Batley, which was acquired in November 2021, and (vii) a $2.0 million increase related to 1550 Crystal Drive as additional space was placed into service.

The increase in depreciation and amortization expense was partially offset by a $16.0 million decrease related to 2000/2001 South Bell Street as the existing buildings were demolished and we commenced construction on two new buildings in January 2022.

Property operating expense increased by $5.0 million, or 3.4%, to $150.6 million in 2021 from $145.6 million in 2020.

The increase was primarily due to a $7.1 million increase related to 4747 Bethesda Avenue, West Half, The Wren and 901 W Street, which were placed into service in the second half of 2019 and during 2020, a $4.4 million increase related to 1901 South Bell Street due to costs incurred for construction management services provided to tenants, a $3.9 million increase in property operating expenses across our same store multifamily asset pool, primarily due to higher operating costs as a result of COVID-19, and a $3.1 million increase related to F1RST Residences.

The increase in property operating expense was partially offset by an $8.7 million decrease related to the Disposed Properties.

Real estate tax expense increased by $465,000, or 0.7%, to $71.0 million in 2020 from $70.5 million in 2019.

The increase was primarily due to a $3.7 million increase at 4747 Bethesda Avenue, West Half, The Wren and 901 W Street as those assets were placed into service, a $1.3 million increase related to F1RST Residences and an increase in real estate tax assessments for various properties throughout the portfolio.

The increase in real estate tax expense was partially offset by a $5.1 million decline related to the Disposed Properties.

The increase was primarily due to (i) a $4.0 million increase related to 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, (ii) a $3.1 million increase related to 2451 Crystal Drive due to costs incurred for construction management services provided to tenants, (iii) a $2.0 million increase due to 1770 Crystal Drive being placed into service and (iv) a $1.1 million increase at Courthouse Plaza 1 and 2 primarily related to ground rent expense.

The increase in property operating expense was partially offset by a $5.5 million decrease related to 1901 South Bell Street due to costs incurred in 2020 for construction management services provided to tenants.

Real estate tax expense decreased by $135,000, or 0.2%, to $70.8 million in 2021 from $71.0 million in 2020.

The decrease was primarily due to a $1.8 million decrease related to Courthouse Plaza 1 and 2 due to a tax refund received in 2021 related to prior years and a decrease in real estate tax assessments for various properties located in National Landing.

The decrease in real estate tax expense was partially offset by (i) a $1.8 million increase at 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, (ii) a $717,000 increase related to 5 M Street Southwest due to an increase in its applicable tax rate in 2021 and (iii) a $617,000 increase due to 1770 Crystal Drive being placed into service.

General and administrative expense:

corporate and other decreased by $188,000, or 0.4%, to $46.6 million in 2020 from $46.8 million in 2019.

The decrease was primarily due to declines in professional fees, rent expense, and travel and entertainment expense, partially offset by an increase in share-based compensation expense from the issuance of the 2020 equity awards and an increase in compensation costs.

corporate and other increased by $7.2 million, or 15.4%, to $53.8 million in 2021 from $46.6 million in 2020.

The increase was primarily due to increases in compensation and information technology expenses.

General and administrative expense:

third-party real estate services increased by $1.3 million, or 1.2%, to $114.8 million in 2020 from $113.5 million in 2019.

The increase was primarily due to an increase in share-based compensation expense from the issuance of the 2020 equity awards, partially offset by a decrease in rent expense.

third-party real estate services decreased by $7.7 million, or 6.7%, to $107.2 million in 2021 from $114.8 million in 2020.

The decrease was primarily due to a decrease in reimbursable expenses.

General and administrative expense:

share-based compensation related to Formation Transaction and special equity awards decreased by $15.4 million, or 48.5%, to $16.3 million in 2021 from $31.7 million in 2020.

The decrease was primarily due to the graded vesting of certain awards issued in prior years, which results in lower expense as portions of the awards become vested.

Transaction and other costs of $8.7 million in 2020 includes $4.0 million of costs related to a charitable commitment to the Washington Housing Conservancy, a non-profit that acquires and owns affordable workforce housing in the Washington D.C.

The decrease was primarily due to the graded vesting of certain awards issued in prior years, which resulted in lower expense as portions of the awards vested.

Transaction and other costs of $10.4 million in 2021 consisted of $5.8 million of expenses related to completed, potential and pursued transactions, $3.6 million of demolition costs related to 2000/2001 South Bell Street and $1.0 million of integration and severance costs.

Transaction and other costs of $8.7 million in 2020 included $4.0 million of costs related to a charitable commitment to the Washington Housing Conservancy, a non-profit that acquires and owns affordable workforce housing in the Washington D.C.

metropolitan region, $3.7 million of integration and severance costs and $682,000 of demolition costs related to several under development properties.

Transaction and other costs of $23.2 million in 2019 includes $10.9 million of expenses related to the relocation of our corporate headquarters primarily due to an impairment loss on the right-of-use assets for leases associated with our former corporate headquarters, $5.4 million of demolition costs related to 1900 Crystal Drive, $5.3 million of integration and severance costs, $1.0 million of costs related to a contribution to the Washington Housing Conservancy and $651,000 of expenses related to other completed, potential and pursued transactions.

Loss from unconsolidated real estate ventures increased by $18.9 million to $20.3 million for 2020 compared to $1.4 million in 2019.

The increase was primarily due to a $6.5 million impairment loss related to an investment in a former unconsolidated real estate venture due to a decline in the fair value of The Marriott Wardman Park hotel, and losses resulting from the hotel's closure in March 2020 due to the effects of COVID-19, a $6.1 million decrease from the deferral of rent and the write-off of deferred rent receivables for tenants that were placed on the cash basis of accounting and an increase in uncollectable operating lease receivables attributable to COVID-19, and a $3.0 million loss from the sale of Woodglen by an unconsolidated real estate venture.

The decrease was also due to the recognition of $6.4 million of income during 2019 primarily related to distributions from the real estate venture that owns 1101 17th Street.

The increase in loss from unconsolidated real estate ventures was partially offset by an $800,000 gain from the sale of Pickett Industrial Park by our unconsolidated real estate venture in October 2020.

Loss from unconsolidated real estate ventures decreased by $18.3 million, or 89.8%, to $2.1 million for 2021 from $20.3 million in 2020.

The decrease was primarily due to (i) the recognition of our proportionate share of the gain from the sale of various assets totaling $28.3 million in 2021 as compared to a net $2.2 million loss from the sale of 11333 Woodglen Drive/NoBe II Land/Woodglen and Pickett Industrial Park in 2020, (ii) a $6.5 million impairment charge recognized in 2020 related to our investment in a venture that owned The Marriott Wardman Park hotel, and $2.7 million for losses incurred from its COVID-19 related closure and (iii) a $6.1 million charge recognized in 2020 from the deferral of rent and the write-off of deferred rent receivables for tenants that were placed on the cash basis of accounting and an increase in uncollectible operating lease receivable attributable to COVID-19.

The decrease in the loss from unconsolidated real estate ventures was partially offset by an impairment loss recorded by one of our unconsolidated real estate ventures, of which our proportionate share was $23.9 million.

Interest and other income of $8.8 million in 2021 was primarily related to $4.5 million of business interruption insurance proceeds received for COVID-19 related losses and $3.6 million of net investment income from investment funds entered into in 2021.

Interest expense increased by $5.6 million, or 9.0%, to $68.0 million in 2021 from $62.3 million in 2020.

The increase was primarily due to higher average outstanding balances under our revolving credit facility and our unsecured term loans,

and new mortgage loans collateralized by 4747 Bethesda Avenue, 1221 Van Street and 220 20 th Street.

The increase was also due to a $16.6 million decrease in capitalized interest primarily due to the placing into service of West Half, 4747 Bethesda Avenue, The Wren and 901 W Street.

The increase in interest expense was partially offset by lower interest rates, the repayment of several mortgages payable during 2019 and a $10.3 million decrease related to the Disposed Properties.

The increase was primarily due to a $6.5 million decrease in capitalized interest primarily due to the placing of additional space into service at 4747 Bethesda Avenue, West Half, The Wren, 901 W Street and 1770 Crystal Drive and a $6.1 million increase

due to new mortgage loans entered into in 2021 and 2020 at 1225 S.

Clark Street, 1221 Van Street, The Bartlett and 220 20 th Street.

The increase in interest expense was partially offset by a $2.5 million decrease related to our revolving credit facility due to a lower weighted average outstanding balance and to a $4.5 million decrease related to the repayment of a mortgage loan at WestEnd25 in 2020.

Gain on the sale of real estate of $11.3 million in 2021 was based on the cash received and the remeasurement of our retained interest in the land we contributed to one of our unconsolidated real estate ventures.

See Note 5 to the consolidated financial statements for additional information.

Gain on the sale of real estate of $59.5 million in 2020 was due to the sale of Metropolitan Park.

Gain on the sale of real estate of $105.0 million in 2019 was due to the sales of Commerce Executive/Commerce Metro Land, 1600 K Street, Vienna Retail, and a 50% interest in the entity that owns Central Place Tower and the subsequent remeasurement of our remaining interest to fair value.

Loss on the extinguishment of debt was $5.8 million in 2019, of which $2.9 million related to our repayment of various mortgages payable and $2.9 million related to the termination of various interest rate swaps in connection with the repayment of the loan encumbering Central Place Tower.

Impairment loss of $10.2 million in 2020 was due to the decline in fair value of One Democracy Plaza, a commercial real estate asset located in Bethesda, Maryland, which was written down to its estimated fair value.

Impairment loss of $25.1 million in 2021 was related to 7200 Wisconsin Avenue, RTC-West and a future development parcel, which are non-core assets that were written down to their estimated fair value due to shortened anticipated holding periods, based on contracts under negotiation as of December 31, 2021.

Impairment loss of $10.2 million in 2020 was due to a decline in the fair value of One Democracy Plaza, a non-core commercial real estate asset, which was written down to its estimated fair value.

FFO is a non-GAAP financial measure computed in accordance with the definition established by Nareit in the Nareit FFO White Paper - 2018 Restatement.

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Year Ended December 31,

(In thousands)

Net income (loss) attributable to common shareholders

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Gain on sale of real estate

Loss (gain) on sale from unconsolidated real estate ventures

(Gain) loss on sale of unconsolidated real estate assets

Real estate depreciation and amortization

Real estate impairment loss (1)

Impairment of investment in unconsolidated real estate venture (2)

Real estate impairment loss, net of tax (1)

Impairment related to unconsolidated real estate ventures (2)

Pro rata share of real estate depreciation and amortization from unconsolidated real estate ventures

FFO attributable to noncontrolling interests in consolidated real estate ventures

FFO attributable to noncontrolling interests

FFO attributable to OP Units

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FFO attributable to common shareholders

(1) In connection with the preparation and review of our 2020 annual financial statements, we determined that One Democracy Plaza, a commercial asset located in Bethesda, Maryland, was impaired due to a decline in the fair value of the asset and recorded an impairment loss of $10.2 million, of which $7.8 million related to real estate.

The remaining $2.4 million of the impairment loss was attributable to the right-of-use asset associated with the property’s ground lease and was not added back to "Net income (loss) attributable to common shareholders"

to arrive at "FFO attributable to common shareholders."

(2) During the second quarter of 2020, we determined that our investment in the venture that owns The Marriott Wardman Park hotel was impaired due to a decline in the fair value of the underlying asset and recorded an impairment loss of $6.5 million, which reduced the net book value of our investment to zero, and we suspended equity loss recognition for the venture after June 30, 2020.

On October 1, 2020, we transferred our interest in this venture to our former venture partner.

(1) In connection with the preparation and review of our annual consolidated financial statements, we determined certain assets were impaired and recorded impairment losses for the year ended December 31, 2021 and 2020 totaling $25.1 million ($24.3 million net of tax) and $10.2 million (of which $7.8 million related to real estate).

(2) Includes an impairment on real estate assets taken by an unconsolidated real estate venture and impairments of our investment in unconsolidated real estate ventures related to decreases in the value of the underlying assets.

NOI and Same Store NOI

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The most directly comparable GAAP measure is net income (loss) attributable to common shareholders.

We use NOI internally as a performance measure and believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only property related revenue (which includes base rent, tenant reimbursements and other operating revenue, net of free rent and payments associated with assumed lease liabilities) less operating expenses and ground rent, if applicable.

NOI also excludes deferred rent, related party management fees, interest expense, and certain other non-cash adjustments, including the accretion of acquired below-market leases and amortization of acquired above-market leases and below-market ground lease intangibles.

Management uses NOI as a supplemental performance measure for our assets and believes it provides useful information to investors because it reflects only those revenue and expense items that are incurred at the asset level, excluding non-cash items.

NOI also excludes deferred rent, related party management fees, interest expense, and certain other non-cash adjustments, including the accretion of acquired below-market leases and the amortization of acquired above-market leases and below-market ground lease intangibles.

Management uses NOI as a supplemental performance measure of our assets and believes it provides useful information to investors because it reflects only those revenue and expense items that are incurred at the asset level, excluding non-cash items.

In addition, NOI is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets.

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NOI presented by us may not be comparable to NOI reported by other REITs that define these measures differently.

We believe that to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) attributable to common shareholders as presented in our financial statements.

We believe to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) attributable to common shareholders as presented in our consolidated financial statements.

NOI should not be considered as an alternative to net income (loss) attributable to common shareholders as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions.

During the year ended December 31, 2020, our same store pool changed from the prior year due to the inclusion of 1700 M Street and our 50% interest in Central Place Tower, and the exclusion of Woodglen and Pickett Industrial Park, which were sold by our unconsolidated real estate ventures, and 2000 and 2001 South Bell Street, which was taken out of service for redevelopment.

During the year ended December 31, 2021, our same store pool increased from 52 properties to 55 properties due to the inclusion of 1800 South Bell Street, F1RST Residences, 1221 Van Street and the commercial portion of 2221 S.

Clark Street, and the exclusion of Fairway Apartments, which was sold during the period.

Information provided on a same store basis includes the results of properties that are owned, operated and in-service for the entirety of both periods being compared, which excludes properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

While there is judgment surrounding changes in designations, a property is removed from the same store pool when the property is considered to be under-construction because it is undergoing significant redevelopment or renovation pursuant to a formal plan or is being repositioned in the market and such renovation or repositioning is expected to have a significant impact on property NOI.

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Same store NOI decreased by $2.6 million, or 0.9%, for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

The decrease in same store NOI for the year ended December 31, 2020 was substantially all attributable to COVID-19, including:

(i) lower occupancy, higher concessions, lower rents, higher operating costs, and an increase in uncollectable operating lease receivables at our multifamily properties, (ii) rent deferrals, an increase in uncollectable operating lease receivables and a decline in parking revenue at our commercial properties, and (iii) lower occupancy at the Crystal City Marriott.

These declines were partially offset by the burn-off of rent abatement across our commercial portfolio, resulting in flat same store NOI for the commercial assets.

The following is the reconciliation of net income attributable to common shareholders to NOI and same store NOI:

The decrease was substantially attributable to the COVID-19 pandemic, which commenced at the end of the first quarter of 2020, including (i) higher concessions and lower rents in our multifamily portfolio and (ii) lower occupancy and a decline in parking revenue in our commercial portfolio.

These declines were partially offset by a decrease in uncollectable operating lease receivables and rent deferrals.

The following is the reconciliation of net loss attributable to common shareholders to NOI and same store NOI:

Year Ended December 31,

Net income (loss) attributable to common shareholders

Net loss attributable to common shareholders

Depreciation and amortization expense

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Impairment loss

Income tax benefit

Net income (loss) attributable to redeemable noncontrolling interests

Income tax expense (benefit)

Net loss attributable to redeemable noncontrolling interests

Net loss attributable to noncontrolling interests

Third-party real estate services, including reimbursements revenue

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(4) Includes the results of properties that were not in-service for the entirety of both periods being compared and properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

(5) Includes the results of the properties that are owned, operated and in-service for the entirety of both periods being compared except for properties that are being phased out of service for future development.

(5) Includes the results of the properties that are owned, operated and in-service for the entirety of both periods being compared.

Reportable Segments

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The CODM measures and evaluates the performance of our operating segments, with the exception of the third-party asset management and real estate services business, based on the NOI of properties within each segment.

NOI includes property rental revenue and other property revenue, and deducts property operating expenses and real estate taxes.

With respect to the third-party asset management and real estate services business, the CODM reviews revenue streams generated by this segment ("Third-party real estate services, including reimbursements"), as well as the expenses attributable to the segment ("General and administrative:

third-party real estate services"), which are both disclosed separately in our statements of operations and discussed in the preceding pages under "Results of Operations."

The following represents the components of revenue from our third-party real estate services business:

third-party real estate services"), which are both disclosed separately in our consolidated statements of operations.

The following represents the components of revenue from our third-party asset management and real estate services business:

Year Ended December 31,

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Third-party real estate services revenue less expenses

(1) As of December 31, 2021, we had estimated unrecognized development fee revenue totaling $48.6 million, of which $13.8 million, $12.0 million and $6.3 million is expected to be recognized in 2022, 2023 and 2024, and $16.5 million is expected to be recognized from 2025 to 2027 as unsatisfied performance obligations are completed.

(2) Represents reimbursements of expenses incurred by us on behalf of third parties, including allocated payroll costs and amounts paid to third-party contractors for construction management projects.

Third-party real estate services revenue, including reimbursements, decreased by $6.9 million, or 5.7%, to $113.9 million in 2020 from $120.9 million in 2019.

Third-party real estate services expenses increased by $1.3 million, or 1.2%, to $114.8 million in 2020 from $113.5 million in 2019.

The increase was primarily due to an increase in share-based compensation expense from the issuance of the 2020 equity awards, partially offset by a decrease in rent expense.

See discussion of third-party real estate services revenue, including reimbursements, and third-party real estate services expenses for the year ended December 31, 2021 in the preceding pages under "Results of Operations."

Consistent with internal reporting presented to our CODM and our definition of NOI, the third-party asset management and real estate services operating results are excluded from the NOI data below.

Property revenue is calculated as property rental revenue plus other property revenue (primarily parking revenue).

Property revenue is calculated as property rental revenue plus parking revenue.

Property expense is calculated as property operating expenses plus real estate taxes.

Consolidated NOI is calculated as total property revenue less total property expense.

See Note 19 to the financial statements for the reconciliation of net income (loss)

attributable to common shareholders to consolidated NOI for the years ended December 31, 2020 and 2019.

Consolidated NOI is calculated as property revenue less property expense.

See Note 18 to the consolidated financial statements for the reconciliation of net income (loss) attributable to common shareholders to consolidated NOI for the years ended December 31, 2021 and 2020.

The following is a summary of NOI by segment:

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Comparison of the Year Ended December 31, 2021 to 2020

Property rental revenue decreased by $49.6 million, or 12.1%, to $359.3 million in 2020 from $408.9 million in 2019.

Consolidated NOI decreased by $39.4 million, or 16.0%, to $206.2 million in 2020 from $245.6 million in 2019.

The decrease in property revenue and consolidated NOI was primarily due to the sale of the Disposed Properties and a decrease in property rental revenue due to the deferral of rent and the write-off of deferred rent balances for tenants that were placed on the cash basis of accounting and an increase in uncollectable operating lease receivables attributable to COVID-19.

The decrease in property revenue and consolidated NOI was partially offset by an increase in revenue from 4747 Bethesda Avenue, which was placed into service during the fourth quarter of 2019, and the commencement of leases with Amazon at 1800 South Bell Street, 241 18 th Street South and 2200 Crystal Drive.

Property rental revenue increased by $19.0 million, or 5.3%, to $378.3 million in 2021 from $359.3 million in 2020.

Consolidated NOI decreased by $11.3 million, or 17.0%, to $55.1 million in 2020 from $66.5 million in 2019.

The increase in property revenue was primarily due to the acquisition of F1RST Residences and the placing of West Half, The Wren and 901 W Street into service in the second half of 2019 and during 2020, partially offset by a decrease in our same store multifamily assets due to lower occupancy, higher concessions, lower rents, higher operating costs and an increase in uncollectable operating lease receivables, which were attributable to the impact of COVID-19.

Further, the decline in consolidated NOI was also due to a reduction in capitalized expenses at West Half, The Wren and 901 W Street as the assets were placed into service.

Consolidated NOI increased by $23.4 million, or 11.3%, to $229.6 million in 2021 from $206.2 million in 2020.

The increase in property revenue and consolidated NOI was due to (i) a decline in rent deferrals and uncollectable operating lease receivables related to tenants impacted by COVID-19, (ii) increases in revenues related to 4747 Bethesda Avenue and 1770 Crystal Drive as these properties were placed into service, and (iii) increases related to 2100 Crystal Drive, 1225 South Clark Street and 2345 Crystal Drive due to higher occupancy.

These increases were partially offset by a decrease in parking revenue due to reduced transient and office parking and decreases related to the Universal Buildings, 2101 L Street and RTC-West due to lower occupancy.

Property rental revenue increased by $18.4 million, or 15.1%, to $140.3 million in 2021 from $121.9 million in 2020.

Consolidated NOI increased by $12.5 million, or 22.6%, to $67.6 million in 2021 from $55.1 million in 2020.

The increase in property revenue and consolidated NOI was due to The Wren, 900 W Street, 901 W Street and West Half as these properties placed additional units into service.

These increases were partially offset by lower rents and higher concessions at RiverHouse Apartments and The Bartlett.

Liquidity and Capital Resources

Property rental income is our primary source of operating cash flow and is dependent on many factors including occupancy levels and rental rates, as well as our tenants' ability to pay rent.

In addition, our third-party asset management and real estate services business provides fee-based real estate services to the WHI, Amazon, the JBG Legacy Funds and other third parties.

Our assets provide a relatively consistent level of cash flow that enables us to pay operating expenses, debt service, recurring capital expenditures, dividends to shareholders and distributions to holders of OP Units.

Other sources of liquidity to fund cash requirements include proceeds from financings, asset sales and the issuance and sale of equity securities.

We anticipate that cash flows from continuing operations and proceeds from financings, recapitalizations and

asset sales, together with existing cash balances, will be adequate to fund our business operations, debt amortization, capital expenditures, any dividends to shareholders and distributions to holders of OP Units over the next 12 months.

Property rental income is our primary source of operating cash flow and depends on many factors including occupancy levels and rental rates, as well as our tenants' ability to pay rent.

In addition, our third-party asset management and real estate services business provides fee-based real estate services to Amazon, the WHI Impact Pool, the JBG Legacy Funds and other third parties.

Other sources of liquidity to fund cash requirements include proceeds from financings, recapitalizations, asset sales and the issuance and sale of securities.

We anticipate that cash flows from continuing operations and proceeds from financings, recapitalizations and asset sales, together with existing cash balances, will be adequate to fund our business operations, debt amortization, capital expenditures, any dividends to shareholders and distributions to holders of OP Units and LTIP Units over the next 12 months.

Financing Activities

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(1) Weighted average effective interest rate as of December 31, 2021.

(2) Includes a variable rate mortgage payable with an interest rate cap agreement as of December 31, 2020.

(2) Includes variable rate mortgages payable with interest rate cap agreements.

(3) Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements .

As of December 31, 2020 and 2019, the net carrying value of real estate collateralizing our mortgages payable totaled $1.8 billion and $1.4 billion.

(4) As of December 31, 2021, excludes $6.4 million of net deferred financing costs related to unfunded mortgage loans that were included in "Other assets, net."

As of December 31, 2021 and 2020, the net carrying value of real estate collateralizing our mortgages payable totaled $1.8 billion.

Our mortgages payable contain covenants that limit our ability to incur additional indebtedness on these properties and, in certain circumstances, require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity.

Certain mortgages payable are recourse to us.

See Note 20 to the financial statements for additional information.

See Note 19 to the consolidated financial statements for additional information.

We were not in default under any mortgage loan as of December 31, 2021.

During the year ended December 31, 2021, we entered into two separate mortgage loans with an aggregate principal balance of $190.0 million, collateralized by 1225 S.

Clark Street and 1215 S.

Clark Street.

During the year ended December 31, 2020, we entered into four separate mortgage loans with an aggregate principal balance of $560.0 million, collateralized by 4747 Bethesda Avenue, The Bartlett, 1221 Van Street and 220 20th Street, and refinanced the mortgage payable collateralized by RTC-West, increasing the principal balance by $20.2 million.

In December 2020, we repaid the mortgage payable collateralized by WestEnd25 with a principal balance of $94.7 million.

During the year ended December 31, 2019, aggregate borrowings under mortgages payable totaled $2.2 million related to construction draws.

During the year ended December 31, 2019, we repaid mortgages payable with an aggregate principal balance of $709.1 million.

The loss on the extinguishment of debt was $5.8 million for the year ended December 31, 2019, of which $2.9 million related to our repayment of various mortgages payable and $2.9 million related to the termination of various interest rate swaps in connection with the repayment of the loan encumbering Central Place Tower.

As of December 31, 2020 and 2019, we had various interest rate swap and cap agreements on certain of our mortgages payable with an aggregate notional value of $1.3 billion and $867.6 million.

During the year ended December 31, 2020, we entered into various interest rate cap agreements on certain of our mortgages payable with an aggregate notional value of $560.0 million.

During the year ended December 31, 2019, in connection with the repayment of the loan encumbering Central Place Tower, we terminated various interest rate swaps with an aggregate notional value of $220.0 million.

See Note 18 to the financial statements for additional information.

As of December 31, 2021 and 2020, we had various interest rate swap and cap agreements on certain of our mortgages payable with an aggregate notional value of $1.3 billion.

See Note 17 for additional information.

As of December 31, 2021, our $1.4 billion credit facility consisted of a $1.0 billion revolving credit facility maturing in January 2025, a $200.0 million Tranche A-1 Term Loan maturing in January 2023 and a $200.0 million Tranche A-2 Term Loan maturing in July 2024.

Based on the terms as of December 31, 2020, the interest rate for the credit facility varies based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets and ranges (i) in the case of the revolving credit facility, effective January 2020, from LIBOR plus 1.05% to LIBOR plus 1.50%, (ii) in the case of the Tranche A-1 Term Loan, from LIBOR plus 1.20% to LIBOR plus 1.70% and (iii) in the case of the Tranche A-2 Term Loan, from LIBOR

plus 1.15% to LIBOR plus 1.70%.

Based on the terms as of December 31, 2021, the interest rate for the credit facility varies based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets, and ranges (i) in the case of the revolving credit facility from LIBOR plus 1.05% to LIBOR plus 1.50%, (ii) in the case of the Tranche A-1 Term Loan, from LIBOR plus 1.20% to LIBOR plus 1.70% and (iii) in the case of the Tranche A-2 Term Loan, from LIBOR plus 1.15% to LIBOR plus 1.70%.

There are various LIBOR options in the credit facility, and we elected the one-month LIBOR option as of December 31, 2021.

We were not in default under our credit facility as of December 31, 2021.

Effective as of January 14, 2022, the Tranche A-1 Term Loan was amended to extend the maturity date to January 2025 with two one-year extension options, and to amend the interest rate to SOFR plus 1.05% to SOFR plus 1.65%, in each case including a credit spread adjustment.

In connection with the loan amendment, we amended the related LIBOR-based interest rate swaps, extending the maturity to July 2024 and converting the hedged rate from one-month LIBOR to one-month SOFR.

The following is a summary of amounts outstanding under the credit facility:

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(1) Effective interest rate as of December 31, 2021.

(2) As of both December 31, 2020 and 2019, letters of credit with an aggregate face amount of $1.5 million were outstanding under our revolving credit facility.

(3) As of December 31, 2020 and 2019, net deferred financing costs related to our revolving credit facility totaling $6.7 million and $3.1 million were included in "Other assets, net."

(2) As of December 31, 2021 and 2020, letters of credit with an aggregate face amount of $911,000 and $1.5 million were outstanding under our revolving credit facility.

(3) As of December 31, 2021 and 2020, excludes net deferred financing costs related to our revolving credit facility of $5.0 million and $6.7 million that were included in "Other assets, net."

(4) The interest rate for the revolving credit facility excludes a 0.15% facility fee.

(5) As of December 31, 2020 and 2019, $200.0 million and $100.0 million of the outstanding balance was fixed by interest rate swap agreements.

As of December 31, 2020, the interest rate swaps mature concurrently with the term loan and provide a weighted average interest rate of 1.39%.

(6) As of December 31, 2020 and 2019, $200.0 million and $137.6 million of the outstanding balance was fixed by interest rate swap agreements.

As of December 31, 2020, the interest rate swaps mature concurrently with the term loan and provide a weighted average interest rate of 1.34%.

Our existing floating rate debt instruments, including our credit facility, and our hedging arrangements currently use as a reference rate the USD-LIBOR, and we expect a transition from LIBOR to another reference rate due to plans to phase out the reference rate by the end of 2021, after which point its continuation cannot be assured.

Though an alternative reference rate for USD-LIBOR, the SOFR, exists, significant uncertainties still remain.

We can provide no assurance regarding the future of LIBOR and when our LIBOR-based instruments will transition from USD-LIBOR as a reference rate to SOFR or another reference rate.

(5) As of December 31, 2021 and 2020, the outstanding balance was fixed by interest rate swap agreements.

As of December 31, 2021, the interest rate swaps mature concurrently with the respective term loan and fix LIBOR at a weighted average interest rate of 1.39% for the Tranche A-1 Term Loan and 1.34% for the Tranche A-2 Term Loan.

As of December 31, 2021, we had floating rate debt with a principal balance totaling $2.0 billion and hedging arrangements with a notional value totaling $1.7 billion that use LIBOR as a reference rate.

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

Though an alternative reference rate for LIBOR, the SOFR, exists, significant uncertainties still remain.

We can provide no assurance regarding the future of LIBOR and when our LIBOR-based instruments will transition from LIBOR as a reference rate to SOFR or another reference rate.

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

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In March 2020, our Board of Trustees authorized the repurchase of up to $500.0 million of our outstanding common shares.

During the year ended December 31, 2020, we repurchased and retired 3.8 million common shares for $104.8 million, an average purchase price of $27.72 per share.

Purchases, made pursuant to the program, are made either in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements.

The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to economic and market conditions, share

price, applicable legal requirements and other factors.

During the year ended December 31, 2021, we repurchased and retired 5.4 million common shares for $157.7 million, a weighted average purchase price per share of $29.34.

During the year ended December 31, 2020, we repurchased and retired 3.8 million common shares for $104.8 million, a weighted average purchase price per share of $27.72.

Since we began the share repurchase program, we have repurchased and retired 9.1 million common shares for $262.4 million, a weighted average purchase price per share of $28.67.

Purchases under the program are made either in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements.

The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to economic and market conditions, share price,

applicable legal requirements and other factors.

The program may be suspended or discontinued at our discretion without prior notice.

Liquidity Requirements

Our principal liquidity needs for the next 12 months and beyond are to fund:

Material Cash Requirements

Our material cash requirements for the next 12 months and beyond are to fund:

● normal recurring expenses;

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● development expenditures;

● dividends to shareholders and distributions to holders of OP Units

● dividends to shareholders and distributions to holders of OP Units and LTIP Units;

● common share repurchases;

● possible acquisitions of properties, either directly or indirectly through the acquisition of equity interests therein.

We expect to satisfy these needs using one or more of the following:

We expect to satisfy these requirements using one or more of the following:

● cash and cash equivalent balances;

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● proceeds from financings, recapitalizations and asset sales.

While we do not expect the need to do so during the next 12 months, we also can issue equity securities to raise funds.

While we do not expect the need to do so during the next 12 months, we also can issue securities to raise funds.

While we have not experienced a significant impact to date in this regard, we expect COVID-19 to continue to have an adverse impact on our liquidity and capital resources.

Future decreases in cash flows from operations resulting from tenant defaults, rent deferrals or decreases in our rents or occupancy, would decrease the cash available for the capital uses described above.

In light of the current lack of visibility regarding the long-term impact of COVID-19 on our revenue, we have taken various steps to mitigate its adverse effect on our liquidity, including the deferral of planned discretionary capital expenditures for our operating assets for 2020 and 2021.

During the year ended December 31, 2020, we repaid $500.0 million of draws under our revolving credit facility, in part with the proceeds from three separate mortgage loans with an aggregate principal balance of $385.0 million, collateralized by The Bartlett, 1221 Van Street and 220 20th Street.

We also made a $100.0 million draw on our Tranche A-1 Term Loan in April 2020, and repaid a mortgage payable collateralized by WestEnd25 with a principal balance of $94.7 million in December 2020.

As of December 31, 2020, we have $998.5 million of remaining availability under our credit facility (net of outstanding letters of credit totaling $1.5 million).

As of December 31, 2020, mortgages payable totaling $1.1 million on a consolidated basis and $103.4 million at our share are scheduled to mature in 2021.

Contractual Obligations and Commitments

The following is a summary of our contractual obligations and commitments as of December 31, 2020:

As of December 31, 2021, we had $699.1 million of availability under our credit facility (net of outstanding letters of credit totaling $911,000).

As of December 31, 2021, we had mortgages payable totaling $107.5 million on a consolidated basis and $194.2 million at our share scheduled to mature in 2022.

The following is a summary of our material cash requirements as of December 31, 2021:

(In thousands)

Contractual cash obligations (principal and interest):

Material cash requirements (principal and interest):

Debt obligations (1) (2)

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Finance leases (3)

Total contractual cash obligations (4)

Total material cash requirements (4)

(1) Interest was computed giving effect to interest rate hedges.

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(2) Excludes our proportionate share of unconsolidated real estate venture indebtedness.

See additional information in Off-Balance Sheet Arrangements section below.

(3) We recognize operating and finance lease right-of-use assets and lease liabilities in our balance sheet associated with our corporate office lease and various ground leases for which we are the lessee.

See Note 20 to the financial statements for additional information.

(4) Excludes obligations related to construction or development contracts totaling $18.9 million ($9.6 million related to our consolidated entities and $9.3 million related to our unconsolidated real estate ventures at our share), based on our current plans and estimates, since payments are only due upon satisfactory performance under the contracts.

Also excludes committed tenant-related obligations totaling $56.1 million ($52.3 million related to our consolidated entities and $3.8 million related to our unconsolidated real estate ventures at our share) as timing and amounts of payments are uncertain and may only be due upon satisfactory performance of certain conditions.

See additional information in Unconsolidated Real Estate Ventures section below.

(3) We recognize operating and finance lease right-of-use assets and lease liabilities associated with our corporate office lease and various ground leases for which we are the lessee in our consolidated balance sheet.

See Note 19 to the consolidated financial statements for additional information.

(4) Excludes obligations related to construction or development contracts totaling $291.4 million since payments are only due upon satisfactory performance under the contracts.

Also excludes committed tenant-related obligations totaling $76.0 million ($70.7

million related to our consolidated entities and $5.3 million related to our unconsolidated real estate ventures at our share) as timing and amounts of payments are uncertain and may only be due upon satisfactory performance of certain conditions.

See Commitments and Contingencies section below for additional information.

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Summary of Cash Flows

The following summary discussion of our cash flows is based on our statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows:

The following summary discussion of our cash flows is based on our consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows:

Year Ended December 31,

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Net cash provided by operating activities

Net cash used in by investing activities

Net cash provided by (used in) financing activities

Net cash used in investing activities

Net cash provided by financing activities

Cash Flows for the Year Ended December 31, 2021

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Our outstanding debt was $2.5 billion and $2.0 billion as of December 31, 2021 and 2020.

The $376.0 million increase in outstanding debt was primarily from four separate mortgage loans with an aggregate principal balance of $560.0 million, collateralized by 4747 Bethesda Avenue, The Bartlett, 1221 Van Street and 220 20 th Street, and the remaining $100.0 million draw under our Tranche A-1 Term Loan, partially offset by the repayment of the revolving credit facility and the mortgage payable collateralized by WestEnd25 with a principal balance of $94.7 million.

The $484.4 million increase in outstanding debt was primarily from borrowings under our revolving credit facility totaling $300.0 million and borrowings from two separate mortgage loans with an aggregate principal balance of $190.0 million, collateralized by 1225 S.

Clark Street and 1215 S.

Clark Street.

Net cash provided by operating activities of $217.6 million primarily comprised:

(i) $211.7 million of net income (before $338.5 million of non-cash items and a $59.5 million gain on sale of real estate) and (ii) $4.3 million of return on capital from unconsolidated real estate ventures, partially offset by (iii) $47.0 million of net change in operating assets and liabilities.

Non-cash income adjustments of $338.5 million primarily include depreciation and amortization expense, share-based compensation expense, losses on operating lease and other receivables, net loss from unconsolidated real estate ventures, deferred rent and impairment loss.

(i) $201.1 million of net income (before $302.1 million of non-cash items and an $11.3 million gain on sale of real estate), (ii) $15.9 million of return on capital from unconsolidated real estate ventures and (iii) $633,000 of net change in operating assets and liabilities.

Non-cash income adjustments of $302.1 million primarily include depreciation and amortization expense, share-based compensation expense, impairment loss, deferred rent and amortization of lease incentives.

Net cash used in investing activities of $368.7 million comprised:

(i) $307.5 million of development costs, construction in progress and real estate additions, (ii) $45.7 million related to the acquisition of the Americana Portfolio in December 2020, (iii) $25.4 million of deposits primarily related to the purchase of CBRS wireless spectrum licenses and (iv) $14.6 million of investments in unconsolidated real estate ventures, partially offset by (v) $154.5 million of proceeds from the sale of real estate and (vi) $71.1 million of distributions of capital from unconsolidated real estate ventures.

(i) $208.3 million related to the acquisition of The Batley in November 2021, (ii) $173.2 million of development costs, construction in progress and real estate additions and (iii) $41.8 million of investments in unconsolidated real estate ventures, partially offset by (iv) $40.2 million of distributions of capital from unconsolidated real estate ventures and (v) $14.4 million of proceeds from the sale of real estate.

Net cash provided by financing activities of $189.9 million primarily comprised:

(i) $580.1 million of proceeds from borrowings under mortgages payable, (ii) $500.0 million of proceeds from borrowings under our revolving credit facility and (iii) $100.0 million of proceeds from borrowings under unsecured term loans, partially offset by (iv) $700.0 million of repayments of our revolving credit facility, (v) $120.0 million of dividends paid to common shareholders, (vi) $104.8 million of common shares repurchased, (vii) $104.1 million of repayments of mortgages payable, (viii) $15.0 million of distributions to redeemable noncontrolling interests, and (ix) $14.9 million of debt issuance costs.

Cash Flows for the Year Ended December 31, 2019

Cash and cash equivalents, and restricted cash decreased $257.0 million to $142.5 million as of December 31, 2019, compared to $399.5 million as of December 31, 2018.

This decrease resulted from $240.7 million of net cash used in investing activities and $190.3 million of net cash used in financing activities, partially offset by $174.0 million of net cash provided by operating activities.

Net cash provided by operating activities of $174.0 million primarily comprised:

(i) $214.8 million of net income (before $245.6 million of non-cash items and a $105.0 million gain on sale of real estate) and (ii) $2.7 million of return on capital from unconsolidated real estate ventures, partially offset by (iii) $43.5 million of net change in operating assets and liabilities.

Non-cash income adjustments of $245.6 million primarily include depreciation and amortization expense, share-based compensation expense, deferred rent, impairment of the right-of-use asset for leases associated with our former corporate headquarters, amortization of lease incentives and loss on extinguishment of debt.

Net cash used in investing activities of $240.7 million primarily comprised:

(i) $441.0 million of development costs, construction in progress and real estate additions, (ii) $165.2 million related to the acquisition of F1RST Residences in December 2019, and (iii) $18.7 million of investments in unconsolidated real estate ventures, partially offset by (iv) $377.5 million of proceeds from the sales of real estate and (v) $7.6 million of distributions of capital from unconsolidated real estate ventures.

Net cash used in financing activities of $190.3 million primarily comprised:

(i) $719.0 million of repayments of mortgages payable, (ii) $129.8 million of dividends paid to common shareholders and (iii) $17.4 million of distributions to redeemable noncontrolling interests, partially offset by (iv) $472.8 million of net proceeds from the issuance of common stock and (v) $200.0 million of proceeds from borrowings under our revolving credit facility.

Off-Balance Sheet Arrangements

(i) $300.0 million of proceeds from borrowings under our revolving credit facility, (ii) $190.0 million of proceeds from borrowings under mortgages payable, and (iii) $24.1 million of contributions from noncontrolling interests, partially offset by (iv) $157.7 million of common shares repurchased, (v) $118.1 million of dividends paid to common shareholders, (vi) $20.0 million of finance lease payments, (vii) $17.8 million of distributions to redeemable noncontrolling interests, (viii) $6.6 million of debt issuance costs and (ix) $5.6 million of repayments of mortgages payable.

Unconsolidated Real Estate Ventures

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As of December 31, 2021, we have investments in unconsolidated real estate ventures totaling $462.9 million.

For the majority of these investments, we exercise significant influence over but do not control these entities and, therefore.

account for these investments using the equity method of accounting.

For a more complete description of our real estate ventures, see Note 6 to the financial statements.

For these investments, we exercise significant influence over but do not control these entities and, therefore, account for these investments using the equity method of accounting.

For a more complete description of our real estate ventures, see Note 5 to the consolidated financial statements.

From time to time, we (or ventures in which we have an ownership interest) have agreed, and may in the future agree with respect to unconsolidated real estate ventures, to (i) guarantee portions of the principal, interest and other amounts in connection with borrowings, (ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) in connection with borrowings or (iii) provide guarantees to lenders and other third parties for the completion of development projects.

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As of December 31, 2021, we had no principal payment guarantees related to our unconsolidated real estate ventures.

Reconsideration events could cause us to consolidate these unconsolidated real estate ventures in the future or deconsolidate a consolidated entity.

We evaluate reconsideration events as we become aware of them.

Reconsideration events include amendments to real estate venture agreements and changes in our partner's ability to make contributions to the venture.

Reconsideration events include amendments to real estate venture agreements or changes in our partner's ability to make contributions to the venture.

Under certain circumstances, we may purchase our partner's interest.

A reconsideration event could cause us to consolidate an unconsolidated real estate venture in the future or deconsolidate a consolidated entity.

Commitments and Contingencies

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Construction Commitments

As of December 31, 2020, we had construction in progress that will require an additional $18.9 million to complete ($9.6 million related to our consolidated entities and $9.3 million related to our unconsolidated real estate ventures at our share), based on our current plans and estimates, which we anticipate will be primarily expended over the next one to two years.

As of December 31, 2021, we had assets under construction that will, based on our current plans and estimates, require an additional $291.4 million to complete, which we anticipate will be primarily expended over the next two to three years.

These capital expenditures are generally due as the work is performed, and we expect to finance them with debt proceeds, proceeds from asset recapitalizations and sales, and available cash.

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To the extent we send contaminated materials to other locations for treatment or disposal, we may be liable for cleanup of those sites if they become contaminated.

Most of our assets have been subject, at some point, to environmental assessments that are intended to evaluate the environmental condition of the subject and surrounding assets.

Most of our assets have been subject, at some point, to environmental assessments that are intended to evaluate the environmental condition of the assets.

These environmental assessments generally have included a historical review, a public records review, a visual inspection of the site and surrounding assets, visual or historical evidence of underground storage tanks, and the preparation and issuance of a written report.

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The environmental assessments did not reveal any material environmental contamination that we believe would have a material adverse effect on our overall business, financial condition or results of operations, or that have not been anticipated and remediated during site redevelopment as required by law.

Nevertheless, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites or changes in cleanup requirements would not result in

significant cost to us.

Environmental liabilities total $18.2 million and $17.9 million as of December 31, 2020 and 2019, and are included in "Other liabilities, net"

in our balance sheets.

in Note 19 to the consolidated financial statements, environmental liabilities totaled $18.2 million as of December 31, 2021 and 2020, and are included in "Other liabilities, net"

in our consolidated balance sheets.

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