WRE 10-K - 12.31.2011

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________

FORM 10-K

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ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 2011



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

COMMISSION FILE NO. 1-6622

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WASHINGTON REAL ESTATE INVESTMENT TRUST

(Exact name of registrant as specified in its charter)

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MARYLAND		53-0261100
(State of incorporation)		(IRS Employer Identification Number)

6110 EXECUTIVE BOULEVARD, SUITE 800, ROCKVILLE, MARYLAND 20852

(Address of principal executive office) (Zip code)

Registrant’s telephone number, including area code: (301) 984-9400

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Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class		Name of exchange on which registered
Shares of Beneficial Interest		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES ý NO ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES ¨ NO ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days. YES ý NO ¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO ý

As of June 30, 2011, the aggregate market value of such shares held by non-affiliates of the registrant was approximately $2,133,692,094 (based on the closing price of the stock on June 30, 2011).

As of February 21, 2012, 66,271,263 common shares were outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of our definitive Proxy Statement relating to the 2012 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.

WASHINGTON REAL ESTATE INVESTMENT TRUST

2011 FORM 10-K ANNUAL REPORT

INDEX



PART I			Page

	Item 1.	Business	4
	Item 1A.	Risk Factors	8
	Item 1B.	Unresolved Staff Comments	15
	Item 2.	Properties	16
	Item 3.	Legal Proceedings	18
	Item 4.	Mine Safety Disclosures	18

PART II

	Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
	Item 6.	Selected Financial Data	20
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 7A.	Qualitative and Quantitative Disclosures about Market Risk	52
	Item 8.	Financial Statements and Supplementary Data	53
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	53
	Item 9A.	Controls and Procedures	53
	Item 9B.	Other Information	53

PART III

	Item 10.	Directors, Executive Officers and Corporate Governance	54
	Item 11.	Executive Compensation	54
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	54
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	54
	Item 14.	Principal Accountant Fees and Services	54

PART IV

	Item 15.	Exhibits and Financial Statements Schedules	55
		Signatures	58

PART I

ITEM 1: BUSINESS

WRIT Overview

Washington Real Estate Investment Trust (“we” or “WRIT”) is a self-administered, self-managed, equity real estate investment trust (“REIT”) successor to a trust organized in 1960. Our business consists of the ownership and operation of income-producing real property in the greater Washington metro region. We own a diversified portfolio of office buildings, medical office buildings, multifamily buildings and retail centers.

Our geographic focus is based on two principles:


1.	Real estate is a local business and is more effectively selected and managed by owners located, and with expertise, in the region.


2.	Geographic markets deserving of focus must be among the nation’s best markets with a strong primary industry foundation and diversified enough to withstand downturns in their primary industry.

We consider markets to be local if they can be reached from Washington within two hours by car. While we have historically focused most of our investments in the greater Washington metro region, in order to maximize acquisition opportunities we will consider investments within the two-hour radius described above. We also may, in the future, consider opportunities to duplicate our Washington-focused approach in other geographic markets which meet the criteria described above.

Our current strategy is focused on properties inside the Washington metro region’s Beltway, near major transportation nodes and in areas with strong employment drivers and superior growth demographics. We will seek to continue to upgrade our portfolio as opportunities arise, funding acquisitions with a combination of cash, equity, debt and proceeds from property sales.

All of our officers and employees live and work in the greater Washington metro region and all but one of our officers have over 20 years of experience in this region.

Over the last five years, dividends paid per share have been $1.735 for 2011, $1.73125 for 2010, $1.73 for 2009, $1.72 for 2008 and $1.68 for 2007.

The Greater Washington Metro Area Economy

The Washington metro region remained among the top economic centers in the nation in 2011, but uncertainty about the impact of proposed cuts to the federal budget slowed the pace of the region's economic growth. Current estimates by Delta Associates / Transwestern Commercial Services (“Delta”), a national full service real estate firm that provides market research and evaluation services for commercial property, indicate that the Washington metro region gained only 5,900 jobs during the 12 month period ending October 2011. The region's unemployment rate was 5.7% at October 2011, down from 5.9% in the prior year. The region's unemployment rate remains the lowest rate among all of the nation's largest metro areas. Projected 2011 GRP growth is expected to be 2.5% as compared to the national increase of 1.6%. The federal government remains the region's most important industry, providing approximately one third of the region's GRP.

Delta expects the Washington metro region's economy to grow in 2012 at a similar pace to 2011. Delta forecasts GRP growth for the Washington metro region to continue to exceed the national average in 2012.

Greater Washington Metro Region Real Estate Markets

The Washington metro region's economy has translated into improving relative real estate market performance in each of our segments, compared to other national metropolitan regions, as reported by Delta. Market statistics and information from Delta are set forth below:

Office and Medical Office Sectors


•	Average effective rents decreased 0.9% in 2011 in the region compared to a decrease of 6.5% in 2010.


•	Overall vacancy was 12.1% at year-end 2011, up from 11.9 % at year-end 2010 but down from 13.0% at year-end 2009. The region has the fourth lowest vacancy rate of large metro areas in the United States.


•	Net absorption (defined as the change in occupied, standing inventory from one period to the next) totaled 1.1 million square feet in 2011, down from 6.4 million square feet in 2010 and below the 6.2 million square foot long-term average.


•	Of the 7.0 million square feet of office space under construction at year-end 2011 (up from 5.0 million square feet at year-end 2010), 52% is pre-leased compared to 61% one year ago.

Retail Sector


•	Rental rates at grocery-anchored centers were up 2.1% in the region in 2011, compared to the 2.4% decrease in 2010.


•	Vacancy for grocery-anchored centers was 5.5% at year-end 2011, down from 5.6% at year-end 2010.


•	Average Household Income for the Washington metro region in 2011 was $102,600, 46% higher than the national average.

Multifamily Sector


•	Net effective rents for all investment grade apartments increased 2.1% in the greater Washington metro region during 2011. Class A rents increased by 2.4% in 2011, compared to an increase of 7.8% in 2010.


•	The vacancy rate for all apartments was 3.8% at year-end 2011, compared to 3.4% at year-end 2010. The national rate was 5.8% at year-end 2011, which places the Washington metro region as one of the lowest vacancy rates of any metro area in the nation. Class A vacancy increased to 5.0% at year-end 2011 from 4.6% at year-end 2010.

Our Portfolio

As of December 31, 2011, we owned a diversified portfolio of 71 properties, totaling approximately 8.6 million square feet of commercial space and 2,540 residential units, and land held for development. These 71 properties consist of 26 office properties, 18 medical office properties, 16 retail centers and 11 multifamily properties. Our principal objective is to invest in high quality properties in prime locations, then proactively manage, lease and direct ongoing capital improvement programs to improve their economic performance. The percentage of total real estate rental revenue by property group for 2011, 2010 and 2009, and the percent leased, calculated as the percentage of physical net rentable area leased, as of December 31, 2011, were as follows:



Percent Leased December 31, 2011		Real Estate Rental Revenue⁽¹⁾
Percent Leased December 31, 2011		2011		2010		2009
90%	Office	49	%	48	%	48	%
89%	Medical office	16	%	17	%	18	%
94%	Retail	17	%	16	%	16	%
96%	Multifamily	18	%	19	%	18	%
		100	%	100	%	100	%


⁽¹⁾	Data excludes discontinued operations.

On a combined basis, our commercial portfolio (i.e., our office, medical office and retail properties, but not our multifamily properties) was 91% leased at December 31, 2011 and 2010, and 93% leased at December 31, 2009.

The commercial lease expirations for the next five years are as follows:



	# of Leases	Square Feet	Gross Annual Rent (in thousands)		Percentage of Total Gross Annual Rent
2012	216	734,304	$	23,340	10	%
2013	196	1,055,537	27,283		12	%
2014	171	1,036,983	34,600		15	%
2015	143	949,144	32,186		14	%
2016	139	899,910	27,020		12	%
2017 and thereafter	316	2,544,027	89,499		37	%
Total	1,181	7,219,905	$	233,928	100	%

Total real estate rental revenue from continuing operations was $289.5 million for 2011, $258.5 million for 2010 and $256.5 million for 2009. During the three year period ended December 31, 2011, we acquired six office buildings, one medical office building and two retail centers. During that same time frame, we sold eight office buildings, one multifamily building and our entire industrial segment.

No single tenant accounted for more than 3.7% of real estate rental revenue in 2011, 3.8% of real estate rental revenue in 2010 and 3.8% of real estate rental revenue in 2009. All federal government tenants in the aggregate accounted for approximately 1.7% of our 2011 real estate rental revenue. Federal government tenants include the Department of Defense, Social Security Administration, Federal Bureau of Investigation, Office of Personnel Management and the National Institutes of Health.

Our ten largest tenants, in terms of aggregate occupied square feet, are as follows:



1.	World Bank
2.	General Services Administration
3.	Advisory Board Company
4.	L-3 Services, Inc
5.	Booz Allen Hamilton, Inc.
6.	Patton Boggs LLP
7.	INOVA Health System
8.	Sunrise Assisted Living, Inc.
9.	Children's Hospital
10.	General Dynamics

We expect to continue investing in additional income-producing properties. We invest in properties which we believe will increase in income and value. Our properties typically compete for tenants with other properties throughout the respective areas in which they are located on the basis of location, quality and rental rates.

We make capital improvements on an ongoing basis to our properties for the purpose of maintaining and increasing their value and income. Major improvements and/or renovations to the properties in 2011, 2010, and 2009 are discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Capital Improvements and Development Costs.”

Further description of the property groups is contained in Item 2, Properties and in Schedule III. Reference is also made to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

On February 21, 2012, we had 303 employees including 216 persons engaged in property management functions and 87 persons engaged in corporate, financial, leasing, asset management and other functions.

REIT Tax Status

We believe that we qualify as a REIT under Sections 856-860 of the Internal Revenue Code and intend to continue to qualify as such. To maintain our status as a REIT, we are required to distribute 90% of our ordinary taxable income to our shareholders. When selling properties, we have the option of (a) reinvesting the sales proceeds of properties sold, allowing for a deferral of income taxes on the sale, (b) paying out capital gains to the shareholders with no tax to us or (c) treating the capital gains as having been distributed to our shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to our shareholders.

Tax Treatment of Recent Disposition Activity

We sold several properties during the three year period ended December 31, 2011:



Disposition Date	Property	Type	Rentable Square Feet (unaudited)	Contract Sales Price (in thousands)		Gain on Sale (in thousands)
Various ⁽¹⁾	Industrial Portfolio ⁽¹⁾	Industrial/Office	3,092,000	$	350,900	$	97,491
April 5, 2011	Dulles Station, Phase I	Office	180,000	58,800		—
		Total 2011	3,272,000	$	409,700	$	97,491

June 18, 2010	Parklawn Portfolio ⁽²⁾	Office/Industrial	229,000	$	23,400	$	7,900
December 21, 2010	The Ridges	Office	104,000	27,500		4,500
December 22, 2010	Ammendale I&II/ Amvax	Industrial	305,000	23,000		9,200
		Total 2010	638,000	$	73,900	$	21,600

May 13, 2009	Avondale	Multifamily	170,000	$	19,800	$	6,700
July 23, 2009	Tech 100 Industrial Park	Industrial	166,000	10,500		4,100
July 31, 2009	Brandywine Center	Office	35,000	3,300		1,000
November 13, 2009	Crossroads Distribution Center	Industrial	85,000	4,400		1,500
		Total 2009	456,000	$	38,000	$	13,300

⁽¹⁾

The Industrial Portfolio consists of every property in our industrial segment and two office properties (the Crescent and Albemarle Point), and we closed on the sale on three separate dates. On September 2, 2011, we closed on the sale of the two office properties (the Crescent and Albemarle Point) and 8880 Gorman Road, Dulles South IV, Fullerton Business Center, Hampton Overlook, Alban Business Center, Pickett Industrial Park, Northern Virginia Industrial Park I, 270 Technology Park, Fullerton Industrial Center, Sully Square, 9950 Business Parkway, Hampton South and 8900 Telegraph Road. On October 3, 2011, we closed the sale of Northern Virginia Industrial Park II. On November 1, 2011, we closed on the sale of 6100 Columbia Park Road and Dulles Business Park I and II.


⁽²⁾	The Parklawn Portfolio consists of three office properties (Parklawn Plaza, Lexington Building and Saratoga Building) and one industrial property (Charleston Business Center).

All disclosed gains on sale are calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). A portion of the sales proceeds were reinvested in replacement properties, with the remainder paid out to shareholders.

We distributed all of our 2011, 2010 and 2009 ordinary taxable income to our shareholders.

During the fourth quarter of 2011 we recognized a $14.5 million impairment charge at Dulles Station, Phase II, a development property held by one of our TRS's (see note 3 to the consolidated financial statements). The impairment charge created a deferred tax asset of $5.7 million at this TRS, but we have determined that it is more likely than not that this deferred tax asset will not be realized. We have therefore recorded a valuation allowance for the full amount of the deferred tax asset related to the impairment charge at Dulles Station, Phase II.

As of December 31, 2011, our TRS's had a net deferred tax asset of $0.1 million and a net deferred tax liability of $0.5 million, primarily related to temporary differences in the timing of the recognition of revenue, amortization and depreciation. There were no material income tax provisions or material net deferred income tax items for our TRS's for the years ended December 31, 2010 and 2009.

Availability of Reports

Copies of this Annual Report on Form 10-K, as well as our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports are available, free of charge, on the Internet on our website www.writ.com. All required reports

are made available on the website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission. The reference to our website address does not constitute incorporation by reference of the information contained in the website and such information should not be considered part of this document.

ITEM 1A: RISK FACTORS

Set forth below are the risks that we believe are material to our shareholders. We refer to the shares of beneficial interest in WRIT as our “common shares,” and the investors who own shares as our “shareholders.” This section includes or refers to certain forward-looking statements. You should refer to the explanation of the qualifications and limitations on such forward-looking statements beginning on page 49.

Our performance and value are subject to risks associated with our real estate assets and with the real estate industry.

Our financial performance and the value of our real estate assets are subject to the risk that if our office, medical office, retail and multifamily properties do not generate revenues sufficient to meet our operating expenses, debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected. The following factors, among others, may adversely affect the cash flow generated by our commercial and multifamily properties:


•	downturns in the national, regional and local economic climate;


•	the economic health of our tenants and the ability to collect rents;


•	consumer confidence, unemployment rates, and consumer tastes and preferences;


•	competition from similar asset type properties;


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


•	changes in interest rates and availability of financing;


•	vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;


•	increased operating costs, including insurance premiums, utilities and real estate taxes;


•	inflation;


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


•	decreases in the underlying value of our real estate.

We cannot assure you we will continue to pay dividends at historical rates.

Cash flows from operations are an important factor in our ability to sustain our dividend at its current rate. If our cash flows from operations were to decline significantly, we may have to borrow on our lines of credit to sustain the dividend rate or reduce our dividend. Our ability to continue to pay dividends on our common shares at historical rates or to increase our common share dividend rate will depend on a number of factors, including, among others, the following:


•	our future financial condition and results of operations;


•	the performance of lease terms by tenants;


•	the terms of our loan covenants; and


•	our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates.

If we do not maintain or increase the dividend rate on our common shares in the future, it could have an adverse effect on the market price of our common shares.

We are dependent upon the economic climate of the Washington metropolitan region.

All of our properties are located in the Washington metropolitan region, which may expose us to a greater amount of market dependent risk than if we were geographically diverse. General economic conditions and local real estate conditions in our geographic region may be dependent upon one or more industries, thus a downturn in one of the industries may have a particularly strong effect. In the event of negative economic changes in our region, we may experience a negative impact to our profitability and may be limited in our ability to meet our financial obligations when due and/or make distributions to our shareholders.

We may be adversely affected by any significant reductions in federal government spending.

As a REIT operating exclusively in the Washington, D.C. metropolitan area, a significant portion of our properties is occupied by United States Government tenants or tenants that are directly or indirectly serving the United States Government as federal contractors or otherwise. A significant reduction in federal government spending could adversely affect the ability of these tenants to fulfill lease obligations or decrease the likelihood that they will renew their leases with us. Further, economic conditions in the Washington, D.C. metropolitan area are significantly dependent upon the level of federal government spending in the region. In the event of a significant reduction in federal government spending, there could be negative economic changes in our region which

could adversely impact the ability of our tenants to perform their financial obligations under our leases or the likelihood of their lease renewal. As a result, if such a reduction in federal government spending were to occur, we could experience an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.

Disruptions in the financial markets could affect our ability to obtain financing or have other adverse effects on us or the market price of our common shares.

The United States and global equity and credit markets have experienced significant price volatility and liquidity disruptions which caused the market prices of stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances significantly and negatively impacted liquidity in the financial markets, making terms for certain financings less attractive or unavailable. Any disruption in the equity and credit markets could negatively impact our ability to access additional financing at reasonable terms or at all. If such disruption were to occur, in the event of a debt financing, our cost of borrowing in the future would likely be significantly higher than historical levels. As well, in the case of a common equity financing, the disruptions in the financial markets could have a material adverse effect on the market value of our common shares, potentially requiring us to issue more shares than we would otherwise have issued with a higher market value for our common shares. Disruption in the financial markets also could negatively affect our ability to make acquisitions, undertake new development projects and refinance our debt. In addition, it could also make it more difficult for us to sell properties and could adversely affect the price we receive for properties that we do sell, as prospective buyers experience increased costs of financing and difficulties in obtaining financing.

Disruptions in the financial markets also could adversely affect many of our tenants and their businesses, including their ability to pay rents when due and renew their leases at rates at least as favorable as their current rates. As well, our ability to attract prospective new tenants in the future could be adversely affected by disruption in the financial markets.

We face risks associated with property acquisitions.

We intend to continue to acquire properties which would continue to increase our size and could alter our capital structure. Our acquisition activities and results may be exposed to the following risks:


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


•	the acquired properties may fail to perform as we expected in analyzing our investments;


•	the actual returns realized on acquired properties may not exceed our average cost of capital;


•	even if we enter into an acquisition agreement for a property, we may be unable to complete that acquisition after making a non-refundable deposit and incurring certain other acquisition-related costs;


•	we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;


•	competition from other real estate investors may significantly increase the purchase price;


•	our estimates of capital expenditures required for an acquired property, including the costs of repositioning or redeveloping, may be inaccurate;


•	we may be unable to acquire a desired property because of competition from other real estate investors, including publicly traded real estate investment trusts, institutional investment funds and private investors; and


•	even if we enter into an acquisition agreement for a property, it is subject to customary conditions to closing, including completion of due diligence investigations which may have findings that are unacceptable.

We may acquire properties subject to liabilities and without recourse, or with limited recourse with respect to unknown liabilities. As a result, if liability were asserted against us based upon the acquisition of a property, we may have to pay substantial sums to settle it, which could adversely affect our cash flow. Unknown liabilities with respect to properties acquired might include:


•	liabilities for clean-up of undisclosed environmental contamination;


•	claims by tenants, vendors or other persons dealing with the former owners of the properties;


•	liabilities incurred in the ordinary course of business; and


•	claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

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

Real estate investments can be difficult to sell and convert to cash quickly, especially if market conditions are not favorable, and we may find that to be the case under the current economic conditions due to limited credit availability for potential buyers. Such illiquidity could limit our ability to quickly change our portfolio of properties in response to changes in economic or other conditions. Moreover, under certain circumstances, the Internal Revenue Code imposes penalties on a REIT that sells property held for less than two years and or sells more than a specified number of properties in a given year. In addition, for properties that we acquire by issuing units in an operating partnership, we may be restricted by agreements with the sellers of the properties for a certain

period of time from entering into transactions (such as the sale or refinancing of the acquired property) that will result in a taxable gain to the sellers without the sellers’ consent. Due to these factors, we may be unable to sell a property at an advantageous time.

We face potential difficulties or delays renewing leases or re-leasing space.

As of December 31, 2011, leases on our commercial properties will expire from 2012 through 2016 as follows:



	% of leased square footage
2012	10%
2013	12%
2014	15%
2015	14%
2016	12%
Total	63%

We derive substantially all of our income from rent received from tenants. If our tenants decide not to renew their leases, we may not be able to re-let the space. If tenants decide to renew their leases, the terms of renewals, including the cost of required improvements or concessions, may be less favorable than current lease terms. Multifamily properties are leased under operating leases with terms of generally one year or less. For the years ended 2011, 2010 and 2009, the multifamily tenant retention rate was 56%, 61% and 54%, respectively. Similar to our commercial properties, if our multifamily tenants decide not to renew their leases, we may not be able to re-let the space, or the terms of the renewal may be less favorable than current lease terms. As a result of the foregoing, our cash flow could decrease and our ability to make distributions to our shareholders could be adversely affected.

We face potential adverse effects from major tenants' bankruptcies or insolvencies.

The bankruptcy or insolvency of a major tenant may adversely affect the income produced by a property. We cannot evict a tenant solely because of its bankruptcy. On the other hand, a court might authorize the tenant to reject and terminate its lease. In such case, our claim against the bankrupt tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. As a result, our claim for unpaid rent would likely not be paid in full. This shortfall could adversely affect our cash flow and results from operations. If a tenant experiences a downturn in its business or other types of financial distress, it may be unable to make timely rental payments.

We face risks associated with property development.

Developing properties presents a number of risks for us, including risks that:


•	if we are unable to obtain all necessary zoning and other required governmental permits and authorizations or cease development of the project for any other reason, the development opportunity may be abandoned after expending significant resources, resulting in the loss of deposits or failure to recover expenses already incurred;


•	the development and construction costs of the project may exceed original estimates due to increased interest rates and increased cost of materials, labor, leasing or other expenditures, which could make the completion of the project less profitable because market rents may not increase sufficiently to compensate for the increase in construction costs;


•	construction and/or permanent financing may not be available on favorable terms or may not be available at all, which may cause the cost of the project to increase and lower the expected return;


•	the project may not be completed on schedule as a result of a variety of factors, many of which are beyond our control, such as weather, labor conditions and material shortages, which would result in increases in construction costs and debt service expenses; and


•	occupancy rates and rents at the newly completed property may not meet the expected levels and could be insufficient to make the property profitable.

Properties developed or acquired for development may generate little or no cash flow from the date of acquisition through the date of completion of development. In addition, new development activities, regardless of whether or not they are ultimately successful, may require a substantial portion of management’s time and attention.

These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have an adverse effect on our financial condition, results of operations, or ability to satisfy our debt service obligations.

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

We invest in joint ventures in which we are not the exclusive investor or principal decision maker. Investments in such entities may involve risks not present when a third party is not involved, including the possibility that the other parties to these investments might become bankrupt or fail to fund their share of required capital contributions. Our partners in these entities may have economic, tax or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also lead to impasses, for example, as to whether to sell a property, because neither we nor the other parties to these investments may have full control over the entity. In addition, we may in certain circumstances be liable for the actions of the other parties to these investments. Each of these factors could have an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.

Our properties face significant competition.

We face significant competition from developers, owners and operators of office, medical office, retail, multifamily and other commercial real estate. Substantially all of our properties face competition from similar properties in the same market. Such competition may affect our ability to attract and retain tenants and may reduce the rents we are able to charge. These competing properties may have vacancy rates higher than our properties, which may result in their owners being willing to make space available at lower rents than the space in our properties.

We face risks associated with the use of debt, including refinancing risk.

We rely on borrowings under our credit facilities and offerings of debt securities to finance acquisitions and development activities and for general corporate purposes. The commercial real estate debt markets have in the recent past experienced significant volatility due to a number of factors, including the tightening of underwriting standards by lenders and credit rating agencies and the reported significant inventory of unsold mortgage backed securities in the market. The volatility resulted in investors decreasing the availability of debt financing as well as increasing the cost of debt financing. We believe that circumstances could again arise in which we may not be able to obtain debt financing in the future on favorable terms, or at all. If we were unable to borrow under our credit facilities or to refinance existing debt financing, our financial condition and results of operations would likely be adversely affected.

We are subject to the risks normally associated with debt, including the risk that our cash flow may be insufficient to meet required payments of principal and interest. We anticipate that only a small portion of the principal of our debt will be repaid prior to maturity. Therefore, we are likely to need to refinance a significant portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt. If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as new equity capital, our cash flow may not be sufficient to repay all maturing debt in years when significant “balloon” payments come due.

Our degree of leverage could limit our ability to obtain additional financing or affect the market price of our common shares or debt securities.

On February 21, 2012, our total consolidated debt was approximately $1.2 billion. Consolidated debt to consolidated market capitalization ratio, which measures total consolidated debt as a percentage of the aggregate of total consolidated debt plus the market value of outstanding equity securities, is often used by analysts to assess leverage for equity REITs such as us. Our market value is calculated using the price per share of our common shares. Using the closing share price of $29.54 per share of our common shares on February 21, 2012, multiplied by the number of our common shares, our consolidated debt to total consolidated market capitalization ratio was approximately 37% as of February 21, 2012.

Our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes. Our senior unsecured debt is currently rated investment grade by the two major rating agencies. However, there can be no assurance that we will be able to maintain this rating, and in the event our senior debt is downgraded from its current rating, we would likely incur higher borrowing costs and/or difficulty in obtaining additional financing. Our degree of leverage could also make us more vulnerable to a downturn in business or the economy generally. There is a risk that changes in our debt to market capitalization ratio, which is in part a function of our share price, or our ratio of indebtedness to other measures of asset value used by financial analysts, may have an adverse effect on the market price of our equity or debt securities.

Rising interest rates would increase our interest costs.

We may incur indebtedness that bears interest at variable rates. Accordingly, if interest rates increase, so will our interest costs,

which could adversely affect our cash flow and our ability to service debt. As a protection against rising interest rates, we may enter into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts. These agreements, however, increase our risks that other parties to the agreements may not perform or that the agreements may be unenforceable.

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

Our credit facilities contain customary restrictions, requirements and other limitations on our ability to incur indebtedness. We must maintain a minimum tangible net worth and certain ratios, including a maximum of total liabilities to total gross asset value, a maximum of secured indebtedness to gross asset value, a minimum of annual EBITDA to fixed charges, a minimum of unencumbered asset value to unsecured indebtedness, a minimum of net operating income from unencumbered properties to unsecured interest expense and a maximum of permitted investments to gross asset value. Our ability to borrow under our credit facilities is subject to compliance with our financial and other covenants. The recent economic downturn may adversely affect our ability to comply with these financial and other covenants.

Failure to comply with any of the covenants under our unsecured credit facilities or other debt instruments could result in a default under one or more of our debt instruments. In particular, we could suffer a default under one of our secured debt instruments that could exceed a cross default threshold under our unsecured credit facilities, causing an event of default under the unsecured credit facilities. Alternatively, even if a secured debt instrument is below the cross default threshold for non-recourse secured debt under our unsecured credit facilities, a default under such secured debt instrument may still cause a cross default under our unsecured credit facilities because such secured debt instrument may not qualify as “non-recourse” under the definition in our unsecured credit facilities. Another possible cross default could occur between our unsecured credit facilities, on the one hand, and our senior unsecured notes, on the other hand. Any of the foregoing default or cross default events could cause our lenders to accelerate the timing of payments and/or prohibit future borrowings, either of which would have a material adverse effect on our business, operations, financial condition and liquidity.

We face risks associated with short-term liquid investments.

We have significant cash balances from time to time that we invest in a variety of short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. From time to time, these investments may include (either directly or indirectly):


•	direct obligations issued by the U.S. Treasury;


•	obligations issued or guaranteed by the U.S. government or its agencies;


•	taxable municipal securities;


•	obligations (including certificates of deposit) of banks and thrifts;


•	commercial paper and other instruments consisting of short-term U.S. dollar denominated obligations issued by corporations and banks;


•	repurchase agreements collateralized by corporate and asset-backed obligations;


•	both registered and unregistered money market funds; and


•	other highly rated short-term securities.

Investments in these securities and funds are not insured against loss of principal. Under certain circumstances we may be required to redeem all or part of our investment, and our right to redeem some or all of our investment may be delayed or suspended. In addition, there is no guarantee that our investments in these securities or funds will be redeemable at par value. A decline in the value of our investment or a delay or suspension of our right to redeem may have a material adverse effect on our results of operations or financial condition.

Further issuances of equity securities may be dilutive to current shareholders.

The interests of our existing shareholders could be diluted if additional equity securities are issued, including to finance future developments and acquisitions, instead of incurring additional debt. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing.

Compliance or failure to comply with the Americans with Disabilities Act and other laws and regulations could result in substantial costs.

The Americans with Disabilities Act generally requires that public buildings, including commercial and multifamily properties, be made accessible to disabled persons. Noncompliance could result in imposition of fines by the federal government or the award of damages to private litigants. If, pursuant to the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our results of operations.

We may also incur significant costs complying with other regulations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fair housing, rent control and fire and life safety requirements. If we fail to comply with these requirements, we may incur fines or private damage awards. We believe that our properties are currently in material compliance with regulatory requirements. However, we do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will adversely affect our results of operations.

Some potential losses are not covered by insurance.

We carry insurance coverage on our properties of types and in amounts that we believe are in line with coverage customarily obtained by owners of similar properties. We believe all of our properties are adequately insured. The property insurance that we maintain for our properties has historically been on an “all risk” basis, which is in full force and effect until renewal in August 2012. There are other types of losses, such as from wars or catastrophic events, for which we cannot obtain insurance at all or at a reasonable cost.

We have an insurance policy which has no terrorism exclusion, except for non-certified nuclear, chemical and biological acts of terrorism. Our financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts. Effective November 26, 2002, under this existing coverage, any losses caused by certified acts of terrorism would be partially reimbursed by the United States under a formula established by federal law. Under this formula the United States pays 85% of covered terrorism losses exceeding the statutorily established deductible paid by the insurance provider, and insurers pay 10% until aggregate insured losses from all insurers reach $100 billion in a calendar year. If the aggregate amount of insured losses under this program exceeds $100 billion during the applicable period for all insured and insurers combined, then each insurance provider will not be liable for payment of any amount which exceeds the aggregate amount of $100 billion. On December 26, 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 was signed into law and extends the program through December 31, 2014. We continue to monitor the state of the insurance market in general, and the scope and costs of coverage for acts of terrorism in particular, but we cannot anticipate what amount of coverage will be available on commercially reasonable terms in future policy years.

In the event of an uninsured loss or a loss in excess of our insurance limits, we could lose both the revenues generated from the affected property and the capital we have invested in the affected property. Depending on the specific circumstances of the affected property it is possible that we could be liable for any mortgage indebtedness or other obligations related to the property. Any such loss could adversely affect our business and financial condition and results of operations.

We have to renew our policies in most cases on an annual basis and negotiate acceptable terms for coverage, exposing us to the volatility of the insurance markets, including the possibility of rate increases. Any material increase in insurance rates or decrease in available coverage in the future could adversely affect our results of operations and financial condition.

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

All of our properties are located in or near Washington D.C., a metropolitan area that has been and may in the future be the target of actual or threatened terrorism attacks. As a result, some tenants in our market may choose to relocate their businesses to other markets. This could result in an overall decrease in the demand for commercial space in this market generally, which could increase vacancies in our properties or necessitate that we lease our properties on less favorable terms, or both. In addition, future terrorist attacks in or near Washington D.C. could directly or indirectly damage our properties, both physically and financially, or cause losses that materially exceed our insurance coverage. As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially.

Potential liability for environmental contamination could result in substantial costs.

Under federal, state and local environmental laws, ordinances and regulations, we may be required to investigate and clean up the effects of releases of hazardous or toxic substances or petroleum products at our properties, regardless of our knowledge or responsibility, simply because of our current or past ownership or operation of the real estate. In addition, the U.S. Environmental Protection Agency, the U.S. Occupational Safety and Health Administration and other state and local governmental authorities are increasingly involved in indoor air quality standards, especially with respect to asbestos, mold, medical waste and lead-based paint. The clean up of any environmental contamination, including asbestos and mold, can be costly. If environmental problems arise, we may have to make substantial payments which could adversely affect our financial condition and results of operations because:


•	as owner or operator we may have to pay for property damage and for investigation and clean-up costs incurred in connection with the contamination;


•	the law typically imposes clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination;


•	even if more than one person may be responsible for the contamination, each person who shares legal liability under the environmental laws may be held responsible for all of the clean-up costs; and


•	governmental entities and third parties may sue the owner or operator of a contaminated site for damages and costs.

These costs could be substantial and in extreme cases could exceed the value of the contaminated property. The presence of hazardous or toxic substances or petroleum products or the failure to properly remediate contamination may adversely affect our ability to borrow against, sell or rent an affected property. In addition, applicable environmental laws create liens on contaminated sites in favor of the government for damages and costs it incurs in connection with a contamination.

Environmental laws also govern the presence, maintenance and removal of asbestos. Such laws require that owners or operators of buildings containing asbestos:


•	properly manage and maintain the asbestos;


•	notify and train those who may come into contact with asbestos; and


•	undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building.

Such laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers.

It is our policy to retain independent environmental consultants to conduct Phase I environmental site assessments and asbestos surveys with respect to our acquisition of properties. These assessments generally include a visual inspection of the properties and the surrounding areas, an examination of current and historical uses of the properties and the surrounding areas and a review of relevant state, federal and historical documents. However, they do not always involve invasive techniques such as soil and ground water sampling. Where appropriate, on a property-by-property basis, our general practice is to have these consultants conduct additional testing. However, even though these additional assessments may be conducted, there is still the risk that:


•	the environmental assessments and updates did not identify all potential environmental liabilities;


•	a prior owner created a material environmental condition that is not known to us or the independent consultants preparing the assessments;


•	new environmental liabilities have developed since the environmental assessments were conducted; and


•	future uses or conditions or changes in applicable environmental laws and regulations could result in environmental liability to us.

Failure to qualify as a REIT would cause us to be taxed as a corporation, which would substantially reduce funds available for payment of dividends.

If we fail to qualify as a REIT for federal income tax purposes, we would be taxed as a corporation. We believe that we are organized and qualified as a REIT and intend to operate in a manner that will allow us to continue to qualify as a REIT. However, we cannot assure you that we are qualified as such, or that we will remain qualified as such in the future. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code as to which there are only limited judicial and administrative interpretations and involves the determination of facts and circumstances not entirely within our control. Future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for federal income tax purposes or the federal income tax consequences of such qualification.

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


•	we would not be allowed a deduction for dividends paid to shareholders in computing our taxable income and could be subject to federal income tax at regular corporate rates;


•	we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes;


•	unless we are entitled to relief under statutory provisions, we could not elect to be subject to tax as a REIT for four taxable years following the year during which we are disqualified; and


•	all dividends would be subject to tax as ordinary income to the extent of our current and accumulated earnings and profits potentially eligible as “qualified dividends” subject to the 15% income tax rate.

In addition, if we fail to qualify as a REIT, we would no longer be required to pay dividends. As a result of these factors, our failure to qualify as a REIT could have a material adverse impact on our results of operations, financial condition and liquidity.

The market value of our securities can be adversely affected by many factors.

As with any public company, a number of factors may adversely influence the public market price of our common shares. These factors include:


•	level of institutional interest in us;


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


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


•	our financial condition and performance;


•	the market’s perception of our growth potential and potential future cash dividends;


•	government action or regulation, including changes in tax law;


•	increases in market interest rates, which may lead investors to expect a higher annual yield from our distributions in relation to the price of our shares;


•	changes in federal tax laws;


•	changes in our credit ratings;


•	relatively low trading volume of shares of REITs in general, which tends to exacerbate a market trend with respect to our shares; and


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

Provisions of the Maryland General Corporation Law, or the MGCL, may limit a change in control.

There are several provisions of the Maryland General Corporation Law, or the MGCL, that may limit the ability of a third party to undertake a change in control, including:


•	a provision where a corporation is not permitted to engage in any business combination with any “interested stockholder,” defined as any holder or affiliate of any holder of 10% or more of the corporation’s stock, for a period of five years after that holder becomes an “interested stockholder;” and


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

These provisions may delay, defer, or prevent a transaction or a change in control that may involve a premium price for holders of our shares or otherwise be in their best interests. Our bylaws currently provide that the foregoing provision regarding "control share acquisitions" will not apply to WRIT. However, our board of trustees could, in the future, modify our bylaws such that the foregoing provision regarding "control share acquisitions" would be applicable to WRIT.

ITEM 1B: UNRESOLVED STAFF COMMENTS

None.

ITEM 2: PROPERTIES

The schedule on the following pages lists our real estate investment portfolio as of December 31, 2011, which consisted of 71 properties and land held for development.

As of December 31, 2011, the percent leased is the percentage of net rentable area for which fully executed leases exist and may include signed leases for space not yet occupied by the tenant.

Cost information is included in Schedule III to our financial statements included in this Annual Report on Form 10-K.

Schedule of Properties



Properties	Location	Year Acquired	Year Constructed	Net Rentable Square Feet	Percent Leased 12/31/2011
Office Buildings
1901 Pennsylvania Avenue	Washington, D.C.	1977	1960	98,000	81	%
51 Monroe Street	Rockville, MD	1979	1975	218,000	90	%
515 King Street	Alexandria, VA	1992	1966	73,000	100	%
6110 Executive Boulevard	Rockville, MD	1995	1971	199,000	89	%
1220 19^thStreet	Washington, D.C.	1995	1976	102,000	97	%
1600 Wilson Boulevard	Arlington, VA	1997	1973	168,000	97	%
7900 Westpark Drive	McLean, VA	1997	1972/1986/1999	533,000	94	%
600 Jefferson Plaza	Rockville, MD	1999	1985	113,000	95	%
1700 Research Boulevard	Rockville, MD	1999	1982	101,000	77	%
Wayne Plaza	Silver Spring, MD	2000	1970	94,000	83	%
Courthouse Square	Alexandria, VA	2000	1979	114,000	91	%
One Central Plaza	Rockville, MD	2001	1974	267,000	94	%
The Atrium Building	Rockville, MD	2002	1980	80,000	94	%
1776 G Street	Washington, D.C.	2003	1979	262,000	100	%
6565 Arlington Blvd	Falls Church, VA	2006	1967/1998	130,000	97	%
West Gude Drive	Rockville, MD	2006	1984/1986/1988	275,000	80	%
Monument II	Herndon, VA	2007	2000	207,000	67	%
Woodholme Center	Pikesville, MD	2007	1989	75,000	73	%
2000 M Street	Washington, D.C.	2007	1971	239,000	72	%
2445 M Street	Washington, D.C.	2008	1986	290,000	100	%
925 Corporate Drive	Stafford, VA	2010	2007	134,000	100	%
1000 Corporate Drive	Stafford, VA	2010	2009	136,000	100	%
1140 Connecticut Avenue	Washington, D.C.	2011	1966	185,000	86	%
1227 25th Street	Washington, D.C.	2011	1988	132,000	72	%
Braddock Metro Center	Alexandria, VA	2011	1985	345,000	92	%
John Marshall II	Tysons Corner, VA	2011	1996/2010	223,000	100	%
Subtotal				4,793,000	90	%



Properties	Location	Year Acquired	Year Constructed	Net Rentable Square Feet	Percent Leased 12/31/2011
Medical Office Buildings
Woodburn Medical Park I	Annandale, VA	1998	1984	73,000	98	%
Woodburn Medical Park II	Annandale, VA	1998	1988	96,000	97	%
Prosperity Medical Center I	Merrifield, VA	2003	2000	92,000	96	%
Prosperity Medical Center II	Merrifield, VA	2003	2001	89,000	93	%
Prosperity Medical Center III	Merrifield, VA	2003	2002	75,000	95	%
Shady Grove Medical Village II	Rockville, MD	2004	1999	66,000	84	%
8301 Arlington Boulevard	Fairfax, VA	2004	1965	49,000	61	%
Alexandria Professional Center	Alexandria, VA	2006	1968	114,000	96	%
9707 Medical Center Drive	Rockville, MD	2006	1994	38,000	86	%
15001 Shady Grove Road	Rockville, MD	2006	1999	51,000	100	%
Plumtree Medical Center	Bel Air, MD	2006	1991	33,000	95	%
15005 Shady Grove Road	Rockville, MD	2006	2002	52,000	100	%
2440 M Street	Washington, D.C.	2007	1986/2006	112,000	95	%
Woodholme Medical Office Bldg	Pikesville, MD	2007	1996	123,000	93	%
Ashburn Farm Office Park	Ashburn, VA	2007	1998/2000/2002	75,000	91	%
CentreMed I & II	Centreville, VA	2007	1998	52,000	95	%
Sterling Medical Office Building	Sterling, VA	2008	1986/2000	36,000	77	%
Lansdowne Medical Office Building	Leesburg, VA	2009	2009	85,000	32	%
Subtotal				1,311,000	89	%

Retail Centers
Takoma Park	Takoma Park, MD	1963	1962	51,000	100	%
Westminster	Westminster, MD	1972	1969	150,000	96	%
Concord Centre	Springfield, VA	1973	1960	76,000	91	%
Wheaton Park	Wheaton, MD	1977	1967	74,000	87	%
Bradlee	Alexandria, VA	1984	1955	168,000	99	%
Chevy Chase Metro Plaza	Washington, D.C.	1985	1975	49,000	100	%
Montgomery Village Center	Gaithersburg, MD	1992	1969	198,000	85	%
Shoppes of Foxchase¹	Alexandria, VA	1994	1960/2006	134,000	95	%
Frederick County Square	Frederick, MD	1995	1973	227,000	93	%
800 S. Washington Street	Alexandria, VA	1998/2003	1955/1959	47,000	96	%
Centre at Hagerstown	Hagerstown, MD	2002	2000	332,000	91	%
Frederick Crossing	Frederick, MD	2005	1999/2003	295,000	94	%
Randolph Shopping Center	Rockville, MD	2006	1972	82,000	95	%
Montrose Shopping Center	Rockville, MD	2006	1970	145,000	93	%
Gateway Overlook	Columbia, MD	2010	2007	223,000	90	%
Olney Village Center	Olney, MD	2011	1979	198,000	100	%
Subtotal				2,449,000	94	%



Properties	Location	Year Acquired	Year Constructed	# of Units	Net Rentable Square Feet	Percent Leased 12/31/2011
Multifamily Buildings
3801 Connecticut Avenue	Washington, D.C.	1963	1951	308	179,000	95	%
Roosevelt Towers	Falls Church, VA	1965	1964	191	170,000	95	%
Country Club Towers	Arlington, VA	1969	1965	227	159,000	97	%
Park Adams	Arlington, VA	1969	1959	200	173,000	97	%
Munson Hill Towers	Falls Church, VA	1970	1963	279	258,000	97	%
The Ashby at McLean	McLean, VA	1996	1982	256	274,000	96	%
Walker House Apartments	Gaithersburg, MD	1996	1971/2003	212	158,000	98	%
Bethesda Hill Apartments	Bethesda, MD	1997	1986	195	226,000	94	%
Bennett Park	Arlington, VA	2007	2007	224	214,000	96	%
Clayborne	Alexandria, VA	2008	2008	74	60,000	93	%
Kenmore	Washington, D.C.	2008	1948	374	268,000	94	%
Subtotal				2,540	2,139,000	96	%
TOTAL					10,692,000

¹ Development on approximately 60,000 square feet of the center was completed in December 2006.

* Multifamily buildings are presented in gross square feet.

ITEM 3: LEGAL PROCEEDINGS

None.

ITEM 4: MINE SAFTEY DISCLOSURES

N/A.

PART II

ITEM 5: MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our shares trade on the New York Stock Exchange. Currently, there are approximately 5,525 shareholders of record.

The high and low sales price for our shares for 2011 and 2010, by quarter, and the amount of dividends we paid per share are as follows:



				Quarterly Share Price Range
Quarter		Dividends Per Share		High		Low
2011
	Fourth	$	0.43375	$	30.96	$	25.64
	Third	$	0.43375	$	33.88	$	25.51
	Second	$	0.43375	$	34.53	$	30.13
	First	$	0.43375	$	31.60	$	29.09
2010
	Fourth	$	0.43375	$	34.05	$	29.25
	Third	$	0.43250	$	32.14	$	26.67
	Second	$	0.43250	$	32.75	$	27.32
	First	$	0.43250	$	30.77	$	25.09

We have historically paid dividends on a quarterly basis.

During the period covered by this report, we did not sell equity securities without registration under the Securities Act.

Neither we nor any affiliated purchaser (as that term is defined in Securities Exchange Act Rule 10b-18(a) (3)) made any repurchases of our shares during the fourth quarter of the fiscal year covered by this report.

ITEM 6: SELECTED FINANCIAL DATA

The following table sets forth our selected financial data on a historical basis, which has been revised for properties disposed of or classified as held for sale (see note 3 to the consolidated financial statements). The following data should be read in conjunction with our financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K.



	2011			2010		2009		2008			2007
	(in thousands, except per share data)
Real estate rental revenue	$	289,527		$	258,490	$	256,549	$	229,496		$	202,601
Income (loss) from continuing operations	$	(1,128	)	$	992	$	9,723	$	(8,842	)	$	8,082
Discontinued operations:
Income from operations of properties sold or held for sale	$	9,015		$	14,968	$	17,877	$	20,860		$	24,564
Gain on sale of real estate	$	97,491		$	21,599	$	13,348	$	15,275		$	25,022
Net income	$	105,378		$	37,559	$	40,948	$	27,293		$	57,668
Net income attributable to the controlling interests	$	104,884		$	37,426	$	40,745	$	27,082		$	57,451
Income (loss) from continuing operations attributable to the controlling interests per share – diluted	$	(0.02	)	$	0.02	$	0.17	$	(0.18	)	$	0.17
Net income attributable to the controlling interests per share – diluted	$	1.58		$	0.60	$	0.71	$	0.55		$	1.24
Total assets	$	2,120,758		$	2,167,881	$	2,045,225	$	2,109,407		$	1,897,018
Lines of credit payable	$	99,000		$	100,000	$	128,000	$	67,000		$	192,500
Mortgage notes payable	$	427,710		$	361,860	$	364,594	$	379,399		$	209,608
Notes payable	$	657,470		$	753,587	$	688,912	$	890,679		$	861,819
Shareholders’ equity	$	859,044		$	857,080	$	745,255	$	636,630		$	502,540
Cash dividends paid	$	115,045		$	108,949	$	100,221	$	85,564		$	78,050
Cash dividends declared and paid per share	$	1.74		$	1.73	$	1.73	$	1.72		$	1.68

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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


•	Overview. Discussion of our business, operating results, investment activity and capital requirements, and summary of our significant transactions to provide context for the remainder of MD&A.


•	Critical Accounting Policies and Estimates. Descriptions of accounting policies that reflect significant judgments and estimates used in the preparation of our consolidated financial statements.


•	Results of Operations. Discussion of our financial results comparing 2011 to 2010 and comparing 2010 to 2009.


•	Liquidity and Capital Resources. Discussion of our financial condition and analysis of changes in our capital structure and cash flows.

When evaluating our financial condition and operating performance, we focus on the following financial and non-financial indicators:


•	Net operating income (“NOI”), calculated as real estate rental revenue less real estate expenses excluding depreciation and amortization and general and administrative expenses. NOI is a non-GAAP supplemental measure to net income.


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


•	Occupancy, calculated as occupied square footage as a percentage of total square footage as of the last day of that period.


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


•	Rental rates.


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

For purposes of evaluating comparative operating performance, we categorize our properties as “same-store”, “non-same-store” or discontinued operations. A “same-store” property is one that was owned for the entirety of the periods being evaluated, is stabilized from an occupancy standpoint and is included in continuing operations. A “non-same-store” property is one that was acquired or placed into service during either of the periods being evaluated and is included in continuing operations. We classify results for properties sold or held for sale during any of the periods evaluated as discontinued operations.

Overview

Business

Our revenues are derived primarily from the ownership and operation of income-producing properties in the greater Washington metro region. As of December 31, 2011, we owned a diversified portfolio of 71 properties, totaling approximately 8.6 million square feet of commercial space and 2,540 multifamily units, and land held for development. These 71 properties consisted of 26 office properties, 18 medical office properties, 16 retail centers and 11 multifamily properties.

We have a fundamental strategy of regional focus and diversification by property type. In recent years, we have sought to upgrade our portfolio by selling properties that do not fit our current strategy (as described above at "Item 1: Business - WRIT Overview"), and acquiring or developing higher quality and better-located properties that we believe are consistent with such strategy. We will seek to continue to upgrade our portfolio as opportunities arise, funding acquisitions with a combination of cash, equity, debt and proceeds from property sales.

Operating Results

Real estate rental revenue, NOI, net income attributable to the controlling interests and FFO for 2011 and 2010 were as follows (in thousands):



	2011		2010		Change
Real estate rental revenue	$	289,527	$	258,490	$	31,037
NOI⁽¹⁾	$	192,335	$	171,830	$	20,505
Net income attributable to the controlling interests	$	104,884	$	37,426	$	67,458
FFO⁽²⁾	$	110,058	$	111,566	$	(1,508	)

⁽¹⁾ See pages 31 and 37 of the MD&A for reconciliations of NOI to net income.
⁽²⁾ See page 51 of the MD&A for reconciliations of FFO to net income.

Real estate rental revenues increased by $31.0 million and NOI increased by $20.5 million primarily due to acquisitions. Real estate rental revenue and NOI from same-store properties had small increases, as higher rental rates were offset by lower occupancy.

The $1.5 million decrease in FFO primarily reflects a $14.5 million impairment charge to reduce the carrying value of the land and parking garage at Dulles Station, Phase II, higher acquisition costs and the loss of income from properties we sold during 2011 and 2010. The impairment charge resulted from the determination that the development of the land at Dulles Station, Phase II is not probable under current market conditions. These were partially offset by an $8.2 million decrease in losses on extinguishment of debt and the increase in NOI from acquisitions.

While we expect slow but steady improvement in the real estate market conditions in the region during 2012, we anticipate continued challenges in leasing vacant space. We also anticipate circumstances where rents on new or renewal leases will be lower than the existing portfolio rents, putting further downward pressure on NOI. We plan to continue actively pursuing property acquisitions throughout 2012, which may generate future NOI growth. However, any NOI growth in 2012 from acquisitions would likely be offset by acquisition costs.

The performance of our four operating segments and the market conditions in our region are discussed in greater detail below (industry data is as reported by Delta):

•

The region’s office market did not improve during 2011, with overall vacancy increasing to 12.1% from 11.9% in the prior year. Vacancy in the submarkets was 13.8% for Northern Virginia, 14.4% for Suburban Maryland, and 8.4% in the District of Columbia. Net absorption (defined as the change in occupied, standing inventory from one year to the next) decreased to 1.1 million square feet from 6.4 million square feet in 2010. The region’s effective rents only decreased by 0.9%, as compared to a 6.5% decrease in 2010. Delta expects the region's office market to remain slow during 2012, with uncertainty over the federal budget affecting leasing activity. Our office segment was 89.7% leased at year-end 2011, a decrease from 90.7% leased at year-end 2010. By submarket, our office segment was 92.9% leased in Northern Virginia, 86.5% leased in Suburban Maryland, and 88.3% leased in the District of Columbia at year end 2011.


•	Our medical office segment was 88.6% leased at year-end 2011, a decrease from 90.2% at year-end 2010. The segment’s leased percentage reflects the 2009 acquisition of the newly-constructed Lansdowne Medical Office Building, which was 32.0% leased at year-end 2011. Excluding Lansdowne Medical Office Building, the segment was 92.5% leased at year-end 2011, as compared to 95.2% at year-end 2010.


•	The region’s retail market improved in 2011, with rental rates at grocery-anchored centers increasing by 2.1%, as compared to a 2.4% decrease in 2010. Vacancy rates decreased to 5.5% from 5.6% in 2010. Our retail segment was 93.5% leased at year-end 2011, up from 92.2% at year-end 2010.


•	The region’s multifamily market remained strong during 2011. The region’s vacancy rate for investment grade apartments increased to 3.8%, up from 3.4% one year ago but significantly better than the national vacancy rate of 5.8%. During the same period rents increased by 2.1%. Our multifamily segment was 95.8% leased at year-end 2011, down from 97.4% at year-end 2010.

Investment Activity

We sold our entire industrial segment and three office properties during 2011, and executed five property acquisitions. In addition, we executed two separate land acquisitions for multifamily development as the majority partner in consolidated joint ventures. These acquisitions are consistent with our current strategy of focusing on properties inside the Washington metro region’s Beltway, near major transportation nodes and in areas with strong employment drivers and superior growth demographics. We will continue to seek to acquire properties that fit our strategy during 2012, while partially financing these acquisitions with the sale of properties from our portfolio that we believe have lower potential for growth.

Capital Requirements

Over the past year, we continued to focus on strengthening our balance sheet in order to minimize our refinancing risk and prepare for future acquisitions as transaction volume increases. To this end, we executed an unsecured credit facility agreement that had the effect of expanding the total borrowing capacity on our unsecured lines of credit by $138.0 million. Our unsecured lines of credit had $99.0 million outstanding and a $0.8 million letter of credit issued at December 31, 2011, leaving a remaining borrowing capacity of $375.2 million. Our $75.0 million unsecured line of credit matures in June 2012. We currently expect to enter into a new unsecured revolving credit facility at an amount at least equal to our $75.0 million unsecured line of credit which expires in 2012.

We have a combined $71.7 million of unsecured and mortgage notes payable that mature in 2012. We currently expect to pay these maturities with some combination of proceeds from new debt, property sales and equity issuances.

Significant Transactions

We summarize below our significant transactions during the two years ended December 31, 2011:

2011


•	The disposition of our industrial segment and two office properties, totaling approximately 3.1 million square feet, under five separate sales contracts for an aggregate contract sales price of $350.9 million and a gain on sale of $97.5 million.


•	The disposition of Dulles Station, Phase I, a 180,000 square foot office building in Herndon, Virginia, for a contract sales price of $58.8 million.


•	The acquisition of four office buildings for $301.8 million, adding approximately 882,000 square feet.


•	The acquisition a retail property for $58.0 million, adding approximately 199,000 square feet.


•	The acquisition of approximately 37,000 square feet of land in Arlington, Virginia for $11.8 million through a consolidated joint venture of which WRIT is the 90% owner. The joint venture intends to develop a mid-rise apartment property on this land.


•	The acquisition of approximately one acre of land in Alexandria, Virginia for $13.9 million through a consolidated joint venture of which WRIT is the 95% owner. The joint venture intends to develop a high-rise apartment property on this land.

•

The execution of an unsecured credit facility agreement with Wells Fargo that replaced and expanded Credit Facility No. 2 (i.e., our previous credit facility with Wells Fargo) from $262.0 million to $400.0 million, with an accordion feature that allows us to increase the facility to $600.0 million, subject to additional lender commitments. The new unsecured line of credit matures on July 1, 2014, with a one-year extension option, and currently bears an interest rate at LIBOR plus a margin of 122.5 basis points.


•	The execution of new leases for 1.0 million square feet of commercial space, with an average rental rate increase of 9.1% over expiring leases (excluding first generation leases at recently-built properties and sold properties).

2010


•	The acquisition of two office buildings for $68.0 million, adding approximately 271,000 square feet.


•	The acquisition of a retail property for $88.4 million, adding approximately 223,000 square feet.


•	The disposition of the Parklawn Portfolio, consisting of three office properties and one industrial property totaling approximately 229,000 square feet, for a contract sales price of $23.4 million and a gain on sale of $7.9 million.


•	The disposition of a 104,000 square foot office property, the Ridges, for a contract sales price of $27.5 million and a gain on sale of $4.5 million.


•	The disposition of three industrial properties totaling 305,000 square feet, Ammendale I & II and Amvax, for a contract sales price of $23.0 million and a gain on sale of $9.2 million.


•	The issuance of $250.0 million of 4.95% unsecured notes due October 1, 2020, with net proceeds of $245.8 million. The notes bear an effective interest rate of 5.053%.


•	The repurchases by tender offer of $122.8 million of our 3.875% convertible notes at 102.8 % of par, resulting in a net loss on extinguishment of debt of $6.5 million. Prior to the tender offer, we had executed repurchases of our 3.875% convertible notes totaling $8.8 million at 100.1% of par, resulting in a net loss on extinguishment of debt of $0.3 million.


•	The repurchases by tender offer of $56.1 million of our 5.95% senior notes at 103.8% of par, resulting in a net loss on extinguishment of debt of $2.4 million.


•	The issuance of 5.6 million common shares at a weighted average price of $30.34 under our sales agency financing agreement, raising $168.9 million in net proceeds.


•	The execution of new leases for 1.0 million square feet of commercial space, with an average rental rate increase of 13.6% over expiring leases (excluding first generation leases at recently-built properties).

Critical Accounting Policies and Estimates

We base the discussion and analysis of our financial condition and results of operations upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to estimated useful lives of real estate assets, estimated fair value of acquired leases, cost reimbursement income, bad debts, contingencies and litigation. We base the estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We cannot assure you that actual results will not differ from those estimates.

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

Allowance for Doubtful Accounts

We recognize rental income and rental abatements from our multifamily and commercial leases when earned on a straight-line basis over the lease term. We record a provision for losses on accounts receivable equal to the estimated uncollectible amounts. We base this estimate on our historical experience and a monthly review of the current status of our receivables. We consider factors such as the age of the receivable, the payment history of our tenants and our assessment of our tenants’ ability to perform under their lease obligations, among other things. In addition to rents due currently, accounts receivable include amounts representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases. Our estimate of uncollectible accounts is subject to revision as these factors change and is sensitive to the impact of economic and market conditions on tenants.

Accounting for Real Estate Acquisitions

We record acquired or assumed assets, including physical assets and in-place leases, and liabilities, based on their fair values. We record goodwill when the purchase price exceeds the fair value of the assets and liabilities acquired. We determine the estimated fair values of the assets and liabilities in accordance with current GAAP fair value provisions. We determine the fair values of acquired buildings on an “as-if-vacant” basis considering a variety of factors, including the replacement cost of the property, estimated rental and absorption rates, estimated future cash flows and valuation assumptions consistent with current market conditions. We determine the fair value of land based on comparisons to similar properties that have been recently marketed for sale or sold.

The fair value of in-place leases consists of the following components: (a) the estimated cost to us to replace the leases, including foregone rents during the period of finding a new tenant and foregone recovery of tenant pass-throughs (referred to as “absorption cost”); (b) the estimated cost of tenant improvements, and other direct costs associated with obtaining a new tenant (referred to as “tenant origination cost”); (c) estimated leasing commissions associated with obtaining a new tenant (referred to as “leasing commissions”); (d) the above/at/below market cash flow of the leases, determined by comparing the projected cash flows of the leases in place to projected cash flows of comparable market-rate leases (referred to as “net lease intangible”); and (e) the value, if any, of customer relationships, determined based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the tenant (referred to as “customer relationship value”).

We discount the amounts used to calculate net lease intangibles using an interest rate which reflects the risks associated with the leases acquired. We include tenant origination costs in income producing property on our balance sheet and amortize the tenant origination costs as depreciation expense on a straight-line basis over the useful life of the asset, which is typically the remaining life of the underlying leases. We classify leasing commissions and absorption costs as other assets and amortize leasing commissions and absorption costs as amortization expense on a straight-line basis over the remaining life of the underlying leases. We classify above market net lease intangible assets as other assets and amortize them on a straight-line basis as a decrease to real estate rental revenue over the remaining term of the underlying leases. We classify below market net lease intangible liabilities as other liabilities and amortize them on a straight-line basis as an increase to real estate rental revenue over the remaining term of the underlying leases. Should a tenant terminate its lease, we accelerate the amortization of the unamortized portion of the tenant origination cost (if it has no future value), leasing commissions, absorption costs and net lease intangible associated with that lease over its new shorter term.

Capitalized Interest

We capitalize interest costs incurred on borrowing obligations while qualifying assets are being readied for their intended use. We

amortize capitalized interest over the useful life of the related underlying assets upon those assets being placed into service.

Real Estate Impairment

We recognize impairment losses on long-lived assets used in operations and held for sale, development assets or land held for future development, if indicators of impairment are present and the net undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount and estimated undiscounted cash flows associated with future development expenditures. If such carrying amount is in excess of the estimated cash flows from the operation and disposal of the property, we would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to the estimated fair value. The estimated fair value would be calculated in accordance with current GAAP fair value provisions.

Stock Based Compensation

We recognize compensation expense for service-based share awards ratably over the period from the service inception date through the vesting period based on the fair market value of the shares on the date of grant. We initially measure compensation expense for awards with performance conditions at fair value at the service inception date based on probability of payout, and we remeasure compensation expense at subsequent reporting dates until all of the award’s key terms and conditions are known and the grant date is established. We amortize awards with performance conditions over the performance period using the graded expense method. We measure compensation expense for awards with market conditions based on the grant date fair value, as determined using a Monte Carlo simulation, and we amortize the expense ratably over the requisite service period, regardless of whether the market conditions are achieved and the awards ultimately vest. Compensation expense for the trustee grants, which fully vest immediately, is fully recognized upon issuance based upon the fair market value of the shares on the date of grant.

Federal Income Taxes

Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed REIT taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRS's”). Our TRS's are subject to corporate federal and state income tax on their taxable income at regular statutory rates. During the fourth quarter of 2011 we recognized a $14.5 million impairment charge at Dulles Station, Phase II, a development property held by one of our TRS's (see note 3 to the consolidated financial statements). The impairment charge created a deferred tax asset of $5.7 million at this TRS, and we have determined that it is more likely than not that this deferred tax asset will not be realized, as we cannot reliably project sufficient future taxable income in the TRS's to realize all or part of the deferred tax asset. We have therefore recorded a valuation allowance for the full amount of the deferred tax asset related to the impairment charge at Dulles Station, Phase II. As of December 31, 2011, our TRS's had a net deferred tax asset of $0.1 million and a net deferred tax liability of $0.5 million, primarily related to temporary differences in the timing of the recognition of revenue, amortization and depreciation. There were no material income tax provisions or material net deferred income tax items for our TRS's for the years ended December 31, 2010 and 2009.

Results of Operations

The discussion that follows is based on our consolidated results of operations for the years ended December 31, 2011, 2010 and 2009. The ability to compare one period to another is significantly affected by acquisitions completed and dispositions made during those years.

For purposes of evaluating comparative operating performance, we categorize our properties as “same-store”, “non-same-store” or discontinued operations. A “same-store” property is one that was owned for the entirety of the periods being evaluated and is included in continuing operations. A “non-same-store” property is one that was acquired or placed into service during either of the periods being evaluated and is included in continuing operations. We classify results for properties sold or held for sale during any of the periods evaluated as discontinued operations.

Properties we acquired during the years ending December 31, 2011, 2010 and 2009 are as follows:



Acquisition Date	Property	Type	Rentable Square Feet	Contract Purchase Price (In thousands)
January 11, 2011	1140 Connecticut Ave	Office	184,000	$	80,250
March 30, 2011	1127 25th St	Office	130,000	47,000
June 15, 2011	650 North Glebe Road	Land	N/A	11,800
August 30, 2011	Olney Village	Retail	199,000	58,000
September 13, 2011	Braddock Metro	Office	345,000	101,000
September 15, 2011	John Marshall II	Office	223,000	73,500
November 23, 2011	1219 First Street	Land	N/A	13,850
		Total 2011	1,081,000	$	385,400

June 3, 2010	925 and 1000 Corporate Drive	Office	271,000	$	68,000
December 1, 2010	Gateway Overlook	Retail	223,000	88,400
		Total 2010	494,000	$	156,400

August 13, 2009	Lansdowne Medical Office Building	Medical Office	87,000	$	19,900
		Total 2009	87,000	$	19,900

Properties we sold or classified as held for sale during the three years ending December 31, 2011 are as follows:



Disposition Date	Property	Type	Rentable Square Feet	Contract Purchase Price (In thousands)
April 5, 2011	Dulles Station, Phase I	Office	180,000	$	58,800
Various ⁽¹⁾	Industrial Portfolio ⁽¹⁾	Industrial/Office	3,092,000	350,900
		Total 2011	3,272,000	$	409,700

June 18, 2010	Parklawn Portfolio ⁽²⁾	Office/Industrial	229,000	$	23,400
December 21, 2010	The Ridges	Office	104,000	27,500
December 22, 2010	Ammendale I&II/Amvax	Industrial	305,000	23,000
		Total 2010	638,000	$	73,900

May 13, 2009	Avondale	Multifamily	170,000	$	19,800
July 23, 2009	Tech 100 Industrial Park	Industrial	166,000	10,500
July 31, 2009	Brandywine Center	Office	35,000	3,300
November 13, 2009	Crossroads Distribution Center	Industrial	85,000	4,400
		Total 2009	456,000	$	38,000

⁽¹⁾


⁽²⁾	The Parklawn Portfolio consists of three office properties (Parklawn Plaza, Lexington Building and Saratoga Building) and one industrial property (Charleston Business Center).

To provide more insight into our operating results, we divide our discussion into two main sections: (a) the consolidated results of operations section, in which we provide an overview analysis of results on a consolidated basis, and (b) the net operating income

(“NOI”) section, in which we provide a detailed analysis of same-store versus non-same-store NOI results by segment. NOI is a non-GAAP measure calculated as real estate rental revenue less real estate expenses excluding depreciation and amortization and general and administrative expenses.

Consolidated Results of Operations

Real Estate Rental Revenue

Real estate rental revenue for properties classified as continuing operations is summarized as follows (all data in thousands except percentage amounts):



	2011			2010			2009			2011 vs 2010			% Change		2010 vs 2009			% Change
Minimum base rent	$	256,016		$	227,604		$	222,733		$	28,412		12.5	%	$	4,871		2.2	%
Recoveries from tenants	26,058			24,484			27,571			1,574			6.4	%	(3,087		)	(11.2	)%
Provisions for doubtful accounts	(4,627		)	(4,307		)	(4,236		)	(320		)	7.4	%	(71		)	1.7	%
Lease termination fees	517			349			1,075			168			48.1	%	(726		)	(67.5	)%
Parking and other tenant charges	11,563			10,360			9,406			1,203			11.6	%	954			10.1	%
	$	289,527		$	258,490		$	256,549		$	31,037		12.0	%	$	1,941		0.8	%

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

Minimum Base Rent: Minimum base rent increased by $28.4 million in 2011 primarily due to acquisitions ($26.5 million). Minimum base rent from same-store properties increased by $1.9 million primarily due to higher rental rates ($5.0 million), partially offset by lower occupancy ($2.5 million) and higher amortization of capitalized lease incentives ($0.4 million).

Minimum base rent increased by $4.9 million in 2010 primarily due to acquisitions ($5.6 million) and higher rental rates at same-store properties ($3.9 million), partially offset by lower occupancy ($3.5 million) and lower amortization of intangible lease liabilities ($0.8 million) at same-store properties.

Recoveries from Tenants: Recoveries from tenants increased by $1.6 million in 2011 primarily due to acquisitions ($3.1 million), partially offset by lower real estate tax recoveries from same-store properties ($1.2 million) caused by lower property tax assessments across the portfolio.

Recoveries from tenants decreased by $3.1 million in 2010 primarily due to lower real estate tax recoveries ($2.1 million) caused by lower property tax assessments across the portfolio, as well as lower operating expense and electricity reimbursements ($1.3 million) caused by lower electricity rates and lower occupancy. These were partially offset by recoveries from tenants at non-same-store properties ($0.2 million).

Provisions for Doubtful Accounts: Provisions for doubtful accounts increased by $0.3 million in 2011 due to higher provisions in the retail ($0.9 million) and medical office ($0.2 million) segments, partially offset by lower provisions in the office ($0.7 million) and multifamily ($0.1 million) segments.

Provisions for doubtful accounts increased by $0.1 million in 2010 due to higher provisions in the medical office ($0.1 million), retail ($0.1 million) and multifamily ($0.1 million) segments, partially offset by lower provisions in the office segment ($0.2 million).

Lease Termination Fees: Lease termination fees increased by $0.2 million in 2011 primarily due to higher fees in the retail ($0.1 million) segment.

Lease termination fees decreased by $0.7 million in 2010 primarily due to lower fees in the office ($0.3 million) and retail ($0.3 million) segments.

Parking and Other Tenant Charges: Parking and other tenant charges increased by $1.2 million in 2011 primarily due to acquisitions ($0.7 million), as well as increases in parking income ($0.3 million) and antenna rent ($0.1 million) from same-store properties.

Parking and other tenant charges increased by $1.0 million in 2010 primarily due to an increase in antenna rent ($0.5 million) caused by new antenna leases in the office and multifamily segments, as well as an increase in parking income ($0.4 million).

A summary of occupancy for properties classified as continuing operations by segment follows:



Segment	2011		2010		2009		2011 vs 2010		2010 vs 2009
Office	89.0	%	89.4	%	91.6	%	(0.4	)%	(2.2	)%
Medical Office	86.5	%	88.5	%	87.9	%	(2.0	)%	0.6	%
Retail	93.3	%	92.1	%	93.6	%	1.2	%	(1.5	)%
Multifamily	94.9	%	95.7	%	94.2	%	(0.8	)%	1.5	%
Total	90.8	%	91.3	%	92.1	%	(0.5	)%	(0.8	)%

Occupancy represents occupied square footage indicated as a percentage of total square footage as of the last day of that period.

Our overall occupancy decreased to 90.8% in 2011 from 91.3% in 2010, as declines in office, medical office and multifamily occupancy were partially offset by an increase in retail occupancy.

Our overall occupancy decreased to 91.3% in 2010 from 92.1% in 2009, as declines in office and retail occupancy were partially offset by increases in medical office and multifamily occupancy.

A detailed discussion of occupancy by sector can be found in the Net Operating Income section.

Real Estate Expenses

Real estate expenses are summarized as follows (all data in thousands except percentage amounts):



	2011		2010		2009		2011 vs 2010		% Change		2010 vs 2009			% Change
Property operating expenses	$	69,954	$	61,617	$	62,217	$	8,337	13.5	%	$	(600	)	(1.0	)%
Real estate taxes	27,238		25,043		27,072		2,195		8.8	%	(2,029		)	(7.5	)%
	$	97,192	$	86,660	$	89,289	$	10,532	12.2	%	$	(2,629	)	(2.9	)%

Real estate expenses as a percentage of revenue were 33.6% for 2011, 33.5% for 2010 and 34.8% for 2009.

Property Operating Expenses: Property operating expenses include utilities, repairs and maintenance, property administration and management, operating services, common area maintenance, property insurance, bad debt and other operating expenses.

Property operating expenses increased $8.3 million in 2011 primarily due to acquisitions ($6.3 million). Property operating expenses from same-store properties increased by $1.9 million primarily due to higher administrative ($0.5 million), repairs and maintenance ($0.6 million), legal ($0.5 million) and vacant space preparation ($0.2 million) expenses.

Property operating expenses decreased $0.6 million in 2010 primarily due to lower bad debt expense ($1.7 million) at same-store properties, partially offset by operating expenses from acquisitions ($1.2 million).

Real Estate Taxes: Real estate taxes increased $2.2 million in 2011 due to acquisitions ($3.5 million), partially offset by lower real estate taxes at same-store properties ($1.3 million) due to lower property assessments.

Real estate taxes decreased $2.0 million in 2010 due primarily to lower property assessments across the portfolio.

Other Operating Expenses

Other operating expenses are summarized as follows (all data in thousands except percentage amounts):



	2011		2010		2009		2011 vs 2010			% Change		2010 vs 2009			% Change
Depreciation and amortization	$	93,297	$	80,066	$	77,549	$	13,231		16.5	%	$	2,517		3.2	%
Interest expense	66,473		67,229		72,694		(756		)	(1.1	)%	(5,465		)	(7.5	)%
General and administrative	15,728		14,406		13,118		1,322			9.2	%	1,288			9.8	%
	$	175,498	$	161,701	$	163,361	$	13,797		8.5	%	$	(1,660	)	(1.0	)%

Depreciation and Amortization: Depreciation and amortization expense increased by $13.2 million in 2011 as compared to 2010 primarily due to operating properties acquired and placed into service of $359.8 million and $156.4 million in 2011 and 2010, respectively.

Depreciation and amortization expense increased by $2.5 million in 2010 as compared to 2009 primarily due to properties acquired and placed into service of $156.4 million and $19.9 million in 2010 and 2009, respectively.

Interest Expense: A summary of interest expense for the years ended December 31, 2011, 2010 and 2009 appears below (in millions, except percentage amounts):



Debt Type	2011			2010			2009			2011 vs 2010			% Change		2010 vs 2009			% Change
Notes payable	$	38.9		$	41.7		$	48.2		$	(2.8	)	(6.7	)%	$	(6.5	)	(13	)%
Mortgages	23.5			22.5			24.4			1.0			4.4	%	(1.9		)	(8	)%
Lines of credit/ short-term note payable	4.8			3.8			1.5			1.0			26.3	%	2.3			153	%
Capitalized interest	(0.7		)	(0.8		)	(1.4		)	0.1			(12.5	)%	0.6			(43	)%
Total	$	66.5		$	67.2		$	72.7		$	(0.7	)	(1.0	)%	$	(5.5	)	—

The $2.8 million decrease in notes payable interest during 2011 is due to paying off our 3.875% convertible notes and our 5.95% senior notes during 2011, partially offset by the issuance of our 4.95% senior notes in September 2010. The $1.0 million increase in mortgage interest expense is due to the assumption of mortgage notes with the acquisitions of Olney Village Center and John Marshall II, partially offset by the pay-off of the mortgage note secured by Shady Grove Medical Village II during 2011. The $1.0 million increase during 2011 in interest expense on our unsecured lines of credit is attributable to having larger borrowings outstanding on average during 2011 in order to partially finance our property acquisitions and the pay-off of our 5.95% senior notes.

Interest expense decreased by $5.5 million during 2010 as compared to 2009. We paid off a $100.0 million term loan in December 2009 using one of our lines of credit, resulting in a net interest expense decrease of $2.9 million during 2010. Additionally, we used the proceeds from the issuance of 4.95% senior notes to pay down significant portions of our 3.875% convertible notes and our 5.95% senior notes, resulting in a net interest expense decrease of $1.4 million. Mortgage interest expense decreased by $1.9 million due to the payoff of a $50.0 million mortgage note in July 2009. These were partially offset by a $0.6 million decrease in capitalized interest.

General and Administrative Expense: General and administrative expense increased by $1.3 million in 2011 primarily due to higher compensation expense driven by severance costs related to the disposal of the industrial segment and annual pay increases.

General and administrative expense increased by $1.3 million in 2010 as compared to 2009 due primarily to higher incentive compensation expense and the reorganization of the leasing department.

Real Estate Impairment

We recognized a $0.6 million impairment charge for Dulles Station, Phase I during the first quarter of 2011 to reflect the property's fair value less any selling costs based on its contract sales price. This expense related to a sold property is included in income from properties sold or held for sale on the consolidated statements of operation.

Dulles Station, Phase II consists of undeveloped land in Herndon, Virginia and a half interest in a parking garage that is adjacent to this land. The land is zoned for development as an office building. In connection with the preparation of financial statements for this Annual Report on Form 10-K, we reviewed changes in market conditions, specifically higher vacancy and lower rental rates in the Washington metro region office market and other circumstances affecting the Herndon submarket, such as the increased uncertainty surrounding the timing of the completion of the second phase of the Dulles Metrorail project, and reassessed the likelihood that we would follow through on these development plans. Based upon the foregoing review and assessment, we determined that the development of the land at Dulles Station, Phase II is not probable under current market conditions. Due to this determination, we recognized a $14.5 million impairment charge during the fourth quarter of 2011 in order to reduce the carrying value of the land and garage at Dulles Station, Phase II to its fair value of $12.1 million.

Discontinued Operations

Operating results of the properties classified as discontinued operations are summarized as follows (in thousands, except for percentages):



	2011			2010			2009			2011 vs 2010			% Change		2010 vs 2009			% Change
Revenues	$	26,154		$	47,646		$	53,726		$	(21,492	)	(45.1	)%	$	(6,080	)	(11.3	)%
Property expenses	(7,697		)	(15,248		)	(16,646		)	7,551			(49.5	)%	1,398			(8.4	)%
Real estate impairment	(599		)	—			—			(599		)
Depreciation and amortization	(7,231		)	(15,680		)	(16,896		)	8,449			(53.9	)%	1,216			(7.2	)%
Interest expense	(474		)	(1,750		)	(2,307		)	1,276			(72.9	)%	557			(24.1	)%
Total	$	10,153		$	14,968		$	17,877		$	(4,815	)	(32.2	)%	$	(2,909	)	(16.3	)%

Income from operations of properties sold or held for sale decreased by $4.8 million in 2011 due to the sales of the industrial portfolio and Dulles Station, Phase I.

Income from operations of properties sold or held for sale decreased by $2.9 million in 2010 due to the sales of the Parklawn Portfolio, the Ridges, Ammendale I and II and Amvax in 2010.

Net Operating Income

NOI is the primary performance measure we use to assess the results of our operations at the property level. We believe that NOI is useful as a performance measure because, when compared across periods, NOI reflects the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income. NOI excludes certain components from net income in order to provide results more closely related to a property’s results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. As a result of the foregoing, we provide NOI as a supplement to net income calculated in accordance with GAAP. NOI does not represent net income calculated in accordance with GAAP. As such, it should not be considered an alternative to net income as an indication of our operating performance. NOI is calculated as real estate rental revenue less real estate expenses excluding depreciation and amortization and general and administrative expenses. A reconciliation of NOI to net income follows.

2011 Compared to 2010

The following tables of selected operating data reconcile NOI to net income attributable to the controlling interests and provide the basis for our discussion of NOI in 2011 compared to 2010. All amounts are in thousands except percentage amounts.



	Years Ended December 31,
	2011		2010		$ Change		% Change
Real Estate Rental Revenue
Same-store	$	253,639	$	252,837	$	802	0.3	%
Non-same-store⁽¹⁾	35,888		5,653		30,235		534.8	%
Total real estate rental revenue	$	289,527	$	258,490	$	31,037	12.0	%
Real Estate Expenses
Same-store	$	85,358	$	84,723	$	635	0.7	%
Non-same-store⁽¹⁾	11,834		1,937		9,897		510.9	%
Total real estate expenses	$	97,192	$	86,660	$	10,532	12.2	%
NOI