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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For quarterly period ended June 30, 2020
OR
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☐ | 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) |
| | | | | | | | |
Maryland | | 53-0261100 |
(State of incorporation) | | (IRS Employer Identification Number) |
1775 EYE STREET, NW, SUITE 1000, WASHINGTON, DC 20006
(Address of principal executive office) (Zip code)
Registrant’s telephone number, including area code: (202) 774-3200
___________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Shares of Beneficial Interest | WRE | NYSE |
___________________________________________________
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 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
| | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of July 27, 2020, 82,346,724 common shares were outstanding.
WASHINGTON REAL ESTATE INVESTMENT TRUST
INDEX
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
The information furnished in the accompanying unaudited Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, Consolidated Statements of Equity and Consolidated Statements of Cash Flows reflects all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes for the three years ended December 31, 2019 included in Washington Real Estate Investment Trust’s 2019 Annual Report on Form 10-K, as amended by Amendment No. 1 to the Annual Report on Form 10-K, filed on March 6, 2020.
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
| (Unaudited) | | |
Assets | | | |
Land | $ | 574,025 | | | $ | 566,807 | |
Income producing property | 2,467,629 | | | 2,392,415 | |
| 3,041,654 | | | 2,959,222 | |
Accumulated depreciation and amortization | (745,692) | | | (693,610) | |
Net income producing property | 2,295,962 | | | 2,265,612 | |
Properties under development or held for future development | 89,166 | | | 124,193 | |
Total real estate held for investment, net | 2,385,128 | | | 2,389,805 | |
Investment in real estate held for sale, net | — | | | 57,028 | |
Cash and cash equivalents | 7,971 | | | 12,939 | |
Restricted cash | 630 | | | 1,812 | |
Rents and other receivables | 67,026 | | | 65,259 | |
Prepaid expenses and other assets | 81,967 | | | 95,149 | |
Other assets related to properties held for sale | — | | | 6,336 | |
Total assets | $ | 2,542,722 | | | $ | 2,628,328 | |
Liabilities | | | |
Notes payable, net | $ | 897,060 | | | $ | 996,722 | |
Mortgage notes payable, net | — | | | 47,074 | |
Line of credit | 181,000 | | | 56,000 | |
Accounts payable and other liabilities | 93,192 | | | 71,136 | |
Dividend payable | 24,760 | | | 24,668 | |
Advance rents | 7,375 | | | 9,353 | |
Tenant security deposits | 10,769 | | | 10,595 | |
Other liabilities related to properties held for sale | — | | | 718 | |
Total liabilities | 1,214,156 | | | 1,216,266 | |
Equity | | | |
Shareholders’ equity | | | |
Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued or outstanding | — | | | — | |
Shares of beneficial interest, $0.01 par value; 100,000 shares authorized; 82,327 and 82,099 shares issued and outstanding, as of June 30, 2020 and December 31, 2019, respectively | 823 | | | 821 | |
Additional paid in capital | 1,598,620 | | | 1,592,487 | |
Distributions in excess of net income | (236,673) | | | (183,405) | |
Accumulated other comprehensive (loss) income | (34,533) | | | 1,823 | |
Total shareholders’ equity | 1,328,237 | | | 1,411,726 | |
Noncontrolling interests in subsidiaries | 329 | | | 336 | |
Total equity | 1,328,566 | | | 1,412,062 | |
Total liabilities and equity | $ | 2,542,722 | | | $ | 2,628,328 | |
See accompanying notes to the consolidated financial statements.
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenue | | | | | | | |
Real estate rental revenue | $ | 72,870 | | | $ | 76,820 | | | $ | 149,662 | | | $ | 148,254 | |
Expenses | | | | | | | |
Real estate expenses | 26,885 | | | 28,134 | | | 55,524 | | | 54,277 | |
Depreciation and amortization | 29,599 | | | 33,044 | | | 59,319 | | | 60,101 | |
| | | | | | | |
General and administrative expenses | 5,296 | | | 5,535 | | | 11,633 | | | 13,342 | |
| | | | | | | |
Real estate impairment | — | | | — | | | — | | | 8,374 | |
| | | | | | | |
| 61,780 | | | 66,713 | | | 126,476 | | | 136,094 | |
Loss on sale of real estate | (7,539) | | | (1,046) | | | (7,539) | | | (1,046) | |
Real estate operating income | 3,551 | | | 9,061 | | | 15,647 | | | 11,114 | |
Other expense | | | | | | | |
Interest expense | (8,751) | | | (15,252) | | | (19,596) | | | (27,748) | |
(Loss) gain on extinguishment of debt | (206) | | | — | | | 262 | | | — | |
| | | | | | | |
| | | | | | | |
| (8,957) | | | (15,252) | | | (19,334) | | | (27,748) | |
Loss from continuing operations | (5,406) | | | (6,191) | | | (3,687) | | | (16,634) | |
Discontinued operations: | | | | | | | |
Income from operations of properties sold or held for sale | — | | | 7,178 | | | — | | | 13,216 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Income from discontinued operations | — | | | 7,178 | | | — | | | 13,216 | |
Net (loss) income | (5,406) | | | 987 | | | (3,687) | | | (3,418) | |
Less: Net income attributable to noncontrolling interests in subsidiaries | — | | | — | | | — | | | — | |
Net (loss) income attributable to the controlling interests | $ | (5,406) | | | $ | 987 | | | $ | (3,687) | | | $ | (3,418) | |
| | | | | | | |
Basic net (loss) income attributable to the controlling interests per share: | | | | | | | |
Continuing operations | $ | (0.07) | | | $ | (0.08) | | | $ | (0.05) | | | $ | (0.21) | |
Discontinued operations | — | | | 0.09 | | | — | | | 0.17 | |
Net (loss) income attributable to the controlling interests per share (1) | $ | (0.07) | | | $ | 0.01 | | | $ | (0.05) | | | $ | (0.05) | |
| | | | | | | |
Diluted net (loss) income attributable to the controlling interests per share: | | | | | | | |
Continuing operations | $ | (0.07) | | | $ | (0.08) | | | $ | (0.05) | | | $ | (0.21) | |
Discontinued operations | — | | | 0.09 | | | — | | | 0.17 | |
Net (loss) income attributable to the controlling interests per share (1) | $ | (0.07) | | | $ | 0.01 | | | $ | (0.05) | | | $ | (0.05) | |
Weighted average shares outstanding – basic | 82,153 | | | 79,934 | | | 82,120 | | | 79,908 | |
Weighted average shares outstanding – diluted | 82,153 | | | 79,934 | | | 82,120 | | | 79,908 | |
Dividends declared per share | $ | 0.30 | | | $ | 0.30 | | | $ | 0.60 | | | $ | 0.60 | |
______________________________
(1) Earnings per share may not sum due to rounding
See accompanying notes to the consolidated financial statements.
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Net (loss) income | $ | (5,406) | | | $ | 987 | | | $ | (3,687) | | | $ | (3,418) | |
Other comprehensive loss: | | | | | | | |
Unrealized loss on interest rate hedges | (1,789) | | | (6,942) | | | (36,356) | | | (11,111) | |
Comprehensive loss | (7,195) | | | (5,955) | | | (40,043) | | | (14,529) | |
Less: Comprehensive income attributable to noncontrolling interests | — | | | — | | | — | | | — | |
Comprehensive loss attributable to the controlling interests | $ | (7,195) | | | $ | (5,955) | | | $ | (40,043) | | | $ | (14,529) | |
See accompanying notes to the consolidated financial statements.
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares Issued and Out-standing | | Shares of Beneficial Interest at Par Value | | Additional Paid in Capital | | Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders’ Equity | | Noncontrolling Interests in Subsidiaries | | Total Equity |
Balance, December 31, 2019 | 82,099 | | | $ | 821 | | | $ | 1,592,487 | | | $ | (183,405) | | | $ | 1,823 | | | $ | 1,411,726 | | | $ | 336 | | | $ | 1,412,062 | |
| | | | | | | | | | | | | | | |
Net loss attributable to the controlling interests | — | | | — | | | — | | | (3,687) | | | — | | | (3,687) | | | — | | | (3,687) | |
| | | | | | | | | | | | | | | |
Unrealized loss on interest rate hedges | — | | | — | | | — | | | — | | | (36,356) | | | (36,356) | | | — | | | (36,356) | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (7) | | | (7) | |
| | | | | | | | | | | | | | | |
Dividends | — | | | — | | | — | | | (49,581) | | | — | | | (49,581) | | | — | | | (49,581) | |
Equity issuances, net of issuance costs | 46 | | | 1 | | | 1,241 | | | — | | | — | | | 1,242 | | | — | | | 1,242 | |
Shares issued under Dividend Reinvestment Program | 41 | | | — | | | 1,065 | | | — | | | — | | | 1,065 | | | — | | | 1,065 | |
Share grants, net of forfeitures and tax withholdings | 141 | | | 1 | | | 3,827 | | | — | | | — | | | 3,828 | | | — | | | 3,828 | |
Balance, June 30, 2020 | 82,327 | | | $ | 823 | | | $ | 1,598,620 | | | $ | (236,673) | | | $ | (34,533) | | | $ | 1,328,237 | | | $ | 329 | | | $ | 1,328,566 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares Issued and Out-standing | | Shares of Beneficial Interest at Par Value | | Additional Paid in Capital | | Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders’ Equity | | Noncontrolling Interests in Subsidiaries | | Total Equity |
Balance, December 31, 2018 | 79,910 | | | $ | 799 | | | $ | 1,526,574 | | | $ | (469,085) | | | $ | 9,839 | | | $ | 1,068,127 | | | $ | 351 | | | $ | 1,068,478 | |
Cumulative effect of change in accounting principle | — | | | — | | | — | | | (906) | | | — | | | (906) | | | — | | | (906) | |
Net loss attributable to the controlling interests | — | | | — | | | — | | | (3,418) | | | — | | | (3,418) | | | — | | | (3,418) | |
Unrealized loss on interest rate hedges | — | | | — | | | — | | | — | | | (11,111) | | | (11,111) | | | — | | | (11,111) | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (8) | | | (8) | |
Dividends | — | | | — | | | — | | | (48,252) | | | — | | | (48,252) | | | — | | | (48,252) | |
Shares issued under Dividend Reinvestment Program | 64 | | | 1 | | | 1,672 | | | — | | | — | | | 1,673 | | | — | | | 1,673 | |
Share grants, net of forfeitures and tax withholdings | 108 | | | 1 | | | 4,251 | | | — | | | — | | | 4,252 | | | — | | | 4,252 | |
Balance, June 30, 2019 | 80,082 | | | $ | 801 | | | $ | 1,532,497 | | | $ | (521,661) | | | $ | (1,272) | | | $ | 1,010,365 | | | $ | 343 | | | $ | 1,010,708 | |
See accompanying notes to the consolidated financial statements.
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares Issued and Out-standing | | Shares of Beneficial Interest at Par Value | | Additional Paid in Capital | | Distributions in Excess of Net Income | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Equity | | Noncontrolling Interests in Subsidiaries | | Total Equity |
Balance, March 31, 2020 | 82,315 | | | $ | 823 | | | $ | 1,596,242 | | | $ | (206,506) | | | $ | (32,744) | | | $ | 1,357,815 | | | $ | 333 | | | $ | 1,358,148 | |
| | | | | | | | | | | | | | | |
Net loss attributable to the controlling interests | — | | | — | | | — | | | (5,406) | | | — | | | (5,406) | | | — | | | (5,406) | |
| | | | | | | | | | | | | | | |
Unrealized loss on interest rate hedges | — | | | — | | | — | | | — | | | (1,789) | | | (1,789) | | | — | | | (1,789) | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (4) | | | (4) | |
| | | | | | | | | | | | | | | |
Dividends | — | | | — | | | — | | | (24,761) | | | — | | | (24,761) | | | — | | | (24,761) | |
| | | | | | | | | | | | | | | |
Shares issued under Dividend Reinvestment Program | 6 | | | — | | | 144 | | | — | | | — | | | 144 | | | — | | | 144 | |
Share grants, net of forfeitures and tax withholdings | 6 | | | — | | | 2,234 | | | — | | | — | | | 2,234 | | | — | | | 2,234 | |
Balance, June 30, 2020 | 82,327 | | | $ | 823 | | | $ | 1,598,620 | | | $ | (236,673) | | | $ | (34,533) | | | $ | 1,328,237 | | | $ | 329 | | | $ | 1,328,566 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares Issued and Out-standing | | Shares of Beneficial Interest at Par Value | | Additional Paid in Capital | | Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders’ Equity | | Noncontrolling Interests in Subsidiaries | | Total Equity |
Balance, March 31, 2019 | 80,029 | | | $ | 800 | | | $ | 1,529,916 | | | $ | (498,537) | | | $ | 5,670 | | | $ | 1,037,849 | | | $ | 347 | | | $ | 1,038,196 | |
Net income attributable to the controlling interests | — | | | — | | | — | | | 987 | | | — | | | 987 | | | — | | | 987 | |
Unrealized loss on interest rate hedges | — | | | — | | | — | | | — | | | (6,942) | | | (6,942) | | | — | | | (6,942) | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (4) | | | (4) | |
Dividends | — | | | — | | | — | | | (24,111) | | | — | | | (24,111) | | | — | | | (24,111) | |
Shares issued under Dividend Reinvestment Program | 21 | | | 1 | | | 575 | | | — | | | — | | | 576 | | | — | | | 576 | |
Share grants, net of forfeitures and tax withholdings | 32 | | | — | | | 2,006 | | | — | | | — | | | 2,006 | | | — | | | 2,006 | |
Balance, June 30, 2019 | 80,082 | | | $ | 801 | | | $ | 1,532,497 | | | $ | (521,661) | | | $ | (1,272) | | | $ | 1,010,365 | | | $ | 343 | | | $ | 1,010,708 | |
See accompanying notes to the consolidated financial statements.
| | | | | | | | | | | |
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES | | | |
| | | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | |
(IN THOUSANDS) | | | |
(UNAUDITED) | | | |
| | | |
| Six Months Ended June 30, | | |
| 2020 | | 2019 |
Cash flows from operating activities | | | |
Net loss | $ | (3,687) | | | $ | (3,418) | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 59,319 | | | 64,968 | |
Credit losses (gains) on lease related receivables | 2,271 | | | (133) | |
| | | |
Real estate impairment | — | | | 8,374 | |
Loss on sale of real estate | 7,539 | | | 1,046 | |
Share-based compensation expense | 3,783 | | | 4,527 | |
| | | |
Amortization of debt premiums, discounts and related financing costs | 1,314 | | | 1,404 | |
Gain on extinguishment of debt | (262) | | | — | |
Changes in operating other assets | (4,482) | | | (5,781) | |
Changes in operating other liabilities | (14,613) | | | (10,444) | |
Net cash provided by operating activities | 51,182 | | | 60,543 | |
Cash flows from investing activities | | | |
Real estate acquisitions, net | — | | | (458,604) | |
Net cash received for sale of real estate | 56,353 | | | 31,334 | |
| | | |
Capital improvements to real estate | (25,452) | | | (18,634) | |
Development in progress | (18,646) | | | (19,445) | |
Real estate deposits, net | — | | | (1,744) | |
| | | |
Non-real estate capital improvements | (124) | | | (121) | |
Net cash provided by (used in) investing activities | 12,131 | | | (467,214) | |
Cash flows from financing activities | | | |
Line of credit borrowings, net | 125,000 | | | 30,000 | |
Dividends paid | (49,485) | | | (72,274) | |
Principal payments – mortgage notes payable | (46,567) | | | (1,231) | |
| | | |
Repayments of unsecured notes payable | (250,000) | | | — | |
Proceeds from term loan | 150,000 | | | 450,000 | |
Payment of financing costs | (560) | | | (1,219) | |
Distributions to noncontrolling interests | (7) | | | (8) | |
Proceeds from dividend reinvestment program | 1,065 | | | 1,673 | |
| | | |
Payment of tax withholdings for restricted share awards | (150) | | | (504) | |
Net proceeds from exercise of share options | 1,241 | | | — | |
Net cash (used in) provided by financing activities | (69,463) | | | 406,437 | |
Net decrease in cash, cash equivalents and restricted cash | (6,150) | | | (234) | |
Cash, cash equivalents and restricted cash at beginning of period | 14,751 | | | 7,640 | |
Cash, cash equivalents and restricted cash at end of period | $ | 8,601 | | | $ | 7,406 | |
| | | |
| | | | | | | | | | | |
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES | | | |
| | | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | |
(IN THOUSANDS) | | | |
(UNAUDITED) | | | |
| | | |
| Six Months Ended June 30, | | |
| 2020 | | 2019 |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest, net of amounts capitalized | $ | 21,380 | | | $ | 26,418 | |
Change in accrued capital improvements and development costs | 3,687 | | | (5,277) | |
| | | |
| | | |
| | | |
Reconciliation of cash, cash equivalents and restricted cash: | | | |
Cash and cash equivalents | $ | 7,971 | | | $ | 5,756 | |
Restricted cash | 630 | | | 1,650 | |
Cash, cash equivalents and restricted cash | $ | 8,601 | | | $ | 7,406 | |
See accompanying notes to the consolidated financial statements.
WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
(UNAUDITED)
NOTE 1: NATURE OF BUSINESS
Washington Real Estate Investment Trust (“WashREIT”), a Maryland real estate investment trust, is a self-administered equity real estate investment trust, successor to a trust organized in 1960. Our business consists of the ownership and operation of income producing real estate properties in the greater Washington metro region. We own a portfolio of multifamily and commercial (office and retail) properties.
Federal Income Taxes
We believe that we qualify as a real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), and intend to continue to qualify as such. To maintain our status as a REIT, we are, among other things, required to distribute 90% of our REIT taxable income (which is, generally, our ordinary taxable income, with certain modifications), excluding any net capital gains and any deductions for dividends paid to our shareholders on an annual basis. When selling a property, we generally have the option of (a) reinvesting the sales proceeds of property sold, in a way that allows us to defer recognition of some or all taxable gain realized on the sale, (b) distributing gains to the shareholders with no tax to us or (c) treating net long-term capital gains as having been distributed to our shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to our shareholders.
Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRSs”). Our TRSs are subject to corporate federal and state income tax on their taxable income at regular statutory rates, or as calculated under the alternative minimum tax, as appropriate. As of both June 30, 2020 and December 31, 2019, our TRSs had a deferred tax asset of $1.4 million that was fully reserved. As of both June 30, 2020 and December 31, 2019, we had deferred state and local tax liabilities of $0.6 million. These deferred tax liabilities are recorded in Accounts payable and other liabilities on our consolidated balance sheets and are primarily related to temporary differences in the timing of the recognition of revenue, depreciation and amortization.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS
Significant Accounting Policies
We have prepared our consolidated financial statements using the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2019, as amended by Amendment No. 1 to the Annual Report on Form 10-K, filed on March 6, 2020.
Pronouncements Adopted
| | | | | | | | |
Standard/Description | Effective Date and Adoption Considerations | Effect on Financial Statements or Other significant Matters |
ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires financial assets measured on an amortized cost basis, including trade receivables, to be presented at the net amount expected to be collected. | We adopted the new standard as of January 1, 2020. | The adoption of the new standard did not have a material effect on our consolidated financial statements.
|
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software. This standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets. | We adopted the new standard as of January 1, 2020. | The adoption of the new standard did not have a material effect on our consolidated financial statements.
|
| | | | | | | | |
Standard/Description | Effective Date and Adoption Considerations | Effect on Financial Statements or Other significant Matters |
ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard contains optional practical expedients and exceptions for applying Generally Accepted Accounting Principles (“GAAP”) to contracts, hedging relations, and other transactions affected by reference rate reform if certain criteria are met. | We elected certain optional practical expedients as of January 1, 2020. | The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. As of January 1, 2020, we have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. |
| | |
COVID-19 Lease Modification Accounting Relief
In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question-and-answer document (“Q&A”) that addresses their belief that the guidance on lease modifications in GAAP does not contemplate concessions being executed as rapidly as they were executed as a result of the major financial crisis arising from the COVID-19 pandemic. Under ASC 842, Leases, we evaluate, on a lease by lease basis, if a lease concession is the result of a new arrangement reached with the tenant, which could result in lease modification accounting, or if a lease concession is contemplated in the existing lease agreement, which is precluded from lease modification accounting. In the Q&A, the staff stated that entities may elect to not evaluate whether a concession provided by a lessor to a lessee in response to the COVID-19 pandemic is a lease modification. This election must be applied consistently to leases with similar characteristics and circumstances. The election permits entities, if certain criteria are met, to account for concessions as if they were contemplated in the existing contract (and accounted for as a negative variable rental revenue) or evaluate the lease concessions for lease modification accounting. We have elected to utilize the relief provided by the FASB staff. This election did not have a material impact on our consolidated financial statements as of June 30, 2020, and we do not expect material impacts in future periods.
Principles of Consolidation and Basis of Presentation
The accompanying unaudited consolidated financial statements include the consolidated accounts of WashREIT, our majority-owned subsidiaries and entities in which WashREIT has a controlling interest. All intercompany balances and transactions have been eliminated in consolidation.
We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. In addition, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the periods presented have been included. These unaudited financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019, as amended by Amendment No. 1 to the Annual Report on Form 10-K, filed on March 6, 2020.
Within these notes to the financial statements, we refer to the three months ended June 30, 2020 and June 30, 2019 as the “2020 Quarter” and the “2019 Quarter,” respectively, and the six months ended June 30, 2020 and June 30, 2019 as the “2020 Period” and the “2019 Period,” respectively.
Discontinued Operations
We classify properties as held for sale when they meet the necessary criteria, which include: (a) senior management commits to a plan to sell the assets, (b) the assets are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of such assets, (c) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated, (d) the sale of the assets is probable, and transfer of the assets is expected to qualify for recognition as a completed sale, within one year, (e) the assets are being actively marketed for sale at a price that is reasonable in relation to its current fair value and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Depreciation on these properties is discontinued at the time they are classified as held for sale, but operating revenues, operating expenses and interest expense continue to be recognized until the date of sale.
Revenues and expenses of properties that are either sold or classified as held for sale are presented as discontinued operations for all periods presented in the consolidated statements of operations if the dispositions represent a strategic shift that has (or will have) a major effect on our operations and financial results. Interest on debt that can be identified as specifica