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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-Q
 ___________________________________________________
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
COMMISSION FILE NO. 1-6622
WASHINGTON REAL ESTATE INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
Maryland53-0261100
(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 classTrading Symbol(s)Name of each exchange on which registered
Shares of Beneficial InterestWRENYSE
 ___________________________________________________
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 October 28, 2020, 82,372,383 common shares were outstanding.


WASHINGTON REAL ESTATE INVESTMENT TRUST
INDEX
 
  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
3

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 Income (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.
4

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
 
September 30, 2020December 31, 2019
(Unaudited)
Assets
Land$574,025 $566,807 
Income producing property2,497,017 2,392,415 
3,071,042 2,959,222 
Accumulated depreciation and amortization(772,482)(693,610)
Net income producing property2,298,560 2,265,612 
Properties under development or held for future development77,481 124,193 
Total real estate held for investment, net2,376,041 2,389,805 
Investment in real estate held for sale, net— 57,028 
Cash and cash equivalents3,814 12,939 
Restricted cash615 1,812 
Rents and other receivables67,628 65,259 
Prepaid expenses and other assets84,174 95,149 
Other assets related to properties held for sale— 6,336 
Total assets$2,532,272 $2,628,328 
Liabilities
Notes payable, net$897,443 $996,722 
Mortgage notes payable, net— 47,074 
Line of credit186,000 56,000 
Accounts payable and other liabilities99,388 71,136 
Dividend payable24,767 24,668 
Advance rents6,979 9,353 
Tenant security deposits10,580 10,595 
Other liabilities related to properties held for sale— 718 
Total liabilities1,225,157 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; 82,351 and 82,099 shares issued and outstanding, as of September 30, 2020 and December 31, 2019, respectively
824 821 
Additional paid in capital1,601,160 1,592,487 
Distributions in excess of net income(262,435)(183,405)
Accumulated other comprehensive (loss) income(32,759)1,823 
Total shareholders’ equity1,306,790 1,411,726 
Noncontrolling interests in subsidiaries325 336 
Total equity1,307,115 1,412,062 
Total liabilities and equity$2,532,272 $2,628,328 
 
See accompanying notes to the consolidated financial statements.
5

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Revenue
Real estate rental revenue$73,227 $80,259 $222,889 $228,513 
Expenses
Real estate expenses28,672 30,692 84,196 84,969 
Depreciation and amortization30,470 37,340 89,789 97,441 
General and administrative expenses6,330 6,461 17,963 19,803 
Real estate impairment— — — 8,374 
65,472 74,493 191,948 210,587 
Loss on sale of real estate— — (7,539)(1,046)
Real estate operating income7,755 5,766 23,402 16,880 
Other income (expense)
Interest expense(8,711)(14,198)(28,307)(41,946)
Gain on extinguishment of debt— — 262 — 
(8,711)(14,198)(28,045)(41,946)
Loss from continuing operations(956)(8,432)(4,643)(25,066)
Discontinued operations:
Income from operations of properties sold or held for sale— 2,942 — 16,158 
Gain on sale of real estate— 339,024 — 339,024 
Loss on extinguishment of debt— (764)— (764)
       Income from discontinued operations— 341,202 — 354,418 
Net (loss) income(956)332,770 (4,643)329,352 
Less: Net income attributable to noncontrolling interests in subsidiaries— — — — 
Net (loss) income attributable to the controlling interests$(956)$332,770 $(4,643)$329,352 
Basic net (loss) income attributable to the controlling interests per share:
Continuing operations$(0.01)$(0.10)$(0.06)$(0.31)
Discontinued operations— 4.24 — 4.41 
Net (loss) income attributable to the controlling interests per share (1)
$(0.01)$4.14 $(0.06)$4.10 
Diluted net (loss) income attributable to the controlling interests per share:
Continuing operations$(0.01)$(0.10)$(0.06)$(0.31)
Discontinued operations— 4.24 — 4.41 
Net (loss) income attributable to the controlling interests per share (1)
$(0.01)$4.14 $(0.06)$4.10 
Weighted average shares outstanding – basic82,186 79,981 82,142 79,933 
Weighted average shares outstanding – diluted82,186 79,981 82,142 79,933 
Dividends declared per share$0.30 $0.30 $0.90 $0.90 
______________________________
(1)    Earnings per share may not sum due to rounding

See accompanying notes to the consolidated financial statements.
6

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net (loss) income$(956)$332,770 $(4,643)$329,352 
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate hedges1,774 (2,387)(34,582)(13,498)
Comprehensive income (loss)818 330,383 (39,225)315,854 
Less: Comprehensive income attributable to noncontrolling interests— — — — 
Comprehensive income (loss) attributable to the controlling interests$818 $330,383 $(39,225)$315,854 

See accompanying notes to the consolidated financial statements.

7

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS)
(UNAUDITED)
 
Shares Issued and Out-standingShares of Beneficial Interest at Par ValueAdditional Paid in CapitalDistributions in Excess of
Net Income		Accumulated Other Comprehensive Income (Loss)Total Shareholders’ EquityNoncontrolling Interests in SubsidiariesTotal Equity
Balance, December 31, 201982,099 $821 $1,592,487 $(183,405)$1,823 $1,411,726 $336 $1,412,062 
Net loss attributable to the controlling interests— — — (4,643)— (4,643)— (4,643)
Unrealized loss on interest rate hedges— — — — (34,582)(34,582)— (34,582)
Distributions to noncontrolling interests— — — — — — (11)(11)
Dividends— — — (74,387)— (74,387)— (74,387)
Equity issuances, net of issuance costs46 1 1,241 — — 1,242 — 1,242 
Shares issued under Dividend Reinvestment Program64 1 1,580 — — 1,581 — 1,581 
Share grants, net of forfeitures and tax withholdings142 1 5,852 — — 5,853 — 5,853 
Balance, September 30, 202082,351 $824 $1,601,160 $(262,435)$(32,759)$1,306,790 $325 $1,307,115 

Shares Issued and Out-standingShares of Beneficial Interest at Par ValueAdditional Paid in CapitalDistributions in Excess of
Net Income		Accumulated Other Comprehensive Income (Loss)Total Shareholders’ EquityNoncontrolling Interests in SubsidiariesTotal Equity
Balance, December 31, 201879,910 $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 income attributable to the controlling interests— — — 329,352 — 329,352 — 329,352 
Unrealized loss on interest rate hedges— — — — (13,498)(13,498)— (13,498)
Distributions to noncontrolling interests— — — — — — (8)(8)
Dividends— — — (72,339)— (72,339)— (72,339)
Equity issuances, net of issuance costs145 2 3,679 — — 3,681 — 3,681 
Shares issued under Dividend Reinvestment Program128 1 3,429 — — 3,430 — 3,430 
Share grants, net of forfeitures and tax withholdings109 1 6,052 — — 6,053 — 6,053 
Balance, September 30, 201980,292 $803 $1,539,734 $(212,978)$(3,659)$1,323,900 $343 $1,324,243 

See accompanying notes to the consolidated financial statements.



8

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS)
(UNAUDITED)
Shares Issued and Out-standingShares of Beneficial Interest at Par ValueAdditional Paid in CapitalDistributions in Excess of
Net Income		Accumulated Other Comprehensive Income (Loss)Total Shareholders’ EquityNoncontrolling Interests in SubsidiariesTotal Equity
Balance, June 30, 202082,327 $823 $1,598,620 $(236,673)$(34,533)$1,328,237 $329 $1,328,566 
Net loss attributable to the controlling interests— — — (956)— (956)— (956)
Unrealized gain on interest rate hedges— — — — 1,774 1,774 — 1,774 
Distributions to noncontrolling interests— — — — — — (4)(4)
Dividends— — — (24,806)— (24,806)— (24,806)
Equity offerings, net of issuance costs— — — — — — — — 
Shares issued under Dividend Reinvestment Program23 1 515 — — 516 — 516 
Share grants, net of forfeitures and tax withholdings1 — 2,025 — — 2,025 — 2,025 
Balance, September 30, 202082,351 $824 $1,601,160 $(262,435)$(32,759)$1,306,790 $325 $1,307,115 

Shares Issued and Out-standingShares of Beneficial Interest at Par ValueAdditional Paid in CapitalDistributions in Excess of
Net Income		Accumulated Other Comprehensive LossTotal Shareholders’ EquityNoncontrolling Interests in SubsidiariesTotal Equity
Balance, June 30, 201980,082 $801 $1,532,497 $(521,661)$(1,272)$1,010,365 $343 $1,010,708 
Net income attributable to the controlling interests— — — 332,770 — 332,770 — 332,770 
Unrealized loss on interest rate hedges— — — — (2,387)(2,387)— (2,387)
Dividends— — — (24,087)— (24,087)— (24,087)
Equity issuances, net of issuance costs145 2 3,679 — — 3,681 — 3,681 
Shares issued under Dividend Reinvestment Program64 — 1,757 — — 1,757 — 1,757 
Share grants, net of forfeitures and tax withholdings1 — 1,801 — — 1,801 — 1,801 
Balance, September 30, 201980,292 $803 $1,539,734 $(212,978)$(3,659)$1,323,900 $343 $1,324,243 

See accompanying notes to the consolidated financial statements.



9

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended September 30,
20202019
Cash flows from operating activities
Net (loss) income$(4,643)$329,352 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization89,789 102,367 
Credit losses (gains) on lease related receivables3,271 (45)
Real estate impairment— 8,374 
Loss (gain) on sale of real estate7,539 (337,978)
Share-based compensation expense5,901 6,265 
Amortization of debt premiums, discounts and related financing costs2,036 2,632 
(Gain) loss on extinguishment of debt(262)764 
Changes in operating other assets(11,566)(12,353)
Changes in operating other liabilities(7,841)(8,098)
Net cash provided by operating activities84,224 91,280 
Cash flows from investing activities
Real estate acquisitions, net— (528,588)
Net cash received for sale of real estate56,353 582,551 
Capital improvements to real estate(38,490)(30,588)
Development in progress(23,454)(26,884)
Non-real estate capital improvements(196)(317)
Net cash used in investing activities(5,787)(3,826)
Cash flows from financing activities
Line of credit borrowings, net130,000 23,000 
Dividends paid(74,285)(96,361)
Principal payments – mortgage notes payable(46,567)(12,596)
Repayments of unsecured notes payable(250,000)(450,000)
Proceeds from term loan150,000 450,000 
Payment of financing costs(567)(1,219)
Distributions to noncontrolling interests(11)(8)
Proceeds from dividend reinvestment program1,581 3,430 
Net proceeds from equity issuances1,240 3,681 
Payment of tax withholdings for restricted share awards(150)(512)
Net cash used in financing activities(88,759)(80,585)
Net (decrease) increase in cash, cash equivalents and restricted cash(10,322)6,869 
Cash, cash equivalents and restricted cash at beginning of period14,751 7,640 
Cash, cash equivalents and restricted cash at end of period$4,429 $14,509 
10

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended September 30,
20202019
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized$27,386 $34,481 
Change in accrued capital improvements and development costs4,147 13,638 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$3,814 $12,931 
Restricted cash615 1,578 
Cash, cash equivalents and restricted cash$4,429 $14,509 

See accompanying notes to the consolidated financial statements.
11

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 September 30, 2020 and December 31, 2019, our TRSs had a deferred tax asset of $1.4 million that was fully reserved. As of both September 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/DescriptionEffective Date and Adoption ConsiderationsEffect 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.
12

Standard/DescriptionEffective Date and Adoption ConsiderationsEffect 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 September 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 September 30, 2020 and September 30, 2019 as the “2020 Quarter” and the “2019 Quarter,” respectively, and the nine months ended September 30, 2020 and September 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.
13


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 specifically attributed to these properties is included in discontinued operations. If the dispositions do not represent a strategic shift that has (or will have) a major effect on our operations and financial results, then the revenues and expenses of the properties that are classified as sold or held for sale are presented as continuing operations in the consolidated statements of operations for all periods presented.

Restricted Cash

Restricted cash includes funds escrowed for tenant security deposits, real estate tax, insurance and mortgage escrows and escrow deposits required by lenders on certain of our properties to be used for future building renovations or tenant improvements.

Use of Estimates in the Financial Statements

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

NOTE 3: REAL ESTATE

Acquisitions

We acquired the following properties during the 2019 Period:
Acquisition DateProperty NameProperty Type# of Units (unaudited)Contract Purchase Price (in thousands)
April 30, 2019
Assembly Portfolio - Virginia (1)
Multifamily1,685$379,100 
June 27, 2019
Assembly Portfolio - Maryland (2)
Multifamily42882,070 
July 23, 2019Cascade at LandmarkMultifamily277 69,750 
Total 20192,390$530,920 
______________________________

(1)     Consists of Assembly Alexandria, Assembly Manassas, Assembly Dulles, Assembly Leesburg and Assembly Herndon.
(2)     Consists of Assembly Germantown and Assembly Watkins Mill. The Assembly Portfolio - Virginia and Assembly Portfolio - Maryland properties are collectively the “Assembly Portfolio.”

Development/Redevelopment

We have properties under development/redevelopment and held for current or future development. As of September 30, 2020, we have invested $130.9 million, including the cost of acquired land, in Trove, a 401-unit multifamily development adjacent to The Wellington. During the 2020 Period, we substantially completed major construction activities for Trove’s base building and garage and delivered 205 units. As of September 30, 2020, we have placed into service assets totaling $83.6 million. We have also invested $28.2 million, including the cost of acquired land, in a multifamily development adjacent to Riverside Apartments. In addition, in our multifamily and office segments, we continue to capitalize qualifying costs on several other projects with minor development activity necessary to get each project ready for its intended use.

Properties Sold and Held for Sale

We intend to hold our properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning our properties, and to make occasional sales of properties that no longer meet our long-term strategy or return objectives and where market conditions for sale are favorable. The proceeds from the sales may be reinvested into other properties, used to fund development operations or to support other corporate needs, or distributed to our shareholders.

14

We sold our interests in the following properties during 2020 and 2019:
Disposition DateProperty NameProperty TypeRentable Square FeetContract Sales Price
(in thousands)		(Loss) Gain on Sale
(in thousands)
April 21, 2020John Marshall IIOffice223,000$57,000 $(6,855)
Total 2020223,000$57,000 $(6,855)
June 26, 2019
Quantico Corporate Center (1)
Office272,000$33,000 $(1,046)
July 23, 2019
Shopping Center Portfolio (2)
Retail800,000485,250 333,023 
August 21, 2019Frederick Crossing and Frederick County SquareRetail520,00057,500 9,507 
August 27, 2019Centre at HagerstownRetail330,00023,500 (3,506)
December 19, 20191776 G StreetOffice262,000129,500 61,007 
Total 20192,184,000$728,750 $398,985 
______________________________
(1)     Consists of 925 and 1000 Corporate Drive.
(2)     Consists of five retail properties: Gateway Overlook, Wheaton Park, Olney Village Center, Bradlee Shopping Center and Shoppes of Foxchase.

During the second quarter of 2019, we sold Quantico Corporate Center, an office property in Stafford, Virginia, consisting of two office buildings totaling 272,000 square feet, for a contract sale price of $33.0 million, recognizing a loss on sale of real estate of $1.0 million. Prior to the sale, due to the negotiations to sell the property, we evaluated Quantico Corporate Center for impairment and recognized an $8.4 million impairment charge during the first quarter of 2019 in order to reduce the carrying value of the property to its estimated fair value.

In June 2019, we entered into two separate purchase and sale agreements with two separate buyers to sell the Shopping Center Portfolio (Gateway Overlook, Wheaton Park, Olney Village Center, Bradlee Shopping Center and Shoppes of Foxchase) and the Power Center Portfolio (Frederick Crossing, Frederick County Square and Centre at Hagerstown). As of June 30, 2019, the properties in the Retail Portfolio (as defined below) met the criteria for classification as held for sale.

We closed on the Shopping Center Portfolio sale transaction on July 23, 2019, recognizing a gain on sale of real estate of $333.0 million. Prior to closing on the disposition of the Shopping Center Portfolio, we prepaid the mortgage note secured by Olney Village Center, incurring a loss on extinguishment of debt of approximately $0.8 million, which we recognized in the third quarter of 2019.

In the third quarter of 2019, the purchase and sale agreement to sell the Power Center Portfolio was amended to include only Frederick Crossing and Frederick County Square. We closed on the sale of these assets on August 21, 2019, recognizing a gain on sale of real estate of $9.5 million. Following the amendment to the purchase and sale agreement to sell the Power Center Portfolio, we marketed Centre at Hagerstown for sale and identified a separate buyer. We closed on the sale of this asset on August 27, 2019, recognizing a loss on sale of real estate of $3.5 million.

References to the “Retail Portfolio” include the Shopping Center Portfolio, Frederick Crossing, Frederick County Square and Centre at Hagerstown. The disposition of the Retail Portfolio represented a strategic shift that had a major effect on our financial results and we accordingly reported the Retail Portfolio as discontinued operations. The Retail Portfolio represented a majority of our retail assets by net operating income and following its sale, we determined that our retail line of business was no longer a reportable segment.

In October 2019, we renewed and extended our lease with the World Bank at 1776 G Street NW, an office property in Washington, DC, through December 31, 2025. In December 2019, we sold the property to the World Bank for a contract sale price of $129.5 million, recognizing a gain on sale of real estate of $61.0 million.

In December 2019, we executed a purchase and sale agreement to sell John Marshall II for a contract sale price of $63.4 million. Upon execution of the purchase and sale agreement, the property met the criteria for classification as held for sale. In April 2020, we executed an amendment to the purchase and sale agreement which decreased the contract sale price to $57.0 million and closed on the sale on April 21, 2020, recognizing a loss on sale of real estate of $6.9 million.

15

As of September 30, 2020, we assessed certain properties for impairment and did not recognize any impairment charges during the 2020 Quarter. We applied reasonable estimates and judgments in evaluating each of the properties as of September 30, 2020. Should external or internal circumstances change requiring the need to shorten holding periods or adjust future estimated cash flows from our properties, we could be required to record impairment charges in the future.

Discontinued Operations

The results of the Retail Portfolio are classified as discontinued operations and are summarized as follows (amounts in thousands, except for share data):
Three Months Ended September 30, 2019Nine Months Ended September 30, 2019
Real estate rental revenue$4,126 $28,200 
Real estate expenses(1,095)(6,803)
Depreciation and amortization(59)(4,926)
Interest expense(30)(313)
Loss on extinguishment of debt(764)(764)
Gain on sale of real estate339,024 339,024 
       Income from discontinued operations$341,202 $354,418 
Basic net income per share$4.24 $4.41 
Diluted net income per share$4.24 $4.41 
Capital expenditures $— $809 

NOTE 4: LEASE ACCOUNTING

Leasing as a Lessor

    Future Minimum Rental Income

As of September 30, 2020, non-cancelable commercial operating leases provide for future minimum rental income from continuing operations as follows (in thousands). Apartment leases are not included as the terms are generally for one year or less.
2020$34,386 
2021135,462 
2022122,421 
2023105,347 
202492,120 
Thereafter327,560 
$817,296 

Leasing as a Lessee

2000 M Street, an office property in Washington, DC, is subject to an operating ground lease with a remaining term of 51 years. Rental payments under this lease are subject to percentage rent variable payments, which are not included as part of our measurement of straight-line rental expense. We recognized straight-line rental expense of $0.1 million during each of the 2020 Quarter and 2019 Quarter and $0.2 million for each of the 2020 Period and 2019 Period, respectively. We recognized variable rental payments of $0.2 million during each of the 2020 Quarter and 2019 Quarter and $0.7 million during each of the 2020 Period and 2019 Period, respectively.

We recognized a right of use asset (included in Income producing property) and lease liability (included in Accounts payable and other liabilities) of $4.2 million. We used a discount rate of approximately 5.9%, which was derived from our assessment of
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securitized rates for similar assets and credit quality. We recognized $0.1 million of right-of-use and lease liability amortization during each of the 2020 Quarter and 2019 Quarter and $0.2 million for each of the 2020 Period and 2019 Period, respectively.

The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments on our operating ground lease as of September 30, 2020 and a reconciliation of those cash flows to the operating lease liability as of September 30, 2020 (in thousands):
2020$65 
2021260 
2022260 
2023260 
2024260 
Thereafter11,895 
13,000 
Imputed interest(9,210)
Lease liability$3,790 

NOTE 5: MORTGAGE NOTES PAYABLE

In January 2020, we prepaid the $45.6 million mortgage note secured by Yale West, which was scheduled to mature in 2052. As a result of the transaction, we recognized a gain on extinguishment of debt of $0.5 million related to the write-off of an unamortized mortgage premium of $1.4 million, partially offset by a prepayment penalty of $0.9 million. Following this repayment, we have no outstanding mortgage notes.

NOTE 6: UNSECURED LINE OF CREDIT PAYABLE

During the first quarter of 2018, we entered into an amended and restated credit agreement (“Credit Agreement”) which provides for a $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”), the continuation of an existing $150.0 million unsecured term loan (“2015 Term Loan”) and an additional $250.0 million unsecured term loan (“2018 Term Loan”). The Revolving Credit Facility has a four-year term ending in March 2022, with two six-month extension options. The Credit Agreement has an accordion feature that allows us to increase the aggregate facility to $1.5 billion, subject to the lenders’ agreement to provide additional revolving loan commitments or term loans.

The Revolving Credit Facility bears interest at a rate of either one month LIBOR plus a margin ranging from 0.775% to 1.55% or the base rate plus a margin ranging from 0.0% to 0.55% (in each case depending upon WashREIT’s credit rating). The base rate is the highest of the administrative agent’s prime rate, the federal funds rate plus 0.50% and the LIBOR market index rate plus 1.0%. In addition, the Revolving Credit Facility requires the payment of a facility fee ranging from 0.10% to 0.30% (depending on WashREIT’s credit rating) on the $700.0 million committed revolving loan capacity, without regard to usage. As of September 30, 2020, the interest rate on the Revolving Credit Facility is one month LIBOR plus 1.00%, the one month LIBOR is 0.15% and the facility fee is 0.20%.

All outstanding advances for the Revolving Credit Facility are due and payable upon maturity in March 2022, unless extended pursuant to one or both of the two six-month extension options. Interest only payments are due and payable generally on a monthly basis.

The 2018 Term Loan increases and replaces the $150.0 million unsecured term loan, initially entered into on July 22, 2016 (“2016 Term Loan”), that was scheduled to mature in July 2023. The 2018 Term Loan is scheduled to mature in July 2023 and bears interest at a rate of either one month LIBOR plus a margin ranging from 0.85% to 1.75% or the base rate plus a margin ranging from 0.0% to 0.75% (in each case depending upon WashREIT’s credit rating). We used the $100.0 million of additional proceeds from the 2018 Term Loan primarily to repay outstanding borrowings on the Revolving Credit Facility.

We had previously used interest rate derivatives to effectively fix the interest rate of the 2016 Term Loan. These interest rate derivatives now effectively fix the interest rate on a $150.0 million portion of the 2018 Term Loan at 2.31%. In March 2018, we entered into interest rate derivatives that commenced on June 29, 2018 to effectively fix the interest rate on the remaining $100.0 million of the 2018 Term Loan at 3.71%. The 2018 Term Loan has an all-in fixed interest rate of 2.87%.

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The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at September 30, 2020 is as follows (in thousands):
Committed capacity$700,000 
Borrowings outstanding(186,000)
Unused and available$514,000 

We executed borrowings and repayments on the Revolving Credit Facility during the 2020 Period as follows (in thousands):
Balance at December 31, 2019$56,000 
Borrowings399,000 
Repayments(269,000)
Balance at September 30, 2020$186,000 

NOTE 7: NOTES PAYABLE

On May 5, 2020, we entered into a one-year, $150.0 million unsecured term loan facility (“2020 Term Loan”), maturing on May 5, 2021 with a one-year extension option. The 2020 Term Loan bears interest at LIBOR + 1.50%, which margin is subject to change based on our credit ratings, with a 0.50% floor for the LIBOR rate. We used the proceeds to repay borrowings under our Revolving Credit Facility.

On September 29, 2020, we entered into a note purchase agreement to issue $350.0 million aggregate principal amount of 3.44% senior unsecured 10-year notes payable (the “Green Bonds”). The effective interest rate under the Green Bonds, including amortization of the associated interest rate swaps (see note 8), is 4.09%. The closing and funding of the Green Bonds is expected to occur no later than December 29, 2020, with the ability for such closing and funding to occur earlier upon our election, in each case, subject to the satisfaction of standard closing conditions. We incurred $2.5 million of debt issuance costs associated with the Green Bonds which are recorded within Prepaid expenses and other assets on our consolidated balance sheets. Subsequent to the closing and funding of the Green Bonds, the debt issuance costs will be reported on our consolidated balance sheets as an offset to their related debt. The Green Bonds will be senior unsecured obligations of WashREIT and will rank equal in right to payment with all other senior unsecured indebtedness of WashREIT.

We intend to use the proceeds of the sale of the Green Bonds to finance or refinance recently completed and future green building and energy efficiency, sustainable water and wastewater management and renewable energy projects (“Eligible Green Projects”) and, pending allocation to such Eligible Green Projects, such net proceeds may be used to repay borrowings outstanding on the Revolving Credit Facility or term loans and may be held in Cash and cash equivalents on our consolidated balance sheets.

The note purchase agreement contains customary financial covenants, including a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a minimum unencumbered interest coverage ratio, and a maximum unencumbered leverage ratio. The note purchase agreement also contains restrictive covenants that, among other things, restrict the ability of WashREIT and its subsidiaries to enter into transactions with affiliates, consolidate or merge or transfer or lease all or substantially all of its assets, create liens, make dividends and distributions if an event of default exists, or substantially change the general nature of our business. Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in our amended and restated credit agreement and 2020 Term Loan.

The note purchase agreement also contains customary events of default, including payment defaults, cross defaults with certain other indebtedness, breaches of certain covenants and bankruptcy events. In the case of an event of default, we will generally be prohibited from paying any dividends, subject to certain exceptions including payment of dividends necessary to maintain REIT status, and the Purchasers may, among other remedies, accelerate the payment of all obligations. In the event of a change in control of WashREIT, we must offer to prepay the Green Bonds at par.

NOTE 8: DERIVATIVE INSTRUMENTS

On September 15, 2015, we entered into two forward interest rate swap arrangements with a total notional amount of $150.0 million to swap the floating interest rate under the $150.0 million 2015 Term Loan to an all-in fixed interest rate of 2.72% starting on October 15, 2015 and extending until the maturity of the 2015 Term Loan on March 15, 2021.

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

On March 29, 2018, we entered into the $250.0 million 2018 Term Loan maturing on July 21, 2023, which increased and replaced the 2016 Term Loan. The interest rate swap arrangements that had effectively fixed the 2016 Term Loan now effectively fix the interest rate on a $150.0 million portion of the 2018 Term Loan at 2.31%. On March 29, 2018, we entered into four interest rate swap arrangements with a total notional amount of $100.0 million to effectively fix the interest rate on the remaining $100.0 million of the 2018 Term Loan at 3.71%, that commenced on June 29, 2018 and extending until the maturity of the 2018 Term Loan on July 21, 2023. The $250.0 million 2018 Term Loan has an all-in fixed interest rate of 2.87%.

In November 2019, we entered into