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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, 2021
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 26, 2021, 84,636,277 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, 2020 included in Washington Real Estate Investment Trust’s 2020 Annual Report on Form 10-K filed on February 16, 2021.
4

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
 
September 30, 2021December 31, 2020
Assets
Land$306,507 $301,709 
Income producing property1,544,217 1,473,335 
1,850,724 1,775,044 
Accumulated depreciation and amortization(384,392)(335,006)
Net income producing property1,466,332 1,440,038 
Properties under development or held for future development30,254 36,494 
Total real estate held for investment, net1,496,586 1,476,532 
Investment in real estate held for sale, net— 795,687 
Cash and cash equivalents307,797 7,697 
Restricted cash605 593 
Rents and other receivables14,713 9,725 
Prepaid expenses and other assets33,109 29,587 
Other assets related to properties sold or held for sale— 89,997 
Total assets$1,852,810 $2,409,818 
Liabilities
Notes payable, net$496,823 $945,370 
Line of credit— 42,000 
Accounts payable and other liabilities38,864 44,067 
Dividend payable14,440 25,361 
Advance rents1,747 2,461 
Tenant security deposits4,480 4,221 
Other liabilities related to properties sold or held for sale— 25,229 
Total liabilities556,354 1,088,709 
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; 150,000 and 100,000 shares authorized; 84,628 and 84,409 shares issued and outstanding, as of September 30, 2021 and December 31, 2020, respectively
846 844 
Additional paid in capital1,656,821 1,649,366 
Distributions in excess of net income(341,052)(298,860)
Accumulated other comprehensive loss(20,468)(30,563)
Total shareholders’ equity1,296,147 1,320,787 
Noncontrolling interests in subsidiaries309 322 
Total equity1,296,456 1,321,109 
Total liabilities and equity$1,852,810 $2,409,818 
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,
 2021202020212020
Revenue
Real estate rental revenue$42,499 $43,716 $124,403 $133,216 
Expenses
Property operating and maintenance9,901 10,372 28,655 29,598 
Real estate taxes and insurance5,544 5,741 16,525 17,420 
Property management1,499 1,541 4,448 4,682 
General and administrative7,909 6,330 19,838 17,963 
Transformation costs1,016 — 4,796 — 
Depreciation and amortization18,252 18,064 52,542 52,683 
44,121 42,048 126,804 122,346 
Loss on sale of real estate— — — (7,539)
Real estate operating (loss) income(1,622)1,668 (2,401)3,331 
Other income (expense)
Interest expense(8,106)(8,711)(28,387)(28,307)
Loss on interest rate derivatives(106)— (5,866)— 
(Loss) gain on extinguishment of debt(12,727)— (12,727)262 
Other income231 — 3,037 — 
(20,708)(8,711)(43,943)(28,045)
Loss from continuing operations(22,330)(7,043)(46,344)(24,714)
Discontinued operations:
Income from operations of properties sold or held for sale7,208 6,087 23,083 20,071 
Gain on sale of real estate, net46,441 — 46,441 — 
       Income from discontinued operations53,649 6,087 69,524 20,071 
Net income (loss)$31,319 $(956)$23,180 $(4,643)
Basic net (loss) income per common share:
Continuing operations$(0.26)$(0.09)$(0.55)$(0.31)
Discontinued operations0.63 0.07 0.82 0.24 
Basic net income (loss) per common share (1)
$0.37 $(0.01)$0.27 $(0.06)
Diluted net (loss) income per common share:
Continuing operations$(0.26)$(0.09)$(0.55)$(0.31)
Discontinued operations0.63 0.07 0.82 0.24 
Diluted net income (loss) per common share (1)
$0.37 $(0.01)$0.27 $(0.06)
Weighted average shares outstanding – basic84,496 82,186 84,457 82,142 
Weighted average shares outstanding – diluted84,496 82,186 84,457 82,142 
______________
(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,
 2021202020212020
Net income (loss)$31,319 $(956)$23,180 $(4,643)
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate hedges221 1,774 2,805 (34,582)
Reclassification of unrealized loss on interest rate derivatives to earnings 511 — 7,290 — 
Comprehensive income (loss)$32,051 $818 $33,275 $(39,225)

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 LossTotal Shareholders’ EquityNoncontrolling Interests in SubsidiariesTotal Equity
Balance, December 31, 202084,409 $844 $1,649,366 $(298,860)$(30,563)$1,320,787 $322 $1,321,109 
Net income— — — 23,180 — 23,180 — 23,180 
Unrealized gain on interest rate hedges— — — — 2,805 2,805 — 2,805 
Loss on interest rate derivatives— — — — 5,760 5,760 — 5,760 
Amortization of swap settlements— — — — 1,530 1,530 — 1,530 
Distributions to noncontrolling interests— — — — — — (13)(13)
Dividends ($0.77 per common share)
— — — (65,372)— (65,372)— (65,372)
Equity issuances, net of issuance costs24 — 467 — — 467 — 467 
Shares issued under Dividend Reinvestment Program65 — 1,468 — — 1,468 — 1,468 
Share grants, net of forfeitures and tax withholdings130 2 5,520 — — 5,522 — 5,522 
Balance, September 30, 202184,628 $846 $1,656,821 $(341,052)$(20,468)$1,296,147 $309 $1,296,456 

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— — — (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 ($0.90 per common share)
— — — (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 

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 LossTotal Shareholders’ EquityNoncontrolling Interests in SubsidiariesTotal Equity
Balance, June 30, 202184,590 $846 $1,654,409 $(357,934)$(21,200)$1,276,121 $314 $1,276,435 
Net income— — — 31,319 — 31,319 — 31,319 
Unrealized gain on interest rate hedges— — — — 221 221 — 221 
Amortization of swap settlements— — — — 511 511 — 511 
Distributions to noncontrolling interests— — — — — — (5)(5)
Dividends ($0.17 per common share)
— — — (14,437)— (14,437)— (14,437)
Shares issued under Dividend Reinvestment Program20 — 459 — — 459 — 459 
Share grants, net of share grant amortization and forfeitures18 — 1,953 — — 1,953 — 1,953 
Balance, September 30, 202184,628 $846 $1,656,821 $(341,052)$(20,468)$1,296,147 $309 $1,296,456 

Shares Issued and Out-standingShares of Beneficial Interest at Par ValueAdditional Paid in CapitalDistributions in Excess of
Net Income		Accumulated Other Comprehensive IncomeTotal 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— — — (956)— (956)— (956)
Unrealized gain on interest rate hedges— — — — 1,774 1,774 — 1,774 
Distributions to noncontrolling interests— — — — — — (4)(4)
Dividends ($0.30 per common share)
— — — (24,806)— (24,806)— (24,806)
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 

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,
20212020
Cash flows from operating activities
Net income (loss)$23,180 $(4,643)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization75,446 89,789 
Credit losses on lease related receivables1,631 3,271 
(Gain) loss on sale of real estate, net(46,441)7,539 
Share-based compensation expense6,478 5,901 
Net amortization of debt premiums, discounts and related financing costs3,322 2,036 
Loss on interest rate derivatives5,866 — 
Loss (gain) on extinguishment of debt12,727 (262)
Changes in operating other assets(4,720)(11,566)
Changes in operating other liabilities(11,106)(7,841)
Net cash provided by operating activities66,383 84,224 
Cash flows from investing activities
Real estate acquisitions, net(47,757)— 
Net cash received for sale of real estate897,783 56,353 
Capital improvements to real estate(18,649)(38,490)
Development in progress(8,099)(23,454)
Non-real estate capital improvements(37)(196)
Net cash provided by (used in) investing activities823,241 (5,787)
Cash flows from financing activities
Line of credit (repayments) borrowings, net(42,000)130,000 
Dividends paid(76,292)(74,285)
Principal payments – mortgage notes payable— (46,567)
Repayments of unsecured notes payable, including penalties for early extinguishment(311,894)— 
Repayments of unsecured term loan debt(150,000)(250,000)
Proceeds from term loan— 150,000 
Settlement of interest rate derivatives(5,866)— 
Payment of financing costs(4,828)(567)
Distributions to noncontrolling interests(13)(11)
Proceeds from dividend reinvestment program1,468 1,581 
Net proceeds from equity issuances467 1,240 
Payment of tax withholdings for restricted share awards(554)(150)
Net cash used in financing activities(589,512)(88,759)
Net decrease in cash, cash equivalents and restricted cash300,112 (10,322)
Cash, cash equivalents and restricted cash at beginning of period8,290 14,751 
Cash, cash equivalents and restricted cash at end of period$308,402 $4,429 
10

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended September 30,
20212020
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized$26,409 $27,386 
Change in accrued capital improvements and development costs(4,885)4,147 
Dividend payable14,440 24,767 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$307,797 $3,814 
Restricted cash605 615 
Cash, cash equivalents and restricted cash$308,402 $4,429 

See accompanying notes to the consolidated financial statements.
11

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(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 primarily consists of the ownership of apartment communities in the greater Washington, DC metro and Southeastern regions. Within these notes to the financial statements, we refer to the three months ended September 30, 2021 and September 30, 2020 as the “2021 Quarter” and the “2020 Quarter,” respectively, and the nine months ended September 30, 2021 and September 30, 2020 as the “2021 Period” and the “2020 Period,” respectively. During the 2021 Period, we executed the sale of twelve office properties and the sale of eight retail properties in two separate transactions (see note 3). The sold office and retail properties are classified as discontinued operations. We have one remaining office property, Watergate 600, that does not meet the qualitative or quantitative criteria for a reportable segment (see note 10). The dispositions of the office and retail properties are part of a strategic shift away from the commercial sector to the residential sector which simplifies our portfolio to one reportable segment (residential) (the “strategic transformation”).

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 (determined before the deduction for dividends paid and excluding net capital gains 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. The net taxable gains on the sales of our office and retail properties were distributed to shareholders through quarterly dividends in 2021.

Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRSs”). Our TRSs are subject to corporate federal and state income tax on their taxable income at regular statutory rates. As of both September 30, 2021 and December 31, 2020, our TRSs had a deferred tax asset of $1.4 million that was fully reserved.

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, 2020.

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, 2020.

12

Held for Sale and 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 has 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. 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.

Lessee Accounting

For leases where we are the lessee, primarily our corporate office operating lease, we recognize a right-of-use asset and a lease liability in accordance with Accounting Standards Codification (“ASC”) Topic 842. The right-of-use asset and associated liability is equal to the present value of the minimum lease payments, applying our incremental borrowing rate. Our borrowing rate is computed based on observable borrowing rates taking into consideration our credit quality and adjusting to a secured borrowing rate for similar assets and term. As of September 30, 2021, our balance sheet included $4.6 million in right-of-use assets and liabilities.

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

Restricted Cash

Restricted cash includes funds held in escrow for tenant security deposits.

Transformation Costs

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

Use of Estimates in the Financial Statements

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

NOTE 3: REAL ESTATE

Acquisitions

We acquired the following property during the 2021 Period (the “2021 acquisition”):
Acquisition DatePropertyType# of homes (unaudited)Average Occupancy
(unaudited)		Contract
Purchase Price
(in thousands)
August 10, 2021The OxfordResidential24093.5%$48,000 
______________________________

13

The results of operations from the acquired operating property are included in the consolidated statements of operations as of its acquisition date and are as follows (in thousands):
Three and Nine Months Ended September 30, 2021
Real estate rental revenue$488 
Net loss(349)

We accounted for the 2021 acquisition as an asset acquisition. We measured the value of the acquired physical assets (land and building) and in-place leases (absorption costs) by allocating the total cost of the acquisition on a relative fair value basis.

The total cost of the 2021 acquisition was as follows (in thousands):
Contract purchase price$48,000 
Capitalized acquisition costs52 
Total$48,052 

We have recorded the total cost of the 2021 acquisition as follows (in thousands):
Land$4,798 
Building42,079 
Absorption costs1,175 
Total$48,052 

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

Development/Redevelopment

We have properties under development/redevelopment and held for current or future development. As of September 30, 2021, we have invested $29.4 million, including the cost of acquired land, in a residential development adjacent to Riverside Apartments. In addition, in our residential segment, we continue to capitalize qualifying costs on several other projects with minor development activity necessary to ready each project for its intended use. We placed the remainder of the Trove development costs into service during the first quarter of 2021.

Properties Sold and Held for Sale

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. 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.

14

We sold the following properties during 2021 and 2020:
Disposition DateProperty NameProperty TypeRentable Square FeetContract Sales Price
(in thousands)		(Loss) Gain on Sale
(in thousands)
July 26, 2021
Office Portfolio (1)
Office2,370,000 $766,000 $(11,220)
September 22, 2021
Retail Portfolio (2)
 Retail693,000 168,314 57,661 
Total 20213,063,000$934,314 $46,441 
April 21, 2020John Marshall IIOffice223,000$57,000 $(6,855)
December 2, 2020Monument IIOffice207,00053,000 (8,595)
December 17, 20201227 25th Street NWOffice135,00053,500 1,125 
Total 2020565,000$163,500 $(14,325)
______________________________
(1)     Consists of twelve office properties: 1901 Pennsylvania Avenue, 515 King Street, 1220 19th Street, 1600 Wilson Boulevard, Silverline Center, Courthouse Square, 2000 M Street, 1140 Connecticut Avenue, Army Navy Club, 1775 Eye Street, Fairgate at Ballston and Arlington Tower.
(2)    Consists of eight retail properties: Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S. Washington Street, Randolph Shopping Center, Montrose Shopping Center and Spring Valley Village.


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

In June 2021, we entered into a purchase and sale agreement with a single buyer to sell the Office Portfolio for a purchase price of $766.0 million. Upon execution of the purchase and sale agreement, the properties in the Office Portfolio met the criteria for classification as held for sale. We closed on the sale of the Office Portfolio on July 26, 2021, recognizing a loss on sale of real estate of $11.2 million.

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

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

As of September 30, 2021, we assessed our properties for impairment and did not recognize any impairment charges during the 2021 Quarter. We applied reasonable estimates and judgments in evaluating each of the properties as of September 30, 2021. 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.

15

Discontinued Operations

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

Three months ended September 30,Nine months ended September 30,
2021202020212020
Real estate rental revenue$10,932 $29,511 $70,519 $89,673 
Expenses
Property operating and maintenance(1,870)(5,232)(11,201)(15,433)
Real estate taxes and insurance(1,476)(4,839)(11,136)(14,233)
Property management(378)(947)(2,195)(2,830)
Depreciation and amortization— (12,406)(22,904)(37,106)
Gain on sale of real estate, net46,441 — 46,441 — 
       Income from discontinued operations$53,649 $6,087 $69,524 $20,071 
Basic net income per share$0.63 $0.07 $0.82 $0.24 
Diluted net income per share$0.63 $0.07 $0.82 $0.24 
Capital expenditures $833 $4,239 $3,316 $11,825 

All assets and liabilities related to the Office Portfolio and Retail Portfolio were sold as of September 30, 2021. As of December 31, 2020, assets and liabilities related to the Office Portfolio and Retail Portfolio were as follows (in thousands):
December 31, 2020
Land$249,869 
Income producing property958,704 
1,208,573 
Accumulated depreciation and amortization(414,008)
Income producing property, net794,565 
Development in progress and land held for development1,122 
Investment in real estate, net$795,687 
Cash and cash equivalents3 
Restricted cash10 
Rents and other receivables48,532 
Prepaid expenses and other assets41,452 
Total assets$885,684 
Accounts payable and other liabilities$14,706 
Advance rents4,754 
Tenant security deposits5,769 
Liabilities related to properties sold or held for sale$25,229 


16

NOTE 4: UNSECURED LINE OF CREDIT PAYABLE

During the 2021 Quarter, we entered into an amended and restated credit agreement (“Credit Agreement”) which provides for a $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) and the continuation of an existing $250.0 million unsecured term loan (“2018 Term Loan”). The Revolving Credit Facility has a four-year term ending in August 2025, with two six-month extension options. The Credit Agreement has an accordion feature that allows us to increase the aggregate facility to $1.5 billion, subject to the lenders’ agreement to provide additional revolving loan commitments or term loans. As a result of the transaction, we recognized a loss on extinguishment of debt of $0.2 million related to the write-off of unamortized loan origination costs. We incurred $4.8 million of additional loan origination costs which will be amortized as interest expense over the term of the Revolving Credit Facility.

The Revolving Credit Facility bears interest at a rate of either one month LIBOR plus a margin ranging from 0.70% to 1.40% or the base rate plus a margin ranging from 0.0% to 0.40% (in each case depending upon WashREIT’s credit rating). 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, 2021, the interest rate on the Revolving Credit Facility is one month LIBOR plus 0.85%, the one month LIBOR is 0.08% and the facility fee is 0.20%.

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

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

On September 27, 2021, we prepaid a $150.0 million portion of the 2018 Term Loan using proceeds from the sale of the Office Portfolio and Retail Portfolio (see note 3). As a result of the prepayment, we recognized a loss on extinguishment of debt of $0.3 million related to the write-off of unamortized loan origination costs. Simultaneous with the prepayment, we terminated five interest rate swap arrangements (see note 6). We currently expect to hold the remaining $100.0 million portion of the 2018 Term Loan until maturity.

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at September 30, 2021 is as follows (in thousands):
Committed capacity$700,000 
Borrowings outstanding— 
Unused and available$700,000 

We executed borrowings and repayments on the Revolving Credit Facility during the 2021 Period as follows (in thousands):
Balance at December 31, 2020$42,000 
Borrowings108,000 
Repayments(150,000)
Balance at September 30, 2021$— 

NOTE 5: NOTES PAYABLE

In August 2021, we redeemed $300.0 million of our existing unsecured notes that were scheduled to mature in 2022. As a result of the prepayment, we recognized a loss on extinguishment of debt of $12.3 million comprised of a prepayment penalty of $11.9 million and the write-off of unamortized loan origination costs of $0.4 million.

17

NOTE 6: DERIVATIVE INSTRUMENTS

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

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

In the second quarter of 2021 we determined that the hedged transactions for five interest rate swap arrangements with an aggregate notional value of $150.0 million were probable not to occur and that these interest swap arrangements were no longer effective cash flow hedges as of June 30, 2021 due to our intention to prepay a $150.0 million portion of the 2018 Term Loan. As a result, we recognized a loss of $5.8 million for the second quarter of 2021, which was recorded to Loss on interest rate derivatives on our condensed consolidated statements of operations. On September 27, 2021, we prepaid the $150.0 million portion of the 2018 Term Loan (see note 4). In connection with the prepayment, we terminated the five interest rate swap arrangements with an aggregate notional value of $150.0 million.

Our remaining interest rate swap arrangement with a notional amount of $100.0 million is recorded at fair value in accordance with GAAP, based on discounted cash flow methodologies and observable inputs. We record the effective portion of changes in fair value of the cash flow hedge in Other comprehensive income (loss). We assess the effectiveness of a cash flow hedge both at inception and on an ongoing basis. If a cash flow hedge is no longer expected to be effective, hedge accounting is discontinued. Hedge ineffectiveness of our cash flow hedges is recorded in earnings.

The fair values of the interest rate swaps as of September 30, 2021 and December 31, 2020, are as follows (in thousands):
Fair Value
Derivative Liabilities
Derivative InstrumentAggregate Notional AmountEffective DateMaturity DateSeptember 30, 2021December 31, 2020
Interest rate swaps$100,000 March 31, 2017July 21, 2023$(1,689)$(2,671)
Interest rate swaps50,000 March 31, 2017July 21, 2023— (1,338)
Interest rate swaps100,000 June 29, 2018July 21, 2023— (6,246)
$(1,689)$(10,255)

We record interest rate swaps on our consolidated balance sheets within Prepaid expenses and other assets when in a net asset position and within Accounts payable and other liabilities when in a net liability position. The net unrealized gains or losses on the effective swaps are recognized in Other comprehensive income (loss), as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Unrealized gain (loss) on interest rate hedges$221 $1,774 $2,805 $(34,582)

Amounts reported in Accumulated other comprehensive loss related to effective cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate debt. The gains or losses reclassified from Accumulated other comprehensive loss into interest expense for the three and nine months ended September 30, 2021 and 2020, were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Loss reclassified from Accumulated other comprehensive loss into interest expense$511 $— $