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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 June 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 July 28, 2021, 84,607,533 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)
 
June 30, 2021December 31, 2020
Assets
Land$301,709 $301,709 
Income producing property1,490,975 1,473,335 
1,792,684 1,775,044 
Accumulated depreciation and amortization(367,519)(335,006)
Net income producing property1,425,165 1,440,038 
Properties under development or held for future development30,065 36,494 
Total real estate held for investment, net1,455,230 1,476,532 
Investment in real estate held for sale, net779,121 795,687 
Cash and cash equivalents5,435 7,697 
Restricted cash595 593 
Rents and other receivables12,916 9,725 
Prepaid expenses and other assets28,297 29,587 
Other assets related to properties held for sale86,811 89,997 
Total assets$2,368,405 $2,409,818 
Liabilities
Notes payable, net$945,905 $945,370 
Line of credit43,000 42,000 
Accounts payable and other liabilities47,897 44,067 
Dividend payable25,474 25,361 
Advance rents1,572 2,461 
Tenant security deposits4,374 4,221 
Other liabilities related to properties held for sale23,748 25,229 
Total liabilities1,091,970 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; 84,590 and 84,409 shares issued and outstanding, as of June 30, 2021 and December 31, 2020, respectively
846 844 
Additional paid in capital1,654,409 1,649,366 
Distributions in excess of net income(357,934)(298,860)
Accumulated other comprehensive loss(21,200)(30,563)
Total shareholders’ equity1,276,121 1,320,787 
Noncontrolling interests in subsidiaries314 322 
Total equity1,276,435 1,321,109 
Total liabilities and equity$2,368,405 $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 June 30,Six Months Ended June 30,
 2021202020212020
Revenue
Real estate rental revenue$41,297 $43,757 $81,904 $89,500 
Expenses
Real estate expenses16,230 16,588 32,684 34,046 
Depreciation and amortization17,303 17,372 34,290 34,619 
General and administrative expenses6,325 5,296 11,929 11,633 
Transformation costs3,780 — 3,780 — 
43,638 39,256 82,683 80,298 
Loss on sale of real estate— (7,539)— (7,539)
Real estate operating income(2,341)(3,038)(779)1,663 
Other income (expense)
Interest expense(10,158)(8,751)(20,281)(19,596)
(Loss) gain on extinguishment of debt— (206)— 262 
Loss on interest rate derivatives(5,760)— (5,760)— 
Other income1,522 — 2,806 — 
(14,396)(8,957)(23,235)(19,334)
Loss from continuing operations(16,737)(11,995)(24,014)(17,671)
Discontinued operations:
Income from operations of properties sold or held for sale9,745 6,589 15,875 13,984 
Net loss$(6,992)$(5,406)$(8,139)$(3,687)
Basic net (loss) income per share:
Continuing operations$(0.20)$(0.15)$(0.29)$(0.22)
Discontinued operations0.12 0.08 0.19 0.17 
Basic net loss per common share$(0.08)$(0.07)$(0.10)$(0.05)
Diluted net (loss) income per share:
Continuing operations$(0.20)$(0.15)$(0.29)$(0.22)
Discontinued operations0.12 0.08 0.19 0.17 
Diluted net loss per common share$(0.08)$(0.07)$(0.10)$(0.05)
Weighted average shares outstanding – basic84,461 82,153 84,437 82,120 
Weighted average shares outstanding – diluted84,461 82,153 84,437 82,120 

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 June 30,Six Months Ended June 30,
 2021202020212020
Net loss$(6,992)$(5,406)$(8,139)$(3,687)
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate hedges1,004 (1,789)2,584 (36,356)
Reclassification of unrealized loss on interest rate derivatives to earnings 6,269 — 6,779 — 
Comprehensive income (loss)$281 $(7,195)$1,224 $(40,043)

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 loss — — — (8,139)— (8,139)— (8,139)
Unrealized gain on interest rate hedges— — — — 2,584 2,584 — 2,584 
Loss on interest rate derivatives— — — — 5,760 5,760 — 5,760 
Amortization of swap settlements— — — — 1,019 1,019 — 1,019 
Distributions to noncontrolling interests— — — — — — (8)(8)
Dividends ($0.60 per common share)
— — — (50,935)— (50,935)— (50,935)
Equity issuances, net of issuance costs24 — 467 — — 467 — 467 
Shares issued under Dividend Reinvestment Program45 — 1,009 — — 1,009 — 1,009 
Share grants, net of forfeitures and tax withholdings112 2 3,567 — — 3,569 — 3,569 
Balance, June 30, 202184,590 $846 $1,654,409 $(357,934)$(21,200)$1,276,121 $314 $1,276,435 

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— — — (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 ($0.60 per common share)
— — — (49,581)— (49,581)— (49,581)
Equity issuances, net of issuance costs46 1 1,241 — — 1,242 — 1,242 
Shares issued under Dividend Reinvestment Program41 — 1,065 — — 1,065 — 1,065 
Share grants, net of forfeitures and tax withholdings141 1 3,827 — — 3,828 — 3,828 
Balance, June 30, 202082,327 $823 $1,598,620 $(236,673)$(34,533)$1,328,237 $329 $1,328,566 

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, March 31, 202184,564 $846 $1,651,680 $(325,469)$(28,473)$1,298,584 $318 $1,298,902 
Net loss— — — (6,992)— (6,992)— (6,992)
Unrealized loss on interest rate hedges— — — — 1,004 1,004 — 1,004 
Loss on interest rate derivatives— — — — 5,760 5,760 — 5,760 
Amortization of swap settlements— — — — 509 509 — 509 
Distributions to noncontrolling interests— — — — — — (4)(4)
Dividends ($0.30 per common share)
— — — (25,473)— (25,473)— (25,473)
Shares issued under Dividend Reinvestment Program22 — 489 — — 489 — 489 
Share grants, net of share grant amortization and forfeitures4 — 2,240 — — 2,240 — 2,240 
Balance, June 30, 202184,590 $846 $1,654,409 $(357,934)$(21,200)$1,276,121 $314 $1,276,435 

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, March 31, 202082,315 $823 $1,596,242 $(206,506)$(32,744)$1,357,815 $333 $1,358,148 
Net loss— — — (5,406)— (5,406)— (5,406)
Unrealized gain on interest rate hedges— — — — (1,789)(1,789)— (1,789)
Distributions to noncontrolling interests— — — — — — (4)(4)
Dividends ($0.30 per common share)
— — — (24,761)— (24,761)— (24,761)
Shares issued under dividend reinvestment program6 — 144 — — 144 — 144 
Share grants, net of forfeitures and tax withholdings6 — 2,234 — — 2,234 — 2,234 
Balance, June 30, 202082,327 $823 $1,598,620 $(236,673)$(34,533)$1,328,237 $329 $1,328,566 

See accompanying notes to the consolidated financial statements.

9

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended June 30,
20212020
Cash flows from operating activities
Net loss$(8,139)$(3,687)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization57,194 59,319 
Credit losses on lease related receivables1,337 2,271 
Loss on sale of real estate— 7,539 
Share-based compensation expense3,750 3,783 
Net amortization of debt premiums, discounts and related financing costs2,227 1,314 
Loss on interest rate derivatives5,760 — 
Gain on extinguishment of debt— (262)
Changes in operating other assets(6,071)(4,482)
Changes in operating other liabilities8,564 (14,613)
Net cash provided by operating activities64,622 51,182 
Cash flows from investing activities
Net cash received for sale of real estate— 56,353 
Capital improvements to real estate(10,370)(25,452)
Development in progress(7,794)(18,646)
Non-real estate capital improvements(31)(124)
Net cash (used in) provided by investing activities(18,195)12,131 
Cash flows from financing activities
Line of credit borrowings, net1,000 125,000 
Dividends paid(50,821)(49,485)
Principal payments – mortgage notes payable— (46,567)
Repayments of unsecured notes payable— (250,000)
Proceeds from term loan— 150,000 
Payment of financing costs— (560)
Distributions to noncontrolling interests(7)(7)
Proceeds from dividend reinvestment program1,009 1,065 
Net proceeds from equity issuances467 1,241 
Payment of tax withholdings for restricted share awards(335)(150)
Net cash used in financing activities(48,687)(69,463)
Net decrease in cash, cash equivalents and restricted cash(2,260)(6,150)
Cash, cash equivalents and restricted cash at beginning of period8,290 14,751 
Cash, cash equivalents and restricted cash at end of period$6,030 $8,601 
10

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended June 30,
20212020
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized$12,038 $21,380 
Change in accrued capital improvements and development costs(4,697)3,687 
Dividend payable25,474 24,760 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$5,435 $7,971 
Restricted cash595 630 
Cash, cash equivalents and restricted cash$6,030 $8,601 

See accompanying notes to the consolidated financial statements.
11

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 consists of the ownership and operation of income producing real estate properties in the greater Washington, DC metro region. We own a portfolio of multifamily and commercial (office and retail) properties. Within these notes to the financial statements, we refer to the three months ended June 30, 2021 and June 30, 2020 as the “2021 Quarter” and the “2020 Quarter,” respectively, and the six months ended June 30, 2021 and June 30, 2020 as the “2021 Period” and the “2020 Period,” respectively. During the 2021 Quarter, we executed a purchase and sale agreement for the sale of twelve office properties (see note 3). Subsequent to the 2021 Quarter, we executed a purchase and sale agreement for the sale of all of our remaining eight retail properties (see note 3). Both these office and retail properties met the criteria for classification as held for sale as of June 30, 2021 and are classified as discontinued operations. The remaining office property, Watergate 600, does not meet the qualitative or quantitative criteria for a reportable segment (see note 9). The retail properties have not been a reportable segment since 2019. The dispositions of office and retail properties are part of a strategic shift away from the commercial sector to the multifamily sector which simplifies our portfolio to one reportable segment (multifamily) (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.

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 June 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.

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. As of June 30, 2021, $3.4 million is accrued and included in Accounts payable and other liabilities on the Consolidated Balance Sheets.

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

Development/Redevelopment

We have properties under development/redevelopment and held for current or future development. As of June 30, 2021, we have invested $29.1 million, including the cost of acquired land, in a multifamily development adjacent to Riverside Apartments. In addition, in our multifamily 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.

13

We classified as held for sale or sold the following properties during 2021 and 2020:
Disposition DateProperty NameProperty TypeRentable Square FeetContract Sales Price
(in thousands)
(Loss) Gain on Sale
(in thousands) (1)
July 26, 2021
Office Portfolio (2)
Office2,370,000 $766,000 
N/A (3)
Retail Portfolio (4)
 Retail693,000 168,314 
Total 20213,063,000$934,314 
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)         Amount determined and disclosed in the quarter of disposition.
(2)     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.
(3)    Disposition of the Retail Portfolio is expected to occur in the third quarter of 2021.
(4)    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 associated with assets sold in 2020 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. As of June 30, 2021, 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.

In June 2021, we executed a letter of intent to sell the Retail Portfolio. As of June 30, 2021, we expected to enter into a purchase and sale agreement and receive a non-refundable deposit from the potential buyer of the Retail Portfolio in July 2021. As of June 30, 2021, the Retail Portfolio met the criteria for classification as held for sale. Subsequent to 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 received a non-refundable deposit of $6.7 million from the potential buyer. The closing of the Retail Portfolio is subject to customary closing conditions, however no assurance can be given that the sale will be completed.

The disposition of the Office Portfolio and expected disposition of 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. The remaining office property, Watergate 600, does not meet the criteria for office to be a reportable segment (see note 9).

As of June 30, 2021, we anticipate the disposition of certain properties prior to the end of their useful lives. We assessed these properties for impairment as of June 30, 2021 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 June 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.

14

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 June 30,Six months ended June 30,
2021202020212020
Real estate rental revenue$30,561 $29,113 $59,587 $60,163 
Real estate expenses(10,568)(10,297)(20,808)(21,479)
Depreciation and amortization(10,248)(12,227)(22,904)(24,700)
       Income from discontinued operations$9,745 $6,589 $15,875 $13,984 
Basic net income per share$0.12 $0.08 $0.19 $0.17 
Diluted net income per share$0.12 $0.08 $0.19 $0.17 
Capital expenditures $2,109 $5,346 $2,483 $7,586 

As of June 30, 2021 and December 31, 2020, assets and liabilities related to the Office Portfolio and Retail Portfolio were as follows (in thousands):
June 30, 2021December 31, 2020
Land$249,869 $249,869 
Income producing property961,359 958,704 
1,211,228 1,208,573 
Accumulated depreciation and amortization(433,229)(414,008)
Income producing property, net777,999 794,565 
Development in progress and land held for development1,122 1,122 
Investment in real estate, net$779,121 $795,687 
Cash and cash equivalents3 3 
Restricted cash10 10 
Rents and other receivables48,563 48,532 
Prepaid expenses and other assets38,235 41,452 
Total assets$865,932 $885,684 
Accounts payable and other liabilities$12,738 $14,706 
Advance rents4,977 4,754 
Tenant security deposits6,033 5,769 
Liabilities related to properties sold or held for sale$23,748 $25,229 


NOTE 4: 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”). In the fourth quarter of 2020, we repaid all $150.0 million of borrowings on the 2015 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
15

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 June 30, 2021, the interest rate on the Revolving Credit Facility is one month LIBOR plus 1.00%, the one month LIBOR is 0.10% 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 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.

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%.

The amount of the Revolving Credit Facility’s unsecured line of credit unused and available at June 30, 2021 is as follows (in thousands):
Committed capacity$700,000 
Borrowings outstanding(43,000)
Unused and available$657,000 

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 
Borrowings72,000 
Repayments(71,000)
Balance at June 30, 2021$43,000 

NOTE 5: 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 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%.

The interest rate swaps are recorded at fair value in accordance with Generally Accepted Accounting Principles (“GAAP”), based on discounted cash flow methodologies and observable inputs. We record the effective portion of changes in fair value of the cash flow hedges in other comprehensive income. We assess the effectiveness of our cash flow hedges 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.

We currently expect to use a portion of the proceeds from the sale of the Office and potential sale of the Retail Portfolios (see note 3) to prepay a $150.0 million portion of the 2018 Term Loan during the third quarter of 2021. We expect to hold the remaining $100.0 million portion of the 2018 Term Loan until maturity. Due to this intention to prepay a $150.0 million portion of the 2018 Term Loan, we have determined that the hedged transactions for the five interest rate swap arrangements with an
16

aggregate notional value of $150.0 million are probable not to occur and that these interest swap arrangements are no longer effective cash flow hedges as of June 30, 2021. As a result, we recognized a loss of $5.8 million for the 2021 Quarter, which was recorded to Loss on interest rate derivatives on our condensed consolidated statements of operations. The interest rate swap arrangement with a notional value of $100.0 million related to the remaining portion of the 2018 Term Loan that we intend to hold to maturity is an effective cash flow hedge as of June 30, 2021.

The fair values of the interest rate swaps as of June 30, 2021 and December 31, 2020, are as follows (in thousands):
Fair Value
Derivative Liabilities
Derivative InstrumentAggregate Notional AmountEffective DateMaturity DateJune 30, 2021December 31, 2020
Interest rate swaps$150,000 March 31, 2017July 21, 2023$(2,869)$(4,009)
Interest rate swaps100,000 June 29, 2018July 21, 2023(4,802)(6,246)
$(7,671)$(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 loss, as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Unrealized gain (loss) on interest rate hedges$1,004 $(1,789)$2,584 $(36,356)

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 six months ended June 30, 2021 and 2020, were as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Loss reclassified from Accumulated other comprehensive loss into interest expense$509 $— $1,019 $— 

During the next twelve months, we estimate that an additional $3.1 million will be reclassified as an increase to interest expense.

We have agreements with each of our derivative counterparties that contain a provision whereby we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. As of June 30, 2021, we did not have any derivatives in an asset position and the fair value of the derivative liabilities, including accrued interest, was $7.7 million. As of June 30, 2021, we have not posted any collateral related to these agreements.

Derivative instruments expose us to credit risk in the event of non-performance by the counterparty under the terms of the interest rate hedge agreements. We believe that we minimize our credit risk on these transactions by dealing with major, creditworthy financial institutions. We monitor the credit ratings of counterparties and our exposure to any single entity, thus minimizing our credit risk concentration.

NOTE 6: FAIR VALUE DISCLOSURES

Assets and Liabilities Measured at Fair Value

For assets and liabilities measured at fair value on a recurring basis, quantitative disclosures about the fair value measurements are required to be disclosed separately for each major category of assets and liabilities, as follows:

Level 1: Quoted prices in active markets for identical assets
17

Level 2: Significant other observable inputs
Level 3: Significant unobservable inputs

The only assets or liabilities we had at June 30, 2021 and December 31, 2020 that are recorded at fair value on a recurring basis are the assets held in the Supplemental Executive Retirement Plan (“SERP”), which primarily consist of investments in mutual funds, and the interest rate derivatives (see note 5).

We base the valuations related to the SERP on assumptions derived from significant other observable inputs and accordingly these valuations fall into Level 2 in the fair value hierarchy.

The valuation of the interest rate derivatives is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each interest rate derivative. This analysis reflects the contractual terms of the interest rate derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate derivatives are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of ASC 820, Fair Value Measurement, we incorporate credit valuation adjustments in the fair value measurements to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk. These credit valuation adjustments were concluded to not be significant inputs for the fair value calculations for the periods presented. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as the posting of collateral, thresholds, mutual puts and guarantees. The valuation of interest rate derivatives fall into Level 2 in the fair value hierarchy.

The fair values of these assets and liabilities at June 30, 2021 and December 31, 2020 were as follows (in thousands):
 June 30, 2021December 31, 2020
 Fair
Value		Level 1Level 2Level 3Fair
Value		Level 1Level 2Level 3
Assets:
SERP$2,386 $— $2,386 $— $2,433 $— $2,433 $— 
Liabilities:
Interest rate derivatives$(7,671)$— $(7,671)$— $(10,255)$— $(10,255)$— 

Financial Assets and Liabilities Not Measured at Fair Value

The following disclosures of estimated fair value were determined by management using available market information and established valuation methodologies, including discounted cash flow models. Many of these estimates involve significant judgment. The estimated fair value disclosed may not necessarily be indicative of the amounts we could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have an effect on the estimated fair value amounts. In addition, fair value estimates are made at a point in time and thus, estimates of fair value subsequent to June 30, 2021 may differ significantly from the amounts presented. The valuations of cash and cash equivalents and restricted cash fall into Level 1 in the fair value hierarchy and the valuations of debt instruments fall into Level 3 in the fair value hierarchy.

As of June 30, 2021 and December 31, 2020, the carrying values and estimated fair values of our financial instruments were as follows (in thousands):
 June 30, 2021December 31, 2020
Carrying ValueFair ValueCarrying ValueFair Value
Cash and cash equivalents$5,435 $5,435 $7,697 $7,697 
Restricted cash595 595 593 593 
Line of credit43,000 43,000 42,000 42,000 
Notes payable, net945,905 977,200 945,370 978,678 

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NOTE 7: STOCK BASED COMPENSATION

WashREIT maintains short-term (“STIP”) and long-term (“LTIP”) incentive plans that allow for stock based awards to officers and non-officer employees. Stock based awards are provided to officers and non-officer employees, as well as trustees, under the Washington Real Estate Investment Trust 2016 Omnibus Incentive Plan which allows for awards in the form of restricted shares, restricted share units, options and other awards up to an aggregate of 2,400,000 shares over the ten-year period in which the plan will be in effect. Restricted share units are converted into shares of our stock upon full vesting through the issuance of new shares.

Total Compensation Expense

Total compensation expense recognized in the consolidated financial statements for all outstanding share based awards was $