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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)
Maryland 53-0261100
(State of incorporation) (IRS Employer Identification Number)
1775 EYE STREET, NW, SUITE 1000, WASHINGTON, DC 20006
(Address of principal executive office) (Zip code)
Registrant’s telephone number, including area code: (202) 774-3200
___________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Shares of Beneficial Interest WRE NYSE
 ___________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer
Non-accelerated Filer Smaller Reporting Company
Emerging Growth Company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No   
As of July 28, 2021, 84,607,533 common shares were outstanding.



WASHINGTON REAL ESTATE INVESTMENT TRUST
INDEX
 
    Page
Item 1.
5
6
7
8
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, 2021 December 31, 2020
Assets
Land $ 301,709  $ 301,709 
Income producing property 1,490,975  1,473,335 
1,792,684  1,775,044 
Accumulated depreciation and amortization (367,519) (335,006)
Net income producing property 1,425,165  1,440,038 
Properties under development or held for future development 30,065  36,494 
Total real estate held for investment, net 1,455,230  1,476,532 
Investment in real estate held for sale, net 779,121  795,687 
Cash and cash equivalents 5,435  7,697 
Restricted cash 595  593 
Rents and other receivables 12,916  9,725 
Prepaid expenses and other assets 28,297  29,587 
Other assets related to properties held for sale 86,811  89,997 
Total assets $ 2,368,405  $ 2,409,818 
Liabilities
Notes payable, net $ 945,905  $ 945,370 
Line of credit 43,000  42,000 
Accounts payable and other liabilities 47,897  44,067 
Dividend payable 25,474  25,361 
Advance rents 1,572  2,461 
Tenant security deposits 4,374  4,221 
Other liabilities related to properties held for sale 23,748  25,229 
Total liabilities 1,091,970  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 capital 1,654,409  1,649,366 
Distributions in excess of net income (357,934) (298,860)
Accumulated other comprehensive loss (21,200) (30,563)
Total shareholders’ equity 1,276,121  1,320,787 
Noncontrolling interests in subsidiaries 314  322 
Total equity 1,276,435  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,
  2021 2020 2021 2020
Revenue
Real estate rental revenue $ 41,297  $ 43,757  $ 81,904  $ 89,500 
Expenses
Real estate expenses 16,230  16,588  32,684  34,046 
Depreciation and amortization 17,303  17,372  34,290  34,619 
General and administrative expenses 6,325  5,296  11,929  11,633 
Transformation costs 3,780  —  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 income 1,522  —  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 sale 9,745  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 operations 0.12  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 operations 0.12  0.08  0.19  0.17 
Diluted net loss per common share $ (0.08) $ (0.07) $ (0.10) $ (0.05)
Weighted average shares outstanding – basic 84,461  82,153  84,437  82,120 
Weighted average shares outstanding – diluted 84,461  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,
  2021 2020 2021 2020
Net loss $ (6,992) $ (5,406) $ (8,139) $ (3,687)
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate hedges 1,004  (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-standing Shares of Beneficial Interest at Par Value Additional Paid in Capital Distributions in Excess of
Net Income
Accumulated Other Comprehensive Loss Total Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity
Balance, December 31, 2020 84,409  $ 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 costs 24  —  467  —  —  467  —  467 
Shares issued under Dividend Reinvestment Program 45  —  1,009  —  —  1,009  —  1,009 
Share grants, net of forfeitures and tax withholdings 112  3,567  —  —  3,569  —  3,569 
Balance, June 30, 2021 84,590  $ 846  $ 1,654,409  $ (357,934) $ (21,200) $ 1,276,121  $ 314  $ 1,276,435 

Shares Issued and Out-standing Shares of Beneficial Interest at Par Value Additional Paid in Capital Distributions in Excess of
Net Income
Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity
Balance, December 31, 2019 82,099  $ 821  $ 1,592,487  $ (183,405) $ 1,823  $ 1,411,726  $ 336  $ 1,412,062 
Net loss —  —  —  (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 costs 46  1,241  —  —  1,242  —  1,242 
Shares issued under Dividend Reinvestment Program 41  —  1,065  —  —  1,065  —  1,065 
Share grants, net of forfeitures and tax withholdings 141  3,827  —  —  3,828  —  3,828 
Balance, June 30, 2020 82,327  $ 823  $ 1,598,620  $ (236,673) $ (34,533) $ 1,328,237  $ 329  $ 1,328,566 

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-standing Shares of Beneficial Interest at Par Value Additional Paid in Capital Distributions in Excess of
Net Income
Accumulated Other Comprehensive Loss Total Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity
Balance, March 31, 2021 84,564  $ 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 Program 22  —  489  —  —  489  —  489 
Share grants, net of share grant amortization and forfeitures —  2,240  —  —  2,240  —  2,240 
Balance, June 30, 2021 84,590  $ 846  $ 1,654,409  $ (357,934) $ (21,200) $ 1,276,121  $ 314  $ 1,276,435 

Shares Issued and Out-standing Shares of Beneficial Interest at Par Value Additional Paid in Capital Distributions in Excess of
Net Income
Accumulated Other Comprehensive Income Total Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity
Balance, March 31, 2020 82,315  $ 823  $ 1,596,242  $ (206,506) $ (32,744) $ 1,357,815  $ 333  $ 1,358,148 
Net loss —  —  —  (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 program —  144  —  —  144  —  144 
Share grants, net of forfeitures and tax withholdings —  2,234  —  —  2,234  —  2,234 
Balance, June 30, 2020 82,327  $ 823  $ 1,598,620  $ (236,673) $ (34,533) $ 1,328,237  $ 329  $ 1,328,566 

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,
2021 2020
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 amortization 57,194  59,319 
Credit losses on lease related receivables 1,337  2,271 
Loss on sale of real estate —  7,539 
Share-based compensation expense 3,750  3,783 
Net amortization of debt premiums, discounts and related financing costs 2,227  1,314 
Loss on interest rate derivatives 5,760  — 
Gain on extinguishment of debt —  (262)
Changes in operating other assets (6,071) (4,482)
Changes in operating other liabilities 8,564  (14,613)
Net cash provided by operating activities 64,622  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, net 1,000  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 program 1,009  1,065 
Net proceeds from equity issuances 467  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 period 8,290  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,
2021 2020
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 payable 25,474  24,760 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents $ 5,435  $ 7,971 
Restricted cash 595  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.

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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 Date Property Name Property Type Rentable Square Feet Contract Sales Price
(in thousands)
(Loss) Gain on Sale
(in thousands) (1)
July 26, 2021
Office Portfolio (2)
Office 2,370,000  $ 766,000 
N/A (3)
Retail Portfolio (4)
 Retail 693,000  168,314 
Total 2021 3,063,000 $ 934,314 
April 21, 2020 John Marshall II Office 223,000 $ 57,000  $ (6,855)
December 2, 2020 Monument II Office 207,000 53,000  (8,595)
December 17, 2020 1227 25th Street NW Office 135,000 53,500  1,125 
Total 2020 565,000 $ 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,
2021 2020 2021 2020
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, 2021 December 31, 2020
Land $ 249,869  $ 249,869 
Income producing property 961,359  958,704 
1,211,228  1,208,573 
Accumulated depreciation and amortization (433,229) (414,008)
Income producing property, net 777,999  794,565 
Development in progress and land held for development 1,122  1,122 
Investment in real estate, net $ 779,121  $ 795,687 
Cash and cash equivalents
Restricted cash 10  10 
Rents and other receivables 48,563  48,532 
Prepaid expenses and other assets 38,235  41,452 
Total assets $ 865,932  $ 885,684 
Accounts payable and other liabilities $ 12,738  $ 14,706 
Advance rents 4,977  4,754 
Tenant security deposits 6,033  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 
Borrowings 72,000 
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 Instrument Aggregate Notional Amount Effective Date Maturity Date June 30, 2021 December 31, 2020
Interest rate swaps $ 150,000  March 31, 2017 July 21, 2023 $ (2,869) $ (4,009)
Interest rate swaps 100,000  June 29, 2018 July 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,
2021 2020 2021 2020
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,
2021 2020 2021 2020
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, 2021 December 31, 2020
  Fair
Value
Level 1 Level 2 Level 3 Fair
Value
Level 1 Level 2 Level 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, 2021 December 31, 2020
Carrying Value Fair Value Carrying Value Fair Value
Cash and cash equivalents $ 5,435  $ 5,435  $ 7,697  $ 7,697 
Restricted cash 595  595  593  593 
Line of credit 43,000  43,000  42,000  42,000 
Notes payable, net 945,905  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 $2.2 million and $2.0 million for the 2021 Quarter and 2020 Quarter, respectively, and $3.8 million and $3.8 million for the 2021 Period and 2020 Period, respectively.

Restricted Share Awards

The total fair values of restricted share awards vested was $2.0 million and $0.8 million for the 2021 Period and 2020 Period, respectively.

The total unvested restricted share awards at June 30, 2021 was 456,326 shares, which had a weighted average grant date fair value of $28.38 per share. As of June 30, 2021, the total compensation cost related to unvested restricted share awards was $7.4 million, which we expect to recognize over a weighted average period of 20 months.

NOTE 8: EARNINGS PER COMMON SHARE

We determine “Basic earnings per share” using the two-class method as our unvested restricted share awards and units have non-forfeitable rights to dividends, and are therefore considered participating securities. We compute basic earnings per share by dividing net income less the allocation of undistributed earnings to unvested restricted share awards and units by the weighted-average number of common shares outstanding for the period.

We also determine “Diluted earnings per share” as the more dilutive of the two-class method or the treasury stock method with respect to the unvested restricted share awards. We further evaluate any other potentially dilutive securities at the end of the period and adjust the basic earnings per share calculation for the impact of those securities that are dilutive. Our dilutive earnings per share calculation includes the dilutive impact of operating partnership units under the if-converted method and our share based awards with performance conditions prior to the grant date and all market condition awards under the contingently issuable method.

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The computations of basic and diluted earnings per share for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands, except per share data):
  Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Numerator:
Loss from continuing operations $ (16,737) $ (11,995) $ (24,014) $ (17,671)
Allocation of distributed earnings to unvested restricted share awards (137) (151) (276) (302)
Adjusted net loss from continuing operations (16,874) (12,146) (24,290) (17,973)
Income from discontinued operations 9,745  6,589  15,875  13,984 
Adjusted net loss $ (7,129) $ (5,557) $ (8,415) $ (3,989)
Denominator:
Weighted average shares outstanding – basic 84,461  82,153  84,437  82,120 
Effect of dilutive securities:
Employee restricted share awards —  —  —  — 
Operating partnership units —  —  —  — 
Weighted average shares outstanding – diluted 84,461  82,153  84,437  82,120 
Earnings per common share, basic:
Continuing operations $ (0.20) $ (0.15) $ (0.29) $ (0.22)
Discontinued operations 0.12  0.08  0.19  0.17 
Basic net loss per common share $ (0.08) $ (0.07) $ (0.10) $ (0.05)
Earnings per common share, diluted:
Continuing operations $ (0.20) $ (0.15) $ (0.29) $ (0.22)
Discontinued operations 0.12  0.08  0.19  0.17 
Diluted net loss per common share $ (0.08) $ (0.07) $ (0.10) $ (0.05)
Dividends declared per common share $ 0.30  $ 0.30  $ 0.60  $ 0.60 
On July 29, 2021, we announced that the Board of Trustees declared a quarterly dividend of $0.17 per share for the three months ended September 30, 2021.



NOTE 9: SEGMENT INFORMATION

We previously had two reportable segments: office and multifamily. Office properties provide office space for various types of businesses and professions. Multifamily properties provide rental housing for individuals and families throughout the Washington, DC metro region. We have eight retail properties that did not meet the criteria for a reportable segment and are classified as “Corporate and other” in our segment disclosure tables. 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 eight retail properties (see note 3). Both the office and retail properties met the criteria for classification as held for sale as of June 30, 2021 and are classified as discontinued operations. We closed on the sale of the Office Portfolio on July 26, 2021 and expect to close on the Retail Portfolio in the third quarter of 2021. We have one remaining office property, Watergate 600, which does not meet the criteria for a reportable segment, has been classified within “Corporate and other” on our segment disclosure tables.

We evaluate performance based upon net operating income of the combined properties in each segment. Our reportable operating segments are consolidations of similar properties. GAAP requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing each segment’s performance. Net operating income is a key measurement of our segment profit and loss and is defined as real estate rental revenue less real estate expenses.

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The following tables present revenues, net operating income, capital expenditures and total assets for the three and six months ended June 30, 2021 and 2020 from our Multifamily segment as well as Corporate and Other, and reconcile net operating income of our reportable segments to net loss as reported (in thousands):
  Three Months Ended June 30, 2021
  Multifamily
Corporate and Other (1), (2)
Consolidated
Real estate rental revenue $ 36,862  $ 4,435  $ 41,297 
Real estate expenses 14,832  1,398  16,230 
Net operating income $ 22,030  $ 3,037  $ 25,067 
Depreciation and amortization (17,303)
General and administrative expenses (6,325)
Transformation costs (3,780)
Interest expense (10,158)
Other income 1,522 
Loss on interest rate derivatives (5,760)
Discontinued operations:
Income from operations of properties sold or held for sale 9,745 
Net loss $ (6,992)
Capital expenditures $ 4,062  $ 2,300  $ 6,362 
Total assets $ 1,315,640  $ 1,052,765  $ 2,368,405 

  Three Months Ended June 30, 2020
  Multifamily
Corporate and Other (1), (2)
Consolidated
Real estate rental revenue $ 36,066  $ 7,691  $ 43,757 
Real estate expenses 14,110  2,478  16,588 
Net operating income $ 21,956  $ 5,213  $ 27,169 
Depreciation and amortization (17,372)
General and administrative expenses (5,296)
Interest expense (8,751)
Loss on sale of real estate (7,539)
Loss on extinguishment of debt (206)
Discontinued operations:
Income from operations of properties sold or held for sale 6,589 
Net loss $ (5,406)
Capital expenditures $ 5,488  $ 9,118  $ 14,606 
Total assets $ 1,337,731  $ 1,204,991  $ 2,542,722 




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Six Months Ended June 30, 2021
Multifamily
Corporate and Other (1), (2)
Consolidated
Real estate rental revenue $ 73,029  $ 8,875  $ 81,904 
Real estate expenses 30,004  2,680  32,684 
Net operating income $ 43,025  $ 6,195  $ 49,220 
Depreciation and amortization (34,290)
General and administrative (11,929)
Transformation costs (3,780)
Interest expense (20,281)
Other income 2,806 
Loss on interest rate derivatives (5,760)
Discontinued operations:
Income from operations of properties sold or held for sale 15,875 
Net loss $ (8,139)
Capital expenditures $ 7,799  $ 2,602  $ 10,401 

Six Months Ended June 30, 2020
Multifamily
Corporate and Other (1), (2)
Consolidated
Real estate rental revenue $ 72,651  $ 16,849  $ 89,500 
Real estate expenses 28,095  5,951  34,046 
Net operating income $ 44,556  $ 10,898  $ 55,454 
Depreciation and amortization (34,619)
General and administrative (11,633)
Interest expense (19,596)
Loss on sale of real estate (7,539)
Gain on extinguishment of debt 262 
Discontinued operations:
Income from operations of properties sold or held for sale 13,984 
Net loss $ (3,687)
Capital expenditures $ 8,957  $ 16,619  $ 25,576 
______________________________
(1)     Corporate and Other represents Watergate 600, an office property that does not meet the qualitative or quantitative criteria for a reportable segment.
(2)     Total assets and capital expenditures include office and retail properties classified as discontinued operations.

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NOTE 10: SHAREHOLDERS' EQUITY

On February 17, 2021, we entered into separate amendments to each of our existing equity distribution agreements (“Original Equity Distribution Agreements”) with each of Wells Fargo Securities, LLC, BNY Mellon Capital Markets, LLC, Capital One Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, KeyBanc Capital Markets Inc. and Truist Securities, Inc. (f/k/a SunTrust Robinson Humphrey, Inc.), each dated May 4, 2018 (collectively, as amended, the “Amended Equity Distribution Agreements”). Also on February 17, 2021, we entered into a separate equity distribution agreement with BTIG, LLC on the same terms as the Amended Equity Distribution Agreements (the “BTIG Equity Distribution Agreement,” together with the Amended Equity Distribution Agreements, the “Equity Distribution Agreements”). Pursuant to the Equity Distribution Agreements, we may sell, from time to time, up to an aggregate price of $550.0 million of our common shares of beneficial interest, $0.01 par value per share. Issuances of our common shares are made at market prices prevailing at the time of issuance. We may use net proceeds from the issuance of common shares under this program for general business purposes, including, without limitation, working capital, the acquisition, renovation, expansion, improvement, development or redevelopment of income producing properties or the repayment of debt. We did not issue common shares under the Equity Distribution Agreements during the 2021 Quarter or 2020 Quarter. Our issuances and net proceeds on the Equity Distribution Agreements and the Original Equity Distribution Agreements, respectively, for the 2021 Period and 2020 Period are as follows ($ in thousands, except per share data):

Six Months Ended June 30,
2021 2020
Issuance of common shares 24  47 
Weighted average price per share $ 22.06  $ 31.07 
Net proceeds $ 467  $ 1,241 

We have a dividend reinvestment program whereby shareholders may use their dividends and optional cash payments to purchase common shares. The shares sold under this program may either be common shares issued by us or common shares purchased in the open market. Net proceeds under this program are used for general corporate purposes.

Our issuances and net proceeds on the dividend reinvestment program for the three and six months ended June 30, 2021 and 2020 are as follows ($ in thousands, except per share data):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Issuance of common shares 22  45  41 
Weighted average price per share $ 23.21  $ 22.68  $ 22.63  $ 26.38 
Net proceeds $ 489  $ 144  $ 1,009  $ 1,065 
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing in Item 1 of this report and the more detailed information contained in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on February 16, 2021.

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.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements which involve risks and uncertainties. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Currently, one of the most significant factors continues to be the adverse effect of the COVID-19 virus, including any variants and mutations thereof, the actions taken to contain the pandemic or mitigate the impact of COVID-19, and the direct and indirect economic effects of the pandemic and containment measures. The extent to which COVID-19 continues to impact WashREIT and its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, the continued speed and success of the vaccine distribution, effectiveness and willingness of people to take COVID-19 vaccines, and the duration of associated immunity and their efficacy against emerging variants of COVID-19, among others. Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2020 filed on February 16, 2021, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Additional factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to the risks associated with the failure to enter into and/or complete contemplated acquisitions or dispositions (including the expected retail asset sales) within the price ranges anticipated and on the terms and timing anticipated, or at all; our ability to execute on our strategies, including new strategies with respect to our operations and our portfolio, including the acquisition of multifamily properties in the Southeastern markets and the repayment of debt, on the terms anticipated, or at all, and to realize any anticipated benefits, including the performance of any acquired multifamily properties at the levels anticipated; our ability to lease up Trove on the timing anticipated; our ability to reduce actual net leverage to levels consistent with our targeted net leverage range, the risks associated with ownership of real estate in general and our real estate assets in particular; the economic health of the greater Washington, DC metro region and the larger Southeastern region; changes in the composition and geographic location of our portfolio; fluctuations in interest rates; reductions in or actual or threatened changes to the timing of federal government spending; the risks related to use of third-party providers; the economic health of our tenants; shifts away from brick and mortar stores to e-commerce; the availability and terms of financing and capital and the general volatility of securities markets; compliance with applicable laws, including those concerning the environment and access by persons with disabilities; the risks related to not having adequate insurance to cover potential losses; the risks related to our organizational structure and limitations of stock ownership; changes in the market value of securities; terrorist attacks or actions and/or cyber-attacks; failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs; and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2020 Form 10-K filed on February 16, 2021. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to update our forward-looking statements or risk factors to reflect new information, future events, or otherwise.

General

Introductory Matters

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

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Overview. Discussion of our business outlook, operating results, investment and financing activity and capital requirements to provide context for the remainder of MD&A.
Results of Operations. Discussion of our financial results comparing the 2021 Quarter to the 2020 Quarter and the 2021 Period to the 2020 Period.
Liquidity and Capital Resources. Discussion of our financial condition and analysis of changes in our capital structure and cash flows.
Funds From Operations. Calculation of NAREIT Funds From Operations (“NAREIT FFO”), a non-GAAP supplemental measure to net income.
Critical Accounting Policies and Estimates. Descriptions of accounting policies that reflect significant judgments and estimates used in the preparation of our consolidated financial statements.

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

Net operating income (“NOI”), calculated as set forth below under the caption "Results of Operations - Net Operating Income." NOI is a non-GAAP supplemental measure to net income.
Funds From Operations (“NAREIT FFO”), calculated as set forth below under the caption “Funds from Operations.” NAREIT FFO is a non-GAAP supplemental measure to net income.
Average occupancy, calculated as average monthly occupied multifamily units as a percentage of total multifamily units.

For purposes of evaluating comparative operating performance, we categorize our properties as “same-store” or “non-same-store”. Same-store portfolio properties include properties that were owned for the entirety of the years being compared, and exclude properties under redevelopment or development and properties acquired, sold or classified as held for sale during the years being compared. We categorize our properties as “same-store” or non-“same-store” for purposes of evaluating comparative operating performance. We define development properties as those for which we have planned or ongoing major construction activities on existing or acquired land pursuant to an authorized development plan. We consider a property's development activities to be complete when the property is ready for its intended use. The property is categorized as same-store when it has been ready for its intended use for the entirety of the years being compared. We define redevelopment properties as those for which we have planned or ongoing significant development and construction activities on existing or acquired buildings pursuant to an authorized plan, which has an impact on current operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. We categorize a redevelopment property as same-store when redevelopment activities have been complete for the majority of each year being compared.

Overview

Our revenues are derived primarily from the ownership and operation of income producing properties in the greater Washington, DC metro region. As of June 30, 2021 we owned a diversified portfolio of 43 properties, totaling approximately 3.4 million square feet of commercial space and 7,059 multifamily units, and land held for development. These 43 properties consisted of 22 multifamily properties, 13 office properties and 8 retail centers.

During the 2021 Quarter, we executed a purchase and sale agreement for the sale of twelve office properties (the “Office Portfolio”) (see note 3 to the condensed consolidated financial statements) for a purchase price of $766.0 million. Subsequent to the 2021 Quarter, we executed a purchase and sale agreement for the sale of eight retail properties (the “Retail Portfolio”) (see note 3 to the condensed consolidated financial statements) for a purchase price of $168.3 million. Both the Office Portfolio and Retail Portfolio met the criteria for classification as held for sale as of June 30, 2021 and are classified as discontinued operations in our condensed consolidated financial statements. We closed on the sale of the Office Portfolio on July 26, 2021 and expect to close on the Retail Portfolio in the third quarter of 2021. 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 remaining office property, Watergate 600, does not meet the qualitative or quantitative criteria for a reportable segment (see note 9 to the condensed consolidated financial statements). The properties in the Office Portfolio and Retail Portfolio met the criteria for classification as held for sale as of June 30, 2021 and are classified as discontinued operations. 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”).

Outlook

We plan to use the net proceeds from the sales to fund the expansion of our multifamily platform through acquisitions in Southeastern markets and to reduce our leverage by repaying outstanding debt. The planned acquisitions of multifamily
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properties and dispositions of office and retail properties are part of a strategic shift away from the commercial sector to the multifamily sector (the “strategic transformation”). This strategic shift simplifies our portfolio to one reportable segment (multifamily). We believe the successful execution of this research-driven strategic shift will lead to greater, more sustainable growth.

On March 11, 2020, the World Health Organization declared COVID-19, a respiratory illness caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency concerning COVID-19. The COVID-19 pandemic caused state and local governments within the Washington, DC metro region to institute quarantines, shelter-in-place rules and restrictions on travel, the types of business that may continue to operate and/or the types of construction projects that may continue.

While the COVID-19 pandemic impacted the 2021 Quarter, as of July 28, 2021, we collected 99% of cash rent during the 2021 Quarter. We saw a decrease in credit losses of $0.3 million during the 2021 Quarter compared to the 2020 Quarter. The effects of COVID-19 on our multifamily tenants led to a decline in rental rates during the 2021 Quarter compared to the 2020 Quarter. However, we expect to be able to increase rental rates in the remainder of 2021 as market conditions have begun to improve. We had an increase in average occupancy of approximately 60 basis points during the 2021 Quarter compared to the 2020 Quarter, excluding Trove, which began lease-up in the first quarter of 2020.

We expect the COVID-19 outbreak, including any variants and mutations thereof, to continue to affect our financial condition and results of operations during 2021, including but not limited to real estate rental revenues, credit losses and leasing activity. Given our current concentration in the Washington, DC metro region, our entire existing portfolio could be impacted at the same time by quarantines, shelter in place rules and various other restrictions imposed or re-imposed in response to a surge in COVID-19 cases. To help mitigate the impact on our operating results of the COVID-19 pandemic, we previously initiated various operational cost-saving initiatives across our portfolio. Due to the uncertainty of the future impacts of the COVID-19 pandemic, the extent of the financial impact remains difficult to reasonably estimate.

New legislation was enacted to provide relief to businesses in response to the COVID-19 pandemic. We have evaluated and will continue to evaluate the relief options available, or that become available in the future, such as the Coronavirus Aid, Relief, and Economic Securities Act (“CARES Act”), or other emergency relief initiatives and stimulus packages instituted by the federal government. A number of the available relief options contain restrictions on future business activities that require careful evaluation and consideration, including the ability to repurchase shares and pay dividends. We will continue to assess these options and any subsequent legislation or other relief packages, including the accompanying restrictions on our business, as the pandemic continues to evolve. The legislation did not have a material impact on our results of operations for the 2021 Period and 2020 Period.

Operating Results

Net loss, NOI and NAREIT FFO for the three months ended June 30, 2021 and 2020 were as follows (in thousands): 
Three Months Ended June 30,
2021 2020 $ Change % Change
Net loss $ (6,992) $ (5,406) $ (1,586) 29.3  %
NOI (1)
$ 25,067  $ 27,169  $ (2,102) (7.7) %
NAREIT FFO (2)
$ 20,559  $ 31,732  $ (11,173) (35.2) %
______________________________
(1) See page 29 of the MD&A for a reconciliation of NOI to net income.
(2) See page 39 of the MD&A for a reconciliation of NAREIT FFO to net income.
 
The increase in net loss is primarily due to the loss on interest rate derivatives ($5.8 million), transformation costs ($3.8 million), lower NOI ($2.1 million), higher interest expense ($1.4 million) and higher general and administrative expenses ($1.0 million) in the 2021 Quarter, partially offset by the loss on sale of real estate ($7.5 million) and a loss on extinguishment of debt ($0.2 million) in the 2020 Quarter and higher income from discontinued operations ($3.2 million) and a real estate tax refund ($1.5 million) in the 2021 Quarter.

The lower NOI is primarily due to the sales of Monument II ($1.1 million), 1227 25th Street ($0.7 million) and John Marshall II ($0.2 million) during 2020 and lower same-store NOI ($0.6 million), partially offset by placing Trove, a multifamily development, into service starting in 2020 ($0.5 million). Multifamily same-store average occupancy for our portfolio increased to 95.1% as of June 30, 2021 from 94.5% as of June 30, 2020, due to higher occupancy across the portfolio as the portfolio recovers from the COVID-19 pandemic.
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The lower NAREIT FFO is primarily due to loss on interest rate derivatives ($5.8 million), transformation costs ($3.8 million), lower NOI ($2.1 million), higher interest expense ($1.4 million) and higher general and administrative expenses ($1.0 million). These were partially offset by a real estate tax refund ($1.5 million) and higher income from discontinued operations, net of depreciation and amortization ($1.2 million) in the 2021 Quarter and loss on extinguishment of debt ($0.2 million) in 2020 Quarter.

Investment and Financing Activity

During the 2021 Quarter, we entered into a purchase and sale agreement with a single buyer to sell the Office Portfolio for a contract sales price of $766.0 million. Subsequent to the 2021 Quarter, we closed on the Office Portfolio sale transaction on July 26, 2021.

Subsequent to the end of the 2021 Quarter, we entered into a purchase and sale agreement with a single buyer to sell the Retail Portfolio for a contract sales price of $168.3 million. We expect to close on the sale of the Retail Portfolio in the third quarter of 2021.

We plan to use the net proceeds from the sales to fund the expansion of our multifamily platform through acquisitions in Southeastern markets and to reduce our leverage by repaying outstanding debt. We expect to redeem $300.0 million of our Senior Notes due 2022 and repay $150.0 million of borrowings outstanding under the 2018 Term Loan, respectively. In conjunction with these repayments, we expect to terminate five interest rate swaps (see note 5 to the consolidated financial statements).

As of June 30, 2021, the interest rate on the $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”) was one month LIBOR plus 1.00% and the facility fee was 0.20%. As of July 28, 2021, we had no outstanding balance and a full borrowing capacity of $700.0 million on our Revolving Credit Facility and approximately $665.0 million of cash on hand, primarily due to the proceeds from the Office Portfolio sale.

Capital Requirements

We have no debt maturities until the fourth quarter of 2022. As discussed above, we plan to use a portion of the net proceeds from the sales of the Office Portfolio and Retail Portfolio to redeem $300.0 million of our Senior Notes scheduled to mature in 2022. If such redemption is completed, we will have no debt maturities until 2023. We expect to have additional capital requirements as set forth on page 31 (Liquidity and Capital Resources - Capital Requirements).

Results of Operations

The discussion that follows is based on our consolidated results of operations for the 2021 Quarter and 2021 Period and 2020 Quarter and 2020 Period. The ability to compare one period to another is significantly affected by dispositions made during 2021 and 2020 (see note 3 to the consolidated financial statements). Additionally, the COVID-19 pandemic adversely impacted our operating results for the 2021 Quarter, 2020 Quarter, 2021 Period and 2020 Period, and we expect that the COVID-19 outbreak will continue to adversely affect our business, financial condition, results of operations and cash flows going forward, including but not limited to, real estate rental revenues, credit losses, and leasing activity, in ways that may vary widely depending on the duration and magnitude of the COVID-19 pandemic and ensuing economic turmoil, as well as numerous other factors, many of which are outside of our control, as discussed under “Part I - Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 filed on February 16, 2021.
Net Operating Income

NOI, defined as real estate rental revenue less real estate expenses, is a non-GAAP measure. NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain or loss on sale, if any), plus interest expense, depreciation and amortization, lease origination expenses, general and administrative expenses, acquisition costs, real estate impairment, casualty gains and losses and gain or loss on extinguishment of debt. We believe that NOI is useful as a performance measure because, when compared across periods, NOI reflects the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income. NOI excludes certain components from net income in order to provide results more closely related to a property’s results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating
27


performance at the property level. As a result of the foregoing, we provide NOI as a supplement to net income, calculated in accordance with GAAP. NOI does not represent net income or income from continuing operations, in either case calculated in accordance with GAAP. As such, it should not be considered an alternative to these measures as an indication of our operating performance. A reconciliation of NOI to net income follows.
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2021 Quarter Compared to 2020 Quarter

The following table reconciles NOI to net (loss) income and provides the basis for our discussion of our consolidated results of operations and NOI in the 2021 Quarter compared to the 2020 Quarter. All amounts are in thousands, except percentage amounts.
Non-Same-Store
  Same-Store
Development/
Re-development (1)
Held for Sale or Sold (2)
Consolidated
  2021 2020
Change

Change
2021 2020 2021 2020 2021 2020
Change

Change
Real estate rental revenue $ 39,967  $ 40,217  $ (250) (0.6) % $ 1,330  $ 214  $ —  $ 3,326  $ 41,297  $ 43,757  $ (2,460) (5.6) %
Real estate expenses
15,323  14,987  336  2.2  % 907  304  —  1,297  16,230  16,588  (358) (2.2) %
NOI $ 24,644  $ 25,230  $ (586) (2.3) % $ 423  $ (90) $ —  $ 2,029  $ 25,067  $ 27,169  $ (2,102) (7.7) %
Reconciliation to net loss:
Depreciation and amortization (17,303) (17,372) 69  (0.4) %
General and administrative expenses (6,325) (5,296) (1,029) 19.4  %
Transformation costs (3,780) —  (3,780) —  %
Loss on sale of real estate —  (7,539) 7,539  (100.0) %
Interest expense (10,158) (8,751) (1,407) 16.1  %
Other income 1,522  —  1,522  —  %
Loss on interest rate derivatives (5,760) —  (5,760) —  %
Loss on extinguishment of debt —  (206) 206  (100.0) %
Discontinued operations (3):
Income from operations of properties sold or held for sale 9,745  6,589  3,156  47.9  %
Net loss $ (6,992) $ (5,406) $ (1,586) 29.3  %
 ______________________________ 
(1)Development/redevelopment:
Multifamily - Trove

(2)Sold (classified as continuing operations):
2020 Office - John Marshall II, Monument II and 1227 25th Street

(3)Discontinued operations:
2021 Office - 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
2021 Retail - Takoma Park, Westminster, Concord Centre, Chevy Chase Metro Plaza, 800 S. Washington Street, Randolph Shopping Center, Montrose Shopping Center and Spring Valley Village

Real Estate Rental Revenue

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

Real estate rental revenue from same-store multifamily properties decreased $0.3 million, or 0.9%, to $35.5 million for the 2021 Quarter, compared to $35.9 million for the 2020 Quarter, primarily due to lower rental revenue ($0.7 million) and higher rent abatements ($0.5 million). These were partially offset by lower credit losses ($0.4 million), lower waived fees ($0.2 million), higher recoveries ($0.2 million) and higher termination fees ($0.1 million).

Real estate rental revenue from development properties increased due to continued lease-up of Trove ($1.1 million). We placed the remainder of the Trove development costs into service during the first quarter of 2021.

Real estate rental revenue from held for sale and sold properties classified as continuing operations decreased due to sales of Monument II ($1.7 million) and 1227 25th Street ($1.3 million) during the fourth quarter of 2020 and the sale of John Marshall II ($0.4 million) during the second quarter of 2020.

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Average occupancy for multifamily properties classified as continuing operations for the 2021 Quarter and 2020 Quarter was as follows:
June 30, 2021 June 30, 2020 Increase
Segment Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total
Multifamily 95.1  % 49.9  % 92.5  % 94.5  % 7.5  % 89.5  % 0.6  % 42.4  % 3.0  %

The increase in same-store average occupancy was primarily due to higher average occupancy at The Paramount, The Maxwell and The Ashby at McLean, partially offset by lower average occupancy at Clayborne Apartments and Park Adams.

Real Estate Expenses

Real estate expenses as a percentage of revenue for the 2021 Quarter and 2020 Quarter were 39.3% and 37.9%, respectively.

Real estate expenses from same-store multifamily properties increased $0.1 million, or 0.9%, to $13.9 million for the 2021 Quarter, compared to $13.8 million for the 2020 Quarter, primarily due to higher contract maintenance ($0.2 million), utilities ($0.1 million) and insurance ($0.1 million) expenses, partially offset by lower real estate taxes ($0.3 million).

Other Income and Expenses

Depreciation and Amortization: Decrease primarily due to the dispositions of Monument II ($1.0 million) and 1227 25th Street ($0.4 million) in the fourth quarter of 2020. These decreases were partially offset by placing into service a portion of the Trove development ($1.1 million) and higher depreciation and amortization at same-store properties ($0.2 million).
General and administrative expenses: Increase primarily due to a higher estimate of short-term incentive compensation ($0.9 million) during the 2021 Quarter.

Transformation costs: During the 2021 Quarter we incurred $3.8 million of costs related to the strategic transformation, including consulting, advisory and termination benefits.

Interest Expense: Interest expense by debt type for the three months ended June 30, 2021 and 2020 was as follows (in thousands):
Three Months Ended June 30,
Debt Type 2021 2020 $ Change % Change
Notes payable $ 9,475  $ 7,562  $ 1,913  25.3  %
Line of credit 854  1,725  (871) (50.5) %
Capitalized interest (171) (536) 365  (68.1) %
Total $ 10,158  $ 8,751  $ 1,407  16.1  %

Notes payable: Increase primarily due to $350.0 million Green Bonds executed in December 2020, partially offset by prepayment of our $150.0 million 2015 Term Loan in December 2020 and by the new $150.0 million 2020 Term Loan executed in May 2020 and prepaid in November 2020.
Line of credit: Decrease primarily due to lower weighted average interest rate of 1.1% and lower weighted average borrowings of $60.9 million in 2021 Quarter, as compared to 1.5% and $269.1 million during the 2020 Quarter.
Capitalized interest: Decrease primarily due to placing into service assets at Trove.

Loss on extinguishment of debt: We recognized a $0.2 million loss on extinguishment of debt during 2020 Quarter related to the prepayment of the $250 million of 4.95% Senior Notes that were scheduled to mature in October 2020.

Other income: During the 2021 Quarter we recognized $1.5 million in other income related to a tax refund for an office property sold in 2018.

Loss on interest rate derivatives: We currently expect to prepay a $150.0 million portion of the 2018 Term Loan during the third quarter of 2021. We have determined that the hedged transactions for the five interest rate swap arrangements with an 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 of the ineffectiveness, the accumulated fair value of the five interest rate swap
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arrangements of $5.8 million was reclassified from Accumulated other comprehensive loss to Loss on interest rate derivatives on our condensed consolidated financial statements.

Income from discontinued operations: Increase primarily due to lower depreciation and amortization ($2.0 million), higher recoveries ($0.7 million) and lower credit losses ($0.7 million) from retail and office properties classified as discontinued operations. These increases were partially offset by higher utilities ($0.2 million) expenses.

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2021 Period Compared to 2020 Period

The following tables reconcile NOI to net (loss) income and provide the basis for our discussion of our consolidated results of operations and NOI in the 2021 Period compared to the 2020 Period. All amounts are in thousands, except percentage amounts.
Non-Same-Store
  Same-Store
Development/Redevelopment (1)
Held for Sale or Sold (2)
All Properties
  2021 2020
Change

Change
2021 2020 2021 2020 2021 2020
Change

Change
Real estate rental revenue $ 79,598  $ 81,267  $ (1,669) (2.1) % $ 2,306  $ 251  $ —  $ 7,982  $ 81,904  $ 89,500  $ (7,596) (8.5) %
Real estate expenses
31,010  30,205  805  2.7  % 1,674  551  —  3,290  32,684  34,046  (1,362) (4.0) %
NOI $ 48,588  $ 51,062  $ (2,474) (4.8) % $ 632  $ (300) $ —  $ 4,692  $ 49,220  $ 55,454  $ (6,234) (11.2) %
Reconciliation to net loss:
Depreciation and amortization (34,290) (34,619) 329  (1.0) %
General and administrative expenses (11,929) (11,633) (296) 2.5  %
Transformation costs (3,780) —  (3,780) —  %
Loss on sale of real estate —  (7,539) 7,539  (100.0) %
Interest expense (20,281) (19,596) (685) 3.5  %
Other income 2,806  —  2,806  —  %
Loss on interest rate derivatives (5,760) —  (5,760) —  %
Gain on extinguishment of debt —  262  (262) (100.0)