Elme munities(ELME) - 2019 Q1 - Quarterly Report

Item 1. Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed notes Consolidated Balance Sheets Total assets slightly decreased to $2.41 billion, while liabilities increased and equity declined Metric | March 31, 2019 (Unaudited) | December 31, 2018 | Change ($) | Change (%) :-------------------------- | :------------------------- | :---------------- | :--------- | :--------- Total Assets | $2,408,467 | $2,417,104 | $(8,637) | (0.36)% Total Liabilities | $1,370,271 | $1,348,626 | $21,645 | 1.60% Total Equity | $1,038,196 | $1,068,478 | $(30,282) | (2.83)% Cash and cash equivalents | $12,025 | $6,016 | $6,009 | 99.88% Net income producing property | $2,107,775 | $2,116,050 | $(8,275) | (0.39)% Line of credit | $228,000 | $188,000 | $40,000 | 21.28% Condensed Consolidated Statements of Operations Net loss of $4.41 million reported, a significant decline from prior year net income due to higher impairment Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change ($) | Change (%) :------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- Real estate rental revenue | $83,174 | $84,881 | $(1,707) | (2.01)% Real estate expenses | $29,210 | $29,901 | $(691) | (2.31)% Real estate operating income | $8,236 | $17,304 | $(9,068) | (52.41)% Interest expense | $(12,641) | $(12,827) | $186 | (1.45)% Real estate impairment | $8,374 | $1,886 | $6,488 | 344.01% Net (loss) income attributable to the controlling interests | $(4,405) | $3,299 | $(7,704) | (233.53)% Basic net (loss) income attributable to the controlling interests per common share | $(0.06) | $0.04 | $(0.10) | (250.00)% Diluted net (loss) income attributable to the controlling interests per common share | $(0.06) | $0.04 | $(0.10) | (250.00)% Condensed Consolidated Statements of Comprehensive (Loss) Income A comprehensive loss of $8.57 million was reported, a significant decrease from prior year income, driven by net loss and unrealized hedge losses Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change ($) | Change (%) :------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- Net (loss) income | $(4,405) | $3,299 | $(7,704) | (233.53)% Unrealized (loss) gain on interest rate hedges | $(4,169) | $4,065 | $(8,234) | (202.56)% Comprehensive (loss) income attributable to the controlling interests | $(8,574) | $7,364 | $(15,938) | (216.44)% Consolidated Statements of Equity Total equity decreased to $1.04 billion, primarily due to net loss, unrealized hedge losses, and dividends Metric | December 31, 2018 | March 31, 2019 :------------------------------------------------------------------ | :---------------- | :------------- Total Equity | $1,068,478 | $1,038,196 Net loss attributable to the controlling interests | — | $(4,405) Unrealized loss on interest rate hedges | — | $(4,169) Dividends | — | $(24,141) Shares issued under dividend reinvestment program (Additional Paid in Capital) | — | $1,097 Share grants, net of forfeitures and tax withholdings (Additional Paid in Capital) | — | $2,245 Consolidated Statements of Cash Flows Net cash from operating activities decreased by 24.7% to $27.58 million, while investing activities used less cash, and financing activities shifted to a net use Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change ($) | Change (%) :---------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- Net cash provided by operating activities | $27,578 | $36,646 | $(9,068) | (24.75)% Net cash used in investing activities | $(13,439) | $(40,688) | $27,249 | 67.00% Net cash (used in) provided by financing activities | $(8,386) | $5,398 | $(13,784) | (255.35)% Net increase in cash, cash equivalents and restricted cash | $5,753 | $1,356 | $4,397 | 324.26% Cash, cash equivalents and restricted cash at end of period | $13,393 | $13,979 | $(586) | (4.19)% Notes to Consolidated Financial Statements Detailed notes cover business, accounting policies, real estate activities, debt, derivatives, fair value, compensation, EPS, segments, equity, and subsequent events NOTE 1: NATURE OF BUSINESS Washington REIT is an equity REIT owning and operating income-producing properties in the greater Washington metro region - Washington Real Estate Investment Trust (Washington REIT) is a self-administered equity REIT, owning and operating income-producing real estate properties (office, multifamily, retail) in the greater Washington metro region[31] - The company believes it qualifies as a REIT under the Internal Revenue Code and intends to maintain this status, which requires distributing 90% of its REIT taxable income annually[32] NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONS The company adopted ASU 2016-02, Leases (Topic 842), with a $0.9 million cumulative effect adjustment to retained earnings - The company adopted ASU 2016-02, Leases (Topic 842), as of January 1, 2019, using the modified retrospective approach, resulting in a cumulative effect adjustment of $0.9 million to retained earnings[36] - The consolidated financial statements include Washington REIT, its majority-owned subsidiaries, and entities with controlling interest, with all intercompany balances and transactions eliminated[38] NOTE 3: REAL ESTATE Future minimum rental income from non-cancelable commercial leases totals $1.13 billion, with an $8.4 million impairment charge recognized Future Minimum Rental Income from Non-Cancelable Commercial Operating Leases (in thousands) | Year | March 31, 2019 | | :--------- | :------------- | | 2019 | $192,841 | | 2020 | $181,544 | | 2021 | $159,607 | | 2022 | $139,518 | | 2023 | $114,521 | | Thereafter | $343,439 | | Total | $1,131,470 | - Upon adoption of ASU 2016-02, the company recognized a right-of-use asset and lease liability of $4.2 million for its operating ground lease at 2000 M Street, and reclassified a $10.0 million below-market ground lease intangible asset[54] - During Q1 2019, the company recognized an $8.4 million impairment charge for Quantico Corporate Center, an office property, to reduce its carrying value to estimated fair value due to ongoing sale negotiations[63] NOTE 4: UNSECURED LINE OF CREDIT PAYABLE The company has a $700.0 million unsecured revolving credit facility and a $250.0 million unsecured term loan - The company has a $700.0 million unsecured revolving credit facility maturing in March 2022, with two six-month extension options, and a $250.0 million unsecured term loan maturing in July 2023[66][69] Revolving Credit Facility Unused and Available (in thousands) | Metric | Amount | | :----------------------- | :----- | | Committed capacity | $700,000 | | Borrowings outstanding | $(228,000) | | Unused and available | $472,000 | NOTE 5: DERIVATIVE INSTRUMENTS Interest rate swaps with a $400.0 million notional amount are used to fix interest rates on term loans, qualifying as cash flow hedges - The company uses interest rate swaps to effectively fix the interest rates on portions of its term loans, with a total notional amount of $400.0 million, qualifying them as cash flow hedges[75][76] Fair Values of Interest Rate Swaps (in thousands) | Derivative Instrument | Aggregate Notional Amount | Fair Value (March 31, 2019) | Fair Value (December 31, 2018) | | :-------------------- | :------------------------ | :-------------------------- | :----------------------------- | | Interest rate swaps | $150,000 | $1,779 | $2,720 | | Interest rate swaps | $150,000 | $5,808 | $7,918 | | Interest rate swaps | $100,000 | $(1,917) | $(799) | | Total | $400,000 | $5,670 | $9,839 | NOTE 6: FAIR VALUE DISCLOSURES Assets and liabilities measured at fair value include SERP investments and interest rate swaps, categorized as Level 2 - Assets and liabilities measured at fair value on a recurring basis include Supplemental Executive Retirement Plan (SERP) investments and interest rate swaps, both categorized as Level 2 in the fair value hierarchy due to significant observable inputs[81][82][83] Fair Values of Assets and Liabilities (in thousands) | Category | March 31, 2019 Fair Value | December 31, 2018 Fair Value | | :---------------------- | :------------------------ | :--------------------------- | | Assets: | | | | SERP | $1,476 | $1,364 | | Interest rate swaps | $7,587 | $10,638 | | Liabilities: | | | | Interest rate swaps | $(1,917) | $(799) | NOTE 7: STOCK BASED COMPENSATION Total stock-based compensation expense was $2.8 million for Q1 2019, with 447,908 unvested restricted shares outstanding - Total compensation expense for stock-based awards was $2.8 million for Q1 2019, up from $1.5 million in Q1 2018[90] - The total unvested restricted share awards at March 31, 2019, amounted to 447,908 shares with a weighted average grant date fair value of $28.00 per share, representing $10.3 million in compensation cost to be recognized over 28 months[91] NOTE 8: EARNINGS PER COMMON SHARE Basic and diluted net loss per common share was $(0.06) for Q1 2019, with dividends declared at $0.30 per share Basic and Diluted Earnings Per Share (in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Adjusted net (loss) income attributable to the controlling interests | $(4,539) | $3,155 | | Weighted average shares outstanding – basic | 79,881 | 78,483 | | Weighted average shares outstanding – diluted | 79,881 | 78,547 | | Basic net (loss) income attributable to the controlling interests per common share | $(0.06) | $0.04 | | Diluted net (loss) income attributable to the controlling interests per common share | $(0.06) | $0.04 | | Dividends declared per common share | $0.30 | $0.30 | NOTE 9: SEGMENT INFORMATION Washington REIT operates in office, multifamily, and retail segments, evaluating performance based on Net Operating Income (NOI) - Washington REIT operates in three reportable segments: office, multifamily, and retail, evaluating performance based on Net Operating Income (NOI)[96][97] Segment Performance (Three Months Ended March 31, 2019, in thousands) | Metric | Office | Retail | Multifamily | Corporate and Other | Consolidated | | :------------------------- | :---------- | :---------- | :---------- | :------------------ | :----------- | | Real estate rental revenue | $42,293 | $16,546 | $24,335 | $— | $83,174 | | Real estate expenses | $15,224 | $4,516 | $9,470 | $— | $29,210 | | Net operating income | $27,069 | $12,030 | $14,865 | $— | $53,964 | | Capital expenditures | $4,923 | $555 | $1,803 | $67 | $7,348 | | Total assets | $1,238,795 | $336,229 | $796,525 | $36,918 | $2,408,467 | Segment Performance (Three Months Ended March 31, 2018, in thousands) | Metric | Office | Retail | Multifamily | Corporate and Other | Consolidated | | :------------------------- | :---------- | :---------- | :---------- | :------------------ | :----------- | | Real estate rental revenue | $45,547 | $15,671 | $23,663 | $— | $84,881 | | Real estate expenses | $16,302 | $4,160 | $9,439 | $— | $29,901 | | Net operating income | $29,245 | $11,511 | $14,224 | $— | $54,980 | | Capital expenditures | $4,945 | $475 | $2,425 | $172 | $8,017 | | Total assets | $1,361,880 | $344,904 | $769,643 | $41,868 | $2,518,295 | NOTE 10: SHAREHOLDERS' EQUITY The company has equity distribution agreements for up to $250.0 million of common shares, with 42,842 shares issued under the dividend reinvestment program - The company has equity distribution agreements to issue up to $250.0 million of common shares, but no shares were issued under this program during Q1 2019[102] Common Shares Issued Under Dividend Reinvestment Program (Q1 2019) | Metric | Three Months Ended March 31, 2019 | | :----------------------------- | :-------------------------------- | | Issuance of common shares | 42,842 | | Weighted average price per share | $25.84 | | Net proceeds | $1,097 | NOTE 11: SUBSEQUENT EVENT The company agreed to acquire a $461.0 million multifamily portfolio, funded by dispositions and a $450.0 million bridge loan - On April 2, 2019, the company entered an agreement to acquire a portfolio of seven multifamily properties (2,113 units) for approximately $461.0 million, with settlement expected in Q2 2019[104] - To fund the potential acquisitions, the company secured a financing commitment for a $450.0 million unsecured bridge loan facility, intended as interim funding prior to completing expected asset sales[105] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of the company's financial condition, operating results, liquidity, capital resources, and critical accounting policies Forward-Looking Statements This section contains forward-looking statements subject to risks and uncertainties, which the company does not undertake to update - Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially, including risks associated with real estate ownership, failure to complete acquisitions/dispositions, economic health of the Washington Metro region, and fluctuations in interest rates[109] General The MD&A covers business outlook, operating results, investment/financing, capital, liquidity, FFO, and critical accounting policies, using NOI and FFO as key indicators - The MD&A is organized into sections covering business outlook, operating results, investment/financing activity, capital requirements, liquidity, NAREIT FFO, and critical accounting policies[110] - Key financial and non-financial indicators for evaluating performance include Net Operating Income (NOI), Funds From Operations (NAREIT FFO), ending occupancy, leased percentage, and leasing activity[111][113] Overview Q1 2019 saw a net loss of $4.4 million and a 1.8% NOI decrease, with plans to acquire a $461.0 million multifamily portfolio Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change ($) | Change (%) :------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- Net (loss) income attributable to the controlling interests | $(4,405) | $3,299 | $(7,704) | (233.5)% Net Operating Income (NOI) | $53,964 | $54,980 | $(1,016) | (1.8)% NAREIT FFO | $33,516 | $35,154 | $(1,638) | (4.7)% - Subsequent to Q1 2019, the company entered an agreement to acquire a portfolio of seven multifamily properties for approximately $461.0 million, expected to be funded by dispositions of office/retail properties and a $450.0 million unsecured bridge loan facility[123][124] Results of Operations Q1 2019 results show a decline in net income and NOI due to property sales, increased impairment, and higher G&A, partially offset by improved same-store performance Net Operating Income (NOI) Reconciliation NOI, a non-GAAP measure, is defined as real estate rental revenue less real estate expenses, reflecting unleveraged operating performance - NOI, a non-GAAP measure, is defined as real estate rental revenue less real estate expenses and is used to reflect the impact of occupancy rates, rental rates, and operating costs on an unleveraged basis[128] NOI Reconciliation to Net Income Attributable to Controlling Interests (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change ($) | Change (%) | | :------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Real estate rental revenue | $83,174 | $84,881 | $(1,707) | (2.0)% | | Real estate expenses | $29,210 | $29,901 | $(691) | (2.3)% | | Net Operating Income (NOI) | $53,964 | $54,980 | $(1,016) | (1.8)% | | Depreciation and amortization | $(29,547) | $(29,969) | $422 | (1.4)% | | General and administrative expenses | $(7,429) | $(5,821) | $(1,608) | 27.6% | | Real estate impairment | $(8,374) | $(1,886) | $(6,488) | 344.0% | | Net (loss) income attributable to the controlling interests | $(4,405) | $3,299 | $(7,704) | (233.5)% | Real Estate Rental Revenue Same-store real estate rental revenue increased by 3.0% to $77.69 million, with total occupancy at 92.3% and a 15.8% average rental rate increase on new leases Same-Store Real Estate Rental Revenue by Segment (in thousands) | Segment | 2019 Same-Store Revenue | 2018 Same-Store Revenue | Change ($) | Change (%) | | :---------- | :---------------------- | :---------------------- | :--------- | :--------- | | Office | $36,810 | $36,074 | $736 | 2.0% | | Multifamily | $24,335 | $23,663 | $672 | 2.8% | | Retail | $16,546 | $15,671 | $875 | 5.6% | | Total | $77,691 | $75,408 | $2,283 | 3.0% | Ending Occupancy by Segment | Segment | March 31, 2019 Total Occupancy | March 31, 2018 Total Occupancy | Change (%) | | :---------- | :----------------------------- | :----------------------------- | :--------- | | Office | 89.6% | 92.8% | (3.2)% | | Multifamily | 95.6% | 95.4% | 0.2% | | Retail | 91.9% | 91.1% | 0.8% | | Total | 92.3% | 93.3% | (1.0)% | New and Renewal Leases Executed (Q1 2019) | Segment | Square Feet Leased (thousands) | Average Rental Rate (per sq ft) | % Rental Rate Increase (Decrease) | Leasing Costs (per sq ft) | Free Rent (weighted average months) | Retention Rate | | :------ | :----------------------------- | :------------------------------ | :-------------------------------- | :------------------------ | :---------------------------------- | :------------- | | Office | 176 | $54.66 | 17.2% | $124.98 | 5.7 | 35.7% | | Retail | 88 | $19.92 | 9.1% | $13.98 | 0.6 | 56.9% | | Total | 264 | $42.68 | 15.8% | $87.72 | 4.9 | 40.6% | Real Estate Expenses Real estate expenses as a percentage of revenue remained stable at 35.1%, with same-store expenses increasing by 3.2% to $27.86 million - Real estate expenses as a percentage of revenue remained stable at 35.1% in Q1 2019, compared to 35.2% in Q1 2018[137] Same-Store Real Estate Expenses by Segment (in thousands) | Segment | 2019 Same-Store Expenses | 2018 Same-Store Expenses | Change ($) | Change (%) | | :---------- | :----------------------- | :----------------------- | :--------- | :--------- | | Office | $13,872 | $13,422 | $450 | 3.4% | | Multifamily | $9,470 | $9,418 | $52 | 0.6% | | Retail | $4,516 | $4,160 | $356 | 8.6% | | Total | $27,858 | $27,000 | $858 | 3.2% | Other Income and Expenses General and administrative expenses increased by 27.6% to $7.43 million, and an $8.37 million real estate impairment charge was recognized - General and administrative expenses increased by $1.6 million (27.6%) to $7,429 thousand, primarily due to higher share-based compensation ($1.3 million) and severance expenses ($0.6 million) related to a corporate restructuring[139] - A real estate impairment charge of $8,374 thousand was recognized in Q1 2019 for Quantico Corporate Center to reduce its carrying value to estimated fair value, compared to a $1,886 thousand charge in Q1 2018 for 2445 M Street[142] Interest Expense by Debt Type (in thousands) | Debt Type | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change ($) | Change (%) | | :------------------ | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Notes payable | $10,132 | $9,438 | $694 | 7.4% | | Mortgage notes payable | $666 | $1,135 | $(469) | (41.3)% | | Line of credit | $2,556 | $2,626 | $(70) | (2.7)% | | Capitalized interest | $(713) | $(372) | $(341) | 91.7% | | Total Interest Expense | $12,641 | $12,827 | $(186) | (1.5)% | Liquidity and Capital Resources The company outlines 2019 capital requirements for dividends, investments, and development, planning to fund a multifamily acquisition through dispositions and a bridge loan Capital Requirements Full-year 2019 capital requirements include funding dividends, $80-85 million for operating assets, $62.5-67.5 million for development, and potential acquisitions - Full-year 2019 capital requirements include: funding dividends and distributions to shareholders; approximately $80 - $85 million for existing operating assets; approximately $62.5 - $67.5 million for development and redevelopment projects; and funding for potential property acquisitions, offset by proceeds from potential dispositions[147] - Subsequent to Q1 2019, the company agreed to acquire a portfolio of seven multifamily properties for approximately $461.0 million, with funding planned through dispositions of select office or retail properties and a $450.0 million unsecured bridge loan facility[148][149] Debt Financing The company primarily uses corporate-level debt, with a long-term preference for fixed-rate debt and laddered maturities to mitigate interest rate risk - The company generally uses secured or unsecured, corporate-level debt (unsecured notes, $700.0 million unsecured revolving credit facility, bank term loans, and mortgages) to meet borrowing needs, with a long-term preference for fixed-rate debt and laddered maturities to mitigate interest rate risk[150] Future Maturities of Debt (in thousands) | Year | Secured Debt | Unsecured Debt | Credit Facility | Total Debt | Average Interest Rate | | :--------- | :----------- | :------------- | :-------------- | :--------- | :-------------------- | | 2019 | $— | $— | $— | $— | —% | | 2020 | $— | $250,000 | $— | $250,000 | 5.1% | | 2021 | $— | $150,000 | $— | $150,000 | 2.7% | | 2022 | $44,517 | $300,000 | $— | $344,517 | 4.0% | | 2023 | $— | $250,000 | $228,000 | $478,000 | 3.2% | | Thereafter | $— | $50,000 | $— | $50,000 | 7.4% | | Total Maturities | $58,805 | $995,750 | $228,000 | $1,282,555 | 3.9% | Debt Covenants The company was in compliance with all debt covenants as of March 31, 2019, including ratios for total debt to assets and adjusted EBITDA to fixed charges - Key covenants for unsecured notes include: a maximum ratio of total debt to total asset value of 0.60 to 1.00; a minimum ratio of adjusted EBITDA to fixed charges of 1.50 to 1.00; and a minimum ratio of adjusted net operating income from unencumbered properties to interest expense on unsecured indebtedness of 1.75 to 1.00[157] - Key covenants for the Revolving Credit Facility include: a maximum ratio of 65.0% of total indebtedness to total assets; a maximum ratio of 40.0% of secured indebtedness to total assets; and a minimum ratio of 1.50 of total unencumbered assets to total unsecured indebtedness[158] - As of March 31, 2019, the company was in compliance with all covenants related to its mortgage notes, Revolving Credit Facility, and unsecured notes[160] Common Equity As of March 31, 2019, the company had 80.0 million common shares outstanding and equity distribution agreements for up to $250.0 million of common shares - As of March 31, 2019, the company had 80.0 million common shares outstanding out of 100.0 million authorized[161] - The company has equity distribution agreements for up to $250.0 million of common shares, but no shares were issued under this program during Q1 2019[162] Common Shares Issued Under Dividend Reinvestment Program (Q1 2019) | Metric | Three Months Ended March 31, 2019 | | :----------------------------- | :-------------------------------- | | Issuance of common shares | 43 | | Weighted average price per share | $25.84 | | Net proceeds | $1,097 | Preferred Equity The board can authorize up to 10.0 million preferred shares as a financing tool, though none were issued or outstanding as of March 31, 2019 - Washington REIT's board of trustees can authorize the issuance of up to 10.0 million preferred shares as an additional financing tool, though no preferred shares were issued or outstanding as of March 31, 2019[165] Historical Cash Flows Net cash from operating activities decreased by 24.7% to $27.58 million, while investing activities used less cash due to the absence of large acquisitions Consolidated Cash Flow Information (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change ($) | Change (%) | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $27,578 | $36,646 | $(9,068) | (24.7)% | | Net cash used in investing activities | $(13,439) | $(40,688) | $27,249 | 67.0% | | Net cash (used in) provided by financing activities | $(8,386) | $5,398 | $(13,784) | (255.4)% | - Net cash provided by operating activities decreased primarily due to the sale of 2445 M Street in June 2018[166] - Net cash used in investing activities decreased primarily due to the acquisition of Arlington Tower during the 2018 Quarter[167] Off-Balance Sheet Arrangements The company had no off-balance sheet arrangements as of March 31, 2019, likely to materially affect its financial condition or results of operations - The company has no off-balance sheet arrangements as of March 31, 2019, that are reasonably likely to have a current or future material effect on its financial condition or results of operations[170] Funds From Operations NAREIT FFO, a non-GAAP measure, decreased by 4.7% to $33.52 million, providing insight into operating performance without real estate depreciation - NAREIT FFO is a non-GAAP supplemental measure for REITs, defined as net income excluding gains/losses from property sales, impairments of depreciable real estate, and real estate depreciation/amortization, providing insight into operating performance without historical cost accounting distortions[171] NAREIT FFO Reconciliation to Net Income (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net (loss) income | $(4,405) | $3,299 | | Depreciation and amortization | $29,547 | $29,969 | | Real estate impairment | $8,374 | $1,886 | | NAREIT FFO | $33,516 | $35,154 | Critical Accounting Policies and Estimates The only change to critical accounting policies in Q1 2019 was the adoption of ASU 2016-02, Leases (Topic 842), altering the policy for estimating credit losses - The only change to critical accounting policies in Q1 2019 was the adoption of ASU 2016-02, Leases (Topic 842), which changed the policy for estimating credit losses on lease-related receivables[174] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary financial market risk is interest rate risk, managed through fixed-rate debt and interest rate swaps Market Risk Disclosures Interest rate risk is the principal financial market risk, related to refinancing fixed-rate obligations and the variable rate line of credit - The principal material financial market risk is interest rate risk, primarily related to refinancing long-term fixed rate obligations, the opportunity cost of fixed rate obligations in a falling interest rate environment, and the variable rate line of credit[176] Debt Outstanding by Year of Maturity (March 31, 2019, in thousands) | Debt Type / Year | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | Fair Value | | :--------------- | :--- | :-------- | :-------- | :-------- | :-------- | :--------- | :------------ | :------------ | | Unsecured fixed rate principal | $— | $250,000 | $150,000 | $300,000 | $250,000 | $50,000 | $1,000,000 | $1,018,430 | | Unsecured variable rate principal | $— | $— | $— | $— | $228,000 | $— | $228,000 | $228,000 | | Mortgages principal (30-year schedule) | $1,890 | $2,659 | $2,829 | $46,984 | $2,398 | $— | $56,760 | $59,973 | | Total Debt (Principal) | $1,890 | $252,659 | $152,829 | $346,984 | $480,398 | $50,000 | $1,284,760 | $1,306,403 | | Weighted average interest rate on debt maturities | 4.7% | 5.1% | 2.7% | 4.0% | 3.5% | 7.4% | 4.0% | | Interest Rate Swap Contracts and Fair Values (in thousands) | Notional Amount | Fixed Rate | Floating Index Rate | Effective Date | Expiration Date | Fair Value as of March 31, 2019 | Fair Value as of December 31, 2018 | | :-------------- | :--------- | :------------------ | :------------- | :-------------- | :------------------------------ | :--------------------------------- | | $75,000 | 1.619% | One-Month LIBOR | 10/15/2015 | 3/15/2021 | $895 | $1,367 | | $75,000 | 1.626% | One-Month LIBOR | 10/15/2015 | 3/15/2021 | $884 | $1,353 | | $100,000 | 1.205% | One-Month LIBOR | 3/31/2017 | 7/21/2023 | $3,867 | $5,270 | | $50,000 | 1.208% | One-Month LIBOR | 3/31/2017 | 7/21/2023 | $1,941 | $2,648 | | $25,000 | 2.610% | One-Month LIBOR | 6/29/2018 | 7/21/2023 | $(482) | $(202) | | $25,000 | 2.610% | One-Month LIBOR | 6/29/2018 | 7/21/2023 | $(477) | $(200) | | $25,000 | 2.610% | One-Month LIBOR | 6/29/2018 | 7/21/2023 | $(481) | $(199) | | $25,000 | 2.610% | One-Month LIBOR | 6/29/2018 | 7/21/2023 | $(477) | $(198) | | Total | $400,000 | | | | $5,670 | $9,839 | Item 4. Controls and Procedures This section describes the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting Controls and Procedures Effectiveness The company's disclosure controls and procedures were evaluated as effective at a reasonable assurance level as of March 31, 2019 - The company's disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of March 31, 2019[182] - There have been no material changes in Washington REIT's internal control over financial reporting during the period covered by the report[183] Part II: Other Information This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The company reported no legal proceedings as of March 31, 2019 - There are no legal proceedings to report[186] Item 1A. Risk Factors No material changes from previously disclosed risk factors in the 2018 Annual Report on Form 10-K - No material changes from previously disclosed risk factors in the 2018 Annual Report on Form 10-K[187] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During March 2019, the company repurchased 15,176 common shares at an average price of $27.25 per share to satisfy tax withholding obligations Summary of Common Stock Repurchases (Three Months Ended March 31, 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :---------------------- | :------------------------------- | :--------------------------- | | January 1 - January 31, 2019 | — | $— | | February 1 - February 28, 2019 | — | $— | | March 1 - March 31, 2019 | 15,176 | $27.25 | | Total | 15,176 | $27.25 | - The shares purchased represent restricted shares surrendered by employees to satisfy statutory minimum tax withholding obligations in connection with the vesting of restricted shares[188] Item 3. Defaults upon Senior Securities The company reported no defaults upon senior securities as of March 31, 2019 - There are no defaults upon senior securities to report[189] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures as of March 31, 2019 - There are no mine safety disclosures to report[190] Item 5. Other Information The company reported no other information as of March 31, 2019 - There is no other information to report[190] Item 6. Exhibits This section lists key exhibits filed with the Form 10-Q, including incentive plan amendments, separation agreements, and certifications - Key exhibits filed include the Second Amendment to the Short-Term Incentive Plan, Separation Agreement and General Release for Thomas Q. Bakke, certifications of the CEO, CFO, and CAO, and XBRL formatted financial statements[192][193][194][195][196] Signatures The report was duly signed by the President and CEO, EVP and CFO, and VP, Chief Accounting Officer and Treasurer on April 29, 2019 Report Signatures The report was signed by Paul T. McDermott, Stephen E. Riffee, and W. Drew Hammond on April 29, 2019 - The report was signed by Paul T. McDermott (President and CEO), Stephen E. Riffee (EVP and CFO), and W. Drew Hammond (VP, Chief Accounting Officer and Treasurer) on April 29, 2019[199]