Washington Real Estate Investment Trust
Annual Report 2011

Plain-text annual report

Repositioning for the future. annual RE poRt 2011 6110 Executive Boulevard, Suite 800, Rockville, Maryland 20852-3927 301.984.9400 800.565.9748 Fax 301.984.9610 www.writ.com C D , n o t g n h S a W i , t E E R t S M 5 4 4 2 a V , i a R D n a x E l a , S t n E M t R a p a E n R o B y a l C a V , i a R D n a x E l a , E S a h C x o F F o S E p p o h S a V , i a R D n a x E l a , R E t n E C l a n o i S S E F o R p a R D n a x E l a i We did what we set out to do. Sell our industrial portfolio. Invest in strategic assets in Washington, D.C. and close-in suburbs. Focus exclusively on four proven sectors. Significantly strengthen our portfolio for the future. Washington Real Estate Investment Trust is a self-administered, self-managed equity real estate investment trust (REIT). Our business consists of the ownership and operation of income-producing real estate properties. We have a strategy of focusing regionally on a prime market around the nation’s capital and investing in diversified property types. This strategy has been proven through our established performance during our more than 50 years of operations in Washington, D.C. (COvER phOTO) Bennett Park Apartments and 1600 Wilson Boulevard encompass 224 residential units, 160,000 square feet of office space, and 15,000 square feet of ground level retail. The properties are located in the vibrant, urban infill, Rosslyn neighborhood of Arlington, Virginia and are served by the Blue and Orange Metro lines. DeAr ShArehOLDerS This has been a transformational year for our company. Last year in this letter, we announced our plans to continue repositioning our portfolio and to focus exclusively on properties with strong growth potential in four proven sectors—office, retail, multifamily and medical office. Our strategy called for increasing our investments through the acquisition and development of high quality properties in these four segments, maintaining our focus on city-center or inside-the-Beltway locations with superior growth demographics and proximity to major transportation nodes. As part of this process, we committed to accelerating our asset recycling program to help fund acquisitions and to the sale of our entire industrial portfolio. e i z n e K c M F. e G r o e G l e i n a D c M P. n h o J We are pleased to report that we met all our strategic objectives in 2011, significantly strengthening our portfolio and positioning the company for future growth. Over the course of the year, we acquired five income- producing properties that reflect our long-term strategic vision. These include two exceptional office properties in prime downtown Washington, D.C. locations; two office properties in high-growth, close-in metro- centered locations in Virginia; and a grocery-anchored shopping center in the affluent suburb of Olney, Maryland. We also embarked on two joint ventures to develop two apartment projects totaling 433 multifamily units in prime locations in Old Town Alexandria and Arlington, Virginia, two of the region’s best submarkets. As these projects come on-line in the years ahead, they will increase our total multifamily unit count by 17%. Finally, we successfully completed the sale of our industrial portfolio. The proceeds from that disposition combined with the proceeds from the sale of other non-strategic assets totaled $410 million, generating a $97 million gain. Overall, we invested $360 million in acquisitions in 2011. Over the next three years we will continue to prune the portfolio and identify acquisitions in the office, multifamily, medical office and retail sectors that meet our strategic criteria. We anticipate funding approximately one-quarter to one-third of our investment activity through asset sales. We begin 2012 with a strong balance sheet and are in excellent financial position to pursue investment opportunities as they arise, to undertake planned capital improvements in our office and residential portfolios, and to capitalize on what we believe is an improving economic environment. We are committed to maintaining this strong balance sheet and are proud of our Baa1 and BBB+ ratings from Moody’s and Standard & Poor’s, which are among the highest in the reIT industry. SeLeCTeD FInAnCIAL AnD OPerATIng DATA (in millions, except fully diluted per share amounts) real estate rental revenue net Income attributable to the controlling interests Funds from Operations Cash Dividends Paid Average Shares Outstanding (Diluted) Per Fully DiluteD Common Share net Income attributable to the controlling interests Core Funds from Operations1 Cash Dividends Paid at year-enD Total Assets Total Debt Shareholders’ equity 1. See reconciliation to Funds from Operations on page 116. 2007 2008 2009 2010 2011 $ 203 $ 229 $ 257 $ 258 $ 290 57 102 78 46 27 99 86 49 41 122 100 57 37 112 109 62 105 110 115 66 $ 1.24 $ 0.55 $ 0.71 $ 0.60 $ 1.58 2.21 1.68 2.12 1.72 2.06 1.73 1.96 1.73 1.95 1.735 $1,897 $2,109 $2,045 $2,168 $2,121 1,264 1,337 1,182 1,216 503 637 745 857 1,184 859 SAMe-STOre POrTFOLIO OCCUPAnCy LeVeLS (as of 12/31/11) MultifaMily Office Medical retail Overall POrtfOliO CASh DIVIDenDS PAID (dollars per share) COre FUnDS FrOM OPerATIOnS (dollars per share) 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 95% 89% 91% 93% 91% $1.68 $1.72 $1.73 $1.73 $1.735 $2.21 $2.12 $2.06 $1.96 $1.95 While the quality of our portfolio continues to improve significantly, In closing, 2011 was a year of great accomplishment for our company. we have been operating in an economic environment characterized by We completed a record $770 million in transactions. Our team did an uncertainty. Over the past year, political gridlock at the federal level, extraordinary job managing this high volume of transactions involving state and local government budget problems, intense campaign rhetoric a complex array of financial, technical, legal and tax issues. We want to and crises in the international financial markets have negatively affected commend them for their professionalism and hard work. We would also our markets, and our results. For 2011, net Operating Income (“nOI”) like to recognize the contribution of our long-term and valued board was $192.3 million compared to $171.8 million in the prior year. Core Funds from Operations (“FFO”) for 2011 was $129.2 million, or $1.95 per diluted share, compared to $121.9 million, or $1.96 per share, in 2010. WrIT has been in the Washington metro region for more than 50 years. We believe this experience and our hands-on local presence gives us a competitive advantage over other investors. All but one of our properties are located within a one hour drive of our corporate headquarters. We have a long-term track record of successfully managing through all kinds member John M. Derrick, Jr., who retired in 2011 after 14 years of service. It has been a pleasure working with him, and his wisdom and good counsel will be greatly missed. We also welcomed new trustee Vice Adm. Anthony L. Winns (reT.), a Vice President at Lockheed Martin Corporation and former naval Inspector general. Andy brings a wealth of experience and knowledge related to the military and governmental complex in Washington from which we will benefit greatly. And, finally, we want to thank all our trustees and shareholders for your trust and support. We look forward to keeping you up to date of economic and political periods and have demonstrated our resilience on our progress in the year ahead. time and time again. We believe market activity will remain slow leading up to the election later this year, but we hope to see accelerated growth as we enter 2013. We believe in the wisdom of our diversified, focused investment strategy. In 2011, at 90% overall occupancy, the WrIT portfolio continued to outperform the national market and the Washington metro market averages. We also believe in the fundamental, long-term strength of our market. In 2012, Washington, D.C. is ranked one of the best commercial real estate markets in the United States, a position to which we have grown accustomed. It is the capital of the free world, one of the world’s great cities, the headquarters of the world’s strongest military and intelligence services, and home to countless embassies. We are exceedingly optimistic about the future of our market and our company. GeorGe F. mcKenzie PreSIDenT AnD ChIeF exeCUTIVe OFFICer John P. mcDaniel ChAIrMAn OF The BOArD Acquisitions In 2011, we took steps to significantly strengthen our portfolio through the acquisition of five income-producing assets in the office and retail sectors—all strategically located inside the Capital Beltway or in submarkets with strong demographics, employment drivers or proximity to transit. , D M y, e n l o r e t n e c e G a l l i V y e n l o , i a V a r D n a x e l a , r e t n e c o r t e M K c o D D a r B Olney village is a well-established, 198,000-square-foot, grocery- anchored shopping center in the affluent suburb of Olney, Maryland. Braddock Metro Center, a 345,000-square-foot office campus, is situated adjacent to the Braddock Road Metro Station, in Alexandria, Virginia. The surrounding neighborhood is undergoing substantial redevelopment as part of a city-led master plan. WrIT ended 2011 focused on four core sectors—office, multifamily, retail and medical office. As part of our repositioning strategy, we accelerated our asset recycling program in 2011 and successfully completed five strategic acquisitions. These include four quality office properties— two in downtown Washington, D.C. and two in close-in Virginia markets—and an established, grocery-anchored retail center in the affluent suburb of Olney, Maryland. As a result of this process, we’ve strengthened our portfolio, enhancing its overall value and positioning our company for future growth. We completed the acquisition of 1140 Connecticut Avenue for $80.3 mil- lion in January 2011, for a first year projected cap rate of 6.0% on a cash basis. The 12-story, 185,000-square-foot office building with a three- level parking garage is situated in the heart of the city’s “golden Triangle” central business district near the intersection of Connecticut Avenue and M Street, one block from the Farragut north Metro Station (red Line) and two blocks from the Farragut West Metro Station (Blue and Orange Lines). 1227 25th Street is an eight-story office building near the corner of 25th and M Streets in the city’s West end submarket. Acquired for $47.0 million in March 2011, the property is immediately adjacent to 2445 M Street, which WrIT acquired in 2008, providing operating synergies and valuable expansion space for our existing tenants. With 132,000 square feet of space and a two-level parking garage, the stabilized cap rate is projected to be 8.7% on a cash basis. WrIT acquired Braddock Metro Center, a 345,000-square-foot office campus in Old Town Alexandria, Virginia for $101.0 million in September 2011. Located immediately adjacent to the Braddock road Metro Station, one stop from reagan national Airport, the property encompasses four office buildings and a two-level underground parking garage. The projected first year cap rate is 6.9% on a cash basis. The surrounding neighborhood is undergoing a renewal as part of the Braddock Metro neighborhood Plan, a city-led master planning effort. Five city blocks of new townhouse, condominium, office and retail developments are planned or underway in the area. WrIT purchased John Marshall II in Tysons Corner, Virginia, in September 2011 for $73.5 million. The nine-story, Class A office property with 223,000 square feet of space is located at the Tysons Central 7 Metro Station—one of four metro stations under construction that will serve Tysons Corner when the first phase of the Dulles Corridor Metrorail is completed in 2013. Built in 1996 and renovated in 2010, John Marshall II is 100% leased to Booz Allen hamilton Inc. through January 2016 and serves as its worldwide headquarters. The projected first year cash cap rate is 6.7%. In August 2011, WrIT acquired Olney Village, a well established, 198,000-square-foot shopping center in Olney, Maryland, for $58.0 million. The projected first year cash cap rate is 6.7%. Located in the heart of Olney near the main intersection of georgia Avenue and route 108, the center is anchored by a Shoppers Food Warehouse and also includes national retailers T.J. Maxx, homegoods, and SunTrust Bank. Built in 1979, the center underwent a major renovation in 2003. The surrounding area has a stable, affluent consumer base with significant barriers to additional development. WrIT exited 2011 with an exceptional portfolio of 71 income-producing assets and the financial strength to pursue additional acquisitions that meet with our strategic objectives. Over the next three years, we will continue to recycle assets to help fund these acquisitions—and reposition the company for the future. , a V r e n r o c s n o s y t , i i l l a h s r a M n h o J Each of our five 2011 acquisitions exemplifies our strategic focus on center-city and close-in properties in strategic locations near major transportation nodes or in areas with superior demographics and strong employment drivers. c D , i n o t G n h s a W t, e e r t s h t 5 2 7 2 2 1 c D , n o t G n h s a W i , i e u n e V a t u c t c e n n o c 0 4 1 1 Strategy WrIT operates in one of the nation’s most resilient real estate markets. Our repositioning strategy enables us to capitalize on the region’s greatest strengths and focus on its growth centers. ranked the third largest office market in the country, the Washington, D.C. metro region has a stable, office-centered economy that supports a highly educated, affluent work force. It is home to law and accounting firms, government consultants and contractors, and the nation’s military and intelligence communities. In recent years, companies such as Volkswagen, hilton, northrop grumman, Computer Science Corporation, and SAIC have the joined long list of major corporations headquartered in the D.C. metro region. And, over the past decade, major regional transportation initiatives—including the new Wilson Bridge across the Potomac river, a massive highway interchange at the Beltway and I-95 in Virginia, a new Silver Metro line, new high occupancy transit lanes on the Beltway in Virginia and an inter-county connector highway in Maryland—represent a $10 billion investment in infrastructure improvements and in the region’s future. In recent years, WrIT has shifted its strategic focus to assets in the city’s center and inside the Capital Beltway—quality properties in locations with superior demographics and strong employment drivers near major transportation nodes. In 2011, we accelerated our asset recycling program to fund acquisitions that meet these strategic objectives. As part of this process, WrIT sold its entire industrial portfolio in 2011. We executed the sale of our 16 industrial assets in five phases. The last of these transactions was completed in november 2011, marking a major milestone for our company. Over the course of the year, we redeployed the funds from these and other strategic dispositions to help fund the acquisition of four office properties and a retail center; and we embarked on two joint ventures to develop apartment projects in close-in markets with strong growth potential. , a V n o t G n i l r a , D a o r e B e l G n 0 5 6 , i a V a r D n a x e l a t, e e r t s t s r i F 9 1 2 1 Construction of planned apartment development projects in the Ballston submarket at 650 N. Glebe Road and the Old Town Alexandria submarket at 1219 First Street is expected to commence by the beginning of 2013, with delivery of approximately 433 total new units anticipated by 2015. These two projects will increase the number of units in our residential portfolio by 17%. These two submarkets attract a young, urban demographic with convenient access to amenities such as dining, entertainment and mass transit. 1776 G Street, located in the heart of downtown Washington, D.C. just steps from the White House, Old Executive Office Building, and World Bank headquarters, is 100% leased to credit tenants including World Bank, George Washington University and the federal government. This office building is one of the marquee properties that define our strategy of owning assets inside the beltway, near Metro transit, in areas with large employment drivers with strong demographics. . c D . , i n o t G n h s a W t, e e r t s G 6 7 7 1 The first of these new developments is a six-story, 163-unit mid-rise apartment community in the Ballston submarket of Arlington, Virginia. A prime location for renters, Ballston is a vibrant, urban neighborhood with a mix of offices, restaurants, entertainment and retailers. The 37,000-square-foot site is within walking distance of the Ballston Metro Station and adjacent to one of the busiest harris Teeter supermarkets in the metropolitan region. WrIT has a 90% ownership position in the development project, which is expected to be completed in 2014. The second joint venture development is a 15-story, 270-unit high-rise apartment community in Old Town, Alexandria, Virginia adjacent to the Braddock Metro Center, the 345,000-square-foot office campus purchased by WrIT in September 2011. The Braddock Metro neighborhood Plan is bringing renewed focus to the area where several blocks of new apartment, townhouse, condominium, office and retail developments are in various stages of development. On completion, these two apartment projects will add 433 Class A units to our portfolio, allowing us to take advantage of projected high demand and low vacancy forecasted over the next several years—and build value in our multifamily portfolio. net Operating Income Contribution by Sector 2006 37% oFFice 19% retail 19% inDustrial 13% MultiFaMily 12% MeDical 2011 49% oFFice 19% retail 16% MultiFaMily 16% MeDical One strong market At year-end 2011, WrIT encompasses 71 properties in the office, multifamily, retail and medical office sectors—a $3 billion portfolio of quality assets, all strategically located in one of the nation’s top real estate markets. MD DC 95 495 270 495 267 va 66 o F F i c e M e D i c a l M u lt i Fa M i ly r e ta i l 2011 Form 10-K Washington Re al e state i nvestment tR ust 10 annual RepoRt 2011 FoRm 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 2011 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 (State of incorporation) 53-0261100 (IRS Employer Identification Number) 6110 EXECUTIVE BOULEVARD, SUITE 800, ROCKVILLE, MARYLAND 20852 (Zip code) (Address of principal executive office) Registrant’s telephone number, including area code: (301) 984-9400 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Shares of Beneficial Interest Name of exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [X] no [ ] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES [ ] no [X] 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 ninety (90) days. YES [X] no [ ] Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES [X] no [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES [ ] no [X] As of June 30, 2011, the aggregate market value of such shares held by non-affiliates of the registrant was approximately $2,133,692,094 (based on the closing price of the stock on June 30, 2011). As of February 21, 2012, 66,271,263 common shares were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of our definitive Proxy Statement relating to the 2012 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein. FoRm 10-K annual RepoRt 2011 11 12 annual RepoRt 2011 FoRm 10-K inDeX PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules Signatures Page 14 18 26 26 28 28 29 30 30 60 61 61 61 61 62 62 62 62 62 63 66 FoRm 10-K annual RepoRt 2011 13 paRt i ITEM 1. BUSINESS WRIT Overview Washington Real Estate Investment Trust (“we” or “WRIT”) is a self-administered, self-managed, equity real estate investment trust (“REIT”) successor to a trust organized in 1960. Our business consists of the ownership and operation of income-producing real property in the greater Washington metro region. We own a diversified portfolio of office buildings, medical office buildings, multi- family buildings and retail centers. Our geographic focus is based on two principles: 1. Real estate is a local business and is more effectively selected and managed by owners located, and with expertise, in the region. 2. Geographic markets deserving of focus must be among the nation’s best markets with a strong primary industry foundation and diversified enough to withstand downturns in their primary industry. We consider markets to be local if they can be reached from Washington within two hours by car. While we have historically focused most of our investments in the greater Washington metro region, in order to maximize acquisition opportunities we will consider invest- ments within the two-hour radius described above. We also may, in the future, consider opportunities to duplicate our Washington- focused approach in other geographic markets which meet the criteria described above. Our current strategy is focused on properties inside the Washington metro region’s Beltway, near major transportation nodes and in areas with strong employment drivers and superior growth demographics. We will seek to continue to upgrade our portfolio as opportunities arise, funding acquisitions with a combination of cash, equity, debt and proceeds from property sales. All of our officers and employees live and work in the greater Washington metro region and all but one of our officers have over 20 years of experience in this region. Over the last five years, dividends paid per share have been $1.735 for 2011, $1.73125 for 2010, $1.73 for 2009, $1.72 for 2008 and $1.68 for 2007. The Greater Washington Metro Area Economy The Washington metro region remained among the top economic centers in the nation in 2011, but uncertainty about the impact of proposed cuts to the federal budget slowed the pace of the region’s economic growth. Current estimates by Delta Associates / Transwestern Commercial Services (“Delta”), a national full service real estate firm that provides market research and evaluation services for commercial property, indicate that the Washington metro region gained only 5,900 jobs during the 12 month period ending October 2011. The region’s unemployment rate was 5.7% at October 2011, down from 5.9% in the prior year. The region’s unemployment rate remains the lowest rate among all of the nation’s largest metro areas. Projected 2011 GRP growth is expected to be 2.5% as compared to the national increase of 1.6%. The federal government remains the region’s most important industry, providing approximately one third of the region’s GRP. Delta expects the Washington metro region’s economy to grow in 2012 at a similar pace to 2011. Delta forecasts GRP growth for the Washington metro region to continue to exceed the national average in 2012. Greater Washington Metro Region Real Estate Markets The Washington metro region’s economy has translated into improving relative real estate market performance in each of our seg- ments, compared to other national metropolitan regions, as reported by Delta. Market statistics and information from Delta are set forth below: Office and Medical Office Sectors • Average effective rents decreased 0.9% in 2011 in the region compared to a decrease of 6.5% in 2010. • Overall vacancy was 12.1% at year-end 2011, up from 11.9 % at year-end 2010 but down from 13.0% at year-end 2009. The region has the fourth lowest vacancy rate of large metro areas in the United States. • Net absorption (defined as the change in occupied, standing inventory from one period to the next) totaled 1.1 million square feet in 2011, down from 6.4 million square feet in 2010 and below the 6.2 million square foot long-term average. 14 annual RepoRt 2011 FoRm 10-K • Of the 7.0 million square feet of office space under construction at year-end 2011 (up from 5.0 million square feet at year- end 2010), 52% is pre-leased compared to 61% one year ago. Retail Sector • • Rental rates at grocery-anchored centers were up 2.1% in the region in 2011, compared to the 2.4% decrease in 2010. Vacancy for grocery-anchored centers was 5.5% at year-end 2011, down from 5.6% at year-end 2010. • Average Household Income for the Washington metro region in 2011 was $102,600, 46% higher than the national average. Multifamily Sector • Net effective rents for all investment grade apartments increased 2.1% in the greater Washington metro region during 2011. Class A rents increased by 2.4% in 2011, compared to an increase of 7.8% in 2010. • The vacancy rate for all apartments was 3.8% at year-end 2011, compared to 3.4% at year-end 2010. The national rate was 5.8% at year-end 2011, which places the Washington metro region as one of the lowest vacancy rates of any metro area in the nation. Class A vacancy increased to 5.0% at year-end 2011 from 4.6% at year-end 2010. Our Portfolio As of December 31, 2011, we owned a diversified portfolio of 71 properties, totaling approximately 8.6 million square feet of com- mercial space and 2,540 residential units, and land held for development. These 71 properties consist of 26 office properties, 18 medical office properties, 16 retail centers and 11 multifamily properties. Our principal objective is to invest in high quality proper- ties in prime locations, then proactively manage, lease and direct ongoing capital improvement programs to improve their economic performance. The percentage of total real estate rental revenue by property group for 2011, 2010 and 2009, and the percent leased, calculated as the percentage of physical net rentable area leased, as of December 31, 2011, were as follows: PERCENT LEASED DECEMBER 31, 2011 90% 89% 94% 96% Office Medical office Retail Multifamily (1) Data excludes discontinued operations. 2011 49% 16% 17% 18% 100% REAL ESTATE RENTAL REVENUE(1) 2010 48% 17% 16% 19% 100% 2009 48% 18% 16% 18% 100% On a combined basis, our commercial portfolio (i.e., our office, medical office and retail properties, but not our multifamily proper- ties) was 91% leased at December 31, 2011 and 2010, and 93% leased at December 31, 2009. The commercial lease expirations for the next five years are as follows: # OF LEASES SqUARE FEET GROSS ANNUAL RENT (IN THOUSANDS) PERCENTAGE OF TOTAL GROSS ANNUAL RENT 2012 2013 2014 2015 2016 2017 and thereafter Total 216 196 171 143 139 316 1,181 734,304 1,055,537 1,036,983 949,144 899,910 2,544,027 7,219,905 $ 23,340 27,283 34,600 32,186 27,020 89,499 $233,928 10% 12% 15% 14% 12% 37% 100% Total real estate rental revenue from continuing operations was $289.5 million for 2011, $258.5 million for 2010 and $256.5 million for 2009. During the three year period ended December 31, 2011, we acquired six office buildings, one medical office building and two retail centers. During that same time frame, we sold eight office buildings, one multifamily building and our entire industrial segment. FoRm 10-K annual RepoRt 2011 15 No single tenant accounted for more than 3.7% of real estate rental revenue in 2011, 3.8% of real estate rental revenue in 2010 and 3.8% of real estate rental revenue in 2009. All federal government tenants in the aggregate accounted for approximately 1.7% of our 2011 real estate rental revenue. Federal government tenants include the Department of Defense, Social Security Administration, Federal Bureau of Investigation, Office of Personnel Management and the National Institutes of Health. Our ten largest tenants, in terms of aggregate occupied square feet, are as follows: 1. World Bank 2. General Services Administration 3. Advisory Board Company 4. L-3 Services, Inc. 5. Booz Allen Hamilton, Inc. 6. Patton Boggs LLP 7. INOVA Health System 8. Sunrise Assisted Living, Inc. 9. Children’s Hospital 10. General Dynamics We expect to continue investing in additional income-producing properties. We invest in properties which we believe will increase in income and value. Our properties typically compete for tenants with other properties throughout the respective areas in which they are located on the basis of location, quality and rental rates. We make capital improvements on an ongoing basis to our properties for the purpose of maintaining and increasing their value and income. Major improvements and/or renovations to the properties in 2011, 2010, and 2009 are discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Capital Improvements and Development Costs.” Further description of the property groups is contained in Item 2, Properties and in Schedule III. Reference is also made to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. On February 21, 2012, we had 303 employees including 216 persons engaged in property management functions and 87 persons engaged in corporate, financial, leasing, asset management and other functions. REIT Tax Status We believe that we qualify as a REIT under Sections 856-860 of the Internal Revenue Code and intend to continue to qualify as such. To maintain our status as a REIT, we are required to distribute 90% of our ordinary taxable income to our shareholders. When sell- ing properties, we have the option of (a) reinvesting the sales proceeds of properties sold, allowing for a deferral of income taxes on the sale, (b) paying out capital gains to the shareholders with no tax to us or (c) treating the 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. 16 annual RepoRt 2011 FoRm 10-K Tax Treatment of Recent Disposition Activity We sold several properties during the three year period ended December 31, 2011: DISPOSITION DATE PROPERTY TYPE Various(1) April 5, 2011 Total 2011 June 18, 2010 Industrial Portfolio(1) Industrial/Office Dulles Station, Phase I Office Parklawn Portfolio(2) Office/Industrial December 21, 2010 The Ridges December 22, 2010 Ammendale I&II/Amvax Total 2010 May 13, 2009 July 23, 2009 July 31, 2009 Avondale Tech 100 Industrial Park Brandywine Center Office Industrial Multifamily Industrial Office November 13, 2009 Crossroads Distribution Center Industrial Total 2009 RENTABLE SqUARE FEET (unaudited) CONTRACT SALES PRICE (in thousands) GAIN ON SALE (in thousands) 3,092,000 180,000 3,272,000 229,000 104,000 305,000 638,000 170,000 166,000 35,000 85,000 456,000 $350,900 58,800 $409,700 $ 23,400 27,500 23,000 $ 73,900 $ 19,800 10,500 3,300 4,400 $97,491 — $97,491 $ 7,900 4,500 9,200 $21,600 $ 6,700 4,100 1,000 1,500 $ 38,000 $13,300 (1) The Industrial Portfolio consists of every property in our industrial segment and two office properties (the Crescent and Albemarle Point), and we closed on the sale on three separate dates. On September 2, 2011, we closed on the sale of the two office properties (the Crescent and Albemarle Point) and 8880 Gorman Road, Dulles South IV, Fullerton Business Center, Hampton Overlook, Alban Business Center, Pickett Industrial Park, Northern Virginia Industrial Park I, 270 Technology Park, Fullerton Industrial Center, Sully Square, 9950 Business Parkway, Hampton South and 8900 Telegraph Road. On October 3, 2011, we closed the sale of Northern Virginia Industrial Park II. On November 1, 2011, we closed on the sale of 6100 Columbia Park Road and Dulles Business Park I and II. (2) The Parklawn Portfolio consists of three office properties (Parklawn Plaza, Lexington Building and Saratoga Building) and one industrial property (Charleston Business Center). All disclosed gains on sale are calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). A portion of the sales proceeds were reinvested in replacement properties, with the remainder paid out to shareholders. We distributed all of our 2011, 2010 and 2009 ordinary taxable income to our shareholders. Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undis- tributed REIT taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRS’s”). Our TRS’s are subject to corporate federal and state income tax on their taxable income at regular statutory rates. On April 5, 2011, we settled on the sale of Dulles Station, Phase I, an office property held by one of our TRS’s. With the application of available net operating loss carryfor- wards, we recognized $1.1 million in current net federal and state income tax liabilities in connection with this sale. During the fourth quarter of 2011 we recognized a $14.5 million impairment charge at Dulles Station, Phase II, a development property held by one of our TRS’s (see note 3 to the consolidated financial statements). The impairment charge created a deferred tax asset of $5.7 million at this TRS, but we have determined that it is more likely than not that this deferred tax asset will not be realized. We have therefore recorded a valuation allowance for the full amount of the deferred tax asset related to the impairment charge at Dulles Station, Phase II. As of December 31, 2011, our TRS’s had a net deferred tax asset of $0.1 million and a net deferred tax liability of $0.5 million, pri- marily related to temporary differences in the timing of the recognition of revenue, amortization and depreciation. There were no material income tax provisions or material net deferred income tax items for our TRS’s for the years ended December 31, 2010 and 2009. Availability of Reports Copies of this Annual Report on Form 10-K, as well as our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports are available, free of charge, on the Internet on our website www.writ.com. All required reports are made available on the website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission. The reference to our website address does not constitute incorporation by reference of the information contained in the website and such information should not be considered part of this document. FoRm 10-K annual RepoRt 2011 17 ITEM 1A. RISK FACTORS Set forth below are the risks that we believe are material to our shareholders. We refer to the shares of beneficial interest in WRIT as our “common shares,” and the investors who own shares as our “shareholders.” This section includes or refers to certain forward-looking state- ments. You should refer to the explanation of the qualifications and limitations on such forward-looking statements beginning on page 54. Our performance and value are subject to risks associated with our real estate assets and with the real estate industry. Our financial performance and the value of our real estate assets are subject to the risk that if our office, medical office, retail and multifamily properties do not generate revenues sufficient to meet our operating expenses, debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected. The following factors, among others, may adversely affect the cash flow generated by our commercial and multifamily properties: • • • • • • • • • • • downturns in the national, regional and local economic climate; the economic health of our tenants and the ability to collect rents; consumer confidence, unemployment rates, and consumer tastes and preferences; competition from similar asset type properties; local real estate market conditions, such as oversupply or reduction in demand for office, medical office, retail and multi- family properties; changes in interest rates and availability of financing; vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; increased operating costs, including insurance premiums, utilities and real estate taxes; inflation; civil disturbances, earthquakes and other natural disasters, terrorist acts or acts of war; and decreases in the underlying value of our real estate. We cannot assure you we will continue to pay dividends at historical rates. Cash flows from operations are an important factor in our ability to sustain our dividend at its current rate. If our cash flows from operations were to decline significantly, we may have to borrow on our lines of credit to sustain the dividend rate or reduce our divi- dend. Our ability to continue to pay dividends on our common shares at historical rates or to increase our common share dividend rate will depend on a number of factors, including, among others, the following: • • • • our future financial condition and results of operations; the performance of lease terms by tenants; the terms of our loan covenants; and our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates. If we do not maintain or increase the dividend rate on our common shares in the future, it could have an adverse effect on the mar- ket price of our common shares. We are dependent upon the economic climate of the Washington metropolitan region. All of our properties are located in the Washington metropolitan region, which may expose us to a greater amount of market dependent risk than if we were geographically diverse. General economic conditions and local real estate conditions in our geo- graphic region may be dependent upon one or more industries, thus a downturn in one of the industries may have a particularly strong effect. In the event of negative economic changes in our region, we may experience a negative impact to our profitability and may be limited in our ability to meet our financial obligations when due and/or make distributions to our shareholders. 18 annual RepoRt 2011 FoRm 10-K We may be adversely affected by any significant reductions in federal government spending. As a REIT operating exclusively in the Washington, D.C. metropolitan area, a significant portion of our properties is occupied by United States Government tenants or tenants that are directly or indirectly serving the United States Government as federal contractors or otherwise. A significant reduction in federal government spending could adversely affect the ability of these tenants to fulfill lease obligations or decrease the likelihood that they will renew their leases with us. Further, economic conditions in the Washington, D.C. metropolitan area are significantly dependent upon the level of federal government spending in the region. In the event of a significant reduction in federal government spending, there could be negative economic changes in our region which could adversely impact the ability of our tenants to perform their financial obligations under our leases or the likelihood of their lease renewal. As a result, if such a reduction in federal government spending were to occur, we could experience an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders. Disruptions in the financial markets could affect our ability to obtain financing or have other adverse effects on us or the market price of our common shares. The United States and global equity and credit markets have experienced significant price volatility and liquidity disruptions which caused the market prices of stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances significantly and negatively impacted liquidity in the financial markets, making terms for certain financings less attractive or unavailable. Any disruption in the equity and credit markets could negatively impact our ability to access additional financing at reasonable terms or at all. If such disruption were to occur, in the event of a debt financing, our cost of borrowing in the future would likely be significantly higher than historical levels. As well, in the case of a common equity financing, the disruptions in the financial markets could have a material adverse effect on the market value of our common shares, potentially requiring us to issue more shares than we would otherwise have issued with a higher market value for our common shares. Disruption in the financial markets also could negatively affect our ability to make acquisitions, undertake new development projects and refinance our debt. In addition, it could also make it more difficult for us to sell properties and could adversely affect the price we receive for properties that we do sell, as prospective buyers experience increased costs of financing and difficulties in obtaining financing. Disruptions in the financial markets also could adversely affect many of our tenants and their businesses, including their ability to pay rents when due and renew their leases at rates at least as favorable as their current rates. As well, our ability to attract prospective new tenants in the future could be adversely affected by disruption in the financial markets. We face risks associated with property acquisitions. We intend to continue to acquire properties which would continue to increase our size and could alter our capital structure. Our acquisition activities and results may be exposed to the following risks: • we may be unable to finance acquisitions on favorable terms; • • • the acquired properties may fail to perform as we expected in analyzing our investments; the actual returns realized on acquired properties may not exceed our average cost of capital; even if we enter into an acquisition agreement for a property, we may be unable to complete that acquisition after making a non-refundable deposit and incurring certain other acquisition-related costs; • we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, • • into our existing operations; competition from other real estate investors may significantly increase the purchase price; our estimates of capital expenditures required for an acquired property, including the costs of repositioning or redevelop- ing, may be inaccurate; • we may be unable to acquire a desired property because of competition from other real estate investors, including publicly traded real estate investment trusts, institutional investment funds and private investors; and • even if we enter into an acquisition agreement for a property, it is subject to customary conditions to closing, including completion of due diligence investigations which may have findings that are unacceptable. FoRm 10-K annual RepoRt 2011 19 We may acquire properties subject to liabilities and without recourse, or with limited recourse with respect to unknown liabilities. As a result, if liability were asserted against us based upon the acquisition of a property, we may have to pay substantial sums to settle it, which could adversely affect our cash flow. Unknown liabilities with respect to properties acquired might include: • • • • liabilities for clean-up of undisclosed environmental contamination; claims by tenants, vendors or other persons dealing with the former owners of the properties; liabilities incurred in the ordinary course of business; and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties. Real estate investments are illiquid, and we may not be able to sell our properties on a timely basis when we determine it is appropriate to do so. Real estate investments can be difficult to sell and convert to cash quickly, especially if market conditions are not favorable, and we may find that to be the case under the current economic conditions due to limited credit availability for potential buyers. Such illiquidity could limit our ability to quickly change our portfolio of properties in response to changes in economic or other conditions. Moreover, under certain circumstances, the Internal Revenue Code imposes penalties on a REIT that sells property held for less than two years and or sells more than a specified number of properties in a given year. In addition, for properties that we acquire by issu- ing units in an operating partnership, we may be restricted by agreements with the sellers of the properties for a certain period of time from entering into transactions (such as the sale or refinancing of the acquired property) that will result in a taxable gain to the sellers without the sellers’ consent. Due to these factors, we may be unable to sell a property at an advantageous time. We face potential difficulties or delays renewing leases or re-leasing space. As of December 31, 2011, leases on our commercial properties will expire from 2012 through 2016 as follows: 2012 2013 2014 2015 2016 Total % OF LEASED SqUARE FOOTAGE 10% 12% 15% 14% 12% 63% We derive substantially all of our income from rent received from tenants. If our tenants decide not to renew their leases, we may not be able to re-let the space. If tenants decide to renew their leases, the terms of renewals, including the cost of required improve- ments or concessions, may be less favorable than current lease terms. Multifamily properties are leased under operating leases with terms of generally one year or less. For the years ended 2011, 2010 and 2009, the multifamily tenant retention rate was 56%, 61% and 54%, respectively. Similar to our commercial properties, if our multifamily tenants decide not to renew their leases, we may not be able to re-let the space, or the terms of the renewal may be less favorable than current lease terms. As a result of the foregoing, our cash flow could decrease and our ability to make distributions to our shareholders could be adversely affected. We face potential adverse effects from major tenants’ bankruptcies or insolvencies. The bankruptcy or insolvency of a major tenant may adversely affect the income produced by a property. We cannot evict a tenant solely because of its bankruptcy. On the other hand, a court might authorize the tenant to reject and terminate its lease. In such case, our claim against the bankrupt tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. As a result, our claim for unpaid rent would likely not be paid in full. This shortfall could adversely affect our cash flow and results from operations. If a tenant experiences a downturn in its business or other types of financial distress, it may be unable to make timely rental payments. 20 annual RepoRt 2011 FoRm 10-K We face risks associated with property development. Developing properties presents a number of risks for us, including risks that: • • • • • if we are unable to obtain all necessary zoning and other required governmental permits and authorizations or cease devel- opment of the project for any other reason, the development opportunity may be abandoned after expending significant resources, resulting in the loss of deposits or failure to recover expenses already incurred; the development and construction costs of the project may exceed original estimates due to increased interest rates and increased cost of materials, labor, leasing or other expenditures, which could make the completion of the project less prof- itable because market rents may not increase sufficiently to compensate for the increase in construction costs; construction and/or permanent financing may not be available on favorable terms or may not be available at all, which may cause the cost of the project to increase and lower the expected return; the project may not be completed on schedule as a result of a variety of factors, many of which are beyond our control, such as weather, labor conditions and material shortages, which would result in increases in construction costs and debt service expenses; and occupancy rates and rents at the newly completed property may not meet the expected levels and could be insufficient to make the property profitable. Properties developed or acquired for development may generate little or no cash flow from the date of acquisition through the date of completion of development. In addition, new development activities, regardless of whether or not they are ultimately successful, may require a substantial portion of management’s time and attention. These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have an adverse effect on our financial condition, results of opera- tions, or ability to satisfy our debt service obligations. We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments. We invest in joint ventures in which we are not the exclusive investor or principal decision maker. Investments in such entities may involve risks not present when a third party is not involved, including the possibility that the other parties to these investments might become bankrupt or fail to fund their share of required capital contributions. Our partners in these entities may have economic, tax or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also lead to impasses, for example, as to whether to sell a property, because neither we nor the other parties to these investments may have full control over the entity. In addition, we may in certain circumstances be liable for the actions of the other parties to these investments. Each of these factors could have an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders. Our properties face significant competition. We face significant competition from developers, owners and operators of office, medical office, retail, multifamily and other com- mercial real estate. Substantially all of our properties face competition from similar properties in the same market. Such competition may affect our ability to attract and retain tenants and may reduce the rents we are able to charge. These competing properties may have vacancy rates higher than our properties, which may result in their owners being willing to make space available at lower rents than the space in our properties. We face risks associated with the use of debt, including refinancing risk. We rely on borrowings under our credit facilities and offerings of debt securities to finance acquisitions and development activi- ties and for general corporate purposes. The commercial real estate debt markets have in the recent past experienced significant volatility due to a number of factors, including the tightening of underwriting standards by lenders and credit rating agencies and the reported significant inventory of unsold mortgage backed securities in the market. The volatility resulted in investors decreasing the availability of debt financing as well as increasing the cost of debt financing. We believe that circumstances could again arise in which we may not be able to obtain debt financing in the future on favorable terms, or at all. If we were unable to borrow under our credit facilities or to refinance existing debt financing, our financial condition and results of operations would likely be adversely affected. FoRm 10-K annual RepoRt 2011 21 We are subject to the risks normally associated with debt, including the risk that our cash flow may be insufficient to meet required payments of principal and interest. We anticipate that only a small portion of the principal of our debt will be repaid prior to maturity. Therefore, we are likely to need to refinance a significant portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt. If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as new equity capital, our cash flow may not be sufficient to repay all maturing debt in years when significant “balloon” payments come due. Our degree of leverage could limit our ability to obtain additional financing or affect the market price of our common shares or debt securities. On February 21, 2012, our total consolidated debt was approximately $1.2 billion. Consolidated debt to consolidated market capi- talization ratio, which measures total consolidated debt as a percentage of the aggregate of total consolidated debt plus the market value of outstanding equity securities, is often used by analysts to assess leverage for equity REITs such as us. Our market value is calculated using the price per share of our common shares. Using the closing share price of $29.54 per share of our common shares on February 21, 2012, multiplied by the number of our common shares, our consolidated debt to total consolidated market capitaliza- tion ratio was approximately 37% as of February 21, 2012. Our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes. Our senior unsecured debt is currently rated investment grade by the two major rating agencies. However, there can be no assurance that we will be able to maintain this rating, and in the event our senior debt is downgraded from its current rating, we would likely incur higher borrowing costs and/or difficulty in obtaining additional financing. Our degree of leverage could also make us more vulnerable to a downturn in business or the economy generally. There is a risk that changes in our debt to market capitalization ratio, which is in part a function of our share price, or our ratio of indebtedness to other measures of asset value used by financial analysts, may have an adverse effect on the market price of our equity or debt securities. Rising interest rates would increase our interest costs. We may incur indebtedness that bears interest at variable rates. Accordingly, if interest rates increase, so will our interest costs, which could adversely affect our cash flow and our ability to service debt. As a protection against rising interest rates, we may enter into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts. These agreements, however, increase our risks that other parties to the agreements may not perform or that the agreements may be unenforceable. Covenants in our debt agreements could adversely affect our financial condition. Our credit facilities contain customary restrictions, requirements and other limitations on our ability to incur indebtedness. We must maintain a minimum tangible net worth and certain ratios, including a maximum of total liabilities to total gross asset value, a maximum of secured indebtedness to gross asset value, a minimum of annual EBITDA to fixed charges, a minimum of unencumbered asset value to unsecured indebtedness, a minimum of net operating income from unencumbered properties to unsecured interest expense and a maximum of permitted investments to gross asset value. Our ability to borrow under our credit facilities is subject to compliance with our financial and other covenants. The recent economic downturn may adversely affect our ability to comply with these financial and other covenants. Failure to comply with any of the covenants under our unsecured credit facilities or other debt instruments could result in a default under one or more of our debt instruments. In particular, we could suffer a default under one of our secured debt instruments that could exceed a cross default threshold under our unsecured credit facilities, causing an event of default under the unsecured credit facilities. Alternatively, even if a secured debt instrument is below the cross default threshold for non-recourse secured debt under our unsecured credit facilities, a default under such secured debt instrument may still cause a cross default under our unsecured credit facilities because such secured debt instrument may not qualify as “non-recourse” under the definition in our unsecured credit facilities. Another possible cross default could occur between our unsecured credit facilities, on the one hand, and our senior unse- cured notes, on the other hand. Any of the foregoing default or cross default events could cause our lenders to accelerate the timing of payments and/or prohibit future borrowings, either of which would have a material adverse effect on our business, operations, financial condition and liquidity. 22 annual RepoRt 2011 FoRm 10-K We face risks associated with short-term liquid investments. We have significant cash balances from time to time that we invest in a variety of short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. From time to time, these investments may include (either directly or indirectly): • • • • • • • • direct obligations issued by the U.S. Treasury; obligations issued or guaranteed by the U.S. government or its agencies; taxable municipal securities; obligations (including certificates of deposit) of banks and thrifts; commercial paper and other instruments consisting of short-term U.S. dollar denominated obligations issued by corpora- tions and banks; repurchase agreements collateralized by corporate and asset-backed obligations; both registered and unregistered money market funds; and other highly rated short-term securities. Investments in these securities and funds are not insured against loss of principal. Under certain circumstances we may be required to redeem all or part of our investment, and our right to redeem some or all of our investment may be delayed or suspended. In addi- tion, there is no guarantee that our investments in these securities or funds will be redeemable at par value. A decline in the value of our investment or a delay or suspension of our right to redeem may have a material adverse effect on our results of operations or financial condition. Further issuances of equity securities may be dilutive to current shareholders. The interests of our existing shareholders could be diluted if additional equity securities are issued, including to finance future developments and acquisitions, instead of incurring additional debt. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing. Compliance or failure to comply with the Americans with Disabilities Act and other laws and regulations could result in substan- tial costs. The Americans with Disabilities Act generally requires that public buildings, including commercial and multifamily properties, be made accessible to disabled persons. Noncompliance could result in imposition of fines by the federal government or the award of damages to private litigants. If, pursuant to the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our results of operations. We may also incur significant costs complying with other regulations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fair housing, rent control and fire and life safety requirements. If we fail to comply with these requirements, we may incur fines or private damage awards. We believe that our properties are currently in material compliance with regulatory requirements. However, we do not know whether existing requirements will change or whether compli- ance with future requirements will require significant unanticipated expenditures that will adversely affect our results of operations. Some potential losses are not covered by insurance. We carry insurance coverage on our properties of types and in amounts that we believe are in line with coverage customarily obtained by owners of similar properties. We believe all of our properties are adequately insured. The property insurance that we maintain for our properties has historically been on an “all risk” basis, which is in full force and effect until renewal in August 2012. There are other types of losses, such as from wars or catastrophic events, for which we cannot obtain insurance at all or at a reason- able cost. FoRm 10-K annual RepoRt 2011 23 We have an insurance policy which has no terrorism exclusion, except for non-certified nuclear, chemical and biological acts of ter- rorism. Our financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts. Effective November 26, 2002, under this existing coverage, any losses caused by certified acts of terrorism would be partially reimbursed by the United States under a formula established by federal law. Under this formula the United States pays 85% of covered terrorism losses exceeding the statutorily established deductible paid by the insurance provider, and insurers pay 10% until aggregate insured losses from all insurers reach $100 billion in a calendar year. If the aggregate amount of insured losses under this program exceeds $100 billion during the applicable period for all insured and insurers combined, then each insurance provider will not be liable for payment of any amount which exceeds the aggregate amount of $100 billion. On December 26, 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 was signed into law and extends the program through December 31, 2014. We continue to monitor the state of the insurance market in general, and the scope and costs of coverage for acts of terrorism in particular, but we cannot anticipate what amount of coverage will be available on commer- cially reasonable terms in future policy years. In the event of an uninsured loss or a loss in excess of our insurance limits, we could lose both the revenues generated from the affected property and the capital we have invested in the affected property. Depending on the specific circumstances of the affected property it is possible that we could be liable for any mortgage indebtedness or other obligations related to the property. Any such loss could adversely affect our business and financial condition and results of operations. We have to renew our policies in most cases on an annual basis and negotiate acceptable terms for coverage, exposing us to the volatility of the insurance markets, including the possibility of rate increases. Any material increase in insurance rates or decrease in available coverage in the future could adversely affect our results of operations and financial condition. Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties. All of our properties are located in or near Washington D.C., a metropolitan area that has been and may in the future be the target of actual or threatened terrorism attacks. As a result, some tenants in our market may choose to relocate their businesses to other markets. This could result in an overall decrease in the demand for commercial space in this market generally, which could increase vacancies in our properties or necessitate that we lease our properties on less favorable terms, or both. In addition, future terrorist attacks in or near Washington D.C. could directly or indirectly damage our properties, both physically and financially, or cause losses that materially exceed our insurance coverage. As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially. Potential liability for environmental contamination could result in substantial costs. Under federal, state and local environmental laws, ordinances and regulations, we may be required to investigate and clean up the effects of releases of hazardous or toxic substances or petroleum products at our properties, regardless of our knowledge or responsibility, simply because of our current or past ownership or operation of the real estate. In addition, the U.S. Environmental Protection Agency, the U.S. Occupational Safety and Health Administration and other state and local governmental authorities are increasingly involved in indoor air quality standards, especially with respect to asbestos, mold, medical waste and lead-based paint. The clean up of any environmental contamination, including asbestos and mold, can be costly. If environmental problems arise, we may have to make substantial payments which could adversely affect our financial condition and results of operations because: • • • as owner or operator we may have to pay for property damage and for investigation and clean-up costs incurred in con- nection with the contamination; the law typically imposes clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination; even if more than one person may be responsible for the contamination, each person who shares legal liability under the environmental laws may be held responsible for all of the clean-up costs; and • governmental entities and third parties may sue the owner or operator of a contaminated site for damages and costs. These costs could be substantial and in extreme cases could exceed the value of the contaminated property. The presence of haz- ardous or toxic substances or petroleum products or the failure to properly remediate contamination may adversely affect our ability to borrow against, sell or rent an affected property. In addition, applicable environmental laws create liens on contaminated sites in favor of the government for damages and costs it incurs in connection with a contamination. 24 annual RepoRt 2011 FoRm 10-K Environmental laws also govern the presence, maintenance and removal of asbestos. Such laws require that owners or operators of buildings containing asbestos: • • • properly manage and maintain the asbestos; notify and train those who may come into contact with asbestos; and undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. Such laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers. It is our policy to retain independent environmental consultants to conduct Phase I environmental site assessments and asbestos surveys with respect to our acquisition of properties. These assessments generally include a visual inspection of the properties and the surrounding areas, an examination of current and historical uses of the properties and the surrounding areas and a review of rel- evant state, federal and historical documents. However, they do not always involve invasive techniques such as soil and ground water sampling. Where appropriate, on a property-by-property basis, our general practice is to have these consultants conduct additional testing. However, even though these additional assessments may be conducted, there is still the risk that: • • • • the environmental assessments and updates did not identify all potential environmental liabilities; a prior owner created a material environmental condition that is not known to us or the independent consultants preparing the assessments; new environmental liabilities have developed since the environmental assessments were conducted; and future uses or conditions or changes in applicable environmental laws and regulations could result in environmental liability to us. Failure to qualify as a REIT would cause us to be taxed as a corporation, which would substantially reduce funds available for pay- ment of dividends. If we fail to qualify as a REIT for federal income tax purposes, we would be taxed as a corporation. We believe that we are organized and qualified as a REIT and intend to operate in a manner that will allow us to continue to qualify as a REIT. However, we cannot assure you that we are qualified as such, or that we will remain qualified as such in the future. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code as to which there are only limited judicial and administrative interpretations and involves the determination of facts and circumstances not entirely within our control. Future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the appli- cation of the tax laws with respect to qualification as a REIT for federal income tax purposes or the federal income tax consequences of such qualification. If we fail to qualify as a REIT we could face serious tax consequences that could substantially reduce our funds available for payment of dividends for each of the years involved because: • we would not be allowed a deduction for dividends paid to shareholders in computing our taxable income and could be subject to federal income tax at regular corporate rates; • we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes; • • unless we are entitled to relief under statutory provisions, we could not elect to be subject to tax as a REIT for four taxable years following the year during which we are disqualified; and all dividends would be subject to tax as ordinary income to the extent of our current and accumulated earnings and profits potentially eligible as “qualified dividends” subject to the 15% income tax rate. In addition, if we fail to qualify as a REIT, we would no longer be required to pay dividends. As a result of these factors, our failure to qualify as a REIT could have a material adverse impact on our results of operations, financial condition and liquidity. FoRm 10-K annual RepoRt 2011 25 The market value of our securities can be adversely affected by many factors. As with any public company, a number of factors may adversely influence the public market price of our common shares. These fac- tors include: • • • • • • • • • • level of institutional interest in us; perceived attractiveness of investment in us, in comparison to other REITs; attractiveness of securities of REITs in comparison to other asset classes taking into account, among other things, that a substantial portion of REITs’ dividends are taxed as ordinary income; our financial condition and performance; the market’s perception of our growth potential and potential future cash dividends; government action or regulation, including changes in tax law; increases in market interest rates, which may lead investors to expect a higher annual yield from our distributions in rela- tion to the price of our shares; changes in federal tax laws; changes in our credit ratings; relatively low trading volume of shares of REITs in general, which tends to exacerbate a market trend with respect to our shares; and • any negative change in the level of our dividend or the partial payment thereof in common shares. Provisions of the Maryland General Corporation Law, or the MGCL, may limit a change in control. There are several provisions of the Maryland General Corporation Law, or the MGCL, that may limit the ability of a third party to undertake a change in control, including: • • a provision where a corporation is not permitted to engage in any business combination with any “interested stockholder,” defined as any holder or affiliate of any holder of 10% or more of the corporation’s stock, for a period of five years after that holder becomes an “interested stockholder;” and a provision where the voting rights of “control shares” acquired in a “control share acquisition,” as defined in the MGCL, may be restricted, such that the “control shares” have no voting rights, except to the extent approved by a vote of holders of two-thirds of the common shares entitled to vote on the matter. These provisions may delay, defer, or prevent a transaction or a change in control that may involve a premium price for holders of our shares or otherwise be in their best interests. Our bylaws currently provide that the foregoing provision regarding “control share acquisitions” will not apply to WRIT. However, our board of trustees could, in the future, modify our bylaws such that the foregoing provision regarding “control share acquisitions” would be applicable to WRIT. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES The schedule on the following pages lists our real estate investment portfolio as of December 31, 2011, which consisted of 71 proper- ties and land held for development. As of December 31, 2011, the percent leased is the percentage of net rentable area for which fully executed leases exist and may include signed leases for space not yet occupied by the tenant. Cost information is included in Schedule III to our financial statements included in this Annual Report on Form 10-K. 26 annual RepoRt 2011 FoRm 10-K Schedule of Properties PROPERTIES Office Buildings LOCATION YEAR ACqUIRED YEAR CONSTRUCTED NET RENTABLE SqUARE FEET PERCENT LEASED 12/31/2011 1901 Pennsylvania Avenue Washington, D.C. 51 Monroe Street 515 King Street 6110 Executive Boulevard 1220 19th Street 1600 Wilson Boulevard 7900 Westpark Drive 600 Jefferson Plaza 1700 Research Boulevard Wayne Plaza Courthouse Square One Central Plaza The Atrium Building 1776 G Street 6565 Arlington Boulevard West Gude Drive Monument II Woodholme Center 2000 M Street 2445 M Street 925 Corporate Drive 1000 Corporate Drive 1140 Connecticut Avenue 1227 25th Street Braddock Metro Center John Marshall II Subtotal Medical Office Buildings Woodburn Medical Park I Woodburn Medical Park II Prosperity Medical Center I Prosperity Medical Center II Prosperity Medical Center III Shady Grove Medical Village II 8301 Arlington Boulevard Rockville, MD Alexandria, VA Rockville, MD Washington, D.C. Arlington, VA McLean, VA Rockville, MD Rockville, MD Silver Spring, MD Alexandria, VA Rockville, MD Rockville, MD Washington, D.C. Falls Church, VA Rockville, MD Herndon, VA Pikesville, MD Washington, D.C. Washington, D.C. Stafford, VA Stafford, VA Washington, D.C. Washington, D.C. Alexandria, VA Tysons Corner, VA Annandale, VA Annandale, VA Merrifield, VA Merrifield, VA Merrifield, VA Rockville, MD Fairfax, VA Alexandria Professional Center Alexandria, VA 9707 Medical Center Drive 15001 Shady Grove Road Plumtree Medical Center 15005 Shady Grove Road 2440 M Street Rockville, MD Rockville, MD Bel Air, MD Rockville, MD Washington, D.C. Woodholme Medical Office Building Pikesville, MD Ashburn Farm Office Park CentreMed I & II Sterling Medical Office Building Ashburn, VA Centreville, VA Sterling, VA 1977 1979 1992 1995 1995 1997 1997 1999 1999 2000 2000 2001 2002 2003 2006 2006 2007 2007 2007 2008 2010 2010 2011 2011 2011 2011 1998 1998 2003 2003 2003 2004 2004 2006 2006 2006 2006 2006 2007 2007 2007 2007 2008 1960 1975 1966 1971 1976 1973 1972/1986/1999 1985 1982 1970 1979 1974 1980 1979 1967/1998 1984/1986/1988 2000 1989 1971 1986 2007 2009 1966 1988 1985 1996/2010 1984 1988 2000 2001 2002 1999 1965 1968 1994 1999 1991 2002 1986/2006 1996 1998/2000/2002 1998 1986/2000 98,000 218,000 73,000 199,000 102,000 168,000 533,000 113,000 101,000 94,000 114,000 267,000 80,000 262,000 130,000 275,000 207,000 75,000 239,000 290,000 134,000 136,000 185,000 132,000 345,000 223,000 4,793,000 73,000 96,000 92,000 89,000 75,000 66,000 49,000 114,000 38,000 51,000 33,000 52,000 112,000 123,000 75,000 52,000 36,000 81% 90% 100% 89% 97% 97% 94% 95% 77% 83% 91% 94% 94% 100% 97% 80% 67% 73% 72% 100% 100% 100% 86% 72% 92% 100% 90% 98% 97% 96% 93% 95% 84% 61% 96% 86% 100% 95% 100% 95% 93% 91% 95% 77% FoRm 10-K annual RepoRt 2011 27 PROPERTIES LOCATION YEAR ACqUIRED YEAR CONSTRUCTED NET RENTABLE SqUARE FEET PERCENT LEASED 12/31/2011 Lansdowne Medical Office Building Leesburg, VA 2009 2009 Subtotal Retail Centers Takoma Park Westminster Concord Centre Wheaton Park Bradlee Chevy Chase Metro Plaza Montgomery Village Center Shoppes of Foxchase(1) Frederick County Square 800 S. Washington Street Centre at Hagerstown Frederick Crossing Randolph Shopping Center Montrose Shopping Center Gateway Overlook Olney Village Center Subtotal Takoma Park, MD Westminster, MD Springfield, VA Wheaton, MD Alexandria, VA Washington, D.C. Gaithersburg, MD Alexandria, VA Frederick, MD Alexandria, VA Hagerstown, MD Frederick, MD Rockville, MD Rockville, MD Columbia, MD Olney, MD Multifamily Buildings / # of Units 3801 Connecticut Avenue / 308 Washington, D.C. Roosevelt Towers / 191 Country Club Towers / 227 Park Adams / 200 Munson Hill Towers / 279 The Ashby at McLean / 256 Falls Church, VA Arlington, VA Arlington, VA Falls Church, VA McLean, VA Walker House Apartments / 212 Gaithersburg, MD Bethesda Hill Apartments / 195 Bennett Park / 224 Clayborne / 74 Kenmore / 374 Subtotal / 2,540 total Bethesda, MD Arlington, VA Alexandria, VA Washington, D.C. 1963 1972 1973 1977 1984 1985 1992 1994 1995 1962 1969 1960 1967 1955 1975 1969 1960/2006 1973 1998/2003 1955/1959 2002 2005 2006 2006 2010 2011 1963 1965 1969 1969 1970 1996 1996 1997 2007 2008 2008 2000 1999/2003 1972 1970 2007 1979 1951 1964 1965 1959 1963 1982 1971/2003 1986 2007 2008 1948 (1) Development on approximately 60,000 square feet of the center was completed in December 2006. * Multifamily buildings are presented in gross square feet. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. MINE SAFETY DISCLOSURES N/A. 85,000 1,311,000 51,000 150,000 76,000 74,000 168,000 49,000 198,000 134,000 227,000 47,000 332,000 295,000 82,000 145,000 223,000 198,000 2,449,000 179,000 170,000 159,000 173,000 258,000 274,000 158,000 226,000 214,000 60,000 268,000 2,139,000 10,692,000 32% 89% 100% 96% 91% 87% 99% 100% 85% 95% 93% 96% 91% 94% 95% 93% 90% 100% 94% 95% 95% 97% 97% 97% 96% 98% 94% 96% 93% 94% 96% 28 annual RepoRt 2011 FoRm 10-K paRt ii ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EqUITY, RELATED STOCK- HOLDER MATTERS AND ISSUER PURCHASES OF EqUITY SECURITIES Our shares trade on the New York Stock Exchange. Currently, there are approximately 5,525 shareholders of record. The high and low sales price for our shares for 2011 and 2010, by quarter, and the amount of dividends we paid per share are as follows: qUARTERLY SHARE PRICE RANGE qUARTER 2011 Fourth Third Second First 2010 Fourth Third Second First DIVIDENDS PER SHARE $0.43375 $0.43375 $0.43375 $0.43375 $0.43375 $0.43250 $0.43250 $0.43250 HIGH $30.96 $33.88 $34.53 $31.60 $34.05 $32.14 $32.75 $30.77 LOW $25.64 $25.51 $30.13 $29.09 $29.25 $26.67 $27.32 $25.09 We have historically paid dividends on a quarterly basis. During the period covered by this report, we did not sell equity securities without registration under the Securities Act. Neither we nor any affiliated purchaser (as that term is defined in Securities Exchange Act Rule 10b-18(a) (3)) made any repurchases of our shares during the fourth quarter of the fiscal year covered by this report. FoRm 10-K annual RepoRt 2011 29 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth our selected financial data on a historical basis, which has been revised for properties disposed of or classified as held for sale (see note 3 to the consolidated financial statements). The following data should be read in conjunction with our financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K. (in thousands, except per share data) Real estate rental revenue Income (loss) from continuing operations $ (1,128) $ 992 $ 289,527 $ 258,490 $ 256,549 $ 9,723 $ 229,496 $ 202,601 $ (8,842) $ 8,082 2011 2010 2009 2008 2007 Discontinued operations: Income from operations of properties sold or held for sale Gain on sale of real estate Net income Net income attributable to the controlling interests Income (loss) from continuing operations attributable to the controlling interests per share—diluted Net income attributable to the controlling interests per share—diluted Total assets Lines of credit payable Mortgage notes payable Notes payable Shareholders’ equity Cash dividends paid Cash dividends declared and paid per share $ $ 9,015 97,491 $ 105,378 $ $ $ 14,968 21,599 37,559 $ $ $ 17,877 13,348 40,948 $ $ $ 20,860 15,275 27,293 $ $ $ 24,564 25,022 57,668 $ 104,884 $ 37,426 $ 40,745 $ 27,082 $ 57,451 $ (0.02) $ 0.02 $ 0.17 $ (0.18) $ 0.17 $ 1.58 $2,120,758 $ 99,000 $ 427,710 $ 657,470 $ 859,044 $ 115,045 $ 1.74 $ 0.60 $2,167,881 $ 100,000 $ 361,860 $ 753,587 $ 857,080 $ 108,949 $ 1.73 $ 0.71 $2,045,225 $ 128,000 $ 364,594 $ 688,912 $ 745,255 $ 100,221 $ 1.73 $ 0.55 $2,109,407 $ 67,000 $ 379,399 $ 890,679 $ 636,630 $ $ 85,564 1.72 $ 1.24 $1,897,018 $ 192,500 $ 209,608 $ 861,819 $ 502,540 $ $ 78,050 1.68 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We provide 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 MD&A as follows: • Overview. Discussion of our business, operating results, investment activity and capital requirements, and summary of our significant transactions to provide context for the remainder of MD&A. • • • Critical Accounting Policies and Estimates. Descriptions of accounting policies that reflect significant judgments and estimates used in the preparation of our consolidated financial statements. Results of Operations. Discussion of our financial results comparing 2011 to 2010 and comparing 2010 to 2009. Liquidity and Capital Resources. Discussion of our financial condition and analysis of changes in our capital structure and cash flows. When evaluating our financial condition and operating performance, we focus on the following financial and non-financial indicators: • Net operating income (“NOI”), calculated as real estate rental revenue less real estate expenses excluding depreciation and amortization and general and administrative expenses. NOI is a non-GAAP supplemental measure to net income. • Funds From Operations (“FFO”), calculated as set forth below under the caption “Funds from Operations.” FFO is a non- GAAP supplemental measure to net income. 30 annual RepoRt 2011 FoRm 10-K • Occupancy, calculated as occupied square footage as a percentage of total square footage as of the last day of that period. • • • Leased percentage, calculated as the percentage of available physical net rentable area leased for our commercial segments and percentage of apartments leased for our multifamily segment. Rental rates. Leasing activity, including new leases, renewals and expirations. For purposes of evaluating comparative operating performance, we categorize our properties as “same-store”, “non-same-store” or discontinued operations. A “same-store” property is one that was owned for the entirety of the periods being evaluated, is stabilized from an occupancy standpoint and is included in continuing operations. A “non-same-store” property is one that was acquired or placed into service during either of the periods being evaluated and is included in continuing operations. We classify results for prop- erties sold or held for sale during any of the periods evaluated as discontinued operations. Overview Business Our revenues are derived primarily from the ownership and operation of income-producing properties in the greater Washington metro region. As of December 31, 2011, we owned a diversified portfolio of 71 properties, totaling approximately 8.6 million square feet of commercial space and 2,540 multifamily units, and land held for development. These 71 properties consisted of 26 office properties, 18 medical office properties, 16 retail centers and 11 multifamily properties. We have a fundamental strategy of regional focus and diversification by property type. In recent years, we have sought to upgrade our portfolio by selling properties that do not fit our current strategy (as described above at “Item 1: Business—WRIT Overview”), and acquiring or developing higher quality and better-located properties that we believe are consistent with such strategy. We will seek to continue to upgrade our portfolio as opportunities arise, funding acquisitions with a combination of cash, equity, debt and proceeds from property sales. Operating Results Real estate rental revenue, NOI, net income attributable to the controlling interests and FFO for 2011 and 2010 were as follows (in thousands): Real estate rental revenue noi(1) Net income attributable to the controlling interests FFo(2) (1) See pages 41 and 46 of the MD&A for reconciliations of NOI to net income. (2) See page 60 of the MD&A for reconciliations of FFO to net income. 2011 $289,527 $192,335 $104,884 $110,058 2010 $258,490 $171,830 $ 37,426 $111,566 CHANGE $31,037 $20,505 $67,458 $ (1,508) Real estate rental revenues increased by $31.0 million and NOI increased by $20.5 million primarily due to acquisitions. Real estate rental revenue and NOI from same-store properties had small increases, as higher rental rates were offset by lower occupancy. The $1.5 million decrease in FFO primarily reflects a $14.5 million impairment charge to reduce the carrying value of the land and parking garage at Dulles Station, Phase II, higher acquisition costs and the loss of income from properties we sold during 2011 and 2010. The impairment charge resulted from the determination that the development of the land at Dulles Station, Phase II is not probable under current market conditions. These were partially offset by an $8.2 million decrease in losses on extinguishment of debt and the increase in NOI from acquisitions. While we expect slow but steady improvement in the real estate market conditions in the region during 2012, we anticipate contin- ued challenges in leasing vacant space. We also anticipate circumstances where rents on new or renewal leases will be lower than the existing portfolio rents, putting further downward pressure on NOI. We plan to continue actively pursuing property acquisitions throughout 2012, which may generate future NOI growth. However, any NOI growth in 2012 from acquisitions would likely be offset by acquisition costs. FoRm 10-K annual RepoRt 2011 31 The performance of our four operating segments and the market conditions in our region are discussed in greater detail below (industry data is as reported by Delta): • The region’s office market did not improve during 2011, with overall vacancy increasing to 12.1% from 11.9% in the prior year. Vacancy in the submarkets was 13.8% for Northern Virginia, 14.4% for Suburban Maryland, and 8.4% in the District of Columbia. Net absorption (defined as the change in occupied, standing inventory from one year to the next) decreased to 1.1 million square feet from 6.4 million square feet in 2010. The region’s effective rents only decreased by 0.9%, as com- pared to a 6.5% decrease in 2010. Delta expects the region’s office market to remain slow during 2012, with uncertainty over the federal budget affecting leasing activity. Our office segment was 89.7% leased at year-end 2011, a decrease from 90.7% leased at year-end 2010. By submarket, our office segment was 92.9% leased in Northern Virginia, 86.5% leased in Suburban Maryland, and 88.3% leased in the District of Columbia at year-end 2011. • Our medical office segment was 88.6% leased at year-end 2011, a decrease from 90.2% at year-end 2010. The segment’s leased percentage reflects the 2009 acquisition of the newly-constructed Lansdowne Medical Office Building, which was 32.0% leased at year-end 2011. Excluding Lansdowne Medical Office Building, the segment was 92.5% leased at year-end 2011, as compared to 95.2% at year-end 2010. • • The region’s retail market improved in 2011, with rental rates at grocery-anchored centers increasing by 2.1%, as compared to a 2.4% decrease in 2010. Vacancy rates decreased to 5.5% from 5.6% in 2010. Our retail segment was 93.5% leased at year-end 2011, up from 92.2% at year-end 2010. The region’s multifamily market remained strong during 2011. The region’s vacancy rate for investment grade apartments increased to 3.8%, up from 3.4% one year ago but significantly better than the national vacancy rate of 5.8%. During the same period rents increased by 2.1%. Our multifamily segment was 95.8% leased at year-end 2011, down from 97.4% at year-end 2010. Investment Activity We sold our entire industrial segment and three office properties during 2011, and executed five property acquisitions. In addition, we executed two separate land acquisitions for multifamily development as the majority partner in consolidated joint ventures. These acquisitions are consistent with our current strategy of focusing on properties inside the Washington metro region’s Beltway, near major transportation nodes and in areas with strong employment drivers and superior growth demographics. We will continue to seek to acquire properties that fit our strategy during 2012, while partially financing these acquisitions with the sale of properties from our portfolio that we believe have lower potential for growth. Capital Requirements Over the past year, we continued to focus on strengthening our balance sheet in order to minimize our refinancing risk and prepare for future acquisitions as transaction volume increases. To this end, we executed an unsecured credit facility agreement that had the effect of expanding the total borrowing capacity on our unsecured lines of credit by $138.0 million. Our unsecured lines of credit had $99.0 million outstanding and a $0.8 million letter of credit issued at December 31, 2011, leaving a remaining borrowing capacity of $375.2 million. Our $75.0 million unsecured line of credit matures in June 2012. We currently expect to enter into a new unsecured revolving credit facility at an amount at least equal to our $75.0 million unsecured line of credit which expires in 2012. We have a combined $71.7 million of unsecured and mortgage notes payable that mature in 2012. We currently expect to pay these maturities with some combination of proceeds from new debt, property sales and equity issuances. Significant Transactions We summarize below our significant transactions during the two years ended December 31, 2011: 2011 • • The disposition of our industrial segment and two office properties, totaling approximately 3.1 million square feet, under five separate sales contracts for an aggregate contract sales price of $350.9 million and a gain on sale of $97.5 million. The disposition of Dulles Station, Phase I, a 180,000 square foot office building in Herndon, Virginia, for a contract sales price of $58.8 million. 32 annual RepoRt 2011 FoRm 10-K 2010 • • • • • • • • • • • • • • • • The acquisition of four office buildings for $301.8 million, adding approximately 882,000 square feet. The acquisition of a retail property for $58.0 million, adding approximately 199,000 square feet. The acquisition of approximately 37,000 square feet of land in Arlington, Virginia for $11.8 million through a consolidated joint venture of which WRIT is the 90% owner. The joint venture intends to develop a mid-rise apartment property on this land. The acquisition of approximately one acre of land in Alexandria, Virginia for $13.9 million through a consolidated joint ven- ture of which WRIT is the 95% owner. The joint venture intends to develop a high-rise apartment property on this land. The execution of an unsecured credit facility agreement with Wells Fargo that replaced and expanded Credit Facility No. 2 (i.e., our previous credit facility with Wells Fargo) from $262.0 million to $400.0 million, with an accordion feature that allows us to increase the facility to $600.0 million, subject to additional lender commitments. The new unsecured line of credit matures on July 1, 2014, with a one-year extension option, and currently bears an interest rate at LIBOR plus a margin of 122.5 basis points. The execution of new leases for 1.0 million square feet of commercial space, with an average rental rate increase of 9.1% over expiring leases (excluding first generation leases at recently-built properties and sold properties). The acquisition of two office buildings for $68.0 million, adding approximately 271,000 square feet. The acquisition of a retail property for $88.4 million, adding approximately 223,000 square feet. The disposition of the Parklawn Portfolio, consisting of three office properties and one industrial property totaling approxi- mately 229,000 square feet, for a contract sales price of $23.4 million and a gain on sale of $7.9 million. The disposition of a 104,000 square foot office property, the Ridges, for a contract sales price of $27.5 million and a gain on sale of $4.5 million. The disposition of three industrial properties totaling 305,000 square feet, Ammendale I & II and Amvax, for a contract sales price of $23.0 million and a gain on sale of $9.2 million. The issuance of $250.0 million of 4.95% unsecured notes due October 1, 2020, with net proceeds of $245.8 million. The notes bear an effective interest rate of 5.053%. The repurchases by tender offer of $122.8 million of our 3.875% convertible notes at 102.8 % of par, resulting in a net loss on extinguishment of debt of $6.5 million. Prior to the tender offer, we had executed repurchases of our 3.875% convert- ible notes totaling $8.8 million at 100.1% of par, resulting in a net loss on extinguishment of debt of $0.3 million. The repurchases by tender offer of $56.1 million of our 5.95% senior notes at 103.8% of par, resulting in a net loss on extin- guishment of debt of $2.4 million. The issuance of 5.6 million common shares at a weighted average price of $30.34 under our sales agency financing agree- ment, raising $168.9 million in net proceeds. The execution of new leases for 1.0 million square feet of commercial space, with an average rental rate increase of 13.6% over expiring leases (excluding first generation leases at recently-built properties). Critical Accounting Policies and Estimates We base the discussion and analysis of our financial condition and results of operations upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to estimated useful lives of real estate assets, estimated fair value of acquired leases, cost reimbursement income, bad debts, contingencies and litigation. We base the estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We cannot assure you that actual results will not differ from those estimates. FoRm 10-K annual RepoRt 2011 33 We believe the following accounting estimates are the most critical to aid in fully understanding our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of mat- ters that are inherently uncertain. Allowance for Doubtful Accounts We recognize rental income and rental abatements from our multifamily and commercial leases when earned on a straight-line basis over the lease term. We record a provision for losses on accounts receivable equal to the estimated uncollectible amounts. We base this estimate on our historical experience and a monthly review of the current status of our receivables. We consider factors such as the age of the receivable, the payment history of our tenants and our assessment of our tenants’ ability to perform under their lease obligations, among other things. In addition to rents due currently, accounts receivable include amounts representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases. Our estimate of uncollectible accounts is subject to revision as these factors change and is sensitive to the impact of economic and market conditions on tenants. Accounting for Real Estate Acquisitions We record acquired or assumed assets, including physical assets and in-place leases, and liabilities, based on their fair values. We record goodwill when the purchase price exceeds the fair value of the assets and liabilities acquired. We determine the estimated fair values of the assets and liabilities in accordance with current GAAP fair value provisions. We determine the fair values of acquired buildings on an “as-if-vacant” basis considering a variety of factors, including the replacement cost of the property, estimated rental and absorption rates, estimated future cash flows and valuation assumptions consistent with current market conditions. We deter- mine the fair value of land based on comparisons to similar properties that have been recently marketed for sale or sold. The fair value of in-place leases consists of the following components: (a) the estimated cost to us to replace the leases, including foregone rents during the period of finding a new tenant and foregone recovery of tenant pass-throughs (referred to as “absorption cost”); (b) the estimated cost of tenant improvements, and other direct costs associated with obtaining a new tenant (referred to as “tenant origination cost”); (c) estimated leasing commissions associated with obtaining a new tenant (referred to as “leasing com- missions”); (d) the above/at/below market cash flow of the leases, determined by comparing the projected cash flows of the leases in place to projected cash flows of comparable market-rate leases (referred to as “net lease intangible”); and (e) the value, if any, of customer relationships, determined based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the tenant (referred to as “customer relationship value”). We discount the amounts used to calculate net lease intangibles using an interest rate which reflects the risks associated with the leases acquired. We include tenant origination costs in income producing property on our balance sheet and amortize the tenant origination costs as depreciation expense on a straight-line basis over the useful life of the asset, which is typically the remaining life of the underlying leases. We classify leasing commissions and absorption costs as other assets and amortize leasing commissions and absorption costs as amortization expense on a straight-line basis over the remaining life of the underlying leases. We classify above market net lease intangible assets as other assets and amortize them on a straight-line basis as a decrease to real estate rental rev- enue over the remaining term of the underlying leases. We classify below market net lease intangible liabilities as other liabilities and amortize them on a straight-line basis as an increase to real estate rental revenue over the remaining term of the underlying leases. Should a tenant terminate its lease, we accelerate the amortization of the unamortized portion of the tenant origination cost (if it has no future value), leasing commissions, absorption costs and net lease intangible associated with that lease over its new shorter term. Capitalized Interest We capitalize interest costs incurred on borrowing obligations while qualifying assets are being readied for their intended use. We amortize capitalized interest over the useful life of the related underlying assets upon those assets being placed into service. 34 annual RepoRt 2011 FoRm 10-K Real Estate Impairment We recognize impairment losses on long-lived assets used in operations and held for sale, development assets or land held for future development, if indicators of impairment are present and the net undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount and estimated undiscounted cash flows associated with future development expenditures. If such carrying amount is in excess of the estimated cash flows from the operation and disposal of the property, we would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to the estimated fair value. The estimated fair value would be calculated in accordance with current GAAP fair value provisions. Stock Based Compensation We recognize compensation expense for service-based share awards ratably over the period from the service inception date through the vesting period based on the fair market value of the shares on the date of grant. We initially measure compensation expense for awards with performance conditions at fair value at the service inception date based on probability of payout, and we remeasure compensation expense at subsequent reporting dates until all of the award’s key terms and conditions are known and the grant date is established. We amortize awards with performance conditions over the performance period using the graded expense method. We measure compensation expense for awards with market conditions based on the grant date fair value, as determined using a Monte Carlo simulation, and we amortize the expense ratably over the requisite service period, regardless of whether the market conditions are achieved and the awards ultimately vest. Compensation expense for the trustee grants, which fully vest immediately, is fully recognized upon issuance based upon the fair market value of the shares on the date of grant. Federal Income Taxes Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undis- tributed REIT taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRS’s”). Our TRS’s are subject to corporate federal and state income tax on their taxable income at regular statutory rates. During the fourth quarter of 2011 we recognized a $14.5 million impairment charge at Dulles Station, Phase II, a development property held by one of our TRS’s (see note 3 to the consolidated financial statements). The impairment charge created a deferred tax asset of $5.7 million at this TRS, and we have determined that it is more likely than not that this deferred tax asset will not be realized, as we cannot reliably project sufficient future taxable income in the TRS’s to realize all or part of the deferred tax asset. We have therefore recorded a valuation allowance for the full amount of the deferred tax asset related to the impairment charge at Dulles Station, Phase II. As of December 31, 2011, our TRS’s had a net deferred tax asset of $0.1 million and a net deferred tax liability of $0.5 million, primarily related to temporary differences in the timing of the recognition of revenue, amortization and depreciation. There were no material income tax provisions or material net deferred income tax items for our TRS’s for the years ended December 31, 2010 and 2009. Results of Operations The discussion that follows is based on our consolidated results of operations for the years ended December 31, 2011, 2010 and 2009. The ability to compare one period to another is significantly affected by acquisitions completed and dispositions made during those years. For purposes of evaluating comparative operating performance, we categorize our properties as “same-store”, “non-same-store” or discontinued operations. A “same-store” property is one that was owned for the entirety of the periods being evaluated and is included in continuing operations. A “non-same-store” property is one that was acquired or placed into service during either of the periods being evaluated and is included in continuing operations. We classify results for properties sold or held for sale during any of the periods evaluated as discontinued operations. FoRm 10-K annual RepoRt 2011 35 Properties we acquired during the years ending December 31, 2011, 2010 and 2009 are as follows: ACqUISITION DATE PROPERTY January 11, 2011 March 30, 2011 June 15, 2011 August 30, 2011 1140 Connecticut Ave 1127 25th St 650 North Glebe Road Olney Village September 13, 2011 Braddock Metro September 15, 2011 John Marshall II November 23, 2011 1219 First Street Total 2011 June 3, 2010 925 and 1000 Corporate Drive December 1, 2010 Gateway Overlook Total 2010 TYPE Office Office Land Retail Office Office Land Office Retail August 13, 2009 Lansdowne Medical Office Building Medical Office Total 2009 RENTABLE SqUARE FEET CONTRACT PURCHASE PRICE (In thousands) 184,000 130,000 N/A 199,000 345,000 223,000 N/A 1,081,000 271,000 223,000 494,000 87,000 87,000 $ 80,250 47,000 11,800 58,000 101,000 73,500 13,850 $385,400 $ 68,000 88,400 $156,400 $ 19,900 $ 19,900 Properties we sold or classified as held for sale during the three years ending December 31, 2011 are as follows: April 5, 2011 Various(1) Total 2011 June 18, 2010 DISPOSITION DATE PROPERTY Dulles Station, Phase I Industrial Portfolio(1) TYPE Office Industrial/Office Parklawn Portfolio(2) Office/Industrial December 21, 2010 The Ridges December 22, 2010 Ammendale I&II/Amvax Total 2010 May 13, 2009 July 23, 2009 July 31, 2009 Avondale Tech 100 Industrial Park Brandywine Center November 13, 2009 Crossroads Distribution Center Total 2009 Office Industrial Multifamily Industrial Office Industrial RENTABLE SqUARE FEET CONTRACT PURCHASE PRICE (In thousands) 180,000 3,092,000 3,272,000 229,000 104,000 305,000 638,000 170,000 166,000 35,000 85,000 456,000 $ 58,800 350,900 $409,700 $ 23,400 27,500 23,000 $ 73,900 $ 19,800 10,500 3,300 4,400 $ 38,000 (1) The Industrial Portfolio consists of every property in our industrial segment and two office properties (the Crescent and Albemarle Point), and we closed on the sale on three separate dates. On September 2, 2011, we closed on the sale of the two office properties (the Crescent and Albemarle Point) and 8880 Gorman Road, Dulles South IV, Fullerton Business Center, Hampton Overlook, Alban Business Center, Pickett Industrial Park, Northern Virginia Industrial Park I, 270 Technology Park, Fullerton Industrial Center, Sully Square, 9950 Business Parkway, Hampton South and 8900 Telegraph Road. On October 3, 2011, we closed the sale of Northern Virginia Industrial Park II. On November 1, 2011, we closed on the sale of 6100 Columbia Park Road and Dulles Business Park I and II. (2) The Parklawn Portfolio consists of three office properties (Parklawn Plaza, Lexington Building and Saratoga Building) and one industrial property (Charleston Business Center). To provide more insight into our operating results, we divide our discussion into two main sections: (a) the consolidated results of operations section, in which we provide an overview analysis of results on a consolidated basis, and (b) the net operating income (“NOI”) section, in which we provide a detailed analysis of same-store versus non-same-store NOI results by segment. NOI is a non-GAAP measure calculated as real estate rental revenue less real estate expenses excluding depreciation and amortization and general and administrative expenses. 36 annual RepoRt 2011 FoRm 10-K Consolidated Results of Operations Real Estate Rental Revenue Real estate rental revenue for properties classified as continuing operations is summarized as follows (all data in thousands except percentage amounts): Minimum base rent Recoveries from tenants Provisions for doubtful accounts Lease termination fees Parking and other tenant charges 2011 2010 2009 2011 vs 2010 % CHANGE 2010 vs 2009 % CHANGE $256,016 $227,604 $222,733 $28,412 12.5% $ 4,871 2.2% 26,058 (4,627) 517 11,563 24,484 (4,307) 349 10,360 27,571 (4,236) 1,075 9,406 1,574 (320) 168 1,203 $289,527 $258,490 $256,549 $31,037 6.4% 7.4% 48.1% 11.6% 12.0% (3,087) (11.2%) (71) (726) 954 $ 1,941 1.7% (67.5%) 10.1% 0.8% 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) provisions for doubtful accounts, which include provisions for straight-line receivables, (d) revenue from the collection of lease termination fees and (e) parking and other tenant charges such as percentage rents. Minimum Base Rent: Minimum base rent increased by $28.4 million in 2011 primarily due to acquisitions ($26.5 million). Minimum base rent from same-store properties increased by $1.9 million primarily due to higher rental rates ($5.0 million), partially offset by lower occupancy ($2.5 million) and higher amortization of capitalized lease incentives ($0.4 million). Minimum base rent increased by $4.9 million in 2010 primarily due to acquisitions ($5.6 million) and higher rental rates at same- store properties ($3.9 million), partially offset by lower occupancy ($3.5 million) and lower amortization of intangible lease liabilities ($0.8 million) at same-store properties. Recoveries from Tenants: Recoveries from tenants increased by $1.6 million in 2011 primarily due to acquisitions ($3.1 million), partially offset by lower real estate tax recoveries from same-store properties ($1.2 million) caused by lower property tax assessments across the portfolio. Recoveries from tenants decreased by $3.1 million in 2010 primarily due to lower real estate tax recoveries ($2.1 million) caused by lower property tax assessments across the portfolio, as well as lower operating expense and electricity reimbursements ($1.3 mil- lion) caused by lower electricity rates and lower occupancy. These were partially offset by recoveries from tenants at non-same-store properties ($0.2 million). Provisions for Doubtful Accounts: Provisions for doubtful accounts increased by $0.3 million in 2011 due to higher provisions in the retail ($0.9 million) and medical office ($0.2 million) segments, partially offset by lower provisions in the office ($0.7 million) and multifamily ($0.1 million) segments. Provisions for doubtful accounts increased by $0.1 million in 2010 due to higher provisions in the medical office ($0.1 million), retail ($0.1 million) and multifamily ($0.1 million) segments, partially offset by lower provisions in the office segment ($0.2 million). Lease Termination Fees: Lease termination fees increased by $0.2 million in 2011 primarily due to higher fees in the retail ($0.1 million) segment. Lease termination fees decreased by $0.7 million in 2010 primarily due to lower fees in the office ($0.3 million) and retail ($0.3 mil- lion) segments. Parking and Other Tenant Charges: Parking and other tenant charges increased by $1.2 million in 2011 primarily due to acquisitions ($0.7 million), as well as increases in parking income ($0.3 million) and antenna rent ($0.1 million) from same-store properties. Parking and other tenant charges increased by $1.0 million in 2010 primarily due to an increase in antenna rent ($0.5 million) caused by new antenna leases in the office and multifamily segments, as well as an increase in parking income ($0.4 million). FoRm 10-K annual RepoRt 2011 37 A summary of occupancy for properties classified as continuing operations by segment follows: SEGMENT Office Medical Office Retail Multifamily Total 2011 89.0% 86.5% 93.3% 94.9% 90.8% 2010 89.4% 88.5% 92.1% 95.7% 91.3% 2009 91.6% 87.9% 93.6% 94.2% 92.1% 2011 vs 2010 2010 vs 2009 (0.4%) (2.0%) 1.2% (0.8%) (0.5%) (2.2%) 0.6% (1.5%) 1.5% (0.8%) Occupancy represents occupied square footage indicated as a percentage of total square footage as of the last day of that period. Our overall occupancy decreased to 90.8% in 2011 from 91.3% in 2010, as declines in office, medical office and multifamily occupancy were partially offset by an increase in retail occupancy. Our overall occupancy decreased to 91.3% in 2010 from 92.1% in 2009, as declines in office and retail occupancy were partially offset by increases in medical office and multifamily occupancy. A detailed discussion of occupancy by sector can be found in the Net Operating Income section. Real Estate Expenses Real estate expenses are summarized as follows (all data in thousands except percentage amounts): Property operating expenses Real estate taxes 2011 $69,954 27,238 $97,192 2010 $61,617 25,043 $86,660 2009 2011 vs 2010 % CHANGE 2010 vs 2009 % CHANGE $62,217 27,072 $89,289 $ 8,337 2,195 $10,532 13.5% 8.8% 12.2% $ (600) (2,029) $(2,629) (1.0%) (7.5%) (2.9%) Real estate expenses as a percentage of revenue were 33.6% for 2011, 33.5% for 2010 and 34.8% for 2009. Property Operating Expenses: Property operating expenses include utilities, repairs and maintenance, property administration and management, operating services, common area maintenance, property insurance, bad debt and other operating expenses. Property operating expenses increased $8.3 million in 2011 primarily due to acquisitions ($6.3 million). Property operating expenses from same-store properties increased by $1.9 million primarily due to higher administrative ($0.5 million), repairs and maintenance ($0.6 million), legal ($0.5 million) and vacant space preparation ($0.2 million) expenses. Property operating expenses decreased $0.6 million in 2010 primarily due to lower bad debt expense ($1.7 million) at same-store properties, partially offset by operating expenses from acquisitions ($1.2 million). Real Estate Taxes: Real estate taxes increased $2.2 million in 2011 due to acquisitions ($3.5 million), partially offset by lower real estate taxes at same-store properties ($1.3 million) due to lower property assessments. Real estate taxes decreased $2.0 million in 2010 due primarily to lower property assessments across the portfolio. Other Operating Expenses Other operating expenses are summarized as follows (all data in thousands except percentage amounts): 2011 2010 2009 2011 vs 2010 % CHANGE 2010 vs 2009 % CHANGE Depreciation and amortization $ 93,297 Interest expense General and administrative 66,473 15,728 $175,498 $ 80,066 67,229 14,406 $161,701 $ 77,549 72,694 13,118 $163,361 $13,231 (756) 1,322 $13,797 16.5% (1.1%) 9.2% 8.5% $ 2,517 (5,465) 1,288 $ (1,660) 3.2% (7.5%) 9.8% (1.0%) 38 annual RepoRt 2011 FoRm 10-K Depreciation and Amortization: Depreciation and amortization expense increased by $13.2 million in 2011 as compared to 2010 primar- ily due to operating properties acquired and placed into service of $359.8 million and $156.4 million in 2011 and 2010, respectively. Depreciation and amortization expense increased by $2.5 million in 2010 as compared to 2009 primarily due to properties acquired and placed into service of $156.4 million and $19.9 million in 2010 and 2009, respectively. Interest Expense: A summary of interest expense for the years ended December 31, 2011, 2010 and 2009 appears below (in millions, except percentage amounts): DEBT TYPE Notes payable Mortgages Lines of credit/short-term note payable Capitalized interest Total 2011 $38.9 23.5 4.8 (0.7) $66.5 2010 $41.7 22.5 3.8 (0.8) $67.2 2009 $48.2 24.4 1.5 (1.4) $72.7 2011 vs 2010 % CHANGE 2010 vs 2009 % CHANGE $(2.8) 1.0 1.0 0.1 $(0.7) (6.7%) 4.4% 26.3% (12.5%) (1.0%) $(6.5) (1.9) 2.3 0.6 $(5.5) (13%) (8%) 153% (43%) — The $2.8 million decrease in notes payable interest during 2011 is due to paying off our 3.875% convertible notes and our 5.95% senior notes during 2011, partially offset by the issuance of our 4.95% senior notes in September 2010. The $1.0 million increase in mortgage interest expense is due to the assumption of mortgage notes with the acquisitions of Olney Village Center and John Marshall II, partially offset by the pay-off of the mortgage note secured by Shady Grove Medical Village II during 2011. The $1.0 million increase during 2011 in interest expense on our unsecured lines of credit is attributable to having larger borrowings outstanding on average during 2011 in order to partially finance our property acquisitions and the pay-off of our 5.95% senior notes. Interest expense decreased by $5.5 million during 2010 as compared to 2009. We paid off a $100.0 million term loan in December 2009 using one of our lines of credit, resulting in a net interest expense decrease of $2.9 million during 2010. Additionally, we used the proceeds from the issuance of 4.95% senior notes to pay down significant portions of our 3.875% convertible notes and our 5.95% senior notes, resulting in a net interest expense decrease of $1.4 million. Mortgage interest expense decreased by $1.9 million due to the payoff of a $50.0 million mortgage note in July 2009. These were partially offset by a $0.6 million decrease in capitalized interest. General and Administrative Expense: General and administrative expense increased by $1.3 million in 2011 primarily due to higher compensation expense driven by severance costs related to the disposal of the industrial segment and annual pay increases. General and administrative expense increased by $1.3 million in 2010 as compared to 2009 due primarily to higher incentive com- pensation expense and the reorganization of the leasing department. Real Estate Impairment We recognized a $0.6 million impairment charge for Dulles Station, Phase I during the first quarter of 2011 to reflect the property’s fair value less any selling costs based on its contract sales price. This expense related to a sold property is included in income from properties sold or held for sale on the consolidated statements of operation. Dulles Station, Phase II consists of undeveloped land in Herndon, Virginia and a half interest in a parking garage that is adjacent to this land. The land is zoned for development as an office building. In connection with the preparation of financial statements for this Annual Report on Form 10-K, we reviewed changes in market conditions, specifically higher vacancy and lower rental rates in the Washington metro region office market and other circumstances affecting the Herndon submarket, such as the increased uncertainty surrounding the timing of the completion of the second phase of the Dulles Metrorail project, and reassessed the likelihood that we would follow through on these development plans. Based upon the foregoing review and assessment, we determined that the development of the land at Dulles Station, Phase II is not probable under current market conditions. Due to this determination, we recognized a $14.5 million impairment charge during the fourth quarter of 2011 in order to reduce the carrying value of the land and garage at Dulles Station, Phase II to its fair value of $12.1 million. FoRm 10-K annual RepoRt 2011 39 Discontinued Operations Operating results of the properties classified as discontinued operations are summarized as follows (in thousands, except for percentages): Revenues Property expenses Real estate impairment Depreciation and amortization Interest expense Total 2011 2010 2009 2011 vs 2010 % CHANGE 2010 vs 2009 % CHANGE $26,154 $ 47,646 $ 53,726 $(21,492) (7,697) (599) (7,231) (474) (15,248) (16,646) — (15,680) (1,750) — (16,896) (2,307) 7,551 (599) 8,449 1,276 $10,153 $ 14,968 $ 17,877 $ (4,815) (45.1%) (49.5%) (53.9%) (72.9%) (32.2%) $(6,080) 1,398 (11.3%) (8.4%) 1,216 557 $(2,909) (7.2%) (24.1%) (16.3%) Income from operations of properties sold or held for sale decreased by $4.8 million in 2011 due to the sales of the industrial portfo- lio and Dulles Station, Phase I. Income from operations of properties sold or held for sale decreased by $2.9 million in 2010 due to the sales of the Parklawn Portfolio, the Ridges, Ammendale I and II and Amvax in 2010. Net Operating Income NOI is the primary performance measure we use to assess the results of our operations at the property level. 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 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 calculated in accordance with GAAP. As such, it should not be considered an alternative to net income as an indication of our operating performance. NOI is calculated as real estate rental revenue less real estate expenses excluding depreciation and amortization and general and administrative expenses. A reconciliation of NOI to net income follows. 40 annual RepoRt 2011 FoRm 10-K 2011 Compared to 2010 The following tables of selected operating data reconcile NOI to net income attributable to the controlling interests and provide the basis for our discussion of NOI in 2011 compared to 2010. All amounts are in thousands except percentage amounts. YEARS ENDED DECEMBER 31, 2011 2010 $ CHANGE % CHANGE Real Estate Rental Revenue Same-store Non-same-store(1) Total real estate rental revenue Real Estate Expenses Same-store Non-same-store(1) Total real estate expenses NOI Same-store Non-same-store(1) Total NOI Reconciliation to Net Income noi Other income Acquisition costs Interest expense Depreciation and amortization General and administrative Real estate impairment Gain (loss) on extinguishment of debt Gain on non disposal activities Discontinued operations(2) Gain on sale of real estate Income tax expense Net income Less: Net income attributable to noncontrolling interests Net income attributable to the controlling interests OCCUPANCY Same-store Non-same-store(1) Total $253,639 35,888 $289,527 $ 85,358 11,834 $ 97,192 $168,281 24,054 $192,335 $252,837 5,653 $258,490 $ 84,723 1,937 $ 86,660 $168,114 3,716 $171,830 $192,335 $171,830 1,144 (3,607) (66,473) (93,297) (15,728) (14,526) (976) — 10,153 97,491 (1,138) 105,378 (494) $104,884 1,193 (1,161) (67,229) (80,066) (14,406) — (9,176) 7 14,968 21,599 — 37,559 (133) $ 37,426 $ 802 30,235 $31,037 $ 635 9,897 $10,532 $ 167 20,338 $20,505 0.3% 534.8% 12.0% 0.7% 510.9% 12.2% 0.1% 547.3% 11.9% 2011 91.1% 89.5% 90.8% 2010 91.8% 82.7% 91.3% (1) Non-same-store properties include: 2011 Office acquisitions—1140 Connecticut Avenue, 1227 25th Street, Braddock Metro Center and John Marshall II; 2011 Retail acquisi- tion—Olney Village Center; 2010 Office acquisitions—925 and 1000 Corporate Drive; 2010 Retail acquisition—Gateway Overlook; 2009 Medical Office acquisition— Lansdowne Medical Office Building (2) Discontinued operations include gain on disposals and income from operations for: 2011 dispositions—Dulles Station, Phase I and the Industrial Portfolio; 2010 dispositions— Parklawn Portfolio, the Ridges, Ammendale I&II and Amvax Real estate rental revenue from same-store properties increased by $0.8 million in 2011 primarily due to higher rental rates ($5.0 mil- lion), partially offset by lower occupancy ($2.5 million) and lower recoveries from tenants ($1.5 million). FoRm 10-K annual RepoRt 2011 41 Real estate expenses from same-store properties increased by $0.6 million in 2011 primarily due to higher repairs and maintenance ($0.6 million), administrative ($0.5 million), legal ($0.5 million) and vacant space preparation ($0.2 million) expenses, partially offset by lower real estate taxes ($1.3 million). Same-store occupancy decreased to 91.1% in 2011 from 91.8% in 2010, with the largest decrease in the medical office segment. Non-same-store occupancy increased to 89.5% in 2011 from 82.7% in 2010, driven by the acquisitions in 2011 of John Marshall II and Olney Village Center, each of which were 100.0% occupied at the end of 2011. During 2011, 59.4% of the commercial square footage expiring was renewed as compared to 60.8% in 2010, excluding properties sold or classified as held for sale. During 2011, 1.0 million commercial square feet were leased at an average rental rate of $31.34 per square foot, an increase of 9.1%, with average tenant improvements and leasing costs of $22.02 per square foot. These leasing statistics exclude first generation leases at recently-built properties. An analysis of NOI by segment follows. Office Segment: Real Estate Rental Revenue Same-store Non-same-store(1) Total real estate rental revenue Real Estate Expenses Same-store Non-same-store(1) Total real estate expenses NOI Same-store Non-same-store(1) Total NOI OCCUPANCY Same-store Non-same-store(1) Total YEARS ENDED DECEMBER 31, 2011 2010 $ CHANGE % CHANGE $117,161 25,709 $142,870 $ 39,974 8,986 $ 48,960 $ 77,187 16,723 $ 93,910 $118,913 4,947 $123,860 $ 41,095 1,297 $ 42,392 $ 77,818 3,650 $ 81,468 $ (1,752) 20,762 $19,010 $ (1,121) 7,689 $ 6,568 $ (631) 13,073 $12,442 2011 88.0% 92.3% 89.0% (1.5%) 419.7% 15.3% (2.7%) 592.8% 15.5% (0.8%) 358.2% 15.3% 2010 88.6% 100.0% 89.4% (1) Non-same-store properties include: 2011 acquisitions—1140 Connecticut Avenue, 1227 25th Street, Braddock Metro Center and John Marshall II; 2010 acquisitions—925 and 1000 Corporate Drive Real estate rental revenue from same-store properties decreased by $1.8 million in 2011 primarily due to lower occupancy ($1.6 mil- lion) and lower real estate tax reimbursements from tenants ($1.2 million), partially offset by higher rental rates ($1.1 million). Real estate expenses from same-store properties decreased by $1.1 million in 2011 primarily due to lower real estate taxes ($1.2 million). Same-store occupancy decreased to 88.0% in 2011 from 88.6% in 2010, primarily due to higher vacancy at 2000 M Street and West Gude Drive. During 2011, 44.9% of the square footage that expired was renewed compared to 47.3% in 2010, excluding properties sold or classified as held for sale. During 2011, we executed new leases for 0.6 million square feet of office space at an average rental rate of $32.64 per square foot, an increase of 6.4%, with average tenant improvements and leasing costs of $25.25 per square foot. 42 annual RepoRt 2011 FoRm 10-K Medical Office Segment: Real Estate Rental Revenue Same-store Non-same-store(1) Total real estate rental revenue Real Estate Expenses Same-store Non-same-store(1) Total real estate expenses NOI Same-store Non-same-store(1) Total NOI OCCUPANCY Same-store Non-same-store(1) Total YEARS ENDED DECEMBER 31, 2011 2010 $ CHANGE % CHANGE $44,627 630 $45,257 $13,644 598 $14,242 $30,983 32 $31,015 $44,949 79 $45,028 $14,205 510 $14,715 $30,744 (431) $30,313 $(322) 551 $229 $(561) 88 $(473) $ 239 463 $ 702 2011 90.6% 27.0% 86.5% (0.7%) 697.5% 0.5% (3.9%) 17.3% (3.2%) 0.8% (107.4%) 2.3% 2010 93.8% 14.7% 88.5% (1) Non-same-store properties include: 2009 acquisition—Lansdowne Medical Office Building Real estate rental revenue from same-store properties decreased by $0.3 million in 2011 primarily due to lower occupancy ($0.9 mil- lion) and lower expense reimbursements from tenants ($0.7 million), partially offset by higher rental rates ($1.4 million). Real estate expenses from same-store properties decreased by $0.6 million in 2011 primarily due to recoveries of bad debt ($0.3 mil- lion) and lower real estate taxes ($0.1 million). Same-store occupancy decreased to 90.6% in 2011 from 93.8% in 2010, primarily due to higher vacancy at Woodholme Medical Center and Shady Grove Medical Village II. Non-same-store occupancy increased to 27.0% from 14.7%, reflecting the progress made in the lease-up of Lansdowne Medical Office Building, which was vacant when acquired during the third quarter of 2009. This building was 32.0% leased as of the end of 2011. During 2011, 72.7% of the square footage that expired was renewed compared to 78.9% in 2010. During 2011, we executed new leases for 0.2 million square feet of medical office space at an average rental rate of $37.52, an increase of 13.4%, with average tenant improvements and leasing costs of $20.26 per square foot. These leasing statistics exclude first generation leases at Lansdowne Medical Office Building, which was newly-constructed and vacant when acquired. FoRm 10-K annual RepoRt 2011 43 Retail Segment: Real Estate Rental Revenue Same-store Non-same-store(1) Total real estate rental revenue Real Estate Expenses Same-store Non-same-store(1) Total real estate expenses NOI Same-store Non-same-store(1) Total NOI OCCUPANCY Same-store Non-same-store(1) Total YEARS ENDED DECEMBER 31, 2011 2010 $ CHANGE % CHANGE $40,872 9,549 $50,421 $12,023 2,250 $14,273 $28,849 7,299 $36,148 $40,376 627 $41,003 $10,180 130 $10,310 $30,196 497 $30,693 $ 496 8,922 $ 9,418 $ 1,843 2,120 $ 3,963 $(1,347) 6,802 $ 5,455 2011 93.0% 94.7% 93.3% 1.2% 23.0% 18.1% 38.4% (4.5%) 17.8% 2010 92.5% 88.2% 92.1% (1) Non-same-store properties include: 2011 acquisition—Olney Village Center; 2010 acquisition—Gateway Overlook Real estate rental revenue from same-store properties increased by $0.5 million in 2011 primarily due to higher rental rates ($0.6 mil- lion), expense reimbursements from tenants ($0.4 million) and occupancy ($0.2 million), partially offset by higher reserves for uncol- lectible revenue ($0.8 million). Real estate expenses from same-store properties increased by $1.8 million in 2011 due to higher bad debt ($0.8 million), legal expenses ($0.5 million) and vacant space preparation expenses ($0.2 million). Same-store occupancy increased to 93.0% in 2011 from 92.5% in 2010, driven by higher occupancy at Montrose Shopping Center. Non-same-store occupancy increased to 94.7% from 88.2% due to the acquisition of the fully-leased Olney Village Center. During 2011, 87.8% of the square footage that expired was renewed compared to 72.7% in 2010. During 2011, we executed new leases for 0.2 million square feet of retail space at an average rental rate of $21.52, an increase of 16.6%, with average tenant improvements and leasing costs of $13.69 per square foot. 44 annual RepoRt 2011 FoRm 10-K Multifamily Segment: Real Estate Rental Revenue Total Real Estate Expenses Total NOI Total OCCUPANCY Total YEARS ENDED DECEMBER 31, 2011 2010 $ CHANGE % CHANGE $50,979 $48,599 $2,380 $19,717 $19,243 $ 474 $31,262 $29,356 $1,906 2011 94.9% 4.9% 2.5% 6.5% 2010 95.7% Real estate rental revenue increased by $2.4 million in 2011 primarily due to higher rental rates ($1.9 million) and lower rent abate- ments ($0.4 million). Real estate expenses increased by $0.5 million in 2011 due primarily to higher administrative ($0.3 million) and repairs and mainte- nance ($0.2 million) expenses. Occupancy decreased to 94.9% in 2011 from 95.7% in 2010, driven by lower occupancy at The Kenmore, 3801 Connecticut Avenue and Bethesda Hill Apartments. FoRm 10-K annual RepoRt 2011 45 2010 Compared to 2009 The following tables of selected operating data reconcile NOI to net income attributable to the controlling interests and provide the basis for our discussion of NOI in 2010 compared to 2009. All amounts are in thousands except percentage amounts. YEARS ENDED DECEMBER 31, 2010 2009 $ CHANGE % CHANGE $(4,781) 6,722 $ 1,941 $(4,151) 1,522 $(2,629) $ (630) 5,200 $ 4,570 (1.9%) 96.5% 0.8% (4.9%) 40.2% (2.9%) (0.4%) 163.9% 2.7% Real Estate Rental Revenue Same-store Non-same-store(1) Total real estate rental revenue Real Estate Expenses Same-store Non-same-store(1) Total real estate expenses NOI Same-store Non-same-store(1) Total NOI Reconciliation to Net Income noi Other income Acquisition costs Income from non-disposal activities Interest expense Depreciation and amortization General and administrative expenses Gain (loss) on extinguishment of debt Discontinued operations(2) Gain on sale of real estate Net income Less: Net income attributable to noncontrolling interests $244,805 13,685 $258,490 $81,348 5,312 $86,660 $163,457 8,373 $171,830 $249,586 6,963 $256,549 $85,499 3,790 $89,289 $164,087 3,173 $167,260 $171,830 $167,260 1,193 (1,161) 7 (67,229) (80,066) (14,406) (9,176) 14,968 21,599 37,559 (133) 1,205 (788) 71 (72,694) (77,549) (13,118) 5,336 17,877 13,348 40,948 (203) Net income attributable to the controlling interests $ 37,426 $ 40,745 OCCUPANCY Same-store Non-same-store(1) Total 2010 91.8% 85.6% 91.3% 2009 93.0% 70.9% 92.1% (1) Non-same-store properties include: Multifamily development properties—Clayborne Apartments and Bennett Park; 2010 Office acquisitions—925 and 1000 Corporate Drive; 2010 Retail acquisition—Gateway Overlook; 2009 Medical Office acquisition—Lansdowne Medical Office Building (2) Discontinued operations include gain on disposals and income from operations for: 2011 dispositions—Dulles Station, Phase I and the Industrial Portfolio; 2010 dispositions— Parklawn Portfolio, the Ridges, Ammendale I&II and Amvax; 2009 dispositions—Avondale, Tech 100 Industrial Park, Brandywine Center and Crossroads Distribution Center Real estate rental revenue from same-store properties decreased by $4.8 million in 2010 primarily due to lower occupancy ($4.3 mil- lion), lower recoveries from tenants ($3.4 million) and lower lease termination fees ($0.7 million), partially offset by higher rental rates ($3.8 million). Real estate expenses from same-store properties decreased by $4.2 million in 2010 primarily due to lower real estate taxes ($2.4 mil- lion) and recoveries of bad debt ($1.7 million). 46 annual RepoRt 2011 FoRm 10-K Same-store occupancy decreased to 91.8% in 2010 from 93.0% in 2009, with the most severe decrease in the office segment. Non- same-store occupancy increased to 85.6% in 2010 from 70.9% in 2009, driven by the acquisitions in 2010 of Quantico Corporate Center (925 and 1000 Corporate Drive) and Gateway Overlook, which were 100.0% and 88.2% occupied, respectively, at the end of 2010. During 2010, 60.8% of the commercial square footage expiring was renewed as compared to 63.7% in 2009, excluding proper- ties sold or classified as held for sale. During 2010, 1.0 million commercial square feet were leased at an average rental rate of $29.80 per square foot, an increase of 13.6%, with average tenant improvements and leasing costs of $25.09 per square foot. These leasing statistics exclude first generation leases at recently-built properties. An analysis of NOI by segment follows. Office Segment: Real Estate Rental Revenue Same-store Non-same-store(1) Total real estate rental revenue Real Estate Expenses Same-store Non-same-store(1) Total real estate expenses NOI Same-store Non-same-store(1) Total NOI OCCUPANCY Same-store Non-same-store(1) Total YEARS ENDED DECEMBER 31, 2010 2009 $ CHANGE % CHANGE $118,913 4,947 $123,860 $ 41,095 1,297 $ 42,392 $ 77,818 3,650 $ 81,468 $123,347 — $123,347 $ 43,881 16 $ 43,897 $ 79,466 (16) $ 79,450 $(4,434) 4,947 $ 513 $(2,786) 1,281 $(1,505) $(1,648) 3,666 $ 2,018 2010 88.6% 100.0% 89.4% (3.6%) 0.4% (6.3%) 8,006.3% (3.4%) (2.1%) (22,912.5%) 2.5% 2009 91.6% N/A 91.6% (1) Non-same-store properties include: Acquisitions—925 and 1000 Corporate Drive Real estate rental revenue from same-store properties decreased by $4.4 million in 2010 as compared to 2009 primarily due to lower same-store occupancy ($3.5 million), lower recoveries from tenants ($2.7 million) and higher rent abatements ($0.5 million), partially offset by higher rental rates ($2.2 million). Real estate expenses from same-store properties decreased by $2.8 million in 2010 as compared to 2009 primarily due to lower real estate taxes ($1.5 million) caused by lower property assessments, higher recoveries of bad debt ($1.0 million) and lower electricity rates ($0.7 million). These were offset by higher repairs and maintenance costs ($0.3 million). Same-store occupancy decreased to 88.6% in 2010 from 91.6% in 2009, primarily caused by higher vacancy at Monument II due to the non-renewal of a major tenant. The non-same-store occupancy of 100.0% reflects the acquisition of the fully-leased 925 and 1000 Corporate Drive. During 2010, 47.3% of the square footage that expired was renewed compared to 68.0% in 2009, excluding properties sold or classified as held for sale. During 2010, we executed new leases for 0.6 million square feet of office space at an average rental rate of $31.11 per square foot, an increase of 9.9%, with average tenant improvements and leasing costs of $34.28 per square foot. FoRm 10-K annual RepoRt 2011 47 Medical Office Segment: Real Estate Rental Revenue Same-store Non-same-store(1) Total real estate rental revenue Real Estate Expenses Same-store Non-same-store(1) Total real estate expenses NOI Same-store Non-same-store(1) Total NOI OCCUPANCY Same-store Non-same-store(1) Total YEARS ENDED DECEMBER 31, 2010 2009 $ CHANGE % CHANGE $44,949 79 $45,028 $14,205 510 $14,715 $30,744 (431) $30,313 $44,911 — $44,911 $15,051 167 $15,218 $29,860 (167) $29,693 $ 38 79 $ 117 $(846) 343 $(503) $ 884 (264) $ 620 2010 93.8% 14.7% 88.5% 0.1% 0.3% (5.6%) 205.4% (3.3%) 3.0% 158.1% 2.1% 2009 94.2% — 87.9% (1) Non-same-store properties include: 2009 acquisition—Lansdowne Medical Office Building Real estate rental revenue from same-store properties slightly increased as higher rental rates ($1.3 million) were offset by higher vacancy ($0.4 million), lower tenant reimbursements for real estate taxes ($0.7 million) and higher reserves for uncollectible revenue ($0.1 million). Real estate expenses from same-store properties decreased by $0.8 million in 2010 as compared to 2009 due primarily to lower real estate taxes ($0.6 million) and lower electricity rates ($0.3 million). Same-store occupancy decreased to 93.8% in 2010 from 94.2% in 2009 due to small decreases in occupancy at several proper- ties. Non-same-store occupancy increased to 14.7% from 0.0%, reflecting the limited progress made in the lease-up of Lansdowne Medical Office Building, which was vacant when acquired during the third quarter of 2009. This building was 20.0% leased as of the end of 2010. During 2010, 78.9% of the square footage that expired was renewed compared to 64.4% in 2009. During 2010, we executed new leases for 0.2 million square feet of medical office space at an average rental rate of $37.78, an increase of 19.2%, with average tenant improvements and leasing costs of $25.30 per square foot. These leasing statistics exclude first generation leases at Lansdowne Medical Office Building, which was newly-constructed and vacant when acquired. 48 annual RepoRt 2011 FoRm 10-K Retail Segment: Real Estate Rental Revenue Same-store Non-same-store(1) Total real estate rental revenue Real Estate Expenses Same-store Non-same-store(1) Total real estate expenses NOI Same-store Non-same-store(1) Total NOI OCCUPANCY Same-store Non-same-store(1) Total YEARS ENDED DECEMBER 31, 2010 2009 $ CHANGE % CHANGE $40,376 627 $41,003 $10,180 130 $10,310 $30,196 497 $30,693 $41,821 — $41,821 $10,680 — $10,680 $31,141 — $31,141 $(1,445) 627 $ (818) $ (500) 130 $ (370) $ (945) 497 $ (448) 2010 92.5% 88.2% 92.1% (3.5%) (2.0%) (4.7%) (3.5%) (3.0%) (1.4%) 2009 93.6% N/A 93.6% (1) Non-same-store properties include: 2010 acquisition—Gateway Overlook Real estate rental revenue from same-store properties decreased by $1.4 million in 2010 as compared to 2009 due to higher vacancy ($1.2 million) and lower tenant reimbursements for real estate taxes ($0.3 million). Real estate expenses from same-store properties decreased by $0.5 million in 2010 as compared to 2009 due to lower legal fees. Same-store occupancy decreased to 92.5% in 2010 from 93.6% in 2009, driven by lower occupancy at Frederick Crossing and Wheaton Park, which was partially offset by higher occupancy at the Centre at Hagerstown. The non-same-store occupancy of 88.2% reflects the acquisition of Gateway Overlook during the fourth quarter of 2010. During 2010, 72.7% of the square footage that expired was renewed compared to 52.2% in 2009. During 2010, we executed new leases for 0.3 million square feet of retail space at an average rental rate of $21.39, an increase of 18.6% from 2009, with average tenant improvements and leasing costs of $6.11 per square foot. FoRm 10-K annual RepoRt 2011 49 Multifamily Segment: Real Estate Rental Revenue Same-store Non-same-store(1) Total real estate rental revenue Real Estate Expenses Same-store Non-same-store(1) Total real estate expenses NOI Same-store Non-same-store(1) Total NOI OCCUPANCY Same-store Non-same-store(1) Total YEARS ENDED DECEMBER 31, 2010 2009 $ CHANGE % CHANGE $40,567 8,032 $48,599 $15,868 3,375 $19,243 $24,699 4,657 $29,356 $39,507 6,963 $46,470 $15,887 3,607 $19,494 $23,620 3,356 $26,976 $1,060 1,069 $2,129 $ (19) (232) $ (251) $1,079 1,301 $2,380 2010 96.3% 91.9% 95.7% 2.7% 15.4% 4.6% (0.1%) (6.4%) (1.3%) 4.6% 38.8% 8.8% 2009 94.3% 93.5% 94.2% (1) Non-same-store properties include: Development properties—Clayborne Apartments and Bennett Park Real estate rental revenue from same-store properties increased by $1.1 million in 2010 as compared to 2009 due primarily to higher occupancy ($0.8 million) and lower rent abatements ($0.2 million). The $1.1 million increase in real estate rental revenue from non- same-store properties reflects the lease-up of our development properties. Real estate expenses from same-store properties slightly decreased in 2010 as compared to 2009, while real estate expenses from non- same-store properties decreased by $0.2 million due primarily to lower real estate tax assessments at our development properties. Same-store occupancy increased to 96.3% in 2010 from 94.3% in 2009, driven by higher occupancy at our two Washington, D.C. properties, the Kenmore and 3801 Connecticut Avenue. These were partially offset by lower occupancy at Munson Hill Towers and the Ashby at McLean. Non-same-store occupancy decreased to 91.9% from 93.5%, reflecting lower occupancy at Bennett Park. Liquidity and Capital Resources Capital Structure We manage our capital structure to reflect a long-term investment approach, generally seeking to match the cash flow of our assets with a mix of equity and various debt instruments. We expect that our capital structure will allow us to obtain additional capital from diverse sources that could include additional equity offerings of common shares, public and private secured and unsecured debt financings, and possible asset dispositions. Our ability to raise funds through the sale of debt and equity securities is dependent on, among other things, general economic conditions, general market conditions for REITs, our operating performance, our debt rating and the current trading price of our common shares. We analyze which source of capital we believe to be most advantageous to us at any particular point in time. However, the capital markets may not consistently be available on terms that we consider attractive. While we have seen increased investor appetite for securities issued by REIT’s, we have learned from the recent economic downturn that investor appetite can change dramatically in a very short period of time. As a result, there can be no assurance that we will be able to access the public or private debt and equity markets at a given point in the future. 50 annual RepoRt 2011 FoRm 10-K We currently expect that our potential sources of liquidity for acquisitions, development, expansion and renovation of properties, and operating and administrative expenses, may include: • Cash flow from operations; • • • • • Borrowings under our unsecured credit facilities or other short-term facilities; Issuances of our equity securities and/or common units in our operating partnerships; Issuances of preferred stock; Proceeds from long-term secured or unsecured debt financings; Investment from joint venture partners; and • Net proceeds from the sale of assets. During 2012, we expect that we will have significant capital requirements, including the following items. There can be no assurance that our capital requirements will not be materially higher or lower than these expectations. • Funding dividends on our common shares and noncontrolling interest distributions to third party unit holders; • Capital to refinance the $71.7 million of remaining 2012 maturities on our mortgage notes payable and unsecured notes payable; • Capital to refinance our $75.0 million unsecured line of credit which expires in 2012; • Approximately $45.0—$60.0 million to invest in our existing portfolio of operating assets, including approximately $20.0— $25.0 million to fund tenant-related capital requirements and leasing commissions; • Approximately $1.0 million to fund first generation tenant-related capital requirements and leasing commissions; • Approximately $12.9 million to invest in our development projects; • • Funding to cover any costs related to property acquisitions; and Funding for potential property acquisitions throughout the remainder of 2012, with a portion expected to be offset by proceeds from potential property dispositions. We currently believe that we will generate sufficient cash flow from operations and have access to the capital resources necessary to fund our requirements in 2012. However, as a result of general market conditions in the greater Washington metro region, economic conditions affecting the ability to attract and retain tenants, unfavorable fluctuations in interest rates or our share price, unfavorable changes in the supply of competing properties, or our properties not performing as expected, we may not generate sufficient cash flow from operations or otherwise have access to capital on favorable terms, or at all. If we are unable to obtain capital from other sources, we may need to alter capital spending needs which may limit growth. If capital were not available, we may not be able to pay the dividend required to maintain our status as a REIT, make required principal and interest payments, make strategic acquisitions or make necessary routine capital improvements or undertake re-development opportunities with respect to our existing portfolio of operating assets. Debt Financing We generally use secured or unsecured, corporate-level debt, including mortgages, unsecured notes and our unsecured credit facili- ties, to meet our borrowing needs. Long-term, we generally use fixed rate debt instruments in order to match the returns from our real estate assets. We also utilize variable rate debt for short-term financing purposes. At times, our mix of variable and fixed rate debt may not suit our needs. At those times, we may use derivative financial instruments including interest rate swaps and caps, for- ward interest rate options or interest rate options in order to assist us in managing our debt mix. We may either hedge our variable rate debt to give it an effective fixed interest rate or hedge fixed rate debt to give it an effective variable interest rate. FoRm 10-K annual RepoRt 2011 51 Our total debt at December 31, 2011 and 2010 is summarized as follows (in thousands): Fixed rate mortgages(1) Unsecured credit facilities Unsecured notes payable 2011 $ 427,710 99,000 657,470 $1,184,180 2010 $ 361,860 100,000 753,587 $1,215,447 (1) Mortgage notes payable secured by Dulles Business Park I & II with a balance of $17.5 million was included in “Other liabilities related to properties sold or held for sale” at December 31, 2010. These mortgage notes payable were prepaid during the fourth quarter of 2011 in connection with the sale of the secured property. If principal amounts due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow may be insufficient to repay all maturing debt. Prevailing interest rates or other factors at the time of a refinancing, such as possible reluctance of lenders to make commercial real estate loans, may result in higher interest rates and increased interest expense or inhibit our ability to finance our obligations. Mortgage Debt At December 31, 2011, our $427.7 million in fixed rate mortgages, which includes a net $4.5 million in unamortized discounts due to fair value adjustments, bore an effective weighted average fair value interest rate of 5.9% and had a weighted average matu- rity of 5.0 years. We may either initiate secured mortgage debt or assume mortgage debt from time-to-time in conjunction with property acquisitions. On September 1, 2011, we repaid without penalty the remaining $9.1 million of principal on the mortgage note secured by Shady Grove Medical Village II. On October 5, 2011, we entered into an amendment to the purchase and sale agreement for 6100 Columbia Park Road and Dulles Business Park, under which we agreed to seek prepayment of the mortgage notes secured by Dulles Business Park prior to clos- ing the sale. Under the terms of the amendment, if we prepaid the mortgage notes prior to November 1, 2011, then the sales price would be increased by $875,000 in order to partially offset the penalties incurred by us for the prepayment of the mortgage notes. On October 7, 2011, we prepaid the remaining $17.5 million of principal on the mortgage notes, incurring prepayment penalties of approximately $1.0 million. Unsecured Credit Facilities Our primary source of liquidity is our two revolving credit facilities. We can borrow up to $475.0 million under these lines, which bear interest at an adjustable spread over LIBOR based on our public debt rating. Credit Facility No. 1 is a four-year, $75.0 million unsecured credit facility maturing in June 2012. We had $74.0 million in borrowings outstanding and $0.8 million in letters of credit issued as of December 31, 2011, related to Credit Facility No. 1. Borrowings under the facility bear interest at our option of LIBOR plus a spread based on the credit rating on our publicly issued debt or the higher of SunTrust Bank’s prime rate and the Federal Funds Rate in effect plus 0.5%. The interest rate spread is currently 42.5 basis points. All outstanding advances are due and payable upon maturity in June 2012. Interest only payments are due and payable generally on a monthly basis. In addition, we pay a facility fee based on the credit rating of our publicly issued debt which currently equals 0.15% per annum of the $75.0 million committed capacity, without regard to usage. Rates and fees may be adjusted up or down based on changes in our senior unsecured credit ratings. We anticipate that, prior to the June 2012 expiration of Credit Facility No. 1, we will negotiate a replacement facility in the same or greater amount than the expiring facility. While we anticipate that the interest rate and facility fee of the replacement facility will be higher than the current facility, we do not expect the new terms to have a material adverse effect on our financial results. Credit Facility No. 2 is a four-year $400.0 million unsecured credit facility maturing in July 2014, and may be extended for one year at our option. We had $25.0 million in borrowings outstanding as of December 31, 2011 related to Credit Facility No. 2. Advances under this agreement bear interest at our option of LIBOR plus a spread based on the credit rating of our publicly issued debt or the higher of Wells Fargo Bank’s prime rate and the Federal Funds Rate in effect on that day plus 1.0%. The interest rate spread is cur- rently 122.5 basis points. All outstanding advances are due and payable upon maturity in July 2014, and may be extended for one year 52 annual RepoRt 2011 FoRm 10-K at our option. Interest only payments are due and payable generally on a monthly basis. Credit Facility No. 2 requires us to pay the lender a facility fee on the total commitment of 0.225% per annum. These fees are payable quarterly. Our unsecured credit facilities contain financial and other covenants with which we must comply. Some of these covenants include: • A minimum tangible net worth; • A maximum ratio of total liabilities to gross asset value, calculated using an estimate of fair market value of our assets; • A maximum ratio of secured indebtedness to gross asset value, calculated using an estimate of fair market value of our assets; • A minimum ratio of annual EBITDA (earnings before interest, taxes, depreciation and amortization) to fixed charges, including interest expense; • a minimum ratio of unencumbered asset value, calculated using an estimate of fair value of our assets, to unsecured indebtedness; • A minimum ratio of net operating income from our unencumbered properties to unsecured interest expense; and • A maximum ratio of permitted investments to gross asset value, calculated using an estimate of fair market value of our assets. Failure to comply with any of the covenants under our unsecured credit facilities or other debt instruments could result in a default under one or more of our debt instruments. This could cause our lenders to accelerate the timing of payments and would therefore have a material adverse effect on our business, operations, financial condition and liquidity. As of December 31, 2011, we were in compliance with our loan covenants. In addition, our ability to draw on our unsecured credit facilities or incur other unsecured debt in the future could be restricted by the loan covenants. We anticipate that in the near term we may rely to a greater extent upon our unsecured credit facilities and potentially maintain bal- ances on our unsecured credit facilities for longer periods than has been our historical practice. To the extent that we maintain larger balances on our unsecured credit facilities or maintain balances on our unsecured credit facilities for longer periods, adverse fluctua- tions in interest rates could have a material adverse effect on earnings. Unsecured Notes We generally issue unsecured notes to fund our real estate assets long-term. In issuing future unsecured notes, we intend to ladder the maturities of our debt to mitigate exposure to interest rate risk in future years. Depending upon market conditions, opportunities to issue unsecured notes on attractive terms may not be available. During peri- ods in the recent past, debt capital was essentially unavailable for extended periods of time. While debt markets have materially improved, it is difficult to predict if the improvement is sustainable. Our unsecured notes have maturities ranging from May 2012 through February 2028, as follows (in thousands): 5.05% notes due 2012 5.125% notes due 2013 5.25% notes due 2014 5.35% notes due 2015 4.95% notes due 2020 7.25% notes due 2028 Our unsecured notes contain covenants with which we must comply. These include: • • • Limits on our total indebtedness; Limits on our secured indebtedness; Limits on our required debt service payments; and • Maintenance of a minimum level of unencumbered assets. DECEMBER 31, 2011 $ 50,000 60,000 100,000 150,000 250,000 50,000 $660,000 FoRm 10-K annual RepoRt 2011 53 Failure to comply with any of the covenants under our unsecured notes could result in a default under one or more of our debt instruments. This could cause our debt holders to accelerate the timing of payments and would therefore have a material adverse effect on our business, operations, financial condition and liquidity. As of December 31, 2011, we were in compliance with our unse- cured notes covenants. We repaid the remaining $93.9 million of our 5.95% unsecured notes on their due date of June 15, 2011, using borrowings on our unsecured lines of credit and proceeds from the sale of Dulles Station, Phase I. We repaid the remaining $2.7 million of our 3.875% convertible notes without penalty in September 2011, using proceeds from the sale of the Industrial Portfolio. We may from time to time seek to repurchase and cancel our outstanding notes through open market purchases, privately negoti- ated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Common Equity We have authorized for issuance 100.0 million common shares, of which 66.3 million shares were outstanding at December 31, 2011. We are party to a sales agency financing agreement with BNY Mellon Capital Markets, LLC relating to the issuance and sale of up to $250.0 million of our common shares from time to time over a period of no more than 36 months from November 2009. Sales of our common shares are made at market prices prevailing at the time of sale. We use net proceeds for the sale of common shares under this program for the repayment of borrowings under our lines of credit, acquisitions and general corporate purposes. We did not issue any common shares under this program during 2011, and issued 5.6 million common shares at a weighted average price of $30.34 under this program during 2010, raising $168.9 million in net proceeds. We have a dividend reinvestment program, whereby shareholders may use their dividends and optional cash payments to purchase common shares. The common shares sold under this program may either be common shares issued by us or common shares pur- chased in the open market. We used the net proceeds under this program for general corporate purposes. During 2011, we issued 0.2 million common shares at a weighted average price of $29.97 per share, raising $5.0 million in net proceeds. During 2010, we issued 0.2 million common shares at a weighted average price of $30.36 per share, raising $5.3 million in net proceeds. Preferred Equity WRIT’s board of trustees can, at its discretion, authorize the issuance of up to 10.0 million shares of preferred stock. The ability to issue preferred equity provides WRIT an additional financing tool that may be used to raise capital for future acquisitions or other business purposes. As of December 31, 2011, no shares of preferred stock had been authorized or issued. Dividends We pay dividends quarterly. The maintenance of these dividends is subject to various factors, including the discretion of our Board of Trustees, our results of operations, the ability to pay dividends under Maryland law, the availability of cash to make the necessary divi- dend payments and the effect of REIT distribution requirements, which require at least 90% of our taxable income to be distributed to shareholders. The table below details our dividend and distribution payments for 2011, 2010 and 2009 (in thousands): Common dividends Noncontrolling interest distributions 2011 $115,045 2,488 $117,533 2010 $108,949 163 $109,112 2009 $100,221 190 $100,411 54 annual RepoRt 2011 FoRm 10-K Dividends paid for 2011 as compared to 2010 increased primarily due to a small increase in the dividend paid per share and small increases in shares outstanding due to our dividend reinvestment program. The increase in noncontrolling interests distributions reflects an extraordinary return of capital distribution in connection with the sale of Northern Virginia Industrial Park, whose non- controlling interest holder received a portion of the sale proceeds. Dividends paid for 2010 as compared to 2009 increased primarily due to our issuance of 5.6 million shares under our sales agency financing agreement during 2010. Capital Commitments We will require capital for development and redevelopment projects currently underway and in the future. As of December 31, 2011, we had under development a high-rise apartment property at 1219 First Street in Alexandria, VA, a mid-rise apartment property at 650 N. Glebe Road in Arlington, VA and a medical office property at 4661 Kenmore Avenue in Alexandria, VA. Our total investment in 1219 First Street is expected to be $95.3 million, including land costs and the non-controlling partner’s 5% share. We expect to secure or provide debt financing for approximately 70% of the project’s cost. As of December 31, 2011, we had invested $14.4 million in 1219 First Street including land costs and we expect to fund $6.2 million during 2012. Our total investment in 650 N. Glebe Road is expected to be $45.0 million, including land costs and the non-controlling partner’s 10% share. We expect to secure or provide debt financing for approximately 70% of the project’s cost. As of December 31, 2011, we had invested $13.4 million in 650 N. Glebe Road including land costs and we expect to fund $4.5 million in 2012 on this project. As of December 31, 2011, our investment in 4661 Kenmore Avenue including land costs was $5.8 million. We are evaluating a number of potential redevelopment projects at proper- ties such as Montgomery Village and 7900 Westpark. There were no projects placed into service in 2011. As of December 31, 2011, we had $4.7 million in outstanding contractual commitments related to our development projects, and expect to fund approximately $12.9 million of total development spending during 2012. Dulles Station, Phase II consists of undeveloped land in Herndon, Virginia and a half interest in a parking garage that is adjacent to this land. The land is zoned and planned for development as an office building. In connection with the preparation of financial statements for this Annual Report on Form 10-K, we reviewed changes in market conditions, specifically higher vacancy and lower rental rates in the Washington metro region office market and other circumstances affecting the Herndon submarket, and reassessed the likelihood that we would follow through on these development plans. Based upon the foregoing review and assessment, we determined that the development of the land at Dulles Station, Phase II is not probable under current market conditions. Due to this determination, we recognized a $14.5 million impairment charge during the fourth quarter of 2011 in order to reduce the carrying value of the land and garage at Dulles Station, Phase II to its fair value of $12.1 million. Of the $12.1 million, $8.5 million is included in held for develop- ment on our balance sheet and the remaining $3.6 million is included in income producing property. We anticipate funding several major renovation projects in our portfolios during 2012, as follows (in thousands): SEGMENT Office buildings Medical office buildings Retail centers Multifamily Total PROjECT SPENDING $13,635 1,906 497 5,782 $21,820 These projects include a new heating and air conditioning system at one of our multifamily properties; the installation of a conference center at one of our office properties; unit bathroom and kitchen upgrades at several of our multifamily properties; and sprinkler system, heating and air conditioning and common area upgrades at several of our office and medical properties. Not all of the antici- pated spending had been committed via executed construction contracts at December 31, 2011. We expect to meet our require- ments using cash generated by our real estate operations, through borrowings on our unsecured credit facilities, or raising additional debt or equity capital in the public market. FoRm 10-K annual RepoRt 2011 55 Contractual Obligations Below is a summary of certain contractual obligations that will require significant capital (in thousands): Long-term debt(1) Purchase obligations(2) Estimated development commitments(3) Tenant-related capital(4) Building capital(5) Operating leases PAYMENTS DUE BY PERIOD LESS THAN 1 YEAR $210,173 $ 8,417 $ 1,938 $ 5,017 $ 8,605 $ 61 1–3 YEARS 4–5 YEARS $583,187 $ 2,745 $ 2,762 $ $ $ — — 149 $287,847 $ $ $ $ $ — — — — — AFTER 5 YEARS $433,208 $ $ $ $ $ — — — — — TOTAL $1,514,415 $ $ $ $ $ 11,162 4,700 5,017 8,605 210 (1) See notes 4, 5 and 6 of our consolidated financial statements. Amounts include principal, interest, unused commitment fees and facility fees. (2) Represents elevator maintenance contracts with terms through 2012, electricity sales agreements with terms through 2013, and natural gas purchase agreements with terms through 2012. (3) Committed development obligations based on contracts in place as of December 31, 2011. (4) Committed tenant-related capital based on executed leases as of December 31, 2011. (5) Committed building capital additions based on contracts in place as of December 31, 2011. We have various standing or renewable contracts with vendors. The majority of these contracts are cancelable with immaterial or no cancellation penalties, with the exception of our elevator maintenance, electricity sales and natural gas purchase agreements, which are included above on the purchase obligations line. Contract terms on cancelable leases are generally one year or less. We are currently committed to fund tenant-related capital improvements as described in the table above for executed leases. However, expected leasing levels could require additional tenant-related capital improvements which are not currently committed. We expect that total tenant-related capital improvements, including those already committed, will be approximately $15.2 million in 2012. Due to the competitive office leasing market we expect that tenant-related capital costs will continue at this level into 2012. Historical Cash Flows Cash flows from operations are an important factor in our ability to sustain our dividend at its current rate. If our cash flows from operations were to decline significantly, we may have to reduce our dividend. Consolidated cash flow information is summarized as follows (in millions): Cash provided by operating activities Cash provided by (used in) investing activities Cash provided by (used in) financing activities FOR THE YEAR ENDED DECEMBER 31, VARIANCE 2011 $ 117.9 $ 61.1 $(245.0) 2010 $ 111.9 $(111.2) $ 66.8 2009 $102.9 $(12.8) $(90.8) 2011 vs 2010 2010 vs 2009 $ 6.0 $ 172.3 $(311.8) $ 9.0 $ (98.4) $157.6 Operations generated $117.9 million of net cash in 2011 compared to $111.9 million in 2010. The increase in cash provided by operat- ing activities in 2011 as compared to 2010 was primarily due to acquisitions. Operations generated $111.9 million of net cash in 2010 compared to $102.9 million in 2009. The increase in cash provided by oper- ating activities in 2010 as compared to 2009 was primarily due to lower interest payments. Our investing activities generated $61.1 million of net cash in 2011 and used net cash of $111.2 million in 2010. The increase in cash generated by investing activities in 2011 was primarily due to sale of our industrial segment in 2011, partially offset by greater acquisi- tions activity. Our investing activities used net cash of $111.2 million in 2010 and $12.8 million in 2009. The increase in cash used by investing activities in 2010 was primarily due to the increase in cash invested in acquisitions, net of assumed debt, throughout 2010, which was $136.1 million higher than 2009. Our financing activities used net cash of $245.0 million in 2011 and provided $66.8 million in 2010. This change in 2011 was primarily the result of paying off senior notes and three mortgage notes. 56 annual RepoRt 2011 FoRm 10-K Our financing activities generated $66.8 million of net cash in 2010 and used $90.8 million in 2009. The net increase in net cash pro- vided by financing activities in 2010 was primarily the result of the proceeds from our debt offering and equity issued under our sales agency financing agreement. Capital Improvements and Development Costs Capital improvements and development costs of $58.7 million were completed in 2011, including tenant improvements. These improvements to our properties in 2010 and 2009 were $26.4 million and $29.5 million, respectively. We consider capital improve- ments to be accretive to revenue and not necessarily to net income. Our capital improvement and development costs for the three years ending December 31, 2011 were as follows (in thousands): Accretive capital improvements: Acquisition related Expansions and major renovations Development/re-development Tenant improvements (including first generation leases) Total accretive capital improvements Other capital improvements: Total Accretive Capital Improvements YEAR ENDED DECEMBER 31, 2011 2010 2009 $ 2,549 9,435 25,929 13,350 51,263 7,481 $58,744 $ 1,007 3,180 1,337 15,162 20,686 5,696 $26,382 $ 2,696 5,557 2,135 12,874 23,262 6,210 $29,472 Acquisition Related Improvements: Acquisition related improvements are capital improvements to properties acquired during the pre- ceding three years which were anticipated at the time we acquired the properties. These types of improvements were made in 2011 to 1140 Connecticut Avenue, NW, 1227 25th Street NW, Braddock Metro and Olney Village Center. Expansions and Major Renovations: Expansion projects increase the rentable area of a property, while major renovation projects are improvements sufficient to increase the income otherwise achievable at a property. 2011 expansions and major renovations included HVAC modifications at 2000 M Street; elevator and lobby modernization at 1220 19th Street, 1600 Wilson Boulevard and West Gude; and roof replacement at the Centre at Hagerstown. Development/Re-development: Development costs represent expenditures for ground up development of new operating properties. Re-development costs represent expenditures for improvements intended to re-position properties in their markets and increase income that would be otherwise achievable. Development costs in each of the years presented include costs associated with the ground up development of 1219 First Street, 650 N. Glebe Road, Dulles Station II and 4661 Kenmore Avenue. Tenant Improvements: Tenant Improvements are costs, such as space build-out, associated with commercial lease transactions. Our average Tenant Improvement Costs per square foot of space leased, excluding first generation leases, were as follows during the three years ended December 31, 2011: Office Buildings* Medical Office Buildings Retail Centers * Excludes properties sold or classified as held for sale. YEAR ENDED DECEMBER 31, 2011 $13.80 $10.72 $ 7.07 2010 $19.83 $16.24 $ 3.23 2009 $10.72 $13.87 $ 3.91 The $6.03 decrease in 2011 and the $9.11 increase in 2010 in tenant improvement costs per square foot of space leased for office buildings was primarily due to leases executed with single tenants in 2010 requiring $5.4 million in tenant improvements at Monument II, 2000 M Street, 7900 Westpark and 1600 Wilson Boulevard. The $5.52 decrease in 2011 and $2.37 increase in 2010 in tenant improvement costs per square foot of space leased for medical office buildings was primarily due to single tenant leases executed in FoRm 10-K annual RepoRt 2011 57 2010 at Shady Grove Medical requiring $1.3 million in tenant improvements. The $3.84 increase in tenant improvement costs per square foot of retail space in 2011 was due to leases executed with a single tenant at the Centre at Hagerstown and Frederick Crossing requiring $0.7 million in tenant improvements at each location. The $0.68 decrease in tenant improvement costs per square foot of retail space leased in 2010 was primarily due to a single tenant lease executed at the Centre at Hagerstown in 2009 requiring $0.7 million in tenant improvements. The retail tenant improvement costs are substantially lower than office and medical office improve- ment costs due to the tenant improvements required in these property types being substantially less extensive than in office and medical. Excluding properties sold or classified as held for sale, approximately 59% of our tenants renewed their leases with us in 2011, compared to 61% in 2010 and 64% in 2009. Renewing tenants generally require minimal tenant improvements. In addition, lower ten- ant improvement costs are one of the many benefits of our focus on leasing to smaller office tenants. Smaller office suites have limited configuration alternatives. Therefore, we are often able to lease an existing suite with limited tenant improvements. Other Capital Improvements Other capital improvements are those not included in the above categories. These are also referred to as recurring capital improve- ments. Over time these costs will be recurring in nature to maintain a property’s income and value. In our multifamily properties, these include new appliances, flooring, cabinets and bathroom fixtures. These improvements, which are made as needed upon vacancy of an apartment, totaled $1.0 million in 2011, and averaged $909 per apartment for the 44% of apartments turned over rela- tive to our total portfolio of apartment units. In our commercial properties and multifamily properties aside from apartment turn- over discussed above, improvements include installation of new heating and air conditioning equipment, asphalt replacement, new signage, permanent landscaping, window replacements, new lighting and new finishes. In addition, during 2011, we incurred repair and maintenance expenses of $13.5 million that were not capitalized, to maintain the quality of our buildings. Forward-Looking Statements This Form 10-K contains forward-looking statements which involve risks and uncertainties. Such forward looking statements include each of the statements in “Item 1: Business” and “Item 7: Management’s Discussion and Analysis of Financial Conditions and Results of Operations” concerning the Washington metro region’s economy, gross regional product, unemployment and job growth and real estate market performance. Such forward-looking statements also include the following statements with respect to WRIT: (a) our intention to invest in properties that we believe will increase in income and value; (b) our belief that external sources of capital will continue to be available and that additional sources of capital will be available from the sale of common shares or notes; and (c) our belief that we have the liquidity and capital resources necessary to meet our known obligations and to make additional property acquisitions and capital improvements when appropriate to enhance long-term growth. Forward-looking statements also include other statements in this report preceded by, followed by or that include the words “believe,” “expect,” “intend,” “anticipate,” “potential,” “project,” “will” and other similar expressions. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for the foregoing statements. The following important factors, in addition to those discussed elsewhere in this Form 10-K, could affect our future results and could cause those results to differ materially from those expressed in the forward-looking statements: (a) the effect of credit and financial market conditions; (b) the availability and cost of capital; (c) fluctuations in interest rates; (d) the economic health of our tenants; (e) the timing and pricing of lease transactions; (f) the economic health of the greater Washington Metro region, or other markets we may enter; (g) the effects of changes in Federal government spending; (h) the supply of competing properties; (i) consumer confidence; (j) unemployment rates; 58 annual RepoRt 2011 FoRm 10-K (k) consumer tastes and preferences; (l) our future capital requirements; (m) inflation; (n) compliance with applicable laws, including those concerning the environment and access by persons with disabilities; (o) governmental or regulatory actions and initiatives; (p) changes in general economic and business conditions; (q) terrorist attacks or actions; (r) acts of war; (s) weather conditions; (t) the effects of changes in capital available to the technology and biotechnology sectors of the economy; and (u) other factors discussed under the caption “Risk Factors.” We undertake no obligation to update our forward-looking statements or risk factors to reflect new information, future events, or otherwise. Ratios of Earnings to Fixed Charges and Debt Service Coverage The following table sets forth our ratios of earnings to fixed charges and debt service coverage for the periods shown: Earnings to fixed charges Debt service coverage YEAR ENDED DECEMBER 31, 2011 (a) 2.7x 2010 1.00x 2.6x 2009 1.11x 2.4x (a) Due to WRIT’s loss from continuing operations during 2011, the earnings to fixed charges ratio was less than 1:1. WRIT must generate additional earnings of $2.3 million to achieve a ratio of 1:1. We computed the ratio of earnings to fixed charges by dividing earnings by fixed charges. For this purpose, earnings consist of income from continuing operations attributable to the controlling interests plus fixed charges, less capitalized interest. Fixed charges consist of interest expense, including amortized costs of debt issuance, and interest costs capitalized. We computed the debt service coverage ratio by dividing EBITDA (which is earnings before interest income and expense, taxes, depreciation, amortization, real estate impairment and gain on sale of real estate) by interest expense and principal amortization. Funds From Operations FFO is a widely used measure of operating performance for real estate companies. We provide FFO as a supplemental measure to net income calculated in accordance with GAAP. Although FFO is a widely used measure of operating performance for REITs, FFO does not represent net income calculated in accordance with GAAP. As such, it should not be considered an alternative to net income as an indication of our operating performance. In addition, FFO does not represent cash generated from operating activities in accordance with GAAP, nor does it represent cash available to pay distributions and should not be considered as an alternative to cash flow from operating activities, determined in accordance with GAAP, as a measure of our liquidity. The National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) defines FFO (April, 2002 White Paper) as net income (computed in accordance with GAAP) excluding gains (or losses) from sales of property and impairments of depreciable real estate, if any, plus real estate depreciation and amortization. We consider FFO to be a standard supplemental measure for REITs because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which historically assumes that the value of real estate assets diminishes predictably over time. Since real estate values have instead historically risen or fallen with market conditions, we believe that FFO more accurately provides investors an indication of our abil- ity to incur and service debt, make capital expenditures and fund other needs. Our FFO may not be comparable to FFO reported by other REITs. These other REITs may not define the term in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently. FoRm 10-K annual RepoRt 2011 59 The following table provides the calculation of our FFO and a reconciliation of FFO to net income for the years presented (in thousands): Net income attributable to the controlling interests Adjustments: Depreciation and amortization Gain from non-disposal activities Discontinued operations: Depreciation and amortization Gain on sale of real estate attributable to the controlling interests Real estate impairment Income tax expense (benefit) FFO as defined by NAREIT 2011 $104,884 2010 $ 37,426 2009 $ 40,745 93,297 — 7,231 (97,091) 599 1,138 80,066 (7) 15,680 (21,599) — — 77,549 (71) 16,896 (13,348) — — $110,058 $111,566 $121,771 ITEM 7A. qUANTITATIVE AND qUALITATIVE DISCLOSURES ABOUT MARKET RISK The principal material financial market risk to which we are exposed is interest rate risk. Our exposure to interest rate risk relates primarily to refinancing long-term fixed rate obligations, the opportunity cost of fixed rate obligations in a falling interest rate environment and our variable rate lines of credit. We primarily enter into debt obligations to support general corporate purposes, including acquisition of real estate properties, capital improvements and working capital needs. In the past we have used interest rate hedge agreements to hedge against rising interest rates in anticipation of imminent refinancing or new debt issuance. The table below presents principal, interest and related weighted average fair value interest rates by year of maturity, with respect to debt outstanding on December 31, 2011. (In thousands) 2012 2013 2014 2015 2016 THEREAFTER TOTAL FAIR VALUE Unsecured fixed rate debt Principal Interest payments Interest rate on debt maturities Unsecured variable rate debt Principal Variable interest rate on debt maturities(a) Mortgages Principal amortization (30 year schedule) Interest payments Weighted average interest rate on principal amortization $50,000 $33,613 $60,000 $30,812 $100,000 $150,000 $ — $300,000 $660,000 $713,797 $ 26,650 $ 20,012 $ 16,000 $ 91,188 $218,275 5.06% 5.23% 5.34% 5.45% — 5.44% 5.38% $74,000 $ — $ 25,000 $ — $ — $ — $ 99,000 $ 99,000 0.70% — 1.50% — — — 0.90% $27,000 $24,605 $87,580 $19,689 $ 3,724 $ 22,390 $134,943 $156,548 $432,185 $463,238 $ 18,107 $ 17,797 $ 12,426 $ 9,950 $102,574 5.52% 5.57% 5.30% 5.29% 5.73% 6.56% 5.93% (a) Variable interest rates based on LIBOR in effect on our borrowings outstanding at December 31, 2011. 60 annual RepoRt 2011 FoRm 10-K ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data appearing on pages 70 to 110 are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, Chief Financial Officer and Executive Vice President—Accounting and Administration, as appropriate, to allow timely deci- sions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Executive Vice President—Accounting and Administration, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011. Based on the foregoing, our Chief Executive Officer, Chief Financial Officer and Executive Vice President—Accounting and Administration concluded that our disclosure controls and procedures were effective at a reasonable assurance level. Internal Control over Financial Reporting See the Report of Management in Item 8 of this Form 10-K. See the Reports of Independent Registered Public Accounting Firm in Item 8 of this Form 10-K. During the three months ended December 31, 2011, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. FoRm 10-K annual RepoRt 2011 61 paRt iii Certain information required by Part III is omitted from this Form 10-K in that we will file a definitive proxy statement pursuant to Regulation 14A with respect to our 2012 Annual Meeting (the “Proxy Statement”) no later than 120 days after the end of the fiscal year covered by this Form 10-K, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference. In addition, we have adopted a code of ethics which can be reviewed and printed from our website www.writ.com. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this Item is hereby incorporated herein by reference to the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is hereby incorporated herein by reference to the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required under this Item by Item 403 of Regulation S-K is hereby incorporated herein by reference to the Proxy Statement. Equity Compensation Plan Information(1) NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EqUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (A)) (A) 65,141 24,000(2) 89,141 (B) $26.83 $30.04 $27.69 (C) 1,220,265 — 1,220,265 PLAN CATEGORY Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total (1) We previously maintained a Share Grant Plan for officers, trustees and non-officer employees, which expired on December 15, 2007. 322,325 shares and 27,675 restricted share units had been granted under this plan. We previously maintained a stock option plan for trustees which provided for the annual granting of 2,000 non-qualified stock options to trustees the last of which were granted in 2004. The plan expired on December 15, 2007, and 84,000 options had been granted. See note 7 to the consolidated financial statements for further discussion. (2) These securities are options issued under a Share Grant Plan for officers, trustees and non-officer employees. This plan expired on December 15, 2007 and options may no longer be issued thereunder. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item is hereby incorporated herein by reference to the Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item is hereby incorporated herein by reference to the Proxy Statement. 62 annual RepoRt 2011 FoRm 10-K paRt iv ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A). The following documents are filed as part of this Form 10-K: 1. Financial Statements Management’s Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2011 and 2010 Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009 Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009 Notes to Consolidated Financial Statements 2. Financial Statement Schedules Schedule III—Consolidated Real Estate and Accumulated Depreciation 3. Exhibits: INCORPORATED BY REFERENCE EXHIBIT NUMBER EXHIBIT DESCRIPTION FORM FILE NUMBER EXHIBIT Articles of Amendment and Restatement, effective as of May 17, 2011 DeF 14a 001-06622 Amended and Restated Bylaws of Washington Real Estate Investment Trust, as adopted on May 17, 2011 8-K 001-06622 B 3.3 FILING DATE 4/1/2011 5/23/2011 Page 67 68 69 70 71 72 75 76 106 FILED HERE- WITH 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 Indenture dated as of August 1, 1996 between WRIT and The First National Bank of Chicago 8-K 001-06622 (c) 8/13/1996 Form of 2028 Notes Officer’s Certificate Establishing Terms of the 2013 Notes, dated March 12, 2003 Form of 2013 Notes Officers’ Certificate Establishing Terms of the 2014 Notes, dated December 8, 2003 Form of 2014 Notes Form of 5.05% Senior Notes due May 1, 2012 Form of 5.35% Senior Notes due May 1, 2015 dated April 26, 2005 Officers Certificate establishing the terms of the 2012 and 2015 Notes, dated April 20, 2005 Form of 5.35% Senior Notes due May 1, 2015 dated October 6, 2005 Officers Certificate establishing the terms of the 2015 Notes, dated October 3, 2005 Credit agreement dated November 2, 2006 between Washington Real Estate Investment Trust as borrower and a syndicate of banks as lender with The Bank of New York as documentation agent, The Royal Bank of Scotland, plc as syndication agent and Wells Fargo Bank, NA, as agent Supplemental Indenture by and between WRIT and the Bank of New York Trust Company, N.A. dated as of July 3, 2007 Credit agreement dated June 29, 2007 by and among WRIT, as bor- rower, the financial institutions party thereto as lenders, and SunTrust Bank as agent Multifamily Note Agreement (Walker House Apartments) dated as of May 29, 2008, by and between WRIT and Wells Fargo Bank, National Association Multifamily Note Agreement (3801 Connecticut Avenue) dated as of May 29, 2008, by and between WRIT and Wells Fargo Bank, National Association 8-K 8-K 8-K 8-K 8-K 8-K 8-K 8-K 8-K 8-K 001-06622 001-06622 001-06622 001-06622 99.1 4(a) 4(b) 4(a) 2/25/1998 3/17/2003 3/17/2003 12/11/2003 001-06622 4(b) 12/11/2003 001-06622 001-06622 001-06622 001-06622 001-06622 4.1 4.2 4.3 4.1 4.2 4/26/2005 4/26/2005 4/26/2005 10/6/2005 10/6/2005 8-K 001-06622 4,100 11/8/2006 8-K 001-06622 4,100 7/5/2007 8-K 001-06622 4,100 7/6/2007 10-Q 001-06622 4,000 8/8/2008 10-Q 001-06622 4.0 8/8/2008 FoRm 10-K annual RepoRt 2011 63 EXHIBIT NUMBER EXHIBIT DESCRIPTION Multifamily Note Agreement (Bethesda Hill Apartments) dated as of May 29, 2008, by and between WRIT and Wells Fargo Bank, National Association Form of 4.95% Senior Notes due October 1, 2020 Officers’ Certificate establishing the terms of the 4.95% Senior Notes due October 1, 2020 Credit Agreement, dated as of July 1, 2011, by and among Washington Real Estate Investment Trust, as borrower, the financial institutions party thereto as lenders, each of The Bank of New York Mellon, Citibank, N.A. and Credit Suisse AG, Cayman Islands Branch as a documentation agent, Wells Fargo Securities, LLC, as lead arranger and bookrunner, and Wells Fargo Bank, National Association, as administrative agent. Second Amendment to Credit Agreement, dated as of December 23, 2011, with SunTrust Bank. Purchase and Sale Agreement dated as of June 16, 2008, for 2445 M Street, NW, Washington, DC 1991 Incentive Stock Option Plan, as amended Deferred Compensation Plan for Executives dated January 1, 2000 Split-Dollar Agreement dated April 1, 2000 2001 Stock Option Plan Share Purchase Plan Supplemental Executive Retirement Plan Description of WRIT Short-term and Long-term Incentive Plan Description of WRIT Revised Trustee Compensation Plan Supplemental Executive Retirement Plan 2007 Omnibus Long Term Incentive Plan Deferred Compensation Plan for Directors dated December 1, 2000 Deferred Compensation Plan for Officers dated January 1, 2007 Supplemental Executive Retirement Plan II dated May 23, 2007 INCORPORATED BY REFERENCE FORM FILE NUMBER EXHIBIT FILING DATE 10-Q 001-06622 4.0 8/8/2008 FILED HERE- WITH 8-K 8-K 001-06622 001-06622 4.1 4.2 9/30/2010 9/30/2010 8-K 001-06622 4.1 7/6/2011 X 10-Q 001-06622 10.0 8/8/2008 S-3 10-K 10-K 033-60581 001-06622 001-06622 10(b) 10(g) 10(h) 7/17/1995 3/19/2001 3/19/2001 DeF 14a 001-06622 a 3/29/2001 10-Q 10-Q 10-K 10-K 10-K 001-06622 10(j) 11/14/2002 001-06622 10(k) 11/14/2002 001-06622 10(l) 3/16/2005 001-06622 10(m) 3/16/2005 001-06622 10(p) 3/16/2006 DeF 14a 001-06622 B 4/9/2007 10-K 10-K 10-K 001-06622 10(ff) 2/29/2008 001-06622 10(gg) 2/29/2008 001-06622 10(hh) 2/29/2008 Amended Long Term Incentive Plan, effective January 1, 2008 10-Q 001-06622 10(ii) 5/9/2008 Form of Indemnification Agreement by and between WRIT and the indemnitee Long Term Incentive Plan, effective January 1, 2009 Short Term Incentive Plan, effective January 1, 2009 Amended and Restated Deferred Compensation Plan for Directors, adopted October 27, 2010 Executive Stock Ownership Policy, adopted October 27, 2010 Amendment to Deferred Compensation Plan for Officers, adopted October 27, 2010 Long Term Incentive Plan, effective January 1, 2011 Short Term Incentive Plan, effective January 1, 2011 Deferred Compensation Plan for Directors, effective January 1, 2011 Purchase and Sale Agreement, dated as of August 5, 2011, for 8880 Gorman Road, Dulles South IV, Fullerton Business Center, Hampton Overlook and Alban Business Center. 8-K 001-06622 10(nn) 7/27/2009 10-K 10-K 001-06622 001-06622 10-Q 001-06622 10.28 10.29 10.30 2/26/2010 2/26/2010 11/4/2010 8-K 8-K 001-06622 001-06622 10.31 10.32 11/2/2010 11/2/2010 10-Q 10-Q 10-Q 8-K 001-06622 001-06622 001-06622 001-06622 10.34 10.35 10.36 10.37 5/6/2011 5/6/2011 5/6/2011 8/9/2011 4.17 4.18 4.19 4.20 4.21 10.1 10.2* 10.3* 10.4* 10.5* 10.6* 10.7* 10.8* 10.9* 10.10* 10.11* 10.12* 10.13* 10.14* 10.15* 10.16* 10.17* 10.18* 10.19* 10.20* 10.21* 10.22* 10.23* 10.24* 10.25 10.26 Purchase and Sale Agreement, dated as of August 5, 2011, for Pickett Industrial Park and Northern Virginia Industrial Park I. 8-K 001-06622 10.38 8/9/2011 64 annual RepoRt 2011 FoRm 10-K EXHIBIT NUMBER EXHIBIT DESCRIPTION 10.27 10.28 10.29 10.30 10.31* 10.32* 10.33* 10.34* 10.35* 10.36* 10.37* 12 21 23.1 24 31.1 31.2 31.3 32 101 Purchase and Sale Agreement, dated as of August 5, 2011, for Albemarle Point, 270 Technology Park I, 270 Technology Park II, The Crescent, Fullerton Industrial Center, Sully Square, 9950 Business Parkway, Hampton South Phase I, Hampton South Phase II and 8900 Telegraph Road. Purchase and Sale Agreement, dated as of August 5, 2011, for Northern Virginia Industrial Park II. Purchase and Sale Agreement, dated as of August 5, 2011, for 6100 Columbia Park Road, Dulles Business Park I and Dulles Business Park II. First Amendment to Purchase and Sale Agreement, dated as of October 5, 2011, for 6100 Columbia Park Road, Dulles Business Park I and Dulles Business Park II. Amended and restated change in control agreement dated December 1, 2011 with George F. McKenzie Amended and restated change in control agreement dated December 1, 2011 with William T. Camp Amended and restated change in control agreement dated December 1, 2011 with Laura M. Franklin Amended and restated change in control agreement dated December 1, 2011 with Thomas C. Morey Amended and restated change in control agreement dated December 1, 2011 with Thomas L. Regnell Amended and restated change in control agreement dated December 1, 2011 with Michael S. Paukstitus Amended and restated change in control agreement dated December 1, 2011 with James B. Cederdahl Computation of Ratio of Earnings to Fixed Charges Subsidiaries of Registrant Consent of Independent Registered Public Accounting Firm Power of Attorney Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (“the Exchange Act”) Certification of the Executive Vice President—Accounting and Administration pursuant to Rule 13a-14(a) of the Exchange Act Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act Certification of the Chief Executive Officer, Executive Vice President— Accounting and Administration and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The following materials from our Annual Report on Form 10-K for the year ended December 31, 2011 formatted in eXtensible Business Reporting Language (“XBRL”): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) notes to these consolidated financial statements. INCORPORATED BY REFERENCE FORM FILE NUMBER EXHIBIT FILING DATE 8-K 001-06622 10.39 8/9/2011 FILED HERE- WITH 8-K 001-06622 10.40 8/9/2011 8-K 001-06622 10.41 8/9/2011 8-K/A 001-06622 10.42 10/6/2011 X X X X X X X X X X X X X X X X *Management contracts or compensation plans or arrangements in which trustees or executive officers are eligible to participate. In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, copies of certain instruments defining the rights of holders of long-term debt of WRIT or its subsidiaries are not filed herewith. Pursuant to this regulation, we hereby agree to furnish a copy of any such instrument to the SEC upon request. FoRm 10-K annual RepoRt 2011 65 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 27, 2012 Washington Real estate investment tRust By: /s/ George F. McKenzie George F. McKenzie President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE /s/ John P. McDaniel* Chairman, Trustee John P. McDaniel DATE February 27, 2012 /s/ George F. McKenzie President, Chief Executive Officer and Trustee February 27, 2012 George F. McKenzie /s/ William G. Byrnes* Trustee William G. Byrnes /s/ Edward S. Civera* Trustee Edward S. Civera /s/ Terence C. Golden* Trustee Terence C. Golden /s/ Charles T. Nason* Trustee Charles T. Nason /s/ Thomas Edgie Russell, III* Trustee Thomas Edgie Russell, III /s/ Wendelin A. White* Trustee Wendelin A. White /s/ Anthony L. Winns* Trustee Anthony L. Winns February 27, 2012 February 27, 2012 February 27, 2012 February 27, 2012 February 27, 2012 February 27, 2012 February 27, 2012 /s/ William T. Camp Executive Vice President and Chief Financial Officer February 27, 2012 William T. Camp /s/ Laura M. Franklin Executive Vice President Accounting, Administration and Corporate Secretary February 27, 2012 Laura M. Franklin *By: /s/ Laura M. Franklin through power of attorney Laura M. Franklin 66 annual RepoRt 2011 FoRm 10-K MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of Washington Real Estate Investment Trust (the “Trust”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal controls over financial reporting. The Trust’s internal control system over financial reporting is a process designed under the supervision of the Trust’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions. In connection with the preparation of the Trust’s annual consolidated financial statements, management has undertaken an assess- ment of the effectiveness of the Trust’s internal control over financial reporting as of December 31, 2011, based on criteria estab- lished in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Management’s assessment included an evaluation of the design of the Trust’s internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this assessment, management has concluded that as of December 31, 2011, the Trust’s internal control over financial report- ing was effective at a reasonable assurance level regarding the reliability of financial reporting and the preparation of financial state- ments for external purposes in accordance with U.S. generally accepted accounting principles. Ernst & Young LLP, the independent registered public accounting firm that audited the Trust’s consolidated financial statements included in this report, have issued an unqualified opinion on the effectiveness of the Trust’s internal control over financial reporting, a copy of which appears on the next page of this annual report. FoRm 10-K annual RepoRt 2011 67 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Trustees and Shareholders of Washington Real Estate Investment Trust We have audited the accompanying consolidated balance sheets of Washington Real Estate Investment Trust and Subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(A). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by manage- ment, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Washington Real Estate Investment Trust and Subsidiaries at December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Washington Real Estate Investment Trust and Subsidiaries’ internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2012 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP McLean, Virginia February 27, 2012 68 annual RepoRt 2011 FoRm 10-K REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Trustees and Shareholders of Washington Real Estate Investment Trust We have audited Washington Real Estate Investment Trust and Subsidiaries’ internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Washington Real Estate Investment Trust’s management is respon- sible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effective- ness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circum- stances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted account- ing principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding pre- vention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projec- tions of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Washington Real Estate Investment Trust and Subsidiaries maintained, in all material respects, effective internal con- trol over financial reporting as of December 31, 2011, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Washington Real Estate Investment Trust and Subsidiaries at December 31, 2011 and 2010, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011 of Washington Real Estate Investment Trust and Subsidiaries and our report dated February 27, 2012 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP McLean, Virginia February 27, 2012 FoRm 10-K annual RepoRt 2011 69 CONSOLIDATED BALANCE SHEETS as of December 31, 2011 and 2010 (IN THOUSANDS, EXCEPT PER SHARE DATA) Assets Land Income producing property Accumulated depreciation and amortization Net income producing property Held for development Total real estate held for investment, net Investment in real estate sold or held for sale, net Cash and cash equivalents Restricted cash Rents and other receivables, net of allowance for doubtful accounts of $8,921 and $7,422, respectively Prepaid expenses and other assets Other assets related to properties sold or held for sale Total assets Liabilities Notes payable Mortgage notes payable Lines of credit Accounts payable and other liabilities Advance rents Tenant security deposits Other liabilities related to properties sold or held for sale Total liabilities Equity Shareholders’ equity Shares of beneficial interest; $0.01 par value; 100,000 shares authorized: 66,265 and 65,870 shares issued and outstanding, respectively Additional paid in capital Distributions in excess of net income Accumulated other comprehensive income (loss) Total shareholders’ equity Noncontrolling interests in subsidiaries Total equity DECEMBER 31, 2011 2010 $ 472,196 $ 381,338 1,934,587 2,406,783 (535,732) 1,871,051 43,089 1,914,140 — 12,765 19,424 53,828 120,601 — 1,670,598 2,051,936 (460,678) 1,591,258 26,240 1,617,498 286,842 78,767 20,486 44,280 92,040 27,968 $2,120,758 $2,167,881 $ 657,470 427,710 99,000 51,145 13,739 8,862 — $ 753,587 361,860 100,000 49,138 11,099 7,390 23,949 1,257,926 1,307,023 662 1,138,478 (280,096) — 859,044 3,788 862,832 659 1,127,825 (269,935) (1,469) 857,080 3,778 860,858 Total liabilities and shareholders’ equity $2,120,758 $2,167,881 See accompanying notes to the financial statements. 70 annual RepoRt 2011 FoRm 10-K CONSOLIDATED STATEMENTS OF INCOME for the years ended December 31, 2011, 2010 and 2009 (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue Real estate rental revenue Expenses Utilities Real estate taxes Repairs and maintenance Property administration Property management Operating services and common area maintenance Other real estate expenses Depreciation and amortization General and administrative Real estate operating income Other income (expense) Interest expense Other income Acquisition costs Real estate impairment Gain (loss) on extinguishment of debt, net Gain from non-disposal activities Income (loss) from continuing operations Discontinued operations: Income from operations of properties sold or held for sale Gain on sale of real estate Income tax expense Net income Less: Net income attributable to noncontrolling interests in subsidiaries Net income attributable to the controlling interests Basic net income (loss) attributable to the controlling interests per share 2011 2010 2009 $289,527 $258,490 $256,549 19,960 27,238 13,461 9,650 8,942 14,786 3,155 93,297 15,728 206,217 83,310 (66,473) 1,144 (3,607) (14,526) (976) — (84,438) (1,128) 10,153 97,491 (1,138) 105,378 (494) 104,884 18,233 25,044 11,903 8,652 7,312 13,528 1,988 80,066 14,406 181,132 77,358 (67,229) 1,193 (1,161) — (9,176) 7 (76,366) 992 14,968 21,599 — 37,559 (133) 37,426 18,866 27,072 11,104 8,845 6,237 13,132 4,033 77,549 13,118 179,956 76,593 (72,694) 1,205 (788) — 5,336 71 (66,870) 9,723 17,877 13,348 — 40,948 (203) 40,745 Continuing operations $ (0.02) $ 0.02 $ 0.17 Discontinued operations, including gain on sale of real estate 1.60 0.58 0.54 Net income attributable to the controlling interests per share $ 1.58 $ 0.60 $ 0.71 Diluted net income (loss) attributable to the controlling interests per share Continuing operations $ (0.02) $ 0.02 $ 0.17 Discontinued operations, including gain on sale of real estate 1.60 0.58 0.54 Net income attributable to the controlling interests per share $ 1.58 $ 0.60 $ 0.71 Weighted average shares outstanding—basic Weighted average shares outstanding—diluted Dividends declared and paid per share See accompanying notes to the financial statements. 65,982 65,982 62,140 62,264 56,894 56,968 $ 1.7350 $ 1.7313 $ 1.7300 FoRm 10-K annual RepoRt 2011 71 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EqUITY for the years ended December 31, 2011, 2010 and 2009 DISTRIBUTIONS IN EXCESS OF NET INCOME ATTRIBUT- ABLE TO THE CONTROLLING INTERESTS ADDITIONAL PAID IN CAPITAL ACCU- MULATED OTHER COMPRE- HENSIVE INCOME SHARES OF BENEFICIAL INTEREST AT PAR VALUE TOTAL SHARE- HOLDERS’ EqUITY NON CON- TROLLING INTERESTS IN SUBSIDIARIES TOTAL EqUITY (IN THOUSANDS) SHARES Balance, December 31, 2008 52,434 $526 $777,375 $(138,936) $(2,335) $ 636,630 $3,795 $ 640,425 Comprehensive income: Net income attributable to the controlling interests Net income attributable to noncontrolling interests Change in fair value of interest rate hedge Total comprehensive income Distributions to noncontrolling interests Dividends Equity offerings, net of issuance costs Shares issued under Dividend Reinvestment Program Share options exercised Share grants, net of share grant amortization and forfeitures — — — — — — 7,240 88 3 46 — — — — — — 72 1 — — — — — — — — 160,843 2,478 45 4,084 40,745 — — — (100,221) — — — — — — 578 — — — — — — — 40,745 — 578 41,323 — 203 — 203 40,745 203 578 41,526 — (190) (190) (100,221) 160,915 2,479 45 4,084 — — — — — (100,221) 160,915 2,479 45 4,084 Balance, December 31, 2009 59,811 $599 $944,825 $(198,412) $(1,757) $ 745,255 $3,808 $ 749,063 See accompanying notes to the financial statements. 72 annual RepoRt 2011 FoRm 10-K CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EqUITY for the years ended December 31, 2011, 2010 and 2009 DISTRIBUTIONS IN EXCESS OF NET INCOME ATTRIBUT- ABLE TO THE CONTROLLING INTERESTS ADDITIONAL PAID IN CAPITAL ACCU- MULATED OTHER COMPRE- HENSIVE INCOME SHARES OF BENEFICIAL INTEREST AT PAR VALUE TOTAL SHARE- HOLDERS’ EqUITY NON CON- TROLLING INTERESTS IN SUBSIDIARIES TOTAL EqUITY (IN THOUSANDS) SHARES Balance, December 31, 2009 59,811 $599 $ 944,825 $(198,412) $(1,757) $ 745,255 $3,808 $ 749,063 Comprehensive income: Net income attributable to the controlling interests Net income attributable to noncontrolling interests Change in fair value of interest rate hedge Total comprehensive income Distributions to noncontrolling interests Dividends Equity offerings, net of issuance costs Shares issued under Dividend Reinvestment Program Share options exercised Share grants, net of share grant amortization and forfeitures — — — — — — 5,645 175 164 75 — — — — — — 56 2 2 — — — — — — — 37,426 — — — (108,949) 168,824 5,284 3,961 4,931 — — — — — — 288 — — — — — — — 37,426 — 288 37,714 — 133 — 133 37,426 133 288 37,847 — (163) (163) (108,949) 168,880 5,286 3,963 4,931 — — — — — (108,949) 168,880 5,286 3,963 4,931 Balance, December 31, 2010 65,870 $659 $1,127,825 $(269,935) $(1,469) $ 857,080 $3,778 $ 860,858 See accompanying notes to the financial statements. FoRm 10-K annual RepoRt 2011 73 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EqUITY for the years ended December 31, 2011, 2010 and 2009 DISTRIBUTIONS IN EXCESS OF NET INCOME ATTRIBUT- ABLE TO THE CONTROLLING INTERESTS ADDITIONAL PAID IN CAPITAL ACCU- MULATED OTHER COMPRE- HENSIVE INCOME SHARES OF BENEFICIAL INTEREST AT PAR VALUE TOTAL SHARE- HOLDERS’ EqUITY NON CON- TROLLING INTERESTS IN SUBSIDIARIES TOTAL EqUITY (IN THOUSANDS) SHARES Balance, December 31, 2010 65,870 $659 $1,127,825 $(269,935) $(1,469) $857,080 $3,778 $860,858 Comprehensive income: Net income attributable to the controlling interests Net income attributable to noncontrolling interests Change in fair value of interest rate hedge Total comprehensive income Distributions to noncontrolling interests Contribution from noncontrolling interest Dividends Equity offerings, net of issuance costs Shares issued under Dividend Reinvestment Program Share options exercised Share grants, net of share grant amortization and forfeitures — — — — — — — 170 51 174 — — — — — — — 2 1 — — — — — — — — 5,041 1,291 4,321 104,884 — — — — (115,045) — — — — — — 1,469 — — — — — — — 104,884 — 104,884 — 1,469 106,353 494 — 494 494 1,469 106,847 — (2,488) (2,488) 2,004 2,004 (115,045) — 5,043 1,292 4,321 — — — — — (115,045) — 5,043 1,292 4,321 Balance, December 31, 2011 66,265 $662 $1,138,478 $(280,096) $ — $859,044 $3,788 $862,832 See accompanying notes to the financial statements. 74 annual RepoRt 2011 FoRm 10-K CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 2011, 2010 and 2009 (IN THOUSANDS) Cash flows from operating activities Net income 2011 2010 2009 $ 105,378 $ 37,559 $ 40,948 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of real estate Depreciation and amortization, including amounts in discontinued operations Provision for losses on accounts receivable Real estate impairment, including amounts in discontinued operations Amortization of share grants, net Amortization of debt premiums, discounts and related financing costs Loss (gain) on extinguishment of debt, net Changes in operating other assets Changes in operating other liabilities Net cash provided by operating activities Cash flows from investing activities Real estate acquisitions, net* Capital improvements to real estate Held for development Net cash received for sale of real estate Non-real estate capital improvements Net cash provided by (used in) investing activities Cash flows from financing activities Line of credit borrowings Line of credit repayments Dividends paid Distributions to noncontrolling interests Proceeds from equity offerings under dividend reinvestment program Proceeds from mortgage notes payable Principal payments—mortgage notes payable Proceeds from debt offering Financing costs Net proceeds from equity offerings (97,491) 100,528 4,005 15,125 4,321 3,194 — (14,911) (2,294) 117,855 (281,701) (32,815) (25,929) 402,164 (621) 61,098 261,000 (262,000) (115,045) (2,488) 5,043 — (32,331) — (3,905) — (21,599) (13,348) 95,746 4,150 — 4,931 5,532 9,176 (20,053) (3,509) 111,933 (155,881) (25,045) (1,337) 71,505 (392) (111,150) 68,800 (96,800) (108,949) (163) 5,286 — (25,985) 247,998 (2,450) 168,880 94,447 6,889 — 3,085 6,957 (5,336) (14,576) (16,165) 102,901 (19,828) (27,337) (2,135) 36,842 (351) (12,809) 214,500 (153,500) (100,221) (190) 2,479 37,500 (54,030) — (847) 160,915 Notes payable repayments, including penalties for early extinguishment (96,521) (193,799) (197,414) Net proceeds from exercise of share options Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized 1,292 (244,955) (66,002) 78,767 3,963 66,781 67,564 11,203 45 (90,763) (671) 11,874 $ 12,765 $ 78,767 $ 11,203 $ 63,916 $ 60,622 $ 69,292 * See note 3 to the consolidated financial statements for the supplemental disclosure of non-cash investing and financing activities, including the assumption of mortgage debt in conjunction with some of our real estate acquisitions. See accompanying notes to the financial statements. FoRm 10-K annual RepoRt 2011 75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 2011, 2010 and 2009 NOTE 1. NATURE OF BUSINESS Washington Real Estate Investment Trust (“We” or “WRIT”), a Maryland real estate investment trust, is a self-administered, self- managed equity real estate investment trust, successor to a trust organized in 1960. Our business consists of the ownership and operation of income-producing real estate properties in the greater Washington Metro region. We own a diversified portfolio of office buildings, medical office buildings, multifamily buildings and retail centers. Federal Income Taxes We believe that we qualify as a real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code and intend to continue to qualify as such. To maintain our status as a REIT, we are required to distribute 90% of our ordinary taxable income to our shareholders. When selling properties, we have the option of (a) reinvesting the sale proceeds of properties sold, allowing for a deferral of income taxes on the sale, (b) paying out capital gains to the shareholders with no tax to WRIT or (c) treat- ing the capital gains as having been distributed to the shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to the shareholders. During the three years ended December 31, 2011, we sold the following properties: DISPOSITION DATE PROPERTY April 5, 2011 Various(1) Total 2011 June 18, 2010 December 21, 2010 December 22, 2010 Total 2010 May 13, 2009 July 23, 2009 July 31, 2009 Dulles Station, Phase I Industrial Portfolio(1) Parklawn Portfolio(2) The Ridges Ammendale I&II/Amvax Avondale Tech 100 Industrial Park Brandywine Center November 13, 2009 Crossroads Distribution Center Total 2009 TYPE Office Office/Industrial Office/Industrial Office Industrial Multifamily Industrial Office Industrial GAIN ON SALE (in thousands) $ — 97,491 $97,491 $ 7,900 4,500 9,200 $21,600 $ 6,700 4,100 1,000 1,500 $13,300 (1) The Industrial Portfolio consists of every property in our industrial segment and two office properties (the Crescent and Albemarle Point), and we closed on the sale on three separate dates. On September 2, 2011, we closed on the sale of the two office properties (the Crescent and Albemarle Point) and 8880 Gorman Road, Dulles South IV, Fullerton Business Center, Hampton Overlook, Alban Business Center, Pickett Industrial Park, Northern Virginia Industrial Park I, 270 Technology Park, Fullerton Industrial Center, Sully Square, 9950 Business Parkway, Hampton South and 8900 Telegraph Road. On October 3, 2011, we closed the sale of Northern Virginia Industrial Park II. On November 1, 2011, we closed on the sale of 6100 Columbia Park Road and Dulles Business Park I and II. (2) The Parklawn Portfolio consists of three office properties (Parklawn Plaza, Lexington Building and Saratoga Building) and one industrial property (Charleston Business Center). A portion of the sales proceeds were reinvested in replacement properties, with the remainder paid out to the shareholders. Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undis- tributed REIT taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRS’s”). Our TRS’s are subject to corporate federal and state income tax on their taxable income at regular statutory rates, or as calculated under the alternative minimum tax, as appropriate. On April 5, 2011, we settled on the sale of Dulles Station, Phase I, an office property held by one of our TRS’s. After the application of available net operating loss carryforwards, we recognized $1.1 million in current net federal and state income tax liabilities during 2011 in connection with the sale and operations of the entities. During the fourth quarter of 2011 we recognized a $14.5 million impairment charge at Dulles Station, Phase II, a development property held by one of our TRS’s (see note 3 to the consolidated financial statements). The impairment charge created a deferred tax asset of $5.7 million at this TRS, but we have determined that it is more likely than not that this deferred tax asset will not be realized. We have therefore recorded a valuation allowance for the full amount of the deferred tax asset related to the impairment charge at Dulles Station, Phase II. 76 annual RepoRt 2011 FoRm 10-K As of December 31, 2011, our TRS’s had a net deferred tax asset of $0.1 million and a net deferred tax liability of $0.5 million, primarily related to temporary differences in the timing of the recognition of revenue, amortization and depreciation. There were no material income tax provisions or material net deferred income tax items for our TRS’s for the years ended December 31, 2010 and 2009. The following is a breakdown of the taxable percentage of our dividends for 2011, 2010 and 2009, respectively (unaudited): Ordinary income Return of capital Qualified dividends Unrecaptured Section 1250 gain Capital gain NOTE 2. ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation 2011 60% 17% 5% 13% 5% 2010 55% 31% — 11% 3% 2009 75% 17% — 7% 1% The accompanying audited consolidated financial statements include the consolidated accounts of WRIT, its majority-owned subsid- iaries and entities in which WRIT has a controlling interest, including where WRIT has been determined to be a primary beneficiary of a variable interest entity (“VIE”). See note 3 to the consolidated financial statements for additional information on the properties for which there is a noncontrolling interest. All intercompany balances and transactions have been eliminated in consolidation. We have prepared the accompanying audited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. 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. New Accounting Pronouncements In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU No. 2011-04, Fair Value Measurement, which requires new disclosures about fair value measurements. Specifically, additional disclosures are required regarding significant unobservable inputs used for Level 3 fair value measurements, a company’s valuation process, transfers between Levels 1 and 2, and hierarchy classifications for items whose fair value is not recorded on the balance sheet, but disclosed in the notes. For WRIT, the primary impact of this ASU is to require disclosure of the hierarchy classifications (Level 1, 2 or 3) for our dis- closures of the fair values of financial instruments in our notes to the consolidated financial statements. This ASU is effective for fiscal years (including interim periods) beginning after December 15, 2011. In June 2011, the FASB issued ASU 2011-05, Comprehensive Income, which requires the presentation of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option of presenting the components of other comprehensive income as part of the statement of changes in shareholders’ equity. This ASU is effective for fiscal years (including interim periods) beginning after December 15, 2011. For WRIT, the primary impact of this ASU is to require presentation of single continuous statement of comprehensive income or in two separate but consecutive statements. Revenue Recognition We lease multifamily properties under operating leases with terms of generally one year or less. We lease commercial properties (our office, medical office and retail segments) under operating leases with average terms of three to five years. We recognize rental income and rental abatements from our multifamily and commercial leases when earned on a straight-line basis over the lease term. Recognition of rental income commences when control of the facility has been given to the tenant. We record a provision for losses on accounts receivable equal to the estimated uncollectible amounts. We base this estimate on our historical experience and a review of the current status of our receivables. We recognize percentage rents, which represent additional rents based on gross ten- ant sales, when tenants’ sales exceed specified thresholds. We recognize sales of real estate at closing only when sufficient down payments have been obtained, possession and other attributes of ownership have been transferred to the buyer and we have no significant continuing involvement. FoRm 10-K annual RepoRt 2011 77 We recognize cost reimbursement income from pass-through expenses on an accrual basis over the periods in which the expenses were incurred. Pass-through expenses are comprised of real estate taxes, operating expenses and common area maintenance costs which are reimbursed by tenants in accordance with specific allowable costs per tenant lease agreements. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable primarily represents amounts accrued and unpaid from tenants in accordance with the terms of the respective leases, subject to our revenue recognition policy. We review receivables monthly and establish reserves when, in the opinion of manage- ment, collection of the receivable is doubtful. We established reserves for doubtful accounts of $3.9 million, $3.4 million and $5.1 million during the years ended December 31, 2011, 2010 and 2009, respectively. Write-offs of accounts receivable totaled $2.4 million, $1.2 mil- lion and $3.8 million for the years ended December 31, 2011, 2010 and 2009, respectively. We establish reserves for tenants whose rent payment history or financial condition casts doubt upon the tenants’ ability to perform under their lease obligations. When we deem the collection of a receivable to be doubtful in the same quarter that we established the receivable, then we recognize the allowance for that receivable as an offset to real estate revenues. When we deem a receivable that was initially established in a prior quarter to be doubtful, then we recognize the allowance as an operating expense. In addition to rents due currently, accounts receiv- able include amounts representing minimal rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases. We include the following notes receivable balances in our accounts receivable balances (in millions): Notes receivable, net Deferred Financing Costs DECEMBER 31, 2011 $7.3 2010 $8.1 We capitalize and amortize external costs associated with the issuance or assumption of mortgages, notes payable and fees associ- ated with the lines of credit using the effective interest rate method or the straight-line method which approximates the effective interest rate method over the term of the related debt. As of December 31, 2011 and 2010 deferred financing costs were included in prepaid expenses and other assets as follows (in millions): GROSS CARRYING VALUE ACCUMULATED AMORTIzATION Deferred financing costs $16.1 7.6 NET $8.5 GROSS CARRYING VALUE ACCUMULATED AMORTIzATION $13.8 6.7 NET $7.1 DECEMBER 31, 2011 2010 We record the amortization of deferred financing costs as interest expense. Amortization of deferred financing costs for the three years ended December 31, 2011 was as follows (in millions): Deferred financing costs amortization Deferred Leasing Costs 2011 $2.3 2010 $2.4 2009 $3.1 We capitalize and amortize costs associated with the successful negotiation of leases, both external commissions and internal direct costs, on a straight-line basis over the terms of the respective leases. As of December 31, 2011 and 2010 deferred leasing costs were included in prepaid expenses and other assets as follows (in millions): GROSS CARRYING VALUE ACCUMULATED AMORTIzATION Deferred leasing costs $33.4 12.7 NET $20.7 GROSS CARRYING VALUE ACCUMULATED AMORTIzATION $31.6 12.1 NET $19.5 DECEMBER 31, 2011 2010 78 annual RepoRt 2011 FoRm 10-K We record the amortization of deferred leasing costs as amortization expense. If an applicable lease terminates prior to the expira- tion of its initial lease term, we write off the carrying amount of the costs to amortization expense. Amortization and writes-offs of deferred leasing costs for the three years ended December 31, 2011 were as follows (in millions): Deferred leasing costs amortization 2011 $4.6 2010 $4.4 2009 $4.0 We capitalize and amortize against revenue leasing incentives associated with the successful negotiation of leases on a straight-line basis over the terms of the respective leases. As of December 31, 2011 and 2010 deferred leasing incentives were included in prepaid expenses and other assets as follows (in millions): GROSS CARRYING VALUE ACCUMULATED AMORTIzATION Deferred leasing incentives $4.8 1.0 NET $3.8 GROSS CARRYING VALUE ACCUMULATED AMORTIzATION $2.6 0.4 NET $2.2 DECEMBER 31, 2011 2010 If an applicable lease terminates prior to the expiration of its initial lease term, we write off the carrying amount of the costs as a reduction of revenue. We record the amortization of deferred leasing incentives as a reduction of revenue. Amortization and write- offs of deferred leasing costs for the three years ended December 31, 2011 were as follows (in millions): Deferred leasing incentives amortization Real Estate and Depreciation 2011 $0.7 2010 $0.2 2009 $0.1 We depreciate buildings on a straight-line basis over estimated useful lives ranging from 28 to 50 years. We capitalize all capital improvement expenditures associated with replacements, improvements or major repairs to real property that extend its useful life and depreciate them using the straight-line method over their estimated useful lives ranging from 3 to 30 years. We also capitalize costs incurred in connection with our development projects, including capitalizing interest and other internal costs during periods in which qualifying expenditures have been made and activities necessary to get the development projects ready for their intended use are in progress. In addition, we capitalize tenant leasehold improvements when certain criteria are met, including when we super- vise construction and will own the improvements. We depreciate all tenant improvements over the shorter of the useful life of the improvements or the term of the related tenant lease. Real estate depreciation expense from continuing operations for the three years ended December 31, 2011 was as follows (in millions): Real estate depreciation 2011 $71.2 2010 $64.8 2009 $62.3 We charge maintenance and repair costs that do not extend an asset’s life to expense as incurred. We capitalize interest costs incurred on borrowing obligations while qualifying assets are being readied for their intended use. Total interest expense capitalized to real estate assets related to development and major renovation activities for the three years ended December 31, 2010 was as follows (in millions): Capitalized interest 2011 $0.7 2010 $0.9 2009 $1.4 We amortize capitalized interest over the useful life of the related underlying assets upon those assets being placed into service. We recognize impairment losses on long-lived assets used in operations and held for sale, development assets or land held for future development, if indicators of impairment are present and the net undiscounted cash flows estimated to be generated by those assets FoRm 10-K annual RepoRt 2011 79 are less than the assets’ carrying amount and estimated undiscounted cash flows associated with future development expenditures. If such carrying amount is in excess of the estimated cash flows from the operation and disposal of the property, we would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to the estimated fair value. The estimated fair value would be calculated in accordance with current GAAP fair value provisions. During 2011, we recognized in continuing opera- tions an impairment charge of $14.5 million for the development project at Dulles Station, Phase II. In addition, we recognized in discontinued operations an impairment charge of $0.6 million at Dulles Station, Phase I, which was sold during 2011 (see note 3 to the consolidated financial statements for further discussion). During 2009 we expensed $0.1 million, included in general and admin- istrative expenses, related to development projects no longer considered probable of completion. There were no impairments recognized during the year ended December 31, 2010. We record real estate acquisitions as business combinations in accordance with GAAP. We record acquired or assumed assets, including physical assets and in-place leases, and liabilities, based on their fair values. We record goodwill when the purchase price exceeds the fair value of the assets and liabilities acquired. We determine the estimated fair values of the assets and liabilities in accordance with current GAAP fair value provisions. We determine the fair values of acquired buildings on an “as-if-vacant” basis considering a variety of factors, including the replacement cost of the property, estimated rental and absorption rates, estimated future cash flows and valuation assumptions consistent with current market conditions. We determine the fair value of land based on comparisons to similar properties that have been recently marketed for sale or sold. The fair value of in-place leases consists of the following components—(a) the estimated cost to us to replace the leases, including foregone rents during the period of finding a new tenant and foregone recovery of tenant pass-throughs (referred to as “absorption cost”); (b) the estimated cost of tenant improvements, and other direct costs associated with obtaining a new tenant (referred to as “tenant origination cost”); (c) estimated leasing commissions associated with obtaining a new tenant (referred to as “leasing com- missions”); (d) the above/at/below market cash flow of the leases, determined by comparing the projected cash flows of the leases in place to projected cash flows of comparable market-rate leases (referred to as “net lease intangible”); and (e) the value, if any, of customer relationships, determined based on our evaluation of the specific characteristics of each tenant’s lease and our overall rela- tionship with the tenant (referred to as “customer relationship value”). We have attributed no value to customer relationship value as of December 31, 2011 and 2010. We discount the amounts used to calculate net lease intangibles using an interest rate which reflects the risks associated with the leases acquired. We include tenant origination costs in income producing property on our balance sheet and amortize the tenant origination costs as depreciation expense on a straight-line basis over the remaining life of the underlying leases. We classify leasing commissions and absorption costs as other assets and amortize leasing commissions and absorption costs as amortization expense on a straight-line basis over the remaining life of the underlying leases. We classify net lease intangible assets as other assets and amortize them on a straight-line basis as a decrease to real estate rental revenue over the remaining term of the underlying leases. We classify net lease intangible liabilities as other liabilities and amortize them on a straight-line basis as an increase to real estate rental revenue over the remaining term of the underlying leases. Should a tenant terminate its lease, we accelerate the amortization of the unamortized portion of the tenant origination cost, leasing commissions, absorption costs and net lease intangible associated with that lease, over its new, shorter term. Balances, net of accumulated depreciation or amortization, as appropriate, of the components of the fair value of in-place leases at December 31, 2011 and 2010 are as follows (in millions): DECEMBER 31, 2011 2010 GROSS CARRYING VALUE ACCUMULATED AMORTIzATION Tenant origination costs Leasing commissions/absorption costs Net lease intangible assets Net lease intangible liabilities Below-market ground lease intangible asset $55.7 $86.7 $14.5 $32.0 $12.1 $25.5 $34.8 $ 5.7 $19.3 $ 0.8 GROSS CARRYING VALUE ACCUMULATED AMORTIzATION $40.5 $58.0 $ 7.6 $29.8 $12.1 $19.6 $24.9 $ 4.3 $16.1 $ 0.6 NET $20.9 $33.1 $ 3.3 $13.7 $11.5 NET $30.2 $51.9 $ 8.8 $12.7 $11.3 80 annual RepoRt 2011 FoRm 10-K Amortization of these components combined was as follows (in millions): Amortization 2011 $15.4 2010 $7.7 2009 $7.3 Amortization of these components combined over the next five years is projected to be as follows (in millions): 2012 2013 2014 2015 2016 AMORTIzATION $19.4 $15.8 $13.7 $11.3 $ 8.2 Discontinued Operations We classify properties as held for sale when they meet the necessary criteria, which include: (a) senior management commits to and actively embarks upon a plan to sell the assets, (b) the sale is expected to be completed within one year under terms usual and customary for such sales and (c) 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. We generally consider that a property has met these criteria when a sale of the property has been approved by the Board of Trustees, or a committee with authorization from the Board, there are no known significant contingencies related to the sale and management believes it is probable that the sale will be completed within one year. Depreciation on these properties is discontinued, 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 income. Interest on debt that can be identified as specifically attributed to these properties is included in discontinued operations. We do not have significant continuing involvement in the operations of any of our disposed properties. Cash and Cash Equivalents Cash and cash equivalents include investments readily convertible to known amounts of cash with original maturities of 90 days or less. Restricted Cash Restricted cash at December 31, 2011 and December 31, 2010 consisted of $19.4 million and $20.5 million, respectively, in funds escrowed for tenant security deposits, real estate tax, insurance and mortgage escrows and escrow deposits required by lenders on certain of our properties to be used for future building renovations or tenant improvements. Stock Based Compensation We currently maintain equity based compensation plans for trustees, officers and employees and previously also maintained option plans for trustees, officers and employees. We recognize compensation expense for service-based share awards ratably over the period from the service inception date through the vesting period based on the fair market value of the shares on the date of grant. We initially measure compensation expense for awards with performance conditions at fair value at the service inception date based on probability of payout, and we remeasure compensation expense at subsequent reporting dates until all of the award’s key terms and conditions are known and the grant date is established. We amortize awards with performance conditions over the performance period using the graded expense method. We measure compensation expense for awards with market conditions based on the grant date fair value, as determined using a Monte Carlo simulation, and we amortize the expense ratably over the requisite service period, regardless of whether the market conditions are achieved and the awards ultimately vest. Compensation expense for the trustee grants, which fully vest immediately, is fully recognized upon issuance based upon the fair market value of the shares on the date of grant. FoRm 10-K annual RepoRt 2011 81 Accounting for Uncertainty in Income Taxes We can recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent that the “more likely than not” standard has been satisfied, the benefit associated with a tax position is mea- sured as the largest amount that is greater than 50% likely of being recognized upon settlement. We are subject to U.S. federal income tax as well as income tax of the states of Maryland and Virginia, and the District of Columbia. However, as a REIT, we generally are not subject to income tax on our net income distributed as dividends to our shareholders. Tax returns filed for 2007 through 2011 tax years are subject to examination by taxing authorities. We classify interest and penalties related to uncertain tax positions, if any, in our financial statements as a component of general and administrative expense. Use of Estimates in the Financial Statements The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assump- tions 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. Reclassifications Certain prior year amounts have been reclassified from continuing operations to discontinued operations to conform to the current year presentation (see note 3 to the consolidated financial statements). Other Comprehensive Income (Loss) We had accumulated other comprehensive loss of $1.5 million as of December 31, 2010, to account for the changes in valuation of interest rate swaps. The last of our interest rate swaps expired in November 2011. Accordingly, we recorded other comprehensive income of $1.5 million in 2011, leaving no accumulated other comprehensive income or loss as of December 31, 2011. NOTE 3. REAL ESTATE INVESTMENTS Continuing Operations Our real estate investment portfolio, at cost, consists of properties located in Maryland, Washington, D.C. and Virginia as follows (in thousands): Office Medical office Retail Multifamily DECEMBER 31, 2011 2010 $1,268,136 $ 980,263 404,793 408,897 324,957 398,559 351,395 321,719 $2,406,783 $2,051,936 The amounts above reflect properties classified as continuing operations, which means they are to be held and used in rental opera- tions (income producing property). 82 annual RepoRt 2011 FoRm 10-K We have several properties in development. In the office segment, we have land for development at Dulles Station, Phase II. In the medical office segment, we have land under development at 4661 Kenmore Avenue. In the residential segment, we have land for development at 650 North Glebe Road and 1219 First Street. The cost of our real estate portfolio held for development as of December 31, 2011 and 2010 is illustrated below (in thousands): Office Medical office Retail Multifamily DECEMBER 31, 2011 $ 8,953 5,758 576 27,802 $43,089 2010 $20,172 5,463 546 59 $26,240 Dulles Station, Phase II consists of undeveloped land in Herndon, Virginia and a half interest in a parking garage that is adjacent to this land. The land is zoned for development as an office building. During the fourth quarter of 2011, we reviewed changes in market conditions, specifically higher vacancy and lower rental rates in the Washington metro region office market and other circumstances affecting the Herndon submarket, such as the increased uncertainty surrounding the timing of the completion of the second phase of the Dulles Metrorail project, and reassessed the likelihood that we would follow through on these development plans. Based upon the foregoing review and assessment, we determined that the development of the land at Dulles Station, Phase II is not probable under current market conditions. Due to this determination, we recognized a $14.5 million impairment charge during the fourth quarter of 2011 in order to reduce the carrying value of the land and garage at Dulles Station, Phase II to its fair value of $12.1 million. We used a combination of internal models and third-party valuation estimates to determine the fair value of Dulles Station, Phase II. This fair valuation incorporated both market and income approaches, including recent comparable land sales, return on cost of development metrics and input from third-party real estate brokers on the value of the land and the half share of the parking garage. The valuation is inherently subjective because there are not many observable market transactions for similar land, and therefore we, through discussions with market participants, made certain significant assumptions with respect to appropriate comparable transac- tions to consider, cash flow estimates and discount rates. Our estimate of the land was further corroborated by an independent third-party valuation specialist. This fair valuation falls into Level 3 in the fair value hierarchy due to its reliance on significant unob- servable inputs. Our results of operations are dependent on the overall economic health of our markets, tenants and the specific segments in which we own properties. These segments include general purpose office, medical office, retail and multifamily. All segments are affected by external economic factors, such as inflation, consumer confidence, unemployment rates, etc. as well as changing tenant and consumer requirements. Because the properties are located in the Washington metro region, the Company is subject to a concentration of credit risk related to these properties. As of December 31, 2011 no single property or tenant accounted for more than 10% of total assets or total real estate rental revenue. FoRm 10-K annual RepoRt 2011 83 Acquisitions Properties and land for development we acquired during the years ending December 31, 2011, 2010 and 2009 are as follows: 650 North Glebe Road(1) Mutifamily ACqUISITION DATE PROPERTY January 11, 2011 March 30, 2011 June 15, 2011 August 30, 2011 September 13, 2011 September 15, 2011 November 23, 2011 Total 2011 June 3, 2010 1140 Connecticut Ave 1227 25th Street Olney Village Center Braddock Metro Center John Marshall II 1219 First Street(1) 925 and 1000 Corporate Drive December 1, 2010 Gateway Overlook Total 2010 TYPE Office Office Retail Office Office Mutifamily Office Retail August 13, 2009 Lansdowne Medical Office Building Medical Office Total 2009 (1) Land for development RENTABLE SqUARE FEET (unaudited) CONTRACT PURCHASE PRICE (In thousands) 184,000 130,000 N/A 199,000 345,000 223,000 N/A 1,081,000 271,000 223,000 494,000 87,000 87,000 $ 80,250 47,000 11,800 58,000 101,000 73,500 13,850 $385,400 $ 68,000 88,400 $156,400 $ 19,900 $ 19,900 The results of operations from acquired operating properties are included in the consolidated statements of income as of their acqui- sition dates. The revenue and earnings of our 2011 and 2010 acquisitions are as follows (amounts in thousands): Real estate revenue Net income DECEMBER 31, 2011 $35,259 $ 4,701 2010 $5,575 $1,460 As discussed in note 2 to the consolidated financial statements, we record the acquired physical assets (land, building and tenant improvements), in-place leases (absorption, tenant origination costs, leasing commissions, and net lease intangible assets/liabilities), and any other liabilities at their fair values. Our sole 2009 acquisition, Lansdowne Medical Office Building, was vacant as of the acqui- sition date, so we did not acquire any absorption costs, leasing commissions, tenant origination costs or net intangible lease assets/ liabilities during 2009. We have recorded the total purchase price of the above acquisitions as follows (in millions): Land Buildings Tenant origination costs Leasing commissions/absorption costs Net lease intangible assets Net lease intangible liabilities Fair value of assumed mortgage Total 84 annual RepoRt 2011 FoRm 10-K RECORDATION OF PURCHASE PRICE 2011 $ 90.9 219.6 15.7 29.7 6.8 (2.5) (78.5) $281.7 2010 $ 38.2 93.3 9.1 15.4 1.4 (1.5) — 2009 $ 1.3 18.6 — — — — — $155.9 $19.9 The weighted remaining average life in months for the 2011 acquisition components above, other than land and building, are 62 months for tenant origination costs, 51 months for leasing commissions/absorption costs, 65 months for net lease intangible assets and 62 months for net lease intangible liabilities. The difference in total contract price of $385.4 million and the acquisition cost per the consolidated statements of cash flows of $281.7 million is primarily related to the two mortgage notes assumed for $76.7 million relating to John Marshall II and Olney Village Center, cash paid for the acquisition of land at 650 North Glebe Road for $11.8 million and at 1219 First Street for $13.9 million included in development, and credits received at settlement totaling $1.3 million. The $0.5 million difference in total 2010 contract purchase price of $156.4 million and the recordation of purchase price of $155.9 mil- lion is due to a credit received at settlement for future tenant allowance obligations for Gateway Overlook. The following unaudited pro-forma combined condensed statements of operations set forth the consolidated results of operations for the years ended December 31, 2011 and 2010 as if the above described acquisitions had occurred at the beginning of the period of acquisition and the same period in the year prior to the acquisition. The unaudited pro-forma information does not purport to be indicative of the results that actually would have occurred if the acquisitions had been in effect for the years ended December 31, 2011 and December 31, 2010. The unaudited data presented is in thousands, except per share data. Real estate revenues Income from continuing operations Net income Diluted earnings per share Noncontrolling Interests in Subsidiaries YEARS ENDED DECEMBER 31, 2011 $308,027 $ (1,701) $104,311 $ 1.57 2010 $295,767 $ 1,083 $ 37,517 $ 0.60 In August 2007 we acquired a 0.8 acre parcel of land located at 4661 Kenmore Avenue, Alexandria, Virginia for future medical office development. The acquisition was funded by issuing operating partnership units in an operating partnership, which is a consolidated subsidiary of WRIT. This resulted in a noncontrolling ownership interest in this property based upon defined company operating partnership units at the date of purchase. The operating partnership units could have a dilutive impact on our earnings per share calculation. They are not dilutive for the years ended December 31, 2011, 2010 and 2009, and are not included in our earnings per share calculations. On June 15, 2011 we executed a joint venture operating agreement with a real estate development company to develop a mid-rise multifamily property at 650 North Glebe Road in Arlington, Virginia. We estimate the total cost of the project to be $43.5 million, with approximately 70% of the project financed with debt. WRIT is the 90% owner of the joint venture, and will have management and leasing responsibilities when the project is completed and stabilized (defined as 90% of the residential units leased). The real estate development company owns 10% of the joint venture and is responsible for the development, construction and lease-up of the property. On November 23, 2011 we executed a joint venture operating agreement with a real estate development company to develop a high-rise multifamily property at 1219 First Street in Alexandria, Virginia. We estimate the total cost of the project to be $95.0 mil- lion, with approximately 70% of the project financed with debt. WRIT is the 95% owner of the joint venture and will have manage- ment and leasing responsibilities when the project is completed and stabilized. The real estate development company owns 5% of the joint venture and is responsible for the development, construction and lease-up of the property. We have determined that the 650 North Glebe Road and 1219 First Street joint ventures are variable interest entities (“VIE’s”) primarily based on the fact that the equity investment at risk is not sufficient to permit either entity to finance its activities without additional financial support. We expect that 70% of the total development costs will be financed through debt. We have also deter- mined that WRIT is the primary beneficiary of each VIE due to the fact that WRIT is providing 90% to 95% of the equity contribu- tions, obtaining the debt financing, and will manage each property after stabilization. FoRm 10-K annual RepoRt 2011 85 We include the joint venture land acquisitions on our consolidated balance sheets in held for development. As of December 31, 2011, the land and capitalized development costs are as follows (in millions): 650 North Glebe 1219 First Street DECEMBER 31, 2011 $13.4 $14.4 In May 1998, we entered into an operating partnership agreement with a member of the entity that previously owned Northern Virginia Industrial Park in conjunction with the acquisition of this property. We accounted for this activity by applying the noncontrol- ling owner’s percentage ownership interest to the net income of the property and reporting such amount in our net income attribut- able to noncontrolling interests. In October 2011, we closed on the sale of Northern Virginia Industrial Park II, thereby terminating this noncontrolling interest in our earnings. As a result of this transaction, we recorded a gain on sale relating to the noncontrolling interest of $0.4 million. The amounts reported on the consolidated statements of income for noncontrolling interests are related to Northern Virginia Industrial Park II and classified as discontinued operations. Discontinued Operations We dispose of assets (sometimes using tax-deferred exchanges) 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. Properties are considered held for sale when they meet specified criteria (see “Discontinued Operations” in note 2 to the consolidated financial statements). Depreciation on these properties is discontinued at that time, but operating revenues, other operating expenses and interest con- tinue to be recognized until the date of sale. We had no properties classified as sold or held for sale at December 31, 2011 and had the industrial portfolio plus three office properties as sold or held for sale at December 31, 2010, as follows (in thousands): Office property Industrial/Flex properties Total Less accumulated depreciation DECEMBER 31, 2011 $— — $— — $— 2010 $ 80,024 284,926 $364,950 (78,108) $286,842 On August 5, 2011 we entered into five separate purchase and sale agreements to effectuate the sale of our entire industrial segment and two office assets (the Crescent and Albemarle Point) for an aggregate purchase price of $350.9 million, resulting in a $97.5 mil- lion gain on sale of real estate. The impact of the disposal of our industrial segment on revenues and net income is summarized as follows (amounts in thousands, except per share data): Real estate revenues Net income Basic net income per share Diluted net income per share 2011 $23,045 $16,484 $ 0.23 $ 0.23 DECEMBER 31, 2010 $32,191 $22,857 $ 0.36 $ 0.36 2009 $34,288 $24,905 $ 0.43 $ 0.43 86 annual RepoRt 2011 FoRm 10-K We sold the following properties during the three years ended December 31, 2011: DISPOSITION DATE PROPERTY TYPE Various(1) April 5, 2011 Total 2011 Industrial Portfolio(1) Industrial/Office Dulles Station, phase I Office June 18, 2010 Parklawn Portfolio(2) Office/Industrial December 21, 2010 The Ridges Office December 22, 2010 Ammendale I&II and Amvax Industrial Total 2010 May 13, 2009 July 23, 2009 July 31, 2009 Avondale Tech 100 Industrial Park Brandywine Center Multifamily Industrial Office November 13, 2009 Crossroads Distribution Center Industrial Total 2009 RENTABLE SqUARE FEET (unaudited) CONTRACT SALES PRICE (in thousands) GAIN ON SALE (in thousands) 3,092,000 180,000 3,272,000 229,000 104,000 305,000 638,000 170,000 166,000 35,000 85,000 456,000 $350,900 58,800 $409,700 $ 23,400 27,500 23,000 $ 73,900 $ 19,800 10,500 3,300 4,400 $97,491 — $97,491 $ 7,900 4,500 9,200 $21,600 $ 6,700 4,100 1,000 1,500 $ 38,000 $13,300 (1) The Industrial Portfolio consists of every property in our industrial segment and two office properties (the Crescent and Albemarle Point), and we closed on the sale on three separate dates. On September 2, 2011, we closed on the sale of the two office properties (the Crescent and Albemarle Point) and 8880 Gorman Road, Dulles South IV, Fullerton Business Center, Hampton Overlook, Alban Business Center, Pickett Industrial Park, Northern Virginia Industrial Park I, 270 Technology Park, Fullerton Industrial Center, Sully Square, 9950 Business Parkway, Hampton South and 8900 Telegraph Road. On October 3, 2011, we closed the sale of Northern Virginia Industrial Park II. On November 1, 2011, we closed on the sale of 6100 Columbia Park Road and Dulles Business Park I and II. (2) The Parklawn Portfolio consists of three office properties (Parklawn Plaza, Lexington Building and Saratoga Building) and one industrial property (Charleston Business Center). Operating results of the properties classified as discontinued operations are summarized as follows (in thousands): Revenues Property expenses Real estate impairment Depreciation and amortization Interest expense OPERATING INCOME FOR THE YEAR ENDING DECEMBER 31, 2011 $26,154 (7,697) (599) (7,231) (474) $10,153 2010 $ 47,646 (15,248) — (15,680) (1,750) $ 14,968 2009 $ 53,726 (16,646) — (16,896) (2,307) $ 17,877 FoRm 10-K annual RepoRt 2011 87 Operating income by each property classified as discontinued operations is summarized below (in thousands): PROPERTY Avondale Tech 100 Industrial Park Brandywine Center Crossroads Distribution Center Parklawn Plaza Lexington Building Saratoga Building Charleston Business Center The Ridges Ammendale I&II Amvax Dulles Station, Phase I Industrial Portfolio SEGMENT Multifamily Industrial Office Industrial Office Office Office Industrial Office Industrial Industrial Office Industrial/Office OPERATING INCOME FOR THE YEAR ENDING DECEMBER 31, 2011 $ — 2010 $ — 2009 $ 392 — — — — — — — — — — (468) 10,621 $10,153 — — — 132 65 225 370 678 1,023 336 492 11,647 $14,968 261 85 153 147 127 436 688 175 986 327 449 13,651 $17,877 88 annual RepoRt 2011 FoRm 10-K NOTE 4. MORTGAGE NOTES PAYABLE We had outstanding mortgage notes payable, each collateralized by one or more buildings and related land from our portfolio, as follows (dollars in thousands): PROPERTIES Prosperity Medical Center Prosperity Medical Center Shady Grove Medical Village II Frederick Crossing 9707 Medical Center Drive(3) Plumtree Medical Center 15005 Shady Grove Road West Gude Drive Woodholme Medical Office Center Ashburn Farm Office Park Ashburn Farm Office Park 3801 Connecticut Avenue, Walker House and Bethesda Hill(4) 2445 M Street(5) Kenmore Apartments Olney Village Center John Marshall II ASSUMPTION/ ISSUANCE DATE(1) EFFECTIVE INTEREST RATE(2) 10/9/2003 10/9/2003 8/12/2004 3/23/2005 4/13/2006 6/22/2006 7/12/2006 8/25/2006 6/1/2007 6/1/2007 6/1/2007 5/29/2008 12/2/2008 2/2/2009 8/30/2011 9/15/2011 5.36% 5.34% 6.98% 5.95% 5.32% 5.68% 5.73% 5.86% 5.29% 5.56% 5.69% 5.71% 5.62% 5.37% 4.94% 5.79% DECEMBER 31, 2011 $ 31,169 11,828 — 21,700 4,780 4,419 7,974 30,761 19,954 2,438 2,159 81,029 95,593 36,097 23,873 53,936 2010 MATURITY DATE $ 31,886 12,101 9,375 22,268 4,955 4,512 8,149 31,486 20,285 2,556 2,285 81,029 94,339 36,634 — — 5/1/2013 5/1/2013 12/1/2011 11/1/2012 7/1/2028 3/11/2013 3/11/2013 2/11/2013 11/1/2015 5/31/2025 7/31/2023 6/1/2017 1/6/2017 3/1/2019 11/1/2023 5/6/2016 $427,710 $361,860 (1) Each of these mortgages was assumed with the acquisition of the collateralized properties, except for the mortgage notes secured by 3801 Connecticut Avenue, Walker House, Bethesda Hill and Kenmore Apartments, which were originally executed by WRIT. We record mortgages assumed in an acquisition at fair value, and balances presented include any recorded premiums or discounts. (2) Yield on the assumption/issuance date, including the effects of any premiums, discounts or fair value adjustments on the notes. (3) The mortgage bears a set interest rate through June 30, 2012, at which time the rate will be reset based on the Moody’s Long-term Corporate Bond Yield Average, but never lower than 5.0% per annum. The interest rate will be reset annually thereafter for the duration of the note. Principal and interest are payable monthly until July 1, 2028, at which time all unpaid principal and interest are payable in full. During the first 90 days of 2013, the lender has the option to elect to accelerate the maturity date of the note to July 1, 2013. For the remainder of 2013, we have the right to prepay the note without any prepayment penalties. Interest only is payable monthly until the maturity date, which can be extended for one year upon which the interest rate is reset on June 1, 2016. At maturity on June 1, 2017, all unpaid principal and interest are payable in full. Interest only is payable monthly until the maturity date upon which all unpaid principal and interest are payable in full. (5) (4) Except as noted above, principal and interest are payable monthly until the maturity date, upon which all unpaid principal and interest are payable in full. Total carrying amount of the above mortgaged properties was $678.9 million and $570.5 million at December 31, 2011 and 2010, respectively. On September 1, 2011, we repaid without penalty the remaining $9.1 million of principal on the mortgage note secured by Shady Grove Medical Village II. On October 5, 2011, we entered into an amendment to the purchase and sale agreement for 6100 Columbia Park Road and Dulles Business Park , under which we agreed to seek prepayment of the mortgage notes secured by Dulles Business Park prior to clos- ing the sale. Under the terms of the amendment, if we prepaid the mortgage notes prior to November 1, 2011, then the sales price would be increased by $875,000 in order to partially offset the penalties incurred by us for the prepayment of the mortgage notes. On October 7, 2011, we prepaid the remaining $17.5 million of principal on the mortgage notes, incurring prepayment penalties of $1.0 million. Because Dulles Business Park was sold (see note 3 to the consolidated financial statements), these mortgage notes are included in “Other liabilities related to properties sold or held for sale” on the consolidated balance sheets as of December 31, 2010. FoRm 10-K annual RepoRt 2011 89 Scheduled principal payments during the five years subsequent to December 31, 2011 and thereafter are as follows (in thousands): 2012 2013 2014 2015 2016 Thereafter Net discounts/premiums Total $ 27,000 87,580 3,724 22,390 134,943 156,548 432,185 (4,475) $427,710 NOTE 5. UNSECURED LINES OF CREDIT PAYABLE As of December 31, 2011, we maintained a $75.0 million unsecured line of credit maturing in June 2012 (“Credit Facility No. 1”) and a $400.0 million unsecured line of credit maturing in July 2014 (“Credit Facility No. 2”). The amounts of these lines of credit unused and available at December 31, 2011 are as follows (in millions): Committed capacity Borrowings outstanding Letters of credit issued Unused and available CREDIT FACILITY NO. 1 CREDIT FACILITY NO. 2 $ 75.0 (74.0) (0.8) $ 0.2 $400.0 (25.0) — $375.0 We executed borrowings and repayments on the unsecured lines of credit during 2011 as follows (in millions): Balance at December 31, 2010 Borrowings Repayments Balance at December 31, 2011 CREDIT FACILITY NO. 1 CREDIT FACILITY NO. 2 $ — 92.0 (18.0) $ 74.0 $ 100.0 169.0 (244.0) $ 25.0 We made borrowings under Credit Facility No. 1 during 2011 to partially fund our acquisitions of 1140 Connecticut Avenue and 1227 25th Street, and for general corporate purposes. We made borrowings under Credit Facility No. 2 to repay unsecured notes, to par- tially fund the acquisitions of Olney Village Center, John Marshall II and Braddock Gateway and for general corporate purposes. We made repayments during 2011 using proceeds from the sales of the Industrial Portfolio and the sale of Dulles Station, Phase I. Borrowings under Credit Facility No. 1 bear interest at our option of LIBOR plus a spread based on the credit rating on our publicly issued debt or the higher of SunTrust Bank’s prime rate and the Federal Funds Rate in effect plus 0.5%. Borrowings under Credit Facility No. 2 bear interest at our option of LIBOR plus a spread based on the credit rating of our publicly issued debt or the higher of Wells Fargo Bank’s prime rate and the Federal Funds Rate in effect plus 1.0%. The interest rate spreads are 42.5 basis points and 122.5 basis points for Credit Facilities No. 1 and 2, respectively. 90 annual RepoRt 2011 FoRm 10-K All outstanding advances for Credit Facilities No. 1 and 2 are due and payable upon maturity in June 2012 and July 2014, respec- tively. Credit Facility No. 2 may be extended for one year at our option. Interest only payments are due and payable generally on a monthly basis. For the years ended December 31, 2011, 2010 and 2009, we recognized interest expense (excluding facility fees) as follows (in millions): Credit Facility No. 1 Credit Facility No. 2 2011 $0.4 $2.7 2010 $0.1 $2.7 The average interest rate on borrowings for the years ended December 31, 2011, 2010 and 2009 was as follows: Credit Facility No. 1 Credit Facility No. 2 2011 0.65% 2.54% 2010 0.71% 2.65% 2009 $— $0.5 2009 0.70% 1.81% In addition, we pay a facility fee based on the credit rating of our publicly issued debt which currently equals 0.15% and 0.225% per annum of the committed capacity of Credit Facility No. 1 and Credit Facility No. 2, respectively, without regard to usage. Rates and fees may be adjusted up or down based on changes in our senior unsecured credit ratings. For the years ended December 31, 2011, 2010 and 2009, we incurred facility fees as follows (in millions): Credit Facility No. 1 Credit Facility No. 2 2011 $0.1 $0.7 2010 $0.1 $0.4 2009 $0.1 $0.4 Credit Facilities No. 1 and No. 2 contain certain financial and non-financial covenants, all of which we have met as of December 31, 2011. Included in these covenants is the requirement to maintain a minimum level of net worth, as well as limits on our total liabilities, secured indebtedness and required debt service payments. Information related to revolving credit facilities is as follows (in thousands): Total revolving credit facilities at December 31 Borrowings outstanding at December 31 Weighted average daily borrowings during the year Maximum daily borrowings during the year Weighted average interest rate during the year Weighted average interest rate at December 31 2011 $475,000 $ 99,000 $160,090 $281,000 1.90% 0.90% 2010 $337,000 $100,000 $112,573 $141,000 2.43% 2.53% 2009 $337,000 $128,000 $ 33,656 $128,000 1.62% 2.79% FoRm 10-K annual RepoRt 2011 91 NOTE 6. NOTES PAYABLE The following table summarizes our unsecured notes outstanding as of December 31, 2011 (dollars in thousands): COUPON/STATED RATE EFFECTIVE RATE(1) PRINCIPAL AMOUNT MATURITY DATE(2) 10 Year Unsecured Notes 10 Year Unsecured Notes 10 Year Unsecured Notes 10 Year Unsecured Notes 10 Year Unsecured Notes 10 Year Unsecured Notes 30 Year Unsecured Notes Total principal Net unamortized discount Total 5.050% 5.125% 5.250% 5.350% 5.350% 4.950% 7.250% 5.064% 5.230% 5.340% 5.359% 5.490% 5.053% 7.360% 5/1/2012 3/25/2013 1/15/2014 5/1/2015 5/1/2015 10/1/2020 2/25/2028 $ 50,000 60,000 100,000 50,000 100,000 250,000 50,000 660,000 (2,530) $657,470 (1) Yield on issuance date, including the effects of discounts on the notes. (2) No principal amounts are due prior to maturity. We repaid the remaining $93.9 million of our 5.95% unsecured notes on their due date of June 15, 2011, using borrowings on our unsecured lines of credit and proceeds from the sale of Dulles Station, Phase I. We repaid the remaining $2.7 million of our 3.875% convertible notes without penalty in September 2011, using proceeds from the sale of the Industrial Portfolio. The required principal payments excluding the effects of note discounts or premium for the remaining years subsequent to December 31, 2011 are as follows (in thousands): 2012 2013 2014 2015 2016 Thereafter $ 50,000 60,000 100,000 150,000 — 300,000 $660,000 Interest on these notes is payable semi-annually. These notes contain certain financial and non-financial covenants, all of which we have met as of December 31, 2011. Included in these covenants is the requirement to maintain a minimum level of unencumbered assets, as well as limits on our total indebtedness, secured indebtedness and required debt service payments. The covenants under our line of credit agreements require us to insure our properties against loss or damage in amounts customarily maintained by similar businesses or as they may be required by applicable law. The covenants for the notes require us to keep all of our insurable properties insured against loss or damage at least equal to their then full insurable value. We have an insurance policy which has no terrorism exclusion, except for non-certified nuclear, chemical and biological acts of terrorism. Our financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts. Effective November 26, 2002, under this existing coverage, any losses caused by certified acts of terrorism would be partially reimbursed by the United States under a formula established by federal law. Under this formula the United States pays 85% of covered terrorism losses exceeding the statutorily established deductible paid by the insurance provider, and insurers pay 10% until aggregate insured losses from all insurers reach $100 billion in a calendar year. If the aggregate amount of insured losses under this program exceeds $100 billion during the applicable period for all insured and insurers combined, then each insurance provider will not be liable for payment of any amount which exceeds the aggregate amount of $100 billion. On December 26, 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 was signed into law and extends the program through December 31, 2014. 92 annual RepoRt 2011 FoRm 10-K NOTE 7. STOCK BASED COMPENSATION WRIT maintains short-term and long-term incentive plans that allow for stock-based awards to officers and non-officer employ- ees. Stock based awards are provided to officers and non-officer employees, as well as trustees, under the Washington Real Estate Investment Trust 2007 Omnibus Long-Term Incentive Plan which allows for awards in the form of restricted shares, restricted share units, options, and other awards up to an aggregate of 2,000,000 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. WRIT’s Compensation Committee conducted an extensive review of our executive compensation philosophy and a fundamental redesign of our short-term and long-term incentive plans for our officers, resulting in new short-term incentive (“New STIP”) and new long-term incentive (“New LTIP”) plans, which were approved by the Compensation Committee and Board on February 17, 2011 and were effective as of January 1, 2011. In addition, the Compensation Committee approved a new long-term incentive plan for non-officer employees as of January 1, 2011, with minimal changes from the prior long-term incentive plan for non-officer employees. New STIP Under the New STIP, officers earn awards, payable 50% in cash and 50% in restricted shares, based on a percentage of salary and achieving various performance conditions within a one-year performance period (except for 15% of such restricted share awards which will be exclusively service-based). With respect to the 50% of the New STIP award payable in restricted shares, (i) the restricted shares subject to performance conditions will vest over a three-year period commencing on the January 1 following the end of the one-year performance period, and (ii) the restricted shares subject only to a service condition will vest over a three -year period commencing at the beginning of the one-year performance period. With respect to the 50% of the award payable in cash, the officer may elect to defer up to 80% of the cash portion pursuant to WRIT’s deferred compensation plan for officers. If the officer makes such election, the cash will be converted to restricted share units and WRIT will match 25% of deferred amounts in restricted share units. For the service based awards we recognize compensation expense based on the grant date fair value, ratably over a three-year period commencing with the start of the performance period. With respect to the restricted shares subject to performance condi- tions expected to be awarded under the New STIP at the end of the one-year performance period, we recognize compensation expense based on the current fair market value of the probable award until the performance condition has been met, accord- ing to a graded vesting schedule over a four-year period commencing with the date the performance targets were established. Approximately 20% of the restricted shares subject to performance conditions awarded by the Compensation Committee at the end of the one-year performance period are based on subjective strategic acquisition and disposition goal criteria, for which we recognize compensation expense when the grant date occurs at the end of the one-year period through the three-year vesting period. New LTIP Under the New LTIP, officers earn awards, payable 50% in unrestricted shares and 50% in restricted shares, based on a percentage of salary and achieving various market and performance conditions during a defined three-year performance period (e.g., commencing on January 1, 2011 and concluding on December 31, 2013). New LTIP performance is evaluated on objective and subjective performance goals and weightings. Of the officers’ total potential award, 40% is subject to market conditions based on absolute total shareholder return (“TSR”) and relative TSR. The remaining 60% of the award is based primarily on strategic plan fulfillment, evaluated and determined by the Compensation Committee in its discre- tion at the end of the three-year performance period. The unrestricted shares vest immediately at the end of the three-year performance period, and the restricted shares vest over a one-year period commencing on the January 1 following the end of the three-year performance period. With respect to the 40% of the New LTIP subject to market conditions we recognize compensation expense ratably (over three years for the 50% unrestricted shares and over four years for the 50% restricted shares) based on the grant date fair value, as determined using a Monte Carlo simulation, and regardless of whether the market conditions are achieved and the awards ultimately vest. With respect to the 60% subjective portion of the New LTIP, we will recognize compensation expense for the 50% unrestricted shares when the grant date has occurred at the end of the three-year performance period. We will recognize compensation expense for the 50% restricted shares over the one-year vesting period commencing upon the grant date at the end of the three-year performance period. FoRm 10-K annual RepoRt 2011 93 We use a binomial model which employs the Monte Carlo method as of the grant date to determine the fair value of the 40% of the New LTIP subject to market conditions referenced above. The market condition performance measurement is the cumulative three- year total shareholder return on both an absolute basis (50% weighting) and relative to a defined population of 20 peer companies (50% weighting). The model evaluates the awards for changing total shareholder return over the term of the vesting, on an absolute basis and relative to a peer companies, and uses random simulations that are based on past stock characteristics as well as income growth and other factors for WRIT and each of the peer companies. The assumptions used to value the 40% of the New LTIP sub- ject to market conditions were an expected volatility of 58.1%, a risk-free interest rate of 1.2% and an expected life of 3 and 4 years. We based the expected volatility upon the historical volatility of our daily closing share price. The price at the grant date, February 17, 2011, was $30.91. We based the risk-free interest rate used on U.S. treasury constant maturity bonds on the measurement date with a maturity equal to the market condition performance period. We based the expected term on the market condition performance period. The officers’ total award opportunity under the new LTIP stated as a percentage of base salary ranges from 65% to 150% at target level. The calculated grant date fair value as a percentage of base salary for the officers ranged from 79% to 185% for the 40% of the New LTIP subject to market conditions. Non-officer employees earn restricted share awards under the New LTIP based upon various percentages of their salaries and annual performance calculations. The restricted share awards vest ratably over three years from the grant date based upon continued employment. We recognize compensation expense for these awards according to a graded vesting schedule over four years from the date the performance target was established. Modification of Prior LTIP Awards In connection with the adoption of the New STIP and the New LTIP, the previous long-term incentive plan (“prior LTIP”) for officers was amended such that awards subject to performance and market conditions through 2012 under the prior LTIP were converted when the new plans were adopted into 154,400 restricted share units as of February 17, 2011, of which 59,100 were previously granted and unvested as of December 31, 2010. Such restricted share units will vest consistent with the periods in which they oth- erwise would have vested under the terms of the prior LTIP (i.e., either December 31, 2011 or December 31, 2012). We accounted for the amendment of these awards as a modification. With the exception of the above, no other awards under the prior LTIP were modified, and such awards continue to vest based on their applicable terms. Prior LTIP Other non-officer members of management earned restricted share units under the prior LTIP based on one-year performance tar- gets that vest ratably over five years from the grant date based upon continued employment. We recognize compensation expense for these awards according to a graded vesting schedule over six years from the date the performance target was established. Officers earned restricted share units under the prior LTIP based on various percentages of their salaries that vest ratably over five years from the grant date based upon continued employment. We recognize compensation expense for these awards ratably over five years from the grant date. Trustee Awards We continue to award trustees share based compensation on an annual basis in the form of restricted shares which vest immediately and are restricted from sale for the period of the trustees’ service. The value of share-based compensation for each trustee was $55,000 for each of the years ended December 31, 2011, 2010 and 2009. Total Compensation Expense Total compensation expense recognized in the consolidated financial statements for all share based awards, was as follows (in millions): Stock-based compensation expense YEARS ENDED DECEMBER 31, 2011 $5.6 2010 $5.9 2009 $3.5 94 annual RepoRt 2011 FoRm 10-K The following is the activity for the years ended December 31, 2011, 2010 and 2009 related to our restricted share awards, excluding those subject to market conditions. Restricted Share Awards Vested at January 1 Unvested at January 1 Granted Vested during year Forfeited Unvested at December 31 Vested at December 31 2011 2010 2009 SHARES 490,832 193,339 303,168 (161,971) (3,533) 331,003 652,803 WTD AVG GRANT FAIR VALUE $30.20 $27.71 $29.48 $29.80 $28.10 $28.39 $30.06 SHARES 423,145 160,276 101,870 (67,687) (1,120) 193,339 490,832 WTD AVG GRANT FAIR VALUE $30.24 $28.13 $28.37 $30.01 $28.45 $27.71 $30.20 SHARES 340,920 141,411 102,841 (82,225) (1,751) 160,276 423,145 WTD AVG GRANT FAIR VALUE $29.70 $31.72 $26.67 $32.44 $29.77 $28.13 $30.24 The total fair value of share grants vested was as follows (in millions): Fair value of share grants vested YEARS ENDED DECEMBER 31, 2011 $4.9 2010 $2.1 2009 $1.9 As of December 31, 2011, the total compensation cost related to non-vested share awards not yet recognized was $5.9 million, which we expect to recognize over a weighted average period of 29 months. Restricted and Unrestricted Shares with Market Conditions Stock based awards with market conditions under the New LTIP were granted in February 2011 with fair market values, as deter- mined using a Monte Carlo simulation, as follows (in thousands): Relative TSR Absolute TSR GRANT DATE FAIR VALUE RESTRICTED UNRESTRICTED $1,066 $ 365 $1,066 $ 365 The unamortized value of these awards with market conditions as of December 31, 2011 was as follows (in thousands): Relative TSR Absolute TSR Options UNAMORTIzED VALUE AT DECEMBER 31, 2011 RESTRICTED UNRESTRICTED $742 $254 $826 $283 The previous option plans provided for the grant of qualified and non-qualified options. The last option awards to officers were in 2002, to non-officer key employees in 2003 and to trustees in 2004. Options granted under the plans were granted with exercise prices equal to the market price on the date of grant, vested 50% after year one and 50% after year two and expire ten years follow- ing the date of grant. Options granted to trustees were granted with exercise prices equal to the market price on the date of grant and were fully vested on the grant date. We accounted for option awards in accordance with APB No. 25, and we have recognized no compensation cost for stock options. FoRm 10-K annual RepoRt 2011 95 The following chart details the previously issued and currently outstanding and exercisable stock options: Outstanding at January 1 Granted Exercised Expired/Forfeited Outstanding at December 31 Exercisable at December 31 2011 2010 2009 SHARES 145,950 — (51,081) (5,763) 89,106 89,106 WTD AVG EX PRICE $26.74 $ — $25.29 $24.85 $27.69 $27.69 SHARES 314,250 — (164,300) (4,000) 145,950 145,950 WTD AVG EX PRICE $25.39 $ — $24.11 $28.23 $26.74 $26.74 SHARES 317,000 — (2,750) — 314,250 314,250 WTD AVG EX PRICE $25.31 $ — $16.34 $ — $25.39 $25.39 The 89,106 options outstanding at December 31, 2011, all of which are exercisable, have exercise prices between $25.61 and $33.09, with a weighted-average exercise price of $27.69 and a weighted average remaining contractual life of 1.5 years. The outstanding exercisable shares at December 31, 2011 had no aggregate intrinsic value. The aggregate intrinsic value of options exercised was $0.3 million in 2011, $1.0 million in 2010 and minimal in 2009. There were minimal options forfeited in 2011 and 2010. NOTE 8. OTHER BENEFIT PLANS We have a Retirement Savings Plan (the “401(k) Plan”), which permits all eligible employees to defer a portion of their compensation in accordance with the Internal Revenue Code. Under the 401(k) Plan, we may make discretionary contributions on behalf of eligible employees. For the years ended December 31, 2011, 2010 and 2009, we made contributions to the 401(k) plan as follows (in millions): 401(k) plan contributions YEARS ENDED DECEMBER 31, 2011 $0.5 2010 $0.4 2009 $0.4 We have adopted non-qualified deferred compensation plans for the officers and members of the Board of Trustees. The plans allow for a deferral of a percentage of annual cash compensation and trustee fees. The plans are unfunded and payments are to be made out of the general assets of WRIT. During 2008, the prior Chief Executive Officer (“prior CEO”) received a lump sum distribution of the present value of his deferred compensation. The deferred compensation liability at December 31, 2011 and 2010 was as follows (in millions): Deferred compensation liability DECEMBER 31, 2011 $1.2 2010 $1.1 We established a Supplemental Executive Retirement Plan (“SERP”) effective July 1, 2002 for the benefit of our prior CEO. Under this plan, upon the prior CEO’s termination of employment from WRIT for any reason other than death, permanent and total dis- ability, or discharge for cause, he is entitled to receive an annual benefit equal to his accrued benefit times his vested interest. We accounted for this plan in accordance with FASB ASC 715-30 (formerly SFAS No. 87, Employers’ Accounting for Pensions), whereby we accrued benefit cost in an amount that resulted in an accrued balance at the end of the prior CEO’s employment in June 2007 which was not less than the present value of the estimated benefit payments to be made. At December 31, 2011 and 2010, the accrued benefit liability was $1.5 million and $1.6 million, respectively. For the three years ended December 31, 2011, 2010 and 2009, we recognized current service cost as follows (in millions): Prior CEO SERP current service cost 96 annual RepoRt 2011 FoRm 10-K YEARS ENDED DECEMBER 31, 2011 $0.1 2010 $0.1 2009 $0.1 We currently have an investment in corporate owned life insurance intended to meet the SERP benefit liability since the prior CEO’s retirement. Benefit payments to the prior CEO began in 2008. In November 2005, the Board of Trustees approved the establishment of a SERP for the benefit of the officers, other than the prior CEO. This is a defined contribution plan under which, upon a participant’s termination of employment from WRIT for any reason other than death, discharge for cause or total and permanent disability, the participant will be entitled to receive a benefit equal to the participant’s accrued benefit times the participant’s vested interest. We account for this plan in accordance with FASB ASC 710-10 (formerly EITF 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested) and FASB ASC 320-10 (formerly SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities), whereby the investments are reported at fair value, and unrealized holding gains and losses are included in earnings. For the years ended December 31, 2011, 2010 and 2009, we recognized current service cost as follows (in millions): Officer SERP current service cost NOTE 9. FAIR VALUE DISCLOSURES Assets and Liabilities Measured at Fair Value YEARS ENDED DECEMBER 31, 2011 $0.3 2010 $0.3 2009 $0.3 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. The only assets or liabilities we had at December 31, 2011 and 2010 that are recorded at fair value on a recurring basis are the assets held in the SERP and the interest rate hedge con- tracts. We base the valuations related to these items on assumptions derived from significant other observable inputs and accord- ingly these valuations fall into Level 2 in the fair value hierarchy. The fair values of these assets and liabilities at December 31, 2011 and 2010 are as follows (in millions): DECEMBER 31, 2011 DECEMBER 31, 2010 qUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1) SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2) SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) FAIR VALUE qUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1) SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2) SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) $— $— $1.7 $— $— $— $1.7 $1.5 $— $— $1.7 $1.5 $— $— FAIR VALUE $1.7 Assets: seRp Liabilities: Derivatives $— 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. 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 December 31, 2011 may differ signifi- cantly from the amounts presented. Below is a summary of significant methodologies used in estimating fair values and a schedule of fair values at December 31, 2011. Cash and Cash Equivalents Cash and cash equivalents includes cash and commercial paper with original maturities of less than 90 days, which are valued at the carrying value, which approximates fair value due to the short maturity of these instruments. FoRm 10-K annual RepoRt 2011 97 Notes Receivable The fair value of the notes is estimated based on quotes for debt with similar terms and characteristics or a discounted cash flow methodology using market discount rates if reliable quotes are not available. Derivatives The company reports its interest rate swap at fair value in accordance with GAAP, and thus the carrying value is the fair value. Mortgage Notes Payable Mortgage notes payable consist of instruments in which certain of our real estate assets are used for collateral. The fair value of the mortgage notes payable is estimated by discounting the contractual cash flows at a rate equal to the relevant treasury rates (with respect to the timing of each cash flow) plus credit spreads estimated through independent comparisons to real estate assets or loans with similar characteristics. Lines of Credit Payable Lines of credit payable consist of bank facilities which we use for various purposes including working capital, acquisition funding or capital improvements. The lines of credit advances are priced at a specified rate plus a spread. The carrying value of the lines of credit payable is estimated to be market value given the adjustable rate of these borrowings and in consideration of any changes in spreads. Notes Payables The fair value of the notes payable is estimated by discounting the contractual cash flows at a rate equal to the relevant treasury rates (with respect to the timing of each cash flow) plus credit spreads derived using the relevant securities’ market prices. 2011 2010 (in thousands) CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE Cash and cash equivalents, including restricted cash 2445 M Street note receivable Mortgage notes payable Lines of credit payable Notes payable $ 32,189 $ 6,975 $427,710 $ 99,000 $657,470 $ 32,189 $ 7,721 $463,238 $ 99,000 $713,797 $ 99,253 $ 7,090 $361,860 $100,000 $753,587 $ 99,253 $ 8,048 $380,360 $100,000 $785,637 NOTE 10. DERIVATIVE INSTRUMENTS We enter into interest rate swaps from time to time to manage our exposure to variable interest rate risk. We do not purchase derivatives for speculation. In February 2008, we entered into an interest rate swap with a notional amount of $100 million that expired in February 2010. In May 2009, we entered into a forward interest rate swap with a notional amount of $100 million that expired in November 2011. Both interest rate swaps qualified as cash flow hedges. Our cash flow hedges were recorded at fair value in accordance with GAAP, based on discounted cash flow methodologies and observable inputs. We recorded the effective portion of changes in fair value of cash flow hedges in other comprehensive income. The change in fair value of cash flow hedges was the only activity in other comprehensive income (loss) during periods presented in our consolidated financial statements. We assessed the effectiveness of our cash flow hedges both at inception and on an ongoing basis. We deemed the hedges to be effective for the year ended December 31, 2010 and for periods prior to expiration in 2011. We had no derivative instruments outstanding as of December 31, 2011. The fair value and balance sheet locations of the interest rate swaps as of December 31, 2011 and 2010, are as follows (in millions): Accounts payable and other liabilities DECEMBER 31, 2011 DECEMBER 31, 2010 FAIR VALUE FAIR VALUE $— $1.5 98 annual RepoRt 2011 FoRm 10-K The interest rate swaps have been effective since inception. The gain or loss on the effective swaps is recognized in other compre- hensive income, as follows (in millions): Change in other comprehensive income (loss) YEARS ENDED DECEMBER 31, 2011 2010 FAIR VALUE FAIR VALUE $1.5 $0.3 Derivative instruments expose us to credit risk in the event of non-performance by the counterparty under the terms of the interest rate hedge agreement. We believe that we minimize our credit risk on these transactions by dealing with major, creditworthy finan- cial institutions. As part of our on-going control procedures, we monitor the credit ratings of counterparties and our exposure to any single entity, thus minimizing our credit risk concentration. NOTE 11. 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 attributable to the controlling interest 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” under the two-class 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 cal- culation for the impact of those securities that are dilutive. Our dilutive earnings per share calculation includes the dilutive impact of employee stock options based on the treasury stock method and our performance share units under the contingently issuable method. The dilutive earnings per share calculation also considers our operating partnership units and 3.875% convertible notes under the if-converted method. The operating partnership units were anti-dilutive for the three years ended December 31, 2011. The 3.875% convertible notes were repaid in full as of December 31, 2011, and were anti-dilutive for the years ended December 31, 2010 and 2009. FoRm 10-K annual RepoRt 2011 99 The following table sets forth the computation of basic and diluted earnings per share (amounts in thousands; except per share data): Numerator: Income from continuing operations Allocation of undistributed earnings to unvested restricted share awards and units to continuing operations Adjusted income from continuing operations attributable to the controlling interests Income from discontinued operations, including gain on sale of real estate, net of taxes Net income attributable to noncontrolling interests Allocation of undistributed earnings to unvested restricted share awards and units to discontinued operations Adjusted income from discontinued operations attributable to the controlling interests Adjusted net income attributable to the controlling interests Denominator: Weighted average shares outstanding—basic Effect of dilutive securities: Employee stock options and restricted share awards Weighted average shares outstanding—diluted Earnings per common share, basic: Continuing operations Discontinued operations Earnings per common share, diluted: Continuing operations Discontinued operations 2011 2010 2009 $ (1,128) $ 992 $ 9,723 — (1,128) 106,506 (494) (4) 988 36,567 (133) (26) 9,697 31,225 (203) (712) (140) (85) 105,300 $104,172 36,294 $37,282 30,937 $40,634 65,982 62,140 56,894 — 65,982 124 62,264 74 56,968 $ (0.02) $ 1.60 $ 1.58 $ (0.02) $ 1.60 $ 1.58 $ 0.02 $ 0.58 $ 0.60 $ 0.02 $ 0.58 $ 0.60 $ 0.17 $ 0.54 $ 0.71 $ 0.17 $ 0.54 $ 0.71 NOTE 12. RENTALS UNDER OPERATING LEASES Non-cancelable commercial operating leases provide for minimum rental income from continuing operations during each of the next five years and thereafter as follows (in millions): 2012 2013 2014 2015 2016 Thereafter RENTAL INCOME $ 211.3 191.1 160.2 134.7 102.1 250.2 $1,049.6 Apartment leases are not included as the terms are generally for one year. Most of these commercial leases increase in future years based on agreed-upon percentages or in some instances, changes in the Consumer Price Index. Percentage rents from retail centers, based on a percentage of tenants’ gross sales, were as follows (in millions): Percentage rents 2011 $0.2 2010 $0.1 2009 $0.2 100 annual RepoRt 2011 FoRm 10-K Real estate tax, operating expense and common area maintenance reimbursement income from continuing operations was as follows (in millions): Reimbursement income 2011 $26.1 2010 $24.5 2009 $27.6 NOTE 13. COMMITMENTS AND CONTINGENCIES Development Commitments At December 31, 2011, we had $4.7 million in committed contracts outstanding with third parties in connection with our develop- ment projects at 1219 First Street and 650 North Glebe Road. Litigation We are involved from time to time in various legal proceedings, lawsuits, examinations by various tax authorities and claims that have arisen in the ordinary course of business. Management believes that the resolution of such matters will not have a material adverse effect on our financial condition or results of operations. Other At December 31, 2011, we were contingently liable under unused letters of credit in the amounts of $815,000, related to our assump- tion of mortgage debt on West Gude to ensure the funding of certain tenant improvements and leasing commissions over the term of the debt. NOTE 14. SEGMENT INFORMATION We have four reportable segments: office, medical office, retail, and multifamily properties. Office buildings provide office space for various types of businesses and professions. Medical office buildings provide offices and facilities for a variety of medical services. Retail centers are typically neighborhood grocery store or drug store anchored retail centers. Multifamily properties provide rental housing for families throughout the Washington metropolitan area. Real estate rental revenue as a percentage of the total for each of the four reportable operating segments is as follows: Office Medical office Retail Multifamily YEARS ENDED DECEMBER 31, 2011 49% 16% 17% 18% 2010 48% 17% 16% 19% 2009 48% 18% 16% 18% The percentage of total income producing real estate assets, at cost, for each of the four reportable operating segments is as follows: Office Medical office Retail Multifamily DECEMBER 31, 2011 53% 17% 17% 13% 2010 48% 19% 17% 16% The accounting policies of each of the segments are the same as those described in note 2 to the consolidated financial statements. We evaluate performance based upon operating income from 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 segments’ performance. Net operating income is a key measurement of our seg- ment profit and loss. Net operating income is defined as segment real estate rental revenue less segment real estate expenses. FoRm 10-K annual RepoRt 2011 101 The following table presents revenues and net operating income for the years ended December 31, 2011, 2010 and 2009 from these segments, and reconciles net operating income of reportable segments to net income as reported (in thousands): OFFICE MEDICAL OFFICE RETAIL MULTI- FAMILY INDUS- TRIAL/ FLEX CORPO- RATE AND OTHER CONSOLI- DATED 2011 Real estate rental revenue $ 142,870 $ 45,257 $ 50,421 $ 50,979 $ — $ 289,527 Real estate expenses Net operating income 48,960 14,242 14,273 19,717 — 97,192 $ 93,910 $ 31,015 $ 36,148 $ 31,262 $ — $ 192,335 Depreciation and amortization Interest expense General and administrative Acquisition costs Other income (expense) Real estate impairment Loss on extinguishment of debt, net Gain from non-disposal activities Discontinued operations: Income from discontinued operations Gain on sale of real estate Income tax benefit (expense) Net income Less: Net income attributable to noncontrolling interests Net income attributable to the controlling interests Capital expenditures Total assets (93,297) (66,473) (15,728) (3,607) 1,144 (14,526) (976) — 10,153 97,491 (1,138) 105,378 (494) $ 104,884 $ 21,065 $ 5,654 $ 2,922 $ 2,823 $1,118,074 $347,735 $365,164 $247,170 $351 $ — $ 621 $ 33,436 $42,615 $2,120,758 102 annual RepoRt 2011 FoRm 10-K OFFICE MEDICAL OFFICE RETAIL MULTI- FAMILY INDUS- TRIAL/ FLEX CORPO- RATE AND OTHER CONSOLI- DATED 2010 Real estate rental revenue $123,860 $ 45,028 $ 41,003 $ 48,599 $ — $ — $ 258,490 Real estate expenses Net operating income 42,392 14,715 10,310 19,243 — — 86,660 $ 81,468 $ 30,313 $ 30,693 $ 29,356 $ — $ — $ 171,830 Depreciation and amortization Interest expense General and administrative Acquisition costs Other income (expense) Loss on extinguishment of debt, net Gain from non-disposal activities Discontinued operations: Income from discontinued operations Gain on sale of real estate Net income Less: Net income attributable to noncontrolling interests Net income attributable to the controlling interests Capital expenditures Total assets (80,066) (67,229) (14,406) (1,161) 1,193 (9,176) 7 14,968 21,599 37,559 (133) $ 37,426 $ 13,983 $ 4,986 $ 1,982 $ 2,387 $ 1,707 $ 392 $ 25,437 $938,638 $353,508 $313,003 $228,769 $225,206 $108,757 $2,167,881 OFFICE MEDICAL OFFICE RETAIL MULTI- FAMILY INDUS- TRIAL/ FLEX CORPO- RATE AND OTHER CONSOLI- DATED 2009 Real estate rental revenue $123,347 $ 44,911 $ 41,821 $ 46,470 $ — $ — $ 256,549 Real estate expenses Net operating income 43,897 15,218 10,680 19,494 — — 89,289 $ 79,450 $ 29,693 $ 31,141 $ 26,976 $ — $ — $ 167,260 Depreciation and amortization Interest expense General and administrative Acquisition costs Other income (expense) Gain on extinguishment of debt, net Gain from non-disposal activities Discontinued operations: Income from discontinued operations Gain on sale of real estate Net income Less: Net income attributable to noncontrolling interests Net income attributable to the controlling interests Capital expenditures Total assets (77,549) (72,694) (13,118) (788) 1,205 5,336 71 17,877 13,348 40,948 (203) $ 40,745 $ 14,200 $ 6,613 $ 1,270 $ 2,287 $ 2,967 $ 351 $ 27,688 $926,433 $360,220 $225,548 $240,442 $251,986 $40,596 $2,045,225 FoRm 10-K annual RepoRt 2011 103 NOTE 15. SELECTED qUARTERLY FINANCIAL DATA (UNAUDITED) The following table summarizes our financial data by quarter for 2011 and 2010 (in thousands, except for per share data): 2011 Real estate rental revenue Income (loss) from continuing operations Net income Net income attributable to the controlling interests Income (loss) from continuing operations per share Basic Diluted Net income per share Basic Diluted 2010 Real estate rental revenue Income from continuing operations Net income Net income attributable to the controlling interests Income from continuing operations per share Basic Diluted Net income per share Basic Diluted FIRST SECOND THIRD FOURTH qUARTER(1,2) $69,204 $ 2,119 $ 4,688 $ 4,665 $ 0.03 $ 0.03 $ 0.07 $ 0.07 $64,007 $ 1,418 $ 5,265 $ 5,216 $ 0.02 $ 0.02 $ 0.09 $ 0.09 $71,684 $ 4,431 $ 6,556 $ 6,522 $ 0.07 $ 0.07 $ 0.10 $ 0.10 $64,087 $ 3,444 $15,021 $14,994 $ 0.05 $ 0.05 $ 0.24 $ 0.24 $71,931 $ 2,707 $63,036 $63,008 $ 0.04 $ 0.04 $ 0.95 $ 0.95 $65,032 $ 3,093 $ 6,658 $ 6,625 $ 0.05 $ 0.04 $ 0.11 $ 0.10 $ 76,708 $(10,385) $ 31,098 $ 30,689 $ $ (0.16) (0.16) $ $ 0.46 0.46 $ 65,364 $ (6,963) $ 10,615 $ 10,591 $ $ (0.11) (0.11) $ $ 0.16 0.16 (1) With regard to per share calculations, the sum of the quarterly results may not equal full year results due to rounding. (2) The prior quarter results have been restated to conform to the current quarter presentation. Specifically, results related to properties sold or held for sale have been reclassified into discontinued operations. 104 annual RepoRt 2011 FoRm 10-K NOTE 16. SHAREHOLDERS’ EqUITY During the fourth quarter of 2009, we entered into a sales agency financing agreement with BNY Mellon Capital Markets, LLC relating to the issuance and sale of up to $250.0 million of our common shares from time to time over a period of no more than 36 months, replacing a previous agreement made during the third quarter of 2008. Sales of our common shares are made at market prices prevail- ing at the time of sale. Net proceeds for the sale of common shares under this program are used for the repayment of borrowings under our lines of credit, acquisitions, and general corporate purposes. We did not issue any shares under this program during 2011. We executed issuances under this program during 2010 and 2009 as follows (in millions, except for weighted average issue price): Common shares issued Weighted average issue price Net proceeds 2010 5.6 $30.34 $168.9 2009 2.0 $27.37 $ 53.8 We have a dividend reinvestment program, whereby shareholders may use their dividends and optional cash payments to pur- chase common shares. The common 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. We executed issuances under this program as follows (in millions, except for weighted average issue price): Common shares issued Weighted average issue price Net proceeds 2011 0.2 $29.97 $ 5.0 2010 0.2 $30.36 $ 5.3 2009 0.1 $28.34 $ 2.5 FoRm 10-K annual RepoRt 2011 105 SCHEDULE III PROPERTIES Multifamily Properties 3801 Connecticut Avenue(a) Roosevelt Towers Country Club Towers Park Adams Munson Hill Towers The Ashby at McLean Walker House Apartments(a) Bethesda Hill Apartments(a) Bennett Park The Clayborne The Kenmore(a) 650 N. Glebe Rd(g) 1219 First Street(g) Office Buildings Washington, DC virginia virginia virginia virginia virginia Maryland Maryland virginia virginia Washington, DC virginia virginia 1901 Pennsylvania Avenue Washington, DC 51 Monroe Street 515 King Street 6110 Executive Boulevard 1220 19th Street 1600 Wilson Boulevard 7900 Westpark Drive 600 Jefferson Plaza 1700 Research Boulevard Wayne Plaza Courthouse Square One Central Plaza Atrium Building 1776 G Street Dulles Station II(f) West Gude(a) 6565 Arlington Boulevard Monument II Woodholme Center 2000 M Street 2445 M Street(a) Quantico Building E Quantico Building G 1140 Connecticut Avenue, NW 1227 25th Street John Marshall II(a) Braddock Metro 106 annual RepoRt 2011 FoRm 10-K Maryland virginia Maryland Washington, DC virginia virginia Maryland Maryland Maryland virginia Maryland Maryland Washington, DC virginia Maryland virginia virginia Maryland Washington, DC Washington, DC virginia virginia Washington, DC Washington, DC virginia virginia LOCATION LAND INITIAL COST(b) BUILDINGS AND IMPROVEMENTS NET IMPROVEMENTS (RETIREMENT) SINCE ACqUISITION GROSS AMOUNTS AT WHICH CARRIED AT DECEMBER 31, 2011 BUILDINGS AND IMPROVEMENTS ACCUMULATED DEPRECIATION AT DECEMBER YEAR OF DATE OF NET RENTABLE SqUARE DEPRE- CIATION LAND TOTAL(c) 31, 2011 CONSTRUCTION ACqUISITION FEET(e) UNITS LIFE(d) $ $ $ $ $ 420,000 336,000 299,000 287,000 322,000 $ 4,356,000 $ 2,851,000 $ 3,900,000 $ 2,861,000 $ 269,000 $ 28,222,000 $ 12,787,000 $ 14,046,000 $ 70,956,000 $ $ 892,000 840,000 $ 4,102,000 $ 4,621,000 $ 7,803,000 $ 6,661,000 $ 12,049,000 $ 2,296,000 $ 1,847,000 $ 1,564,000 $ — $ 5,480,000 $ 3,182,000 $ 31,500,000 $ 15,001,000 $ 11,580,000 $ 5,584,000 $ 10,244,000 $ 2,194,000 $ — $ 46,887,000 $ 4,518,000 $ 4,897,000 $ 25,226,000 $ 17,505,000 $ 13,490,000 $ 18,817,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 3,481,000 10,869,000 3,931,000 11,926,000 11,366,000 16,742,000 71,825,000 12,188,000 11,105,000 6,243,000 17,096,000 39,107,000 11,281,000 54,327,000 494,000 43,240,000 23,195,000 65,205,000 16,711,000 61,101,000 $ 106,743,000 $ $ $ $ $ $ 24,801,000 25,376,000 50,495,000 21,319,000 53,024,000 71,250,000 2,678,000 1,996,000 2,562,000 1,654,000 3,337,000 17,102,000 7,946,000 13,412,000 917,000 — 33,955,000 — — $ $ 7,999,000 8,932,000 $ 13,532,000 $ 8,568,000 $ 14,496,000 $ 13,414,000 $ 6,424,000 $ 11,726,000 $ 78,969,000 $ 30,376,000 $ $ $ 839,000 619,000 350,000 85,559,000 $ 196,244,000 $ 74,268,000 $ 278,491,000 $ 352,759,000 $ 107,508,000 2,139,000 2,540 17,221,000 $ 7,892,000 1971/03 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 420,000 336,000 299,000 287,000 322,000 4,356,000 2,851,000 3,900,000 4,774,000 699,000 $ 28,222,000 $ 13,406,000 $ 14,396,000 892,000 840,000 4,102,000 4,621,000 7,802,000 6,661,000 2,296,000 1,847,000 1,564,000 5,480,000 3,182,000 $ 31,500,000 4,130,000 $ 11,580,000 5,584,000 $ 10,244,000 2,194,000 4,518,000 4,897,000 $ 25,226,000 $ 17,505,000 $ 13,490,000 $ 18,818,000 — $ 13,406,000 — $ 14,396,000 — — $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 10,677,000 10,928,000 16,094,000 10,222,000 17,833,000 30,516,000 14,370,000 25,138,000 77,973,000 29,946,000 34,794,000 17,466,000 32,964,000 9,047,000 22,373,000 18,017,000 30,374,000 17,495,000 14,483,000 13,921,000 54,824,000 14,125,000 58,520,000 7,940,000 49,057,000 27,315,000 68,364,000 18,518,000 24,864,000 25,424,000 52,822,000 21,786,000 52,983,000 71,361,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 11,097,000 11,264,000 16,393,000 10,509,000 8,145,000 6,759,000 8,763,000 6,902,000 18,155,000 $ 11,855,000 34,872,000 $ 16,628,000 29,038,000 $ 12,413,000 82,747,000 $ 16,432,000 30,645,000 63,016,000 7,288,000 4,431,000 18,358,000 $ 12,918,000 33,804,000 $ 23,326,000 13,149,000 4,323,000 26,994,000 $ 14,418,000 25,819,000 9,156,000 37,035,000 $ 13,647,000 19,791,000 16,330,000 15,485,000 21,980,000 7,594,000 7,129,000 5,853,000 8,935,000 60,304,000 $ 21,157,000 17,307,000 5,626,000 90,020,000 $ 18,549,000 12,070,000 — 32,899,000 6,215,000 78,608,000 $ 12,801,000 20,712,000 3,315,000 29,382,000 30,321,000 78,048,000 39,291,000 66,473,000 90,179,000 2,234,000 2,373,000 2,188,000 874,000 646,000 1,157,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ — $ 68,832,000 68,832,000 $ 10,779,000 $ 46,887,000 $ 108,745,000 $ 155,632,000 $ 13,033,000 — $ 21,980,000 1951 1964 1965 1959 1963 1982 1986 2007 2008 1948 N/A N/A 1960 1975 1966 1971 1976 1973 1985 1982 1970 1979 1974 1980 1979 N/A 1967 2000 1989 1971 1986 2007 2009 1966 1988 1996 1985 Jan 1963 May 1965 Jul 1969 Jan 1969 Jan 1970 Aug 1996 mar 1996 Nov 1997 Feb 2001 Jun 2003 Sep 2008 Jun 2011 Nov 2011 May 1977 Aug 1979 Jul 1992 Jan 1995 Nov 1995 Oct 1997 May 1999 May 1999 May 2000 Oct 2000 Apr 2001 July 2002 Aug 2003 Dec 2005 Aug 2006 Aug 2006 Mar 2007 Jun 2007 Dec 2007 Dec 2008 June 2010 June 2010 Jan 2011 mar 2011 Sep 2011 Sep 2011 179,000 170,000 159,000 173,000 258,000 274,000 158,000 226,000 214,000 60,000 268,000 — — 98,000 218,000 73,000 199,000 102,000 168,000 533,000 113,000 101,000 94,000 114,000 267,000 80,000 262,000 — 275,000 130,000 207,000 75,000 239,000 290,000 134,000 136,000 185,000 132,000 223,000 345,000 308 191 227 200 279 256 212 195 224 74 374 — — 30 Years 40 Years 35 Years 35 Years 33 Years 30 Years 30 Years 30 Years 28 Years 26 Years 30 Years N/A N/A 28 Years 41 Years 50 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years N/A 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years $ 12,049,000 $ 105,580,000 $ 117,629,000 $ 51,980,000 1972/’86/’99 Nov 1997 60,637,000 $ 10,659,000 1984/86/88 $ 13,985,000 $ 22,095,000 $ 5,116,000 $ 10,447,000 $ 6,650,000 $ 13,632,000 $ 33,755,000 $ $ $ $ 5,307,000 3,378,000 7,678,000 4,884,000 $ 15,717,000 $ $ 2,844,000 4,193,000 $ (3,425,000) $ $ $ $ $ $ $ $ $ $ $ $ 5,817,000 4,120,000 3,159,000 1,807,000 7,731,000 2,002,000 63,000 48,000 2,327,000 467,000 (41,000) 112,000 $258,780,000 $ 844,441,000 $ 173,868,000 $ 247,909,000 $ 1,029,180,000 $ 1,277,089,000 $ 270,885,000 4,793,000 INITIAL COST(b) NET IMPROVEMENTS BUILDINGS AND (RETIREMENT) IMPROVEMENTS SINCE ACqUISITION GROSS AMOUNTS AT WHICH CARRIED AT DECEMBER 31, 2011 LAND BUILDINGS AND IMPROVEMENTS TOTAL(c) ACCUMULATED DEPRECIATION AT DECEMBER 31, 2011 YEAR OF CONSTRUCTION DATE OF ACqUISITION NET RENTABLE SqUARE FEET(e) DEPRE- CIATION LIFE(d) UNITS 11,097,000 11,264,000 16,393,000 10,509,000 $ $ $ $ 8,145,000 6,759,000 8,763,000 6,902,000 18,155,000 $ 11,855,000 34,872,000 $ 16,628,000 1951 1964 1965 1959 1963 1982 17,221,000 $ 7,892,000 1971/03 10,677,000 10,928,000 16,094,000 10,222,000 17,833,000 30,516,000 14,370,000 25,138,000 77,973,000 29,946,000 34,794,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 420,000 336,000 299,000 287,000 322,000 4,356,000 2,851,000 3,900,000 4,774,000 699,000 $ 28,222,000 $ 13,406,000 $ 14,396,000 $ $ $ $ $ $ $ $ $ $ $ $ $ 29,038,000 $ 12,413,000 82,747,000 $ 16,432,000 30,645,000 63,016,000 — $ 13,406,000 — $ 14,396,000 $ $ $ $ 7,288,000 4,431,000 — — 1901 Pennsylvania Avenue Washington, DC 85,559,000 $ 196,244,000 $ 74,268,000 $ 278,491,000 $ 352,759,000 $ 107,508,000 $ $ $ $ $ $ 892,000 840,000 4,102,000 4,621,000 7,802,000 6,661,000 $ $ $ $ $ $ 17,466,000 32,964,000 9,047,000 22,373,000 18,017,000 30,374,000 $ $ $ $ $ $ 18,358,000 $ 12,918,000 33,804,000 $ 23,326,000 13,149,000 $ 4,323,000 26,994,000 $ 14,418,000 25,819,000 $ 9,156,000 37,035,000 $ 13,647,000 SCHEDULE III PROPERTIES Multifamily Properties 3801 Connecticut Avenue(a) Roosevelt Towers Country Club Towers Park Adams Munson Hill Towers The Ashby at McLean Walker House Apartments(a) Bethesda Hill Apartments(a) Bennett Park The Clayborne The Kenmore(a) 650 N. Glebe Rd(g) 1219 First Street(g) Office Buildings 51 Monroe Street 515 King Street 6110 Executive Boulevard 1220 19th Street 1600 Wilson Boulevard 7900 Westpark Drive 600 Jefferson Plaza 1700 Research Boulevard 6565 Arlington Boulevard Wayne Plaza Courthouse Square One Central Plaza Atrium Building 1776 G Street Dulles Station II(f) West Gude(a) Monument II Woodholme Center 2000 M Street 2445 M Street(a) Quantico Building E Quantico Building G 1227 25th Street John Marshall II(a) Braddock Metro 1140 Connecticut Avenue, NW LOCATION LAND Washington, DC Washington, DC virginia virginia virginia virginia virginia Maryland Maryland virginia virginia virginia virginia Maryland virginia Maryland virginia virginia Maryland Maryland Maryland virginia Maryland Maryland virginia Maryland virginia virginia Maryland Washington, DC Washington, DC Washington, DC Washington, DC Washington, DC Washington, DC virginia virginia virginia virginia $ $ $ $ $ 420,000 336,000 299,000 287,000 322,000 $ 4,356,000 $ 2,851,000 $ 3,900,000 $ 2,861,000 $ 269,000 $ 28,222,000 $ 12,787,000 $ 14,046,000 $ 70,956,000 $ $ 892,000 840,000 $ 4,102,000 $ 4,621,000 $ 7,803,000 $ 6,661,000 $ 12,049,000 $ 2,296,000 $ 1,847,000 $ 1,564,000 $ — $ 5,480,000 $ 3,182,000 $ 31,500,000 $ 15,001,000 $ 11,580,000 $ 5,584,000 $ 10,244,000 $ 2,194,000 $ — $ 46,887,000 $ 4,518,000 $ 4,897,000 $ 25,226,000 $ 17,505,000 $ 13,490,000 $ 18,817,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2,678,000 1,996,000 2,562,000 1,654,000 3,337,000 17,102,000 7,946,000 13,412,000 917,000 33,955,000 — — — 3,481,000 10,869,000 3,931,000 11,926,000 11,366,000 16,742,000 71,825,000 12,188,000 11,105,000 6,243,000 17,096,000 39,107,000 11,281,000 54,327,000 43,240,000 23,195,000 65,205,000 16,711,000 61,101,000 24,801,000 25,376,000 50,495,000 21,319,000 53,024,000 71,250,000 $ 106,743,000 7,999,000 8,932,000 $ 13,532,000 8,568,000 $ 14,496,000 $ 13,414,000 $ 6,424,000 $ 11,726,000 $ 78,969,000 $ 30,376,000 839,000 619,000 350,000 $ 13,985,000 $ 22,095,000 5,116,000 $ 10,447,000 6,650,000 $ 13,632,000 $ 33,755,000 5,307,000 3,378,000 7,678,000 4,884,000 $ 15,717,000 2,844,000 4,193,000 5,817,000 4,120,000 3,159,000 1,807,000 7,731,000 2,002,000 63,000 48,000 2,327,000 467,000 (41,000) 112,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 12,049,000 $ 105,580,000 $ 117,629,000 $ 51,980,000 1972/’86/’99 Nov 1997 494,000 $ (3,425,000) $ 31,500,000 $ 4,130,000 $ 11,580,000 $ 5,584,000 $ 10,244,000 $ $ $ $ $ $ $ $ 2,296,000 1,847,000 1,564,000 $ $ $ 17,495,000 14,483,000 13,921,000 — $ 21,980,000 5,480,000 3,182,000 $ $ $ $ $ $ $ $ 54,824,000 14,125,000 58,520,000 7,940,000 49,057,000 27,315,000 68,364,000 18,518,000 2,194,000 — $ 68,832,000 $ $ $ $ $ $ $ $ $ $ $ $ $ 19,791,000 16,330,000 15,485,000 21,980,000 $ $ $ $ 7,594,000 7,129,000 5,853,000 8,935,000 60,304,000 $ 21,157,000 17,307,000 $ 5,626,000 90,020,000 $ 18,549,000 12,070,000 $ — 1985 1982 1970 1979 1974 1980 1979 N/A 60,637,000 $ 10,659,000 1984/86/88 32,899,000 $ 6,215,000 78,608,000 $ 12,801,000 20,712,000 $ 3,315,000 68,832,000 $ 10,779,000 $ 46,887,000 $ 108,745,000 $ 155,632,000 $ 13,033,000 $ $ 4,518,000 4,897,000 $ 25,226,000 $ 17,505,000 $ 13,490,000 $ 18,818,000 $ $ $ $ $ $ 24,864,000 25,424,000 52,822,000 21,786,000 52,983,000 71,361,000 $ $ $ $ $ $ 29,382,000 30,321,000 78,048,000 39,291,000 66,473,000 90,179,000 $ $ $ $ $ $ 2,234,000 2,373,000 2,188,000 874,000 646,000 1,157,000 $258,780,000 $ 844,441,000 $ 173,868,000 $ 247,909,000 $ 1,029,180,000 $ 1,277,089,000 $ 270,885,000 4,793,000 FoRm 10-K annual RepoRt 2011 107 Jan 1963 May 1965 Jul 1969 Jan 1969 Jan 1970 Aug 1996 mar 1996 Nov 1997 Feb 2001 Jun 2003 Sep 2008 Jun 2011 Nov 2011 May 1977 Aug 1979 Jul 1992 Jan 1995 Nov 1995 Oct 1997 May 1999 May 1999 May 2000 Oct 2000 Apr 2001 July 2002 Aug 2003 Dec 2005 Aug 2006 Aug 2006 Mar 2007 Jun 2007 Dec 2007 Dec 2008 June 2010 June 2010 Jan 2011 mar 2011 Sep 2011 Sep 2011 179,000 170,000 159,000 173,000 258,000 274,000 158,000 226,000 214,000 60,000 268,000 — — 308 191 227 200 279 256 212 195 224 74 374 — — 2,139,000 2,540 98,000 218,000 73,000 199,000 102,000 168,000 533,000 113,000 101,000 94,000 114,000 267,000 80,000 262,000 — 275,000 130,000 207,000 75,000 239,000 290,000 134,000 136,000 185,000 132,000 223,000 345,000 30 Years 40 Years 35 Years 35 Years 33 Years 30 Years 30 Years 30 Years 28 Years 26 Years 30 Years N/A N/A 28 Years 41 Years 50 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years N/A 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 1986 2007 2008 1948 N/A N/A 1960 1975 1966 1971 1976 1973 1967 2000 1989 1971 1986 2007 2009 1966 1988 1996 1985 SCHEDULE III (CONT.) PROPERTIES Medical Office Woodburn Medical Park I Woodburn Medical Park II 8501 Arlington Boulevard(a) 8503 Arlington Boulevard(a) 8505 Arlington Boulevard(a) Shady Grove Medical II 8301 Arlington Boulevard Alexandria Professional Center 9707 Medical Center Drive(a) 15001 Shady Grove Road 15005 Shady Grove Road(a) Plumtree Medical Center(a) 2440 M Street Woodholme Medical Center(a) Ashburn Farm Professional Center(a) CentreMed I & II 4661 Kenmore Avenue(f) Sterling Medical Office Lansdowne Retail Centers Takoma Park Westminster Concord Centre Wheaton Park Bradlee Chevy Chase Metro Plaza Montgomery Village Center Shoppes of Foxchase Frederick County Square 800 S. Washington Street Centre at Hagerstown . Frederick Crossing(a) Randolph Shopping Center Montrose Shopping Center Gateway Overlook Olney Village Center(a) Total LOCATION LAND INITIAL COST(b) BUILDINGS AND IMPROVEMENTS NET IMPROVEMENTS (RETIREMENT) SINCE ACqUISITION GROSS AMOUNTS AT WHICH CARRIED AT DECEMBER 31, 2011 BUILDINGS AND IMPROVEMENTS ACCUMULATED DEPRECIATION AT DECEMBER YEAR OF DATE OF NET RENTABLE SqUARE DEPRE- CIATION LAND TOTAL(c) 31, 2011 CONSTRUCTION ACqUISITION FEET(e) UNITS LIFE(d) virginia virginia virginia virginia virginia Maryland virginia virginia Maryland Maryland Maryland Maryland Washington, DC Maryland virginia virginia virginia virginia virginia Maryland Maryland virginia Maryland virginia Washington, DC Maryland virginia Maryland virginia Maryland Maryland Maryland Maryland Maryland Maryland $ 2,563,000 $ 2,632,000 $ 2,071,000 $ 1,598,000 $ 2,819,000 $ 1,995,000 $ 1,251,000 $ 6,783,000 $ 3,069,000 $ 4,094,000 $ 4,186,000 $ 1,723,000 $ 12,500,000 $ 3,744,000 $ 3,770,000 $ 2,062,000 $ 3,764,000 $ 970,000 $ 1,308,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 12,460,000 17,574,000 26,317,000 25,850,000 19,680,000 16,601,000 6,589,000 19,676,000 11,777,000 16,410,000 17,548,000 5,749,000 37,321,000 24,587,000 19,200,000 12,506,000 — 5,274,000 18,778,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 4,198,000 3,960,000 914,000 881,000 612,000 1,361,000 1,460,000 4,164,000 863,000 1,650,000 331,000 789,000 4,514,000 1,474,000 1,006,000 489,000 1,994,000 887,000 2,205,000 $ 62,902,000 $ 313,897,000 $ 33,752,000 $ 64,896,000 $ 345,655,000 $ 410,551,000 $ 83,363,000 1,311,000 $ $ $ $ 415,000 519,000 413,000 796,000 $ 4,152,000 $ 1,549,000 $ 11,625,000 $ 5,838,000 $ 6,561,000 $ 2,904,000 $ 13,029,000 $ 12,759,000 $ 4,928,000 $ 11,612,000 $ 28,816,000 $ 15,842,000 $121,758,000 $514,396,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,084,000 1,775,000 850,000 857,000 5,383,000 4,304,000 9,105,000 2,979,000 6,830,000 5,489,000 25,415,000 35,477,000 13,025,000 22,410,000 52,249,000 39,133,000 $ $ $ $ $ $ $ 96,000 9,041,000 3,399,000 4,247,000 8,057,000 4,811,000 2,953,000 $ 13,017,000 $ $ $ $ $ $ $ $ 2,781,000 5,965,000 1,995,000 1,675,000 625,000 2,220,000 290,000 178,000 $ 226,365,000 $ 1,470,262,000 $ 61,350,000 $ 465,214,000 $ 122,336,000 $ 287,137,000 $ 409,473,000 $ 73,976,000 $ 509,409,000 $ 1,940,463,000 $ 2,449,872,000 $ 535,732,000 2,449,000 10,692,000 2,540 $ 12,500,000 1986/06 Mar 2007 1998/00/02 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2,563,000 2,632,000 2,071,000 1,598,000 2,819,000 1,995,000 1,251,000 6,783,000 3,069,000 4,094,000 4,186,000 1,723,000 3,744,000 3,770,000 2,062,000 5,758,000 970,000 1,308,000 415,000 519,000 413,000 796,000 4,152,000 1,549,000 5,838,000 6,561,000 2,904,000 $ 11,625,000 $ 13,029,000 $ 12,759,000 $ 4,928,000 $ 11,612,000 $ 29,394,000 $ 15,842,000 — $ 5,758,000 6,161,000 20,983,000 7,131,000 22,291,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 16,658,000 21,534,000 27,231,000 26,731,000 20,292,000 17,962,000 8,049,000 23,840,000 12,640,000 18,060,000 17,879,000 6,538,000 41,835,000 26,061,000 20,206,000 12,995,000 1,180,000 10,816,000 4,249,000 5,104,000 13,440,000 9,115,000 12,058,000 15,996,000 9,611,000 11,454,000 27,410,000 37,152,000 13,650,000 24,630,000 51,961,000 39,311,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 19,221,000 24,166,000 29,302,000 28,329,000 23,111,000 19,957,000 9,300,000 30,623,000 15,709,000 22,154,000 22,065,000 8,261,000 54,335,000 29,805,000 23,976,000 15,057,000 1,595,000 11,335,000 4,662,000 5,900,000 17,592,000 10,664,000 23,683,000 21,834,000 16,172,000 14,358,000 40,439,000 49,911,000 18,578,000 36,242,000 81,355,000 55,153,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 7,339,000 9,290,000 8,036,000 7,736,000 6,065,000 4,426,000 2,259,000 4,896,000 2,812,000 3,903,000 3,566,000 1,474,000 8,080,000 4,815,000 3,570,000 2,201,000 — 1,128,000 1,767,000 1,146,000 5,801,000 2,822,000 3,050,000 8,796,000 5,344,000 4,814,000 4,239,000 5,552,000 8,800,000 8,959,000 2,874,000 5,080,000 2,862,000 582,000 1984 1988 2000 2001 2002 1999 1965 1968 1994 1999 2002 1991 1996 1998 N/A 1986 2009 1962 1969 1960 1967 1955 1975 1969 1960 1973 2000 1972 1970 2007 1979 Nov 1998 Nov 1998 Oct 2003 Oct 2003 Oct 2003 Aug 2004 Oct 2004 Apr 2006 Apr 2006 Apr 2006 Jul 2006 Jun 2006 Jun 2007 Jun 2007 Aug 2007 Aug 2007 May 2008 Aug 2009 Jul 1963 Sep 1972 Dec 1973 Sep 1977 Dec 1984 Sep 1985 Dec 1992 Jun 1994 Aug 1995 Jun 2002 mar 2005 May 2006 May 2006 Dec 2010 Aug 2011 73,000 96,000 92,000 89,000 75,000 66,000 49,000 114,000 38,000 51,000 52,000 33,000 112,000 123,000 75,000 52,000 — 36,000 85,000 51,000 150,000 76,000 74,000 168,000 49,000 198,000 134,000 227,000 47,000 332,000 295,000 82,000 145,000 223,000 198,000 3,255,000 1951/’55/’59/’90 Jun 1998 1999-2003 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years N/A 30 Years 30 Years 50 Years 37 Years 33 Years 50 Years 40 Years 50 Years 50 Years 50 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years (a) At December 31, 2011, our properties were encumbered by non-recourse mortgage amounts as follows: $35,399,000 on 3801 Connecticut Avenue, $16,531,000 on Walker House, $29,099,000 on Bethesda Hill, $36,097,000 on The Kenmore, $30,761,000 on West Gude Drive,$95,593,000 on 2445 M Street, $53,936,000 on John Marshall II, $42,997,000 on Prosperity Medical Center, $4,780,000 on 9707 Medical Center Drive, $7,974,000 on 15005 Shady Grove Road, $4,419,000 on Plum Tree Medical Center, $19,954,000 on Woodholme Medical Center, $4,597,000 on Ashburn Farm, $21,700,000 on Frederick Crossing, and $23,873,000 on Olney Village Center. (b) The purchase cost of real estate investments has been divided between land and buildings and improvements on the basis of management’s determination of the fair values. (c) At December 31, 2011, total land, buildings and improvements are carried at $2,148,544,000 for federal income tax purposes. (d) The useful life shown is for the main structure. Buildings and improvements are depreciated over various useful lives ranging from 3 to 50 years. 108 annual RepoRt 2011 FoRm 10-K SCHEDULE III PROPERTIES Medical Office Woodburn Medical Park I Woodburn Medical Park II 8501 Arlington Boulevard(a) 8503 Arlington Boulevard(a) 8505 Arlington Boulevard(a) Shady Grove Medical II 8301 Arlington Boulevard Alexandria Professional Center 9707 Medical Center Drive(a) 15001 Shady Grove Road 15005 Shady Grove Road(a) Plumtree Medical Center(a) 2440 M Street Woodholme Medical Center(a) Ashburn Farm Professional Center(a) CentreMed I & II 4661 Kenmore Avenue(f) Sterling Medical Office Lansdowne Retail Centers Takoma Park Westminster Concord Centre Wheaton Park Bradlee Chevy Chase Metro Plaza Montgomery Village Center Shoppes of Foxchase Frederick County Square 800 S. Washington Street Centre at Hagerstown . Frederick Crossing(a) Randolph Shopping Center Montrose Shopping Center Gateway Overlook Olney Village Center(a) Total virginia virginia virginia virginia virginia Maryland virginia virginia Maryland Maryland Maryland Maryland virginia virginia virginia virginia virginia Maryland Maryland virginia Maryland virginia Maryland virginia Maryland virginia Maryland Maryland Maryland Maryland Maryland Maryland Washington, DC Maryland Washington, DC $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 12,460,000 17,574,000 26,317,000 25,850,000 19,680,000 16,601,000 6,589,000 19,676,000 11,777,000 16,410,000 17,548,000 5,749,000 37,321,000 24,587,000 19,200,000 12,506,000 — 5,274,000 18,778,000 1,084,000 1,775,000 850,000 857,000 5,383,000 4,304,000 9,105,000 2,979,000 6,830,000 5,489,000 25,415,000 35,477,000 13,025,000 22,410,000 52,249,000 39,133,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 4,198,000 3,960,000 914,000 881,000 612,000 1,361,000 1,460,000 4,164,000 863,000 1,650,000 331,000 789,000 4,514,000 1,474,000 1,006,000 489,000 1,994,000 887,000 2,205,000 96,000 9,041,000 3,399,000 4,247,000 8,057,000 4,811,000 2,953,000 2,781,000 5,965,000 1,995,000 1,675,000 625,000 2,220,000 290,000 178,000 $ 13,017,000 $ 2,563,000 $ 2,632,000 $ 2,071,000 $ 1,598,000 $ 2,819,000 $ 1,995,000 $ 1,251,000 $ 6,783,000 $ 3,069,000 $ 4,094,000 $ 4,186,000 $ 1,723,000 $ 12,500,000 $ 3,744,000 $ 3,770,000 $ 2,062,000 $ 3,764,000 $ 970,000 $ 1,308,000 $ $ $ $ 415,000 519,000 413,000 796,000 $ 4,152,000 $ 1,549,000 $ 11,625,000 $ 5,838,000 $ 6,561,000 $ 2,904,000 $ 13,029,000 $ 12,759,000 $ 4,928,000 $ 11,612,000 $ 28,816,000 $ 15,842,000 $121,758,000 $514,396,000 LOCATION LAND INITIAL COST(b) NET IMPROVEMENTS BUILDINGS AND (RETIREMENT) IMPROVEMENTS SINCE ACqUISITION GROSS AMOUNTS AT WHICH CARRIED AT DECEMBER 31, 2011 LAND BUILDINGS AND IMPROVEMENTS TOTAL(c) ACCUMULATED DEPRECIATION AT DECEMBER 31, 2011 YEAR OF CONSTRUCTION DATE OF ACqUISITION NET RENTABLE SqUARE FEET(e) DEPRE- CIATION LIFE(d) UNITS $ $ $ $ $ $ $ $ $ $ $ $ 2,563,000 2,632,000 2,071,000 1,598,000 2,819,000 1,995,000 1,251,000 6,783,000 3,069,000 4,094,000 4,186,000 1,723,000 $ 12,500,000 $ $ $ $ $ $ 3,744,000 3,770,000 2,062,000 5,758,000 970,000 1,308,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 16,658,000 21,534,000 27,231,000 26,731,000 20,292,000 17,962,000 8,049,000 23,840,000 12,640,000 18,060,000 17,879,000 6,538,000 41,835,000 26,061,000 20,206,000 12,995,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 19,221,000 24,166,000 29,302,000 28,329,000 23,111,000 19,957,000 9,300,000 30,623,000 15,709,000 22,154,000 22,065,000 8,261,000 54,335,000 29,805,000 23,976,000 15,057,000 — $ 5,758,000 6,161,000 20,983,000 $ $ 7,131,000 22,291,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 7,339,000 9,290,000 8,036,000 7,736,000 6,065,000 4,426,000 2,259,000 4,896,000 2,812,000 3,903,000 3,566,000 1,474,000 8,080,000 4,815,000 3,570,000 2,201,000 — 1,128,000 1,767,000 $ 62,902,000 $ 313,897,000 $ 33,752,000 $ 64,896,000 $ 345,655,000 $ 410,551,000 $ 83,363,000 1984 1988 2000 2001 2002 1999 1965 1968 1994 1999 2002 1991 Nov 1998 Nov 1998 Oct 2003 Oct 2003 Oct 2003 Aug 2004 Oct 2004 Apr 2006 Apr 2006 Apr 2006 Jul 2006 Jun 2006 1986/06 Mar 2007 1996 1998/00/02 1998 N/A 1986 2009 1962 1969 1960 1967 1955 1975 1969 1960 1973 Jun 2007 Jun 2007 Aug 2007 Aug 2007 May 2008 Aug 2009 Jul 1963 Sep 1972 Dec 1973 Sep 1977 Dec 1984 Sep 1985 Dec 1992 Jun 1994 Aug 1995 73,000 96,000 92,000 89,000 75,000 66,000 49,000 114,000 38,000 51,000 52,000 33,000 112,000 123,000 75,000 52,000 — 36,000 85,000 1,311,000 51,000 150,000 76,000 74,000 168,000 49,000 198,000 134,000 227,000 47,000 332,000 295,000 82,000 145,000 223,000 198,000 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years N/A 30 Years 30 Years 50 Years 37 Years 33 Years 50 Years 40 Years 50 Years 50 Years 50 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 1,146,000 5,801,000 2,822,000 3,050,000 8,796,000 5,344,000 4,814,000 4,239,000 5,552,000 $ $ $ $ $ $ 415,000 519,000 413,000 796,000 4,152,000 1,549,000 $ 11,625,000 $ $ $ 5,838,000 6,561,000 2,904,000 $ 13,029,000 $ 12,759,000 $ 4,928,000 $ 11,612,000 $ 29,394,000 $ 15,842,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,180,000 10,816,000 4,249,000 5,104,000 13,440,000 9,115,000 12,058,000 15,996,000 9,611,000 11,454,000 27,410,000 37,152,000 13,650,000 24,630,000 51,961,000 39,311,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,595,000 11,335,000 4,662,000 5,900,000 17,592,000 10,664,000 23,683,000 21,834,000 16,172,000 14,358,000 40,439,000 49,911,000 18,578,000 36,242,000 81,355,000 55,153,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 3,255,000 1951/’55/’59/’90 Jun 1998 8,800,000 8,959,000 2,874,000 5,080,000 2,862,000 582,000 2000 1999-2003 1972 1970 2007 1979 Jun 2002 mar 2005 May 2006 May 2006 Dec 2010 Aug 2011 $ 226,365,000 $ 1,470,262,000 $ 61,350,000 $ 465,214,000 $ 122,336,000 $ 287,137,000 $ 409,473,000 $ 73,976,000 $ 509,409,000 $ 1,940,463,000 $ 2,449,872,000 $ 535,732,000 2,449,000 10,692,000 2,540 (a) At December 31, 2011, our properties were encumbered by non-recourse mortgage amounts as follows: $35,399,000 on 3801 Connecticut Avenue, $16,531,000 on Walker House, $29,099,000 on Bethesda Hill, $36,097,000 on The Kenmore, $30,761,000 on West Gude Drive,$95,593,000 on 2445 M Street, $53,936,000 on John Marshall II, $42,997,000 on Prosperity Medical Center, $4,780,000 on 9707 Medical Center Drive, $7,974,000 on 15005 Shady Grove Road, $4,419,000 on Plum Tree Medical Center, $19,954,000 on Woodholme Medical Center, $4,597,000 on Ashburn Farm, $21,700,000 on Frederick Crossing, and $23,873,000 on Olney Village Center. (b) The purchase cost of real estate investments has been divided between land and buildings and improvements on the basis of management’s determination of the fair values. (c) At December 31, 2011, total land, buildings and improvements are carried at $2,148,544,000 for federal income tax purposes. (d) The useful life shown is for the main structure. Buildings and improvements are depreciated over various useful lives ranging from 3 to 50 years. (e) Residential properties are presented in gross square feet. (f ) As of December 31, 2011, WRIT had land held for development in Herndon, VA (Dulles Station, Phase II). WRIT also held a 0.8 acre parcel of land at 4661 Kenmore for future medical office development. Additionally, WRIT had investments in various smaller development or redevelopment projects. The total land value not yet placed in service of these development projects at December 31, 2011 was $9.4 million. $0.5 million of Dulles Station, Phase II land was placed into service upon the completion of a portion of the parking garage structure. (g) As of December 31, 2011, WRIT had under development via joint venture arrangements, a mid-rise multifamily property in Arlington, Virginia (650 North Glebe) and a high-rise multifamily property in Alexandria, Virginia (1219 First Street). The total land value not yet placed into service of these development projects via joint venture arrangements at December 31, 2011 was $27.8 million. FoRm 10-K annual RepoRt 2011 109 SUMMARY OF REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION (in thousands) The following is a reconciliation of real estate assets and accumulated depreciation for the years ended December 31, 2011, 2010 and 2009: (In Thousands) Real estate assets Balance, beginning of period Additions—property acquisitions* —improvements* Deductions—impairment write-down Deductions—write-off of disposed assets Deductions—property sales Balance, end of period Accumulated depreciation Balance, beginning of period Additions—depreciation Deductions—impairment write-down Deductions—write-off of disposed assets Deductions—property sales Balance, end of period *Includes non-cash accruals for capital items and assumed mortgages. 2011 2010 2009 $2,443,127 $2,341,461 $2,326,646 352,658 36,386 (16,416) (1,648) (364,235) 140,584 28,196 — (866) (66,248) 20,086 30,399 — (2,451) (33,219) $2,449,872 $2,443,127 $2,341,461 $ 538,786 84,167 (1,291) (1,648) (84,282) $ 475,245 83,302 — (866) (18,895) $ 406,241 82,022 — (2,451) (10,567) $ 535,732 $ 538,786 $ 475,245 110 annual RepoRt 2011 FoRm 10-K Exhibit 31.1 CERTIFICATION I, George F. McKenzie, certify that: 1. I have reviewed this annual report on Form 10-K of Washington Real Estate Investment Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods pre- sented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and proce- dures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclu- sions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the reg- istrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over finan- cial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the regis- trant’s internal control over financial reporting. Date: February 27, 2012 /s/ George F. McKenzie George F. McKenzie Chief Executive Officer FoRm 10-K annual RepoRt 2011 111 Exhibit 31.2 CERTIFICATION I, Laura M. Franklin, certify that: 1. I have reviewed this annual report on Form 10-K of Washington Real Estate Investment Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods pre- sented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and proce- dures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclu- sions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the reg- istrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over finan- cial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the regis- trant’s internal control over financial reporting. Date: February 27, 2012 /s/ Laura M. Franklin Laura M. Franklin Executive Vice President Accounting, Administration and Corporate Secretary 112 annual RepoRt 2011 FoRm 10-K Exhibit 31.3 CERTIFICATION I, William T. Camp, certify that: 1. I have reviewed this annual report on Form 10-K of Washington Real Estate Investment Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods pre- sented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and proce- dures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclu- sions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the reg- istrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over finan- cial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the regis- trant’s internal control over financial reporting. Date: February 27, 2012 /s/ William T. Camp William T. Camp Chief Financial Officer FoRm 10-K annual RepoRt 2011 113 Exhibit 32 WRITTEN STATEMENT OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, the President and Chief Executive Officer, the Executive Vice President Accounting, Administration and Corporate Secretary, and the Chief Financial Officer of Washington Real Estate Investment Trust (“WRIT”), each hereby certifies on the date hereof, that: (a) the Annual Report on Form 10-K for the year ended December 31, 2011 filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of opera- tions of WRIT. Date: February 27, 2012 Date: February 27, 2012 /s/ George F. McKenzie George F. McKenzie Chief Executive Officer /s/ Laura M. Franklin Laura M. Franklin Executive Vice President Accounting, Administration and Corporate Secretary Date: February 27, 2012 /s/ William T. Camp William T. Camp Chief Financial Officer 114 annual RepoRt 2011 FoRm 10-K This page intentionally left blank. FoRm 10-K annual RepoRt 2011 115 CORPORATE INFORMATION Transfer Agent Computershare Trust Company, N.A. P.O. Box 43078 Providence, Rhode Island 02940-3078 Stock Information WRIT is traded on the New York Stock Exchange. The symbol listed in the newspaper is WRIT. The trading symbol is WRe. Annual Meeting WRIT will hold its annual meeting of stockholders on May 24, 2012, at 11:00 a.m. at the Bethesda North Marriott Hotel & Conference Center, 5701 Marinelli Road, North Bethesda, Maryland. Member National Association of Real Estate Investment Trusts® 1875 Eye Street, N.W., Suite 600 Washington, D.C. 20006-5413 WRIT Direct WRIT’s dividend reinvestment plan permits cash investment of up to the amount specified in the plan, plus dividends, and is IRA eligible. Annual CEO Certification WRIT submitted the CEO Certification required by the NYSE under Section 303A. 12(a) without qualifications. Corporate Headquarters Washington Real Estate Investment Trust 6110 Executive Boulevard, Suite 800 Rockville, Maryland 20852-3927 301.984.9400 800.565.9748 Fax 301.984.9610 www.writ.com Counsel Arent Fox LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5339 Independent Registered Public Accounting Firm Ernst & Young LLP 8484 Westpark Drive McLean, Virginia 22102 PERFORMANCE GRAPH Set forth below is a graph comparing the cumulative total shareholder return (assumes reinvestment of dividends) on WRIT shares with the cumulative total return of companies making up the Standard & Poor’s 500 Stock Index and the MSCI US REIT Index. The MSCI US REIT Index is a total-return index representing approximately 85% of the US REIT universe. Comparison of Five Year Cumulative Total Return $200 $150 $100 $50 $0 2006 2007 2008 2009 2010 2011 WRit msCi us Reit Index S&P 500 RECONCILIATION OF CORE FUNDS FROM OPERATIONS 2007 2008 2009 2010 2011 Funds from Operations $2.21 $2.00 $2.14 $1.79 Loss (gain) on extinguishment of debt — 0.12 (0.09) 0.15 $1.66 0.02 Real estate impairment — — — — 0.22 Acquisition costs — — 0.01 Core Funds from Operations $2.21 $2.12 $2.06 0.02 $1.96 0.05 $1.95 116 annual RepoRt 2011 FoRm 10-K S R E C i F F o t R W i S E E t S u R t t R W i m o c e v . i t a e r c i c f . w w w D M , a d s e h t e B . c n I i s n o i t a c n u m m o C l a i c n a n F i : n g i s e D t s u r T t n e m t s e v n I e t a t s E l a e R n o t g n h s a i W 2 1 0 2 © (FRoM lEFT To RIghT) Thomas C. Morey, Senior Vice President and general Counsel, William T. Camp, Executive Vice President and Chief Financial Officer, Thomas L. Regnell, Senior Vice President, Acquisitions, George F. McKenzie, President and Chief Executive Officer, Laura M. Franklin, Executive Vice President Accounting, Administration and Corporate Secretary, Michael S. Paukstitus, Senior Vice President, Real Estate, James B. Cederdahl, Managing Director, Property Management (FRoM lEFT To RIghT) William G. Byrnes, Retired Managing Director, Alex. Brown & Sons, Edward S. Civera, Retired Chairman, Catalyst health Solutions, Inc., Thomas Edgie Russell, III, Retired President, Partners Realty Trust, Inc., George F. McKenzie, President and Chief Executive Officer, WRIT, Terence C. Golden, Chairman, Bailey Capital Corporation, Vice Adm. Anthony L. Winns (RET.), Vice President—International Maritime Programs, Corporate International Business Development, lockheed Martin Corporation, John P. McDaniel, Chairman, WRIT; Retired Chief Executive Officer, MedStar Health, Wendelin A. White, Partner, Pillsbury Winthrop Shaw Pittman llP, Charles T. Nason, Retired Chairman, President and Chief Executive Officer, The Acacia Group Returns $10,000 invested in WRIT since December 31, 1971, with dividends reinvested, would be worth $3,138,002 as of December 31, 2011. annualizED CoMpounD total REtuRn WRit naREit Equity S&p 500 15.5% 11.9% 9.7% pRiCE REtuRn WRit naSDaQ DJia 8.4% 8.2% 6.8% $3,000,000 $2,000,000 $1,000,000 1971 2011 Source: Bloomberg, www.nareit.com, WRIT 6110 Executive Boulevard, Suite 800, Rockville, Maryland 20852-3927 301.984.9400 800.565.9748 Fax 301.984.9610 www.writ.com 

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