Washington Real Estate Investment Trust Annual Report 2013

Plain-text annual report

wAshington ReAl estAte investment tRust wAshington ReAl estAte investment tRust AnnuAl RepoRt 2013 AR13 the oppoRtunity is now. we operate in one of the top real estate markets in the world. that market is changing. today, we’re pursuing new investment opportunities to reshape our portfolio for the future — and build value for our shareholders. we operate in one of the top real estate markets in the world. that market is changing. today, we’re pursuing new investment opportunities to reshape our portfolio for the future — and build value for our shareholders. DeAR shAReholDeR 2013 was a year of significant change—and significant accomplishments—for our company. We have new leadership in place, a new strategic direction and have embarked on a plan to reshape our portfolio for the future. With the sale of our medical office portfolio, Washington Real Estate Investment Trust (Washington REIT) has successfully narrowed its focus to three asset classes: office, residential and retail. Today, we are redeploying the proceeds from that sale to aggressively pursue targeted investment opportunities that we believe will significantly improve the quality of our portfolio. Our goal: to position the company for growth and build value for our shareholders. highlights of the yeAR — In January 2014, a comprehensive strategic plan to move the company forward approved by the Board. — Charles T. “Tuck” Nason, a veteran of the Board, elected to succeed John P. McDaniel as Chairman in May 2013. — Paul T. McDermott appointed President and CEO of the company in October 2013, following an extensive search. — In January 2014, finalized the sale of the medical office portfolio in four transactions to a single buyer, with proceeds of $500.8 million. — Strengthened the balance sheet, paying off $54 million in mortgage notes, $135 million on the line of credit and a total of $160 million in unsecured notes (including $100 million unsecured note that matured January 15, 2014). — 2013 commercial leasing volume exceeded 1.7 million square feet of new and renewal leases signed, the highest level since 2007. — Washington, DC office portfolio 2013 net operating income (NOI) grew approximately 8% and physical occupancy was up 300 basis points over the prior year. ChARles t. nAson Chairman pAul t. mcDeRmott President and Chief Executive Officer 2 WashIngTOn REIT iDentifying oppoRtunities As a critical first step in setting the course for the future, in the latter part of 2013, we conducted a rigorous analysis of the portfolio, our markets and regional economic conditions, and took a hard look at each individual property with an eye toward positioning our company for growth. During this five-month process, we identified the strongest market opportunities going forward, and developed a detailed acquisition and disposition plan within each of our three sectors. This comprehensive exercise reaffirmed the company’s commitment to focusing on three core sectors—office, residential and retail—and reaffirmed our belief that the Washington, DC market can support our desired growth trajectory. The process enabled us to clearly define our targets. As a result, we have established a new strategic direction for the company and have embarked on that strategy. A foCuseD, tRAnsit stRAtegy Our market is one of our greatest strengths. Washington REIT has 53 years of experience owning and operating real estate in and around Washington, DC, and we are keenly aware of the changing demographics of our region. Today, the city is undergoing a transformation driven by a significant demographic shift. Young, educated professionals are flocking to urban centers that offer walkable neighborhoods, 24/7 amenities and strong public transit systems. Our more transit and urban focus reflects this fundamental shift. Going forward, we are focusing on key submarkets in the city and close-in suburbs where we have identified growth opportunities, and will be actively recycling out assets that do not fit with this strategic focus. In the office and residential sectors, we are targeting quality properties in thriving neighborhoods primarily near Metro stations and closer to the urban core. Our two most recent acquisitions exemplify our new approach in the office and residential segments. These include the February 2014 acquisition of Yale West, a 216-unit, Class A apartment building in the heart of the vibrant Mount Vernon Triangle neighborhood; and the March 2014 acquisition of 1627 Eye Street, NW, located at the city’s commercial center on Farragut Square—home of the Army-Navy Club of Washington and 108,000 square feet of Class A office space. Each property is served by two Metro stations and situated in the city’s urban core. In retail, we expect our footprint to expand into submarkets that demonstrate strong, affluent and growing populations. Our focus will remain on necessity- based retail centers typically anchored by a supermar- ket or drug store near major transportation arteries in close-in suburban markets. In addition, across our three sectors, we will continue to invest opportunisti- cally in assets inside the Capital Beltway in vibrant neighborhoods and business districts that meet our demographic and growth criteria. new leADeRship In May 2013, John P. McDaniel retired as Chairman of the Board. We want to thank him for his leadership as Chairman and his continued service to the company over the past 15 years. As your new Chairman and a co-signer of this letter, I want to speak to Paul McDermott’s appointment as President and Chief Executive Officer. Early in 2013, the Board of Trustees engaged a leading executive search firm to find a suitable replacement for our retiring Chief Executive Officer, George F. “Skip” McKenzie. We would like to thank Mr. McKenzie for his loyal service over his 16 years with Washington REIT and more specifically as our CEO since 2007. During that five-month process, we interviewed a number of impressive candidates. Given the depth and scope of his experience, and his outstanding 30-year track record in the Washington, DC real estate industry, Paul was the Board’s unanimous first choice. We were very pleased to welcome him to Washington REIT—and view the completion of a comprehensive strategic planning process under his leadership as a key milestone for our company. With the sale of our medical office portfolio complete, we are poised to grow our footprint in the Washington, DC area, demonstrating positive momentum and creating long-term value for our shareholders. We are committed, focused and confident about the future prospects of Washington REIT. in Closing Washington REIT is becoming a more urban company with a focused strategy in one of the top 10 real estate markets in the world. This strategy puts us where people want to live, work and shop—and it is where our future lies as a company. We believe this approach will not only build value for our shareholders, but also strengthen our organization by helping us to attract and retain top talent that will take Washington REIT into the future. The year ahead promises to be a challenging one, but also one of opportunity. From an operational standpoint, we are seeing signs of improvement in the regional economy that are reflected in 2013 occupancies and leasing, particularly in the office sector. We have embarked on a plan designed to grow our company into one of the preeminent owners and operators of real estate in Washington, DC. That involves change as we realign our organization to execute an active asset recycling strategy and an aggressive acquisition plan. Within Washington REIT, we talk about the three “P’s”—the people, the portfolio and the process. Our future success hinges on our talent, the quality of our work and the quality of the physical assets we invest in for our shareholders. 2014 promises to be another year of change, as we endeavor to get better and better at what we do. Above all, we are committed to creating value for you, our shareholders. Together, we want to thank you for your patience, support and continued investment in our company. We are confident your trust will be justified in the long run, as we evidence competitive returns and growth in the value of your investment in Washington REIT. annual REpORT 2013 3 1776 G Street DynAmiC mARket one of the top 10 real estate markets in the world, the washington, DC region is emerging from the recession with an increasingly diverse economy, the most educated workforce in the nation and a thriving urban core served by a strong public transportation network anchored by the Metrorail system. The city is undergoing a significant revitalization, driven by changing demographic and lifestyle trends. washington Reit is focused exclusively on the washington, DC region—at the urban core. it all starts here. 4 WashIngTOn REIT 1901 PennSylvAniA Avenue 2445 M Street 2000 M Street 1227 25th Street 1220 19th Street 1140 ConneCtiCut Avenue Washington, DC is a thriving market. Among major U.S. metropolitan areas, the Washington metro region has the highest median income and the most highly educated workforce. And it ranks third for lowest unemployment rates among major U.S. metropolitan areas, with 4.6% unemployment as of December 2013 compared to the national average of 6.7%. Walkability and mass transit have become key drivers of urban growth—and Washington, DC boasts one of the largest, most efficient and newest Metrorail transit systems in the country. The city is undergoing a dramatic transformation, as young, urban professionals—and the businesses that seek to attract them—flock to the city’s urban core. Neighborhoods such as Columbia Heights, the U Street Corridor and the East End have become vibrant hubs of activity—day and night—as a new generation makes the choice to live, work and shop in the urban core. More than 42,000 people moved to the Washington metropolitan area in 2012, putting it among the top five U.S. markets for net in-migration. This urban renaissance is taking place in the nation’s capital, a fundamentally stable and resilient real estate market. Historically supported by the federal government’s presence, the regional economy has grown increasingly diverse in recent years. Today, while federal spending represents 40% of Gross Regional Product (GRP), federal employment represents only 13% of total employment. And, while federal spending has declined to 2009 levels over the past four years, research suggests that it will rebound to peak levels by 2017. This is where we want to be. annual REpORT 2013 5 1220 19th Street, WAShinGton, DC yAle WeSt APArtMentS, WAShinGton, DC Washington REIT owns and operates 53 properties in three core sectors: office, residential and retail. That multi-sector focus gives the portfolio balance and diversification. Our singular focus on the Washington, DC region gives it strength and resilience, and opens up tremendous opportunities as the city continues to grow and change. At present, that growth is centered on the region’s urban core around the metro stations that serve 45% of the city’s working population. that’s where washington Reit is focused for growth—with an urban, transit strategy. And it starts now. foCuseD poRtfolio The office portfolio encompasses 4.7 million square feet and 24 properties. These are located predomi- nantly near Metro stations in the city’s central business district (CBD) and key urban submarkets —so it aligns well with our geographic focus. To improve the quality and competitiveness of the portfolio, we are acquiring assets at Class A loca- tions at the urban core, as well as properties located inside the Capital Beltway in vibrant neighborhoods and business districts. For example, in March 2014, we acquired 1627 Eye Street, NW, located on Farragut Square, a bustling commercial hub in the CBD served by Farragut North and Farragut West Metro stations. The first three floors of the 12-story building are occupied by the prestigious Army-Navy Club of Washington, with a 30-year lease. The upper floors comprise 108,000-square-feet of Class A office space. acquired Yale West, a Class A, 216-unit, high-rise apartment building at 443 New York Avenue, NW, in the city’s East End submarket. Yale West is a newly constructed, amenity-rich, luxury apartment building located in the vibrant Mount Vernon Triangle neighborhood near two Metro stations. Our residential portfolio encompasses 13 properties with 2,890 units in Washington, DC and close-in suburbs. With the shift to a more urban focus, we are acquiring Class A and B properties that fit with our urban, transit strategy, as well as suburban Class B assets in high-growth markets with strong demographics. In February 2014, Washington REIT Our 16 shopping centers are stable, solid perform- ers. Comprising 2.4 million square feet of retail space, they are well located along major arteries in affluent communities, primarily in close-in suburban markets and anchored by supermarkets and other everyday retail. annual REpORT 2013 7 effeCtive stRAtegy in 2013, we took a fresh look at all of our assets—and our market—to reshape our portfolio for long-term performance. Today, Washington REIT is focused on high-growth neighborhoods where people want to live, work and shop—at the city’s urban core and in key submarkets along the transportation corridors. Today, we are recycling out assets that no longer fit with this transit strategy and aggressively pursuing new investment opportunities. our goal: to improve the quality of our portfolio and create value for our shareholders. 8 WashIngTOn REIT In 2013, Washington REIT undertook a rigorous analysis of the regional market, our portfolio and each of our properties to identify growth opportunities. A number of findings—and a clear strategic direction—emerged. The regional office market is undergoing a shift from suburban to urban. While suburban markets have provided our company with steady growth for the past 53 years, Washington REIT is making the transition to the urban core because, demographically, that’s where the growth opportunities are. In addition, we are focusing primarily on Class A assets in the competitive downtown market, because they outperform other classes of assets in any economic environment. As it relates to our residential portfolio, there is a significant demographic shift to the urban core. That includes revitalized neighborhoods within the city and close-in suburban markets along the Metro corridor, such as Arlington, VA, and Bethesda, MD. In the residential sector, we are focused on two product types: newly constructed Class A and well-located Class B properties that can generate solid growth through unit renovations and amenity upgrades. Retail will be the one asset class where we expect to expand our footprint beyond a transit focus. We will continue to focus on necessity-based retail centers, typically anchored by a supermarket or drug store— and expand by acquiring high-quality assets in Washington, DC submarkets that demonstrate strong, affluent and growing populations. Across all asset classes, we have established benchmarks for quality, performance and growth. Washington REIT employs an active asset manage- ment model and an active asset recycling strategy. We believe each asset must have a definitive life cycle within our portfolio, including a long-term growth profile that generates solid returns for our investors. annual REpORT 2013 9 offiCeRs tRustees Paul T. McDermott President and Chief Executive Officer William T. Camp Executive Vice President and Chief Financial Officer Laura M. Franklin Executive Vice President Accounting, Administration and Corporate Secretary James B. Cederdahl Senior Vice President, Property Operations Thomas C. Morey Senior Vice President and General Counsel Thomas L. Regnell Senior Vice President and Managing Director, Office Division Charles T. Nason Chairman, Washington REIT Retired Chairman, President and Chief Executive Officer, The Acacia Group Paul T. McDermott President and Chief Executive Officer, Washington REIT William G. Byrnes Chairman, CapitalSource, Inc. Edward S. Civera Retired Chairman, Catalyst Health Solutions, Inc. John P. McDaniel Retired Chief Executive Officer, MedStar Health Thomas Edgie Russell, III Retired President, Partners Realty Trust, Inc. Wendelin A. White Partner, Pillsbury Winthrop Shaw Pittman LLP Vice Admiral Anthony L. Winns (RET.) President, Middle East-Africa Region, Corporate International Business Development, Lockheed Martin Corporation 10 WashIngTOn REIT FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Washington, D.C. 20549 [√] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 2013 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. WASHINGTON REAL ESTATE INVESTMENT TRUST (Exact name of registrant as specified in its charter) COMMISSION FILE NO. 1-6622 MARYLAND (State of incorporation) 53-0261100 (IRS Employer Identification Number) 6110 EXECUTIVE BOULEVARD, SUITE 800, ROCKVILLE, MARYLAND 20852 (Address of principal executive office) (Zip code) Registrant’s telephone number, including area code: (301) 984-9400 Securities registered pursuant to Section 12(b) of the Act: SHARES OF BENEFICIAL INTEREST NEW YORK STOCK EXCHANGE Title of Each Class Name of exchange on which registered 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 [√] 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 [√] 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 [√] 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 [√] 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 incor- porated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 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 [√] 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 [√] As of June 28, 2013, the aggregate market value of such shares held by non- affiliates of the registrant was $1,775,842,352 (based on the closing price of the stock on June 28, 2013). As of February 26, 2014, 66,598,192 common shares were outstanding. Documents Incorporated By Reference Portions of our definitive Proxy Statement relating to the 2014 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. 11 Form 10-K 12 2013 AnnuAl RepoRtINDEX PART I Page ITEM 1. Business 14 ITEM 1A. Risk Factors 17 ITEM 1B. Unresolved Staff Comments 27 ITEM 2. Properties 27 ITEM 3. Legal Proceedings ITEM 4. Mine Safety Disclosures PART II 30 30 ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 30 ITEM 6. Selected Financial Data 31 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 ITEM 7A. Qualitative and Quantitative Disclosures About Market Risk 58 ITEM 8. Financial Statements and Supplementary Data ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59 59 ITEM 9A. Controls and Procedures 59 ITEM 9B. Other Information 60 PART III ITEM 10. Directors, Executive Officers and Corporate Governance 60 ITEM 11. Executive Compensation 60 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ITEM 13. Certain Relationships and Related Transactions, and Director Independence 60 61 ITEM 14. Principal Accountant Fees and Services 61 PART IV ITEM 15. Exhibits and Financial Statement Schedules 62 Signatures 67 13 Form 10-K PART I ITEM 1. Business WRIT Overview Washington Real Estate Investment Trust (“we” or “WRIT”) is a self-adminis- tered, 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, multifamily buildings and retail centers. During 2013 we implemented a plan to sell our entire medical office segment, and completed the final phase of this plan early in 2014. Our geographic focus is based on two principles: 1. Real estate is a local business and is more effectively selected and man- aged 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 invest- ments in the greater Washington metro region, in order to maximize acqui- sition opportunities we will consider investments within the two-hour radius described above. In the future, we also may consider opportunities to dupli- cate our Washington-focused approach in other geographic markets that 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 con- tinue 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. Washington Metro Region Economy The Washington metro region experienced modest job growth during 2013, as a decrease in federal government employment and procurement attributable to continued fiscal austerity offset gains in other sectors. 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 20,700 jobs during the 12 month period ending October 2013. The region’s unemploy- ment rate was 5.9% at October 2013, up from 5.1% in the prior year. Though job growth in 2013 lagged behind other large metro regions, the Washington metro region’s unemployment rate remains one of the lowest in the nation. Delta expects the Washington metro region’s economic growth to remain slug- gish in 2014, with more robust growth in 2015 and 2016. Washington Metro Region Real Estate Markets The Washington metro region’s slow growth is reflected in the real estate market performance in each of our segments. Market statistics and information from Delta are set forth below: Office Segment • Average effective rents in the region decreased 2.9% in 2013 and in 2012. • Overall vacancy was 13.4% at December 31, 2013 and 2012, slightly higher than the national rate of 13.2%. • Net absorption (defined as the change in occupied, standing inventory from one period to the next) totaled 1.8 million square feet in 2013, compared to negative net absorption of 2.9 million square feet in 2012. The 15-year aver- age annual absorption for the region is 5.3 million square feet. • Of the 6.4 million square feet of office space under construction at December 31, 2013 (down from 8.0 million square feet at December 31, 2012), 53% is pre-leased, compared to 51% one year ago. Retail Segment • Rental rates at grocery-anchored centers in the region were up 2.2% in 2013, compared to the 1.4% increase in 2012. 14 2013 AnnuAl RepoRt• Vacancy for grocery-anchored centers was 4.7% at December 31, 2013, down from 4.9% at December 31, 2012. The commercial lease expirations at properties classified as continuing opera- tions for the next five years and thereafter are as follows: Multifamily Segment • Net effective rents for all investment grade apartments in the Washington metro region decreased 1.8% in 2013, compared to a 1.7% increase in 2012. Class A rents decreased by 3.0% in 2013, compared to an increase of 1.9% in 2012. • The vacancy rate for all apartments was 4.9% at December 31, 2013, compared to 4.3% at December 31, 2012. The national rate was 4.3% at December 31, 2013. Class A vacancy increased to 4.7% at December 31, 2013 from 4.2% at December 31, 2012. Our Portfolio As of December 31, 2013, we owned a diversified portfolio of 56 properties, totaling approximately 7.4 million square feet of commercial space and 2,674 residential units, and land held for development. These 56 properties consist of 23 office properties, 5 medical office properties (which were subsequently sold on January 21, 2014), 16 retail centers and 12 multifamily properties. Our principal objective is to invest in high quality properties 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 2013, 2012 and 2011, and the percent leased as of December 31, 2013, were as follows: PERcENT LEASED DEcEMBER 31, 2013(2) 91% 94% 93% Office Retail Multifamily REAL ESTATE RENTAL REVENUE(1) 2013 58% 21% 21% 100% 2012 58% 21% 21% 100% 2011 57% 21% 22% 100% (1) Data excludes discontinued operations—medical office and industrial segments. (2) calculated as the percentage of physical net rentable area leased. On a combined basis, our commercial portfolio (i.e., our office, medical office and retail properties, but not our multifamily properties) was 92% leased at December 31, 2013, 88% leased at December 31, 2012, and 91% leased at December 31, 2011. 2014 2015 2016 2017 2018 2019 and thereafter Total # OF LEASES 138 147 124 106 108 273 896 SqUARE FEET 824,668 944,533 798,793 741,094 666,054 2,416,901 6,392,043 GROSS ANNUAL RENT (in thousands) PERcENTAGE OF TOTAL GROSS ANNUAL RENT $ 25,915 30,734 23,338 26,398 16,536 86,236 $209,157 12% 15% 11% 13% 8% 41% 100% Total real estate rental revenue from continuing operations was $263.0 million for 2013, $254.8 million for 2012 and $234.7 million for 2011. During the three- year period ended December 31, 2013, we acquired seven office properties, two retail properties and one multifamily property. During that same period, we sold eleven office properties, thirteen medical office properties and our entire industrial segment. According to Delta, the professional/business services and government sec- tors constituted over one third of payroll jobs in the Washington metro area at the end of 2013. Due to our geographic concentration in the Washington metro area, a significant amount of our tenants have historically been concentrated in the professional/business services and government sectors, although the exact amount will vary from time to time. As a result of this concentration, we are sus- ceptible to business trends (both positive and negative) that affect the outlook for these sectors. In particular, a significant reduction in federal government spending would seriously impact these sectors. No single tenant accounted for more than 5.0% of real estate rental reve- nue in 2013, 2012 or 2011. All federal government tenants in the aggregate accounted for approximately 1.0% of our 2013 real estate rental revenue. Federal government tenants include the Department of Defense, Social Security Administration, Federal Bureau of Investigation and Office of Personnel Management. 15 Form 10-KOur ten largest tenants, in terms of real estate rental revenue, are as follows: REIT Tax Status 1. World Bank 2. Advisory Board Company 3. Booz Allen Hamilton, Inc. 4. Patton Boggs LLP 5. Engility Corporation 6. Sunrise Assisted Living, Inc. 7. Epstein, Becker & Green, P.C. 8. General Dynamics 9. TJX Companies 10. General Services Administration We expect to continue investing in additional income-producing properties through acquisitions, development and redevelopment. 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 to our properties on an ongoing basis for the purpose of maintaining and increasing their value and income. Major improve- ments and/or renovations to the properties during the three years ended December 31, 2013 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, Note 13, Segment Information 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 26, 2014, we had 263 employees including 180 persons engaged in property management functions and 83 persons engaged in corporate, financial, leasing, asset management and other functions. 16 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 selling 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. Tax Treatment of Recent Disposition Activity We sold the following properties during the three years ended December 31, 2013: PROPERTy Atrium Building Medical Office Portfolio Transactions I & II(1) Total 2013 RENTABLE SqUARE FEET cONTRAcT SALES PRIcE (in thousands) GAIN ON SALE (in thousands) 79,000 $ 15,750 $ 3,195 TyPE Office Medical Office/ Office 1,093,000 307,189 18,949 1,172,000 $322,939 $22,144 1700 Research Boulevard Office 101,000 $ 14,250 $ 3,724 Plumtree Medical Center Medical Office 33,000 8,750 1,400 Total 2012 134,000 $ 23,000 $ 5,124 Industrial Portfolio(2) Industrial/Office 3,092,000 $350,900 $97,491 Dulles Station, Phase I Office 180,000 58,800 — Total 2011 3,272,000 $409,700 $97,491 (1) Transaction I and II of the Medical Office Portfolio purchase and sale agreement consisted of medical office properties (2440 M Street, 15001 Shady Grove Road, 15005 Shady Grove Road, 19500 at Riverside Park (for- merly Lansdowne Medical Office Building), 9707 Medical Center Drive, CentreMed I and II, 8301 Arlington Boulevard, Sterling Medical Office Building, Shady Grove Medical Village II, Alexandria Professional Center, Ashburn Farm Office Park I, Ashburn Farm Office Park II, Ashburn Farm Office Park III, Woodholme Medical Office Building), two office properties (6565 Arlington Boulevard and Woodholme Center) and undeveloped land (4661 Kenmore Ave). Subsequent to the end of 2013, we closed on Transactions III and IV, consisting of Woodburn Medical Park I and II and Prosperity Medical center I, II and III. (2) The Industrial Portfolio consisted of every property in our industrial segment and two office properties (the crescent and Albemarle Point). 2013 AnnuAl RepoRtAll disclosed gains on sale are calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). We have identified a portion of the sold Medical Office Portfolio properties for tax deferred exchange under Section 1031 of the Internal Revenue Code. Section 1031 requires that we identify and close on the acquisition of replacement properties within limited time periods. We may not be able to identify and acquire appropriate replace- ment properties within the specified time periods. If we do not identify and acquire the replacement properties within the specified time periods, we would expect to recognize a taxable gain with respect to the sale of the Medical Office Portfolio. The amount of this taxable gain would depend upon the timing and size of the replacement property acquisitions and also our other results of operations, and it could be a material amount. If we recognize this taxable gain, we could be required to pay a significant portion of it as a special capital gain dividend to our shareholders or alternatively be subject to income taxes on the taxable gain. We distributed all of our ordinary taxable income for the years ended December 31, 2013, 2012 and 2011 to our shareholders. Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed 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 (see note 1 to the consolidated financial statements for further disclosure). 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. 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 statements. You should refer to the expla- nation of the qualifications and limitations on such forward-looking statements beginning on page 56. 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, 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 financial 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, retail and multifamily 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. 17 Form 10-KWe are dependent upon the economic climate of the Washington metropoli- tan region. We face risks associated with property development/redevelopment. All of our properties are located in the Washington metro 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 the Washington metro region are dependent upon various indus- tries that are predominant in our area (such as government and professional/ business services). A downturn in one or more of these industries may have a particularly strong effect on the economic climate of our region. 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. We may be adversely affected by any significant reductions in federal govern- ment spending. As a REIT operating exclusively in the Washington metro region, 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, particularly a sudden decrease due to the sequestration process, 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, eco- nomic conditions in the Washington metro region 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. We currently have an active development project to build a mid-rise apartment building at 650 North Glebe Road in Arlington, Virginia, and an active redevel- opment project to renovate 7900 Westpark Drive, an office building in McLean, Virginia. We decided to delay commencement of construction of a high-rise multifamily property at 1225 First Street in Alexandria, Virginia due to market conditions and concerns of oversupply. Developing or redeveloping properties presents a number of risks for us, including risks that: • if we are unable to obtain all necessary zoning and other required govern- mental permits and authorizations or cease development 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 profitable 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 condi- tions and material shortages, which would result in increases in construction costs and debt service expenses; • the time between commencement of a development project and the stabiliza- tion of the completed property exposes us to risks associated with fluctua- tions in the Washington metro region’s economic conditions; and • occupancy rates and rents at the 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 18 2013 AnnuAl RepoRtdevelopment. In addition, new development activities, regardless of whether or not they are ultimately successful, may require a substantial portion of man- agement’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 the foregoing could have an adverse effect on our financial condition, results of operations or ability to satisfy our debt service obligations. We face risks associated with property acquisitions. We intend to continue to acquire properties which would 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 aver- age 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, par- ticularly 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 redeveloping, 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 inves- tigations which may have findings that are unacceptable. 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; and • liabilities incurred in the ordinary course of business. Real estate investments are illiquid, and we may not be able to sell our proper- ties 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 issuing 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 may not timely reinvest the proceeds of the sale of our medical office portfolio in properties, which would adversely affect our results of operations and net income. During 2013, we implemented a plan to sell our entire medical office portfo- lio and completed the final phase of this plan early in 2014. We may not be successful in reinvesting some or all of the proceeds of the sale of the medical office portfolio in the near term. If we do not successfully reinvest the sales proceeds promptly in income-producing properties, the resulting decrease in 19 Form 10-Kour net income attributable to the controlling interests will not be completely offset by income from the temporary investment of the disposition proceeds. This decrease in net income would have a negative impact on our earnings to fixed charges and debt service coverage ratios and could have a negative impact on our ability to pay dividends at their current level. Even if we promptly reinvest some or all of the sales proceeds in income-producing properties, we still expect some decrease in net income attributable to the controlling interests in future quarters due to the cost of these acquisitions. The sale of our medical office portfolio may require the payment of additional dividends or result in a tax liability for the taxable gains on the sold properties. We have identified a portion of the sold Medical Office Portfolio properties for tax deferred exchange under Section 1031 of the Internal Revenue Code. Section 1031 requires that we identify and close on the acquisition of replace- ment properties within limited time periods. We may not be able to identify and acquire appropriate replacement properties within the specified time periods. If we do not identify and acquire the replacement properties within the speci- fied time periods, we would expect to recognize a taxable gain with respect to the sale of the Medical Office Portfolio. The amount of this taxable gain would depend upon the timing and size of the replacement property acquisitions and also our other results of operations, and it could be a material amount. If we recognize this taxable gain, we could be required to pay a significant portion of it as a special capital gain dividend to our shareholders or alternatively be subject to income taxes on the taxable gain. Funds used to pay capital gains to our shareholders or tax liabilities would not be available for reinvestment in properties, potentially decreasing our net income, negatively impacting our earnings to fixed charges and debt service coverage ratios and negatively impacting our ability to pay future dividends at their current level. Further, it is possible that the qualification of a transaction as a Section 1031 exchange could be successfully challenged and determined to be currently taxable. In this event, our taxable income would increase. This could require us to pay additional dividends or, in lieu of that, income taxes, possibly including interest and penalties. We face potential difficulties or delays renewing leases or re-leasing space. As of December 31, 2013, leases on our commercial properties classified as continuing operations will expire as follows: % OF LEASED SqUARE FOOTAGE 2014 2015 2016 2017 2018 2019 and thereafter Total 12% 15% 11% 13% 8% 41% 100% Multifamily properties are leased under operating leases with terms of gener- ally one year or less. For the years ended December 31, 2013, 2012 and 2011, the multifamily tenant retention rate was 43%, 61% and 56%, respectively. 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 release the space. If tenants decide to renew their leases, the terms of renewals, including the cost of required improvements or concessions, 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 substan- tially 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 20 2013 AnnuAl RepoRtadversely affect our cash flow and results from operations. If a tenant experi- ences a downturn in its business or other types of financial distress, it may be unable to make timely rental payments. 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 the only 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 objec- tives. 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 oper- ations, 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, retail, multifamily and other commercial 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 are dependent on key personnel. The execution of our investment strategy, and management of our operations, depend to a significant degree on our senior management team. If we are unable to attract and retain skilled executives, our results of operations and financial condition could be adversely affected. We cannot assure you we will continue to pay dividends at current 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 divi- dend rate or further reduce our dividend, as we did in the third quarter of 2012. Our ability to continue to pay dividends on our common shares at its current rate 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; • real estate market conditions in the Washington metro region; • 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. Our board of trustees considers, among other factors, trends in our levels of funds from operations, together with associated recurring capital improve- ments, tenant improvements, leasing commissions and incentives, and adjustments to straight-line rents to reflect cash rents received. This level has trended lower in recent years due to the recent economic downturn and uncertainty with the business and leasing environment in the Washington metro region. As noted above, we reduced our dividend rate, and if such trend were to continue for a sustained period of time, our board of trustees could determine to further reduce our dividend rate. 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 market price of our common shares. 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 activities and for general corporate purposes. In the recent past, the commercial real estate debt markets have 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 21 Form 10-Kin 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. 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 refi- nance 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 princi- pal 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 26, 2014, our total consolidated debt was approximately $1.1 bil- lion. Consolidated debt to consolidated market capitalization ratio, which mea- sures total consolidated debt as a percentage of the aggregate of total con- solidated 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 $24.86 per share of our common shares on February 26, 2014, multiplied by the number of our common shares, our consolidated debt to total consolidated market capitalization ratio was approximately 40% as of February 26, 2014. Our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other gen- eral corporate purposes. Our senior unsecured debt is currently rated invest- ment grade by 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. 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 sig- nificant price volatility and liquidity disruptions which caused the market prices of stocks to fluctuate substantially and the spreads on prospective debt financ- ings 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 financ- ing, our cost of borrowing in the future would likely be significantly higher than historical levels. Additionally, 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. 22 2013 AnnuAl RepoRtRising interest rates would increase our interest costs. We face risks associated with short-term liquid investments. 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. We have significant cash balances periodically 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; Covenants in our debt agreements could adversely affect our financial condition. • obligations (including certificates of deposit) of banks and thrifts; Our credit facilities contain customary restrictions, requirements and other lim- itations on our ability to incur indebtedness. We must maintain a minimum tan- gible 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 quarterly 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. Failure to comply with any of the covenants under our unsecured credit facil- ities 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 unse- cured credit facilities. Another possible cross default could occur between our unsecured credit facilities and our senior unsecured notes. 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 mate- rial adverse effect on our business, operations, financial condition and liquidity. • commercial paper and other instruments consisting of short-term U.S. dollar denominated obligations issued by corporations and banks; • repurchase agreements collateralized by corporate and asset-backed obligations; • 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 princi- pal. 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 addition, 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 acquisi- tions, 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. 23 Form 10-Kcompliance or failure to comply with the Americans with Disabilities Act and other laws and regulations could result in substantial costs. The Americans with Disabilities Act generally requires that public buildings, including commercial and multifamily properties, be made accessible to dis- abled 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 alter- ations 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 prop- erties are subject to various federal, state and local regulatory requirements, such as state and local fair housing, rent control and fire and life safety require- ments. 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 compliance with future require- ments 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 sim- ilar 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 2014. There are other types of losses, such as from wars or catastrophic events, for which we cannot obtain insurance at all or at a reasonable cost. We have an insurance policy that 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 statu- torily 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 antic- ipate what amount of coverage will be available on commercially 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. In most cases, we have to renew our policies 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 gener- ate 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 threat- ened 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 24 2013 AnnuAl RepoRtproperties 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 insur- ance 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 haz- ardous or toxic substances or petroleum products at our properties, regard- less 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 inves- tigation and clean-up costs incurred in connection 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 contaminated sites in favor of the government for damages and costs it incurs in connection with a contamination. Environmental laws also govern the presence, maintenance and removal of asbestos. Such laws require that owners or operators of buildings contain- ing 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 relevant state, federal and historical documents. However, they do not always involve invasive techniques such as soil and ground water sampling. When 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; • governmental entities and third parties may sue the owner or operator of a • a prior owner created a material environmental condition that is not known to contaminated site for damages and costs. us or the independent consultants preparing the assessments; These costs could be substantial and, in extreme cases, could exceed the value of the contaminated property. The presence of hazardous or toxic substances or petroleum products or the failure to properly remediate con- tamination may adversely affect our ability to borrow against, sell or rent an affected property. In addition, applicable environmental laws create liens on • 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. 25 Form 10-KBreaches of data security could materially harm our business and reputation. In the normal course of business we collect and retain certain personal infor- mation provided by our tenants and employees. While we employ a variety of data security measures to protect the confidentiality of this information and periodically review and improve our data security measures, we cannot assure that we will be able to prevent unauthorized access to this personal informa- tion. Any breach of our data security measures and loss of this personal infor- mation may result in legal liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely affect our business and financial performance. • 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 applicable 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. Failure to qualify as a REIT would cause us to be taxed as a corporation, which would substantially reduce funds available for payment of dividends. The market value of our securities can be adversely affected by many factors. 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 regula- tions, administrative interpretations or court decisions may significantly change the tax laws or the application 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; 26 As with any public company, a number of factors may adversely influence the public market price of our common shares. These factors 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 relation to the price of our shares; • changes in federal tax laws; • changes in our credit ratings; and • any negative change in the level of our dividend or the partial payment thereof in common shares. 2013 AnnuAl RepoRtProvisions of the Maryland General corporation Law may limit a change in control. ITEM 1B. Unresolved Staff comments None. 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 affil- iate 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 con- trol 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 2. Properties The schedule on the following pages lists our real estate investment portfolio as of December 31, 2013, which consisted of 56 properties and land held for development. On January 21, 2014, we sold the five remaining medical office properties, Woodburn Medical Park I and II and Prosperity Medical Center I, II and III. As of December 31, 2013, 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. 27 Form 10-KSchedule of Properties PROPERTIES Office Buildings LOcATION yEAR AcqUIRED yEAR cONSTRUcTED/ RENOVATED NET RENTABLE SqUARE FEET(1) PERcENT LEASED, AS OF DEcEMBER 31, 2013 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 Wayne Plaza Courthouse Square One Central Plaza 1776 G Street West Gude Drive Monument II 2000 M Street 2445 M Street 925 Corporate Drive 1000 Corporate Drive 1140 Connecticut Avenue 1227 25th Street Braddock Metro Center John Marshall II Fairgate at Ballston Subtotal Medical Office Buildings Woodburn Medical Park I Woodburn Medical Park II Prosperity Medical Center I Prosperity Medical Center II Prosperity Medical Center III Subtotal Rockville, MD Alexandria, VA Rockville, MD Washington, D.C. Arlington, VA McLean, VA Rockville, MD Silver Spring, MD Alexandria, VA Rockville, MD Washington, D.C. Rockville, MD Herndon, VA Washington, D.C. Washington, D.C. Stafford, VA Stafford, VA Washington, D.C. Washington, D.C. Alexandria, VA Tysons Corner, VA Arlington, VA Annandale, VA Annandale, VA Merrifield, VA Merrifield, VA Merrifield, VA 28 1977 1979 1992 1995 1995 1997 1997 1999 2000 2000 2001 2003 2006 2007 2007 2008 2010 2010 2011 2011 2011 2011 2012 1998 1998 2003 2003 2003 1960 1975 1966 1971 1976 1973 1972/1986/1999 1985 1970 1979 1974 1979 1984/1986/1988 2000 1971 1986 2007 2009 1966 1988 1985 1996/2010 1988 1984 1988 2000 2001 2002 101,000 222,000 75,000 203,000 104,000 168,000 530,000 113,000 96,000 115,000 267,000 263,000 277,000 207,000 230,000 290,000 134,000 136,000 184,000 132,000 345,000 223,000 142,000 4,557,000 77,000 97,000 91,000 87,000 75,000 427,000 92% 95% 96% 82% 90% 84% 80% 84% 87% 97% 93% 100% 83% 87% 100% 100% 93% 100% 93% 92% 96% 100% 74% 91% 96% 90% 76% 100% 84% 89% 2013 AnnuAl RepoRtPROPERTIES Retail centers Takoma Park Westminster Concord Centre Wheaton Park Bradlee Shopping Center Chevy Chase Metro Plaza Montgomery Village Center Shoppes of Foxchase Frederick County Square 800 S. Washington Street Centre at Hagerstown Frederick Crossing Randolph Shopping Center Montrose Shopping Center Gateway Overlook Olney Village Center Subtotal Multifamily Buildings / # of Units LOcATION 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 3801 Connecticut Avenue / 307 Washington, D.C. Roosevelt Towers / 191 Falls Church, VA Country Club Towers / 227 Park Adams / 200 Arlington, VA Arlington, VA Munson Hill Towers / 279 Falls Church, VA The Ashby at McLean / 256 McLean, VA Walker House Apartments / 212 Gaithersburg, MD Bethesda Hill Apartments / 195 Bethesda, MD Bennett Park / 224 Clayborne / 74 Kenmore / 374 The Paramount / 135 Subtotal / 2,674 TOTAL Arlington, VA Alexandria, VA Washington, D.C. Arlington, VA (1) Multifamily buildings are presented in gross square feet. yEAR AcqUIRED yEAR cONSTRUcTED/ RENOVATED NET RENTABLE SqUARE FEET(1) PERcENT LEASED, AS OF DEcEMBER 31, 2013 1963 1972 1973 1977 1984 1985 1992 1994 1995 1998/2003 2002 2005 2006 2006 2010 2011 1963 1965 1969 1969 1970 1996 1996 1997 2007 2008 2008 2013 1962 1969 1960 1967 1955 1975 1969 1960/2006 1973 1955/1959 2000 1999/2003 1972 1970 2007 1979/2003 1951 1964 1965 1959 1963 1982 1971/2003 1986 2007 2008 1948 1984 51,000 150,000 76,000 74,000 168,000 49,000 197,000 134,000 227,000 47,000 332,000 295,000 82,000 145,000 223,000 199,000 2,449,000 179,000 170,000 159,000 173,000 258,000 274,000 157,000 225,000 214,000 60,000 268,000 141,000 2,278,000 9,711,000 100% 97% 55% 98% 95% 100% 78% 94% 97% 98% 98% 99% 64% 94% 100% 98% 94% 86% 96% 96% 95% 96% 96% 97% 96% 94% 97% 88% 90% 93% 29 Form 10-KPART II ITEM 5. Market for the Registrant’s common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our shares trade on the New York Stock Exchange. As of February 26, 2014, there are 4,749 shareholders of record. The high and low sales price for our shares for 2013 and 2012, by quarter, and the amount of dividends we paid per share are as follows: qUARTER 2013 Fourth Third Second First 2012 Fourth Third Second First DIVIDENDS PER SHARE qUARTERLy SHARE PRIcE RANGE HIGH LOW 0.30000 0.30000 0.30000 0.30000 0.30000 0.30000 0.43375 0.43375 $27.20 $28.76 $30.58 $28.85 $27.19 $29.09 $30.50 $31.00 $22.48 $24.00 $25.05 $26.41 $24.28 $25.59 $26.87 $27.01 We have historically paid dividends on a quarterly basis. During the period covered by this report, we did not sell equity securities with- out 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. ITEM 3. Legal Proceedings None. ITEM 4. Mine Safety Disclosures N/A. 30 2013 AnnuAl RepoRtITEM 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 2013 2012 2011 2010 2009 $ 263,024 $ 254,794 $ 234,733 $ 204,219 $ 201,889 (Loss) income from continuing operations $ (193) $ 7,768 $ (14,389) $ (10,874) $ (1,768) 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 $ 15,395 $ 22,144 $ 37,346 $ 37,346 $ 10,816 $ 5,124 $ 23,708 $ 23,708 $ 23,414 $ 97,491 $ 105,378 $ 104,884 $ 26,834 $ 21,599 $ 37,559 $ 37,426 $ 29,368 $ 13,348 $ 40,948 $ 40,745 $ — $ 0.55 $ 0.11 $ 0.35 $ (0.22) $ (0.17) $ (0.03) $ 1.58 $ 0.60 $ 0.71 $1,975,493 $2,124,376 $2,120,758 $2,167,881 $2,045,225 $ — $ — $ 294,671 $ 846,703 $ 754,959 $ 319,025 $ 906,190 $ 792,057 $ 80,104 $ 97,734 $ 99,000 $ 342,989 $ 657,470 $ 859,044 $ 115,045 $ 100,000 $ 265,757 $ 753,587 $ 857,080 $ 108,949 $ 128,000 $ 266,225 $ 688,912 $ 745,255 $ 100,221 Cash dividends declared and paid per share $ 1.20 $ 1.47 $ 1.74 $ 1.73 $ 1.73 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 poli- cies that reflect significant judgments and estimates used in the preparation of our consolidated financial statements. • Results of Operations. Discussion of our financial results comparing 2013 to 2012 and comparing 2012 to 2011. • Liquidity and Capital Resources. Discussion of our financial condition and analysis of changes in our capital structure and cash flows. 31 Form 10-KWhen 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 cap- tion “Funds from Operations.” FFO is a non-GAAP supplemental measure to net income. • 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 apart- ments 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 and excludes properties under redevelopment or development and properties purchased or sold at any time during the periods being com- pared. A “non-same-store” property is one that was acquired, under redevel- opment or development, or placed into service during either of the periods being evaluated. We define redevelopment properties as those for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan which has a current impact on operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. Properties under redevel- opment or development are included within the non-same-store properties beginning in the period during which redevelopment or development activities commence. Redevelopment and development properties are included in the same-store pool upon completion of the redevelopment or development, and the earlier of achieving 90% occupancy or two years after completion. 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, 2013, we owned a diversified portfolio of 56 properties, totaling approximately 7.4 million square feet of commercial space and 2,674 multifam- ily units, and land held for development. These 56 properties consisted of 23 office properties, 5 medical office properties (which were subsequently sold on January 21, 2014), 16 retail centers and 12 multifamily properties. We have a fundamental strategy of regional focus and diversification by prop- erty 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 prop- erty sales. Operating Results Real estate rental revenue, NOI, net income attributable to the controlling interests and FFO for the years ended December 31, 2013 and 2012 were as follows (in thousands): Real estate rental revenue NOI(1) Net income attributable to the controlling interests FFO(2) yEAR ENDED DEcEMBER 31, 2013 2012 $263,024 $169,731 $254,794 $168,249 cHANGE $ 8,230 $ 1,482 $ 37,346 $113,103 $ 23,708 $122,518 $13,638 $ (9,415) (1) See pages 42 and 47 of the MD&A for reconciliations of NOI to net income. (2) See page 58 of the MD&A for reconciliations of FFO to net income. 32 2013 AnnuAl RepoRtNOI increased by $1.5 million primarily due to acquisitions. NOI from same- store properties decreased by $0.1 million, as lower occupancy and higher operating expenses were partially offset by higher rental rates. The lower occu- pancy reflects continuing challenges in leasing vacant space. The $9.4 million decrease in FFO primarily reflects higher interest expense, general and administrative expenses (including $0.8 million related to the officer three-year long-term incentive plan), acquisition costs and a $2.7 million loss on extinguishment of debt related to the disposition of our medical office segment. In addition, we incurred severance expenses related to the Medical Office Portfolio sale and the retirement of our prior Chief Executive Officer. We anticipate continued challenges in leasing vacant space during 2014. 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 from same-store properties. The performance of our three operating segments and the market condi- tions in our region are discussed in greater detail below (industry data is as reported by Delta): • The region’s office market was very challenging during 2013, as average effective rents decreased by 2.9% in 2013, after also decreasing by 2.9% in 2012. Net absorption (defined as the change in occupied, standing inventory from one year to the next) improved to a positive 1.8 million square feet in 2013 from a negative 2.9 million square feet in 2012, but remained well below the 15-year average of 5.3 million square feet. Overall vacancy remained steady at 13.4%. Vacancy in the submarkets was 15.8% for Northern Virginia, 14.5% for Suburban Maryland and 9.3% in the District of Columbia. Delta expects improvement in the region’s office occupancy and rental rates to remain slow during 2014 due to fiscal austerity by the federal government and densification of office space in the private sector. Our office segment was 90.6% leased at December 31, 2013, an increase from 86.5% leased at December 31, 2012, primarily due to improved leasing activity in the District of Columbia. By submarket, our office segment was 88.6% leased in Northern Virginia, 92.0% leased in Suburban Maryland and 96.8% leased in the District of Columbia at December 31, 2013. • The region’s retail market grew slowly in 2013, with rental rates at gro- cery-anchored centers increasing by 2.2%, as compared to a 1.4% increase in 2012. Vacancy rates decreased to 4.7% from 4.9% in 2012. Our retail segment was 94.0% leased at December 31, 2013, up from 92.2% at December 31, 2012. • The region’s multifamily market showed the effects of increased supply, as the Washington metro region had 62 Class A projects in active lease-up at the end of 2013, as compared to 33 at the end of 2012. Net effective rents for investment grade apartments in the region decreased 1.8% in 2013, com- pared to a 1.7% increase in 2012. The region’s vacancy rate for investment grade apartments increased to 4.9%, up from 4.3% one year ago. Our multi- family segment was 93.3% leased at December 31, 2013, down from 95.7% at December 31, 2012. Investment Activity In September 2013, we entered into four separate purchase and sale agree- ments to effectuate the sale of the Medical Office Portfolio, which consisted of our entire medical office segment (including land held for development at 4661 Kenmore Avenue) and two office buildings (Woodholme Center and 6565 Arlington Boulevard), for an aggregate purchase price of $500.8 million. The dispositions consisted of four independent transactions, each of which closed pursuant to a separate purchase and sale agreement. Purchase and Sale Agreements #1 and #2 closed in November 2013 and Purchase and Sale Agreements #3 and #4 closed in January 2014. We may not be successful in reinvesting some or all of the proceeds of the sale of the medical office portfolio in the near term. If we do not successfully rein- vest the sales proceeds promptly in income producing properties, the resulting decrease in our net income attributable to the controlling interests will not be completely offset by income from the temporary investment of the disposition proceeds. This decrease in net income attributable to the controlling inter- ests would have a negative impact on our earnings to fixed charges and debt service coverage ratios and could have a negative impact on our ability to pay dividends at their current level. Even if we promptly reinvest some or all of the sales proceeds in income producing properties, we still expect some decrease in net income attributable to the controlling interests in future quarters due to the cost of these acquisitions. 33 Form 10-KWe have identified a portion of the sold Medical Office Portfolio properties for tax deferred exchange under Section 1031 of the Internal Revenue Code. Section 1031 requires that we identify and close on the acquisition of replace- ment properties within limited time periods. We may not be able to identify and acquire appropriate replacement properties within the specified time periods. If we do not identify and acquire the replacement properties within the speci- fied time periods, we would expect to recognize a taxable gain with respect to the sale of the Medical Office Portfolio. The amount of this taxable gain would depend upon the timing and size of the replacement property acquisitions and also our other results of operations, and it could be a material amount. If we recognize this taxable gain, we could be required to pay a significant portion of it as a special capital gain dividend to our shareholders or alternatively be subject to income taxes on the taxable gain. We acquired one multifamily building in Arlington, Virginia. This transaction was 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. capital Requirements With proceeds from the sale of our medical office segment, we extinguished three mortgage notes secured by medical office properties and paid down our unsecured lines of credit. In January 2014, we extinguished the remaining $100.0 million of our 5.25% unsecured notes on their maturity date. We do not have any remaining debt maturities in 2014. Significant Transactions We summarize below our significant transactions during the two years ended December 31, 2013: 2013 • The acquisition of The Paramount, a multifamily property in Arlington, Virginia with 135 units and 3,600 square feet of retail space, for a contract purchase price of $48.2 million. We incurred $0.3 million in acquisition costs related to this transaction. • The execution of four separate contracts with a single buyer for the sale of the entire medical office segment, consisting of 17 medical office assets, and two office assets, 6565 Arlington Boulevard and Woodholme Center (both of which have significant medical office tenancy), encompassing in total approximately 1.5 million square feet. The assets sold also included land held for development at 4661 Kenmore Avenue. The sales prices under the four agreements aggre- gated to $500.8 million. Purchase and Sale Agreement #1 ($303.4 million of the aggregate sales price) and Purchase and Sale Agreement #2 ($3.8 million of the aggregate sales price) closed in November 2013, resulting in a gain on sale of real estate of $18.9 million. Purchase and Sale Agreement #3 ($79.0 million of the aggregate sales price) and Purchase and Sale Agreement #4 ($114.6 mil- lion of the aggregate sales price) closed in January 2014. • The disposition of the Atrium Building, a 79,000 square foot office build- ing, for a contract sales price of $15.8 million, resulting in a gain on sale of $3.2 million. • The execution of new leases for 1.6 million square feet of commercial space, excluding leases at properties classified as sold or held for sale, with an average rental rate increase of 10.2% over expiring leases. 2012 • The disposition of Plumtree Medical Center, a 33,000 square foot medical office building, for a contract sales price of $8.8 million, generating a gain on sale of $1.4 million. • The issuance of $300.0 million of 3.95% unsecured notes due October 15, 2022, with net proceeds of $296.4 million. The notes bear an effective inter- est rate of 4.018%. • The disposition of 1700 Research Boulevard, a 101,000 square foot office building, for a contract sales price of $14.3 million, generating a gain on sale of $3.7 million. • The acquisition of an office building, Fairgate at Ballston, for $52.3 million, adding approximately 142,000 square feet. We incurred $0.2 million in acqui- sition costs related to this transaction. • The execution of an amended and restated credit agreement for our Credit Facility No. 1 to expand the facility from $75.0 million to $100.0 million, with an accordion feature that allows us to increase the facility to $200.0 million, subject to additional lender commitments. The amended and restated facility matures June 2015, with a one-year extension at WRIT’s option, and bears interest at a rate of LIBOR plus a margin of 120 basis points. 34 2013 AnnuAl RepoRt• The execution of an amended and restated credit agreement for Credit Facility No. 2, our $400.0 million unsecured line of credit, to extend the matu- rity date of the facility to July 2016, with a one-year extension option, and lower the interest rate to LIBOR plus a margin of 120 basis points. • The execution of new leases for 0.7 million square feet of commercial space, excluding properties classified as sold or held for sale, with an average rental rate increase of 12.8% over expiring leases. 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. We evaluate these estimates on an on- going basis, 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 reason- able 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. 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 matters 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 condi- tions 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 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 condi- tions. We determine the fair value of land acquired 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 improve- ments, 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 commissions”); (d) the above/at/below market cash flow of the leases, determined by comparing the projected cash flows of the leases in place, including consideration of renewal options, 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 “cus- tomer relationship value”). We discount the amounts used to calculate net lease intangibles using an inter- est 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 35 Form 10-Kbasis 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 amor- tization 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 revenue 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 remain- ing term of the underlying leases. If any of the fair value of below market lease intangibles includes fair value associated with a renewal option, such amounts are not amortized until the renewal option is executed, else the related value is expensed at that time. 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 inter- est over the useful life of the related underlying assets upon those assets being placed into service. 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 indica- tors 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 expen- ditures. 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. 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 estab- lished. We amortize awards with performance conditions over the perfor- mance 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 mar- ket conditions are achieved and the awards ultimately vest. Compensation expense for the trustee grants, which fully vest immediately, is fully recog- nized 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 undistributed 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. Results of Operations The discussion that follows is based on our consolidated results of operations for the years ended December 31, 2013, 2012 and 2011. The ability to compare one period to another is significantly affected by acquisitions completed and dispositions made during those years. 36 2013 AnnuAl RepoRtProperties we acquired during the three years ended December 31, 2013 were as follows: AcqUISITION DATE October 1, 2013 Total 2013 June 21, 2012 Total 2012 January 11, 2011 March 30, 2011 June 15, 2011 August 30, 2011 September 13, 2011 September 15, 2011 November 23, 2011 Total 2011 PROPERTy The Paramount (135 units) TyPE Multifamily Fairgate at Ballston 1140 Connecticut Ave 1127 25th Street 650 North Glebe Road Olney Village Braddock Metro John Marshall II 1225 First Street Office Office Office Land Retail Office Office Land RENTABLE SqUARE FEET cONTRAcT PURcHASE PRIcE (in thousands) N/A 142,000 142,000 188,000 132,000 N/A 198,000 351,000 223,000 N/A 1,092,000 $ 48,200 $ 48,200 $ 52,250 $ 52,250 $ 80,250 47,000 11,800 58,000 101,000 73,500 13,850 $385,400 Properties we sold or classified as held for sale during the three years ended December 31, 2013 were as follows: PROPERTy Atrium Building TyPE Office Medical Office Portfolio(1) Medical Office/Office 1700 Research Boulevard Plumtree Medical Center Total 2012 Dulles Station, Phase I Industrial Portfolio(2) Total 2011 Office Medical Office Office Industrial/Office RENTABLE SqUARE FEET cONTRAcT SALES PRIcE (in thousands) 79,000 1,520,000 1,599,000 101,000 33,000 134,000 180,000 3,092,000 3,272,000 $ 15,750 500,750 $516,500 $ 14,250 8,750 $ 23,000 $ 58,800 350,900 $409,700 (1) The Medical Office Portfolio consists of every property in our medical office segment (including land held for development at 4661 Kenmore Avenue) and two office properties (Woodholme Center and 6565 Arlington Boulevard). In November 2013, we closed on the sale of the two office properties (6565 Arlington Boulevard and Woodholme Center), 2440 M Street, Alexandria Professional Center, 8301 Arlington Boulevard, Ashburn Farm Office Park I, II and III, CetreMed I and II, Sterling Medical Office Building, 19500 at Riverside Office Park, Shady Grove Medical Village II, 9707 Medical Center Drive, 15001 Shady Grove Road and 15005 Shady Grove Road, Woodholme Medical Office Building and 4661 Kenmore Avenue. In January 2014, we closed on the sale of Woodburn Medical Park I and II and Prosperity Medical center I, II and III. (2) The Industrial Portfolio consists of every property in our industrial segment and two office properties (the Crescent and Albemarle Point). 37 Form 10-KTo provide more insight into our operating results, we divide our discussion into two main sections: • Net Operating Income (page 42). A detailed analysis of same-store versus non-same-store NOI results by segment. • Consolidated Results of Operations (page 38). An overview analysis of results on a consolidated basis; and 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. consolidated Results of Operations Real Estate Rental Revenue Real estate rental revenue for properties classified as continuing operations for the three years ended December 31, 2013, was as follows (in thousands, except percentage amounts): Minimum base rent Recoveries from tenants Provision for doubtful accounts Lease termination fees Parking and other tenant charges yEAR ENDED DEcEMBER 31, 2013 2012 2011 2013 vs 2012 % cHANGE 2012 vs 2011 % cHANGE $226,839 $221,764 $206,545 26,822 (3,605) 643 12,325 25,528 (4,779) 680 11,601 21,877 (3,927) 367 9,871 $5,075 1,294 1,174 (37) 724 $263,024 $254,794 $234,733 $8,230 2.3% 5.1% (24.6)% (5.4)% 6.2% 3.2% $15,219 3,651 (852) 313 1,730 $20,061 7.4% 16.7% 21.7% 85.3% 17.5% 8.5% 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 increased by $15.2 million in 2012 primarily due to acquisi- tions ($16.0 million). Minimum base rent from same-store properties decreased by $0.8 million primarily due to lower occupancy ($3.0 million), lower amortiza- tion of net lease intangible liabilities ($0.4 million) and higher rent abatements ($0.3 million), partially offset by higher rental rates ($3.2 million). Minimum Base Rent: Minimum base rent increased by $5.1 million in 2013 primarily due to acquisitions ($3.0 million). Minimum base rent from same- store properties increased by $2.4 million primarily due to higher rental rates ($5.8 million), partially offset by lower occupancy ($2.4 million), higher rent abatements ($0.7 million) and higher amortization of deferred lease incentives ($0.2 million). Recoveries from Tenants: Recoveries from tenants increased by $1.3 million in 2013 primarily due to higher reimbursements for operating expenses from same-store properties. Recoveries from tenants increased by $3.7 million in 2012 primarily due to acquisitions ($2.8 million), and higher real estate tax recoveries from same- store properties ($0.9 million) due to higher property tax assessments across the portfolio. 38 2013 AnnuAl RepoRtProvision for Doubtful Accounts: Provision for doubtful accounts decreased by $1.2 million in 2013 primarily due to lower provisions in the retail segment. Occupancy for properties classified as continuing operations by segment for the three years ended December 31, 2013 was as follows: Provision for doubtful accounts increased by $0.9 million in 2012 due to higher provisions in the retail ($0.5 million) and office ($0.4 million) segments. Lease Termination Fees: Lease termination fees slightly decreased in 2013 as higher fees from acquisitions ($0.1 million) were offset by lower fees from same-store properties ($0.1 million). SEGMENT Office Retail Multifamily Total 2013 85.7% 91.3% 92.1% 88.8% DEcEMBER 31, 2012 85.2% 91.2% 94.1% 88.9% 2011 2013 vs 2012 2012 vs 2011 89.6% 93.3% 94.9% 91.9% 0.5% 0.1% (2.0)% (0.1)% (4.4)% (2.1)% (0.8)% (3.0)% Lease termination fees increased by $0.3 million in 2012 primarily due to higher fees in the office segment. Parking and Other Tenant Charges: Parking and other tenant charges increased by $0.7 million in 2013 primarily due to increases in parking income from same-store properties ($0.5 million) and acquisitions ($0.3 million). 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 88.8% in 2013 from 88.9% in 2012, with a decline in the multifamily segment partially offset by higher occupancy in the office and retail segments. Parking and other tenant charges increased by $1.7 million in 2012 primarily due to acquisitions ($0.9 million), and increases in parking income ($0.3 million) and short-term tenant rent ($0.3 million) from same-store properties. Our overall occupancy decreased to 88.9% in 2012 from 91.9% in 2011, with the largest declines in the office and retail segments. A detailed discussion of occupancy by segment can be found in the Net Operating Income section. Real Estate Expenses Real estate expenses for the three years ended December 31, 2013, were as follows (in thousands except percentage amounts): Property operating expenses Real estate taxes yEAR ENDED DEcEMBER 31, 2013 $64,241 29,052 $93,293 2012 $59,481 27,064 $86,545 2011 $56,721 22,903 $79,624 2013 vs 2012 % cHANGE 2012 vs 2011 % cHANGE $4,760 1,988 $6,748 8.0% 7.3% 7.8% $2,760 4,161 $6,921 4.9% 18.2% 8.7% Real estate expenses as a percentage of revenue were 35.5%, 34.0% and 33.9% for the three years ended December 31, 2013, 2012 and 2011, respectively. 39 Form 10-KProperty 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 by $2.8 million in 2012 primarily due to acquisitions ($4.5 million), partially offset by property operating expenses from same-store properties, which decreased by $1.7 million primarily due to lower utilities expense ($1.1 million) caused by lower electricity and gas rates and to higher recoveries of bad debt ($0.6 million). Property operating expenses increased by $4.8 million in 2013 due to acquisi- tions ($0.8 million) and property operating expenses from same-store proper- ties, which increased by $3.8 million primarily due to lower recoveries of bad debt ($0.9 million), and higher administrative ($0.8 million), repairs and mainte- nance ($0.6 million), snow removal ($0.4 million), utilities ($0.3 million), custo- dial ($0.2 million) and vacant space preparation ($0.2 million) expenses. Real Estate Taxes: Real estate taxes increased by $2.0 million in 2013 due to acquisitions ($0.4 million) and higher real estate taxes at same-store properties ($1.5 million) due to higher property assessments. Real estate taxes increased by $4.2 million in 2012 due to acquisitions ($2.4 million) and higher real estate taxes at same-store properties ($1.8 mil- lion) due to higher property assessments. Other Operating Expenses Other operating expenses for the three years ended December 31, 2013 were as follows (in thousands, except percentage amounts): yEAR ENDED DEcEMBER 31, 2013 2012 2011 2013 vs 2012 % cHANGE 2012 vs 2011 % cHANGE Depreciation and amortization $ 85,740 $ 85,107 $ 74,403 Acquisition costs Interest expense General and administrative 1,265 63,573 17,535 234 60,627 15,488 3,607 61,402 15,728 $168,113 $161,456 $155,140 $ 633 1,031 2,946 2,047 $6,657 0.7% 440.6% 4.9% 13.2% 4.1% $10,704 (3,373) (775) (240) $ 6,316 14.4% (93.5)% (1.3)% (1.5)% 4.1% Depreciation and Amortization: Depreciation and amortization expense increased by $0.6 million in 2013 primarily due to operating properties acquired and placed into service of $48.2 million and $52.3 million in 2013 and 2012, respectively. Depreciation and amortization expense increased by $10.7 million in 2012 primarily due to operating properties acquired and placed into service of $52.3 million and $385.4 million in 2012 and 2011, respectively. Acquisition Costs: Acquisition costs increased by $1.0 million in 2013 primar- ily due to the acquisition of The Paramount in 2013 and expenses related to potential acquisitions in 2014. Acquisition costs decreased by $3.4 million in 2012 primarily due to a lower volume of acquisitions in 2012 than in 2011. 40 2013 AnnuAl RepoRtInterest Expense: Interest expense by debt type for the three years ended December 31, 2013, was as follows (in thousands, except percentage amounts): DEBT TyPE Notes payable Mortgage notes payable Lines of credit Capitalized interest Total yEAR ENDED DEcEMBER 31, 2013 $43,174 18,378 3,257 (1,236) 2012 $37,982 20,847 3,486 (1,688) $63,573 $60,627 2011 2013 vs 2012 % cHANGE 2012 vs 2011 % cHANGE $38,918 18,434 4,788 (738) $61,402 $5,192 (2,469) (229) 452 $2,946 13.7% (11.8)% (6.6)% (26.8)% 4.9% $ (936) 2,413 (1,302) (950) $ (775) (2.4)% 13.1% (27.2)% 128.7% (1.3)% The $5.2 million increase in notes payable interest during 2013 is due to the issuance of our 3.95% senior notes in 2012, partially offset by the repayment of our 5.05% senior notes during 2012. The $2.5 million decrease in mortgage interest expense is due to the repayments of several mortgage notes during 2013. The $0.2 million decrease in interest expense on our unsecured lines of credit during 2013 is attributable to lower average borrowings outstanding during 2013. Capitalized interest decreased by $0.5 million during 2013 due to placing the development project at 1225 First Street on hold. The $0.9 million decrease in notes payable interest during 2012 is due to the repayment of our 5.95% senior notes during 2011 and our 5.05% senior notes during 2012, partially offset by the issuance of our 3.95% senior notes in 2012. The $2.4 million increase in mortgage interest expense is due to the assump- tion of mortgage notes with the acquisitions of Olney Village Center and John Marshall II in 2011, partially offset by the repayments of several mortgage notes during 2012. The $1.3 million decrease in interest expense on our unsecured lines of credit is attributable to lower average borrowings outstanding during 2012. Capitalized interest increased by $1.0 million during 2012 due to expen- ditures on our two multifamily development projects at 650 North Glebe Road and 1225 First Street. General and Administrative Expense: General and administrative expense increased by $2.0 million in 2013 primarily due to higher incentive compensa- tion expense related to the officer three-year long-term incentive plan. General and administrative expense decreased by $0.2 million in 2012 primarily due to lower incentive compensation expense, partially offset by severance costs. Real Estate Impairment 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 the 2011 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 surround- ing 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 those market conditions. Due to this determination, we rec- ognized 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. 41 Form 10-KDiscontinued Operations Income from operations of properties sold or held for sale for the three years ended December 31, 2013, were as follows (in thousands, except for percentages): Revenues Property expenses Real estate impairment Depreciation and amortization Interest expense Total yEAR ENDED DEcEMBER 31, 2012 2011 2013 vs 2012 % cHANGE 2012 vs 2011 % cHANGE 2013 $ 45,791 (17,039) — (12,161) (1,196) $ 54,344 $ 80,948 $(8,553) (18,273) (2,097) (18,827) (4,331) (25,265) (599) (26,125) (5,545) 1,234 2,097 6,666 3,135 (15.7)% (6.8)% (100.0)% (35.4)% (72.4)% 42.3% $(26,604) 6,992 (1,498) 7,298 1,214 $(12,598) (32.9)% (27.7)% 250.1% (27.9)% (21.9)% (53.8)% $ 15,395 $ 10,816 $ 23,414 $ 4,579 order to provide results more closely related to a property’s results of opera- tions. 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 or income from continuing opera- tions, calculated in accordance with GAAP. NOI does not represent net income or income from continuing operations, in either case calculated in accordance with GAAP. As such, it should not be considered an alternative to these mea- sures 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. Income from operations of properties sold or held for sale increased by $4.6 million for the year ended December 31, 2013, primarily due to the Medical Office Portfolio being accounted for as discontinued operations. Income from operations of properties sold or held for sale decreased by $12.6 million for the year ended December 31, 2012, primarily due to the sale of the Industrial Portfolio during the fourth quarter of 2011. We recognized a $2.1 million impairment charge for the land at 4661 Kenmore Avenue during the fourth quarter of 2012 in order to reduce its carrying value to its fair value of $3.8 million. 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 selling costs based on its contract sales price. 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 perfor- mance 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 appar- ent from net income. NOI excludes certain components from net income in 42 2013 AnnuAl RepoRt2013 compared to 2012 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 2013 compared to 2012. All amounts are in thousands except percentage amounts. 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 Depreciation and amortization General and administrative expenses Acquisition costs Interest expense Other income Loss on extinguishment of debt Discontinued operations(2): Income from properties sold or held for sale Gain on sale of real estate Net income Less: Net income attributable to noncontrolling interests yEAR ENDED DEcEMBER 31, 2013 2012 $ cHANGE % cHANGE $243,633 19,391 $263,024 $ 85,956 7,337 $ 93,293 $157,677 12,054 $169,731 $238,418 16,376 $254,794 $ 80,660 5,885 $ 86,545 $157,758 10,491 $168,249 $5,215 3,015 $8,230 $5,296 1,452 $6,748 $ (81) 1,563 $1,482 2.2% 18.4% 3.2% 6.6% 24.7% 7.8% (0.1)% 14.9% 0.9% $169,731 $168,249 (85,740) (17,535) (1,265) (63,573) 926 (2,737) 15,395 22,144 37,346 — (85,107) (15,488) (234) (60,627) 975 — 10,816 5,124 23,708 — Net income attributable to the controlling interests $ 37,346 $ 23,708 (1) Non-same-store properties include: 2013 Multifamily acquisition—The Paramount; 2013 Office redevelopment property—7900 Westpark Drive; 2012 Office acquisition—Fairgate at Ballston. (2) Discontinued operations include gain on disposals and income from operations for: 2013 held for sale and sold—Atrium Building and Medical Office Portfolio—medical office segment and two office buildings (6565 Arlington Boulevard and Woodholme center); 2012 sold—Plumtree Medical center and 1700 Research Boulevard. 43 Form 10-KReal estate rental revenue from same-store properties increased by $5.2 mil- lion in 2013 primarily due to higher rental rates ($5.8 million), lower reserves for uncollectible revenue ($1.0 million), higher reimbursements for operating expenses ($1.2 million) and higher parking income ($0.5 million), partially offset by lower occupancy ($2.4 million) and higher rent abatements ($0.9 million). Real estate expenses from same-store properties increased by $5.3 million in 2013 primarily due to higher real estate taxes ($1.5 million) due to higher assessments across the portfolio, lower recoveries of uncollectible receivables ($0.9 million), higher administrative expenses ($0.8 million), higher repairs and maintenance expenses ($0.6 million), higher snow removal costs ($0.4 million), higher usage of electricity ($0.3 million), higher custodial expenses ($0.2 mil- lion) and higher vacant space preparation expenses ($0.2 million). An analysis of NOI by segment follows. Office Segment: Real Estate Rental Revenue Same-store Non-same-store(1) yEAR ENDED DEcEMBER 31, 2013 2012 $ cHANGE % cHANGE $133,855 $131,025 $2,830 2.2% 18,484 16,376 2,108 12.9% Total real estate rental revenue $152,339 $147,401 $4,938 3.4% Real Estate Expenses Same-store Non-same-store(1) $ 50,387 $ 47,491 $2,896 6.1% 6,906 5,885 1,021 17.3% DEcEMBER 31, Total real estate expenses $ 57,293 $ 53,376 $3,917 7.3% OccUPANcy Same-store Non-same-store Total 2013 89.7% 79.2% 88.8% 2012 89.2% 84.9% 88.9% NOI Same-store Non-same-store(1) Total NOI $ 83,468 $ 83,534 $ (66) (0.1)% 11,578 10,491 1,087 10.4% $ 95,046 $ 94,025 $1,021 1.1% Same-store occupancy increased to 89.7% in 2013, with the increases in office and retail occupancy partially offset by lower multifamily occupancy. Non-same-store occupancy decreased to 79.2% in 2013 from 84.9% in 2012, driven by lower occupancy at Fairgate at Ballston and 7900 Westpark Drive. During 2013, 78.4% of the commercial square footage expiring was renewed as compared to 58.3% in 2012, excluding properties sold or classified as held for sale. During 2013, we executed new leases (excluding properties classified as sold or held for sale) for 1.6 million commercial square feet at an average rental rate of $29.28 per square foot, an increase of 10.2%, with average tenant improvements and leasing commissions and incentives (including free rent) of $38.40 per square foot. (1) Non-same-store properties include: 2013 redevelopment property—7900 Westpark Drive; 2012 acquisi- tion—Fairgate at Ballston. Real estate rental revenue from same-store properties increased by $2.8 mil- lion in 2013 primarily due to higher rental rates ($2.5 million), reimbursements for operating expenses ($0.9 million) and real estate taxes ($0.5 million), and parking income ($0.4 million), partially offset by lower occupancy ($0.7 million) and higher rent abatements ($0.6 million). 44 2013 AnnuAl RepoRtReal estate expenses from same-store properties increased by $2.9 million in 2013 primarily due to higher real estate taxes ($0.7 million), administrative expenses ($0.6 million), operating services ($0.5 million), repairs and main- tenance expenses ($0.2 million), consumption of electricity ($0.3 million) and lower recoveries of uncollectible receivables ($0.5 million). OccUPANcy Same-store Non-same-store Total DEcEMBER 31, 2013 87.1% 77.9% 85.7% 2012 85.3% 84.9% 85.2% Same-store occupancy increased to 87.1% in 2013 from 85.3% in 2012 primar- ily due to higher occupancy at 2000 M Street and 6110 Executive Boulevard, partially offset by lower occupancy at Braddock Metro Center. The decrease in non-same-store occupancy is primarily due to lower occupancy at Fairgate at Ballston and 7900 Westpark Drive, which went into redevelopment during the fourth quarter of 2013. During 2013, 65.2% of the square footage that expired was renewed compared to 50.4% in 2012, excluding properties sold or classi- fied as held for sale. During 2013, we executed new leases (excluding proper- ties classified as sold or held for sale) for 1.1 million square feet of office space at an average rental rate of $34.27 per square foot, an increase of 8.4%, with average tenant improvements and leasing commissions and incentives (includ- ing free rent) of $51.67 per square foot. Real estate expenses increased by $1.1 million in 2013 primarily due to higher real estate taxes ($0.3 million), snow removal costs ($0.3 million) and bad debt expense ($0.2 million). Occupancy increased to 91.3% in 2013 from 91.2% in 2012 primarily due to higher occupancy at the Centre at Hagerstown and Gateway Overlook, partially offset by lower occupancy at Westminster and Bradlee Shopping Center. During 2013, 92.9% of the square footage that expired was renewed compared to 75.7% in 2012. During 2013, we executed new leases for 0.5 million square feet of retail space at an average rental rate of $18.67, an increase of 17.9%, with average tenant improvements and leasing commissions and incentives (including free rent) of $9.96 per square foot. Multifamily Segment: yEAR ENDED DEcEMBER 31, 2013 2012 $ cHANGE % cHANGE Real Estate Rental Revenue Same-store Non-same-store(1) $53,589 $52,887 $ 702 907 — 907 Total real estate rental revenue $54,496 $52,887 $1,609 Real Estate Expenses Same-store Non-same-store(1) $21,801 $20,467 $1,334 431 — 431 1.3% N/A 3.0% 6.5% N/A 8.6% Retail Segment: Total real estate expenses $22,232 $20,467 $1,765 yEAR ENDED DEcEMBER 31, 2013 2012 $ cHANGE % cHANGE Real estate rental revenue $56,189 $54,506 $1,683 Real estate expenses 13,768 12,702 1,066 NOI $42,421 $41,804 $ 617 3.1% 8.4% 1.5% Real estate rental revenue increased by $1.7 million in 2013 primarily due to higher occupancy ($1.8 million) and lower reserves for uncollectible revenue ($1.2 million), partially offset by lower occupancy ($1.1 million). NOI Same-store Non-same-store(1) Total NOI $31,788 $32,420 $ (632) (1.9)% 476 — 476 N/A $32,264 $32,420 $ (156) (0.5)% (1) Non-same-store properties include: 2013 acquisition—The Paramount. Real estate rental revenue from same-store properties increased by $0.7 mil- lion in 2013 primarily due to higher rental rates ($1.5 million), partially offset by lower occupancy ($0.6 million) and higher rent abatements ($0.2 million). 45 Form 10-KReal estate expenses from same-store properties increased by $1.3 million in 2013 primarily due to higher real estate taxes ($0.5 million), repairs and mainte- nance expenses ($0.4 million) and bad debt expense ($0.2 million). OccUPANcy Same-store Non-same-store Total DEcEMBER 31, 2013 92.6% 85.4% 92.1% 2012 94.1% N/A 94.1% Same-store occupancy decreased to 92.6% in 2013 from 94.1% in 2012 due primarily to lower occupancy at Roosevelt Towers, the Kenmore and Bethesda Hill Apartments. 46 2013 AnnuAl RepoRt2012 compared to 2011 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 2012 compared to 2011. All amounts are in thousands except percentage amounts. yEAR ENDED DEcEMBER 31, 2012 2011 $ 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 Depreciation and amortization General and administrative expenses Real estate impairment Acquisition costs Interest expense Other income Loss on extinguishment of debt Discontinued operations(2): Income from properties sold or held for sale 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 $ 138 19,923 $20,061 $ 87 6,834 $ 6,921 $ 51 13,089 $13,140 0.1% 106.1% 8.5% 0.1% 95.6% 8.7% —% 112.6% 8.5% $216,095 38,699 $254,794 $ 72,560 13,985 $ 86,545 $143,535 24,714 $168,249 $168,249 (85,107) (15,488) — (234) (60,627) 975 — 10,816 5,124 — 23,708 — $ 23,708 $215,957 18,776 $234,733 $ 72,473 7,151 $ 79,624 $143,484 11,625 $155,109 $155,109 (74,403) (15,728) (14,526) (3,607) (61,402) 1,144 (976) 23,414 97,491 (1,138) 105,378 (494) $104,884 (1) Non-same-store properties include: 2012 Office acquisition—Fairgate at Ballston; 2011 Office acquisitions—1140 Connecticut Avenue, 1227 25th Street, Braddock Metro Center and John Marshall II; 2011 Retail acquisi- tion—Olney Village center. (2) Discontinued operations include gain on disposals and income from operations for: 2013 held for sale and sold—Atrium Building and Medical Office Portfolio; 2012 dispositions—Plumtree Medical Center and 1700 Research Boulevard; 2011 dispositions—Dulles Station, Phase I and the Industrial Portfolio. 47 Form 10-KReal estate rental revenue from same-store properties increased by $0.1 mil- lion in 2012 primarily due to higher rental rates ($3.2 million) and reimburse- ments for real estate taxes ($0.9 million), partially offset by lower occupancy ($3.0 million) and higher reserves for uncollectible revenue ($0.8 million). Office Segment: Real estate expenses from same-store properties increased by $0.1 million in 2012 primarily due to higher real estate taxes ($1.8 million) due to higher assessments across the portfolio, partially offset by lower utilities expenses ($1.1 million) caused by lower rates and usage and lower legal expenses ($0.5 million). OccUPANcy Same-store Non-same-store Total DEcEMBER 31, 2012 89.6% 84.5% 88.9% 2011 91.8% 92.3% 91.9% Same-store occupancy decreased to 89.6% in 2012 from 91.8% in 2011, with the largest decrease in the office segment. Non-same-store occupancy decreased to 84.5% in 2012 from 92.3% in 2011, driven by lower occupancy at Braddock Metro Center and Olney Village Center. During 2012, 58.3% of the commercial square footage expiring was renewed as compared to 58.5% in 2011, excluding properties sold or classified as held for sale. During 2012, we executed new leases (excluding properties classified as sold or held for sale) for 0.7 million commercial square feet at an average rental rate of $32.08 per square foot, an increase of 12.8%, with average tenant improvements and leas- ing commissions and incentives (including free rent) of $32.75 per square foot. An analysis of NOI by segment follows. 48 yEAR ENDED DEcEMBER 31, 2012 2011 $ cHANGE % cHANGE $113,892 $116,449 $ (2,557) (2.2)% 33,509 16,884 16,625 Real Estate Rental Revenue Same-store Non-same-store(1) 98.5% 10.6% 4.1% 92.6% 17.0% Total real estate rental revenue $147,401 $133,333 $14,068 Real Estate Expenses Same-store Non-same-store(1) $ 40,583 $ 38,991 $ 1,592 12,793 6,643 6,150 Total real estate expenses $ 53,376 $ 45,634 $ 7,742 NOI Same-store Non-same-store(1) Total NOI $ 73,309 $ 77,458 $ (4,149) (5.4)% 20,716 10,241 10,475 102.3% $ 94,025 $ 87,699 $ 6,326 7.2% (1) Non-same-store properties include: 2012 acquisition—Fairgate at Ballston; 2011 acquisitions—1140 connecticut Avenue, 1227 25th Street, Braddock Metro center and John Marshall II. Real estate rental revenue from same-store properties decreased by $2.6 mil- lion in 2012 primarily due to lower occupancy ($3.2 million), higher reserves for uncollectible revenue ($0.4 million) and higher rent abatements ($0.3 mil- lion), partially offset by higher rental rates ($1.0 million) and parking income ($0.4 million). Real estate expenses from same-store properties increased by $1.6 million in 2012 primarily due to higher real estate taxes ($1.2 million) and lower recover- ies of uncollectible receivables ($0.4 million). OccUPANcy Same-store Non-same-store Total DEcEMBER 31, 2012 85.9% 82.7% 85.2% 2011 89.4% 90.5% 89.6% 2013 AnnuAl RepoRtSame-store occupancy decreased to 85.9% in 2012 from 89.4% in 2011, primarily due to lower occupancy at 7900 Westpark Drive and 6110 Executive Boulevard. During 2012, 50.4% of the square footage that expired was renewed compared to 47.4% in 2011, excluding properties sold or classified as held for sale. During 2012, we executed new leases (excluding properties classified as sold or held for sale) for 0.5 million square feet of office space at an average rental rate of $35.50 per square foot, an increase of 13.9%, with average tenant improvements and leasing commissions and incentives (including free rent) of $42.41 per square foot. Real estate expenses from same-store properties decreased by $2.3 million in 2012 due to lower bad debt ($1.1 million), legal ($0.5 million) and snow removal ($0.3 million) expenses. OccUPANcy Same-store Non-same-store Total DEcEMBER 31, 2012 91.0% 94.0% 91.2% 2011 92.7% 100.0% 93.3% Retail Segment: Real Estate Rental Revenue Same-store Non-same-store(1) yEAR ENDED DEcEMBER 31, 2012 2011 $ cHANGE % cHANGE $49,316 $48,529 $ 787 1.6% 5,190 1,892 3,298 174.3% Total real estate rental revenue $54,506 $50,421 $ 4,085 8.1% Same-store occupancy decreased to 91.0% in 2012 from 92.7% in 2011, driven by lower occupancy at Concord Centre and Randolph Shopping Center, partially offset by higher occupancy at Frederick Crossing. Non-same-store occupancy decreased to 94.0% from 100.0% due to lower occupancy at Olney Village Center. During 2012, 75.7% of the square footage that expired was renewed compared to 87.8% in 2011. During 2012, we executed new leases for 0.2 million square feet of retail space at an average rental rate of $23.99, an increase of 8.9%, with average tenant improvements and leasing commissions and incentives (including free rent) of $9.71 per square foot. Total real estate expenses $12,702 $14,273 $ (1,571) (11.0)% $11,510 $13,765 $(2,255) (16.4)% 1,192 508 684 134.6% Multifamily Segment: $37,806 $34,764 $ 3,042 8.8% 3,998 1,384 2,614 188.9% Real Estate Rental Revenue $52,887 $50,979 $1,908 Real Estate Expenses 20,467 19,717 750 $41,804 $36,148 $ 5,656 15.6% NOI $32,420 $31,262 $1,158 3.7% 3.8% 3.7% yEAR ENDED DEcEMBER 31, 2012 2011 $ cHANGE % cHANGE Real Estate Expenses Same-store Non-same-store(1) NOI Same-store Non-same-store(1) Total NOI (1) Non-same-store properties include: 2011 acquisition—Olney Village center. Real estate rental revenue from same-store properties increased by $0.8 mil- lion in 2012 primarily due to higher occupancy ($0.6 million) and higher recov- eries from tenants ($0.5 million), partially offset by higher reserves for uncol- lectible revenue ($0.4 million). Real estate rental revenue increased by $1.9 million in 2012 primarily due to higher rental rates. Real estate expenses increased by $0.8 million in 2012 primarily due to higher real estate taxes. 49 Form 10-KOccupancy decreased to 94.1% in 2012 from 94.9% in 2011, driven by lower occupancy at 3801 Connecticut Avenue, Walker House Apartments and Munson Hill Towers, partially offset by higher occupancy at Bethesda Hill Apartments. will not be materially higher or lower than these expectations. As of February 26, 2014, we had cash and cash equivalents of approximately $80.2 million and availability under our unsecured credit facilities of $500.0 million. Liquidity and capital Resources capital Structure We manage our capital structure to reflect a long-term investment approach, gen- erally 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 addi- tional capital from diverse sources that could include additional equity offerings of common shares, public and private secured and unsecured debt financings, and 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. 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. We currently expect that our potential sources of liquidity for acquisitions, development, redevelopment, 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, to include construction loans; • Investment from joint venture partners; and • Net proceeds from the sale of assets. During 2014, we expect that we will have significant capital requirements, includ- ing the following items. There can be no assurance that our capital requirements • Funding dividends and distributions to our shareholders and unit holders (includ- ing any capital gain dividend requirement arising from our sale of the Medical Office Portfolio as described above under “Overview—Investment Activity.”); • Approximately $70.0–$75.0 million to invest in our existing portfolio of oper- ating assets, including approximately $38.0–$42.0 million to fund tenant-re- lated capital requirements and leasing commissions; • Approximately $50.0–$55.0 million to invest in our development and redevel- opment projects; and • Funding for potential property acquisitions throughout the remainder of 2014, 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 2014. 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 redevelopment 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 facilities, 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 50 2013 AnnuAl RepoRtfinancial instruments including interest rate swaps and caps, forward 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. In November 2013, we extinguished the remaining $1.9 million of principal on the mortgage note secured by Ashburn Farm III Office Park with extinguish- ment costs of $0.4 million. At December 31, 2013, and 2012, our debt was as follows (in thousands): In November 2013, we extinguished the remaining $19.3 million of principal on the mortgage note secured by Woodholme Medical Office Center with extin- guishment costs of $1.8 million. DEcEMBER 31, 2013 2012 Unsecured credit Facilities Mortgage notes payable Unsecured credit facilities Unsecured notes payable $ 294,671 $ 342,970 — 846,703 $1,141,374 — 906,190 $1,249,160 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, 2013, our $294.7 million in mortgage notes payable, which includes $2.5 million in net unamortized discounts due to fair value adjust- ments, bore an effective weighted average fair value interest rate of 6.1% and had a weighted average maturity of 3.5 years. We may either initiate secured mortgage debt or assume mortgage debt from time-to-time in conjunction with property acquisitions. In January 2013, we extinguished without penalty the remaining $30.0 million of principal on the mortgage note secured by West Gude Drive. In November 2013, we extinguished the remaining $2.2 million of principal on the mortgage note secured by Ashburn Farm Office Park with extinguishment costs of $0.5 million. Our primary source of liquidity is our two revolving credit facilities. We can bor- row up to $500.0 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, $100.0 million unsecured credit facility maturing in June 2015, and may be extended by one year at our option. We had no borrowings outstanding and no letters of credit issued as of December 31, 2013, related to Credit Facility No. 1. Borrowings under the facility bear interest at LIBOR plus a spread based on the credit rating on our publicly issued debt. The interest rate spread is currently 120 basis points. All outstanding advances are due and payable upon maturity in June 2015, and may be extended by one year at our option. 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 0.25% per annum of the $100.0 million committed capacity, without regard to usage. Rates and fees may be increased or decreased based on changes in our senior unsecured credit ratings. These fees are payable quarterly. Credit Facility No. 2 is a four-year $400.0 million unsecured credit facility maturing in July 2016, and may be extended for one year at our option. We had no borrowings outstanding and no letters of credit issued as of December 31, 2013, related to Credit Facility No. 2. Advances under this agreement bear interest at LIBOR plus a spread based on the credit rating of our publicly issued debt. The interest rate spread is currently 120 basis points. All out- standing advances are due and payable upon maturity in July 2016, and may be extended for one year at our option. 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 0.25% 51 Form 10-Kper annum of the $400.0 million committed capacity, without regard to usage. Rates and fees may be increased or decreased based on changes in our senior unsecured credit ratings. 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 quarterly EBITDA (earnings before interest, taxes, depre- ciation, amortization and extraordinary and nonrecurring gains and losses) to fixed charges, including interest expense; • A minimum ratio of unencumbered asset value, calculated using a 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 facil- ities 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, 2013, 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. 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 fluctuations 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 periods in the recent past, debt capital was essentially unavailable for extended periods of time. While debt markets have improved, it is difficult to predict if the improvement is sustainable. At December 31, 2013, our unsecured notes with maturities ranging from January 2014 through February 2028, were as follows (in thousands): 5.25% notes due 2014 5.35% notes due 2015 4.95% notes due 2020 3.95% notes due 2022 7.25% notes due 2028 Total principal Net unamortized discount Total $100,000 150,000 250,000 300,000 50,000 850,000 (3,297) $846,703 Our unsecured notes contain covenants with which we must comply, including: • 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. 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, 2013, we were in compliance with our unsecured notes covenants. 52 2013 AnnuAl RepoRtFrom time to time, we may seek to repurchase and cancel our outstanding notes through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market condi- tions, 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 66.5 million shares were outstanding at December 31, 2013. 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 June 2012. Sales of our common shares are made at market prices pre- vailing at the time of sale. We would use net proceeds from the sale of common shares under this program for general corporate purposes. As of December 31, 2013, we have not issued any common shares under this program. 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 purchased in the open market. We use the net proceeds under this program for general corporate purposes. We did not issue any shares under this program during 2013. During 2012, we issued 0.1 mil- lion common shares at a weighted average price of $29.67 per share, raising $1.3 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, 2013, no shares of preferred stock had been authorized or issued. of Trustees in its discretion. These factors include our results of operations, the availability of cash to make the necessary dividend payments and the effect of REIT distribution requirements, which require at least 90% of our taxable income to be distributed to shareholders. When setting the dividend level, our Board looks in particular at trends in our level of funds from operations, together with associated recurring capital improvements, tenant improvements, leasing commissions and incentives, and adjustments to straight-line rents to reflect cash rents received. Our dividend and distribution payments for the three years ended December 31, 2013, were as follows (in thousands): Common dividends Noncontrolling interest distributions yEAR ENDED DEcEMBER 31, 2013 2012 2011 $80,104 — $80,104 $97,734 — $97,734 $115,045 2,488 $117,533 Dividends paid during 2013 decreased from 2012 primarily due to a decrease in the quarterly dividend paid per share from $0.43375 to $0.30 during 2012. Dividends paid during 2012 decreased from 2011 primarily due to a decrease in the dividend paid per share offset by a small increase in shares outstanding due to our dividend reinvestment program. The decrease in noncontrolling interests distributions reflects the sale of Northern Virginia Industrial Park. capital commitments We will require capital for development and redevelopment projects currently underway and in the future. As of December 31, 2013, we had under devel- opment a mid-rise apartment property at 650 North Glebe Road in Arlington, Virginia and the renovation of our office building at 7900 Westpark Drive in McLean, Virginia. Dividends We currently pay dividends quarterly at a rate of $0.30 per share. The mainte- nance of our dividend level is subject to various factors reviewed by the Board Our total investment in 650 North Glebe Road is expected to be $49.9 mil- lion, including land costs and our partner’s 10% share. We have secured debt financing totaling $33.0 million. As of December 31, 2013, we had invested $27.3 million in 650 North Glebe Road including land costs and we expect to 53 Form 10-Kfund approximately $20.6 million in 2014 on this project. We currently expect to complete this development project during the fourth quarter of 2014. Our total investment in the renovation at 7900 Westpark Drive is expected to be $35.0 million. As of December 31, 2013, we had invested $3.6 million in the renovation at 7900 Westpark Drive and we expect to fund approximately $29.7 million in 2014 on this project. We currently expect to complete this development project during the first quarter of 2015. As of December 31, 2013, we had invested $20.8 million (including land costs) in a potential high-rise multifamily property at 1225 First Street in Alexandria, Virginia. We have a 95% interest in this project. In the first quarter 2013, we decided to delay commencement of construction due to market conditions and concerns of oversupply. We will reassess this project on a periodic basis going forward. There were no projects placed into service in the year ended December 31, 2013. As of December 31, 2013, we had no outstanding contractual commit- ments related to our development and redevelopment projects, and expect to fund approximately $51.4 million of total development/redevelopment spending during 2014. We anticipate funding several major renovation projects in our portfolios during 2014, as follows (in thousands): Office Retail Multifamily Total $14,487 2,564 8,491 $25,542 These projects include HVAC system upgrades, common area and unit reno- vations and hot water boilers at multifamily properties; HVAC upgrades, plaza waterproofing, lobby renovations and roof replacements at office properties; and façade renovations and roof repairs and replacements at retail properties. Not all of the anticipated spending had been committed via executed construction contracts at December 31, 2013. We expect to fund these projects 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. 54 contractual Obligations As of December 31, 2013, certain contractual obligations will require significant capital as follows (in thousands): PAyMENTS DUE By PERIOD TOTAL LESS THAN 1 yEAR 1–3 yEARS 4–5 yEARS AFTER 5 yEARS Long-term debt(1) $1,464,495 $159,567 $520,387 $95,360 $689,181 Purchase obligations(2) Tenant-related capital(3) Building capital(4) Operating leases 11,354 17,784 11,494 14,847 3,782 17,784 11,494 318 7,572 — — 814 — — — — — — 520 13,195 (1) See notes 4, 5 and 6 of our consolidated financial statements. Amounts include principal, interest, unused commitment fees and facility fees. (2) Represents electricity sales agreements with terms through 2016 and natural gas purchase agreements with terms through 2014. (3) committed tenant-related capital based on executed leases as of December 31, 2013. (4) committed building capital additions based on contracts in place as of December 31, 2013. We have various standing or renewable contracts with vendors. The majority of these contracts can be canceled with immaterial or no cancellation pen- alties, 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 leases that can be canceled 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 improve- ments which are not currently committed. We expect that total tenant-related capital improvements, including those already committed, will be approximately $34.2 million in 2014. Due to the competitive office leasing market we expect that tenant-related capital costs will continue at this level into 2015. 2013 AnnuAl RepoRtHistorical 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 signifi- cantly, we may have to reduce our dividend. Consolidated cash flows for the three years ended December 31, 2013 were as follows (in thousands): Cash provided by operating activities Cash provided by (used in) investing activities Cash used in financing activities yEAR ENDED DEcEMBER 31, VARIANcE 2013 $ 113,318 189,848 (191,928) 2012 $131,448 (88,796) (35,998) 2011 $ 117,626 61,098 (244,955) 2013 vs 2012 $ (18,130) 278,644 (155,930) 2012 vs 2011 $ 13,822 (149,894) 208,957 The decrease in cash provided by operating activities in 2013 was primarily due to the loss of income from properties sold as part of the Medical Office Portfolio and higher interest payments. The increase in cash provided by operating activi- ties in 2012 was primarily due to acquisitions made during 2011 and 2012. capital Improvements and Development costs Our capital improvement and development costs for the three years ended December 31, 2013 were as follows (in thousands): Net cash provided by investing activities increased in 2013 due to the closing on Purchase and Sale Agreements I and II of the Medical Office Portfolio, partially offset by higher development spending. Net cash used in investing activities increased in 2012 due to the sale of the Industrial Portfolio in 2011, partially offset by a higher volume of acquisition activity in 2011. The increase in cash used by financing activities in 2013 reflects the repay- ment of mortgage notes and our 5.125% unsecured notes. The decrease in cash used by financing activities in 2012 was primarily due the issuance of the 3.95% unsecured notes and the decrease of our quarterly dividend, partially offset by paying down the balances on our unsecured lines of credit. The increase in cash used by financing activities in 2011 reflects higher dividends and repayment of notes. yEAR ENDED DEcEMBER 31, 2013 2012 2011 Accretive capital improvements: Acquisition related $ 1,369 $ 3,718 $ 2,549 Expansions and major renovations Development/redevelopment Tenant improvements (including first generation leases) Total accretive capital improvements(1) Other capital improvements: 23,831 15,826 21,746 62,772 8,883 20,147 6,494 18,333 48,692 8,982 9,435 25,929 13,350 51,263 7,481 Total $71,655 $57,674 $58,744 (1) We consider capital improvements to be accretive to revenue and not necessarily to net income. Included in the capital improvement and development costs listed above are cap- italized interest in the amount of $1.2 million, $1.7 million and $0.7 million for the years ended December 31, 2013, 2012 and 2011, respectively, and capitalized employee compensation in the amount of $1.7 million, $1.5 million and $0.8 mil- lion for the years ended December 31, 2013, 2012 and 2011, respectively. 55 Form 10-KAccretive capital Improvements Acquisition Related Improvements: Acquisition related improvements are capital improvements to properties acquired during the preceding three years which were anticipated at the time we acquired the properties. These types of improvements were made in 2013 to Fairgate at Ballston, Braddock Metro Center, 1227 25th Street and 1140 Connecticut Avenue. Expansions and Major Renovations: Expansion projects increase the rentable area of a property, while major renovation projects are improvements suffi- cient to increase the income otherwise achievable at a property. Expansions and major renovations during 2013 included upgrades to heating/AC units and hallway renovations at The Kenmore; HVAC modifications, common area reno- vations and fitness center at 1600 Willson Boulevard; common area and lobby renovations at 6110 Executive Boulevard; façade renovations, elevator and HVAC upgrades at 2000 M Street; conference room, corridor and restroom ren- ovations at West Gude; HVAC modifications at 1140 Connecticut Avenue; and unit renovations at Roosevelt Towers, Country Club and The Ashby at McLean. Development/Redevelopment: Development costs represent expenditures for ground up development of new operating properties. Redevelopment costs represent expenditures for improvements intended to reposition properties in their markets and increase income that would be otherwise achievable. Development/Redevelopment costs in each of the years presented include costs associated with the ground up development of 1225 First Street and 650 North Glebe Road and redevelopment at 7900 Westpark Drive. We have tem- porarily suspended development at 1225 First Street. 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, during the three years ended December 31, 2013 were as follows: Office(1) Retail yEAR ENDED DEcEMBER 31, 2013 $29.90 $ 7.05 2012 $27.20 $ 7.85 2011 $13.00 $ 7.07 (1) Excludes properties sold or classified as held for sale. 56 The $2.70 increase in 2013 in tenant improvement costs per square foot of office space leased was primarily due to leases executed in 2013 requir- ing $5.9 million for tenant improvements at Braddock Metro Center for a new tenant. The $14.20 increase in 2012 in tenant improvement costs per square foot of office space leased was primarily due to leases executed in 2012 requiring $4.5 million in tenant improvements at 2000 M Street, Fairgate at Ballston and 1140 Connecticut Avenue. The $0.80 decrease in 2013 and the $0.78 increase in 2012 in tenant improve- ment costs per square foot of retail space leased was due to a lease executed with a single tenant requiring $0.9 million in tenant improvements in 2012 at Gateway Overlook. Tenant improvement costs for retail tenants are substantially lower than for office tenants because the improvements required for retail tenants tend to be substantially less extensive than for office tenants. Other capital Improvements Other capital improvements, also referred to as recurring capital improvements, are those not included in the above categories. Over time these costs will be recurring in nature to maintain a property’s income and value. In our multifam- ily properties, these include new appliances, flooring, cabinets and bathroom fixtures. These improvements, which are made as needed upon vacancy of an apartment, totaled $1.1 million in 2013, averaging $971 per apartment for the 43% of apartments turned over relative to our total portfolio of apartment units. In our commercial properties and residential properties (aside from improve- ments related to apartment turnover), 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, we incurred repair and maintenance expense of $12.3 million during 2013 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 2013 AnnuAl RepoRtin “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 pre- ceded 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 con- tained 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 mar- kets we may enter; (g) the effects of changes in Federal government spending; (h) the supply of competing properties; (i) consumer confidence; (j) unemployment rates; (k) consumer tastes and preferences; (l) our future capital requirements; (m) inflation; (n) compliance with applicable laws, including those concerning the environ- ment 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 biotech- nology 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(1) Debt service coverage yEAR ENDED DEcEMBER 31, 2013 0.98 2.7x 2012 1.10 2.7x 2011 0.75 2.7x (1) Due to WRIT’s losses from continuing operations during 2013 and 2011, the earnings to fixed charges ratio for each year was less than 1:1. WRIT must generate additional earnings of $1.4 million and $15.6 million in 2013 and 2011, respectively, 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 capi- talized interest. Fixed charges consist of interest expense, including amortized costs of debt issuance, and interest costs capitalized. 57 Form 10-KWe computed the debt service coverage ratio by dividing EBITDA (which is earnings before interest income and expense, taxes, depreciation, amortiza- tion, 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 mea- sure 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 activi- ties 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 depre- ciation 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 depre- ciation 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 ability 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. Our FFO and a reconciliation of FFO to net income for the three years ended December 31, 2013 were as follows (in thousands): Net income attributable to the controlling interests Adjustments: yEAR ENDED DEcEMBER 31, 2013 2012 2011 $ 37,346 $ 23,708 $104,884 Depreciation and amortization 85,740 85,107 74,403 Discontinued operations, net of amounts attributable to noncontrolling interests: Depreciation and amortization 12,161 18,827 26,125 Gain on sale of real estate Real estate impairment on depreciable real estate Income tax expense (benefit) (22,144) (5,124) (97,091) — — — — 599 1,138 FFO, as defined by NAREIT $113,103 $122,518 $110,058 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 work- ing 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. 58 2013 AnnuAl RepoRtThe 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, 2013. (In thousands) 2014 2015 2016 2017 2018 THEREAFTER TOTAL FAIR VALUE Unsecured fixed rate debt Principal Interest payments $100,000 $ 38,500 $150,000 $ 31,863 $ — $ 27,850 $ — $27,850 $ — $27,850 $600,000 $106,588 $850,000 $260,501 $856,171 Interest rate on debt maturities 5.34% 5.45% —% —% —% 4.73% 4.93% Mortgages Principal amortization(1) (30 year schedule) Interest payments(2) Weighted average interest rate $ 2,840 $ 16,805 $ 3,017 $ 16,626 $141,688 $ 12,058 $104,369 $ 3,163 $ 2,661 $ 2,513 $ 42,625 $ 2,305 $297,200 $ 53,470 $313,476 on principal amortization 5.26% 5.26% 5.55% 7.20% 5.07% 5.26% 6.08% (1) Excludes net discounts of $2.5 million at December 31, 2013. (2) Interest payments on our construction loan is based on LIBOR in effect on our borrowings outstanding at December 31, 2013. ITEM 8. Financial Statements and Supplementary Data The financial statements and supplementary data appearing on pages 71 to 111 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 peri- ods specified in the SEC’s rules and forms, and that such information is accu- mulated 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 decisions 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 con- trols 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 proce- dures as of December 31, 2013. Based on the foregoing, our Chief Executive Officer, Chief Financial Officer and Executive Vice President—Accounting and Administration (Principal Accounting Officer) 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. 59 Form 10-KSee the Reports of Independent Registered Public Accounting Firm in Item 8 of this Form 10-K. During the three months ended December 31, 2013, there was no change in our internal control over financial reporting that has materially affected, or is reason- ably likely to materially affect, our internal control over financial reporting. ITEM 9B. Other Information None. 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 2014 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 informa- tion 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 refer- ence to the Proxy Statement. ITEM 11. Executive compensation The information required by this Item is hereby incorporated herein by refer- ence 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. 60 2013 AnnuAl RepoRtEquity compensation Plan Information PLAN cATEGORy Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total 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) — 10,000(1) 10,000 (B) $ — $33.09 $33.09 (c) 1,048,410 — 1,048,410 (1) 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. 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 refer- ence to the Proxy Statement. ITEM 14. Principal Accountant Fees and Services The information required by this Item is hereby incorporated herein by refer- ence to the Proxy Statement. 61 Form 10-KPART 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 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Consolidated Balance Sheets as of December 31, 2013 and 2012 Consolidated Statements of Income for the Years Ended December 31, 2013, 2012 and 2011 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 and 2011 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2013, 2012 and 2011 Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 Notes to Consolidated Financial Statements 2. Financial Statement Schedules Schedule II—Valuation and Qualifying Accounts Schedule III—Consolidated Real Estate and Accumulated Depreciation All other schedules are omitted because they are either not required or the required information is shown in the financial statements or notes thereto. Page 68 69 70 71 72 73 74 75 76 107 108 3. Exhibits: EXHIBIT NUMBER EXHIBIT DEScRIPTION INcORPORATED By REFERENcE FORM FILE NUMBER EXHIBIT FILING DATE FILED HEREWITH 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 Articles of Amendment and Restatement, effective as of May 17, 2011 Amended and Restated Bylaws of Washington Real Estate Investment Trust, as adopted on May 17, 2011 Indenture dated as of August 1, 1996 between WRIT and The First National Bank of Chicago Form of 2028 Notes Officers’ Certificate Establishing Terms of the 2014 Notes, dated December 8, 2003 Form of 2014 Notes 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 DEF 14A 001-06622 8-K 001-06622 8-K 8-K 8-K 8-K 8-K 8-K 001-06622 001-06622 001-06622 001-06622 001-06622 001-06622 B 3.3 (c) 99.1 4(a) 4(b) 4.2 4.3 4/1/2011 5/23/2011 8/13/1996 2/25/1998 12/11/2003 12/11/2003 4/26/2005 4/26/2005 62 2013 AnnuAl RepoRt EXHIBIT NUMBER EXHIBIT DEScRIPTION 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 10.1* 10.2* 10.3* 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 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 borrower, the finan- cial 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 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 Amended and Restated Credit Agreement, dated as of May 17, 2012, by and among Washington Real Estate Investment Trust, as borrower, the financial institutions party thereto as lend- ers, 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 Amended and Restated Credit Agreement, dated as of June 25, 2012, by and among Washington Real Estate Investment Trust, as borrower, the financial insti- tutions party thereto as lenders, SunTrust Robinson Humphrey, Inc., as sole lead arranger and bookrunner, and SunTrust Bank, as administrative agent Form of 3.95% Senior Notes due October 15, 2022 Officers’ Certificate establishing the terms of 3.95% Notes due October 15, 2022 2001 Stock Option Plan Share Purchase Plan Supplemental Executive Retirement Plan INcORPORATED By REFERENcE FORM FILE NUMBER EXHIBIT FILING DATE 8-K 8-K 8-K 001-06622 001-06622 001-06622 4.1 4.2 4.1 10/6/2005 10/6/2005 7/5/2007 FILED HEREWITH 8-K 001-06622 4.1 7/6/2007 10-Q 001-06622 4 8/8/2008 10-Q 001-06622 4.0 8/8/2008 10-Q 001-06622 4.0 8/8/2008 8-K 8-K 8-K 001-06622 001-06622 001-06622 4.1 4.2 4.1 9/30/2010 9/30/2010 7/6/2011 10-K 8-K 001-06622 001-06622 4.21 4.1 2/27/2012 5/18/2012 8-K 001-06622 4.1 6/27/2012 8-K 8-K 001-06622 001-06622 DEF 14A 001-06622 10-Q 10-Q 001-06622 001-06622 4.1 4.2 A 10(j) 10(k) 9/17/2012 9/17/2012 3/29/2001 11/14/2002 11/14/2002 63 Form 10-KEXHIBIT NUMBER EXHIBIT DEScRIPTION 10.4* 10.5* 10.6* 10.7* 10.8* 10.9* 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 Officers dated January 1, 2007 Supplemental Executive Retirement Plan II dated May 23, 2007 10.10* Amended Long Term Incentive Plan, effective January 1, 2008 10.11* Form of Indemnification Agreement by and between WRIT and the indemnitee 10.12* Long Term Incentive Plan, effective January 1, 2009 10.13* Short Term Incentive Plan, effective January 1, 2009 10.14* Executive Stock Ownership Policy, adopted October 27, 2010 10.15* Amendment to Deferred Compensation Plan for Officers, adopted October 27, 2010 10.16* Long Term Incentive Plan, effective January 1, 2011 10.17* Short Term Incentive Plan, effective January 1, 2011 10.18* 10.19* 10.20* 10.21* 10.22* 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 James B. Cederdahl 10.23* Short Term Incentive Plan, effective January 1, 2012 10.24* 10.25 Separation Agreement and General Release between Michael S. Paukstitus and Washington Real Estate Investment Trust dated February 7, 2013 Sales Agency Financing Agreement, dated June 22, 2012 between WRIT and BNY Mellon Capital Markets, LLC 10.26* Amendment to Deferred Compensation Plan for Officers, adopted December 31, 2012 10.27* Amended and restated change in control agreement dated February 27, 2013 with George F. McKenzie INcORPORATED By REFERENcE FORM 10-K 10-K 10-K FILE NUMBER EXHIBIT FILING DATE 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 FILED HEREWITH 10-K 10-K 10-Q 8-K 10-K 10-K 8-K 8-K 10-Q 10-Q 10-K 001-06622 10(gg) 2/29/2008 001-06622 10(hh) 2/29/2008 001-06622 10(ii) 5/9/2008 001-06622 10(nn) 7/27/2009 001-06622 001-06622 001-06622 001-06622 001-06622 001-06622 001-06622 10.28 10.29 10.31 10.32 10.34 10.35 10.32 2/26/2010 2/26/2010 11/2/2010 11/2/2010 5/6/2011 5/6/2011 2/27/2012 10-K 001-06622 10.33 2/27/2012 10-K 001-06622 10.34 2/27/2012 10-K 001-06622 10.35 2/27/2012 10-K 001-06622 10.37 2/27/2012 10-Q 8-K 001-06622 10.38 5/7/2012 001-06622 10.1 2/13/2013 8-K 001-06622 1.1 6/22/2012 10-K 10-K 001-06622 001-06622 10.37 10.38 2/27/2013 2/27/2013 64 2013 AnnuAl RepoRtEXHIBIT NUMBER EXHIBIT DEScRIPTION 10.28* 10.29* 10.30* 10.31* 10.32* Amended and restated change in control agreement dated February 27, 2013 with William T. Camp Amended and restated change in control agreement dated February 27, 2013 with Laura M. Franklin Amended and restated change in control agreement dated February 25, 2013 with Thomas C. Morey Amended and restated change in control agreement dated February 26, 2013 with Thomas L. Regnell Amended and restated change in control agreement dated February 26, 2013 with James B. Cederdahl 10.33* Change in control agreement dated February 26, 2013 with Paul S. Weinschenk 10.34* Amendment to Deferred Compensation Plan for Officers, adopted February 13, 2013 10.35* Amendment to Deferred Compensation Plan for Directors, adopted February 13, 2013 10.36* Amendment to Short Term Incentive Plan, adopted as of January 22, 2013 10.37* 10.38 Separation Agreement and General Release between George F. McKenzie and Washington Real Estate Investment Trust dated July 23, 2013 Purchase and Sale Agreement, dated as of September 27, 2013, for 2440 M Street, Alexandria Professional Center, 8301 Arlington Boulevard, 6565 Arlington Boulevard, Ashburn Farm Office Park I, II and III, CentreMed I and II, Sterling Medical Office Building, 19500 at Riverside Office Park, Shady Grove Medical Village II, 9707 Medical Center Drive, 15001 and 15005 Shady Grove Road, Woodholme Center, and Woodholme Medical Office Building 10.39 Purchase and Sale Agreement, dated as of September 27, 2013, for 4661 Kenmore Avenue 10.40 10.41 Purchase and Sale Agreement, dated as of September 27, 2013, for Woodburn Medical Park I and II Purchase and Sale Agreement, dated as of September 27, 2013, for Prosperity Medical Center I, II and III 10.42* Amended and Restated Deferred Compensation Plan for Directors, effective October 22, 2013 10.43* Employment Agreement dated August 19, 2013 with Paul T. McDermott 10.44* Change in control agreement dated October 1, 2013 with Paul T. McDermott 10.45* Amendment to Deferred Compensation Plan for Officers, adopted February 18, 2014 10.46* Amendment to Deferred Compensation Plan for Directors as Amended and Restated, adopted February 18, 2014 12 21 Computation of Ratio of Earnings to Fixed Charges Subsidiaries of Registrant INcORPORATED By REFERENcE FORM 10-K FILE NUMBER EXHIBIT FILING DATE 001-06622 10.39 2/27/2013 FILED HEREWITH 10-K 001-06622 10.40 2/27/2013 10-K 001-06622 10.41 2/27/2013 10-K 001-06622 10.42 2/27/2013 10-K 001-06622 10.43 2/27/2013 10-K 10-Q 10-Q 10-Q 10-Q 001-06622 001-06622 001-06622 001-06622 001-06622 10.44 10.45 10.46 10.47 10.48 2/27/2013 5/9/2013 5/9/2013 5/9/2013 7/31/2013 8-K 001-06622 10.49 10/3/2013 8-K 8-K 001-06622 001-06622 10.50 10.51 10/3/2013 10/3/2013 8-K 001-06622 10.52 10/3/2013 10-Q 10-Q 001-06622 001-06622 10.53 10.54 11/1/2013 11/1/2013 X X X X X 65 Form 10-KEXHIBIT NUMBER EXHIBIT DEScRIPTION 23 24 31.1 31.2 31.3 32 101 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 (Principal Accounting Officer) and Chief Financial Officer pur- suant 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, 2013 formatted in eXtensible Business Reporting Language (“XBRL”): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) notes to these consolidated financial statements INcORPORATED By REFERENcE FORM FILE NUMBER EXHIBIT FILING DATE FILED HEREWITH 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. 66 2013 AnnuAl RepoRtSIGNATURES 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: March 3, 2014 WASHINGTON REAL ESTATE INVESTMENT TRUST By: /s/ Paul T. McDermott Paul T. McDermott 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 /s/ Charles T. Nason* Charles T. Nason /s/ Paul T. McDermott Paul T. McDermott /s/ William G. Byrnes* William G. Byrnes /s/ Edward S. Civera* Edward S. Civera /s/ John P. McDaniel* John P. McDaniel /s/ Thomas Edgie Russell, III* Thomas Edgie Russell, III /s/ Wendelin A. White* Wendelin A. White /s/ Anthony L. Winns* Anthony L. Winns /s/ William T. Camp William T. Camp /s/ Laura M. Franklin Laura M. Franklin *By: /s/ Laura M. Franklin through power of attorney Laura M. Franklin TITLE Chairman, Trustee President, Chief Executive Officer and Trustee Trustee Trustee Trustee Trustee Trustee Trustee Executive Vice President and Chief Financial Officer (Principal Financial Officer) DATE March 3, 2014 March 3, 2014 March 3, 2014 March 3, 2014 March 3, 2014 March 3, 2014 March 3, 2014 March 3, 2014 March 3, 2014 Executive Vice President Accounting, Administration and Corporate Secretary March 3, 2014 (Principal Accounting Officer) 67 Form 10-K MANAGEMENT’S REPORT ON INTERNAL cONTROL OVER FINANcIAL REPORTING Management of Washington Real Estate Investment Trust (“WRIT”) is respon- sible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal controls over financial reporting. WRIT’s internal control system over financial reporting is a process designed under the supervision of WRIT’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 limita- tions. 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 WRIT’s annual consolidated financial statements, management has undertaken an assessment of the effectiveness of WRIT’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission (the 1992 COSO Framework). Management’s assessment included an evaluation of the design of WRIT’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, 2013, WRIT’s internal control over financial reporting was effective at a reasonable assurance level regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Ernst & Young LLP, the independent registered public accounting firm that audited WRIT’s consolidated financial statements included in this report, have issued an unqualified opinion on the effectiveness of WRIT’s internal control over financial reporting, a copy of which appears on the next page of this annual report. 68 2013 AnnuAl RepoRtREPORT 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, 2013 and 2012, and the related consolidated statements of income, compre- hensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedules listed in the Index at Item 15(A). These financial statements and schedules are the responsibility of the Company’s manage- ment. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. 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, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. 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. 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, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated March 3, 2014 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP McLean, Virginia March 3, 2014 69 Form 10-KREPORT 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, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the COSO criteria). Washington Real Estate Investment Trust’s management is responsible 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 inter- nal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. 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 accounting 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 direc- tors of the company; and (3) provide reasonable assurance regarding preven- tion 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, projections 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 control over financial reporting as of December 31, 2013, 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 as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013 of Washington Real Estate Trust and Subsidiaries and our report dated March 3, 2014 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP McLean, Virginia March 3, 2014 70 2013 AnnuAl RepoRtcONSOLIDATED BALANcE SHEETS (in thousands, except per share data) Assets Land Income producing property Accumulated depreciation and amortization Net income producing property Properties under development or held for future 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 $6,783 and $10,443, 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 Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued or outstanding Shares of beneficial interest; $0.01 par value; 100,000 shares authorized: 66,531 and 66,437 shares issued and outstanding at December 31, 2013 and 2012, respectively Additional paid in capital Distributions in excess of net income Total shareholders’ equity Noncontrolling interests in subsidiaries Total equity Total liabilities and shareholders’ equity See accompanying notes to the consolidated financial statements. DEcEMBER 31, 2013 2012 $ 426,575 1,675,652 2,102,227 (565,342) 1,536,885 61,315 1,598,200 79,901 130,343 9,189 48,756 105,004 4,100 $ 418,008 1,587,375 2,005,383 (497,057) 1,508,326 45,270 1,553,596 364,999 19,105 13,423 46,904 107,303 19,046 $1,975,493 $2,124,376 $ 846,703 294,671 — 51,742 13,529 7,869 1,533 1,216,047 $ 906,190 319,025 — 50,094 12,925 7,642 32,357 1,328,233 — — 665 1,151,174 (396,880) 754,959 4,487 759,446 664 1,145,515 (354,122) 792,057 4,086 796,143 $1,975,493 $2,124,376 71 Form 10-KcONSOLIDATED STATEMENTS OF INcOME (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 Acquisition costs Real estate impairment General and administrative Real estate operating income Other income (expense) Interest expense Other income Loss on extinguishment of debt (Loss) income 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 (loss) income attributable to the controlling interests per share Continuing operations Discontinued operations, including gain on sale of real estate Net income attributable to the controlling interests per share Diluted net (loss) income attributable to the controlling interests per share Continuing operations Discontinued operations, including gain on sale of real estate Net income attributable to the controlling interests per share Weighted average shares outstanding—basic Weighted average shares outstanding—diluted See accompanying notes to the consolidated financial statements. 72 yEAR ENDED DEcEMBER 31, 2013 2012 2011 $263,024 $254,794 $234,733 16,311 29,052 12,261 10,155 8,255 13,469 3,790 85,740 1,265 — 17,535 197,833 65,191 (63,573) 926 (2,737) (65,384) (193) 15,395 22,144 — 37,346 — 37,346 $ — 0.55 $ 0.55 $ — 0.55 $ 0.55 66,580 66,580 15,781 27,064 11,339 9,248 8,503 12,358 2,252 85,107 234 — 15,488 187,374 67,420 (60,627) 975 — (59,652) 7,768 10,816 5,124 — 23,708 — 23,708 $ 0.11 0.24 $ 0.35 $ 0.11 0.24 $ 0.35 66,239 66,376 15,691 22,903 10,490 8,430 7,272 11,804 3,034 74,403 3,607 14,526 15,728 187,888 46,845 (61,402) 1,144 (976) (61,234) (14,389) 23,414 97,491 (1,138) 105,378 (494) 104,884 $ (0.22) 1.80 $ 1.58 $ (0.22) 1.80 $ 1.58 65,982 65,982 2013 AnnuAl RepoRtcONSOLIDATED STATEMENTS OF cOMPREHENSIVE INcOME (in thousands) Net income Other comprehensive income: Change in fair value of interest rate hedge Comprehensive income Less: Net income attributable to noncontrolling interests Comprehensive income attributable to the controlling interests See accompanying notes to the consolidated financial statements. 2013 $37,346 — 37,346 — $37,346 yEAR ENDED DEcEMBER 31, 2012 $23,708 — 23,708 — $23,708 2011 $105,378 1,469 106,847 (494) $106,353 73 Form 10-KcONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EqUITy (in thousands) Balance, December 31, 2010 Net income attributable to the controlling interests Net income attributable to noncontrolling interests Change in fair value of interest rate hedge Distributions to noncontrolling interests Contributions from noncontrolling interest Dividends Shares issued under Dividend Reinvestment Program Share options exercised Share grants, net of share grant amortization and forfeitures SHARES OF BENEFIcIAL INTEREST AT PAR VALUE ADDITIONAL PAID IN cAPITAL SHARES DISTRIBUTIONS IN EXcESS OF NET INcOME ATTRIBUT- ABLE TO THE cONTROLLING INTERESTS AccUMU- LATED OTHER cOMPREHEN- SIVE INcOME TOTAL SHARE- HOLDERS’ EqUITy NON- cONTROLLING INTERESTS IN SUBSIDIARIES TOTAL EqUITy 65,870 $659 $1,127,825 $(269,935) $(1,469) $857,080 $ 3,778 $860,858 — — — — — — 170 51 174 — — — — — — 2 1 — — — — — — — 5,041 1,291 4,321 104,884 — — — — (115,045) — — — — — 1,469 — — — — — — 104,884 — 1,469 — — (115,045) 5,043 1,292 4,321 — 494 — (2,488) 2,004 — — — — 104,884 494 1,469 (2,488) 2,004 (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 Net income attributable to the controlling interests Contributions from noncontrolling interest Dividends Shares issued under Dividend Reinvestment Program Share options exercised Share grants, net of share grant amortization and forfeitures — — — 55 45 72 — — — 1 — 1 — — — 1,315 1,153 4,569 23,708 — (97,734) — — — — — — — — — 23,708 — (97,734) 1,316 1,153 4,570 — 298 — — — — 23,708 298 (97,734) 1,316 1,153 4,570 Balance, December 31, 2012 66,437 $664 $1,145,515 $(354,122) $ — $792,057 $ 4,086 $796,143 Net income attributable to the controlling interests Contributions from noncontrolling interest Dividends Share grants, net of share grant amortization and forfeitures — — — 94 — — — 1 — — — 5,659 37,346 — (80,104) — — — — — 37,346 — (80,104) 5,660 — 401 — — 37,346 401 (80,104) 5,660 Balance, December 31, 2013 66,531 $665 $1,151,174 $(396,880) $ — $754,959 $ 4,487 $759,446 See accompanying notes to the consolidated financial statements. 74 2013 AnnuAl RepoRtcONSOLIDATED STATEMENTS OF cASH FLOWS (in thousands) Cash flows from operating activities Net income 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 Share-based compensation expense Amortization of debt premiums, discounts and related financing costs Loss on extinguishment of debt, net Changes in other assets Changes in other liabilities Net cash provided by operating activities Cash flows from investing activities Real estate acquisitions, net(1) Capital improvements to real estate Development in progress Net cash received from sale of real estate Real estate deposits, net Non-real estate capital improvements Net cash provided by (used in) investing activities Cash flows from financing activities Line of credit borrowings (repayments), net Dividends paid Net contributions from (distributions to) noncontrolling interests Proceeds from dividend reinvestment program Borrowing under construction loan Principal payments—mortgage notes payable, including penalties for early extinguishment Net proceeds from debt offering Payment of financing costs Notes payable repayments, including penalties for early extinguishment Net proceeds from exercise of share options Net cash 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 capitalized interest expense Cash paid for income taxes Increase in accrued capital improvements and development costs yEAR ENDED DEcEMBER 31, 2013 2012 2011 $ 37,346 $ 23,708 $ 105,378 (22,144) 97,901 3,772 — 6,246 4,158 2,737 (10,591) (6,107) 113,318 (48,200) (55,829) (15,826) 313,765 (3,900) (162) 189,848 — (80,104) 401 — 7,297 (58,679) — (843) (60,000) — (191,928) 111,238 19,105 $ 130,343 $ 62,744 $ 54 $ (328) (5,124) 103,934 3,847 2,097 5,856 3,867 — (8,458) 1,721 131,448 (52,142) (51,180) (6,494) 21,825 (250) (555) (88,796) (99,000) (97,734) 298 1,316 — (85,667) 298,314 (4,678) (50,000) 1,153 (35,998) 6,654 12,451 $ 19,105 $ 58,282 $ 84 $ (2,128) (97,491) 100,528 4,005 15,125 5,597 3,194 — (16,416) (2,294) 117,626 (281,701) (32,815) (25,929) 402,164 — (621) 61,098 (1,000) (115,045) (2,488) 5,043 — (32,331) — (3,905) (96,521) 1,292 (244,955) (66,231) 78,682 $ 12,451 $ 63,916 $ 725 $ (2,404) (1) 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 consolidated financial statements. 75 Form 10-KNOTES TO cONSOLIDATED FINANcIAL STATEMENTS For the years Ended December 31, 2013, 2012 and 2011 NOTE 1. Nature of Business Washington Real Estate Investment Trust (“WRIT”), a Maryland real estate investment trust, is a self-administered, self-managed equity real estate invest- ment 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 build- ings, 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 proper- ties, 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) treating 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, 2013, we sold the following properties (in thousands): 76 GAIN ON SALE $ 3,195 18,949 $22,144 $ 3,724 DISPOSITION DATE PROPERTy TyPE Office Atrium Building Medical Office Portfolio Transactions I & II(1) Medical Office/ Office March 19, 2013 November 2013 Total 2013 August 31, 2012 1700 Research Boulevard Office December 20, 2012 Plumtree Medical Center Medical Office 1,400 Total 2012 April 5, 2011 Dulles Station, Phase I Office $ 5,124 $ — October–November 2011 Industrial Portfolio(2) Office/Industrial 97,491 Total 2011 $97,491 (1) 2440 M Street, 15001 Shady Grove Road, 15005 Shady Grove Road, 19500 at Riverside Park (formerly Lansdowne Medical Office Building), 9707 Medical Center Drive, CentreMed I and II, 8301 Arlington Boulevard, Sterling Medical Office Building, Shady Grove Medical Village II, Alexandria Professional Center, Ashburn Farm Office Park I, Ashburn Farm Office Park II, Ashburn Farm Office Park III, Woodholme Medical Office Building, two office properties (6565 Arlington Boulevard and Woodholme Center) and undeveloped land at 4661 Kenmore Avenue. Subsequent to the end of 2013, we closed on Transaction III, consisting of Woodburn Medical Park I and II, and Transaction IV, consisting of Prosperity Medical center I, II and III (see note 17). (2) The Industrial Portfolio consists of every property in our industrial segment and two office properties (the crescent and Albemarle Point). We have identified a portion of the sold Medical Office Portfolio properties for tax deferred exchange under Section 1031 of the Internal Revenue Code. Section 1031 requires that we identify and close on the acquisition of replace- ment properties within limited time periods. We may not be able to identify and acquire appropriate replacement properties within the specified time periods. If we do not identify and acquire the replacement properties within the speci- fied time periods, we would expect to recognize a taxable gain with respect to the sale of the Medical Office Portfolio. The amount of this taxable gain would depend upon the timing and size of the replacement property acquisitions and also our other results of operations, and it could be a material amount. If we recognize this taxable gain, we could be required to pay a significant portion of it as a special capital gain dividend to our shareholders or alternatively be subject to income taxes on the taxable gain. 2013 AnnuAl RepoRtGenerally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed 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. As of December 31, 2013, our TRS’s had no net deferred tax assets and a net deferred tax liability of $0.6 million. As of December 31, 2012, our TRS’s had no net deferred tax assets and a net deferred tax liability of $0.6 million. These are primarily related to temporary differences in the timing of the recognition of revenue, amortization and depreciation. During 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 oper- ating loss carryforwards, we recognized $1.1 million in net federal and state income tax liabilities during 2011 in connection with the sale and operations of the entities. Also during 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). 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 allow- ance for the full amount of the deferred tax asset related to the impairment charge at Dulles Station, Phase II. NOTE 2. Summary of Significant Accounting Policies and Basis of Presentation Principles of consolidation and Basis of Presentation The accompanying audited consolidated financial statements include the consolidated accounts of WRIT, our majority-owned subsidiaries 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 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 consolidated financial state- ments pursuant to the rules and regulations of the Securities and Exchange Commission. In addition, in the opinion of management, all adjustments (con- sisting of normal recurring accruals) considered necessary for a fair presenta- tion of the results for the periods presented have been included. Use of Estimates in the Financial Statements The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a breakdown of the taxable percentage of our dividends for the years ended December 31, 2013, 2012 and 2011, (unaudited): Revenue Recognition Ordinary income Return of capital Qualified dividends Unrecaptured Section 1250 gain Capital gain 2013 62% 38% —% —% —% 2012 72% 26% —% 2% —% 2011 60% 17% 5% 13% 5% 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 receiv- able equal to the estimated uncollectible amounts. We base this estimate on our historical experience and a review of the current status of our receivables. 77 Form 10-KWe recognize percentage rents, which represent additional rents based on gross tenant 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. 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 accor- dance 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 management, collection of the receivable is doubtful. 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 receivable include amounts representing minimal rental income accrued on a straight-line basis to be paid by tenants over the remain- ing term of their respective leases. Our accounts receivable balances include $6.2 million and $6.9 million of notes receivable as of December 31, 2013 and 2012, respectively. Included in these balances is a note receivable we acquired with the 2445 M Street acquisition in 2008. Deferred Financing costs We capitalize and amortize external costs associated with the issuance or assumption of mortgages, notes payable and fees associated 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 estimated life of the related debt. We record the amortization of deferred financing costs as interest expense. Deferred Leasing costs 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. We record the amortization of deferred leasing costs as amortization expense. If an applicable lease termi- nates prior to the expiration of its initial lease term, we write off the carrying amount of the costs to amortization expense. 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. We record the amortization of deferred leasing incen- tives as a reduction of revenue. 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. Real Estate and Depreciation We depreciate buildings on a straight-line basis over estimated useful lives ranging from 28 to 50 years. We capitalize all capital improvements 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 esti- mated 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 supervise construction and will own the improvements. We depreciate all tenant improve- ments over the shorter of the useful life of the improvements or the term of the related tenant lease. Real estate depreciation expense from continuing oper- ations was $63.4 million, $61.1 million, $55.1 million during the years ended December 31, 2013, 2012, 2011, respectively. 78 2013 AnnuAl RepoRtWe 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. We amortize capitalized inter- est over the useful life of the related underlying assets upon those assets being placed into service. Interest expense from continuing operations and interest capi- talized to real estate assets related to development and major renovation activities for the three years ended December 31, 2013 were as follows (in thousands): Total interest expense from continuing operations Capitalized interest Interest expense, net of capitalized interest yEAR ENDED DEcEMBER 31, 2013 2012 2011 $64,809 1,236 $62,315 1,688 $62,140 738 $63,573 $60,627 $61,402 We recognize impairment losses on long-lived assets used in operations and held for sale, development assets or land held for future development, if indica- tors 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 impair- ment loss equivalent to an amount required to adjust the carrying amount to its estimated fair value, calculated in accordance with current GAAP fair value provisions (see note 3). We record acquired or assumed assets, including physical assets and in-place leases, and liabilities, based on their fair values. 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 acquired 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 improve- ments, 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 commissions”); (d) the above/at/below market cash flow of the leases, determined by comparing the projected cash flows of the leases in place, including consideration of renewal options, 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 “cus- tomer relationship value”). We have attributed no value to customer relation- ships as of December 31, 2013 and 2012. 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 leas- ing 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. 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 remain- ing term of the underlying leases. If any of the fair value of below market lease intangibles includes fair value associated with a renewal option, such amounts are not amortized until the renewal option is executed, else the related value is expensed at that time. 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. 79 Form 10-KBalances, net of accumulated depreciation or amortization, as appropriate, of the components of the fair value of in-place leases at December 31, 2013 and 2012 were as follows (in thousands): Tenant origination costs Leasing commissions/absorption costs Net lease intangible assets Net lease intangible liabilities Below-market ground lease intangible asset DEcEMBER 31, 2013 2012 GROSS cARRyING VALUE AccUMULATED AMORTIzATION $47,697 $29,653 78,629 12,495 26,348 12,080 48,376 7,008 19,403 1,145 NET $18,044 30,253 5,487 6,945 10,935 GROSS cARRyING VALUE AccUMULATED AMORTIzATION $48,172 $23,719 78,464 12,430 26,244 12,080 37,672 5,350 17,089 956 NET $24,453 40,792 7,080 9,155 11,124 Amortization of these combined components from continuing operations for the three years ended December 31, 2013 was as follows (in thousands): Amortization 2013 $17,290 2012 $19,573 2011 $13,704 yEAR ENDED DEcEMBER 31, Amortization of these combined components from continuing operations over the next five years is projected to be as follows (in thousands): 2014 2015 2016 2017 2018 $14,675 11,886 8,957 5,830 3,333 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 80 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 manage- ment believes it is probable that the sale will be completed within one year. Depreciation on these properties is discontinued at the time they are classi- fied as held for sale, but operating revenues, operating expenses and interest expense continue to be recognized until the date of sale. Revenues and expenses of properties that are either sold or classified as held for sale are presented as discontinued operations for all periods presented in the consolidated statements of income. Interest on debt that can be identified as specifically attributed to these properties is included in discontinued oper- ations. We do not have significant continuing involvement in the operations of any of our disposed properties. Segments We evaluate performance based upon operating income from the combined properties in each segment. Our reportable operating segments are consolida- tions of similar properties. GAAP requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assess- ing segments’ performance. Net operating income is a key measurement of 2013 AnnuAl RepoRtour segment profit and loss. Net operating income is defined as segment real estate rental revenue less segment real estate expenses. cash and cash Equivalents Cash and cash equivalents include cash and commercial paper with original maturities of 90 days or less. WRIT maintains cash deposits with financial institutions that at times exceeds applicable insurance limits. WRIT reduces this risk by maintaining such deposits with high quality financial institutions that management believe are credit-worthy. Restricted cash Restricted cash includes 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. 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 calculation 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. Stock Based compensation We currently maintain equity based compensation plans for trustees, officers and employees and previously 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 deter- mined 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. Accounting for Uncertainty in Income Taxes We can recognize a tax benefit only if it is “more likely than not” that a particu- lar 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 measured 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 2009 through 2013 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. 81 Form 10-KReclassifications Certain prior year amounts have been reclassified from continuing operations to discontinued operations to conform to the current year presentation (see note 3). In addition, we reclassified $0.3 million of real estate deposits from operating activities to investing activities in the consolidated statement of cash flows for the year ended December 31, 2012. NOTE 3. Real Estate continuing Operations As of December 31, 2013 and 2012, our real estate investment portfolio, at cost, consists of properties as follows (in thousands): As of December 31, 2013, no single property or tenant accounted for more than 10% of total assets or total real estate rental revenue. We had properties under development or held for development as of December 31, 2013. In the office segment, we had a redevelopment project to renovate 7900 Westpark Drive and land held for development at Dulles Station, Phase II. In the multifamily segment, we had land under development at 650 North Glebe Road and held for development at 1225 First Street. The cost of our real estate portfolio under development or held for development as of December 31, 2013 and 2012 is as follows (in thousands): DEcEMBER 31, 2013 $12,175 495 48,645 $61,315 2012 $ 8,922 587 35,761 $45,270 Office Retail Multifamily DEcEMBER 31, 2013 2012 $1,296,967 $1,261,534 415,899 389,361 411,948 331,901 $2,102,227 $2,005,383 Office Retail Multifamily 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 office, retail and multifamily. All segments are affected by external economic factors, such as inflation, consumer confidence, unemploy- ment rates, etc. as well as changing tenant and consumer requirements. 82 2013 AnnuAl RepoRtAcquisitions 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 seek to upgrade our portfolio with acquisitions as opportunities arise. Properties and land for development acquired during the years ending December 31, 2013, 2012 and 2011 were as follows: AcqUISITION DATE October 1, 2013 Total 2013 June 21, 2012 Total 2012 January 11, 2011 March 30, 2011 June 15, 2011 August 30, 2011 September 13, 2011 September 15, 2011 November 23, 2011 Total 2011 PROPERTy The Paramount (135 units) Fairgate at Ballston 1140 Connecticut Avenue 1227 25th Street 650 North Glebe Road(1) Olney Village Center Braddock Metro Center John Marshall II 1225 First Street(1) TyPE Multifamily Office Office Office Mutifamily Retail Office Office Mutifamily RENTABLE SqUARE FEET (unaudited) cONTRAcT PURcHASE PRIcE (In thousands) N/A 142,000 142,000 188,000 132,000 N/A 198,000 351,000 223,000 N/A $ 48,200 $ 48,200 $ 52,250 $ 52,250 $ 80,250 47,000 11,800 58,000 101,000 73,500 13,850 1,092,000 $385,400 (1) Land for development. 650 North Glebe Road is currently under development and development has been suspended at 1225 First Street. The results of operations from acquired operating properties are included in the consolidated statements of income as of their acquisition dates. The revenue and earnings of our acquisitions during their year of acquisition for the three years ended December 31, 2013 are as follows (in thousands): As discussed in note 2, we record the acquired physical assets (land, build- ing 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. Real estate rental revenue Net (loss) income yEAR ENDED DEcEMBER 31, 2013 $ 907 (105) 2012 $3,358 325 2011 $20,944 484 83 Form 10-KWe have recorded the total purchase price of the above acquisitions as follows (in thousands): Land Buildings Tenant origination costs Leasing commissions/absorption costs Net lease intangible assets Net lease intangible liabilities Fair value of assumed mortgage Furniture, fixtures & equipment 2013 2012 2011 $ 8,568 $17,750 $ 90,896 37,930 26,893 219,613 32 943 102 (117) — 742 3,100 4,172 508 (173) — — 15,667 29,719 6,805 (2,454) (78,500) — Total $48,200 $52,250 $281,746 The weighted remaining average life for the 2013 acquisition components above, other than land and building, are 110 months for tenant origination costs, 22 months for leasing commissions/absorption costs, 81 months for net lease intangible assets and 88 months for net lease intangible liabilities. The difference in the contract purchase price of $52.3 million for the 2012 acquisition and the cash paid for the acquisition per the consolidated state- ments of cash flows of $52.1 million is primarily related to credits received at settlement totaling $0.1 million. The difference in the total contract price of $385.4 million for the 2011 acqui- sitions 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 1225 First Street for $13.9 million included in development, and credits received at settlement totaling $1.3 million. Noncontrolling Interests in Subsidiaries 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 com- pany operating partnership units at the date of purchase. In November 2013, 4661 Kenmore Avenue was sold as part of the Medical Office Portfolio (see “Discontinued Operations”). Variable Interest Entities In June 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 $49.9 million, and we secured third-party debt financing totaling $33.0 million (see note 4). 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 and construction of the property. The joint venture currently expects to complete this development project during the fourth quarter of 2014. In November 2011, we executed a joint venture operating agreement with a real estate development company to develop a high-rise multifamily property at 1225 First Street (formerly 1219 First Street) in Alexandria, Virginia. We esti- mate the total cost of the project to be $95.3 million, with approximately 70% of the project financed with debt. WRIT is the 95% owner of the joint venture and will have management 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 and construction of the property. In the first quarter of 2013, we decided to delay commencement of construction due to market conditions and concerns of oversupply. We con- tinue to reassess this project on a periodic basis going forward. We have determined that the 650 North Glebe Road and 1225 First Street joint ventures are 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 determined that WRIT is the primary ben- eficiary of each VIE due to the fact that WRIT is providing 90% to 95% of the equity contributions and will manage each property after stabilization. 84 2013 AnnuAl RepoRtWe include the joint venture land acquisitions and related capitalized develop- ment costs on our consolidated balance sheets in properties under develop- ment or held for development, consistent with other development activity. As of December 31, 2013 and 2012, the land and capitalized development costs were as follows (in thousands): 650 North Glebe Road 1225 First Street DEcEMBER 31, 2013 $27,343 20,788 2012 $15,646 19,807 In September 2013, we entered into four separate purchase and sale agree- ments to effectuate the sale of our entire medical office segment (including land held for development at 4661 Kenmore Avenue) and two office buildings (Woodholme Center and 6565 Arlington Boulevard) for an aggregate pur- chase price of $500.8 million. The sale was structured as four transactions. Transactions I & II closed in November 2013. In January 2014, we closed on the remaining two transactions. The impact of the sale on our medical office segment on revenues and net income is summarized as follows (in thousands, except per share data): As of December 31, 2013 and 2012, the accounts payable and accrued liabili- ties related to the joint ventures were as follows (in thousands): Real estate revenues DEcEMBER 31, Net income 2013 $1,785 39 2012 $ 115 1,676 Basic net income per share Diluted net income per share 650 North Glebe Road 1225 First Street Discontinued Operations 2013 $41,012 14,044 0.21 0.21 DEcEMBER 31, 2012 $44,674 8,128 0.12 0.12 2011 $44,431 10,393 0.16 0.16 We dispose of assets 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 devel- opment operations or to support other corporate needs, or distributed to our shareholders. Properties are considered held for sale when they meet speci- fied criteria (see “Discontinued Operations” in note 2). Depreciation on these properties is discontinued at that time, but operating revenues, other operating expenses and interest continue to be recognized until the date of sale. During 2011, we sold our industrial segment, the impact of the disposal on revenues and net income for the three years ended December 31, 2013 were as follows (in thousands, except per share data): Real estate revenues Net income Basic net income per share Diluted net income per share yEAR ENDED DEcEMBER 31, 2013 $— — — — 2012 $— — — — 2011 $23,045 16,484 0.23 0.23 85 Form 10-K We sold or classified as held for sale the following properties during the three years ended December 31, 2013: PROPERTy Atrium Building TyPE Office Medical Office Portfolio Transactions I & II Medical Office/Office Medical Office Portfolio Transactions III & IV Medical Office Total 2013 1700 Research Boulevard Plumtree Medical Center Total 2012 Industrial Portfolio Dulles Station, Phase I Total 2011 Office Medical Office Industrial/Office Office RENTABLE SqUARE FEET (unaudited) cONTRAcT SALES PRIcE (in thousands) GAIN ON SALE (in thousands) 79,000 1,093,000 427,000 1,599,000 101,000 33,000 134,000 3,092,000 180,000 3,272,000 $ 15,750 307,189 193,561 $516,500 $ 14,250 8,750 $ 23,000 $350,900 58,800 $409,700 $ 3,195 18,949 N/A $22,144 $3,724 1,400 $ 5,124 $97,491 — $97,491 As of December 31, 2013 and 2012, investment in real estate for properties sold or held for sale were as follows (in thousands): Income from operations of properties sold or held for sale for the three years ended December 31, 2013 was as follows (in thousands): DEcEMBER 31, 2013 2012 DEcEMBER 31, 2013 2012 2011 $ — $ 71,605 Revenues $ 45,791 $ 54,344 $ 80,948 125,967 406,874 Property expenses $125,967 $ 478,479 Real estate impairment (17,039) — (12,161) (1,196) (18,273) (2,097) (18,827) (4,331) (25,265) (599) (26,125) (5,545) $ 15,395 $ 10,816 $ 23,414 Office Medical office Total Less accumulated depreciation (46,066) (113,480) Depreciation and amortization Investment in real estate sold or held for sale, net $ 79,901 $ 364,999 Interest expense As of December 31, 2013 and 2012, liabilities related to properties sold or held for sale were as follows (in thousands): Mortgage notes payable Other liabilities 2013 $ — 1,533 Liabilities related to properties sold or held for sale $1,533 2012 $23,945 8,412 $32,357 DEcEMBER 31, 86 2013 AnnuAl RepoRtIncome from operations of properties sold or held for sale by property for the three years ended December 31, 2013 was as follows (in thousands): PROPERTy Dulles Station, Phase I Industrial Portfolio 1700 Research Boulevard Plumtree Medical Center Atrium Building Medical Office Portfolio Real Estate Impairment SEGMENT Office Industrial/Office Office Medical Office Office Medical/Office 2013 $ — — — — 185 15,210 $15,395 yEAR ENDING DEcEMBER 31, 2012 $ — — 225 197 1,063 9,331 $10,816 2011 $ (468) 10,621 651 67 1,052 11,491 $23,414 During the fourth quarter of 2012, we determined that the development of a medical office building at 4661 Kenmore Avenue in Alexandria, Virginia was no longer probable due to a change in corporate strategy. Due to this deter- mination, we recognized in discontinued operations an impairment charge of $2.1 million during the fourth quarter of 2012 in order to reduce the carry- ing value of the land at 4661 Kenmore Avenue to its estimated fair value of $3.8 million. 4661 Kenmore Avenue was sold during 2013. 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 submar- ket, such as the increased uncertainty surrounding the timing of the comple- tion 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 devel- opment of the land at Dulles Station, Phase II was not probable under those market conditions. Due to this determination, we recognized in continuing operations 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. In addition, we recognized in discontinued operations an impairment charge of $0.6 million at Dulles Station, Phase I, which was sold during 2011. We used a combination of internal models and third-party valuation esti- mates to determine the fair values of 4661 Kenmore Avenue and Dulles Station, Phase II. These fair valuations incorporated both market and income approaches, including recent comparable land sales and return on cost of development metrics. The valuations are inherently subjective because there are few observable market transactions for similar land, and therefore we, through discussions with market participants, made certain significant assump- tions with respect to appropriate comparable transactions to consider, cash flow estimates and discount rates. Our estimate of the fair value of the land was further corroborated by an independent third-party valuation specialist. These fair valuations fall into Level 3 in the fair value hierarchy due to its reliance on significant unobservable inputs. 87 Form 10-KNOTE 4. Mortgage Notes Payable As of December 31, 2013 and 2012, we had outstanding mortgage notes payable, each collateralized by one or more buildings and related land from our portfolio, as follows (in thousands): PROPERTIES 650 North Glebe Road(3,4) John Marshall II Olney Village Center Kenmore Apartments 2445 M Street(4) 3801 Connecticut Avenue, Walker House and Bethesda Hill(5) Ashburn Farm Office Park(6) Ashburn Farm III Office Park(7) Woodholme Medical Office Center(8) West Gude Drive(9) ASSUMPTION/ ISSUANcE DATE(1) EFFEcTIVE INTEREST RATE(2) 2/21/2013 9/15/2011 8/30/2011 2/2/2009 12/2/2008 5/29/2008 6/1/2007 6/1/2007 6/1/2007 8/25/2006 2.31% 5.79% 4.94% 5.37% 7.25% 5.71% 5.56% 5.69% 5.29% 5.86% DEcEMBER 31, 2013 $ 7,297 $ 52,563 20,743 34,937 98,102 81,029 — — — — 2012 $ — $ 53,274 22,343 35,535 96,848 81,029 2,313 2,024 19,608 29,996 $294,671 $342,970 PAyOFF DATE/ MATURITy DATE 2/21/2016 5/5/2016 10/1/2023 3/1/2019 1/6/2017 6/1/2016 11/21/2013 11/21/2013 11/22/2013 1/11/2013 (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, Kenmore Apartments, and the construction loan secured by the development project at 650 North Glebe Road, 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) Interest rate on 650 North Glebe Road is variable, based on LIBOR plus 2.15%. The maturity date can be extended for up to two years, subject to fees and compliance with certain provisions in the loan agreement, until February 20, 2018. Interest only is payable monthly until the maturity date upon which all unpaid principal and interest are payable in full. 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. In November 2013, we extinguished the remaining $2.2 million of principal on the mortgage note secured by Ashburn Farm Office Park with extinguishment costs of $0.5 million. In November 2013, we extinguished the remaining $1.9 million of principal on the mortgage note secured by Ashburn Farm III Office Park, with extinguishment costs of $0.4 million. In November 2013, we extinguished the remaining $19.3 million of principal on the mortgage note secured by Woodholme Medical Office Center, with extinguishment costs of $1.8 million. In January 2013, we extinguished without penalty the remaining $30.0 million of principal on the mortgage note secured by West Gude Drive. (4) (5) (6) (7) (8) (9) The mortgage notes secured by Ashburn Farm Office Park I and II and Woodholme Medical Office Building are included in “Other liabilities related to properties sold or held for sale” on our consolidated balance sheets as of December 31, 2012, as the properties were sold in 2013. 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 $433.7 million and $510.0 million at December 31, 2013 and 2012, respectively. 88 2013 AnnuAl RepoRtScheduled principal payments subsequent to December 31, 2013 are as fol- lows (in thousands): We executed borrowings and repayments on the unsecured lines of credit during 2013 as follows (in thousands): 2014 2015 2016 2017 2018 Thereafter Net discounts/premiums Total $ 2,840 3,017 141,688 104,369 2,661 42,625 297,200 (2,529) $294,671 NOTE 5. Unsecured Lines of credit Payable As of December 31, 2013, we maintained a $100.0 million unsecured line of credit maturing in June 2015 (“Credit Facility No. 1”) and a $400.0 million unse- cured line of credit maturing in July 2016 (“Credit Facility No. 2”). Credit Facility No. 1 and No. 2 have accordion features that allow us to increase the facilities to $200.0 million and $600.0 million, respectively, subject to additional lender commitments. The amounts of these lines of credit unused and available at December 31, 2013 were as follows (in thousands): Committed capacity Borrowings outstanding Letters of credit issued Unused and available cREDIT FAcILITy NO. 1 cREDIT FAcILITy NO. 2 $100,000 $400,000 — — — — $100,000 $400,000 cREDIT FAcILITy NO. 1 cREDIT FAcILITy NO. 2 Balance at December 31, 2012 Borrowings Repayments Balance at December 31, 2013 $ — 100,000 (100,000) $ — $ — 60,000 (60,000) $ — We made borrowings to pay off the West Gude mortgage note and our 5.125% unsecured notes, fund the acquisition of The Paramount and for general cor- porate purposes. We made repayments during the year ended December 31, 2013 using proceeds from the sale of The Atrium Building, the sale of the Medical Office Portfolio transactions I & II, and cash from operations. Borrowings under Credit Facility No. 1 and No. 2 bear interest at LIBOR plus a spread based on the credit rating on our publicly issued debt. The interest rate spread is 120 basis points for each facility. All outstanding advances for Credit Facility No. 1 and No. 2 are due and pay- able upon maturity in June 2015 and July 2016, respectively. Credit Facility No. 1 and 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 three years ended December 31, 2013, we recognized interest expense (excluding facility fees) as follows (in thousands): Credit Facility No. 1 Credit Facility No. 2 yEAR ENDED DEcEMBER 31, 2013 $281 586 2012 $470 783 2011 $ 355 2,735 89 Form 10-KIn addition, we pay a facility fee based on the credit rating of our publicly issued debt which as of December 31, 2013 equals 0.25% per annum of the commit- ted capacity of each facility, without regard to usage. Rates and fees may be adjusted up or down based on changes in our senior unsecured credit ratings. For the three years ended December 31, 2013, we incurred facility fees as follows (in thousands): Credit Facility No. 1 Credit Facility No. 2 yEAR ENDED DEcEMBER 31, 2013 $ 253 1,014 2012 $175 887 2011 $114 658 Credit Facility No. 1 and No. 2 contain certain financial and non-financial cov- enants, all of which we have met as of December 31, 2013 and 2012. 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 for the three years ended December 31, 2013 as follows (in thousands, except percentage amounts): yEAR ENDED DEcEMBER 31, 2013 2012 2011 NOTE 6. Notes Payable Our unsecured notes outstanding as of December 31, 2013 were as follows (in thousands): 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 cOUPON/ STATED RATE EFFEcTIVE RATE(1) PRINcIPAL AMOUNT MATURITy DATE(2) 5.25% 5.35% 5.35% 4.95% 3.95% 7.25% 5.339% $100,000 1/15/2014 5.359% 5.490% 5.053% 4.018% 7.360% 50,000 5/1/2015 100,000 5/1/2015 250,000 10/1/2020 300,000 10/15/2022 50,000 2/25/2028 850,000 (3,297) $846,703 (1) yield on issuance date, including the effects of discounts on the notes. (2) No principal amounts are due prior to maturity. We extinguished the remaining $60.0 million of our 5.125% unsecured notes on their due date of March 15, 2013, using borrowings on our unsecured line of credit. Total revolving credit facilities at December 31 $500,000 $500,000 $475,000 After December 31, 2013, we extinguished the remaining $100.0 million of our 5.25% unsecured notes on its maturity date. The required principal payments excluding the effects of note discounts or pre- mium for the remaining years subsequent to December 31, 2013 are as follows (in thousands): Borrowings outstanding at December 31 Weighted average daily borrowings — — 99,000 during the year 61,548 108,589 160,090 Maximum daily borrowings during the year 135,000 242,000 281,000 Weighted average interest rate during the year 1.41% 1.15% 1.90% 2014 2015 2016 2017 2018 N/A N/A 0.90% Thereafter Weighted average interest rate on borrowings outstanding at December 31 90 $100,000 150,000 — — — 600,000 $850,000 2013 AnnuAl RepoRtInterest on these notes is payable semi-annually. These notes contain cer- tain financial and non-financial covenants, all of which we have met as of December 31, 2013. Included in these covenants is the requirement to maintain a minimum level of unencumbered assets, as well as limits on our total indebt- edness, 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 sim- ilar 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 certi- fied 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 aggre- gate 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. WRIT’s Compensation Committee conducted an extensive review of our exec- utive compensation philosophy and a fundamental redesign of our short-term and long-term incentive plans for our officers, resulting in new short-term incen- tive (“STIP”) and new long-term incentive (“LTIP”) plans, which were approved by the Compensation Committee and Board of Trustees on February 17, 2011 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. Short-Term Incentive Plan Under the STIP, officers earn awards, payable 50% in cash and 50% in restricted shares, based on a percentage of salary and the achievement of var- ious 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 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 perfor- mance 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. 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 employees. 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. 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 conditions expected to be awarded under the 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, according to a graded vesting schedule over a four- year period commencing with the date the performance targets were estab- lished. Approximately 20% of the restricted shares subject to performance 91 Form 10-Kconditions 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. Long-Term Incentive Plan Under the LTIP, officers earn awards, payable 50% in unrestricted shares and 50% in restricted shares, based on a percentage of salary and the achieve- ment of 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). LTIP performance is evaluated based 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 discretion at the end of the three-year performance period. The unrestricted shares vest immediately at the end of the three-year perfor- mance period, and the restricted shares vest over a one year period commenc- ing on the January 1 following the end of the three-year performance period. With respect to the 40% of the LTIP subject to market conditions, we recog- nize 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 LTIP, we recognized compen- sation expense for the 50% unrestricted shares on December 31, 2013 as the grant date 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. 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 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 share- holder 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 LTIP subject 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 perfor- mance period. We based the expected term on the market condition perfor- mance period. The officers’ total award opportunity under the 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 LTIP subject to market conditions. Non-officer employees earn restricted share awards under the LTIP based upon various percentages of their salaries and annual performance calcula- tions. 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 January 1, 2011 adoption of the STIP and the 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 vested consistent with the periods in which they otherwise would 92 2013 AnnuAl RepoRthave 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. Prior LTIP Other non-officer members of management earned restricted share units under the prior LTIP (before January 1, 2011) based on one-year performance targets 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 award share based compensation to our trustees 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, 2013, 2012 and 2011. Total compensation Expense Total compensation expense recognized in the consolidated financial state- ments for the three years ended December 31, 2013 for all share based awards, was as follows (in thousands): yEAR ENDED DEcEMBER 31, 2013 2012 2011 Stock-based compensation expense $6,246 $5,856 $5,597 WRIT’s prior chief executive officer (“Prior CEO”) retired as of December 31, 2013. Under the terms of his separation agreement, all of the Prior CEO’s unvested restricted shares and restricted share units under the STIP, LTIP, Prior LTIP and deferred compensation plans vested on December 31, 2013. The impact of this modification of the Prior CEO’s awards was $1.0 million for the year ended December 31, 2013. 93 Form 10-KRestricted Share Awards The activity for the three years ended December 31, 2013 related to our restricted share awards, excluding those subject to market conditions, was as follows: Vested at January 1 Unvested at January 1 Granted Vested during year Forfeited Unvested at December 31 Vested at December 31 yEAR ENDED DEcEMBER 31, 2013 2012 2011 SHARES 864,288 149,803 141,609 (158,657) (2,940) 129,815 1,022,945 WTD AVG GRANT FAIR VALUE $29.65 27.37 26.30 26.66 27.80 27.06 29.19 SHARES 652,803 331,003 36,884 (211,485) (6,599) 149,803 864,288 WTD AVG GRANT FAIR VALUE $30.06 28.39 26.40 28.39 27.61 27.37 29.65 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 The total fair value of share grants vested for the years ended December 31, 2013, 2012 and 2011 was $3.8 million, $5.6 million and $4.9 million, respectively. The unamortized value of these awards with market conditions as of December 31, 2013 and 2012 was as follows (in thousands): As of December 31, 2013, the total compensation cost related to non-vested share awards not yet recognized was $1.8 million, which we expect to recog- nize over a weighted average period of 21 months. Restricted and Unrestricted Shares with Market conditions Stock based awards with market conditions under the LTIP were granted in February 2011 with fair market values, as determined using a Monte Carlo simulation, as follows (in thousands): Relative TSR Absolute TSR Options DEcEMBER 31, 2013 2012 RESTRIcTED UNRESTRIcTED RESTRIcTED UNRESTRIcTED $162 55 $— — $501 172 $338 116 Relative TSR Absolute TSR GRANT DATE FAIR VALUE RESTRIcTED UNRESTRIcTED $1,066 365 $1,066 365 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 following the date of grant. Options granted to trustees were granted with exer- cise 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 ASC 718, and we have recognized no compensation cost for stock options. 94 2013 AnnuAl RepoRtThe previously issued and currently outstanding and exercisable stock options for the three years ended December 31, 2013 was as follows: Outstanding at January 1 Granted Exercised Expired/Forfeited Outstanding at December 31 Exercisable at December 31 2013 2012 2011 yEAR ENDED DEcEMBER 31, SHARES 38,119 — — (28,119) 10,000 10,000 WTD AVG EX PRIcE $30.48 — — 29.55 33.09 33.09 SHARES 89,106 — (44,987) (6,000) 38,119 38,119 WTD AVG EX PRIcE $27.69 — 25.61 25.61 30.48 30.48 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 The options outstanding at December 31, 2013 are all exercisable, have an exercise price of $33.09 and have a remaining contractual life of 1.0 years. The outstanding exercisable options at December 31, 2013 had no aggregate intrin- sic value. The aggregate intrinsic value of options exercised was $0.1 million and $0.3 million in the years ended December 31, 2012 and 2011, respectively. There were no options forfeited in the years ended December 31, 2013, 2012 and 2011. 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 dis- cretionary contributions on behalf of eligible employees. For the three years ended December 31, 2013, we made contributions to the 401(k) plan as follows (in thousands): 401(k) plan contributions yEAR ENDED DEcEMBER 31, 2013 $428 2012 $467 2011 $529 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. The deferred compensation liability at December 31, 2013 and 2012 was as follows (in thousands): Deferred compensation liability DEcEMBER 31, 2013 $1,437 2012 $1,314 We established a Supplemental Executive Retirement Plan (“SERP”) effective July 1, 2002 for the benefit of a former CEO. Under this plan, upon the former CEO’s termination of employment from WRIT for any reason other than death, permanent and total disability, 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 ASC 715-30, whereby we accrued benefit cost in an amount that resulted in an accrued balance at the end of the former CEO’s employment in June 2007 which was not less than the present 95 Form 10-Kvalue of the estimated benefit payments to be made. At December 31, 2013 and 2012, the accrued benefit liability was $1.3 million and $1.4 million, respec- tively. For the three years ended December 31, 2013, we recognized current service cost as follows (in thousands): respectively. For the three years ended December 31, 2013, we recognized current service cost as follows (in thousands): yEAR ENDED DEcEMBER 31, 2013 $325 2012 $342 2011 $334 Former CEO SERP current service cost yEAR ENDED DEcEMBER 31, 2013 $99 2012 $106 2011 $113 Officer SERP current service cost NOTE 9. Fair Value Disclosures We currently have an investment in corporate owned life insurance intended to meet the SERP benefit liability since the former 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 former 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 ASC 710-10 and ASC 320-10, whereby the investments are reported at fair value, and unre- alized holding gains and losses are included in earnings. At December 31, 2013 and 2012, the accrued benefit liability was $3.3 million and $2.3 million, Assets and Liabilities Measured at Fair Value For assets and liabilities measured at fair value on a recurring basis, quantita- tive disclosures about the fair value measurements are required to be dis- closed separately for each major category of assets and liabilities, as follows: Level 1: Quoted prices in active markets for identical assets Level 2: Significant other observable inputs Level 3: Significant unobservable inputs The only assets or liabilities we had at December 31, 2013 and 2012 that are recorded at fair value on a recurring basis are the assets held in the SERP. We base the valuations related to these items on assumptions derived from signif- icant other observable inputs and accordingly these valuations fall into Level 2 in the fair value hierarchy. The fair values of these assets at December 31, 2013 and 2012 were as follows (in thousands): DEcEMBER 31, 2013 DEcEMBER 31, 2012 qUOTED PRIcES IN AcTIVE MARKETS FOR IDENTIcAL ASSETS (LEVEL 1) SIGNIFIcANT OTHER OBSERVABLE INPUTS (LEVEL 2) SIGNIFIcANT UNOBSERVABLE INPUTS (LEVEL 3) qUOTED PRIcES IN AcTIVE MARKETS FOR IDENTIcAL ASSETS (LEVEL 1) SIGNIFIcANT OTHER OBSERVABLE INPUTS (LEVEL 2) SIGNIFIcANT UNOBSERVABLE INPUTS (LEVEL 3) FAIR VALUE FAIR VALUE Assets: SERP $3,290 $— $3,290 $— $2,421 $— $2,421 $— Financial Assets and Liabilities Not Measured at Fair Value The following disclosures of estimated fair value were determined by manage- ment using available market information and established valuation methodolo- gies, 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 96 2013 AnnuAl RepoRtare made at a point in time and thus, estimates of fair value subsequent to December 31, 2013 may differ significantly from the amounts presented. As of December 31, 2013 and 2012, the carrying values and estimated fair values of our financial instruments were as follows (in thousands): Below is a summary of significant methodologies used in estimating fair values and a schedule of fair values at December 31, 2013. cash and cash Equivalents and Restricted cash Cash and cash equivalents and restricted cash include 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 (Level 1 inputs). Notes Receivable We acquired a note receivable (“2445 M Street note”) in 2008 with the pur- chase of 2445 M Street. We estimate the fair value of the 2445 M Street note based on a discounted cash flow methodology using market discount rates (Level 3 inputs). Debt Mortgage notes payable consist of instruments in which certain of our real estate assets are used for collateral. We estimate the fair value of the mortgage notes payable 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 consist of bank facil- ities 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. We estimate the market value based on a compar- ison of the spreads of the advances to market given the adjustable base rate. We estimate the fair value of the notes payable by discounting the contractual cash flows at a rate equal to the relevant treasury rates (with respect to the tim- ing of each cash flow) plus credit spreads derived using the relevant securities’ market prices. We classify these fair value measurements as Level 3 as we use significant unobservable inputs and management judgment due to the absence of quoted market prices. DEcEMBER 31, 2013 2012 cARRyING VALUE FAIR VALUE cARRyING VALUE FAIR VALUE Cash and cash equivalents(1) $130,343 $130,343 $ 19,324 $ 19,324 Restricted cash(1) 2445 M Street note receivable 9,189 6,070 9,189 6,803 14,582 6,617 14,582 6,654 Mortgage notes payable(1) 294,671 313,476 342,970 374,591 Notes payable 846,703 856,171 906,190 968,040 (1) Includes amounts that have been reclassified to “Other asset related to properties sold or held for sale” or “Other liabilities related to properties sold or held for sale” on the consolidated balance sheets (see note 3). NOTE 10. 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 calculation 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. We have a loss from continuing operations for the years ended December 31, 2013 and 2011, and therefore diluted earnings per share is calculated in the same manner as basic earnings per share for these years. 97 Form 10-KThe computation of basic and diluted earnings per share for the three years ended December 31, 2013 was as follows (in thousands; except per share data): Numerator: (Loss) income from continuing operations Allocation of undistributed earnings to unvested restricted share awards and units to continuing operations Adjusted (loss) 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 yEAR ENDED DEcEMBER 31, 2013 2012 2011 $ (193) $ 7,768 $ (14,389) — (193) 37,539 — (415) 37,124 $36,931 (191) 7,577 15,940 — (391) 15,549 $23,126 — (14,389) 119,767 (494) (712) 118,561 $104,172 66,580 66,239 65,982 — 66,580 137 66,376 — 65,982 $ — $ 0.11 $ (0.22) 0.55 0.24 1.80 $ 0.55 $ 0.35 $ 1.58 $ — $ 0.11 $ (0.22) 0.55 0.24 1.80 $ 0.55 $ 0.35 $ 1.58 98 2013 AnnuAl RepoRtNOTE 11. Rentals Under Operating Leases NOTE 12. commitments and contingencies As of December 31, 2013, non-cancelable commercial operating leases provide for minimum rental income from continuing operations were as follows (in thousands): 2014 2015 2016 2017 2018 Thereafter $177,776 155,154 131,374 111,883 91,966 259,546 $927,699 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, for the three years ended December 31, 2013 were as follows (in thousands): Percentage rents yEAR ENDED DEcEMBER 31, 2013 $123 2012 $150 2011 $193 Real estate tax, operating expense and common area maintenance reim- bursement income from continuing operations for the three years ended December 31, 2013 was as follows (in thousands): Reimbursement income $26,822 $25,528 $21,877 yEAR ENDED DEcEMBER 31, 2013 2012 2011 Development commitments At December 31, 2013, we had no committed contracts outstanding with third parties in connection with our development and redevelopment projects at 1225 First Street, 650 North Glebe Road and 7900 Westpark Drive. Litigation We are involved from time to time in various legal proceedings, lawsuits, exam- inations by various tax authorities and claims that have arisen in the ordinary course of business. Management believes that the resolution of any such current matters will not have a material adverse effect on our financial condition or results of operations. Other At December 31, 2013, we had no letters of credit issued under our line of credit facility. NOTE 13. Segment Information We have four reportable segments: office, medical office, retail and multifam- ily. Office buildings provide office space for various types of businesses and professions. 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. Medical office build- ings provide offices and facilities for a variety of medical services. We have executed purchase and sale agreements to effectuate the sale of our medical office segment, and have classified this segment as discontinued operations (see note 3). 99 Form 10-KReal estate rental revenue as a percentage of the total for each of the report- able operating segments in continuing operations for the three years ended December 31, 2013 was as follows: The percentage of total income producing real estate assets, at cost, for each of the reportable operating segments in continuing operations as of December 31, 2013 and 2012 was as follows: yEAR ENDED DEcEMBER 31, yEAR ENDED DEcEMBER 31, Office Retail Multifamily 2013 58% 21% 21% 2012 58% 21% 21% 2011 57% 21% 22% Office Retail Multifamily 2013 62% 20% 18% 2012 63% 20% 17% The accounting policies of each of the segments are the same as those described in note 2. 100 2013 AnnuAl RepoRtThe following tables present revenues, net operating income, capital expenditures and total assets for the three years ended December 31, 2013 from these seg- ments, and reconciles net operating income of reportable segments to net income attributable to the controlling interests as reported (in thousands): yEAR ENDED DEcEMBER 31, 2013 OFFIcE MEDIcAL OFFIcE RETAIL MULTIFAMILy cORPORATE AND OTHER cONSOLIDATED $ 152,339 $ — $ 56,189 $ 54,496 $ — $ 263,024 57,293 — 13,768 22,232 — 93,293 $ 95,046 $ — $ 42,421 $ 32,264 $ — $ 169,731 Real estate rental revenue Real estate expenses Net operating income Depreciation and amortization General and administrative Acquisition costs Interest expense Other income Gain (loss) on extinguishment of debt Discontinued operations: Income from properties sold or held for sale 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 $ 37,777 $1,073,302 $ 3,695 $84,001 $ 4,204 $344,207 $ 10,153 $309,117 $ 162 $164,866 (85,740) (17,535) (1,265) (63,573) 926 (2,737) 15,395 22,144 37,346 — $ 37,346 $ 55,991 $1,975,493 101 Form 10-KReal estate rental revenue Real estate expenses Net operating income Depreciation and amortization General and administrative Acquisition costs Interest expense Other income Discontinued operations: Income from properties sold or held for sale Gain on sale of real estate Net income Less: Net income attributable to noncontrolling interests Net income attributable to the controlling interests yEAR ENDED DEcEMBER 31, 2012 OFFIcE MEDIcAL OFFIcE RETAIL MULTIFAMILy cORPORATE AND OTHER cONSOLIDATED $ 147,401 $ — $ 54,506 $ 52,887 $ — $ 254,794 53,376 — 12,702 20,467 — 86,545 $ 94,025 $ — $ 41,804 $ 32,420 $ — $ 168,249 (85,107) (15,488) (234) (60,627) 975 10,816 5,124 23,708 — $ 23,708 $ 51,735 $2,124,376 Capital expenditures Total assets $ 35,330 $1,140,046 $ 7,004 $327,573 $ 2,977 $355,585 $ 5,869 $249,503 $ 555 $51,669 102 2013 AnnuAl RepoRtyEAR ENDED DEcEMBER 31, 2011 OFFIcE MEDIcAL OFFIcE RETAIL MULTIFAMILy INDUSTRIAL/ FLEX cORPORATE AND OTHER cONSOLIDATED $ 133,333 $ — $ 50,421 $ 50,979 45,634 — 14,273 19,717 $ 87,699 $ — $ 36,148 $ 31,262 $ — — $ — $ — $ 234,733 — 79,624 $ — $ 155,109 Real estate rental revenue Real estate expenses Net operating income Depreciation and amortization General and administrative Real estate impairment Acquisition costs Interest expense Other income Loss on extinguishment of debt Discontinued operations: Income from properties sold or held for sale 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 Capital expenditures Total assets $ 21,065 $1,118,074 $ 5,654 $347,735 $ 2,922 $365,164 $ 2,823 $247,170 $351 $ — $ 621 $42,615 (74,403) (15,728) (14,526) (3,607) (61,402) 1,144 (976) 23,414 97,491 (1,138) 105,378 (494) $ 104,884 $ 33,436 $2,120,758 103 Form 10-KNOTE 14. Selected quarterly Financial Data (Unaudited) Unaudited financial data by quarter for each of the three months in the years ended December 31, 2013 and 2012 were as follows (in thousands, except for per share data): FIRST SEcOND THIRD FOURTH qUARTER(1,2) 2013 Real estate rental revenue Income (loss) from continuing operations Effect of disposal of medical office segment on net income Net income Net income attributable to the controlling interests Income (loss) from continuing operations per share Basic Diluted Net income per share Basic Diluted 2012 Real estate rental revenue Income from continuing operations Effect of disposal of medical office segment on net income Net income Net income attributable to the controlling interests Income from continuing operations per share Basic Diluted Net income per share Basic Diluted $64,560 $ 857 $ 2,821 $ 7,335 $ 7,335 $ 0.01 $ 0.01 $ 0.11 $ 0.11 $62,590 $ 1,852 $ 2,623 $ 5,181 $ 5,181 $ 0.03 $ 0.03 $ 0.08 $ 0.08 $65,915 $ 1,538 $ 3,439 $ 5,263 $ 5,263 $ 0.02 $ 0.02 $ 0.08 $ 0.08 $63,073 $ 2,928 $ 2,370 $ 6,008 $ 6,008 $ 0.04 $ 0.04 $ 0.09 $ 0.09 $65,828 $ 1,709 $ 3,820 $ 5,840 $ 5,840 $ 0.03 $ 0.03 $ 0.09 $ 0.09 $64,471 $ 2,604 $ 2,462 $ 9,561 $ 9,561 $ 0.04 $ 0.04 $ 0.14 $ 0.14 $66,721 $ (4,297) $ 3,964 $18,908 $18,908 $ (0.06) $ (0.06) $ 0.28 $ 0.28 $64,660 $ 384 $ 673 $ 2,958(3) $ 2,958 $ 0.01 $ 0.01 $ 0.04 $ 0.04 (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. (3) The three months ended December 31, 2012 includes the impact of real estate impairment of $2.1 million. 104 2013 AnnuAl RepoRtNOTE 15. Shareholders’ Equity 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 June 2012. Sales of our common shares are made at market prices prevailing at the time of sale. Net proceeds for the sale of common shares under this program are used for general corporate purposes. As of December 31, 2013, we have not issued any common shares under this sales agency financing agreement. 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 for the three years ended December 31, 2013 as follows (in thousands, except for weighted average issue price): 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 Common shares issued Weighted average issue price Net proceeds yEAR ENDED DEcEMBER 31, 2013 — $— $— 2012 55 $29.67 $1,315 2011 170 $29.97 $5,041 105 Form 10-KNOTE 16. Deferred costs As of December 31, 2013 and 2012 deferred costs were included in prepaid expenses and other assets as follows (in thousands): Deferred financing costs Deferred leasing costs Deferred leasing incentives 2013 2012 DEcEMBER 31, GROSS cARRyING VALUE AccUMULATED AMORTIzATION $17,842 39,642 7,143 $ 8,950 14,788 2,417 NET $ 8,892 24,854 4,726 GROSS cARRyING VALUE AccUMULATED AMORTIzATION $18,761 31,872 5,847 $ 8,162 13,756 1,448 NET $10,599 18,116 4,399 Amortization and write-offs of deferred financing, leasing and leasing incen- tives costs from continuing operations for the three years ended December 31, 2013 were as follows (in thousands): yEAR ENDED DEcEMBER 31, Deferred financing costs amortization Deferred leasing costs amortization 2013 $2,550 4,279 Deferred leasing incentives amortization 980 2012 $2,411 3,635 675 2011 $2,194 3,827 556 NOTE 17. Subsequent Events On January 21, 2014, we closed on Transaction III (for the sale of Woodburn Medical Park I and II) and Transaction IV (for the sale of Prosperity Medical Center I and II and III) of the Medical Office Portfolio sale for an aggregate sales price of $193.6 million (see note 3). On February 21, 2014, we closed on the purchase of Yale West, a 216-unit residential building in Washington, D.C., for $73.0 million. We assumed a $48.2 million mortgage and funded the remainder of the purchase price through proceeds from the Medical Office Portfolio sale. 106 2013 AnnuAl RepoRtScHEDULE II Valuation and qualifying Accounts for the years Ended December 31, 2013, 2012 and 2011 (in thousands) Allowance for doubtful accounts 2013 2012 2011 Valuation allowance for deferred tax assets 2013 2012 2011 BALANcE AT BEGINNING OF yEAR ADDITIONS cHARGED TO EXPENSES NET DEDUcTIONS (REcOVERIES) BALANcE AT END OF yEAR $10,443 $ 8,049 $ 6,210 $ 5,773 $ 5,651 $ — $3,531 $3,811 $3,687 $ — $ 122 $5,651 $(7,191) $(1,417) $(1,848) $ (32) $ — $ — $ 6,783 $10,443 $ 8,049 $ 5,741 $ 5,773 $ 5,651 107 Form 10-KScHEDULE III PROPERTIES LOcATION LAND Multifamily Properties INITIAL cOST(b) BUILDINGS AND IMPROVEMENTS NET IMPROVEMENTS (RETIREMENT) SINcE AcqUISITION GROSS AMOUNTS AT WHIcH cARRIED AT DEcEMBER 31, 2013 LAND BUILDINGS AND IMPROVEMENTS TOTAL(c) AccUMULATED DEPREcIATION AT DEcEMBER 31, 2013 yEAR OF cONSTRUcTION DATE OF AcqUISITION NET RENTABLE SqUARE FEET(e) UNITS DEPRE- cIATION LIFE(d) 3801 Connecticut Ave(a) DC $ 420,000 $ 2,678,000 $ 9,715,000 $ 420,000 $ 12,393,000 $ 12,813,000 $ 8,905,000 Roosevelt Towers Country Club Towers Park Adams Munson Hill Towers The Ashby at McLean Walker House Apts(a) Bethesda Hill Apts(a) Bennett Park The Clayborne The Kenmore(a) 650 N. Glebe Rd(g) 1225 First St(g) The Paramount Office Buildings 1901 Pennsylvania Ave 51 Monroe St 515 King St 6110 Executive Blvd 1220 19th St 1600 Wilson Blvd 7900 Westpark Dr(f) 600 Jefferson Plaza Wayne Plaza Courthouse Sq One Central Plaza 1776 G St Dulles Station II(f) West Gude Monument II 2000 M St VA VA VA VA VA MD MD VA VA DC VA VA VA DC MD VA MD DC VA VA MD MD VA MD DC VA MD VA DC 108 $ 336,000 $ 1,996,000 $ 10,995,000 $ 336,000 $ 12,991,000 $ 13,327,000 $ 7,719,000 $ 299,000 $ 2,562,000 $ 15,088,000 $ 299,000 $ 17,650,000 $ 17,949,000 $ 10,252,000 $ 287,000 $ 1,654,000 $ 9,808,000 $ 287,000 $ 11,462,000 $ 11,749,000 $ 7,856,000 $ 322,000 $ 3,337,000 $ 15,359,000 $ 322,000 $ 18,696,000 $ 19,018,000 $ 13,331,000 $ 4,356,000 $ 17,102,000 $ 16,156,000 $ 4,356,000 $ 33,258,000 $ 37,614,000 $ 19,402,000 $ 2,851,000 $ 7,946,000 $ 6,827,000 $ 2,851,000 $ 14,773,000 $ 17,624,000 $ 9,101,000 $ 3,900,000 $ 13,412,000 $ 12,116,000 $ 3,900,000 $ 25,528,000 $ 29,428,000 $ 14,758,000 $ 2,861,000 $ 917,000 $ 79,425,000 $ 4,774,000 $ 78,429,000 $ 83,203,000 $ 23,117,000 $ 269,000 $ — $ 30,527,000 $ 699,000 $ 30,097,000 $ 30,796,000 $ 10,245,000 $ 28,222,000 $ 33,955,000 $ 6,776,000 $ 28,222,000 $ 40,731,000 $ 68,953,000 $ 7,219,000 $ 12,787,000 $ — $ 14,556,000 $ 27,343,000 $ — $ 27,343,000 $ — $ 14,046,000 $ — $ 6,742,000 $ 20,788,000 $ — $ 20,788,000 $ — 1951 1964 1965 1959 1963 1982 1971 1986 2007 2008 1948 N/A N/A Jan 1963 179,000 307 30 yrs May 1965 170,000 191 40 yrs Jul 1969 159,000 227 35 yrs Jan 1969 173,000 200 35 yrs Jan 1970 258,000 279 33 yrs Aug 1996 274,000 256 30 yrs Mar 1996 157,000 212 30 yrs Nov 1997 225,000 195 30 yrs Feb 2001 214,000 224 28 yrs Jun 2003 60,000 74 26 yrs Sep 2008 268,000 374 30 yrs Jun 2011 Nov 2011 — — — N/A — N/A $ 8,568,000 $ 38,716,000 $ 119,000 $ 8,568,000 $ 38,835,000 $ 47,403,000 $ 366,000 1984 Oct 2013 141,000 135 30 yrs $ 79,524,000 $ 124,275,000 $234,209,000 $103,165,000 $ 334,843,000 $ 438,008,000 $132,271,000 2,278,000 2,674 $ 892,000 $ 3,481,000 $ 15,955,000 $ 892,000 $ 19,436,000 $ 20,328,000 $ 14,068,000 $ 840,000 $ 10,869,000 $ 26,553,000 $ 840,000 $ 37,422,000 $ 38,262,000 $ 26,144,000 $ 4,102,000 $ 3,931,000 $ 5,494,000 $ 4,102,000 $ 9,425,000 $ 13,527,000 $ 4,989,000 $ 4,621,000 $ 11,926,000 $ 15,144,000 $ 4,621,000 $ 27,070,000 $ 31,691,000 $ 16,490,000 $ 7,803,000 $ 11,366,000 $ 10,612,000 $ 7,803,000 $ 21,978,000 $ 29,781,000 $ 11,233,000 $ 6,661,000 $ 16,742,000 $ 20,384,000 $ 6,661,000 $ 37,126,000 $ 43,787,000 $ 16,668,000 $ 12,049,000 $ 71,825,000 $ 40,805,000 $ 12,049,000 $ 112,630,000 $ 124,679,000 $ 60,969,000 $ 2,296,000 $ 12,188,000 $ 6,199,000 $ 2,296,000 $ 18,387,000 $ 20,683,000 $ 8,988,000 $ 1,564,000 $ 6,243,000 $ 8,431,000 $ 1,564,000 $ 14,674,000 $ 16,238,000 $ 7,281,000 $ — $ 17,096,000 $ 7,441,000 $ — $ 24,537,000 $ 24,537,000 $ 10,899,000 $ 5,480,000 $ 39,107,000 $ 16,750,000 $ 5,480,000 $ 55,857,000 $ 61,337,000 $ 26,059,000 $ 31,500,000 $ 54,327,000 $ 4,865,000 $ 31,500,000 $ 59,192,000 $ 90,692,000 $ 23,247,000 $ 15,001,000 $ 494,000 $ (3,425,000) $ 4,130,000 $ 7,940,000 $ 12,070,000 $ 291,000 $ 11,580,000 $ 43,240,000 $ 10,876,000 $ 11,580,000 $ 54,116,000 $ 65,696,000 $ 15,195,000 $ 10,244,000 $ 65,205,000 $ 4,733,000 $ 10,244,000 $ 69,938,000 $ 80,182,000 $ 17,810,000 $ — $ 61,101,000 $ 20,866,000 $ — $ 81,967,000 $ 81,967,000 $ 17,061,000 1960 1975 1966 1971 1976 1973 1972 1985 1970 1979 1974 1979 N/A 1984 2000 1971 May 1977 Aug 1979 Jul 1992 Jan 1995 Nov 1995 Oct 1997 Nov 1997 May 1999 May 2000 Oct 2000 Apr 2001 Aug 2003 Dec 2005 Aug 2006 Mar 2007 Dec 2007 101,000 222,000 75,000 203,000 104,000 168,000 530,000 113,000 96,000 115,000 267,000 263,000 — 277,000 207,000 230,000 28 yrs 41 yrs 50 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs N/A 30 yrs 30 yrs 30 yrs 2013 AnnuAl RepoRtINITIAL cOST(b) LOcATION LAND BUILDINGS AND IMPROVEMENTS NET IMPROVEMENTS (RETIREMENT) SINcE AcqUISITION GROSS AMOUNTS AT WHIcH cARRIED AT DEcEMBER 31, 2013 LAND BUILDINGS AND IMPROVEMENTS TOTAL(c) AccUMULATED DEPREcIATION AT DEcEMBER 31, 2013 yEAR OF cONSTRUcTION DATE OF AcqUISITION NET RENTABLE SqUARE FEET(e) UNITS PROPERTIES 2445 M St(a) 925 Corporate Dr 1000 Corporate Dr 1140 Connecticut Ave 1227 25th St Braddock Metro Ctr John Marshall II(a) Fairgate at Ballston Medical Office Woodburn Medical Park I Woodburn Medical Park II Prosperity Medical Ctr I Prosperity Medical Ctr II Prosperity Medical Ctr III Retail centers Takoma Park Westminster Concord Centre Wheaton Park Bradlee Shopping Ctr Chevy Chase Metro Plaza Montgomery Village Ctr Shoppes of Foxchase Frederick County Sq 800 S. Washington St Centre at Hagerstown Frederick Crossing Randolph Shopping Ctr Montrose Shopping Ctr Gateway Overlook Olney Village Ctr(a) DC VA VA DC DC VA VA VA VA VA VA VA VA MD MD VA MD VA DC MD VA MD VA MD MD MD MD MD MD $ 46,887,000 $ 106,743,000 $ 3,060,000 $ 46,887,000 $ 109,803,000 $ 156,690,000 $ 22,179,000 $ 4,518,000 $ 24,801,000 $ 428,000 $ 4,518,000 $ 25,229,000 $ 29,747,000 $ 5,100,000 $ 4,897,000 $ 25,376,000 $ (129,000) $ 4,897,000 $ 25,247,000 $ 30,144,000 $ 5,217,000 $ 25,226,000 $ 50,495,000 $ 8,124,000 $ 25,226,000 $ 58,619,000 $ 83,845,000 $ 7,425,000 $ 17,505,000 $ 21,319,000 $ 2,339,000 $ 17,505,000 $ 23,658,000 $ 41,163,000 $ 3,158,000 $ 18,817,000 $ 71,250,000 $ 5,564,000 $ 18,817,000 $ 76,814,000 $ 95,631,000 $ 8,542,000 $ 13,490,000 $ 53,024,000 $ 173,000 $ 13,490,000 $ 53,197,000 $ 66,687,000 $ 5,071,000 $ 17,750,000 $ 29,885,000 $ 2,137,000 $ 17,750,000 $ 32,022,000 $ 49,772,000 $ 2,524,000 $263,723,000 $ 812,034,000 $233,379,000 $252,852,000 $1,056,284,000 $1,309,136,000 $336,608,000 $ 2,563,000 $ 12,460,000 $ 4,393,000 $ 2,563,000 $ 16,853,000 $ 19,416,000 $ 8,620,000 $ 2,632,000 $ 17,574,000 $ 4,366,000 $ 2,632,000 $ 21,940,000 $ 24,572,000 $ 10,901,000 $ 2,071,000 $ 26,317,000 $ 1,335,000 $ 2,071,000 $ 27,652,000 $ 29,723,000 $ 9,733,000 $ 1,598,000 $ 25,850,000 $ 1,521,000 $ 1,598,000 $ 27,371,000 $ 28,969,000 $ 9,474,000 $ 2,819,000 $ 19,680,000 $ 788,000 $ 2,819,000 $ 20,468,000 $ 23,287,000 $ 7,338,000 $ 11,683,000 $ 101,881,000 $ 12,403,000 $ 11,683,000 $ 114,284,000 $ 125,967,000 $ 46,066,000 $ 415,000 $ 1,084,000 $ 238,000 $ 415,000 $ 1,322,000 $ 1,737,000 $ 1,184,000 $ 519,000 $ 1,775,000 $ 9,171,000 $ 519,000 $ 10,946,000 $ 11,465,000 $ 6,534,000 $ 413,000 $ 850,000 $ 3,511,000 $ 413,000 $ 4,361,000 $ 4,774,000 $ 2,966,000 $ 796,000 $ 857,000 $ 4,455,000 $ 796,000 $ 5,312,000 $ 6,108,000 $ 3,364,000 $ 4,152,000 $ 5,383,000 $ 8,261,000 $ 4,152,000 $ 13,644,000 $ 17,796,000 $ 9,639,000 $ 1,549,000 $ 4,304,000 $ 5,366,000 $ 1,549,000 $ 9,670,000 $ 11,219,000 $ 6,012,000 $ 11,625,000 $ 9,105,000 $ 3,252,000 $ 11,625,000 $ 12,357,000 $ 23,982,000 $ 5,502,000 $ 5,838,000 $ 2,979,000 $ 13,245,000 $ 5,838,000 $ 16,224,000 $ 22,062,000 $ 5,419,000 $ 6,561,000 $ 6,830,000 $ 4,105,000 $ 6,561,000 $ 10,935,000 $ 17,496,000 $ 6,381,000 $ 2,904,000 $ 5,489,000 $ 5,999,000 $ 2,904,000 $ 11,488,000 $ 14,392,000 $ 4,106,000 $ 13,029,000 $ 25,415,000 $ 2,306,000 $ 13,029,000 $ 27,721,000 $ 40,750,000 $ 10,836,000 $ 12,759,000 $ 35,477,000 $ 2,206,000 $ 12,759,000 $ 37,683,000 $ 50,442,000 $ 11,701,000 $ 4,928,000 $ 13,025,000 $ 727,000 $ 4,928,000 $ 13,752,000 $ 18,680,000 $ 3,848,000 $ 11,612,000 $ 22,410,000 $ 2,545,000 $ 11,612,000 $ 24,955,000 $ 36,567,000 $ 6,934,000 $ 28,816,000 $ 52,249,000 $ 1,240,000 $ 29,394,000 $ 52,911,000 $ 82,305,000 $ 8,328,000 $ 15,842,000 $ 39,133,000 $ 1,648,000 $ 15,842,000 $ 40,781,000 $ 56,623,000 $ 3,709,000 $121,758,000 $ 226,365,000 $ 68,275,000 $122,336,000 $ 294,062,000 $ 416,398,000 $ 96,463,000 1986 2007 2009 1966 1988 1985 1996 1988 1984 1988 2000 2001 2002 1962 1969 1960 1967 1955 1975 1969 1960 1973 1951 2000 1999 1972 1970 2007 1979 Dec 2008 Jun 2010 Jun 2010 Jan 2011 Mar 2011 Sep 2011 Sep 2011 Jun 2012 Nov 1998 Nov 1998 Oct 2003 Oct 2003 Oct 2003 290,000 134,000 136,000 184,000 132,000 345,000 223,000 142,000 4,557,000 77,000 97,000 91,000 87,000 75,000 427,000 Jul 1963 51,000 Sep 1972 150,000 Dec 1973 Sep 1977 76,000 74,000 Dec 1984 168,000 Sep 1985 Dec 1992 Jun 1994 Aug 1995 Jun 1998 Jun 2002 Mar 2005 May 2006 May 2006 Dec 2010 Aug 2011 49,000 197,000 134,000 227,000 47,000 332,000 295,000 82,000 145,000 223,000 199,000 Total $476,688,000 $1,264,555,000 $548,266,000 $490,036,000 $1,799,473,000 $2,289,509,000 $611,408,000 DEPRE- cIATION LIFE(d) 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 50 yrs 37 yrs 33 yrs 50 yrs 40 yrs 50 yrs 50 yrs 50 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 30 yrs 2,449,000 9,711,000 2,674 109 Form 10-Ka) At December 31, 2013, our properties were encumbered by non-recourse mortgage amounts as follows: $35.4 million on 3801 connecticut Avenue, $16.5 million on Walker House, $29.1 million on Bethesda Hill, $34.9 million on The Kenmore, $98.1 million on 2445 M Street, $52.6 million on John Marshall II, and $20.7 million 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, 2013, total land, buildings and improvements are carried at $1,939.3 million 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, 2013, WRIT had under development an office project with 360,000 square feet of office space and a parking garage to be developed in Herndon, Virginia (Dulles Station, Phase II). The total land value not yet placed in service of the development project at December 31, 2013 was $3.6 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. Additionally, WRIT had investments in various smaller development or redevelopment projects, including 7900 Westpark Drive. The total value of this redevelopment not yet placed in service is $3.3 million at December 31, 2013. g) As of December 31, 2013, 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 (1225 First Street). The value not yet placed into service of these development projects via joint venture arrangements at December 31, 2013 was $48.1 million. 650 North Glebe was encumbered by a construction loan with a $7.3 million balance at December 31, 2013. 110 2013 AnnuAl RepoRtSUMMARy OF REAL ESTATE INVESTMENTS AND AccUMULATED DEPREcIATION The following is a reconciliation of real estate assets and accumulated depreciation for the three years ended December 31, 2013 (in thousands): (in thousands) Real estate assets Balance, beginning of period Additions: Property acquisitions(1) Improvements(1) Deductions: Impairment write-down Write-off of disposed assets Property sales Balance, end of period Accumulated depreciation Balance, beginning of period Additions: Depreciation Deductions: Impairment write-down Write-off of disposed assets Property sales Balance, end of period (1) Includes non-cash accruals for capital items and assumed mortgages. yEAR ENDED DEcEMBER 31, 2013 2012 2011 $2,529,131 $2,449,872 $2,443,127 47,444 71,127 — (2,017) (356,176) 47,772 59,664 (2,097) (1,450) (24,630) 352,658 36,386 (16,416) (1,648) (364,235) $2,289,509 $2,529,131 $2,449,872 $ 610,536 $ 535,732 $ 538,786 80,510 — (1,404) (78,234) 84,949 — (1,124) (9,021) 84,167 (1,291) (1,648) (84,282) $ 611,408 $ 610,536 $ 535,732 111 Form 10-KExhibit 31.1 cERTIFIcATION I, Paul T. McDermott, 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 state- ment 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 presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for estab- lishing and maintaining disclosure controls and procedures (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 super- vision, 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 state- ments for external purposes in accordance with generally accepted accounting principles; 112 c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions 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 registrant’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 financial 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 reason- able 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 registrant’s internal con- trol over financial reporting. DATE: March 3, 2014 /s/ Paul T. McDermott Paul T. McDermott Chief Executive Officer 2013 AnnuAl RepoRt 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 state- ment 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 presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for estab- lishing and maintaining disclosure controls and procedures (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 super- vision, 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 state- ments 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 conclusions 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 registrant’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 financial 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 reason- able 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 registrant’s internal con- trol over financial reporting. DATE: March 3, 2014 /s/ Laura M. Franklin Laura M. Franklin Executive Vice President Accounting, Administration and Corporate Secretary (Principal Accounting Officer) 113 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 state- ment 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 presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for estab- lishing and maintaining disclosure controls and procedures (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 super- vision, 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 state- ments for external purposes in accordance with generally accepted accounting principles; 114 c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions 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 registrant’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 financial 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 reason- able 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 registrant’s internal con- trol over financial reporting. DATE: March 3, 2014 /s/ William T. Camp William T. Camp Chief Financial Officer (Principal Financial Officer) 2013 AnnuAl RepoRt 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, 2013 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 operations of WRIT. Dated: March 3, 2014 /s/ Paul T. McDermott Paul T. McDermott Chief Executive Officer Dated: March 3, 2014 /s/ Laura M. Franklin Laura M. Franklin Executive Vice President Accounting, Administration and Corporate Secretary (Principal Accounting Officer) Dated: March 3, 2014 /s/ William T. Camp William T. Camp Chief Financial Officer (Principal Financial Officer) 115 Form 10-K Performance Graph Set forth below is a graph comparing the cumulative total shareholder return (assumes reinvestment of dividends) on Washington REIT 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 2008 2009 2010 2011 2012 2013 Wash REIT MSCI US REIT Index S&P 500 $250 $200 $150 $100 $50 $0 116 2013 AnnuAl RepoRtCoRpoRAte infoRmAtion Corporate Headquarters Washington Real Estate Investment Trust 6110 Executive Boulevard, Suite 800 Rockville, Maryland 20852-3927 301.984.9400 800.565.9748 301.984.9610 Fax www.writ.com WRIT Direct Washington REIT’s dividend reinvestment plan permits cash investment of up to the amount specified in the plan, plus dividend, and is IRA eligible. Stock Information Washington REIT is traded on the New York Stock Exchange. The trading symbol is WRE. Member National Association of Real Estate Investment Trusts® 1875 Eye Street, NW, Suite 600 Washington, DC 20006-5413 Annual CEO Certification Washington REIT submitted the CEO Certification required by the NYSE under Section 303A. 12(a) without qualifications. Counsel Arent Fox LLP 1717 K Street, NW Washington, DC 20036-5342 Independent Registered Public Accounting Firm Ernst & Young LLP 8484 Westpark Drive McLean, Virginia 22102 Transfer Agent Computershare Trust Company, N.A. P.O. Box 30170 College Station, Texas 77845-3170 Annual Meeting Washington REIT will hold its annual meeting of shareholders on May 15, 2014, at 8:30 a.m. at the office of Arent Fox LLP at 1717 K Street, NW, Washington, DC. m o c . e v i t a e r c c f . i w w w D M , a d s e h t e B e v i t a e r C I C F i : n g 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 i a e R n o t g n h s a W 4 1 0 2 © 10 WashIngTOn REIT 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

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