WRE Washington REIT

Washington Real Estate Investment Trust (“WashREIT” or the “Company”) (NYSE: WRE), a multifamily REIT with properties in the Washington metro region and the Southeast, reported financial and operating results today for the quarter ended September 30, 2021:

Third Quarter Results

• Net income was $31.3 million, or $0.37 per diluted share
• NAREIT FFO was $3.1 million, or $0.04 per diluted share
• Core FFO was $17.0 million, or $0.20 per diluted share
• Net Operating Income (NOI) was $27.1 million

Multifamily Highlights

• New lease rates improved significantly throughout the third quarter and post quarter-end. New Lease Rate Growth on an effective basis was approximately 9% for leases signed in September and 11% for leases signed thus far in October.
• Occupancy continues to track above our expectations as rents grow and the forward trend is favorable, suggesting that occupancy should remain strong into the winter months. Average same-store occupancy increased 70 basis points from the second quarter to the third quarter to 95.8%, and 40 basis points post quarter-end to date, allowing for continued growth in lease rates.
• Concessions declined significantly throughout the third quarter and post quarter end. Total concessions for September move-ins declined over 95% compared to June move-ins driven by both a decline in the number of new leases with concessions and a decline in the average concession amount per lease.
• Concession amortization began to decline on a monthly basis during September and is expected to continue to decline over the next two quarters as the leases signed during the pandemic expire. Excluding the impact of amortization related to concessions granted in prior periods, same-store multifamily NOI increased 2% on a year-over-year basis during the third quarter.
• Resident credit continues to remain strong as 99% of same-store cash rents were collected during the third quarter
• Trove is currently 85% occupied and is expected to stabilize near year-end

Transformation Update

• Completed the sale of the office portfolio, excluding Watergate 600, for gross proceeds of $766 million
• Completed the sale of the retail portfolio for gross proceeds of $168.3 million
• Completed the acquisition of The Oxford, a 240-unit Class B multifamily property in Conyers, GA for $48 million. The Oxford has performed very well thus far with New Lease Rate Growth of 25% for September move-ins and 26% for October move-ins.
• Entered into binding agreements to acquire two properties in the Atlanta market for $106 million. These transactions are expected to close during the fourth quarter, subject to customary closing conditions. We have also been awarded and are moving toward a binding contract for another property in Atlanta for approximately $97 million. If we are successful in this pursuit, we expect to close during the fourth quarter.
• Redeemed all $300 million of senior unsecured notes due 2022 on August 26th and repaid $150 million of amounts outstanding under the term loan maturing in 2023

Liquidity Position

• Renewed the $700 million revolving credit facility for a four-year term ending in August 2025 with two six-month extension options. The amended credit agreement includes an accordion feature that allows the Company to increase the aggregate facility to $1.5 billion.
• Current available liquidity is approximately $1.0 billion, consisting of the entire capacity under the Company's $700 million revolving credit facility and cash on hand
• The Company has no secured debt and no scheduled maturities until July 2023

"Overall, we are off to a very good start as we progress our geographic expansion," said Paul T. McDermott, President and CEO. "In just over four months since our transformation announcement, we have completed the exit of our commercial segments and have already deployed or committed over 55% of our $450 million multifamily acquisition target. We have closed on the acquisition of one property, have two more properties under binding agreement, and have been awarded and are completing due diligence on one additional property in the Atlanta market. We have an active pipeline of opportunities that align with our strategies and offer the growth prospects that we are targeting through our geographic expansion, and we are confident we can allocate our capital appropriately over the balance of this year and into early next year."

Third Quarter Operating Results

• Multifamily Same-Store NOI - Same-store NOI decreased 0.4% compared to the corresponding prior year period due to the cumulative impact of COVID-19 on rental income. Excluding the impact of amortization related to concessions granted in prior periods, same-store multifamily NOI increased 2% on a year-over-year basis during the third quarter. Average Occupancy for the quarter was 95.8%.
• Other Same-Store NOI - The Other portfolio is comprised of one asset, Watergate 600. Same-store NOI declined by 4.9% compared to the corresponding prior year period due to higher taxes and payroll expenses, and a bad debt recovery which had a favorable impact on the prior year period. Watergate 600 was 88.4% occupied and 91.2% leased at quarter end.

2021 Guidance and Outlook

The Company is reinstating full-year 2021 guidance including its outlook on key assumptions and metrics. The Company expects to establish full year guidance for 2022 on its year-end earnings call.

Core FFO for 2021 is expected to range from $1.05 to $1.08 per fully diluted share. The following assumptions are included in the Core FFO guidance for 2021 as set forth above:

Full Year Outlook on Key Assumptions and Metrics

• Same-store multifamily NOI is expected to range between $90.0 million to $90.5 million for the full year 2021, which implies a fourth quarter growth rate of approximately 4.5% compared to the prior year period
• Watergate 600 NOI is expected to be approximately $12.75 million
• The office portfolio sale closed on July 26th for gross proceeds of $766 million
• The acquisition of The Oxford closed on August 10th for $48 million
• The retail portfolio sale closed on September 22nd for gross proceeds of $168.3 million
• $300 million of senior notes maturing in 2022 were redeemed on August 26th
• $150 million of the amount outstanding under the term loan maturing in 2023 was paid down on September 27th
• Entered into binding agreements to acquire two properties in the Atlanta market for $106 million. These transactions are expected to close during the fourth quarter, subject to customary closing conditions. We have also been awarded and are moving toward a binding contract for another property in Atlanta for approximately $97 million. If we are successful in this pursuit, we expect to close during the fourth quarter.
• Over the remainder of the year and into early next year, approximately $200 million of additional multifamily acquisitions are expected to be completed in the Southeastern markets of Atlanta, Raleigh/Durham and/or Charlotte

	Full Year 2021
Same-Store NOI
Multifamily	$90.0 million - $90.5 million
Other	~$12.75 million
Non-Same-Store NOI (a)	$3.75 million - $4.25 million
Non-residential NOI (b)	~$0.8 million
Other income	~$3 million
Expenses
Property Management Expenses	~$6.0 million
G&A	$26.75 million - $27.25 million
Interest Expense	~$34.0 million

(a) Includes Trove and The Oxford

(b) Includes revenues and expenses from retail and public parking garage operations at multifamily properties.

WashREIT's Core FFO guidance and outlook are based on a number of factors, many of which are outside the Company's control and all of which are subject to change. WashREIT may change the guidance provided during the year as actual and anticipated results vary from these assumptions, but WashREIT undertakes no obligation to do so.

2021 Guidance Reconciliation Table

A reconciliation of projected net income per diluted share to projected Core FFO per diluted share for the full year ending December 31, 2021 is as follows:

	Low				High
Net income per diluted share	$	0.20			$	0.23
Real estate depreciation and amortization	0.85				0.85
Gain on sale of depreciable real estate	(0.55		)		(0.55		)
Discontinued real estate depreciation	0.27				0.27
NAREIT FFO per diluted share	0.77				0.80
Core adjustments	0.28				0.28
Core FFO per diluted share	$	1.05			$	1.08

Dividends

On October 5, 2021, WashREIT paid a quarterly dividend of $0.17 per share.

WashREIT announced today that its Board of Trustees has declared a quarterly dividend of $0.17 per share to be paid on January 5, 2022 to shareholders of record on December 22, 2021.

Conference Call Information

The Third Quarter 2021 Earnings Call is scheduled for Friday, October 29, 2021 at 11:00 A.M. Eastern Time. Conference Call access information is as follows:

USA Toll Free Number:	1-888-506-0062
International Toll Number:	1-973-528-0011
Conference ID:	714844

The instant replay of the Earnings Call will be available until Friday, November 12, 2021. Instant replay access information is as follows:

USA Toll Free Number:	1-877-481-4010
International Toll Number:	1-919-882-2331
Conference ID:	42838

The live on-demand webcast of the Conference Call will be available on the Investor section of WashREIT's website at www.washreit.com. Online playback of the webcast will be available following the Conference Call.

About WashREIT

WashREIT owns approximately 7,300 residential apartment homes in the Washington, DC metro and the Southeast. WashREIT also owns and operates approximately 300,000 square feet of commercial space in the Washington, DC metro region. We are focused on providing quality housing to under-served, middle-income renters in submarkets poised for strong, sustained demand. With a proven track record in residential repositioning, we are utilizing the experience and research from the Washington, DC metro region to continue to grow as we geographically diversify into Southeastern markets. We are targeting the deepest demand segments in submarkets with the greatest probability of rent growth outperformance, and tailoring our specific investment strategy to best create value.

Note: WashREIT's press releases and supplemental financial information are available on the Company website at www.washreit.com or by contacting Investor Relations at (202) 774-3200.

Forward Looking Statements Certain statements in our earnings release and on our conference call are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Currently, one of the most significant factors continues to be the adverse effect of the COVID-19 virus, including any variants and mutations thereof, the actions taken to contain the pandemic or mitigate the impact of COVID-19, and the direct and indirect economic effects of the pandemic and containment measures. The extent to which COVID-19 continues to impact WashREIT, its properties and its residents and tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, the continued speed and success of the vaccine distribution, effectiveness and willingness of people to take COVID-19 vaccines, and the duration of associated immunity and their efficacy against emerging variants of COVID-19, among others. Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2020 filed on February 16, 2021, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Additional factors which may cause the actual results, performance, or achievements of WashREIT to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to the risks associated with the failure to enter into and/or complete contemplated acquisitions or dispositions within the price ranges anticipated and on the terms and timing anticipated, or at all; our ability to execute on our strategies, including new strategies with respect to our operations and our portfolio, including the acquisition of residential properties in the Southeastern markets, on the terms anticipated, or at all, and to realize any anticipated benefits, including the performance of any acquired residential properties at the levels anticipated; our ability to lease up Trove on the timing anticipated; our ability to reduce actual net leverage to levels consistent with our targeted net leverage range; the risks associated with ownership of real estate in general and our real estate assets in particular; the economic health of the greater Washington, DC metro region and the larger Southeastern region; changes in the composition and geographic location of our portfolio; fluctuations in interest rates; reductions in or actual or threatened changes to the timing of federal government spending; the risks related to use of third-party providers; the economic health of our residents and tenants; the availability and terms of financing and capital and the general volatility of securities markets; compliance with applicable laws, including those concerning the environment and access by persons with disabilities; the risks related to not having adequate insurance to cover potential losses; the risks related to our organizational structure and limitations of stock ownership; changes in the market value of securities; terrorist attacks or actions and/or cyber-attacks; failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs; and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2020 Form 10-K filed on February 16, 2021. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to update our forward-looking statements or risk factors to reflect new information, future events, or otherwise.

This Earnings Release also includes certain forward-looking non-GAAP information. Due to the high variability and difficulty in making accurate forecasts and projections of some of the information excluded from these estimates, together with some of the excluded information not being ascertainable or accessible, the Company is unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measures without unreasonable efforts.

CONTACT:		1775 Eye Street, NW, Suite 1000
Amy Hopkins		Washington, DC 20006
Vice President, Investor Relations		Tel 202-774-3198
E-Mail: ahopkins@washreit.com		Fax 301-984-9610
		www.washreit.com

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
(Unaudited)
	Three Months Ended September 30,								Nine Months Ended September 30,
OPERATING RESULTS	2021				2020				2021				2020
Revenue
Real estate rental revenue	$	42,499			$	43,716			$	124,403			$	133,216
Expenses
Property operating and maintenance	9,901				10,372				28,655				29,598
Real estate taxes and insurance	5,544				5,741				16,525				17,420
Property management	1,499				1,541				4,448				4,682
General and administrative	7,909				6,330				19,838				17,963
Transformation costs	1,016				—				4,796				—
Depreciation and amortization	18,252				18,064				52,542				52,683
	44,121				42,048				126,804				122,346
Loss on sale of real estate	—				—				—				(7,539		)
Real estate operating (loss) income	(1,622		)		1,668				(2,401		)		3,331
Other income (expense)
Interest expense	(8,106		)		(8,711		)		(28,387		)		(28,307		)
Loss on interest rate derivatives	(106		)		—				(5,866		)		—
(Loss) gain on extinguishment of debt	(12,727		)		—				(12,727		)		262
Other income	231				—				3,037				—
	(20,708		)		(8,711		)		(43,943		)		(28,045		)
Loss from continuing operations	(22,330		)		(7,043		)		(46,344		)		(24,714		)
Discontinued operations:
Income from operations of properties sold or held for sale	7,208				6,087				23,083				20,071
Gain on sale of real estate, net	46,441				—				46,441				—
Income from discontinued operations	53,649				6,087				69,524				20,071
Net income (loss)	$	31,319			$	(956	)		$	23,180			$	(4,643	)
Loss from continuing operations	$	(22,330	)		$	(7,043	)		$	(46,344	)		$	(24,714	)
Depreciation and amortization	18,252				18,064				52,542				52,683
Loss on sale of depreciable real estate	—				—				—				7,539
Funds from continuing operations	(4,078		)		11,021				6,198				35,508
Income from discontinued operations	53,649				6,087				69,524				20,071
Discontinued operations real estate depreciation and amortization	—				12,406				22,904				37,106
Gain on sale of real estate, net	(46,441		)		—				(46,441		)		—
Funds from discontinued operations	7,208				18,493				45,987				57,177
NAREIT funds from operations	$	3,130			$	29,514			$	52,185			$	92,685
Non-cash loss (gain) on extinguishment of debt	$	833			$	—			$	833			$	(1,177	)
Tenant improvements and incentives, net of reimbursements	(331		)		(4,013		)		(904		)		(6,962		)
External and internal leasing commissions capitalized	(378		)		(1,081		)		(2,784		)		(2,407		)
Recurring capital improvements	(1,485		)		(1,068		)		(3,508		)		(2,880		)
Straight-line rents, net	(347		)		(522		)		(1,520		)		(1,840		)
Non-cash fair value interest expense	—				—				—				(59		)
Non-real estate depreciation & amortization of debt costs	1,330				956				4,024				2,808
Amortization of lease intangibles, net	(32		)		464				540				1,465
Amortization and expensing of restricted share and unit compensation	2,651				2,479				6,478				5,901
Adjusted funds from operations	$	5,371			$	26,729			$	55,344			$	87,534

		Three Months Ended September 30,								Nine Months Ended September 30,
Per share data:		2021				2020				2021				2020
Loss from continuing operations	(Basic)	$	(0.26	)		$	(0.09	)		$	(0.55	)		$	(0.31	)
	(Diluted)	$	(0.26	)		$	(0.09	)		$	(0.55	)		$	(0.31	)
Net income (loss)	(Basic)	$	0.37			$	(0.01	)		$	0.27			$	(0.06	)
	(Diluted)	$	0.37			$	(0.01	)		$	0.27			$	(0.06	)
NAREIT FFO	(Basic)	$	0.04			$	0.36			$	0.61			$	1.12
	(Diluted)	$	0.04			$	0.36			$	0.61			$	1.12
Dividends paid		$	0.17			$	0.30			$	0.77			$	0.90
Weighted average shares outstanding - basic		84,496				82,186				84,457				82,142
Weighted average shares outstanding - diluted		84,496				82,186				84,457				82,142
Weighted average shares outstanding - diluted (for NAREIT FFO)		84,586				82,357				84,534				82,322

WASHINGTON REAL ESTATE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
	September 30, 2021				December 31, 2020
Assets
Land	$	306,507			$	301,709
Income producing property	1,544,217				1,473,335
	1,850,724				1,775,044
Accumulated depreciation and amortization	(384,392		)		(335,006		)
Net income producing property	1,466,332				1,440,038
Properties under development or held for future development	30,254				36,494
Total real estate held for investment, net	1,496,586				1,476,532
Investment in real estate held for sale, net	—				795,687
Cash and cash equivalents	307,797				7,697
Restricted cash	605				593
Rents and other receivables	14,713				9,725
Prepaid expenses and other assets	33,109				29,587
Other assets related to properties sold or held for sale	—				89,997
Total assets	$	1,852,810			$	2,409,818
Liabilities
Notes payable, net	$	496,823			$	945,370
Line of credit	—				42,000
Accounts payable and other liabilities	38,864				44,067
Dividend payable	14,440				25,361
Advance rents	1,747				2,461
Tenant security deposits	4,480				4,221
Other liabilities related to properties sold or held for sale	—				25,229
Total liabilities	556,354				1,088,709
Equity
Shareholders' equity
Preferred shares; $0.01 par value; 10,000 shares authorized; no shares issued or outstanding	—				—
Shares of beneficial interest, $0.01 par value; 150,000 and 100,000 shares authorized; 84,628 and 84,409 shares issued and outstanding, as of September 30, 2021 and December 31, 2020, respectively	846				844
Additional paid in capital	1,656,821				1,649,366
Distributions in excess of net income	(341,052		)		(298,860		)
Accumulated other comprehensive loss	(20,468		)		(30,563		)
Total shareholders' equity	1,296,147				1,320,787
Noncontrolling interests in subsidiaries	309				322
Total equity	1,296,456				1,321,109
Total liabilities and equity	$	1,852,810			$	2,409,818

The following tables contain reconciliations of net loss for the periods presented (in thousands):
	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
Net income (loss)	$	31,319			$	(956	)		$	23,180			$	(4,643	)
Adjustments:
Property management	1,499				1,541				4,448				4,682
General and administrative	7,909				6,330				19,838				17,963
Transformation costs	1,016				—				4,796				—
Real estate depreciation and amortization	18,252				18,064				52,542				52,683
Loss on sale of real estate	—				—				—				7,539
Interest expense	8,106				8,711				28,387				28,307
Loss on interest rate derivatives	106				—				5,866				—
Loss (gain) on extinguishment of debt	12,727				—				12,727				(262		)
Other income	(231		)		—				(3,037		)		—
Discontinued operations:
Income from operations of properties sold or held for sale	(7,208		)		(6,087		)		(23,083		)		(20,071		)
Gain on sale of real estate, net	(46,441		)		—				(46,441		)		—
Total Net Operating Income (NOI)	$	27,054			$	27,603			$	79,223			$	86,198
Multifamily NOI:
Same-store portfolio	$	22,405			$	22,494			$	67,052			$	69,654
Acquisitions	276				—				276				—
Development	1,000				34				1,732				(199		)
Non-residential	219				104				$	575			$	387
Total	23,900				22,632				69,635				69,842
Watergate 600 NOI	3,154				3,316				9,588				9,748
Other NOI (1)	—				1,655				—				6,608
Total NOI	$	27,054			$	27,603			$	79,223			$	86,198

(1) Represents other continuing operations office properties sold in 2020: Monument II, 1227 25th Street, John Marshall II

The following table contains a reconciliation of net income (loss) to core funds from operations for the periods presented (in thousands, except per share data):
		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Net income (loss)		$	31,319			$	(956	)		$	23,180			$	(4,643	)
Add:
Real estate depreciation and amortization		18,252				18,064				52,542				52,683
Loss on sale of depreciable real estate		—				—				—				7,539
Discontinued operations:
Gain on sale of real estate, net		(46,441		)		—				(46,441		)		—
Real estate depreciation and amortization		—				12,406				22,904				37,106
NAREIT funds from operations		3,130				29,514				52,185				92,685
Add:
Loss (gain) on extinguishment of debt		12,727				—				12,727				(262		)
Loss on interest rate derivatives		106				—				5,866				—
Severance expense		—				—				173				—
Transformation costs		1,016				—				4,796				—
Core funds from operations		$	16,979			$	29,514			$	75,747			$	92,423
		Three Months Ended September 30,								Nine Months Ended September 30,
Per share data:		2021				2020				2021				2020
NAREIT FFO	(Basic)	$	0.04			$	0.36			$	0.61			$	1.12
	(Diluted)	$	0.04			$	0.36			$	0.61			$	1.12
Core FFO	(Basic)	$	0.20			$	0.36			$	0.89			$	1.12
	(Diluted)	$	0.20			$	0.36			$	0.89			$	1.12
Weighted average shares outstanding - basic		84,496				82,186				84,457				82,142
Weighted average shares outstanding - diluted (for NAREIT and Core FFO)		84,586				82,357				84,534				82,322

Non-GAAP Financial Measures

Adjusted EBITDA is earnings before interest expense, taxes, depreciation, amortization, gain/loss on sale of real estate, casualty gain/loss, real estate impairment, gain/loss on extinguishment of debt, gain/loss on interest rate derivatives, severance expense, acquisition expenses and gain from non-disposal activities and transformation costs. Adjusted EBITDA is included herein because we believe it helps investors and lenders understand our ability to incur and service debt and to make capital expenditures. Adjusted EBITDA is a non-GAAP and non-standardized measure and may be calculated differently by other REITs.

Adjusted Funds From Operations (“AFFO”) is a non-GAAP measure. It is calculated by subtracting from FFO (1) recurring expenditures, tenant improvements and leasing costs, that are capitalized and amortized and are necessary to maintain our properties and revenue stream (excluding items contemplated prior to acquisition or associated with development / redevelopment of a property) and (2) straight line rents, then adding (3) non-real estate depreciation and amortization, (4) non-cash fair value interest expense and (5) amortization of restricted share compensation, then adding or subtracting the (6) amortization of lease intangibles, (7) real estate impairment and (8) non-cash gain/loss on extinguishment of debt, as appropriate. AFFO is included herein, because we consider it to be a performance measure of a REIT’s ability to incur and service debt and to distribute dividends to its shareholders. AFFO is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.

Core Adjusted Funds From Operations ("Core AFFO") is calculated by adjusting AFFO for the following items (which we believe are not indicative of the performance of Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s operating performance over time): (1) gains or losses on extinguishment of debt and gains or losses on interest rate derivatives, (2) costs related to the acquisition of properties, (3) non-share-based executive transition costs, severance expenses and other expenses related to corporate restructuring and executive retirements or resignations, (4) property impairments, casualty gains and losses, and gains or losses on sale not already excluded from FAD, as appropriate, (5) relocation expense and (6) transformation costs. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, Core AFFO serves as a useful, supplementary performance measure of Washington REIT’s ability to incur and service debt, and distribute dividends to its shareholders. Core AFFO is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.

Core Funds From Operations (“Core FFO”) is calculated by adjusting NAREIT FFO for the following items (which we believe are not indicative of the performance of Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s operating performance over time): (1) gains or losses on extinguishment of debt and gains or losses on interest rate derivatives, (2) expenses related to acquisition and structuring activities, (3) executive transition costs, severance expenses and other expenses related to corporate restructuring and executive retirements or resignations, (4) property impairments, casualty gains and losses, and gains or losses on sale not already excluded from NAREIT FFO, as appropriate, (5) relocation expense and (6) transformation costs. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, Core FFO serves as a useful, supplementary measure of Washington REIT’s ability to incur and service debt, and distribute dividends to its shareholders. Core FFO is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.

NAREIT Funds From Operations (“FFO”) is defined by 2018 National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) FFO White Paper Restatement, as net income (computed in accordance with generally accepted accounting principles (“GAAP”)) excluding gains (or losses) associated with the sale of property, impairment of depreciable real estate and real estate depreciation and amortization. We consider NAREIT FFO to be a standard supplemental measure for equity real estate investment trusts (“REITs”) because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which historically assumes that the value of real estate assets diminishes predictably over time. Since real estate values have instead historically risen or fallen with market conditions, we believe that NAREIT 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 real estate investment trusts. These other REITs may not define the term in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently. NAREIT FFO is a non-GAAP measure.

Net Operating Income (“NOI”), defined as real estate rental revenue less direct real estate operating expenses, is a non-GAAP measure. NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain or loss on sale, if any), plus interest expense, depreciation and amortization, lease origination expenses, general and administrative expenses, acquisition costs, real estate impairment, casualty gain and losses and gain or loss on extinguishment of debt. NOI does not include management expenses, which consist of corporate property management costs and property management fees paid to third parties. We believe that NOI is a useful performance measures because, when compared across periods, it reflects the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income. NOI excludes certain components from net income in order to provide results more closely related to a property’s results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. As a result of the foregoing, we provide NOI as a supplement to net income, calculated in accordance with GAAP. NOI does not represent net income or income from continuing operations calculated in accordance with GAAP. As such, NOI should not be considered an alternative to these measures as an indication of our operating performance.

Other Definitions

Average Effective Monthly Rent Per Home represents the average of effective rent (net of concessions) for in-place leases and the market rent for vacant homes.

Average Occupancy is based on average daily occupied homes as a percentage of total homes.

Current Strategy represents the class of each community in our portfolio based on a set of criteria. Our strategies consist of the following subcategories: Class A, Class A-, Class B Value-Add and Class B. A community's class is dependent on a variety of factors, including its vintage, site location, amenities and services, rent growth drivers and rent relative to the market.

• Class A communities are recently-developed, well-located, have competitive amenities and services and command average rental rates well above market median rents.
• Class A- communities have been developed within the past 20 years and feature operational improvements and unit upgrades and command rents at or above median market rents.
• Class B Value-Add communities are over 20 years old but feature operational improvements and strong potential for unit renovations. These communities command average rental rates below median market rents for units that have not been renovated.
• Class B communities are over 20 years old, feature operational improvements and command average rental rates below median market rents.

Debt Service Coverage Ratio is computed by dividing earnings attributable to the controlling interest before interest expense, taxes, depreciation, amortization, real estate impairment, gain on sale of real estate, gain/loss on extinguishment of debt, severance expense, relocation expense, acquisition and structuring expenses and gain/loss from non-disposal activities by interest expense (including interest expense from discontinued operations) and principal amortization.

Debt to Total Market Capitalization is total debt divided by the sum of total debt plus the market value of shares outstanding at the end of the period.

Earnings to Fixed Charges Ratio is computed by dividing earnings attributable to the controlling interest by fixed charges. For this purpose, earnings consist of income from continuing operations (or net income if there are no discontinued operations) plus fixed charges, less capitalized interest. Fixed charges consist of interest expense (excluding interest expense from discontinued operations), including amortized costs of debt issuance, plus interest costs capitalized.

Ending Occupancy is calculated as occupied homes as a percentage of total homes as of the last day of that period.

Lease Rate Growth is defined as the average percentage change in either gross (excluding the impact of concessions) or effective rent (net of concessions) for a new or renewed lease compared to the prior lease based on the move-in date. The blended rate represents the weighted average of new and renewal lease rate growth achieved.

Recurring Capital Expenditures represent non-accretive building improvements required to maintain current revenues. Recurring capital expenditures do not include acquisition capital that was taken into consideration when underwriting the purchase of a building or which are incurred to bring a building up to "operating standard".

Retention represents the percentage of leases renewed that were set to expire in the period presented.

Same-store Portfolio Properties include properties that were owned for the entirety of the years being compared, and exclude properties under redevelopment or development and properties acquired, sold or classified as held for sale during the years being compared. We categorize our properties as "same-store" or "non-same-store" for purposes of evaluating comparative operating performance. We define development properties as those for which we have planned or ongoing major construction activities on existing or acquired land pursuant to an authorized development plan. Development properties are categorized as same-store when they have reached stabilized occupancy (90%) before the start of the prior year. We define redevelopment properties as those for which have planned or ongoing significant development and construction activities on existing or acquired buildings pursuant to an authorized plan, which has an impact on current operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. We categorize a redevelopment property as same-store when redevelopment activities have been complete for the majority of each year being compared.

Transformation Costs include costs related to the strategic transformation including consulting, advisory and termination benefits.