Annual report pursuant to Section 13 and 15(d)

Nature of Business

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Nature of Business
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Business NATURE OF BUSINESS

Washington Real Estate Investment Trust (“WashREIT”), a Maryland real estate investment trust, is a self-administered equity real estate investment trust, successor to a trust organized in 1960. Our business consists of the ownership and operation of income-producing real estate properties in the greater Washington D.C. metro region. We own a portfolio of multifamily and commercial properties. During 2019, we acquired eight multifamily properties with a total of 2,390 units and sold eight retail properties (see note 3). The eight sold retail properties met the criteria for classification as discontinued operations. The remaining retail properties do not meet the qualitative or quantitative criteria for a reportable segment (see note 14). The acquisitions of multifamily properties and dispositions of retail properties are part of a strategic shift away from the retail sector to the multifamily sector. This strategic shift simplifies our portfolio to two reportable segments (multifamily and office) and reduces our exposure to future retail lease expirations.

U.S. Federal Income Taxes

We believe that we qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), and intend to continue to qualify as such. To maintain our status as a REIT, we are, among other things, required to distribute 90% of our REIT taxable income (which is, generally, our ordinary taxable income, with certain modifications), excluding any net capital gains and any deductions for dividends paid to our shareholders on an annual basis. When selling a property, we generally have the option of (a) reinvesting the sales proceeds of property sold, in a way that allows us to defer recognition of some or all taxable gain realized on the sale, (b) distributing gains to the shareholders with no tax to us or (c) treating net long-term capital gains as having been distributed to our shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to our shareholders. During the three years ended December 31, 2019, we sold our interests in the following properties (in thousands):
Disposition Date
Property
Type
(Loss) Gain on Sale
June 26, 2019
Quantico Corporate Center (1)
Office
$
(1,046
)
July 23, 2019
Shopping Center Portfolio (2)
Retail
333,023

August 21, 2019
Frederick Crossing and Frederick County Square
Retail
9,507

August 27, 2019
Centre at Hagerstown
Retail
(3,506
)
December 19, 2019
1776 G Street
Office
61,007

 
 
Total 2019
$
398,985

 
 
 
 
January 19, 2018
Braddock Metro Center
Office
$

June 28, 2018
2445 M Street
Office
2,495

 
 
Total 2018
$
2,495

 
 
 
 
October 23, 2017
Walker House Apartments
Multifamily
$
23,838

 
 
Total 2017
$
23,838

______________________________ 
(1)  
Consists of 925 and 1000 Corporate Drive.
(2)  
Consists of five retail properties: Gateway Overlook, Wheaton Park, Olney Village Center, Bradlee Shopping Center and Shoppes of Foxchase.      

Seven of the eight retail properties sold during 2019 were identified for deferred exchanges under Section 1031 of the Code (see note 3). We acquired eight multifamily replacement properties (see note 3) during 2019. The taxable gains for 1776 G Street, a portion of the Shopping Center Portfolio proceeds not reinvested in the deferred exchange, and Walker House Apartments were distributed to shareholders through quarterly dividends in their respective year of sale.

Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRSs”). Our TRSs are subject to corporate federal and state income tax on their taxable income at regular statutory rates, or as calculated under the alternative
minimum tax, as appropriate. As of both December 31, 2019 and 2018, our TRSs had a deferred tax asset of $1.4 million that was fully reserved. As of both December 31, 2019 and 2018, we had deferred state and local tax liabilities of $0.6 million. These deferred tax liabilities are primarily related to temporary differences in the timing of the recognition of revenue, amortization and depreciation.

Beginning in 2018, ordinary taxable income per share is equal to the Section 199A dividend that was created by the TCJA. The following is a breakdown of the taxable percentage of our dividends for the years ended December 31, 2019, 2018 and 2017 (unaudited):
 
2019
 
2018
 
2017
Ordinary income/Section 199A dividends
80
%
 
29
%
 
76
%
Return of capital
20
%
 
71
%
 
%
Qualified dividends
%
 
%
 
2
%
Unrecaptured Section 1250 gain
%
 
%
 
8
%
Capital gain
%
 
%
 
14
%