Welcome to the Washington Real Estate Investment Trust, first quarter 2014 earnings conference call. As a reminder, today’s call is being recorded. Before turning the call over to the company’s President and Chief Executive Officer, Paul McDermott, Kelly Shiflett, Director of Finance, will provide some introductory information. Ms. Shiflett, please go ahead.

Thank you and good morning everyone. After the market closed yesterday, we issued our earnings press release. If there is anyone on the call who would like a copy of the release, please contact me at 301-984-9400 or you may access the document from our website at www.writ.com. Our conference call today will contain financial measures such as Core FFO and NOI that are non-GAAP measures as defined in Reg G. Please refer to the definitions found in our most recent financial supplement. The per share information being discussed on today’s call is reported on a fully diluted share basis. Please bear in mind that certain statements during the call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. We provide a detailed discussion of these risks from time to time in our filings with the SEC. Please refer to pages 8 to 15 of our Form 10-K for our complete Risk Factor disclosure. Participating in today’s call with me will be Paul McDermott, President and Chief Executive Officer; Bill Camp, Executive Vice President and Chief Financial Officer and Laura Franklin, Executive Vice President and Chief Accounting and Administrative Officer. Now I’d like to turn the call over to Paul.

Thank you Kelly and good morning everyone and thanks for joining us on our first quarter 2014 earnings call. I’d like to start by discussing the significant progress we have made in executing the strategy we outlined last quarter. As stated on our February call, we have aggressively begun deploying the medical office portfolio sales proceeds to strengthen each of our three core business lines; office, retail and residential. For office and residential we are focused on urban in-field properties with good access to public transportation, particularly in metro served locations. For retail, we are focused on strong neighborhood centers with exceptional demographic areas in and around the Washington DC area. The two significant acquisitions we made during the quarter clearly demonstrate our commitment to pursing our asset quality improvement strategy as we transition a portion of the Washington REIT portfolio from the 20-year-old suburban medical office assets we sold, into high quality Class A residential and office assets located in Downtown DC. The first was Yale West apartments, a newly constructed 90% leased, Class A residential building in the thriving Mount Vernon Triangle area of Washington DC, just two blocks from the convention center and metro and the east end sub-markets. The second was the off market acquisition of the Army Navy Club Building. A 100% leased Class A office asset, located on Farragut Square, just two blocks from the White House and one block from the Metro. The purchase of these exceptional assets strengthen our residential and office portfolios and importantly, the initial returns on both these properties are above the projections we provided in our guidance last quarter. The Yale West and Army Navy Club purchases are just the first steps. As we continued to execute our strategy, we fully expect to replace and grow the income…

Thanks Paul. Good morning everyone. Regenerated Core FFO for first quarter was $0.36 per share, a penny off our original budget projection, primarily due to the prolonged adverse winter weather. We originally budgeted the first quarter at $0.37 per share. Our results were $0.06 lower than the fourth quarter. This is the first quarter where all but $0.01 of the MOB sale impact was reflected in the quarter and the acquisitions we made in the quarter only minimally offset the impacts of this result. As a reminder, the lost NOI after debt service from the MOB sale is approximately $0.11 per share per quarter and as Paul mentioned, we are making strides to replace that NOI with each acquisition. Including the acquisition of the Paramount, the full impact of the two acquisitions this quarter, and the interest savings from the debt repayment, we’ve replaced approximately $0.05 of the $0.11. Core FAD for the quarter was $0.28 per share, an improvement of $0.05 over the fourth quarter, due to the lower tenant improvements, leasing commissions and recurring capital expenditures. Part of this improvement was just timing differences and the payment of tenet improvements and leasing commissions. We expect these expenditures to increase over the next several quarters, such that the total TI’s and leasing commissions in the year are expected to reach our budgeted amount of $40 million. Same-store NOI declined by 0.4% or $160,000 year-over-year as office and retail results positively impacted the challenges faced in the residential division. Overall same-store results were impacted by $0.02 of non-reimbursable weather related expenses. The inclement weather resulted in operating expenses increasing by over 10% versus the fourth quarter. Without the effects of the weather, same-store NOI would have been right in the middle of the 1% to 3% range we gave for…

I’d like to conclude by reemphasizing a number of the key initiatives Washington REIT has implemented over the past several months to transition and strengthen this portfolio. First, Washington REIT identified and executed on the sale of a medical office portfolio, realizing tremendous gains, simplifying the business and positioning the firm for enhanced and more stable growth. Second, the company embarked of the firm’s largest renovation project undertaking the reskin interior modification of our largest assets, 7,900 Westpark Drive office building. Third, we successfully acquired two stabilized residential assets, important milestones that mark the start to improving the quality of the portfolio and reinvesting the Medical Office sale proceeds. Fourth, we further upgraded the portfolio with the off market purchase of the downtown Class A, Army Navy Office building and finally, this company conducted a comprehensive review of the entire portfolio, which included a rigorous bottom up analysis of all portfolio assets, markets and regional economic conditions. This enabled us to develop a new strategy that further refines our past to building shareholder value, a past which we believe will not only close the gap to NAV but also grow NAV. Our reported results this quarter reflect the sale of the MOB, the significantly reduced occupancy at 7900 Westpark and the weather related cost of a very challenging winner. Going forward we see upside. The additional NOI from acquisitions, the tenant move-ins and rent commencements and the over 1.7 million square feet of leasing we did last year and our ability to source additional off market transactions should begin to push results higher in the future. Now we would like to open up the call to answer your questions.

Thank you (Operator Instructions) Our first question today comes from the line of Dave Rodgers with Baird. Go ahead with your question please.

Hi, good morning guys, thanks for the time. Could you talk a little be more Paul, maybe about the acquisition pipeline that you’re seeing. I think the kind of the key question will be MOB proceeds. You made good progress in the first quarter, but particularly kind of an urban in-field office. Is that pipeline kind of meeting your expectations and maybe a second part to that will be on the multi-family side. Is the weakness in fundamentals pushing more your way?

Sure, lets start with the office portfolio. In terms of the pipeline, it is I think as you know, extremely commutative out there. I believe I said on one of our prior calls Dave that we would have to go out and basically attack the market and be very aggressive in our pursuit of off market acquisitions. I believe we are doing that. If you look at the number of the trades that have taken place, probably over the last 60 to 90 days, I mean it’s been very minimal. Its one of the most depleted pipelines I’ve seen in my career, which is fairly ironic when you couple the leasing fundamentals that are taking place out there right now. It’s just the fact that there are a number of transactions that are being chased by much more capitals than the market care bear. I think what we have to do and what we are trying to do to be effective is each one of our three portfolio managers has a target list of assets. Whether those assets are on the market or they are not and their respective owners. Number two, we are trying to effect the relationships that we have through most of the senior management team here at the origination, through their longevity in the market place, and number three, and quire frankly its about expectation. I think if you talk to the owners and the debt holders of the Army Navy Club, they were very pleased with our execution. I think that we hope to replicate that and hope to have something to report about that in the next quarter. In terms of multi-family assets, we are very aware of the ongoing supply pipeline. We also think that that is going to present us of market opportunities. We don’t believe that all of these construction starts will actually happen. We’ve actually been talking with some people that I believe are getting cold feet and that we’re probably in the market place for the short to moderate term hold and they are already talking about monetizing their investments. So I believe we are going to see plenty of opportunities over the next two years, even with 17,000-plus units that are expected to deliver over the next 12 months. We’re confident that we are going to be able to pick up some assets and augment our portfolio.

Okay, maybe a follow-up to that. You talked about growing NAV and I think in bringing Tom onboard you talked about his skill set with development and expertise there. Can you kind of talk about your view and, is now the right time? Or is Wash REIT positioned to do development? Are you comfortable doing that similar to either major redevelopments like 7900 Westpark or the apartment JV?

I’ll answer that in two ways. Number one, we are always going to examine an opportunity to increase shareholder value and it’s obviously on a risk-adjusted basis. I happen to think we have 7900 is a good indicator. I happen to think we have some nice redevelopment opportunities already embedded in our portfolio. So first and foremost Dave, we are going to look at those. But we continue to get approached by partners on all three-asset classes and the most guidance I can give you is we are going to examine each one of those opportunities on a case-by-case basis.

Great. Last one just a clarification from Bill. Bill, on the weather, was the $0.01 negative of revenues and $0.02 negative to expenses or did I not kind of interpret that correctly.

Its $0.02 overall Dave. In terms of separation between revenue and expenses, I’d say it’s probably closer to $0.03 in expenses and $0.01 in revenue.

Okay, great. Thank you.

Our next question comes from the line of Brendan Maiorana with Wells Fargo. Go ahead with your question please.

Hey thanks, good morning. I don’t know, either Bill or Paul. Can you give an update of where you stand with the 1031 proceeds and timing and maybe what’s out there on the pipeline as it relates to placing that 1031 money?

Okay, in terms of the 1031, just as a refresher, because it is somewhat complicated, so I’ll go through it again. We had two buckets of 1031 money from the January sale. One was of roughly $80 million and one was roughly $115 million. The first one was essentially done with Paramount and Yale West, and then the second one obviously we started taking things away with The Army Navy Club. It leaves us about, call it $85 million to $90 million left in that pot. Let me put it this way, we are very confident that we’ll be able to take care of that hopefully sooner rather than later, but certainly by the July 20 date.

Okay. So what’s the – I think on the balance sheet there is $107 million of restricted cash. I presume a portion of that is related to the last trench of that 1031 money, but what’s the remainder.

Basically when we – this is our Laura Franklin. When we completed the first part after the purchase of Yale West and Paramount, there is about $6 million left that we are going to absorb in our dividend distribution this year.

So it’s a little more than just what I was talking about Dave.

Okay. And so Bill you mentioned, you affirmed the guidance of $1.56 to $1.64. It seemed like or at least my impression of the ramp expected in earnings was partially driven by deploying a lot of the cash from the MOB into acquisitions and while you started the year off nicely with acquisitions, the 150 has been encumbered by $100 million of debt, which doesn’t drive as much to the bottom line. So I’m wondering, having that financing there, which doesn’t give you as much impact on the bottom line and having the weather in Q1 impact you, what are kind of the offsets that keep you comfortable with that range, given you’ve got headwinds.

That’s a great question. I would say Brendan that first and foremost the quarter is obviously impacted by a couple of pennies of weather, which hopefully we don’t have a couple of pennies of weather in this quarter. Secondly, I think the acquisitions as you pointed out did come with some debt, which obviously offsets the positive impact of those acquisitions. You should assume that going forward, at least in kind of the next round of acquisitions, if we think we know what those are and probably come with no debt, so that’s part of it. The other part is that just the occupancy gains that we expect, primarily in the office and the retail area are just the separation between the lease percentage and the occupied percentage if that ramps up and closes. I think that will add some dollars to the bottom line. So I think that we’re pretty comfortable that we’ll get back on track. But one thing that I will note is that generally the – and this is just an observation. The consensus numbers on a per quarter, we don’t give per quarter guidance, but the slope of those numbers quarter-by-quarter was somewhat flatter than I would have probably done in our model. Certainly it was flatter than what’s in our model.

Right, okay. So you mentioned that you expect occupancy to move higher in Q2. Given those comments, do you think it trends higher in the back half of the year as well.

We are certainly expecting it to. That gets a little grayer as you go forward, you know it’s hard to say, but we are expecting some.

Okay. So if I did the math correctly, your same store number in the quarter, if you were $0.02 in the quarter, that’s you know call it a $1.2 million or $1.3 million of dollars related to weather and that’s about 3% to the same store impact if I did that math correctly. Are you also affirming kind of your overall same store guidance, which I think was plus one to plus three if I remember correctly.

Yes, what I said in the prepared remarks Brendan was that if you took the snow away, we would have been right in the middle of that range and quite honestly, each of the sectors would have been right pretty much in the middle, with the exception of retail being above the high end of the range for the quarter. Office and residential would have been pretty much right in the middle of each of the ranges and for those who might not remember what those ranges were, let me just kind of refresh everybody’s memory. In office we expect kind of 2% to 4% on same store, obviously excluding Westpark. In multifamily we were minus three to zero and retail we were zero to one.

Okay, and your keeping those ranges, even though you have that negative impact in the first quarter.

Yes, from right now we want to sort through the second quarter. I think we’re going to be in those ranges going forward and I think we can kind of capture the gap that we kind of put ourselves in a hole in the first quarter, I think we can capture that back.

Okay, great. Alright, thanks.

Our next question comes from the line of Michael Knott with Green Street Advisors. Go ahead with your question please.

Thank you. Hey guys. A question – I’m not sure if you covered this in your prepared remarks, but can you just talk about what was behind the sequential uplift in the retail occupancy?

Yes, Michael retail was primarily a couple of big occupancies. There are people taken occupancy that leases were signed quite a while ago, the biggest one being fresh market at Alexandria in our Bradlee Shopping Center. That was roughly 25,000 feet. So we had another one up in Westminster. I believe that just started and so there was a couple of them, it wasn’t major. They definitely moved the numbers. I mean when you look at them on an individual basis, they moved the numbers quite a bit.

Okay. And then two questions that are probably a little bit intertwined. Can you talk about any update on your status with World Bank and then more broadly when we look at your roll over schedule for next year, for ’15. This year feels like it’s smaller than it was and then we look at ’15, its still a decent sized number and I know World Bank might be a part of that. Can you just talk about both of those items?

Sure Michael. Lets start specifically with the World Bank. We’ve been engaged with the World Bank probably over the last 90 to 120 days. We have received a proposal from them and I can’t get into a number of details, but it would involve a lease extension. What we are doing right now is the settling, what is the best and what creates the maximum value for our shareholders via the lease extension, a redevelopment or a sale of the assets. We have not come to a conclusion on that, but please rest assure that we are in deep discussions with the World Bank and at a minimum we would probably see some type of extension in that lease, but again, we’re going to look for an opportunity to create maximum value.

And maybe in that end, maybe can you remind us what they are of your ’15 role and then any other big ones in that group that your thinking about or worried about or working on?

I think the biggest one that you should focus on is probably Booz at our John Marshall. We have issued a proposal for them for renewal and we are expecting a counter offer sometime this quarter and we will move that along appropriately, but that’s as far as the most significant single tenant needle move, where that would be it Michael.

Yes, there’s other ones that are out there, but that’s by far, the World Bank is by far the biggest one and then Booz comes in right on the heels of that in 2016.

Okay, and then a question on new leasing. As your office occupancy starts to hopefully rebound further over the next couple of years, obviously our leasing costs will be a big deal and just looking at the lease economics on new leases on page 22, just a walk through. It seems like the last couple of quarters you’ve been signing not big spaces, but for office, $30 gross rents, about $10 a foot per year in TI’s and leasing commissions and then I guess operating expenses would be on top of that. So can you talk about the net effect of rents on new leases and it sounds like it could be kind of single digit type benefactor of rents, given the weakness of the market. Can you just talk about your prospects for how that’s trending?

Yes, I think Michael I’ll say – I mean your observation is right. Its kind of gross leasing, its kind of mid 30’s. I think concessions will start coming down as occupancies start increasing. Downtown we’re 97% leased, so we’re in a position where we can start pushing the concessions down, so that’s a good part and some of the suburban office buildings quite honestly are in somewhat similar shape. We are working to fill up monuments. Obviously the big hole that we have is going to be refilling 7900 and that one we’re putting improvements into the buildings we think we can push kind of gross rents there. We think the concession packages won’t be really any different, so we’ll get our rental increase with pretty much the same kind of concession package. So we feel like on the office side things are going to get better as we continue to improve the occupancy.

Okay, and on these specific leases, the last couple of quarters, can you just remind us, I’m not sure what the mix is, but what the rough operating expense load would be on these?

It’s all over the board in terms of suburban and downtown. I’ll get back to you on that.

Okay. And then can you just remind us on – since you mentioned 7900. What your projected incremental return on capital is and what the timeframe is for finding tenants and finishing that?

The way we kind of put 7900 on the drawing board in terms of returns, it’s been in that 8% to 10% range. Basically where that goes is from taking kind of high $20 rents in that building up into the high $30’s to low $40’s is kind of where we’re projecting. That would still be kind of $10 below or more below the kind of the higher end rents in Tysons. So we feel pretty good about those numbers. So that’s kind of where the return threshold is.

Okay, and one last one for me and then I’ll yield the floor. Paul you’ve been there, I don’t know, maybe five months or so now I guess or six months, but just curious, where you would say we’re at in terms of getting Wash REIT the way you want to go. I would guess we’re still very early innings there in terms of doing what you want to do. Do you think that by the end of the year we’ll be in a better position and you’ll be further along in terms of getting accomplished what you want?

Another good question Michael. Lets start with when I came here what was, what I consider mission one. Mission one was getting the MOB proceeds back working for the shareholders and then I think I talked about it on the first call, that my objective would be kind of the PPP’s; the People, the Processes and the Portfolio. We had a very good offsite at the end of January with our Board of Directors. I’m very pleased to say, I mean we met with our Board again this week; that they are extremely supportive of our efforts to kind of enhance all three of those aspects of washed REITs. I think we are demonstrating that right now and I think we are trying to demonstrate that we are improving the quality of the portfolio through our recent acquisitions. I can’t give a better example of a augmentation to the depth of the bench than bringing Tom Bakke onboard and I can assure you that the processes are all part of that also and that we have done substantial work and are implementing substantial new processes, particularly on the front end of our business, kind of transitioning the firm from what I would consider more the skinner to more of a hunter and respectfully going after more off-market transactions, trying to frontload this thing matched on capital. Those types of processes are going in place. How far am I along? We’re still kind of in the first quarter. We got a lot of work to do. I believe that it will be a different company 12 months from now, but time will tell Michael.

Okay, and thanks a lot.

(Operator Instructions) Our next question comes from the line of John Guinee with Stifel. Go ahead with your question please.

John Guinee here. So let me just talk a little bit more and kind of put some numbers around what my good friend Michael Knott said. If I look at your FFO for 2010, 2011, 2012, its in $1.90 to $2 range where its trending down, and then if we look at 2013 and 2014 and consider those justifiably transition years, it appears to me from the ramp up numbers and the guidance that you gave Bill, that to the end of the year, this year, the beginning of 2015 ought to be a $0.43, $0.44 FFO, which sort of implies 2015 is a $1.76. So well you sort of lost $0.20 over the last four or five years and then what we’ve got is – well, obviously 7900, that’s a defensive must do. Whatever, lease that building and its previous configuration and you’ve clearly purchased $200 million worth of very core oriented assets, which we wouldn’t disagree with, but just point out that they are very core oriented assets. I think going back to the FFO number, if you stabilized a better portfolio at $1.76, you’ve got a run rate of $40 million and TI’s of run rate of $5 million of base building and it translates to about $1 to $1.10 of FAD against the $1.20 dividend. So as I think of this company, I think of an improved portfolio. I think of a FFO in the $1.75, $1.76 range for ’15. I look at the situation where we aren’t covering the dividend and I guess it’s the best case that we’re just sort of waiting for the investment community to fall back in love with DC or how should we look at kind of where we go in ’15 and ’16 once we’ve reinvested the MOB dollars and stabilized the portfolio in a $1.75 FFO $1 to $1.10 FAD.

It’s a good question John. I think your math is, I would concur with your math. I’m not giving guidance for 2015, I’ll state that out there, but your math towards the end of the year and on a quarterly run rate is a pretty good logical conclusion and I think that the $40 million NOI, if you remember from the last quarter of CapEx and TI’s and leasing commission, if you remember from last quarter, we think that elevated probably for this year only. Because we did soo much with our leasing last year and as you know some of those were fairly expensive transactions to fill some pretty holes in our portfolio and those won’t be necessarily a recurring instance, so you gap between FFO and FAD will narrow over the coming years. So I don’t necessarily think that while your math is pretty good for this year in terms of the FAD number and where we think the dividend is and where the FAD will end up, I think that what we’ll see going forward, is that dividend being covered and hopefully we can begin to grow it. Keep in mind as you gain occupancy, you also gain the ability to narrow it. As I said earlier, you narrow your TI’s and leasing commissions, you have more leverage and you also start moving rents up.

Right. So what ends up happening is we’ve got clearly a much better portfolio in 2015 than 2011 or 2012. We’re still in the situation where your better off as product and no ones very convinced in DC you know, the good stuff in the next few years. Apartments is candidly the same situation, nobody is ready to rent anywhere in the apartment world in DC for the next couple of years and you still got about 1 million, 1.2 million square feet of pretty tough product up in the lower 270 corridor in suburban Maryland. What else do you have planned on the disposition part of the equation or the value added side of the equation to try to offset those harsh realities?

John, its Paul. I don’t know if I concur with your observation that your not going to be able to move effective rents in Washington DC over the next couple of years. I mean, if I even look at the first quarter right now, we saw asking rents were up 2%. We think that there isn’t really a supply problem. Three buildings delivered in Washington DC in the first quarter. They were 92% pre-leased. I guess I just don’t share your sentiment on the next three years in downtown DC. I acknowledge that the suburbs will be challenging. I think as I stated in my narrative, we are looking at opportunistically selling assets in some of our non-core suburban markets, but I also don’t think those assets are positioned for sale right now. There is some modest leasing taking place in some of the markets that we want to exit from and we are going to continue to try to get these assets back to an increased stabilized position and then probably take them to the market over the next 12 to 24 months, maybe even 36 months.

Okay, financer, just one last question. The Booz Allan space, the John Marshall building, refresh my memory. Which metro stop are you in Tysons and how far walking is it to the entrance of the metro stop?

It’s 500 feet john I think is the number to that stop and it is the third stop. I think its metro west. It’s the first stop on Route 7. It’s the E-side of Route 7 in Tysons. So it goes McClain, then it goes together there at the mall stop where Macerich is and we are and then it goes to the Route 7 metro west and then the last one is Springhill.

Perfect. Okay, thank you.

Sure.

There are no other questions in the queue, so I would like to turn the call back over to Mr. McDermott for a final remark.

Thank you. I’d like to thank everyone for your time today and we appreciate your interest in Washington REIT. I would also like to remind everyone on this call today that Washington DC still remains one of the world’s top real estate markets and we are confident that this region will support our desired growth over the coming years. The new steps we are implementing are strengthening our portfolio and further positioning us to capitalize on the improving regional economic conditions and we look forward to updating you on our progress on our next call. Thank you everyone.

Thank you. This will conclude today’s teleconference. You may disconnect your lines at this time. We thank you for your participation. Have a great day.