Welcome to the Washington Real Estate Investment Trust Second Quarter 2014 Earnings Conference Call. As a reminder, today's call is being recorded. Before we turn 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 this 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; Tom Bakke, Executive Vice President and Chief Operating Officer and Laura Franklin, Executive Vice President and Chief Accounting and Administrative Officer. Now I'd like to turn the call over to Paul.

Thanks Kelly and good morning everyone and thanks for joining us on our second quarter 2014 earnings conference call. I'd like to start by saying we’re beginning to see the positive signs from the successful execution on our strategy of improving the quality and location of our assets, structurally reallocating resources to improve our operational performance and redeploying the sales proceeds from the medical office portfolio transaction. This quarter we began to show significant progress on each of these fronts as Core FFO increased $0.05 over the first quarter and we achieved significant same-store NOI growth. Lease execution was the primary driver of the strong performance this quarter. As we noted over the past several quarters, the tenants of leases executed in the second half of 2013 are now taking occupancy. Overall portfolio occupancy improved 170 basis points to 90.1% making this our first quarter above 90% since the fourth quarter of 2011. In addition to the strong occupancy gains in the quarter, we are now close before deploying all of the medical office sale proceeds. Consistent with our stated strategy to acquire well located high quality assets at the urban core, we purchased 1775 Eye Street, North West of 185,000 square foot office building in Washington, DC's Central Business District during the second quarter. 1775 Eye Street, which was 62% leased at the time of the acquisition, represents a significant opportunity for value creation and earnings growth potential. We are confident in our ability to execute our leasing strategy of this property, given our recent successes, recent Downtown office portfolio. Excluding 1775 Eye Street, our Downtown office portfolio is now 98% leased. We will continue to look for additional acquisition opportunities like1775 Eye Street to enhance Core FFO growth. I want to emphasize however that our willingness to take…

Thanks Paul. Good morning everyone. Second quarter Core FFO was $0.41 per share, $0.05 increase over the last quarter. This significant increase in Core FFO was attributable to NOI generated by acquisitions completed during the year, improvement in occupancy levels across the portfolio and lower weather related operating expenses compared to the first quarter. Core FAD for the quarter was $0.25 per share, a $0.03 decrease during the first quarter due to the expected higher tenant improvements, leasing commissions and recurring capital expenditures. As stated on last quarter's call, this increase in tenant improvements and leasing commissions was expected and reflects the variance in when these items are paid out. For the year, we expect the tenant improvements and leasing commissions to approximate our budgeted amount of $40 million. Our portfolio performed extremely well during the quarter delivering same-store NOI growth of more than 6%. Same-store occupancy improved 240 basis points to 92.6% and overall occupancy improved 170 basis points. Additionally, each of our property divisions experienced significant occupancy improvement in the quarter. In the office division, same-store NOI increased 8% year-over-year. Same-store occupancy improved 420 basis points over the last year and 370 basis points from last quarter our direct result from our strong leasing performance in 2013. During the quarter Alexandria City School Board took occupancy of Braddock metro center ahead of schedule pushing occupancy over 96% at the property. From a lease perspective, the same-store pool remains well reached at approximately 93%. Overall office occupancy increased 86.2 or 250 basis points from the first quarter. This strong increase overcame the addition of the 62% occupied 1775 Eye Street acquisition and the move-out associated with the renovation project at 7900 Westpark. Commercial office leasing for the quarter totaled 79,000 square feet up from last quarter. Consistent with previous…

Thank you, Bill. We started this year emphasizing to investors that we were executing our plan to significantly improve our portfolio, our processes and our people. We articulated our strategy of improving the overall quality and location of our assets, and the completion of three acquisitions to-date totaling over $250 million firmly underscores the progress we're making. On the process and people side of our business, our new Chief Operating Officer has completed the implementation of our portfolio management model, significantly changing our operational process and enhancing the lines of accountability. This change has materially improved communication and coordination amongst our employees, tenants and vendors. In addition, we are reallocating our human capital to strengthen our core business acquiring, owning and operating real estate. All of these changes have led to the significant improvement in performance this quarter and we will build on this positive momentum going forward. Our performance this quarter is a reflection of our significant improvement in occupancy, operational performance and a positive impact from acquisitions during the first half of the year. However, we still have much more work to do to keep improving earnings. This includes completing and efficiently leasing our residential development of Maxwell, executing on our renovation strategy at 7900 Westpark and leasing up 1775 Eye Street. When we accomplish these actions we expect to achieve significant growth in earnings. Now, we would like to open the call to answer your questions.

Thank you. (Operator Instructions) Our first question comes from Anthony Pallone from JPMorgan.

Thanks and good morning everyone. I was wondering if you can talk to some of your major tenants like, your top three and just give us some update as to how you see those recent decisions coming along as they approach some expirations and it seems like some are recent in the market looking for space.

Sure Anthony, let's start with a deal we're working on right now, which is Booz Allen Hamilton. We are in negotiations with Booz at this time. I think we feel very good about our prospects and we hope to have some positive news to report to you next quarter. The World Bank, we are also in negotiations with right now. I think what we would like to emphasis with you and our investors is that we are going to take the opportunity to maximize the value of that asset and we are being approached by a number of different tenants right now and so we are going to make sure that we do the transaction that creates the most value for that asset and maintains our optionality. We do think that the World Bank wants to remain in that phase but given our activity with some other tenants and the rents that we are discussing, we're confident that we're going to be -- we will put the deal on the table for that asset. The Advisory Board, myself and Tom Bakke our Chief Operating Officer are meeting with the Senior Leadership Team in August. We have begun discussions with the Advisory Board and their broker and we are looking forward to trying to create a long term viable partnership again that creates value for that asset and our shareholders. Those are our top three Anthony.

Got you. Is there any way to put any brackets at this point? I know they're big and the deals could be more complicated in this but any sense, like what the mark-to-market on those three looks like right now and what type of TI's you have to consider to keep them?

Tony as you know the market is competitive. So we're trying to keep big tenants always interesting. I would say it's going to be a little bit of a mix bag with those three tenants because of the different optionality we have. Booz is out there with their headquarters that's kind of an interesting one. So, there's not -- I can't give you a lot of details right now because none of the leases are done. So, we're working on them and we'll give you more detail as we can.

Okay, understand. And then just last question, at Westpark I know the occupancy went down and there's a plan there now respectively. Can you just remind us like what -- where that goes to and just how that plays out?

So we have one more tenant that's going to drop out of 7900, that's L3 Communications, hang on, they're around 20,000 feet I think. And those guys, those guys will be moving out, their lease up in September. Interestingly with that tenant, there was a tenant that we quite honestly didn't expect to last through construction and they decided to stay but they are moving out at the end of the lease. So that will be a down draft and we will have -- this quarter we'll have an impact, a little bit of an impact from the downsizing at Sunrise because they moved to different space and downsized a little bit. They went from 80,000 feet to 66,000 feet, 67,000 feet. So there’s a little bit of movement down before we start leasing up. And the plan is that lease up will be now basically fourth quarter through 2016.

Okay. So, it sounds just the rough amount as you walk you to sound like it goes -- it drops down at about 50% and then…

Yeah, I think it did. Actually if I do the math, it might be just a bit lower than 50% but yes, you are in the right ballpark.

Okay. Thanks guys.

Thanks Tony.

Thank you. Our next question comes from John Bejjani from Green Street Advisors.

Good morning, guys. Real quick, can you quantify or elaborate on the drivers, the big jump in same store NOI this quarter? Was this predominantly leasing done last year hence no change in the guidance, especially on the office side?

Yeah, this is pretty well expected. The biggest drivers -- the biggest driver was the Alexandria City Schools that moved in this quarter. They moved in two months early. So that was a little bit of a benefit but that was well expected. And then the other moves were a few, were a move-ins, 2000 M Street had a few move-ins this quarter. There were some other so. It's pretty well expected. It's all from leasing last year and the first half of this year.

Okay. I guess one more upcoming expiration ManTech, what's the situation there?

For ManTech, ManTech is expected to go prime. We're expecting some of the sub tenants to go prime in their space. They've had some sub tenants in there. So, there – we're still working with them. At Quantico we're anticipating that they kind of renew but we're just not sure what -- it'll be a short term interval just like most of the contractors and they will -- we're hopeful that they'll stay in the same lines for the quarter, but we’re still working on it.

Okay, great. And one last one, it's still pretty early, but [indiscernible] with their merger, do you have a sense how that impacts your probability for renewal at this point?

The Advisory Board, the Advisory Board has taken all of [indiscernible] space as a sublet tenant. So, when [indiscernible] lease expires, they are working with Advisory Board as Paul mentioned in his remarks. We're working with those guys. So, they've -- the Advisory Board has that full building.

Okay. All right, great. Thanks guys.

Thanks John.

Thank you. Our next question comes from Dave Rodgers from Robert W. Baird.

Hey, good morning guys. Hey Bill, maybe first question for you on the same-store OpEx comparisons from year-over-year, they were, they can be favorable from what we could tell. You mentioned maybe a lower bankruptcy or bank debt cost in resale I think, but was there anything else in those costs that we should be thinking about as a one time item or that might not carry forward?

I don't think I remember seeing anything Dave that was just way-out, other than bad debt, was just a bad debt thing. And like I said in my remarks, part of that is one time in nature we had some collections. We also had a difference in lease termination fees between the two quarters. We had roughly $300,000 this quarter and about $160,000 last year.

Okay. That's helpful. Hey Paul, maybe you talk a little bit about acquisition opportunities, what you’re seeing in the market, obviously we know you’d like to continue to replace the older assets with new. What's percolating in the market, obviously it's July so maybe not much but what are you hearing that's coming out that you're interested in looking at.

Well, you're right Dave. Usually, from 4th of July through Labor Day we do see activity tail off. I would tell you in talking to the top three brokerage firms in addition to our regional network of owners and operators, we actually think there is going to be a pickup in the third quarter and fourth quarter of activity. We are looking, we continue to look at opportunities off market and I'd say probably the most activity we're seeing right now is obviously on the office front just given the scale and the breadth of that marketplace. On the retail side, the deals continue to be out there. We feel good about our opportunity to try to make one of those between now and the end of the year and hopefully we’ll have something positive to report about that. And then on the multi-family side right now, just given the kind of pending supply on slot, we're actually getting calls on deals that are kind of breaking right now and so we're trying to look at that versus kind of redevelopment place but I think we’re going to see our share of deals at the end of this year, I think Dave last year I think the market was probably in total investment sales kind on that side, it was about $18 billion, I think this year we're probably forecasting $22 billion to $23 billion. So, we think there's going to be a pickup on the back half of the year.

And with regard to your multi-family comments, can you give some of your deals breaking, are you talking about maybe developments you could step into as a financing partner or just talking about acquisitions. And I guess second part on the multi-family question would be, you talked about maybe same-store headed to the lower end or potentially below the low-end of guidance, is that stemming from just pure market conditions or you becoming more aggressive in kind of taking units out of service?

I'll take the first part of that. In terms of the broken deals, we're seeing them on both sides, both the acquisitions and the development. I think the deals that we're seeing on the development side are when construction lenders are getting their updates and they are readjusting their coverage and LTV requirements, we're seeing more calls for equity at the partnership level and we're seeing people either not being able to raise the equity or saying that they would like to monetize and transfer the risk potentially to discount. So, we’re looking at both of those and we’re looking at those on our own and with potential JV partners.

On the second part of your question on terms of the guidance range on residential, it's a little bit of two things. First it's obviously the weather we have in the first quarter, drop this below that, low end of that range and we’re working to recover. The other thing is from an expectation perspective, while we were up in occupancy in second quarter, we weren’t up as high as our original projections. So, we didn’t grab as much of the summer season leasing that we wanted to and we're still working on it but while our expectation is to dive back a little bit.

Thanks for that color. Nice quarter guys.

Thank you. Our next question comes from Brendan Maiorana from Wells Fargo.

Hi, thanks. Good morning. Bill, last quarter you suggested the ramp in earnings. And I think, the published assets that were out there, was it too shallow of a slope that it was going to be low in the beginning of the year with the big ramp as you get towards the end of the year. If I look at what you did in Q1 and then in Q2, you did -- in Q2 you did it was $0.41 reported -- but it was really [$0.4105] (ph) and the backend of your midpoint of your guidance suggest a [$0.4105] (ph) quarterly FFO number for both Q3 and Q4 if you hit the midpoint and if the trajectory is flat. Has something changed in terms of kind of the ramp or is it just, you think that's more in Q2 than you thought?

That's a great question Brendan. I would say -- I would say the ramp is probably still there but it might be little more shallow than we thought. We had a pretty good, we had lease up going throughout the year kind of with uniformly. I think a lot of that was picked up this quarter and with the early move-in in the Alexandria Public School and things like that, we took a lot of, we took a little of this scheme out of the slope. It's still positive. It's still positive so we certainly expect that to be a positive.

Okay. So, if I hear that comment correctly, do you think that earnings in Q3 and Q4 is a little bit higher than what your -- you put up in Q2 or do you think it's -- which would suggest that maybe a little more comfort with the upper half of the range than the midpoint of the range?

Well, let’s just think about that for a second. We’re at $0.36 the first quarter -- we're at [$0.4105] (ph) the second quarter. Even if you post 42 and 43, you do kind of get a little bit above the midpoint, but there's a lot of variability in the world in Washington DC as you guys have all written about it your reports. So, we’re watching things carefully.

Yeah, I understood. And just in terms of deployment of capital, I guess do you feel if you’re kind of match, fund and deploy at this point and such, if you were to do more acquisitions it's likely funded with dispositions almost, directly was attractive issue.

Brendan, we are definitely looking at disposing of some properties to fund our acquisitions. As I said to Dave, we actually think that the second half of this year will probably be a little more robust than the first half of the year. So we are considering all our options, we're going to continue to look for the lowest cost of equity and certainly acquisitions is one of the areas in the corporate to do that.

And Paul what do you think the nature of the disposition is likely to look like. Do you think that's kind of non-core asset that maybe you're in some of the struggling submarkets where maybe cap rates are a little bit higher than they would be in terms of things that you're thinking about acquiring?

Well I think what we're looking at Brendan is probably and we're looking at different tranches within the portfolio. First and foremost obviously we’re looking at the non-core assets, our commitment to our investors is to recycle the portfolio, and improve the quality. So that is number one. But also as you know with some of these assets we have some gains, we might have some losses, I don’t think so but we want to look at blending those. Some of the transactions that we're looking at might be larger transactions, so we might be looking at different types of pools. So again, we're trying to consider all of our options but certainly first and foremost we want to continue to chip away at that non-core portfolio to monetize and redeploy the capital.

Okay. No, that's helpful. So last one, Bill I think you mentioned your leased rate now on the same-store pool was about 93%, your occupied rate is, I think its 92.4%, I don't have the page right in front of me. So that -- that feels like it’s a pretty narrow spread. Is it fair to assume that the embedded occupancy gains from the leasing that you gave, last year is what your fully reflected in the portfolio now such that we shouldn't accept occupancy to move up amongst those kind of the significant change that came through back half of the year?

Yeah Brendan. When you look across the portfolio and really look at the holes, there are just not that many big holes left in this portfolio. So, you might be able to [nick one diner] (ph) way to higher occupancy but it's more of that, things that are under 10,000 feet that just don't move the needle all that much. But we're working on a couple of things. Obviously the biggest hole in the portfolio is 7900 and that is not in the same-store pool right now, but we are working on it to get that one down.

Do you think it's overall occupancy if you include 7900 do you think it goes down in the last six months, does it go up, how should we think about just occupancy?

I think occupancy could drift a little bit higher throughout the year just based on, we really only have that one change at level three at 7900 that we really are expecting. So it could be flat modestly up as my guess for the second half of the year.

Okay. Great. Thanks guys.

Thanks Brendan.

(Operator Instructions) Our next question comes from John Guinee from Stifel.

Great. Thank you. Nice quarter guys. We were just looking at our 2Q leasing statistics in the Greater DC area and the West End CBD, East End doing fine is not a surprise at all. For Southeast, Southwest that's very price sensitive product, but great natural excess etcetera. That seems to have lagged a bit Pentagon City in 395 Corridor etcetera disaster Tysons Corner doesn't seem to be getting much traction [drive] (ph) involve sort of the same thing. Can you talk about what you think happening in some of these well located metro centric markets that seemed to be really lagging right now?

Well that was mouthful John so let me comment and what kind of just cares through it. I think if we look at DC right now, and I think – I know you articulated this strategy to our Trustees but to our investors we said we were going to be very sub-market specific. In Washington DC when we look at the last quarter and we also look at year-to-date, we continue to like the CBD and the East End I think you have positive absorption of $400,000 square feet in those two markets. I think the markets that have move-outs in DC proper were the West End, Uptown and Southwest. But we look at the second quarter in terms of rents, rents were essentially flat. I think we were about $50.25, around 11.2% vacancy rate. So, we've been calculative on how we’ve gone after things. I can tell you John that on our 1775 Eye Street asset, our first deal on that asset we will be performer on our underwriting. If we look out at our assets in the West End, I mean fortunately 2000 M Street 100% occupied. We’re doing well, it’s just - we’re trying to find opportunities to create value and I think you're going to see that renovation trend for people that want to move rents and when I say that, older assets that probably have an optionality out of rooftop tariff, fitness center, conference center kind of what we've done again at 2000 M Street. If I look at around Virginia, the challenge that we're seeing over there is really private sector gains. It's not just Virginia, it's Maryland too. Private sector gains are really an employment of really being netted out by continued federal government interaction. We actually saw some decent activity and then…

Great. And the second question, great job of redeploying the MOV capital. Right now you're 40% levered and clearly you have in the game plan to recycle some of your assets through temporary one exchanges, what about the thought process of levering up a little bit or issuing more equity, where are you in that thought process?

John we're obviously evaluating everything. Leverage is when all the debt guys on the call, do all the calculations on debt to EBITDA and fixed charge and everything else, because of where we are on the progression of NOI and EBITDA gains from being down in the hole of selling medical office, we still going to ramp back up on that part yet. So, some of those ratios are continuing to climb a little bit. So, watching those closely, so levering up is something that we're interested in but we have to look at, we have to look at the impact to the numbers. So, really it becomes direct question of what's the best source of equity to go forward with and that's why we like the, dispositions right now over new equity but we'll keep monitoring that as we move forward.

Great. Thank you.

Thanks John.

Thank you. Our next question is a follow up from Brendan Maiorana from Wells Fargo.

Hey, thanks. Bill, just a quick clean up so, the upside in the portfolio longer term comes from 1775 Eye and 7900 Westpark, can you just give us your estimates of the NOI growth potential from the two assets if you are able to bring them to stabilization?

Let me think about 1775, 1775 probably incremental couple of pennies, penny or two on a quarterly basis. And 7900 is a big mover, and that thing can be as much as $0.02 to $0.03 up quarter, so that's a big one. And then you left off the Maxwell which is our residential development and that's probably another penny or so a quarter. And so that gives you an idea of the big holes.

So, and just -- 1775 Eye is an acquisition, so there's no capitalization of anything happening on that one. 7900 Westpark I don’t believe that you’re capitalizing much in terms of, just interest on the incremental strength, right on the book value?

Yeah.

Okay. And then is the penny at the Maxwell net of the capitalize interest burn-off that will happen when that delivers?

Yeah, it should be.

Okay. Great. Thank you.

Thank you. At this time I will now turn the call back over to Mr. McDermott for final remarks.

Thank you. I’d like to thank you all for your time today. We’re excited about the future of Washington REIT and its ongoing transformation into a best-in-class operator of commercial real estate in the Washington DC metropolitan area. Our results during the quarter reflect our continued operational progress. You can expect us to continue to execute our stated strategy and offer some residential we will remain focused on urban, infield properties, with good access to public transportation particularly in metro served locations. For retail, we're focused on strong neighborhood centers and exceptional demographic areas in and around the Washington DC area. We are confident in this strategy and believe the steps we are taking will continue to not only strengthen and grow our portfolio, but provide consistent, superior, long term results to our shareholders, which is the mission of Washington Real Estate Investment Trust. Thank you again. And we look forward to updating you on our continued progress on our next call.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.