Welcome to the Washington Real Estate Investment Trust first quarter 2010 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, Skip McKenzie, 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 first-quarter supplemental financial information is also available on our website. Our conference call today will contain financial measures such as FFO and NOI that are non-GAAP measures and in accordance with Reg G, we have provided a reconciliation to those measures in our supplementals. 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. Such risks, uncertainties, and other factors include, but are not limited to, the effect of the recent credit and financial market conditions, the availability and cost of capital, fluctuations in interest rates, tenant financial conditions, the timing and pricing of lease transactions, levels of competition, the effect of government regulation, the impact of newly adopted accounting principles, changes in general and local economic and real estate market conditions and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2009 Form 10-K. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Participating in today's call with me will be Skip McKenzie, President and Chief Executive Officer; Bill Camp, Executive Vice President and Chief Financial Officer; Laura Franklin, Executive Vice President and Chief Accounting and Administrative Officer; and Mike Paukstitus, Senior Vice President, Real Estate. Now, I'd like to turn the call over to Skip.

Thanks, Kelly. Good morning and thank you for joining Washington REIT earnings conference call this morning. The first quarter was a relatively quiet one for WRIT. Excluding the extraordinary snow removal costs which reduced operating results by $0.02 per share, same-store results were generally flat compared to a year ago. Marketwide leasing activity is improving in most submarkets, although at a slow and deliberate pace. We have good activity at our pending large vacancy in the Dulles corridor and I am hopeful to report significant progress soon. In general, vacant spaces are leasing up slowly, but I expect continued improvement in activity as the year progresses. In our office portfolio, we ended the year at 91% leased. Our strongest sectors continue to be multifamily and medical office, which are maintaining solid mid-90% occupancies in the core portfolio and our weakest sectors continue to be the retail and industrial sectors, which we believe have bottomed out. In the retail portfolio particularly, we expect improving same-store growth as the year progresses. On the investment front, transaction activity marketwide has been thin and what has sold has been emblematic of why Washington is considered the most desirable investment market in the country. In general, offerings are receiving multiple aggressive bids and cap rates have compressed to almost pre-crisis levels for the best assets. We are diligently mining both on and off market investment opportunities and I am optimistic that we will put some points on the board soon. Now, I'd like to turn the call over to Bill Camp, who will discuss financial results and the capital market activities, and then to Mike Paukstitus who will discuss our real estate operations. Bill?

Thanks, Skip. Good morning, everyone. Assuming everyone has read our press release, I'm not going to rattle off all the numbers. As we reported, FFO was slightly lower than the fourth quarter results due to snow removal expense and some planned and unplanned occupancy changes. Lower interest expense was offset by higher G&A expense. In terms of the core portfolio, snow expense and occupancy changes along with other one-time items in Q4 and Q1, resulted in core net operating income being lower by about four – $2.4 million or 4.6%. While our multifamily and medical office portfolios maintained steady occupancy sequentially, we lost occupancy in office, retail and in our industrial sectors. This quarter, the combination of bad debt, vacancy loss and rent abatements was 12.6% of minimum rents on a GAAP basis, which is slightly worse than our guidance of 11.5% to 12.5% for the year. Going back to the snow removal, we had about $1.2 million in unrecoverable expense in the quarter and you will notice our receivables went up until we are reimbursed the tenants' portion of that expense. Excluding the impact of the snow, NOI would've been down 3.3% from the fourth quarter and only down 0.2% compared to the first quarter of last year. On the capital side, year to date we've issued 733,000 shares to our sales agency finance agreement with BNY Mellon. The average price was $30.18 for gross proceeds of approximately $22.1 million, which we used to repay a portion of our line of credit. At the end of the quarter, the line balance was $110 million. Currently, our line balance is $100 million. The balance is the prepayment – the balance on the line is the prepayment of the term loan back in December. With a line rate at 42.5 basis…

Thanks, Bill, and good morning. This quarter, our real estate portfolio lost some occupancy, primarily due to move outs at our retail, industrial and office sectors. This was not entirely unexpected and you will recall that in our 2010 guidance we built in a modest NOI decline for the year. Our multifamily sector maintains steady occupancy at 94% from first quarter – from fourth quarter to first quarter. NOI declined 2.6%, mostly due to unrecoverable snow removal expense since residential leases do not provide for expense passthroughs. On the commercial side in the first quarter, WRIT executed 274,000 square feet of lease transactions with an average rental rate increase of 15.8% over expiring leases on a GAAP basis and an average lease term of 5.5 years. Transaction costs were slightly higher than in the fourth quarter, due to higher tenant improvement allowances in the office and medical sectors. In the office sector, overall economic occupancy declined 100 basis points compared with the fourth quarter. This decline was due to moveouts at 2000 M Street, 7900 Westpark, and 51 Monroe. Despite these moveouts, our office portfolio occupancy generally compares favorably relative to the submarkets where we operate. In the medical office sector, we maintained occupancy of 91% from fourth quarter to first quarter. At Lansdowne, we have signed leases for 11,000 – 11% of the building at rental rates at or above pro forma. As for the rest of our medical portfolio, we continue to see rental rate increases on a GAAP cash basis. We did eight deals for an average weighted term of nine years, which is why our leasing costs were higher than this quarter. In the retail sector, while leasing buying was lower than usual, we achieved GAAP and cash rental rate increases on the spaces that we…

Okay, everyone. Before I open up for Q&A, I want to make one more point that some of you may already be aware of and that is that on January 8 this year, WRIT's logo flew on a flag in front of the New York Stock Exchange and our Board officers and employee representatives had the amazing experience of ringing in the closing bell on the stock exchange. We were doing this to celebrate our 50th year in business in the DC area and our position as the nation's oldest public REIT. Bill said something a while ago I want to put in perspective. He said we have made 193 consecutive dividends at equal or increasing rates. In real people terms, that's 48 years of stable dividends. Every day we come into work, our primary goal is to make that 49 years. And to make plans for the years ahead by buying great properties in a great market and employing some of the best real estate professionals around to operate them. That's what we do here. With that said, I'd now like to open up the line for your questions.

Thank you. We will now begin addressing the question-and-answer session. (Operator Instructions) Our first question comes from the line of John Guinee of Stifel Nicolaus. Please proceed with your questions.

Right. Thank you. Nice job, guys.

Thanks, John.

Can you go through – you've got on page two, Parklawn Plaza, Lexington building, Saratoga, Charleston Business Center, a little bit about those assets that are being held for sale, what they may be worth in total without getting into too much detail, obviously, for modeling purposes and the thought process in putting those assets up for sale.

I'll talk a little bit about them, but I sort of want to take the assist on that, since they're subject to marketing and in fact we are actually negotiating a contract for sale on those properties. So I really don't want to comment specifically on them due to the sensitivity of having a buyer on the end of the line in a nonbinding contract.

We'll have him – he'll go on mute for a while.

Okay. What I would say about those – we've talked about these in the past. These are – I'll say in general what they are, they're smaller and older office buildings in the Rockville area. Three of them are, the Parklawn, Lexington and Saratoga buildings. They are not too far from our corporate office, in fact. They are older assets. They, in fact, were acquired under the Frank Kahn era. And, also in that package is the Charleston industrial building, which is a small industrial building which is really attached to those buildings. They have been in the WRIT portfolio for an extended period of time. One of them, Parklawn Plaza, was acquired early while I was here, probably, I don't know, 1997 maybe. But they're Rockville suburban office assets and that's pretty much all I want to say about it, to be honest with you.

Fair enough. And then, are you addressing guidance or is there any change to guidance?

No, John. No real change to guidance. We looked at it and I think we – based on many of the reports that many of you wrote this morning, I think we're pretty much in line with what people were expecting. And then I think we were pretty much in line with the guidance that I laid out last quarter.

Great. Thank you.

Our next question comes from the line of Michael Knott of Green Street Advisors. Please proceed with your question.

Hey, guys. Good morning. Sorry about the Capitals. And Bill, thank you.

It's all my fault, Michael.

Bill went to the game. He was the jinx.

Thanks for the added disclosure on page 15. That's really helpful.

Oh, you are welcome.

On TIs, it looked like the per-foot per year for office was as high as I've ever seen it for you guys. And I know you mentioned it this briefly in your comments, Mike, but can you just give a little more color on that? Do you expect that to continue being high? Was it related to some of the specific space that you leased this quarter? Can you just give a little color behind that?

We had that one large lease at 7900 Westpark that had a huge number on it.

And downtown.

And downtown.

So, I mean, we were dealing with larger transactions, one of them in a downtown environment, for longer terms. So, that's really the element that is mixed in here, where there was less of the renewal activity and shorter-term transactions that a lot of times dilute that number a little bit. So, I think – it's not – I don't think we think it's emblematic of dramatically increasing TIs. Those were fairly large deals that don't come along all that often here.

Okay, fair enough. And Then with respect to the rent roll-up, I was a little surprised to see that. Do you feel like your overall portfolio is now kind of above market or can you just comment on the leasing activity this quarter that produced those rent gains on new leasing?

I can't think of any one or two assets that are really sticking out here. Let me just at least talk to where we sort of think what you're really getting at is where we think we are relative to sort of market rental rates. In the office portfolio, we think we are probably in the single digits above market on the rents that are rolling over the next 12 months on a cash basis. So let's just say for average purposes somewhere around minus 5% on a cash basis relative to the market. So those would be the leases that we think are rolling over the next 12 months, somewhere in that neighborhood of minus single digits. In the retail portfolio, we think that actually we'll be rolling up leases. Probably in the low single digits on all these – everything I'm saying here is on a cash basis. MOBs will be slight roll-ups, similar to retail, in the small single digits on a cash basis. And industrial, which is probably our worst sector, we're probably looking at negative 5% to 10% cash roll-downs. I think that's sort of getting to what you are looking for, right?

Thank you.

And Michael, on that multifamily side, did you mention –

I didn't mention. Multifamily works –

We are expecting it to kind of go up.

Not huge, but we expect it to go up.

As multifamily does, 2% to 3% type thing.

Okay. And then, do you have any color on the – I think it was AEW bought a building in Northern Virginia a couple – few weeks. It seemed like a pretty interesting deal. I don't know if you guys –

I'll just talk a little bit about it because we actually were very interested in that asset. I believe you are talking the Three Ballston Plaza. We, in fact, put an offer on that. We were an active bidder on that asset, so I'm pretty familiar with it. It's an excellent asset. It's an asset in the Ballston Market originally developed by The Oliver Carr Company, so it's very nice office building with – I would call it Class A, maybe Class A minus because it was built in the 1980s. Great views there and everything. That asset had something like 30 bidders on it. We priced it in the sevens, probably, of some sort, mid-7% range and we were blown out of the water. From our numbers, it appears to have traded at like a six, seven cap. Our concern with that – we think it's a great asset. But it has a fairly large tenant in there, Jacobs Engineering, whose lease comes up and I'm trying to go off of memory here, in about two years. And there was potential for that tenant to leave the property. So we didn't think it was worth a sub-7 cap rate, but if they retain that tenant, it will be a good asset. It's arguably the best market in the area.

Okay. Thank you for that color. Thanks.

Our next question comes from the line of Brendan Maiorana of Wells Fargo. Please proceed with your questions.

Thanks. Good morning. Was some of the leasing that was done in the quarter first-generation leasing, or was all of that stuff kind of classified as second-gen?

The Lansdowne leasing was first-generation, but I don't believe we had any other firsts because we did – the only places we do first generation are at Dulles Station. I don't believe we had any activity there and Lansdowne. Does anybody want to correct me on that?

We had 8,000 square feet of leasing done at Lansdowne.

Yes, so Lansdowne, so other than those two properties, that's it.

Brendan, are you asking are we filling vacant space in terms of just in existing buildings, not in our new buildings? In actual existing buildings?

That's part of it. And then I'm also trying to look at just the delay, I suppose, in the leasing costs that get spent in the period versus the dollars that get committed and how that may impact your CapEx as we kind of go forward, because I suppose there's a little bit of a delay between the leasing costs that you report on page 18 of your supplemental and then what the FFO to FAD reconciliation, net dollars that are spent.

That is a true statement, that there is a lag there. I think we're – we don't break it out between first kind of renewal and new lease type things on existing spaces. We don't break it out that way. We do look at it, but not to the degree that some others – I think some other companies report. But it is a combination of things. I think if you look at the CapEx dollars this quarter, the two deals that Mike mentioned in the office space, one was downtown. That deal was a renewal, but it was an existing tenant that has been in this space for a long, long time. And it was time to give them – in order to keep them, we had to give them a market deal which includes a sizable PI package. But it also – it was one of those situations where they need to work on their space a little bit. So, that was kind of a combination of things. The other ones, I don't know if I can break out whether or not renewals and new leases are that much dramatically different. It's kind of market-driven on where the TI packages are coming in.

Sure. Okay. That's helpful. And then in terms of your tenant base, I usually think of you guys as having a smaller tenant base relative to some of your peers. In this recover – and I often think of smaller tenants or smaller business as leading us out of a recovery. Are you guys finding that that's the case in this recovery or do you feel that it's different than maybe it has been in some of the past economic cycles?

I agree with your assessment that we are generally a smaller tenant landlord. That's certainly the predominance of our tenants. Although, we do have a few big tenants, like the World Bank and some others, et cetera. I think you are correct. It's small – we are seeing increased activity from smaller tenants. However, I'd caveat that by saying I still think people are a little shell-shocked at this point coming out of the financial crisis and there is still somewhat of a reluctance from small business owners to stick their neck out quite yet. And as – you're not going to learn anything from me when I say that there is still a little bit of reluctance for people to bring on new folks in terms of hiring and adding to their payroll. So that's putting a damper on the speed of this recovery. But without question, we are having more tours of vacant space from smaller tenants. Whether that accelerates over and over what period of time that sort of remains to be seen, but we are seeing better activity. But folks are still a little challenged to bring people on board.

Sure. Thanks, Skip. And then just lastly, you talked about the deal environment and it's pretty competitive for kind of core type of space. But it also sounds like, you're seeing increased activity. So what sort of gives you the confidence that you'll be able to get a few of these ones over the finish line if pricing is improved a bit and the competition seems to be pretty steep?

Well, I am confident because we have a really good handle on this market and as I mentioned in my comments, we are looking at not only things on the market that are being – like the AEW transaction. But we're looking at some things a little bit below the radar directly with some landlords. So as I said in my comments, I'm pretty optimistic we're going to put some points on the board pretty soon here.

Yes. Is it – I mean is more stuff just coming to market then relative to call it six, nine months ago?

There's a little bit more coming on market, but we're also seeing the rumblings of more assets coming out down the chute, talking to brokers. And what's happening is as the transactions are hitting, like the AEW transaction and others. And they are selling at good cap rates it's giving people more confidence to put assets on the market. And as more assets come on the market, then other sellers like WRIT, for example, once we feel like we can start buying a bunch of buildings, we'll be more confident to put more assets for sale of our own portfolio. And that's almost like a self fulfilling promise there. As more assets start selling at good prices, more sellers will put more properties on the market and it's just a process that feeds upon itself.

Sure. Great. Thank you.

Our next question comes from the line of Chris Lucas of Robert W. Baird. Please proceed with your questions.

Hey, good morning, guys.

Good morning.

Skip, just trying to follow-up on that. Are you seeing more product in your off-market flow or in the fully marketed area at this point?

I'd say a little bit in both. As I said, there's not an avalanche of broker marketed deals right now. But certainly when you talk to the brokers, they're doing a lot more work in terms of getting ready to put things on the market. So you do see that beginning, but also I find that there is a more of an acceptance of sellers to talk to you, of owners to talk to you about their assets. So there is a higher probability of shaking a few assets loose from people that may not go through a full marketing process.

Are you spending much time with the balance sheet lenders and are you getting a sense from them that their mindset is shifting as it relates to how they're dealing with troubled loans?

That's a difficult one. Yes, we are talking to them.

I don't know if there is a shift in the mindset yet.

Yeah. I agree with Bill.

I think these guys are most and same with the special servicers, Chris, I think what you are finding is these groups are looking to see whether or not they can make money over the next two or three years by either stabilizing an asset themselves or in some way improving the situation or and quite honestly, in the last 12 months you could probably just sit on your hands and do nothing with the property and just because of the share recovery in the world. The properties are worth more today than they were a day ago. And it seems to be that way and people are recognizing that. So they're just sitting on their hands a little bit and waiting for whatever value they think they can create, whether it's artificial value just because the market grows or it's actually that they hired a third-party leasing guy and a third-party property management and they're doing it themselves for a while.

Okay. And then just, Skip, can you – has there been any change in your views as to the various submarkets in terms of where the strength and weakness is over the last several months?

I think overall that markets have gotten somewhat stronger. I certainly would never put the word robust in front of it and I think even some of the leasing markets have shown a little bit of negative absorption. But without question, almost across the board we are seeing more activity. Some are better than others and there's some submarkets that we're probably not active in like for example, we're not super bullish on Prince George's County for office buildings. There's markets like that, that I'd say that we're not super bullish on. But as a general rule I think we're seeing activity in most markets picking up.

Okay. Are you seeing any positive developments coming out of the construction activity at Tyson's as it relates to sort of your assets out of the airport area?

Yeah. That's almost – I'd sort of think that's like broker talk. But – just so other people know what you're referring to I mean for probably the last 24 months, the real estate brokers were asserting that the tenants at Tyson's would be fleeing the construction of the metro and going up the Dulles Toll Road. We haven't seen a lot of that to be perfectly honest with you. Certainly, the leasing activity at Tyson's has been hurt by that in that there's not a lot of new people come – folks coming into Tyson's. But I can't say that I've seen a lot of tenants leaving the Tyson's area and going up the toll road. Tyson's tenants still tend to be Tyson's tenants. I mean there are some obviously, but there hasn't been an exodus so to speak, up the road quite yet.

Okay. And two more questions. On the – on your medical office portfolio, I know it's recent but are you hearing anything from your tenants subsequent to the passage of the healthcare bill in terms of their willingness to find longer term extensions or in any way modify sort of their views of their businesses at this point?

Yes. It's too early. I think a lot of people are just trying to wait for the smoke to clear. So I wouldn't say we have a good read on that yet. I will say this though and that is that I think that a lot of the medical office leasing for vacant space has been dampened by trying to assess this process. And I think that's in fact hurt us at the lease-up of Lansdowne. It's been certainly not a sole factor but a contributing factor as to why even medical practices are reluctant to stick their neck out on new commitments right now.

Okay. And then my last question is on the acquisition opportunity, are you guys willing to look at value-add type deals or are you looking for mostly stabilized properties at this point?

We are actively looking at both of those categories right now.

Okay. Great. Thanks a lot, guys.

Yeah. Thanks.

(Operator Instructions) Our next question comes from the line of Dave Rodgers, RBC Capital Markets. Please proceed with your questions.

Dave?

Mr. Rodgers, your line is live.

Hey, guy. Sorry, Mike Curran [ph] here. With regards to your activity at the Lafarge space, are you planning on leasing that to one single tenant or several smaller tenants?

The likelihood – we'd love to plan to lease it to one tenant, but that's not going to happen. We have active prospects that would require it to be broken up.

Okay. And then what opportunities do you see in the market, like within acquisitions? What submarkets are you looking at? Virginia or Maryland and then what property types?

We're looking at a lot of submarkets. We're looking in Virginia, lesser so in Maryland in the District of Columbia we're looking. And mostly right now they appear to be office buildings.

And can you give us a little bit more color on the Lansdowne leasing up, like traffic levels and rental rates compared to your original pro forma?

Yeah. I sort of alluded to it a little bit. I mean we have some pretty good – I'd say good activity, not great by any means. Mike, reported that we've leased 11%. We probably have LOIs and/or active prospects up to about 25% in that neighborhood. And then we've got lesser prospects beyond that. I mean we have people looking at the space but without signed letter of intent type activity. I would say that the activity is less than we would've liked. The bad – let's give you the bad news and the good news. The bad news is we would've expected better activity and I alluded to that in my prior comments when I said even docs have dialed back a little bit in terms of taking new space. The good news is we've – what we've done and what we're seeing is that we're achieving – all the metrics we're achieving are good, the rents, the TIs, all of those things are falling within our projections. But what's falling a little bit behind what we had anticipated originally was the speed of lease up.

I would add one more thing too, Skip. As you recall, we rolled off of a pretty heavy snowstorm in December and then hit the 100-year storm in February. So February got shut down pretty much in the leasing market. It was difficult to show, it was difficult for tenants to get out. So I mean there was a good 30 days where everything just came to a halt. And that slowed the quarter down just across the board.

Okay. Great. Thanks.

There are no further questions in the queue at this time. I would now like to turn the floor back over to management for closing comments.

Okay. Thank you, everyone. And we look forward to reporting back to you in July. Have a good weekend.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.