Welcome to the Washington Real Estate Investment Trust fourth quarter 2010 earnings conference call. As a reminder today’s call is being recorded. Before turning over the call 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 Web site at www.writ.com. Our fourth quarter supplemental financial information is also available on our Web site. 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 the 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 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. 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 and our third quarter 2010 10-Q. 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.

Thank you Kelly. Good morning and thank you for joining the Washington Real Estate Investment Trust earnings conference call this morning. As we wrap up 2010 and look ahead to 2011 the Washington, DC real estate market continues to recover albeit slower than our patience allows. The leasing activity is picking up across most of the property types and concession packages are declining. What we have not seen is a rapid absorption of vacancy by the private sector. But we are making progress region wide. In addition to modest improvement in the leasing market we are seeing healthier investment sales activity. We have been active in the market having closed on two well located properties and a third under contract with closing to occur within 45 days. In addition, in the fourth quarter we continued to recycle capital by disposing of four assets, which no longer fit into our strategic plan. As we announced in our press release last night, we are projecting continued asset sales in 2011 and are focusing our future investment on well located assets inside the Beltway near major transportation modes like Metro Stop in the areas with strong employment drivers and in areas with outstanding improving demographics. With this in mind, we believe there are excellent opportunities to concentrate our investment capital on high quality, well located office, medical office, multi-family and retail property in the Washington Metro region. We are exploring the sale of our industrial portfolio not only as a means to fund future acquisitions but also with an eye towards streamlining operations and focusing our asset allocation. It is our intent to exit the industrial sector on a wholesale basis over the next year or two dependent upon the optimal exit opportunity. Over an extended period of time we expect that approximately…

Thanks Skip and good morning everyone. We reported (unintelligible) $1.96 in 2010 which as we projected last quarter is in the upper end of our original guidance range of $1.86-2.00. These results excluded acquisition costs and also R&D debt extinguishment. For the fourth quarter core FFO was 48 cents, slightly lower than the third quarter due to higher G&A and interest expense. Approximately half of the fourth quarter increase in G&A is attributable to our internal leasing department restructuring that Skip mentioned. The other half is due to the year end true up for incentive compensation. The higher interest expense is related to the excess proceeds from the bond offering we closed at the end of the third quarter versus the amount of debt we tendered in the quarter. Generally we carried about 200 million in cash in October and about 80 million for the rest of the quarter. In terms of fab, we recorded $15.3 million or 24 cents per share. We also reported core fab of $22 million or 34 cents a share, which excludes the cash loss on the extinguishment of debt of 9 cents and the acquisition costs of 1 cent. Tenant improvements were higher this quarter at 6.4 million, as projected. And over half of that amount was due to concession packages given out to new tenants over the past few quarters. We ended the year with 8.7 million in committed tenant improvements, which is in line with how we ended the year last year. On the capital side in 2010 we raised a total of 171 million through our ATM program through BNY Mellon at a weighted average price of $33.34 per share and an issuance cost of just 1%. The 51.5 million of proceeds from the fourth quarter issuance was used for general…

Thanks Bill and good morning. First I’d like to bring your attention to Page 19 of our supplemental information. We have added a physical occupancy metric and provided five quarters of history for comparison purposes. Physical occupancy is only based on square footage occupied while economic occupancy is dollar weighted by rent. Looking at our property portfolio in detail, on a year over year basis same store NOI was off 2.7%. There were two one-time adjustments in Q4 2009 that pushed this number down from minus 0.3%. From third quarter to fourth quarter same store occupancy was down 30 basis points, same store NOI was up 110 basis points and rental rate growth was 0.1%. The main driver of the improvement in NOI was a continuation of reducing costs, primarily utilities, real estate taxes and the office sector. Similar to prior quarters, our multi-family sector continues to maintain high occupancy and modest rental rate growth. Sequentially from the third quarter, occupancy was seasonally down as expected but we continue to push rents higher. At over 90% occupied, markets with no new deliveries and minimal vacancies, we are very optimistic that the spring and summer leasing season will produce excellent rental rate growth in the months ahead. In the commercial portfolio this quarter WREIT executed 382,000 square feet of lease transactions at an average rate increase of 11.5% over expiring leases on a GAAP basis and an average lease term of 5.8 years. In the office sector same store physical occupancy remained steady from the third quarter. Same store NOI was up 2.9% from the third quarter due to the expense savings primarily related to real estate taxes and utility costs. While cash rents were down as expected, GAAP rent increases of 9.3% exceeded our projections. We are encouraged by the…

Thanks Mike. Before we open the line for your questions I’d like to note for the record that yesterday our board approved our 197th consecutive quarterly dividend at equal or increasing rates. We are very proud of that track record and what it says about the WREIT strategy. We could only achieve these results with outstanding real estate professionals and the best real estate market in the world year in and year out. With that we’ll open the call for your questions.

Thank you. If you would like to ask a question please press the star, 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, 2 if you would like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from Michael Knott of Green Street Advisors.

Hey Skip. I just want to ask you about the repositioning strategy. A couple questions - one, how big a shift is this from kind of the similar path you’ve been on recently? Is this a big acceleration of that strategy or just maybe more of a modest shift that was kind of already in the works? And then two, related to that, how much work might be behind even after selling the industrial portfolio in terms of product that you would need to recycle out of to really fit with your strategy here?

Good question. As you noted, we have really begun this path in the past. We sold a number of some of these properties already even in the fourth quarter of this year as we sold the Annandale portfolio. So in some respects it’s not really new news. I would say that we are looking at more aggressive opportunities to dispose of these assets perhaps on a larger scale. Again, we’re going to look at the best opportunities that are presented to us. But I would say that we are looking at more broader strategies for exiting this sector in a quicker fashion.

I think the other part Michael is just the kind of going away from the industrial sector into the other sectors. And I think those are more not necessarily a whole submarket or a whole product type sale. It’s going to be more one-offs after that. And like Skip said in his comments, we’ll generally sell about 1/3 of what we’re buying. So if I had to guess it’d probably be focused in on some of the suburban kind of commodities, suburban office products and then there might be some ancillary other buildings but not many.

So is it fair to maybe conclude that it’s similar to the strategy that you have been employing for the past couple years with the notable exception of exiting industrial completely as kind of the newest wrinkle to that?

Yes.

That’s a good way of putting it.

Okay. And then my second question is just relating to the Washington, DC office acquisition. Can you talk a little bit about your decision to buy those, how you priced them and then obviously the two buildings have slightly different recurrent expectations? Maybe just give us a little more color on how you thought about those capital allocation decisions.

Yes. For the first building that we already closed, 1140 Connecticut Avenue, that’s a fantastic acquisition in my opinion. It’s a core downtown DC asset, very nearby many of our other assets so it has great synergies with some of our operating personnel down in those areas. We’re acquiring it I would say at a fairly aggressive cap rate for us in the low sixes. But the property has great opportunity for upside. We believe the rents are below market and there is also a number of opportunities to improve the space in the building and recondition and rehab some of the areas so that we can push rents even beyond where the market rents are today. It’s an improving market with virtually no to little construction in the CBD and it’s two blocks from the metro. So to us that’s a core acquisition that has some really good potential to grow rents over an extended period of time. The second of the two downtown properties that we’re buying is really in the West End. It’s 1227 25th Street. That property is the one that I noted that we’ll be closing in about 45 days. We are firm on that contract. That property has a little different spin to it. It’s located adjacent to our 2445 M Street property and it’s 72% leased. So that’s one where we can increase the occupancy. We feel that there is a really good market for leasing that vacant 28% of that building that’s sitting there somewhat stagnant right now. Perhaps we may be even able to seed that building with our own tenants that are growing in the adjacent building. And of course again we’ll have really good operating synergies there. We think we can bring the returns in that building into the 8% range actually in the next couple of years if we’re successful in leasing out that vacancy. And by the way, both of these assets are below replacement cost. The second one is significantly below replacement cost. We’re only buying it for $360 a foot. So we’re really pleased with those acquisitions and we think they’re going to be long-term keepers in the portfolio.

Okay. Thank you.

Thank you. Our next question is coming from Mitch Germain of JMP Securities.

Hey guys. In looking at your current acquisition pipeline what’s the mix in terms of assets and what about size relative to what it was call it last conference call?

When you say pipeline you mean the ones we’ve just acquired?

No. The ones that you’re currently underwriting - future acquisitions.

We’re looking at a little big of everything except industrial. I would say certainly in terms of - we don’t have anything firm other than the 1227 25th Street just to be clear that we don’t have anything firm. But we are looking at a lot of assets out there primarily certainly the asset class that we see the most activity in is the office sector. We have a number of good offers on the office sector portfolio and I think we’ll be successful in the next few months in that regard. The other things we’re looking at, we’re looking at a couple retail deals, may or may not be successful in them. It’s an extremely competitive environment for that. We’re seeing some medical office buildings out there that I feel fairly optimistic that we’ll be successful in acquiring. And less so, apartments - apartments existing product is extremely competitive for the stuff we want to own. You might argue that sub-5 cap rates in many cases - we’re looking at alternative ways of building our apartment portfolio.

Okay. I appreciate it. And then the 1227 deal, how much cost will be required for the asset? Is it just TIs?

Yes. TIs and leasing commissions. And the building’s in really good shape. It was built the same year as 2445 M Street. It’s a really nice freestanding office building which you don’t see a lot of in the DC urban core. When I say freestanding I mean has windows on all four sides - something that is very attractive because you don’t have buildings butting up against two sides like you oftentimes do with the traditional urban office building.

Great. And where do you stand if whatever commentary I’d appreciate on the industrial exit? I mean are you just starting to put the books together?

We’re well along but I’d still say we’re getting ready to throw out the first pitch.

Okay. And just one for Bill - what’s left on the ATM?

What’s left on the ATM?

Yes.

$79 million.

Okay. Thanks guys.

Operator?

Thank you. Our next question is coming from Steve Benyik of Jefferies & Company.

Great. Thanks very much. I guess regarding guidance can you describe what property types are the largest drivers of the 150-200 basis point occupancy improvement and which ones are expected to lag? And then also on the same store occupancy side, how you think it may shape up for 1Q ’11 versus how it will rise for the balance of the year.

Well, from a guidance perspective the 150-200 basis point occupancy pick up is really across many of the sectors. I mean if you look at multi-family just in the quarter we’ll expect that to go up just because we’re in the seasonal part of the downturn. So third quarter to fourth quarter occupancy went down. We expect that to pick back up. In the office sector we certainly think that we will be successful particularly in some of our downtown assets, that we’ll be successful in gaining occupancy throughout the year as hopefully the economy continues its kind of roll that it’s on right now at least turning around. Retail we said in our prepared comments that we expect retail to actually have some pretty good activity. And probably while we might sign leases in the first quarter or two, retail generally takes a longer time to get going and actually hit our numbers just moving in, getting the store open, things like that. So I don’t expect those numbers - while we might have leases in our hands (and tenants committed), we probably won’t see anything that impacts numbers until (third or fourth quarter).

Okay.

And then MOB has just been kind of steady and I expect that to kind of be modestly the same. I mean it’s pretty strong now in the core portfolio. It’s pretty strong. We do expect to see occupancy pick up in Lansdowne but it’s much slower than we wanted it to be.

Okay. Do you guys expect additional debt buybacks or charges in ’11? And then also can you provide what the cash mark to market assumption is for signed leases in 2011?

Well, we don’t - well, let me start with the first one first. We don’t necessarily expect any kind of buybacks. The only thing that is out there that could hit the numbers, which is not in our guidance is the payoff, the swap that I have on the line of credit. I just don’t have that in there because I think I’ll probably just let that run its course until the November expiration. But anything is fair game on that one. I’ll report back if and when I do something with that. But other than that I don’t expect any kind of extinguishment of debt charges either positive or negative. On the other side of the fence…

Do you want me to comment on that? I’ll comment on that.

Yes.

On terms of the mark to markets I mean I think I have a pretty good handle based on what we have been seeing. In the office sector and everything I’m going to talk about here is on a cash basis, not GAAP. So on rolling rent in the office sector I think we’re going to be about even, maybe slightly down small single digits perhaps. But we might end up being even so on a cash basis maybe minus 2% to 0 to positive 1 - that sort of range. On a GAAP basis it would be positive. Retail - I’m very optimistic we’re going to continue to see really good rental rate increases in retail as we demonstrated this past quarter. I feel really good about what we’re seeing there. Industrial is going to be sloppy, the industrial leasing we do. I think it’s going to be better. We’re seeing trends that it’s going to be better. But I think it’s going to be again on a cash basis slightly negative. And MOBs will be positive - they’ll be sort of that steady plus 3% type range again on a cash basis, better on a GAAP basis. So generally I think it’s looking pretty good - still a little sloppy exiting industrial and office will be flattish.

And then in residential obviously we’re looking at (further buying).

Yes. Residential will be great.

Okay. Thanks very much. Just one last one - you had mentioned Lansdowne. I was hoping you could provide an update on that one as well as the Lafarge space at Monument 2.

Yes. On Lansdowne I think Bill made a comment that we’re not that happy with the progress. We have several leases that we’re working on right now but it’s much slower than we would like. We’re going to grind through that through the balance of this year. It’s going to be hand to hand combat. As I mentioned in my comments, even in the medical sector it’s very steady, very solid. But when you have vacancy it takes longer than we’d like. We’re getting some feedback that tenants are somewhat reluctant to expand and take on new space, open up a new office in a new jurisdiction until they get some clearance on healthcare reform. So even in that sector, which is a strong sector and a good sector, we’re finding that just taking down large blocks of vacancy is taking longer than we have been accustomed to in this market. The other one, Lafarge, we have had really good progress there. We have great activity there. And I might be sticking my neck out a little but I think we might have leases on that space before the end of the third quarter. We’re having really good activity on that building.

Thanks very much.

Thank you. Our next question is coming from Erin Aslakson of Stifel Nicolaus.

Hey. Good morning guys. How are you? When all is said and done with the sale of the industrial portfolio and kind of the reinvestment of the proceeds and your future acquisitions, what are you looking at in terms of allocations between the asset classes?

It’s tough to answer that directly. Obviously it’s going to depend on the opportunities that are sitting out there. I mean we’re certainly going to look at the other core asset classes and buy the best properties we can that are available on the market at that time. But it’s hard for me to give you specifics. What I would say clearly is that the office building sector is probably going to work its way out of 50% of the portfolio over a period of time. It’s 40 now but just by the nature of where we are it’s probably going to be something like that and will probably be the other sectors will probably remain basically equal - 17-18% each. And then the office will gravitate towards closer to 50%. But a lot of it is going to depend on the opportunity.

And I assume those incremental office investments would be within the Beltway?

I wouldn’t say solely - certainly that has been our focus but we’re looking at some really good properties that are on or near metros for example. We have looked at some really good investments that have some really good growth aspects that are around back sites that may perhaps be outside the Beltway. So there are some I would say more limited and it has to have a little bit of a story but I think you’re right that primarily they would be inside the Beltway. But we’re not exclusively looking inside the Beltway.

Certainly the other property types will probably not be inside the Beltway. I mean when you start retail, we’ve got the one up in Columbia. We bought - we’re looking at other things that are outside the Beltway for retail. Medical office, generally they’re by hospitals and hospitals are generally not inside the Beltway. So some of the other sectors while office is an easy one to kind of target and say it’s going to be inside the Beltway, the other ones are a little more challenging to get more inside the Beltway.

Okay. In terms of the actual industrial sale, how would you handicap that in terms of it being a 2011 event versus a ’12? And would that be a large all at once probability of that or would this be trickled out over many quarters?

Well, we reserve the right to all of the above. We’re going to look at the best opportunities but if you’re asking me to handicap it and just make my best guess, again, we don’t have any deals as I mentioned earlier. We’re not even in the first inning. We’re getting ready to throw the first pitch. But if I were handicapping it I would say it’s probably going to go in one fell swoop based on what we believe is a robust and very active acquisition market. We think this is something that is highly, highly, highly desirable at this point in time. And I think that it’s going to go in one fell swoop at a really, really, really good number. But if we don’t - if that doesn’t materialize it may go in three chunks. It may go in four chunks. It may go one asset every month for 48 months. I don’t think that’s going to happen but that’s my sort of reading of the tea leaves.

Sure. And then I guess the final question is in terms of what is the kind of tenant profile and lease expiry on the 1227 asset?

1227 was the biggest - the most interesting part of that is that 28% of it is vacant. Now in terms of the leased part of the property it’s extremely well leased. It’s got primarily the balance of the leased space are two larger tenants. It’s got the GSA in there until 2019 for 35,000 feet and it’s got a law firm in there through 2016. It’s got a couple of other more minor tenants in there. So other than the vacancy, which we stated we think we are going to be successful leasing, the leased space is in there for the long term.

And do you know what the GSA is doing there?

It’s the Social Security Administration.

Okay. Thank you.

Thank you. Our next question is coming from Chris Lucas of Robert W. Baird.

Good morning guys. Okay. So can you give us an update on where things stand with Ellis Station at this point?

In terms of?

It’s listed. So what’s the timeframe for either keeping it or moving forward with something there?

That’s a good question. I’m a little bit hamstrung about saying too much about it because we are in the market with it. Let’s just say we have had a lot of interest at it. We have had a lot of good offers on it and we are in the process of negotiation. So that’s why I don’t want to speak too much about it. We are actively negotiating final terms with somebody. So it looks like it’s going to be something that’s going to happen fairly soon.

Bill, is that something that’s in your net number?

Yes. When you look at the guidance of kind of the 250 million net on acquisition positive, yes that is out there assuming that that would be in there on the minus side.

Right. And then just in terms of going back to the restructuring Skip, is there a - I’ll put this delicately. Is there a headcount adjustment that you’re going through? Is there sort of G&A savings on the one hand versus what I would expect would be higher leasing commission dollars on the success side? Is that a way to look at it or how is that going to play out?

Well, I would say we’ve had a reduction in salary. It won’t probably follow through to G&A because most of that is capitalized in leasing commissions, right Laura? So while certainly from a cash flow basis there will be savings, from a pure G&A perspective it’ll be minimous. It hit G&A because we had some severance benefits, which hit. But on a going forward basis and correct me if you think I’m wrong Laurie, I don’t think they’re going to see huge savings on the G&A side. It’ll be cash savings.

Correct. You won’t see savings as well as an execution of strategy we’re looking at probably 2-3 cents increase in G&A that was in our guidance. And so we’re looking at talent and we actually may have some increases.

Yes. And to answer your question, I think you were referencing the comment we made where we might have some increased third party commissions. I’d say there is some nominal amount of them. They are very targeted and select buildings where space has been more difficult to lease where we have had larger and/or more challenging vacancies. So that while I do think there is going to be some incremental commission expense, I don’t think it’s anything of large magnitude. And in fact, if it hits it’s going to be because we got some big deals. So there will be a great counterweight to that. So I don’t think it’s anything that is material.

That’s a very good point. We’re targeting asset vacancy primarily.

Okay. And then Bill, I appreciate the detail in the guidance. I guess the one question I have is that it’s all laid out on a per share basis. I guess I’m just trying to think through in terms of how the equity will be utilized in the coming year. I mean should we continue to assume that the ATM program will be a regular and consistent part of the capital strategy? Or will it be less predictable than it had been in the last year?

I would say your second answer is better. I think it’s going to be less predictable because we pretty much got the balance sheet where we wanted generally speaking. I mean a lot of the equity we raised over the last year - I mean we bought some buildings and we were net positive on acquisitions last year. So we had to pay for those buildings. And I said going into last year that any incremental acquisitions would generally be funded with equity. This year with kind of the variability of potential sale of industrial, whether or not Ellis Station goes through - we think we’re going to be kind of balancing acquisitions and dispositions this year. So I don’t think my necessarily - I’ll need as much capital. With that in mind, I have a little over $90 million left in June that comes due in debt. I’ve got $100 million line balance. So there is about 200 million in debt that I’m going to have to do something with. Maybe I’ll just leave it on the line this year and build it up until next year. We’ve got another 50 million coming due next year in ’12 that I could do another $250 million bond deal at some point in the future and just replace debt with debt because I don’t really need to delever any more or not much. So I would say the longwinded answer is that I think it would be a little more inconsistent than it was last year. Last year was pretty much every quarter.

Okay. And I guess with that, the shareholder basis continues to turn over and is more institutionally held. Are you thinking about taking another run at the charter related to the preferred?

I’m always thinking about it. You never - I would never say never. But yes, we’ve actually had discussions about it. You’re absolutely right the shareholder mix is definitely more heavily weighted institutionally. So yes, I mean it’s something we talk about.

You may be hearing more about that and soon. You could hear more about that - you never know when.

And then the last question just sort of a detail point - can you provide us an update on whether it’s - I don’t know if it’s under the Sun Micro or Oracle banner but what the lease status is at 7900 West Park?

Yes. They are leased through the end of this year.

The end of 2011.

Yes. They are going to be in place through the end of ’11 on this lease. I would say handicapping that I’d say there’s a good chance that they’re going to be vacating there. Other than that, there is a lot of uncertainty. So we’d like to keep them but I think they’ll probably be downsized into Oracle.

Okay. So just so I’m clear - their lease runs through when, I’m sorry?

12/31 - let me just verify that. One second - I believe it’s December but let me look that up.

And that Bill, then would be running into the numbers all through the year if that’s the case.

Say that again Chris?

Yes. They’re paying rent, that’s for sure.

Their lease is - oops, I don’t have that. Mike will have that answer in one second. I believe it’s 12/31.

12/31/2011.

Okay. Great. Thank you guys. That’s it for me.

Thanks Chris.

Thank you. Our next question is coming from Brendan Marianna of Wells Fargo.

Hi. This is actually (unintelligible) here with Brendan. I just had a quick question on the industrial portfolio sale. If you were to sell the whole portfolio, what sort of proceeds do you think you can get from that?

You know what, I’m not going to comment on that. I’ll apologize in advance. I just don’t like to comment on prospective transactions before they occur. So I won’t comment on that.

Yes. We don’t want to give the potential buyer what we think it’s worth.

Okay. That’s fair enough. And just going to your dividend, I mean it looks like you’re going to be selling your industrial portfolio, which should be a high yield type of disposition.

I disagree with that part.

Okay. But you will be selling industrial and buying say office and retail over time. And your fab level is still below your dividend. What do you think the fab level will be able to get close or exceed the dividend level?

Model wise I kind of have it out in we will cross over the point in 2012 probably.

Okay. Got you. And just in terms of your debt maturities, you have call it $400 million of debt maturing over the next three years. Interest rates will probably move up. Have you considered trying to raise more debt today and then trying to extinguish those debt maturities earlier?

Well, since I really liked paying 14 cents of premiums last quarter I’m going to probably not try and do that again. I’ll take my risk. A lot of those maturities - I mean we have 200 million coming due this year between the line and the rest of the debt that’s maturing and that one I might take out. But going forward I don’t want to time it too incorrectly because it’s expensive to do it early.

Okay.

Let me just make one comment just to reiterate what you alluded to as being a high yield transaction. That’s one thing we don’t believe. We think this is going to have an extreme amount of demand for this and that it’s actually going to sell at a very aggressive cap rate. That’s our belief.

I mean if the industrial fundamentals aren’t doing too well and you guys are trying to sell it, who would be the typical buyer of that asset at such a low cap rate?

There is a tremendous amount of interest. Large, super deep pocket investors, institutional quality, could be even other REITs for example that will be very interested in this to buy an entire portfolio in Washington, DC area and to assemble mass here that you really can’t. There will be a tremendous amount of interest in it. And it’ll be very competitive.

And in terms of your thoughts on cap rates and things like that, I think you have to think about you’re selling like we did with some of the other industrial properties that we have sold. When it’s under leased people are paying you a lower cap rate on in place numbers because they’re assuming that they can lease it up. So I would assume the same thing would happen here. And you could pick whatever you want to use for a guestimate of if it was fully stabilized at 92-93% occupancy and cap that and then reduce it by that and then almost mathematically reduce that cap rate and say okay, well, it’s going to be at X and then some premium for a portfolio. I mean you can look at it that way.

Okay. Thanks for the color. And one last question - do you guys have any exposure to Borders stores by any chance?

Yes. Well, virtually none. We have one Borders in our Habersham shopping center. It was not on the list of the 200 that are closing. So at least the first blush is not in there. Even if it were, we’re not worried about it. They pay a modest rent on that store. Their annual rent is $250,000 a year. While we’d probably take a hit for some down time, ultimately we think we probably are below market on that lease there. Now the one asterisk I’d put on there, we do have a receivable for a (paint job). We’d take a one-time hit of a penny from a TI receivable that we inherited when we bought that property. But other than that one-time hit if they rejected that lease ultimately, that would be all. We would release the space probably at higher rents. We’d suffer a little bit of down time but we really don’t - and as I said, they didn’t reject this lease.

And that mall is an historical high occupancy mall. I mean we purchased that thing full.

Got it. Thank you very much.

Thank you. Our next question is coming from Anthony Pallone of JP Morgan.

Thanks. Skip, from everything you mentioned and just also from what we’ve seen the apartment business seems to be a lot further along and humming along compared to office being still kind of in the earlier stages here of recovery. I’m just wondering is there a price point or an execution level where you’d consider just moving out of that area even if temporarily and just bulking up more in office? Or is that just not even on the table?

On the wholesale basis, no. We’ve been asked that question as long as I’ve been at this company. It’d be very hard to get a bank back into that sector. Obviously right now it’s one of the biggest growth stories for us. It’s the sector that got us through the financial crisis with our heads held high. It’s really been sort of the backbone of our performance over a long period of time and it’d be very difficult to get back in if we got out of it wholesale. There is always a premium for these assets. I mean right now it’s the difference between 4% and 6% but back when cap rates were 8% it was the difference between 6% and 8%. So there is always this crazy cap rate trade and you could argue whether the trade is good or bad right now. But on a wholesale basis we’re not looking to get out of that sector. Might we sell an asset or two around the edges? That’s possible. We’ve got enough things on our plate for sale today so I don’t think that something’s going to happen imminently. But could we sell one or two assets? Possibly.

Okay. And you had mentioned just - I forget the words you used exactly but just other ways of even bulking up the exposure there. Can you elaborate on that?

Yes. We’re looking at some development opportunities either singularly or with partners.

Okay. I’m sorry. Were you adding something?

The comment I would just make is as Bill has talked to in the past, is that line always represents an additional source of financing for us as well. I mean it can be just as easily financed as sold.

Okay. Got you. Second question - Skip, you mentioned the private sector just not having returned to absorbing spaces quickly as you either thought it would earlier in your comments. Just wondering if you have an opinion or could give us your point of view on how you see the government sector in the region playing out here especially with the prospect of budget tightening and just belt tightening overall?

Yes. That’s the $64,000 question in Washington right now.

It might be the $64 billion question.

Yes. Last year the government single handedly brought the DC leasing statistics into balance. There were some staggering numbers. They were like 60-80% of the absorption in the District of Columbia last year primarily with big, large block leasing by the federal government. So their presence last year was staggering and single handedly brought the DC market into balance. So the larger question is what does it mean going forward. I mean we believe - we’re somewhat skeptical but we’re not taking our eye off the ball. If we have healthcare reform that’s going to require a lot of folks. The financial crisis added a lot of folks in some of these different agencies that are here. We see still a lot of demand from the federal government. We have sort of a famous chart that I’m sure you’ve seen that’s in our road show presentation. It shows how much the federal spending has increased in our region over a long, long period of time. So if it happens, this will be the first time ever that it goes down. So it’s something we’re keeping an eye on. There are a lot of different opinions on this. Some people think Washington is going to be a beneficiary while other regions are passed away more aggressively. So it’s something we watch closely. We haven’t seen any signs yet of significant pull back in the government directly.

And you couple that with the ongoing movement of people from out of the area and the direct relocation stuff, you couple that - you’ve got a few years here where even if they start cutting back there is a least a couple of years where the employment growth is still going to be there just because we’re bringing in people from other parts of the country.

Got it. Thanks. And the last question Bill - did you mention and maybe I missed this - were there any acquisition costs to be expensed in guidance?

No. I’m excluding acquisition costs in guidance.

Okay. I mean should we put anything in for the first quarter on what you know already or you’ll just report it without it?

Well, we know 1227 25th Street will add something when it hits.

We did not put it in guidance. We will report a core number without acquisition costs.

Okay. Thanks.

And just if I could add on that before we go to the next question, the one thing in this area that’s somewhat unique from any other is when you buy and sell properties in this area it’s really dependent - those acquisition costs are really dependent on where you’re buying those properties. So I don’t want to spear guidance with acquisition cost assumptions and force us into a situation to meet guidance and determine that we don’t want to buy buildings in downtown DC because it costs more money. I mean it is what it is and (we’ll live with it). Let’s go to the next question.

Thank you. Our next question is coming from Michael Knott of Green Street Advisors.

Hey Skip, could you talk about the sale of the Ridges in Gaithersburg? I was surprised at the price per foot - I think it was around 265. Can you comment about how that might hypothetically stack up against the rest of your suburban Maryland portfolio from maybe a value per foot standpoint?

That was a great sale. I’ll be honest with you on that one, we were extremely lucky on that. That building is in Gaithersburg, Maryland, which is not a particularly strong market. It may be one of the weaker markets in our region. And we were lucky because that building is adjacent to Metamine’s headquarters and that building was bought by Metamine. So it was almost a user sale. It wasn’t almost - it was a user sale. And so we got a really good price because we were sitting next to the right guy in that particular case. So it was hard for me to extrapolate that to other properties because that was an opportunistic sale for us.

Got it. Okay. And then a similar question with the industrial building you sold in Beltsville - I guess it was three properties actually. Can you just comment on sort of the quality of those properties compared to the remaining properties that will be put up for sale?

I would put it in the middle of the pack. I mean that’s our Annandale. It’s listed formally as three properties but it’s actually one park. It’s Annandale 1, Annandale 2 - something we call Amvax, which is a former headquarters of American Vaccine, which is also in that park. So that was really one contiguous park although it technically counted as three properties. That’s sort of middle of the pack. It was very much one of those properties that had a very mixed variety of users. It had flex users. It had some highly built out space like the Amvax building for example had some very sophisticated vaccine making lab type equipment in it. And then we had raw space that was vacant. So it was very much indicative of some of our properties. I would put it in the middle of the pack. We had great interest in it. We got great offers on it. Obviously we reported some really nice returns and gains over a period of time for it. But I wouldn’t necessarily call it any significantly better or worse than our other industrial properties. It’s solidly in the middle of the pack there.

In terms of flex Virginia versus Maryland, obviously most of the balance of the portfolio is largely Virginia. I would think there is probably a premium for Virginia over Maryland. Is that true?

Yes.

Okay.

I agree with that.

The other comment I would make to that Mike is that there’s a good concentration around the largest relocation in the country, which is down in (unintelligible).

The biggest property in our portfolio we refer to as Northern Virginia Industrial Park, which is just under 800,000 feet - 790 or 780 - something like that. That property is right across from (unintelligible). So it’s in a great location. We have done very well with it. It’s getting knocked around a little bit because of the market today but it’s a very, very attractive asset for someone to own.

And again just to comment on timing, in September of this year those buildings are up. So they’re already starting their transition with whole moves by September of this year.

Okay. And then last question on lease up timing on 1227 25th - what’s sort of your expected timeline for leasing that up? And then also obviously Vernado and Mitchell have a pretty good leasing platform there. So when you were doing your due diligence how did you think about sort of what gave you confidence that you guys could lease it up and they were unable to?

Well, they don’t own the building next door with the seat of tenants. That’s number one, which we do. We have a building next door that the tenants are exploding. So that’s one thing that Mitchell and Vernado didn’t have in that building. But having said that, we were very conservative in our underwriting and we left that down for more than a year. So we were very conservative in our underwriting and we’re looking at it more on the long term.

Okay. Thank you.

Thank you. Our next question comes from Dave Rogers of RBC Capital Markets.

Good morning guys. With respect to the GSEs and I guess the uncertainty around that, I don’t know but I was thinking do you have any change in either your debt capacity, willingness to take on debt or changes in your underwriting with respect to your multi-family portfolio given the uncertainty there and any future changes? Any color there would be great. Thank you.

Dave, I think in terms of the GSEs, obviously there is a lot of discussion in the newspaper about what they may or may not look like in the future. I will tell you right now there is away from the GSEs, there is plenty of appetite right behind them to provide loans on multi-family properties. Now whether it’s the (wire) companies or anybody else, especially if you get things under $50 million. There is a lot of appetite for individual property financing. So quite honestly, Fannie and Freddie - their holding rates are a little bit higher than you would expect right now. I mean it’s not the huge home run. In fact, I think the loans - there were some mortgage loans by other companies that I think on other commercial property that would outpace what Fannie and Freddie are giving on residential right now. So you could assume that if I went down that path that might not be the most viable option. It may be doing something else.

The insurance companies are very eager to get back into that business and be very aggressive.

I guess my follow up to that would be what would be your I guess capacity for additional leverage relative to the unsecured side of the business and if you do pursue more multi-family investment?

We have got room. The first bump against the constraint would probably be with the rating agencies a little bit. We have got some room to take it up. We could probably go up on secured debt by - I don’t know. I’m going to venture out and kind of go off the cuff here and say probably $100-200 million we could probably go up. And as we grow the properties, as we grow the portfolio over time obviously that number goes up. And as we grow NOI that number can go up.

All right. Great. Thank you.

Thank you. Our next question is coming from (unintelligible) of Raymond James & Associates.

Good morning guys. My questions have been answered. Thank you.

Thank you. As a reminder ladies and gentlemen, if you’d like to ask a question you may press star, 1 on your telephone keypad at this time. Thank you. There are no further questions. I’d like to hand the floor back over to management for any closing comments.

Okay. Thank you for listening to the call this morning. Look forward to catching back up at the end of the first quarter. Have a great long weekend everyone.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you all for your participation.