Welcome to the Washington Real Estate Investment Trust Fourth Quarter 2015 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, Paul McDermott, Tejal Engman, Director of Investor Relations, will provide some introductory information. Ms. Engman, please go ahead.

Thank you and good morning everyone. Please note that 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 supplements available at www.washreit.com. Please also note that some statements during this call are forward-looking statements within the Private Securities Litigation Reform Act. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. We provide these risks in our SEC filings. Please refer to Pages 9 to 24 of our Form 10-K for a complete risk factor disclosure. Participating in today’s call with me will be Paul McDermott, President and Chief Executive Officer; Steve Riffee, Executive Vice President and Chief Financial Officer; Tom Bakke, Executive Vice President and Chief Operating Officer; Drew Hammond, Vice President, Chief Accounting Officer and Controller; and Kelly Shiflett, Vice President, Finance and Treasurer. Now, I would like to turn the call over to Paul.

Thank you, Tejal and good morning everyone. Thanks for joining us on our fourth quarter 2015 earnings conference call. We are pleased to report that the strong leasing momentum we experienced in the third quarter further accelerated into year-end. We achieved record high level of new office square footage lease in the fourth quarter. Our core FFO for the quarter was $0.46, a $0.01 increase over third quarter 2015, a $0.03 increase over fourth quarter 2014 and our highest quarterly core FFO performance during the year. Strong leasing at two of our primary needle-movers, Silverline Center in Tysons, Virginia and 1775 Eye Street in the Central Business District in DC drove the office new leasing number. At Silverline Center we signed a Fortune 100 financial services company for a 137,000 square foot anchor lease. One of the three most significant lease transactions that closed in the Tysons submarkets in 2015. Overall, it was a very successful year for a newly developed and repositioned Silverline Center. Prior to our $35 million capital investment, this 532,000 square foot Class B asset have been underperforming in a very competitive market. The investment helps elevate the asset to a Class A positioning, which enabled us to compete effectively for top-tier tenants and enjoy tremendous leasing success during the year. We delivered the renovated asset in the second quarter of 2015 and implemented a reenergized marketing and leasing campaign taking the building from 61% to above 93% lease or committed in a span of six months. As further evidence of the success of our investment the building received two NAIOP awards of excellence for Building Renovations and Building Common Areas and signed one of the regions best restaurateurs, Passion Food Hospitality for a top-tier white tablecloth restaurant. We expect Silverline Center to continue to perform…

Thanks, Paul. Good morning, everyone. Fourth quarter core FFO of $0.46 per share brought our full-year performance to $1.71 per share, which exceeded the top end of our most recent guidance range for the year, the primary driver of the out performance was strong office portfolio, where full-year same-store cash NOI grew 5.1% year-over-year largely due to rental growth of 2.2%. We had a strong fourth quarter overall benefiting from lower utility and snow removal costs due to milder weather and was seasonally expected. Overall full-year 2015, same-store cash NOI grew 2.5% year-over-year or 2.1% excluding term fees and our full-year core FAD payout ratio was 86%. Fourth quarter same office same-store cash NOI grew 9.2% year-over-year or 6.7% excluding term fees. As we continued to benefit from annual rent increases at several of our office properties and from lower operating expenses due to utility and snow removal cost savings, termination fees and higher levels of recoveries in the quarter. We leased approximately 872,000 square feet of office space in 2015, including 220,000 square feet of new office leases signed in the fourth quarter, which was a record high for Washington REIT. For new leases we had a 21% improvement in GAAP and an 8.5% improvement in cash rent spreads. Our rental renewals were 3.9% higher on a GAAP basis and 8.1% lower on a cash basis. Same-store office physical occupancy was 90.5% and our same-store office portfolio was 93% leased at year-end. For the full-year 2015 our retail portfolio experienced strong cash rental growth of 2.4% year-over-year. Retail same-store cash NOI declined 40 basis points year-over-year, primarily due to the negative impact of two quarters of vacancy and the tenant move-outs that occurred in the second quarter. Although we ended the year 91.5% occupied we are 95% leased that…

Thank you, Steve. I would like to briefly summarize the steps we have taken to transform Washington REIT into best-in-class owner and operator of real estate in the Washington Metro region. First, we have been net sellers of assets over the past three years, selling our lowest performing assets into a strong investment sales climate. We will continue to be net sellers in 2016 and use proceeds to strengthen both the left and right sides of our balance sheet. Second, the acquisitions we have made have been in the heart of Downtown DC for office and in urban demographic growth centers in DC and Virginia for multifamily and retail. Third, our asset recycling to date has significantly de-risk the portfolio and the sale of the suburban office assets currently in the market will be among the final steps towards transforming Washington REIT from a suburban office investment to an urban infill REIT owning and operating high-quality, transit oriented and amenity rich assets in the Washington Metro region. Fourth, we have created value through excellent leasing execution from renewal of the World Bank and Booz Allen leases to the lease up of Silverline Center, 1775 Eye Street and The Maxwell. Finally, and most importantly despite being net sellers we have improved our asset quality and strengthen our core FAD coverage. We expect to grow core FFO this year while also strengthening the balance sheet. Washington REIT is a much stronger Company today as among the best position to benefit from a continued recovery in the Washington Metro region.

We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Michael Lewis from SunTrust. Please proceed with your question.

Hey, thanks. I think I may know the answer to this, but I was wondering if you could give any more detail on the suburban office portfolio that’s for sale and maybe one way to do that is to talk about what’s included in your guidance, whether you can talk about volume, cap rate, timing and any of those things?

Good morning, Michael. This is Steve. We are not going to give specifics on the deal, we had signal before just so that everyone understood that we plan to be net seller coming into the year, but now that we have an actual specific package in the market. We are not going to talk about the cap rates right now and we are not going to talk about the proceeds. I’ll say just to help from a timing standpoint have to be negotiated and we are days away from the next step in the process, but we are assuming that we would like to try to take this down on couple tranches in the second and third quarter of the year from a timing standpoint.

And so this is impacting guidance than its all kind of in there even though we can’t see it?

That’s correct and I look forward to be able to give more color as the deals are executed through the year but we certainly have plans.

Okay. And then my second question I wanted to ask about development and redevelopment opportunities in your portfolio, Maxwell and Silverline are basically done you know is it safe to assume you’re not close to starting the new units on the Wellington and then as you swap out try to improve the grocery anchors, do some of that retail require or would benefit from redevelopment as well?

Hey Michael, Tom Bakke. So the main initial sort of repositioning that we got on the table of The Army Navy Club, which I think as a unique opportunity to reposition that asset put about 4 million box or so into upgrading lobbies, amenities center, some systems and I think we can generate some nice mid-teens returns on that investment. We’ve also got some additional units that we can develop at the Ash B one of our multifamily projects in McLean that’s converting some commercial space into multifamily units we get that through some zoning, but that something we are working on. And then we’ve got the development rights at the Wellington, which were also in the planning stages and that’s potentially 400 units that we hope to be able to get underway probably in the 2017. Also I forget to mentioned Spring Valley we do have a small retail expansion in that center I think we’ve talked about it on previous calls but that’s something we’re trying to get through zoning approval right now.

Great thank you.

Thank you. Our next question today is coming from Brendan Maiorana from Wells Fargo. Please proceed with your question.

Thanks. Good morning, guys. So Tom or Paul so, really great execution getting lease deal done with your anchor at Silverline. Did seem like the TIs were high relative to the term and rate, is a lot of the TI spend there do you feel transferable beyond kind of this initial term, which I think was a five-year deal but I don’t have anything specific in front of me. And how should we think about maybe economics of lease up going forward with that asset?

It’s Tom, Brendan. So I think first of all I think the TI numbers also include some other Downtown deals here at 1775 – these are of course higher numbers just in general. But that deal that we did at Silverline was pretty much a market deal even though you might assume that we had to compete at a higher lever I think this was definitely the case were the asset helped sell itself and the user really bought into that. So those concessions were all in line with market, which is essentially that was – it was 5.5 year deal on that essentially was about let see 6 bucks, put a year for TIs and pretty round about a month, a year pretty much in line with market. I think the better part of the story though is that this location is right across the street from their main campus and we have initial indications that they’re already out of space in their main campus and are likely to stay for a longer-term in certain locations and we think this location makes the most sense for them. And we will see – it certainly see how it plays out but the space that is going to be built up pretty generically and we like our chances on keeping them one way or the other.

Okay, that’s helpful. And then probably for Steve Riffee, so your FFO guidance kind of at the midpoint is up a few pennies, 2016 versus 2015 there is lots of moving parts in there. So I kind of heard your commentary correctly in terms of 85%, payout ratio on FAD suggests that your FAD outlook is kind of flat year-over-year. I’d think disposition of the suburban office assets would improve the FAD to FFO ratio. So is this more – one is that correct and if it is, is it more of a timing issue for 2016 where you’ve got to spend some dollars on some of these leasing that you’ve done and that maybe normalizes as you go out to 2017 or do you not really get much of an improvement in the FAD relative to FFO from disposition of the suburban assets?

Several parts there. These are not assets that require a lot of capital, so and that’s one of the reasons we think that they’re attractive to a buyer and very financeable in addition to the stable rent role that’s in there. I think quite frankly the core FAD ratio is very much affected by timing because we are selling assets. We are recycling into higher quality assets, so there is some solution relative to that. And it’s just – and also just keep in mind that we have executed all the leasing that we’ve talked about for the Silverline Center, for The Maxwell, for 1775, for the two big retail leases and those commence towards the back half of the year. So we don’t have the full benefit of all of that NOI and EBITDA, and FAD for the full-year, so some of this is just moving parts and timing. I think we have longer-term goal of getting even lower than 85%, but considering that we are doing all that execution that’s what we’re targeting for this year.

Okay, great. And then just last one. I think you mentioned there were a couple of office expirations this year that you got that activity on backfilling. I think you’ve got the law firm at The Army Navy Club, are there any other more meaningful ones that we should just be paying attention to?

The main one we’re – we have some good news on Epstein, Becker, 55,000 [feet or there about] 1,227 they have recently committed to renew with us and we’re in sort of the final stages of getting that renewal completed. And so that’s the big one on the horizon this year for us.

Okay, great. Thanks guys.

Thank you. Our next question today is coming from John Guinee from Stifel. Please proceed with your question.

Great. Wonderful job guys, congratulations. Kind of a big picture question and this is a question that everyone – 80% of the reseller has to deal with, but you guys are probably on the forefront. DC as you know has institutional capital that’s very, very aggressive and how they value and underwrite assets maybe more than they should, while the REIT cost of capital in general is going up versus down. Where are you in the whole thought of joint venture capital versus common equity, you’ve resisted it in the past, is there a level at which it becomes ideal or more attractive.

John, hi it’s Paul. So first thing we are going to do is had visibility on or what we are selling right now and in term recycle that capital. I would probably submit to you that I think we’ve been pretty consistent in terms of what we’re looking for and I am not sure that what we’re looking for necessarily completely inline with the institutional capital. My observation would be Washington REIT is trying to demonstrate to you and others and more specifically our investors, is that we can do value, add deals and create value. I’m not seeing that institutional capital that you are referring to is taking a lot of risk right now. You pay us to be local [sharp shooters] I think that’s we are trying to execute on, but I would probably consider that capital more core capital and yes, I think that’s very tough to compete with right now. We’re just not really looking for those types of transaction. What we are looking for and I thought where you were going with this is kind of out of the proceeds, out of the suburban market sale, what would we consider. We’re trying to as I’ve tried to message in the commentary; we are trying to gain more parity among the asset classes, which means we are really de-risking our office portfolio, but if you were to see us by an office building it would probably be within walking proximity of a Metro have a strong credit tendency and you see us buying that at discount the replacement costs that we can try to capture some of that value that we’ve discussed. We still like multifamily, we haven’t seen as much institutional interest in the multifamily probably in the last quarter and a half, but we’re…

Okay. And then sort of a two part follow-up question given that you’re going to get into basically a ground up 400 unit development apartments on an existing property or you thinking more about being in the development business, ramping up your development effort overall it does seem that market can absorb that 10,000 apartment units a year. And then the part B of that question for Steve Riffee, should we look at 2016 as $0.42, $0.46, $0.47, $0.48 does that makes sense?

I will take the first part of that and then I’ll pass it off to my partner in crime, John, Wellington right now the second phase, the first thing that key on the agenda is executing on the unit renovations that we’ve started and we have – we are in the first phase of that that’s going as planned, we are actually slightly ahead of schedule and we are getting probably a little bit more lift in terms of rental attribution than we initially anticipated. We are in design development right now and in the approval phase on the new apartment to be named and we think that those 400 units we are going to have nice separation between the renovated unit price points and the new unit price point. So we feel fairly comfortable about that, but the timing on that we feel probably the back half of this year or early next year. So that’s a little bit of a ways away.

Great thank you.

And John, just regarding timing. First of all, we’ve really try to not to give quarterly guidance, but we’ve given a lot of directions to the first quarter already. I would just say this there are a lot of moving parts. I think it’s not as back ended as you seem to indicate. I think the second quarter is when we indicated the things start to ramp up so there is a lot of things that help just naturally. Our seasonal expenses are lower in the second quarter and a lot of the secured debt that we are going to pay down, half of it’s going to be in the first quarter and we can reach the next half the 160 at sometime in the second quarter plus we’ve talked about trying to start the recycling process beginning in the second quarter. So I really don’t want to give every quarters numbers because our moving parts but I think you pushed more to later in the year than I would.

Thank you.

Thank you. Our next question today is coming from David Rodgers from Robert W. Baird. Please proceed with your question.

Yes, good morning, guys. I hope you’re doing well. Thanks for the details and I got on late so you answered some of this I apologize. I guess the first question I know you didn’t really want to give a cap rate on the sale of portfolio that’s out in the market maybe I’ll ask it in a different way. Two questions I guess what’s the yield difference between what you are going to sell and what you are going to buy on a 1031 this year. What do you think your unlevered IRR differences in that same trade?

Also Dave, if I go through that that’s probably going to you’re going to be able to back into a calculation, so we’re not going to comment on that right now. Lets step back a second and talk about what we're selling and talk about what’s going on in the marketplace because that’s quite frankly as an investor that’s what I would be asking and kind of what we are seeing in the CMBS markets and credit volatility what impact that’s going to have on our execution over the next six months putting on my former Chief Credit Officer had, I mean just evaluating the opportunity that we have out there right now, I am looking at the asset operating history either assets that are between 85% and 95% occupied. So we think its going to have interest from the light company communities and being a former light company lender also I would like to kind of circle my numbers early in the year. I think when you look at the assets that are out there the 1.2 million square feet that’s out there. You really not going to find a lot of CapEx or lot of deferred maintenance I think Washington REIT and credit to everyone has operated these assets as far back at the 70s and 60s these have been well maintained assets. I think what’s going to be critical is the buyer profile was out there right there Dave in terms of sponsorship and their capitalization I think that’s where you’re going to see spread differential. The regional nature of this portfolio I think more lenders and more of the equity people are going to focus on the tenant mix and the diversification and I feel like we’ve got every end of the spectrum there from federal…

That’s helpful. And then just maybe one follow-up on residential again if you answered this I apologize. But with regard to the challenges I guess some of the things were result in apartments obviously it’s been a challenging market, do you think that’s getting better, do you feel that you’re on the up swing and again how much of any of the economics that we see is going to self-induced by some of the improvements you try to make?

I think that’s a very submarkets specific question. The markets and I think we talk about this before we’re value chasers and when we go after those affordability gaps, I can pick a market some micro markets in the Alexandria market or some in Central DC that we like that we see big affordability gaps. I think the DC did well last year I think like this year for us the think that we are keeping our eye on with our DC assets is really going to be – is there going to be any cannibalization because of all the products that’s delivering in Southwest Waterfront, the Navy Yard, our people going to say okay that’s a really big discount I’m willing to make the leap. I think it’s about for us and as we continue to examine our portfolio. Our portfolio manager is really looking at price points and amenities. And I think you kind of have two types of renters there. I don’t see the renter that at 3801 Connecticut or one of other assets jumping down from the Navy Yard to save $300, we just think those are two different types of renters. I do like kind of were Northern – certain parts of Northern Virginia are going in terms of delivery and then the suburban markets we just haven’t really seen the infill of product that’s going to – that we think it’s going to hurt our cash flows.

Great. Thanks for all the detail, Paul.

Sure, Dave.

Thank you. [Operator Instructions] Our next question is coming from John Bejjani from Green Street Advisors. Please proceed with your question.

Good morning guys. I think you sort of plus on this, but I was wondering if you could speak to just the pricing environment, so there’s been discussions in Manhattan and so forth as to whether riskier assets are going to get repriced in the market moving forward. Are you seeing any change in the pricing environment in the DC Metro across the risk spectrum?

I would say John that’s very asset specific. I think that we’re seeing a lot of joint ventures being sharp right now and you know who they are. We are seeing a lot of partial interests or 50% or less being out there and people trying to basically take some cash off the table, haven’t seen a lot of retreads on pricing on core assets I would say that more of the retrading or repricing have been twofold. Number one, some of the private equity recalculating how much duration risk that they want to take and let’s say you have a near-term rollover for probably repricing leases that are 18 months or out, we’re definitely seeing that. And then we’ve seen lenders probably the farther out you go the suburbs outside of beltway I think that if you don’t have your forward pin down, your spreads pin down I think there could be some volatility there, that could probably be in terms of distribution to a private equity, more holdbacks, more reserve requirements, just knowing the edges there from the lending side. On the equity side, quite frankly, when we look at our pipeline and we try to track every deal in the region. I’d say 80% of the products that we’re seeing right now is not what I’d call core products, I’d say it probably it ranges from core plus all the way out to opportunistic and I think that’s a bit more of an open playing field John.

Okay. That’s fair, that’s helpful. And then I guess just one question on the office portfolio, so I don’t know if you’ve mentioned this, but which property was it where you experienced that larger lease term in 4Q?

1901 Pennsylvania avenue, we had 7,000 foot tenant that we did an early termination on in bank that…

All right. Great. That’s it for me. Thanks guys.

Thank you, John.

Thank you. Our next question is coming from Chris Lucas from Capital One Securities. Please proceed with your question.

Yes, good morning everyone. Paul, just maybe a quick question on this, on the portfolio, you are having on the market, any senses to what your thoughts are on just sort of the timing of wrapping that up?

I think as Steve tried to message I think we’re looking at the second and third quarter Chris, and we have – I think if you step back for a second and look at the buyer profile. I think the people that want to get capital out are going to try to accelerate that. We’re pretty much running the whole spectrum in terms of buyers profile from local operators, regional operators, capital sources, funds that can take the whole thing down. I think the people they are trying to get large [indiscernible] and they are lining with lenders who are trying to do that on the front end as opposed to the backend. But the execution itself and I think what we’ve messaged in our guidance in 2Q and 3Q execution, Chris.

Okay. And then when you get this done how far through the portfolio repositioning do you think you are?

I think we’re back to kind of the normal portfolio [pruning] that any good manager would go to in terms of allocating capital. There is still one office building that I could point you right now, but I don’t like to monetize yet is there another apartment building out there that we think it’s probably better for us to allocate capital to another multifamily side, yes, but in terms of larger programmatic portfolio sales I think this is kind of the bellwether execution for us.

Okay. And then the last question for me is when you're done with this portfolio and you put the leverage – pay down some of the leverage, is that where you want to be from a balance sheet perspective on leverage once we done with this?

So Chris, just to think about leverage long-term, we had targeted to get well the execution of sales in 2015 back under 7 so we were like 6 to 8 trailing 12 months I think debt-to-EBITDA at that point. The next target level we have is the mid-6’s and we have a lot of moving parts. What I said about longer-term is I think we like to operate in the low-6’s from a debt-to-EBITDA standpoint. So we are going to do it one goal at a time as we execute.

Great. Thank you very much. End of Q&A

Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to Mr. McDermott for any further closing comments.

Thank you. Again, I would like to thank everyone for your time today. We look forward to updating you on the progress of the sale of our suburban office assets in the coming months. We are grateful for the opportunity to met so many of you in 2015 and our Investor Relations outreach efforts enabled us to meet more investors than in any other year in the Company's history. We look forward to seeing many of you again soon and thank you everyone.

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