Welcome to the Washington Real Estate Investment Trust, First Quarter 2017 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 FFO, core FFO, NOI, core FAD, and adjusted EBITDA that are non-GAAP measures as defined in Reg G. Please refer to our most recent financial supplement and to our earnings press release both available on the Investor page of our website and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements within the Private Securities Litigation Reform Act. Forward-looking statements in the earnings press release along with our remarks are made as of today and we undertake no duty to update them as actual events unfold. 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 through 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'd like to turn the call over to Paul.

Thank you, Tejal and good morning everyone. Thanks for joining us on our first quarter 2017 earnings conference call. Washington REIT delivered a strong start to 2017. We grew core FFO by 4.8% year-over-year to $0.44 for fully diluted share and same-store NOI by 10.4% year-over-year. We increased same-store economic occupancy by 540 basis points year-over-year and ended the first quarter 93.7% occupied. In addition to achieving our strongest same-store NOI growth in over 15 years, we announced plans to acquire Watergate 600, an iconic DC office asset with compelling NAV growth potential and completed the transaction subsequent to quarter end. Furthermore, we raised our full year core FFO guidance range by $0.02 and provided assumptions for $70 million to $100 million of asset sales. Finally we raised approximately $65 million of gross proceeds year-to-date through our ATM program in order to maintain our balance sheet strength. One of the principal highlights of this quarter, is our strong same-store NOI growth, which was driven by all three portfolios. Office same-store NOI grew 15.6%, retail 7.9% and multifamily 4% on a year-over-year basis. All three portfolios also delivered sequential same-store NOI growth. Occupancy gains from large leases that commenced in the second half of 2016 were a key driver of the annual growth and reflect Washington REIT's ability to capture of the robust job growth generate in our region over the past 12 months. Moreover, we benefited from weather related OpEx savings and we're also able to push rents higher across the portfolios. Let me now provide you with a detailed update on our three asset classes, starting with our office and our acquisition of Watergate 600, a 309,000 square foot office building on the Potomac River front in Washington, DC for approximately $135 million or $437 per foot. Located in…

Thanks, Paul and good morning, everyone. Net income of $6.6 million or $0.09 per diluted share in the first quarter of 2017, exceeded net income of $2.4 million or $0.03 per diluted share in the first quarter of 2016 primarily due to lower interest expense as well as increased NOI. We reported first quarter core FFO of $0.44 per diluted share versus $0.42 in the same prior period last year, driven by positive same-store NOI growth and interest expense savings which combined more than offset the FFO dilution from asset recycling and deleveraging. Core funds available for distribution or core FAD was approximately $26 million in the first quarter. We continue to target a full year core FAD payout ratio in the mid-80s. First quarter, same-store NOI grew 10.4% over the prior year, driven by a 540 basis points increase in economic occupancy and a 100 basis points increase in rental rates. As Paul mentioned, all three asset classes drove same-store NOI growth with office delivering the strongest growth rate followed by retail and then multifamily. Starting with office, same-store NOI grew 15.6% over first quarter 2016, driven by 910 basis points of economic occupancy gains. Approximately half of the increase in economic occupancy was driven by lease commencements at Silverline Center, with the other half predominantly driven by lease commencements in our Washington DC office portfolio. Office grew rents by 100 basis points year-over-year. Overall office economic occupancy increased 510 basis points and was impacted by vacancy at the army navy building which is being redeveloped. We leased approximately 140,000 square feet of office space in the first quarter, with new leases achieving an average rental increase of approximately 33% on a GAAP basis and 14% on a cash basis. Renewals were 25% higher on a GAAP basis and…

Thank you, Steve. The continued growth we delivered this quarter as a result of many months of well-executed capital allocation and value creation. We believe that the company has recycled and redeveloped the right assets in the right submarkets while deleveraging and optimizing the balance sheet to reduce interest expense and enable value add growth. Looking ahead, we have created multiple additional phases of NOI growth for our shareholders with the lease up of the Army Navy Building, unit renovations at the Wellington and Riverside, repositioning of Watergate 600, development of additional FAR at Spring Valley and the development of approximately 1000 new multifamily units in submarkets with limited supply. Furthermore, we are well positioned for the dynamics shaping the future of Washington Metro regions for the follow reasons; First, approximately half of our office and 67% of our multifamily NOI is derived from Northern Virginia, where increased federal defense spending is expected to be a key growth driver in 2018 and beyond. Second, the other half of our office NOI is drive from the district, which is home to associations, law firms and accounting firms that are expected to expand an era of proposed tax and regulatory reform. Third, our office portfolio doesn't compete in GSA heavy submarkets and has negligible existing GSA tenant exposure. And finally, multifamily supply is abiding and the Washington Metro region is one of the few major markets expected to accelerate rents going forward. We expect all three of our asset classes to grow same-store NOI this year while we execute a manageable redevelopment and development pipeline and maintain a conservative balance sheet. Now, I would like to open the call to answer your question. Operator, please go ahead.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Richard Chiller [ph] of Robert W. Baird. Please go ahead.

Hey good morning guys, thanks for the question. The 10.4% increase in same-store NOI growth overall it take others by surprise to the upside, so congrats there. And I think you mentioned in your prepared remarks that half was driven by the leases at Silverline Center, what was the other half attributed to?

Hi this is Steve. So half of it was approximately from the Silverline, the other half was basically our DC office portfolio. All of it is additional leasing execution. And one of the things that we wanted to point out while we got a lot of it done in the second half of 2016 has actually capturing a lot of new jobs in particularly in the Virginia assets.

Okay got it. And the G&A expense, I think that was raised from the prior guidance. As lot of that due to Watergate 600 or is there something else there?

Well there is various items in it is a range. When you look at maybe what's the largest changes we have taken up our professional fees. So we've been working with advisors transactionally and getting some of our corporate things done. And with our increased expected earnings growth, and we have raised guidance some of there is also higher projected incentive comp.

Got it okay, thank you. And last for me, how was activity going on the Army Navy redevelopment?

Yeah, hi, this is Tom. So we - I think we mentioned, we have got a deal that's working on a full flow, that will take us to about 70%, we have got tremendous activity. I think for this in this release strategy, we want to make sure we're putting the right users in there, the right deal structures and economics and our goal is to have it fully committed by the end of the year and that looks like we might be able to beat that.

Great, awesome. Thanks guys.

Thank you.

Thank you. The next question is from Jed Reagan of Green Street Advisors. Please go ahead.

Good morning, guys. It looks like your cash same-store NOI came in almost on top of GAAP in the first quarter and just curious if we should think about that relationship as remaining pretty close throughout the rest of the year, just trying to think about how your sort of 5 percentage GAAP guidance for the year kind of translates the cash?

Well, we don't actually give cash guidance, we report cash and GAAP either when our supplement as we incurred. In same-store I don't see that changing for the next quarter or so, but when you get new lease commencement sometimes the GAAP will start before the cash kicks-in so to the usually in the second half for the year, you will have some lease commencements that will start initially for GAAP and with cash commencement trailing. We there - we're likely in the non-same-store category to have higher GAAP than cash returns on the acquisition.

Okay. That's helpful and you mentioned you expect Virginia portfolio to see some benefit from the defense contractors expanding, I guess just given the uncertainty of getting a long term budget path, I mean when do you think that expansion could start taking place and where you would actually feel some kind of tangible growth on the ground kind of the office and multifamily side?

Well, hey Jed, it's Paul. In terms of activity I actually think we're seeing activity right now. In terms of we're in Cushman's [ph] Office last month and I stat that probably struck me is being the most profound was prior to on the fourth quarter there, their defense contractor tours represented about 6% of their tours in the first quarter defense contractor tours represented about 50% of their tours. I think we're definitely seeing more traffic in our multifamily assets and I think there is a lot more tire kicking with duration than we've seen probably at other points in the cycle, what I think that does for the region though and Northern Virginia in particular is positioned us well to kind of accommodate the growth what we're trying to said Washington REIT up for is not just for 2017 but 2018, 2019 and 2020. I think those - that budget which we do believe will get through that combined with the increase in job growth that we're projecting over the next the same full year period. I mean we added 62,000 jobs over the last 12 months but the 15-year average here in DC is about 32,000 so you're almost doubled that and for the next four years, we are projected to add an average of 41,000 jobs a year. We think a lot of those will probably go in that 27% above the 15-year average. We think a lot of those can be year marked for Northern Virginia and so I'd say we are starting to see it now. I think we've been fairly consistent, Jed that even I think our first call after the election that it isn't like throwing a light switch, okay you've got a new administration coming in, a lot of the appointments, a lot of the confirmation, a lot of the legislation is really still infancy and it's probably because of the stylistic approach of the administration could be maybe a bit more protracted, but we still see it bearing fruit for the region and specifically our portfolio.

Okay appreciate that. And I think as far as sort of the uptick in contractor activity, is that more sort of anticipatory on their part at this point or they're thinking hey awards could come will that sort of get out ahead of those, would you said is that fair to characterize it at this point?

That's exactly the feedback that we've gotten from the brokerage community Jed.

Okay. And what percent of your portfolio is defense oriented would you say office side?

15%. 30% specifically in Virginia.

And that's a lot of that's because of the Bruce Allen [ph] that's the big part of that Jed is on asset.

Okay got it. And then maybe just last one for me. There is been some reporting recently that First Potomac maybe in play and just curious as to how much of that portfolio you think could fit well into your portfolio and just maybe in general, if you could talk about your appetite to grow via either in entity level or a larger portfolio transaction?

Okay, there is a couple of there Jed, so let me start with First Potomac. We have tremendous respect for Bob Milkovich and the team that's there right now. We know they are going through a process and we wish them the best in terms of a successful outcome for both of that team and their shareholders. I think that we are probably looking at focusing on growth in other areas. You mentioned in entity level deal or a some type of portfolio execution, yes we have growth aspirations, I think we've been very consistent about that over the last few years and we are consistently looking for portfolios in all three of our asset classes.

Great, thanks a lot of guys.

Thank you, Jed.

Thank you. The next question is from Chris Lucas of Capital One Securities. Please go ahead.

Good morning everyone. I guess Steve starting with you, on the HHGregg, I guess just trying to understand sort of what your thoughts are as to how much exposure you have as it relates to sort of when rent will seize there, and sort of how you're building that into your same-store guidance for the retail?

I think we're assuming I'm looking at Tom that they closed their stores at the end of April in terms of our forecast in numbers. So if they stay longer that's upside, to our numbers.

Okay. And then I guess just maybe going back to the question about defense contractors and about the Northern Virginia market. There was a large lease reported that was taking out a huge amount of the vacancy along the toll road. You do have space at monument too. I was wondering how the activity level is out there, and whether that large lease is a consolidation lease or new demand. If you could comment on that.

Chris, its Tom. So the big lease is that at the old Bruce Allen building, the cap sold to Federal Capital partners. They leased that to Amazon, that's all new growth. And yeah, Amazon is very active out in 100 and out in the 28 quarter have gaveling up a lot of space. And they are in the Monument complex in a different building. We've got some vacancy there, we've got activity, it's a little bit tougher vacancy, because it looks into the garage and so we've get to find the right user to go into that space, but I think we're confident we'll get the leased up, because the activity has been robust out in that part of the toll road.

Hey great. And then Paul more general question, just in terms of product availability and competition in the marketplace. What are you seeing as it relates to the different product types in terms of availability at this point, and has the competition in pricing changed at all?

Okay. I'll tell you, let me go back 60 days Chris and I remember we talked about the availability of product. We really came out of the blocks like a number of markets pretty slow. It was probably one of the driest Januaries I had seen certainly in this cycle that has completely reversed. There is a number of and I'll start with office, I mean I'm just looking Downtown here right now, in the last 30 to 45 days, 1101 New York, looking for 1350 a foot, 1401 New York 1800-M Street, 1119 Street, I mean the list goes on. So there are going to be plenty of opportunities to place capital in the Downtown market. I'd say this, out in the suburbs as you know, there is product, there has been some recent closings in the Tyson's Corner market with the Rockpoint deals, two products were coming out in Bethesda, the last piece of [indiscernible] complex, I think it's called Montgomery Towers and then 7101 Wisconsin. So I think if you want to play Downtown or suburbs, you're going to have plenty of opportunities to place capital. I think the lending community has been keeping people honest in terms of asking more questions particularly on the credit and duration side, but I think the trend right now from what we're seeing we think investment activity will clearly be up and that's I think when you have more optionality that's going to put a little bit more pricing pressure and that could have obviously a residual impact on cap rates. I think from an investor standpoint it's all about kind of leasing risk versus yield we've seen some people kind of underwriting through the vacancies right now, and I think that can be a little bit dangerous depending on what submarket you are in, but we set a record obviously with water view been in low 700 a foot. We look at Arlington Tower right now, that's probably in the upper 500 a foot. So, you're going to have your chances to play along the risk spectrum in office. Multifamily, we haven't probably seen as much product come out, but I think our numbers that we look for and that we maintained we've seen, I'd say on the mid to high rise concrete we've probably seen I think on grants numbers about a 7% increase in pricing. I think we're probably looking at about 430 a door, so that's year-over-year that's a nice little increase haven't really seen the desire for Class A multifamily from an investor standpoint abate but people are being very cautious obviously about the Waterfront markets and the ability to grow rents there. And then retail Chris, we just haven't really seen the data points that we've seen on a comparative basis with the other products.

Great, thank you appreciate it. That's all I have.

Sure, Chris.

Thank you. The next question is from John Guinee of Stifel. Please go ahead.

Great. Thank you, I'll ask a series of quick questions, which means, you can give me quick answers. First, FPOs going through the process, what do you think this is the third, fourth, or fifth time they have gone through a process?

John, I don't really ever response to that.

Okay.

This is the first time we've formally been contacted.

Got you. Second, surprise maybe Tom, surprise that Amazon would look out the Dallas Corridor or takes space in the Dallas Corridor. Do you think intuitively that they would rather be in the RB Corridor or Tyson's Corner, any thoughts on why they are focusing on the Dallas corridor?

Yeah. This is sort of just my best, sort of insight and that is that they've been focusing out in that Dark fiber Corridor and it's more for their data storage needs and services rather than some of the other aspects of their business and so that's why they are out there. I thought to your point though to come a little bit further East to the - that the old Booz Building was a surprise, because they had been closer to a 28 in the past.

Got you. Okay, and then on retail. It looks to me like most of your vacancy is smaller spaces and as you know rental rates are all over the place, so you can't really go talk specific rental rates. But what's it take to back fill vacant retail right now in terms of tenant concessions together tenant to move in?

So, we do now that we have the two HHGregg boxes that we. So we do have a couple of larger boxes coming. But to answer your question around small in line shop leasing, the typical TI package is pretty modest for those guys and it gives a lot of it is underwriting the credit. And you may offer anywhere from even low-single digit to $20, $30 bucks a foot for some of these guys. Now you go into the bigger users, when we did Michaels and some of the other those guys are going to demand a little more TI out of you. But it's just generally TI and negotiating your starting rent start date, John that's pretty much the main drivers.

How about back filling in HHGregg Box?

So yeah, we've got good activity on those boxes, believe it or not, there are some junior box users that are in fact fairly aggressively opening stores, most of those are the discount retailers like TJ Max and Marshalls, and Saks OFF 5TH, Nordstrom Rack, Burlington, all of those guys are in a growth mode. So again those guys are going to drive mostly about getting the shell condition up to a certain standard that fits their acceptance. And then you're negotiating how long it takes you for that deal to start, because they want time to build that out and they're going to try and drag their feet to open it at the best time for their business and so that's where you're may negotiating paying comes in. But you've got a depending on the age of the box, you may have to put $20 $30 bucks a foot into getting into a shell condition.

Got you, okay. Then last question Paul. I love your comments in the past on CapEx COGS. And when you look at the Watergate Complex, it sort to screams CapEx COGS. So two questions, I understand buying 600 Watergate or Watergate 600, in order to generate some quick FFO from a GAAP leases in place. But it seems to me it sort of contrary which you usually do in terms of avoid the CapEx COGS. And then the second question is obviously a Watergate tends to compete as much with the Roslyn market as it does with the DC Market because of the view component. Can you talk about which submarkets Watergate 600 will compete with and also sort of a counter intuitive acquisition from what you have recently done?

Sure and I'll ask Tom to probably hang on with me on the submarkets. But Watergate 600 the acquisition John was kind of what we do in terms of creating NAV value. We think that there is an opportunity to go in there put more of an institutional flare in terms of the ownership and management of the property. We think that the asset is does have longer term potential. For us, we think it's a submarket that the hotel has been repositioned, we have new institutional owner in an around that. And it's not even really John as much as a sub-market as it is a micro market that we like to focus on, we like what's going on there. I probably wouldn't say that the tenants that are going to go to the Watergate are going to be the same tenants to that want to go to that want to go to Roslyn, because whether we like it or not optically some people just do not want to go across the river. And we think that that's going to board well for us, while the price points maybe the same. I think the workability of what's around the Watergates and quite frankly in the Western and what has taken place around Washington circle all the way down to the river and even walking into George Town, you can't really do that from Roslyn or people don't as much as they would have they are in Watergate 600. So, we think there is an opportunity for us to create value there, we like to going in cap rate and we know that I think we have proven to the marketplace that we have the ability to execute and reposition assets and these is just another data point.

Great. Thank you.

Yeah. I was just going to add that, what we have found is that there are tenants to that just don't want they won't D.C on their address and I think that's a big part of that the reason they would pick this asset over Roslyn if there was a view decision.

Great. Thank you.

Thank you [Operator Instruction]. The next question is from Michael Lewis with SunTrust. Please go ahead.

Thank you. On the retail side, you gave good detail on HHGregg and kind of releasing those phases. You also sort of alluded to other bankruptcies and I am wondering if you have I presume smaller ones, if you have any other kind of factored into your guidance already and your risk assessment on the retail side, given what's going on kind of I guess more nationally in retail?

Yeah, Michael its Tom. I think we did have a couple other smaller bankruptcies payless, we have one payless that's 2,500 square feet. We add a family Christian smaller user of 5,000 square foot box. And again all of those are factored into our guidance and we're confident we'll have those released. They are not an indication in our mind of any kind of weakness in our portfolio, just some isolated business dealings.

Okay, so these all happens you are not forecasting or expecting any additional bankruptcies for the rest of the year.

No. We in fact are watch less believe or not has and frankly gotten smaller and that partly because the HHGregg had been on for the last several years are now off and so. Yeah. So we feel like our guidance is reflective of a fairly stable and normal business climate.

Okay. Great. I just had one other and maybe I missed it, but it looks like the cost estimate for the trough went up a little bit from the previous quarter. So I was wondering if there was any material reason why that we should talk about and if it's impacted your projected return at all.

Michael, yeah throughout your observations are correct. If you look it obviously all of the activity, the construction activity that's taking place and do you see right now I mean we're pretty much in the belly of the beast for the next 12 months. And what that has had, is had an impact on both labor and materials. So our return on costs has probably move from the upper sixes to the mid sixes. So yes there has been an impact and we continue to be optimistic about the submarket in the side but just given all the activities is taking place in the region that's had a spillover effect on the Trove.

Alright. I appreciated. Thank you.

Thank you. There are no further questions in queue at this time. I would like to turn the conference back over to management for closing remarks.

Thank you. Again I would like to thank everyone for your time today. We look forward to seeing many of you again and at the upcoming NAREIT Conference in New York in June. Thank you, everyone.

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