Welcome to the Washington Real Estate Investment Trust Second Quarter 2017 Earnings Conference Call. As a reminder, today's call is being recorded. Before turning call over to the Company's President and Chief Executive Officer; Paul McDermott, Tejal Engman, Vice President 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 refer certain of 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 second quarter 2017 earnings conference call. Washington REIT raised full year 2017 same-store NOI growth projections across all three asset classes and raised 2017 core FFO guidance for the second time this year. Second quarter core FFO of $0.48 per fully diluted share grew 4.3% year-over-year driven by strong same-store NOI growth of 8.8% year-over-year. We increased same-store economic occupancy by 470 basis points year-over-year and ended the second quarter 93.3% occupied. In addition, we drove solid leasing momentum in the second quarter with the signing of a 131,000 square foot 15 year lease with the United States Department of Agriculture at Braddock Metro Center. We also continue to drive high levels of activity at the Army Navy building which is now approximately 71% leased with an additional 10% under LOI. Finally, we received strong levels of interest for the proposed disposition of Walker House Apartments in Gaithersburg Maryland and expect to close on the sale of this asset in the third quarter. We delivered robust year-over-year same-store NOI growth for the second quarter in a row achieving 14.8% office, 4.6% retail, and 2.6% multifamily growth in the second quarter. While Steve will address our key performance drivers later on the call I would like to specifically acknowledge our expense management initiative and our continued ability to work with our tenants to drive operational improvements as key factors that have contributed to our second quarter performance. Beginning with our largest lease signed this quarter, we're pleased to have secured a major tenant the USDA in a long term lease that is expected to commence in the second half of 2018, contingent upon completive renovations of the asset and the leased space The USDA is in holdover on…

Thanks, Paul, and good morning everyone. Net income of $7.8 million or $0.10 per diluted share in the second quarter of 2017 was below net income of $31.8 million or $0.44 per diluted share in the second quarter of 2016 which had included the recognition of $24 million gain in the first sale transaction on the suburban Maryland office portfolio. We reported second quarter core FFO of $0.48 per diluted share versus $0.46 in the same prior period last year driven by revenue led year-over-year same-store NOI growth of 8.8%. Second quarter core funds available for distribution, or core FAD, was approximately $33.8 million and we continue to target a full year core FAD payout ratio in the mid-80s. Our strong second quarter, year-over-year same-store NOI growth was driven by same-store economic occupancy gains of 470 basis points in office and retail as well as higher real growth in multifamily on retail. Office also benefited from higher periodic settlements of tenant recoveries as well as increased lease termination fees. Starting with office, same-store NOI grew 14.8% over second quarter 2016, driven by 870 basis points of economic occupancy gains. Approximately 60% of our year-over-year economic occupancy gains were driven by Silverline Center, with remainder spread across the portfolio with new lease commencements at 1776 G Street, 1775 I-Street and Fairgate at Ballston as well as tenant expansion at 1600 Wilson Boulevard. Our economic occupancy also improved 80 basis points sequentially due to new lease commencements by tech and healthcare related users at Silverline Center, 1600 Wilson Boulevard, Fairgate and 2000 M Street. Office ending occupancy declined by 10 basis points sequentially, due to a tenant move out at Monument 2 in Heartland, Virginia, that has been backfilled by a cyber security company and this lease is expected to commence in…

Thank you, Steve. Our same-store NOI and core FFO growth in the first half of this year is the result of our research-based strategic capital allocations to those submarkets and product types in our region that has strong rental growth prospects. While our growth is apparent in our quarterly operational performance, the relatively low risk that unpins it is also a key differentiator for Washington REIT and one that we were part to maintain. Over the past three year, we’ve strategically allocated capital out of low barrier suburban office asset and into urban infill Metro centric assets and locations with strong demographics and walk able amenities. We're focused on targeting small to mid-sized office tenants and have further minimize our risk by operating suite solutions that reduced down time and leasing capital. Moreover, we have allocated capital to value add multifamily assets thereby increasing the stability of our cash flow while decreasing overall portfolio. In addition, we have a resilient retail portfolio with a large majority of neighborhood and community shopping centers. Our overall operating portfolio has low submarket and concentration risk and therefore low cash flow volatility. On the development front given where we are in the cycle, we've build a small and manageable pipeline that enables us to increase density at exiting NOI producing assets located in submarket with limited new supply. And finally, we have strong financial metric and a deleveraged and under cumbered balance sheet providing us with greater capacity and flexibility to capitalize our future growth opportunities. Now, I would like to open the call to answer your questions. Operator, please go ahead.

[Operator Instructions] Our first question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

Couple of questions, you have in the past indicated that you would be happy to add more retails to your portfolio of you could find it. Has that perspective changed given some of the dynamics in the retail space?

I think, we have candidly built probably tempered a lot of peoples enthusiasm, I think both from a buying a selling standpoint. We still have not seen a tremendous amount of retail product come to the table. Although, there are two opportunities right now on the market that we think are going to be a good litmus test for updated retail pricing in the mid 2017.

Two more quickies. Just on the economic growth and I appreciate your comments about the leading indicators, but we have heard reports the job growth did stall with some of the early failures of the Trump efforts. You didn’t see any of that or it did then it's reaccelerated. Just talk about job growth itself?

Sure. So, I think we came out of the block pretty strong at the beginning of the year in January and February, had good job growth. Admittedly, it cooled in margin April with April being a low point. I think it rebounded sharply in May and then we just got new June numbers, and as I said, we are in excess of 59,000 for the trailing 12 months. That is a 35% increase over the 20 year average of 1990 to 2010. And the reason we stop 2010 because that was kind of bellwether movement for this region where sequestration kicked in. If you added sequestration that 35% increased number would only accelerate. So at this point and in midyear, Bill, we feel pretty good about the jobs numbers.

Great. And then finally for me, Paul. We have seen some really high profile asset sales or transactions in the DC office market. Can you talk about any change in competition in your type of assets?

I'd say -- let's start with what you are seeing. I definitely agree that there has been maybe a bit of an overzealous underwriting approach to the super core. And we have -- I think as you've seen Bill, we set records recently at 1,250 a foot for downtown core assets. I think that people will continue to pay up for that Uber quality in the CBD. We haven’t seen that really changed. In terms of the value add product that we would like to go after targeting affordability gaps on multifamily or targeting repositioning opportunities like 1775. We want to make sure that we lead with research and we want to make sure that demand is going to be there. Right now I think the multifamily opportunities that we are executing on currently are probably a little bit more prevalent then the office opportunities that we're seeing. I'd say people are pushing through underwriting on the vacancy and I think there's a bit of risk rationalization going on but I also think that there's a tremendous capital out there and some people have a gun to their head to try to push the value add envelope.

Thank you. Our next question comes from the line of Jed Reagan with Green Street Advisors. Please proceed with your question.

Maybe just following up on Bill's retail question. Would you say, you feel like your -- all your retail assets are a longer term hold at this point? Or could you see a look into maybe monetize some of the more outlined stuff in the coming years?

I think right now, Jed, we're comfortable with the position that we have in retail. As you know we have some -- we did have two HHGregg, two of the outliers we feel pretty good right now, one we're working on an LOI I think that our biggest thing is making sure that we're shoring up the cash flows on some of what you term as the outliers, but the infill product we think not only offers good diversification for our portfolio but as you know probably three or four of them offer good redevelopment repositioning opportunities.

I guess are there any other major roll downs in the coming years similar to the USDA and like where would you say your office portfolio in place rents are relative to market kind of overall at this point?

We don't have any other significant roll downs I think we're sort of looking. Our rollovers are being fairly manageable and it's rolling generally flat to slightly up on a cash basis and rolling up on a GAAP basis and pretty much across the board.

So, maybe the last of the kind of the larger roll downs for awhile?

Yes.

And that's a kind of a second half '18 sort of commencement and impact?

Yes, that's correct.

And I guess any update on the advisory board expiration I guess we're a couple of years out on that now, less than a couple of years. I am just curious, if you can give any update on how the plans are coming there, if you're getting any traction on the marketing campaign and then maybe how much base building capital you might be looking to spend there?

So, as we've discussed on previous calls, we've looked at several of redevelopment options scenarios there at 2445. What seems -- the multifamily was of interest early on. I don't think city has been able to push through a significant incentive package for that conversion, that's still out there. I think it's becoming less or a bit more remote. And so we've gone sort of aggressively with an office redevelopment, their marketing approach and one that has been a little more open to what the users would pay for. And we do have some fairly sizeable prospects that want sort of a full Class A rental, and so we are looking at that and we've some others that are looking for more modest -- I think a lot of its going to depend here on who buy it first in significant size that sort of, how this plays out.

Okay is it realistic to think you might have that space kind recommitted by the advisory board that expires?

I would like to think we would have all committed, but that might be optimistic certainly a big chunk of it.

And maybe just last one from me. I guess generally, how is the tempo of office leasing feeling in the district in Northern Virginia? So far this year, you’re seeing any uptick in velocity and then you seeing any noticeable changes in the asking rents over the concession environment?

So, let's see DC Class B is still active fortunately that’s the bread and butter for us. I think the tenant market in DC feels about the same. Northern Virginia, I think it was -- you had that initial defense search going on out in the Northern Virginia suburbs, that really is not effective us that much, but it seems to have fatted a little bit to be honest with you recently. But we've seen activity in Roslyn with the Nestle deal and there is another 100,000 deals circling around in Roslyn. So, Roslyn's picked up a little bit. And, yes, I just think the activity feels about flat to me and concessions feel flat, nothing seems to really be changing significantly now. We talked no previous calls about Silverline, most 65% of the deal activity is hitting along with silver line and major beneficiary has been Tysons. We have seen a rent growth there. So I think that is the one bright spot where, rents frankly on the product right along the four Metro stops and Tysons specially on two primary one that has moved 5 to 10 bucks depending on the asset. So that’s probably the biggest bright spot on Northern Virginia.

Thank you. Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

Just to follow up on that for Paul or Tom. Can you just talk about whether or not you think the high Class A vacancy you’re seeing in DC office? Are you going to have a dampening effect on rent growth in the Class B market? Or in other words, do you think Class A landlords are going to have to decrease asking rents to the exempt that Class B space might have to compete with them to attract kind of the same tenant?

Blaine, it's Tom. So I think the gap is little bit too wide for the huge spillover effect on B. If we talk about the glass box redevelopment model, it's about mid to low 70s, gross rents and I mean some cases higher.

The new development phase is 80s and we’re in the -- let just call it 50 bucks B. I mean that's big gap and I don’t think we're going to have to drop rents. We may see our effective rent growth, which we've seen some nice growth there as concessions have squeezed down that might slow down a little bit as we move up, but that just a big gap. I don't see it affecting us too much.

Blaine, the only thing I'd add to Tom's spot-on comments would be, you really need to keep going back that I know people when you -- specially when you look at other firms that do build the suits and everything, you really need to go back to the size of the tenants in the market place. I don’t see somebody that’s asking up go in the middle. I don't see somebody is asking 72 bucks dropping to 55 bucks for 5,000 or 10,000 square feet tenant. That just really doesn’t move the needle on the big risk projects that they have taken on. And if you look at the B caliber tenants and look at the average deal size and our portfolio is well is in that particular rental demographic, it's kind of 5000 to 6000 square feet. These Class A landlords have made a big bets on the repositioning getting into mid 70s and having substantial preleasing and that’s a lot of work to chop adding up a bunch or 5,000 and 6,000 square feet tenants.

Steve, one for you. Obviously, you guys did a great job on same-store basis during the quarter but I did notice of the same-store expenses were at about 7% year-over-year. Is that just increased taxes or expenses associated with Silverline occupancy? Or was it something else? And I guess how long should we expect that year-over-year expense growth to continue?

I think your biggest driver is we are now fully occupied at the Silverline Center. So this time a year ago that space wasn’t dully occupied and therefore we weren’t incurring all the expenses. I mean you have natural increases, real estate taxes but we also talked about some great work has been done to drive down the utility cost. So I think they moved in and we start recognizing income in the third quarter. They weren’t fully occupying because there was still build out in that space so I think the comparison for the expense at Silverline will begin to normalize over the next couple of quarters.

Our next question comes from the line of John Guinee with Stifel. Please proceed with your question.

Just as an educational exercise. Can you walk through, how it is to work with the GSA on for example the USDA lease at Braddock Place? Aligned RFP process, ability to negotiate who else was in the fray? Would they consider our non-Metro location such as Skyline? Did they go up as far as Rosslyn Ballston or Crystal City? Or is it primarily up on Alexandria requirement?

Good question, and like you said it it's an education process, anytime you do your GSA deal. I think it's an educational process for our team as well. We had an experience GSA brokerage team on the assignment and when we do agility was going to depart. We knew that being on Metro and in Alexandria, it is a generally a highly scrutinize GSA type of asset for the price point. And so, we had a good team that they got us plugged into the RFP process. Yes, there is in general very specific defined geography, Metro correct, and a lot of it has to do with the workers and commuting patterns and things like that, they're going to have a right RFP. And so that USDA fit, fit our asset well, and I think that's why we were successful in winning the deal.

I mean it looks like its maybe a $30 gross rent $18 net rent deal. Is that a good way to look at it? And what did you have to pay in terms of base building dollars and existing -- and addition to the TI package?

So, your economic pictures plus or minus in the ballpark, I think the typical GSA deal requires a fairly standard TI package, but they also needed some additional security type requirements in the -- but when we total all the concessions up it were totally in line with the typical large deal even in the commercial market. The one thing you don't get on a GSA deal is of course is a ramp up, other than that the deal lined up very competitively in the marketplace.

And then switching a little bit to The Wellington. When you look at that deal and essentially you have to build a lot of structured parking to replace the surface parking and that essentially provides your land bases. Paul, what do you think your all in cost per unit is going to be to develop that? And then refresh our memory, what's the closest metro stop, it's a Pentagon City and how far away is it?

I'll start with the construction costs. So as you know, we contributed that land, John, and I think that land was in the probably the mid-30 a door and dirt, and I think that at the end of the day we're probably in the 325-ish range per door for construction. In terms of I believe Pentagon City is closest.

Yes.

We're running shuttle and its one mile.

325,000 per door all in including land and cost for parking?

Including land.

Thank you. Our next question comes from the line of Dave Rodgers with Robert W. Baird. Please proceed with our question.

I wanted to ask really quickly on multifamily -- clearly this is the time seasonally where you'd expect to see the leases -- lease percentage up and rents up and so not to take anything away from the strategy, which you guys have evolved and done a good job executing. But do we expect that to continue or would we expect kind of two steps forward, one step back as you still see more construction coming online and maybe more pressure in the B market? How do you feel that unfold here in the next 12 months or so?

Well I think I mean I'll start now and I'll ask Steve or Tom to jump in. I mean B right now in the region I believe B rents increased 1.5% in the second quarter. I think the vacancy rate for B is 2% region wide in 2Q. I look at where a lot of the supply is delivering and it's really DC-based NoMA, Southeastern and Southwest Waterfront in DC. So, I don’t really feel like that we're competing with that project head on -- those projects head on and we're also -- when I look at where our capital is allocated, we still go pretty wide gaps between the new Class A that's delivering and the B that we have right now. That’s why quite frankly we're adding additional renovation programs like at 3801 Connecticut in the Kenmore because we can capture more value there. We still see enough of an affordability gap to capitalize on it. But I don’t see the $2,500 to $2,700 a door cannibalizing the space 1,850 to 2,000 a door.

And, Dave, I think you mentioned, how we done so far so in our other answers and our prepared remarks. We talked about our ability to focus on driving and maximizing cash flows but focusing on pricing strategic when we get to the 94% to 96% range asset by asset. So the first half of the year I would say we really focused doing pricing and you've seen the good rent increases in the trade outs in our portfolio. I think it shifts just a little bit because now got a really strong occupancy when you start to go into the lower seasonal part of the year. And so I think our strategy has been stand out sort out for season of the year, so I think we will focus on occupancy when we get towards the last quarter of the year. And then when you think about our same-store growth, so year-to-date we've it's been 3.3% growth in multifamily and we talked about a lot of that pricing, we think we were starting the second half of the year to really good strong occupancy point and we've up our guidance for the year to 3% to 3.5%. So we're basically saying we’re expecting our same-store performance to be bit just a strong in the second half of the year it has been year-to-date.

Thanks for that. Shifting gears a little bit for Watergate, I know you're underway with the pretty substantial renovation there. And Paul, you said activity was good on the space. But how do you view kind of the desire to lease that up or the ability to lease that up pretty quickly versus getting through some of the renovation and taking some time over the next year to two that put the right tenant in?

Dave, it's Tom. So, the answer to your question, it typically requires a user -- prospective user to touch and feel the final product to make a big commitment, but in this case because of the unique nature of the view, the access, those are the two main selling points. I think we set up a very nice marketing presentation on site that the tenants are able to visualize how the final lobby renovation is going to look in field and the amenity package. And I think you get up and look at the views and up of the roof and that’s generally been effective so far and that’s why the activity is been robust and we feel we will able to get some commitments even before we're done with the renovation.

Great thanks Tom and then Tom, I will be sticking with you on the USDA and the replacement of Engility. It sounded like they wanted to be in as soon as possible, I think were your word. Are you still going forward the redevelopment of the asset in total as you said that, I missed that and I apologize, but can you talk about the scope of that work and it’s the down time between Engility and USDA, which it sounds like could be as much as nine months or more. Is that just due to tenant work or is there some more going on?

I'll take it. Dave, it's Steve. So we started the process we were really going to two approaches. One was a potential multitenant scope and one was a single tenant. We were working with USDA but also giving other option ready. Fortunately, the deal progressed fast enough that we were able to observe the scope to meet more of their requirements. We still have building work to do. They have got some security requirements and they are still some common area things that we need to do. But we were able to pay more to them for instance how they want to access the conference room versus how we would have to do it in the lobby for a multi tenant. So we have got work to do but it will be a little bit cheaper than if we had multi tenant -- I mean I would say its brought the base building cost down a little bit. I think we are estimating it to be little over $5 million for the base building cost it would have been more if we done the multi tenant route.

Our next question comes from the line of Chris Lucas with Capital One Securities. Please proceed with your question.

Just a few questions here, the call is gone. But on the transaction market, Paul, you guys have been really successful since your arrival at doing off market deals. And obviously 600 Watergate was a limited viewing, if you will, and you had success doing OT unit placements with that particular seller. Are you finding any traction in the off market sort of private owned non institutional or OT units would be helpful in the transaction market? Are you finding that 600 Watergate, transaction is opening some doors for you? And are you getting some traction on those kinds of opportunities?

Good question, Chris, yes, we are seeing more deals. We have actually gotten contacted about deals. I think our biggest challenge is where we are in the cycle, number one. And number two, we preach it to people are nauseous around here about research, and we file a research into the submarkets, not all of the families that we talked to. We have always made some of the place some of best bets. And so we want to be cognizant of -- we are not changing our strategy for an asset and so we are trying to lead with research and go into those markets that we are comfortable with. e have got presented an office deal down at the Waterfront that we just decided to take a path on. I think that we are continuing to talk to folks about more than just one off deal and trying to involve something that has scale and duration, Chris. So, we think that there is an opportunity as we are going to continue to present themselves, but the Watergate was special deal for us. We would like to see that both translate more I think maybe a little bit more everything more of the family type deals on the multifamily side. And so we are going to continue to push on that.

And then I guess just shifting over to the multifamily side. On the unit renovation process that you have been doing at both Riverside Wellington returns are certainly sound like they are within your underwriting. As you guys look at those units going through the first churn. What sort of returns you are getting sort of rent pumps you are getting at that point after sort of a full year? And what kind of renewal rates you are getting with those tenants as it relates to sort of maybe the project overall? How was that driven sort of the business at Wellington and Riverside?

So, Chris to understand your question you're saying after we renovated and we've turned it over or come around for a renewal and/or a release after a year after a renovated unit?

Right.

Yes, I think our -- we're seeing renewal trends or trade outs in those units pretty much consistent with all of the trade outs across the board I think again the quality there of the renovation is what's driving both the rent and the trade out on whether it's a renewal or a new lease.

And then just two quick ones, on the USDA lease you talked about I guess GAAP rent commencement second half of '18, rent -- cash rent commencement would be roughly one after that?

I think we gave them 18 months of free rent.

Yes, 15 year deal..

15 year deal.

And then the last question you guys jumped the G&A midpoint of guidance a fair amount. What's the driver behind that?

Well, Chris, I would -- most of it would be incentive comp. This is the second time that we've raised guidance for the year. So that's a pretty good indication that we're ahead of the plan for the year. It's not all of it, but that would be the biggest change.

Thank you. I'll now turn the floor back over to Mr. McDermott for any final remarks.

Thank you, Operator. Again, I would like to thank everyone for your time today. And we hope that you enjoy the remainder of your summer. We look forward to seeing many of you on our upcoming non-deal road shows in the very near future. Thank you everyone.

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