Welcome to the Washington Real Estate Investment Trust Third 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 third quarter 2017 earnings conference call. Washington REIT grew third quarter core FFO by 2.2% year-over-year to $0.46 for 40 diluted shares and grew third quarter same-store NOI by 2.6% year-over-year. Year-to-date we’ve grown same-store NOI by 7.2% over the same period in 2016, driven by a 11.2% office, 4.3% retail and 3.1% Multifamily growth. In the third quarter, we drove 170 basis points of average occupancy gains over the prior year and ended the quarter at 93.8% occupied. Subsequent to quarter end, we closed on the sale of Walker House Apartments in Gaithersburg, Maryland, for $32.2 million and singed a letter of intent to sell Braddock Metro Center, Alexandria, Virginia. In addition, we want approval to develop 767 new units at Riverside Apartments, representing an approximate 40% increase over the 550 units we underwrote when we acquired the asset last year. Assuming the sale of Braddock Metro Center this year, we expect to exceed the top end of our previous 2017 disposition range which was $100 million. The sales of Walker House and Braddock Metro Center are the principle sources of capital for our recently completed acquisition of Watergate 600, a Potomac riverfront office asset in Washington D.C. In aggregate, we are allocating capital out of two suburban assets into an iconic urban metro-centric office building where we created value within the structure of the deal and are realizing upside from the outset. As a result we are growing NOI and FFO, while also significantly improving asset quality. Moreover, we have maximized asset value at Braddock Metro Center by signing a 131,000 square foot lease with the USDA last quarter. Monetizing the asset now enables us to re-allocate leasing capital from a GSA deal into revenue…

Thanks Paul. And good morning everyone. Net income of $2.8 million or $0,04 per diluted share in the third quarter of 2017 was below net income of $79.7 million or $10.07 per diluted share in the third quarter of 2016, which have included the recognition of a $77.6 million gain from the second sale transaction of the suburban Maryland office portfolio. We reported third quarter core FFO of $0.46 per diluted share, versus $0.45 in the same prior year period, driven by revenue-led year-over-year same-store NOI growth of 2.6%. Year-to-date, we have grown same-store NOI by 7.2% due to a combination of higher revenues and lower expenses, compared to the first nine months of 2016. We have achieved this NOI growth while improving the quality of our portfolio by recycling out of commodity suburban assets and then to quality metro-centric assets such as Riverside Apartments and Watergate 600, that are performing well for us. Third quarter core funds available for distribution, or core FAD, was approximately $32.2 million putting us on track to achieve a full year core FAD payout ratio in the low-80's, which is favorable to our previously forecasted mid-80's core FAD payout ratio. Our third quarter, year-over-year same-store NOI growth of 2.6% was primarily driven by same-store average occupancy gains in office, as well as higher rental growth in multi-family. On a sequential basis, multifamily in retail grew same-store revenues in the third quarter, while office revenues were lower primarily due to lower reimbursements and lower lease termination fees than the second quarter. As expected same-store expenses were sequentially higher across all three asset classes do the normal seasonality, including higher utility costs and repair maintenance project expenses that typically occur in the second half of the year. Starting with office, same-store NOI grew 3.8% over third…

Thank you Steve. Our strong operational performance this quarter and year-to-date had significantly outperformed our region on occupancy and rent growth. We are using proprietary research to strategically allocate capital to the value creation opportunities that offer us the best risk adjusted growth in our region, while exiting assets in submarkets with lower growth and higher risk profiles. Looking back, our successful capital allocation to the redevelopment of Silver Line center, as well of the acquisitions of the Wellington, Riverside and Watergate 600 conjunction with our sale of commodity suburban assets, have contributed significantly to the growth we are experiencing today. We are confident in our ability to continue to generate high risk adjusted returns as we steadily harvest multiple NOI growth drivers, including the redeveloped Army Navy Building and the to be redeveloped Watergate 600. The unit renovation programs within multi-family, and the new development at Spring Valley and the ground up multifamily developments at the Wellington and Riverside. We expect these embedded growth drivers to enhance our NOI as they continue to deliver over the next five years. Moreover, we continue to pursue external value creation opportunities, particularly in multifamily and asset class that offers us optimal risk adjusted returns. In addition to realizing the benefits of our research driven capital allocation, we believe there is more potential upside than downside to market fundamentals, if federal legislative activity picks up. The Senate and the House of both passed a budget resolution clearing the path for the tax reform legislation that the congressional Republicans are working on drafting and subsequently passing. As a result, activity in our region may gear up around tax reform. There has historically been a strong correlation between the volume of legislation passed by Congress and net real estate absorbs in our real regional economy. Just in the last week there is renewed optimism for increased legislative momentum that would improve our region’s fundamentals and further augment our growth. Now I would like to open the call to answer your questions. Operator, please go ahead.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Dave Rodgers from Robert W. Baird. Please proceed with your question.

Hi, yes good morning everybody. Just wanted to quickly ask about maybe two specific spaces or assets in the portfolio. One on Watergate, Paul you did give us three different categories at the beginning of your prepared comments in terms of kind of where leasing stands on the entire portfolio. Where is Watergate in that mix and what’s the feedback been?

Hey Dave it’s Tom. Let me try to address that. Watergate is positioned as really sort of a unique guest if it sort of almost stands on its own as one of only three buildings on the water in this part of the city. And we are currently finishing up a lobby, complete lobby renovation that should done early and in 2018. And a new amenity package new roof terrace and the activity levels have been there. I think media companies, we probably had five or six 50,000 or larger users express interest in that. You remember that Blank Rome is in there, through 2018 and then we've got some additional coverage. So we've got time, but we'd like to obviously get leased up sooner. And we feel confident about it.

And for those people that are in place now we're at 98% leased today. And as Tom said we have time to address the future lease.

Great. May be second space with regard to the Advisory Board Company, I heard some market chatter just about more activity there. I don't suppose you're ready to announce anything. But are you seeing more increased interest in that space as you're getting closer and can you talk any more about that?

Yes so as Paul said our strategy at 2445 has been to sort of go to the market with two options to basically see where the demand is playing out. This is sort of another unique type of asset West and sort of all by itself in between Georgetown, and the CBD. And the M Street over there is really very dynamic and only getting more attractive. So the users that have shown interest have been primarily law firms and consulting firms, a couple of significant users. And they look at this as a unique place to locate for their business, because getting in and out of the city from the west end is probably the most efficient and enjoyable commute in the city. And so we've had interest from users looking at both the high end renovations approach and willing to pay up for that and also some looking for sort of a more basic upgrade that would be priced closer to A and A- price point.

Great. May be last to Steve going back to the capital side of the equation, or Paul you can chime in too, but it looks like asset sales, looks like they'll slightly exceed acquisitions for the year in unless something else comes up. And then you've got the ATM that you've issued which looks like it's largely matching your development spend suggesting your spending a lot of equity obviously in the development pipeline. Should we expect to see you continue to deleverage even though you’re below your target already is that just kind of the a good goal at this point given where the stock is and should we expect to see more of that?

Well, Dave, we’re way ahead of our development spend. So I think what we’ve tried to do is even strengthen the balance sheet a little bit further because we are continuing to pursue additional value creation opportunities. So we’re going to assuming everything closes by the end of year. We're going to end below six. We've said we're comfortable operating at a net debt to adjusted EBITDA of 6 to 6.5. So I think we've created capacity to do – to do the kinds of things that we're trying to do and stay ahead of it not create overhangs. We're not giving guidance for next year, but I mean I would – but one thing I would say is our development spends for next year is probably just under $60 million. So I think we stay well ahead of that.

Thank you.

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

Hey, good morning, guys. You talked about a pretty healthy office leasing pipeline. Would you say that's indicative of market wide changes in fundamentals or tenant activity picking up recently or is that more specific to your portfolio?

It’s Tom again Jed. I think I'd love to just say it's just our portfolio, nobody else has seen any activity. But I think we've seen some significant law firms in the market and that's obviously the bread and butter DC and some of those are really large and so that's adding to those numbers, 250,000, 300,000 foot prospects, so that adds a little bit to that number. But we are seeing some good activity because I think the Watergate 600 and 2445 are really interesting assets that do attract a unique look from the market because they haven't been available for a long time. So these assets are getting a lot of looks.

Hey, it changes your seeing in terms of asking rents, space rents or concessions.

Yeah, I think the comment there is that the B space we're seeing concessions continue to move our way whereas A they're moving the other way. I think A is I've seen some comps recently where all-in TI and free rent. Now, granted the terms of stretching out, you're seeing fifteen year terms, but I've seen TI and free rent starting to move up into the $220 to $250 per foot range. Now I'll give you an example on a B deal we just did, which we normally are doing less than 10-K deals that’s sort of our bread and butter. We had a floor come available at 1140 Connecticut, a solid B building. And we had an opportunity to do a full floor deal on that space, which we made and we made that deal around 50, but our TI number was only $85. So there's a – that's an example of the difference between A and B.

$220 you mentioned that would be on a ten year deal or fifteen year deal.

That's probably going to get out to fifteen years.

Well. Just there's a follow up on the question about the capital plan. And I know it’s still early for a team, but I mean how are you thinking about dispositions for next year and are there more non-core sales that you could be picking up?

Hey, Jed, this is Steve. We're not ready to give guidance, yet. But we're always doing portfolio asset management. So that is always one of the options that we look at in terms of source of capital. We look forward to updating everybody on that as we get a little bit closer to giving guidance for next year.

Okay. And related to that any color you can offer on Braddock pricing.

Well, we're trying not to do that because we're not done with the deal at this point in time. All we've said is that total proceeds for the year are going to be greater than what we had guided the last time and again when this is a little further along we'll provide more updates.

Okay, fair enough. And then maybe last one for Paul perhaps. Any changes here you're seeing in the pricing environment or investor demand for product across the DC Metro and maybe how is the opportunity set looking for acquisitions for you guys?

Sure. So let's go back a year, Jed. And this time last year think that pretty much come to a halt with the election coming up. We definitely – in the first quarter we saw a lot of capital coming into DC. I think part of it was a reallocation partly defensive playing. I think right now if you were to kind of talk to the investment sales community, I think it's pretty flat out there. I think people are – we're actually seeing some retrading over the last two weeks based on interest rates, but I will start the core Jed. I would say probably two thirds of the capital that we’re seeing chasing core product here in DC is foreign capital. There’s been a significant interest and to me that’s kind of safe haven strategy to park it. The most amount of capital that we're seeing kind of in the DC across the asset classes is value-add/core plus capital. I also think that that's where it's getting a little slippery. We're looking at just in talking to the brokerage community. We're definitely seeing people kind of back into underwriting with some pretty aggressive rental increase assumptions to hit those value add yields. And then the other piece of the capital structure is they're playing on leverage and that's kind of the moving target right now with what's been going on in the bond market. But certainly haven't seen any slowdown in capital coming in, but I think the deal volume is flattening out as we approach year end, Jed.

Okay. That’s helpful. You mentioned the retrading anything material there in terms of some of the recent deals being retraded in terms of changing prices?

I think it's really just been – like I said I think it's really just been financing related. And these guys are – these guys are in around swap market. So that's just a recent phenomenon that we're just hearing. As you approach year end, most of these people have specked up. They've done due diligence. Most of these financing commitments probably were floating until they – obviously until they went hard. And we're just seeing some people nimble around the edges to trying to grab a little bit more yield. So…

Got it. That’s helpful. Thank you.

Thanks, Jed.

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

Good morning, guys. Two quick questions for you. First of all, I guess, retails not completely dead if you've got multiple tenants chasing your space. Can you just kind of talk about what category those retailers are in? Where are you seeing in the most interest?

Hey, Bill. It’s Tom. So, these – you’re speaking of the HHGregg spaces. And I think…

Correct.

Yeah, we – discount operators fairly active. You’re hearing that pretty much everywhere. Grocers, believe it or not, in the – these are in power centers and grocers are now moving into certain power centers we did than all the Gateways. And we're talking to – all the – and the needle has sort of slowed down their expansion plans, but all these still very aggressive. And there are some other new entrants or into this market in the grocery sector looking for positions. And then the other types of users are sort of home goods and then sort of quasi entertain venue. Those are the primary users that we're seeing looking to these boxes.

All right, that's helpful. Second question, it seems to be on the top of everybody’s minds, but this Amazon second headquarter search and DC seems to be in the shortlist. Thoughts on where that might be within the market.

Well, Bill, we had a multiple bids come in from both DC, Maryland and Virginia and probably on our estimation could be like mid teens of the 238 submissions that went into Amazon.

Yeah, Paul, just I am asking to handicap. We’re using the best most practical location would be within the market.

I think just what – our observation Northern Virginia probably makes a lot of sense. They have a presence out there. We like the state sponsored site, this is CIT off the toll road. It’s good access to transportation, good infrastructure, Silverline coming out their retail. It will be heavily retail amenitized and a good educated workforce out there.

Fair enough. Thanks for your time.

Sure, Bill. Thank you.

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

Good morning everyone. Paul, I hope you're wrong. That's too close to home.

Sorry, sorry, Chris.

That's all right. The two questions I had. One, I apologize I missed the front end of the call. But Steve just on the $5 million impairment that you guys talked, can you maybe provide a little color on that?

Well when you calculate an impairment, it's not just a straight up sales price versus a book value of land and buildings. So what our estimated impairment is assumed projections of write off of straight line rents and primarily an unamortized TIs.

Okay, great. And then also sounds like, Paul, the market seems to continue to sort of lack opportunities that fit your criteria. Are there new development opportunities within the portfolio that you’re looking at right now that might be something that you start to see up going into next year, particularly given the strength of the balance sheet at this point?

Sure, Cris Well we have – I mean we're in the works on seven NOI drivers, right now. And I think everybody is aware of them, but if they're not finishing out Spring Valley, completing the renovation on the Watergate, completing the leasing and we finished out the renovation on Army Navy. The unit renovations at both Wellington and Riverside and then the ground up development on both Wellington and Riverside. And now, we have additional units to address at Riverside approximately 227 more than we initially underwrote. I think we have some more development opportunities that at least one of our residential assets. And then we are looking at additional FAR potential redevelopment on probably a retail center or two. We also still – Chris, we are still seeing acquisition opportunities that we think have redevelopment potential. I think a lot of the value add capital that I alluded to earlier this in DC is not really looking to unplug existing NOI. They're looking to kind of do it on top of it and place NOI. So I think our ability to and these are deals that we've been tracking Chris for probably 18 to 24 months. I do think we're going to continue to see a pretty Washington REIT will continue to have a healthy pipeline going into 2018.

Okay. And then last question, I don’t know if you guys touched on this the cap rate for Walker House roughly.

Upper five, which exceeded our expectations for Gaithersburg, Maryland.

That's terrific. Thank your. I appreciate it.

Thanks, Chris.

Our next question comes from the line of Michael Lewis from SunTrust. Please proceed with your question.

Hi. Thank you. I just had one question. Paul, as I look at you, you talked about this correlation between [indiscernible]. I’ve seen those specifics too and I have actually even driven things to that effect. But I am not sure I fully understand why that is, maybe it’s obvious that that come in and takes place at an – on an as needed basis. But I asked the question because when I think it’s tax reform, I can’t really think of anything. You can [indiscernible] of an healthcare maybe that impact every single company and every single incidence. And so, you know, on why that correlates and has maybe this becomes kind of even stronger demand driver than normal? I am just curious what’s your thoughts on that?

Sure, Michael, I’ll kick off and let if anybody else wants to jump in. So when we look at the legislative process and by the way we're coming off the worst legislative Congress in 71 years, which has had a nice drag on office fundamentals in DC, but when we look at what it takes to get a bill passed and new legislation right now, yes it touches lobbyists, yes it touches all law firm, a lot of professional and business services space, tax reform, accounting firms, special interests, associations. We're already seeing people start to mount up. I mean I think right now if you were to ask some of the larger tenant reps in the area, they're probably seeing a slight pick up in activity that will be associated with tax reform. And you will see some of these firms that are in existing spaces asking about “shadow spaces or swing space” within their own building right now. So, we think it just takes more bodies and given the dynamic political environment we're in right now where it’s very polarizing. We see more special interest groups coming in just more people showing up that want to seat at the table and those people need office space. So I would have liked to have said that this was going to have a fundamental impact earlier, but I do think that that’s upside for this region and for Washington REIT’s portfolio.

And Michael maybe just as Paul talked about tax firms, law firms and accounting firms, a lot of the national tax practices of some of these big firms are based here. And we hear they're gearing up because there going to be a lot of consulting and trying to roll this out nationally and a lot of their expertise is ramping up here in DC.

Well, I recently [Indiscernible]. Thanks guys.

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

Thanks. Good morning. Paul or Tom, just on the blank room lease. When I look at your largest tenant stage, it looks like the lease term was extended and there was new disclosure regarding an agreement with Atlantic Media to take that for another eight months or so. Is that right? And can you give a little color on what's actually going on there?

So the actual lease expiration is the end of 2018. For most of the space, they've – we have from a sell of the building a master lease to backstop it to the end of 2019 on a blended basis because there's a couple of spaces that will get back a little bit earlier. We just added that much to the lease maturity schedule.

Okay, so, I guess, is there a chance that the Atlantic Media kind of backs up, turns into a long release? Or are you guys still looking for another tenant to take that space for a longer term?

Now, we want to backfill that. In fact, it's mutually beneficial for us to get it released earlier and then let the previous owner of the master lease.

Okay, helpful. And then Steve can you just give a little bit more color in the flip in same store NOI and the office portfolio on a year-over-year basis and from Q2 to Q3. I mean I guess as you said most of the occupancy difference year-over-year is due to Silverline. So it would seem NOI would still be much higher this year than last. And then just looking at the third quarter versus the second, can you give any detail around the amount of term fees last quarter and maybe the effect of the decrease in reimbursement?

Sure. So let's just put it in overall perspective. We've raised our guidance twice this year on same-store. And so – and we've raised that overall same-store guidance again this quarter. So it's always taking into consideration, the prior year quarterly comps, so – if anything things have gotten slightly better, okay, than as opposed to worse. The first – we said all along that the first half of the year, we've had a bigger year-over-year occupancy gain and that the comps in terms of occupancy are more normalized in the last two quarters of the year in terms of we did have in the second quarter significantly more term fees and expense reimbursement relative to the third quarter. So that was they basically hit one quarter more than – more so than the other. And then – so this is all been in the guidance all year. And if anything we just took it up a little bit higher, Blaine, the last comp for the fourth quarter if you think about it we've got a seasonal winter that we are assuming is a little bit more normal. We had basically the mildest December and fourth quarter a year ago, so we're back to seasonal expenses et cetera. So I don't think there is no major deterioration from what we've been guiding all year. I think we’re slightly ahead of schedule.

Okay, I was just looking at the – I mean the occupancy is still up 480 basis points year-over-year. So – but that might have translated into something similar to what we saw in first and second quarter, but fair enough. Thanks guys.

Thanks, Blaine.

There are no other further questions in queue. I'd like to hand the call back over to management for closing comments.

Thank you again everyone. I would like to thank everyone for your time today and we look forward to spending more time with many of you at NAREIT in Dallas next month. Good afternoon

This does conclude today's teleconference. Thank you again. I would like to thank everyone for your time today, looking forward to spending time with many of you.