Welcome to the Washington Real Estate Investment Trust Year-End 2019 Earnings Conference Call. As a reminder, today's call is being recorded.Before turning the call over to the company's President and Chief Executive Officer, Paul McDermott, Amy Hopkins, Vice President of Investor Relations will provide some introductory information. Amy, please go ahead.

Thank you and good morning everyone. Before we begin, please note that forward-looking statements may be made during this discussion. Such statements involve known and unknown risks, and uncertainties that may cause actual results to differ materially. We undertake no duty to update them as actual events unfold. We refer to certain of these risks in our SEC filings.Reconciliations of the GAAP and non-GAAP financial measures discussed on the call are available in our most recent earnings press release and financial supplement which we distributed yesterday and can be found on the Investor Relations Page of our website.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; Drew Hammond, Vice President, Chief Accounting Officer and Treasurer; and Grant Montgomery, Director of Research.Now, I'd like to turn the call over to Paul.

Thank you, and good morning everyone. Thanks for joining us on our year-end 2019 earnings conference call.Today I will discuss our growth outlook in the context of our strategy for long-term value creation. But before focusing on the path ahead, I think it's important to take stock of our recent accomplishments.I'm going to begin with a recap of how we delivered shareholder value through strategic capital allocation and leasing during 2019. 2019 was a pivotal year for WashREIT on multiple fronts. We executed the largest and most transformative strategic capital allocation in the history of the company. We delivered strong results from our multifamily portfolio and further validated our value oriented investment strategy. We also achieved the primary goal that was laid out at the beginning of last year, which was to create visibility on future revenue growth by executing commercial leases.Starting with our strategic capital allocation, we executed $1.3 billion of transactions that recycled capital at high risk cash intensive commercial assets into multifamily assets with value-add potential. These transactions improved our risk adjusted growth profile, lowered the volatility of our cash flows and improved our Fed growth prospects.The multifamily acquisition doubled our pipeline per unit reservations, which generated an average return on investment of 14% in 2019 and are expected to generate double-digit returns in the future.With lower capital requirements and a fully scoped renovation pipeline, we have solidified a foundation for multiple years of value creation within our multifamily portfolio. We were able to do all of this while maintaining our balance sheet flexibility and liquidity. The assets that we acquired in 2019 follow our stated multifamily investment strategy, the Washington area continues to under produce new housing units of all types despite the housing shortage in the region.Over the past decade, the Washington region has produced…

Thank you, Paul and good morning, everyone.As Paul described, the highlight of the year was the successful execution of the most significant capital recycling in the history of our company. I'm pleased that we’re able to execute these complex transactions, while maintaining our targeted balance sheet liquidity and flexibility and successfully executing the steps we laid out last spring.Now turning to our financial performance, net income attributable to controlling interest for 2019 was $384 million, or $4.75 per diluted share compared to $26 million or $0.32 per diluted share in the prior year. The large increase is primarily due to net gains on asset sales from our executed strategic capital allocation transactions, core FFO of $1.71 per diluted share for full-year 2019 was in line with the midpoint of our guidance range.On a year-over-year basis, core FFO per share declined $0.15 due to our asset sales, partially offset by the acquisition of the Assembly portfolio and Cascade as well as the previously disclosed office vacancies that we've now substantially backfilled. Overall same-store NOI declined 0.2% year-over-year on a GAAP basis and increased 0.5% on a cash basis for the full-year 2019, due to the 4.6% GAAP decline and the 3.6% cash decline in same-store office NOI.Having executed the heavy lift to re-lease space, we delivered same-store results at the higher end of our guidance range. As we discussed throughout 2019, the primary driver for the same-store office NOI decline was the expiration of two large leases at Watergate 600 at the beginning of the year, the majority of which has been backfilled and the lease for the top two floors commenced prior to year-end.Multifamily same-store NOI increased 4.6% for the year and 4.8% in the fourth quarter driven primarily by rent growth. New lease rates increased 220 basis points during…

Thank you, Steve.To recap, we completed the most transformative strategic capital allocation in the company's history this past year. We significantly de-risked our commercial portfolio and improved the stability of our cash flows. More importantly, we improved our long-term FAD growth prospects by replacing capital intensive commercial assets with multifamily assets that offer better cash flow growth prospects. Our newly acquired multifamily assets are located in strong sub-markets with limited new competitive supply and we have the opportunity to drive long-term renovation led value creation at these assets.Looking forward, I believe this is the most solid foundation that WashREIT has been on in recent history. Nearly 50% of our NOI is driven by our multifamily portfolio with strong value add growth prospects. The Trove multifamily development will lease-up throughout the year and we expect to break ground on Riverside later this year. Lastly, following a significant reduction in our 2020 expirations and commercial NOI at risk, we’re positioned for a strong growth in the second half of the year driven by key lease commencements.All in all, we expect a very strong year-over-year growth in 2021 and beyond. Now, we would like to open the call to answer your questions.

[Operator Instructions] Our first question comes from the line of John Guinee of Stifel. Please proceed with your question. John, could you see if your phone is on mute?

Sorry, nice quarter. Thank you, a nice quarter. Booz Allen, what's the GAAP yield on that just for modeling purposes?

We put it in our guidance points, John, but it's contributing about $1.1 million of NOI a quarter.

Sorry, I missed that. Okay, great. Okay, second commodity office asset sales are tough in DC these days and you guys have about $1.5 billion to $1.8 billion left to go, what do you think, what kind of timing is that? Are you going to try to sell $100 million a year for the next 18 years or $500 million a year for the next three years and when you reinvest that into multifamily, is that 100 basis points dilutive or 300 basis points dilutive?

John, hi, it's Paul. First-off, I think what we've said in the past is that we're going to overweight multifamily because we like the demographics in the region and we particularly like the renter cohort that we're focusing on. I think today, we see better opportunities for value creation in the multifamily space. And that's, that's why we're allocating capital there and when I look at the mid-market renter cohort that we're targeting, I think we see a nice runway in front of us and so we're not shy about saying we're going to grow our multifamily portfolio either through acquisitions, renovations or development.I think when you look at the office that we have monetized, I think we've tried to be very opportunistic in the disposition. But I'd like to just take a second and reflect on 2019 because it has a direct correlation to your question. I mean, we leased over 1 million square feet last year. And that wasn't just about creating value for our investors.That's about creating optionality for this company. So I don't feel like we have a gun to our head to sell out. Our biggest focus this year is really to make sure that all these leases commence. In terms of dilutive prospects, I think we took some of our most challenging assets last year and sold them at less than 100 basis points. So I can't speak to the timing right now because we're watching the markets like everybody else was watching but when I look at what's going on in Northern Virginia right now, having its biggest absorption year since 2006, we're definitely seeing tangible rent movement in Northern Virginia.And by the way, Northern Virginia is 60% of our commercial portfolio. I like our prospects, if we need to monetize, but I also like our prospects to create value in that sub market also.

Great, okay. What I'm just concerned about is I think you were down $0.15 in 2018 to 2019. And that was also an artificially high number 2018 was, I think enhanced by the FFO generated from the Arlington Tower and the 600 Watergate acquisitions, but $0.15 down 2018 to 2019 and the 2019 to 2020 is another $0.15 down. And I'm just asking this to hopefully get a little color that is not going to happen again in 2021?

John it’s Steve. I mean, I understand the question and we took dilution, I think obviously if we have strategic opportunities that could alter things but I think what we've been setting up since the Spring when we had the opportunity to buy Assembly was we pretty much were able to lay out, although there were many moving parts, what we were going to execute and what kind of dilution there was. And we also knew that we were doing that in a year where we had to get all the leasing done. So we have been trying to and I think showing a very clear path of execution to growth.And I think we have been actually getting those leases signed, I think we've been pretty clear that 2020 is a year of yes, it resets the bottom was supposed to be. And I think we still expect it to be the first quarter of this year following the last asset sale at the end of last year. And the leases commenced, we've allocated capital to multifamily that has the higher same-store growth and will be leasing up the Trove again this year.So, our pattern of expectation, although we don't give quarterly guidance is we believe the first quarter is the bottom. We believe the second quarter should be slightly higher in the first quarter might have been a little bit more except for our last single asset sales happening at the very end of the first quarter, we see growth in the second quarter. I mean, in the third quarter from the second quarter, we see another jump in growth in the fourth quarter, if all these leases commence on schedule and our renovations continue in our pipeline, and we think that's a pretty good run rate going into 2021. And really, the Trove hasn't contributed much in 2020.But it's another big growth of 2020 over 2021. So you're right, if there are other major moving parts, that it could change the trajectory, but that is stuff that we've done a lot of execution on that, we think there's a pretty clear path to progress. So that's, I mean that's what we've got out there so far.

Perfect. So just one follow-up because we're just trying to get the numbers right. If you take the John Marshall sale and then the Trove stabilizing and you look at your forward EBITDA when you factor those two in and you look at your debt balance. Do you have any capacity to be a net acquirer once you just take a look at John Marshall out, Trove in debt balance at the beginning of 2021?

Yes, I think it was a good question. I think obviously, we're going to feel the John Marshall absence first, the Trove is going to be leasing up as you go through 2020, so it's going to be growing EBITDA in 2021, we've got a pretty good low net debt balance starting the year and what we've in essence did was pre-fund the opportunity to fund more development and to break ground this year on the Riverside but and then stay within our regular guidelines of 6% to 6.5%.But you're absolutely right. We look at it that way too, our NOI grows, or FFO grows and our EBITDA grows which continues to create capacity. Today, we do optionality, we don't always have as much optionality, but we have optionality to continue to grow. But right now, because the development is more visible than acquisitions would be, you would say, we've at least covered the development spend for the year.

Okay, so essentially, if I look at say EBITDA of $180 million in 2021, do you have optionality to be a net acquirer? Or are your sources and uses such that it's pretty much limited to the Trove plus Riverside?

I would say, we're not going to give our 2021 guidance, but our own models assuming that we execute everything we have in 2020 shows EBITDA growing and that will have optionality in 2021.

Great. Good news, thank you.

[Operator Instructions] Your next question comes from the line of Chris Lucas of Capital One. Please proceed with your question.

Hey, good morning, guys. Steve, if I could, just digging into the non-same-store apartment contribution for 2020. How much of the Trove lease-up do you guys have sort of modeled to contribute to that number?

We're going to be conservative right now, Chris, we’re in lease-up now, we were able to begin lease-up in the first quarter of this year. So we have breakeven in the last half of the year. So we're not going to assume that there's much contribution above breakeven for now and to see how our lease-up pace goes for 2020. But that sets us up for a big step in 2021. And that's kind of how we're thinking about it right now.

And then, okay, thanks, Steve. And then as it relates to the portfolio that you acquired but it’s stabilized, what sort of organic growth do you see from that pool this year as it relates to sort of, is it consistent with the sort of legacy pool? Or is it better or what's your expectation there?

Well, we again put that out in dollar ranges because we don't have a prior-year for a full-year to compare it to and we've just begun leasing-up, we're pretty happy for instance with the January reported renewal trade-out in that portfolio, we obviously are just getting started on the renovation programs there whenever we onboard multifamily, we start working on optimizing the lease expiration schedule and all of that.The operations team has a good sense on how to manage expenses more efficiently. So we see a lot of initiatives, we're reluctant to put a percentage out yet because we just don't have enough track record. But quite frankly, the expectation is that our growth rate for the second half of the year over last year, second half of the year when we owned for both comparative periods is going to be higher than our same-store growth and but we'd like to have a little bit more time before we get clear guidance and ranges for those percentages.

Okay, great. That's all I have for now. Thanks.

There are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks.

Thank you, everybody. Again, I would like to thank everyone for your time today and we look forward to seeing many of you at the upcoming conferences over the next several weeks. Good afternoon.

This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.