Washington Real Estate Investment Trust ( WRE)

Q3 2011 Earnings Call

October 28, 2011 11:00 am ET

Executives

Kelly Shiflett - Director of Finance

Skip McKenzie - President and CEO

Bill Camp - EVP and CFO

Laura Franklin - EVP, CAO and Administrative Officer

Mike Paukstitus - SVP of Real Estate

Analysts

Michael Knott - Green Street Advisors

John Guinee - Stifel Nicolaus

Dave Rodgers - RBC Capital

Brendan Maiorana - Wells Fargo

Steve Benyik - Jefferies & Company

Mitch Germain - JMP Securities

Bill Crow - Raymond James

Chris Lucas - Robert W. Baird

Presentation

Operator

Welcome to the Washington Real Estate Investment Trust third quarter 2011 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, Skip McKenzie, Kelly Shiflett, Director of Finance will provide some introductory information. Ms. Shiflett, please go ahead.

Kelly Shiflett

Thank you and good morning everyone. After the market closed yesterday, we issued our earnings press release. If there is anyone on the call who would like a copy of the release, please contact me at 301-984-9400, or you may access the document from our website at www.writ.com.

Our third quarter supplemental financial information is also available on our website. Our conference call today will contain financial measures such as Core FFO and NOI that are non-GAAP measures and in accordance with Reg G; we have provided a reconciliation to those measures in the supplemental.

The per share information being discussed on today's call is reported on a fully diluted share basis. Please bear in mind that certain statements during this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. We provide a detailed discussion of these risks from time to time in our filings with the SEC, please refer to pages 7 to 14 of our Form 10-K for our complete risk factor disclosure.

Participating in today's call with me will be Skip McKenzie, President and Chief Executive Officer; Bill Camp, Executive Vice President and Chief Financial Officer; Laura Franklin, Executive Vice President and Chief Accounting and Administrative Officer; and Mike Paukstitus, Senior Vice President of Real Estate.

Now, I would like to turn the call over to Skip.

Skip McKenzie

Thanks Kelly. Good morning and thank you for joining the Washington Real Estate Investment Trust third quarter earnings conference call this morning. This quarter and subsequent to quarter-end, we took huge strides in accomplishing a significant piece of our long-term strategic plan with the sale of the vast majority of our highly volatile industrial portfolio and redeployed majority of the proceeds at the strategically located office and retail assets.

All these transactions were previously announced and I want to walk through the individual importance of each transaction. We acquired a 345,000 square foot Braddock Metro Center office asset, adjacent to the Metro in Old Town, Alexandria for $101 million. This building fits our stated strategy of being in a great inside the Beltway submarket with great employment driver sitting next to the Braddock Metro stop. While we underwrote vacancy, we believe the location will drive leasing velocity.

Next, we acquired the 223,000 square feet John Marshal II building at Tysons Corner. In the near term throughout the entire period of the massive construction going on in Tysons, we will have a fully leased building to Booz Allen Hamilton as its corporate headquarters.

Once the construction of the metro is complete, we will own a A-Class office asset with the future potential to increase density significantly within privately guard to the entrance to one of the four metro stops in Tysons and was expected to be a very vibrant market in the metropolitan area.

And lastly, we acquired the Olney Village Center, a 199,000 square foot grocery-anchored shopping center in Olney, Maryland, in the heart of Montgomery County. Consistent with our strategy, we continue to like to grocery-anchored centers in the areas with great demographics and this is one of them.

Overall, by the end of the year we project that we will have sold $409 million of assets, once the industrial sale is complete. And we will purchase $360 million of income producing asset. Bill will discuss the impact to our numbers, but clearly now we expect to be net sellers in property for the year.

Currently, we do not have any pending transactions in the pipeline, although we continue to evaluate opportunities and we expect to put out a number of offers between now and the end of the year. We are currently formulating our plan for the next phase of our long-term strategic plan, specifically 2012 and beyond, and we will provide more guidance about that in the future date.

Switching to operations, which I'll let Mike discuss in more detail later in the call, the market continues to demonstrate weak leasing demand region-wide as a result of the economic uncertainties stemming from the impact over the federal budget. Tenants continue to tread water by delaying business decisions, as they evaluate the future of job growth both locally and nationwide.

The good news is our leasing volume remain consistent with past quarters and leasing spreads overall have been positive. We have good prospects in some of our larger vacancies, which I expect progress on by yearend or early 2012.

These market conditions reinforced our decision to reposition portfolio. While real-estate fundamentals in Washington remain choppy, we will continue to build a portfolio that will remain more stable in this environment with better prospects for future growth as the economic climate improves.

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