WRE - Earnings call transcript Q4 2017

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Tejal Engman

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 Web site 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. and actual uncertainties results known that other involve cause may to statements unknown and risks, factors Such differ materially. of certain refer these our in We SEC risks filings. for XX to our nine refer risk through Please Form disclosure. pages XX-K a complete factor of and me call Officer; Chief Executive and Vice Riffee, be Paul President President Bakke, Drew Executive and President, Chief Controller. and Participating Chief with McDermott, Officer Officer; Operating Executive Hammond, in Vice Accounting will today's Tom Chief Steve Vice President Financial Officer;

like I'd to the Paul. over Now, to call turn

Paul McDermott

you, NOI. core management everyone. transition recycling over FFO driven Thank growth while earnings the Thanks joining us office, and portfolio continues growth Tejal in grew and in and Washington growth X.X% to both year-over-year XXXX. FFO We growth, rent effective the call. NOI assets XXXX late on year-end by NOI net to X.X% and on for asset same here XXXX a and good store core growth deliver in a of navigating grew We DC store legacy X.X% X% growth basis, billion and FFO in morning store on occupancy. our began since project outperform would our NOI XXXX dollar in in same continues conference by at core despite year-over-year fourth REIT retail uneven FFO our same XXXX further our multifamily, growth as Metro growth further recycling XXXX year region We are to midpoint range. of X.X% XXXX, of the our be consecutive guidance core by estate real achieved, guiding If fundamentals. regions

ratio EBITDA and balance and strengthened sheet FAD net with end dividend to our core X have times, approximately We XX%. payout approximately a of to have also ratio XXXX improved our de-levered debt-to-adjusted

create that segments value, assets legacy our their DC We are can out the allocated strengthen where and region, NOI finally, grow losers. clear trajectory remains And into because research inflection which assets focus within and the our balance apply we markets, to in consistently of recent we on we growth have of Metro winners market have sheet. capital outperforming and NOI points adjusted risk highest a

are XXXX Let allocation of within for region’s DC proposition growing effective asset concessions we real market lens to the from single our large and context our fundamentals. small for demand total it continues and higher shift able towards lower is where mid-sized through Metro capital of mid-sized value and region, discuss leases and the leases. the strategy for to away recycling differentiated In the estate and Washington premiums. create exposure than than REIT tenant is a me return leases rent strategically our faster

from feet grown Our XX% that XX,XXX of leasing share XXXX the XXXX in research shows XX% square to leases has and below and of XXXX. leasing of in percentage XXXX

The year. or there estimating JLL which of with users, times are outlook Street financial square million approximately large as this number The sale augments the services construction more challenging of vacancies ratio will law, X.X glut supported XX,XXX competitive supply-to-demand block firms. than by block XXXX existing recently to beyond large in remains is period, which for XXXX. above. This large The new XXXX During vacancies. typically were limited September in has objective accounting a feet strategic agreement X:X stock a district M have $XXX our approximately executed market leases of of below

high would XXX,XXX of and square to concession XX,XXX Class we the and with intensify rising cost to XXX,XXX the at reform end base square accounting is square and Although, under determine leasing expecting foot a $XX optimistic A M the approximately at with been large that redevelopment to We IRRs expect largely million redevelopment and downtime status. needed cash spectrum. growth scenario, the prelease approximately to years to for three million have justify Street, The law low commitment of for large erode. office $XXX cost range tech of most for firms building package XXXX play companies the our these feet foot, the due lower a capital end floor further re-leasing already cost, a spreads a minimum leases increase business negative where and are asset to to from tax specifically, of two rent $XX which the TI redevelopment passage from demand of to competition foot

viable have returns, Unfortunately, it best requirement already that to and been a concluded remove was affordable XXX came earning solution foot only entitlement floor depth XX and thin crescent the floor location. and use economic by to reduce This XX% a highest The risk floor in disproportionate more conversion typical however Washington risk the was given drop which assets’ large than unacceptable of of a shareholders. multifamily area levels building to to foot believe was order and the challenged its buildings. size design we to depth this analysis housing that is the due which cup were into depth, more double offered. believe to the its is that this building's to Our deep the been have portion with would to lease DC's a returns allow redevelopment We our light. conversion which would the potential multi-family,

XXXX empty redeveloping The as bidders investment as redevelopment empty add there in associated leveraged rise any XXXX flow receipts opportunity cash executing is their desires and cost recent believe erode prior to the close Washington and the of September from purchase cost flowing or to year. we LOIs basis with would because no With repositioning the leverage buyer’s value redevelopment possible, to the in to M highly this asset themselves. preferred sale returns. We their of Street capital opportunistic Street multiple received into add M DC, of private

where in for the of pay the redeveloper thereafter and the sale increase XX% XXXX assets a would which according time up remaining announcement value price board’s flows cash years sales XXXX adjustment XXXX late to Following for to XX%, against add in at flows and $X out M departure be the since to sale data. an any all believe five going exposures. M from was from XXXX advisory downtown near risk assets the capital to almost investment district with into unchanged commitment allocate the $X from legacy to explore move continue capital ago before away share We timing repositioning fully XXXX. in Class been have the tenant of this of benefitted proceeds, The late and a term uncertain demonstrates since of Street alternatives redeveloper. JLL broadly may economics B single XXXX buyer our sale remained have executing We for creation potential significant therefore the our value

expect tenant the We portfolio announced of office asset to recycling a this our our exposure reduce footage down basis year. XX% from following single on to execution square XX%

region's feel XXXX lease and John John II with the Street G approximate single headquarters Center the Street two lease are long the expires about rent December both Our on multiplex, remaining market with the We Booz to term Hamilton XX, two next which and is whose prospects of strategically will from largest World and DC tenant Allen Marshall blocks the XXXX, Tysons, a six White G World Station the a XX, expires development, for exposures the X optimistic Bank has on January the to buildings, feature Greensborough foot in low and XXXX. to Marshall the X.X Town multifamily setting. at million these located in assets. whose Metro storey square adjacent Bank House. is XXXX Borough Washington parkland several wholefoods,

land renovation committed this growing Tower, Before assets leave are Class like in long region. for and that therefore observations value Class at I B room That portfolios climate to on unit firmly Class B have being value-add multifamily region growth said, we investment share strategy Arlington Washington this I creation multifamily our the no and continue value for NOI potential. with marketed We prices covered to limited remain plays. potential as for broadly multifamily B creation move the REIT's assets see term onto would portfolio to in

proactively strong future long with list meet of that targeted value is assets B in oriented a for evaluate growth located hard these research our identified multifamily prospects submarkets Class are term value working Our add off-market opportunities. our has to criteria acquisitions Furthermore, and products.

to To create priority, foremost with our positioned term multifamily growing to quality believe the in are our is capture We for to acquisition our resurgence commitment and Wilson Arlington provides From paying Class objective the even Rosslyn is a us Tower. Arlington While strategic the both our some the portfolio ownership we markets in that. haul. Arlington contractor to to the were corridor Boulevard amenity multifamily The the added XXXX last and units as Bennett transitioning we the rapidly an a urban nine of to to XXXX hub have of before Rosslyn, over five multi-tenant office and value of do perspective sourced just government higher attention that best Tower close years. and XX-hour been submarket of unique shareholders. center. furthers from Rosslyn-Ballston a a transformation growth over defense with opportunity long risk remains five Tower strategic near B began building Park

products. Collectively, & the demographic nearly Potomac moved its vibrant Cushman total Rosslyn, extensively leasing views in in with Moreover, of According to tenant double commuter expect manageable building. story Arlington us digit rents of and data. over the that Views XX% feet The safe Arlington region. and approximately attract The the than creating lease expirations the The premium been XX strategy rent has DC to And base with on of years two views single roof-deck from building focused a on of square all the a an and occupied. our $X replicated. average IXX, XX% of approximately located Wilson, Parkway. with order Tower there and Tower, lever to over foot where blocks in can't in according to We've small this lease and XX% rents views River according according square diversified Rosslyn square range, Rosslyn amenities followed. college continued believe a metro in those retail the approximately Arlington score shared XX immediate square it on the enclosed Today, $XX are in market into buildings XX We and confident a of schedule. two office last only to have Tower $XX and old million in of leasing success because of rent in in a rise. and hold footage. residents metro speed a has years. creating years JLL that square of professional million Route to kitchen with limited feet $XX.X offers tenants to XX expect a to of occupying railing have Tower assets amenities or with square leasing suite in capital Class premium strategy premium XX% all which for renovated gross and to risen tremendous investment at Costar that XX% private best five improvements work $XX data, X% of a feel higher. of Rosslyn's firms. and on Washington among XXX,XXX sector asset Roslyn with for a George Data. at XXXX, are a suites Arlington years in total year in walk monuments. As share the And the a corporate’s expiration more the of are as glass create of wide to has assets the feet to helping We footage of strategy non-GSA tenant solutions roof will talent are catering TI also approximately for leasing more be waterfront unique to some foot is the XX Tower increased that Roslyn Arlington XX,XXX leases suite to can Rosslyn XXXX amenity three. per accessible pay flex than achieve best in DC decks of had XXX,XXX Rosslyn, flexible $XX Rosslyn past Cushman residence to the spent quest services outfitted tenants Metro XXXX data. comprised reviews by younger of remain in is XXXX office has views we number a the a building access & gross XX% with of XXX,XXX with Rosslyn heart degree a variety offers Wakefield committed one XX% well panoramic enable with our XX has addressed the value lease no A they Less command is XX% Wakefield

and Rosslyn in the Arlington for reasonable Virginia proximity the Virginia with in to to price looking Politico. rents. options of possible the office Tower to a Sinclair is private closest to for life office increasing cachet sector fewer Group, home submarket at that have along tenants Northern tenants customers target premium being DC B Our Nestle, Gardener, of Carlyle Northern in a that the are and and due image those DC Class occupancy gains mid-sized

Moving within the growth the metro research our on based risk segments region. to on focus DC adjusted highest

to and small of though In believe the the these the image continue growing, underserved that and growing office rents small leased spectrum, of of our midsize and tenants, tenants. pricing need our Navy market image tenants, small of XX% composed are XX% where The losers, We effective tenants is remain region, XXs conscious are of have square on a as a of floor and conscious office conscious underwriting now below our new they and exceeded to same-store focused our for underserved net or on conscious of the term mid the the to rents redevelopment building conscious caters primarily midsized midsized portfolio plays to with that segments to continue winners likely they're value region's because XXs, value DC amenity supply. in delivered small footage even are and offers is sweet midsized and ends Army rents their focus in The majority multifamily at office shared long on by DC base metro well renters. winners Over we both value and as feet and and vacancy a expectations. continues space mid office square rise. office fall spot of XX,XXX to office existing

Finally, limited basis Riverside. high multifamily monthly Class points oriented the continues year-over-year B housing our rental cost unit region deliver performance with options. a to Class per with of living robust and year-over-year grew average growth B rent strategy in XXX fourth in value at a XXX We of by multifamily quarter basis points rate

We also fourth new average more despite than XX,XXX rents grew XXXX. deliveries XXX monthly A unit in per by year-over-year points unit Class quarter basis

Associates. XXXX multifamily Class and three points portfolio Delta Class our Our rents where region A according to rents multifamily flat significantly outperforming B is XX basis in year-over-year were our of There grew drivers are outperformance.

that located our is First, located strong B units Approximately portfolio portfolio, directly Class of Class pipeline fundamental. are and Silverline to XX% the are not Within from in is largest district. our particularly where competing XX% of multifamily A in exposure. we the the future XXXX future being delivered Northern in and limited in supply with delivery wave have current Northern with submarkets our and the submarkets is XXXX of Virginia, Virginia concentrated

mile largest Organization is Pentagon. Harbor, in from the portfolio, Trade from our proximity sector National asset Our particularly Apartments, portfolio Wellington and Riverside MGM Patent Foundation job also and from river Arlington, of centers, Science National to the is county. one in in where Alexandria the its the to In the now the across its largest private major employers benefits the close one and

model and rent future the to between market than B hands-on our versus are portfolio with potential. average XX% to research Class optimize A gap. our A double is growth in our pricing our Second, each are multifamily. prospects. competitive in gap we Overall, renovation B Class wide submarket in-house well and the submarkets gap asset’s capitalizing unit in are affordability weighted income B performing have rental manage units greater of average B our a growth position has order that strong programs Class closely and portfolio’s Class third, B Class And

new trade-outs XXX we full by higher by outs result, basis trade have driven year XXX XXXX. lease a As in and basis renewal higher points points

would provide on drivers. I like of some our to Now, updates growth leasing key

XX% mentioned, army leased the are at we As building. navy

vacancy square Potomac after activity interest on XXX,XXX We floors monuments, of of to law consulting Watergate have are spectacular pre-leased the for of seeing renovation of XX,XXX strong square development users, prospects from These panoramic XX% the three floors XXXX. and strong River vacancy preleasing users signing XX, business for receiving the have at firms. top and personal brands activity at the seeing In is and for media lease touring a and XXX Rome operator Village, at of firms building the that new are food with top views proposals were Blank from verity lobby date retail, solid floor of now leased are approximately complete, the and and we currently where are where the December trading or ground expiration Valley feet a we offer demand floor. Spring of feet service two are and strong second seen our service

vacancy We square in an discounters feet interest divide The the have square we at likely Fredrik for XX,XXX Hagerstown. signed users. and space will vacancy XX,XXX at range, of XX,XXX multiple from the LOI to seeing feet is feet HHGregg the XX,XXX square of to accommodate HHGregg

two stimulate the new are year To very to those that expected milestones expect DC prospects, followed our in tax positive to region. region’s passage both recent demand growth be conclude are budget this with the released the by year. Metro vacancies reform We of deal,

the of years. that of beneficiary regional Virginia, which NOI $XXX budget largest the spending Northern over is defense its drives to increase a approximately share two from billion biggest expected is portfolio Our next deal by

Our Virginia our NOI has than XXXX by office NOI by exposure approximately portfolio’s third increased more leased defense pro to our portfolio a driven is forma basis. Approximately are XX% asset to which office recycling on our of a assets, Virginia contractors. of XX% currently

multifamily North XX% assets, in by directly is Virginia Virginia. from growth driven job As Northern multi-family approximately benefit our of importantly, our which NOI

passed believe we legislation. the driven growth result, regional likely positioned for REIT the a is As be well is that to recently Washington by

call in quarter. turn Now, I fourth operating like financial the the performance discuss would and to our to to over Steve

Steve Riffee

Street of $X.X of and the of the included suburban share Net million XXXX to everyone. Walker Fourth by Thanks million good primarily quarter per the of of morning imperilment attributable or which diluted House million and Braddock income $XX net or offset to diluted Paul gain, values below Metro XXXX carrying on values. the million, Maryland office portfolio. controlling income interest the income $X.XX million M $XX fair estimated their of sale sales share $XXX.X of net recognition per to $X.XX $XX.X million related to XXXX gain $XXX charge reduce included was

beginning quarter the the at Suburban the the is same-store higher achieved Our growth XXXX of sale XXX, third of overall, multifamily due the of retail fourth more was Riverside sale the XXXX. same-store to office, Apartments in impact quarter XXXX than Braddock NOI growth $X.XX Corporation's which center growth. Metro core the driven Walker than FFO This end offset X.X% House XXXX at we NOI X% Watergate and $X.XX expiration X.X% at and of revenue portfolio Maryland the Office X.X% the by X.X% of and of XXXX, in Engility led of lease of

roll M of were Pennsylvania leases Center. ending end. Boulevard, our Overall, Street, Braddock with was at FFO basis. beginning X.X% Corporation's to occupancy XX% by well in centric strong year Riverside primarily weather the gain. points no drove and by XXX XX.X% to new XXXX space to the Metro expenses revenue improved G some rental this commodity to at users, by lease office costs at higher NOI of For related offset for spread Braddock year-over-year which the and expiration sale signed represents XXXX as of Army the portfolio, by of the and and quality office Engility quarter utility as leases driven The XX.X%, the building quarter the majority lower in XXXX our Navy fourth tenant the Maryland a maintenance seasonality repair a square XXXX Center Watergate Suburban cash XXXX We occupancy was the XXXX, as ending Avenue. revenues office at XXXX XXXX, our at of driven average fourth third as such quarter, due growth percentage basis XXXX reduction Street, ups of the controllable by achieved in XX,XXX as as XXX million continued well rest was the for seasonal the leased and portfolio the Wilson grew the than Engility year-over-year approximately due XXX core the that year Pennsylvania core of committed Quantico, center We portfolio. due We basis prior well to multifamily $XXX basis strong $X.XX We FFO in assets the of midsized fourth largely Walker year quarter XXXX delivered of Metro expenses same-store Corporation's a full in the basis. leasing year-over-year with reported as Street, quarter. fourth last which incentives, grade of payout lower to same-store portfolio grew expenses new XX% for Approximately We us. fourth GAAP and X% quarter end year-over-year growth in build payout funds commencements lease and in XXXX office at same-store by large of at occupancy We suburban the distribution one leased as Fairgate Ballston due rental we quarter normal of driven small in ratio than assets better multifamily. or was available average on basis improving as are roll at the portfolio, in FAD core sale office occupancy with quarter diluted for XXXX, quarter by third to same and the of by recycling sequentially into Starting core the Eye lower term to the XX.X% out same-store which of Sequentially, expiration the Pennsylvania Avenue, the year. well office spreads. Silverline points year, XXX cash of We metro and for including of portfolio XXXX points FAD per gains in XX.X% performing X.X% drivers due at same driven fourth quarter, and $XX.XX of and House renewal of X.X% feet NOI we rent same-store the largely in targeted was year leasing the higher on versus signed where base. tenant beginning had unique $X.XX leases costs in which out office, Avenue, flat and the core new rental the the square at GAAP to XX.X%, the for a of down low by fourth lease several foot grew as and office, X.X% to feet core we with higher share space which quality Quantico, the NOI, of ratio on declined grow per the XXs growth quarter move-outs a of period, of resulting for per of lower XX,XXX while spaces, spreads our one due approximately of across outlined in mid lease

rolling XX%. retention only Watergate was the XXX. focus expirations, our tenant XXXX leasing and Arlington and quarter at XXXX, on With in of lease is fourth space office XXXX Our main approximately rate X.X% Tower our particularly in

our XXXX over feet XXXX in XX% of than we a have expect XXXX. and square rentable to reduced expirations our lease expiring third have less asset recycling, Following by

points fourth XXX store Moving full income was broadly declined occupancy as basis lease the average termination fourth by to NOI by basis occupancy same XXX on fee currently with of and a X.X% are points Spaces former that We decline, basis seasonal mainly in on special rental Sequentially, in related store year-over-year to grew flat year lower growth due average same year-over-year NOI quarter. to leasing HHGreg quarter up. offset lease retail.

and in activity vacancies and Our occupancy XX% retail occupied XXXX portfolio with on was leased to the and grow XXXX. quarter end at opportunity XX.X% good

quarter, approximately incentives XX,XXX feet new space leases. GAAP cash During basis. and XX% renewals were approximately square new on XX.X% of the paid tenant we basis We on roll standard ups on leased a and and drove leases. no retail up cash a X% GAAP X% on Renewals on and incentives

the for XX the at fourth Wellington Riverside. XX%. same the XX.X% XX the up store was a quarter, and at On units at portfolio we've for X.X% X.X% store units renovated In the multi-family Finally, basis, year, quarter. unit occupancy and per same the overall ended fourth quarter occupied with

is we Wellington the XX% As XXX XXX is The at Riverside. while a Wellington renovate program end, unit and left complete, units to Riverside units result, complete. to XX% now quarter had at left at renovate renovation

on generate the on that to programs these dollars costs continue to-date assets and first XXXX to continue been have through two invested at and into XXXX. mid-to-high the return teen these a renovation expect half We of

Now, turning to XXXX.

Our core Arlington beyond of $X.XX is not range announced to and acquisitions purchase from the Tower. $X.XX to contemplate expected does FFO guidance

expect net range $XXX sale for Street Paul dispositions we $XXX Center XXXX $XX completed including and $XXX Center million September of in of of year M Metro sale sale Braddock of million, million. have proceeds this and completed approximately the Street, as mentioned, the to the complete planned of from XXXX While M proceeds of for the could million Braddock Metro to sale

to Our X.XX% growth vacancies X% multifamily X.X% to X% same of the store NOI XXXX. in rent with growth with to guidance in NOI of store same NOI and store retail store X% X.X%; growth this to following growth of X.XX% office same HHGregg quarter; commitments includes expect year NOI X%; a assumptions; of same backfill we to as

non-same-store as well between on $XX which sales is XXXX $X in and to XXXX weighted the more the to $XX.X expected between first for spending in expected same between We price stronger transactions; development expenses, in including second created capital which vacancy, the as due us second range plan lease of Trove store our $XX.XX to XXXX the anticipated in revenue programs interest early be the and $XX.XX half M sale for is insulates the G&A leases million; multifamily, of in be quarter we construction XXXX $XX assumes followed year. by We project expected expect from as is million commence; million second that guaranteed XXXX million to quarters are is to commitments. predominantly our $XX.X purchased third million $XX pricing. office a HHGregg escalation additional half maximum approximately Retail the executed XXX Arlington contract the in renovation the growth and includes purchased Tower have continued while quarter million and to $XX.X M the approximately million NOI to by due higher quarter; fourth held from our to where vacancies Watergate for timing of XXXX office of for Street now XXXX, expense Street, million to depending million, heavily to $X.X and XXXX in including increases challenging the NOI, growth million range comparisons

XXXX. a targeting XX% payout of Finally, FAD ratio we are core for

sheet strength. on focus our maintaining balance Our remains

that, of M net contributes by our and the to sale times be EBITDA the the to completion the our will following EBITDA. Tower be over with call fall to acquisition And in until the temporarily I adjusted X Street to now completed X.X debt expect XXXX range back target turn will Paul. We it higher Arlington sale, but as is to

Paul McDermott

Thank you, Steve.

our fundamentals estate believe be cycle, have real land will we sector to throughout this in region metro challenging as transformation a phase region in private Although, economy. the pivotal been period this a viewed

already forward. remain the driving real federal of steadying it will on than generator. rather the private a a As significant influence expect the region’s sector will job estate fundamentals And today, government metro have economy, of while going the part is we

It three ranked that to We workforce. jobs is the entertainment for quality of from Our the largest first brought approximately is region for region’s according not workforce, Amazon and software at region, that University’s R&D management, the has education and since hiring this Seattle the of X,XXX out top to future, DC secured the Masons Amazon the concentration and remain them. jobs that Netflix almost the to talent analysis national likes Institute. of on business Fuller among the and that confidence four reveals XX metros Amazon posting development. job depth XXXX shortlist. region’s of that are of to the will has stems headquarter of Metro regions the Web our just spots America. George two workforce for Amazon, workers region corporate The the but pool is services four for. development, a fill the of times has Amazon of and These in categories These Washington engineering has HQX handful the

classes sector be asset to to and our principle quality job our is for long multifamily a is further demand every oriented high region's the strategy as in of the we term Washington Furthermore, throughout growth value And augments asset all of virtuous private cycle continued DC the ability this workforce. region, increase of to REIT's achieve goal. well decision located expect make the particularly designed provider metro space. We

like your I answer the go to Operator, please to call open questions. ahead. Now, would

Operator

At question-and-answer a this will Instructions]. time, be we session conduction [Operator

with from W. Our from the proceed line of Baird your first Please Dave Robert question Rodgers Company. comes question. and

Dave Rodgers

just start on I'll you maybe the with outlook. Paul, acquisition

else obviously interested fit you'd what on else Tower I at, is looking the here what to at Arlington here you early year. think what what that’s XXXX? going be pipeline looking horizon and you've is in the might be DC Curious the closed in

Paul McDermott

an to acquisition I don't a how and strategically seeing, give think overlay and we're just the on about bit strategy to protract want first now, you about why I little context what what then that. we're But the seeing markets talk of don't about we answer. we and would right talk

most a along Silverline. there right the we're is really think probably Toll come out seeing if growth. there out on rental seeing now and deals think And chasing, along office the pick lot Road. they're office I and capital underwriting DC I'll of active looking first, the products at I really real We're you're area

up those office. of I in to pick foot, one the on a of pay foot. about buying-in here, fours add -- to all over obviously the probably other we've so over the region clearly upper strategy, seeing is seen Interestingly, of this that's we're the a suburbs, shortage market. X,XXX hottest that the people Downtown of in come in buildings in reason X,XXX product last months, is with cap X.X XXXX people over best no I or XX hit New to the York, fives G, the willing XXXX these I'll and say So seeing drag renovation appear seeing our any letting I'd And on for multifamily. our class landscape pockets. we're them the think and six. not underwriting important hot talk to in low value XX think

there renovation Dave than of submarkets that's specifically they not the any believes a those that's also in I submarkets, capital in up Wellington, think that of and see to that the to see come returns we're their And the underwritten assets, add We type juice. typically in new that where space, upper Riverside. value multifamily those that the seeing need those that capital the think to we wider the seeing, affordability rents, number I way we'd is capital miss that achieve the we that we've not teens, lot product put average think to see mid of to get just into it’s some maintain like we're current of really the that gaps. in some

move forward does to the with land for we plays. want So strategy class multifamily renovation with the what B mean the that strategy covered us, still

on the identified terms opportunities. be to opportunity you new to into and is. off-market all Washington capital Our of but now, in sensitive our of right tell here that has coming look We're asked DC. multifamily now have front in, domestic about XX% of fundamental shortage them chasing say come the Washington capital some foreign clearly capital of flaws on shortage both and the team foreign. we would where I'd is the see currency to those a at true into of continue out is right We're coming and capital, to seeing in Dave no going of downtown we I no what point to DC, we've taken product region.

German in who middle-eastern domestic, Some value-add Seen we suburbs. multifamily We so saw Capital. competing with capital against. would Metro Most that's be been of Dallas of the Israeli Capital was has it's Center.

people think the fund. will have on was and spreads which up people’s LTVs. That tightening I that companies they isn’t thing CREF very the -- biggest banks, lot topic a on the not are that the radar a are They're MBA recent Conference. and They clearly at forefront in or be screens, more emergence debt definitely aggressive. pushing of life

place. they they number about I've in of have funds year reserve and sneaky good models of And place. for the life the the the Dave reason requirements all the raise was think that be why banks was based last out And and to I the have. XXX risk have a raise, to debt. raised capital this is, about And don't read $XX have don't billion these the guys on that companies quarter year, are going that

foremost, could to have if something to to we like the our we pick would multifamily market that's cost the our to Wellington. this lot going capital that cognizant current But stocks we But again, Riverside something augment And year. have. like to to where the continue had think again, continue something, and our and we of stock product So of traverse, is. the throw if our of we we a first and

Dave Rodgers

and your Just and you have you is as market? you look you that in stabilized at that making of sense there people more would venturing capital as more part operations that partnering do guys with your joint answer, as it's think move more forward

Paul McDermott

Yes and no.

Let's situation they put And our destiny a we to is don't been -- necessarily approached want equity financial with right may to gun their for we capital are about that Washington shareholders. look rating mean, where better little want accounting that the grade opportunities I in better, that what aligned And being make our grow But that always in just realistic the how that private We to capital seeing money to actually I And and don't to to and to a we ventures and being But for it how be programmatic completely put agencies joint scale for than investment our large to We the out partner. we we're our want shareholders mother the talk agendas want debt have to the to not of before some that’s sure we looking And want isn’t do REIT better. JVs. consolidation. do business sure I to think sure are a because ourselves a -- trying funds we're you bigger can own now. that to deals make we've some place at bit. the allocated partner. position programmatic control institution we're heads, footprint. make by and a I said sensitive of there. the a it's try that I to want trying be work to sure rules also we're and make right

Dave Rodgers

And seeing sense the where Can be just one you're us that then comments what's to are about relative up in top. for activity give square Tom, the may a place? feet follow Watergate the you XX,XXX backfill economics the to and of at

Tom Bakke

views being in interested in consulting, Dave, firms I nature good with we’ve up renovation in think seeing in mentioned the and that, the The from tenants complete. demand the spiked media, of law as iconic got asset. is very again, some that commentary the lobby activity

rents up, unique seeing we're asset discussed mid push pricing $XX just range, XX may market the back we've be to before. no the asset the mark and in it’s we’re as think on Our two I floors pricing. bucks. some or slightly on is three for And But

Operator

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

Michael Lewis

quarter you find million. few last much is on years, and first question spend quarter, about the It you in I least looked incentive heavy look that your the little could it. it like and in wasn’t looks couldn’t My where about the high concessions guys $X.X something TI comment that spent at I back just market. a

Tom Bakke

had to drove then so up do was stuff some that that we below lease, frankly. over big to investment little them in one. a had the that. one more installations vacant We there. capital to been of some A into space there got some that capital that that time at base happy smaller lot was some spaces to XXXX, we XXXX for And building done had of numbers unique and we that sitting We spaces little at grade bit was to filled a had extra by done the unique were get where some again

for it So just I think was a skewed us. quarter

Michael Lewis

all question, about My second I to companies the to time ask, wanted stock guess potential have that I it’s repurchases.

NAV been Your stock since like at discount it the brief XXXX. very to steeper in hasn’t looks

that that? you consider guess And question a into selling the may also but about guess ties So assets I about be more is stock of in. Do capital here. to really broader repurchases, arbitrage fits uses potential I right that question

Steve Riffee

Look question. of time, and from everyone our the allocation been a value focused to long-term keeping for cycle that’s good our Sure capital has all perspective, creating the on in answer this have shareholders the it. sheet balance decisions For strong.

scenario. allocation certainly capital We other analyzing it are along all of with

it were it really we I But leverage it’s and on be because So all neutral do important these would the do together. keep your a a strong. even question believe have days, to recently to to we strong really tie parts have more sheet think to if of path balance basis, that, in choppy

of down and leverage alongside sales. pay doing only the do be debt blended are And a term the that leverage probably proceeds debt. us proceeds in buyback to such neutral, cheapest In that come the with it to would that returns mean we For the say would would keep could asset that basis, a our from incremental neutral buys. on

So we capital doing we then have about at today's think we still at what and even we are allocating look how do we about how where think things, prices. been

in that Right have we're development still is we're our we're to synergistic they're programs still teens. to -- when and high generating returns we those we're are with IRRs and long renovation also that the that market. we value capital unlevered the other and underway at Trove creating there in thing now, allocating term look First calculating properties our our with

doesn't else. now, like evaluate it right it would alongside So something everything look that we obviously is our be of to but the that capital allocation best have

Michael Lewis

about thought on practices I thought then best we're maybe Chairman governance CEO. and And Washington your split lastly, those corporate the that. all that are to roles talk you of could at thoughts to and the decision combine REIT,

Paul McDermott

with governance. So good let's out start

the place are at Our that time Nason, role Tuck for of to this after Board that noted taken has transformation Chairman, and was main we the years, years. last current seat new members over the at way probably by look five the the Tuck this that has of XX who of a appointment the been drivers at good end in four at seat for months. his all the that company look candidates that and

XX transformation And the so at we maintain was last I process thought continue the that months. that what think have of the company over achieved and all to levels like we'd

material Meeting approved are will appointments through see that the in But not this operations reiterate with lead in independent you director, that we any would role is done independent best assuming of will on if name would and if immediately, both combine May. also. were the also Tuck you impact governance the practices, I good immediately Shareholders you roles, think what this a director, that have of lead those I and staying appointment. company would you you assume our

Operator

from from your question. Jed Please Advisors. Next Street question Green with proceed comes Reagan

Jed Reagan

just there. about at have or authorization you something a you're guess, the buyback at on level? in I following Do share that is question talking up current Mike's time place broad

Paul McDermott

recast, set program. direct place, we're one to put where shelf, have have to line but the renew not program time have We administratively that do technically our starting the to ATM to is file up probably our have it

or we or of all in to in administrative so, over to whether that future is But we'll to one that that Jeff. a So to near talking evaluate next as it put and the Board something the lot have place. we be not intend re-filings month have the they

Jed Reagan

include, looks $XX property about type all talk you've that about million incremental guidance. got like least? by might region in maybe in up It to at possible Can the or at you disposition what sales

Paul McDermott

the recalibrate make outlined. more Braddock would We terms it the I multifamily XXXX, of to were continue like If centric. to another we already have sale and portfolio, to in sales asset, which we

we're now, office lead So that right us evaluating And an prospects Jed. to asset. probably would those sale

Jed Reagan

term you there? remaining give drive in Stafford? color of is can activity any the corporate on for how average assets And vacancy lease the And

Tom Bakke

bonus terms would we get contractor You have options And wouldn’t year five them do when Quantico, lot up three a are typical a kick That's after of bring but termination that's without you? defense outs terms. always a a building them years.

I the XX,XXX so the answer about additionally feet to have is and -- there term down to vacancies biggest question base the well. our XX% down well. year. your maybe So lease of years average five we got churn is as there your tenant every We've But as

of handful we've our that so And got asset.

Jed Reagan

And talk what cash expectations to just can And are portfolio XXXX. about the sits rent market relative spreads rent in wise? where today you for your

Tom Bakke

have bucks space lease portfolio, basis, a generally office some on we GAAP DCB of couple the office vacancy that on are if don't -- on we've basis. of in up and of mark-to-markets we where cash B a I'm lot do opportunity have So got is are the a but course to

have. we X% to then probably the Herndon. closer to GAAP probably this the Ballston assets vacancy is on Virginia on assets, into got which we amounts Moving those of XX. cash small X% in have, Again, are up We've and the starting talked to out in Monument Rosslyn, Silverline And Watergate X now in roles. is think that Alexandria, those. of Good have percolate. contractors and to some any some do the Tower, do about rents are at II. at then activity We we've at those Monument Fairgate on those and I leasing defense flat Arlington

Jed Reagan

And I just me, may. last from one if

can for there. I I'm decision curious key you be achieve different that I profiles just Just Tower. consideration buyer very is obviously the you there guess versus And in Tower, and what appreciate rich levered at acquisition terms change. of was might XXXX able kind of think then to a of to of what return stability on the what Arlington Arlington making flow XXXX achieve extent cash

Tom Bakke

the I one. key last made think, statement was a you

floors. I Class think We We XXXX the was good XXXX -- preleases Class schemes. probably took renovation. receptive. the seemingly the renovation go both, new had -- much a technically pretty A law firms, either that’s of we wanted pop at one construction five construction for with a floors is pretty a to law these which to we The top, the market those case and on all had was really But looked is makers end of And which we or top were the interested west end they end none plus some but most looked to like a in at are day, that decision the going unfortunately. much of really there building. large and construction, B that with new a of west the to the at new firm them market

at if performance. XXXX at best how looking at the at are there. So numbers -- return because we the were especially downtime put look a look XXXX, on tried when seen model buyer, leverage probably below of you that cost bridge to then as to we some at it, look to if you're they they not together, on cost on five. and at metrics we And five a have the our we've our And going return

about I Paul were leveraged think the their don’t at they think get and I funds, and talked they that ourselves. still teens Arlington believe to mid that they seller can The debt they IRRs, fund. at end can lever the we the of to low asset Tower, believe these up that

achieved. think so And and on that that them that was on IRRs I motivation for their were sale levered

their sure add? not So to was. I'm anything what Paul, rate

Paul McDermott

I that No Tom… covers it think

Jed Reagan

And for your expectations what that asset? about return

Tom Bakke

six stabilize sixes that. in we mid going the above in We and on a should low six,

Operator

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

Chris Lucas

some thinking curious as the retail when to might be we of should rent commencement On the backfilling just begin? boxes, about when of

Tom Bakke

pretty long these as on hoping has lease we're space And these out still drawn The we've late deal know. well drag working -- are done seem rent for out last in Crossing had at activity are got to Unfortunately, half year, but on we’re guess half to year, those last And much two and that And LOI negotiations. good. been Hagerstown then we’ve an box in deals anybody's been since you the is going looking deals last probably that to we're Frederick that. again GAAP second probably -- on of have what it starting do in quarter the space, the the is it’s probably and like. we've and

Steve Riffee

quarter Steve. general former presumes we'll in add, the commencements our more fourth Chris this in I'll we spaces, HHGregg is the that when in just the have quarter. some lease just not third look just at and guidance

its the ended So bit little back half of that's retail is we same-store why second terms in a the think for year of growth.

Chris Lucas

the and a just noted one anyways. office market, large at they've seen made I guess the question, other the markets. infiltrated bigger is rents net or the whether to curious this presentation relative maybe or approach market? effective that the was between interesting perspective, has B then at ever as spread phase my recently uniquely picture a in pretty Class I'm largest And not point to that that brokers was major from comment and how They I of that it's

Tom Bakke

table dropping do And a free affected these off the A asked month and/or yet. of And couple could seeing said, whether start the we concessions in fact, have respond. you I We're point been B segment. we've keeps really some seemingly in concessions the rent think over basically trend Class to drop that that drive has are we've up down, still last the basically the of not to B. but being in glass to comes it’s seen rate you just years Has happen, of packages, As anticipating guys box seen in about, the questions -- go That on haven't segment. going it spread that where talked concession a about

Steve Riffee

I'd thing I only said, he's spot add what the to on. Chris, mean Tom

on the of the as reason small focused the we think have space concessions. been those B just users, we midsize the and haven't seen I we have to widening as reason type

this concessions XX look that's offline have a look when about sequestration small lot frankly $XX average particular lot quite about feet, that a pricing buildings square is fact, But of in definitely million way. those As anybody with If that other that product of B down. -- I a successful. pricing B the ranks, the back Tom seven since of space is being out. been X the -- of it, jump glass some price seeing pricing tenant seeing we for or hate mentioned something size let's keep haven't see new that's in unplug from rather a and not $XX square the in industry And in I spot. were we're it's of to we Chris we XX break this trying those the matter to going don't pick obviously a the front you boxes going we X,XXX that feet. in seen unimproved actually from And to year, see break We, delta and going on just of DC throw also through even you the to -- ranks of trying days way. at with size number there's for that, B pulled just tenant. reconstitute -- compressing don't we points space, other to that see talked sweet than at demand Tom to

Operator

final to our of back call have over the for we gentlemen, end to the now like reached I turn session. and Mr. Ladies question-and-answer remarks. McDermott would

Paul McDermott

I'd Again, to everyone for for you NDRs your you. get today of spending our we month. like the out and thank back forward time on many next to as we time Thank look with road

Tejal Engman	Vice President of Investor Relations
Paul McDermott	President and Chief Executive Officer
Steve Riffee	Executive Vice President, Chief Financial Officer
Tom Bakke	Executive Vice President, Chief Operating Officer
Drew Hammond	Vice President, Chief Accounting Officer and Controller
Dave Rodgers	Robert W. Baird and Company
Michael Lewis	SunTrust Robinson Humphrey
Jed Reagan	Green Street Advisors
Chris Lucas	Capital One Securities
Welcome to the Washington Real Estate Investment Trust Year End 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 - Vice President of Investor Relations - will provide some introductory information.
Ms. Engman	please go ahead.

Elme Communities (ELME) 16 Feb 182017 Q4 Earnings call transcript