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Washington Real Estate Investment Trust (NYSE:WRE)

Annual Shareholder Meeting 2014 Call

May 15, 2014 8:30 AM ET

Executives

Paul T. McDermott – President and Chief Executive Officer

Charles T. Nason – Chairman, Washington REIT Retired Chairman, President and Chief Executive Officer, The Acacia Group

William G. Byrnes – Chairman, CapitalSource, Inc.

Edward S. Civera – Retired Chairman, Catalyst Health Solutions, Inc.

John P. McDaniel – Retired Chief Executive Officer, MedStar Health

Thomas Edgie Russell, III – Retired President, Partners Realty Trust, Inc.

Wendelin A. White – Partner, Pillsbury Winthrop Shaw Pittman LLP

Anthony L. Winns – President, Middle East-Africa Region, Corporate International Business Development, Lockheed Martin Corporation

Paul T. McDermott

Good morning, everyone. And thank you for coming to the Washington REIT Annual Shareholder Meeting for 2014. Our Chairman unfortunately is stuck in traffic right now. So we are going to ask the Head of our Corporate Governance Committee, Wendy White to come up and open the meeting. Thank you.

Wendelin A. White

Thank you, Paul. Good morning everybody. I call to order this annual meeting of the shareholders of Washington Real Estate Investment Trust. I’m Wendy White, Chairman of the Corporate Governance/Nominating Committee of the Board of Washington Real Estate Investment Trust. And in until Tuck Nason gets here, I will act as Chairman of this meeting. On behalf of the trustees, officers and employees of the Company, I welcome you to our 2014 Annual Shareholders Meeting.

With me here today are some of the trustees of the Board, I know Edgie was here, but he has probably just taken a little break and will be right back with us. And I would like to take a few minutes to introduce them whether they are here or not.

Bill Byrnes is not here, he is the retired Chairman of the Board of Directors of CapitalSource Inc., Bill serves as the Head of our Audit Committee. Ed Civera, is the retired Chairman of the Board of Catalyst Health Solutions, Inc., and serves as Head of our Compensation Committee. Andy Winns is Lockheed Martin’s President for the Middle East and Africa Region. And as much as Andy travels we’re lucky to have him here today, he is usually off in the Middle East somewhere.

Edgie Russell is the retired President and Chief Executive Officer of Partners Realty Trust, Inc., John McDaniel, is the retired Chief Executive Officer of MedStar Health and also served as the Independent Chairman of Washington REIT, prior to Tuck Nason’s service in that role. Here comes Edgie. Tuck Nason our current independent Chairman, is the retired Chairman and Chief Executive Officer of The Acacia Group.

As Paul said, I’m Wendy White; I’m the Co-Managing Partner of the D.C. Office and Head of the D.C. Real Estate Group at Morris, Manning & Martin. I serve as the Head of our Corporate Governance/Nominating Committee.

As many of you know in May of 2013, John McDaniel stepped down as Chairman of the Washington REIT Board of Trustees, after serving his Chairman for three years. His contributions to our Company and leadership in our extremely successful investment in our medical office portfolio have been truly invaluable and I as well as the other trustees would like to personally thank him for his vision and guidance over the years. It is the true honor for Tuck to succeed John in this role and a privilege for Tuck to serve as the Chairman of the Board of this distinguished company.

Lastly, I’ll take one moment to introduce our new Chief Executive Officer, Paul McDermott. Paul came to us from the Rockefeller Group where he served as Senior Vice President and Managing Director and led domestic acquisitions. Paul is a native of the region and has been based in Washington D.C. throughout his 30-year career in real estate. Speaking for the Board, we are exceptionally pleased with the vision, strategy and energy that Paul has brought to the job at Washington REIT. You will be hearing more from Paul in a moment. Also at this meeting are Eric Cline and Heather Rosenberger who are representatives of Ernst & Young who server as the Company’s Independent Auditors.

We have a lot to accomplish this morning, but before we jump into our agenda, I would like to take a few minutes to briefly discuss some of the highlights of the past year. After that Ms. Laura Franklin who is our Executive Vice President and Corporate Secretary and who will act as Secretary for this meeting, will follow with some initial matters and then commence the voting.

2013 was a pivotal year for Washington REIT, a year of significant change and accomplishments. In addition to making many operational and performance improvements, we also had a leadership transition, we established a new strategic direction and we devised a comprehensive plan to reshape our portfolio to better align with the realities of the market in which we operate.

As I just mentioned, in October of 2013 the Board of Trustees appointed Paul McDermott, as President and CEO, succeeding George Skip McKenzie, who announced his intention to retire at the beginning of 2013 after 16 years of service to Washington REIT. The decision to appoint Paul followed an extensive five months search process, spearheaded by an industry leading executive search firm and the Board’s CEO Search Committee, which was chaired by John McDaniel our prior Chairman and comprised of Bill Byrnes, Tuck Nason our current Chairman in May.

Given the depth and scope of Paul’s experiences and his outstanding 30-year track record in the Washington D.C. Real Estate industry, Paul was the Board’s unanimous first choice. A key milestone for this past year was a successful completion of a comprehensive portfolio review that the Board and Management team undertook under Paul’s leadership in the later part of 2013. This included a rigorous bottom to top analysis of all portfolio assets, markets and regional economic conditions and provided us with the necessary insight to develop a long-term strategic plan to move the Company forward.

And I want to now introduce Tuck Nason our Chairman who has managed to get here through second thick and thin traffic.

Charles T. Nason

[Indiscernible].

Wendelin A. White

Well, thank you. I’ll thank you more later. With the sale of our medical office portfolio complete. We’re now focused on three core sectors, office, residential and retail and pursuing the strongest market opportunities for Washington REIT in D.C. and the greater Washington regions. Encouragingly economic indicators in this region show signs of improvement in occupancy and leasing and as we began to execute on our strategic plan. We are committed, focused and confident about the future prospects of Washington REIT as well as the ability of the D.C. market to support our desired growth trajectory in the coming years.

On that note, I will now happily turn the floor over to Ms. Laura Franklin to commence the voting.

Laura M. Franklin

Thank you, Wendy, and good morning everyone.

Before we open the polls, I would like to take a moment to read our non-GAAP financial measure and forward-looking statement language that we read before all of our investor presentation. Our presentation today may contain financial measures such as Core FFO and NOI that are non-GAAP measures and we have provided annual and quarterly reconciliations to those measures in our quarterly supplemental materials available on our website at www.writ.com.

The per share information being discussed is reported on a fully diluted share basis. Please bear in mind that certain statements during today’s presentation and forward-looking statement or forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to certain known and unknown risks and uncertainties and other factors as detailed from time-to-time in our filings with the SEC, including our 2013 Form 10-K.

Turning to voting matters, on or about March 28, 2014, a notice of the annual meeting of shareholders was sent to shareholders of record as of the close of business on March 14, 2014. The notice called this meeting, a copy of the notice and related Annual Report are submitted to this meeting and available for review. As of the close of business on March 14, 2014 the record date for this meeting, there were 66,624,498 common shares outstanding and entitled to vote at today’s meeting.

The presence in persons are by proxy of holders of a majority of all the votes entitled to be cast on any matters, constitute the quorum. The inspector of elections has informed me that holders of at least the majority of the outstanding shares are represented at the meeting either in person or by proxy and therefore a quorum is present. Proposal I is the election of two Class III trustees to the Board of Trustees each to serve until 2017 Annual Meeting of Shareholders.

The two individuals nominated by the Board of Trustees for election as Class III trustees are at Ed Civera and Wendy White. Proposal II, calls for the ratification of the appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for 2014. And Proposal III is to prove by advisory and non-binding votes are Executive Compensation.

Before shareholders vote on these proposals each has described in the proxy statement, we want to take a moment and ask whether there is any specific discussion of these proposals. There will be a general question and answer session later with regard to the company matters.

Hearing on, I now call for the vote on proposals I, two and three each as described in the proxy statement. All persons acting as proxies or shareholders who have not already voted should deliver their return proxies or ballets to the voting table in the lobby. Any shareholder whose proxy has been previously submitted to the corporate secretary and who wishes to revoke such proxy may do so by voting in person during this meeting.

Shareholders who have voted by proxy need not cast ballets in the voting today unless they wish to change the vote on their proxies. If you wish to vote in person or want to change your vote, please raise your hand and you will be given a ballet. Please indicate the number of shares that you own and whether you have previously submitted a proxy to the Company.

The polls are now opened. We will hold the polls open for the next 10 minutes for such earlier time as all voting activities are complete.

Charles T. Nason

[Indiscernible]

Laura M. Franklin

Okay, thanks Tuck.

Paul T. McDermott

Thank you, Tuck. Good morning everyone, and welcome. It’s a pleasure to be here for my first Washington REIT annual meeting. Let me first address, why we moved the annual meeting to this downtown location. We are excited to be moving this meeting to a downtown venue to reinforce our new strategy of positioning our property portfolio into well located urban assets near metro location, we’re in areas with strong demographic.

We are in intently focused on the strategy and firmly believe that having our shareholders experience the vibrancy of the urban core of Washington D.C. would help each of you gain an appreciation for the potential Downtown Washington D.C. has to offer. Additionally, we would like to thank Aran Fox for hosting us today.

One of the things that attracted me to this company was its tremendous potential and I’m excited to have the opportunity to tell you about all of the progress that we have made and the key initiatives that we have implemented over the past several months to move Washington REIT forward and closer to realizing that potential. The Washington D.C. market is one of our greatest strengths. We know the market well and are keenly aware of its changing demographics.

Today, the city is undergoing a transformation driven by a significant demographic shift. Young, educated professionals are flocking the urban centers that offer walkable neighborhoods, 24/7 amenities and strong public transit systems. Our more transit and urban focus reflects this fundamental shift and gives us confidence that our new strategy is the right course for this company.

Our more focused approach targets key sub-markets in the city and close-in suburbs where we have identified growth opportunities, and we will be actively recycling out of assets that do not fit with this strategy. In the office and residential sectors, we are pursuing quality properties in thriving neighborhoods, primarily near Metro stations and closer to the urban core. Our three recent acquisitions exemplify our new approach in the office and residential segments and represent a total cumulative investment of $256.5 million so far this year. The highest annual volume of acquisition since 2011 and a number we expect to grow throughout the remainder of this year.

These acquisitions include first, the February acquisition of Yale West, a 216-unit of Class A apartment building in the heart of the vibrant Mount Vernon Triangle neighborhood. Secondly, the March 2014 off market acquisition of 1627 Eye Street, North West, located at the city’s Commercial Center on Farragut Square.

Home of the Army-Navy Club of Washington D.C. and 108,000 square foot of Class A office. If I may go off script for a second the Army-Navy Club is located right outside the window here that’s why we've requested this conference room so that the shareholders can see one of our most recent investments. Third, the acquisition just two weeks ago 1775 Eye Street, North West of 185,000 square foot building located in the Central Business District.

Each of these properties is served by two metro stations and situated in the city’s urban core. In retail, we expect our footprint to expand into submarkets that demonstrate strong, affluent and growing populations. Our focus will remain on necessity-based retail centers typically anchored by a supermarket or a drug store near major transportation arteries in close-in suburban markets.

Across our three sectors, we will continue to invest opportunistically in assets inside the Capital Beltway in vibrant neighborhoods and business districts that meet our demographic and growth criteria. As part of our overall corporate strategic plan, we are also implementing initiatives to streamline and strengthen the functional areas of Washington REIT.

To that end, in April we announce the Tom Bakke has joined the company as the Chief Operating Officer. Tom could you raise your hand. Tom has over 25 years of experience and an exceptional background in operation with in-depth experience in each of our core business lines. As COO, he is responsible for overseeing each of our portfolios and for all real estate operations including asset management, marketing, leasing, property management and development. We are excited to have someone of Tom caliber join the company and we look forward to benefiting from his leadership and industry insights.

I’m proud of everything that we have achieved in the past several months and impress by all the hard work that Washington REIT team has put to drive change, enhance operations and generate positive momentum. Operationally, the company accomplished a tremendous amount in 2013 by reducing debt and achieving the highest level of commercial leasing volumes since 2007 by signing 1.7 million square feet of new and renewal leases. We anticipate a major portion of this leasing volume to positively impact 2014 occupancy levels.

On the transaction side, the successful execution of the medical office portfolio sale enabled us to realize tremendous gains, simplify the business, strengthen the balance sheet and position the company for more enhanced and stable growth. We are now putting the proceeds from net sale to work and taking the actions necessary to optimize our asset portfolio and return Washington REIT to a path of growth. In a long process I’m confident that we are on the right track and making the right changes to realize the full potential of Washington REIT and build shareholder value.

With that, I would like to open up the floor for questions.

Questions-and-Answer Session

Paul T. McDermott

Yes.

Unidentified Analyst

[Question inaudible].

Paul T. McDermott

In terms of the asset class by segmentation, actually we are hoping all three are very profitable. I think right now, if I look at the portfolio today, I would say our retail probably fundamentally in 2014 has the best outlook today. I think is I believe Wendy alluded to in her remarks, we’re confident that we’re seeing the fundamentals of the Downtown office market return and that is why we are being as aggressive as we can be. I think we are from long-term committed to the multifamily portfolio.

So with that said we’re cognizant and trying to be very strategic in our new acquisitions of multifamily property, simply because of we are combating a pipeline of new supply that this town has never seen before. I believe roughly almost 40,000 units are going to deliver in the next three years. So, while we long-term are committed to multifamily, I think I would probably rank them in terms of profitability retail office and multifamily right now.

Unidentified Analyst

Thank you.

Paul T. McDermott

Thank you, Dale. Yes.

Unidentified Analyst

Shelley Tomkin a long-term shareholder. Do you have projections with this terrific new strategy, when you foresee that is might connect with the price of the stock value of listing?

Paul T. McDermott

Sure, well first of our number one goal is to drive earnings. And, I think if you step back and look at the last two to three years of this organization, the company has roughly sold off a third of this portfolio, critical to returning earnings back to where they were is the reinvestment of the proceeds from those sale. The industrial component has been fully deployed; we are in the process of restoring the $30 million plus of operating income that we lost from the sale of a medical portfolio. I think once all of those proceeds are fully invested and with – in combination with our new acquisition, you should be some of our earnings momentum moving forward.

Unidentified Analyst

I just wanted to ask to you maybe about a specific property the one at the corner Jennifer Street in Wisconsin Avenue, I noticed there is a good amount of retail vacant space there, in my personal view the building looks kind of tired, I didn’t know if you had any idea. Since we are TJ Maxx and I think a hair saloon was on the first floor, there is [Lewis Mongers and Kosey] (ph) there, but I didn’t know what they might be future look ahead for what might happen there?

Paul T. McDermott

Sure. So two answers to that question. One would be a short-term view and one would be a long-term view. On a short-term basis, we are in process of negotiating a lease with a new tenant for all of that space. Okay, so we hope to have that concluded in the next 30-days to 60-days, I think is appropriate. On a long-term basis or so our goal is to maximize shareholder value and maximizing shareholder at that asset might be a complete redevelopment of that site with some of our neighbors.

So, we look, our goal was to create value here and we’re looking to our neighbors, we’re in discussions with our neighbors right now to try to get more of a long-term view. I think we need – I believe there is utility vault also located within certain proximity that we need to have some discussions with, but again, I can assure you that we will do what's in the best interest of the shareholders on a long-term basis on that site. Dale.

Unidentified Analyst

[Question Inaudible] they used to have a quite a large attendance in the past, Brad Slater told me few minutes ago that’s declined each year a little bit, but I just wondered it’s really come down from what it used to be and I wonder if there is anything we could do possibly in the time of the meeting or something to encourage greater shareholder attendance?

Paul T. McDermott

Well. Lets look back on the evolution of our shareholders and this is one of the oldest REITs in United States, 53 years. I think primarily at its inception this was very a retail shareholder base. I don’t have the specific demographics, but I think if you looked at our shareholder base now, it’s gravitated to much more of an institutional shareholder base. And so we've had less retail shareholders show up such as yourself. I think what we wanted to do today was kind of infuse some energy and bring it Downtown, because this urban core is the future of this organization.

Definitely open to times, places, venues, but if we are doing our job right Dale, a portion of our operations might even be here next year, because we feel that this is where we need to be to compete to create value for our shareholders. I’m encouraging all investors, both retail and institutional to attend these meetings and to be fully up to speed with the company’s strategies and directionally where we are going. So.

Unidentified Analyst

What did you mean by a portion of our operations?

Paul T. McDermott

Well, I think we are going to – we’re evaluating right now what is the best venue for us in terms of where we locate all or a portion of our employees for our operation yes. And I’m a firm believer that if you want to compete on the field of battle you need to be in the middle of the field and this where we are is in the middle of the field.

Charles T. Nason

Any other questions?

Unidentified Company Representative

Actually I can resist making a few comments with reference to where we have been and where we are going. 2013 as once we mentioned was a year of many milestones. The most important of which was I believe the extensive executive search we conducted for a new CEO we interviewed many impressive candidates and it was the unanimous choice of our Board to appoint Paul as our new CEO and over the last seven, eight months viewing his vision, his strategically leadership, his critical thinking, decision making and his energy. Everything is evidenced, is validated and justified our appointment of him as CEO.

Also we had some other milestones obviously that Wendy mentioned that’s upper most of my mind. Again, shrinking down the variety of sectors we were involved in, we had sold the industrial portfolio two years ago, and last year we engaged and sold the medical office portfolio, just finalized that now and as Paul mentioned we’re now into three what we called verticals the multi-family office and retail which fit very well together and allow us to focus better moving forward.

With that sale and Paul’s comments, 2014 we’re off to some really strong momentum with the acquisitions as Paul mentioned, we had more acquisitions in the last few months than we’ve experienced in the last year or two. So the positive momentum is definitely moving forward. So as I looked at 2014, I believe we will continue that momentum and we will began to re-grow our funds from operations, our funds available for distribution in our earnings and ultimately with that an increase in the dividend. And your board is committed to seeing more of a benefit to our shareholders both from both dividend and total stock price; hopefully we will see competitive returns going forward into the future.

Last point I would like to make is to express my appreciation for the shareholders that are here, I become a shareholder back in the late 1970s, believe it or not when I was in Pittsburgh. So Washington REIT is a very quality organization and company, and we are committed to you the shareholder even though we have 70% plus institutional, we also are very appreciative of the individual stockholders like yourselves that are here today.

And our commitment to you is to as a full Board as well as the management team, is to increase our competitive return both in dividend and stock shareholder price in the long-term. And I believe candidly, our strategic plan we have developed under Paul’s leadership is creating a focus and energy that will make a huge difference going forward for our shareholders.

With that said, I would like to turn it back over to Laura, who will summarize our voting results.

Laura M. Franklin

Okay, we’ve completed the voting of today's meeting and all proxy is properly received will be voted in accordance with their instructions. I have been informed by the inspector of elections as follows: As to Proposal I, each of the nominees for election as a Class III trustee has received the affirmative vote of the holders of more than a majority of the outstanding common shares. Therefore each nominee has been duly elected to serve as a Class III trustee until the 2017 annual meeting of shareholders.

Proposal II, ratification of appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014. House received a favorable vote of the holders of more than a majority of the outstanding common shares. This proposal therefore has been approved.

And, Proposal III, the advisory and non-binding vote on our Executing Compensation has been – has received the favorable vote of the holders of more than a majority of the outstanding common shares. Therefore this proposal has been approved.

I think that concludes our meeting. So, I want to thank everybody for coming to today’s Annual Shareholder Meeting. There are being no further business to be addressed at this meeting. The meeting is hereby adjourned. Thank you for attending.

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