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Executives

Kelly Shiflett – Director, Finance

Skip McKenzie – President and Chief Executive Officer

Bill Camp – Executive Vice President and CFO

Laura Franklin – EVP and Chief Accounting and Administrative Officer

Mike Paukstitus – Senior Vice President, Real Estate

Analysts

John Guinee – Stifel Nicolaus

Michael Knott – Green State Advisors

Dave Rodgers – RBC Capital Markets

Mitch Germain – JMP Securities

Dave AuBuchon – Robert W. Baird

Michael Knott – Green Street Advisors

Bill Crow – Raymond James

Washington Real Estate Investment Trust (WRE) Q1 2012 Results Earnings Call April 27, 2012 11:00 AM ET

Operator

Welcome to the Washington Real Estate Investment Trust First Quarter 2012 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 first 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 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 eight through 15 of our Form 10-K for our complete risk factor disclosures.

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, Real Estate.

Now, I’d 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 first quarter earnings conference call. Office leasing conditions throughout the Washington region in the first quarter were soft, as continued uncertainty over the federal budget affected decision-making in all submarkets.

Irrespective of whose first quarter market stats you follow, all show negative absorption for our region as some government users moved to BRAC facilities, while others downsized and private businesses delayed decision making.

Despite this downdraft, we are seeing very good activity in our downtown vacancies, particularly and we expect gains and occupancy in our D.C. office buildings in the quarters ahead. We recently executed a 22,000-square-feet lease to fill a former vacancy at 2000 M Street and I’m confident we will materially add to this progress over the next quarter.

As we have disclosed in prior quarters, Oracle, formerly known as Sun Microsystems, vacated 65,000 square feet at 7900 Westpark, which had a material impact on sequential quarter vacancy numbers in the office sector.

Our other three sectors are performing well and should continue to perform well, as the year progresses. In multifamily, our occupancies remain high, and we expect to drive rental rate growth throughout the balance of the year.

In retail, we have excellent leasing activity in both small and medium box spaces and expect occupancy to grow slowly over the course of the year, as well as rental rate growth upon rollover.

In the medical office sector, conditions are stable but users continue to view the future healthcare reform with caution, so stopping up vacancy in this sector is somewhat slow.

As we mentioned last quarter, this year we plan to continue our asset recycling program, focusing on selling non-core, primarily suburban office buildings that no longer fit into a long-term vision, and reinvesting those proceeds to help fund future acquisitions. This plan applies to a small subset of our portfolio, representing less than 10% of NOI.

Currently -- we currently have Plumtree, small medical office building in Bel Air, Maryland on the market for sale and we are evaluating other potential disposition candidates in the office sector.

We are working hard to source acquisition and development deals that fit our strategy of owning high-quality office multifamily retail medical office properties and excellent locations inside the Beltway or near major transportation nodes, and in areas with high employment drivers.

The first two months of 2012 were slow by historical standards, but we have seen a significant uptick in offerings beginning in March. We are working diligently on several potential acquisitions, but nothing’s firm at this time.

Our two apartment joint venture projects are progressing on schedule and we still anticipate breaking ground by the beginning of 2013 for both developments which will total 433 units upon completion.

Now I’d like to turn the call over to Bill Camp, who will discuss our financial results, guidance and capital market activities, and then to Mike Paukstitus, who will discuss our real estate operations.

Bill Camp

Thanks Skip. Good morning, everyone. Last night we reported first quarter core FFO of $0.47 per share, in line with where we were in the fourth quarter despite losing occupancy in our office portfolio. NOI was flat in the fourth quarter to first quarter, with occupancy losses in office offset by expense savings in retail.

Core FAD was $0.37, the same as fourth quarter and consistent with our comments last quarter indicating higher levels of TIs and leasing commissions going forward as leasing markets remain competitive.

A significant driver of this number was a payment of a $1.5 million or $0.02 a share to World Bank for work associate with a 2009 lease. Generally, the quarter came in as we expected when we issued our guidance.

As Skip mentioned, the real estate market’s conditions remain challenging, particularly in the office sector. With that said, our portfolio continues to remain fairly steady with overall occupancy hovering at 90%.

Comparing this to the first quarter last year, we achieved positive same-store growth in three of four property types, led by multifamily generating 5.2%, retail positive 4.1% and medical office at a positive 1.5%, office was the offsetting force coming in at negative 6.4%.

Compared to the fourth quarter, overall same-store NOI was essentially unchanged. Retail was up 5.4% and multifamily was up 0.4% in the quarter that was -- that as usually seasonally slow, office and medical office were off 2.4% and 1.2%, respectively.

In terms of the balance sheet, we ended the quarter with a line balance of $109 million, compared to $99 million at year end. We have an upcoming debt maturity of $50 million 5.05% unsecured bonds that we plan to pay on May 1st, using capacity on our line, putting our line balance nearly at $160 million.

We will likely wait to (inaudible) refinance this debt until later this year unless the acquisition activity picks up. We are in the process of renegotiating our $400 million line of credit with our bank group to capture a longer term, a lower spread and more flexible legal language.

We expect these negotiations to be complete in the next couple weeks. From there we will move to refinance our smaller $75 million line of credit with SunTrust which matures in June.

We are confident that we have ample flexibility on our balance sheet to take advantage of acquisition opportunities as they arrive.

Now, I will turn the call over to Mike to discuss operations.

Mike Paukstitus

Thanks, Bill, and good morning, everyone. Our first quarter operating results were a function of the continued lack of office leasing velocity that our market is experienced since the second half of last year.

Office leasing slowed dramatically in the third and fourth quarter continuing into this year. Medical office continued on a path of indecision by tenants as the healthcare bill headed to Supreme Court. Retail is improving steadily. Lastly, multifamily continues to be our strongest sector but growth has seasonally slowed.

Overall, portfolio occupancy hovered near 90% as leasing velocity in first quarter was below year ago levels with commercial leasing activity totaling 218,000 square feet. This level is slightly lower than normal for the first quarter and consistent with our earlier statements that the real estate market decision-making in our region has been put on the back burner for business owners and government tenants in all submarkets.

In our multifamily portfolio, occupancy improved by 30 basis points throughout the first quarter while average rent growth on renewals was 5.8% and rent growth over expiring rents on new leases was 3.3%, excluding our D.C. apartment assets where we have rent control units.

Overall, rental revenue grew 0.1% compared to last quarter. Our strong occupancy position for the first quarter affords us the ability to start increase rents more aggressively with higher demand time period -- through the high demand period of the spring and summer.

We mentioned last quarter that we have started a unit renovation program at four of our 11 properties. I’m happy to report that so far we’ve upgraded 35 units for an average return of cost of over 18%. We would have renovated more but our retention this quarter was higher than expected.

We’re going to continue with these renovations and hope to complete 200 units by the end of the year. Keep in mind that our overall returns are strong for these renovations, our revenue growth slows due to the additional downtime necessary to turn these units around.

The office sector has expected loss occupancy in the first quarter primarily due to the move outs of Oracle, 65,000 square feet, people to the American Way 2000 M Street which is 27,000 square feet and West at 13,000 square feet at our headquarter’s building in Rockville.

However, particularly in our downtown portfolio, we are seeing increased leasing activity over the past month or so. Many of the downtown vacancy are buildings where we have made significant capital improvements to the bathrooms, common areas, lobbies and amenities.

Since these renovations began there have been higher volumes with respect to tenants touring and negotiating leases. We signed a new 22,000 square foot tenant at 2000 M Street in the first quarter and are hopeful that some of our current negotiations will result in signed leases this quarter.

In our retail portfolio occupancy remained strong and we have very good activity on most of our large vacancies. We signed a lease with five below at Frederick Crossing center in April which will back our several smaller in-line vacancies there. We also had strong activity in our Gateway Overlook Center in Columbia, Maryland. Generally we are seeing increased interest from national BRAC users.

This quarter we had 480,000 square foot write-off for our hardware tenant near Concorde center. But for the most part we feel the credit conditions improved are getting back to historical standards for bad debt. Overall, we feel very positive about this retail sector as we move forward into 2012.

Finally, our medical office sector, our occupancy was 10 basis points better than the fourth quarter but NOI was slightly negative due to higher operating expense, primarily real estate taxes.

Over the past five or so years, we’ve been extremely successful in pushing rents and keeping occupancy high at nearly all of our medical buildings. The result of this activity is that some of our expiring in place rents are above market.

In certain instances, other continuing buildings have lower rental rates and our buildings which have put some pressure on our ability, continue to illustrate the positive NOI growth in this sector.

In summary, our diversified strategy of owning and operating the properties, and four different sectors continues to reduce operational volatility, experienced by single property type owners. We feel fortunate to have a portfolio that is generally maintained occupancy here 90% throughout this downturn.

Now I’ll turn the call back over to Skip.

Skip McKenzie

Thanks Mike. One final point before I open the call for your questions. Asset valuations in our region continued to be very strong in all four sectors that we own as investors continue to focus on Washington’s long-term vibrancy and outlook.

With the strategic portfolio re-bounce that we have aggressively achieved over the past several years, we believe there is a significant unappreciated value in our NAV. Some investors view this as an opportunity to buy Washington D.C. real estate at discounted prices.

Operator, please open up the call for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Thank you. Our first question is from John Guinee with Stifel Nicolaus. Please proceed with your question.

John Guinee – Stifel Nicolaus

Hi guys. How are you?

Skip McKenzie

Good.

Mike Paukstitus

Good morning.

Bill Camp

Good morning, John.

John Guinee – Stifel Nicolaus

Good. Just a quick first a clarification, when you say you are selling 10% of the NOI from office...

Skip McKenzie

Less than...

John Guinee – Stifel Nicolaus

From what?

Skip McKenzie

Less than 10%.

John Guinee – Stifel Nicolaus

Less than 10%, that basically is roughly 50% of NOI, am I getting this right, it’s less than 5% of the total portfolio?

Bill Camp

Yeah. The 10% is less of the overall portfolio.

Skip McKenzie

Right. So it’s more of -- it’s more than that on -- just looking at the office.

Bill Camp

John, I’ll tell you another way to look at it. Just to give you, put a big brackets around it. All the buildings we’re looking at selling potentially over time, our Maryland suburban office buildings. And you see in the supplement, our total NOI for Maryland is 11%. So we’re not selling the whole Maryland portfolio. In fact, the two biggest assets, one Central Plaza and 51 Monroe Street are in our view long-term keepers. So with some subset of that 11% that will be sold over the next several years.

John Guinee – Stifel Nicolaus

In your building? Your headquarter building?

Bill Camp

Potentially.

John Guinee – Stifel Nicolaus

Okay. I hope you can find some other space.

Bill Camp

I’m sure there’s something out there. But that is not on the market at this time just to be perfectly clear about it.

Skip McKenzie

Yeah. We only have one building on the market right now John.

John Guinee – Stifel Nicolaus

Okay. Got you.

Bill Camp

Just got one small medical building.

John Guinee – Stifel Nicolaus

Okay. The question is obviously on everybody’s mind and you already know it. So I’ll ask it any how just to be clear. Is your -- you’re going to turn out, at the end of the year FFO is going to be up $1.90, $1.91 or $1.92 probably. You can always reduce that by acquiring a couple assets against borrowings short that can be very accretive. So you can get yourself up to $1.95 by doing that.

But at the end of the day, you are still sitting at $1.72, $1.73 dividend and the way the math works you’ve really got to get your FFO up to 2.20 or 2.30 in order to be comfortably covering the dividend and maybe in a position to raise it. How should we all look at those numbers?

Bill Camp

I’m not sure, I’d necessarily agree with the 2.20, but clearly -- we certainly agree that we’re not covering our dividend obviously. And our long-term goal is obviously to cover our dividend with that., And certainly I can’t make any broad statements, it’s the board’s prerogative to tell you what the dividend policy is going to be in a long-term basis.

That’s obviously of great interest and concern to us in something that we’re watching very closely. And it’s a 50-year track record, which is very important to the company’s franchise.

But, obviously, if conditions don’t improve on the market, we don’t make progress on bringing our occupancy back to normal levels, all options will be on the table for the board at that point in time, but we sort of view this as being bouncing along the bottom right now.

We’re way below with our sort of we would call normal occupancy. And we think you need to give it a fair shot to see if we can get back on track and whether the budgetary process that seems to be putting such a sluggish bent on the market, if that will improve later in the year. So, I know I sort of gave you a wishy-washy answer but the fact of the matter is, we are underperforming vis-à-vis what we believe is a normal occupancy level for the portfolio.

And if we can get this back on track, I think that we will be much closer to a coverage levels that everybody would be more comfortable with. But again, without knowing what the future is exactly and if things continue to deteriorate in the market, I’m sure the board will consider all options on the table at that time.

John Guinee – Stifel Nicolaus

If you consider, let’s say there is 7% occupancy gains potentially in both the medical office portfolio and the office portfolio. Does that translate to $0.02 per share in FFO or $0.20 per share in FFO?

Bill Camp

Well, the easiest way I can explain it John is not to look at it individually by sector but just look at it overall portfolio. The overall portfolio is basically 100 basis points. Every hundred basis points is $0.03 or roughly $0.03 annually. So, if you are arguing that you need $0.15 to cover whatever the number is, you need 500 basis points total.

John Guinee – Stifel Nicolaus

Perfect. Okay. Thank you.

Bill Camp

And then of course, that’s just with the existing portfolio. To the (inaudible), we could grow rents or add accretive acquisitions that would be additive but I think that math that Bill gave is just operating off the portfolio that we have.

John Guinee – Stifel Nicolaus

Okay. Thank you.

Operator

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

Michael Knott – Green State Advisors

Hey guys. I know John is worried about you having office space if you were to sell your building, but I just want you to know that if I was your landlord, I would be more than happy to let you stay and charge you very higher rent.

Skip McKenzie

Thanks for that vote of confidence. Maybe we should secure a lease now. Rents are low. Honestly, I think Green Street needs to establish a Rockville office. We have been talking to you.

Michael Knott – Green State Advisors

I’ll follow up with you offline. Hey Bill, any reasons to revisit your acquisition, disposition assumption for the year? Starting off slow but maybe you’re okay with that?

Bill Camp

If I had to make any -- right now I don’t think I am going to make any adjustment but I will tell you the tough one is going to be the $80 million in dispositions.

Michael Knott – Green State Advisors

Why is that?

Bill Camp

Because some of the assets that we are trying to sell need some leasing conditions before we think we can get good value out of them. So we’re playing around with the prospects of leasing some space up before we can put them on the market. So just timing -- it’s kind of timing.

Michael Knott – Green State Advisors

And then, did I hear you say you are looking at selling one of your (inaudible)?

Bill Camp

Yeah. Here is a very small (inaudible) up in Beltway in Maryland. It’s a 33,000 square foot building just to give you an order of magnitude. The way it’s out of our kill zone. It’s the only property we own up there It’s fully leased, we could sell it for a great price. And there’s really no upside in it. So we will let someone else have the ups, whatever they view as the upside. It’s just not material to us now.

Michael Knott – Green State Advisors

Okay. Fair enough. And then Skip, from a capital allocation standpoint, can you convince me the merits of these two developments you guys are financial partners on?

Bill Camp

In terms of -- well, there are apartment buildings in phenomenal locations that have -- that we’re buying significantly below what assets of that quality are selling for. They were building for significant less for what they are selling for. And areas basically on top of the strongest market near metro. So we think that there are long-term phenomenal assets.

Skip McKenzie

From a mathematical perspective Michael, are you looking for where development yields are? I’m not quite sure exactly what you are doing with it?

Michael Knott – Green State Advisors

Yeah. Just curious on a risk adjusted basis, you guys aren’t really developers per se and your financial partner here supply growth seems like, from my limited understanding of apartments is increasing there. Just wanted you to make the case for those because I think I and others are skeptical of those deals?

Skip McKenzie

Yeah. We are developing around a 7% return plus or minus depending where we actually come out. And property to that quality are selling it some 5% cap rates even today.

So we are not -- and we can’t buy apartments right now. If we want to continue to grow that’s said part of our portfolio, we have to selectively look at these types of opportunities or we just need to get out of the apartment business. Because we don’t find it particularly accretive to go out and buy apartments of forecast.

Michael Knott – Green State Advisors

So do you feel like your existing portfolio, you need to either grow it or get out and so that’s part of the decision-making with those two deals?

Skip McKenzie

I don’t know if I’d make it still black and white, but clearly, we do want to grow that part of the portfolio. It has been a great performer for us. It’s over a long period of time. We’ve created a lot of value in the assets that we have. And we believe that the future is bright. The demographics in Washington for apartments are phenomenal. And we think that that’s the exact type of income stream that you can regularly grow and if it’s well with our overall strategy.

Michael Knott – Green State Advisors

Okay. Thank you.

Operator

Our next question comes from the line of Dave Rodgers with RBC Capital Markets. Please proceed with your question.

Dave Rodgers – RBC Capital Markets

Good morning guys. I apologize in advance. I missed some of your earlier comments. But with respect to the sale of the Maryland suburban office, that probably, even the most dilutive sale, I guess trade and investing in other assets as you’ve been doing over the last couple of years if you continue that way. Again, the most dilutive trade you could probably make.

So, I guess what would be the hurdles for you to kind of achieve more of that, to get more aggressive on that is it leasing so that you can cover the dividend, is it investment opportunities and how dilutive would that be with you guys overtime to make that trade?

Bill Camp

Yeah. I mean obviously Dave we are not doing this tomorrow. We are doing this over a period of time. We didn’t say that we are going to unload the whole thing next week. So it’s a deliberative process. Each individual asset will be analyzed individually. Some of them may or may not be dilutive.

I mean if you have a viewpoint that a particular asset may not be growing over a period of time and you could buy something that will be growing long-term, it would be accretive. But it all depends on the asset. Some assets, we think we can lease to a higher occupancy and get a reasonable cap rate. There is a particular transaction that is selling in the market now for seven caps.

I think if you could sell leased properties at that, I don’t think that dilution would be significant given that we’d be investing in an asset that would be growing at a better rate. And some assets you may even want to sell with some vacancy under the thought that someone may pay up for it at a higher or at a lower cap rate because they think they can lease it up when in fact we may have a different viewpoint.

So, we don’t think that it’s going to be a significant amount of dilution especially given just the level of asset sales. And we’re going to bring it out over a period of time. But with the reason, we would be selling these assets is because we don’t necessarily think that the growth aspects of those properties are as good as other assets that we can reinvest in long-term.

Dave Rodgers – RBC Capital Markets

At this point, it sounds like from a hurdle perspective, how much of those asset sales would be driven by execution on WRIT’s part versus just overall market conditions supporting those transactions?

Skip McKenzie

I mean, I think the timing of it is dependent to some degree on our execution ability. I think that’s what Bill was alluding to when he answered the prior questions as we might be challenged to hit the $80 million hurdle mark on sales this year. Because we don’t feel comfortable that we can get these properties to where they need to be in terms of leasing that we might not achieve to $80 million.

Dave Rodgers – RBC Capital Markets

Okay.

Skip McKenzie

So I mean, I think -- I think it’s a valid question that our ability to execute on leasing some other things is dependent on how much we’ll actually sell about this year. But I think the point that we want to emphasize that its not -- it’s less than 10% of our overall portfolio in terms of NOI.

Bill Camp

And it’s probably a three or more year’s strategy to get rid of them.

Dave Rodgers – RBC Capital Markets

And how dependent is it upon your ability to find other investments and returns that would be like you said not dilutive on a longer term basis?

Skip McKenzie

Well, we want to redeploy the cash. So I mean, obviously, we don’t want to just sell all these assets without having something to buy. But I don’t think there has to be a perfect match. If we sell it to a seven cap, we have to buy a seven cap that, that’s where your question is going.

Bill Camp

Keep in mind...

Dave Rodgers – RBC Capital Markets

Yeah.

Skip McKenzie

Hey, Dave. Keep in mind we sold the industrial at 7.1% cap rate and we invested that on average at about a 6.5. So can we do the same thing with this stuff, maybe? But again, even if you are thinking...

Dave Rodgers – RBC Capital Markets

Right. That makes sense.

Skip McKenzie

Yeah. And we’re talking about less than 10% of the portfolio divided by three or four years is just not a lot each year. It’s relatively small amount of money.

Dave Rodgers – RBC Capital Markets

Okay. Yeah. Thank you.

Operator

(Operator Instructions) Our next question comes from the line of Mitch Germain with JMP Securities. Please proceed with your question.

Mitch Germain – JMP Securities

Hi. Good morning everyone. Mike, you mentioned some activity in downtown your office properties. Can you characterize what type of users are active right now on the market?

Mike Paukstitus

I’d say a combination. I mean for the most part, I’d say that we’re looking at tenants sort of 5,000 to 20,000 foot range for most of the tenants we’re looking at. It’s their mixture of trade associations consulting companies, some -- but primarily consulting and government contracting orientations.

Mitch Germain – JMP Securities

So the contractors are still out there?

Mike Paukstitus

Oh, yes. Well, keep in mind that a lot of the activity that we are seeing is still shell game downtown. I mean it’s not like people are coming out of the woodwork to lease more space. This is like finding stuff from other buildings.

Skip McKenzie

Even downtown had negative absorption last quarter.

Mitch Germain – JMP Securities

And is that – is this I guess -- slowing activity is that pressuring concession packages?

Skip McKenzie

Yes.

Mitch Germain – JMP Securities

Can you quantify that sort of the changes that we’ve seen over the last couple months?

Skip McKenzie

I don’t know, if I could put exact number but you could just look at the numbers we report and you can see our TIs and...

Bill Camp

Yes. I mean I think TI is fully rent is something new on the forefront. The good news is we are getting longer terms with those leases as well though.

Mitch Germain – JMP Securities

So expect those trends to persist and the mix?

Bill Camp

I would say for the balance of this year.

Mitch Germain – JMP Securities

And then how would you characterize the activity on the property the [MOB] sale?

Skip McKenzie

Yes. It just really hit the market. We are very confident, it’s a nice size for a small buyer. It will sell very easily. There’s just not a lot of money there.

Bill Camp

It’s close proximity to a hospital up there, it will...

Skip McKenzie

It’s a relatively insignificant. It’s only 33,000 square foot building.

Mitch Germain – JMP Securities

Got you. Got you.

Skip McKenzie

It’s not going to move the needle for anybody.

Mitch Germain – JMP Securities

And then just last question on disposition again. Our underwriters are you getting penalized for vacancy? Obviously that was the market back in the probably 12 months ago where people were underwriting vacancy or rollover as a positive? Is that switched or is it asset dependent at this point?

Skip McKenzie

I think its asset dependent, but I completely agree with your premise that you certainly aren’t being compensated by vacancy as you were in the past. But it is dependent on submarket in terms of the magnitude of that penalty, but yet no question about it. Vacancy is not a good thing for buyers right now in most submarkets.

Mitch Germain – JMP Securities

Thank you.

Operator

Thank you. Our next question comes from the line of Dave AuBuchon with Robert W. Baird. Please proceed with your question.

Dave AuBuchon – Robert W. Baird

Yeah. Thanks. Curious of the shortfall in the dividend shapes your investment strategy over the near-term just in terms of less capital intensive property types or looking at the stabilized assets versus opportunities?

Skip McKenzie

No. I mean I think certainly, we’d love to have buildings of higher cap rate returns. But I don’t think it really appreciably changes the way we look at properties and whether we want to buy properties that have some upside that we think we could lease.

Dave AuBuchon – Robert W. Baird

Yeah.

Bill Camp

I think Dave. I think the -- when you look at kind of the average cap rates that we’ve been buying assets at, and then whatever your estimate is for kind of cost of capital, those trades are pretty much flat initially coming out of the gate. They’re not really accretive, they’re not really dilutive. So they’re not really impacting the dividend coverage scenario positively or negatively coming out of the gate. Hopefully, over time they grow.

Skip McKenzie

We certainly don’t want to buy things that are going to worsen the equation. But I don’t think, it’s a -- what I would say is material impact vis-à-vis what’s available out there.

Bill Camp

Right.

Dave AuBuchon – Robert W. Baird

Okay. And as KP mentioned that, I think in your opening remarks about investors potentially looking at buying into DC at a discount versus what they could in the past. I mean, do you think that you’re going to be successful at buying assets that you didn’t think you would necessarily buy in the past?

Skip McKenzie

Yeah. I think you misinterpreted what I was saying. I was merely leading to the fact that you can buy our stock price and by DC assets at a discount. I was suggesting that our stock price is material below our NAV. So you could buy our stock as an investor and buy into DC real estate at a discount.

Dave AuBuchon – Robert W. Baird

Got it. Okay. One more...

Skip McKenzie

My point is that that assets -- good assets in DC are still trading aggressively.

Dave AuBuchon – Robert W. Baird

Good. Just one more question Bill, have you given any guidelines relative to what your potential deal metrics would be on your new line of credit?

Bill Camp

I haven’t, yet. I mean we’re in the final stages and I hate to jinx anything, but generally speaking you can assume spreads and fees basically come down 20-ish or so basis points. I think for kind of BBB Plus type credits the going rate for the last couple months has been plus 125 all end. So I think it will be somewhere around that neighborhood.

And then, the deal that we struck, so we basically the deal that we’re talking about, the deal we struck last year and we’re modifying it already this year. Basically, we’re taking it out an extra year or so we’re going from a three plus one deal to a four plus one deal. So we’ve got more coverage.

We’re going basically out, if I take the extension option I’d be ought to 2017 with that bigger line. So that’s the nuts and bolts. The legal language that I talked about in the opening remarks is really a discussion on whether or not we can remove some of that subsidiary currency language and that’s really the nuts and bolts of it.

Dave AuBuchon – Robert W. Baird

Got it. Thank you.

Operator

Our next question is a follow-up question from Michael Knott with Green Street Advisors. Please proceed with your question.

Michael Knott – Green Street Advisors

Hey, Bill. what you think you can price an unsecured asset?

Bill Camp

What’s the term?

Michael Knott – Green Street Advisors

Let you choose.

Bill Camp

10 year is probably 4.5 plus or minus, I would say probably more plus and minus because the spreads are widening this week but 4.5-ish, seven years probably 380, 385 somewhere in there. The interesting thing is term loan market Michael a seven-year term loan is probably in the low 3s like 315 or 320. So there is still a significant spread when you want to go shorter on the curve you go to the bank market probably before you go down the secured market.

Michael Knott – Green Street Advisors

You’d rather have a lower rate a shorter term?

Bill Camp

Well, if I was going for a shorter term, if I was going five or seven years I probably would entertain the bank market. I’m not saying that I would go that way because I like the long-term rates quite honestly.

Michael Knott – Green Street Advisors

Okay.

Bill Camp

I can give than somebody to give me 30 year paper or even if the preferred come down even more I just need some of our storage guys to maybe get down to the 5% range and then ours would be down materially lower and we do some prefers.

Michael Knott – Green Street Advisors

Can you issue preferred now?

Bill Camp

Yeah. We got its passed last year, so we can trigger off some preferred if we want to.

Michael Knott – Green Street Advisors

Okay. And then Skip, since you’re pounding the table on the discount, are you considering a share buyback program? Instead of buying and additional real estate at Main Street prices?

Skip McKenzie

Not at this time at.

Michael Knott – Green Street Advisors

Why not?

Skip McKenzie

I don’t think we’ve ever been big advocates of levering up the balance sheet -- so real estate in this business is a business where you’re constantly raising capital. And I think going backwards like that is very difficult, and I think the track record that people who have done that it’s demonstrated that their timing is generally not good in the long-term. So given all of the financial commitments we have at this time, it’s really not something that we’re considering.

Michael Knott – Green Street Advisors

One last question, you mentioned vacancy rates being reducing in your DC portfolio, I don’t think you disclose that level of detail. What is it now and where do you expect it to rise to?

Skip McKenzie

I don’t have that number. You mean just the overall vacancy in our DC?

Michael Knott – Green Street Advisors

Yeah. In your portfolio, I thought you alluded to the fact that I think even though the market is slow and absorption is negative. I thought I heard that.

Skip McKenzie

Yeah. Well, we think we’re going to just gain. We’ve got some lease activity going on right now, Michael, so it’s kind of a generic statement. We typically don’t break out occupancy by submarket. But you can certainly pull up the K and figure out mathematically what that number is. I don’t have it handy right now.

Michael Knott – Green Street Advisors

Fair enough. Thanks.

Operator

Mr. McKenzie, we have reached the end of the question-and-answer session. I would now like to turn the floor back over to you for closing comments.

Skip McKenzie

Okay. Operator, is there anyone else in the queue?

Operator

Yes. We do have a question from the line of Bill Crow with Raymond James. Please proceed with your question.

Skip McKenzie

Thank you.

Bill Crow – Raymond James

Good morning, guys.

Skip McKenzie

Good morning, Bill.

Bill Crow – Raymond James

Two questions. The 7% yield on the multifamily development is that -- today’s market rents or how much rental rate growth do you need to achieve back?

Skip McKenzie

That’s with 3% bumps in today’s rents.

Bill Crow – Raymond James

Okay.

Skip McKenzie

Is a little bit less of use it on today’s and the success.

Bill Crow – Raymond James

Okay. And then, do you think and obviously an opinion question. Do you think if it weren’t for the long-term track record with the dividend that the board would have already cut the dividend?

Skip McKenzie

No. I can’t speculate on that. Obviously, it’s a completely hypothetical question and I can’t put myself into everybody’s mindset, how they would approach it clearly the entire. I think it’s 50% of the REITs cut dividend or on the financial crisis and we didn’t certainly one of the reasons it wasn’t even considered at that time were significantly considered is because of the track record. But I can’t -- hypothecate what the collective board would have done had a certain condition not occurred. So I sort of -- will take the fifth amendment on that one.

Bill Crow – Raymond James

Okay. Very good. Thanks, guys.

Skip McKenzie

Okay. I think that end operator?

Operator

Yes. We have reached the end of the question-and-answer session.

Skip McKenzie

Okay. Well, thank you everybody for your interest in WRIT and look forward to catching back up with you at the July call. Thank you. Have a great weekend everyone.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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