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Washington Real Estate Investment Trust (NYSE:WRE)

2012 Annual Shareholders Meeting Conference Call

May 24, 2012 11:00 am ET

Executives

John P. McDaniel – Chairman

David Osnos – Director

Laura M. Franklin – Executive Vice President, Accounting and Administration, and Corporate Secretary

George F. McKenzie – President and Chief Executive Officer

Thomas C. Morey – Senior Vice President and General Counsel

John P. McDaniel

Well, I’d like to welcome you to this Annual Meeting. I will call it to order of the Washington Real Estate Investment Trust. I’m Chairman of the Board, John McDaniel, and I'm delighted to have each and every one of you here today. It looks like a great turnout, and that’s what we were hoping for.

This is our 2012 Annual Shareholders Meeting. And over the last year, since we last met in this room as shareholders, as investors; the company has moved forward with its strategic plan, which has been executed, I think fairly well by the executive team.

We’ve had an exceptionally active year, if you have read the Annual Report, and looked into the details associated with that, it’s been an active year, and a successful year as well. The sale of our industrial division, we’ve had several key acquisitions in the office, in the retail sector, Skip, will go into that in greater depth. And I think a very promising commencement of two multifamily development projects. And so, we’re excited to share those developments with you, and we look forward to a successful 2012 remainder.

We’ve undertook as the Board’s request a significant portfolio realignment, that was designed to improve the quality of our assets, and the quality of our earnings over the longer period of time. Management team will at the end welcome the opportunity to demonstrate what has been accomplished overall; I’ll explain to you that at this point, and just move forward with the rest of the meeting to get it kicked off.

We’re now in our 52nd year, and the Board would like to congratulate all of you as investors and the management team, the employees, the officers on a very successful run. 52 years is a long time, we are the second or first oldest depending on how you count, I guess, REIT in the country. David, are we the oldest or the second oldest?

David Osnos

One or the other.

John P. McDaniel

You’re the – directly from a guy that’s been with us almost all that period of time. So never argue with Counsels. David Osnos, CEO, Counsel to the Board, you can see why he is.

Well, I would like to take just a few minutes speaking of the Board and introduce you to the Board members to our trustees; and some of our distinguished guests that are here today, and later in the meeting, Skip; I think you’re going to be introducing the Company’s officers and some of your key people.

Turning alphabetically, and I will go alphabetically. It’s Bill Burns, who is currently, Bill stand up please, currently Managing Member of the Wolverine Partners. I don’t think that had much to do with you going to Michigan, but his colors are nascent blue if you look at [his letter yet]. And he operates mutual fund research business bills and 17 years with Alex Brown & Sons and most recently as the Managing Director and Head of the Financial Institutions Investment Banking Group.

Ed Civera. Ed is a resident CPA and financial person, as I think most, if not all, our Directors are. Ed is retired Chairman of the Board of Catalyst Health Solutions, a publicly traded pharmacy benefits management, PBM company. It’s just gone through a merger acquisition that you have certainly read about. And he is also Chairman or just retired Chairman of MedStar Health, which is the region’s largest multi-institutional healthcare system in the Baltimore, Washington area. And he was Chairman there, I think from '97 through this year. So we welcome Ed. He is by the way the Chairman of our Compensation Committee. So if you have any issues or questions related to that, Ed is glad to see after the meeting. And he brings perhaps experience not only as a CEO, but as I said, as a Certified Public Accountant with PricewaterhouseCoopers for a number of years and has a lot of business experience in the Baltimore, Washington area.

The next member alphabetically is Terry Golden. Terry, please stand. Terry is Chairman of Bailey Capital Corporation, a private investment, private equity group in Washington since about 2000, I think Terry [has been in that flow]. And he is former President and CEO of Host Marriot Corporation and it’s now known as Host Hotels and Resorts. Terry is the Chairman of our Finance Committee, a new committee that we established at the Board about a year ago to do deeper dives into financial activities and help us create a long-term financial plan for the company. And so, Terry, we welcome you here this morning.

I will jump to Skip at the end, our CEO. Tuck Nason. Tuck is a retired Chairman and Chief Executive Officer of Acacia Group. That includes Acacia Life Insurance, Acacia Federal Savings Bank and the Calvert Group. And Tuck is past Chairman of the Greater Washington Board of Trade. So he brings a lot of experience and knowledge in the area and he is Chairman of our Audit Committee and it’s important to note that Tuck is up for reelection. I don’t know what to vote [is] Tuck, but it maybe a close one. So we’ll wait and see what the results are, but Tuck is up for reelection as completing his three-year term.

Edgie Russell. Edgie is past President and Chief Executive Officer of Partners Realty Trust from 1990 until 2005 or '06. Partners was and is a real estate company that’s focused on shopping centers and apartment offices and various investments in primarily the Maryland marketplace. And Edgie currently serves on our Audit Committee, our Compensation Committee and our Corporate Governance Committee. So Edgie welcome to our meeting today.

Wendy White. Wendy is a partner at Pillsbury Winthrop Shaw Pittman. She’s practiced law since 1981. Former member of the Pillsbury Managing Group and Board, I should say, and is currently the Head of the firm’s D.C. real estate group and Wendy is also the Chairperson of our Corporate Governance and Nominating Committee. Wendy, welcome.

And then, finally going to back to Skip McKenzie who is a member of our Board is the President and Chief Executive Officer since 2007. He joined WRIT in September 1996 and has served innumerous executive roles including the Executive Vice President, Chief Operating Officer, Real Estate Division from ‘85 until he became President. And of course, I didn’t want to oversight the Admiral, who has recently joined our staff, Andy Winns, Admiral is the Vice President for International Programs, Corporate International Business Development at Lockheed Martin Corporation where he has worked since October 2011.

And Andy is retired just recently from the United States Navy after 32 years, and as I said at the rank of Admiral. He offers an awful lot of support to us as we’re located here in the nation’s capital. The Pentagon is right up the street and so we’re delighted to have him on our Board. And so, and to that extent there is our Board, I’d give a round of applause. And also mention, Andy is also on the Audit Committee, the Finance Committee and the Corporate Governance Committee, those three committees. So with that I think we have a very successful group of Directors to lead the organization and with that we will move forward.

Until the picture out, I’m the Independent Chairman of the Board, prior to my coming to this position I was the Chief Executive Officer for 26 years at MedStar Health, since it’s formation and I’m currently the Chairman of the Hickory Ridge Group, which is a financial advisory and consulting group primarily in the healthcare field. And we are forming up a private equity fund to deal with emerging healthcare companies and investments in that regard.

So that’s our Board. The Board would now like to turn the program over, there is a couple of guests here that I think we had also I mentioned earlier, Dave Osnos, who is Counsel to the Board. David, thank you for coming. Derek, Kline, Heather Rosenberger and (inaudible) from our Ernst & Young auditor firm, would you all stand they serve as the company’s independent auditors, a public accounting firm and they are appointed by the audit committee.

So, with that I will now turn the program over to Laura Franklin who is our Executive Vice President, Corporate Secretary and will act as Secretary for this meeting. And we have a number of initial matters that we need to attend to, thank you very much.

Laura M. Franklin

Thank you, John, good morning everyone. Before we commence the presentation portion of our meeting, I’d like to read our standard non-GAAP financial measure disclosure and forward-looking statement language that we’ve read before all investor presentations.

Our presentation today will contain financial measures such as core FFO and NOI that are non-GAAP measures and in accordance with Regulation G under the Securities Exchange Act, we have provided annual and quarterly reconciliations to those measures in our quarterly supplemental materials on our website at www.writ.com

The per share information being discussed is reported on a fully diluted basis. Please bear in mind that certain statements during today’s presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such risks, uncertainties and other factors include but are not limited to the potential for federal government budget reductions, changes in general and local economic and real estate market conditions, the timing of pricing of leasing transactions, the effect of the current credit and financial market conditions, the availability and cost of capital, fluctuations in interest rates, tenant financial conditions, levels of competitions, the effect of government regulation, the impact of newly adopted accounting principles and other risks and uncertainties detailed from time-to-time in our filings with the SEC, including our 2011 Form 10-K. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

John, shall I commence the voting procedures?

John P. McDaniel

Yes, please do.

Laura M. Franklin

Okay, thank you. On or about April 3, 2012, a notice of the Annual Meeting of Shareholders was sent and made available to shareholders as of the close of business on March 15, 2012. The notice call this meeting for 11 a.m. here at this location. A proxy statement was also made available to shareholders under the notice and access procedure by which interested shareholders have the ability to request a proxy statement by e-mail, phone or Internet request. Please note that rules of conduct for the meeting are available at the voting table in the lobby.

After the close of business on March 15, 2012, the record date for this meeting, there were 66,274,838 common shares outstanding and entitled to vote at this meeting. The presence in person or by proxy of holders of a majority of all the votes entitled to be cast on any matter constitutes a quorum.

The Inspector of Election has informed me that at least 89% of the outstanding shares are presented at this meeting; either in person or by proxy and therefore a quorum is present. Proposal 1, proposal 1 is the elections of three Class I Trustees to the company’s Board of Trustees, each defer until the 2015 Annual Meeting of our Shareholders, and so his or her successor is duly elected and qualified. The three individuals nominated by the Board of Trustees for election as Class I Trustees are Charles T. or Chuck Nason; Thomas Edgie Russell; and Anthony L. or Andy Winns.

Proposal 2, calls for the ratification of the appointment of Ernst & Young LLP, as the company’s independent registered public accounting firm for the fiscal year 2012. And proposal 3 is to approve by advisory and non-binding vote, the company’s executive compensation.

I now call to the vote on proposals 1, 2 and 3 each as described in the proxy statement. All persons acting as proxies or shareholders who have not already voted should deliver their written proxies or ballots to the voting table in the lobby. And each shareholder whose proxy has been previously submitted to the Corporate Secretary, and he wishes to revote such proxy may do so by voting in person during this meeting.

Shareholders who have voted by proxy need not have ballots 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’ll be given a ballot. Please indicate the number of shares that you own, and whether you’ve previously submitted a proxy to the company.

The polls are now open. We will hold the polls from the next 15 minutes, while we conduct other business. Thank you.

John P. McDaniel

Thank you, Laura. I’ll now ask Skip McKenzie to come forth and give us the CEO’s report. Skip?

George F. McKenzie

Thanks, John. Good morning, everyone.

John P. McDaniel

Good morning.

George F. McKenzie

Real estate operating fundamentals were challenging in 2011 as the U.S. and local economies continue to be negatively impacted by a number of adverse macro conditions. The combination of the stress overseas, particularly Europe, state and local budgeting constrains, and tense political rhetoric and legislative gridlock at the national level, all compounded by the threat of government cutbacks has created an ore of uncertainty in our region. This uncertainty has adversely impacted decision-making by business managers region wide. Real estate fundamentals in all our sectors have been impacted to some level, but none more so than the office market, which continues to be slow even as we progress through 2012.

So how did our company perform in this environment in 2011, and what do we see for the months and years ahead. Well, in many ways, 2011 was a transformational year for WRIT, and a busy one at that as we performed $793 million of transactions over the course of the year, $383 million of acquisitions, and $410 million of dispositions.

The most noteworthy transaction was the sale of our industrial portfolio for $350 million, which achieved the capital gain of $97 million. As we noticed you at last year of this meeting, it was our intend to exit this sector in 2011 and this sale accomplished that goal.

I must say, I am pleased with the results and the efforts of so many individuals at WRIT and who work tirelessly getting this over the goal line. It was the right time to sell these industrial assets. In our view, they provided minimal diversification benefits and ultimately we are not a strong stable from a cash flow perspective. As the assets we purchased with the proceeds from the sale. And it demonstrates to the highest level, the aggressive repositioning that we seek to do at WRIT. Also in 2011, we sold a stabilized suburban office development, Dulles Station West for $58.8 million, until the total of our sales was approximately $410 million.

On the investment front, we applied those sales proceeds to the acquisition of four infill office buildings. The 185,000 square foot 1140 Connecticut Avenue in Washington, DC almost at Maine in the district directly across the Mayflower steps away from the Farragut North Metro Station.

Second building was the 130,000 square foot 1227, 25th street in the west end of the district, which is an exceptional building immediately adjacent to one of our largest properties 2445 M Street. The 345,000 square foot Braddock Metro Center in Old Town Alexandria, a four building office campus literally right across the street from the Braddock Metro Station.

And the last of those office buildings of the 225,000 square foot John Marshall II building, we had another acquisition right on top of one of the new Tysons Metro Stations with a strong lease for Booz Allen Hamilton corporate headquarters and the potential over the long-term to add additional density.

In addition, we purchased one 200,000 square foot grocery anchored shopping center Olney, Maryland in a community with very strong demographics and significant barriers to additional development. We were exceptionally pleased with this acquisition since high quality grocery-anchored shopping centers in Montgomery County is hard to come by.

And lastly we purchased two outstanding land parcels in joint ventures to develop an aggregate of 422 multifamily units in Arlington in Alexandria, Virginia. One of these properties is a short walk from the Ballston Metro Station and the other is the Braddock Road Metro Station across from Braddock Place Metro office acquisition.

So in the next few years, we will be adding a couple of very strong Class A property to the multifamily portfolio. All of these transactions represented a total investment of $383 million. Each acquisition advance our strategy of a more urban, transportation centric investment portfolio at metros or other demand drivers. They are all located exceptional infill locations and for the shopping center multifamily developments in neighborhoods with strong demographics.

The repositioning of the portfolio, which we achieved in 2011 will position us for better downside protection and leasing markets such as we are experiencing today, as well as position WRIT for better revenue growth when our economy returns back to the more robust levels, we have grown the accustomed to in years ahead. Because we actually sold the more in asset value than we acquired in 2011, it was a quiet year in the capital markets front as all of the capital needed for acquisitions was funded from disposition proceeds.

As a result, WRIT actually started as a smaller company in 2012. We expect this smaller version of WRIT to be short lived as we plan to be a net acquirer in 2012 and years ahead. Operationally in 2011, our overall portfolio was 90% occupied. We executed 307 leases in our commercial portfolio for 1 million square feet with an average rental rate increase of 9% on the GAAP basis.

Our multifamily portfolio had a very strong year with average occupancy of 95% and overall rental rate growth of 4%, with 5% rental rate growth in the apartment communities that are encumbered by rent control. I believe these metrics demonstrate once again the resiliency and stability of our portfolio even in these uncertain times.

So where do we see in the months and years ahead? Well, we believe 2012 will continue to be year of uncertainty and somewhat slow growth for our region as the country wrestles politically and practically with budgeting issues and national, regional election campaign issues. But we believe growth should pick up in 2013 and beyond.

The current uncertainty will mostly affect the office market, which we expect to be relatively flat, but trending up slowly as the year progresses. For the other sectors we operate in, we expect better conditions as well as improved performance for all properties. the best performer should continue to be multifamily, where we expect to continue to enjoy high occupancies and rental rate growth throughout the year.

The retail sector is improving and we expect a very good year with increasing occupancies and positive rental rate growth upon lease renewals. The bad debt expense levels in retail, which elevated so high during the financial crisis is mostly behind us at this point in the cycle. The medical office sector will be steady with relatively flat rental rate growth and stable occupancies.

one negative that affect this sector is the continued uncertainty around healthcare reform, and as a result, the doctors in hospital systems will be reluctant to expand significantly, and hope they know the rules of the game.

Overall our diversified approach to real estate ownership will surface well in the year ahead as the better performing sectors, multifamily and retail will help offset the flat conditions in office, in medical office.

Over the long-term, we are confident and optimistic about that vibrancy and stability of our region. The undeniable facts are that we will only see the capital the free world, one of the great (inaudible) to the world, home for the most powerful person, the most powerful legislative body, headquarters of the strongest military intelligent services, and home to countless embassies and councils of every country of the world.

And over the past decade, this region had added approximately $10 billion to major transportation initiatives, including but not limited to a new Wilson Bridge across to the [Potomac], a massive highway interchange at the beltway in I-95/395 effectually known as the Mixing Bowl, a new metro line Tysons Corner, hot lanes in the beltway in Virginia and the inter-county connector in Maryland, in addition to significant improvements at our three major airports.

Beyond that, in the last several years we’ve had a corporate headquarters for Hilton, Volkswagen, Northrop Grumman, Computer Science Corporation, and SAIC, to name a few. And underpinning it all is the most affluent and most intelligent resident’s base and workforce in the United States.

For these reasons, we believe the best days are ahead for our region and we are excited to face the future with our three plus billion investment portfolio of 71 real estate assets, all within one hour drive of this very spot from which I am standing.

Before I close, I’d like to recognize the contributions of long-term Board member, John M. Derrick who retired in 2011 after 14 years of service to the WRIT’s shareholders. John’s good counsel and wisdom will be greatly missed by the Board and me personally. On behalf of managements of the Board, I’d like to publicly thank him for his service and wish John the best of luck that he enjoys well deserved time with his family and friends.

In addition, we welcome as John mentioned, John’s ample replacement vice Admiral retired, andy Winns to our Board. we know John leads big to Bill, but I know that Andy is up to the task and will bring his wealth of leadership, military, and defense industry experience to our Board.

and lastly, I’d like to thank all of our trustees, employees, and shareholders for your continued trust and support.

so now it’s fun part, I’d like to open up the meeting to your questions, before we proceed on with the other administrative matters of the meeting. So if you have question you could raise your hand, the gentlemen in the back row, and someone will bring you a microphone, could someone bring, right hand corner?

Question-and-Answer Session

Unidentified Analyst

You mentioned that the current year, our last year were challenging. am I right?

George F. McKenzie

The current year and the last year, yes sir.

Unidentified Analyst

All right.

George F. McKenzie

But in that period of time, you raised the compensation of the top officers double in two years, three years why? Dividends that now go out, I don’t expect them to, but it is certainly a good idea, they have a good image.

Unidentified Analyst

Okay, for the answer. I don’t think that compensation doubled, but let me just, let me talk about the overall compensation.

Unidentified Analyst

Again, it did double.

Unidentified Analyst

Pardon me, in terms of proxies.

George F. McKenzie

Well, I am not a fan of the way that the proxies tables are formatted, which is required by the SEC. But if you look in our proxy, there are actually two tables for executive compensation. One of which incorporates the SEC requirements for how a new three-year plan has to be incorporated, which appears to be a fairly significant bump in the executive compensation. And that includes a very substantial portion with our new long-term incentive compensation plan, which may in fact be zero at the end of the three-year plan. The SEC requires us to make estimates of how that’s performed, but not withstanding that that the specifics of that long-term plan, let me just address briefly, executive compensation and how that the company goes about that.

Our executive compensation plan is overseen by an independent compensation committee, as John mentioned, it’s there, as him if you want to add anything to my words at the end of this. And Ed, he just doesn’t go about this by himself, he retains at the compensation committees disposal, what I would call the preeminent compensation consultants in the REIT industry, which is FPL Associates, they cover more than – I can’t say how many REITs they cover, but certainly more than anybody else.

And what they do is they provide the compensation committee with background information on what market conditions are for the REIT industry and comparable salary levels for competitive companies. And through this process the company has a goal of paying management, the goal is to paying at 50th percentile or pay at the median with the ability to go to the 75th percentile for extraordinary performance and we have not paid at the 75th percentile, just to clarify that. But anyway that’s the overall guiding principles of the plan. And the result in compensation that you see is a result of that process.

Unidentified Analyst

I would ask Dennis, Chair of Committee to stand and just make a few comments if you’d like.

George F. McKenzie

First of all, it’s a good question and a hot topic. As Skip mentioned, the executive based on our benchmarking study are paid at 50th percentile, which is better. Okay, so good question, hot topic you read about it in the Wall Street Journal. We do an independent study, the executives are paid at the median which is their base salary and they only earn bonuses above that based on superior performance and the awards are given very heavily weighted in stock, and the theory there is, when the executive management gets stock their interests are aligned with the shareholders’ interest. So…

Unidentified Analyst

They have that interest anyway?

George F. McKenzie

Yes, and we have ownership stock.

Unidentified Analyst

(Inaudible)

George F. McKenzie

Yes, and we have ownership guidelines that you read about in this proxy that require members and management and all the board members to own a certain percentage of WRIT’s stock which is a best practice. But I would tell you that, what was disclosed in the proxy this year which is basically the long-term incentive plan, which is a plan that runs from 2011 to 2013. The amount given to management under that plan in cash or stock was zero.

That was a hypothetical calculation that the SEC requires but management team didn’t get anything. And on the short-term bonuses, as I’ll relate back to the extraordinary year of repositioning the portfolio, very rarely does a company dispose off a line of business that was probably 12% or 14% of our net operating income at a profit, $350 million in proceeds or effectively reinvested in the same year, created a $90 million tax deferral which benefits the shareholders. So that was the main strategic thing that supported, I would say that overall comp plan for last year. But if I could ask anything else?

Unidentified Analyst

I do.

George F. McKenzie

Sure.

Unidentified Analyst

What does incentives means for the company?

George F. McKenzie

Generally speaking, if you go through the proxy there are a combination of qualitative measurements, which are strategic redistribution of the portfolio, and quantitative measurements to grow FFO and FAD. And over a three-year period there are specific targets to change the portfolio compositions and to grow both funds from operations and funds available for distribution, the FAD which is basically the net cash flow of the business.

Unidentified Analyst

Understand. How does it do in the compensation?

John P. McDaniel

Well, if those have to increase above a base level for management to get paid anything. So just your question was on the long-term incentive, management was paid zero under the long-term incentive plan, because it doesn’t conclude until 2013; and all those measurements that I just referenced, all have to grow. So the shareholders’ returns have to grow first before the management gets paid.

But let’s move on to some other questions. We have a question over on the right side. And thank you for that question on interest of time, please.

Unidentified Analyst

I’m Victoria Lenard with the Laborers’ Union. And I was wondering if you could share little more detail about the two JV projects, the two multifamily projects that you are working on in Northern Virginia, where they are in the pipeline, when you expect to break ground. And also if you expect to do some JV projects in the future, and if so, are those could be multifamily as well, or you do think maybe you’ll do some office or mixed use?

John P. McDaniel

Sure. We’ll just cover the two projects that you referenced. So we have two projects that were – I’d say in the planning stages now. So one of them is approximately 163 units in Arlington, Virginia; in Boston, it’s right across in the Boston mall, and it’s a – I would call it a mid-rise building, I think it five stories tall, a buffer garage. That building in the planning stages – working with architects that are in the zoning and all those issues, and we expect to break ground in the beginning of next year, probably in the January, February timeframe.

And the second project is, as I mentioned across from the Braddock Road Metro, it’s on First Street in Alexandria, and that should be approximately 270 units, would be more of the high-rise, typical of Alexandria brick building, and that actually is on a very similar building schedule, we’re also going through the planning, zoning, and architecture and all of those things, and that should also break ground early next year as well.

In terms of the question as to whether we would entertain other joint-venture, new ventures going forward, and the answer is, we continue to look at those things, we may or may not do more, but the answer to your question, what type of property type, more likely would be a multifamily, but we look at all good investments with our strategic plan, which would probably be in an urban area if it was to be an office building for example. Next question?

Unidentified Analyst

My question concerns why we have great positive growth? Thank you. The trustees when – has any consideration been given to changing it all to one class, and if not, why not?

John P. McDaniel

The company obviously has a charter that was formed in 1960, and it was called for certainly in the original charter of the company, I think certainly that’s a major issue that people discussed from a corporate governance standpoint in the world today. We have a long-term vision for this company, a long-term plan. And it’s something the Board discusses at this time, obviously Board decision require a charter change, both by shareholders, am I correct on that, Tom Morey?

Thomas C. Morey

Yes. That would require both by the shareholders to change it. It hasn't been proposed yet at this point, because as part of the way the company was set up, and we think it’s in the best long-term interest of the company to have across by Board.

George F. McKenzie

I would you just comment that our Corporate Governance Committee, chaired by Wendy White is really into best practices, policies, procedures we pay very close attention, and up to The National Association of Corporate Directors standards, and monthly meetings to make sure that we are on the cutting edge in our governance practices. And I recommend Wendy in the committee to take a look at this. It’s a good question.

John P. McDaniel

I think the larger corporations in this would change their corporate reasoning for having just single year [classics].

George F. McKenzie

Sure I mean, you have a million examples of different corporate formats or people who have classified boards, people who don’t have classified boards. I would also want to point, I mean we take corporate governance initiative seriously and as all of you have been here last year, if you remember we made a number of very shareholder friendly changes to our charter last year. You remember how long that meeting was where we initiated, majority I mean the number of initiatives come, what were the five things. Stand up.

Unidentified Analyst

(Inaudible)

George F. McKenzie

So I think that the major point there is I mean no one is ever going to be happy that you do 100% of what everybody wants but it is something that we look at every year when the committee evaluates with the best practices from corporate governments perspective and some of them we adopt we think it’s the best, it’s always what we believe to be in the best long-term interest of the shareholder. Next question?

John P. McDaniel

Yes sir.

George F. McKenzie

Can you wait till you get the microphone please?

Unidentified Analyst

It looks like BlackRock has then got large position in the stock today will tend to influence decision-making of the company or their just have some investors?

George F. McKenzie

Those two in particular you probably see them as the largest shareholders, many companies get their index funds primarily and I think BlackRock has to manage money, but the Vanguard is primarily all index money and I believe BlackRock is mostly index money. So they tend to be less active in meeting with us and others. In fact we met with BlackRock recently but as a general rule, they’re fairly faster than the world of institutional investors owned by the very nature of the money comes from.

John P. McDaniel

The gentleman in the back row, please.

Unidentified Analyst

Hi, on the dividend, the safety of the dividend, funds from the operation and the dividend are getting closed. Do you think there is a greater chance that the dividends will stay at the same rate of increase? And all these buildings you’re buying, the government I know is interested in these gold standards for green buildings meet gold standards, are you making any effort to get these buildings in compliance with that and when insurance in catastrophic and earthquake and all, do we have coverage, it all says that we get revenue or profits while these buildings are at operation and then finally, but –

George F. McKenzie

Is this going to be a test?

John P. McDaniel

Go on.

Unidentified Analyst

Finally a question for the Board, when Mr. Kyle, and now (inaudible) like we’re seeing the sell off properties try to re-invent our self somewhat, does this indicate the Board is let them place or I guess, let these properties be rather sold off.

George F. McKenzie

Let’s start at the top, the first one was, yeah, first question I believe was the dividend question and yes, usually the metric certainly the most institutional shareholders, borrowers called FAD or Funds Available for Distribution which is from our numbers FFO subtracting out, tenant improvements and sort of ongoing CapEx. And we’ve been running over the last year or so relatively close and maybe even a little bit below FAD now. I believe that most analysts have this in the slightly over FAD, maybe 110% of FAD is our dividend. So that’s an issue something that we look at and discuss at the corporate at the Board level, I don’t want to say every meeting or probably every meeting certainly discuss when dividend policy is set for that quarter.

It’s something that we would like better coverage on, we would love better FAD coverage on that and it’s something that over the long run we need to have better coverage of our dividend. So what we need essentially is we need to leave vacancy. As you know, as I stated in my comments, overall we’re somewhere around 90% occupied and well historically we should be 93%, 94% something like that. If we can get back to historical levels, we will cover the dividend, in our opinion very closely.

So the question is, will be able to lease up these properties at a reasonable amount of time to get out of the dividend coverage, and that’s something we discuss with the board. And I can’t say what’s going to happen next quarter or the quarter after that depending on what’s going to happen in the economy in a number of variables. But it’s something very keen on the board’s radar discussed quarterly. And as of this point, we’ve decided to maintain the dividend.

Okay, so the second question was green, right? Okay, the second question is what green/sustainability initiatives have we achieved? We have, I believe its five buildings that we have undergoing a lead certification process, lead existing building certification. And we have, I think a 17 buildings that are Energy Star rated. And we also have, we have all of our buildings, we’re the number real estate company in the country using wind power. So we have all of our buildings that are powered by wind power. So we have a number of sustainability issues, of course it’s huge issue with government lessees, but a number of corporate lessee also are interested in green initiatives.

I would say though, I’d give you my own personal opinion is that, lot of people talk about being really interested, but when the rubber meets the road with the tenant, they generally want the lowest rent as opposed, they’re not really willing to pay up for these things. So they want to know that your building is lead certified, but they’re not really willing to pay another $0.25 in rent fixed to be in a lead’s building as a general rule.

So we’re working on it, it’s something on our radar. But I think we’re managing in a way that is thoughtful regarding the cost et cetera. What was the third one? Insurance, moves the question on.

Unidentified Analyst

If we have a – now we have earthquake…

George F. McKenzie

Look, we have lost of rent control, the lost of rent coverage, that was your. We have what’s called the lost of rent/continuing operations coverage. So if there is a catastrophe or whatever, we have coverage for the loss of rent, as well as of course to remediate whatever catastrophe was. Does that answer your question?

John P. McDaniel

And on number four, the board is – since I’ve been on the board over 10 years, it’s as active as it’s ever been with an additional committee as I mentioned before; the Finance Committee doing deep dives into the financial comparison analysis of performance, and on the development of a long-term strategic financial plan. Very active board, I would put it up against almost any board that I think you would see in the real estate world. So thank you for those four questions. We have a few minutes more.

George F. McKenzie

The gentleman in the second last row.

Unidentified Analyst

(Inaudible)

John P. McDaniel

Well, could you hold it sir, until you get the microphone?

Unidentified Analyst

Has any thought been given to increasing our buildings along the pike?

John P. McDaniel

Let me just make a couple personal comments about the Maryland market. If you’d probably watched our portfolio, you’ve probably seen our exposure, Maryland actually decreased as opposed to increase. The performance of properties in Maryland has significantly lagged the other areas to be quite honest with you.

Virginia, once I just had a conversation out in the hall, not that one, this morning. I bet it was not more than 20 years ago, I met you off a little bit, that Maryland was actually bigger market than Virginia. And now Virginia in the office market is probably 170 million square feet, Maryland 80. So Virginia is double the size of Maryland now. And it really taken the initiative in terms of supporting business growth, and Maryland has not. And if you look at all the real estate statistics, our performance in Maryland has lagged particularly in the office sector.

So while we continue to look at Maryland properties, and we bought the only shopping center this year. So I wouldn’t say that we are not looking in Maryland. But the operating performance in Maryland has not particularly been good, the vacancies have been higher, the rent growth has been lower over probably the last five years. And when we look back in our properties and do a historical analysis, we found that our Maryland properties has a general rule, have done not as good as buildings in the other jurisdictions. But we continue to look at all of them, and we have buildings on Rockville site 51 Monroe Street has been a long-term performer in our company connected to the Rockville Metro Station, One Central Plaza is on Rockville Pike, which is across from the White Flint Metro Station.

So or – and White Flint Mall, which has been a good asset for us because the apartments are by half of the Pike inside the bell. So it’s not that we aren’t investing there it’s just that we haven’t probably been as aggressive there as we have in other areas.

Unidentified Analyst

Take one more questions here.

George F. McKenzie

Okay.

Unidentified Analyst

(Inaudible)

John P. McDaniel

Yes, so your question about that yeah, there is a lot of activity going on. We have a shopping center right behind the Pike called our Randolph Montrose Center, which is in fact part of the White Flint Master Plan and we have that property, right now if you went there, we just put a Mom super market, organic super market in there. But we had that – we were part of the rezoning and at some point Mike, do you remember what the density is there.

Michael S. Paukstitus

(Inaudible)

John P. McDaniel

We could build that four times the existing density with multifamily, which some days we will, I don’t think it’s going to be in the next five it may probably more than 10 years from now, but we have been active in that process, we have a property in the zone. We have been active in the planning process. We’ve had a representative at the meetings, and we have a property there. So and I do think that the White Flint area will be a good area over the long-term.

Unidentified Analyst

We’ll take one more question.

John P. McDaniel

The gentlemen right in front of the projector room.

Unidentified Analyst

Following up on the last question, there have been some charges and there has been things in the news in regard to Montgomery County, actually being negative or anti-business and unfavorably compared with Fairfax County. Do you go along with that comparison and if so what suggestions would you have for Montgomery County to be more highly considered in that area in the future.

George F. McKenzie

We’re now running for office now.

Thomas C. Morey

Yeah, I think you better take the [fifth amendment] on Alan. No, I will just mention again I’ll reiterate, I don’t want to start to sort of mention politically what I think about what the general landscape, but I would – I just my observation are just based on facts, and the facts are that the growth has been in Virginia not Maryland. And no I can’t say, I know all the reasons or there are a number of reasons, whether it’s taxes and there is significant advantage on state income tax, it could be in Virginia. And we have number of employees who no longer live at Maryland, they live in Virginia. The people start living in Virginia, you start building businesses over there. There is a huge fact of is now, the top factory Maryland got 9% now and 5.75% in Virginia. So it’s a big – it’s gotten to be a very big difference in that, river is not all that big. So especially if you’re in Montgomery County. So I can’t say I know all the reasons, but that would be [powerful reminder].

Unidentified Analyst

Thank you.

Unidentified Analyst

Thank you.

John P. McDaniel

Okay. So it’s actually Tim, but who is counting right. Well, now the suspense, to (inaudible) Laura will you please give us the results of the voting.

Laura M. Franklin

All right, the polls have officially concluded and I’ve been informed by the Inspector of Elections as follows. As to proposal one, each of the nominees for election as a Class I Trustee has received the affirmative vote of the holders of more than 63% of the outstanding common shares, and more than 97% of the votes actually cast by shareholders on the matter. As the Class I Trustee they’ve been nominated through and elected to serve as the Class I Trustee until the 2015 Annual Meeting of Shareholders and until his or her successor has been elected and qualified.

Proposal 2 ratification of the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for the fiscal year ending December 31, 2012. They has that proposal has received the favorable vote of the holders of more than 88% of the outstanding common shares and more than 99% of the votes actually cast by shareholders on the matter. This proposal has therefore been approved.

Proposal 3, the advisory and non-binding vote on the company’s executive compensation has received the favorable vote of the holders on more than 62% of the outstanding common shares and more than 95% of the votes actually cast by shareholders on the matter have been therefore this proposal has been approved. Tom?

Thomas C. Morey

Thank you. That concludes our business for the Annual Shareholders Meeting we want to thank you all again for coming and sharing with us your views and thoughts, and we will take it all of that under advising. Meeting is now adjourned.

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